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A STUDY ON

RATIO ANALYSIS
With reference to

REGENCY CERAMICS LIMITED


YANAM
Project report submitted to Andhra University, Visakhapatnam in partial
Fulfillment for the Award of the Degree in

MASTER OF BUSINESS ADMINISTRATION


Submitted by

G.SATYANARAYANA
(Regd.No. 20854100010)
Under the esteemed guidance of
K.BALA KRISHNA, MBA.
Faculty Member In M.B.A Department

DEPARTMENT OF MANAGEMENT STUDIES


ADITYA INSTITUTE OF P.G. STUDIES
(Affiliated to Andhra University)

SURAMPALEM, E.G.Dt.
2008-2010

ADITYA INSTITUTE OF P.G. STUDIES


DEPARTMENT OF BUSINESS MANAGEMENT
(APPROVED BY AICTE, AFFFILIATED TO AU & GOVT.OFA.P.)
SURAMPALEM-533437 E.G.Dt (A.P)

CERTIFICATE

This is to certify that project report entitled A STUDY OF RATIO ANALYSIS


with reference to REGENCY CERAMICS LIMITED,YANAM is a bona fide work done
by G.SATYANARAYANA with Regd. No.20854100010 under my guidance and
supervision during May to June 2009.

This project is submitted to ANDHRA

UNIVERSITY in partial fulfillment of the award of degree of MASTER OF BUSINESS


ADMINISTRATION.

PROJECT GUIDE:
Mr. K.BALA KRISHNA, M.B.A

HEAD OF THE DEPARTMENT


Mr. NAGENDRA KUMAR, M.B.A

DECLARATION

I am G.SATYANARAYANA is a student is 3rd semester declare that the


information in this report is genuine to the best of my knowledge and also it is not
submitted to any other university or institution for the award of any degree.

Any omission in data given above I am alone responsible for any act.

Place :

(G.SATYANARAYANA)

Date:

Regd. No. 20854100010

ACKNOWLEDGEMENT
I wish to thank Sri J.NAGENDRA KUMAR, HOD, ADITYA INSTITUTE
OF P.G. STUDIES for his valuable support in doing this project.

I am also

thankful to K.BALAKRISHANA, ADITYA for providing me the necessary guidance in


starting the project.
I express my deep sense of gratitude to Mr. S. Sudheer Kumar Sr. Manager
(pers&Admn) and Mr. O.R. Prasad Rao (pers&Admn) for his kind help and valuable
suggestions in preparing this project and also to office staff members.
I express my gratitude to the Chairman and Managing Director of Regency
Ceramics Ltd, Yanam and President (Operations) for giving me an opportunity and
facilities accorded for carrying out research work in their organisation. I also express my
gratitude to the personnel and administration Senior Manager Sri S.Sudheer Kumar and
Senior Finance Manager (F&A) Sri U.Rajeswara Rao for giving me valuable information
and I want to tell the special thanks to MIS Department.
I am grateful thank to Mr. N.M.V.Nagendra Kumar M.B.A HR trainee in
RCL for his valuable advices throughout the project

CONTENTS
CHAPTER-1

INTRODUCTION
OBJECTIVES OF STUDY
NEED FOR THE STUDY
METHODOLOGY

CHAPTER-II
INDUSTRY PROFILE

CHAPTER-III
COMPANY PROFILE

CHAPTER-IV
THEORETICAL FRAME WORK

CHAPTER-V
DATA ANALYSIS AND INTERPRETATIONS

CHAPTER-VI
FINDINGS
SUGGESTIONS
BIBLIOGRAPHY

CHAPTER I
INTRODUCTION

INTRODUCTION

Financial Management is that managerial activity


which is concerned with the planning and controlling of the firms
financial resources. Financial Management involves the application of
general

management

principles

to

particular

financial

operation.

Financial Management is that part of management, which is concerned


mainly with raising, funds in the most economic and suitable manner.
Financial Management provides best guide for future resource allocation
by

firm.

Financial

Management

implementation of a certain plan.

implies

the

designing

and

Plan aim at effective utilization of

funds. Financial Management is important because it has an impact on


all the activities of a firm. Its primary responsibility is to discharge the
finance function.
What is finance?

What are firms financial activities?

related to the firms other activities?

How are they

Firms create manufactory

capacities for production of goods. Some provide services to customers.


They sell their goods or services to earn profit.
acquire manufacturing and other facilities.
important activities of a business firm are:

Production

Marketing

Finance

They raise funds to

Thus, the three most

FINANCE FUNCTIONS:
It may be difficult to separate the finance functions from production,
marketing and other functions, but the functions can be readily
identified. The functions of raising funds, investing them in assets and
distributing returns earned from assets to shareholders are respectively
known as financing decision and dividend decision.
A firm attempts to balance cash inflows and outflows while performing
these functions. This is called liquidity decision and we may add it to
the list of important finance decision or functions.
The Finance Functions include Long term asset mix or investment
decision capital mix or financing decision, profit allocation or dividend
decision, short term asset mix or liquidity decision.

INVESTMENT DECISION:
A firms investment decisions involves capital expenditures. They are
therefore referred as capital budgeting decisions. A Capital Budgeting
decision involves the decision of allocation of capital or commitment of
funds to long-term assets that would yield benefits in future.

Two

important aspects of investment decision are:

The evolution of the prospective profitability of new instruments

and

The measurement of a cut-off rate against that the prospective

return of new investments could be compared.

FINANCING DECISION:
Financing decision is the second important function to be performed by
finance manager. Broadly he/she must decide when, where from and
how to acquire funds to meet the firms investment needs. The central
issue before him or her is to determine the appropriate proportion of
equity and debt.

The mix of Debt and Equity is known as the firms

capital structure.

DIVIDEND DECISION:
Dividend decision is the third major financial decision.

The finance

manager must decide whether the firm should distribute all profits or
retain them or distribute a portion and retain the balance.

The

proportion of profits distributed as dividends is called dividend payout


ratio and retained portion of profit is known pension ratio. Like the debt
policy, the dividend policy should be determined in terms of its impact
on the shareholders value. Actually dividends are paid in cash. But a
firm may issue bonus share. Bonus shares are issued to the existing
shareholders without any charge. The finance manager should consider
the questions of dividend stability, bonus shares and cash dividends in
practice.

LIQUIDITY DECISION:
Investment in current assets affects the firms profitabilitys liquidity,
Current assets management that affects firms liquidity is yet another

important finance functions.

Current assets should be managed

efficiently for safeguarding the firm against the risk of ill liquidity. Lack
of liquidity in extreme situations can load to the firms insolvency. A
conflict between profitability and liquidity while managing current
assets. If the firm does not invest sufficient funds in current assets, it
may become ill liquid and therefore risky. In the situation the finance
manager assets and make sure that funds would be made available
when needed.

GOALS OF FINANCIAL MANAGEMENT:


The objective of company is to maximize its value to its shareholders
value is represented by market price of the ordinary shares of the
company over the long run, which is reflection of the companys
investment and financing decisions. The long run means a period long
enough

so

that

normalized

market

price

can

be

workout.

Management can make the decision on the basis of day-to-day


fluctuation in order to make decision that will raise the market price of
the shares over the short run. Actually, a company may cut its research
and development expense significantly in order to increase current
earnings.

This action may result in an increase in market price per

share temporarily but future profits of the company are likely to suffer
without sufficient researches development and the result will be a drop
in market price in the long run.
The object of the company maximizing profits does not consider the risk
or uncertainty of prospective earnings stream. The objective of profit

maximization does not allow for the effect of dividend policy on the
market price of the share.

The Changing Scenario of Financial


Management in India:
Modern financial management has come along way from the traditional
corporate finance.

The finance manager is working in a challenging

environment, which changes continuously. As the economy is opening


up and global resources are being tapped, the opportunities available to
finance managers virtually have no limits.
At the same time he must understand the risks entailing all his decisions
very well.

Financial management is passing through an era of

experimentation and excitements as a large part of the finance


activities carried out today were unheard a few years ago.

A few

instances of the can be mentioned as:


1.

Interest rates have been freed from regulation.

Treasury

operations therefore have to be more sophisticated as the interest rates


are fluctuating.

Minimum cost of capital necessitates anticipating

interest movements.
2.

The rupee has become fully convertible on current account.

3.

Optimum debt equity mix is possible. The firms have to take the

advantage of the financial leverage to increase the shareholders wealth.


However

using

financial

leverage necessarily

makes

a business

vulnerable to financial risk. Finding a correct trade off between the risk
and the improved return to shareholders is a challenging task for a
finance manager.
4.

With free pricing of issues, the optimum price determination of

new issues is a daunting task as over pricing results in under


subscription and loss of investor.

OBJECTIVES OF THE STUDY

1. To assess the present profitability and operating efficiency of


the firm as a whole as well as for its different departments.
2. To find out the relative importance of different components of
the financial position of the firm.
3. To identify the reasons for change in the profitability/financial
position of the firm.
4. To assess the short term as well as the long-term liquidity
position of the firm.
5. To find out the financial stability of the firm.
6. To measure the extent to which the company has been
financed through borrowings.

