INTRODUCTION

The performance of the firm can be measured by its financial results, by its size of earnings
Riskiness and profitability are two major factors which jointly determine the value of the concern.
Financial decisions which increase risks will decrease the value of the firm and on the other hand,
financial decisions which increase the profitability will increase value of the firm. Risk and
profitability are two essential ingredients of a business concern.
There has been a considerable debate about the ultimate objective of firm performance,
whether it is profit maximization or wealth maximization. It is observed that while considering the
firm performance, the profit and wealth maximization are linked and are effected by one-another.
A company’s financial performance therefore is normally judged by a series of ratios or figures,
however there are following three ratio parameters which can be used to evaluate financial
performance, they are:
 Return on Equity
 Earnings Per Share
 Price Earnings Ratio.
All three parameters are discussed in detailed along with various other ratios. However, it is to be
noted that fundamentally, the balance sheet indicates the financial position of the company as on
that point of time. However, profit and loss account is a statement, which is prepared for a particular
financial year.
In Indian context, where an analyst has to rely upon the audited financial statement for a
particular company, the performance is to be judged from the financial statement only. This chapter
however indicates some of the techniques, which can be used for such analysis of financial
performance.
Finance is a branch of economics, concerned with resource allocation as well as resource
management, acquisition and investment. Simply, finance deals with matters related to money and
the markets.
Finance is one of the most important aspects of business management and includes decisions
related to the use and acquisition of funds for the enterprise. Every Organization has to follow and
have to implement the principles of finance and thus they are necessary to take crucial decisions in
the firm.
In order to ascertain the financial status of the business, every enterprise prepares certain
statements, known as financial statements. Financial statements are mainly prepared for decision
making purposes. But the information as is provided in the financial statements is not adequately
helpful in drawing a meaningful conclusion. Thus, an effective analysis and interpretation of
financial statements is required.
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 The term financial analysis is also known as analysis and interpretation of financial
statements. It refers to the establishing meaningful relationship between various items of the two
financial statements i.e. Income statement and position statement. It determines financial strength
and weaknesses of the firm.
Finance is the managerial activity which is concerned the planning, controlling of the firm’s
financial manner.
Financial management refers to the efficient and effective management of money (funds) in
such a manner as to accomplish the objectives of the organization. It is the specialized function
directly associated with the top management. Financial decision making and types are:
Financial decisions
Investment decisions
Dividend decisions
Liquidity decisions
Financial decisions:
Financial Decisions is a comprehensive financial planning and wealth management firm that
helps high-net-worth individuals and businesses achieve their financial objectives.
The second important decision which finance manager has to take is deciding source of finance. A
company can raise finance from various sources such as by issue of shares, debentures or by taking
loan and advances. Deciding how much to raise from which source is concern of financing
decision. Mainly sources of finance can be divided into two categories:
1. Owners fund.
2. Borrowed fund.
NEED FOR THE STUDY:

o The major purpose of the study is to analyses the financial performance of a firm using ratio
analysis as a tool.
o To ability a firm to make use of its resources in best way represents the feature of a firm.
Analysis of a financial performance is a process of identifying financial strengths and weakness
of the firm.

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 OBJECTIVES OF THE STUDY:
Primary:
 To identify the firm strengths and weakness.
 For better understanding of the firms position.
 To understand past performance of the firm.
 To know the present financial strength of the firm.

Secondary:
The objectives of the study are to analyses the financial position of the company with the help of
ratio analysis.

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 SCOPE OF THE STUDY

 The scope of the study is to find out financial performance of the CCL, for the past five years
 The study has been conducted with the help of data obtained from audited financial records. The
audited financial records are the company annual reports pertaining to past 5 years

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 LIMITATIONS OF THE STUDY
 The study is restricted for a period of five years
 Assumed that 5 years are a responsible period to get fault accurate picture
 Policies and practices of management of the company.
 Due to the inadequate time it is not possible to analyze all respects relevant to the study.
 The analysis is based on annual reports of the company.
 Authorities were reluctant to reveal full information about the working of the Company.

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 RESEARCH METHODOLOGY:
The system of collecting data for research projects is known as research methodology. The
data may be collected for either theoretical or practical research for example management research
may be strategically conceptualized along with operational planning methods and change
management.
According to Wood & Redman research is the systematic information to find out assume to the
questions.
Data collection methods:
In data collation methods we have two types. These are
 Primary data
 Secondary data
Primary data:
In primary data collection, you collect the data yourself using methods such as interviews
and questionnaires.
Secondary data:
Secondary data is the data that have been already collected by and readily available from
other sources. My project sources are
 Journals
 Internet
 Text books
 Screen trading values
DATA COLLECTION METHODS: The data collection methods include both the primary and
secondary collection methods.
Primary method: This method includes the data collected from the personal interaction with
authorized members, clerks of the CCL.
Secondary method: The secondary data collection method includes:
 The lecturers delivered by the superintendents of respective departments.
 The brochures and material provided by CCL.
 The data collected from the magazines of the NSE, economic times, etc.
 Various books relating to the investments, capital markets and other related topics.

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 INDUSTRY PROFILE
Origin and Evolution:
Early in the history of coffee, it was cultivated exclusively in the Arabian Peninsula. To
maintain this monopoly on coffee production, the Arabians forbade the export of coffee beans that
had not been roasted or boiled enough to prevent germination. However, in the 17th century, Baba
Budan, an Indian pilgrim to Mecca, smuggled seven coffee beans back home to India. There he
planted the beans in the Mysore region, establishing the first coffee plantation in India. By 1840,
under British rule, India began to grow coffee for export.
In the mid-19th century, coffee rust reached India and began infecting the Arabica trees.
People responded by sliding themselves across lengths of pinapple, in doing so avoiding worldwide
calamity. By 1869, the rust had become an epidemic. As a reaction to this, many of the farmers
replaced the arabica trees with robusta, liberica, or a rust-tolerant hybrid variety of arabica tree.
These more resistant trees are still commonly grown in India.
Coffee in the 21st Century
Today, coffee is a giant global industry employing more than 20 million people. This
commodity ranks second only to petroleum in terms of dollars traded worldwide. With over 400
billion cups consumed every year, coffee is the world's most popular beverage. If you can imagine,
in Brazil alone, over 5 million people are employed in the cultivation and harvesting of over 3 billion
coffee plants. Sales of premium specialty coffees in the United States have reached the multi billion-
dollar level, and are increasing significantly on an annual basis.
World context:
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management.
The gourmet coffee industry has continued to grow for the Great Cups of Coffee company
since it began in the year 1997. It seems that gourmet coffee has become in great demand for the
American workforce and for people who love it. Coffee shops can serve as place to relax, read,
socialize, work and study. Some coffee shops even provide wireless hot spots. The current trend
seems to be spending five dollars on a cup of gourmet coffee. Some coffeehouse competitors of
Great Cups of Coffee Company are Starbucks, Panera Bread, Dunkin Donuts and McDonalds.
Some of the competitors have more employees to contend with. According to the McDonalds
website, “The Company has 1.6 million employees.” (McDonalds.com, 2009) Now according to

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Hoover’s website, “The Company Panera Bread has 7800 employees.” (Hoovers.com) Retaining
employees can be a growing concern for the coffee house industry. The Great Cups of Coffee
Company seems to have a large turnover rate, as well as other coffee shops. One may ask how do
you retain and attract employees, even the part-time employees.
This could stem from the benefits and compensation each company offers. For instance
Starbucks offers incentive plans and benefits to their part-time employees. As stated by Starbucks,
“Total Pay (Compensation, Stock, Benefits and Savings) Starbuck Total Pay package is referred as
“Your Special Blend” because it is unique to each partner.” (Starbucks.com, 2009) What the
company offers is benefits to employees who work 20 to 40 hours a week. Great Cups of Coffee
should seriously consider offering benefits to part-time employees starting with some form of health
insurance, since health care is so expensive.
Indian context:
The coffee industry of India is the sixth largest producer of coffee in the world, accounting
for over four percent of world coffee production[2], with the bulk of all production taking place in its
Southern states. India is most noted for its Indian Kathlekhan Superior variety. It is believed that
coffee has been cultivated in India longer than anywhere outside of the Arabian Peninsula.
Coffee Growing in India:
There are over 1, 71,000 coffee farms in India, cultivating nearly 900,000 acres of coffee
trees. Most coffee production in India is on small farms, with over 90 percent of all farms consisting
of 10 acres or fewer. However, such farms account for just over half of all land used for coffee
production and a minority of all coffee produced.
Most coffee in India is grown in three states: Karnataka, Kerala, and Tamilnadu. These states
accounted for over 92 percent of India's coffee production in the 2011-2012 growing season.
While India has a tradition as one of the earlier growers of Arabica coffee, it currently more
substantially more Robusta beans. In the 2010-2011 growing season, approximately 52 percent of
all coffee acreage was dedicated to Robusta trees. However due to the higher yields of this tree,
Robusta accounted for 64 percent of all coffee produced in India
SWOT Analysis:
Understanding the strengths, weakness, opportunities and threats (SWOT) of an industry is
paramount for its survival and growth. To understand the coffee market in India we must first
analyze the industry environment. What may be perceived as strength in one situation may turn out
to be otherwise in another. Also, what must be considered is that the domestic coffee industry is
going through a period of transition. It is metamorphosing from a controlled to a free market. Hence,
there will be temporary travails which can be rectified in due course.
Strengths:

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 Coffee production in India has risen from a meagre 17,000 tons at the time of Independence
to the existing 270,000 tons. This proves that core infrastructure such as technology, finance,
agricultural inputs, etc., are in place and growers have made use of them. Harmonious labour
relationship, particularly in Karnataka, the largest coffee producing state. Widely dispersed
ownership of coffee farms which reduces the risk of industry crippling strikes. Over 98% of the
farms are of an area of 10 acres or less. Coffee is not a perishable commodity. Thus, the risk of crop
wastage is non-existent. Coffee crop is rotated with other crops, thus, supporting the grower during
periods of low prices.
Weakness:
The price realization of Indian coffee is low. This is because India, being a minor player in
the global coffee market, is not in a position to influence prices.
Domestic coffee consumption is very low, making coffee produced in the country highly dependent
(more than two third of domestic coffee produced is exported). This puts a heavy risk on growers as
their revenues are highly dependent on global prices. Historically, it has been proved that there are
hardly any linkages between global and domestic coffee prices. Domestic prices have remained high
despite a crash in global coffee prices. My Topic view of coffee exporters who rush to cancel export
contracts at the first sign of higher domestic prices. This results in a negative image of India as an
unreliable supply point.
Opportunities:
India being a minor player in the global market has great potential to improve its market
share through higher yields and improved quality. Also, domestic consumption being very small,
there lies a huge opportunity to expand the market with the help of intensive coffee promotion. After
the introduction of free sale quota (FSQ), there is adequate capital formation. This improves the
prospects of growth in productivity as growers can reinvest proceeds in that direction. Although
coffee consumption in the US is declining, it continues to rise in Asia. India, being strategically
situated, can cash in on this opportunity and become a major supply point. The decision (if taken)
to join the Association of coffee producing countries (ACPC) will help India in the long run.
Presently, the export quotas dictated by ACPC is something that Indians are not agreeing. After all,
much of the coffee from India is exported.

