Professional Documents
Culture Documents
K.L.Rathod
Faculty Guide
Industry Guide
Dean
Submitted To
St. Kabir Institute of Professional Studies, Ahmedabad
July 2015
1
DECLARATION
We hereby declare that this project is the record of authentic work carried
out by me during the academic year 2014 15 and has not been submitted to any
other University or Institute towards the award of any degree. This is for the
purpose of fulfillment of St. Kabir Institute of Professional Studiess partial
requirement for the award of the title of PGDM, only.
Signature of student:
Kavan Patel
ACKNOWLEDGEMENT
The Feeling of Gratitude automatically arises from the bottom of heart when we
are helped by anyone. A small but timely help can prove to be achievement of an
important milestone.
I would like to thank Dr. R.K Balyan, Director of K. S. School of Business
Management, who has given us a valuable opportunity towards Practical
knowledge. I am also thankful to my faculty Prof. Gurpreet Arora for proving
us guidance regarding internship and project report.
PREFACE
The Project is on Ratio analysis of Cadmach Machinery Co. Pvt. Ltd. which is
renowned firm in the Pharmaceutical Machinery Industry. CADMACH is a leader
in manufacturing Tablet Press Machines in the India.
The First Part of the project report - Part A delivers an overview of
Pharmaceutical Machinery Industry and brief information about IPMMA.
The Second Part of the project report- Part B delivers an overview of
Cadmach Machinery Co. Pvt. Ltd.
The Third Part of the project report- Part C delivers an overview of Project.
The Fourth Part of the project report - Part D is the heart of Project. To
analyze the ratio analysis using balance sheet of the company.
The Fifth Part of the project report- Part E contains findings, conclusion,
Bibliography, Webliography and Annexure.
Contents
1 Introduction..............................................................................................................................................7
1.1 Introduction of the topic/study...........................................................................................................7
1.2 Objectives of the Study...................................................................................................................10
1.3 Rationale of the study......................................................................................................................11
2 Overview of Industry and Company.....................................................................................................12
2.1 Introduction to Industry...................................................................................................................12
2.2 Introduction to the company............................................................................................................15
National Presence..............................................................................................................................19
DISTRIBUTION NETWORK...........................................................................................................20
Partners......................................................................................................................................................22
Competitors...............................................................................................................................................23
2.3 Organization structure......................................................................................................................26
2.4 Product/services range.....................................................................................................................28
2.5 SWOT analysis................................................................................................................................30
3 Research Methodology.........................................................................................................................32
Limitations................................................................................................................................................32
4 Data analysis & Interpretation with Theoretical Background.................................................................33
(A)PROFITABILITY RATIO............................................................................................................33
(B)LIQUIDITY RATIOS...................................................................................................................49
(C)LEVERAGE/CAPITAL STRUCTURE RATIO...........................................................................54
(D) ACTIVITY/EFFICIENCY RATIO..............................................................................................63
5
Findings.............................................................................................................................................77
6 Conclusion..............................................................................................................................................79
Bibliography and Webliography................................................................................................................80
Annexure...................................................................................................................................................81
Annexure A. Calculation of Factory overhead...................................................................................81
Annexure B. Calculation of Non Operating Income..........................................................................83
Annexure C. Calculation of Average Stock........................................................................................84
Annexure D : Profit and loss Account................................................................................................85
Annexure E : Balance sheet...............................................................................................................86
1 Introduction
A. Profitability:
B. Liquidity:
D. Efficiency:
Management has to protect the interests of all concerned parties like Shareholders,
Trade Creditors, Lenders, Employees, and Tax Authority etc. They have to ensure
some minimum operating efficiency and keep the risk of the firm at the minimum
level. Their survival depends upon their operating performance from time to time.
Management uses Ratio Analysis to determine the firms financial strengths and
weaknesses, and accordingly takes actions to improve the firm's financial position
and performance.
The interpretation and comparison of ratios are also rendered invalid by the
changing value of money. The accenting figures, presented in a Financial
Statement, one expressed in a monetary unit which is assumed to remain
constant, in fact, prices changes over years and as a result assets acquired at
different dates will be expressed at different rupees in the balance sheet. This
makes comparison meaningless.
The basis to calculate ratios are historical Financial Statements. The
Financial Analysis is more interested in what happens in future, while the
ratios indicate what happened in the past. The management has information
about the company's future plans and policies and therefore is able to predict
future happening to a certain extent. But the outside analyst has to rely on
the past ratios, which may not necessarily reflect the firm's financial position
and performance in future.
12
During the 60's and 70's the Pharmaceutical Industry mostly imported
machines from Europe for its processing and packaging needs. But the mid 70's
saw the country going through a severe shortage of foreign exchange and therefore
the Indian Government introduced very high Import duties and restrictive import
licensing policies. This forced all the Pharmaceutical Companies to encourage
some Indian Engineering Enterprises to manufacture machines locally. Perhaps this
was the only route for the Pharmaceutical Industry to enhance production and cater
to the growing demands of the domestic market.
This was a great opportunity for the Indian Small Scale Engineering
Companies to provide machineries to the Pharmaceutical Industry and thus a
scenario was created whereby 100's of Machinery Manufacturers grow rapidly to
provide the needs of 1000's of Pharmaceutical Companies over a period of time.
In India, there are around 17,000 Pharmaceutical Companies and therefore it
provides tremendous scope for the Machinery Manufacturers to exploit the
potential by providing necessary machinery by ensuring proper design, ease of user
application, simple maintenance and also validation protocol for the new
equipment that are essential for the pharmaceutical companies.
