1. APPLICATION OF RATIO ANALYSIS
FOR CELLO PLASTIC PRODUCTS LTD
(Submitted towards partial fulfillment of the requirements for the Degree of
Master of Business Administration)
Under the Supervision of
Submitted by
Ms. NEHA AGARWAL
SONALI KUKREJA
Assistant Proffesor
M.B.A. II Year
(MBA Department)
COER School of Management
Uttarakhand Technical University D. Dun
(2013-14)
1

2. DECLARATION
I hereby declare that the project entitled „RATIO ANALYSIS‟ being
submitted by me at COER-SM, Roorkee towards the partial fulfillment of the
requirement for the award of Degree of Master of Business Administration (MBA).
I hereby also declare that this Project work is my original work. The matter
embodied in this project report has not been submitted to any other Institution or
University for the award of any degree, diploma, certificate etc.
Name & Signature of Student
Sonali Kukreja
MBA 2ND YEAR
Place: haridwar
Date:
2

3. ACKNOWLEDGEMENT
I feel myself privileged at having an opportunity to thank the people who helped me at all stages
of my research work.
It is which a deep sense of gratitude that I acknowledge valuable guidance and timely suggestion
offered to me by my project guide Mrs Megha Gupta. I am indebted to all staff and operational
people at CELLO PLASTIC PRODUCTS LTD for giving me full support and encouragement
I am thankful to Ms. Neha Agarwal for helping me to make this project report . It is my sheer
pleasure to acknowledge who have directed or indirectly guided and cooperated in one way or
other
SONALI KUKREJA
MBA 2ND YEAR
3

4. EXECUTIVE SUMMARY
This project is specially designed to understand the subject matter of financial statement
analysis through various ratios in the company. This project gives us information and report
about company‟s financial position.
Through a thorough financial analysis, my aim is to understand the financial factors is
influencing the company and its decision making. Later, I try and evaluate the various ratios to
appreciate their impact on company‟s performance over the last two years. The financial
statements of last two years are identified, studied and interpreted in light of company‟s
performance. Critical decisions of distributing dividends, Issue of bonus Debentures and other
current news are analyzed and their impact on the bottom line of the company is assessed.
Finally, I study ratio analysis, fund flow analysis and cash flow analysis of the company to
analyse the financial position of the company in last two years.
4

5. TABLE OF CONTENT
Page No.
CHAPTERS
1.
INTRODUCTION
1.1 About Cello Plastic Products Ltd
2
1.2 Capabilities of Cello
3
1.3 Capacities of Cello
4
1.4 Cello Group of company at a glance
5
1.5 Quality Recognitions and Awards
6
1.6 Cello products
7
1.7 Cello Household products
8
1.8 Cello Writing Instruments
9-10
1.9 Objectives of the study
11
1.10 Limitations of the study
12
2. THEORTICAL BACKGROUNG OF RATIO
2.1 Financial Analysis
14
2.2 Ratio Analysis
14-15
2.3 Advantages of Ratio
15
5

6. 2.4 Limitation of Ratio
16
2.5 Classification of Ratio
16-33
3. ANALYTICAL STUDY OF RATIO
35-53
4. CONCLUSIONS & RECOMMENDATIONS
55-57
ANNXURE
58
BIPLOGRAPHY
59
6

7. 1.0 OBJECTIVES OF THE STUDY
The objectives of the study are:
1) To evaluate the performance of the company by using ratio as a yardstick to measure
the efficiency of the company
2) To understand the liquidity and profitability of the company during the study period
3) To make comparisons between the ratios during different periods(2 years data from
2011 to 2012)
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8. 2.0 CELLO – AN INTRODUCTION
Cello plastic products ltd founded by Mr G.D. RATHOD ,chairman ,in May 10,1986,at a small
factory in Goregaon,Mumbai,with just 60 workers and 7 machines engaged in the manufacture
of the finest range of Casserole,or Hotpots,as they were later position,that the Indian market have
ever seen Mr Pradeep Rathod ,Managing Director and Mr PankajRathod,Deputy Managing
Director, spearheaded the growth and diversification into new products and markets. First and
largest Manufacturer of Branded household products in India ,having wide range of plastic
moulded products.Annual sales turnover of more than USD 100 million and exports of USD 28
millions .2100 employees-more than 300 engineers and plastic technologist.
CAPABILITIES OF CELLO
 Investment of more than USD 50 million in ultra modern plastic processing machines
from BATTENFIELD –Germany ,WIMPLAST-Italy and SUMMITOMO-Japan
 Strong in house R&D base, having developed the unique break through insulation
technology-THERMI-GUARD
 Many product designs PATENTED in Europe
 Having
warehouse
and
sales
offices
in
different
locations
in
,Nepal,Srilanka,U.A.E,Kenya and USA
 Regularly exporting to more than 60 countries including USA ,UK,Italy,Germany
CAPACITIES OF CELLO
 Insulated Thermoware-More than 5million piece per year.
 Household Products-More than 12 million piece per year
 Moulded Furniture-More than 2 million piece per year
 Writing Instrument-216million piece per year
 Tooth Brushes-17million pieces per year
8
India

