project report on amarajan battery

A STUDY ON

RATIO ANALYSIS AT

AMARARAJA BATTERIES LIMITED (ARBL)

A PROJECT REPORT

Submitted in partial fulfillment of the

requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION Under the Guidance of

S.SUJATHA M.B.A., M.Phil ASSISTANT PROFESSOR OF MANAGEMENT STUDIES

SRM UNIVERSITY

By SUNEEL.R

(Reg.No.35080623)

DEPARTMENT OF BUSINESS ADMINISTRATION

SRM UNIVERSITY

YEAR-2010

SCHOOL OF MANAGEMENT

Page1

SRM UNIVERSITY

SRM Nagar, Kattankulathur-603203

Phone: 044-27452270, 27417777, Fax: 044-27453903

[email protected], website:www.srmuniv.ac.in

________________________________________________________________________

BONAFIDE CERTIFICATE

Certified that this project report titled A STUDY ON RATIO ANALYSIS AT

AMARARAJA BATTERIES LIMITED is the bonafide work of Mr.R.SUNEEL who carried

out the research under my supervision.

Certified further, that to the best of my knowledge the work reported here in does not form

part of any other Project report or dissertation on the basis of which a degree or award was

conferred on an earlier occasion on this or any other candidate.

Signature of the supervisor Signature of the HOD

DECLARATION

I hereby declare that the Project Report entitled A STUDY ON RATIO

ANALYSIS AT AMARARAJA BATTERIES LIMITED(ARBL) is a record of independent

research work submitted by me to SRM University, Chennai, for developing the real time

experience as well as award the degree of Master of Business Administration and has been carried

out during the period of my study at SRM UNIVERSITY, Chennai, Under the guidance of

S.SUJATHA, Department of MBA.

PLACE: Chennai (R.SUNEEL)

ACKNOWLEDGEMENT

I would like to express deepest gratitude and thanks to the Dr.JAYASREE SURESH, Head of

the Department for her valuable support in doing this project. She has been a source of

encouragement and guidance in all our endeavors.

I would like to sincerely acknowledge thanks to Sri C.Ramachandra raju, Finance

Manager of Amararaja Batteries limited, Mr.C.Ravi Costing Manager of Amararaja Batteries

Limited for their moral support during the research work.

I express our profound thanks to S.SUJATHA project guide, for her consistent

encouragement and invaluable suggestion in completing this project, without his effort the

completion of this project would be practically impossible.

It gives me great pleasure to acknowledge my indebtedness to my family Members for

their substantial moral support and encouragement in my studies.

I would like to extend my sincere thanks to My Dearest Friends and also my classmates

for their unnerving support in the completion of the work.

(R. SUNEEL)

TABLEOFCONTENTS

Chapters TitleandTopics PageNo

1 INTRODUCTION

Introduction

12

2 OBJECTIVES&METHODOLOGY

Needofstudy Scopeofstudy

4

5

Objectivesofstudy ReviewofLiterature ResearchMethodology Limitationsofstudy

6

719

20

21

3 COMPANYPROFILE

2229

4 DATAANALYSISANDINTERPRETATION 3060

5 FINDINGS&SUGGESTIONS

Findings Suggestions Conclusion

62

63

64

6 Annexure BIBLOGRAPHY

6571

72

LISTOFTABLES

SI .NO PARTCULARS PAGE.NO

1

2

3

4

5

6

7

8

9

CURRENT RATIO

QUICK RATIO

CASH RATIO

NETWORKING CAPITAL RATIO

DEBT RATIO

DEBT EQUITY RATIO

INTEREST COVERAGE RATIO

TOTAL LIABILITIES RATIO

INVENTORY TURNOVER RATIO

31

33

35

36

37

39

41

42

43

10

11

12

13

14

15

16

17

18

19

20

21

22

DEBTORS TURNOVER RATIO

FIXED ASSET TURNOVER RATIO

CURRENT ASSET TURNOVER RATIO

TOTAL ASSET TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

NET ASSET TURNOVER RATIO

CAPITAL TURNOVER RATIO

CREDITOR TURNOVER RATIO

GROSS PROFIT

NET PROFIT

OPERITING EXPENCES RATIO

RETURN ON INVESTMENT

RETURN ON EQUITY SHARE HOLDER FUND

45

46

48

49

50

51

52

53

54

56

57

59

60

LISTOFCHARTS

SI .NO PARTCULARS PAGE.NO

1

2

3

4

5

6

7

8

9

10

11

12

CURRENT RATIO

QUICK RATIO

CASH RATIO

NETWORKING CAPITAL RATIO

DEBT RATIO

DEBT EQUITY RATIO

INTEREST COVERAGE RATIO

TOTAL LIABILITIES RATIO

INVENTORY TURNOVER RATIO

DEBTORS TURNOVER RATIO

FIXED ASSET TURNOVER RATIO

CURRENT ASSET TURNOVER RATIO

32

34

35

36

38

40

41

42

44

45

47

48

13

14

15

16

17

18

19

20

21

22

TOTAL ASSET TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

NET ASSET TURNOVER RATIO

CAPITAL TURNOVER RATIO

CREDITOR TURNOVER RATIO

GROSS PROFIT

NET PROFIT

OPERITING EXPENCES RATIO

RETURN ON INVESTMENT

RETURN ON EQUITY SHARE HOLDER FUND

49

50

51

52

53

55

56

58

59

60

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INTRODUCTION

ABOUTRATIOANALYSIS

The ratio analysis is the most powerful tool of financial analysis. Several ratios calculated

from the accounting data can be grouped into various classes according to financial activity or

function to be evaluated.

DEFINITION: The indicate quotient of two mathematical expressions and as The relationship

between two or more things. It evaluates the financial position and performance of the firm.

As started in the beginning many diverse groups of people are interested in analyzing

financial information to indicate the operating and financial efficiency and growth of firm. These

people use ratios to determine those financial characteristics of firm in which they interested with

the help of ratios one can determine.

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The ability of the firm to meet its current obligations.

INTRODUCTION

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

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

The overall operating efficiency and performance of firm.

The information contained in these statements is used by management, creditors,

investors and others to form judgment about the operating performance and financial

position of firm. Uses of financial statement can get further insight about financial strength

and weakness of the firm if they properly analyze information reported in these statements.

Management should be particularly interested in knowing financial strength of the firm to

make their best use and to be able to spot out financial weaknesses of the firm to take

suitable corrective actions. The further plans firm should be laid down in new of the firms

financial strength and weaknesses. Thus financial analysis is the starting point for making

plans before using any sophisticated forecasting and planning procedures. Understanding the

past is a prerequisite for anticipating the future.

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Need of study Scope of study Objectives

NEED OF THE STUDY

The prevalent educational system providing the placement training at an industry being a

part of the curriculum has helped in comparison of theoretical knowledge with practical system. It

has led to note the convergences and divergence between theory and practice.

The study enables us to have access to various facts of the organization. It helps in

understanding the needs for the importance and advantage of materials in the organization, the

study also helps to exposure our minds to the integrated materials management the various

procedures, methods and technique adopted by the organization. The study provides knowledge

about how the theoretical aspects are put in the organization in terms of described below

9 To pay wages and salaries.

9 For the purchase of raw materials, spares and components parts.

9 To incur day-to-day expenses.

9 To meet selling costs such as packing, advertising.

9 To provide credit facilities to customers.

9 To maintain inventories and raw materials, work-in-progress and finished stock.

Scopeofthestudy

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 4 years (2006 10).

Using the ratio analysis, firms past, present and future performance can be analyzed and this study has been divided as short term analysis and long term analysis. The firm should

generate enough profits not only to meet the expectations of owner, but also to expansion

activities.

OBJECTIVESOFSTUDY

1. To study and analyze the financial position of the Company through ratio analysis.

2. To suggest measures for improving the financial performance of organization.

3. To analyze the profitability position of the company.

4. To assess the return on investment.

5. To analyze the asset turnover ratio.

6. To determine the solvency position of company.

7. To suggest measures for effective and efficient usage of inventory.

REVIEWOFLITERATURE

FINANCIALANALYSIS

Financial analysis is the process of identifying the financial strengths and weakness of the firm.

It is done by establishing relationships between the items of financial statements viz., balance

sheet and profit and loss account. Financial analysis can be undertaken by management of the firm,

viz., owners, creditors, investors and others.

