Aman D. Kherariya PDF

A
PROJECT REPORT ON
ANALYSIS OF FINANCIAL STATEMENTS WITH HELP OF RATIO

ANALYSIS
AT SUPER MARBLE AND GRANITE - PUNE
SUBMITTED TO
SAVITRIBAI PHULE PUNE UNIVERSITY
IN PARTIAL FULFILLMENT FOR THE DEGREE OF
MASTERS OF BUSINESS ADMINISTRATION
BY
AMAN KHERARIYA
(M.B.A Finance Sem-III)
Under the guidance of
Prof. SumitBankar.
SINHGAD INSTITUTE OF BUSINESS ADMINISTRATION AND

RESEARCH
Academic year 2014-2016

DECLARATION
I, the undersigned, hereby declare that the following documented Project Report titled “Analysis
of financial statements with help of ratio analysis”, is a bonafide work prepared by me.
This is an organized and authentic work carried by me for partial fulfillment of Masters of
Business Administration. The findings in this project report are based on the data collected by
me from different sources.
All the deeds put in the fulfillment of the task are genuine and original to the best of my
knowledge.
Place- pune
Date-
AMAN KHERARIYA
ACKNOWLEDGEMENT
The successful completion of any research project requires guidance and help from a
number of people. I was fortunate to have all the support.
I take this opportunity to express my deep sense of gratitude to all those who have contributed
significantly by sharing their knowledge.
I, AmanKherariya, am very thankful to Super Marble and Granites, Pune for giving me this
opportunity to do my project with them.
I am very thankful to the director Dr. Avadhoot Pol sir, for providing me the opportunity and
facilities to do this project.
My heartfelt thanks to my respected faculty guide Prof. SumitBankar for providing their bet
knowledge and their continuous support and help at every step.
I am grateful for the inspiration and encouragement of many resource people who help me to
bring this project into life. I would also like to thanks each and every person who known or
unknown supported or helped me to make this project a success.
TABLE OF CONTENT
CHAPTER PARTICULARS PAGE

NO. NO.
INTRODUCTION
Introduction to the report
About the company 1-12
1. Objective of the report
Scope of the report
Research methodology
Limitation
CONCEPTUAL BACKGROUND
Review of literature
Ratio analysis
Importance of ratio
13-34
2. Advantages of ratios
Limitations of ratios
Types of ratios
Data interpretation
Current ratio
Liquid ratio
Proprietary ratio
Stock working capital ratio
Debt equity ratio 35-54
3. Gross profit ratio
Operating profit ratio
Net profit ratio
Stock turnover ratio
Return on proprietary fund
FINDINGS, SUGGESTION AND 55-57

4. CONCLUSION
ANNEXURE
Financial reports 2010-2014 58-66
5. Bibliography
Executive summary
Project title: - “A study on financial statement analysis at SuperMarbles”.

