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ACKOWLEDGEMENT:Training plays a vital role in Management Education. It gives a student a chance to interact with the practical knowledge of real corporate world situations. I am sincerely thankful to Mr.V Bhatnagar, Assistant General MIS (Training Development), VITA Milk Plant Ambala for providing me the opportunity to work finance department of VITA. It has been an enriching experience & a truly practical and educative session for me. I came to learn more about the policies and practical working of finance department. Despite of his extremely busy schedule he constantly guided me with great patience and found time to rectify me whenever I went wrong. I would also like to express my sincere gratitude to Ambala Milk Producers Cooperative Itd. And Kurukshetra University for granting permission to carry out this project work and providing opportunity for enhancing academic qualification and experience. I would also like to thank all those persons who helped in completing this project successfully.

PREFACE:Management ideas without any action based on them mean nothing .that is why practical training is made essential part of managerial course pedagogical. Theoretical studies in the class rooms are not sufficient to understand the functioning climate and real problems coming in the way and it is of no use, until and unless it is applied into some practical aspect. So practical exposure to real practical of arrangement in various organizations. The topic of my summer training Project is Liquidity and Financial position of VITA Milk Plant. It was selected as to analysis the financial position of the plant. Thus to apply all theoretical &technical knowledge gained so far on practical training I have undergone at Vita Milk Plant Ambala. For the above purpose I have gone through various annual reports. This final project offered me an opportunity to make a study and analysis the system. It enables me to blend my theoretical knowledge acquired during the study with the practical training grieved in conducting this project report. The submission of this part or the curriculum of the MBA course. At the last I wrap up the findings & analysis, suggestion and conclusion.

UNDERTAKING:I, Kamaljeet Kaur pursuing MBA from Department of Management Swami Devi Dyal Institute of Management affiliate to Kurukshetra University, Kurukshetra do here proclaim that in preparing this project report on Liquidity and Financial Position of VITA Milk Plant Ambala,I have not taken any help from any body in or opposite the institute expect from primary sources and secondary sources mentioned in the context. This project is an original work and the same has not been submitted to any other institution for the award of any other degree. All conclusion and recommendations are my own efforts. All the data collection by me has done with the help of Vita,s manuals and annual reports issued by the plant. The entire analysis has done by me with the guidance of Vita, s finance department staff.

Statement of Project Report:Statement of my project problem is to compare the financial position of the Vita Milk Plant with other campanies.This helps in determining the strengths and weakness of Vita Milk Plant . financial Statements are prepared primarily for decision-making.But the information provided in the financial Statements is not end in itself as no meaning conclusion can be drawn from these Statements alone.However, information provided is analysed and interpretated to draw conclusion. Financial analysis (also referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and profitability of sub-business or projects. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statement and other reports. These reports are usually presented to top management as one of their bases in making business decisions. According to Metcalf and Titard,Assessment of the (1) effectiveness with which funds (investment and debt) are employed in a firm, (2) efficiency and profitability of its operations, and (3) value and safety of debtors' claims against the firm's assets. It employs techniques such as 'funds flow analysis' and financial ratios to understand the problems and opportunities inherent in an investment or financing decision. Use and transformation of financial data into a form that can be used to monitor and evaluate the firm's financial position, to plan future financing, and to designate the size of the firm and its rate of growth. Financial analysis includes the use of financial statement analysis and funds flow analysis .

Vertical analysis: it is used to gain knowledge on the structure of financial statements and its parts comparing to each other. It gives a clear picture of income statement structure, comparing different types of expenses to the revenue earned. Also it gives an indication on the structure of assets, whether they consist of current or long-term assets and also capital structure, answering the question whether the capital constitutes of long-term debts, current debts or equity.

Horizontal analysis: it is used to find out the trends of financial performance for a particular period of time, i.e. comparing financial data of several different periods.

Ratio analysis: it is used to compare the performance of the company with other companies and also to understand whether a company is improving or is on a downslide. Ratio analysis is useful, since vertical and horizontal financial analysis is performed only using absolute figures, and in ratio analysis ratios are used to analyze financial performance of business

Purpose Of Financial Statement Analysis:The purpose of a financial analysis varies with the entity conducting the analysis and the users of financial analysis data. During a financial analysis the relation between the various elements of financial statements is established and also compared with the other information obtained about the business. This is a very important tool and is used by the investors, creditors and the management in determining the future prospects as well as the plans regarding the company. This is also used to identify the areas that need improvement and also solve any type of financial and operational problem. The prime aim of a financial analysis is to analyze the current financial status and performance of the company, so that it will be possible to judge on the future performance of the business. The purpose of financial analysis usually differs depending on the users of this data. For example, creditors are concerned with the solvency and liquidity because they are the ones who purchase bonds and debt securities of the company. Therefore they want top know the companys ability to pay off the debts and interest. The investors (investing in the companys stock) are mainly concerned with the profitability of the company. They wish to know what returns they are going to earn in the form of dividends and a higher stock value. The term Financial Statement analysis includes both analysis and

interpretation .a distinction should, therefore be made between the two terms. While the term analysis is used to mean the simplification of financial data by methodical classification of the data given in the financial statement interpretation mean explaining the meaning and significance of the data so simplified. However, both analysis and interpretation are interlinked and complementary to each other. Analysis is useless without interpretation and interpretation without analysis is difficult or even impossible.

Analysis of Short Term Financial Position or Test of Liquidity:

Trade creditors; creditors for expenses; commercial banks; short-terms lenders are concerned with the short-term financial position or liquidity of the unit. Management is also interested in knowing how efficiently working capital is being utilized by the business. Shareholders and long-term creditors are also interested in studying the prospectus of dividend and interest payment. Liquidity ratios measure the ability of the unit to meet its short-term (generally one year) obligations and reveals the short-term financial strength or weakness. Such ratios provide answer to questions like:

a. Is the unit capable to meet short-term obligation? b. Is working capital being properly utilized? c. is the current financial position improving? Two types of ratios are calculated for testing short-term financial position:1. Liquidity ratios 2. Current assets movement or efficiency ratios

Liquidity Ratios
A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. Common liquidity ratios include the current ratio, the quick ratio and the operating cash flow ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets, and would be the most likely to be used to cover short term. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern. Liquidity ratio, expresses a company's ability to repay short-term creditors out of its total cash. The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash. If the value is greater than 1.00, it means fully covered. To measure the liquidity of a firm, the following ratios can be calculated:(i) Current ratio (ii) Acid test or quick or liquid ratio and (iii) Absolute liquid ratio or cash position ratio

Current asset movement or efficiency ratio:Efficiency here means power of business man to sold goods quicky, receive money from debtor quickly, and payment to his creditors as quickly as possible , so efficiency ratio tells us rate of stock turnover , debtor and creditor turnover ratio . Funds are invested in various assets in business to make sales and earn profit the efficiency with which assets are managed directly effect the volume of sales. The better the management the larger is the amount of sales and the profits. Activity ratio measures the efficiencies and the effectiveness with which firm manages its resources and assets. These ratios are called turnover ratios and can be calculated from following ratios:

Inventory / Stock turnover ratio = Cost of goods sold / Average inventory at cost Debtors of receivables turnover ratios = Net credit sales / Average trade debtors Average collection period = (Trade debtors No. of working days) / Net credit sales Creditors or payables turnover ratio = Net credit purchase / Average trade creditors Average payment period = (Trade creditors No. of working days) / Net credit purchase Working capital turnover ratio = Cost of sales / Net working capital

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Solvency Ratios - Test of Long Term Solvency:

The long-term financial soundness of any business can be judged by its longterm creditors by testing its ability to pay interest charges regularly and its ability to repay the principal as per schedule. Thus long-term financial soundness (or solvency) of any business is examined by calculating ratios popularly, known as leverage of capital structure ratios. These ratios help us the interpreting repays long-term debt as per installments stipulated in the contract. Following are the most important solvency ratios: 1. Debt-Equity ratio: (also known as debt to net worth ratio). The relationship between borrowed funds and internal owner's funds is measured by Debt-Equity ratio. 2. Debt Service or Interest Coverage Ratio: The ratio measures debts servicing capacity of a business so far as interest on long-term loans is concerned. The ratio is calculated with formula. 3. Debts to Total Funds or Solvency Ratio : Solvency is the term which is used to describe the financial position of any business which is capable to meet outside obligations in full out of its own assets. So this ratio establishes relationship between total liabilities and total assets. 4. Reserves to Capital Ratio: This ratio establishes relationship between reserves and capital. 5. Capital Gearing Ratio: It is the ratio between the capital plus reserves i.e. equity and fixed cost bearing securities. Fixed cost bearing securities include debentures, long-term mortgage loans etc. 6. Proprietary Ratio: Proprietary ratio (also known as Equity Ratio or Net worth to total assets or shareholder equity to total equity).