ObjectivesofthefinancialanalysisAnalysis of financial statements may be made for a particular purpose in view.

1. To find out the financial stability and soundness of the business enterprise.

2. To assess and evaluate the earning capacity of the business

3. To estimate and evaluate the fixed assets, stock etc., of the concern.

4. To estimate and determine the possibilities of future growth of business.

5. To assess and evaluate the firms capacity and ability to repay short and long term loans

Partiesinterestedinfinancialanalysis

The users of financial analysis can be divided into two broad groups.

Internalusers

1. Financial executives

2. Top management

Externalusers

1. Investors

2. Creditor.

3. Workers

4. Customers

5. Government

6. Public

7. Researchers

Significanceoffinancialanalysis

Financial analysis serves the following purpose:

Toknowtheoperationalefficiencyofthebusiness:

The financial analysis enables the management to find out the overall efficiency of the firm. This will

enable the management to locate the weak Spots of the business and take necessary remedial action.

Helpfulinmeasuringthesolvencyofthefirm:

The financial analysis helps the decision makers in taking appropriate decisions for strengthening the

short-term as well as long-term solvency of the firm.

Comparisonofpastandpresentresults:

Financial statements of the previous years can be compared and the trend regarding various

expenses, purchases, sales, gross profit and net profit can be ascertained.

Helpsinmeasuringtheprofitability:

Financial statements show the gross profit, & net profit.

Interfirmcomparison:

The financial analysis makes it easy to make inter-firm comparison. This comparison can also be made for

various time periods.

BankruptcyandFailure:

Financial statement analysis is significant tool in predicting the bankruptcy and the failure of the business

enterprise. Financial statement analysis accomplishes this through the evaluation of the solvency position.

Helpsinforecasting:

The financial analysis will help in assessing future development by making forecasts and preparing

budgets.

METHODSOFANALYSIS:

A financial analyst can adopt the following tools for analysis of the financial statements. These are

also termed as methods of financial analysis.

A. Comparative statement analysis

B. Common-size statement analysis

C. Trend analysis

D. Funds flow analysis

E. Ratio analysis

NATUREOFRATIOANALYSIS

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient

of mathematical expression" and as "the relationship between two or more things". A ratio is used as

benchmark for evaluating the financial position and performance of the firm. The relationship between

two accounting figures, expressed mathematically, is known as a financial ratio. Ratio helps to

summarizes large quantities of financial data and to make qualitative judgment about the firm's financial

performance.

The persons interested in the analysis of financial statements can be grouped under three head

owners (or) investors who are desired primarily a basis for estimating earning capacity. Creditors who are

concerned primarily with Liquidity and ability to pay interest and redeem loan within a specified period.

Management is interested in evolving analytical tools that will measure costs, efficiency, liquidity and

profitability with a view to make intelligent decisions.

STANDARDSOFCOMPARISON

The ratio analysis involves comparison for an useful interpretation of the financial statements. A

single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with

some standard. Standards of comparison are:

1. Past Ratios

2. Competitor's Ratios

3. Industry Ratios

4. Projected Ratios

PastRatios:Ratios calculated from the past financial statements of the same firm.

Competitor'sRatios:Ratios of some selected firms, especially the most progressive and successful

competitor at the same point in time.

IndustryRatios:Ratios of the industry to which the firm belongs.

ProjectedRatios:Ratios developed using the projected financial statements of the same firm.

TIMESERIESANALYSIS

The easiest way to evaluate the performance of a firm is to compare its present ratios with past

ratios. When financial ratios over a period of time are compared, it is known as the time series analysis or

trend analysis. It gives an indication of the direction of change and reflects whether the firm's financial

performance has improved, deteriorated or remind constant over time.

CROSSSECTIONALANALYSIS

Another way to comparison is to compare ratios of one firm with some selected firms in the

industry at the same point in time. This kind of comparison is known as the cross-sectional analysis. It is

more useful to compare the firm's ratios with ratios of a few carefully selected competitors, who have

similar operations.

INDUSTRYANALYSIS

To determine the financial conditions and performance of a firm. Its ratio may be compared with

average ratios of the industry of which the firm is a member. This type of analysis is known as industry

analysis and also it helps to ascertain the financial standing and capability of the firm & other firms in the

industry. Industry ratios are important standards in view of the fact that each industry has its

characteristics which influence the financial and operating relationships.

TYPESOFRATIOS

Management is interested in evaluating every aspect of firm's performance. In view of the requirement of

the various users of ratios, we may classify them into following four important categories:

1. Liquidity Ratio

2. Leverage Ratio

3. Activity Ratio

4. Profitability Ratio

3.1LiquidityRatio

It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios

help in establishing a relationship between cast and other current assets to current obligations to 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. 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. Liquidity ratios can be divided into three types:

3.1.1 Current Ratio

3.1.2 Quick Ratio

3.1.3 Cash Ratio

3.1.1CurrentRatio

Current ratio is an acceptable measure of firms short-term solvency Current assets includes cash

within a year, such as marketable securities, debtors and inventors. Prepaid expenses are also included in

current assets as they represent the payments that will not made by the firm in future. All obligations

maturing within a year are included in current liabilities. These include creditors, bills payable, accrued

expenses, short-term bank loan, income-tax liability in the current year.

The current ratio is a measure of the firm's short term solvency. It indicated the availability of

current assets in rupees for every one rupee of current liability. A current ratio of 2:1 is considered

satisfactory. The higher the current ratio, the greater the margin of safety; the larger the amount of current

assets in relation to current liabilities, the more the firm's ability to meet its obligations. It is a cured -and

-quick measure of the firm's liquidity.

Current ratio is calculated by dividing current assets and current liabilities.

3.1.2QuickRatio

Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. An

asset is 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 asset and included in

quick assets are debtors and bills receivables and marketable securities (temporary quoted investments).

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Current Assets Current Ratio = ________________

Current Liabilities

Inventories are converted to be 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.

Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition.

Quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be used cautiously. A

company with a high value of quick ratio can suffer from the shortage of funds if it has slow- paying,

doubtful and long duration outstanding debtors. A low quick ratio may really be prospering and paying its

current obligation in time.

3.1.3CashRatio

Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its equivalent

current liabilities. Cash and Bank balances and short-term marketable securities are the most liquid assets

of a firm, financial analyst stays look at cash ratio. Trade investment is marketable securities of equivalent

of cash. If the company carries a small amount of cash, there is nothing to be worried about the lack of

cash if the company has reserves borrowing power. Cash Ratio is perhaps the most stringent Measure of

liquidity. Indeed, one can argue that it is overly stringent. Lack of immediate cash may not matter if the

firm stretch its payments or borrow money at short notice.

3.2LEVERAGERATIOS

Financial leverage refers to the use of debt finance while debt capital is a cheaper source of

finance: it is also a riskier source of finance. It helps in assessing the risk arising from the use of debt

capital. Two types of ratios are commonly used to analyze financial leverage.

1. Structural Ratios &

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2. Coverage ratios.

Current assets - Inventories Quick Ratio = _________________________

Current Liabilities

Cash and bank balances + Current Investment Cash Ratio= --------------------------------------------------------------------

Current Liabilities

Structural Ratios are based on the proportions of debt and equity in the financial structure of firm.

Coverage Ratios shows the relationship between Debt Servicing, Commitments and the sources

for meeting these burdens.

The short-term creditors like bankers and suppliers of raw material are more concerned with the

firm's current debt-paying ability. On the other hand, long-term creditors like debenture holders, financial

institutions are more concerned with the firm's long-term financial strength. To judge the long-term

financial position of firm, financial leverage ratios are calculated. These ratios indicated mix of funds

provided by owners and lenders.

There should be an appropriate mix of Debt and owner's equity in financing the firm's assets. The

process of magnifying the shareholder's return through the use of Debt is called "financial leverage" or

"financial gearing" or "trading on equity". Leverage Ratios are calculated to measure the financial risk

and the firm's ability of using Debt to share holder's advantage.

Leverage Ratios can be divided into five types.

