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1
CHAPTER-I
INTRODUCTION
2
RATIO ANANLYSIS
Introduction
The ratio analysis is the most powerful tool of financial analysis. Several ratios
calculat...
3
FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths and
weakness of the firm. It...
4
The ratio analysis involves comparison for a useful interpretation of the financial statements.
A single ratio in itself...
5
financial standing and capability of the firm & other firms in the industry. Industry ratios are
important standards in ...
6
 Helpful in measuring the solvency of the firm:
The financial analysis helps the decision makers in taking appropriate ...
7
Current ratio is an acceptable measure of firm’s short-term solvency Current assets
includes cash within a year, such as...
8
marketable securities of equivalent of cash. If the company carries a small amount of cash, there
is nothing to be worri...
9
debt-equity ratio of 2:1 is considered ideal. The debt consists of all short term as well as long-
term and equity consi...
10
debentures/bonds, deferred payment arrangements for buying equipments, bank borrowings,
public deposits and any other i...
11
1. INVENTORY TURNOVER RATIO/STOCK TURNOVERRATIO:
Inventory turnover ratio indicates the efficiency of the firms in prod...
12
This ratio measures the relationship between working capital and sales. The ratio
shows the number of times the working...
13
the efficiency of company in terms of profits. The profitability ratios are calculated to measure
the operating efficie...
14
3. NET PROFIT RATIO:
Net profit is obtained when operating expenses, interest and taxes are subtracted
from the gross p...
15
5. EARNING PER SHARE:
This ratio is computed by earning available to equity share holders by the total amount of
equity...
16
CHAPTER-II
INDUSTRY
AND
COMPANY PROFILE
17
INDUSRTY PROFILE
A battery is an electrochemical device in which the free energy of a chemical reaction is
converted in...
18
Majormanufacturers in battery industry in India
The following are the major manufacturer in battery industry in India.
...
19
COMPANY PROFILE
Amara Raja Batteries (ARBL) incorporated under the companies Act, 1956 in 13th
February 1985, and conve...
20
RESEARCH& DEVELOPMENT
Specific areas in which the company carries out R&D are;
1. New product development.
2. Process t...
21
ARBL’s main aim is to achieve customer satisfaction through the collective commitment of
employees in design; manufactu...
22
The Major competitors for Amara Raja Batteries are “Exude industries Ltd, and GNB”.
AUTOMOTIVE BATTERYDIVISION (ABD)
AR...
23
COMPETITORS
EXIDE
PRESTOLITE
AMCO.
MAJOR USERS
1. RAILWAYS
Train lighting air conditioning, diesel engine starting, sig...
24
CHAPER III
RESEARCH
METHODOLOGY
25
NEED OF THE STUDY
1. The study has great significance and provides benefits to various parties whom
directly or indirec...
26
SCOPE OF THE STUDY
The scope of the study is limited to collecting financial data published in the annual
reports of th...
27
OBJECTIVE OF THE STUDY
1. To study and analyze the financial position of the Company through ratio analysis
2. To analy...
28
RESEARCHMETHODOLOGY
The main aim of the study is to know the financial performance of the Amara raja batteries
limited,...
29
LIMITATION OF THE STUDY
The following are the limitation of the study
1. The study was limited to only five years Finan...
30
CHAPTER IV
DATA ANALYSIS AND
INTERPRETATION
31
1. LIQUIDITY RATIO’S
A. CURRENT RATIO
The current ratio is the between all current assets and all current liabilities; ...
32
CHART: 4.1: CURRENT RATIO
INTERPRETATION:
The standard norm for current ratio is 2:1. During the year 2009 the current ...
33
B. QUICK RATIO
Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities.
An asse...
34
CHART4. 2: QUICK RATIO
INTERPRETATION:
The standard form of a quick ratio is 1:1. Quick ratio is decreased in the year ...
35
C. CASH RATIO
Cash ratio is the ratio between cash plus marketable securities and current
liabilities.
TABLE4.3:CASH RA...
36
CHART4.3:CASH RATIO
INTERPRETATION:
In all the above years the absolute quick ratio is very low. The standard norm for ...
37
2. LEVERAGE RATIOS
A. TOTAL DEBT RATIO
TABLE 4.4:TOTAL DEBT RATIO
TOTAL DEBT
TOTAL DEBT RATIO= ------------------------...
38
CHART4.4: TOTALDEBT RATIO
INTERPRETATION:
This ratio gives results relating to the capital structure of a firm. Debt ra...
39
B. DEBT EQUITY RATIO
Debt equity ratio indicates the relationship describing the lenders contribution for each
rupee of...
40
CHART NO 4.5:DEBT EQUITY RATIO
INTERPRETATION:
The ratio gives results relating to the capital structure of a firm. Deb...
41
C. INTERESTCOVERAGE RATIO
The ratio shows the number of times the interest charges are covered by funds
that are ordina...
42
CHART 4.6:INTEREST COVERAGERATIO
INTERPRETATION:
Interest coverage ratio is 07.56 in the year 2009. It is increased aut...
43
D. SHAREHOLDERS EQUITY RATIO/PROPRIETORYRATIO:
This ratio indicates the extent to which the total assets of the entity ...
44
GRAPH 4.7:PROPRIETORYRATIO
INTERPETATION:
The funds financed by the proprietaries in the total funds are continuously d...
45
3. ACTIVITY TATIO :
A. INVENTORYTURN OVER RATIO
It indicates the firm efficiency of the firm in producing and selling i...
46
GRAPH 4.8:INVENTORYTURNOVER RATIO
INTERPRETATION:
Inventory turnover ratio is 5.57 Times in the year 2009. But, it is i...
47
B. DEBTORS TURNOVERRATIO
It is found out by dividing t he credit sales by average debtors. Debtor’s turnover indicates ...
48
GRAPH 9: DEBTORS TURNOVERRATIO
INTERPRETATION:
Debtor’s turnover ratio is 4.71 times in the year 2010 and it is increas...
49
C. FIXED ASSET TURNOVER RATIO
The ratio is supposed to measure the efficiency with which fixed assets are employed a hi...
50
GRAPH 4.10: FIXED ASSET TURNOVER RATIO
INTERPRETATION:
Fixed assets turnover ratio is 2.83 in the year 2010 and it is i...
51
D. TOTAL ASSET TUENOVER RATIO
This ratio ensures whether the capital employed has been effectively used or not. This is...
52
GRAPH 4.11: TOTAL ASSET TURNOVER RATIO
INTERPRETATION:
Total assets ratio is 0.93 in the year 2010 and it gradually inc...
53
E. WORKING CAPITAL TURNOVER RATIO
A firm may also like to relate net current assets or net working capital to sales. Wo...
54
GRAPH 4.12: WORKING CAPITAL TURNOVER RATIO
INTERPRETATION:
Working capital turnover ratio is 2.84 in the year 2010 and ...
55
F. NET ASSET TURNOVER RATIO
TABLE 4.13: NET ASSET TURNOVER RATIO
YEARS SALES NET ASSET NET ASSET TURNOVER RATIO
2009-10...
56
GRAPH 4.13: NET ASSET TURNOVER RATIO
INTERPRETATION:
Net Assets turnover ratio is 1.57 in the year 2010 and it is incre...
57
G. CAPITAL TURNOVER RATIO
The ratio obtains by dividing sales with the capital employed.
TABLE 4.14: CAPITAL TURNOVER R...
58
GRAPH 4.14: CAPITAL TURNOVER RATIO
INTERPRETATION:
Capital turnover ratio is 1.23 in the y ear 2010 and it is increased...
59
4. PROFITABILITY RATIOS
A. GROSS PROFIT RATIO:
This ratio shows that the margin left after meeting manufacturing costs....
60
GRAPH 15: GROSS PROFIT RATIO
INTERPRETATION:
0
5
10
15
20
25
30
2009-10 2010-11 2011-12 2012-13 2013-14
gross profit in...
61
B. NET PROFIT RATIO
This ratio also indicates the firm's capacity to wit h stand adverse economic conditions. A firm
wi...
62
GRAPH 4.16: NET PROFIT RATIO
INTERPRETATION:
During the year 2010 the net profit margin is 3.08 it suddenly increased t...
63
C. OPERATING EXPENSES RATIO:
The Operating expenses ratio explains the changes in the profit margin ratio. A higher
ope...
64
GRAPH 17: OPERAING EXPENSES RATIO
INTERPRETATION:
Operating expenses ratio is 12.80%of sales in the year 2010 it decrea...
65
D. RETURN ON INVESTMENT
The conventional approach of calculated ROI is to divide PAT by investment.
EBIT
RETURN ON INVE...