13
14
Role
IPMMA is always committed towards achieving common goals whereby the
benefit will go to all the association members. Indian Pharmaceutical Machinery
Manufacturers have been one of the key contributors in the growth story of the
Indian Pharmaceutical and Drug Industry and therefore the association will put all
efforts to understand the need for up-gradation of the manufacturing, designing,
marketing and banking skills that are required by the industry and try to render
15
Spares of machinery. But, its special emphasis is on Tablet Press Machines. More
than 80% of the Tableting machines in the various Pharmaceutical Companies in
India bear the CADMACH logo.
CADMACH- the name stands for Care And Dedication for Pharmaceutical
Machinery, has now become synonymous with Technical innovation and high
standard of performance in Pharmaceutical Machinery Industry.
Innovations,
Quality,
After Sales Technical Services are the Prime concerns at CADMACH.
CADMACH equipments are designed & developed in-house with a strong focus
on customer satisfaction and equipment efficiency. No wonder, that CADMACH
has retained customers over the years & enjoys a very high market share. For more
than four decades now, CADMACH has developed appropriate capabilities to
compete in the National & International market.
17
Board of Director:
Vision:
Press
Machine Manufacturing.)
Logo:
Objectives:
To increase market share.
18
Awards:
Substitution
of India.
19
Import
Government
National Presence
A. NATIONAL PRESENCE:
Corporate office:
Zydus Tower,
Gandhinagar-Sarkhej Highway,
Opposite Iskcon Temple,
Satellite, Ahmedabad-380 015
DISTRIBUTION NETWORK
The Pharmaceutical Machineries of CADMACH are also sold at various places,
apart from INDIA, through CMC machinery. It has many customers at the
following places.
Americas
Australia & Oceania
International customers:
A) USA:
1.Tishicon
2.LNK
3.Reckitt Benkishei
1.Emzore
2.Neimeth
3.Delta Pharma
1.Greater Pharma
2.Global Pharma
3.Wyth Pharma
1.Sun Pharma
2.Renbaxy
3.TKS Zydus
1.Apex Lab
1.Bristal Lab
2.Nester and many more
B) African Region:
C) Asian Region:
D) South America:
E) Australia:
F) UK:
22
Partners
1. CMC MACHINERY
2. KEVIN TECHNOLOGIES
3. KAMBERT
4. CADAM ENTERPRISE
23
5. VAC-U-MAX
6. KEVIN PROCESS
TECHNOLOGIES
Competitors
A. NATIONAL COMPETITORS (PRIME):
FLUID PACK
Fluid pack - is one of the leading & trusted manufacturers & exporters of
tableting machines, in India. Fluid pack was established in 1983 with a
small capacity but with big dreams of providing "Better Tableting
Solutions to the pharma Industry, with best quality and better prices. Fluid
packs first
ever
machine
was
introduced
in
1998
having
25
technology,
is
subsidiary
of
world-class,
German-based
States, Canada, and Puerto Rico, including new and used machine sales,
technical assistance, machine installations, training and seminars, validation,
maintenance, spare parts, and tooling.
Chairman and
M.D.: Mr. J. V.
Khambhatta
Director:
Mr.
P. R. Patel
27
Director:
Mr.
V. J. Khambhatta
Director:
Mr.
K. J. Khambhatta
Technical Dept.
R & D Dept.
Sr. VP Production:
Mr. V. R. Patel
Commercial Depts.
G.M.: Mr. B. K.
Chhanivara
GM Production:
Mr. M. R. Mistry
Marketing Dept.
Domestic
International
CMC Machinery
Sr. Manager:
Mr. Sandeep
Shah
Manager: Mr.
Nilesh Joshi
Manager PPC:
Mr. V. P. Shah
Branch
Managers
Manager Stores:
Mr. H. V. Patel
Account Dept.
Costing Dept.
Commercial Dept.
28
Purchase Dept.
HR Dept.
GM: Mr. G. K.
Barot
Executive:
Mrs.Kinjal Parikh
and Mr.Axat
Rawal
GM: Mr. K. B.
Amin
Manager: Mr.
Suresh
Shegokar
Sr. Manager:
Mr. Bakul Vyas
Executive: Mr.
Vinubhai
Manager:
Mr.
R.N. Shah
CADMACH has a wide range of Tablet Presses & other machines to allow the
production of pharmaceutical solids in a laboratory as well as in very high output
Pharmaceutical Production Sites. All CADMACH equipments are modern, reliable
and there is a suitable Tablet Press for each need of the Pharmaceutical Industry.
It also produces tablet compression tooling as well as accessories for the Tablet
Presses. With the group companies, it provides complete granulation solution for
dry as well as wet granulation processes.
PRODUCTS AT GLANCE:
1. High Speed Tablet Presses:
29
On the basis of an installed basis of more than 10.000 tablet presses, CADMACH
has obtained a high level of experience and applications of know how. The
increasing pressure on production costs in the Pharmaceutical Industry requires
new concepts for manufacturing equipment in terms of performance and
investment costs. CADMACH has taken this challenge and presents a newly
developed range of high performance Tablet Presses incorporating Industrys
requirements for performance, quality and economics of investment.
2. Medium Speed Tablet Presses:
The Medium speed tablet presses are the main work horse of pharmaceutical
production companies that require accurate production with reasonable features &
automation to allow production of tablets. These presses are easy to operate &
maintain.
Due to this philosophy, these tablet presses require less investment.
