You are on page 1of 79

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

CONTENTS

Executive Summary Design of the Study Scope of the Study and Methodology Introduction to the Ratios

EXECUTIVE SUMMARY

1 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Financial statements provide summarized view of the financial position and operation of the company. Therefore, now a day it is necessary to all companies to know as well as to show the financial soundness i.e. position and operation of company to their stakeholders. It is also necessary to company to know their financial position and operation of the company. In this report I made an effort to know the financial position of the Telcon Construction Equipment Company Limited Dharwad, by using the Annual Reports of the company. The Financial analysis of this report will show the Strength and weakness of the Telcon Construction Equipment Company Limited Dharwad. Financial analysis will help the company to take decision. Thus, we can say that, Financial Analysis is a starting point for making plans before using any sophisticated forecasting and planning.

Objectives of the study:


1 2 3

Main Objective is to study the different ratios used in TELCON. To know the financial performance based on ratios. To find out the companies efficiency based on past and present profitability. ratios

4 5

To study the liquidity position of the company. To improve its future performance by analyzing its financial statements.

2 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

Research Methodology: Methodology:


The methodology includes the personal interaction with the finance manager. Selection of data: From the Annual Reports of the Company for last three years; i.e. from Annual Report for the year 2003-04 Annual Report for the year 2004-05 Annual Report for the year 2005-06

Period: The Study covers a period of three years data from 2003-04, 2004-05.and 2005-06 to mean an Accounting year of the company consisting of 365 working days.

Frame work Analysis for the purpose of analyzing the Liquidity Position of the company. The study make use of various accounting Ratios

3 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad DESIGN OF THE STUDY Title of the project: A Study of Financial Performance Based On Ratios At TECON Dharwad Statement of the Problem: As ratios provide a benchmark for companys against their own performance in industry. The company wants to study the ratios and compare its performance of past with the present performance with the help of ratio analysis, various items of financial statement that ensure their existence as well as their future progress. Research Problem: To know the Financial Position of the company and its Liquidity Performance through comparing three years financial performance by applying different financial Ratios. Purpose of the study:

As it is very difficult to decide any inference from the mass of figures included in financial statements. So in order to judge accurately the financial health of the firm, it is generally regroup and analyze the figures as disclosed by these financial statement.

The use of Ratio Analysis or Accounting Ratios enables conclusions to be drawn from the figures as to know the earning capacity, operational efficiency, and financial condition etc. of a concern.

4 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

The study includes the calculation of different financial ratios. It compares three years financial statements of the company to know its performance in these different years.

To know whether the company is growing or incurring losses or it is stagnant in its performance.

Objectives of the study:


1 2 3

Main Objective is to study the different ratios used in TELCON To know the TELCON financial performance based on ratios. To find out the companies efficiency based on past and present profitability ratios

4 5

To study the liquidity position of the company. To improve its future performance by analyzing its financial statements.

Scope of the study: The scope of the study is conducted is only for organization level. It is done through Balance Sheet of Company. For a period 2003-04, 2004-05, 2005-06

DATA COLLECTION METHOD:


1

PRIMARY DATA: The information is collected from the personal interaction with the financial managers of TELCON

SECOUNDARY DATA: This is been is collected through TELCON ANNUAL REPORTS, & WEBSITES.

5 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

MEASUREMENT TECHNIQUE / STATISTICAL TOOLS:


Accounting Ratios. Financial Statements of the Company.

ANALYTICAL TECHNIQUE: Statistical technique used for calculation of ratios is in terms of percentage.

LIMITATION OF THE STUDY:


The study is done only on the Balance sheet and profit and Loss A/c Study is based on information provided by the company. The limitation of ratio analysis is itself a limitation in achievement the set objective.

6 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

INTRODUCTION
When we observed the financial statement comprising the balance sheet and profit or loss account is that they do not give all the information related to financial operations of firm, they can provide some extremely useful information to the extent that the balance sheet shows the financial position on a particular date in terms of structure of assets, liabilities and owners equity and profit or loss account shows the results of operation during the year. Thus the financial statements will provide a summarized view of the firm. Therefore in order to learn about the firm the careful examination of a valuable reports and statements through financial analysis or ratio is required.

Meaning and definition Financial analysis is the process of identifying the financial strength and weaknesses of firm by properly establishing relationship between the items of balance sheet and profit and loss account. In other words, financial analysis is the process of evaluating the relationship between components of financial statements to get better understanding of firms position and performance.

7 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Financial interpretation means explaining the significance of financial data simplified by way of financial analysis.

RATIO ANALYSIS / ACCOUNTING RATIOS: A Ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. In financial analysis, a ratio is used as benchmark for evaluating the financial position and performance of a firm. RATIO ANALYSIS is defined as systematic use of ratio to interpret the financial statements so that strength and weakness of firm as well as historical performance and current financial condition can be determined. This relationship can be expressed as
1 2

Percentages Fractions.

STANDARDS OF COMPARISON: The ratio analysis involves comparison for a useful interpretation of financial statements. A single ratio is itself doesnt indicate favorable/unfavorable condition. It should be compared with some standards of comparison, may consists of;

PAST RATIOS: i.e. ratios are calculated from past financial statements of some of company.

8 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

COMPITITORS RATIOS: i.e. ratios of some selected companies especially most successful and progressive competitors.

INDUSTRY RATIOS: i.e. Ratios of the industry to which the firm / Company belongs.

PROJECTED RATIOS: i.e. Ratios developed using the projected financial statements of the same Company.

In my project, I am going to make comparison with PAST RATIOS. And which is easiest way to evaluate the performance of the company. It gives and induction of direction of change and reflects whether the companies financial performance has improved, deteriorated or remained constant over time.

PARTIES INTERESTED IN FINANCIAL ANALYSIS:

SHORT TERM CREDITIORS: Interested in liquidity position or short-term solvency of company.

LONG TERM CREDITORS: Interested in long-term solvency and profitability of firm / company.

OWNERS/ SHAREHOLDERS: Concentrating on companys profitability and financial condition.

MANAGEMENT: Interested in evaluating every aspect of firms performance. Because they have to protect the interest of all parties and to see that companies gross profitability.

9 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

TYPES OF RATIOS: Several ratios can be calculated from the accounting data can be grouped in to variety classes according to activity or function to be evaluated. Therefore, in view of the requirements of various users of the financial analysis, Ratio may classify into following categories:
1 2 3

Profitability ratios. Turnover (activity) ratios. Financial ratios.

