Professional Documents
Culture Documents
A STUDY ON
RATIO ANALYSIS
OF
ACKNOWLEDGEMENT
NO TASK IS A ONE MAN EFFORT
It gives me immense pleasure to present this project report on Ratio Analysis
carried out at Integrated thermo Plastic Ltd.
No work can be carried out without the help and guidance of various persons. I am
happy to take this opportunity to express my gratitude to those who have been
helpful to me in completing this project report.
I take the opportunity to express my sincere gratitude to VENKATA RAO.
Finance Manager, INTEGRATED THARMO PLASTIC LTD for granting
permission to undergo the project and for his support and guidance.
I must thank Mr. ___________________ for making me convenient to
undertake a project work and for his invaluable suggestion and guidance in every
moment of my project. He helped meet my project objective and match the time
and resource framework.
I will remain always indebted to my parents & friends for their moral
support and have been the most caring and the best critics during the course of my
project. My special thank to all the Executives for their active participation without
whom the project work not have been possible.
This report is lifes greatest treasure. The project held was very gainful as it took
me close to real life. Practical exposure in the field of management is extremely
important as it gives a close view of the real business issues. It helps to cover all
part that remained uncovered in the classroom. It helps to gain experience. Just
theoretical knowledge is not sufficient for the success of any business student. So,
one should have practical knowledge about each aspect of life.
I learnt lot of new things from this project, which could never have been learnt
from theory classes.
I have tried to put my maximum effort to get the accurate statistical data, however I
would appreciate if any mistakes are brought to me by the reader. If any findings &
recommendations go in any way to prove some new ground in helping the
company, I shall deem my efforts have duly served the purpose. In the forthcoming
pages an attempt has been made to present report covering different aspects of my
project.
TABLE OF CONTENT
Chapter No.
Content
Executive Summary
Company Profile
Introduction
Vision, Mission
Technical Information
Quality control assurance
Products
Market Network
Exports
Competitors
Page No.
Findings
Suggestions
Bibliography
EXECUTIVE SUMMARY
Every countries economic condition depends upon the performance of its Industry.
How the investors are interested in it as it will help in the increment in the flow of
foreign exchange. A sound and well performing industry will always attract
investors as it will give them a return in a less time period. But it is not easy for a
layman to understand or to properly analyze the performance of the company.
First chapter contains information about the company and its product. Second
chapter is about the research methodology. Third chapter has detailed study of
theoretical concept of ratio analysis and last part is about the data analysis. I have
taken 5 years data to have financial analysis. Suggestion is made on the basis of
finding.
CHAPTER -1
COMPANY PROFILE
Introduction
Integrated Thermoplastics Limited (ITL), was incorporated on 25th January,
1994 as a Limited Company namely "Torrent Thermo Plastics Limited". It was
subsequently converted into a Public LImited Company on 26th May 1994, the
company name was changed to Integrated Thermoplastics LImited on 5th August,
1994.
In the year 1998, the company was acquired by Nandi Group of Companies
Tremondous changes have been noticed in the production under the dynamic and
energetic leadership of Sri S.P.Y.Reddy, the monarch in manufacturing of Quality
PVC Pipes.
The unit also has World Class Quality assurance systems in place. The products
manufactured meets all relevant ISI, BS, DIN, and ASTM Standards with a view of
effectivily catering to the needs of the international market. The company is
gearing for ISO9001-2000 certification to become a member of select brand of
elite group of companies. In addtion, extensive R & D facilities provide reliable
and committed suport for new product development.
unsurpassed
quality
of
entire
production.
Its
state-of-the-art
TECHNICAL INFORMATION:
ITL rigid PVC pipes are manufactured in accordance with Indian standards
specifications 4985:1998 and other international specifications. The company also
manufactures special ranges of commercial pipes under different ranges to satisfy
the customer requirements. ITL PVC pipes are normally manufactured in uniform
length of 6 meters with plain ends both the sides and also with self socked one
side. Varied length can be manufactured according to the customer requirement.
Integrated Thermoplastics Limited is manufacturing rigid PVC pipes from 20mm
to 400 mm in conformity to ISI 4985:2000 and other international specifications.
QUALITY CONTROL ASSURANCE:
2. Electrical Pipes:
Apart from manufacturing UPVC pipes ITL, is specialized in the manufacture of
entire gamut of other standard products including Electrical conduits, plumbing
and SWR pipes covering all applications in which PVC pipes can be used meeting
the ISI requirements, using cutting-edge technologies to keep pace with the modern
technology and the choice of the customers. The company's Electrical Conduits are
of ISI Standards and are used for domestic & industrial purposes, the pipe sizes
ranging from 16 mm to 63 mm to outer diameter.
