Ratio Analysis Project Of Manju.docx

A STUDY ON RATIO ANALYSIS WITH SPECIAL REFERENCE TO “ANVITA HONDA SHOW ROOM ” VIJAYAWADA” A PROJECT WORK SUBMITTED TO KRISHNA UNIVERSITY, MACHILIPATNAM.

In partial fulfillment of the requirement for the award of the degree of BACHELOR OF BUSINESS ADMINISTRATION Submitted by MANJEERA VELIKANTI Under the guidance of

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(Affiliated to KRISHNA UNIVERSITY) GVR Towers, opp: Vinayak Theatre, Vijayawada. KRISHNAVENI DEGREE COLLEGE OF BUSINESS MANAGEMENT VIJAYAWADA – 08

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CERTIFICATE This is to certify that the project work entitled “A STUDY

ON

SPECIAL

RATIO

ANALYSIS

REFERENCE

AT

WITH

“ANVITA

HONDA SHOW ROOM” VIJAYAWADA” is being submitted by V.MANJEERA bearing register number Y166194022 student of 3rd year, belongs to department of Business Management studies, KRISHNAVENI DEGREE COLLEGE, Vijayawada

under

my

guidance

in

partial

fulfillment of award for the Degree in Bachelor of Business Management for the period 2016-2019

(Project Guide)

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DECLARATION I “MANJEERA

VELIKANTI” hereby

declare that this project titled “A STUDY ON RATIO

ANALYSIS

WITH

SPECIAL

REFERENCE AT “ANVITA HONDA SHOW ROOM, VIJAYAWADA” has been prepared by me in partial fulfillment of the requirement for the award of Degree of BACHELOR OF BUSINESS ADMINISTRATION.

I also declare that this project report is my original work and that it has not been submitted to any other University for the award of any degree or diploma SIGNATURE MANJEERA VELIKANTi

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ACKNOWLEDGEMENT I feel immense pleasure & proud to be a part of Westin College Of Business Management that has nurtured me to the present state and I feel grateful towards it. I would like to thank our college Director, Mr. Durga Prasad and also Mr.P.Chandrashekar Principal of Westin College of Business Management I express my sincere thanks to “ANVITA HONDA”,VIJAYAWADA, for allowing me to undertake a project in their company. I was under the continuous and valuable guidance of SHYAM PRASAD, General Manager that I was able to complete the work entrusted to me. Lastly I would like to thank my project guide Mrs.UMA RAJYA LAXMI,(MBA, PhD, HRM)who was a constant source of encouragement.

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TABLE OF CONTENTS S. NO

PARTICULARS

1

INTRODUCTION

2

COMPANY DETAILS

3

REVIEW OF LITERATURE

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DATA ANALYSIS AND INTERPRETATION

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SUMMARY AND CONCLUSION

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BIBILOGRAPHY

PAGE NUMBERS 7-14

15-34

35 -80

81-94

95

96-106

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INTRODUCTION We know business is mainly concerned with the financial activities. In order to ascertain the financial status of the business every enterprise prepares certain statements, known as financial statements.

Financial

statements

are

mainly

prepared for decision making purposes. But the information as is provided in the financial statements is not adequately helpful in drawing a meaningful conclusion. Thus, an effective analysis and interpretation of financial statements is required.

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TITLE OF THE PROJECT: A Study On “RATIO ANALYSIS WITH REFERENCE TO ANVITA HONDA SHOW ROOM.”

NEED FOR THE STUDY:  The need of the study is to analyze the existing situation of the company.  The study is necessitated to make aware of the practical knowledge on financial management.  The study gives a clear cut picture of the company

regarding

their

liquidity

and

profitability position.  The study also helps the company to find out its solvency position.

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OBJECTIVES OF THE STUDY: The primary objective is to assess the existing financial position of “RATIO ANALYSIS WITH REFERENCE TO ANVITA HONDA SHOW ROOM.” 1. . during the study period. To analyze the financial position of the (ANVITA HONDA VIJAYAWADA.) 2. . during the study period by using ratio analysis. 3. To know the credit worthiness of the company. 4. To analyze the trends of various items which appear in financial statements. 5. To

know

the

company’s

liquidity

and

profitability position by ratios.

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6. To offer suggestions for improving financial position of the company, if require.

SCOPE OF THE STUDY:  The study undertaken consists of 4 financial years i.e., from 2011-2012 to 2014-2015. The study is made with the techniques of comparative, common size, trend and ratios for evaluating the financial performance of (ANVITA HONDA VIJAYAWADA.)  The study aims at understanding the various financial issues of the concern.

DATA COLLECTION: PRIMARY DATA:

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The primary data related to the study has been collected from • Mr.SHYAM PRASAD(GENERAL MANAGER) • Mr.SUNEEL (SALES MANAGER) SECONDARY DATA: The data collected for making my study on Financial Statement Analysis is secondary data; the various sources of secondary data are as follows: http://www.investopedia.com/ https://www.indiamart.com/ www.pdfcoke.com

PERIOD OF STUDY:

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The duration of the study is 90 days based on the annual reports of the company(ANVITA HONDA VIJAYAWADA.) LIMITATIONS OF STUDY: Availability of information is a constraint in analysis part of the project. A study mainly carried out on the secondary data provided in the financial statements of (ANVITA HONDA VIJAYAWADA.) The financial analysis is confined to 4 years published data of the company. Time factor is also another limitation in the study of the project.

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HISTORY&ESTABLISHMENT OF THE GROUP AND ORGANISATION

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REVIEW OF LITERATURE

MEANING OF FINANCE Finance may be defined as the art and science of managing money. It includes financial service and financial instruments. Finance also is referred as the provision of money at the time when it is needed. Finance function is the procurement of funds and their effective utilization in business concerns. The concept of finance includes capital, funds, money, and amount. But each word is having unique meaning. Studying and understanding the concept of finance become an important part of the business concern. DEFINITION OF FINANCE According to Khan and Jain, “Finance is the art and science of managing money”. According to Oxford dictionary, the word ‘finance’ connotes ‘management of money’. DEFINITION OF BUSINESS FINANCE According to the Wheeler, “Business finance is that business activity which concerns with the acquisition and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise”. According to the Guthumann and Dougall, “Business finance can broadly be defined as the activity concerned with planning, raising, controlling, administering of the funds used in the business”.

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TYPES OF FINANCE Finance is one of the important and integral part of business concerns, hence, it plays a major role in every part of the business activities. It is used in all the area of the activities under the different names. Finance can be classified into two major parts:

Private Finance, which includes the Individual, Firms, Business or Corporate Financial activities to meet the requirements.

Public Finance which concerns with revenue and disbursement of Government such as Central Government, State Government and Semi-Government Financial matters.

DEFINITION OF FINANCIAL MANAGEMENT Financial management is an integral part of overall management. It is concerned with the duties of the financial managers in the business firm. The term

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financial management has been defined by Solomon, “It is concerned with the efficient use of an important economic resource namely, capital funds”. Howard and Upton: Financial management “as an application of general managerial principles to the area of financial decision-making. Weston and Brigham: Financial management “is an area of financial decisionmaking, harmonizing individual motives and enterprise goals”. Thus, Financial Management is mainly concerned with the effective funds management in the business. In simple words, Financial Management as practiced by business firms can be called as Corporation Finance or Business Finance. SCOPE OF FINANCIAL MANAGEMENT Financial management is one of the important parts of overall management, which is directly related with various functional departments like personnel, marketing and production. Financial management covers wide area with multidimensional approaches. The following are the important scope of financial management. 1. Financial Management and Economics Economic concepts like micro and macroeconomics are directly applied with the financial management approaches. Investment decisions, micro and macro environmental factors are closely associated with the functions of financial manager. Financial management also uses the economic equations like money value discount factor, economic order quantity etc. Financial economics is one

