A MINOR PROJECT REPORT

ON

“Financial ratio Analysis of AMBIKA COTTON MILLS”

Submitted in the fulfillment of the requirement of Bachelor of Business

Administration course of New Delhi Institute of Management

By
DIWAKAR SHARMA
Enrollment No.-08050601713
Session-2015-2018

Under the guidance of

Mrs. DEEPTI GAUR

New Delhi Institute of Management

New Delhi - 62
 DECLARATION

I, DIWAKAR SHARMA hereby declare that the project work entitled “Financial ratio
Analysis of AMBIKA COTTON MILLS”, submitted to New Delhi Institute of Management,
New Delhi, is a record of an original work done by me under the guidance of Mrs.DEEPTI
GAUR, Faculty, New Delhi Institute of Management, New Delhi, and this project work has not
performed the basis for the award of any degree or diploma and similar project if any.

NAME:DIWAKAR SHARMA
ENROLLMENT NO.08050601713
 ACKNOWLEDGEMENT

“Perseverance inspiration and motivation have always played a key role in success of any
venture”.

This project would have remained incomplete without mentioning some of the names as a token
of sincere thanks to those who had contributed a lot towards completion of the project.

At the very outset I would like to thank all the faculty of NEW DELHI INSTITUTE OF
MANAGEMENT for giving me an opportunity to do this project.

I express my sincere thanks to Mrs. DEEPTI GAUR for allowing me to accomplish my project.
Without his guidance and field help, this project would have been difficult to achieve.

DIWAKAR SHARMA
 CERTIFICATE

This is to certify that DIWAKAR SHARMA student of BBA 3th semester of New Delhi Institute
of Management has completed his project on the topic of Financial ratio Analysis of AMBIKA
COTTON MILLS under my supervision. He has taken care and shown utmost sincerity in
completion of this project.

He has worked under my guidance and direction.

--------------------
(Signature of the guide)

Mrs. DEEPTI GAUR .

(Faculty – NDIM)
Final Project Report Guidelines (Finance)
BBA (IP) Semester 3

Cover Page
Acknowledgment
Certificate
Table of Contents/Index
List of Tables, Charts and Figures

Chapter 1: Introduction of the study

1.1: Brief Overview Of the Study
1.2: Objectives of the study
1.3: Scope and Significance of the study
1.4: Limitations of the study

Chapter 2 : Research Methodology

2.1:Statement of Research Design
2.2: Sources of the Data
2.3: Research design and methodology.
2.4: Presentation Tool Used

Chapter 3: Industry Overview

3.1: History of Ambika Cotton Mills
3.2: Technology used
3.3: Major Players and their Marker Share

Chapter 4: Company Profile

4.1:History
4.2:Vision, Mission and Objectives of the Company
4.3:Organisational Structure
4.4:Products and Services Offered
4.5:Marketing Strategies for Customer Satisfaction
4.6:Future Plans

Chapter 5: Findings and Analysis

5.1: Analysis of Data.
5.2: Summary of Findings.

Chapter 6: Conclusion and Recommendations

6.1: Conclusion
6.2: Recommendations

Appendices
Annexure like copy of Balance sheet, Profit and loss account, income statement, brochures,
Photographs to be enclosed.
Bibliography
 CHAPTER 1:-
INTRODUCTION OF
THE STUDY
1.1. BRIEF OVERVIEW OF THE STUDY

ABOUT RATIO ANALYSIS

The ratio analysis is the most powerful tool of financial analysis. Several ratios calculated from
the accounting data can be grouped into various classes according to financial activity or
function to be evaluated.

DEFINITION

“The indicate quotient of two mathematical expressions “and as “The relationship between two
or more things. “It evaluates the financial position and performance of the firm.
As started in the beginning many diverse groups of people are interested in analyzing financial
information to indicate the operating and financial efficiency and growth of firm. These people
use ratios to determine those financial characteristics of firm in which they interested with the
help of ratios one can determine. The ability of the firm to meet its current obligations

 The extent to which the firm has used its long-term solvency by borrowing funds.
 The efficiency with which the firm is utilizing its assets in generating the sales revenue.
 The overall operating efficiency and performance of firm.

The information contained in these statements is used by management, creditors, investors and
others to form judgment about the operating performance and financial position of firm. Uses of
financial statement can get further insight about financial strength and weakness of the firm if
they properly analyze information reported in these statements. Management should be
particularly interested in knowing financial strength of the firm to make their best use and to be
able to spot out financial weaknesses of the firm to take suitable corrective actions. The further
plans firm should be laid down in new of the firm’s financial strength and weaknesses. Thus
financial analysis is the starting point for making plans before using any sophisticated
forecasting and planning procedures. Understanding the past is a prerequisite for anticipating the
future.
1.2. OBJECTIVEOF THE STUDY

1. To study and analyze the financial position of the Company through ratio analysis.

2. To suggest measures for improving the financial performance of organization.

3. To analyze the profitability position of the company.

4. To assess the return on investment.

5. To analyze the asset turnover ratio.

6. To determine the solvency position of company.

7. To suggest measures for effective and efficient usage of investment.

1.3 SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published in the annual reports of
the company every year. The analysis is done to suggest the possible solutions. The study is
carried out for 4 years (2011– 15).
Using the ratio analysis, firms past, present and future performance can be analyzed and this
study has been divided as short term analysis and long term analysis. The firm should generate
enough profits not only to meet the expectations of owner, but also to expansion
The prevalent educational system providing the placement training at an industry being a part of
the curriculum has helped in comparison of theoretical knowledge with practical system. It has
led to note the convergences and divergence between theory and practice.
1.4. LIMITATION OF THE STUDY

 The study was limited to only four years Financial Data.

 The study is purely based on secondary data which were taken primarily from Published
annual reports of AMBIKA COTTON MILLS..,

 There is no set industry standard for comparison and hence the inference is made on general
standards.

 The ratio is calculated from past financial statements and these are not indicators of future.

 The study is based on only on the past records.

 Non availability of required data to analysis the performance.

 The short span of the time provided also one of limitations

 CHAPTER 2:-
RESEARCH
METHODOLOGY
2.1. STATEMENT OF RESEARCH DESIGN

In view of the objects of the study listed above an exploratory research design has been adopted.
Exploratory research is one which is largely interprets and already available information and it lays
particular emphasis on analysis and interpretation of the existing and available information.

 To know the financial status of the company.

 To know the credit worthiness of the company.
 To offer suggestions based on research finding.

2.2. SOURCES OF THE DATA

Data Collection Methods

Primary Data
Information collected from internal guide and finance manager. Primary data is first hand
information.

Secondary Data
Secondary data is second hand information and is collected from the secondary sources such as
annual reports, magazines, company’s websites etc

2.3. RESEARCH DESIGN AND METHODOLOGY

The data relating to the performance of Ambika cotton mill drawn from the different sources
have been analyzed by using well known ratios and comparing the operation cycle.