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Company Profile: History of Milk Plant:The Ambala District Co-operatives milk producers Union Limited was registered on March 10, 1973 with registration no.55.The object of this union is to give assured market to the farmers for the surplus milk they produce and to give right choice to the right producer with the further objective by eliminating the milk man. The estimated milk production in our milk shed comprising of Ambala Panchkula &Yamuna nagar District is 5.91 las Liters per day. The Marketable Surplus being 1.82lacs litres per day. The present procurement (average of 05-06) being 47.93 thousand litres per day. The essence of various programs launched in the state has been to adopt the Anand pattern of Milk Cooperatives. Under the system, the milk producer controls all the function of dairying likes milk procurement, processing and marketing. The geographical location of the milk shed is such that it touches UttarPradesh, Uttaranchal, Punjab, and Himachal &UT Chandigarh. Export of milk from the milk shed due to location. The milk shed comprises of Ambala, Panchkula, District with 1270villages.The areas also comprises of twin cities likes Ambala City & Ambala Cantt, Yamunanagar Panchkula, kalka etc closes or within the milk shed. The effective villages after deducting the uninhabited and urbanized villages (109) are 1161. The main object of the Dairy is to promote economic interest of the Milk Producers of the Haryana State, particularly those belonging to the

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economically weaker sections of society. And to increase its services to both rural and urban area.

The Federation fulfills its objective by way of by purchase and processing of milk into milk products and marketing the same by itself and/or through Milk Unions in the State, and by way of undertaking allied activities as are conducive for the promotion of Dairy Industry in the State such as improvement of milch cattle breed and productivity, promotion of milk production in the villages and towns of the State. The duties of the Organization are mentioned in the Bye-laws of the Haryana Dairy Development Co-operative Federation Limited, which is a printed document and is available to General Public at cost price through its various offices. Vita Plus offered base mixes for a diverse array of animals, including beef and dairy cows, deer, dogs, horses, and pigs. The company even honored special requests to provide special mixes for certain birds. Around this time, some 134,000 animals were fed base feed mixes from Vita Plus.

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Milk Shed Area Of Vita Milk Area of Operation:-Of

Marketing of VITA brand milk products is being done through a network of distributors spread throughout INDIA. These products include ghee, butter,

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milk powder, paneer, sweetened milk, pasteurized milk, etc. Areas of the operations of the VitaMilk Plant commonly are Jind, Rohtak, Delhi, Chandigarh, and Ballargarh etc.And they basically deal in near about 467000 Liters of milk everyday.

Quality Policy :As part of stringent quality measures, milk required for processing VITA products is procured from Dairy Cooperative Societies only. It is ensured that the milk is transported to chilling centers and plants in clean and sterilized milk cans as quickly as possible. All quality measures as per Standard of Bureau of Indian Standards/Agmark are being applied before the products are marketed. Well-equipped laboratories are functioning in the chilling centers and milk plants to maintain ideal quality standards. The organization aims to achieve this through: Understanding the dynamic needs of customers. Continuously updating and upgrading technology. Implementation of ISO-9001:2000 &HACCP system.

Milk Procurement :The area has a distinction of having about 77% of total, milk producing of the household .Of the total milch animal about 21%are cows. The surplus milk available is about 30% of the total production and of this quantity only 29% milk is purred by the societies. Since only 29% of the surplus milk is being

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procured societies, the balance is lifted by mainly milkmen and private operators. At present it deals in 147000 liters daily.

Competition:To cope with competitions we have develop the following infrastructure at the grass root level in ours societies S.no 1 2 3 Infrastructure Electronic milk-o-testers Automatic milk collection units Bulk milk cooling unit Nos 225 9 4 Planned 268 21 9

Allied Activities:Allied Activities of the Vita Milk Plant are: Cattle Feed Fodder Seed Medicines

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Mineral Mixture Vaccination Artificial Insemination Milk products at the Doorsteps Through the societies.

Diagram of Allied Activities:-

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Mineral Mixture

Cattle Feed

Fodder Seed

Medicines

Allied Activities of VITA

Milk Products at the doorsteps

Artificial Insemination Servicse

Vaccination

Through the societies

It gives the brief picture of the allied activities offered by the Vita Milk Plant.

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Review of Literature:Before doing any study, we have to review the literature of that study which is as follows: Trevor W.Chamberlain has done study on comparative performance of liquidity and profitability.

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The objective of the present study was to examine the role of liquidity variables in the firms investment behavior .for this a model in which the firms goal is to maximize the profitability of long run survival was compared with three interpretation of the value maximization theory, which focuses on profitability as the basis for investment. Whenever possible the model were estimated using both historical cost and replacement cost accounting data to measure the independent variable to obtain some evidence on how the relationships that govern firm behavior should be quantified. The finding summarized in the preceding section suggest that the long run survival model is at least as compatible with firm behavior as any of the leading profitability-based approaches. Indeed, the liquidity flow variable in the survival model appears to be the most effective measure considered. Dr.Richard Berwick has studied risk management in commercial banks of Vietnam. Risk has traditional been related to events causing the possible monetary loss of assets or emergence of a liability. A more contemporary definition however, is far broader and incorporates not only financial risks, but also risks related to operational and strategic objectives. Risk includes the possibility that uncertain future events will cause an entity not to achieve its operational and strategic objectives, as well as the opportunity-cost of missed opportunities.

Nancy Marie Dodge has done research on cross border mergers and acquisitions.

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The finding in this study could potentially help policy makers enhance the attractiveness of their respective country in order to attract cross-border and other types of FDI.For example, if country a realized that government effectiveness vs. control of corruption was an impediment to cross-border M&S activity they could redirect resources as well as re-engineer process so as to increase government effectiveness. This type of redirection could assist nation in attracting foreign partners who could infuse capital into their country as well as positive spill-over such as know-how.

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Objectives of the Study

The Main objectives of my study are: To understand the working of the Vita Milk Plant Ambala finance department.

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 To financially analysis the Plants annual reports with the help of ratio analysis. To analysis the reasons for the changes in financial position of Vita Milk Plant from last 3 years. To analysis the efficiency and flexibility of the system of financing of Vita Milk Plant. To analysis the factors responsible for financial deficit of Vita Milk Plant. To examine the Liquidity position of the Vita Milk Plant. To examine the relationship between the liquidity and profitability To study the pattern of financing of this company. To suggest a few pragmatic measure and technique for possible Improvement in the management of working capital.

Scope of Study:The financial analysis of Vita has been done on the basis of Vita manuals in depth study of annual reports and other financial statements, comparative 24

analysis of various annual reports, recent trends in capital structure and profitability structure for the last 3years and the causes for such changes.

Significance of the study: The analysis discloses the facts of firms. These analyses help management in decision making. It also helpful in operational and control activity. These are the main tools of the planning of the busines firms. It helps investors in investment decisions. It explains the solvency position to short and as well as long term lenders. It helps the vita Milk Plant in improving its Long term financial position in order to attract the investors and funds requirement. The suppliers of goods on credit, banks, financialinstitution, investors, management all make use of ratio analysis as a tool in evaluating the financial position and performance of a firm for granting credit, providing loans or making investment in the firm.

