CHAPTER – 1

INTRODUCTION
1.1INTRODUCTION TO THE STUDY
The Management of all firms is interested in knowing the financial
strengths and weaknesses of the firms. They would like to spot out the financial
weaknesses of the firm to take suitable corrective actions. The future plans of the
firm should be laid down in view of the firms financial strengthens and
weaknesses. Thus financial analysis is the starting point for making plans, before
using any sophisticated forecasting and planning procedures.

Financial analysis is the process of identifying the financial strengths and

weaknesses of the firm by properly establishing relationships between the items
of the balance sheet and the profit and loss account. Financial analysis can be
undertaken by management of the firm or by partial outside the firm, viz., owners,
creditors, investors and others. The nature of analysis will differ depending on the
purpose of the analyst, Management of the firm would be interested in every
aspect of the financial analysis. It is their overall responsibility to see that the
resources of the firm are used most effectively and efficiently, and that the firms
financial condition is sound.
The type of analysis varies according to the specific interests of the party
involved. A trade creditor is interested primarily in the liquidity of a firm. His claim
is short term, and the ability of a firm to pay this claim is best judged by means of
a thorough analysis of its liquidity. The claim of a bondholder, is long term.
Accordingly, he would be more interested in the cash-flow ability of the firm to
service debt over the long run. The bond holder may evaluate this ability by
analyzing the capital structure of the firm, the major sources and uses of funds,
its profitability over time, and projections of future profitability.
In order to bargain more effectively for outside funds, the management of
a firm should be interested in all aspects of financial analysis that outside
suppliers of capital use in evaluating the firm. In addition, Management employs
financial analysis for purposes of internal control. In particular, it is concerned

1
with profitability on investment in the various assets of the company and in the
efficiency of asset management. Thus, the type of financial analysis undertaken
varies according to the particular interests of the analyst.
The financial statements provide a summary of the accounts of a business
enterprise, the balance sheet reflecting the assets liabilities and capital as on a
certain date and the income statement showing the results of operations during a
certain period.
These statements are prepared for the purpose of presenting a periodical
review of report on progress by the management and deal with the status of
investment in the business and the results achieved during the period. They
reflect a combination of recorded facts, accounting principles and personal
judgments.
A firm communicates financial information to the users through financial
statements and reports. It contains summarized information of the firm’s financial
affairs, organized systematically. They are means to present the firm’s financial
situation to users. All these statements are used by investors and financial
analysis to examine the firm’s performance in order to make investment
decisions, they should be prepared very carefully and contain as much
information as possible.

2
 1.2 PROFILE OF THE COMPANY

Sangeeth Textiles Limited, Coimbatore was started in the year 1984 as a

pioneer unit of Sangeeth group of companies. the other units include Sri
Moogambika spinning mill,Vasudeva Textiles Limited (unit1 and 2)and Cauvery
textiles Limited. The firm specialized in manufacturing various types of yarns.

Sangeeth is a deemed Public Limited Company with an

annual turnover of US $40 Million. The group is equipped with 1,30,000
spindles & 1,300 rotors. It manufactures and exports 100% Cotton
and Compact Yarn. The Company's Products range from Open End
Ya1rn Counts of Ne 6/1 to Ne 10/1 and Ring Spun combed Yarn
Counts of Ne 20/1 to Ne 60/. In this count range Sangeeth manufactures
Combed Yarn, for Weaving & Knitting .

... a Corporate group and a Deemed Public Limited Company,

adopting TQM Principles of complete involvement and
continuous improvement.
... $40 Million Turnover Company.
... AN ISO 9002 Company.
... DNV certified company.
... Functional heads discharge their duties and responsibilities and
aid in developing specialized skills at every stage.
... Successful in practicing Harmonious and Cordial relationships
with its employees

GROWTH

The promoter’s rich established experience in the primary cotton ginning and
trading, the pioneer unit of the group, M/S Sangeeth Textiles Limited was
promoted in the year 1984. It was modernized by commissioning the state of the

3
art machineries .This has evolved it to vie in the international market. It has also
diversified its activities in the finance and wind energy.
.
COMPANY OBJECTIVES

To achieve the quality policy with respect to

A. Raw material

i. Inventory management for uninterrupted production and quality

consistency.
ii. Purchase of raw material with corresponding basic sample or
spot verification
iii. Storage and handling of raw material, lot wide in
environmentally friendly conditions.
B. Labor

i. Motivation through financial and Non financial incentives

ii. Providing on the job training
iii. Encouraging labor suggestion for improvement
iv. Periodic evaluation
v. Awareness on Labor efficiency

C. Safety

Corrective maintenance
i. prevention maintenance
ii. Routine maintenance.

4
D. Inspection

i. Raw material inspection

ii. Work in progress inspection.
iii. Finished goods inspection

E. Controls

i. Regular internal quality audit and management review.

ii. Review of production plans and coordinating different activities.
Export Market
Sangeeth textile limited has been concentrating on export market to a greater
extent and exports its quality yarn products to over 20 countries across Europe,
Asia And America.
The international buyers include Korea, Taiwan, Brasil, Turkey, Italy,
Bangladesh, Germany and Srilanka.
Marketing
Sangeeth textiles limited has sales depots located at Tiruppur, Erode ,
Somanur, Karur, Mumbai and Chennai.
The company concentrates on consignment sales to about 30% direct and
merchant export nearing 30% and 40% to domestic markets.

Sangeeth products

Sangeeth is leading producer of yarns they are producing cotton yarn and
mélange yarn.

5
Cotton Yarn

• We manufacture both Open End yarn and Ring Spun combed Yarn.
• Open End yarn count ranges from Ne 6/1 to Ne 20/1.
• Ring Spun yarn count ranges from Ne 16/1 to Ne 80/1 Combed for
weaving and hosiery.
• We also manufacture Compact and Double yarn.

Melange Yarn

About Melange Yarn:

• Cotton Fibre Dyed - Ready for use - Melange Yarn - Pollution free.
• Fully Environment Friendly - Azo Free Reactive Dyes.
• Chemicals do not release amines specified as per German
Legislation.
• Fastness to washing in 4 and above.
• Soft feel for Under Garments and Ladies Wear.
• Fashion made to Season's Updatings.
• Made suitable for Socks, Circular Knitting and also for Weaving.
• Made Of Single Variety Soft Indian Cotton With Specified Micronaire.

Market Information:

• Minimum quantity in each shade 200 Kilograms.

• Lab dip for colour matching within 10 days for 6 part cones.
• Lead time for development for complete yarn - shade - 21 days.
• Lead time for business supplies within 30 days from the date of receipt of
L/C.
• Container quantity of 7 tons possible with maximum of 6 shades.
• Yarn confirms to complete customer requirements as production is
initiated against specific orders.

