1.

1 INTRODUCTION OF THE STUDY

Financial statements are prepared primarily for decision-making. They play a prominent role in
setting the framework of managerial decisions. But the information provided in the financial
statements is not an end in itself as no meaningful conclusions can be drawn from these
statements alone. However, the information provided in financial statements is of immense use in
making decisions through analysis and interpretation of financial statements.

A firm communicates financial information to the users through financial statements, and reports
the financial statement contains summarized information of the firm’s financial affairs. Organized
and systematic preparation of the financial statement is the responsibility of top management.

Financial forecasting is an integral part of financial planning. Forecasting uses past data to
estimate the future financial requirements. Ratio analysis is a powerful tool of financial analysis.
A ratio is used as a benchmark for evaluating the financial position and performance of financial
data and to make qualitative judgment about the firm’s financial performance.

With the help of ratios, one can determine:

• The ability of the firm to meet its current obligations.

• The extent to which the firm has used its long-term solvency by borrowing funds.

• The efficiency with which the firms is utilizing its assets in generating sales revenue.

• The overall operating efficiency and performance of the firms.

Analysis and interpretation of various accounting ratios gives a skilled and experienced analyst, a
better understanding of financial condition and performance of the firm.

Ratio analysis is used to evaluate relationships among financial statement items. The ratios are
used to identify trends over time for one company or to compare two or more companies at one
point in time. Financial statement ratio analysis focuses on three key aspects of a business:
liquidity, profitability, and solvency.

1
1.2 NEED AND IMPORTANCE OF STUDY

The problems, which are common to most of the public sectors under taking, are materials
scarcity. Capacity utilization and mainly working capital requirements and Heritage Foods
(India) Limited. Are no exception. Thus, the importance of the study reveals as to how efficiently
the working capital has been used so far in the organization.

Ratio Analysis is one of the key areas of financial decision-making. It is significant because, the
management must see that an excessive investment in current assets should protect the company
from the problems of stock-out. Current assets will also determine the liquidity position of the
firm.

The goal of Ratio Analysis is to manage the firm current assets and current liabilities in such a
way that a satisfactory level of working capital is maintained. If the firm cannot maintain a
satisfactory level of working capital, it is likely to become insolvent and may be even forced into
bankruptcy.

1.3 SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published in the annual reports of the
company every year. The analysis is done to suggest the possible solutions. The study is carried
out for 5 years (2017-22).

A study of the Ratio Analysis involves an examination of long term as well as short term sources
that a company taps in order to meet its requirements of finance. The scope of the study is
confined to the sources that Heritage Foods (India) Limited tapped over the years under study i.e.
2012-17.

2
1.4 OBJECTIVES OF THE STUDY

• To examine the financial performance of the Heritage Foods (India) Limited for the
period of 2017 to 2022.
• To analyses interpret and to suggest the operational efficiency of the Heritage Foods
(India) Limited. By comparing the balance sheet & profit & loss A/c.
• To critically analyse the financial performance of the Heritage Foods (India)
Limited. With the help of ratios.
• To assess the working capital employed by the Heritage Foods (India) Limited.

• To examine feasibility of present system of managing working capital.

• To understand how the company finances its working capital

• To analyze the financial performance of the company with reference to working

capital.

3
1.5 RESEARCH METHODOLOGY

Use and Significance of Ratio Analysis

The ratio is one of the most powerful tools of financial analysis. It is used as a device to analyze
and interpret the financial health of enterprise. Thus ratios have wide applications and are of
immense use today.

Managerial uses of ratio analysis

a. Helps in financial forecasting and planning

Ratios analysis is of much help in financial forecasting and planning. Planning is looking ahead
and the ratios calculated for a number of years a work as a guide for the future. Thus, ratio
analysis helps in forecasting and planning.
b. Helps in communicating

The financial strength and weakness of a firm are communicated in a more easy and
understandable manner by the use of a ratio. Thus, ratios help in communication and enhance the
value of the financial statements.
c. Helps in co-ordination

Ratios even help in co-ordination, which is of at most importance in effective business

management. Better communication of efficiency and weakness of an enterpriseresult in better co-
ordination in the enterprise.

d. Helps in control

Ratio analysis even helps in making effective control of business. The weakness is otherwise, if
any, come to the knowledge of the managerial, which helps, in effective control of the business

4
e. Utility to shareholders/investors

An investor in the company will like to assess the financial position of the concern where he is
going to invest. His first interest will be the security of his investment and then a return in form of
dividend or interest. Ratio analysis will be useful to the investor in making up his mind whether
present financial position of the concern warrants further investment or not.

f. Utility of creditors

The creditors or supplier’s extent short-term credit to the concern. They are invested to know
whether financial position of the concern warrants their payments at a specified time or not.

g. Utility to employees

The employees are also interested in the financial position of the concern especially profitability.
Their wage increases and amount of fringe benefits are related to the volume of profits earned by
the concern.

h. Utility to government

Government is interested to know overall strength of the industry. Various financial statement
published by industrial units are used to calculate ratios for determining short term, long-term and
overall financial position of the concerns.

i. Tax audit requirements

Sec44AB was inserted in the income tax act by financial act, 1984. Clause 32 ofthe income tax
act requires that the following accounting ratios should be given:
• Gross profit/turnover.

• Net profit/turnover.

• Material consumed/finished goods produced.

Further, it is advisable to compare the accounting ratios for the year under consideration with the accounting ratios for
earlier two years so that the auditor can make necessary enquiries, if there is any major variation in the accounting
ratios.

5
Ratios are classified into following four important categories:

1. Liquidity ratios - short-term financial strength

2. Leverage ratios - long-term financial strength

3. Activity ratios - term of investment utilization

Liquidity ratios measure the firm’s ability to meet current obligations;

Leverage ratios show the proportions of debt and equity in financing the firm’s assets; activity
ratios reflect the firm’s efficiency in utilizing its assets, and Profitability ratios measure overall
performance and effectiveness of the firm.

Data sources

The study is based on secondary data. However, the primary data is also collectedto fill the gap
in the information.
• Primary data will be through regular interaction with the officials of Heritage Foods
(India) Limited.
• Secondary data collected from annual reports and also existing manuals and like
company records balance sheet and necessary records.

1.6 LIMITATIONS OF THE STUDY

• The study is based on only secondary data.

• The period of study was 2017-22 financial years only.

• Another limitation is that of standard ratio with which the actual ratios may be
compared generally there is no such ratio, which may be treated as standard for the
purpose of comparison because conditions of one concern differ significantly from those
of another concern.
• The accuracy and correctness of ratios are totally dependent upon the reliability of the data
contained in financial statements on the basis of which ratios are calculated.

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1.7 CHAPTERISATION

• First chapter consists of Introduction to the study which includes uses and need
Importance of the study, objectives, scope of the study, research methodology,
Limitations, and Chapterisation.
• Second chapter consists of Literature Review which reflects the theoretical data of
the study and previous studies done on the topic.
• Third chapter consists of Industry Profile which contains the information about the
company where the project has been conducted and includes the history, services
being offered, number of employees working and various departments in the
organization.
• Fourth chapter consists of Data Analysis and Interpretation based on collected data.
• Fifth chapter consists of Findings, Conclusion and Suggestions and is concluded
With Bibliography

7
Financial statement has the major uses in financial analysis first, they one used to present a
historical recover of the firm’s financial development when competed over a number of years a
trained analyst can determine important financial factors that have in the ended the growth and
Current assets of the firm. Second, they are used to here cast a course of action for the firm.

A performance financial statement is prepared for a future period. It is the financial manager’s
estimate of the firm’s future performance.

The operation and performance of a business depends on many individuals are collective
decisions that are continually made by its management team. Every one of these decisions
ultimately causes a financial impact, for better or works on the condition and the periodic results
of the business. In essence, the process of managing involves a series of economic choices that
activates moments of financial resources connected with the business.

Some of the decisions management makes one major, such as investment in a new facility, raising
large amounts of debts or adding a new line of products or services. Most other decisions are part
of the day-to-day process in which every functional area of the business is managed. The combine
of effect of all decisions can be observed periodically when the performance of the business is
judged through various financial statements and special analysis.

These changes have profoundly affected all our lives and it is important for corporate managers,
shareholders, tenders, customers and suppliers to investment and the performance of the
corporations on which then relay. All who depend on a corporation for products, services, or a
job must be med about their company’s ability to meet their demands time and in this changing
world. The growth and development of the corporate enterprises is reflected in their financial
statement.

8
2.1 LIQUIDITY AND PROFITBILITY
Liquidity and profitability are two important demanders in determining the soundness of an
enterprise.
Liquidity means ability of a firm to meet its current obligations when they become due for
payment. It has two aspects – quantitative and qualitative. Qualitative aspect implies the quantum
of current assets a firm possesses irrespective of making any difference between various types of
current assets such as inventories, cash and so on. Qualitative aspect reforms the quality of current
in terms of their realization in to cash considering time dimension involved in maturing different
components of current assets.
Profitability is the capacity of earning profits and due most important measure of performance of
affirms. It is generally assumed that there is negative relationship between liquidity and
profitability i.e. higher liquidity results in lower profitability and vice-versa.

2.2 OBJECTIVES OF THE STUDY

• To study the growth and development of the company.

• To study the behavior of liquidity and profitability of the companies.

• To analyze the factors determining the liquidity and profitability.

