CHAPTER 3

I. INTRODUCTION
II. PROFIT AND LOSS ACCOUNT
III. RATIOS
 INTRODUCTION
INTRODUCTION OF FINANCE DEPARTMENT
The business Functions of a finance department typically include planning,
organizing, auditing, accounting for and controlling its company’s finance. The
finance department also usually produces the company’s financial statements.
“Financial management is the operational activity of a business that is responsible
for obtaining and effectively utilizing the funds necessary for efficient operation.

Overview of the Finance Department: -

C.M.D.
(CHIEF MANAGING
DIRECTOR )

Final
approval

C.E.O.

(CHIEF EXECUTIVE
OFFICER)

C.F.O

(Chief Financial
Officer)

A/C DEPARTMENT
 STATEMENT OF PROFIT AND LOSS

NO. PARTICULARS YEAR ENDED 31 YEAR ENDED 31

March 2020 March 2019
(IN CRORES’) (IN CRORES’)
A INCOME
1 Revenue from Operations 46807.34 45784.39
2 Other Income 3013.66 2484.54
I TOTAL INCOME 49821.00 48268.93
B EXPENSES
1 Cost Of Materials Consumed 13121.76 13184.97
2 Purchase of Stock-in-Trade 4289.71 4300.32
3 Changes In Inventories (176.34) (180.14)
4 Excise duty 1187.64 788.74
5 Employees Benefits Expense 2658.21 2728.44
`6 Finance Cost 55.72 34.19
7 Depreciation And Amortization 1563.27 1311.70
8 Other Expenses 7822.11 7656.55
II TOTAL EXPENSES 30522.08 29824.77
C PROFIT BEFORE TAX (I - II) 19298.92 18444.16
D Tax Expense 15136.05 12464.32
E PROFIT AFTER TAX (C-D) 4162.87 5979.84
 RATIOS

1. NET PROFIT RATIO

It is a measure of profitability. It is calculated by finding the net profit as

a % of the revenue.

NET PROFIT RATIO = NET PROFIT * 100/ SALES

 15136.05 * 100/ 46807.34 = 32.34%

2. OPERATING RATIO
It is company’s operating expense as a percentage of revenue.
OPERATING RATIO = OPERATING EXPENSE *100/ SALES
 30522.08 * 100/ 46807.34 = 65.21%

3. CURRENT RATIO
It is a liquidity ratio that measures a company’s ability to pay short term
obligations or those due within a year.
CURRENT RATIO = CURRENT ASSETS/ CURRENT LIABILITIES
 36506.91/ 9089.41 = 4.01

4. QUICK RATIO
It is a liquidity ratio, which measures the ability of a company to use its
near cash or quick assets to extinguish its current liabilities
immediately.
QUICK RATIO = CURRENT ASSETS - INVENTORY/ CURRENT
LIABILITIES
 36506.91 – 8038.07/ 9089.41 = 3.13
5. DEBT EQUITY RATIO
It is a measure of relative contribution of creditors and shareholders
or owners in the capital employed in business.
DEBT EQUITY RATIO = LONG TERM DEBTS/ EQUITY
 2116.79/ 64029.16 = 0.033

6. RETURN ON CAPITAL EMPLOYED

Return on capital employed is calculated by dividing net profit or
EBIT by employed capital.
RETURN ON CAPITAL EMPLOYED = EBIT/ TOTAL ASSETS
-TOTAL CURRENT LIABILITIES
 19298.92/ 75235.36 – 9089.41 = 0.29

7. NET WORKING CAPITAL

Net working capital is the difference between a company’s current
assets and current liabilities.
NET WORKING CAPITAL = CURRENT ASSETS - CURRENT
LIABILITIES
 36506.91 – 9089.41 = 27417.5

8. ASSET TURNOVER RATIO

The asset turnover ratio measures the value of a company’s sales
or revenue relative to the value of assets.
ASSET TURNOVER RATIO = NET SALES/ TOTAL AVERAGE
SALES
AVERAGE SALES=CURRENT YEAR SALES + PREVIOUS
YEAR SALES/ 2
 46807.34 * 46295.86 = 1.01
9. STOCK TURNOVER RATIO
It indicates the relationship between “cost of goods sold” and
“average inventory”.
STOCK TURNOVER RATIO=NET SALES/AVERAGE
INVENTORY
 46807.34/ 7812.65 = 5.01

10. RETURN ON ASSET

Return on assets is an indicator of how profitable a company is
relative to its total assets.
RETURN ON ASSET=PROFIT AFTER TAX/ TOTAL ASSET
 15136.05/ 75235.36 = 0.20