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Summer Internship Project report on

Study of Financial Analysis of Deepak Plast Pvt. Ltd.


Bangalore

Submitted by
Aravind Selvakumar
Roll no 05914188813

Under the guidance of


Mr. Manjeet Singh
(Assistant Professor)
Jims
Jagannath International Management School
Kalkaji, New Delhi
1

ACKNOWLEDGEMENT
The main objective of this practical training is to get information about the
financial analysis followed by company.

I express my thanks and gratitude to Deepak for providing me an opportunity to


be part of their team.

I am heartily obliged to Mr. Manjeet Singh for guiding and directing during
complete project report. I loved a lot is way of imparting the quality knowledge
and molding me with the complete blend of required skill for tackling the problem
at each and every step. I shall be highly faithful for all his effort.

SUBMITTED TO
Manjeet Singh
(Assistant Professor)

SUBMITTED BY
Aravind Selvakumar

CONTENTS
Description

Page No.

Acknowledgement

Contents with page no.

List of tables

Declaration

Research Methodology

Objectives

Introduction to topic

Need For The Study

Company Profile

10

Product Description

11

Quality policy

22

Literature review

25

Classifications Of Ratios

31

Findings & Inferences

50

Suggestions

51

Recommendations and Conclusion

52

Bibliography

53

List of Tables/Figures
3

S.No

Table Title

Page No

CURRENT RATIO

34

QUICK / ACID TEST / LIQUID RATIO

35

CASH RATIO

37

INTERVAL MEASURES RATIO

38

DEBT RATIO

39

1
2
3
4

5
DEBT-EQUITY RATIO

40

6
PROPRIETORY RATIO

41

EQUITY RATIO

42

INVENTORY / STOCK TURNOVER


RATIO (ITR/STR)

45

10

INVENTORY HOLDING

46

11

DEBTORS TURNOVER RATIO

47

12

ASSETS TURN OVER RATIO

49

7
8

DECLARATION

I hereby declare that the major project report, entitled FINANCIAL ANALYSIS,
is based on my original study and has not been submitted earlier for award of
any degree or diploma to any institute or university.

The work of other authors(s), wherever used, has not been acknowledged at
appropriate place(s).

Place: New Delhi

Candidate signature
Name: Aravind Selvakumar
Enrl.no: 05914188813

METHODOLOGY

Methodology is the systematic method or an activity, which is used to collect the


information required to complete this project work.
The data is collected by 2 methods:
1. Primary data
2. Secondary data.
Primary data is collected through collecting information from company officers,
from external guide.
Secondary data, which is secondary in nature i.e. already, collected information
this secondary data is collected through Companys Annual Report and
discussion with them.
Interpretation of:
Balance sheet
Profit and loss account
Annual reports

OBJECTIVES

To find out companys profitability.

To analyze the returns of low dividend despite high profits.

To access the long term solvency position of the business through the use
of ratios.

The sources and approach of cash flows.

INTRODUCTION OF THE STUDY

The accounting process begins with the recording of transactions in the books
of primary entry. The accounting information resulting from the transactions so
recorded gets posted in to various accounting heads in the ledger. In the ledger
each account is balanced at the end of an accounting period and a summary of
all balances in the various accounting heads from the ledger is prepared which is
known as trial balance from such trial balances and after effecting certain
adjustments considered necessary (which is dependent on the particular
accounting system followed by the organizations) the financial statements
relating to the accounting period are prepared.

NEED FOR THE STUDY

There are some questions, which arise from the study of financial statements.
These could be Is Companys profitability adequate? Why is a profit low in spite
of increased sales? Why is there liquidity problem though profitability is good?
Why no reasons for changes in assets, liabilities and equity between two dates?
Why no dividends are paid though there are good profits? From where have
come cash flows and how they are applied? These and many other questions
need answers, which can be possible when the financial statements are suitably
analyzed

Thus financial statement analysis deals with meaningful interpretation of


financial data available in financial statements to serve specific purpose of
organizations of such data for their decision making .this involves identifying the
purpose and selecting suitable means of analysis. Financial statement analysis is
essentially purposive.

10

INDUSTRY PROFILE
Incepted in the year 2007, Deepak plast Pvt. Ltd. is one of the noteworthy
business companies affianced in the area of offering to our customers a supreme
class assortment of Plastic Masterbatch, Masterbatch Additive, Filler Compound
and Plastic Compound. Prepared with excellence, our offered array of products is
highly renowned in the industry because of their reliability, customized packaging
solutions and flawlessness. Also, these are made in line with the changing needs
of our customers using top class material along with modern amenities. Known
for their flawlessness, these products could be availed form us at most affordable
rates.
We understand the importance a team plays in the functionality of a company,
this we have hired a skilled workforce that is from amongst one of the eminent
personnel present in the industry. Working in close coordination with each other,
these assist us in understanding the changing desires of our customers and
ultimately furnishing them. Along with this, their consistent endeavors in
completing all the orders within the promised time have taken our firm towards
newer heights of success and appreciation.
Beneath the capable administration and guidance of our mentor Mr. Akshay
Gupta, we have been eligible to retain for ourselves a leading reputation in the
market. His enormous industry knowledge and proficiency has assisted us in
accomplishing an enormous customer base all over the nation.

