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PROJECT REPORT

Summary
Established in 1971 by a group of technocrats led by Mr. Ramesh Chandra, Unitech has
over the last three decades emerged as one of the leading business houses in India. Apart
from the flagship business of real estate development, the group has interests in varied
businesses such as Fund management, Infrastructure development and Transmission tower
manufacturing.

Unitech has long partnered with internationally acclaimed architects and design
consultants including SOM (USA), BDP (UK), Maunsell AECOM (HK), MEA Systra
(France), Callison Inc. (USA), RMJM (UK), FORREC (Canada), SWA, and HOK (USA)
for various projects. It s clientele for commercial projects includes global leaders such as
Fidelity, McKinsey, Bank of America, Ford Motors, Nike, Intercontinental Hotel Group,
EDS, Hewitt, Amdocs, Ernst & Young, United Health Group, Converges, Reebok

A ratio is a comparison of any two relevant values from balance sheet and profit & loss
a/c of an organization. J. Batty defines “accounting ratios” as a relationship expressed
between numbers reflected in profit and loss account, balance sheet or any other part of
accounts.

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PROJECT REPORT

Chapter
~1
Company
profile

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PROJECT REPORT

Established in 1971 by a group of technocrats led by Mr. Ramesh Chandra,


Unitech has over the last three decades emerged as one of the leading business houses in
India. Apart from the flagship business of real estate development, the group has interests
in varied businesses such as Fund management, Infrastructure development and
Transmission tower manufacturing.

The Group has recently ventured into mobile telecom business. The Group’s
flagship company Unitech Limited is a leading real estate developer in India with a market
capitalization of around USD 6 billion. Unitech has been at the forefront of the rapid
transformation of Indian real estate sector in the recent years.

From being a National Capital Region (NCR) focused real estate developer,
Unitech has fast established a pan Indian presence. It is already a market leader in NCR
and Kolkata and endeavors to attain leadership in every market that it operates in.

Unitech has the most diversified product mix comprising residential, commercial/
Information Technology (IT) parks, Retail, Amusement parks, Hotels and Special
Economic Zones. It is known for the quality of its product and is the first real estate
developer to have been certified ISO 9001:2000 certificate in North India.

Unitech has long partnered with internationally acclaimed architects and design

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PROJECT REPORT

consultants including SOM (USA), BDP (UK), Maunsell AECOM (HK), MEA Systra
(France), Callison Inc. (USA), RMJM (UK), FORREC (Canada), SWA, and HOK (USA)
for various projects. It s clientele for commercial projects includes global leaders such as
Fidelity, McKinsey, Bank of America, Ford Motors, Nike, Intercontinental Hotel Group,
EDS, Hewitt, Amdocs, Ernst & Young, United Health Group, Converges, Reebok.

Over the years, Unitech has been very efficient in utilizing capital and has grown
to become a USD 6 billion market cap company with a cumulative external equity capital
of under USD 10 million! It was the first real estate company to be part of the National
Stock Exchange s NIFTY 50 index.

Group has recently ventured into the fast growing mobile telecom business in
India. It has already secured the licenses for providing Mobile telecom services across the
country. Rollout is expected to happen by the end of this fiscal year.

BOARD OF DIRECTORS

Chairman Mr. Ramesh Chandra


Managing Directors Mr. Sanjay Chandra
Mr. Ajay Chandra

Whole – Time Directors Mr. A. S. Johar

Directors Ms. Minoti Bahri


Mr. G. R. Ambwani
Dr. P. K. Mohanty
Mr. Anil Harish
Mr. Sanjay Bahadur
Mr. Ravinder Singhania

Executive Vice President


& Company Secretary Mr. S. Ravi Aiyar

Presidents Mr. H. D. Sharma


Col. K. Prakash

Executive Vice Presidents Mr. M. K. Agrawal

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PROJECT REPORT

Mr. S. Ravi Aiyar


Mr. Sameer Bahri
Mr. S. S. Bhowmick
Mr. V. K. Chadha
Mr. R. B. Jhalani
Dr. P. K. Magu
Mr. S. K. Mahajan
Mr. R. S. Sharda
Mr. R. K. Sharma

Auditors Goel Garg & Co.


