39756922-Financial-Analysis | Equity (Finance) | Leverage (Finance)

Research Report On

Financial analysis of Reliance Industries Limited

Dr. M. K. Rastogi
Asst. Professor

Vinay Pratap Singh Chauhan
MBA (IV sem.) Roll No. 0805470097

Babu Banarasi Das National Institute of Technology & Management
Sector-I, Dr. Akhilesh Das Nagar, Faizabad Road, Lucknow


It is difficult to acknowledge precious a debt as that of learning as it is the only debt that is difficult to repay except through gratitude. First and foremost I wish to express my profound gratitude to the almighty, the merciful & compassionate with those grace & blessings. I have been able to complete this work. It is my profound privilege to express my sincere thanks to Prof. R. P. Gupta (Head of management department), for giving me an opportunity to work on the project and giving me full support in completing this project. I am very thankful to my guide Dr. M. K. Rastogi, Asst. Professor for his full support in completing this project work. Last but not least, I would like to thank my parents & my friends for their full cooperation & continuous support during the course of this assignment.

(Vinay Pratap Singh Chauhan)


Decision making is a fundamental part of the research process. Decisions regarding that what you want to do, how you want to do, what tools and techniques must be used for the successful completion of the project. In fact it is the researcher¶s efficiency as a decision maker that makes project fruitful for those who concern to the area of study. Basically when we are playing with computer in every part of life, I used it in my project not for the ease of my but for the ease of result explanation to those who will read this project. The project presents the financial analysis of reliance industries ltd. I had toiled to achieve the goals desired. Being a neophyte in this highly competitive world of business, I had come across several difficulties to make the objectives a reality. I am presenting this hand carved efforts in black and white. If anywhere something is found not in tandem to the theme then you are welcome with your valuable suggestions. My research project ³Financial analysis of Reliance Industries Ltd.´ is based on study conducted by me under the guidance of Dr. M. K. Rastogi (Asst. Prof.). I believe that my research project report will have been very helpful to the practical knowledge in the field of financial analysis of any organization. This includes the following: 1- The executive summary which gives the brief description about the research work. And what basically is done in the assigned research work. 2- Secondly it includes the introduction to the topic, which clearly explains about the topic upon which research is done. 3- Third chapter includes Objective of the research which is being considered for accomplishment of the research work.


Sixth chapter include summary of the current financial position of the reliance industries ltd. 4 .Suggestion and recommendation covers the forwarded measures that should be adopted by the company to make strong its financial analysis. 8. 5.4. which includes detailed information about the company.Findings count for the eighth chapter of the research report.Preface also comprises of the company profile of Reliance Industries Ltd.Seventh chapter covers the analysis and interpretation of the gathered data through ratio analysis. fund flow and cash flow analysis. 10.Fourth chapter include the research methodology applied for conducting the research work it also include the limitation of the study. which explains the outcome of interpreted data. which explains what actually being concluded from the research work after analysis and interpretation of the data. 9. 6.Preface also include conclusion. its balance sheet and profit & loss account of past four years. 7.


studied and interpreted in light of company¶s performance. Finally. Dhirubhai Ambani. Through this report. Through a thorough financial analysis. I decided to choose one of India¶s largest companies in a sector that has rapidly grown over the last few years and a company where leaders like Mr. or rather. Critical decisions of distributing dividends. I try and analyze the financial environment in which Reliance Industry Limited is operating. Later. fund flow analysis and cash flow analysis of the company to analyzing the financial position of the company in last four years. I try and evaluate the various ratios to appreciate their impact on company¶s performance over the last four years The financial statements of last four years are identified. a company that has been made Mr. 6 . Dhirubhai Ambani. Issue of bonus Debentures and other current news are analyzed and their impact on the bottom line of the company is assessed.Executive Summary The project assigned to me was to study the financial health of any organization in the country. my aim to understand the financial factors is influencing the company and its decision making. I study ratio analysis.

The two statements are: y y The Balance Sheet Profit And Loss Account They provide some extremely useful information to the extent that balance Sheet mirrors the financial position on a particular date in terms of the structure of assets. They report profitability and the financial position of the business at the end of accounting period.Introduction Meaning of Financial Statement Financial statements refer to such statements which contains financial information about an enterprise. relation and evaluation. and so on and the Profit and Loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. The final step is interpretation and drawing of inference and conclusions. Financial statement is the process of selection. liabilities and owners equity. The second step is to arrange the information in a way to highlight significant relationship. The team financial statement includes at least two statements which the accountant prepares at the end of an accounting period. Thus the financial statement provides a summarized view of financial position and operations of a firm Meaning of Financial Analysis The first task of financial analysis is to select the information relevant to the decision under consideration to the total information contained in the financial statement. 7 .

To know the trend of business. To know the efficiency of mgt.Features of Financial Analysis y To present a complex data contained in the financial statement in simple and understandable form. To make comparison between various groups to draw various conclusions. To know the capability of payment of interest & dividends. y Purpose of Analysis of financial statements y y y y y y y y To know the earning capacity or profitability. y To classify the items contained in the financial statement inconvenient and rational groups. To provide useful information to mgt Procedure of Financial Statement Analysis y The following procedure is adopted for the analysis and interpretation of financial statements:- 8 . To know the solvency. To know the financial strengths. To make comparative study with other firms.

if financial position is to be studied then balance sheet analysis will be necessary. common size. A short-term creditor. trends. The liquidity of the borrower is extremely important in evaluating the safety of a loan. It will involve the grouping similar data under same heads. If the aim is find out. He should know the plans and policies of the managements that he may be able to find out whether these plans are properly executed or not. such as a bondholder. y The financial data be given in statement should be recognized and rearranged. Long- 9 . The data is reduced to a standard form. y The extent of analysis should be determined so that the sphere of work may be decided. On the other hand. The significance and utility of financial data is explained for help indecision making.y The analyst should acquaint himself with principles and postulated of accounting. Earning capacity of the enterprise then analysis of income statement will be undertaken. y The information is interpreted in a simple and understandable way. fund flow etc. Analyzing financial statements involves evaluating three characteristics of a company: its liquidity. Breaking down of individual components of statement according to nature. y The conclusions drawn from interpretation are presented to the management in the form of reports. and its insolvency. A relationship is established among financial statements with the help of tools & techniques of analysis such as ratios. its profitability. A long-term creditor. such as a bank. is primarily interested in the ability of the borrower to pay obligations when they come due. looks to profitability and solvency measures that indicate the company¶s ability to survive over a long period of time. however.

term creditors consider such measures as the amount of debt in the company¶s capital structure and its ability to meet interest payments. Similarly, stockholders are interested in the profitability and solvency of the company. They want to assess the likelihood of dividends and the growth potential of the stock. Comparison can be made on a number of different bases. Following are the three illustrations:

1. Intra-company basis.
This basis compares an item or financial relationship within a company in the current year with the same item or relationship in one or more prior years. For example, Sears, Roebuck and Co. can compare its cash balance at the end of the current year with last year¶s balance to find the amount of the increase or decrease. Likewise, Sears can compare the percentage of cash to current assets at the end of the current year with the percentage in one or more prior years. Intra-company comparisons are useful in detecting changes in financial relationships and significant trends. 2. Industry averages. This basis compares an item or financial relationship of a company with industry averages (or norms) published by financial ratings organizations such as Dun & Bradstreet, Moody¶s and Standard & Poor¶s. For example, Sears¶s net income can be compared with the average net income of all companies in the retail chain-store industry. Comparisons with industry averages provide information as to a company¶s relative performance within the industry.


3. Intercompany basis.
This basis compares an item or financial relationship of one company with the same item or relationship in one or more competing companies. The comparisons are made on the basis of the published financial statements of the individual companies. For example, Sears¶s total sales for the year can be compared with the total sales of its major competitors such as Kmart and Wal-Mart. Intercompany comparisons are useful in determining a company¶s competitive position.

Tools of Financial Statement Analysis Various tools are used to evaluate the significance of financial statement data. Three commonly used tools are these: y Ratio Analysis y Funds Flow Analysis y Cash Flow Analysis 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 ³so many times´. As accounting ratio is an expression relating two figures or accounts or two sets of account heads or group contain in the financial statements.

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, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. 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. While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus on a technique, which is easy to use. It can provide you with a valuable investment analysis tool.


A financial ratio measures a company's performance in a specific area. Objective of Ratios: Ratios are worked 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 13 . However. A company whose leverage ratio is higher than a competitor's has more debt per equity.This technique is called cross-sectional analysis. Ratio analysis can provide valuable information about a company's financial health. you must be careful not to place too much importance on one ratio. For example. You obtain a better indication of the direction in which a company is moving when several ratios are taken as a group. you could use a ratio of a company's debt to its equity to measure a company's leverage. you can determine which company uses greater debt in the conduct of its business. By comparing the leverage ratios of two companies. Cross-sectional analysis compares financial ratios of several companies from the same industry. You can use this information to make a judgment as to which company is a better investment risk.

