A

SYNOPSIS
ON

“RATIO ANALYSIS”

FOR

MACHINE HOUSE INDIA PVT LTD.

Submitted To

YASHWANTRAO CHAVAN MAHARASHTRA OPEN UNIVERSITY

SCHOOL OF COMMERCE AND MANAGEMENT

Nashik

Submitted By

Mr DEVADE MAHESH GOPINATH

MBA- Finance (P79) PRN-2018017000476813

+91- 8855062250 mahesh9d@gmail.com

Under the Guidance of

Smt. A U Gupta

Study Center
K.T.H.M. COLLEGE (5404A)
Gangapur Road, Shivaji Nagar, Nashik-422002


Introduction-:

Financial Analysis is defined as being the process of identifying financial

strength and weakness of a business by establishing relationship between the
elements of balance sheet and income statement. The information
pertaining to the financial statements is of great importance through which
interpretation and analysis is made. It is through the process of financial
analysis that the key performance indicators, such as, liquidity solvency,
profitability as well as the efficiency of operations of a business entity may
be ascertained, while short term and long term prospects of a business may
be evaluated. Thus, identifying the weakness, the intent is to arrive at
recommendations as well as forecasts for the future of a business entity.

There are three main methods of financial analysis:

1. Horizontal and vertical analysis

When using the horizontal analysis method, financial information is
compared over a sequence of reporting periods. The vertical analysis method
allows analyzing financial information in a proportional manner, where every
line item on a financial statement is recorded as a proportion of another item.
Naturally, this implies that each line item detailed on the income statement
is quantified as a proportion of gross sales, whereas each line item detailed
on a balance sheet is quantified as a proportion of total assets.

2. Trend analysis
This entails reviewing financial statements of three or more periods, an
extension of horizontal analysis. The earliest year in the set data represents
the base year. In trend analysis, users assess statements for incremental
change patterns. A change in financial statements can indicate that there are
either increased income or decreased expenses.
 Ratio analysis
The most popular way to analyse the financial statements is computing
ratios. It is an important and widely used tool of analysis of financial
statements. While developing a meaningful relationship between the
individual items or group of items of balance sheets and income statements,
it highlights the key performance indicators, such as, liquidity, solvency and
profitability of a business entity. The tool of ratio analysis performs in a way
that it makes the process of comprehension of financial statements simpler,
at the same time, it reveals a lot about the changes in the financial condition
of a business entity.

It must be noted that Financial analysis is a continuous process being

applicable to every business to evaluate its past performance and current
financial position. It is useful in various situations to provide managers
the information that is needed for critical decisions. The process of financial
analysis provides the information about the ability of a business entity to
earn income while sustaining both short term and long term growth.

.
Advantages of Ratio Analysis
When employed correctly, ratio analysis throws light on many problems of the
firm and also highlights some positives. Ratios are essentially whistleblowers,
they draw the managements attention towards issues needing attention. Let
us take a look at some advantages of ratio analysis.

 Ratio analysis will help validate or disprove the financing, investment and
operating decisions of the firm. They summarize the financial statement
into comparative figures, thus helping the management to compare and
evaluate the financial position of the firm and the results of their
decisions.
 It simplifies complex accounting statements and financial data into simple
ratios of operating efficiency, financial efficiency, solvency, long-term
positions etc.
 Ratio analysis help identify problem areas and bring the attention of the
management to such areas. Some of the information is lost in the complex
accounting statements, and ratios will help pinpoint such problems.
 Allows the company to conduct comparisons with other firms, industry
standards, intra-firm comparisons etc. This will help the organization
better understand its fiscal position in the economy.
Objectives of Ratio Analysis

 To know the operational efficiency of the business:

The financial analysis enables the management to find out the
overall efficiency of the firm. This will enable the management
to locate the weak Spots of the business and take necessary
remedial action.
 Helpful in measuring the solvency of the firm:
The financial analysis helps the decision makers in taking
appropriate decisions for strengthening the short-term as
well as long-term solvency of the firm.
 Comparison of past and present results:
Financial statements of the previous years can be
compared and the trend regarding various expenses,
purchases, sales, gross profit and net profit can be
ascertained.

 Helps in measuring the profitability:

Financial statements show the gross profit, & net profit.
 Inter‐firm comparison:
The financial analysis makes it easy to make inter-firm
comparison. This comparison can also be made for various time
periods.
 Bankruptcy and Failure:
Financial statement analysis is significant tool in predicting
the bankruptcy and the failure of the business enterprise.
Financial statement analysis accomplishes this through the
evaluation of the solvency position.
 Helps in forecasting:
The financial analysis will help in assessing future development
by making forecasts and preparing budgets
 Hypothesis
Researcher has formulated two types of hypothesis i.e.
ALTERNATIVE hypothesis and NULL hypothesis for the present study.
Both the hypothesis will be tested with the help of statistical tools. Both
the hypothesis is determined as under;

 NULL HYPOTHESIS (H0):

