Ratioanalysis,wipro.docx

A STUDY ON RATIO ANALYSIS

CHAPTER-I INTRODUCTION INDUSTRY PROFILE & COMPANY PROFILE

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS INTRODUCTION Finance is one of the basic foundations of all kinds of economic activities. It is the master key, which provides access to all the sources for being employed in manufacturing. Hence it is rightly said that finance is lifeblood of any enterprise, besides being the scarcest elements, it is also the most indispensable requirement. Without finance neither any business can be started nor successfully run. Provision of sufficient funds the required time is the key to success of concern. As matter of fact finance may be said to be the circulatory system of economic body, making possible the needed co-operation among many units of the activity. FINANCIAL MANAGEMENT; Financial management emerged as a distinct field of study at the turn of this Century. Many eminent persons defined it in the following ways. DEFINITIONS; According to GUTHMANN AND DOUGHAL “Business Finance can broadly be defined as the activity concerned with planning, rising, controlling and administering of funds used in the business”. According to BONNEVILE AND DEWEY: “Financing consists in the rising, providing and managing of all the money, capital or funds of any kind to be used in connection with the business”. According to Prof. EZRA SOLOMAN: “Financial Management is concerned with the efficient use of any important economic resource, namely capital funds”. FINANCIAL FUNCTIONS: The finance functions of raising funds, investing them in assets and distributing returns earned from assets to shareholders are respectively known as financing, investment and divided decisions. While performing these functions, a firm attempts to balance cash inflows and outflows. This is called as liquidity decision. The finance functions can be divided into three broad categories. Investment or long-term asset mix decision. Financing or capital mix decision. Dividend or profit allocation decision. Liquidity or short – term asset mix decision.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

INVESTMENT DECISION; Investment or capital budgeting involves the decisions of allocation of cash or commitment of funds to long-term assets, which would yield benefits in future. It involves measurement of future profitability, which involves risk, because of uncertain future. Investment proposal should therefore be evaluated in terms of both expected return and risk. Other major aspect of investment decision is the measurement of standard or hurdle rate against which the expected return of new investment can be compared. FINANCING DECISIONS: Financing decision is the second important function to be performed by the firm. Broadly, he must decide when,

where, and how to acquire funds to meet the firms

investment needs. He has to determine the proportion of debt and equity. This mix of debt and equity is known as the firms “Capital Structure”. The financial manager must strive to obtain the least financing mix or the “Optimum Capital Structure” where the market value of share is maximized. DIVIDEND DECISIONS: It is the third major financial decision. T he financial manager decides whether the firm should distribute all profits, or return them, or distribute a portion and return the balance. The optimum dividend policy should be determined where is maximizes the markets value of the share. LIQUIDITY DECISIONS: Current assets management, which affects firm’s liquidity, is yet another finance function in addition to the management of long – term assets. Current asset should be managed effectively safeguarding the firm against the dangers of liquidity and insolvency. Investment in current assets, profitability, liquidity, and risk.

A conflict exists

between profitability and liquidity while managing current assets. If the firm doesn’t invest sufficient funds in current assets it may. Become illiquid. But it could lose profitability and liquidity. In order to ensure that neither insufficient nor unnecessary funds are invested in current assets.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS GOALS OF FINANCIAL MANAGEMENT: Maximize the value of the firm to its equity shareholders. This means that the Goals of the firm should be to maximize the market value of its equity shares (Which represent the value of the firm to its equity shareholders).  Maximization of profit.  Maximization of earnings per share.  Maximization of return on equity (Defined as equity earnings / net worth).  Maintenance of liquid assets in the firm. Ensuring maximum operational efficiency through planning, directing and Controlling of the utilization of the funds i.e., through the effective employment of funds. Enforcing financial discipline in the use of financial resources through the coordination of the operation of the various divisions in the organization. Building up of adequate reserves for financing growth and expansion. Ensuring a fair return to the share holders on their investment. The key challenges for the Finance Manager in India appear to be in the following areas: Investment Planning Financial Structure Treasure Operations Foreign Exchange Investor Communication Management Control TECHNIQUES OF ANALYSIS AND INTERPRETATION: The following techniques can be used in connection with analysis and interpretation of Financial Statements:

Comparative Financial Statements (or Analysis) Common Measurement Statements (or Analysis) Trends Percentages Analysis Funds Flow Statements (or Analysis) Net Working Capital Analysis Cash Flow Statements (or Analysis) Ratio Analysis

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS INDUSTRY PROFILE The Indian hydraulic industry had its beginning in the sixties and the main objective behind establishing this industry was to provide substitutes for imported machinery. Hydraulic machinery from a long time is used in heavy engineering industries (extensively like shipping, power driven machine tools, automobiles, etc.). While there has been a continued overall growth in the oil hydraulic products business due to large variety of specialized products to meet specific individual applications, volume growth in individual products has been very low. With low volumes and high development costs concerning tooling, casting and forging, the industry has not been able to adopt modern production methods. Current production technology in use is largely dictated by production Volumes, quality requirements and costs. In the contemporary industrial world, fluid power, particularly the hydraulics branch of it, is a magic world for energy transmission. The application of fluid power is causing many positive changes in the world around us. The application of hydraulic control and drive systems has resulted in new designs and improved efficiency for machines and installations. The use of fluid under pressure to transmit power and to control intricate motions is relatively modern and has had its greatest development in the past two or three decades. Industrial hydraulics is necessary it can move rapidly in one part of its length and slowly in another. No other medium combines the same degree of positiveness, accuracy, and flexibility, maintaining the ability to transmit a maximum of power in a minimum of bulk and weight. APPLICATIONS OF HYDRAULIC COMPONENTS AND SYSTEMS: Broadly, the hydraulic products from application angle are classified as under: 

Industrial



Mobile



Marine



Aerospace

The above major segments can be further sub divided into specific categories as follows:

S.D.G.S COLLEGE, HINDUPUR

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Industrial  Plastic Processing machinery  Steel making and primary metal extraction industry  Machine tool industry  Others: cover in general, furnace equipment, rubber machinery, textile machinery, general mechanical industry, etc. Mobile hydraulics 

Agricultural tractors



Earthmoving equipment



Material handling equipment

Others: cover general areas such as rail equipment, road building and construction machinery, drilling rigs, commercial vehicles, industrial tractors etc. Marine application This will cover mostly ocean going vessels, fishing boats and naval equipment. Aerospace application There are equipment and systems, e.g. transmission, rudder control, which are used in aero planes, rockets and spaceships. GROWTH RATE: Growing investments in every sector and the Capital Goods Index which has shown a growth rate of 8.2% in FY10 are projecting a high positive image over the demand for hydraulic machinery. Demand for hydraulic machinery for FY08 was projected to be around € 253.9mn which is growing at a compounded annual growth rate (CAGR) of 11.99% from 2008 till 2010 There is a good demand for hydraulic machinery but the Indian manufacturing base is yet to come up with a suitable technology base to manufacture heavy duty hydraulic systems.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS GLOBAL OPERATIONS The hydraulic industry in India is growing at a good rate of 8.2%. As compared to previous years growth rate is 6.8%. The demand for hydraulic cylinders is been increasing throughout the world. This is been good for the manufacturers. MAJORE PLAYERS The following are the some of manufacturers of hydraulic components. As the industry is growing at a good rate, there is wide competition between the companies. The companies should deliver precisely quality products in order to survive. But the opportunities are more for this industry due to increase in demand, emergence of new technology. SL NO.

