ASSIGNMENT OF ACCOUNTING FOR MANAGERS

ASSIGNMENT NO. II

TOPIC:-RATIO ANALYSIS AND FUND FLOW STATEMENT OF USHA MARTIN LTD.

SUBMITTED TO:LECT.MISS SUKHWINDAR KAUR

PRESENTED BY:NAME:-BILAL AHMAD CLASS:-MBA IST SEM. SEC.:-RT1001 ROLL NO.:- B49 REG.NO.:-11011496

RATIO ANALYSIS:Ratio analysis is one of the powerful tool of the financial analysis. A ratio can be defined as the indicated quotient of two mathematical expressions, and as the relationship between two or more things ratio is thus, the numerical or an arithmetical relationship between two figures. It is expressed where one figure is divided by another. If 4,000 is divided by 10,000, the ratio can be expressed as 4 or 2:5 or 40%. Ratio analysis helps the analysts to make quantitative judjment with regard to concerns financial position and performance.

1. LIQUIDITY RATIOS:If it is divided to study the liquidity position of the concerns, in order to highlight the relative strength of the concerns in meeting their current obligations to maintain sound liquidity and to pinpoint the difficulties if any in it, then liquidity ratios are calculated. These ratios are used to measure the firms ability to meet short term obligations. They compare short term obligations to short term(or current) resources available to meet these obligations. From these ratios, much insight can be obtained into the present cash solvency of the firm and the firms ability to remain solvent in the event of adversity. (i)Current Ratio:- It is the ratio of current assets to current liabilities. It shows a firms ability to cover its current liabilities with its current assets. It is expressed as follows:

Current Ratio= Current Assets / Current Liabilities.

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO 2007 762.41 638.02 1.19496254 2008 1,277.43 1,052.60 1.2135949 2009 1,134.17 1,170.77 0.96873852

(STANDARD 2:1). ANALYSIS:1.2007, as per standards liquidity ratio of the company is below the standards but we can say that companys liquidity ratio during the year 2007 is not good as it should be. 2.2008, as per standards liquidity ratio little bit increases but again it is below the standards, but it increases from previous year and again we can say that liquidity position of the company is not good as per the standards. 3.2009, the liquidity position of the company is not good as current ratio is decreasing from previous year which was 1.21:1 and in 2009 it is 0.97:1 which is very much below the standards.

INTERPRETATION:Since the standards of the current ratio of the company is not stable during the three years, so the liquidity position of the company is not good. The reason for this is that there is much increase in current liabilities than current assets except during the year 2009. In order to make the liquidity position of the company good the company decrease its current liabilities or increase its current assets.

(ii)Quick Ratio:-This is the ratio of liquid assets to current liabilities. It shows firms
ability to meet current liabilities with its most quick (liquid) assets, 1:1 ratio is considered ideal ratio for a concern because it is wise to keep the quick or liquid assets equal at least equal to the current or liquid liabilities at all times. It is calculated as under:

Quick Ratio Or Acid Test Ratio= Quick Assets/Current Liabilities. Quick Assets = Current Assets Prepaid Expenses Inventory.
YEAR CURRENT ASSETS (-)INVEVTORY QUICK ASSETS CURRENT LIABILITIES QUICK RATIO 2007 762.41 339.06 423.35 638.02 0.663537193 2008 1,277.43 532.42 745.01 1,052.60 0.707780733 2009 1,134.17 403.71 730.46 1,170.77 0.623914

(STANDARD 1:1). ANALYSIS:1.2007, as per the standards of quick ratio of the company is not satisfactory, it is below the standards. 2.2008, the quick ratio for this year is below the standards but it increases from the year 2007 (0.66:1) and it increased to 0.71:1 in the year 2008, but again it is clear that the liquidity position of the company is not good as per the standards. 3.2009, again the quick ratio is very much below the standards as it again decreased from 0.71:1 in 2008 to 0.62:1 in 2009 which is below than the ratio of 2007(0.66:1), so again liquidity position of the company for this year is again unsatisfactory. INTERPRETATION:As the quick ratio of the company is not stable i.e, it increases first, its liquidity position is not good as per the standards of quick ratio which means that company has not sufficient assets to pay its liabilities, but the company has some inventory which can be sold in the market to get some benefit.

