Professional Documents
Culture Documents
1
(Affiliated to KRISHNA
UNIVERSITY)
GVR Towers, opp: Vinayak Theatre,
Vijayawada.
KRISHNAVENI DEGREE COLLEGE
OF BUSINESS MANAGEMENT
VIJAYAWADA – 08
2
CERTIFICATE
(Project Guide)
3
DECLARATION
4
ACKNOWLEDGEMENT
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TABLE OF CONTENTS
7-14
1 INTRODUCTION
2 COMPANY DETAILS
15-34
3 REVIEW OF LITERATURE
35 -80
6 BIBILOGRAPHY
96-106
6
INTRODUCTION
We know business is mainly concerned with the
required.
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TITLE OF THE PROJECT:
A Study On “RATIO ANALYSIS WITH
REFERENCE TO ANVITA HONDA SHOW
ROOM.”
profitability position.
8
OBJECTIVES OF THE STUDY:
The primary objective is to assess the existing
financial position of “RATIO ANALYSIS
WITH REFERENCE TO ANVITA HONDA
SHOW ROOM.”
1. . during the study period.
HONDA VIJAYAWADA.)
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6. To offer suggestions for improving financial
HONDA VIJAYAWADA.)
DATA COLLECTION:
PRIMARY DATA:
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The primary data related to the study has been
collected from
SECONDARY DATA:
The data collected for making my study on
follows:
http://www.investopedia.com/
https://www.indiamart.com/
www.scribd.com
PERIOD OF STUDY:
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The duration of the study is 90 days based on the
VIJAYAWADA.)
LIMITATIONS OF STUDY:
HONDA VIJAYAWADA.)
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HISTORY&ESTABLISHMENT OF THE
GROUP AND ORGANISATION
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REVIEW OF LITERATURE
MEANING OF FINANCE
Finance may be defined as the art and science of managing money. It includes
The concept of finance includes capital, funds, money, and amount. But
each word is having unique meaning. Studying and understanding the concept
DEFINITION OF FINANCE
According to Khan and Jain, “Finance is the art and science of managing
money”.
money’.
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TYPES OF FINANCE
Finance is one of the important and integral part of business concerns, hence, it
plays a major role in every part of the business activities. It is used in all the
Financial matters.
with the duties of the financial managers in the business firm. The term
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financial management has been defined by Solomon, “It is concerned with the
Finance.
financial management.
Economic concepts like micro and macroeconomics are directly applied with
manager. Financial management also uses the economic equations like money
value discount factor, economic order quantity etc. Financial economics is one
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of the emerging area, which provides immense opportunities to finance, and
economical areas.
and accounting are treated as a same discipline and then it has been merged as
Management
Accounting because this part is very much helpful to finance manager to take
mathematical and statistical tools and techniques. They are also called as
theories, ratio analysis and working capital analysis are used as mathematical
helps to multiple the money into profit. Profit of the concern depends upon the
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expenses etc. These expenditures are decided and estimated by the financial
production department.
The financial manager must be aware of the operational process and finance
Produced goods are sold in the market with innovative and modern approaches.
For this, the marketing department needs finance to meet their requirements.
department and allocate the finance to the human resource department as wages,
management in various fields, which include the essential part of the finance.
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Financial management is not a revolutionary concept but an evolutionary. The
definition and scope of financial management has been changed from one
view, financial management approach may be broadly divided into two major
parts.
A number of approaches are associated with finance function but for the sake of
The traditional approach to the finance function relates to the initial stages of its
evolution during 1920s and 1930s when the term ‘corporation finance’ was used
terms.
The utilisation of funds was considered beyond the purview of finance function.
It was felt that decisions regarding the application of funds are taken somewhere
else in the organisation. However, institutions and instruments for raising funds
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The scope of the finance function, thus, revolved around the study of rapidly
The traditional approach to the scope and functions of finance has now been
management.
ignored.
(iv) It does not lay focus on day to day financial problems of an organisation.
The modern approach views finance function in broader sense. It includes both
rising of funds as well as their effective utilisation under the purview of finance.
The finance function does not stop only by finding out sources of raising
raising funds and the returns from their use should be compared.