3.2.1 Debt equity ratio.

3.2.2 Debt ratio.

3.2.3 Interest coverage ratio

3.2.4 Proprietary ratio.

3.2.5 Capital gearing ratio

3.2.1Debtequityratio

It indicates the relationship describing the lenders contribution for each rupee of the owner's

contribution is called debt-equity ratio. Debt equity ratio is directly computed by dividing total debt by

net worth. Lower the debt-equity ratio, higher the degree of protection. A debt-equity ratio of 2:1 is

considered ideal. The debt consists of all short term as well as long-term and equity consists of net worth

plus preference capital plus Deferred Tax Liability.

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Long term Debts Debt Equity Ratio = ----------------------

Share holder funds (Equities)

3.2.2Debtratio

Several debt ratios may used to analyze the long-term solvency of a firm. The firm may be

interested in knowing the proportion of the interest-bearing debt in the capital structure. It may, therefore,

compute debt ratio by dividing total total debt by capital employed on net assets. Total debt will include

short and long-term borrowings from financial institutions, debentures/bonds, deferred payment

arrangements for buying equipments, bank borrowings, public deposits and any other interest-bearing

loan. Capital employed will include total debt net worth.

3.2.3InterestCoverageRatio

The interest coverage ratio or the time interest earned is used to test the firms debt servicing

capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes by interest

charges. The interest coverage ratio shows the number of times the interest charges are covered by funds

that are ordinarily available for their payment. We can calculate the interest average ratio as earnings

before depreciation, interest and taxes divided by interest.

3.2.4Proprietaryratio

The total shareholder's fund is compared with the total tangible assets of the company. This ratio

indicates the general financial strength of concern. It is a test of the soundness of financial structure of the

concern. The ratio is of great significance to creditors since it enables them to find out the proportion of

share holders funds in the total investment of business.

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Debt Debt Ratio = ----------

Equity

EBIT Interest Coverage ratio = ---------------

Interest

Net worth Proprietary Ratio = -------------------------------------- x 100 Total tangible assets

3.2.5Capitalgearingratio:

This ratio makes an analysis of capital structure of firm. The ratio shows relationship between

equity share capital and the fixed cost bearing i.e., preference share capital and debentures.

3.3ACTIVITYRATIOS

Turnover ratios also referred to as activity ratios or asset management ratios, measure how

efficiently the assets are employed by a firm. These ratios are based on the relationship between the level

of activity, represented by sales or cost of goods sold and levels of various assets. The improvement

turnover ratios are inventory turnover, average collection period, receivable turn over, fixed assets

turnover and total assets turnover.

Activity ratios are employed to evaluate the efficiency with which the firm manages and utilize 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 involve a relationship between sales and assets. A

proper balance between sales and assets generally reflects that asset utilization.

Activityratiosaredividedintofourtypes:

3.3.1 Total capital turnover ratio

3.3.2 Working capital turnover ratio

3.3.3 Fixed assets turnover ratio

3.3.4 Stock turnover ratio

3.3.1Totalcapitalturnoverratio:This ratio expresses relationship between the amounts invested

in this assets and the resulting in terms of sales. This is calculated by dividing the net sales by total sales.

The higher ratio means better utilization and vice-versa.

Some analysts like to compute the total assets turnover in addition to or instead of net assets

turnover. This ratio shows the firm's ability in generating sales from all financial resources committed to

total assets.

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Equity capital Capital gearing ratio = ----------------------------------------------- P.S capital +Debentures +Loans

Sales Total assets turnover = ----------------------------

Capital employed.

3.3.2Working capital turnover ratio: This ratio measures the relationship between working

capital and sales. The ratio shows the number of times the working capital results in sales. Working

capital as usual is the excess of current assets over current liabilities. The following formula is used to

measure the ratio:

3.3.3Fixedassetturnoverratio:The firm may which to know its efficiency of utilizing fixed

assets and current assets separately. The use of depreciated value of fixed assets in computing the fixed

assets turnover may render comparison of firm's performance over period or with other firms. The ratio is supposed to measure the efficiency with which fixed assets employed a high ratio

indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets.

However, in interpreting this ratio, one caution should be borne in mind, when the fixed assets of firm are

old and substantially depreciated, the fixed assets turnover ratio tends to be high because the denominator

of ratio is very low

3.3.4Stockturnoverratio

Stock turnover ratio indicates the efficiency of firm in producing and selling its product. It is

calculated by dividing the cost of goods sold by the average stock. It measures how fast the inventory is

moving through the firm and generating sales.

The stock turnover ratio reflects the efficiency of inventory management. The higher the ratio,

the more efficient the management of inventories and vice versa .However, this may not always be true.

A high inventory turnover may be caused by a low level of inventory which may result if frequent stock

outs and loss of sales and customer goodwill.

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Sales Working capital turnover ratio = -------------------------------

Working capital

Net sales Fixed asset turnover ratio = ------------------------- Fixed assets

Cost of goods sold Stock turnover ratio = ------------------------------

Average stock

Opening stock + Closing stock Average stock = --------------------------------------------

2

3.4PROFITABILITYRATIOS

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. Profit is the difference between revenues and expenses over a period of

time.

Profit is the ultimate 'output' of a company and it will have no future if it fails to make sufficient

profits. The financial manager should continuously evaluate the efficiency of company in terms of profits.

The profitability ratios are calculated to measure the operating efficiency of company. Creditors want to

get interest and repayment of principal regularly. Owners want to get a required rate of return on their

investment.

Generally, two major types of profitability ratios are calculated:

Profitability in relation to sales Profitability in relation to investment

ProfitabilityRatioscanbedividedintosixtypes:

3.4.1 Gross profit ratio

3.4.2 Operating profit ratio

3.4.3 Net profit ratio

3.4.4 Return on investment

3.4.5 Earns per share

3.4.6 Operating expenses ratio

3.4.1Grossprofitratio

First profitability ratio in relation to sales is the gross profit margin the gross profit margin

reflects.

The efficiency with which management produces each unit of product. This ratio indicates the

average spread between the cost of goods sold and the sales revenue. A high gross profit margin is a sign

of good management. A gross margin ratio may increase due to any of following factors: higher sales

prices cost of goods sold remaining constant, lower cost of goods sold, sales prices remaining constant. A

low gross profit margin may reflect higher cost of goods sold due to firm's inability to purchase raw

materials at favorable terms, inefficient utilization of plant and machinery resulting in higher cost of

production or due to fall in prices in market.

This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of

production as well as pricing. To analyze the factors underlying the variation in gross profit margin, the

proportion of various elements of cost (Labor, materials and manufacturing overheads) to sale may

studied in detail.

3.4.2Operatingprofitratio

This ratio expresses the relationship between operating profit and sales. It is worked out by

dividing operating profit by net sales. With the help of this ratio, one can judge the managerial efficiency

which may not be reflected in the net profit ratio.

3.4.3Netprofitratio

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross

profit. Net profit margin ratio established a relationship between net profit and sales and indicates

management's efficiency in manufacturing, administering and selling products.

This ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm with

a high net margin ratio would be in an advantageous position to survive in the face of falling selling

prices, rising costs of production or declining demand for product

This ratio shows the earning left for share holders as a percentage of net sales. It measures

overall efficiency of production, administration, selling, financing. Pricing and tax management. Jointly

considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit

structure of the firm and enable the analyst to identify the sources of business efficiency / inefficiency.

Page24

Gross profit Gross profit ratio = ------------------------x 100 Net sales

Operating profit Operating profit ratio = ---------------------------x 100

Net sales

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

Net sales

3.4.4Returnoninvestment:This is one of the most important profitability ratios. It indicates the

relation of net profit with capital employed in business. Net profit for calculating return of investment

will mean the net profit before interest, tax, and dividend. Capital employed means long term funds.

3.4.5Earningspershare

This ratio is computed by earning available to equity share holders by the total amount of equity

share outstanding. It reveals the amount of period earnings after taxes which occur to each equity share.

This ratio is an important index because it indicates whether the wealth of each share holder on a per

share basis as changed over the period.

3.4.6Operatingexpensesratio

It explains the changes in the profit margin ratio. A higher operating expenses ratio is unfavorable

since it will leave a small amount of operating income to meet interest, dividends. Operating expenses

ratio is a yardstick of operating efficiency, but it should be used cautiously. It is affected by a number of

factors such as external uncontrollable factors, internal factors. This ratio is computed by dividing

operating expenses by sales. Operating expenses equal cost of goods sold plus selling expenses and

general administrative expenses by sales.