66
GRAPH 4.18: RETURN ON INVESTMENT
INTERPRETATION:
Return on Investment is very low in all years. But, in the year the 20...
67
E. RETURN ON EQUITY
The return on equity share holders fund explains about the return of share holders with they get
on...
68
GRAPH 4.19: RETURN ON EUITY SHAREHOLDERS FUNDS
INTERPRETATION:
Return on equity in the year 2010 is 4.7 and it increase...
69
CHAPTER V
FINDINGS AND SUGGESTIONS
70
FINDINGS
 Except in the year 2012, the company is maintaining current ratio as 2 and more, standard
which indicates th...
71
SUGGESTIONS
 The company has to increase the profit maximization and has to decrease the operating
expenses.
 By cons...
72
CONCLUSION
From the above analysis of the company’s financial statements it’s concluded that the company’s
financial po...
73
BIBLOGRAPHY
1. I.M.Pandey : Financial Management
2. M.Y.Khan & P.K.Jai : Financial Management
3. S.P. Jain & K.L. Naran...
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Ratio analysis project

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Ratio analysis project

  1. 1. 1 CHAPTER-I INTRODUCTION
  2. 2. 2 RATIO ANANLYSIS Introduction The ratio analysis is the most powerful tool of financial analysis. Several ratios calculated from the accounting data can be grouped into various classes according to financial activity or function to be evaluated. DEFINITION: “The indicate quotient of two mathematical expressions and as “The relationship between two or more things’’. It evaluates the financial position and performance of the firm. As started in the beginning many diverse groups of people are interested in analyzing financial information to indicate the operating and financial efficiency and growth of firm. These people use ratios to determine those financial characteristics of firm in which they interested with the help of ratios one can determine.  The ability of the firm to meet its current obligations.  The extent to which the firm has used its long-term solvency by borrowing funds.  The efficiency with which the firm is utilizing its assets in generating the sales revenue.  The overall operating efficiency and performance of firm. Alexander wall is the pioneer of ratio analysis. He presented a detailed system of ratio analysis in the year 1919. Ratio analysis is important one for all management accounting for decision making. Ratio analysis of financial statements stands for the process of determining and presenting the relationship of items and groups of items in the statements. Ratio analysis is a powerful tool of financial analysis. It is a process of identifying the financial strengths and weakness of the firm by properly establishing the relationship between the different items of balance sheet and profit and loss account for a meaningful understanding of the financial position and performance of the firm.
  3. 3. 3 FINANCIAL ANALYSIS Financial analysis is the process of identifying the financial strengths and weakness of the firm. It is done by establishing relationships between the items of financial statements viz., balance sheet and profit and loss account. Financial analysis can be undertaken by management of the firm, viz., owners, creditors, investors and others. Objectives ofthe financialanalysis Analysis of financial statements may be made for a particular purpose in view. To find out the financial stability and soundness of the business enterprise. To assess and evaluate the earning capacity of the business To estimate and evaluate the fixed assets, stock etc., of the concern. To estimate and determine the possibilities of future growth of business. To assess and evaluate the firm’s capacity and ability to repay short and long term loans NATURE OF RATIO ANALYSIS Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient of mathematical expression" and as "the relationship between two or more things". A ratio is used as benchmark for evaluating the financial position and performance of the firm. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio. Ratio helps to summarizes large quantities of financial data and to make qualitative judgment about the firm's financial performance. The persons interested in the analysis of financial statements can be grouped under three head owners (or) investors who are desired primarily a basis for estimating earning capacity. Creditors are the people who are concerned primarily with Liquidity and ability to pay interest and redeem loan within a specified period. Management is interested in evolving analytical tools that will measure costs, efficiency, liquidity and profitability with a view to make intelligent decisions. STANDARDS OF COMPARISON
  4. 4. 4 The ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favourable or unfavourable condition. It should be compared with some standard. Standards of comparison are: 1. Past Ratios 2. Competitor's Ratios 3. Industry Ratios 4. Projected Ratios Past Ratios: Ratios calculated from the past financial statements of the same firm. Competitor's Ratios:Ratios of some selected firms, especially the most progressive and successful competitor at the same point in time. Industry Ratios: Ratios of the industry to which the firm belongs. ProjectedRatios: Ratios developed using the projected financial statements of the same firm. TIME SERIES ANALYSIS The easiest way to evaluate the performance of a firm is to compare its present ratios with past ratios. When financial ratios over a period of time are compared, it is known as the time series analysis or trend analysis. It gives an indication of the direction of change and reflects whether the firm's financial performance has improved, deteriorated or remind constant over time. CROSS SECTIONAL ANALYSIS Another way to comparison is to compare ratios of one firm with some selected firms in the industry at the same point in time. This kind of comparison is known as the cross-sectional analysis. It is more useful to compare the firm's ratios with ratios of a few carefully selected competitors, who have similar operations. INDUSTRY ANALYSIS Its ratio may be compared with average ratios of the industry of which the firm is a member. This type of analysis is known as industry analysis and also it helps to ascertain the
  5. 5. 5 financial standing and capability of the firm & other firms in the industry. Industry ratios are important standards in view of the fact that each industry has its characteristics which influence the financial and operating relationships. METHODS OF ANALYSIS: A financial analyst can adopt the following tools for analysis of the financial statements. These are also termed as methods of financial analysis. A. Comparative statement analysis B. Common-size statement analysis C. Trend analysis D. Funds flow analysis E. Ratio analysis Parties interested in financialanalysis The users of financial analysis can be divided into two broad groups. Internalusers 1. Financial executives 2. Top management Externalusers 1. Investors 2. Creditor. 3. Workers 4. Customers 5. Government 6. Public 7. Researchers Significanceof financialanalysis Financial analysis serves the following purpose:  To know the operational efficiency of the business: The financial analysis enables the management to find out the overall efficiency of the firm. This will enable the management to locate the weak Spots of the business and take necessary remedial action.
  6. 6. 6  Helpful in measuring the solvency of the firm: The financial analysis helps the decision makers in taking appropriate decisions for strengthening the short-term as well as long-term solvency of the firm.  Comparison of past and present results: Financial statements of the previous years can be compared and the trend regarding various expenses, purchases, sales, gross profit and net profit can be ascertained.  Helps in measuring the profitability: Financial statements show the gross profit, & net profit.  Inter‐firm comparison: The financial analysis makes it easy to make inter-firm comparison. This comparison can also be made for various time periods.  Bankruptcy and Failure: Financial statement analysis is significant tool in predicting the bankruptcy and the failure of the business enterprise. Financial statement analysis accomplishes this through the evaluation of the solvency position.  Helps in forecasting: The financial analysis will help in assessing future development by making forecasts and preparing budgets TYPES OF RATIOS: Management is interested in evaluating every aspect of firm's performance. In view of the requirement of the various users of ratios, we may classify them into following four important categories: A.LIQUIDITY RATIOS It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios help in establishing a relationship between cast and other current assets to current obligations to 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. 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. Liquidity ratios can be divided into three types:  Current Ratio  Quick Ratio  Cash Ratio 1. CURRENT RATIO:
  7. 7. 7 Current ratio is an acceptable measure of firm’s short-term solvency Current assets includes cash within a year, such as marketable securities, debtors and inventors. Prepaid expenses are also included in current assets as they represent the payments that will not made by the firm in future. All obligations maturing within a year are included in current liabilities. These include creditors, bills payable, accrued expenses, short-term bank loan, income-tax liability in the current year. The current ratio is a measure of the firm's short term solvency. It indicated the availability of current assets in rupees for every one rupee of current liability. A current ratio of 2:1 is considered satisfactory. The higher current ratio, greater the margin of safety, the larger the amount of current assets in relation to current liabilities, then it indicate more the firm's ability to meet its obligations. It is a cured –and -quick measure of the firm's liquidity. Current ratio is calculated by dividing current assets and current liabilities. 2. QUICK RATIO: Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset, other assets that are considered to be relatively liquid asset and included in quick assets are debtors and bills receivables and marketable securities (temporary quoted investments). Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. Quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be used cautiously. A company with a high value of quick ratio can suffer from the shortage of funds if it has slow- paying, doubtful and long duration outstanding debtors. A low quick ratio may really be prospering and paying its current obligation in time. GLOSSORY: Quick assets: current assets-stock-prepaid expenses Quick liabilities: current liabilities-bank overdraft-cash credit 3. Cash Ratio: Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its equivalent current liabilities. Cash and Bank balances and short-term marketable securities are the most liquid assets of a firm, financial analyst stays look at cash ratio. Trade investment is CURRENT ASSETS CURRENT RATIO = ------------------------------------------------- CURRENT LIABILITIES QUICK ASSETS QUICK RATIO = ---------------------------------- QUICK LIABILITIES
