1.1 Financial Ratio Analysis
Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable

To study the position of NPA. 3. 1.1. . To study the long term liquidity and solvency of the bank. 4.2 Objectives of study 2. 5. To study the profitability of the bank. To do the analytical study of operations and financial performance of the bank. To study the financial position of the bank.


2. THE STUDY COMPRISES OF ONLY TWO FINANCIAL YEARS (2008-09. it attracts equal number of disadvantages too.LIMITATIONS OF THE STUDY 1. 3. 2009-10). 2) Different accounting policies may be followed by the constituent organization in the industry. . Some of important advantages are as follows: 1) The ratios of the other organization May not be readily available. THE STUDY IS RESTRICTED TO LIMITED TIME PERIOD. OF LIMITITIONS OF RATIO ANALYSIS Though ratio analysis technique has got number of advantages. THE STUDY IS CONFINED TO THE BANK MAHARASHTRA AS A WHOLE.

2. Referring is made to the standard texts. extent of automation. The information regarding the profile of the organization and financial information were collected from the annual report and by discussing with project guide and concerned officers. SOURCES OF THE DATA 1. All of the calculations are made on the basis of financial statements of the BANK OF MAHARASHTRA. The data were collected from secondary sources. location. . 5) As the ratios are computed on the basis of financial statements. quality of management and so on 4) The technique of ratio analysis may prove to be inadequate in some situation if there is difference of opinions regarding the interpretation of certain items while computing certain ratios. is equally applicable in case of the technique of ratio analysis also. here the explorative research method is being utilized. RESEARCH METHODOLOGY The object of the study is to know the financial position of the bank and to undertake the study . books and websites. which is applicable to the financial statements.3) The constituent organization in the same industry may vary from each other in terms of age. the basic limitation.


(Joint Stock Bank: A company that issues stock and requires . upon India's independence.1 HISTORY OF BANKING IN INDIA Banking in India originated in the last decades of the 18th century. but it failed in 1848 as a consequence of the economic crisis of 1848-49. both of which are now defunct. the other two being the Bank of Bombay and the Bank of Madras. which almost immediately became the Bank of Bengal. which originated in the Bank of Calcutta in June 1806. The Allahabad Bank. established in 1865 and still functioning today. which. The first banks were The General Bank of India which started in 1786. as did their successors. and the Bank of Hindustan. For many years the Presidency banks acted as quasicentral banks. Indian merchants in Calcutta established the Union Bank in 1839. became the State Bank of India. This was one of the three presidency banks.2. all three of which were established under charters from the British East India Company. is the oldest Joint Stock bank in India. The three banks merged in 1921 to form the Imperial Bank of India. The oldest bank in existence in India is the State Bank of India.

A number of banks established then have survived to the present such as Bank of . established in 1881 in Faizabad. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. when it failed. Foreign banks too started to arrive. with some of its assets and liabilities being transferred to the Alliance Bank of Simla. That honor belongs to the Bank of Upper India. which was established in 1863. The first entirely Indian joint stock bank was the Oudh Commercial Bank. HSBC established itself in Bengal in 1869. then a French colony.shareholders to be held liable for the company's debt) It was not the first though. and so became a banking center. The next was the Punjab National Bank. which later merged with the Bank of Bombay and the Bank of Madras to form the Imperial Bank of India in 1921. The Bank of Bengal. followed. established in Lahore in 1895. and which survived until 1913. which has survived to the present and is now one of the largest banks in India. mainly due to the trade of the British Empire. Calcutta was the most active trading port in India. The period between 1906 and 1911. branches in Madras and Pondicherry. and another in Bombay in 1862. It failed in 1958. in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860. particularly in Calcutta. saw the establishment of banks inspired by the Swadeshi movement.

Canara Bank and Central Bank of India. The years of the First World War were turbulent. Lakhs) 35 109 5 4 . and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. Four nationalised banks started in this district and also a leading private sector bank. Corporation Bank. From World War I to Independence The period during the First World War (1914-1918) through the end of the Second World War (1939-1945). Indian Bank. Lakhs) 274 710 56 231 Paid-up Capital (Rs. The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. and two years thereafter until the independence of India were challenging for Indian banking.India. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". At least 94 banks in India failed between 1913 and 1918 as indicated in the following table: Years Number banks that failed 1913 12 1914 42 1915 11 1916 13 of Authorized capital (Rs. Bank of Baroda.