For better understanding purpose I have taken the above three types in different parts with accounting data of TELCON Co. This also includes the theoretical aspects of the different ratios. PROFITABILITY RATIOS INVOLVE:
1 2 3 4 5

Gross Profit Ratio Net Profit Ratio Operating Expenses Ratio Operating Profit Ratio Return On Investment / Overall Profitability Ratio

10 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


6 7 8 9 10

Return On Equity Return On Total Assets EPS DPS Retained Earning Ratio

TURNOVER RATIOS INVOLVES:


1 2 3 4 5 6 7 8

Inventory stock turnover Ratio Debtors (Accounts Receivable) Turnover Ratios. Creditors (Account Payable) Turnover Ratios Fixed Assets turnover Ratio Current Assets turnover Ratio Working capital turnover Ratio Total Assets turnover Ratio Net Assets turnover Ratio

FINANCIAL RATIOS INVOLVES:


1

Financial Ratio:

Current Ratio Quick / Acid test / Liquid Ratio. Absolute liquid / Cash Ratio

Leverage Ratio :

Debt ratio

11 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


Debt equity Ratio Proprietary Ratio Interest coverage

ADVANTAGES AND DISADVANTAGES OF RATIO ANALYSIS: ADVANTAGES:

Simplifies Financial Statements: Ratio Analysis simplifies the comprehension of financial statements. Ratios tell the story of changes in financial condition of the business.

Facilitates Inter firm Comparison: Ratio analysis provides data for inter company comparison. Ratio highlights the association with successful and unsuccessful firms. They also reveal strong and weak companies, overvalued and undervalued companies.

Makes Intra Firm Comparison Possible: Ratio analysis also makes possible comparison of the performance of different division of the company. The ratio helpful in deciding about their efficiency.

Helps In Planning: Ratio Analysis helps in planning and forecasting over period of time a company develops certain norms that may indicates future success/ failure. If relationship changes in firms data over different time periods. The ratio may provide clues on trends and future problems.

12 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

Liquidity Position: With the help of ratio analysis conclusions can be drawn regarding liquidity position of the company. The liquidity position of a company could be satisfactory if it is able to meet its current obligations when they become due.

Long Term Solvency: Ratio analysis equally useful for assessing the longterm financial viability of a firm. The long-term solvency is measured by the

leverage / capital structure and profitability ratios, which focus on earning power and operating efficiency.

DISADVANTAGES: If companies ignore the impact of inflation or price level changes in the financial statements or if financial statements are based on historical costs. Then it becomes limitation of ratio analysis. Another problem is it depends on quality of financial statements. For example: if there is no transparency / disclosure of real things in the statements it becomes problem to analyst. But now days it doesnt hold well. Because, every company has to disclose its information according to accounting standards, in the annual reports.

CONCLUSION: The ratio is an aid to management in making decisions. The ratio if discriminately and wisely interpreted be useful tool of financial analysis.

13 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

CONTENTS - Organization Profile

14 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

ORGANISATON PROFILE

Telcon has been at the forefront of providing Constructive Solutions to the Indian Construction, Earthmoving and Mining Industry. Started in 1961 as a division of Telco (now Tata Motors), Telcon is an independent subsidiary of Tata Motors and a Joint Venture between Tata Motors & Hitachi Construction Machinery Co. Ltd. of Japan world leaders in Hydraulic Excavator Technology, With holding 20% equity stake. Telcon has the widest range of construction equipment catering to the needs of various end use sectors and holds a dominating presence in the construction equipment market in India. The portfolio of our equipment range includes Hydraulic Excavators, Mining Shovels, Backhoe Loaders, Wheel Loaders, Vibratory Compactors, Motor Graders, Crawler Cranes, Asphalt Plants, etc. Apart from manufacturing world class machines with cutting edge technology at our works in Jamshedpur & Dharwad, Telcon has a well designed back up system to cater to the Support Needs of the customers. With a wide network of over 50 front offices in the form of Dealer and Telcon offices, the resultant reach ensures prompt service to customers both on account of Spare Parts & Breakdown Repairs. In addition, we offer various value added services like On Site Maintenance Contracts, Unit Exchange Programs, and Aggregate Repairs at Telcon's own workshops and

15 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Comprehensive Refurbishing of machines. It is Telcon's endeavor and objective to provide pro-active & constructive solutions with a view to continuously improve competitiveness & profitability of its valued customers. This spirit, hence, forms the core of the Telcon Brand--Constructive Solutions.

LOCATION OF THE COMPANY: TELCON is situated at Belur Industrial Estate, Dharwad TELCON has 680 acres, out of which 118 Acres is for TELCON for the purpose of production. The production started in Feb., 2001 in the own premises of TELCON. Earlier the production was done in TELCO. REGISTERED OFFICE AND HEAD OFFICE OF THE COMPANY: The registered office and Head office of the company is in Bangalore. BUSINESS OF THE COMPANY: TELCONs principal business is the Manufacture and sale of Construction Material handling and Earthmoving equipments. CUSTOMERS:

Constructors Land Scarpers Builders and Contractors.

16 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

VISION: Maximize value creation for all its stakeholders by offering world class

CONSTRUCTIVE SOLUTIONS in harmony with the environment MISSION:

Telco construction Equipment Company Ltd. is committed to maximizing customers satisfaction and loyalty through the design, development manufacture sale and services of a wide range of reliable, cost effective and quality construction equipments manufactured to international standards.

The TELCON would like to develop a One-Stop-Shop for its customers, providing solutions rather than merely selling products.

The involvement of its Employees and Business Partners in the effective functioning of the company and its growth is very important and it would work towards achieving this goal.

The TELCON would like to be an Environment- Friendly company sensitive to the need to conserve resources and protect the environment in every way possible.

17 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

The TATA Group:


Founded in 1887 by Mr. Jamsetji Tata Turnover at 11.21 bn USD for the year ending 31st March 03. Highly diversified group with over 80 group companies present in several sectors of economic importance

Leading business group in the private sector. (Sales 11.21 bn USD) Total Group Revenues equivalent to 2.4% of Indias GDP Indias largest Foreign Exchange earner in private sector, accounts for 5.1% of Indias export. (Export 2.7 bn USD)

Indias largest private sector employer (240,000 employees) Strong support of over 2 million share holders. Serving the nation for last 125 years. The world's largest integrated tea operation Asias largest software exporter The world's sixth largest brand of watches Indias largest private sector steel producer Largest 5-star chain of luxury hotels in India Indias largest private sector power utility

18 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

19 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad NEW PRODUCTS

MODEL Maximum Payload Maximum GMW Engine Model

: EH 600 Dumper : 35.9 Ton : 56,911 kg : NTA-14 C (400 hp)

Configuration Body Capacity (struck) Body Capacity (Heap 2:1 SAE)

EH 600 14.6 cum 21.0 cum

MODEL Maximum Capacity Boom Length Boom Extension Speed

: ZR 503 G : 4040 kg at 2.85 m : 3.47m - 8.31 m : 4.84 m/ 18 secs

Configuration Elevation Range Swing Speed Hydraulic System

ZR 503 G 1 deg - 78 deg 2.5 rpm Single Gear Pump

20 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

This and many more models of Tadano Truck Loader Cranes avaliable to you from Telcon.