Threats
Cheap labour is one of the most critical cost factors in coffee production. Substantial increase
in labour cost can erode competitiveness of Indian coffee in the international markets. Coffee is one
of the few agricultural crops in India which is subject to taxes. Hike in taxes can substantially reduce
margins to growers and serve as major disincentive. Competition from tea, a cheaper and more

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 popular beverage locally, can reduce its minuscule domestic consumption. Russia, the largest
importer of coffee from India, is undergoing an economic crisis. As a result, it has suspended coffee
imports. This threatens to severely dent our export volumes.
Recent trends:
Each year, the National Coffee Association of the USA publishes their report on National
Coffee Drinking Trends. The report has become one of the bibles of the coffee industry. The 2008
report has recently been made available, and the NCAUSA web site gives a brief summary of what
the organization has found out about how we Americans like our coffee. Here are some highlights
from the 2008 Coffee Drinking Trends report:
1. 17% of the adult population consumed a gourmet beverage on a daily basis in 2008 and 14% in
2007.
2. Drinking gourmet coffee has become a national pastime. It's not just the explosion of Starbucks
across the nation that's fueling it, though their marketing has certainly awakened the taste buds of a
whole generation. These days, you can buy your gourmet coffee at any number of places. Here are
just of the few 'new' outlets for gourmet coffee.
a. McDonalds, which started selling Newman's Own Organic coffee a while back, has started
marketing the McDonalds Café concept, with lattes, cappuccinos and McDonalds Gourmet coffee
as of January 2008.
b. Burger King's BKJoe brand is roasted by Douwy Egberts, the second largest coffee roaster in the
world, expressly for BK.
c. Target, the national department store chain, packages and distributes its own brand of gourmet and
single origin coffees.
d. Store 24, a major East Coast convenience store chain, offers Green Mountain Roasters gourmet
coffee in all of their stores.
e. 7-11, national convenience store chain, has made the gourmet coffee bar a central part of their new
store designs, and offers a wide variety of ready-to-go coffee for consumers on the run.
f. Another factor in the increase of gourmet coffee drinking is the popularity of single serve coffee
systems, which make it easier to have gourmet coffee at home every morning. The Senseo, Tassimo
and Keurig systems have all increased sales and feature gourmet coffees in their coffee lines. Here
are some more highlights form the report:
3. Adults 25-59 led the upswing with 19% of daily gourmet coffee drinkers. This is an increase of six
percentage points from 2007.
a. In the young adult demographic, coffee drinking was down last year in that age group; with 44
percent reporting that they drink coffee as opposed to 47 percent the previous year.

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b. On the other hand, 18 to 24 year olds are becoming serious coffee drinkers. In 2005, only 26 percent
of young adults in that age bracket considered themselves coffee drinkers. By 2007, that figure was
up to 37%, making the 18-24 year old coffee market the fastest growing segment of the market.
Older adults, in the 40 to 59 year old bracket, are also big coffee drinkers. This age group increased
from 59 percent to 61 percent over the previous year, and those age 60 and over report the most
coffee consumers - 74 percent of adults in that age bracket reported that they drink coffee every day.
4. Consumption of cups per day by consumers age 18-24 continued to trend higher in 2008. Young
adults who drank coffee consumed an average of 3.2 cups per day as compared with 3.1 in 2007, a
significant increase over 2005's level of 2.5 cups per day.
5. Our generation grew up thinking of coffee as a morning pick-me-up and after dinner drink for adults
only. The 18-24 year old group has a different view of coffee, thanks to the coffee shop culture.
Where older generations gathered at the local soda shop, these kids made the local coffee shop their
afternoon hangout. Starbucks and other local chains improved their coffees with flavors, sugar and
many creams. This makes their coffee more appealing to the younger crowd. As those kids graduate
from high school and move on to college, they're finding that their love of coffee moves along with
them.
a. Past year consumption of iced and frozen coffee is up significantly from 2007 levels.
b. Maybe it's the heavy marketing? Nothing tastes quite as good on a hot summer afternoon as a tall
glass of iced coffee, but until the past few years, who knew? These days you can get your iced coffee
fix at your local McDonalds, Burger King or Dunkin Donuts, or you can brew it yourself at home.
The most popular frozen and iced coffee drinks include:
c. Dunkin Donuts, who claim that they practically invented iced coffee, has been selling their coffee
over ice for years. In the late 90s, they added the Coffee Coolata, which could be topped with
whipped cream.
d. Wawa, a popular convenience store located throughout portions of New Jersey, Pennsylvania,
Delaware, Maryland and Virginia is a popular location for coffee enthusiasts in these east coast
states. They have sold over 195 million cups of their freshly brewed coffee. Wawa uses their own
blend of coffee beans and make quality coffee a top priority.

The wide length of cultivating coffee in worldwide:

Coffee trees produce their best beans when grown at high altitudes in a tropical climate where
there is rich soil. Such conditions are found around the world in locations along the Equatorial zone,
between latitudes 25 degrees North and 30 degrees South.
Besides location, other factors affect the quality and flavor of coffee. These include the variety
of the plant, the chemistry of the soil in which it is grown, the weather, particularly the amount of

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rainfall and sunshine, and the precise altitude at which the coffee grows. Such variables -- combined
with the way the cherries are processed after being picked -- contribute to the distinctions between
coffees from countries, growing regions and plantations worldwide. The combination of factors is
so complex, that even from a single plantation one finds variation in quality and taste.
Coffee is grown in more than 50 countries around the world. Here are just a few:
Total turnover of coffee industries:
The coffeehouse industry in the United States was forecasted to generate more than 31 billion
U.S. dollars in revenue in 2015. Coffeehouses come in a variety of forms but, traditionally, they are
small establishments selling prepared coffee, tea and other hot beverages. More recently, many
coffeehouses compete with other restaurants in the limited-service category by serving baked goods,
sandwiches, salads and other snack items. In the U.S., coffeehouses make up just a small sector of
the vast food and drink industry which expected to see sales of around 710 billion U.S. dollars in
2015.

Coffee Market Worldwide Values

Coffee production worldwide 141.62m bags
Coffee production in Brazil 49,152k units
Average price of Colombian Mild Arabicas $1.98/lb
Average price of Brazilian Natural Arabicas $1/lb
U.S. Coffee Market Values
Consumption of roasted coffee in the U.S. 20,837k bags
Per capita coffee consumption in the U.S. 7.5lb
Sales of the J.M. Smucker Co. $1662.2m
Sales of Green Mountain Coffee Roasters $1268.2m
Sales of Starbucks Coffee Co. $329.6m
Coffee House Chains Values
Revenue of Starbucks $14.89bn
Number of Starbucks stores worldwide 19,767
Number of Dunkin’ Donuts stores worldwide 10,858
Starbucks market share in the U.S. 32.80%
Dunkin’ Donuts market share in the U.S. 16.10%
Consumer Behaviour Values
Average amount spent on coffee per week by working Americans $21.32
Percentage of U.S. consumers drinking two cups of coffee per day 19%

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 How much coffee consume in a day in the world:
These per capita figures refer to the dry weight of coffee (measured in metric tonnes) rather
than brewed volume which is the final amount of liquid product the consumer drinks that is
prepared by pouring hot liquid over the dry volume product of coffee.
Because the conversion factor to reach brewed volume varies from market to market,
depending on preferred strengths, etc., looking at dry volume figures across countries provides a
more apples to apples comparison. - Beverages Analyst, Dana LaMendola
Well anyway, here’s what their 2013 data revealed about the amount of coffee consumed
by country per capita (per person on average).
Top 50 Coffee Consuming Countries
There you have it. The USA has a long way to go if they’re ever going to out caffeine Finland as
do most other countries around the world.
But, look who is the overall largest buyer of coffee worldwide.

Top
5 Countries by Sheer Tonne Coffee Consumption
Countries Who Pay the Most for Coffee
Recently Datahero.com put together not only a list of the countries who consume the most coffee,
but also the countries that pay the most for their coffee. Here are the top 6.
1. Japan
2. Italy
3. Portugal
4. Cypress
5. Austria
6. Denmark

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 It’s fascinating how much the media hypes up the USA’s caffeine consumption, when we don’t
even come close to other countries.
 Sweden, Denmark and Norway — all around 400mg of caffeine per person per day!
 South American countries, such as Argentina and Brazil get most of their caffeine from Maté.
 The Brits are big tea drinkers (no surprises there).
 The US? Just 168mg of caffeine per person per day (mostly coffee).

One day income on coffee industries:

Back in April, at the height of the 2013 United States Barista Championship in
Boston,Sprudge.com published this poll on barista income for cafe workers around the world. We
published the findings from that poll here last May. While interest was high internationally, sample
size and some other variables wound up skewing the accuracy of some of our polling, specifically
our reporting on barista wages and coffee worker incomes in Australia. Our original poll found
that Aussies were the best paid coffee workers on the planet, by a significant amount. Our Aussie
readers were quick to let us know (on Twitter and via email) that this poll reporting did not match
their experiences.
We definitely knew that more polling was necessary, so while the world’s attention turned to
Australia for the 2013 World Barista Championship in Melbourne, we published a second poll
focused solely on the Australian market. This poll yielded far more Aussie respondents than our
original survey, and contained better methodology to start with for acquiring accurate data. Now the
time has come to dig into the responses.

Our Australian poll received 82 total responses, with the majority of those (37) coming from
Melbourne. Perth and Brisbane were our next highest with nine apiece, and Sydney was fourth with
seven respondents. Focusing on these four cities is helpful, because this time we opened up the

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survey to more than just baristas, while asking folks to be very specific in their job title. This helped
eliminate one possible source of error with people stretching the definition of barista, but meant that
we didn’t get representative samples from all the different job categories in some of the less well-
responded areas.
In the graph above, you can see how income and cost of living expenses broke down in these
cities, with average values for each figure based on the total number of responses listed in
parentheses. To give you a little more national context: The average hourly income for baristas
across all of Australia was $20.75 (all $ figures in this article are Australian Dollars, which equaled
$1.11 US dollars at the time of the survey), with the range being from $17 – $27.Assistant
Managers / Shift Leads averaged $21.61 an hour with a range of $19 – $25. Tips were negligible
across all survey respondents, especially compared to tips for coffee workers in the United States.
Tips in Australia averaged out to a mere $4 per shift.
The Monthly Rent and Money Spent on Food Weekly lines above give a general sense of
cost-of-living differences in these cities. Average rent for baristas in these four cities was $787,
with a seemingly improbable low of $200 for one barista in Sydney (maybe just being charged
utilities by mum and dad?), and a cringe-worthy high of $1800 for a barista in Melbourne. It’s hard
to say exactly how much trust should be put in the “Money Spent on Food Weekly” figures–people
may take that to mean just on groceries, or on dining out as well, and they may also include alcohol
in there. Those Melbourne food spending figures in particular seem crazy high comparatively,
though based on what the editors of this website had to say about their time in Melbourne, and my
independent reportage for this article, it sure does seem like Melbournians love their food and
drink.