The funds raised should be able to give more returns than the costs involved in
procuring them. The utilisation of funds requires decision making. Finance has
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functions, according to this approach, covers financial planning, rising of funds,
The modern approach considers the three basic management decisions, i.e.,
the finance by the business concern. It is the essential part of the financial
manager. Hence, the financial manager must determine the basic objectives of
1. Profit maximization
2. Wealth maximization.
1. PROFIT MAXIMIZATION
Main aim of any kind of economic activity is earning profit. A business concern
is also functioning mainly for the purpose of earning profit. Profit is the
Profit maximization is also the traditional and narrow approach, which aims at,
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maximizes the profit of the concern. Profit maximization consists of the
2. Ultimate aim of the business concern is earning profit; hence, it considers all
maximization:
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(iii) Profit maximization objectives leads to inequalities among the stake holders
concern.
(ii) It ignores the time value of money: Profit maximization does not consider
the time value of money or the net present value of the cash inflow. It leads
certain differences between the actual cash inflow and net present cash flow
(iii) It ignores risk: Profit maximization does not consider risk of the business
concern. Risks may be internal or external which will affect the overall
2. WEALTH MAXIMIZATION
innovations and improvements in the field of the business concern. The term
wealth means shareholder wealth or the wealth of the persons those who are
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(i) Wealth maximization is superior to the profit maximization because the main
aim of the business concern under this concept is to improve the value or wealth
of the shareholders.
concern.
(iii) Wealth maximization considers both time and risk of the business concern.
(v) The ultimate aim of the wealth maximization objectives is to maximize the
profit.
(vi)Wealth maximization can be activated only with the help of the profitable
MANAGEMENT
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The main objective of financial management is to arrange sufficient finance for
meeting short-term and long-term needs. With these things in mind, a Financial
financial plan for present as well as for future. The amount required for
purchasing fixed assets as well as needs of funds for working capital will have
to be ascertained.
there are inadequate nor excess funds with the concern. The inadequacy of
funds will adversely affect the day-today working of the concern whereas
speculative activities.
The capital structure refers to the kind and proportion of different securities for
raising funds. After deciding about the quantum of funds required it should be
fixed assets through long-term debts. Even here if gestation period is longer,
then share capital may be most suitable. Long-term funds should be employed
to finance working capital also, if not wholly then partially. Entirely depending
upon overdrafts and cash credit for meeting working capital needs may not be
suitable.
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A decision about various sources for funds should be linked to the cost of
raising funds. If cost of raising funds is very high then such sources may not be
useful for long. A decision about the kind of securities to be employed and the
Various sources, from which finance may be raised, include: share capital,
finances are needed for short periods then banks, public deposits and financial
If the concern does not want to tie down assets as securities then public deposits
may be suitable source. If management does not want to dilute ownership then
and cost involved may be the factors influencing the selection of a suitable
source of financing.
When funds have been procured then a decision about investment pattern is to
decision will have to be taken as to which assets are to be purchased? The funds
will have to be spent first on fixed assets and then an appropriate portion will be
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retained for working capital. Even in various categories of assets, a decision
about the type of fixed or other assets will be essential. While selecting a plant
While spending or various assets, the principles. One may not like to invest on a
project which may be risky even though there may be more profits.
assess various cash needs at different times and then make arrangements for
arranging cash. Cash maybe required to (a) purchase raw materials, (b) make
payments to creditors, (c) meet wage bills; (d) meet day-to-day expenses. The
usual sources of cash may be: (a) cash sales, (b) collection of debts, (c) short-
term arrangements with banks etc. The cash management should be such that
damage the creditworthiness of the enterprise. The idle cash with the business
will mean that it is not properly used. It will be better if Cash Flow Statement is
regularly prepared so that one is able to find out various sources and
curtailed. A proper idea on sources of cash inflow may also enable to assess the
utility of various sources. Some sources may not be providing that much cash
which we should have thought. All this information will help in efficient
management of cash.
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6. Implementing Financial Controls:
control devices. Financial control devices generally used are: (a) Return on
investment, (b) Budgetary Control, (c) Break Even Analysis, (d) Cost Control,
(e) Ratio Analysis (f) Cost and Internal Audit. Return on investment is the best
higher this percentage better may be the financial performance. The use of
various control techniques by the finance manager will help him in evaluating
needed.
ploughing back of profits is the best policy of further financing but it clashes
with the interests of shareholders. A balance should be struck in using funds for
paying dividend and retaining earnings for financing expansion plans, etc. The
A finance manager should consider the influence of various factor, such as:
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(d) Need for funds for financing expansion, etc.
7. Control of Funds,
9. Planning Tax,
10.Performance Evaluation,
11.Helps Management.