  8. 8. 8 marketable securities of equivalent of cash. If the company carries a small amount of cash, there is nothing to be worried about the lack of cash if the company has reserves borrowing power. Cash Ratio is perhaps the most stringent Measure of liquidity. Indeed, one can argue that it is overly stringent. Lack of immediate cash may not matter if the firm stretch its payments or borrow money at short notice. BANK+CASH+MARKETABLE SECURITIES CASH RATIO= --------------------------------------------------------------------- CURRENT LIABILITIES B.LEVERAGE RATIOS: Financial leverage refers to the use of debt finance while debt capital is a cheaper source of finance: it is also a riskier source of finance. It helps in assessing the risk arising from the use of debt capital. Two types of ratios are commonly used to analyze financial leverage. 1. Structural Ratios & 2. Coverage ratios. Structural Ratios are based on the proportions of debt and equity in the financial structure of firm. Coverage Ratios shows the relationship between Debt Servicing, Commitments and the sources for meeting these burdens. The short-term creditors like bankers and suppliers of raw material are more concerned with the firm's current debt-paying ability. On the other hand, long- term creditors like debenture holders, financial institutions are more concerned with the firm's long-term financial strength. To judge the long-term financial position of firm, financial leverage ratios are calculated. These ratios indicated mix of funds provided by owners and lenders. There should be an appropriate mix of Debt and owner's equity in financing the firm's assets. The process of magnifying the shareholder's return through the use of Debt is called "financial leverage" or "financial gearing" or "trading on equity". Leverage Ratios are calculated to measure the financial risk and the firm's ability of using Debt to share holder's advantage. 1. Debt equity ratio: It indicates the relationship describing the lenders contribution for each rupee of the owner's contribution is called debt-equity ratio. Debt equity ratio is directly computed by dividing total debt by net worth. Lower the debt-equity ratio, higher the degree of protection. A
  9. 9. 9 debt-equity ratio of 2:1 is considered ideal. The debt consists of all short term as well as long- term and equity consists of net worth plus preference capital plus Deferred Tax Liability. TOTAL DEBT DEBT EQUITY RATIO= ----------------------------------------------------- TOTAL DEBT+ TOTAL EQUITY 2. InterestCoverage Ratio: The interest coverage ratio or the time interest earned is used to test the firms’ debt servicing capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes by interest charges. The interest coverage ratio shows the number of times the interest charges are covered by funds that are ordinarily available for their payment. We can calculate the interest average ratio as earnings before depreciation, interest and taxes divided by interest. 3. Proprietary ratio The total shareholder's fund is compared with the total tangible assets of the company. This ratio indicates the general financial strength of concern. It is a test of the soundness of financial structure of the concern. The ratio is of great significance to creditors since it enables them to find out the proportion of share holders funds in the total investment of business. SHAREHOLDERS FUNDS PROPRIETOTY RATIO= ------------------------------------------- TOTLA ASSETS/FIXED ASSETS 4. DEBT RATIO: Several debt ratios may used to analyze the long-term solvency of a firm. The firm may be interested in knowing the proportion of the interest-bearing debt in the capital structure. It may, therefore, compute debt ratio by dividing total total debt by capital employed on net assets. Total debt will include short and long-term borrowings from financial institutions, EBIT INTEREST COVERAGE RATIO= ------------------------- INTEREST
  10. 10. 10 debentures/bonds, deferred payment arrangements for buying equipments, bank borrowings, public deposits and any other interest-bearing loan. Capital employed will include total debt net worth. 5. Capitalgearing ratio: This ratio makes an analysis of capital structure of firm. The ratio shows relationship between equity share capital and the fixed cost bearing i.e., preference share capital and debentures. EQUITY CAPITAL CAPITAL GEARING RATIO= ------------------------------------------------ P.SHARE CAPITAL +DEBENTTURES +LOANS C. ACTIVITY RATIOS Turnover ratios also referred to as activity ratios or asset management ratios, measure how efficiently the assets are employed by a firm. 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. The improvement turnover ratios are inventory turnover, average collection period, receivable turn over, fixed assets turnover and total assets turnover. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilize its assets. These ratios are also called turnover ratios because they indicate the speed with which assets are being converted or turned over into sales. Activity ratios thus involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that asset utilization. Activity ratios are divided into four types: inventory turnover ratio debtors turnover ratio Fixed assets turnover ratio Working capital turnover ratio Total assets turnover ratio TOTAL DEBTS DEBT RATIO= ------------------------------------ TOTAL ASSETS
  11. 11. 11 1. INVENTORY TURNOVER RATIO/STOCK TURNOVERRATIO: Inventory turnover ratio indicates the efficiency of the firms in producing and selling its products. It’s calculated by dividing the cost of goods sold by average inventory. 2. DEBTORSTURNOVER RATIO: Debtor’s turnover ratio indicates the relationship between sales and average debtors. It’s calculated by dividing sales by average debtors. Higher the turnover ratio indicates better performance and lower turnover indicates inefficiency. 3. FIXED ASSET TURNOVER RATIO: The firm may which to know its efficiency of utilizing fixed assets and current assets separately. The use of depreciated value of fixed assets in computing the fixed assets turnover may render comparison of firm's performance over period or with other firms. The ratio is supposed to measure the efficiency with which fixed assets employed a high ratio indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets. However, in interpreting this ratio, one caution should be borne in mind, when the fixed assets of firm are old and substantially depreciated the fixed assets turnover ratio tends to be high because the denominator of ratio is very low. 4. WORKING CAPITAL TURNOVER RATIO: Cost of goods sold STOCK TURNOVER RATIO= --------------------------------------- Average inventory NET SALES DEBTORS TURNOVER RATIO= ------------------------------- AVERAGE DEBTORS NET SALES FIXED ASSETS TURNOVER RATIOS= ----------------------- FIXED ASSETS
  12. 12. 12 This ratio measures the relationship between working capital and sales. The ratio shows the number of times the working capital results in sales. Working capital as usual is the excess of current assets over current liabilities. The following formula is used to measure the ratio: 5. CURRENT ASSET TURNOVEER RATIO: This ratio is calculated by dividing sales into current assets. This ratio expressed the number of times current assets are being turnover in standard period. This ratio shows how well the current assets are being used in the business. NET SALES CURRENT ASSET TURNOVER RATIO= ----------------------------- CURRENT ASSETS 6. TOTAL ASSET TURNOVER RATIO: This ratio expresses relationship between the amount invested in the asset and the result in term of sales. This is calculated by dividing the net sales by total assets. The higher the ratio means the better utilization and vice-versa. NET SALES TATAL ASSET TURNOVER RATIO= --------------------------- TOTAL ASSETS D. PROFITABILITYRATIOS: A company should earn profits to survive and grow over a long period of time. Profits are essential but it would be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits. Profit is the difference between revenues and expenses over a period of time. Profit is the ultimate 'output' of a company and it will have no future if it fails to make sufficient profits. The financial manager should continuously evaluate SALES WORKING CAPITAL TURNOVER RATIO= ------------------------------ WORKING CAPITAL
  13. 13. 13 the efficiency of company in terms of profits. The profitability ratios are calculated to measure the operating efficiency of company. Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of return on their investment. Generally, two major types of profitability ratios are calculated: o Profitability in relation to sales o Profitability in relation to investment Profitability Ratios can be divided into six types:  Gross profit ratio  Operating profit ratio  Net profit ratio  Return on investment  Earns per share  Operating expenses ratio 1. GROSS PROFIT RATIO: First profitability ratio in relation to sales is the gross profit margin the gross profit margin reflects the efficiency which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. A high gross profit margin is a sign of good management. A gross margin ratio may increase due to any of following factors: higher sales prices cost of goods sold remaining constant, lower cost of goods sold, sales prices remaining constant. A low gross profit margin may reflect higher cost of goods sold due to firm's inability to purchase raw materials at favourable terms, inefficient utilization of plant and machinery resulting in higher cost of production or due to fall in prices in market. This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of production as well as pricing. To analyze the factors underlying the variation in gross profit margin, the proportion of various elements of cost (Labour, materials and manufacturing overheads) to sale may study in detail. GROSS PROFIT GROSS PROFIT RATIO= -------------------------x100 NET SALES 2. Operatingprofitratio: This ratio expresses the relationship between operating profit and sales. It is worked out by dividing operating profit by net sales. With the help of this ratio, one can judge the managerial efficiency which may not be reflected in the net profit ratio.
