Internship project report RATIO ANALYSIS With special reference to LINKTECH ENGINEERING PVT. LTD. No. 41 (P), EAST MUGAPAIR, VAVIN ROAD, CHENNAI
A report submitted in partial fulfilment of the requirements for the POST GRADUATE PROGRAMME IN MANAGEMENT- FINANCE SPECIALISATION
-SIET institute of management SIET tower, no. 25 bull temple road, Bangalore, Karnataka-5600004
Submitted by: SHAHUL HAMEED.N
Enrolment number: 09PS019 PGPM: 2008-2010
Particulars Declaration Acknowledgment
1. 2. 3. 4. 5. 6. 7.
Executive summary Introduction Methodology analysis and interpretation Findings and suggestions Learning experience Conclusion
I, Shahul hameed P, hereby declare that project work titled for LINKTECH ENGINEERING PVT. LTD. is the original work done by me and submitted to SIET Institute of management, in fulfilling of the requirements for the award of Post Graduate Programme in management in finance under the supervision of Mr. V.JACKSON [M.D] LINKTECH ENGINEERING PVT LTD. I hereby submit this project FINANCIAL RATIO ANALYSIS and for partial fulfilment of the requirements of POST GRADUATE PROGRAMME IN MANAGEMENT [FINANCE] to ‘SIET INSTITUTE OF
09PS019 N.SHAHUL HAMEED
I would like to thank Mr.shanta kumar,Assistant Finance Manager, LINKTECH ENGINEERING PVT.LTD, without whom an internship with, LINKTECH ENGINEERING would not have been possible. I am grateful to him for having taken time off his busy schedule and spoken to the concerned person to get me this internship. I express my gratitude to the( LINKTECH ENGINEERING PVT LTD) for having given me an opportunity to work with them and make the best out of my internship. I thank my trainer, Mrs.Kalaivani for having trained me and constantly guided and supported me throughout the training period. My heartfelt gratitude also goes out to the staff and employees at LINKTECH for having co-operated with me and guided me throughout the one months of my internship period. I thank my school, Bhavan SIET Institution & Management for having given me this opportunity to put to practice, the theoretical knowledge that I imparted from the program. I thank the internship co-coordinators, for having guided and supported me through the course of the internship. I take this opportunity to thank my parents and friends who have been with me and offered emotional strength and moral support.
This is my internship project report, worked at LINKTECH ENGINEERING PVT.LTD, Who has got vast experience in the field of plastic injection moulded components and joining of Extruded rubber products and trading of engineering metal components for general engineering applications management. They have grown in these years to the extend to cater to the Tooling, Components manufacturing and other Precision Engineering needs of more than 100 big and small companies including Multinational companies. The company has put the efforts to establish as the best among the industries and to serve our customers. I did financial ratio analysis , In this world lot of companies in various sector were declined due to financial crises and recession in the global market. So every firm were eager to know their financial health. Some of the companies got bad results and balance of them got good results depends up on their performance. To find the financial strength of the firm, the ratio analysis is one of the tools. Ratio analysis is a process of identifying the financial strength and weaknesses of the firm. The main objective of this study lies in understanding the organization and studying the financial analysis on inventory control Management. Inventory management plays an important role in every organization. It also enables companies to closely analyze point-ofsale data, profile buying behaviors and trends, and quantify risks and variability. Inventory Management provides multiple optimization options to minimize cost, Maximize performance and redistribute inventory. I did the ratio analysis for the year 2007-09 with the reference of books. The financial health of the company is in good position, because lot of company made huge loss during this
recession but they maintain the profit level and improve in sales percent at the same time the company maintain the customer’s satisfaction level at the maximum point regularly. The company should follow any other method to follow the inventory control and its operations. By this analysis, I learned the working of financial ratios practically and about the importance of customer satisfaction to a company and how to maintain it and I got a good exposure by visiting to Customer Company. Not only this, I also become practically skilled at a trading, profit &loss a/c, balance sheet and income statement and tax calculation by preparing those things for company purpose.
FINANCIAL RATIO ANALYSIS: Financial ratio analysis is a fascinating topic to study because it can teach us so much about accounts and businesses. When we use ratio analysis we can work out how profitable a business is, we can tell if it has enough money to pay its bills and we can even tell whether its shareholders should be happy! Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In addition to ratio analysis being part of an accounting and business studies syllabus, it is a very useful thing to know anyway!
UTIITY OF RATIO ANALYSIS: The ratio analysis is the most powerful tool of the financial analysis. With the help of ratio’s 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 utilising its assets in generating sales revenue The overall operating efficiency and performance of the firm.
I. ADVANTAGES OF RATIO ANALYSIS:
a. Helpful in analysis of financial statements b. Helpful in comparative sturdy c. Helpful in locating the weak spots of the business d. Helpful in forecasting
e. Estimate about the trend of the business f. Fixation of ideal standards g. Effective control h. Sturdy of financial soundness
LIMITATIONS OF RATIO ANALYSIS: Comparison not possible in different firms adopt different accounting Policies Ratio analysis become less effective due to price level changes Ratio may be misleading in the absences of absolute data Limited use of single data Lack of proper standards False accounting data gives false ratio
Ratios alone are not adequate for proper conclusion RESEARCH METHODOLOGY The study is based entirely on the data that has colleted. This data for every study is of 2 types. 1. Primary Data 2. Secondary Data
Primary data as it is known as synonymous to first hand information that is exclusively collected for the sake of the study. Secondary data that has been already collected for some other purpose and now which is being for the study. Initially preliminary discussion with the general managers and chief accountant was carried on. Information of the theoretical part was taken from reference book. Profit/Loss and Balance Sheets are taken from company’s annual reports.
The various concepts covered in the report are calculated by studying Balance Sheet and Profit/Loss Accounts.
To estimate earning capacity of the concern To determine the debt capacity of the concern
To analyse the financial position of the company.
To provide their customers
feedback and their response to the concern authority. Determine the ability of the firm to meet its current obligations Determine the extent to which the firm has used its long-term solvency by borrowing funds Determine the efficiency with which the firm is utilising its assets in generating sales revenue
To Determine the overall operating efficiency and performance of the firm
NEED OF THE STUDY
Financial statements are prepared for the purpose of presenting a periodical review or report by the management and deal with the state of investment in business and result achieved during the period under review. They reflect a combination of recorded facts, accounting conventions and personal judgments. The Ratio Analysis is the most powerful tool of the financial analysis. These people use rations to determine those financial characteristics of the firm in which they are interested. With the help of ratios, one can determine: 1) The ability of the firm to meet its current obligations. 2) The extent to which the firm has used its along-term solvency by borrowing funds.