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1. Raising the Funds Required
Funds can be raised from various sources like issue of shares, debentures, fixed
deposits, bonds, borrowings, etc. The finance executive has to decide the
monetary plan of the company. At the promotion stage, every firm must
estimate its capital needs. Funds may be required for working capital,
properly.
Cost of capital is the rate at which an organization may pay to the suppliers of
capital for the use of their funds. For E.g. It is expected to pay dividend on
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Executive functions of financial management are managing the fixed capital.
Investments should be made in those assets which would satisfy the present as
well as future needs of the company. For proper, a replacement of fixed assets,
The finance executive has to ensure that the company maintain adequate
working capital. Inadequate working capital may bring work of the company to
7. Control of Funds
finance executive has to ensure that cash is utilized as per the plan and in case
retain earnings for expansion and diversification. A firm must strike a balance
9. Planning Tax
every budget, different schemes are announced, which offer tax rebates,
deductions, etc. In order to reduce the tax liability the finance executive has to
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10. Performance Evaluation
management. For evaluation, the finance executive may use techniques like
management Routine
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FUNCTIONS OF FINANCE MANAGER:
involves the permanent and continuous process of the business concern. Finance
is one of the interrelated functions which deal with personal function, marketing
business concern.
because, it is a very emerging part which reflects the entire operational and
concern.
Deciding the proper financial function is the essential and ultimate goal of the
the field of finance function. He must have entire knowledge in the area of
to finance. A person who deals finance related activities may be called finance
manager.
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It is the primary function of the Finance Manager. He is responsible to estimate
much finances required to acquire fixed assets and forecast the amount needed
in nature.
3. Investment Decision
The finance manager must carefully select best investment alternatives and
consider the reasonable and stable return from the investment. He must be well
4. Cash Management
Present days cash management plays a major role in the area of finance because
proper cash management is not only essential for effective utilization of cash
but it also helps to meet the short term liquidity position of the concern.
should
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have sound knowledge not only in finance related area but also well versed in
other areas. He must maintain a good relationship with all the functional
RATIO ANALYSIS
information. For example, an Rs.5 core net profit may look impressive, but the
firm’s performance can be said to be good or bad only when the net profit
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liabilities; the ratio indicates a relationship- a quantified relationship between
to be formed about the firm’s liquidity and vice versa. The point to note is that a
Standards of comparison:
Past ratios, i.e. ratios calculated form the past financial statements of
thesame firm;
Competitors’ ratios, i.e., of some selected firms, especially the
mostprogressive and successful competitor, at the same pint in time;
Industry ratios, i.e. ratios of the industry to which the firm belongs; and
Protected ratios, i.e., developed using the protected or proforma,
financial statements of the same firm.
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In this project calculating the past financial statements of the same firm
does ratio analysis.
1.Theoretical background:
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Ratio analysis is of much help in financial forecasting and planning.
Planning is looking ahead and the ratios calculated for a number of years a
work as a guide for the future. Thus, ratio analysis helps in forecasting and
planning.
3. Helps in communicating:-
The financial strength and weakness of a firm are communicated in a
more easy and understandable manner by the use of ratios. Thus, ratios help
in communication and enhance the value of the financial statements.
4. Helps in co-ordination:-
Ratios even help in co-ordination, which is of at most importance
in effective business management. Better communication of efficiency
and weakness of an enterprise result in better co-ordination in the
enterprise
5. Helps in control:-
Ratio analysis even helps in making effective control of business.
The weaknesses are otherwise, if any, come to the knowledge of the
managerial, which helps, in effective control of the business.
b) Utility to shareholders/investors:-
An investor in the company will like to assess the financial position of
the concern where he is going to invest. His first interest will be the security
of his investment and then a return in form of dividend or interest. Ratio
analysis will be useful to the investor in making up his mind whether present
financial position of the concern warrants further investment or not.
C) Utility to creditors: -
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The creditors or suppliers extent short-term credit to the concern. They
are invested to know whether financial position of the concern warrants their
payments at a specified time or not.
d) Utility to employees:-
e) Utility to government:-
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Further, it is advisable to compare the accounting ratios for the year
under consideration with the accounting ratios for earlier two years so that
the auditor can make necessary enquiries, if there is any major variation in
the accounting ratios.
Limitations:
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4. Price level changes affect ratios:-
7. Window dressing:-
Financial statements can easily be window dressed to present a better
picture of its financial and profitability position to outsiders. Hence, one has
to be very carefully in making a decision from ratios calculated from such
financial statements.
Classification of ratios:
Several ratios, calculated from the accounting data can be grouped into
various classes according to financial activity or function to be evaluated.