In 1949. the Reserve Bank of India. . India's independence marked the end of a regime of the Laissezfaire for the Indian banking. and it became an institution owned by the Government of India. and inspect the banks in India. control. paralyzing banking activities for months. was nationalized. and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. The Government of India initiated measures to play an active role in the economic life of the nation. This resulted into greater involvement of the state in different segments of the economy including banking and finance. the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate. and no two banks could have common directors. The major steps to regulate banking included: • • • In 1948. India's central banking authority." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI.1917 1918 9 7 76 209 25 1 Post-independence The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal.

It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from . the Indian banking industry had become an important tool to facilitate the development of the Indian economy. a national leader of India. A second dose of nationalization of 6 more commercial banks followed in 1980." The paper was received with positive enthusiasm. Indira Gandhi. and the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19. and a debate had ensued about the possibility to nationalise the banking industry. Jayaprakash Narayan. 1969. Later on. With the second dose of nationalization. At the same time. The stated reason for the nationalization was to give the government more control of credit delivery. Thereafter. the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill. the government merged New Bank of India with Punjab National Bank. and it received the presidential approval on 9 August 1969. 1949 in terms of the Reserve Bank of India. it had emerged as a large employer.By the 1960s. the GOI controlled around 91% of the banking business of India. in the year 1993. her move was swift and sudden." Within two weeks of the issue of the ordinance.Nationalization The RBI was nationalized on January 1. the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation. described the step as a "masterstroke of political sagacity.

where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%. revitalized the banking sector in India. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment. Liberalisation In the early 1990s. private banks and foreign banks. closer to the average growth rate of the Indian economy. Axis Bank(earlier as UTI Bank). government banks.Lend at 6%. ICICI Bank and HDFC Bank. till this time. This move. and included Global Trust Bank (the first of such new generation banks to be set up). the then Narsimha Rao government embarked on a policy of liberalization. The new wave ushered in a modern outlook and tech-savvy methods of . which has seen rapid growth with strong contribution from all the three sectors of banks. After this. the nationalised banks grew at a pace of around 4%. These came to be known as New Generation tech-savvy banks.20 to 19. licensing a small number of private banks. were used to the 4-6-4 method (Borrow at 4%.Go home at 4) of functioning. The new policy shook the Banking sector in India completely. namely. Bankers.at present it has gone up to 74% with some restrictions. until the 1990s. along with the rapid growth in the economy of India. which later amalgamated with Oriental Bank of Commerce.

among all the Public Sector banks. People not just demanded more from their banks but also received more. the bank claims to have the largest number of branches within the state of Maharashtra. With a total number of 1421 branches located all over India as of April 2009.00 Lacs. It now has 1375 branches (as of 31 March 2008) all over India. although it became operational in the early phase of the next year. The bank got nationalized by the Government of India in the year 1969. with Depository services and Demat facilities being offered at 131 branches as of . 2. The bank was established in the year 1935 with an initial authorized capital worth Rs.00 lakh and commenced business on 8th Feb 1936. Known as a common man's bank since inception. its initial help to small units has given birth to many of today's industrial houses.Registered on 16th Sept 1935 with an authorized capital of Rs 10. 10. the bank expanded rapidly. Facilities All the branches of Bank of Maharashtra have been fully computerized. The Bank has the largest network of branches by any Public sector bank in the state of Maharashtra Bank of Maharashtra is an Indian bank based in the city of Pune.All this led to the retail boom in India. After nationalization in 1969.working for traditional banks. operating in the country of India.2 HISTORY OF MAHABANK Bank of Maharashtra is the premier bank of Maharashtra.