12.00.000. Similarly. 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.000] 14 .00. one item may be expressed as a percentage of some other items. So the ratio of credit sales to cash sales can be described as 30.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.000.000 & the amount of the gross profit is Rs. the cash sales of a firm are Rs.00.000] = 2.000 = 4:1.00.5 times are the credit sales that of cash sales.00. then the gross profit may be described as 20% of sales [ 10.00.000 & the preference share capital is Rs.00.000: 5. 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.000/50. 10. For example.00. 20. net sales of the firm are Rs. the ratio of equity share capital to preference share capital is 20.50. C] As a percentage: In such a case.00.000 & credit sales are Rs. 00. 5.5 [30.000.

Steps in Ratio Analysis The ratio analysis requires two steps as follows: 1] Calculation of ratio 2] Comparing the ratio with some predetermined standards. 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. In interpreting the ratio of a particular firm. 15 . So it involves the comparison of two or more firm¶s financial ratio at the same point of time. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. 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 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. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself. 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. the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard.

The combined analysis as depicted in the above diagram. an assessment can be made about the trend in progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results.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. then meaningful & comprehensive evaluation of the performance of the firm can definitely be made. 16 . about the direction of progress of the firm. 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. which clearly shows that the ratio of the firm is above the industry average. the ratio of operating expenses to net sales for firm may be higher than the industry average however. For example. but it is decreasing over the years & is approaching the industry average. both are combined together to study the behavior & pattern of ratio. whereas the industry average has not shown any significant changes. over the years it has been declining for the firm.

Pre-Requisites to Ratio Analysis:
In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-requisites, which must be taken care of. It may be noted that these prerequisites are not conditions for calculations for meaningful conclusions. 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. 1) The dates of different financial statements from where data is taken must be same. 2) If possible, only audited financial statements should be considered, otherwise there must be sufficient evidence that the data is correct. 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. 4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must be preferred. This will be conductive to counter checks. 5) Last but not least, 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.


Classification of Ratio:








Based on Financial Statement
Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet, P& P A/C, or both. One-way of classification of ratios is based upon the sources from which are taken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. Ratio of current assets to current liabilities or Debt to equity ratio. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratios help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietary ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio. 2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratios study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio. 3] Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement. There are two types of composite ratios-


profitability ratios & turnover ratios.a) Some composite ratios study the relationship between the profits & the investments of the concern. creditors turnover ratios. debtors¶ turnover ratios. It is also known as Turnover ratios & productivity ratios e. 20 . 4] Profitability ratios: a) It shows the relationship between profits & sales e. 2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e. expenses ratios b) It shows the relationship between profit & investment e. E. return on proprietors fund.g.g.g. liquid ratios & current ratios. capital gearing ratios. return on capital employed. debt equity ratios. return on equity capital etc.g. return on equity capital. activity ratios. & Proprietary ratios. dividend payout ratios. b) Other composite ratios e. operating ratios. operating net profit ratios. gross profit ratios. return on investment.g. stock turnover ratios. & debt service ratios Based on Function: Accounting ratios can also be classified according to their functions in to liquidity ratios.g. leverage ratios.g. 1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e. 3] Activity ratios: It shows relationship between the sales & the assets. debtors turnover ratios.

21 .g. liquid ratios. stock working capital ratios 2] Ratios for the shareholders: Return on proprietors fund. proprietor ratios. return on equity capital 3] Ratios for management: Return on capital employed. Based on User: 1] Ratios for short-term creditors: Current 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. return on capital employed. operating ratios. dividend payout ratios & debt service ratios. turnover ratios. expenses ratios 4] Ratios for long-term creditors: Debt equity ratios.

g.Liquidity Ratio: Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. It is expressed in the form of pure ratio. E. and Cash ratio. These ratios are discussed below Current Ratio Meaning: This ratio compares the current assets with the current liabilities. Quick/Acid-Test ratio. which indicate the liquidity of a company. The ratios. 2:1 Formula: Current assets Current ratio = Current liabilities 22 . It is also known as µworking capital ratio¶ or µsolvency ratio¶. are Current ratio.

This compares assets. semifinished and finished goods. bank credit. normally not exceeding one year. Any ratio below indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over trading. in the ordinary course of business. 23 . The higher the current ratio. i.. CR measures the ability of the company to meet its CL. and provision for taxation. Recommended current ratio is 2: 1. Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). inventory of raw materials. Current assets include cash and bank balances. that is the entity is under utilizing its current assets. dividends payable and outstanding expenses. CA gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. The current liabilities defined as liabilities which are short term maturing obligations to be met. bills payable. 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. as originally contemplated. debtors (net of provision for bad and doubtful debts).e. the greater the short-term solvency. bills receivable. converted into cash within a short period time.The current assets of a firm represents those assets which can be. with in a year. and prepaid expenses. This ratio measures the liquidity of the current assets and the ability of a company to meet its short-term debt obligation. which will become liquid within approximately twelve months with liabilities. marketable securities.term liabilities. Current liabilities consist of trade creditors.

E. short-term marketable securities. 1:1.Liquid Ratio: Meaning: Liquid ratio is also known as acid test ratio or quick ratio. 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. Formula: Quick assets Liquid ratio = Quick liabilities Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. which can be converted into. Liquid ratio compares the quick assets with the quick liabilities. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. cash immediately or at a short notice without diminution of value. It is expressed in the form of pure ratio. This is a fairly stringent measure of liquidity because it is based on those current assets. and sundry debtors. which are highly liquid. a quick ratio of 1:1 is considered good. The term quick assets refer to current assets. Generally. One drawback of the quick ratio is that it ignores the timing of receipts and payments. QA includes cash and bank balances.g. 24 .

Cash Ratio: Meaning: This is also called as super quick ratio. 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 SHARE:Meaning: 25 . This ratio considers only the absolute liquidity available with the firm. financial analysts look at the cash ratio. 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.

If there is only one class of shares.Earnings per Share are calculated to find out overall profitability of the organization. the earning per share are determined by dividing net profit by the number of equity shares. Formula: Net Profit after Tax 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. 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. Formula: Dividend Paid to Ordinary Shareholders Dividend per Share = Number of Ordinary Shares 26 . EPS measures the profits available to the equity shareholders on each share held. Earnings per Share represent earning of the company whether or not dividends are declared.

Equity shareholders earn more when the rate of the return on total capital is 27 . Gearing CAPITAL GEARING RATIO:Meaning: Gearing means the process of increasing the equity shareholders return through the use of debt. 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.Dividend Payout Ratio:Meaning: Dividend Pay-out Ratio shows the relationship between the dividends paid to equity shareholders out of the profit available to the equity shareholders.

There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.equity capital & preference capital & long term borrowings. which generates a substantial amount of profits per rupee of sales. The Capital-gearing ratio shows the relationship between two types of capital viz: . Profitability These ratios help measure the profitability of a firm. 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. It is expressed as a pure ratio. GROSS PROFIT RATIO:28 . A firm.more than the rate of interest on debts. can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. This is also known as leverage or trading on equity.

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. It measures the efficiency of production as well as pricing. selling. how good its control is over the direct cost. how much amount is left to meet other expenses & earn net profit. administration. how productive the concern . pricing and tax management. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. It measures the overall efficiency of production. Formula: NPAT Net profit ratio = Net sales This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. selling & inventory. This ratio helps to judge how efficient the concern is I managing its production.Meaning: This ratio measures the relationship between gross profit and sales. financing. purchase. Jointly * 100 * 100 29 . This ratio shows the profit that remains after the manufacturing costs have been met.

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.considered. ROCE indicates the efficiency with which the long-term funds of a firm are utilized. 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. The important turnover ratios are debtors turnover ratio. Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It means that the capital employed comprises of shareholder funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net working capital. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. Formula: NPAT Return on capital employed = Capital employed *100 Financial These ratios determine how quickly certain current assets can be converted into cash. The term fund employed or the capital employed refers to the total long-term source of funds. 30 . 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.

Net credit sales are the gross credit sales minus returns. and total assets turnover ratio.average collection period. Formula: Credit sales Debtors turnover ratio = Average debtors The higher the DTO. from customers. if any. These are described below: DEBTORS TURNOVER RATIO (DTO) Meaning: DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It measures the liquidity of a firm's debts. fixed assets turnover ratio. 31 . inventory/stock turnover ratio. Average debtors are the average of debtors at the beginning and at the end of the year. the better it is for the organization. This ratio shows how rapidly debts are collected.

the more efficient is the management of inventories. cost of goods sold) is related to a stock figure (inventories). Formula: Cost of Goods Sold Stock Turnover Ratio = Average stock ITR reflects the efficiency of inventory management. In general. which may lead to frequent stock outs and loss of sales and customer goodwill. Formula: Net sales Fixed assets turnover = Net fixed assets This ratio measures the efficiency with which fixed assets are employed.Inventory or Stock Turnover Ratio (ITR) Meaning: ITR refers to the number of times the inventory is sold and replaced during the accounting period. Fixed AssetsTurnover (FAT) The FAT ratio measures the net sales per rupee of investment in fixed assets. and vice versa. averages may be used when a flow figure (in this case. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an 32 . However. the average of inventories at the beginning and the end of the year is taken. For calculating ITR. The higher the ratio. a high inventory turnover may also result from a low level of inventory.