1

COMPANY

PRODUCTS MANUFUCTURED

COUNTRY

Pumps, Motors,

Bangalore, India

Cylinders, Mobile Valves

BEML

Gear Pumps, 2

Dynamatics Limited

Dowty, UK

Mobile Valves Power Packs

3

L&T Ltd.,

Pumps, Motors,

Earth.Moving Machinery

Cylinders,

Bangalore, India

Mobile Vaks

& Hydraulic Division.

4

G.L.Rexoth Limited

Pumps

Ahmedabad,

Motors

India

Industries Valves Cylinders Power Packs Accessories Pumps

5

Hagglunds Dension Ltd

Hyderabad, India

Valves Motors Power Packs

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS COMPANY PROFILE Wipro Limited is a multi-business corporation, headquartered in Bangalore, India. For the year ending 31st March 2007, Wipro's revenues were USD 3.5 Billion. Wipro is listed on the New York Stock Exchange and the Bombay Stock Exchange. Wipro Limited was incorporated in 1945 as Western India Vegetable Products Limited under the Indian Companies Act, VII of 1913, which is now superseded by the Companies Act, 1956. Over the years, Wipro ltd has diversified into the areas of IT services, IT products and Consumer Care & Lighting Products. In October 2000, Wipro ltd has raised gross aggregate proceeds of approximately $131 million in U.S. public offering of Ads on the New York Stock Exchange. Wipro incurred capital expenditure of Rs. 1,318 million, Rs. 2,626 million and Rs. 2,485 million ($ 50.89 million) during the fiscal years ended March 31, 2000, 2001 and 0102, respectively. These capital expenditures were primarily incurred on new software development facilities for our Global IT services business segment. These capital expenditures also include Rs. 570 million incurred on the expansion of Wipro ltd corporate facilities in Bangalore over the course of the fiscal years ended March 31, 2000 and 2001. WIPRO'S BUSINESSES; Besides Wipro Infrastructure Engineering, Wipro's businesses are: 

IT Service, Products and Business Process Outsourcing



Consumer Care and Lighting



Healthcare Solutions ( includes a JV with GE)

Wipro is committed to building an organization that thrives on a foundation of Values - which we call the Spirit of Wipro. COMPETITIVE STRENGTHS OF WIPRO: The following are the principal competitive strengths: 

Comprehensive range of IT services



World-class quality as measured by SEI-CMM and six sigma initiatives



Services offerings in emerging growth areas

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS 

Broad range of research and development services



Global delivery model



Established track record with premier international customer base



Ability to access, attract and retain skilled IT professionals



Robust systems and processes to support growth in business



Broad distribution network and strong sales force in India



Strong brand recognition in the Indian market

WIPRO BELIEFS (1971) 

Respect the individual. People are our greatest asset.



Achieve & maintain a position of leadership in each of the businesses we are in



Govern individual and company relationships with the highest standard of conduct & integrity



Serve our internal & external customers through Defect free products, services & processes.

SPIRIT OF WIPRO 

Intensity to Win 

Make customers successful



Team, Innovate, Excel

 Act with Sensitivity 

Respect for the individual



Thoughtful & Responsible

 Unyielding Integrity 

Delivering on commitments



Honesty and fairness in action

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

WIPRO'S SUBSIDIARIES AND AFFILIATES Spectra mind Limited

Wipro Holding (Mauritius) Limited

Wipro Spectra mind Service Limited

Wipro Holding (UK) Limited

Wipro Inc.

Wipro Technologies UK Limited

Enthink Inc.

Wipro HealthCare IT Limited

Wipro Japan KK

Wipro Fluid Power Limited

Wipro Chandrika Limited

WEP Peripherals Limited

Wipro Customer Care Limited

Wipro GE Medical systems Pvt Limited

Wipro Travel Service Limited

Wipro Trade marks Holding Limited

WIPRO INFRASTRUCTURE ENGINEERING Wipro Infrastructure engineering (formerly Wipro Fluid Power) provides solutions ranging from Precision Engineered Products to value added Services for customers in industries that serve the core infrastructure sector - ranging from Construction, Mining, Agriculture and Power to Steel Plants and Ports. WIN product and service offerings include high precision hydraulic cylinders, valves, PTO's, complete tipping solutions and system solutions for a Wide range of applications. WIN is the largest Indian provider of precision engineered hydraulic components and solutions. WIN Partnership with global players  

Kawasaki Precision Machinery, Japan - Pumps, Motors & Valves for a range of applications. Nabtesco Corporation, Japan - Motors & Valves for a range of applications

 Sun Hydraulics, USA - Screw-in cartridge valves & manifolds Customer support & Distribution channel 

Over 45 highly trained service personnel



28 customer support and distributor locations all across India



'State of the art' Diagnostic equipment



On the spot problem solving and complaint resolution

For customers outside India, WIN provides customized engineering & service.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS Customer of WIN: 

JCB TELCON CATERPILLAR L&T CASE TEREX



TEREX VECTRA THAI KOBELCO KUBOTA BEML



HIL PT KOMATSU TATA MOTORS ASHOK LEYLAND



MAHINDRA & MAHINDRA EICHER



KOMATSU FORKLIFT CARRARO CLAAS VOLTAS GODREJ



ATLAS COPCO INGERSOLL RAND REVATHI EIMCO ELECON TIL



ESCORTS TRF JINDAL TATA STEEL SAIL MUKAND SIMPLEX FLAT



CONCAST SMS DEMAG NTPC L&T ECC L&T DEMAG ACC

WIPRO INFRA STRUCTURE ENG.LTD; HINDUPUR:

In 1995 the second manufacturing facility started in Hindupur with the area of 15 Ackers of land (80 kms from Bangalore) for cylinders and truck hydraulic components and Commenced export of hydraulic cylinders to construction majors in Japan and Thailand. Hindupur WIN manufactures the high precision hydraulic cylinders, valves, PTO's, complete tipping solutions and system solutions for a wide range of applications.With the Deep commitment to Quality and Customer service Hindupur WIN offer value; this has made the preferred source for hydraulic components. Our expertise is built on a very good experience of serving a wide range of customers.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS INTRODUCTION OF COMPANY Wipro Limited (Wipro), together with its subsidiaries and associates (collectively, the company or the group) is a leading India based provider of IT Services and Products, including Business Process Outsourcing (BPO) Services, globally. Further, Wipro has other business such as India and Asia Pac IT Services and products and Consumer Care and Lighting. Wipro is headquartered in Bangalore, India. Wipro is the first Indian IT Service Provider to be awarded Gold-Level Status in the Microsoft Windows Embedded Partner Program. Wipro is the world’s largest independent R&D Services Provider. Wipro is the world's first PCMM Level 5 software company. Wipro is one among the few companies in the world to be assessed at CMMI Level 5 for V1.2 across offshore and near shore development centers. World’s first IT Services Company to use Six Sigma. The pioneers in applying Lean Manufacturing techniques to IT services. Wipro is the world’s first SEI CMM/CMMI Level 5 IT services company. The first to get the BS15000 certification for its Global Command Center. Functional RFID Enabled Concept Store and Global Data Synchronization Laboratory BS7799 and ISO 9000 certified. Among the top three offshore BPO service providers in the world. Wipro is a strategic partner to five of the top ten most innovative companies in the world* (*Technology Review Innovation Index 2005).Over 50 industry specific ‘Centers of Excellence'. 108,071 employees .One of the most preferred employers for top class talent (Survey by Hewitt Associates, Fortune Magazine, and The RBL Group, 2007). 72 Development Centers across the globe. No. 2 in Indian Domestic IT Services Provider Market 

For the year ending 31st March 2012, Wipro's revenues were USD 6.98 Billion.



