sip report

A REPORT ON

SUMMER PROJECT WORK

OF RATIO ANALYSIS

FOR

BELL CERAMICS LTD.

Submitted to:-

GUJARAT TECHNOLOGICAL UNIVERSITY, AHMEDABAD

Prepared by :-

Nilam G. Gandhi

ID NO.:-107420592002

MBA First Year

Under the Guidance of :-

Prof. Bhavik Mehta

Prof. Rajkumari Soni

PARUL INSTITUTE OF ENGG. & TECH. (PIET) – MBA

P.O.- LIMDA, TALUKA – WAGHODIA

DIST – VADODARA, GUJARAT.

CERTIFICATE FROM COMPANY

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CERTIFICATE FROM FACULTY GUIDE

CERTIFICATE

This is to certify that the project work entitled “RATIO ANALYSIS OF BELL

CERAMIC LTD., BARODA” was carried out by GANDHI NILAM G. in

partial fulfillment of the Award of the degree in “Master of Business

Administration” to the GUJARAT TECHNOLOGICAL UNIVERSITY,

AHMEDABAD in the year 2010 - 2012. It is certified that all

correction/suggestion indicated for internal assessment have been incorporated

in the Report deposited in the department library. The project report has been

approved as it satisfies the academic requirements in respect of project work

prescribed for the “Master of Business Administration Degree”.

Signature of Guide Signature of Director

Name of Guide Name of Director

College : Parul Institute Engineering and Technology,

MBA Department ( Ins. Code 742 )

3

DECLARATION

I here by declare that the project report entitled, “RATIO ANALYSIS OF

BELL CERAMICS LTD.” submitted as per the requirement for the degree of

Master of Business Administration of Parul Institute of Engineering and Technology

(G.T.U.) is an original piece of research work carried out by me under the guidance of

Prof. Bhavik Mehta and Prof. Rajkumari Soni. The information has been collected

from genuine and authentic sources. This project is not submitted for the award of any

type of other degree, diploma or any other similar title or prizes.

PLACE :- Vadodara NAME OF CANDIDATE:-

Miss. Nilam Gandhi

DATE :-

4

ACKNOWLEDMENT

“Perseverance inspiration and motivation have always played a key role in

success of any venture”. I hereby express my deep sense of gratitude to all the

personalities involved directly and indirectly in my project work.

I would thank to God for their blessing and my parents also for their valuable

suggestion and support in my project report.

With an immense pleasure, I would like to express my thanks to Ms. Mukti

Mehta (Deputy Finance Manager), project guide for having given me this privilege of

working under her and completing this study.

I would also like to thank Mr. G P Zala (GM of Finance), Mr. P D Baxi (Head

of Account), Mr. Bhaskar (Asst. manager of Finance), who have rendered their whole

hearted support at all times for the successful completion of this project report.

I would also like to thank all staff members at Corporate office as well as at

Dora office of Bell Ceramics Ltd. ,who have helped me for this project directly or

indirectly.

Last but not least, I would like to express my sincere gratitude to Bhavik sir

and other faculty members who have taught me in my entire MBA curriculum and our

HOD, Dr. P G K Murthy, who has always been a source of guidance, inspiration and

motivation.

However, I accept the sole responsibility for any possible errors of omission

and would be extremely grateful to the readers of this project report if they bring such

mistakes to my notice.

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TABLE OF CONTENTS

CH. NO. TOPIC PAGE NO.Title Page 1Certificates i. From company 2 ii. From Faculty Guide 3Declaration 4Acknowledgement 5Table of Contents 6Executive Summary 7

PART – I ORGANISATION PROFILE1. Introduction 92. Company Profile 10

Evolution & History 11Vision & Mission 12Organization chart of the company 13Products & Distribution Network 14Orient Ceramic & Industries ltd 15Bell Acquisition 16Major Competitors of Bell Ceramic Tiles in India 17

3. Finance Department Organization chart & Activities 18

My learning from the study of company 19PART – 2 PROJECT STUDY

4. Overview of the study 215. Research Methodology 226. Ratio Analysis

Meaning & Importance 23 Standards of the Ratio 24 Advantages & Uses of Ratio Analysis 24 Limitations of Ratio Analysis 26 Sources of data for ratios 27 Purpose & Types of Ratios 27 Forms of Ratios 28 Users of Financial Ratios 29 Classification of various ratios 30

7. Ratio Calculations Profitability Ratios 32 Liquidity Ratios 47 Leverage Ratio 56 Turnover Ratio 61

8. SWOT Analysis 729. Findings & Interpretation 7410. Conclusion & Limitations 7511. Recommendations & Suggestions 76

6

Appendices 77Bibliography 82

EXECUTIVE SUMMARY

The products and the company are very familiar to the people in the urban

area. In some areas there is a tough competition with major players such as Kajaria,

Somany and Nitco etc.

But along with the competition from national players there is a dominating

threat in the market from local players which are generally from Gujarat (i.e. morbi

tiles) they have exploited the market trends , they sell at very low rates and offer huge

commissions. The quality also varies.

So, as the consumer in the small town prefer having cheap tiles. local tiles

purely satisfied these needs and therefore sells more.

Bell products are known in the market for its quality. Many dealers were

interested in sub dealership rather than dealership because of financial constraints,

lack of awareness and motivation. So the company should try to concentrate on

promotional plans. Existing dealer’s complaint of packaging procedures. Many

dealers complaint of an imperfect, unattractive, insufficient, uninformative catalogue

and compared with kajaria’s catalogue, which is quite impressive as the people in

small towns mainly gets attract due to colors, shades, designs rather than quality

which is a key strength of Bell products so the company should try to make the

catalogue more impressive. But right now the sales of the company are decreased due

to the competition.

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PART – I

ORGANISATIONAL

PROFILE

8

CHAPTER - 1

INTRODUCTION :-

After preparation of the financial statements, one may be interested in

knowing the position of an enterprise from different points of view. This can be done

by analyzing the financial statement with the help of different tools of analysis such as

ratio analysis, funds flow analysis, cash flow analysis, comparative statement

analysis, etc.

Here I have done financial analysis by ratios. In this process, a meaningful

relationship is established between two or more accounting figures for comparison.

Financial ratios are widely used for modeling purposes both by practitioners

and researchers. The firm involves many interested parties, like the owners,

management, personnel, customers, suppliers, competitors, regulatory agencies, and

academics, each having their views in applying financial statement analysis in their

evaluations.

Financial statements are those statements which provide information about

profitability and financial position of a business. It includes two statements, i.e., profit

& loss a/c or income statement and balance sheet or position statement.

The income statement presents the summary of the income earned and the

expenses incurred during a financial year. Position statement presents the financial

position of the business at the end of the year.

Before understanding the meaning of analysis of financial statements, it is

necessary to understand the meaning of analysis and financial statements . Analysis

means establishing a meaningful relationship between various items of the two

financial statements with each other in such a way that a conclusion is drawn.

Thus, analysis of financial statements means establishing meaningful

9

relationship between various items of the two financial statements, i.e., income

statement and position statement.

CHAPTER - 2

COMPANY PROFILE:-

TYPE :- Private Limited Company

INCORPORATED ON :- 18 th October , 1985

REGISTERED OFFICE :-

Address :- Village : Dora, Taluka : Amod, District :Bharuch-392 230. Gujarat (India). Phone :- +91-2641-235151,235153 Fax :- +91-2641-235160

KEY PERSON :- Mr. K M Pai (MD)

INDUSTRY :- Ceramic Tiles

PRODUCTS :- Wall & Floor Tiles

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EMPLOYEES :- + 700

WEBSITE :- http://www.bellceramic.com

EVOLUTION & HISTORY :-

The company was incorporated on 18th October,1985, at Dora, Gujarat,

and obtained a certificate of commencement of business on 8th November,

1985.

It was promoted by R. K. Jatia and R. G. N. Swamy, a non resident India.

The aim of the company is to manufacture world class ceramic glazed wall

and floor tiles.

The company undertook to set up a plant for the manufacture of 20000

tonnes per annum of ceramic wall tiles and floor tiles.

The company proposed install a project to manufacture ceramic glazed

floor tiles with the installed capacity of 55000 tonnes per annum at

Hoskote, Karnataka in 1994.

In 1996, the project of floor tiles with installed capacity of 55000 TPA was

undertaken.

Present installed capacity of Bell is 10 lacs square meters per month.

This company is accredited with ISO 9001:2000 and 14001.

