Ntcc 4th Sem.docx

RATUL MAITRA

NTCC

A90606417149

Page |1

DECLARATION

I Ratul Maitra of BBA (4A) hereby declare that the project titled “Study of financial performance using ratio analysis” which is submitted by me to department of management, Amity School of Business in Amity University Kolkata in partial fulfilment of requirement for the award of degree Bachelor of Business Administration has not been previously formed the basis for the award of any degree, or other similar title or recognition. The Author attests that permission has been obtained for the use of any copy righted material appearing in the dissertation / project report other than brief experts requiring only proper acknowledgment in scholarly writing and all such use in acknowledged.

Date: ___________ Ratul Maitra A90606417149

Name and Signature of Student

RATUL MAITRA

NTCC

A90606417149

Page |2

CERTIFICATE

This is to certify that Mr. Ratul Maitra, student of BBA in Business Administration has carried out work presented in the project of the Tem paper entitle “Study of financial performance using ratio analysis” as a part of second year program of Bachelor of Business Administration from Amity University, Kolkata under my supervision.

___________________________________

Prof. Ribhu Ray Department of Management ASBK ( Kolkata)

RATUL MAITRA

NTCC

A90606417149

Page |3

ACKNOWLEDGEMENT

The satisfaction that accompanies that the successful completion of any task would be Incomplete without the mention of people whose ceaseless cooperation made it possible, whose constant guidance and encouragement crown all efforts with success. I would like to thank Prof. Debarghya Bagchi Head of Department management and Amity University for giving me the opportunity to undertake this project. I would like to thank my faculty guide Prof. Ribhu Ray sir who is the biggest driving force behind my successful completion of the project. He has been always there to solve any query of mine and also guide me in the right direction regarding the project. Without the help and inspiration, I would not have been able to complete this project. Also I would like to thank my batch mates who guided me, helped me and gave ides and motivation at each step.

________________________________________

Ratul Maitra

RATUL MAITRA

NTCC

A90606417149

Page |4

ABSTRACT I express my sincere gratitude to my faculty guide Prof. Ribhu Ray Sir, for his able guidance, continuous support and co-operation throughout my project, without which the present work would not have been possible. My endeavour stands incomplete without dedicating my gratitude to Sir. He has contributed a lot towards successful completion of my project work. I would also like to express my gratitude to my family, friends for their unending support and tiered less effort that kept me motivated throughout the completion of this project.

In this project, titled “A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD”. This aim is to analysis the liquidity and profitability position of the company using the financial tools. This study based on financial statements such as Ratio Analysis, Comparative balance sheet. By using this tools combined it enables to determine in an effective manner. The study is made to evaluate the financial position, the operational results as well as financial progress of a business concern. This study explains ways in which ratio analysis can be of assistance in long-range planning, budgeting and asset management to strengthen financial performance and help avoid financial difficulties. The study not only throws on the financial position of a firm but also serves as a stepping stone to remedial measures for Emami Limited. This project helps to identify and give suggestion the area of weaker position of business transaction in “EMAMI LTD”.

Yours Sincerely RATUL MAITRA

RATUL MAITRA

NTCC

A90606417149

Page |5

INDEX

CONTENT 1. INTRODUCTION 2. REVIEW OF LITERATURE 3. TYPES OF RATIO 4. CURRENT RATIO 5. QUICK RATIO 6. CASH RATIO 7. ACTIVITY RATIO 8. AVERAGE COLLECTION PERIOD 9. INVENTORY TURNOVER RATIO 10.WORKING CAPITAL TURNOVER 11.FIXED ASSETS TURNOVER RATIO 12.PROPRIETORY RATIO 13.DEBIT TO EQUITY RATIO 14.INTEREST COVERAGE RATIO 15.GROSS PROFIT MARGIN 16.NET PROFIT MARGIN 17.RETURN OF INVESTMENT 18.RETURN ON EQUITY 19.RETURN ON TOTAL ASSETS 20.COMPARATIVE BALANCESHEET 21.RESEARCH OBJECTIVE 22.RESEARCH METHODOLOGY 23.CONCLUSION

PAGE NO. 6 7 8 9 10 12 13 13 16 17 19 20 22 23 25 27 28 30 32 34 36 37 39

RATUL MAITRA

NTCC

A90606417149

Page |6

Introduction to the study Financial Management is that management activity which is concerned with the planning and controlling of the firm’s financial resource. Though it was a branch of economics till 1890 as a separate or discipline it is of recent origin. Financial Management is concerned with the duties of the finance manager in a business firm. He performs such varied tasks as budgeting, financial forecasting, cash management, credit administration, investment analysis and funds procurement. The recent trend towards globalization of business activity has created new demands and opportunities in managerial finance. Financial statements are prepared and presented for the external users of accounting information. As these statements are used by investors and financial analysts to examine the firm’s performance in order to make investment decisions, they should be prepared very carefully and contain as much investment decisions, they should be prepared very carefully and contain as much information as possible. Preparation of the financial statement is the responsibility of top management. The financial statements are generally prepared from the accounting records maintained by the firm. Financial performance is an important aspect which influences the long term stability, profitability and liquidity of an organization. Usually, financial ratios are said to be the parameters of the financial performance. The Evaluation of financial performance had been taken up for the study with “EMAMI LIMITED” as the project.