Assessment of the firm’s past, present and future financial conditions

Done tofind firm’s financial strength and weakness.
Primary Tools:

 Financial Statements
 Comparison of financial ratios with past years.

2.4. PRESENTATION TOOL USED

 Bar diagrams
 Tables
CHAPTER 3:-
INDUSTRY
OVERVIEW
3.1 : HISTORY
Indian Cotton Industry's history of establishment has a rich past. English did gradual
Inaugurations of a number of beneficial industries in India and the country was opening its eyes
to a whole new era of mechanism. With 19th century India had successfully established major
production industries, owing to the initiative of the British East India Company. Cotton was an
essential staple fabric, which was needed in almost every work of life in India.Indian Cotton
Industry was the precise industry which fostered a humble beginning, attracting budding Indian
industrialists. In 1854 towards making that dream into a reality, James Landon established the
Broach Cotton Mill, the first successful cotton mill in Bombay. The first steam-driven cotton
mill also went into production in 1856. 79 cotton mills were in operation by 1883, as Bombay
took the industrial lead. Establishment of cotton industry was thus an initiation of a new history.
The first mechanized jute mill began operations in Bengal in 1855. Government of India in
October 1861 issued a waste lands order for the purpose of encouraging the growth of cotton.

Hugh Mason, Chairman of the Board of the Manchester Cotton Company in 1862, sought the
impeachment of Sir Charles Wood (1800-1885), Secretary of State for India. Mason felt the
Government of India was holding to a do-nothing policy regarding the provision of greater
supplies of raw cotton to Manchester`s manufacturers. The Lancashire Cotton Industry had
emerged sufficient pressure on the Secretary of State for India to have the Government of India
place a 5% tariff on Indian cotton manufactures in order to allow British cotton goods to be more
marketable in India. 64 jute mills existed in Bengal, with 36,000 looms employing a total of
225,000 workers in 1913.

3.2 : TECHNOLOGY USED

Ambika Cotton Mills is a manufacturer of cotton yarn. It was incorporated as a private limited
company on October 6, 1988 and got converted into a public limited company on September 5,
1994.
 The company has four manufacturing units in Dindigul, Tamil Nadu. In FY07, the company set
up its fourth unit with an installed capacity of 43,200 spindles including doubling of yarn for
9,600 spindles along with back processing machinery in a separate plant at an estimated cost of
Rs 1,406.3 million. The company has increased its compact facility in Unit II by 6,720 spindles
at an estimated cost of Rs 33.1 million. The total production capacity would increase to 110,000
spindles in phases starting with operations at unit IV from June 2007. Of this, the compact
facility would constitute 83,000 spindles representing 75.45% of the total installed capacity. The
additional doubling of yarn facility would provide the required flexibility in product range. The
installed wind power capacity of the company stands at 13.8 MW with the setting up of 800 KW
capacity in FY07.

3.3 : MAJOR PLAYERS IN THE INDUSTRY AND THEIR

MARKET SHARE

COMPETITORS
Name Last Price Market Sales Net Total Assets
Cap. Turnover Profit
(Rs. cr.)
Vardhman Text 1067.05 6791.97 5660.69 653.05 5606.91
Trident 54.40 2,772.11 3705.85 228.45 4776.91
Indo Count 695.60 2746.22 2072.78 250.71 903.58
Ambika cotton 886.85 521.02 492.31 44.46 354.75

Shiva Texyarn 233.35 504.14 449.92 10.85 362.16

Nitin Spinners 69.35 317.86 767.51 44.16 504.28

AMBIKA COTTON is in tough competition with

VARDHAMAN TEXT, TRIDENT, INDO COUNT etc.
 CHAPTER 4 :-
COMPANY PROFILE
4.1 : HISTORY

INDIAN COTTON INDUSTRY

Cotton is one of the principal crops of India and is the major raw material for domestic textile
industry. The Indian Cotton Industry provides sustenance to millions of farmers as also the
workers involved right from processing to trading of cotton. The Indian textile industry
consumes a diverse range of fibres and yarn, but is predominantly cotton based. The ratio of
cotton to manmade fibres and filament yarns by the domestic industry is about 56:46.

Indian Cotton Industry has an overwhelming presence in the economic life of the country. Apart
from providing one of the basic necessities of life, the Cotton industry also plays a pivotal role
through its contribution to industrial output, employment generation and the export earnings of
the country. It contributes about 14% to the industrial production, 4% to the GDP and 17% to the
country's export earnings. India is the only country which grows all four species of cultivated
cotton starting from Gossypiumarboreum and herbaceum (Asian cotton), G.barbadense
(Egyptian cotton) and G.hirsutum (American Upland cotton). Gossypiumhirsutum represents
90% of the hybrid Indian cotton production and all the current BT cotton hybrids areG.hirsutuim.
India produces large number of cotton varieties and hybrids. Though the number of varieties in
cultivation exceeds 75, 98% of the production is contributed by about 25 varieties only.

Indian Cotton is produced in country in three zones viz., Northern zone comprising the States of
Punjab, Haryana and Rajasthan & Central zone comprising the States of Maharashtra, Madhya
Pradesh and Gujarat and Southern zone comprising the States of Andhra Pradesh, Karnataka and
Tamil Nadu. Cotton cultivation has gained momentum in the eastern State of Odisha, besides
these there are nine States also. In the year 2008-09 during cotton season the country once again
harvested higher cotton production for the fifth consecutive year at 4.93 million metric tons
(equivalent to 29.0 million bales of 170 kgs each). In the last two decades, the production of
cotton has gone up from 7.5 million bales in 1983-84 to 16.3 million bales of 170 kg/bale during
1998-99.
4.2 : VISION, MISSION AND OBJECTIVES OF THE COMPANY
The Company was originally incorporated as Ambika Cotton Mills Private Ltd as a Private
Limited Company on 6th october1988 , in the State of Tamil Nadu, and subsequently converted
into a Public Limited Company on 5th September, 1994. The Company was promoted by Shri P
K Ganeshwar, Shri M Rathanasamy and Shri P V Chandran, for setting up a cotton spinning
mill.The mill, located in Dindigul, Tamil Nadu, commenced operations in January 1990. The
project, with an initial capacity of 6048 spindles was part-financed by a term loan from State
Bank of India. The Company carried out an expansion scheme to add certain back-process
machinery in February 1991, which was also funded by the State Bank of India. 1992 The
company began implementation of an expansion project to double its spindlage to 12096
spindles by the addition of 6048 spindles.This project which was financed by means of a medium
term loan from State Bank of India and the State Bank of Mysore on a consortium and through a
Deferred Payment Guarantee limit from IDBI. The project was successfully completed in March
1993.1994 The Company added Comber machines to its production line and humidification
system. This was funded by SIPCOT through a term loan of Rs. 90.86 lacs. The Company
currently manufactures combed and carded cotton yarn of counts ranging from 30's to 40's.
These are used by hosiery manufacturers to convert the same into fabric or garments.2000 The
Company has chalked out a Rs 14-crore expansion-cum-modenrisation programe.2005-The
Company has recommended a dividend of 20%.2006-The Company has recommended a
dividend of 20%2007-The Company has recommended a Dividend of 25%2008-The Company
has appointed Mr. Sunil Kumar Kolangara, as a Director in the Company.-The Company has
recommended a Dividend of 20%.2009-The Company has recommended a Dividend of Rs 2/-
per share (20% on face value of Rs 10/- each).2010-The Company has recommended payment of
Dividend at Rs. 3/- per equity share of Rs. 10/- each.The Company has approved a proposal to
enhance the Wind power capacity of the Company for the purpose of captive consumption from
the present level of 15.4 MW to 26.6 MW by adding another 11.2 MW to the existing capacity in
Tamilnadu.2011-The Company has recommended a Final Dividend at Rs. 3/- per equity share of
Rs. 10/- each.2012-The Company reappointed Sri. P. V. Chandran as Chairman and Managing
Director of the Company.The Company appointed Mrs. DEEPTI GAURVidyaJyothishPillai as
an additional Director of the Company.The Company has recommended payment of Final
Dividend at Rs. 3/- per equity share of Rs. 10/- each.