7. To know how effectively the company is using its resources.

NEED FOR THE STUDY


Users of financial statements can get better insight about
financial strengths and weaknesses of the firm if they properly
analyze information reported in the statements.

The Ratio

analysis is the most common, comprehensive and powerful tool of


the AFS. It diagnoses the financial health of the organization. The
ratio analysis is the starting point for making plans, before using
any

sophisticated

forecasting

and

planning

procedures.

Understanding the past is a pre-requisite for anticipating the


future.
A Ratio is used as benchmark for evaluating the financial
position and performance of the firm.

The absolute accounting

figures reported in the financial statements do not provide a


meaningful understanding of the performance and financial
position of the firm. An accounting figure conveys meaning when
it is related to some other relevant information.

Ratios help to

summarize the large quantities of financial data and to make


qualitative judgment about the firms financial performance.

METHODOLOGY
The data used for preparing this report is collected from primary
and secondary sources.

PRIMARY DATA:
The Primary Data was collected on the basis of personal
observations, discussions and through interviews. I gathered data from
accounts department and MIS department of Regency Ceramics Ltd.,
Yanam.

SECONDARY DATA:
I mainly depended on secondary data i.e., published annual
financial statements of the company. I also collected data from kotaris
industry directory, journals, weekly magazines related to commerce and
industry and business news paper like economic times and business
line.

CHAPTER II
INDUSTRY PROFILE

HISTORY AND DEVELOPMENT OF CERAMIC


CULTURE
Ceramic Industry is one of the oldest legacies in the world.

It

dates back to human civilization. The legacy of ceramic industry can be


claimed to have come from ancient pottery industry.

The area of

pottery is a part of Indian culture and still practiced as tradition in Indian


sub continent.

But before Indians could claim as their own, the

developed countries gave a new dimension to this industry by


mechanizing and computerizing the production with a wide application.
Ceramics, which finds various applications in both industrial and
construction, had a significant presence in the construction sector. Ever
since India began economic planning after independence the trust for
Infrastructure has always been felt.

One of the basic needs for the

people, that is Shelter have always been deprived in India.

Since

liberalization in the eighties the raising levels in the Income and the
Government encouragement in inserting the Infrastructure and the
reduction in interest rates have a boom to housing standards.

The

increasing activity of real estate business and increasing in life style


have increased the business of ceramic tiles.
In India the industry was born in 1958 when H&R JOHNSON with
the collaboration of Johnson International (U.K) set up the first plant for
manufacturing wall tiles and then followed by SPL (formerly Somany
Millington) Spartan Ceramics entered in 1985 and the revolution is on
the anvil with the instruction of floor tiles for the first time in India.
With many advantages and wider range of colors than the
traditional mosaic tiles demand for floor tiles boomed. This encourage
the entry of many other players like Regency Ceramics, Khajaria
Ceramics,, Murudeswar Ceramics, Bell Ceramics etc., into the floor tiles
segments.
The government continued to low the excise duty on Ceramic tiles
from as high as 54% in 1994-1995 budget to 16% in 2001-2002 budget.
This is due to the fact that Ceramics tiles are viewed as luxury items in
the past. Since the excise duty comes down the price of ceramic tiles
have been cheaper. The luxury items of rich people have become the
necessity of middle-income people.

INDUSTRY CHARACTERISTICS:
1. Working Capital Intensive:
The raw materials have to be stored in advance. The clay has to
be stocked for at least four to six months as mixing is not possible

during rainy season and also could be heavier for transportation at that
time due to absorption. The costly glaze that are imported also have to
be stored for about four months.
Credit periods are also so long for the institution caters about 90
to 100 days as apposed to the 30 to 35 days for those serving in the
retail segment.

The industry being subject to varying tastes, tiles in

variety of sizes and colors have to be stocked.


The minimum being 20 to 25 designs. The entire mean that the
working capital cycle of about seven and half month of sales.
2. Capital Intensive:
With the minimum economic sizes having shot up from 12000 Mt
in 1985 to 85000 Mt investment of Rs.1.60 crores to set up the new
plant. The capital intensive nature can also be gagged from the fact the
asset turnover ratio is low 0.70. The capacity utilization should also be
as high as 75% break-even.
3. Power and Fuel Intensive:
These account for about 20% of the manufacturing cost. Wall tiles
consume more fuel, as they are double fired.

Generally Natural Gas,

LPG or Naphtha are used as fuel for firing the tiles. Cost wise Natural
Gas is lowest, followed by Naphtha and LPG. Currently players in north
and west like KHAJARIA and BELL are at an advantage as they asses to
Natural Gas of HBG pipeline. Regency Ceramics to have an advantage

of basing their plant near Godavari basin and have an access to tatipalli
gas pipeline.
4. Location near Markets:
As transportation over a long distance is costly and profit comes
from returns, nearness to the markets plays an important role in
profitability.

KHAJARIA and SPL dominate the north while H&R

JOHNSON, BELL and SPL rule the west; MURUDESWAR, REGENCY AND
SPARTEK share the south

5. Brand Image/Distribution Network:


Strong Brand Image is definitely an entry barrier. A large dealer
network not only helps in popularizing the brand, but also protects the
margins, as realizations are higher and faster in the retail segment.

PRODUCTION TECHNIQUES:
There are basically two techniques used. The newer single firing
and older double fast firing. A third double fast firing is also used less
frequently.
Generally double firing is batch processing and each batch takes
about 45 hours. Advantages are that the size and color variations are
minimum.

Strength is higher and the glass is good but the fuel

consumption is more leading to higher production cost.


further three methods in double firing.
They are:-

There are

1. Roller/roller
2. Tunnel/tunnel
3. Tunnel/roller
While the roller technology is for continuous production.

The tunnel

technology is for batch production. Single firing was introduced for the
first time in India for their floor tile manufacturing process.

Its fuel

consumption is also lower.


Floor tiles are usually manufactured by the single roller technique. Wall
tiles can also be produced by the same technology, but are generally
produced by the double firing technology. Roller technology is used in
bigger size tiles while the tunnel technology is for smaller size tiles.

SOCIO-ECONOMIC ENVIRONMENT AND


INDUSTRIAL SCENARIO:
The ceramic industry during the past few years was registering a
fare growth, despite the challenges it face from the unorganized sector
and cheap imports.

The advanced technology has seen a sustained

growth in installed capacity in this sector. The demand for tiles from
different countries has highlighted that the Indian Industry needs to
concentrate on quality on a large scale basis to match the international
standards.
Ceramic happens to be an energy intensive industry and fuel is an
important component that calls for urgent attention.

The unit has to

operate high-energy efficient furnaces with clean fuels having less

pollution emission to attain high quality and productivity.

India has

abundant qualitative raw materials required for making advanced


ceramic tiles and also cheap efficient manpower.

Its geographical

location is highly suitable for international trade.

But the major

deterrents are the high energy and distribution costs along with the
import of glazes and colorants and appropriate advanced technologies.
Now the Government has opened up the imports, there a threat off
other Asian countries dumping their products in India.

MARKET STRUCTURE:
Ceramic tiles are being manufactured both in large and smallscale sectors, with great variance in sizes, quality and standards. There
are about 25 units in organized sector. The unorganized sector is hold
60% of share in the total market. The organized sector caters to the
needs of various states; the unorganized sector caters to the needs of
only local markets.

The states, which are having these small scale

sectors, are Gujarat, Kerala etc.

INDIAN MARKET-INSTALLED CAPACITIES:


The major players in the ceramic tiles industry and their installed
capacities are given below:
Sl.No
1
2
3
4
5
6
7

Company Name
Bell Ceramics
H R Johnson
Kajaria Ceramics
SPL
Madusudan India
Oriental Ceramics
Spartek

Floor Tiles
40,000
1,00,000
80,000
45,000
--------60,000

Wall Tiles
55,000
95,000
50,000
42,000
25,000
50,000
------

8
9
10
11

EI Parry
NITCO
Murudeswar
Regency Ceramics

----1,20,000
25,000
90,000

24,000
2,40,000
25,000
------

5,60,000

6,06,000

Ltd
Total

CONSUMPTION PATTERN AND DEMAND:


In Indian the Ceramic industry is estimated of having a turnover of
Rs.1,500 crores and this is expected to reach Rs.3,000 crores by 2007.
In India the per capita consumption of ceramic tiles is only 0.05 Sq.Mts
compared to 0.25 Sq Mts in china and 2 Sq.Mts in European Countries.
The estimated growth of ceramic consumption is in the range of 25.3%
per annum, compounding. By 2007 the consumption is expected to rise
to 50 lakh MTPA. Though there are little in the growth rate, the overall
growth rate holds good.

More or less all players in the industry are

either having plans or implementing expansions.