6
 Sangeeth Customers

Sangeeth is having good customer brand equity. The detail beneath

shows the customer base of Sangeeth Textiles Limited

Louis Phillipe Mother care

Allen Solly Marks & Spencer
Teddy Smith Deben Hans
BHS Guru
Versace Colombia
Sports & Soccer H&M
Puma Boxer
Boss

CHAPTER – 2

2.1 NEED FOR THE STUDY

7
 Every company is interested in knowing its financial performance .
 To know how the company is performing financially and to take control
measures to find solution for the financial problems.
 The analysis is done by using various financial tools.
 To know the trend of the company during the analysis period.
 To evaluate changes in working capital, the working capital management
shows how effective the company in maintains the short term financial
performance.
 To predict the future sales, profit and net working capital.

. 2.2. REVIEW OF LITERATURE

The paper provides a critical review of the theoretical and empirical basis
of four central areas of financial ratio analysis. The research areas reviewed are
the functional form of the financial ratios, distributional characteristics of financial
ratios, classification of financial ratios, and the estimation of the internal rate of
return from financial statements. It is observed that it is typical of financial ratio
analysis research that there are several unexpectedly distinct lines with research
traditions of their own. A common feature of all the areas of financial ratio
analysis research seems to be that while significant regularities can be observed,
they are not necessary stable across the different ratios, industries, and time
periods. This leaves much space for the development of a more robust
theoretical basis and for further empirical research.

Published as timo salmi and teppo martikainen (1994), ‘a review of the

theoretical and empirical basis of financial ratio analysis”, the finnish journal of
business economics 4/94, 426-448.

8
 Technically, financial ratios can be divided into several. Sometimes
overlapping categories, a financial ratio is of the form X/Y, where X and Y are
figures derived from the financial statements or other sources of financial
information. One way of categorizing the ratios is on the basis where X and Y
come from (see Foster, 1978, pp. 36-37, and salmi, virtanen and yli-olli, 1990,
pp.10-11.

Bird mchugh (1977)adopt an efficient Shapiro-wilk small-sample test for the

normality of financial ratios for an Australian sample of five ratios over six years.
Like deakin they find in their independent study that normality is transient across
financial ratios and time. They also study the adjustment of the financial ratios
towards industry means which is a different area of FRA

2.3 OBJECTIVE OF THE STUDY

9
 • To study the nature of working capital management at Sangeeth Textiles
Limited.
• To measure the changes in the financial position over the period.
• To evaluate financial performance of the company.
• To study the trend of growth of Sangeeth Textiles Limited.
To arrive fruitful remedies for the problems at Sangeeth Textiles Limited

2.3 LIMITATION OF THE STUDY

• The data is mainly secondary by nature and any bias in them may reflects
in the analysis and conclusion.
• The study is limited to a period of five years.
• The study is conducted only for the referred company. So the inference
cannot be generalized
• Financial analysis is based upon monetary information only and non-
monetary factors will be ignored.

2.5 RESEARCH METHODOLOGY

10
RESEARCH:
It is an art of scientific investigation. The advanced learner’s
dictionary of current English lays down the meaning of research as “a
careful investigation or inquiry especially through search for new facts in
any branch of knowledge”.

RESEARCH METHODOLOGY:
It is the way to scheme the research problem systematically. It may
be understood as a science of studying how research is done
scientifically.

RESEARCH DESIGN:
A research design is the arrangement of conditions for collection
and analysis of data in a manner that aims to combine relevance to the
research purpose with economy in procedure.

RESEARCH TYPE:
The type of research is an analytical research. In this the
researcher has to use facts or information already available and analysis
these to make critical evaluation of the material.

PERIOD OF THE STUDY

The present study covered a period of five years from 2003-2007.

SOURCES OF DATA:
The data is secondary in nature and depend on the annual
report of the firm.

FRAME WORK ANALYSIS:

11
 The data collected from the annual report for the period of five years
and it were tabulated and grouped the following financial tools were
adopted to draw inference and conclusion. Tools Used
o Ratio analysis
o Working Capital
o Trend percentage
o Trend analysis

12
 CHAPTER – 3

ANALYSIS AND INTERPRETATION

3.1 RATIO ANALYSIS

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the

indicated quotient of two mathematical expressions” and “the relationship
between two or more things”. In financial analysis, a ratio is used as an index or
yardstick for evaluating the financial position and performance of a firm. The
absolute accounting figures reported in the financial statements do not provide a
meaningful understanding of the performance and financial position of a firm. An
accounting figure conveys meaning when it is related to some other relevant
information. The relationship between two accounting figures expressed
mathematically is known as a financial ratio. Ratios help to summaries the large
quantities of financial data and to make qualitative judgment about the firm’s
financial performance.

Nature of Ratio Analysis

Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios for
helping in making certain decisions. It involves the following:

1. Selection of relevant data from the financial statements depending upon

the objective of the analysis.

2. Calculations of appropriate ratios from the above data.

13
 3. Comparison of the calculated ratios with the ratios of the same firm in the
past, or the ratios of some other firms or the comparison with the ratios of
the industry to which the firm belongs.

4. Interpretation of the ratios.

Standards of comparison

The ratio analysis involves comparison for a useful interpretation of the

financial statements. A single ratio in itself does not indicate favorable or
unfavorable condition. It should be compared with some standards of comparison
may consist of:

1. Ratios calculated from the past financial statements of the same firm.

2. Ratios developed using the projected, or proforma, financial statements of

the same firm.

3. Ratios of some selected firms, especially the most progressive and

successful, at the same point in time.

4. Ratios of the industry to which the firm belongs.

Guidelines for use of ratios

The calculation of ratios may not be difficult task but their use is not easy.
The constraints of financial statements, objective for using them, the caliber of
the analyst, etc., are important factors which influence the use of ratios.

14
Following are the guidelines to be followed while interpreting various ratios.

1. Accuracy of financial statements

2. Objective purpose of Analysis
3. Selection of Ratios
4. Use of standards
5. Caliber of the Analyst
6. Ratios provide only a base.

Limitations of Ratio Analysis

The ratio analysis is one of the most powerful tools of financial management.
Though ratios are simple to calculate and easy to understand, they suffer from
some serious limitations.

1. Limited use of a single ratio

2. Lack of Adequate standards
3. Inherent limitations of accounting
4. Change of accounting procedure
5. Personal Bias
6. Absolute figure distertive
7. Window dressing
8. Price level changes
9. Incomparable
10. Ratios no substitutes.

15
Classification of Ratios

Ratios are classified into the following categories:

1. Liquidity ratios
2. Activity ratios
3. Solvency ratios
4. Profitability ratios
5. Leverage ratios.

LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current obligations as

and when these become due. The short term obligations are met by realizing
amounts from current, floating or circulating assets. The current assets should
either be liquid or near liquidity. These should be convertible into cash for paying
obligations of short term nature. The sufficiency or insufficiency of current assets
should be assessed by comparing them with short term (current) liabilities. If
current assets can pay off current liabilities, then liquidity position will be
satisfactory. To measure the liquidity of a firm, the following ratios can be
calculated.