Management is interested in evaluating every aspect of the firm’s
performance. They have to protect the interests of all parties and see that the
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firm grows profitably. In view of thee requirement of the various users of
ratios, ratios are classified into following four important categories:
Leverage ratios show the proportions of debt and equity in financing the
firm’s assets.
Activity ratios reflect the firm’s efficiency in utilizing its assets; and
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LIQUIDITY RATIOS:
The liquidity ratios reflect the short- financial strength and solvency of a firm.In
fact, analysis of liquidity needs thepreparation of cash budgets and cash and
funds 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 excess liquidity. The failure of a
company to meet its obligations due to lack of sufficient liquidity, will result in
a poor credit worthiness, loss of credit worthiness, loss of creditors’ confidence,
or even in legal tangles resulting in the closure of the company. A very high
degree of liquidity is also bad; idle assets earn nothing. The firm’s 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 are lack
= of it, are:
(i) Current ratio
(ii) Quick ratio.
(iii)Cash ratio and
(iv)Networking capital ratio.
1. Current Ratio:
Current ratio is calculated by dividing current assets by current liabilities.
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Current assets
Current Ratio=
Current Liabilities
Current assets include cash and other assets that can be converted into cash
within in a 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 the 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.
The current ratio is a measure of firm’s short-term solvency. It
indicates the availability of current assets in rupees for every one rupee
of current liability. A ratio of greater than one means that the firm has
more current assets than current claims against them Current liabilities.
2. Quick Ratio:
Quick ratio also called Acid-test ratio, establishes a relationship
between quick, or liquid, assets and current liabilities. An asset is a 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 that are considered to be
relatively liquid and included in quick assets are debtors and bills receivables
and marketable securities (temporary quoted investments). Inventories are
considered to be less liquid. Inventories normally require some time for
realizing into cash; their value also has a tendency to fluctuate. The quick ratio
is found out by dividing quick assets by current liabilities.
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(Quick Assets=Current Assets-Inventories)
Quick Assets
Quick Ratio=
Current Liabilities
3. Cash Ratio:
Since cash is the most liquid asset, it may be examined cash ratio
and its equivalent to current liabilities. Trade investment or marketable
securities are equivalent of cash; therefore, they may be included in the
computation of cash ratio:
4. Interval Measure
Yet another, ratio, which assesses a firm’s ability to meet its regular cash
expenses, is the interval measure. Interval measure relates liquid assets to
average daily operating cash outflows. The daily operating expenses will be
equal to cost of goods sold plus selling, administrative and general expenses
less depreciation (and other non cash expenditures divided by number of days
in a year (say 360).
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5. Net Working Capital Ratio
The difference between current assets and current liabilities excluding
short – term bank borrowings in called net working capital (NWC) or net
current assets (NCA). NWC is sometimes used as a measure of firm’s liquidity.
It is considered that between two firm’s the one having larger NWC as the
greater ability to meet its current obligations. This is not necessarily so; the
measure of liquidity is a relationship, rather than the difference between
current assets and current liabilities. NWC, however, measures the firm’s
potential reservoir of funds. It can be related to net assets (or capital
employed):
6. Leverage Ratio:
The short-term creditors, like bankers and suppliers of raw materials,
are more concerned with the firm’s current debt-paying ability. On other hand,
ling-term creditors like debenture holders, financial institutions etc are more
concerned with the firm’s long-term financial strength. In fact a firm should
have a strong short as well as long-term financial strength. In fact a firm should
have a strong short-as well as long-term financial position. To judge the long-
term financial position of the firm, financial leverage, or capital
structureratios are calculated. These ratios indicate mix of funds provided by
ownersand lenders. As a general rule there should be an appropriate mix of debt
and owners equity in financing the firm’s assets.
Leverage ratios may be calculated from the balance sheet items to determine
the proportion of debt in total financing. Many variations of these ratios exist;
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but all these ratios indicate the same thing the extent to which the firms has
relied on debt in financing assets. Leverage ratios are also computed form the
profit and loss items by determining the extent to which operating profits are
sufficient to cover the fixed charges.
