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PROJECT REPORT ON FINANCIAL ANALYSIS WITH RESPECT TO VARIOUS RATIOS
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INTRODUCTION
OBJECTIVE:
To understand the information contained in financial statements with a view to know the strength or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby enabling the financial analyst to take different decisions regarding the operations of the firm.

RATIO ANALYSIS:
Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future.

MEANING OF RATIO:
A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “so 3|Page

For example. determined and presented. A company whose leverage ratio is higher than a competitor's has more debt per equity.mbahotspot.Visit www. While a detailed explanation of ratio analysis is beyond the scope of this section. you must be careful not to place too much importance on one ratio. Cross-sectional analysis compares financial ratios of several companies from the same industry. which is easy to use. However. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. As accounting ratio is an expression relating two figures or accounts or two sets of account heads or group contain in the financial statements. Ratio analysis can be used both in trend and static analysis.com for more many times”. You obtain a better indication of the direction in which a company is moving when several ratios are taken as a group. There are several ratios at the disposal of an analyst but their group of ratio he would prefer depends on the purpose and the objective of analysis. It can provide you with a valuable investment analysis tool. A financial ratio measures a company's performance in a specific area. Ratio analysis can provide valuable information about a company's financial health. 4|Page . You can use this information to make a judgment as to which company is a better investment risk. you can determine which company uses greater debt in the conduct of its business. MEANING OF RATIO ANALYSIS: Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed. you could use a ratio of a company's debt to its equity to measure a company's leverage. This technique is called cross-sectional analysis. we will focus on a technique. By comparing the leverage ratios of two companies.

20.00.000: 5.mbahotspot.com for more OBJECTIVE OF RATIOS Ratio is work out to analyze the following aspects of business organizationA) Solvency1) Long term 2) Short term 3) Immediate B) Stability C) Profitability D) Operational efficiency E) Credit standing F) Structural analysis G) Effective utilization of resources H) Leverage or external financing FORMS OF RATIO: Since a ratio is a mathematical relationship between two or more variables / accounting figures. such relationship can be expressed in different ways as follows – A] As a pure ratio: For example the equity share capital of a company is Rs.00. the ratio of equity share capital to preference share capital is 20.00. the cash sales of a firm are 5|Page . 5.000 & the preference share capital is Rs.000 or simply 4:1.00.Visit www.000. Similarly. B] As a rate of times: In the above case the equity share capital may also be described as 4 times that of preference share capital.

mbahotspot.Visit www. 00.000] STEPS IN RATIO ANALYSIS The ratio analysis requires two steps as follows: 1] Calculation of ratio 2] Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industry‟s average ratio or a projected ratio or the ratio of the most successful firm in the industry.5 times that of cash sales. one item may be expressed as a percentage of some other items. In interpreting the ratio of a particular firm. 00.com for more Rs.00.000/12. TYPES OF COMPARISONS The ratio can be compared in three different ways – 1] Cross section analysis: One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time. For example.000 & the amount of the gross profit is Rs. 10. So it involves the comparison of two or more firm‟s 6|Page .50. net sales of the firm are Rs. 00.000] or simply by saying that the credit sales are 2. 12.000/50.00. 00.000.000 & credit sales are Rs. then the gross profit may be described as 20% of sales [ 10. C] As a percentage: In such a case. So the ratio of credit sales to cash sales can be described as 2.00.00.5 [30.000. the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard. 30. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself.

7|Page . 2] Time series analysis: The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years.mbahotspot. The firm‟s performance may be compared with the performance of the leader in the industry in order to uncover the major operational inefficiencies. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. the ratio of operating expenses to net sales for firm may be higher than the industry average however.Visit www. The Time series analysis looks for (1) important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of data\ 3] Combined analysis: If the cross section & time analysis. over the years it has been declining for the firm. The cross section analysis is easy to be undertaken as most of the data required for this may be available in financial statement of the firm. about the direction of progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. an assessment can be made about the trend in progress of the firm. both are combined together to study the behavior & pattern of ratio.com for more financial ratio at the same point of time. then meaningful & comprehensive evaluation of the performance of the firm can definitely be made. For example. whereas the industry average has not shown any significant changes.

8|Page . there are certain pre-requisites.com for more The combined analysis as depicted in the above diagram. which must be taken care of. only audited financial statements should be considered. The accounting figures are inactive in them & can be used for any ratio but meaningful & correct interpretation & conclusion can be arrived at only if the following points are well considered. otherwise there must be sufficient evidence that the data is correct.Visit www. PRE-REQUISITIES TO RATIO ANALYSIS In order to use the ratio analysis as device to make purposeful conclusions. but it is decreasing over the years & is approaching the industry average. which clearly shows that the ratio of the firm is above the industry average. 2) If possible. 1) The dates of different financial statements from where data is taken must be same.mbahotspot. It may be noted that these prerequisites are not conditions for calculations for meaningful conclusions.

mbahotspot. the analyst must find out that the two figures being used to calculate a ratio must be related to each other. otherwise there is no purpose of calculating a ratio. 4) One ratio may not throw light on any performance of the firm. 5) Last but not least. Therefore. a group of ratios must be preferred.Visit www. This will be conductive to counter checks. CLASSIFICATION OF RATIO CLASSIFICATION OF RATIO BASED ON FINANCIAL USER STATEMENT BASED ON FUNCTION BASED ON 1] BALANCE SHEET RATIO 2] REVENUE STATEMENT RATIO 3] COMPOSITE RATIO 1] LIQUIDITY RATIO 2] LEVERAGE RATIO 3] ACTIVITY RATIO 4] PROFITABILITY RATIO 5] COVERAGE RATIO 1] RATIOS FOR SHORT TERM CREDITORS 2] RATIO FOR SHAREHOLDER 3] RATIOS FOR MANAGEMENT 4] RATIO FOR LONG TERM CREDITORS 9|Page .com for more 3) Accounting policies followed by different firms must be same in case of cross section analysis otherwise the results of the ratio analysis would be distorted.

mbahotspot. Figures may be taken from Balance Sheet. These ratios study the relationship between the assets & the liabilities. they are called Balance Sheet Ratios.g. or both. Debt equity ratio. Revenue ratios are Gross profit ratio. Balance sheet ratios are Current ratio. There are two types of composite ratiosa) Some composite ratios study the relationship between the profits & the investments of the concern. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet. creditors turnover ratios. P& P A/C. E. One-way of classification of ratios is based upon the sources from which are taken. Capital gearing ratio. Expense ratio. solvency & capital structure of the concern. there is no need to refer to the Revenue statement. return on proprietors fund. While calculating these ratios. return on capital employed. Operating ratio. ratio of current assets to current liabilities or ratio of debt to equity. Net profit ratio. of the concern. These ratios study the relationship between the profitability & the sales of the concern. return on equity capital etc. Stock turnover ratio. These ratio help to judge the liquidity. of which one is found in the balance sheet & other in revenue statement. and Stock working capital ratio. Net operating profit ratio.Visit www.g. debtors turnover ratios. 2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. Liquid ratio. dividend payout ratios. E. b) Other composite ratios e. 3] Composite ratio: These ratios indicate the relationship between two items. & debt service ratios 10 | P a g e . and Proprietary ratio.g.com for more BASED ON FINANCIAL STATEMENT Accounting ratios express the relationship between figures taken from financial statements.

debtor‟s turnover ratios. & Proprietary ratios. operating net profit ratios. gross profit ratios. return on investment.g. liquid ratios & current ratios. 2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.Visit www. 4] Profitability ratios: a) It shows the relationship between profits & sales e.g.mbahotspot.g. It is also known as Turnover ratios & productivity ratios e.g. activity ratios. 1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. stock turnover ratios. 11 | P a g e .g. return on equity capital. capital gearing ratios. profitability ratios & turnover ratios. 3] Activity ratios: It shows relationship between the sales & the assets. expenses ratios b) It shows the relationship between profit & investment e. dividend payout ratios & debt service ratios.com for more BASED ON FUNCTION: Accounting ratios can also be classified according to their functions in to liquidity ratios. debt equity ratios. leverage ratios. 5] Coverage ratios: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e. operating ratios.