Tablet Presses for the formulation & development as well as research are special
equipment & require special features. Cadmach has specially designed equipment
that meets this requirement & helps companies formulate products & launch new
30
products at lower capital investment and at the same time maintaining the stringent
quality requirements.
31
WEAKNESSES:
Almost 80% of CADMACHs business depends on Pharmaceutical Industry
i.e. Sale of pharmaceutical machineries relies on the demand of medicines,
other than this it does not have any weakness.
32
OPPORTUNITIES:
CADMACH can help to the government by increasing Exports of
Pharmaceutical Machineries.
It can stretch its product line in future and can enter into new market
segment.
THREATS:
33
3 Research Methodology
In research, Data was collected through Secondary Source i.e. Annual
Reports of the CADMACH. The Ratios are calculated based on that Annual
Reports.
For the clarity of theoretical concepts:
Certain financial books were referred.
Certain websites were also visited.
Periodic reviews session were arranged with the project guide - Mr. K. L.
Rathod and guidelines were provided by him.
Limitations
All future plans and policies of the organization were not known so future
anticipations were not possible to the certain extent.
Due to lack of availability of financial data of other firms of the
Pharmaceutical Machinery Industry, Inter-firm Comparison could not be
carried out.
34
100
Net Sales
Gross profit is what is revealed by the trading account. It results from the
difference between net sales and cost of goods sold without taking into account
expenses generally charged to the Profit and Loss Account. The larger the gap, the
greater is the scope for absorbing various expenses on administration,
maintenance, arranging finance, selling and distribution. This ratio is expressed in
percentage.
Note: Refer Annexure B to see calculation of Net Non Operating Income.
At CADMACH:
Amounts in Lacs
Year
2009-10
2010-11
2011-12
2012-13
2013-14
Gross Profit
NOI(Net)
1342.38
1552.95
1879.77
1857.11
1929.15
37
Net Sales
5196.16
6212.70
6866.13
6043.29
6802.58
25.83%
25.00%
27.38%
30.73%
28.36%
Interpretation:
Here, we can analyze that the curve of Gross Profit Ratio had been moving upward
still the year 2012-13. The Percentage of GP is enough good .But, The GP Ratio of
the last year is lower than its previous year, which is undesirable. From the table
we can see that the sale has not been reduced but the Gross Profit has been
reduced. Hence, it can be observed that GP of the last year reduced due to lack of
cost control on production cost (Percentage increase in the Production Expenses
are more than the percentage increase in sales).
Formula:
Operating Profit Ratio =
Operating Income [PBIT Non Operating Income(Net) x 100
Net Sales
This ratio is important to both creditors and investors because it helps show how
strong and profitable a company's operations are.
A higher operating margin is more favorable compared with a lower ratio because
this shows that the company is making enough money from its ongoing operations
to pay for its variable costs as well as its fixed costs. The operating profit margin
ratio is a key indicator for investors and creditors to see how businesses are
supporting their operations. If companies can make enough money from their
operations to support the business, the company is usually considered more stable.
On the other hand, if a company requires both operating and non-operating income
to cover the operation expenses, it shows that the business' operating activities are
not sustainable.
Note: Refer Annexure B to see calculation of Net Non Operating Income.
At CADMACH:
Amounts in Lacs
Year
2009-10
PBIT(Profit Before
Interest and Tax)
Non Operating
Income(Net)
180.31
39
Net Sales
Operating Profit
Ratio
5196.16
3.47%
2010-11
2011-12
2012-13
2013-14
215.83
240.06
221.90
273.90
6212.70
6866.13
6043.29
6802.58
3.47%
3.50%
3.67%
4.03%
Interpretation:
It can be analyzed that At CADMACH the curve of Net operating profit is an
upward moving curve, which depicts that there is control over increase of certain
dmin and selling expense. But the admin and selling expenses are too much due to
that the Operating Profit ratio is very less when the GP Ratio is this much.
Formula:
Net Profit Ratio = Net Profit [PAT-Non Operating Income(Net)] x 100
Net Sales
The two basic components of the net profit ratio are the net profit and sales. The
net profits are obtained after deducting income-tax and generally, non-operating
expenses and incomes are ignored for calculating this ratio. Thus, incomes such as
interest on investments outside the business, profit on sales of fixed assets and
losses on sales of fixed assets, etc are excluded. This ratio is expressed in
percentage.
This ratio also indicates the firm's capacity to face adverse economic conditions
such as price competition, low demand, etc.
At CADMACH:
Year
2009-10
2010-11
Amounts in Lacs
Net Profit[PAT-Non
Operating
Income(Net)]
102.94
79.18
41
Sales
5196.16
6212.70
1.98%
1.27%
2011-12
2012-13
2013-14
127.44
75.326
128.704
6866.13
6043.29
6802.58
1.86%
1.25%
1.89%
Interpretation:
It can be analyzed from the graph that there is ups and downs in the percentage of
net profit of CADMACH, which reflects instability in terms of earning net profit.
But, the percentage of Net profit of the last year i.e. year 2013-14 is more than the
percentage of last year which can be due to reduction in Interest Expenditure. But
the admin and selling expenses are too much due to that the Net Profit ratio is very
less. This statement can be made as it should be higher than this when the Gross
Profit is this much.
of
PBIT
x 100
Capital Employed
Where Capital Employed = Equity Share Capital + Preference Share Capital + All
Reserves +P & L A/c Balance + Long term Loans - Fictitious Assets
Since the Capital Employed includes shareholders funds and long-term loans,
interest paid on long-term loans will not be deducted from profits while calculating
this ratio. This ratio is usually in percentage. The higher the ratio, the more
efficient is the use of capital employed. This ratio is expressed in percentage.