Research Methodology Nature of study and data collection:-

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The Present study is of analytical and exploratory in nature.Accordingly,the use will be made of primary as well as secondary data collected from different sources. As secondary research look the help of various sites like www.vitaindia.com and intranet at my office premises to understand the basic organization of the finance department. Also the research mainly was exploratory followed by descriptive research. The primary research includes the annual reports of Vita. The functioning of finance department was studied using the observation method at the premises of Vita Milk Plant at Ambala.

Data Collection:The process of data collection begins after a research problem has Been defined and research design has been chalked out. There are two Types of dataTYPES OF DATA COLLECTION

Primary Data Collection

Secondary Data Collection

PRIMARY DATAIt is first hand data, which is collected by researcher Itself. A primary source of data includes the personal interview from various accounts officers in the enterprise.

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Primary data is collected by various approaches so as to get a precise, accurate, realistic and relevant data. The main tool in gathering primary data was investigation and observation. It was achieved by a direct approach and personal observation from the officials of the company. SECONDARY DATA:The secondary sources of data include annual report, Website of bpsl.net Company which contains the details which is helpful for making my project report. It is the data which is already collected by someone else. Researcher has to analyze the data and interpret the results. It has always been important for the completion of any report. It provides reliable, suitable, adequate and specific knowledge.

Data Analysis:As the absolute accounting figures reported in the various budgets do not provides a meaningful understanding of the financial performance, therefore, the ratio analysis would be used as a major tool for evaluating the financial performance of Vita. The annual compound growth rate, trend analysis and would be used as per the requirement of the data.

Limitation of the study

The main limitation of the study is:-

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The study had to be basically carried out by getting information from the Internet and also annual reports of vita were not available of current financial year.

It being my first attempt to undertake such an analysis. Thus the lack of experience is also obstacle to accomplish the project in proper way.

Dealing with data on which work has already been done. So changes in data have not been possible.

The time duration for working with the plant was less. To make a better interpretation a number of ratios have to be calculated which is likely to confusion than helping in making meaning conclusion.

There were no well accepted rules pr standards for all the ratios. No interpretation for future can be made from the past ratios.

While making the study no consideration is made to the changes in prices levels and this makes the interpretation invalid.

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SWOT ANALYSIS OF THE VITA MILK PLANT:

STRENGTHS: Strong public image Strong Milk brand Quality Milk Wide range of products

WEAKNESS: Supply and distribution system for other milk products Availability of Finance for promotion Production of milk is more in winters and less in summers but consumption of milk is more in summers and less in winters.

OPPORTUNITIES: Vast scope for other milk products on the basis of strong public image. Subsidiary income to farmers.

THREATS: Increasing competition from private organization.

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 Milk Time Vatika Super Mother Diary Although Vita is not considering them as emerging competitors.

Vita Products

Vita Mango Drink

Flavoured toned Milk

Vita Namkeen Lassi

Jal Jeera

Vita Dahi Mithi Lassi

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Vita Milk Plant Vita Paneer

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Introduction to the Ratio:A relationship between various accounting figures, which are connected with each other, expressed in mathematical terms, is called accounting ratios. According to Kennedy and Macmillan, "The relationship of one item to another expressed in simple mathematical form is known as ratio." Robert Anthony defines a ratio as "simply one number expressed in terms of another. Accounting ratios are very useful as they briefly summaries the result of detailed and complicated computations. Absolute figures are useful but they do not convey much meaning. In terms of accounting ratios, comparison of these related figures makes them meaningful. For example, profit shown by two-business concern is Rs. 50,000 and Rs. 1, 00,000. It is difficult to say which business concern is more efficient unless figures of capital investment or sales are also available. Analysis and interpretation of various accounting ratio gives a better understanding of the financial condition and performance of a business concern.

Ratio Analysis:Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition and performance of a business concern. Simply, ratio means the comparison of one figure to other relevant figure or figures. According to Myers, " Ratio analysis of financial statements is a study of relationship among various financial factors in a business as disclosed by a

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single set of statements and a study of trend of these factors as shown in a series of statements."

Ratio Analysis Plays an Important Role in Business Planning

Ratio Analysis is the basic tool of financial analysis and financial analysis itself is an important part of any business planning process as SWOT (Strengths, Weaknesses, Opportunities and Threats), being the basic tool of the strategic analysis plays a vital role in a business planning process and no SWOT analysis would be complete without an analysis of companies financial position. In this way Ratio Analysis is very important part of whole business strategic planning. There are mainly six types of ratios: 1) Return On Capital Employed: This ratio helps to examine the figure for profit earned in relation to the money invested (Capital Employed) in the business. It is generally acceptable to use either Net Profit before Tax or Net Profit After Tax. ROCE= (Net Profit / Capital Employed)*100

2) Profit Ratio: This ratio is helpful to assess the adequacy of profit earned and their trends in comparison with the past. Gross Profit Margin= (Gross Profit/ Sales)*100 Net Profit Margin= (Net Profit/ Sales) *100

3) Solvency Ratio: In order to maintain the status of going concern a business must be able to meet its debts for which it should have enough working 34

capital. The working capital ratio helps to examine secured financial position of a business. Working Capital Ratio= Current Asset/ Current Liability Liquidity Ratio= Liquid Asset/ Liquid Liability

4) Asset Turn over Ratio: Figure arrived from this calculation helps management to ensure efficient utilization of resources applied. Rate of Stock Turnover (in number) = Cost of Goods Sold/ Average Stock Level Stock Turnover (in days) = (Average Stock/ Cost fo Goods Sold)*365

Assumption for ratio analysis: All of the firms sales and purchases are considered to be on credit basis for the purpose of calculations. The sales and purchase figure are arrived at after deducting returns from them. Personal expenses which is salaries and wages, is assumed to be as a factory expenses. For calculating the average of inventory, debtors, and creditors the opening and closing balances of these have to be taken into account. For all the calculations a month is assumed to be of 30 days and year of 360 days.

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 Perpetual life of the firm.

Advantages and Uses of Ratio Analysis:There are various groups of people who are interested in analysis of financial position of a company. They use the ratio analysis to workout a particular financial characteristic of the company in which they are interested. Ratio analysis helps the various groups in the following manner: To workout the profitability: Accounting ratio help to measure the profitability of the business by calculating the various profitability ratios. It helps the management to know about the earning capacity of the business concern. In this way profitability ratios show the actual performance of the business. To workout the solvency: With the help of solvency ratios, solvency of the company can be measured. These ratios show the relationship between the liabilities and assets. In case external liabilities are more than that of the assets of the company, it shows the unsound position of the business. In this case the business has to make it possible to repay its loans. Helpful in analysis of financial statement : Ratio analysis help the outsiders just like creditors, shareholders, debenture-holders, bankers to know about the profitability and ability of the company to pay them interest and dividend etc.

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 Helpful in comparative analysis of the performance : With the help of ratio analysis a company may have comparative study of its performance to the previous years. To simplify the accounting information: Accounting ratios are very useful as they briefly summaries the result of detailed and complicated computations. To workout the operating efficiency: Ratio analysis helps to workout the operating efficiency of the company with the help of various turnover ratios. All turnover ratios are worked out to evaluate the performance of the business in utilizing the resources. To workout short-term financial position: Ratio analysis helps to workout the short-term financial position of the company with the help of liquidity ratios.