9. CELLO GROUP OF COMPANIES AT A GLANCE
Turnover: Plastic household & thermoware Rs.1405millions
 Plastic Furniture Rs 762 million
 Writing Instrument Rs 1806 million
 Tooth Brush Rs 50 millions
A)Factory Area:-7,00,000s.q.ft at Daman
B)Work Force:-Managerial posts 35nos
 Factory Staff 3000nos.
 Office Staff 300nos.
 Sales staff 100nos.
C)Distribution Strength:Distributors 200nos.
 Class retail outlets 7000nos.
 Class retail outlets 8000nos.
QUALITY RECOGNITION AND AWARDS
 Largest Exporter of Insulated Thermoware from India
 Recognised as Export House by Government of India since 1996
 Winner of prestigious Plexcouncil Award as highest Exporter since last
9

10. CELLO PRODUCTS
A) CELLO WRITING INSTRUMENT
B) CELLO PLASTIC PRODUCTS
C) CELLO FURNITURES
D) CELLO CASSEROLES
10

11. CELLO HOUSEHOLD PRODUCTS
Storage Buckets with lids:- Owing to our expertise, we are distributing and supplying a wide
assortment of houseware range. Design and fabricated using the fine quality raw material and
sophisticated technology at vendor‟s unit, these have gained huge demand due to their attractive
look and clean finish. Our offered product range includes plastic utility products, home plastic
products, household plastic items, microwave safe products, food savers and cleaning brushes.
Apart from this, we provide these products in various sizes, shapes and colors at market leading
prices
Cello AirTight Containers:- We are engaged in distributing and supplying superior quality cello
air tight containers. In order to manufacture these containers, our vendors use optimum quality
plastic material and modern machine as per the prescribed set of norms. In addition, our offered
containers are microwave safe and freezer safe and extensively used in domestic and commercial
sectors for food storage. Due to their air tight facility, these are used to store rice, powdered
milk, pasta, beans and other dry food items. Available in diverse sizes, shapes and molded
designs, clients can avail these at the most affordable prices.
CELLO WRITING INSTRUMENTS
Cello ceaselessly endeavours to bring in the newest and the best of technology to set new
benchmarks in quality and innovates constantly to blaze new trails in the market place
1982 - With a tiny factory for making plastic household goods, Mr. G. D. Rathod makes a small
beginning
in
manufacturing.
Behind this step the founder has a vision of uncompromising quality and total consumer
satisfaction. Set up on this deep foundation, Cello begins its journey to become a leader.
1986 - A new factory for Cello Thermoware is set up in Goregaon, Mumbai capable of
manufacturing the finest range of hot pots and casseroles, insulated water bottles, attractive range
of insulated jugs and flasks. Soon demand rises for the new and quality products, to keep up with
which a new factory is set up in Daman. Cello Household Products began to be exported to a
number of countries
11

12. 1994 - Cello Group ventures into manufacturing moulded furniture. Elegant, versatile and
durable, Cello furniture brings convenience and style to consumers at surprising economical
price , made from special grade plastic and state-of-the-art moulds from Italy. Cello furniture
becomes a household name in quality.
1995 - Cello Writing Instruments, a part of Cello Group entered the plastic moulded ball pen
market. In 1995, Cello exploded on the scene with Cello Clear Pens with Swiss tips and German
ink and changed forever the way pen ran on paper. The revolutionary new smear free, smooth
flowing pen not just took the market by storm but marked a new era in writing instruments in
India. Not too long after, the company unveiled two more models Prism and Crystal and with
that what started as a mere 3-machine company, took wings.
12

13. 3.0 RATIO ANALYSIS-AN INTRODUCTION
Meaning of Ratio:- A ratio is simple arithmetical expression of the relationship of one number
to another. It may be defined as the indicated quotient of two mathematical expression.It
expresses a magnitude by which one quantity is a multiple or a part of another similar quantity .
When the concept of ratio is explained with reference to the items shown in financial statements,
then it is called „Accounting Ratios‟
According to Accountant‟s Handbook by Wixon, Kell and Bedford, “a ratio is an expression of
the quantitative relationship between two numbers”.
Ratio Analysis:- Ratio analysis is the process of determining and presenting the relationship of
items and group of items in the statements.
According to Batty J. Management Accounting “Ratio can assist management in its basic
functions of forecasting, planning coordination, control and communication”.
It is helpful to know about the liquidity, solvency, capital structure and profitability of an
organization. It is helpful tool to aid in applying judgement, otherwise complex situations.
Ratio may be expressed in the following three ways :
1.
Pure Ratio or Simple Ratio :- It is expressed by the simple division of one number by
another. For example , if the current assets of a business are Rs. 200000 and its current
liabilities are Rs. 100000, the ratio of „Current assets to current liabilities‟ will be 2:1.
2.
‘Rate’ or ‘So Many Times :- In this type , it is calculated how many times a figure is,
in comparison to another figure. For example , if a firm‟s credit sales during the year are
Rs. 200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover
Ratio is 200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison
to debtors.
13

14. 3.
Percentage :- In this type, the relation between two figures is expressed in hundredth.
For example, if a firm‟s capital is Rs.1000000 and its profit is Rs.200000 the ratio of
profit capital, in term of percentage, is 200000/1000000*100 = 20%
ADVANTAGE OF RATIO ANALYSIS
1. Helpful in analysis of Financial Statements.
2. Helpful in comparative Study.
3. Helpful in locating the weak spots of the business.
4. Helpful in Forecasting.
5. Estimate about the trend of the business.
6. Fixation of ideal Standards.
7. Effective Control.
8. Study of Financial Soundness.
LIMITATIONS OF RATIO ANALYSIS
1.
Comparison not possible if different firms adopt different accounting policies.
2.
Ratio analysis becomes less effective due to price level changes.
3.
Ratio may be misleading in the absence of absolute data.
4.
Limited use of a single data.
5.
Lack of proper standards.
6.
False accounting data gives false ratio.
14