Gujarat Plant :-

Located at village DORA ,TA. AMOD, DIST.- BHARUCH, GUJARAT.

The place is around 60 km away from VADODARA.

Dora plant has production installed capacity of 63.87 lacs square meters

per annum of wall and floor tiles.

This is the Registered office of the Bell Ceramics Ltd.

Present capacity of the Plant is 17000 sqm per day.

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Karnataka Plant :-

Located at Village CHOKKANHALLI , TA. HOSKOTE , DIST.-

BANGLORE (Rural) , KARNATAKA.

Bangalore plant has an installed capacity of 82.13 lacs square meters per

annum of floor tiles.

The plant was started on 26th March, 1998.

The place is about 70 km away from Banglore City.

This plant produces floor tiles only.

VISION :-

“To become the most preferred provider of tiling solutions”.

MISSION:-

“To delight every individual associated with Bell by providing innovative and

quality product & services on an ongoing basis”.

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ORGANISATION CHART OF THE COMPANY :-

13

PRODUCTS OF BELL CERAMIC :-

Board of Directors

Managing Director

Corporate Office

Dora Unit

Hoskote Unit

Finance Department

Marketing Department

AccountDepartment

HRD Department

Production Department

Stores Department

QC Department

Finance Department

Marketing Department

Production Department

Stores Department

QC Department

Purchase Department

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DISTRIBUTION NETWORK :-

ORIENT CERAMICS & INDUSTRIES LTD. :-

BELL CERAMICS

DORA (GUJARAT)1985

HOSKOTE (KARNATAKA) (1995)

WALL TILES FLOOR TILES FLOOR TILES

QUALITY

FIRST COMMERCIAL ECONOMY

SELLING

From Warehouse From Depot

Depot (Stock Transfer)

Dealer Project Dealers Project

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OCIL was formed on 18th May 1977 as a public limited company and has

been at the forefront of innovation in home décor ever since.

The Company's manufacturing unit is at Sikandarabad, Uttar Pradesh.

Orient Ceramics and Industries Limited is an India-based company. The

Company is engaged in manufacture of Ceramic Tiles. The Company also

manufactures ultra-vitrified tiles.

The Company's product portfolio includes Orient Tiles, Europa Tiles and

Stiler Tiles.

Current Installed Capacity of the company is 220000 TPA.

VISION OF THE COMPANY :-

“Delight Customers &

Reward shareholders by

providing Innovative solutions

that are

FAMOUS for QUALITY”

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BELL ACQUISITION :-

OCIL had bought 68% shares of Bell Ceramics in December, 2010.

OCIL, which became India's largest tile maker after the acquisition with a

10 per cent market share at present, had bought 68% in Bell at a cost of Rs

19 crore.

Bell's operational efficiency improved from 60-65 per cent to 80-85 per

cent with little or no investments.

Bell’s production capacity increases to 30 crore square feet of walls and

floors every year after acquisition.

Bell’s distribution network is very good in west and south zone of India,

while Orient’s distribution network is very good in north zone. Because of

acquisition both company’s distribution network can be spread in all over

India.

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Major Competitors of Bell Ceramic Tiles in India :-

1. HR JOHNSON

2. KAJARIA CERAMICS LTD.

3. SOMANY PILKINGTON LTD.

4. MURUDESHWAR CERAMICS LTD.

5. NITCO TILES LTD.

6. ORIENT CERAMICS LTD.

7. RESTILLE CERAMICS LTD.

8. EURO CERAMICS PVT LTD.

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CHAPTER – 3 :- FINANCE DEPARTMENT

ORGANISATION CHART :-

ACTIVITIES DONE BY FINANCE DEPARTMENT :-

Finance department of the company is at corporate office, Vadodara. All

financial activities are handled by the finance department at corporate office.

Following activities are done by the finance department.

Handling Bank loan and its transactions.

Handling selling & distribution expenses like salary of salesmen, traveling

expenses, commission of the salesman, advertisement expenses, etc.

Handling administration cost, finance cost, taxes, etc.

Payment to creditors.

Consolidated statements are also made here.

MDMr. K M Pai

GM

Mr. G P ZalaMr. G P Zala

President (Marketing)Mr. A N Rangaswamy

ManagerAt Corporate

ManagerAt Dora

ManagerAt Hoskote

Officers OfficersOfficers

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MY LEARNING FROM THE STUDY OF COMPANY :-

Before summer internship at Bell Ceramic, I had not any experience of

Working in a good company. I have learn many areas of the company.

Before joining bell I was only known about tiles are that it is used for flooring

and wall. But I was not aware about different types of tiles like vitrified tile, ceramic

tile, joint free (edge- cut) tile, group 5 series etc. and I come to know about the history

of the tile and its industrial statistics. So that is also helpful to me.

During my training, we went to Dora for three days and we learnt the process

for making tiles practically. We also learnt about the different departments like

account department, hr department, production department, stores department,

warehouse department, purchase department, etc. under the observation of head of

respective department.

At dora, they are using the FIFO method for inventory. We are also aware

from taxes related to production company.

After doing the company, I can aware about the activities done in the different

departments, especially in finance department. I understand the difference between

practical knowledge and theoretical knowledge.

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PART – II

PROJECT

STUDY

21

CHAPTER – 4 :- OVERVIEW OF STUDY

SCOPE OF THE STUDY :-

Ceramic tiles come under the ‘Building material Industry’. Over the years ,

Indian building material Industry grow at a fast pace of almost 16 % per annum due

to boom in real estate and construction industry. Increase in income levels and

availability of a range of financing options for housing is enabling rapid growth in

housing construction.

In India , growth rate of building material industry is at very high and

constantly growing. By this project finding , we have been trying to catch the demand

and opportunities of various tile making organizations for their commercial and

residential needs.

OBJECTIVE OF THE STUDTY :-

My soul objective of this report confines with following facts :

Ratio analysis is a powerful tool of financial analysis. It gives a fair

indication of a company’s financial health.

Calculation of ratios to know the financial position of the company.

Comparison with the past years ratio to know the company’s performance,

i.e, Time series analysis.

Comparison of ratios with other tile producing companies to know the

company’s position in the market.

It gives the indication of direction of change and reflects whether the

organization’s financial position and performance has improved,

deteriorated or remained constant over period of time.

To understand the information contained in financial statements with a

view to know the strength or weaknesses of the firm and to make forecast

about the future prospects of the firm and thereby enabling the financial

analyst to take different decisions regarding the operations of the firm.

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CHAPTER – 5 :- RESEARCH METHODOLOGY

METHODOLOGY :-

The research involved extensive and intensive studies of Bell Ceramics Ltd. In

this report a sincere effort has been made to study the financial statement analysis of

the company. During this training, I study the financial position and performance of

the company. At last , I have given the interpretation and conclusion of the study.

DATA RESOURCES :-

The whole of my study based on secondary data. Secondary data are most

useful to me for my report.

SECONDARY DATA :-

During the time period of my study, I have taken help of the following

secondary data.

Induction material of the company

Annual report of the company

Balance sheet of last four years of the company

Income statement of last four years of the company.

Financial statement of the orient and somany.

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CHAPTER – 6 :- RATIO ANALYSIS

Meaning of Ratio Analysis :-

Ratio analysis is one of the techniques of financial analysis to evaluate the

financial condition and performance of a business concern. Simply, ratio means the

comparison of one figure to other relevant figure or figures.

According to Myers, " Ratio analysis of financial statements is a study of

relationship among various financial factors in a business as disclosed by a single set

of statements and a study of trend of these factors as shown in a series of statements."

Importance of Ratio Analysis :-

To assess the earning capacity or profitability of the firm.

To assess the operational efficiency and managerial effectiveness.

To assess the short term as well as long tern solvency of the company.

To identify the reasons for change in profitability and financial position of

the company.

To make time series analysis.

To make forecasts about future prospects of the company.

To assess the progress of the company over a period of time.

To help in decision making and control.

To guide or determine the dividend action.

To provide important information for granting credit.

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Standards of Ratio Analysis :-

The Ratio Analysis involves comparison for a useful interpretation of the

financial statements. A single ratio itself does not indicate favourable or unfavourable

condition. It should be compared with some standard. Standard of comparison may

consist of :

1 ) Past Ratios :-

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

2 ) Competitor’s Ratios :-

Ratios of some selected companies, especially the most progressive and

successful competitor, at the same point in time.

3 ) Industry Ratio :-

Ratios of the industries to which the company belongs. In this case, Tile

Industry.