3) The efficiency with which the firm is utilizing its assets ingenerating sales revenue. 4) The overall operating efficiency and performance of the firm. 5) This study is also useful to know the strengths and weakness of the company
As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative basis and enables the drawing inference regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: 1. Liquidity position 2. Long-term solvency 3. Operating Efficiency 4. Overall profitability 5. Inter-firm comparison and 6. Trend analysis.
1. Liquidity position With the help of ratio analysis conclusion can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligation when they become due. A firm can said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability reflected in the liquidity ratio of a firm. The liquidity ratios are particularly used for in credit analysis by banks and other suppliers and other short-term loans.
2. Long-term Solvency Ratio analysis is equally useful for assessing the long-term financial liability of a firm. This aspect of the financial position of a borrower is of concern to the long-term creditors, security analysts and the present and potential owners of a business. The long-term solvency is measured by capital structure and profitability ratios which focus on earning power and operating efficiency. Ratio analysis reveals the strengths and weaknesses of a firm in this respect. 3. Operating Efficiency Yet another dimension of the usefulness of the ratio analysis, relevant from the view point of management, is that throws light on the degree of efficiency in the management and utilization of its assets. The various activity ratios measure this kind of operational efficiency. In fact the solvency of a firm is in the ultimate analysis is dependent upon the sales revenues generated by the use of its assets-total as well as its components.
4. Overall profitability Unlike the outside parties which are interested in one aspect of financial position of the firm, the management is constantly concerned about the overall profitability of the enterprise. That is, they are concerned about the ability of the firm to meet its short-term as well as long-term obligation to its creditors to ensure a reasonable return to its owners and secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken and all the ratios considered together.
5. Inter-firm comparison: Ratio Analysis not only throws light on the financial position of the firm but also serves as a stepping stone to remedial measures. This is made possible due to Inter-firm comparison and comparison with industry averages. A single figure of a particular ratio is meaningless unless
it is related to some standard or norm. One of the popular techniques is to compare the ratios of firm with the industry average.
6. Trend Analysis Finally, Ratio Analysis enables a firm to take the time dimension into account in other word, whether the financial firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of a trend analysis of ratios lies in the fact that the analysts can know the direction of moment, that is, whether the moment is favorable or unfavorable.
SCOPE OF THE STUDY This project is as a reference guide or as a source of information. It gives the idea about the financial analysis of a firm. To put into practical the theoretical aspect of the study in to real life work experience. The study aims to study the liquidity position of the firm. Ratio Analysis has been used to analyses the financial position of a firm.
About the company:
A professional who has got vast experience in the field of Tooling & Precision Engineering including production and management, established the company in 2000. They have grown in these years to the extend to cater to the Tooling, Components manufacturing and other Precision Engineering needs of more than 100 big and small companies including Multinational companies. The company has put the efforts to establish as the best among the industries and to serve our customers Location is a prime spot in mugapair industrial area, and is close to National Highway. Total area is one acre. Current built up area is about 60000 Sq. ft. They have about 300 KVA power connection and 200 KVA capacity generators for captive power generation Activities: The company LINKTECH ENGINEERING is engaged in design, manufacture and sale of Press tools, pressed components Injection Moulds, Special purpose components, Die Casting dies, Jigs, Fixture or any type of tool elements in producing either sheet metal or plastic components. We also supply sub assemblies for Electrical, Electronic and Automobile components manufacturing industry. They have a Press shop with the capacity from 10 tons to 500 tons Power presses. They are a manufacturing the other sub products were the plastic hollow core plug, pvc cover block, plastic welding rods, expansion bolt, lanchor bolt, lifting socket, metal to rubber bonded products, rubber rings, etc profiled components The company has eight CNC wire EDM Machines including latest linear motion technology machine of SODIK, JAPAN. We undertake any sort of the profiles as per the requirement of the customers. About 50 to 60% of the capacity of EDM machines is used for the job work. Apart from this the company has acquired a Super EDM Drill, Which can make deep and small holes on either hardened or soft materials .Besides the above we have 4 Spark Erosion (Conventional Electro Discharge Machining) machines. This is used in manufacturing various punches dies and inserts for press tools, moulds and other special engineering components VISION:
14 Our vision is to give the highest degree of quality is always top of our mind when we
serve our valued customer satisfaction. While offering them in the very best prices and the most reliable services. MISSION: To achieve our vision by becoming the most preferred supplier among the tools and component manufacturing industries in India.
Resources: Work force The Company employs a work force of qualified and trained people. All Employees get on job training in their respective areas. Other than on job training class room training is planned and conducted to develop the skills and give knowledge on safety, housekeeping, quality management system etc. and to orient them towards the focus of customer needs. Also the Company train Tool & Die makers leading to NCVT Examination, Govt. of India. At present the Company employs about 100 employees Training They have a permanent management consultant working with us, who conducts regular training and work on continual improvement projects and QMS Employee benefits The Company has made arrangements to provide to all its employees Provident Fund, Employees State Insurance, and Gratuity etc. The welfare of the employees is looked in to systematically and carefully Customer base The Company has the vast customer base and also enjoys a bond between customer and the company. These customers due to satisfactory services rendered appreciate the Company as good vendor
To achieve 95% overall satisfaction rating at customer end To achieve 100% delivery rating
To be given 15 hrs on job training to each employee every year Increase one customer every year
Customer Focus: Quality: Quality is the prime concern of the Company. The main object of the company is to supply the components and tools defect free. Cost: The Company is alert to the Global competition and strive to give the Value for Money to the customer. Cost reduction through waste elimination, Process improvement, Design changes etc. are pro-actively suggested to the customer. Delivery: The Company will strive to keep the delivery performance as committed; all efforts are taken to see the commitments are met in the scheduled time frame. Diversification and modernisation: The Company has set for modernization by acquiring latest sophisticated machinery and employing modern techniques with regard to precision tooling, machining and component manufacturing. CERTIFICATION: LINKTECH ENGINEERING PVT. Ltd has obtained ISO 9001:2000 Certification from “TUV; the company is religiously following the systems and documentation as per the above standard. They also conduct audit as per the prescribed norms
SUPERIORS IN THE ORGANISATION: Mr. V.Jakshan [chairman] Mr. K.N.Dharman [Managing Director] Mrs. Shanthakumar [Financial department head] Mr. Kalaivani [Management consultant]
Executives of each department: Mr. kumar Mr. Aravind Mr. Prakash LIST OF CUSTOMERS: APW President Systems Ltd Rittal (India) Pvt. Ltd Bimetal Bearings Ltd GE Power Controls India Pvt. Ltd IFB Automotive Pvt. Ltd NTTF Industries Ltd Molex (India) Ltd Continental Corporation India Pvt. Ltd KHMDL Ambattur polymer M.I.traders Cool tech T.Nagadi Global source trading.east JJ Glasstronics SVS industries Pvt. Ltd. DETAILS OF MACHINERY: TOOL ROOM Machines
Milling, Drilling, Lathe, Surface Grinding, Spark Erosion, Super EDM Drilling And Wire Cutting Machines
We have machines for Spot Welding, Projection Welding, Arc Welding Tig-elding,
Drilling and Tapping Handling Machines Over Head Crane, Zib crane, Fork Lifts, Trolley Etc
Inspection Measuring and Testing Equipments.