5. SWR Pipes:
ITL.,Hyderabad, has been manufacturing 'ITL' brand Un plasticized Polyvinyl
Chloride(UPVC) Plain and Socket end SWR pipes with nominal outside diameter
from 75.90 ,110 & 160mm. These pipes are used in soil and waste discharge
system inside the building including ventilating and rain water applications. The
pipe's surface colour is dark shade of gray.
6. RingFit Pipes:
An innovative new product called "Ringfit" pipe has been developed to overcome
the problems commonly experienced in solvent cement jointing of higher diameter
(above 160 mm) UPVC Pipes. These ITL & SAGAR' branded Ring fit pipes offers
excellent advantages over other UPVC pipes specially for undergoing applications
MARKET NETWORK
10
EXPORTS
Integrated Thermoplastics Limited is trying very hard in exporting
their products like rigid PVC pipes of water, electrical conduits and SWR pipes to
Middle East, Europe, Africa and other Asian countries.
Taking an example
esteemed overseas customers, Co. is proud to say that Co. is associated with
CEYLON ELECTRICTY BOARD SRILANKA supplying electrical conduits
to their project requirements.
COMPETETORS
1. Sudhaker polymers ltd.
2. Finolex industry ltd.
3. Jain irrigation ltd.
11
CHAPTER 2
DESIGN OF THE STUDY
12
To know about the Liquidity and long term solvency position of the Co.
RESEARCH METHODOLOGY
Research Design
A research design is the arrangement of the condition for collection and
analysis of data. Actually it is the blueprint of the research project.
Research design used will be Descriptive type.
Data Collection
Primary Data: Primary data will be collected through interview of the finance
manager and official staff of the company.
13
Data Analysis
14
CHAPTER -3
THEORETICAL FRAMEWORK OF RATIO ANALYSIS
INTRODUCTION OF RATIO ANALYSIS:
As observed, a basic limitation of the traditional financial statement comprising
the balance sheet and the profit and loss account is that they do not give all the
information related to the financial operation of the firm. Nevertheless, they
provide some extremely useful information to the extent that the Balance Sheet
mirrors the financial position on a particular date in terms of the structure of
assets, liabilities and owners equity and so on. The profit and loss account shows
the results of operations during a certain period of time in terms of the revenues
obtained and the cost incurred during the year. Therefore, much can be learnt
about a firm from a careful examination of its financial statements as invaluable
documents/performance analysis. Users of financial statements can get further
insight about financial strengths and weaknesses of the firm if they properly
analyze information reported in these statements. Management should be
particularly interested in knowing financial weakness of the firm to take suitable
corrective actions. The future plans of the firm should be laid down in view of the
firms financial strengths and weaknesses. Thus, financial analysis is the starting
point for making plans, before using any sophisticated forecasting and planning
procedures. Understanding the past is a pre-requisite for anticipating the future.
MEANING AND RATIONALE:
Ratio analysis is a widely used tool of financial analysis. It is defined as the
systematic use of ration to interpret the financial statements so that the strengths
and weaknesses of the firm as well as its historical performance and current
financial condition can be determined. Ratio analysis is a powerful tool of
financial analysis. A ratio is defined as the indicated quotient of two
15
2.
These alternative methods of expressing items, which are related to each other, are,
for purpose of financial analysis, referred to as ratio analysis. It should be noted
that computing the ratios does not add any information already inherent in the
above figures of profits and sales. What the ratios do is that they reveal the
relationship in a more meaningful way so as to enable us to draw conclusions from
them. The rationale of ratio analysis lies in the fact that it makes related
information comparable. A single figure by itself has no meaning but when
expressed in terms of a related figure, it yields significant inferences. For instance,
the fact that the Net profits of a firm amount to, say Rs. Ten Lakhs throws no light
on its adequacy or otherwise.
The figure of Net profit has to be considered in relation to other variables. How
does it stand in relation to sales? If, therefore, Net profits are shown in terms of
their relationship with items such as Sales, Assets, Capital employed, Equity
capital and so on, meaningful conclusions can be drawn regarding their adequacy.
IMPORTANCE OF RATIO ANALYSIS
As a tool of financial management, ratios are of crucial significance. The
importance of ratio analysis lies in the fact that is presents facts on a comparative
16
17
Difficulty in comparison.
ii.
iii.
Conceptual Diversity
Difficulty in comparison: -
out of the difficulty associated with their comparability. One technique that
is employed is inter-firm comparison. But such comparison is vitiated by
different procedures adopted by various firms.
Differences in basis of inventory valuation (e.g.:- last in first out,
basis);
Estimated working life of assets, particularly of plant and
equipment;
Amortization of deferred revenue expenditure such as preliminary
Capitalization of lease;
Impact of Inflation: - The second major limitation of the ratio analysis is a tool of
financial analysis is associated with price level changes. This in fact is a weakness
of the traditional financial statements, which are based on historical cost. An
implication of this feature of the financial statements as regards ratio analysis is
that assets acquired at different periods are, in effect, shown at different prices in
the balance sheet, as they are not adjusted for changes in the price level. As a
19
the ratios. There is always room for diversity of opinion as to what constitutes
shareholder`s equity, debt, assets, profit and so on.