Chartered Accountants

Bankers Allahabad Bank


Axis Bank Limited
Bank of India
Canara Bank
Catholic Syrian Bank
Central Bank of India
HDFC Bank Limited
ICICI Bank Limited
Indian Overseas Bank
Jammu & Kashmir Bank Limited
Standard Chartered Bank
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of India
State Bank of Indore
State Bank of Mysore
State Bank of Travancore
Syndicate Bank
The Bank of Rajasthan Limited

Solicitors Amarchand & Mangaldas


& Suresh A. Shroff & Co.

REGISTERED OFFI CE
6, Community Centre, Saket, New Delhi 110017
Tel.: +91-11-26857331 (Shares), 26857330 (FD), 26965169/41664040 (Marketing).
Fax: +91-11-26857338
CORPORATE OFFI CE
D-3, District Centre, Saket Place, New Delhi 110017

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PROJECT REPORT

Tel.: +91-11-29562196
GURGAON OFFI CE
Unitech Signature Towers, Ground Floor, South City-1,
Gurgaon. Tel.: +91-124-4082020. Fax: +91-124-4083355
www.unitechgroup.com

CHAPTER ~ 2
BALANCE
SHEET
&
PROFIT AND
LOSS A/C
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PROJECT REPORT

BALANCE SHEET AS ON 31ST MARCH, 2007


PARTICULARS RUPEES RUPEES
SOURCES OF FUNDS
1) SHAREHOLDERS’
FUNDS 1,623,375,0
a) Share capital 00
b) Reserves and surplus 9,986,634,968 11,610,009,968

2) LOANS FUNDS
a) Secured loans 23,904,079,627
b) Unsecured loans 7,675,028,057 31,579,107,684
3) DEFERRED LIABILITY
– AGAINST LAND 4,492,586,021
4) DEFERRED TAX
LIABILITY 21,232,241
TOTAL 47,702,935,914
APPLICATION OF FUNDS
1) FIXED ASSETS
Gross(at cost) 998,680,654
Less: Depreciation 302,425,840
Net block 696,254,814
Add: Capital work in
progress. 28,753,897 725,008,711

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PROJECT REPORT

2)INVESTMENTS 5,189,269,439
3)CURRENT ASSETS,
LOANS AND ADVANCES
a) Inventories 327,678,535
b) Projects in progress 44,057,110,255
c) Advances to subsidiary
co. 8,578,976,970
d) Sundry debtors 975,494,326
e) Cash and bank balance 7,958,175,118
f) Loans and advances 22,311,322,122

84,208,757,326
Less: CURRENT
LIABILITIES-PROVISIONS
a) Current liabilities 37,922,118,817
b) Provisions 4,497,980,745
42,420,099,562 41,788,657,764
NET CURRENT ASSETS
TOTAL 47,702,935,914

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH,2007
PARTICULARS RUPEES RUPEES
INCOME
Sales, receipts and incomes 25,996,461,272
Closing stock 327,678,535
26,324,139,807
EXPENDITURE

Opening stock 322,631,29


Less: Transfer to PIP 8 311,994,899
Job and construction exp. 10,636,39 2,376,838,738
Receipts of real estate 9 1,682,044,819
Expenses of real estate 296,435,049
Expenses of percentage of
completion method 5,283,163,000
Administrative expenses 1,292,362,629
Interest 1,587,606,710
Depreciation 45,369,263

12,875,815,107

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PROJECT REPORT

PROFIT BEFORE TAX 13,448,324,700

Provision for tax


a) Current 3,600,000,00
b) Fringe Benefit tax 0
c) Deferred 10,000,000 3,612,748,084
2,748,084
PROFIT AFTER TAX
Balance brought forward from 9,835,576,616
previous year
Add/(less): 1,352,961,360
Capitalized for bonus shares
Taxes paid for earlier years (806,000,610)
Foreign project reserve written 4,402,720
back
30,000,000
Profit available for appropriation 10,416,940,086
APPROPRIATIONS 405,843,750

Proposed dividend 68,973,145


Tax on dividend 4,000,000,000
Transfer to general reserve
Transfer to debenture redemption
reserve 1,600,000,000
Balance carried to balance sheet 4,342,123,191
10,416,940,086
BALANCE SHEET AS ON 31ST MARCH,2008