The Consumption Pattern Region Wise in India is as


below:
ZONE

STATE COVERING

South
West

A.P, TAMILNADU, KARNATAKA & KERALA


MAHARASTRA,GUJARAT,GOA&MP

East
North

WEST BENGAL, ASSAM, BIHAR,UP,ORISSA


DELHI,PUNJAB,HARYANA,RAJASTHAN,JAMMU
& HIMACHAL PRADESH

KASHMIR

CONSUMPTION
SHARE
30%
45% Highly
Competitive Zone
10%
15%

COMPETITION FROM SUBSTITUTE:


In India, for flooring materials like mosaic, marble, granite and
ceramic tiles are used. When compared to marble and granite ceramic
tiles are much cheaper.

Then the cheapest alternative is mosaic

flooring, which is having 90% of the total market share. Mosaic tiles are
available at price range as of Rs.12-15 per Sq feet. The mosaic tiles are
not subject to any excise duty where as 16% excise duty is levied on
ceramic tiles. However the policy of the government is to reduce excise
duty on ceramic tiles to 10% as per Raja Celia committee report.
Already the excise duty on ceramic sanitary ware is reduce to 15%.
With the reduction of excise duty to the level of 10% and increase in the
capacities of various procedures, the ceramic tiles supply will increase
and the prices will come down making attractive to the consumer to go
in for ceramic tiles instead of Mosaic compared to mosaic tiles, laying of
ceramic floor tiles is much simply and less costly.

COMPETITORS MARKET SHARE:


Company
Murudeshwar
Kajaria
Regency
Spartek
H R Johnson
Somany
Bell
Others
Total

Market Share
16%
15%
13%
14%
10%
11%
11%
11%
100%

CYCLICAL TRENDS IN THE INDUSTRY:


Ceramic tiles industry is subjected only to moderate cyclically,
that too in terms of price fluctuations of both inputs and outputs.

GOVERNMENT CONTROLS AND REGULATORY FRAME


WORK:
The ceramic industry is not a pollution generating industry.
However, it is subject to clearance from pollution control board. There
are no specific controls and regulations to hamper the growth of
ceramic industry.

PRICE SENSITIVITY:
The market forces influence the prices of ceramic tiles. The prices
of ceramic tiles have fallen by about 20% in the last three years, as the
industry is facing price war and extended the credit period among major
players.

However this is only a temporary phenomenon and the

companies with their strength of lower cost of production are confident


of protecting their margins.

Industry Scenario and Future Prospects:


The growth in the industry is mainly on account of the
following:
a. Reduction in excise duty from 55% to 16%
b. The increased awareness among the Indian middle class of the
need for hygiene at the home and public places.

The industry is expected to grow at 25% due to the


following factors:
The expected further reduction in excise duty rates on ceramic tiles.

Increased trend of shift towards ceramic tiles from traditional mosaic


flooring. Substantial reduction in interest rates on housing finance.
Proposed amendment in the urban land (Ceiling and regulation) act,
1976 which would add to the housing stock of the country.
Shortage of 9.5 million houses in the urban segment and 23.5 million in
the rural segment.
Increase in replacement market in the middle class segment, where
they are going in for ceramic tiles for flooring and tiles in kitchen and
bathrooms not only up to 5/6 feet, but also up t the rooftop, with latest
designs and colors.
The middle class segment is replacing flooring and in case of new
construction going with ceramic tiles, in view of

Low gestation

Easy to lay the tiles

Vast range of designs and colors

Better properties in terms of hygiene, abrasion resistance, acid


resistance and scratch proof.

Export Market:
The ceramic tile production in the world is around three billion
Sq.Mts per year and the per capital ceramic tile consumption is also
showing an increased trend. There are many countries in the world,
which are depending on the other countries for their requirement of
ceramic tiles.

The major countries among them are gulf, U.S.A,

Australia and CIS Countries.

Though the competition is very severe among many exporting


countries including India, there lies the Vast market for ceramic tiles.
Even at the competitive price 20-30% of Indian production is being
exported.

As the domestic consumption is expanding the Indian

manufacturers are having a lukewarm approach towards exports.


However in the long run, due to increase in capacities and increase in
competition in domestic market, Indian manufacturers are going to
increase their export volumes.

CHAPTER III
COMPANY PROFILE

COMPANY PROFILE

HISTORY OF THE COMPANY:


Ever since the industry was de-license provided they setup their
units in backward areas. There had been a spate of registrations with
directorate, general of technical development following a boon in
housing activity. The hellion period in late eighties has pushed many
entrepreneurs to enter in to ceramic tile industry. Through ceramic tiles
are viewed as luxury items till recently by the Government there is
substantial increase demand thanks to the improved standard of living.
Not with standing the difficulties faced by the industry there is
scope for setting up units in Andhra Pradesh, Gujarat, Uttar Pradesh and
Tamilnadu. Andhra Pradesh particularly Godavari District, is ideal say a
senior officials of A.P.State Industrial Development Corporation which
has sanctioned term loans are participated in equity capital of many
units.

Regency Ceramics Limited is one of such industry established in


the year 1985 at Yanam (Integral part of Union Territory of Pondicherry)
on the Godavari River belt of East Godawari District of Andhra Pradesh.
The company has establish on 40 acres of land to manufacture
glazed and unglazed ceramic floor and wall tiles.
The Plant is constructed with technical collaboration of Welko
industry of Italy, with a initial capacity of 4,000 Sq.mtrs per day.
The initial investment was Rs.12 Crores.
The Plant commercial production was started in the year 1986
with a capacity of 4000 Sqm per day. The company took up expansions
in 1994 in order to meet the growing demand for the product in the
export and domestic market. 1994-4000 Sqm, 1999-6500 Sqm, 20002500 Sqm and 2001-11000 Sqm, 2003-18000.
The output for expansion was Rs.28 crores. Thus, the total plant
capacity is 46,000 Sqm/Day.
The market leader in the floor tile segement in the country,
Regency also has the unique distinction of recognized EXPORT HOUSE
status by the Government of India.

Regency export 25% of its

production to different countries.


Being highly quality conscious, Regency uses the best of raw
material to produce tiles conforming to the International Standards. For
its constant endeavour of maintaining quality, the company has
bestowed with the certification of ISO 9001, ISO 14001, OHSAS 18001,
for Quality Environmental and Safety Management respectively.

The companys products are exported to about 30 countries and


thus have established its brand name REGENCY in the world tiles
market.
The company earned a Foreigh Exchange of Rs.29.70 crores
during the year 2003-04 and about Rs.30.00 Crores during the year
2004-05. The company is contributing a sum of around Rs.50.00 crores
per annum to the exchequer by way of taxes and duties.
The increased demand and acceptability of Regency Ceramic Tiles
as further prompted the company to extent further production facility to
1 Lakh Sqm/Day in a phased manner with divorced products in wall and
porcelain tiles.
The plant started up as on 100% Export Oriented Unit and later
got the permission to service the Indian market as well.

Thus

substantial revenue is generated by way of sales tax, excise duty and


infrastructure facilities at Yanam.

The

Regency

group

has

the

companies:
Regma Ceramics Limited, Karaikal
Regency Transport Carriers Limited, Yanam
Regency Glazes Limited, Yanam
Regma Packaging Pvt. Ltd., Yanam
Regency Clay Products Ltd., Krapa, A.P
Regency Educational Society, Yanam
Reccy Clay Products Pvt.Ltd., Karaikal

following

integrated

Rubicon Packaging Pvt.Ltd., Karaikal.


Dr.Naidus profound concern over the poor and down trodden
women has driven him to establish Regma Packaging Pvt.Ltd., a
Corrugated Cartoon Boxes industry at Yanam distinctly for employing
the poor women, widows, destitute and helpless. These women have
managed this unit.

It is one of its kinds in the Union Territory of

Pondicherry.
Regency

through

its

group

industries

is

providing

direct

employment to 3000 people and about 5000 families are benefited


indirectly.

REGENY IN THE FIELD OF EDUCATION:


With a view to promote quality education, at Yanam, a place then
considered being the most backward; Regency Educational Society was
established by Regency Ceramics Limited in the year 1991.

The

following are the institutions that have been set up by Regency


Educational Society and running successfully.
1. Regency Public School
2. Regency Junior College
3. Regency Institute of Technology and Engineering College and
4. Regency College of Education
Regency Institute of Technology has been recognized to be an
institute

with

international

Standards.

Dr.G.N.Naidu

has

been

magnanimous enough to provide education at free of cost to the


children of his employees and at rates affordable to the people of

Yanam. These institutions have extinguished the craving desire of the


people of Yanam to have higher and technical education at their
doorsteps.

SOCIAL OBLIGATIONS:
Regency Medical Services a Mobile Medical Hospital with a
dedicated medical team and equipped with all sophisticated medical
facilities has been set up by Regency to cater to the medical needs of
the poor people of Yanam and its surrounding places.

