Ratio analysis in bhel

1. 1. A STUDY ON RATIO ANALYSIS INTRODUCTION Finance is viewed

as the most important factor in every enterprise and it is provision of money

at the time when it is required. Every enterprise whether big, medium or

small needs finance to carry on its operations and to achieve its targets.

Finance is so indispensable today that it is rightly said that it is the lifeblood

of an enterprise. Without adequate finances, no enterprise can possibly

accomplish its objectives. Capital required for a business can be classified

under two main categories i.e., fixed capital and working capital. Fixed

capital stands for the amount of capital which is required for long term to

create production facilities through purchase of fixed assets such as plant,

machinery, land and buildings etc, working capital refers to that part of the

firms capital which is needed for financing short terms or current assets such

as marketable securities, debtors and inventories etc, working capital in

brief, is the amount of funds necessary to cover the cost of operating the

enterprise. Just as circulation of blood is essential in the human body for

maintaining life of a person, working capital is very essential to maintain the

smooth running of a business. The modern thinking in financial management

gives greater importance to management decision making and policy. Today,

the financial manager is not in a passive role of score keeper of the

 accounting information and arranging funds. Whenever directed to do so.

Rather, he occupies a key role in solving the complex management

problems. He is not responsible for shaping the fortunes of the enterprise and

is involved in the most vital management decision of allocation of resource

2. 2. A STUDY ON RATIO ANALYSIS INDUSTRY PROFILE

ELECTRONIC INDUSTRY Electronics is a branch of technology dealing

with the motion and behavior of electrons. Although the term derives

vacuum tube technology, it now encompasses the sold state circuits and

devices used in computing and communications. HISTORY IN INDIA The

Electronics Industry in India was nucleated in the late forties with the setting

up of production base for radio receivers by a few private firms using

foreign collaborations. In the initial stages, the production activities were

mainly in the fields of consumer electronics and certain type of components.

Two public sector units, namely BHEL and Indian Institute of Technology

(IIT) both at Bangalore, were also manufacturing professional electronic

items to meet the requirements of P&T. Introduction of transistor radio I

early 60’s led to phase which witnessed steady growth in production of

import substitutions, diversification of product range and entry into export

market. Production of electronic equipment and components has come a

long way since the days of radio receivers in the 1950’s. the electronics
 industry in India has grown with domestic demand, as a result of import

substitution effort. During the 1970’s electronics industry in the country

derived its strength as a labor-intensive industry. Production techniques had

large manual labor content. Dispersal of industry was given an important

place in the promotional policy framework and industry capacities were

approved based on the estimated demand over the next five years. In the

growth and development of this industry, emphasis was placed on

indigenization of applications of electrons. While on the one hand, this had

enabled development of largely decision consumer electronics industry

(except from 1982 onwards when policy decision was taken to introduce

color TV and resulted in import of CTV tubes and semiconductors G.K.C.E,

SULLURPET 2

3. 3. A STUDY ON RATIO ANALYSIS required for assembly), it is has

generated enough demand of components to enable mass production using

some degree of automation. PRODUCTION AND DEFENSE

UNDERTAKING A substantial part of the defense stores needed by the

services is now being developed and produced in the country. The

responsibility for this has been entrusted to the Department of Defense

Production and supplies, which organizes, directs and coordinates

production of material and equipment required by the Armed Forces. It

carries our its responsibility through the Directorate of standardization,

Defense Research and Development (DRDO) and eight public sector

undertakings. There are 36 ordinances, factories whose main thrust is aimed

at meeting the twin objectives of modernization of the factories and

increasing productivity. The need for self-reliance under lines the existence

of ordinance factories. The factories widely dispersed over the length and

breadth of the country on strategic consideration, necessarily function

interdependently. The spectrum of technology leading to self reliance. The

range of products in these factories include armored vehicles, sophisticated

anti tank guns, anti-aircraft guns, field guns, self propelled guns, mounted

guns, motors, small arms and their related ammunitions. In addition software

items combat clothing, high attitude clothing, parachutes, and

mountaineering equipment are also being manufacturing. There are Eight

Public Sector enterprises under the department of defense production and

supplies. These are 1. Hindustan Aeronautics Limited (HAL). 2. Bharat

Electronic Limited(BHEL) 3. Bharat Earth Movers Limited(BEML) 4.

Mozagan Dock Limited(MDL) 5. Garden Reach Ship Builders & Engineers

Limited(GRS&E) 6. Goa Ship Yard Limited (GSL) 7. Bharat Dynamics

Limited (BDL) 8. Misra Dhatu Nigam Limited (MIDHANI) G.K.C.E,

SULLURPET 3
4. 4. A STUDY ON RATIO ANALYSIS The BHEL was established in 1954

with a single unit at Jalahalli, Bangalore to develop the indigenous electronic

industry. Since then, it has gone into leader in professional electronics with

its eight more units. G.K.C.E, SULLURPET 4

5. 5. A STUDY ON RATIO ANALYSIS COMPANY PROFILE BHEL is one

of the pioneers in engineering industries in the world. The vital role played

by BHEL today in the country is the mark of its continuous efforts to

improve the service in the nation by consultancy, manufacturing and

offering services in power sector. The success story of BHEL however goes

back in 1956 when its first plant was setup in Bhopal. The three major plants

in HARIDWAR, HYDERABAD AND THRICHIRAPALLI followed this.