PARTICULARS RUPEES RUPEES


SOURCES OF FUNDS
1) SHAREHOLDERS’
FUNDS 3,246,750,0
a) Share capital 00
b) Reserves and surplus 18,191,436,2 21,438,186,289
89
2) LOANS FUNDS
c) Secured loans 46,031,851,611 72,161,874,749
d) Unsecured loans 26,130,023,138
3) DEFERRED LIABILITY
– AGAINST LAND 9,032,679,332
4) DEFERRED TAX
LIABILITY 14,548,709
TOTAL 102,647,289,079
APPLICATION OF FUNDS
1) FIXED ASSETS
Gross(at cost) 1,320,469,113

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PROJECT REPORT

Less: Depreciation 359,644,801


Net block 960,824,312
Add: Capital work in
progress. 46,464,617 1,007,288,929

2)INVESTMENTS 13,979,895,154
3)CURRENT ASSETS,
LOANS AND ADVANCES
g) Inventories 136,587,503
h) Projects in progress 70,787,615,459
i) Advances to subsidiary
co. 21,516,110,009
j) Sundry debtors 7,397,448,313
k) Cash and bank balance 3,711,808,167
l) Loans and advances 54,706,215,641

158,255,785,092
Less: CURRENT
LIABILITIES-PROVISIONS
a) Current liabilities 63,105,381,624
b) Provisions 7,490,298,472
70,595,680,096 87,660,104,996
NET CURRENT ASSETS
TOTAL 102,647,289,079

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH,2008
PARTICULARS RUPEES RUPEES
INCOME
Sales, receipts and incomes 26,697,250,734
Closing stock 136,587,503
29,833,838,237
EXPENDITURE

Opening stock 322,631,29


Less: Transfer to PIP 8 327,678,535
Job and construction exp. 10,636,39 1,961,351,370
Receipts of real estate 9 569,131,681
Expenses of real estate 343,817,233
Expenses of percentage of
completion method 7,526,779,000
Administrative expenses 1,779,851,908
Interest 3,584,357,301
Depreciation 85,789,114

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PROJECT REPORT

16,178,756,142
PROFIT BEFORE TAX 13,448,324,700

Provision for tax


d) Current 3,600,000,00
e) Fringe Benefit tax 0
f) Deferred 10,000,000 3,612,748,084
2,748,084
PROFIT AFTER TAX
Balance brought forward from 9,835,576,616
previous year
Add/(less): 1,352,961,360
Capitalized for bonus shares
Taxes paid for earlier years (806,000,610)
Foreign project reserve written 4,402,720
back
30,000,000
Profit available for appropriation 10,416,940,086
APPROPRIATIONS 405,843,750

Proposed dividend 68,973,145


Tax on dividend 4,000,000,000
Transfer to general reserve
Transfer to debenture redemption
reserve 1,600,000,000
Balance carried to balance sheet 4,342,123,191
10,416,940,086

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PROJECT REPORT

Chapter ~
3
Ratio
analysis

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PROJECT REPORT

A ratio is a comparison of any two relevant values from balance sheet and profit & loss
a/c of an organization. J. Batty defines “accounting ratios” as a relationship expressed
between numbers reflected in profit and loss account, balance sheet or any other part of
accounts.
It is expressed in three ways:-

 In the form of percentage


 In the form of proportion
 In the form of no. of times

 Classification

(a) Profitability Ratios

These ratios indicate profitability or otherwise for a company. This category includes:-
 Gross profit ratio
 Net profit ratio
 Operating ratio
 Return on capital employed
 Return on shareholders’ funds
 Earnings per share

(b) Liquidity Ratios


These ratios indicate whether short term funds are enough to meet the short term
obligations. This category includes:-
 Current ratio
 Liquid ratio

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PROJECT REPORT

(c) Leverage ratios


These ratios indicate the capital of the company and its division into own funds and
borrowed funds. This category includes:-
 Proprietory ratio
 Debt equity ratio
 Capital gearing ratio
 Long term funds to fixed assets
 Interest coverage ratio

(d) Activity ratios


These ratios include the efficiency of the investments in an organization. It includes:-
 Fixed assets turnover ratio
 Total assets turnover ratio
 Creditors’ turnover ratio
 Debtors’ turnover ratio
 Stock turnover ratio

 Calculation and Interpretation of ratios

(a) Profitability ratios


1. Gross profit ratio
Gross profit ratio = Gross profit X 100
Sales

It is a ratio expressing relationship between gross profits earned to net sales. It is a useful
indication of the profitability of the business.