April 2009. Bank of Maharashtra has established two Joint Ventures to fulfill its other commitments towards the general public and society. 91000. CBS Branches Bank has migrated 831 branches under CBS as against 773 branches as on 31. Total business more than Rs. introduction of Phone Banking. The institute runs various self-employment oriented training courses for the rural unemployed youth from the districts of Pune.     Autonomy secured in the year 1998 continues. Kolhapur.03. a trust run by Bank of Maharashtra receiving help from National Bank for Rurl Development (NABARD). Dhule and Nandurbar. and enabling smoother operations for them.00 crore of which total deposits more than Rs.06. Ahmednagar. Nashik. Apart from it.2009 Branch network comprises of 1433 branches spread over 22 states and 2 union territories.9. Mahabank Self-Employment Training Institute (M-SETI) is an effort initiated by Mahabank Agricultural Research & Rural Development Fund (MARDEF). The bank aims at increasing its ATM network from 345 to 500 soon.2009 . Jalgaon. Other Highlights Apart from providing regular banking services to the customers. Sangli. Satara. Internet Banking and Mobile Banking is also on the cards.2009 and 798 branches as on 30. Mahabank Info Centre is a yet another initiative by Bank of Maharashtra aimed at providing various retail baking related information to the customers. 54400 crore and Gross advances more than Rs36600 crore as of 30. apart from planning to install Biometric ATMs at some selected branches. These Joint Ventures are M-SETI and Mahabank Info Centre.

( 37000 Customer are using Internet Banking facility) “Maha e-Statement” Customers can get their statement of account on registering their email id and desired frequency of statement with the Bank. Bank has installed 11 Biometric ATMs. Nasik.14  Agro High-Tech branches .1  Pension Branch -1  Govt Business Branch – 1 Bank has 28 FEX centers to handle FEX business. which is engaged in providing Credit Plus services to the farmers in specific specialised     . The Bank has set up a Trust viz.4  Industrial Finance branches . Toll Free telephones at 11 major Metro centers.      ATM Network Bank has 345 ATMs. The bank is shouldering the responsibility of lead bank in six districts viz.2  Treasury & international Banking . The customer can start using ATM Insta card after 36 hours from date of issue. Straight Through Processing (STP) STP of NEFT/ RTGS transactions has been implemented for instant processing of inward and outward remittances through RTGS and NEFT. (800 branches are offering RTGS/NEFT facility) Specialised branches:  S M E branches . Mahabank Agricultural Research and Rural Development Foundation (MARDEF). ( 36000 Insta Cards are issued since July 09) Utility Bill Payment through Internet Banking Facility.2  Overseas branches . Aurangabad and Jalna. Card base crosses 10 lakh Mahabank Insta International Visa Debit Card Mahabank Intenational Debit Card is issued in collaboration with VISA ATM Card along with PIN is given to the customer as “Welcome Kit” at the time of opening of the current and SB account in all CBS branches. Thane. Pune. Satara. The customers can do on line shopping / e-commerce and utility bill payment transaction through Internet Banking facility.

 The Rural Development Centers at Bhigwan and Hadapsar in Pune District undertake various lab to land programs on improved technologies. It also markets various products made by SHGs through its two retail outlets by name “SAVITRI” in Pune district.  Bank has formed a Trust by the name Gramin Mahila va Balak Vikas Mandal (GMBVM). which is primarily engaged in formation. Pune & Solapur. sericulture. nurturing. Property Management and Tax Consultancy as well.  The Bank has floated a subsidiary company. (METCO) which undertakes Trustee Business. GMBVM has its area of operation in nine districts and has been recognised by Government of Maharashtra as Mother NGO. training and linkage of self-help groups to various banks. The GMBVM is now in the process of scaling up viable SHGs to SMEs. The Bank secured the First Prize for better implementation of Hindi in both ‘A’ and ‘B’ Region and the Fourth Prize for implementation of Hindi in ‘C’’ Region under Reserve Bank of India Rajbhasha Shield Scheme for the year 2007-2008.  Bank is the Convenor for Town Official Language Implementation Committee (TOLIC) at Mumbai. Emu farming. A full fledged soil-testing lab is being set up for the benefit of the farmers to go in for high-tech agriculture.The Maharashtra Executor & Trustee Company Ltd. etc.fields like commercial dairy. . organic farming.