Page25

E.B.I.T Return on investment = ---------------------------------------- x 100

Capital employed

Net profit Earnings per share = ------------------------------------ x 100

Number of equity shares

Operating expenses Operating expenses ratio = ----------------------------- x 100

Sales

ResearchMethodology

ResearchDesign

In view of the objects of the study listed above an exploratory research design has been

adopted. Exploratory research is one which is largely interprets and already available information

and it lays particular emphasis on analysis and interpretation of the existing and available

information.

To know the financial status of the company. To know the credit worthiness of the company. To offer suggestions based on research finding.

DataCollectionMethods

PrimaryData

Information collected from internal guide and finance manager. Primary data is first hand

information.

SecondaryData

Company balance sheet and profit and loss account. secondary data is second hand

information.

DataCollectionTools

To analyze the data acquire from the secondary sources Ratio AnalysisThe scope of the

study is defined below in terms of concepts adopted and period under focus.

First the study of Ratio Analysis is confined only to the Amarraja Batteries Limited.

Secondly the study is based on the annual reports of the company for a period of 4 years

from 2006-07 to 2009-10 the reason for restricting the study to this period is due time constraint.

LIMITATIONS

The study was limited to only four years Financial Data.

The study is purely based on secondary data which were taken primarily from Published annual reports of Amararaja batteries Ltd.,

There is no set industry standard for comparison and hence the inference is made on general standards.

The ratio is calculated from past financial statements and these are not indicators of future.

The study is based on only on the past records.

Non availability of required data to analysis the performance.

The short span of the time provided also one of limitations.

Company profile

COMPANYPROFILE

Amara Raja Batteries (ARBL) incorporated under the companies Act, 1956 in 13th

February 1985, and converted into public Limited Company on 6th September 1990.

The chairman and Managing Director of the company is Sri Gala Ramachandra Naidu,

ARBL is a first company in India, which manufactures Values regulated Lead Acid (VRLA)

Batteries. The main objectives of the company are a manufacturing of good quality of Sealed

Maintenance Free (SMF) acid batteries. The company is setting up to Rs.1, 920 lakhs plant is in

185 acres in Karakambadi village, Renigunta Mandal. The project site is notified under B

category.

The company has the clear-cut policy of direct selling without any intermediate. So they

have set up six branches and are operated by corporate operations office located in Chennai. The

company has virtual monopoly in higher A.H.(Amp Hour) rating Market its product VRLA . It is

also having the facility for industrial and automotive batteries.

Amara Raja is 5 S Company and its aim are to improve the work place environment by

using 5S techniques which is A systematic and rational approach to workplace organization and

methodical house keeping with a sense of purpose, consisting of the following five elements

CULTURE AND ENVIRONMENT

Amara Raja is putting a number of HRD initiatives to foster a spirit of togetherness and a culture of meritocracy. Involving employees at all levels in building organizational support plans and in evolving our vision for the organization.

ARBL encourages initiative and growth of young talent allows the organization to develop innovation solution and ideas.

Benchmark pollution control measures, energy conversation measures, waste reduction schemes, massive green belt development programs, employee health monitoring and industrial safety programs have helped ARBL to take further environment management program.

Amara Raja has now targeted to secure the ISO 14001 certification.

QUALITY POLICY

ARBLs main aim is to achieve customer satisfaction through the collective

commitment of employees in design; manufacture and marketing of reliable power systems,

batteries, allied products and services.

To accomplish above, ARBL focus on

Establishing superior specifications for our products and processes. Employing state-of-the-art technologies and robust design principles. Striving for continuous improvements in process and product quality. Implementing methods and techniques to monitor quality levels. Providing prompt after sales service.

RESEARCH & DEVELOPMENT

Specific areas in which the company carries out R&D are;

New product development. Process technology up gradation. Application engineering for new market place. Quality improvement.

Benefits derived as a result of above R&D,

Developed 4v/200 AH batteries. Design optimization of higher AH batteries for DOT application. Design optimization of batteries 92v/1285 AH for TL/AC-Railway application. Formation cycle optimization results in reduced duration and rejection. Chemist curing cycle optimization. Manufacture of automobile battery for four-wheeler vehicles.

FUTURE PLAN OF ACTION

Commercialization of motorcycle batteries.

Development of new range high integrity VRLA cell design.

Establishment of product for new application segment.

Studies on paste additives to enhance the battery performance.

In-depth evaluation of metal surface treatment chemical to reduce the process cycle time.

Validating alternative grades of propylene to conserve energy and to improve productivity. MILE STONES

YEAR Mile stone

1997 100 crores turnover

1997 ISO-9001 Accreditation

1999 S-9000 Accreditation

2002 SO-14001 Certification

AWARDS

The spirit of Excellence- Awarded by academy of fine arts, Tirupati.

Best Entrepreneur of the year 1998-awarded by Hyderabad Management Association.

Industrial Economist Business Excellence Award 1991- Awarded by the industrial Economist, Chennai.

Excellence Award-by institution of economic studies (ES), New Delhi.

Udyog Rattan Award- by institution of economic studies, New Delhi.

QI CERTIFICATE 2002 - By FORD Company

AMARA RAJA GROUP OF COMPANIES

AMARA RAJA POWER SYSTEMS PRIVATE Ltd. (ARPSL), Karakambadi, Tirupati.

MANGAL PRECISION PRODUCTS PRIVATE Ltd1. (MPPL1), Karakambadi, Tirupati.

MANGAL PRECISION PRODUCTS PRIVATE Ltd2. (MPPL2), Petamitta, Chittoor. AMARA RAJA ELECTRONICS PRIVATE LIMITED (AREPL), Dighavamgham,

Chittoor.

GALLA FOODS PRIVATE LIMITED (GFPL), Puthalapattu Mandal, Chittoor. This ratio is calculated by dividing sales in to current assets. This ratio expressed the

number of times current assets are being turn over in stated period. This ratio shows how well

the current assets are being used in business. The higher ratio is showing that better utilization

of the current assets another a low ratio indicated that current assets are not being efficiently

utilized.

INDUSTRIAL BATTERY DIVISION (IBD)

Amara Raja has become the benchmark in the manufacturer of industrial batteries. India is

one of the largest and fastest growth markets for industrial batteries in the world. Amara Raja is

leading in the front, with an 80% market share is stand by VRAL batteries point of view. It is also

having the facility for production plastic components.

ARBL id the first company in India to manufacture VRLA (SMF) Batteries. The initial

investment of the company has Rs.1920 lakhs; the total land is around 18 acres in Karambadi

village, Renigunta Mandal. The project site is notified under B category.

Capacity

The capacity per the year 2005-2006 of IBD is 3, 70,000 cells per annum.

Products

Amara Raja being the first entrant in this industry and has the privilege of pioneering VRLA

technology in India.

Amara Raja has established itself as a reliable supplier of high quality products to major

segments like Telecom, Railways and power.

2. PLATE PREPARATION

Using lead oxide production in earlier stage positive and negative paste is prepared with

addition of sulphuric acid and water. These pastes are applied to respective grids using industrial

fasting machines.

3. CALL ASSEMBLY

Here positive and negative grids are separated by a sheet of fibreglass mat bush bars are

welded and as assembled into a jar or container to form battery cells. Then these cells are

assembled according to the customers specification into battery sets or systems.

4. FORMATION

In this process cells are filled with the electrolyte (surphuric acid) and then the set is

charged and discharged repeatedly, after final charging the battery comes out ready to be used.

Competitors

The Major competitors for Amara Raja Batteries are Exude industries Ltd, and GNB.

AUTOMOTIVE BATTERY DIVISION (ABD)

ARBL has inaugurated its new automotive plant at Karakambadi in Tirupati on September

24th, 2001. This plan is a part of the most completely integrated battery manufacturing facility in

India with all critical components, including plastics sourced in-house from existing facilities on

site. In this project, Amara Rajas strategic alliance partners Johnson Control Inc., of USA have

closely worked technology and plant engineering. It is also having the facility for producing

plastic components required for automotive batteries.

Capacity

With an existing production capacity of 5 lakhs units of automotive batteries, the new

Greenfield plant will now be able to produce 1 million batteries per annum. This is the first phase

in the enhancement of Amara Rajas production capacity, for this the company has invested Rs.45

crores and the next phase, at an additional cost of Rs.25 crores, for this the production capacity

will be increase to 2 million units and the company has estimated to complete around 3 years,

after that ARBL will become the single largest battery of manufacturer in Asia. The fiscal year

2005-2006s capacity Of ABD is 2.2 million numbers of batteries per year.