Gross profit ratio for 07-08 = 17,325,228,510 X 100


28,022,751,557

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PROJECT REPORT

= 61.83 %

Gross profit ratio for 06-07 = 15,081,300,673 X 100


25,039,718,678

= 60.23%
Gross ratio

62

61.5
Ratio of percentage

61

60.5 S eries1

60

59.5

59
2006-07 2007-08
Ye a r

Interpretation:-

Gross profit ratio for 07-08 is 61.83% which is good as compared to years 06-07.In 07-
08, the gross profit and sales is high than 06-07, 61.83% is beneficial for the company.

2. Net profit ratio:-

This ratio is useful for the purpose of ascertaining the overall profitability of the business
and shows the efficiency or otherwise of operating the business. This ratio shows
relationship between net profit and sales.

Net profit ratio = Net profit X 100


Sales

Net profit = profit after tax


Net profit ratio for 07-08 = 10,306,765,627 X 100
28,022,751,557

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PROJECT REPORT

= 36.78%

Net profit ratio for 06-07 = 9,835,576,616 X 100


25,039,718,678

= 39.28%

Net profit ratio

39.5
Profit of percentage

39
38.5
38
37.5 Series1
37
36.5
36
35.5
2006-07 2007-08
Year

Interpretation:-

Net profit ratio in the year 07-08 is less as compared to 06-07. Net profit ratio is showing
a decreasing trend from 06-07 to 07-08.

3. Operating ratio:-

This ratio is very important for analyzing the profitability of the firm. One can the
operating efficiency with the help of this ratio.

Operating ratio
= cost of goods sold + operating expenses X 100
Sales

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PROJECT REPORT

Calculation of cost of goods sold:

Particulars 07-08 06-07


Sales 28,022,751,55 25,039,718,678
7
- Gross profit 17,325,228,51 15,081,300,673
0
Cost of goods sold 10,697,523,04 9,958,418,005
7

Calculation of operating expense:

Particulars 07-08 06-07


Administrative exp 1,779,851,908 1,292,362,629
+ other expenses 9,831,947,603 7,956,436,787
Operating expense 11,611,799,51 9,248,799,416 Operating ratio for 07-
1 08 = 10,697,523,047 +
11,611,799,511 X 100
28,022,751,557

= 22.309,322,558
28,022,751,557

= 79.61 %

Operating ratio for 06-07 = 9,958,418,005 + 9,248,799,416 X 100


25,039,718,678

= 19,207,217,421
25,039,718,678

= 76.70 %

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PROJECT REPORT

Operating ratio

80
79.5

Percentage of ratio
79
78.5
78
77.5 Series1
77
76.5
76
75.5
75
2006-07 2007-08
Year

Interpretation:
As it is an expense ratio, lower ratio will be beneficial for the firm. In the year 07-08 the
operating ratio is very high as 79.61% .The reason for high operating ratio is high cost of
goods sold in these years. As the ratio is much high the position of the firm is very bad as
due to high expenses, profits are going to be decreased.
In year 06-07 the ratio is not very good but it is better as compared to 07-08.

4. Return on capital employed:-


The base of capital employed provides a test of profitability related to the
sources of long term funds. A comparison of this ratio with similar firms shows how
efficiently the long term funds of owners and lenders are being used. The higher the ratio
the more efficient is the use of capital employed.
Return on capital employed
= EBIT (earning before interest & tax) X 100
Capital employed

Calculation of EBIT
Particulars 07-08 06-07
profit after tax 10,306,765,627 9,835,576,616

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PROJECT REPORT

+ interest 3,584,357,301 1,587,606,710


+ tax 3,348,316,468 3,612,748,084
EBIT 14,013,439,396 15,035,931,410
Calculatio
n of capital employed
Particulars 07-08 06-07
Share capital 3,246,750,000 1,623,375,000
+ reserves 18,191,436,28 9,986,634,968
9
+ secured loan 46,031,851,61 23,904,079,627
1
+ unsecured loan 26,130,023,13 7,675,028,057
8
Capital 93,600,061,03 43,189,117,652
employed 8

Return on capital employed for 07-08 = 14,013,439,396 X 100


93,600,061,038

= 14.97 %

Return on capital employed for 06-07 = 15,035,931,410 X 100


43,189,117,652

= 34.81 %

Return on capital employed

40
35
Percentage of ratio

30
25
20 Series1
15
10
5
0
2006-07 2007-08
Year

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PROJECT REPORT

Interpretation:

It is very important for all the external parties to the firm. In the year 07-08 the ratio is
18.51% which is very low. In year 06-07 the ratio is 34.92% which is comparatively
better than 07-08. There are many wide fluctuations in this ratio for the firm.
5. Return on shareholders’ funds:-

In order to judge the efficiency with which the proprietors’ funds are employed in
business, this ratio is ascertained.

