A STUDY ON RATIO ANALYSIS

OF

INDEX
CHAPTER
CHAPTER-1

CHAPTER-2
CHAPTER-3
CHAPTER-4

CONTENTS
Introduction
Objectives of the study
Need of the study
Scope of the study
methodology of the study
Limitations of the study
Industry profile
Company profile
Theoretical aspects of ratio

CHAPTER-5

analysis
Data analysis and interpretation

CHAPTER-6

Finding and suggestions

Conclusion
bibliography

CHAPTER I
INTRODUCTION
1

RATIO ANALYSIS
INTRODUCTION:
Financial statements are prepared primarily for decision making. They play a dominant role in
setting the frame work of managerial decisions. Financial analysis the process of identifying
the financial strengths and weakness of the firm by properly establishing relationship between
the items of the balance sheet and the profit and loss account there are various techniques or
methods used in analyzing financial statements, such as comparative statement, schedule of
changes in working capital, trend analysis, common size statement, funds flow and cash flow
analysis, cost volume profit and ratio analysis, the ratio analysis is the most powerful tool of
financial analysis.
Meaning;
Since we are using the term ratio relation to financial statement analysis it may properly
mean an accounting ratio or financial ratio
Definition;
According to Myers ratio analysis is a study of relationship among the various financial
factors in a business
Importance;
The ratio analysis is the most important tool of the finance analysis the various groups of
people having a different are interested in analysis

NEED FOR THE STUDY:

Financial analysis must require for a company in this cut through competition. Because of that
reason ratio analysis is used in analyzing the companys position. Known that fact the success
2

of an organization depends upon the financial management. This situation has created an
interest to study and analysis some of the financial aspects of this organization. Hence a study
may be undertaken of financial analysis through ratio in PRAKASA SPECTRO CAST Ltd

OBJECTIVE OF THE STUDY:

The ratio analysis is one of the most power full tools of financial analysis. It is the process of
establishing and interpreting various ratios (qualitative relationship between figures and group
3

of figures). The purpose of preparation of ratio analysis is to optimize and facilitate

comparison with reference to periods, another organization or and industry organization.
PRIMARY OBJECTIVE:
To analysis the financial performance of the firm through calculation of various ratios.
SECONDARY OBJECTIVE:

To study the financial strengths and weaknesses of the firm.

To examine the short term solvency of the firm.
To study the techniques of ratio analysis for decision-making.
To understand an item wise study of the company of financial performance of the

company.
To make suggestions if any for improving the financial position of the company.
To find out the reason of the problem and to evaluation possible way of the resolving
the problems.

SCOPE OF THE STUDY:

The scope of the study is limited to collect in the financial data published in the annual report
of the company with reference of the objectives stated above and any analysis of the data with
a view to suggest favorable solution to the various problems related to financial performance.
4

The project ratio analysis of PRAKASA SPECTRO CAST Ltd provides information with
regard to the comparatives common size recent trends and development and comprehensive
review of the financial performance of the bank. The project gives an insight of the various
tools to ascertain and evaluated

the financial performance of the PRAKASA SPECTRO

CAST Ltd
The magnitude and scope of a project is generally defined by its objectives. Constraints and
methodology that has adopted to analysis the information however the scope of the percentage
at macro level i.e., the overall performance of the PRAKASA SPECTRO CAST Ltd.

RESEARCH METHODOLOGY:
To achieve a fore said objective the following methodology has been adopted. The
information for this report has been collected through the primary and secondary sources.
5

1. PRIMARY SOURCES:
It is also called as first handed information the data is collected through the
observation in the organization and interviews with officials. By asking questions with the
accountants and other persons in the financial department. As part from these some
information is collected through the seminars, which are held by PRAKASA SPECTRO
CAST Ltd
2.SECONDARY SOURCES:
These secondary data is existing data which is collected data by others that is sources
are financial journals, annual reports of the PRAKASA SPECTRO CAST Ltd, website and
other publications of PRAKASA SPECTRO CAST Ltd

LIMITATIONS OF THE STUDY:

Lack of awareness of power generating sets of PRAKASA SPECTRO CAST Ltd

Lack of time is another limitation factors the schedule period of a weeks are not

sufficient to make the study independently regarding ratio analysis

in PRAKASA

SPECTRO CAST Ltd

The busy schedule of the officials in the PRAKASA SPECTRO CAST Ltd is another
limiting factor. Due to the busy schedule of officials restricted me to collect the

complete information about organization.

The study is conducted in a short period, which was not detailed in all aspects.

CHAPTER II
INDUSTRY &COMPANY PROFILE

The Steel Industry dates back to the ancient times in Armenia which is approximately around
three thousand and five hundred Before Christ. The Steel Industry in the modern times was
initiated during the medium half of nineteenth century (during 1850s to be precise). The
initiator of it was a person named Mr. Henry Bessemer of England.
At the same time, another person named Mr. William Kelly, a resident
of United States, has also started the production of steel and was completely an independent
approach from Mr. Bessemer. The process in which the first ever production of steel was
carried out came to be known as Bessemer process. This helped the steel industries to produce
steel in large quantities and also at comparatively low costs.

The Steel Industry was enriched and modernized through the introduction saw
rapid innovations in the processes of steel production which got its impetus from the increased
want for steel from various industries namely, railway industry, automobile industry, industry
involved in construction of bridges, etc. During this time period, the enhanced demand as well
as supply of steel pushed the ranking of USA to the first position, in terms of the steel
production.

INDUSTRY PROFILE
INDIAN STEEL INDUSTRY PROFILE
The utilization of the Open-Hearth system of steel production continued
approximately from the year 1910 to the year 1960. After this, a new process called Basic
8

Oxygen Process came into existence which produces steel in a more quick and efficient
manner.The early 1960s a new process was incepted by the steel industry for the production of
steel known as the Process of Electric Arc Furnace. This process helps these industries in
production of stainless steels and also in recycling of scrap steel items.

The Steel Industry was enriched and modernized through the introduction of OpenHearth process of steel production which made the industries to produce steel out of domestic
iron ores. This process was first adopted by the steel industries situated in United States Of
America in the year 1888. This timesaw rapid innovations in the processes of steel production
which got its impetus from the increased want for steel from various industries namely,
railway industry, automobile industry, industry involved in construction of bridges, etc.During
this time period, the enhanced demand as well as supply of steel pushedthe ranking of USA to
the first position, in terms of the steel production.

With the passage of time, the quantity of production by USA has

decreased with relation to total world production of steel. After the 1980s, China came
strongly enough and became the largest producer of steel.

The history of the modern steel industry began in the late 1850s,
but since then steel has been basic to the worlds industrial economy. The Indian steel industry
began expanding into Europe in the 21st century. In January 2007 Indias Tata steel made a
successful $11.3 billion offer to buy European steel maker Corus Group PLC. In 2006 Mittal
Steel (based in London but with Indian management) acquired Arcelor for $38.3 billion to
become the worlds biggest steel maker.The current scenario of the Indian steel industry
indicates that there is huge growth potential in this industry. The per capita-consumption of
steel in India, according to latest available estimates, is only 29kg.