1. Current Ratio
2. Quick or Acid Test or Liquid Ratio
3. Absolute Liquid Ratio or Cash Positions Ratio

16
 CURRENT RATIO
Current ratio may be defined as the relation between current asset and
current liabilities. It is a measure of general liquidity and is almost widely used to
make the analysis of short term financial position or liquidity pf the firm. This ratio
s calculated by
Current Ratio=Current assets/Current liabilities

TABLE- 3.1.1
CURRENT RATIO
Current
Year Current Asset(Rs) Liabilities(Rs) Ratio
2003 174326994.7 110730831 1.57
2004 184160646.1 80336641.56 2.29
2005 174912047.6 72758934.03 2.4
2006 276137109 125084694.1 2.2
2007 278503643.1 113084903.9 2.46

INTERPRETATION:-
A relatively high current ratio is an indication that the firm is liquid and
has the ability to ay its current obligation in thee time as and when they become
due. On the other hand, a relative low current ratio represents the liquidity
position of the firm is not good and the firm shall not be able to pay its current
liabilities without facing any difficulties. The ratio equal or near to the rule of
thumb of 2:1 is considered to be satisfactory.
From the table 3.1.1 Liquidity position of the company is found to be low
(1.57) during the year 2003 and the company liquidity position is (2.29, 2.4, 2.2,
and 2.46) during the year 2004-2007.since current asset ratio lies above the
2:1rule of thumb, the company performance is found to be satisfactory

17
 CHART -3.1.1

CURRENT RATIO

2.46
2.5 2.4
2.29
2.2

1.57

1.5

RATIO
1
ratio

0.5

0
2003 2004 2005 2006 2007

YEAR

QUICK RATIO

18
 Quick ratio may be defined as the relationship between quick/liquid assets
and current or liquid liabilities. It is a more rigorous test of liquidity than current
ratio. An asset is said to be liquid if it can converted in to cash with in a short
period without loss of value. This ratio is calculated by
Quick ratio=Quick assets/Quick liabilities
TABLE-3.1.2
QUICK RATIO

Current
Year Quick Asset(Rs) Liabilities(Rs) Ratio
2003 151043193.2 110730831 1.36
2004 139999273 80336641.56 1.74
2005 118938699 72758934.03 1.69
2006 220665767.1 125084694.1 1.76
2007 183339522 113084903.9 1.62

INTERPRETATION:-

Usually a high acid test ratio is an indication that the firm is liquid and has
the ability to meet its current liabilities in as a rule of thumb or as a convention
quick ratio of 1:1 is considered satisfactory.

From the above table 3.1.2 Liquidity position of the company is found to
be same (1.7) during the year 2004-2006. Since quick ratio lies more than 1:1
rule of thumb, the company’s performance is found to be satisfactory.

CHART -3.1.2

19
 Quick ratio

1.74 1.76
1.8 1.69
1.62

1.6

1.36
1.4

1.2

Ratio 0.8 Ratio

0.6

0.4

0.2

2003 2004 2005 2006 2007

Year

ABSOLUTE LIQUID RATIO

20
 Although receivables, debtors and bills receivable are generally more
liquid than inventories, yet there may be doubts regarding their realization into
cash immediately or in time. Hence, some authorities are of the opinion that
absolute liquid ratio should also be calculated together with current ratio and
quick ratio so as to exclude even receivables from the current assets and find out
the absolute liquid assets, Absolute liquid assets include cash in hand and at
bank and marketable securities or temporary investments. The acceptable norm
for this ratio is 0.5:1. The absolute liquid ratio can be calculated as follows:
Absolute Liquid Ratio = Absolute liquid asset/ Current
Liabilities

TABLE-3.1.3ABSOLUTE LIQUID RATIO

Absolute
Liquid Current
Year Asset(Rs) Liabilities(Rs) Ratio
2003 4837374.86 110730831 0.04
2004 9858076.35 80336641.56 0.12
2005 5880196.02 72758934.03 0.08
2006 23677617.14 125084694.1 0.19
2007 7675060.88 113084903.9 0.07

INTERPRETATION:-

The company absolute liquid position is found to be very low (0.04, 0.08, 0.07)
during the year2003, 2005, 2007.As a rule of thumb or as a convention absolute
liquid asset of 0.5:1 is considered as satisfactory. The company should take care
of the absolute liquid ratio

CHART-3.1.3

21
 ABSOLUTE LIQUIDE RATIO

0.20 0.19

0.18

0.16

0.14
0.12
0.12

RATIO0.10
0.08 Ratio
0.08 0.07

0.06
0.04
0.04

0.02

0.00
2003 2004 2005 2006 2007

YEAR

ACTIVITY RATIOS

Funds are invested in various assets in a business to make sales and

earn profits. The efficiency with which assets are managed directly affects the

22
volume of sales. The better the management of assets, the larger is the amount
of sales and the profits. Activity ratios measure the efficiency of effectiveness
with which a firm manages its resources or assets. These ratios are also called
turnover ratios because they indicate the speed with which assets are converted
or turned over into sales.

These ratios are based on the relationship between the level of activity,
represented by sales or cost of goods sold, and levels of various assets. As both
the current ratio and the quick ratio ignore the movement of current assets, it is
important to calculate the following turnover or efficiency ratios to comment upon
the liquidity or the efficiency with which the liquid resources are being used by a
firm.

INVENTORY TURNOVER RATIO

23
 The inventory turnover indicates whether investment in inventory is efficiently
used or not. Every firm has to maintain a certain level of inventory of finished
goods so as to be able to meet the requirements of the business. Inventory

Turnover = Cost of goods sold / Average Inventory. The higher

the ratio, the more efficient the management of Inventories and vice verse.
However, this may not always be true. A high inventory turnover ratio may be
caused by a low level of inventory which may result in frequent stock outs and
loss of sales and customer goodwill.

TABLE-3.1.4 INVENTORY TURNOVER RATIO

Cost Of Goods Average

Year Sold(Rs) Inventory(Rs) Ratio
2003 441241873 25994781 16.97
2004 382129650.8 33722587 11.33
2005 353001613.5 50067360.79 7.05
2006 704205504 55254508.29 12.74
2007 529463715.7 74849894.38 7.07

INTERPRETATION: -

Inventory turnover ratio measures the velocity of conversion of stock into

sales. From the table 3.1.4 high inventory turnover ratio is (16.97) during the year
2003 shows efficient in management of inventory. Low inventory turnover ratio
is(7.05,7.07) during the year 2005 and 2007.the company should take care of
inventory management because the trend of inventory is fluctuating from higher
to lower in the analysis period.

