Ritesh project 1

A Study of Financial statement analysis in Natural Capsules Ltd.

1.1 FINANCE:
Finance is the life-blood of business. It is rightly termed as the science of
money. Finance is very essential for the smooth running of the business. Finance
controls the policies, activities and decision of every business. Finance is the
foundation key for any organization. it is a pivot around which all the economics
activity maximum use of available finances approved distribution of profit are
the main content of finances management. Finance is the lifeblood of the
business. It is rightly turned as the sciences of money are need finances for the
production of goods & services as well as their distribution.
The general areas of finance are business finance, personal finance, and
public finance. Finance is also a money budget management. The field of finance
deals with how money is spent and budgeted. It also deals the concepts of time,
money and risk and how they are interrelated. Finance is used by individuals as
personal finance, by governments as public finance, by businesses as corporate
finance, as well as by a wide variety of organizations including schools and non-
profit organizations. The finance is the need of the today world economy.

1.2 MEANING OF FINANCE:
Business Finance is that business activity which is concerned with the
acquisition and conservation of capital funds in meeting financial needs and
overall objectives of business enterprises.
In the case of a company, managerial finance is the task of providing the
funds for the corporations' activities. It generally involves balancing risk and
profitability. Long term funds would be provided by equity and long-term credit,

Swaminarayan institute of science and management. 1

2.


often in form of bonds. These decisions lead to the company's capital structure.
Short term funding or working capital is mostly provided by banks as line of
credit.

DEFINITION OF FINANCE:-
Ray G Jones and Dean Dudley observe that the word finance come
indirectly from Latin word ‘Finis”.
In simple words “Finance is economics and Accounting”. Economics is
proper utilization of scare resources and accounting Economics is proper
utilization of scarce resources and Accounting is keeping a record or tract of
things.
Kenneth Midgeley and Ronald Bums Accert,“ Financing is the process of
organizing the flow of funds so that a business can carry out its objectives in the
most efficient manner of meeting its obligation as they fare due”.

1.3 SCOPE OF FINANCE:
Ratio analysis is perhaps the first financial tools developed to analyze
and interpret the financial statement and is still used widely for this purpose.
Financial performance analysis is a well-researched area and innumerable
studies have proved the utility and usefulness of this analytical technique. This
research seeks to investigate and constructively contribute to help:

 The company in finding out the gray areas for improvement in
performance.
 The company to understand its own position over time.


2.


 The managers to understand the contribution to the performance of the
company.
 The present and potential investors outside parties such as the creditors,
debtors, government and many more to get an idea of the overall
performance of the bank

1.4 FUNCTION OF FINANCE:
There are three functions of finance:
a) Investment decision
b) Financing decision
c) Dividend decision.
a) Investment decision:
Investment decision relates to selection of asset in which funds will be
inverted by a firm. The assets that can be acquired by a firm may be long term
asset and short term assets. This decision involves allocation of huge financial
resources.
b) Financing decision:
Financing decision is concerned with financing mix or capital structure
the mix of department and equity is known as capital structure. Determination
of the proportion of equity and debt is the main issue in financing to share
holders and also financial risk.
c) Dividend decision:


2.


A firm may distribute its profits or retain the balance with it the decision
depends upon the preference of the shareholders and investment opportunities
available to the firm. Dividend decision has a strong influence on the market
price of share.
Therefore, the dividend policy is too determined in terms of its impact on
shareholders value. The optimum dividend policy is one. Which maximize the
value of shares and wealth of shareholders the financial manager should
determine the optimum pay out ratio that is the proportion of net profit to be
paid out to shareholders the financial manager should also consider those
factors . This determines the dividend policy in practice.

1.5 FINANCIAL MANAGEMENT:
“Financial management is the area of business management devoted to a
judicious use of capital and a careful selection of sources of capital in order to
enable a business firm to move in the direction of reaching its goals.”- J. F.
Bradley.

1.6 IMPORTANCE OF FINANCIAL MANAGEMENT:
 Financial management helps the firm in optimizing the output from
given input of finds.
 It helps in maintaining the effective employment of funds in both
fixed and current assets.


2.


 It helps in profit planning, capital budgeting.
 It is important for non-profit organization to control cart and to use
funds as their dispersal in mart useful manner.