15. 7.
Ratios alone are not adequate for proper conclusions.
8.
Effect of personal ability and bias of the analyst.
CLASSIFICATION OF RATIO
Ratio may be classified into the four categories as follows:
A) Liquidity Ratio
a.
Current Ratio
b.
Quick Ratio or Acid Test Ratio
B) Leverage or Capital Structure Ratio
a.
Debt Equity Ratio
b.
Debt to Total Fund Ratio
c.
Proprietary Ratio
d.
Fixed Assets to Proprietor‟s Fund Ratio
e.
Capital Gearing Ratio
f.
Interest Coverage Ratio
C) Activity Ratio or Turnover Ratio
a.
Stock Turnover Ratio
b.
Debtors or Receivables Turnover Ratio
c.
Average Collection Period
d.
Creditors or Payables Turnover Ratio
15

16. e.
Average Payment Period
f.
Fixed Assets Turnover Ratio
g.
D).
Working Capital Turnover Ratio
Profitability Ratio or Income Ratio
(A) Profitability Ratio based on Sales :
a. Gross Profit Ratio
b. Net Profit Ratio
c. Operating Ratio
(B) Profitability Ratio Based on Investment :
I.
II.
Return on Capital Employed
Return on Shareholder’s Funds :
a.
Return on Total Shareholder‟s Funds
b.
Return on Equity Shareholder‟s Funds
c.
Earning Per Share
d.
Dividend Per Share
e.
Dividend Payout Ratio
f.
Earning and Dividend Yield
g.
Price Earning Ratio
16

17. Figure 1 classification of ratios
A) LIQUIDITY RATIO
It refers to the ability of the firm to meet its current liabilities. The liquidity ratio, therefore, are
also called „Short-term Solvency Ratio‟. These ratio are used to assess the short-term financial
position of the concern. They indicate the firm‟s ability to meet its current obligation out of
current resources.
In the words of Saloman J. Flink, “Liquidity is the ability of the firms to meet its current
obligations as they fall due”.
Liquidity ratio include two ratio :a.
Current Ratio
b.
Quick Ratio or Acid Test Ratio
17

18. a. Current Ratio:- This ratio explains the relationship between current assets and current
liabilities of a business.
Current Assets:-‘Current assets‟ includes those assets which can be converted into cash with in
a year‟s time.
Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment +
Debtors(Debtors – Provision) + Stock(Stock of Finished Goods + Stock of Raw
material)
Current Liabilities :- „Current liabilities‟ include those liabilities which are repayable in a
year‟s time.
Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation
+ Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans
payable in a year
Significance :- According to accounting principles, a current ratio of 2:1 is supposed to be an
ideal ratio.It means that current assets of a business should, at least , be twice of its current
liabilities. The higher ratio indicates the better liquidity position, the firm will be able to pay its
current liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and
shortage of working capital.
The biggest drawback of the current ratio is that it is susceptible to “window dressing”. This ratio
can be improved by an equal decrease in both current assets and current liabilities.
b. Quick Ratio:- Quick ratio indicates whether the firm is in a position to pay its current
liabilities with in a month or immediately.
„Liquid Assets‟ means those assets ,which will yield cash very shortly.
LIQUID ASSETS=CURRENT ASSETS-STOCK-PREPAID ASSETS
18

19. Significance :- An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better.
This ratio is a better test of short-term financial position of the company.
B) LEVERAGE OR CAPITAL STRUCTURE RATIO
This ratio disclose the firm‟s ability to meet the interest costs regularly and Long term
indebtedness at maturity.
These ratio include the following ratios :
a. Debt Equity Ratio:- This ratio can be expressed in two ways:
According to this approach, this ratio expresses the relationship between long term debts and
shareholder‟s fund.
Formula:
Debt Equity Ratio=Long term Loans/Shareholder’s Funds or Net Worth
Long Term Loans:- These refer to long term liabilities which mature after one year. These
include Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public
Deposits etc.
Shareholder’s Funds :- These include Equity Share Capital, Preference Share Capital, Share
Premium, General Reserve, Capital Reserve, Other Reserve and Cr edit Balance of Profit & Loss
Account.
Significance :- This Ratio is calculated to assess the ability of the firm to meet its long term
liabilities. Generally, debt equity ratio of is considered safe.If the debt equity ratio is more than
that, it shows a rather risky financial position from the long-term point of view, as it indicates
that more and more funds invested in the business are provided by long-term lenders.The lower
this ratio, the better it is for long-term lenders because they are more secure in that case. Lower
than 2:1 debt equity ratio provides sufficient protection to long-term lenders.
19