11

Our Products

Plastic Masterbatch

Standard Color Masterbatch


Black Masterbatch
White Masterbatch
Fluorescent Color Masterbatch

Masterbatch Additive
Filler Compound
Plastic Compound

12

Plastic Masterbatch
Standard Color Masterbatch

Leveraging on the expertise of our skilled workforce, we are engrossed in


presenting a commendable consignment of Standard Color Masterbatch. In
conformity with the changing needs of our customers, these are prepared with
perfection. More to this, this range is stringently examined to deliver a flawless
collection at the doorstep of our customers.
Features:

Tamper proof packing

Reliable

Effective

13

Black Masterbatch

Click to Zoom

Counted amid one of the eminent business names, we are wholeheartedly


affianced in presenting a wide gamut of Black Masterbatch. The offered
products are processed making use of optimum class ingredients under the
supervision of trained processing executives. Also, these are checked sternly to
maintain its flawlessness at the end of our customers. Our customers can avail
these us at affordable rates.

Features:

Well packed

Reliable

Safe to use

14

White Masterbatch

Click to Zoom

Since we have incepted in this industry, we are increasingly betrothed in bringing


forth a wide and distinctive consignment of White Masterbatch. Using finest
grade compounds and sophisticated methods of processing, these are
formulated as per the industry prescribed formulations. Also, our customers can
get these from us in top class and tamper proof packing solutions.
Features:

Faster actions

Reliable

Longer shelf life

15

Fluorescent Color Masterbatch

Click to Zoom

Fostered with enormous understanding of this business arena, we are


increasingly instrumental in presenting a world class spectrum ofFluorescent
Color Masterbatch. Delivered by us in leak proof packing, these offer are highly
famous in the market. Additionally, their effectiveness and accurate composition
makes these highly recommended.

Features:

Accurate composition

Reliable

Leak proof packing

16

Masterbatch Additive
Antioxidant Additive

Known amid one of the leading market firms, we are highly active in bringing
forth an extensive spectrum of Antioxidant Additive. Precisely formulated, we
assure that top class inputs and advanced processing techniques are used in
their composition. Well tested, these could be availed form us at enormously
economical rates. Also, we guarantee of delivering a defect free consignment at
the end of our customers.

Features:

Precisely Processed

Reliable

Safe to use

17

Antistatic Agents

Having a pre-determined quality management system, we are readily active in


bringing forth an extensive and exceptional quality assortment of Antistatic
Agents. Accurately formulated, the complete range is in tandem with the market
set quality values and standards. In addition to this, their safe to use nature and
reliability make these a preferred business choice. Also, we assure delivering
these to our customers on time.

Features:

Well packed

Safe to use

Effective and reliable

18

Flame Retardants Additive

Capitalizing on the competence of skilled workforce, we are engrossed in offering


a wide consignment of Flame Retardants Additive. The offered products are
prepared making use of top class basic ingredients in line with the set industry
guidelines. Additionally, these are highly accepted and cherished by customers.
Clients can purchase these bones from us at highly affordable costs.

Features:

Long shelf life

Safe to use

Precisely processed

19

Processing Aid

Click to Zoom
Being a customer focused entity; we are affianced in the arena of providing to our
patrons a superior grade consignment of Processing Aid. This range is
formulated under the supervision of knowledgeable employees making use of
optimum-grade ingredients in line with the market set standards & quality
guidelines. Also, their exact composition and non-toxic nature make these a
preferred customer choice.

Features:

Accurate composition

Effectiveness

Longer shelf life

20

Filler Compound

In adherence with clients' changing needs and provisions, we are betrothed in


offering a distinctive array of Filler Compound. These are precisely formulated
under the command and guidance of skilled professionals. Along with this, their
quick actions and reliability make these highly recommended.

Features:

Reliable

Temper-proof packaging

Purity

21

Plastic Compound

We are amid one of the leading organizations willingly instrumental in providing


an impeccable spectrum of Plastic Compound that is presented by us at highly
economical rates. Prepared in tandem with the market defined norms, these are
highly known for their purity and effectiveness. Additionally, their reliability make
these highly demanded.

Features:

Precisely formulated

Reliable

Purity

22

QUALITY POLICY
The quality price of KEC shall be to design, manufacture and market at
competitive prices, products of such quality, which results in customer
satisfaction, quality reputation and market leadership.
MISSION

To remain a leading produce of electrical technology products in India.

