Finacial Report of Mba Project

A STUDY ON FINANCIAL RATIO ANALYSIS OF AVTAR STEEL INDUSTRIES IN
CHENNAI
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EXECUTIVE SUMMARY
Healthy finance is the responsibility of the Company’s top Management. The study and analysis
of Segment analysis, cash flow statement, ratio analysis, budgeting and inventory control gives a
true and fair view of the sound financial stability of the company to the investors, shareholders,
Bankers and creditors.
For growth and survival of Company’s business market technology, environmental turbulence
and in the dynamic and rapid changing competitive pressures in the local market place a sound
financial health of every organization is highly essential. Finance is the life blood of every
business. To have a high degree of potential excellence carrier in the market and to carry out
each future plan and action among all rival corporations, healthy finance is required in all its
facets to assess and reevaluate its goals and objectives.
The project work is based on the study undertaken by me at Avtar Steel Industries, Chennai. The
project work is divided into various sections and each section deals with different aspects of
financial health analysis like profitability, earning per share, dividend, foreign exchange earnings
and repayment capacity.
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CHAPTER I
INTRODUCTION& DESIGN OF THE STUDY
1.1 INTRODUCTION
Ratio analysis is one of the tools valuable for the analysis of financial statement. It was first
suggested to be used in 1919 by a German scholar, named Alexandra Wall. It is the most widely
used method for the analysis of financial statements. No doubt contains the items relating to the
P/L and the financial position of the concern will not be much of use, if they are considered
independently. They will be very useful only when one item is considered in the light of another
item.
Meaning
It is one of the tools in hands of those who want to know something more about the financial and
it is the technique of calculating no. of accounting ratios from the data or figures found in the
financial statements, comparing the computed accounting ratios and interpreting the comparison.
It is the process of determining and presenting in arithmetical terms. The relationship between
figure and group of figures drawn from the financial statements
Method of Expressions of Ratio
As a ratio or in terms of a no of times a particular item has turned over in relation to another item
over a period.
Example: Stock turnover ratio is eight times a year.
As a Pure Ratio or Proportion between Two Figures
The simple division of one figure by another relevant figure arrives at it.
Example: Current ratio is 2:1
As A Percentage
It is a special type of rate expressing the relationship in hundred
Example: Gross profit ratio is 30%
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Steps involved in ratio analysis.
 Re-structuring, classification grouping, or re-arrangement of the data found in the

financial statements in a form suitable for analysis.
 Calculation of the required ratios from the restructured or classified data
 Comparison of the computed ratios with the standard established.
 Interpretation of the comparison drawing of Interpretation and report writing
 Conclusions are drawn after comparison.
Significance of Ratio Analysis
 It is a way by which financial stability and wealth of a concern can be adjusted. It is

useful is following aspects.
 It simplifies the understanding of financial statements.
 It is helpful to the management for decision making, formulation of policies and
performance appraisal
 It provides the necessary data for inter-firm comparison.
 It is very helpful in establishing standard costing system and budgetary control.
 It helps the management in having effective control over the various operations of the
enterprise.
 By comparing the actual ratios with standard ratios, the management can determine the
deviations and the corrective action to control the deviations.
 It also facilitates intra -firm comparison.
 It serves as an effective means of communication. It informs the profitability, operating
efficiency financial position of the concern to the various parties.
 It is valuable aid to the management in the efficient discharge of its basic functions of
forecasting and planning.
 It establishes the inter-relationship between various financial figures and helps in the
analysis of financial statement.
 It is instrument for diagnosing the financial health of a business. It tells the whole story of
the changes in the financial position of the business.
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Ratio Analysis is useful in the following ways:
 Short term and long term Planning.

 Measurement and evaluation of financial performance.
 Study of financial trends.
 Decisions making for investments and operations.
 Diagnosis of financial skills.
To be done to well understand the performance of various operations identifies the shortcoming
in management and to suggest for improvement in those areas.
Ratio Analysis
According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio is an expression of

the quantitative relationship between two numbers”.
According to Batty J. Management Accounting “Ratio can assist management in its basic
functions of forecasting, planning coordination, control and communication”
It is helpful to know about the liquidity, solvency, capital structure and profitability of an
organization. It is helpful tool to aid in applying judgement, otherwise complex situations.
Ratio analysis can represent following three methods. Ratio may be expressed in the following
three ways:
1. Pure Ratio or Simple Ratio:- It is expressed by the simple division of one number by
another. For example , if the current assets of a business are Rs. 200000 and its current
liabilities are Rs. 100000, the ratio of ‘Current assets to current liabilities’ will be 2:1.
2. ‘Rate’ or ‘So Many Times:- In this type , it is calculated how many times a figure is, in
comparison to another figure. For example , if a firm’s credit sales during the year are Rs.
200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is
200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to
debtors.
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3. Percentage:- In this type, the relation between two figures is expressed in hundredth. For
example, if a firm’s capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit
capital, in term of percentage, is 200000/1000000*100 = 20%
Classification of Ratio
Ratio may be classified into the four categories as follows:
A. Liquidity Ratio
a. Current Ratio
b. Quick Ratio or Acid Test Ratio
B. Leverage or Capital Structure Ratio
a. Debt Equity Ratio

b. Debt to Total Fund Ratio
c. Proprietary Ratio
d. Fixed Assets to Proprietor’s Fund Ratio
e. Capital Gearing Ratio
f. Interest Coverage Ratio
C. Activity Ratio or Turnover Ratio
a. Stock Turnover Ratio

b. Debtors or Receivables Turnover Ratio
c. Average Collection Period
d. Creditors or Payables Turnover Ratio
e. Average Payment Period
f. Fixed Assets Turnover Ratio
g. Working Capital Turnover Ratio
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D. Profitability Ratio or Income Ratio
Profitability Ratio based on Sales:
a. Gross Profit Ratio

b. Net Profit Ratio
c. Operating Ratio
d. Expenses Ratio
Profitability Ratio Based on Investment:
a. Return on Capital Employed
b. Return on Shareholder’s Funds:
a) Return on Total Shareholder’s Funds

b) Return on Equity Shareholder’s Funds
c) Earning Per Share
d) Dividend Per Share
e) Dividend Payout Ratio
f) Earning and Dividend Yield
g) Price Earning Ratio
LIQUIDITY RATIO
It refers to the ability of the firm to meet its current liabilities. The liquidity ratio, therefore, are
also called ‘Short-term Solvency Ratio’. These ratio are used to assess the short-term financial
position of the concern. They indicate the firm’s ability to meet its current obligation out of
current resources.
In the words of Saloman J. Flink, “Liquidity is the ability of the firms to meet its current
obligations as they fall due”.
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Liquidity ratio include two ratio :-
a. Current Ratio
b. Quick Ratio or Acid Test Ratio
Current Ratio:- This ratio explains the relationship between current assets and current liabilities
of a business.
Formula:
Current Ratio = CurrentAssets/ CurrentLiabilities
Current Assets:-‘Current assets’ includes those assets which can be converted into cash with in a
year’s time.
Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors
(Debtors – Provision) + Stock (Stock of Finished Goods + Stock of Raw Material + Work in
Progress) + Prepaid Expenses.
Current Liabilities:- ‘Current liabilities’ include those liabilities which are repayable in a year’s
time.
Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed
Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable with in a Year
Significance:- According to accounting principles, a current ratio of 2:1 is supposed to be an

ideal ratio.
It means that current assets of a business should, at least , be twice of its current liabilities. The
higher ratio indicates the better liquidity position, the firm will be able to pay its current
liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of
working capital.
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The biggest drawback of the current ratio is that it is susceptible to “window dressing”. This ratio
can be improved by an equal decrease in both current assets and current liabilities.
b. Quick Ratio:- Quick ratio indicates whether the firm is in a position to pay its current
liabilities with in a month or immediately.
Formula:
Quick Ratio = Liquid Assets/ Current Liabilities
‘Liquid Assets’ means those assets, which will yield cash very shortly.
Liquid Assets = Current Assets – Stock – Prepaid Expenses
Significance:-An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better.

This ratio is a better test of short-term financial position of the company.
LEVERAGE OR CAPITAL STRUCTURE RATIO
(B) Leverage or Capital Structure Ratio :-This ratio disclose the firm’s ability to meet the
interest costs regularly and Long term indebtedness at maturity.
These ratio include the following ratios :
a. Debt Equity Ratio:- This ratio can be expressed in two ways:
First Approach: According to this approach, this ratio expresses the relationship between
long term debts and shareholder’s fund.
Formula:
Debt Equity Ratio=Long term Loans/Shareholder’s Funds or Net Worth
Long Term Loans:- These refer to long term liabilities which mature after one year. These
include Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public
Deposits etc.
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Shareholder’s Funds :- These include Equity Share Capital, Preference Share Capital, Share
Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss
Account.
Second Approach: According to this approach the ratio is calculated as follows:-

Formula:
Debt Equity Ratio=External Equities/internal equities
Debt equity ratio is calculated for using second approach.
Significance:- This Ratio is calculated to assess the ability of the firm to meet its long term
liabilities. Generally, debt equity ratio of is considered safe.
If the debt equity ratio is more than that, it shows a rather risky financial position from the long-
term point of view, as it indicates that more and more funds invested in the business are provided
by long-term lenders.
The lower this ratio, the better it is for long-term lenders because they are more secure in that
case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders.
b. Debt to Total Funds Ratio: This Ratio is a variation of the debt equity ratio and gives the
same indication as the debt equity ratio. In the ratio, debt is expressed in relation to total funds,
i.e., both equity and debt.
Formula:
Debt to Total Funds Ratio = Long-term Loans/Shareholder’s funds + Long-term Loans
Significance:- Generally, debt to total funds ratio of 0.67:1 (or
67%) is considered satisfactory. In other words, the proportion of long term loans should not be
more than 67% of total funds.
A higher ratio indicates a burden of payment of large amount of interest charges periodically and
the repayment of large amount of loans at maturity. Payment of interest may become difficult if
profit is reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower
ratio is better from the long-term solvency point of view.
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c. Proprietary Ratio:- This ratio indicates the proportion of total funds provide by owners or
shareholders.
Formula: Proprietary Ratio = Shareholder’s Funds/Shareholder’s Funds + Long term

