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PROJECT REPORT

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A STUDY ON RATIO ANALYSIS WITH REFERENCE TO GENTING LANCO POWER INDIA PRIVATE LIMITED.

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CERTIFICATE

This is to certify that Mr. J . RAMAKRISHNA YADAV of INTEGRAL INSTITUTE OF ADVANCED MANAGEMENT has successfully completed the project work titled “RATIO ANALYSIS” in partial fulfillment of requirement for the award of POST GRADUATION DIPLOMA IN BUSINESS MANAGEMENT prescribed by the INTEGRAL INSTITUTE OF ADVANCED MANAGEMENT..

This project is the record of authentic work carried out during the academic year (2006 – 2008).

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DECLARATION

I Mr. J. RAMAKRISHNA YADAV hereby declare that this project is the record of authentic work carried out by me during the academic year 2006 – 2008 and has not been submitted to any other University or Institute towards the award of any degree.

Signature of the student

(J. Ramakrishna yadav )

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R. Commercial and Administration for his approval and valuable suggestions to take up the project in Genting Lanco Power (India) Private Limited. Vimal kumar. 5 . I am also thankful to Mr. General Manager of Genting Lanco Power (India) Private Limited for his approval and valuable suggestions to take up the project. Commercial and Administration for his valuable suggestions. I shall forever cherish my association with her for exuberant encouragement. Jayaram. I express my deep sense of gratitude to Mr. consistent help and personal interest during my project work. V. B.ACKNOWLEDGEMENT I am very much obliged and indebted to Mr. I am very pleased to express my deep sense of gratitude to Mr. RAMACHANDRA NAIK Associate professor for his consistent encouragement. LIM KIM BAK. Accountant Trainee for his support and suggestions during the project. absolute freedom of thought and action I have enjoyed during the course of the project. Manager Finance. B. perennial approachability. I also extend my gratitude to Mr.Ravi Seshagiri Rao Accounts Officer Finance.

Chapter – 1 INTRODUCTION 6 .

inventories. The discipline as a whole may be divided between long-term and short-term decisions and techniques.. 7 . whether to finance that investment with equity or debt. Capital investment decisions comprise the long-term choices about which projects receive investment. the credit terms extended to customers). and short-term borrowings and lending (e.Introduction Financial Management is the specific area of finance dealing with the financial decision corporations make.g. Both share the same goal of enhancing firm value by ensuring that return on capital exceeds cost of capital. and when or whether to pay dividends to shareholders. Corporate finance is closely related to managerial finance. without taking excessive financial risks. describing the financial techniques available to all forms of business enterprise. and the tools and analysis used to make the decisions. corporate or not. Short-term corporate finance decisions are called working capital management and deal with balance of current assets and current liabilities by managing cash. which is slightly broader in scope.

Role of Financial Managers: The role of a financial manager can be discussed under the following heads: 1. Nature of work 2. Working conditions 3. Employment 4. Training, Other qualifications and Advancement 5. Job outlook 6. Earnings 7. Related occupations

Let us discuss each of these in a detailed manner. 1. Nature of work Almost every firm, government agency and organization has one or more financial managers who oversee the preparation of financial reports, direct investment activities, and implement cash management strategies. As computers are increasingly used to record and organize data, many financial managers are spending more time developing strategies and implementing the long-term goals of their organization.

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The duties of financial managers vary with their specific titles, which include controller, treasurer or finance officer, credit manager, cash manager, and risk and insurance manager. Controllers direct the preparation of financial reports that summarize and forecast the organization’s financial position, such as income statements, balance sheets, and analyses of future earnings or expenses. Regulatory authorities also in charge of preparing special reports require controllers. Often, controllers oversee the accounting, audit, and budget departments. Treasurers and finance officers direct the organization’s financial goals, objectives, and budgets. They oversee the investment of funds and manage associated risks, supervise cash management activities, execute capital-raising strategies to support a firm’s expansion, and deal with mergers and acquisitions. Credit managers oversee the firm’s issuance of credit. They establish credit-rating criteria, determine credit ceilings, and monitor the collections of past-due accounts. Managers specializing in international finance develop financial and accounting systems for the banking transactions of multinational organizations. Cash managers monitor and control the flow of cash receipts and disbursements to meet the business and investment needs of the firm. For example, cash flow projections are needed to determine whether loans must be obtained to meet cash requirements or whether surplus cash should be invested in interest-bearing instruments. Risk and insurance managers oversee programs to minimize risks and losses that might arise from financial transactions and business operations undertaken by the institution. They also manage the organization’s insurance budget. Financial institutions, such as commercial banks, savings and loan associations, credit unions, and mortgage and finance companies,

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employ additional financial managers who oversee various functions, such as lending, trusts, mortgages, and investments, or programs, including sales, operations, or electronic financial services. These managers may be required to solicit business, authorize loans, and direct the investment of funds, always adhering to State laws and regulations. Branch managers of financial institutions administer and manage all of the functions of a branch office, which may include hiring personnel, approving loans and lines of credit, establishing a rapport with the community to attract business, and assisting customers with account problems. Financial managers who work for financial institutions must keep abreast of the rapidly growing array of financial services and products. In addition to the general duties described above, all financial managers perform tasks unique to their organization or industry. For example, government financial managers must be experts on the government appropriations and budgeting processes, whereas healthcare financial managers must be knowledgeable about issues surrounding healthcare financing. Moreover, financial managers must be aware of special tax laws and regulations that affect their industry. Financial managers play an increasingly important role in mergers and consolidations and in global expansion and related financing. These areas require extensive, specialized knowledge on the part of the financial manager to reduce risks and maximize profit. Financial managers increasingly are hired on a temporary basis to advise senior managers on these and other matters. In fact, some small firms contract out all accounting and financial functions to companies that provide these services.

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The role of the financial manager, particularly in business, is changing in response to technological advances that have significantly reduced the amount of time it takes to produce financial reports. Financial managers now perform more data analysis and use it to offer senior managers ideas on how to maximize profits. They often work on teams, acting as business advisors to top management. Financial managers need to keep abreast of the latest computer technology in order to increase the efficiency of their firm’s financial operations.