To continuously grow in our business and become a significant player in


the world market.

To maximize return on investment.

To achieve international levels of excellence in technology and quality.

VALUES

Products of highest technology and quality.

Customer orientation

Teamwork among our people.

Profits for growth

GUIDING PRINCIPLES

Innovate continuously to excel in design and manufacturing.

Development products required by market.

Manufacture products of highest quality

Focus on customer in all actions.

Respond promptly to customer needs.

Deliver supplies on time every time.

23

GENERAL STORES
To describe the process and procedure followed in stores department. A
guide for effective.

ORGANIZATION CHART OF STORES

CEO

HOD Stores

SIC Stores

Objective:
The role of stores is to maintain accountability of the materials received,
stored and issued as per the specified requirements.
Scope: Applicable to stores activities.
Responsibility:
The head of stores division is responsible for overall function of the stores
with duties delegated to SIC/FIC as applicable.
Functions:

Receive material as per delivery Chilean/ Invoice/ Credit Reports.

Ensure identification, inspection status, and supplier identification on the


components vendor code/ material code in the delivery challan/ invoice.

DUTIES AND RESPONSIBILITIES OF HOD:

Overall administration of stores.

Establishment of inventory norms & controls.

Establishing & maintaining quality systems in stores division.


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DUTIES & RESPONSIBILITIES OF SIC STORES:

Overall administration of stores.

Ensuring that all components / products received in stores are inspected


and tested as per the applicable specification/procedures.

Ensure receipt, storage & issue of materials.

DUTIES AND RESPONSIBILITIES OF FIC STORES

Receive and stores materials as per delivery Challan/ Invoice/ Audit


reports.

Ensure identification & inspection status for the components/


products.

Preparation

of

25

receipt

memos.

INTRODUCTION

Financial Ratios are used in the evaluation of the financial


condition and profitability of a company. The ratios are calculated from the
financial information provided in the balance sheet and income statements. While
analyzing

the

financial

statements

you

should

keep

in

mind

the

principles/practices that accountants use in preparing statements to examine at


the financial condition and preference of a company.

RATIO ANALYSIS
Ratio Analysis is one of the techniques of financial analysis where
ratios are used as a yardstick for evaluating the financial condition and
performance of a firm. Analysis and interpretation of various accounting ratios
gives a skilled and experienced analyst a better understanding of the financial
condition and performance of the firm.

MEANING AND DEFINITION:A ratio is a simple arithmetic expression of the relationship of one
number to another. Ratio is relationships expressed in mathematical terms
between figures which are connected with each other in some manner.

DEFINITION:Ratio analysis is defined as, The systematic use of ratios 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.
This relationship can be expressed as: 1) Percentages:- For
example, Assuming that net profits of Rs 25,000 and Sales of Rs 1,00,000. Then
26

the net profits are 25% of sales. 2) Fraction:- net profit is

of sales. 3)

Proportion:- the relationship between net profits and sales is 1:4.


To take managerial decision the ratio of such items reveals the soundness
of financial position. Such information will be useful for creditors, shareholders
management and all other people who deal with company.

IMPORTANCE OR SIGNIFICANCE OF RATIO ANALYSIS:


The ratio analysis is one of the most powerful tools of financial
analysis. It is used as a device to analyze and interprets the financial health of
enterprise. Just like a doctor examines his patient by recording his body
temperature, blood pressure etc. before making his conclusion regarding the
illness and before giving his treatment, a financial analyst analyses the financial
statements with various tools of analysis before commenting upon the financial
health or weaknesses of an enterprise. Following are the uses of ratio analysis:

Liquidity position

Long term solvency

Operating efficiency

Overall profitability

Inter firm comparison

Trend analysis.

Liquidity Position

27

With the help of ratio analysis conclusions can be drawn regarding


the liquidity position of a firm. It would be satisfactory if it is able to meet its
current obligations when they become due. A firm can be said to have the ability
to meet its short term liabilities if it has sufficient liquid funds to pay the interest
on its short maturing debt usually within a year as well as to repay the principal.
This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are
particularly useful in credit analysis by banks and other suppliers of short term
loans.

Long term solvency:


Ratio analysis is equally useful for assessing the long term financial
viability of a firm. This aspect of the financial position of a borrower is of concern
to the long term creditors, security analysts and the present and potential owners
of a business. The long term solvency is measured by the leverage/capital
structure and profitability

ratios which focus on earning power and operating efficiency. Ratio analysis
reveals the strengths and weakness of a firm in this respect.

Operating efficiency
Yet another dimension of the usefulness of the ratio analysis,
relevant from the viewpoint of management, is that it throws light on the degree
of efficiency in the management and utilization of its assets. The various activity
ratios measure this kind of operational efficiency. In fact, the solvency of a firm is,
in the ultimate analysis, dependent upon the sales revenues generated by the
use of its assets total as well as its components.