Limitations of Ratio Analysis:In spite of many advantages, there are certain limitations of the ratio analysis techniques and they should be kept in mind while using them in interpreting financial statements. Limited Comparability: Different firms apply different accounting policies. Therefore the ratio of one firm can not always be compared with the ratio of other firm. Some firms may value the closing stock on LIFO basis while some other firms may value on FIFO basis. Similarly there may be difference in providing depreciation of fixed assets or certain of provision for doubtful debts etc. False Results: Accounting ratios are based on data drawn from accounting records. In case that data is correct, then only the ratios will 37

be correct. For example, valuation of stock is based on very high price, the profits of the concern will be inflated and it will indicate a wrong financial position. The data therefore must be absolutely correct. Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decision making. For example, average collection period may be equal to standard credit period, but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis. Effect of window-dressing: In order to cover up their bad financial position some companies resort to window dressing. They may record the accounting data according to the convenience to show the financial position of the company in a better way. Costly Technique: Ratio analysis is a costly technique and can be used by big business houses. Small business units are not able to afford it. Misleading Results: In the absence of absolute data, the result may be misleading. For example, the gross profit of two firms is 25%. Whereas the profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10,00,000 and sales are Rs. 40,00,000. Even the profitability of the two firms is same the magnitude of their business is quite different.

Ratio analysis as an evaluation tool:Obviously there are many different aspects and factors involved in evaluating a business, including management capability, innovations in products and technology, shifts in market demands, and general economic conditions, among others. But one of the advantages of using financial statements is that they provide you with objective, concrete data with which to perform analysis. Ratio analysis by itself is just one tool you can use in evaluating

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your own business, or a potential investment opportunity. For example, comparisons of balance sheets and income statements from one period to another can be very effective in detecting changes, trends and shifts. Calculating ratios based on the current period balance sheet and income statement can be very useful, and when combined with a comparative analysis from period to period, it becomes a very dynamic way of gauging performance. How you use the insights you gain from your analytical work will of course depend on your purpose in reading the financial statements. If you are looking at a company in which you already have an investment, or in which you are thinking about investing, you may use the results of your analysis to either buy or sell, or to increase or decrease your holdings of that stock. If you are looking at your own company, you can use your analysis to see where your business is strong, and where it could use some adjustments or improvements. This will help you make financial decisions about your business operations.

Liquidity:Liquidity in business refers to availability of cash in times of uncertainty or in times of unwanted cash outlay. It is the capacity of any business to be prepared for any cash disbursements without any burden on where to get some money. This aspect is very important in any kind of business. In managing your own home business, you should take into consideration the liquidity of your business. You should examine your business whether you have available cash ready for disbursements or whether almost all of your cash is invested in inventories or other non-cash assets. It is very important for you to know this for you to be prepared for any uncertain or unwanted cash outlays.

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Some businesspeople prefer to invest more on inventory rather than having much cash tied up in their investment portfolio. This can be good for the reason that this cash invested in inventories can generate another income rather than putting it only in a bank for savings that can only produce a minimal level of interest. Others prefer to lend cash to other people and apply a much higher interest compared to the bank's rate. There are others who would invest in a longterm investment like real estate, long-term bonds, etc. for them to be prepared for the future. The problem with these kinds of investments is that they cannot produce instant cash in emergencies. There are some remedies for these instances. You can barrow money from other financial sources, you can place your properties up for collateral to acquire some money, or you can sell your structured settlements. In managing a business, it is very important to have available cash to be used for emergencies or for other unforeseen payments that do not usually occur in a normal business operation. This is very important because sometimes the eventualities that we never prepared for are the very ones that can give us real burdens in the future. To have a good investment mix, you should know and analyze your business and insure that there is no over-investment occuring in the process.

Importance of liquidity
1)-Importance of liquidity to lenders:Liquidity is of great concern to lenders because they can reasonably expect to be repaid in much the same pattern as the borrowing firm has been paying its creditors in the recent past. Since a firm must meet its day to day obligations, the liquidity of a firm is an indication of its ability to repay a loan. Lenders indeed look for a high liquidity as their protection. As it has been indicated in Chapter 4 Section A and Chapter 4 Section B, suppliers and banks put much weight on this aspect right from the start.

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2)- Importance of liquidity to investors, management and other view points All those evaluating a firm must also be first concerned with liquidity: they need to be assured that the firm is a going concern, and default is not likely in the near future. But, as opposed to short term lenders who count on a firm's ready cash for payment of claims, from the point of view of investors and management, holding large cash balances is not necessarily desirable. Idle cash is costly to the firm: the firm forgoes the return it can earn on productive assets. Holding cash or keeping on hand other liquid assets must have an intrinsic reason. For investors and management, these reasons are far more important than the ability to meet payments out of the cash generated from holding inventory or receivables. As already pointed out, receivables are part of the sales strategy of the firm. Most firms would prefer prepayments for all their sales, thus avoiding risk of customer default. They allow customers to take 30, 60, 90 days or more to pay for their purchases, only in order to encourage them to buy immediately rather than later. Likewise, inventory is held to offer greater product variety to customers (i.e. it is justified by sales strategy), and to allow the production process to take place without excessive discontinuity.Holding cash can be justified not by needs to make immediate payments, but by needs for long run growth since flexibility must exist in the firm a) to undertake rapidly the most desirable projects, and b) to deal without major disruptions with unforeseen problems. The more a company seeks growth and faces risk, the more it must have a cushion of ready cash. Cash on hand is essential to take advantage quickly of new opportunities stemming from new products, changing customer tastes or changing market conditions. When a product failure or other catastrophe occurs, a healthy cash position helps handle the situation by closing a department and moving on to better opportunities.

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While all firms should have a cushion of safety in holding a cash balance, that cash balance can be rather small for a company that has a long history of having solved its operational problems, and that faces a market with growth potential. The cash balance can be all the more limited if the company has also access to ready credit through good relations with its bankers. Moreover, access to capital markets reduces further the need to hold liquidity for larger firms. 3)- Relation of liquidity analysis to other aspects of the firm performance There is (or used to be) a tendency on the part of analysts to study liquidity of a firm as if it were separate from other aspects of analysis. In fact, it is not. Liquidity can be increased by several methods: - liquidating some fixed assets, - raising new permanent funds, - Increasing sales, or - reducing costs.

If a firm has insufficient liquidity, any of these corrective approaches can be used in the long run (but not in the short run). For instance, bankers sometimes advise their borrowers with insufficient liquidity to increase permanent funds by injecting more equity into the business. This is the C standing for "capital" in the 5 C's of banking mentioned in Chapter 4 Section B-1. Indeed the new money will increase the cash balance (alternatively, it can be used to pay off some short term debt). This means 42

that issues pertaining to liquidity will be seen again in chapters 10 and 11 where fixed assets and capital structure are studied. 4)-Importance of liquidity to Management:Management is certainly concerned with liquidity, but it does not consider it as a goal in itself (i.e. not on the same level as goals such as profit and sales growth). As noted above, receivables and inventory are tied to sales and production strategies. Thus, when receivables or inventory are out of line (too much or too little), the cause is usually traceable to production, sales efforts, fixed assets or other management decision parameters, not liquidity.

How to Improve Liquidity:A company's ability to pay debts when they are due is called liquidity. A company needs to show that it has money, rather than losses, if it wants to stay in the game and improve within its industry. Read on to learn how to shape up your liquidity:-

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1. Earn interest on any extra cash balances . Do this by shifting the money into an interest-accruing account when the funds aren't necessary elsewhere, and then put them into a different account when you need he funds. This is called "sweeping accounts." 2. Assess the costs of overhead and see if there ways that you can lower them. Decreasing overhead costs has a great impact on how much the business could profit. Overhead costs are things like advertising, professional costs and rent. 3. Get rid of assets that are unproductive. For example, if you have assets that are just sitting there doing nothing, use them for something else like buying equipment, buildings or vehicles to gain some revenue. 4. Look at accounts receivables often. This will ensure that clients are being billed correctly and that you are receiving payments from clients on time. 5. Negotiate longer payment terms with your merchants. This will help you keep your money longer, therefore generating more interest on that money. 6. Monitor how much money is taken away from accounts for non-business and business intentions. An example of this is called "owner's draws." Unnecessary cash drain is caused by withdrawing an excess amount of money. 7. Appraise profitability on the company's services and products . Find out where you can increase prices. This will help raise or at least maintain profitability. Prices should be adjusted as markets and costs chance.