1.7 OBJECTIVE OF FINANCIAL MANAGEMENT:
The term objective reforms to a goal or decision criterion for taking
financial decisions. There are two objectives:

a) Specific objective.
 Profit maximization.
 Wealth maximization.
b) General objective.
 Balance asset structure.
 Liquidity.
 Proper planning of funds.
 Efficiency.
 Financial discipline.

a) Specific objective:
 Profit maximization:- It is considered as an important goal in financial
decision making in an organization. Maximization is the condition of
achieving the maximum target profit with available resource in an
economic and efficient manner.


2.


 Wealth maximization:- It refers to maximization of wealth by
maximization in the market value of share of company. It is the
ultimate objective of every organization.

b) General objectives:
 Balance asset structure:- A proper balance between the fixed and
current assets is an important factor for efficient management of
funds. This is one of the objectives of financial management that the
size of current size of asset must permit the company to exploit the
investment on fixed assets.
 Liquidity:-Liquidity refers to available cash and it is an indication of
positive growth of a company. It ia a important factor for meeting the
short and long term obligation of a firm.
 Proper Planning Of Funds:-Proper planning of fund include
acquisition and allocation of funds in the best possible manner i.e.
minimum cost of acquisition of funds but maximum returns through
wise decisions.
 Efficiency:-Efficiency and effectiveness are very much necessary in
controlling the flow of funds. The efficiency level should continuously
increase for betterment of organization.
 Financial Discipline:-There should not be any bulk handling of funds,
mis-use etc. this can be done through various techniques like
budgeting, fund flow statement etc.


2.


1.8 FINANCIAL STATEMENT ANALYSIS:-
1.8 a FINANCIAL STATEMENT: -Financial statement means a schedule
or a report which is prepared at the end of financial year by an accountant to
reveal then financial position of the enterprise which show the result of its
recent activities and an analysis of what has been done with the earnings. The
term ‘financial statement’ generally refers to the two statement :
(1) the position statement or the balance sheet; and (2)the income statement or
the profit and loss account.
In the words of John N. Myer, “the financial statement provide a
summary of the accounts of a business enterprise, the balance sheet reflecting
the assets, liabilities and capital as on a certain date and the income statement
showing the result of operations during a certain period.” Financial analysis,
also known as analysis and interpretation of financial statement.

1.8 b FINANCIAL STATEMENT ANALYSIS:-
Financial Statement analysis is the process of identifying the
financial strength and weakness of the firm by properly establishing
relationship between the items of balance sheet and the profits and loss account.
In the words of Metcalf and Titard “Analyzing Financial is a
process of evaluating the relationship between component parts of a financial
statement to obtain a better understanding of a firm’s position and
performance”.
From this definition, it is clear that analysis and interpretation of
financial statements refers to such a treatment of the data found in the financial
statements as to provide a full diagnosis of the profitability and the financial


2.


soundness of the business. The term ‘financial statement analysis’ includes both
‘analysis’, and ‘interpretation’.

1.8.1 OBJECTIVES OF FINANCIAL STATEMENTS ANALYSIS
The main objectives are:-
 Financial statements are to provide information about the
financial position.
 To determine the profitability and earning capacity of a concern.
 To judge financial position i.e., the short term liquidity position.
 To determine the progress of concern.
 To measure the financial performance of concern.
 To facilitate decision-making and policy formulation.
 Financial statement should be understandable, relevant, reliable
and comparable.

1.9 STEPS INVOLVED IN FINANCIAL STATEMENT ANALYSIS:-
The work of Analysis of financial statements involves the three
steps they are:-
a) Analysis.
b) Interpretation.
c) Comparison.

a) ANALYSIS:-


2.


Analysis of financial statements means splitting up or regrouping of the
figures found in the financial statements into the derived homogeneous and
comparable component parts. In other words, it is the re-classification and re-
arrangements of the data found in the financial statements into groups of a few
principal elements according to their re-semblance’s and affinities and
presenting them in the form most convenient for interpretation.

b) INTERPRETATION:-
After the analysis and comparison of financial statements the results
must be interpreted. Interpretation of result means the formation of rational
judgment and the drawing of proper conclusion about the progress, financial
position and future prospects of the business through careful study of the
relationship of component parts obtained through analysis and comparison.

c) COMPARISION:-
After the figure contained in the financial statements are directed or split
into the required comparable component parts, the comparable component
parts i.e., inter connected figures must be compared with each other, and their
relative magnitudes or relationship must be measured.

