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8/4/2019 Presentation on Training Report

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Presentation on Training Report

Topic :- RATIO ANALYSIS

CONDUCTED AT

THE ROPAR DISTRICT CO-OPERATIVE

MILK PRODUCERS UNION LIMITEDMILK PLANT MOHALI.


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VERKA PLANT AT A GLANCE

Establishment 1980 : The Ropar District Co-operative Milk Producers Union Milk Plant, Mohali.

Brand Name : Verka

Installed Capacity : 1,00,000 Liters of Milk Per Day

Production : 2,00,000 Liters of Milk per Day

Status : Co-operative Society

Head Office : Milk fed, Punjab, Sector 34, Chandigarh

Plant : The Ropar District Co-operative Milk

Producers Union Ltd. Milk Plant, S.A.S Nagar, Mohali


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Other Facts The Milk Plant Mohali produces 2 Lakhs to 2.25 Lakhs liters of

Milk per day during winter season and 1.50 Lakhs liters per dayin summer season.

The plant is supplying milk mainly to the cities Chandigarh,Mohali and Panchkula also covering some adjoining cities ofHimachal Pradesh and Haryana.

It also produces PANEER, GHEE, LASSI, BIOYOGURT, GULABJAMUN, KHEER, CURD, FLAVOURED MILK etc. All theseproducts are marketed at the plant under the name "ThePunjab State Co-operation Milk Producers Federation Ltd" underthe Brand name of 'Verka Milk Plant".

Its network is in various districts like Patiala,Ropar,Ludhiana,Faridkot,Ferozepur,Sangrur,Bathinda,Gurdaspur,Hoshiarpur,Jalandhar,Amritsar


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RATIO ANALYSIS Ratio analysis is a powerful tool of financial analysis. A ratio is the

mathematical relationship between two quantities in the form of a

fraction or percentage. It is essentially concerned with the calculation ofrelationships which after proper identification and interpretation mayprovide information about the operations and state of affairs of abusiness enterprise.

The analysis is used to provide indicators of past performance in terms of

critical success factors of a business. This assistance in decision makingreduces reliance on guesswork and intuition and establishes a basis for asound judgment

In financial analysis, a ratio is used as a benchmark for evaluating thefinancial position and performance of a firm. The absolute accounting

figures reported in the financial statements do not provide a meaningfulunderstanding of the performance and financial position of a firm.

Absolute figures expressed in monetary terms in financial statements bythemselves are meaningless. These figures do not convey much meaningunless expressed in relation to other figures.


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CLASSIFICATIONOF

RATIOS

Liquidity Ratios Activity Ratios Solvency Ratios

Current Ratio

Acid TestRatio/Quick Ratio

Inventory TurnoverRatio

Capital TurnoverRatio

Debtor TurnoverRatio

Creditor TurnoverRatio

Working CapitalTurnover

Ratio

Fixed AssetTurnover Ratio

Debt Equity Ratio

SolvencyRatio

Fixed Assets toNet Worth Ratio

Capital Gearingratio

Profitability Ratio

Gross Profit Ratio

Net Profit Ratio

Operating ratio

Operating ProfitRatio

Return on EquityFUNDED DEBT

TO TOTALCAPITALIZATION

Equity RATIO


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Liquidity Ratios:It refers to the ability of a firm to meet its short-term financial obligationswhen and as they fall due.

It has further two types:-

I. Current Ratio:

This ratio explains the relationship between Current Assets and CurrentLiabilities of a business. The formula for calculating the ratio is:-

Current Ratio= Current Assets/ CurrentLiabilities

Significance:According to accounting principals, a current ratio of 2:1 is

supposed to be an IDEAL RATIO. It means that Current Assetsof a business should, at least, be twice of its Current Liabilities.The higher the ratio, the better it is, because the firm will be

able to pay its Current Liabilities more easily.


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RATIO ANALYSIS OF VERKA PLANT FOR THE LAST FIVEYEARS

CURRENT RATIO (in times):

Current Ratio 2.09 1.95 1.97 1.76 1.76


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II QUICK OR ACID TEST OR LIQUID RATIO:

Quick Ratio indicates whether the firm is in a position to pay its currentliabilities within a month or immediately. As such the quick ratio isincluded by dividing liquid assets (Quick Assets) by current Liabilities:-

Quick Ratio or Acid Test Ratio = LiquidAssets/Current Liabilities

Significance: 'Liquid Assets' means those assets which will yield cash very

shortly. All current assets except stock and prepaid expensesare included in liquid assets. Stock is excluded from liquid

assets because it has to be sold before it can be converted intocash. Prepaid expenses too are excluded from the list of liquidassets because they are not expected to be converted intocash. Liquid assets thus include cash, debtors, bill receivableand short term securities. An ideal quick ratio is said to be 1:1.If it is more then it is considered better.