Total assets also know it as net worth. In other words. Proprietary ratio determines as to what extent the owner¶s interest & expectations are fulfilled from the total investment made in the business operation. It is usually expressed in the form of percentage. Formula: Proprietary fund Proprietary ratio = Total fund OR 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. the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low). It relates shareholders fund to total assets. Proprietary ratio compares the proprietor fund with total liabilities. This ratio determines the long term or ultimate solvency of the company. Proprietors Ratio: Meaning: Proprietary ratio is a test of financial & credit strength of the business. However. this ratio should be used with caution because when the fixed assets of a firm are old and substantially depreciated. It helps to judge the quantum of inventories in relation to the working capital of the 33 .inefficient use of assets.

It is expressed as a percentage. It is usually expressed as a pure ratio.g. This relationship is shown by debt equity ratio. The purpose of this ratio is to show the extent to which working capital is blocked in inventories. The ratio highlights the predominance of stocks in the current financial position of the company. The relationship between borrowed funds & owners capital is a popular measure of the long term financial solvency of a firm. this ratio indicates the relative proportion of debt & equity in financing the assets of the firm. Leverage means the process of the increasing the equity shareholders return through the use of debt.business. It is a qualitative test of solvency. Leverage is also 34 . 2:1 Formula: Total long-term debt Debt equity ratio = Total shareholders fund Debt equity ratio is also called as leverage ratio. If investment in stock is higher it means that the amount of liquid assets is lower. Formula: Stock Stock working capital ratio = Working Capital Stock working capital ratio is a liquidity ratio. It shows the extent of funds blocked in stock. It indicates the composition & quality of the working capital. Alternatively. Debt Equity Ratio: Mening: This ratio compares the long-term debts with shareholders fund. E. This ratio also helps to study the solvency of a concern.

This ratio helps to judge how efficient the concern is in managing the owner¶s fund at disposal. This ratio indicates the relationship between net profits earned & total proprietor¶s funds. This ratio is of practical importance to prospective investors & shareholders. Its purpose is to measure the rate of return on the total fund made available by the owners. It shows the speed at which payments are made to the supplier for purchase made from them. Return on proprietors fund is a profitability ratio. Return on Proprietor Fund: Meaning: Return on proprietors fund is also known as µreturn on proprietor¶s equity¶ or µreturn on shareholders¶ investment¶ or µinvestment ratio¶.known as µgearing¶ or µtrading on equity¶. It is a relation between net credit purchase and average creditors Net credit purchase Credit turnover ratio = Average creditors * 100 Months in a year Average age of accounts payable = Credit turnover ratio 35 . Formula: NPAT Return on proprietors fund = Proprietor¶s fund Creditors Turnover Ratio: It is same as debtors turnover ratio. Debt equity ratio shows the margin of safety for long-term creditors & the balance between debt & equity. which the relationship between profit & investment by the proprietors in the concern.

Higher creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. A very low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors. It enhances credit worthiness of the company.Both the ratios indicate promptness in payment of creditor purchases. 36 .

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. The liquidity ratio is particularly useful in credit analysis by bank & other suppliers of short term loans. 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. 2] Long-term solvency: Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This ability is reflected in the liquidity ratio of a firm. 1] Liquidity position: With the help of Ratio analysis conclusion can be drawn regarding the liquidity position 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. The liquidity position of a firm would be satisfactory if it is able to meet its current obligation when they become due. This respect of the financial position of a borrower is of concern to the long-term 37 .

they are concerned about the ability of the firm to meets its short term as well as long term obligations to its creditors.creditors. The leverage ratios. 3] Operating efficiency: Yet another dimension of the useful of the ratio analysis. 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. This is possible if an integrated view is taken & all the ratios are considered together. the solvency of a firm is. the management is constantly concerned about overall profitability of the enterprise. relevant from the viewpoint of management. 4] Overall profitability: Unlike the outsides parties. The various activity ratios measure this kind of operational efficiency. for instance. in the ultimate analysis. 38 . 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. to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm. In fact. dependent upon the sales revenues generated by the use of its assets. security analyst & the present & potential owners of a business. is that it throws light on the degree of efficiency in management & utilization of its assets. which are interested in one aspect of the financial position of a firm. That is.total as well as its components. Ratio analysis reveals the strength & weaknesses of a firm in this respect. The long-term solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power & operating efficiency.

whether the movement is favorable or unfavorable. For example. 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. that is. On the other hand. One of the popular techniques is to compare the ratios of a firm with the industry average. whether the financial position of a firm is improving or deteriorating over the years. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. An inter firm comparison would demonstrate the firms position vice-versa its competitors. The significance of the trend analysis of ratio lies in the fact that the analysts can know the direction of movement.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. though the present level may be satisfactory but the trend may be a declining one. This is made possible by the use of trend analysis. 39 . take remedial measures. 6] Trend analysis: Finally. ratio analysis enables a firm to take the time dimension into account. If the results are at variance either with the industry average or with those of the competitors. the ratio may be low as compared to the norm but the trend may be upward. the firm can seek to identify the probable reasons & in light. In other words. This is made possible due to inter firm comparison & comparison with the industry averages.

 Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. The advantages of ratio analysis can be summarized as follows:  Ratios facilitate conducting trend analysis. 40 . which give the decision-maker insights into the financial performance of a company.  Ratio analysis helps in the assessment of the liquidity. These limitations are described below: 1] Information problems  Ratios require quantitative information for analysis but it is not decisive about analytical output. Ratios based on this information will not be very useful for decisionmaking. operating efficiency. and so might not give a proper indication of the company¶s current financial position. asset valuations in the balance sheet could be misleading. Limitations of Ratio Analysis Ratio analysis has its limitations. which is important for decision making and forecasting.  The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of the firm.  The figures in a set of accounts are likely to be at least several months out of date. profitability and solvency of a firm.Advantages of Ratio Analysis Financial ratios are essentially concerned with the identification of significant accounting data relationships.  Where historical cost convention is used.

 Even within a company. not qualitative information. The movement in performance should be in line with the changes in price.  When comparing performance over time. Comparing the performance of two enterprises may be misleading. there is need to consider the changes in technology. 41 . The movement in performance should be in line with the changes in technology.  Inter-firm comparison may not be useful unless the firms compared are of the same size and age. there is need to consider the changes in price.  Ratios provide only quantitative information.  Ratios are calculated on the basis of past financial statements.  Changes in accounting policy may affect the comparison of results between different accounting years as misleading. 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.2] Comparison of performance over time  When comparing performance over time. and employ similar production methods and accounting practices. They do not indicate future trends and they do not consider economic conditions.  Selective application of government incentives to various companies may also distort intercompany comparison. comparisons can be distorted by changes in the price level.

At the same time. Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of performance. as the ratio all by them do not mean anything. 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 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. The process of this appraisal is not complete until the ratio so computed can be compared with something.Purpose of Ratio Analysis: 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. This 42 . which is already appearing in the financial statement. it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the mere preparation of financial statement. either individually or in relation to those of other firms in the same industry.

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. (d) Net current assets. 43 .. As the ratio analysis is concerned with all the aspect of a firms financial analysis i. Ratio analysis is one of the best possible techniques available to the management to impart the basic functions like planning & control. As the future is closely related to the immediate past. The flow of fund will occur in a business. when a transaction results in a change i. For the purpose of fund flow statement the term means net working capital. it enables the interested persons to know the financial & operational characteristics of an organisation & take the suitable decision.e. which need the management attention in order to improve the situation. solvency. increase or decrease in the amount of fund. activity. profitability & overall performance. liquidity. inter firm comparison or comparison with standard ratios.comparison may be in the form of intra firm comparison. Fund Flow Analysis Fund may be interpreted in various ways as (a) Cash. (b) Total current assets. (c) Net working capital. ratio calculated on the basis of historical financial statements may be of good assistance to predict the future. Ratio analysis also helps to locate & point out the various areas.e.

According to Robert Anthony the funds flow statement describes the sources from which additional funds were derived and the uses to which these funds were put. y y To inform as to how the loans to the business have been used. it is a technical device designed to highlight the changes in the financial condition of a business enterprise between two balance sheets. In short. Format of Fund Flow Statement Sources Fund from operation Non-trading incomes Issue of shares Issue of debentures Applications Fund lost in operations Non-operating expenses Redemption of redeemable preference share Redemption of debentures 44 . Different names of Fund-Flow Statement  A Funds Statement  A statement of sources and uses of fund  A statement of sources and application of fund  Where got and where gone statement  Inflow and outflow of fund statement Objectives of Fund Flow Statement The main purposes of FFS are:] y To help to understand the changes in assets and asset sources which are not readily evident in the income statement or financial statement. To point out the financial strengths and weaknesses of the business.

Likewise. the firm needs cash to make payment to salaries. Preparation of accounts for non-current items (Ascertain the hidden information). interest etc. Objectives of CFS 1. Preparation of the fund flow statement. It is prepared on the basis of historical data showing the inflow and outflow of cash. rent dividend.Borrowing of loans Acceptance of deposits Sale of fixed assets Repayment of loans Repayment of deposits Purchase of fixed assets Sale of investments Purchase of long term investments (Long Term) Decrease in working Increase in working capital capital Steps in Preparation of Fund Flow Statement. 3. 45 . 2. Preparation of schedule changes in working capital (taking current items only). To show the causes of changes in cash balance between the balance sheet dates. A firm receives cash from various sources like sales. sale of assets investments etc. Cash flow statement reveals that inflow and outflow of cash during a particular period. It is an important tool of cash planning and control. 1. Preparation of adjusted profit and loss account (to know fund from or fund lost in operations). Cash Flow Analysis Cash is a life blood of business. debtors.