1.10 TOOLS OR TECHNIQUES OF FINANCIAL ANALYSIS:-
The important tools or techniques of financial analysis are:-
1. Ratio analysis.


2.


2. Comparative financial statements analysis.
3. Common size statement analysis.
4. Trend analysis or trend percentage.
5. Fund flow analysis.
6. Cash flow analysis.
7. Cost volume profit analysis.

1. RATIO ANALYSIS:-
Ratio analysis is the technique of the calculation of a number of
accounting ratios from the data or figures found in the financial statements, the
comparison of the accounting ratios with those of the previous year or with
those of standard or ideal ratios then interpreting or drawing conclusions from
the comparison.

2. COMPARATIVE FINANCIAL STATEMENTS:-
Comparative financial statements is a statement of the financial
position of a business, which are prepared in such a way as to provide, at a time
perspective to the various elements embodied in such a statements. These
statements mainly include two types of analytical statement namely
Comparative balance sheet
Comparative income statement
They facilitate comparison among two or more similar firms, preferable in the
same industry. Comparison may be regarding profitability and financial
position. Comparative financial statements show the following information for
typical purposes:-


2.


 Actual data in absolute money, as given in the financial statement for
the period under consideration.
 Increase or decrease in various items in money value.
 Increase or decrease in various items in terms of percentage.

3. COMMON SIZE FINANCIAL STATEMENTS:-
Common size financial statements are those in which figures reported
are converted into percentage to some common base. The main limitation of
this is that they fail to show change that has taken place from year to year in
relation to the total assets, total liabilities in a common size balance sheet.
These statements are converted into percentage taking some common base.
The net sales are assumed to be 100% and all other items are expressed
as a percentage of sales. Similarly in common size balanced sheet, the total
assets of total liabilities are assumed to be 100% and other items are assumed
total.

4. TREND PERCENTAGE:-
Comparing part data over a period of time with a base year is called
trend analysis. Under this period, percentage relationship that each statement
item bears to the same item in the bare year is calculated only for some
important items which can be logically connected with each other as the
purpose is to high light important changes.


2.


The concerned item in the bare year is taken to be equal to 100 and then
bared on this trend % for corresponding item in other years is calculated. This
method is a horizontal type of analysis of financial statement. The trend ratios
are shown in comparative financial statement.
Trend analysis is a useful tool for management since it reduces the large
amount of absolute data into a simple and easy reasonable farm. By looking at
trend in a particular ratio one can see whether it is increasing or decreasing or
constant. So a problem is unearthed and good management is observed.

5. FUND FLOW STATEMENT:-
Fund flow statement is a statement of sources of funds and application of
funds or net working capital. It is a technical device designed to highlight the
changes in the financial conditions of business enterprise between two balance
sheet dates.

6. CASH FLOW ANALYSIS:-
Cash flow statement is statement of actual flow of movement of cash in
and out of an enterprise or a statement showing change in cash position from
one period to another. It helps the management in proper planning of cash
resources in an organization.

 RATIO:-
USE OF RATIO ANALYSIS:-


2.


 Useful in financial position analysis: Accounting ratio reveals the
financial position of the concern. This helps the banks, insurance
companies and other financial institutions in lending and making
investment decisions.
 Useful in simplifying accounting figures: Accounting ration simplify
summarized and systemized the accounting figures in order to make the
more understandable and in lucid form.
 Useful in financial forecasting purposes: If the accounting ratios are
calculated for a number of years, then a trend is established. This trend
helps in setting of future plans and forecasting.
 Useful in locating the weak spots of the business: Accounting ratio are of
great assistance in locating the weak spots in the business even though
the overall performance may be efficient.
 Useful in comparison of performance of various departments in the firm.
 Useful in utility to creditors: The creditors or suppliers extend short-
term credit to the concern. They are interested to know whether financial
position of the concern warrants their payments at a specified time or
not.
 Useful in Tax audit requirements: Section 44 AB was inserted in the
income Tax by the finance Act, 1984.Under this Section every assessee
engaged in any business and having turnover or gross receipts exceeding
Rs.40 lakh is required to get the accounts audited by a charted
accountant and submit the tax audit before the due date for filing the
return of income under Section 139(!).