At CADMACH:
Amounts in Lacs
43
Year
PBIT
Capital
Employed
2009-10
2010-11
2011-12
2012-13
2013-14
217.34
277.81
332.66
344.62
377.39
1342.99
1865.17
1930.93
1434.19
1701.41
Return on Capital
Employed/Investmen
t
16.18%
14.89%
17.23%
24.03%
22.18%
Interpretation:
The above graph depicts that at CADMACH the curve of Return on Capital
Employed Ratio is upward moving curve, but in the last year it has been reduced
by approximately 2% than its previous year. The return on investment is higher
than the cost of capital so it is advisable to carry this business.
Note: Deferred Tax Liability is considered as Short term Liability.
PAT
x 100
Where Equity Shareholders Funds = Equity Share Capital + All Reserves &
Surplus Fictitious Assets. This ratio is expressed in percentage.
At CADMACH:
Amounts in Lacs
Year
PAT
2009-10
2010-11
2011-12
2012-13
2013-14
139.97
141.16
220.04
198.05
232.19
Equity
Shareholders'
Fund
1094.67
1177.78
1268.81
1337.00
1569.19
45
Return on
Equity
12.79%
11.99%
17.34%
14.81%
14.80%
Interpretation:
The above graph depicts that the percentage of Return on Equity was highest in the
year 2011-12. After that the curve has been moving downwards. As the percentage
of return on equity is higher than the rate of return on funds deposited in Bank. The
return on equity of the current year is slight lower than its previous years return.
CADMACH has to continuously monitor it so that it will not decline in future.
Formula:
Earnings Per Share =
PAT
No. of Equity Shares
At CADMACH:
Year
2009-10
2010-11
2011-12
2012-13
2013-14
PAT (Amounts
in Lacs)
139.97
141.16
220.04
198.05
232.19
No. of Equity
Shares
22200
22200
22200
22200
22200
Interpretation:
47
Earnings Per
Share (In Rs.)
630.50
635.86
991.17
892.12
1045.91
The above graph depicts that at CADMACH the earnings per share is Rs.1045.91in
the last year which is higher than its previous years earnings per share. It is ten
times of its face valve i.e. Rs. 100.
Dividend Declared
No. of Equity Shares
At CADMACH:
Amounts in Lacs
Year
2009-10
2010-11
2011-12
2012-13
2013-14
Dividend
Declared
58.25
58.05
129.01
129.86
-
No. of Equity
Shares
22200
22200
22200
22200
22200
48
Dividend Per
Share (In Rs.)
262.39
261.49
581.13
584.95
-
Interpretation:
A stable dividend payout ratio indicates a solid dividend policy by the company's
board of directors.
At CADMACH:
Amounts in Lacs
Year
2009-10
2010-11
2011-12
2012-13
2013-14
Dividend Per
Share (In Rs.)
262.39
261.49
581.13
584.95
-
Earnings Per
Share (In Rs.)
630.50
635.86
991.17
892.12
1045.91
50
Dividend Payout
Ratio
41.62%
41.12%
58.63%
65.57%
-
Retained
Earnings Ratio
58.38%
58.88%
41.37%
34.43%
-
Interpretation:
The above graph depicts that the curve of dividend payout ratio is moving upward
since the year 2010-11 which gives positive sign to the equity share holders. And it
is also keeping good reserve in the business.
51
(B)LIQUIDITY RATIOS
Adequate liquidity means ability to meet the current or short term obligations when
they become due for payment. Liquidity is a pre-requisite for the survival of the
organization. The Commercial banks and Short Creditors are interested in the short
term solvency (liquidity) of the organization.
These ratios measure the ability of the organization to meet its current obligations.
An organization should ensure that it does not suffer from lack of liquidity and also
it does not have excess of liquidity. Lack of liquidity will result into poor credit
worthiness. A very high degree of liquidity means having idle assets which earn
nothing, Organizations fund will be unnecessarily lied up as current assets.
Therefore, it is necessary to strike proper balance between excess of liquidity and
lack of liquidity. The ratios which measure liquidity of the organization are as
follow:
(1) Current Ratio
(2) Liquidity Ratio
52
CURRENT RATIO
The current ratio is used to assess the firms ability to meet its short-term liabilities
on time. It is generally believed that 2:1 ratio shows a comfortable working capital
position. However this rule should not be taken as a hard & fast rule.
Formula:
Current Ratio =
Current Assets
Current Liabilities
It measures whether or not a firm has enough resources to pay its debts over the
next 12 months.
Current Assets are cash and other assets that are expected to be converted to cash
within a year. Current Assets include Debtors, Stock, Cash/Bank Balance, Prepaid
Expenses etc. Current Liabilities are those debts or obligations of an organization
which are due within one year. Current liabilities appear on the company's balance
sheet include Short term debt, Trade Creditors, Accrued liabilities and other debts.
This ratio is expressed in proportion.
At CADMACH:
Amounts in Lacs
Year
Current Assets
2009-10
2010-11
2011-12
2012-13
2013-14
2307.28
2614.37
2341.16
2963.64
2955.85
Current
Liabilities
1594.18
1399.58
1857.78
2503.36
2328.85
53
Current Ratio In
Proportion)
1.44:1
1.87:1
1.26:1
1.18:1
1.27:1
Interpretation:
The above graph depicts that at CADMACH the current ratio has been declining
since the year 2010-11, but in the year 2013-14 i.e. last year it has slight gone up
which indicates positivity.