Analyses of Financial performances are of greater assistance in locating the weak spots at the Emami limited eventhough the overall performance may be satisfactory. This further helps in

 Financial forecasting and planning.  Communicate the strength and financial standing of the Emami limited.  For effective control of business.

RATUL MAITRA

NTCC

A90606417149

Page |7

REVIEW OF LITERATURE 1.Financial statements Analysis: The financial statements provide some extremely useful information to the extent that the balance sheet mirrors the financial position on a particular date in terms of the structure of assets, liabilities and owners’ equity, and so on and the profit an loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. Thus, the financial statements provide a summarized view of the financial position and operations of a firm. Therefore, much an be learnt about a firm from a careful examination of its financial statements as invaluable documents performance reports. The analysis of financial statements is thus, an important aid to financial 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 the relationship between component parts of financial statements to obtain a better understanding of the firm’s position and performance. The first task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing of inferences and conclusion. In brief, the financial analysis is the process of selection, relation and evaluation. 2.Ratio Analysis: Ratio analysis is a widely-use tool of financial analysis. It can be used to compare the risk and return relationships of firms of different sizes. It is defined as the systematic use of ratio 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 and variables. These ratios are expressed as (i) percentages, (ii) fraction and (iii) proportion of numbers. These alternative methods of expressing items which are related to each other are, for purposes of financial analysis, referred to as ratio analysis. It should be noted that computing the ratios does not add any information not already inherent in the above figures of profits and sales. What the ratio do is that they reveal the relationship in a more meaningful way so as to enable equity investors, management and lenders make better investment and credit decisions.

RATUL MAITRA

NTCC

A90606417149

Page |8

Types of Ratios 1. Liquidity Ratios Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation. 

Current Ratio- The Current Ratio expresses the relationship between the firm’s current assets and its current liabilities. Current assets normally include cash, marketable securities, accounts receivable and inventories. Current liabilities consist of accounts payable, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages). Current assets Current Ratio = _______________ Current liabilities

Significance:-It is generally accepted that current assets should be 2 times the current liabilities. In a sound business, a current ratio of 2:1 is considered an ideal one. If current ratio is lower than 2:1, the short term solvency of the firm is considered doubtful and it shows that the firm is not in a position to meet its current liabilities in times and when they are due to mature. A higher current ratio is considered to be an indication that of the firm is liquid and can meet its short term liabilities on maturity. Higher current ratio represents a cushion to short-term creditors, “the higher the current ratio, the greater the margin of safety to the creditors”.

RATUL MAITRA

NTCC

A90606417149

Page |9

CURRENT RATIO

Interpretation:- As a conventional rule, a current ratio of 2:1 is considered satisfactory. This rule is base on the logic that in a worse situation even if the value of current assets becomes half, the firm will be able to meet its obligation. The current ratio represents the margin of safety for creditors. The current ratio has been decreasing year after year which shows decreasing working capital. From the above statement the fact is depicted that the liquidity position of the Emami limited is satisfactory because all the five years current ratio is not below the standard ratio CURRENT RATIO

RATUL MAITRA



NTCC

A90606417149

P a g e | 10

Quick Ratio :-Measures assets that are quickly converted into cash and they are compared with current liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g. inventories. The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its short-term obligations from its “quick” assets only (i.e. it ignores stock). The quick ratio is calculated as follows:-

Quick assets Quick Ratio = ____________________ Current liabilities

Significance:-The standard liquid ratio is supposed to be 1:1 i.e., liquid assets should be equal to current liabilities. If the ratio is higher, i.e., liquid assets are more than the current liabilities, the short term financial position is supposed to be very sound. On the other hand, if the ratio is low, i.e., current liabilities are more than the liquid assets, the short term financial position of the business shall be deemed to be unsound. When used in conjunction with current ratio, the liquid ratio gives a better picture of the firm’s capacity to meet its short-term obligations out of short-term assets.

QUICK RATIO

RATUL MAITRA

NTCC

A90606417149

P a g e | 11

Interpretation:- As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. It is a more rigorous and penetrating test of the liquidity position of a firm. But the liquid ratio has been decreasing year after year which indicates a high operation of the business. From the above statement, it is clear that the liquidity position of the Emami limited is satisfactory. Because the entire five years liquid ratio is not below the standard ratio of 1:1. QUICK RATIO



Cash ratio:-This is also known as cash position ratio or super quick ratio. It is a variation of quick ratio. This ratio establishes the relationship between absolute liquid assets and current liabilities. Absolute liquid assets are cash in hand, bank balance and readily marketable securities. Both the debtors and the bills receivable are exclude from liquid assets as there is always an uncertainty with respect to their realization. In other words, liquid assets minus debtors and bills receivable are absolute liquid assets. Cash Ratio =

Cash in hand & at bank + Marketable securities ________________________________________________ Current Liabilities

RATUL MAITRA

NTCC

A90606417149

P a g e | 12

Significance:-This ratio gains much significance only when it is used in conjunction with the first two ratios. The accepted norm for this ratio is 50% or 0.5:1 or 1:2(i.e.,) Re. 1 worth absolute liquid assets are considered adequate to pay Rs.2 worth current liabilities in time as all the creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories. This test is a more rigorous measure of a firm’s liquidity position. This type of ratio is not widely used in practice. CASH RATIO Cash in Hand