2. Working conditions Financial managers work in comfortable offices, often close to top managers and to departments that develop the financial data these managers need. They typically have direct access to state-of-the-art computer systems and information services. Financial managers commonly work long hours, often up to 50 or 60 per week. They generally are required to attend meetings of financial and economic associations and may travel to visit subsidiary firms or to meet customers.

3. Employment While the vast majority is employed in private industry, nearly 1 in 10 works for the different branches of government. In addition, although they can be found in every industry, approximately 1 out of 4 are employed by insurance and finance establishments, such as banks, savings institutions, finance companies, credit unions, and securities dealers.

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and credit union associations. banking. Experience may be more important than formal education for some financial manager positions—notably. Persons enrolled prepare extensively at home and then attend sessions on subjects such as accounting management. finance. However. branch managers in banks. corporate cash management. financial analysis. budget management. and the proliferation of new and complex financial instruments. Many firms pay all or part of the costs for employees 12 . Continuing education is vital for financial managers. changes in State laws and regulations. and information systems. preferably in business administration. who must cope with the growing complexity of global trade. economics. Financial management. Other qualifications and Advancement A bachelor’s degree in finance. many employers now seek graduates with a master’s degree. or risk management. often in cooperation with colleges and universities. sponsor numerous national and local training programs. economics. Firms often provide opportunities for workers to broaden their knowledge and skills by encouraging employees to take graduate courses at colleges and universities or attend conferences related to their specialty. international banking. Training. accounting. These academic programs develop analytical skills and provide knowledge of the latest financial analysis methods and technology. or business administration is the minimum academic preparation for financial managers. Other financial managers may enter the profession through formal management training programs offered by the company.4. Banks typically fill branch manager positions by promoting experienced loan officers and other professionals who excel at their jobs.

financial managers who specialize in accounting may earn the Certified Public Accountant designations. this type of special study may accelerate advancement. Interpersonal skills are important because these jobs involve managing people and working as part of a team to solve problems.who successfully complete courses. The Association for Financial Professionals (AFP) confers the Certified Cash Manager credential to those who pass a computer-based exam and have a minimum of 2 years of relevant experience. (CPA) or Certified Management Accountant (CMA) 13 . Also. a broad overview of the business is essential. In some cases. For example. Financial managers must have excellent communication skills to explain complex financial data. Candidates for financial management positions need a broad range of skills. ability. and leadership are emphasized for promotion. and meet work experience requirements. Because financial managers work extensively with various departments in their firm. pass three sequential examinations. There are many different associations that offer professional certification programs. financial managers also may broaden their skills and exhibit their competency by attaining professional certification. Although experience. The Institute of Management Accountants offers a Certified in Financial Management designation to members with a BA and at least 2 years of work experience who pass the institute’s four-part examination and fulfill continuing education requirements. the Association for Investment Management and Research confers the Chartered Financial Analyst designation on investment professionals who have a bachelor’s degree.

financial managers must have knowledge of international finance. 5. Computer technology has reduced the time and staff required to produce financial reports. They must be comfortable with the latest computer technology. Other companies may contract out all accounting and financial operations. and generating ideas and creative ways to increase profitability will become a major role of corporate financial managers over the next decade. profits. Proficiency in a foreign language also may be important. As a result. well-trained. however. 14 . Some financial managers transfer to closely related positions in other industries. Those with extensive experience and access to sufficient capital may start their own consulting firms. applying their analytical skills to business. Job outlook Some companies may hire financial managers on a temporary basis. to see the organization through a short-term crisis or to offer suggestions for boosting profits. and costs. Because financial management is critical for efficient business operations. financial managers may be needed to oversee the contracts.Financial managers should be creative thinkers and problemsolvers. As financial operations increasingly are affected by the global economy. forecasting earnings. Even in these cases. experienced financial managers who display a strong grasp of the operations of various departments within their organization are prime candidates for promotion to top management positions.

400 Large organizations often pay more than small ones.800.200 223.200 282.600 268.000 167.800 231. was $261.000 129.Financial managers who are familiar with computer software that can assist them in this role will be needed. Selected financial manager positions had average total compensation as follows: US$ Vice president of finance Treasurer Assistant vice president-finance Controller/comptroller Director Assistant treasurer Assistant controller/comptroller Manager Cash manager 367. and salary levels also can depend on the type of industry and location.000 301. including bonuses and deferred compensation. 6.600 227. Many financial 15 . Earnings The Association for Financial Professionals’ 16th annual compensation survey showed that financial officers’ average total compensation in 2006.

which also vary substantially by size of firm. budget analysts. commodities. financial analysts and personal financial advisors. 16 . and real estate brokers and sales agents. lending. securities. insurance underwriters. especially for senior level executives. securities investment. and financial services sales agents. 7. credit operations. Workers in other occupations requiring similar training and skills include accountants and auditors. Deferred compensation in the form of stock options is becoming more common. such as asset management. loan counselors and officers. or insurance risk and loss control. Related occupations Financial managers combine formal education with experience in one or more areas of finance.managers in both public and private industry receive additional compensation in the form of bonuses.

It is beneficial to management of the company by providing crystal clear picture regarding important aspects like liquidity. The investors who are interested in investing in the company’s shares will also get benefited by going through the study and can easily take a decision whether to invest or not to invest in the company’s shares. 17 . The study is also beneficial to employees and offers motivation by showing how actively they are contributing for company’s growth. 4.NEED FOR THE STUDY 1. 3. The study has great significance and provides benefits to various parties whom directly or indirectly interact with the company. leverage. 2. activity and profitability.

Lanco. To make comparisons between the ratios during different periods. To evaluate and analyze various facts of the financial performance of the company. To understand the liquidity.OBJECTIVES The major objectives of the resent study are to know about financial strengths and weakness of LANCO through FINANCIAL RATIO ANALYSIS. 2. profitability and efficiency positions of the company during the study period. The main objectives of resent study aimed as: To evaluate the performance of the company by using ratios as a yardstick to measure the efficiency of the company. with the help of To determine the Profitability. 3. To analyze the capital structure of the company Leverage ratio. OBJECTIVES 1. Liquidity Ratios. To study the present financial system at Genting 18 .

