DE

CLARATI
I Ayushi Singh student of BBA(Finance) L.N.
Mishra College of Business Management hereby
ON
declare that the Project Report on “Ration
Analysis of BHEL” is been result of my own work
and has been carried out under supervision of
Rashmi Kumari.
I declare that this submitted work is done solely
by me and to the best of my knowledge, no such
work has been submitted by any other person for
the award of graduation degree.
I also declare that all the information collected
from various secondary sources has been duly
acknowledged in this project report.
 PREFAC
E
This report has been prepared as part of my grand project, as
a part of BBA. The project report is prepared with the view to
include all the details regarding the project that I carried out.

The initial portion of the description and study of history and

work oh BHEL. I have given a microscopic view of the sector
by analyzing various factors. All the details of the companies
where I have studied is mentioned in the initial part of the
report. Next the second portion is regarding the core project
– FINANCIAL STATEMENT ANALYSIS THROUGH RATIO
ANALYSIS.

In this project I had taken various types of the ratio

for describing the core factors. Thus, as you go ahead the
report will reveal minute details of the work that I have done
in my grand project.
 ACK
NOWLE
I would like to express my special thanks of gratitude to
my teacher RASHMI KUMARI , who gave me the
DGEME
golden opportunity to do this wonderful project report

NT
on BHEL.
Who also helped me in completing my project. I came
to know about so many new things I am really thankful
to them.
Secondly I would also like to thank my parents
and friends who helped me a lot in finalizing this
project within the limited time frame.
AYUSHI SINGH
 C
ONTE
 Objective of the study

NTS
BHEL an overview

 INTRODUCTION OF RATIO ANALYSIS

I. Meaning
II. Nature
III. Role of Ratio Analysis
IV. Users of Ratio Analysis
V. Financial Ratio and Users

 MAJOR FINANCIAL RATIO

 Liquidity Ratio
 Leverage Ratio
 Turnover Ratio
 Profitability Ratio
 OB
JECthe organizational structure of BHEL
 To know
(Bharat Heavy Electricals Limited).
TIV
E
 To know the operations of BHEL.

To knowOFthe financial statement of the company

ST
and to know it’s investment in different sectors.

UDthe techniques which were prevailing

 To know
Y
and used in the company for maintaining its profit
as it was in loss.

 To know the capital structure of BHEL.

 B
H
AN
E
OVERVIEW
L
 BHEL A
ItCORPORAT
was established in the late 50’s BHARAT HEAVY
E GIANTLIMITED (BHEL) is a name which is
ELECTRICALS
recognized across the industrial world. It is one of the
largest Engineering and manufacturing industries in
INDIA and is one of the leading international
companies in the power field. BHEL offers a wide
spectrum of products and services for core sectors like
power transmission, industrial transportation, oil and
gas, telecommunication, etc. It has also embarked
other areas including Defense and Civil Aviation. A
dynamic 6300 strong team embodies the BHEL
philosophy excellence through continuous striving for
state of the art technology. With corporate
headquarters in NEW DELHI, 14 manufacturing units, a
wide spread regional services network and project sites
all over India even Abroad, BHEL is India’s Industrial
ambassador to the world with export presence in more
than 50 countries.

BHEL has had a consistent track report of growth,

performance of profitability. The World Bank in its
report on the Indian Public Sectors, has described as
BHEL as “one of the most efficient enterprises in the
industrial sector, at par with international standards of
most efficiency”. BHEL has acquired ISO 9000
certificate for most of its operations and has taken up
Total Quality Management(TQM) certification for
environmental management systems and OHSAS-
18001 certification for occupational health and safety
management systems.

INTERNATIONAL BUSINESS:-
BHEL has over the years established its references in
over 60 countries of the world. These references
encompass almost the entire range of BHEL products
and services, covering Thermal, Hydro and Gas based
turnkey power projects, substation projects, and
rehabilitation projects; besides a wide range of
products like: Transformers, Compressors, Valves and
Oil field equipment, Electrostatic Precipitators,
Insulators, Heat Exchangers, Switchgears, Castings and
Forgings, etc.