  14. 14. 14 3. NET PROFIT RATIO: Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. Net profit margin ratio established a relationship between net profit and sales and indicates management's efficiency in manufacturing, administering and selling products. This ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm with a high net margin ratio would be in an advantageous position to survive in the face of falling selling prices, rising costs of production or declining demand for product this ratio shows the earning left for share holders as a percentage of net sales. It measures overall efficiency of production, administration, selling, financing. Pricing and tax management. Jointly considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit structure of the firm and enable the analyst to identify the sources of business efficiency / inefficiency. NET PROFIT NET PROFIT RATIO= ------------------------------x100 NET SALES 4. RETUN ON INVESTMENT: This is one of the most important profitability ratios. It indicates the relation of net profit with capital employed in business. Net profit for calculating return of investment will mean the net profit before interest, tax, and dividend. Capital employed means long term funds. OPERATING PROFIT OPERATING PROFIT RATIO = ---------------------------------x100 NET SALES E.B.I.T RETURN ON INVESTMENT= ------------------------------------ CAPITAL EMPLOYED
  15. 15. 15 5. EARNING PER SHARE: This ratio is computed by earning available to equity share holders by the total amount of equity share outstanding. It reveals the amount of period earnings after taxes which occur to each equity share. This ratio is an important index because it indicates whether the wealth of each share holder on a per share basis as changed over the period. 6. OPERATING EXPENSESRATIO: It explains the changes in the profit margin ratio. A higher operating expenses ratio is unfavourable since it will leave a small amount of operating income to meet interest, dividends. Operating expenses ratio is a yardstick of operating efficiency, but it should be used cautiously. It is affected by a number of factors such as external uncontrollable factors, internal factors. This ratio is computed by dividing operating expenses by sales. Operating expenses equal cost of goods sold plus selling expenses and general administrative expenses by sales. 7. DIVIDEND PER SHARE: The net profit after tax belongs to shareholders. But the income they really receive is the amount of earning as cash dividends. 8. DIVIDEND PAYOUT RATIO: It measures the relationship between the returns available to equity shareholders and the dividend paid to them. It reveals what portion of earning per share has been used for paying dividend and what has been retained for sloughing back. DIVIDEND PER SHARE DIVIDEND PAYOUT RATIO=----------------------------------- EARNING PER SHARE NET PROFIT EARNING PER SHARE= ------------------------------------------ NUMBER OF EQUITY SHARES OPERATING EXPENSES OPERATING EXPENSES RATIO= -----------------------------------x100 SALES DIVIDEND DIVIDEND PER SHARE=------------------------ NUMBER OF SHARES
  16. 16. 16 CHAPTER-II INDUSTRY AND COMPANY PROFILE
  17. 17. 17 INDUSRTY PROFILE A battery is an electrochemical device in which the free energy of a chemical reaction is converted into electrical energy. The chemical energy containing in the active material is converted into electrical by mean of electrochemical oxidation-reduction reaction. Sealedmaintenance free (SMF)batteries Sealed maintenance frees SME) batteries technologies are leading the battery industry in the recent years in automobile and industrial sector around the globe. SMF batteries come under the rechargeable batteries category so it can be used as life of times of a battery. SMF batteries are more economical than nickel cadmium batteries. These batteries are more compact than the west type batteries. It can be used at any position, these batteries are very popular for portable power requirements and space constraint applications. Value regulatedlead acid (VRLA) batteries VRLA batteries are leak proof; spell proof and explosion-restraint and having life duration of 15- 20 years. These batteries withstand the environment conditions due to high technology, in build in the batteries. Classificationsofbatteries Batteries are broadly classified into two segments like,  Automotive batteries  Industrial batteries Automotive batteries Apart from mopeds all other automobiles including scooters need storage battery So automotive batteries are plying the predominant role in automobile sector by influencing customers in the automobile market. Industrial batteries The industrial battery segment comprises of two main categories. One comprises of the stationary segment and the second relating to “motive; power and electrical vehicles”. The motive power electrical vehicles segment comprising of telecom, railways and power industries have registered a growth in excess of 20% and this trend is likely to continue in the next five years.
  18. 18. 18 Majormanufacturers in battery industry in India The following are the major manufacturer in battery industry in India.  Exide batteries  Standard batteries  Amco batteries  Tudor batteries  Amara raja batteries  Hyderabad batteries SME batteries are value regulated lead acid (VRLA) technologies are leading the battery industry in the recent years. CharacteristicsofVLRA batteries DMF batteries are comes under the rechargeable battery category so it can use a number of times in the life of a battery. SMF are more economical than nickel cadmium batteries. These batteries are more compact than the wet type batteries. It can be used at any position: then batteries are very popular of portable power requirement and space constraint applications. VLRA batteries are leak proof, spill-proof and explosion resistant and having life duration of 15-20 years. These batteries withstand the environmental condition due to high technology in built in the batteries. Prospects of SMF/VRLA batteries in India The following are influencing the demand for VRLA technology batteries. Entry for multinational in telecom industry DOT’S policy decision to upgrade the overall technology base. Constraint in the use of conventional batteries in radio paging and cellular segments. Telecom The government policy to increase the capacity from 10 million to 21 million lines by 2020 increasing the demand for storage batteries considerably the value added services like radio paging and cellular will increase the demand for storage batteries in future considerably. Railways In railways the demand estimate is based on the annual coach production this comes to 2500 numbers by railways itself and by various other segments, replacement demand and annual requirements for railways electrification.
  19. 19. 19 COMPANY PROFILE Amara Raja Batteries (ARBL) incorporated under the companies Act, 1956 in 13th February 1985, and converted into public Limited Company on 6th September 1990. The chairman and Managing Director of the company is “Sri Gala Ramachandra Naidu”. ARBL is a first company in India, which manufactures Values regulated Lead Acid (VRLA) Batteries. The main objectives of the company are a manufacturing of good quality of “Sealed Maintenance Free” (SMF) acid batteries. The company is setting up to Rs.1, 920 lakhs plant is in 185 acres in Karakambadi village, Renigunta Mandal. The project site is notified under “B” category. The company has the clear-cut policy of direct selling without any intermediate. So they have set up six branches and are operated by corporate operations office located in Chennai. The company has virtual monopoly in higher A.H. (Amp Hour) rating Market its product VRLA. It is also having the facility for industrial and automotive batteries. Amara Raja is 5 ‘S ’Company and its aim are to improve the work place environment by using 5‘S techniques which is A systematic and rational approach to workplace organization and methodical house keeping with a sense of purpose, consisting of the following five elements 1. SEIRI - Sort out 2. SEITON -Systematic arrangement 3. SEISO -Spic and span 4. SEIKETSU -Standardization 5. SHITSUKI -Self discipline CULTURE AND ENVIRONMENT  Amara Raja is putting a number of HRD initiatives to foster a spirit of togetherness and a culture of meritocracy. Involving employees at all levels in building organizational support plans and in evolving our vision for the organization.  ARBL encourages initiative and growth of young talent allows the organization to develop innovation solution and ideas.  Benchmark pollution control measures, energy conversation measures, waste reduction schemes, massive green belt development programs, employee health monitoring and industrial safety programs have helped ARBL to take further environment management program.  Amara Raja has now targeted to secure the ISO 14001 certification.
