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Internship Project Report

Session : 2011-14

Submitted To:

Submitted by:



Objective of the Study

Concept of working capital

Principles of working Capital

Research Methodology

Company Profile

Review of Literature

Data analysis & Interpretation


Suggestions & Recommendations



Student Undertaking
This is to certify that I ____________________________
had completed the Project titled title of the
project in (name of the company) under the guidance of Mr./Ms. (Faculty guide) in the partial fulfillment of
the requirement for the award of degree of MBA from Bharati Vidyapeeth Deemed University, SDE,
Academic Study Center BVIMR, New Delhi. This is an original piece of work and I had neither copied nor
submitted it earlier elsewhere.

Student Name and Signature


Dated Page -2

It is a pleasure to record my thanks and gratitude to persons and organizations whose generous help and support
enabled me to complete this research report within the stipulated time period. My special thanks are due to It is
a pleasure to record my thanks and gratitude to persons and organizations whose generous help and support
enabled me to complete this project within the stipulated time period. My special thanks are due to

for their active help and support in making me understand about Indian two wheeler industry, who guided me at
each step during my research report period and without whom preparation of this report would not have been
This research report is the culmination of the synchronized effort of all the above mentioned that had faith and
confidence in me.
I am greatly indebted to all those persons who have helped me in some way or other in the completion of the
research report.


The Two Wheeler Market Globally

Globally, the Two-wheeler Industry is concentrated in the developing world, especially China and India, Which
together account for over half the total worldwide sales of Two-wheelers.
The Japanese Manufacturers, Honda, Yamaha, Suzuki and Kawasaki, dominate the Two-Wheeler Industry
globally currently, all major two wheeler market, except India are dominated either by Japanese firms or their
joint ventures. However, in the leading markets, such as China and India and South-Asia, a host of local players
Globally, four-Stroke engines are fast replacing the Two-Stroke variants with stricter emission norms
being imposed and vehicles powered by two-stroke being banned, four-stroke powered two-wheeler have found
increasing favor.
Powered Two-Wheeler Popular in Asian Countries such as China and India where Motorcycle
dominate the PTW market. Outside India, presence of Scooters is limited. Scooters are far more popular in
Europe than in the US. Europe has very High fuel prices, congested city streets with limited parking space, and
a long history of accepting scooters as a respectable mode of transportation, all leading to a considerable interest
in scooters.

Two-wheeler Industries: The Indian scenario

The Indian two-wheeler industry can be divided into three broad categories: scooters, motorcycles and mopeds.
Each of these categories can be further segmented on the basis of several variables, like price, engine power,
type of ignition and engine capacity.
The two-wheeler industry has come a long way since its inception in the early 1950s when scooters were first
produced in the country. Today, India is the second largest producer and consumer of two-wheeler in the world;
the Indian two-wheeler industry has grown rapidly over the past 15 years. The demand for two-wheelers
increased at a CAGR of around 11% from 0.44million vehicles in FY 1981 to over 4.23 million in FY2002.







SOLD ('000



The Indian two-wheeler industry has undergone a significant change over the past 10 years with the practical
changing from mopeds to scooters and more recently, from scooters to motorcycles. Scooters, which were
considered the family vehicle for middle class Indians, are increasingly losing their position as a cheap mode of
personal transportation. With the reduction in the price differential between scooters and motorcycles, there has
been a perceptible shift towards motorcycle motorcycles because of their better styling, higher fuel efficiency,
and higher load carrying capacity.

Further, the decline in excise duty on scooters and motorcycles has reduced their price differential in
comparison with mopeds. The change in customer preferences, better fuel efficiency and increased affordability
of motorcycles has titled the demand in favour of motorcycles. The share of scooters sales in two-wheeler sales
has been reducing steadily since FY1990 when scooters accounted for more than half of all two-wheelers sold in
the country.
Till FY1998, scooters formed the largest segment accounting for 41% of total industry sales, while motorcycles
and mopeds accounted for 37% and 21% of all two-wheelers sales respectively. However, during FY1999, for
the first time, the sales of motorcycle outperformed scooter sales.

The shares of scooters, motorcycles and mopeds inFY2000 were 33%, 48%, and 19%, respectively. Although,
the shares of scooters and mopeds declined in FY2001 and
FY2002, the shares of motorcycles increased to 58% and 69% respectively in these years

In FY2003, motorcycle sales in India increased at the rate of 28% Vis--vis FY2002. A
significant development in the motorcycle industry during the late 1990s was the shift
from two-stroke to four-stroke technology.


The study was conducted at YAMAHA MOTOR, keeping in mind the following objectives:-

To study analysis of financial statement.

To study simplification of accounting data.

To study locating weak spots of the business.

Estimate about trends in business.

To study about the financial soundness.

To study in fixation of ideal standards.