Wipro is listed on the New York Stock Exchange and the National Stock Exchange.



$6 billion* revenues (FY 2011-12) – Consistent growth CAGR of 29% in the last 6 years - creating value for all its stakeholders

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS – Global footprint Presence in 54 countries 

845 active global clients as of March 31, 2010; 150+ Fortune 500 customers



100,000+ employees worldwide from 67 nationalities (20,000 outside India)



Investors from 24+ countries; Listed on NYSE & NSE



– Leadership position in all its businesses

AREA OF OPERATION:

Presently WIN has its manufacturing facilities at eight places globally. Its head quarters are situated at Bangalore, India. WIN sells its products to its customers worldwide.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS In the year 2008-09 it acquired hydrator group in Finland and Sweden to spread its production areas. It has done so because of availability of raw materials and nearness to the market, so that the company can reduce transportation costs and provides better Services to the customer.

BUSINESS UNITS OF WIPRO:

IT Products & Services

Consumer &

Infrastructure

- IT, BPO, R&D Services,

Institutional

Engineering

Consulting Services

Products

Wipro Technologies

US, Europe, Japan, Australia & South-East Asia

Wipro InfoTech

Wipro Consumer Care Lighting

Wipro Infrastructure & Engineering

Hydraulic Cylinders & Products; Ultra Pure Water Treatment Personal Care, Systems & India & Middle Baby Care & Solutions; Clean Wellness East Energy Systems Products; Lighting ; & Solutions Furniture & Switches

S.D.G.S COLLEGE, HINDUPUR

EcoEnergy

Wipro EcoEnergy Energy Management Services & Consulting, Green Infrastructure design and development, Renewable Energy Solutions

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A STUDY ON RATIO ANALYSIS HISTORY (Infrastructure Engineering) 1.

1976

Pioneered Hydraulic Cylinders for industrial segments.

2.

1980

Developed HC for Mobile applications.

3.

1986

Entry into Construction Equipment applications.

4.

1989

Launched truck Hydraulic components.

5.

1995

Commenced Exports to Japan & Thailand.

6.

2002

No.1 Hydraulics solutions provider in India.

7.

2006

Acquired Hydrauto Group in Finland and Sweden.

8.

2008

Started Wipro Water acquiring Aquatech.

9

2009

Wipro Inaugurates Development Centre in China.

10

2010

Establishing manufacturing facility in Changzhou , China

11

2012

agreement with Spanish firm Compania Espanola De Sistemas Aeronauticos

12

2012

Acquired R.K.M. EQUIPAMENTOS HIDRÁULICOS LTDA , a leading hydraulic cylinders manufacturer in Piracicaba, Brazil

SPIRIT OF WIPRO: Wipro is committed to building an organization that thrives on a foundation of Values: ACT WITH SENSITIVITY

Respect for the individual Thoughtful and responsible

UNYIELDING INTEGRITY

Delivering on commitments Honesty and fairness in action

INTESITY TO WIN

Make customers successful Team, Innovate, Excel

S.D.G.S COLLEGE, HINDUPUR

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NATURE OF BUSINESS CARRIED: Wipro Infrastructure engineering (formerly Wipro Fluid Power) Head office located at Bangalore Started at 1976. It provides solutions ranging from Precision Engineered Products to value added Services for customers in industries that serve the core infrastructure sector - ranging from Construction, Mining, Agriculture and Power to Steel Plants and Ports. WIN delivers precision-engineered hydraulic cylinders, components and solutions & truck hydraulics components to OEMs globally in the infrastructure and related industries. Corporate Social Responsibility :-

This is Wipro Corporation’s initiative to contribute towards improving Indian education. Wipro work with a network of over 25 social

organizations

across

the

country,

and

offer

long-term

developmental programs to teachers, principal and schools. Till date, Wipro have engaged deeply with over 8,000 educators with 900 schools across 17 states of India. THE WEIGHT OF WINGS Wipro think progress is defined by the changing nature of issues that a society considers topical. Wipro have made the transition from concern for just basic literacy to improvement of the quality of education. Wipro need to progress from a compulsion to massproduce stereotypes to creating independent thinkers and active learners. Wipro have to create the right balance between our diverse subcultures and create an education system that caters to the need of every one of them

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

CHAPTER-II REVIEW OF LITERATURE

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS RATIO ANALYSIS “Ratio Analysis” is the process of determining and interpreting numerical relationships based on financial statement. This relationship can be expressed as percent or as a quotient. “Ratio Analysis” is the most widely used tool of financial analysis. A ratio is a quotient of two numbers and is an expression of relationship between the figures or two amounts. It indicates a quantitative relationship which is used for a qualified judgment and decision-making. MEANING OF RATIO: A Ratio is a simple arithmetical expression of his relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to Accountant’s Handbook by Wixon, Kell and Bedford, a ratio “is an expression of the quantitative relationship between two numbers” According to Koehler ratio is the relation, of the amount, a, to another, b, expressed as the ratio or as a simple fraction, integer, decimal, fraction or percentage.” Ratio Analysis is one of the important financial tools which come to be used very frequently for analyzing the financial strength, the weakness of the enterprise Ratios are among the best known and mostly widely used tools of financial analysis. It is defined as the indicated quotient of two mathematical expressions. An operational definition of financial ratio is the result of the comparing mathematical two values. A company total a sets turnover is calculated by deciding the company’s total value into its sales figure. This ratio is the qualified relationship between the sales and total assets. The resulting figure is also an index because it tells us how many times the value of the total assets was incorporate into the firm’s products. It is worthwhile to mention that the must express a relationship that as signification thus, there is a clear-cut direct and understandable relationship between the sales price of an item on hand and its cost of goods.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS IMPORTANCE: The relationship between accounting figures, expressed mathematically, is known as financial ratio or simply as a ratio. A ratio helps to analyst to make qualitative judgment about the firm’s financial position and performance. For example, current ratio is calculated by dividing current assets by current 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 qualitative judgment to be formed about the firm’s ability to meet its current obligations. It measures the firm’s liquidity. The greater the ratio, the greater the firm’s liquidity and vice versa. Such is the nature of all financial ratios. As ratio simple to calculate and easy to understand, there is tendency to employ them profusely. While such statistical calculations stimulations thinking and develop understanding, there is a danger of accumulation of a mass of data that obscures rather than clarifies relationship. The individual ratio, by itself, may have little significance of its own. Ratios may be interpreted by expanding the analysis and considering a group of several related ratios. The same ratios or a group of ratios is studied over a period of years, with the result that significant trends indicating rise, stability, or decline are highlighted. STANDARDS OF COMPARISION: The ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio is itself does not indicates a favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of: 1. Ratio calculated from the past financial statements of the firm. 2. Ratios are developed using the projected or preformed financial statements of the same firm. 3. Ratios of the some selected firms, especially the most progressive and successful, at the same point of time. 4. Ratios of the industry to which the firm belongs. Sometimes future ratios are used as the standard of comparison. Future ratios can be developed from the projected or preformed financial statements. The comparison of the past ratios which the future ratios show the firm’s relative strengths and weaknesses in the past and future. If the future ratios indicate weak financial position, corrective actions should be initiated

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS AIMS AND ADVANTAGES OF RATIO ANALYSIS: The analysis of financial statements spotlights the significant facts and relationships concerning managerial performance, corporate efficiency, financial strengths and weakness and credit worthiness that would have otherwise been buried in a merge of detail. To the management, the ratio analysis serves as a means of self evaluation. It is like a report on its managerial skills and competence.