They have digital venires, Plunger Dials, digital Height Gauges, Surface Plates, Pin
Gauges, Slip gauges, Rockwell Hardness Tester, Profile Projector etc They manufacture and use gauges for in process and final inspection They have an “OPTICAL MEAUSRING” device for high accuracy and help us in reverse engineering.
The following is the method plan for my project ratio analysis, which was built while my project started time. Collecting the data: I collected the data required for my project from the finance department. Analysing the data: After collecting that analyse the data which were collected and compare it to previous year. Finding the ratios : By using those data’s calculate the ratios.
It refers to the systematic use of ratios to interpret the financial statements in terms of the operating performance and financial position of a firm. It involves comparison for a meaningful interpretation of the financial statements.In view of the needs of various uses of
ratios the ratios, which can be calculated from the accounting data are classified into the following broad categories A. B. C. D. Liquidity Ratio Turnover Ratio Solvency or Leverage ratios Profitability ratios
LIQUIDITY RATIO: It measures the ability of the firm to meet its short-term obligations, that is capacity of the firm to pay its current liabilities as and when they fall due. Thus these ratios reflect the shortterm financial solvency of a firm. A firm should ensure that it does not suffer from lack of liquidity. The failure to meet obligations on due time may result in bad credit image, loss of creditors confidence, and even in legal proceedings against the firm on the other hand very high degree of liquidity is also not desirable since it would imply that funds are idle and earn nothing. So therefore it is necessary to strike a proper balance between liquidity and lack of liquidity. The various ratios that explains about the liquidity of the firm are 1. Current Ratio 2. Acid Test Ratio / quick ratio 3. Absolute liquid ration / cash ratio
1. CURRENT RATIO The current ratio measures the short-term solvency of the firm. It establishes the relationship between current assets and current liabilities. It is calculated by dividing current assets by current liabilities. Current Ratio = Current Asset Current Liabilities Current assets include cash and bank balances, marketable securities, inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables and prepaid expenses. Current liabilities includes sundry creditors, bills payable, short- term loans, income-tax liability, accrued expenses and dividends payable.
2. ACID TEST RATIO / QUICK RATIO It has been an important indicator of the firm’s liquidity position and is used as a complementary ratio to the current ratio. It establishes the relationship between quick assets and current liabilities. It is calculated by dividing quick assets by the current liabilities.
Acid Test Ratio = Quick Assets Current liabilities Quick assets are those current assets, which can be converted into cash immediately or within reasonable short time without a loss of value. These include cash and bank balances, sundry debtors, bill’s receivables and short-term marketable securities. 3. ABSOLUTE LIQUID RATION / CASH RATIO It shows the relationship between absolute liquid or super quick current assets and liabilities. Absolute liquid assets include cash, bank balances, and marketable securities. Absolute liquid ratio = Absolute liquid assets Current liabilities TURN OVER RATIO: Turnover ratios are also known as activity ratios or efficiency ratios with which a firm manages its current assets. The following turnover ratios can be calculated to judge the effectiveness of asset use. 1. 2. 3. 4. Inventory Turnover Ratio Debtor Turnover Ratio Creditor Turnover Ratio Assets Turnover Ratio
1. INVENTORY TURNOVER RATIO This ratio indicates the number of times the inventory has been converted into sales during the period. Thus it evaluates the efficiency of the firm in managing its inventory. It is calculated by dividing the cost of goods sold by average inventory. Inventory Turnover Ratio = Cost of goods sold Average Inventory The average inventory is simple average of the opening and closing balances of inventory. (Opening + Closing balances / 2). In certain circumstances opening balance of the inventory may not be known then closing balance of inventory may be considered as average inventory 2. DEBTOR TURNOVER RATIO This indicates the number of times average debtors have been converted into cash during a year. It is determined by dividing the net credit sales by average debtors. Debtor Turnover Ratio = Net Credit Sales
Average Trade Debtors Net credit sales consist of gross credit sales minus sales return. Trade debtor includes sundry debtors and bill’s receivables. Average trade debtors (Opening + Closing balances / 2) When the information about credit sales, opening and closing balances of trade debtors is not available then the ratio can be calculated by dividing total sales by closing balances of trade debtor Debtor Turnover Ratio = Total Sales Trade Debtors 3. CREDITOR TURNOVER RATIO It indicates the number of times sundry creditors have been paid during a year. It is calculated to judge the requirements of cash for paying sundry creditors. It is calculated by dividing the net credit purchases by average creditors.
Creditor Turnover Ratio = Net Credit Purchases Average Trade Creditor Net credit purchases consist of gross credit purchases minus purchase return When the information about credit purchases, opening and closing balances of trade creditors is not available then the ratio is calculated by dividing total purchases by the closing balance of trade creditors.
Creditor Turnover Ratio = Total purchases Total Trade Creditors
4. ASSETS TURNOVER RATIO The relationship between assets and sales is known as assets turnover ratio. Several assets turnover ratios can be calculated depending upon the groups of assets, which are related to sales. a) b) c) d) e) Total asset turnover. Net asset turnover Fixed asset turnover Current asset turnover Net working capital turnover ratio
a. TOTAL ASSET TURNOVER
This ratio shows the firm’s ability to generate sales from all financial resources committed to total assets. It is calculated by dividing sales by total assets.