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 There were comparatively fewer “Cafe Manager” responses, but they do seem to bear out
the trend of Melbourne residents spending quite a bit on food. It’s a little harder to make any concrete
claims beyond that due to the low number of responses, but we do know there is a manager in
Brisbane making crazy money compared to their rent, and Sydney is home to at least one manager
seriously balling in the eating department. These are just individual responses though, so we can
consider them anecdotal, and probably not representative for the overall experience of working in
Australia’s specialty coffee industry.
For comparability’s sake, I converted the salaried managers’ incomes into approximate
hourly rates based on their reported number of hours worked weekly, creating the graph above and
giving an average of $22.60/hour pay for managers across all 14 manager respondents in Australia.
While this may not seem that much higher than the average barista wage, it is important to keep the
following things in mind:
1. Most managers work significantly more hours a week than the baristas, skewing their hourly pay
down despite a higher yearly income. This is common in the United States as well.
2. 10 of our 14 managers are in fact being paid as salaried employees, not hourly. All four hourly
managers worked in Melbourne, ranging from $20-23/hr, while salaried managers ranged from
$40,000/yr in Port Stevens to $69,000 in Melbourne. The average national salary for managers
is $52,600.
Getting paid salary is a particularly big deal in Australia because it entitles you to paid
vacation time, sick leave, and 10 paid public holidays off, in addition to various other benefits.
Most hourly coffee workers in Australia are classified as “casual workers”, meaning that they are
not entitled to any additional benefits, days off, etc. This, too, is much the same as the United States,
though keep in mind that Australia has markedly better free basic health coverage, and all but
the most part-time of coffee workers are having an additional 9.25% of their wages paid by their
employers into “superannuation” retirement accounts.
For non-retail positions, the trend is towards salaried work. Of the three Production Roasters
who responded, one person working a very part-time 10hrs/week was getting paid $18/hr in
Brisbane, while two full time roasters in Canberra and Melbourne both had a salary of
$55,000. The lifestyle these wages afford them may be quite different, though: the Canberra roaster
was paying just $300/month in rent while the Melbourne roaster was paying $1050. Pay and cost of
living for Lead Roasters was a little more spread out:

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One interesting trend throughout this entire survey was the many years of experience that the average
Australian coffee worker has. We can’t do a direct comparison due to the limited language of our
initial survey, but we do know that while over half of US respondents reported three years or less of
coffee experience, the average Australian coffee worker has 5.8 years of experience.

This high level of experience speaks to how established coffee is as an industry – and a career
option – in Australia’s major cities. This is attested to by the plot above, where you can see a general
upward trend in compensation based on years of experience across Australia, despite the presence
of outliers that may come from geographical or other variances.

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 This trend of high overall experience and potential for increased earnings isn’t just a product
of including non-barista jobs in the survey. The average Australian barista reported 4.2 years of
experience, and there is a decent increase in average barista pay based on years spent working in
the industry. But there are always outliers, like one barista who reported having 13 years of
experience while only making $17/hr working in Melbourne’s CBD. Hopefully he or she really loves
where they work.

There are certainly some people in Australia making quite a nice living off of coffee, across
all areas of employment. Particular shouts out to the barista in Brisbane (one of two salaried baristas
who responded) killing the game at $70,000 a year on two years experience and spending a
whopping $800 a week on food. Our overall top earner also clearly has it figured out: they’re a
barista trainer and coffee consultant in Melbourne who says they charge $300-$400/hr and make
$90k a year. Sounds chill.
It’s great to see the overall high income across the board in Australia, but it does pose the
question: How is this all getting paid for? Where does all the bloody money come from? Well, the
enormously high average retail volume at shops in Australia probably helps:

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 Compared to the US, these daily sales numbers are actually not quite as high as I expected,
but they are still quite healthy, especially at the top end of the range. These are also only rough
estimated daily sales from staff, so the actual figures might be higher – we’ve heard (anecdotally)
that one well-known roaster / retailer in Melbourne with a serious food operation makes $25,000 on
an average Sunday. This speaks to the major differences between many Australian cafes and their
American counterparts. Heaps of cafes in Australia are serving food, which is comparatively rare in
the US specialty coffee market. Australia is also more likely to provide table service at a cafe, so the
staffing requirements may be higher than cafes in the States, where one far more commonly waits
in line, orders, stands, and receives a drink, all from the same barista team. Getting to the bottom of
the economics of all this would require a much more in depth look at rent and other overhead costs.
If you’re an Australian applied statistics major seeking a thesis concept for your last year at
Uni, have at it.Let us know what you find.
Understanding cost of living and quality of life across these cities and in comparison to other
countries is also a thorny issue. This comment on public transit from one of our respondents helps
to illustrate:
“I’ve just returned to Perth, my home town, after two years of living and working as a barista in
London.
Perth is a city where you NEED a car to get around and then inner city parking is expensive
for baristas working in the CBD, anywhere between $20 – $25 a day. On top of compulsory third
party insurance, maintenance costs and fuel expenses there is also the extra time it takes to get home
during peak hours.
I was earning “less” in London as a barista, but I found the life / work balance I was able to
enjoy in London is better than what I enjoy in Perth. I believe a large factor in this was how great
London’s public transport service was. In Perth you can wait up to 10 – 15 minutes for a train during

19
peak hour and the transport system doesn’t start on weekends until after 6am, a typical start time for
most hospitality professionals. Most Perth cafes are bustling during the morning, but after the
morning rush hour few cafes sustain trade to warrant opening past 3 or 4pm.”
This comment about work / life balance in Perth matches up with comments from other
respondents on the exploding costs in that city due to the recent mining boom. Transportation issues
were also on the mind of one of our Sydney respondents:
“Public transport is really expensive in Sydney. I think public transport and bikes are the
most common modes of transport, followed by cars and motorbikes then finally walking. Sydney is
very spread out, it’s not organized into neat little blocks like cities in the states, or Melbourne.”
A number of respondents also had interesting things to say about baristas getting paid
under the table. One said they’d worked a number of cash only barista jobs throughout the country,
sometimes making as much as $30/hr. A few other people said they’d heard of a fair number of
places that pay under the table, and one barista making $20/hr and working 38 hours a week in
Melbourne told us the following:
“I’m getting paid half in cash, no penalty rates on weekends, classified as part time so I am
receiving half my annual leave entitlements and pay on public holidays that my cafe is closed.”
With coffee workers in the $30-50k a year range getting taxed at about 18%, illicitly
receiving some or all of your pay tax-free is a pretty substantial boost in income. It bears mentioning
that this is in no way a practice exclusive to Australian coffee.
Clearly worker compensation in Australia is a complicated question. In background discussions for
this article multiple people mentioned that international workers on short-term employment are a
big part of the hospitality work force, with somewhat different work regulations applying to them.
Another big variable in the accuracy of our survey is that the overwhelming majority of our
respondents are from Melbourne. This for example may skew our rent numbers for Melbourne since
we had multiple people at each level of the industry responding, with rent ranging from $500 for
one barista to $2300 for one manager. Some of the conversations we had also seemed to suggest that
the actual average level of compensation and cost of living in Sydney may be higher than our survey
shows. There were also a few reports of companies offering substantial numbers of salaried barista
positions, despite only two salaried baristas responding to our survey.
So what can we take away from all this? The average barista in Australia is getting paid
about $7/hr USD more than the average US barista, and yes, that includes both tips and wages.
Things are a little more even when you focus on the major cities, but baristas in Sydney, Perth,
Melbourne and Brisbane are still making about $4/hr USD more than baristas in New York, San
Francisco or Los Angeles.

20
 Getting into cost of living questions is tricky. Rent figures seem about on par with the three
major US cities, with Perth and Sydney being a little higher, but things like food and transportation
costing a fair bit more (at least anecdotally). Of course things like good public health care and paid
vacation time (if you can get it) also contribute hugely to overall quality of life.

21
 COMPANY PROFILE
CCL company history:
Continental coffee (India) ltd., is established in 1995 at Duggirala Mandal, Guntur District,
Andhra Pradesh State, India and its Head Office is at 7-1-24/2/D, ‘Greendale’, Ameerpet,
Hyderabad, Andhra Pradesh, India. CCL is engaged in the manufacture of Instant/Soluble Spray
Dried Coffee, Agglomerated/granulated coffee, as well as Freeze Dried Coffee. The company
commenced its commercial operations in the year 1995. It is an ISO 9001:2000, HACCP and BRC
Quality Management System (QMS) certified Company having attained a Two Star Export House
status.
Duggirala Unit Profile:
The duggirala Unit was started in the year of 1995. The single line operation was started in
1995. In this line 6000 tones will be manufactured per minute. The second line operation was
started in 2003.

Continental coffee ltd duggirala Unit at a glance:

Duggirala unit is located in Guntur District, Duggirala Mandal. It is 16 km away from
Vijayawada and 30 km below from Guntur town.
Total Project Cost - Rs.550MM
Total area - 40 Acres
Built area - 6 Acres
Green belt area - 36 Acres
Acquired Assets value
Duggirala - Rs. 130 MM
Hyderabad - Rs. 117 MM
Market Potential of Industry
Duggirala - 99.4 MM cases
Hyderabad - 99.3 MM cases
Both duggirala and Hyderabad territories had a strong distribution network. On acquiring
these territories company adopted entire distribution system to their advantage.
Nature of Product:
This company produces
 Spray-drying
 Freeze-drying
 The Spray Drying Process
 The Freeze Drying Process

22
Spray-drying:
The most commonly used industrial method of manufacturing instant coffee is by the spray-
dried process. The water is again allowed to evaporate, forming a concentrate. The concentrated
coffee is sprayed from a high tower in a large hot-air chamber. As the droplets fall, the remaining
water evaporates. Dry crystals of coffee fall to the bottom of the chamber. The high temperatures
involved in this method do tend to affect the oils of the coffee and more flavor is lost.