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Overall profitability:
Unlike the outside parties which are interested in one aspect of the
financial position of a firm, the management is constantly concerned about the
overall profitability of the enterprise. That is, they are concerned about the ability
of the firm to meet its short term as well as long term obligations to its creditors,
to ensure a reasonable return to its owners and secure optimum utilization of the
assets of the firm. This is possible if an integrated view is taken and all the ratios
are considered together.
Inter- firm comparison
Ratio analysis not only throws light on the financial position of a firm
but also serves as a stepping stone to remedial measures. This is made possible
due to inter-firm comparison and comparison with industry averages. A single
figure of a particular ratio is meaningless unless it is related to some standard or
norm. One of the popular techniques is to compare the ratios of a firm with the
industry average. It should be reasonably expected that the performance of a
firm should be in broad conformity with that of the industry to which it belongs. An
inter-firm comparison would demonstrate the firms position vis--vis its
competitors.

Trend Analysis
Finally, ratio analysis enables a firm to take the time dimension into
account. In other words, whether the financial position of a firm is improving or

deteriorating over the years. This is made possible by the use of trend analysis.
The significance of a trend analysis of ratios lies in the fact that the analysts can
know the direction of movement, that is, whether the movement is favorable or
unfavorable. For example, the ratio may be low as compared to the norm but the

29

trend may be upward. On the other hand, though the present level may be
satisfactory but the trend may be a declining one.

LIMITATION OF RATIO ANALYSIS:Ratio analysis is a widely used tool of financial analysis. Though ratios are simple
to calculate and easy to understand, they suffer from some serious limitations:
Limited use of Single Ratio:-

A single ratio usually does not convey much of a sense. To


make a better interpretation a number of ratios have to be calculated which is
likely to confuse the analyst than help him in making any meaningful conclusion.

Lack of Adequate Standards:There are no well accepted standards or rules of thumb for all
ratios which can be accepted as norms. It renders interpretation of the ratio
difficult.

Change Of Accounting Procedure:Change in accounting procedure by a firm often makes ratio


analysis misleading e.g. a change in the valuation of methods of inventories,
from FIFO to LIFO increases the cost of sales and reduces considerably the
value of closing stocks which makes stock turnover ratio to be lucrative and an
unfavorable gross profit ratio.

Window Dressing:Financial statements can easily can be window dressed to


present a better picture of its financial and profitability position to outsiders.
Hence one has to be very careful in making a decision from ratios calculated
from such financial statements. But it may be very difficult for an outsider to
know about the window dressing made by a firm.

Personal Bias:-

30

Ratio is only means of financial analysis and not an end in itself.


Ratios have to be interpreted and different people may interpret the same ratio
in different ways.

Incomparable:Not only industries differ in their nature but also the firms of the similar
business widely differ in their size and accounting procedure etc.. It makes
comparison of ratios difficult and misleading. Moreover, comparisons are made
difficult due to differences in definitions of various financial terms used in the
ratio analysis.

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

Price Level Changes:While making ratio analysis, no consideration is made to the changes
in price levels and this makes the interpretation of ratios invalid.

Ratios No Substitutes:Ratio analysis is merely a tool of financial statements. Hence, ratios


become useless if separated from the statements from which they are computed.

31

CLASSIFICATION OF RATIOS:

LIQUIDITY RATIO

CAPITAL STRUCTURE RATIO

Current Ratio
Quick Acid Ratio

Debt-equity Ratio
Proprietary Ratio.
Interest Coverage Ratio

ACTIVITY RATIO:

Inventory Turnover Ratio


Debtors Turnover Ratio
Creditors Turnover Ratio
Capital Turnover Ratio
Working Capital Turnover Ratio
Fixed Assets Turnover

PROFITABILITY RATIO:

Gross Profit Ratio


Net Profit Ratio
Operating Profit Ratio
Operating Expenses Ratio Or Operating Ratio
Return on Investment Ratio
Liquidity Ratios:

32

These ratios are also termed as working capital or short term solvency
ratio. The importance of adequate liquidity in the sense of the ability of a firm to
meet current/short term obligations when they become due for payment can
hardly be overstressed. In fact, liquidity is a prerequisite for the very survival of a
firm. The short term creditors of the firm are interested in the short term solvency
or liquidity of a firm. But liquidity implies, from the viewpoint of utilization of the
funds of the firm that funds are idle or they earn very little
Leverage/capital structure ratios:
The second category of financial ratios is leverage or capital structure
ratios. These ratios explain how the capital structure of a firm is made up or the
debt-equity mix adopted by the firm. The long term solvency ratio of a firm can be
examined by using leverage or capital structure ratios. The leverage or capital
structure ratios may be defined as financial ratios which throw light on the long
term solvency of a firm as reflected in its ability to assure the long term creditors
with regard to: (1) Periodic payment of interest

during the period of the loan and (2) Repayment of principal on maturity or in pre
determined instalments at due dates.
Activity Ratios:
Activity ratios are concerned with measuring the efficiency in asset
management. These ratios are also called efficiency ratios or assets utilization
ratios. The efficiency with which the assets are used would be reflected in the
speed and rapidity with which assets are converted into sales. The greater is the
rate of turnover or conversion, the more efficient is the utilization/management,
other things being equal. For this reason, such ratios are also designated as
turnover ratios.
Profitability Ratios:

33

Profitability is indication of the efficiency with which the operations of the


business are carried on. Poor operational performance may indicate poor sales
and hence poor profits. A lower profitability may arise due to the lack of control
over the expenses. Bankers, financial institutions and other creditors look at the
profitability ratios as an indicator whether or not the firm earns substantially more
than it pays interest for the use of borrowed funds and whether ultimate
repayment of their debt appears reasonably certain. The Management of the firm
is naturally eager to measure its operating efficiency of a firm and its ability to
ensure adequate return to its shareholders depends ultimately on the profits
earned by it. The profitability of a firm can be measured by its profitability ratios.
In other words, the profitability ratios are designed to provide
answers to questions such as: (1) Is the profit earned by the firm adequate? (2)
What rate of return does it represent? (3) What is the rate of profit for various
divisions and segments of the firm? (4) What is the rate of return to equity holder.
1) CURRENT RATIO:
This ratio is an indicator of firms commitment to meet its short- term
liabilities. Higher ratio, better the coverage. 2:1 ratio is treated as standard ratio.
This ratio is also called as solvency / working capital ratio.
The current ratio is the ratio of the current assets and current
liabilities. It is calculated by dividing current assets by current liabilities.
Formula:
Current Ratio= Current assets
Current liabilities
Table-1
Year

2004-05

2005-06

2006-07

2007-08

Current
Assets

14,11,798

17,37,753

24,09,647

31,59,775

Current

12,86,103

15,76,507

18,05,200

22,14,785

34

Liabilities
Current
Ratio

1.09

1.10

1.33

1.43

SOURCE: ANNUAL REPORTS OF COMPANY

Current Ratios
1.6
1.4
1.2
1

Times

0.8
0.6
0.4
0.2
0
2004-05

2005-06

2006-07

2007-08

Interpretation: - The current ratio of last four years is less than ideal ratio 2:1,
i.e. fluctuating. This indicates that firms commitment to meet its short liabilities
was not so good. In 2007-08 and 2006-07 the current ratios are good compare to
2004-05, 2005-06.
2) QUICK / ACID TEST / LIQUID RATIO:
Liquid ratio is indication of availability of quick assets to honor its
immediate claims. Higher the ratio betters the coverage. And the standard ratio is
1:1.An asset is liquid if is can be converted into cash immediately without loss of
value. Hence cash is most liquid assets after assets which are considered to be
relatively liquid are; Debtors balance, marketable securities etc. inventories
considered to be less liquid therefore they require some time form relishing into
cash and their value also has tendency to fluctuate.
35

Formula:
Quick ratio = Current Assets- Inventories / Current Liabilities
Table-2
Year

2004-05

2005-06

2006-07

2007-08

Quick Assets

12,84,269

15,19,792

21,79,920

27,03,911

Current
Liabilities

12,86,103

15,76,507

18,05,200

22,14,785

Quick Ratio

.99

.96

1.20

1.22

SOURCE: ANNUAL REPORTS OF COMPANY

Quick Ratio
1.5
1

Times

0.5
0
2004-05

2005-06

2006-07

2007-08

Interpretation: The ideal ratio is 1:1. The quick ratio is also fluctuating. In 200708 the ratio is satisfactory because it is higher than 1. And it is also good in 200607 and 2007-08.Because it is more than 1.But it has decreased in 2005-06 and
2004-05 i.e. 0.96 and 0.99 respectively. Overall the quick ratio is satisfactory,
means liquidity position of the company is good.

CASH RATIO:
An asset which converts suddenly without doubtful is called as cash ratios.
Here cash balance included trade investment or marketable securities that are
equivalent to cash.
36

Formula:
Cash Ratio=Cash +Marketable Securities /Current Liabilities.