There are two concepts of working capital (a) Gross concept (b) Net concept. Gross
concept, working capital refers to a companys investment in current assets. Current assets are
assets, which can be converted in to cash with in accounting year and include cash, short term
investment, debtors bills receivables, and stock. The term net working capital refers to the
difference between current assets and current liabilities. Current liabilities are those claimed of
outsiders, which are expected to nature for payment with in an accounting year and include
creditors, bills payable, bank overdrafts and outstanding expenses. The net concept of working
capital is also called qualitative concept. The financial analyst also gives importance to this
concept of working capital and he also sees it as the excess total assets our total liabilities the
net working capital and he also see it as the excess total assets our total liabilities the net
working capital, on the same analogy, must mean the success of the current over the current
liabilities, if current assets are less than current liabilities, there will be no working capital at all.
In fact it would mean that fixed assets have been financed partially by long - term funds and
partly by the short term funds. Judging from the liabilities side of balance sheet, working
capital means that part of long term capital that is used to finance current assets.
The two concept of working capital Gross & net working capitals-gross and net-are not
exclusive, they have rather equal significance from the Management viewpoint. Gross working
capital concept focus attention on two aspects of current assets Management, (a) optimum
investment in current assets and (b) Financing of current assets. The consideration of the level
of investment and inadequate investment in current assets. Another aspect of gross working
capital points to the need of arranging funds to finance current assets. Whenever a need for
working capital funds arises due to increasing level of business activity of for any other reason,
arrangement should be made quickly. Similarly, if suddenly some surplus funds arise, they
should be invested in short-term securities. Thus, a financial manager should have knowledge of
sources of working capita funds as well as invested. The net working capital assets indicates (a)
the liquidity position of a firm, and (b) Suggests the extent to which working capital needs may
be financed by permanent source of finds. Currant assets should be sufficiently in excess of

current Liabilities to constitute a margin of buffer for matwing obligations, which the ordinary
operating cycles of a business. In order to project their interests, short-term creditors always like
a company to maintain current assets at a higher level than current liabilities.
The net working capital concept also the judicious mixture of long-term and short-term funds
for financing current assets. For every business there is minimum amount of net working
capital, which is permathe permanent sources of finds such as owners capital, debentures and
long-term debt, management must, therefore, decide the extent to which current asserts should
be financed with equity capital and / or borrowed capital. The time honored and majority
accepted view of working capital is that is must measure the relationship of current assets with
current liabilities .it must, therefore, include not the whole of current assets but that part which
is not committed for payment of one year liabilities. This view of working capital has been
used in the present studynent. Therefore, a portion of working capital should be financed with

Sources of Working Capital

Long term Sources

Short term Sources

Owned Sources
External sources

Borrowed Sources

Internal Sources

1. Issue of Shares
2. Retained Earnings
of Credit
3.Sales of Fixed Assets
4. Retiring Current Liabilities
below book value

1. Debentures

1. Depreciation Funds

1. Trade

2. Long-term debt

2. Provision for Taxation

2. Letters

3. Outstanding Payments

3. Bank
4. Public
5. Advance

From Customers
5. Reserves

6. Finance
7. Native

Moneylenders etc.
8. Loans
from executive and
Governmental Assistance
Securities of Employees

Working Capital can be obtained from the following sources1.Long-Term Sources, and
2. Short-Term sources.



There are four important principles of working capital management:
I. The Principle of Risk Variation.
II. The Principle of Cost of Capital
III. The Principle of Equity Position
IV. .
I. Th The Principle Of Risk Variation
In the context of working Capita, the meaning of risk is "Inability of a firm in
maintaining adequate current assets to pay its short-term obligations. If the working capital
changes in relation to sales, the amount of risk that a firm assumes also changes and the chance
for profit or loss increases. There is a positive relationship between the degree of risk and rate
of return. A negative relationship is experienced between the working capital in relation to
sales and degree of risk. Hence if the level of working capital increases, then the degree of risk
decreases and the chances of profit and loss are affected severely. Resting upon their attitudes,
the management changes the size of their working capital. A conservative management prefers
minimum risk by having more working capital, on the other hand; progressive management
considers greater and greater risk by decreasing the level of working capital.
The objective of a management should be to maintain such a level of working capital,
which can maximize rate of return of a firm. This level may be the point at which the
incremental loss associated with the decrease in working capital investment becomes, greater
than the incremental gain associated with that investment.


II. Principle Of Cost Of Capital

Basically this principle keeps the cost of capital, in view. The cost of capital is different
for different sources of finance. It is remarkable that the cost of capital changes inversely with
risk. Thus, additional risk, results in e Principle of Maturity of the decline in the cost of capital.
III. Principle Of Equity Position
The amount of working capital invested 'in each component should be sufficiently
justified by the equity position of a firm. Every rupee invested in the working capital should
contribute to the net worth of the firm.
IV. Principle Of Maturity Of Payment
A firm should not leave any stone unturned regarding establishing parity between inflows
and outflows of funds within the firm because greater risk is generated with greater disparity. A
margin of safety should be maintained for the quick settlement of short-term debt.


Scope of the study

The ability of the firm to meet current obligation;

The extent to which firm has used its long term solvency by borrowing funds;

The efficiency to which firm is utilizing its assets in generating sales revenue; and

The overall operating efficiency and performance of the firm.