21 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

HYDRAULIC EXCAVATOR

MODEL ENGINE HORSEPOWER SWING SPEED

: TMX 20 : Tata 483DL : 39 PS @ 3000 rpm : 11.13 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCE

Backhoe 2200 kg 0.07 cum 1300 kgf

Tata TMX20 - the smallest mini excavator in India developed by Telcon, pioneers in mini excavator technology in India. Its smallness gives it access to confined areas and makes it easy to transport. It can ply on roads if fitted with rubber shoes. A variety of attachments makes it versatile. We call it our 'Little Master'.

MODEL ENGINE HORSEPOWER SWING SPEED

: EX 40 : Simpson S325 : 36 PS @ 2100 rpm : 10 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCES

Backhoe 4100 kg 0.09 - 0.15 cum 2300 kgf

Fortify your business - All of four tons, the Tata-Hitachi EX40 is a machine ideal for trenching jobs. It is sturdy inspite of its small size. It can do small jobs with ease.

22 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

MODEL ENGINE HORSEPOWER SWING SPEED

: EX 70 : Tata 497 NA : 58 PS @ 2100 rpm : 14 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCES

Backhoe 7220 kg 0.10 - 0.32 cum 3855 kgf

The 'Mighty Mini' - The population of this machine speajks of its popularity in India. It is small, fast and therefore very productive.

MODEL ENGINE HORSEPOWER SWING SPEED

: EX100 : TATA 697 NA : 76 PS @ 2300 rpm : 11.8 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCES

Backhoe 10700 kg 0.5 - 0.6 cum 5000 kgf

Shovel 11000 kg 0.6 cum 7250 kgf

The shovel execution is called the 'Tunnel Loader', designed specially for making tunnels at the time of the construction of the Konkan Railway.

23 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

MODEL ENGINE HORSEPOWER SWING SPEED

: EX110 : TATA 697 NA : 80 PS @ 2300 rpm : 11.8 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCE

Backhoe 11,500 kg 0.65cum 5,500 kgf

MODEL ENGINE HORSEPOWER SWING SPEED

: EX 200 LC : Cummins 6 BT 5.9C : 125 PS @ 2000 rpm : 13.7 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCE

Backhoe 20,000 kg 0.8 - 1.2 cum 11300 kgf

Shovel 20,150 kg 1.2 cum 12500 kgf

24 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

MODEL ENGINE HORSEPOWER SWING SPEED

: EX210 LCH - V : Isuzu A - 6 BG1T : 135 PS @ 1950 rpm : 13.9 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCE

Backhoe 20550 kg 1 cum 12900 kgf

MODEL ENGINE HORSEPOWER SWING SPEED

: EX 300 LC - H : Cummins 6CTA8.3C : 220 PS @ 2000 rpm : 11.3 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCE

Backhoe 31,500 kg 1.3 - 1.7 cum 20,000 kgf

Shovel 32,200 kg 1.8 cum 20,5000 kgf

25 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

MODEL ENGINE HORSEPOWER SWING SPEED

: EX350 LCH - V : Isuzu B-6SD1T : 230 PS @ 1900 rpm : 11.3 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCE

Backhoe 34,000 kg 1.15 - 1.9 cum 19,200 kgf

MODEL ENGINE HORSEPOWER SWING SPEED

: EX400 : Cummins NT 855 C 335 : 280 PS @ 2000 rpm : 10.2 rpm

Configuration OPERATING WEIGHT BUCKET CAPACITY ARM DIGGING FORCE

Backhoe 41,000 kg 2.07 - 3.00 cum 20,500 kgf

Shovel 42,500 kg 2.8 - 3.0 cum 27,600 kgf

26 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

SOCIAL RESPONSIBILITIES OF TELCON:


The role of a responsible citizen does not go unheeded in Telcon, in the true spirit of the Tata group. Telcon works in close collaboration with a number of NGOs to channelize its work. Telcon's thrust remains educations, environment and health.

Environment:

In an environment protection drive several multiple thousands of tree samplings were planted in Dharwad and Jamshedpur inside the factory premises and in the Telcon townships. This remains an ongoing annual activity, never to give up.

Educational assistance to the physically disabled:

Assistance is extended to schools imparting special education such as the Spastic Society of Southern India School and Karnataka School for the Deaf. Sponsorship of education for children of Leprosy patients residing in self-settled colonies, in collaboration with Nav Jagran Manav Samaj.

Social development:

Awareness programmes for women in villages in areas of hygiene, education and allround development. Industrial training to worthy school children.

Infrastructure support to local educational institutions:

Construction of boundary wall and toilets and supply of furniture to village schools in Belur. Assistance to schools in Jamshedpur to set up computer laboratories and sports facilities. 27 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

Public Health and Family Welfare :

Telcon sponsors immunization programmes in collaboration with Parivar Kalyan Sansthan that extends medical help to thousands of children who have no access to basic health programmes. The year is dotted with blood donation and medical camps. Family planning counseling and programmes are held in collaboration with Parivar Kalyan Sansthan whereby people are imparted lectures and operations are performed.

28 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

CONTENTS:

Analysis and Interpretation Findings Suggestions Conclusion Bibliography

29 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

ANALYSIS OF PROFITABILITY RATIOS OF THE COMPANY

PROFITABILITY RATIO: INTRODUCTION: A company should earn profit to survive and grow over a long period of time. Profit is the ultimate output of company and company will have no future if it fails to make sufficient profits. Therefore company should continuously evaluate the efficiency of the company in terms of profits. OBJECTIVES:

30 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Profitability ratios are calculated to measures the operating efficiency of the company. Poor operational performance may indicate poor sales and hence poor profits. Lower profitability may arise due to lack of control over the expenses etc. INTRESTED PARTIES IN PROFITABILITY RATIOS:

MANAGEMENT CREDITORS OWNERS

Generally two major types of profitability ratios are calculated:


Profitability in relation to sales Profitability in relation to investment

PROFITABILITY RATIOS INVOLVE:


1 2 3 4 5

GROSS PROFIT RATIO NET PROFIT RATIO OPERATING EXPENSES RATIO OPERATING PROFIT RATIO RETURN ON INVESTMENT / OVERALL PROFITABILITY RATIO

31 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


6 7 8 9 10

RETURN ON EQUITY RETURN ON TOTAL ASSETS EPS DPS RETAINED EANING RATIO

GROSS PROFIT MARGIN RATIO:-

Gross profit is the difference between sales and the manufacturing cost of goods sold. And gross profit is compared with the sales. Gross profit margin ratio reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and sales revenue. A high gross profit ratio

32 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad is sign of goods management and implies that the firm is able to produce at relatively lower cost. A low gross profit margin reflects higher cost of goods sold due to

Reduction in selling price Inefficient utilization of plant and machinery etc. It is calculated as follows: Gross profit ratio= Sales-Cost of Goods Sold ____________________ Net Sales. = Gross Profit ___________ Net Sales * 100

GROSS PROFIT RATIO YEAR 2003-04 2004-05 202.03 816.84 2005-06 285.30 1144.46

Gross Profit (Rs in 185.49 crore) Net Sales (Rs in 629.45 crore) 33

Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad RATIO (%) 29.468 24.733 24.9287

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: Gross margin of TELCON in 2003-04 has higher ratio of 29.468%, but in 2004-05 as compared to 2003-04 the ratio come down to 24.733%. And increased to 24.9287% in the year 2005-06 as compared to 2004-05. Here Gross profit ratio is higher in 2003-04, and in the year 2004-05 it is reduced but it is good enough from the point of company. Lastly in the year 2005-06 gross \profit ratio moderately increased. Here ratio is quite normal in 2004-05 & steady.

