Attribution Non-Commercial (BY-NC)

6 views

Attribution Non-Commercial (BY-NC)

- Polaroid 1996 Calculation
- Yamaha Motors India Pvt. Ltd. - Ratio Analysis
- Financial Analysis
- Ratio Analysis by Zeeshan Tufail
- MBA Strategic Finance Assignment
- FSA_EvenQ
- Ratio Analysis-III Sem
- unitech
- ARM Investor Briefing
- Financial Analysis
- Debt to Equity Ratio
- 3hr Paper 4feb 2010
- Ratio Analysis1
- Sari Project
- 4.Current Ratio(Sonali)
- Chapter 2
- Enil Financial Data
- Client Financials, Calculator, CLIENT REPORT CARD
- Theoretical Framework
- 7presentation Financial Analysis - Afm

You are on page 1of 38

In simple language ratios one number expressed in terms of another and can be worked out by dividing one number by the other. It shows the relationship two figures. Ratio analysis is a widely used tool of financial study. It is defined as the systematic use of ratios to interpret the financial statements so that the strengths & weakness of the firm as well as its historical performance and current condition can be determined. The relationship between two or more accounting figures/groups is called financial ratio, helps to summarize a large mass of financial data into a concise form and to make meaningful interpretation and conclusion about the performance of the firm. A ratio may be expressed either in proportion or as rate as percentage. A ratio may take the form of proportion. Here the figures of the two items used for computing the ratio or expressed in common denominator. Example are current ratio = 5: 3 acid test ratio 1.3:1 etc.

NATURE: The ratio analysis of financial statements stands for the process of arrangements of data computation of ratios interpretation of the ratios so computed and projections through ratios. However ratio analysis is not an end itself. It is only a means of better understanding of financial statements and weakness of a firm collection of more ratios does not serve and purpose, unless several appropriate ratios are analyzed and interpreted.

MANAGERIAL USE OF RATIO ANALYSIS: Ratio analysis helps in decision making from the information provided in these financial statements. Ratios enable the financial analyst to summarize and simplify the voluminous financial data. The trend ratios enable the analyst to find out whether the firm has been improving its performance or not over the year. Ratios are helpful in identifying the problem areas of firm and this will make the management to take necessary corrective measures to improve the results in future.

Ration analysis helps to formulate policies for future including the capital expense decisions. Ratio analysis is important tools for booth minimizing coast and maximizing revenues profits.

ADAVANTAGES OF RATIO ANALYSIS: 1. 2. 3. 4. 5. 6. Useful in financial position analysis Useful in simplifying accounting figures Useful in assessing the operational efficiency Useful in forecasting purpose Useful in locating weak spots of business Useful in comparison of performance

Selection of relevant data from the financial statement depending upon objective of the analysis. Calculation of appropriate ratios from above data. Comparison of calculated ratios with the ratio of the same firm in the or the ratios developed from projected financial statements the ratios of the some other firms or the comparison with the ratios of the industry to which the firm belongs.

Interpretation of ratio

CLASSIFICATION OF RATIOS: Ratios are classified in a number of ways keeping in view the practical purpose: Liquidity ratio Leverage ratio Turnover ratio Profitability ratio

LIQUIDITY RATIO:

Liquidity is very essential for the very survival of the organization. Liquidity refers to the ability to of the organization to generate cash internally from business operations or to raise cash externally from the public including the financial institutions so that it can meet all its cash requirements & discharge all its current obligations. The day to day problems of financial management consists of highly important task of finding sufficient cash to meet current obligations. Business houses should not be hampered with policy of funds; in order to meet short term obligation and day to day requirements/operations. A firm should not suffer by lack of liquidity and also that it does not have excess liquidity. Low liquidity implies the firms inability to meet its obligations and high liquidity is also bad; idle masses earn nothing. Therefore it is necessary to strike a proper balance between current assets and current liabilities to reduce the problem of high and lack of liquidity.

The common ratio which indicates the extent of liquidity is * * * CURRENT RATIO LIQUIUD / QUICK RATIO ABSOLUTE LIQUID RATIO / CASH RATIO

CURRENT RATIO:

Meaning: This ratio establishes the relationship between Current Assets and current liabilities.

Objective: The objective of computing this ratio is to measure the ability of the firm to meet its short term obligations and to reflect the short term financial strength of a firm.

Components: * Current Assets: This means the assets which are held for their conversation into cash within a year. * Current Liabilities: This means the liabilities which are expected to be matured within a year. 3

Computation: This ratio is computed by dividing the current assets by current liability. Generally 2:1 is considered ideal for a concern.

Significance: It indicates the amount of current assets available for each current liability. Higher ratio indicates greater margin of safety for creditors and vice versa. However too low ratio calls for further investigation since the too high ratio may indicate the presence of idle funds and too low ratio may indicate the over trading or under capitalization. Traditionally a current ratio of 2:1 is considered to be a satisfactory ratio.

QUICK RATIO:

Meaning: This ratio establishes the relationship between quick assets and current liabilities.

Objective: The objective of computing this ratio is to measure the ability of the firm to meet its short term obligation as and when due to without relying upon the realization of stock.

Components: * Quick Assets: This means those current assets which can be converted into cash immediately or at a short notice without a loss of value. * Current Liabilities.

Computation: This ratio is computed by dividing the quick assets by current liabilities. Generally 1:1 is considered ideal for a concern.