loans
Significance:-This ratio should be 33% or more than that. In other words, the proportion of
shareholders funds to total funds should be 33% or more.
A higher proprietary ratio is generally treated an indicator of sound financial position from long-
term point of view, because it means that the firm is less dependent on external sources of
finance.
If the ratio is low it indicates that long-term loans are less secured and they face the risk of losing
their money.
d. Fixed Assets to Proprietor’s Fund Ratio :- This ratio is also know as fixed assets to net
worth ratio.
Formula:
Fixed Asset to Proprietor’s Fund Ratio = Fixed Assets/Proprietor’s Funds (i.e., Net Worth)
Significance:- The ratio indicates the extent to which proprietor’s (Shareholder’s) funds are
sunk into fixed assets. Normally, the purchase of fixed assets should be financed by proprietor’s
funds. If this ratio is less than 100%, it would mean that proprietor’s fund are more than fixed
assets and a part of working capital is provided by the proprietors. This will indicate the long-
term financial soundness of business.
e.Capital Gearing Ratio:- This ratio establishes a relationship between equity capital (including
all reserves and undistributed profits) and fixed cost bearing capital.
Formula: Capital Gearing Ratio = Equity Share Capital+ Reserves + P&L Balance/ Fixed
cost Bearing Capital
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Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures + Long Term
Loan
Significance:- If the amount of fixed cost bearing capital is more than the equity share capital
including reserves an undistributed profits), it will be called high capital gearing and if it is less,
it will be called low capital gearing.
The high gearing will be beneficial to equity shareholders when the rate of interest/dividend
payable on fixed cost bearing capital is lower than the rate of return on investment in business.
Thus, the main objective of using fixed cost bearing capital is to maximize the profits available
to equity shareholders.
f. Interest Coverage Ratio:- This ratio is also termed as ‘Debt Service Ratio’. This ratio is
calculated as follows:
Formula:
Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed Interest
Charges
Significance:-This ratio indicates how many times the interest charges are covered by the profits
available to pay interest charges.
This ratio measures the margin of safety for long-term lenders.
This higher the ratio, more secure the lenders is in respect of payment of interest regularly. If
profit just equals interest, it is an unsafe position for the lender as well as for the company also ,
as nothing will be left for shareholders.
An interest coverage ratio of 6 or 7 times is considered appropriate.
ACTIVITY RATIO OR TURNOVER RATIO
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(C) Activity Ratio or Turnover Ratio:-These ratio are calculated on the bases of ‘cost of sales’
or sales, therefore, these ratio are also called as ‘Turnover Ratio’. Turnover indicates the speed or
number of times the capital employed has been rotated in the process of doing business. Higher
turnover ratio indicates the better use of capital or resources and in turn leads to higher
profitability.
It includes the following:
a. Stock Turnover Ratio:- This ratio indicates the relationship between the cost of goods
during the year and average stock kept during that year.
Formula:
Stock Turnover Ratio = Cost of Goods Sold / Average Stock
Here, Cost of goods sold = Net Sales – Gross Profit
Average Stock = Opening Stock + Closing Stock/2
Significance:-This ratio indicates whether stock has been used or not. It shows the speed with
which the stock is rotated into sales or the number of times the stock is turned into sales during
the year.
The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business
where stock turnover ratio is high, goods can be sold at a low margin of profit and even than
the profitability may be quit high.
b. Debtors Turnover Ratio :- This ratio indicates the relationship between credit sales and
average debtors during the year :
Formula:
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Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R
While calculating this ratio, provision for bad and doubtful debts is not deducted from the
debtors, so that it may not give a false impression that debtors are collected quickly.
Significance:- This ratio indicates the speed with which the amount is collected from debtors.
The higher the ratio, the better it is, since it indicates that amount from debtors is being collected
more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the
lower the expenses of collection and increase in the liquidity of the firm
By comparing the debtors turnover ratio of the current year with the previous year, it may be
assessed whether the sales policy of the management is efficient or not.
c. Average Collection Period :- This ratio indicates the time with in which the amount is
collected from debtors and bills receivables.
Formula:
Average Collection Period = Debtors + Bills Receivable / Credit Sales per day
Here, Credit Sales per day = Net Credit Sales of the year / 365
Second Formula:-
Average Collection Period = Average Debtors *365 / Net Credit Sales
Average collection period can also be calculated on the bases of ‘Debtors Turnover Ratio’. The
formula will be:
Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio
Significance:-This ratio shows the time in which the customers are paying for credit sales. A
higher debt collection period is thus; indicate of the inefficiency and negligence on the part of
management. On the other hand, if there is decrease in debt collection period, it indicates prompt
payment by debtors which reduces the chance of bad debts.
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d. Creditors Turnover Ratio :- This ratio indicates the relationship between credit purchases
and average creditors during the year .
Formula:-
Creditors Turnover Ratio = Net credit Purchases / Average Creditors + Average B/P
Note: - If the amount of credit purchase is not given in the question, the ratio may be calculated
on the bases of total purchase.
Significance: - This ratio indicates the speed with which the amount is being paid to creditors.
The higher the ratio, the better it is, since it will indicate that the creditors are being paid more
quickly which increases the credit worthiness of the firm.
d. Average Payment Period: - This ratio indicates the period which is normally taken by the
firm to make payment to its creditors.
Formula:-
Average Payment Period = Creditors + B/P/ Credit Purchase per day
This ratio may also be calculated as follows:
Average Payment Period = 12 months or 365 days / Creditors Turnover Ratio
Significance: - The lower the ratio, the better it is, because a shorter payment period implies that
the creditors are being paid rapidly.
d. Fixed Assets Turnover Ratio:- This ratio reveals how efficiently the fixed assets are being
utilized.
Formula:-
Fixed Assets Turnover Ratio = Cost of Goods Sold/ Net Fixed Assets
Here, Net Fixed Assets = Fixed Assets – Depreciation
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Significance: - This ratio is particular importance in manufacturing concerns where the
investment in fixed asset is quit high. Compared with the previous year, if there is increase in
this ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in this
ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the
previous year.
e. Working Capital Turnover Ratio: - This ratio reveals how efficiently working capital has
been utilized in making sales.
Formula
Working Capital Turnover Ratio = Cost of Goods Sold / Working Capital
Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct
Expenses - Closing Stock
Working Capital = Current Assets – Current Liabilities
Significance:-This ratio is of particular importance in non-manufacturing concerns where

current assets play a major role in generating sales. It shows the number of times working capital
has been rotated in producing sales.
A high working capital turnover ratio shows efficient use of working capital and quick turnover
of current assets like stock and debtors.
A low working capital turnover ratio indicates under-utilisation of working capital.
Profitability Ratios or Income Ratios
(D) Profitability Ratios or Income Ratios:-The main object ofevery business concern is to earn
profits. A business must be able to earn adequate profits in relation to the risk and capital
invested in it. The efficiency and the success of a business can be measured with the help of
profitability ratio.
Profitability ratios are calculated to provide answers to the following questions:
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 Is the firm earning adequate profits?
 What is the rate of gross profit and net profit on sales?
 What is the rate of return on capital employed in the firm?
 What is the rate of return on proprietor’s (shareholder’s) funds?
 What is the earning per share?
Profitability ratio can be determined on the basis of either sales or investment into business.
Profitability Ratio Based on Sales :
a) Gross Profit Ratio : This ratio shows the relationship between gross profit and sales.
Formula :
Gross Profit Ratio = Gross Profit / Net Sales *100
Here, Net Sales = Sales – Sales Return
Significance:-This ratio measures the margin of profit available on sales. The higher the gross
profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio
should be adequate enough not only to cover the operating expenses but also to provide for
deprecation, interest on loans, dividends and creation of reserves.
b) Net Profit Ratio:-This ratio shows the relationship between net profit and sales. It may be
calculated by two methods:
Formula:
Net Profit Ratio = Net Profit / Net sales *100
Operating Net Profit = Operating Net Profit / Net Sales *100
Here, Operating Net Profit = Gross Profit – Operating Expenses such as Office and
Administrative Expenses, Selling and Distribution Expenses, Discount, Bad Debts, Interest on
short-term debts etc.
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Significance :-This ratio measures the rate of net profit earned on sales. It helps in determining
the overall efficiency of the business operations. An increase in the ratio over the previous year
shows improvement in the overall efficiency and profitability of the business.
(c) Operating Ratio:- This ratio measures the proportion of an enterprise cost of sales and
operating expenses in comparison to its sales.
Formula:
Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100
Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct
Expenses - Closing Stock
Operating Expenses = Office and Administration Exp. + Selling and Distribution Exp. +
Discount + Bad Debts + Interest on Short- term loans.
‘Operating Ratio’ and ‘Operating Net Profit Ratio’ are inter-related. Total of both these ratios
will be 100.
Significance:- Operating Ratio is a measurement of the efficiency and profitability of the

business enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods
sold and operating expenses. Lower the operating ratio is better, because it will leave higher
margin of profit on sales.
(d) Expenses Ratio:- These ratio indicate the relationship between expenses and sales. Although
the operating ratio reveals the ratio of total operating expenses in relation to sales but some of the
expenses include in operating ratio may be increasing while some may be decreasing. Hence,
specific expenses ratio are computed by dividing each type of expense with the net sales to
analyse the causes of variation in each type of expense.
The ratio may be calculated as:
(a) Material Consumed Ratio = Material Consumed/Net Sales*100
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(b) Direct Labour cost Ratio = Direct labour cost / Net sales*100
(c) Factory Expenses Ratio = Factory Expenses / Net Sales *100
(a), (b) and (c) mentioned above will be jointly called cost of goods sold ratio.
It may be calculated as:
Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales*100
(d) Office and Administrative Expenses Ratio =
Office and Administrative Exp./Net Sales*100
(e) Selling Expenses Ratio = Selling Expenses / Net Sales *100
(f) Non- Operating Expenses Ratio = Non-Operating Exp./Net sales*100
Significance:-Various expenses ratio when compared with the same ratios of the previous year
give a very important indication whether these expenses in relation to sales are increasing,
decreasing or remain stationary. If the expenses ratio is lower, the profitability will be greater
and if the expenses ratio is higher, the profitability will be lower.
(B) Profitability Ratio Based on Investment in the Business:-
These ratios reflect the true capacity of the resources employed in the enterprise. Sometimes the
profitability ratio based on sales is high whereas profitability ratios based on investment are low.
Since the capital is employed to earn profit, these ratios are the real measure of the success of the
business and managerial efficiency.
This ratio may be calculated into two categories:
I. Return on Capital Employed
II. Return on Shareholder’s funds
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I. Return on Capital Employed :- This ratio reflects the overall profitability of the business.
It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is
usually in percentage and is also known as ‘Rate of Return’ or ‘Yield on Capital’.
Formula:
Return on Capital Employed = Profit before interest, tax and dividends/
Capital Employed *100
Where, Capital Employed = Equity Share Capital + Preference Share Capital + All Reserves +
P&L Balance +Long-Term Loans- Fictitious Assets (Such as Preliminary Expenses OR etc.) –
Non-Operating Assets like Investment made outside the business.
Capital Employed = Fixed Assets + Working Capital
Advantages of ‘Return on Capital Employed’:-
 Since profit is the overall objective of a business enterprise, this ratio is a barometer of the
overall performance of the enterprise. It measures how efficiently the capital employed in
the business is being used.
 Even the performance of two dissimilar firms may be compared with the help of this ratio.
 The ratio can be used to judge the borrowing policy of the enterprise.
 This ratio helps in taking decisions regarding capital investment in new projects. The new
projects will be commenced only if the rate of return on capital employed in such projects
is expected to be more than the rate of borrowing.
 This ratio helps in affecting the necessary changes in the financial policies of the firm.
 Lenders like bankers and financial institution will be determined whether the enterprise is
viable for giving credit or extending loans or not.
 With the help of this ratio, shareholders can also find out whether they will receive regular
and higher dividend or not.
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II. Return on Shareholder’s Funds:-
Return on Capital Employed Shows the overall profitability of the funds supplied by long term
lenders and shareholders taken together. Whereas, Return on shareholders funds measures only
the profitability of the funds invested by shareholders
These are several measures to calculate the return on shareholder’s funds:
(a) Return on total Shareholder’s Funds:-
For calculating this ratio ‘Net Profit after Interest and Tax’ is divided by total shareholder’s
funds.
Formula:
Return on Total Shareholder’s Funds = Net Profit after Interest and Tax / Total
Shareholder’s Funds
Where, Total Shareholder’s Funds = Equity Share Capital + Preference Share Capital + All
Reserves + P&L A/c Balance –Fictitious Assets
Significance:-
This ratio reveals how profitably the proprietor’s funds have been utilized by the firm. A
comparison of this ratio with that of similar firms will throw light on the relative profitability and
strength of the firm
(b) Return on Equity Shareholder’s Funds:- Equity Shareholders of a company are more

