A STUDY ON RATIO ANALYSIS OF SRI VENGADALAKSHMI SPINNERS --------------------------------------------------------------------------------------------------------------------INTRODUCTION Finance holds the key to all human activity.

It is guide for regulating investment decisions and expenditure and endeavors to squeeze the most out of every available rupee. The government too, treats it as a signpost, a beckon to responsibility that covers men, money, material, methods and management. Out of these finance is a resource and it has to be managed efficiently for the successful functioning of an enterprise. Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. FINANCIAL PERFORMANCE ANALYSIS The focus of financial analysis is on key figures in the financial statements and the significant relationship that exists between them. The analysis of financial statements is a process of evaluating relationship between component parts of financial statements to obtain a better understanding of the firms position and performance. The first task of financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statement. The second step involved in financial analysis is to arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing of inferences and conclusions. In brief, financial analysis is the process of selection, relation, and evaluation. TOOLS OF FINANCIAL ANALYSIS Ratio analysis Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weakness 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 items/ variables. This relationship can be expressed as: (i) percentages (ii) Fractions (iii) Proportion of numbers.

Computing of ratios does not add any information not already inherent in the financial statement. The ratios reveal that relationship in a more meaningful way so as to enable us to draw conclusions from them. The rationale of ratio analysis lies in the fact that it makes related information comparable. A single figure by itself has no meaning but when expressed in terms of a related figure, it yields significant interfaces. The ratio analysis, as a quantitative tool, answers to questions such as: are the net profits adequate? Are the assets being used efficiently? Is the firm Solvent? Can the firm meet its current obligations? And so on. It is also defined as an expression of the quantitative relationship between two numbers. INTRODUCTION ABOUT THE COMPANY Sri Venkatalakshmi Spinners (P) Ltd. (SVS) was established in 1981 at Udumalpet, a textile town around 70 km. from Coimbatore. The company now focuses primarily on spinning Polyester/Cotton/Viscose(P/C/V) counts using RING AND VORTEX SPINNING technologies. We were one of the first entrants in the P/C segment in the south and are also a leading mill with a good brand name in this segment. At present we are spinning 45s to 60s fine and 2/80s to 2/100s superfine counts for apparel applications (combed and carded) in our ring spinning project. Most of our production is marketed in Bombay, Ichalkaranji and Ahmedabad. Our niche is in developing specialty applications in the P/C/V segments. The company has a total installed capacity of around 13,000 ring spinning spindles capable of producing fine quality P/C blended yarns for various segments and is expanding with 11 new Vortex Spinning Machines. Modern state of the art machineries are being installed in the mill through its continuous modernization programs to meet the stringent market requirements. The core strength of the mill is its excellent and well trained employee teams working in a systematic and a scientific manner in solving the problems. We are continuously striving to develop systems for all our activities. SVS is a customer centric company striving to achieve a 100% customer satisfaction in all aspects. Our teams adhere to a strict quality and customer satisfaction policy. We are among one of the few mills that are repeating high productivities at high quality levels every year. To be a successful company in terms of cost we have our own captive power generation through generators and a wind mill. We have just completed a new state-of-art vortex air-jet spinning plant for producing value added functional yarns for specialty applications like quick moisture absorbency, quick drying properties, low hairiness, low pilling and high wash fastness-resistance. This particular

yarn provides proven cost savings in terms of materials in sizing, weaving, processing and dyeing. The yarn quality levels in terms of Count CV (less than 1), IPI Values, Hairiness, Classimat , Dye Pick-up and C olor Strength values are exceptional . We strongly believe that the yarn will be of a real value proposition for all the down stream processors in the supply chain. We can supply both single and doubled yarn packages from count ranges Ne16s to Ne2/80s with any single or blended P/C/V raw materials and other specialty fibers. We are backed up by our machinery partners Murata Machinery Limited for spinning and also Trutzchler for all our preparatory machineries. Our new Vortex spinning plant is equipped with all online quality monitoring computers to identify and control quality during the spinning and drawing process itself. DATA ANALYSIS & INTERPRETATION Net Profit Margin Ratio Net Profit Ratio = (Net Profit after Tax / Net Sales) x 100 Year 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010 Net Profit After Tax 2,483,226 27,793,429 13,372,347 26,629,773 22,321,948 Net Sales 443,655,702 562,156,209 558,979,157 642,036,128 684,042,985 Ratio % 0.56 4.94 2.39 4.15 3.26

INTERPRETATION The ratio was highest in the period 2006 2007 and lowest in the period 2005 2006. It shows a fluctuating trend.