ATM network to be increased from 345 to .Crores by March 2009. It helps in giving more and more services with simplified procedures without intervention of Government. 4 Currency Chests to be opened. Social Aspect The bank excels in Social Banking.29 Systematic approach for reducing Net NPA level to below 1% 64 Branches are proposed to be opened at new business centres and 3 extension counters to be converted into full fledged branches. 19. in the whole country.69%. The Autonomy The Bank attained autonomous status in 1998.84% Growth in Savings Bank Deposits and average Saving Deposits growth rate of 17.500/. overlooking the profit aspect. One Bank. it has a good share of Priority sector lending having 38% of its branches in rural areas. Other Attributes Bank is the convener of State level Bankers committee. Bank of Maharashtra ".65% Growth in Current Deposits and average Current Deposits growth rate of 17.Vision 2009 To cross the Business Level of Rs. Bank offers Depository services and Demat facilities at 131 branches. Bank has a tie up with LIC of India and United India Insurance company for sale of Insurance policies. Future Plans . Its dream is "One Family.Aims The bank wishes to cater to all types of needs of the entire family. 19. All the branches of the Bank are fully computerised.85.

of Maharashtra. SGSY. To increase self-esteem of participants and To help trainees in improvement. Other Attributes Bank is the convener of State level Bankers committee. placement and counseling them for Bank facilities and their subsequent status. repairs. The institute is recognized by the Department of employment & selfemployment of Govt. Dhule and Nandurbar. TV and VCR and domestic appliances. two wheelers. Nashik. Sangli.500 Biometric ATMs to be introduced at selected branches. commercial painting. The following are the training programs identified by M-SETI:   Entrepreneurship development programmes (EDPs) on technical courses viz. Ahmednagar. All the branches of the Bank are fully computerised Subsideries and Associates of the Bank M-SETI (Mahabank Self-Employment Training Institute) is an institute established under the aegis of Mahabank Agricultural Research & Rural Development Fund (MARDEF). photography and video shooting. Jalgaon. Introduction of Internet banking. PMRY. a trust established by Bank of Maharashtra and co-sponsored by the National Bank for rural development (NABARD). Mobile banking and Phone banking. EDPs specific to the Government sponsored schemes viz. SHGs. Bank offers Depository services and Demat facilities at 131 branches. . beauty parlor. The objectives of the Institute are:     To train the unemployed youth. tailoring etc. Bank has a tie up with LIC of India and United India Insurance company for sale of Insurance policies. Kolhapur. The institute trains unemployed youth from the districts of Pune. motor rewinding. To promote rural entrepreneurship. Satara. SJSRY.

electronic data entering and computer awareness programmes. Development of business through bringing in instutional accounts. Marketing to increase ATM card base Directing prospective clients to respective branches for financial aid on housing. Image building exercises . Information technology . consumer durables. etc. Mahabank Info Center It is a retail banking boutique set up by Bank of Maharashtra having the following activities. Electronic data processing. Mobilizing deposits for various branches in Pune city. Providing information on services provided by the bank at its various branches and specialized branches. education & foreign tours. vehicle.



There are a number of ratios which can be calculated from the information given in the financial statements. Interpretation of ratios. Comparison of the calculated ratios of the same firm in the past or the ratios developed from projected financial statements to the ratios of some other firms or the comparison with ratios of the industry to which firm belonged. a ratio is an expression of the quantitative relationship between two numbers . 2. MEANING OF RATIO ANALYSIS: Ratio Analysis is a technique of analysis and interpretation of financial statements.1 BASIC CONCEPTS MEANING OF RATIO: A ratio is a simple arithmetical expression of the relationship of one number to another. The ratios can be expressed in 1) Percentages 2) fraction and 3) Proportion of numbers.3. but the analysts has to select the appropriate date and calculate only a few appropriate ratios from the same keeping in mind the objectives of analysis. 3. Calculation of appropriate ratios. . According to Accountants Handbook by Wixon Kell and Bedford. 4. In short it can be defined as the indicated quotient of two mathematical expressions. Selection of relevant data from financial statements depending upon financial analysis. it is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performances and current financial condition can be determined. The following four steps involved in the ratio analysis: 1.