CHART-3.1.4

24
 INVENTORY TURN OVER RATIO

18.00 16.97

16.00

14.00 12.74

11.33
12.00

10.00

Ratio8.00 7.05 7.07

Ratio
6.00

4.00

2.00

0.00
2003 2004 2005 2006 2007

Year

INVENTORY CONVERSION PERIOD

25
 It may also be of interest to see average time taken for clearing the stocks.
This can be possible by calculating inventory conversion period. This can be
calculated by

Inventory Conversion Period=Number of working days

(360)/Inventory turnover ratio

TABLE-3.1.5

INVENTORY CONVERSION PERIOD

Inventory Inventory Conversion

Year Ratio Period(Days)
2003 16.97 21
2004 11.33 32
2005 7.05 51
2006 12.74 28
2007 7.07 51

INTERPRETATION:-

Generally, an inventory conversion period indicates the efficient

management of inventory because more frequently stocks are sold. A low
inventory conversion period (21 days) during the year2003 and the high inventory
conversion period (51 days) during the year 2005 and 2007.

CHART-3.1.5

26
 INVENTORY COVERSION PERIOD

60

51 51
50

40

32

28
RATIO30
INVENTORY CONVERSION
21
PERIOD
20

10

2003 2004 2005 2006 2007

YEAR

DEBTORS TURNOVER RATIO

27
 Debtors constitute an important constituent of current assets and therefore
the quality of debtors to a great extent determines a firm’s liquidity. The ratio of
debtor’s turnover is found out by dividing sales by average debtors.
Debtors Turnover = Sales / Average Debtors
It indicates the number of times the average trade debtors turned over
during a year. Generally, the higher the value of debtors’ turnover the most
efficient is the management of debtors.

TABLE-3.1.6

DEBTORS TURNOVER RATIO

Average
Year Sales(Rs) Debtor(Rs) Ratio
2003 447331110.00 28404305 15.75
2004 376007600.00 32747734 11.48
2005 339249161.00 23238453 14.60
2006 744875195.00 45833538 16.25
2007 593822173.00 63135835 9.41

INTERPRETATION:-

Debtor turnover indicates the number of times debtors are turned over
during a year. Generally, the higher value of debtor turnover ratio implies efficient
management of debtor or more liquid are debtor vice-versa.

A higher turnover ratio(15.75 times) during the year 2003.Similarly the low
debtor turnover ratio(9.41times)the fluctuation in debtor turnover ratio is high
during the year2006 and 2007.Since the overall debtor turn over ratio is found to
be satisfactory.

CHART-3.1.6

28
 DEBTOR TURNOVER RATIO

18.00
16.25
15.75
16.00
14.60

14.00

12.00
11.48

10.00 9.41

Ratio 8.00
Ratio
6.00

4.00

2.00

0.00
2003 2004 2005 2006 2007
Year

DEBTOR COLLECTION PERIOD

The average collection period represents the average number of days for
which a firm has to wait before its receivables are converted into cash.

29
 Average Collection Period=Number Of Working Days
(360)/Debtors Turnover Ratio

TABLE-3.1.7

DEBTOR COLLECTION PERIOD

Debtor Turnover Debtor Conversion

Year Ratio Period(Days)
2003 15.75 23
2004 11.48 31
2005 14.60 25
2006 16.25 22
2007 9.41 38

INTERPRETATION:-

Generally, shorter the collection period the better the quality of debtors as
short collection period implies quick payment of debtors and vice versa.

A low debtor collection period (22 days) during the year 2006 shows
there is an efficient management of debtors. Similarly, a high debtor’s collection
period (38 days) during the year 2007.since the company debtor management is
found to be satisfactory.

CHART-3.1.7

30
 DEBTORS COLLECTION PERIOD

40 38

35
31
30

25
25 23 22

20
Days
Debtor conversion
15 Period (days)

10

0
2003 2004 2005 2006 2007

Year

CREDITORS TURNOVER RATIO

The Creditors Turnover Ratio is an indication of the speed which the

payments are made to the creditors. It is computed by dividing the total

31
purchases by the average creditors.
Creditors Turnover Ratio = Purchases/ Average Creditors

A high creditor’s turnover ratio signifies that the creditors paid promptly
thereby enhancing the credit worthiness of the Company. However, a very
favorable ratio to this effect also shows that the business is not take full
advantage of credit facilities which are allowed by the creditors.

TABLE-3.1.8

CREDITORS TURNOVER RATIO

Net Average
Year Purchases(Rs) Creditors(Rs) Ratio
2003 14777088.00 78712021.93 0.19
2004 4416720.00 86973817 0.05
2005 7337101.00 60185172 0.12
2006 302765479.00 85419746.52 3.54
2007 153979231.00 108186391 1.42

INTERPRETATION:-

A high creditor turnover ratio is (3.54 times/year) during the year 2006 and
the low creditors turnover ratio (0.05 times/year) during the year 2004.

Since the creditors turnover ratio is increased to 0.19 to 3.54 and it also
get decreased to 1.42 times/year from 2003-2006 and 2007. The company
should take care in repayment of credits.

CHART-3.1.8

32
 CREDITORS TURNOVER RATIO

4.00
3.54
3.50

3.00

2.50

Ratio2.00
Ratio
1.42
1.50

1.00

0.50
0.19 0.12
0.05
0.00
2003 2004 2005 2006 2007

Year

WORKING CAPITAL TURNOVER RATIO

33
 The Working capital turnover ratio indicated weather or not working capital
has been effectively utilized in making sales. This ratio indicated the number of
times the working capital is turned over is 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 efficient utilization of working capital and a low

ratio indicated inefficiency. But a very high working capital turnover ratio is not a
good situation for any firm. This ratio can be calculated as:

Working Capital Turnover Ratio = Sales/Working capital

TABLE-3.1.9

WORKING CAPITAL TURNOVER RATIO

Net Working
Year Sales(Rs) Capital(Rs) Times
2003 447331110.00 58614822 7.63
2004 376007600.00 103824005 3.62
2005 339249161.00 102153114 3.32
2006 704205504.00 151052415 4.66
2007 529463715.00 165418739 3.20

INTERPRETATION:-

A high working capital turnover ratio (7.63times/year) during the year 2003
shows an efficient utilization of working capital. Similarly, a low working capital
turnover ratio (3.20 times/year) during the year 2007. The trend of working capital
is fluctuating. Working capital ratio is reduced from 7.63 to 3.20 company should
concentrate on working capital management.