• To comparative study of selected companies on the basis of selected ratios.

2.3 STATEMENT OF THE PROBLEM

Development of industries depends on several factors such as financial personnel technology,
quality of the product and marketing art of these. Financial aspects assume a significant role in
determining the growth of industries. All of the company’s operations virtually affect its need for
cash. The firm whose present operations are inherently difficult should try to makes its financial
analysis to enable its management to stay on top of its working position. In this context the
researcher is interested in undertaking on analysis of the financial performance of companies
to examine and to understand how Management of finance plays a crucial role of the financial
performance analysis ofselected companies in India has been undertaken.

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2.4 FINANCIAL ANALYSIS

A basic limitation of the traditional financial statements comprising the balance sheet and the
profit and loss account is that they don’t give all information related to the financial operations of
the firm. Nevertheless, they provide some extremely useful information to the extent that the
balance sheet mirrors the financial position on a particular date in terms of the structure of assets,
liabilities and owner’s equity and so on, and the profit and loss account shows the results of
operation during a certain period of times in terms of the revenue obtained and the cost incurred
during the year. Thus the financial position and operations statement provides a summarized a
view of the financialposition and operations of the firm. The analysis of financial statement is thus
an important aid to financial analysis.
The first task of the financial analyst is to select the information relevant to the decisions under
consideration from the total information from the total information contained in the financial
statements. The second step is arranged the information in the way to highlight significant
relationship. The final step is interpretation and drawing of inferences and conclusions. In the
brief financial analysis are the processes of selection, relation and evaluation.
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of
ratio to interpret financial statements so that the strength and weakness of a firm as well as its
historical performance and current financial conditions can be determined. The term Ratio refers
to the numerical or quantitative relationship between two items variables. The relationship can be
expressed as

• Percentages

• Fractions

• Proportion of numbers

These alternative methods of expressing items, which are related to each other,are for purposes of
financial analysis refer to as Ratio analysis.

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2.5 BASIS OF COMPARISION

Ratios are relative figures reflecting the relationship between variables. They enable analysis to
draw conclusion regarding financial operations. The use of ratios as a tool of financial analysis
continuous their comparison, for a single ratio like absolute figure, fails to reveal the true position.

❖ Trend ratios

❖ Inter firm comparison

❖ Comparison of items single year’s financial statements of a firm.

❖ Comparison with standards

Trend ratios involve a comparison of the ratios of a firm overtime is present ratios are compared
with past ratios for the same firm. The trend ratios indicate the direction of the change in
performance, improvement, deterioration or constancy over the years. The Inter firm comparison
including comparison of the ratios of a firm with those of others in the same line of business or
the job the industry has a whole reflects the performances in relation to its competitors.
Other types of comparison may relate to comparison of items within a single years financial
statement of a firm and comparison with standard.
Financial analysis is an important technique of accounting, which makes the financial statements
as user oriented, more understandable and meaningful. Here the term analysis which is opposite
of synthesis in general breaking/separating a thing into its components, establishing existing
relationship, so as to draw meaningful inference.

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2.6 ADVANTAGES OF FINANCIAL ANALYSIS

1. It provides the full diagnosis of the profitability and financial soundness of the business
that is it determines the measure of efficiency of operation and gauze the financial
position of the business.
2. It helps the identifying the weakness and strength of the firm.

3. It enables the management to take decision on logical and scientific method in an

intelligible way.
4. It helps the other to understand the decision easily that is it makes statement asusers
oriented.
5. It helps to verify and examine the correctness and accuracy of the decision.

6. It minimizes personal experience and institution in decision-making.

7. It helps in deciding the future prospects of the firm.

8. It investigates the future potentiality of the firm.

9. It considers some useful quantitative aspects also.

2.7 DISADVANTAGES OF THE FINANCIAL ANALYSIS

Though the financial statement analysis is an important analysis is an important accounting tool
and makes the statement simple, it has some disadvantages, which have to be kept in mind while
making analysis.

1. The analysis of financial statement requires some specialized knowledge andwhich

involve costs.
2. The analysis is ineffective when the financial statements itself has somelimitations.

3. Analysis becomes difficult as the data for a greater number of years and or for many
companies is taken.
4. Analysis will be less effective when the data and accounting methods are not
uniform.

5. The influence of the personal judgment, direction, intention, totally may not be
eliminated which may result in wrong decision making also.
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2.8 RATIO ANALYSIS
Alexander Wall is considered to be the pioneer of ratio analysis. He presented after a serious a
detailed system of ratio analysis in 1990. He explained that the work of interpretation could be
made easier by establishing quantitative relationships between the facts given in the financial
statements.

The focus of financial analysis is on key figures in the financial statements and significance
relationships that exist between there. This analysis relationship between component parts of
financial statements to obtain a better understanding of the firm’s position and performance.

2.9 MEANING OF RATIO

Generally speaking a ratio is simply one figure expressed in terms of another and thus it is an
assessment of one number in relationship must be established on the basis of some scientific and
logical methods. Thus a ratio is a mathematical relationship between two items and expressed in
quantitative form. When this definition of ratio is explained with reference to the items shown in
financial statements, then it called “Accounting Ratios”. Hence, an accounting ratio is defined as
quantitative relationship between two or more items of the financial statements.

Thus ratio analysis is widely is used tool of financial analysis. It is defined as the systematic use
of ratio to interpret the financial Statements so that the strengths and weakness of a firm as well as
its historical performance and current financial condition can be determined. The term ratio refers
to the numerical or quantitative relationship between two item/variable.

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2.10 CLASSIFICATION OF RATIOS TYPES OF RATIOS

The ratios can be classified into four types:

LIQUIDITY RATIOS

Liquidity ratios measure the firm’s ability to meet current obligations.

• Current Ratio

• Quick Ratio

• Cash Ratio

• Interval Ratio

• Net Working Capital Ratio

LEVERAGE RATIOS

Leverage ratios show the proportions of debt and equity in financing the firm’s assets.

• Debt Equity Ratio

• Capital Equity Ratio

• Proprietary Ratio

ACTIVITY RATIOS

Activity ratios reflect the firm’s efficiency in utilizing its assets.

• Inventory Ratio

• Fixed Assets Turnover Ratio

• Total Assets Turnover Ratio

• Current Assets Turnover Ratio

• Working Capital Turnover Ratio

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OVERALL PROFITABILITY RATIOS

Profitability ratios measure overall performance and effectiveness of the firm.

• Return of net worth

• Working Capital Turnover

LIQUIDITY RATIOS

Liquidity ratios measure the ability of the firm to meet the current obligations in the short run,
usually one year. Analysis of liquidity needs the preparation of cash budgets, Cash and fund flow
statements.
A firm should ensure that it does not suffer from lack of liquidity and also it does not suffer from
lack of liquidity and also it is not too much highly liquid. Lack of liquidity and also it is not too
much highly liquid. Lack of liquidity leads to the failure of the society to meet its obligations,
results in also bad credit image, idle assets earns nothing. A very high liquidity is also bad, idle
assets earn nothing. Therefore, it is necessary to strike a proper balance between liquidity and lack
of liquidity.

LEVERAGE RATIO

To judge the long-term financial position of the society leverage ratios are calculated. These ratios
indicate mix of funds provided by shareholders and financiers. Ifthe cost of debt is higher than the
society’s overall rate of return the earnings of shareholders will be reduced. These ratios are used
to measure the financial risk and society’s ability of using debt for the benefits of shareholders.
There are two types of ratios commonly used to analyze financial leverage:

• Structural Ratios:

Structural ratios are based on the proportion of debt and equity in the financialstructure of the firm.

• Coverage Ratios:

Coverage ratios show the relationship between debt servicing commitments andsources for
meeting these.

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PROFITABILITY RATIOS
Apart from the creditors both short term and long term also interested in the financial soundness
of a firm are the owners and management or the company itself. The management of the firm is
naturally eager to measure its operating efficiency similarly the owners invest their funds in the
expectation of reasonable returns. The operating efficiency of a firm and its ability to ensure
adequate returns to its shareholders depends ultimately on the profit earned by it. The profitability
of a firm can be measured by its profitability ratios. In other words, the profitability ratios are
designed to provide answers to questions such as
• Does the profit earned by the firm adequate?

• What rate of return does it represent?

• What is a rate of profit for various decisions and segments of the firms?

• What are the earnings per share?

• What was amount paid in dividends?

• What is a rate of return to equity holders?

ACTIVITY RATIOS
Funds are invested in various assets to generate sales and profits Activity Ratios are employees to
evaluate the efficiency with which the society mange’s and utilizes in assets. This ratio indicates
the speed with which assets are being converted into sales. Thus ratios indicate the relationship
between sales and assets.
• Inventory turnover ratio which identifies the efficiency of the company in selling in
producers the ratio is calculated by dividing cost of goods sold by inventory where cost of
goods sold includes opening stock plus directs wages plus directs wages plus
manufacturing expenses and subtracting closing stock.
• Fixed assets turnover ratio shows the company’s ability in generating sales for each rupee
of fixed assets it it’s calculated by dividing sales by fixed assets.