NET PROFIT MARGIN RATIO OF TELCON

This ratio is also known as net margin. This measures the relationship between net profit and sales of a firm. Depending on the concept of net profit employed, it is calculated as follows = Profit (loss) after tax ___________________ * 100 Net Sales This ratio indicates companys capacity to withstand adverse economic conditions.

34 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad A company with high net margin ratio would ensure adequate return to the owners as well as enable a firm to withstand adverse economic condition when selling price is declining, cost of production is rising and demand for the product is falling. It would really be difficult for a low net margin ratio company to withstand these advantageous.

NET PROFIT RATIO YEAR Net Profit crore) Net Sales crore) Ratio (%) (Rs (Rs 2003-04 in 20.67 in 629.45 3.2838 2004-05 40.77 816.84 4.9911 2005-06 86.84 1144.46 7.587

SOURCE: ANNUAL REPORTS OF COMPANY:

35 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Interpretation: The Net Profit Ratio of TELCON in 2003-04 is 3.2838% and in the year 2004-05 it is increased to 4.9911% and again in the year 2005-06 it is increased to 7.587%, therefore net profit ratio is satisfactory. TELCON is having an advantageous position and economic condition is good. As net profit ratio is obtained after deducting tax and other provisions, so net profit ratio of TELCON is fair enough from company point of view.

OPERATING EXPENSES OF TELCON

It explains the changes in the profit margin ratio. This ratio is computed by dividing opening expenses Viz. cost of goods sold plus selling expenses and general and administrative expenses (excluding Interest) by sales. Operating Expenses Ratio = Operating Expenses _________________ *100 Net Sales A higher operating expenses ratio is unfavorable, since it will have a small amount of operating income to meet interest, dividends etc. and on the other hand lower operating expenses ratio is favorable. OPERATING EXPENSES RATIO YEAR 2003-04 2004-05 753.07 2005-06 1014.44

Operating exps. (Rs 573.4 36

Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad .in crore) Net Sales(Rs.in crore) 629.45 Ratio (%) 91.095 816.84 92.193 1144.46 88.639

SOURCE: ANNUAL REPORTS OF COMPANY:

Interpretation: The operating expenses ratio of TELCON in 2003-04 is 91.095%, It increases to 92.193% in the year 2004-05. But in the year 2005-06 it is decreased to 88.639% TELCON Company is having a low ratio in the year 2005-06, which is favorable. Due to lower ratio company incurred profit in 2005-06.
4

OPERATING PROFIT RATIO

This ratio is calculated as follows: = EBIT ______ * 100 Net Sales OPERATING PROFIT RATIO YEAR EBIT (Rs in crore) 2003-04 37.88 2004-05 60.20 816.84 7.369 2005-06 136.76 1144.46 11.949

Net Sales(Rs in crore) 629.45 Ratio(%) 6.0179

SOURCE: ANNUAL REPORTS OF COMPANY:

37 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

Interpretation: This ratio of Operating Profit in TELCON Company, in the year 2003-04 is 6.0179% and it is increased in the year 2004-05 to 7.369% and further it is increased to 11.949% in the year 2005-06. The ratio is increased due to decrease in the operating expenses.

RETURN ON INVESTMENT (ROI) :

It is also called as overall profitability ratio or Return on capital employed (ROCE) Ratio. This ratio is the broadest measure of the overall performance of business firm. It indicates the percentage of return on the total capital employed in the business. The higher ratio, the more efficient use of the capital employed. It is calculated on the bases of the following: ROI = Operating Profit _______________ * 100 Capital employed OR PBIT ________________ * 100 Capital employed

RETURN ON INVESTMENT YEAR EBIT (Rs in crore) 2003-04 37.88 2004-05 60.20 319.68 18.83 2005-06 136.76 347.78 39.32

Capital employed (Rs 339.81 in crore) Ratio (%) 11.15

SOURCE: ANNUAL REPORTS OF COMPANY:

38 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Interpretation: In 2003-04 the ROI was 11.15 %, in the year 2004-05 it increases to 18.83 %, and in the year 2005-06 it moves to 39.32 %, Because of decrease in operating expenses. The return on investment ratio is increased in all the 3 years. It means here the company had use the capital employed efficiently.
6

RETURN ON EQUITY (ROE) / NET WORTH

Return on Equity is calculated to see the profitability of owners investment. Return on Equity = PAT ____________________________ Shareholders Equity or Net worth

* 100

Return on Equity indicates how well the firm has used the resources of owners. This ratio reflects the extent to which this objective has been accomplished. This ratio is of great interest to the present as well as the prospective shareholders and also of great concern to management, which has the responsibility of maximizing the owners welfare. RETURN ON EQUITY YEAR PAT (Rs in crore) 2003-04 20.67 2004-05 40.77 228.97 17.805 2005-06 86.48 274.16 31.543

Net Worth (Rs in 205.31 crore) Ratio (%) 10.067

SOURCE: ANNUAL REPORTS OF COMPANY:

Interpretation: In 2003-04 the return on investment was 10.067%. It increases to 17.805 in the year 2004-05. And it further increases to 31.543%. It indicates that management has used the 39 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad resources of owners very effectively. Therefore in the year 2005-06 company incurred profit. The ratio is high. In addition, there is substantial increase in all the 3 years.
7

RETURN ON TOTAL ASSETS (ROTA)

This ratio is compared to know the Productivity of the total assets. There are two methods of computing Return on Total Assets 1. ROTA= PAT ___________ * 100 Total Assets 2. ROTA= PAT + Interest _______________ * 100 Total Assets RETURN ON TOTAL ASSETS: YEAR 2003-04 2004-05 49.79 319.68 15.574 2005-06 94.01 347.78 27.0314

PAT + Interest (Rs in 37.95 crore) Total Assets (Rs in 339.81 crore) Ratio (%) 11.168

SOURCE: ANNUAL REPORTS OF COMPANY:

Interpretation: In 2003-04 the return on assets was 11.168 %. It increases to 15.574 % in the year 200405. And it further increases to 27.0314 %. It indicates that management has used assets very effectively. Therefore in the year 2005-06 company incurred profit. The ratio is high. In addition, there is substantial increase in all the 3 years.