Finally, ratios are only a post-mortem analysis of what has happened between two
balance sheet dates. For one thing the position in the interim period is not revealed
by ratio analysis. Moreover, they give no clue about the future.
In brief, ratio analysis suffers from serious limitations. The analyst should not be
carried away by its over simplified nature, easy computation with high degree of
precision. The reliability and significance attached to ratios will largely depend
upon the quality of data on which they are based. They are as good as the data
itself. Nevertheless, they are an important tool of financial analysis.
concepts and conventions are used for preparing financial statements of not.
Competent auditors should properly audit the statements.
The purpose of the user is also important for the analysis of ratios. A
creditor, a banker, an investor, a shareholder, all has different objects for
studying ratios. The purpose (or) object for which ratios are required to be
studied should always be kept in mind for studying various ratios.
Different objects may require the study of different ratios.
20
Unless otherwise the ratios calculated are compared with certain standards
one will not be reach at conclusions. These standards may be a rule of
thumb as in current ratio (2:1), may be industry standards, may be projected
ratios etc. The comparison of calculated ratios with the standards will help
the analyst in forming his opinion about financial situation of the concern.
The ratios are only the tools of analysis but their interpretation will depend
upon the caliber and competence of the analyst. He should be familiar with
various financial statements and the significance of changes etc.
A wrong interpretation may create havoc for the concern since wrong
conclusions may bad to wrong decisions. The utility of ratios is linked with
expertise of the analyst.
The ratios are only guidelines for the analyst; he should not base his
decisions entirely on them.
21
22
2. LEVERAGE RATIOS
The short-term creditors like bankers and suppliers of raw material are more
concerned with the firms` current debt-paying ability. On the other hand, longterm creditors like debenture holders, financial institutions etc., are more
concerned with the firms` long-term financial strength. In fact, a firm should have
strong short-as well as long-term financial position. To judge the long-term
financial position of the firm, financial leverage, or Capital structure, ratios are
23
They can retain control of the firm with a limited stake and
b.
Their earnings will be magnified, when the firm earns a rate of return on
the total capital employed higher than the interest rate on the borrowing
funds. The process of magnifying the shareholders return through the use
of debt is called financial leverage or financial gearing or trading on
equity.
Leverage ratios may be calculated from the balance sheet to determine the
proportion of debt in total financing. Many variations of these ratios exist; but all
these ratios indicate the same thing-the extent to which the firm has relied on debt
in financing assets. Leverage ratios are also computed from the profit and loss
items by determining the extent to which operating profits are sufficient to cover
the fixed charges.
3. ACITIVITY RATIOS
Funds creditors and owners are invested in various assets to generate sales and
profits. The better the management of assets, the larger the amount of sales.
Activity ratios are employed to evaluate the efficiency with which the firm
managers and utilizes its assets. These ratios are also called Turnover Ratios
because they indicate the speed with which assets are being converted or turned
over into sales. Activity ratios, thus, involve a relationship between sales and
24
4.
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 a company should be aimed at maximizing profits, irrespective of
social consequences.
Profit is the difference between revenues and expenses over a period of time
(usually a year). Profit is the ultimate Output of a company, and it will have no
future if it fails to make sufficient profits. Therefore, the financial manager should
continuously evaluate to the efficiency of the company in term of profits. The
profitability ratios are calculated to measure the operating efficiency of the
company. Besides management of the company, creditors and owners are also
interested in the profitability of the firm. Creditors want to get interest and
repayment of principle regularly. Owners want to get a required rate of return on
their investment. This is possible only when the company earns enough profits.
CHAPTER - 4
25
1. LIQUIDITY RATIO
Liquidity refers to the ability of a concern to meet its current obligations as &
when there becomes due. The short term obligations of a firm
can be met only when there are sufficient liquid assets. The
short term obligations are met by realizing amounts from
current, floating (or) circulating assets. The current assets
should either be calculated liquid (or) near liquidity. They
should be convertible into cash for paying obligations of short
term nature. The sufficiency (or) insufficiency of current assets
should be assessed by comparing them with short-term
current liabilities. If current assets can pay off current
liabilities, then liquidity position will be satisfactory.
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 meet its current
obligations. In fact, analysis of liquidity needs the preparation of cash budgets and
cash and fund flow statements; but liquidity ratios, by establishing a relationship
between cash and other current assets to current obligations, provide a quick
measure of liquidity. A firm should ensure that it does not suffer from lack of
liquidity, and also that it does not have the excess liquidity. The failure of company
to meet its obligation due to lack of sufficient liquidity, will result in a poor
creditworthiness, loss of creditors confidence, or even legal tangles resulting in
the closure of the company. A very high degree of liquidity also bad; idle asset earn
nothing. The firms funds will be unnecessarily tied up in current assets. Therefore
it is necessary to strike a proper balance between high liquidity and lack of
liquidity.