Referring standard texts and referred books collected some of the information regarding theoretical aspects. Sources of secondary data: 1. That information was utilized for calculating performance evaluation and based on that.4.to assess the performance of he company method of observation of the work in finance department in followed. Method. 19 . 3. interpretations were made. To offer appropriate suggestions for the better performance of the organization METHODOLOGY The information is collected through secondary sources during the project. Most of the calculations are made on the financial statements of the company provided statements. 2.

Chapter – 5 RATIO ANALYSIS 20 .

in every aspect of the financial analysis. It is the responsibility of the management to maintain sound financial condition in the company. • Management. liquidity position of the company.RATIO ANALYSIS FINANCIAL ANALYSIS Financial analysis is the process of identifying the financial strengths and weaknesses of the firm and establishing relationship between the items of the balance sheet and profit & loss account. 21 . its operations and attractiveness as an investment. to identify the firm’s ability to meet their claims i.e. to know about the present and future profitability of the company and its financial structure. • Investors. The information in the statements is used by • Trade creditors. Financial ratio analysis is the calculation and comparison of ratios. The level and historical trends of these ratios can be used to make inferences about a company’s financial condition. which are derived from the information in a company’s financial statements.

It facilitates in assessing success or failure of the firm. So that the strengths and weaknesses of a firm. Ratio reflects a quantitative relationship helps to form a quantitative judgment.RATIO ANALYSIS The term “Ratio” refers to the numerical and quantitative relationship between two items or variables. 22 . as well as its historical performance and current financial condition can be determined. STEPS IN RATIO ANALYSIS • The first task of the financial analysis is to select the information relevant to the decision under consideration from the statements and calculates appropriate ratios. • To compare the calculated ratios with the ratios of the same firm relating to the pas6t or with the industry ratios. This relationship can be exposed as • Percentages • Fractions • Proportion of numbers Ratio analysis is defined as the systematic use of the ratio to interpret the financial statements.

calculated from past financial statements of the firm. • Competitor’s ratio. • Past ratios. They use of ratios as a tool of financial analysis involves the comparison with related facts. drawing of inferences and report writing conclusions are drawn after comparison in the shape of report or recommended courses of action. of the some most progressive and successful competitor firm at the same point of time. ratios of the future developed from the projected or pro forma financial statements NATURE OF RATIO ANALYSIS Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. This is the basis of ratio analysis. BASIS OR STANDARDS OF COMPARISON Ratios are relative figures reflecting the relation between variables. the industry ratios to which the firm belongs to • Projected ratios. The basis of ratio analysis is of four types. They enable analyst to draw conclusions regarding financial operations. It is only a means of 23 . • Industry ratio.• Third step is to interpretation.

• Single absolute ratio • Group of ratios 24 . INTERPRETATION OF THE RATIOS The interpretation of ratios is an important factor. • Comparison of the calculated ratios with the ratios of the same firm in the past. change in accounting policies. There are a number of ratios which can be calculated from the information given in the financial statements. The inherent limitations of ratio analysis should be kept in mind while interpreting them. • Selection of relevant data from the financial statements depending upon the objective of the analysis. The following are the four steps involved in the ratio analysis. The interpretation of ratios can be made in the following ways. but the analyst has to select the appropriate data and calculate only a few appropriate ratios.. • Calculation of appropriate ratios from the above data.understanding of financial strengths and weaknesses of a firm. or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs. The impact of factors such as price level changes. should also be kept in mind when attempting to interpret ratios. window dressing etc.

Following guidelines or factors may be kept in mind while interpreting various ratios are • Accuracy of financial statements • Objective or purpose of analysis • Selection of ratios • Use of standards • Caliber of the analysis IMPORTANCE OF RATIO ANALYSIS • Aid to measure general efficiency • Aid to measure financial solvency • Aid in forecasting and planning 25 .• Historical comparison • Projected ratios • Inter-firm comparison GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS The calculation of ratios may not be a difficult task but their use is not easy.

• Facilitate decision making • Aid in corrective action • Aid in intra-firm comparison • Act as a good communication • Evaluation of efficiency • Effective tool LIMITATIONS OF RATIO ANALYSIS • Differences in definitions • Limitations of accounting records • Lack of proper standards • No allowances for price level changes • Changes in accounting procedures • Quantitative factors are ignored • Limited use of single ratio • Background is over looked • Limited use 26 .

g. • Profit & loss account (or) revenue statement ratios: These ratios deal with the relationship between two profit & loss account items... e.g. Traditional Classification It includes the following. • Composite (or) inter statement ratios: These ratios exhibit the relation between a profit & loss account or income statement item and a 27 . both the items must. however. Functional Classification 3. the ratio of current assets to current liabilities etc. Various accounting ratios can be classified as follows: 1. e. the ratio of gross profit to sales etc. Traditional Classification 2.• Personal bias CLASSIFICATIONS OF RATIOS The use of ratio analysis is not confined to financial manager only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. • Balance sheet (or) position statement ratio: They deal with the relationship between two balance sheet items. pertain to the same balance sheet. Significance ratios 1.

long term solvency and leverage ratios.g. IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE 1. 2. Significance ratios Some ratios are important than others and the firm may classify them as primary and secondary ratios. Liquidity ratio 2. Activity ratio 4. e. or the ratio of total assets to sales. Profitability ratio 1. stock turnover ratio. LIQUIDITY RATIOS 28 .balance sheet items. Functional Classification These include liquidity ratios. The primary ratio is one. The other ratios that support the primary ratio are called secondary ratios. 3. which is of the prime importance to a concern. activity ratios and profitability ratios. Leverage ratio 3.

This ratio also known as Working capital ratio is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position (or) liquidity of a firm. If current assets can pay off current liabilities.Liquidity refers to the ability of a concern to meet its current obligations as & when there becomes due. floating (or) circulating assets The current assets should either be calculated liquid (or) near liquidity. then liquidity position will be satisfactory. To measure the liquidity of a firm the following ratios can be calculated • Current ratio • Quick (or) Acid-test (or) Liquid ratio • Absolute liquid ratio (or) Cash position ratio (a) CURRENT RATIO: Current ratio may be defined as the relationship between current assets and current liabilities. They should be convertible into cash for paying obligations of short term nature. The short term obligations are met by realizing amounts from current. The sufficiency (or) insufficiency of current assets should be assessed by comparing them with short-term current liabilities. Current assets 29 . The short term obligations of a firm can be met only when there are sufficient liquid assets.