34
 CHART-3.1.9

WORKING CAPITALTURNOVER RATIO

8.00 7.63

7.00

6.00

5.00 4.66

Ratio 4.00 3.62

3.32 3.20 Ratio
3.00

2.00

1.00

0.00
2003 2004 2005 2006 2007

Year

SOLVENCY RATIOS

35
 The term solvency’ refers to the ability of a concern to meet its long term
obligations. The long term indebtedness of a firm includes debenture holders,
financial institutions providing medium and long term loans and other creditors
selling goods on installment basis. The short term creditors of a firm are primarily
interested in knowing the firm’s ability to meet its short term obligation; the
debenture holders and other long term creditors are primarily interested in
knowing the firm’s ability to pay regularly interest on long term borrowings,
repayments of the principal amount at the maturity and the security of their loans.
Accordingly, long term solvency ratios indicate a firm’s ability to meet the fixed
interest a costs and repayment scheduled associated with its long term
borrowings

DEBT-EQUITY RATIO

36
 The debt-equity ratio is determined to ascertain the soundness of the long-
term financial policies of the company. A high debt equity ratio indicates the
claims of outsiders (crs) are greater than those of owners, may not be considered
by creditors because it gives a lesser margin of safety for them at the time of
liquidation of the firm. A low ratio is considered satisfactory for the shareholders
because it indicates that the firm has not been able to use low cost outsider’s
funds to magnify their earnings.

Debt-Equity Ratio = Long term debt/ Shareholders equity

TABLE-3.1.10

DEBT-EQUITY RATIO

Outsider Fund Shareholder

Year (Rs) Fund (Rs) Ratio
2003 166131594.00 104597060.3 1.59
2004 231573822.41 136051805.8 1.70
2005 198223532.00 147640462.7 1.34
2006 317855836.00 163685468 1.94
2007 326477554.00 193175316 1.69

INTERPRETATION:-

The debt equity ratio is calculated to measure the extent to which debt
financing has been used in business. The ratio is 1:1 may be usually consider to
be a satisfactory ratio although there cannot be any ‘rule of thumb’ or standard
norm and it may differ from nature of business.A high debt equity ratio (1.94)
during the year 2006 shows maximum of outsiders fund and owner take lesser
risk of their investment. Similarly, a lower debt equity ratio (1.34) during the year
2005.Since the debt equity ratio is found to be satisfactory.

CHART-3.1.10

37
 DEBT EQUITY RATIO

2.00 1.94

1.80 1.70 1.69

1.59
1.60

1.40 1.34

1.20

1.00
Ratio
Ratio
0.80

0.60

0.40

0.20

0.00
2003 2004 2005 2006 2007

Year

PROPRIETORY RATIO

38
 The Proprietor Ratio established relationship between the shareholders
funds and total tangible assets. The ratio of proprietor’s funds to total funds is an
important ratio for determining long term solvency of a firm.

Proprietory Ratio = Share Holders Funds/total Assets

This ratio focuses the attention on the general financial strength of the
business enterprise. The ratio is of particular importance to the creditors who can
find out the proportion of shareholders funds in the total assets employed in the
business. The higher the proprietory ratio the lesser is the danger to the creditors
in event of the company being wounded up. The lower the proprietory ratio the
greater is the risk to the creditors. In general a percentage below 50% is
considered to be an alarming for the creditors.

TABLE-3.1.11

PROPRIETORY RATIO

Shareholders Total Asset

Year Fund (Rs) (Rs) Ratio
2003 104597060.00 416305872.2 25
2004 136051805.00 484814663.7 28
2005 147640461.67 457977969.2 32
2006 163685467.94 659970005 25
2007 193175316.39 713661885.9 27

INTERPRETATION:-

The higher ratio (32) during the year2005and lower ratio (25) during the
year2003 and 2006.Since all the ratio during the analysis period indicates the
asset of the company can be lost without affecting the interest of the creditors of
the company. The above table (3.1.11) shows all the ratios are below 50%.

39
 CHART-3.1.11

PROPRIETORY RATIO

35
32

30 28
27
25 25
25

20

RATIO
15 Ratio

10

2003 2004 2005 2006 2007

YEAR

40
 FIXED ASSET TO NET WORTH RATIO

The ratio establishes the relationship between the fixed asset and share
holders funds, i.e. share capital plus reserves and retained earnings. The ratio
can be calculated by

Fixed Assets to Net Worth Ratio=Fixed Asset (After

Depreciation)/Shareholders Funds

TABLE-3.1.12

FIXED ASSET TO NET WORTH RATIO

Fixed Asset Shareholders

Year (Rs) Fund (Rs) Ratio
2003 216875380.00 104597060.00 2.07
2004 279573017.61 136051805.00 2.05
2005 261984921.76 147640461.67 1.77
2006 380374385.00 163685467.94 2.32
2007 430764057.96 193175316.39 2.23

INTERPRETATION:-

Generally the purchase of fixed asset should be financed by shareholders

equity include reserves, surplus and retained earnings. If the ratio is less than
100%, it implies the owners fund is more than total fixed asset and part of
working capital is provided by the shareholders. The ratio is more then 100% in
the period of study, it implies that owner’s funds are not sufficient to finance the
fixed asset and firm has to depending upon outsiders to finance the fixed asset.

41
 CHART-3.1.11

FIXED ASSETS TO NETWORTH RATIO

2.50
2.32
2.23
2.07 2.05

2.00
1.77

1.50

Ratio
Ratio
1.00

0.50

0.00
2003 2004 2005 2006 2007

Year

FIXED ASSET TO TOTAL LONG TERM FUNDS RATIO

42
 The ratio indicates the extant to which the total of fixed assets is financed
by long term funds of the firm. This can be calculated by

Fixed asset to total long term funds ratio = fixed asset (after
depreciation)/total long term funds

TABLE-3.1.13

FIXED ASSET TO TOTAL LONG TERM FUNDS RATIO

Fixed Asset Long Term

Year (Rs) Debt (Rs) Ratio
2003 216875380.00 166131594.38 1.31
2004 279573017.61 231573822.41 1.21
2005 261984921.76 198223531.63 1.32
2006 380374385.00 317855836.14 1.20
2007 430764057.96 326477554.38 1.32

INTERPRETATION:-

Generally , the total of fixed asset should be equal to total of long term
funds or say, the ratio should be 100%.But incase of fixed asset exceed of total
long term fund it implies that the firm has financed a part of fixed asset out of
current funds or the working capital which is not a good financial policy. The
lower ratio (1.20) during the year 2006and the higher ratio is(1.32 ) during the
year 2005 and 2007.Since all the ratio during the analysis period is found to be
more than 100%, the firm should take care of total –long term fund ratio.

CHART-3.1.13

43
 FIXED ASSET TO TOTAL LONG TERM FUND

1.34
1.32 1.32
1.32
1.31
1.30

1.28

1.26

1.24

Ratio1.22 1.21 Ratio

1.20
1.20

1.18

1.16

1.14

1.12
2003 2004 2005 2006 2007

Year

PROFITABILITY RATIO

44
 Profitability is an 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.

Owners are interested to know the profitability as it indicated the return

which they can get on their investments. Generally, profitability ratios are
calculated either in relation to sale or in relation to investments.