20. b. Debt to Total Funds Ratio : This Ratio is a variation of the debt equity ratio and gives the
same indication as the debt equity ratio. In the ratio, debt is expressed in relation to total funds,
i.e., both equity and debt.
Formula:
Debt to Total Funds Ratio = Long-term Loans/Shareholder’s funds + Long-term Loan
Significance :- Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory.
In other words, the proportion of long term loans should not be more than 67% of total funds .A
higher ratio indicates a burden of payment of large amount of interest charges periodically and
the repayment of large amount of loans at maturity. Payment of interest may become difficult if
profit is reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower
ratio is better from the long-term solvency point of view.
c. Proprietary Ratio:- This ratio indicates the proportion of total funds provide by
Formula:
Proprietary Ratio = Shareholder’s Funds/Shareholder’s Funds + Long term loans
Significance :- This ratio should be 33% or more than that. In other words, the proportion of
shareholders funds to total funds should be 33% or more. A higher proprietary ratio is
generally treated an indicator of sound financial position from long-term point of view,
because it means that the firm is less dependent on external sources of finance.If the ratio is
low it indicates that long-term loans are less secured and they face the risk of losing their
money.
d. Fixed Assets to Proprietor’s Fund Ratio :- This ratio is also know as fixed assets to net
worth ratio.
Formula:
Fixed Asset to Proprietor’s Fund Ratio = Fixed Assets/Proprietor’s Funds (i.e., Net Worth)
20

21. Siqnificance:- The ratio indicates the extent to which proprietor‟s (Shareholder‟s) funds are
sunk into fixed assets. If this ratio is less than 100%, it would mean that proprietor‟s fund are
more than fixed assets and a part of working capital is provided by the proprietors. This will
indicate the long term financial soundness of business.
e. Capital Gearing Ratio:- This ratio establishes a relationship between equity capital
(including all reserves and undistributed profits) and fixed cost bearing capital.
Formula:
Capital Gearing Ratio = Equity Share Capital+Reserves+P&L Balance/ Fixed cost Bearing
Capital
Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures + Long Term
Loan
Significance:- If the amount of fixed cost bearing capital is more than the equity share capital
including reserves an undistributed profits), it will be called high capital gearing and if it is less,
it will be called low capital gearing.The high gearing will be beneficial to equity shareholders
when the rate of interest/dividend payable on fixed cost bearing capital is lower than the rate of
return on investment in business. Thus, the main objective of using fixed cost bearing capital is
to maximize the profits available to equity shareholders.
f. Interest Coverage Ratio:- This ratio is also termed as „Debt Service Ratio‟. This ratio is
calculated as follows:
Formula
Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed Interest
Charge
Significance :- This ratio indicates how many times the interest charges are covered by the
profits available to pay interest charges.This ratio measures the margin of safety for long-term
lenders. This higher the ratio, more secure the lenders is in respect of payment of interest
21

22. regularly. If profit just equals interest, it is an unsafe position for the lender as well as for the
company also , as nothing will be left for shareholders. An interest coverage ratio of 6 or 7 times
is considered appropriate.
C) ACTIVITY RATIO OR TURNOVER RATIO
These ratio are calculated on the bases of „cost of sales‟ or sales, therefore, these ratio are also
called as „Turnover Ratio‟. Turnover indicates the speed or number of times the capital employed
has been rotated in the process of doing business. Higher turnover ratio indicates the better use of
capital or resources and in turn lead to higher profitability.
It includes the following :
a.
Stock Turnover Ratio:- This ratio indicates the relationship between the cost of goods
during the year and average stock kept during that year.
Formula:
Stock Turnover Ratio = Cost of Goods Sold / Average Stock
Here, Cost of goods sold = Net Sales – Gross Profit
Average Stock = Opening Stock + Closing Stock/2
Significance: This ratio indicates whether stock has been used or not. It shows the speed with
which the stock is rotated into sales or the number of times the stock is turned into sales during
the year.The higher the ratio, the better it is, since it indicates that stock is selling quickly.In a
business where stock turnover ratio is high, goods can be sold at a low margin of profit and
even than the profitability may be quit high.
b.
Debtors Turnover Ratio :- This ratio indicates the relationship between credit sales and
average debtors during the year :
Formula:
22

23. Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R
While calculating this ratio, provision for bad and doubtful debts is not deducted from the
debtors, so that it may not give a false impression that debtors are collected quickly.
Significance :- This ratio indicates the speed with which the amount is collected from debtors.
The higher the ratio, the better it is, since it indicates that amount from debtors is being collected
more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the
lower the expenses of collection and increase in the liquidity of the firm.
By comparing the debtors turnover ratio of the current year with the previous year, it may be
assessed whether the sales policy of the management is efficient or not.
c. Average Collection Period :- This ratio indicates the time with in which the amount is
collected from debtors and bills receivables.
Formula:
Average Collection Period = Debtors + Bills Receivable / Credit Sales per day
Here, Credit Sales per day = Net Credit Sales of the year
Second Formula :Average Collection Period = Average Debtors *365 / Net Credit Sales
Average collection period can also be calculated on the bases of „Debtors Turnover Ratio‟. The
formula will be:
Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio
Significance :- This ratio shows the time in which the customers are paying for credit sales. A
higher debt collection period is thus, an indicates of the inefficiency and negligency on the part
of management. On the other hand, if there is decrease in debt collection period, it indicates
prompt payment by debtors which reduces the chance of bad debts.
23