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In order to determine the liquidity of the firm basically three types of the ratios are calculated which includes: Current Ratio Quick Ratio Absolute Current Ratio

Financial Statement Analysis Current ratio:A liquidity ratio that measures a company's ability to pay short-term obligations. Also known as "liquidity ratio", "cash asset ratio" and "cash ratio". The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry.

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Formula of calculating the Current ratio:1)-The Current Ratio formula is: Current Ratio= Current Assets/Current Liabilities

Years 2008 2009 201 Current Assets

2008

2009

2010

202424419.7 7

230313033.2 3 33033250.67 6.97:1

260467918.29 53564922.08 4.86:1

Current 41156396.37 Liabilities Current Ratio 4.918:1

Interpretation:-A current ratio 2:1 is considered to be an ideal ratio. but Vita Milk Plant current ratio first increases then start decreases i.e. 4.918:1, 6.97:1,4.86:1. Higher the ratio is considered to be good because it shows that firm is efficiently able to pay its currents liabilities.

2)-Quick ratio:In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. A company with a Quick Ratio of less than 1 can not currently pay back its current liabilities.

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 Note that Inventory is excluded from the sum of assets financially. Ratio is financially viable option for business entities but the liquidity of the liabilities show financial stability. Generally, the acid test ratio should be 1:1 or higher; however this varies widely by industry. [1] In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).[2] Notice that very often Acid test refers instead of Quick ratio to Cash ratio: Formula of calculating the quick ratio:Quick Ratio=Liquid Assets/Current Liabilities

Years Liquid Assets Current Liabilities Quick Ratio

2008 42376202.31 41156396.37 1.029:1

2009 40130218.09 33033250.67 1.21:1

2010 45770007.08 53564922.08 .85:1

Interpretation: A quick ratio 1:1 is considered to be an ideal ratio but Vita Milk Plant current ratio first increases then start decreases i.e 1.029:1,1.21:1,.85:1. Higher the ratio is considered to be good because it shows that firm is efficiently able to pay its currents liabilities out of its immediate current assets. 3)-Absolute Liquidity Ratio:Absolute liquid ratio extends the logic further and eliminates accounts receivable (sundry debtors and bills receivables) also. Though receivables are more liquid as comparable to inventory but still there may be doubts considering their time and amount of realization. Therefore, absolute 47

liquidity ratio relates cash, bank and marketable securities to the current liabilities. Since absolute liquidity ratio lays down very strict and exacting standard of liquidity, therefore, acceptable norm of this ratio is 50 percent. It means absolute liquid assets worth one half of the value of current liabilities are sufficient for satisfactory liquid position of a business. However, this ratio is not as popular as the previous two ratios discussed. Formula for calculating the absolute ratio:Absolute Liquid Ratio=Absolute Assets/Current Liabilities Years Absolute Assets Current Liabilities Absolute liquidity Ratio 2008 19893294.31 41156396.37 .483:1 2009 25421125.05 33033250.67 .769:1 2010 28557978.15 53564922.08 .483:1

Interpretation :-A absolute ratio less than is considered to be an ideal ratio but Vita Milk Plant current ratio first increases then start decreases i.e . 483:1,.769:1,.483:1. Higher the ratio is considered to be good because it shows that firm is efficiently able to pay its currents liabilities out of its cash and bank balance only.

Capital structure ratio:A capital structure ratio over 50% indicates that a company may be near their borrowing limit (often 65%).

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The capital structure ratio is included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio. The capital structure ratio and other ratios are key to understanding financial statements. Our ratio calculation spreadsheets reduce time and effort in calculating decision making ratios. They reduce risk for lenders and investors and enable owners, managers and consultants to increase productivity and business profits. These spreadsheets are bargain priced to provide a huge return on investment.

To determine the optimum capital structure of the firm following ratio are calculated which includes : Debt-Equity Ratio Debt to Total Fund Ratio Fixed Assets Ratio Propriety Ratio Interest Coverage Ratio

1)-Debt-Equity Ratio:Indicates what proportion of equity and debt that the company is using to finance its assets. Sometimes investors only use long term debt instead of total liabilities for a more stringent test. A ratio greater than one means assets are mainly financed with debt, less than one means equity provides a majority of the financing. If the ratio is high

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(financed more with debt) then the company is in a risky position especially if interest rates are on the rise. Formula for calculating the Debt equity ratio:Debt equity ratio=Total Liabilities/ Shareholders Equity

Years Total Liabilities Shareholder equity Debt equity ratio

2008 183192078.56 5736510.18 31%

2009 219467570.59 7429339.10 29.16%

2010 248731338.40 12433460.65 20%

Interpretation:-Generally, Debt-Equity Ratio of 2:1 is considered to safe but Vita Milk plant Debt-Equity Ratio decrease i.e 31%,29.16%,20% which is good indication that it is improving its long term financial position.

2)-Debt to Total Funds Ratio:This ratio gives same indication as the debt-equity ratio as this is a variation of debt-equity ratio. This ratio is also known as solvency ratio. This is a ratio between long-term debt and total long-term funds. Debt to Total Funds Ratios shows the proportion of long-term funds, which have been raised by way of loans. This ratio measures the long-term financial position and soundness of long-term financial policies. In India debt to total funds ratio of 2:3 or 0.67 is considered satisfactory. A higher proportion is not considered good and treated an indicator of risky long-term financial position of the business. It indicates that the business depends too much upon outsiders loans. Formula for calculating the debt to total fund ratio:50

Debt to Total Funds Ratio = Debt/Total Funds Years Debt Total Funds Ratio 2008 183192078.56 188928528.74 9.69% 2009 219467570.59 226896909.69 96% 2010 248731338.40 261164799.05 95%

Interpretation:-Generally, Debt to Total Funds Ratio of 67% is considered to safe but Vita Milk plant Debt-Equity Ratio first increase then starts decreasing i.e 9.69%,96%,95% which is bad indication because higher the ratio higher it risky for the organization.

3)-Fixed Assets Ratio:Fixed Assets Ratio establishes the relationship of Fixed Assets to Long term funds. This ratio indicates as to what extent fixed assets are financed out of long-term funds. It is well established that fixed assets should be financed only out of long-term funds. This ratio workout the proportion of investment of funds from the point of view of long-term financial soundness. This ratio should be equal to 1. If the ratio is less than 1, it means the firm has adopted the impudent policy of using short-term funds for acquiring fixed assets. On the other hand, a very high ratio would indicate that long-term funds are being used for short-term purposes, i.e. for financing working capital. Formula for calculating the Fixed assets ratio:Fixed Assets Ratio = Long-term Funds/Net Fixed Assets Years Long term Funds 2008 13932149.57 2009 14570404.57 2010 16185844.30

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Fixed assets Fixed Assets Ratio

34468307.55 40%

36141294.35 40%

35260278.15 45%

Interpretation:-Generally, Higher Fixed Assets Ratio of is considered to be good and Vita Milk plant Fixed Assets Ratio first remain stable then starts increasing i.e 40%,40%,45% which is good indication because higher the ratio higher it safe for the organization. 4)-Proprietary Ratio:Proprietary Ratio establishes the relationship between proprietors funds and total tangible assets. This ratio is also termed as Net Worth to Total Assets or Equity-Assets Ratio. Objective and Significance: This ratio indicates the general financial position of the business concern. This ratio has a particular importance for the creditors who can ascertain the proportion of shareholders funds in the total assets of the business. Higher the ratio, greater the satisfaction for creditors of all types. Formula for calculating the Proprietary ratio:Proprietary Ratio = Proprietors Funds/Total Assets Years Proprietary Fund Total assets Ratio 2008 13932419.57 54143601.76 25% 2009 14570404.57 26645432.58 42% 2010 16185844.30 29572196.44 50%

Interpretation:-Generally, i.e 25%,42%,50% which is good indication because higher the ratio higher it safe for the organization. Higher Proprietary Ratio of is considered to be good and Vita Milk plant Proprietary Ratio rapidly increases

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5)-Total Debt To Total Assets:A metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt. Calculated by adding short-term and long-term debt and then dividing by the company's total assets. This is a very broad ratio as it includes short- and long-term debt as well as all types of both tangible and intangible assets. Formula for calculating the Fixed Assets Turnover ratio: Total Debt To Total Assets=Short term loans + Long term loans /Total Assets Years Total Debt Total Assets Total Debt To Total Assets Ratio 2008 183192078.56 54143601.76 3.38:1 2009 219467570.59 26645432.58 8.23:1 2010 248731338.40 29572196.44 8.41:1

6)- Fixed Assets to Proprietor's Fund Ratio: Fixed assets to proprietors fund ratio establish the relationship between fixed assets and shareholders funds. The purpose of this ratio is to indicate the percentage of the owner's funds invested in fixed assets. The fixed assets are considered at their book value and the proprietor's funds consist of the same items as internal equities in the case of debt equity ratio.