Solvency group and 5. 3. Turnover group 3. Though calculation of ratios is also important but it is only a clerical task whereas interpretation needs skill. Inter firm comparison: . in the same industry may be facing similar kinds of financial problems. Miscellaneous group . The interpretation of ratios can be made in following ways: 1. which may use various criterions to do the same. However for the convenience purpose.INTERPRETATION OF RATIOS: The interpretation of ratios is an important factor. Profitability group 4. intelligence and foresightedness.The ratios of one organization may be compared with the ratios of the other organization in the same industry and such comparison will be meaningful as the various organization. 2. window dressing etc should be kept in mind when attempting to interpret ratios. 1. CLASIFICATION OF RATIOS: The ratios may be classified under various ways. The ratios of an organization may be compared with some standards. The impacts of factors such as price level changes. Intra firm comparison: .Here the ratios of one organization may be compared with the ratios of the same organization for the various years either the previous years or the future years. which may be supposed to be the thumb-rule for the evaluation of the performance. the ratios are classified under following groups. Liquidity group 2. change in accounting policies.

(5)OTHER INCOME RATIO— . Higher % ratio indicates higher profitability from the investments.3. (3) INTEREST RECEIVED ON INVESTMENT— INEREST RECEIVED ON INVESTMENT *100 TOTAL INVESTMENT Investment includes investment in INDIA as well as out of INDIA.2 RATIOS HERE STUDIED (1) INTEREST PAID ON DEPOSITS – INTEREST PAID ON DEPOSITS *100 TOTAL DEPOSITS Total deposits include time and demand deposits. (4) INTEREST RECEIVED ON LOANS -INTEREST RECEIVED ON LOANS *100 TOTAL LOANS Higher % ratio indicates bank is lending profitably. (2) INTEREST PAID ON LOANS— INTEREST PAID ON LOANS *100` TOTAL BORROWINGS Higher % ratio indicates bank borrowed at higher rate and bank has to pay higher interest which results into higher fixed charges. Higher % ratio indicates that bank is offering high rate of interest on deposits.

63 41.36 Mar 2009 87072.77 CD ratio 69.37 52219.67 % of Priority Sector Adv.04 18.87 29285.70 71.20 41580.24 48.62 Mar 2008 71556.20 Total Deposits 33919.33 52254.03 34817. 16. 41.21 .06 % of Agricultural Adv. (6) NET PROFIT RATIO— NET PROFIT *100 TOTAL INCOME Net profit margin is indicative of managements Mar 2007 Total Business 57381.OTHER INCOME *100 TOTAL INCOME Other income indicates the charges charged by Bank to its account holder for providing various services.34 41758.73 21.81 34290.28 29798.28 Net Bank Credit 23220.92 Aggregate Deposits 33663.43 Gross Advances 23462.66 66.

79 Operating Profit 613. B. Commercial banks and short-term creditors may be basically .50 2. of Branches Of which Metro Urban Semi Urban Rural 1345 264 290 202 589 1375 351 257 251 516 1421 368 271 262 520 1.84 328.06 10.54 638.52 380.20 672.Total Investments 11298. LIQUIDITY GROUP: The ratios computed under this group indicate the short-term position of the Organization and also indicate the efficiency with which the working capital is being used.27 798.63 793.28 766.39 375.41 % to Gross Advances 3.95 18382.21 0.40 12282.57 2.14 Gross NPAs 820.28 500.03 526. ( in lacs ) 413.52 Net Profit 271.78 No.38 254.90 % to Net Advances 1.16 Other (incl.05 P.02 Capital Adequacy Ratio 12. treasury profits) Income 378.87 0.75 12.05 271. E.29 Net NPAs 277.

The term liquid assets indicate the assets. which can be converted in the form of cash almost immediately to pay off those liabilities. Current Assets/Current Liabilities Current ratio indicates the backing available to current liabilities in the form of current assets. which are to be paid off almost immediately. Net Sales/Fixed Assets A high fixed assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in fixed assets. Almost immediately whereas the term liquid liabilities which are required to be paid almost immediately. 2. TURNOVER GROUP: Ratios computed under this group indicate the efficiency of the organization to use the various kinds of assets by converting them in the form of sales. 1) Current Assets: It is calculate as. higher current ratio indicates that there are sufficient assets available with the organization. 2) Liquid Ratio or Acid Test Ratio: It is calculated as. 1) Fixed Assets Turnover Ratio: It is calculated as. Two most important ratios may be calculated under this group. Liquid Assets/Liquid Liabilities Here liquid assets include all assets except inventory and p/p exps and liquid liabilities except overdraft or cash credit or o/s exps. In other words. which can be converted in the form of cash. In other words. Under this group the following classification of ratios are made. A liquid ratio of 1:1 is supposed to be standard and ideal. a higher liquid ratio indicates that there are sufficient assets available with the organization.interested in the ratios falling under this group. As such higher the liquid ratio better will be the situation. Net Sales/Current Assets . A current ratio of 2:1 is supposed to be standard and ideal. 2) Current Assets Turnover Ratio: It is calculated as. Liquid ratio indicates the backing available to liquid liabilities in the form of liquid assets. which can be converted in the form of cash without any reduction in the value. It indicates that the fixed assets are turned over in the form of sales more number of times.