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of the emerging area, which provides immense opportunities to finance, and economical areas. 2. Financial Management and Accounting Accounting records includes the financial information of the business concern. Hence, we can easily understand the relationship between the financial management and accounting. In the olden periods, both financial management and accounting are treated as a same discipline and then it has been merged as Management Accounting because this part is very much helpful to finance manager to take decisions. But nowadays financial management and accounting discipline are separate and interrelated. 3. Financial Management or Mathematics Modern approaches of the financial management applied large number of mathematical and statistical tools and techniques. They are also called as econometrics. Economic order quantity, discount factor, time value of money, present value of money, cost of capital, capital structure theories, dividend theories, ratio analysis and working capital analysis are used as mathematical and statistical tools and techniques in the field of financial management. 4. Financial Management and Production Management Production management is the operational part of the business concern, which helps to multiple the money into profit. Profit of the concern depends upon the production performance. Production performance needs finance, because production department requires raw material, machinery, wages, operating

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expenses etc. These expenditures are decided and estimated by the financial department and the finance manager allocates the appropriate finance to production department. The financial manager must be aware of the operational process and finance required for each process of production activities. 5. Financial Management and Marketing Produced goods are sold in the market with innovative and modern approaches. For this, the marketing department needs finance to meet their requirements. The financial manager or finance department is responsible to allocate the adequate finance to the marketing department. Hence, marketing and financial management are interrelated and depends on each other. 6. Financial Management and Human Resource Financial management is also related with human resource department, which provides manpower to all the functional areas of the management. Financial manager should carefully evaluate the requirement of manpower to each department and allocate the finance to the human resource department as wages, salary, remuneration, commission, bonus, pension and other monetary benefits to the human resource department. Hence, financial management is directly related with human resource management. APPROACHES TO FINANCIAL FUNCTION

Financial management approach measures the scope of the financial management in various fields, which include the essential part of the finance.

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Financial management is not a revolutionary concept but an evolutionary. The definition and scope of financial management has been changed from one period to another period and applied various innovations. Theoretical points of view, financial management approach may be broadly divided into two major parts.

A number of approaches are associated with finance function but for the sake of convenience, various approaches are divided into two broad categories: 1. The Traditional Approach 2. The Modern Approach

1. The Traditional Approach: The traditional approach to the finance function relates to the initial stages of its evolution during 1920s and 1930s when the term ‘corporation finance’ was used to describe what is known in the academic world today as the ‘financial management’. According to this approach, the scope, of finance function was confined to only procurement of funds needed by a business on most suitable terms. The utilisation of funds was considered beyond the purview of finance function. It was felt that decisions regarding the application of funds are taken somewhere else in the organisation. However, institutions and instruments for raising funds were considered to be a part of finance function.

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The scope of the finance function, thus, revolved around the study of rapidly growing capital market institutions, instruments and practices involved in raising of external funds. The traditional approach to the scope and functions of finance has now been discarded as it suffers from many serious limitations: (i) It is outsider-looking in approach that completely ignores internal decision making as to the proper utilisation of funds. (ii) The focus of traditional approach was on procurement of long-term funds. Thus, it ignored the important issue of working capital finance and management. (iii) The issue of allocation of funds, which is so important today, is completely ignored. (iv) It does not lay focus on day to day financial problems of an organisation. 2. The Modern Approach: The modern approach views finance function in broader sense. It includes both rising of funds as well as their effective utilisation under the purview of finance. The finance function does not stop only by finding out sources of raising enough funds; their proper utilisation is also to be considered. The cost of raising funds and the returns from their use should be compared. The funds raised should be able to give more returns than the costs involved in procuring them. The utilisation of funds requires decision making. Finance has to be considered as an integral part of overall management. So finance

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functions, according to this approach, covers financial planning, rising of funds, allocation of funds, financial control etc. The new approach is an analytical way of dealing with financial problems of a firm. The techniques of models, mathematical programming, simulations and financial engineering are used in financial management to solve complex problems of present day finance. The modern approach considers the three basic management decisions, i.e., investment decisions, financing decisions and dividend decisions within the scope of finance function.

OBJECTIVES OF FINANCIAL MANAGEMENT Effective procurement and efficient use of finance lead to proper utilization of the finance by the business concern. It is the essential part of the financial manager. Hence, the financial manager must determine the basic objectives of the financial management. Objectives of Financial Management may be broadly divided into two parts such as: 1. Profit maximization 2. Wealth maximization. 1. PROFIT MAXIMIZATION Main aim of any kind of economic activity is earning profit. A business concern is also functioning mainly for the purpose of earning profit. Profit is the measuring techniques to understand the business efficiency of the concern. Profit maximization is also the traditional and narrow approach, which aims at,

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maximizes the profit of the concern. Profit maximization consists of the following important features. 1. Profit maximization is also called as cashing per share maximization. It leads to maximize the business operation for profit maximization. 2. Ultimate aim of the business concern is earning profit; hence, it considers all the possible ways to increase the profitability of the concern. 3. Profit is the parameter of measuring the efficiency of the business concern. So it shows the entire position of the business concern. 4. Profit maximization objectives help to reduce the risk of the business. FavourableArguments for Profit Maximization The following important points are in support of the profit maximization objectives of the business concern: (i) Main aim is earning profit. (ii) Profit is the parameter of the business operation. (iii) Profit reduces risk of the business concern. (iv)Profit is the main source of finance. Unfavourable Arguments for Profit Maximization The following important points are against the objectives of profit maximization: (i) Profit maximization leads to exploiting workers and consumers. (ii) Profit maximization creates immoral practices such as corrupt practice, unfair trade practice, etc.

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(iii) Profit maximization objectives leads to inequalities among the stake holders such as customers, suppliers, public shareholders, etc. Drawbacks of Profit Maximization Profit maximization objective consists of certain drawback also: (i) It is vague: In this objective, profit is not defined precisely or correctly. It creates some unnecessary opinion regarding earning habits of the business concern. (ii) It ignores the time value of money: Profit maximization does not consider the time value of money or the net present value of the cash inflow. It leads certain differences between the actual cash inflow and net present cash flow during a particular period. (iii) It ignores risk: Profit maximization does not consider risk of the business concern. Risks may be internal or external which will affect the overall operation of the business concern. 2. WEALTH MAXIMIZATION Wealth maximization is one of the modern approaches, which involves latest innovations and improvements in the field of the business concern. The term wealth means shareholder wealth or the wealth of the persons those who are involved in the business concern. Wealth maximization is also known as value maximization or net present worth maximization. This objective is a universally accepted concept in the field of business.

Favourable Arguments for Wealth Maximization

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(i) Wealth maximization is superior to the profit maximization because the main aim of the business concern under this concept is to improve the value or wealth of the shareholders. (ii) Wealth maximization considers the comparison of the value to cost associated with business operation. It provides extract value of the business concern. (iii) Wealth maximization considers both time and risk of the business concern. (iv)Wealth maximization provides efficient allocation of resources. (v) It ensures the economic interest of the society. Unfavourable Arguments for Wealth Maximization (i)Wealth maximization leads to prescriptive idea of the business concern but it may not be suitable to present day business activities. (ii)Wealth maximization is nothing, it is also profit maximization, it is the indirect name of the profit maximization. (iii)Wealth maximization creates ownership-management controversy. (iv)Management alone enjoys certain benefits. (v) The ultimate aim of the wealth maximization objectives is to maximize the profit. (vi)Wealth maximization can be activated only with the help of the profitable position of the business concern. SCOPE

OR

CONTENT

OF

FINANCE

FUNCTION/FINANCIAL

MANAGEMENT

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The main objective of financial management is to arrange sufficient finance for meeting short-term and long-term needs. With these things in mind, a Financial Manager will have to concentrate on the following areas of finance function. 1. Estimating Financial Requirements: The first task of a financial manager is to estimate short-term and long-term financial requirements of his business for this purpose, he will prepare a financial plan for present as well as for future. The amount required for purchasing fixed assets as well as needs of funds for working capital will have to be ascertained. The estimations should be based on sound financial principles so that neither there are inadequate nor excess funds with the concern. The inadequacy of funds will adversely affect the day-today working of the concern whereas excess funds may tempt a management to indulge in extravagant spending or speculative activities. 2. Deciding Capital Structure: The capital structure refers to the kind and proportion of different securities for raising funds. After deciding about the quantum of funds required it should be decided which type of securities should be raised. It may be wise to finance fixed assets through long-term debts. Even here if gestation period is longer, then share capital may be most suitable. Long-term funds should be employed to finance working capital also, if not wholly then partially. Entirely depending upon overdrafts and cash credit for meeting working capital needs may not be suitable.