STEEL INDUSTRY IN INDIA

India has traditionally been one of the major producers of steel in the world till
the 1990s the steel industry of India was regulated and controlled by government policies.
After the economic reforms of the early 1990s, the Indian steel industry has evolved
9

significantly to conform to global standards.

India has set a vision to be an economically developed nation. The steel industry is
expected to play a major role in Indias economic development in the coming years. The steel
industry of India has a very high growth potential and is expected to register significant
growth in the coming decades. India is expected to emerge as a strong force in the global steel
market in coming years.
The two major aspects that are expected to play a significant role in the growth of
the steel industry in India are
o Abundant availability of iron ore in the country
o The country has well established facilities for steel production. The major sectors
where consumption of steel is expected to grow in the coming years are
o Housing
o Ground transportation
o Hi-tech engineering industries such as power generation, petrochemicals, fertilizers.
This is much less compared to the global average of 140kg. The per
capita consumption level of developed nations like the United States of America is 400kg. In
this respect, one of the major initiatives that need to be taken is to focus on increasing the
consumption of steel in the rural areas of India. The potential for the growth of consumption
of steel in the rural areas of India for purposes like rural housing, rural infrastructure, etc is
high which needs to be tapped efficiently.
.

In order to realize the growth potential in the steel industry of India,

it is aspects in this regard is the availability of inputs. Shortage of inputs like coke has led to
increase in costs earlier. Moreover proper infrastructure facilities like transport infrastructure,
power etc are of prime importance in maintaining the competitiveness of the industry. Most
developed countries have regulations that are aimed to protect the domestic steel industry. The
10

Indian steel industry has comparatively much lesser protection through regulations. Proper
regulatory measures should be adopted by the government to protect the domestic steel
industry.
POSITION OF STEEL INDUSTRY
The steel industry in the world, which was characterized as a sunset
industry two decades ago, is experiencing a vast change in scenario. The fast

developing

Chinese steel industry has far outstripped the world steel giants. United States, Russia and
Japan, which were leading steel producers, are more in a position to claim that position.

China producing less than a million tons of steel prior to revolution in 1949 has
now become the largest steel producer in the world. During 2005 the global steel production
stood at 1132 million tones, showing a rise of 6 percent over the last year. The countries in
South America, CIS (former Soviet Union) Europe and North America have actually shown
negative growth. The Asian continent for the first time produced more crude steel than the rest
of the world combined.

Major shift has taken place because during 2005 with China producing
349 million tons of steel, accounting for 32 percent of the world steel production. During
2005, Chinese steel production increased by 69 million tones i.e. by 25 percent. Chinese steel
output was more than three times that of Japan and four times of USA during 2005. Per capita
consumption of steel in the world was estimated to be 170 kg during the year 2005. However
in India it stood at only 35 kg during the same year. Indian steel production was 38 million
tones, which accounted for only 3.4 percent of the world steel output. In view of the fact that
Indian population is 16percent of the global population, the production of steel is much lower
in India.

Although India is the second largest populated country in the world, it ranks
eighth in steel production. Steel Authority of India Ltd (SAIL) is ranking 17th among the
worlds largest steel producing companies.
.
11

With staff competition in the global market, the formation of giant companies to
reduce cost and add to profitability has become the regular feature in the industry. Merger and
acquisitions have become the order of the day. The recent attempt of the Mittal Steel to
acquire Arcelor, a Luxemburg based European company, if succeeds, will make Mittal Steel
produce over 110 million tons of steel per year, i.e. about 10 percent of the global steel output.

GOVERNMENT POLICY
In the new Industrial policy announced in July, 1991 Iron and Steel industry,
among others, was removed from the list of industries reserved for the public sector and also
exempted from the provisions of compulsory licensing
under the Industries (Development and Regulation ) Act, 1951. With effect from 24.5.92, Iron
and Steel industry has been included in the list of high priority industries for automatic
approval for foreign equity investment up to 51%. This limit has been recently increased to
100%.
Price and distribution of steel were deregulated from January 1992. At the
same time, it was ensured that priority continued to be accorded for meeting the requirements
of small scale industries, exporters of engineering goods and North Eastern Region of the
country, besides strategic sectors such as Defense and Railways.

The trade policy has been liberalized and import and export of iron
and steel is freely allowed. The only mechanism regulating the imports is the tariff
mechanism. Tariffs on various items of iron and steel have drastically come down since 199192 levels and the government is committed to bring them down to the international levels
Iron& Steel are freely importable as per the Extant Policy. Iron and Steel are freely
exportable. Advance Licensing Scheme allows duty free import of raw materials for exports.
12

The floor price for seconds and defective continues till date. Imports of seconds and
defectives of steel are allowed only through three designated ports of Mumbai, Calcutta and
Chennai.
Mandatory pre-inspection certificate by a reputed international agency for
every import consignment of seconds and defectives. In the union Budget 2007-08 the import
duty on seconds and defective has been further reduced from 20% to 10%. India is the fifth
largest producer of steel in the world. India Steel Industry has grown by leaps and bounds,
especially in recent times with Indian firms buying steel companies overseas. with huge
demands for stainless steel in the construction of new airports and metro rail projects.
INDUSTRY STATISTICS
Government targets to increase the production capacity from 56 million tones
annually to 124 MT in the first phase which will come to an end by 2011 - 12. Currently with
a production of 56 million tonnes India accounts for over 7% of the total steel produced
globally, while it accounts to about 5% of global steel consumption. The steel sector in India
grew by 5.3% in May 2009. Globally India is the only country to post a positive overall
growth in the production of crude steel at 1.01% for the period of January - March in 2009.

Export
About 50% of the steel produced in India is exported. India's export of steel during
April - December 2008 was 64.4 MT as against 9.7 MT in December 2007. In February 2009,
steel export increased by 17% to 12.6 MT from 10.8 MT in the same month last year. More
than 50% of steel from India is exported to China.
13

Hurdles

Power shortage hampers the production of steel Use of outdated process for
production Lags behind in the production of stainless steel Deficiency of raw materials
required by the industry Labour productivity is low. It is 144 tons per worker per year against
600 tons in Western Europe as per estimates inadequate shipment capacity and transport
structure.

Strengths
There are many strong points of the industry that makes it one of the leading names
in the global steel industry. The rate of labor wage in India is among one of the lowest in the
world thereby making large scale production feasible.

Investments
Numerous steel companies some major projects in the pipeline to invest in India
Steel industry. Steel companies have earmarked more than 100 million USD for the setting up
of sponge iron units in Koppel and Bellary in Karnataka.