Table- 3:
lakhs)

( Amount in

Year

2004-05

2005-06

2006-07

2007-08

Cash+
marketable
securities

2,17,773

1,39,434

4,13,668

5,24,749

Current
Liabilities

12,86,103

17,37,753

18,05,200

22,14,785

Cash Ratio

.17

.08

.22

.23

SOURCE: ANNUAL REPORTS OF COMPANY

Cash Ratio
0.25
0.2
Percent

0.15
0.1
0.05
0
2004-05

2005-06

2006-07

2007-08

Interpretation: In Cash ratio there is no standard ratios for maintained the cash
balance because now a days nothing to be worried about the lack of cash if the
company has reserve borrowing power for its day to days activities. Holding of
Cash in the year 2007-08 was 23% of current liabilities in the 2005-06 it came
down to 8%, in the 2006-07 it again increased to 23%.

37

INTERVAL MEASURES RATIO: The ratio which assesses a firms ability to meet
its regular cash expenses is the interval measures. An interval measure relates to
liquid asset and average daily operating cash flows.
Formula:
Interval Measure ratio = current assets-inventories/average daily operating
expenses /360
Table-4
Year
Current

2004-05
asset 12,84,269

2005-06
15,19,792

2006-07
21,79,920

2007-08
27,03,911

inventories
Average daily 585

644

762

919

operating exp
Interval

2,360

2,860

2,942

2,195

Measures
SOURCE: ANNUAL REPORTS OF COMPANY

Interval Measures
3,500
3,000
2,500
Days

2,000
1,500
1,000
500
0
2004-05

2005-06

2006-07

2007-08

Interpretation: Interval measure is said to be good if No of days are sufficient


liquid asset to finance its operations. This chart Indicates that KEC have sufficient
Liquid assets to finance its operations for 2942 days even though it does not
receive any cash for 2942 days.

38

LEVERAGE RATIO
LEVERAGE RATIO is also called as capital structure ratio. It relates to the
study of various types of capital structure of firm. The long- term solvency of a
company can be examined by using leverages or capital structure ratios. These
ratios are for long-term creditors to judge the long-term financial strength of the
company.
THE DIFFERENT LEVERAGE RATIOS ARE:
1. Debt Equity Ratio
2. Proprietary Ratio
3. Interest Coverage Ratio
1) DEBT RATIO
Debt ratios are use to analyze the long term solvency of firm. It is the
proportion of the interest bearing debt in the capital structure. Debt ratio is
Calculated by total debt by total debt by capital employed or net asset of the firm.
Formula:
Total debt /Total debt +Net worth
Table-5
Year

2004-05

2005-06

2006-07

2007-08

Long term debt

2,03,121

1,93,574

3,16,343

4,41,152

Shareholders
Funds

13,11,350

13,01,803

11,08,229

12,52,506

Debt-equity
ratio

.15

.14

.28

.35

SOURCE: ANNUAL REPORTS OF COMPANY

39

Debt Ratio
0.4
0.35
0.3
0.25

Percentage

0.2
0.15
0.1
0.05
0
2004-05

2005-06

2006-07

2007-08

Interpretation: The debt ratio for the 2007-08 was .35 or 35% of the capital
employed. It indicates owners have provide the remaining finance that is 135=65% of capital employed. From above analysis the firm has lower risk in the
year 2004-05 & 2005-06.But afterwards it has increased its risk in the year 200607 &2007-08.
2) DEBT-EQUITY RATIO
It measures the relation between debt and equity in the capital structure of
the firm. In other words, this ratio shows the relationship between the borrowed
capital and owners capital.
Formula:
Debt equity ratio= Long term debt/Net worth
Table-6
Year

2004-05

2005-06

2006-07

2007-08

Long term 2,03,121


debt

1,93,574

3,16,343

4,41,152

40

Net
worth

11,08,229

11,08,229

11,08,229

12,52,506

Debt-Equity
Ratio

.18

.17

.28

.35

SOURCE: ANNUAL REPORTS OF COMPANY

Debt Equity Ratio


0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0

Times

2004-05

2005-06

2006-07

2007-08

Interpretation:- The ratio is high in 2007-08. It shows that a large share of


financing by the creditors of the firm and it is more risky to the creditors. In 200405 and 2005-06 it has declined to .18 and 0.17 respectively. In 2005-06 and
2006-07 the ratio is low i.e., 0.18 and 0.17. It indicates that the firm finance point
of view, the company has low risk. It means that the company is in safer side of
finance and a margin of safety to the creditors.
3) PROPRIETORY RATIO: It establishes relationship between the propitiator or
shareholders funds & total tangible assets. The ratio indicates properties stake in
total assets. Higher the ratio lowers the risk and lower the ratio higher the risk.
Debt equity ratio & current ratio affects the proprietary ratio.
Formula:
Proprietary Ratio=Shareholders Funds
Total Assets
Table-7

41

Year

2004-05

2005-06

2006-07

2007-08

Shareholders
Fund

4,32,688

4,32,688

4,32,688

4,52,688

Total Assets

15,39,264

18,56,702

25,25,498

32,92,946

Proprietary
Ratio(%)