Current

& at Bank

Liabilities

Rs. in lakhs

Rs. in lakhs

2001 – 2002

130.54

775.49

0.17

2002 – 2003

141.15

644.26

0.22

2003 – 2004

46.11

1154.12

0.04

2004 – 2005

34.43

1501.76

0.02

2005 – 2006

82.12

3905.45

0.02

Year

Ratio

Interpretation:-The acceptable norm for this ratio is 50% or 1:2. But the cash ratio is below the accepted norm. So the cash position is not utilized effectively and efficiently. CASH RATIO

RATUL MAITRA

NTCC

A90606417149

P a g e | 13

2. Activity Ratio:-If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. Unless the business continues to generate high turnover, assets will be idle as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to assess how active various assets are in the business.



Average Collection Period: The average collection period measures the quality of debtors since it indicates the speed

of their collection. 

The shorter the average collection period, the better the quality of debtors, as a short collection period implies the prompt payment by debtors.



The average collection period should be compared against the firm’s credit terms and policy to judge its credit and collection efficiency.



An excessively long collection period implies a very liberal and inefficient credit and collection performance.



The delay in collection of cash impairs the firm’s liquidity. On the other hand, too low a collection period is not necessarily favorable, rather it may indicate a very restrictive credit and collection policy which may curtail sales and hence adversely affect profit.

360 days Average collection period = ____________________ Debtors turnover ratio

Significance:-Average collection period indicates the quality of debtors by measuring the rapidity or slowness in the collection process. Generally, the shorter the average collection period, the better is the quality of debtors as a short collection period implies quick payment by debtors. Similarly, a higher collection period implies as inefficient collection performance which, in turn, adversely affects the liquidity or short term paying capacity of a firm out of its current liabilities. Moreover, longer the average collection period, larger is the chances of bad debts.

RATUL MAITRA

NTCC

A90606417149

P a g e | 14

AVERAGE COLLECTION PERIOD Debtors Turnover Ratio Year

Days

Rs. in lakhs

Days

2001 – 2002

360

4211.03

0.09

2002 – 2003

360

3100.98

0.12

2003 – 2004

360

4405.70

0.08

2004 – 2005

360

3524.79

0.10

2005 – 2006

360

3667.52

0.10

Interpretation:-The shorter the collection period, the better the quality of debtors. Since a short collection period implies the prompt payment by debtors. Here, collection period decrease from 2003-2004 and increased slightly in the year 2005-2006. Therefore the average collection period of Emami ltd for the five years is satisfactory.

AVERAGE COLLECTION PERIOD



Inventory Turnover Ratio:- This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business.It indicates the

RATUL MAITRA

NTCC

A90606417149

P a g e | 15

efficiency of the firm in selling its product. It is calculated by dividing he cost of goods sold by the average inventory. Cost of goods sold Inventory Turnover Ratio = ___________________ Average Inventory Significance:-This ratio is calculated to ascertain the number of times the stock is turned over during the periods. In other words, it is an indication of the velocity of the movement of the stock during the year. In case of decrease in sales, this ratio will decrease. This serves as a check on the control of stock in a business. This ratio will reveal the excess stock and accumulation of obsolete or damaged stock. The ratio of net sales to stock is satisfactory relationship, if the stock is more than three-fourths of the net working capital. This ratio gives the rate at which inventories are converted into sales and then into cash and thus helps in determining the liquidity of a firm.

INVENTORY TURNOVER RATIO

Year

Cost of goods

Average

sold

Inventory

Rs. in lakhs

Rs. in lakhs

Ratio

2001 – 2002 11209.73

3732.19

3.0

2002 – 2003 11939.46

3508.00

3.4

2003 – 2004 13708.36

3537.44

3.88

2004 – 2005 12609.33

3385.92

3.72

2005 – 2006 17543.71

3668.52

4.78

Interpretation:-A higher turnover ratio is always beneficial to the concern. In this the number of times the inventory is turned over has been increasing from one year to another year. This increasing turnover indicates immediate sales. And in turn activates production

RATUL MAITRA

NTCC

A90606417149

P a g e | 16

process and is responsible for further development in the business. This indicates a good inventory policy of the company. Thus the stock turnover ratios of Emami Limited, for the five years are satisfactory.

INVENTORY TURNOVER RATIO



Working capital turnover ratio:-This ratio shows the number of times the working capital results in sales. In other words, this ratio indicates the efficiency or otherwise in the utilization of short term funds in making sales. Working capital means the excess of current assets over current liabilities. In fact, in the short run, it is the current assets and current liabilities which pay a major role. A careful handling of the short term assets and funds will mean a reduction in the amount of capital employed, thereby improving turnover. The following formula is used to measure this ratio:

Sales Working capital turnover ratio = __________________ Net Working Capital

RATUL MAITRA

NTCC

A90606417149

P a g e | 17

Significance:-This ratio is used to assess the efficiency with which the working capital has been utilized in a business. A higher working capital turnover indicates either the favorable turnover of inventories and receivables and/or the inadequate of net working capital accompanied by low turnover of inventories and receivables. A low ratio signifies either the excess of net working capital or slow turnover of inventories and receivables or both. This ratio can at best be used by making of comparative and trend analysis for different firms in the same industry and for various periods.