(iii)ABSOLUTE LIQUIDITY (OR SUPER QUICK) RATIO :- Though

receivables are generally more liquid than inventories, there may be debts having doubt regarding their real stability in time. So to get idea about the absolute liquid of concern, both receivables and inventories are excluded from current assets and only absolute liquid assets, such as cash in hand, cash at bank and readily realisable securities are taken into consideration. Absolute liquidity ratio is calculated as follows:

ABSOLUTE LIQUIDITY RATIO = CASH + BANK BALANCE + MARKETABLE SECURITIES / CURRENT LIABILITIES
YEAR CASH AND BANK BALANCE CURRENT LIABILITIES ABSOLUTE LIQUIDITY RATIO 2007 1.13 638.02 0.001771104 2008 1.91 1,052.60 0.001814554 2009 1.47 1,170.77 0.001256

(STANDARD 0.5:1). ANALYSIS:1.2007, as per the standards absolute liquid ratio is less, therefore liquidity position of the company is not good. 2.2008, again the absolute liquid ratio is very much below the standards, so it obvious that liquidity position of the company is very bad. 3.2009, absolute liquid ratio is same as the ratio of the year 2007, again it is very much below than the standards, so liquidity position of the company is not satisfactory. INTERPRETATION:As the absolute liquidity ratio is decreasing, the liquidity ratio of the company is unsatisfactory, as the absolute liquid ratio of the company is very much below the standards, this means that company has not sufficient liquid assets to pay its liabilities. OVERALL ANALYSIS:After calculating the values of current ratio, quick ratio and absolute liquidity ratio it is clear that the liquidity position of the company is not satisfactory this is because there is increase in current liabilities and decrease in current assets. This means that company is not paying its short-term obligations. In order to pay its short-term obligations they have either increase their current assets or decrease their current liabilities.

2.TURNOVER ACTIVITY RATIO / EFFICIENCY RATIO:These ratios are very important for a concern to judge how well facilities at the disposal of the concern are being used or to measure the effectiveness with which a concern uses its resources at its disposal. In short, these will indicate position of assets usage. These ratios are usually calculated on the basis of sales or cost of sales and are expressed in integers rather

than as a percentage. Such ratios should be calculated separately for each type of asset. The greater the ratio more will be the efficiency of asset usage. The lower ratio will reflect the under utilisation of the resources available at the command of the concern. The concern must always plan for efficient use of the assets to increase the overall efficiency. The following are the important turnover activity ratios usually calculated by a concern.

(i) Inventory Turnover Ratio:-It denotes the speed at which the inventory will be
converted into sales, thereby contributing for the profits of the concern. When all other factors remain constant, greater the turnover of inventory more will be efficiency of its management. Further, it will be higher when sales are maximum and the average inventory is minimum. This ratio establishes relationship between costs of goods sold during a given period and the average amount of inventory held during that period. This ratio is calculated as follows:

Inventory Turnover Ratio = Cost of Goods Sold(COGS) / Average Inventory. COGS= Sales Gross Profit Or COGS= Sales + Closing Stock- Opening Stock- Purchases Direct Expenses.
YEAR Net Sales OPENING STOCK CLOSING STOCK AVERAGE INVENTORY INVENTORY TURNOVER RATIO 2007 1,404.16 262.17 339.06 300.615 4.670958 2008 1,655.25 339.06 532.42 435.74 3.79871 2009 2,127.98 532.42 403.71 468.065 4.546334

ANALYSIS:1.2007, the company has used 4.7 times its inventory during this year for converting them into sales. 2.2008, during this year company has used 3.8 times its inventory for converting into sales which is not good as compared to previous year which is better than the current years ratio as we know that higher the turnover ratio better it is for company. 3.2009, during this year turnover ratio increases from 3.8 times to 4.55 which is good but it is less than the ratio of the 2007 that was 4.7 times, so company is improving its turnover ratio and company is trying to use its inventory efficiently.

(ii)Days of Inventory Holding = No. of Days in Year / Inventory Turnover Ratio.

YEAR NO. OF DAYS IN AYEAR INVENTORY TURNOVER RATIO DAYS OF INVENTORY HOLDING

2007 360 4.67 77.08779

2008 360 3.79 94.98681

2009 360 4.55 79.12088

ANALYSIS:1.2007, means that after every 77 days the companys inventories are converted into sales. 2.2008, this means that after 95 days the companys inventories are converted into sales which increases from last year which means that company is not using its inventory efficiently. 3.2009,during this year companys inventories are converted into sales after every 79 days which means that companys inventory efficiency is very good when compared with previous year but it is not good when compared with the year 2007. INTERPRETATION:The greater the inventory turnover ratio or efficiency ratio better it is for the company. So during the year 2009 turnover ratio is greater as compared to the year 2008, which means that turnover ratio for this company is improving.