The most common ratios which indicate the extent of liquidity and the
lack of liquidity are:o
Quick Ratio.
26
A. CURRENT RATIO
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio also known as Working capital ratio is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial
position (or) liquidity of a firm.
Current assets include cash and those assets which can be converted into cash
within one year, such as marketable securities, debtors and inventories. Prepaid
expenses are also included in the current assets as they represent the payments that
will not be made by the firm in future. All obligations maturing within a year are
included in the current liabilities. Current liabilities include creditors, bills payable,
accrued expenses, short-term bank loan, income-tax liability and long term debt
maturing in the current year.
FORMULA:
OBJECTIVES:
The objective is to measure the ability of the firm to meet its short term
obligations and to reflect the short term financial strength/ solvency of a firm. It
suggests whether firm can meet its short term obligation from short term Assets.
(IN CRORES)
Particulars
2009-10
2010-11
2011-12
2012-13
2013-14
Inventory
463.29
584.75
808.69
807.60
854.87
27
443.02
538.85
281.27
409.42
257.81
37.89
62.50
57.72
53.66
56.88
Loan balance
and advances
141.08
215.08
274.46
294.17
288.55
assets Asset
Total Current
1085.28
1401.18
143.48
1565.62
175.52
1740.37
1458.11
Total CL
594.39
902.30
530.31
643.07
766.96
Current ratio
1.82
1.55
2.95
2.71
1.90
Other Current
Interpretation:
A current ratio of 2:1 indicates a highly solvent position. . The constituents of the
current assets are as important as the current assets themselves for evaluation of
companys solvency position. It indicates rupees of current assets available for
each rupee of current liability. A very high current ratio adverse impact on the
profitability of the organization.
ITL current ratio in 2009-10 was 1.82, which was good nearby ideal ratio2:1. But
later the ratio had decreased 1.55 in 2010-2011 which is not good for the
companys financial position. In 2011-2012 it had increased to 2.95 which is much
more high in last 5 years so it was beneficial for companys financial strength.
Further 2012-2013, it has fallen to 2.71 due to increase in current liabilities. But in
28
B.QUICK RATIO
Quick Ratio establishes a relationship between quick, or liquid, assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or
reasonably soon without a loss of value. Cash is the most liquid asset. Other assets
which are considered to be relatively liquid and included in quick assets are
debtors and bills receivables and marketable securities. Inventories are considered
as less liquid asset, because they require some time for realizing cash; their value
also has a tendency to fluctuate. The quick ratio is found out by dividing quick
assets by current liabilities.
FORMULA
Quick Ratio = Quick Assets(Current Assets-Inventories) / Current Liabilities
2009-10
621.99
594.39
1.05
(IN CRORES)
2010-11
816.43
902.30
2011-12
756.93
530.31
.90
1.43
29
2012-13
932.77
643.07
1.45
2013-14
603.24
766.96
0.79
Interpretation
The ideal quick ratio is 1:1 from the analysis it is found that in year 2009-2010 the
quick ratio was.1.05, which is more than ideal ratio so it was good for liquidity. It
has become.90, which is near to the ideal ratio. Further it had increased to 1.43 in
2011-2012, which is high last 2 years and 2012-13 it has risen to 1.45. It shows that
the company is efficiently using its liquid assets. But in 2013-14 it had fallen .79
because other assets are decreased. Overall we can say that company is having
enough liquid assets to meet current liabilities.
2. LEVEARGE RATIO
These ratios indicate the degree to which the activities of a firm are supported by
creditors funds as opposed to owners as the relationship of owners equity to
borrowed funds is an important indicator of financial strength. The debt requires
fixed interest payments and repayment of the loan and legal action can be taken if
any amounts due are not paid at the appointed time. A relatively high proportion of
funds contributed by the owners indicates a cushion (surplus) which shields
creditors against possible losses from default in payment.
Financial leverage will be to the advantage of the ordinary shareholders as long as
the rate of earnings on capital employed is greater than the rate payable on
borrowed funds.
30
The leverage or solvency ratio refers to the ability of a concern to meet its long
term obligations. Accordingly, long term solvency ratios indicate firms ability to
meet the fixed interest and costs and repayment schedules associated with its long
term borrowings.
Leverage ratios may be calculated from the balance sheet items to determine the
proportion of debt in total financing. Many variations of the ratios exist; but all
these ratios indicate the same thing the extent to which the firm has relied on debt
in financing assets. Leverage ratios are also computed from the profit loss items by
determining the extent to which operating profits are sufficient to cover the fixed
charges.