Company name: - SuperMarbles, Pune.
FOUNDER/ C.E.O. MR. B.K. SHAIKH. Who is basically from Rajasthan.Makrana, the
city which is famous for its incredible natural resources that is Marbles, the Marbles which was
used to make “the TajMahal”.Which is now one of the wonders of the world.Mr. Shaikh chose
his career in marble industry in 1977. He started as a local trader in Makrana city in partnership
firm.
After three years in 1980, he chose to stop as a local trader and start his own firm named
as “Shaikh Marble’s suppliers” he started to supply in other states of India like Delhi,
Maharashtra, Uttar Pradesh, and Goa. He continued supplying Marbles for nearly a decade.
Then in 1990, he started his own business in Pune, Kothrurd. Under the name of “stone
décor”. This was first outlet in different kinds of natural stones like sandstones, Marbles, and
Granites upgraded from Marbles to all kinds of natural stones. He supplied the materials to
builder, architects, interior designers, contractors, hotels and retailers.
For over a decade and earned a very good goodwill repute in the stone industry in Pune city.
Critical analysis of financial statement on the basis of ratio analysis is an important tool for
analyzing the financial performance of the company. This involves the calculation of various
ratios like liquidity, turnover, profitability, and solvency and its interpretation based on the
information presented in the financial statements of the company.
A comparative study of five years has taken for calculating ratio analysis. The main objective of
the study is to understand financial strength and weakness and evaluate performance of the
company as well as offering appropriate suggestions if any for the better performance of the
company.
In the course of this study, the research done by the researcher is a descriptive research. Research
was initiated by examining the secondary data to gain insight into the problem. The aim to study
is to understand about financial strength and weakness of the present system by analyzing the
secondary data and primary data will help to validate the analysis of data secondary data besides
on unrevealing the areas which call for improvement.
From the calculation and analysis of liquidity ratio it is concluded that the company’s liquidity
position is good and the company has sufficient liquid and the situation is good from the short
term creditors point of view, because the company this sufficient fund in the form of current
assets to meet their claims. Also the turnover ratio of company are quite satisfactory.
CHAPTER-1
INTRODUCTION
CHAPTER-2
CONCEPTUAL
BACKGROUND
CHAPTER-3
DATA
INTERPRETATION
CHAPTER-4
FINDINGS,
SUGGESTIONS AND
CONCLUSION
CHAPTER-5
ANNEXURE
Introduction to the report
Financial statement analysis is one of the most important parts in financial management.
Financial statement analysis helps us in scanning the organization with the help of financial
statements. This analysis reveals the comparative study of the organization over period of time.
In this relation, the researcher’s effort was to study the financial statement analysis of
SuperMarbles from various aspects of financial position i.e. liquidity, profitability, turnover and
solvency with the help of annual reports.
Financial statement analysis also referred to as ratio analysis or accounting analysis refers to an
assessment of viability, stability, and profitability of a business, sub-business or project. It is
performed by professionals who prepare report using ratios that make use of information taken
from financial statements and other reports. These reports are usually presented on top
management as one of their bases in marketing business decisions.
The term financial statements are used in business refers to two statement the balance sheet or
statement of financial position reflecting the assets, liabilities, capital and reserve as on a
particular date and income statement or profit and loss statement showing the results achieved
during a certain period which are prepared at the end of accounting period of the business
enterprise. Financial statement also called as financial reports are account balances arranged in
effective and meaningful order so that the facts and concept they portray may be readily
interpreted and used as bases for decision by all the internal affairs of business.
1
ABOUT THE FIRM
Super Marble deals in the manufacturing products made of marble, stones and granite. It also
deals in tiles, Italian and Indo-Italian Marbles and granite slabs. The manufacturers of the Indian
natural resources has developed and perfected by rigorous in-house R&D.
Reaching the pinnacle was not easy. Given the traditional touch without leaving its natural
feature Mr.B.K.Shaikh the founder of SuperMarbles and Granites, faced daunting challenges of
convincing all over Indian customers. The entrepreneurs criss-crossed India to introduced the
products and appoint distributors. Some of the most distinguished distribution houses eagerly
joined hands with the SuperMarbles and Granites and stone décor, in Ambegaon, Pune and
Spencer in Rajasthan and parts of India as well.
2
ABOUT THE COMPANY
The manufacturers of the Indian natural resources has developed and perfected by rigorous in-
house R&D.
Reaching the pinnacle was not easy. Given the traditional touch without leaving its natural
feature Mr.B.K.Shaikh the founder of SuperMarbles and Granites, faced daunting challenges of
convincing all over Indian customers. The entrepreneurs criss-crossed India to introduced the
products and appoint distributors. Some of the most distinguished distribution houses eagerly
joined hands with the SuperMarbles and Granites and stone décor, in Ambegaon, Pune and
Spencer in Rajasthan and parts of India as well.
After a decade, its inception, SuperMarbles and Granitespvt.ltd. How now become a well know
supplier of Marbles for Indian customers.
3
COMPANY PROFILE
PROPRIETOR : B.K.SHAIKH
Email : suppermarble@gmail.com
ADDRESS : SUPERMARBLES AND GRANITES PVT.LTD.
35/6, MARBLE MARKET,
AMBEGAON (BK),
PUNE-411046
FOUNDER/ C.E.O. MR. B.K. SHAIKH. Who is basically from Rajasthan, Makrana, the city
which is famous for its incredible natural resources that is Marbles, the Marbles which was used
to make “the Taj Mahal”. Which is now one of the wonders of the world.Mr. Shaikh chose his
career in marble industry in 1977. He started as a local trader in Makrana city in partnership
firm.
After three years in 1980, he chose to stop as a local trader and start his own firm named
as “Shaikh Marble’s suppliers” he started to supply in other states of India like Delhi,
Maharashtra, Uttar Pradesh, and Goa. He continued supplying Marbles for nearly a decade.
Then in 1990, he started his own business in Pune, Kothrud. Under the name of “stone
décor”. This was first outlet in different kinds of natural stones like sandstones, Marbles, and
Granites upgraded from Marbles to all kinds of natural stones. He supplied the materials to
builder, architects, interior designers, contractors, hotels and retailers.
For over a decade and earned a very good goodwill repute in the stone industry in Pune city.
ESTABLISHMENT: - After achieving a very good response and reputation from his clients
for over a decade, due to more demand and to continue and to maintain the reputation and
goodwill he established “SuperMarbles and Granites”.
TURNOVER:-NOT DISCLOSED
4
CORPORATE /REGISTERED OFFICE
ADDRESS
35/6, Marbles market, Ambegaon(Bk), Pune-411046.
Phone no:+9975526786
Fax:+91-02-24319399
Email: Supermarble@gmail.com
marti.asso@rediffmail.com
5
PRODUCT RANGE
Marbles
Granites
Sandstones
Slabs
Moulding
Mandir
6
SUPPLIERS OF THE COMPANY
1) VasundharaMarblesIndustries pvt.ltd.
H-149, UdhyogVihar,RIICO
industrial area, Sukher
Udaipur(Raj).
Tele- 0294-2440144
2)Vijay Laxmi stone supplier
Nr.menariya guest house
main RD. sector 5, hiran
magri, Udaipur(Raj)
Tele-0294-2463503.
3) Modern Marbles
G-27, udhyog vihar behind
tel-exchange, sukher,
Udaipur,(Raj)
4) PurnimaMarbles(p) ltd,
N.H.8, Gunjol nathdwara,
distt. Rajasamand-3133001
7
Objective of the report
1. To understand the need and purpose of the financial analysis and calculation of the
various financial ratios along with interpretation of this ratios.
2. To analyze the financial performance of SuperMarbles and Granites ltd. During the
period from financial year 2010-2011 to financial year 2013-2014.
3. To calculate the various ratios for determining the efficiency of financial activities of the
company.
8
Scope
1. The scope of the study is confined to “Financial statement analysis” with respect to
SuperMarbles, Ambegaon, Pune.
2. The scope is limited to the extent of analyzing the financial performance of the
company by calculating certain ratios.
3. It also seek to evaluate and show how financial ratios can serve as tool for managerial
control to evaluate company performance.
4. In an attempt to evaluate these various financial statements, industry ratios using
trend analysis were compared overtime year to year comparison can highlight trends
and point up the need for action. Trend analysis works best with five years of ratios.
9
Research mythology
1. Methodology of study
• collection of data
• tabulation of data
• analysis of data
• graphial representation of data
• interpretation of data
• present findings
• suggest guideliness
• prepare report
Research design
The research done by the researcher is a descriptive research. Research was initiated by
examining the secondary data to gain insight into the problem. By analyzing the
secondary data the aim of study is to know about financial strength and weakness of the
present system and primary data will help to validate the analysis of secondary data
besides on unraveling the areas which call for improvement.
10
Methods of data collection
Research means ”A careful investigation of enquiry especially through search for new facts in
any branch of knowledge”. There are many methods for research for collection of data, while
deciding method of data collection to be used for study The researcher should keep in mind two
types of data they are primary data and secondary data.
The investigation is based on the case study method of enquiry with the help of primary and
secondary data. Data collection is aimed at disclosing financial problem and their solution.
Methodology refers to the method of data collection and the accuracy of the project work. The
data was collected as follows,
Primary data
In case of the primary data the entire data is collected from the primary sources of the data which
are interview, interrogation with staff and employees, personal meeting and observation, this
type of data to take easy process and this data is useful for understanding the working style of the
company. The primary data for this study is collected by
1. Discussion
In this method data has been collected by discussion with manager accountants and
clerks.
2. Observation
In this method the data has been collected by visiting the work place of industry.
Secondary data
The secondary data is the data which is a published data. It is collected through newspapers,
periodicals, magazines and records maintained by various government and non-government
organizations, as well as reports of the company. While collection and usage of secondary data
precaution is taken as regards reliability, objective of the data and adequacy of the same. The
secondary data relating to this study was collected through,
1. Information obtained through internet

2. The records maintained by the company on its websites
3. Company’s annual report.
11
Limitations`
1. The study is limited at SuperMarbles.

2. Company does not provide confidential data.
3. The time period given for study is not sufficient. Conducting study in this period is
little bit difficult.
4. The reliability and accuracy of the analysis depends upon the information collected
from the company’s annual reports.
5. The scope of the study, findings, and suggestions depends upon the primary and
secondary data collected from the company.
12
Review of literature
Financial statement
As you know financial statements are those statements that provide information about the
probability & the financial position of the business, it includes the two statements, i.e., profit &
loss account or income statement or balance sheet or position statement.
The income statement present the summary of the income earned & the expenses incurred during
a financial year. Position statement presents the financial position of the business at the end of
the year.
Before understanding the meaning of Analyst of financial statements it is necessary to

understand the meaning of “Analysis” & “Financial Statements”.
Analysis means establishing a meaningful relationship various items of the two financial
statements with each other in such a way that conclusion is drawn .By Financial Statements, the
mean two statement. I) Profit & Loss account or income statement & II) Balance Sheet or
Position Statement, these are prepared at the end of the given period of time. They are the
indicators profitability & financial soundness of a business concern. Thus, analysis of financial
statement means establishing relationship between various items of two-Financial Statements &
Position Statement.
Need for Financial Statements
Analysis of Financial statements an attempt to assess the efficiency & performance of

enterprise. For the purpose it is necessary to know the:-
Earning capacity or Profitability
The overall objective is to earn satisfactory return on the fund invested in it, financial analysis
helps in ascertaining whether adequate profits are being earned in the capital invested in the
business or not. It also helps in knowing the capacity to pay to pay the interest & Dividend.
Comparative position in relation to other firms
The main purpose of financial statement analysis is to help the management to make a
comparative study of the profitability of various firms engaged in similar business.
Suchcomparison also helps the management to study the position of their firm in respect of sales
expenses, profitability & using capital etc.
13
Efficiency of management
The purpose of financial statements is to know the financial policies adopted by