Total asset turnover = Total Sales Total Assets b. NET ASSET TURNOVER This is calculated by dividing sales by net assets.
Net asset turnover = Total Sales Net Assets Net assets represent total assets minus current liabilities. Intangible and fictitious assets like goodwill, patents, accumulated losses, deferred expenditure may be excluded for calculating the net asset turnover.
c. FIXED ASSET TURNOVER This ratio is calculated by dividing sales by net fixed assets. Fixed asset turnover = Total Sales Net Fixed Assets Net fixed assets represent the cost of fixed assets minus depreciation. d. CURRENT ASSET TURNOVER It is divided by calculating sales by current assets Current asset turnover = Total Sales Current Assets
e. NET WORKING CAPITAL TURNOVER RATIO A higher ratio is an indicator of better utilization of current assets and working capital and vice-versa (a lower ratio is an indicator of poor utilization of current assets and working capital). It is calculated by dividing sales by working capital. Net working capital turnover ratio = Total Sales
Working Capital Working capital is represented by the difference between current assets and current liabilities. SOLVENCY OR LEVERAGE RATIOS: The solvency or leverage ratios throws light on the long term solvency of a firm reflecting it’s ability to assure the long term creditors with regard to periodic payment of interest during the period and loan repayment of principal on maturity or in predetermined installments at due dates. There are thus two aspects of the long-term solvency of a firm. a. Ability to repay the principal amount when due b. Regular payment of the interest. The ratio is based on the relationship between borrowed funds and owner’s capital it is computed from the balance sheet, the second type are calculated from the profit and loss a/c. The various solvency ratios are 1. 2. 3. 4. 5. 6. Debt equity ratio Debt to total capital ratio Proprietary (Equity) ratio Fixed assets to net worth ratio Fixed assets to long term funds ratio Debt service (Interest coverage) ratio
1. DEBT EQUITY RATIO Debt equity ratio shows the relative claims of creditors (Outsiders) and owners (Interest) against the assets of the firm. Thus this ratio indicates the relative proportions of debt and equity in financing the firm’s assets. It can be calculated by dividing outsider funds (Debt) by shareholder funds (Equity) Debt equity ratio = Outsider Funds (Total Debts) Shareholder Funds or Equity The outsider fund includes long-term debts as well as current liabilities. The shareholder funds include equity share capital, preference share capital, reserves and surplus including accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. 2. DEBT TO TOTAL CAPITAL RATIO Debt to total capital ratio = Total Debts Total Assets
3. PROPRIETARY (EQUITY) RATIO This ratio indicates the proportion of total assets financed by owners. It is calculated by dividing proprietor (Shareholder) funds by total assets.
Proprietary (equity) ratio = Shareholder funds Total assets
4. FIXED ASSETS TO NET WORTH RATIO This ratio establishes the relationship between fixed assets and shareholder funds. It is calculated by dividing fixed assets by shareholder funds. Fixed assets to net worth ratio = Fixed Assets X 100 Net Worth
The shareholder funds include equity share capital, preference share capital, reserves and surplus including accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. 5. FIXED ASSETS TO LONG TERM FUNDS RATIO Fixed assets to long term funds ratio establishes the relationship between fixed assets and long-term funds and is calculated by dividing fixed assets by long term funds.
Fixed assets to long term funds ratio = Fixed Assets X 100 Long-term Funds
6. DEBT SERVICE (INTEREST COVERAGE) RATIO This shows the number of times the earnings of the firms are able to cover the fixed interest liability of the firm. This ratio therefore is also known as Interest coverage or time interest
earned ratio. It is calculated by dividing the earnings before interest and tax (EBIT) by interest charges on loans.
Debt Service Ratio = Earnings before interest and tax (EBIT) Interest Charges
PROFITABILITY RATIOS: The profitability ratio of the firm can be measured by calculating various profitability ratios. General two groups of profitability ratios are calculated. a. Profitability in relation to sales. b. Profitability in relation to investments. Profitability in relation to sales 1. Gross profit margin or ratio 2. Net profit margin or ratio 3. Operating profit margin or ratio 4. Operating Ratio 5. Expenses Ratio 1. GROSS PROFIT MARGIN OR RATIO It measures the relationship between gross profit and sales. It is calculated by dividing gross profit by sales. Gross profit margin or ratio = Gross profit X 100 Net sales Gross profit is the difference between sales and cost of goods sold.
2. NET PROFIT MARGIN OR RATIO It measures the relationship between net profit and sales of a firm. It indicates management’s efficiency in manufacturing, administrating, and selling the products. It is calculated by dividing net profit after tax by sales. Net profit margin or ratio = Earning after tax X 100 Net Sales
3. OPERATING PROFIT MARGIN OR RATIO It establishes the relationship between total operating expenses and net sales. It is calculated by dividing operating expenses by the net sales. Operating profit margin or ratio = Operating expenses X 100 Net sales Operating expenses includes cost of goods produced/sold, general and administrative expenses, selling and distributive expenses. 4. EXPENSES RATIO While some of the expenses may be increasing and other may be declining to know the behavior of specific items of expenses the ratio of each individual operating expenses to net sales should be calculated. The various variants of expenses are Cost of goods sold = Cost of goods sold X 100 Net Sales Administrative Expenses Ratio = Administrative Expenses X 100 Net sales
Selling and distribution expenses ratio = Selling and distribution expenses X 100 Net sales
5. OPERATING PROFIT MARGIN OR RATIO Operating profit margin or ratio establishes the relationship between operating profit and net sales. It is calculated by dividing operating profit by sales.
Operating profit margin or ratio = Operating Profit X 100 Net sales Operating profit is the difference between net sales and total operating expenses. (Operating profit = Net sales – cost of goods sold – administrative expenses – selling and distribution expenses.)
EARNINGS PER SHARE IT measures the profit available to the equity shareholders on a per share basis. It is computed by dividing earnings available to the equity shareholders by the total number of equity share outstanding Earnings per share = Earnings after tax – Preferred dividends (if any) Equity shares outstanding RETURN ON ASSETS: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The formula for return on assets is: Net income / total assets Some investors add interest expense back into net income when performing this calculation because they'd like to use operating returns before cost of borrowing.