12 | P a g e . liquid ratios.com for more BASED ON USER: 1] Ratios for short-term creditors: Current ratios. return on equity capital 3] Ratios for management: Return on capital employed.Visit www. proprietor ratios. operating ratios. stock working capital ratios 2] Ratios for the shareholders: Return on proprietors fund. return on capital employed. expenses ratios 4] Ratios for long-term creditors: Debt equity ratios.mbahotspot. turnover ratios.

The ratios.com for more LIQUIDITY RATIO: Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. are Current ratio.Visit www. 2:1 Formula: Current assets Current ratio = Current liabilities 13 | P a g e .mbahotspot. and Cash ratio. Quick/Acid-Test ratio. E. These ratios are discussed below CURRENT RATIO Meaning: This ratio compares the current assets with the current liabilities.g. which indicate the liquidity of a company. It is also known as „working capital ratio‟ or „solvency ratio‟. It is expressed in the form of pure ratio.

bills receivable. CR measures the ability of the company to meet its CL. bills payable. This ratio measures the liquidity of the current assets and the ability of a company to meet its short-term debt obligation. inventory of raw materials. normally not exceeding one year. within a year. Current assets include cash and bank balances.. The higher the current ratio. that is the entity is under utilizing its current assets. CA gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. bank credit. i. marketable securities. The current liabilities defined as liabilities which are short term maturing obligations to be met. and prepaid expenses. which will be due for payment in the same period and is intended to indicate whether there are sufficient short-term assets to meet the short. which will become liquid within approximately twelve months with liabilities. converted into cash within a short period time. as originally contemplated. dividends payable and outstanding expenses.Visit www. and provision for taxation. Any ratio below indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over trading. This compares assets. in the ordinary course of business. 14 | P a g e . Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Recommended current ratio is 2: 1. Current liabilities consist of trade creditors. semi-finished and finished goods.mbahotspot.term liabilities.com for more The current assets of a firm represents those assets which can be.e. debtors (net of provision for bad and doubtful debts). the greater the short-term solvency.

Liquid ratio compares the quick assets with the quick liabilities. Generally. and sundry debtors. It is expressed in the form of pure ratio. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. short-term marketable securities. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on those current assets. The term quick assets refer to current assets. a quick ratio of 1:1 is considered good. Inventory and prepaid expenses are excluded since these cannot be turned into cash as and when required. QA refers to those current assets that can be converted into cash immediately without any value strength. E. which can be converted into.mbahotspot. cash immediately or at a short notice without diminution of value.Visit www.com for more LIQUID RATIO: Meaning: Liquid ratio is also known as acid test ratio or quick ratio. 1:1.g. which are highly liquid. QA includes cash and bank balances. One drawback of the quick ratio is that it ignores the timing of receipts and payments. 15 | P a g e . Formula: Quick assets Liquid ratio = Quick liabilities Quick Ratio (QR) is the ratio between quick current assets (QA) and CL.

com for more CASH RATIO Meaning: This is also called as super quick ratio.Visit www. Formula: Cash + Bank + Marketable securities Cash ratio = Total current liabilities Since cash and bank balances and short term marketable securities are the most liquid assets of a firm. financial analysts look at the cash ratio.mbahotspot. If the super liquid assets are too much in relation to the current liabilities then it may affect the profitability of the firm. INVESTMENT / SHAREHOLDER EARNING PER SAHRE:- 16 | P a g e . This ratio considers only the absolute liquidity available with the firm.

com for more Meaning: Earnings per Share are calculated to find out overall profitability of the organization. Formula: Dividend Paid to Ordinary Shareholders Dividend per Share = Number of Ordinary Shares DIVIDEND PAYOUT RATIO:17 | P a g e . Formula: NPAT Earnings per share = Number of equity share The higher EPS will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time.Visit www. If there is only one class of shares. the earning per share are determined by dividing net profit by the number of equity shares. EPS measures the profits available to the equity shareholders on each share held.mbahotspot. But remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business DIVIDEND PER SHARE:Meaning: DPS shows how much is paid as dividend to the shareholders on each share held. Earnings per Share represent earning of the company whether or not dividends are declared.

GEARING 18 | P a g e .Visit www. Formula: Dividend per share Dividend Payout ratio = Earning per share *100 D/P ratio shows the percentage share of net profits after taxes and after preference dividend has been paid to the preference equity holders.com for more Meaning: Dividend Pay-out Ratio shows the relationship between the dividends paid to equity shareholders out of the profit available to the equity shareholders.mbahotspot.

mbahotspot. This is also known as leverage or trading on equity. can comfortably meet its operating expenses and provide more returns to its shareholders. Formula: Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus Capital gearing ratio indicates the proportion of debt & equity in the financing of assets of a concern. PROFITABILITY These ratios help measure the profitability of a firm. GROSS PROFIT RATIO:19 | P a g e . The Capital-gearing ratio shows the relationship between two types of capital viz: . which generates a substantial amount of profits per rupee of sales. The relationship between profit and sales is measured by profitability ratios. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. It is expressed as a pure ratio.com for more CAPITAL GEARING RATIO:Meaning: Gearing means the process of increasing the equity shareholders return through the use of debt.Visit www. A firm. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.equity capital & preference capital & long term borrowings.

It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost.Visit www. administration. purchase. It measures the efficiency of production as well as pricing. how productive the concern . This ratio shows the profit that remains after the manufacturing costs have been met. pricing and tax 20 | P a g e . selling & inventory. Formula: Gross profit Gross profit ratio = Net sales NET PROFIT RATIO:Meaning: Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage. This ratio helps to judge how efficient the concern is I managing its production. financing.com for more Meaning: This ratio measures the relationship between gross profit and sales. how good its control is over the direct cost. selling.mbahotspot. Formula: NPAT Net profit ratio = * 100 * 100 Net sales This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. It measures the overall efficiency of production. how much amount is left to meet other expenses & earn net profit.

com for more management. Jointly considered. The term fund employed or the capital employed refers to the total long-term source of funds. Alternatively it can also be defined as fixed assets plus net working capital.mbahotspot. ROCE indicates the efficiency with which the long-term funds of a firm are utilized. Formula: NPAT Return on capital employed = Capital employed *100 21 | P a g e . It means that the capital employed comprises of shareholder funds plus long-term debts. the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm. It is the sum of long-term liabilities and owner's equity.Visit www. RETURN ON CAPITAL EMPLOYED:Meaning: The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. Capital employed refers to the long-term funds invested by the creditors and the owners of a firm.

average collection period.Visit www. fixed assets turnover ratio. The important turnover ratios are debtors turnover ratio. and total assets turnover ratio. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets.com for more FINANCIAL These ratios determine how quickly certain current assets can be converted into cash. These are described below: 22 | P a g e .mbahotspot. inventory/stock turnover ratio. These ratios are based on the relationship between the level of activity represented by sales or cost of goods sold and levels of investment in various assets.

cost of goods sold) is related to a stock figure (inventories). In general. averages may be used when a flow figure (in this case.Visit www. 23 | P a g e . However. The higher the DTO. Average debtors are the average of debtors at the beginning and at the end of the year. the better Formula: Credit sales Debtors turnover ratio = Average debtors it is for the organization. and vice versa. Formula: COGS Stock Turnover Ratio = Average stock ITR reflects the efficiency of inventory management.com for more DEBTORS TURNOVER RATIO (DTO) Meaning: DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. The higher the ratio. Net credit sales are the gross credit sales minus returns. if any. which may lead to frequent stock outs and loss of sales and customer goodwill. It measures the liquidity of a firm's debts. the more efficient is the management of inventories. This ratio shows how rapidly debts are collected. the average of inventories at the beginning and the end of the year is taken. a high inventory turnover may also result from a low level of inventory. INVENTORY OR STOCK TURNOVER RATIO (ITR) Meaning: ITR refers to the number of times the inventory is sold and replaced during the accounting period. from customers. For calculating ITR.mbahotspot.