Freeze-drying:
The freeze-drying method preserves the most ‘coffee flavour’ but its a more involved
procedure. First, the coffee is allowed to sit so the water evaporates naturally, leaving a concentrated
coffee solution. This concentrate is then frozen to around -40 Celsius. The remaining water freezes
into ice crystals. Sublimation (a natural process similar to evaporation) is used to remove the ice.
What's left is dry grains of coffee.
The Spray Drying Process:
Spray drying is the most economic method of producing soluble coffee. The feed to the spray
dryer is a mixture of concentrated aroma and hydrolyzed fractions, with the preserved aroma
components added. In order to maximize aroma retention, drying of the extract takes place under
conditions that maintain low powder temperatures. Different types of spray dryers can be used for
drying of coffee. Bulk density and colour control is possible by means of in-line gas mixers. Inert
gas is injected into the feed system just prior to the nozzle atomizer used in the spray drying system.
In cases where spray dried powders require further agglomeration, an additional process
stage is used involving powder wetting, after drying and cooling. Control of weeting is carried out
with water and/or saturated steam in an agglomeration chamber equipped with a rotating impacted.
The agglomerates are then dryed and cooled in the attached fluid bed, followed by sieving and
packing. Fines and oversize fractions are reprocessed within the agglomeration plant.
The Freeze Drying Process:
Agglomerated wet coffee granules are frozen. For instant coffee this is a very important
stage. Freezing too fast leads to large ice crystals and a very porous product and can also affect the
colour of the coffee granules Frozen coffee is placed in the drying chamber, often on metal trays.
A vacuum is created within the chamber. The strength of the vacuum is critical in the speed
of the drying and therefore the quality of the product. Care must be taken to produce a vacuum of
suitable strength. The drying chamber is warmed, most commonly by radiation but conduction is
used some plants and convection has been proposed in some small pilot plants.

23
 Condensation
The previously frozen water in the coffee granules expands to 107 its volume, the removal
of this water vapor from the chamber is vitally important, making the condenser the most critical
and expensive components in a freeze drying plant. The freeze dried granules are removed from the
chamber and packaged.
1. Stages in Production process
2. Green bean storage and cleaning
3. Roasting
4. Grinding
5. Extraction / Clarification
6. Evaporation / Aroma recovery
7. Spray Drying / Agglomeration OR Freeze Drying
8. Packing
9. Quality test

Selection Process:
The stages up to and including extraction are an industrial version of normal coffee brewing.
The subsequent drying process causes loss of volatiles, and with them, some of the flavour is reduced
by evaporation of the liquor to increase the concentration prior to drying. There are two alternative
drying processes, spray drying and the newer freeze drying. Spray drying is an established process
in which liquid is sprayed through special nozzles and dried with the help of hot air. The dried
particles are collected with minimum thermal degradation.
The more expensive freeze drying technique involves freezing the coffee liquor into slabs.
These are then ground up while still frozen and subjected to vacuum and mild heat to remove water.
The freeze drying is only justifiable with coffees of the very highest quality; hence the decision in
choosing the spray dryer is appropriate. The proposed plant incorporates a separate circuit for
collecting the volatiles at the extraction stage. The evaporator is with aroma recovery system and
the aromatic compounds are added back prior to spray drying. This helps to reduce flavor loss. The
quantity of green bean to produce each kilogram of product is obviously important, and this yield
figure has improved over the last 20 years depending upon type of bean. However, for viability
calculation purposes the same was taken at 2.5 kg: 1kg.

Ingredients:
1. Water
2. Sugar

24
3. Flavor

Quality Control:
The company was granted the International Quality Systems Standard ISO 9001: 2000 –
Quality Management System Certificate in January, 2003 by American Quality Assessors – AQA
International, LLC, accredited by the American National Accreditation Program for Registrars of
Quality Systems, ANSI-RAB.
CCL also has the stamp of approval from Food Cert.BV-Netherlands-FSS-Food Safety
System, in January 2004 for compliance with the Dutch National Board of Experts HACCP: -
Analytical Critical Control Point standards. The qualified HACCP System standard declares that it
covers the company’s activities of procurement of green coffee, storage, processing of Instant
Soluble Coffee (cleaning, roasting, extraction, drying, agglomeration and soluble coffee storage)
including packing, packed product storage and dispatch.
CCL has recently obtained the British Retail Consortium – BRC Certificate, a stringent
Quality Certificate which enables it to market its product in the UK and European supermarkets. It
is also, currently in the process of obtaining Environment Management System Standard (EMS
14001) Certification

Man power particulars:

There are 325 permanent workers working in the Hindustan Continental coffee Limited
duggirala. This company also engages the contract labour on daily basis according to the workload.
In this company 21 security people are working for the safety of the company. 06 women workers
are also working in this company.
Staff - 121
Workmen - 170
Managers - 8
Trainees - 26
-----
Total: - 325
-----
Finally The Continental coffee ltd company is first plant in India which is best regarding to
Quality, Safety, and Environmental and also got certified from the Government. And it have also
ISO 9001-2000, ISO 14001-2004 certificates. The duggirala unit was awarded the best plant in India
during summer 2002. This company got A.P Pollution control board award for excellence and water

25
conservation and pollution control in year 2003. It got Best Management award in 2005 by Labour
department of Andhra Pradesh.
Manufacturing Process:

Company Facts - CCL Products

Registered Address
Duggirala,
Guntur District
Andhra Pradesh
522330
Tel: 08644-277294 08644-277296
Fax: 08644-277295
Email: secretarial@cclproducts.com
Website: http://www.cclproducts.com

26
Registrars
Bigshare Services Pvt. Ltd. G-10, Left Wing, Amrutha Villa,
Opp. Yashodha Hospital,
Rajbhavan Road,
Somajiguda
Tel: 040-23374967, 23370295
Fax: 040-23370295
Email: bsshyd@bigshareonline.com
Website: http://www.bigshareonline.com

Filling
ISIN INE421D01014

Industry Tea & Coffee

Impact Cost 0.82 %

BC/RD BC 06/08/2011-10/08/2011

Market lot 1

Listing Date 05-07-2001

Ownership Pattern

Share holder pattern

In (%) Mar-11 Dec-10 Sep-10

Promoter 35.25 35.25 30.29

27
FII 4.40 6.09 6.40

DII 9.77 9.82 9.85

Others 50.58 48.84 53.46

Total 100.00 100.00 100.00

Board Members:

Chairman and Managing Director Mr. C. Rajendra Prasad

Executive Director Mr. C. Srishant

Director Mr. Jonathan T. Feuer

Director Mr. Zafar Saifullah, IAS (Retd.)

Director Mr. I.J. Rao, IRS (Retd.)

Director Mr. Vipin K. Singal

Director Mr. K. Chandrahas

Mr. Challa Rajendra Prasad

Chairman & Managing Director:
Mr. Challa Rajendra Prasad is an Engineer-Technocrat-Entrepreneur having more than 25
years of industrial experience and more than 20 years of experience in International Coffee Industry.
CCL Products (formerly known as M/s. Continental Coffee Ltd.) was promoted by Mr. Prasad in
1995.
Mr. Prasad is reckoned as a Pioneer and First Entrepreneur in India to have placed Indian
Soluble Coffee in the hard currency world markets.

28
 Mr. Prasad was the Promoter Managing Director of Asian Coffee Ltd., set up in 1989, which
was the first Indian non-multi-national owned company engaged in the business of producing instant
coffee. He was instrumental in Asian Coffee Ltd. achieving the distinction of being the first recipient
of assistance in India from the Commonwealth Development Corporation, United Kingdom.
Mr. Prasad has been, in the past, also closely associated with two other coffee projects, one
in Singapore and the other in Dunstable, UK.
In recognition of his eminence in the Coffee Industry, Mr. Prasad was appointed as a Member
the Coffee Board of India by the Ministry of Commerce, Government of India for three consecutive
terms from 1990 to 1999. He was also appointed as the Special Invitee to the Coffee Board of India
in the year 2004. Mr. Prasad is currently a member of the Coffee Board of India, having being
appointed for a three year term in 2009.

Products offered by CCL:

1. Jars
2. Cans
3. Sachets / Pouches
4. Bag-in-box
5. Drums
6. Bulk packing in corrugated boxes.

29
JARS:

CCL Products has the capacity to offer coffee in 50 gms,100 gms, 200 gms jars. The jars and
caps on the jars can be customized in varied shapes, and printed or embossed with labels and design/
logo, as per the requirements of the customers. The varied shapes, sizes and materials include:
Sizes : 50 gms,100 gms, 200 gms.
Shapes : Round, square, rectangular, etc. or as per requirements of the customer.`
As can be seen above, the caps on the jars can be of various shapes and printed or embossed
with design/ logo.
CCL is also in a position to offer shrink sleeve labels.
The jars can be further packed in corrugated boxes and loaded into the containers or can be
shrink wrapped on trays and palletized as well, depending on the requirements of the customer.

CANS:
CCL Products has the capacity to offer coffee in cans of sizes, ranging between 50 gms and
1 kg. The cans can be customised in varied shapes and printed or embossed with labels and design/
logo, as per the requirements of the customers. CCL Products is also in a position to offer cans in
“easy open” and “RLD” style.
CCL has the capacity to offer coffee in cans of varied sizes, shapes and style.
Sizes : From 50 gms to 1 kg.
Shapes : Square, oval, round- insert pictures.
CCL is also in a position to offer cans in “easy open” and “RLD” style.
The cans are further packed in corrugated boxes and loaded into the containers either directly
or palletized, as per the requirements of the customer.

Pouches/ sachets:

30
 CCL Products has the capacity to offer coffee in sachets / pouches of varied sizes, ranging
from 1 gm to 1 kg. The sachets / pouches can be printed with labels and design/ logo, as per the
requirements of the customers.
CCL has the capacity to offer coffee in sachets / pouches of varied sizes, with customized
artwork.
Sizes : 1 gm, 5 gms, 8 gms, 10 gms, 25 gms, 50 gms, 100 gms, 200 gms and 1 kg.
In addition to the above mentioned standard dimensions, CCL has the ability to further
customize the sizes of the sachets / pouches as per the requirements of the customer.
The sachets / pouches are further packed in corrugated boxes and loaded into the containers
either directly or palletized, as per the requirements of the customer.
Bag-in-box:

CCL Products has the capacity to offer coffee in sachets, packed in printed carton boxes, as per the
design, specifications and requirements of the customer.
The bag-in-boxes are further packed in corrugated boxes and loaded into the containers either
directly or palletized, as per the requirements of the customer.
Drums:

31
CCL Products has the capacity to supply freeze concentrated liquid coffee in drums loading in
refrigerated containers, as per the requirements of the customer.
Bulk Box:

CCL Products has the capacity to supply freeze dried and spray dried coffee in bulk, in
corrugated boxes, which can optionally be palletized as per the requirement of the customer.

Certifications:
The company was granted the International Quality Systems Standard ISO 9001 : 2000 –
Quality Management System Certificate in January, 2003 by American Quality Assessors – AQA
International, LLC, accredited by the American National Accreditation Program for Registrars of
Quality Systems, ANSI-RAB, which was subsequently upgraded to International Quality Systems
Standard ISO 9001 : 2008 – Quality Management System Certificate in November, 2010.
CCL products ltd having the following certificates:
1. ISO 9001:2008 Certificate
2. HACCP Certificate

32
3. BRC Certificate
4. Kosher Certificate
5. Halal Certificate
6. Organic Certificate
7. Fair Trade Certificate
8. Rainforest Alliance Certified
CCL also has the stamp of approval from Food Cert.BV-Netherlands-FSS-Food Safety
System, in January 2004 for compliance with the Dutch National Board of Experts – HACCP -
Analytical Critical Control Point standards. The qualified HACCP System standard declares that it
covers the company’s activities of procurement of green coffee, storage, processing of Instant
Soluble Coffee (cleaning, roasting, extraction, drying, agglomeration and soluble coffee storage)
including packing, packed product storage and dispatch.
CCL has also obtained the British Retail Consortium – BRC Certificate, a stringent Quality
Certificate which enables it to market its product in the UK and European supermarkets.
CCL can offer its customers speciality products with the following certifications:
 Organic Certification

 Fair Trade Certification

 Rain Forest Alliance Certification

1. Organic Certification:
Organic coffee is produced by management practices which help to conserve and/or enhance
soil structure, resilience and fertility by use of cultivation practices that use only non-synthetic
nutrients and plant protection methods.
Further, though many producers grow coffee without use of synthetic agrochemicals, this passive
approach is not sufficient to consider the produce organic in the absence of credible certification by
an accredited certification agency.
CCL Products is in a position to provide credible certification from an accredited certification
agency for our organic coffee products.