The success of any study calls for the development of most efficient plan for gathering the desired information.
Therefore a properly defined research methodology is a prerequisite for carrying out the successful research
which in turn demands clear objectives.
Research is a Process of Systematic Study or Search for any particular topic, subject or area of investigation,
backed by the collection, compilation and presentation of relevant details or data.
It is careful search or inquiry into any subject which is an endeavor to discover or find out valuable facts which
would be useful for the further application or utilization.



There are several ways of collecting the appropriate data, which differ considerably in context of money, cost,
time and other resources. They can be broadly divided into two categories:-

PRIMARY DATA: - It refers to information obtained firsthand by the researcher on the variables of interest for
the specific purpose of the study. This includes individuals, focus groups, interviews, and observations, Panels
SECONDARY DATA: - It refers to information gathered from sources already existing. This includes
Company records, web sites, Internet, various Publications etc.
During my study I used both the sources of data collection i.e. Primary & Secondary source of data. As far as
secondary data is concerned, it included company profile, company records, brochures, and various
publications, Internet etc.
Besides secondary data collections, primary sources like Interview and observations are used for undertakings
the study.


Chapter - 2



Yamaha made its initial foray into India in 1985. Subsequently, it entered into a 50:50 joint venture with the
Escorts Group in 1996. However, in August 2001, Yamaha acquired its remaining stake as well, bringing the
Indian operations under its complete control as a 100% subsidiary of Yamaha Motor Co., Ltd, Japan.
India Yamaha Motor operates from its state-of-the-art-manufacturing units at Faridabad in Haryana and Surajpur
in Uttar Pradesh and produces motorcycles both for domestic and export markets. With a strong workforce of
2000 employees, India Yamaha Motor is highly customer-driven and has a countrywide network of over 400
The company pioneered the volume bike segment with the launch of its 100 cc 2-stroke motorcycle RX 100.
Since then, it has introduced an entire range of 2-stroke and 4-stroke bikes in India. Presently, its product
portfolio includes Crux (100cc), Alba (106cc) and Gladiator (125cc).



We are committed to:

Be the Exclusive & Trusted Brand renowned for marketing and manufacturing of YAMAHA MOTORS
products, focusing on serving our customer where we can build long term relationships by raising their lifestyle
through performance excellence, proactive design & innovative technology. Our innovative solutions will
always exceed the changing needs of our customers and provide value added vehicles.
Build the Winning Team with capabilities for success, thriving in a climate for action and delivering results. Our
employees are the most valuable assets and we intend to develop them to achieve international level of
professionalism with progressive career development. As a good corporate citizen, we will conduct our business
ethically and socially in a responsible manner with concerns for the environment.
Grow through continuously innovating our business processes for creating value and knowledge across our
customers thereby earning the loyalty of our partners & increasing our stakeholder value.



Customer #1
We put customers first in everything we do. We take decisions keeping the customer in mind.
Challenging Spirit
We strive for excellence in everything we do and in the quality of goods & services we provide. We work hard
to achieve what we commit & achieve results faster than our competitors and we never give up.
We work cohesively with our colleagues as a multi-cultural team built on trust, respect, understanding & mutual
co-operation. Everyone's contribution is equally important for our success.
Frank & Fair Organization
We are honest, sincere, open minded, fair & transparent in our dealings. We actively listen to others and
participate in healthy & frank discussions to achieve the organization's goals



Paving the Road to Yamaha Motor Corporation

Genichi Kawakami
"I want to carry out trial manufacture of motorcycle engines." It was from these words spoken by Genichi
Kawakami (Yamaha Motor's first president) in 1953, that today's YAMAHA MOTORS Company was born.
"If you're going to do something, be the best."
Genichi Kawakami was the first son of Kaichi Kawakami, the third-generation president of Nippon Gakki
(musical instruments and electronics; presently Yamaha Corporation). Genichi studied and graduated from
Takachiho Higher Commercial School in March of 1934. In July of 1937, he was the second Kawakami to join
the Nippon Gakki Company.

He quickly rose to positions of manager of the company's Tenryu Factory Company (musical instruments) and
then Senior General Manager, before assuming the position of fourth-generation President in 1950 at the young
age of 38.

In 1953, Genichi was looking for a way to make use of idle machining equipment that had previously been used
to make aircraft propellers. Looking back on the founding of Yamaha Motor Company, Genichi had this to say

"While the company was performing well and had some financial leeway, I felt the need to look for our next
area of business. So, I did some research." He explored producing many products, including sewing machines,
auto parts, scooters, three-wheeled utility vehicles, and motorcycles. Market and competitive factors led him to
focus on the motorcycle market. Genichi actually visited the United States many times during this period.

When asked about this decision, he said, "I had my research division chief and other managers visit leading
motorcycle factories around the country. They came back and told me there was still plenty of opportunity, even
if we were entering the market late. I didn't want to be completely unprepared in this unfamiliar business so we
toured to German factories before setting out to build our first 125cc bike. I joined in this tour around Europe
during which my chief engineers learned how to build motorbikes. We did as much research as possible to
insure that we could build a bike as good as any out there. Once we had that confidence, we started going."