The company has been successful in meeting

demanding requirements International markets, in
term of complexity of the works as well as
technological, quality and other requirements,
financing package, associated O&M services to name a
few. BHEL has proved its capability to undertaken
projects on fast-track basis. BHEL has also established
in versatility to successfully meet the other varying
needs of various sectors, be it captive power, utility
power generation or for the oil flexibility to exhibited
adaptability to manufacturing and supplying
intermediate products.
COMPANY PROFILE:
BHEL is India’s largest engineering company and one of
its kind in this part of the hemisphere. It manufactures
a wide range of the state of the art power generation
equipment and system besides equipment for industry,
transmission, defense, telecommunication and oil
business.
The first part of the BHEL was set up in BHEL in 1956,
which signaled the dawn of the heavy electrical
industry in India. In the early 60’s three more majors
plants were set up in Haridwar. Hyderabad and
Tiruchirapalli. The company now has 14 manufacturing
divisions, 10 services centers and power sectors
regional centers besides project sites spread all over
India and almost abroad to provide prompt and
effective service to customers.

BHEL’s business broadly covers conversions,

transmission, utilization and conservation of energy in
core sectors of economy that fulfill vital infrastructure
needs of the country. Its product have established an
enviable reputation of high quality and reliability,
which is largely due to emphasizes placed all among on
contemporary some of best technologies of the world
from leading companies USA, Europe, and Japan
together with technologies from its own R&D centres
technologies BHEL has consistently upgraded in design
and manufacturing facilities to international standards
by acquiring and assimilating.
A WORLD CLASS INNOVATIVE, COMPETITIVE AND
PROFITABLE ENGINEERING ENTERPRISE PROVIDING TOTAL
BUSINESS SOLUTIONS.

MISSION:
To be the leading Indian Engineering Enterprise providing
quality products system and services in the field of energy,
transportation, Industry, Infrastructure and other essential
areas

VALUES:
 Meeting commitments made to external and internal
customers.
 Foster learning, creativity and speed of response.
 Respect for dignity and potential of Individuals.
 Loyalty and potential of individuals.
 Team playing
 Zeal to Excel
 Integrity and fairness all matters.

COMPANY’S OBJECTIVE:
GROWTH:-
To ensure a steady growth by enhancing the competitive
degree edge of BHEL defense, telecommunication and
electronics in existing business, new areas and international
operations so as to fulfill national expectations from BHEL.
PROFITABILITY:-
To provide a reasonable and adequate return on capital
employed, primarily through improvements in operational
efficiency, capacity utilization, productivity and generate
adequate internal sources to finance the company’s growth.

CUSTOMER FOCUS:-
To build a high degree of customer confidence by providing
increased value for his money through international standard
of product quality, performance and superior services.

PEOPLE-ORIENTATION:-
To enable each employee to achieve his potential, improve
his capabilities, perceive the role and responsinilities and
participate and contribute positively to the growth and
success of the company. To invest in human resources
continuously and be alive to their needs.

TECHNOLOGY:-
Achieve technological excellence in operations by
development of indigenous technologies and efficient
absorption of imported technologies to suit business and
priorities and provide the competitive advantage of the
company.
IMAGE:-
To fulfill the expectations which stakeholders like
government as owner, employees, customers and the
country at large have from BHEL.
 B
H
BHELEhas announced its result for the year ended march
2020.LLet us have a look at the detailed performance review
of the company during FY19-20.
A
N
BHELNIncome Statement Analysis-
 U
Operating income during the year fell 29.4% on a year-
on-year basis(Y-O-Y) basis.
A
L company’s operating profit decreased by 111.2%
 The
YoY during the fiscal. Operating profit margins witnessed
R
a growth and stood at 1.1% in FY20 as against 7.0% in
EFY19.
P
O
 Depreciation charges increased by 5.8% and finance
Rcosts increased by 76.3% YoY respectively.
T
 AOther income declined by 14.7% YoY.
N
 ANet profit for the last year declined by 246.5% YoY.
L
Y
SI
S
 (2

 Net profit margins during the year declined from 3.2% in

FY19 to 6.7% in FY20.