4 ) Projected Ratio :-

Ratios developed using the projected, or proforma, financial statements of

the same firm.

Advantages & Uses of Ratio Analysis :-

There are various groups of people who are interested in analysis of financial

position of a company. They use the ratio analysis to workout a particular financial

characteristic of the company in which they are interested. Ratio analysis helps the

various groups in the following manner: 1. To workout the profitability:

Accounting ratio help to measure the profitability of the business by

calculating the various profitability ratios. It helps the management to know

about the earning capacity of the business concern. In this way profitability

ratios show the actual performance of the business.

2. To workout the solvency:

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With the help of solvency ratios, solvency of the company can be measured.

These ratios show the relationship between the liabilities and assets. In case

external liabilities are more than that of the assets of the company, it shows the

unsound position of the business. In this case the business has to make it

possible to repay its loans.

3. Helpful in analysis of financial statement:-

Ratio analysis help the outsiders just like creditors, shareholders, debenture-

holders, bankers to know about the profitability and ability of the company to

pay them interest and dividend etc.

4. Helpful in comparative analysis of the performance:-

With the help of ratio analysis a company may have comparative study of its

performance to the previous years. In this way company comes to know about

its weak point and be able to improve them.

5. To simplify the accounting information:-

Accounting ratios are very useful as they briefly summarize the result of

detailed and complicated computations.

6. To workout the operating efficiency:-

Ratio analysis helps to workout the operating efficiency of the company with

the help of various turnover ratios. All turnover ratios are worked out to

evaluate the performance of the business in utilizing the resources.

7. To workout short-term financial position:-

Ratio analysis helps to workout the short-term financial position of the

company with the help of liquidity ratios. In case short-term financial position

is not healthy efforts are made to improve it.

8. Helpful for forecasting purposes:-

Accounting ratios indicate the trend of the business. The trend is useful for

estimating future. With the help of previous years’ ratios, estimates for future

26

can be made. In this way these ratios provide the basis for preparing budgets

and also determine future line of action.

Limitations of Ratio Analysis. :-

In spite of many advantages, there are certain limitations of the ratio analysis

techniques and they should be kept in mind while using them in interpreting financial

statements. The following are the main limitations of accounting ratios:

1. Limited use of a single ratio:-

Ratios can be useful only when they are computed in sufficient large number.

A single ratio usually, does not convey much of meaning. To make a better

understanding or interpretation number of ratios have to be calculated which is

likely to confused the analyst in making any meaningful conclusions.

2. Lack of standards:-

There are no well accepted standards or rules of thumbs for all ratios,

which can be accepted as norms. It renders interpretation of difficult ratios.

3. Effect of Price Level Changes:-

Price level changes often make the comparison of figures difficult over a

period of time. Changes in price affects the cost of production, sales and also

the value of assets. Therefore, it is necessary to make proper adjustment for

price-level changes before any comparison.

4. Qualitative factors are ignored:-

Ratio analysis is a technique of quantitative analysis and thus, ignores

qualitative factors, which may be important in decision making. For example,

average collection period may be equal to standard credit period, but some

debtors may be in the list of doubtful debts, which is not disclosed by ratio

analysis.

5. Effect of window-dressing:-

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In order to cover up their bad financial position some companies resort to

window dressing. They may record the accounting data according to the

convenience to show the financial position of the company in a better way.

6. Costly Technique:-

Ratio analysis is a costly technique and can be used by big business houses.

Small business units are not able to afford it.

7. Misleading Results:-

In the absence of absolute data, the result may be misleading. For example, the

gross profit of two firms is 25%. Whereas the profit earned by one is just Rs.

5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs.

10,00,000 and sales are Rs. 40,00,000. Even the profitability of the two firms

is same but the magnitude of their business is quite different.

8. Incomparability :-

Not only industries differ in nature , the forms of similar business widely

differ in their sizes and accounting procedures. It makes comparison of ratio

difficult and misleading.

Sources of data for Financial Ratios :-

Values used in calculating the financial ratios can be taken from following

sources :

Balance Sheet

Income statement

Statement of cash flows

Statement of Retained earnings

Purpose and Types of Ratios :-

1) Profitability Ratio :-

It measures the firm’s use of its assets and control of its expenses to generate

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an acceptable rate of return.

2) Liquidity Ratio :-

It measure the availability of cash to pay debt.

3) Efficiency Ratio :-

It measure how quickly a firm converts non-cash assets to cash assets.

4) Debt Ratio :-

It measure the firm's ability to repay long-term debt.

5) Market Ratio :-

It measure investor response to owning a company's stock and also the cost of

issuing stock.

Forms of Ratios :-

1) As a pure ratio:-

For example the equity share capital of a company is Rs. 20,00,000 & the

preference share capital is Rs. 5,00,000, the ratio of equity share capital to

preference share capital is 20,00,000: 5,00,000 or simply 4:1.

2) As a rate of times:-

In the above case the equity share capital may also be described as 4 times that

of preference share capital. Similarly, the cash sales of a firm are Rs.

12,00,000 & credit sales are Rs. 30,00,000. sothe ratio of credit sales to cash

sales can be described as 2.5 [30,00,000/12,00,000]or simply by saying that

the credit sales are 2.5 times that of cash sales.

3) As a percentage:-

In such a case, one item may be expressed as a percentage of some other item.

For example, net sales of the firm are Rs.50,00,000 & the amount of the gross

profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales

[ 10,00,000/50,00,000]

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Steps in Ratio Analysis :-

The Ratio analysis require three steps as follows :

1) Collect the information from the financial statements.

2) To arrange information in a way to highlight significant relationship.

3) Comparing the ratio with some predetermined standards.

Users of Financial Ratios :-

Analysis of financial statement has become very significant due to widespread

interest of various parties in the financial result of a business unit. The various

persons interested in the analysis of financial statements are:-

1 ) Short- term creditors

They are interested in knowing whether the amounts owing to them will be

paid as and when fall due for payment or not.

2 ) Long –term creditors

They are interested in knowing whether the principal amount and interest

thereon will be paid on time or not.

3 ) Shareholders

They are interested in profitability, return and capital appreciation.

4 ) Management

The management is interested in the financial position and performance of the

enterprise as a whole and of its various divisions.

5 ) Trade unions

They are interested in financial statements for negotiating the wages or

salaries or bonus agreement with management.

6 ) Taxation authorities

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These authorities are interested in financial statements for determining the tax

liability.

7 ) Researchers

They are interested in the financial statements in undertaking research in

business affairs and practices.

8 ) Employees

They are interested as it enables them to justify their demands for bonus and

increase in remuneration.

Classification of Various Ratios :-

1 ) Profitability Ratio :-

A) In relation to sales

Gross profit ratio

Operating profit ratio

Net profit ratio

Expense ratio

B) In relation to investment :-

Return on investment

Return on Equity

Return on total asset

Earning per share

Price earning ratio

2 ) Liquidity Ratio :-

Current ratio

Acid test ratio

Cash ratio

Cash Conversion Cycle

3 ) Leverage Ratio :-

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Debt equity ratio

Debt asset ratio

Interest coverage ratio

4 ) Turnover Ratio :-

Inventory turnover

Debtors turnover

Average collection period

Fixed asset turnover

Total asset turnover

Working capital turnover

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CHAPTER – 7 :- RATIO CALCULATIONS

PROFITABILITY RATIOS :-

In the income statement, there are four levels of profit or profit margins –

gross profit, operating profit, pretax profit and net profit. The term "margin" can

apply to the absolute number for a given profit level and/or the number as a

percentage of net sales/revenues.

The objective of margin analysis is to detect consistency or positive/negative

trends in a company's earnings. Positive profit margin analysis translates into positive

investment quality.

Generally, two major types of profitability ratios are calculated :

A ) In relation to Sales

B ) In relation to Investment.

A ) In relation to Sales :-

1 ) GROSS PROFIT RATIO :-

The Gross Profit Ratio reflects the efficiency with which management

produces each unit of product. This ratio indicates the average spread between the

cost of goods sold and sales revenue.

The gross profit margin is used to analyze how efficiently a company is using

its raw materials, labor and manufacturing-related fixed assets to generate profits. A

higher margin percentage is a favorable profit indicator.