Hence, it can be concluded that the CADMACH does not have enough current
assets to meet its current obligation. It has to keep its eye on working capital
management so that it would not face liquidity crisis in future. If the current ratio
will be equal or less than 1:1 then it becomes dangerous for CADMACH.
Note: Deferred Tax Liability is considered as Short term Liability, so it is treated as
Current Liability.
54
Liquid Assets
Liquid Liabilities
Here, Liquid Assets include all current assets except Stock (Inventory) and Prepaid
Expenses and Liquid Liabilities include all current liabilities except Overdraft and
Outstanding Expenses. Liquid Ratio indicates the backing available to liquid
liabilities in the form of liquid assets. This ratio is expressed in proportion.
At CADMACH:
Amounts in Lacs
Year
Liquid Assets
Liquid Liabilities
2009-10
2010-11
2011-12
2012-13
972.35
1281.09
1012.69
1412.31
1584.24
1337.25
1817.97
2434.37
55
Quick/Liquid
Ratio (In
Proportion)
0.61:1
0.96:1
0.56:1
0.58:1
2013-14
1358.61
2211.77
0.61:1
Interpretation:
The above graph depicts that at CADMACH the liquid ratio had declined in the
year 2011-12. Though after that it has been increasing, the process of increment is
gradual and the quick ratio of the last year is too less than the ideal ratio 1:1.As
CADMACH didnt have sufficient liquid assets to pay liquid liabilities, it can be
concluded that the CADMCH has to continuously monitor this ratio and if it
become equal or less that 0.50:1 that it become dangerous for it.
Note: Deferred Tax Liability is deducted from current liabilities to find out liquid
liabilities.
56
(1)
(2)
Proprietary Ratio
57
DEBT-EQUITY RATIO
The Debt-Equity Ratio establishes relationship between the outside long-term
liabilities and owners' funds. It shows the proportion of long-term External fund
and Internal Equities i.e. proportion of funds provided by long-term creditors and
that provided by shareholders or proprietors. A higher ratio means that outside
creditors has a larger claim than the owners of the business. The company with
high-debt position will have to accept stricter conditions from the lenders while
borrowing money.
Formula:
Debt Equity Ratio =
Equity share holder's fund can be found out by deducting Fictitious Assets from the
sum of Equity share capital, Preference share capital, Reserves & Surplus. This
ratio is expressed in proportion.
At CADMACH:
Amounts in Lacs
Year
Equity Share
holders' Fund
2009-10
248.32
1094.67
58
Debt equity
Ratio
(In
Proportion)
0.23:1
2010-11
2011-12
2012-13
2013-14
687.39
662.12
97.19
132.22
1177.78
1268.81
1337.00
1569.19
0.58:1
0.52:1
0.07:1
0.08:1
Interpretation:
The above graph depicts that at CADMACH the Debt-Equity ratio has been
declining since the year 2010-11 which indicates the business of CADMACH is
running through the use of owners fund (Small share of outsiders fund). From the
table it is found that the CADMACH had raised huge amount through sources of
long term finance but it had paid off liabilities within very short time period which
indicates that it does not believe in delaying payments.
Hence, it can be concluded that the CADMCAH can easily raise money through
sources of long term finance. The long term lenders will not hesitate in providing
59
funds as the last records regarding payment of long term liabilities, indicates that
the risk involved in lending money to CADMACH is less.
Note: Deferred Tax Liability is considered as Short term Liability.
PROPRIETARY RATIO
The Proprietary Ratio is a variant of the debt-to-equity ratio. It is also known as
equity ratio or net worth to total assets ratio.
This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio
indicates the long-term or future solvency position of the business.
Formula:
Proprietary Ratio = Equity Shareholder's Fund
Total Assets
Total assets include all assets, including Goodwill. This ratio throws light on the
general financial strength of the company. It is also regarded as a test of the
soundness of the capital structure. Higher the ratio or the share of shareholders in
the total capital of the organization better is the long-term solvency position of the
organization. A low proprietary ratio will include greater risk to the creditors. This
ratio is expressed in percentage.
At CADMACH:
Amounts in Lacs
Year
Equity
Shareholder's
Fund
Total Assets
60
Proprietary Ratio
(In Percentage)
2009-10
2010-11
2011-12
2012-13
2013-14
1094.67
1177.78
1268.81
1337.00
1569.19
2947.11
3327.08
3828.52
4006.54
4147.37
37.14%
35.40%
33.14%
33.37%
37.84%
Interpretation:
The above graph depicts that at CADMACH the Proprietary Ratio had been
declining till the year 2011-12, but in the year 2012-13 it had been slightly gone
up. But in the last year it has reached to 37.84% which indicates that it generates
strong long-term solvency position of the organization and reduces the risk of
creditors.
61
At CADMACH:
Amounts in Lacs
Year
Profit before
Interest and Tax
Fixed Interest
Charges
2009-10
2010-11
217.34
277.81
7.82
18.78
62
Interest
Coverage Ratio
(In Times)
27.79
14.79
2011-12
2012-13
2013-14
332.66
344.62
377.39
38.00
41.51
32.41
8.75
8.30
11.64
Interpretation:
The above graph depicts that at CADMACH the Interest coverage ratio had
declining since the year 2009-10 because of raising of outside fund. But it does not
reflect negativity as in the last year it has gone up and it indicates that the earning
of CADMACH is 11.64 times of its Interest Charges.