PROPRIETORS RATIO: Meaning: Proprietary ratio is a test of financial & credit strength of the business. Proprietary ratio determines as to what extent the owner‟s interest & expectations are fulfilled from the total investment made in the business operation. It relates shareholders fund to total assets. Proprietary ratio compares the proprietor fund with total liabilities. the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low). It is usually expressed in the form of percentage.mbahotspot. This ratio determines the long term or ultimate solvency of the company.Visit www. Formula: Proprietary fund Proprietary ratio = Total fund OR 24 | P a g e . Formula: Net sales Fixed assets turnover = Net fixed assets This ratio measures the efficiency with which fixed assets are employed. Total assets also know it as net worth.com for more FIXED ASSETS TURNOVER (FAT) The FAT ratio measures the net sales per rupee of investment in fixed assets. this ratio should be used with caution because when the fixed assets of a firm are old and substantially depreciated. However. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets. In other words.

2:1 25 | P a g e . E.mbahotspot. This relationship is shown by debt equity ratio. It is a qualitative test of solvency.Visit www. It shows the extent of funds blocked in stock. If investment in stock is higher it means that the amount of liquid assets is lower.com for more Shareholders fund Proprietary ratio = Fixed assets + current liabilities STOCK WORKING CAPITAL RATIO: Meaning: This ratio shows the relationship between the closing stock & the working capital. this ratio indicates the relative proportion of debt & equity in financing the assets of the firm. The ratio highlights the predominance of stocks in the current financial position of the company. It helps to judge the quantum of inventories in relation to the working capital of the business. Formula: Stock Stock working capital ratio = Working Capital Stock working capital ratio is a liquidity ratio.g. It is usually expressed as a pure ratio. This ratio also helps to study the solvency of a concern. Alternatively. DEBT EQUITY RATIO: MEANING: This ratio compares the long-term debts with shareholders fund. It indicates the composition & quality of the working capital. The purpose of this ratio is to show the extent to which working capital is blocked in inventories. The relationship between borrowed funds & owners capital is a popular measure of the long term financial solvency of a firm. It is expressed as a percentage.

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Formula: Total long-term debt Debt equity ratio = Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing the equity shareholders return through the use of debt. Leverage is also known as „gearing‟ or „trading on equity‟. Debt equity ratio shows the margin of safety for long-term creditors & the balance between debt & equity.

RETURN ON PROPRIETOR FUND: Meaning: Return on proprietors fund is also known as „return on proprietor‟s equity‟ or „return on shareholders‟ investment‟ or „investment ratio‟. This ratio indicates the relationship between net profits earned & total proprietor‟s funds. Return on proprietors fund is a profitability ratio, which the relationship between profit & investment by the proprietors in the concern. Its purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to judge how efficient the concern is in managing the owner‟s fund at disposal. This ratio is of practical importance to prospective investors & shareholders. Formula: NPAT Return on proprietors fund = Proprietor’s fund * 100

CREDITORS TURNOVER RATIO: It is same as debtor‟s turnover ratio. It shows the speed at which payments are made to the supplier for purchase made from them. It is a relation between net credit purchase and average creditors 26 | P a g e

Visit www.mbahotspot.com for more Net credit purchase Credit turnover ratio = Average creditors

Months in a year Average age of accounts payable = Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. It enhances credit worthiness of the company. A very low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors.

IMPORTANCE OF RATIO ANALYSIS:
As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of interference regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: 1] Liquidity position, 2] Long-term solvency, 3] Operating efficiency, 4] Overall profitability, 5] Inter firm comparison 6] Trend analysis.

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1] LIQUIDITY POSITION: With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligation when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio is particularly useful in credit analysis by bank & other suppliers of short term loans.

2] LONG TERM SOLVENCY: Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This respect of the financial position of a borrower is of concern to the long-term creditors, security analyst & the present & potential owners of a business. The long-term solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power & operating efficiency. Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the risk involved. 3] OPERATING EFFICIENCY: Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in management & utilization of its assets. The various activity ratios measure this kind of operational efficiency. In fact, the solvency of a firm is, in the 28 | P a g e

6] TREND ANALYSIS: Finally. This is made possible due to inter firm comparison & comparison with the industry averages. dependent upon the sales revenues generated by the use of its assets.Visit www. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs.total as well as its components.mbahotspot.com for more ultimate analysis. 5] INTER – FIRM COMPARISON: Ratio analysis not only throws light on the financial position of firm but also serves as a stepping-stone to remedial measures. they are concerned about the ability of the firm to meets its short term as well as long term obligations to its creditors. This is possible if an integrated view is taken & all the ratios are considered together. the firm can seek to identify the probable reasons & in light. In other words. This is made possible by the use of trend analysis. ratio analysis enables a firm to take the time dimension into account. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. take remedial measures. That is. 4] OVERALL PROFITABILITY: Unlike the outsides parties. An inter firm comparison would demonstrate the firms position vice-versa its competitors. to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm. the management is constantly concerned about overall profitability of the enterprise. If the results are at variance either with the industry average or with the those of the competitors. whether the financial position of a firm is improving or deteriorating over the years. The significance of the trend analysis of ratio lies in the fact that the analysts 29 | P a g e . One of the popular techniques is to compare the ratios of a firm with the industry average. which are interested in one aspect of the financial position of a firm.

which give the decision-maker insights into the financial performance of a company.mbahotspot. LIMITATIONS OF RATIO ANALYSIS Ratio analysis has its limitations. which is important for decision making and forecasting. the ratio may be low as compared to the norm but the trend may be upward. and so might not give a proper indication of the company‟s current financial position.  Ratio analysis helps in the assessment of the liquidity. though the present level may be satisfactory but the trend may be a declining one.Visit www. The advantages of ratio analysis can be summarized as follows:  Ratios facilitate conducting trend analysis.  The figures in a set of accounts are likely to be at least several months out of date. On the other hand. For example. These limitations are described below: 1] Information problems  Ratios require quantitative information for analysis but it is not decisive about analytical output.com for more can know the direction of movement. 30 | P a g e . ADVANTAGES OF RATIO ANALYSIS Financial ratios are essentially concerned with the identification of significant accounting data relationships.  The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of the firm. whether the movement is favorable or unfavorable. that is. profitability and solvency of a firm.  Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. operating efficiency.

2] Comparison of performance over time  When comparing performance over time. there is need to consider the changes in price. and employ similar production methods and accounting practices.  Ratios provide only quantitative information.com for more  Where historical cost convention is used. Comparing the performance of two enterprises may be misleading.Visit www.  Inter-firm comparison may not be useful unless the firms compared are of the same size and age.mbahotspot. asset valuations in the balance sheet could be misleading. The movement in performance should be in line with the changes in price. Ratios based on this information will not be very useful for decision-making. 3] Inter-firm comparison  Companies may have different capital structures and to make comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis.  Selective application of government incentives to various companies may also distort intercompany comparison.  Changes in accounting policy may affect the comparison of results between different accounting years as misleading. The movement in performance should be in line with the changes in technology. there is need to consider the changes in technology.  Even within a company. 31 | P a g e . not qualitative information.  When comparing performance over time. comparisons can be distorted by changes in the price level.

mbahotspot. PURPOSE OF RATIO ANLYSIS: 1] To identify aspects of a business‟s performance to aid decision making 2] Quantitative process – may need to be supplemented by qualitative Factors to get a complete picture. 3] 5 main areas: Liquidity – the ability of the firm to pay its way  Investment/shareholders – information to enable decisions to be made on the extent of the risk and the earning potential of a business investment  Gearing – information on the relationship between the exposure of the business to loans as opposed to share capital  Profitability – how effective the firm is at generating profits given sales and or its capital assets  Financial – the rate at which the company sells its stock and the efficiency with which it uses its assets 32 | P a g e .com for more  Ratios are calculated on the basis of past financial statements.Visit www. They do not indicate future trends and they do not consider economic conditions.

as the ratio all by them do not mean anything. Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of performance.e. liquidity. activity. As the ratio analysis is concerned with all the aspect of a firms financial analysis i.com for more ROLE OF RATIO ANALYSIS: It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the same figure & information. At the same time. which need the management attention in order to improve the situation. This comparison may be in the form of intra firm comparison. profitability & overall performance. inter firm comparison or comparison with standard ratios. The process of this appraisal is not complete until the ratio so computed can be compared with something.Visit www. Ratio analysis is one of the best possible techniques available to the management to impart the basic functions like planning & control. it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the mere preparation of financial statement. which is already appearing in the financial statement. 33 | P a g e . As the future is closely related to the immediate past. it enables the interested persons to know the financial & operational characteristics of an organisation & take the suitable decision. solvency. Thus proper comparison of ratios may reveal where a firm is placed as compared with earlier period or in comparison with the other firms in the same industry. Ratio analysis also helps to locate & point out the various areas.mbahotspot. ratio calculated on the basis of historical financial statements may be of good assistance to predict the future. either individually or in relation to those of other firms in the same industry.