2.


CLASSIFICATION OF RATIO:
I PROFITABILITY RATIO
1. Gross profit ratio
2. Operating ratio
3. Expenses ratio
4. Operating profit ratio
5. Net profit ratio
6. Earning per share

II COVERAGE RATIO

III TURNOVER RATIOS
1. Total asset turnover ratio
2. Stock turnover ratio
3. Debtor turnover ratio
4. Creditor turnover ratio
IV FINANCIAL RATIOS
A. Liquidity ratio
1. Current ratio
2. Quick ratio
3. absolute liquidity ratio
B. Stability ratio


2.


1. Fixed asset ratio
2. Debt equity ratio
3. proprietary ratio

V LEVERAGE RATIO
1. Operating leverage ratio
2. Financial leverage ratio

Classification of Ratios- Ratio may be classified in a number of ways to suit a
particular purpose. The most widely used classifications on the basis of the
nature of accounting ratios. On this basis they are classified into four categories:
• Short – term solvency ratio
• Long – term solvency ratio
• Turnover ratios
• Profitability ratios

Short – term solvency ratios: are those ratios, which measured the liquidity or
short-term solvency of an enterprise. The short – term liquidity refers to
capacity to produce cash with a short notice. Current ratio, quick ratio, absolute
liquid ratio, etc., are examples of liquidity ratios.

Long – term solvency ratios: are ratios, which measure the long – term
solvency of an enterprise, i.e. for a period of five or more years in future. Debt –
Equity ratio, proprietary ratio, solvency ratio, etc are examples of turnover
ratio.


2.


Turnover ratio: refers to ratios, which measures the level of activities, the
performance or the operating efficiency of an enterprise. Stock turnover ratio,
debtor’s turnover ratio, creditor’s turnover ratio, etc are examples of turnover
ratio.

Profitability ratios: Profitability ratios are ratios, which measures the
profitability of a concern. In other words, they are ratios, which reveal the total
effect of business transactions on profit position of an enterprise and indicate
how far the enterprise has been successful in its aim. Gross profit ratios, Net
profit ratio, Return on capital employed, etc are examples of profitability ratio.

The different types of short–term liquidity ratios are as follows:

CURRENT RATIO:
Current assets refer to all those assets which are changed into cash with
in a year are called current assets. Current assets include: cash in hand, cash at
bank, bills receivables, sundry debtors, inventories, outstanding and accrued
incomes, prepaid expenses etc.
Current liabilities refer to all short-term obligations or liabilities that are
required to be repaid with in a period of one year out of short term or current
assets. They include; bills payable, sundry creditors, bank overdraft, provision
for income tax, unclaimed dividend, proposed dividend etc.,


2.


Current ratio is expressed as a pure ratio i.e., as a proportion between
current assets and liabilities. The current ratio can be expressed as;
Current ratio = Current assets/ Current liabilities
The actual current ratio, ascertained with the help of the relevant financial
figures, has to be compared with standard or ideal current ratio of 2:1. If the
actual is less than the standard, the logical conclusion is that the concern dose
not enjoys sufficient liquidity and there is shortage of working capital. On the
other hand, if the actual current ratio is 2:1, it can reasonably be taken as a sign
of liquidity or short-term solvency of the firm.

ABSOLUTE LIQUIDITY RATIO:
Absolute liquidity ratio is the ratio, which expresses the relationship
between absolute liquid assets and quick liabilities. The components of absolute
liquid assets and quick liabilities are cash in a hand, cash at bank, readily
marketable securities refer to and also include all current liabilities except bank
overdraft and cash credit. It is expressed as a pure ratio i.e. as a proportion
between absolute liquid assets and quick liabilities. It is expressed as
Liquidity ratio: = Absolute liquid asset/ Quick liabilities
The ratio reveals clearly whether a concern is liquid or not. In other
words, it is the real measure of short-term solvency of a concern. The actual
absolute liquid ratio is compared with the standard of 1:2. If the actual absolute
ratio is equal to or more than standard, the concern can be taken as liquid. On
the other hand, if actual absolute liquid ratio is too low, the concern is
considered as not liquid.

QUICK RATIO:


2.