Products

The products of ABD are

Amaron Hi-way Amaron Harvest Amaron shield Amaron Highlife The plastic products of ABD arejars and jar covers.

Customers ARBL has prestigious OEM (Original Equipment Manufacture) clients like FORD,

GENERAL MOTORS, DAEWOO MOTORS, MERCEDES BENZ, DAIMLER CHRYSLER, MARUTI UDYOG LTD., premier Auto Ltd., and recent acquired a preference supplier alliance with ASHOK LEYLAND, HINDUSTAN MOTORS, TELCO, MAHINDRA & MAHINDRA and SWARAJ MAZDA. COMPETITORS

EXIDE

PRESTOLITE

AMCO.

MAJOR USERS 1. RAILWAYS Train lighting air conditioning, diesel engine starting, signaling systems, control systems, emergency breaking systems, and telecommunications. 2. TELECOMMUNICATION Central office power plants, microwave repeaters station, RAX in public building, emergency lighting system at airports, fire alarm system etc., 3. POWER SYSTEMS Switch gear control systems, powerhouse control systems, rural street lighting etc. 4. UPS SYSTEM Back up power to computers in progress control systems in industry etc. 5. TRACTION Forklift trucks, earth moving machinery, mining locomotives and road vehicles etc. 6. PETROCHEMICALS Offshare and noshore oil exploration lighting systems, security systems etc. 7. DEFENCE Defence communication, aircraft and helicopter ground starting, stationary and mobile diesel engine starting etc.

PRODUCTION PROCESS

The process for the production of lead acid batteries consists essentially of five operations

described below

1. GRID CASTING

In the process grids to hold the active materials are made. Battery grids are produced using

microprocessor-casting machines with patented alloys. Different sizes of moulds are used to get

the required size of grids.

2. PLATE PREPARATION

Using lead oxide production in earlier stage positive and negative paste is prepared with

addition of sulphuric acid and water. These pastes are applied to respective grids using industrial

fasting machines.

3. CALL ASSEMBLY

Here positive and negative grids are separated by a sheet of fibreglass mat bush bars are

welded and as assembled into a jar or container to form battery cells. Then these cells are

assembled according to the customers specification into battery sets or systems.

4. FORMATION

In this process cells are filled with the electrolyte (surphuric acid) and then the set is

charged and discharged repeatedly, after final charging the battery comes out ready to be used.

5. TESTING & INSPECTION

Testing the battery is discharged to the customer it is tested for quality specifications.

Data analysis & Interpretation

DATAANALYSISANDINTERPRETATIONS4.1LIQUIDITYRATIOS4.1.1 CURRENT RATIO

The ratio between all current assets and all current liabilities; another way of expressing

liquidity. It is a measure of the firms short-term solvency. It indicates the availability of current

assets in rupees for every one rupee of current liability. A ratio of greater than one means that the

firm has more current assets than current claims against them.

Table4.1.1Currentratio

S.No Year

CURRENTASSETS

CURRENTLIABILITIES

CURRENTRATIO

1.200607

1,612,642,497

638,958,266 2.52

2.200708

2,280,704,176 1,181,003,846 1.93

3.200809

3,500,193,294 1,312,272,610 2.67

4.200910

5,975,961,025 2,020,744,952 2.96

Page37

Current Assets Current ratio = ----------------------------------------- Current Liabilities

Interpre

decreas

the year

in the y

0

0.5

1

1.5

2

2.5

3

etation:

The standar

sed to 1.93 d

r 2009 and

year 2008. S

0

5

1

5

2

5

3

2006

2.5

rd norm for

during the y

it has incre

So the ratio

607

52

Gr

r current rat

year 2007 an

eased to 2.9

was satisfa

200708

1.93

aph4.1.1C

tio is 2:1. D

nd increase

6 in the yea

actory.

200

2

Currentratio

uring the ye

d to 2.67 in

ar 2010. Th

0809

2.67

o

ear 2006 th

n 2008 and i

he ratio abo

200910

2.96

Page

e ratio is 2.

it is increas

ove was stan

e38

52 and it ha

sed to 2.67 i

ndard excep

as

in

pt

4.1.2.Quickratio

Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities. An

asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value.

Table4.1.2QuickRatio

S.NO

Year

QUICKASSETS CURRENTLIABILITIES QUICKRATIO

1

1

200607

1,171,683,584 638,958,266 1.83

2

200708

1,708,741,955 1,181,003,846 1.45

3.

200809

2,578,479,879 1,312,272,610 1.96

4. 2009104,032,625,321 2,020,744,952 1.99

Page39

Current Assets Inventories

Quick Ratio = _______________

Current liabilities

Interpre

T

1.83 fro

year 20

standard

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

etation:

The standard

om 2.45. T

009 and the

d norm so th

200607

d norm for

Then, it decr

en it increa

he ratio was

20070

Gra

the quick r

reased to 1.

ased to 1.99

s satisfactor

08 200

aph4.1.2Qu

ratio is 1:1.

.45 in the y

9 in the yea

ry.

0809

uickRatio

Quick rati

year 2008. A

ar 2010.

200910

io is decrea

And it has

However t

Page

ased in the y

increased to

the ratio wa

e40

year 2007 t

o 1.96 in th

as above th

to

he

he

4.1.3.C

S.N

1

12

3

4

InterpreIn

quick r

Marketa

Cashratio

NO

1

2

3.

4.

etation:n all the ab

ratio is 1:2

able Securit

o: The ratio

Year

200607

200708

200809

200910

ove years th

2 the comp

ties.

0

0.05

0.1

0.15

0.2

0.25

0.3

Cash R

between ca

Tabl

CASHBAL

169,121,

205,212,

256,000,

511,453,

Gra

he absolute

pany is fail

200607

CasRatio = ___

Cu

ash plus ma

e4.1.3Cash

H&BANK LANCES

,827

,363

,280

,739

aph4.1.3Ca

e quick ratio

led in keep

200708

sh & Bank b__ ________urrent liabiliti

arketable sec

hRatio

CULIA

638,95

1,181,003

1,312,272

2,020,744

shRatio

o is very low

ping suffici

200809

balances _____ ies

curities and

URRENT ABILITIES

8,266

3,846

2,610

4,952

w. The stan

ient Cash

200910

Page

d current liab

S CAS

0

ndard norm

& Bank B

e41

bilities.

SH RATIO

0.26

0.17

0.20

0.25

for absolut

Balances an

te

nd

4.1.4

liabilitie

Interpre

2007. F

to 0.61i

NET WOR

es excludin

S.NO

1

23

4

etation: Net

From that y

in 2010 but

Net wo

RKING CA

g short-term

TaYear200607

200708

200809

200910

t Working C

year the ratio

condition o

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

orking capit

APITAL RA

m bank borr

ble4.1.4NeNETWOR

CAPIT973,68

1,099,70

2,187,92

3,955,216

Graph4.1.4

Capital ratio

o increased

of business w

200607

tal ratio =

ATIO: The

rowing is ca

etworkingcaRKINGTAL84,231 1

00,330 2

20,684 3

6,073 6,5

4Networkin

o is 0.45 in 2

d to 0.50 in

working cap

200708

_____

Ne

difference b

alled net wo

apitalratio

1,935,207,7

2,191,397,0

3,817,892,8

01,134,460

ngcapitalrat

2006 but inc

2008 and fo

pital is not s

200809

Net workin

__________

et assets

between cu

orking capita

NETCAP

14

06

62

0 0

tio

creased to 0

ollowed in 2

shortage.

200910

ng capital

___

Page

urrent assets

al or net cur

TWORKINGITALRATIO0.50

0.50

0.57

.61

0.50 in the n

2009 also a

e42

s and curren

rrent assets.

GO

next year i.e

and increase

nt

.

e.,

ed

4.2LEVERAGERATIOS

4.2.1DebtRatio

If the firm may be Interested in knowing the proportion of the interest bearing debt

in the capital structure.