Significance: It indicates the amount of current assets available for each current liability.

Meaning: This ratio establishes the relationship between absolute liquid assets and current liabilities.

Objective: The objective of computing this ratio is to measure the ability of the firm to meet its expenditure with the balances left over.

Components: * * Absolute quick Assets (cash in hand, cash at bank, short term investment). Current Liabilities.

Computation: This ratio is computed by dividing the absolute quick assets by the current liabilities.

Significance: This cash ratio of magnitude up to 1:2 may be satisfactory firm needs to maintain too much of high super liquid assets. If the super liquid assets are too much in relation to the current liabilities then it may affect the probability of the firm, as these super liquid assets are the most unproductive assets of all.

LEVERAGE RATIOS:

Financial position of the firm can be studied in 2 ways, via the short term financial position and long term financial position. The short term financial position refers to the liquidity of the firm, and can be calculated with the help of the liquidity ratios. The financial positions and the leverage ratios lay emphasis on the long term financial positions. These ratios are also known as long term solvency ratios or capital gearing ratios. These ratios judge the financial soundness of the firm in term of its ability to pay interest regularly as well as make payments of the principal either in one lump sum or installments. Leverage ratios measures contribution of financing by owners compared with the financing provided by the firms creditors. Generally there should be an appropriate mix of debt and owners equity in financing firms assets. Debts is more risky from the firms point of view as it has a legal obligations to pay interest to debt holders and a highly debt burdened firm will find difficulty in rising funds from creditors and owners future. But debt is advantageous to owners, as they can retain control of the firm with a limited stake and there earnings will be magnified with the overall rate of return of the firm is higher than the

firms overall rate of return, the earnings if equity shareholders will be reduced and there is a threat of insolvency.

There are three types of ratio: 1. 2. 3. Debt-Equity Ratio Debt-Assets Ratio Interest Coverage ratio

Meaning: This ratio establishes the relationship between long term debts and shareholders fund.

Objective: The objective of computing this ratio is to measures the relative proportion of debt and equity in financing the assets of a firm.

Components: Long term Debts which mean long term, whether secured or unsecured. Ex: Debentures, bonds, loans from financial institution.

Computation: * This ratio is computed by dividing the long term debts by shareholders fund. This ratio is usually expressed as a proportion of 2:1.

Significance: It indicates the margin of safety to long term creditors. A low debt equity ratio implies the use of more equity than debts which means a larger safety margin for creditors since owners equity is treated as a margin of safety by creditors and vice versa. DEBIT ASSETS RATIO:

Meaning: This ratio establishes the relationship between long term debts and total assets.

Objective: The objective of computing this ratio is to measures the relative proportion of debt and total assets of a firm.

Components: * Long term debts mean long term loans whether secured or unsecured. Ex. Debentures, bonds, loans, from financial institutions. * Total Assets.

Computation: This ratio is computed by dividing the long term debts by total assets.

Meaning: This ratio establishes the relationship between Earnings before interest and tax.

Objective: The objective of computing this ratio it measure how many times a firm could pay its interest expenses.

Significance: Interest coverage ratio measures the ability of the firm, protects the interest of long term creditors. It is often stated in order to ensure an adequate proportion to the term creditors. This ratio should be 2 times or more.

TURNOVER RATIOS:

Funds of creditor and owners are invested in various assets to generate sales and profits. The efficiency with which assets are managed directly affects the volume of sales. Turnover ratios 7

are employed to evaluate to evaluate the efficiency with which the firm manages and utilizes its resources & assets. That ratios are so called turnover ratios because they indicate the speed with which assets are being converted turn over into sales. Activity ratios thus, involve a relationship between sales and assets generally reflect that assets are managed well. Several activity ratios can be calculated to judge effectiveness of assets utilization.

There are five types of ratios: 1. 2. 3. 4. 5. Fixed Asset Turnover Ratio Working Capital Turnover Ratio. Total Assets Turnover Ratio. Inventory Turnover Ratio. Debtors Turnover Ratio.

Meaning: This ratio establishes the relationship between net sales and fixed assets.

Objective: The objective of computing this ratio is to determine the efficiency with which the fixed assets are utilized.

Components: * * Net sales (gross sales-sales returns) Net fixed assets (fixed asset-depreciation)

Computation: This ratio is computed by dividing the net sales by the net fixed assets. This ratio is usually expressed as X no of times. Significance: It indicates the firms abilities to generate sales per rupee of investment in fixed asset. In general higher the ratio indicates efficient management & utilization of fixed assets and vice versa.

Meaning: This ratio establishes the relationship between net sales and working capital.

Objective: The objective of computing this ratio is to determine the efficiency with which the working capitals are utilized.

Components: * * Net sales (gross sales-sales returns) Working capital (current assets current liabilities)

Computation: This ratio is computed by dividing the net sales by the net working capital. Significance: It indicates the firms abilities to generate sales per rupee of investment in working capital. In general higher the ratio indicates efficient utilization of working capital and vice versa.

Meaning: This ratio establishes the relationship between net sales and total assets.

Objective: The objective of computing this ratio is to determine the efficiency with which the total assets are utilized.

Computation: This ratio is computed by dividing the net sales by the net total assets.

Significance: A higher ratio is an indicator of over trading of total assets while a low reveals idle capacity.

Meaning: This ratio establishes the relationship between cost of goods sold or sales and average inventory.