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RATIO ANALYSIS OF VERKA PLANT FOR THE LAST FIVEYEARS

Quick Ratio (in times):

Quick Ratio 1.51 1.24 1.00 0.95 0.95


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(B) CURRENT ASSETS MOVEMENT OR EFFICIENCY/ACTIVITY RATIOS:

Activity ratios measure the efficiency or effectiveness with which a firmmanages its resources or assets. These ratios are also called turnoverratios because they indicate the speed with which assets are convertedinto sales.

I. Inventory/Stock Turnover Ratio:

This ratio indicates the relationship between the cost of goods sold during the yearand average stock kept during that year.

Stock Turnover Ratio= COGS/Average Stock

Cost of Goods Sold= Opening Stock + Purchases + Carriage +wages + other direct charges - Closing Stock - Gross profit.Average Stock= (Opening Stock + Closing Stock)/ 2

Significance

This ratio indicates whether stock has been efficiently used or not. It showsthe speed with which the stock is rotated into sales or the number of timesthe stock is turned into sales during the year. The higher the ratio thebetter it is. Since it indicates that the stock is selling quickly. A low stockturnover ratio indicates that stock does not sell quickly and remains lyingin the godown for a long time.


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STOCK TURNOVER RATIO (in times):

Stock Turn OverRatio 13.13 18.58 21.09 13.90 14.7


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TEST OF SOLVENCY

These ratios are calculated to assess the ability of the firm to meet its longterm liabilities as and when they become due. Long term creditors including

debentures holders are primarily interested to know whether the company hasability to pay regularly interest due to them and to repay the principle amount

when it become due. Solvency ratios disclose the firm's ability to meet theinterest cost regularly and long term indebtedness at maturity.

1. Debt-Equity Ratio:This ratio expresses the relationship between long term debt and shareholders

funds. This ratio is calculated to ascertain the soundness of the long term financialpolicies of the firm. The Debt-Equity can be calculated are as follows:

Debt-Equity= Outsiders Funds/ Shareholders FundsOR External Equities/ Internal Equities

Significance

This ratio is calculated to assess the ability of the firm to meet its long termliabilities. Generally Debt-Equity Ratio is of 2:1 is considered safe, if this is more

than that it shows a rather risky financial position from the long term point of viewas it indicates that more and more funds are invested in the business; are provided

by long term lenders.


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DEBT-EQUITY RATIO (in times):

Debt-Equity Ratio 1.1 1.4 1.3 1.26 1.43


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2. FUNDED DEBT TO TOTAL CAPITALIZATION RATIO:

The ratio establishes a link between the long term funds raised fromoutsiders and total long term funds available in the business. The debt tototal capitalization can be calculated are as follows:

Funded Debt to Total Capitalization Ratio= Funded Debt/TotalCapitalization*100

Funded Debt= Debentures + Mortgage Loans + Bonds + other

Long term Loans.

Total Capitalization= Equity Share Capital + Preference Sharecapital + Reserve & Surplus + Other Undistributed Reserves +Debentures + Mortgage Loans + Bonds + Other Long Term loans.

SIGNIFICANCE:

As funded Debt to Total Capitalization represents the relationshipof long term funds. There is no 'Rule of Thumb' but still the lesserthe reliance on outsiders the better it will be. If this ratio issmaller, better it will be, up to 50% or 55% this ratio may be to

tolerable and beyond.