ABOUT
We PRAKASA SPECTRO CAST(P) LTD , an ISO 9001:2008 certified company,
estd in 1996 take the pleasure in introducing ourselves as the manufacturers of various grades
of CAST STEEL, CAST IRON ALLOY STELL, MANGANESE STEEL , S.G. IRON ,
Ni-Hard & High Chrome cast up to 10 MT single piece as per customers requirement .
14

We are located in the most important junction in South India i.e., VIJAYAWADA,
connecting south to the other parts in INDIA. Ours is an Associate concern of M/S KRISTNA
ENGINEERING WORKS one of the leading Manufacturers of the systems and spares for
Sugar Industries, Cement Industries, Thermal Power Plants, Mining plants and other Allied
Industriesformorethan4decades.
We at heart have a strong commitment to quality and progress enabling us
to keep up with Global developments in the field of Castings. In addition to satisfying the
demand for extending the types and dimensions of the castings produced, it does its utmost to
provide the best of the services.
Prakasa Spectro Cast has state-of-the-art manufacturing equipment
and facilities to produce quality steel castings supplying to leading OEMS and pioneers
in Sugar , Cement, Power Generation sectors in India and across the world. We are
backed by our experienced professional work force comprising of highly skilled workmen and
engineers supported by most sophisticated machine tools meeting the customer's requirement
in terms of quality, quantity and delivery.
PSC believes in establishing and maintaining close and long-lasting relationship with its
employees, customers, and the community in which it is located.
Pattern

Shop:

A team of experienced draftsmen and pattern makers work with expertise Methodist on
pattern design and making, seeding the production of sound quality and dimensionally
accurate castings.

15

Bearing Pedastal

GB Carrier

Turbine Outer Casing

Moulding and Melting:

Sl.No Description
Medium Frequency
1

Furnace (With Dual Track Power

Pack of 2250KW)
Medium Frequency

3
4
5

Induction

Induction

Furnace (With Dual Track Power

Pack of 450KW)
Medium Frequency

Make/Model

Size/Capacity Qty

Inductotherm

6 MT

2 Nos

AHMEDABAD
Inductotherm
AHMEDABAD

Induction Inductotherm

2 MT & 1MT

8MT
Furnace (Power Pack of 3000KW) AHMEDABAD
Continuous Sand Mixer
Wesman
13 MT/Hr
VME
Foundry
Sand Muller
2 MT/Hr
Equipment

No

each
2 No
1No
1No

We are equipped fettling tools like Pneumatic chippers, grinders and a shot blasting machine
with chamber size of 4m X 4m

Moulding and Melting

16

HEAT TREATMENT

Sl.No
1

2
3
4

Description

Make/Model

Size/Capacity

Bogie Type Electric Heat Treatment JOMIND FURNACECS

Furnace

Bangalore

Bogie Type Electric Heat Treatment

Furnace

MT

capacity

2.5 X 2 X 1.6 Mts (L 1No

X B X H)
40
MT

Self

Qty

Capacity

4.5 X 6 X 3 Mts
7m x 4m x 5m(depth)

Trench for Water Quenching

Trench for Oil Quenching(With Heat

pit
2m x 3m x 2m(depth)

Exchanger and Cooling Tower)

pit

Heat treatment is carried out as per the documented international Standards or as per
the

client

requirement

and

specification.

heat pi
MACHINE SHOP :

We are very much pleased say that major portion of our production is supplied in either proof
machined or finished machined condition. In house we are equipped with most precesive
machinery

with

DRO(Digital

Read

17

Outs

installed.

1 No

Description

Make/Model

8 Lathe Machine

Kirloskar

12 Lathe (Heavy Duty) Machine

18 Lathe Machine

10 Lathe Machine

8 Planning Machine

24 Shaping Machine
Vertical Turning Lathe (Double

Sl.No

Sigma
Batala
Sigma

Size/Capacity
C.H:215mm

Machine

ABC:1425mm
Tools, C.H:
485mm

Machine

ABC:1650mm
Tools, C.H.435mm,

Batala

Batala
Imported
Imported

2Nos

1No.

ABC:200mm

Kamala Machine Tools,

1No

1No.

ABC:4100mm
C.H:285mm

Mysore Kirloskar

Head)

Qty

2400mm stoke

1No.

600mm stoke

1No.

Maximum Dia 950mm 1No.

Radial Drilling Machine

Pillor Drilling Machine

10

Slotting Machine

20mm Dia In Steel

1No.
BATALA
Klopp , Germany
600mm Stroke
1 No
3AB
(USSR) Max. Length 760mm

11.

Universal Milling Machine

PE3EPHbIX

Max. Width

(TAHKOB)

Max. Height 380mm.

Max. Length 1200mm

12.

13.

14.

15.

Vertical Milling Machine

Plano Miller

Radial Drilling Machine

16.

Vertical Turning Lathe

17.

Spindle

RP

Engg.

FRITZ

Floor

WERNER,

Germany

1No.

Max. Height 1000mm.

Max. Length 1.2 M.
Max. Width

Star,

Faiz Engineering Works.

KPACHOAAR, Germany
Boring SCHARMANN,

Max. Width 420 mm 1 No.

Max. Width 1300mm 1 No.

MOSCOW, USSR
White

280mm 1 No.

Max. Height 530mm.

Max. Length 2600mm

STANKOIMPORT,

18

1500mm

Company,

Cooper, Germany

Universal Milling Machine

180

White Star NDM-50B

60mm In Steel Swing

500mm 1 No.

Max. Height 400mm.

Max.
Drill
Size:100mm
Swing Dia: 6 M.
Max. Dia: 2.3 Meter

1 No.

1 No.
Max.Height:1.5 M.
Max. Bore Dia:1.2 M 1 No.

Machine
18.
19

GERMANY

Max. Length: 4 M.
Max. Bore Dia:600

130 Spindle Horizontal Boring SCHARMANN,

Machine

GERMANY.

24 Shaping Machine

Cooper ,Germany

PLANO MILLER1

VTL1

mm

1 No.

Max.Length:1.2 M.
Dia:100mm

1 No

VTL2

Sugar Mill Spares

We are catering our services to all Major OEMS and pioneers in Sugar Industry in India since
the last 15yrs. We supply major spares of the sugar mill from Cane Preparatory Equipment ,
Head Stock , Bearing Housing Assemblies to Trash Plates.

Cane Cutter Assmbly

TopCap Assembly

Side Cap Assmbly

Head_Stock

19

Trash Beam Assembly

.
Steam Turbine Castings
We manufacture Steam Turbine castings of various grades which are heat resistant and creep
resistant.

Bearing Housings

Bell Mouth

G.B Carrier

outercasing

PRAKASASPECTROCAST (P)LTD.
PRAKASH NAGAR, ENIKEPADU,
VIJAYAWADA 521 108, INDIA.
Phone : +91-866-2842716, 2842816 ,2841773
Fax: +91-866-2841774.
E-Mail: prakasaspectro@rediffmail.com

20

CHAPTER-III
THEORETICAL ASPECTS OF RATIO ANALYSIS

MEANING OF RATIO:
According to accountants hand book by wixon, kell and Bedford a ratio is an expression of the
quantitative relationship between two numbers.
A ration is a simple arithmetical expression of the relationship of one number to another. It may
be defined as the indicated quotient of two mathematical expressions.
Ratio provides clues by financial position of a concern. One can draw conclusions about
the exact financial position of a concern with the help of ratios.Ration analysis is a technique of
analysis and interpretation of financial statements. It is the process of establishing and
interpreting various ratios for helping in marking certain decisions.