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A decision about various sources for funds should be linked to the cost of raising funds. If cost of raising funds is very high then such sources may not be useful for long. A decision about the kind of securities to be employed and the proportion in which these should be used is an important decision which influences the short-term and long-term financial planning of an enterprise. 3. Selecting a Source of Finance: After preparing a capital structure, an appropriate source of finance is selected. Various sources, from which finance may be raised, include: share capital, debentures, financial institutions, commercial banks, public deposits, etc. If finances are needed for short periods then banks, public deposits and financial institutions may be appropriate; on the other hand, if long-term finances are required then share capital and debentures may be useful. If the concern does not want to tie down assets as securities then public deposits may be suitable source. If management does not want to dilute ownership then debentures should be issued in preference to shares. The need, purpose, object and cost involved may be the factors influencing the selection of a suitable source of financing.

4. Selecting a pattern of investment: When funds have been procured then a decision about investment pattern is to be taken. The selection of an investment pattern is related to the use of funds. A decision will have to be taken as to which assets are to be purchased? The funds will have to be spent first on fixed assets and then an appropriate portion will be

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retained for working capital. Even in various categories of assets, a decision about the type of fixed or other assets will be essential. While selecting a plant and machinery, even different categories of them may be available. The decision-making techniques such as Capital Budgeting, Opportunity Cost Analysis etc. may be applied in making decisions about capital expenditures. While spending or various assets, the principles. One may not like to invest on a project which may be risky even though there may be more profits. 5. Proper Cash Management: Cash management is also an important task of finance manager. He has to assess various cash needs at different times and then make arrangements for arranging cash. Cash maybe required to (a) purchase raw materials, (b) make payments to creditors, (c) meet wage bills; (d) meet day-to-day expenses. The usual sources of cash may be: (a) cash sales, (b) collection of debts, (c) shortterm arrangements with banks etc. The cash management should be such that neither there is a shortage of it and nor it is idle An shortage of cash will damage the creditworthiness of the enterprise. The idle cash with the business will mean that it is not properly used. It will be better if Cash Flow Statement is regularly prepared so that one is able to find out various sources and applications. If cash is spent on avoidable expenses then such spending may be curtailed. A proper idea on sources of cash inflow may also enable to assess the utility of various sources. Some sources may not be providing that much cash which we should have thought. All this information will help in efficient management of cash.

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6. Implementing Financial Controls: An efficient system of financial management necessitates the use of various control devices. Financial control devices generally used are: (a) Return on investment, (b) Budgetary Control, (c) Break Even Analysis, (d) Cost Control, (e) Ratio Analysis (f) Cost and Internal Audit. Return on investment is the best control device to evaluate the performance of various financial policies. The higher this percentage better may be the financial performance. The use of various control techniques by the finance manager will help him in evaluating the performance in various areas and take corrective measures whenever needed. 7. Proper Use of Surpluses: Theutilization of profits or surpluses also an important factor in Financial Management. A judicious use of surpluses is essential for expansion and diversification plans and also in protecting the interests shareholders. The ploughing back of profits is the best policy of further financing but it clashes with the interests of shareholders. A balance should be struck in using funds for paying dividend and retaining earnings for financing expansion plans, etc. The market value of shares will also be influenced by the declaration of dividend and expected profitability in future. A finance manager should consider the influence of various factor, such as: a) Trends of earning of the enterprises, (b) Expected earnings in future, (c) Market value of shares,

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(d) Need for funds for financing expansion, etc. A judicious policy for distributing surpluses will be essential for maintaining proper growth of the unit.

FUNCTIONS OF FINANCIAL MANAGEMENT

Executive functions of financial management are: 1. Raising the Funds Required, 2. Assessing Total Capital Requirement, 3. Deciding the Capital Structure, 4. Estimating the Cost of capital, 5. Management of Fixed Capital, 6. Management of Working Capital, 7. Control of Funds, 8. Allotment of Excess Profit, 9. Planning Tax, 10.Performance Evaluation, 11.Helps Management.

Executive functions of financial management are discussed in brief:

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1. Raising the Funds Required Executive functions of financial management are raising the required funds. Funds can be raised from various sources like issue of shares, debentures, fixed deposits, bonds, borrowings, etc. The finance executive has to decide the proportion in which the different sources should be raised. 2. Assessing Total Capital Requirement Executive functions of financial management are assessing the total capital requirement. The basic responsibility of the financial executive is to prepare the monetary plan of the company. At the promotion stage, every firm must estimate its capital needs. Funds may be required for working capital, promotional capital and development capital. To avoid over-capitalization and under-capitalization the finance executive has to access these needs of funds properly. 3. Deciding the Capital Structure Capital Structure refers to the composition of different securities that comprises the capital of the business. There should be a proper composition of various securities to avoid an imbalance in capital structure. 4. Estimating the Cost of capital Executive functions of financial management are estimating the cost of capital. Cost of capital is the rate at which an organization may pay to the suppliers of capital for the use of their funds. For E.g. It is expected to pay dividend on equity shares, etc. 5. Management of Fixed Capital

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Executive functions of financial management are managing the fixed capital. Investments should be made in those assets which would satisfy the present as well as future needs of the company. For proper, a replacement of fixed assets, convenient depreciation policies should be adopted. 6. Management of Working Capital The finance executive has to ensure that the company maintain adequate working capital. Inadequate working capital may bring work of the company to a standstill. Excessive amount in working capital will block the funds. 7. Control of Funds Executive functions of financial management are controlling the funds. The finance executive has to ensure that cash is utilized as per the plan and in case of any deviation, corrective measures should be taken. 8. Allotment of Excess Profit In distribution of Excess Profit, a firm has two options: To pay dividend or to retain earnings for expansion and diversification. A firm must strike a balance between the two choices else distribute the surplus. 9. Planning Tax Executive functions of financial management are proper planning of taxes. In every budget, different schemes are announced, which offer tax rebates, deductions, etc. In order to reduce the tax liability the finance executive has to properly-study the schemes and then invests accordingly.

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10. Performance Evaluation Evaluating the financial performance is vital executive functions of financial management. For evaluation, the finance executive may use techniques like ratio analysis, fund flow statements, etc. 11. Helps Management The finance executive helps the management in decision-making as he is well experienced with the financial aspects of the company.

Routine Functions of Financial Management: Routine functions are clerical functions. They help to perform the executive functions of financial management Routine

1. Maintaining various books of accounts of the companies. 2. Administration of Cash receipts and payments. 3. Maintaining cash balances of the company. 4. Routine functions of financial management are to preserving of securities, insurance policies and other valuable papers. 5. Preparing of final accounts. 6. Interacting with banks. 7. Keeping record and reporting. 8. Assisting a finance executive in the performance of their roles.

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FUNCTIONS OF FINANCE MANAGER:

Finance function is one of the major parts of business organization, which involves the permanent and continuous process of the business concern. Finance is one of the interrelated functions which deal with personal function, marketing function, production function and research and development activities of the business concern.

At present, every business concern concentrates more on the field of finance because, it is a very emerging part which reflects the entire operational and profit ability position of the concern.

Deciding the proper financial function is the essential and ultimate goal of the business organization. Finance manager is one of the important role players in the field of finance function. He must have entire knowledge in the area of accounting, finance, economics and management. His position is highly critical and analytical to solve various problems related to finance. A person who deals finance related activities may be called finance manager.

