STUDY ON RATIO ANALYSIS AT TNPL

J. Prabhuraj
Assistant Professor
Department of Commerce
SRM science and technology

Abstract
In this paper title a study on Ratio Analysis at TNPL this aim is to analysis the Ratio Analysis
position of the company using the financial tools. This study based on financial statement such as
Ratio analysis and financial performance. By using this tools combined it enables to determine in
an effective manner. This research helps to identify and give suggestion the area of weaker
position of business transaction in TNPL. This research is made to evaluate the Ratio analysis as
per trend analysis. It is in upward trend.
Key words: Ratio, importance, objective, findings.

INTRODUCTION
In our present day economy finance is defined as the provision of money at the time when it is
required. Every enterprise whether. Medium or small needs finance to carry on its target. In fact
finance is so indispensable today. It can be rightly said that it is the lifeblood of an enterprise.
Without adequate finance no enterprise can possible accomplish its objectives. In the early years
of its evolution it was treated synonymously with the rising of funds. In the current literature
pertaining to financial management a broader scope so as to include in addition to procurement
of funds efficient use of resources is universally recognized. Finance was studied as a part of
Economics before the turn of the present century. It was only in early part of the present century
when massive consideration movement took place that finance came to be studied as a corporate
discipline. Formation of large size undertaking by consolidation the smaller one brought before
the management is the problem of financing these giant enterprises. Emphasis was also placed on
the study of source and forms of financing the new industrial giants.
IMPORTANCE OF THIS STUDY
The subject matter of financial management is of immense interest for every financial analyzer.
It needs special attention because of the complexities involve in managing cash in present day
industrial function.
● The important aspect is the estimation of how much of finance.
● The business organization requires and for what purpose.
● The most important area of financial management is the working capital management.
● Here the study tries to reveal the company’s position and performance by evaluating the
relationship between various components parts of financial statements.
Ration analysis has been taken as a tool in assessing the performance of the company in respect of
the following aspects.
● Liquidity Position.
● Long-term solvency.
● Profitability.
● Activity.

OBJECTIVES OF THE STUDY

● To analyze and evaluate the financial performance using of TNPL
● To examine tbe short-term financial solvency of the TNPL
● To study the growth of TNPL in terms of comparative analysis and trend analysis of
financial statements for the past five years, from 2001 to 2006.
● To make suggestions & recommendations for improving the financial position of TNPL.

REVIEW OF THE LITERATURE

Ration analysis is one of the techniques of financial analysis where ratios are used as a yardstick
for evaluating the relationship between component parts of financial statements to obtain a
better understanding of the firm’s position and performance. Ratio is relationships expressed in
mathematical terms between figures. Which are connected with each other in some manner. It is
defined as the systematic use of ratio to interpret the financial statements so that the strengths
and weaknesses of a firm as well as its historical performance and current financial condition
can be determined. The importance of ration analysis lies in the fact that it presents facts on a
comparative basis Conclusions can be drawn regarding the liquidity position of a firm. It is useful
for assessing the long-term financial viability of a firm. It throws light on the degree of efficiency
in the management and utilization of its assets. It helps in inter-firm comparison and comparison
with industry averages.

RESEARCH METHODOLOGY
Research is a process in which the researcher wish to find out the end result for a given problem
and thus the solution helps in future course of action. The research has been defined as “A careful
investigation or enquiry especially through search for new facts in branch of knowledge”

RESEARCH DESIGN
The research design used in this project is Analytical in nature the procedure using, which
researcher has to use facts or information already available, and analyze these to make a critical
evaluation of the performance. This is the case of Tamil Nadu Cements Corporation (TNPL)
Limited. With particular reference to working capital management, for the prosecution of the
study, both the primary and secondary data.

DATA COLLECTION
Primary Sources
● Data are collected through personal interviews and discussion with Finance-
● Executive.
Secondary Sources
● From the annual reports maintained by the company.
● Data are collected from the company’s website.
● Books and journals pertaining to the topic.
TOOLS USED IN THE ANALYSIS
● Ratio Analysis.
● Comparative Balance Sheet.
● Trend Analysis.