GROSS PROFIT RATIO

45
Gross Profit ratio measures the relationship of gross profit to net sales and in
usually represented as a percentage. Thus, it is calculated by dividing the gross
profit by sales. Gross Profit Ratio = (Gross Profit /Net Sales)*100

The gross profit ratio indicates the extent to which selling prices of goods
per unit may declare without resulting in losses on operations of a firm. It reflects
the efficiency with which a firm produces its products. As the gross profit is found
by deducting cost of goods sold from the net sales, higher the gross profit ratio
better the result.

TABLE-3.1.14 GROSS PROFIT RATIO

Year Gross Profit Net Sales Ratio

2003 20588021.87 447331110.00 4.60
2004 30831787.45 376007600.00 8.20
2005 14618342.11 339249161.00 4.31
2006 40669690.90 744875195.00 5.46
2007 64258457.45 593822173.00 10.82

INTERPRETATION:-

Higher gross profit ratios better the result. A low gross profit indicates
high cost of goods sold due to unfavorable purchasing policies, lesser sales, and
lower selling price. The above table shows that the gross profit ratio goes in
fluctuating trend but the company takes necessary steps in increasing the ratio.
Higher ratio (10.82) during the year 2007and the lower ratio is (4.31) during the
year 2005. The company takes necessary steps in increasing the gross profit.

CHART-3.1.14

46
 GROSS PROFIT RATIO

12.00
10.82

10.00

8.20
8.00

6.00 5.46
Ratio
4.60
4.31
Ratio
4.00

2.00

0.00
2003 2004 2005 2006 2007

Year

NET PROFIT RATIO

47
 Net Profit Ratio measures the relationship between net profit and sales of
a firm. This indicates the efficiency of the management in manufacturing, selling,
administrative and other activities of the firm. An increase in the ratio over the
previous period indicates improvement in the operational efficiency of the
business provided the gross profit ratio is constant. The ratio is thus an effective
measure to check the profitability of the business. The ratio is calculated as
under:

Net Profit Ratio = (Net Profit / Net Sales)*100

TABLE-3.1.15

NET PROFIT RATIO

Year Net Profit Net Sales Ratio

2003 15351238.87 447331110.00 3.43
2004 21454745.45 376007600.00 5.71
2005 11588656.92 339249161.00 3.42
2006 14901005.27 744875195.00 2.00
2007 27672848.45 593822173.00 4.66

INTERPRETATION:-

Generally, higher the ratios of net profit to net sales better the results. A
low net profit ratio generally, indicates firm shall not be able to achieve the
satisfactory return on its investments.

Higher ratio (5.71) during the year 2004 then the net profit showing the
decreasing trend till 2006 (3.42, 2.00) then in the year 2007 net profit ratio is
(4.66). It shows that company takes necessary steps in increasing the net profit
ratio. Net profit ratio of the firm is found to be satisfactory.

CHART-3.1.15

48
 NET PROFIT RATIO

6.00 5.71

5.00 4.66

4.00
3.43 3.42

Ratio3.00
Ratio
2.00
2.00

1.00

0.00
2003 2004 2005 2006 2007

Year

WORKING CAPITAL

Working capital is the life blood of the business working capital is very
essential to maintain the smooth running of the business. No business can run

49
successfully without an adequate amount of working capital. A going concern
usually positive balance of working capital. i.e., the excess of current assets over
current liabilities, but sometimes the uses of working capital may be more than
the source of resulting into a negative value of working capital. A study of
changes in the uses and source of working capital is necessary to evaluate the
efficiency with which working capital is employed in the business.

Working capital means the excess of current assets over current

liabilities. Statement of changes in working capital is prepared to show the
changes in the working capital between the two balance sheet dates. This
statement is prepared with the help of current assets and current liabilities
from the two balance sheets.

A current asset in the current period is more than in the previous period
the effect is an increase in working capital and it is recorded in increase
column. But if a current liability in the current period is more than in the
previous period, the effect is decrease in working capital and it is recorded in
the decrease column or vice verse. The total increase and the total decrease are
compared and the difference shows the net increase or net decrease in working
capital.

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE

YEAR (2002-2003)

TABLE-3.2.1

50
 EFFECT OF
WORKING
PARTICULARS PREVIOUS(2002) CURRENT(2003) CAPITAL %
Current Asset
Inventories 28705761 23283801 -5421960 -18.88
Sundry Debtor 16453622 40354987.57 +23901365.57 +145.26
Cash & Bank 5936370 4837374.86 -1098995.14 -18.51
Loan &
Advances 134760000 105850830 -28909170 -21.45
185855753 174326993.4
Current
Liabilities
current
liabilities 47270047 110730831 -63460784 -134.25
Provisions 1650000 4981342 -3331342 -201.9
48920047 115712173 -78320885.57
Working
Capital 136935706 58614820.43
Net decrease 78320886
136935706 136935706.4

INTERPRETATION:-
The above table shows that statement of changes in working capital for
the year 2002-2003. The current asset has been decreased from the previous
year. There is no gradual increase in every year in current asset. There is a
decrease in net working capital in the year 2002- 2003.
In the year 2003. the current assets-inventories has gone down to18.88%
sundry debtor has increase more than 100%cash and bank balance has gone
down to 18.51% loans and advances have gone down to 21.45% percent, since
current liabilities and provision also increased to 134.25 and 201.9. So there is
net decrease in working capital of Rs 783.208 lakhs.

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE

YEAR (2003-2004)

TABLE-3.2.2

PARTICULARS PREVIOUS(2003) CURRENT(2004) EFFECT OF %

51
 WORKING
CAPITAL
Current Asset
Inventories 23283801 44161373 +20877572 +89.66
Sundry Debtor 40354987.57 25140480 -15214507.57 -37.70
Cash & Bank 4837374.86 9858076 +5020701.14 +103.78
Loan &
Advances 105850830 105000717 -850113 -0.80
174326993.4 184160646
Current
Liabilities
current
liabilities 110730831 74106924.56 +36623906.44 +33.07
Provisions 4981342 6229717 -1248375 -25.06
115712173 80336641.56
Working
Capital 58614820.43 103824004.4
Net increase 45209184
103824004.4 103824004.4

INTERPRETATION:-
The above table shows that statement of changes in working capital for
the year 2003-2004. The current asset has been increased from the previous
year. There is no gradual increase of current asset. There is an increase in
working capital in net working capital in the year 2003- 2004.
In the year 2004. the current assets-inventories has gone up to 89.66%
sundry debtor has been decreased to 37.70% cash and bank balance has gone
more than 100% loans and advances have gone down to 0.80% percent, since
current liabilities is decreased to33.07% and provision also increased to 25.06%.
So there is net increase in working capital of Rs.452.09 lakhs.