Formula :-

Gross Profit

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http://www.investopedia.com/terms/o/operatingmargin.asp

http://www.investopedia.com/terms/g/gross_profit_margin.asp

http://www.investopedia.com/terms/i/incomestatement.asp

Gross Profit Ratio = --------------------- x 100

Net Sales

Gross Profit = Sales – Cost of Goods sold

Comparison with past years

Year 2007- 08 2008- 09 2009-10 2010-11

Gross Profit -565.94 1235.97 350.39 533.34

Net Sales 16184.2 18880.8 15330.2 14677.5

Gross Profit Ratio -3.50% 6.55% 2.30% 3.63%

Analysis on the basis of Past years :-

The company’s gross profit for the year 2010-11 is higher than 2009-10. This

is good sign for the company. This ratio shows that the company has to reduce its cost

of goods sold (manufacturing related expenses) to increase its Gross profit.

Comparison with competitors

Bell Orient Somany

Gross Profit 533.34 1821.00 5166.00

Net Sales 14677.5 28964.00 71058.00

Gross Profit Ratio 3.63% 6.29% 7.27%

34

Analysis on the basis of Competitors :-

From the above three companies, Somany’s gross profit and net sales both are

higher than orient and bell. Somany’s cost of goods sold is less than its sells. This

ratio shows that manufacturing related expenses of Somany are lower against its sales.

Bell Ceramic has to reduce its cost of goods sold and increase its sales to increase the

gross profit.

2 ) OPERATING PROFIT MARGIN :-

The operating margin is the measurement of management’s efficiency. It

compares the quality of a company’s activity to its competitors. A business that has a

higher operating margin is generally doing better as long as the gains didn't come by

piling on debt or taking highly risky speculations with shareholders' money.

Management has much more control over operating expenses than its cost of sales

outlays.

The operating margin also serves as an indicator of the cost-competitiveness

compared to peers where individual costs cannot be determined easily.

Formula :-

Operating Profit

Operating Profit Margin = ----------------------- x 100

Net Sales


35

Year 2007- 08 2008- 09 2009-10 2010-11

Operating Profit -799.97 1050.98 140.74 0.10

Net Sales 16184.2 18880.8 15330.2 14677.5

Operating Profit Margin -4.94% 5.57% 0.92% 0.001%


The operating profit ratio of the company for 2010-11 is very lower than last

two years, which indicates inefficiency of the management. The company has to

increase its operating income to stand in the competition. The management of the

company can control the operating expenses to increase its operating profit.


Bell Orient Somany

Operating Profit 0.10 1601.00 5162.00

Net Sales 14677.5 28964.00 71058.00

Operating Profit Margin 0.001% 5.53% 7.26%

36


The operating profit ratio of the company for 2010-11 is very lower than its

competitors. Orient and Somany’s operating expenses are very less against their sales

in compare to Bell Ceramic. The management of the Bell Ceramic has to reduce its

operating expenses to stand in the competition.

3 ) NET PROFIT RATIO :-

The net profit margin tells us how much of each rupee of sales is left over for

the owners after all expenses and taxes. The profit margin tells us how much profit a

company makes for every rupee it generates in revenue or sales. Profit margins vary

by industry, but all else being equal, the higher a company's profit margin compared

to its competitors, the better.

Formula :-

Net Profit

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

Net Sales


Year 2007- 08 2008- 09 2009-10 2010-11

Net profit (PAT) -2182.44 33.30 -637.32 -481.93

Net Sales 16184.2 18880.8 15330.2 14677.5

37

http://beginnersinvest.about.com/od/incomestatementanalysis/a/revenue-and-sales.htm

http://beginnersinvest.about.com/od/incomestatementanalysis/a/revenue-and-sales.htm

Net Profit Ratio -13.50% 0.18% -4.16% -3.28%


The company is doing the loss from last two years. The company’s loss for

2010-11 is lower than last year, which is good sign for the company.

The company is takeover by Orient Ceramic & Industries Ltd because of the

loss. And after the acquisition with Orient Ceramic, Bell has an opportunity to

increase its performance again.


Bell Orient Somany

Net profit (PAT) -481.93 1196.00 2343.00

Net Sales 14677.5 28964.00 71058.00

Net Profit Ratio -3.28% 4.13% 3.30%

38


Here, Net profit margin of the Orient Ceramic is higher, which shows the

efficient management of the company. Now, the Bell Ceramic is takeovered by the

Orient, Bell’s management has a good opportunity to work under the effective

management. And because of this Bell can improve its performance.

4 ) EXPENSE RATIO :-

The specific expense ratio explains the changes in the profit margin ratio. This

ratio indicates the specific variations in expense. This ratios light on managerial

policies and programmes. The high ratio indicates the high expenses of the company.

The low ratio indicates the low expenses of the company.

Formula :-

Specific Expense

Expense Ratio = ------------------------ x 100

Net Sales


Year 2007- 08 2008- 09 2009-10 2010-11

Material Expense 5514.27 6069.02 4585.74 4506.69

39

Personnel Expense 1622.86 1682.38 1611.8 1757.40

Manufacturing & Selling Exp. 7697.88 9639.66 7258.02 7487.55

Net Sales 16184.2 18880.8 15330.2 14677.5

Material Expense Ratio 34.07% 32.14% 29.91% 30.70%

Personnel Expense Ratio 10.03% 8.91% 10.51% 11.97%

Manufacturing & Selling Exp.

Ratio

47.56% 51.06% 49.11% 51.01%


All specific expense ratios of the company for 2010-11 are little increase than

last year, which is satisfactory for the company. There is very little fluctuation

between all four year’s specific expense ratio. The company has try to reduce these

expenses to increase the net profit.


Bell Orient Somany

Material Expense 4506.69 6348.00 10364.00

Personnel Expense 1757.40 3297.00 5431.00

Manufacturing & Selling Exp. 7487.55 11551.00 22503.00

Net Sales 14677.5 28964.00 71058.00

40

Material Expense Ratio 30.70% 21.92% 14.60%

Personnel Expense Ratio 11.97% 11.38% 7.64%

Manufacturing & Selling Exp.

Ratio

51.01% 39.88% 31.67%


If we compare the Bell Ceramic with its competitors, we can show that the

material, personnel and manufacturing expenses of the company are higher than the

Orient and Somany. Bell Ceramic has to reduce its expenses to earn the net profit.

B ) In relation to Investment :-

1 ) RETURN ON INVESTMENT :-

The conventional approach of calculating ROI is to divide PAT by Investment.

Investment represent pool of funds supplied by shareholders and lenders, while PAT

represent residue income of shareholders. Therefore it is unsound to use PAT in

calculation of ROI. We have use EBITDA level to calculate the ROI.

Formula :-

EBITDA

41

Return on Investment = ------------------ x 100

Total Asset

EBITDA = Earnings Before Interest, taxes, depreciation and amortization


Year 2007- 08 2008- 09 2009-10 2010-11

EBITDA 332.82 2170.25 1255.34 1109.62

Total Asset 14115.82 12887.25 12410.79 17949.23

Return on Investment 2.36% 16.84% 10.11% 6.18%


Return on investment of the company is lower than past years, which is not

good for the company. For the year 2008-09, this ratio of the company was good. The

company has to increase its return ROI. The company received less interest on its

investment.


Bell Orient Somany

EBITDA 1109.62 2579.00 6888.00

Total Asset 17949.25 17624.67 32257.00

42

Return on Investment 6.18% 14.63% 21.35%


ROI of the Somany is higher than other two companies. The high ROI of the

company shows the better performance. Bell’s performance is worst than its

competitors.

2 ) RETURN ON EQUITY :-

This ratio indicates the profitability of an entity's capital investments. If this

ratio is lower than the rate at which the company borrows, any further rise in debt will

lead to negative earnings growth. This ratio is calculated to see the profitability of

owner’s investment in the company.

Formula :-

PAT

Return on Equity = ------------------- x 100

Net Worth


Year 2007- 08 2008- 09 2009-10 2010-11

PAT -2182.4 33.3 -637.33 -481.94

Net Worth 4610.44 3677.71 3677.71 8902.28

43

Return on Equity -47.33% 0.91% -17.33% -5.41%


As the company is doing loss, company can not give the dividend to the equity

shareholders. Company’s loss is decreasing, so equity shareholder’s will get dividend

on their shares in near future.


Bell Orient Somany

PAT -481.93 1196.00 2343.00

Net Worth 8902.28 6882.2 10247

Return on Equity -5.41% 17.38% 22.87%

44


The Somany Tiles gives more return to its equity shareholders. As we know

Bell is suffering from loss and its financial position is not good, it can not give any

type of return to equity shareholders. Market price of the share of Bell is also lower

than its face value.

3 ) RETURN ON TOTAL ASSET :-

This ratio indicates how profitable a company is relative to its total assets.