Objective: The objective of computing this ratio is to determine the efficiency with which a firm is able to manage its inventory.

Components: * * Sales or cost of goods sold (COGS). Average inventory (average of opening and closing balance of inventory).

Computation: This ratio is computed by dividing the sales or COGS by average inventory.

Significance: A higher inventory turnover ratio indicates good inventory management. But this ratio should be analyze careful, as it may be an indication of flow level of inventory or under investment in inventory, which results in frequent stock outs. Similarly, a low inventory includes dangerous to management. Its signifies excessive inventory or over investment in term resulting excessive inventory carrying costs. DEBETORS TURNOVER RATIO:

Meaning: This ratio establishes the relationship between net credit sales and average debtors.

Objective: The objective of computing this ratio is to convert debtors of receivables into cash over a short period.

10

Components: * * Net Credit sales. Average Debtors (average of opening and closing balance of debtors).

Computation: This ratio is computed by dividing the net credit sales by average debtors.

Significance: It indicates the number of times on the average that the debtors turnover each year generally the higher the debtors turnover ratio the more efficient is the management of current Assets.

PROFITABILITY RATIOS:

Profitability Ratios are of utmost importance for a concern. These ratios are calculated to enlighten the end results of business activities, which is the sole criterion of the overall efficiency of the business concern. The following are the important profitability Ratios.

There are four types of Ratios: 1. 2. 3. 4. Net Profit Ratio Return on Equity Return on Investments Return on Total Assets

Meaning: This ratio measures the relationship between net profit and net sales

Objective: The main objective of computing this ratio is to determine the overall profitability due to various factors such as operational efficiency, trading on equity etc.

Computation: This ratio is computed by dividing the net profit by net sales. It is expressed as percentage.

Significance: This ratio indicates on an average net margin earned on sale of Rs. 100/-. Higher the ratio greater is the capacity of the firm to withstand adverse economic condition and vice versa.

RETURN ON EQUITY:

Meaning: This ratio establishes the relationship between net profit after tax and net worth.

Objective: One of the most important profitability metrics on equity. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. Its what the shareholders own. Shareholder equity is a creation of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners.

Computation: This ratio is computed by dividing the net profit after tax by Net worth.

Significance: A business that has a high return on equity is more likely to be one that is capable of generating cash internally. For the most part, the higher a companys return on equity compared to its net worth, that better for company.

Meaning: This ratio establishes the relationship between net profit before interest and tax and capital Employed. 12

Objective: The main objective of computing this ratio is to find out how efficiently the long term funds supplied by the creditors and share holders have been used.

Components: * * Net profit before interest and tax Capital Employed (it comprises long term debts and shareholders funds)

Computation: This ratio is computed by dividing the net profit before interest and tax by capital employed. It is expressed as percentage. Significance: This ratio indicates the firms ability to generate profit per rupee of capital employed. Higher the ratio, more efficient utilization of capital.

Meaning: This ratio measures the relationship between net profit before interest and tax and total assets.

Objective: The main objective of computing this ratio is to find out how efficiently the total assets have been used by the management.

Components: * * Net profit before interest and tax. Total assets (excluding fictitious assets ex: preliminary expenses).

Computation: This ratio is computed by dividing the net profit before interest and tax by total assets. It is expressed as percentage. Significance: This ratio indicates the firms ability to generate profit per rupee of total assets. Higher ratio indicates the more efficient utilization of total assets.

13

Objectives of the Study: To study and understand the concept of financial statements. To know the financial position of the company by using ratio analysis techniques. To find out the debt position of company.

14

Company Profile

Background / Organizational details

Kerala Ayurveda Limited (KAL) was founded on the banks of river Periyar at Aluva, Kochi, and Kerala, India in 1945 by Late Vaidyan K G K Panicker, the renowned Ayurvedacharya, visionary and a mentor, a doyen in Ayurvedic system. Now, more than half a century later, Late Vaidyan K G K Panicker inspired creation epitomizes all that is modern and state-of-the-art in Ayurveda. A leading Ayurvedic company today, KAL is backed by advanced technology and highly qualified dedicated staff.

KAL - Envisioning a Healthier Tomorrow Ayurveda - India's contribution to mankind in its quest towards human longevity and well being has been developed through millennia of medical practice and theory by several generations of physician-saints and practitioners.

Today Kerala Ayurveda Limited is a major force in health care, growing at a spectacular rate with new clinics, new market strategies, new products, and new cures. Some of KAL's products are on the verge of being patented. KAL is truly on a mission to be the number one choice in Ayurveda globally.

BUSINESS REVIEW The financial year 2009-10, under review was a remarkable year for company in terms of business development as it has opened new franchise wellness centres at Goa, Bangalore (R T Nagar) & Jammu and restructured its business model by creating partnership with Doctors in India and USA. Company has also rationalized organization system to improve productivity and reduce the overheads and these efforts contributed significant reduction of 24% in overheads during the year. The companys non-productive assets located at Poolani, Kerala and Puttaparthy were disposed off in order to channelize the funds required for the business and the term loans were fully repaid during the year and thus substantial savings in interest cost was achieved. Company has invested behind establishing purity of the ingredient supply chain, which ensures standardization, product integrity and consistency. KAL has invested during the year 15

aggressively on research, aimed at establishing scientific validation for proprietary Ayurvedic formulations and plan to continue the investments on research in FY 2010-11. The research consultancy income has improved from Rs. 12,200,000 to Rs. 45,800,000, showing an increase of Rs. 33,600,000.