Ever since its founding as a motorcycle manufacturer on July 1, 1955, Yamaha Motor Company has worked to
build its products which stands among the very best in the world through its constant pursuit of quality; and at
the same time, through these products it has sought to contribute to the quality of life of people all over the
world. Following are the success of our motorcycle, Yamaha being manufacturing Powerboats and outboards
Motors in 1960, since then, Engine and FRP Technology were used as a base to actively diversify and Globalize
the area of business. Today, our field of influence extends from the land to the sea and even into skies as our
business divisions have grown motorcycle operations to include Automotive Operations, Power Product
Operations, and Intelligent machinery Operations and PAS Operations.

Persuing The Ultimate In

Personal Vehicle

Ever since the founding Yamaha Motor Company has been a company that continues to develop its expertise in
the field of small Engines and Fiber Glass Reinforced Plastic (FRP) Manufacturing as well as Electronic
Control Technologies Yamaha Pursues the ideals of building products of High Quality and High


Environment friendly and People friendly

In product building and promotional efforts Yamaha takes as one of the fundamental ideals the concept that
products, which are people friendly, should be Environment Friendly and products that are environment friendly
should also be people friendly. This concept is born of our awareness that It is the Earth and Possible.
Yamaha Motor Company Supplies the Power that moves people and helps them to live to their fullest as
human beings. Yamaha vehicles have the practical advantage of using the minimum of energy for human
transport that means less negative impact on the Environment.

Technological Advantages

At the hearts of the efforts of environmental preservation are the environmental management system designed
and implemented under the ISO 14001 international standard. Under the slogan Absolute Quality Control.
Yamaha was the early adopter of comprehensive Quality Control System and quick to put in a place or Total
Productive Management

Producing means to an active Life

At Yamaha business and leisure are treated as insuperable parts of life that is a reason of striving to help bring
people around the world a more active life.



July 1,1955


48,302 million yen (as of March 31,2013)


Takashi Kajikawa


46,850 (as of December 31, 2012)


Parent: 9,019 (as of December 31, 2012)


1,756,707 million yen


( from January 1, 2012 to December 31, 2012)

Parent: 799,209 million yen
(from January 1, 2012 to December 31, 2012)

Sales Profile

Sales (%) by product category (consolidated)

Sales (%) by region (consolidated)


Major Products &


2500 Shingai, Iwata-shi, Shizuoka-ken, Japan

Manufacture and sales of motorcycles, scooters, electro-hybrid

bicycles, boats, sail boats, Water Vehicles, pools, utility boats, fishing
boats, outboard motors, diesel engines, 4-wheel ATVs, side-by-side
vehicles, racing karts, golf cars, multi-purpose engines, generators, water

pumps, snowmobiles, small-sized snow throwers, automotive engines,

intelligent machinery, industrial-use remote control helicopters, electrical


For society, for the world

Yamaha works to realize
our corporate mission of creating Kando

Yamaha Motor is a company that has worked ever since its founding to build products defined by the concepts
of high-quality and high-performance and light weight and compactness as we have continued to develop
new technologies in the areas of small engine technology and FRP processing technology as well as control and
component technologies.

It can also be said that our corporate history has taken a path where people are the fundamental element and
our product creation and other corporate activities have always been aimed at touching peoples hearts. Our goal
has always been to provide products that empower each and every customer and make their lives more fulfilling
by offering greater speed, greater mobility and greater potential.

Said in another way, our aim is to bring people greater joy, happiness and create Kando* in their lives.
As a company that makes the world its field and offers products for the land, the water, the snowfields and the
sky, Yamaha Motor strives to be a company that offers new excitement and a more fulfilling life for people all
over the world and to use our ingenuity and passion to realize peoples dreams and always be the ones they
look to for the next Kando.








India Yamaha Motor is all set to launch its next season of YAMAHA RACING as YAMAHA IS
CHAMPIONSHIP, 2013 at Madras Motor Race Track from 4th June, at Chennai.
After kick starting the trend two years back, Yamaha is back to fuel the
growing appetite for superbikes in India with the launch of Super Sports 2013 in the
Indian market. With the launch of this machine, Yamaha is all set to enhance the joy of
Indian riders and experience true Art of Engineering, which lies at the heart of Yamahas
This time we shifted our focus to the 150 cc range, through which we sought to
reestablish our brand. We have spent around IRs 6 billion in the last two years on
infrastructure, new moulds, parts and assembly units. We now manufacture 600,000
units a year working in two shifts. If demand rises even more, we can add another shift.
Next year, we hope to increase our total exports to 150,000 units. In Nepal, Yamaha
expect a growth this year to equal last years



Ratio analysis

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two
mathematical expressions and as the relations between two or more things.

In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance. The
absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the
performance and financial position of a firm. For example, a Rs. 5 crores net profit may look impressive, but
firms performance can be said to be good or bad only when the net profit figure is related to firms investment.
Ratio helps to summarize large quantities of financial data and to make qualitative judgment about the firms


Standards of comparison
The ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in
itself does not indicate favorable or unfavorable condition. It should be compared with some standards.
Standards of comparison may consist of:

Past ratios, i.e., ratios calculated from past financial statements of the firm

Competitors ratio, i.e., ratio of some selected firms, especially the most progressive and successful
competitor, at the same point of time;

Industry ratios ,i.e., ratio of industry which the firm belongs; an

Projected ratios, i.e., ratios developed using the projected, Performa, financial statements of the same

Time ratio analysis:

The easiest way to evaluate the performance of the firm is to compare its present ratio with the past ratios. When
financial ratios over a period of time are compared, it is known as time series analysis. It gives an indication of
the direction of change and reflects whether firms financial performance has improved, deteriorated or remain
constant over time.