Visit www. VDE etc. business integrity and innovative engineering skills. APLAB enjoys worldwide recognition for the quality of its products. Since its inception in 1962. APLAB has been serving the global market with wide range of electronic products meeting the international standards for safety and reliability such as UL.com for more EVALUATION OF APLAB LIMITED THROUGH RATIO COMPANY PROFILE ABOUT COMPANY – APLAB Limited is a professionally managed Public Limited company quoted on the Bombay Stock Exchange.mbahotspot. 34 | P a g e . They specialize in Test and Measurement Equipment. Self-Service Terminals for Banking Sector and Fuel Dispensers for Petroleum Sector. Power Conversion and UPS Systems.

 To be “THE BEST” company to work for. recognized for quality & integrity. & UPS & fuel dispensers for petroleum sector. GOAL:  Goal at Aplab is extract ordinary customer service as we provide our customer needs in the personal service industry. 2] To encourage teamwork. power conversion.mbahotspot.  It enjoys worldwide recognition for the quality of its business integrity & innovative engineering skills. our customers & so to us. MISSION:  To deliver high quality.  It specialized in Test & measurement instruments. carefully. 35 | P a g e . within budget.  It is quoted on BOMBAY STOCK EXCHANGE.com for more ABOUT APLAB:  Aplab started its operation in October 1962.  It is a professionally managed 40 years old public limited company. VISION:  To be a global player.  It serves customer global customer par excellence. as rated by our employees.Visit www. engineered products. on time. as per the customer specification in a manner profitable to both. CORPORATE MISSION – 1] To achieve healthy and profitable growth of the company in the interest of our customers & the shareholders. reward innovation and maintain healthy interpersonal relations within the organization.  To be the TOP INDIAN COMPANY as conceived by our customers.

VALUES & BELIEFS: Their values & beliefs required that they  Treat employees with respect & give them an opportunity for input on how to continuously improve their service goals.  “Do it right the first time & every time” is their team commitment * our way of doing business. 36 | P a g e . discussion & ideas to improve work environment & increase productivity. which encourages interaction. After completing three years in the new era. we can say with pride that we have been delivering our promises to our customers and the shareholders.  Provide most effective & corrective action. 4] To understand the customer‟s needs and provide solutions than merely selling products.com for more 3] To expand knowledge and remain at the leading edge in technology to serve the global market. 5] To create intellectual capital by investing in hardware and embedded software development.  Offer opportunities for growth.  Foster an open door policy.Visit www. it ensures as growth & prosperity. professional development & recognition. to resolve customer service issues. THE 21ST CENTURY SUCCESS – APLAB had planned to enter the 21st Century with a program for a fast and healthy growth in the global market based on company‟s high technology foundation and the reputation of four decades for prompt customer service and as a reliable solution provider.mbahotspot. to ensure customer satisfaction.

 On time delivery every time reduction is out going PPM to 10.000 [4 sigma] 37 | P a g e . QUALITY IS OUR WORK CULTURE .com for more APLAB has entered the field of Professional Services starting with the Banking and the Petroleum Industry. We believe that professional services sector is poised to grow at a very rapid pace.Visit www.ISO 9001:2000 Quality at APLAB is a part of our people‟s attitude. Focus on developing embedded system software has been also enhanced.  Aplab will achieve this by total commitment & involvement of every individual. In APLAB. “Quality is everybody‟s responsibility” and all strive to “do it right the first time”.  100% customer satisfaction. Entire organization is committed to create an environment that encourages individual excellence and a personal commitment to quality.  Aplab will encourage its employees & suppliers to develop quality products prevent defects & make continual improvement in all processes.mbahotspot. QUALITY OBJECTIVE:  Aplab is an ISO 9001:2000 certifies company. QUALITY POLICY:  Aplab will deliver to its customer products & services that consistently meet or exceed their requirement. It is therefore natural that APLAB Limited is certified for quality with ISO 9001:2000 registration.

APLAB is recognized not only for manufacturing standard products but also in providing solutions and services as per the customer specifications.com for more RESEARCH AND DEVELOPMENT Developing innovative products with the latest technology is the core strength of APLAB. 3. which are fully developed in house.Visit www. Specific areas in which the company carries out R&D 1. Customizing the products to the customer‟s specifications & adaptation of imported technology. We spend more than 4% of the company revenue in Research & Development activities. It has resulted in considerable saving of foreign exchange. 38 | P a g e . 4. Through a continuous interaction with production& Quality Assurance Department takes up redesign of existing products. import substitution. highly qualified skilled engineers who excel in the latest state-of-the-art-technology. Improvement in the existing products & production processes. recognizes the company‟s R&D. 2. With the company. The Science & Technology Ministry of the Govt. Government of India. We have a large team of dedicated.mbahotspot. Almost all the products manufactured by the company are import substitution items. The ministry of science & technology. The company has achieved its position of leadership in the Indian instrumentation industry & continuous to maintain it through its strong grip of technology. Development of products to suit exports markets. R&D is an ongoing process. of India accredits our R&D Laboratories. This is done to achieve state of the art in our design & to bring about improvement to get maximum performance / cost ratio. Development of new product especially hi-tech intelligent product & electronic transaction control system.

EXPORT APLAB currently exports over 25% of its production to Western Europe. Belgium.Visit www. This will greatly help the company in facing competition in local markets from foreign companies. France. Over 30 million U. 39 | P a g e . Dollars worth of Power Systems and Test Instruments from APLAB are today operational in UK. Canada & USA.com for more FUTURE PLAN OF ACTION Major R&D activity is concentrated around up gradation of product design & re-alignment of production processes to bring about improved quality at lower cost.mbahotspot. Canada. and USA & Australia. Sweden.S. Germany.

M. G.com for more APLAB’S ORGANISATION CHART EXECUTIVE CHAIRMAN MANAGING DIRECTOR REGIOAL HEAD: MUMBAI NEWDELHI SECUNDARABAD BANGLORE CHENNAI DIRECTOR [TECHNICAL .M.M PROD.M.Visit www.mbahotspot. MARKETING MATERIAL MANAGER G. & DESIGN G. ELTRAC PROD.PE] MAEKETING DIRECTOR GENERAL MANAGER FINANCE MANAGER G. DESIGN & DEVLOPMENT OFFICERS STAFF 40 | P a g e .

QUICKCLEAR. POWER SUPPLIES. INVERTERS. HIGH POWER AC SYSTEMS (UPS. 41 | P a g e . AC-DC POWER SUPPLY. SMPS. CONDITIONER. Isolation Transformer) c. HIGH POWER DC SYSTEMS (DC Power Supply. Frequency Converter. hardware manufacturing and software integrations. We are into Self Service Delivery Systems.mbahotspot. The latest is IMAGEENABLED Cheque Processing solution. Inverter.Visit www. when we introduced INSTACASHIndia‟s first indigenously manufactured ATM INSTACASH demonstrated APLAB‟s skills in design.com for more WORKERS PRODUCTS OF APLAB: a. ATM INSTACASH e. STABILIZER. TEST & MEASUREMENT INSTRUMENTS b. DC Uninterruptible Power Supply) d. DC/DC LINE CONVERTERS. Our in house R&D group is constantly striving to scan the rapidly changing technology and offer suitable end to end solutions. ISOLATION TRANSFORMER ATM INSTACASH The Banking Automation Division of APLAB was launched in 1993. MICR Cheque Processing and Smart Card based solutions.

mbahotspot.49.18.47 1.77.09 57.00.29.33 10.11.01 42 | P a g e .36 6.36 46.14 6.06.90.00 16.36.66 30.57.57 15.31.01 15.70.80 15.48 3.32 5.77 18.85 38.32 19.com for more APLAB LIMITED BALANCE SHEET AS AT 31ST MARCH 2002 (RS.09.Visit www.29.69 21.69 12.‟000) AS AT 31ST 2002 AS AT 31ST 2002 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus LOANS Secured Unsecured DEFFERED TAX LIABILITY (NET) TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress INVESTMENT CURRENT ASSESTS.93.37 54.22.35 3.96 5.13. LOANS & ADVANCES Inventories Sundry debtors Cash & bank balances Loan & advances CURRENT LIABLITIES & PROVISIONS Current liabilities Provisions NET CURRENT ASSESTS MISCELLANEOUS EXPENDITURE Total 5.32.99 15.80.84 3818.73 1.67.81.