PERFORMANCE OF SUBSIDIARIES Indian Subsidiary During the year 2009-10, under review, M/s. AyurvedaGram Heritage Wellness Centre Pvt. Ltd. has achieved a turnover of Rs. 36,600,000 against a turnover of Rs. 34,500,000 in the previous financial year. The Net profit of the company, after providing for tax has increased substantially to Rs. 4,627,000 from Rs. 630,000 in the previous year, mainly due to cost control measures, despite the global meltdown and travel advisory warnings issued by western countries including USA.

Overseas Subsidiaries The combined turnover of overseas subsidiaries was Rs. 98,485,000 as compared to Rs. 242,667,000 in the previous year, registering a downslide of 59% during the year. Operations of the US Ayurvedic subsidiaries namely Ayurvedic Academy Inc, Ayurvedic Natural Medicine Clinic PS and Ayurvedic Inc, have stabilized after restructuring and has shown improvement by reducing the losses considerably. The nursing business under CMS Katra Nursing LLC was severely impacted due to visa retrogression and consequently nurse domestic staffing business was temporarily suspended since unviable.

16

Literature Review

This paper describes the benefits and shortcomings of using financial ratios and financial statement analysis to evaluate a company's performance and financial position, while thoroughly investigating the factors that impact the meaningfulness of these measures. The factors taken under consideration are both internal and external to the company's direct environments and evaluate the consequences of such factors from different perspectives. Additionally, the paper explores the business practices and techniques developed as a consequence of applying financial ratios and financial statement analysis using information from the business environment over the last thirty years. The paper serves as an informative summary for any individual that is not a financial or accounting specialist and desires to become familiar with such techniques and potentially use the information later on for investment purposes. (Bitran Ricardo, 1992).

This paper provides a critical review of the theoretical and empirical basis of four central areas of financial ratio analysis. The research areas reviewed are the functional form of the financial ratios, distributional characteristics of financial ratios, classification of financial ratios, and the estimation of the internal rate of return from financial statements. It is observed that it is typical of financial ratio analysis research that there are several unexpectedly distinct lines with research traditions of their own. A common feature of all the areas of financial ratio analysis research seems to be that while significant regularities can be observed, they are not necessarily stable across the different ratios, industries, and time periods. This leaves much space for the development of a more robust theoretical basis and for further empirical research. (Timo Salmi and Teppo Martikainen, 1994).

A systematic analysis of securities for investment is important for making sound investment decisions. The objective of the study is to examine the factors influencing the price-earnings ratio(P/E) of Indian equity shares. The study considers a sample of 105 listed companies chosen on the basis of availability of data. The empirical results indicate that variability in the market price and dividend payout ratio are the most important determinants of P/E ratio. Industry-class and ownership pattern classifications do not appear to be related to P/E ratio. The result holds

17

that industry is not the determinant of P/E ratio in private corporate sector in India. (Tuli Nishi and Mittal R.K., 2001).

In this article, the writer analyses, compares and contrasts the financial performance and position of John Lewis Plc, and Marks & Spencer Plc, mainly through the process of the ratio analysis of the financial statements of the two companies. The writer provides a brief introduction of the two companies under discussion, such as their background information, similarities and differences and their core business. The writer deals with calculations of important financial ratios of the two companies and then analyses these figures. The writer compares and discusses the ratios in detail, discussing possible causes of changes and fluctuations and coming to various conclusions about the performance of the two companies. In addition, the writer looks at certain limitations of the exercise of ratio analysis, emphasising the fact, that even though ratio analysis is a great means of understanding the financial position of a company better, there are still many other factors which can impact those numbers but are difficult to quantify. The writer concludes by highlighting the main findings of the report and presenting a personal opinion on the attractiveness of two companies from an investor's viewpoint. (Harwood Henrick J., 2002).

A review of published research in the field of accounting and finance reveals that the use of ratio calculations with multivariate analysis for predicting the performance of business firms is common. However, much of this research uses large database information without determining if sample assumptions needed, can be met for reliable conclusions to be drawn by the researchers. This paper presents recommended adjustment techniques for researchers using large databases for ratio calculation to allow for confidence that the results of analysis will be meaningful and that inferences may be drawn from the data. Using a sample from the Kauffman Canter for Entrepreneurial Leadership Financial Statement Database, Balance Sheet and Income Statement data of 250 firms is used to illustrate and explain techniques for data error identification, handling the problem of denominators being negative or approaching zero when calculating ratios, and effective techniques for transforming the data to achieve approximation of normal distributions. The application of these recommendations will allow researchers to use financial statement data samples that will meet required characteristics for the use of valid multivariate statistical analysis. (Nenide Boris et al., 2002). 18

In this paper, presenter demonstrates the use of actual financial data for financial ratio analysis. Presenter constructs a financial and industry analysis for Motorola Corporation. The objective is to show students exactly how to compute ratios for an actual company. This paper demonstrates the difficulties in applying the principles of financial ratio analysis when the data are not homogeneous as is the case in textbook examples. Presenter uses Motorola as an example because the firm has several segments, two of which account for the majority of sales and represent two industries (semi-conductor and communications) that have different

characteristics. The case illustrates the complexity of financial analysis. (Collier H. Et al., 2004)

This paper explains that Ratio Analysis is an early warning indicator that enables the business owner and manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. The author relates that Ratio Analysis is done by comparing the specific company's ratios with the average of similar businesses and comparing the business's own ratios for several successive years, watching especially for any unfavorable trends that may be starting. The paper states that the current ratio measures the ability of the firm to pay is current bills, while still allowing for a safety margin above the required amount needed to pay current obligations. (Rabianski and Gibler, 2008).