Finance manager performs the following major functions: 1. Forecasting Financial Requirements

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It is the primary function of the Finance Manager. He is responsible to estimate the financial requirement of the business concern. He should estimate, how much finances required to acquire fixed assets and forecast the amount needed to meet the working capital requirements in future. 2. Acquiring Necessary Capital After deciding the financial requirement, the finance manager should concentrate how the finance is mobilized and where it will be available. It is also highly critical in nature. 3. Investment Decision The finance manager must carefully select best investment alternatives and consider the reasonable and stable return from the investment. He must be well versed in the field of capital budgeting techniques to determine the effective utilization of investment. The finance manager must concentrate to principles of safety, liquidity and profitability while investing capital. 4. Cash Management Present days cash management plays a major role in the area of finance because proper cash management is not only essential for effective utilization of cash but it also helps to meet the short term liquidity position of the concern. 5. Interrelation with Other Departments Finance manager deals with various functional departments such as marketing, production, personnel, system, research, development, etc. Finance manager should

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have sound knowledge not only in finance related area but also well versed in other areas. He must maintain a good relationship with all the functional departments of the business organization.

RATIO ANALYSIS

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and “the relationship between two or more things”. In financial analysis, a ratio is used as a benchmark for evaluation the financial position and performance of a firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. An accounting figure conveys meaning when it is related to some other relevant information. For example, an Rs.5 core net profit may look impressive, but the firm’s performance can be said to be good or bad only when the net profit figure is related to the firm’s Investment. The relationship between two accounting figures expressed mathematically, is known as a financial ratio (or simply as a ratio). Ratios help to summarize large quantities of financial data and to make qualitativejudgment about the firm’s financial performance. For example, consider currentratio. It is calculated by dividing current assets by current

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liabilities; the ratio indicates a relationship- a quantified relationship between current assets and current liabilities. This relationship is an index or yardstick, which permits a quantitative judgment to be formed about the firm’s liquidity and vice versa. The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all financial ratios.

Standards of comparison:

The ration analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of:  Past ratios, i.e. ratios calculated form the past financial statements of thesame firm;   Competitors’ ratios, i.e., of some selected firms, especially the mostprogressive and successful competitor, at the same pint in time;   Industry ratios, i.e. ratios of the industry to which the firm belongs; and   Protected ratios, i.e., developed using the protected or proforma, financial statements of the same firm.

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In this project calculating the past financial statements of the same firm does ratio analysis.

1.Theoretical background:

Use and significance of ratio analysis:-

The ratio is one of the most powerful tools of financial analysis.

It is used as a device to analyze and interpret the financial health of enterprise. Ratio analysis stands for the process of determining and presenting the relationship of items and groups of items in the financial statements. It is an important technique of the financial analysis. It is the way by which financial stability and health of the concern can be judged. Thus ratios have wide applications and are of immense use today. The following are the main points of importance of ratio analysis:

a) Managerial uses of ratio analysis:-

1. Helps in decision making:-

Financial statements are prepared primarily for decision-making. Ratio analysis helps in making decision from the information provided in these financial Statements.

2. Helps in financial forecasting and planning:-

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Ratio analysis is of much help in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years a work as a guide for the future. Thus, ratio analysis helps in forecasting and planning.

3. Helps in communicating:The financial strength and weakness of a firm are communicated in a more easy and understandable manner by the use of ratios. Thus, ratios help in communication and enhance the value of the financial statements.

4. Helps in co-ordination:Ratios even help in co-ordination, which is of at most importance in effective business management. Better communication of efficiency and weakness of an enterprise result in better co-ordination in the enterprise

5. Helps in control:Ratio analysis even helps in making effective control of business. The weaknesses are otherwise, if any, come to the knowledge of the managerial, which helps, in effective control of the business.

b) Utility to shareholders/investors:An investor in the company will like to assess the financial position of the concern where he is going to invest. His first interest will be the security of his investment and then a return in form of dividend or interest. Ratio analysis will be useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not.

C) Utility to creditors: 59

The creditors or suppliers extent short-term credit to the concern. They are invested to know whether financial position of the concern warrants their payments at a specified time or not.

d) Utility to employees:-

The employees are also interested in the financial position of the concern especially profitability. Their wage increases and amount of fringe benefits are related to the volume of profits earned by the concern.

e) Utility to government:-

Government is interested to know overall strength of the industry. Various financial statement published by industrial units are used to calculate ratios for determining short term, long-term and overall financial position of the concerns.

f) Tax audit requirements:Sec44AB was inserted in the income tax act by financial act; 1984.Caluse 32 of the income tax act requires that the following accounting ratios should be given: 1. Gross profit/turnover. 2. Net profit/turnover. 3. Stock in trade/turnover. 4. Material consumed/finished goods produced.

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Further, it is advisable to compare the accounting ratios for the year under consideration with the accounting ratios for earlier two years so that the auditor can make necessary enquiries, if there is any major variation in the accounting ratios.

Limitations: Ratio analysis is very important in revealing the financial position and soundness of the business. But, inspite of its advantages, it has some limitations which restrict its use. These limitations should be kept in mind while making use of ratio analysis for interpreting the financial the financial statements. The following are the main limitations of ratio analysis: 1. False results:Ratios are based upon the financial statement. In case financial statement are in correct or the data of on which ratios are based is in correct, ratios calculated will all so false and defective. The accounting system it self suffers from many inherent weaknesses the ratios based upon it cannot be said to be always reliable. 2. Limited comparability:The ratio of the one firm cannot always be compare with the performance of other firm, if uniform accounting policies are not adopted by them. The difference in the methods of calculation of stock or the methods used to record the deprecation on assets will not provide identical data, so they cannot be compared. 3. Absence of standard universally accepted terminology:Different meanings are given to a particular term, egg. Some firms take profit before interest and tax; others may take profit after interest and tax. A bank overdraft is taken as current liability but some firms may take it as non-current liability. The ratios can be comparable only when all the firms adapt uniform terminology. 61

4. Price level changes affect ratios:The comparability of ratios suffers, if the prices of the commodities in two different years are not the same. Change in price effect the cost of production, sale and also the value of assets. It means that the ratio will be meaningful for comparison, if the prices do not change. 5. Ignoring qualitative factors:Ratio analysis is the quantitative measurement of the performance of the business. It ignores qualitative aspect of the firm, how so ever important it may be. It shoes that ratio is only a one sided approach to measure the efficiency of the business. 6. Personal bias:Ratios are only means of financial analysis and an end in it self. The ratio has to be interpreted and different people may interpret the same ratio in different ways. 7. Window dressing:Financial statements can easily be window dressed to present a better picture of its financial and profitability position to outsiders. Hence, one has to be very carefully in making a decision from ratios calculated from such financial statements.

8. Absolute figures distortive:Ratios devoid of absolute figures may prove distortive, as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.

Classification of ratios: Several ratios, calculated from the accounting data can be grouped into various classes according to financial activity or function to be evaluated. Management is interested in evaluating every aspect of the firm’s performance. They have to protect the interests of all parties and see that the

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firm grows profitably. In view of thee requirement of the various users of ratios, ratios are classified into following four important categories:  Liquidity ratios   Leverage ratios    Profitability ratios r  Activity ratios

- short-term financial strength - long-term financial strength

- long term earning power - term of investment utilization

Liquidity ratios measure the firm’s ability to meet current obligations

Leverage ratios show the proportions of debt and equity in financing the firm’s assets. Activity ratios reflect the firm’s efficiency in utilizing its assets; and

Profitability ratios measure overall performance and effectiveness of the firm

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LIQUIDITY RATIOS: It is extremely essential for a firm to be able to meet the obligations as they become due. Liquidity ratios measure the ability of the firm to meet its current obligations (liabilities). The liquidity ratios reflect the short- financial strength and solvency of a firm.In fact, analysis of liquidity needs thepreparation of cash budgets and cash and funds flow statements; but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also that it does not have excess liquidity. The failure of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor credit worthiness, loss of credit worthiness, loss of creditors’ confidence, or even in legal tangles resulting in the closure of the company. A very high degree of liquidity is also bad; idle assets earn nothing. The firm’s funds will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity. The most common ratios which indicate the extent of liquidity are lack = of it, are: (i) Current ratio (ii) Quick ratio. (iii)Cash ratio and (iv)Networking capital ratio.