• Total assets turnover ratio shows the company’s ability in generating sales for each
rupee of assets. It is calculated by dividing sales by total assets.
• Working capital turnover ratio indicates the velocity of the utilization of net working
capital.
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 LIQUIDITY RATIOS
It is extremely essential for a firm to be able to meet the obligations as they become due. Liquidity
ratios measure the ability of the firm to meet its current obligations (liabilities). Infect, analysis of
liquidity needs the preparation of cash budgets and cash and funds flow statements; but liquidity
ratios, by establishing a relationship between cash and other current assets to current obligations,
provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of
liquidity, and also that it does not have excess liquidity. The failure of a company to meet its
obligations due to lack of sufficient liquidity, will result in a poor credit worthiness, loss of credit
worthiness, loss of creditor’s confidence, or even in legal tangles resulting in the closure of the
company. A very high degree of liquidity is also bad; idle assets earn nothing. The firm’s funds
will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance
between high liquidity and lack of liquidity. The most common ratios which indicate the extent of
liquidity are lack of it, are:
1) Current ratio and

2) Quick ratio.
Other ratios include cash ratio interval measure and networking capital ratio.

1. Current Ratio:
Current ratio is calculated by dividing current assets by current liabilities.

Current assets
Current ratio =
Current liabilities
Current assets include cash and other assets that can be converted into cash within a year, such as
marketable securities, debtors and inventories. Prepaid expenses are also included in the current
assets as they represent the payments that will not be made by the firm in the future. All
obligations maturing within a year are included in the current liabilities. Current liabilities include
creditors, bills payable. Accrued expenses, short- term bank loan, income tax liability and long-
term debt maturing in the current year.
The current ratio is a measure of firm’s short-term solvency. It indicates the availability of current
assets in rupees for every one rupee of current liability. A ratio is greater than one means that the
firm has more current assets than current claims against them Current liabilities.

17
2. Quick Ratio

Quick ratio also called Acid Test Ratio, because it is the acid test of concern’s financial
soundness. It establishes a relationship between quick, or liquid assets and current liabilities. An
asset is a liquid if it can be converted into cash immediately or reasonably soon without a loss of
value.

Cash is the most liquid asset. Other assets that are considered to be relatively liquid and included
in quick assets are debtors and bills receivables and marketable securities (temporary quoted
investments). Inventories are considered to be less liquid. Inventories normally require some time
for realizing into cash; their value also has a tendency to fluctuate. The quick ratio is found out by
dividing quick assets by current liabilities.
Current assets –Inventory

Quick ratio =

Current liabilities

3. Cash Ratio

Since cash is the most liquid asset, it may be examined cash ratio and its equivalent to current
liabilities. Trade investment or marketable securities are equivalent of cash; therefore, they may
be included in the computation of cash ratio:

Cash + Marketable securities

Cash ratios =
Current liabilities

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4. Interval Measure

Yet another, ratio, which assesses a firm’s ability to meet its regular cash expenses, is the interval
measure. Interval measure relates liquid assets to average daily operating cash outflows. The daily
operating expenses will be equal to cost of goods sold plus selling, administrative and general
expenses less depreciation (and other non-cash expenditures divided by number of days in a year
(say 360).

Current assets – Inventory

Interval measure =
Average daily operating expenses

5. Net Working Capital Ratio

The different between current assets and current liabilities excluding short-term bank borrowings
is called net working capital (NWC) or net current assets (NCA). NWC is sometimes used as a
measure of firm’s liquidity. It is considered that between two firm’s the one having larger NWC
as the greater ability to meet its current obligations. This is not necessarily so; the measure of
liquidity is a relationship, rather than the difference between current assets and current liabilities.
NWC, however, measures the firm’s potential reservoir of funds. It can be related to net assets (or
capital employed):

Net working capital (NWC)

NWC ratio =
Current liabilities

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 • Leverage Ratio

The short-term creditors, like bankers and suppliers of raw materials, are more concerned with the
firm’s current debt-paying ability. On other hand, long-term creditors like debenture holders,
financial institutions etc are more concerned with the firm’s long- term financial strength. In fact a
firm should have a strong short as well as long-term financial strength. To judge the long-term
financial position of the firm, financial leverage, or capital structure ratios are calculated. These
ratios indicate mix of funds provided by owners and lenders. As a general rule there should be an
appropriate, mix ofdebt and owners equity in financing the firm’s assets.
Leverage ratios may be calculated from the balance sheet items to determine the proportion of
debt in total financing. Many variations of these ratios exist; but all these ratios indicate the same
thing the extent to which the firms has relied on debt in financing assets. Leverage ratios are also
computed form the profit and loss items by determining the extent to which operating profits are
sufficient to cover the fixed charges.

6. Debt Ratio

Total debt (TD)

Debt ratio =
Total debt (TD) + Net worth (NW)

Total debt (TD)

=
Capital employed (CE)

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7. Debt Ratio

The relationship describing the lenders contribution for each rupee of the owner’s contribution is
called debt-equity (DE) ratio is directly computed by dividing total debt by net worth:

Total debt (TD)

Debt – equity ratio = -----------------------
Net worth (NW)

8. Capital Employed to Net worth Ratio

It is another way of expressing the basic relationship between debt and equity. One may want to
know: How much funds are being contributed together by lenders and owners for each rupee of
owners’ contribution? Calculating the ratio of capital employed or net assets to net worth can find
this out

Total Debt
Debt Equity Ratio = ----------------------
Net worth (NW)

Activity Ratios

Funds of creditors and owners are interested in various assets to generate sales and profits. The
better the management of assets, the larger the amount of sales. Activity ratios are employed to
evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also
called turnover ratios because they indicate the speed with which assets are being converted or
turned over into sales. Activity ratios, thus, involves a relationship between sales and assets. A
proper balance between sales and assets generally reflects that assets are managed well. Several
activity ratios are calculated to judge the effectiveness of asset utilization.

21
9. Inventory Turnover

Inventory turnover indicates the efficiency of the firm in producing and selling its product. It is
calculated by dividing the cost of goods sold by the average inventory:

Cost of goods sold

Inventory turnover =
Average inventory

The average inventory is the average of opening and closing balances of inventory. In a
manufacturing company inventory of finished goods is used to calculate inventory turnover.

10. Debtors (Accounts Receivable) Turnover

A firm sells goods for cash and credit. Credit is used as a marketing tool by number of companies.
When the firm extends credits to its customers, debtors (accounts receivable) are created in the
firm’s accounts. Debtors are convertible into cash over a short period and, therefore, are included
in current assets. The liquidity position of the Firm depends on the quality of debtors to a great
extent. Debtors’ turnover is found outby dividing credit sales by average debtors:

Credit sales
Debtors turnover = -----------------
Debtors

Debtors’ turnover indicates the number of times debtors’ turnover each year generally, the higher
the value of debtors’ turnover, the more efficient is the management of credit.
To outside analyst, information about credit sales and opening and closing balances of debtors
may not be available. Therefore, debtors’ turnover can be calculated by dividing Total sales by the
year-end balances of debtors:
Sales
Debtors turnover = ------------
Debtors

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11. Total Assets Turnover

Net assets turnover can be computed simply by dividing sales by net sales (NA):

Sales
Total Assets Turnover = --------------
Net assets

Since net assets equal capital employed, net assets turnover may also be called capital
employed, net assets turnover may also be called capital employed turnover.

12. Current Assets Turnover

A firm may also like to relate current assets (or networking gap) to sales. It may thus complete
networking capital turnover by dividing sales by net working capital:

Sales

Current asset turnover =-------------------------

Current assets

➢ Profitability Ratios

A company should earn profits to survive and grow over a long period of time. Profits are
essential, but it would be wrong to assume that every action initiated by management of a
company should be aimed at maximizing profits, irrespective of concerns for customers,
employees, suppliers or social consequences. It is unfortunate that the word profit is looked upon
as a term of abuse since some firms always want to maximize profits at the cost of employees,
customers and society. Except such infrequent cases, it is a fact that sufficient profits must be
able to obtain funds from investors for expansion and growth and to contribute towards the social
overheads for welfare of the society. Profit is the difference between revenues and expenses over
a period of time (usually one year). Profit is the ultimate output of a company, and it will have no
future if it fails to make sufficient profits. Therefore, the financial manager should continuously
23
evaluate the efficiency of the company in terms of profit. The profitability ratios are calculated to
measure the operating efficiency of the company. Besides management of the company, creditors
and owners are also interested in the profitability of the firm. Creditors want to get a required rate
of return on their investment. This is possible only when the company earns enough profits.
Generally, two major types of profitability ratios are calculated:
• Profitability in relation to sales.
• Profitability in relation to investment.

13. Net Profit Margin

Net profit is obtained when operating expenses; interest and taxes are subtracted from the gross
profit margin ratio is measured by dividing profit after tax by sales:

Net Profit

Net Profit Ratio = -------------------100

Sales

Net profit ratio establishes a relationship between net profit and sales and indicates and
managements in manufacturing, administrating and selling the products. This ratio is the overall
measure of the firm’s ability to turn each rupee sales into net profit. If the net margin is
inadequate the firm will fail to achieve satisfactory return on shareholders’ funds.