There are both supportive and conflicting empirical results in literature as to why the P/E ratios vary among different firms. Weaver and Morse (1978) are among the earlier researchers who examined the behavior of price-earnings ratios over time and evaluated the influence of earnings, growth, and risk on the P/E ratio across the equity market. Among their conclusion were that much of the effect of the factors that determine P/E ratios diminish over the long run. The correlation between earnings growth with the P/E ratio was negative in 16 out of 19 years of study. (Dublish Puneet, 2010).

19

RESEARCH METHODOLOGY:

Research Methodology is a way to systematically solve the research problems. It may be understood a science of studying how research is done scientifically. In it researcher study the various steps that are generally adopted by a researcher, in studying research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods/techniques but also the methodology. A research design is simply a plan for the study in collecting and analyzing the data. It helps the researcher to conduct the study. The research process will clearly define to meet the objective of the study. The research process shall include the following steps of the research process:

Defining the problem Statement of research objective Planning the research design. Planning the sample. Collection of data. Analysis the data. Formulation of conclusion.

AIM: This research work aims at to know the financial position of Kerala Ayurveda Ltd for the study period from 2008-09 to2009-10 by using Ratio analysis tools.

Type of research The research study comes under the analytical research. Objective is to gather preliminary information that will help defining problem and to clarify and define the nature of a problem. To study and understand the concept of financial statements. To know the financial position of the company by using ratio analysis techniques. To find out the debt position of company.

20

1. Primary data: - The primary data which are being collected by the researcher for the specific purpose of answering the problem on hand. Primary data have been collected from interview, questionnaire and survey.

1. Secondary data: - Secondary data means data that are already available i.e., the data which have already been collected and analysed by someone else. Data may either be published data or unpublished data. Usually published data are available in: technical and trade journals; books, magazines and newspapers; reports prepared by research like scholars, universities, economists, etc. in different fields.secondary data have been collected from AMFI website, companies website, referring different journal.

21

DATA ANALYSIS: The process of evaluating data using analytical and logical

reasoning to examine each component of the data provided. This form of analysis is just one of the many steps that must be completed when conducting a research experiment. Data from various sources is gathered, reviewed, and then analyzed to form some sort of finding or conclusion. The researcher has been used the following ratios for analysis and interpretation: 1. Current Ratio 2. Quick Ratio 3. Absolute Liquidity Ratio 4. Debt Equity Ratio 5. Fixed Asset Turnover Ratio 6. Total Asset Turnover Ratio 7. Net Profit Ratio 8. Return On Equity Ratio 9. Return On Capital Employed Ratio 10. Return On Total Assets Ratio

22

LIQUIDITY RATIOS:

CURRENT RATIO:

Table No. 1. (Amount in Rs.) Year 2008-09 2009-10 Current assets 196,684,348 189,413,792 Current liabilities 46,317,908 102,186,231 Ratio 4.246 1.854

INTERPRETATION: From the above Table No. 1, shows the position of current ratio of company, is 4.126:1 in year 2008-09 and 1.85:1 in 2009-10. Hence the companys position in year 2008-2009 was strong as compared to 2009-2010.

23

QUICK RATIO:

Table No. 2 (Amount in Rs.) Years 2008-09 2009-10 Quick assets 57,798,710 55,542,254 Current Liabilities 25,228,027 21,823,759 Ratio 2.291 2.545

2.6 2.55 2.5 2.45 2.4 2.35 2.3 2.25 2.2 2.15 year 2008-2009 2009-2010

INTERPRETATION: From the above Table No. 2, shows the position of quick ratio of company, is 2.291 in year 2008-09 and 2.545 in 2009-10. A large amount of funds was locked in quick assets where the company is not generating any revenue or return on those assets. Hence the companys position in year 2009-2010 was strong as compared to 2008-2009.

24

Table No. 3 (Amount in Rs.) Year 2008-09 2009-10 Absolute Liquid Assets 4,414,407 6,771,749 Current liabilities 46,317,908 102,186,231 Ratios 0.095 0.066

0.1 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 year 2008-2009 2009-2010

INTERPRETATION: From the above Table No. 3, shows the position of absolute liquid ratio of company, is 0.095 in year 2008-09 and 0.066 in 2009-10. Company was not maintaining cash balance in relation with current assets. Hence the companys position is not good in 2009-2010.

25

Table No. 4 (Amount in Rs.) Year 2008-09 2009-10 Debt 53,384,303 48,770,505 Equity 105,556,700 105,556,700 Ratio 0.506 0.462

0.51 0.5 0.49 0.48 2008-2009 0.47 0.46 0.45 0.44 year 2009-2010

INTERPRETATION: From the above Table No. 4, shows the position of debt equity ratio of company, is 0.506 in year 2008-09 and 0.462 in 2009-10. Reduction in the ratio arises because of decrease in the debt of company as compared to last year. Hence the companys position in year 2008-2009 was sound as compared to 2009-2010.