It is a mobile

hospital on the wheels striving to attain its aim of providing modern


medical facilities to the poor people in and around Yanam absolutely at
free of cost. Regency is spending a sum of Rs.10 Lakhs per month for
running the mobile hospital.
Regency regularly organizes free polio, eye, ortho and ENT camps
as a part of its social obligation. It supplies drinking water to Yanam and
surrounding villages. It also supplies water to the drought prone areas
of Rajampet and Rayachoti in Cuddapah District of Andhra Pradesh.
The culmination of Dr.G.N.Naidus ideology to eradicate the ageold DOWRY SYSTEM at least in the precincts of Regency group had him
to invoke a rule in the standing orders of the company, prohibiting the
obnoxious practice of Dowry System in the entire Regency Group.
Dr.Naidus idea of providing employment to the person who weds a
women employee working in Regency without dowry is infact innovative
and though provoking.

HONORARY DOCTORATE DEGREE TO G.N.NAIDU:

Burkes University of U.K. has conferred on Dr.G.N.Naidu, the


chairman

and

Managing

Director

of

Regency

Ceramics

Limited,

Honorary Ph.D. in Business Management recognizing his remarkable


achievements by confronting challenges with focus, courage and
determination and commitment towards the social and charitable needs
of the world. This certificate was issued to him in the year 2003.

ORGANISATIONAL

SET

UP

IN

REGENCY

CERAMICS

LIMITED ADMINISTRATIVE OFFICE:


Administrative office plays an important role in smooth running of
the organisation.

In this office all executives are accountable to the

secretary. Administrative Building is situated at Nampally, Hyderabad.


Manager is the main administrative officer. He occupies top position in
the organisation. He has authority upon all officers.

DIFFERENT

DEPARTMENTS

IN

LIMITED
S.NO
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

DEPARTMENT NAME
Quality Control
Research & Development
Projects & Expansion
Civil & House Keeping
Safety & Environment
Vehicles
Vehicle Maintenance
Utilities
Polishing
Work Shop
Personnel & Administration
General Administration
Security
Regency Medical Services
Canteen

REGENCY

CERAMICS

16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

Finance & Excise


Materials/Purchase/Stores
Electronic Data Processing
Management Information System & Costing
Commercial & Despatch
Electrical & Instrumentation
Body Preparation
Press
Kiln
Glaze Line
Universal
Sorting
Glaze Mills
Horticulture
Transport

SIGNIFICANCE OF REGENCY CERAMICS


1. WELKO (Collaborators)
2. APIDC (Andhra Pradesh Industrial Development Corporation)
3. IDBI
4. ICICI
5. EXIM BANK

MAIN OBJECTIVE:
To produce the market quality tiles required for floor, wall &
Vitrified.

VISION:

To be among 10 companies in India.

Providing quality tiles

required for floors and walls by developing products and production


base keeping with Market needs and technology changes.

CORE VALUES:

Sense of belonging pride for the company

Integrity and fairness

Honesty and Mutual trus

Safety, quality and cost consciousness

Hard Work and Commitment

Social Responsibility

AWARDS AND CERTIFICATES BAGGED BY


REGENCY
1. 1987-88, 1988-89, 1989-90 Export recognition certificate by
CAPEXIL
2. July 1991 pride of India Gold Medal presented to M.D., by Indian
Ambassador to U.S.A.
3.

1994-95 Surana udyog silver rolling trophy by FAPCCI A.P

4. 1998-99 Export recognition certificate by CAPEXIL


5. 1998-99 samman award for best performance
6. 1999-00 Export recognition certificate by CAPEXIL

7. 2000-01 place in top 10 firms for highest export containers at


ICD by Cntainer Corporation of India - Hyderabad
8. 2001-02 out standing export performance award and status of
special export house.

PROCESS DESCRIPTION:
The process description is different from Floor tiles to wall tiles.

FLOOR TILES:
Raw materials such as Ball Clay, Feldspar and Black Clay are
weighted in proportion in batch quantities and transferred to Ball Mill
through a belt conveyor.

On the conveyor mantic separators are

provided to remove tramp iron particles. The raw materials are ground
in ball mill along with water to form slip.

The slip is transferred and

stored in storage tanks. From the storage tanks the slip is pumped in to
spray drier by high pressure pump in autopsied the sherry falls down. It
becomes dry granulate powder with 6% moisture content, the dried
powder is stores in silos. From the silos the powder transforms required
sizes.

The green tiles coming out of the presses are conveyed

automatically into fast dried by continuous feeding machine.

An

automatic feeding system transfers the tiles from drier to glaze lines
where different glazes and colorants are applied. Preparation of glazes
is carried out in wet mills with porcelain lining.
The tiles with the application of glazes and colorants are then
conveyed automatically in to the single layer fast firing kiln, where the

tiles are fired at above 1150 degree Celsius approximately. The fired
tiles coming out of the kiln are checked as per the quantity parameters.
Sorted out of different grades are packed in carton boxes. The carton
boxes are manually closed, strapped by strapping machine for exports
and placed on pallets.

The pallets are transferred to the finished

product godown.

CERAMIC TECHNOLOGIES FOR THE PRODUCTION


TILES:
1. CLASSIFICATION
a) Floor tiles
b) Wall tiles

A)Floor tiles

Porcelain tiles (water absorption <0.01%)

Glazed/Unglazed stoneware (water absorption <3%)

Glazed semi-stoneware (water absorption 3to6%)

B)Wall tiles

Monoporosa (water absorption 10 to 18%)

Fast doubt fired tiles (water absorption 10 to 18%)

The aforesaid classification divides tiles into the most important groups,
according to the enclosed UNI Table, which has introduced in 1984, this
method of classification by referring to water absorption (porosity) and
shaping (pressing or extrusion).

2. RAW MATERIALS FOR BODIES:


Clays, Plastic materials
They are characterized by a very fine particle size distribution, which
grant them the hygroscopic characteristics necessary to bind with the
water, by becoming plastic.
In fact, they are utilized in bodies, in substantial percentages, so as to
grant the pieces shaping both by pressing and extrusion.

Lean or inert materials


The lean materials include fluxes, such as sodium and Potash
feldspars, utilized in floor tile bodies and carbon materials utilized in
wall tile bodies which beside being fluxes, confer high porosity on the
body because of their out grassing during firing.

3. RAW MATERIALS FOR GLAZES AND ENGOBES


Partly composed of the above mentioned minerals and partly of
chemical products. Minerals shall fire white or very light colored and
shall be selected and practically constant both with regard to their
chemical, physical and mineral composition, but also to their particle
size distribution of utilization.
Kaoline and clay must moreover be washed (i.e., filter pressed water
suspensions) and dried.
The max.grains diameter of hard materials (i.e., quartz, feldspars)
must be lower than 12.5 microns.
Chemical products shall be at least of technical degree.

The main components of glazes and engobes are:


Washed Kaoline
Washed Clay
Potash Feldspar
Sodium Feldspar
Potassic-sodic feldspar
Quartz
Calcined Allumina
Calcium Carbonate
Dolamite
Barrium Carbonate
Zirconium Silicate Flour and micronized
Wollostonite
Borax
Boric Acid
Lithium Carbonate
Potassium nitrate
Potassium Carbonate
Sodium Carbonate
Zinc Oxide

Series of ceramic stains for glazes and vitreous china


bodies:
Carbon methyl cellulose
Fixing agents
Various deflocculates
Screen printing ink vehicles

4. CERAMIC BODIES:
Ceramic bodies can be divided in two main classes
a) Non calcareous for floor tiles
This class of bodies differs from the previous one, because it
does not contain carbonates, which are if at all present in very
low percentage
As matter of fact, their low water absorption as well as their
high nitrification degrees, typical of wall tiles excludes their
use.
On the contrary, feldspathic, sodic and or potassic fluxes (i.e.,
albite, pegmatite) which are produced at stronger vetrification
degrees and high temperatures are used.

b) Calcareous for wall tiles


Called this way, because of their high content of carbonates
brought about by various minerals (dolomite, calcite and so on)
or pure CaCo3.

These minerals act as fluxes, but give a high porosity to the


tiles after firing due to the strong outgassing of CO3 group at
about 900 Deg.C, such as to contain also the shrinkage
(contraction) of material avoiding any possible geometrical
defect.
The other material utilized are common for both bodies thats
to say for clays white or colored (according to the producers
choice) which grant plasticity and allow the pieces shaping.
Whereas interts, such as quartz, pyrophyllite are added to
confer skeleton on material and to control the linear
expansion coefficient of the support, which must be in
accordance with glaze in order to avoid defects such as peeling
or crazing, convexity or concavity of pieces resulting from a
wrong connection between support and glaze alphas.

SINGLE FIRING
Glazed/unglazed stoneware

Water absorption <3%

Glazed/unglazed semi-stoneware

Water absorption 3 to

Monoporosa

Water absorption 10 to

6%

18%

5. PRODUCTION PROCESS:
Wall/Floor tiles

(These Productions can be described together as they differ only


with regard to the body composition already described and the
maximum firing temperature Deg.C)

1) Grinding
The grinding of raw materials compounding ceramic body is
carried out in wet conditions through rubber or silica lined rotary
mills and with grinding load composed of silica pebbles.
Raw materials are weighed on a weighing bin and by means of a
conveyor loaded inside the mill, according to a predetermined
formula. Then a 50% quantity of water and a low percentage of
deflocculates are added to the dry product, in order to allow a
better flowing of the slip inside the mill.
The grinding process finishes when the particle size distribution of
raw

materials

reaches

the

requested

fineness;

this

being

determined through the dry residue found on a screen made up of


determined meshes.