Cross sectional analysis;

Another way of comparison is to compare ratio of the firm with some selected firms in the same industry at the
same point in time. The kind of comparison is known as the cross-sectional analysis. The kind of comparison
indicates the relative financial position and performance of the firm. A firm can easily report to such a
comparison, as it is not difficult to get the published financial statements of the similar firms.


Industry analysis:
To determine financial condition and performance of a firm, its ratio may be compared with average ratio of the
industry of which firm is a member. The sort of analysis is known as industrial analysis, help member to
ascertain the financial standing and capabilities of the firm vis--vis other firms in the industry. Industry ratios
are important standard in the view of the fact that each industry has its characteristics, which influence the
financial and operating relationships.

Practical difficulties:1. It is difficult to get average ratio for the industry.

2. Even if industry ratios are available they are average ratios of string and weak firms. Some time difference is
so wide that average is of small utility.
3. Averages may be meaning less and comparison will be futile if firm within the same industry widely differ
in their accounting policies and practices.

According to R.N. Anthony:

A ratio is simply one number expressed in terms of another. It is found by dividing one number into the other.

Thus, we can say that the relationship between two figures, expressed in arithmetical terms is called a


Objective of ratio analysis

To study analysis of financial statement.

To study simplification of accounting data.

To study comparative studies.

It helps in locating weak spots of the business.

Helpful in forecasting.

Estimate about trends in business.

To have effective control

To study about the financial soundness.

Helps in fixation of ideal standards.


Scope of ratio analysis

The financial analyst use ratio to determine those financial characteristics of the firm in which they are

With the help of ratios, one can determine:

The ability of the firm to meet current obligation;

The extent to which firm has used its long term solvency by borrowing funds;

The efficiency to which firm is utilizing its assets in generating sales revenue; and

The overall operating efficiency and performance of the firm.

Performance analysis: In fact, it has to be realized that the short and long term financial position and the
profitability of the firm are tested in every kind of financial analysis, but the emphasis would differ. Some ratios
are more important in one kind of analysis than other. If a short term creditor analysis only the current position
and find it satisfactory, he cannot be certain about about the safety of his claim if the firms long term financial
position or profitability is unfavorable. The satisfactory current position would become adverse in future if the
current resources are consumed by the long term financial condition. Similarly, the good long-term financial
position is no guarantee for the long term creditors claims if the current position or the profitability of the firm
is bad.
Credit analysis: in credit analysis, the analyst will usually select a few important ratios. It may use the current
ratio or quick-asset ratio to judge the liquidity or debt-paying ability; debt-equity ratio to determine the stake of
the owners in the business and the firms capacity to survive in the long run and any one of the profitability. For
example, return on capital employed, to determine the firms earning prospects.

Security analysis: the major focus of security analysis is on the long term profitability. Profitability is
dependent on number of factors. One would certainly be concerned with the efficiency with which the firm
utilizes its assets and the financial risk to which the firm is exposed. So along with profitability ratio one would
also analyze the activity ratio and leverage ratio.

Competitive analysis: the ratio of the firm does not revel by themselves do not reveal anything. For meaningful
interpretation, the ratios of firm should be compared with the ratios of similar firms and industry. The
comparison will reveal whether the firm is significantly out of line with its competitors.

Trend analysis: The ratio analysis will reveal the financial condition of the firm more reliably when trend in
ratio over time are analyzed. The trend analysis of the ratio adds considerable significance to the financial
analysis because it studies ratio of several years and isolates the exceptional instances occurring in one or two
periods. Although the trend analysis of companys ratio is itself informative, but it is more informative to
compare the trend in companys ratio with the trend in industries ratios.

Caution in using ratio analysis

The ratio analysis is widely used technique to evaluate financial position and performance of a business. But
there are certain problems in using these ratios.
The following are certain limitations of using ratio analysis:

It is difficult to decide proper basis of comparison

The comparison is rendered difficult because of difference in situation of two companies

The price level changes make the interpretation of ratios invalid

The difference in the definition of items in the balance sheet and the profit and loss statement make the
interpretation ratios more difficult.

The ratios calculated at a point of time are less informative and defective as they suffer from short term

The ratios are generally calculated from past financial statement and, thus are no indicators of future.

Standards of comparison: Ratios of a company have meaning only when they are compared with some
standards. It is difficult to find out a proper basis of comparison. Usually it is recommended that ratios will be
compared with industry averages. But industry averages are not easily available.

Compare differences: Situations of two companies are never same. Similarly, the factors influencing the
performance of a company in one year may change in another. Thus, the comparison of ratios of the companies
becomes difficult and meaningless when they are operating in different situations.