the management are efficient or not. Analysis also helps to prepare budget by forecasting next
year’s profit on the basis of the past earning. It also helps the management to find out short
coming of the business to the remedial measures can be taken to remove the shortcomings.
Financial Strength
The purpose of financial statements is to assess the financial potential of business analysis also
helps in taking decisions.
A) Whether funds required for the purchase of new machinery &equipment’s are provided
from internal sources of business or not.
B) How much have been raised from external sources.
Solvency of the company
The different tools of analysis tell us whether the firm has sufficient funds to meet its short
terms & Long-term liabilities or not.
14
Ratio analysis
INTRODUCTION TO RATIO ANALYSIS.
1. RATIO ANALYSIS
Ratio analysis is a widely used of financial analysis. It is defined as the systematic use of ratio to
interpret the financial statements so that strengths and weakness of a firm as well as its historical
performance and current financial condition can be determined. The term ratio refers to the
numerical or quantitative relationship between two items variables.
The alternative, methods of expressing items, which are related to each other , are for purposes
of financial analysis, referred to as ratio analysis. It should be noted that computing the ratio does
not add any information not already inherent in the above figures of profits and sales. What
ratios do is that they reveal the relationship in a more meaningful way so as to enable us to draw
conclusions from them.
The rational of ratio analysis lies in the fact that it makes related information comparable. A
single figure by itself has no meaning but when expressed in terms of a related figure, it yields
significant inferences. For instance, the fact that net profits of a firm amount to say, Rs. 10 lacks
throws no light on its adequacy or otherwise. Figure of net profit has to be considered in relation
to other variables. How does it stand relation to sales? What does it represent by way of return on
total assets used or total capital employed? If therefore net profits are shown in terms of their
relationship with items such as sales, assets, capital employed equity capital and so on;
meaningful conclusions can be drawn regarding their adequacy.
Ratio is very useful for grasping the message of the financial statement and understanding them.
It helps to enlarge and understand the financial health and travel of the business, it past
performance makes it possible to forecast about future state of the business. The ratio used to
measure the effectiveness of the employment of resources is termed as Activity Ratio or
Turnover Ratio
Unlike in the past when security was considered to be sufficient consideration for banks and
financial institutions to grant loans and advances, nowadays the entire lending is need-based and
the emphasis is on the financial viability of a proposal and not only on security alone. Further all
business decision contains an element of risk. The risk is more in the case of decisions relating to
credits. Ratio analysis and other quantitative techniques facilitate assessment of this risk.
Ratio-analysis means the process of computing, determining and presenting the relationship of
related items and groups of items of the financial statements. They provide in a summarized and
concise form of fairly good idea about the financial position of a unit. They are important tools
for financial analysis.
15
Meanings of Ratio:
According to J. Batty, "The term accounting ratios is used to describe significant relationships
which exist between figures shown in a balance sheet, in a profit and loss account, in a budgetary
control system or in any other part of the accounting organization" In simple words, "Ratio" is
the numerical relationship between two variables which are connected with each other in some
way or the other.
'DEFINITION OF RATIO ANALYSIS'

A tool used by individuals to conduct a quantitative analysis of information in a company's
financial statements. Ratios are calculated from current year numbers and are then compared to
previous years, other companies, the industry, or even the economy to judge the performance of
the company. Ratio analysis is predominately used by proponents of fundamental analysis.
It is the most widely used tool since it compares risk and return relationships of firms from
various aspects. Ratio analysis is the method or process by which the relationship of items or
group of items in the financial statements are computed, determined and presented.
It is an attempt to derive quantitative measures or guides concerning the financial health and
profitability of a business enterprise. It can be used both in trend and static analysis. There are
several ratios at the disposal of an analyst but the group of ratios he would prefer depends on the
purpose and objectives of analysis
How a Ratio is expressed?
As Percentage -such as 25% or 50% . For example if net profit is Rs.25, 000/- and the
sales is Rs.1,00,000/- then the net profit can be said to be 25% of the sales.
As Proportion - The above figures may be expressed in terms of the relationship

between net profits to sales as 1:4.
As Pure Number /Times -The same can also be expressed in an alternatively way such as the
sale is 4 times of the net profit or profit is 1/4th of the sales
16
Nature of Ratio Analysis:
Ratios, by themselves, are not an end but only one of the means of understanding the financial
health of a business entity. Ratio analysis is not capable of providing precise answers to all the
problems faced by any business unit. Ratio analysis is basically a technique of:
1. Establishing meaningful relationship between significant variables of financial

statements and
2. Interpreting the relationships to form judgment regarding the financial affairs of the bank.
Usefulness of Ratio Analysis:
Usefulness of ratio analysis depends upon identifying:
1. Objective of analysis
2. Selection of relevant data
3. Deciding appropriate ratios to be calculated
4. Comparing the calculated ratios with norms or standards or forecasts; and
5. Interpretation of the ratios
17
Importance of ratios.
Ratio analysis is an important technique of financial analysis. It is a means for judging the
financial health of a business enterprise. It determines and interprets the liquidity, solvency,
profitability, etc. of a business enterprise.
It becomes simple to understand various figures in the financial statements through the use of
different ratios. Financial ratios simplify, summaries, and systemize the accounting figures
presented in financial statements.
with the help of ratio analysis, comparison of profitability and financial soundness can be
made between one industry and another. Similarly comparison of current year figures can also be
made with those of previous years with the help of ratio analysis and if some weak points are
located, remedial measures are taken to correct them.
If accounting ratios are calculated for a number of years, they will reveal the trend of costs,
sales, profits and other important facts. Such trends are useful for planning.
Financial ratios, based on a desired level of activities, can be set as standards for judging
actual performance of a business. For example, if owners of a business aim at earning profit @
25% on the capital which are the prevailing rate of return in the industry then this rate of 25%
becomes the standard. The rate of profit of each year is compared with this standard and the
actual performance of the business can be judged easily.
Ratio analysis discloses the position of business with different viewpoint. It discloses the
position of business with liquidity viewpoint, solvency view point, profitability viewpoint, etc.
with the help of such a study, we can draw conclusion regarding the financial health of business
enterprise.
18
USES OF ACCOUNTING INFORMATION
Accounting Ratios are effective tools for analysis and interpretation of financial statements. If
properly used and applied, accounting ratios are capable of providing very useful information on
bank’s financial position, profitability and stability. They are the indicators of managerial and
operational efficiency. Some uses of ratios are summarized below:
• It simplifies the comprehension of financial statements. Ratios tell the whole story of
changes in the financial condition of the business.(simplifies financial statements)
• They provide data for inter firm comparison. They highlight the factors associated with
successful and unsuccessful firms. They also reveal strong and weak firms, overvalued
and undervalued firms.(facilitates inter firm comparison)
• Ratio analysis makes it possible to compare different divisions of the firm. The ratios are
helpful in deciding about their efficiency or otherwise in the past and likely performance
in the future.(makes intra-firm comparison possible)
• It helps in planning and forecasting. Over a period of time a firm or industry develops
certain norms that may indicate future success or failure. If relationship changes in firm’s
data over different time periods, the ratios may provide clues on trends and future
problems.(helps in planning)
• Ratios avoid distortions that may result from the study of absolute data or figures.
• Ratios analyze the financial health; operating efficiency and future prospects by inter
relating the various financial data found in the financial statements.
• Ratios are invaluable guides to management. They assist the management to discharge
their functions of planning, forecasting, etc. efficiently.
Ratios study the past and relate the findings to the present. Thus, useful inferences are drawn
which are used to project the future.
• Ratios are increasingly used in trend analysis.
• Ratios being measures of efficiency can be used to control efficiency and profitability of
a business entity.
• Ratios play a very important role in security and credit analysis.
• Ratios assist investors in making sound investment decisions and also the shareholders in
evaluating the share performance.
Ratios are yardsticks, increasingly used by bankers and financial institutions, in evaluating the
credit standing of their borrowers and customers.
19
ADVANTAGES
Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages of ratio analysis:
1. Simplifies financial statements: It simplifies the comprehension of financial statements.