24. d. Creditors Turnover Ratio :- This ratio indicates the relationship between credit purchases
and average creditors during the year .
Formula:Creditors Turnover Ratio = Net credit Purchases / Average Creditors + Average B/P
Significance :- This ratio indicates the speed with which the amount is being paid to creditors.
The higher the ratio, the better it is, since it will indicate that the creditors are being paid more
quickly which increases the credit worthiness of the firm.
e. Average Payment Period :- This ratio indicates the period which is normally taken by the
firm to make payment to its creditors.
Formula:Average Payment Period = 12 months or 365 days / Creditors Turnover Ratio
Significance :- The lower the ratio, the better it is, because a shorter payment period implies that
the creditors are being paid rapidly.
f.
Fixed Assets Turnover Ratio :- This ratio reveals how efficiently the fixed assets are
being utilized.
Formula:Fixed Assets Turnover Ratio = Cost of Goods Sold/ Net Fixed Assets
Here, Net Fixed Assets = Fixed Assets – Depreciation
Significance:- This ratio is particular importance in manufacturing concerns where the
investment in fixed asset is quite high. Compared with the previous year, if there is increase in
this ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in this
ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the
previous year.
24

25. g.
Working Capital Turnover Ratio :- This ratio reveals how efficiently working capital
has been utilized in making sales.
Formula :-
Working Capital Turnover Ratio = Cost of Goods Sold / Working Capital
Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct
Expenses - Closing Stock
Working Capital = Current Assets – Current Liabilities
Significance :- This ratio is of particular importance in non-manufacturing concerns where
current assets play a major role in generating sales. It shows the number of times working capital
has been rotated in producing sales.A high working capital turnover ratio shows efficient use of
working capital and quick turnover of current assets like stock and debtors.A low working
capital turnover ratio indicates under-utilisation of working capital.
(D) Profitability Ratios or Income Ratios:- The main object of every business concern is to
earn profits. A business must be able to earn adequate profits in relation to the risk and capital
invested in it. The efficiency and the success of a business can be measured with the help of
profitability ratio.
Profitability ratios are calculated to provide answers to the following questions:
i.
ii.
Is the firm earning adequate profits?
What is the rate of gross profit and net profit on sales?
iii.
What is the rate of return on capital employed in the firm?
iv.
What is the rate of return on proprietor‟s (shareholder‟s) funds?
v.
What is the earning per share?
25

26. Profitability ratio can be determined on the basis of either sales or investment into business.
(A)
Profitability Ratio Based on Sales :
a. Gross Profit Ratio : This ratio shows the relationship between gross profit and sales.
Formula :
Gross Profit Ratio = Gross Profit / Net Sales *100
Here, Net Sales = Sales – Salesreturn.
Significance:- This ratio measures the margin of profit available on sales. The higher the gross
profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio
should be adequate enough not only to cover the operating expenses but also to provide for
depreciation, interest on loans, dividends and creation of reserves.
b. Operating Net Profit Ratio:- This ratio shows the relationship between net operating profit
and sales. It may be calculated by two methods:
Formula:
Operating Net Profit = Operating Net Profit / Net Sales *100
Here, Operating Net Profit = Gross Profit – Operating Expenses such as Office and
Administrative Expenses, Selling and Distribution Expenses, Discount, Bad Debts, Interest on
short-term debts etc.
Significance :- This ratio measures the rate of net profit earned on sales. It helps in determining
the overall efficiency of the business operations. An increase in the ratio over the previous year
shows improvement in the overall efficiency and profitability of the business.
c. Operating Ratio:- This ratio measures the proportion of an enterprise cost of sales and
operating expenses in comparison to its sales.
26

27. Formula:
Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100
Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct
Expenses - Closing Stock
Operating Expenses = Office and Administration Exp. + Selling and Distribution Exp. +
Discount + Bad Debts + Interest on Short- term loans.
„Operating Ratio‟ and „Operating Net Profit Ratio‟ are inter-related. Total of both these ratios
will be 100
Significance:- Operating Ratio is a measurement of the efficiency and profitability of the
business enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods
sold and operating expenses. Lower the operating ratio is better, because it will leave higher
margin of profit on sales.
(B) Profitability Ratio Based on Investment in the Business:These ratio reflect the true capacity of the resources employed in the enterprise. Sometimes the
profitability ratio based on sales are high whereas profitability ratio based on investment are low.
Since the capital is employed to earn profit, these ratios are the real measure of the success of the
business and managerial efficiency.
These ratio may be calculated into two categories:
I. Return on Capital Employed
II. Return on Shareholder‟s funds
I.
Return on Capital Employed :- This ratio reflects the overall profitability of the business.
It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is
usually in percentage and is also known as „Rate of Return‟ or „Yield on Capital‟.
27

28. Formula:
Return on Capital Employed = Profit before interest, tax and dividends/Capital Employed
*100
Where, Capital Employed = Equity Share Capital + Preference Share Capital + All Reserves +
P&L Balance +Long-Term Loans- Fictitious Assets (Such as Preliminary Expenses OR etc.) –
Non-Operating Assets like Investment made outside the business.
Capital Employed = Fixed Assets + Working Capital
Advantages of ‘Return on Capital Employed’: Since profit is the overall objective of a business enterprise, this ratio is a barometer of the
overall performance of the enterprise. It measures how efficiently the capital employed in
the business is being used.
 Even the performance of two dissimilar firms may be compared with the help of this ratio.
 The ratio can be used to judge the borrowing policy of the enterprise.
 This ratio helps in taking decisions regarding capital investment in new projects. The new
projects will be commenced only if the rate of return on capital employed in such projects
is expected to be more than the rate of borrowing.
 This ratio helps in affecting the necessary changes in the financial policies of the firm.
 Lenders like bankers and financial institution will be determine whether the enterprise is
viable for giving credit or extending loans or not.
 With the help of this ratio, shareholders can also find out whether they will receive regular
and higher dividend or not.
II. Return on Shareholder’s Funds :Return on Capital Employed Shows the overall profitability of the funds supplied by long term
lenders and shareholders taken together. Whereas, Return on shareholders funds measures only
the profitability of the funds invested by shareholders.
These are several measures to calculate the return on shareholder‟s funds:
28

