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CHAPTER-5

FINDINGS, SUGGESTIONS AND CONCLUSI

as frightening as an armed robber and as deadly as a hit man. -Ronald Reagan .Inflation is as violent as a mugger.

 Chemical and pharmaceutical sector – Indian Glycols Limited  Steel industry –Tata steel Limited  Consumer goods industry –Indian Tobacco Company Limited  Machinery industry – Lakshmi Machine Works Limited  Oil and petroleum industry – Indian Oil Corporation Limited TOOLS USED FOR THE STUDY: Ratio analysis is used as the tool for analysis of the financial statements CATAGEORY OF RATIOS:  Liquidity Ratios  Leverage Ratios  Activity Ratios  Profitability Ratios leaved on sales  Profitability Ratios leaved on investments The findings of the study are as follows .FINDINGS OBJECTIVES OF STUDY: To study the impact of inflation on selected industrial sectors namely.

IOCL is followed by India Glycols which has also withstood the price rise to a large extent. the effect of inflation has not caused a significant impact on Tata steel and LMW when is comparison with the other organizations. ACID TEST RATIO: Where liquid ratio is concerned. . On the whole IOCL and LMW have maintained their liquidity without wide significant changes amidst the inflationary pressures.LIQUIDITY RATIOS: CURRENT RATIOS: LMW and IOCL maintaina stable current liquidity ratio irrespective of the price rise but India glycols suffers a significant fall in the current liquidity due to the inflationary pressures. ABSOULTE LIQUID RATIO: IOCL maintains a near stable absolute liquidity though they have a proportionatelyless absolute liquid ratio in comparison to the others organization.

PROPRIETARY RATIO: IOCL has a near constant proprietary ratio. CAPITAL GEARING RATIO: ITC maintains a stable capital gearing ratio and Indian glycols shows a significant rise in the year 2011-2012. They have a very low debt capital leaning more towards conservatism. . DEBT-EQUITY RATIO: The debt –equity ratios of ITC is constant throughout the 3 years (0. Being a conservative firm LMW has remained an unlevered firm since 2000.LMW does not have a debt-capital.LEVERAGE RATIOS When “LEVERAGE” isconcerned.01 times) of study. which is followed by ITC and India glycols who show very little change in their ratios .They have withstood the inflationary demands very well. DEBT TO TOTAL ASSETS RATIOS: ITC and IOCL maintain a constant debt-equity ratio withstanding the inflationary trnds of the market.

ITC has maintained its leverage throughout the inflationaryperiod. ACTIVITY RATIOS DEBTORS TURNOVER RATIO: The debtor’s turnover ratio of India glycols has remained stable throughout the study years withstanding the changes in the price trend of the market.EQUITY TO TOTAL ASSETS: ITC has a stable debt to total assets ratio and debt-equity to total assets ratio as they follow a very low-debt policy.Their fixed assets turnover ratio have been positively rising through the years .DEBT. FIXED ASSETS RATIO: IOCL and LMW have turned over their fixed assets most among the companies considered for the study . Theyplay very safe in the market by being a conservative firm and limit their long term borrowings. FIXED ASSET TO LONG TERM FUNDS RATIO: ITC sports a very high fixed asset to long term funds ratio as they have funded their fixed assets significantly with equity capital and also maintain a conservative debt policy.

This is because they have huge short term liabilities . LMW also shares the same result.second to this is Tata steel who also have a negative working capital in 2011-2012 due to the inflationary pressures . CAPITAL TURNOVER RATIO: The capital turnover ratio of IOCL has significantly. whereas ITC maintains a stable capital turnover ratio amidst the market trends. only LMW has increased its current assets turnover in the 3years of analysis. . TOTAL ASSETS TURNOVER RATIO: LMW has shown an upward trend in the total assets turnover ratio for the study period and Tata Steel has maintained a stable total assets turnover ratio. LMW has managed to stabilize most of the turnover ratios except in current assets turnover ratio and total assets turnover ratio where it exhibits a high turnover . increased in the 3 years.seeping into the negative level.ITC and IOCL have also withstood the inflationary pressures. when the other organizations studied exhibit a downward trend.CURRENT ASSETS TURNOVER RATIO: Where the current assets turnover is concerned. WORKING CAPITAL TURNOVER RATIO: The working capital turnover ratio of India glycols is very low in 2011-2012.LMW has to an extent withstood the inflationary pressure.

Where the EPS of IOCL and ITC have risen in 2011-2012. Inflation has had a positive effect on ITC unlike IOCL. On the other hand IOCL shown a step fall in the ROE and has succumbed to the inflationary pressures. The different sectors are affected differently by inflation and their investment returns mirror the performance of the companies. PROFITABILITY RATIOS BASED ON INVESTMENTS RETURN ON EQUITY OF SHARES: ITC has a steadily rising Return on Equity (prior and post taxation on net profits) in the 3 years concerned. the EPS of the other 3 organizations have fallen to a minimal extent. also . Tata steel and LMW have withstood the inflationary trends by maintaining a stable net profit ratio(post and prior to taxation). .showing a rise in the year 2011-2012. EARNINGS PER SHARES (EPS): The EPS of the companies have a mixed variation to the inflation.PROFITABILITY RATIO BASED ON SHARES NET PROFITABILITY BEFORE AND AFTER TAXATION: ITC has maintained a stable net profitability ratios (before and after taxation).

OVERALL –RANKING The industries considered for the analysis are ranked based on the stability in theirperformance ad their ability to withstand the inflationary pressure in the market.ITC and LMW among the 5 companies studied are found to exhibit a stable level of profitability based on investment in the analysis term. BOOK VALUE OF SHARES: The book value of shares of the selected companies shows mixed variations. ITC and Tata Steel show a light decline in the fair book value of its shares. LMW. 5.1TABLE SHOWING THE OVERALL RANKING OF THE INDUSTRIES INDUSTRY ITC LMW TATA STEEL IOCL INDIA GLYCOLS SECTOR CONSUMER GOODS MACHINERY MANUFACTURING IRON &STEEL OIL & PETROLEUM CHEMICAL & PHARMACEUTICAL RANK 1 2 3 4 5 . which is observed from the varied book values reported by these companies. A similar performance has been noticed with LMW also. Inflationary pressures have affected the various sectors differently.

Inflation affects not only commoners but also the industrial sector.. This has been studied in this project.a small leverage shall help them to increase the EPS. Industrial sectors are affected by inflation at various stages. lower class. their short term liabilities should be brought under control. . solvency. Theliquidity. It affects different segments of people . CONCLUSION: Inflation refers to the hike in the general price of the goods and services in the economy. The practical implication of ratio analysis on the financial statements of the companies helped us to understand the actual significance of financial performance analysis and the impact of inflation on the industrial sectors of India.  LMW is an unlevered firm .SUGGESTIONS:  The working capital ofIndian glycols and Tata steel can be increased. The effects on these various segments may vary.e. middle class and higher class. profitability and activity ratios bring out the impact of inflation on the financial performance of these industries.i.