ineffective collection procedure and so on. which is calculated as below. It indicates that the current assets are turned over in the form of sales more number of times. However the intention is not correctly achieved by making the calculation in this way. 5) Debtors Turnover Ratio: It is calculated as. 3) Working Capital Turnover Ratio: It is calculated as. . It indicates that working capital is turned over in the form of sales more number of times.A high current assets turnover ratio indicates the capability of the organization to achieve maximum sales with the maximum investment in current assets. Cost of Goods Sold/Avg. If the average collection period is more than the normal credit period allowed to the customers. high inventory turnover ratio is desirable. Closing Sundry Debtors/Daily Sales The average collection period as computed above should be compared with the normal credit period extended to the customers. As such this ratio is normally supported by the calculation period. Net Sales/Working Capital A high working capital turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in the working capital. Net Credit Sales/No of Working Days b) Calculation of Collection Period: It is calculated as. Inventory A high inventory turnover ratio indicates that maximum sales turnover is achieved with the minimum investment in inventory. As such as a general rule. Net Credit Sales/Closing Sundry Debtors This ratio indicates the speed at which the sundry debtors are converted in the form of cash. it may indicate over investment in debtors which may be the result of over extension of credit period. 4) Inventory or Stock Turnover Ratio: It is calculated as. a) Calculation of Daily Sales: It is calculated as. liberalization of credit term.

SOLVENCY GROUP Ratios computed under this group indicate the long-term financial prospects of the company. . dividend and operating expenses. A high gross profit ratio may indicate that the organization is able to produce or purchase at a relatively lower cost. Net Profit after Taxes/ Net Sales*100 The net profit ratio indicates that portion of sales available to the owners after the consideration of all types of expenses and costs either operating or non operating or normal or abnormal.4. A high operating ratio indicates that only a small margin of sales is available to meet the expenses in the form of interest. Sales/Capital Employed This ratio indicates the efficiency of the organization with which the capital employed is being utilized. 3.6) Capital Turnover Ratio: It is calculated as. Gross Profit/Net Sales*100 The gross profit ratio indicates the relation between production cost and sales and efficiency with which the goods are produced or purchased. . Following ratios may be computed under this group. 3) Operating Ratio: It is calculated as. The shareholders debenture holders and other lenders of long-term finance/ term loan may be basically under this group. A high net profit ratio indicates higher profitability of the business. As such higher the capital turnover better will be the situation. A high capital turnover ratio indicates the capability of the organization to achieve maximum sales with minimum amount of capital employed. which is absorbed by the operating cost. As such low operating ratio will always be desirable. 2) Net Profit Ratio: It is calculated as. PROFITABILITY GROUP 1) Gross Profit Ratio: It is calculated as. Mfg COGS + operating exps*100 Net Sales This ratio indicates the percentage of net sales.

3) Capital Employed Ratio: It is calculated as. If the owner s fund exceeds fixed assets. PBIT/Interest Charges This ratio indicates protection available to the lenders of long-term capital in the form of funds available to pay the interest charges i. On the other hand a very low debt equity rate may mean that the borrowing capacity of the organization is being underutilized. OVERALL PROFITABILITY GROUP 1) Return on Assets: It is calculated as.e. A high debt-equity ratio may indicate that financial status of the creditors is more than that of the owners. profits. it indicates that a part owners fund invested in the current assets also and if owners fund are less than fixed assets it indicates that the creditors finance a part of fixed assets either by long term or short term. A very high debt-equity ratio may make the proportion of investment in the organization a risky one. 4) Interest Coverage Ratio: It is calculated as. 2) Proprietary Ratio: It is calculated as. Normally a high ratio will desirable but too high a ratio may indicate underutilization of the borrowing capacity of the organization whereas too low a ratio may indicate excessive long-term borrowings or inefficient operation.1) Debt-equity Ratio: It is calculated as. Net Profit *100 Assets . External Liabilities/Shareholders Fund Debt-equity ratio indicates the state of shareholders or owners in the organization vis-à-vis that of the creditors. Total Assets/Owners Fund This ratio indicates the extent to which the owner s funds are sunk in different kinds of assets. It indicates the cushion available to the creditors on liquidation of the organization. Fixed Assets/Capital Employed *100 This ratio indicates the extent to which the long-term funds are sunk in fixed assets.