BHEL Income Statement 2019-20

No. of months year during 12 Mar-19 12 Mar-20 % change

Net sales Rs m 304,414 214,900 -29.4%

Other Income Rs m 6,615 5,643 -14.7%
Total Revenues Rs m 311,029 220,543 -29.1%
Gross Profit Rs m 21,279 -2,374 -111.2%
Depreciation Rs m 4,757 5,033 5.8%
Interest Rs m 2,844 5,085 76.3%
Profit Before Tax Rs m 20,253 -6,848 -133.8%
Tax Rs m 8,373 8,093 -3.3%
Profit After Tax Rs m 10,024 -14,684 -246.5%
Gross Profit Margin % 7.0 -1.1
Effective Tax Rate % 41.3 -118.2
Net Profit Margin % 3.2 -6.7
 BHEL Balance Sheet Analysis-
 The company’s current liabilities during FY20 down at Rs
227 billion as compared to Rs 231 billion in FY19,
thereby witnessing an decrease of -1.6%.

 Long-term debt down at Rs 754 million as compared to

Rs 955 million during FY a fall of 21.0%.

 Current asset fell 15% and stood at Rs 327 billion, while

fixed asset fell 2% and stood at 31 billion in FY20.

 Overall, the total assets and liabilities for FY20 stood at

Rs 608 billion as against as 639 billion during FY19,
thereby witnessing a fall of 5%.

BHEL BALANCE SHEET ON MARCH 2021

N0 0F MONTHS DURING YEAR 12 MAR-19 12 MAR-20 % CHANGE

CURRENT LIABILITIES RS M 309,043 286,607 -1.6

TOTAL LIABILITIES RS M 230,552 226,768 -21.0

LOMG-TERM DEBT RS M 955 754 -4.9

CURRENT ASSETS RS M 639,343 607,843 -14.8

FIXED ASSETS RS M 32,059 327,112 -2.3

TOTAL ASSETS RS M 639,843 607,843 -4.9

 BHEL CASH FLOW STATEMENT ANALYSIS
 BHEL’s cash flow from operating activities (CF0) during
FY20 stood at Rs-29 billion on a YoY basis.

 Cash flow from investing activities (CFI) during FY20

stood at Rs 18 billion on a YoY basis.

 Cash flow from financial activities (CFF) during FY20

stood at Rs 17 billion, an improvement of 5,355% on a
YoY basis.

 Overall, nest cash flows for the company during FY20

stood at Rs 6 billion from the Rs-20 billion net cash flows
seem during FY19.

BHEL CASH FLOW STATEMENT 2019-20

PARTICULARS 12 MAR- 12 MAR- %
19 20 CHANGE

CASH FLOW FROM OPERATING ACTIVITIES RS M -38,602 -28,915 _

CASH FLOW FROM INVESTING ACTIVITIES RS M 19,189 18,366 -4.3%

CASH FLOW FROM FINANCING ACTIVITIES RS M -316 16,620 _

NET CASH FLOW RS M -19,729 6,071 _

 CURRENT VALUATION OF BHEL-
 The trailing twelve-month earnings per shares (EPS) of
the company stands at Rs-4.2%, an decline from the EPS
of Rs 2.9 recorded last year.

 The price of earnings (P/E) ratio, at the current price of

Rs 28.8, stands at -7.2 times its trailing twelve month
earnings.

 The price to book value (P/BV) ratio at current price

levels stands at 0.6 times, while the price to sales ratio
stands at 0.8 times.

 The company’s price to cash flow (P/CF) ratio stood at -

10.7 times its end-of-year operating cash flow earnings.