These plants have been the core of BHEL’S efforts to grow, diversify, and

become one of the most integrated power and industrial equipment

manufacturers in the world. The company now has 14 manufacturing units, 8

service centers and 4 power sectors regional centers, besides project sites

spread all over India and abroad. BHEL manufactures over 180 products

under 30 major product groups and caters to core sectors of the Indian

Economy viz., Power Generation & Transmission, Industry, Transportation,

Telecommunication, Renewable Energy, oil business etc. Its products have

been established an enviable reputation for high quality and reliability. This
 is due to the emphasis placed all along on design, engineering and

manufacturing to international standards by acquiring and adopting some of

the best technologies developed in its own R&D centers. BHEL has acquired

ISO 9000 certification for quality management and ISO 14001 certification

for environment management. BHEL caters to the needs of different sectors

by designing and manufacturing according to the needs of its clientele in

power sector. ABOUT B.H.E.L RAMACHANDRAPURAM UNIT As a

member of the prestigious “BHEL” family”, BHEL – Hyderabad has earned

a reputation as one of its most important manufacturing units, contributing

its lion’s share in BHEL Corporation’s overall business operation. The

Hyderabad unit was setup in 1963 and started its operations with

manufacture of turbo-generator sets and auxiliaries for 60 and 110 MW

thermal utility sets. G.K.C.E, SULLURPET 5

6. 6. A STUDY ON RATIO ANALYSIS Over the years it has increased its

capacity range and diversified its operations to many other areas. Today, a

wide range of products are manufactured in this unit, catering to the needs of

variety of industries like fertilizers & chemicals, petrochemicals & Meeting

commitment made to externalrefineries, paper, sugar, steel, etc., BHEL –

Hyderabad unit has collaborations with world renowned MNCs like M/S

General Electric, USA, M/S Nuovo pignone, etc. COMPANY’S VISION,

 MISSION AND VALUES VISION A world class, innovative, competitive

and profitable engineering enterprise providing total business solutions.

MISSION To be the leading engineering enterprise providing quality

Products systems and services in the field of energy, transportation industry,

infrastructure and other potential areas. VALUES & Fosters learning,

creativityinternal customers. & Respect for dignityspeed of response.

& Integrity and fairness in all matters. History of Bharat Heavy Electricals

Ltd. Bharat Heavy Electricals Ltd - Comp. was set up at Bhopal in the name

of M/s Heavy electrical Indias limited in collaboration with AEI, UK.

Subsequently, three more G.K.C.E, SULLURPET 6 Zeal to excel.  Team

playing.  Loyalty and pride in the company. potential of individuals.

7. 7. A STUDY ON RATIO ANALYSIS plants were set up at Hyderabad,

Hardwar & Trichy. The Bhopal Unit was controlled by company, the other

three were under the control of Bharat Hevey Electricals Ltd. - The

Company object is to manufacture of heavy electrical equipments. ---1972 -

In July the Operations of all the four plants were integrated. ----1974 - In

January Heavy electrical [Indias] Ltd was merged with BHEL. - For the

manufacture of wide variety of products, the Comp. has developed

technological infrastructure, skills & quality to meet the stringent

requirements of power plants, transportation, petro chemicals, oil etc. -

 BHEL has entered into collaboration which are technical in nature. Under

these agreements, the collaborators have transferred, furnished the

information, documentation, including know-how relating to design,

engineering, manufacturing assembly etc. captive power plant at a steel plant

in West Bengal. -Bharat Heavy Electricals Ltd [BHELs]has informed that a

Joint Venture agreement between the Comp. & NTPC Ltd has been singed

on December 17, 2007 for Establishment & Operation of Joint Venture

Comp. for taking up EPC business. 2008 - 2010 - Bharat Heavy Electricals

Limited [BHELs], Trichy, has secured orders worth Rs 15,000 crore, its all-

time high. BHEL, said the recent MoU with the TNEB for setting up two

800 Mw thermal power stations near Chennai had resulted in the power

plant major bagging orders. -Bharat Heavy Electricals Ltd [BHELs] has

informed that pursuant to order dated March 04, 2008 issued by Ministry of

Heavy Industries & Public Enterprises, Department of Heavy Industry, Shri.

K Ravi Kumar Director [Powers]/BHEL has been entrusted with additional

charge of post of Chairman & Managing Director/BHEL w.e.f. March 01,

2008. - BHEL ties up with AP Genco for Vizag unit. G.K.C.E,

SULLURPET 7

8. 8. Dominate pla Navaratna company status.  Liberalizations has opened

up the market.  Growing power sector machinery.  Inadequate

 compensation payable to employees. Opportunities  No financial parlage.

 System implementation inadequate.  Excess manpower.  Low labor

cost and low manufacturing cost. Weakness  Products manufactured to

international standards.  Rapport between management and union.  Good

working condition.  Excellent state of all factors.  Vast pool of trained

manpower. A STUDY ON RATIO ANALYSIS SWOT ANALYSIS The

strengths, weakness, opportunities and threats which are experienced by

BHEL as a growing concern, have been summed up in the following lines.

Strengths Export potential growing. Threats • Liberalizations – Entry of

MNC’s / private sector – More compensation. G.K.C.E, SULLURPET

8yers in domestic market.