  20. 20. 20 RESEARCH& DEVELOPMENT Specific areas in which the company carries out R&D are; 1. New product development. 2. Process technology up gradation. 3. Application engineering for new market place. 4. Quality improvement. Benefits derived as a result of above R&D, o Developed 4v/200 AH batteries. o Design optimization of higher AH batteries for DOT application. o Design optimization of batteries 92v/1285 AH for TL/AC-Railway application. o Formation cycle optimization results in reduced duration and rejection. o Chemist curing cycle optimization. o Manufacture of automobile battery for four-wheeler vehicles. MILESYONES OF ARBL YEAR Mile stone 1997 100 crores turnover 1997 ISO-9001 Accreditation 1999 S-9000 Accreditation 2002 SO-14001Certification AWARDS  “The spirit of Excellence”- Awarded by academy of fine arts, Tirupati.  “Best Entrepreneur of the year 1998”-awarded by Hyderabad Management Association, Hyderabad.  “Industrial Economist Business Excellence Award – 1991”- Awarded by the industrial Economist, Chennai.  “Excellence Award”-by institution of economic studies (ES), New Delhi.  “Udyog Rattan Award”- by institution of economic studies, New Delhi.  “QI CERTIFICATE” –2002 - By FORD Company. Quality control
  21. 21. 21 ARBL’s main aim is to achieve customer satisfaction through the collective commitment of employees in design; manufacture and marketing of reliable power systems, batteries, allied products and services. To accomplish above, ARBL focus on  Establishing superior specifications for our products and processes.  Employing state-of-the-art technologies and robust design principles.  Striving for continuous improvements in process and product quality.  Implementing methods and techniques to monitor quality levels.  Providing prompt after sales service. ARBL comprises of two major divisions wiz, industrial battery division and Automotive battery division. Total strength of ABRL comes around 1350. INDUSTRIAL BATTERYDIVISION (IBD) Amara Raja has become the benchmark in the manufacturer of industrial batteries. India is one of the largest and fastest growth markets for industrial batteries in the world. Amara Raja is leading in the front, with an 80% market share is stand by VRAL batteries point of view. It is also having the facility for production plastic components. ARBL is the first company in India to manufacture VRLA (SMF) Batteries. The initial investment of the company has Rs.1920 lakhs; the total land is around 18 acres in Karambadi village, Renigunta Mandal. The project site is notified under ‘B’ category. PLATE PREPARATION Using lead oxide production in earlier stage positive and negative paste is prepared with addition of sulphuric acid and water. These pastes are applied to respective grids using industrial fasting machines. CALL ASSEMBLY Here positive and negative grids are separated by a sheet of fibreglass mat bush bars are welded and as assembled into a jar or container to form battery cells. Then these cells are assembled according to the customer’s specification into battery sets or systems. FORMATION In this process cells are filled with the electrolyte (surphuric acid) and then the set is charged and discharged repeatedly, after final charging the battery comes out ready to be used. Competitors
  22. 22. 22 The Major competitors for Amara Raja Batteries are “Exude industries Ltd, and GNB”. AUTOMOTIVE BATTERYDIVISION (ABD) ARBL has inaugurated its new automotive plant at Karakambadi in Tirupati on September 24th, 2001. This plan is a part of the most completely integrated battery manufacturing facility in India with all critical components, including plastics sourced in-house from existing facilities on site. In this project, Amara Raja’s strategic alliance partners Johnson Control Inc., of USA have closely worked technology and plant engineering. It is also having the facility for producing plastic components required for automotive batteries. Capacity With an existing production capacity of 5 lakhs units of automotive batteries, the new Greenfield plant will now be able to produce 1 million batteries per annum. This is the first phase in the enhancement of Amara Raja’s production capacity, for this the company has invested Rs.45 crores and the next phase, at an additional cost of Rs.25 crores, for this the production capacity will be increase to 2 million units and the company has estimated to complete around 3 years, after that ARBL will become the single largest battery of manufacturer in Asia. The fiscal year 2005-2006’s capacity Of ABD is 2.2 million numbers of batteries per year. Products The products of ABD are  Amaron Hi-way  Amaron Harvest  Amaron shield  Amaron Highlife The plastic products of ABD are “jars” and “jar covers”. Customers ARBL has prestigious OEM (Original Equipment Manufacturer) clients like FORD, GENERAL MOTORS, DAEWOO MOTORS, MERCEDES BENZ, DAIMLER CHRYSLER, MARUTI UDYOG LTD., premier Auto Ltd., and recent acquired a preference supplier alliance with ASHOK LEYLAND, HINDUSTAN MOTORS, TELCO, MAHINDRA & MAHINDRA and SWARAJ MAZDA.
  23. 23. 23 COMPETITORS EXIDE PRESTOLITE AMCO. MAJOR USERS 1. RAILWAYS Train lighting air conditioning, diesel engine starting, signalling systems, control systems, emergency breaking systems, and telecommunications. 2. TELECOMMUNICATION Central office power plants, microwave repeaters station, RAX in public building, emergency lighting system at airports, fire alarm system etc., 3. POWER SYSTEMS Switch gear control systems, powerhouse control systems, rural street lighting etc. 4. TRACTION Forklift trucks, earth moving machinery, mining locomotives and road vehicles etc. AMARA RAJA GROUP OF COMPANIES  AMARA RAJA POWER SYSTEMS PRIVATE Ltd. (ARPSL), Karakambadi, Tirupati.  MANGAL PRECISION PRODUCTS PRIVATE Ltd1. (MPPL1), Karakambadi, Tirupati.  MANGAL PRECISION PRODUCTS PRIVATE Ltd2. (MPPL2), Petamitta, Chittoor.  AMARA RAJA ELECTRONICS PRIVATE LIMITED (AREPL), Dighavamgham, Chittoor.  GALLA FOODS PRIVATE LIMITED (GFPL), Puthalapattu Mandal, Chittoor.
  24. 24. 24 CHAPER III RESEARCH METHODOLOGY
  25. 25. 25 NEED OF THE STUDY 1. The study has great significance and provides benefits to various parties whom directly or indirectly with the company. 2. To express the relationship between different financial aspects in such a way that it allows the user to draw conclusions about the performance, strengths and weaknesses of the company. 3. To diagnose the information contained in financial statement so as to judge the profitability of the firm. 4. The study helps to know a liquidity, solvency, profitability and turnover position of the company.
  26. 26. 26 SCOPE OF THE STUDY The scope of the study is limited to collecting financial data published in the annual reports of the company every year. The analysis is done to suggest the possible solutions. The study is carried out for 5 years (2009–14). The present study is confined to only Amara raja batteries Limited only.
  27. 27. 27 OBJECTIVE OF THE STUDY 1. To study and analyze the financial position of the Company through ratio analysis 2. To analyze the profitability position of the ARBL. 3. To determine the long term solvency position of ARBL. 4. To suggest the feasible solution to improve the overall efficiency of the ARBL.
  28. 28. 28 RESEARCHMETHODOLOGY The main aim of the study is to know the financial performance of the Amara raja batteries limited, Tirupati, Chittoor Dist. Research Any efforts which are directed to study of strategy needed to identify the problems and selection of best solutions for better results are known as research. Research Design In view of the objects of the study listed above an exploratory research design has been adopted. Exploratory research is one which is largely interprets and already available information and it lays particular emphasis on analysis and interpretation of the existing and available information. A. To know the financial status of the company. B. To know the credit worthiness of the company. C. To offer suggestions based on research finding. Data Collection Methods Primary Data Information collected from internal guide and finance manager. Secondarydata a. Company balance sheet and profit and loss account. b. Company’s annual reports c. Company websites www.amararaja.co.in www.arbl.com d. Books Financial management : I.M. Pandey Financial management : Prasanna Chandra TOOLS AND TECHNIQUES  Time –series analysis  Cross sectional analysis
  29. 29. 29 LIMITATION OF THE STUDY The following are the limitation of the study 1. The study was limited to only five years Financial Data. 2. The study is purely based on secondary data which were taken primarily from Published annual reports of Amararaja batteries Ltd., 3. There is no set industry standard for comparison and hence the inference is made on general standards. 4. The ratio is calculated from past financial statements and these are not indicators of future.