(iii)Debtor Turnover Ratio:-It indicates the number of times on the average the
receivables are turn over in each year. The higher the value of ratio, the more is the efficient management of debtors. It measures the accounts receivables (trade debtors and bills receivables) in terms of number of days of credit sales during a particular period. This ratio is calculated as follows:

Debtor Turnover Ratio= Net Credit Sales / Average Debtors. Or Total Sales / Total Debtors.
YEAR NET SALES TOTAL DEBTORS DEBTOR TURNOVER RATIO 2007 1,404.16 226.91 6.18818 2008 1,655.25 256.35 6.45699 2009 2,127.98 322.85 6.59123

ANALYSIS:1.2007, in this year debtor turnover ratio is 6.19. 2.2008, in this year debtor turnover ratio increases which is good for the company.

3.2009, during this year the ratio again increases which means that company is receiving cash from outsiders in a good way .

(iv) Average Collection Period = No. of Days in Year / Debtor Turnover Ratio.
YEAR NO. OF DAYS IN AYEAR DEBTOR TURNOVER RATIO AVERAGE COLLECTION PERIOD 2007 360 6.19 58.1583 2008 360 6.46 55.7276 2009 360 6.59 54.6282

ANALYSIS:1.2007, average collection period for this year is 58 days i.e, company receives cash from outsiders after 58 days. 2.2008, average collection period of company decreases from 58 days to 55 days which is good for the company. 3.2009, again average collection period decreases from 55 days to 54 days which means that company has efficient management of receivables. INTERPRETATION:We know that higher the value of debtor turnover ratio, the more is the efficient management of receivables. So company is improving its debtors or we can say that companys credit policy is improving year by year, this is due to the reason companys debtors are increasing from the year 2007 to the year 2009.

(v)Credit Turnover Ratio= Net Credit Purchases/ Average Creditors Or Total Purchases / Total Creditors. (vi)Average Payment Period= No. of Days in Year/ Credit Turnover Ratio.
{Note:-As there are not the values of creditors in the balance sheet so these values have not been calculated.}

(vii)Asset Turnover Ratio:This ratio is calculated by dividing the net sales by the value of total assets (i.e,Net sales / Total Assets).A high ratio is an indicator of over-trading of total assets while a low ratio reveals idle capacity. The traditional standard for the ratio is two times.

Asset Turnover Ratio= Net Sales / Total Assets.

YEAR NET SALES TOTAL ASSETS ASSET TURNOVER RATIO

2007 1,404.16 1,470.38 0.95496

2008 1,655.25 1,842.21 0.89851

2009 2,127.98 2,482.44 0.85721

ANALYSIS:1.2007, the ratio is 0.95. 2.2008, the asset turnover ratio is 0.90 which decreased from 0.95 in 2007. 3.2009, the ratio again decreased to 0.86 from 0.90 in 2008. INTERPRETATION:We know that higher the value of asset turnover ratio there is over-trading of total assets and lower ratio reveals idle capacity. The values of asset turnover ratio are very low so, there is idle capacity of total assets in the company. The reason is that there is increase in total assets of the company.

(vii)Sales to Capital Employed or Capital Turnover Ratio:- This ratio shows the
efficiency of capital employed in the business by computing how many times capital employed is turned-over in a stated period. The higher the ratio, the greater the profits. A low capital turnover ratio should be taken to mean that sufficient sales are not being made and profits are lower. The ratio is ascertained as follows:

Sales to Capital Employed or Capital Turnover Ratio= Sales/Capital employed. Capital employed=Share capital +Reserves +Long term liabilities
YEAR NET SALES EQUITY SHARE CAPITAL RESERVES CAPITAL EMPLOYED CAPITAL TURNOVER RATIO 2007 1,404.16 24 693.67 717.67 1.956554 2008 1,655.25 25.09 840.41 865.5 1.912478 2009 2,127.98 25.09 991.18 1016.27 2.093912

ANALYSIS:1.2007, the capital turnover ratio for this year is 1.96. 2.2008, the capital turnover ratio decreases from 1.96 to 1.91. 3. 2009, this year capital turnover ratio increases from 1.91 to 2.09 which is good for the company.