Return on shareholders’ fund = PAT (profit after tax) X 100


Shareholders’ funds

Calculation of shareholders’ funds

Particulars 07-08 06-07


Share capital 3,246,750,000 1,623,375,000
+ reserves 18,191,436,28 9,986,634,968
9

Total 21,438,186,28 11,610,009,968


9

Return on shareholders’ funds for 07-08 = 10,306,765,627 X 100


21,438,186,289

= 48.08 %

Return on shareholders’ funds for 06-07 = 9,835,576,616 X 100


11,610,009,968

= 84.72 %

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PROJECT REPORT

Return on shareholders' funds

90
80

Percentage of ratio
70
60
50
Series1
40
30
20
10
0
2006-07 2007-08
Year

Interpretation:

This ratio should be higher as it will suggest that how much dividend will be declared to
shareholders by the company. The ratio in year 06-07 is comparatively better than the
ratio in year 07-08 which is 48.08%.
Thus a fluctuating trend is observed in return on shareholders’ funds.

6. Earnings per share:


This ratio measures the profit available to equity shareholders on per share basis.
Earning per share = PAT – preference dividend
No of equity shares

Earning per share for 07-08 = 10,306,765,627 - 0


162, 33, 75,000

= 6.30

Earning per share for 06-07 = 9,835,576,616 - 0


81, 16, 87,500

= 12.11

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PROJECT REPORT

Earnings per share

14
12

Percentage of ratio
10
8
Series1
6
4
2
0
2006-07 2007-08
Year

Interpretation:
This ratio shows the profitability of the firm. By comparing the EPS of the current
year with those of past year, the trend of profitability can be ascertained. In year 07-08,

EPS is 6.3 which is very much low then 06-07.

(b) Liquidity ratio

1. Current ratio:-
The current ratio of a firm measures its short term solvency that is ability to meet
the short term obligations of the firm. It is a measure of margin of safety to the creditors.
From this ratio, one can know the capability to pay current liabilities
Current ratio = Current assets
Current liabilities

Current ratio for 07-08 = 158,255,785,092


70,595,680,096

= 2.24:1

Current ratio for 06-07 = 84,208,757,326


42,420,099,562

= 1.99:1

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PROJECT REPORT

Interpretation:
The ideal ratio is 1.33:1 to 2:1. If this ratio is between anywhere in this range then it
is beneficial for the company. In year 07-08 and 06-07 it is 2.24:1 and 1.99:1 which
means the situation has been controlled.

2. Liquid ratio:-

It is a better indication of liquid position of the company. It shows the amount of cash
available to meet immediate payments. It is obtained by dividing the liquid assets by
liquid liabilities. It includes all the current assets except stock and all current liabilities
except bank overdraft. The standard liquid ratio is 1:1.
Liquid ratio = liquid assets
Liquid liabilities

Calculation of liquid assets:

Particulars 07-08 06-07


Current assets 158,255,785,09 84,208,757,326
2
- stock 136,587,503 327,678,535

Liquid assets 158,119,197,58 83,881,078,791


9

Calculation of liquid liabilities:

Particulars 07-08 06-07


Current liabilities 70,595,680,09 42,420,099,562
6
- bank overdraft 15,492,345 33,792,926

Liquid liabilities 70,580,187,75 42,386,306,636


1
Liquid ratio for 07-08= 158,119,197,589
70,580,187,751

= 2.24:1

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PROJECT REPORT

Liquid ratio for 06-07 = 83,881,078,791


42,386,306,636

= 1.98:1

Interpretation:

As the ideal ratio is 1:1 then each of the two years the ratio is unexpected. In year 07-08 it
is 2.24:1 which means investment in assets of current use is more than needed. In year
06-07 also the ratio is high so investment is current assets should be decreased. We can

observe fluctuating trend in the ratio.

c) Leverage ratios

1. Proprietory ratio:-

This ratio shows the proportion of proprietors’ funds to the total assets employed in the
business. It is expressed in terms of percentage. Higher ratio is beneficial.