Hence, it can be concluded that the CADMACH has ability to earn enough Profit
before interest and tax to recover its Fixed Interest Charges which reduces the risk
of lenders regarding payment of interest. And in the last year it was gone up.
Though it is due to reduction in long term liability, but Profit before interest and
tax has also been gone up which shown its success in earning.
63
A high debt/equity ratio generally means that a company has been aggressive in
financing its growth with debt. This can result in volatile earnings as a result of the
additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity), the
company could potentially generate more earnings than it would have without this
outside financing. If this were to increase earnings by a greater amount than the
debt cost (interest), then the shareholders benefit as more earnings are being spread
among the same amount of shareholders. However, the cost of this debt financing
may outweigh the return that the company generates on the debt through
investment and business activities and become too much for the company to
handle. This can lead to bankruptcy, which would leave shareholders with nothing.
The ideal ratio is 1:2.This ratio is expressed in percentage.
64
At CADMACH:
Amounts in Lacs
Year
Debt
Total Fund
2009-10
2010-11
2011-12
2012-13
2013-14
1852.44
2149.30
2559.71
2669.54
2578.15
2947.11
3327.08
3828.52
4006.54
4147.34
Debt to Total
Fund Ratio
62.86%
64.60%
66.86%
66.63%
62.16%
Interpretation:
The above graph depicts that at CADMACH the proportion of debt in total fund
was almost nearer to 66.66% which should be nearer to 33.33%.
65
Hence, it can be analyzed that CADMACH has more Short liabilities compare to
Long term liabilities.
66
Net Sales
Average Stock
Here, Sales are considered as it is valued at market value, while inventories are
usually recorded at cost. Also, average inventory may be used instead of the ending
inventory level to minimize seasonal factors.
A low turnover implies poor sales and, therefore, excess inventory. A high ratio
implies either strong sales or ineffective buying. Too high inventory levels are
unhealthy because they represent an investment with a rate of return of zero. It also
opens the company up to trouble should prices begin to fall.
At CADMACH:
Amounts in Lacs
Year
Net Sales
Average Stock
67
Stock Turnover
Ratio
(In
Times)
2009-10
2010-11
2011-12
2012-13
2013-14
5196.16
6212.70
6866.13
6043.29
6802.58
1208.54
1332.58
1327.08
1429.55
1554.39
4.30
4.66
5.17
4.23
4.38
Interpretation:
The graph depicts that at CADMACH the sales are converted 4.38 times of
average inventory in the last year (2013-14). As the industry ideal ratio is not
known, it is difficult to conclude that this ratio is good or bad.
The stock turnover ratio of the year 2013-14 is more than the ratio of its previous
year 2012-13 which is due to percentage increase in sales is more compare to
68
percentage increase in the inventory. But still CADMACH should assess whether
the inventory level is appropriate or not, if it is appropriate then it should take steps
to increase sales by increasing selling and distribution expenses or any other ways.
Note: Refer Annexure C to see calculation of Average Stock.
Net Sales
Total Assets
The lower the total asset turnover ratio, as compared to historical data for the firm
and industry data, the more sluggish the firm's sales. This may indicate a problem
with one or more of the asset categories composing total assets - inventory,
receivables, or fixed assets. There could be a problem with inventory. The firm
could be holding obsolete inventory and not selling inventory fast enough. With
regard to accounts receivable, the firm's collection period could be too long and
credit accounts may be on the books too long. Fixed assets, such as plant and
69
equipment, could be sitting idle instead of being used to their full capacity. All of
these issues could lower the total asset turnover ratio. This ratio is expressed in
times.
At CADMACH:
Amounts in Lacs
Year
Net Sales
Total Assets
2009-10
2010-11
2011-12
2012-13
2013-14
5196.16
6212.70
6866.13
6043.29
6802.58
2947.11
3327.08
3828.52
4006.54
4147.37
70
Total Asset
Turnover Ratio(In
Times)
1.76
1.87
1.79
1.51
1.64
Interpretation:
The above graph depicts that at CADMACH the curve of Total Asset turnover ratio
curve had been moving downwards since the year 2011-12 till the year 2012-13
and then it had gone slight up. As industry ideal ratio is not known, it is difficult to
conclude that the Total Asset turnover of the last year 1.64 times is good or bad.
But as it is more than the last years ratio, it depicts positivity sign.
Hence, it can be concluded that the level of efficiency of management of
CADMACH has gone up in terms of utilizing its assets. But Management needs to
take actions towards optimum utilization of its assets and sell out ideal assets.
71
Perhaps, no business can afford to make cash sales so extending credit to the
customers is a necessary. But care must be taken to collect Book debts quickly and
within the period of credit allowed. Otherwise chances of debts becoming bad and
unrealizable will increase. How effective or efficient is the credit collection? To
provide answer debtors turnover ratio or receivable turnover ratio is calculated.
Figure of trade debtors for this purpose should be gross i.e. provision for bad and
doubtful debts should not be deducted from the amount of debtors. This ratio is
expressed in times.
Normally higher the debtors turnover ratio better it is. Higher turnover signifies
speedy and effective collection. Lower turnover indicates sluggish and inefficient
collection leading to the doubts that receivables might contain significant doubtful
debts. Receivables collection period is expressed in number of days. It should be
72
compared with the period of credit allowed by the management to the customers as
a matter of policy. Such comparison will help to decide whether receivables
collection management is efficient or inefficient.
365 days
Debtors Turnover Ratio
The Average Collection Period ratio measures the quality of debtors. A short
collection period implies prompt payment by debtors. It reduces the chances of bad
debts. Similarly, a longer collection period implies too liberal and inefficient credit
collection performance. It is difficult to provide a standard collection period of
debtors.