9. 9. A STUDY ON RATIO ANALYSIS • MNC wearing away good

employees with good attractive salaries. • Govt. Taxation policy – against

manufacturing sectors. • Dumping of goods. • Attractive credit policy by FFI

and MNC. PRODUCT PROFILE BHEL manufactures a wide range of

Power plant equipments and also caters to the industry sector. THE

PRODUCTS PROFILE INCLUDES • Gas Turbines • Turbo generators •

Pumps • Solar Water Heating Systems • Electrics for Urban Transportation

System G.K.C.E, SULLURPET 9 Figure-1

10.10. A STUDY ON RATIO ANALYSIS GAS TURBINES BHEL - the

largest Gas Turbine manufacturer in India, with the state-of-art facilities in

all areas of Gas Turbine manufacture provide complete engineering in-

house for meeting specific customer requirement. With over 100 machines

and cumulative fired hours of over four million hours, BHEL has supplied

gas turbines for variety of applications in India and abroad. BHEL also has

the world’s largest experience of firing highly volatile naphtha fuel on heavy

duty gas turbines. TURBO GENERATORS G.K.C.E, SULLURPET 10

Figure-2

11.11. A STUDY ON RATIO ANALYSIS BHEL presently has manufactured

Turbo-Generators of ratings upto 560 MW and is in the process of going up

to 660 MW. It has also the capability to take up the manufacture of ratings

up to 1000 MW suitable for thermal power generation, gas based and

combined cycle power generation as-well-as for diverse industrial

applications like Paper, Sugar, Cement, Petrochemical, Fertilizers, Rayon

Industries, etc. Based on proven designs and know-how backed by over

three decades of experience and accreditation of ISO 9001, the Turbo-

generator is a product of high- class workmanship and quality. Adherence to

stringent quality-checks at each stage has helped BHEL to secure prestigious

global orders in the recent past from Malaysia, Malta, Cyprus, Oman, Iraq,
 Bangladesh, Sri Lanka and Saudi Arabia. The successful completion of the

various export projects in a record time is a testimony of BHEL's

performance. PUMPS Figure-4 BHEL started manufacture of Pumps during

the mid-sixties under technical collaboration with M/s Sigma Latin,

Czechoslovakia, to meet the requirements of 60 MW, 110 MW and 210 MW

thermal power stations, the scope of which was widened to meet the

requirements of power plants up to 500 MW, with the help of another

collaboration with M/s Weir Pumps, U.K. BHEL has also made some in-

house G.K.C.E, SULLURPET 11 Figure

12.12. A STUDY ON RATIO ANALYSIS product development to gain spin

off benefits from the above collaboration as well as to develop new pumps to

meet the requirements of Combined Cycle Power plants. BHEL has

undertaken a design up-gradation and retrofit of the existing 200 KHI Boiler

Feed pumps Inside Stators with energy efficient hydraulics and cartridge

design internals under technical tie-up with M/s Sulzer Pumps, Germany;

and recommended the upgraded 200 KHI-S Boiler Feed pump to all

customers of 110 MW & 210 MW Power Stations operating with the earlier

Czech design for increase of pump availability and reliability and also

considerable reduction in operational costs. SOLAR WATER HEATING

SYSTEMS Figure-5 BHEL a pioneer in the field of design manufacturing

 and installation of solar water heating systems (SWHS) in the country till

date have installed systems covering more than 74,000 m2 of absorber area

of capacity over 37 Lakh liters per day. The largest over SWHS of 40000

LPD for space heating is in use at Dr. Willmar Schwab India Pvt. Ltd.

Noida. Solar water heating systems are environmental friendly, pollution

free equipments, harnessing the abundantly available Sun's energy. They

find application at homes, hostels, hotels, and hospitals (swimming pool,

bathing, washing, cleaning and cooking); in industrial process heating

(Textile, Food processing, Pharmaceutical, G.K.C.E, SULLURPET 12

13.13. A STUDY ON RATIO ANALYSIS Dyeing, Breweries, Metal Plating

industries); Milk dairies and chilling plants; space heating in central air

conditioning systems; pre-heating of boiler feed water. In the BHEL make

Solar Collector, stabilized efficiency values up to 65% is assured under

normal circumstances over a long period without degradation. ELECTRICS

FOR URBAN TRANSPORTATION SYSTEM Figure-6 • 25 KV AC, 50

HZ, single phase, broad gauge/meter gauge, Electrical Multiple Units with

DC Drives. • 1500V DC, broad gauge/meter gauge, Electric Multiple Units

with DC Drives. • 25 KV AC/1500 VDC broad gauge Electrical Multiple

Units with 3 phase drive. • Diesel Electric at Multiple Units • Metro

Railway. • Tram Cars G.K.C.E, SULLURPET 13

14.14. A STUDY ON RATIO ANALYSIS Some of the other products

manufactured by BHEL are: THERMAL POWER PLANT Steam turbines,

boilers and generators of up to 500 MW capacities to manufacture boilers

and steam turbines with super critical steam cycle parameters and matching

generators up 660 MW unit facilities available for 1000MW size. HYDRO

POWER PLANT Mini/Micro hydro sets Spherical, butterfly, rotary values

auxiliaries for hydro station. BOILERS Heat recovery steam generators,

pressure vessels chemical recovery boilers for paper industry ranging from

capacity of 100 to 100t/day of dry solids. POWER DEVICES High power

capacity silicon diodes, Thyristor devices and solar Photovoltaic cells.