Proprietory ratio = Proprietory funds X 100


Total assets

Proprietory ratio for 07-08 = 21,438,186,289 X 100


102,647,289,079

= 20.89 %

Proprietory ratio for 06-07 = 11,610,009,968 X 100


47,702,935,914

= 24.34 %

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PROJECT REPORT

Proprietory ratio

25

24

Percentage of ratio
23

22 Series1

21

20

19
2006-07 2007-08
Year

Interpretation:

Here the ratio seems to be unsatisfactory in the year 07-08 and 06-07.Ratio in 06-07 is
24.34% which is low but it is better than 07-08.Ratio in 07-08 is quit unsatisfactory.

2. Debt equity ratio:-

The relationship between borrowed funds and owners capital is a popular measure of long
term financial solvency of a firm. This ratio reflects the relative claims of creditors and
shareholders against the assets of the firm.

Debt equity ratio = long term liability X 100


Shareholders’ funds

Long term liability = Secured loan

Debt equity ratio for 07-08 = 46,031,851,611 X 100


21,438,186,289

= 214.72%

Debt equity ratio for 06-07 = 23,904,079,627 X 100


11,610,009,968

= 205.89%

25
PROJECT REPORT

Interpretation:
In all the leading successful companies in India this ratio is between 40-60%. If this
ratio is very low then no advantage of trading on equity can be taken. If it is very high
then also it is very risky.
In year 07-08 and 06-07 the ratio is 214.72% and 205.89% which is very high than
needed. This means that in proportion to equity the debts are very high. It is very risky for
the firm.

3. Capital gearing ratio:-

Here the outside liabilities are related to the total capitalization of the firm and not only to
the shareholders’ equity.

Capital gearing ratio = Fixed charge bearing capital X 100


Equity capital

Calculation of fixed charge bearing capital

Particulars 07-08 06-07


Secured loan 46,031,851,61 23,904,079,627
1
+ Pref. share capital - 100,000,000
46,031,851,61 24,004,079,627
1

Capital gearing ratio for 07-08 = 46,031,851,611 X 100


3,246,750,000

= 1417.78%

Capital gearing ratio for 06-07 = 24,004,079,627 X 100


1,623,375,000

= 1478.65%

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PROJECT REPORT

Interpretation:

When this ratio will be very low there will be no risk for the firm but no advantage of
trading on equity can be enjoyed by the firm. When it is high it will be much risky for the
firm and equity shareholders will not get any money.

In year 07-08 and 06-07 this ratio is unexpected which is 1417.78% and 1478.65%
which shows that all the equity capital is worth paying to some other party. It is very
danger situation for the life of the firm.

4. Long term funds to fixed assets


This ratio shows the relationship between fixed capital and fixed assets. The ratio must be
1.1 or more i.e. the fixed must be more than fixed assets or must at least be equal to fixed
assets.
Long term funds to fixed assets = long term funds
Fixed assets

Calculation of Long term funds

Particulars 07-08 06-07


Share capital 3,246,750,000 1,623,375,000
+ reserves 18,191,436,28 9,986,634,968
9
+ long-term liability 46,031,851,61 23,904,079,627
1
Long term funds 67,470,037,90 35,514,089,595
0

Long term funds to fixed assets for 07-08 = 67,470,037,900


1,007,288,929

= 66.98

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PROJECT REPORT

Long term funds to fixed assets for 06-07 = 35,514,089,595


725,008,711

= 48.98

Long term funds to fixed assets

80
70
Percentage of ratio

60
50
40 Series1
30
20
10
0
2006-07 2007-08
Year

Interpretation:

In 07-08 and 06-07, the fixed capital is more than the fixed assets therefore it is
beneficial. Even though the ratio in 06-07 is less than 07-07, it is beneficial.

5. Interest coverage ratio

This ratio indicates as to how many times the profit covers the payment of interest on
debentures and other long term loans.