2) Spray Drying:
The slip, coming from grinding and ready for spray drying or
drying process, so as to have the powder prepared for the
pressing phase, is then stored inside big underground tanks. This
slip is pumped at about 20 bar by nozzles which spray it in micro
spheres, inside a chamber where in counter current it meets with
a flow of hot air (about 400 Deg.C at the entry, 100 Deg.C at the
exit) which provides for the drying of the slip spheres by leaving

only a residual humidity (4to6%) necessary for the pressing


phase.
Thus the dried spheres falling towards the spray drier cone
exit hole are stores, by means of a belt, inside a series of silos for
at least 24 hours.

Necessary time to homogenize the residual

humidity from the middle towards the edges of the spray dried
powder spheres. Thereafter the powder is ready to be pressed.

3) Pressing:
This is the phase of tiles shaping. Tiles were obtained by loading
the powder into a die-set having variable cavities, according to the
requested sizes and then pressed with a determined to pressing
powder.
This powder, given by the oleo dynamic press divided by the total
pressing surface (total surface of tiles is called specific pressing
pressure and changes according to the type of product (wall tiles
about 210kgs/sqcm floor tiles about 350 kgs/sqcm and porcelain
tiles about 400 kgs/sqcm) the problems and the technological
characteristics of the process.

4) Drying:
Drying of tiles is carried out by using the stream of hot air which
by convection, warms up the tiles by allowing the gradual

evaporation of a water percentage of 4 to 6% (residual humidity)


still present in the pieces after pressing.
Two different kinds of spray dryer are usually utilized for this
process: Vertical and Horizontal.
In both driers, hot air is let into an insulated channel and through
gates, let into the tiles channel from where it is then sucked up
close to the material inlet area in order to create a growing
temperature (Deg.C) curve towards the end of the drying cycle, at
about 140 Deg.C, Otherwise, a too high temperature (Deg.C) at
the beginning of the process could damage the pieces with cracks
formed by a too rapid evaporation.

5) Glazing:
With regard to wall and floor monoporosa the tiles coming out
from the drier are sent, still hot to the glazing line reaching the
first application at temperature (Deg.C) of about 80 Deg.C so as to
allow the evaporation of most of the water contained in the
glazes.
Otherwise, thats to say if tiles are cold, there will be the complete
absorption of glazes water in the support making it friable and
requiring a further drying process before firing.
The first application is given by the engobe, which a suspension
similar to the glaze, but much more refractory utilized as insulator
between support and glaze.

The second application is given by the glaze, which grants the


basical characteristics to the product. Polished semi matt, matt,
colored and so on
For what concerns floor tiles, two double disk cabins are usually
used for the first two applications whilst for wall tiles, its
advisable to make use of two bell-shaped spreaders are utilized
because by forming a glaze film, they make it possible to obtain a
smoother and mirror like surface on the finished product.
Following these two basic applications there is the choice of
decorations which can consist of drawings made by silk screen
printing machines, mottling of colored glazes through spray guns,
dripping of glaze obtained by utilized the cabins with a very low
disc speed, so as to spray dry the glaze less, or by applying
granules of frits or dry glaze by means of suitable equipments.
At the end of glazing the material can automatically be stored in
layer trucks or be fed directly into the kiln for the final firing
phase.

6) Firing:
It is carried out inside rapid continuous cycle roller kiln. From a
technological point of view, kilns are divided into five sections:
1. PRE-KILN
2. PRE-HEATING
3. FIRING
4. COOLING/CONTROLLED SUCTION

5. FINAL COOLING

7) Sorting or Classification:
At the kiln exit the material is transferred to the sorting line, where an
operator classifies the pieces according to the possible surface defects,
size flatness.
The classification includes three qualities plus scrap:
1st Quality: No visible defects at about 1.5 distances
2nd Quality: Small visible defects
3rd Quality: Evident defects
Scrap: Broken, cracked pieces and so on
European standards exactly state the lux with which tiles shall be lit up
the observation angle and the examination distance for tiles to be
classified.

CHAPTER IV
THEORETICAL FRAME WORK

RATIO ANALYSIS:
The ratio analysis has emerged as the principal technique of the
AFS. A ratio is a relationship expressed in mathematical terms between
two individual and groups of figures connected with each other in some
logical manner. The ratio analysis is based on the premise that a single
accounting figure by itself may not communicate any meaningful
information but when expressed as a relative to some other figure, it
may definitely give some significant information.

The relationship

between two or more accounting figures/groups is called a financial


ratio. A financial ratio helps to summarize a large mass of financial data
into a concise form and to make meaningful interpretations and

conclusions about the performance and positions of a firm.

For

example, a firm having net sale of Rs.500000 is making a gross profit of


Rs.100000. It means that the ratio of the gross profit to net sales is
20% i.e., (Rs.100000/Rs.500000)X100.

Steps in Ratio Analysis:


The ratio analysis requires two steps as follows:
1. Calculation of ratio and
2. Comparing the ratio with some predetermined standards.

Forms of Ratio:
Since a ratio is a mathematical relationship between to or more
variables/accounting figures, such relationship can be expressed
in different ways as follows:
As a pure ratio:

for example, the equity share capital of a

company is Rs.2000000 and the preference share capital is


Rs.500000, the ratio of equity share capital of preference share
capital is 2000000:500000 or simply 4:1

As a rate of times: in the above case the equity share capital may
also be described as 4 times that of preference share capital.
Similarly, the cash sales of a firm are Rs.1200000 and the credit
sales are Rs.3000000. So the ratio of credit sales to cash sales
can be described as 2.5 (3000000/1200000) or simply by saying
that the credit sales are 2.5 times that of cash sales.
As a percentage: in such a case, one item may be expressed as
percentage of some other item. For example, net sales of the firm
are Rs.5000000 and the amount of the gross profit may be
described as 20% of sales i.e., (Rs.1000000/5000000)*100 or
simply 20%.

CLASSIFICATION OF RATIOS:Several ratios, calculated from the accounting data,


can grouped into various classes according to financial activity
(or) function evaluated. The parties interested in financial
analysis are short and long term creditors, owners and
management. Shot term creditors main interest is in the liquidity
position (or) the solvency of the firm. Long term creditors, on the
other hand, are more interested in the long term solvency and
profitability of firm.
There are different parties interested in the ratio
analysis for knowing the financial position of a firm for different
purpose. The ratios can be classified into the following four
important categories.
Liquidity ratios

Leverage ratios (or) Solvency ratios


Activity (or) Turnover ratios
Profitability ratios

LIQUIDITY RATIOS:Liquidity ratios measure the ability of the firm to meet


its current obligations. In fact, analysis of liquidity needs the
preparation of cash budgets and cash and funds flow statements;
but liquidity ratios, by establishing a relationship between cash
and other current assets to current obligations
(Liabilities),provide a quick measure of liquidity. A firm should
ensure that it does not suffer from lack of liquidity and also that it
does not have excess liquidity. The most common ratios, which
indicate the extent of liquidity (or) lack of it, are

Current ratio

Quick ratio (or) Acid Test ratio

Cash ratio

Net Working capital ratio

CURRENT RATIO:Current ratio is calculated by dividing current assets by


current liabilities. The current assets ratio is a measure of the
firms short term solvency. The ratio expresses the relation
between current assets and current and current liabilities. It is
also known as working capital ratio.

FORMULA:Current Ratio=

Current Assets
Current Liabilities

QUICK RATIO:Quick ratio is also called acid test ratio, establishes a


relationship between quick (or) liquid assets and current
liabilities. An asset is liquid if it can be converted into cash

immediately (or) reasonably soon without a loss of value. Cash is


the most liquid asset.

FORMULA:Quick Ratio = Current Assets - Inventories


Current Liabilities

Generally, a quick ratio of 1:1 is considered to


represent

a satisfactory current financial position (or)

condition.

CASH RATIO:Since cash is the most liquid asset, a financial analyst


may examine cash ratio and its equivalent to current liabilities.
Trade investment (or) marketable securities is equivalent of cash
therefore; they may be included in the computation of cash ratio.

FORMULA:Cash Ratio = Cash+ Marketable Securities


Current Liabilities
According to conventional rule a cash ratio of 0.5:1 is applicable.

NET WORKING CAPITAL RATIO:The difference between current assets and current
liabilities excluding short term bank borrowings is called Net
Working Capital (NWA) (or) Net Current Assets (NCA). Net working
capital is sometimes used as a measure of a firms liquidity.