  30. 30. 30 CHAPTER IV DATA ANALYSIS AND INTERPRETATION
  31. 31. 31 1. LIQUIDITY RATIO’S A. CURRENT RATIO The current ratio is the between all current assets and all current liabilities; another way of expressing liquidity. It is a measure of the 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. Table: 4.1 YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO 2009-10 1,593,241,430 6,35,941,300 2.50 2010-11 1,612,642,497 638,958,266 2.52 2011-12 2,280,704,176 1,181,003,846 1.93 2012-13 3,500,193,294 1,312,272,610 2.67 2013-14 5,975,961,025 2,020,744,952 2.96 CURRENT ASSETS CURRENT RATIO= ----------------------------------- CURRENT LIABILITIES
  32. 32. 32 CHART: 4.1: CURRENT RATIO INTERPRETATION: The standard norm for current ratio is 2:1. During the year 2009 the current ratio is 2.5 and During the year 2010-11 the ratio is 2.52 and it has decreased to 1.93 during the y ear 2011-12 and increased to 2.67 in 2012-13 and it is increased to 2.67 in the year 2013-14 and it has increased to 2.96 in the year 2014. The ratio above was standard except in the year 2011. So the ratio was satisfactory. 0 0.5 1 1.5 2 2.5 3 2009-10 2010-11 2011-12 2012-13 2013-14 current ratio 2.5 2.52 1.93 2.67 2.96 2.5 2.52 1.93 2.67 2.96 CURRENTRATIO CURRENTRATIO
  33. 33. 33 B. QUICK RATIO Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. TABLE: 4.2 QUICK ASSETS QUICK RATIO= ------------------------------------------ CURRENT LIABILITIES YEAR QUICK ASSETS CURRENT LIABILITIES QUICK RATIO 2009-10 1,171,600,450 628,525,100 1.86 2010-11 1,171,683,584 638,958,266 1.83 2011-12 1,708,741,955 1,181,003,846 1.45 2012-13 2,578,479,879 1,312,272,610 1.96 2013-14 4,032,625,321 2,020,744,952 1.99
  34. 34. 34 CHART4. 2: QUICK RATIO INTERPRETATION: The standard form of a quick ratio is 1:1. Quick ratio is decreased in the year 2010 to 1.83 from 2.45. Then, it decreased to 1.45 in the year 2011. And it has increased to 1.96 in the year 2012 and then it increased to 1.99 in the year 2013-14.however the ratio is more than the standard norms so it is satisfactory. 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2009-10 2010-11 2011-12 2012-13 2013-14 QUICK RATIOS 1.86 1.83 1.45 1.96 1.99 1.86 1.83 1.45 1.96 1.99 QUICKRATIOS QUICK RATIOS
  35. 35. 35 C. CASH RATIO Cash ratio is the ratio between cash plus marketable securities and current liabilities. TABLE4.3:CASH RATIO YEAR Cash +bank +marketable securities Current liabilities Cash ratio 2009-10 169,120,500 638,910,250 0.26 2010-11 169,121, 827 638,958,266 0.26 2011-12 205,212,363 1,181,003,846 0.17 2012-13 256,000,280 1,312,272,610 0.20 2013-14 511,453,739 2,020,744,952 0.25 CASH+BANK+MARKETABLE SECURITIES CASH RATIO= ----------------------------------------------- CURRENT LIABILITIES
  36. 36. 36 CHART4.3:CASH RATIO INTERPRETATION: In all the above years the absolute quick ratio is very low. The standard norm for absolute quick ratio is 1:2 the company is failed in keeping sufficient Cash & Bank Balances and Marketable Securities. 0 0.05 0.1 0.15 0.2 0.25 0.3 2009-10 2010-11 2011-12 2012-13 2013-14 cash ratio 0.26 0.26 0.17 0.2 0.25 0.26 0.26 0.17 0.2 0.25 CASHRATIO cash ratio
  37. 37. 37 2. LEVERAGE RATIOS A. TOTAL DEBT RATIO TABLE 4.4:TOTAL DEBT RATIO TOTAL DEBT TOTAL DEBT RATIO= --------------------------------------------- TOTAL DEBT+ NET WORTH year Total debt Total debt+ net worth Total debt ratio 2009-10 232,111,700 2,035,900,500 0.11 2010-11 233,058,880 2,039,907,551 0.11 2011-12 378,672,427 2,391,525,347 0.16 2012-13 1,407,083,880 3,843,741,557 0.37 2013-14 3,162,620,560 3,493,635,030 1.10
  38. 38. 38 CHART4.4: TOTALDEBT RATIO INTERPRETATION: This ratio gives results relating to the capital structure of a firm. Debt ratio is 0.08 in the year 2010 it increased to 0.11 & 0.16 in the corresponding years 2011 & 2012. Again it is increased to 0.37 & 1.10 in the year 2013& 2014. From the above in fluctuating trend we can conclude that the company’s dependence on debt is increasing. It is not better position in collection of debt. 0 0.2 0.4 0.6 0.8 1 1.2 2009-2010 2010-11 2011-12 2012-13 2013-14 Total debt ratio 0.11 0.11 0.16 0.37 1.1 0.11 0.11 0.16 0.37 1.1 debtratios Total debt ratio
  39. 39. 39 B. DEBT EQUITY RATIO Debt equity ratio indicates the relationship describing the lenders contribution for each rupee of the owner’s contribution is called debt- equity ratio. Debt equity ratio is computed by dividing Long term Liabilities divided by Equity. Lower debt – equity ratio higher the degree of protection. A debt-equity ratio of 2:1 is considered ideal. TABLE4.5:DEBT EQUITY RATIO LONG TERM DEBTS DEBT EQUITY RATIO= ---------------------------------------- EQUITY CAPITAL year Long terms debts Equity capital Debt-equity ratio 2009-10 232,100,550 1,804,550,420 0.12 2010-11 233,058,880 1,806,848,650 0.13 2011-12 378,672,427 2,012,852,920 0.19 2012-13 1,407,083,880 2,436,657,677 0.58 2013-14 3,162,620,560 3,331,014,470 0.95
  40. 40. 40 CHART NO 4.5:DEBT EQUITY RATIO INTERPRETATION: The ratio gives results relating to the capital structure of a firm. Debt equity ratio is 0.09 in the year 2010 and it increased to 0.13 & 0.19 in the year 2011 and 2012. In the year 2013 & 2014 the ratio has increased to 0.5 8 & 0.95. We can conclude that the company depends on the debt fund is increasing. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 2009-10 2010-11 2011-12 2012-13 2013-14 D-E RATIO 0.12 0.13 0.19 0.58 0.95 0.12 0.13 0.19 0.58 0.95 D-ERATIOS D-E RATIO
  41. 41. 41 C. INTERESTCOVERAGE RATIO The ratio shows the number of times the interest charges are covered by funds that are ordinarily available for their payment. TABLE4. 6: INTEREST COVERAGERATIO YEAR EBIT INTEREST INTEREST COVERAGE RATIO 2009-10 136,750,450 1,446,430,4 94.54 2010-11 137,259,583 1,448,42754 94.76 2011-12 386,899,738 1,3435,515 28.80 2012-13 742,908,741 3,0924,293 24.02 2013-14 1 ,588,690,299 129,308,874 12.29 EBIT INTEREST COVERAGE RATIO=------------------------- INTERST
  42. 42. 42 CHART 4.6:INTEREST COVERAGERATIO INTERPRETATION: Interest coverage ratio is 07.56 in the year 2009. It is increased automatically to 94.76 in the year 2010. But, it is decreased to 28.80 in the year 2011 and decreased to 24.02 in the year 2012 and it again decreased to 12.29 in the year 2013-14. In this position outside investors is interested to invest the money in this company. 0 10 20 30 40 50 60 70 80 90 100 2009-10 2010-11 2011-12 2012-13 2013-14 interest coverage ratio 94.56 94.76 28.8 24.02 12.29 94.56 94.76 28.8 24.02 12.29 interestcoverageratio interest coverage ratio
  43. 43. 43 D. SHAREHOLDERS EQUITY RATIO/PROPRIETORYRATIO: This ratio indicates the extent to which the total assets of the entity are financed by proprietary funds. TABLE4.7: PROPRITORYRATIO SHAREHOLDERS FUNDS PROPRITORY RATIO= ----------------------------------------- TOTAL ASSETS year Net worth Total asset Proprietary ratio 2009-10 1,804,846,650 2,805,770,200 0.64 2010-11 1,806,848,671 2 ,809,793,132 0.64 2011-12 2,012,852,920 3 ,692,541,508 0.54 2012-13 2,436,657,677 5 ,292,107,128 0.46 2013-14 3,331,014,470 8 ,683,886,037 0.38
  44. 44. 44 GRAPH 4.7:PROPRIETORYRATIO INTERPETATION: The funds financed by the proprietaries in the total funds are continuously decreased from year 2010 to 2014. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 2009-10 2010-11 2011-12 2012-13 2013-14 propritory ratio 0.64 0.645 0.54 0.46 0.38 0.64 0.645 0.54 0.46 0.38 proprietoryratio propritory ratio
  45. 45. 45 3. ACTIVITY TATIO : A. INVENTORYTURN OVER RATIO It indicates the firm efficiency of the firm in producing and selling its product. It is calculated by dividing the cost of goods sold by the average inventory. CHART4.8: INVENTORYTURNOVER RATIO: COST OF GOODS SOLD INVENTORY TURNOVER RATIO= ----------------------------------- AVERAGE INVENTIRY YEAR COST OF GOODS SOLD AVERAGE INVENTORY INVENTORY TURNOVER RATIO 2009- 10 2,218,490,920 371,098,120 5.97 2010- 11 2,228,549,828 374,102,223 5.96 2011- 12 3,499,805,230 506,460,567 6.91 2012- 13 5,324,665,192 746,837,818 7.13 2013- 14 9,782,463,974 1,432,524,559 6.83