PURPOSE OF RATIO ANALYSIS:

The ratio analysis is one of most power full tools of financial analysis it is used as a device to
analyze and interpret the financial health of enterprise. It is used with the help of ratios that the
financial statements can be analyzed more clearly and decision made from such analysis.
By the use of ratio analysis one can measure the financial conditions of
a firm and can point out whether the conditions is strongs, good questionable or poor.

21

MANAGERIAL USES OF RATIO ANALYSIS:

Helps in decision making.

Helps in financial forecasting and planning.
Helps in communicating.
Helps in co-ordination.
Helps in control.
Other uses.

INTER-FIRM COMPARISON:
Ratios of one firm can also be compared with the ratios of some other selected firms in the same
industry at the same point of time. This kind of comparison helps in evaluation relative financial
position and performance of the firm
.
LIMITATIONS OF RATIO ANALYSIS:
Ratio analysis is one of the most powerful tools of financial management. Through ratios are
simple to calculate and easy to understand, they suffer from some serious limitations.

Limited use of a single ratio.

Lack of adequate standards.
Inherent limitations of accounting.
Change of accounting procedure.
Window dressing.
Personal bias.
Un-comparable
Absolute figures distortive.
Price level changes.
Ratios no substitutes.

CLASSIFICATION OF RATIOS:
The use of ratio analysis is not confined to financial manager only there are different parties
interested in the ration analysis for knowing the financial position of a firm for different
22

purposes. In view of various users of ratios, there are May tips of rations which can be calculated
from the information given in the financial statements. The particular purpose of the user
determines the particular ratios that might be used for financial analysis.
TYPES OF RATIOS:
Several ratios calculation from the accounting data can be grouped into various classes according
to the financial activities or function to be evaluated. The various parties that are generally under
taken financial analysis to measure solvency and profitability of the firm. Management is
interested in evaluating every aspect of all parties and see that the firm grows profitability. In
view of the requirements of the various users of ratios, we may classify them into the following
four important categories.
1.
2.
3.
4.

Liquidity ratios.
Leverage ratios.
Activity ratios.
Profitability ratio

Liquidity ratio measures the ability of the firm to meet its current obligations analysis, if
liquidity needs the preparation of cash. Budgets and cash fund flow statement. But liquidity
ratios by establishing rotation cash an other current assets to current obligations provide a quick
measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also
that it is not too much highly liquid, and also that it is not too much highly liquid. The failure of
a company to meets it obligations due to lack of sufficient liquidity will result in bad credit
image. A very high degree of liquidity is also bad. Ideal assets earn nothing. The firms funds
will be unnecessarily tied up in current assets. Therefore it is necessarily to strike proper balance
between liquid and lack of liquidity.

1) Liquidity ratios: The most common ratios, which indicate the extent of liquidity or lack
of it, are.
a) Current ratio.
b) Quick of acid test or liquid ratio.
c) Absolute liquid ratio or cash position ratio
23

a) CURRENT RATIO:
Current ratio is the ratio, which express relationship between current asset
and current liabilities. Current asset are those which can be converted into
cash within a short period of time, normally not exceeding one year. The
current liabilities which are short- term maturing to be met.
Current assets
Current ratio

......
Current liabilities

Current assets

: current liabilities

Current ratio may be defined as the relationship between current assets and current liabilities.
CURRENT ASSETS:
Current assets are those assets which are converted in to cash easily or in short period.
CURRENT LIABILITIES:
Current liabilities are those liabilities which are payable in a short period

The current ratio is measure of the firms short term solvency. A current ratio of 2:1 usually
considered as ideal. If current ratio is less then 2, it indicates that the business does non enjoy
adequate liquidity however a current ratio is more then 3, it indicates that the firm is having ideal
funds and as not invested them properly. As a conventional rule, a current ratio of 2 of 1 or more
is considered satisfactory. The current ratio represents a margin of safety for credits.
Quick ratio/acid test ratio/liquid ratio:

24

Quick ratio is used as a measure of the companys ability to meet its current obligations. This
ratio is calculated as supplanted as supplement to the current ratio in analyzing the liquidity of
the firm. This can be calculated as:
Quick assets
Quick ratio =

..
Quick liabilities

Quick asset: current assets - (stock+prepaid)

Quick liabilities: current liabilities- (stock+bank overdraft)
A normal standard of 1:1 acceptable quick ratio. A very high or very low ratio is not desirable. It
is used to measure the ability of the company meet its liabilities at short notice.
A) ABSOLUTE LIQUIDITY RATIO OR CASH RATIO OR SUPER QUICK RATIO:
Absolute liquidity ratio is also be calculated together with current ratio and acid test ratio as to
exclude even receivables from the current assets and find out the absolute liquid assets

Absolute liquid assets

Absolute liquid ratio=

Current liabilities

(Or)
Cash + short-term securities
Cash ratio

Current liabilities
25

Absolute liquid assets = cash in hand + cash at bank + short-term investments.

The acceptable norm per this ratio of 50% or 0.5:1 (or) 1:2.

2) Capital Structure/Leverage Ratio/Long-Term Solvency Ratio:

The long term financial stability of firm is considered as dependent upon its ability indicate the
relatives interests of owners and creditors in a business. The ratios, which are measuring the
long-term solvency, are:
a)
b)
c)
d)
e)

Debt-equity ratio.
Share holders equity/proprietors ratio/equity ratio.
Capital gearing ratio.
Fixed asset turnover ratio
Interest coverage ratio.

(A) DEBT-EQUITY RATIO:

Debt-equity ratio indicates the relationship between long-term debts and share holders funds. It
helps in knowing the soundness of the long-term financial policies of a company. In reflex the
relatives clime of creditors and share holders against the assets of the business. It is calculated
as:
Long term debt
Debt-equity ratio

= .
Shareholders funds
26

Long-term liabilities = long-term debt+debentures+other long-term liabilities

Share holders funds= equity share capital + preference share capital + reserves fictitious assets.
The ideal ratio is 2:1.
(B) PROPRIETARY RATIO:
The proprietary ratio is also known as equity ratio or share holders to total equitys ratio or net
worth to total assets ratio. This ratio establishes the relationship between share holders fund to
total assets of the firm is calculated as:
Net worth
Proprietary ratio =

Total assets

Net worth = shareholders funds

Total assets = fixed assets + current assets
A high proprietary ratio indicative of strong financial position of business. The higher the ratio,
the better it is.

(C) CAPITAL GEARING RATIO:

Capital gearing ratio determines the future financial structure pf the business. A company that is
highly geared will have to raise funds by issuing fresh equity funds, where as a lowly geared
company would find with attractive to raise funds by way of term loans and debentures. it is
calculated by the following formulae:
Debentures + term loans + preference share capital
Capital Gearing Ratio = -------------------------------------------------------------------Equity share capital + reserves fictitious assets
27

(D) FIXED ASSET TURNOVER RATIO:

This ratio indicates the mode of financing. The fixed assets. It is calculated as:
Net Sales
Fixed asset turnover ratio =

-----------------------------Average Fixed

Assets
Capital employed = equity share capital + preference share capital + reserves+ long term
liabilities fictitious assets.
1.67

s considered as ideal.