1. Current Ratio: Current ratio is calculated by dividing current assets by current liabilities.

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Current assets Current Ratio= Current Liabilities

Current assets include cash and other assets that can be converted into cash within in a year, such as marketable securities, debtors and inventories. Prepaid expenses are also included in the current assets as they represent the payments that will not be made by the firm in the future. All obligations maturing within a year are included in the current liabilities. Current liabilities include creditors, bills payable, accrued expenses, short-term bank loan, income tax, liability and long-term debt maturing in the current year. The current ratio is a measure of firm’s short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current claims against them Current liabilities.

2. Quick Ratio: Quick ratio also called Acid-test ratio, establishes a relationship between quick, or liquid, assets and current liabilities. An asset is a liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Other assets that are considered to be relatively liquid and included in quick assets are debtors and bills receivables and marketable securities (temporary quoted investments). Inventories are considered to be less liquid. Inventories normally require some time for realizing into cash; their value also has a tendency to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities.

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(Quick Assets=Current Assets-Inventories) Quick Assets Quick Ratio= Current Liabilities

3. Cash Ratio: Since cash is the most liquid asset, it may be examined cash ratio and its equivalent to current liabilities. Trade investment or marketable securities are equivalent of cash; therefore, they may be included in the computation of cash ratio:

Cash + Marketable Securities Cash Ratio= Current Liabilities 4. Interval Measure Yet another, ratio, which assesses a firm’s ability to meet its regular cash expenses, is the interval measure. Interval measure relates liquid assets to average daily operating cash outflows. The daily operating expenses will be equal to cost of goods sold plus selling, administrative and general expenses less depreciation (and other non cash expenditures divided by number of days in a year (say 360).

Current assets - inventory Interval measure = Average daily operating expenses

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5. Net Working Capital Ratio The difference between current assets and current liabilities excluding short – term bank borrowings in called net working capital (NWC) or net current assets (NCA). NWC is sometimes used as a measure of firm’s liquidity. It is considered that between two firm’s the one having larger NWC as the greater ability to meet its current obligations. This is not necessarily so; the measure of liquidity is a relationship, rather than the difference between current assets and current liabilities. NWC, however, measures the firm’s potential reservoir of funds. It can be related to net assets (or capital employed):

Net working capital (NWC) NWC ratio = (Net assets (or) Capital Employed)

6. Leverage Ratio: The short-term creditors, like bankers and suppliers of raw materials, are more concerned with the firm’s current debt-paying ability. On other hand, ling-term creditors like debenture holders, financial institutions etc are more concerned with the firm’s long-term financial strength. In fact a firm should have a strong short as well as long-term financial strength. In fact a firm should have a strong short-as well as long-term financial position. To judge the longterm financial position of the firm, financial leverage, or capital structureratios are calculated. These ratios indicate mix of funds provided by ownersand lenders. As a general rule there should be an appropriate mix of debt and owners equity in financing the firm’s assets. Leverage ratios may be calculated from the balance sheet items to determine the proportion of debt in total financing. Many variations of these ratios exist; 67

but all these ratios indicate the same thing the extent to which the firms has relied on debt in financing assets. Leverage ratios are also computed form the profit and loss items by determining the extent to which operating profits are sufficient to cover the fixed charges. 7. DEBT RATIO: Several debt ratios may be used to analyse the long term solvency of the firm The firm may be interested in knowing the proportion of the interest bearing debt (also called as funded debt) in the capital structure. It may, therefore, compute debt ratio by dividing total debt by capital employed or net assets. Capital employed will include total debt and net worth

Total debt (TD) Debt ratio = Total debt (TD) + Net worth (NW)

Total debt (TD) Debt Ratio= Capital employed (CE)

Debt-Equity Ratio: The relationship describing the lenders contribution for each rupee of the owners’ contribution is called debt-equity (DE) ratio is directly computed by dividing total debt by net worth:

Total debt (TD) Debt - equity ratio = Net worth (NW)

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8. Capital Employed to Net worth Ratio It is another way of expressing the basic relationship between debt and equity. One may want to know: How much funds are being contributed together by lenders and owners for each rupee of owners’ contribution ? Calculating the ratio of capital employed or net assets to net worth can find this out:

Capital employed (CE) Capital employed to net worth Ratio = Net worth (NW)

COVERAGE RATIO: Interest Coverage Ratio: Debt ratios described above are static in nature, and fail to indicate the firm’s ability to meet interest (and other fixed charges) obligations. The interestcoverage ratio or the times interest-earned isused to test the firm’s debt-servicing capacity, the interest coverage ratio is computed by dividing earnings before interest and taxes(EBIT)by interest charges:

EBIT Interest coverage ratio= Interest

ACTIVITY RATIOS: Funds of creditors and owners are interested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Activity ratios are employed to evaluate the efficiency with 69

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 turned over into sales. Activity ratios, thus, involves a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well. Several activity ratios are calculated to judge the effectiveness of asset utilization.

10. Inventory Turnover Ratio: Inventory turnover indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing the cost of goods sold by the average inventory:

Cost of goods sold Inventory turnover Ratio = Average inventory (OR) Net sales Inventory The average inventory is the average of opening and closing balances of inventory. The cost of goods sold may not be available so we can compute inventory turnover as sales divided by inventory In a manufacturing company inventory of finished goods is used to calculate inventory turnover. This inventory turnover ratio indicates whether investment in inventory is efficiently utilized or not. It, therefore, explains whether investment in inventory in within proper limits or not. It is calculated by dividing the cost of goods sales by the average inventory. The inventory turnover shows how rapidly the inventory in turning into receivable through sales. A high inventory turnover is indicative of good inventory management. A low inventory turnover implies excessive inventory levels than warranted by production and sales activities or a slow moving or obsolete inventory. 70

Inventory Conversion Period: It may also be of interest to see the average time taken for clearing the stock. This can be possible by calculating the inventory conversion period. This period is calculated by dividing the no. of days by inventory turnover ratio:

No. of days in the year Inventory turnover ratio= Inventory turnover ratio

11. Debtors (Accounts Receivable) Turnover Ratio: A firm sells goods for cash and credit. Credit is used as a marketing tool by number of companies. When the firm extends credits to its customers, debtors (accounts receivable) are created in the firm’s accounts. Debtors are convertible 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. Financial analyst applies these ratios to judge the quality or liquidity of debtors (a) Debtors Turnover Ratio (b) Debtors Collection Period Debtors’ turnover is found out by dividing credit sales by average debtors:

Credit sales Debtors turnover = Debtors Debtors’ turnover indicates the number of times debtors’ turnover each year generally, the higher the value of debtors’ turnover, the more efficient is the management of credit. To outside analyst, information about credit sales and opening and closing balances of debtors may not be available. Therefore, debtors’ turnover can be calculated by dividing Total sales by the year-end balances of debtors: 71

Sales Debtors turnover = Debtors

Average Collection Period: Average Collection Period is used in determining the collectibles of debtors and the efficiency of collection efforts. In ascertaining the firms comparative strength and advantage relative to its credit policy and performance The average number of days for which the debtors remain outstanding is called the Average Collection Period. The Average Collection Period measures the quality of the debtors since it is indicated the speed of their collection 360 Average Collection Period= Debtors Turnover Ratio [or] Debtors X 360

= Sales 13. Net Assets Turnover Ratio:

Net assets turnover can be computed simply by dividing sales by net sales (NA)

Sales Net Assets Turnover = Net assets

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It may be recalled that net assets (NA) include net fixed assets (NFA) and net current assets (NCA), that is, current assets (CA) minus current liabilities (CL). Since net assets equal capital employed, net assets turnover may also be called capital employed, net assets turnover may also be called capital employedturnover. Total Assets Turnover: Some analysts like to compute the total assets turnover in addition to or instead of the net assets turnover. This ratio shows the firms ability in generating sales from all financial resources committed to total asset Thus:

Sales Total Assets Turnover = Total assets

Total Assets (TA) include net fixed Asses (NFA) and current assets (CA) (TA=NFA+CA)

15. Current Assets Turnover A firm may also like to relate current assets (or net working gap) to sales. It may thus complete networking capital turnover by dividing sales by net working capital.