interested in knowing the earning capacity of their funds in the business. As such, this ratio
measures the profitability of the funds belonging to the equity shareholder’s.
Formula:
Return on Equity Shareholder’s Funds = Net Profit (after int., tax &preference dividend) /
Equity Shareholder’s Funds *100
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Where, Equity Shareholder’s Funds = Equity Share Capital + All Reserves + P&L A/c
Balance – Fictitious Assets
Significance:- This ratio measures how efficiently the equity shareholder’s funds are being used
in the business. It is a true measure of the efficiency of the management since it shows what the
earning capacity of the equity shareholders funds. If the ratio is high, it is better, because in such
a case equity shareholders may be given a higher dividend.
(c) Earning Per Share (E.P.S.) :- This ratio measure the profit available to the equity
shareholders on a per share basis. All profit left after payment of tax and preference dividend are
available to equity shareholders.
Formula:
Earning Per Share = Net Profit – Dividend on Preference Shares / No. of Equity Shares
Significance:- This ratio helpful in the determining of the market price of the equity share of the
company. The ratio is also helpful in estimating the capacity of the company to declare dividends
on equity shares.
(d) Dividend Per Share (D.P.S.):- Profits remaining after payment of tax and preference
dividend are available to equity shareholders.
But of these are not distributed among them as dividend . Out of these profits is retained in the
business and the remaining is distributed among equity shareholders as dividend. D.P.S. is the
dividend distributed to equity shareholders divided by the number of equity shares.
Formula: D.P.S. = Dividend paid to Equity Shareholder’s / No. of Equity Shares *100
(e) Dividend Payout Ratio or D.P. :- It measures the relationship between the earning available
to equity shareholders and the dividend distributed among them.
Formula:
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D.P. = Dividend paid to Equity Shareholders/ Total
Net Profit belonging to Equity Shareholders*100
OR
D.P. = D.P.S. / E.P.S. *100
(f) Earning and Dividend Yield :- This ratio is closely related to E.P.S. and D.P.S. While the
E.P.S. and D.P.S. are calculated on the basis of the book value of shares, this ratio is calculated
on the basis of the market value of share
(g) Price Earning (P.E.) Ratio:- Price earning ratio is the ratio between market price per equity
share & earnings per share. The ratio is calculated to make an estimate of appreciation in the
value of a share of a company & is widely used by investors to decide whether or not to buy
shares in a particular company.
Significance:-This ratio shows how much is to be invested in the market in this company’s
shares to get each rupee of earning on its shares. This ratio is used to measure whether the
market price of a share is high or low.
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1.2 STATEMENT OF THE PROBLEM
A financial statement is a compilation of data which is logically and consistently organized
according to accounting principles an understanding of some financial aspects of a business firm.
It may show a position at a moment in time, as in the case of a balance sheet or may reveal a
series of activities over a given period of time as in the case of an income statement. Financial
statements are the major means through which firm present their financial situations to stock
holders, creditors and the general public. The majority of firms include extensive financial
statements in their annual reports of them. This initiates a further study which could be done
further using other analysis tools. The study concentrates on the financial state of the company; it
involves the study of Ratio Analysis. It helps to present a broader picture of the financial
position of the company through ratios
The study conducted on Ratio analysis is related to Avtar Steel Industries. The information is
collected for a period of five years from 2014-2018. The study on ratio analysis is thus
dependent on this collected information. Ratio analysis, being an integral part of overall
corporate management, throws open challenges and an opportunity to study the financial
statements on the basis of the company’s profit showing in the final analysis
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1.3 NEED FOR THE STUDY
The major purpose of the study is to analyze the financial performance of a firm using ratio analysis
as a tool. The ability of the firm to make its resources in the best way represents the future of a firm
analysis of financial performance is the process of identifying financial strength and weakness of the
firm. Study is made by collecting information for the financial years from 2014-2018. The data
regarding the cash management were collected from the finance department of the company. The
collected data are calculated and analyzed using various nominal scales. Based on the various
analysis suggestions were given.
25
1.4 REVIEW OF LITERATURE
According to Shubin, “Ratio is the amount of funds necessary to cover the cost of operating the
enterprise”.
According to Gene Stenberg, “working capital means the current assets of a company that are
changed in the ordinary course of business from one form to another, for example, from cash to
inventories, to receivables, receivables into cash”.
Empirical Study of post-takeover performance in banking industry: comparison between

U.S. and European bank acquisitions
Author:Lionel Miron; Fabien Patel; [2008]
Abstract: Takeover is a business activity which really started in the beginning of the eighties
and which still takes a strong part in the business and financial area all over the world. According
to our studies as the desire for further acknowledgements and the desire of building a career
around financial activities, this study has been naturally conducted in the banking area
Establishment of Capital Markets in Least Developed Countries (LDCs):The case of

Ethiopia
Author:AmareWalle; [2008];
Abstract: Despite a surge of global investor interest in the 1980s and 1990s, Africa has been
bypassed by the massive international capital flowing to developing economies. Most of the
economies in the region didn’t efficiently mobilize their domestic financial resources either.
Corporate mission, corporate policies and business outcomes: evidence from Japan.
Management Decision
Author:Hirota and colleagues; [2011];
Abstract: "The evidence supports the view that strong-mission firms value their organizational
capital and thus tend to adopt policies to preserve it. It also confirms that corporate mission and
its embedded policies contribute to better corporate performance. The paper suggests that the
effect of explicit corporate mission and its implementation has practical impacts in corporate
policies and business outcomes. Research limitations/implications - The sample is based on firms
26
from Japan. The criteria used to discriminate between strong mission and weak mission firms
need further refinement with more rigorous sub-dimensions. In the Japanese context the
percentage of inside directors is an important indication of internally promoted managers one
might argue that a measure of external pressures (e.g. law, codes, investors, etc.) might be a
better one. The small number of cases and the richness of statements need a richer qualitative
analysis in the future. Practical implications - The empirical results provide helpful insight on the
organizational behavior of Japanese firms during the long economic downturn from the 1990s to
2000s in Japan and an insight on what to do in view of the challenges facing Japanese firms.
Originality/value - The paper presents a model that clarifies the role of mission statement. The
extensive literature review includes a diverse set of papers on the role of mission statement,"
wrote S. Hirota and colleagues, Waseda University.
The researchers concluded: "The empirical results suggest how strong Japanese corporate
mission, expressed in mission statements, might have impact on corporate outcomes through the
formation and utilization of Monozukuri."
Bruning (1989) analyzed 1984 motor carrier data for approximately 500 carriers. He used a log-
linear regression to investigate the relationship between financial performance and safety. He
found that higher profitability, measured as return on transportation investment, decreases the
accident rate for all carriers except the very smallest. He concluded: "The relationship holds for
both general freight and specialized carriers. For medium-sized carriers, the relationship is
inverse but not significant." He also found that inverse relationship between profitability and
crash rates is lagged; in other words, profitability in preceding periods explains safety
performance in later periods.
A study by Chow et al. (1987) had a narrower focus with an emphasis on bankrupt motor
carriers. They found that the average carrier that eventually went bankrupt spent less on safety
and maintenance, had older equipment, and depended more on owner-operators prior to
bankruptcy declaration in comparison to non-bankrupt carriers.
A study by Beard (1992) investigated the safety performance-financial link but relied on
roadside inspection results as a measure of safety performance, as opposed to crash rates or
27
accidents. Furthermore, Beard used cash flow analysis for the assessment of financial
performance, as opposed to more traditional profitability measures. He collected data from
approximately 150 firms in the mid-1980s. He relied on profit analysis in building his
multivariate model and concluded: "On balance, the statistical results presented here provide
some of the strongest evidence to date of a significant empirical link between motor carrier
safety performance and financial status. This result is robust across specifications and was
obtained from a sample of firms, none of which was severely distressed, indicating that the
safety-finance link is not solely a consequence of firms nearing bankruptcy."
28
1.5 OBJECTIVES OF THE STUDY
Primary Objective:
To study and evaluate the various ratios of Avtar Steel Industries
Secondary Objectives:
 To determine the adequate or optimum quantum of investment in working capital of
Avtar Steel Industries.
 To know the liquidity position of the Company.
 To find out profitability of the Company.
 To know the solvency position of the Company.
 To suggests steps to strengthen the financial position of the concern for its betterment.
29
1.6 RESEARCH METHODOLOGY
The purpose research is to reduce uncertainty. To make the research a success, are has to define
and plan the whole programmed properly and effectively. The plan is called “Research
Methodology” and comprises of a no. of interrelated and frequent overlapping procedures and
practices. It is necessary to mention as to what procedures, tech. have been adopted keeping in
view this section is including in this report. This part is divided in to five sections.
o Research Design
o Universe
o Sample design
o Collection of data
o Analysis pattern
Research Design: A research design is the specification of methods and procedure for acquiring
the required information or we can say that it is from work for the study that is used as a guide in
collecting and analyzing the data. Descriptive Research Design is largely concerned with
determining the frequency with which something occurs or the relationship between variables
with respect to characteristic. This project has been made by considering descriptive
research design.
Period of Study
The study period is for 5 years from 2014-2018
Universe
Avtar Steel Industries, Chennai
Sample Design:
It is practically improvable to examine the entire universe accurately because of lack of time and
money. So the only alternative is to take recourse of sampling.
30
Sources of Data
The data for this study are basically secondary in nature. The data are collected from the audited
Annual reports of the company. However, additional information in respect of the organization
has been collected from the organizations itself.
Collection of data:
There are two main types of sources of data collection i.e.
1. Primary Data
2. Secondary data
Secondary source:
The secondary source of data is the internal records like manuals, brouchers, sales record, annual
reports, and financial records.
Techniques of Analysis
1. Ratio analysis
2. Working capital components analysis
3. Leverage ratios
1.7 CHAPERTIZATION
 The CHAPTER I describes introduction to the study and design of the study, including
introduction, problem statement of the study, objectives of the study, scope and
methodology and limitations of the study It also covers review of the previous studies
collected from various articles, journals and research papers
 The CHAPTER II presents the company and industry profile of the study
 The CHAPTER III describes the analysis and discussions of collected data done using
financial statistical tools
 The CHAPTER IV summarizes the findings of the study and offers suggestions and
conclusion.
31
1.8 LIMITATIONS OF THE STUDY
1. The study is made exclusively on the financial aspects of the Company. There may be
other aspects perhaps much stronger than finance are not considered for the study.
2. The external factors that may affect the performance of the Company is not taken into
account.
3. The study covers the period of 5 years. Hence results can be applied only for the selected
period.
32
CHAPTER 2
PROFILES OF THE STUDY
2.1 INDUSTRY PROFILE
Steel is crucial to the development of any modern economy and is considered to be the
backbone of human civilization. The level of per capita consumption of steel is treated as an
important index of the level of socioeconomic development and living standards of the
people in any country. It is a product of a large and technologically complex industry having
strong forward and backward linkages in terms of material flows and income generation. All
major industrial economies are characterized by the existence of a strong steel industry and
the growth of many of these economies has been largely shaped by the strength of their steel
industries in their initial stages of development. Steel industry was in the vanguard in the
liberalization of the industrial Sector and has made rapid strides since then. The new
Greenfield plants represent the latest in technology. Output has increased, the industry has
moved up in the value chain and exports have raised consequent to a greater integration with
the global economy. The new plants have also brought about a greater regional dispersion
easing the domestic supply position notably in the western region. At the same time, the
domestic steel industry faces new challenges. Some of these relate to the trade barriers in
developed markets and certain structural problems of the domestic industry notably due to the
high cost of commissioning of new projects. The domestic demand too has not improved to
significant levels. The litmus test of the steel industry will be to surmount these difficulties
and remain globally competitive
History of steel
Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD. Prior
to steel, iron was a very popular metal and it was used all over the globe. Even the time period of
around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly used in that
period in each and every part of life. But, with the change in time and technology, people were
able to find an even stronger and harder material than iron that was steel. Using iron had some
disadvantages but this alloy of iron and carbon fulfilled all that iron couldn‘t do. The Chinese
people invented steel as it was harder than iron and it could serve better if it is used in making
weapons. One legend says that the sword of the first Han emperor was made of steel only. From
33
China, the process of making steel from iron spread to its south and reached India. High quality
steel was being produced in southern India in as early as 300 BC. Most of the steel then was
exported from Asia only. Around 9th century AD, the smiths in the Middle East developed
techniques to produce sharp and flexible steel blades. In the 17th century, smiths in Europe
came to know about a new process of cementation to produce steel. Also, other new and
improved technologies were gradually developed and steel soon became the key factor on which
most of the economies of the world started depending.
The Global Steel industry

The current global steel industry is in its best position in comparing to last decades. The price has
been rising continuously. The demand expectations for steel products are rapidly growing for
coming years. The shares of steel industries are also in a high pace. The steel industry is enjoying
its 6th consecutive years of growth in supply and demand. And there is many more merger and
acquisitions which overall buoyed the industry and showed some good results. The supreme
crisis has lead to the recession in economy of different countries, which may lead to have a
negative effect on whole steel industry in coming years. However steel production and
consumption will be supported by continuous economic growth
Contribution of Countries to Global Steel Industry