14. Net Margin Based on NOPAT

The profit after tax (PAT) figure excludes interest on borrowing. Interest is tax deducts able, and
therefore, a firm that pays more interest pays less tax. Tax saved on account of payment of interest
is called interest tax shield. Thus the conventional measure of net profit margin-PAT to sales
ratio – is affected by firm’s financial policy. It can mislead if we compare two firms with different
debt ratios. For a true comparison of the operating performance of firms, we must ignore the
effect of financial leverage, viz., the measure of profits should ignore interest and its tax effect.
Thus net profit margin (for evaluating operating performance) may be computed in the following
way:
24
 EBIT (1-T) NOPAT

Net Profit Margin = =

Sales Sales

15. Operating Expense Ratio

The operating expense ratio explains the changes in the profit margin (EBIT to sales) ratio. This is
computed by dividing operating expenses viz., cost of goods sold plus selling expense and general
and administrative expenses (excluding interest) by sales.

Operating expenses
operating expenses ratio = ----------------------------
Sales

16. Return on Investment (ROI)

The term investment may refer to total assets or not assets. The funds employed in net assets are
known as capital employed. Net assets equal net fixed assets plus current assets minus current
liabilities excluding bank loans. Alternatively, capital employed is equal to net worth plus total
debt.The conventional approach of calculating return of investment (ROI) is to divide PAT by
investments. Investment represents pool of funds supplied by shareholders and lenders, while
PAT represent residue income to shareholders; therefore, it is conceptually unsound to use PAT in
the calculation of ROI. Also, as discussed earlier, PAT is affected by capital structure. It is,
therefore, more appropriate to use one of the following measures of ROI for comparing the
operating efficiency of firms:

EBIT (1-T) EBIT (1-T)

ROI = ROTA = =
Total assets TA

25
 (OR)

EBIT (1-T) EBIT (1-T)

ROI = RONA = =
Net assets NA

17. Return on Equity (ROE)

Common or ordinary shareholders are entitled to the residual profits. The rate of dividend is not
fixed: the earnings may be distributed to shareholders or retained in the business. Nevertheless,
the net profits after taxes represent their return. A return on shareholders’ equity is calculated to
see the profitability of owners’ investment. The shareholders equity or net worth will include
paid-up share capital, share premium, and reserves and surplus less accumulated losses. Net
worth also be found by subtracting total liabilities from total assets. The return on equity is net
profit after taxes divided by shareholders equity, which is given by net worth:

Profit after taxes PAT

ROE = =
Net worth (Equity) NW

ROE indicates how well the firm has used the resources of owners. In fact, this ratio is one of the
most important relationships in financial analysis. The earning of a satisfactory return is the most
desirable objective of business.
The ratio of net profit to owners’ equity reflects the extent to which this objective has been
accomplished. This ratio is, thus, of great interest to the present as well as the prospective.
Shareholders and also of great concern to management, which has the responsibility of
maximizing the owners’ welfare.

The return on owners’ equity of the company should be compared with the ratios of other similar
companies and the industry average. This will reveal the relative performance and strength of the
company in attracting future investments.

26
18. Earnings per Share (EPS)

The profitability of the shareholders investments can also be measured in many other ways. One
such measure is to calculate the earnings per share. The earnings per share (EPS) are calculated by
dividing the profit after taxes by the total number of ordinary shares outstanding.
Profit after tax

EPS =

Number of share outstanding

19. Dividends per Share (DPS or DIV)

The net profits after taxes belong to shareholders. But the income, which they will receive, is the
amount of earnings distributed as cash dividends. Therefore, a large number of present and
potential investors may be interested in DPS, rather than EPS.
DPS is the earnings distributed to ordinary shareholders dividend by the number of ordinary
shares outstanding.

Earnings paid to shareholders (dividends)

EPS =
Number of ordinary shares outstanding

20. Dividend – Payout Ratio

The dividend – payout Ratio or simply payout ratio is DPS (OR Total equitydividends)
divided by the EPS (or profit after tax):
Equity dividends
Payout Ratio =
Profit after tax
Dividends per share DPS

= =
Earnings per share EPS

27
2.11 ADVANTAGES OF RATIO ANALYSIS

• Ratio analysis simplifies the comprehension of financial statement.

• Ratio analysis provides data for inter firm comparison

• Ratio analysis helps in planning forecasting trends in cost, sales, profit and other related
facts are revealed by the past ratios and future events can be forecast on the basis of such
trends.
• Ratio may be used as an instrument of management control particularly in the area of
sales cost.
• A ratio helps in investment decision to make profitable investment.

• Ratios also facilitate the function of communication. It can be easily conveyedthrough

the ratio as what has happened during the two intervening periods.
• Ratios may also be used as a measure of efficiency.

• It helps in comparing companies of different size with each other.

• It helps in trend analysis which involves comparing a single company over a period.
• It highlights important information in simple form quickly. A user can judge a company
by just looking at few numbers instead of reading the whole financial statements.

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2.12 LIMITATIONS OF RATIO ANALYSIS

• The analyst or the user must have comprehensive knowledge and experience about the
concern whose statements have been used for calculating these ratios only the dependable
conclusions may draw thus ratios are signified tools only in the hands of experts in the
hands of quacks for whom they may prove dangerous tools.

• Ratios are not an end in themselves but they are a means to achieve a particular end. Hence
it totally depends upon user or analyst as what conclusions is drawn on the basis of ratios
calculated.

• A single ratio in itself is not imported or as limited value because trends are more
significant in the analysis.
• Another limitation is that of standard ratio with which the actual ratios may be compared
generally there is no such ratio, which may be treated as standard for the purpose of
comparison because conditions of one concern differ significantly from those of another
concern.

29
3.1 INTRODUCTION

The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due
to the entry of several new players. It accounts for over 10 per cent of the country’s Gross
Domestic Product (GDP) and around 8 per cent of the employment. India is the world’s fifth-
largest global destination in the retail space.
Market Size
India’s retail market is expected to nearly double to US$ 1 trillion by 2020 from US$ 600 billion
in 2015#, driven by income growth, urbanization and attitudinal shifts. While the overall retail
market is expected to grow at 12 per cent per annum, modern trade would expand twice as fast at
20 per cent per annum and traditional trade at 10 per cent#.
India’s Business to Business (B2B) e-commerce market is expected to reach US$ 700 billion by
2020. Online retail is expected to be at par with the physical stores in the next five years.
India is expected to become the world’s fastest growing e-commerce market, driven by robust
investment in the sector and rapid increase in the number of internet users. Various agencies have
high expectations about growth of Indian e-commerce markets. Indian e- commerce sales are
expected to reach US$ 120 billion! By 2020 from US$ 30 billion in FY2016.Further, India's e-
commerce market is expected to reach US$ 220 billion in terms of gross merchandise value
(GMV) and 530 million shoppers by 2025, led by faster speeds on reliable telecom networks,
faster adoption of online services and better variety as well as convenience.
India’s direct selling industry is expected to reach a size of Rs 23,654 crore (US$ 3.54 billion) by
FY2019-20, as per a joint report by India Direct Selling Association (IDSA) and PHD.
Indian exports of locally made retail and lifestyle products grew at a compound annual growth
rate (CAGR) of 10 per cent from 2013 to 2016.
The size of modern retail in India is expected to double to Rs 171,800 crore (US$ 25.7 billion)
from Rs 87,100 crore (US$ 13 billion) in three years driven by omni-channel retail.

30
Investment Scenario

The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows totalling
US$ 935.74 million during April 2000–December 2016, according to the Department of Industrial
Policies and Promotion (DIPP).
With the rising need for consumer goods in different sectors including consumer electronics and
home appliances, many companies have invested in the Indian retail space in the past few
months.

• US apparel retail major Gap Inc, has tied up with Arvind Group’s fashion portal
NNNow.com to sell its products online, which will help the retailer expand its presence
beyond metros and tier-I cities.
• Hamleys, has stated that India is one of the most important markets for Hamleys globally,
and outlined plans of opening six more stores, taking its total store count in the country to
32 by the end of March 2017.
• Roche Bobois Group, outlined plans of opening new stores in cities like Hyderabad,
Chennai, Pune, Kolkata and Ahmedabad, in order to make India one of its top five
markets by 2022.
• A joint venture between Dutch asset manager APG Asset Management and real estate
asset platform Virtuous Retail, has acquired a portfolio of three shopping malls for US$
300 million, and has committed an additional US$ 150 million as equity capital to expand
the portfolio.
• Future Consumer Ltd has formed a joint venture (JV) with UK’s largest wholesaler,
Booker Group, with an investment of Rs 50 crore (US$ 7.5 million), to set up 60-70 cash-
and-carry stores in India in the next 3-4 years.
• Adidas India Private Limited, outlined plans of opening around 30-40 big flagship stores
across Delhi, Mumbai and Bengaluru, by 2020.
• Mad Over Donuts (MoD), outlined plans of expanding its operations in India by opening
nine new MOD stores in Hyderabad and Chennai by March 2017.