4.3. : ORGANIZATIONAL STRUCTURE

The company’s clientele consists of well-reputed manufacturers engaged in manufacturing

shirts/knitwear products, both in the domestic and international markets. Approximately 45% of
its products are exported directly to Taiwan, Hong Kong, Turkey, China, Korea, Singapore,
Israel and Egypt and through merchant exporters to Peru, Italy, and Germany among other
countries.

4.4. : PRODUCTS AND SERVICES OFFERED

Ambika Cotton mill manufacture 100% cotton yarn counts varying from 24s to 140s combed
which goes for the manufacture of premium branded shirts and t-shirts globally. Our products
are made from various imported and Indian cotton. They take pride in our contamination free
cotton yarn that gives us a special niche in the market.Ambika’s yarn has been widely accepted
and appreciated in the industry by prominent top shirt manufacturers and knitted garment
manufacturers, domestically and world-wide. It is well reputed for its contamination free 100%
cotton ring spun & compact yarn manufactured exclusively for shirting. Hard twist and Soft twist
with 4’20 min and cylindrical dye cones for weaving, and S & Z twist yarn from counts 24’s to
140’s for knitting are also our regular notable features. Ambika holds the Supima certificate
from Supima Association (USA), GOTS Certificate from Control Union (formerly SCAL) for
organic yarn, and Oeko-Tex Certificate of Standard 100 Product Class I.They ensure that we
maintain more than adequate quantities of cotton raw materials in the extra long staple as well as
medium and short range through out the year.
4.5: MARKETING STRATEGIES FOR CUSTOMER
SATISFACTION

 In the year 2008-09 the yield gap between the world and India was narrowed down, as
Indian yield was 5.5% to 591 kg per hectare. India still has miles to go before it can
match yield levels in countries like Australia, China and the U.S. where yield is as high
as 1840 kg, 1265 kg and 985 kg, respectively.

 The major achievement for Indian cotton has been a significant improvement in cotton
yield in the last three to four years. The average national yield has almost doubled to 560
kilograms (kg) per hectare, climbing from around 300 kg per hectare as recently as
2002/03. Though the national yield level still compares poorly with the global average of
785 kg per hectare, world average yield grew by just 38% between 2000/01 and 2007/08.
Conversely, India's average yield posted a whopping growth of 102% during the same
period.

 Today Cotton crop contributes about 14 - 16% to the total agricultural-crop in India.

 India has the largest area under cotton with 9 million hectares in the world constituting
26% of total world cotton area.

 India presently produces 4.59 million tonnes of cotton with 27 million bales of 170 kgs
each which constitutes 18% of the world cotton production.

 60 million people including 4.5 million farmers in India depend on cotton production to
earn their livelihood.
  India Cotton Industry may boost the acreage to at least 10.5 million hectares. Farmers
planted the crop across 10.4 million hectares and up 9 % from a year earlier, according to
the farm ministry in the year 2009.

4.6: FUTURE PLANS

GROWTH

 We have seen that Asia cotton deficit will rise from 3.7 mn tons to about 6 mn tons by
2020.

 India would account for about 70% of world cotton consumption.

 India will have negligible surplus and China and Pakistan would be net importers of
cotton.

 Growth in world cotton consumption to 30 mn tons and limited scope for increase in
world area under cotton crop will at best balance supply to demand.

 In view of the tight balance in future between supply and demand of cotton and price
support operations of countries having largest consumption of cotton, there will be a
paradigm shift in factors/forces affecting the world cotton price.

 Ruling prices in domestic market of India will pull world price toward that level.
  Virtually world price may show a clear tendency to converge to China reserve price over
next few years.

EXPORTS

Government of India as a part of measures to boost cotton trade had liberalized raw cotton
exports since July 2001, dispensing with the system of allocation of cotton export quota in favour
of different agencies and traders. Exports of cotton has been done under Open General
Licence(OGL) . The cotton exports reached at US$ 850 million including 35 lakh bales. The
Indian Cotton industry was worth approximately $38 billion, with growth of the industry heavily
correlated with the rise and fall of cotton prices. However, exports of cotton have grown steadily
throughout the last decade which reached $4.87 billions.

PRODUCTION

Although India is a major cotton producer with significant potential to expand output, it is not
clear if domestic production will keep pace with the quantity and quality needs of an expanding
textile and apparel industry. India is the third-largest cotton producer in the world (fig.1). Cotton
area is significantly larger than any other country in the world—accounting for about 25 percent
of global cotton area—but average yields are the lowest among the top-10 global cotton
producers. Area and yield gains have boosted cotton production 2.4 percent annually since 1990,
but progress in raising yields toward levels achieved by other major producers has been slow. In
addition to low yields, the quality of India’s cotton is often poor because of an array of technical,
economic, and institutional factors. The extent to which these productivity and quality factors
can be addressed will be critical in determining India’s competitiveness in global textile markets
and whether rising cotton demand will be supplied by domestic producers or by global markets
 FUTURE OF THE INDUSTRY