World crude steel production reached 1,662 million tonnes (Mt) for the year 2014, up by 1.2%
compared to 2013. In 2014, the Middle East, the smallest region for crude steel production had
the most robust growth. Crude steel production in the EU (28), North America and Asia grew
modestly in 2014 compared to 2013, while in the C.I.S. and South America it decreased.
Annual production for Asia

was 1,132.3 Mt of crude
steel in 2014, an increase of
1.4% compared to 2013.
China’s* crude steel
production in 2014 reached
822.7 Mt, an increase of
0.9% on 2013. China’s
34
share of world crude steel production decreased from 49.7% in 2013 to 49.5% in 2013. Japan
produced 110.7 Mt in 2014, a 0.1% increase from 2013. South Korea’s crude steel production
was 71.0 Mt, an increase of 7.5% compared to 2013.
The EU recorded an increase of 1.7% compared to 2013, producing 169.2 Mt of crude steel in
2014. Germany produced 42.9 Mt of crude steel in 2014, up by 0.7% over 2013. Italy produced
23.7 Mt in 2014, a -1.4% decrease over 2013. France’s crude steel production in 2014 was 16.1
Mt, an increase of 2.9%. Spain produced 14.2 Mt of crude steel in 2013, a decrease of -0.6%
compared to 2013. In 2014, crude steel production in North America was 121.2 Mt, an increase
of 2.0% on 2013. The US produced 88.3 Mt of crude steel, up by 1.7% compared to 2013.
In December 2014, world crude steel production for the 65 countries reporting to the World Steel
Association (worldsteel) was 133.7 Mt, an increase of 0.1% compared to December 2013. The
crude steel capacity utilisation ratio of the 65 countries in December 2014 was 72.7%. It is 2.4
percentage points lower than December 2013. The average capacity utilisation in 2014 was
76.7% compared to 78.4% in 2013.
35
Steel industry in India
The steel sector in India is almost a century old, and exhibits significant economic importance
due to rising demand by sectors such as infrastructure, real estate, and automobiles, in domestic
as well as international markets. The level of per capita consumption of steel is an important
determinant of the socio-economic development of the country.
The Indian steel industry is divided into primary and secondary sectors. The primary sector
comprises a few large integrated steel providers producing billets, slabs and hot rolled coils. The
secondary sector involves small units focused on the production of value-added products such as
cold rolled coils, galvanised coils, angles, columns, beams and other re-rollers, and sponge iron
units. Both sectors cater to different market segments.
The Indian steel industry has entered a new development stage since 2007–08 and is riding on
the resurgent economy and the growing demand for steel. India’s 33 per cent growth in steel
production in the last five years was second only to China among the top five steel producing
nations, according to data by World Steel Association (WSA).India is the fourth largest producer
of crude steel and the largest producer of soft iron in the world. Presently, the Indian steel
industry employs around 500,000 people while the per capita consumption in 2013 stood at
around 57.8 kilograms. However, these figures are expected to rise with increased
industrialisation throughout the country.
36
Market Size
An improvement in overall business sentiment, the government's announcements on big-ticket

investment in infrastructure and a post-monsoon pick-up in demand led India to post the fastest
growth in steel production globally in October. At 8.5 per cent, India's pace of growth was also
the fastest among the major steel producing countries,For four consecutive years, India has been
world's fourth largest steel maker. With 62.41 million tonnes (MT) output, the country remained
the world's fourth largest steel producer in the first nine months of the current year. India's crude
steel capacity stood at 101 MT in 2013-14. Significant thrust is being given on enhancing
capacity by steel majors such as Steel Authority of India Ltd (SAIL), Tata Steel and
RashtriyaIspat Nigam Limited (RINL), who, among others, are going to come on stream in a
year and a half from now. The government has set a target of trebling capacity to 300 MT by
2025-26.
India's steel production has gone up by 24 per cent during the last five years to 81.69 MT in
2013-14. Steel production was 65.84 MT in 2009-10. The production went up to 70.67 MT in
2010-11 and to 74.29 MT in 2011-12 and further to 78.42 MT in 2012-13.
According to the data released by Department of Industrial Policy and Promotion (DIPP), the
Indian mining and metallurgical industries attracted foreign direct investments (FDI) to the tune
of US$ 1,467.89 million and US$ 8,271.39 million, respectively, in the period April 2000–
September 2014.
Steel production in the country has increased at a compound annual growth rate (CAGR) of 6.9
per cent over 2008–2012. The infrastructure sector accounts for close to 60 per cent of the
country's total steel demand while the automobile industry accounts for 15 per cent.
37
Investments
The Government has set up an inter ministerial group (IMG) in the Steel Ministry for effective
coordination and expediting implementation of various investment projects in the steel sector.
SAIL and RINL, two state-run steel makers, have invested Rs 9,890 crore (US$ 1.61 billion) and
Rs 1,512 crore (US$ 245.44 million) respectively in the last fiscal. The steel industry and its
associated mining and metallurgy has seen a number of major investments and developments in
the recent past. Some of them are as follows:
 Japanese steel maker Daido Steel Company will pick up 10 per cent stake in
Maharashtra-based Sunflag Iron and Steel for around Rs 56 crore (US$ 9.09 million).
 Tata Steel has initiated talks with the Klesch Group, a Swiss Investment bank with
interests in commodities, to undertake "detailed due diligence and negotiations" for the
possible sale of its long steel business and associated distribution activities in Europe
 Posco India, the subsidiary of the South Korea headquartered company, will invest US$
20 million to set up a steel plant in Sanand in Ahmedabad. The plant will produce steel
sheets to meet demand from automobile companies that have made a hub in Sanand.
 Essar Steel has announced the commissioning of an integrated 6 MT iron ore pellet plant
near Paradip in Odisha. The factory is linked by a 253 km slurry pipeline with a facility
which is located at Odisha's iron ore belt and can beneficiate low-grade ore.
Government Initiatives
The centre is aiming at rejuvenating the steel sector and removing the hurdles in steel production
by scaling up production to 300 MT by 2025 from the 81 MT in 2013-14, according to
MrNarendra Singh Tomar, Minister for Steel and Mines, who also said that India is poised to
move to second position in steel production in the next 10 years.
In another boost to the steel sector, the Union Government has decided to set up a research centre
for the steel industry. The centre will spearhead research under the proposed ‘Steel Research &
Technology Mission of India’ (SRTMI) to promote collaborative programmes in the sector. It is
envisioned that the research will be done in priority areas covering best usage of available raw
materials, conservation of natural resources, optimum energy conservation, minimum emissions
38
leading to innovations, development of design, engineering and manufacturing facilities of key
steel plant equipment.
The Government of India plans to set up a steel plant under SAIL at Bayyaram in Khamman
District of Telangana, according to MrNarendra Singh Tomar, Union Minister of Steel and
Mines. A feasibility study is already underway and soon after its completion, a site would be
selected for plant and funds allocation.
Some of the other recent government initiatives in this sector are as follows:
 After the approval of the new mining law by the Parliament of India, the SAIL-led
Afghan Iron and Steel Consortium (AFISCO) will soon recommence negotiations with
the Afghanistan government to set up a plant with a capacity of 1.5 MTPA.
 The Ministry of Steel has proposed to set up special purpose vehicles (SPVs) with State
governments to revive investment in the steel sector. The role of the SPVs will be to
acquire land and obtain all necessary environment and forest clearances, while NMDC
Ltd will be the company creating these SPVs.
 The Ministry of Steel has also proposed Special Mining Zones, where regions with
mineral resources will be identified as strategic resources and one nodal authority will
arrange necessary green clearances for mining projects in such areas.
Road Ahead
The demand for steel in India is expected to rise by 4-5 per cent this year and will touch a
compounded annual growth rate (CAGR) of 15 per cent after FY17. Given the government's
high focus on jump starting stalled projects, followed by pushing large flagship projects,
including the freight and industrial corridors, it is expected that India will begin moving back on
the path of materials intensive growth by the end of this year. Also, the recently released Union
Budget 2014–15 has paved the way for the development of the Indian steel sector with proposals
for the construction of 100 smart cities and changes in the MMRD Act. India’s ranking in the
global list for production of crude steel is all set to improve with increasing demand for domestic
consumption in the years to follow. As per Tata Steel, India's steel sector is anticipated to
witness investment of about Rs 2 trillion (US$ 32.46 billion) in the coming years
39
2.2 COMPANY PROFILE
Avtar Steels is a conglomerate of companies dealing in manufacturing and exports of a diverse

range of Stainless Steel’s ingots, hot rolled flats, rolled rounds, forged rounds, bright bars as well as
alloy steels also. With two of the companies being established houses – recognized by the
government of India as Pvt. Ltd Firms being reputed, High Profile, Independent, Yet Interlinked
Units, the picture of a professionally managed and growth oriented industrial empire is complete.
The flagship company of Avtar Steels was a humble yet pioneering beginning made by its
founder and chairman Mr. B. B. JINDAL in the year 1995. He is very well supported by his two
sons Mr. AMIT JINDAL and Mr. SUMIT JINDAL and with the team of professionals who
are expert in their respective fields With his courage of conviction and his undeterred pursuits for
growth and excellence, the company has assumed its present size and credence of global
significance. The journey has been tedious and tiring, the efforts – Herculean, The expectations
of its Patrons-Nerve Wrecking and the never receding competition in the global markets – Mind
Boggling. Yet success at Avtar Steels has never been an end in itself rather a motivation to
outperform its previous accolades. And all through this long, Tedious and soul and body
wrecking process of evolution, the beautiful melody of the words of learned David Frost has
been its constant companion:
Avtar Steels was established in the year 1995 and has since been manufacturing, supplying and
exporting a wide variety of products to suit the varied needs of our clients. The huge success
witnessed by us has further motivated us to outperform ourselves and deliver even better results.
Our efforts towards achieving and maintaining organizational excellence are supported by our
team of highly talented and dedicated professionals. Today, we have become widely known and
acknowledged as conglomerate of companies dealing in a diverse range of stainless steel bars,
bright bars, flats, ingots, billets, steel angles, black bars.
40
QUALITY POLICY
“To provide our passengers a safe smooth and enjoyable transit through Chennai Steels” Also to
provide secured and speedy movement of international Steels through Chennai Steels
MISSION
To deliver superior value to our customers, employees and society at large.We will follow this
principle in evaluating and guiding our business activities. We will to set an example of quality
works and intend to contribute to build a flourishing economy. We will achieve this by offering our
clients a comprehensive portfolio of commercially viable products coupled with the expertise and
services required. We will endeavor to create high quality products that enable the growth of our
organization. At Avtar Steels Ltd., the well-trained staff will achieve job satisfaction through
security, motivation and harmonious work environments.
VISION
we recognize that every organization is different with its own unique business objectives,
commercial approach and culture. That is why we have created flexibility and pragmatism with in
our service options enabling us to tailor services to meet specific objectives.
Our customers are our biggest asset and customer satisfaction ranks first on our business priorities.
Over the years, we have grown to diversify into various fields but never have we let go off our roots.
We lay stress on worker’s training, sensitization, orientation and updating their skills for over all
exposure as well as growth
OUR BELIEVES
At Avtar Steels, we believe in continuous evolving to deliver better solutions to our customers.
We are dedicated to working hard and being the top service provider for complete satisfaction of
our clients. The following lines from the poem ‘Stopping by Woods on a Snowy Evening’ by the
great poet Robert Frost truly depicts our organizational beliefs.
“The woods are lovely, dark and deep, but I have promises to keep, and miles to go before I
sleep, and miles to go before I sleep.”
41
PRODUCTION PROCESS
We follow a carefully planned detailed and advanced production process. During this extreme stress
is given on perfection at all the steps to ensure premium quality of the products. The various
activities involved in the production process are as follows:
Ss scrap of predetermined composition is melted in induction furnace and liquid hot metal is
transferred in pouring ladle.
The liquid metal is transferred into caste iron moulds from the pouring ladle.
The central trumpet which receives the liquid metal is lined with bricks inside
Ingot moulds are cleaned from rust and dust from the inner surface with compressed air and
are given suitable coating inside for easy removal of ingots from moulds after the hot metal is
solidified the moulds are removed by crane
The ingots are then knocked out and transferred to a cooling area.
If any surface defect is observed, it is removed by grinding and chipping
Ingots are batch marked of grade/heat number and stocked for dispatch
PRODUCT PORTFOLIO
We offer a wide range of quality products made from premium grade stainless steel. These products
are known for their robust build and superior strength. Our products are available to our customers at
very reasonable prices and are used in various industrial and commercial applications. Our product
range includes:
Stainless Steel Bars,
Stainless Steel Flats
Stainless Steel Ingots
Stainless Steel Angles Hex
OUR TEAM
42
We have a team of talented professionals who have been with us for years and helped in bringing the
organization to great heights. All our team members are highly experienced and are completely
dedicated towards achieving the organizational goal of achieving complete customer satisfaction
through elevated overall quality standards. The entire team works in tandem with each other to fulfill
all needs and demands of the customers. Our fully-staffed and cross-trained customer service
department is dedicated towards building and nurturing strong customer relationships. To keep
ourselves abreast with the advancements in the industry we encourage our team members to
undertake regular programs and trainings
OUR INFRASTRUCTURE
The entire unit is equipped with latest machineries and equipment to carry out all the vital activities.
Our production process requires maintaining strict production control systems and integrated quality
management systems. The production unit fulfills carries all these operations which has enabled us
to have an edge over others and be known as the premium in the Induction Furnace route in India.
We also have our own testing facility that ensures that all products adhere to specified material
properties such as mechanical value and purity levels.
VARIOUS DEPARTMENTS IN AVTAR STEELS CHENNAI
1. Human Resource department

2. Department of finance and Accounts
3. Department of Sales
4. Department of operations
5. Department of commercial
6. Department of Legal
7. Department of project
43
Manpower Particulars:
The organization of Avtar Steel Industries, Chennai is having its employee strength of totally
832 employees.
 78 of them comes under managerial

 754 of them are Non-Managerial Employees
 251 of them are contract labourers
 581 of them are permanent employees
Organization Chart
44
Wages structure of the organization
Unskilled workers Rs. 366 per day

Semi skilled workers Rs. 398 per day
Skilled workers Rs. 547 per day
Supervisors / Clerical Rs. 594 per day
Provident Fund and its proceedings
1. When new employee joined Form no. 2 will be filled by him.