RETURN ON EQUITY: Return on Equity (ROE, Return on average common equity, return on net worth) (requity) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). It shows how well a company uses investment funds to generate earnings growth. ROE is equal to a fiscal year's net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage. CASH FLOW TO ASSETS: A financial ratio that measures how well a company is able to generate cash from its current operations. Calculate cash flow to assets by subtracting net cash flows from operating activities and dividing the resulting number by average total assets. This ratio measures a
company Â’s cash-generating efficiency using cash flow to assets. Other ratios accomplish a similar objective by using cash flows and cash flows to sales. Cash flow to asset = Cash from Operations / Total Assets This ratio indicates the cash a company can generate in relation to its size.
PROFIT GROWTH: Profit growth ratio = current net profit / last year net profit SALES GROWTH: Sales growth ratio = current sales / last year sales ASSET GROWTH: Asset growth = current period asset / last period asset CURRENT ASSET TO PROPRIETORY FUND RATIO: Current Assets to Proprietors' Fund Ratio establish the relationship between current assets and shareholder's funds. The purpose of this ratio is to calculate the percentage of shareholders funds invested in current assets. Current asset to proprietor fund ratio= current asset / proprietor fund
RAW MATERIAL HOLDING PERIOD: Raw material holding period is calculated for finding the days of raw material holdings. The reciprocal of raw material turnover gives average raw material holding period in percentage term. When the numbers of days in a year are divided by raw material turnover, we obtain days of raw material holding period. Formula: Raw material holding period = 360/ raw material turnover DEBTOR COLLECTION PERIOD: Indicates the average time taken to collect trade debts. In other words, a reducing period of time is an indicator of increasing efficiency. It enables the enterprise to compare the real collection period with the granted/theoretical credit period. Debtor Collection Period = (Average Debtors / Credit Sales) x 365 ( = No. of days) (average debtors = debtors at the beginning of the year + debtors at the end of the year, divided by 2)
Credit Sales are all sales made on credit (i.e. excluding cash sales) A long debtors collection period is an indication of slow or late payments by debtors.
INVENTORY HOLDING PERIOD: Inventory holding period is calculated for finding the days of inventory holdings. The reciprocal of inventory turnover gives average inventory holding period in percentage term. When the numbers of days in a year are divided by inventory turnover, we obtain days of inventory holding. Inventory holding period ratio = 360/ inventory turnover ratio CREDITORS PAYMENT PERIOD: Average payment period = 360 / creditors turnover ratio EARNINGS PER SHARE It measures the profit available to the equity shareholders on a per share basis. It is computed by dividing earnings available to the equity shareholders by the total number of equity share outstanding Earnings per share = Earnings after tax – Preferred dividends (if any) Equity shares outstanding OTHER FORMULAS :
Debt = Long term borrowed fund = debentures + long term loan from financial institution. Equity= owners fund=equity capital + preference capital + reserve and surplus – accumulated loss. Share holders fund= net fixed asset + networking capital – external liability Net working capital= current asset – current liability Total asset = net fixed asset + total current asset [tangible] Profit and loss statement: •
Sales Less CGS G/P or EBITDA
xxxx xxx xx
Less Dep./ Amortization EBIT( operating profits) Less Interest EBT/PBT Less Taxes PAT Less Preference dividends Profit available to Equity S/H No. of Equity shares Earnings per share
xx xx xx xx xx xx xx x y x/y
• • •
4.FINDING AND ANALYSIS
It is extremely essential for a firm to be able to meet its obligations as they become due. Liquidity ratios measure the ability of the firm to meet its current obligations (liabilities). In fact analysis of liquidity needs the preparation of cash budgets and cash and fund flow statements; but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity and also that it does not have excess liquidity.
The current ratio is a measure of the firm’s short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability.
Current ratio = current assets / current liabilities. Calculated figed asset ures: Year 2007-2008 2008-2009 Current asset 204,593,631 53,590,391 Current liability 80,449,484 78,733,605 Current ratio 2.54 6.8
Explanation: A ratio of greater than one means that the firm has more than current assets against them. But above it was just below to the one. It seems the firm have almost equivalent value of current asset against current liabilities. Inference: Actually the firm reach the ideal point 1 and little improvement in the ratio comparing to the previous years. So company should increase their current assets. By adding more efficient in production and managing and in material control, making stocks of finished goods etc. If the firm increase the current assets against the current liabilities the firm would solvent for long period.
Quick ratio is also called as acid test ratio. It establishes a relationship between quick or liquid, assets and current liabilities. An asset is qualified if it can be converted in to cash immediately or reasonably soon without loss of value. Formula: Quick ratio = current assets – inventories / current liabilities Calculated figures: YEAR 2007-2008 2008-2009 CURRENT ASSEST 160,673,218 106,783,526 LIABILITIES 80,449,484 78,733,605 Quick ratio 1.99
Explanation: Generally, a quick ratio of 1 to 1 is considered to represent a satisfactory current financial condition. Although quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be used cautiously. A quick ratio of 1 to 1 or more does not necessarily imply sound quality position. It should be remembered that all debtors may not be liquid, and cash may be immediately needed to pay operating expenses. A company with a high value of quick ratio can suffer from the shortage of funds if it has slow paying. In other hand, a company with low value of quick ratio may really be prospering and paying its current obligation in time if it has been turning over its inventories efficiently. In here, the firm didn’t reach the bench mark of 1 or 1.33 ideal; it was little down to that. But as per above things, if the quick ratio is low value, may really be prospering and paying its current obligation in time if it has been turning over its inventories efficiently. Nevertheless, the quick ratio remains an important index of the firm liquidity. Inference: Quick ratio of this firm is quite good because it try to reach the satisfactory level of 1 by improvement in year by year. Here the company should not worry about quick ratio. Because the low ratio value only implies that the company turn over the inventories very efficiently. So my recommendation is, the firm should maintain quick ratio in this level only. It can improve up to satisfactory level is good to company. So the company should follow the same efficient in management and material turnover.
Cash ratio is calculated for availability of cash to meet short term commitments. Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current
liabilities. Trade investment or marketable securities are equivalent of cash therefore they may be included in the computation of cash ratio. Formulae: Cash ratio = cash / current liabilities Calculation: Year 2007-2008 2008-2009 Chart Cash 19,519,137 8,395,713 Current liability 80,449,484 78,733,605 Cash ratio 0.24 0.11
Explanation; There is no ideal ratio for cash as such. However, a ratio > 1 may indicate that the firm has liquid resources, which are low in profitability. In here the ratios are less than 1 that is the company carries a small amount of cash in hand. There is nothing to be worried about the lack of cash if the company has reserve borrowing power. The chart shows little bit increase in the cash ratio year to year. Inference: I think the firm maintaining the cash in bank by the way of deposits in the bank and also have a borrowing power from the banks and financial institution. There is nothing to be worried about the lack of cash, if the company has borrowing power. In India firms have credit limit sanctioned from cash and easily can withdrew from cash.