An asset is said to be liquid if it is converted into cash with in a short period without loss of value.Current ratio = Current liabilities Components of current ratio CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable (b) QUICK RATIO Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its short-term obligations as & when they become due. Quick ratio may be defined as the relationship between quick or liquid assets and current liabilities. Quick or liquid assets Quick ratio = Current liabilities 30 .

5:1 (or) 1:2 i.Components of quick or liquid ratio QUICK ASSETS Cash in hand Cash at bank Bills receivable Sundry debtors Marketable securities Temporary investments CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income tax payable (c) ABSOLUTE LIQUID RATIO Although receivable. absolute liquid ratio should also be calculated together with current ratio and quick ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. debtors and bills receivable are generally more liquid than inventories.2 worth current liabilities in time as all the 31 . Hence. Absolute liquid assets Absolute liquid ratio = Current liabilities Absolute liquid assets include cash in hand etc.1 worth absolute liquid assets are considered to pay Rs. The acceptable forms for this ratio is 50% (or) 0.e.. yet there may be doubts regarding their realization into cash immediately or in time. Rs.

Components of Absolute Liquid Ratio ABSOLUTE LIQUID ASSETS Cash in hand Cash at bank Interest on Fixed Deposit CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income tax payable For more Notes. Presentations. Project Reports visit a2zmba.blogspot.com mbafin.blogspot.com 32 .com hrmba.blogspot.creditors are nor accepted to demand cash at the same time and then cash may also be realized from debtors and inventories.

Accordingly. long term solvency ratios indicate firm’s ability to meet the fixed interest and costs and repayment schedules associated with its long term borrowings. The following ratio serves the purpose of determining the solvency of the concern. Shareholders funds Proprietory ratio = Total assets SHARE HOLDERS FUND Share Capital Reserves & Surplus TOTAL ASSETS Fixed Assets Current Assets Cash in hand & at bank Bills receivable Inventories Marketable securities Short-term investments Sundry debtors Prepaid Expenses 33 .2. LEVERAGE RATIOS The leverage or solvency ratio refers to the ability of a concern to meet its long term obligations. • Proprietory ratio (a) PROPRIETORY RATIO A variant to the debt-equity ratio is the proprietory ratio which is also known as equity ratio. This ratio establishes relationship between share holders funds to total assets of the firm.

Working capital turnover ratio=cost of goods sold/working capital. This indicates the no. 34 .3. These ratios are also called “Turn over ratios” because they indicate the speed with which assets are converted or turned over into sales. Working capital = Current assets . Activity ratios measure the efficiency (or) effectiveness with which a firm manages its resources (or) assets.Current liabilities It indicates the velocity of the utilization of net working capital. • Working capital turnover ratio • Fixed assets turnover ratio • Capital turnover ratio • Current assets to fixed assets ratio (a) WORKING CAPITAL TURNOVER RATIO Working capital of a concern is directly related to sales. The efficiency with which assets are managed directly effect the volume of sales. of times the working capital is turned over in the course of a year. A higher ratio indicates efficient utilization of working capital and a lower ratio indicates inefficient utilization. ACTIVITY RATIOS Funds are invested in various assets in business to make sales and earn profits.

Cost of Sales Fixed assets turnover ratio = Net fixed assets Cost of Sales = Income from Services Net Fixed Assets = Fixed Assets . Higher the ratio. greater is the intensive utilization of fixed assets.Components of Working Capital CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable (b) FIXED ASSETS TURNOVER RATIO It is also known as sales to fixed assets ratio. Lower ratio means under-utilization of fixed assets. This ratio measures the efficiency and profit earning capacity of the firm.Depreciation 35 .

Capital invested in the business may be classified as long-term and short-term capital or as fixed capital and working capital or Owned Capital and Loaned Capital. though in both cases the same result is expected.(c) CAPITAL TURNOVER RATIOS Sometimes the efficiency and effectiveness of the operations are judged by comparing the cost of sales or sales with amount of capital invested in the business and not with assets held in the business. Cost of goods sold Capital turnover ratio = Capital employed Cost of Goods Sold = Income from Services Capital Employed = Capital + Reserves & Surplus 36 . All Capital Turnovers are calculated to study the uses of various types of capital.

If current assets increase with the corresponding increase in profit.(d) CURRENT ASSETS TO FIXED ASSETS RATIO This ratio differs from industry to industry. it will show that the business is expanding. A decline in the ratio means that debtors and stocks are increased too much or fixed assets are more intensively used. The increase in the ratio means that trading is slack or mechanization has been used. Current Assets Current Assets to Fixed Assets Ratio = Fixed Assets Component of Current Assets to Fixed Assets Ratio CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses FIXED ASSETS Machinery Buildings Plant Vehicles 37 .

Net profit after tax Net profit ratio= Net sales 38 . • Net profit ratio • Return on total assets • Reserves and surplus to capital ratio • Earnings per share • Operating profit ratio • Price – earning ratio • Return on investments (a) NET PROFIT RATIO Net profit ratio establishes a relationship between net profit (after tax) and sales and indicates the efficiency of the management in manufacturing. that drives the business enterprise. selling administrative and other activities of the firm. Because profit is the engine.4. PROFITABILITY RATIOS The primary objectives of business undertaking are to earn profits.

low demand etc. Obviously higher the ratio. the better is the profitability. It measures the profitability of investments. (b) RETURN ON TOTAL ASSETS Profitability can be measured in terms of relationship between net profit and assets. The overall profitability can be known. Net profit Return on assets = Total assets Net Profit = Earnings before Interest and Tax Total Assets = Fixed Assets + Current Assets 39 . This ratio is also known as profit-to-assets ratio.Net Profit after Tax = Net Profit (–) Depreciation (–) Interest (–) Income Tax Net Sales = Income from Services It also indicates the firm’s capacity to face adverse economic conditions such as price competitors.