Interest coverage ratio = EBIT


Interest

Interest coverage ratio for 07-08 = 14,013,439,396


3,584,357,301

= 3.91

Interest coverage ratio for 06-07 = 15,035,931,410


1,587,606,710

= 9.47

28
PROJECT REPORT

Interest coverage ratio

10
9

Percentage of ratio
8
7
6
5 Series1
4
3
2
1
0
2006-07 2007-08
Year

Interpretation:
Higher the ratio, the more sound is the financial strength of the company, as it indicates
greater ability of the firm to handle fixed charge liabilities. If the ratio is very high, it
shows the firm is not making proper use of outside debt. But a very low ratio indicates
that the firm is using excessive debt. Here, in 07-08 the ratio is low while in 06-07, it is
high

(d) Activity ratios

1. Fixed assets turnover ratio:-


The higher the turnover ratio the more efficient is the management and utilization of
assets. The low ratio shows underutilization of available resources.
Fixed assets turnover ratio = Sales
Fixed assets

Fixed assets turnover ratio for 07-08 = 28,022,751,557


1,007,288,929

= 27.81 times

Fixed assets turnover ratio for 06-07 = 25,039,718,678

29
PROJECT REPORT

725,008,711

= 34.53 times

Fixed assets turnover ratio

40
35

Percentage of ratio
30
25
20 Series1
15
10
5
0
2006-07 2007-08
Year

Interpretation:-

This ratio is very good when it is above 4 times and very adverse situation when it is
below 2 times. So the ratio is satisfactory as we can see all ratios for the years are more
than 4 times.
A decreasing trend is followed by this ratio from 06-07 to 07-08. But in all the years
sales are high so fixed assets will be rotating speedily.

2. Total assets turnover ratio:-


If this ratio is less than two times (< 2 times) then it is poor. If it is between 2 and
4 times (2 < 4) then it is average ratio. If it is more than 4 times then it is a very good
position. So, higher sales are a good position for the company.
Total assets turnover ratio = Sales
Total assets

Total assets turnover ratio for 07-08 = 28,022,751,557


102,647,289,079

= 0.27 times

Total assets turnover ratio for 06-07 = 25,039,718,678

30
PROJECT REPORT

47,702,935,914

= 0.52 times

Total assets turnover ratio

0.6

0.5
Percentage of ratio
0.4

0.3 Series1

0.2

0.1

0
2006-07 2007-08
Year

Interpretation:-
Here high ratio is considered to be a good situation. In year 06-07 and 07-08 the ratio is
less than 2 times. So it is a very dangerous situation. The average situation is 2<4 times.
So it is a very bad situation.

3. Debtors turnover ratio:-


It shows how quickly the debtors and receivables are converted into cash. It is a test of
liquidity of the debtors of a firm.
Assumptions:-
(i) Assume 360 days in a year
(ii) Assume 100% sales to be credit
Debtors’ ratio = Debtors + Bills receivables X 360
Credit sales

Debtors’ ratio for 07-08 = 7,397,448,313 + 0 X 360


28,022,751,557

= 95 days

Debtors’ ratio for 06-07 = 975,494,326 + 0 X 360

31
PROJECT REPORT

25,039,718,678

= 14 days
Debtors’ turnover ratio = 360
Debtors’ ratio

Debtors’ turnover ratio for 07-08 = 360


95

= 4 times

Debtors’ turnover ratio for 06-07 = 360


14

= 26 times

Debtors' turnover ratio

30

25
Percentage of profit

20

15 Series1

10

0
2006-07 2007-08
Year

Interpretation:-

Here in year 06-07 the debtors’ ratio is 26 days which is average for the business. It
means that money outstanding from debtors will be recovered within 26 days. Ratio for
year 07-08 is 4 days. As the collection period is small it is beneficial for the firm.

32
PROJECT REPORT

4. Creditors’ turnover ratio:-

It shows how frequently the creditors are to be paid. It is to test the urgency of the
creditors of the firm.

Creditors’ ratio = creditors + bills payables X 360


Annual purchases

Creditors’ ratio for 07-08 = 6,942,688,308 + 0 X 360


19,887,657,039

= 126 days

Creditors’ ratio for 06-07 = 6,489,975,976+ 0 X 360


12,606,380,018

= 185 days

Creditors’ turnover ratio = 360


Creditors’ ratio

Creditors’ turnover ratio for 07-08 = 360


126

= 2.8 times

Creditors’ turnover ratio for 06-07 = 360


185

= 1.9 times

33
PROJECT REPORT

Creditors' turnover ratio

Percentage of ratio
3

2
Series1
1

0
2006-07 2007-08
Year

Interpretation:-

This ratio will be considered satisfactory when the duration will be higher. In year 06-07
this ratio is 1.9 times a year which means that creditors are to be paid off 1.9 times in one
year. In year 07-08 this ratio is 2.8 times a year which means that creditors are to be paid
off 2.8 times in one year.