LEVERAGE / FINANCING RATIOS: The short term creditors, like bankers and suppliers of raw material, are more concerned with the firm’s current debt paying ability. On the other hand, long term creditors, like debenture holders, financial institutions etc. are more concerned with the firm’s long-term financial strength. In fact, a firm should have a strong short as well as long term financial position. To judge the long term financial position of the firm, financial leverage, or capital structure ratios are calculated. These ratios indicate mix of funds provided by owners and lenders. As a general rule there should be an approximate mix of debt and owners equity in financing the firm’s assets.
Debt – equity ratio:
It is clear that from that the total debt ratio that lenders have contributed more funds than owners; the relationship describing the lenders contribution for each rupee of the owner’s contribution is called debt equity ratio. Formula: Debt equity ratio= total debt / equity Calculated figures: Year 2007-08 2008-09 Chart: Total Debt 197,922,394 737,071,334 Equity 60,199,000 160,900,000 Debt-equity ratio 3.28 4.58
Explanation: It indicates the relationship between debt & equity; ideal ratio is 2:1. Here in 2007-08 the lenders i.e. debtor’s contribution is 3.28 times and 2008-09, 4.58 times of owner’s contribution. A ratio greater than one means assets are mainly financed with debt, less than one means equity provides a majority of the financing. The ratio indicates the aggressive use of leverage, and a highly leveraged company is more risky for creditors. A low ratio indicates that the company is making little use of leverage and is too conservative.
Inference: A wise mix of debt and equity can increase the return on equity for two reasons, which is debt is generally cheaper than equity and interest payments are tax-deductable expenses, whereas dividends are paid from taxed profits. In addition, dividend payment attracts dividend distribution tax. But excessive use of debt financing is risky. A company has a legal obligation to make interest payments and to repay the principle at the due dates. Here the ratio shows the firm the aggressive use of leverage, but it doesn’t use over debts. It used just above the bench mark. So the firm try to overcome it, by promoting the owners fund or equity share holders. But the earning capacity and repayment and interest payment is quit good.
Equity ratio indicates the contribution of owners in the firm other than the debts. The equity ratio is a financial ratio indicating the relative proportion of equity to all used to finance a company's assets. The two components are often taken from the firm's balance sheet or statement of financial position (so-called book value), but the ratio may also be calculated using market values for both, if the company's equities are publicly traded. Formula: Equity ratio= equity share holders fund/ total assets Calculated figures: Year 2007-08 2008-09 Share holders fund 31,00,000 35,64,536 Total assets 10,80,95,94 12169814 Equity ratio 0.28 or 28% 0.29 or 29%
Explanation: The equity ratio indicates the contribution part of owners or equity holders other than the debtors. A low equity ratio will produce good results for stockholders as long as the company earns a rate of return on assets that is greater than the interest rate paid to creditors. Here the equity ratios for both the years are same.
Inference: There is no bench mark for equity ratio. Higher equity ratio reflects less risk. Lower equity ratio shows higher risk. Here the equity share holders contribution is 29% balance are from debtors. It shows the firm paying more interest. But the firm’s financial situations is not bad, it is healthy only, but try to make reducing the debtors and increase the equity by efficient in production and in inventory management.
Fixed asset net-worth ratio:
Measure of the solvency of a firm, this ratio indicates the extent to which the owners' cash is frozen in the form of brick and mortar and machinery, and the extent to which funds are available for the firm's operations. Formula: Fixed asset net-worth ratio = fixed asset / net worth Calculated figures: Year 2007-08 2008-09 Fixed assets 210158993 528676778 Net worth 60199000 160900000 Fixed asset NW ratio 3.49 3.28
Explanation: A ratio higher than 0.75 indicates that the firm is vulnerable to unexpected events and changes in the business climate. By seeing above the results the firm can be affected by some business changes and unexpected events. Inference: The ratio shows the firms money is frozen in somewhere by delay in the receivables or as a stock or as machinery or any other assets. So only little amount of money is in the owners fund for operating. To overcome this, the firm should use the increase in production, materials to stock and turn over it properly and maintaining the receivables properly. And use the owner’s money in the form of current asset for ease in to liquidity for cash.
ACTIVITY RATIO: Funds of creditors and owners are invested in various assets to general sales and profits. The better the management of assets, larger the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilises its assets. These ratios are also called as turnover ratios because they indicate the speed with which assets are being converted or turned over in to sales. Activity ratios, thus, involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are
managed well. Several activity ratios can be calculated to judge the effectiveness of asset utilisation.
Inventory turnover ratio:
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product. Formula: Inventory turnover ratio = cost of goods sold / average inventory. Calculated figures: Year 2007-08 2008-09 Cost of goods sold 3,24,60,864.21 4,01,45,680.88 Average inventory 31,85,849 31,96,406 Inventory turnover ratio 10.18 times 12.5 times
Explanation: Here the firm turning its inventory of finished goods in to sales (at cost) 10.18 & 12.5 times in a year. Chart shows the improvement in inventory of finished goods in to sales. Lesser the inventory, the greater the cash available for meeting operating needs. Besides, lean fast moving inventory runs a lower risk of obsolescence and reduces interest and storage charges. High inventory turnover is a sign of efficient inventory management. Inference: In recent years, many companies have started following just in time practices whereby they make purchases at the time of production and sales. The above chart shows the inventory
level. The inventory ratio is good it was coming down is another good news. I request the firm should follow the just in time method to avoid the interest and storage charges and damages also. And must produce a quality of products to for turn inventory to sales.
Inventory holding period ratio:
Inventory holding period is calculated for finding the days of inventory holdings. The reciprocal of inventory turnover gives average inventory holding period in percentage term. When the numbers of days in a year are divided by inventory turnover, we obtain days of inventory holding. Formula: Inventory holding period ratio = 360/ inventory turnover ratio\ Calculated figures: Year 2007-08 2008-09 Inventory turnover ratio 10.18 12.5 Inventory holding period 36 days 28.8 days
It shows the firms inventory holding periods. Here the inventory holding period decreased comparing to previous year. Higher the holding period implies there is difficulty in turn inventory to sales due to various reasons. Lower holding period shows there is free in turning of inventory in to sales. Lower the holding period make the liquidity. Inference: The inventory holding period shows the good results, because the holding periods are coming down. So the firm does well in inventory turnover and inventory holding period. If the firm using just in time the firm could avoid some more days of holding period and avoid interest and storage expenses also.