Sales Current assets turnover = Current assets

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16. Fixed Assets Turnover: The firm to know its efficiency of utilizing fixed assets separately. This ratio measures sales in rupee of investment in fixed assets. A high ratio indicates a high degree of utilization in assets and low ratio reflects the inefficient use of assets

Sales Fixed Assets Turnover = Fixed Assets

17. Working Capital Turnover Ratio: Working Capital of a concern is directly related to sales. The current assets like debtors, bills receivable, cash, and stock etc. change with the increase or decrease in sales. The Working Capital is taken as: Working Capital = Current Assets – Current Liabilities

This Ratio indicates the velocity of the utilization of net working capital. This Ratio indicates the number of times the working capital is turned over in the course of a year. This Ratio measures the efficiency with which the working capital is being used by a firm. A higher ratio indicates the efficient utilization of working capital and the low ratio indicates inefficient utilization of working capital.

Sales Working capital turnover = Net working capital

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PROFITABILITY RATIOS A company should earn profits to survive and grow over a long period of time. Profits are essential, but it world be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits, irrespective of concerns for customers, employees, suppliers or social consequences. It is unfortunate that the word profit is looked upon as a term of abuse since some firms always want to maximize profits ate the cost of employees, customers and society. Except such infrequent cases, it is a fact that sufficient profits must be able to obtain funds from investors for expansion and growth and to contribute towards the social overheads for welfare of the society. Profit is the difference between revenues and expenses over a period of time (usually one year). Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profits. Therefore, the financial manager should continuously evaluate the efficiency of the company in terms of profit. The profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of return on their investment. This is possible only when the company earns enough profits.

Generally, two major types of profitability ratios are calculated: 

 Profitability in relation to sales.  Profitability in relation to investment.

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16. Net Profit Margin

Net profit is obtained when operating expenses; interest and taxes are subtracted form the gross profit margin ratio is measured by dividing profit after tax by sales:

Net Profit Net profit Ratio =

X 100 Sales

Net profit ratio establishes a relationship between net profit and sales and indicates and management’s in manufacturing, administrating and selling the products. This ratio is the overall measure of the firm’s ability to turn each rupee sales into net profit. If the net margin is inadequate the firm will fail to achieve satisfactory return on shareholders’ funds. This ratio also indicates the firm’s capacity to withstand adverse economic conditions.A firm with high net margin ratio would be advantageous position to survive in the face of falling prices, selling prices, cost of production .

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17. Net Margin Based on NOPAT The profit after tax (PAT) figure excludes interest on borrowing. Interest is tax deducts able, and therefore, a firm that pays more interest pays less tax. Tax saved on account of payment of interest is called interest tax shield. Thus the conventional measure of net profit margin-PAT to sales ratiois affected by firm’s financial policy. It can mislead if we compare two firms with different debt ratios. For a true comparison of the operating performance of firms, we must ignore the effect of financial leverage, viz., the measure of profits should ignore interest and its tax effect. Thus net profit margin (for evaluating operating performance) may be computed in the following way:

EBIT (1-T) Net profit margin =

NOPAT =

Sales

Sales

18. Operating Expense Ratio: The operating expense ratio explains the changes in the profit margin (EBIT to sales) ratio. This ratio is computed by dividing operating expenses viz., cost of goods sold plus selling expense and general and administrativeexpenses (excluding interest) by sales.

Operating expenses Operating expenses ratio= Sales

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19. Return on Investment (ROI) The term investment may refer to total assets or net assets. The funds employed in net assets in known as capital employed. Net assets equal net fixed assets plus current assets minus current liabilities excluding bank loans. Alternatively, capital employed is equal to net worth plus total debt. The conventional approach of calculating return of investment (ROI) is to divide PAT by investments. Investment represents pool of funds supplied by shareholders and lenders, while PAT represent residue income of shareholders; therefore, it is conceptually unsound to use PAT in the calculation of ROI. Also, as discussed earlier, PAT is affected by capital structure. It is, therefore, more appropriate to use one of the following measures of ROI for comparing the operating efficiency of firms:

BIT (1-T) ROI = ROTA =

EBIT (1-T) =

Total assets

TA

EBIT (1-T)

EBIT (1-T)

ROI = RONA =

= Net assets

NA

Since taxes are not controllable by management, and since firm’s opportunities for availing tax incentives differ, it may be more prudent to use before tax to measure ROI. Many companies use EBITDA (Earnings before Depreciation, Interest, Tax and Amortization) instead of EBIT to calculate ROI. Thus the ratio is:

EBIT ROI= Total Assets (TA)

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20. Return on Equity (ROE) Common or ordinary shareholders are entitled to the residual profits. The rate of dividend is not fixed; the earnings may be distributed to shareholders or retained in the business. Nevertheless, the net profits after taxes represent their return. A return on shareholders equity is calculated to see the profitability of owners’ investment. The shareholders equity or net worth will include paid-up share capital, share premium, and reserves and surplus less accumulated losses. Net worth also be found by subtracting totalliabilities from total assets. The return on equity is net profit after taxes divided by shareholders equity, which is given by net worth: Profit after taxes ROE =

PAT =

Net worth (Equity)

NW

ROE indicates how well the firm has used the resources of owners. In fact, this ratio is one of the most important relationships in financial analysis. The earning of a satisfactory return is the most desirable objective of business. The ratio of net profit to owners’ equity reflects the extent to which this objective has been accomplished. This ratio is, thus, of great interest to the present as well as the prospective Shareholders and also of great concern to management, which has the responsibility of maximizing the owners’ welfare. The return on owners’ equity of the company should be compared with the ratios of other similar companies and the industry average. This will reveal the relative performance and strength of the company in attracting future investments.

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21. Earnings per Share (EPS) The profitability of the shareholders investments can also be measured in many other ways. One such measure is to calculate the earnings per share. The earnings per share (EPS) are calculated by dividing the profit after taxes by the total number of ordinary shares outstanding.

Profit after tax EPS = Number of share outstanding 22. Dividends per Share (DPS or DIV) The net profits after taxes belong to shareholders. But the income, which they will receive, is the amount of earnings distributed as cash dividends. Therefore, a large number of present and potential investors may be interested in DPS, rather than EPS. DPS is the earnings distributed to ordinary shareholders dividend by the number of ordinary shares outstanding.

Earnings paid to shareholders (dividends) DPS= Number of ordinary shares outstanding

23. Dividend – Payout Ratio The Dividend – payout Ratio or simply payout ratio is DPS ( or total equity dividends) divided by the EPS ( or profit after tax):

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Equity dividends Dividend Payout Ratio = Profit after tax

Dividends per share =

DPS =

Earnings per share

EPS

4.DATA Analysis & Interpretation 1.LIQUIDITY RATIO a)Current ratio

Years

Current assets

2012-13

2,56,69,83,895

2013-14

Current liabilities

Ratio

1,73,47,87,565

1.47

2,64,80,61,231

1,76,45,48,279

1.5

2014-15

2,67,02,72,091

1,74,00,68,207

1.53

2015-16

2,77,08,77,333

1,83,56,17,297

1.51

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GRAPH Current ratio 1.54 1.53 1.52 1.51 1.5 1.49 1.48 1.47 1.46 1.45 1.44

Series1

2013

2014

2015

2016

Interpretation From the above graph it can be observed that there is fluctuated trend during the study period. It increases from 1.31 to 1.34 in the year 2008-09. It decreases from 1.32 to 1.2 in the year 2010-11. It increases from 1.2 to 1.48 in the year 2011-12. It increases from 1.48 to 1.73 in the year 2012-13. Quick ratio

Quick assets

Current liabilities

2,12,47,63,236

1,73,47,87,565

2013-14

2,22,30,60,252

1,76,45,48,279

1.26

2014-15

2,33,38,54,211

1,74,00,68,207

1.34

2015-16

2,44,60,30,568

1,83,56,17,297

1.33

Years

2012-13

Ratio

1.22

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GRAPH

Quick ratio 1.35 1.3 1.25

Series1

1.2 1.15

2013

2014

2015

2016

Interpretation: From the above graph it can be observed that there is fluctuating trend during the study period. It increases from 0.6 to 0.71 in the year 2009-10. It decreases from 0.71 to 0.38 in the year 2010-11. It increases from 0.38 to 0.63 in the year 2011-12. It increases from 0.63 to 0.91 in the year 2012-13. The standard ratio of the company must be 1:1. It shows that the quick ratio of the company satisfactory.