PER SHARE DATA/VALUATIONS

NO. OF MONTHS YEAR DURING 12 MAR-19 12 MAR-20

SALES PER SHARE RS 87.4 61.7

TTM EARNINGS PER SHARE RS 2.9 -4.2
DILUTED EARNINGS PER SHARE RS 2.7 -4.0
PRICE TO CASH FLOW _ 6.0 -10.7
TTM P/E RATIO _ -6.8 -7.2
PRICE/BOOK VALUE RATIO _ 0.8 0.6
MARKET CRAP RS 100,283 105,694
M

DIVIDENDS PER SHARE RS 2.0 0.0

 OVER
VIEW
0F
ROLE OF FINANCE FUNCTION:
FinanceFINA
function is the backbone of any organization. The
finance function plays a very critical role in the maximization
NCIALwho provide the funds to the company. The
of shareholders
objective is being achieved by the finance department, which
FUNC
provides the carious information on the financial parameters
such as cash flows, profitability, cost and margin, assets,
workingTION
capital and shareholder value for the purpose of
efficient utilization of resources resulting in better
profitability of the company.

The various activities undertaken by the finance department

achieve the aforesaid objectives, may be summarized as
follows-
 Maintenance of account books, cost records,
 Preparation of salary bills and other related payment to
employees.
 Preparation of Profit & Loss a/c and balance sheet.
 Generation of various MIRs for management use.
 Coordination with company auditors, Govt., auditors
and tax auditors.
 Decisions relating to purchase and sales.
 Investment decisions: Capital investment decisions and
working capital management decisions.
 Financing decisions: Decisions relating to financing-mix
or capital structure or leverage.
 Dividend policy decisions.

COST SECTION:
Cost section of the company is divided into two sections:
A. Product Cost
B. Central Cost
These deals with following functions:
 Determination of periodic profits including
inventory valuation.
 Determination of pricing policy of the company.
 Work related to capital expenditure of the
company.
 Developing variance Management Information,
 Valuation pf work in progress and finished goods.
 Interaction with management of top management
link for achieving cost control and cost reduction
and thereby improving bottom line of the company.
 Preparation of cost sheet of different product and
their analysis for future planning.

BOOKS AND BUDGET SECTION:

This section deals with following details-
 Preparation of operating budget for the company
as a whole.
 Co-ordination with various functions of
organization with regard to generation and
submission of important MIR’s to corporate office.
 Preparation of annual accounts of the company.
 Coordination with the company auditors with
regard to company accounts.
 Maintenance and accounting of fixed asset
accounts.
 Preparation of long term profit plans based on
broad objectives of the company.

SALES SECTION:
 Scrutiny and vetting of estimates/quotation for sale
of products/services, wherever financial
concurrence is required.
 Scrutiny and vetting of agreements for sales of
products and services.
 Invoicing for sale/advance or progressive payment.
 Maintenance of subsidiary records like sales
journals / sales daybook, sundry debtors ledgers,
advances from customer ledger, etc.
 Payments, recovery and accounting od sales tax,
excise duty.
 Accounting of claims on carriers / insurance
companies for missing items/ damages on outward
consignments.
 Calculation and scrutiny of data for payments of
royalties to the collaborators.
STORES SECTION:
For the convenience of performance various
function is divided into three sections-
A. Store Bills
B. Stores Review
C. Foreign Payment
They deal mainly with following item of works:
 Payment of supplier’s bills including bills for
advances-indigenous and foreign.
 Pricing of stores receipt vouchers including
fixed assets vouchers and fixed assets
receipt vouchers.
 Maintenance of accounts of advances to
suppliers, claim recoverable, claims for
short suppliers, rejection and rectification of
materials and sundry debtors.
 Maintenance of accounts of material issued
on loan and materials issued to
subcontractors.
 Adjustment of stores in transit to be made
at the close of the year.

WORK SECTION:
 Payments of contractor’s bills including bills
for advance.
 Maintenance of accounts of contractors
with regard to security deposits, earnest
money, progressive payments.
  215 maintenance of accounts of materials
issued on loans to contractors.
 All other miscellaneous work relating to
hiring of various facilities.