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Formula for calculating the Fixed Assets Turnover ratio: Fixed Assets to Proprietors Fund = Fixed Assets / Proprietors Fund Years Fixed Assets Proprietors Fund Fixed Assets to Proprietors Fund Ratio 2008 34468307.55 13932419.57 2.47:1 2009 36141294.35 14570404.57 2.48:1 2010 35260278.15 16185844.30 2.17:1

7)-Interest Coverage Ratio:Interest Coverage Ratio is a ratio between net profit before interest and tax and interest on long-term loans. This ratio is also termed as Debt Service Ratio. This ratio expresses the satisfaction to the lenders of the concern whether the business will be able to earn sufficient profits to pay interest on long-term loans. This ratio indicates that how many times the profit covers the interest. It measures the margin of safety for the lenders. The higher the number, more secure the lender is in respect of periodical interest. Formula for calculating the Interest coverage ratio:Interest Coverage Ratio = Net Profit before Interest and Tax/Interest on Long-term Loans Years Net Profit Interest on Loans Ratio 2008 15564067.43 14350988.50 1.08times 2009 17905510.86 16477244 1.08 times 2010 34806822.4 19752081 1.76 times

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Interpretation:-Generally, Higher Interest Coverage Ratio of is considered to be good and Vita Milk plant Interest Coverage Ratio rapidly increases i.e. 1.08times,1.08times,1.76times which is good indication because higher the ratio higher it safe for the organization as the lenders are more secure about payment of the interest regularly.

Activity ratio:Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets into cash or sales. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. Such ratios are frequently used when performing fundamental analysis on different companies. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios. An indicator of how rapidly a firm converts various accounts into cash or sales. In general, the sooner management can convert assets into sales or cash, the more effectively the firm is being run. In order to calculated that how rapidly stock are converted into sales and relationship between Fixed assets and sales, working capital turnover etc.following ratios are calculated which includes: Fixed Assets Turnover Ratio Working Capital Turnover Ratio Stock Turnover Ratio Debtors Turnover Ratio Debt Collection Period

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1)-Fixed Assets Turnover Ratio:Fixed assets turnover ratio establishes a relationship between net sales and net fixed assets. This ratio indicates how well the fixed assets are being utilized. This ratio expresses the number to times the fixed assets are being turned over in a stated period. It measures the efficiency with which fixed assets are employed. A high ratio means a high rate of efficiency of utilization of fixed asset and low ratio means improper use of the assets. Formula for calculating the Fixed Assets Turnover ratio:Fixed Assets Turnover Ratio = Net Sales/Net Fixed Assets Years Net sales Net Fixed assets Ratio 2008 835734939.19 34468307.55 24.2 times 2009 910138053.43 36141294.35 25.18 times 2010 1021929210.41 35260278.15 28.9 times

Interpretation:-Higher the ratio is considered to be the good for the firm because higher the ratio it indicates how efficiently fixed assets are being utilized in increasing the sales. Vita Milk Plants Fixed Assets Turnover Ratio is 24.2times,25.18times,28.9times means it is increasing which is good indication for the Plant.

2)-Working Capital Turnover Ratio Working capital turnover ratio establishes a relationship between net sales and working capital. This ratio measures the efficiency of utilization of working

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capital. This ratio indicates the number of times the utilization of working capital in the process of doing business. The higher is the ratio, the lower is the investment in working capital and the greater are the profits. However, a very high turnover indicates a sign of over-trading and puts the firm in financial difficulties. A low working capital turnover ratio indicates that the working capital has not been used efficiently.

Formula for calculating the Working capital Turnover ratio:Working Capital Turnover Ratio = Net Sales or Cost of Goods Sold/Net Working Capital Years Net Sales Net Working Capital Ratio 2008 835734939.19 161268023.40 5.1 times 2009 910138053.43 197279782.56 4.6 times 2010 1021929210.41 206902996.21 4.9 times

Interpretation:-Higher the ratio is considered to be the good for the firm because higher the ratio it indicates how efficiently Working Capital is being utilized in increasing the sales. Vita Milk Plants Working Capital Turnover Ratio is 5.1times, 4.6times, 4.9times which is fluctuating but is at satisfactory mode for the Plant.

3)-Stock Turnover Ratio:-

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Stock turnover ratio is a ratio between cost of goods sold and average stock. This ratio is also known as stock velocity or inventory turnover ratio. Stock is a most important component of working capital. This ratio provides guidelines to the management while framing stock policy. It measures how fast the stock is moving through the firm and generating sales. It helps to maintain a proper amount of stock to fulfill the requirements of the concern. A proper inventory turnover makes the business to earn a reasonable margin of profit. Formula for calculating the Stock Turnover ratio:Stock Turnover Ratio = Cost of Goods Sold/Average Stock Years Cost of good sold Average Stock Ratio 2008 714676487.74 174311338.47 4.1 times 2009 814866608.35 175115516.18 4.65 times 2010 880796415.13 202440363.06 4.35 times

Interpretation:-Higher the ratio is considered to be the good for the firm because higher the ratio it indicates how efficiently stock is being converted into sales. Vita Milk Plants Stock Turnover Ratio is 4.1times, 4.65times, 4.35times which is fluctuating but is at satisfactory mode for the Plant. And gives the indication that stock is converted into sales rapidly. 4)-Debtors Turnover Ratio:Debtors turnover ratio indicates the relation between net credit sales and average accounts receivables of the year. This ratio indicates the efficiency of the concern to collect the amount due from debtors. It determines the efficiency with which the trade debtors are managed. Higher the ratio, better it is as it proves that the debts are being collected very quickly.

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Formula for calculating the Debtors Turnover ratio: Debtors Turnover Ratio = Net Credit Sales/Average Accounts Receivables Years Net credit Sales Accounts Receivable Ratio 2008 835734939.19 12290219.69 68 times 2009 910138053.43 11968369.63 76 times 2010 1021929210.41 6623279.45 88 times

Interpretation:-Higher the ratio is considered to be the good for the firm because higher the ratio it indicates how efficiently debtors are being converted into cash. Vita Milk Plants Debtors Turnover Ratio is 68times, 76times, 88times which is increasing at a rapid pace. And gives the indication that money or cash blocked in the debtors are randomly converted into cash.

5)-Debt Collection Period:Debt collection period is the period over which the debtors are collected on an average basis. It indicates the rapidity or slowness with which the money is collected from debtors. This ratio indicates how quickly and efficiently the debts are collected. The shorter the period the better it is and longer the period more the chances of bad debts. Although no standard period is prescribed anywhere, it depends on the nature of the industry. Formula for calculating the Fixed Assets Turnover ratio: Debt Collection Period = 12 Months or 365 Days/Debtors Turnover Ratio Years 365 Days 2008 365 2009 365 2010 365 59

Debtors Turnover Ratio Ratio

68 times

76 times

88 times

5.36Days

4.8 Days

4.1 Days

Interpretation:- Again Higher the ratio is considered to be the good for the firm because higher the ratio it indicates in how much time debtors are being converted into cash. Vita Milk Plants Debtors Turnover Ratio is 5.36days, 4.8days, 4.1days which have started decreasing. And gives the indication that it takes considerable time to convert money or cash blocked in the debtors are converted into cash.