INTERPRETATION:Whenever there is increase in capital turnover ratio there is increase in total profits, so companys capital turnover ratio is increased and there is automatically increase in profits of the company. The reason is that as the net sales of the company is increased from 2007 to 2009, so it is clear that there is increase in the capital turnover ratio.

(viii)Working Capital Ratio:-This ratio shows the number of times working capital is
turned-over in a stated period. This higher is the ratio, the lower is the investment in working capital and the greater are the profits. However, a very high turnover of working capital is a sign of overtrading and may put the concern into financial difficulties. On the other hand, a low working capital turnover ratio indicates that working capital is not efficiently utilised. It is calculated as follows:

Working Capital Ratio= Sales / Working Capital.

YEAR NET SALES CURRENT ASSETS CURRENT LIABILITIES WORKING CAPITAL WORKING CAPITAL RATIO 2007 1,404.16 762.41 638.02 124.39 11.28837 2008 1,655.25 1,277.43 1,052.60 224.83 7.362229 2009 2,127.98 1,134.17 1,170.77 -36.6 -58.1415

ANALYSIS:1.2007, working capital ratio for this year is 11.29. 2.2008, working capital ratio decreases from 11.29 to 7.36. 3.2009, there is very much decrease in working from 11.29 in 2007 to 7.36 in 2008 and 58.14 in 2009. INTERPRETATION:As we know higher the working capital ratio, the lower is the investment in working capital and greater are the profits. The working capital ratio of the company decreases during the three years which means that the working capital is not efficiently utilized in the company. The reason is that current liabilities are increasing very much than the current assets. OVERALL ANALYSIS:These ratios indicates the position of asset usage of the concern. As these ratios are calculated separately for each type of asset. As per the ratios of inventory turnover it is improving as these ratio shows improvement, so inventory management is efficient. As for debtor turnover ratio management of receivables is efficiently utilised because there is increase in debtor turnover ratio. There is idle capacity of assets as there is decrease in asset turnover ratio. The capital turnover rartio for the company is very good as there is increase in total profits and for

the working capital ratio it is decreasing which means that the working capital is not efficiently utilised in the company. From the above ratios calculated we can say that companys efficiency ratio is satisfactory.

3.SOLVENCY OR LEVERAGE RATIO:The leverage ratio explain the extent to which the debt is employed in the capital structure of the concerns. All concerns use debt funds along with equity funds, in order to maximize the after tax profits, thereby optimizing earnings available to equity shareholders. The basic facility of debt funds is that after tax cost of them will be significantly lower and which can be paid back depending upon their terms of issue. Further debt funds will not dilute the equity holders control position. However, the debt funds are used very carefully by considering the liquidity end risk factor. The debt will increase the risk of the company. In order to analyse the leverage position of the concerns. Total debt to Total Assets Ratio, Debt Equity Ratio and Time Interest Earned (i.e, Earnings before tax / Interest) can be calculated. It may be favourable or unfavourable. When earnings are more than the fixed cost of the funds, it is called favourable. An unfavourable leverage exists if the rate of return remains to be lower. It can be used as a tool of financial planning by finance manager.

(i)Debt Equity Ratio:- This ratio is calculated to measure the relative proportions of
outsiders funds and shareholders funds invested in the company. This ratio is determined to ascertain the soundness of long term financial policies of that company and is also known as external-internal equity ratio. It is calculated as follows:

Debt Equity Ratio= Outstanding Funds(Total Debts)/Shareholders Fund. Shareholders Funds = Equity share capital+Preference shares +Reserves & Surpluses(Retained earnings).
YEAR TOTAL DEBTS EQUITY SHARE CAPITAL RESERVES SHARE HOLDERS FUNDS DEBT EQUITY RATIO 2007 749.37 24 693.67 717.67 1.044170719 2008 943.2 25.09 840.41 865.5 1.0897747 2009 1,466.15 25.09 991.18 1016.27 1.44268

ANALYSIS:1.2007, the ratio for this year is 1.04. 2.2008, in this year ratio increases from 1.04 to 1.09 which is not good for the company. 3.2009, for this year debt equity ratio increases very much i.e, 1.44.

INTERPRETATION:As we know lower the debt equity ratio favourable it is for company. But the companys debt equity ratio is increasing year by year. The reason for this is that there is very much increase in total debts from 2007 to 2009 as compared shareholders funds there is very less increase.