FORMULA:Net Working Capital = Net Working Capital


Net Assets

LEVERAGE RATIOS:The sort term creditors, like bankers and suppliers of raw material,
are more concerned with the firms current debt paying ability. On
the other hand, long term creditors like debentures holders,
financial institutions etc. are more concerned with the firms long
term financial strength. In fact, a firm should have a strong short
as well as long term financial position of the firm, financial
leverage, (or) capital structure ratios are calculated.
These ratios show the proportion of debt and equity in
financing the assets. These ratios are classified into the following
categories.

Debt Ratios

Debt equity Ratio

Capital Employed to Net Worth Ratio

Other Debt Ratios

Interest Coverage Ratio

DEBT RATIO:Several debt ratios may be used to analyze the long term
solvency of firm. The firm may be interested in knowing the
proportion of the interest bearing debt (funded debt) in the
capital structure.
It may, therefore, compute debt ratio by dividing total
debt by capital employed (or) net assets.

FORMULA:Debt Ratio = Total Debt


Net Assets
Net Fixed Assets + Current Assets

(NFA) + (CA) = NW +TD +CL


NFA + CA CL = NW + TD
NFA + NCA CL = NW + TD
NA = CE

DEBT EQUITY RATIO:The relationship between the lenders contributions for each rupee
of the owners contribution is called Debt Equity Ratio. The ratio
measures the relative claims of creditors and owners against the
firms assets. The ratio should be optimum higher ratio is
profitable debt e equity ratio shows the relation between longterm debt and share holders funds.

FORMULA:-

Debt Equity Ratio =

Total Debt
Net Worth

CAPITAL EMPLOYED TO NET WORTH RATIO:There is yet another alternative way of expressing the
basic relationship between debt and equity. This can find out
using the below formula.

FORMULA:Capital employed to net worth ratio =

Capital employed
Net Worth

OTHER DEBT RATIOS:Current liabilities are generally excluded from the


computation of Leverage ratio. One may like include them on to
ground that the are important determinants of the firms
financial risk they represent obligations and exert pressure on the
firm and restrict its activities.

FORMULA:-

Total liabilities to long term fund ratio = Total liabilities


Total Assets

INTEREST COVERAGE RATIO: The interest coverage ratio or the times-interest-earned


is used to test the firms debt servicing capacity. The interest
coverage ratio is computed by dividing earnings before interest
and taxes (EBIT) by interest charges.

FORMULA:Interest Coverage

EBIT
Interest

ACTIVITY RATIOS:Funds of creditors and owners are invested in various


assets tro generate sales profit. The better the management of
assets, the larger the amount of sales. Activity ratios are
employed to evaluate the efficiency with which the firm manages
and utilizes its assets. These ratios are also called turnover
ratios because the indicate the speed with which assts are being
converted (or) turnover into sales.
The activity ratios are classified into some categories
such as

Inventory Turnover Ratio

Debtors Turnover Ratio

Assets Turn over Ratio

Average collection Period

Working Capital Turn over Ratio

INVENTORY TURNOVER RATIO: -

Inventory turnovers indicates the efficiency of the firm in


producing and selling its product . It is calculated by dividing the
cost of goods sold by the average inventory.

FORMULA:Inventory

Ratio = Coast of goods sold


Average Inventory

The average inventory is the average of opening and closing


balances of inventory .

DEBTOR TURNOVER RATIO: A

firm sell goods for cash and credit. Credit is used as a

marketing tool by a number of companies when the firm extends


credits to its customers, debtors are created in the firms
accounts.
Debtors turnover is also called as Accounts Receivable
Turnover. Debtors turnover is found out by dividing credit sales by
average debtors.

FORMULA:Debtors Turnover Ratio = Credit sales /Average Debtors


Debtors turnover indicates the no. of times debtors turnover each
year.

AVERAGE COLLECTION PERIOD: The average number of days for which debtors remain
outstanding is called the Average collection Period.
Average collection Period=No .of Days in a year (360) / Debtors
Turnover

ASSETS TURNOVER RATIOS: Assets are used to generate sales. Therefore, a firm
should manage its assets efficiently to maximize sales. The
relationship between sales assets is called assets Turnover .
Several assets turnover ratios can be discussed below.

NET ASSETS TURNOVER:


The firm can compute Net Assets Turnover simply
by dividing sales by net assets.

FORMULA:Net Assets Turnover Ratio = Sales / Net assets

TOTAL ASSETS TURNOVER RATIO:Some analyst like to compute the total assets turnover in
addition to (or) instead of the net assets turnover. This ratio
shows the firms ability in generating sales from all financial
resources committed to total assets.

FORMULA:Total Assets Turnover Ratio = Sales / Total Assets

FIXED AND CURRENT ASSETS TURNOVE R: The firm may wish to know its efficiency of utilizing fixed
assets and current assets separately.

FORMULA:Fixed assets Turnover Ratio = sales / Net Fixed Assets


Current Assets Turnover Ratio = sales / Current Assets

WORKING CAPITAL TURNOVER RATIO: A firm may also like relate net current assets
(or) net working capital gap to sales. It may thus compute
net working capital turnover

by dividing sales by net

working capital.

FORMULA:Net Working Capital Turnover Ratio =Sales / Net Current Assets

PROFITABILITY RATIOS: A company should earn profit to survive and grow over a
long period of time . Profits are essential , but it would be wrong

to assume that every action initiated by management of a


company should be aimed at maximizing profits , irrespective of
concerns for customers , employees ,suppliers (or) social
consequences . It is unfortunate that the word profit is looked
upon as a turn of abuse since some firms always want maximize
profits at the cost of employees, customers

and society.

Profit is difference between revenues and expenses


over a period of time . Profit is ultimate Output of a company ,
and will have no future if it fails to make sufficient profits .
Generally, two major types of profitability ratios are
calculated such as
Profitability in the relation to sales
Profitability in relation to investment
The following are the some of the important profitability
ratios
Gross Profit Margin
Net Profit Margin
Return on Investment
Return on Equity
Return on Capital Employed
Operating Profit Margin

GROSS PROFIT MARGIN: The first profitability ratio in relation to sales is


the gross profit. The gross profit margin reflects the
efficiency with management produces each unit of product.
The ratio indicates the average spread between the cost of
goods sold and the sales revenue .

FORMULA:Gross Profit Margin = Gross profit / Sales


A high gross profit margin ratio is a sign of good management.

NET PROFIT MARGIN: Net profit is obtained when operating expenses, interest and
taxes are subtracted from the gross profit. The net profit margin
ratio is measured by dividing profit after tax by sales

FORMULA:Net Profit Margin Ratio = Profit After Tax / Sales

RETURN ON INVESTMENT: The term investment may refer to total assets (or) net assets
. The funds employed in net assets is know as capital employed.
The conventional approach of calculating return on
investment is to divide PAT by investment . It is therefore
appropriate to use one of the following measures of Return of
investment for comparing the operating efficiency of firms.

FORMULA:Return on Total assets = Net Profit After Tax / Total Assets

RETURN ON EQUITY: A return on shareholders equity is calculated to see the


profitability of owners investment . The shareholder equity are
net worth will include paid up share capital , share premium and
surpluses less accumulated losses . Net worth can also be found
by subtracting total liabilities from total assets.

FORMULA:Return on Equity = Profit After Tax / Net Worth

OPERATING PROFIT MARGIN:Taxes are not controllable by a firm, and also, one may not
know the marginal corporate tax rate while analyzing the
published data. Therefore, the margin ratio may be calculated on
before tax basis.

FORMULA:Operating Profit Ratio = EBIT / Net Sales

ADVANTAGES OF RATIO ANALYSIS:


Following are some of the advantages of ratio analysis.

Ratio

analysis simplifies the comprehension of financial statements.


Ratios tell the whole story of changes in the financial condition of
the business.

1. Facilitate inter firm comparison:


Ratio analysis provides data for inter firm comparison.
Ratios highlight the factors associated with successful and
unsuccessful firms. They also reveal strong firms and weak firms,
overvalued and undervalued.

2. Intra-firm comparison:
Ratio analysis also makes possible comparison of the
performance of the different divisions of the firm. The ratios are
helpful in deciding about a efficiency or otherwise in the past and
likely performance in the future.

3. Helps in Planning:
Ratio analysis helps in planning and forecasting.

Over a

period of time a firm or industry develops certain norms that may


indicate future success or failure. If relationship changes in firms
date over time periods, the ratios may provide clues on trends and

future problems. Thus, ratios can assist management in its basic


functions of forecasting, planning, coordinating, controlling and
communication.

CHAPTER V
DATA ANALYSIS AND
INTERPRETATION

CURRENT RATIO:Current ratio =

Total Current assets


------------------------Total Current liabilities

The table showing Current Ratio of Regency Ceramics Ltd


for the last Six Years.
(Rupees in Lakhs)
YE

CURRENT

CURRENT

RATIO

AR
2003-

ASSETS
5665.23

LIABILITIES
3198.55

1.77

2004
2004-

6975.05

3375.12

2.06

2005
2005-

7500.39

5196.62

1.44

2006
2006-

9108.15

2853.28

3.19

2007
2007-

9054.12

3216.35

2.81

2008
2008-

10568.05

4302.56

2.46

2009
INTERPRETATION:
As a conventional rule, a current ratio of 2 to 1 or more is
considered satisfactory. The company has a current ratio of 2.46 in the
year 2008-09. It increase year to year but in the past years 2006-07 it

was 3.19, 2007-08 it was 2.81 is higher than the 2008-09 and at the
same time the current ratio in 2004-05,2005-06 it is very low compare
with 2008-09 because the current assets decreased and the current
liabilities were increased.
From the analysis of last 6 years, the companys current ratio is at
satisfactory level except in the years 2003-04 and 2005-06.