31
• Switzerland’s luxury retail brand Bally, plans to re-enter the Indian market in a joint
venture with Reliance Brands Ltd, by opening its first store in New Delhi in March 2017,
and thereafter aiming to expand to four stores in Delhi, Mumbai, Kolkata and Chennai
over the next 3 to 4 years.
• Urban Ladder, an online furniture store, is in advanced talks to raise around US$ 25-30
million from existing investors Kalaari Capital, SAIF Partners and Sequoia Capital,
along with one new investor, which will be used to fund its expansion plans.
• Hennes & Mauritz (H&M), the Sweden-based clothing retailer, is in advanced talks with
Mumbai-based Prakhhyat Infraprojects Pvt Ltd to lease around 275,000 square feet of
space at Bhiwandi, Maharashtra, to set up its first warehousing hub in India.
• Future Group has partnered with UK clothing and hardware retailer Laura Ashley to
make and sell merchandise as well as wholesale distribution in India.
• Parle Agro Pvt Ltd is launching Frooti Fizz, a succession of the original Mango Frooti,
which will be retailed across 1.2 million outlets in the country as it targets increasing its
annual revenue from Rs 2800 crore (US$ 0.42 billion) to Rs 5000 crore (US$ 0.75
billion) by 2018.
• Mr Amit Agarwal, Country Head, Amazon, has stated that India continues to be viewed
as a long-term opportunity and the company would continue to invest aggressively in
Indian operations.
• International Finance Corporation (IFC), the investment arm of The World Bank, plans to
invest up to Rs 134 crore (US$ 19.86 million) in Kishore Biyani's Future Consumer
Enterprises Ltd, which is expected to aid the company in driving its growth plans.
• Amazon India has opened six new fulfillment centres across Chennai, Coimbatore,
Delhi, Jaipur and Mumbai, which will open up 5.5 million square feet of storage space
for sellers on the marketplace who use the ‘Fulfilled by Amazon’ service.
• IKEA, the world’s largest furniture retailer, plans to invest Rs 10,500 crore (US$

1.56 billion) to set up 25 stores across India and hire over 15,000 permanent employees
and 37,500 temporary employees to assist in running its stores.

32
• Aditya Birla Fashion and Retail Limited (ABFRL) has announced that it will acquire
exclusive online and offline rights of Forever 21, an American fast fashion brand, in the
Indian market.
• Massimo Dutti, a premium fashion brand from Spain offering sophisticated womenswear,
menswear, footwear and accessories, has entered India by opening its first store at the
Select Citywalk mall in New Delhi.
• Lenskart, India's largest online eyewear retailer, has raised Rs 400 crore (US$

59.3 million) in series D round of funding led by World Bank's investment arm
International Finance Corporation (IFC), which will be used to enhance its technology,
supply chain, lens manufacturing, and expand the reach of its high-quality eyewear
products across Tier-3 and Tier-4 cities of India.
• Neil Barrett, one of the leading Italian fashion brands, has forayed into the Indian market
by establishing its retail presence through an exclusive partnership with Fervour, a multi-
brand boutique that stocks international designer brands.
• New York-based designer brand Kate Spade will be launched in India later this year and
will set up a network of stand-alone stores across major cities, thus becoming one more
global brand entering the Indian retail space after the Government of India relaxed single
brand retail norms recently.
• KartRocket, a Delhi based e-commerce enabler has completed its US$ 8 million funding
round by raising US$ 2 million from a Japanese investor, which will be used to enhance
Kraftly, a mobile-first online-to-offline marketplace targeting small sellers, individuals
and home-based entrepreneurs in India in product categories such as apparel and
accessories.
• Purple Talk Inc, a US based mobile solutions company, has invested US$ 1 million in
Nukkad Shops, a Hyderabad based uber-local commerce platform that helps neighbour
hood retail stores take their businesses online through a mobile app.
• Mumbai-based baby care and kids products e-tailer, Hopscotch.in, has raised US$

13 million in a Series C round of funding from Facebook co-founder Mr Eduardo

Saverin, which will help the firm in growth and expansion of its technology platform.

33
• Gurgaon-based e-commerce firm Shopclues has raised US$ 150 million from Singapore
government's GIC and its existing investors Tiger Global and Nexus Venture Partners, at
a valuation of US$ 1.1 billion, thereby becoming the latest among several e- commerce
companies from India reaching a billion dollar valuation.
• Adidas AG, renowned for its Adidas and Reebok sports brands, has become the first
foreign sports company to get government approval to open 100 percent foreign- owned
stores in India.
• Walmart India plans to add 50 more cash-and-carry stores in India over the next four to
five years.
• Aeropostale, an American teen fashion retailer, has chosen to enter India over China, and
expects India to be among its top three markets over the next four years with revenue
target of Rs 500 crore (US$ 74.12 million).
• Opinio, a hyperlocal delivery start-up, has raised US$ 7 million in a Series-A funding
from Gurgaon-based e-commerce fulfilment service firm Delhivery along with
investment from Sands Capital and Accel Partners.
• Textile major Arvind Limited has announced a partnership with Sephora, owned by
LVMH Moet Hennessy Louis Vuitton, a French luxury conglomerate, in order to enter
into the beauty and cosmetics segment.
• Abu Dhabi-based Lulu Group plans to invest Rs 2,500 crore (US$ 370.6 million) in a
fruit and vegetable processing unit, an integrated meat processing unit, and a modern
shopping mall in Hyderabad, Telangana.
• Aditya Birla Retail, a part of the US$ 40 billion Aditya Birla Group and the fourth-largest
supermarket retailer in the country, acquired Total hypermarkets owned by Jubilant
Retail.
• US-based Pizza chain Sbarro plans an almost threefold increase in its store count from
the current 17 to 50 over the next two years through multiple business models.

34
Government Initiatives

The Government of India has taken various initiatives to improve the retail industry inIndia.

• Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in online
retail of goods and services through the automatic route, thereby providing clarity on the
existing businesses of e-commerce companies operating in India.

Road Ahead
E-commerce is expanding steadily in the country. Customers have the ever increasing choice
of products at the lowest rates. E-commerce is probably creating the biggest revolution in the
retail industry, and this trend would continue in the years to come. Retailers should leverage the
digital retail channels (e-commerce), which would enable them to spend less money on real estate
while reaching out to more customers in tier-2 and tier-3 cities.
Both organised and unorganised retail companies have to work together to ensure better prospects
for the overall retail industry, while generating new benefits for their customers.
Nevertheless, the long-term outlook for the industry is positive, supported by rising incomes,
favourable demographics, entry of foreign players, and increasing urbanisation.

Types of retail outlets

A marketplace is a location where goods and services are exchanged. The traditional market
square is a city square where traders set up stalls and buyers browse the merchandise. This kind of
market is very old, and countless such markets are still in operation around the whole world.
In some parts of the world, the retail business is still dominated by small family-run stores, but
this market is increasingly being taken over by large retail chains.

Retail is usually classified by type of products as follows:

• Food products

• Hard goods ("hardline retailers") - appliances, electronics, furniture, sportinggoods, etc.

• Soft goods - clothing, apparel, and other fabrics.

35
There are the following types of retailers by marketing strategy:

• Department stores - very large stores offering a huge assortment of "soft" and "hard
goods; often bear a resemblance to a collection of specialty stores. A retailer of such
store carries variety of categories and has broad assortment at average price. They offer
considerable customer service.

• Discount stores - tend to offer a wide array of products and services, but they compete
mainly on price offers extensive assortment of merchandise at affordable and cut-rate
prices. Normally retailers sell less fashion-oriented brands. However the service is
inadequate.;
• General merchandise store - a hybrid between a department store and discount store;
• Supermarkets - sell mostly food products;

• Warehouse stores - warehouses that offer low-cost, often high-quantity goods piled on
pallets or steel shelves; warehouse clubs charge a membership fee;
• Variety stores or "dollar stores" - these offer extremely low-cost goods, with limited
selection;
• Demographic - retailers that aim at one particular segment (e.g., high-end retailers focusing
on wealthy individuals).
• Mom-And-Pop or Kirana Stores: is a retail outlet that is owned and operated by
individuals. The range of products are very selective and few in numbers. These stores are
seen in local community often are family-run businesses. The square feet area of the store
depends on the store holder.
• Specialty Stores: A typical specialty store gives attention to a particular category and
provides high level of service to the customers. A pet store that specializes in selling dog
food would be regarded as a specialty store. However, branded stores also come under this
format. For example if a customer visits a Reebok or Gap store then they find just Reebok
and Gap products in the respective stores.
• Convenience Stores: is essentially found in residential areas. They provide limited amount
of merchandise at more than average prices with a speedy checkout. This store is ideal for
emergency and immediate purchases.
• Hypermarkets: provides variety and huge volumes of exclusive merchandise at low
margins. The operating cost is comparatively less than other retail formats. A classic

36
 example is the Metro™ in Bangalore.
• Supermarkets: is a self-service store consisting mainly of grocery and limited products on
nonfood items. They may adopt a Hi-Lo or an EDLP strategy for pricing. The
supermarkets can be anywhere between 20,000-40,000 square feet. Example: SPAR™
supermarket.
• Malls: has a range of retail shops at a single outlet. They endow with products, food and
entertainment under a roof. Example: Sigma mall and Garuda mall in Bangalore, Express
Avenue in Chennai.
• Category Killers or Category Specialist: By supplying wide assortment in a single category
for lower prices a retailer can "kill" that category for other retailers. For few categories,
such as electronics, the products are displayed at the center of the store and sales person
will be available to address customer queries and give suggestions when required. Other
retail format stores are forced to reduce the prices if a category specialist retail store is
present in the vicinity. For example: Pay Electronics™ store in Bangalore, Tata Chroma.
• E-tailors: The customer can shop and order through internet and the merchandise are
dropped at the customer's doorstep. Here the retailers use drop shipping technique. They
accept the payment for the product but the customer receives the product directly from the
manufacturer or a wholesaler. This format is ideal for customers who do not want to travel
to retail stores and are interested in home shopping. However it is important for the
customer to be wary about defective products and non-secure credit card transaction.
Example: Amazon and Ebay.
• Vending Machines: This is an automated piece of equipment wherein customers can drop
in the money in machine and acquire the products. For example: Soft drinks vending at
Bangalore Airport. Some stores take a no frills approach, while others are "mid-range" or "high
end", depending on what income level they target.