Ratios tell the whole story of changes in the financial condition of the business.
2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios

highlight the factors associated with successful and unsuccessful firm. They also reveal strong
firms and weak firms, overvalued and undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in its
basic functions of forecasting. Planning, co-ordination, control and communications.
4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of
the performance of different divisions of the firm. The ratios are helpful in deciding about their
efficiency or otherwise in the past and likely performance in the future.
5. Help in investment decisions: It helps in investment decisions in the case of investors and
lending decisions in the case of bankers etc.
20
Limitations of Ratio Analysis
Ratios like statistics have an air of precision and finality about them which may be
misleading.
• It is, therefore, important for us to know the limitations of Ratio Analysis.
• COMPARATIVE STUDY REQUIRED

o Ratios are useful in judging the efficiency of the business only when they are
compared with the past results of the business or with the results of a similar
business. However, such a comparison only provides a glimpse of the past
performance and forecasts for future may not prove correct since several other
factors like market conditions, management policies, etc. may affect the future
operations.
• LIMITATIONS OF FINANCIAL STATEMENTS

o Ratios are based only on the information which has been recorded in the financial
statements. Financial statements suffer from a no. of limitations; the ratios derived
therefore, are also subject to those limitations. For e.g.. Non-financial changes
though are important for the business but are not revealed by the financial
statements. If the management of the company changes, it may have ultimately
adverse effects on the future profitability of the company but this cannot be
judged by having a glance at the financial statements of the company.
• RATIOS ALONE ARE NOT ADEQUATE

o Ratios are only indicators, they cannot be taken as final regarding good or bad
financial position of business. Other things also must be considered. For e.g.. A
high current ratio does not necessarily mean that the concern has a good liquid
position in case current assets mostly comprise of outdated stock. It has been
correctly observed, “Ratios must be used for what they are- financial tools”. Too
often they are looked upon as ends in themselves rather than as a means to an end.
The value of a ratio should not be regarded as good or bad inter se. It may be an
indication that a firm is weak or strong in a particular area but it must never be
taken as proof. Ratio may be linked to railroads. They tell the analyst- Stop, look
and listen!
• WINDOW DRESSING
o The term window dressing means manipulation of accounts in a way as to conceal
vital facts and present the financial statements in a way to show a better position
than what it actually is. On account of such a situation, presence of particular ratio
may not be a definite indicator of good or bad management. For e.g.. A high stock
turnover ratio is generally considered to be an indication of operational efficiency
of the business but this might have been achieved by unwarranted price reductions
or failure to maintain proper stock of goods.
21
• PROBLEMS OF PRICE LEVEL CHANGES
o Financial analysis on accounting ratios will give misleading results, if the effect
of changes in price level is not taken into account. For example, two companies
set up in different years, having plant and machinery of different ages, cannot be
compared on the basis of traditional accounting statements. This is because the
depreciation charged on plant and machinery in case of old company would be at
much lower figure as compared to the company which has been set up recently.
The financial statements of the companies should, therefore, be adjusted keeping
in view the price level changes if a meaningful comparison is to be made. The
techniques of current purchasing power and current cost accounting are quite
helpful in this respect.
• NO FIXED STANDARDS
o No fixed standards can be laid down for ideal ratios. For e.g. Current ratio is
generally considered to be ideal if current assets are twice current liabilities.
However, in case of those concerns which have adequate arrangements with their
bankers for providing funds when they require, it may be perfectly ideal if current
assets are equal to or slightly more than current liabilities.
• RATIOS ARE COMPOSITE OF MANY FIGURES

o Ratios are a composite of many different figures. Some cover a time period,
others are at an instant of time while still others are only averages. It has been said
that ‘ a man who has his head in the oven and his feet in the icebox is on the
average, comfortable!’ Many of the figures used in the ratio analysis are no more
meaningful than the average temperature on the room in which the man sits. A
balance sheet figure shows the balance of the account at one moment of one day.
It certainly may not be representative of typical balance during the year.
• Differences in accounting policies with reference to stock valuation, depreciation, etc.

render ratios useless. Besides there are no standard definitions for certain terms like
operating profit, current assets.etc.
• Without further investigations, ratios may not serve the purpose. For e.g.. A high current
ratio is considered desirable, but if inventories (one of the elements of current assets),
consist mostly of dead and obsolete stock a company may not be able to meet its current
obligations.
• Ratios are often calculated as rough estimates and are often calculated with the figures as
on a particular date. Therefore, they are not accurate and precise. For e.g. Solvency ratios,
worked out for a firm engaged in seasonal business, whose accounting year ends at a time
when the sales are high, may appear quite favorable.
• It may therefore be concluded that ratio analysis, if done mechanically, is not only
misleading but also dangerous. It is indeed a double edged sword which requires a great
deal of understanding and sensitivity of the management process rather than the
mechanical financial skill.
22
CLASSIFICATION FROM USER’S VIEWPOINT
Ratio may be classified from the viewpoint of users of accounting information. Thus, we can
have the following group of ratios:
• From shareholder’s point of view

o Shareholders, in general, expect a reasonable return on their capital and capital
appreciation and safety of their investments. E.g.. EPS, Return on proprietor’s
funds etc.
• From short term creditors point of view

o Short term creditors of a company want to know if the company can meet its short
term obligations. Hence, creditors are very important with regards to liquidity.
o E.g.. Current and liquid ratios, Defensive interval ratio
• From long term creditors and management point of view

o Leverage ratios give fruitful information to long term creditors. Long term
creditors include debenture holders, vendors of fixed assets and term lending
institutions. These creditors are primarily interested in the company’s long term
solvency position.
23
PRECAUTIONS TO CONSIDER WHILE CALCULATING RATIOS
Ratio analysis is rightly considered as an invaluable tool of analysis. However, one has to
exercise considerable degree of caution while analyzing the financial statements with the help of
ratios. The precautions are listed below:
• It is essential to ensure that the person who uses the ratios understand the terminology and
the component figures employed for compiling.
• The ratios to be compared should be capable of being compared. In other words, the data
found in financial statements have to be horizontally consistent over a period of a time.
• Compilation of ratios has to be done speedily. They have to be worked out and supplied to
the different users in time for further action.
• Ratios have to be presented in an appropriate manner. It is a usual practice to set out the
major ratios first followed by less important ratios and then finish with the least
important ones. A complete record of ratios is essential.
24
TYPES OF RATIOS
1. Liquidity ratios
2. Turnover Ratios
3. Leverage Ratios
4. Profitability Ratios
1. LIQUIDITY RATIOS:-
Liquidity refers of the ability of a firm to meet its obligation in the short run, usually one year or
when they become duration for payment.
A proper balance between liquidly and profitability is required for efficient Financial
Management.
Liquidity ratios are based on the relationship between current assets the sources for meeting
short-term obligation and current liabilities.
The ratios, which indicate the liquidity of a firm, are: -
A. CURRENT RATIO
The current Ratio is the ratio of current liabilities it is calculated as: -
Current assets
Current ratio = - - - - - - - - - - - - - - - - - -
Current Liabilities
The current assets include cash and Bank Balance, Marketable securities, Bills,
Receivable, Inventories, Loans and advances, Advances Payment and prepaid expenses.
The current liabilities include creditors, bills payable bank overdraft short-term loans,
outstanding expense & income tax payable, unclaimed divided and proposed dividend.
The current ratio measures the ability of the firm to meet its current liabilities. The
current assets get converted into cash into the operational cycle of the firm and provide
the fund needed to pay current liabilities. The higher the ratio, to ward off.
25
B.QUICK RATIO
The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of
liquidity.
Current assets – inventories