(ii)Proprietory Ratio:- A variant of debt to equity ratio is the propriety ratio which shows
the relationship between shareholders funds and total assets. This ratio is worked out as follows:

Proprietory Ratio = shareholders Funds / Total Assets.

YEAR

2007 24 693.67

2008

2009

EQUITY SHARE CAPITAL RESERVES SHARE HOLDERS FUNDS TOTAL ASSETS PROPRIETORY RATIO

25.09
840.41

25.09
991.18

717.67
1,470.38

865.5
1,842.21

1016.27
2,482.44

0.488084713

0.4698161

0.40938

ANALYSIS:1.2007, for this year the ratio is 0.49 which means that near about 50% investment is made by the owner in the total assets. 2.2008, the ratio decreases from 0.49 to 0.47 which shows that below 50% investment is made by owner to the total assets. 3.2009, the ratio again decreases very much from last year which is not good for the company as we know the owners contribution should be high. INTERPRETATION:Propriety ratio indicates the portion of investment made by the owner in the total assets. This ratio should be higher to maintain the solvency ratio of the company. The propriety ratio is decreasing year by year due to the reason that there is very much increase in the total assets during the three years. OVERALL ANALYSIS:The solvency or leverage ratio of the company is not satisfactory as there is increase in debt equity ratio due to increase in total debts of the company and also propriety ratio is also decreasing year by year due to increase in total assets of the company. Hence it is clear from the figures calculated above that the solvency of the company is not good as it should be.

4. PROFITABILITY RATIO:Profitability ratio is the overall measure of the companies with regard to efficient and effective utilisation of resources at their command. It indicates in a nutshell the effectiveness of the decisions taken by the management from time to time. Profitability ratios are of utmost importance for a concern. These ratios are calculated to enlighten the end results of business activities which is the sole criterion of the overall efficiency of the business concern. The following are the important profitability ratios:

(i)Gross Profit Ratio:- This ratio tells gross margin on trading and is calculated as under: (i)Gross Profit Ratio= Gross Profit / Net Sales*100. [Note:- The values of COGS is not given so we cannot calculate the values of gross profit.] (ii)Net Profit Ratio:- This ratio measures the relationship between net profit and sales of a
firm. It is calculated as follows:

Net Profit Ratio = Net Profit / Net Sales *100.

YEAR NET PROFIT NET SALES NET PROFIT RATIO 2007 101.48 1,404.16 7.227097 2008 144.83 1,655.25 8.749736 2009 146.56 2,127.98 6.887283

ANALYSIS AND INTERPRETATION:The ratio of net profit first increases from 2007 to 2009 and the ratio then decreases from 2008 to 2009. This is due to the reason that there is very much increase in net sales from 2007 to 2009 as compared to net profit there is not too much increase in net profit.

(iii)Operating Ratio:This ratio indicates the proportion that the cost of sales bears to sales. Cost of sales includes cost of goods sold as well as other operating expenses, administration, selling and distribution expenses which have matching relationship with sales. It excludes income and expenses which have no bearing on production and sales, i.e, non-operating income and expenses as interest and dividend received on investment, interest paid on long-term loans and debentures, profit or loss on sales of fixed assets or long-term investments. It is calculated as:

Operating Ratio= Operating Expenses/Net Sales *100. Operating Expenses= COGS+Office Expenses+Selling & Distribution Expenses.

YEAR OPERATING EXPENSES NET SALES OPERATING RATIO

2007 1,176.36 1,404.16 83.77678

2008 1,373.00 1,655.25 82.9482

2009 1,666.16 2,127.98 78.29773

ANALYSIS:1.2007, the ratio for this year indicates that 83.77% of sales bears to sales. 2.2008, this year the ratio of sales decreases to 82.95% from last year. 3.2009, the ratio for this year again decreases to 78.30% when compared with last two years INTERPRETATION:There is continuous decrease in the percentage of operating ratio during the three years, the reason for this is that there is gradual increase in raw-material cost, power and fuel cost, employee cost, selling and distribution cost and miscellaneous costs.