The knowledge derived through such analysis can be

used by the management in planning business operations. The management can study relative efficiency of the departments, conserve assets, maintain sound divided policies and establish sound credit ratings. The principle advantages of Ratio analysis are: 1. It is possible to assets the liquidity, profitability, solvency, and the efficiency of the enterprise through the technique of ratio analysis. 2. The help the management in planning and forecasting. 3. They act as in index of the efficiency of the enterprise. As such they serve as an instrument of management control. 4. They help the management in decision making. 5. They summaries briefly the result of detailed and complicated computation. Limitations of ratio analysis: The ratio analysis is a widely used technique to evaluate the financial position and performance of a business. But there are certain problems in using ratios. The principle limitations of Ratio analysis are: 1. Ratios are calculated from the data drawn from the accounting records. Hence, it suffers from the inherent weakness of the accounting system itself, which is the source of data. 2. Ratios are meaningless if detached from the details from which they were derived. It is therefore, imperative that they should be published with related state they are derived from.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS 3. Ratios based on single set of figures will not have much significance. They become more useful when they compared with ratios based on past years figures or standard ratios. 4. If too many ratios are calculated they are likely to confuse instead revealing meaningful conditions. 5. Presence particular type of ratio is not a sure indicator of bad or good management. It merely conveys certain observations pointing to the probability of matters needing investigations. 6. It is difficult to decide on the proper basis for comparison. 7. The price level changes make the interpretation of ratios invalid. 8. The difference in the definitions of items in the balance sheet and the income statements make the interpretation of ratios difficult. 9. The ratios calculated at a point of time are less informative and effective as they suffer from short term changes. 10. The ratios are generally calculated from past financial statements and thus, are no indicators of future. Requisite for Ratio analysis The requisition of Ratio Analysis to come in to being caused by the following facts.Business facts displayed in Balance sheet and Profit and Loss account do not convey any pompous individually. Their significance lies in the fact that they are inter-related. From this time on word, there is need for fixing relationship between various but related items. Ratio Analysis as a tool for the interpretation of financial statements is also important because ratios help the analyst to have a profound cautiously in to the data given statements figure in their peremptory forms shown in financial statements are neither significant nor to enable to the compared.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS Uses of ratio Analysis The nature of ratio Analysis will differ depending on the purpose of the analyst. Ratio Analysis the starting point for making plans before using any sophisticated fore casting and budgeting procedures . The Ratio analysis is useful for the following reasons. Share holders/Investors: Investors or Shareholders, who have invested their money in the firm’s shares, are most concerned about the firm’s earnings. They restore more confidence in those firms that show steady growth in earnings .As such, they concentrate on the analysis of the firm’s present and future profitability. They are also interested in the firm’s financial position to the extent it influences the firm’s earnings ability. Owners or Investors desire primarily a basis for estimating capacity. Creditors: Creditors are concerned primarily with liquidity and ability and to pay interest on redeems loan with a specified period. Long-Term Creditors: The Long term creditors are interested in the long term solvency and survival. They analyses about firm’s solvency and profitability overtime, its ability to generate cash, to be able to pay interest and repay principal and relationship between various sources of funds. Employees: The employees are also interested in the financial position of the concern especially profitability. Their wages increase, the amount of fringe benefits are related to the volume of profits earned by the concern. The employees make use of information available in financial statements. Government: Government is also interested to know the strength and weakness of the firm. Government makes the future policies, plans on the basis of financial information available from various units of the company.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS Management: Finally management of the firm or Executives would be interested in every aspect of the financial analysis. It is their overall responsibilities to see at the resources of the firm are used most effectively, and the firm’s financial condition is sound. Through financial analysis they try to seek answers to the following questions: Is the firm in a position to meets it current obligations. What sources of Long-term finance are employed by the firm and what is the relationship between them? Is there any danger to the solvency of the firm due to the employment of excessive debt how efficiently does the firm uses its assets are the earnings of the adequate? Financial analysis may not provide exact answers to these questions, but it does indicate what can be expected in the future. CLASSIFICATION OF RATIOS: RATIOS may be classified in a number of was keeping in view of the particular purpose. Rations indicating profitability are calculated on the basis of the profit and loss account, those indicating financial position are computed on the basis of the balance sheet and those which show operating efficiency or productivity or effective use or resources are calculated on the basis of figures in the profit and loss account and the balance sheet. This classification is rather crude and unsuitable to determine the profitability and financial position of the business. To achieve this effectively, ratios may be classified as:

LIQUIDITY RATIOS LEVERAGE RATIOS ACTIVITY RATIO PROFITABILITY RATIOS

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS Liquidity Ratios: It is extremely essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios measure the ability of the firm to meets its current obligations. In fact, analysis of liquidity needs the preparation of Cash Budgets and Cash flow statements .But liquidity ratios, by establishing in a relationship between Cash and other Current obligations provide a quick measure of liquidity. Also that it is not too much meets its obligations, due to lack of sufficient liquidity, will result in bad credit rating, loss of creditors’ confidence, or even in lawsuits resulting in the closure of the Company. A very high degree of liquidity is also bad. Therefore, it is necessary to strike a proper balance between Liquidity. The ratios, which measured and indicate the extent of firm’s liquidity, are known was liquidity ratios or short-term solvency ratios commonly used liquidity ratios included. 1. Current Ratio 2. Quick Ratio 3. Absolute quick (Cash) Ratio Leverage Ratios: The long term creditors like Debentures holders, financial Institutions, etc. , are more concerned with the firm’s long -term financial strength. To judge the long-term financial position of the firm, Leverage or capital structure ratios are calculated. These ratios indicate the funds provided by the owners and creditors. As a general, there should be an appropriate mix of the debt and owner’s equity in financing the firm’s assets. Firm with low leverage have less risk of loss, but they also have lower expected returns. Conversely firms high leverage ratios have risk of large losses. But also have a chance of earning huge profits. Therefore, before deciding whether a firm should have debt, must balance with higher expected returns against increased risks. The most commonly examined leverage ratios are: 1. Debt Equity Ratio 2. Interest Coverage Ratio

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A STUDY ON RATIO ANALYSIS Activity Ratios: The funds of creditors and owners are interested in various kinds of Assets to generate sales and profit. The better the management of Assets, the larger will be the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called Turn over ratios because they indicate the speed with which assets are being converted or turn over in to sales. Activity ratios thus involve a relationship between sales and the various assets .A proper balance between Sales and Assets generally reflects that assets are managed well. Following are some of the important activity ratios. 1. Total assets turnover ratio 2. Current assets turnover ratio 3. Fixed assets turnover ratio 4. Stock turnover ratio 5. Debtors turnover ratio 6. Debtor Collection Period 7. Creditors turnover ratio Profitability Ratios: 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 the company should be aimed at maximizing profits, irrespective of social consequences. Profit is the difference between total Revenues and total Expenses over a period of time. Profits are the ultimate output of a company and it will have no future if it fails to make sufficient profits. There fore, the Financial Manager should continuously evaluate the efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Generally, two major types of profitability ratios are calculated. 1. Profitability in relation to sales. 2. Profitability in relation to Investment A company should be able to produce adequate profit on each rupee of sales .If sales do not generate sufficient profits, it would be very difficult for the firm to cover the operating