2. For getting PF no. of employees form no. 5 is to be filled.
3. Monthly form no. 12 will be sent which includes detail of every employee.
4. Form no. 3 A prepared for individual details at the end of year Employee + Employer
Contribution.
5. Form no. 6 includes details of all PF members from March to February of every year and
their contribution
2.3 PRODUCT PROFILE
Avtar has expanded its production facilities with ultramodern steel melting shop, ingot casting,
hot rolling mills, heat treatment facilities, cold finishing facilities and of course a full fledged
metallurgical test lab for quality tests managed and controlled by experts in metallurgy. This
expansion coupled with the continuing support of our Indian clientele and our core manpower
strength gives us the impetus to enter the global arena.
45
For us this is the beginning of a new era, a landmark for our team.We manufacture and supply a
wide variety of products that are suitable for many industrial and commercial applications. These
are available at very reasonable prices offering our customers with a very financially viable
option. All our products are known for their quality and robustness. The various products offered
by us include:
Bright Round Bars
Square Bars
Avtar Steels Quality Bars
Hexagonal Bars
Forged Round Bars
46
Hot Rolled Round Bars
Hot Rolled RCS
Forging Ingots
Casted Billets
Flat Bars
We give prime importance to testing of our products and ensuring that all the products are
superior in term of functionality and quality. For the same we have maintained state-of-the-art
testing facilities. Our laboratories are well fitted with sophisticated equipment that are suitable
for carrying out various tests to confirm the physical and chemical properties of the final
products as well as the raw material used in the production process.
We have a team of top notch metallurgists handling routine production, quality controls and
spearheading developments. Perfection and excellence are the natural outcomes of dedication,
47
commitment and integrity at all levels in our organization. This is shown in our progress and
achievements.
PLANT LOCATION
Avtar Steel Industry is located in Vanagaram Road, Athipet, a key area in Ambattur Industrial
Estate, Chennai. With over 40000 sqft of the manufacturing facility in Ambattur Industrial
Estate, it is well connected with rail and roadways. We are equipped with a state-of-the-art
infrastructure that is instrumental in the saga of success that we have scripted over the years.
PLANT LAYOUT
48
PRODUCTION PROCESS
QUALITY POLICY/ QUALITY CONTROL MAINTENANCE

Total Quality Management is in the blood of Avtar Steel people resulting in its reputation as the
top notch producer of stainless steel products. We recognized the importance of quality early on
and have made significant investments in quality control equipments, monitoring equipments and
processes for flawless perfection that is the outcome of sustained efforts rather than chance.
Quality is an all-encompassing process at Avtar Steel and starts with the mind-set of our people.
That said, each incoming material is tested and re-tested, production process is specifically
categorized, processes initiated with comprehensive monitoring, data logging and analytic
features at each stage covering melting, casting, shaping, heat treatment, finishing and
49
packaging. At each stage we have quality control processes very strictly defined and
implemented as well as recorded.
There are no compromises, at whatever stage deviations are simply not accepted and the product
is rejected if not within the defined parameters.Our passion for excellence gives comfort to
clients because they know they can implicitly trust us to deliver only quality.
Our consistency in delivering high quality at competitive prices just in time has enabled us to
emerge as the preferred supplier to diverse industries including paper plants, steel plants, sugar
mills, cement industry, aviation and construction industry.
50
CHAPTER 3
DATA ANALYSIS AND INTERPRETATION
3.1 SCHEDULE OF CHANGES IN WORKING CAPITAL
TABLE 1
TABLE SHOWING THE CHANGES IN WORKING CAPITAL FY 2018-2017
Particular 2018 2017 Increase Decrease
Current Asset
Current investments 1150451.00 1150451.00
Inventories 53023808.92 49074975.36 3948833.56
Trade Receivables 58212161.02 49578450.05 8,633,710.97
Cash and cash equivalents 5038275.24 4429209.97 609,065.3
Short Term loans & 3608908.05
advances 19276051.18 15667143.13
136700747.36 119900229.51
Current Liabilities
Short Term borrowings 62158870.51 48348589.78 13810280.73
Trade Payables 24069411.22 33062187.30 8992776.08
Other current liabilities 9706136.68 9609637.66 96,499.02
Short term provisions 2300000.00 2233000.00 67,000.00
98,234,418.41 93,253,414.74
Net Working Capital 38,466,328.95 26,646,814.77
Decrease in WC 11,819,514.18 11,819,514.18
38,466,328.95 38,466,328.95 25,793,293.93 25,793,293.93
Source: Annual Reports of Avtar Steel Industries.
Interpretation:
The above table shows the working capital statement of Avtar Steel Industries for the year 2017
and 2018. Current assets of the company show an increasing trend from the year 2017-2018.
Current liabilities increased from 2017 – 2018. This results in a decrease in working capital
51
TABLE 2
Current Asset
Current investments 1150451.00 21700942.21 20550491.21
Inventories 49074975.36 38544794.21 10530181.15
14,806,105.1
Trade Receivables 49578450.05 34772344.92 3
Cash and cash equivalents 4429209.97 4610039.06 180,829.09
Short Term loans & 15667143.13
advances 15667143.13 0.00
119,900,229.51 99,628,120.40
Current Liabilities
Short Term borrowings 48348589.78 12207648.76 36,140,941.02
Trade Payables 33062187.30 0.00 33,062,187.30
Other current liabilities 9609637.66 0.00 9,609,637.66
93,253,414.74 14,066,553.76
Net Working Capital 26,646,814.77 85,561,566.64 41,003,429.4 99,918,181.28
1
58,914,751.8
Decrease in WC 58,914,751.87 7
85,561,566.64 85,561,566.64 99,918,181.2
8 99,918,181.28
Sources: Annual Reports of Avtar Steel Industries.
Interpretation:
and 2017. Current assets of the company show an increasing trend from the year 2016-2017.
Current liabilities increased from 2016 – 2017. This results in an increase in working capital
52
TABLE 3
Current Asset
Current investments 21700942.21 4996675.83 16,704,266.38
Inventories 38544794.21 36636738.47 1,908,055.74
Cash and cash equivalents 4610039.06 9821536.06 5,211,497.00
99,628,120.40 78,987,183.77
Current Liabilities
14,066,553.76 8,690,005.75
Decrease in WC 15,264,388.62 15,264,388.62
85,561,566.64 85,561,566.64 25,852,433.63 25,852,433.63
Interpretation:
and 2016. Current assets of the company show an increasing trend from the year 2015 -2016.
53
TABLE 4
Current Asset
Inventories 36636738.47 29532597.90 7,104,140.57
Cash and cash equivalents 9821536.06 1972085.97 7,849,450.1
78,987,183.77 56,132,794.31
Current Liabilities
Short term provisions 1150000.00 2986545.00 1,836,545.00
8,690,005.75 7,929,635.83
Decrease in WC 22,094,019.54 22,094,019.54
70,297,178.02 70,297,178.02 26,048,150.55 26,048,150.55
Interpretation:
and 2015. Current assets of the company show a decreasing trend from the year 2014 -2015.
54
4.2 RATIO ANALYSIS
 LIQUIDITY RATIO
 PROFITABILITY RATIO
 WORKING CAPITAL RATIO
LIQUIDITY RATIO
 Current Ratio
 Liquid Ratio
 Cash position Ratio
CURRENT RATIO
Formula for Current Ratio is
Current Ratio = Current Assets
Current Liabilities
TABLE 5
TABLE SHOWING CURRENT ASSETS RATIO
Year Current assets Current liabilities Current asset ratio
2014 56132794.31 7929635.83 7.08
2015 78987183.77 8690005.75 9.09
2016 99628120.4 14066553.76 7.08
2017 119900229.5 93253414.74 1.29
2018 136700747.4 98234418.41 1.39
Interpretation: As a rule, the current ratio with 2:1 (or) more is considered as satisfactory
position of the firm. This ratio shows the ability of the firm and it related with Current Assets &
Current Liabilities. Generally Current Ratio of 2:1 is considered ideal for a concern i.e., current
asset should be twice of the current liabilities. This is the most widely used ratio. In the year
2014 and 2015, the current asset ratio was 7.08 and 9.09 respectively. But it started decreasing in
the consequent years to 1.29 in 2017, 1.39 in 2018
55
CHART 1
CHART SHOWING CURRENT ASSETS RATIO
10
9.09
9
8
7.08 7.08
7
6
5
4
3
2 1.39
1.29
1
0
2014 2015 2016 2017 2018
Current asset ratio
56
LIQUID/QUICK RATIO
Formula for Liquid Ratio is
Liquid Ratio = Quick Assets
Current Liabilities
Quick Assets = Current Assets – (Stock + Prepaid Expenses)
TABLE 6
TABLE SHOWING LIQUID RATIO
Year Liquid assets Current liabilities Liquid ratio

2014 26600196.41 7929635.83 3.35
2015 42350445.3 8690005.75 4.87
2016 61083326.19 14066553.76 4.34
2017 70825254.15 93253414.74 0.76
2018 83676938.44 98234418.41 0.85
Interpretation:
This is the ratio of liquid assets to liquid liabilities. It shows a firms ability to meet current
liabilities with its most liquid assets. 1:1 ratio is ideal ratio for a concerns i.e., Quick Assets
should be equal to Current Liabilities. This is the most widely used ratio. The liquid ratio for the
year 2014 was 3.35, and in 2018 it was 0.85. This sudden fall is due to the increase in current
liabilities
57
CHART 2
CHART SHOWING LIQUID RATIO
5 4.87
4.34
4
3.35
3
1 0.76 0.85
0
2014 2015 2016 2017 2018
Liquid ratio
58
CASH POSITION RATIO
This is the most widely used ratio
Cash Position Ratio (CPR) = Financial Assets

Current Liabilities
Financial Assets Cash Equivalents (Cash & Bank) + Short Term Investments
TABLE 7
TABLE SHOWING CASH POSITION RATIO
Year Financial assets Current liabilities Cash Position Ratio
2014 1972085.97 7929635.83 3.35
2015 9821536.06 8690005.75 4.87
2016 4610039.06 14066553.76 4.34
2017 20096353.1 93253414.74 0.76
2018 24314326.42 98234418.41 0.85
Interpretation:
Cash Position Ratio is expressed as the ratio of financial assets and current liabilities. In the year
2014, the cash position ratio was 3.35 and it increased in 2015 and 2016 but meet a sudden fall
during 2017 and 2018 as 0.76 and 0.85
CHART 3
59
CHART SHOWING CASH POSITION RATIO
5 4.87
4.34
4
3.35
3
1 0.76 0.85
0
2014 2015 2016 2017 2018
Cash Position Ratio
PROFITABILITY RATIOS
60
 Net Profit Ratio
 Gross Profit Ratio
 Expenses Ratio
 Operating Ratio
NET PROFIT RATIO