The return on assets (ROA) ratio illustrates how well management is employing the

company's total assets to make a profit. The higher the return, the more efficient

management is in utilizing its asset base.

Formula :-

PBIT

Return on Total Asset = ------------------ x 100

Total Asset

PBIT = Profit before Interest and Taxes = Operating Profit


Year 2007- 08 2008- 09 2009-10 2010-11

PBIT -799.97 1050.98 140.74 0.10

Total Asset 14115.82 12887.25 12410.79 17949.23

Return on Total Asset -5.67% 8.16% 1.13% 0.001%

45

http://www.investopedia.com/terms/r/returnonassets.asp


The management of Bell Ceramic is very inefficient in using the assets to earn

more profit. Because of inefficient management, return on total asset is decreases very

much. After paying taxes and interest, this ratio will show negativity.


Bell Orient Somany

PBIT 0.10 1601.00 5162.00

Total Asset 17949.25 17624.67 32257

Return on Total Asset 0.001% 9.08% 16%

46


Return on Total Asset of the Bell Ceramic shows its poor performance.

Somany’s management is very efficient to earn return on its Total Asset.

4 ) EARNING PER SHARE :-

The profitability of the shareholder’s investment can be measured by

calculating the Earning per Share. EPS simply shows the profitability of the company

on a per share basis. The higher EPS indicates the higher earning per share and the

lower EPS indicates the lower earning per share. It does not reflect how much is paid

as dividend.

Formula :-

PAT – Pref. Dividend

Earning per Share = ------------------------------

No. of Equity Shares


Year 2007- 08 2008- 09 2009-10 2010-11

PAT -2182.4 33.3 -637.33 -481.94

No. of Equity Shares 365.21 365.21 365.21 121.74

Earning per Share Rs.-5.98 Rs. 0.10 Rs.-1.75 Rs.-3.96

47


Preference dividend is not given to the preference shareholder, so it is

excluded here. As we seen above, the company is making loss, EPS of the company is

negative. Equity shareholder of the company can not earn any rupee per share because

of its loss.


Bell Orient Somany

PAT -481.93 1196.00 2343.00

No. of Equity Shares 121.74 1053 345

Earning per Share Rs.-3.96 Rs. 1.14 Rs. 6.79


EPS of the Somany Tiles is higher than bell and orient. Shareholders will like

to invest in somany’s shares because it has high EPS. If shareholders invest in Bell’s

shares, they have to face loss on their investment.

48

LIQUIDITY RATIOS:-

Liquidity ratios attempt to measure a company's ability to pay off its short-

term debt obligations. This is done by comparing a company's most liquid assets (or,

those that can be easily converted to cash), its short-term liabilities.

The ratios used here are current, quick and cash ratio. We will also see the

cash conversion cycle of the company.

1 ) CURRENT RATIO :-

The current ratio is a financial ratio designed to tell the level of current assets

compared to current liabilities. The current ratio is a measurement of the company’s

short term solvency. It indicates the availability of current assets in rupees for every

one rupee off current liability.

The current ratio is also called as working capital ratio, as working capital is

the difference between current assets and current liabilities.

Formula :-

Current Asset

Current Ratio = -------------------------

Current Liabilities


Year 2007- 08 2008- 09 2009-10 2010-11

Current Asset (Rs. In Lacs) 4998.53 5544.83 4679.73 5178.59

Current Liabilities (Rs. In lacs) 4962.16 5005.8 4373.26 4261.32

Current Ratio 1.007: 1 1.11: 1 1.07: 1 1.22: 1

49

http://www.investopedia.com/terms/l/liquidasset.asp


Current ratio measures the ability of the firm to meet its current liabilities. It

represent margin of safety for creditors. A ratio of greater than one means that the

firm has more current assets than current claims against them. The company’s current

ratio for the year 2010-11 is 1.22 : 1 which is greater than the past three years, which

is good for the company. However, as compare to standard ratio i.e, 2:1 , the

company’s ratio is lower, liquidity position of the company is increasing.


Bell Orient Somany

Current Asset (Rs. In Lacs) 5178.59 14140.01 30193

Current Liabilities (Rs. In lacs) 4261.32 6586.29 15701

Current Ratio 1.22 : 1 2.15 : 1 1.92 : 1

50


Current ratio of the Orient Ceramic is better, because it is higher than the

standard ratio 2:1. Perfect liquidity position of the company can be measure after

excluding inventory.

2 ) ACID TEST RATIO (QUICK RATIO) :-

The Acid Test Ratio (also called the Quick Test or Liquidity 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.

Inventories are considered to be less liquid. Inventories are required some time

for realizing into cash. Therefore, Inventories can not be included in the current asset

to calculate this ratio. This ratio gives more accurate result than the current ratio.

Formula :-

Current Asset - Inventories

Quick Ratio = --------------------------------------

Current Liabilities


Year 2007- 08 2008- 09 2009-10 2010-11

Current Asset (Rs. In Lacs) 4998.53 5544.83 4679.73 5178.59

Inventories 3077.06 3720.33 2984.12 3412.84

Current Liabilities (Rs. In lacs) 4962.16 5005.8 4373.26 4261.32

Quick Ratio 0.39: 1 0.36: 1 0.39: 1 0.41: 1

51


The standard quick ratio is 1 : 1. The company’s quick ratio for the year 2010-

11 is higher than past three years, which is good for the company but it is lower than

the standard ratio. Company’s maximum fund is locked in the inventory.

Comparison with Competitors

Bell Orient Somany

Current Asset (Rs. In Lacs) 5178.59 14140.01 30193

Inventories 3412.84 6905.24 9764

Current Liabilities (Rs. In lacs) 4261.32 6586.29 15701

Quick Ratio 0.41: 1 1.10: 1 1.30: 1


Orient and Somany’s quick ratio is higher than the standard ratio, which

52

shows that these companies have less inventory level. Bell’s inventory level is high

and its more funds are blocked in inventory. This ratio shows that Bell’s liquidity

position is not good.

3 ) CASH RATIO :-

Cash is the most liquid asset. Trade investment or marketable securities are

equivalent of cash, therefore they may be included in the computation of cash ratio.

Formula :-

Cash + Marketable securities

Cash Ratio = ------------------------------------------

Current Liabilities


Year 2007- 08 2008- 09 2009-10 2010-11

Cash Equivalents 49.31 40.43 47.16 56.15

Marketable Securities 0 0 0 0

Current Liabilities 4962.16 5005.8 4373.26 4261.32

Cash Ratio 0.0099 : 1 0.0081 : 1 0.011 : 1 0.013 : 1


This company carries small amount of cash. There is nothing to be worried

about the lack of cash, because the company has reserve borrowing power.

53

And the company’s cash and bank balances also continuously increasing from the

year 2008-09.


Bell Orient Somany

Cash Equivalents 56.15 189.42 1472

Marketable Securities 0 0 0

Current Liabilities 4261.32 6586.29 15701

Cash Ratio 0.013 : 1 0.029 : 1 0.094 : 1


The Bell Ceramic has less cash in comparing to its competitors. But bell has

taken the cash credit from the Bank of India and Punjab National Bank. Because of

CC facility, the company is not worried about the lack of cash.

4 ) CASH CONVERSION CYCLE :-

The cash conversion cycle (CCC) measures the number of days a company's

cash is tied up in the the production and sales process of its operations and the benefit

it gets from payment terms from its creditors. The shorter this cycle, the more liquid

the company's working capital position is. The CCC is also known as the "cash" or

"operating" cycle.