(E) INTEREST COVERAGE RATIO:

The interest coverage ratio is a financial ratio that measures a companys
ability to make interest payments on its debt in a timely manner. Unlike the
debt service coverage ratio, this liquidity ratio really has nothing to do with
being able to make principle payments on the debt itself. Instead, it
calculates the firms ability to afford the interest on the debt.
EBIT (Earnings before Interest & Tax)
Interest coverage ratio = ----------------------------------------------28Interest expenses

This ratio is of 6 is normally considered as ideal.

3) ACTIVITY RATIO TURNOVER RATIO:
Activity ratios measure how efficiency the firm employees its resources. These ratios involve
comparison between the level of sales and investment it various accounts such as inventories,
debtors, creditors, fixed assets etc., activity ratios are used to measure the speed with which
various accounts are converted in to sales are cash.
Every turn over ratio is calculated by dividing cost of goods sold of net sales by respective
account and each ratio gives the speed in which it turns cash or sales.
Cost of goods sold (c.g.s) = sales gross profit
The major turn over ratios is:
a)
b)
c)
d)
e)
f)
g)

Inventory turnover ratio/stock turnover ratio.

Debtors turnover ratio.
Creditors turnover ratio.
Capital turnover ratio
Working capital turnover ratio
Fixed assets turnover ratio
Total assets turnover ratio

A) INVENTORY TURNOVER RATIO:

Inventory turnover ratio indicates the number of times the stock has been turn over during the
paid evaluates the efficiency with which a firm is able to manage its inventory.
Cost of goods sold
Inventory turnover ratio = ---------------------------------Average inventory
Operating stock + closing stock
Average inventory

= -------------------------------------29

Note :-

1. C.g.s is not known, sales may be taken as c.g.s.

2.if opening stock and closing stock are not given, the given stock is treated as average stock.
No. of days in the year
Stock conversion period = --------------------------Stock turnover ratio

2. A stock turnover ratio of 8 is considered ideal. A high stock turnover ratio indicates that
the stocks are fast moving and get converted into sales quickly.
B) DEBTORS TURNOVER RATIO:
Debtors turnover ratio indicates the velocity of debt collection of a firm. In indicates the number
of times the number of debtors turns over a year. Debtors turn over ratio the relationship between
debtors and sakes. This can be calculated by the following formulae.
Net credit sales
Debtors turnover ratio =

----------------------------------Average debtors

Opening debtors + closing debtors

Average debtors

-------------------------------------2

Note:
1. Debtors turnover ratio of 10 to 12 is an ideal.
2. Debtors include bills receivables.
3. A high debtors turnover ratio or low debt collection period is indicative of sound credit
management policy
30

No. of days in a year

Debt collection period = ---------------------------Debtors turnover ratio

Debt collection period of 232, 36 days is considered ideal.

C) DEBTORS TURNOVER RATIO:
Creditors turnover ratio expresses the relationship between creditors and purchases. It is
calculated as follows:

Creditors turnover ratio =

Net credit purchases

------------------------------Average creditors

Opening creditors + closing creditors

Average debtors = ------------------------------------2
Note:
1. Creditors include bills payable.
2. Creditor turnover ratio of 12 of more is an ideal.
No. of days in a year
Debt payment period = ------------------------------------Creditor turnover ratio

Debt payment period of 30 or less no. of days is not better indication.

D) CAPITAL TURNOVER RATIO:
31

It is used to show how the capital employed is efficiency used in the business. It indicates the
firms ability to generate sales per rupee capital employed.
Net sales
Capital turnover ratio = ---------------------------Capital employed

Capital employed = long-term funds + reserve and surpluses + preferential share capital + equity
share capital.

E) WORKING CAPITAL TURN OVER:

Working capital is concern is directly related to sales. The current assets like debtors, builds
receivables, cash, stock etc., changing with the increase are decrease in sales. This ratio explains
the relationship between c.g.s to working capital.
Cost of goods sold
Working capital turnover ratio = ---------------------------Working capital

Working capital = current assets- current liabilities

Note:
A high working capital turnover ratio indicates efficient utilization of funds.
F) FIXED ASSETS TURNOVER RATIO:
This ratio explains the relationship between net sales to fixed assets. This can be calculated by
the following formulae.

32

Net sales
Fixed assets turnover ratio = -------------------------------Fixed assets

Note:
This ratio of 5 is considered as ideal a high fixed assets turnover ratio indicates better utilization
of the firms fixed assets.

G) Total assets turnover ratio:

This ratio explains the relationships between net sales to total assets. This can be calculated by
the following formulae
Net sales
Total assets turnover ratio = --------------------------------Total assets

Total assets = fixed assets + current assets

PROFITABILITY RATIOS:
Profitability ratios measure the profitability of a concern. Generally they are calculated in
relation to sales or in relation to investments. The various profitability ratios are discussed under.
In relation to sales
A.
B.
C.
D.
E.

Gross profit ratio.

Net profit ratio.
Operating ratio.
Operating profit ratio.
Expenses ratio.

33

A) GROSS PROFIT RATIO:

Gross profit ratio measures the gross margin on total net sales of a company. This ratio measures
the efficiency of companys operations and can be used to compare with previous years results.
High the gross profit ratio better is for the company.
Gross profit
Gross profit ratio = ---------------------------- x100
Net sales

Gross profit = net sales cost of goods sold

c.g.s = opening stock + purchases closing stock
Net sales = sales sales returns
Note:
There is no ideal gross profit ratio is higher the ratio, the better will be the performance of the
business.
B) NET PROFIT RATIO:
This ratio is designed to focus attention on the net profit margin arising from business operations
after interest and tax.
Net profit
Net profit ratio =

-------------------- x 100
Net sales

Net profit = earnings after tax and interest.

Net profit = gross profit + (office and administrative expenses + selling & distribution expenses
+ financial expenses)
There is no ideal ratio, the higher the ratio more profitable is the business.
34

C) OPERATING RATIO:
Operating ratio establishes the relationship between cost of goods sold and other operation
expenses on the one hand and the sales on the other.
Operating ratio
Operating ratio =

----------------------- x 100
Net sales

(Or)

Cost of goods sold + operating expenses

Operating ratio = -----------------------------------------------x 100
Net sales
Operating cost = c.g.s + office and administrative expenses + selling & distribution expenses.
A low operating ratio is an indication of operating efficiency of the business low the, the better it
is.
D) OPERATING PROFIT RATIO:
It establishes the relationship between operating profit and sales. It can be calculated by the
following formulae.

Operating profit
Operating profit ratio =

-------------------------------- x 100
Net sales
(or)
35

Operating profit ratio =

profit ratio

100- Operating

Note:
The higher the ratio, the better it is

E) EXPENSES RATIO:

The expense ratio is a measure of what it costs an investment

company to operate a mutual fund. An expense ratio is determined
through an annual calculation, where a fund's operating expenses
are divided by the average dollar value of its

assets under

management. Operating expenses are taken out of a fund's assets

and lower the return to a fund's investors.