QUICK RATIO = ----------------------------------------------
Current liabilities – bank over draft
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
C. WORKING CAPITAL TURNOVER RATIO
Working capital refers to the investment by the company in short terms assets such as cash,
marketable securities. Net current assets or net working capital refers to the current assets less
current liabilities.
Symbolically, it means,
Net Current Assets = Current Assets- Current Liabilities.
Definitions of Working Capital:

The following are the most important definitions of Working capital:
1) Working capital is the difference between the inflow and outflow of funds. In other words it is
the net cash inflow.
2) Working capital represents the total of all current assets. In other words it is the Gross
working capital, it is also known as Circulating capital or Current capital for current assets is
rotating in their nature.
3) Working capital is defined as the excess of current assets over current

Liabilities and provisions. In other words it is the Net Current Assets or Net Working Capital
It is calculated as,
Working capital turnover ratio = Sales / Working capital
26
2. TURN OVER RATIOS
Turnover Ratios are also referred to as Activity ratio or Assets Management ratios. This ratio
establishes relationship between the level of activity represented by sales or cost of goods sold
and levels of various assets.
A. INVENTORY TURN OVER RATIO

This Ratio is computed by dividing net sales by inventory
Thus,
Net sales
Inventory Turnover ratio = ----------------
Average Inventory
The numerator of this ratio is the net sales for the year and the denominator is the Inventory
balance at the end of the year.
This ratio is deemed to reflect the efficient the management of inventories and vice versa.
This statement need not be always true. A low level of inventory may
Cause a higher inventory turnover ratio.
It might be argued that the inventory turnover ratio may be
Cost of goods sold

Inventory Turnover ratio = --------------------------------------------
Average Inventory
27
B. DEBTORS TURNOVER RATIO
The debtor s turnover ratio is determined by dividing the net credit sales by average debtors
outstanding during the year.
Therefore
Net credit sales
Debtors turnover ratio = ------------------------
Average debtors
NOTE; - Here there is no specification about net credit purchase and average debtors
So, assume that (net credit sales = net sales)

(Average debtors = debtors)
The main function of this ratio is to measure how rapidly debts are collected.
A high ratio is indicative of shorter time lag between credit sales and cash collection/ a low ratio
indicates that debts are not being collected rapidly.
28
C.CREDITORS TURN OVER RATIO
Creditor‘s turnover ratio is a rate between net purchase and average amount of creditor
Outstanding during the year.
Net credit purchases

Creditors turnover ratio = --------------------------
Average of creditors
Average creditors = Average of creditors outstanding at the Beginning and at the end of the year.
A low turnover ratio reflects liberal terms granted by suppliers, while a high turnover ratio
shown that accounts are settled rapidly
The creditor‘s turnover ratio is an important tool as a firm can reduce its requirement of current
assets by relying on suppliers creditors.
The intent to which trade creditors are willing to wait for payment can be approximated by the
creditor’s turnover ratio.
NOTE; - Here, there is no specification about net credit purchase and average of creditors,
So, let assume that, (net credit purchase = Net Purchase)

(Average of creditors = creditors)
29
3. LEVERAGE or CAPITAL STRUCTURE RATIO
These ratios refer to the use of debt finance long term solvency of the firm can be examined by
using leverage or capital ratios.
The leverage ratio or capital structure ratio can be defined as the financial
Ratios which throw light on the long term solvency of a firm reflected in its ability to assure the
long term creditors with regards to.
1. Periodic payment of interest during the period of loan.

2. Repayment of Principe on maturity or in predetermined installments at
Due dates.
A. DEBT-EQUITY RATIO
This ratio reflects the relative claims of creditors and shareholders against the assets of the firm,
debt equity ratios establishment relationship between borrowed funds and owner capital to
measure the long term financial solvency of the firm. The ratio indicates the relative proportions
of debt and equity in financing the assets of the firm.
It is calculated as follows
Debt equity ratio = Debt / Equity

The debts side consist of all liabilities (that include short term and long term liabilities) of the
firm. The equity side consists of new worth (plus) preference capital.
The lower the debt equity ratio the higher in the degree of protection enjoyed by the creditors.
The debt equity ratio defined by the controller of capital issue, debt is defined as long term debt
plus preference capital which is redeemable before 12 years and equity is defined as paid up
equity capital plus preference capital which is redeemable after 12 years.
The general norm for this ratio is 2:1. on case of capital intensive industries as norms of 4:1 is
used for fertilizer and cement industry and a norms of 6:1 is used for shipping units.
B. DEBT – ASSET RATIO
The debit asset ratio establishes a relationship between borrowed funds and the assets of firm.
It is calculated as:
Debt
Debt Asset Ratio = -------------------------------
Asset
Debt includes all liabilities. Short term as well as long term and the assets include the total of all
the assets (the balance sheet total)
30
C. INTEREST COVERAGE RATIO
This ratio is also known as Time interested Earned ratio This ratio measures the debt servicing of
capacity of a firm in so far as fixed interest on long term loan is concerned. Interest coverage
ratio determined by dividing the operating profits or earnings before interest and taxes by fixed
interest charges on loans.
It is calculated as
Earningsbefore Interest &Taxes

(EBIT)
Interests coverage Ratio = ----------------------------
Debt Interest
The EBIT is used in the numerator of this ratio because the ability of a firm to pay interest is not
affected by tax payment as interest on debt fund in a tax deductible expenses.
The ratio apparently measure the margin of safety the firm enjoys with the respect to its interest
burden.
A high interest coverage ratio implies that the firm can easily meet its interest burden even if
EBIT decline.
A low interest coverage ratio results in financial embarrassment when EBIT declines. This ratio
is not appropriate measures of interest coverage because the source of interest payment is cash
flow before interest and taxes, not EBIT.
31
4. PROFITABILITY RATIO
A class of financial metrics that are used to assess a business's ability to generate earnings as
compared to its expenses and other relevant costs incurred during a specific period of time. For
most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a
previous period is indicative that the company is doing well.
Some examples of profitability ratios are profit margin, return on assets and return on equity. It is
important to note that a little bit of background knowledge is necessary in order to make relevant
comparisons when analysing these ratios.
For instances, some industries experience seasonality in their operations. The retail industry, for
example, typically experiences higher revenues and earnings for the Christmas season.
Therefore, it would not be too useful to compare a retailer's fourth-quarter profit margin with its
first-quarter profit margin. On the other hand, comparing a retailer's fourth-quarter profit margin
with the profit margin from the same period a year before would be far more informative.
A. OPERATING MARGIN
A ratio used to measure a company's pricing strategy and operating efficiency. Operating margin
is a measurement of what proportion of a company's revenue is left over after paying for variable
costs of production such as wages, raw materials, etc. A healthy operating margin is required for
a company to be able to pay for its fixed costs, such as interest on debt. It Is Also known as
"operating profit margin."
Calculated as:
Operating margin gives analysts an idea of how much a company makes (before interest and
taxes) on each dollar of sales. When looking at operating margin to determine the quality of a
company, it is best to look at the change in operating margin over time and to compare the
company's yearly or quarterly figures to those of its competitors. If a company's margin is
increasing, it is earning more per dollar of sales. The higher the margin, the better.
For example, if a company has an operating margin of 12%, this means that it makes $0.12
(before interest and taxes) for every dollar of sales. Often, nonrecurring cash flows, such as cash
paid out in a lawsuit settlement, are excluded from the operating margin calculation because they
don't represent a company's true operating performance.
32
B. GROSS PROFIT RATIO
Gross profit can be defined as the difference between net sales and cost of goods sold. Gross
margin profit ratio is also known as gross margin gross profit margin ratio is calculated by
dividing gross profit by sales.
Gross profit margin ratio = gross profit/Net sales
Net sales-cost of goods sold.
The gross profit margin ration shows the margin left after meeting manufacturing cost. The ratio
also measures.
The efficiency of production as well as pricing. The Gross profit to sales is a sign of good
management s as it implies that the cost of production of the firm is relatively low. A high ratio
may also imply of a higher sales rise without a corresponding increase in the cost of goods sold
C. NET PROFIT RATIO