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A STUDY ON RATIO ANALYSIS expenses and interest charges and as a result will fall to earn any profits for owners. Some of the profitability ratios are: 1. Gross profit ratio 2. Operating Expense ratio 3. Net profit ratio 4. Return On Investment 5. Earnings Per Shares (EPS) Significance of Ratio Analysis The ratio Analysis is the most powerful tool of the financial analysis. The many diverse groups of people are interested in analyzing the financial information to indicate the operating efficiency and the various aspects of the firm’s financial position. These people use ratios to determine a particular financial characteristic of the firm in which they are interested. With the help of ratios one can determine. 1. The ability of the firm to meet its current obligations. 2. The extent to which the firm is utilizing its long-term solvency by borrowing funds. 3. The efficiency with which the firm is utilizing its various assets in generating sales Revenue. 4. The overall operating efficiency and performance of the firm. A short-term creditor will be interested in current financial position of the firm, while a long-term creditor will pay more attention to the solvency of the firm and also be interested in profitability of the firm. The equity share holders are generally concerned with their return and many bother about the firm’s financial condition only when their earnings are depressed. In fact, it has to be realized that the short-term and the long-term financial position and the profitability of the firm are based on every kind of financial analysis, the emphasis would differ. In credit Analysis, the analyst will usually select a few important ratios. He may use the Current Ratio or Quick- Asset Ratio to judge the firm’s liquidity or Debt-paying ability. The ratio Analysis is also useful in security analysis. The major focus on security analysis is on the long-term profitability. From time to time, Management uses ratio Analysis to determine the firm’s financial strength and weakness and accordingly takes action to improve the firm’s position.

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A STUDY ON RATIO ANALYSIS The ratio of a firm in itself does not reveal anything. For meaningful interpretation, the ratios of the firm should be compared with the ratios of similar firms and industry. This comparison will reveal whether the firm is significantly out have like. The firm should undertake a detailed analysis to spot out the trouble areas. The Ratio Analysis will reveal the financial condition of the firm more reliably when trends in ratios over time are analyzed. The significance of trend analysis of ratios lies in the fact the analyst can know the direction of movement, i.e., whether the movement is favorable or unfavorable. Limitations of Ratio Analysis: The Ratio Analysis is a widely used technique to evaluate the financial position and performance of a business. But there are certain problems in using ratios. The following are the limitations of the Ratio Analysis. It is difficult to decide on proper basis for comparison: The comparison is rendered difficult because of differences in situations of two companies or one company over years. The price level changes make the interpretations of ratios invalid. The differences in definitions of items of Balance sheet and income statements make the interpretation of ratios difficult. The ratios calculated at a point of time are less informative and defective as they suffer from short-term changes. The ratios are generally calculated from past financial statements and thus are no indications of the future. A single ratio usually does not convey much sense. To make a better interpretation a number of ratios have to be calculated which are likely to confuse the analyst than helping him in making any meaningful conclusion. Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. Ratios of the past are not necessarily true indicators of the future.Ratio Analysis is merely a tool of financial statements.

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A STUDY ON RATIO ANALYSIS

CHAPTER-III DESIGN OF THE STUDY

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A STUDY ON RATIO ANALYSIS RESEARCH METHODOLOGY Data Collection Methods: Primary data: In formation collected form company guide and finance manager of the company. Secondary data: Company balance sheet and profit loss account of the company.The data of the company’s profits and loss accounts, balance sheets is collected for 4 years. Data is collected completely from the financial annual reports of the company and to some extent from the accounting information given by the management. Research Tool: Ratio Analysis Data Analysis: Data is analyzed with the help of ratios and percentages. Data Presentation: The data collected for the study is presented in the form of tables and simple bar diagrams.

Tools and Techniques of analysis: The following tools and techniques analysis are used as measures of judging the degree of efficiency of financial analysis. The figures of annual reports have been rounded off to two decimal places in crores of rupees. The analysis of data is carried out through financial rati.

SCOPE OF THE STUDY The present study is concerned with the analysis of financial statements with the help of a powerful tool like ratio analysis. It covers various ratios like liquidity ratios, leverage ratios, activity ratios and profitability ratios.

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A STUDY ON RATIO ANALYSIS OBJECTIVES OF THE STUDY Primary objective:To analyze the financial performance of WIPRO PVT LTD at Hindupur. Secondary objective: To measure the firms ability to meet its current obligations. To analyze the proportions of debt and equity in financing the firms assets. To analyze the firms efficiency in utilizing its assets. To measure the overall performance and effectiveness of the firm.

NEED FOR THE STUDY Financial forecasting is an integral part of financial planning. Forecasting uses past data to estimate the future financial requirements. Ratio analysis is a powerful tool of financial analysis. A ratio is uses as a benchmark for evaluating the financial position and performance of the firm. Ratio helps to summarizes large quantities of financial data and to make qualitative judgment about the firm’s financial performance. With the help of ratios, one can determine.  The ability of the firm to meet its current obligations.  The extent to which the firm’s has used its long-term solvency by borrowing funds.  The efficiency with the firm is utilizing its assets in generating sales revenue.  The overall operating efficiency and performance of the form. Analysis and interpretation of various accounting ratio gives a skilled and Experience analyst, a better understanding of the financial condition and performance of the firm. Thus ratio analysis can assist management in its basic function of forecasting, planning, coordination, control and communication.

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A STUDY ON RATIO ANALYSIS LIMITATIONS OF THE STUDY  The study will be only a provisional one based on the data collected from the reports and the accounts during the period and it’s subject to refinement.  The stuffy is based on only the balance sheets and profit and accounts of the company and ot has its own limitations.  The economic and government policies etc., may affect the industry after the study, which are not taken into consideration.  The ratios of the company are not compared with some benchmark ratios due to the lack of information regarding it.  Ration analysis suffers form the serious limitations of the statistical concepts such as determinations of standard for comparison.  Ratio analysis helps in providing only a part of the in formation needed in the process of decision-making.

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A STUDY ON RATIO ANALYSIS

CHAPTER-IV DATA ANALYSIS AND INTERPRETATIONS

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A STUDY ON RATIO ANALYSIS RATIO ANALYSIS: LIQUIDITY RATIOS: 1 .Current Ratio 2. Quick Ratio 3. Net Working Capital Current ratio: This ratio shows the proportion of Current Assets to Current Liabilities. It is also known as “Working Capital Ratio” as it is a measure of working capital available at a particular time. It’s a measure of short term financial strength of the business. The ideal current ratio is 2:1 i.e. Current Assets should be equal to Current Liabilities.

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

1.66

2.13

1.77

2.26

2.27

Interpretation:       

Current ratio is always 2:1 it means the current assets two time of current liability. After observing the figure the current ratio is fluctuating. In the year 2013,2014 ratio is showing good shine. Hear ratio is increase as a increasing rate from 2012 to 2014 Company is no where near the ideal ratio in every year but every company can not achieve this ratio. Current ratio is increased in 2016-17 as compared to 2014-15 because of increase in Inventories and increased in Cash and Bank balance. Current ratio is decreased in 2014-15 as compared to the last year because of increase in liabilities and in increasing in Provision

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A STUDY ON RATIO ANALYSIS Quick (or) Acid-test (or) Liquid ratio: This ratio is designed to show the amount of cash available to meet immediate payments. It is obtained by dividing the quick assets by quick liabilities. Quick Assets are obtained by deducting stocks from current assets. Quick liabilities are obtained by deducting bank over draft from current liabilities.