40 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


8

EARNING PER SHARE (EPS):

It measures the profit available to the equity shareholders on a per share basis, that is amount that they can get on every share held. It is calculated by dividing the profits available to the shareholders by the number of the outstanding shares. The profits available to the ordinary shareholders are represented by net profit after taxes and preference dividend. The overall profitability can also be judged by calculating EPS. EPS is calculated by following formula: EPS = PAT ___________________ Number of Equity Shares EARNING PER SHARE YEAR PAT (Rs in crore ) 2003-04 20.67 2004-05 40.77 100,000,000 4.08 2005-06 86.48 100,000,000 8.68

No. of Equity Shares 100,000,000 Ratio 2.067

SOURCE: ANNUAL REPORTS OF COMPANY:

Interpretation: EPS of Company in 2003-04 is Rs. 2.067, which increases to Rs. 4.08 in the year 2004-05. And further it increases to Rs. 8.68 in the year 2005-06 due to increase in profit, EPS is increased.

DIVIDEND PER SHARE (DPS)

It is the dividend paid to the ordinary shareholders on a per share basis. In other words, DPS is the net distributed profit belonging to the shareholders divided by the number of

41 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad ordinary shares outstanding. This ratio is particularly useful for those investors who are interested only in dividend income. formula: DPS= Dividend Paid _______________ Number of Shares TELCON CO, not paid dividend during the period 2003-04, 2004-05, 2005-06. Hence there is no chance to calculate the DPS. Dividend per share is calculated by following

10. RETAINED EARNING RATIO It is calculated as follows: Retained Earning Ratio = Retained Earning * 100

42 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Total Earning The Telcon Company has not declared any divided during the period 2005-06 and retained earnings ratio is 100%. The retained earning ratio is indicators of the amount of earning that have been ploughed back in the business. The lower the retained earnings ratio the lower will be amount of earnings ploughed back into business and vice-versa. A Higher retained earning ratio means and stronger financial position of the company RETAINED EARNINGS RATIO: YEAR 2003-04 2004-05 40.77 40.77 100% 2005-06 86.48 86.48 100%

Retained Earnings 20.67 (Rs in crore) Total Earnings (Rs in 20.67 crore) Ratio 100%

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: In the year 2003-04, 2004-05, and 2005-06 TELCON Company retained 100% earnings as retained earning, Due to non declaration of Dividend.

NOTES:

43 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


Net sales= Gross Sales Excise COGS= (Op. stock +Purchases of products +Consumption of Raw materials & components + consumption of stores spares, tools + freight, transportation, port charges + Power and fuel. ) Closing Stock.

Operating Expenses = COGS + Payments to and provision for employees + rent + Rates and taxes + Insurance + publicity and selling expenses work operating expenses + Repairs to building + Repairs to plant and machinery + other expenses + Depreciation.

Gross Profit= Net Sales COGS Total Assets= Fixed Assets + Current Assets. Net Worth= Capital + Reserves and surplus. COGS= Cost Of Goods Sold

44 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

ANALYSIS OF TURNOVER RATIOS

OF THE COMPANY

TURNOVER / ACTIVITY RATIOS OF THE COMPANY Introduction:

45 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Activity ratios are employed to evaluate the efficiently with which the firm manages and utilizes its assets. These ratios are also called as turnover ratio. Therefore they indicate the speed with which assets are being converted / turned over in to sales. Thus an activity ratio involves relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well. In other words, turnover ratio indicates the efficiency with which the capital employed is rotated in the business. Higher the ratio of rotation, the greater will be the profitability DIFFERENT TURNOVER RATIOS:
1 2 3 4 5 6 7 8

Inventory stock turnover Ratio Debtors (Accounts Receivable) Turnover Ratios. Creditors (Account Payable) Turnover Ratios Fixed Assets turnover Ratio Current Assets turnover Ratio Working capital turnover Ratio Total Assets turnover Ratio Net Assets turnover Ratio

INVENTORY / STOCK TURNOVER RATIO (ITR/STR).

46 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad It indicates the efficiency of firm in producing and selling its products. High Ratio is good from the view point of liquidity and vice versa. A low ratio would signify that inventory does not sell fast and stably in the warehouse for a longtime. It is calculated as follows: Cost of Goods Sold ________________ Avg. Inventory OR Sales __________ Closing Stock (If there is no opening stock)

Hence Avg. Inventory = Opening Stock + Closing Stock ____________________________ 2 Avg. Inventory is calculated by taking stock levels of raw materials, working process and finished goods at the beginning of year & at the end of the year & that is divided by two

INVENTORY TURNOVERY RATIO YEAR COGS (Rs in crore) Avg. Inventory (Rs in crore) Ratio 2003-04 443.96 76.17 5.828 2004-05 614.81 87.97 6.988 2005-06 859.16 101.275 8.4834

SOURCE: ANNUAL REPORTS OF COMPANY

INVENTORY CONVERSION RATIO YEAR 2003-04 2004-05 2005-06

47 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad No. of days in a year ITR DAYS 365 5.828 62.628 365 6.988 52.232 365 8.4834 43.025

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The STR/ ITR are high in all three years. And Stock conversion is very fast because company takes 63 days in 2003-04. It decreases in 2004-05 to 52 days. And in 2005-06 it is 43 days. It indicates that conversion ratio is very fast.

DEBTORS TURNOVER RATIO:

48 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad Debtors constitute an important constituent of current assets and therefore the quality of debtors to great extent determines that firms liquidity. There are two ratios. They are:
1 2

Debtors turnover Ratio Debtors collection period Ratio

Debtors turnover can be calculated by dividing total sales by balance of debtors. Debtors turnover = Sales ______ Debtors Higher the ratio is better, since it indicate that debts are being collected more promptly DEBTORS TURNOVER RATIO YEAR Net Sales (Rs in crore) Debtors (Rs in crore) Ratio 2003-04 629.45 95.24 6.60 2004-05 816.84 99.68 8.194 2005-06 1144.46 142.51 8.03073

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio in the year 2003-04 is at 6.60, which increases to 8.194 in the year 2004-05. But in the year 2005-06 it decreases to 8.0307. The Slight decrease in 2005-06 is negligible. It indicate that debts are being collected more promptly DEBTORS COLLECTION PERIOD: This ratio indicates the extent to which the debts have been collected in time. It gives the average debt collection period. The higher is the turnover ratio and shorter is the average collection period the better is the trade credit management and the better is the liquidity

49 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad of debtors, as short collection period and high turnover ratio imply prompt payment on the part of debtors. On the other hand, low turnover ratio and long collection period reflects that payments by debtors are delayed. Debtors Collection Period = No. of days __________ DTR It is helpful to

The creditors and lenders of the firm to know the firms collecting within a reasonable time. DEBTORS COLLECTION PERIOD: YEAR 2003-04 365 6.60 55 2004-05 365 8.194 44 2005-06 365 8.03 45

No. of days in a year(Rs in crore) DTR DAYS

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: Credit allowed is a bit on the higher side in 2003-04. Compare to 2003-04, in the year 2004-05 and 2005-06 there is a reduction in credit allowed i.e. on an average 45 days, This is quite normal. The slight increase in 2005-06 is negligible.