which finance total assets. fixed income bearing securities are more in comparison to the equity capital in that case the Company is said to be highly geared. A high return on capital employed indicates a better and profitable use of long-term funds of owners and creditors. Net Profit after taxes+Int on Long Term Loans*100 Capital Employed Return on capital employed measure4s the profitability of the capital employed in the business. 3) Return on Shareholders Funds: It is calculated as. 2) Earning Per Share: It is calculated as. As such a high return on capital employed is preferred. Net Profit after tax and dividend Number of equity shares o/s It is widely used ratio to measure the profit available to the equity shareholders on a per share basis. Net Profit after Taxes*100 Total Shareholders Funds This ratio indicates the profitability of a firm in relation to the fund supplied by the shareholders MISCELLANEOUS GROUP 1) Capital Gearing Ratio: It is calculated as. However Return on assets does not indicate the profitability of various sources of funds. On the other hand.Return on assets measures the profitability of the investment in a firm. Dividend Per Share *100 . if fixed income-bearing securities are less a compared to equity capital the company is said to be lowly geared. As such increasing Earning Per Share may indicate the increasing trend of current profits per equity share. 3) Dividend Payout Ratio: It is calculated as. 2) Return on Capital Employed: It is calculated as. As such higher return on assets will always be preferred. Fixed income-bearing securities Equity Capital A high capital-gearing ratio indicates that in the capital structure.

They make it possible to estimate the other figure when one figure is known. communication and control. They indicate the changes in the financial condition of the business. They act as an index of the efficiency of enterprise. But the percentages of net profits can be compared to evaluate the performance. Similarly performance and efficiency of different departments in the same firm can be compared with the help of ratios. co-ordination. Past ratios indicate trends in cost. planning. Net profit of one firm cannot be compared with the net profit of the other firm. 4.Earning Per Share It measures the relationship between the earnings belonging to the equity shareholders and the amount finally paid to them by way of dividend. It is an instrument for diagnosis of the financial health of an enterprise. As such they serve as an instrument of management control. 5. A study of the trend of strategic ratio may help the management in this respect. It indicates the policy of management to pay cash dividend. 6. LIMITITIONS OF RATIO ANALYSIS . profit and other relevant facts. sales. 3. They tell the whole story as a heap of financial data is condensed in them. 2. Ratios simplify the comprehension of financial statements. The ratio analysis can be if invaluable aid to management in the discharge of its basic functions of forecasting. ADVANTAGES OF RATIOS 1. Investment decisions can at times be based on the conditions revealed by certain ratios. The ratio analysis provides data for inter-firm comparison or intra-firm Comparison. The efficiency of the various individual units similarly situated can be judged through inter-firm comparisons. Comparison cannot be made with absolute figures.

quality of management and so on 4) The technique of ratio analysis may prove to be inadequate in some situation if there is difference of opinions regarding the interpretation of certain items while computing certain ratios.Though ratio analysis technique has got number of advantages. good. which is applicable to the financial statements. 2) Different accounting policies may be followed by the constituent organization in the industry. METHODOLOGY FOR ANALYSIS . questionable or poor and enables the management to take necessary steps. 3) The constituent organization in the same industry may vary from each other in terms of age. it attracts equal number of disadvantages too. b) Secondary Data: Secondary data was collected from the documents. Some of important advantages are as follows: 1) The ratios of the other organization May not be readily available. 5) As the ratios are computed on the basis of financial statements. pamphlets. is equally applicable in case of the technique of ratio analysis also. which were in printed forms like annual reports. extent of automation. reference books based on Financial Management and through websites. Thus the ratio analysis points out the financial condition of business whether it is very strong. the basic limitation. location. RESEARCH METHODOLOGY 1) DATA COLLECTION a) Primary Data: Primary data related to the project was collected from the discussion and interaction with the senior employees and executives in the organization from Accounts and Finance department.