LINKAGE OF FINANCE DEPARTMENT WITH OTHER

DEPARTMENTS

SWOT ANALYSIS
STRENGTHS:
  Low cost producer of quality equipment due to cheap
labor and fully depreciated plants.
 Flexible manufacturing set up.
 Entry barrier due to high replacement cost of its
manufacturing facilities.
 Committed and skilled workforce.
 Relatively stable industrial relationship.
 Access to contemporary technologies with back up
support from renowned collaborators.
 Ability to manufacture or procure to supply spares.
 ISO 9001 international companies.
 Regional centres for services for easy accesses to
customers.
 Largest share of domestic business leading to; major
presence and influence in the market.

WEAKNESS:
 High working capital requirement due to its exposure to
cash starved SEBs (State Electricity Boards).
 Inability to provide projects financing.
 Difficulty to keeps up commitments on products delivery
and desired sequences of supplies.
 Longer delivery cycle in comparison with International
suppliers of similar equipment.
 Inability to provide supplier’s credit, soft loans for
financing of power project.
 Lack of effective marketing infrastructures.
 Inadequate banking infrastructure.
OPPORTUNITIES:
 High expected growth in power section (7000
MW/p.a. needs to be added).
 High growth forecast in India’s Index of Industrial
production would increase demand for industrial
equipment such as motors and compressors.
 Demand for power and hence power plant
equipment market is expected to grow.
 Private sector power plant to offer expanded
market as utilizes suffer resource crunch.
 Life extension programs for old power stations.
 Export opportunities.

THREATS:
 Technical suppliers are becoming competitors with the
opening up of the Indian economy.
 Fall in global power equipment prices can effect
profitability.
 Reduced allocation for power sector.
 Increased competition both national and international.
 Multilaterals agencies reluctant to lend to power sector
because of poor financial management by SEB’s (State
Electricity Board).
 Inadequacy of availability of gas would reduce gas
turbines business prospects.
 Private sector power companies may not follow so
transparent evaluation procedure for bids.
 RA
TIO
MEANING-
The ratio analysis is one of the most useful and common
ANA
method analyzing financial statements. As compared to other
tools of financial analysis, the ratio analysis provides very

LYSI
useful conclusions about various aspects of the working, like
financial position, solvency, stability, liquidity and
profitability of an enterprise. The term “Ratio” refers to

S
numerical or quantitative relationship between two
items/variables.

NATURE-
Ratio analysis is a powerful tool of financial analysis. In
financial analysis, a ratio is used as a benchmark. For
evaluating the financial position and performance of a firm.
The relationship between two accounting figures, expressed
mathematically, is known as financial ratio. Ratios helps to
summarizes large quantities of financial data and to make
qualitative judgement about the firm’s financial
performance. The point to note is that a ratio reflecting a
quantitative relationship helps to form a qualitative
relationship helps to form a qualitative judgement.. Such is
the nature of all financial ratios.

ROLE OF RATIO ANALYSIS-

 Aid in financial forecasting – Ratio analysis is very
helpful in financial forecasting. Ratios relating to past
sales, profits and financial position form the basis for
setting future trends.
 Aid in companies – With the help of ratio analysis, ideal
ratio can be composed and they can be used for
comparing a firm’s progress and performance. Inter
firm comparison or comparison with industry averages
is made possible by the ratio analysis.
 Financial solvency of the firm – Ratio analysis indicates
the trends in financial solvency of the firm.
 Solvency has two dimensions – Long term solvency and
short term solvency. Long term solvency refers to the
Financial viability of a firm. Short-term solvency is the
liquidity position of the firm.
 Communication value – Different financial ratio
communicate the strength and financial standing of the
firm to the internal and external parties. They indicate
the over all profitability of the firm.
 Other users – Financial ratio are very helpful in the
diagnosis and financial health of a firm. They highlight
the liquidity, solvency, profitability and capital gearing
etc. of the firm. They are useful tool of analysis of
financial performance.
USERS OF RATIO ANALYSIS:
 The creditors are interested in firm’s ability to meet
their claims over a very short period of time.
 Suppliers pf long-term debts are concerned with the
firm’s long-term solvency and survival. They analyze the
firm’s profitability over time, its ability to generate cash
to be able to pay interest and repay principal and the
relationship between various source of funds.