The formula for the net profit ratio is to divide net profit by net sales, and then multiply by 100.
The formula is:
Net Profit Ratio = Net profit
Net sales
TABLE 8
TABLE SHOWING NET PROFIT RATIO
Years Net Profit Net Sales Net Profit Ratio
2014 30,854,152.38 124,612,231.32 0.248
2015 102,250,057.89 148,745,150.78 0.687
2016 81,117,232.38 142,008,057.06 0.571
2017 92,429,095.13 148,703,146.00 0.622
2018 104,283,901.36 147,856,830.33 0.705
Interpretation:
Net Profit is one of the best measures of the overall results of a firm, especially when
combined with an evaluation of how well it is using its working capital. The measure is
commonly reported on a trend line, to judge performance over time. It is also used to
compare the results of a business with its competitors. In the year 2014, the net profit ratio
was 0.248 and it is increasing thereafter
61
CHART 4
CHART SHOWING NET PROFIT RATIO
0.8
0.69 0.71
0.7
0.62
0.6 0.57
0.5
0.4
0.3 0.25
0.2
0.1
0
2014 2015 2016 2017 2018
Net Profit Ratio
GROSS PROFIT RATIO
62
The ratio is computed by dividing the gross profit figure by net sales.
Gross Profit Ratio = Gross Profit

Net Sales
Where;
Gross Profit = Operating Profit + Operating expenses
TABLE 9
TABLE SHOWING GROSS PROFIT RATIO
Years Gross Profit Net Sales Gross Profit Ratio
2014 30,854,152.38 124,612,231.32 0.248
2015 102,250,057.89 148,745,150.78 0.688
2016 81,117,232.38 142,008,057.06 0.572
2017 92,429,095.13 148,703,146.00 0.622
2018 104,283,901.36 147,856,830.33 0.706
Interpretation:
Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between gross
profit and total net sales revenue. It is a popular tool to evaluate the operational performance of
the business. This ratio measures the margin of profit available on sales. The higher the gross
profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio
should be adequate enough not only to cover the operating expenses but also to provide for
depreciation, interest on loans, dividends and creation of reserves. In the year 2014, the gross
profit ratio was 0.248 and it is increasing thereafter
63
CHART 5
CHART SHOWING GROSS PROFIT RATIO
0.8
0.69 0.71
0.7
0.62
0.6 0.57
0.5
0.4
0.3
0.25
0.2
0.1
0
2014 2015 2016 2017 2018
Gross Profit Ratio
64
EXPENSES RATIO
Expenses ratio is calculated as:
Expenses Ratio = Total Expenses
Net Sales
TABLE 10
TABLE SHOWING EXPENSES RATIO
Years Total Expenses Net Sales Expenses Ratio
2014 98,484,416.21 124,612,231.32 0.79
2015 51,333,109.93 148,745,150.78 0.35
2016 65,746,075.79 142,008,057.06 0.46
2017 60,930,728.84 148,703,146.00 0.41
2018 51,370,565.77 147,856,830.33 0.35
Interpretation:
Expenses ratio shows the efficiency of a company's management by comparing total expenses to
net sales. The smaller the ratio, the greater the organization's ability to generate profit if revenues
decrease, when using this ratio, however, investors should be aware that it doesn't take debt
repayment or expansion into account. In the year 2014, the expenses ratio was 0.79 and it is
decreasing year on year showing a favourable sign for the company
CHART 6
65
CHART SHOWING EXPENSES RATIO
0.9
0.79
0.8
0.7
0.6
0.5 0.46
0.41
0.4 0.35 0.35
0.3
0.2
0.1
0
2014 2015 2016 2017 2018
Expenses Ratio
OPERATING RATIO
66
Operating Ratio is calculated as,
Operating Ratio = Operating Profit
Net Sales
TABLE 11
TABLE SHOWING OPERATING RATIO
Years Operating Profit Net Sales Operating Ratio
2014 30,889,047.27 124,612,231.32 0.25
2015 102,283,108.74 148,745,150.78 0.69
2016 81,153,154.99 142,008,057.06 0.57
2017 92,483,599.05 148,703,146.00 0.62
2018 104,327,300.00 147,856,830.33 0.71
Interpretation:
This ratio indicates the profitability of current operations. This ratio does not take into account
the company's capital and tax structure. This ratio measures the rate of net profit earned on sales.
It helps in determining the overall efficiency of the business operations. An increase in the ratio
over the previous year shows improvement in the overall efficiency and profitability of the
business. In the year 2014, this ratio was 0.25 and it is increasing from then every year showing a
good sign for the company
CHART 7
CHART SHOWING OPERATING RATIO
67
0.8
0.69 0.71
0.7
0.62
0.6 0.57
0.5
0.4
0.3 0.25
0.2
0.1
0
2014 2015 2016 2017 2018
Operating Ratio
WORKING CAPITAL RATIO

 Stock Turnover Ratio
68
 Debtor Turnover Ratio
 Creditor Turnover Ratio
 Working Capital Ratio
 Working Capital to Fixed Assets Ratio
STOCK TURNOVER RATIO

Formula for Stock / inventories turnover ratio is,
Stock Turnover Ratio = Turnover
Inventories
TABLE 12
TABLE SHOWING STOCK TURNOVER RATIO
Years Net Sales Inventories Stock Turnover Ratio
2014 124,612,231.32 29532597.90 4.22
2015 148,745,150.78 36636738.47 4.06
2016 142,008,057.06 38544794.21 3.68
2017 148,703,146.00 49074975.36 3.03
2018 147,856,830.33 53023808.92 2.79
Interpretation:
This ratio indicates the relationship between the cost of goods during the year and average stock
kept during that year. This ratio indicates whether stock has been used or not. It shows the speed
with which the stock is rotated into sales or the number of times the stock is turned into sales
during the year. The higher the ratio, the better it is, since it indicates that stock is selling
quickly. In a business where stock turnover ratio is high, goods can be sold at a low margin of
profit and even than the profitability may be quit high. In the year 2014, this ratio was 4.22 and it
is decreasing gradually from then
CHART 8
CHART SHOWING STOCK TURNOVER RATIO
69
4.5 4.22
4.06
4
3.68
3.5
3.03
3 2.79
2.5
1.5
0.5
0
2014 2015 2016 2017 2018
Stock Turnover Ratio
DEBTOR TURNOVER RATIO

This ratio is usually expressed as followed:
70
Turnover
Debtors turnover ratio = ___________
Debtors
TABLE 13
TABLE SHOWING DEBTOR TURNOVER RATIO
Years Net Sales Trade Debtor Debtor Turnover Ratio
2014 124,612,231.32 18274218.52 6.82
2015 148,745,150.78 27532233.41 5.40
2016 142,008,057.06 34772344.92 4.08
2017 148,703,146.00 49578450.05 3.00
2018 147,856,830.33 58212161.02 2.54

Interpretation:
Debtor’s turnover ratio is also called as receivables turnover ratio or debtors velocity. A business
concern generally adopts different methods of sales. One of them is selling on credit. Debtors
turnover ratio measure the number of times the receivables are rotated in a year in terms of sales.
In the year 2014, this ratio was 6.82 and it is decreasing gradually from then
CHART 9
71
CHART SHOWING DEBTOR TURNOVER RATIO
8
7 6.82
6
5.4
5
4.08
4
3
3 2.54
0
2014 2015 2016 2017 2018
Debtor Turnover Ratio
CREDITOR TURNOVER RATIO

This ratio is usually expressed as followed:
72
Creditors Turnover Ratio = Turnover
Trade payables
TABLE 14
TABLE SHOWING CREDITOR TURNOVER RATIO
Years Net Sales Trade Payable Creditor Turnover Ratio
2014 124,612,231.32 0.00 0.00
2015 148,745,150.78 0.00 0.00
2016 142,008,057.06 0.00 0.00
2017 148,703,146.00 33062187.30 4.50
2018 147,856,830.33 24069411.22 6.14
Interpretation:
This ratio indicates the relationship between credit purchases and average creditors during the
year. This ratio indicates the speed with which the amount is being paid to creditors. The higher
the ratio, the better it is, since it will indicate that the creditors are being paid more quickly which
increases the credit worthiness of the firm. Turnover ratio measure the number of times the
receivables are rotated in a year in terms of sales. In the year 2017, this ratio was 4.50 and in
2018 it is 6.14
CHART 10
CHART SHOWING CREDITOR TURNOVER RATIO
73
7
6.14
6
5
4.5
0 0 0
0
2014 2015 2016 2017 2018
Creditor Turnover Ratio
WORKING CAPITAL TURNOVER RATIO

The following formula is used for computation,
74
Working Capital Turnover Ratio = Turnover
________________________________________
Working Capital (Current Assets – Current Liabilities)
TABLE 15
TABLE SHOWING WORKING CAPITAL COMPUTATION
Years CA CL Working Capital
2014 56,132,794.31 7,929,635.83 48,203,158.48
2015 78,987,183.77 8,690,005.75 70,297,178.02
2016 99,628,120.40 14,066,553.76 85,561,566.64
2017 119,900,229.51 93,253,414.74 26,646,814.77
2018 136,700,747.40 98,234,418.41 38,466,328.99
Interpretation:
The above table shows the working capital of the company. This shows the increasing trend of
working capital in 2014, 2015 and 2016 but meets a sudden fall in 2017 and 2018 due to
increased current liability proportionate to current assets
CHART 11
CHART SHOWING WORKING CAPITAL TURNOVER RATIO
75
85,561,566.64
90,000,000
80,000,000 70,297,178.02
70,000,000
60,000,000 48,203,158.48
50,000,000 38,466,328.99
40,000,000
26,646,814.77
30,000,000
20,000,000
10,000,000
0
2014 2015 2016 2017 2018
Working Capital
TABLE 16
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
76
Years Net Sales Working Capital WC Turnover Ratio
2014 124,612,231.32 48,203,158.48 2.59
2015 148,745,150.78 70,297,178.02 2.12
2016 142,008,057.06 85,561,566.64 1.66
2017 148,703,146.00 26,646,814.77 5.58
2018 147,856,830.33 38,466,328.99 3.84

Interpretation:
The working capital turnover ratio is also referred to as net sales to working capital. It indicates a
company's effectiveness in using its working capital. The working capital turnover ratio is
calculated as follows: net annual sales divided by the working capital of the same period. In the
year 2014, this ratio was 2.59 and it is highly volatile
CHART 12
CHART SHOWING WORKING CAPITAL TURNOVER RATIO
6
5.58
4 3.84
3
2.59
2.12
2 1.66
0
2014 2015 2016 2017 2018
WC Turnover Ratio
WORKING CAPITAL TO FIXED ASSETS

Working Capital To fixed assets Ratio = Working Capital
77
____________________
Fixed Assets
TABLE 17
TABLE SHOWING WORKING CAPITAL TO FIXED ASSETS RATIO
Years Working Capital Fixed Assets WC to fixed assets Ratio
2014 48,203,158.48 48203158.48 3.02
2015 70,297,178.02 70297178.02 4.26
2016 85,561,566.64 85561566.64 3.33
2017 26,646,814.77 26646814.77 1.11
2018 38,466,328.99 38466328.99 1.67

Interpretation:
The Working Capital to fixed Assets ratio measures a company’s ability to cover its short term
financial obligations (Total Current Liabilities) by comparing its fixed assets. This ratio can
provide some insight as to the liquidity of the company, since this ratio can uncover the working
capital compared to the company’s fixed Assets. In the year 2014, this ratio was 3.02 and it
showed an increasing trend up to 2016 but meets a sudden fall during 2017 and 2018 reaching
1.67 in 2018
CHART 13
78
CHART SHOWING WORKING CAPITAL TO FIXED ASSETS RATIO
4.5 4.26
4
3.5 3.33
3.02
3
2.5
2
1.67
1.5
1.11
1
0.5
0
2014 2015 2016 2017 2018
WC to fixed assets Ratio
RETURN ON INVESTMENT
This can be calculated as follows,
79
Return on Investment (ROI) = Net Profit _______
Total Investment * 100
TABLE 18
TABLE SHOWING RETURN ON INVESTMENT
Years Net Profit Total Investment ROI
2014 30,854,152.38 0 0%
2015 102,250,057.89 0 0%
2016 81,117,232.38 0 0%
2017 92,429,095.13 384051.85 2.41%
2018 104,283,901.36 368011.85 2.83%
Interpretation:
Return on Investment (ROI) is a performance measure, used to evaluate the efficiency of an
investment or compare the efficiency of a number of different investments. ROI measures the
amount of return on an investment, relative to the investment’s cost. In the year 2016, the ROI
percentage is 2.41 and it increased in 2018 as 2.83%. Showing a good sign of returns to the
company in its investments
CHART 14
CHART SHOWING RETURN ON INVESTMENT
80
3%
3%
2%
3%
2%
2%
1%
1%
0% 0% 0%
0%
2014 2015 2016 2017 2018
ROI
4.3 COMMON SIZE BALANCE SHEET