46 .2. Opening of accounts for non-current items (to find out the hidden information). Preparation of adjusted P&L account (to find out cash from operation or profit. It helps the management in planning the repayment of loans. Usefulness of the Statement of Cash Flows The information in a statement of cash flows should help investors. credit arrangements etc. From the past year statements projections can be made for the future. Net Profit + Decrease in Current Assets OR Increase in Current Liabilities Increase in Current Assets OR Decrease in Current Liabilities. Steps in Preparing CFS 1. Comparison of current items (to find out inflow or outflow of cash). 3. 2. 3. Uses of CFS 1. 5. and others assess the following aspects of the firm¶s financial position. It explaining the reasons for low cash balance. 4. creditors. Cash from operation can be prepared by this formula also. Preparation of Cash Flow Statement. To show the actors contributing to the reduction of cash balance inspire of increasing of profit or decreasing profit. 4. 2. It shows the major sources and uses of cash. and cash lot in operation or loss). It helps in short term financial decisions relating to liquidity. To preparing Account for all non-current items is easier for preparing Cash Flow Statement.

 How did cash increase when there was a net loss for the period?  How were the proceeds of the bond issue used? 47 . However. debts settled. some are critical of accrual basis net income because it requires many estimates. By examining relationships between items in the statement of cash flows. As a result. the information in the statement of cash flows is useful in answering the following questions. and uncertainty of future cash flows better than they can from accrual basis data. y The entity¶s ability to pay dividends and meet obligations. a financial statement reader can better understand why assets and liabilities changed during the period. If a company does not have adequate cash. investors and others can make predictions of the amounts. y The cash investing and financing transactions during the period. Many readers of the statement of cash flows want to know the reasons for the difference between net income and net cash provided by operating activities. timing. Such is not the case with cash. 1.y The entity¶s ability to generate future cash flows. or dividends paid. The reasons for the difference between net income and net cash Net income provides information on the success or failure of a business enterprise. creditors. because it alone shows the flows of cash in a business. In summary. Then they can assess for themselves the reliability of the income number. By examining a company¶s investing and financing transactions. and stockholders should be particularly interested in this statement. the reliability of the number is often challenged. Employees. employees cannot be paid.

 How were the expansions in the plant and equipment financed?  Why were dividends not increased?  How was the retirement of debt accomplished?  How much money was borrowed during the year?  Is cash flow greater or less than net income? Cash Flow Statement Inflow of Cash Opening cash balance Cash from operation Sales of assets Issue of debentures Raising of loans Collection debentures Refund of tax from Amount *** *** *** *** *** *** *** Outflow of cash Redemption preference shares Redemption debentures Repayment of loans Payment of dividends Pay of tax Cash lost in debentures Closing cash balance of of Amount *** *** *** *** *** *** *** Cash from operation can be calculated in two ways: Cash Sales Method Cash Sales ± (Cash Purchase + Cash Operation Expenses) Net Profit Method It can be prepared in statement form or by Adjusted Profit and Loss Account. 48 .

Objective of Study 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. 49 .

Descriptive research is used when the objective is to provide a systematic description that is as factual and accurate as possible. the financial ratios and percentages are inaccurate. periodic depreciation. Estimates are used in determining the allowance for uncollectible receivables.  It determines strength reliability and accuracy of the project. A research project has to be the conducted scientifically making sure that the data is collected adequately and economically. and contingent losses. the costs of warranties. The study used a descriptive research design for the purpose of getting an insight over the issue. 50 . one should be aware of the limitations of these tools and of the financial statements on which they are based. 1. It is to provide an accurate picture of some aspects of market environment. 2. But. gathering recording and analysis of data about problem relating to any particular field. Method of Data Collection: Secondary Data: Through the internet and published data Limitation of the study Significant business decisions are frequently made using one or more of the analytical tools illustrated in this term paper.Research Methodology  Research is defined as a systematic. Estimates Financial statements contain numerous estimates. To the extent that these estimates are inaccurate. Research Design: Research Design pertains to the great research approach or strategy adopted for a particular project.

Therefore. Such variations may hamper comparability. one company may use the FIFO method of inventory costing: another company in the same industry may use LIFO.S. Diversification of Firms Diversification in U. Firms frequently establish a fiscal year-end that coincides with the low point in operating activity or in inventory levels. receivables. For example. Comparisons of unadjusted financial data from different periods may be rendered invalid by significant inflation or deflation. payables. and amortization. Alternative Accounting Methods Companies vary in the generally accepted accounting principles they use. In addition to differences in inventory costing methods. differences also exist in reporting such items as depreciation. Atypical Data Fiscal year-end data may not be typical of the financial condition during the year.Cost Traditional financial statements are based on cost. industry also limits the usefulness of financial analysis. and inventories) may not be representative of the balances in the accounts during the year. They are not adjusted for price-level changes. adjusting the financial data to compensate for the different methods is difficult. certain account balances (cash. Many firms today are so diversified that they cannot be classified by a single industry ± they 51 . if not impossible in some cases. depletion. me period. If inventory is a significant asset to both companies. These differences in accounting methods might be detectable from reading the notes to the financial statements. it is unlikely that their current ratios are comparable. But.

52 .are true conglomerates. Others appear to be comparable but are not.

Company Profile The Reliance group. It also makes textiles and explores for oil and gas. founded by Dhirubhai H Ambani (1932-2002). being ranked at 206th position (2008). with businesses in the energy and material value chain.9 billion and profit of US$ 4. Oil refining and the manufacture of polyfines account for nearly all of Reliance¶s sales. It was founded by the Indian industrialist Dhirubhai Ambani in 1966. is a Fortune Global 500 company and is the largest private sector company in India. Reliance Industries Limited. Ambani was one of the first entrepreneurs to draw retail investors to the 53 . In 2009 the company merged with its oil and gas refining subsidiary (Reliance Petroleum) in order to boost the operational and financial synergies of Reliance as a major refining company. The flagship company. Ambani has been a pioneer in introducing financial instruments like fully convertible debentures to the Indian stock markets. Reliance Industries Limited (NSE: RELIANCE) is India's largest private sector conglomerate (by market value) . The company is India¶s largest petrochemical firm and among the country¶s largest companies (along with the likes of Indian Oil and Tata Group).85 billion for the fiscal year ending in March 2008 making it one of India's private sector Fortune Global 500 companies. though those businesses are relatively small. is India¶s largest private sector enterprise. with an annual turnover of US $ 35. The chairman of the company is Mukesh Ambani.

stock markets. to garments (under the brand name of Vimal). Mukesh Ambani and Anil Ambani. In September 2008. Reliance Retail has entered into the fresh foods market as Reliance Fresh and launched a new chain called Delight Reliance Retail and NOVA Chemicals have signed a letter of intent to make energy-efficient structures. Reliance Industries Ltd. Reliance has also completed a second refinery of 29 million tons at the 54 . Though the company's oil-related operations form the core of its business. Products Reliance Industries Limited has a wide range of products from petroleum products. Critics allege that the rise of Reliance Industries to the top slot in terms of market capitalization is largely due to Dhirubhai's ability to manipulate the levers of a controlled economy to his advantage. petrochemicals. It operates a 33 million tone refinery at Jamnagar in the Indian state of Gujarat.´. Reliance companies have been among the best performing in the Indian stock market. making it one of the world's most widely held stocks. Reliance has more than 3 million shareholders. subsequent to its split in January 2006 has continued to grow. Reliance Industries was the only Indian firm featured in the Forbes's list of "world's 100 most respected companies Stock According to the company website "1 out of every 4 investors in India is a Reliance shareholder. the group was divided between them in 2006. it has diversified its operations in recent years. After severe differences between the founder's two sons. The primary business of the company is petroleum refining and petrochemicals.

these relate to Biopharmaceuticals. it struck a major find on India's eastern coast in the Krishna Godavari basin. 2009. In 2002. Gas production from this find was started on April 2. The company is also involved in oil & gas exploration and production. 55 . Subsidiaries Major Subsidiaries & Associates Reliance Petroleum Limited (RPL) was a subsidiary of Reliance Industries Limited (RIL) and was created to exploit the emerging opportunities. Plant Biotechnology and Industrial Biotechnology. is an institution of higher education in various fields of life sciences and related technologies. creating value in the refining sector worldwide. y y Reliance Life Sciences is a research-driven. Specifically. Bio-fuels. biotechnology-led. plant and industrial biotechnology opportunities. RPL stands amalgamated with RIL.same site which started operations in December 2008. Regenerative Medicine. gas production from the KG D6 ramped up to 60 MMSCMD. Currently. Clinical Research Services. Novel Therapeutics. Pharmaceuticals. Molecular Medicine. y Reliance Industrial Infrastructure Limited (RIIL) is engaged in the business of setting up / operating Industrial Infrastructure that also involves leasing and providing services connected with computer software and data processing. life sciences organization that participates in medical. As of the end of 3rd quarter of 2009-2010. y Reliance Institute of Life Sciences (Rils) established by Dhirubhai Ambani Foundation.