Higher the ratio better will be the position. A very high ratio indicates a conservative dividend policy and increased ploughing back to profit.(c) RESERVES AND SURPLUS TO CAPITAL RATIO It reveals the policy pursued by the company with regard to growth shares. Net profit after tax Earnings per share = Number of Equity shares The Earnings per share is a good measure of profitability when compared with EPS of similar other components (or) companies. 40 . of equity shares. Reserves& surplus Reserves & surplus to capital = Capital (d) EARNINGS PER SHARE Earnings per share is a small verification of return of equity and is calculated by dividing the net profits earned by the company and those profits after taxes and preference dividend by total no. it gives a view of the comparative earnings of a firm.

Operating profit = Net sales .Operating cost Operating profit Operating profit ratio = Sales 41 .(e) OPERATING PROFIT RATIO Operating ratio establishes the relationship between cost of goods sold and other operating expenses on the one hand and the sales on the other. Operating profit ratio is calculated by dividing operating profit by sales. Operating cost Operation ratio = Net sales However 75 to 85% may be considered to be a good ratio in case of a manufacturing under taking.

(f) PRICE . If the price earning ratio falls. the better it is.EARNING RATIO Price earning ratio is the ratio between market price per equity share and earnings per share. the management should look into the causes that have resulted into the fall of the ratio. Market Price per Share Price – Earning Ratio = Earnings per Share Capital + Reserves & Surplus Market Price per Share = Number of Equity Shares Earnings before Interest and Tax Earnings per Share = Number of Equity Shares 42 . Generally. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether (or) not to buy shares in a particular company. higher the price-earning ratio.

(g) RETURN ON INVESTMENTS Return on share holder’s investment. 43 . Net profit (after interest and tax) Return on shareholder’s investment = Shareholder’s funds The ratio is generally calculated as percentages by multiplying the above with 100. popularly known as Return on investments (or) return on share holders or proprietor’s funds is the relationship between net profit (after interest and tax) and the proprietor’s funds.

Chapter – 6 DATA ANALYSIS 44 .

117.) Current Ratio Year 2003 2004 2005 2006 2007 Current Assets 58.LIQUIDITY RATIO 1.661 Ratio 7.151 69.021.952 31.199 30. the current ratio with 2:1 (or) more is considered as satisfactory position of the firm. The current liabilities majorly included Lanco Group of company for consultancy additional services. CURRENT RATIO (Amount in Rs.765.208 115.621 47.903. In the year 2007. there is an increase in the provision for tax. because the debtors are raised and for that the provision is created.82 Interpretation As a rule. The sundry debtors have increased due to the increase to corporate taxes. the loans and advances include majorly the advances to employees and deposits to 45 .081 91. In the year 2006.346 72.94 3.41 2.19 4. the cash and bank balance is reduced because that is used for payment of dividends.065. When compared with 2006.48 1.642.328.616 16.068 Current Liabilities 7.884.266.574.

00 7.48 1.41 46 .00 3. The loans and advances reduced because the employees set off their claims.00 Ratio 4.00 2003 2004 2005 Years 2006 2007 2.00 6. The huge increase in sundry debtors resulted an increase in the ratio. So the other current assets decreased. The deposits reduced due to the declaration of dividends.82 Ratio 7.government. GRAPHICAL REPRESENTATION CURRENT RATIO 8.00 5. which is above the benchmark level of 2:1 which shows the comfortable position of the firm.19 4.00 0.00 1. The other current assets include the interest attained from the deposits.94 3.00 2.

903.117. So. QUICK RATIO (Amount in Rs.81 Interpretation Quick assets are those assets which can be converted into cash with in a short period of time.2. the Quick ratio is increased because the sundry debtors are increased due to the increase in the corporate tax and for that the provision created is also increased.596 115.151 52. So.35 1.470.268 89.884.9 3. 47 .883.620 47.952 31.266.433.199 30. here the sundry debtors which are with the long period does not include in the quick assets. say to six months.65 4.) Quick Ratio Year 2003 2004 2005 2006 2007 Quick Assets 58.868 Current Liabilities 7.616 16.574.41 1.336 69.661 Ratio 7. the ratio is also increased with the 2006.431. Compare with 2006.065.

00 2.00 1.00 7.GRAPHICAL REPRESENTATION QUICK RATIO 8.41 48 .00 0.00 2003 2004 2005 Years 2006 2007 1.90 Ratios 4.65 1.00 3.00 5.00 6.35 3.81 7.00 Ratio 4.

852 35. 49 .117.859.661 Ratio 3.778 39.903.14 1.616 16.952 31. the cash and bank balance is decreased due to decrease in the deposits and the current liabilities are also reduced because of the payment of dividend.34 2.) Absolute Cash Ratio Year 2003 2004 2005 2006 2007 Absolute Liquid Assets 31.027 10.266.199 30.884. ABOSULTE LIQUIDITY RATIO (Amount in Rs.542 53. In the year 2006.070 Current Liabilities 7.92 0.065. Here.466.004. That causes a slight increase in the current year’s ratio.18 Interpretation The current assets which are ready in the form of cash are considered as absolute liquid assets. the cash and bank balance and the interest on fixed assts are absolute liquid assets.620 47.850.3.46 1.649.

46 3.GRAPHICAL REPRESENTATION ABSOLUTE CASH RATIO 4 3.92 50 .5 3 2.5 Ratios 2 1.14 1.18 Ratios 2.34 1.5 1 0.5 0 2003 2004 2005 2006 2007 Years 0.

includes fixed and current assets.652 97.438.102 Ratio 0. Total assets.572.201 129.385.013 Total Assets 78.79 0.060.473.171 88.391 106.53 0.LEVERAGE RATIOS 4.061 56.75 Interpretation The proprietary ratio establishes the relationship between shareholders funds to total assets.805.679.86 0. It determines the long-term solvency of the firm. There is no increase in the capital from the year2004.107 89.219 53. PROPRIETORY RATIO (Amount in Rs.301. The current assets are increased compared with the year 51 .158.834 70.231.) Proprietory Ratio Year 2003 2004 2005 2006 2007 Share Holders Funds 67.6 0. The share holder’s funds include capital and reserves and surplus. The fixed assets are reduced because of the depreciation and there are no major increments in the fixed assets. This ratio indicates the extent to which the assets of the company can be lost without affecting the interest of the company. which is caused by the increase of income from services. The reserves and surplus is increased due to the increase in balance in profit and loss account.