India is the world's second largest producer of textiles and clothing after China. The textile and
clothing industry forms a major part of India's manufacturing sector and has contributed
enormously to the country's impressive economic development in recent years. India is also
recognised as one of the so-called BRIC countries, which are forecast to provide much of the
impetus behind global economic growth over the next few years. Furthermore, India has a huge
and growing domestic market which is expected to be worth US$140 bn in 2020 as the
population increases in size and consumers become wealthier. This huge growth could provide
significant opportunities for foreign exporters to India and potential foreign investors in the
country, as well as for the Indian textile and clothing industry itself. This report looks at the
development of the textile and clothing industry in India and its size and structure, as well as
textile and clothing production and consumption. In particular, the report features: a
geographical, political and economic profile; a detailed look at the country's imports and exports;
a review of government policies, investment incentives and foreign and outward investments; an
analysis of strengths, weaknesses, opportunities and threats (SWOT); and a look at India's
infrastructure and human resources and how these affect the textile and clothing industry.
 CHAPTER 5:-
FINDINGS AND
ANALYSIS
THEORETICAL PERSPECTIVE

This study provides a critical review of the theoretical and empirical basis of four central areas of
financial ratio analysis. The research areas reviewed are the functional form of the financial
ratios, distributional characteristics of financial ratios, classification of financial ratios, and the
estimation of the internal rate of return from financial statements. It is observed that it is typical
of financial ratio analysis research that there are several unexpectedly distinct lines with research
traditions of their own. A common feature of all the areas of financial ratio analysis research
seems to be that while significant regularities can be observed, they are not necessarily stable
across the different ratios, industries, and time periods. This leaves much space for the
development of a more robust theoretical basis and for further empirical research.

TYPES OF RATIOS CALCULATED

A number of ratios are calculated by companies for evaluating their short and long term
performance and also to know liquidity and profitability. Some of the most commonly used
ratios are:

LIQUIDITY RATIOS
It can be defined as a ratio that indicates what proportion of a company's assets can be readily
converted into cash in the short term. Some of the liquidity ratios are:
 Current ratio

 Quick ratio

 Acid turnover

 Receivable turnover
  Inventory turnover

PROFITABILITY RATIO

It can be defined as a ratio that explains the profitability of a company during a specific period of
time. It explains how profitable a company is. These ratios can be compared during different
financial years to see the overall performance of a company. Some of the profitability ratios
calculatedare:

 Return on assets
 Return on common stock equity
 Profit margin
 Leverage ratio
 Debt ratio
 Equity ratio
 Debt to equity ratio
 Dividend payout ratio

FINANCIAL RATIO ANALYSIS

The Balance Sheet and the Statement of Income are essential, but they are only the starting point
for successful financial management. Apply Ratio Analysis to Financial Statements to analyze
the success, failure, and progress of your business.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 trends that may be starting. Ratio
analysis may provide the all-important early warning indications that allow you to solve your
business problems before your business is destroyed by them.
BALANCE SHEET RATIO ANALYSIS

Important Balance Sheet Ratios measure liquidity and solvency (a business's ability to pay its
bills as they come due) and leverage (the extent to which the business is dependent on creditors'
funding). They include the following ratios:

LIQUIDITY RATIOS

These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick
Ratio, and Working Capital.

CURRENT RATIOS

The Current Ratio is one of the best known measures of financial strength. It is figured as shown
below:

Total Current Assets

Current Ratio= ____________________
Total Current Liabilities

The main question this ratio addresses is: "Does your business have enough current assets to
meet the payment schedule of its current debts with a margin of safety for possible losses in
current assets, such as inventory shrinkage or collectable accounts?" A generally acceptable
current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of
the business and the characteristics of its current assets and liabilities. The minimum acceptable
current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort.

If you decide your business's current ratio is too low, you may be able to raise it by:
  Paying some debts.
 Increasing your current assets from loans or other borrowings with a maturity of more
than one year.
 Converting non-current assets into current assets.
 Increasing your current assets from new equity contributions.
 Putting profits back into the business.

QUICK RATIOS

The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of
liquidity. It is figured as shown below:

Cash + Government Securities + Receivables

Quick Ratio = _________________________________________
Total Current Liabilities

The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding
inventories, it concentrates on the really liquid assets, with value that is fairly certain. It helps
answer the question: "If all sales revenues should disappear, could my business meet its current
obligations with the readily convertible `quick' funds on hand?"

An acid-test of 1:1 is considered satisfactory unless the majority of your "quick assets" are in
accounts receivable, and the pattern of accounts receivable collection lags behind the schedule
for paying current liabilities.
WORKING CAPITAL:

Working Capital is more a measure of cash flow than a ratio. The result of this calculation must
be a positive number. It is calculated as shown below:

Working Capital = Total Current Assets - Total Current Liabilities

Bankers look at Net Working Capital over time to determine a company's ability to weather
financial crises. Loans are often tied to minimum working capital requirements.
A general observation about these three Liquidity Ratios is that the higher they are the better,
especially if you are relying to any significant extent on creditor money to finance assets.

LEVERAGE RATIO

This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt
financing (creditor money versus owner's equity):

Total Liabilities
Debt/Worth Ratio = _______________
Net Worth

Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your
business, making it correspondingly harder to obtain credit.
INCOME STATEMENT RATIO ANALYSIS
The following important State of Income Ratios measure profitability:

GROSS RATIO:

This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net
sales. It measures the percentage of sales dollars remaining (after obtaining or manufacturing the
goods sold) available to pay the overhead expenses of the company.
Comparison of your business ratios to those of similar businesses will reveal the relative
strengths or weaknesses in your business. The Gross Margin Ratio is calculated as follows:

Gross Profit
Gross Ratio = _______________
Net Sales
(Gross Profit = Net Sales - Cost of Goods Sold)

NET PROFIT RATIO:

This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all
expenses, except income taxes. It provides a good opportunity to compare your company's
"return on sales" with the performance of other companies in your industry. It is calculated
before income tax because tax rates and tax liabilities vary from company to company for a wide
variety of reasons, making comparisons after taxes much more difficult. The Net Profit Margin
Ratio is calculated as follows:
 Net Profit before Tax
Net Profit Ratio = _____________________
Net Sales

INVENTORY TURNOVER RATIO

This ratio reveals how well inventory is being managed. It is important because the more times
inventory can be turned in a given operating cycle, the greater the profit. The Inventory Turnover
Ratio is calculated as follows:

Net Sales
Inventory Turnover Ratio = ___________________________
Average Inventory at Cost

ACCOUNTS RECEIVABLE TURNOVER RATIO

This ratio indicates how well accounts receivable are being collected. If receivables are not
collected reasonably in accordance with their terms, management should rethink its collection
policy. If receivables are excessively slow in being converted to cash, liquidity could be severely
impaired. The Accounts Receivable Turnover Ratio is calculated as follows:

Net Credit Sales/Year

__________________ = Daily Credit Sales
365 Days/Year
 Accounts Receivable Accounts
Receivable Turnover (in days) = ________________________
Daily Credit Sales

RETURN ON ASSETS RATIO

This measures how efficiently profits are being generated from the assets employed in the
business when compared with the ratios of firms in a similar business. A low ratio in comparison
with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio
is calculated as follows:

Net Profit before Tax

Return on Assets = ________________________
Total Assets

RETURN ON INVESTMENT (ROI) RATIO

The ROI is perhaps the most important ratio of all. It is the percentage of return on funds
invested in the business by its owners. In short, this ratio tells the owner whether or not all the
effort put into the business has been worthwhile. If the ROI is less than the rate of return on an
alternative, risk-free investment such as a bank savings account, the owner may be wiser to sell
the company, put the money in such a savings instrument, and avoid the daily struggles of small
business management. The ROI is calculated as follows:
 Net Profit before Tax
Return on Investment = ____________________
Net Worth

These Liquidity, Leverage, Profitability, and Management Ratios allow the business owner to
identify trends in a business and to compare its progress with the performance of others through
data published by various sources. The owner may thus determine the business's relative
strengths and weaknesses.