 Investors, who have invested their money in the firm

share, are most concerned about the firm’s earning.

 Management of the firm would be interested in every

aspect of the ratio analysis. In their overall
responsibility to see that the resources of the firm are
most used efficiently and effectively, and that the firm’s
financial condition is sound.

FINANCIAL RATIOS AND UTILITY

A ratio may be defined as a fixed relationship in

degree or number between two numbers. In finance,
ratios are used to point out relationships that are not
obvious from the raw data. Some uses if ratio are
following:-
1. To compare different companies in same industry:
Ratios can highlight the factors associated with
successful and unsuccessful firms. They can reveal
strong firms and weak firms, overvalued
undervalued firms.
 2. To compare different industries:
Every industry has its own unique of operating and
financial characteristics. These can be identified
with the help of ratios.

3. To compare performance in different time periods:

Over a period of years, a firm or a industry devlop
certain norms that may indicate future success or
failure. If relationship change in firm’s data over
different time periods, the ratio may provide clues
and trends of future problems.

A ratio is an arithmetical relationship between two

figures. Financial ratio is a study of ratios between
various items or groups of items in financial
statements. Financial ratios have been classified in
several ways. For our purposes, we divide them into
five categories as follows:
 CURRENT RATIOS
 LIQUIDITY RATIOS
 LEVERAGE RATIOS
 TURNOVER RATIOS
 PROFITABILITY RATIOS

CURRENT RATIO
This ratio indicates the extent of the soundness of the
current financial position of an enterprise and the degree of
the safety provided to the short-term creditors. The higher
the current ratio, the larger amount of the rupee available
per rupee of current liability, the more the firms ability to
meet current obligations and the greater safety of the funds
of short term creditors.
CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES

YEAR 2004-05 2005-06 2006-07 2007-08 2008-09

RATIO 1.13 1.25 1.11 0.95 --------

RATIO

1.4

1.2

0.8

0.6

0.4

0.2

0
2004-05 2005-06 2006-07 2007-08 2008-09

INFERENCE:
In the year’s entire ratio is greater than 1, which indicates
that short-term creditors are safe. There is constant increase
in the ratio, and company should try to utilize its short-term
resource more efficiently.

LIQUIDITY RATIO
Liquidity ratio is also known as Quick Ratio. Quick ratio is a
more refined tool to measure the liquidity of an organization.
It is a better test of financial strength than the current ratio,
because it excludes the very slow moving inventories and the
items of current assets, which cannot be converted into cash
easily. This ratio shows the extent of cushion of protection
provided from the quick assets to the current creditors. A
Quick Ratio of 1:1 is usually considered satisfactory.
LIQUIDITY RATIO = QUICK ASSETS/CURRENT LIABILITIES

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08

RATIO 0.75 0.54 0.63 0.67 0.64

RATIO

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2003-04 2004-05 2005-06 2006-07 2007-08

RATIO

INFERENCE:
The Quick Ratio has coming down from (0.75-0.64) which
shows that short-term liquidity of the company is not so
good. But in the interest of the company it appears that the
short term creditors are not fully utilized, and the company
should make efforts.