20 0. which resulted an increase in the ratio than older. GRAPHICAL REPRESENTATION PROPRIETORY RATIO 0.86 0.2006.75 Ratios Ratios 2003 2004 2005 Years 2006 2007 52 .53 0.60 0.40 0.00 0. Total assets are also increased than precious year.79 0.60 0.70 0.50 0.30 0.10 0.80 0.90 0.

26 1.902 Working Capital 50.654.211.834 53.) Working Capital Turnover Ratio Year 2003 2004 2005 2006 2007 Income From Services 36.375.730 55.460 44.728.759 55.42 1.084 72.550.355.199 37.649 96.880.72 1.309.31 1.407 Ratio 0. 53 .009 85. WORKING CAPITAL TURNOVER RATIO (Amount in Rs. The income from services is raised and the current assets are also raised together resulted in the decrease of the ratio of 2007 compared with 2006.13 Interpretation Income from services is greatly increased due to the extra invoice for Operations & Maintenance fee and the working capital is also increased greater due to the increase in from services because the huge increase in current assets.ACTIVITY RATIOS 5.899.670.

13 Ratio 2004 2005 Years 2006 2007 54 .60 1.40 1.26 1.GRAPHICAL REPRESENTATION WORKING CAPITAL TURNOVER RATIO 1.00 2003 0.20 0.80 0.00 Ratio 0.72 1.42 1.60 0.20 1.40 0.31 1.

This ratio shows the firm’s ability in generating sales from all financial resources committed to total assets.568.759 55.834 53. 55 .550. that effected a huge increase in the ratio compared with the previous year’s ratio. FIXED ASSETS TURNOVER RATIO (Amount in Rs.163.309.993 14.834.728. The ratio indicates the account of one rupee investment in fixed assets.649 96.902 Net Fixed Assets 28.899.654.084 72.056.82 Interpretation Fixed assets are used in the business for producing the goods to be sold.034 Ratio 1.24 3.26 1. The income from services is greaterly increased in the current year due to the increase in the Operations & Maintenance fee due to the increase in extra invoice and the net fixed assets are reduced because of the increased charge of depreciation.6.82 4.137.279 17.69 6.) Fixed Assets Turnover Ratio Year 2003 2004 2005 2006 2007 Income From Services 36. Finally.317 29.310 15.

00 5.24 3.82 7.26 1.69 56 .GRAPHICAL REPRSENTATION FIXED ASSETS TURNOVER RATIO 6.00 3.00 2003 2004 2005 Years 2006 2007 1.00 0.00 6.82 Ratios 4.00 2.00 1.00 Ratios 4.

Both are effected in the increment of the ratio of current year.649 96.175.) Capital Turnover Ratio Year 2003 2004 2005 2006 2007 Income From Services 36.04 0.084 72. CAPITAL TURNOVER RATIO (Amount in Rs.061 56.759 55.7.550. 57 . Due to huge increase in the net profit the capital employed is also increased along with income from services.060.98 1.892 53.834 70.00 Interpretation This is another ratio to judge the efficiency and effectiveness of the company like profitability ratio.013 Ratio 0.301.728. The income from services is greaterly increased compared with the previous year and the total capital employed includes capital and reserves & surplus.834 53.01 1.899.654.98 1.473.231.652 97.902 Capital Employed 37.309.

GRAPHICAL REPRESENTATION CAPITAL TURNOVER RATIO 1.98 Ratios 2003 2004 2005 Years 2006 2007 58 .03 1.00 0.97 0.94 1.00 Ratios 0.01 1.04 1.98 0.95 0.02 1.01 1.96 0.04 1.98 0.99 0.

CURRENT ASSETS TO FIXED ASSETS RATIO (Amount in Rs.020 18.20 6.993 14.163.137.998.328.021.765.8.74 4.310 15.17 Interpretation Current assets are increased due to the increase in the sundry debtors and the net fixed assets of the firm are decreased due to the charge of depreciation and there is no major increment in the fixed assets.07 8.208 115.056.672.761 17. The increment in current assets and the decrease in fixed assets resulted an increase in the ratio compared with the previous year 59 .524.081 91.642.034 Ratio 2.151 69.346 72.93 3.) Current Assets To Fixed Assets Ratio Year 2003 2004 2005 2006 2007 Current Assets 58.068 Fixed Assets 19.

93 3.00 8.00 4.00 1.00 Ratios 5.00 2.20 6.07 8.00 2003 2004 2005 Years 2006 2.GRAPHICAL REPRESENTATION CURRENT ASSETS TO FIXED ASSETS RATIO 9.00 6.00 3.17 Ratios 2007 60 .00 7.00 0.74 4.

728. The net profit is increased because the income from services is increased.759 55.PROFITABILITY RATIOS GENERAL PROFITABILITY RATIOS 9.59 0.42 Interpretation The net profit ratio is the overall measure of the firm’s ability to turn each rupee of income from services in net profit.649 96.586.474 16.125. High net profit ratio will help the firm service in the fall of income from services.359 Income from Services 36.550.039.30 0. If the net margin is inadequate the firm will fail to achieve return on shareholder’s funds. NET PROFIT RATIO (Amount in Rs.899.084 72.654.929.227 18.) Net Profit Ratio Year 2003 2004 2005 2006 2007 Net Profit After Tax 21.902 Ratio 0. 61 .942 16.23 0. The increment resulted a slight increase in 2007 ratio compared with the year 2006.580 40.123.259.33 0. rise in cost of production or declining demand.834 53.

30 0.60 0.59 0.GRAPHICAL REPRESENTATION NET PROFIT RATIO 0.23 Ratios 0.42 62 .33 0.10 0.50 0.30 0.20 0.40 Ratios 0.00 2003 2004 2005 Years 2006 2007 0.