3) CREDITORS TURNOVER RATIO:

50 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad It indicates the speed with which the payment for credit purchases is made to creditors. This ratio is calculated as follows: =Credit Purchases ______________ Avg. creditor It details regarding credit purchases, opening and closing A/c payable have not been given, and the ratio may be calculated as follows: = Total purchase _____________ Creditors CREDITORS TURNOVER RATIO: YEAR Total purchase (Rs in crore) Creditors (Rs in crore) Ratio 2003-04 75.92 58.17 1.305 2004-05 113.22 101.65 1.1138 2005-06 187.45 131. 54 1.42504

SOURCE: ANNUAL REPORTS OF COMPANY

CREDIT PERIOD ENJOYED: YEAR No. of days(Rs) 51 Belgaum Institute of Management Studies (MBA) 2003-04 365 2004-05 365 2005-06 365

A Study Of Financial Performance Based On Ratios At TELCON Dharwad CTR DAYS 1.305 280 1.1138 328 1.42504 256

SOURCE: ANNUAL REPORTS OF COMPANY

A Higher creditors turnover ratio or Lower credit period enjoyed ratio. Signifies that the creditors are being paid promptly thus enhancing the credit worthiness of the company. Interpretation: Creditors paid after 280 days in the year 2003-04. But in the year 2004-05 creditors are paid after 328 days it is not good from the companys point of view. Further it decreases to 256 days i.e. creditors are paid after 256 days compare to year 2004-05 it is good from the companys point of view. It means creditors are being paid promptly.

4) FIXED ASSETS TURNOVER RATIO 52 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad This ratio indicates the extent to which the investments in fixed assets contributed towards sales. If compared with a previous period, it indicates whether the investment in fixed assets has been judicious / not. The ratio is calculated as follows: = Cost of Goods Sold _________________ Net Fixed Assets FIXED ASSETS TURN OVER RATIO: YEAR COGS (Rs in crore) Net Fixed Assets(Rs in crore) Ratio 2003-04 443.96 217.80 2.038 times 2004-05 614.81 203.42 3.022 times 2005-06 859.16 180.29 4.7654 times

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The fixed assets turnover is 2.038 times in the year 2003-04, in the year 2004-05 the fixed assets turnover is 3.022 times. But in the year 2005-06 it is increased to 4.7654 times. It means in the year 2005-06 fixed assets are properly utilized i.e. there is a better efficiency in utilization of fixed assets. 5) CURRENT ASSETS TURNOVER RATIO: This ratio indicates the extent to which the investment in current assets contributed towards sales. If the ratio is compared with a previous period, it indicates whether the

53 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad investment ion current assets has been judicious or nor. The ratio is calculated by dividing the cost of goods sold to Avg. current assets. The ratio is calculated as follows: = Cost of Goods Sold __________________ Current Assets CURRENT ASSETS TURNOVER RATIO: YEAR COGS (Rs in crore) Current Assets (Rs in crore) Ratio 2003-04 443.96 281.60 1.576 times 2004-05 614.81 357.80 1.718 times 2005-06 859.16 539.79 1.59 times

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: This ratio is satisfactory in all the 3 years. It is more than 1 in all 3 years. It was at 1.576 in 2003-04. it increases to 1.718 in the year 2004-05. But it decreases to 1.59 in the year 2005-06. But it is more than one in all cases. It indicates that the current assets are promptly invested towards making sales. 6) WORKING CAPITAL TURNOVER RATIO: This ratio indicates whether or not working capital has been effectively utilized in making sales This ratio is calculated as follows: = COGS _________________ Net Working Capital 54 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad OR = Net Sales _______________ Net Current Assets WORKING CAPITAL TURNOVER RATIO: YEAR COGS (Rs in crore) Net Working Capital (Rs in crore) Ratio 2003-04 443.96 113.62 3.9074 times 2004-05 614.81 111.08 5.534 times 2005-06 859.16 163.86 5.243 times

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio is increased in 1st two years i.e. in the year 2003-04 is at 3.9074, and in the year 2004-05 is at 5.534. But in the year 2005-06 it decreases to 5.243. But it is quit normal compare to year 2003-04, and it is negligible. This ratio indicates that working capital has been effectively utilized in making sales. 7) TOTAL ASSETS TURNOVER RATIO This ratio is computed by dividing the cost of goods sold the average total assets. Total assets include fixed assets, current assets and miscellaneous expenditure. Average total assets are simple average of the opening and the closing balance of the total assets. Total assets turnover ratio=Cost of Goods Sold Total Assets

55 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad This ratio measures the efficiency of a company in managing and utilizing its assets. The higher the turnover ratio, the more efficient is the management and utilization of available assets. While low turnover ratio is indicative of under utilization of available resources and presence of idle capacity. In operational terms the company can expand its activity level (in terms of production and sales) should be borne in mind that this ratio might be on a higher side due to the fact that the value of the assets is very less after the depreciation. Keeping this in mind, a cautious use of this ratio is desirable.

TOTAL ASSETS TURNOVER RATIO: YEAR COGS (Rs in crore) Total Assets (Rs in crore) Ratio 2003-04 443.96 339.81 1.3064 times 2004-05 614.81 319.68 1.9232 times 2005-06 859.16 347.78 2.4704 times

56 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio in all the 3 years it is increased. In the year 2003-04 is at 1.3064, and in the year 2004-05 it is increased to1.9232. But in the year it is still increased to 2.4704. Higher the turnover ratio, the more efficient is the management and utilization of available assets.

8) NET ASSETS TURNOVER RATIO Net assets include net fixed assets and net current assets A firms ability to produce large volumes of sales for a given amount of net assets is the most important aspects of its operating performance. Underutilized assets increases the firms need for costly financing as well as expenses for maintains and up keep. The ratio is calculated as follows: = Net Sales _________ Net Assets

57 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


NET ASSETS TURNOVER RATIO

YEAR Net sales(Rs in crore) Net Assets (Rs in crore) Ratio

2003-04 629.45 339.81 1.852 times

2004-05 816.84 319.68 2.55 times

2005-06 1144.46 347.78 3.290 times

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio is increased year by year. The ratio is 1.852 @ in the year 2003-04 which increases to 2.55 times in the year 2004-05 and it increases to 3.29 times in the year 2005-06. so it indicates that the ratio bit higher side. It also indicates that there has been increased in utilization of resources year by year.

ANALYSIS OF FINANCIAL RATIOS


58 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

OF THE COMPANY

FINANCIAL RATIOS OF THE COMPANY Introduction: Financial ratios indicate about the financial position of the company. A company is deemed to be financially sound, if it is in position to carry on its business smoothly and meet all its obligations both long- term as well as short- term without strain. Thus, company financial position has to be judged from two angles long- term as well as shortterm.
3

Financial Ratio:

Current Ratio Quick / Acid test / Liquid Ratio. Absolute liquid / Cash Ratio

Leverage Ratio :

Debt ratio

59 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


Debt equity Ratio Proprietary Ratio Capital employed to net worth ratio Interest coverage

LIQUIDITY RATIO Liquidity ratios may be defined as financial ratio, which thorough tight on short term slovenly of firm. Liquidity Ratio measures the ability of the firm to meet its current obligations. Liquidity ratio needs establishing a relationship between cash and other current assets to current obligations to provide quick measures of liquidity. A firm should ensure that it doesnt suffer from lack of liquidity and also that it does not have excess liquidity. Failure of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor creditworthiness, loss of creditors confidence. Liquidity is perquisite for the survival of firm. The short-term creditors of firm are interested in short-term solvency / liquidity of firm. But liquidity implies from the viewpoint utilization of funds of the firm, that funds are idle or they even very little. So liquidity ratio measure ability of a firm to meet its short- term obligations and reflect short- term financial strength / solvency of firm.