Price level changes: The accounting figures, presented in financial statements, are expressed in the momentary
unit, which is used to remain constant. The prices change over years, which effects accounting earnings. At least
three effects of inflation can be identified; first, nominal value of inventory increase, second, asset is stated at
original cost (less depreciation) in the balance sheet. Because of inflation, their current value or replacement
cost will be much higher than book value, third, inflation affects accounting profits of the firms, which borrow.
If the interest rates is fixed, shareholders gains at the cost of lenders.
Different definitions of variables: In practice, differences exist as to the meaning of certain terms. Diversity of
views exists as to what would be included in the net worth or shareholders equity, current assets or liability.
Historical data: The basis to calculate ratios are historical financial statements. The financial analyst is more
interested in what happens in future, while the ratios indicate in the past. Management of the company has
information about the companys future plan and policies and be able to predict future happenings to a certain
extend. But the outside analyst has to rely on the past ratios, which may not necessarily reflect the firms
financial positions and performance in the future.

Types of ratios
Usually ratios are calculated from the accounting data, can be grouped into various classes according to
financial activity or functions to be evaluated.
Parties interested in the financial analysis are

Short term creditors

Long term creditors



Short term creditors: - mainly interested in the liquidity and short term solvency of the firm
Long term creditors: - more interested in the solvency and profitability of the firm.
Owners: - concentrate on the firms profitability and financial condition.
Management: - is interested in evaluating every aspect of the firms performance. They have to protect
the interests of all parties and see that firms grow profitability.

Liquidity ratios

Liquidity refers to the ability of the firm to meet its current obligations. It is also called as short term
solvency ratios. These ratios are used to assess the short-term financial position of the concern. They indicate
the firms ability to meet its current obligation out of the current resources.
According to Saloman J. Flink
Liquidity is the ability of the firm to meet its current obligations as they fall due.
According to Herbert B. Mayo
Liquidity is the ease with which assets may be converted into cash without loss.
Liquidity Ratios are:
1. Current Ratio.
2. Quick Ratio.
3. Cash Ratio.

Leverage ratios

Long term creditors like the debentures holders; financial institutions etc. are interested in the firms long-term
financial strength. These ratios are calculated to assess the ability of the firm to meet its long-term liability as
and when they become due.
To judge the financial position of the , financial leverage, or capital structure ratio are calculated. These ratios
indicate mix of funds provided by owners and lenders.

Leverage ratios are as:

1. Debt-equity ratio
2. Debt to total funds ratio
3. Proprietary ratio
4. Interest coverage ratio.


Activity ratios

Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes the assets.
These are also called the turnover ratios, because they indicate the speed with which assets are being inverted or
turned over into sales. Higher turnover ratios indicate the better utilization of capital or resources and in turn
lead to higher profitability.

Several activity ratios are calculated to judge the effectiveness of assets utilisation. These are:-

1. Inventory Turnover Ratio.

2. Debtors Turnover Ratio.
3. Fixed assets Turnover Ratio.
4. Average collection Period.


Profitability ratios

A company should earn profits to survive and grow over a long period of time. Profit is the measurement of the
efficiency of the business.

Generally there are two types of profitability ratios calculated:

Profitability in relation to sales.

Profitability in relation to investment.

Profitability ratios include the following:1. Gross Profit Ratio.

2. Net Profit Ratio.
3. Operating Profit Ratio.
4. Return on Investment.
5. Return on Equity.


Solvency Ratios

Current Ratio
This ratio explains the relationship between current assets and current liabilities of a business. The formula of
calculating the ratio is :Current Assets
Current ratio =

Current Liabilities

Current Assets include those assets which can be converted into cash within a years time and current liabilities
include those liabilities which are repayable in a years time. This ratio indicates the availability of current
assets in rupees for every one rupee of current liability.

= Bank
+ Bills
+ Creditors
+ Provision
Assets = Cash
in hand
+ Cash
at Bank
+ short
term investments
for Taxation + Proposed dividend + Unclaimed dividend
+ Outstanding
dividend + Loans payable within a year.
Debtors + stock+ prepaid


For the year 2007 - 2008(in crore) = = 5.02:1

For the year 2008 - 2009 (in crore) = = 3.57:1
For the year 2009 -2010(in crore) = = 3.47:1
For the year 2010 -2011(in crore) = = 4.79:1
For the year 2011-2012(in crore) = = 5.23
For the year 2012-2013(in crore) = = 7.23
For the year 2013-2014(in crore) = = 8.63


Current ratio


Significance: As a conventional rule, a ratio of 2:1 or more is considered satisfactory. It means that current
assets should, at least, be twice of its current liabilities. The higher ratio, the better it is, because the firm will be
able to pay its current liabilities more easily.

Comments:Although the high ratio shown by the graph says that we can easily meet up our current liabilities but too high
ratio is also not beneficial for the company as it shows that because of poor investment policies of the
management and poor control of inventory, assets are lying idle and they should be further invested.