STOCK TURNOVER RATIO

A considerable amount of a company’s capital may be tied up
in the raw material, work-in-progress and finished goods. It is
important to ensure that the level of stock is kept as low as
possible, consistent with the need to fulfill customer order in
time.
The higher the stock turnover rate or the lower the stock
turnover period the better, although the ratio will vary
between companies.
STOCK TURNOVER RATIO = COST OF GOODS SOLD/AVG. INVENTORY

Where;
Cost of goods sold = Sales- Gross Profit
Average Inventory = (Opening balance + closing balance)/2
YEAR 2003-04 2004-05 2005-06 2006-07 2007-08
RATIO 2.38 2.41 2.06 2.3 2.84
 RATIO

2003-04 2004-05 2005-06 2006-07 2007-08

INFERENCE
Stock Turnover Ratio indicates that how quick inventories are
converted into sales. It indicates the position of the inventory
management of the company.
As the stock turnover ratio is increasing from year to year,
but in 2005-06 it suddenly goes down but after that it again
start to increase and company should try to reduce it order
to have better inventory management.

DEBTORS TURNOVER RATIO

Debtor T/O which measures whether the amount of
resources tied up in debtors is reasonable and whether the
company has been efficient in converting debtors into cash.
The higher the ratio, the better the position.
DEBTORS TURNOVER RATIO = CREDIT SALES/AVG. DEBTORS
Where;
Avg. Debtors = (Opening Debtor + Closing Balance)/2
YEAR 2003-04 2004-05 2005-06 2006-07 2007-08
RATIO 2 2.69 2.9 2.58 2.2

2.5

1.5

0.5

0
2003-04 2004-05 2005-06 2006-07 2007-08

INFERENCE
This ratio indicates how quick Debtor is collected and grater
the ratio shows better the position of the company. Here
from the graph it is clear that in 2004 debtors were collected
quickly but from then that is from 2005 to 2008 the condition
has worsened as ratio has decreased it means the debts are
not being collected rapidly. This fact was discussed and the
management that due to overall recession in global market,
company has to be liberal to providing credit to the
customers pointed it out.
DEBT EQUITY RATIO
The ratio indicates the relationship between loan fund and
net worth of the company. If the proportion of debt to equity
is low a company is said to be low-geared and vice-versa. A
debt equity ratio of 2:1 is the norm accepted by financial
institutions for financing projects. The higher the gearing, the
more volatile the return to the shareholders.
DEBT EQUITY RATIO = LONG TERM DEBT/SHARE HOLDERS FUNDS

YEAR 2002-03 2003-04 2004-05 2005-06 2006-07

RATIO 0.11 0.10 0.09 0.08 0.09

RATIO

0.12

0.1

0.08

0.06

0.04

0.02

0
2002-03 2003-04 2004-05 2005-06 2006-07

INFERENCE
Debt equity ratio shows that how much funds a company gas
to meet the long-term obligations. Lesser the ratio shows
better the position of the company.
PROPRIETOR RATIO
It is assumed that larger the proportion of the shreholders
equity, the stronger is the financial position of the firm. This
ratio will supplement the debt-equity ratio. In this ratio a
relationship established between the shareholder’s fund and
then total assets. A reduction in the shareholder’s equity
signally the over dependence on outside source for long term
financial assets and this carries the risk of higher level of
gearing. This ratio indicates the degree to which unsecured
creditors are protected against loss in the event of
liquidation.
PROPRIETOR RATIO = SHAREHOLDER FUND/TOTAL ASSETS

YEAR 2002-03 2003-04 2004-05 2005-06 2006-07

RATIO 0.5 0.45 0.42 0.42 0.4172

RATIO

0.5

0.48

0.46

0.44

0.42

0.4

0.38

0.36
2002-03 2003-04 2004-05 2005-06 2006-07

RATIO
INFERENCE
There is increase in shareholders fund but there is no fresh
investment in FA is made and this may affect future
profitability of the company, as new investment are required
in fixed assets, which will ultimately earn revenue for the
company.
SOLVENCY RATIO
Solvency is a state where the company is supposed to be
financially sound and capable of meeting its liquidity out of
its assets. This ratio indicates the relationship between total
liquidities and total assets of the business.
SOLVENCY RATIO = TOTAL LIABILITIES/TOTAL ASSETS