SYSTEM AND SERVICES Power generation system Transmission system

Transportation system Industrial system PIPING SYSTEM G.K.C.E,

SULLURPET 14

15.15. A STUDY ON RATIO ANALYSIS Constant load hangers clamp and

hanger components, variable, spring hanger for power station up to 850 MW

capacities combined cycle plants, industrial boilers and process industries.

TRANSFORMERS Power transformers for voltage up to 400 KV HVDC

transformers and reactors of up to + or – 500 KV CAPACITORS Power

capacitors for industrial and power systems of up to 250 KVA rating for

application up to 400 KV Coupling/CVVT capacitors for voltages up to 400

 KV STUDY OBJECTIVES OF THE • To find out the cash fluctuations of

liquidity,profitability position in the BHEL • To find out the different types

of ratios in the BHEL company • To find out the financial performance &

financial distributions of the BHEL • To examine the feasibility of present

system of managing Working Capital turnover ratios in the Company • To

find out the working capital turnover ratios to analyze from 2007 – 08 to

2011-12. SCOPE OF THE STUDY: The study is confirmed to the

management of RATIO ANALYSIS in BHEL. Hyderabad. The main aim of

the study is to asses the necessary of managing Current Assets and Current

liabilities. NEED FOR STUDY G.K.C.E, SULLURPET 15

16.16. Opinion based on result on result of the analysis with conclusion.

DATA COLLECTION Primary Data: Personal Interview was held with key

personnel of finance department. Secondary Data: G.K.C.E, SULLURPET

16 DATA COLLECTION METHODS PRIMARY DATA SECONDARY

DATA Interpretation with the help of numeric and graphical presentation.

 Graphical presentation of the ratios indicating changes.  Preparation of

numeric data tables with data of accounting year wise factors of ratios with

calculated ratios. A STUDY ON RATIO ANALYSIS The most important

functions of the business firm are production, marketing finance. It is very

difficult to separate finance functions from production, marketing and other

 functions. The functions of raising funds, investing them in assets and

distributing returns earned from assets to share holders are respectively

known as financing, investing and dividend decisions. In doing so, a firm

attempts to balance cash inflow and outflows. Finance function call for

skillful planning control and execution of firm’s activities. Hence, the study

is taken to analyze the firm’s activities through “RATIO ANALYSIS”

RESEARCH METHODOLOGY The methodology to be followed here is –

17.17. A STUDY ON RATIO ANALYSIS Secondary data are those data,

which were already prepared by some others. I have collected some more

data from the following data i. From the Balance sheets and P& The

members of financial department are very busy with the audit work; hence

they are not being able to spend more time for me. G.K.C.E, SULLURPET

17 Working Capital standards pertains to relevant industry is also a

limiting factor for comparative analysis.  The analysis and interpretation of

collected data is restricted to necessary information.  During the project

period as some executives were busy with their work they could not afford

to give full information.  There is very less scope of gathering the

confidential data as we are only vocational trainees.  As the time span of

the study is only eight weeks gathering total information is not possible. L

accounts. ii. Published and unpublished manuals, records and files. Other
 information is gathered from the books mentioned in bibliography

LIMITATIONS

18.18. A STUDY ON RATIO ANALYSIS THEORETICAL FRAME WORK

RATIO ANALYSIS Financial ratios are useful indicators of a firm's

performance and financial situation. Financial ratios can be used to analyze

trends and to compare the firm's financials to those of other firms. Ratio

analysis is the calculation and comparison of ratios which are derived from

the information in a company's financial statements. Financial ratios are

usually expressed as a percent or as times per period. Ratio analysis is a

widely used tool of financial analysis. It is defined as the systematic use of

ratio to interpret the financial statements so that the strength and weaknesses

of a firm as well as its historical performance and current financial condition

can be determined. The term ratio refers to the numerical or quantitative

relationship between two variables. With the help of ratio analysis

conclusion can be drawn regarding several aspects such as financial health,

profitability and operational efficiency of the undertaking. Ratio points out

the operating efficiency of the firm i.e. whether the management has utilized

the firm’s assets correctly, to increase the investor’s wealth. It ensures a fair