5. Stock turnover
The number of times the average stock is turned over during the year is known as stock
turnover.
Stock turnover = cost of goods sold
Average stock

Average stock = opening stock + closing stock


2

Average stock for 07-08 = 327,678,535 + 136,587,503


2

= 232,133,019

34
PROJECT REPORT

Average stock for 06-07 = 311,994,899 + 327,678,535


2

= 319,836,717

Stock turnover for 07-08 = 10,697,523,047


232,133,019

= 46.08

Stock turnover for 06-07 = 9,958,418,005


319,836,717

= 31.13

Stock turnover

60
Percentage of

40
ratio

Series1
20
0
2006-07 2007-08
Ye a r

Interpretation:-
This ratio signifies that the average stock is turned over 46 times in 07-08 and 31 times in
06-07. Higher the turnover ratio, the profitable the business would be.

35
PROJECT REPORT

Chapter ~
4

36
PROJECT REPORT

Financial
results

PARTICULAR 2007-08 2006-07


1) Total Income 29,697.25 25,996.46
Less: Operating expense. 12,372.02 10,915.16
2) Gross Profit before Interest
and depreciation 17,325.23 15,081.30
Less: a) Interest
b) Depreciation 3584.35 1,587.61
85.79 3,670.14 45.31 16,32.98
3) Profit before Tax 13,655.09 13,448.32
Less: Provision for tax.
I. Currency 3,40.00 3600.00
II. Fringe Benefit 15.00 10.00
III. Deferred (6.68) 2.74
3,348.32 3,612.74

37
PROJECT REPORT

4) Profit after Tax. 10,306.77 9,835.58


Add/Less:
i. Bal of Profit as per
last b/s 4,342.12 1,352.96
ii. Capitalized for Bonus
shares. - (806.00)
iii. Foreign Project
Reserve Written Back 20.00 30.00
iv. Taxes Paid For earlier
years (3.77) 4.40
v. Debentures
Redemption Reserve
written back 1,600.00 -
5,958.35 581.36
Balance available for 16,265.12 10,416.94
appropriation.
5) Appropriation
i. Proposed Dividend 405.85 405.85
ii. Tax on dividend 68.97 68.97
iii. Transfer to Debenture
Redemption Reserve 1,250.00 1,600.00
iv. Transfer to General
reserve 600.00 4000.00
v. Balance carried over
to B/s 13,940.30 4,342.12

16,265.12 10,416.94

Conclusion is on the basis of following 5 ratios

♣ Net profit ratio


♣ Return on capital employed
♣ Current ratio
♣ Share holders’ funds
♣ Total assets turnover ratio
♣ Fixed turnover ratio

38
PROJECT REPORT

The net profit ratio of the firm is showing a decreasing trend from 06-07 to 07-08
The ratio in year 06-07 is beneficial for the firm as compared to 07-08.

The ratio of return on capital employed is very important for all the parties which
are related to the firm whether directly or indirectly. Many wide fluctuations are seen in
return on capital employed of the firm for these years. . In the year 07-08 the ratio is
18.51% which is very low. In year 06-07 the ratio is 34.92% which is comparatively
better than 07-08. This means that the firm is obtaining a firm amount of return on capital
employed in the firm.

Any firm’s current availability of assets to repay the current and immediate
liabilities can be known from the current ratio. The ideal current ratio is 1.33:1 and it
should not be very high as compared to the liabilities to be paid off. In year 07-08 and 06-
07 it is 2.24:1 and 1.99:1 which means the situation has been controlled.

This ratio should be higher as it will suggest that how much dividend will be declared to
shareholders by the company. The ratio in year 06-07 is comparatively better than the
ratio in year 07-08 which is 48.08%.
Thus a fluctuating trend is observed in return on shareholders’ funds.
High ratio of total assets turnover is considered to be a good situation for the firm. In year
06-07 and 07-08 the ratio is less than 2 times. So it is a very dangerous situation. The
average situation is 2<4 times. So it is a very bad situation.

This ratio is very good when it is above 4 times and very adverse situation when it is
below 2 times. So the ratio is satisfactory as we can see all ratios for the years are more
than 4 times.

A decreasing trend is followed by this ratio from 06-07 to 07-08. But in all the years sales
are high so fixed assets will be rotating speedily.

39
PROJECT REPORT

BIBLIOGRAPHY

I have referred to company’s annual report for two consecutive years of “UNITECH
GROUP”.

40
PROJECT REPORT

41