(iv)Operating Profit Ratio:This ratio establishes the relationship between operating profit and sales and is calculated as follows:

Operating Profit Ratio= Operating Profit/ Net Sales*100

Where Operating Profit = Net Profit + Non-operating Expenses Non-operating Income Or = Gross Profit Operating Expenses. This ratio indicates the portion remaining out of every rupee worth of sales after all operating costs and expenses have been met. Higher the ratio the better it is.
YEAR OPERATING PROFIT NET SALES 2007 273.98 1,404.16 2008 324.98 1,655.25 2009 493.93 2,127.98

OPERATING PROFIT RATIO

19.51202142

19.633288

23.2112

ANALYSIS AND INTERPRETATION:As this ratio establishes relationship between operating profit and net sales of the company, higher the ratio better it for the company. As the ratio is increasing year by year which means that company is establishing good relationship between operating profit and net sales, this is due to the reason that there is continuous increase in operating profit.

5.PROFITABILITY RATIO RELATED TO INVESTMENT:-

(i)Interest Coverage Ratio:It really measures the ability of the concern to service the debt. This ratio is very important from lenders point of view and indicates whether the business would earn sufficient profits to pay periodically the interest charges. The higher the ratio, the more secured the lenders will be in respect of their periodical interest income. It is calculated as under:

Interest Coverage Ratio = Earnings Before interest and Taxes / Interest. Charges.
YEAR PAT (+)TAX (+)INTEREST EARNINGS BEFORE TAX AND INTEREST INTEREST INTEREST COVERAGE RATIO 2007 101.48 36.96 77.51 215.95 77.51 2.786092 2008 144.83 55.93 87.5 288.26 87.5 3.2944 2009 146.56 67.58 132.73 346.87 132.73 2.61335

ANALYSIS AND INTERPRETATION:The ratio for the year 2007 is 2.8 which means that fixed interest cover is 2.8 times and for 2008 3.3 times the profit is available which means that it increases from 2007 which is good for the lender as in this PAT increases very much. But in 2009 the ratio decreases to 2.6 which is not good from lenders point of view as this ratio measures the ability of the concern to service the debt because of this higher the interest coverage ratio better it is for company. The reason for this that there is very less increase in PAT as compared to interest which is very much high.

(ii)Earnings Per Share(EPS):- This helps in determining the market price of equity
shares of the company and in estimating the companys capacity to pay dividend to its equity shareholders. It is calculated as follows:

Earnings Per Share(EPS)=Earnings available to Equity Shareholders-Preference dividend/No. Of Equity Shares Outstanding*100.

YEAR EARNINGS BEFORE TAX AND INTEREST (-)TAX (-)INTEREST EARNINGS AVAILABLE TO EQUITY SHAREHOLDERS NO. OF EQUITY SHARES OUTSTANDING EARNING PER SHARE

2007 215.95 36.96 77.51 101.48 478.73 21.1977524

2008 288.26 55.93 87.5 144.83 2,502.42 5.78759761

2009 346.87 67.58 132.73 146.56 2,502.42 5.856731

ANALYSIS AND INTERPRETATION:The above data shows that the EPS decreases very much from 2007 to 2009 but there is little increase in this ratio from 2008 to 2009. The ratio indicates that the company had paid more dividend in 2007 or they had issued bonus shares as compared to the ratios of 2008 and 2009. This is due to the reason that there is very much increase in no. of equity shareholders from 2007 to 2008 and it remains same for the years 2008 and 2009 as compared to PAT there is very less increase.

(iii)Price-Earnings Ratio(P/E):-This ratio indicates the market value of every rupee

earning in the firm and is compared with industry average. High ratio indicates the share is overvalued and low ratio shows that share is undervalued. It is computed by the following formula:

Price-Earnings Ratio(P/E)=Market Price/Earning Per Share.

[Note:- Market Price is presumed to be Rs.100 because the value was not given.]
YEAR MARKET PRICE EARNING PER SHARE PRICE EARNING RATIO 2007 100 21.19 4.719207 2008 100 5.79 17.27116 2009 100 5.88 17.0068

ANALYSIS AND INTERPRETATION:The values of price earning ratio is increasing from 2007 to 2009 but it remains almost same from 2008 to 2009 because there is no increase in earning per share from 2008 to 2009. The values of P/E ratio are also not too much high which means that the shares are undervalued.

(iv)Return on Investment (ROI) Ratio=EBIT/Capital Employed *100.

ROI. A measure of a corporation's profitability, equal to a fiscal year's income divided by common stock and preferred stock equity plus long-term debt. ROI measures how effectively the firm uses its capital to generate profit; the higher the ROI, the better. More generally, the income that an investment provides in a year.