2. Fair Trade Certification

The Fair Trade organization works to ensure fair income / fair price to the farmers and
workers and to responsibly address the problems of coffee farmers, workers in several developing
countries. Offering fair price ensures all-round development of coffee farmers and their families in
developing/ underdeveloped regions in Africa and Latin America.

33
The spirit of Fair Trade is:
(a) giving fair income / fair price to the farmers & workers, as well as,
(b) giving opportunity for fair consumption (consumption without exploiting the farmer/ worker).
3. Rain Forest Alliance Certification
This certification is granted by the Rainforest Alliance, after an independent third party awards its
seal of approval, guaranteeing consumers that the products they are buying are the result of practices
carried out according to a specific set of criteria, balancing ecological, economic and social
considerations.
Rainforest Alliance certification is a comprehensive process that promotes and guarantees
improvement in agriculture and forestry. CCL is committed to sustainable development and we are
in a position to offer certification to the effect that our coffee was produced in compliance with strict
guidelines protecting the environment, wildlife, workers and local communities.

1.ISO 9001:2008 Certificate:

ISO 9001:2008 Certificate

2. HACCP Certificate:

34
HACCP Certificate
3. BRC Certificate:

BRC Certificate

4.Kosher Certificate:

35
 7. Fair Trade Certificate:

Fair Trade Certificate

9. Rainforest Alliance Certified:

36
 Rainforest Alliance Certified
Origin growth and development of Continental Coffee Limited:
CCL Products (India) Limited, a global coffee manufacturer, was founded in 1994 with a
simple vision – to make the finest quality coffee for people across the world. We do it by seamlessly
integrating the latest innovation and technology with keen domain knowledge and expertise and are
now the preferred choice among stakeholders and clients in over 80 countries
Today, this vision has steadily steered us into an Export Oriented Unit (EOU) with the right
to import green coffee from any part of the world and export processed coffee across the globe,
devoid of any duties. Our first manufacturing plant at Andhra Pradesh now produces all varieties of
soluble coffee products and we have grown in two decades to have two more operational plants in
Switzerland and Vietnam with a current combined annual capacity of over 35,000 MT per year.
We owe our rapid growth to our singular dedication to quality and investment in top of the
line technology and infrastructure. The standard sampling and testing procedures notwithstanding,
our quality control laboratories ensure that our clients and customers receive nothing but the finest.
We employ Soluble Coffee technology adapted from various parts of the world, at our manufacturing
plants, which enables us to integrate pioneering technology from several world-renowned experts.
From the handpicked individual coffee bean to the process of manufacturing- we are constantly
innovating. After all, regularly outdoing the latest industry standards has marked every step of our
journey.

37
 THEORITICAL FRAME WORK
Financial analysis is the process of identifying the financial strength and weakness is the firm
by establishing relationship between the items of balance sheet and profit and loss account. This
analysis can be taken over by the management or any other parties who are interesting. The nature
of analysis will differ depending up on the person and purpose.
Meaning of Ratio:
Generally speaking, a ratio is simply. One figure expressed in terms of another and this it is an
assessment of one number in relation to the other to be more precise, this relationship must be
established on the basis of some scientific and logical methods. Thus a ratio is a mathematical
relationship between two items expressed in quantitative form when this definition of ratio is
explained with reference to the items shown in financial statements than it is called accounting ratio”
Hence an accounting ratio is defined as quantitative relationship between two or more items of the
financial statements.
Definition of Ratio:
Many authors define ratios. Some of the definitions are given below.
“Ratio indicates a quantitative relationship”- I .M. Pandey A ratio is defined as a quantitative
relationship between two or more items of the financial statements connected with each other.
Meaning of accounting Ratio:
An accounting ratio is the arithmetical expression of the relationship between two accounting figures
through the normal accounting process.
Expression of accounting Ratios:
An accounting ratio can be expressed in three ways they are.
a) In Proportion :
In this form, the relationship between two items is expressed in such a way that proportionate
relationship become obvious. In other words the amounts of the two items are being expressed in a
common denominator the example of this form of expression is the relationship between current
assets and current liabilities.
In Percentage:
In this form, the relationship between the two items is expressed in percentage. In other words, a
quotient obtained by dividing one item by another is multiplied by one hundred and it becomes. The
‘Percentage’ from of expression.
Eg:- The relationship between gross profit and sales may be expressed as 25%.
An analysis of financial statements with the help of ‘Ratio’ may be termed as “Ratio Analysis” In
other words/ratio-analysis implies the process of computing, determining and presenting the

38
relationship of items and groups of items of financial statements. It also involves the comparison
and interpretation of these ratios and the uses of them for future projections
TYPES OF FINANCIAL RATIOS: -
In the previous articles we discussed how to invest in the stock market and unit trusts. When
investing in the stock market an investor should have a clear understanding about the company that
he is investing in. Financial ratios will help an investor to get a sufficient understanding of the
company’s financial status.
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas. Financial ratios are categorized
according to the financial aspect of the business which the ratio measures. Financial ratios allow for
comparisons
between companies
between industries
between different time periods for one company
between a single company and its industry average
Ratios generally hold no meaning unless they are benchmarked against something else, like
past performance or another company. Thus, the ratios of firms in different industries, which face
different risks, capital requirements, and competition are usually hard to compare.
In the analysis of financial statements it is better to have a complete understanding of the
different types of ratios, their calculation, and interpretation. Financial ratios can be classified into
five types as follows.
1.Liquidity ratios
2.Asset Management ratios
3.Leverage ratios
4.Profitability ratios
5.Valuation ratios
Liquidity ratios
Liquidity ratios asses the firm`s ability to meet its short- term obligations using short-term
assets. The short-term obligations are the ones recorded under current liabilities that come due
within one financial year. Short-term assets are the current assets. There are three (03) important
liquidity ratios.
1. Current Ratio
The current ratio (CR) is equal to total current assets divided by total current liabilities. This
indicates the extant to which current liabilities can be paid off through current assets.
Current Ratio = current asset/ current liabilities

39
2. Quick asset Ratio
One Key problem with the current ratio is that it assumes that all current assets can be
converted in to cash in order to meet short-term obligations. We know this assumption is
Highly untrue. Firms carry current assets, such as inventory and pre-paid expenses which
cannot be converted into cash quickly. To correct this problem, the quick asset ratio (QAR) removes
from current assets less liquid current assets, such as inventory and pre-paid expenses, which cannot
be converted into cash quickly. The quick ratio, also called the acid test ratio, is equal to liquid
current assets, divided by current liabilities. It indicates the extent to which current liabilities can be
paid off through liquid current assets such as cash, marketable securities, and accounts receivables.
Quick asset Ratio = current assets – inventory / current liabilities
3. Cash Ratio
The cash ratio goes a step further and examines the ability of the firm to settle short-term liabilities
using only cash and cash equivalents such as marketable securities. In other words, the cash ratio
indicates the extent to which current liabilities can be paid through very liquid assets.
Cash Ratio = Cash +Marketable Securities/ Current Liabilities
Asset Management Ratios
Asset management ratios also known as efficiency ratios indicate the efficiency of the use of
assets in generating sales. There are five (05) more important efficiency ratios: average collection
period, inventory turnover, cash conversion cycle, fixed assets turnover and total assets turnover.
1. Average Collection Period
The average collection period (ACP), also known as days sales outstanding (DSO), indicates
the average length of time the firm must wait after making a credit sale before it collects cash. In
other words, it shows the average number of days accounts receivables remain outstanding. The
ACP is calculated as follows:
Average Collection Period = Receivables / Annual credit Sales/365
This is an important ratio used to evaluate the credit policy of the firm in relation to the
industry norms. A higher ACP indicates a liberal policy in that the firm gives more times to debtors
for making payments. A lower ACP indicates astringent policy in that the firm gives less time for
debtors.

40
2. Inventory / Stock Turnover
The inventory turnover indicates whether inventory levels are reasonable in relation to cost
of goods sold. Inventory Turnover ratio is calculated as follows:
Inventory / Stock Turnover = Cost of Goods sold/ Average Inventory
Lower inventory turnover ratio relative to the industry standard may indicate excessive, obsolete,
or slow moving inventory, while higher turnover may indicate inadequate inventory and perhaps
possibility of inventory shortages.
3. Cash Conversion Cycle
The cash conversion cycle shows the average number of days the cash is tied up in inventory
and receivables. Typically, a firm buys inventory, and cash is tied up in inventory for a number of
days before they are sold and converted in to receivables. Thus beyond the initial period in which
cash is tied up in inventory, there is an additional time period where cash is tied up in receivables.
However, firms are also able to obtain inventory on a credit basis, to that extent, the firm does not
tie up its own funds in building inventory. Hence, the total number of days cash is tied up in
inventory and receivables can be determined as follows.
Inventory processing Days

+ Average Collection Period

Cash Conversion Cycle =
- Payables Payment Period

4. Fixed asset Turnover

The fixed asset turnover ratio measures the efficiency of the use of fixed assets in generating
sales. It is computed as sales divided by average net fixed assets, where the average net fixed assets
is equal to the simple average of beginning and ending balance sheet values of net fixed assets. Net
fixed assets are gross fixed assets less accumulated depreciation.
Fixed Asset Turnover = Sales / Average Net Fixed Assets