The Graph showing the Current Ratio of Regency Ceramics Ltd


for

Last

Six

Years.

QUICK ASSETS

CURRENT

RATIO

4384.31
4651.95
4729.75
6337.51
4720.23
5510.31

LIABILITIES
3198.55
3375.12
5196.62
2853.28
3216.35
4302.56

1.37
1.38
0.91
2.22
1.46
1.28

YEAR
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
INTERPRETATION:
Generally a quick ratio of 1:1 is considered to be satisfactory
because this means that the quick assets of the firm are just equal to
quick liabilities and there does not seem to be a possibility of default in
payment by the firm.
The quick ratio in the current year was 1.28. The Quick ratio was
satisfactory in the organization except in the year 2005-06 which was
0.91.

The Graph showing the Quick Ratio of Regency Ceramics Ltd for
Last Six Years.

RATIO
2.5
2
1.5
1
0.5
0
2003-2004 2004-2005 2005-2006 2006-200762007-2008 2008-2009

ABSOLUTE LIQUID RATIO:Cash & Marketable Securities


Super Quick Ratio

-----------------------------------Current Liabilities

The Table showing Absolute Liquid Ratio of Regency Ceramics


Ltd for the last six years.

(Rs in Lakhs)

YEAR

ABSOLUTE

CURRENT

LIQUID ASSETS

LIABILITIES

1055.34

3198.55

0.32

1122.43

3375.12

0.33

1031.02

5196.62

0.20

979.44

2853.28

0.34

1053.99

3216.35

0.32

991.47

4302.56

0.23

2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009

RATIO

INTERPRETATION:
The company maintains the ALR ratio at a magnitude of 0.23:1 in
the year 2008-09 and around 0.30:1 in all the previous years. In the
year 2006-07 it was 0.34 because absolute liquid assets was decreased
and at the same time current liabilities was increased and in the year
2005-06 it was 0.20 it is very low compare with the 2007-08 and in the
year 2003-04, 2004-05, 2007-08 the ratio was 0.32 & 0.33, 0.32
respectively.

The Graph showing the Absolute Liquid Ratio of Regency


Ceramics Ltd for Last Six Years.
RATIO
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Leverage Ratios:
Therefore leverage ratios can be analyzed in two different ways:
1. As degree of indebtedness
2. As ability to service the debt.
Measures of the degree of indebtedness:
The measures of identifying the degree of indebtedness attempt
to establish the relationship of the total liabilities or only long term

liabilities with the shareholders funds or total assets of the firm.


Different measures are available to analyze the degree of indebtedness.
1.

Total Debt equity ratio

2.

Long term debt equity ratio

LONG TERM DEBT-EQUITY RATIO:


This is the most common measure of studying the indebtedness of
the firm.

The Debt Equity ratio is based on the assumption that the

extent to which the firm should employ the debt should be viewed in
terms of the size of the cushion provided by the shareholders funds. It
is calculated as follows:
Total long-term debts
Debt-Equity Ratio=

-----------------------------Total Shareholders funds

The Table Showing Long Term Debt-Equity Ratio of Regency


Ceramics Ltd for the last Six Year

(Rs in

Lakhs)

YEAR

TOTAL LONG

TOTAL SHARE

TERM DEBTS

HOLDERS

RATIO

FUNDS
2003-2004

8050.93

4926.54

1.63

2004-2005

8135.13

5250.37

1.54

2005-2006

8470.29

6735.41

1.26

2006-2007

13022.71

6617.85

1.96

2007-2008

11932.45

6622.59

1.80

2008-2009

12051.76

6265.00

1.92

INTERPRETATION:The Debt Equity Ratio standard norm is generally 1:1 in public


sector and 2:1 in Private Sector.
In the year 2008-09 the debt equity is 1.92:1 and in the year 2007-08
LDE was 1.80 compare with the past years, it was high because in the
year 2008-09 the long term debts was increased and share holder funds
was decreased.

The Graph showing the Long Term Debt Equity Ratio of Regency
Ceramics

LtdforLastSixYears.

RATIO
2.5
2
1.5
1
0.5
0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

INTEREST COVERAGE RATIO:


EBIT
Interest Coverage Ratio =

-------------------Interest Charges.

The Table Showing Interest Coverage Ratio of Regency Ceramics


Ltd for the last Six Years.

(Rs in

Lakhs)
YEAR
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009

EBIT

INTEREST

RATIO

2895.30
3423.29
3233.74
1386.08
1335.17
1076.68

CHARGES
899.28
1322.32
1113.64
1333.34
1263.90
1380.95

3.22
2.59
2.90
1.04
1.06
0.78

INTERPRETATION:
This ratio measures as to how many time the interest liability of
the firm is covered with the operating profits of the firm.
In the above case the Interest Coverage ratio of the firm was 0.78
times that of interest liability in the year 2008-09 as compared to 3.22
times in the year 2003-04.

The Graph showing the Interest Coverage Ratio of Regency


Ceramics

Ltd

for

LastSixYears.

RATIO
3.5
3
2.5
2
1.5
1
0.5
0
2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Activity Ratios:
The Activity Ratios are also called the turnover ratios or
performance ratios. A turnover ratio or an activity ratio is a measure of
movement and thus indicates as to how frequently an account has
moved/turned over during a period. It shows as to how efficiently and
effectively the assets of the firm are being utilized.
Some of the important activity ratios are:
Inventory Turnover Ratio
Receivables Turnover Ratio (Debtors)
Payables Turnover Ratio (Creditors)
Working Capital Turnover Ratio
Total Assets Turnover Ratio
Fixed Assets Turnover Ratio
Capital Turnover Ratio.

INVENTORY TURNOVER RATIO:

This ratio is also known as stock turnover ratio. It Established the


relationship between the cost of goods sold during the year and the
average inventory held during the year by the firm. It is calculated as
follows:
Cost of Goods Sold
Inventory Turn Over Ratio =

-----------------------Average Inventory

Opening Stock + Closing Stock


Average Inventory

------------------------------------2

Cost of Goods Sold

Sales Gross Profit

There is no idle standard for evaluating an inventory


turnover ratio of a firm so it should be compared with the inventory turn
over ratio of other firms or past inventory turnover ratio of the same
firm.

Since inventory turnover ratio is a test of efficient inventory

management the higher the inventory turnover the better it is.The


concept of inventory turnover ratio can be extended to find out the
number days of inventory holding (DIH) as follows.
365
DIH =

----------------------------Inventory Turnover Ratio

DIH is also known as the average age of inventory.


The Table showing Inventory Turnover Ratio of Regency Ceramics Ltd
for the last Six Years.
(Rs in Lakhs)
YEAR

COST OF

AVERAGE

RATIO

GOODS SOLD
2003-2004
9482
2004-2005
11128
2005-2006
13623
2006-2007
13345
2007-2008
12978
2008-2009
12858
INTERPRETATION:

INVENTORY
1134.53
1802.01
2456.87
3309.86
4091.49
4695.82

8.36
6.18
5.54
4.03
3.17
2.74

In the year 2008-09 the ITR is 2.74 if we compare with the last 5 years
it is very low. In the year 2003-04 the ratio was 8.36 because here the
cost of goods sold was increased. In the year 2004-05 it falls to 6.18.

The Graph showing the Inventory Turnover Ratio of Regency


Ceramics Ltd for Last Six Years.

RATIO
9
8
7
6
5
4
3
2
1
0
2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

RECEIVABLES (OR DEBTORS) TURNOVER RATIO:


Receivables turnover ratio

Annual net credit sales


=
---------------------------Average receivables
365

Average Collection Period =

--------------------------Receivables turnover ratio

The Table showing Receivables (Debtors) Turnover Ratio of


Regency Ceramics Ltd for the last Six Years.
(Rs in Lakhs)

YEAR
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09

CREDIT
SALES
13060.17
15372.67
17703.30
15738.01
15346.01
15632.10

AVERAGE
DEBTORS
2349.73
2673.01
2944.21
3227.02
2620.87
3571.64

RATIO
5.56
5.75
6.01
4.88
5.86
4.38

INTERPRETATION:
In the year 2008-09 the ratio was 4.38, it was low as compared to
the previous years.

In the year 2003-04 it was 5.56 and in the year

2004-05 it was 5.75 and in the year 2005-06 it was 6.01 and in the year
2006-07 it was 4.88 and in the year 2007-08 it was 5.86. Increase of
debtors turnover ratio means increase the credit sales and average
debtors, Increase the credit sales create customer relationship between
company and customers.