DATA ANALYSIS & INTERPRETATION

TABLE NO. 1: Current Ratio

Year Current Assets In Rs. Current Liabilities In Rs. Ratio

2013 602970653.98 251966953.85 2.39
2014 587446227.38 216854344.96 2.71
2015 467823175.04 19862056.73 2.36
2016 503546364.17 407569342.24 1.24
2017 645608601.08 179227649.24 3.60
Sources: Secondary data
INFERENCE:
On seeing the analysis table it is evident that the current ratio is well-maintained except in the
year 2016. This happens due to the increase of current liabilities. But sudden step had been taken
and now the company is in a position to meet its current liabilities efficiently.
 TABLE NO. 2: Quick/Acid Test Ratio:

Year Current Assets In Rs. Current Liabilities In Rs. Ratio

2013 484703565.40 251966953.85 1.93
2014 469734941.00 216854344.96 2.17
2015 351962443.60 198620656.73 1.77
2016 355077392.40 407569342.93 0.87
2017 550795311.90 179227649.24 3.07
INFERENCE:
A maximum decline happens in maintaining the Quick ration in the year 2016. This happens due
to the increase of current liabilities in that year. But it has been reduced in the year 2016 and the
company is in a position to meet its current obligations in time without meet struggle.
Leverage Ratios:

TABLE NO. 3: Debt-equity Ratio

Year Current Assets In Rs. Current Liabilities In Rs. Ratio

2013 71517981.79 490856229.6 0.15
2014 132439731.40 574886183.6 0.23
2015 98353145.53 513133008.1 0.19
2016 86662292.00 354368204.9 0.24
2017 478281951.5 316133967.0 1.51
Sources: Secondary data
INFERENCE:
The above computation shows that Debt-Equity Ratio is low in the first four years and it gives
quite satisfactory but it is too high in the year 2017. The management has to reduce the ratio
because the ideal ratio is 0.67.
 TABLE NO.4: Interest Coverage Ratio

Year Net profit/loss before interest and tax In Rs. Interest charges In Rs. Ratio
2013 228199732 40416108 5.65
2014 116089380 86400449 1.34
2015 (-)6673811 87577401 (-)0.08
2016 12068511 109706287 0.11
2017 73403167 65127527 1.13
INFERENCE:
While analyzing the interest coverage ratio a rapid decrease happens till the year 2015 and slight
increase appears. This shows that the company has failed to minimize the interest in the first
three years. But at present it has shown their attention over paying interest on long-term loan.

TABLE NO.5: Proprietary Ratio:

Year Current Assets In Rs. Current Liabilities In Rs. Ratio

2013 491110664.6 814595600.1 0.60

2014 574397070.6 923691146.8 0.62
2015 514113998.3 811087799.7 0.63
2016 355300751.7 849532386.6 0.41
2017 316849141.6 974358742.3 0.33
Sources : Secondary data.
INFERENCE:
The company has maintained the proprietary ratio around 0.6 for the first three years was good
but in the next two years it continuously falls. This should be stopped by the company and has to
maintain the level of ratio. Keeping moderately an optimum level ratio is to maintaining between
total assets and proprietary funds.

TABLE NO.6: Net profit Ratio

Net profit/loss after tax Average capital employed

Year Ratio
+interest In Rs. In Rs.
2013 187783624 1145881816 16
2014 29688931 959750279 3
2015 (-)94251312 803244151 (-)12
2016 (-)97637775 833808706 (-)12
2017 8275640 838237987 1
Sources: Secondary data.
INFERENCE:
While analyzing the above ratio it is evident that the net profit ratio is not stable. Net profit ratio
of the company is positive in the first two years and in the last year. In the year 2015 and 2016 the
company has attained loss. Therefore the company has to take necessary steps to increase sales
and to reduce the cost of sale. So that in future the loss can be prevented.
 TABLE NO. 7: Return on Assets

Net profit/loss after Tax x

Year Interest Rs. Average Total Assets Rs. Ratio
2013 228199732.5 714978981.13 32
2014 116089380.6 869143373.5 13
2015 (-)6673911.55 867389473.3 (-)0.76
2016 12068511.51 830310093.2 1.45
2017 73403167.32 911945564.5 8
SOURCES: Secondary data.
INFERENCE:
Form the above table it is evident that the return on assets is low in the year 2015 and 2016. In
the year 2017 it has been raised. The sales of the company are at the low level. Utilization of the
resources has to be done in proper way. The management should keep overall target on reducing
inventory and in increasing sales.
TABLE NO.8: Return on capital Employed

Net profit/loss after Tax Average Total

Year Ratio
Interest Rs. Assets Rs.
2013 228199732 375099995 61
2014 116089380 634732724 18
2015 (-)6673911 659651972 (-)1
2016 12068511 527215093 2.3
2017 734031673 618547068 12

Sources: Secondary data.

INFERENCE:
The above computation clearly shows the declining of the return on capital employed. The ratio
will in the poor in the other years. This happens due to the increase and decrease of the profit of
the company. It is the time the company has to take step over the increase of sales.