WORKING CAPITAL TURNOVER RATIO Sales

Net Working Capital

Rs. in lakhs

Rs. in lakhs

Ratio

2001 – 2002 18262.60

9181.32

1.99

2002 – 2003 19808.5

8181.53

2.42

2003 – 2004 21612.94

8572.61

2.52

2004 – 2005 21885.20

8382.88

2.61

2005 – 2006 30087.56

8044.02

3.74

Year

Interpretation:-The Working Capital Turnover Ratio is increasing year after year. It can be noted that the change is due to the fluctuation in sales or current liabilities. These higher ratio are indicators of lower investment of working Capital and more profit. Thus, Working Capital Turnover ratios for the five years are satisfactory.

RATUL MAITRA

NTCC

A90606417149

P a g e | 18

WORKING CAPITAL TURNOVER RATIO



Fixed Assets Turnover Ratio:-The fixed assets turnover ratio measures the efficiency with which the firm has been using its fixed assets to generate sales. It is calculated by dividing the firm’s sales by its net fixed assets as follows: Sales

Fixed Assets Turnover =_______________ Net fixed assets Significance:- This ratio gives an ideal about adequate investment or over investment or

under investment in fixed assets. As a rule, over-investment in unprofitable fixed assets should be avoided to the possible extent. Under-investment is also equally bad affecting unfavorably the operating costs and consequently the profit. In manufacturing concerns, the ratio is important and appropriate, since sales are produced not only by use of working capital but also the capital invested in fixed assets. An increase in this ratio is the indicator of efficiency in work performance and a decrease in this ratio speaks of unwise and improper investment in fixed assets.

RATUL MAITRA

NTCC

A90606417149

P a g e | 19

FIXED ASSETS TURNOVER RATIO Net Fixed Year

Sales

Assets

Rs. in lakhs

Rs. in lakhs

Ratio

2001 – 2002 18262.60

25169.20

0.73

2002 – 2003 19808.50

23599.92

0.84

2003 – 2004 21612.94

23293.33

0.93

2004 – 2005 21885.20

21863.99

1.00

2005 – 2006 30087.56

20245.48

1.49

Interpretation:-The fixed assets turnover ratio is increasing year after year. The overall higher ratio indicates the efficient utilization of the fixed assets.Thus the fixed assets turnover ratio for the five years are satisfactory as such there is no under utilization of the fixed assets.

FIXED ASSETS TURNOVER RATIO

RATUL MAITRA

NTCC

A90606417149

P a g e | 20

3.Financial Leverage (Gearing) Ratios:-The ratios indicate the degree to which the activities of a firm are supported by creditors’ funds as opposed to owners. The relationship of owner’s equity to borrowed funds is an important indicator of financial strength. The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicates a cushion (surplus) which shields creditors against possible losses from default in payment. 

Proprietary Ratio:- This ratio is also known as ‘Owners fund ratio’ (or) ‘Shareholders equity ratio’ (or) ‘Equity ratio’ (or) ‘Net worth ratio’. This ratio establishes the relationship between the proprietors’ fund and total tangible assets. The formula for this ratio may be written as follows. Proprietors’ funds

Proprietary Ratio = _____________________ Total tangible assets Significance:- This ratio represents the relationship of owner’s funds to total tangible assets, higher the ratio or the share of the shareholders in the total capital of the company, better is the long term solvency position of the company. This ratio is of importance to the creditors who can ascertain the proportion of the shareholders’ funds in the total assets employed in the firm. A ratio below 50% may be alarming for the creditors since they may have to lose heavily in the event of company’s liquidation on account of heavy losses. PROPRIETARY RATIO Proprietors Fund

Total Tangible Assets

Year

Rs. in lakhs

Rs. in lakhs

Ratio

2001 – 2002

27653.24

35932.12

0.77

2002 – 2003

27629.57

33237.8

0.83

2003 – 2004

27906.09

33710.84

0.83

2004 – 2005

31683.74

37139.68

0.85

2005 – 2006

33521.63

40904.75

0.82

RATUL MAITRA

NTCC

A90606417149

P a g e | 21

Interpretation:-This ratio is particularly important to the creditors and it focuses on the general financial strength of the business. A ratio of j50% will be alarming for the creditors. As such the proprietary ratio of the five years is above 50%.Therefore it indicates relatively little danger to the creditors, etc. And a better performance of the company.

PROPRIETARY RATIO



Debt to Equity ratio:- This ratio indicates the extent to which debt is covered by shareholders’ funds. It reflects the relative position of the equity holders and the lenders and indicates the company’s policy on the mix of capital funds. The debt to equity ratio is calculated as follows:

Total debt Debt to Equity Ratio = ____________ Total equity Significance:- The importance of debt-equity ratio is very well reflected in the words of Weston and brigham which are reproduced here: “Debt-equity ratio indicates to what extent the firm depends upon outsiders for its existence. For the creditors, this provides a margin of safety. For the owners, it is useful to measure the extent to which they can gain the benefits of maintaining control over the firm with a limited investment:” The debt-equity ratio states unambiguously the amount of assets provided by the outsiders for every one rupee of assets provided by the shareholders of the company.