Raw material turnover ratio:
The manufacturing firm’s inventory consists of two or more components: 1) raw materials and 2) work in process. The raw material inventory should be related to materials consumed and work in process to the cost of production. Raw material turnover ratio indicates the efficiency of the firm with which the firm converts raw materials into work in process and work in process into finished goods. Formula: Raw material turnover ratio= material consumed / average raw material inventory
Calculated figures: Year 2007-08 2008-09 Chart: Material consumed 2,48,76,175 3,65,14,867 Average raw material inventory 8,12,704 8,44,073.5 Raw material turnover ratio 30.6 times 43.2 times
Explanation: Inventories of raw material turn an average of 30.6 and 43.2 times for the two years. Higher ratio shows the efficiency of the firm in converting raw materials in to finished goods without any defects. Lower ratio shows the inefficiency of the firm in converting raw materials into finished goods due to business climate etc. Inference: The firm’s efficiency in turning its inventories and raw materials is good but the year 08-09 is gone down. It shows the company’s utilisation of inventories in generating sales is quite good. So the firm should maintain this level by efficient operating inventory raw material in to sales. To maintain this or improve the raw material turnover the firm should efficient in the production of quality of goods.
Raw material holding period:
Raw material holding period is calculated for finding the days of raw material holdings. The reciprocal of raw material turnover gives average raw material holding period in percentage term. When the numbers of days in a year are divided by raw material turnover, we obtain days of raw material holding period. Formula: Raw material holding period = 360/ raw material turnover Calculated figures: Year 2007-08 2008-09 Chart: Raw material turnover 30.6 43.2 Raw material holding period 11.7 days 8.33 days
Explanation: The raw material holding period for the firm is 11.7 and 8.33 days. It comes down comparing the current year with previous year. Holding period of raw material is decreasing means the raw material in to finished products process is going fast due to market demand. Inference: The firm’s raw material holding period shows the firm is efficient in turning raw material in to finished products. The firm should continue this level by efficient in production of quality of products and turn in to finished products for sales.
Debtor turnover ratio:
A firm sells goods for cash and credit. Credit is used as a marketing tool by a number of companies. When the firm extend credits to its customers, debtors (account receivables) are created in the firms accounts. Debtors are convertible in to cash over a short period and therefore are include in current assets. The liquidity position of the firm depends on the quality of debtors to great extent. Financial analysis applies three ratios to judge the quality or liquidity of debtors: debtors turn over, collection period and aging schedule of debtors. Debtor’s turnover indicates the number of times debtors turn over each year. Generally, the higher value of debtor’s turnover, the more efficient is the management of credit. Formula: Debtors turn over = sales/ average account receivables YEAR SALES DEBTORS DEBTORS TURNOVER RATIO 5.51 7.24
Explanation: Actually the higher value of debtors turn over, the more efficient is the management of credit. Here comparing both years the 08-09 turnover were little bit down. That is there is some restrictions happen in the speed of account receivables. Inference: Generally there is no bench point to reach high level. It differs to firm to firm. Here the firm’s accounts receivable is satisfied in 2007-08. But it downs in 2008-09. So the firm is not constant in the accounts receivable and maintaining. So the firm should try to efficient in managing of credit.
Debtor’s collection periods:
The average number of days for which debtors remain outstanding is called the average collection period. Formula: Debtors collection period = days (360)/ debtors turnover Calculated figures: Year 2007-08 2008-09 Debtors turnover 5.51 7.24 Debtors collection period 65 days 49 days
Explanation: The collection period measures the quality of debtors since it indicates the speed of their collection. Shorter the average collection period, the better the quality of debtors, since the short collection period implies the prompt payment by debtors Inference: The period, on average, that a business takes to collect the money owed to it by its trade debtors. Here the collection of debtors is too long. If doing like this the firm may incur financial risks. So the firm should concentrate in collecting the debtors wit in a month it will give the best result.
Creditor’s turnover ratio:
Creditors are the businesses or people who provide goods and services in credit terms. That is, they allow us time to pay rather than paying in cash. It compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors. Formula: Creditors turnover ratio = credit purchases/ average accounts payable Calculated figures: Year 2007-08 2008-09 Credit purchases 3,24,97,135.08 4,01,55,050.78 Average account payable 66,78,373.45 1,37,11,609.11 Creditor’s turnover ratio 4.86 times 2.92 times
Explanation: Creditor turnover ratio is likely down in 08-09. It shows the payment to creditors is slow compare to the previous year. A high ratio implies velocity of payment to creditors and low the other side. Inference: There are good reasons why we allow people to pay on credit even though literally it doesn't make sense! If we allow people time to pay their bills, they are more likely to buy from your business than from another business that doesn't give credit. The length of credit period allowed is also a factor that can help a potential customer deciding whether to buy from your business or not: the longer the better, of course. So the firm should make payment speed for further purchases.
Creditors average payment period:
Average payment period ratio gives the average credit period enjoyed from the creditors. Formula: Average payment period = 360 / creditors turnover ratio Calculated figures: Year 2007-08 2008-09 Creditors turnover ratio 4.86 2.92 Average payment period 74 days 124 days
Explanation: The average payment period ratio represents the number of days by the firm to pay its creditors. A high creditor’s turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company. However a very favourable ratio to this effect also shows that the business is not taking the full advantage of credit facilities allowed by the creditors. Here the period took for payment is more than the previous year.
Inference: The period taken for the payment is quit high for both the years, in current year it is higher than previous year. My request is to make a payment shortly for future purchases by efficient production and sales and account receivables and by maintaining a credit reserve.
Operating profit margin or ratio establishes the relationship between operating profit and net sales. A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Formula: Operating ratio = EBIT / sales Calculated figures: Year 2007-08
Operating ratio 0.17
Explanation: The smaller the ratio, the greater the organization's ability to generate profit if revenues decrease. When using this ratio, however, investors should be aware that it doesn't take debt repayment or expansion into account. Inference: The ratio shows the operating profit and net sales relationship. It is healthy, so the firm is now little bit low in operating expenses as year to year. If reducing the inventory, raw material holdings and manage the materials efficiently, and avoiding the unnecessary charges the firm could able to earn more profit by net sales.