26

TURNOVER RATIOS: FIXED ASSETS TURNOVER RATIO Formula: Fixed Asset Turnover Ratio = (Net sales Net fixed assets) Table No. 5 (Amount in Rs.) Year 2008-09 2009-10 Net Sales 189,883,045 210,633,585 Average fixed Assets 162,222,695 188,610,795 Ratio 1.171 1.117

1.18 1.17 1.16 1.15 1.14 1.13 1.12 1.11 1.1 1.09 year 2008-2009 2009-2010

Interpretation: From the above Table No. 5, shows the position of fixed assets turnover ratio of company, is 1.171 in year 2008-09 and 1.117 in 2009-10. The fixed asset has not been utilized for the extension of capacity. Hence the companys position in year 2009-2010 was not good as compared to 2008-2009.

27

Table No. 6 (Amount in Rs.) Year 2008 09 2009 10 Net Sales 189,883,045 210,633,585 Total Assets 405,224,951 480,210,818 Ratios 0.469 0.439

0.475 0.47 0.465 0.46 0.455 0.45 0.445 0.44 0.435 0.43 0.425 year 2008-2009 2009-2010

INTERPRETATION: From the above Table No. 6, shows the position of total asset turnover ratio of company, is 0.469 in 2008-09 and 0.349 in 2009-10. The performance and utilization of fixed assets towards sales is not good in current year. Hence the companys position in year 2008-2009 was strong as compared to 2009-2010.

28

PROFITABILITY RATIOS:

Table No. 7 (Amount in Rs.) Year 2008-09 2009-10 Net Profit 199,528,979 215,284,949 Net Sales 189,883,045 210,633,585 Ratio 105.1% 102.2%

INTERPRETATION: From the above Table No. 7, shows the position of Net profit of company, is 105.1% in year 2008-09 and 102.2% in 2009-10. Hence the companys position in year 2009-2010 was not sound as compared to 2008-2009.

29

RETURN ON EQUITY:

Table No. 8 (Amount in Rs.) Year 2008-09 2009-10 Net P.A.T. 199,528,979 215,284,949 Shareholders fund 226,413,049 226,413,049 Ratios 0.881 0.951

0.96 0.94 0.92 0.9 0.88 0.86 0.84 year 2008-2009 2009-2010

INTERPRETATION: From the above Table No. 8, shows the position of Return on equity ratio of company, is 0.881 in year 2008-09 and 0.951 in 2009-10. Hence the companys position in year 2009-2010 was strong as compared to 2008-2009.

30

Formula: Return on capital employed = (Net profit BIT Capital employed) * 100

Table No. 9 (Amount in Rs.) Year 2008-09 2009-10 P.B.I.T. 209,565,384 223,390,300 Capital Employed 638,129,749 673,459,200 Ratios 32.8% 33.2%

0.333 0.332 0.331 0.33 0.329 0.328 0.327 0.326 year 2008-2009 2009-2010

Interpretation: From the above Table No. 9, shows the position of Return on capital employed ratio of company, is 32.8% in year 2008-09 and 33.2% in 2009-10. The return on capital employed is increased, which is good for the company. Hence the companys position in year 2009-2010 was strong as compared to 2008-2009.

31

Formula: Return on total assets = (Net profit before interest and tax Total assets) Table No. 10 (Amount in Rs.) Year 2008 09 2009 10 Net Profit 209,565,384 223,390,300 Average Total Assets 405,224,951 480,210,818 Ratios 0.517 0.465

0.5 0.49 0.48 0.47 0.46 0.45 0.44 0.43 0.42 year 2008-2009 2009-2010

INTERPRETATION: From the above Table No. 10, shows the position of Return on total asset ratio of company, is 0.492 in 2008-09 and 0.448 in 2009-10. Hence the companys position in year 2009-2010 was not good as compared to 2008-2009.

32

CONCLUSION: The following are the conclusion found from the study: In 2008-09 current ratio was 4.126:1 and in 2009-10 was 1.85:1 here decrease in the current ratio because of decrease in current asset and increase in current liabilities. Ratio in 2009-10 is not up to the bench mark which means that company has not efficient working capital.

Quick ratio of 1:1 is considered satisfactory here in 2008-09 was 2.29:1 and in 2009-10 was 2.54:1 ratio is above the conventional rule which shows unsoundness of the concern.

The large amount of funds was locked in quick assets where the company is not generating any revenue or return on those assets, in effect the profit abilities of the company is affected with the excess of quick assets over their current liabilities.

As a conventional rule the ratio should be 0.15:1. In 2008-09 the absolute liquid ratio of company is 0.095 and in year 2009-10 ratio was 0.066 which indicates the firms Absolute liquid ratio were not satisfactory. Company was not maintaining cash balance in relation with current assets of company.

The firm can raise loan or debenture here in 2008-09 the debt equity ratio was 0.506 and in year 2009-2010 was 0.462. Decrease in the ratio occurs because of decrease in the debt of company as compared to last year.

A high fixed assets turnover ratio indicates an efficient utilization of fixed assets and greater operating efficient and profitability.

The total asset turnover ratio of company in year 2008-09 was 0.469 and in year 2009-2010 was 0.349. Total asset of company are increase from Rs. 405,224,951 to Rs. 480,210,818. This shows that the total asset turnover ratio of company decrease as compared to last year. The performance and utilization of total assets towards sales is not good in current year.