RATUL MAITRA

NTCC

A90606417149

P a g e | 22

DEBT TO EQUITY RATIO Total Debt

Total Equity

Rs. in lakhs

Rs. in lakhs

Ratio

2001 – 2002 7241.39

27653.24

0.26

2002 – 2003 4628.27

27629.57

0.17

2003 – 2004 4221.63

27906.09

0.15

2004 – 2005 3474.18

31683.74

0.11

2005 – 2006 3216.67

33521.63

0.10

Year

Interpretation:- The debt to equity ratio is decreasing year after year. A low debt equity ratio is considered favorable from management. It means greater claim of shareholders over the assets of the company than those of creditors. For the company also, the servicing of debt is less burdensome and consequently its credit standing is not adversely affected. Therefore debt to equity ratio is satisfactory to the company.

DEBT TO EQUITY RATIO

.



Interest coverage ratio:-The times interest earned shows how many times the business can pay its interest bills from profit earned. Present and prospective loan creditors such as bondholders, are vitally interested to know how adequate the interest

RATUL MAITRA

NTCC

A90606417149

P a g e | 23

payments on their loans are covered by the earnings available for such payments. Owners, managers and directors are also interested in the ability of the business to service the fixed interest charges on outstanding debt. The ratio is calculated as follows: DEBIT Interest Coverage Ratio =_______________ Interest charges Significance:-It is always desirable to have profit more than the interest payable. In case profit is either equal or lesser than the interest, the position will be unsafe. It will show that there this nothing left for the shareholders and the position of the lendors is also unsafe. A high ratio is a sign of low burden of dept servicing and lower utilization of borrowing capacity. From the points of view of creditors, the larger the coverage, the greater the ability of the firm to handle fixed charges liabilities and the more assessed the payment of interest to the creditors. In contrast the low ratio signifies the danger the signal that the firm is highly dependent on borrowings and its earnings cannot meet obligations fully. The standard for this ratio for an industrial undertaking is 6 to 7 times.

INTEREST COVERAGE RATIO EBIT

Interest on Fixed Loans

Rs. in lakhs

Rs. in lakhs

Ratio

2001 – 2002 1767.75

7241.39

0.24

2002 – 2003 2087.49

4628.27

0.45

2003 – 2004 2260.62

4221.63

0.54

2004 – 2005 3037.66

3474.18

0.87

2005 – 2006 5030.58

3216.67

1.56

Year

RATUL MAITRA

NTCC

A90606417149

P a g e | 24

Interpretation:- The Interest coverage ratio is increasing year after year. A high ratio is a sign of low burden of dept servicing and lower utilization of borrowing capacity. Therefore this ratio is satisfactory to the company.

INTEREST COVERAGE RATIO

3. Profitability Ratios:- Profitability is the ability of a business to earn profit over a period of time. Although the profit figure is the starting point for any calculation of cash flow, as already pointed out, profitable companies can still fail for a lack of cash. A company should earn profits to survive and grow over a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits, irrespective of social consequences. The ratios examined previously have tendered to measure management efficiency and risk. 

Gross Profit Margin:-Normally the gross profit has to rise proportionately with sales. It can also be useful to compare the gross profit margin across similar businesses although there will often be good reasons for any disparity.

Gross profit Gross Profit Margin = ________________

*100

Sales Significance:-The gross profit ratio helps in measuring the results of trading or manufacturing operations. It shows the gap between revenue and expenses at a point after which an enterprise has to meet the expenses related to the non-manufacturing activities, like

RATUL MAITRA

NTCC

A90606417149

P a g e | 25

marketing, administration, finance and also taxes and appropriations.The gross profit shows the gap between revenue and trading costs. It, therefore, indicates the extent to which the revenue have a potential to generate a surplus. In other words, the gross profit reveals the mark up on the sales. Gross profit ratio reveals profit earning capacity of the business with reference to its sale. Increase in gross profit ratio will mean reduction in cost of production or direct expenses or sale at a reasonably good price and decrease in the will mean increased cost of production or sales at a lesser price. Higher gross profit ratio is always in the interest of the business.

GROSS PROFIT MARGIN

Year

Gross Profit

Net Sales

Rs. in lakhs

Rs. in lakhs

Ratio

2001 – 2002 7052.87

18262.60

38.62

2002 – 2003 7925.86

19808.5

40.01

2003 – 2004 7904.58

21612.94

36.57

2004 – 2005 9275.87

21885.20

42.38

2005 – 2006 12543.85

30087.56

41.69

Interpretation:- In the year 2002, the Gross Profit Ratio was 39% but then it increased to 40%, which shows a good profit earning capacity of the business with reference to its sales. But in the year 2004, it decreased to 37% which may be due to increase in cost of production or due to sales at lesser price. But thereafter, for the succeeding two years, it has increased considerably, which indicates that the cost of production has reduced. Therefore the Gross Profit Ratio for the five years reveals a satisfactory condition of the business.