  46. 46. 46 GRAPH 4.8:INVENTORYTURNOVER RATIO INTERPRETATION: Inventory turnover ratio is 5.57 Times in the year 2009. But, it is increased to 5.96 in the Year 2010. Then, it is increased to 6.91 in the year 2011 and again increased to 7.13 in the year 2012. But, it is decreased to 6 .83 in the year 2013-14. Inventory turnover ratio increased for year Year that is company production is also increased. Subsequently sales are also increased. 5.2 5.4 5.6 5.8 6 6.2 6.4 6.6 6.8 7 7.2 2009- 10 2010- 11 2011- 12 2012- 13 2013- 14 inventory turnover ratio 5.97 5.96 6.91 7.13 6.83 5.97 5.96 6.91 7.13 6.83 inventoryturnoverratio inventory turnover ratio
  47. 47. 47 B. DEBTORS TURNOVERRATIO It is found out by dividing t he credit sales by average debtors. Debtor’s turnover indicates the number of times debtor’s turnover each year. TABLE 9: DEBTORSTURNOVER RATIO year sales Average debtors Debtors turnover ratio 2009-10 2,596,350,100 550,720,552 4.71 2010-11 2,685,436,096 560,689,881 4.79 2011-12 4,458,29 5,779 753,113,338 5.92 2012-13 7,451,03 2,998 1 ,158,032,767 6.43 2013-14 13,499,867,499 1 ,862,113,498 7.25 sales Debtors turnover ratio=---------------------------------------- Average debtors
  48. 48. 48 GRAPH 9: DEBTORS TURNOVERRATIO INTERPRETATION: Debtor’s turnover ratio is 4.71 times in the year 2010 and it is increased to 4.7 9 times in the year 2011 and increased to 5.92 times in the year 2012 and it increased t o 6.43 times &7.25 times in the years 2013 &2014. 0 1 2 3 4 5 6 7 8 2009- 10 2010- 11 2011- 12 2012- 13 2013- 14 DEBTORS TURNOVER RATIO 4.71 4.79 5.92 6.43 7.25 4.71 4.79 5.92 6.43 7.25 DEBTORSTURNOVERRATIO DEBTORS TURNOVER RATIO
  49. 49. 49 C. FIXED ASSET TURNOVER RATIO The ratio is supposed to measure the efficiency with which fixed assets are employed a high ratio indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets. However, in interpreting this ratio, one caution should be borne in mind. When the fixed assets of the firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high because the denominator of the ratio is very low. NET SALES FIXED ASSET TURNOVER RATIO=------------------------------- NET FIXED ASSETS TABLE4.10: FIXED ASSET TURNOVER RATIO YEAR NET SALES NET FIXED ASSETS FIXED ASSET TURNOVER RATIO 2009-10 2,543,521,120 930,571,365 2.73 2010-11 2,685,436,096 948,631,374 2.83 2011-12 4,458,295,779 1,043,547,559 4.27 2012-13 7,451,032,998 1,568,304,581 4.75 2013-14 13,499,867,499 1,888,508,475 7.15
  50. 50. 50 GRAPH 4.10: FIXED ASSET TURNOVER RATIO INTERPRETATION: Fixed assets turnover ratio is 2.83 in the year 2010 and it is increased to in the year 2011. I n the year 2012 the ratio is 4.27 and it continued up to 4.75 and to 7.15 in the years 2013&2014. 0 1 2 3 4 5 6 7 8 2009-10 2010-11 2011-12 2012-13 2013-14 fixed asset turnover ratio in times 2.73 2.83 4.27 4.75 7.15 2.73 2.83 4.27 4.75 7.15 fixedassetturnoverratio fixed asset turnover ratio in times
  51. 51. 51 D. TOTAL ASSET TUENOVER RATIO This ratio ensures whether the capital employed has been effectively used or not. This is also test of managerial efficiency and business performance. Higher total capital turnover ratio is always required in the interest of the company. NET SALES TOTAL ASSET TURNOVER RATIO= ------------------------------------- CAPITAL EMPLOYED TABLE 4.11: TOTAL ASSET TURNOVER RATIO YEAR NET SALES CAPITAL EMPLOYED TOTAL ASSET TURNOVER RATIO 2009-10 2,564,351,141 2,756,921,250 0.93 2010-11 2,685,43 6,096 2 ,809,793,132 0.96 2011-12 4,458,29 5,779 3 ,692,541,508 1.21 2012-13 7,451,03 2,998 5 ,292,107,128 1.41 2013-14 13,499,867,499 8 ,683,886,037 1.55
  52. 52. 52 GRAPH 4.11: TOTAL ASSET TURNOVER RATIO INTERPRETATION: Total assets ratio is 0.93 in the year 2010 and it gradually increased year by year and reached to 1.56 in the year 2014. It means Total Assets is increased in every year. 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 2009-10 2010-11 2011-12 2012-13 2013-14 TOTAL ASSET TURNOVER RATIOS IN TIMES 0.93 0.96 1.21 1.41 1.56 0.93 0.96 1.21 1.41 1.56 TOTALASSETTURNOVERTATIO TOTAL ASSET TURNOVER RATIOS IN TIMES
  53. 53. 53 E. WORKING CAPITAL TURNOVER RATIO A firm may also like to relate net current assets or net working capital to sales. Working capital turnover indicates for one rupee of sales the company needs how many net current assets. This ratio indicates whether or not working capital has been effectively utilized market sales. TABLE 4.12: WORKING CAPITAL TURNOVER RATIO YEARS SALES WORKING CAPITAL WORKING CAPITAL TURNOVER RATIO 2009-10 2,751,456,125 965852720 2.84 2010-11 2 ,685,436,096 973684291 2.76 2011-12 4 ,458,295,779 1,099700330 4.05 2012-13 7 ,451,032,998 2,187920684 3.41 2013-14 1 3,499,867,4 99 3,955216073 3.41 SALES WORKING CAPITAL TURNOVER RATIO=--------------------------------------- WORKING CAPITAL
  54. 54. 54 GRAPH 4.12: WORKING CAPITAL TURNOVER RATIO INTERPRETATION: Working capital turnover ratio is 2.84 in the year 2010 and it is increased to 2.76 in the year 2011. In the year 2012 increased to 4.05. Again it decreased to 3.41 in the year 2013&2014.The higher the working capital turnover then more favorable for the company. 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2009-10 2010-11 2011-12 2012-13 2013-14 wirking capital turnover ratio in times 2.84 2.76 4.05 3.41 3.41 2.84 2.76 4.05 3.41 3.41 workingcapitalturnoverratio wirking capital turnover ratio in times
  55. 55. 55 F. NET ASSET TURNOVER RATIO TABLE 4.13: NET ASSET TURNOVER RATIO YEARS SALES NET ASSET NET ASSET TURNOVER RATIO 2009-10 2,751,456,125 1,752,324.530 1.57 2010-11 2,685,436,096 1, 935,207,71 4 1.39 2011-12 4,458,295,779 2, 191,397,00 6 2.03 2012-13 7,451,032,998 3, 817,892,86 2 1.95 2013-14 13,499,86 7,499 6, 501,134,46 0 2.08 SALES NET ASSET TURNOVER RATIO= ----------------------------- NET ASSET
  56. 56. 56 GRAPH 4.13: NET ASSET TURNOVER RATIO INTERPRETATION: Net Assets turnover ratio is 1.57 in the year 2010 and it is increased to 1.39 in the year 2011 and it is increased to 2.0 3 in the year 2012. And, it decreased to 1.95 in the year 2013 and it slightly increased to 2.08 in the year 2014. 0 0.5 1 1.5 2 2.5 200 9-10 201 0-11 201 1-12 201 2-13 201 3-14 NET ASSET TURNOVER RATIO IN TIMES 1.57 1.39 2.03 1.95 2.08 1.57 1.39 2.03 1.95 2.08 NETASSETTURNOVERRATIO NET ASSET TURNOVER RATIO IN TIMES
  57. 57. 57 G. CAPITAL TURNOVER RATIO The ratio obtains by dividing sales with the capital employed. TABLE 4.14: CAPITAL TURNOVER RATIO SALES CAPITAL ASSEET TURN OVER RATIO= ---------------------------------- CAPITAL EMPLOYED YEARS SALES CAPITAL EMPLOYED CAPITAL TURNOVER RATIO 2009-10 2,751,456,125 2,221,920,756 1.23 2010-11 2,685,436,096 2,1 70,834,866 1.24 2011-12 4,458,295,779 2,5 11,537,662 1.78 2012-13 7,451,032,998 3,9 79,834,518 1.87 2013-14 13,499,867, 499 6,6 63,141,085 2.03
  58. 58. 58 GRAPH 4.14: CAPITAL TURNOVER RATIO INTERPRETATION: Capital turnover ratio is 1.23 in the y ear 2010 and it is increased 1.24 in the year 2011 and it is increased to 1.7 8 in the year 2012 and again it is increased to 1.87 in the year 2013.Then, it increased to 2.03 in the year 2014. 0 0.5 1 1.5 2 2.5 2009- 10 2010- 11 2011- 12 2012- 13 2013- 14 capital turnover ratio in times 1.23 1.24 1.78 1.87 2.03 1.23 1.24 1.78 1.87 2.03 capitalturnoverratio capital turnover ratio in times
  59. 59. 59 4. PROFITABILITY RATIOS A. GROSS PROFIT RATIO: This ratio shows that the margin left after meeting manufacturing costs. It measures the efficiency of production as well as pricing. GROSS PROFIT GROSS PROFIT RATIO= ---------------------------- NET SALES Gross profit= Net sales-Cost of goods sold Cost of goods sold= Opening stock+ material consumed+ mfg .exp- closing stock TABLE 4.15: GROSS PROFIT RATIO YEARS GROSS PROFIT NET SALES GROSS PROFIT RATIO 2009-10 453,720,910 2,751,456,125 16 2010-11 456,886,268 2,685,436,096 17 2011-12 958,490,549 4,458,295,779 21.5 2012-13 2,126,367,806 7,451,032,998 28.5 2013-14 3,717,403,516 13,499,867,499 27.5
  60. 60. 60 GRAPH 15: GROSS PROFIT RATIO INTERPRETATION: 0 5 10 15 20 25 30 2009-10 2010-11 2011-12 2012-13 2013-14 gross profit in ratios 16 17 21.5 28.5 27.5 16 17 21.5 28.5 27.5 grossprofitratios gross profit in ratios From the above we can say that gross profit ratio is 16% in the year 2010 but it increased to 17 % &21.5% in 2011&2012 and a gain it increased to 28.5% in the year 2013 and it is decreased to 27.5% in the Year 2014.The company is maintaining proper control on Trade Activities.