Classification of leverage ratio
Debt ratio
Debt equity ratio
Interest coverage ratio
Capital gearing ratio
Proprietary ratio
A. Debt ratio:
Several debt ratios may be used to analyse the long term solvency of a firm . the
firm may be interested bearing debt (also called funded debt) in the capital
structure . it may , therefore , compute debt ratio by the dividing total debt (TD) by
capital employed (CE) or net assets (NA).
Total debt will include short and long term borrowings from financial institutions,
debentures/bonds, deferred payment arrangement for buying capital equipments,
bank borrowings, public deposits and any other interest bearing loan.
Formula:
31
(IN CRORES)
2009-10
756.54
2010-11
1001.83
2011-12
1256.41
2012-13
1375.96
2013-14
1141.37
328.53
545.38
527.03
611.18
239.97
1085.07
2369.4
1547.21
3191.1
1783.44
3634.26
1987.14
4042.25
1381.34
3654.24
0.46
0.48
0.49
0.49
0.38
Interpretation:
The debt ratio of ITL in 2009-10, 0.46 which is very low that means lenders has
financed 0.46 per cent of total assets. It obviously implies that owners have
financed 1-0.46= .54 percent of total assets. But in 2010-11 and up to 2012-13,
debt ratio shows steady trend and reached to 0.49. Again in 2013-14, debt ratio was
decreased and reached to 0.38. This is good sign for the company as lower the
company's reliance on debt for asset formation, the less risky the company is since
excessive debt can lead to a very heavy interest and principal repayment burden.
32
Debt-Equity is the basic & the most measure of studying the indebt of the firm.
The Debt-Equity ratio is based on the assumption that the extent to which a firm
should employ the debt should be viewed in terms of the size of the cushion
provided by the shareholders funds. The Debt-Equity ratio is based on the
assumption that the extent to which a firm should employ the debt should be
viewed in terms of the size of the cushion provided by the shareholders funds.
Formula:
2009-10
Total Debt
Net worth
Debt equity
1085.07
525.53
2.06
(IN CRORES)
2010-11
1547.21
554.05
2.79
ratio
33
2011-12
2012-13
2013-14
1783.44
1149.27
1.55
1987.14
1268.53
1.57
1381.34
1329.61
1.04
Interpretation:
The debt equity ratio indicates the proportion of owner's stake in the business.
Ideal ratio is 2:1. Excessive liabilities tend to cause insolvency. The ratio indicates
the extent to which the firm depends upon outsiders for its existence. The ratio
provides the margin of safety to the creditors. It tells the owners the extent to
which they can gain benefits and maintain the control with the limited investments.
The debt equity ratio of ITL in 2009-2010 was 2.06 was good as in comparing with
the ideal ratio of 2:1. In 2010-2011 the ratio had improved to 2.79 and further it
had fallen to the 1.55 in 2011-2012, it means that companys debt in 2010-2011 are
more in compare to the previous year ratio. But in 2012-2013 the ratio has
increased to 1.57. It is over debtness in the present scenario. But in 20013-14 it has
reduce to 1.04. Companys composition of debt and equity has reduced and this
shows that company is less risky in terms of lenders.
C. Interest coverage ratio: Debt ratios described above are static in nature,
and fail to indicate the firms ability to meet interest and other fixed
obligations. The interest coverage ratio is used to test the firms debt
34
Objective:The objective is to measure the debt servicing capacity of a firm so far fixed
interest on long term debt and debenture is concerned.
Formula:
2009-10
2010-11
2011-12
2012-13
2013-14
EBIT
221.9
146.4
94.3
251.6
204.61
Interest on
49.4
79.1
87.6
150.4
88.56
4.49
1.85
1.07
coverage ratio
35
1.67
2.31
Interpretation: Interest coverage ratio shows the number of times the amount of
interest on long term debt is covered by the profits out of which that will be paid.
It indicates the limit beyond which the ability of the firm to service its debt would
be adversely affected.
Higher the ratio, greater the firms ability to pay interest but very high ratio may
imply lesser use of debt and very efficient operations. Interest coverage ratio is
4.49 in 2009-10 and fallen to 1.85 in the year 2010-11 and 1.07 in 2011-12. Again
after 2011-12, it shows increasing trend and reached to 2.31 in 2013-14.
This shows that the firms ability to pay interest is high and there is less use of
debt.
This ratio explains whether the firm has raised adequate long term funds to meet its
fixed assets requirements. It is expressed as follows Fixed assets/long-term funds.
The ratio should not be more than 1.if less than one; it shows that the part of
working capital has been financed through long-term funds. This is desirable to
some extend because a part of working capital termed as core working capital is
less of fixed nature .