return to its owners and secures optimum utilization of firm’s assets. Ratio

analysis helps in inter-firm comparison by providing necessary data. An

 inter firm comparison indicates relative position. It provides the relevant

data for the comparison of the performance of different departments. If

comparison shows a variance, the possible reasons of variations may be

identified and if results are negative, the action may be initiated immediately

to bring them in line. Yet another dimension of usefulness or ratio analysis,

relevant from the View point of G.K.C.E, SULLURPET 18

19.19. It helps in evaluating the firms performance With the help of ratio

analysis conclusion can be drawn regarding several aspects such as financial

health, profitability and operational efficiency of the undertaking. Ratio

poiA STUDY ON RATIO ANALYSIS management is that it throws light

on the degree efficiency in the various activity ratios measures this kind of

operational efficiency. Significance or Importance of Ratio Analysis It is

helpful in budgeting and forecasting G.K.C.E, SULLURPET 19 It helps in

determining the financial position of the concern Ratio analysis facilitates

the management to know whether the firms financial position is improving

or deteriorating or is constant over the years by setting a trend with the help

of ratios The analysis with the help of ratio analysis can know the direction

of the trend of strategic ratio may help the management in the task of

planning, forecasting and controlling.  It simplifies financial statement The

information given in the basic financial statements serves no useful Purpose

 unless it s interrupted and analyzed in some comparable terms. The ratio

analysis is one of the tools in the hands of those who want to know

something more from the financial statements in the simplified manner.  It

helps in inter-firm comparison Ratio analysis helps in inter-firm comparison

by providing necessary data. An inter firm comparison indicates relative

position. It provides the relevant data for the comparison of the performance

of different departments. If comparison shows a variance, the possible

reasons of variations may be identified and if results are negative, the action

may be initiated immediately to bring them in line. nts out the operating

efficiency of the firm i.e. whether the management has utilized the firm’s

assets correctly, to increase the investor’s wealth. It ensures a fair return to

its owners and secures optimum utilization of firms assets.

20.20. Operating efficiency: Yet another dimension of usefulness or ratio

analysis, relevant from the View point of management is that it throws light

on the degree efficiency in the various activity ratios measures this kind of

operational efficiency. Ratio analysis is a widely used tool of financial

analysis. It is defined as the systematic use of ratio to interpret the financial

statements so that the strength and weaknesses of a firm as well as its

historical performance and current financial condition can be determined.

The term ratio refers to the numerical or quantitative relationship between

 two variables. There are four important categories of ratios related to the

RATIO ANALYSIS of the firms. They are 1. Liquidity ratios 2. Leverage

ratios 3. Profitability ratios 4. Activity ratios G.K.C.E, SULLURPET 20

Long term solvency: Ratio analysis is equally for assessing the long term

financial ability of the Firm. The long term solvency is measured by the

leverage or capital structure and profitability ratio which shows the earning

power and operating efficiency, Solvency ratio shows relationship between

total liability and total assets.  Liquidity position With help of ratio analysis

conclusions can be drawn regarding the Liquidity position of a firm. The

liquidity position of a firm would be satisfactory if it is able to meet its

current obligation when they become due. The ability to met short term

liabilities is reflected in the liquidity ratio of a firm. A STUDY ON RATIO

ANALYSIS Accounting ratios provide a reliable data, which can be

compared, studied and analyzed. These ratios provide sound footing for

future prospectus. The ratios can also serve as a basis for preparing

budgeting future line of action.

21.21. A STUDY ON RATIO ANALYSIS 1. LIQUIDITY RATIOS It is

extremely essential for a firm to be able to meet its obligations as they

become due. Liquidity ratios measure the ability of the firm to meet its

current obligations. The most common ratios, which indicate the extent of
 liquidity, are 1.A. Current ratio 1.B.Quick ratio 1.A.CURRENT RATIO The

current ratio is calculated as per the following formula Current ratio =

Current assets Current liabilities Current assets include cash and those

assets, which can be converted into cash within a year. All obligations

maturing within a year are included in current liabilities. As a conventional

rule, a current ratio of 2:1 or more is considered satisfactory. The higher the

current ratio, the greater the margin of safety. 1.B.QUICK RATIO An asset

is quick or liquid if it can be converted into cash immediately without a loss

of value. Cash is the most liquid asset. Other assets which are considered to

be relatively liquid and included in quick assets are debtors and bills

receivables and marketable securities. The ratio can be calculated by using

the following formula Quick ratio = Quick assets Current liabilities

G.K.C.E, SULLURPET 21

22.22. A STUDY ON RATIO ANALYSIS Generally a quick ratio of 1:1 is

considered to represent a satisfactory current financial position.

2.LEVERAGE RATIOS The short term creditors like bankers and suppliers

of raw material are more concerned with the firm’s current debt paying

ability. On the other hand, long term creditors, like debenture holders,

financial institutions etc., are more concerned with the firm’s long term

financial strength. To judge the long term financial position of the firm,
 financial leverage or capital structure ratios are calculated. Leverage ratios

may be calculated form the balance sheet items to determine the proportion

of debt in total financing. The leverage ratios are calculated in two methods.

Such as 2.A. Total debt ratio 2.B.Debt equity ratio 2.A. TOTAL DEBT

RATIO Debt ratio is used to analyze the long term solvency of a firm. The

firm may be interested in knowing the proportion of the interest bearing debt

in the capital structure. It may, therefore, compute the debt ratio by using

following formula Debt Ratio = Total debt Total debt+Net worth 2.B. DEBT

EQUITY RATIO From the total debt ratio which clears the percentage of

lenders contribution to owner’s contribution or the relationship describing

the lender’s contribution for each rupee of the owner’s contribution is called

debt equity ratio. It can be calculated by using the following formula

G.K.C.E, SULLURPET 22

23.23. A STUDY ON RATIO ANALYSIS Debt equity ratio = Total debt Net

worth 3.PROFITABILITY RATIOS The profitability ratios are calculated to

measure the operating efficiency of the company. A company should earn

profits to survive and grow over a long period of time. Profit is the

difference between revenues and expenses over a period of time. We should

continuously evaluate the efficiency of its company in terms of profit.

Generally, two major types of profitability ratios are calculated 1.

 Profitability in relation to sales 2. Profitability in relation to investment 3.A.