54

Formula :-

Cash Conversion Cycle = DIO + DSO – DPO

Where,

DIO = Days Inventory Outstanding

DSO = Days Sales Outstanding

DPO = Days Payable Outstanding

Closing Inventory

DIO = --------------------------

Net Sales per Day

Where,

Net Sales per Day = Net Sales / 365


Year 2007- 08 2008- 09 2009-10 2010-11

Closing Inventory 3077.06 3720.33 2984.12 3412.84

Net Sales per Day 44.34 51.73 42.00 40.21

Days Inventory outstanding 69 72 69 85


Bell Orient Somany

Closing Inventory 3412.84 6905.24 9764

Net Sales per Day 40.21 79.35 194.68

Days Inventory outstanding 85 87 50

Closing Debtor

DSO = -------------------------

Net Sales per Day


Year 2007- 08 2008- 09 2009-10 2010-11

Closing Debtors 1196.7 1225.52 1248.06 1354.45

Net Sales per Day 44.34 51.73 42.00 40.21

55

Days Sales outstanding 27 24 30 34


Bell Orient Somany

Closing Debtors 1354.45 4031.7 12933

Net Sales per Day 40.21 79.35 194.68

Days Sales outstanding 34 51 66

Closing Creditors

DPO = ------------------------

Net sales per day


Year 2007- 08 2008- 09 2009-10 2010-11

Closing Creditors 4850.83 4889.9 4306.35 4261.32

Net Sales per Day 44.34 51.73 42.00 40.21

Days Payable outstanding 109 95 103 106


Bell Orient Somany

Closing Creditors 4261.32 6291.65 12493

Net Sales per Day 40.21 79.35 194.68

Days Payable outstanding 106 79 64


Year 2007- 08 2008- 09 2009-10 2010-11

DIO 69 72 69 85

+ DSO 27 24 30 34

- DPO 109 95 103 106

= Cash Conversion Cycle -13 days 1 day -4 days 13 days

56


DIO of the company for current year is higher than last years, it means

inventory is taken more time to convert into sales in compare to last years. DSO of the

company is also higher, which shows that debtors are taken more time than last years.

DPO is quite high than last year, which shows that company is taking 3 times more

time than DSO into payment to creditors.


Bell Orient Somany

DIO 85 87 50

+ DSO 34 51 66

- DPO 106 79 64

= Cash Conversion Cycle 13 days 59 days 52 days

57


DIO of the Somany tiles is better than others. DSO of the Bell Ceramic is

better than its competitors. DPO of bell ceramic is higher that shows that it is taken

more time into payment of creditors than its competitors. Averagely, CCC of the Bell

ceramic is better than its competitors.

LEVERAGE RATIOS :-

The short term creditors, like bankers and suppliers of raw material, are more

concerned with the company’s current debt- paying ability. On the other hand, long

term creditors, like debenture holders, financial institutions, etc. are more concerned

with the company’s long term financial strength. To judge the long term financial

position of the company, leverage ratios are calculated.

1 ) DEBT EQUITY RATIO :-

Debt can increase a company's return on equity, but too much can take a

company into bankruptcy. The debt to equity ratio measures how much money a

company should safely be able to borrow over long periods of time. A great sign of

prosperity is when a balance sheet shows the amount of long term debt has been

decreasing for one or more years.

Formula :-

Total Debt

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

Share holder’s Equity


Year 2007- 08 2008- 09 2009-10 2010-11

Total Debt 14467.54 14215.34 13106.34 13308.27

Shareholder’s Equity 3652.14 3652.14 3652.14 1217.38

Debt Equity Ratio 3.96times 3.89times 3.59times 10.93times

58


The debt equity ratio shows lender’s contribution for each rupee of owner’s

contribution. The debt equity ratio for the year 2010-11 is higher than last three years,

which indicates that company more relies on debt funds and less on equity funds. This

is not good sign for the company. If the company more focus on equity funds, it has to

pay less interest on debt funds.


Bell Orient Somany

Total Debt 9046.95 10280.41 19444

Shareholder’s Equity 1217.38 1053 690

Debt Equity Ratio 7.43 times 9.76 times 28.18 times


59

In compare to competitors, Bell’s long term debt is lower. This is good sign

for the company. Bell’s debt equity ratio is lower than its competitors, which is good

for the company.

2 ) DEBT ASSET RATIO :-

The debt ratio compares a company's total debt to its total assets, which is

used to gain a general idea as to the amount of leverage being used by a company. A

low percentage means that the company is less dependent on leverage, i.e, money

borrowed from and/or owed to others. The lower the percentage, the less leverage a

company is using and the stronger its equity position. In general, the higher the ratio,

the more risk that company is considered to have taken on.

Total capital Employed = Total Net Asset

Formula :-

Total Debt

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

Total Asset


Year 2007- 08 2008- 09 2009-10 2010-11

Total Debt 9505.38 9209.54 8733.08 9046.95

Total Asset 14115.82 12887.25 12410.79 17949.23

Debt Asset Ratio 0.67 : 1 0.71 : 1 0.70 : 1 0.50 : 1

60


The debt asset ratio measures the extent to which borrowed funds support the

firms assets. The company is having lower ratio than past years. It indicates that less

assets are financed with the debts fund.


Bell Orient Somany

Total Debt 9046.95 10280.41 19444

Total Asset 17949.25 17624.67 32257

Debt Ratio 0.50: 1 0.58: 1 0.60: 1


This ratio shows that the Bell Ceramic has stronger position of equity funds

than its competitors. Bell Ceramic is using less leverages than orient and Somany.

3 ) INTEREST COVERAGE RATIO :-

The Interest coverage ratio is used to test the company’s debt servicing

capacity. This ratio shows the number of times the interest charges are covered by

funds that are ordinarily available for their payment. A higher ratio is desirable but

too high ratio indicates that the company is very conservative in using debt, and that it

is not using credit to the best advantage of shareholders. A lower ratio indicates

excessive use of debt, or inefficient operations.

61

Formula :-

EBIT

Interest Coverage Ratio = ----------------------

Interest

EBIT = Earnings Before Interest & taxes.


Year 2007- 08 2008- 09 2009-10 2010-11

EBIT -799.97 1050.98 140.74 0.10

Interest 1295.48 1163.21 1088.02 1534.30

Interest Coverage Ratio -0.62 0.90 0.13 0.0001


The interest coverage ratio of the company is very lower than past two years,

which shows inefficient operations of the company. This is not satisfactory for debt

providers. When a company's interest coverage ratio is only 1.5 or lower, its ability to

meet interest expenses may be questionable.


Bell Orient Somany

EBIT 0.10 1601.00 5162.00

Interest 1534.30 832.00 1795.00

Interest Coverage Ratio 0.0001 1.92 2.88

62


Bell Ceramic’s interest coverage ratio is lower than its competitors. This is not

satisfactory for the debt providers of the Bell Ceramic in compare to its competitors.

The interest coverage ratio of Bell is lower than 1.5, which shows questionable

position of the company to cover the interest expenses.

TURNOVER RATIOS

Turnover Ratio indicate the speed with which assets are being converted or

turned over into sales. These ratios also known as “Activity Ratios”. These ratios are

employed to evaluate the efficiency with which the company manages and utilizes its

assets.

1 ) INVENTORY TURNOVER RATIO :-

The inventory turnover ratio, also known as inventory turn, tells an investor

how often a company sells through its inventory. Generally, the faster inventory is

turned, the less risk of loss and the more efficient management is handling capital.

Formula :-

Net Sales

Inventory Turnover = ------------------------

Closing Inventory

63


Year 2007- 08 2008- 09 2009-10 2010-11

Net Sales 16184.2 18880.8 15330.2 14677.5

Closing Inventory 3077.06 3720.33 2984.12 3412.84

Inventory Turnover 5.26times 5.08times 5.14times 4.30times


Inventory turnover indicates the efficiency of the company in producing and

selling the tiles. It is lower than the past three years. Days of Inventory holding also

increases from last years, i.e, 360/4.30 = 84 days. It implies that,

Company maintains excessive inventory level than demanded by

production and sales.

Slow moving of inventory than last years.


Bell Orient Somany

Net Sales 14677.5 28964.00 71058.00

Closing Inventory 3412.84 6905.24 9764

Inventory Turnover 4.30 times 4.19 times 7.28 times

64


Inventory turnover ratio of Bell is lower than Somany, which indicates that the

somany’s inventory moving speed is higher than bell ceramics.

2 ) DEBTORS TURNOVER RATIO :-

The company sells goods for cash and credit. When the company extends

credits to its customers, debtors are created in the company’s accounts. Debtors are

convertible into cash in short period of time, therefore they are included in the current

assets. The liquidity position of the company depends on the quality of debtors.

Formula:-

Net Sales

Debtors Turnover = ---------------------

Closing Debtors


Year 2007- 08 2008- 09 2009-10 2010-11

Net Sales 16184.2 18880.8 15330.2 14677.5

Closing Debtors 1196.7 1225.52 1248.06 1354.45

Debtors Turnover 13.52times 15.41times 12.28times 10.84times

65


Generally, the higher the value of debtor’s turnover, the more efficient is the

management of credit. But here, Debtor’s turnover ratio for the current year is lower

than the past years, which shows the less efficient management of credit than last

years. As the company’s debtors turnover ratio is decreasing since three years,

company has to improve the policies related to credit management.