29. a. Return on total Shareholder’s Funds :For calculating this ratio „Net Profit after Interest and Tax‟ is divided by total shareholder‟s
funds.
Formula:
Return on Total Shareholder’s Funds = Net Profit after Interest and Tax / Total
Shareholder’s Funds
Where, Total Shareholder‟s Funds = Equity Share Capital + Preference Share Capital + All
Reserves + P&L A/c Balance –Fictitious Assets
Significance:- This ratio reveals how profitably the proprietor‟s funds have been utilized by the
firm. A comparison of this ratio with that of similar firms will throw light on the relative
profitability and strength of the firm.
b. Return on Equity Shareholder’s Funds:Equity Shareholders of a company are more interested in knowing the earning capacity of their
funds in the business. As such, this ratio measures the profitability of the funds belonging to the
equity shareholder‟s.
Formula:
Return on Equity Shareholder’s Funds = Net Profit (after int., tax & preference dividend)
/ Equity Shareholder’s Funds *100
Where, Equity Shareholder‟s Funds = Equity Share Capital + All Reserves + P&L A/c Balance
– Fictitious Assets
Significance:- This ratio measures how efficiently the equity shareholder‟s funds are being used
in the business. It is a true measure of the efficiency of the management since it shows what the
29

30. earning capacity of the equity shareholders funds. If the ratio is high, it is better, because in such
a case equity shareholders may be given a higher dividend.
c. Earning Per Share (E.P.S.) :- This ratio measure the profit available to the equity
shareholders on a per share basis. All profit left after payment of tax and preference
dividend are available to equity shareholders.
Formula:
Earning Per Share = Net Profit – Dividend on Preference Shares / No. of Equity Shares
Significance:- This ratio helpful in the determining of the market price of the equity share of the
company. The ratio is also helpful in estimating the capacity of the company to declare dividends
on equity shares.
d. Dividend Per Share (D.P.S.):- Profits remaining after payment of tax and preference
dividend are available to equity shareholders.But of these are not distributed among them
as dividend . Out of these profits is retained in the business and the remaining is
distributed among equity shareholders as dividend. D.P.S. is the dividend distributed to
equity shareholders divided by the number of equity shares.
Formula:
D.P.S. = Dividend paid to Equity Shareholder’s / No. of Equity Shares *100
e. Dividend Payout Ratio or D.P. :- It measures the relationship between the earning available
to equity shareholders and the dividend distributed among them.
Formula:
D.P. = Dividend paid to Equity Shareholders/ Total Net Profit belonging to Equity
Shareholders *100
D.P. = D.P.S. / E.P.S. *100
30

31. f. Earning and Dividend Yield :- This ratio is closely related to E.P.S. and D.P.S. While the
E.P.S. and D.P.S. are calculated on the basis of the book value of shares, this ratio is calculated
on the basis of the market value of share
g. Price Earning (P.E.) Ratio:- Price earning ratio is the ratio between market price per equity
share & earnings per share. The ratio is calculated to make an estimate of appreciation in the
value of a share of a company & is widely used by investors to decide whether or not to buy
shares in a particular company.
Significance :- This ratio shows how much is to be invested in the market in this company‟s
shares to get each rupee of earning on its shares. This ratio is used to measure whether the
market price of a share is high or l.
31

32. 4.O RESEARCH METHODOLOGY
R e s e a r c h m e t h o d o l o g y i s a w a y t o s ys t e m a t i c a l l y s o l v e t h e r e s e a r c h
p r o b l e m . It may be understood as a science of studying how research is done scientifically.
So, the research methodology not only talks about the research methods but also considers the
logic behind the method used in the context of the research study
RESEARCH DESIGN
From the study, the type of data to be collected and the procedure to be used for this
purpose were decided.
DATA COLLECTION METHODS
1) PRIMARY DATA
Primary data are those data, which is originally collected afresh so in this project no
primary data was collected.
2) SECONDARY DATA
The required data for the study are basically secondary in nature and the data are
collected through Balance Sheet and Profit and Loss Account of the company and
through internet.
TOOLS USED
Tables
Bar graphs
charts
32

33. 5.0 DATA ANALYSIS
1)LIQUIDITY RATIO
A)CURRENT RATIO
CALCULATION OF CURRENT RATIO
(RS IN CRORE)
YEAR
2011
2012
Current assets
98.77
127.38
Current liability
21.97
25.34
CURRENT RATIO
4.49
4.49
TABLE 1
CURRENT RATIO
CURRENT RATIO
5
4.49
4.49
4
3
2011
2
2012
1
0
2011
2012
YEAR
INTERPRETATION:. If we see the current ratio of the company for last 2 year has remain
same which is 4.49 but it is more than 2:1 which is beneficial for short term creditors.
33