7. DEBT RATIO:
Several debt ratios may be used to analyse the long term solvency of the
firm The firm may be interested in knowing the proportion of the interest
bearing debt (also called as funded debt) in the capital structure. It may,
therefore, compute debt ratio by dividing total debt by capital employed or
net assets. Capital employed will include total debt and net worth
Debt-Equity Ratio:
The relationship describing the lenders contribution for each rupee of
the owners’ contribution is called debt-equity (DE) ratio is directly computed
by dividing total debt by net worth:
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8. Capital Employed to Net worth Ratio
It is another way of expressing the basic relationship between
debt and equity. One may want to know: How much funds are being
contributed together by lenders and owners for each rupee of owners’
contribution ? Calculating the ratio of capital employed or net assets to net
worth can find this out:
COVERAGE RATIO:
Interest Coverage Ratio:
Debt ratios described above are static in nature, and fail to indicate the
firm’s ability to meet interest (and other fixed charges) obligations. The
interestcoverage ratio or the times interest-earned isused to test the
firm’s debt-servicing capacity, the interest coverage ratio is computed by
dividing earnings before interest and taxes(EBIT)by interest charges:
EBIT
Interest coverage ratio=
Interest
ACTIVITY RATIOS:
Funds of creditors and owners are interested 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
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which the firm manages 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, involves a relationship
between sales and assets. A proper balance between sales and assets generally
reflects that assets are managed well. Several activity ratios are calculated
to judge the effectiveness of asset utilization.
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Inventory Conversion Period:
It may also be of interest to see the average time taken for clearing the
stock. This can be possible by calculating the inventory conversion period. This
period is calculated by dividing the no. of days by inventory turnover ratio:
Credit sales
Debtors turnover =
Debtors
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Sales
Debtors turnover =
Debtors
360
Average Collection Period=
Debtors Turnover Ratio
[or]
Debtors
= X 360
Sales
Sales
Net Assets Turnover =
Net assets
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It may be recalled that net assets (NA) include net fixed assets (NFA) and net current
assets (NCA), that is, current assets (CA) minus current liabilities (CL). Since net
assets equal capital employed, net assets turnover may also be called capital
employed, net assets turnover may also be called capital employedturnover.
Thus:
Sales
Total Assets Turnover =
Total assets
Total Assets (TA) include net fixed Asses (NFA) and current assets (CA)
(TA=NFA+CA)
Sales
Current assets turnover =
Current assets
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16. Fixed Assets Turnover:
The firm to know its efficiency of utilizing fixed assets separately.
This ratio measures sales in rupee of investment in fixed assets. A high ratio
indicates a high degree of utilization in assets and low ratio reflects the
inefficient use of assets
Sales
Fixed Assets Turnover =
Fixed Assets
This Ratio indicates the velocity of the utilization of net working capital. This
Ratio indicates the number of times the working capital is turned over in the course of
a year. This Ratio measures the efficiency with which the working capital is being used
by a firm. A higher ratio indicates the efficient utilization of working capital and the
low ratio indicates inefficient utilization of working capital.
Sales
Working capital turnover =
Net working capital
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PROFITABILITY RATIOS
A company should earn profits to survive and grow over a long
period of time. Profits are essential, but it world be wrong to assume that every
action initiated by management of a company should be aimed at maximizing
profits, irrespective of concerns for customers, employees, suppliers or social
consequences.
It is unfortunate that the word profit is looked upon as a term of abuse
since some firms always want to maximize profits ate the cost of employees,
customers and society. Except such infrequent cases, it is a fact that sufficient
profits must be able to obtain funds from investors for expansion and growth
and to contribute towards the social overheads for 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 a 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 profit.
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 principal regularly. Owners want to get a required rate of return on
their investment.
This is possible only when the company earns enough profits.
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16. Net Profit Margin
Net profit is obtained when operating expenses; interest and taxes are
subtracted form the gross profit margin ratio is measured by dividing profit
after tax by sales:
Net Profit
Net profit Ratio = X 100
Sales
Net profit ratio establishes a relationship between net profit and sales
and indicates and management’s in manufacturing, administrating and selling
the products. This ratio is the overall measure of the firm’s ability to turn each
rupee sales into net profit. If the net margin is inadequate the firm will fail to
achieve satisfactory return on shareholders’ funds. This ratio also indicates the
firm’s capacity to withstand adverse economic conditions.A firm with high net
margin ratio would be advantageous position to survive in the face of falling
prices, selling prices, cost of production .
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17. Net Margin Based on NOPAT
The profit after tax (PAT) figure excludes interest on borrowing.