a contract research organization (CRO) and wholly owned subsidiary of Reliance Life Sciences. On 2 April 2009. y Reliance Solar.y Reliance Logistics (P) Limited is a single window solutions provider for transportation. Equivalent to 1. biotechnology and medical device companies. distribution. warehousing. y Reliance Clinical Research Services (RCRS). y Relicord is the first and one of the most dependable stem-cell banking services of South East Asia offered by Mukesh Ambani controlled Reliance Industries.2 billion barrels (165 mil in 2002. Reliance Industries (RIL) commenced natural gas production from its D-6 block in the Krishna-Godavari (KG) The gas reserve is 7 trillion cubic feet in size. and supply chain needs. Reliance found natural gas in the Krishna Godavari basin off the coast of lion tonnes) of crude oil. 56 . The solar energy initiative of Reliance aims to bring solar energy systems and solutions primarily to remote and rural areas and bring about a transformation in the quality of life. Reliance's Oil & Gas find Andhra Pradesh near Vishakhapatnam. has been set up to provide clinical research services to pharmaceutical. logistics. but only 5 trillion cubic feet are extractable. supported by in house state of art telemetric and telemetry solutions. It was the largest discovery of natural gas in world in financial year 2002-2003.

and Reliance Jewel come under the Reliance Retail brand. Reliance saw opportunity in retailing chicken. Reliance Digital. Reliance Trends. Reliance iStore. Reliance Retail Reliance Retail is the retail business wing of the Reliance business. Reliance Wellness. Reliance Mart." One of the Delight outlets has been shut down due to protest by anti-animal cruelty activists at Gandhi Nagar. mutton and other meat products (halal and non-halal) through one of its retail arms called "Delight Non Veg. Reliance Industries backed a conference on environmental awareness in New Delhi in 2006. Reliance Home Kitchens. Reliance AutoZone. Reliance Time Out. Reliance Super. They operate the largest polyester recycling center that uses the polyester waste as a filling and stuffing. Anil Ambani's Reliance Natural Resources took Reliance Industries to the Bombay High Court to uphold a memorandum of understanding that said RIL will supply the natural gas at $2.34 per million British thermal units to Anil Ambani.On 2008 Oct 8. The conference was run by the Asia Pacific Jurist Association in partnership with 57 . Many brands like Reliance Fresh. In order to deal with this large amount of waste they had to create a way to recycle the waste. They use this process to develop a strong recycling process which won them a reward in the Team Excellence competition. Reliance Footprint. Environmental record Reliance Industry is the world¶s largest polyester producer and as a result one of the largest producers of polyester waste in the world. Delhi who want Reliance to close its non-veg food marketing.

Govt. Maharashtra Pollution Control Board invited various industries complied with the pollution control norms to take active part in the conference and to support as a sponsor. Mukesh D. Awards for managers y Mukesh D. Ambani received the United States of America-India Business Council (USIBC) leadership award for "Global Vision" 2007 in Washington in July 2007. of India and the Maharashtra Pollution Control Board.the Ministry of Environment & Forests. Mukesh D. Washington. The conference was to help bring about new ideas and articles on various aspects of environmental protection in the region. Ambani is Economic Times Business Leader of the Year. August 2004. Ambani ranked 13th in Asia's Power 25 list of The Most Powerful People in Business published by Fortune magazine. Mukesh D. y y y 58 . May 2004. The conference proved effective as a way to promote environmental concern in the area. Awards & Recognition y International Refiner of the Year in 2005 at the 23rd Annual Hart's World Refining and Fuels Conference. USA. Ambani was conferred the Asia Society Leadership Award by the Asia Society.

Meswani Executive Director Shri Hital R.July 6. 2002 Board of Directors of Reliance Industries Limited Shri Mukesh D Ambani Chairman & Managing Director Shri Nikhil R. Meswani Executive Director Shri . 1932 . the present and the future.Current composition of the Board and Category of Directors are as Follows: "Between my past.S. there is one common Factor: Relationship and Trust. This is the foundation of our growth." Shri Dhirubhai H.Kohli Executive Director 59 . Ambani Chairman Reliance Group December 28.

Kapur Shri M. Ashok Misra Prof.Shri PMS Prasad Executive Director Shri R. society. and stakeholder¶s value´. Bhakta Shri Yogendra P. Trivedi Dr. Ambani Shri Mansingh L. Ravimohan Executive Director Shri Ramniklal H. Dipak C Jain MISSION & VISION ³Continuously innovate to remain Partners in human progress by Harnessing science & technology in the petrochemicals domain´ OUR MISSION ³Be a globally preferred Business associate with responsible Concern for ecology. P. D. 60 . Modi Prof. V.

We shall sustain organizational excellence through visionary leadership and innovative efforts´.VALUES & QUALITY POLICY YOUR VALUES ³Integrity. Unity of Purpose. Outside-in Focus. QUALITY POLICY ³Bare committed to meet customers¶ requirements through continual improvement of our quality management systems. Agility and Innovation´. 61 . Respect for People.

945.51 42.13 7.60 126.34 12.861.967.628.448.453.51 36.784.71 18.00 1.600.83 20.872.200.247.11 14.285.12 81.82 1. Cr.393.25 0.06 23.393.53 1.660.68 10.77 104.55 112.54 69.61 27.528.865.75 6.46 7.40 0.268.760.372.650.17 0.17 29.825.38 55.17 1.64 61.61 21.87 91.90 9.836.043.56 73.664.31 63.119.28 200.256.970.53 69.45 99.84 20.251.39 1.682.18 10.928.79 5.18 14.00 0.26 11.13 29.75 77.453.00 1.14 0.277.Reliance Industries Balance Sheets from 2006 to 2009 in Rs.904.63 100.883.697.44 871.573.72 62 .393.516.70 35.345.846.792.573.957.253.00 1.86 117.21 60.879.479.393.206. Mar '06 Mar '07 Mar '08 12 months Mar '09 12 months 12 months 12 months Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum.00 43.669.90 59.81 4.48 14.651.92 63.229.569.21 1.716.804.19 2.13 16.10 149.97 6.26 63.73 71.39 1.47 49.441.532. Depreciation Net Block Capital Work in Progress Investments Inventories 84.

20 5.890.71 1.62 32.09 17.35 16.00 91.16 56.91 18.228.62 239.15 0.622.42 308.656.669.79 20.157.98 0.99 44.15 Loans & Advances Differed Credit Current Liabilities Provisions Total Current Liabilities & 21. 4.609.54 2.712.75 8.66 324.692.992.81 3.66 63 .375.664.75 4.00 4.87 25.522.547.014.03 0.00 71.00 42.87 24.90 45.23 13.86 0.792.57 37.441.696.15 23.277.28 200.45 46.221.908.897.18 439.71 10.00 24.06 0.Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total Current Assets.86 117.13 19.767.02 3.00 6.61 542.675.19 1.55 1.38 0.928.38 500.571.432.266.732.85 3.58 217.69 727.210.28 12.522.010.906.00 12.74 36.71 24.527.227.506.743.00 Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) 3.149.70 0.31 14.00 29.352.858.

261.17 -111.805.50 1.52 138.590.56 143.79 546. 4.46 6.69 2.17 5.14 Capitalised Total Expenses 68.03 133.00 1. Miscellaneous Expenses Preoperative Exp.699.947.877.71 139.328.736.91 4.14 5.131.68 5.78 236.506. Cr.09 1.23 98.15 4.463.24 91.65 59.94 118. -155.07 141.65 2.872.14 2.264.Reliance Industries Profit & Loss Accounts from 2006 to 2009 in Rs.832.45 668.739.16 112.60 6.534.66 -1.265.66 109.60 562.353.03 427.959.650.74 80.33 300.89 654.478.146.96 2.42 89.10 118.33 715.867.246.400.791.847.119.31 5. Mar '06 12 months Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Exp.72 109.195.595.68 146.98 2.234.28 Operating Profit 3.46 8. Selling and Admin Exp.112.84 2.550.555.052.397.355.10 321.29 1.40 412.46 -3.369.34 3.07 4.549.21 -175.29 64 .26 978.124.67 80.59 Mar '07 12 months Mar '08 12 months Mar '09 12 months 111.654.19 5.19 83.094.815.

949.00 10.137.66 0.897.35 11.066.00 727.51 14.06 1.PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualized) Shares in issue (lakh) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 0.02 0.00 23.00 542.018.75 0.44 202.18 0.10 10.51 195.156.32 5.29 18.737.00 18.44 0.34 3.00 1.309.71 110.91 10.00 14.86 130.446.14 23.40 13.458.18 0.935.935.00 18.810.528.57 14.393.08 65.195.00 1.642.28 130.536.440.08 85.943.585.559.10 23.00 1.26 2.51 11.95 0.847.631.75 0.34 15.00 1.96 0.29 4.00 439.83 0.49 133.88 10.815.711.528.00 324.08 100.529.85 19.712.00 8.018.88 8.98 97.66 3.40 4.66 0.14 48.66 65 .14 48.673.711.05 322.400.069.446.23 0.446.07 0.74 15.24 3.15 14.24 277.72 9.03 13.

Overall profitability position of the company is quite satisfactory. y y y The company is paying promptly to the suppliers. 66 . Immediate solvency position of the company is also quite satisfactory. y y y Credit policies are effective.Financial Position of Reliance Industries Ltd. Dividend payout ratio is satisfactory. Dividend paid in all years to its shareholders. The profitability position of the company is very satisfactory. After going through the various ratios. The company can meet its urgent obligations immediately. fund flow and cash flow analysis would like to state that: y y The long-term solvency of the company is very satisfactory. The return on capital employed is satisfactory.