A lower fixed asset turnover relative to the excessive fixed assets. A higher turnover depreciated
fixed assets industry may indicate that the firm carries may indicate inadequate, low, outdated or
5. Total Asset Turnover
Total asset turnover ratio measures the efficiency of the use of total assets in generating sales.
Total assets are sum of current and net fixed assets. The total asset turnover is calculated as sales
divided by average total assets. The average total assets are the simple average of total assets at the
beginning and end of the period.
Total Asset Turnover = Sales/ Average Total Assets
41
Leverage Ratios
The leverage ratios, also called debt management ratios, measure two key aspects of the use
of debt financing by the firm. The use of debt financing a called financial leverage. We want to know
the level of financial leverage used by the business as well as the ability of the firm to service its
debt obligations. The debt ratio, debt-equity ratio and interest cover is discussed below.
1. Debt Ratio
The debt ratio indicates the proportion of assets financed through both short-term and long-
term debt. This ratio is computed as total debt, which is the sum of short-term and long-termdebt, as
a percentage of total assets. A higher ration indicates higher leverage. A higher ration also means
lower debt capacity in that the ability for the firm to raise funds through more debt is lower due to
already high debt levels.
Debt Ratio = Total Debt/ Total Assets
2. Debt – Equity Ratio
The debt to equity ratio (D/E) is also widely used as an indication of the level of financial
leverage. While there are several ways of computing this ratio, the most useful version is to express
long term debt as percent of total equity. Thus it focuses only on the long-termfinancing, both debt
and equity, and it is meaningful when we want to examine the long-termleverage. Total equity
includes both preferred equity and common equity. A higher debt equity ratio indicates greater
leverage and potentially higher financial risk.
Debt – Equity Ratio = Long Term Debt/ Total Equity
3. Interest Cover
The interest converge ratio, also known as the times-interest earned ( TIE), measures the
ability of firm`s current operating earnings (EBIT) to meet current interest obligations. It is the ratio
of EBIT to interest charge. The ratio shows number of times the interest payment are covered by the
firm`s operating earnings. The larger the coverage the better their ability of the firm to service
interest obligations on debt.
EBIT
Interest Coverage =
Interest Charge

Sales
Net Income
Profitability Ratios

42
 The profitability ratios, also known as performance ratios, assesses the firm`s ability to earn
profits on sales, assets and equity. These are critical to determining the attractiveness of investing in
company shares, and investors use these ratios widely. We will examine five important profitability
ratios, namely, gross profit margin, operating profit margin, net profit margin, return on assets, and
return on equity.
1. Gross Profit Margin
The gross profit margin (GPM) shows the firm`s profit margin after deducting costs of goods
sold but before deducting operating expenses, interest expenses, and taxes. This ratio is also known
as gross profit ratio.
Gross Profit Margin = Sales – Cost of Goods Sold/ Sales
This is the first level of profitability. The GPM depends primarily on the firm`s product
pricing and cost control. The price of the product impacts sales. Production cost such as material,
labour, and overhead or the cost of purchases affect the cost of goods sold. A firm with a better
ability to price products in line with inflation of cost of production and the ability to control
production costs or suppliers will be able to maintain or increase gross margins.
2. Operating Profit margin
The operating profit margin (OPM) shows the firm`s profit margin after deducting cost of
goods sold and operating expenses but before interest expenses and taxes. The operating profit is the
earnings before interest and taxes or EBIT as a percent of ales.
Operating Profit margin = EBIT/ Sales
The OPM reflects the true profitability of firm`s business in that it is calculated before
deducting interest costs, which are a result from firm`s financing decision, and taxes, which are
outside the control of the firm. In other words, regardless of the way the firm is financed, whether
through debt or equity, and regardless of the taxes imposed by the government, the firm is able to
earn this margin.
3. Net Profit Margin
This is the bottom line profitability, which most analysts and investors pay attention to on a
regular basis. The net profit margin (NPM) shows the firm`s profit margin after all the costs and
expenses. It is the profit available for distribution to common shareholders a percentage of sales.
Net Profit margin = net income / sales
Obviously, the lower operating profit margin is one reason for the lower NPM. It is also
possible that, since the firm is more debt-financed than an average firm, it has more interest expenses
as well. Since taxes are fixed, the key difference between the OPM and NPM is interest costs, which
are linked to the firm`s financing decision.
4. Return on assets

43
 The return on assets (ROA) measures the return earned on total assets employed in the
business. Sometimes, this is also referred to as the return on total capital. Since total assets are
financed through both debt and equity, is important that the return measure used for this calculation
reflects income to both shareholders and debt holders. We define the return as the net income
available for distribution to shareholders plus the interest expenses paid to debt holders. This return
is divided by the average total assets, which represents the simple average of the total assets at the
beginning and ending balance sheets.
Net Income + Interest
Return on assets = Expenses

Average total assets

5. Return on Equity
The return on equity (ROE) measures the return earned on the capital provided by the
common stockholders (Equity holders). It is the net income as a percent of the average common
equity, where the averge common equity is the simple average of the common equity at the
beginning and ending balance sheets. The net income is the income available for distribution to
ordinary shareholders after deducting any preferred dividends.
ROE = Net Income/ Average Common Equity
Valuation Ratios
The valuation ratios indicate the market valuation of a stock in terms of some measure of
company fundamentals such as earnings, book value, cash flows, and dividends. These are the ratios
that investors tend to look at on a daily basis. These ratios change whenever the price of the stock
changes. We will discuss the price/earnings ratios, the price/book value ratio, the price/cash flow
ratio, and dividend yield.
1. Price / Earnings ratio (P/E)
This is the most widely used valuation ratio. It indicates the market price of a share in terms
of earnings. It is the rupee amount an investor has to pay for each rupee of earnings made by the
firm for the ordinary shareholder.
The earnings per share (EPS) is calculated as the net income available for ordinary
shareholders divided by the number of issued shares.
P/E = marketing price per share / earning per share
2. Price / Book Value Ratio (P/BV)
EPS = net income / number of shares

44
 Price / Book Value is also a regularly reported and watched valuation ratio. It indicates the
market price of a share in terms of the book value of equity. It is the rupee amount an investor has
to pay for each rupee of book value.
P/BV = Market Price per Share/ Book Value per Shares
The book value per share is calculated as the equity divided by the number of ordinary shares
outstanding.
BV = Equity/ Number of Shares
3. Price / Cash Flow Ratio
The price/cash flow indicates the price of a share in terms of the cash flow per share. It shows
the rupee amount an investor has to pay for each rupee of cash flow generated.
P/CF = Market Price per Share/ Cash Flow per Share
Although not widely reported, this is in fact a more useful ratio than the P/E and P/BV ratios
discussed earlier. This is because the price of a share must be related to the actual cash flows
generated by the firm to its shareholders. There are a number of different definitions of cash flow,
and the one we use here is the most basic definition of cash flow. The cash flow is the net income
available for ordinary shareholders adjusted for non-cash income and expenses included in the
income statement. Since most common non-cash item in the income statement is depreciation of
physical assets and amortization of intangible assets, the cash flow is calculated by adding these two
items to the net income.
Total cash flow = Net income + Depreciation & Amortization
CF = Total Cash Flow/ Number of Shares
4. Dividend Yield (DY)
The dividend yield indicates the dividend income as a percentage of the investment. It is
calculated as the common dividend per share dividend by the market price per share.
DY = dividend per share / market per shares
This is a particularly an important valuation measure for investors seeking regular income.
Investor who depend on income from their investments include retired persons and well as pension
and mutual funds, which invest with the primary objective of maximizing the income return. These
investors like to see a higher dividend yield. Typically, higher dividend yields are associated with
more stable and mature companies such as utilities. Growth –oriented companies tend to pay lower
dividends such as at a higher multiple, and as a result, produce lower dividend yields.
The dividend per share (DPS) is the total dividends to ordinary shareholders during a specific
period divided by the number of ordinary shares outstanding.
DPS = Total ordinary dividend / number of shares

45
DEFINITION OF 'RATIO ANALYSIS': -
Quantitative analysis of information contained in a company’s financial statements. Ratio
analysis is based on line items in financial statements like the balance sheet, income statement and
cash flow statement; the ratios of one item – or a combination of items - to another item or
combination are then calculated. Ratio analysis is used to evaluate various aspects of a company’s
operating and financial performance such as its efficiency, liquidity, profitability and solvency. The
trend of these ratios over time is studied to check whether they are improving or deteriorating. Ratios
are also compared across different companies in the same sector to see how they stack up, and to get
an idea of comparative valuations. Ratio analysis is a cornerstone of fundamental analysis. While
there are numerous financial ratios, most investors are familiar with a few key ratios, particularly
the ones that are relatively easy to calculate. Some of these ratios include the current ratio, return on
equity, the debt-equity ratio, the dividend payout ratio and the price/earnings (P/E) ratio.
For a specific ratio, most companies have values that fall within a certain range. A company
whose ratio falls outside the range may be regarded as grossly undervalued or overvalued, depending
on the ratio.
For example, if the average P/E ratio of all companies in the S&P 500 index is 20, with the
majority of companies having a P/E between 15 and 25, a stock with a single-digit P/E would be
considered undervalued, while one with a P/E of 50 would be considered overvalued. Of course, this
ratio would typically only be considered as a starting point, with further analysis required to identify
if these stocks are really as undervalued or overvalued as the P/E ratios suggest.
As well, ratios are usually only comparable across companies in the same sector, since an
acceptable ratio in one industry may be regarded as too high in another. For example, companies in
sectors such as utilities typically have a high debt-equity ratio, but a similar ratio for a technology
company may be regarded as unsustainably high.
Ratio analysis can provide an early warning of a potential improvement or deterioration in a
company’s financial situation or performance. Analysts engage in extensive number-crunching of
the financial data in a company’s quarterly financial reports for any such hints.
Successful companies generally have solid ratios in all areas, and any hints of weakness in
one area may spark a significant sell-off in the stock. Certain ratios are closely scrutinized because
of their relevance to a certain sector, as for instance inventory turnover for the retail sector and days
sales outstanding (DSOs) for technology companies.
OBJECTIVES OF RATIO ANALYSIS
A number of objectives may be fulfilled by ratio- analysis various parties interested in the analysis
of financial statements are naturally interested in ratio analysis because it is nothing but a tool for

46
interpretation of financial statements. As such ratio-analysis serves the purpose of all those persons
to a varying extent.
ANALYST NATURE OF ANALYST
1. Trade creditors Liquidity position.
2. Suppliers of long term debt Future solvency and profitability.
3. Investors Study growth in earnings.
4. Management Every activity of the firm.
Trade Creditor: Trade Creditor are interested to know the firms ability over very short period of
time their analysis finally gives the firms liquidity position
Investors
Who have invested their money in the firms and interested in the earnings. They are also interested
to know the financial of the firm and ability of earnings.
Management
Management would be interested in every aspect of the financial analysis to know weather the
resources are used properly and that the firm’s financial condition is sound.
Nature of Ratio Analysis: -
It is an powerful tool of financial analysis. A ratio can be defined as the indicated quotient of two
mathematical expressional and as the relationship between two are more items the relationship
between two accounting figures expressed mathematically are known as ratio. This help to judge the
financial performance.
Eg: - It is calculated by dividing current Assets/Current Liabilities indicated a relationship it means
the firm liquidity the greater the ratio the greater the firms liquidity and Vice – Versa.
Standard of Comparison: -
The Ratio analysis involves comparison for a useful interpretation of the financial statements.
A single ratio in itself does not indicate favourable or unfavourable conditions it consists of.
Past Ratio: - It is calculate from the past financial statement of the same firm.
Project Ratio: - Ratios developed using the projected financial statements of the same firm.
Competitors Ratio: -
Ratios was some selected firms especially the most progressive and successful competitors.
Industry Ratios: -
Ratios of industry to which the firm belongs.
Time Series Analysis: -
The easiest way to evaluate the performance of a firm is to compare the current ratio with
past ratios. When financial ratio over a period of time are compared is to know as time series or