60 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

1) CURRENT RATIO: This ratio is an indicator of firms commitment to meet its short- term liabilities. Higher ratio, better the coverage, 2:1 ratio is treat as standard ratio. This ratio is also called as solvency / working capital ratio. The current ratio is the ratio of the current assets and current liabilities. It is calculated by dividing current assets by current liabilities. Current Ratio= Current assets Current liabilities The current ratio is a measure of short- term solvency of the company. It indicates the rupee of current assets available for each rupee of current liability. The higher the current ratio the larger the amount of rupees available per rupee of current liability and the greater the safety of the short- term creditors. This margin of safety to the creditors is essential due to the unevenness of the flow of funds through current assets and current account. The current liabilities can be settled by making the payment whereas the current assets available to liquidate them are subject to shrinkage of various reasons like

61 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad obsolescence of inventory, bad debts, and unexpected losses and so on. Thus current ratio represents the short- term liquidity Buffer.

CURRENT RATIO YEAR Current Assets (Rs in crore) Current Liabilities (Rs in crore) Ratio 2003-04 281.6 167.98 1.676 2004-05 357.80 246.73 1.45 2005-06 539.79 375.93 1.4358

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio is not good in all the three years when compared with the conventional standard 2. In all the three years the ratio is below the 2. This indicates that firms commitment to meet its short liabilities was not so good.

62 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

2) QUICK / ACID TEST / LIQUID RATIO: Liquid ratio is indication of availability of quick assets to honor its immediate claims. Higher the ratio betters the coverage. And the standard ratio is 1:1. An asset is liquid if is can be converted into cash immediately without loss of value. Hence cash is most liquid assets after assets which are considered to be relatively liquid are; Debtors balance, marketable securities etc. inventories considered to be less liquid therefore they require some time form relishing into cash and their value also has tendency to fluctuate. The ratio is calculated as follows: = Quick Assets ________________________ Current Liabilities QUICK RATIO: YEAR 2003-04 2004-05 166.74 246.73 0.675 2005-06 313.35 375.93 0.8335

Quick Assets (Rs in 135.42 crore) Current Liabilities 167.98 (Rs in crore) Ratio 0.806

63 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio is not good in all the three years when compared with the conventional standard 1:1. In all the three years the ratio is below the 1. But it is nearer to ratio1. So the ratio is improved compare to last year. Here creditors are getting their payment slowly. The ratio is decreases from 0.806 in 2003-04 to 0.675 in 2004-05 but in the year 2005-06 it increases to 0.8335. It shows that there is improvement in the ratio in 2005-06.

64 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

3) CASH / ABSOLUTE LIQUID RATIO: It calculated as follows: = Cash + Bank Balance _____________________ Current Liabilities Here, trade investment; marketable securities are equivalent of cash. And therefore they may be included in the computation of cash ratio. The standard rate for this ratio 0.5:1. This ratio also indicates liquidity position and company and firms commitment to meet its short -term liabilities.
CASH RATIO:

YEAR Cash +Bank Balance (Rs in crore) Current Liabilities (Rs in crore) Ratio

2003-04 3.18 167.98 0.0189

2004-05 16.80 246.73 0.0680

2005-06 34.61 375.93 0.09206

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: Cash ratio is much less than the conventional standard of 0.5:1 the ratio is less than 0.5 in all the 3 years. It indicates that there is a poor liquidity position of the company and there is poor firms commitment to meet its short-term liabilities. But the ratio is increasing

65 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad from year by year. In 2003-04 the ratio was @ 0.0189, which increases to 0.0680 in 2004-05 and it further, increases to 0.09206 in 2005-06. LEVERAGE RATIO LEVERAGE RATIO is also called as capital structure ratio. It relates to the study of various types of capital structure of firm. The long- term solvency of a company can be examined by using leverages or capital structure ratios. These ratios are for long-term creditors to judge the long-term financial strength of the company. The aspects that are mainly considered for this are:
1 2

Ability to repay the principal when due and Regular payment of the interest.

THE DIFFERENT LEVERAGE RATIO ARE:


1 2 3 4

Debt Ratio Debt Equity Ratio Proprietary Ratio Interest Coverage Ratio

66 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

1) DEBT RATIO: It expresses out side liabilities i.e. both long -term and short-term in relation to total capitalization of firm. It is calculated as follows: = Total Debt ______________ Total Assets Generally creditors will prefer low debt ratio, since lower the ratio, higher the caution against creditors losses in the event of liquidation. Conversely, owners may prefer high debt ratio either

To magnify earnings or Because issuing new share means giving up some degree of control

But a high debt ratio may create problem with respect to future financing since creditors may reluctant to lend the firm more money unless equity base is increased.

67 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

DEBT RATIO: YEAR Total Debt (Rs in crore) 2003-04 124.85 2004-05 71.65 319.68 0.224 2005-06 63.02 347.78 0.1812

Net Assets (Rs in 339.81 crore) Ratio 0.367

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio is decreasing year by year. In 2003-04 the ratio was @ 0.367 which decreased to 0.224 in 2004-05 and it further decreased to 0.1812 in 2005-06.It indicates that the companys reliance on debt is decreased year by year. This shows that the company has less long term borrowings from financial institutions.

68 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad 2) DEBT-EQUITY RATIO It measures the relation between debt and equity in the capital structure of the firm. In other word, This ratio shows the relationship between the borrowed capital and owners capital. This ratio shows relative claim of the creditors and shareholders against the assets of the company. It is expressed as: = Long-term Debt __________________ Shareholders Equity

Generally higher the ratio greater is the possibility of increasing the ROR to equity & vice versa. A high debt equity ratio may be adopted to take advantage of cheaper debt capital. The ratio indicates the extent to which the firm depends upon out side for its existence. The ratio provides margin of safety to the creditors. It tells owners the extent to which they can gain benefits of maintaining control with a limit investment.

69 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

DEBT- EQUITY RATIO YEAR Long-term Debt (Rs in crore) Shareholders Equity (Rs in crore) Ratio 2003-04 124.85 205.31 0.608 2004-05 71.65 228.97 0.3129 2005-06 63.02 274.16 0.229

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio is quite lower side. It is decreases from 0.608 in 2003-04 to 0.3129 in 2004-05 and it further decreases to 0.229 in 2005-06. the TELCON Company depends more on internal sources than on external sources i.e. it indicates that company depends upon insiders i.e. on shareholders fund & and it also indicates that company is having sound financial position.