DEBT RATIO

It is a financial ratio that indicates the percentage of a company's assets are providedviadebt. It is
the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the
sum of current assets, fixed assets, and other assets such as 'goodwill').

Or alternatively:
RECEIVABLES TURNOVER

The receivable turnover ratio calculates the number of times in an operating cycle (normally
one year) the company collects its receivable balance. It is calculated by dividing net credit
sales by the average net receivables. Net credit sales is a net sales less cash sales. If cash sales
are unknown, use net sales. Average net receivables are usually the balance of net receivables
at the beginning of the year plus the balance of net receivables at the end of the year divided
by two. If the company is cyclical, an average calculated on a reasonable basis for the
company's operations should be used such as monthly or quarterly.

Net Credit Sales

Receivable Turnover = _____________________
Average Net Receivables

AVERAGE COLLECTION PERIOD:

The average collection period (also known as day's sales outstanding) is a variation of
receivables turnover. It calculates the number of days it will take to collect the average
receivables balance. It is often used to evaluate the effectiveness of a company's credit and
collection policies. A rule of thumb is the average collection period should not be significantly
greater than a company's credit term period. The average collection period is calculated by
dividing 365 by the receivables turnover ratio.

365 Days
Average Collection Period = _______________
Receivable Turnover
The decrease in the average collection period is favorable. If the creditperiod is 60 days, the
20X1 average is very good. However, if the creditperiod is 30 days, the company needs to
review its collection efforts

INVENTORY TURNOVER

The inventory turnover ratio measures the number of times the company sells its inventory
during the period. It is calculated by dividing the cost of goods sold by average
inventory.Average inventory is calculated by adding beginning inventory and ending inventory
and dividing by 2. If the company is cyclical, an average calculated on a reasonable basis for
the company's operations should be used such as monthly or quarterly.

Cost of Goods Sold

Inventory Turnover Ratio = ___________________
Average Inventory

DAY'S SALES ON HAND

Day's sales on hand are a variation of the inventory turnover. It calculates the number of day's
sales being carried in inventory. It is calculated by dividing 365 days by the inventory turnover
ratio.

365 Days
Day’sales on Hand = _______________
Inventory Turnover
PROFITABILITY RATIOS

Profitability ratios measure a company's operating efficiency, including its ability to generate
income and therefore, cash flow. Cash flow affects the company's ability to obtain debt and
equity financing.

PROFIT MARGIN

The profit margin ratio, also known as the operating performance ratio, measures the company's
ability to turn its sales into net income. To evaluate the profit margin, it must be compared to
competitors and industry statistics. It is calculated by dividing net income by net sales.

Net Income
Profit Margin = ______________
Net Sales

ASSET TURNOVER

The asset turnover ratio measures how efficiently a company is using its assets. The turnover
value varies by industry. It is calculated by dividing net sales by average total assets.

Net Sales
Asset Turnover = _________________
Average Total Assets
RETURN ON ASSETS

The return on assets ratio (ROA) is considered an overall measure of profitability. It measures
how much net income was generated for each $1 of assets the company has. ROA is a
combination of the profit margin ratio and the asset turnover ratio. It can be calculated separately
by dividing net income by average total assets or by multiplying the profit margin ratio times the
asset turnover ratio.

RETURN ON COMMON STOCKHOLDERS' EQUITY

The return on common stockholders' equity (ROE) measures how much net income was
earned relative to each dollar of common stockholders' equity. It is calculated by dividing net
income by average common stockholders' equity. In a simple capital structure (only common
stock outstanding), average common stockholders' equity is the average of the beginning and
ending stockholders' equity.

In a complex capital structure, net income is adjusted by subtracting the preferred dividend
requirement, and common stockholders' equity is calculated by subtracting the par value (or
call price, if applicable) of the preferred stock from total stockholders' equity.
SIGNIFICANCE OF RATIO ANALYSIS

1. Helpful in analysis of Financial Statements

.
2. Helpful in locating the weak spots of the business.

3. Helpful in Forecasting.

4. Estimate about the trend of the business.

5. Fixation of ideal Standards.

6. Effective Control.

7. Study of Financial Soundness

8. Helpful in comparative Study.

FINANCIAL ANALYSIS:

 Assessment of the firm’s past, present and future financial conditions

 Done to find firm’s financial strengths and weaknesses

 Primary Tools:
 - Financial Statements

-Comparison of financial ratios with past ratios.

ADVANTAGES OF RATIO ANAYLSIS

There are various groups of people who are interested in analysis of financial position of a
company. They use the ratio analysis to work out a particular financial characteristic of the
company in which they are interested. Ratio analysis helps the various groups in the following
manner: -

1. TO WORKOUT THE PROFITABILITY

Accountingratio helps to measure the profitability of the business by calculating the

various profitability ratios. It helps the management to know about the earning capacity
of the business concern. In this way profitability ratios show the actual performance of
the business.

2. TO WORKOUT THE SOLVENCY

With the help of solvency ratios, solvency of the company can be measured. These ratios
show the relationship between the liabilities and assets.
In case external liabilities are more than that of the assets of the company, it shows the
unsound position of the business. In this case the business has tomake it possible to repay
its loans.
 3. HELPFUL IN ANAYLSIS OF FINANCIAL STATEMENT

Ratio analysis helps the outsiders just like creditors, shareholders, debenture-holders,
bankers to know about the profitability and ability of the company to pay them interest
dividend etc.

4. HELPFUL IN COMPARATIVE ANALYSIS OF THE PERFORMANCE

With the help of ratio anaylsis a company may have comparative study of its performance
to the previous year. In this way company comes to know about its weak point and be
able to improve them.