Depending on the concept.728.718 67.759 55.649 96.586.902 Ratio 0.599 31.10.540.094. it will decide.41 0. The operating profit ratio is increased compared with the last year.192.877 27.899. The earnings are increased due to the increase in the income from services because of Operations & Maintenance fee.576.814 29.99 0.70 Interpretation The operating profit ratio is used to measure the relationship between net profits and sales of a firm.084 72.550.654.309. OPERATING PROFIT (Amount in Rs.677 Income From Services 36. 63 . So. the ratio is increased slightly compared with the previous year.834 53.) Operating Profit Year 2003 2004 2005 2006 2007 Operating Profit 36.57 0.51 0.

70 0.50 0.70 0.51 0.30 0.20 0.57 2003 2004 2005 Years 2006 2007 64 .40 0.10 0.00 0.41 Ratios 0.80 0.99 1.GRAPHICAL REPRESENTATION OPERATING PROFIT RATIO 0.00 0.60 Ratios 0.90 0.

27 0.) Return on Total Assets Ratio Year 2003 2004 2005 2006 2007 Net Profit After Tax 21.18 0.107 89.102 Ratio 0. 2006.227 18.391 106. The fixed assets are reduced due to the charge of depreciation and no major increments in fixed assets but the current assets are increased because of sundry debtors and that effects an increase in the ratio compared with the last year i.942 16.158. RETURN ON TOTAL ASSETS RATIO (Amount in Rs. The net profit is increased in the current year because of the increment in the income from services due to the increase in Operations & Maintenance fee.385.e.438.201 129.572.125.359 Total Assets 78. 65 .586.580 40.929.17 0.11.171 88.474 16.805.123.31 Interpretation This is the ratio between net profit and total assets. The ratio indicates the return on total assets in the form of profits.19 0.259.

00 2003 2004 2005 Years 2006 2007 0.18 0.20 0.05 0.GRAPHICAL REPRESENTATION RETURN ON TOTAL ASSETS 0.10 0.35 0.25 Ratios 0.30 0.17 Ratios 66 .27 0.31 0.15 0.19 0.

280 18.340.554 51.280 Ratio 31.920 18.781 37. due to the payment of dividends and in the year 2007 the profit is increased. RESERVES & SURPLUS TO CAPITAL RATIO (Amount in Rs.54 1. But the capital is remaining constant from the year 2004. Higher the ratio better will be the position.582. So the increase in the reserves & surplus caused a greater increase in the current year’s ratio compared with the older.280 18.511.02 4.19 Interpretation The ratio is used to reveal the policy pursued by the company a very high ratio indicates a conservative dividend policy and vice-versa. 67 .079.75 2.599.85 2.299 34.719.) Reserves & Surplus To Capital Ratio Year 2003 2004 2005 2006 2007 Reserves & Surplus 65.719.719.733 Capital 2.12.280 18.754.372 78.719. The reserves & surplus is decreased in the year 2006.

75 2.00 5.00 25.00 10.00 - 31.GRAPHICAL REPRESENTATION RESERVES & SRUPLUS TO CAPITAL RATIO 35.19 2005 Years 2007 68 .00 30.00 15.02 2006 4.85 2003 2004 2.54 Ratios 1.00 Ratios 20.

992 1.259.928 1.871.123.359 No of Equity Shares 207.871. That is the amount which is available to the shareholders to take. After charging depreciation and after payment of tax.OVERALL PROFITABILITY RATIOS 13. The share capital is constant from the year 2004.928 shares of Rs.586.580 40.871.) Earnings Per Share Year 2003 2004 2005 2006 2007 Net Profit After Tax 21.56 8. 69 . Net profit after tax is increased due to the huge increase in the income from services.942 16.928 1. the remaining amount will be distributed by all the shareholders.10/. Due to the huge increase in net profit the earnings per share is greaterly increased in 2007.04 9. There are 1.75 21.871.474 16.68 Interpretation Earnings per share ratio are used to find out the return that the shareholder’s earn from their shares.227 18.871.61 9.929.each.125.928 1. EARNINGS PER SHARE (Amount in Rs.928 Ratio 101.

56 2005 Years 2006 2007 70 .00 100.04 9.68 9.GRAPHICAL REPRESENTATION EARNINGS PER SHARE 120.00 20.00 0.00 Ratios 60.00 80.61 21.75 Ratios 101.00 2003 2004 8.00 40.

52 30.14.85 Earnings Per Share 101.75 21.) Price Earning (P/E) Ratio Year 2003 2004 2005 2006 2007 Market Price Per Share 32.56 8.54 28. The earnings per share are also increased greaterly compared with the last year because of increase in the net profit. The market price per share is increased due to the increase in the reserves & surplus.15 3.04 9.47 37.68 Ratio 0. the ratio is decreased compared with the previous year.61 9.17 51.30 4. 71 .32 3.09 2. So. PRICE EARNINGS (P/E) RATIO (Amount in Rs.39 Interpretation The ratio is calculated to make an estimate of application in the value of share of a company.

00 0.32 Ratios 3.09 2.00 1.GRAPHICAL REPRESENTATION P/E RATIO 4.30 4.00 3.15 3.50 1.00 0.39 2003 2004 2005 Years 2006 2007 72 .50 3.50 4.50 2.00 Ratios 2.50 0.

219 53.586. The net profit is increased due to the increase in the income from services ant the shareholders funds are increased because of reserve & surplus.125. 73 .013 Ratio 0. the ratio is increased in the current year.060.) Return on Investment Year 2003 2004 2005 2006 2007 Net Profit After Tax 21.929.3 0.834 70.473. RETURN ON INVESTMENT (Amount in Rs.231.42 Interpretation This is the ratio between net profits and shareholders funds.24 0.259.15.359 Share Holders Fund 67.474 16. The ratio is generally calculated as percentage multiplying with 100.31 0.061 56.580 40.227 18.123.301.942 16.652 97.679. So.32 0.

42 74 .30 Ratios 0.24 0.10 0.40 0.30 0.35 0.GRAPHICAL REPRESENTATION RETURN ON INVESTMENT RATIO 0.31 0.25 0.00 2003 2004 2005 Years 2006 2007 RatioS 0.20 0.05 0.15 0.32 0.45 0.

Chapter – 7 FINDINGS. SUMARRY & CONCLUSION 75 .