07 52254.e. Further based on the above statements ratios related to liquidity.79 59030. profitability and over profitability groups and miscellaneous groups have been calculated and interpreted in an intra firm comparison method.The methodology opted for carrying out project was by way of collection of data from the company s annual reports for the past three years i. The theory related to ratios was gathered from various financial management books. solvency. for the calculation of ratios. which served the purpose of calculation and analysis of ratios. turnover.67 Surplus Deposits 63304.89 2086.39 3881.73 & Provisions TOTAL 71055. in crore) AS ON LIABILITIES 31st March 2010 31st March 2009 Capital 430.92 Borrowings 2796.92 Banks and Money at Call and Short Notice .42 Balances with Reserve Bank of India Balances with 1379.96 2257.52 Reserves and 2427.52 430.16 223. SUMMARISED BALANCE SHEET (Rs.35 ASSETS Cash and 5315.35 2000. from 2003-2004 to 2005-2006.51 Other Liabilities 2096.

16 71055.55 .37 .16 .13 836 .72 134 .96 2311 .75 .06 4791 .09 .79 .89 344 .24 .83 258 .21 82 .Investments Advances Fixed Assets Other Assets TOTAL 21323.01 .73 500 .98 463 .53 2063.84 II.79 18382.48 963 .08 328 .79 .25 633 .65 .61 .03 .79 3440 .28 . in thousands) Year ended 31st March 2008 (Previous Year) Schedule Year ended 31st March 2009 (Current Year) I. INCOME Interest earned Other Income TOTAL 13 14 4291 .64 4416 .12 PROFIT/LOSS Net Profit for the year Add: Profit brought forward TOTAL 375 .30 59030.47 .40 .33 .04 380 .80 1597.35 . EXPENDITURE Interest expended Operating Expenses Provisions & contingencies TOTAL 15 16 3035 .70 659.38 .14 34290.57 .77 654.78 .85 40314.70 APPROPRIATIONS Transfer to Statutory Reserve 93 .84 418 .02 .04 .35 PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH 2009 (Rs.80 3820 .68 .10 3492 .

) 8.91 .61 .04 .63 BALANCE SHEET AS ON 31st MARCH 2009 (Rs.71 7.02 As on 31st March 2009(Current Year) As on 31st March 2008 (Previous Year) TOTAL 59030 .78 .92 223 .00 .23 199 .66 .70 Earning per share (Basic) (Rs.97 .03 Nil 8 .51 633 .95 .35 .08 13 .50 127 .78 52254 .26 12 .36 48150 . Money at call & short 7 notice Investments 8 18382 .25 463 .30 Balances with Banks.35 332 .05 .33 .91 .23 .10 .32 4068 .96 190 .14 .57 .01 .30 430 .34 ASSETS Cash and Balances with Reserve Bank of India 6 3881 .63 .98 .98 .83 4411 .24 .61 .00 1350 .34 258 .00 2086 .52 .00 86 .00 .60 .41 .24 .88 .40 14 .65 3893 . in thousands) Schedule CAPITAL AND LIABILITIES Capital Reserves & Surplus Deposits Borrowings Other Liabilities & Provisions 1 2 3 4 5 430 .52 .83 .80 10 .00 64 .80 258 .Transfer to Capital Reserve Transfer to Revenue Reserve Transfer to Special Reserve Proposed dividend Tax on Dividend Balance carried over to Balance Sheet TOTAL 65 .91 .83 .26 41758 .36 12282 .

78 .19 2135 .72 29285 .34 Contingent Liabilities Bills for Collection 12 15264 .69 15116 .49 .91 .35 .81 .80 .29 .77 .Advances Fixed Assets Other Assets 9 10 11 34290 .42 .36 48150 .83 Significant accounting policies Notes on Accounts 17 18 .97 TOTAL 59030 .28 654 .07 .86 1216 .43 1597 .29 220 .24 .66 1753 .74 .

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