Table4.2.1Debtratio

S.No Year

TOTAL DEBT

TOTAL DEBT + NET

WORTH DEBT RATIO

1.200607

233,058,880 2,039,907,551 0.11

2.200708

378,672,427 2,391,525,347 0.16

3.200809

1,407,083,880 3,843,741,557 0.37

4.200910

3,162,620,560 3,493,635,030 1.10

Page43

Total Debt Debt ratio = ----------------------------------------- Total Debt + Net Worth

Interpre

Th

year 20

increase

conclud

collecti

etation:

his ratio giv

006 it incre

ed to 0.37

de that the

on of debt.

0.

0.4

0.

0.

1.

ves results

eased to 0.

& 1.10 in t

company

0

2

4

6

8

1

2

20060

0.11

Gra

relating to

11 & 0.16

the year 20

s dependen

7 20070

0.16

aph4.2.1De

the capital

in the cor

009& 2010.

nce on deb

08 2008

0.37

ebtratio

structure o

rresponding

From the

bt is increa

09 2009

7

1.1

f a firm. D

g years 200

above in fl

asing. It is

910

1

Page

Debt ratio is

07 & 2008.

luctuating t

not better

e44

0.08 in th

Again it i

trend we ca

r position i

he

is

an

in

4.2.2Debtequityratio

Debt equity ratio indicates the relationship describing the lenders contribution for each

rupee of the owners contribution is called debt- equity ratio. Debt equity ratio is computed by

dividing Long term Liabilities divided by Equity. Lower debt equity ratio higher the degree of

protection. A debt-equity ratio of 2:1 is considered ideal.

Table4.2.2Debtequityratio

S.No Year

TOTALDEBT

NETWORTH D.E.RATIO

1.200607

233,058,880 1,806,848,671 0.13

2.200708

378,672,427 2,012,852,920 0.19

3.200809

1,407,083,880 2,436,657,677 0.58

4.200910

3,162,620,560 3,331,014,470 0.95

Page45

LONG TERM LIABILITIES Debt equity ratio = ----------------------------------------- EQUITY

Interpre

Th

theyea

therati

fundis

etation:

heratiogive

r2006and

ohasincre

increasing.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

esresultsre

itincreased

asedto0.5

200607

0.13

Graph

elatingtoth

dto0.13&

58&0.95.W

2007

0.1

4.2.2Debt

hecapitalst

0.19inthe

Wecancon

08 2

9

equityratio

tructureof

year2007

cludethatt

200809

0.58

o

afirm.Deb

and2008.I

thecompan

200910

0.95

Page

btequityra

ntheyear2

nydepends

e46

tiois0.09i

2009&201

onthedeb

in

10

bt

4.2.3IN

covered

S.NO

1

2

3

4

Interpre

94.76 in

year 20

interest

4.2.4TO

NTERESTCO

d by funds th

O Ye

200

200

200

200

etation: Int

n the year 2

009 and it a

ed to invest

OTALLIABIL

I

OVERAGER

hat are ordi

ear

EB

0607

0708

0809

09101

terest cover

2007. But, it

again decre

t the money

LITIESRATI

nterest cov

RATIO: The

inarily avail

Table4

BIT

137,259,58

386,899,73

742,908,74

1,588,690,29

Graph

rage ratio is

t is decrease

ased to 12.2

y in this com

O

0

20

40

60

80

100

20060

erage ratio

ratio shows

lable for the

.2.3Interest

INTERE

83 1

8 13

41 30

99 12

h4.2.3Intere

s 07.56 in th

ed to 28.80

29 in the y

mpany.

07 200708

= ___

s the numbe

eir payment

coveragera

EST

1,448,427

3,435,515

0,924,293

9,308,874

estCoverage

he year 200

in the year

year 2010. I

200809 2

E

__________ Int

er of times

.

atio

I.C.RAT

eratio

06. It is inc

2008 and d

In this posit

200910

EBIT

__________ terest

Page

the interest

IO

94.76

28.80

24.02

12.29

creased auto

decreased to

tion outside

e47

t charges ar

omatically t

o 24.02 in th

e investors i

re

to

he

is

T

To

S.NO

1

23

4

Interpre

total lia

2009 &

Formu

Total liabilit

otalAssets

O

20

20

20

20

etation:In t

abilities incr

&2010.

ula: Total Tot

ties: Curren

s:Fixed

Table

Year

00607

00708

00809

00910

the years, 2

reased to 0.4

0

0.1

0.2

0.3

0.4

0.5

0.6

Liabilitiesal Assets

nt liabilities

assets+In

4.2.4:Total

TOTALLIABILIT

872,017

1,559,676

2,719,356

5,183,,365

Graph4.2

2006072007

006 & 2007

4 and the ra

4.3 ACT

+ Secured Loans.

nvestments

Liabilitiesra

LTIES

TO

7,146 2,8

6,273 3,6

6,490 5,2

5,512 8,6

2.4:TotalLia

708200809

7 the total li

atio increase

TIVITY R

& Unsecure

s+Curren

atio

OTALASSET

809,793,132

692,541,508

292,107,128

683,886,037

abilitiesratio

200910

iabilities is 0

ed to 0.5 &

RATIOS

ed

ntassets

ST.L.RAT

2

8

8

7

o

0.2&0.3 but

0.6 in the c

Page

TIO0.3

0.4

0.5

0.6

t in the year

orrespondin

e48

r 2008 the

ng years of

4.3.1Inventoryturnoverratio

It indicates the firm 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 = Raw materials consumed +payments &benefits to employees +mfr, selling &admin expenses +duties & taxes Table4.3.1:Inventoryturnoverratio

S.NO

Year COSTOFGOODS

SOLDAVGINVENTORY I.T.RATIO

1

200607

2,228,549,828 374,102,223 5.96

2

200708

3,499,805,230 506,460,567 6.91

O3 200809

5,324,665,192 746,837,818 7.13

4 200910 9,782,463,974 1,432,524,559 6.83

Page49

Cost of goods sold Inventory turnover ratio =_____________________ Average inventory

Interpre

I

year 20

2009. B

year tha

etation:

Inventory tu

007. Then, i

But, it is dec

at is compan

0

1

2

3

4

5

6

7

8

200

urnover rati

it is increas

creased to 6

ny producti

0607

Graph4.3

io is 5.57 ti

ed to 6.91

6.83 in the y

on is also in

200708

.1:Inventor

imes in the

in the year

year 2010.

ncreased. Su

20080

ryturnoverr

year 2006.

r 2008 and

Inventory tu

ubsequently

9 20

ratio

But, it is i

again incre

urn over rat

y sales are a

00910

Page

increased t

ased to 7.13

tio increased

also increase

e50

o 5.96 in th

3 in the yea

d for year b

ed.

he

ar

by

4.3.2D

Debtor

Sales =

Interpre

times in

&7.25 t

Debtorstu

s turnover i

Gross Sale

S.NO

1

2

3

4

etation:De

n the year 2

times in the

Debtors

urnoverra

indicates th

es Year

200607

200708

200809

200910

ebtors turn

007 and inc

years 2009

0

1

2

3

4

5

6

7

8

s turnover r

atio: It is fo

he number o

Table4.3.2

SALE

2,685,43

4,458,29

7,451,03

13,499,86

Graph4.3

nover ratio i

creased to 5

9 &2010.

200607

ratio =

found out by

of times deb

2:Debtorstu

ES

36,096

95,779

32,998 1

67,499 1

.2:Debtorst

is 4.31 time

5.92 times in

200708

S

________

Ave

y dividing th

tors turnov

urnoverratio

AVERAGEDEBTORS

560,689,88

753,113,33

1,158,032,7

1,862,113,4

turnoverrat

es in the yea

n the year 2

200809

Sales

_________

rage Debto

he credit sal

ver each yea

o

E

D

81

38

67

98

io

ar 2006 and

2008 and it

200910

ors

Page

les by avera

ar.

.T.RATIO

4.79

5.92

6.43

7.25

d it is increa

increased to

e51

age debtors.

ased to 4.7

o 6.43 time

.

79

es

4.3.3Fixedassetturnoverratio

The ratio is supposed to measure the efficiency with which fixed assets are employed a high ratio

indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets.

However, in interpreting this ratio, one caution should be borne in mind. When the fixed assets of the

firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high because the

denominator of the ratio is very low.