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FUNDED DEBT TO TOTAL CAPITALIZATION RATIO (in times):

FUNDED DEBT TO TOTAL

CAPITALIZATION

RATIO (in times):0.3 0.2 0.15 0.08 0.07


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3. PROPRIETORY RATIO OR EQUITY RATIO

This ratio establishes the relationship between

shareholder's funds to total assets of the firm. Thisratio is important for determining long term solvencyof a firm.The equity ratio maybe calculated are as follows:

Equity Ratio= Shareholder's Funds/Total Assets

SIGNIFICANCE:

As this ratio represents the relationship of owner'sfunds to total assets, higher the ratio better is thelong term solvency position of the company. This ratioindicates the extent to which the assets can be lostwithout affecting the interest of creditors of the

company


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PROPRIETORY RATIO OR EQUITY RATIO (in times):

PROPRIETORY RATIO

OR EQUITY RATIO

(in times):0.35 0.31 0.32 0.38


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CAPITAL GEARING RATIO:

This ratio establishes the relationship between equity share

capital including reserve and surpluses to preference sharecapital and other fixed interest bearing loans.

This ratio is calculated as follows:

Capital Gearing Ratio= Fixed Income BearingFunds/Long term Debt Bearing Fixed Interest

SIGNIFICANCE:

Capital Gearing ratio is very important leverage ratio. GearingShould be kept in such a way that the company is able tomaintain a steady rate of dividend. High Gearing ratio is notgood for a new company or a company in which future

earnings are uncertain.


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CAPITAL GEARING RATIO (in times):

CAPITAL GEARING

RATIO (in times):4.3 7.4 10.19 17.03 22.3


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ANALYSIS OF PROFITABILITY ORPROFITABILITY RATIOS

The main object of all the business concerns is to earnprofit. Profit is the measurement of the efficiency of thebusiness. Equity shareholders of the company are mainlyinterested in the profitability of the company.

It is further divided into many parts:

I. Gross Profit Ratio:

This ratio shows the relationship between gross profit andsales.

Gross Profit Ratio= Gross Profit/Net Sales*100

Net Sales= Sales- Sales Return


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GROSS PROFIT RATIO (in %):

GROSS PROFIT

RATIO(in %):

8.2 7.6 8.1 7.69 6.8


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II. OPERATING RATIO:

It establishes the relationship between cost of goods andother operating expenses on the one hand and the saleson the other hand. It measures the cost of operations bydividing operating costs with the net sales.

Operating Ratio= Operating Cost/Net sales*100

Operating Cost= COGS+ Operating expenses

SIGNIFICANCE: This ratio indicates the percentage of net sales that is

consumed by operating cost. Obviously, higher theoperating ratio, the less favorable it is, because it wouldhave margin (operating profit) to cover interest, income-tax dividend and reserves. There is no rule of thumb forthis ratio as it may differ firm to firm depending upon the

nature of its business and its capital structure.


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OPERATING RATIO (in %):

OPERATING RATIO (in%): 96.6 96.4 96.59 96.79 96.5


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(VI) Net Profit ratio:

This ratio shows the relationship between net profit

and sales. It may be calculated by two methods:

1. Net Profit ratio = Net Profit/Net sales x 1002. Net Profit ratio = Operating Net Profit/Net sales

x100

SIGNIFICANCE:-This ratio measures the rate of net profit earned on

net sale. It helps in determining the overall efficiencyof the business operation. An increase in ratio overthe previous year shows improvement in the overallefficiency and profitability of the business.


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NET PROFIT RATIO(OF VERKA MILK PLANT FOR THE LAST FIVE YEARS)

NET PROFIT

RATIO (in

%):2.5 2.4 2.22 1.82 2


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III. OPERATING PROFIT RATIO:

This ratio is calculated by dividing operatingprofit by sales. This ratio is calculated are asfollows:

Operating profit ratio = Operating profit x 100

Sales

Operating Profit = Net sales - Operating CostOperating Cost = Cost of goods sold +

Administrative and office expenses + sellingand distributive expenses.


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OPERATING PROFIT RATIO(OF VERKA MILK PLANT FOR THE LAST FIVE YEARS)

COST OF GOODS

SOLD RATIO

(in %):3.4 3.6 3.4 3.2 3.53


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CONCLUSIONS AND FINDINGS:

1. The company's short term financial positions is sound

and satisfactory because .its current as well as quick ratio isdouble than its current liabilities of the company each year,which means company's creditors secured each year.

2. From the point of view of long term financial position of

the company Debt Equity ratio, debts are always less thanequity in five years. It means company is less dependent onoutside loans.

3. Cash Profit Ratio, Return on Shareholders funds ratio

and earnings per share are earning per share are increasingeach year. It is a good sign for the company.

At the end, we can say that the financial position of thecompany is sound.


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THANKS

A

LOT


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