TABLE NO.9: Debtors turnover ratio:

Collection In days
Year Nets credit Sales in Rs. Average Debtors in Rs Ratio

2002 1145881816.30 258806764.7 4.43 82

2003 656750279.98 33507195 1.96 186
 2004 803244151.17 293844324.1 2.73 133
2005 833808706.19 230590010.5 3.61 101
2006 838237987.24 322130167.1 2.60 140
Sources: Secondary data
INFERENCE:
The Debtors Turnover ratio is at low level in all year. This is due to the less collection from
debtors. The sales are at the low level and the management should take necessary steps to tighten
the collection of debts and can fix a credit limit to overcome the barrier.
TABLE NO.10: Fixed Assets Ratio

Year Fixed Assets Rs Long-term funds Rs Ratio

2002 211370511.20 71517981.79 2.96
2003 336194032.59 132439731.40 2.54
2004 342683634.55 98353145.53 3.48
2005 34503475.63 86662292.00 3.98
2006 328034966.69 478281951.5 0.69
SOURCES: Secondary data.
INFERENCE:
Expect the final year all other years the company had effectively managed the fixed assets ratio in
a manner. Thus the management can take step on keeping the ratio good.

FINDINGS
● The short-term solvency of the company as disclosed by the liquidity ratios is at satisfactory level.
● The current ratio which is considered as ideal at 2 was 1.24 in 2016. it increased to 3.60 in 2017.
● Similarly the quick ratio which is considered ideal at I has improved from 0.65 in 2016 to
2.60 in 2017.
● Thus both the ratios indicate that the company has sufficient liquid funds.
● It appears from the above analyis that a major expansion programme was undertaken in
the year 2017 by rising long-term funds.
● The ideal debt equity ratio is 0.67. The actual ratio is much more than this norm in the year 2017.
● The ideal interest converge ratio is 5 to 6 times. Here interest coverage ratio has jumped from
0.11 in 2016 to 1.13 in 2017. Even though the coverage is increased. It is not at satisfactory level.
● Even though the sale of 2017 is less compared to sales of 2013 the sale has been more
than the year 2016. Therefore there is a minimum percentage of net profit is earned.
There is a negligible increase in return on capital employed and return on shareholders
equity ratio.
● Debtor’s turnover ratio has been decreased from 3.61 in 2016 to 2.60 in 2017. This
decrease will make the collection period as very long period. Which could shows that the
company is
 not able to collect its debtors on time.
● All the activity turnover ratios were declines in the year 2017.
● The trend of sales during the five years is not uniform. Because for the first three year it
decreases and increases in the next two year.
● Working capital turn over ratio decreases from 2016 to 2017. It happens due to Sudden
increase of current liabilities in 2016.
● Interest charges were very high in the year 2016. On comparing the inventory to sales. It
is noted that inventories are more than the level to be so the company has to increase the
sales and proportionally it has to decrease the inventory.

SUGGESTIONS & RECOMMENDATION

● In general the working capital management fo TNPL is at satisfactory level. By improving
the inventory turnover ratio the overall liquidity position of the concern can further
definitely be improved. Better management of current assets namely raw materials.
Spares and stores can be done.
● Working capital management is an integral part of the overall corporate management. So
it has to be efficiently maintained. The company’s actions were right in asset maintaining
but have to concentrate over sales. The debtor’s collection is not in effective way. So step
to be taken in collecting this.
● The high current ratio shows that the company is following a very conservative policy
regarding financing of its working capital requirements. As a matter of fact a part of
working capital may be diverted for meeting long-term requirements of the company.
● The company can improve its position either by reducing its operating costs or pushing
up its turnover with least increase in operating expenses.
● Since the debtor’s collection period found to be too long the management can try to
collect the bills receivables actively. Then the company can fix the credit limit over sales
for recover the outstanding dues at the earliest.
● Assets turn over ratio found to be low can be increased by an effective utilization of
available resources.

CONCLUSION
On the basis of the above study it can be said that the company’s financial position at the end of
the year 2006 was at satisfactory level. The company’s declining profit levels needs to be worked
at. The company has gone for some capital projects and in the process incurred loans which is
why projects have come down. TNPL cement has an enormous potential for growth in the future
and there fore if the company’s resources are focused in the right area.

References

M.Y.KHAN & P.K.JAIN. Financial Management.4th editionTataMCGrawHill.New Delhi.

RAMACHANDRAN & SRINIVASAN Management Accounting.S.CHAND & COMPANY LTD. 1st edition
2004 New Delhi.
www.TNPL.com