LEVERAGE RATIO

a)Debt-Equity ratio

Years

Total Liabilities

Shareholder’s Equity

Ratio

2012-13

47,88,46,387

58,50,53,858

0.81

2013-14

53,63,63,629

65,85,79,979

0.81

2014-15

56,70,28,071

69,12,68,774

0.82

2015-16

52,51,65,912

74,42,43,266

0.7 83

GRAPH

Debt equity ratio 0.85 0.8 0.75 Series1

0.7 0.65 0.6 2013

2014

2015

2016

Interpretation From the above table the debt-equity ratios are 0.81, 0.81, 0.82 and 0.7 in the year 2015-16 the ratio is low because of the revamping of galvanizing plant.

ACTIVITY RATIO a)Debtors turnover ratio S.no

Years

Ratios

1

2012-13

1.97

2

2013-14

2.41

3

2014-15

1.5

4

2015-16

1.78

84

GRAPH

Debtors turnover ratio 3

2.5 2 1.5

Series1

1 0.5 0 2013

2014

2015

2016

Interpretation: From the above table Debtors turnover ratio in 2013-16 are 1.97, 2.41,1.5 and 1.78 and The debtor’s turnover ratio in the year 2014-15 is low but again improved in 2015-2016 because the more credit sales. b) Average collection period S.no

Years

Days

1

2012-13

181

2

2013-14

151

3

2014-15

243

4

2015-16

205

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GRAPH

Average collection period 300 250 200

150

Series1

100 50 0 2013

2014

2015

2016

Interpretation From the above table we can see that during 2013-2016 the days of average collection period are fluctuating throughout the years as 181,151,243 and 205.

C) Fixed Asset Turnover ratio S.no

Years

Ratios

1

2012-13

15.23

2

2013-14

13.03

3

2014-15

10.42

4

2015-16

13.07

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GRAPH

Fixed asset turnover ratio 20 15 10

Series1

5 0 2013

2014

2015

2016

Interpretation From the above data we can see that the fixed asset turnover ratio is decreased from 2013-15 15.23, 13.03 and 10.42 but improved in 2016 with 13.07 d)Creditor days S.no

Years

Days

1

2012-13

116

2

2013-14

117

3

2014-15

148

4

2015-16

135

87

GRAPH

Creditor days 200 150 100

Series1

50 0 2013

2014

2015

2016

Interpretation From the above data the creditor days from 2013-2016 are 116,117,148 and 135 from the year 2014-2015 there is high change in days from 117-148. e)Debtor days S.no

Years

Days

1

2012-13

209

2

2013-14

147

3

2014-15

202

4

2015-16

165

88

GRAPH

Debtor days 250 200 150 Series1

100 50 0 2013

2014

2015

2016

Interpretation From the above data the debtor days from the year 2013 to 2014,there is a change in debtor days from 209 to 147.

f) Inventory turnover ratio

Years

COGS

Average Inventory

Ratio

2012-13

2,15,06,10,070

26,07,87,021

8.24

2013-14

3,19,60,64,119

40,38,40,660

7.91

2014-15

2,39,46,03,432

35,66,41,003

6.71

2015-16

2,86,86,52,025

31,64,14,907

9.07

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GRAPH

Inventory turnover ratio 10 8 6 Series1

4 2 0 2013

2014

2015

2016

Interpretation From the above data the inventory turnover ratio from the years 2013-2016 are 8.24,7.91,6.71 and 9.07,there is a growth in year 2015-2016 from 6.71 to 9.07 which is a good rate of conversion. h)Inventory days S.no

Years

Days

1

2012-13

56

2

2013-14

37

3

2014-15

40

4

2015-16

33

90

GRAPH

Inventory days 60 50

40 30

Series1

20 10 0 2013

2014

2015

2016

Interpretation From the data given we can see that the inventory days of financial years from 2013-2016 are 56,37,40 and 33. In the year 2016 the inventory days are reduced than previous year from 40 to 33 which indicates good sign for inventory days.

3.PROFITABLITY RATIOS a)Gross profit ratio Years

Gross profit

Net sales

52,83,82,671

2,67,89,92,741

2013-14

66,59,59,985

3,86,20,24,104

17.24

2014-15

49,64,74,687

2,89,10,78,119

17.17

2015-16

68,22,09,102

3,55,08,61,127

19.21

2012-13

Ratio 19.72

91

GRAPH

Gross profit ratio 20 19 18 Series1

17 16 15 2013

2014

2015

2016

Interpretation From the above graph it can be observed that it increases from 0.05 to 0.06. It decreases from 0.06 to 0.05 in the year 2009-10. It increases from 0.05 to 0.06 in the year 2011-12 and it remains constant in the year 2012-13. b)Net Profit ratio

Years

Net profit

Net sales

7,01,09,936

2,67,89,92,741

2013-14

7,35,26,121

3,86,20,24,104

1.9

2014-15

4,26,97,079

2,89,10,78,119

1.48

2015-16

5,29,74,492

3,55,08,61,127

1.49

2012-13

Ratio 2.61

92

GRAPH

Net profit ratio 3 2.5 2 1.5

Series1

1 0.5 0 2013

2014

2015

2016

Interpretation From the above graph it can be observed that there is no fluctuating trend during the study period. It increases from 0.03 to 0.04 in the year 2009-10. It was constant till the end of the study period.

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FINDINGS  It is found that the financial position of the company is liquid The working capital position as revealed in the financial statements of

(ANVITA HONDA VIJAYAWADA.) 

for the study period are also found healthy.

 By Ratio analysis it was found that the profit before tax and profit after tax is been fluctuating during the study period.  From the study it was observed that the current ratio has decreased in the year 2010 and then increased and reached 1.73% in the year 2012.  By calculating the profitability ratios it was found that the company profitability position was constant.  By ratio analysis it is found that the working capital was showing an increasing trend in all years.

SUGGESTIONS  It is suggested to the company to maintain same level of working capital to meet day to day operations efficiently.  It is suggested to the company to increase liquid assets so that it would overcome liabilities.  As the trend of working capital is increasing it is suggestible for the company to retain as to meet expenses in future.

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5.SUMMARY AND CONCLUSION The project is done at (ANVITA HONDA VIJAYAWADA.)  to study the financial position by using the techniques of financial statement analysis by using Ratios The liabilities of the (ANVITA HONDA VIJAYAWADA.)  are moving at a constant rate but the assets are fluctuating.

At an overall glance, by analysing the trends in working capital, income levels etc., it is understood that the (ANVITA HONDA VIJAYAWADA.) present financial position is satisfactory.

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BIBLIOGRAPHY Books Referred:  I.M. Pandey, “Financial Management”, Vikas Publishing’s house Pvt, Ltd.,  M.Y.Khan

–

P.K.Jain,

“Financial

Management”, TaTa Mc Graw-Hill publishers company Ltd.,  Prasanna Chandra, “Financial Management” TaTa Mc Graw-Hill publishers company Ltd.,  R.K.Sharama

And

Seshi

K.Gupta ,

“Management accounting - Principles

and

Practices” Kaylan publishers Websites: – http://www.investopedia.com/ – https://www.indiamart.com/ – www.pdfcoke.com

96

BALANCE SHEET FOR THE YEAR ENDING 31.03.2013

Particulars

As on Schedule 31.03.2013 No. (Rs.)

As on 31.03.2012 (Rs.)