Interest is tax deducts able, and therefore, a firm that pays more interest pays
less tax. Tax saved on account of payment of interest is called interest tax
shield. Thus the conventional measure of net profit margin-PAT to sales ratio-
is affected by firm’s financial policy. It can mislead if we compare two firms
with different debt ratios. For a true comparison of the operating performance
of firms, we must ignore the effect of financial leverage, viz., the measure of
profits should ignore interest and its tax effect. Thus net profit margin (for
evaluating operating performance) may be computed in the following way:
Operating expenses
Operating expenses ratio=
Sales
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19. Return on Investment (ROI)
The term investment may refer to total assets or net 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
loans. Alternatively, capital employed is equal to net worth plus total debt.
The conventional approach of calculating return of investment
(ROI) is to divide PAT by investments. 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. Also, as discussed earlier, PAT is affected by capital
structure. It is, therefore, more appropriate to use one of the following measures
of ROI for comparing the operating efficiency of firms:
Since taxes are not controllable by management, and since firm’s opportunities
for availing tax incentives differ, it may be more prudent to use before tax to
measure ROI. Many companies use EBITDA (Earnings before Depreciation,
Interest, Tax and Amortization) instead of EBIT to calculate ROI. Thus the
ratio is:
EBIT
ROI=
Total Assets (TA)
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20. Return on Equity (ROE)
Common or ordinary shareholders are entitled to the residual
profits. The rate of dividend is not fixed; the earnings may be distributed to
shareholders or retained in the business. Nevertheless, the net profits after taxes
represent their return. A return on shareholders equity is calculated to see the
profitability of owners’ investment. The shareholders equity or net worth will
include paid-up share capital, share premium, and reserves and surplus less
accumulated losses. Net worth also be found by subtracting totalliabilities from
total assets. The return on equity is net profit after taxes divided by
shareholders equity, which is given by net worth:
ROE indicates how well the firm has used the resources of owners. In
fact, this ratio is one of the most important relationships in financial analysis.
The earning of a satisfactory return is the most desirable objective of business.
The ratio of net profit to owners’ equity reflects the extent to which this
objective has been accomplished. This ratio is, thus, of great interest to the
present as well as the prospective Shareholders and also of great concern to
management, which has the responsibility of maximizing the owners’ welfare.
The return on owners’ equity of the company should be compared with
the ratios of other similar companies and the industry average. This will reveal
the relative performance and strength of the company in attracting future
investments.
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21. Earnings per Share (EPS)
The profitability of the shareholders investments can also be measured
in many other ways. One such measure is to calculate the earnings per share.
The earnings per share (EPS) are calculated by dividing the profit after taxes
by the total number of ordinary shares outstanding.
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Equity dividends
Dividend Payout Ratio =
a)Current ratio
Current
Years Current assets Ratio
liabilities
1,73,47,87,565 1.47
2012-13 2,56,69,83,895
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GRAPH
Current ratio
1.54
1.53
1.52
1.51
1.5
1.49
Series1
1.48
1.47
1.46
1.45
1.44
2013 2014 2015 2016
Interpretation
From the above graph it can be observed that there is fluctuated trend during the
study period. It increases from 1.31 to 1.34 in the year 2008-09.
It decreases from 1.32 to 1.2 in the year 2010-11. It increases from 1.2 to 1.48 in
the year 2011-12. It increases from 1.48 to 1.73 in the year 2012-13.
Quick ratio
Current
Years Quick assets Ratio
liabilities
2,12,47,63,236 1,73,47,87,565
2012-13 1.22
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GRAPH
Quick ratio
1.35
1.3
1.25
Series1
1.2
1.15
2013 2014 2015 2016
Interpretation:
From the above graph it can be observed that there is fluctuating trend during
the study period. It increases from 0.6 to 0.71 in the year 2009-10.
It decreases from 0.71 to 0.38 in the year 2010-11. It increases from 0.38 to
0.63 in the year 2011-12. It increases from 0.63 to 0.91 in the year 2012-13.
The standard ratio of the company must be 1:1. It shows that the quick ratio of
the company satisfactory.
LEVERAGE RATIO
a)Debt-Equity ratio
Shareholder’s
Years Total Liabilities Ratio
Equity
83
GRAPH
0.65
0.6
2013 2014 2015 2016
Interpretation
From the above table the debt-equity ratios are 0.81, 0.81, 0.82 and 0.7 in
the year 2015-16 the ratio is low because of the revamping of galvanizing
plant.
ACTIVITY RATIO
84
GRAPH
Interpretation:
From the above table Debtors turnover ratio in 2013-16 are 1.97,
2.41,1.5 and 1.78 and The debtor’s turnover ratio in the year 2014-15
is low but again improved in 2015-2016 because the more credit
sales.