Particular expense
Expenses ratio =

------------------------------- x 100
Net sales

Factory expenses
e.g. factory expenses ratio = ------------------------------------ x 100
Net sales

36

CHAPTER - V
DATA ANALYSIS
AND
INTERPRETATION
CURRENT RATIO:
The current ratio is calculated by dividing current assets with current liabilities. It is a measure of
firms short term solvency. As rules a current ratio of 2:1 is satisfactory.
Current assets
Current ratio =

------------------------------Current liabilities

The following table shows the position of current ratio of the NCL during the period of 2005-11.
Years
2008-09

Current assets
220075.51

Current liabilities
178447.98

37

Ratio
1.69

2009-10

246399.47

136171.60

1.80

2010-11
2011-12
2012-13
2013-14

247639.25
272451.78
260668.92
289357.15

118776.14
115710.51
150181.58
202529.67

2.08
2.35
1.73
1.43

table 5.1

CURRENT RATIO GRAPH

300000
250000
200000
150000

Current assets
Current liabilities

100000

Ratio

50000
0

Figure5.1
38

INTERPRETATION:

According to the above table, the current ratio of NCL is almost satisfactory operations.
During the year 2008-2009, the current ratio is 1.23 which is not satisfactory but in the
later stage the current ratio is improve, which is an indication for satisfactory operation of

the firm.
In the year 2009-10, the current ratio is 1.69 the operation is satisfactory.
In the year 2008-09, the current ratio 2.08 which shows the better performance of the

firm and in the year 2008-09 it ratio increases to 2.35.

But in the year 2009-10 its ratio is reduced to 1.74, even though reduced it indicates
satisfactory operation because it is a reputed firm.

QUICK RATIO/ACID TEST RATIO:

This ratio establishes a relationship between the quick assets is liquid if it can be converted into
cash immediate or reasonably soon with out law of value then the accepted standard is 1.
Quick assets
Quick ratio =

-----------------------------Current liabilities

The following table shows the position of quick ratio of the NCL during the period of 2009-10
Particulars
Quick

2008-09
197442.05

2009-10
253206.74

2010-11
222563.95

2011-12
2411139.58

2012-13
233500.4415

2013-14
254156.26

assets
Current

178447.98

167399.56

1187776.14

115710.51

150181.58

202529.67

liabilities
Quick

1.1064

1.5126

1.8738

2.08399

1.5548

1.2550

ratio
table 5.2
QUICK RATIO GRAPH:

39

2500000
2000000
1500000
Quick assets
1000000

Current liabilities
Quick ratio

500000
0

Figure 5.2

INTERPRETATION:

If we observe the above analysis it is clear that the liquidity position of the NCL is

satisfactory.
During period 2008-09, the liquidity ratio is 1.1064 and in the year 2006-07 its ratio is
1.5126 which is an indication that the firm is liquid and has the ability to meet its current

or liquid liabilities.
During the year 2009-10, the liquidity to ratio is 1.873 and in the year 2008-09 its ratio is
increased to 2.08 and in the year 2009-10, the ratio settled down to 1.5548 which shows
the satisfactory operation of the firm with fast- paying debtors.

(A) ABSOLUTE LIQUID RATIO:

This ratio established a relation between the cash is the most is absolute liquid asset for any firm
the accepted ratio is 2:1
Absolute liquid assets
Absolute liquid ratio =

--------------------------------------Current liabilities

40

The following table shows the position of absolute liquid ratio of NCL during the period of
2008-14.
Particulars
All assets
Current

2008-09
4659.61
178447.9

2009-10
6202.27
167399.56

2010-11
1681.45
118776.14

2011-12
7072.47
115710.51

2012-13
3708.39
150181.58

2013-14
3982.14
202529.67

liabilities
Al ratio

8
0.0261

0.0371

0.0142

0.0611

0.0247

0.0197

Table 5.3

ABSOLUTE LIQUID RATIO GRAPH:

250000
200000
150000
All assets
100000

Current liabilities
Al ratio

50000
0

Figure 5.3
INTERPRETATION:

If we observe the above analysis, it is clear that the absolute liquid assets allow i.e. the
performance of the firm is not satisfactory.

41

In the year 2008-09, the absolute liquidity ratio is 0.0261. and in the year 2009-10 the
ratio is 0.037. in the year 2010-11 the absolute liquidity ratio is 0.0142, in the year 2008-

09 the absolute liquidity ratio is 0.0611 and in the year 2009-10 the ratio is 0.0247.
From the above analysis from the year 2010-11, the absolute liquidity is very low i.e.

absolute liquidity assets are very low compared to current liabilities.

The reason is NCL is not maintained the cash balances all the payment is done through
the apseb.

ACTIVITY RATIO OR TURNOVER RATIO:

Activity ratio measure how efficiency the firm employees its resources. These ratio involved
comparison between the levels of sales and investment in various accounts such as inventories,
debtors, creditors, fixed assets etc. activity ratio are measure the speed with which various
accounts are converted into sales and cash.
Every turnover ratio is calculated by dividing cost of goods sold or net sales by respective
account and each ratio gives the speed in which it turns cash or sales.
(A)INVENTORY TURNOVER RATIO:
Inventory turnover ratio indicates the efficiency of the firm in selling its products. It is calculated
by dividing the sales by the average inventory.
Cost of goods sold
Inventory turnover ratio = ---------------------------------Average stock
The following table shows the position of inventory turnover ratio of the NCL during the period
of 2008-14.
Particulars
2008-09
c.g.s
205753.56

2009-10
202342.65

2010-11
215658.24
42

2011-12
205641.06

2012-13
220216.54

2013-14
249104.81

Avg.

20620.16

28791.65

22831.69

28885.48

26239.45

39388.49

stock
i.t.r

9.9783

7.0278

9.4456

7.1192

8.3926

6.3243

Table 5.4

INVENTORY TURNOVER RATIO GRAPH:

250000
200000
Particulars

150000

c.g.s
Avg. stock

100000

i.t.r

50000
0
1

Figure 5.4
INTERPRETATION:

During the year 2008-09 the ratio was very high. It is 9.9783.
By comparing the year 2009-10 the remaining year ratios was low.
But in the year 2010-11 it was increased to 9.4456.
43

By over all conclusion the selling process of NCL is not in a satisfactory position

INVENTORY CONVERSION PERIOD:

No. of days in a year
Inventory conversion period = -------------------------------------Stock turnover ratio
The following table shows the position of inventory conversion ratio of the PSCL during the
period 2006-11
Particulars 2008-09
No.
of 365

2009-10
366

2010-11
365

2011-12
365

2012-13
365

2013-14
366

7.0278
52.0789

9.4458
38.6423

7.1192
51.2698

8.3926
43.4907

6.3243
57.8720

days in a
year
i.t.r
i.c.p

9.9783
36.5794

Table 5.4

44

INVENTORY CONVERSION PERIOD GRAPH:

400
350
300
250
200

No. of days in a year

150

i.t.r

100

i.c.p

50
0

Figure 5.5
INTERPRETATION:

During the year 2008-09, the stock turnover ratio is 9.9783 and stock conversion period is
36.579.
45

During the year 2009-10, the stock turnover ration is 7.0270 and stock conversion period

is 52.07.
During the year 2010-11, the stock turnover ratio is 9.4456 and stock conversion period is

38.64.
During the year 2011-12 the stock turnover ratio is 7.1102 and stock conversion period is

51.26.
If we observe the above analysis, the stock turnover ratio is high during the periods 200809, 2009-10 & 2010-11 and slightly low during the periods.