YEAR 2002-03 2003-04 2004-05 2005-06 2006-07

RATIO 1.81 1.7 1.61 1.61 1.62

RATIO

1.7

1.68

1.66

1.64

1.62

1.6

1.58

1.56
2003-04 2004-05 2005-06 2006-07

RATIO
INFERENCE
Here from the data and the ratios of last five years it is clear
that the company’s financial position is sound and is capable
of meeting its liabilities out of its total assets. From the last
five years data we see that the solvency ratio increasing
continuously and it has decreased from 1.81 in 2002-03 to
1.62 in 2006-07 indicating a sound financial position of the
company.
FIXED ASSET RATIO
This ratio indicates the proportion of long term funds
deployed in fixed assets. Fixed assets minus depreciation
provided on this till the date of calculation. The higher the
ratio indicates the safer the funds available in care of
liquidation. It also indicates the portion of long-term fund
that is invested in the working capital.
FIXED ASSET RATIO = FIXED ASSETS/LONG TERM FUNDS

YEAR 2002-03 2003-04 2004-05 2005-06 2006-07

RATIO 2.2 2.03 1.94 1.76 1.79
 RATIO

2.5

1.5

0.5

0
2002-03 2003-04 2004-05 2005-06 2006-07

RATIO

INFERENCE
This ratio indicates that proportion of long funds deployed in
fixed assets.

ADVANTAGES OF RATIOS
The ratio analysis is one of the most powerful tools of
financial analysis. It is use as a device to analysis and
interprets the financial health of enterprise. Just like a doctor
examines his patient by recording his body temperature,
blood pressure, etc. Before making his conclusion regarding
the illness and before giving his treatment, a financial
analysts the financial statement with various tools of analysis
before commenting upon the financial health or weakness of
an enterprise. ‘ A ratio is known as a symptom like blood
pressure, the pulse rate of the temperature of the individual.’
It is with help of ratios that the financial statements can be
analyzed and decision made from such analysis.
 HELPS IN DECISION MAKING:-
Financial Statements are prepared primarily for decision-
making. But the information provided in financial statement
is not an end in itself and no meaningful conclusions can be
drawn from these statements alone. Ratio analysis helps in
making decisions from the information provided in these
financial statements.

 HELPS IN FINANCIAL FORECASTING AND

PLANNING:-
Ratio analysis is of much help in forecasting and
planning. Planning is looking ahead and the ratios
calculated for a number of year’s work as a guide for the
future. Meaningful conclusions can be drawn
future from these ratios. Thus, ratio analysis helps in
forecasting and planning.

 HELPS IN COMMUNICATING:-
The financial strength and weakness of a firm are
communicated in a easier and understandable manner by the
use of ratios the information contained in a financial
statement is conveyed in meaningful manner to be one for
whom it is meant. Thus, ratios help in communication and
enhance the value of financial statements.
  HELPS IN CO-ORDINATION:-
Ratios even help on coordination, which is utmost
importance in effective business management. Better
communication of efficiency and weakness of an
enterprise results in better co-ordination in the
enterprise.

 HELPS IN CONTROL:-
It helps in making effective control of the business.
Standard ratios can be based upon Performa financial
statements and variance or deviations, if any, can be
found by comparing actual with the standards so as to
take corrective action at the right time.

USES OF FINANCIAL STATEMENTS TO DIFFERENT

PARTIES
 TO THE FINANCIAL EXECUTIVES:-
The first party interested in the financial statement
analysis is the finance department of the business
concern itself to the financial managers such analysis
provides a deep insight into the financial condition of
the enterprises and the view of past performance which
helps in future decision making. The financial
statements given vital information concerning the
position of the enterprise as well the result of the
operations.

 TO THE TOP MANAGEMENT:-

 The top management of the concern is also increased in
the analysis of these statements because it helps them
relating conclusions regarding.
 Performance appraisal of overall business activities.
 Enquiry about current financial position and long-
term strategic planning.
 Queries concerning the relationships of earning to
trend in sales etc.
 Queries concerning the relationships of earning to
investment.

 TO THE CREDITORS:-