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE

YEAR (2004-2005)

TABLE-3.2.3

PARTICULARS PREVIOUS(2004) CURRENT(2005) EFFECT OF %

WORKING

52
 CAPITAL
Current Asset
Inventories 44161373 55973348 +11811975 +26.74
Sundry Debtor 25140480 21336427 -3804053 -15.13
Cash & Bank 9858076 5880196.62 -3977879.38 -40.35
Loan &
Advances 105000717 91722076 -13278641 -12.64
184160646 174912047.6
Current
Liabilities
current
liabilities 74106924.56 66762083 +7344841.56 +9.91
Provisions 6229717 5996851 +232866 +3.73
80336641.56 72758934 -2.07
Working Capital 103824004.4 102153113.6
Net decrease 1670891
103824004.4 103824004.6

INTERPRETATION:-
The above table shows that statement of changes in working capital for
the year 2004-2005. The current assets has been decreased from the previous
year. There is fluctuation in current asset year by year. There is a decrease in net
working capital in the year 2004- 2005.
.
In the year 2005. the current assets-inventories has gone up to 26.74%
sundry debtor has down to 15.13% cash and bank balance has gone down to
40.35% loans and advances have gone down to 12.64% percent, since current
liabilities and provision are decreased to 9.91% and3.73%. So there is net
decrease in working capital of RS16.71lakhs.

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE

YEAR (2005-2006)

TABLE-3.2.4

PARTICULARS PREVIOUS(2005) CURRENT(2006) EFFECT OF %

WORKING

53
 CAPITAL
Current Asset
Inventories 55973348 54535668 -1437680 -2.56
Sundry Debtor 21336427 70330649 +48994222 +229.61
Cash & Bank 5880196.62 24613291 +18733094.38 +318.57
Loan &
Advances 91722076 126657501 +34935425 +38.08
174912047.6 276137109
Current
Liabilities
current
liabilities 66762083 115142151 -48380068 -72.46
Provisions 5996851 10878217 -4881366 -81.39
72758934 126020368 +65.921
Working
Capital 102153113.6 150116741
Net Increase 47963627
150116740.6 150116741

INTERPRETATION:-
The above table shows that statement of changes in working capital for
the year 2005-2006. The current asset has been increased from the previous
year. There is gradual increase in current asset. There is an increase in net
working capital in the year 2005- 2006.
In the year 2006, the current assets-inventories has gone down to 2.56%
sundry debtor has increase more than 200%cash and bank balance has gone up
to 318.57% loans and advances has gone up to 38.08% percent, since current
liabilities and provision also increased to 72.46 and 81.39%. There is net
increase in working capital of Rs 479.64 lakhs because sundry debtor and cash
and bank balance has increase more than 200 and 300 percent.
STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE
YEAR (2006-2007)

TABLE-3.2.5

EFFECT OF
WORKING
PARTICULARS PREVIOUS(2006) CURRENT(20007) CAPITAL %

54
 Current Asset
Inventories 54535668 95164121 +40628453 +74.50
Sundry Debtor 70330649 56001023 -14329626 -20.37
Cash & Bank 24613291 7675061 -16938230 -68.82
Loan &
Advances 126657501 119663439 -6994062 -5.52
276137109 278503644
Current
Liabilities
current
liabilities 115142151 102166305 +12975846 +11.27
Provisions 10878217 10918599 -40382 -0.37
126020368 113084904 +15301999
Working
Capital 150116741 165418740
Net Increase 15301999
165418740 165418740

INTERPREETATION:-

The above table shows that statement of changes in working capital for
the year 2006-2007. There is a gradual increase in current asset compared to
previous year. There is a decrease in net working capital in the year 2006- 2007.
.
In the year 2007, the current assets-inventories has gone up to 74.50%
sundry debtor has decreased to 20.37%cash and bank balance has gone down
to 68.82% loans and advances have gone down to 5.52% , there is gradual
decrease in current liabilities, current liability decreased to 11.27 and provision
has gradually increased to 0.37%. So there is a net increase in working capital of
153.02 lakhs.

EFFECT OF CHANGES IN WORKING CAPITAL

TABLE-3.2.6

Year Effect of changes in working

55
 capital
2003 -78320886
2004 45209184
2005 -1670891
2006 47963627
2007 15301999

INTERPREETATION:-

The above table shows that statement of changes in working capital and
its changes. The current asset has been increased year after year. There is
gradual increase in every year. There is an increasing net working capital in the
year 2004, 2006 and 2007 as Rs.452.09 lakhs, Rs.479.6 lakhs, and Rs.153.01
lakhs. There is a decrease in the year 2003 and 2005 as Rs.783.20 lakhs and
Rs.16.71. The working capital has increased very high in the year 2006 and low
in the year 2003 as Rs479.63 lakhs and Rs.783.21 lakhs.

CHART-3.2.1

56
 EFFECT OF CHANGES IN WORKING CAPITAL

60000000
47963627
45209184

40000000

20000000 15301999

0
Changes
Effect of

2003 2004 -1670891 2006 2007

2005

-20000000 Effect of changes(in RS)

effect of changes
in working capita

-40000000

-60000000

-80000000
-78320886

-100000000

Year

NET WORKING CAPITAL

The net working capital is the excess of current asset over current
liabilities

57
 Net working capital=current asset-current liabilities

NET WORKING CAPITAL

TABLE-3.2.7

current current Net Working

Year asset liabilities Capital
2003 174326994.7 110730831 63596163.67
2004 184160646.1 80336641.56 103824004.6
2005 174912047.6 72758934.03 102153113.5
2006 276137109 125084694.1 151052415
2007 278503643.1 113084903.9 165418739.1

INTERPRETATION:-

Net working capital is very important for ongoing concern. Net working
capital of the firm shows increasing trend ,in the year 2005 the working capital of
the firm get decreased .But in the next year working capital of the firm start
increasing.

CHART-3.2.2

58
 NET WORKING CAPITAL
180000000

160000000

140000000

120000000
Working
Capital

100000000
Net

80000000

60000000

40000000

20000000

0
2003 2004 2005 2006 2007

Year

TREND PERCENTAGES
Trend percentage are immensely helpful in making a comparative study
of the financial statements for several years. The method of calculating trend
percentages involves the calculations of percentage relationship that each item
bears to the same item in the base year. Any year may be taken as the base
year.

59
It is usually the earliest year. Any intervening year may also be taken as the
base year. Each item of base year is taken as 100 and on that basic the
percentages for each of the items of each of the years are calculated. These
percentages can also be taken as Index Numbers showing relative changes in
the financial data resulting with the passage of time.
The method of trend percentages is useful analytical device for the
management since by substitutions of percentages for large amounts, the brevity
and readability are achieved. However, trend percentages are not calculated for
all items in the financial statements. They are usually calculated for major
items since the purpose is to highlight important changes. Both the Income
statement and Balance Sheet can be prepared in the form of Trend percentages.
While calculating trend percentages care should be taken regarding the
following matters:
The according principles and practices followed should be constant
throughout the period for which analysis is made. In the absence of such
consistency, the comparability will be adversely affected.
The base year should be carefully selected. It should be a normal year
and be representative of the items shown in the statements.
Trend percentages should be calculated only for items having logical
relationship with one another.
Trend percentages should be studied after considering the absolute
figures on which they are based otherwise, they may give misleading results.
The figures for the current year should also be adjusted in the light of price
level changes as compared to the base year before calculating the trend
percentages.