1. There will be no significant difference in Profitability and Efficiency
Ratio of the selected industry during the period of study.
2. There will be no significant difference in Capital Structure Ratio of
the selected industry during the period of study.
3. There will be no significant difference in Working Capital Ratio
(Liquidity and Solvency Ratio) of the selected industry during the
period of study.
4. There will be no significant difference in Overall Activity Ratio of
the selected Automobile industry during the period of study.
SCOPE OF RESEARCH:
The study mainly attempts to analyze the financial performance of
the company selected for the study. The financial authorities can use this
for evaluating their performance in future, which will help to analyze
financial statements and help to apply the resources of the company
properly for the development of the company and IT employees to bring
overall growth. The present study attempt to develop a trend analysis
model for Sales and Working Capital and Profit and Loss Accounts. There
can be forecasting to evaluate the overall performance of the Machine
House India Pvt. Ltd. in future
LIMITATIONS OF RATIO ANALYSIS
 Historical Information: Information used in the analysis is based on real past
results that are released by the company. Therefore, ratio analysis metrics do
not necessarily represent future company performance.
 Changes in accounting policies: If the company has changed its accounting
policies and procedures, this may significantly affect the financial reporting. In
this case, the key financial metrics utilized in ratio analysis are altered and the
financial results recorded after the change are not comparable to the results
recorded prior to the change. It is up to the analyst to be up to date with
changes to accounting policies. Changes made are generally found in the
notes to financial statements section.
 Seasonal effects: An analyst should be aware of seasonal factors that could
potentially result in limitations of ratio analysis. The inability to adjust the ratio
analysis to the seasonality effects may lead to false interpretations of the
results from the analysis.
 Manipulation of financial statements: Ratio analysis is based on information
that is reported by the company in their financial statements. This information
may be manipulated by the company’s management to report a better result
than its actual performance. Hence, ratio analysis may not accurately reflect
the true nature of the business, as the misrepresentation of information is not
detected by simple analysis. It is important that an analyst is aware of these
possible manipulations and always complete extensive due diligence before
reaching any conclusions.






 Research Methodology:

. Methodology means steps or stages through which we complete a social

work or a project work.
The basic purpose behind research is to obtain knowledge and discard
outdared assumptions. It is defined as, “Research is the outcome of man’s
urge to understand society, its nature and working behavior. It is related to
the urge of human being to re-examine and re-understand things”. It is based
on experience and evidences. It requires acute observation. It involves
gathering new data from primary sources and using existing data for new
purpose. These data are chronologically arranged.

Sources of data-
Primary data- Primary data means original data that has been collected
specifically for the purpose in mind. It means someone collected the data
from the original source first hand. Data collected in this way is called primary
data.

Secondary data- Secondary data is the data that has been already collected
by and is readily available from other sources. Secondary data is the data that
is being reused. Such data are more quickly obtainable than the primary data.
These secondary data may be obtained from many sources, including
literature, industry surveys, compilations from computerized database and
information systems etc.


Data analysis and Interpretation:-

 To know the operational efficiency of the business:

The financial analysis enables the management to find out the overall efficiency of the
firm. This will enable the management to locate the weak Spots of the business and take
necessary remedial action.
 Helpful in measuring the solvency of the firm:
The financial analysis helps the decision makers in taking appropriate decisions
for strengthening the short-term as well as long-term solvency of the firm.
 Comparison of past and present results:
Financial statements of the previous years can be compared and the trend
regarding various expenses, purchases, sales, gross profit and net profit can be
ascertained.

 Helps in measuring the profitability:

Financial statements show the gross profit, & net profit.
Chapterisation-:

 Introduction

 Objectives of ratio analysis

 Hypothesis

 Scope of Research

 Limitations of Study

 Research Methodology

 Suggestion and recommendation

 Bibliography





















 Bibliography

 Reference Books-
 M Y Khan & P K Jain (2010) Financial Management (5th Edition) Tata McGraw Hill
Education Private Limited

 Websites-
 http://www.antivibrations.com/

 References-
 Neha Mittal, “Determinants of capital structure of Indian industries”, Journal of Accounting
and Finance, Volume 25, No.1, 2011, Pp.32-40.
 Kartik Chandra Nandi, “Trends in Liquidity Management and Their Impact on Profitability:
A Case Study”, Great Lakes Herald Volume 6, No. 1, March 2012, Pp. 16-30.
 Moses Joshuva Daniel, A, “A Study on Financial Status of Tata Motors Ltd”, Indian Journal
of Applied Research, Volume 3, Issue 4, April 2013 ISSN - 2249-555X, Pp.320-322.
 Dharmaraj, A. and Kathirvel, N, “Analysing the Financial Performance of Selected Indian
Automobile Companies”. Global Research Analysis, Volume: 2, Issue 4, April 2013, Pp 18-
20.

Sign and Name of Student Sign and Name of Project Guide

Mahesh G Devade A U Gupta