TABLE 19
81
COMMON-SIZE BALANCE SHEET OF AVTAR STEEL INDUSTRIES FOR THE
YEAR 2014-2015
Liabilities 2014 Percentage 2015 Percentage
Sources Of Funds
Share Holders Fund
Total Share Capital 10500000 14.56 10500000 11.00
Reserves & Surplus 4593664.53 6.37 6022355.59 6.31
Non-Current Liabilities
Long Term Borrowings 48287606.84 66.97 69461995.2 72.76
Deferred Tax Liabilities 794209 1.10 798939 0.84
Other Long term liabilities 0 0.00 0 0.00
Current Liabilities
Short Term borrowings 0 0.00 0 0.00
Trade Payables 0 0.00 0 0.00
Other current liabilities 4943090.83 6.86 7540005.75 7.90
Short term provisions 2986545 4.14 1150000 1.20
Total Liabilities 72,105,116.20 100.00 95,473,295.54 100.00
Assets
Non-Current Assets
Fixed Assets-Tangible 15972321.89 22.15 16486111.77 17.27
Long Term loans & advances 0 0.00 0 0.00
Current Assets
Current investments 6353891.92 8.81 4996675.83 5.23
Inventories 29532597.9 40.96 36636738.47 38.37
Trade Receivables 18274218.52 25.34 27532233.41 28.84
Cash and cash equivalents 1972085.97 2.74 9821536.06 10.29
Short Term loans & advances 0 0.00 0 0.00
Total 72105116.2 100.00 95473295.54 100.00
Interpretation: The above table reveals the common-size balance sheet of Avtar Steel Industries
for the year 2014 and 2015. The company’s fixed assets got a sudden steep from 22.15% to
17.27% followed by 2014 and 2015. The company’s trade receivables and cash equivalents
showed a decent rise. The company’s non-current and current liabilities are showing adverse
effects. Finally it can be concluded that the overall financial position of the company is satisfied.
TABLE 20
82
YEAR 2015-2016
Sources Of Funds
Share Holders Fund
Defferred Tax Liabilities 798939 0.84 949181 0.76
Current Liabilities
Short Term borrowings 0 0.00 0 0.00
Trade Payables 0 0.00 0 0.00
Assets
Non-Current Assets
Long Term loans & advances 0 0.00 0 0.00
Current Assets
Current investments 4996675.83 6.93 21700942.21 17.32
Inventories 36636738.47 50.81 38544794.21 30.76
Short Term loans & advances 0 0.00 0 0.00
Total 95473295.54 100.00 125303983.1 100.00
showed a decent rise. The company’s non-current and current liabilities are showing better
results comparing to previous years. Finally it can be concluded that the overall financial
position of the company is satisfied.
83
TABLE 21
YEAR 2016-2017
Sources Of Funds
Share Holders Fund
Current Liabilities
Short Term borrowings 0 0.00 48348589.78 33.51
Trade Payables 0 0.00 33062187.3 22.92
Assets
Non-Current Assets
Long Term loans & advances 0 0.00 384051.85 0.27
Current Assets
Current investments 21700942.21 17.32 1150451 0.80
Inventories 38544794.21 30.76 49074975.36 34.02
Short Term loans & advances 0 0.00 15667143.13 10.86
Total 125303983.1 100.00 144266236.2 100.00
showed a decent rise. The company’s non-current is showing better results comparing to
previous years but current liabilities are not performing well. Finally it can be concluded that the
overall financial position of the company is satisfied.
84
TABLE 22
YEAR 2017-2018
Sources Of Funds
Share Holders Fund
Long Term Borrowings 19726750.11 13.67 31429112 19.64
Current Liabilities
Short Term borrowings 48348589.78 33.51 62158870.51 38.84
Trade Payables 33062187.3 22.92 24069411.22 15.04
Assets
Non-Current Assets
Long Term loans & advances 384051.85 0.27 368011.85 0.23
Current Assets
Current investments 1150451 0.80 1150451 0.72
Inventories 49074975.36 34.02 53023808.92 33.13
Short Term loans & advances 15667143.13 10.86 19276051.18 12.04
Total 144266236.2 100.00 160040788 100.00
showed a decent rise. The company’s non-current is showing better results comparing to
previous years but current liabilities are not performing well. Finally it can be concluded that the
85
4.4 COMPARATIVE BALANCE SHEET
TABLE 23
COMPARATIVE BALANCE SHEET FY 2014-2015
Liabilities 2014 2015 Increase Decrease
Sources Of Funds
Share Holders Fund
Total Share Capital 10500000 10500000 0
Reserves & Surplus 4593664.53 6022355.59 1428691.06
Long Term Borrowings 48287606.84 69461995.2 21174388.36
Deferred Tax Liabilities 794209 798939 4730
Other Long term liabilities 0 0 0
Current Liabilities
Short Term borrowings 0 0 0
Trade Payables 0 0 0
Other current liabilities 4943090.83 7540005.75 2596914.92
Short term provisions 2986545 1150000 1836545
Total Liabilities 72,105,116.20 95,473,295.54
Assets
Non-Current Assets
Fixed Assets-Tangible 15972321.89 16486111.77 513789.88
Long Term loans & advances 0 0 0
Current Assets
Inventories 29532597.9 36636738.47 7104140.57
Trade Receivables 18274218.52 27532233.41 9258014.89
Cash and cash equivalents 1972085.97 9821536.06 7849450.09
Short Term loans & advances 0 0 0
Total 72105116.2 95473295.54
Interpretation: The above table reveals the comparative balance sheet of Avtar Steel Industries
for the year 2014 and 2015. The company’s current assets increased. The comparative balance
sheet of the company shows that the overall financial position of the company is good
TABLE 24
Sources Of Funds
Share Holders Fund
86
Non-Current Liabilities 0
Long Term Borrowings 69461995.2 89748796.43 20286801.23
Defferred Tax Liabilities 798939 949181 150242
Other Long term liabilities 0 0
Current Liabilities
Short Term borrowings 0 0 0
Trade Payables 0 0
Assets
Non-Current Assets
Fixed Assets-Tangible 16486111.77 25675862.66 9189751
Long Term loans & advances 0 0
Current Assets
Current investments 4996675.83 21700942.21 16704266
Inventories 36636738.47 38544794.21 1908056
Cash and cash equivalents 9821536.06 4610039.06 5211497
Short Term loans & advances 0 0 0
Total 95473295.54 125303983.1
for the year 2015 and 2016. The company’s current assets increased from the previous year. The
comparative balance sheet of the company shows that during these years the assets value faced a
sudden fall this might be due to decrease in inventories and capital work in progress
TABLE 25

Sources Of Funds
Share Holders Fund
87
Non-Current Liabilities 0
Long Term Borrowings 89748796.43 19726750.11 70022046
Current Liabilities
Short Term borrowings 0 48348589.78 48348589.78
Trade Payables 0 33062187.3 33062187.3
Other current liabilities 12207648.76 9609637.66 2598011
Assets
Non-Current Assets
Long Term loans & advances 0 384051.85 384051.9
Current Assets
Current investments 21700942.21 1150451 20550491.21
Inventories 38544794.21 49074975.36 10530181
Short Term loans & advances 0 15667143.13 15667143
Total 125303983.1 144266236.2
sheet of the company shows that during these years the assets value faced a slight fall this might
be due to decrease in current investments and net fixed assets
TABLE 26
Sources Of Funds
Share Holders Fund
88
Long Term Borrowings 19726750.11 31429112 11702362
Current Liabilities
Short Term borrowings 48348589.78 62158870.51 13810281
Trade Payables 33062187.3 24069411.22 8992776
Assets
Non-Current Assets
Long Term loans & advances 384051.85 368011.85 16040
Current Assets
Current investments 1150451 1150451 0
Inventories 49074975.36 53023808.92 3948834
Short Term loans & advances 15667143.13 19276051.18 3608908
Total 144266236.2 160040788
sheet of the company shows that during these years the assets value faced a sudden fall this
might be due to decrease in fixed assets and long term loans
4.5 TREND ANALYSIS

TABLE 27
TABLE SHOWING TREND ANALYSIS OF CURRENT ASSETS
Years X Y X2 XY Trend Value Deviation
2014 -2 56132794.31 4 -112265589 -57860024.76 113992819.1
2015 -1 78987183.77 1 -78987183.8 -8725117.2 87712300.97
89
2016 0 99628120.40 0 0 40409790.36 59218330.04
2017 1 119900229.51 1 119900229.5 89544697.92 30355531.59
2018 2 136700747.36 4 273401494.7 138679605.5 -1978858.14
TOTAL 491349075.35 10 202048951.8
Trend Line (Yc) = A + BX

Deviation = Y – Trend Value
Where A = ∑Y/N
B = ∑XY / ∑X2
202048951.8
A = ---------------- = 40409790.36
5
491349075.35
B = ------------------- = 49134907.56
10
Yc = 40409790.36 + [49134907.56 (-2)]