GROSS PROFIT MARGIN The first profitability ratio in relation to sales is

the gross profit margin. It can be calculated as Gross profit margin = Sales –

Cost of goods sold Sales This ratio indicates the average spread between the

cost of goods sold and sales revenue. A high gross profit margin ratio is a

sign of goods management. It is relative to the industry average implies the

firm able to produce at relatively lower cost. A low gross profit margin may

reflect higher cost of goods sold due to the firm’s inability to purchase raw

materials at favorable terms, inefficient utilization of plant and machinery or

over investment in fixed assets resulting higher cost of production. G.K.C.E,

SULLURPET 23

24.24. A STUDY ON RATIO ANALYSIS 3.B. NET PROFIT MARGIN Net

profit is obtained when operating expenses, interest and taxes are subtracted

form the gross profit. The ratio is measured by using the following formula

Net profit margin = Profit after tax (PAT) Sales This ratio is establishes a

relationship between net profit and sales and indicates management’s

efficiency in manufacturing, administering and selling the products. This

ratio is the overall measure of the firm’s ability to turn each rupee sales into

net profit. 3.C. RETURN ON INVESTMENT The term investment may

refer to total assets or net assets. The conventional approach of calculating

 return on investment is to divide profit after tax by investment. ROI = EBIT

(I-T) Net assets 4.ACTIVITY RATIOS Activity ratios are employed to

evaluate the efficiency with which the firm manages and utilizes its assets.

These ratios are also called turnover ratios because they indicate the speed

with which assets are being converted or turnover into sales. Following are

the different activity ratios 4.A. Inventory turnover ratio 4.B. Debtors

turnover ratio 4.C. Assets turnover ratio 4.D. Fixed assets turnover ratio 4.A.

INVENTORY TURNOVER RATIO G.K.C.E, SULLURPET 24

25.25. A STUDY ON RATIO ANALYSIS This ratio indicates the efficiency of

the firm in producing and selling its product. It is calculates as Inventory

turnover ratio = Cost of goods sold Average work-in-progress 4.B

DEBTORS TURNOVER RATIO Debtors are expected to be converted into

cash over a short period and therefore are included in current assets. The

liquidity position of the firm depends on the quality of debtors to a great

extent. Debtors turnover ratio is calculated by using the following formula

Debtors turnover ratio = Credit Sales Average debtors 4.C. ASSETS

TURNOVER RATIOS Net assets turnover ratio = Sales Net assets Net

assets include net fixed assets and net current assets minus current liabilities.

A firm’s ability to produce a large volume of sales for a given amount of net

assets is the most important aspect of its operating performance. Total assets
 turnover ratio = Sales Total assets 4.D) FIXED ASSETS TURNOVER

RATIO: The numerator of this ratio is the sales for the period and the

denominator is the balance in the net fixed assets account at the end of the

year. This ratio is G.K.C.E, SULLURPET 25

26.26. A STUDY ON RATIO ANALYSIS supposed to measure the efficiency

with which fixed assets are employed. A high ratio indicates a high degree

of efficiency in assets utilization and a low ratio reflects inefficient use of

assets. It is calculated by dividing sales with fixed assets. It is used to

highlight the extent of utilization of the company’s plant equipment. Fixed

assets turnover ratio = Sales Fixed assets DATA ANALYSIS &

INTERPRETATION Current ratio:- The current ratio is calculated by

dividing current assets by current liabilities. Current assets include cash and

those assets, which can be converted into cash within a year, such as

marketable securities, debtors and inventories. Current liabilities include

creditors, bills payable, accrued expenses, short term bank loans etc.

CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIES

Table 1:- YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO

2007-08 174043233.6 80007395.82 2.17 2008-09 119472334.5

89258186.27 1.338 G.K.C.E, SULLURPET 26

27.27. A STUDY ON RATIO ANALYSIS 2009-10 85350227.24 81488065.33

1.047 2010-11 145292000 117086000 1.24 2011-12 158329780

78980214.39 2.01 Graph no.1:- Interpretation:- The normal standard of

current ratio is 2:1. The company’s current ratio is more than the standard

ratio in 2007-08, i.e. 1.24, 2008-09(2.01). in the remaining years 2007-08

(2.17), 2008-09(1.33) ,2009-10(1.04) the current ratio is lower than the

standard ratio. G.K.C.E, SULLURPET 27

28.28. A STUDY ON RATIO ANALYSIS 2. Quick ratio:- This ratio

establishes a relationship between quick or liquid assets and current

liabilities. An asset is liquid if it can be converted into cash immediately or

reasonably soon without a loss of value cash is the most liquid assets, other

assets are bills receivables, debtors and marketable securities. Inventories are

considered to be less liquid. The ratio shows the assets which are

immediately converted into cash to meet the short term obligations of the

firm. QUICK RATIO = CURRENT ASSETS-(STOCK+PREPAID

EXPENCES) CURRENT LIABILITIEs Table no. 2:- YEAR QUICK

ASSETS CURRENT LIABILITIES RATIO 2007-08 101406887.1

80007395.82 1.267 2008-09 112520280.53 89258186.27 1.261 G.K.C.E,

SULLURPET 28
29.29. A STUDY ON RATIO ANALYSIS 2009-10 65172524.29 81488065.33

0.799 2010-11 134132000 117086000 1.145 2011-12 93876746.86

78980214.39 1.188 Graph no.2:- Interpretation:- The normal standard of

Quick Ratio is 1:1. In only one year the ratio decreased than the standard

ratio, i.e. 0.799 in 2009-10. In remaining years 2008- 09(1.26),2008-

09(1.21),2010-11(1.14),2011-12(1.18) the quick ratio maintains the ratio

higher than the standard ratio. So the quick ratio is in a satisfied manner.