Net Profit Margin Ratio

6 4 2 0 2005 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010 0.56 4.94 2.39

4.15 3.26

Operating Profit Margin Ratio Operating Profit Ratio = (Operating Profit / Net Sales) x 100

Year 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

Operating Profit

Net Sales

Ratio %

24,963,264 33,518,306 35,247,359 60,449,540 65,282,800

443,655,702 562,156,209 558,979,157 642,036,128 684,042,985

5.63 5.96 6.31 9.42 9.54

INTERPRETATION Higher operating profit ratio shows better operating efficiency. The ratio was high in period 2009 2010. Therefore the operating efficiency is better in periods 2008 2009 & 2009 2010.

Operating Profit Margin Ratio

15 10 5.63 5 0
2005 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

9.42 5.96 6.31

9.54

TURN OVER RATIO: Debtors turnover Ratio Debtors turnover Ratio = (Total Sales / Debtors) Year 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010 Total Sales 443,655,702 562,156,209 558,979,157 642,036,128 684,042,985 Debtors 93,213,080 123,053,398 126,619,031 111,904,860 124,894,006 Ratio (in times) 4.76 4.57 4.41 5.74 5.48

INTERPRETATION The Debtors turnover ratio shows a fluctuating trend. The ratio was low in the period 2007 2008 and high in the year 2008 2009. Though it is fluctuating it show a consistent position.

Debtors turnover Ratio

8 6 4 2 0
2005 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

4.76

5.74 4.57 4.41

5.48

Debt Collection Period Debt Collection Period = [ (Months/ Days in a Year) / Debtors Turnover] Debtors Turnover Year Days in a Year (in times) 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010 360 360 360 360 360 4.76 4.57 4.41 5.74 5.48 Debt Collection Period (in days) 75.63 78.77 81.63 62.72 65.69

INTERPRETATION A shorter collection period implies prompt payment by debtors. The collection period was high in the period 2007 2008 (81.63 days) and low in the period 2008 2009 (62.72 days).

Debt Collection Period

100 80 60 40 20 0 75.63 78.77 81.63 62.72 65.69

2005 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

Fixed Asset Turnover Ratio Fixed Asset Turnover Ratio = (Net Sales / Fixed Assets) Year 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010 Net Sales 443,655,702 562,156,209 558,979,157 642,036,128 684,042,985 Fixed Assets 147,770,694 139,052,943 132,523,352 128,771,175 144,989,602 Ratio 3.00 4.04 4.22 4.99 4.72

INTERPRETATION The Fixed Asset Turnover ratio shows an increasing trend. The ratio was low initially and raised in succeeding periods to 4.99 in the period 2008 2009 and it slightly decreased to 4.72 in the period 2009 2010.

Fixed Asset Turnover Ratio

6 4.04 4 2 0
2005 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

4.22

4.99

4.72

Total Assets Turnover Ratio Total Assets Turnover Ratio =( Net Sales / Total Assets)

Year 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

Net Sales 443,655,702 562,156,209 558,979,157 642,036,128 684,042,985

Total Assets 251,868,614 325,379,860 295,678,264 290,317,852 299,028,910

Ratio 1.76 1.73 1.89 2.21 2.29

INTERPRETATION The ratio was low in the period 2005 2006 and high in the period 2009 2010. It shows an increasing trend.

Total Assets Turnover Ratio

2.5 2 1.5 1 0.5 0 1.76 1.73 1.89 2.21 2.29

2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

Stock Velocity Stock Velocity = (Days in a Year / Inventory Turnover Ratio)

Year

Days in a Year

Inventory Turnover Ratio (in times) 4.12 3.93 3.44 3.89 3.57

In days

2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

360 360 360 360 360

87.38 91.60 104.65 92.54 100.84

INTERPRETATION The inventory turnover ratio and the velocity period of the company remained stable which is 3.44 times and 104.65 days. In 2005 2006 the velocity period was 87.38. Introduction of proper stock control system like periodic stock taking would bring down the velocity period.

Stock Velocity
110 100 90 80 70
2005 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009 - 2010

104.65 87.38 91.6 92.54

100.84

CONCLUSION The above study is taken only for a limited period of five years with limited ratio. As per the above analysis the companys financial performance seems to be good. The company should bring the proper stock control to bring down the velocity period. ---------------------------------------------------------------------------------------------------------------------