37
Other types of retail store include:

• Automated Retail stores are self-service, robotic kiosks located in airports, malls and
grocery stores. The stores accept credit cards and are usually open 24/7. Examples include
Zoom Shops and Redox.

• Big-box stores encompass larger department, discount, general merchandise, and

warehouse stores.
• Convenience store - a small store often with extended hours, stocking every day or
roadside items;
• General store - a store which sells most goods needed, typically in a rural area;

Retailers can opt for a format as each provides different retail mix to its customers based on their
customer demographics, lifestyle and purchase behavior. A good format will lend a hand to
display products well and entice the target customers to spawn sales.

3.2 COMPANY PROFILE

The Heritage Group, founded in the year 1992 by Mr. Nara Chandrababu Naidu, is one of the
fastest growing Public Listed Companies in India, with six-business divisions- Dairy, Retail, Agri,
Bakery, Renewable Energy and Vetca under its flagship Company Heritage Foods Limited
(Formerly known as Heritage Foods (India) Limited).The annual turnover of Heritage Foods
crossed Rs.2380.58 crores in financial year 2020-21.

Currently Heritage's milk and milk products have a market presence in Andhra Pradesh,
Telangana, Karnataka, Tamilnadu, Kerala, Maharastra, Odisha, Rajasthan, Haryana and NCR
Delhi and its retail stores across Bangalore, Chennai and Hyderabad. Integrated agri operations
are in Chittoor and Medak Districts and these are the backbone to retail operations and the state of
art Bakery plant at Uppal, Hyderabad, Telangana.

In the year 1994, HFL went Public and was oversubscribed 54 times. HFL shares arelisted on
BSE (Stock Code: 519552) and NSE (Stock Code: HERITGFOOD).

38
About the founder
Mr. Nara Chandrababu Naidu Heritage
Foods Limited, India
Mr. Nara Chandrababu Naidu is one of the greatest dynamic, pragmatic, progressive and
visionary Leaders of the 21st Century.

With an objective of "Bringing prosperity into rural families through co-operative efforts", he
along with a few like minded, friends and associates promoted 'Heritage Foods' in the year 1992
taking opportunity from the Industrial Policy, 1991 of the Government of India to which end he
has been successful.
At present, Heritage has a market presence in the states of Andhra Pradesh, Telangana, Karnataka,
Kerala, Tamil Nadu, Maharastra, Odisha and NCR Delhi. More than three thousand villages
and three lakh farmers are being benefited in these states. On the other side, Heritage is serving
millions of customers needs by, employing more than 5500 people and generating indirect
employment opportunities for more than 10000 people. Beginning with a humble annual turnover
of Rs.4.38 crores in 1993-94, the annual turnover of Heritage Foods crossed Rs 2380.58 crores in
financial year 2020-21.
Mr. Chandrababu Naidu was born on April 20, 1951 in Naravaripally Village, Chittoor District,
Andhra Pradesh, India. His late father Mr. N. Kharjura Naidu was an agriculturist and his late
mother Smt. Ammanamma was a housewife. Mr. Naidu did his schooling in Chandragiri. He went
on to study at the Sri Venkateswara Arts College, Tirupati. He later also obtained his Masters in
Economics from the Sri Venkateswara University, Tirupati. Mr. Naidu is married to Mrs.
Bhuvaneswari, the daughter of Mr. N T Rama Rao, Ex-Chief Minister of Andhra Pradesh and a
famous star of Telugu Cinema. Mrs. N Bhuvaneswari is the Vice Chairperson & Managing
Director of the company.
Mr. Naidu held various positions of office in college and organised a number of social activities.
Following the 1977 cyclone, which devastated the Diviseema Taluk of Krishna District, he
actively organised donations and relief material from Chittoor district for the cyclone victims. Mr.
Naidu has always evinced keen interest in rural development activities in general and the
upliftment of the poor and downtrodden sections of society in particular.
Mr. Naidu has held various coveted and honourable positions including Chief Minister of Andhra
Pradesh, Minister for Finance & Revenue, Minister for Archives & Cinematography, Member of

39
the A.P. Legislative Assembly, Director of A.P. Small Scale Industries Development
Corporation, and Chairman of Karshaka Parishad. Mr. Naidu has been honoured with numerous
prestigious awards including "Member of the World Economic Forum's Dream Cabinet" (Time
Asia), "South Asian of the Year" (Time Asia), "Business Person of the Year" (Economic Times),
and "IT Indian of the Millennium" (India Today).

Mr. Naidu was chosen as one of 50 leaders at the forefront of change in the year 2000 by the
Business Week magazine for being an unflinching proponent of technology and for his drive to
transform the State of Andhra Pradesh.Mr. Naidu has been re-elected as the Chief Minister of
Andhra Pradesh in the 2014 elections.

Forward looking statements

“We have grown, and intended to grow, focusing on harnessing our willingness to experiment and
innovate our ability to transform our drive towards excellence in quality, our people first attitude
and our strategic direction.

3.2.1 Mission

• To be a nationally recognized brand for Healthy and Fresh products with a revenue of
INR 6000 Crore.(USD 1 Billion) by 2020
• We anticipate, understand and respond to our Customers needs by creating high quality
products and making them available through innovative and convenient channels
• We embrace the right technology to delight our Customers

• We are a strong supporter of balancing Economic, Social and Environmental aspects to

create a better tomorrow
• We are devoted to empowering the Farmer community through our unique 'Relationship
Farming' Model
• We aim to be the Employer of Choice by nurturing Entrepreneurship and Promoting
Empowerment, alongside transparency.

40
3.2.2 Vision
Delighting every home with Fresh & Healthy products and empowering the Farmer

3.2.3 Heritage Slogan

When you are healthy, we are healthy

When you are happy, we are happy

We live for your "HEALTH & HAPPINESS"

3.2.4 Quality policy of HFIL

We are committed to achieve customer satisfaction through hygienically processed and packed
Milk and Milk Products. We strive to continually improve the quality of our products and services
through upgradation of technologies and systems.

Heritage's soul has always been imbibed with an unwritten perpetual commitment to itself, to
always produce and provide quality products with continuous efforts to improve the process and
environment.

Adhering to its moral commitment and its continuous drive to achieve excellence in quality of
Milk, Milk products & Systems, Heritage has always been laying emphasis on not only reviewing
& re-defining quality standards, but also in implementing them successfully. All activities of
Processing, Quality control, Purchase, Stores, Marketing and Training have been documented
with detailed quality plans in each of the departments.

Today Heritage feels that the ISO certificate is not only an epitome of achieved targets, but also a
scale to identify & reckon, what is yet to be achieved on a continuous basis. Though, it is a
beginning, Heritage has initiated the process of standardizing and adopting similar quality
systems at most of its other plants.

41
3.2.5 Commitments
Milk Producers

Change in life styles of rural families in terms of:

• Regular high income through co-operative efforts.

• Women participation in income generation .

• Saved from price exploitation by un-organized sector .

• Remunerative prices for milk .

• Increase of milk productivity through input and extension activities

• Shift from risky agriculture to dairy farming

• Financial support for purchase of cattle; insuring cattle

• Establishment of Cattle Health Care Centers

Customers

• Timely Supply of Quality & Healthy Products

• Supply high quality milk and milk products at affordable prices

• Focused on Nutritional Foods

• More than 4 lakh happy customers

• High customer satisfaction

• 24 hours help lines ( <10 complaints a day)

Employees

• Enhancing the Technical and Managerial skills of Employees through continuous training
and development
• Best appraisal systems to motivate employees

• Incentive, bonus and reward systems to encourage employees

• Heritage forges ahead with a motto "add value to everything you do.

42
3.2.6 Qualities of management principles

• Customer focus to understand and meet the changing needs and expectations of
customers.

• People involvement to promote team work and tap the potential of people.

• Leadership to set constancy of purpose and promote quality culture trough outthe
organization.

• Process approach to assess the efficiency and effectiveness of each process.

• Systems approach to understand the sequence and interaction of process.

• Factual approach to decision making to ensure its accuracy.

• Continual improvement processes for improved business results.

43
3.2.7 CODE OF CONDUCT AND ETHICS
FOR DIRECTORS & SENIOR MANAGEMENT

Preface This Code of Conduct and Ethics (herein after referred to as the "Code") has been
adopted by the Board of Directors of Heritage Foods (India) Limited (herein after referred to as
"the Company"), to be applicable to all Directors and all members of senior management i.e.,
personnel who are a part of the core management team and including all functional heads of the
company (herein after referred to as the 'Members') with effect from December 23, 2005.
This Code helps the Members maintain good standards of business conduct, foster ethical and
moral conduct and promote a culture of honesty and accountability, so as to set an example to
others in the company. The Code is not an all-inclusive comprehensive policy and cannot
anticipate every situation that may arise in the course of the company's business. The Members
are expected to bear in mind the essence and substance of the Code in all their dealings /
transactions with the Company.

Strict Compliance All Members shall act within the bounds of the authority conferred upon
them and undertake the duty to make and enact informed, judicious and harmonious decisions and
policies in the best interests of the Company and its shareholders / stakeholders. With a view to
maintain the high standards the Company requires, the following rules/ code of conduct to be
observed in all activities. For the purpose of the code, the Company appoints the Company
Secretary as compliance officer, who will be available to Members to answer questions and help
them in complying with the code.