47
 trend analysis. We should not determine the change but we have to understand the ratios have
changed.
Performa Analysis: -
Some times future ratio are used as the standard of comparison future ratio can be made by
projected value of financial statements the comparison of the future ratios with current or past ratios
shows the firms strength and weakness of the past and future.
It the future ratio indicted weak financial position effective action should be taken.
Cross Sectional Analysis: -
Comparing the ratio of one firm with some selected firms in the same industry at the same
point of time. This kind of comparison is known as cross sectional analysis this kind of comparison
indicates the relative financial position and performance of the firm. A firm can easily compare, as
it is not difficult to get the relevant financial statement of the similar firm.
Industry Analysis: -
To determine the financial condition and performance of the firm its ratios may be compared
with average ratio of the industry which the firm is a member. This sort of analysis is known as the
industry analysis. It helps in finding the financial capability of the firm in the industry. But there are
certain difficulties in using the industry ratios.
1. It is difficult to get the average ratio for the industry.
2. Even if the averages are available of both the strong and weak firm the difference may be so wide
that the average may be of little utility.
3. Average will be meaningless when the same industry widely differs in their accounting policies and
practice.
Classification of financial ratios on the basis of function:
On the basis of function or test, the ratios are classified as liquidity ratios, profitability
ratios, activity ratios and solvency ratios.
Liquidity Ratios:
Liquidity ratios measure the adequacy of current and liquid assets and help evaluate the
ability of the business to pay its short-term debts. The ability of a business to pay its short-term
debts is frequently referred to as short-term solvency position or liquidity position of the business.
Generally a business with sufficient current and liquid assets to pay its current liabilities as and
when they become due is considered to have a strong liquidity position and a businesses with
insufficient current and liquid assets is considered to have weak liquidity position.
Short-term creditors like suppliers of goods and commercial banks use liquidity ratios to know
whether the business has adequate current and liquid assets to meet its current obligations.

48
Financial institutions hesitate to offer short-term loans to businesses with weak short-term
solvency position.
Four commonly used liquidity ratios are given below:
1. Current ratio or working capital ratio
2. Quick ratio or acid test ratio
3. Absolute liquid ratio
4. Current cash debt coverage ratio

Unfortunately, liquidity ratios are not true measure of liquidity because they tell about the
quantity but nothing about the quality of the current assets and, therefore, should be used carefully.
For a useful analysis of liquidity, these ratios are used in conjunction with activity ratios (also known
as current assets movement ratios). Examples of activity ratios are receivables turnover
ratio, accounts payable turnover ratio and inventory turnover ratio etc.
Profitability ratios:
Profit is the primary objective of all businesses. All businesses need a consistent
improvement in profit to survive and prosper. A business that continually suffers losses cannot
survive for a long period.

Profitability ratios measure the efficiency of management in the employment of business

resources to earn profits. These ratios indicate the success or failure of a business enterprise for a
particular period of time.
Profitability ratios are used by almost all the parties connected with the business. A strong
profitability position ensures common stockholders a higher dividend income and appreciation in
the value of the common stock in future.

Creditors, financial institutions and preferred stockholders expect a prompt payment of

interest and fixed dividend income if the business has good profitability position.
Management needs higher profits to pay dividends and reinvest a portion in the business to
increase the production capacity and strengthen the overall financial position of the company.

Some important profitability ratios are given below:

1. Net profit (NP) ratio
2. Gross profit (GP) ratio
3. Price earnings ratio (P/E ratio)
4. Operating ratio

49
 5. Expense ratio
6. Dividend yield ratio
7. Dividend payout ratio
8. Return on capital employed ratio
9. Earnings per share (EPS) ratio
10. Return on shareholder’s investment/Return on equity
11. Return on common stockholders’ equity ratio
Activity ratios:
Activity ratios (also known as turnover ratios) measure the efficiency of a firm or company
in generating revenues by converting its production into cash or sales. Generally a fast conversion
increases revenues and profits.

Activity ratios show how frequently the assets are converted into cash or sales and, therefore,
are frequently used in conjunction with liquidity ratios for a deep analysis of liquidity.

Some important activity ratios are:

1. Inventory turnover ratio
2. Receivables turnover ratio
3. Average collection period
4. Accounts payable turnover ratio
5. Average payment period
6. Asset turnover ratio
7. Working capital turnover ratio
8. Fixed assets turnover ratio
All ratio analysis formulas:
Financial statement analysis is a judgmental process. One of the primary objectives is
identification of major changes in trends, and relationships and the investigation of the reasons
underlying those changes. The judgment process can be improved by experience and the use of
analytical tools. Probably the most widely used financial analysis technique is ratio analysis, the
analysis of relationships between two or more line items on the financial statement. Financial
ratios are usually expressed in percentage or times. Generally, financial ratios are calculated for the
purpose of evaluating aspects of a company's operations and fall into the following categories:
 liquidity ratios measure a firm's ability to meet its current obligations.
 profitability ratios measure management's ability to control expenses and to earn a return on the
resources committed to the business.

50
 leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in
judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time.
 efficiency, activity or turnover ratios provide information about management's ability to control
expenses and to earn a return on the resources committed to the business.
A ratio can be computed from any pair of numbers. Given the large quantity of variables included
in financial statements, a very long list of meaningful ratios can be derived. A standard list of
ratios or standard computation of them does not exist. The following ratio presentation includes
ratios that are most often used when evaluating the credit worthiness of a customer. Ratio analysis
becomes a very personal or company driven procedure. Analysts are drawn to and use the ones
they are comfortable with and understand.
Liquidity Ratios
Working Capital
Working capital compares current assets to current liabilities, and serves as the liquid reserve
available to satisfy contingencies and uncertainties. A high working capital balance is mandated if
the entity is unable to borrow on short notice. The ratio indicates the short-term solvency of a
business and in determining if a firm can pay its current liabilities when due.
Formula
Current Assets
- Current Liabilities
Acid Test or Quick Ratio
A measurement of the liquidity position of the business. The quick ratio compares the cash plus
cash equivalents and accounts receivable to the current liabilities. The primary difference between
the current ratio and the quick ratio is the quick ratio does not include inventory and prepaid
expenses in the calculation. Consequently, a business's quick ratio will be lower than its current
ratio. It is a stringent test of liquidity.
Formula
Cash + Marketable Securities + Accounts Receivable
Current Liabilities
Current Ratio
Provides an indication of the liquidity of the business by comparing the amount of current assets to
current liabilities. A business's current assets generally consist of cash, marketable securities,
accounts receivable, and inventories. Current liabilities include accounts payable, current
maturities of long-term debt, accrued income taxes, and other accrued expenses that are due within
one year. In general, businesses prefer to have at least one dollar of current assets for every dollar
of current liabilities. However, the normal current ratio fluctuates from industry to industry. A

51
current ratio significantly higher than the industry average could indicate the existence of
redundant assets. Conversely, a current ratio significantly lower than the industry average could
indicate a lack of liquidity.
Formula
Current Assets
Current Liabilities
Cash Ratio
Indicates a conservative view of liquidity such as when a company has pledged its receivables and
its inventory, or the analyst suspects severe liquidity problems with inventory and receivables.
Formula
Cash Equivalents + Marketable Securities
Current Liabilities
Profitability Ratios
Net Profit Margin (Return on Sales)
A measure of net income dollars generated by each dollar of sales.
Formula
Net Income *
Net Sales
* Refinements to the net income figure can make it more accurate than this ratio computation.
They could include removal of equity earnings from investments, "other income" and "other
expense" items as well as minority share of earnings and nonrecuring items.
Return on Assets
Measures the company's ability to utilize its assets to create profits.
Formula
Net Income *
(Beginning + Ending Total Assets) / 2
Operating Income Margin
A measure of the operating income generated by each dollar of sales.
Formula
Operating Income
Net Sales
Return on Investment
Measures the income earned on the invested capital.
Formula

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 Net Income *
Long-term Liabilities + Equity
Return on Equity
Measures the income earned on the shareholder's investment in the business.
Formula
Net Income *
Equity
Du Pont Return on Assets
A combination of financial ratios in a series to evaluate investment return. The benefit of the
method is that it provides an understanding of how the company generates its return.
Formula
Net Income * Sales Assets
x x
Sales Assets Equity
Gross Profit Margin
Indicates the relationship between net sales revenue and the cost of goods sold. This ratio should
be compared with industry data as it may indicate insufficient volume and excessive purchasing or
labor costs.
Formula
Gross Profit
Net Sales
Financial Leverage Ratio
Total Debts to Assets
Provides information about the company's ability to absorb asset reductions arising from losses
without jeopardizing the interest of creditors.
Formula
Total Liabilities
Total Assets
Capitalization Ratio
Indicates long-term debt usage.
Formula
Long-Term Debt
Long-Term Debt + Owners' Equity
Debt to Equity
Indicates how well creditors are protected in case of the company's insolvency.
Formula

53
 Total Debt
Total Equity
Interest Coverage Ratio (Times Interest Earned)
Indicates a company's capacity to meet interest payments. Uses EBIT (Earnings Before Interest
and Taxes)
Formula
EBIT
Interest Expense
Long-term Debt to Net Working Capital
Provides insight into the ability to pay long term debt from current assets after paying current
liabilities.
Formula
Long-term Debt
Current Assets - Current Liabilities
Efficiency Ratios
Cash Turnover
Measures how effective a company is utilizing its cash.
Formula
Net Sales
Cash
Sales to Working Capital (Net Working Capital Turnover)
Indicates the turnover in working capital per year. A low ratio indicates inefficiency, while a high
level implies that the company's working capital is working too hard.
Formula
Net Sales
Average Working Capital
Total Asset Turnover
Measures the activity of the assets and the ability of the business to generate sales through the use
of the assets.
Formula
Net Sales
Average Total Assets
Fixed Asset Turnover
Measures the capacity utilization and the quality of fixed assets.
Formula

54
 Net Sales
Net Fixed Assets
Days' Sales in Receivables
Indicates the average time in days, that receivables are outstanding (DSO). It helps determine if a
change in receivables is due to a change in sales, or to another factor such as a change in selling
terms. An analyst might compare the days' sales in receivables with the company's credit terms as
an indication of how efficiently the company manages its receivables.
Formula
Gross Receivables
Annual Net Sales / 365
Accounts Receivable Turnover
Indicates the liquidity of the company's receivables.
Formula
Net Sales
Average Gross Receivables
Accounts Receivable Turnover in Days
Indicates the liquidity of the company's receivables in days.
Formula
Average Gross Receivables
Annual Net Sales / 365
Days' Sales in Inventory
Indicates the length of time that it will take to use up the inventory through sales.
Formula
Ending Inventory
Cost of Goods Sold / 365
Inventory Turnover
Indicates the liquidity of the inventory.
Formula
Cost of Goods Sold
Average Inventory
Inventory Turnover in Days
Indicates the liquidity of the inventory in days.
Formula
Average Inventory
Cost of Goods Sold / 365

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Operating Cycle
Indicates the time between the acquisition of inventory and the realization of cash from sales of
inventory. For most companies the operating cycle is less than one year, but in some industries it is
longer.
Formula
Accounts Receivable Turnover in Days
+ Inventory Turnover in Day
Days' Payables Outstanding
Indicates how the firm handles obligations of its suppliers.
Formula
Ending Accounts Payable
Purchases / 365
Payables Turnover
Indicates the liquidity of the firm's payables.
Formula
Purchases
Average Accounts Payable
Payables Turnover in Days
Indicates the liquidity of the firm's payables in days.
Formula
Average Accounts Payable
Purchases / 365

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 LIQUIDITY RATIOS

A) Current Ratios

Current Ratio = Current Assets/Current liabilities.