5. TO SIMPLIFY THE ACCOUNTING INFORMATION

Accounting ratios are very useful as they briefly summaries the result of detailed and
complicated computations

6. TO WORKOUT THE OPERATING EFFICIENCY

Ratio analysis helps to work out the operating efficiency of the company with the help of
various turnover ratios. All turnover ratios are worked out to evaluate the performance of
the business in utilizing the resources.

7. TO WORKOUT SHORT-TERM FINANCIAL POSITION

Ratio analysis helps to work out the short-term financial position of the company with the
help of liquidity ratios. In case short-term financial position is not healthy efforts are
made to improve it.

8. HELPFUL FOR FORECASTING PURPOSES

Accounting ratios indicate the trend of the business. The trend is useful for estimating
future. With the help of previous years’ ratios, estimates for future can be made. In this
way these ratios provide the basis for preparing budgets and also determine future line of
action.

5.1 ANALYSIS OF DATA

LIQUIDITY RATIOS

‘Liquidity’ means ability of a firm to meet its current liabilities The liquidity ratio, therefore try
to establish a relationship between current liabilities, which are the obligation soon becoming
due and current assets,

CURRENT RATIO

It may be defined as the relationship between current assets and current liabilities. This ratio is
most commonly used to perform the short-term financial analysis. A current ratio of 2:1 is
considered to be satisfactory.

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITIES

LIQUID RATIO

This ratio is also known as quick ratio or acid test ratio. It is a more rigorous test of liquidity
than the current ratio. It is based on those current assets which are highly liquid. Inventory and
prepaid expenses are excluded because they are deemed to be least liquid component of current
assets. A high quick ratio is the indication that the firm is liquid and has the ability to meet its
current liabilities in time and on the other hand low ratio represents liquidity position is not good.
QUICK RATIO = QUICK OR LIQUID ASSETS
CURRENT LIABILITIES

S.NO RATIOS 2016 2015 2014 2013

1. Current 1.55 0.94 0.81 0.92

Ratio
2. Quick 0.64 0.36 0.25 0.28
Ratio

TABLE 1: LIQUIDITY RATIO

LIQUIDITY RATIO
1.8

1.6

1.4

1.2

1
Current Ratio
0.8
Quick Ratio
0.6

0.4

0.2

0
2016 2015 2014 2013
INTERPRETATION
Higher this ratio better for the Company, it reflects the Company's ability to pay off its Current
Liabilities, current ratio for Ambika cotton mill has been more than 1 over the years. It shows
that its current assets are more than its current liabilities. But over the years this ratio has been
declining which means there is an increase in the current liabilities that is causing this ratio to
decrease, in order to maintain stability in its operations the company needs to maintain its
Current ratio as per industry standards which is 2:1.

SOLVENCY RATIO

Capital structure ratios are also known as gearing ratios or solvency ratios or leverage ratios.
These are used to anaylse the long term solvency of any particular business concern. There are
two aspects of long term solvency of a firm – a) ability to pay the principal amount when due,
and b) regular payment of interest. In other words long term creditors like debenture holder,
financial institution etc. are interested in the security of their loan amount as well as the ability of
the company to meet interest costs. They, therefore, also consider the earning capacity of the
company to know whether it will be able to pay off interest on loan amount. Liquidity ratio
discussed earlier indicate short term financial strength whereas solvency ratio judge the ability of
a firm to pay off its long term liabilities. Important solvency ratios are discussed below:

DEBT EQUITY RATIO

This ratio attempts to measure the relationship between long term debts and shareholder’s funds.
In other word , this ratio measure the relative claims of long term creditors on the one hand and
owners on the other hand, on the assets of the company. This ratio is calculated by any two
method:
 DEBT EQUITY RATIO = LONG TERM DEBTS
————————————
SHAREHOLDER’S FUNDS

SIGNIFICANCE AND OBJECTIVE

This ratio shows the relative amount of funds supplied to the company by outsider and by
owners. A low debt equity ratio implies a greater claim of owners on the assets of the company
than the creditor. On the other hand, a higher debt equity ratio indicates that the claims of the
creditors are greater than those of the owners.

PROPRIETARY RATIO

This is a variant of debt equity ratio. Its measures the relationships between shareholders’ funds
and total assets. Shareholder’s funds comprises of a ordinary share capital, preference share
capital and all items of reserve and surplus.Total assets include all tangible assets and only those
intangible assets which have a definite resale value.

PROPRIETARY RATIO = SHAREHOLDER’S FUND

————————————
TOTAL ASSETS

SIGNIFICANCE AND OBJECTIVE

Proprietary ratio shows the extent to which shareholders on the business and thus indicates the
general financial strength of the business. The higher the proprietary ratio the greater the long
term stability of the company and consequently greater protection to creditors however a very
high proprietary ratio may know necessarily be good because if funds of outsiders are not used
for long term. Financing, a firm may not be able to take advantage of trading on equity.

S.NO RATIOS 2013 2012 2011 2010

1. Debt Equity Ratio 0.28 0.62 1.48 1.72

2. Proprietary Ratio 0.28 0.47 0.97 1.15

TABLE 2: SOLVENCY RATIO

2.5

1.5 DEBT EQUITY RATIO

PROPRIETARY RATIO
1

0.5

0
2012 2012 2011 2010

GRAPH 2: SOLVENCY RATIO

INTERPRETATION

The Proprietary ratio is ideal since it’s a manufacturing unit company which is showing an
upward trend over the period of four years, the company's most of the Assets have been financed
by the proprietor itself, which means more satisfaction for lenders and creditors.Lower the ratio
better for the Company, the Company has a strong Equity and Long term financial position
which is clearly reflected over the past four years, hence higher degree of protection enjoyed by
the lenders

TURNOVER RATIO

Turnover ratios are used to indicate the efficiency with which assets and resources of the firm are
been utilized. These ratios are known as turnover ratios because they indicate the speed with
which assets are been converted or turned over into sales. These ratios thus, express the
relationship between sales and various assets. A higher turnover ratio generally indicates better
use of capital resources which in turn has a favourable effect on the profitability of the firm.

INVENTORY TURNOVER RATIO

This ratios is calculated by dividing the cost of good sold by average inventory.

INVENTORY TURNOVER RATIO = COST OF GOODS SOLD

————————————
AVERAGE STOCK

SIGNIFICANCE AND OBJECTIVES

Inventory or stock turnover ratio indicates the efficiency of a firm’s inventory management. This
ratio gives the rate at with stocks are converted into sales and than into cash. A low inventory
turnover ratio is an indicator of dull business, accumulation of inventory, over investment in
inventory or unsaliable goods etc. generally speaking, a high stock turnover ratio is considered
better as it indicates that more sales are been produced by each rupee of investment in stock but a
higher stock turnover ratio my not always be an indicator of favourable results.
DEBTOR TURNOVER RATIO

This ratio indicates the relationship between net credit sales and trade debtors. It shows the rate
at which cash is generated by the turnover of debtors. It is computed as follows
DEBTOR TURNOVER RATIO = CREDIT SALES
—————————————
AVERAGE DEBTOR

SIGNIFICANCE AND OBJECTIVES

The significances of this ratio lies in the fact that debtors constitute one of the important items of
current assets and this ratio indicates as to how many days at which sales are tied up in the
amount of debtors. The efficieny of debt collection is also indicated by this ratio. A higher debtor
turnover ratio indicates that debts are being collected more quickly. Changes in this ratio show
the changes in the company’s credit policy or changes in its ability to collect from its debtors.