RATUL MAITRA

NTCC

A90606417149

P a g e | 26

GROSS PROFIT MARGIN



Net Profit Margin:-This is a widely used measure of performance and is comparable across companies in similar industries. The fact that a business works on a very low margin need not cause alarm because there are some sectors in the industry that work on a basis of high turnover and low margins, for examples supermarkets and motorcar dealers. What is more important in any trend is the margin and whether it compares well with similar businesses. Earnings after interest and taxes

Net Profit Margin =______________________________ *100 Net Sales Significance:- An objective of working net profit ratio is to determine the overall efficiency of

the business. Higher the net profit ratio, the better the business. The net profit ratio indicates the management’s ability to earn sufficient profits on sales not only to cover all revenue operating expenses of the business, the cost of borrowed funds and the cost of merchandising or servicing, but also to have a sufficient margin to pay reasonable compensation to shareholders on their contribution to the firm. A high ratio ensures adequate return to shareholders as well as to enable a firm to with stand adverse economic conditions. A low margin has an opposite implication.

RATUL MAITRA

NTCC

A90606417149

P a g e | 27

NET PROFIT MARGIN Year

Net Profit

Sales

Ratio

2001 – 2002

Rs. in lakhs 2848.84

Rs. in lakhs 18262.60

15.60

2002 – 2003

2800.13

19808.5

14.14

2003 – 2004

2871.54

21612.94

13.29

2004 – 2005

3752.3

21885.20

17.15

2005 – 2006

5937.78

30087.56

19.74

Interpretation:-In the year 2002 the Net Profit is 15.60%, but in the year 2002-2003 it was decreased to 14.14 and 13.29. Which may due to excessing selling and distribution expenses. But thereafter for the succeeding years it has been increasing which indicates a better performance of the company. Therefore the performance of the management should be appreciated. Thus an increase in the ratio over the previous periods indicates improvement in the operational efficiency of the business. NET PROFIT MARGIN

RATUL MAITRA



NTCC

A90606417149

P a g e | 28

Return on Investment (ROI):- Income is earned by using the assets of a business productively. The more efficient the production, the more profitable the business. The rate of return on total assets indicates the degree of efficiency with which management has used the assets of the enterprise during an accounting period. This is an important ratio for all readers of financial statements. Investors have placed funds with the managers of the business. The managers used the funds to purchase assets which will be used to generate returns. If the return is not better than the investors can achieve elsewhere, they will instruct the managers to sell the assets and they will invest elsewhere. The managers lose their jobs and the business liquidates.

Operating profit Return on Investment =_____________________ Capital Employed Significance:-Return on capital employed shows overall profitability of the business. At first minimum return on capital employed should be determined and then the actual rate of return on capital employed should be determined and compared with the normal return. The return and capital employed is a fair measure of the profitability of any concern with the result that even the result of dissimilar industries may be compared.

RETURN ON INVESTMENT Operating Profit

Capital Employed Rs. in lakhs

Year

Rs. in lakhs

Ratio

2001-2002

2531

35803

7.07

2002-2003-

2434

33355

7.30

2003-2004

2437.54

32556.72

7.49

2004-2005

3190.73

35637.92

8.95

2005-2006

4733.93

36999.30

12.79

RATUL MAITRA

NTCC

A90606417149

P a g e | 29

Interpretation;- This ratio indicates that how much of the capital invested is returned in the form of net profit. This ratio is increasing year after year which indicates the capital employed is returned in the form of net profit. In the same manner, returns from capital employed for the succeeding years are good. Thus, the Return on Investment ratio for the five years shows the efficiency of the business which is very much satisfactory. RETURN ON INVESTMENT



Return on Equity (ROE)

This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a return. The stockholders’ equity includes share capital, share premium, distributable and non-distributable reserves. The ratio is calculated as follows: Net profit after taxes and preference dividend Return on Equity =__________________________________________ Equity capital

RATUL MAITRA

NTCC

A90606417149

P a g e | 30

Significance:-This ratio measures the profitability of the capital invested in the business by equity shareholders. As the business is conducted with a view to earn profit, return on equity capital measures the business success and managerial efficiency. It reveals whether the firm has earned a reasonable profit to its equity shareholders or not by comparing it with its own past records, inter-firm comparison and comparison with the overall industry average. This ratio is of significant use in the ratio analysis from the standpoint of the owners of the firm.

RETURN ON EQUITY Net Profit after Tax Year

and Preference

Equity Capital Ratio

Dividend

Rs. in lakhs

Rs. in lakhs 2001 – 2002 2848.84

561.50

5.07

2002 – 2003 2800.13

561.50

4.99

2003 – 2004 2871.54

1123.00

2.56

2004 – 2005 3752.3

1223.00

3.07

2005 – 2006 5937.78

1223.00

4.86

Interpretation;-In the year 2002, the return on equity ratio is 5.07 but in the year 2003 it reduced to 4.99, which may due to capital investment . And in the year 2005-2006 it increased to 3.07 to .86. Therefore the return on equity ratio for the five years reveals a satisfactory condition of the business.

RATUL MAITRA

NTCC

A90606417149

P a g e | 31

RETURN ON EQUITY



Return on Total assets :-This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationship between net profits and assets. As these two terms have conceptual differences, the ratio may be calculated taking the meaning of the terms according to the purpose and intent of analysis. Usually, the following formula is used to determine the return on total assets ratio.