G.K.C.E, SULLURPET 29

30.30. A STUDY ON RATIO ANALYSIS 3. Inventory turnover ratio:- The

inventory turnover ratio measures how quickly the stock is converted into

sales. It is the test of efficient inventory management. To measure the

efficient, the ratio should be compared on the basis of trend analysis or with

the level of other firms. The higher the ratio, the better is the performance of

the company. A low ratio may indicate a slow moving inventory.

INVENTORY TURNOVER RATIO = COST OF GOODS SOLD

AVERAGE INVENTOR Table no.3:- YEAR COST OF GOOD SOLD

AVERAGE INVENTORY RATIO 2007-08 227335354 45831224.04 4.96

2008-09 277429458 24784534.25 11.19 G.K.C.E, SULLURPET 30

31.31. A STUDY ON RATIO ANALYSIS 2009-10 296868782.6 12932762.7

22.95 2010-11 478057802.39 15046401.2 31.77 2011-12 70274871.73

 37806516.57 1.85 Graph no.3:- Interpretation:- The above graph indicates

the increasing trend of inventory turnover ratio from the years 2007-

08(4.96),2008-09(11.19),2009-010(22.5),2010- G.K.C.E, SULLURPET 31

32.32. A STUDY ON RATIO ANALYSIS 11(31.77). It indicates the inventory

is effectively converted into sales. But in the last year the inventory turnover

ratio is decreased to 1.85 4. Fixed assets turnover ratio:- This ratio is

supposed to measure the efficiency with which fixed assets are employed. A

high ratio indicates a high degree of efficiency in assets utilization and a low

ratio reflects inefficient use of assets. It is calculated by dividing sales with

fixed assets. It is used to highlight the extent of utilization of the company’s

plant equipment. FIXED ASSETS TURNOVER RATIO = SALES FIXED

ASSETS Table no.4:- YEAR SALES FIXED ASSETS RATIO 2007-08

281649206 177111306.4 1.59 2008-09 256485255 179168799.9 1.43 2009-

10 307770938.7 181315968 2.22 2010-11 567778000 190266000 2.98

2011-12 378800000 196150122.87 1.93 G.K.C.E, SULLURPET 32

33.33. A STUDY ON RATIO ANALYSIS Graph no.4:- Interpretation:- The

fixed assets turnover ratio is higher in 2008-09, i.e. 2.3. And in the

remaining years, the ratios are 1.377, 1.277, 1.432 and 1.616 for the years

2007-08, 2008-09, 2009-10 and 2010-11 respectively. G.K.C.E,

SULLURPET 33
34.34. A STUDY ON RATIO ANALYSIS 5. Total assets turnover ratio: -

Assets are used to generate sales. A firm should manage its assets efficiently

to maximize sales. The relationship between sales and assets is called assets

turnover ratio. Assets turnover ratio is computed by dividing sales with total

assets. TOTAL ASSETS TURNOVER RATIO = SALES TOTAL ASSETS

Table no.5:- YEAR SALES TOTAL ASSETS RATIO 2007-08 281649206

582554034.19 0.48 2008-09 256485255 602597207.23 0.42 2009-10

307770938.7 636378314.37 0.62 2010-11 567778000 644256581.33 0.88

2011-12 378800000 656875754.81 0.57 G.K.C.E, SULLURPET 34

35.35. A STUDY ON RATIO ANALYSIS Graph no.5:- Interpretation:- The

total assets turnover ratio is high in the year 2007-08, i.e. 1.036. In the

remaining years it is 0.655 in 2008-09, 0.592 in 2010-11, 0.633 in 2011-12

and 0.729 in 2010-11. It is better to improve the ratio by converting the total

assets into sales. G.K.C.E, SULLURPET 35

36.36. A STUDY ON RATIO ANALYSIS 6. Working capital turnover ratio:-

This ratio indicates whether or not working capital has been effectively

utilized in making sales. In case a company can achieve higher volume of

sales with relative small amount of working capital, it is an indication of the

operating efficiency of the company. WORKING CAPITAL TURNOVER

RATIO:- SALES NET WORKING CAPITAL Table no.6:- YEAR SALES

 NET WORKING CAPITAL RATIO 2007-08 281649206.8 94035837.79

2.95 2008-09 256485255.3 30214148.3 11.798 2009-10 402770938.7

3862161.91 104.286 2010-11 567778000 28206000 25.21 2011-12

378800000 79349565.61 6.034 G.K.C.E, SULLURPET 36

37.37. A STUDY ON RATIO ANALYSIS Graph no.6:- Interpretation:- The

working capital turnover ratio is very peak in the year 2007-08, i.e. 104.28.

and in the remaining years 2008-09(2.95),2009-10(11.7),2010-

11(25.2),2011-12(6.0) the working capital ratio is in the normal position.