14 0.547.00 1.00 2005-2006 2006-2007 2007-2008 2008 -2009 1.15 21.696.210.06 1.00 56.Data analysis and Interpretation Calculation and Interpretation of Ratios 1] Current Ratio: Formula: Current assets Current ratio = Current liabilities YEAR Current assets Current liabilities Current ratio 2005-2006 24.09 50.000.00 1.858.38 2008 -2009 56.696.99 25.14 2006-2007 30.71 1.858.23 67 .675.16 1.000.38 1.00 44.547.000.86 32.743.675.298.86 45.000.06 32.99 25.16 1.09 45.00 10.00 20.23 40.00 30.00 24.16 Current assets Current liabilities Current ratio 30.000.743.298.15 2007-2008 44.

the current ratio is 1. In other words the current assets are 1.Comments: In Reliance Industries Ltd. Almost 4 years current ratio is same but current ratio in 2007-2008 is bit higher. The Reliance Industries Ltd. has a goody current ratio. the current assets are 1.23:1 in 2008-2009. 68 . Thus.23 times the current liabilities. 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. the current ratio throws light on the company¶s ability to pay its current liabilities out of its current assets. which makes company sounder.23 rupee is available to the them. It means that for one rupee of current liabilities.

33 21.858.69 2007-2008 24.16 45.75 2008 -2009 36029.227.2] Liquid Ratio: Formula: Quick assets Liquid ratio = Quick liabilities YEAR Quick assets Quick liabilities Liquid ratio 2005-2006 14.00 18.33 15.67 2006-2007 Quick assets Quick liabilities Liquid ratio 0.78 50.00 25.547.69 0.06 32.67 0.000.674.00 0.00 45.00 5.78 2008 -2009 69 .576.48 25.000.06 0.91 24.00 0.71 36029.547.674.000.00 10.858.16 0.675.91 45.576.000.00 2005-2006 2006-2007 2007-2008 0.000.00 20.48 25.227.75 32.00 14.00 40.71 0.00 30.221.675.000.00 35.75

The liquid ratio of the Reliance Industries Ltd. which is better for the company to meet the urgency. has increased from 0.78 in 20082009 which shows that company follow low liquidity position to achieve high profitability. This indicates that the dependence on the long-term liabilities & creditors are more & the company is following an aggressive working capital policy.Comments: The liquid or quick ratio indicates the liquid financial position of an enterprise. 70 .67 to 0. Liquid ratio of Company is not favorable because the quick assets of the company are less than the quick liabilities. The liquid ratio shows the company¶s ability to meet its immediate obligations promptly. Almost in all 4 years the liquid ratio is same.

520.405.000.439.439.07 126.93 68.73 2007-2008 81.000.967.3] Proprietary Ratio: Formula: Proprietary fund Proprietary ratio = Total fund OR Shareholders fund Proprietary ratio = Fixed assets + current liabilities YEAR Proprietary fund Total fund Proprietary ratio 2005-2006 49.72 0.26 105.93 0.00 40.00 160.00 100.13 87.000.372.000.07 0.97 189.000.00 180.520.655.60 105.00 20.000.655.804.72 0.97 Proprietary fund Total fund Proprietary ratio 0.73 0.00 140.00 0.448.77 2008 -2009 126.00 120.000.00 2005-2006 2006-2007 2007-2008 0.58 81.448.66 200.967.804.00 80.000.58 0.66 2008 -2009 71 .000.000.72 2006-2007 63.77 87.405.13 49.72 63.00 60.26 68.60 189.372.

The Company¶s long-term solvency position is very sound. This shows that the contribution by owners to total assets is more than the contribution by outside creditors.66 in the year 2008-2009.Comments: The Proprietary ratio of the company is 0. As the Proprietary ratio is very favorable of the company. It means that the for every one rupee of total assets contribution of 66 paisa has come from owners fund & remaining balance 34 paisa is contributed by the outside creditors. 72 .

119.000.00 10.000.51 12.622.000.622.00 10.54 12.21 0.82 3149.51 4352.93 2.38 Stock 6.78 1.15 2.4] Stock Working Capital Ratio: Formula: Stock Stock working capital ratio = Working Capital YEAR Stock Working Capital Stock working 2005-2006 10.522.000.15 Working Capital Stock working capital ratio 73 .21 2006-2007 12.00 2005-2006 2006-2007 2007-2008 2008 -2009 2.13 2008 -2009 14.38 1.00 12.836.836.39 capital ratio 16.54 14.00 14.13 1.93 4.119.78 2007-2008 14.522.00 4352.72 10.000.70 14.39 3149.00 12.136.72 10.70 1.

74 . In the year 2007-2008 the sale is increased which affects decrease in stock that effected in increase in working capital in 2007-2008. It shows that the solvency position of the company is sound. The amount of stock is decreasing from the year 2005-2006 to 2008-2009.Comments: This ratio shows that extend of funds blocked in stock. However in the year 2008-2009 it has increased a little to.

000.90 9.50% 2008 -2009 75 .600.00 0.804.448.20% 2007-2008 10.569.92 8.97 15% 8.13 81.000.17 10.664.000.12 6.26 Equity capital & reserves & surplus Capital gearing ratio 20.60 80.00 7.967.00 63.26 16% 63.664.967.600.697.00 100.92 49.00 81.372.00 126.97 120.12 15% 2006-2007 6.90 16% 2005-2006 9.13 60.804.000.5] 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 2005-2006 2006-2007 2007-2008 2008 -2009 7.448.697.2% 8.17 8.60 40.00 Secured loan 49.372.5% 140.

5% of the fund covering the secured loan position.Comments: Gearing means the process of increasing the equity shareholders return through the use of debt. For the last 2 years [i. But in the year 2005-2006 the Capital-gearing ratio is 16%. near about 8. 76 . It means that during the year 2005-2006 company has borrowed more secured loans for the company¶s expansion.2007-2008 TO 2008-2009] Capital gearing ratio is all most same which indicates.e. which indicates the proportion of debt & equity in the financing of assets of a company. Capital gearing ratio is a leverage ratio.

000.68 81.967.13 2007-2008 36.00 0.00 2005-2006 2006-2007 2007-2008 2008 -2009 0.804.865.000.865.825.73 63.000.44 0.448.00 63.60 2008 -2009 73.44 0.68 27.59 49.904.97 120.00 100.45 0.00 126.000.48 126.59 140.44 0.00 21.372.26 2006-2007 27.45 0.61 20.479.60 80.825.26 36.13 Shareholders fund 60.000.967.6] Debt Equity Ratio: Formula: Total long term debt Debt equity ratio = Total shareholders fund YEAR Long term debt Shareholders fund 2005-2006 21.97 Debt Equity Ratio 0.804.000.44 0.000.00 81.61 49.479.00 40.904.73 Debt Equity Ratio 73.372.48 Long term debt 77 .448.

the shareholders fund also increased.Comments: The debt equity ratio is important tool of financial analysis to appraise the financial structure of the company. 78 . It expresses the relation between the external equities & internal equities. This ratio is very important from the point of view of creditors & owners. This shows that with the increase in debt.59 during the year 2005-2006 to 2008-2009. This shows long-term capital structure of the company is sound. The lower ratio viewed as favorable from long term creditor¶s point of view. The rate of debt equity ratio is increased from 0.44 to 0.

959 140000 120000 100000 80.43 30.78 79 .699.78 22.439.43 111.48 80.4 2008 -2009 25.7 160000 141.03 22.758.03 133.79 80000 60000 40000 18345.14 * 100 Gross profit Ratio 22.79 2006-2007 25.439.959 18.14 25.28 25.7] Gross Profit Ratio: Formula: Gross profit Gross profit ratio = Net sales YEAR Gross profit Net sales 2005-2006 18345.805.7 0 2005-2006 2006-2007 2007-2008 2008 -2009 22.2 141.7 2007-2008 30.877.4 18.805.877.086.7 22.758.48 20000 22.699.20 Gross profit Net sales Gross profit Ratio 111.086.28 133.

7%. 80 .14% in the year 2008-2009 due to increase in sales with corresponding more increase in cost of goods sold. It has decreased to 18. In the year 2005-2006 the gross profit ratio is 22. It is continuously declined from 2005-2006 t0 2008-2009 due to high cost of purchases & overheads. It is the profit on turnover. The net sales and gross profit is continuously increasing from the year 2005-20063 to 2008-2009.Comments: The gross profit is the profit made on sale of goods. Although the gross profit ratio is declined during the years 2005-2006 to 2008-2009.

17 133.78 118.550.000.506.506.00 141.00 120.8] Operating Ratio: Formula: COGS+ operating expenses Operating ratio = Net sales YEAR COGS + Operating expenses Net sales Operating ratio 80.24 60.79 84.79 80.00 80.28% 160.17 111.000.28% 133.80% 141.00 40.234.00 20.000.947.805.877.959 83.80% 83.00 84.959 140.72 COGS + Operating expenses Net sales Operating ratio 81 .000.00 100.550.75% 0.00 68.000.877.72 *100 2007-2008 109.10 2008 -2009 82.31% 81.234.31% 2005-2006 68.699.24 2006-2007 91.03 109.75% 111.000.699.805.947.00 2005-2006 2006-2007 2007-2008 2008 -2009 82.10 91.78 81.