28 8.07 50.68 1 20.19.Visit www.04 2.37 1.31.05.76 18.97.61.69 0.68 1 20.2002 AS AT 31-3-2002 INCOME: Sales and operating earnings Other income Variation in stock EXPENCES: Materials consumed Purchase of trading goods Payments to & provision for employees Manufacturing expenses Excise duty Other expenses Interest & finance charges Depreciation Less: transferred to revaluation PROFIT BEFORE TAX PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax Deferred tax liability / (Assets) PROFIT AFTER TAX Balance brought forward from previous year Balance available for appropriation Appropriations: General reserve Surplus / (loss) carried to B/S Proposed dividend Tax on proposed dividend Basic earning per share (rupee) 48.21.15 1.76.com for more PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2002 (RS.12 24.75 9.95.05 5.71 2.30.37 65.02 20.60.64 49.mbahotspot.22 1.81.50 1.‟000) AS AT 31-3.69 20.41 43 | P a g e .22 49.41 0.42 4.04.19 80.

97 37.32 29.97 11.‟000) AS AT 31-3.55.19 10.mbahotspot.56 1.55 4.95.05.74 6.23.00.11 44 | P a g e .Visit www.23.21 37.2003 AS AT 31-3.62 51.53.41.10 5.40.com for more BALANCE SHEET AS AT 31ST MARCH 2003 (RS.2003 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus LOANS Secured Unsecured DEFFERED TAX LIABILITY (NET) TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress INVESTMENT CURRENT ASSESTS.42 20.40.16 14.78 1.71 87.98.76 3.93 6. LOANS & ADVANCES Inventories Sundary debtors Cash & bank balances Loan & advances CURRENT LIABLITIES & PROVISIONS Current liabilities Provisions NET CURRENT ASSESTS MISCELLANEOUS EXPENDITURE TOTAL 5.20.00.26 19.00 16.02.04 29.19 21.11 17.79 19.25 8.27.47.55.62.80.76 21.40.02.29.

26.19 (19.96 2.94 1 82.60 10.62.52 10.41 82.2003 AS AT 31-3.00 6.04 (59.95 1.Visit www.17.99 72.50 4 50.91.37.64) 82.mbahotspot.com for more PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2003 (RS.07.99 22.66 45 | P a g e .62.95 26.94 57.50 1.‟000) AS AT 31-3.57 1.03 1.97 1.27) 59.06.36.22 15.41.63.23 2.69.2003 INCOME: Sales and operating earnings Other income Variation in stock EXPENCES: Materials consumed Purchase of trading goods Payments to & provision for Employees Manufacturing expenses Excise duty Other expenses Interest & finance charges Depreciation Less: transferred to revaluation PROFIT BEFORE TAX PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax Deferred tax liability / (Assets) PROFIT AFTER TAX Balance brought forward from previous year Balance available for appropriation Appropriations: General reserve Surplus / (loss) carried to B/S Proposed dividend Tax on proposed dividend Basic earning per share (rupee) 59.49 63.69 7.

40.2004 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus LOANS Secured Unsecured DEFFERED TAX LIABILITY (NET) TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress INVESTMENT CURRENT ASSESTS.41.48.49.03 6.58.34 21.89 40.35.58 53.mbahotspot.00.69.38.01.17 3.20 19.07 18.42.19 32.2004 AS AT 31-3.74 850.29 16.42.Visit www.16. LOANS & ADVANCES Inventories Sundry debtors Cash & bank balances Loan & advances CURRENT LIABLITIES & PROVISIONS Current liabilities Provisions NET CURRENT ASSESTS TOTAL 5.97.55 15.56 4.com for more BALANCE SHEET AS AT 31ST MARCH 2004 (RS.28.84 1.35.‟000) AS AT 31-3.46.12.58 12.08 18.15 95.02 21.51.33 40.86 5.00 17.59 22.98.07 46 | P a g e .59 11.29 6.16.

30 1.46 47 | P a g e .09.89 93 1.39 53.17.75.96 72.98 88.74.40 14.13 17294 4 1.50 8.00 9.46.19.47 3.86 25.85 28.‟000) AS AT 31-3.08 9.mbahotspot.72.99 2.2004 AS AT 31-3-2004 INCOME: Sales and operating earnings Other income Variation in stock EXPENCES: Materials consumed Purchase of trading goods Payments to & provision for employees Manufacturing expenses Excise duty Other expenses Interest & finance charges Depreciation Less: transferred to revaluation PROFIT BEFORE TAX PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax Deferred tax liability / (Assets) PROFIT AFTER TAX Balance brought forward from previous year Balance available for appropriation Appropriations: General reserve Surplus / (loss) carried to B/S Proposed dividend Tax on proposed divident Basic earning per share (rupee) 73.com for more PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2004 (RS.99 74.33 12.94.30 7 75.98 3.10.51 70.72.47 31.71 1.61 1.00.90.03.07.94 2.Visit www.51.

67 6.94 21.14.64.15 4.‟000) AS AT 31-3.14.2005 AS AT 31-3.06.55.48.Visit www.21.91 17.89 22.01 92. LOANS & ADVANCES Inventories Sundary debtors Cash & bank balances Loan & advances CURRENT LIABLITIES & PROVISIONS Current liabilities Provisions NET CURRENT ASSESTS TOTAL 5.91 24.36.com for more BALANCE SHEET AS AT 31ST MARCH 2005 (RS.32.12 5.19 47.2005 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus LOANS Secured Unsecured DEFFERED TAX LIABILITY (NET) TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress INVESTMENT CURRENT ASSESTS.32.84 8.60.66.87 21.43.21.21 16.84 2.66.23.89 13.91 19.02 47.02 37.04.19 48 | P a g e .05 8.00.36.80.02 58.64 10.mbahotspot.00 19.88 23.12.04.

31) 2.68 84 1.69 (38.78 7 2.75.41 8.20 3 90.26.83 15.54.85 1.52 49 | P a g e .15 2.78 2.25.31 41.84 (3.91.21.45) 74.00.15.82 1.75.50.Visit www.2005 AS AT 31-3 2005 INCOME: Sales and operating earnings Other income Variation in stock EXPENCES: Materials consumed Purchase of trading goods Payments to & provision for employees Manufacturing expenses Excise duty Other expenses Interest & finance charges Depreciation Less: transferred to revaluation PROFIT BEFORE TAX PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax Deferred tax liability / (Assets) PROFIT AFTER TAX Balance brought forward from previous year Balance available for appropriation Appropriations: General reserve Surplus / (loss) carried to B/S Proposed dividend Basic earning per share (rupee) 74.23.85 5.mbahotspot.41 75.44.23.‟000) AS AT 31-3.75.com for more PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2005 (RS.31 1.00 2.00 13.71.84 70.24 4.20.55 25.73.

46.53 2004 -2005 58.07 2003-2004 .21 21.mbahotspot.66 2.70.14 2002-2003 .36.72:1 in 2004-2005.19 2.93 2002-2003 51. From this working capital.02 2.89 2004-2005 .62.28.93.72 rupee are available to the them.77.32.Visit www.72 times the current liabilities.32 2. it means that for one rupee of current liabilities.72 50 | P a g e .98.80 15. which makes company more sound. Almost 4 years current ratio is same but current ratio in 2004-2005 is bit higher.28. the company meets its day-to-day financial obligations.08.92.08 21. A company has a high percentage of its current assets in the form of working capital. the current assets are 2. cash that would be more liquid in the sense of being able to meet obligations as & when they become due.69.19 The company has sufficient working capital to meets its urgency/ obligations.36 2003-2004 53. In other words the current assets are 2.36. The consistency increase in the value of current assets will increase the ability of the company to meets its obligations & therefore from the point of view of creditors the company is less risky. 2001-2002 . The available working capital with the company is in increasing order.30.29.39 21. 2001-2002 46.com for more CALCULATIONS AND INTERPRETATION OF RATIO’S 1] CURRENT RATIO: Formula: Current assets Current ratio = Current liabilities YEAR Current assets Current liabilities Current ratio COMMENTS: In Aplab company the current ratio is 2.