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

1.42

2.00

1.50

2.02

2.01

Interpretation: 

Standard Ratio is 1:1



Company’s Quick Assets is more than Quick Liabilities for all these 5 years.



In 2015-16 the ratio is increasing because of increase in bank and cash balance



So all the years has quick ratio exceeding 1, the firm is in position to meet its immediate obligation in all the years.



In 2014-15 quick ratio is decreased because the increase in quick assets is less proportionate to the increased quick liabilities.



The Quick ratio was at its peak in 2016-17, while was lowest in the 2012-2013.

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A STUDY ON RATIO ANALYSIS 4.3

Absolute liquid ratio (or) Cash position ratio:

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

0.58

0.98

0.74

1.13

1.00

Absolute liquid ratio (or) Cash position ratio 2.5 2 1.5 Current ratio 1 0.5 0 2008-09 2009-10 2010-11 2011-12 2012-13

Interpretation 

The current assets which are ready in the form of cash are considered as absolute liquid assets.



Here, the cash and bank balance and the interest on fixed assets are absolute liquid assets.



In the year 2015-16, the cash and bank balance is increased due to increase in the deposits That causes increase in the year’s ratio

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A STUDY ON RATIO ANALYSIS 4.4.Working capital turnover ratio:

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

4.16

2.63

3.05

2.18

2.18

Working capital turnover ratio 4.5 4 3.5 3 2.5 2

Working capital turnover ratio

1.5 1 0.5 0

Interpretation: 

Income from services is greatly increased due to the extra invoice for Operations & Maintenance fee and the working capital is also increased greater due to the increase in from services because the huge increase in current assets.



The income from services is raised and the current assets are also raised together resulted in the decrease of the ratio of 2013,2014 compared with 2014-15.

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A STUDY ON RATIO ANALYSIS Profitability Ratios  Gross Profit Ratio  Operating Profit Ratio  Net Profit Ratio  Rate Of Return On Investment  Rate Of Return On Equity 4.5 Gross Profit Ratio: This is the ratio expressing relationship between gross profit earned to net sales. It is a useful indication of the profitability of business. This ratio is usually expressed as percentage. The ratio shows whether the mark-up obtained on cost of production is sufficient however it must cover its operating expenses. Gross Profit Ratio = gorss profir / net sales*100 Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

31.71

29.81

30.25

31.78

31.72

Gross Profit Ratio 32

31.5 31 30.5

Gross Profit Ratio

30 29.5 29 28.5

Interpretation: 

GP Ratio shows how much efficient company is in Production.



GP is decreasing 2013-14 due to higher production cost.



Gross sales and services are increasing year by year so in effect Gross profit ratio is increasing year by year from 2012 to 2013.



But in the current year the ratio slightly decreased.

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A STUDY ON RATIO ANALYSIS 4.6 Operating Profit Ratio: This ratio shows the relation between Cost of Goods Sold + Operating Expenses and Net Sales. It shows the efficiency of the company in managing the operating costs base with respect to Sales. The higher the ratio, the less will be the margin available to proprietors.

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

0.22

0.19

0.18

0.20

0.20

Operating Profit Ratio 0.25 0.2 0.15

Operating Profit Ratio

0.1 0.05 0

Interpretation: 

Operating ratio is lowest during current 2014-15.



This shows that the expenses incurred to earn profit were less compared to the previous two years.



From the graph conclusion is made that company is on the right track by efficiently cutting down manufacturing, administrative and selling distribution expenses.

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A STUDY ON RATIO ANALYSIS 4.7. Net profit ratio:

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

19.62

16.43

15.18

17.02

17.05

Net profit ratio

Net profit ratio

2000.00% 1800.00% 1600.00% 1400.00% 1200.00% 1000.00% 800.00% 600.00% 400.00% 200.00% 0.00%

Net profit ratio

Interpretation 

After observing the figure the ratio is fluctuating.



Company has rise in its net profit in 2013,2014 as compared to the previous year because the company has increased its sales.



Though the company’s sale is rising but the net profit is not so much increased so management should take some steps to decrease its expenses.



Sales is decrease in 2014-15 compare to 2009-10.then increased in 2013-2014.



The overall ratio is showing good position of the company.

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A STUDY ON RATIO ANALYSIS 4.8 Return On Investment:

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

30.43

18.55

22.24

23.11

23.84

Return On Investment 35 30 25 20

Return On Investment

15 10 5 0

Interpretation: 

From the above observation it can be seen that ratio is fluctuating.



In the year 2014-15 Rate of Return on Investment is slightly increase as compared to previous year



Ratio is decreasing after 2012-13 at decreasing rate because of assets increase compare to sales.



The company’s Total Assets is increased, so ROI is decreased in 20113-14 so conclusion made that company is not utilizing its assets and investment efficiently.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS 4.9 .Rate of Return on Equity:

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

30.65

28.07

28.61

25.38

23.53

Rate of Return on Equity 35 30 25 20

Rate of Return on Equity

15 10 5 0

Interpretation: 

ROE is remaining almost same between 2012-13 to 2014-15, but it is decrease in 2013 to 2014.



because the company has increase share capital but profit not getting that much increase.



Company is getting same return on equity.



As a result the share holders are getting higher return every year and investment portfolio scheme selection was a judicious decision taken by the company.



This happens because Profit and Share Capital both increasing same way.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS Asset Turnover Ratios:  Total Assets Turnover  Net Fixed Assets Turnover  Net Working Capital Turnover  Inventory Turnover Ratio  Debtor Turnover (in times) 4.10 Total Asset Turnover Ratio: The amounts invested in business are invested in all assets jointly and sales are affected through them to earn profits. Thus it is the ratio of Sales to Total Assets. .It is the ratio which measures the efficiency with which assets were turned over a period.

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

1.38

1.00

1.26

1.14

1.19

Total Asset Turnover Ratio 1.4 1.2 1 0.8

Total Asset Turnover Ratio

0.6 0.4

0.2 0

Interpretation 

The total assets turnover ratio is fluctuating all years.



The Assets turnover Ratio is near by 1.5 in all 5 years which shows effective utilization of assets from the company’s view point.



In the year 2014-15 ratio is increased because of company’s total assets is

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A STUDY ON RATIO ANALYSIS 4.11 Net Fixed Assets Turnover: To ascertain the efficiency & profitability of business the total fixed assets are compared to sales. The more the sales in relation to the amount invested in fixed assets, the more efficient is the use of fixed assets. It indicates higher efficiency. If the sales are less as compared to investment in fixed assets it means that fixed assets are not adequately utilized in business. Of course excessive sale is an indication of over trading and is dangerous.

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

3.95

2.38

4.89

4.83

5.36

Net Fixed Assets Turnover 6 5 4 3

Net Fixed Assets Turnover

2 1

0

Interpretation: 

Here the ratio of Net Fixed Asset Turnover is continuously decreasing up to 2013-14 and after that it has started increasing. Because sales increase.



Net Fixed Assets Turnover Ratio is increasing year by year because of Sale is increasing continuously.