28%.Comments: The operating ratio shows the relationship between costs of activities & net sales. This is due to increase in the cost of goods sold. Operating ratio over a period of 4 years when compared that indicate the change in the operational efficiency of the company.75%. Though the cost has increased in 2006-2007 as compared to 2005-2006. which in 2005-2006 was 84. in 2007-2008 was 81. 82 . in 2006-2007 was 82. indicate downward trend in cost but upward / positive trend in operational performance.80% & in 2008-2009 it is 83. The operating ratio of the company has decreased in 3 year and increase a little in last year. it is reducing continuously over the next two years.31%.

069.000.309.959.40 9.309.00 60.943.00 80.805.21% 2006-2007 11.32 10.943.00 40.069.00 100.54% 10.00 NPAT Net sales Net profit ratio 15.458.00 19.78% 2008 -2009 83 .00 10.78 14.458.03 133.10) Net Profit Ratio: Formula: NPAT Net profit ratio = Net sales * 100 YEAR NPAT Net sales Net profit ratio 2005-2006 9.54% 2008 -2009 15.21% 10.000.959.79 11.000.00 0.699.32 141.69% 2007-2008 19.877.699.40 111.79 80.34 80.000.78% 160.000.69% 14.805.877.29 133.00 140.29 20.00 2005-2006 2006-2007 2007-2008 11.00 120.78 141.000.34 11.

manufacturing & other expenses.e. managerial efficiency & sales promotion. Profitability ratio of company shows considerable increase in 3 years and decreased in the last year. Company¶s sales have increased in 3 years and decreased in the last year. At the same time company has been successful in controlling the expenses i.Comments: The net profit ratio of the company is high in all year but the net profit is increasing order from this ratio of 4 year it has been observe that the from 2005-2006 to 2007-2008 the net profit is increased and it decreased in the year 2008-2009. It is a clear index of cost control. 84 .

90 2006-2007 Turnover 3.20 2008 -2009 25.98 5.4 Stock Turnover Ratio 2005-2006 2007-2008 6.89.5 4 3.02 6.6 2007-2008 28.26 6.5 2 1.73.90 18.32 2006-2007 6.90.11 4.11 28.33.5 3 2.26 2008 -2009 Stock Turnover Ratio 85 .49.58 21.5 0 5.11] Stock Turnover Ratio: Formula: COGS Stock Turnover Ratio = Average stock YEAR COGS Average stock Stock Ratio 2005-2006 18.90.30 3.33.30 25.97.58 3.32 5.5 1 0.

5months]. It helps to work out the stock holding period. the stock of the company is moving fast in the market.5 months for stock to be sold out after it is produced.4 to 3.4 times during the year.Comments: Stock turnover ratio shows the relationship between the sales & stock it means how stock is being turned over into sales.4 rounds during the year.5 months [12/3. it means the stock turnover ratio is 3. Inurn the year 2001-2002 to 2004-2005 the stock turnover ratio has improved from 3. This indicates that it takes 3.73 times. 86 . The stock turnover ratio is 2001-2002 was 3.4 times then the stock holding period is 3. it means with lower inventory the company has achieved greater sales. The inventory cycle makes 3.4=3. Thus. For the last 4 years stock turnover ratio is lower than the standard but it is in increasing order.4 times which indicate that the stock is being turned into sales 3.

32 9.87 12.00 200.28 16.069.00 2005-2006 2006-2007 2007-2008 2008 -2009 NPAT Capital employed Return on capital employed 87 .000.73 150.87 50.928.00 117.34 11.40 145.00 19.64% 250.12] Return on Capital Employed: Formula: NPAT Return on capital employed = Capital employed YEAR NPAT Capital employed Return on capital employed 2005-2006 9.40 12.21 117.943.28 100.21% 16.45 7.277.45 200.669.928.943.73 8.00 71.50% 2008 -2009 15.458.64% 0.069.34 71.458.21 15.32 200.000.65% 8.415.000.21% *100 2007-2008 19.415.669.308.000.00 145.277.65% 2006-2007 11.000.50% 7.308.

& appropriation. The return on capital employed is show-mixed trend.64 is available to take care of interest.50%.64 is earned on a capital employed of Rs.100. 88 . i. tax.Comments: The return on capital employed shows the relationship between profit & investment.64 indicate that net return of Rs.In 2007-2008 It is highest that is 16. this amount of Rs. 7. it decrease in 2006-2007 . 7. This indicates a very high profitability on each rupee of investment & has a great scope to attract large amount of fresh fund.e. then increase in 2007-2008 and finally decrease in 2008-2209. The return on capital employed of Rs. Its purpose is to measure the overall profitability from the total funds made available by the owner & lenders.7.

00 0.06934 equity 13.000.08 2007-2008 2008 -2009 2006-2007 19.935.08 85.935.00 2008 -2009 65.49 89 .00 2.935.28 No.32.00 8.935.49 15.536.08 906.00 14.737.00 15.08 85.309.86 97.458.40.ofequity share Earning per share 13.00 13.00 10.00 14.000.458.29.71 133.13] Earning Per Share: Formula: NPAT Earning per share = Number of equity share YEAR NPAT No.00 6.32.98 Earning per share 65.000.28 15.536.98 16.00 4.08 2006-2007 11.00 12.08 13.86 97.71 133.00 2007-2008 15.934 2005-2006 11.943.29.737.000.943.of share 2005-2006 9.

28 means shareholder gets Rs. Earning per share represents the earning of the company whether or not dividends are declared. 97. In other words the shareholder earned Rs. This shows it is continuous capital appreciation per unit share for consecutive three years and capital depreciation per unit share in the last year.86% and decrease in 2008-2009 to 97. Therefore the shareholders earning per share is increased continuously from 2005-2006 to 2007-2008 by 65.08-133. The net profit after tax of the company is increasing in all years accepts 2008-2009. 90 . The Earning per share is 97. It is beneficial to the shareholders and prospective investor to invest the money in this company.Comments: Earning per share is calculated to find out overall profitability of the company. for each share of Rs. The above analysis shows the Earning per share and Dividend per share is increasing rapidly. 10/-.28%.28 per share.

28 100 80 60 40 20 0 2005-2006 2006-2007 2007-2008 2008 -2009 10 15.86 8.86 97.05 133.05% 2005-2006 per 10.38% 65.22 8.71 12.38% 12.38% 140 120 133.08 Dividend ratio payout 15.05 12.14] Dividend Payout Ratio: Formula: Dividend per share Dividend Payout ratio = Earning per share YEAR Dividend share Earning per share 65.38% 97.36% 10.36% 85.05% 11.28 12.22 2008 -2009 12.33 * 100 2007-2008 11.71 Dividend per share Earning per share Dividend payout ratio 91 .33 12.00 2006-2007 10.08 85.

From this one can say that the company is more conservative for expansion.38 respectively.Comments: The company earned profit in all four years. In the year 2005-2006. 12.05 and 12. 92 . 2006-2007 and 2008-2009 the Dividend payout ratio is 15. In the year 2007-2008 the company has declared the dividend 8.36. So its declare dividend in all four years. However the company has declared more dividends in the year 2005-2006 as the company has sufficient profit.38 because the company has not earned more profit in the year 2001-2002 hence the company has not declared more dividends in the year 2008-2009.

259.15] Cost of Goods Sold Ratio: Formula: COGS Cost of goods sold Ratio = Net sales YEAR COGS Net sales Cost of 2005-2006 62.000.805.00 120.22 77.60 COGS Net sales Cost of goods sold ratio 116.31 60.000.8 141.79 goods 77.00 20.000.51 2008 -2009 116.51 81.000.699.719.80 93 .22 2007-2008 103.6 111.00 62.31 0.00 40.00 140.259.773.959.00 100.805.03 103.50 86.200.78 111.00 80.00 2005-2006 2006-2007 2007-2008 2008 -2009 77.31 2006-2007 86.532.000.719.699.00 77.5 133.00 141.79 80.00 81.773.959.78 77.03 77.85 133.85 * 100 sold ratio 160.532.000.000.

During the 3 years the rate of cost of goods sold ratio is almost same and it increased in last year however the gross profit & sales is increased during the same period.31% so the gross profit is 22.69%. 94 . It indicates that in 2005-2006.Comments: This ratio shows the rate of consumption of raw material in the process of production. the 77.31% of raw material is consumed in the process of production. In the year 2005-2006 the cost of goods sold ratio is 77.

31 0.858.16] Cash Ratio: Formula: Cash + Bank + Marketable securities Cash ratio = Total current liabilities YEAR 2005-2006 2006-2007 308.006 500.06 32.011 0.00 25.06 32.31 Marketable securities Total liabilities Cash ratio 0.00 25.675.79 0.13 Cash + Bank + 239.71 0.16 45.011 current 21.16 45.006 0.547.011 308.858.675.71 Cash + Bank + Marketable securities Total current liabilities Cash ratio 239.31 2007-2008 217.221.547.221.011 217.79 2008 -2009 500.010 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2005-2006 2006-2007 2007-2008 21.13 0.01 2008 -2009 95 .31 0.