At CADMACH:
Amounts in Lacs
Year
Debtors
73
Debtors Turnover
Ratio(In Times)
2009-10
2010-11
2011-12
2012-13
2013-14
5196.16
6212.70
6866.13
6043.29
6802.58
804.42
1047.92
926.02
1326.32
1240.60
6.46
5.93
7.41
4.56
5.48
Interpretation:
The above graph of Debtor Turnover Ratio depicts that the Debtor turnover ratio
has gone up which shows positivity sigh, but it is still 73.95% lower than the
highest ratio amongst the ratios of five years consequent years.
Amounts in Lacs
Year
Days of Year
2009-10
2010-11
2011-12
365
365
365
Debtor Turnover
Ratio
6.46
5.93
7.41
74
Debtor Collection
Period(In Days)
56.51
61.57
49.23
2012-13
2013-14
365
365
4.56
5.48
80.11
66.57
Interpretation:
Here, it can be analyzed that CADMACH has too liberal credit policy. If this is to
maintaining good relationships with loyal customers or to create new customers
then it is fine. But still it has to carry Cost Benefit analysis of keeping this kind of
credit policy.
Formula:
Creditors Turnover Ratio =
The Creditors Turnover Ratio shows that how many times per period the
organization pays its suppliers. If the turnover ratio is falling from one period to
another, this is a sign that the company is taking longer to pay off its suppliers than
it was before. The opposite is true when the turnover ratio is increasing, which
means that the organization is paying of suppliers at a faster rate.
365
Creditors Turnover Ratio
At Cadmach
Amounts in Lacs
Year
Net Credit
Purchase
Trade Creditors
2009-10
2010-11
2011-12
2012-13
2013-14
2594.11
2634.74
3183.15
2677.01
2989.02
1159.49
825.71
1095.92
1172.19
1525.07
Interpretation:
77
Creditors
Turnover Ratio
(In Times)
2.24
3.19
2.90
2.28
1.96
The above graph of Creditors Turnover Ratio depicts that the Creditors Turnover
Ratio has been moving downward which signs that the organization is taking
longer to pay off its suppliers than it was before.
Amounts in Lacs
Year
Days of Year
2009-10
2010-11
2011-12
2012-13
2013-14
365
365
365
365
365
Creditors
Turnover Ratio
2.24
3.19
2.90
2.28
1.96
78
Creditors Payment
Period(In Days)
163.14
114.39
125.67
159.82
186.23
Interpretation:
Here, it can be analyzed that CADMACH has received an average credit of 186.23
days from its suppliers, which is more than the average collection period (66.57
days).
Hence, it can be observed that CADMACH can take following actions only if they
would not result into undesirable consequence in future.
It can liberalize its existing credit policy to certain extent, so that it can
generate more sales.
It can reduce the payment period to certain extent and get an advantage of
discount from suppliers.
79
5 Findings
Based on the Ratio analysis it is found that.
The Gross profit ratio of CADMACH of the last year is lower than its
previous year which indicates that the control over Production Expenses is
required by the Production Manager. The curve of Operating profit ratio is
upward moving curve. Hence, it can be observed that CADMCAH has
control over Admin and S & D (Selling and Distribution) Expenses, as the
percentage of increase in these expenses is lower than the percentage
increase in sales. But the Operating Profit Ratio and Net Profit are too less
when GP is this much. The reason behind this is too much Admin and
Selling & Distribution Expenses.
The return on investment is more than the cost of capital. Hence, it depicts
that the capital is used efficiently at CADMACH. The return on equity of the
current year is slight lower than its previous years return still it is
percentage of return is good.
80
The owner is getting enough return on the funds invested by them. The
curve of Earning per Share and Dividend payout Ratio depicts that the
owners are highly satisfied at CADMACH. The amount of Dividend per
Share is approximately six times of the money invested by them (Face
Value: Rs. 100 and DPS: Rs.584).The return on equity of the current year is
slight lower than its previous years return. It has to continuously monitor it
so that it will not decline in future.
The liquidity position of the CADMACH of last year is better than its two
previous years. But it has to take certain actions to increase liquidity ratios
so that it would not face any problem regarding lack of liquidity in future.
CADMACH enjoys long credit period from its supplies i.e. on an average
187 days which is thrice of its collection period. It can liberalize its Debtor
collection policy only if; that will not increase chances of defaults of
debtors.
CADMCAH can also reduce the payment period and get two benefits, one is
that it can receive discount as payment is made early and another benefit is
that it will strengthen the relationship existing between them. But before
taking decision of early payment once Cost Benefit Analysis should be
carried out.
CADMACH has stable Debt to Total fund ratio (nearer to 66.67%).It has
enough earnings from which it can pay off its interest. Long term lenders
81
would fill free to lend money to it as it less risky for them. But the current
liabilities are too much.
6 Conclusion
It can be concluded that ..
The CADMCAH has to only focus on Liquidity position and Cost Control
over Administration & Selling Expenses to certain extent. Otherwise the Overall
Financial Performance of CADMACH is excellent and overall Financial
Position is Strong enough. Because..
It is efficiently utilizing its Assets.
Its Sales has been increasing over the period.
It keeps good portion of return in the business as Reserve for further
Growth.
It has been declaring good amount of dividend to its Shareholders which
delights them.