The Graph Showing Receivables (Debtors) Turnover Ratio of


Regency Ceramics Ltd., for the Last Six Years.

RATIO
7
6
5
4
3
2
1
0
2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

PAYABLES (OR CREDITORS) TURNOVER RATIO:

Payables Turnover Ratio

Annual net credit purchases


=
--------------------------------Average Payables

This can be supplemented with the average payment period as


follows.
Average Payment Period

365
=
-------------------------------Payables Turnover Ratio

The Table Showing Payables (Or Creditors) Turnover Ratio of


Regency Ceramics Ltd for the last six years.
YEAR
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09

CREDIT
PURCHASES
3515.68
4442.39
5282.64
4793.53
5340.42
5286.22

(Rs in Lakhs)
AVERAGE
RATIO
PAYABLES
1900.00
1.85
2116.22
2.10
4560.79
1.16
2524.01
1.90
2699.31
1.98
3954.90
1.34

INTERPRETATION:
In the year 2008-09 the ratio was 1.34 and 2007-08 it was
1.98 and in the year 2003-04, 2004-05, 2005-06 , 2006-07 the ratios
were 1.85,2.10,1.16,1.90 respectively.

The Graph Showing Payables (Creditors) Turnover Ratio of


Regency Ceramics Ltd., for the Last Six Years

RATIO
2.5
2
1.5
1
0.5
0
2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

WORKING CAPITAL TURNOVER RATIO:


Annual net sales
Working Capital Turnover Ratio =
-------------------------Average Working Capital
The Table Showing Working Capital Turnover Ratio of Regency
Ceramics Ltd for the last Six years.

YEAR
2003-04

TOTAL SALES
13060.17

(Rs in Lakhs)
WORKING
RATIO
CAPITAL
2466.68
5.29

2004-05
2005-06
2006-07
2007-08
2008-09

15372.67
17703.30
15738.01
15346.01
15632.10

3599.94
2303.77
6254.87
5837.77
6265.49

4.27
7.68
2.52
2.63
2.49

INTERPRETATION:
This ratio reflects turnover of the firms net working capital during
the year. The higher the ratio the more efficient is the management in
converting he working capital available in to sales.
In the year 2008-09 the working capital turnover ratio 2.49 it was
decreased as compare with the previous years in the year 2003-04 the
ratio was 5.29 and in the year 2004-05 the ratio was 4.27 it was
decreased other than the 2003-04 and in the year 2005-06 it was 7.68
and in the year 2006-07 it was 2.52 and in the year 2007-08 it was 2.63.
It means that there is a lot of fluctuations in the working capital turnover
ratio in the organisation.

The Graph Showing Working Capital Turnover Ratio of Regency


Ceramics Ltd., for the Last Six Years.

RATIO
9
8
7
6
5
4
3
2
1
0
2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

TOTAL ASSETS TURNOVER RATIO:


Total assets turnover ratio

Net Sales
=
-----------------------Average tangible assets

This ratio measures the per rupee sales generated by per rupee of
tangible assets being maintained by the firm.

It may be noted that

intangible assets such as goodwill etc are not considered.

That the

tangible assets are taken at their written down values.


The Table Showing Total Assets Turnover Ratio of Regency
Ceramics Ltd for the last Six years.
(Rs in Lakhs)

YEAR
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09

TOTAL SALES
13060.17
15372.67
17703.30
15738.01
15346.01
15632.10

TOTAL ASSETS
16176.02
18570.05
22526.97
24780.56
23900.86
24576.82

RATIO
0.81
0.83
0.79
0.64
0.64
0.64

INTERPRETATION:
This

ratio

indicates

the

utilisation

of

total

assets

in

the

working/operation of the concern. It is used to judge the effectiveness


of the use of total assets and to study the tren of over-investment in
assets or otherwise.
The total assets turnover ratio of 0.64 times in the year 2006-07
and 2007-08 times and in the year 2003-04 , 2004-05, 2005-06 the ratio
was 0.81, 0.83, 0.79 respectively and in the year 2006-07 the ratio was
0.64 times.
The ratio is higher in the year 2004-05 with 0.83 times and
showed lower turnover during the year 2008-09 with 0.64 times.

The Graph Showing Total Assets Turnover Ratio of Regency


Ceramics Ltd., for the Last Six Years

RATIO
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

FIXED ASSETS TURNOVER RATIO:


Fixed assets turnover ratio is calculated by establishing the
relationship between sales and fixed assets.

The ratio gives an idea

about adequate investment or over investment or under investment in


fixed assets.
Net Sales
Fixed assets turnover ratio
=
-----------------------Net Fixed Assets

If a firm depends heavily on the intangible assets such as patents,


trademarks, copyrights etc for its sales then it is advisable to follow this
ratio.
The Table showing Fixed Assets Turnover Ratio of Regency
Ceramics Ltd for the last Six Years.
YEAR
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09

TOTAL SALES
13060.17
15372.67
17703.30
15738.01
15346.01
15632.10

(Rs in Lakhs)
NET FIXED
RATIO
ASSETS
10829.17
1.21
11008.89
1.40
14487.41
1.22
15289.35
1.03
14534.07
1.06
13618.97
1.15

INTERPRETATION:
In the year 2008-09 the FAT ratio is 1.15and year, 2003-04,
2004-05, 2005-06, 2006-07,2007-2008 the ratio was 1.21, 1.40, 1.22,
1.03, 1.06.

Compare with the last 3 years the Net fixed assets was

decreased but in the year 2006-07 it was increased.

The Graph Showing Fixed Assets Turnover Ratio of Regency


Ceramics Ltd., for the Last Six Years
RATIO
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

CAPITAL TURNOVER RATIO:


Capital Turnover Ratio

Net Sales
=
-----------------------Capital Employed

The higher the ratio the greater is the sales made per rupee of
capital employed in the firm and hence higher is the profit. Low capital
turn over ratio refers to low sales generated in relation to capital
employed or excessive capital being used in the firm.

The Table showing Capital Turnover Ratio of Regency Ceramics


Ltd for the last Six Years.
YEAR
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09

TOTAL
SALES
13060.17
15372.67
17703.30
15738.01
15346.01
15632.10

(Rs in Lakhs)
CAPITAL
RATIO
EMPLOYED
12977.47
1.01
13385.50
1.15
15205.70
1.16
19640.56
0.80
18555.04
0.83
18316.76
0.85

INTERPRETATION:
The efficiency of the firm in utilizing its capital in turning up the
sales can be known by this ratio. Generally higher ratio is preferred as
high turnover leads to increase in profit.
In the year 2003-04 the ratio was 1.01 and in the year 2008-09 it
was 0.85, here there is no greater difference between previous years.

The Graph Showing Capital Turnover Ratio of Regency Ceramics


Ltd., for the Last Six Years

RATIO
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

CHAPTER VI
FINDINGS AND SUGGESTIONS

FINDINGS:

The liquidity ratios are not according to standards they are not
following any norms. They are fluctuating year to year. During
the Year 2008-09 they are par behind the standards.

The absolute liquid ratio is very high. But as per the previous year
2007-08 is 0.32, but in the year 2008-09 it was 0.23, but it very
low other than

2006-07.

The company uses more debt content then their owners funds to
finance fixed assets.

The Company long-term debts is high other than the share holder
funds.

The company has to paid lot of interest from profits.

In 2003-04 the interest charges was 899.28 lakhs but in the year
2008-09 it was 1380.95 Lakhs which is very high.

The company inventory maintenance is very high, i.e., it almost


maintain stock for 4 months

The average collection period is 55 days which is very high.

Earning per share is decrease year to year if taking the 2005-06


the profit on share is 12.62 but in the year 2008-09 it was (3.90).
It decreases the share holder confidence.

SUGGESTIONS:
After under taking the work ratio analysis with reference to Regency
Ceramics Limited and after finding out the facts it has been suggested
that

Since the liquidity ratios are not according to standards, they are
not follow the norms and they are fluctuating year to year. So, it
has been suggested that to reduce the current liabilities are to
increase current assets to maintain regularity in liqudity ratios.

This Company has earned foreign exchange of Rs.2293.57 Lakhs,


but in previous year 3038.18 lakhs.

So the company has to

change pattern in export business.

The firm should maintain a regular debt to equity ratio if the debt
content is increased the firm should try to increase the equity by
adding profits.

The average collection period of a company 70 days so that the


company can earn maximum working capital and at the same
time lot of fluctuations in year to year in working capital turnover
ratio, but it increase the customer satisfaction.

If the company used issued capital i.e., (Equity or prference


capital) its decreases the debt capital and minimize the interest
rate.

BIBLIOGRAPHY
Financial Management

S.C.Kuchal

Financial Management

I.M.Pandey

Financial Management

P.V.Kulakarni

Advanced Financial Management

Annual Reports

M/s Regency Ceramics Ltd

Business Journals & News Papers

S.N.Maheswari

Old Records
Company website:www.info@regency tiles.com