The Net Profit Margin Ration determines the between Net profit and sales of business firm. This
relationship is also known as net margin. This ratio shows the earning left for shareholder (both
equity and preference) as percentage of Net sales.
Net Margin Ratio measures the overall efficiency of production, Administration selling,
financing, pricing and Tase Management.
Thus,
Net profit Margin Ratio: Net Profit/Net Sales
A high Net profit Margin indicates adequate return to the owners as well as enable a firm to
withstand adverse economic conditions when selling price is decanting, cost of production is
rising and demand for product is falling.
A low Net Profit Margin has opposite implications. A firm with low net profit margin can earn a
high rate of return on investment it has a higher inventory turnover.
Jointly considering gross and net profit margin provides a valuable understanding of the cost and
profit structure of the firm and enables the analyst to identify the source of
Business efficiency of inefficiency.
33
D. EARNING PER SHARE
The portion of a company's profit allocated to each outstanding share of common stock. Earnings
per share serve as an indicator of a company's profitability.
Calculated as:
Net Profit Available To Equity-Holders

EPS = ----------------------------------------------------------
Number of Ordinary Shares Outstanding
When calculating, it is more accurate to use a weighted average number of shares outstanding
over the reporting term, because the number of shares outstanding can change over time.
However, data sources sometimes simplify the calculation by using the number of shares
outstanding at the end of the period.
Diluted EPS expands on basic EPS by including the shares of convertibles or warrants
outstanding in the outstanding shares number.
Earnings per share are generally considered to be the single most important variable in
determining a share's price. It is also a major component used to calculate the price-to-earnings
valuation ratio.
For example, assume that a company has a net income of $25 million. If the company pays out
$1 million in preferred dividends and has 10 million shares for half of the year and 15 million
shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from
the net income to get $24 million, and then a weighted average is taken to find the number of
shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).
An important aspect of EPS that's often ignored is the capital that is required to generate the
earnings (net income) in the calculation. Two companies could generate the same EPS number,
but one could do so with less equity (investment) - that company would be more efficient at
using its capital to generate income and, all other things being equal would be a "better"
company. Investors also need to be aware of earnings manipulation that will affect the quality of
the earnings number. It is important not to rely on any one financial measure, but to use it in
conjunction with statement analysis and other measures.
34
1) Current ratio
Formula:
Current ratio = currents assets / current liabilities
Year 2010-2011 2011-2012 2012-2013 2013-2014

Current assets 4680800 5108390 5398080 5828210
Current liabilities 1593660 2162320 2128190 2136020
Current ratio 2.93 2.36 2.53 2.72
3.5
2.93
3
2.72
2.53
2.5 2.36
1.5
0.5
0
2010-2011 2011-2012 20012-2013 2013-2014
35
Interpretation:
In SuperMarblescompany the current ratio is 2.72:1 in 2013-2014. It means that for one
rupee of current liabilities, the current assets are 2.72 rupees are available to them. In other
words the current assets are 2.72 times the current liabilities.
Almost 4 years current ratio is same but current ratio in 2013-2014 is bit higher, which
makes company sounder. The consistent increase in the value of current assets will increase the
ability of the company to meet its obligations & therefore from the view point of the creditors the
company is less risky.
The available working capital with the company is increasing order:
2010 2011 – 3077140

2011 2012 – 2946070
2012 2013 – 3269890
2013 2014 – 3692190
The company has sufficient working capital to meet its urgency/ obligations. The
company has a high percentage of its current assets in the form of working capital.
Thus, the current ratio throws light on the company’s ability to pay its current liabilities out of its
current assets. SuperMarbles Company has a very good liquidity position.
36
2) Liquid ratio
Formula:
Liquid ratio = liquid assets / liquid liabilities
Year 2010-2011 2011-2012 2012-2013 2013-2014

Liquid assets 21806870 2301010 2410300 2911310
Liquid liabilities 1593660 2162320 2128190 2136020
Liquid ratio 1.36 1.06 1.12 1.36
1.6
1.4 1.36 1.36
1.2 1.12
1.06
1
0.8
0.6
0.4
0.2
0
2010-2011 2011-2012 2012-2013 2013-2014
37
Interpretation:
The liquid ratio indicates the liquid financial position of an enterprise. Almost in 4 years the
liquid ratio is same, which is better for the company to meet urgency. The liquid ratio of the
SuperMarblescompany has increased from 1.12 to 1.36 in 2013-2014.
This indicates that the dependence on short term liabilities & creditors are less & the company is
following a conservative working capital policy.
Liquid ratio of company is favorable because the quick assets of the company’s ability to meet
its immediate obligations promptly.
38
3) Proprietary ratio
Formula:
Proprietary ratio = proprietary fund / total fund
Or
Proprietary ratio = shareholders fund / fixed assets +current liabilities
Year 2010-2011 2011-2012 2012-2013 2013-2014

Proprietary fund 2129690 2155190 2242590 2414910
Total fund 5089130 5724330 5452800 6427520
Proprietary ratio 0.41 0.37 0.41 0.37
0.42
0.41 0.41
0.41
0.4
0.39
0.38
0.37 0.37
0.37
0.36
0.35
2010-2011 2011-2012 2012-2013 2013-2014
39
Interpretation:
The proprietary ratio of the company is 37% in the year 2013-2014. It means that for
every one rupee of total contribution, 37 paise has come from the owners fund & remaining
balance 63 paise is contributed by the outside creditor. This shows that contribution by outside to
total assets is more then the owners fund. The proprietary ratio of the company shows a
downward trend for the last 4 years. As the proprietary ratio is not favorable. The company’s
long term solvency is not sound.
40
4) Stock working capital ratio
Formula:
Stock working capital ratio = stock / working capital
Year 2010-2011 2011-2012 2012-2013 2013-2014

Stock 1909770 1902790 2146200 1932880
Working capital 3077140 2946070 3269890 3712190
Stock working 0.62 0.64 0.65 0.52
capital ratio
0.7 0.65
0.64
0.62
0.6
0.52
0.5
0.4
0.3
0.2
0.1
0
2010-2011 2011-2012 2012-2013 2013-2014
41
Interpretation:
This ratio shows that more funds are blocked in stock. The amount of stock is increasing
from year2010-2011 to 2013-2014. However in the year 2013-2014 it has declined to 52%. In
the year 2013-2014 the sale is increased which affects in increase in working capital in 2013-
2014.
It shows the solvency position of the company is sound.
42
5) Debt equity ratio
Formula:
Debt equity ratio = total long term debt / total shareholders fund
year 2010-2011 2011-2012 2012-2013 2013-2014

Long term debt 1581470 1480700 1697150 2260010
Shareholders fund 2129690 2155190 2242590 2414190
Debt equity ratio 0.74 0.68 0.75 0.93
1 0.93
0.9
0.8 0.74 0.75