Gross profit margin:
The first profitability ratio in relation to sales is the gross profit margin ratio. It reflects the efficiency with which management produces each unit of product. This ratio indicates the average speed between the cost of goods sold and the sales revenue. Formula: Gross profit margin = gross profit / sales Calculated figures; Year
Gross profit ratio
2007-2008 2008-2009 Chart:
Explanation: A high gross profit margin relative to the industry average implies that the firm is able to produce at relatively lower cost. A high gross profit margin ratio is a sign of good management. A gross profit may increase due to higher sales price, cost of goods sold remaining constant or lower cost of goods sold, sales prices remaining constant or a combination of variations in sales prices, costs the margin widening and an increase in the proportionate volume of higher margin items. A lower gross profit margin may reflect higher cost of goods sold due to the firm’s inability to purchase raw materials at favourable terms, inefficient utilisation of plant and machinery or over investment in plant and machinery, result in gin higher cost of production. The ratio will also be low due to fall in prices in the market, the cost of goods sold remain unchanged, market reduction selling price by the firm to obtain large sales volume. Here the gross profit ratio is came down compare to last year. Inference: Gross profit margin ratio is good for both the years. But for the current year it comes down compare to last year. It may be any reasons which said in above. The finance manager should able to detect the causes of a falling gross margin and initiate action to improve the situation. For my point of view the problem may be higher cost of production, and fall in market. To recover, the firm should produce quality of products by minimum cost and better utilisation of machinery, try to sold unsold goods and maintain the material control effectively.
Net profit margin: Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. Net profit margin establishes a relationship between net profit and sales and indicates management’s efficiency in manufacturing, administering and selling the products. This ratio is overall measurement of the firm’s ability to turn each rupee sales into net profit. If the net margin is inadequate, the firm will fail to achieve satisfactory return on shareholder’s funds. This ratio also indicates the firm’s capacity to withstand adverse economic conditions. Formula: Net profit margin = profit after tax / sales Calculated figures: Year 2007-08 2008-09 Chart: Profit after tax 12,687,091 8,244,178 Sales 396,840,597 379,867,875 Net profit margin 0.03 0.02
Explanation: A firm with a high net profit margin ratio would be in an advantageous position to survive in the face of falling selling prices, rising costs of production or declining demand for the product. It would really be difficult for a low net profit margin firm to withstand these advertises. Similarly, a firm with high net profit margin can make a better use of favourable conditions, such as rising selling prices, falling costs of production or increase in demand for the product. Such a firm will be able to accelerate it profits at a faster rate than a firm with low net profit margin. Inference: If the gross profit margin has increased over years, but the net profit margin has either constant or decreasing, or has not increased as fast as the gross margin, this implies that the
operating expenses relative to sales have been increasing. The increasing expenses should be identified and controlled. Gross profit margin may decrease due to fall in sales price or increase in the cost of production. As a consequence, net profit margin will decrease unless operating expenses decreasing significantly. The crux of the argument of both the ratios should be jointly analysed at each time of expense should be thoroughly investigated to cause of decrease in both or any ratios. The firm should control the expenses, efficient use of machinery’s for production, to improve the earnings.
Earnings per share: The profitability of the share holder’s investment can also be measured in many other ways. One such measure is to calculate the earnings per share. EPS calculations made over years indicate whether or not the firms earnings power on per share basis has changed over that period. Formula: EPS = profit after tax / number of shares YEAR PROFIT AFTER TAX 11,078,667 NO.OF SHARES EPS
Explanation: EPS shows profitability of the firm in share basis. Here the EPS is gone up to 104 in 07-08 but it comes down to 76 on current year.
Inference: The earning price of the share is reached the maximum level in 07-08 but it was gone nearly 40% of that in08-09. The reason is, because of global market recession and sudden fall in market in my point of view. To retain the same earning the firm must improve the efficiency in operating, make cost cutting , cost reduction and efficient use of technologies.
Cash flow to assets: This ratio indicates the cash a company can generate in relation to its size. Comparing to previous years is important; if the company's ratio is decreasing then they may eventually run into cash problems. Formula: Cash flow to assets = cash from operations / total assets Calculated figures: Year 2007-08 2008-09 Chart: Cash from operations 32,80,057.42 30,54,270.2 Total assets 3,20,05,770.59 3,72,93,432.97 Cash flow to assets 0.10 0.08
Explanation: A ratio of 0.1 is quite good but here it below then .1 so the firm is in cash problems. And also the currents year is low compared to previous year. Inference:
In my point of view the firm incurred in cash problems in the way of bad debts and due to lower in returns etc. To overcome this and the firm become healthy without any cash problem they should efficient in operations, inventory turnover to sales and managing the receivables, maintaining of reserves for some percentage, controlling the expense, increase in production and in sales leads the company without cash trouble.
RECOMMENDATIONS: • • • • • • • • • The firm should follow the just in time method to avoid unnecessary expenses. The firm should reduce the expenses by reducing the holding periods, by turning the inventory in to sales, efficiency in operations. The firm should improve the solvency ratio by introducing some capital or inviting new share holders and maintain such percentage of reserves. The firm should reduce the debtors by inviting new share holders, because it helps to increase the profit margin and decrease interest payment expenses. Introduce new technologies in machines for increasing the production. Provide better allowances to the employees for their efficient performance in production. The raw materials and inventories should manage properly. The firm should improve in their resolving customer’s problem area. It should make necessary step to improve the communication with customer.
Conclusions: These ratio analyses gave the clear picture of firm’s financial condition. The financial condition and inventory of finished, semi-finished, raw material, returns in the all the aspects and in solvents area and assets, owners fund area the condition is quite healthy. In 2007-08 the all the aspects were very good comparing to 2008-09. The 08-09 is little bit down in most of the areas comparing to previous year. But the sales, turnover’s in all the aspects were increased than previous years. In these financial crises itself the firm shows more than sales compare to last year reflects the efficiency of the firm in all the operations. So overall financial condition is not very good but it is a good while in this financial crises and global recession. As well as the company maintain the customer satisfaction level with all their
customers strongly. While in the internship I learned lot of the things. I got a very good feedback from the chair person and from MD. I really happy for did the internship in the LINKTECH ENGINEERING PVT. LTD. what are I learned in that company is all are very useful to my future
Financial accounting, N.NARAYANSWAMY. Income tax , law and practice, HARI HARAN, Cost accounting and financial management, SARAVAN PRASAD.