.28

.23

.17

.13

SOURCE: ANNUAL REPORTS OF COMPANY

Times
0.3
0.25
0.2

Times

0.15
0.1
0.05
0
20004-05

2005-06

2006-07

2007-08

Interpretation: The equity ratio is high in 2004-05 i.e. 28%. It indicates that a
high proprietary ratio relatively little danger to the creditors and it is better for
long-term solvency position of the company. But it has been decreased to 13%
and 17% in the year 2006-07 and 2007-08 respectively. A ratio below 50% is
dangerous to the creditors at the time of winding up of a company.
4) EQUITY RATIO:
Equity Ratio is calculated by dividing capital employed (CE) by Net
worth (NW)
Formula:
Equity Ratio= Capital employed (CE)/Net worth
42

Table-8
Year

2004-05

2005-06

2006-07

2007-08

Capital
employed

4,32,688

4,32,688

4,32,688

4,52,688

Net worth

11,08,229

11,08,299

11,68,229

12,52,506

Equity Ratio

.39

.39

.37

.36

SOURCE: ANNUAL REPORTS OF COMPANY

Times
0.4
0.39
0.38

Times

0.37
0.36
0.35
0.34
2004-05

2005-06

2006-07

2007-08

Interpretation: There are no standard rules for maintaining equity ratio. It differs
according to the nature of the business. The lower performance in maintain Net
worth

in 2004-05 & 2005-06

but in 2006-07 &2007-08 good performance

maintaining of capital employed to net worth.


TURNOVER / ACTIVITY RATIOS OF THE COMPANY
Introduction:
Activity ratios are employed to evaluate the efficiently with which
the firm manages and utilizes its assets. These ratios are also called as turnover
43

ratio. Therefore they indicate the speed with which assets are being converted /
turned over in to sales.
Thus an activity ratio involves relationship between sales and assets. A proper
balance between sales and assets generally reflects that assets are managed
well.
In other words, turnover ratio indicates the efficiency with which the capital
employed is rotated in the business.
Higher the ratio of rotation, the greater will be the profitability

DIFFERENT TURNOVER RATIOS:


1) Inventory stock turnover Ratio
2) Debtors (Accounts Receivable) Turnover Ratios.
3) Creditors (Account Payable) Turnover Ratios
4) Fixed Assets turnover Ratio
5) Current Assets turnover Ratio
6) Working capital turnover Ratio
7) Total Assets turnover Ratio
8) Net Assets turnover Ratio
1) INVENTORY / STOCK TURNOVER RATIO (ITR/STR).
It indicates the efficiency of firm in producing and selling its products. High Ratio
is good from the view point of liquidity and vice versa. A low ratio would signify
that inventory does not sell fast and stably in the warehouse for a longtime.
Formula:
Cost of Goods Sold
________________
Avg. Inventory
44

OR

Sales
__________
Inventory

Table-9
Year

2004-05

2005-06

2006-07

2007-08

Sales

31,20,434

41,40,246

59,13,957

72,77,768

Inventory

1,27,529

2,17,961

2,29,727

4,55,864

Inventory
turnover ratio

24.4

18.9

25.74

15.96

SOURCE: ANNUAL REPORTS OF COMPANY

Inventory Turn Over Ratio


30
25
20

times

15
10
5
0
2004-05

2005-06

2006-07

2007-08

Interpretation:- In the above chart, the inventory turnover ratio is high in 200607, 2004-05, i.e. 25.7, 24.4 respectively. But it is low in 2007-08 and 2005-06 i.e.
15.9 and 18.9 respectively. Usually, a high inventory turnover indicates efficient
management of inventory because more frequently the stocks are sold.

DAYS OF INVENTORY HOLDING:


Formula: Inventory*360/Sales
45

Table -10
Year

2004-05

2005-06

2006-07

2007-08

Inventory

1,27,529

2,17,961

2,29,727

4,55,864

Sales

31,20,434

41,40,246

59,13,957

72,77,768

18.95

13.98

22.5

Days
inventory
holding

of 14.7

SOURCE: ANNUAL REPORTS OF COMPANY

Days Of Inventory Holding


25
20
15

Days

10
5
0
2004-05

2005-06

2006-07

2007-08

Interpretation:- In the year 2004-05, 2006-067 due to increase in sale of


inventory, the inventory holding period is less i.e. the inventory has been
disposed off or sold on an average in 14.7, 13.9 and in 2007-08 the days have
increased .