Conflict Of Interest The term "Conflict of interest" pertains to situations in which financial
or personal considerations may compromise, or have the appearance of compromising judgment
of professional activities. A conflict of interests exists where the interests or benefits of one
person or entity conflicts with the interests or benefits of the other person/entity/company.
All Members should not engage in any business, relationship or activity, which may be in conflict
with the interest of the Company. It is not possible to cover every possible conflict situation and
at times, it will not be easy to distinguish between the proper and improper activities. Set forth
below, aresome of the common circumstances that may lead to conflict of interest or potential.

44
 I Members should not engage in any activity / employment that interfere with your
Performance or responsibility to the Company or otherwise in conflict with or
prejudicial to the interests of the Company.

ii. As a general policy, Members should avoid conducting business with a relative or
with a firm / Company in which a relative / related party is associated in a significant
Role / position.

iii. Whenever/ wherever the related party transaction is unavoidable Members will fully
disclose their interest in the transaction to the Board or to the CEO of the Company
and due records for such transactions will be maintained as per the statutory
Requirements.

Honesty And Integrity All Members shall conduct their activities, on behalf of the Company
and on their personal behalf, with honesty, integrity and fairness. They will act in good faith, with
responsibility, due care, competence and diligence, allowing independent judgment to their
subordinates. Members shall act in the best interests of the Company and fulfil their fiduciary
obligations.

Policy Of Business Relationship

The Company will conduct business legally and ethically. The quality of company's products and
the efficiency of its services at the most competitive price is the greatest tool in conducting the
business of the company. Profits do not justify unfair/ unethical practices. All Members should
uphold the highest standards of integrity in all the business relationships.

Intellectual Property Policy

All Members have utmost obligation to identify and protect the intellectual properties, trade
secrets and confidential information owned by the Company and its clients or associates as it is
critical to the success of the company. "Intellectual Property Rights" (IPR) means generally
patented or potentially patentable inventions, trademarks, copyrightable subject matters and trade
secrets.

45
Corporate Opportunities
Members owe a duty to the Company to advance itslegitimate interests when the opportunity to do
so arises and are expressly prohibited from improper use of information / property or taking
improper advantage of their position.

Prevention Of Insider Trading

Insider trading is prohibited both by the Law as well as by the company policy. Insider trading
generally involves the act of subscribing to or buying or selling of the Company's securities,
when in possession of any Unpublished Price Sensitive Information about the company."Price
sensitive information” is such information, which relates directly or indirectly to the company and
which if published is likely to materially affect the price of securities of the Company. It is
important to note that both positive and negative information could be price sensitive. Members
shall not derive benefit or assist others to derive benefit or assist them to derive benefit on their
behalf by giving investment advice from the available access to and possession of information
about the Company, which is not in public domain and thus constituting insider information.
Members shall comply with the prevention of insider trading guidelines as issued by Securities
Exchange Board of India (SEBI).

Confidentiality Of Information Policy

The Company's confidential information is a valuable asset. Members shall understand that
protection of all confidential information is essential. Members should undertake and be
committed to protecting business and personal information of confidential nature obtained from
clients, associates and employees. Any information concerning the Company's business, its
customers, suppliers etc. which is not in the public domain and to which the Members have access
or possesses such information, shall be considered confidential and held in confidence, unless
authorized to disclose or such disclosure is required as a matter of law. Members shall not provide
any information either formally or informally, to the press or any other publicity media, unless
specially authorized to do so.

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Compliance With Laws, Rules And Regulations

Members should comply with all applicable laws, rules, and regulations, both in letter and spirit.
In order to assist the Company in promoting the lawful and ethical behavior, Members have to
report any possible violation of law, rules, regulations or the code of conduct to the Company
Secretary.

Protection And Proper Use Of Company’s Assets

All Members have the responsibility to protect the assets of the company, ensure optimal
utilization of assets and to report and record all transactions. Members shall protect the
Company's assets from loss, damages, misuse or theft and assets may only be used for business
purposes and other purposes specifically approved by management and must never be used for
any personal or illegal purposes.

Competition Policy

The Company shall compete only in an ethical and legitimate manner. It prohibits all actions that
are anti- competitive or otherwise contrary to laws that govern competitive practices in the
market place. Members shall uphold the same.

Securities Market Policy

The Company is committed to comply with securities laws in all the markets in which the
Company's securities are listed. The company prohibits fraudulent and unfair trade practices with
regard to the securities of the Company by all Members.

Selecting Suppliers

The Company's suppliers make significant contribution to its success. The Company's policy is to
purchase / avail supplies based on need, quality, service, price and other commercial terms and
conditions. Suppliers should be selected based on merit, price, quality and performances. The
Company's policy is to select significant suppliers through a competitive bid process wherever
possible. Under no circumstance should the Company or its employee, agent or contractor attempt
to coerce suppliers in any way.

47
Environment, Health And Safety Policy

Members shall take environmental consciousness a step further as a company and contribute to
preserving nature as well as safety measures in own respective work areas. All Members are
responsible for conducting safe and environmentally sound operations; this is in the interest of our
own well-being and the quality of life of others. Members shall abide by this policy.

Elimination Of Child Labour

It is the Company's policy not to support child labor. The Company is committed to implement the
provisions of the Child Labor (Prohibition and Regulation) Act, 1986. To, promote this the
Company encourages its suppliers also to work towards a no child labor policy in their industries.
Members shall strictly observe that no child labor is employed in the company.

Abolition Of Forced Labour

The Company strictly prohibits forced or compulsory labor. The Company is committed to
ensuring that employees enter into employment and stay on in the Company of their own free
will. Members shall uphold this policy.

Gifts & Donations

No Member shall receive or offer, directly or indirectly, any gifts, donations, remuneration,
hospitality, illegal payments and comparable benefits which are intended or perceived to be
intended to obtain business (or uncompetitive) favors or decision for the conduct of the business.
Normal gifts of commemorative nature for special events may be accepted and reported to the
Board.

Other Directorships

The Company feels that serving on the Board of directors of other companies may raise substantial
concerns about potential conflict of interest. Therefore all Directors shall report / disclose such
relationships to the Board on an annual basis. It is felt that service on the Board of a direct
competitor is not in the interest of the Company. Hence all the Directors are barred in accepting
such position without the concurrence of the Board.

48
Accountability

The Board of Directors (BOD) shall oversee the Company's adherence to ethical and legal
standards. All employees and members of the BOD shall undertake to stop or prevent actions that
could harm customers or reputation of the Company and to report such actions as soon as they
occur to take corrective steps and see that such actions are not repeated.

Compliance With Code Of Conduct

Each Director and senior management personnel shall adhere to this code of conduct and affirm
compliance with the code on an annual basis as per the Annexure to the Code. Violation of this
Code will lead to appropriate disciplinary action.

Waiver Of The Code

Any waiver of the applicability of the Code or waiver of application of any provision of the Code
to any Member shall be approved by the Board of Directors and disclosed as required by Law or
SEBI / Stock Exchange regulations.

49
3.2.8 BRANCHES OF HFIL
HFIL has many wings. They are
• Dairy

• Retail

1. Dairy
It is the major wing among all. The dairy products manufactured by HFIL are Milk, curd,
butter, ghee, flavored milk, pander, doodhpeda, ice cream.

2. Retail
In the retail sector HFIL has outlets namely “Fresh@”. In those stores the products sold are
vegetables, milk& milk products, grocery, pulses, fruits etc. In Hyderabad 19 retail shops are
there. In Bangalore& Chennai, 3&4 respectively are there. Totally there are 26 retail shops are
there. Fresh is a unique chain of retail stores, designed to meet the needs of the modern Indian
consumer. The store rediscovers the taste of nature every day making grocery shopping a never
before experience.

The unique& distinctive feature of Fresh is that it offers the widest range of fresh fruits and
vegetables which are directly handpicked from the farms. Freshness lies in their merchandise and
the customers are always welcomed with fresh fruits and vegetables no matter what what time
they walk in.

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3.2.9 Directors of the company

Sri D.Seetharamaiah Smt.

N. Bhuvaneswari
Sri M. Sivarama Varaprasad
Sri R.S.Bakkannavar

The Company was registered as Non-Banking Financial Institution on 5th Day of December 1998
by Reserve Bank of India as a Deposit Taking Company under the category Hire Purchase
Company.

At Present the company is allowing Dairy Loans to Small Farmers under Tie up arrangement with
Heritage Foods (India) Limited. The Company has been earning profits from inception and
functioning in conformity with the rules and directions of Reserve Bank of India.

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4.1 Size and growth of current assets and liabilities and Net
working capital of Heritage Foods (India) Limited during the period
2017-18 to2021-22.

(All amounts are in Cr)

Year Current Growth Rate Current Growth Rate Net W.C

Assets (%) Liabilities (%)

2017-18 144.36 100 106.49 100 37.87
2018-19 168.78 116.916043 175.59 164.888722 -6.81
2019-20 164.6 97.5234032 170.73 97.2321886 -6.13
2020-21 208.46 126.646416 185.63 108.72723 22.83
2021-22 235.20 112.827401 190.33 102.531918 44.87

Interpretation:
The current assets of the organization are more as compared with current liabilities but atthe year
2016-2017 the financial position i.e. turnover of current year is high i.e. 44.87.