36
Long term funds to fixed assets Ratio = long term funds / fixed
assets
2009-10
1085.07
1547.21
Fixed asset
1272.45
1780.81
0.85
2010-11
2011-12
0.86
2012-13
2013-14
1783.44
1987.14
1381.34
2056.60
2288.84
2183.37
0.86
fixed asset
37
0.87
0.63
Interpretation
This ratio indicates the proportion of long term funds deployed in fixed assets. The
long term fund to fixed assets ratio were approximate same in last four years and
the ideal ratio is .67 so company have sufficient funds and fixed assets . The higher
the ratio indicates the safer the funds available in case of liquidation .but in 201314 due to some reason the ratio had fallen .63 which was low to ideal ratio .67. It
shows that the proportion of long term funds that is more invested in working
capital.
E.PROPRIETARY RATIO:
ratio which is also known as equity ratio. This ratio establishes relationship
between share holders funds to total assets of the firm. This ratio focuses the
attention on general financial strength of business enterprise.
This ratio is of particular importance to the creditors who can find out proportion
of shareholders funds in the total assets employed in business. A low proprietary
ratio will indicate greater danger to the creditors. A ratio below 50% may be
alarming for the creditors since they may have to suffer heavily
Formula:
38
Particulars
Share holders fund
Total assets
Proprietory ratio
2009-10
525.53
2369.4
22.18
2010-11
554.05
3191.1
17.36
2011-12
1149.27
3634.26
31.62
2012-13
1740.37
4042.25
31.38
Interpretation:
This ratio indicates the extent to which the assets of the firm have been financed
out by proprietars fund. It determines the long-term solvency of the firm. This
ratio indicates the extent to which the assets of the company can be lost without
affecting the interest of the company.
In 2009-10, proprietory ratio is 22.18 and reduced in 2010-11 to 17.36. Again it
shows increasing trend up to the year 2013-14 and reached to 36.83.
39
2013-1
1329.6
3654.24
36.38
3. ACTIVITY RATIO
Funds are invested in various assets in business to make sales and earn profits. The
efficiency with which assets are managed directly affects the volume of sales.
Activity ratios measure the efficiency (or) effectiveness with which a firm manages
its resources (or) assets. These ratios are also called Turn over ratios because
they indicate the speed with which assets are converted or turned over into sales.
Activity ratios are employed to evaluate the effi3ciency with which the
firm manages and utilizes its assets. The ratios are also called turnover
ratios because they indicate the speed with which the assets are being
converted or turned over into sales. A proper balance between sales
and assets generally reflects that the assets are managed well. Several
ratios can be calculated to judge the effectiveness of asset utilization.
A firm sells goods for cash and credit. Credit is used as a marketing tool by a
number of companies. When the firm extends credit to its customers, debtors are
created in the firms accounts. Debtors are expected to be converted into cash over
a short period and, therefore, are included in the current assets. The liquidity
position of the firm depends upon the quality of the debtors to a great extent.
40
Collection Period
The average number of days for which debtors remain outstanding is called the
average collection period, and can be calculated as follows:
Collection Period= 365/ Debtors Turnover
TABLE- COMPONENTS DEBTOR TURNOVER
Particulars
Gross sales
Average
debtor
Debtors
2009-10
2392
443
2010-11
2764
490
2011-12
2573
409
2012-13
3500
345
2013-14
3519
334
5.72
5.96
6.77
10.76
10.90
64
60
54
34
35
turnover
ratio
Avg.
collection
Period in
days
41
Interpretation
It shows the efficiency of collection policy of the firm. It is always a good idea to
collect quickly money from debtors as uncertainty of collection increases with
credit policy being liberal. However a firm should undertake cost benefit study of
liberal credit policy, if benefit is more than cost than it should increase credit
period.
Debtors turnover ratio is 5.72 for the year 2009-10 and shows increasing trend up
to the year 2013-14 and reached to 10.9. This shows that debtors are collected quite
fast and quality of debtors is good.
A higher debtors turnover ratio means shorter average collection period. It
indicates efficiency in collection of debt. Debtors are not allowed to linger their
payment.
42
Formula
Table of Total assets ratio of ITL
(IN CRORES)
Particulars
Sales
Total assets
Result
2009-10
2010-11
2011-12
2012-13
2013-14
2392
2764
2573
3500
3519
2369.4
3191.1
3634.26
4042.25
3654.24
1.07
.92
.73
.91
.99
Interpretation:
This ratio suggests how a rupee of asset contributes to earn sales more the ratio
more efficiently assets are used in gainful operation. The total assets ratio also
indicates the number of times total assets are being turned over the year.
43
2009-10
2392
2010-11
2764
44
2011-12
2012-13
2013-14
2573
3500
3519
491
498
1035
1097
691
Working capital
4.87
5.56
2.45
3.19
5.09
turnover ratio
Interpretation
The working capital ratio indicates the capability of the organization to achieve
maximum sales with the minimum investment in working capital. This ratio
indicates the extent of working capital turned over in achieving sales of the firm.