33

Net profit has been increased in 2009-10 of Rs. 251,284,949 from Rs. 199,528,979 in 2008-09. But ratios are decrease from 105.1% to 102.2% It means company have to increase the net sales compared to net profit, which results in growth of company.

Return on equity ratio is in positive figure i.e. in 2008 2009 was 0.881 and in 2009-2010 was 0.951, which represents that firm is able to provide return to its shareholders.

Return on capital employed ratio indicates the profitability of the company. The ratio was 32.8% in 2008-09 and in 2009-10 it was 33.2% i.e. the return on capital employed is increased, which is good for the companys financial position.

The net profit and total assets of company are decreased as compared to last year. The return on total assets ratio was 0.492 in 2008-09 and decreased to 0.448 in 2009-10. It indicates that, as compared to total assets of company the net profit is not increased. So company has to maintain the optimum level of asset for the good financial condition of company.

34

Suggestions:

The following are the suggestions to overcome the problems faced by the organizations:

The company has to minimize the current liabilities to maintain the liquidity position. Company has to adopt strategic efforts to decrease the quick ratio up to 1.249:1. Company should maintain optimum cash balance to maintain liquidity position. Company can raise their finance relates with equity i.e. up to 1:1 debt equity ratio, for the growth of company. Company can adopt special strategy to utilize the total assets to increase the sales. Company maintains the optimum level of asset for the good financial condition of company.

Company should collect the capital from internal source than external source by giving the few less dividends to shareholder. Company can invest the capital from where they will get maximum profit.

35

BIBILOGRAPHY Bitran Ricardo, Ratios in the cross-section analysis of financial statements", Journal of Business Finance and Accounting, Jan.1992, Vol. No. 13, Issue No. 4, pp. 627-635 Collier H. W., Grai T., Haslitt S. And McGowan C. B. An example of the use of financial ratio analysis: the case of Motorola, Accounting and Business Research, summer 2004, Vol. No.15, Issue No. 59, pp. 223-228. Dublish Puneet. Determinants of price earnings ratio for banking sector in India, Vignana Jyoti Journal of Management, January-June 2010, vol. I, Issue. II, Pp. 1-5. Gupta S. K. and Sharma R. K. Ratio analysis, Financial Management, Kalyani Publishers, 5th Edition, 2006, pp 8.1 - 8.161 Harwood Henrick J. Factor affecting price-earnings ratios and market value of firm, Financial Analysts Journal, winter 2002, Vol. No. 10, issue No. 2, pp. 68-79. Khan M. Y. and Jain P.K., Ratio analysis Financial Management, Tata McGraw-Hill Publishing Company Ltd., 4th Edition, 2006, pp. 7.1 - 7.73. Kulkarni P. V., Ratio analysis, Financial Management, Himalaya Publishing House, 9th Edition, 1999, pp 263 - 303. Maheshwari S. N., Ratio analysis, Financial Management, Sultan Chand & Sons Ltd., 9th Edition, 2004, pp. B.25 - B.107. Nenide Boris, Pricer Robert W., Camp Michael S. The use of Financial Ratios for Research: Problems Associated with and Recommendations for Using Large Databases. Journal of Business Finance and Accounting, Oct.-Dec. 2002, Vol. No. 11, Issue No. 1, pp. 89-97. Pandey I. M., Ratio analysis, Financial Management, Vikas Publishing House Pvt. Ltd., 7th Edition, 1996, pp. 103 - 177. Rabianski Joseph S. and Gibler Karen M."The functional specification of financial ratios: an empirical examination, March 2008, Journal of Economic and Social Measurement, Vol. No. 16, Issue No. 3, pp.149-166. Salmi T. and T. Martikainen, "A review of the theoretical and empirical basis of financial ratio analysis", Financial Journal of Business Economics, March 1994, Vol. No.43, Issue No. 4, pp. 426-448. 36

Tuli Nishi and Mittal R.K. Determinant of price-earnings ratio, Financial India, Dec. 2001, Vol. No. 15, Issue No. 4, pp.1234-1250.

WEBSITES: http://ro.uow.edu.au/commpapers (Accessed on December 15, 2010, 7:30:10 pm) http://www.lipas.uwasa.fi/ejre.html (Accessed on December 12, 2010, 11:43:20 am) http://www.ayurvedaonline.com (Accessed on August 09, 20 0, 09:45:10 am) http://www.keralaayurveda.biz (accessed on August 09, 20 0, 10:50:40 am) http://www.ayurvedaacadamy.com (Accessed on August 09, 20 0, 11:30:50 am) http://www.ayurvedagram.com (Accessed on August 09, 20 0, 12:10:20 pm)

37

ANNEXURE

BALANCE SHEET OF KERALA AYURVEDA LIMITED

PARTICULARS I. SOURCES OF FUNDS 1) Shareholders Funds Share Capital Warrant Application Money Share Warrant Application Money Forfeited Reserves and Surplus 2) Loan Funds Secured Loans Secured Loans Unsecured Loans Total Sources of Funds II. APPLICATION OF FUNDS 1) Fixed Assets Gross Block Less Depreciation Net Block Capital Work In Progress 2) Investments Differed Tax Assets 3) Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank balances Loans & Advances Total Application of Funds Less: Current Liabilities & Provisions Net Current Assets 4) Miscellaneous Expenditure (To the extent not Written off or adjusted) 5) Profit & Loss account Total 31.03.2010 (Rs.) 31.03.2009 (Rs.)