Quick Ratio is the ratio between the quick assets and quick liabilities.
Quick assets include all current assets except cash credit and bank overdraft. It
is usually expressed as a pure ratio as-
Quick Assets
Quick Liabilities
It is considered to be superior to current ratio. It is more rigorous and
penetrating test of liquidity position of a company. The ideal liquid ratio Is 1. A
comparison of current ratio and quick ratio is that the quick ratio indicates over
stocking by a concern if it has a low quick ratio.

The different types of Long Term Solvency Ratio are:
DEBIT – EQUITY RATIO:
Debit equity ratio is the ratio between debt and equity of a company. It is
also known as external- internal equity ratio as it relates the owner’s stake in
the business as that of outside debt.
Debt refers to claims of outsiders of a company. The claims of outsiders
are Debenture and Bonds, Loan on mortgages, Security deposit with company,
fixed deposits, unsecured loans, and all current liabilities. Equity is the claims of
insiders, which include Equity Share holder, preference Share Capital, Reserves
and surplus, profit and loss account. Debt- Equity Ratio is expressed as –
Debt (Claims of Outsiders)
Equity (Claims of Insiders)
This ratio indicates the extent to which the firm depends on outsiders for
its existence. Excessive dependence leads to insolvency. If the ratio is 1, it is
considered to be quit satisfactory if shareholders funds are equal to borrowed
funds. A lower ratio is not desirable.


2.


PROPRIETARY RATIO:
It establishes relationship between the proprietor’s fund or share
holder’s fund and the total tangible assets. It is a variant of debt-equity ratio.
Proprietary fund is the total of fixed assets and current assets where by
current liabilities is deducted. Tangible assets include net fixed assets, current
assets and investments but all fictitious assets should be excluded. It is
expressed as percentage as-
Proprietor’s fund/shareholders fund/ net worth
Total tangible assets
The ratio reveals the owner’s contribution to the total value of assets. It
Shows the strength of financial position of the concern and serves as a
Measure of long concern and Term solvency.

The different types of profitability Ratio are:
GROSS PROFIT RATIO:
Gross profit ratio is ratio. Which express the relationship between gross
profit and sales. Gross profit is the profit a concern earns on its trading i.e.,
purchase and sale of goods. Sales refer to total sales i.e., cash sales plus credit
sales. But they represent net sales i.e., total sales less returns.
The gross profit is expressed as a percentage as
Gross profit x 100
Net sales

It discloses the gross result of trading or overall margin with in which a
business undertaking must limit its operating expenses to earn sufficient profit.
It also indicates whether the average mark-up on goods has been maintained or


2.


not. The actual ratio is compared with gross profit ratio of the previous year and
those of other concern carrying on similar business. If the actual is high, it is an
indication of good results. On the other hand, if actual gross profit is too low, it
is an indication of poor results.

NET PROFIT RATIO:
Net profit ratio is ratio of net profit to sales. Net profit means final
balance of operating and non-operating expenses. A sale means total sales, but
net sales are total sales less returns. It is usually expressed as a percentage as-
Net profit x 100
Net sales
It indicates the quantum of profit earned by a concern. A high net profit
ratio indicates that profitability of enterprise is good. On the other hand, a low
net profit ratio indicates that profitability of enterprise is poor.

OPERATING COST RATIO:
Operating ratio is ratio between operating cost and sales. Operating cost
refers to all expenses incurred for operating or running a business. It comprises
cost of goods sold and operating expenses such as office and administration
expenses and selling and distr4ibution expenses. It may be noted that sometime
financial expenses also are included. Sales refer to net sales i.e., sales less
return. It is usually expressed as a percentage as-
Operating Cost x 100
Net Sales


2.


It indicates the efficiency of management in conduct of business. A low
operating ratio is an indication of operating efficiency of business. A high
operating ratio is indication of operating efficiency of business.

ADMINISTRATION EXPENSES RATIO:
It is a ratio, which expresses the relationship between administrative
expenses and sales. It refers to all expenses which are incurred for general
administration of concern like salaries, office rent, printing and stationery, etc.
A sale is total sales less returns. It is usually expressed as a percentage as-
Administrative expenses x 100
Net Sales
It indicates the economy and efficiency in general administration of a
low ratio indicates economy and efficiency in general administration of concern.
On the other hand, a high administrative expense ratio is an indication of
inefficiency in the general administration of concern. Selling and distribution
expenses ratio is the ratio that expresses the relationship between selling and
distribution expenses and sales. It refers to all those expenses incurred for
selling and distribution of goods , like advertisements, cash discounts, allowed,
etc. A sale is Net sales less returns. This ratio is usually expressed as a
percentage. It is expressed as-

Selling and distribution expenses x 100


2.