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4.2 WORKING CAPITAL TURNOVER RATIO
(All amounts are in Cr)

Year

Sales Networking Capital Ratio

2017-18 1096.18 37.87 28.9458674

2018-19 1393.41 -6.81 -204.612335
2019-20 1601.81 -6.13 -261.306688
2020-21 1722.04 22.83 75.4288217
2021-22 2,072.97 44.87 46.1994651

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4.3 TURNOVER RATIO

Debtors Turnover Ratio expresses the relationship between debtors and sales. A high Debtors
Turnover Ratio or low Debt collection period is indicative of sound credit management policy.

Table shows Debtors Turnover Ratio of Heritage Foods (India) Limited. During

2017-18 to 2021-22.
(All amounts are in Cr)

Year Net Credit Sales Avg. Debt Ratio

2017-18 1096.18 14.44 75.9127424

2018-19 1393.41 11.20 124.411607
2019-20 1601.81 15.07 106.291307
2020-21 1722.04 16.61 103.674894
2021-22 2072.97 24.24 85.5185643

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Interpretation:

From the above table, it is observed that the Heritage Foods (India) Limited debtor’s turnover
ratio shows a good sigh. The company noted a maximum ratio of 124.41 in the year 2018-19 and
the minimum ratio in the year of 2017-18.

If we observed the above table the ratio is increasing the year 2017-18 to 75.91 in the year
2018-19 in the year but it is increased to 103.67 in the year 2019-20. It shows a good sign for
the company. Present year it is 85.51i.e on 2021-22.

4.4 CURRENT RATIO

It is the ratio of the current assets current liabilities this ratio is used to know the company’s
ability to meet its current obligations. The standard norm for the current ratio is 2:1

Current ratio = current Assets / Current liabilities.

Table showing current ratio of Heritage Foods (India) Limited during the period

2017-18 to 2021-22

(All Amounts are in Cr)

Year Current Assets Current Liabilities Ratio

2017-18 144.36 106.49 1.35562025

2018-19 168.78 175.59 0.96121647
2019-20 164.60 170.73 0.96409536
2020-21 208.46 185.63 1.12298659
2021-22 235.20 190.33 1.235748436

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Interpretation:
It is observed that the Heritage Foods (India) Limited current rationing an increasing trend;
The company’s liquidity position is satisfactory the current ratio increased slightly up to 2018-19.
Also, in 2021-22 it inclined because of increase in current liabilities and assets, and then it started
to increase as 1.23. If the company maintains to increase the ratio it can meet obligations.

4.5 QUICK RATIO

Quick ratio is relation between quick assets and current liabilities. The term quick assets, which
can be converted into cash with a short notice. This category also includes cash bank balances
short – term investments and receivables.

Quick ratio = Quick Assets / current liabilities

Table showing quick ratio of Heritage Foods (India) Limited during the period 2017-18 to
2021-22.

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 (All Amounts are in Cr)

Year Quick Assets Current Liabilities Ratio

2017-18 78.29 106.49 0.7351864

2018-19 75.33 175.59 0.42901076
2019-20 82.63 170.74 0.48395221
2020-21 96.68 185.63 0.52082098
2021-22 95.83 190.33 0.50349393

Interpretation:

It is observed from the table that the Heritage Foods (India) Limited Quick Ratio is satisfactory.
The company has noted a maximum ratio of 0.73 in the year of 2017-18.

Except the 2017-18 year, the remaining is below the standard of the norm 1:1. But we observed
the ratio of the company, it is decreasing gradually. i.e. 0.50 in the year 2021-22so it is a bad sign
for the company.

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4.6 CASH RATIO

Indicates a conservative view of liquidity such as when a company has pledged its receivables
and its inventory, or the analyst suspect’s severe liquidity problems with inventory and
receivables.

Cash ratio = Cash Equivalents + Marketable Securities

Current Liabilities

Year Cash Marketable security’s Current Liabilities Ratio

2017-18 29.29 1.02 106.49 29.2995784
2018-19 29.99 1.12 175.59 29.9963785
2019-20 32.95 1.12 170.74 32.9565597
2020-21 44.42 0.99 185.63 44.4253332
2021-22 40.68 0.98 190.33 40.685149

Interpretation:
It is observed from the table that the Heritage Foods (India) Limited cash Ratio is
satisfactory. The company has noted a maximum ratio of 44.42 in the year of 2020-21. We
observed the ratio of the company, it is decreasing gradually. i.e. 40.68in the year 2021-22 so
it is a bad sign for the company.
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4.7 NET WORKING CAPITAL RATIO

The different between current assets and current liabilities excluding short-term bank borrowings
is called net working capital (NWC) or net current assets (NCA). NWC is sometimes used as a
measure of firm’s liquidity.

Net working capital (NWC)

NWC ratio =
(Current liabilities)

Net working NWC

Year capital Current Liabilities

2017-18 37.87 106.49 35.5620246
2018-19 -6.81 175.59 -3.87835298
2019-20 -6.13 170.74 -3.59025419
2020-21 22.83 185.63 12.2986586
2021-22 44.87 190.33 23.5748437

Interpretation:

The current assets of the organization are more as compared with current liabilities but atthe year
2016-2017 the financial position i.e. networking capital of current year is high i.e. 23.57.
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4.8 DEBT RATIO
The relationship describing the lenders contribution for each rupee of the owner’s contribution is
called debt-equity (DE) ratio is directly computed by dividing total debt by net worth:

Total debt (TD)

Debt – equity ratio = -----------------------

Net worth (NW)

Year Total Debt Net Worth D/E Ratio

2017-18 14.44 86.54 16.6859256
2018-19 11.2 93.13 12.0261999
2019-20 15.07 141.89 10.6209035
2020-21 16.61 178.99 9.27984804
2021-22 24.24 193.01 12.5589348

Interpretation:

The current assets of the organization are more as compared with total debt and equity of the
company but at the year 2016-2017 the financial position i.e. D/E of current year is high i.e.
12.55.
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4.9 Net Profit Ratio
Net profit is obtained when operating expenses; interest and taxes are subtractedfrom the gross
profit margin ratio is measured by dividing profit after tax by sales:
Net Profit

Net Profit Ratio =--------------------- x 100

Sales

Year Net Profit Sales Net Profit Ratio

2017-18 1.12 1096.18 0.102173
2018-19 9.33 1393.41 0.66958038
2019-20 49.96 1601.81 3.11897166
2020-21 45.31 1722.04 2.63118162
2021-22 28.21 2,072.97 1.36084941

Interpretation:

The current assets of the organization are more as compared with Net profit and sales of the
company but at the year 2016-2017 the financial position i.e. NPR of current year is low i.e. 1.36.

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5.1 FINDINGS

• The Heritage Foods (India) Limited net working capital is satisfactory between the
years 2020-21 since it shows decreasing trend; but after that it is in declining position.
• The current ratio of Heritage Foods (India) Limited is satisfactory during the period of
study 2017-18 to 2020-21. It is increased but after that it is declining.
• The average quick ratio of Heritage Foods (India) Limited is not good though the quick
ratio is showing maximum value of 0.50 in the year 2021-22 and then it is declining to be
deal.
• Fixed assets turnover ratio of Heritage Foods (India) Limited increased. The company
has to maintain this.
• Inventory turnover ratio of Heritage Foods (India) Limited is also increased gradually,
without any fit falls up to 2017-18. But in the year 2019-20 it is declined, and again it has
increased in the year 2021-22. Good inventory management is good sign for efficient
management.

5.2 CONCLUSIONS

• The Heritage Foods (India) Limited Net Profit Ratio is showing profit in the year 2019-

20. This event is an expected one because since from the previous two years it is showing
the decline stage in Net Profit Ratio.
• The Heritage Foods (India) Limited Gross Profit Margin of Heritage Foods (India)
Limited increases in decreases due to the increase in sales
• Profit Margin of Heritage Foods (India) Limited is decreasing and showing negative
profit because there is increase in the price of copper
• The Heritage Foods (India) Limited Net Working Capital Ratio is satisfactory.

• The Heritage Foods (India) limited return on Total Assets ratio shows a negative sign
in the year 2019-20.

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5.3 SUGGESTIONS

• Improve position funds should be utilized properly.

• Better Awareness to increase the sales is suggested.

• Cost cut down mechanics can be employed.

• Better production technique can be employed.

• The investment on raw material should be made as per the requirement. Unnecessary
investment may block up the funds.
• Neither too high nor too low inventory turnover ratios may reduce profit and liquidity
position of the industry. So, proper balance should be made to increase profits and to
ensure liquidity.
• The raw material should be acquired from the right source at right quality and at right
cost.
• The process that was being used by Heritage Foods (India) Limited with the purchasing
department should undergo changes; so that, it seeks enhance the celerity of the delivery
of a product without compromising its quality by improving the utilization of materials,
labor and equipment.

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BIBLIOGRAPHY

BOOKS

Financial Management Written by M.Y. Khan & P.K. JainFinancial

Management Written By Prasanna Chandra Financial Management
Written By I. M. Pandey
Financial Management Written by S. N. MaheswariAnnual
reports of the company---2012-2017.

WEBSITES
www.heritageindia.com
www.damodaram.com
www.retailindia.com
www.investopedia.com
www.valuebasedmanagement.net

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