36 in 2004-2005.30 21.19 1. Day to day solvency is more sound for company in 2004-2005 over the year 2003-2004.31 21. Liquid ratio of Company is favorable because the quick assets of the company are more than the quick liabilities.36 The liquid or quick ratio indicates the liquid financial position of an enterprise. which is better for the company to meet the urgency. 2] LIQUID RATIO: Formula: Quick assets Liquid ratio = Quick liabilities YEAR Quick assets Quick liabilities Liquid ratio COMMENTS: 2001-2002 21.66 1. The liquid ratio of the Aplab Company has increased from 1.12 2004 -2005 29.12 to 1. 51 | P a g e .62. This indicates that the dependence on the short-term liabilities & creditors are less & the company is following a conservative working capital policy.com for more Thus.11.28. The Aplab Company‟s has a very good liquidity position of company.80.Visit www.06 2003-2004 24.67 15. The liquid ratio shows the company‟s ability to meet its immediate obligations promptly.93. Almost in all 4 years the liquid ratio is same.36.36 2002-2003 23.01.01 21.mbahotspot.32 1. the current ratio throws light on the company‟s ability to pay its current liabilities out of its current assets.01.02 1.

55 2003-2004 22.mbahotspot.90 2004 -2005 24.38.92 33.14.55.82.17 37.Visit www.20% in the year 2004-2005.70. 52 | P a g e .com for more 3] PROPRIETORY RATIO: Formula: Proprietary fund Proprietary ratio = Total fund Shareholders fund Proprietary ratio = Fixed assets + current liabilities OR YEAR Proprietary fund Total fund Proprietary ratio COMMENTS: 2001-2002 21.20 The Proprietary ratio of the company is 36. It means that the for every one rupee of total assets contribution of 36 paise has come from owners fund & remaining balance 66 paise is contributed by the outside creditors.14. This Proprietary ratio of the Company shows a downward trend for the last 4 years.69 52. As the Proprietary ratio is not favorable the Company‟s long-term solvency position is not sound.29.59 66.42.19 57.53 40 2002-2003 21. This shows that the contribution by outside to total assets is more than the owners fund.91 66.05 36.

02.mbahotspot.491 56.58 2003-2004 21.06 This ratio shows that extend of funds blocked in stock.46.63 2004 -2005 19. It shows that the solvency position of the company is sound.56 21.20 32.41.88 37.07 64.13.48 21.59 2004 -2005 1.12.06 2002-2003 19.19 2003-2004 11.312 2.72.67 50.78 71 53 | P a g e .19 52.69 2002-2003 10.86 22.46. 5] CAPITAL GEARING RATIO: Formula: Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus YEAR Secured loan Equity capital & reserves & surplus Capital gearing ratio COMMENTS: 2001-2002 12. In the year 2004-2005 the sale is increased which affects decrease in stock that effected in increase in working capital in 2004-2005.89 65.38. The amount of stock is increasing from the year 2001-2002 to 2003-2004.com for more 4] STOCK WORKING CAPITAL RATIO: Formula: Stock Stock working capital ratio = Working Capital YEAR Stock Working Capital Stock working capital ratio COMMENTS: 2001-2002 19.69.27.32. However in the year 2004-2005 it has declined to 52%.09.97 47.77 30.77.55.14 62.42.79 29.Visit www.29.

This shows long-term capital structure. near about 50% of the fund covering the secured loan position. The lower ratio viewed as favorable from long term creditors point of view.59 0.60.74 COMMENTS: The debt equity ratio is important tool of financial analysis to appraise the financial structure of the company.15 22.68 2003-2004 16. the shareholders fund also increased.e.com for more Gearing means the process of increasing the equity shareholders return through the use of debt.75 2004 -2005 22.74 to 0.Visit www.81. It means that during the year 2004-2005 company has borrowed more secured loans for the company‟s expansion. But in the year 2004-2005 the Capital-gearing ratio is 71%. which indicates the proportion of debt & equity in the financing of assets of a company.2001-2002 TO 2003-2004] Capital gearing ratio is all most same which indicates.55.01 24.14. Capital gearing ratio is a leverage ratio. For the last 3 years [i.93 during the year 2001-2002 to 2004-2005.47 2002-2003 14.mbahotspot.70 21. This shows that with the increase in debt.29.19 0.80. 6] DEBT EQUITY RATIO: Formula: Total long term debt Debt equity ratio = Total shareholders fund YEAR Long term debt 2001-2002 15. This ratio is very important from the point of view of creditors & owners. The rate of debt equity ratio is increased from 0.69 fund Debt Equity Ratio 0.93 Shareholders 21.42. 54 | P a g e . It expresses the relation between the external equities & internal equities.97.91 0.

90 51.52 68.45 68.02.37.78 62.57.45.65.com for more 7] GROSS PROFIT RATIO: Formula: Gross profit Gross profit ratio = Net sales * 100 YEAR Gross profit Net sales Gross profit Ratio 2001-2002 24.89 66.48 43.80 2003-2004 45.09.37 73.46 56.76.48 2002-2003 37.27 2004 -2005 42.54.22 Gross profit Ratio 80 70 60 50 40 30 20 10 0 20012002 20022003 20032004 2004 2005 Gross profit Ratio 55 | P a g e .mbahotspot.Visit www.

However the gross profit ratio decreased to 66.80% in the year 2002-2003 due to increase in sales without corresponding increase in cost of goods sold.96.48%.88%. The net sales and gross profit is continuously increasing from the year 2001-2002 to 2004-2005. in 2003-2004 was 59% & in 2004-2005 it is 54. due to high cost of purchases & overheads.98 + 2.478 6.17.76.57.37 + 5.80.226+ 27. though the cost has increased in 2002-2003 as compared to 2001-2002. It is the profit on turnover.22% in the year 2004-2005.27%. Operating ratio over a period of 4 years when compared that indicate the change in the operational efficiency of the company.27% in the year 2003-2004.37 63.69.mbahotspot.90.89 59% 2004 -2005 2. 8] OPERATING RATIO: Formula: COGS+ operating expenses Operating ratio = Net sales YEAR COGS + Operating expenses Net sales Operating ratio 2001-2002 18.02 + 3.141+ 84. This is due to increase in the cost of goods sold.com for more COMMENTS: The gross profit is the profit made on sale of goods. Although the gross profit ratio is declined during the year 2002-2003 to 2004-2005.16%. In the year 2001-2002 the gross profit ratio is 56. It has increased to 73.23 51.978 54.76.33. in 2002-2003 was 63.21.07.62. which in 2001-2002 was 61. it is 56 | P a g e .Visit www. The operating ratio of the company has decreased in all 4 year.45.02.32 + 2.88% 2002-2003 21.98 + 7. It is further declined to 62.71 43.94 68.51 + 9.27% *100 2003-2004 28.46 61.16% COMMENTS: The operating ratio shows the relationship between costs of activities & net sales.