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A STUDY ON RATIO ANALYSIS 4.12 Inventory Turnover Ratio: Inventory Turnover Ratio: The no. of times the average stock is turned over during the year is known as stock turnover ratio.

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

24.68

21.05

23.63

23.42

21.83

Inventory Turnover Ratio 25 24 23 Inventory Turnover Ratio

22

21 20 19

Interpretation 

From the above calculation we can say that the ratio is fluctuating.



In 2014-15 the ratio is increasing. It means inventory is sadly convert in to sales. So that it is good for the company



But from 2012 up to 2014 and in 2016-17 ratio is decreasing because of increase in COGS. So company should devise a systematic operational plan for inventory control.

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A STUDY ON RATIO ANALYSIS 4.13 Average age of Inventories: This ratio indicates the waiting period of the investments in inventories and is measured in days, weeks or months. Inventory turnover and average age of inventories are inversely related.

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

14.59

17.11

15.24

15.37

16.49

Average age of Inventories 17.5 17 16.5

16 Average age of Inventories

15.5 15 14.5 14 13.5 13

Interpretation: 

This graph shows that inventory convert into cash in short time period.



Inventory turnover ratio is low in 2013-14 So In this year inventory is converted in cash 11.9 days.



The inventory conversation in to cash time duration is increases from 2012 to 201415 to every year so the management should tray to efficient inventory conversation, so it will It shows that company effectiveness utilizing its Inventories in quickly.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS 4.14 Debt Ratio:

Year

2012-13

2013-14

2014-15

2015-16

2016-17

Ratio

0.0323

0.024

0.0197

0.009

0.009

Debt Ratio 0.035 0.03 0.025 0.02

Debt Ratio

0.015 0.01 0.005 0

Interpretation 

From the above calculation it seems that the ratio is Decreasing.



In 2012-13 the ratio is increased as compared to the previous year because the total loan funds are increased.



In 2015-16 Company has issued equity Share and also loan is decreased. Its means that now company trying to increasing Trading on equity.

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A STUDY ON RATIO ANALYSIS Valuation Ratios 

Earnings Per Share



Dividend pay-out Ratio



P/E Ratio



Profit Margin

4.15 Earnings Per Share:

This ratio measures profit available to equity share holders on per share basis. It is not the actual amount paid to the share holders as dividend but is the maximum that can be paid to them. Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

10.62

12.62

15.99

18.91

21.74

Earnings Per Share 25 20 15

Earnings Per Share

10 5 0

Interpretation 

Earning per share is increasing as a increasing rate it is good for investor and share holder.



In 2012-13 Profit is increasing and No Equity share Holder increased Due to that EPS Ratio is increasing in Current year.

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A STUDY ON RATIO ANALYSIS 4.16 P/E Ratio: P/E Ratio is computed by dividing the current market price of a share by earning per share. This is Popular measure extensively used in Investment analysis.

Year Ratio

2012-13

2013-14

2014-15

2015-16

2016-17

11.30

10.30

9.26

22.42

22.08

P/E Ratio 25 20 15

P/E Ratio

10 5 0

Interpretation 

In 2015-16 P/E Ratios is high means Share price of company is Stable and Share holder are interested to invest in the company’s share.



But in 2014-15 P/E Ratio is Falling down word So company share price is not as stable as compare to previous year.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS 4.17 Profit margin ratio:

Year

2012-13

2013-14

2014-15

2015-16

2016-17

Ratio

19.62%

16.43%

15.18%

17.02%

17.05%

Profit margin ratio 17.05%

19.62%

17.02%

16.43% 15.18%

Interpretation 

The ratio is shows equal for 2 year it means the company has maintained the equal ratio for year 2015-16 to 2016-17.



The ratio shows increased in current year it is good sign for the company.

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A STUDY ON RATIO ANALYSIS 1. ANALYSIS OF BALANCE SHEET: Horizontal Analysis of Balance Sheet involves calculation of percentage changes in the Balance Sheet items for a no. of successive years. This is carried out by taking the items of the past financial year used as base year and items of other years are expressed as percentage of the base year. 2012-13

2013-14

2014-15

2015-16

2016-17

Share Capital

100.00

100.17

100.34

100.55

168.13

Share application money pending allotment

100.00

114.29

42.86

51.43

20.00

Reserves & Surplus

100.00

122.52

143.33

192.91

236.41

Share holder's Equity

100.00

121.83

141.99

190.05

234.26

100.00

139.72

125.29

142.89

128.39

100.00

1829.68

2353.8 9

2583.15

2176.99

100.00

1171.94

1486.6 0

1633.47

1379.72

Minority Interest

100.00

386.67

786.67

1456.67

2303.33

Total Sources of Funds

100.00

162.16

193.71

245.76

278.78

Goodwill

100.00

445.38

596.40

562.90

572.61

Gross Block

100.00

150.94

202.09

231.32

266.38

-222.79

-256.44

SOURCES OF FUNDS Share Holder's Funds

Loan Funds Secured Unsecured Total Loan Funds

APPLICATION OF FUNDS Fixed assets

Less: Accumulated Depreciation

100.00

147.78

191.34

Net Block

100.00

154.22

213.24

240.18

276.69

Capital work in progress and advances

100.00

131.19

132.98

121.23

71.10

Total Fixed Assets

100.00

220.73

138.46

148.29

152.43

Investments

100.00

48.19

54.43

102.44

157.62

Deferred Tax Assets(Net)

100.00

89.51

115.74

42.98

6.43

Current Assets, Loans &

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A STUDY ON RATIO ANALYSIS Advances Inventories

100.00

160.58

182.82

190.99

233.90

Sundry Debtors

100.00

139.46

173.65

176.34

212.96

Cash & Bank Balances

100.00

198.11

247.79

327.30

308.45

Loan & Advances

100.00

169.65

249.64

333.30

406.81

Total Current Assets

100.00

164.69

213.89

258.58

289.11

Less: Current Liabilities & Provisions Current Liabilities

100.00

116.13

193.51

166.93

177.64

Provisions

100.00

180.88

231.73

290.65

358.65

Total Liabilities

100.00

128.40

200.75

190.38

211.95

Net Current Assets

100.00

219.53

233.74

361.64

405.69

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A STUDY ON RATIO ANALYSIS ANALYSIS OF PROFIT & LOSS ACCOUNT Horizontal Analysis of Profit & Loss Account involves calculation of percentage changes in the P & L Account items for a no. of successive years. This is carried out by taking the items of the past financial year used as base year and items of other years are expressed as percentage of the base year. 2012-13

2013-14

2014-15

2015-16

2016-17

Gross Sales and Services

100.00

141.69

188.62

241.61

255.58

Less: Excise Duty

100.00

173.94

213.55

136.13

108.77

Net Sales and Services

100.00

141.45

188.43

242.38

256.65

Other Income

100.00

177.86

271.74

170.64

284.90

Total Income

100.00

141.97

189.62

241.36

257.06

Income

Expenditure Cost of Sales and Services

100.00

136.93

175.01

181.26

206.94

Selling and marketing expenses

100.00

148.91

186.40

200.56

238.37

General and administrative expenses

100.00

140.80

196.18

201.47

250.35

Interest

100.00

1362.90

1935.48

993.55

625.81

Total Expenditure

100.00

139.40

179.09

184.93

212.64

PROFIT BEFORE TAXATION

100.00

112.37

137.01

167.02

189.00

Provision for taxation including FBT

100.00

117.63

167.01

236.89

250.65

PROFIT BEFORE MINORITY INTEREST /SHARE IN EARNING OF ASSOCIATES

100.00

111.68

133.02

157.73

180.81

Minority interest

100.00

400.00

1650.00

3083.33

5733.33

Share in earning of Associates

100.00

112.88

122.71

190.85

208.47

PROFIT FOR THE PERIOD(PAT)

100.00

111.58

132.55

157.40

179.89

Interim dividend

100.00

40.35

0.00

0.00

67.84

Proposed dividend

100.00

400.69

401.64

603.77

672.93

Tax on dividend

100.00

117.43

78.55

101.18

173.82

TRANSFERTO GENERAL RESERVE

100.00

116.03

165.21

186.15

24.90

Basic (in Rs.)