DEBTORS TURNOVER RATIO:

Net credit sales
Debtors turnover ratio =

----------------------------Avg. debtors

The following table shows the position of debt turnover ratio of the NCL during the period of
2006-11
Particulars
n.c. sales
a. Debtors

2008-09
409613.0

2009-10
406990.8

2010-11
415737.8

2011-12
386786.4

2012-13
417739.6

2013-14
456748.7

9
114519.5

5
186041.4

0
203161.6

9
197944.4

1
165665.8

4
148917.7

3
2.1876

2
2.0463

1
1.9540

8
2.5216

8
3.0672

5
Debtors turnover 3.5768
ratio
Table 5.5

DEBTORS TURNOVER RATIO GRAPH:

46

500000
450000
400000
350000
300000
250000

n.c. sales

200000

a. Debtors

150000

Debtors turnover ratio

100000
50000
0

Figure 5.6

INTERPRETATION:

During the year 2008-09, the debtors turnover ratio is 3.5768.

During the year 2009-10, the debtors turnover ration is 2.1876.
During the year 2010-11, the debtors turnover ratio is 2.0463.
During the year 2011-12 the debtors turnover ratio is 1.954.
. During the year 2012-13 the debtors turnover ratio is 2.5216
During the year 2013-14 the debtors turnover ratio is 3.0672

DEBT COLLECTION PERIOD:

No. of days in year
Debt collection period = --------------------------------Debtors turnover ratio
The following table shows the position of debt collection period of the NCL during the period of
2006-11.
Particulars

2008-09

2009-10

2010-11
47

2011-12

2012-13

2013-14

No. of days 365

366

365

365

365

366

in a year
d.t.r
d.c.p

0.4571
167.30

2.0463
178.3707

1.9540
186.7963

2.5216
144.7494

3.0672
119.33

3.5768
102.0465

Table 5.6

DEBT COLLECTION PERIOD GRAPHS:

600
500
400
300

d.c.p
d.t.r

200

No. of days in a year

100
0

Figure 5.6
INTERPRETATION TO DEBTORS TURNOVER RATIO:

48

If we observe the above analysis, the debtors turnover ratio in the year 2008-09 is 3.576, in the
year 2008-09 the ratio is decreased to 0.4571 again in the year 2010-11 the ratio is increased to
2.04 in the year 2009-10, the ratio is 1.9540 and in the year 2011-11, the ratio is 2.5216.
The debt collection period in the year 2009-10 is 102.04 and in the year 2010-11, it is 167.30 in
the year 2008-09, the debt collection period is 168.3707 and in the year 2007-08, it is 186.79 and
in the year 2008-09, it is 144.74.By observing above analysis we can say that given debt
collection period is 3 to 4 months

CREDITORS TURNOVER RATIO:

Net credit purchases
Creditors turnover ratio = ---------------------------------Avg. creditors
The following table shows the position of creditors turnover ratio of the NCL during the period
of 2006-11
Particulars
n.c.

2008-09
205753.56

2009-10
202342.65

2010-11
215658.24

2011-12
205641.06

2012-13
220216.54

2013-14
249104.81

purchases
Avg.

119037.95

124729.85

49046.67

39994.47

62687.38

74536.28

creditors
Creditors

1.72585

1.6222

4.3970

5.1417

3.5129

3.3421

turnover
ratio
Table 5.6
49

CREDITORS TURNOVER RATIO GRAPH:

250000
200000
150000
n.c. purchases
Avg. creditors

100000

Creditors turnover
ratio

50000
0

DEBT PAYMENT PERIOD:

Creditor turnover ratio expenses the relationship between creditors and purchases
No of days in year
Debt payment period =

-----------------------------------Creditors turnover ratio

The following table shows the position of debt payment period ratio of the NCL during the
period of 2006-2011
.
Particulars
2008-09
No of days 365

2009-10
366

2010-11
365

2011-12
365

2012-13
365

2013-14
366

in a year
c.t. ratio
d.p.p

1.6222
255.647

4.3970
83.011

5.1417
70.988

3.5129
103.90

3.3427
109.52

1.7285
211.165

Table 5.8
DEBT PAYMENT PERIOD GRAPH:

50

400
350
300
250
200

No of days in a year

150

c.t. ratio

100

d.p.p

50
0

Figure 5.8
INTERPRETATION TO CREDITORS TURNOVER RATIO:
In the year 2005-06 ratio is 211.165 and debt payment is 211.165, in 2006-07 is 255.647 and
225.6470 in 2007-08 it is 4.397 and 83.011 in the 2008-09, it is 5.1417 and 70.988, in the year
2009-10 it is 3.5129 and 103.90. If we observe the above analysis the firm is having low
creditors turnover ratio and high debt payment period, which is not better indication.
FIXED ASSETS TURNOVER RATIO GRAPH:

51

0.6
0.5
0.4
0.3
0.2
0.1
0

FIXED ASSETS TURN OVER RATIO

Figure 5.9
INTERPRETATION:

In the year 2008-09, the fixed assets turnover ratio is 0.43198.

In the year 2009-10, the fixed assets turnover ratio is 0.4356.
In the year 2010-11, the fixed assets turnover ratio is 043198.
In the year 2011-12, the fixed assets turnover ratio is 0.4719.
In the year 2012-13, the fixed assets turnover ratio is 0.5495.
If we observe the above analysis, the fixed analysis, the fixed assets turnover ratio is low
as the life of the unit (plant) is long i.e., 25 years.

TOTAL ASSETS TURNOVER RATIO:

The ratio explains the relationship between the net sales to total assets
Net sales
Total assets turnover ratio = -------------------------------Total assets
The following table shows the position of total assets turnover ratio of the NCL during the period
of 2006-10
.
Particulars

2008-09

2009-10

2010-11
52

2011-12

2012-13

Net sales
Total assets
t.a.t.r

409613.09
1168282.44
0.3506

406990.85
1218550.03
0.3339

415737.84
1134758.07
0.3664

386786.49
1092095.27
0.3542

417739.61
1020934.59
0.4092

Table 5.9
TOTAL ASSETS TURN OVER RATIO GRAPH:
1800000
1600000
1400000
1200000
t.a.t.r

1000000

Total assets

800000

Net sales

600000
400000
200000
0
2008-092009-102010-112011-12 2012-13

Figure 5.10

INTERPRETATION:

In the year 2008-09, the total assets turnover ratio is 0.3506.

In the year 2009-10, the total assets turnover ratio is 0.3339.
In the year 2010-11, the total assets turnover ratio is 0.3664.
In the year 2011-12, the total assets turnover ratio is 0.3542.
In the year 2012-13, the total assets turnover ratio is 0.4092.
From the above analysis total assets turn over ratio is slightly increased.
The total assets turnover of 0.4092 implies that companies generates to sales Rs. 0.4092
for 1 rupee investments, fixed and current assets together.