YEAR EARNINGS BEFORE TAX AND INTEREST EQUITY SHARE CAPITAL RESERVES CAPITAL EMPLOYED RETURN ON INVESTMENT RATIO

2007 215.95 24 693.67 717.67 30.09043

2008 288.26 25.09 840.41 865.5 33.3056

2009 346.87 25.09 991.18 1016.27 34.13168

ANALYSIS AND INTERPRETATION:The ROI ratio increases year by year which means that profit of the company is also increasing. This is due to the reason that there is increase in capital employed. ROI also describes the percentage of investment on fixed assets.

(v)Dividend Per Share(DPS):DPS. The amount of dividend that a stockholder will receive for each share of stock held. It can be calculated by taking the total amount of dividends paid and dividing it by the total shares outstanding.

Dividend Per Share=Total Dividend available for equity shareholders/No. Of Equity Shares.
YEAR EARNINGS BEFORE TAX AND INTEREST (-)TAX (-)INTEREST (-)RESERVES TOTAL DIVIDEND AVAILABLE FOR EQUITY SHAREHOLDERS NO.OF EQUITY SHARES DIVIDEND PER SHARE 2007 215.95 36.96 77.51 693.67 -592.19 478.73 -1.237002 2008 288.26 55.93 87.5 840.41 -695.58 2,502.42 -0.277962 2009 346.87 67.58 132.73 991.18 -844.62 2,502.42 -0.33752

ANALYSIS AND INTERPRETATION:Since the value of dividend per share is in negative which means that the company is not distributing its funds among the shareholders due to the reason that there is decrease in total dividend available for equity shareholders as compared to no. of equity shares there is very much increase.

(vi)Dividend Pay out Ratio:- This ratio indicates as to what proportion of earning per
share has been used for paying dividend and what has been retained for ploughing back. This ratio is very important from shareholders point if view as it tells that if a company has used whole or substantially the whole of its earnings for paying dividend and retained nothing for future growth and expansion purposes, then there will be very dim chances of capital appreciation in the price of shares of such company. In other words, an investor who is more interested in capital appreciation must look for a company having low payout ratio. This is determined as follows:

Dividend Pay out Ratio=DPS/EPS.

YEAR DIVIDEND PER SHARE EARNING PER SHARE DIVIDEND PAY OUT RATIO 2007 -1.24 21.18 -0.058545 2008 -0.28 5.79 -0.048359 2009 -0.34 5.86 -0.05802

ANALYSIS AND INTERPRETATION:As the dividend payout ratio is almost constant for the three years which means that company is not paying its dividend and investor is also interested in capital appreciation. The reason is that there is very much decrease in earning per share from 2007 to 2009.

(vii)Return on Gross Capital Employed:The term gross capital employed refers to the total investment made in the business and is represented by the total assets, fixed as well as current assets used in the business. The ratio eashtablishes the business b/w earning before interest and taxes and gross capital employed. The conventional approach is to divide earnings before interest and tax by gross capital employed , that is,

Return on Gross Capital Employed=EBIT/Gross Capital*100.

YEAR EARNINGS BEFORE TAX AND INTEREST TOTAL LIABILITIES (-)PRE-OPERATING EXPENSES GROSS CAPITAL RETURN ON GROSS CAPITAL EMPLOYED 2007 215.95 1,470.38 -2.43 1472.81 14.66244797 2008 288.26 1,842.21 -9.36 1851.57 15.56840951 2009 346.87 2,482.44 -12.98 2495.42 13.90027

ANALYSIS AND INTERPRETATION:The return on gross capital employed first increases from 2007 to 2009 and then decreases from 2008 to 2009. This is due to the reason that there is very much increase in gross capital as compared to EBIT there is not too much increase.

(viii)Return on Net Capital Employed:- This ratio is an indicator of the earning

capacity of the capital employed in the business. This ratio is considered to be the most important ratio because it reflects the overall efficiency with which capital is used. This ratio is a helpful tool for making capital budgeting decisions, a project yielding higher return is favoured. This ratio is calculated as follows:

Return on Net Capital Employed=EBIT/Net capital Employed*100.

YEAR EARNINGS BEFORE TAX AND INTEREST GROSS CAPITAL (-)NET CURRENT LIABILITIES NET CAPITAL RETURN ON NET CAPITAL EMPLOYED

2007 215.95 1472.81 611.76

2008 288.26 1851.57 1,014.43

2009 346.87 2495.42 1,133.43

861.05 25.07984438

837.14 1,361.99 34.433906 25.4679

ANALYSIS AND INTERPRETATION:Return on capital employed increases from 2007 to 2008 but it decreases to same ratio that was in 2007 which means that capital employed remains almost same from 2007 to 2009. The reason for this is that there is very much increase in net capital of the company as compared with EBIT, gross capital and net current liabilities there is very less increase.