Working capital turnover ratio is 4.87 for the year 2009-10 and increased to 5.56 in
2010-11. Again in 2011-12, it decreased drastically and shows increasing trend
after wards. In 2013-14, it reached to 5.09. This shows that firm is able to achieve
maximum sales with minimum investment in working capital. And company is
using its working capital efficiently to generate sales.
D.INVENTORY TURNOVER RATIO:
It indicates the efficiency of the firm in producing and selling its product. This ratio
indicates whether stock has been efficiently used or not. It shows the speed with
45
2009-10
2010-11
2011-12
2012-13
2013-14
Sales
2392
2764
2573
3500
3519
Average Inventory
463
524
696
808
831
Inventory
5.17
5.27
3.70
turnover ratio
46
4.33
4.23
(IN CRORES)
Particulars
2009-10
Sales
2392
Fixed asset
1029
Fixed asset
2.32
2010-11
2011-12
2764
2573
2012-13
2013-14
3500
3519
1672
1757
2227
2124
1.65
1.46
1.57
1.66
turnover ratio
Interpretation
In the year 2009-2010, the ratio was 2.32 and showed decreasing trend up to the
year 2011-12 and reached to 1.46. Again it started rising and reached to 1.66 in the
year 2013-14. From the analysis it is found out that since last four years company
is investing average more than 70% of its long-term fund in fixed assets. There is
more investment in fixed assets so if that excess fund can be utilized effectively at
some other place that should be done.
It indicates the firms ability to generate sales per rupee of investment in fixed
assets. In general, higher the ratio, the more efficient the management and
48
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
the management of the company should be aimed at maximizing profit,
irrespective of social consequences. It is unfortunate the word profit is looked
upon as a term of abuse since some firms always wanted to maximize profits at the
cost of employees, customers & society. Except such infrequent cases, it is fact that
sufficient profit must be earned to sustain the operation of the business to be able
to obtain funds from the investors for the expansion and growth and to contribute
towards the social overheads for the welfare of the society.
Profit is the difference between revenues and expenses over a period of time
(usually one year). Profit is the ultimate output of the company, and it will have no
future if it fails to make sufficient profits. Therefore, the financial manager should
continuously evaluate the efficiency of the company in terms of profits. The
profitability ratios are calculated to measure the operating efficiency of the firm.
Beside management of the company, the creditors and owners are also interested in
the profitability of the firm. Creditors want to get interest and repayment of
principal regularly. Owners want to get a required rate of return on their
investment. This is possible only when the company earns enough profits.
Generally two major types of profitability ratios are calculated.
Profitability in relation to sales.
Profitability in relation to investment.
In relation to Sales
a) Gross profit ratio
b) Net profit Ratio
49
Net profit ratio establishes a relationship between net profit (after tax) and sales
and indicates the efficiency of the management in manufacturing, selling
administrative and other activities of the firm.
This ratio also indicates the firms capacity to withstand adverse economic
conditions. A firm with a high net margin ratio would be in an advantageous
position to survive in the face of falling selling prices, rising costs of production or
declining demand for the product. It would be really difficult for a low net margin
firm to withstand these adversities. Similarly, a firm with high net profit margin
can make better use of favourable conditions, such as rising selling prices, falling
costs of production or increasing demand for the product. Such a firm will be able
to accelerate its profit at a faster rate than a firm with a low net profit margin.
Formula
2009-10
2010-11
2011-12
50
2012-13
2013-14
118
44
673
123
84
Net sale
2392
2767
2573
3500
3519
Net profit
4.93
1.6
26.16
3.51
2.39
After tax
ratio
Interpretation:
This ratio indicates (a) an average net margin earned on a sale of Rs. 100 (b) what
portion of sales is left to pay dividend and to create reserves, and (c) firms
capacity to withstand adverse economic conditions when selling price is declining.
In the year 2009-2010, the ratio was 4.93, which was low. In 2010-2011 the ratio
again had fallen to 1.6 which was low in last 5 years. It would be very difficult of
any company to stand with low margin net profit ratio. But in 2011-2012 the ratio
had tremendous increased 26.16 this reflected higher net profit margin ratio and it
could make better use of favourable conditions. Further it has decreased to3.51 in
2012-13. In 2013-14, it had again decreased to 2.39. From the analysis it is found
51
b) RETURN ON INVESTMENT
The term investment may refer to total assets. The funds employed in net assets in
known as capital employed. Net assets equal net fixed assets plus current assets
minus current liabilities excluding bank loan. Alternatively, capital employed is
equal to net worth plus total debt.
The conventional approach of calculating return on investment is divide PAT by
investment. Investment represents pool of funds supplied by shareholders and
lenders, while PAT represent residue income of shareholders; therefore, it is
conceptually unsound to use PAT in the calculation of ROI.
Objective:
The objective is to find out how efficiently the long term funds supplied by the
Debenture holder and shareholders have been used.