3) PROPRITORY RATIO: It establishes relationship between the propitiator or shareholders funds & total tangible assets. 70 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad It may be expressed as: Proprietary Ratio=Proprietors Funds Total Assets The ratio indicates properties stake in total assets. Higher the ratio lowers the risk and lower the ratio higher the risk. Debt equity ratio & current ratio affects the proprietary ratio. PROPRITORY RATIO: YEAR Shareholders funds (Rs in crore) 2003-04 205.31 2004-05 228.97 319.68 0.7162 2005-06 274.16 347.78 0.7883

Total Assets (Rs in 339.81 crore) Ratio 0.60419

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio is high in all the three years. It increases from 0.60419 in 2003-04 to 0.7162 in 2004-05. And it increases to 0.7883 in 2005-06. It indicates that there is too much depends on inside money. It shows that the financial position of the company is strong. This is increasing year by year. 4) INTEREST COVERAGE RATIO: This is a measure of the protection available to creditors for payment of interest charges by the company. The ratio shows whether the company has sufficient income to cover its interest requirements by a wide margin. The interest coverage ratio is computed by

71 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad dividing profit before interest and tax by the interest expenses. A high ratio implies adequate safety for payment of interest even if there were to be a drop in the companys earnings. The interest coverage ratio is as follows: = Profit Before Interest and Tax _________________________ Interest Expenses INTEREST COVERAGE RATIO YEAR EBIT (Rs in crore) 2003-04 37.88 2004-05 60.20 9.02 6.674 2005-06 136.76 7.17 19.0739

Interest (Rs in crore) 17.28 Ratio 2.192

SOURCE: ANNUAL REPORTS OF COMPANY

Interpretation: The ratio is quite good. In the year 2003-04 the ratio is 2.192 and it further increases to 6.674 in the year 2004-05. . And again it increases to 19.0739 in the year 2005-06. A high ratio implies adequate safety for payment of interest even if there were to be a drop in the companys earnings.

72 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

FINDINGS AND SUGGESTIONS

FINDINGS: PROFITABILITY RATIOS:

Gross profit of the Telcon is increased to 24.92 % in the year 2005-06 as compare to 2004-05.

Net profit of the company is increased to 7.58%in the year 2005-06 as compare to 2004-05 and 2003-04.

The operating expenses of the Company is decreased to 88.63% in the year 200506 compared to year 2004-05 and 2003-04

Due to decrease in operating expenses, the profitability of the Company is increased from year to year.

Due to profit , the ratios such as Return on investment is increased to 39.32% , Return on Equity is increased to 31.543%, Return on Total Assets is increased to 27.0314% , EPS is increased to 8.68% , in the year 2005-06 as compare to 200405.

DPS is nil in all the 3 years because of non-declaration of dividend.

73 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

The retained earnings ratio in the year 2003-04, 2004-05 and in 2005-06 is 100% due to non declaration of Dividend.

TURNOVER RATIOS:

The Inventory Turnover Ratio and the inventory conversion ratio are high in all the three years. i.e. in the year 2005-06 turnover ratio is 8.4834% , and turnover period is 44 days. Compare to 2004-05

Debtors Turnover Ratio is higher side and debtors collection period i.e. credit allowed to debtor is quite lower side. It means debts have been collected within the given period of time. i.e. in the year 2005-06 the debt turn over ratio is 8.030% and debt collection period is 45 days.

Creditors Turnover Ratio is moderate and the creditors payment period is also quite normal i.e. in the year 2005-06 creditors turnover ratio is 1.425% creditor payment period is 256 days.

The Fixed Assets turnover ratio in the year 2005-06 is 4.7654 , Current Assets Turnover ratio is 1.59 in the year 2005-06, Total assets turnover ratio in the year 2005-06 is 2.4704, and Net Assets Turnover ratios in the year 2005-06 is 3.290 ,

74 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad as compare to 2004-05 and 2003-04 the ratio is increased in the year 2005-06 and it is quite satisfactory . And it shows that the assets are properly invested towards making sales.

FINANCIAL RATIOS:

The current ratio is below the standard ratio (i.e.2) and it is not good from companys point of view. It shows that it is in not in position to meet the short term liabilities .The ratio in the year 2005-06 is 1.4358%.

The Liquid ratio is not according to standard ratios (i.e. 1:1) and it is not good from companys point of view. The ratio in the year 2005-06 is 0.8335%.

The Cash ratio is quite lower side in all the three years when compared to standard ratio. (i.e. 0.5:1). And it shows that there is poor firms commitment to meet its short-term liabilities. The ratio in the year 2005-06 is 0.09206

The Debt ratio and the debt equity ratio both are showing decreasing trend in all the 3 years. It indicates that the company is depending more on internal resources. A more internal fund means the shareholders fund; it shows that the company is

75 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad financially strong. Debt ratio in the year 2005-06 is 0.1812. And debt equity ratio is 0.229 in the year 2005-06.

The proprietary ratio is increasing year by year; it shows that company is financially strong. The ratio in the year 2005-06 is 0.7883.

SUGGESTIONS:
1 2

The company can think on increasing the liquidity position. As the inventory turn over ratio shows high inventory turnover. And hence the Company has detailed study of the inventory position and makes the maximum use of the inventory.

Company instead of depending fully on internal funds, it can also study the feasibility of borrowing funds from external sources, so it can still expand its production capacity considering the demand.

Company can see the possibility of declaring the dividend to increase the interest of the shareholders.

76 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad


5

Company since making investment in Fixed Assets can see the possibility of Government concessions.

Company can also make investments with other Companies subject to the provisions as per memorandum and articles.

Companies also see the possibility of Public Issue with high premium.

Conclusion:
RATIO ANALYSIS is defined as systematic use of ratio to interpret the financial statements so that strength and weakness of firm as well as historical performance and current financial condition can be determined. The ratio is an aid to management in making decisions. The ratio if discriminately and wisely interpreted be useful tool of financial analysis. According to analysis of ratios of three years of TELCON, I came to know that the company made a good effort to increase the profit. It has used the all the assets effectively to get good returns. The ratios like return on investment, return on total assets,

77 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad return on equity, earning per share, fixed assets turnover ratio, total assets turnover ratio, net assets turnover ratio all are increasing year by year it shows that company is in profit making. TELCON has good brand name and it has maintained a good relationship between customers. And it can increase its profit still better by concentrating the above given suggestion.

Contents:

78 Belgaum Institute of Management Studies (MBA)

A Study Of Financial Performance Based On Ratios At TELCON Dharwad

Bibliography

BIBLIOGRAPHY:

I.M. Pandey Financial Management. Vikas Publishing House Pvt. Ltd. M.Y. Khan and P. K. Jain Financial Management. Tata Megraw Hill Publishing company Ltd. New Delhi.

Khan and Jain Management and Accounting. Himalaya publishing house Pvt. Ltd.

Web Site: www. telcon.co.in

79 Belgaum Institute of Management Studies (MBA)