Bell Orient Somany

Net Sales 14677.5 28964.00 71058.00

Closing Debtors 1354.45 4031.7 12933

Debtors Turnover 10.84 times 7.18 times 5.49 times

66


Collection of the debtors are made in 33 days (365 / 10.84) for bell ceramic,

which is lower than its competitors. This ratio shows that debtors of Bell are

converted into cash in the short period. Because of this Bell Ceramic can pay its debt

earlier and can use the cash for inventory purchase.

3 ) AVERAGE COLLECTION PERIOD :-

The Average collection period indicates the time in which the company collect

its debt. The lower collection period shows the efficient credit management. The

higher collection period shows the inefficient credit management of the company.

Formula :-

360

Average Collection Period = -----------------------

Debtors Turnover


Year 2007- 08 2008- 09 2009-10 2010-11

Debtors Turnover 13.52 15.41 12.28 10.84

Average Collection Period 27 days 23 days 29 days 33 days

67


Average collection period of the company is higher than last three years,

which indicates the liberal collection policy of the company and more funds locked up

in the debtors. The credit period of the company should be short and collection of

debts should be made timely.


Bell Orient Somany

Debtors Turnover 10.84 7.18 5.49

Average Collection Period 33 days 50 days 66 days


Average collection period of the Bell Ceramic is better than its competitors.

Whether it is higher than 30 days, it is satisfactory for the company.

4 ) FIXED ASSET TURNOVER RATIO :-

The company may wish to know its efficiency of utilizing fixed assets. To

compute this ratio Net fixed assets are used.

Net Fixed Asset = Fixed Asset – Depreciation

It measures sales per rupee of investment in fixed asset and efficiency with

which fixed assets are employed. The high ratio indicates a high degree of efficiency

of company in asset utilization. The low ratio indicates inefficient use of assets.

68

Formula :-

Net Sales

Fixed Asset Turnover = ---------------------

Net Fixed Asset


Year 2007- 08 2008- 09 2009-10 2010-11

Net Sales 16184.2 18880.8 15330.2 14677.5

Net Fixed Asset 12645.4 11890.7 10806.9 16307.9

Fixed Asset Turnover 1.28times 1.59times 1.41times 0.90times


The Fixed asset turnover of the company for current year reflects the lower

ratio than the past three years, which indicates the inefficient use of fixed asset by the

management.


Bell Orient Somany

Net Sales 14677.5 28964.00 71058.00

Net Fixed Asset 16307.9 8063.13 17593

Fixed Asset Turnover 0.90 times 3.59 times 4.04 times

69


Fixed Asset turnover ratio of the Somany Tiles is better in compare to its

competitors. Bell Ceramic has very lower fixed asset turnover ratio. It is indicate that

the Bell Ceramic is not used its fixed asset properly. The management of the company

is inefficient in using the fixed asset against its sales.

5 ) TOTAL ASSET TURNOVER :-

Total asset turnover is meant to measure a company's efficiency in using its

assets and ability in generating sales from all financial resources committed to total

asset. The higher the number, the better for the company, although investors must be

sure compare a business to its industry. The higher a company's asset turnover, the

lower its profit margin tends to be (and visa versa).

Formula :-

Net Sales

Total Asset Turnover = ---------------------

Total Asset


Year 2007- 08 2008- 09 2009-10 2010-11

Net sales 16184.2 18880.8 15330.2 14677.5

Total Asset 14115.82 12887.25 12410.79 17949.23

Total Asset Turnover 1.15times 1.47times 1.24times 0.82times

70


The company’s total asset turnover ratio for 2010-11 is lower than past years,

which indicates less ability of the company in generating sales from total asset.

Ability of the management of the company is decreasing.

Comparison with Competitors

Bell Orient Somany

Net sales 14677.5 28964.00 71058.00

Total Asset 17949.25 17624.67 32257

Total Asset Turnover 0.82 times 1.64 times 2.20 times


Total Asset turnover of Bell Ceramic is lower than its competitors, which

shows inefficiency of the management in generating sales by its total asset.

71

6 ) WORKING CAPITAL TURNOVER :-

The company may like to relate working capital with the sales. Working

capital is the difference of current assets and current liabilities. It is also known as the

“Net Current Asset”. Working capital tells how much money is on hand for the

company to use in day to day operations. The low working capital ratio indicates the

good balance of cash on hand. The high ratio indicates less balance of cash on hand

against sells.

Formula :-

Net Sales

Working Capital Turnover = ----------------------

Working Capital

Working Capital = Current Asset – Current Liabilities


Year 2007- 08 2008- 09 2009-10 2010-11

Net Sales 16184.2 18880.8 15330.2 14677.5

Working capital 36.37 539.03 306.47 917.27

Working Capital Turnover 445 Times 35.03Times 50.02Times 16 Times

72


The company’s current year’s ratio is much lower than last three years, which

indicates good cash balance on hand of the company for day to day operations. The

company may need much cash to purchase the raw material for making the tiles.

Working capital of the company is increasing, which is good sign for the company.


Bell Orient Somany

Net Sales 14677.5 28964.00 71058.00

Working capital 917.27 7553.72 14492

Working Capital Turnover 16 times 3.83 times 4.90 times


In compare to Orient and Somany, Bell Ceramic has less cash on hand. Bell

Ceramic has to increase its working capital to increase the cash balance on hand.

73

CHAPTER – 8 SWOT ANALYSIS

Strength :

Usage of natural gas as fuel for its Gujarat plant.

Well-established Marketing Network across the country.

Flexibility to switch production between wall and floor tiles at Dora to

capture market as and when required.

Good acceptance of the products in domestic markets.

The usage of dry process technology at the Banglore plant is at full

capacity utilization, which is first of its kind in India, has helped Bell to

reduce fixed cost per Square meter.

Goodwill of Bell Ceramic Ltd is very good in south India.

Weaknesses :

Paid high interest charges.

Usage of LPG gas at Banglore unit.

Fewer Design for production at Banglore unit in floor tile segment.

Continuous losses may affect its goodwill. Market price of the share is

already affected due to loss.

Opportunities :

The company has introduced trading market.

Acquisition with the Orient Ceramic & Industries Ltd.

Increase in Real Estate market, therefore company can increase its sells in

big projects.

The company has introduced new designs of wall tiles and floor tiles.

If the company has its own transportation, it can reduce the cost.

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Threats :

Competition is very high in tile industry.

Increase the bank interest charges.

Bargaining power of customers.

Increase in the charges of Gas.

Excessive losses incurred by company can have bad impression in the

mind of customer.

High cost of transportation may affect the sales.

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CHAPTER – 9

FINDINGS & INTERPRETATION

After doing the ratio analysis of Bell Ceramic Ltd. I have finded following things:

The company is done loss from last two years.

Bell ceramic has to improve its distribution network in North India,

because in North India company’s business is not spread. Company has to

improve its marketing strategies to spread the business.

Company’s distribution network in south and west India is very good.

Company’s credit policies are not good. In the payment of creditors, they are

taking long time. This period is very long because of long supply chain.

They purchase the inventory in advance before monsoon start. Thus, inventory

blocked more space of the factory.

Company’s cost of goods sold is higher than its sales. Therefore company’s

gross profit is lower.

Company’s manufacturing expenses are higher than its sales. Therefore its

operating profit is lower.

Now a days company is doing its sales on advance basis. It means company

takes advance payment form the new buyers of tiles. In some cases, company

is giving 10 days period of payment.

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CHAPTER – 10 CONCLUSION & LIMITATIONS

Conclusion drawn from the study of Ratio Analysis in Bell Ceramic Ltd.

Ratio analysis has a major significance in analysing the financial

performance of a company over a period of time. Decisions affecting

product prices, per unit costs, volume or efficiency have an impact on the

profit margin or turnover ratios of a company.

Financial ratios are essentially concerned with the identification of

significant accounting data relationships, which give the decision-maker

insights into the financial performance of a company.

The analysis of financial statements is a process of evaluating the

relationship between component parts of financial statements to obtain a

better understanding of the company’s position and performance.

Ratio analysis in view of its several limitations should be considered only

as a tool for analysis rather than as an end in itself. The reliability and

significance attached to ratios will largely hinge upon the quality of data

on which they are based. They are as good or as bad as the data itself.

Nevertheless, they are an important tool of financial analysis.

LIMITATIONS OF THE STUDY:-

Ratio analysis is based on only mathematical interpretation of the figures.

Therefore it ignores the factors such as management style, motivation of

workers, leadership styles, etc.