= -57860024.76
Yc = 40409790.36 + [49134907.56 (-1)]
= -8725117.2
Yc = 40409790.36 + [49134907.56 (0)]
= 40409790.36
Yc = 40409790.36 + [49134907.56 (1)]
= 89544697.92
Yc = 40409790.36 + [49134907.56 (2)]
= 138679605.5
CHART 15
CHART SHOWING THE TREND VALUE OF CURRENT ASSETS
90
200000000
150000000
100000000
50000000
0
2014 2015 2016 2017 2018
-50000000
-100000000
Trend Value Deviation
TABLE 28
PROJECTED TREND VALUE – CURRENT ASSETS
FOR THE FORTHCOMING YEARS (2018 TO 2022)
YEAR FUTURE TREND (Trend value + B)
2018 138679605.5
2019 187814513.1
2020 236949420.6
2021 286084328.2
2022 335219235.7
Interpretation: The trend analysis for the above years shows only a marginal increase. This is
mainly due to the reason that these data’s have been arrived in comparison with the last 5 years
current assets value. There was no phenomenal increase in growth in term of assets during 2018
and this is the one of the major reasons that the projections are also showing only a marginal
increase. In reality if we assume that the same increasing in trend continues compared to 2018,
the ratio for the above five years will be still higher.
CHART 16
CHART SHOWING TREND ANALYSIS OF CURRENT ASSETS
91
2022 335219235.7
2021 286084328.2
2020 236949420.6
2019 187814513.1
2018 138679605.5
FUTURE TREND
CHAPTER 5
FINDINGS AND SUGGESTIONS
92
5.1 FINDINGS OF THE STUDY
 The working capital statement of Avtar Steel Industries for the year 2017 and 2018 shows
Current assets of the company an increasing trend from the year 2017-2018. Current
liabilities increased from 2017 – 2018. This results in a decrease in working capital
liabilities increased from 2016 – 2017. This results in an increase in working capital
liabilities increased from2015-2016. This results in a decrease in working capital
liabilities increased from 2014-2015. This results in a decrease in working capital
 The current ratio in 2014 and 2015, the current asset ratio was 7.08 and 9.09 respectively.
But it started decreasing in the consequent years to 1.29 in 2017, 1.39 in 2018
 The liquid ratio for the year 2014 was 3.35, and in 2018 it was 0.85. This sudden fall is
due to the increase in current liabilities
 In the year 2014, the cash position ratio was 3.35 and it increased in 2015 and 2016 but
meet a sudden fall during 2017 and 2018 as 0.76 and 0.85
 In the year 2014, the net profit ratio was 0.248 and it is increasing thereafter
 In the year 2014, the gross profit ratio was 0.248 and it is increasing thereafter
 In the year 2014, the expenses ratio was 0.79 and it is decreasing year on year showing a
favourable sign for the company
 In the year 2014, this ratio was 0.25 and it is increasing from then every year showing a
good sign for the company
 In the year 2014, the stock turnover ratio was 4.22 and is decreasing gradually from then
 In the year 2014, debtor turnover ratio was 6.82 and it is decreasing gradually from then
 In the year 2017, creditor turnover ratio was 4.50 and in 2018 it is 6.14
 The working capital of the company shows the increasing trend in 2014, 2015 and 2016
but meets a sudden fall in 2017 and 2018 due to increased current liability proportionate
to current assets
93
 In the year 2014, the working capital turnover ratio was 2.59 and it is highly volatile
 In the year 2014, working Capital to fixed Assets ratio was 3.02 and it showed an
increasing trend up to 2016 but meets a sudden fall during 2017 and 2018 reaching 1.67
in 2018
 In the year 2016, the ROI percentage is 2.41 and it increased in 2018 as 2.83%. Showing
a good sign of returns to the company in its investments
 The common-size balance sheet of Avtar Steel Industries for the year 2014 and 2015
reveals the company’s fixed assets got a sudden steep from 22.15% to 17.27% followed
by 2014 and 2015. The company’s trade receivables and cash equivalents showed a
decent rise. The company’s non-current and current liabilities are showing adverse
effects. Finally it can be concluded that the overall financial position of the company is
satisfied.
decent rise. The company’s non-current and current liabilities are showing better results
comparing to previous years. Finally it can be concluded that the overall financial
position of the company is satisfied.
decent rise. The company’s non-current is showing better results comparing to previous
years but current liabilities are not performing well. Finally it can be concluded that the
decent rise. The company’s non-current is showing better results comparing to previous
years but current liabilities are not performing well. Finally it can be concluded that the
overall financial position of the company is satisfied
94
 The comparative balance sheet of Avtar Steel Industries for the year 2014 and 2015
reveals the company’s current assets increased. The comparative balance sheet of the
company shows that the overall financial position of the company is good
reveals the company’s current assets increased from the previous year. The comparative
balance sheet of the company shows that during these years the assets value faced a
sudden fall this might be due to decrease in inventories and capital work in progress
company shows that during these years the assets value faced a slight fall this might be
due to decrease in current investments and net fixed assets
company shows that during these years the assets value faced a sudden fall this might be
due to decrease in fixed assets and long term loans
 The trend analysis for the above years shows only a marginal increase. This is mainly due
to the reason that these data’s have been arrived in comparison with the last 5 years
current assets value. There was no phenomenal increase in growth in term of assets
during 2018 and this is the one of the major reasons that the projections are also showing
only a marginal increase. In reality if we assume that the same increasing in trend
continues compared to 2018, the ratio for the above five years will be still higher.
5.2 SUGGESTIONS OF THE STUDY
95
 The Interest-coverage ratio is in decreasing trend which is the danger signal for the
company. In my point of view, the company should borrow the long term loan for
increase its productivity.
 The carrying cost is increased due to high inventory. So in my point of view the company
has to convert the stock into the sales as quickly as possible.
 The asset turnover ratio which represents the company’s ability for its production
capacity is declined. So the company has to increase the asset for its better production.
 There is a necessity to control the expenditure with regard to the income.
 The profitability position of the company was fluctuating for three years once it was
increasing and once was decreasing it is to be improved.
 If required the company may diversify into non-defense also.
 The company should focus on improving its operating margins rather than non-operating
incomes.
 The company should concentrate on optimum utilization of its capacity.
 Promote welfare activities to raise morale of the employees.
 A focused marketing strategy/road map must be chalked out to boost up its sales.
5.3 CONCLUSION OF THE STUDY
96
Ratio analysis is a tool which is used for analysis of financial statement and it is the relation
between two figures in the same unit. After examining and studying the trend in Ratio analysis of
Avtar Steel Industries. We find that the organization follows all the necessary amendments
needed for the preparation of Ratio analysis of the company registered under the Companies Act,
1956. The financial strength of Avtar Steel Industries is at satisfactory level. The analysis of
asset turn over leads us to believe that the organization is constantly having a watch over the use
and replacement of its productive assets Avtar Steel Industries. Even though is a public sector
organization, is well versed with the latest developments in production technique as well as
accounting practices. This can be looked upon as a contrary to the public sector undertakings in
India. Through the analysis and findings of this project, it can be concluded that Avtar Steel
Industries is nurtured in the right direction by its management as well as employees and will
continue to be a role model for companies in the future.
Avtar Steels is showing fluctuations in its profitability position from the past 5 years, which is
concluded with the financial statement analysis. The previous year assets were also increased but
its working capital position was decreasing which says that the company was unable to meet its
current liabilities. The calculation of current ratio and liquid ratio will enable the creditors to
access the current position of the concern in relation to their debts. Preparation of financial
statements enables the Government to find out whether the organization is following various
rules and regulations or not. These statements provide a base for the regulation for the firm. The
financial statements are useful for accessing the efficiency for different cost centers as the
management is able to exercise cost control through these statements. It is not only helpful to
analyze the present financial position but it will also study future prospects and expansion plans
of the concern.
ANNEXURE - I
97
BIBLIOGRAPHY
Books:
 FINANCE MANAGEMENT-I.M. Pandey, Vikas publishing house, New Delhi.

 FINANCE MANAGEMENT-M.Y Khan &P.K.Jain, Vikas Publishing house, New Delhi
 FINANCE MANAGEMENT THEORY & PRACTICES - Prasanna Chandra, Tata
McGraw Hill publishing, Company Ltd. New Delhi.
 PRODUCTION AND OPERATION MANAGEMENT-K.Aswathappa&K.SridherBhat,
Himalaya Publication. Mumbai
 RESEARCH METHODOLOGY METHODS AND TECHNIQUES- C.R.Kotari,
V.S.Johari Publishers, New Delhi
Web Sites:
 www.studyfinance.com
 www.wikipedia.com
 www.financialexpress.com
Financial dailies.
 Economic Times
 Business Standard
Business Magazines
 Business India
 Business World
ANNEXURE II
BALANCE SHEET OF AVTAR STEEL INDUSTRIES- MARCH 2014-2018
98
Equity & Liabilities Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
Share Holders Fund
Total Share Capital 10500000.00 10500000.00 10500000.00 10500000.00 10500000.00
Reserves & Surplus 19053010.60 14302931.38 10039451.87 6022355.59 4593664.53
Long Term Borrowings 31429112.00 19726750.11 89748796.43 69461995.20 48287606.84
Defferred Tax Liabilities 824247.00 879837.00 949181.00 798939.00 794209.00
Other Long term liabilities 0.00 5603303.00 0.00 0.00 0.00
Current Liabilities
Short Term borrowings 62158870.51 48348589.78 0.00 0.00 0.00
Trade Payables 24069411.22 33062187.30 0.00 0.00 0.00
Other current liabilities 9706136.68 9609637.66 12207648.76 7540005.75 4943090.83
Short term provisions 2300000.00 2233000.00 1858905.00 1150000.00 2986545.00
95,473,295.5
Total 160,040,788.01 144,266,236.23 125,303,983.06 4 72,105,116.20

Assets Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
Non-Current Assets
Fixed Assets-Tangible 22972028.80 23981954.87 25675862.66 16486111.77 15972321.89
Long Term loans & advances 368011.85 384051.85 0.00 0.00 0.00
Current Assets
Current investments 1150451.00 1150451.00 21700942.21 4996675.83 6353891.92
Inventories 53023808.92 49074975.36 38544794.21 36636738.47 29532597.90
Trade Receivables 58212161.02 49578450.05 34772344.92 27532233.41 18274218.52
Cash and cash equivalents 5038275.24 4429209.97 4610039.06 9821536.06 1972085.97
Short Term loans & advances 19276051.18 15667143.13 0.00 0.00 0.00
Total 160040788.01 144266236.23 125303983.06 95473295.54 72105116.20
99
INCOME & EXPENDITURE STATEMENT OF AVTAR STEEL INDUSTRIES-
MARCH 2014-2018
Income Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
Income from sale of 142,008,057.0
147,856,830.33 148,703,146.00 148,745,150.78 124,612,231.32
Goods 6
Other Income 7,841,035.44 4,711,181.89 4,891,173.72 4,871,067.89 4,761,232.16
146,899,230.7
Total Income 155,697,865.77 153,414,327.89 153,616,218.67 129,373,463.48
8
Expenditure Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
Manufacturing cost 31,471,667.13 41,555,524.92 45,758,453.18 31,987,559.08 78,725,813.32
Employee Cost 4,564,679.76 4,758,132.69 4,278,212.39 4,215,467.39 3,811,483.96
Selling and Admin
5,456,254.62 6,271,022.28 6,014,660.62 5,814,564.91 6,011,128.19
Expenses
Depreciation 3,456,884.56 2,874,971.63 3,415,787.89 3,174,102.45 3,674,788.89
Miscellaneous Expenses 6,421,079.70 5,471,077.32 6,278,961.71 6,141,416.10 6,261,201.85
Total Expenses 51,370,565.77 60,930,728.84 65,746,075.79 51,333,109.93 98,484,416.21
Operating Profit 104,327,300.00 92,483,599.05 81,153,154.99 102,283,108.74 30,889,047.27
Preoperative Exp
0 0 0 0 0
Capitalized
Operating Expenses 41,428.79 52,639.96 34,122.35 31,749.87 32,939.69
Provisions &
1969.85 1863.96 1800.26 1300.98 1955.2
Contingencies
Net Expenses 51,413,964.41 60,985,232.76 65,781,998.40 51,366,160.78 98,519,311.10
Net Profit for the Year 104,283,901.36 92,429,095.13 81,117,232.38 102,250,057.89 30,854,152.38
Extraordinary Items 0 0 0 0 -8.3
146,863,308.1
Total 155,654,467.13 153,359,823.97 153,583,167.82 129,338,568.59
7
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A STUDY ON FINANCIAL RATIO ANALYSIS OF AVTAR STEEL INDUSTRIES IN

Method of Expressions of Ratio

Example: Stock turnover ratio is eight times a year.

As a Pure Ratio or Proportion between Two Figures

Example: Current ratio is 2:1

It is a special type of rate expressing the relationship in hundred

Example: Gross profit ratio is 30%

 Re-structuring, classification grouping, or re-arrangement of the data found in the

Significance of Ratio Analysis

 It is a way by which financial stability and wealth of a concern can be adjusted. It is

 Short term and long term Planning.

According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio is an expression of

Ratio may be classified into the four categories as follows:

A. Liquidity Ratio

B. Leverage or Capital Structure Ratio

a. Debt Equity Ratio

C. Activity Ratio or Turnover Ratio

a. Stock Turnover Ratio

Profitability Ratio based on Sales:

a. Gross Profit Ratio

Profitability Ratio Based on Investment:

a. Return on Capital Employed

b. Return on Shareholder’s Funds:

a) Return on Total Shareholder’s Funds

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

Current Ratio = CurrentAssets/ CurrentLiabilities

Significance:- According to accounting principles, a current ratio of 2:1 is supposed to be an

Liquid Assets = Current Assets – Stock – Prepaid Expenses

Significance:-An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better.

LEVERAGE OR CAPITAL STRUCTURE RATIO

These ratio include the following ratios :

Second Approach: According to this approach the ratio is calculated as follows:-

Debt equity ratio is calculated for using second approach.

Significance:- Generally, debt to total funds ratio of 0.67:1 (or

Formula: Proprietary Ratio = Shareholder’s Funds/Shareholder’s Funds + Long term

This ratio measures the margin of safety for long-term lenders.

An interest coverage ratio of 6 or 7 times is considered appropriate.

ACTIVITY RATIO OR TURNOVER RATIO

It includes the following:

Stock Turnover Ratio = Cost of Goods Sold / Average Stock

Here, Cost of goods sold = Net Sales – Gross Profit

Average Stock = Opening Stock + Closing Stock/2

Average Collection Period = Average Debtors *365 / Net Credit Sales

Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio

Average Payment Period = Creditors + B/P/ Credit Purchase per day

This ratio may also be calculated as follows:

Average Payment Period = 12 months or 365 days / Creditors Turnover Ratio

Here, Net Fixed Assets = Fixed Assets – Depreciation

Working Capital Turnover Ratio = Cost of Goods Sold / Working Capital

Working Capital = Current Assets – Current Liabilities

Significance:-This ratio is of particular importance in non-manufacturing concerns where

A low working capital turnover ratio indicates under-utilisation of working capital.

Profitability Ratios or Income Ratios

Profitability ratios are calculated to provide answers to the following questions:

Profitability Ratio Based on Sales :

Gross Profit Ratio = Gross Profit / Net Sales *100

Here, Net Sales = Sales – Sales Return

Net Profit Ratio = Net Profit / Net sales *100

Operating Net Profit = Operating Net Profit / Net Sales *100

Significance:- Operating Ratio is a measurement of the efficiency and profitability of the

The ratio may be calculated as:

(a) Material Consumed Ratio = Material Consumed/Net Sales*100