The expense ratio brings out the relationship between various elements of operating cost & net sales.37 5.com for more reducing continuously over the next two years.45.41 68.21. 9] EXPENSE RATIO: The ratio of each item of expense or each group of expense to net sales is known as „Expense ratio‟. rent .89 4.37 43. This indicates that the company has control over the manufacturing expense. power & electricity. repair to plant & machinery & miscellaneous works expenses. The manufacturing expense during the year 2001-2002 to 2004-2005 is decreased from 5% to 3. During the year 2001–2002 to 2002-2003 the manufacturing expense increased because there is increase in the charges like labour. 57 | P a g e .69.Visit www.78 3. A] MANUFACTURING EXPENSES: Formula: Manufacturing expenses Manufacturing expense ratio = Net sales *100 YEAR Manufacturing expenses Net sales Manufacturing expenses ratio 2001-2002 2.71.46 5% 2002-2003 2.09.02.29% 2003-2004 3.47% 2004 -2005 2. indicate downward trend in cost but upward / positive trend in operational performance. Expense ratio analyzes each individual item of expense or group of expense& expresses them as a percentage in relation to net sales.07.76.51 68.98% COMMENTS: The manufacturing expense is shows the downward trend.96%.mbahotspot.98 51.

com for more B] OTHER EXPENSES: Formula: Other expenses Other expense ratio = Net sales *100 YEAR Other expenses Net sales Other expenses ratio 2001-2002 5.09.45.2% 2002-2003 7. transport outward & other charges.44.Visit www.40%. advertisement & publicity.46 13.40% COMMENTS: The other expense of company is increased during the 2001-2002 to 20032004. advertisement & publicity. But during the year 2004-2005 the other expenses is decrease from 13. transport charges.89 13. because increase in the charges of rent of office. sales tax & purchase tax . 58 | P a g e .34% 2004 -2005 8.78 12.02.78 68. equipment lease rental. This indicates that the company also controlling the other expenses.94 68.93% 2003-2004 9.76.34% to 12.76.23 51.mbahotspot. Because decrease in equipment lease rental.37 14.17. commission & discount.62.71 43. printing & stationary.

89 2.94 51. Profitability ratio of company shows considerable increase.76. manufacturing & other expenses. in 2003 it is increased by 1.48 NET PROFIT 2002-2003 82.94 68. It is a clear index of cost control.78 4.37 1.e.75.mbahotspot.02.09. managerial efficiency & sales promotion.e.5 2004 -2005 2.54.com for more 10) NET PROFIT RATIO Formula: NPAT Net profit ratio = Net sales * 100 YEAR NPAT Net sales Net profit ratio 2001-2002 20. 59 | P a g e .12 in 2003-2004 by 0.04 5 4 3 2 1 0 2001-2002 2002-2003 2003-2004 2004-2005 COMMENTS: The net profit ratio of the company is low in all year but the net profit is increasing order from this ratio of 4 year it has been observe that the from 2001-2002 to 2004-2005 the net profit is increased i.6 2003-2004 1.72.98 434546 0. Company‟s sales have increased in all 4 years & at the same time company has been successful in controlling the expenses i.78 68.Visit www.9 & in 2004-2005 by 1.

58 3.73.73 Stock turnover ratio shows the relationship between the sales & stock it means how stock is being turned over into sales.5months].89. it means the stock turnover ratio is 3.20 2004 -2005 25. The stock turnover ratio is 2001-2002 was 3.4 times during the year.98 5.26 6.30 3.4 times then the stock holding period is 3.97.4 round during the year.32 5.4 times which indicate that the stock is being turned into sales 3. it means with lower inventory the company has achieved greater sales.96.4=3.73 times.com for more 11] STOCK TURNOVER RATIO: Formula: COGS Stock Turnover Ratio = Average stock YEAR COGS Average stock Stock Turnover Ratio COMMENTS: 2001-2002 18. Thus.11 4. In the year 2001-2002 to 2004-2005 the stock turnover ratio has improved from 3.72.5 months [12/3.90.4 to 3. The inventory cycle makes 3.Visit www. It helps to work out the stock holding period.6 2003-2004 28.5 months for stock to be sold out after it is produced.02 6. For the last 4 years stock turnover ratio is lower than the standard but it is in increasing order. the stock of the company is moving fast in the market.90 3. This indicates that it takes 3.33.4 2002-2003 21.mbahotspot.49. 60 | P a g e .

com for more 12] RETURN ON CAPITAL EMPLOYED: Formula: NPAT Return on capital employed = YEAR NPAT Capital employed Return on capital employed COMMENTS: 2001-2002 20.Visit www.ofequity share Earning per share 2001-2002 20. 13] EARNING PER SHARE: Formula: NPAT Earning per share = Number of equity share YEAR NPAT No.94.68 38. tax.000 5.00.000 1.78.00.93 5.5 is available to take care of interest.41 2002-2003 82. i.000 50. The return on capital employed is show-increasing trend.72.52 61 | P a g e .54 to 5.54 to 5. Its purpose is to measure the overall profitability from the total funds made available by the owner & lenders.000 3.79.35.66 2003-2004 1.000 50.75.98.& appropriation.66. from 0.23 4.75.18.100.00.72.000 50.e.54 *100 Capital employed 2002-2003 2003-2004 82.01 0. this amount of Rs. This indicates a very high profitability on each rupee of investment & has a great scope to attract large amount of fresh fund.94 1.94 37.00.79.000 50.28 2004 -2005 2.5 indicate that net return of Rs.79 The return on capital employed shows the relationship between profit & investment. All of sudden in 2001-2002 the return on capital employed increased from 0.94.78 47.mbahotspot.23.5 is earned on a capital employed of Rs. The return on capital employed of Rs.000 0.11 40.46 2004 -2005 2.07 2.

mbahotspot. 62 | P a g e .52 means shareholder gets Rs. Earning per share represents the earning of the company whether or not dividends are declared. The Earning per share is 5. In other words the shareholder earned Rs.52 for each share of Rs. 5.Visit www. 10/-. 5. It is beneficial to the shareholders and prospective investor to invest the money in this company.52 per share.52.41 to 05. Therefore the shareholders earning per share is increased continuously from 2001-2002 to 2004-2005 by 0.com for more COMMENTS: Earnings per share are calculated to find out overall profitability of the company. The above diagram shows the Earning per share and Dividend per share is increasing rapidly.41 to 05. The net profit after tax of the company is increasing in all years. This shows it is continuous capital appreciation per unit share by 0.52.

41 2002-2003 1 1.35 2004 -2005 1.46 43.50 dividends per share hence the earning per share has doubled.24 and 43.35 respectively. From this one can say that the company is more conservative for expansion.76 is retained with them for the expansion.60 In the year 2002-2003 and 2003-2004 the Dividend pay out ratio is 60. 63 | P a g e .52 32.24 * 100 2003-2004 1. In the year 2004 the company has declared 1.66 60.50 3.mbahotspot. However the company has declared more dividends in the year 2002-2003 as the company has sufficient profit.com for more 14] DIVIDEND PAYOUT RATIO: Formula: Dividend per share Dividend Pay out ratio = Earning per share YEAR Dividend per share Earning per share Dividend payout ratio COMMENTS: 2001-2002 0.80 5.24 and the balance 39. In the year 2002-2003 the company has declared the dividend 60.Visit www. The company has not earned more profit in the year 2001-2002 hence the company has not declared dividend in the year 2001-2002.

51% so the gross profit is 56.19 2004 -2005 25.89 41. 2001-2002 18. In the year 2001-2002 the cost of goods sold ratio is 43.90. During the last 4 years the rate of cost of goods sold ratio is continuously decreasing however the gross profit & sales is increased during the same period.96.04 2003-2004 28.77 * 100 16] CASH RATIO: Formula: Cash + Bank + Marketable securities Cash ratio = Total current liabilities 64 | P a g e .02 68.37 43.Visit www.49%.02.76.72.mbahotspot.33. the 43% of raw material is consumed in the process of production.09.com for more 15] COST OF GOODS SOLD: Formula: COGS Cost of goods sold Ratio = Net sales YEAR COGS Net sales Cost of goods sold ratio COMMENTS: This ratio shows the rate of consumption of raw material in the process of production.51 2002-2003 21.98 43. it indicates that in 2001-2002.32 51.78 37.26 68.46 43.45.