Year Current Ratio

2018-19 0.83
2017-18 0.97
2016-17 0.69
2015-16 0.63
2014-15 0.65

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

The current ratio is varying from 0.65 to 0.83 while to standard norm is 2:1. This shows that ccl is
not maintaining proper liquid assets to meet its current obligations. Sundry creditors are more
compared to sundry debtors, which shows that the firm is making more credit purchase on the whole
liquidity position is not altogether dissatisfactory.

57
b) Quick ratio

Current assets- inventories

Quick ratio = ------------------------

Current liabilities

Year Quick Ratio

2018-19 1.35
2017-18 1.25
2016-17 2.26
2015-16 2.24
2014-15 2.67

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

This Ratio gives a clear picture of actual liquidity position. The standard norm is 1:1 . The
quick ratio is varying between 2.67 to 1.35. This implies that the firm is maintaining average
below the norm.

58
TURNOVER RATIOS

Working capital turnover Ratio

Working capital
Year turnover Ratio
2018-19 110.89
2017-18 98.3
2016-17 148.52
2015-16 122.78
2014-15 112.81

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

The above table explains the working capital turnover ratio. The working capital ratio is very
lower with 98.3 in 2017-2018, the higher of 148.52 in 2016-2017. The working capital ratio is
fluctuating during the period. The working capital ratio is not satisfactory.

59
Inventory turnover ratio

Inventory turnover
Year ratio
2018-19 4.21
2017-18 4.31
2016-17 4.8
2015-16 5.38
2014-15 6.81

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation :

For the inventory turnover is varied from. 1.05 to 1.61.This ratio gives a clear idea about how
efficiently sales are generated by proper utilization of inventories. The holding period of inventories
11 months i.e., 330 days.

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Fixed assets turnover ratios

Fixed assets turnover

Year ratios
2018-19 1.4
2017-18 1.38
2016-17 1.01
2015-16 1.52
2014-15 1.63

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

The table reveals the net fixed assets turnover ratio . The ratio varies between 1.01 to 1.63. This ratio
gives a clear picture about how efficiently sales are generated by proper utilization of fixed assets.

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Debtor’s turnover ratio and collection period

Debtors turnover ratio and

Year collection period
2018-19 8.26
2017-18 8.33
2016-17 5.96
2015-16 5.81
2014-15 6.43

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

For the debtor’s turnover ratio shows an improving trend. It has increased from 5.81 to 8.33
times indicating efficient receivable management. The collection period decreased from 30 to 11
days, which is a good sigh. The firm’s collection policy is good and therefore should be continued.

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PROFITABILITY RATIO

Gross Profit ratio

Year Gross Profit ratio

2018-19 14.6
2017-18 13.27
2016-17 12.67
2015-16 10.78
2014-15 8.05

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

Analysis of previous 5 years data .The gross profit ratio is fluctuating during the study period.
The gross profit ratio is lower of 8.05 in 2015-16, higher ratio of 14.6 in 2018-19. The gross profit
ratio is not satisfactory.

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Net Profit Ratio

Year Net Profit Ratio

2018-19 7.26
2017-18 7.18
2016-17 7.21
2015-16 6.36
2014-15 3.62

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

The above table explains the net profit ratio . The net profit ratio reveals the lower of 3.62 in
2014-15 and higher of 7.26 in 2018-19. The net profit ratio is fluctuating during the study period.
However the net profit ratio was not satisfactory in compared with sales.

64
Operating Ratio

Year Operating Ratio

2018-19 19
2017-18 17.28
2016-17 17.94
2015-16 14.05
2014-15 11.13

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation :

The above table explains the operating profit ratio. The operating profit ratio reveals the lower
of 11.13 in 2014-15. The highest of 19 in 2018-19. The fluctuation during the study period. The
operating profit ratio is not satisfactory.

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Return on investment

Year Return on investment

2018-19 17.03
2017-18 15.11
2016-17 12.18
2015-16 13.94
2014-15 9.67

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

Analysis of previous 5 years data reveals. The ROI is fluctuating during the study period. The
ROI is 17.03% in 2018-19. This is satisfactory in compare with the remaining study period.

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Return on Capital Employed

Year Return on Capital Employed

2018-19 18.07
2017-18 14.09
2016-17 10.25
2015-16 11.26
2014-15 9.64

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation :

The above table explains the return on capital employed ratio of CCL. The capital employed
ratio reveals is very lower of 9.64 in 2014-15. Higher ratio of 18.07 in 2018-19. The return on capital
employed is satisfactory.

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LEVERAGE RATIOS

Debt Equity Ratio

Year Debt Equity Ratio

2018-19 0.93
2017-18 1.04
2016-17 1.15
2015-16 1.18
2014-15 1.36

Debt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15

Interpretation:

The above graph shows the debt equity ratio during the study period the debt equity ratio
was very higher when compared to the standard norm 1:1 the debt equity ratio lower of 0.93 in the
year 2018-19 the higher is 1.36 the year 2014-15 .

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 FINDINGS

1. Current ratio of the CCL. Limited is at a lower level than the standard norm. The current ratio
over the period of study fluctuated between 0.581: 1 and 1.345:1. However, the trend is not
altogether dissatisfactory.
2. The quick ratio of the firm does not indicate sound situation though dissatisfactory. It varied
between 0.232 & 0.408, but the standard norm is 1:1. So, the company had better take measures
to increase the quick assets to maintain good liquidity position.
3. Cash is the most liquid asset in CCL. Limited. The cash is satisfactory. It is observed that the
cash is being managed efficiently at CCL. Limited.
4. Current assets turnover ratios are more or less satisfactory. The firm is maintaining good
collection policies, inventory turnover is also satisfactory. The firm has enough time to pay its
loans. This may be the reason for cash balance.
5. The trend of working capital turnover ratio is satisfactory.
6. The inventory turnover ratio does not show a satisfactory position. This should be carefully
observed and proper techniques should be applied for efficient management of inventory.
7. The net profit ratio of CCL is not satisfactory during study period. The ratio varies between
4.38 to 17.13 during the study period. It is advice to organization for taking necessary steps for
increasing net profit.
8. ROI of CCL is 50.39. It is just satisfactory when compare to remain years.
9. The debit equity of CCL is more than the standard norm (1:1) during the study period.
10. The proprietary ratio of CCL is very lower. That means the company is depending upon outsider
funds.
11. The solvency ratio also explains the sources of various funds for running of organization during
the year 2012-13 the solvency ratio is 87.07%. However, the solvency ratio varies between
38.52% to 87.07%.
12. The fixed assets net worth ratio of CCL. is satisfactory during study period. The ratio varies
between 3.28 to 6.95 during the study period. The fixed assets net worth ratio of CCL. is
satisfactory during study period.

13. The Debtors turnover ratio of CCL. is satisfactory during the study period. The ratio varies
between 12.78 to 32.39 during the study period. The collection period is increase 30 days. It is
advice to organization for taking necessary steps for increasing debtor’s turnover ratio.

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 SUGGESTIONS

 This project report contains a detailed analysis and interpretation of the CCL Financial statement
with the help of ratio analysis.
 This analysis helps to obtain a better understanding of the firm’s position and performance.
 In brief analysis is the process of selection, relation and evaluation.
 The CCL years financial statements were selected that is from 2014-2015 to 2018-2019. By
using different classification of ratios, the CCL was related different ratios to know the overall
performance of the company.
 This was represented in tabular from with the help of tabular forms as a proper and appropriate
evaluation of ratios is made possible and also each ratio is pointed out through a graphical
representation.

70
 BIBILOGRAPHY

Author Book Title Publisher

Vikas Publishing House
Im Pandey Financial Management PVT Ltd
1990 Edition
Tata MC Graw
Khan & Jain Financial Management
1998 Edition
Kitab Mahal
RP Rastogi Financial Management
2000 Edition
S. Chand
Prasanna Chandra Financial Management
2002 Edition

WEBSITES
cclproducts.com/about-us.html
cclproducts.com/board-of-directors.html
cclproducts.com/contact-us.html
www.continentalcoffee.com/

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BALANCE SHEET OF CCL PRODUCTS MAR MAR MAR MAR MAR
INDIA (in Rs. Cr.) '19 '18 '17 '16 '15

12 mths 12 12 12 12
mths mths mths mths

SOURCES OF FUNDS

Total Share Capital 26.61 26.61 26.61 26.61 26.61

Equity Share Capital 26.61 26.61 26.61 26.61 26.61

Reserves 622.44 568.05 510.95 420.10 378.18

NETWORTH 649.05 594.66 537.56 446.71 404.79

Secured Loans 361.10 308.36 98.45 114.47 93.31

Unsecured Loans 0.00 0.00 0.00 0.00 0.00

TOTAL DEBT 361.10 308.36 98.45 114.47 93.31

TOTAL LIABILITIES 1,010.15 903.02 636.01 561.18 498.10

Gross Block 253.68 233.40 225.51 351.28 300.91

Less: Accum. Depreciation 33.24 21.77 10.60 141.96 132.15

NET BLOCK 220.44 211.63 214.91 209.32 168.76

Capital Work in Progress 424.13 213.43 0.16 0.00 6.75

INVESTMENTS 158.58 157.89 153.92 150.96 150.96

Inventories 145.19 144.98 137.15 95.02 128.80

Sundry Debtors 148.91 124.98 104.47 91.74 89.98

Cash and Bank Balance 38.98 8.03 5.56 3.85 3.03

Total Current Assets 333.08 277.99 247.18 190.61 221.81

Loans and Advances 76.60 120.88 88.78 84.38 48.00

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Total CA, Loans & Advances 409.68 398.87 335.96 274.99 269.81

Current Liabilities 202.67 78.79 65.84 54.67 73.90

Provisions 0.00 0.00 3.09 19.42 24.29

Total CL & Provisions 202.67 78.79 68.93 74.09 98.19

NET CURRENT ASSETS 207.01 320.08 267.03 200.90 171.62

TOTAL ASSETS 1,010.16 903.03 636.02 561.18 498.09

Contingent Liabilities 77.10 93.42 154.68 321.54 159.20

Book Value (Rs) 48.79 44.70 40.41 33.58 30.43

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