34. D) QUICK RATIO
CALCULATION OF QUICK RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Quick Assests
66.68
84.64
Current Liabilities
21.97
25.34
Quick Ratio
3.03
3.34
TABLE 2
CALCULATION OF QUICK ASSETS
2011
98.77-32.09=66.68
2012
127.38-42.74=84.64
QUICK RATIO
QUICK RATIO
3.4
3.34
3.3
3.2
3.1
2011
2012
3.03
3
2.9
2.8
2011
YEAR
2012
INTERPRETAION:- A quick ratio is an indication that the firm is liquid and has the ability to
meet its current liabilities in time .The ideal quick ratio is 1:1.Company‟s quick ratio is more
than its ideal ratio .This shows that company has no liquidity problem.
34

35. B) LEVEARAGE OR CAPITAL STRUCTURE RATIO
A) DEBT EQUITY RATIO
CALCULATION OF DEBT EQUITY RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Long term loans
.89
1.36
Shareholder‟s fund
118.41
151.12
DEBT EQUITY RATIO
.007
.009
TABLE 3
DEBT EQUITY RATIO
DEBT EQUITY RATIO
0.01
0.008
0.009
0.007
0.006
2011
0.004
2012
0.002
0
2011
YEAR
2012
INTERPRETATION:- This ratio suggests the claims of creditors and owners over the assets
of the company. It shows the best pictures (growth) of a company's leverage. . The higher the
figure, the higher is the leverage the company enjoys. The calculate figure is 0.09 in 2012 but as
compare with 2011 the company DER is 0.07 which is lesser than previous year so the company
focus on this ratio to improve its market position but overall the company leverage is good.
35

36. B) DEBT TO TOTAL FUNDS
CALCULATION OF DEBT TO TOTAL FUNDS RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Long term loans
.89
1.36
Shareholder‟s funds
118.41
151.12
DEBT TO TOTAL FUNDS
.00751
.00892
DEBT TO TOTAL FUND RATIO
TABLE 4
0.0095
DEBT TO TOTAL FUNDS RATIO
0.00892
0.009
0.0085
0.008
2011
0.00751
2012
0.0075
0.007
0.0065
2011
YEAR
2012
INTERPRETATION: This ratio is less than 0.67 in both the year which shows better long
term solvency position of the company as higher ratio indicates a burden of payment of large
amount of loans at maturity.
36

37. B) PROPRIETARY RATIO
CALCULATION OF PROPRIETARY RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Shareholder‟s funds
118.41
151.12
Long term loans
.89
1.36
PROPRIETARY RATIO
99.25%
99.11%
TABLE 5
PROPRIETARY RATIO
PROPRIETARY RATIO
99.30%
99.25%
99.25%
99.20%
99.15%
99.11%
99.10%
2011
2012
99.05%
99.00%
2011
2012
YEAR
INTERPRETATION: This ratio highlights the fact as to what is the proportion of proprieters
and outsiders in financing the total business,AS the company‟s ratio is more than 50% in both
the years so it depicts sound financial position of a company
37

38. C) FIXED ASSET TO PROPRIETAR’S FUNDS
CALCULATION OF FIXED ASSET TO PROPRIETAR‟S FUNDS
(RS IN CRORE)
YEAR
2010-11
2011-12
Fixed assets
41.61
44.33
Proprietor‟s funds
118.41
151.12
TO 35.1%
29.3%
FIXED
ASSETS
PROPRIETOR‟S FUNDS
TABLE 6
FIXED ASSET TO PROPRIETARS FUNDS
FIXED ASSETS TO PROPRIETAR'S FUNDS
36.00%
35.00%
34.00%
33.00%
32.00%
31.00%
30.00%
29.00%
28.00%
27.00%
26.00%
35.10%
2011
29.30%
2011
2012
YEAR
INTERPRETATION: Proprietar‟s funds is more than the fixed assets in both the year but the
ratio reduce to 29.3% in the current year which is not the good indicator for the company as this
ratio shows the long term financial soundness of business.
38
2012

39. E) CAPITAL GEARING RATIO
CALCULATION OF CAPITAL GEARING RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Equity share capital
8.33
8.33
P&L balance
31.61
32.71
Fixed cost bearing capital
.89
1.36
CAPITAL
GEARING 44.87
30.17
RATIO
TABLE 7
CAPITAL GEARING RATIO
CAPITAL GEARING RATIO
50
44.87
40
30.17
30
2011
20
2012
10
0
2011
YEAR
2012
INTERPRETATION: Capital gearing ratio is a useful tool to analyze the capital structure
of a company .As fixed cost bearing capital is less than the equity share capital in both the
years then this shows that the company is low geared which is not beneficial for the equity
shareholders.
39

40. 3) ACTIVITY
RATIO
A) STOCK TURNOVER RATIO
CALCULATION OF STOCK TURNOVER RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Cost of goods sold
122.95
134.24
Average stock
24.49
37.41
STOCK
TURNOVER 5.02
3.588
RATIO
TABLE 8
CALCULATION OF COST OF GOODS SOLD2011
62.71-39.7=122.95
2012
174.47-40.23=134.24
40