OVERALL ANALYSIS:The profitability ratio measures the overall efficiency of the company. After calculating the values of profitability some ratios are satisfactory while some ratios are unsatisfactory which means that companys overall efficiency is not satisfactory. CONCLUSION:After calculating the values of current ratio, quick ratio and absolute liquidity ratio it is clear that the liquidity position of the company is not satisfactory this is because there is increase in current liabilities and decrease in current assets. This means that company is not paying its short-term obligations. In order to pay its short-term obligations they have either increase their current assets or decrease their current liabilities. Efficiency turnover ratios indicates the position of asset usage of the concern. As these ratios are calculated separately for each type of asset. As per the ratios of inventory turnover it is improving as these ratio shows improvement, so inventory management is efficient. As for debtor turnover ratio management of receivables is efficiently utilised because there is increase in debtor turnover ratio. There is idle capacity of assets as there is decrease in asset turnover ratio. The capital turnover rartio for the company is very good as there is increase in total profits and for the working capital ratio it is decreasing which means that the working capital is not efficiently utilised in the company. From the above ratios calculated we can say that companys efficiency ratio is satisfactory. The solvency or leverage ratio of the company is not satisfactory as there is increase in debt equity ratio due to increase in total debts of the company and also propriety ratio is also decreasing year by year due to increase in total assets of the company. Hence it is clear from the figures calculated above that the solvency of the company is not good as it should be.

The profitability ratio measures the overall efficiency of the company. After calculating the values of profitability some ratios are satisfactory while some ratios are unsatisfactory which means that companys overall efficiency is not satisfactory. ANNEXURE:PROFIT AND LOSS ACCOUNT OF USHA MARTIN:-

Particulars Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs)

Mar '07 1,573.61 169.45 1,404.16 17.86 46.18 1,468.20 712.83 142.91 82.05 60.16 157.16 23.68 -2.43 1,176.36 273.98 291.84 77.51 214.33 76.28 2.17 135.88 2.56 138.44 36.96 101.48 463.53 0 18.77 3.19 478.73 21.2

Mar '08 1,852.68 197.43 1,655.25 38.25 42.73 1,736.23 875.78 151.32 91.12 60.27 178.47 25.4 -9.36 1,373.00 324.98 363.23 87.5 275.73 75.92 1.84 197.97 2.79 200.76 55.93 144.83 497.21 0 25.02 4.25 2,502.42 5.79

Mar '09 2,307.21 179.23 2,127.98 -66.29 32.11 2,093.80 1,067.27 161.14 98.74 69.45 243.82 38.72 -12.98 1,666.16 493.93 427.64 132.73 294.91 85.04 1.17 208.7 5.45 214.15 67.58 146.56 598.89 0 25.02 4.25 2,502.42 5.86

Equity Dividend (%) Book Value (Rs)

75 149.91

100 34.59

100 40.61

BALANCE SHEET OF USHA MARTIN:-

Particulars Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets

Mar '07 24 24 3.33 0 693.67 0 721 744.14 5.23 749.37 1,470.37

Mar '08 25.09 25.09 33.5 0 840.41 0 899 867.06 76.14 943.2 1,842.20

Mar '09 25.09 25.09 0 0 991.18 0 1,016.27 1,466.15 0 1,466.15 2,482.42

1,573.93 673.92 900.01 281.98 160.96 339.06 226.91 1.13 567.1 159.36 35.95 762.41 0 611.76 26.26 638.02 124.39 3.04 1,470.38

1,680.72 735.02 945.7 503.39 166.68 532.42 256.35 1.91 790.68 442.3 44.45 1,277.43 0 1,014.43 38.17 1,052.60 224.83 1.61 1,842.21

1,938.35 815.91 1,122.44 1,208.64 187.23 403.71 322.85 1.47 728.03 331.14 75 1,134.17 0 1,133.43 37.34 1,170.77 -36.6 0.73 2,482.44

BIBLIOGRAPHY:WEBSITE: www.moneycontrol.com BOOK:ADVANCED ACCOUNTANCY VOL UME II

(BY S.P.JAIN AND K.L.NARANG).