0.68
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2010-2011 2011-2012 2012-2013 2013-2014
43
Interpretation:
The debt equity ratio is important tool of financial analysis to appraise the financial
structure of the company. It expresses the relation between the external equities & internal
equities. The ratio is very important from the point of view of creditor & owners.
The rate of debt equity ratio is increased from 0.74 to 0.93 during the year 2010-2011 to
2013-2014. This shows that with the increase in debt, the shareholders fund also increased. This
shows long term capital structure. The lower ratio is viewed as favorable from long term
creditor’s point of view.
44
6) Gross profit ratio:
Formula:
Gross profit ratio = gross profit / net sales x 100
Year 2010-2011 2011-2012 2012-2013 2013-2014

Gross profit 2921910 3720620 4539070 4828482
Net sales 4819190 5962220 7390470 7420310
Gross profit ratio 60.63 62.40 61.47 65.07
66
65.07
65
64
63
62.4
62 61.47
61 60.63
60
59
58
2010-2011 2011-2012 2012-2013 2013-2014
45
Interpretation:
The gross profit is the profit made on the sale of goods. It is the profit on turnover. In the
year 2010-2011the gross profit ratio was 60.63%. It has increased to 62.4% in the year 2011-
2012 due to increase in sales without corresponding increase in cost of goods sold. However the
gross profit ratio decreased to61.47% in the year 2012-2013.
It has increased to 65.07% in the year 2013-2014, due to high cost of purchases &
overheads. Although the gross profit is declined during the year 2012-2013. The net sales and
gross profit is continuously increasing from the year 2010-2011 to 2013-2014.
46
7) Operating profit ratio
Formula:
Operating ratio = CGS + operating expenses / net sales x 100
Year 2010-2011 2011-2012 2012-2013 2013-2014

CGS + 1897280+ 2241600+ 2851400+ 2591830+
operating 221370+ 269980+ 307510+ 271410+
expense 576710 762230 917940 84478
Net sales 4819190 5962220 7390470 7420310
Operating 55.92 64.90 55.16 39.72
profit ratio
70
64.9
60 55.92 55.16
50
39.72
40
30
20
10
0
2010-2011 2011-2012 2012-2013 2013-2014
47
Interpretation:
The operating ratio shows the relationship between costs of goods sold & net sales.
Operating ratio over a period of 4 years when compared that indicates the change in the
operational efficiency of the company.
The operating ratio of the company has decreased in all four year. This is due to increase
in the cost of goods sold, which in 2010-2011 was 55.92%, in 2011-2012 was 64.9%, in 2012-
2013 was 55.16% & in 2013-2014 it was37.72%. Though the cost is increased in 2011-2012 as
compared to 2010-2011, it is reducing continuously over the next two years, indicate downward
trend in cost but upward / positive trend in operational performance.
48
8) Net profit ratio
Formula:
Net profit ratio = net profit / net sales x 100
Year 2010-2011 2011-2012 2012-2013 2013-2014

Net profit 20980 82940 172940 275780
Net sales 4819190 5962220 7390470 7420310
Net profit ratio 0.43 1.39 2.34 3.71
4
3.71
3.5
2.5 2.34
1.5 1.39
1
0.43
0.5
0
2010-2011 2011-2012 2012-2013 2013-2014
49
Interpretation:
The net profit ratio of the company is low in all years but the net profit is increasing order
from this ratio of 4years it has been observed that the form 2010-2011 to 2013-2014 the net
profit is increased i.e. in 2012 it is increased by 0.96 in 2012-2013 by1.05 in 2013-2014by 1.43.
Profitability ratio of the company shows considerable increase. Company’s sales have
increased in all 4 years & at the same time company has been successful in controlling the
expenses i.e. manufacturing and other expenses.
It is clear index of cost control, management efficiency & sales promotion.
50
9) Stock turnover ratio
Formula:
Stock turnover ratio = CGS /average stock
Year 2010-2011 2011-2012 2012-2013 2013-2014

CGS 1890980 2196320 2833020 2572260
Average stock 549900 597580 673110 689300
Stock turnover 3.4 3.6 4.20 3.73
ratio
4.5 4.2
4 3.73
3.6
3.4
3.5
2.5
1.5
0.5
0
2010-2011 2011-2012 2012-2013 2013-2014
51
Interpretation:
Stock turnover ratio shows the relationship between the sales and stock it means how
stock is being turned over into sales.
The stock turnover ratio in 2010-2011 was 3.4 times which indicate that the stock is
being turned into sales 3.4 times during the year. The inventory cycles makes 3.4 rounds during
the year. It helps to work out the stock holdings period, it means the stock turnover ratio is 3.4
times then the stock holding period.
For the last four years stock turnover rateis lower than the standard but it is increasing
order. In the year 2010-2011 to 2013-2014 the stock turnover ratio has improved from 3.4 to
3.73 times, it means with lower inventory the company has achieved greater sales. Thus, stock of
the company is moving fast in the market.
52
10) Return on proprietor’s fund
Formula:
Return on proprietor’s fund = net profit / proprietor’s fund x 100
year 2010-2011 2011-2012 2012-2013 2013-2014

Net profit 20680 82940 172940 275780
Proprietors fund 2129690 2155190 2242590 2414910
Return on 0.97 3.84 7.71 11.41
proprietor’s fund
12 11.41
10
7.71
8
3.84
4
2
0.97
0
2010-2011 2011-2012 2012-2013 2013-2014
53
Interpretation:
Return on proprietors fund shows the relationship between profits and investments by
proprietor in the company. In the year 2011-2012 the return on proprietors fund is 3.84% it
means the net return of Rs. 3 approximately is earned on each Rs. 100 of funds contributed by
owner.
During the last 4 years the rate return on proprietors fund is in increasing order. The
return on proprietors fund during the year 2010-2011 to 2013-2014 is increased from 0.97% to
11.41%.
It shows the company has very large returns available to take care of high dividends,
large transfer to reserve etc. & has a great scope to attract large amount of fresh fundsfrom
owners.
54
FINDINGS
The company has sufficient working capital to meet its urgency/ obligations. The company has a
high percentage of its current assets in the form of working capital.
Thus, the current ratio throws light on the company’s ability to pay its current liabilities out of its
current assets. SuperMarbles Company has a very good liquidity position.
Liquid ratio of company is favorable because the quick assets of the company’s ability to meet
its immediate obligations promptly.
The short term solvency of the company is sound but the long term solvency of the company is
not sound.
With the increase in debt, the shareholders fund also increased. This shows long term capital
structure. The lower ratio is viewed as favorable from long term creditor’s point of view.
The gross profit is declined during the year 2012-2013. The net sales and gross profit is
continuously increasing from the year 2010-2011 to 2013-2014.
The cost is increased in 2011-2012 as compared to 2010-2011, it is reducing continuously over