Profitability Ratio:A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. 60

 The profitability ratios and other ratios are key to understanding financial statements. Our ratio calculation spreadsheets reduce time and effort in calculating decision making ratios. They reduce risk for lenders and investors and enable owners, managers and consultants to increase productivity and business profits. These spreadsheets are bargain priced to provide a huge return on investment. The profitability ratios are the basic bank financial ratios. Profitability ratios are the financial statement ratios which focus on how well a business is performing in terms of profit. It includes various types of the ratios calculated under it 1)-Gross Profit Ratio:The gross profit margin ratio (or gross margin ratio) provides clues to the company's pricing, cost structure and production efficiency. The gross profit margin ratio (or gross margin ratio) is a good ratio to benchmark against competitors. Gross profit margin ratio is also called gross margin ratio. A low gross profit margin ratio (or gross margin ratio) indicates that the business is unable to control its production costs. Formula for calculating Gross Profit Margin Ratio:Gross Profit Margin Ratio = Gross profit / Sales.

Years Gross profit Sales

2008 121058451.45 835734939.19

2009 95271445.08 910138053.43

2010 141132795.28 1021929210.41

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Ratio

1.4%

10.46%

13.81%

Interpretation:-Higher the ratio is considered to be the best as it measure the margin of profit available on sales. Vita Milk Plants Gross Profit Margin Ratio is 1.4%,10.46%,13.81% which shows that it is very low in the beginning but afterwards it rapidly increases which gives good indication that Vita is improving its profitability. 2)-Net Profit Ratio:The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of production and administration has been deducted from sales, and income taxes recognized. As such, it is one of the best measures of the overall results of a firm, especially when combined with an evaluation of how well it is using its working capital. Net profit is not an indicator of cash flows, since net profit incorporates a number of non-cash expenses, such as accrued expenses and depreciation. Formula for calculating the Net Profit Ratio:Net Profit Ratio =Net profit / Net sales x 100 Years Net profit Net sales Ratio 2008 1213079.43 835734939.19 1.45% 2009 1428266.86 910138053.43 1.56% 2010 (15054741.40) 1021929210.41 (1.43)%

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Interpretation:-Higher the ratio is considered to be the best as it measure the margin of Net profit available on sales. Vita Milk Plants Net Profit Margin Ratio is 1.45%,1.56%,(1.43)% which shows that it is very low in the beginning but afterwards it increases then again decreases and become negative which gives bad indication about its profitability position. 3)-Operating Net Profit Ratio:The Net Profit Ratio is the ratio shows the relationship between the net operating profit and sales. It is calculated by deducting all operating expenses out of the gross profit earned by the firm. thus it gives the indication about the exact profit of the firm after deducting the expenses out of it and help to know that whether the firm is on right profit track or not. Formula for calculating the Net Profit Ratio:Operating Net Profit Ratio=Operating Net Profit/Net sales*100 Years Operating Net Profit Net sales Ratio 2008 58464988.84 835734939.19 6.99% 2009 27914241.85 910138053.43 3.06% 2010 65109250.94 1021929210.41 6.37%

Interpretation:-Higher the ratio is considered to be the best as it measure the margin of Net profit available on sales. Vita Milk Plants Net Profit Margin Ratio is 6.99%,3.06%,6.37% which shows that it is satisfactory in the beginning but afterwards it decreases which gives bad indication about its profitability position and shows that it has maximum operating expenses which had lower down its profitability.

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Table giving the brief detail about the financial position of the Vita Milk Plant

Ratios 1) Liquidity Ratio:Current Ratio

Formulas

2008

2009

2010

Increase or Decrease

Current Ratio= Current Assets/Current Liabilities

4.918:1

6.97:1

4.86:1

First increases then decrease

Quick Ratio

Quick Ratio=Liquid Assets/Current Liabilities Absolute Liquid Ratio=Absolute Assets/Current Liabilities

1.029:1

1.21:1

.85:1

First increases then decrease First increases then decrease

Absolute Liquid Ratio

.483:1

.769:1

.483:1

2) Capital structure Ratio:Debt equity ratio Debt equity ratio=Total Liabilities/ 31% Shareholders Equity Debt to Total Funds Ratio = Debt/Total Funds 29.16% 20% Decrease

Debt to Total Funds

9.69%

96%

95%

Rapidly increase

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Ratio Fixed Assets Ratio

Fixed Assets Ratio = Long-term Funds/Net Fixed Assets

40%

40%

45%

Rapidly increase

Proprietary Ratio

Proprietary Ratio = Proprietors Funds/Total Assets Interest Coverage Ratio = Net Profit before Interest and Tax/Interest on Long-term Loans

25%

42%

50%

Rapidly increase

Interest Coverage Ratio

1.08times 1.08 times

1.76 tim es

First increases then decrease

3) Activity Ratios:Fixed Assets Turnover Ratio

Fixed Assets Turnover Ratio = Net Sales/Net Fixed Assets Working Capital Turnover Ratio = Net Sales or Cost of Goods Sold/Net Working Capital Stock Turnover Ratio = Cost of Goods Sold/Average Stock Debtors Turnover Ratio = Net Credit Sales/Average

24.2times 25.18times 28.9 tim es

Increases

Working Capital Turnover ratio

5.1 times

4.6 times

4.9 tim es

First increases then decrease

Stock Turnover Ratio

4.1 times

4.65 times

4.35 tim es

First increases then decrease Rapidly increases 65

Debtors Turnover Ratio

68times

76times

88times

Accounts Receivables Debt Collection Period Debt Collection Period = 12 Months or 365 Days/Debtors Turnover Ratio

5.36Days

4.8Days

4.1Days

Decreases

4) Solvency Ratio:Total Debt to Total Debt To Total Total Assets=Short term Assets loans Long term loans /Total Assets 3.38:1 8.23:1 8.41:1 Rapidly increases

Fixed Assets to Fixed Assets to Proprietors Proprietors Fund = Fund Fixed Assets / Proprietors Fund

2.47:1

2.48:1

2.17:1

Decreases

5) Profitability Ratio:-

Gross Profit Margin Ratio

Gross Profit Margin Ratio = Gross profit / Sales.

1.4%

10.46%

13.81%

Rapidly increases good for Plant

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Net Profit Ratio

Net Profit Ratio =Net profit / Net sales x 100

1.45%

1.56%

(1.43%)

Below satisfacto ry mode and become negative.

Operating Net Profit Ratio

Operating Net Profit Ratio=Operating Net Profit/Net sales*100

6.99%

3.06%

6.37%

Satisfactory mode but starts decreasin g

Graphs Section of all ratios:Liquidity RatiosCurrent Ratio-

Quick Ratio-

67

Absolute Quick Ratio-

Capital Ratio:Debt-Equity Ratio-

Structure

Debt to Total Fund Ratio:-

68

Fixed Assets Ratio:-

Proprietary Ratio:-

Interest Coverage Ratio:-

69

Activity Ratio:Fixed Assets Ratio-

Working Capital Turnover Ratio-

70

Stock Turnover Ratio-

Debtors Turnover Ratio-

Debt Collection Period-

71

Profitability Ratio:Gross Profit Ratio-

Net Profit Ratio-

72

Operating Profit Ratio -

Sales:-

Profit:-

73

Debts:-

Equity:-

74

75

FINDINGS:Analysis and Interpretation of the data is obtained from companys previous years Balance sheet and following are the various findings that are in accordance with the objectives set forth the study: The above study shows that the sales graph of the Vita Milk Plant has increased which shows that company has the good demand of the product in the market. An insight of the financial performance can be studied over the past 3years and using various ratios to measure the performance and consistency. Through the ratio analysis the financial position regarding the liquidity and long term solvency is evaluated which its good liquidity but long term financial position is only on satisfactory mode this is due to the large amount of long term debts which acts as a burden on their financial position.