82
WEBSITES:
www.cadmach.com
www.pharmaceuticalmachinery.in
www.ipmma.org
83
karnavatiengineering.com
www.chamunda.in
www.fluidpack.net
sejongtrading.en.ec21.com
boschpackaging.com
www.fetteamerica.com
www.ima-pharma.com
www.tabletpressgroup.com
www.investopedia.com
www.accountingformanagement.org
www.accountingtools.com
www.bakeru.edu
Annexure
Annexure A. Calculation of Factory overhead
84
2009-10
2010-11
2011-12
Amount in Lacs
2012-13 2013-14
INSURANCE
REPAIR & MAINTENANCE:
BUILDING
PLANT & MACHINERY
GENERAL CHARGES 20%(MISC.
EXPENSES+MKT. AND S&D EXP.
+BANK CHARGES)
6.57
5.56
5.52
8.67
8.41
5.25
21.48
55.96
15.16
10.05
75.92
25.14
16.52
125.33
18.08
11.47
116.23
22.76
20.86
82.63
89.26
106.69
172.51
154.45
134.66
200910
MISC. EXPENSES
MKT. AND S&D EXPENSES
BANK CHARGES
220.75
55.16
3.87
289.84
89.48
0.27
279.78
0.20
55.96
379.59
0.20
75.92
20%
20% GENERAL CHARGES
85
2010-11
Year
2011-12
201213
201314
150.99
410.73
64.94
150.64
393.31
37.22
143.75
200.94
68.45
626.66
0.20
125.33
581.17
0.20
116.23
413.14
0.20
82.63
Particular
2009-10
2010-11
2011-12
2012-13
2013-14
Amount in
Lacs
Other Income
52.90
15.87
26.57
39.69
52.60
44.35
Non Operating
Income
37.03
61.99
92.60 122.72
103.49
86
147.84
2009-10
Opening
Closing
Average
2010-11
Opening
Closing
Average
2011-12
Opening
Closing
Average
2012-13
Opening
Closing
Average
2013-14
Opening
Closing
Average
WIP
Total
Raw
66.85
754.29
264.07
54.70
957.02
320.15
60.78
855.66
292.11
1208.54
54.7
957.02
320.15
209.55
781.25
342.48
132.125
869.135
331.315
1332.58
209.55
781.53
342.48
105.79
861.1
353.98
157.67
821.315
348.23
1327.215
105.79
861.1
353.98
28.24
1079.02
430.96
67.015
970.06
392.47
1429.55
28.24
1079.02
430.96
2.09
1043.36
525.1
15.165
1061.19
478.03
1554.39
87
2009-10
201011
201112
201213
2013-14
income
sales
other income (non operating income gross)
inc/dec in stock
5196.16
6212.7
6866.1
3
6043.2
9
52.9
190.58
Total income
5439.64
88.55
-20.92
6280.3
3
132.29
-23.91
6974.5
1
175.32
140.37
6358.9
8
2603.54
141.37
58.94
454.29
52.46
89.26
660.37
2955.0
2
159.63
65.18
517.17
65.75
106.69
795.96
3180.0
9
152.76
74.72
535.45
68.92
172.51
817.69
5002.1
4
1972.3
7
2600.0
3
185.1
82.67
434.42
62.55
154.45
859.93
4379.1
5
1979.8
3
573.28
99.59
698.1
113.03
962.34
844.06
344.62
41.51
303.11
105.06
377.39
32.41
344.98
112.79
6802.58
147.84
-61.81
6888.61
4060.23
Gross profit (including non operating
income)
less: other expense
personnel expenses (40%)
depriciation
other admin. And mkt. expenses
Profit before interest and tax
less: interest
Profit before tax
less:provision for tax
1379.41
4665.4
1614.9
3
440.25
67.25
530.64
75.28
654.57
731.2
545.12
84.14
1010.4
5
217.34
7.82
209.52
69.55
277.81
18.78
259.03
117.87
332.66
38
294.66
74.62
88
2894.88
184.73
87.69
436.65
70.21
134.66
1047.15
4855.97
2032.64
139.97
37.03
102.94
141.16
61.99
79.18
220.04
92.61
127.44
198.05
122.72
75.33
232.19
103.49
128.7
2009-10
2010-11
2011-12
2012-13
2013-14
22.2
1072.47
1094.67
22.2
1155.58
1177.78
22.2
1246.61
1268.81
22.2
1314.8
1337
22.2
1546.99
1569.19
248.32
9.94
258.26
687.39
62.33
749.72
509.2
39.81
4.49
148.43
701.93
7.75
68.99
7.52
81.92
166.18
60.07
117.08
9.71
62.44
249.3
1159.49
143.89
290.8
1594.18
2947.11
825.71
315.07
258.8
1399.58
3327.08
164.05
1095.92
404.34
193.47
1857.78
3828.52
188.52
1172.19
957.34
185.31
2503.36
4006.54
283.88
1525.07
460.53
59.37
2328.85
4147.34
639.82
639.82
0.01
-
706.22
6.48
712.7
0.01
-
819.4
60.64
8.14
888.18
0.01
114.65
484.52
778.41
63.75
842.16
0.01
200.73
-
1004.28
61.01
1065.29
0.01
126.19
-
1331.87
804.42
12.96
158.03
2307.28
1333.28
1047.92
47.02
186.15
2614.37
1320.87
926.02
7.93
73.76
12.58
2341.16
1538.22
1326.32
3.59
76.48
19.03
2963.64
1570.55
1240.6
59.85
56.7
25.15
2952.85
89
Total
2947.11
90
3327.08
3828.52
4006.54
4147.34