High turnover indicates the sign of over trading and puts the firm into

financial difficulties. G.K.C.E, SULLURPET 37

38.38. A STUDY ON RATIO ANALYSIS 7. Interest coverage ratio:- This

ratio is very important for the lenders point of view. It indicates whether the

business would earn sufficient profits to pay periodically the interest

charges. The higher the number, the more secure the lender is in respect of

his periodical interest income. It is calculated as follows: REST

COVERAGE RATIO = EBIT INTEREST CHARGE Table no.7:- YEAR

EBIT INTEREST RATIO 2007-08 -16602435 2195337.51 -0.8 2008-09

4175100 3007655 0.2 2009-10 -11935835.3 10552222.9 8 -0.2 2010-11

55738197 8001000 0.6 2011-12 259934715 10552222.9 2 0.8 G.K.C.E,

SULLURPET 38
39.39. A STUDY ON RATIO ANALYSIS Graph no.7:- Interpretation:-

Interest coverage ratio should not decrease more than 1.5 times. If it

decreases more than this it may cause the financial risk, and the ideal one is

six to seven times. The interest coverage ratio of Sai global yarntex, ltd is

negative in 2007-08 and 2008-09. It is 0.2in 2009-10 and 0.2 in 2011-12, 0.8

in 2009-10. The company should maintain the ratio in a standard manner to

avoid the problem of financial risk. G.K.C.E, SULLURPET 39

40.40. A STUDY ON RATIO ANALYSIS 8. Gross profit ratio:- It is calculated

by dividing the gross profit with sales. This ratio shows the profits relative to

sales after the direct production costs are deducted. This ratio establishes the

relationship between operating profit and sales to measure the relative

operating efficiency of the company. GROSS PROFIT RATIO= GROSS

PROFIT*100 NET SALES (Gross Profit = Net Sales - Cost of Goods Sold)

Table no.8:- YEAR GROSS PROFIT OR LOSS SALES RATIO 2007-08

646651 281649206.8 0.016 2008-09 -24709650.88 256485255.3 -6.93 2009-

10 100875904.7 402770938.7 0.20 2010-11 61725000 567778000 9.24

2011-12 65438368.28 378800000 13.66 G.K.C.E, SULLURPET 40

41.41. A STUDY ON RATIO ANALYSIS Graph no.8:- Interpretation:- The

firm incurred gross loss in 2007-08 i.e.-6.93. And it got profits in 2008-

09(0.016), 2009-10(0.217), 2010-11(9.24) and 2011-12(13.66). The gross

 profit ratio of the firm is not satisfactory due to the fluctuations in the gross

profit ratio. G.K.C.E, SULLURPET 41

42.42. A STUDY ON RATIO ANALYSIS 9. Net profit ratio:- This ratio is

measured by dividing profit after tax by sales. It indicates management’s

efficiency in manufacturing, administering and selling the products. The

ratio is the overall measure of the firm’s ability. NET PROFIT RATIO=

NET PROFIT BEFORE TAX*100 NET SALES Table no.9:- YEAR NET

PROFIT/LOSS SALES RATIO 2007-08 -24132675.02 281649206.8 -6.323

2008-09 1107655.17 256485255.3 0.310 2009-10 72425688.91

402770938.7 0.144 2010-11 19742000 567778000 2.95 2011-12

25814892.16 378800000 5.391 G.K.C.E, SULLURPET 42

43.43. A STUDY ON RATIO ANALYSIS Graph no.9:- Interpretation:- The

company incurred net losses in 2007-08(-6.323) and 2008-09(5.637) and got

profits in 2009-10(0.31), 2010-11(2.95) and 2009-10(5.391). Hence it is

satisfactorily in the year 2011-12 only. FINDINGS G.K.C.E, SULLURPET

43

44.44. A STUDY ON RATIO ANALYSIS • The efficiency of management at

financial position of BHEL is good in 2007-2008 and 2008-09. • In 2007-08

there is increase in net working capital (75,136) compare with the previous

year. It mean increasing the debt long-term source investing in current assets
 which leads to increase the expenditure i.e. interest, financial charges. • The

overall liquidity position of BHEL is satisfactory. • BHEL securing the long-

term debts through the issue of non convertible vidyut bonds. • The

percentage of current assets, loans and advances to current liabilities

increase from 115% in 2009-10 to 124% in 2010-11 and further increased to

170% in 2011-12. SUGGESTIONS G.K.C.E, SULLURPET 44

45.45. The company has already taken action to reduce expenditure. Yet some

more necessary steps need to be taken to reduce expe The company must

try for maintenances of proper current assets to possess the short time

solvency.  The company should maintain enough reserves to expand the

business.  The company should adopt effective operation research

techniques to reduce cost of production.  Company should make efforts to

utilize its fixed assets in an optimum manner. A STUDY ON RATIO

ANALYSIS The company cash position is low. It is better to increase cash

levels. CONCLUSION G.K.C.E, SULLURPET 45nditure by the company

head.

46.46. However the success can be achieved through proper utilization of

financial resources, more inventory turnover, and high liquidity, less cost of

production and last but not least making a high volume of sales. G.K.C.E,

SULLURPET 46 It is a well build organization with great opportunity,

good facilities, very well organized environmental control and most

important safely measures for safety of employees.  It was a great

experience in this company. According to my experience, it is a well

established organization with entire production is undertaken with highest

quality machinery’s.  Different operating year shows the different growth

in different areas. Hence each in flow and out flow of the company shows

the efficiency of the management and maximum utilization of limited

resources in an economical way. A STUDY ON RATIO ANALYSIS

Though the finance play the vital role in versatile field. Once should have

enough conscious on each operation.