  61. 61. 61 B. NET PROFIT RATIO This ratio also indicates the firm's capacity to wit h stand adverse economic conditions. A firm with a high net margin ratio would be in an advantageous position to survive in the face falling selling prices, rising costs of production or declining demand for the product. NET PROFIT NET PROFIT RATIO= -------------------------- NET SALES TABLE 4.16: NET PROFIT RATIO: YEARS NET PROFIT NET SALES NET PROFIT RATIO 2009-10 84,750,325 2,751,456,125 3.08 2010-11 86,900,563 2,685,436,096 3.2 2011-12 238,465,730 4,458,295,779 5.3 2012-13 470,434,575 7,451,032,998 6.3 2013-14 9,436,315,11 13, 499,867,49 9 6.99
  62. 62. 62 GRAPH 4.16: NET PROFIT RATIO INTERPRETATION: During the year 2010 the net profit margin is 3.08 it suddenly increased to 3.2% in the year 2011 because of decreased in administration and selling expenses. In the next year, it again increased to 5.3 in the year 2012 and it again increased to 6.3 in 2013 and to 6.99 in the year 2014. 0 1 2 3 4 5 6 7 2009-10 2010-11 2011-12 2012-13 2013-14 net profit in ratios 3.08 3.2 5.3 6.3 6.99 3.08 3.2 5.3 6.3 6.99 net profit in ratios
  63. 63. 63 C. OPERATING EXPENSES RATIO: The Operating expenses ratio explains the changes in the profit margin ratio. A higher operating expense is unfavourable since it will leave a small amount of operating income to meet interest, dividends. OPERATING EXPENSES OPERATING EXPENSES RATIO=-------------------------------------x100 SALES TABLE 4.17: OPERATING EXPENSES RATIO: YEARS OPERATING EXPENSES SALES OPERATING EXPENSES RATIO 2009-10 354,543,827 2,751,456,125 12.8 2010-11 376,620,609 2,685,436,096 14.02 2011-12 550,626,756 4,458,295,779 12.35 2012-13 767,790,197 7,451,032,998 10.30 2013-14 1,388,735,777 13,499,867,499 10.30
  64. 64. 64 GRAPH 17: OPERAING EXPENSES RATIO INTERPRETATION: Operating expenses ratio is 12.80%of sales in the year 2010 it decreased to 14.02% in the year 2011 and decreased in 2012 to12.35% and again it decreased in the next year 2013 to 10.30% and continued the same way. Then, it reached 10.30% in the year 2014. 0 2 4 6 8 10 12 14 16 2009- 10 2010- 11 2011- 12 2012- 13 2013- 14 operaing expenses in ratios 12.8 14.02 12.35 10.3 10.3 12.8 14.02 12.35 10.3 10.3 operaingexpensesinratios operaing expenses in ratios
  65. 65. 65 D. RETURN ON INVESTMENT The conventional approach of calculated ROI is to divide PAT by investment. EBIT RETURN ON INVESTMENT= ------------------------------------ CAPITAL EMPLOYED TABLE 4.18: RETURN ON INVESTMENT YEARS EBIT CAPITAL EMPLOYED RETURN ON INVESTMENT 2009-10 135,350,510 2,350,743,945 0.05 2010-11 137,259,583 2,170,834,866 0.06 2011-12 386,899,738 2,511,537,662 0.15 2012-13 742,908,741 3,979,834,518 0.19 2013-14 1,588,690,299 6,663,141,085 0.24
  66. 66. 66 GRAPH 4.18: RETURN ON INVESTMENT INTERPRETATION: Return on Investment is very low in all years. But, in the year the 2013-14 in increased to 0.24 .it was continuously increasing comparing to past years 0 0.05 0.1 0.15 0.2 0.25 2009- 10 2010- 11 2011- 12 2012- 13 2013- 14 RETURN ON INVESTMENT 0.05 0.06 0.15 0.19 0.24 0.05 0.06 0.15 0.19 0.24 RETURNONINVESTMENT RETURN ON INVESTMENT
  67. 67. 67 E. RETURN ON EQUITY The return on equity share holders fund explains about the return of share holders with they get on their investment. TABLE 4.19: RETURN ON EQUITY YEARS NET PROFIT EQUITY SHAREHOLDERS FUNDS RETURN ON EQUITY 2009-10 84,750,325 1,755,920,375 4.7 2010-11 86,900,563 1,806,848,671 4.8 2011-12 238,465,730 2,012,852,920 11.8 2012-13 470,434,575 2,436,657,677 19.3 2013-14 943,631,511 3,331,014,470 28.33 NET PROFIT RETURN ON EQUITY= ---------------------------------- EQUITY SHEREHOLDES FUNDS
  68. 68. 68 GRAPH 4.19: RETURN ON EUITY SHAREHOLDERS FUNDS INTERPRETATION: Return on equity in the year 2010 is 4.7 and it increased suddenly to 4.8 in the year 2011 and again it increased to 11.8 in the year 2012. Return on Equity of the company is at satisfactory level and then it increased to 19.3 in 2013 and again increased to 28.33 in 2014. 0 5 10 15 20 25 30 2009-10 2010-11 2011-12 2012-13 2013-14 RETURN ON EQUITY 4.7 4.8 11.8 19.3 28.33 4.7 4.8 11.8 19.3 28.33 RETURNONEQUITY RETURN ON EQUITY
  69. 69. 69 CHAPTER V FINDINGS AND SUGGESTIONS
  70. 70. 70 FINDINGS  Except in the year 2012, the company is maintaining current ratio as 2 and more, standard which indicates the ability of the firm to meet its current obligations is more. It shows that the company is strong in working funds management.  The company is maintaining of quick assets more than quick ratio. As the company having high value of quick ratio. Quick assets would meet all its quick liabilities without any difficulty.  The company is failed in keeping sufficient cash & bank balances and marketable securities. o In above all current assets and liabilities ratios are better that also it is double the normal position. Observe the absolute & super quick ratio the company cash performance is down position.  Debt Equity ratio is increasing every year. It indicates the company depends on the debt fund increasing.  In the year 2010, the interest coverage ratio 7.56 which increased to 94.76 in the year 2013 and high fluctuations in the followed years. In this position, outside investors are interested to invest their money in this company.  The net profit of the company is increasing over the study period. Hence the organization maintaining good control on all trees of expenses.
  71. 71. 71 SUGGESTIONS  The company has to increase the profit maximization and has to decrease the operating expenses.  By considering the profit maximization in the company the earning per share, investment and working capital also increases. Hence, the outsiders are also interested to invest.  The company should maintain sufficient cash and bank balances; they should invest the idle cash in marketable securities or short term investments in shares, debentures, bonds and other securities.  The company must reduce its debtors collection period from 83 & 84 days to 40 days be adopting credit policy by providing discounts to the debtors.
  72. 72. 72 CONCLUSION From the above analysis of the company’s financial statements it’s concluded that the company’s financial position is good because the company’s leverage, activity and profitability positions are good and the company have to increase its liquidity position for better performance in future.
  73. 73. 73 BIBLOGRAPHY 1. I.M.Pandey : Financial Management 2. M.Y.Khan & P.K.Jai : Financial Management 3. S.P. Jain & K.L. Narang : Cost & Management accounting 4. K.Rajeswara rao & G. Prasad : Accounting & Finance 5. P.Kulakarni : Financial Management Web-sites: www.amararaja.co.in www.arbl.com

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