FIXED ASSET TURNOVER RATIO

This ratio indicates the efficiency with which the firm is utilizing its investments in fixed assets
such as plant and machinery, land n buildings etc. it is computed as under

FIXED ASSET TURNOVER RATIO= SALES

———————————
NET FIXED ASSETS
SIGNIFICANCE AND OBJECTIVES

Generally speaking, a high ratio indicates efficient utilization of fixed assets in generating sale
and a low ratio may signify that the firm has an excessive investment in fixed assets.

CAPITAL TUROVER RATIO

This ratio show the realtionship between cost of sale(or sales) and the total capital employed.

CAPITAL TUROVER RATIO= COST OF SALES

—————————————
TOTAL CAPITAL EMPLOYED

SIGNIFICANCE AND OBJECTIVES

This ratio shows the efficiency with which capital employed in a business is used. A high cpital
turnover ratio indicates the possibility of greater profit and a low capital turnover ratio is a sign
of insufficient sales and possibility of lower profits.
 S.NO RATIOS 2013 2012 2011 2010

1. Inventory Ratio 4.31 4.71 2.19 1.64

2. Debtors 46.64 24.57 14.29 14.18

3. Capital 4.31 4.71 2.19 1.64
4. Fixed Asset Turnover Ratio 0.86 0.85 0.71 0.60

TABLE 3: TURNOVER RATIO

50

40
INVENTORY RATIO
30
DEBTOR TURNOVER RATIO
20 CAPITAL TURNOVER RATIO
10 FIXED ASSET TURNOVER RATIO

0
2013 2012 2011 2010

GRAPH 3: TURNOVER RATIO

INTERPRETATION

The Company is not Offering Lenient payment terms which is clearly reflected over the years,
since this ratio is on the higher note, the debts are been collected quickly and more Cash is there
in hand for the Company indicating the Efficiency of the Company.For the last two years the
management has been efficient in managing the Inventories of the company and converting the
stock into Sales quickly

PROFITABILITY RATIO

Every business should earn sufficient profit to survive and grow over a long period of time. In
fact, efficiency of a business is measured in terms of profits. Profitability ratios are calculated to
measure the efficiency of a business.

Profitability of a business may be measured in two ways:

 Profitability in relation to sales.
 Profitability in relation in investment.

Profitability in relation to sales indicates the amount of profit per rupee of sales.
Profitability ratio based on sales these ratios are:-

1. Gross profit ratio

2. Net profit ratio

3. Operating ratio

GROSS PROFIT RATIO

This ratio expresses the relationship between gross profit and sales. It is calculated as follows
GROSS PROFIT RATIO = GROSS PROFIT
—————————— × 100
NET SALES

SIGNIFICANCE AND OBJECTIVES

Gross profit ratio indicates the average margin on the goods sold. It shows whether the selling
prices are adequate or not. It also indicate the extent to which selling prices may be reduced
without resulting in looses.

NET PROFIT RATIO

This is the ratio of net profit to net sales. There are two variations of this ratio
1. Net operating profit ratio
2. Net profit ratio

NET PROFIT RATIO= NET PROFIT

———————————×100
NET SALES

SIGNIFICANCE AND OBJECTIVES

The net profit ratio is the overall measure of a firm’s ability to turn each rupee of sales into
profit. It indicates the efficiency with which a business is managed. A firm with a high net profit
ratio is in an advantageous position to survive in the face of rising cost of production and failing
selling prices. Where the net profit ratio is low, the firm will find it difficult to with stands these
types of adverse conditions.

OPERATING RATIO
This is also an important profitability ratio. This ratio explains the realtioships between cost of
goods sold and operating expenses on the one hand and net sales on the other.
 OPERATIONG RATIO= COGS + OPERATING EXPENSES
——————————————× 𝟏𝟎𝟎
NET SALES

SIGNIFICANCE AND OBJECTIVES

The operating ratio is the yardsticks to measures the efficiency with which a business is operated.
It shows the percentage of net sales that is absorbed by cost of goods sold and operating
expenses. A high operating ratio is considered unfavourable because the operating ratio is
considered a good sign.

S.NO RATIOS 2013 2012 2011 2010

1. Operating Ratio 21.76 20.02 29.08 26.10

2. Gross Profit Ratio 14.87 13.14 21.52 16.54

3. Net Profit Ratio 7.78 6.12 13.35 8.44

TABLE 4: PROFITABILITY RATIO

 35

30

25

20 OPERATING RATIO
GROSS PROFIT RATIO
15
NET PROFIT RATIO
10

0
2013 2012 2011 2010

GRAPH 4: PROFITABILITY RATIO

INTERPRETATION
Over the Years the Operating profit of the Company fluctuates. Over the years the Net profit of
the Company fluctuates this shows that there is no stability in profitability and efficiency of the
business.

RETURN OF EQUITY
This ratio has two variations.

RETURN ON PROPRIETOR’S EQUITY

This is also known as return on shareholders’ funds. It shows the ratio of net profit to owners’
capital.
RETURN ON PROPRIETORS EQUITY=
NET PROFIT AFTER TAXES AND INTEREST
————————————————× 𝟏𝟎𝟎
SHAREHOLDERS’ FUNDS

SIGNIFICANCE AND OBJECTIVES

Return on shareholders’ funds is very effective measure of the profitability of an enterprise. This
ratio measures the return on the total equity of shareholders. It should be compared with the
ratios of other similar companies to determine whether the rate of return is attractive. In fact, this
ratio is one of the most important relationships in financial statement analysis.

RETURN ON EQUITY CAPITAL

This ratio establishes the relationship between the net profit available to equity shareholder and
the amount of capital invested by them.
RETURN ON EQUITY CAPITAL =
NET PROFIT AFTER INTEREST TAXES AND PREFERENCES DIVIDEND
× 𝟏𝟎𝟎
EQUITY SHAREHOLDERS ‘FUNDS

RETURN ON EQUITY CAPITAL =

NET PROFIT AFTER INTEREST TAXES AND PREFERENCES DIVIDEND
× 𝟏𝟎𝟎
EQUITY SHAREHOLDERS ‘FUNDS

SIGNIFICANCE AND OBJECTIVES

 This ratio shows the profit percentage for equity shareholders. A high rate of return on equity
shareholders funds is favored by investors and a higher market valuation is placed on such
shares. This ratio is used for inter-firm comparison to judge the comparative profitability of
different firms

EARNING PER SHARE

This ratio the earning per equity share i.e., it measures the profitability of the firm on a per
share basis.