100.00

118.83

150.56

178.06

204.71

Diluted (in Rs.)

100.00

110.29

130.92

154.63

105.88

Appropriations

EARNINGS PER SHARE-EPS

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

VERTICAL ANALYSIS OF PROFI & LOSS ACCOUNT Vertical analysis percentages of the Profit & Loss account are very useful when they are compared with the percentages of the same company for previous years and with those of other companies in the same industry. Changes in the percentages might reveal situations that need investigation. 2012-13

2013-14

2014-15

2015-16

2016-17

Gross Sales and Services

99.09

98.77

99.40

98.72

98.25

Less: Excise Duty

0.88

0.81

0.41

0.30

0.32

Net Sales and Services

98.21

97.95

98.99

98.42

97.93

Other Income

1.79

2.05

1.01

1.58

2.07

Total Income

100.00

100.00

100.00

100.00

100.00

67.07

68.76

69.04

67.14

66.87

6.25

6.97

6.85

6.92

7.18

5.00

5.27

5.77

5.56

6.03

0.08

0.83

0.92

0.45

0.24

78.40

81.83

82.59

80.07

80.33

21.60

18.17

17.41

19.93

19.67

2.53

2.23

2.49

3.31

3.06

19.07

15.94

14.92

16.61

16.61

0.00

-0.01

-0.04

-0.07

-0.11

Share in earning of Associates

0.19

0.16

0.14

0.20

0.19

PROFIT FOR THE PERIOD(PAT) Appropriations

19.27

16.10

15.02

16.75

16.70

0.00

0.00

0.00

0.00

0.00

Interim dividend

4.74

1.43

0.00

0.00

1.55

Proposed dividend

0.96

2.87

2.26

3.19

3.10

Tax on dividend

0.83

0.73

0.38

0.46

0.70

TRANSFERTO GENERAL RESERVE

12.74

11.07

12.38

13.10

1.53

Income

Expenditure Cost of Sales and Services Selling and marketing expenses General and administrative expenses Interest Total Expenditure PROFIT BEFORE TAXATION Provision for taxation including FBT PROFIT BEFORE MINORITY INTEREST /SHARE IN EARNING OF ASSOCIATES Minority interest

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

II. VERTICAL ANALYSIS OF BALANCESHEET: Vertical analysis percentages of the balance sheet are very useful when they are compared with the percentages of the same company for previous years and with those of other companies in the same industry. Changes in the percentages might reveal situations that need investigation. 2012-13

2013-14

2014-15

2015-16

2016-17

Share Capital

2.05%

1.35%

1.05%

0.90%

1.33%

Share application money pending allotment

0.02%

0.02%

0.01%

0.01%

0.00%

Reserves & Surplus

65.42%

52.69%

47.88%

55.04%

59.74%

Secured

1.04%

0.96%

0.67%

0.65%

0.52%

Unsecured

1.64%

19.77%

19.76%

18.52%

13.82%

Minority Interest

0.02%

0.05%

0.08%

0.13%

0.19%

Curret liabilities

24.15%

18.44%

23.87%

17.59%

16.57%

Provisions

5.65%

6.72%

6.68%

7.16%

7.82%

100.00%

100.00%

100.00%

100.00%

100.00%

Total Fixed Assets

26.69%

38.73%

23.68%

20.64%

18.43%

Investments

23.38%

7.41%

8.15%

12.49%

16.69%

Deferred Tax Assets(Net)

0.42%

0.24%

0.31%

0.09%

0.01%

Current Assets, Loans & Advances

0.00%

0.00%

0.00%

0.00%

0.00%

Inventories

2.92%

3.08%

3.42%

2.91%

3.09%

Sundry Debtors

20.39%

18.70%

22.69%

18.75%

19.68%

Cash & Bank Balances

13.94%

18.15%

22.13%

23.79%

19.48%

Loan & Advances

12.27%

13.69%

19.63%

21.33%

22.62%

Total

100.00%

100.00%

100.00%

100.00%

100.00%

SOURCES OF FUNDS Share Holder's Funds

Total APPLICATION OF FUNDS

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

CHAPTER-IV FINDINGS & SUGGESTION

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

Findings: 

Though the sales has been continuously increased from past 3 years but the proportionate expenditure is also rising so overall not making any huge effect on net profit of this company.



The total expenditure is near by 80% of total income in every year.



Every year PBT is near by 20% of total income.



Efficiency of the company in production is increasing from 2013-14.



Company is on the right track by efficiently cutting down manufacturing, administrative and selling distribution expenses.



Retunes on investments also slowly increasing.



Fixed assets are efficiently utilized by the company due to which the profit of the company is increasing was good.



The company’s liquidly position is good in the current year. Company has enough cash in hand so that in any condition company can take Any Financial decision easily.



The current ratio of the company is met the standard ratio. It is good sign for the company



The liquidity ratio of the company indicates that the company will find no difficulty to meet its day to day expenses.



The reduction in the inventory turnover ratio indicates that the company is holding excess inocentors.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

SUGGESTIONS: 

The company’s future plans for expansion seem clear due to increased investment in Fixed Assets .Efficient use of these Assets has enabled the company to achieve an increased profit.



Though the company’s sale is continuously rising but the net profit is not so much increased so management should take some steps to decrease its expenses.



Company should try its best to increase sales and profit.



The profit margin ratio shows decline in current year so that company should try to increase profit after tax



Current ratio is very good it is 2.13:1 so company has fully utilize cash liquidity for business development. further improvement is needed.

CONCLUSION  I am very glad to get my project in the industry which is one of the leading companies in PVC pipes manufacturing industry.  I have learnt a lot in this 8 weeks period about the company’s strategies and its objectives, which are going to fulfill all its requirements of the company.  I have given my best in this 8 week span to improve the companies’ standards to my best and I really very happy to hear about their customer satisfactory that they were providing good service to the customers.

S.D.G.S COLLEGE, HINDUPUR

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A STUDY ON RATIO ANALYSIS

BIBLIOGRAPHY

S.D.G.S COLLEGE, HINDUPUR

Page 58

A STUDY ON RATIO ANALYSIS BIBLIOGRAPHY

. FINANCIAL MANAGEMENT I.M. Pandy . FINANCIAL ACCOUNTING & ANALYSIS S.P. Jain & K.L. Narang . FINANCIAL MANAGEMENT S.P. Khan & P.K. Jain . FINANCIAL MANAGEMENT Prasanna Chandra . FINANCIAL MANAGEMENT R.P. Rustagi

WEBSITES: www.google.com www.yahoo.com www.wipro.com

S.D.G.S COLLEGE, HINDUPUR

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