011 & remains same in the year 2006-2007. In the year 2005-2006 the cash ratio is 0. This shows that the company has little cash.010. Then it is decreased to 0.Comments: This ratio is called as super quick ratio or absolute liquidity ratio. bank balance.006 in the year 2007-2008 & increased in the year 2008-2009 t0 0. 96 . & marketable securities to meet any contingency.

32 126.943.00 2005-2006 2006-2007 2007-2008 2008 -2009 97 .67 23.372.00 81.13 60.34 49.60 23.458.458.448.069.89 12.97 12.40 63.804.804.00 49.11 on 18.60 80.97 NPAT Proprietors fund Return on proprietors fund 19.309.2 16.000.40 18.000.20 proprietors fund 140.00 81.448.000.89 2008 -2009 15.372.26 126.00 100.26 2006-2007 11.17] Return on Proprietors Fund Ratio: Formula: NPAT Return on proprietors fund = Proprietor¶s fund * 100 YEAR NPAT Proprietors fund Return 2005-2006 9.34 11.000.00 40.13 16.32 20.967.967.943.11 0.67 2007-2008 19.29 15.309.00 120.

large transfers to reserve etc.20 approximately is earned on the each Rs.20% it means the net return of Rs. 98 . During the last 4 years the rate of return on proprietors fund is in fluctuating order.20% to 12. 100 of funds contributed by the owners. & has a great scope to attract large amount of fresh fund from owners.11% and it is maximum in the year 2007-2008. In the year 2005-2006 the return on proprietors fund is 18.Comments: Return on proprietors fund shows the relationship between profits & investments by proprietors in the company. 18. It shows that the company has very large returns available to take care of high dividends. The return on proprietors fund during the year 2005-2006 to 2008-2009 is decreased from 18.

000.00 20.877.699.78 16.000.458.699.91 111.00 40.00 100.52 133.959 140.805.000.79 80.000.78 17.74 80.39 141.00 60.03 133.52 24.00 141.00 2005-2006 2006-2007 2007-2008 2008 -2009 14.76 2008 -2009 24.39 17.959 17.04 on 17.00 0.432.79 2006-2007 20.26 2007-2008 22.805.405.76 99 .74 20.87 proprietors fund 160.877.432.000.03 18.00 120.00 16.405.04 NPAT Proprietors fund Return on proprietors fund 111.91 22.18] Operating Profit Ratio: Formula: Operating profit Operating profit ratio = Net sales *100 YEAR NPAT Proprietors fund Return 2005-2006 14.87 18.152.152.

The operating profit is equal to gross profit minus all operating expenses or sales less cost of goods sold and operating expenses. Thus. purchase. company has a large margin is available to meet non-operating expenses and earn net profit. This amount of Rs. The operating profit ratio of 17. In the other words operating profit ratio 17.17 is earned on sale of Rs.Comments: Operating profit ratio shows the relationship between operating profit & the sales. During the last 4 years the operating profit ratio is remains almost same. inventory. 17 is available for meeting non operating expenses.04means that 17.04% of net sales remains as operating profit after meeting all operating expenses.04% indicates that average operating margin of Rs. It indicates that the company has great efficiency in managing all its operations of production. selling and distribution and also has control over the direct and indirect costs. 100. 100 .

44 2.585.865.631.74 40.11 20.73 36.74 20.51 1.642.717.453.11 101 .432.29 17.48 14.573.53 Mar ' 08 Mar ' 07 Mar ' 06 21. Cr.897.624.17 1.139.61 27.85 59.365.516.05 3.717.559.846.440.52 49.34 20.18 16.51 14.000.21 1.405.72 1.247.59 99.91 2.211.29 Net increase capital in working 18.954.630.72 1393.413.39 1.119.34 19.) Mar ' 09 Source of funds Issue of shares Long term borrowings Operating profit 1.152.393.24 3.136.85 1.21 20.35 1.68 73.137.18 10.251.4 Application of funds Investment Inventories Payment dividends Payment of tax 5.825.82 12.54 14.23 32.904.410.479.85 60.268.64 39.836.491.Calculations and Interpretation of Fund Flow Statement Fund flow statement (in Rs.52 24.458.39 37.393.

Comments y The fund flow analysis shows that the funds increase continuously from the year 2006-2009 due to the maximum long term borrowings and more operating profit . y The application of funds also increases continuously from the tear 2006 to 2009. It was minimum in the year 2006 and maximum in the year 2009. y The net working capital available to the company was maximum in the year 2009 shows the high liquidity position of the firm and it was minimum in the year 2007 shows the low liquidity position of the firm. 102 .The funds are maximum in the year 2009 because in this year the company borrowed maximum long term loan.

608. Activity Net inc/dec in cash and equivalent Cash and equivalent begin of year Cash and equivalent end of year 18.58 23. 103 .04 306.53 Mar ' 08 Mar ' 07 Mar ' 06 10.08 -18.433.79 2. when company contributed fewer amounts in financing activities.176.835.35 4.08 366.16 2.35 Comments: y The cash flow statement shows that the net profit before tax increased continuously in the year 2006.58 17.462. 2007 and 2008 but decreased in the year 2009 due to the excessive liquidity.05 3.Calculations and Interpretation of Cash Flow Statement Cash flow Statement (in Rs.14 14.444.282.567.23 18.146.29 22.06 10.67 -1.280.390.084.86 -24.732.894.01 -12. y The statement shows that net cash from investing activities is negative in all four years that means the firm is not enough contribute in investing activities.520. Cr). y The net cash from the operating activities continuously increased from the 2006 to 2009.74 16.63 3.835.426.973.88 8.870.47 17.130.24 4.38 1.245. which shows the sound position of the firm.955.301.20 23. y The net cash used in financing activities is maximum in the year 2008 and 2009 in comparison to 2006 and 2007.010.225.70 -1. Mar ' 09 Profit before tax Net cash flow-operating activity Net cash used in investing activity Net cash used in fin.704.55 -23.73 1.

The cash and cash equivalents of the firm increased in the year 2008 and 2009 showing the high liquidity position of the firm. y The opening cash and cash equivalents are minimum in the year 2008 and maximum in the year 2009. which shows the low liquidity position of the firm in these years.y The cash and cash equivalents of the firm decreased in the year 2006 and 2007. The Closing cash and cash equivalents maximum in the year 2009 and minimum in the year 2007 shows maximum liquidity position in the year 2009. the firm maintain the 104 .

23 during 2006.69. 3. 0. 2. The return on capital employed is increased in the year 2006 and 2008 while it decreased in the year 2007 and 2009. 5. The net profit ratio is also decreased in the current year compared with the previous year from 14.75.39 in the year 2006 ± 09. The debt-equity ratio increased from 0. The quick ratio is also in non fluctuating trend throughout the period 2006 ± 09 resulting as 0. 6. 8.85. 1. The proprietary ratio is decreased compared with the last year.14. Dividend payout ratio is maximum in the year 2005-2006 and minimum in the 2007- 105 .15 and 0. 0.59 in the year 2006-09.The Company believes in high profitability and low liquidity position.Findings 1.78. 0. 11. 0. The proprietary ratio has shown a non fluctuating trend. The gross profit ratio is in fluctuation manner. 7. 12.82) and increased in 2009 to 0. 1.21 to 1. 9.97%. The operating ratio is increased in the current year compared with the previous year from 81. 10.16. The current ratio has shown non fluctuating trend as 1. 2008 and 2009.67.16.44-0.1% to 18.54% to 10. The stock working capital ratio decreased from 3. The capital gearing ratio is decreased form 2006 ± 08 (0. The earning per share is maximum in the year 2007-2008 and minimum in the year 2005-2006.38 and 1.28%. 4. It decreased in the current year compared with the previous year from 23.78%. 2007.8% to 83.

. Cost of goods sold shows a non fluctuating pattern in the year 2005-2008 and increased in the year 2008-2009.The net working capital available to the company was maximum in the year 2009 shows the high liquidity position of the firm and it was minimum in the year 2007 shows the low liquidity position of the firm. 13. 16. 14. 17. Return on proprietorship fund is maximum in the year 2007-2008 and minimum in the year 2008-2009. The cash ratio shows a non fluctuating pattern in the year 2006.2008. 106 . The operating profit ratio shows almost similar pattern in all years but it is maximum in the year 2006-2007 and minimum in the year 2007-2008. 15. 2008 and 2009 but decreased in the year 2008.

2. Liquidity refers to the ability of the concern to meet its current obligations as and when these become due. 3. The cost of goods sold is high in every year so the company should do efforts to control it. The profit ratio is decreased in current year so the company should pay attention to this because profit making is the prime objective o every business. 107 . The company should improve its liquidity position. The long term financial position of the company is very good but it should pay a little attention to short term solvency of the company. The company should make the balance between liquidity and solvency position of the company.Suggestion & Recommendation 1. 5. 4.

Conclusion The company¶s overall position is at a very good position. 108 . The company achieves sufficient profit in past four years. The company maintains low liquidity to achieve the high profitability. The profit of the company decreased in the last year due to maintaining the comparatively high liquidity. The company distributes dividends every year to its share holders. The net working capital of the company is maximum in the last year shows the maximum liquidity. The long term solvency position of the company is very good.


Sign up to vote on this title
UsefulNot useful