46

2) DEBTORS TURNOVER RATIO:


Debtors constitute an important constituent of current assets and
therefore the quality of debtors to great extent determines that firms liquidity.
There are two ratios. They are:
1) Debtors turnover Ratio
2) Debtors collection period Ratio
Debtors turnover ratio:
Formula:
Debtors turnover ratio = Creditor Sales

Debtors
Higher the ratio is better, since it indicate that debts are being collected more
promptly.
Table-11
Year

2004-05

2005-06

2006-07

2007-08

Sales

31,20,434

41,40,246

59,13,957

72,77,768

Debtors

8,25,008

11,26,390

13,78,923

15,98,625

Debtors
turnover

3.78

3.67

4.2

4.5

SOURCE: ANNUAL REPORTS OF COMPANY

47

Debtors Turn Over Ratio


5
4
Times

3
2
1
0
2004-05

2005-06

2006-07

2007-08

Interpretation: - The ratios are increasing year by year. In 2006-07, it is 4.25and


it has been increased to 4.5 in 2007-08. The ratio is not so high. It shows that the
payments of debtors are not so prompt. It is less standard ratio i.e. 8 times.

Debtors Collection Period:


Formula:
Debtors collection period ratio= Debtor*360/sales
Table-12
Year

2004-05

2005-06

2006-07

2007-08

Debtor

8,25,008

11,26,390

13,78,923

15,98,625

Sales

31,20,434

41,40,246

59,13,957

72,77,768

Debtors

95

98

84

79

Collection
Period

48

SOURCE: ANNUAL REPORTS OF COMPANY

Debtors Collection Period


120
100
80

Days

60
40
20
0
2004-05

2005-06

2006-07

2007-08

Interpretation: - The collection period of KEC is not good

ASSETS TURN OVER RATIO:

Asset turn over ratio indicates Sales for every one rupee which is
invested in fixed and current asset together. Assets are used to generate sales. A
firm should manage its efficiently to masculine sales.

Formula:
Asset turnover ratio= Sales/ Net Asset

Table-13

49

Year

2004-05

2005-06

2006-07

2007-08

Sales

31,20,434

41,40,246

59,13,957

72,77,768

Net Asset

15,39,264

18,56,702

25,25,498

32,92,946

Asset turn
over ratio

2.0

2.2

2.3

2.2

SOURCE: ANNUAL REPORTS OF COMPANY

Times

Times

2004-05

2005-06

2006-07

2007-08

Interpretation: The total asset turn over ratio is 2.3 times in the year 2006-07 it
is good. The same is maintained in year 2005-06, 2007-08. In the 2004-05 the
ratio is low. It indicates poor perform.

50

FINDINGS:

The important findings of the study are as follows.

Cash ratio of the company is poor hence they will find problem of liquidity
position.

The debtors collection period is not good.

The quick ratio of Deepak plast pvt ltd is showing a increasing trend & it is
also below the standard ratio 1:1.

The current ratio of Deepak plast pvt ltd is not satisfactory but it is below
the standard ratio i.e. 2:1.

Debt equity ratio of the company is far below the standard. They have not
utilized the potential of borrowing for the debts.

The company maintains a co-operation among the staff member &


management.

On an average all together other ratios are normal.

As per order given by the customer supply manufacture products to them


at right time & at right places.

51

SUGGESTIONS:

Company should try to maintain its current ratio at the standard 2:1.

The company should reduce its cost of production through adopting new
technology. It will help to increase the sales.

The kecs average collection period is very high. For avoiding the
company should take major techniques to collect the money from debtors.

Company should try to reduce its credit sales through cash discount at the
time of sales. It will helps to meet the current obligation.

Company is suggested to maintain sufficient amount of cash & bank


balance to pay its quick liabilities, which will increase its credit worthiness
& goodwill.

The company is in loss due to heavy interest burden to avoid this the
company should plan to adoption of share capital in the business.

52

CONCLUSION:

Financial statements plays very important role in providing facts and figures for
the decision makers. In the same way ratios will act as analysis kit in the hands
of financial analyst. These ratio will help us and in answering the basic question
like why, how, what of these statements.
Now a days financial statement are very much in consideration for
decision making. In deciding what to do and what not to do they are required to
analyze the data as per their requirement. Thus in our project we try to give brief
outline of ratio analysis (i.e., how to analyze the facts and figures given in the
financial statements) form the angle of all stake holders.
Throughout my project I have analyzed companys financial position and
pros and cons of the situation and we have also interpreted the data. In spite of
some limitation we try to analyze and interpreted the facts and figures with
accuracy.
Based on the analysis and interpretation I tried to give my findings and
suggestions for the company as per my best knowledge.
Finally project really helps us in knowing the practical things of the corporate
world. Really I enjoyed this project work in its real spirit.

53

BIBLIOGRAPHY:

M.Y.KHAN, P.K.JAIN (1981), Financial Management, and cost accounting


(third edition) New Delhi: McGraw-Hill Publishing Company Ltd.

I.M.PANDEY, Financial Management New Delhi Vikas Publishing House


Private Ltd-ninth addition 2004.

Evertt.E.Adam Production and operation management prentice hall 5 th


edition

54

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