TREND OF SALES
Every company is interested in knowing its sales performance and
it want to increase it sales year after year. By making the trend percentage
analysis the company can know how the company sales is going year after year.
It will be helpful in knowing the company performance.

60
 TABLE-3.3.1
TREND OF SALES
YEAR SALES TREND
2003 447331110 100
2004 376007600 84
2005 339249160 76
2006 744875194 167
2007 593822173 133

INTERPRETATION:-

The sale of the company has showing decreased trend during the year
2004 and 2005 and it started increase in the year 2006.

CHART-3.3.1

61
 TREND LINE OF SALES
180

167
160

140
133
120

100 100
Trend

80 84 Trend
76

60

40

20

2003 2004 2005 2006 2007

Year

TREND OF PROFIT
Every company wants to make profit. By making trend percentage
analysis we can know the profit trend during the analysis period.

62
 TABLE-3.3.2
TREND OF PROFIT
YEAR PROFIT TREND
2003 15351238 100
2004 21454745 140
2005 11588656 75
2006 22886505 149
2007 36331348 237

INTERPRETATION:-

The profit of the company has increased and decreased during the year
2005 and the profit start increasing in the year 2006 and 2007.

CHART-3.3.2

63
 TREND LINE OF PROFIT
250
237

200
Trend

150 149
140

Trend
100 100

75

50

0
2003 2004 2005 2006 2007

Year

TREND ANALYSIS
TREND ANALYSIS FOR SALES
Trend analysis is used to project the sales in future and also to know the t

64
future and to forecast the future sales. For forecasting the future simple linear
trend analysis is used it will help the company to forecast future sales.

Equations used are

y=a+b(x)
Where a=∑y/n
b=∑xy/∑x²

Where y represents sales and x represents the year and n represents number of
year taken.
SALES:
TABLE-3.4.1
TREND ANALYSIS

PROJECTED
YEAR SALES SALES
2003 447331110 367887103
2004 376007600 434372075
2005 339249160 500257047
2006 744875194 566442019
2007 593822173 632626991

The forecasted sale for the year 2008 to 2012 has been projected to
Rs.698811963, Rs.764996935, Rs. 831181907, Rs.897366879, and Rs.
963551851.

PROFIT:
The same normal equation which was used to forecast sales has been used.
TABLE-3.4.2
TREND ANALYSIS
PROJECTED
YEAR PROFIT PROFIT

65
 2003 15351238 12844102
2004 21454745 17183300
2005 11588656 21522498
2006 22886505 25861696
2007 36331348 30200184

The profit for 2008 to 2012 has been forecasted as Rs34540092,

Rs38879290, Rs43218488, Rs 47557686, and Rs51896884

NET WORKING CAPITAL:

The same equation has been used
TABLE-3.4.3
TREND ANALYSIS
NET WORKING PROJECTED NET
YEAR CAPITAL WORKING CAPITAL
2003 63596163.67 67034174.92
2004 103824004.6 92121531.05
2005 102153113.5 117208887.2
2006 151052415 142296243.3
2007 165418739.1 167383599.4

The Net working capital for 2008 to 2012 has been forecasted as
Rs192470955.6, RS217558312, Rs242645668, Rs267733024, and Rs29282038

SUNDRY DEBTOR:
The same equation has been used
TABLE-3.4.4
TREND ANALYSIS

PROJECTED
SUNDRY
YEAR SUNDRY DEBTOR DEBTOR
2003 40354987 27336265
2004 25140480 34984489
2005 21338427 42632713

66
 2006 70330649 50280937
2007 56001022 57929161

The sundry debtor for 2008 to 2012 has been forecasted as Rs 65577385,
Rs 73225609,Rs 80873833,Rs 88522057,Rs 96170281

CHAPTER-4
4.1 FINDINGS
The following findings are arrived from the analysis and interpretation

RATIO ANALYSIS

Short term financial position

The current and quick ratio of the firm is found to be satisfactory in the
analysis period
The absolute liquid ratio indicates that the company should maintain
adequate liquid asset to meet its current liabilities in future year.

67
 Activity Ratio
The company inventory turnover ratio has been fluctuating .The
company should take proper care in maintaining inventory turnover ratio and also
in maintaining the working capital ratio.
Creditor turnover ratio is highly fluctuating. The company should take
care in repayment of outside liabilities gradually.
Solvency Ratio
Fixed asset to net worth ratio implies that owners funds are not sufficient
to finance the fixed asset and firm has to depend on outsiders to finance the fixed
asset.
The firm should take care of total long term fund because it is more than
100%
Profitability Ratio
Gross profit ratio shows increasing trend.
Net profit ratio is fluctuating but company has taken necessary steps in
increasing net profit from previous year 2006-2007(2.00-4.66)

WORKING CAPITAL:
The statement of working capital of the firm is fluctuating in the analysis
period.
The company net working capital is increasing year after year after year.
Company should take care of working capital and reduce its current liabilities.

TREND PERCENTAGE:
The trend of sales has been decreased from previous year during
the analysis period but the profit is increasing year after year.

TREND ANALYSIS:

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 Future sales, profit, net working capital and sundry debtors have been
forecasted. It will be useful in predicting the future trend.

4.2 SUGGESTIONS

• The company has to take adequate steps to increase its absolute liquid
asset.
• The company can take measures to maintain the increasing trend of
working capital. More concentration to be taken in reduce the current
liabilities.
• Care to be taken in reducing fixed asset to net worth ratio and fixed asset
to total long-term fund ratio, so that it can achieve prescribed norms.

4.3 CONCLUSION

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 Financial analysis is very important for all firm to know the strength and
weakness of the company. By financial analysis the firm can able to know
how effective the management and also it can take corrective action to
improve the financial position. According to the study the management of
financial position in Sangeeth Textiles Ltd is found to be satisfactory. They
have to take necessary steps in improving cash balance.

BIBLIOGRAPHY

• Dr.S, N. Maheswari principles of management accounting, Sultan Chand

and Sons, New Delhi, 2001.

• I.M.Pandey Financial Management, Vikas Publishing House, eighth

edition, Bangalore, 2004.

• Saxena V.K, Vashier C.D: cost and management accounting, sultan

Chand and sons, New Delhi, 2003.

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• M.Y. Khan and P.K. Jain financial management, Tata McGraw-hill

publishers, fourth edition, New Delhi, 2002.

• Shashi K. Guptha and R.K. Sharma: Management accounting principles

and practice, Kalyani publishers, First edition. 1991.

WEBLIOGRAPHY

• www.google.com
• www.answers.com
• www.sbrows.com
• www.sangeethtextiles.com

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