the next two years, indicate downward trend in cost but upward / positive trend in operational
performance
. Company’s sales have increased in all 4 years & at the same time company has been successful
in controlling the expenses i.e. manufacturing and other expenses.
For the last four years stock turnover rateis lower than the standard but it is increasing order. In
the year 2010-2011 to 2013-2014 the stock turnover ratio has improved from 3.4 to 3.73 times, it
means with lower inventory the company has achieved greater sales. Thus, stock of the company
is moving fast in the market.
It shows the company has very large returns available to take care of high dividends, large
transfer to reserve etc. & has a great scope to attract large amount of fresh fundsfrom owners.
55
SUGGESTIONS
1 Company’s current ratio is above standard and the should maintain the same in
future.
2 Company’s liquid ratio is good and the company should maintain the same in
future.
3 For proper utilization of fixed assets, company should try to increase this ratio
which will increase the production and ultimately the sale of the company.
4 Manufacturing cost should be cut down in order to maintain gross profit margin.
5 The organization should take steps to attain stability in net profit ratio.
6 Company need to reduce its expenses to increase operating profit.
56
CONCLUSION
The focus of financial analysis is on key figures contained in the financial. Statements
and the significant relationship that exits .the reliability andSignificance attach to the ration will
large on hinge upon the quality of Data on which they are best .they are as good for a bad as the
data itself.
Financial ratios are a useful by product of financial statement and provide standardized
measures of firm’s financial position, profitability and riskiness. It is an important and powerful
tool I the hands of financial analyst. By calculating one or other ratios or group of ratios he can
analyze the performance of a firm from the different point of view.
The ratio analysis can help in understanding the liquidity and short term solvency of the
firm, particularly for the trade creditors and banks. Lon term solvency position as measured by
different debt ratios can help a debt ratios can help a debt investor or financial institution to
evaluate the degree of financial ratios. The operational efficiency of the firm is utilizing its assets
to generate profits can be assessed on the basis of different turnover ratios. The profitability of
the firm can be analyzed with the help profitability ratios.
However the ratio analysis suffers from different limitations also. The ratios need not be
taken for granted and accepted at face value. The ratios are numerous and there are wide spread
variations in the same measure. Ratios generally do the work of diagnosing a problem.
57
Balance sheet as on 31st march 2011
Particulars Amount Amount
Shareholders fund
Share capital 500000
Reserves &surplus 1629690 2129690
Loans
Secured 1213480
Unsecured 367990 1581470
Differed tax liability(net) 106850
Total 3818010
Fixed assets
Gross block 1590330
Less: depreciation 1032960 577370
Net block 54360
Capital work in progress 611730
Investment 122320
Current assets, loans & advances
Inventories 1909770
Sundry debtors 184935
Cash & bank balances 331320
Loan & advances 580360
4670800
Less: Current liabilities & provisions
Current liabilities 1536090
Provisions 57570
1593660
Net current assets 3077140
Miscellaneous expenditure 6840
Total 3818010
58
Profit & loss account for the year ended 31st march 2011
Income
Sales & operating earnings 4819190
Other income 80500
Variation in stock 131070
5030760
Expenses
Materials consumed 1897280
Purchase of trading goods 861750
Payments to & provisions to employees 995040
Manufacturing expenses 221310
Excise duty 65050
Other expenses 576710
Interest & finance charges 260220
Depreciation 105370
Less: transferred to revaluation 1150 104220
4981640
Profit before tax 49120
Prior year adjustment (net)
Provision for taxation
Current tax 24420
Deferred tax liability/assets 4020
Profit after tax 20680
Balance brought forward from previous 10
year
Balance available for appropriation 20690
Appropriations:
General reserves 20680
Surplus/ loss carried 10
Proposed dividend
Tax on proposed dividend
20690
Basic earnings per share 0.41
59
Shareholders fund
Loans
Secured 1027550
Unsecured 453160 1480710
Total 3723110
Fixed assets
Gross block 1740970
Net block 29740
Investment 147260
Inventories 1902790
5102420
Provisions 120760
2162320
Miscellaneous expenditure 5970
Total 372311
60
Particular Amount Amount
Income
Other income 15040
5917990
Expenses
Excise duty 72690
Depreciation 107970
5791500
Current tax 63190
year
Appropriations:
Proposed dividend 50000
Tax on proposed dividend 6410
82950
61
Shareholders fund
Loans
Secured 1138860
Unsecured 558290 1697150
Total 4035070
Fixed assets
Gross block 1841580
Net block 15290
Investment 148340
Inventories 2146200
5398080
Provisions 312020
2128190
Total 4035070
62
Income
Other income 31390
7475850
Expenses
Excise duty 70080
Depreciation 110890
7200990
Prior year adjustment (net) 25710
Current tax 119500
year
Appropriations:
Tax on proposed dividend 9610
172980
63
Shareholders fund
Loans
Secured 1723120
Unsecured 536890 2260010
Total 4766940
Fixed assets
Gross block 2164890
Net block -
Investment 232910
Inventories 1932880
5848210
Provisions 480870
2136020
Total 4766940
64
Income
Other income 41690
7423550
Expenses
Excise duty 75410
Depreciation 126680
7000240
Current tax 150840
year
Appropriations:
Tax on proposed dividend
275850
65
BIBLIOGRAPHY
A)Books
1. Financial management - Satish Inamdar
2. Financial management - Ravi m. Kishore
3. Financial management - khan and Jain
4. Research methodology - C.R.Kothari
B)Reports of the company
Annual reports of SuperMarbles from year 2010-2011 to 2013-2014
C)Websites
1. http://en.wikipedia.org/wiki/financial_statement
2. http://en.wikipedia.org/wiki/financial_ratios
3. http://www.investopedia.com/financial_analysis
66

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A

ANALYSIS OF FINANCIAL STATEMENTS WITH HELP OF RATIO

AT SUPER MARBLE AND GRANITE - PUNE

SAVITRIBAI PHULE PUNE UNIVERSITY

IN PARTIAL FULFILLMENT FOR THE DEGREE OF

MASTERS OF BUSINESS ADMINISTRATION

(M.B.A Finance Sem-III)

Under the guidance of

SINHGAD INSTITUTE OF BUSINESS ADMINISTRATION AND

Academic year 2014-2016

CHAPTER PARTICULARS PAGE

FINDINGS, SUGGESTION AND 55-57

Project title: - “A study on financial statement analysis at SuperMarbles”.

35/6, MARBLE MARKET,

35/6, Marbles market, Ambegaon(Bk), Pune-411046.

industrial area, Sukher

2)Vijay Laxmi stone supplier

Nr.menariya guest house

main RD. sector 5, hiran

G-27, udhyog vihar behind

N.H.8, Gunjol nathdwara,

• graphial representation of data

1. Information obtained through internet

1. The study is limited at SuperMarbles.

Before understanding the meaning of Analyst of financial statements it is necessary to

Need for Financial Statements

Analysis of Financial statements an attempt to assess the efficiency & performance of

Earning capacity or Profitability

Comparative position in relation to other firms

The purpose of financial statements is to know the financial policies adopted by

Solvency of the company

INTRODUCTION TO RATIO ANALYSIS.

'DEFINITION OF RATIO ANALYSIS'

How a Ratio is expressed?

As Proportion - The above figures may be expressed in terms of the relationship

1. Establishing meaningful relationship between significant variables of financial

Usefulness of Ratio Analysis:

Usefulness of ratio analysis depends upon identifying:

• Ratios are increasingly used in trend analysis.

• Ratios play a very important role in security and credit analysis.

1. Simplifies financial statements: It simplifies the comprehension of financial statements.

2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios

• It is, therefore, important for us to know the limitations of Ratio Analysis.

• COMPARATIVE STUDY REQUIRED

• LIMITATIONS OF FINANCIAL STATEMENTS

• RATIOS ALONE ARE NOT ADEQUATE

• RATIOS ARE COMPOSITE OF MANY FIGURES

• Differences in accounting policies with reference to stock valuation, depreciation, etc.

• From shareholder’s point of view

• From short term creditors point of view

• From long term creditors and management point of view

The current Ratio is the ratio of current liabilities it is calculated as: -

Current assets – inventories

C. WORKING CAPITAL TURNOVER RATIO

Net Current Assets = Current Assets- Current Liabilities.

Definitions of Working Capital:

3) Working capital is defined as the excess of current assets over current

Working capital turnover ratio = Sales / Working capital

A. INVENTORY TURN OVER RATIO

It might be argued that the inventory turnover ratio may be

Cost of goods sold

So, assume that (net credit sales = net sales)