75.28 in the year 2004-2005.21 in the year 2003-2004 & 0.59 7.62.74 2004 -2005 6.49.com for more YEAR Cash + Bank + Marketable securities Total current liabilities Cash ratio COMMENTS: 2001-2002 3.84 2003-2004 1.36.18 in the year 2002-2003.20 21.31.04. In the year 2001-2002 the cash ratio is 0.28.28 This ratio is called as super quick ratio or absolute liquidity ratio.19 3. & marketable securities to meet any contingency. 3 approximately is earned on the each Rs.84% it means the net return of Rs.20 & then it is decreased to 0.32 2002-2003 3. bank balance.42.14.78 24.18 21.02 0.55.64 15.72. 100 of funds contributed by the owners.41 COMMENTS: Return on proprietors fund shows the relationship between profits & investments by proprietors in the company.93.Visit www.32 0.69 0.19 0.97 2002-2003 82.91 11.66 0.71 2004 -2005 2.94 21. 17] RETURN ON PROPRIETORS FUND: Formula: NPAT Return on proprietors fund = Proprietors fund * 100 YEAR NPAT Proprietors fund Return on proprietors fund 2001-2002 20.94 22.mbahotspot.68 21. 65 | P a g e . In the year 2002-2003 the return on proprietors fund is 3.95. This shows that the company has sufficient cash.21 21. Then again it is increased to 0.25 2003-2004 4.29.

which means the net return of Rs.68 50. It is used by the present / prospective investor for deciding whether to purchase.com for more During the last 4 years the rate of return on proprietors fund is in increasing order. It shows that the company has a very large returns available to take care of high dividends. 18] RETURN ON EQUITY: Formula: NPAT Return on equity share capital = No.000 55 * 100 66 | P a g e . The rate of return on equity share capital is increased from4.94 50. This shows that the company has a very large returns available to take care of high equity dividend. is earned on the each Rs.94 50. & has a great scope to attract large amount of fresh fund from owners.58 2004 -2005 2.5%.mbahotspot. of equity share YEAR NPAT No.97% to 11.5 2003-2004 1.72.000 34. & also company has a great scope to attract large amount to fresh funds by issue of equity share & also company has a very good price for equity shares in the BSE. The return on proprietors fund during the year 2001-2002 to 2004-2005 is increased from 0. 2001-2002 20.78 50.000 4.75. In the year 2002-2003 the return on proprietors fund is 16.100 of the funds contributed by the equity shareholders.41%.13% to 55% during the year 2001-2002 to 2004-2005.Visit www.13 2002-2003 82. large transfers to reserve.000 16. of equity share Return on equity share capital COMMENTS: This ratio shows the relationship between profit & equity shareholders fund in the company. 16. keep or sell the equity shares. large transfers to reserve etc.

It indicates that the company has great efficiency in managing all its operations of production. Thus. this amount of Rs. purchase.Visit www.11% indicates that average operating margin of Rs. 100. inventory.11% to 9.mbahotspot.11% means that 7. 7 is available for meeting non operating expenses. In the other words operating profit ratio 7. The operating profit is equal to gross profit minus all operating expenses or sales less cost of goods sold and operating expenses. company has a large margin is available to meet non-operating expenses and earn net profit.7 is earned on sale of Rs. *100 67 | P a g e .38%. During the last 4 years the operating profit ratio is increased from 7.com for more 19] OPERATING PROFIT RATIO: Formula: Operating profit Operating profit ratio = Net sales COMMENTS: Operating profit ratio shows the relationship between operating profit & the sales.11% of net sales remains as operating profit after meeting all operating expenses. selling and distribution and also has control over the direct and indirect costs. The operating profit ratio of 7.

The creditors ratio for the year 2001-2002 and 2002-2003 as good as the same.3 months 2002-2003 22.6 times 3.08.86 4 times 3 months 2004 -2005 25.61 6.21 3.3 months 2003-2004 29. 68 | P a g e .com for more 20] CREDITORS TURNOVER RATIO: Formula: Net credit purchase Credit turnover ratio = Average creditors Months in a year Average age of accounts payable = Credit turnover ratio YEAR Net credit purchase Average creditors Credit turnover ratio Average age of accounts payable COMMENTS: 2001-2002 21. It shows the speed with which the payments are made to the suppliers for the purchase made from them.91.Visit www. indicate that the creditors are being turned over 4times during the year. but it is increased by 3.this means the company has settled the creditors dues very fastly than the previous year.6 times 3.39 3 times 4 months The creditors turnover ratio shows the relationship between the credit purchase and average trade creditors.96.6 to 4 in 2003-2004.04 7.21.80.mbahotspot.42 3. The credit turnover ratio of 4.71. There is no standard ratio in absolute term.43 5.88. It indicates the number of rounds taken by the credit cycle of payables during the year.80 7.29.

5 rounds during the year.mbahotspot. This ratio measures the collectibility of debtors & other accounts receivable.56 3.09. It helps to workout the debt collection period i.5 indicates that the debtors are being turned over 2.05.67 2.com for more DEBTORS TURNOVER RATIO: Formula: Credit sales Debtors turnover ratio = Average debtors Days in a year Debt collection period = Debtor’s turnover YEAR Credit sales Average debtors Debtors turnover ratio Debt collection period COMMENTS: 2001-2002 47.49.78 23. 69 | P a g e .76 2.Visit www. This indicates that it take146 days on an average for the debtors to be settled.35 2.8 times 96 days 2004 -2005 68.33 19.5 times 146 days 2002-2003 55.87.06.21.8 times 130 days 2003-2004 74.9 times 125 days Debtor‟s turnover ratio is alternative known as “ Accounts Receivable Turnover Ratio”.51. The Debtors turnover ratio of 2.5 = 146]. Debt collection period indicates the duration of the credit cycle of the debtors.5 times during the year.36 19. It means that the credit cycle of debtors makes 2.48 18.77. it means the rate at which the trade debts are being collected. 146 days [365/ 2.e.

com for more The Debtors turnover ratio is almost same during the year 2001-2002 to 2004-2005.mbahotspot. 70 | P a g e . In other words the debts collection period is short which result into less chance of bad debts. which indicates that the debts are being collected at a fast speed during the year? The operating cycle of the debtors is short.Visit www.

The return on capital employed is satisfactory.Visit www. Immediate solvency position of the company is also quite satisfactory. I would like to state that:        The short-term solvency of the company is quite satisfactory. The management should take care of inventory management and speed up the movement of stock. The company can meet its urgent obligations immediately.com for more SUMMARY OF FINANCIAL POSITION OF APLAB LIMITED After going through the various ratios. Credit policies are effective. The company is paying promptly to the suppliers.mbahotspot. Stock of the company is moving fast in the market. 71 | P a g e . Stock turnover rate is satisfactory. Effective selling technique or product modification may be adopted to face the competitors and to improve the financial position of the company by taking appropriate decisions. Over all profitability position of the company is quite satisfactory.

72 | P a g e . These ratios are numerous and there are wide spread variations in the same measure.com for more CONCLUSION: The focus of financial analysis is on key figures contained in the financial statements and the significant relationship that exits. Ratios generally do the work of diagnosing a problem only and failed to provide the solution to the problem. particularly for the trade creditors and banks. The ratio analysis can help in understanding the liquidity and short-term solvency of the firm. The operational efficiency of the firm in utilizing its assets to generate profits can be assessed on the basis of different turnover ratios. They are as good for as bad as the data it self. The ratios need not be taken for granted and accepted at face values. It is an important and powerful tool in the hands of financial analyst. Financial ratios are a useful by product of financial statement and provide standardized measures of firms financial position. Long-term solvency position as measured by different debt ratios can help a debt investor or financial institutions to evaluate the degree of financial risk.Visit www. However the ratio analysis suffers from different limitations also. The profitability of the firm can be analyzed with the help of profitability ratios. profitability and riskiness. The reliability and significance attach to the ratios will largely on hinge upon the quality of data on which they are best. By calculating one or other ratio or group of ratios he can analyze the performance of a firm from the different point of view.mbahotspot.

JAIN  MANAGEMENT ACCOUNTING AINAPURE  FINANCIAL MANAGEMENT L.com.N.business/financial 73 | P a g e .P. CHOPDE ANAUAL REPORTS OF APLAB LIMITED     2001-2002 2002-2003 2003-2004 2004-2005 WEBSIDES    www. CHOPDE D.RUSTAGI  FINANCIAL MANAGEMENT Text and problems M. KHAN AND P. K.N.Y.com for more BIBLIOGRAPHY REFERENCE BOOKS –  FINANCIAL MANAGEMENT Theory.org.cecunc. CHOUDHARI S.zeromillion. Concepts & problems R.mbahotspot.uk/compfact/ratio www.Visit www.ac.bizd.L.com/business/financial www.

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