Sales = Gross Sales

Netfixedassets:Netblock

Table4.3.3:Fixedassetturnoverratio

S.NO

Year

SALESNETFIXEDASSETS

F.A.T.RATIO

1

200607

2,685,436,096 948,631,374 2.83

2

2007084,458,295,779 1,043,547,559 4.27

3

200809

7,451,032,998 1,568,304,581 4.75

4 20091013,499,867,499 1,888,508,475 7.15

Page52

Net Sales

Fixed Asset Turnover Ratio = __________

Net Fixed Asset

Interpre

Fixed a

the year

etation:

assets turn o

r 2008 the r

0

1

2

3

4

5

6

7

8

20062007

over ratio is

ratio is 4.27

Graph4.3.3

200708

2.01 in the

and it cont

3:Fixedasse

200809

year 2006 a

inued up to

etturnover

200910

and it is inc

4.75 and to

ratio

0

creased to 2

o 7.15 in th

Page

.83 in the y

he years 200

e53

year 2007. I

09&2010.

In

4.3.4C

Interpre

year 20

2.26 in

increasi

Currentas

S.NO

1

2

3

4

etation: Current a

007. But, in

n the year

ing.

0.

1.

2.

Curren

ssetturnov

Year

200607

200708

200809

200910

Gra

assets turnov

the year 20

2010. Fro

0

.5

1

.5

2

.5

20060

nt asset tur

verratio

Table4.3.4

SALE

2,685,436

4,458,29

7,451,03

13,499,86

aph4.3.4Cu

ver ratio is

008 the ratio

om above

07 2007

nover ratio

4:Currentas

ES CAS6,096 1,6

95,779 2,2

32,998 3,5

67,499 5,9

urrentassets

1.68 in th

o is increas

we can co

08 2008

o = __

Cu

ssetturnove

URRENT SSETS

12,642,497

80,704,176

00,193,294

75,961,025

turnoverra

he year 2006

ed to 1.95 a

onclude tha

809 200

Sales

__________

urrent assets

erratio

C.A.T

7

6

4

tio

6 and it is d

and it contin

at current a

0910

______

s

Page

T. RATIO

1.67

1.95

2.12

2.26

decreased to

nuously inc

assets turno

e54

o 1.67 in th

creased up t

over ratio i

he

to

is

4.3.5T

test of m

required

Total as

Interpre Tota

to 1.55

Totalasset

This rati

managerial

d in the intere

ssets: Fixed

S.NO

1

2

3

4

etation:al assets rat

in the year

Total

tsturnove

io ensures w

efficiency a

est of the com

d assets + C

Year

200607

200708

200809

200910

Graph

tio is 0.83 i

2010.It mea

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

200

asset turno

erratio

whether the c

and business

mpany.

Current asset

Table4.3

SALE

2,685,43

4,458,29

7,451,03

13,499,86

4.3.5:Total

n the year 2

ans Total A

0607 20

over ratio =

capital emplo

s performanc

ts + Investm

3.5:Totalass

ES T

36,096 2

95,779 3

32,998 5

67,499 8

assetsturno

2006 and it

Assets is incr

00708 2

____

Ca

oyed has bee

ce. Higher t

ments

etturnover

TOTALASSE

2,809,793,1

3,692,541,5

5,292,107,1

8,683,886,0

overratio

gradually i

reased in ev

200809

Sales

__________

apital emplo

en effectively

total capital

ratio

ETS T.A

32

08

28

37

increased ye

very year.

200910

____

oyed

Page

y used or no

turnover ra

A.T.RATIO

0.96

1.21

1.41

1.55

ear by year

e55

ot. This is als

atio is alway

and reache

so

ys

ed

4.3.6W

capital t

This rat

S.NO

123

4

Interpre

Wor

2007. In

higher t

4.3.7N

WorkingcaA firm maturnover ind

tio indicates

O Ye

200

200

200

200

etation:

rking capita

n the year 2

the working

Netassett

W

apitalturnay also like

dicates for o

s whether or

Taear

0607

2

0708

4

0809

7

091013

G

al turnover

2008 increas

g capital turn

turnoverr

Working cap

overratioto relate ne

one rupee o

r not workin

able4.3.6:W

SALES

2,685,436,09

4,458,295,77

7,451,032,99

3,499,867,4

Graph4.3.6:

ratio is 2.4

sed to 4.05

nover the m

ratio

0

1

2

3

4

5

20060

pital turnov

oet current as

of sales the c

ng capital h

Workingcapi

NET A

96 97

79 1,09

98 2,18

499 3,95

:Workingca

41 in the yea

. Again it d

more favorab

07 200708

ver ratio =

sets or net w

company ne

has been effe

italturnover

CURRENASSETS 73,684,231

99,700,330

87,920,684

55,216,073

apitalturnov

ar 2006 and

decreased to

ble for the c

200809 2

S

= _________ Workin

working cap

eeds how m

fectively util

rratio

T W

verratio

d it is incre

o 3.41 in the

company.

200910

Sales

__________ng capital

Page

pital to sales

many net cur

lized marke

W.C.T. RA

2.76

4.05

3.41

3.41

ased to 2.76

e year 2009

____

e56

s. Working

rrent assets.

et sales.

TIO

6 in the yea

&2010. Th

ar

he

Net Ass

S.NO1234

Interpre

2007 an

slightly

4.3.8C

sets: Net Fi

O

20

20

20

20

etation:

Net Asse

nd it is incre

y inc

Capitaltur

ixed Assets

Year

00607

00708

00809

00910

ets turnover

eased to 2.0

creased

rnoverrati

0

0.5

1

1.5

2

2.5

Net Asse

+ Net Curr

Table4.3.

SALES

2,685,436

4,458,295

7,451,032

13,499,867

Graph4.3

20062007

r ratio is 1.1

03 in the yea

to

io

t Turnover

rent Assets

.7:Netasset

S NET

6,096 1,9

5,779 2,1

2,998 3,8

7,499 6,5

3.7:Netass

200708

11 in the ye

ar 2008. An

2.08

r Ratio =

tturnoverra

TASSETS

935,207,714

191,397,006

817,892,862

501,134,460

setturnover

200809

ear 2006 and

nd, it decrea

in

Sales

________

Ne

atio

4 1.39

6 2.03

2 1.95

0 2.08

rratio

200910

d it is incre

ased to 1.95

the

s

___

et Asset

Page

N.A.T.RAT

eased to 1.3

5 in the year

year

e57

TIO

9 in the yea

r 2009 and

2010

ar

it

0.

S.NO123

4

Interpre

2007 an

. Then,

4.3.9C

The rat

O Y

200

200

200

200

etation: Capi

nd it is incre

it increased

Creditorst

C

tio obtains b

Year

0607

2

0708

4

0809

7

0910 1

ital turnove

eased to 1.7

d to 2.03 in

turnoverr

0

0.5

1

1.5

2

2.5

Capital turn

by dividing

Table4.

SALES

2,685,436,0

4,458,295,7

7,451,032,9

3,499,867,4

Graph4.3.8

er ratio is 0

78 in the yea

the year 20

ratio

200607

nover ratio

sales with t

3.8:capital

CAPIT

096 2,1

779 2,5

998 3,9

499 6,6

8:capitaltur

.98 in the y

ar 2008 and

10.

200708

= ___

the capital e

turnoverrat

TALEMPLOY

170,834,866

511,537,662

979,834,518

663,141,085

rnoverratio

year 2006 a

d again it is

200809

S

__________ Capital

employed.

tio

YED

6

2

8

5

nd it is incr

increased t

200910

Sales

__________l Employed

Page

C.T.RAT

1.24

1.78

1.87

2.03

reased 1.24

to 1.87 in th

_

e58

TIO

4 in the yea

he year 200

ar

09

The ra

S.NO

1

2

3

4

Interpre

and it i

2009 bu

atio obtaine

O Ye

200

200

200

200

etation: Credito

is suddenly

ut increased

C

ed by dividi

Tear

0607

1,4

0708

2

0809

4,0

09108,1

ors turnover

decreased

d in the next

0

2

4

6

8

10

12

2

Creditors tu

ng the annu

Table4.3.9:C

PURCHASE

422,358,585

2,244,170,1

086,818,72

125,662,265

Graph4.3.9

r ratio is 6.

to 5.1 in th

t year 2010

4.4P

00607

urnover rat

ual credit pu

Creditorstur

ESACR

5 19

72 44

1 59

5 7,0

9:Creditorst

1 in the yea

he year 2008

to 11.47.