04) and decreased in 2006 to 0. and 3.82 during 2003 of which indicates a continuous increase in both current assets and current liabilities. and 6.65. 4.48. 5. The absolute liquid ratio has been decreased from 3.98. The proprietory ratio is increased compared with the last year. It increased in the current year as 1.01. 4.00. from 2003 – 07. 1. and 1. 1.FINDINGS OF THE STUDY 1.92 to 1.41. 1. the long term solvency of the firm is increased.26.82.18. 2. 6. 3. 76 . 3.24. The quick ratio is also in a fluctuating trend through out the period 2003 – 07 resulting as 7.35. The proprietary ratio has shown a fluctuating trend. It indicates that the company is efficiently utilizing the fixed assets.19. 2.81.13 in the year 2003 – 07. The fixed assets turnover ratio is in increasing trend from the year 2003 – 07 (1.72 to 1.9.82). 1. 4. So.98.41. The current ratio has shown in a fluctuating trend as 7. The capital turnover ratio is increased form 2003 – 05 (0. The company’s present liquidity position is satisfactory.98. The working capital increased from 0. 1. and 3.69. 4.

93.e. The capital is constant. The earnings per share was very high in the year 2003 i. So the return on total assets ratio is Capital ratio is increased to 4. respectively.51. 8. 0.20.02. but the reserves and surplus is increased in the current year.07 and 8. In the current year the net profit is increased due to the increase in operating and maintenance fee. 12. 11. That is decreased in the following years because number of equity shares are increased and the net profit is decreased. 4.56.74.69 from 2003 – 07 77 . 10.31.17 to 0. 3.17.99.57 and 0. increased from 0. 101. It shows that the current assets are increased than fixed assets. 9. It increased in the current year compared with the greaterly in the current year.33 to 0. previous year form 0. 0..42.19 from 2.7. 0. So the earnings per share is increased. The current assets to fixed assets ratio is increasing gradually from 2003 – 07 as 2. The operating profit ratio is in fluctuating manner as 0. 6. The Reserves and Surplus to The net profit is increased The net profit ratio is in fluctuation manner.41.

39.13. 78 . It is reduced from 3. Price Earnings ratio is reduced when compared with the last year. Both the profit and shareholders funds increase cause an increase in the ratio.42 compared with the previous year.09 to 2. The return on investment is increased from 0. because the earnings per share is increased.32 to 0. 14.

It is better for the organization to diversify the funds to different sectors in the present market scenario.SUMMARY 1) After the analysis of Financial Statements.. 79 . The company should maintain that perfectly. it gives the other income i.e. CONCLUSION The company’s overall position is at a good position. which majorly help to the growth of the organisation. 4) The company fixed deposits are raised from the inception. Particularly the current year’s position is well due to raise in the profit level from the last year position. the company status is better. it is better to declare the dividend to shareholders. Interest on fixed deposits. because the Net working capital of the company is doubled from the last year’s position. 3) The company is utilising the fixed assets. 2) The company profits are huge in the current year.

PILLAI & BAGAVATI • MANAGEMENT ACCOUNTING – SHARMA & GUPTA INTERNET SITE • www.BIBLIOGRAPHY REFFERED BOOKS • FINANCIAL MANAGEMENT .com • www. PANDEY • MANAGEMENT ACCOUNTANCY .gov.nwda.in 80 .ercap.I.org • www.wikipedia. M.

034 80.) Particulars SOURCES OF FUNDS : 1) SHAREHOLDERS' FUNDS (a) Capital (b) Reserves and Surplus 2) DEFFERED TAX LIABILITY TOTAL APPLICATION OF FUNDS : 1) FIXED ASSETS (a) Gross Block (b) Less: Depreciation (c) Net Block 2) CURRENT ASSETS.407 99.562 14.199 44.767.350 59.056.719.266.712.652 2.690.043.794.441 29.280 37.06 18.591.709 91.420 51.473.642.372 56.916 8.856.538.163.596 16.208 38.745 30.993 37.280 78.340.733 97.057.268.013 2.934 47.068 21.268. LOANS AND ADVANCES (a) Sundry Debtors (b) Cash and Bank Balances (c) Other Current Assets (d) Loans and Advances LESS : CURRENT LIABILITIES AND PROVISIONS (a) Liabilities (b) Provisions NET CURRENT ASSETS TOTAL 2006 .516 115.328.228 733.265 8.986 15.APPENDIX Balance sheet as on 31st March 2007 (Amount in Rs.894.596.428 99.754.117.478.326 857.538.979 14.009 59.753 923.375.002 81 .661 85.710.002 31.525.060.441 18.804 34.07 2005 .669.520 152.719.211.

654.495.15 per equity Share (2005.649 2.257 Earnings Per Share .896 57. BALANCE CARRIED TO BALANCE SHEET 2006 .599.431 4.917 29.com 82 .blogspot.398.285.com hrmba.183.699.550. Presentations.Deferred .EXPENDITURE Administrative and Other Expenses Less: Expenditure Reimbursable under Operations and Maintenance Agreement TOTAL III. PROFIT AVAIALABLE FOR APPROPRIATIONS Transfer to General Reserve Interim Dividend Rs.719 49.211.545 75.922) 446.938.599.069 26.220 99. Project Reports visit a2zmba.140 18.185 28.122 81.Fringe Benefits V.920 3.851 63.801 10.Basic & Diluted 22 10 For more Notes.078.718 2.305 31.719 75.306.580 44.699.359) 434.663 40.blogspot. PROFIT BEFORE DEPRECIATION AND TAXATION Provision for Depreciation IV.101 24.617 67.NIL) Provision for Dividend Distribution Tax VII.750 49.blogspot.836.440 (67.474.827 31.349.576 65.259.07 96.249.Current .892 26.586.285.Profit and Loss Account for the period ended on 31st March 2007 (Amount in Rs.951.000 (315.586.257 67.279.INCOME Income from Services Other Income TOTAL II.com mbafin.617 2005 – 06 55.285. PROFIT AFTER TAXATION Surplus brought forward from Previous Year VI.334.902 2.677 2.359 26. PROFIT BEFORE TAXATION Provision for Taxation .445 67.334.292.053.192.750 81.860.009.) Particulars I.680.