85
GRAPH
Interpretation
From the above table we can see that during 2013-2016 the days of
average collection period are fluctuating throughout the years
as 181,151,243 and 205.
86
GRAPH
15
10
Series1
5
0
2013 2014 2015 2016
Interpretation
From the above data we can see that the fixed asset turnover ratio is decreased
from 2013-15 15.23, 13.03 and 10.42 but improved in 2016 with 13.07
d)Creditor days
87
GRAPH
Creditor days
200
150
100
Series1
50
0
2013 2014 2015 2016
Interpretation
From the above data the creditor days from 2013-2016 are 116,117,148 and 135
from the year 2014-2015 there is high change in days from 117-148.
e)Debtor days
2 2013-14 147
3 2014-15 202
4 2015-16 165
88
GRAPH
Debtor days
250
200
150
100 Series1
50
0
2013 2014 2015 2016
Interpretation
From the above data the debtor days from the year 2013 to 2014,there is a
change in debtor days from 209 to 147.
Average
Years COGS Ratio
Inventory
89
GRAPH
2
0
2013 2014 2015 2016
Interpretation
From the above data the inventory turnover ratio from the years 2013-2016 are
8.24,7.91,6.71 and 9.07,there is a growth in year 2015-2016 from 6.71 to 9.07
which is a good rate of conversion.
h)Inventory days
3 2014-15 40
4 2015-16 33
90
GRAPH
Inventory days
60
50
40
30
Series1
20
10
0
2013 2014 2015 2016
Interpretation
From the data given we can see that the inventory days of financial years from
2013-2016 are 56,37,40 and 33.
In the year 2016 the inventory days are reduced than previous year from 40 to
33 which indicates good sign for inventory days.
3.PROFITABLITY RATIOS
52,83,82,671 2,67,89,92,741
2012-13 19.72
91
GRAPH
19
18
Series1
17
16
15
2013 2014 2015 2016
Interpretation
From the above graph it can be observed that it increases from 0.05 to 0.06. It
decreases from 0.06 to 0.05 in the year 2009-10. It increases from 0.05 to 0.06
in the year 2011-12 and it remains constant in the year 2012-13.
7,01,09,936 2,67,89,92,741
2012-13 2.61
92
GRAPH
Interpretation
From the above graph it can be observed that there is no fluctuating trend during
the study period. It increases from 0.03 to 0.04 in the year 2009-10. It was
constant till the end of the study period.
93
FINDINGS
By Ratio analysis it was found that the profit before tax and profit after tax is
From the study it was observed that the current ratio has decreased in the
year 2010 and then increased and reached 1.73% in the year 2012.
SUGGESTIONS
overcome liabilities.
94
5.SUMMARY AND CONCLUSION
HONDA VIJAYAWADA.)
95
BIBLIOGRAPHY
Books Referred:
96
BALANCE SHEET FOR THE YEAR ENDING 31.03.2013
As on As on
Schedule
Particulars 31.03.2013 31.03.2012
No.
(Rs.) (Rs.)
97
Equity & Liabilities
Shareholder’s funds
Share Capital 2 50,00,00,000 50,00,00,000
Reserves and surplus 3 8,50,53,858 1,49,43,922
58,50,53,858 31,49,43,922
Non-current Liabilities
Long term borrowings 4 18,34,39,620 27,83,37,739
Deferred tax liabilities(Net) 5 1,51,10,777 1,39,02,666
Other Long term Liabilities 6 28,11,07,114 5,40,21,838
Long term Provisions 7 82,43,023 62,16,496
48,79,00,534 35,24,78,739
Current Liabilities
Short term Borrowings 8 29,54,06,767 29,48,86,125
Trade Payables 85,18,54,250 50,80,82,722
Other Current Liabilities 9 58,31,09,937 18,25,25,598
Short term provisions 10 44,16,611 1,12,87,722
1,73,47,87,565 99,67,82,167
Assets
Non Current Assets
Fixed Assets
1.Tangiable 11 23,35,34,224 146,7,34,779
2.Capital work in progress 46,29,556 15,28,605
23,81,63,780 14,82,63,384
Long term loans and advances 12 25,94,282 42,95,784
24,07,58,062 15,25,59,168
Current Assets
Inventories 13 41,09,44,582 11,06,29,460
Trade Receivables 14 1,53,40,91,893 1,01,88,22,569
Cash and cash equivalents 15 25,70,20,339 19,34,52,600
Short term loans and advances 16 35,04,49,211 18,03,59,414
Other Current Assets 17 1,44,77,870 8,38,617
2,56,69,83,895 1,51,16,45,660
Total 2,80,77,41,957 1664204828
98
Significant accounting policies 1
99
BALANCE SHEET FOR THE YEAR ENDING 31.03.2014
As on As on
Schedule
Particulars 31.03.2014 31.03.2013
No.