Return on total assets = (Net profit after taxes and interest / Total assets) * 100 Significance:-This ratio measures the profitability of the funds invested in a firm but doe not reflect on the profitability of the different sources of total funds. This ratio should be compared with the ratios of other similar companies or for the industry as a whole, to determine whether the rate of return is attractive. This ratio provides a valid basis for interindustry comparison.

RATUL MAITRA

NTCC

A90606417149

P a g e | 32

RETURN ON TOTAL ASSETS

Net Profit after Year

Taxes and Interest

Total Assets

Rs. in lakhs

Rs. in lakhs

Ratio

2001 – 2002 2848.84

35156.63

8.10

2002 – 2003 2800.13

32593.54

8.59

2003 – 2004 2871.54

32556.72

8.82

2004 – 2005 3752.3

35637.92

10.53

2005 – 2006 5937.78

36999.3

16.05

Interpretation:- The return on total assets ratio is increasing year after year . This increasing ratio indicates the effective funds invested. Therefore the return on Total Assets ratio for the five years reveals a satisfactory condition of the business.

RETURN ON TOTAL ASSETS

RATUL MAITRA

NTCC

A90606417149

P a g e | 33

4. Comparative statement:-Comparative study of financial statement is the comparison of the financial statement of the business with the previous year’s financial statements and with the performance of other competitive enterprises, so that weaknesses may be identified and remedial measures applied. Comparative statements can be prepared for both types of financial statements i.e., Balance sheet as well as profit and loss account. The comparative profits and loss account will present a review of operating activities of the business. The comparative balance shows the effect of operations on the assets and liabilities that change in the financial position during the period under consideration. Comparative analysis is the study of trend of the same items and computed items into or more financial statements of the same business enterprise on different dates. The presentation of comparative financial statements, in annual and other reports, enhances the usefulness of such reports and brings out more clearly the nature and trends of current changes affecting the enterprise. While the single balance sheet represents balances of accounts drawn at the end of an accounting period, the comparative balance sheet represent not nearly the balance of accounts drawn on two different dates, but also the extent of their increase or decrease between these two dates. The single balance sheet focuses on the financial status of the concern as on a particular date, the comparative balance sheet focuses on the changes that have taken place in one accounting period. The changes are the direct outcome of operational activities, conversion of assets, liability and capital form into others as well as various interactions among assets, liability and capital.

RATUL MAITRA

NTCC

A90606417149

P a g e | 34

Comparative Balance Sheet as on 31st March 2005 – 2006 Change in 31st March

31st March

Absolute

Percentage

2005

2006

Figure

Increase or

Rs. in lakhs

Rs. in lakhs

Rs. in lakhs

Decrease

Fixed Assets (A)

21863.99

20245.48

(1618.51)

7.40

Investment ( B )

5391.05

8709.80

3318.75

61.56

Inventories

3674.58

3662.46

(12.12)

0.33

Sundry Debtors

3524.79

3667.52

142.73

4.05

Cash and Bank Balance

34.43

82.12

47.69

138.51

Loans and Advances

2650.84

4537.37

1886.53

71.17

Total current Assets ( C )

9884.64

11949.47

2064.83

20.89

Total Assets ( A+B+C )

37139.68

40904.75

3765.07

10.14

Share Capital

1223.00

1223.00

-

-

Reserves and Surplus

30460.74

32298.63

1837.89

6.03

Deferred Tax

480.00

261.00

(219)

45.63

Total Shareholders Funds

32163.74

33782.63

1618.89

5.03

Secured loans

3375.82

3124.08

(251.74)

7.46

Unsecured loans

98.36

92.59

(5.77)

5.87

Total Loan Funds ( B )

3474.18

3216.67

(257.51)

7.41

Current Liabilities and

1501.76

3905.45

2403.69

160.06

37139.68

40904.75

3765.07

10.14

Particulars

Current Assets :

Shareholders Funds :

(A) Loan Funds :

Provision( C) Total Liabilities (A+B+C)

Interpretation:-The comparative balance sheet of the company reveals during 2006, that there has been a decrease in the fixed assets of Rs.(1618.51) lakhs, which indicates sale of fixed assets and an inflow of cash. The long term loan has reduced by Rs.(257.51) lakhs,

RATUL MAITRA

NTCC

A90606417149

P a g e | 35

which indicates the repayment of loan. This fact depicts that the loan is relayed through the cash received by sale of fixed assets. The current asset has increased by Rs.2064.83 lakhs which indicate a firm’s better credit policy. The current liability has also increased by Rs.2403.69 lakhs, which indicates that the payment of liabilities is not made within the stipulated period. The investment has increased by Rs.3318.75 lakhs as such the investment of the company on the shares in its subsidiary company has increased, which indicates on outflow of cash. The overall financial position of the company for the year (2005-2006) is satisfactory.

SUGGESTION, RECOMMENDATION 1. The liquidity position of the company can be utilized in a better or other effective purpose. 2. The company can be use the credit facilities provided by the creditors. 3. The debt capital is not utilized effectively and efficiently. So the company can extend its debt capital. 4. Efforts should be taken to increase the overall efficiency in return out of capital employed by making used of the available resource effectively. 5. The company can increase its sources of funds to make effective research and development system for more profits in the years to come.