97

Equity & Liabilities Shareholder’s funds Share Capital Reserves and surplus

Non-current Liabilities Long term borrowings Deferred tax liabilities(Net) Other Long term Liabilities Long term Provisions

Current Liabilities Short term Borrowings Trade Payables Other Current Liabilities Short term provisions

2 3

4 5 6 7

8 9 10

50,00,00,000 8,50,53,858

50,00,00,000 1,49,43,922

58,50,53,858

31,49,43,922

18,34,39,620 1,51,10,777 28,11,07,114 82,43,023

27,83,37,739 1,39,02,666 5,40,21,838 62,16,496

48,79,00,534

35,24,78,739

29,54,06,767 85,18,54,250 58,31,09,937 44,16,611

29,48,86,125 50,80,82,722 18,25,25,598 1,12,87,722

1,73,47,87,565 99,67,82,167 Total Assets Non Current Assets Fixed Assets 1.Tangiable 2.Capital work in progress Long term loans and advances

Current Assets Inventories Trade Receivables Cash and cash equivalents Short term loans and advances Other Current Assets

Total

2,80,77,41,957 1,66,42,04,828

11

12

13 14 15 16 17

23,35,34,224 46,29,556 23,81,63,780 25,94,282

146,7,34,779 15,28,605 14,82,63,384 42,95,784

24,07,58,062

15,25,59,168

41,09,44,582 1,53,40,91,893 25,70,20,339 35,04,49,211 1,44,77,870

11,06,29,460 1,01,88,22,569 19,34,52,600 18,03,59,414 8,38,617

2,56,69,83,895 1,51,16,45,660 2,80,77,41,957 1664204828 98

Significant accounting policies

1

The accompany notes are an integral part of the financial statements

99

BALANCE SHEET FOR THE YEAR ENDING 31.03.2014 As on As on Schedule Particulars 31.03.2014 31.03.2013 No. (Rs.) (Rs.) Equity & Liabilities Shareholder’s funds Share Capital Reserves and surplus

2 3

50,00,00,000 8,50,53,858 58,50,53,858

Non-current Liabilities Long term borrowings Deferred tax liabilities(Net) Other Long term Liabilities Long term Provisions

4 5 6 7

18,34,39,620 1,51,10,777 28,11,07,114 82,43,023 48,79,00,534

Current Liabilities Short term Borrowings Trade Payables Other Current Liabilities Short term provisions

8 9 10

29,54,06,767 85,18,54,250 58,31,09,937 44,16,611 1,73,47,87,565

Total Assets Non Current Assets Fixed Assets 1.Tangiable 2.Capital work in progress Long term loans and advances

2,80,77,41,957

11

12

23,35,34,224 46,29,556 23,81,63,780 25,94,282 24,07,58,062

Current Assets Inventories Trade Receivables Cash and cash equivalents Short term loans and advances

13 14 15 16

41,09,44,582 1,53,40,91,893 25,70,20,339 35,04,49,211 100

Other Current Assets

17

2,56,69,83,895 2,80,77,41,957

Total Significant accounting policies

1,44,77,870

1

The accompany notes are an integral part of the financial statements

101

BALANCE SHEET FOR THE YEAR ENDING 31.03.2015

Particulars SOURCES OF FUNDS: SHARE HOLDERS FUNDS (a) Share capital (b) Reserves and surplus Share application money LOAN FUNDS: (a) Secured loans (b) Unsecured loans TOTAL APPLICATION OF FUNDS Fixed assets (a) Gross block (b) Less: depreciation (c ) Net block CURRENTASSETS,LOANS&ADVANCES Inventories Investments Sundry Debtors Cash and bank balances Other current assets Loans and advances Sub-total (a) Less: current liabilities and provisions: (a) Sundry creditors (b) Provisions Sub-total (b) NET CURRENT ASSETS (A)-(B) Deferred tax Miscellaneous expenditure (to the extent not written off or adjusted) Profit & loss account NOTES ON ACCOUNTS

As on Schedule 31.03.2015 No. (Rs.)

As on 31.03.2014 (Rs.)

1

2000000.00 7534844.56 2200000.00

2

23155577.05 21151897.90 0.00 837000.00 34890421.61 29975233.60

3

4 5 6 7

8 9

13

2000000.00 4610265.20 1376070.50

27864417.61 16882033.41 4232194.86 3032766.97 23632222.75 13849266.44 51640675.00 0.00 16469190.54 946861.48 1259372.80 4851088.17 75167187.99

30911818.00 326816.00 18454508.13 841490.48 1043012.00 13982329.67 65559974.28

59440901.00 3263727.00 62704628.00 12462559.99 -1204361.13 0.00

46800169.99 1962247.00 48762416.99 16797557.29 -671590.13 0.00

0.00

0.00

34890421.61 29975233.60

102

INCOME STATEMENT FOR THE YEAR ENDING 31.03.2013 Schedu As on le 31.03.2008 No. (Rs.)

Particulars

INCOME: Sale Other income

10

14937776.44 661082.00 15598858.44

EXPENDITURE Material consumed Electricity Freights fuel Wages Direct expenses Administration & other expenses Interest Depreciation

9990241.43 597353.00 137631.00 0 1081870.00 12 18727.00 2357486.95 147047.47 501513.78 13

26275948. 00 3004497.9 2 29280445. 92

11

Notes on accounts TOTA L:

14831870.63

Profit / loss for the year before taxation

766987.81

LESS: Provision for Tax tax liability

168361.00 84508.00 13797.00

Deferred

As on 31.03.200 7 (Rs.)

22830279. 07 654905.00 318458.15 23554.30 1756772.0 0 90352.00 1397136.2 6 287151.96 802204.93

28160813. 67

Current year tax Fringe benefit tax

500321.81

1119632.2 5

1892763.26 Profit after taxation Balance brought forward from previous year

43133.00 333736.00 2849.00 103

BALANCE CARRIED BALANCE SHEET

739914.25

TO 2393085.07

1152849.0 1 1892763.2 6

104

INCOME STATEMENT FOR THE YEAR ENDING 31.03.2014 Schedu As on As on le 31.03.2009 31.03.2008 Particulars No. (Rs.) (Rs.) INCOME: Sale Other income

10

60620458.00 180484.00 60800942.00

14937776. 44 661082.00 15598858. 44

EXPENDITURE Material consumed Electricity Freights Wages Direct expenses Administration & other expenses Interest Depreciation

11

35290991.45 806298.00 1126781.00 5899798.00 5269642.00 12 6294094.51 1817981.50 821476.41

Notes on accounts

13 TOTA L:

57327062.87

Profit / loss for the year before taxation

3473879.13

LESS: Provision for Tax tax liability

283973.00 956670.00 16056.00

Deferred Current

9990241.4 3 597353.00 137631.00 1081870.0 0 18727.00 2357486.9 5 147047.47 501513.78

14831870. 63

year tax 766987.81 Fringe

2217180.13

benefit tax 2393085.07

168361.00 84508.00 13797.00

Profit after taxation Balance brought forward from previous year

500321.81 105

BALANCE CARRIED BALANCE SHEET

TO

4610265.20

1892763.2 6 2393085.0 7

106

INCOME STATEMENT FOR THE YEAR ENDING 31.03.2015 As on Schedule 31.03.2010 No. (Rs.)

Particulars INCOME: Sale Less : taxes Net sales Other income

As on 31.03.2009 (Rs.)

99507508.00 17017812.00 82489696.00 18040.00 82507736.00

68935160.00 8314702.00 60620458.00 180484.00 60800942.00

54152908.51 779807.00 1905577.00 6371249.00 1124011.00 9067845.70 3521958.54 1199427.89

35290991.45 806298.00 1126781.00 5899798.00 5269642.00 6294094.51 1817981.50 821476.41

TOTAL: 78122784.64

57327062.87

10

EXPENDITURE Material consumed Electricity Freights Wages Direct expenses Administration & other expenses Interest Depreciation

11

Notes on accounts

13

12

Profit / loss for the year before taxation

4384951.36

3473879.13

LESS: Provision Deferred tax liability

532771.00

283973.00

Current year tax

882334.00

956670.00

Fringe benefit tax

45267.00

16056.00

Profit after taxation

2924579.36

2217180.13

4610265.20

2393085.07

Balance

brought

for

forward

Tax

from

107

previous year BALANCE CARRIED TO BALANCE SHEET

7534844.56

4610265.20

----- o -----

108