53

PROFITABILITY RATIOS:
The profitability ratios measure the overall performance and effectiveness of the firm.
Profits are the difference between revenue and expenses over a period of times. Owens want to
get required rate return on their investments. This is possible only when the company earns
enough profits. The company should earn profit to survive and grow over a long period of time.
Generally two major types of profitability ratios are calculated.

Profitability in relation to sales

Profitability in relation to investment

(A) GROSS PROFIT RATIO:

Gross profit ratio measures the gross margin on total net sales of a company. This ratio measures
the efficiency of companies operations. There is no ideal ratio, higher gross profit ratio, better is
for the company.
Gross profit
Gross profit ratio = ---------------------------------- x100
Net sales
The following table shows the position of gross profit ratio of NCL during the period of 2006-11.
Particulars
Gross

2008-09
203859.53

2009-10
204648.20

2010-11
200079.60

profit
54

2011-12
181145.43

2012-13
197523.07

2013-14
216742.26

Net sales
G.P.R

409613.09
49.7688

406990.85
50.2832

415737.84
48.1264

386786.49
46.8334

417739.61
47.2838

467482.28
46.3638

Table 5.10
GROSS PROFIT TURNOVER RATIO GRAPH:

500000
450000
400000
350000
300000
250000

Gross profit

200000

Net sales

150000

g.p.r

100000
50000
0

Figure 5.11
INTERPRETATION:

From the above analysis, the gross profit ratio is high during the year 2007-08; it is

50.2832 which indicate satisfactory performance.

The ratio during the year 2007-08 and 2008-09 is also satisfactory.
But in the year 2008-09, 2009-10 it is slightly increased. The values are 46.83 and 47.28
respectively.

NET PROFIT RATIO:

This ratio is designed to focus attention on the net profit margin arising from business operations
after income tax. Their is no ideal ratio, the higher the ratio more profitable is the business.
Net profit
55

Net profit ratio

-------------------------- x 100
Net sales

The following table shows the position of net profit ratio of the NCL during the period of 200611.
Particulars
Net profit
Net sales
n.p.r

2008-09
5573.15
409613.09
1.360

2009-10
1045.87
406900.85
0.256

2010-11
5163.80
415737.85
1.242

2011-12
-6303.94
386786.49
-1.629

2012-13
15100.62
417739.61
3.61

Table 5.11

NET PROFIT RATIO GRAPH:

500000
400000
300000
Net profit
200000

Net sales
n.p.r

100000
0
-100000

56

2013-14
19763.59
467482.28
4.2277

Figure 5.12
INTERPRETATION:

To observe the above table, the net profit is high during the year 2009-10 it is 3.14 which

indicates satisfactory performance.

In this year it overcomes the loss of previous year and got more profit among the

previous years.
In the year 2010-11 it become negative profit and the ratio during the years 2008-09 and
2009-10 is also satisfactory

OPERATING RATIO:
Operating ratio establishes the relationship between costs of goods sold and other operating
expenses on the hand and the sales on the other.
Operating cost
Operating ratio =

--------------------------------- x 100
Net sales

The following table shows the position of operating ratio of the NCL during the period of 200611.
Particulars
Net profit
Net sales
O.P.R

2008-09
261907.55
409613.09
63.940

2009-10
257324.90
406990.85
63.226

2010-11
264503.04
415737.84
63.626
57

2011-12
243976.71
386786.49
54.158

2012-13
274764.61
417739.61
65.774

2013-14
351556.87
467482.28
75.202

Table 5.12
OPERATING RATIO GRAPH:

500000
450000
400000
350000
300000
250000

Net profit

200000

Net sales

150000

o.p.r

100000
50000
0

Figure 5.13
INTERPRETATION:

From the above analysis the operating ratio is high during the year 2009-10; it is 65.774

which indicates the high operational efficiency.

The ratio during the year 2008-09 and 2009-10 operating efficiency is not changed in

operating ratio.
In the year 2010-11 ratio is decreased 54.148 to compare to all the years.

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CHAPTER V
FINDINGS & SUGGESTIONS
&
CONCLUSIONS

FINDINGS

The organization PRAKASA SPECTRO CAST Ltd

which works under RMC

is

basically service oriented organization. It is not established to earn large profit i.e., Moto

is not to earn profits but to provide service to the customer.

There was good development in the current ratio by the efficient working of the

management.
There was good development in the quick ratio of the firm with fast paying debtors.

59

There is need to concentrate on the areas like absolute liquid ratio and expenses ratio

where expenses are more compared to sales.

The firm was improved its debtors turnover ratio, creditors turnover ratio, fixed assets

turnover ratio and total assets turnover ratio.

The stock turnover ratio of the firm is satisfactory where stocks are getting converted into

sales quickly.
The working capital ratio of the form I low, which indicates inefficient utilization of
working capital.

SUGGESTIONS

Since the organization is mainly concentrated on services rather then profit it has to be
improved in some areas like absolute liquid ratio, expenses ratio, debtors turnover ratio,

total assets turnover ratio, working capital ratio etc.

It is advised for the company to maintain the same level of current ratios as it obtained

in 2010-11 i.e., 2.35.

The management is suggested to maintain the absolute liquid assets to the extension and

when the necessity arises to pay short term obligation in time.

It is to be suggested to the firm to increase the debtors turnover ratio in succeeding
years by increasing the quality trade debtors leading to sales promotion in the product of

the firm and increasing the liquidity position of the concerns.

The management is suggested to improve creditors turnover ratio and fixed assets

turnover ratio. The firms fixed assets have to be utilized efficiently.

It is to be suggested that the firm should maintain the sufficient level of assets to its
turnover by that it can be in satisfactory position.

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It is to be suggested to the firm to maintain the greater value of working capital turnover
ratio as the management of working capital is regarded as the very important element.

CONCLUSION
The financial statements analysis provides a clear-cut picture about the financial position,
profitability, liquidity, solvency and the application of the financial sources of an organization.
The financial management has to formulate wide varieties of plans and policies regarding total
assets and total liabilities with respect to the movements. The financial management is also
called as the custodian of financial resources of the investors. Therefore the financial
management should take care of the all available resource and make them into real and exact
application. The financial department is also a watch dog or a police for the financial
resource, which are invested by the company into different ventures and portfolios and invested
by different public.
Hence, the financial statement analysis acts as a supplier in distribution of all inputs which are
playing a vital role in the managerial decision marking. The organization is the composition of
different departments such as marketing, human resource, production etc., however the activities
of all the depts. Are resolve around the financial department. The financial department is

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concluded as an important wing in the organization through its distinct nature explained by the
financial statements analysis

CHAPTER VI
BIBLIOGRAPHY

1) S.n.maheswari
. Management accounting and financial
Control
2) R.k.sharma&sashi k gupta
.. Management accounting
3) M.y.khan&p.k.jain
financial management
4) Prassana Chandra
financial management
5) Annual reports of PRAKASA SPECTRO CAST Ltd (2010 -11to 2014-15)

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