RATUL MAITRA

NTCC

A90606417149

P a g e | 36

Research Objectives Research objectives refer to the main aim for conducting a particular research work on a predefined topic. Here, the topic is about the “Performance Appraisal and its effectiveness on IT Industries”. And the objectives for this research work are as follows :1. To develop my understanding of the subject – Performance Appraisal System implemented in various organizations varies according to the need and suitability. Through my research, I have tried to study the kind of appraisal used in the organisation and the various pros and cons of this type of system. 2. To enhance the welfare of employees – The Appraisal system is conceived by the management but mostly does not take into consideration the opinion of the employees. This can lead to adverse problems in the organisations. Therefore by this study I have attempted to put forth the opinion of the employee with respect to the acceptability of the performance appraisal system.

3. To conduct a study on social behaviour – Social behaviour is a very unpredictable aspect of human life but social research is an attempt to acquire knowledge and to use the same for social development. 4. To exercise social control and predict changes in behaviour – The ultimate objective of my research is to make it possible to predict the behaviour of individuals by studying the factors that govern and guide them.

5. To study the performance appraisal system – In order to gain knowledge regarding the performance appraisal systems in different IT Industries and their effectiveness in different IT Industries. 6. To understand and evaluate performance appraisal mechanism in operation – To know how the performance appraisal mechanism is used in the operations in different IT Industries.

7. To determine the talent of the employees and make future plans – To determine the talent, strength and quality of the performing employees in the IT Firms and plan for future requirements and for an ideal “organisational structure”, identify gaps and take important actions.

8. To enrich the career and succession planning of the employees – To enrich the career and succession planning of the employees and to build in-house pool of talent for the future needs of the HOD’s and GM’s.

RATUL MAITRA

NTCC

A90606417149

P a g e | 37

Research Methodology Work performance appraisal systems assess the employee’s effectiveness, work habits and also the quality of the work produced. The research methodology used to evaluate the accuracy and effectiveness of the appraisal instrument takes different forms and depends on the type of career professional under the microscope for evaluation, but the foundation for all evaluations rests on several basic research techniques. The evaluation methodology corroborates the original employee evaluations and performance appraisals through supporting multiple research reporting measures. The research methodologies used to evaluate the employee performance appraisal systems in the IT Industries are as follows :1. Correlating Data and Appraisals – Correlating operational data on employee firing and reprimands offers one way to assess the validity of the employee appraisal systems in place at the workplace. Tracking the staff members with negative feedback during evaluations and noting the types of reprimands and retraining necessary to improve work skills or performance allows administrative officers a chance to correlate the negative comments with the requests for improvement. Long term correlations allow tracking of the employees’ improvement or the staff fired after failed attempts at remediation. 2. Self-Assessments and Supervisor Evaluations – Other forms of evaluation for performance appraisal systems include input from employees using selfassessment tools and also supervisor appraisals of the system of evaluation. The employee self-reflection offers the vantage point of examining the evaluation from the worker level. The supervisors offer the viewpoint of a middle-upper-level management evaluator. Both have a unique stake in the appraisal process and also experience in dealing with a variety of appraisal system users. Grouping both workers and supervisors into separate and anonymous feedback groups provides candid opinions on the perceived validity of the appraisal system. While some viewpoints offer only biased information, common threads and repeated comments do provide validity for some of the assessment areas. 3. Direct Observation – The use of multiple research measures to evaluate performance appraisal systems includes using secondary outside assessment teams to support or challenge the original appraisal staff findings. Hiring a professional assessment firm to visit the workplace on a formal and informal basis provides feedback independent form in-house evaluations by staff or workers. Meeting with the outside assessment team prior to the visit focuses the evaluation on key issues noted on the in-house assessment. Direct observation methods by outside teams using video of the workplace also offer an independent research method for correlating the employee performance with the appraisals. 4. Client or Customer Evaluations – Another research methodology used to evaluate the findings from employee performance appraisal systems involves setting up an additional study involving work customers or business clients. This secondary evaluation takes the form of written comment forms, telephone surveys

RATUL MAITRA

NTCC

A90606417149

P a g e | 38

or online questionnaires where the client answers questions developed to test the validity of the original performance appraisal. When the original appraisal cited staff failing to follow up on customer care, for instance, the questions developed for a secondary evaluation probe this area in depth to validate or disprove the original assessment. 5. Checklists – In this system, a large number of statements that describe a specific job are given. Each statement has a weight or scale value attached to it. While rating an employee the supervisor checks all those statements that most closely describe the behaviour of the individual under assessment. The rating sheet is then scored by averaging the weights of all the statements checked by the rater. A checklist is constructed for each job by having persons who are quite familiar with the jobs. These statements are then categorised by the judges and weights are assigned to the statements in accordance with the value attached by the judges.

RATUL MAITRA

NTCC

A90606417149

P a g e | 39

CONCLUSION:-

The study is made on the topic financial performance using ratio analysis with five years data in Emami Limited. The current and liquid ratio indicates the short term financial position of Emami Ltd. whereas debt equity and proprietary ratios shows the long term financial position. Similarly, activity ratios and profitability ratios are helpful in evaluating the efficiency of performance in EmamiLtd.The financial performance of the company for the five years is analyzed and it is proved that the company is financially sound.

RATUL MAITRA

NTCC

A90606417149

P a g e | 40