(Rs.) (Rs.)
Equity & Liabilities
Shareholder’s funds
Share Capital 2 50,00,00,000
Reserves and surplus 3 8,50,53,858
58,50,53,858
Non-current Liabilities
Long term borrowings 4 18,34,39,620
Deferred tax liabilities(Net) 5 1,51,10,777
Other Long term Liabilities 6 28,11,07,114
Long term Provisions 7 82,43,023
48,79,00,534
Current Liabilities
Short term Borrowings 8 29,54,06,767
Trade Payables 85,18,54,250
Other Current Liabilities 9 58,31,09,937
Short term provisions 10 44,16,611
1,73,47,87,565
Total 2,80,77,41,957
Assets
Non Current Assets
Fixed Assets
1.Tangiable 11 23,35,34,224
2.Capital work in progress 46,29,556
23,81,63,780
Long term loans and advances 12 25,94,282
24,07,58,062
Current Assets
Inventories 13 41,09,44,582
Trade Receivables 14 1,53,40,91,893
Cash and cash equivalents 15 25,70,20,339
Short term loans and advances 16 35,04,49,211
100
Other Current Assets 17 1,44,77,870
2,56,69,83,895
Total 2,80,77,41,957
101
BALANCE SHEET FOR THE YEAR ENDING 31.03.2015
As on As on
Schedule
Particulars 31.03.2015 31.03.2014
No.
(Rs.) (Rs.)
SOURCES OF FUNDS:
SHARE HOLDERS FUNDS
(a) Share capital 1 2000000.00 2000000.00
(b) Reserves and surplus 7534844.56 4610265.20
Share application money 2200000.00 1376070.50
LOAN FUNDS:
(a) Secured loans 2 23155577.05 21151897.90
(b) Unsecured loans 0.00 837000.00
TOTAL 34890421.61 29975233.60
APPLICATION OF FUNDS
Fixed assets
(a) Gross block 27864417.61 16882033.41
(b) Less: depreciation 3 4232194.86 3032766.97
(c ) Net block 23632222.75 13849266.44
CURRENTASSETS,LOANS&ADVANCES
Inventories 51640675.00 30911818.00
Investments 0.00 326816.00
Sundry Debtors 4 16469190.54 18454508.13
Cash and bank balances 5 946861.48 841490.48
Other current assets 6 1259372.80 1043012.00
Loans and advances 7 4851088.17 13982329.67
Sub-total (a) 75167187.99 65559974.28
Less: current liabilities and provisions:
(a) Sundry creditors 8
(b) Provisions 9 59440901.00 46800169.99
Sub-total (b) 3263727.00 1962247.00
NET CURRENT ASSETS (A)-(B) 62704628.00 48762416.99
Deferred tax 12462559.99 16797557.29
Miscellaneous expenditure -1204361.13 -671590.13
(to the extent not written off or adjusted) 0.00 0.00
Profit & loss account
NOTES ON ACCOUNTS 13 0.00 0.00
34890421.61 29975233.60
102
INCOME STATEMENT FOR THE YEAR ENDING 31.03.2013
As on
Schedu As on
31.03.200
le 31.03.2008
Particulars 7
No. (Rs.)
(Rs.)
INCOME:
Sale 14937776.44 26275948.
Other income 10 661082.00 00
15598858.44 3004497.9
2
29280445.
EXPENDITURE 92
1892763.2
6
104
INCOME STATEMENT FOR THE YEAR ENDING 31.03.2014
Schedu As on As on
le 31.03.2009 31.03.2008
Particulars
No. (Rs.) (Rs.)
INCOME:
Sale 60620458.00 14937776.
Other income 10 180484.00 44
60800942.00 661082.00
15598858.
44
EXPENDITURE
106
INCOME STATEMENT FOR THE YEAR ENDING 31.03.2015
As on As on
Schedule
31.03.2010 31.03.2009
Particulars No.
(Rs.) (Rs.)
INCOME:
Sale 99507508.00 68935160.00
Less : taxes 10 17017812.00 8314702.00
Net sales 82489696.00 60620458.00
Other income 18040.00 180484.00
82507736.00 60800942.00
EXPENDITURE
Notes on accounts 13
----- o -----
108