41. STOCK TURNOVER RATIO
STOCK TURNOVER RATIO
6
5.02
5
3.588
4
3
2011
2
2012
1
0
2011
YEAR
2012
INTERPRETATION: This ratio shows how rapidly the inventory is turning in to receivables
through sales. In 2011the company has high inventory turnover ratio but in 2012 it has reduce to
3.588 times .This shows that the company‟s inventory management technique is less efficient as
compare to last year
B) DEBTORS TURNOVER RATIO
CALCULATION OF DEBTORS TURNOVER RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Sales
162.71
174.47
Average Debtors
48.57
65.90
DEBTOR TURNOVER RATIO
3.35
2.64
TABLE 9
41

42. DEBTOR TURNOVER RATIO
DEBTOR TURNOVER RATIO
4
3.5
3
2.5
2
1.5
1
0.5
0
3.35
2.64
2011
2012
2011
2012
YEAR
INTERPRETATION:-This ratio indicates the speed with which debtors are being converted or
turnover in to sales .The higher the values or turnover in to sales. The higher the values of
debtors turnover ,the more efficient is the management of credit. But in the company the debtor
turnover ratio is decreasing .This shows that the company is not utilizing its debtors efficiency
.Now their credit policy become liberal as compare to previous.
C) CREDITORS TURNOVER RATIO
CALCULATION OF CREDITORS TURNOVER RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Net credit purchase
100.71
94.91
Average creditors
19.41
23.87
Average bills payable
-
-
CREDITORS
TURNOVER 5.18
3.97
RATIO
42

43. TABLE10
CREDITOR TURNOVER RATIO
CREDITORS TURNOVER RATIO
6
5.18
5
3.97
4
3
2011
2
2012
1
0
2011
2012
YEAR
INTERPRETATION:-As the company‟s creditors turnover ratio has decreased so it indicate
less period of credit enjoyed by business it may due to the fact that either has better liquidity
position, believe in availing cash discount and consequently enjoys better credit standing in the
market.
4) PROFITIBILITY RATIO
A) GROSS PROFIT RATIO
CALCULATION OF GROSS PROFIT RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Gross profit
39.76
40.23
Net sales
162.71
174.47
GROSS PROFIT RATIO
24.43%
23.05%
TABLE 11
43

44. GROSS PROFIT RATIO
GROSS PROFIT RATIO
25
24.43
24.5
24
23.5
23.05
23
2011
2012
22.5
22
2011
2012
YEAR
INERPRETATION:- Gross profit is the result of the relationship between prices, sales volume
and costs .The gross margin represents the limit beyond which fall in sales prices are outside the
tolerance limit.In this company, in 2011, gross profit is 24.5% it is good for every company but
after one year it was fallen down to 23% in 2012 which shows that the company is not making
good profit.
B) NET PROFIT RATIO
CALCULATION OF NET PROFIT
(RS IN CRORE)
YEAR
2010-11
2011-12
Operating net profit
22.41
15.23
Net sales
162.71
174.47
NET PROFIT
13.77
8.72
TABLE 12
44

45. CALCULATION OF NET PROFIT
2011
39.76-17.35=22.41
2012
NET PROFIT RATIO
40.23-25.00=15.23
15
NET PROFIT RATIO
13.77
8.72
10
2011
5
2012
0
2011
YEAR
2012
INTERPRETATION: The net profit ratio is the overall measure of the firm‟s ability to turn
each rupee of income from services in net profit. If the net margin is inadequate the firm will fail
to achieve return on shareholder‟s funds. In 2011 net profit is 13.77 and in 2012 it decreases to
8.72 which is not good for the company.
C) OPERATING RATIO
CALCULATION OF OPERATING RATIO
(RS IN CRORE)
YEAR
2010-11
2011-12
Cost of goods sold
122.95
134.24
Operating expenses
17.35
25.00
Net sales
162.71
174.47
45

46. OPERATING RATIO
86.22
91.27
TABLE 13
OPEARTING RATIO
OPERATING RATIO
92
91
90
89
88
87
86
85
84
83
91.27
2011
86.22
2012
2011
YEAR
2012
INTERPRETATION:- This ratio shows that effectiveness of a company's management by
comparing operating expense to net sales. In this company in 2011 operating ratio is 86.22 and in
2012 it is 91.27 which is increasing as compare to previous year because of increase in net sales.
46

47. 5.0
CONCLUSION AND RECOMMENDATION
Finance is the life blood of every business. Without effective financial management a company
cannot survive in this competitive world. A Prudent financial Manager has to measure the
working capital policy followed by the company.
This company is going good if we talk about liquidity ratio it is increasing from the last year ,
fixed assets are also increasing compare to the previous year and equity share capital remain
same in the current year.
Debtors turnover ratio has decreased which shows that the company is not utilizing its debtor‟s
efficiency and creditors turnover ratio has also reduced which indicates less period of credit
enjoyed by the business. Profitability ratio decreases which is not the good indicator for the
company as efficiency of a business is measured in terms of profit.
RECOMMENDATIONS
 The company should make the balance between liquidity and solvency position of the
company.
 The profit ratio is decreased in current year so the company should pay attention to this
because profit making is the prime objective of every business.
 The cost of goods sold is high in every year so the company should do efforts to control
it.
 The long term financial position of the company is very good but it should pay a little
attention to short term solvency of the company.
47

48. REFRENCES
REFRENCE BOOKS
MANAGEMENT ACCOUNTING Dr.K.L GUPTA
ANNUAL REPORT OF CELLO PLASTIC PRODUCTS LTD
2010-11
2011-12
WEBSITES
www.celloworld.com
www.google.org.in
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