Formula
* 100
2009-10
221.9
2010-11
146.4
52
(IN CRORES)
2011-12
94.3
2012-13
251.6
2013-14
204.61
Total
2369.4
3191.1
3634.26
4042.25
3654.24
assets
Return on
9.36
4.58
2.59
6.22
5.59
investment
Interpretation:Higher the ratio, the more is the efficient management and utilization of Capital
Employed.
This ratio also helps in working the rate of return of company earns on the capital
invested in fixed and current assets. In ITL this ratio has not shown continuous
increase i.e.in 2009-10 it was highest 9.36 from then it decreased to 4.58 in 201011. It was again decreased to 2.59 in 2011-12. But in 2012-13, it had risen to 6.22
so it was good for company. Further now in 2013-14 it was 5.59 which decreased
after the year. So company has low earning on the capital invested. It indicates ITL
was efficient management and utilization of capital employed.
B.RETURN ON EQUITY
It measures how much the shareholders earned for their investment in the
company. Common or ordinary shareholders are entitled to the residual profits. the
rate of dividend is not fixed; the earning may be distributed to shareholders or
53
2009-10
2010-11
2011-12
2012-13
2013-14
118
44
673
123
84
525.53
554.05
1149.27
1268.53
1329.61
22.43
7.94
58.55
9.7
6.31
After tax
Equity share
+
Reserve &
surplus
Return on
Equity
54
Interpretation
This ratio indicates the firms ability of generating profit per 100 rupees of
shareholders funds. Higher the ratio, the more efficient the management and
utilization of shareholders funds. In 2009-10 it was 22.43 which was financially
beneficial for company. In 2010-11, it had gone down to 7.94, but in 2011-12, it
was tremendous increased to 58.55. Further in 2012-13 it was decreased to 9.7 and
after that in 2013-14 it had again fallen 6.3 so we can observe that company is not
having efficient management and utilization of shareholders funds.
55
2009-10
118
16.60
2010-11
44
16.60
7.1
2.65
2011-12
673
16.60
40.5
2012-13
123
16.60
7.5
Interpretation:
In, general, higher the EPS, better it is and vice versa. EPS helps in determining the
market price of the equity shares of the company. It also helps in estimating the
companys capacity to pay dividend.
56
2013-14
84
16.60
5.1
2009-10
2010-11
2011-12
2012-13
2013-14
33.34
492.19
525.53
17.73
33.34
520.71
554.05
17.42
33.34
1115.93
1149.27
-
33.34
1235.19
1268.53
-
33.34
1296.27
1329.61
-
756.54
328.53
1085.07
146.68
1775.01
1001.83
545.38
1547.21
170.12
2288.8
1256.41
527.03
1783.44
171.24
3103.95
1375.96
611.18
1987.14
143.91
3399.58
1141.37
239.97
1381.34
176.33
2887.28
1458.43
429.62
1028.81
243.64
1272.45
11.67
2187.16
514.68
1672.48
108.33
1780.81
9.11
2390.76
634.14
1756.62
299.98
1422.14
155.52
3001.55
774.94
2226.61
62.23
2288.84
13.44
3053.9
929.83
2124.07
59.3
2183.37
12.76
463.29
443.02
584.75
538.85
808.69
281.27
807.6
409.42
854.87
257.81
57
37.89
141.08
1085.28
62.5
215.08
1401.18
57.72
274.46
143.48
1565.62
53.66
294.17
175.52
1740.37
56.88
288.55
1458.11
531.21
63.18
594.39
490.89
1775.01
836.1
66.2
902.3
498.88
2288.8
438.8
91.51
530.31
891.83
3103.95
533.34
109.73
643.07
1097.3
3399.58
654.04
112.92
166.96
691.15
2887.28
CHAPTER 5
FINDINGS
1. The companys overall position is at a good position. Particularly
the current years position is well due to raise in the profit level
from the last year position. It is better for the organization to
diversify the funds to different sectors in the present market
scenario.
58
reached
to 36.83.
proportion
of
59
ITL
was
efficient
CHAPTER -6
SUGGESTION
60
2. Net fixed asset of the company has increased and even though
they are not utilizing enhanced technology to increase the sales.
So the management should take steps to reduce the borrowed
capital.
3. Company should raise funds through short term sources for short
term requirement of funds, which comparatively economical as
compare to long term funds.
4. Company should properly utilize its fixed asset to generate sales.
5. Company should have proper management and utilization of
share holders fund to generate profit.
6. Company should take control on debtors collection period which
is major part of current assets.
7. The liquid position of the company is quite satisfactory and this
must be improved be further for the propose of proper utilization
of the liquid assets of the company.
8. Debt has always increased. So the company has reduced the loan
for the more long term borrowings from the outsiders.
CHAPTER - 7
BIBLIOGRAPHY
61
- I.M.PANDEY
FINANCIAL MANAGEMENT
- PRASANNA CHANDRA
FINANCIAL MANAGEMENT
ANNUAL REPORTS OF
62
63