EARNINGS PER SHARE = NET PROFIT AFTER TAXES- PREFERENCE DIVIDEND

NO. OF EQUITY SHARES

DIVIDEND PAY-OUT RATIO

It indicates the percentage of equity share earnings distributed as dividends to equity

shareholders

DIVIDEND PAY-OUT RATIO = DIVIDEND PER SHARE

EARNINGS PER SHARE (EPS)

DIVIDEND YIELD RATIO

Dividend is declared by a company as percentage of par value or paid up value of shares but
yield is calculated in the market value of shares. Dividend yield ratio is:
 DIVIDEND YIELD RATIO= DIVIDEND PER EQUITY SHARE

MARKET PRICE PER EQUITY SHARES

PRICE EARNINGS RATIO

This ratio is the market price of shares expressed as a multiple of earnings per share

PRICE EARNING RATIO = MARKET PRICE PER EQUITY SHARES

EARNINGS PER SHARE

S.NO RATIOS 2013 2012 2011 2010

1. EPS 2.28 2.67 3.33 3.53

2. DPS 9.50 5.00 5.00 3.00
3. Dividend 0.43 0.48 0.45 0.42
Payout
Ratio
4. P / E Ratio 13.15 19.85 15.91 10.86

TABLE 5:RETURN ON EQUITY

 RETURN ON EQUITY

25

20

15 EPS
DPS
DIVIDENED PAYOUT RATIO
10
P/E RATIO

0
2013 2012 2011 2010

INTERPRETATION
The Company DPS has been showing an Increasing trend Year by Year which Indicates
Company's profitability and more return to its Share holder. The Company's Dividend Payout
ratio has been slightly on the lower note. The Company’s EPS has been decresing.

5.2. SUMMARY OF FINDINGS

LIQUIDITY RATIO:
Higher this ratio better for the Company, it reflects the Company's ability to pay off its Current
Liabilities, current ratio for Ambika cotton mill has been more than 1 over the years. It shows
that its current assets are more than its current liabilities. But over the years this ratio has been
declining which means there is an increase in the current liabilities that is causing this ratio to
decrease, in order to maintain stability in its operations the company needs to maintain its
Current ratio as per industry standards which is 2:1.

SOLVENCY RATIO:
The Proprietary ratio is ideal since it’s a manufacturing unit company which is showing an
upward trend over the period of four years, the company's most of the Assets have been financed
by the proprietor itself, which means more satisfaction for lenders and creditors.Lower the ratio
better for the Company, the Company has a strong Equity and Long term financial position
which is clearly reflected over the past four years, hence higher degree of protection enjoyed by
the lenders

TURNOVER RATIO:
The Company is not Offering Lenient payment terms which is clearly reflected over the years,
since this ratio is on the higher note, the debts are been collected quickly and more Cash is there
in hand for the Company indicating the Efficiency of the Company.For the last two years the
management has been efficient in managing the Inventories of the company and converting the
stock into Sales quickly.

PROFITABILITY RATIO:
Over the Years the Operating profit of the Company fluctuates. Over the years the Net profit of
the Company fluctuates this shows that there is no stability in profitability and efficiency of the
business.
RETURN ON EQUITY:
The Company DPS has been showing an Increasing trend Year by Year which Indicates
Company's profitability and more return to its Share holder. The Company's Dividend Payout
ratio has been slightly on the lower note. The Company’s EPS has been decresing.
 CHAPTER-6
CONCLUSION
AND
RECOMMENDATIO
NS
6.1 CONCLUSION

 The Net profit ratio has been decreased from 8 . 4 4 to7.78.There is increament in all
taxes and expenses for the total income,that the firms good earned has the base year.

 Current ratio of the company has been increased from 0.78 to 0.92 in the current year.
The Current ratio of the company is better than its competitors.

 This project has given an out graph of the financial status and the position of the

Industry in the economy.By this project,we can know the effectiveness of the usages

of the funds and can avoid the overfunding of projects.

6.2 RECOMMENDATIONS

 The liabilities and provisions of the firms can be decreased so that the efficiency of the
industry good maintaining.

 The company may strike a balance between the current assets and current liabilities to
maintain the solvency position.

 Optimum utilization of working capital must be planned to result in sound financial

position.
APPENDICES
  APPENDIX
Balance Sheet of Ambika Cotton Mills ------------------- in Rs. Cr. -------------------
Mar '13 Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds
Total Share Capital 5.88 5.88 5.88 5.88 5.88
Equity Share Capital 5.88 5.88 5.88 5.88 5.88
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 214.51 190.01 169.55 130.44 115.14
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Networth 220.39 195.89 175.43 136.32 121.02
Secured Loans 62.63 121.28 260.10 233.97 251.55
Unsecured Loans 0.00 0.00 0.00 0.00 0.00
Total Debt 62.63 121.28 260.10 233.97 251.55
Total Liabilities 283.02 317.17 435.53 370.29 372.57
Mar '13 Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds
Gross Block 465.32 456.89 451.34 367.41 365.74
Less: Accum. Depreciation 174.01 146.77 119.97 95.89 74.94
Net Block 291.31 310.12 331.37 271.52 290.80
Capital Work in Progress 0.36 0.00 0.58 0.66 0.38
Investments 0.06 0.05 0.06 0.05 0.11
Inventories 92.18 82.72 150.43 136.62 108.92
Sundry Debtors 6.53 10.53 21.17 23.66 7.22
Cash and Bank Balance 1.53 2.04 2.65 5.14 1.61
Total Current Assets 100.24 95.29 174.25 165.42 117.75
Loans and Advances 30.55 32.60 33.93 26.74 28.22
Fixed Deposits 0.00 0.00 0.48 0.45 0.62
Total CA, Loans & Advances 130.79 127.89 208.66 192.61 146.59
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 132.30 117.72 101.19 90.86 62.45
Provisions 7.20 3.17 3.96 3.72 2.88
Total CL & Provisions 139.50 120.89 105.15 94.58 65.33
Net Current Assets -8.71 7.00 103.51 98.03 81.26
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 283.02 317.17 435.52 370.26 372.55

Contingent Liabilities 53.77 1.13 2.16 169.70 11.48

Book Value (Rs) 375.13 333.43 298.59 232.02 205.98
  BIBLIOGRAPHY

Text Book:

Advanced Accountancy – M.A.ARULANANDAM.

Advanced Accountancy – IM. PANDAY

Advanced Accountancy – R.L.GUPTA

Website:

www.google.com

www.ambikacotton mill.com

www.moneycontrol.com