It is affected by changes in price level.

It is affected by changes in accounting procedures.

It is also affected by limited information of competitors.

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CHAPTER – 11 RECOMMENDATIONS & SUGGESTION

Ratio Analysis is the best tool to measure the company’s performance.

Bell Ceramic has to use Economic Order Quantity method for purchasing

its raw material.

It has to use more equity fund than debts for the business operations. If the

company used the equity funds more, its debt can be decreased.

Credit policy of the company can be improved by reducing the supply

chain.

As the company is taken over by Orient Ceramic & Industries Ltd, it has to

good opportunity to work under good management.

It is not using its assets very well. It has to used its assets properly for

business purpose.

It has good debtors turnover ratio. It shows it collects its receivables in

short period. But all this collection is paid to the bank against its cash

credit. If the company use this fund for other activities which is helpful in

improving itself, it can get good returns.

It can buy its own vehicles to reduce its transportation cost.

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APPENDICES :-

1 ) BALANCE SHEET

Balance Sheet of BELL CERAMIC for four years (RS. In Lakhs)

ParticularsSch.No.

2007-08 2008-09 2009-10 2010-11

SOURCES OF FUNDS SHAREHOLDER'S FUND Share Capital 1 3652.14 3652.14 3652.14 1217.38 Reserve & Surplus 2 958.3 25.57 25.57 7684.90 Total Shareholder’s fund 4610.44 3677.71 3677.71 8902.28 LOAN FUNDS Secured Loan 3 8792.94 8217.59 7527.33 6390.72 Unsecured Loan 4 712.44 991.95 1205.75 2656.23 Total Debt 9505.38 9209.54 8733.08 9046.95 Total Capital Employed 14115.82 12887.25 12410.79 17949.23

APPLICATION OF FUNDS FIXED ASSETS 5 Gross Block 23536.2 23899.8 23930.8 30536.5 Less: Depreciation 10902.5 12010.6 13123.9 14228.6 Net Block 12633.7 11889.3 10806.9 16307.9 Capital Work in progress 11.71 1.47 0 0 Total Net Fixed Asset 12645.4 11890.7 10806.9 16307.9 INVESTMENTS 6 0.01 0.01 0.01 0 DEFERRED TAX ASSET (NET) 56.63 46.05 248.62 570.81 CURRENT ASSETS, LOANS & ADVANCES 7 Inventories 3077.06 3720.33 2984.12 3412.84 Sundry Debtors 1196.7 1225.52 1248.06 1354.45Cash and Bank Balances 49.31 40.43 47.16 56.15 Loans and Advances 675.46 558.55 400.39 355.15 4998.53 5544.83 4679.73 5178.59 LESS: CURRENT LIABILITIES & PROVISIONS 8 Current Liabilities 4850.83 4889.9 4306.35 4261.32 Provisions 111.33 115.9 66.91 0

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4962.16 5005.8 4373.26 4261.32

NET CURRENT ASSETS 36.37 539.03 306.47 917.27 PROFIT AND LOSS ACCOUNT 9 1377.45 411.42 1048.75 153.27 Total Asset 14115.82 12887.25 12410.79 17949.23

No. of Equity Shares (in Lakhs) 365.21 365.21 365.21 121.74Market value of Equity share

Balance Sheet of Bell, Orient & Somany for 2010-11 (Rs. In Lakhs)

Particulars

For the year

endedBELL31.3.11

For the year

endedORIENT31.3.11

For the year

endedSOMANY

31.3.11

SOURCES OF FUNDSSHAREHOLDER'S FUNDShare Capital 1217.38 1053 690Reserve & Surplus 7684.9 5829.2 9557 8902.28 6882.2 10247 LOAN FUNDS 9046.95 10280.41 19444

Defferd Tax Liability 0 462.06 2566 Total Capital Employed 17949.23 17624.67 32257

APPLICATION OF FUNDSFIXED ASSETSNet Fixed Asset 16307.9 8063.13 17593

INVESTMENTS 0 2007.82 172 Deffered tax Asset 570.81 0 0 CURRENT ASSETS, LOANS & ADVANCESInventories 3412.84 6905.24 9764Sundry Debtors 1354.45 4031.7 12933

80

Cash and Bank Balances 56.15 189.42 1472Loans and Advances 355.15 3013.65 6024 5178.59 14140.01 30193LESS: CURRENT LIABILITIES & PROVISIONSCurrent Liabilities 4261.32 6291.65 12493Provisions 0 294.64 3208

4261.32 6586.29 15701

NET CURRENT ASSETS 917.27 7553.72 14492 PROFIT AND LOSS ACCOUNT 153.27 0 0 Total Asset 17949.25 17624.67 32257

No. of Equity Shares (in Lakhs) 121.74 1053 345

2 ) INCOME STATEMENT :-

Income Statement of Bell Ceramic Ltd. (RS. In Lakhs)

Particulars 2007-08 2008-09 2009-10 2010-11INCOME Sales 17371.6 20063.3 16456.5 16049.8Excise duty paid 1187.43 1182.54 1126.28 1372.33Net Sales 16184.2 18880.8 15330.2 14677.5Other Operating Income 0 0 0 148.99

Total Income 16184.20 18880.80 15330.20 14826.49 EXPENDITURE Inventory Variance 986.82 -693.13 616.76 -116.54Purchases ( Traded Goods) 0 0 0 159.97Material 5514.27 6069.02 4585.74 4506.69Depreciation 1132.79 1119.27 1114.6 1109.52Personnel 1622.86 1682.38 1611.8 1757.40Manufacturing, Administration & Selling 7697.88 9639.66 7258.02 7487.55Prior Period Adjustment 6.21 12.62 2.54 -78.20Amortization of Miscellaneous Expenditure 23.34 0 0 0.00

Total Expenditure 16984.17 17829.82 15189.46 14826.39

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Operating Profit -799.97 1050.98 140.74 0.10 EBITDA Level 332.82 2170.25 1255.34 1109.62 Other Income 234.03 184.99 209.65 533.24 Gross Profit -565.94 1235.97 350.39 533.34 Interest 1295.48 1163.21 1088.02 1534.30 Profit after Interest but before Exceptional items -1861.42 72.76 -737.63 -1000.96 Exceptional Items 0 0 0 201.64 Profit(+)/Loss(-)from Ordinary Activities before tax -1861.42 72.76 -737.63 -799.32 Tax Expenses 90.23 -39.46 100.31 317.39 Net Profit(+)/Loss(-)from Ordinary Activities after tax -1771.19 33.30 -637.32 -481.93 Extra Ordinary items-Depreciation written back/Others 411.25 0 0 0 PROFIT / (LOSS) AFTER TAX -2182.44 33.30 -637.32 -481.93

Income Statement of Bell, Orient & Somany for 2010-11 (Rs.in Lacs)

Particulars Bell Orient Somany

INCOME Sales 16049.8 31197.00 75178.00Excise duty paid 1372.33 2233.00 4120.00Net Sales 14677.5 28964.00 71058.00Other Operating Income 148.99 220.00 430.00

Total Income 14826.49 29184.00 71488.00 EXPENDITURE Inventory Variance -116.54 -1185 -2108Purchases ( Traded Goods) 159.97 6594.00 28410.00

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Material 4506.69 6348.00 10364.00Depreciation 1109.52 978.00 1726.00Personnel 1757.40 3297.00 5431.00Manufacturing, Administration & Selling 7487.55 11551.00 22503.00Prior Period Adjustment -78.20 0.00 0.00

Total Expenditure 14826.39 27583.00 66326.00 Operating Profit 0.10 1601.00 5162.00 EBITDA Level 1109.62 2579.00 6888.00 Other Income 533.24 220.00 4.00 Gross Profit 533.34 1821.00 5166.00 Interest 1534.30 832.00 1795.00 Profit after Interest but before Exceptional items -1000.96 989.00 3371.00 Exceptional Items 201.64 678.00 0.00

Profit(+)/Loss(-)from Ordinary Activities before tax -799.32 1667.00 3371.00 Tax Expenses 317.39 471.00 1028.00 Net Profit(+)/Loss(-)from Ordinary Activities after tax -481.93 1196.00 2343.00 Extra Ordinary items-Depreciation written back/Others 0 0 0 PROFIT / (LOSS) AFTER TAX -481.93 1196.00 2343.00

BIBLIOGRAPHY :-

http//www.investopedia.com

http//www.bellceramic.com

http//www.orientceramic.com

http//www.somanytiles.com

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http//www.iccts.com

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