240,032,638 51,421,843 188,610,795 6,077,500 113,803,535 42,736,042 61,012,992 48,770,505 6,771,749 175,044,776 291,600,023 102,186,231 189,413,792 7,953,732

208,300,746 46,078,051 162,222,695 6,077,500 113,603,535 37,490,172 68,064,174 53,384,303 4,414,407 117,139,372 243,002,256 46,317,908 196,684,348 13,507,236

124,863,804 673,459,200

108,544,263 638,129,749

38

- Polaroid 1996 CalculationUploaded byPutri Amandhari
- Yamaha Motors India Pvt. Ltd. - Ratio AnalysisUploaded byKanika Virmani
- Financial AnalysisUploaded byRamachandran Mahendran
- Ratio Analysis by Zeeshan TufailUploaded byrahi4ever
- MBA Strategic Finance AssignmentUploaded byStephanie Stephens
- Ratio Analysis-III SemUploaded byRohithShettigar
- unitechUploaded byHardik Shah
- ARM Investor BriefingUploaded bybnjiinu
- FSA_EvenQUploaded by0302038
- Financial AnalysisUploaded bySimran Sethi
- Debt to Equity RatioUploaded bySHRI0588
- 3hr Paper 4feb 2010Uploaded byBhawna Bhardwaj
- Ratio Analysis1Uploaded bysweta_bajracharya
- Sari ProjectUploaded byRamesh Ankathi
- 4.Current Ratio(Sonali)Uploaded bybalki123
- Chapter 2Uploaded byHaniZahirahHalim
- Enil Financial DataUploaded byNiraj Kherajani
- Client Financials, Calculator, CLIENT REPORT CARDUploaded byNaresheranna
- Theoretical FrameworkUploaded bym_iham
- 7presentation Financial Analysis - AfmUploaded bySaloni Aggarwal
- Fairbairn - March 23 2017Uploaded byTiso Blackstar Group
- Basics Financial AccountingUploaded byHumair Ahmed
- Financial Peroformance of Transcom Electronics LtdUploaded bySharifMahmud
- Financial Statement and Ratio AnalysisUploaded byAsad Ali
- Fairbairn - October 18 2018Uploaded byTiso Blackstar Group
- case 2-2.xlsxUploaded byRumee Sethi
- Ratio Analysis 1.docxUploaded byHimasekhar Budha
- 5 Year Financial Summary - ConsolidatedUploaded byAnonymous bySKOT
- model 2 t.xlsxUploaded byVidhi Patel
- 609-HW-2Uploaded byjinharz

- Pharmacology 2 NotesUploaded byAnna Conigrave
- yohimbineUploaded byapi-312273200
- UNEMPLOYMENT AND UNEMPLOYMENT IN PAKISTANUploaded bystrongcrazysolid
- Can Blended Learning Be RedeemedUploaded byYiro A. Rankin Rodríguez
- Shariah Audit Issues of Islamic BankingUploaded byMd Ariful Islam
- Traveller Research Station GammaUploaded byGlycerine Johnson
- SME & Consumer Banking(1)Uploaded byarman_277276271
- CryptUploaded byOmegalpha5
- Fact Sheet q3 2016 FinalUploaded byphuongfeo
- (Experimental Futures) Kate Schechter-Illusions of a Future_ Psychoanalysis and the Biopolitics of Desire-Duke University Press Books (2014)Uploaded byJavier Andrés Castro Alfaro
- salesforce_creating_on_demand_apps.pdfUploaded byCecilio Gutierrez
- HAL project reportUploaded byVivekSingh
- External Cathodic Protection of Well Casing.Uploaded bym_michael_c
- ME5627_Assigment_Load Assessment & Distribution MethodsUploaded byArmando Rodríguez Cevallos
- LT SpiceUploaded byteran_11
- Industrial development bank of PakistanUploaded bySyeda Sani
- Horse Keeping: A guide to Land Management for Clean WaterUploaded byGreen Action Sustainable Technology Group
- Nikolai Medtner BiographyUploaded byjames
- Back Propagation Algorithm to Solve Ordinary Differential EquationsUploaded byIJRASETPublications
- ECTOPIC PREGNANCY.pptUploaded bytaufiq
- FLOW SWITCH FS10-C SERIES Installation InstructionsUploaded byWatts
- 4G LTEUploaded byBian Hardiyanto
- ASTM D 2973-71(R98) Standard Test Method for Total Nitrogen in Peat MaterialsUploaded byPablo Antonio Valcárcel Vargas
- Dual Booting Windows 8 OEM and Peppermint OS 3 _ Linux ExperimentsUploaded byricardox28
- RPiconfig - eLinuxUploaded bybluebird1969
- ALDEEKY - Experimental Study on the Utilization of Fine Steel Slag on Stabilizing High Plastic Subgrade SoilUploaded byLucas Bridi
- a89856 PLSQL ExceptUploaded byAman Khan Badal Khan
- Ricoh Pro8100 Detailed DescriptionUploaded byAcevedo Orlando
- gstI-9105Uploaded byaditgroup
- Ece Labmanual With VivaUploaded bysathwik

## Much more than documents.

Discover everything Scribd has to offer, including books and audiobooks from major publishers.

Cancel anytime.