PROFITAB

200708

tio = _____

urchases wit

rnoverratio

AVERAGEREDITORS

2,242,196

41,904,975

1,059,052

081,427,12

urnoverrati

ar 2006. It i

8 and it sud

ILITYRATI

200809

P

__________ Avge.C

th average a

o

s increased

ddenly incre

IOS

200910

Purchases

________ Creditors

Page

accounts pa

C.T.RATI

7.4

5.1

6.9

11.47

to 7.4 in th

eased to 6.9

e59

ayable.

O

he year 200

9 in the yea

07

ar

4.4.1Grossprofitratio

This ratio shows that the margin left after meeting manufacturing costs. It measures the

efficiency of production as well as pricing.

Gross profit= Net sales-Cost of goods sold

Cost of goods sold= Opening stock+ material consumed+ mfg .exp- closing stock

Table4.4.1:Grossprofitratio

S.NO

Year

GROSSPROFIT SALES G.P.RATIO(%)

1

200607

456,886,268 2,685,436,096 17

2

200708

958,490,549 4,458,295,779 21.5

3

200809

2,126,367,806 7,451,032,998 28.5

4 2009103,717,403,516 13,499,867,499 27.5

Page60

Gross profit

Gross profit margin Ratio = ____________ X100 Net sales

Interpre

F

to 17 %

decreas

activitie

etation:

From the abo

% &21.5%

sed to 27.5

es.

R

0

5

10

15

20

25

30

ove we can

in 2007& 2

% in the y

Ratio

0

5

0

5

0

5

0

2006

Graph

n say that gr

2008 and a

year 2010.

07 2

4.4.1:Gross

ross profit r

again it incr

The comp

200708

sprofitratio

atio is 16.2%

reased to 2

pany is ma

200809

% in the ye

28.5% in th

aintaining p

2009

Page

ear 2006 but

he year 200

proper contr

910

e61

t it increase

09 and it i

rol on trad

ed

is

de

4.4.2Nconditio

face fall

InterpreDuring

because

5.3 in th 4.4.3O

Netprofions. A firm w

ling selling p

S.NO

1234

etation:

the year 20

e of decreas

he year 200

Operating

itratio:Thwith a high

prices, rising

Yea

2006

2007

2008

2009

006 the net

sed in admin

08 and it aga

expenses

8

6

4

2

0

2

4

6

8

200

Net pro

his ratio also

net margin

costs of pro

Taar

607

708

809

910

Graph4.4

profit marg

nistration an

ain increase

ratio

0607 2007

ofit ratio=

o indicates th

ratio would

duction or d

able4.4.2:Ne

PROFITAFTTAX

86,900,56

238,465,7

470,434,5

9,436,315,

4.2:Netprof

gin is 0.7 it

nd selling e

d to 6.3 in 2

08 200809

Net pro

______

Net sal

he firm's cap

be in an ad

declining dem

etprofitratio

TER

63 2,6

30 4,4

75 7,4

,11 13,4

fitratio

t suddenly i

xpenses. In

2009 and to

200910

ofit

___ X I00

les

pacity to with

dvantageous

mand for the

o

SALES

685,436,096

458,295,779

451,032,998

499,867,499

increased to

n the next ye

o 6.99 in the

Page

h stand adve

position to s

product.

NETMAR

6 3

9 5

8 6

9 6

o 3.2% in th

ear, it again

e year 2010.

e62

erse economi

survive in th

PROFITGIN(%)

3.2

5.3

6.3

6.99

he year 200

n increased t

.

ic

he

07

to

The Operating expenses ratio explains the changes in the profit margin ratio. A higher operating

expense is unfavorable since it will leave a small amount of operating income to meet interest, dividends.

Page63

Operating expenses X 100 Operating expenses ratio= __________________ Sales

Operating expenses =Admin expenses+ Selling expenses

Table4.4.3:Operatingexpensesratio

S.NO

Year

OPERATINGEXPENSES

SALES O.E.RATIO

I1 200607

376,620,609 2,685,436,096 14.02

2

200708

550,626,756 4,458,295,779 12.35

3

200809

767,790,197 7,451,032,998 10.30

4200910

1,388,735,777 13,499,867,499 10.30

Graph4.4.3:Operatingexpensesratio

16

Interpretation:

Operating expenses ratio is 17.86%of sales in the year 2006 it decreased to 14.02% in

the year 2007 and decreased in 2008 to12.35% and again it decreased in the next year 2009 to

10.30% and continued the same way. Then, it reached 10.30% in the year 2010.

4.4.4ReturnonInvestment

The conventional approach of calculated ROI is to divide PAT by investment.

EBIT

Return on investment(ROI)= _________________

Capital Employed

Table4.4.4:ReturnoninvestmentS.NO

Year

EBIT CAPITAL

EMPLOYEDR.O.I.RATIO

1 200607 137,259,583 2,170,834,866 0.06

2 200708 386,899,738 2,511,537,662 0.15

3 200809 742,908,741 3,979,834,518 0.19

4 200910 1,588,690,299 6,663,141,085 0.24

Graph4.4.4:ReturnonInvestment

Page65

0

0.05

0.1

0.15

0.2

0.25

200607 200708 200809 200910

Interpretation: Return on Investment is very low in all years. But, in the year 2006, it reached to

6.51 due to less earnings.

4.4.6Returnonequityshareholdersfund

The return on equity share holders fund explains about the return of share holders with they

get on their investment.

Table4.4.6:Returnonequityshareholder'sfundS.NO

Year

PROFITAFTER

TAXNETWORTH R.O.E.RATIO(%)

1 200607 86,900,563 1,806,848,671 4.8

2 200708 238,465,730 2,012,852,920 11.8

3

200809

470,434,575 2,436,657,677 19.3

4 200910 943,631,511 3,331,014,470 28.33

Graph4.4.7:Returnonequityshareholder'sfund

Net profit

Return on equity share holders fund= _________________

Equity share holders fund

0

5

10

15

20

25

30

200607 200708 200809 200910

Interpretation:

Return on equity in the year 2006 is 0.8 and it increased suddenly to 4.8 in the year 2007

and again it increased to 11.8 in the year 2008. Return on Equity of the company is at

satisfactory level and then it increased to 19.3 in 2009 and again increased to 28.33 in 2010 .

CHAPTER-5

Findings Suggestions Conclusion

FINDINGS

Except in the year 2008, the company is maintaining current ratio as 2 and more, standard which indicates the ability of the firm to meet its current obligations is more. It shows

that the company is strong in working funds management.

The company is maintaining of quick assets more than quick ratio. As the company having high value of quick ratio. Quick assets would meet all its quick liabilities with out

any difficulty.

The company is failed in keeping sufficient cash & bank balances and marketable securities.

In above all current assets and liabilities ratios are better that also it is double the normal position. Observe the absolute & super quick ratio the company cash

performance is down position.

In the year 2006 debt equity ratio is 0.08 (8%) but it is increased to 0.11 (11%) & 0.16(16%) in 2007 and 2008 increased every year. It shows that the company is losing

its condition.

Net working capital ratio is 0.45 in 2006 but also 0.50 in 2007. It is increased very high but condition of business working capital is not shortage .

Debt Equity ratio is increasing every year. It indicates the company depends on the debt fund increasing.

Total liabilities ratio is also increasing year by year. In the year 2006, the interest coverage ratio 7.56 which increased to 94.76 in the year

2007 and high fluctuations in the followed years. In this position, outside investors are

interested to invest their money in this company.

The company is declining of its coverage ratio to serve long term debts. Inventory turnover also increased for year by year that is company production is also

increased. Subsequently sales are also increased.

The net profit ratio of the company increasing over the study period. Hence the organization having the good control over the operating expenses.

SUGGESTIONS The company has to increase the profit maximization and has to decrease the operating

expenses.

By considering the profit maximization in the company the earning per share, investment and working capital also increases. Hence, the outsiders are also interested to invest.

The company should maintain sufficient cash and bank balances; they should invest the idle cash in marketable securities or short term investments in shares, debentures, bonds

and other securities.

The company must reduce its debtors collection period from 83 & 84 days to 40 days be adopting credit policy by providing discounts to the debtors.

Return on investment is fluctuates every year. The company has to make ef

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