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Debt of the Milk Plant is more when they are compared with the Equities of the Milk Plant.

The Long term debts of the company should be only to the point of 67% in comparison to the total debts of the company but Vita Milk Plant is having 87% debts.

Vita Milk Plant concentrates much more on the productivity rather than on the finance department.

Vita Milk Plant Liquidity position is quit very good but long term financial position is very bad as per the ratio analysis this is randomly because of their dependence largely on the long term debts. Rather than funding through internal sources.

SUGGESTION: Vita Milk Plant should concentrate on its financial position with care. Debts should be reduced. Shareholders Funds of Vita Milk Plant should be increased to a certain level so that maximum funds can be raised within the organization. Total assets of the company should be managed with care so that overall repair expenses should be reduced. Turnover ratios should be looked into and necessary steps should be taken.

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More expenses should be done on promotion activities in order to increase the sales to earn more profit.

It should provide the facility of home delivery also. Long term debts should be reduced and steps should be taken to fund through the internal sources.

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Conclusion:Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Financial ratio Analysis is the basic tool of financial analysis and financial analysis itself is an important part of any business planning process as SWOT (Strengths, Weaknesses, Opportunities and Threats), being the basic tool of the strategic analysis plays a vital role in a business planning process and no SWOT analysis would be complete without an analysis of companies financial

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position. In this way Ratio Analysis is very important part of whole business strategic planning. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of some of the categories of ratios is given below.

Leverage Ratios which show the extent that debt is used in a company's capital structure. Liquidity Ratios which give a picture of a company's short term financial situation or solvency. Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets. Profitability Ratios which use margin analysis and show the return on sales and capital employed. Solvency Ratios which give a picture of a company's ability to generate cash flow and pay it financial obligations.

Although financial ratio analysis is well-developed and the actual ratios are well-known, practicing financial analysts often develop their own measures for particular industries and even individual companies. Analysts will often differ drastically in their conclusions from the same ratio analysis. A financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. Thus it helps in working out the profitability, simplifies the complex data in more understandable form, help in analysis of financial statements, also help in working out the solvency and liquidity position of the firm.

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Bibliography Books Referred: Khan M.Y Indian Financial System, N.Delhi Tata McGraw-Hill, 2000 Bhole L.M Management of Financial Institutions, N.Delhi Tata McGrawHill, 2001 Kotheri C.RResearch Methology, New Age Publishing House, Second Edition. Shashi K.Gupta, Management Accounting, Ninth Revised Edition. 81

Articles: Trevor W.Chamberlain,Comparative performance on liquidity and profitability Dr.Richard Berwick,Risk Management in commercial banks of Vietnam. Nancy Marie Dodge, Cross border mergers and acquisitions.

Websites referred: www.vitaindia.com www.google.com www.addc.com TREND ANALYSIS

MEANING:Trend refers to long term tendency of data over a period of time. The data of time series are subject to change over a period of time. But over a long period of time, the data of time series have a tendency to increase or decrease or remain constant. DEFINITION:According to professor Hirsch, By trend sometimes also called secular trend we mean the long run gradual growth or decline in the series. OBJECTIVES OF TREND ANALYSIS/ TIME SERIES:Study of past behavior:Analysis of time series studies the past behavior of data and indicates the changes that have taken place in the past. Prediction for future:On the basis of analysis of time series, future prediction can be made easily. Estimation of trend cycle:Cyclical fluctuations in time series give idea about the changes taking place in the business like Boom, Recession, Depression and recovery. 82

Comparison with other time series:By comparing the different time series together, their cause and effect relationship can be more elaborately analyzed. Study of present variations:It is also helpful in studying the present variations in different economic variables like national income, export, import price etc.

TREND ANALYSIS OF PROTECTED NET PROFIT OF CHEMICAL RESOURCES PVT. LTD Here Y denotes for net profit for Chemical resources Here x denotes from basis 2007 TABLE NO.14 YEARS Y X XY X 2008 7254 1 7254 1 2009 24931 2 49862 4 2010 21758 3 65274 9 Y=53943 X=6 XY=122390 X=14 Y=A+BX Y= Na+ B x.. (1) X y= a x + bx (2) 53943=3a+6b.(1) *2 122390=6a+14b... (2) *1 107886=6a+12b (1) 122390=6a+14b. (2) Equation 2 subtract into equation 1 14504= -2b 83

b= -7252 53943=3a+6b 53943=3a+6(-7252) 53943=3a-43512 3a=97455 a=32485 Y=abs

32485+ (-7252) x 32485-7252x (Trend value of 2008) =32485-7252*1 =32485-7252 =25233 (Trend value of 2009) =32485-7252*2 =32485-14504 =17981 (Trend value of 2010) =32485-7252*3 = 32485-21756 = 10729 TABLE NO. 15 ACTUAL VALUE 7254 24931 21758 TREND VALUE 25233 17981 10729

YEAR 2008 2009 2010

Interpretation:The projection of profit for the year 2010 is 21758 lacs.. In the year 2008 was able to not achieve more than its expected profits. In the year 2009 was able to not achieve its expected profits. In profits of Co. shows an increasing trend.

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 CORRELATION
Correlation refers to the statistical technique used in measuring the closeness of the relation between the variables. Definition of correlation:Correlation analysis deals with the association between two or more variables. Correlation analysis attempts to determine the degree of relationship between variables. Utility of correlation:The study of correlation is of immense significance in statistical analysis and practical life, which is clear from the following points. Most of variables show same kind of relationship. For example, there is relationship between price and supply, income and expenditure, sale & profit etc. Once we come to know that the two variables are mutually related, then we can estimate the value of one variables on the basis of the value of another. In business a trader makes the estimation of costs, sales, prices etc. TYPES OF CORRELATION Positive and Negative correlation:On the basis of direction of change of the variables, correlation can be classified into two types:Positive correlation: If two variables X and Y move in the same direction,i.e, if one rises, other rises too and vice versa, then it is a called as positive correlation. Negative correlation If two variables X and Y move in opposite direction, i.e., if one rise, other falls, and of one falls, another rises, then it is called as negative correlation. Simple correlation:When we study the relationship between two variables only, then it is called simple correlation. Partial correlation:When three or more variables are taken but relationship between any two of the variables is studied, assuming other variables as constant, then it is called partial correlation. Multiple correlation:-

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When the study the relationship among three of more variables, then it is called multiple correlation. DEGREE OF COORELATION TABLE NO.16 Degree Serial number Of correlation Positive Negative 1 2 3 4 5 Perfect Correlation High degree Of correlation Moderate degree Of correlation Low degree Of correlation Absence Of correlation +1 Between +0.75to1 -1 Between -0.75to-1

Between Between -0.25to-0.75 +0.25to+0.75 Between 0 to+0.25 0 Between 0 to-0.25 0

X = Sale Y= Net profit TABLE NO.17 X Y Dx 1319.000 72.54 710.1 608.90 581.98 249.31 217.58

Dy 176.76 0 0 -26.92 -31.73 d x d y =683.18 =-

D x*dy 125517.28 0 854.1716 dxdy =126371.45

D x 504242.01 0 724.6864 d x =504966.7

D y 31244.098 0 1006.7929 d y =32250.891

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208.49
r= N xy x y
2

Nx 2 ( x )

N y 2 (y)

3*126371.45-683.18*-208.49/

3*504966.7-(683.18)2* 3*32250.891*(-208.49)2 379114.35-12436.2 (1514900.1-466734.91)*(96752.673-43468.08) 366678.15 1048165.2*53284.593 366678.15 1023.79*230.8 366678.15/ 236326.112 =1.55 Ans.

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