Quick ratio


Quick ratio indicates whether the firm is in a position to pay its current liabilities within a month or
Liquid assets
Quick Ratio =
Current liabilities
Liquid assets = Current assets Stock Prepaid Expenses

Liquid assets mean those assets which will cash very shortly. All current assets accept stock and prepaid
expenses are included in liquid assets. Stock is excluded from liquid assets because it has to be sold before it
converted into cash. Prepaid expenses are also excluded from it because they are not expected to be converted
into cash.
For the year2007 - 08 (in crore) = = 4:1
For the year 2008 - 09 (in crore) = = 2.8:1
For the year 2009 -10 (in crore) = = 2.51:1

For the year 2010 11 (in crore) = = 3.46:1


For the year 2011 12 (in crore) = = 3.17:1
For the year 2012 13 (in crore) = = 4.55:1
For the year 2013 14 (in crore) = = 4.77:1


Quick Ratio Graph


Significance: Generally, the quick ratio of 1:1 is considered to be satisfactory. Quick ratio thus more rigorous
test of liquidity than the current ratio ands, when used together with current ratio, it gives a better picture of
short term financial position of the firm.

Comments:Since quick ratio is increasing over the years, it gives a better picture of firms short term financial position so
firm is in a position to pay its current liabilities immediately or within a month.


Cash Ratio

Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current
liabilities. Trade investments and marketable securities equivalent to cash; so they may be included in cash ratio.
Cash + Marketable securities
Cash Ratio =
Current Liabilities

For the year 2007 - 08 (in crore) = = 1.28:1
For the year 2008 - 09(in crore) = = 1.08:1
For the year 2009 - 10 (in crore) = = 0.48:1
For the year 2010 - 11(in crore) = = 0.47:1


For the year 2011 - 12(in crore) = = 0.52:1
For the year 2012 - 13(in crore) = = 1.83:1
For the year 2013 - 14(in crore) = = 2.62:1


Cash Ratio Graph


Significance : cash ratio generally helps in finding out whether the cash is being proper utilized in the business
or not and to check that whether or not cash is lying ideal in the firm, if yes then to make proper utilization of

As we can see that circulation of cash has decreased over the past years. It shows that debtors are not making
prompt payments and company is not able to make better utilization of cash.


Activity Ratio
Inventory Turnover Ratio
Inventory turnover indicates the efficiency of the firm in producing and selling its products. It is calculated by
dividing the cost of goods sold by the average inventory.
Cost of Goods Sold
Inventory Turnover Ratio =
Average inventory

Cost of goods Sold = Opening Stock + Purchases + Direct Charges Closing


Cost of Goods Sold = Net Sales Gross Profit.

For the year 2007 - 08(in crore) = = 7.34 times
For the year 2008 09 (in crore) = = 7.14 times

For the year 2009 - 10(in crore) = = 6.22 times
For the year 2010 - 11 (in crore) = = 6.21 times
For the year 2011 - 12 (in crore) = = 6.59 times
For the year 2012 - 13 (in crore) = = 7.42 times
For the year 2013 - 14 (in crore) = = 7.57 times


Inventory Turnover Ratio Graph


Significance: This ratio indicates whether or not the stock has been efficiently utilized. It shows the speed with
which the stock is rotated into sales. The higher the ratio, the better it is, since it indicates that the stock is
selling quickly. In business where stock turnover is high goods can be sold at low margin of profit and even then
the profitability can be high.

Comments:Inventory turnover ratio of the company is quite good earlier it means that there is proper outflow of
the stock and goods do not remain in the go down for a long time. As we can see that inventory turnover is
decreasing which shows that there is overspending in stock which is left unused.


Debtors Turnover Ratio

This ratio indicates the relationship between the credit sales and average debtors or debtor of the current year.

Net Credit Sales

Debtors turnover Ratio =
Average Debtors + Average B/R

Bills receivables are added in debtors for the purpose of calculation of this ratio. While calculating this ratio,
provision for bad debt and doubtful debt is not deducted from total debtors, so that it may not give a false
impression that debtors are collected quickly.
Net Credit Sales = Total Sales Cash Sales.
Average Debtors = (Opening Debtors + Closing Debtors) / 2
Average Bills Receivables = (Opening B/R + Closing B/R) / 2
For the year 2007 - 08(in crore) = = 3.47 times
For the year 2008 - 09 (in crore) = = 2.38 times
For the year 2009 - 10(in crore) = = 2.38 times

For the year 2010 - 11 (in crore) = = 2.72 times
For the year 2011 - 12 (in crore) = = 3.55 times
For the year 2012 - 13 (in crore) = = 3.78 times
For the year 2013 - 14 (in crore) = = 4.83 times


Debtors Turnover Ratio Graph


Significance: This ratio indicates the speed with which the amount is collected from debtors. The higher the
ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The less the
risk from bad debt, and so the lower the expenses of collection and increase in the liquidity of the firm.

Comment - turnover ratio of the company is 2.72 which is quite good it means there is efficient credits sales
policy of the management. So there is less risk of bad debts but there is increase in the ratio from the last year.
But still the ratio is low as compared to year 2007- 08 which was 3.47 times, so company should take
appropriate steps to increase the ratio.



Working capital turnover ratio indicates the velocity of the utilization of net working capital.
This ratio represents the number of times the working capital is turned over in the course of year

Cost of sales
Working capital turnover Ratio = 100
Net working capital

Current Assets = $10,000 + $5,000 + $25,000 + $20,000 = $60,000

Current Liabilities = $30,000
Net Working Capital = Current assets Current liabilities
= $60,000 $30,000
= $30,000
So the working Capital Turnover Ratio = 150,000 / 30,000
= 5 times

For the year 2007 - 08(in crore) = 100 = 22.94%
For the year 2008 - 09 (in crore) = 100 = 22.28%
For the year 2009 - 10 (in crore) = 100 = 22.33 %


For the year 2010 - 11 (in crore) = 100 = 20.03 %
For the year 2011 - 12 (in crore) = 100 = 25.05 %
For the year 2012 - 13 (in crore) = 100 = 28.66 %
For the year 2013 - 14 (in crore) = 100 = 30.76 %




Significance: This ratio measures the margin of profit available on sales. No ideal standard is fixed for this
ratio, but it should be adequate enough to meet not only operating expenses but also to provide for depreciation,
interest on loans, dividends and creation of reserve.

As the figure clearly states that the revenue generated from sales is increasing but the profit is going down by
few digits because of increase in manufacturing activities. But still the ratio of the current year is quite
significant but still the company need to find the reason for this continuous decrease in the ratio which might be
problematic in near future.


Return on Investment (ROI)

This ratio reflects the overall profitability of the business. It is calculated by comparing the profit earned and the
capital employed to earn it.
Profit before tax, interest and dividends
Return on investment = 100
Net worth
For the year 2007 - 08 (in crore) = 100 = 64 %
For the year 2008 - 09 (in crore) = 100 = 36 %
For the year 2009 - 10 (in crore) = 100 = 38 %
For the year 2010 11 (in crore) = 100 = 48 %
For the year 2011 - 12 (in crore) = 100 = 51 %
For the year 2012 - 13 (in crore) = 100 = 52 %
For the year 2013 - 14 (in crore) = 100 = 55%

Return on investments

Significance: This ratio helps in taking decisions regarding capital investment in the new projects. The new
projects will be commenced only if the rate of return on capital employed / net worth in such projects is
expected to be more than the rate of borrowings.
As the figure clearly states that the revenue generated from sales is increasing but the profit is going down by
few digits because of increase in manufacturing activities. But still the ratio of the current year is quite
significant but still the company need to find the reason for this continuous decrease in the ratio which might be
problematic in near future.



After collection and analyzing the data, the researcher has to accomplish the task of drawing inferences.
Its only through interpretation that researcher can expose relations and processes that underlie his findings. Thus
interpretations a device through which the factor that seems to explain what has been observed by researcher in
the course of the study can be understood better. So for the simplification I have divided my findings in four


Leverage Ratio
Debt ratio of the firm is decreasing which indicates that the firm is able to pay its debts in time.
Debt to total funds ratio is also decreasing and firm is finally paid all of its debt in the current years which tell
that firm is free from all outside liabilities. And now it can invest its money in market or it can also easily take
loans from lenders.
Proprietary ratio of the firm is also much higher than 33 % which is the indicator of sound financial position
as firm is less dependent on external sources of finance.
Turnover Ratios
Fixed assets ratio revels how efficiently the fixed assets are being utilized in the business. As indicated by an
increase this shows proper utilization of assets.
Inventory turnover ratio is quite high which indicates that stock is regulated into business at regular intervals
and one can also measure the sales polices of the firm.
Debtor turnover ratio also shows an increase which indicates that the amount is regularly collected by the
debtors so there is less risk of bad debts and collection period also satisfies the requirement of the company.

Profitability Ratios
Gross profit ratio compared with the previous years shows a gradual decrease which sounds problematic for
the company.
Net profit ratio decrease with the high volumes compared to the previous years. This is due to depreciation
provision and increase in manufacturing and operating expenses.

Operating profit ratio also shows a decrease in comparison to past years.


Gross profit ratio of the company is declining, this could be due to:
Increase in the prices of raw material.
Increase in the manufacturing expenses.
There is fall in prices of unsold goods, there by reducing the value of unsold goods.

Focused attention should be paid by initiating a special drive to expatiate recoveries from sundry

The net profit ratio of the firm also decreases. It shows the inefficiency and unpredictability of the
business. This decline is because in expenses borne by operating activities.

The liquidity ratio shows that the liquidators position of the company is quite satisfactory. All the ratios
such as the current ratio, quick ratio and cash ratio show a significant increase in comparison with past
years. The company has to make full utilization of its assets.

Leverage position of the company is good as we can see that the ratio continuously decreases and lastly
the firm is able to pay all its debt in current year. So the firm should try to maintain it and should invest
its money in some profitable activities.

The operating profit ratio is less than previous year.


These were some of the ratio that was very regularly used at Thomson press for the necessary analysis activities
performed by it from time to time. Thomson press uses this technique usually to check out its current
functioning and to compare its performance on regular basis with the past years.
This technique is useful in inter-firm analysis and to judge once performance standard as ratio helps to set some
standard marks which the firm target to achieve in the given span of time.


Chapter 6
Analysis of Financial Statements-D.K Goel
Fundamentals of Accounting-T.S. Grewal