Net sales
The selling and distribution expenses ratio indicates the economy and
efficiency in selling and distribution. A low ratio is an indication of economy and
efficiency in selling and distribution. A high ratio is an indication of inefficiency.

RETURN ON INVESTMENTS/RETURN ON CAPITAL:

Return on capital employed ratio is the ratio between returns on capital
employed and the capital employed. Return on capital employed means
operating profit or net profit before deducting interest on long term loans,
deposits, debentures and taxe4s. Capital employed refers to total long-term
funds employed or used in business. This ratio is a expressed as percentage as –

Return on capital employed x 100
Capital employed

This ratio is a measure of productivity of capital employed in the
business. It indicates the overall profitability of the business. The standard or
ideal return of capital employed ratio is about 15%. So if the actual ratio is equal
to or more than 15% it is an indication of higher productivity of capital
employed. On the other hand, if the actual ratio is less than 15%, it is an
indication of lower productivity of capital employed.

EARNINGS PER SHARE:
The earning per share helps in determining the market price of the
equity shares of the company. A comparison of earning per share of the
company with another will also help to know whether the equity share capital is
being effectively used or not. It also helps in estimating the company’s capacity


2.


to pay dividend to its equity shareholders. The earnings per share is expressed
as-

Net profit available to equity shareholders x 100
No. of Equity share

LIMITATION OF RATIO ANALYSIS:
 Limited use of a single ratio: A single ratio, usually, does not
convey much of a sense. To make a better interpretation a
number of ratios have to be calculated which is likely to confuse
the analyst than help him in making any meaningful conclusion.
 Lack of adequate standards: there are no well accepted standard
or rules of thumb for all ratios which can be accepted as norms.
 Price level changes: While making ratio analysis, no consideration
is made to the changes in price levels and this make the
interpretation of ratio invalid.

 Ratio no substitutes: Ratio analysis is merely a tool of finance
statements. Hence, ratios become useless if separated from the
statements from which they are computed.

 COMPARATIVE STATEMENT:-
The comparative of two different periodical financial statements by
putting them on separate sides and finding out the changes with respect of each


2.


item of the statement and overall changes in absolute and relative changes is
called comparative statement. The comparative statement may show:
 Absolute figure (rupee amounts)
 Changes in absolute figures i.e., increase or decrease in absolute
figure.
 Absolute data in terms of percentages.
 Increase or decrease in terms of percentages.
The financial data will be comparative only when same accounting
principles used in preparing these statements. The two comparative statements
are:
1) Comparative Balance Sheet.
2) Comparative Income Statement.

Guidelines for Interpretation of Comparative Balance Sheet:
1) Current financial position and liquidity position.
2) Long-term financial position.
3) Profitability of the concern.

 COMMON SIZE STATEMENT:-
Common size statement is the statement which facilitates to compare the
financial statement of not only one company but also of different companies and
financial statements prepared over a time period. A common size statement

balance shows the percentages of all assets and liabilities. . The two common
size statements are:


2.


1) Common –size Balance Sheet.
2) Common- size Income Statement.

 TREND ANALYSIS:-
The financial statement may be analyzed by computing trends of series of
information. The tendency of a variable over a period of time is known as trend.
The trend analysis enables to know the changes in the financial position and
operational efficiency between the period chosen.
This method determines the direction upwards or downwards and
involves the computation of the percentage relationship that each statement
item bears to the same in base year. The information for a number of years is
taken up and one year, generally the first year, is taken as a base year.

 FUND FLOW STATEMENT:-
The fund flow statement is a statement, which shows the movement of
funds and is a report of the financial operations of the business undertaking. It
indicates various means by which funds were obtained during a particular
period and the ways to which these funds were employed. In simple words, it is
a statement of sources and applications of funds.
The terms ‘flow’ means movement and includes both ‘inflows’ &
‘outflow’. The term ‘flow of funds’ means transfer of economic values from one
asset of equity to another. Flow of funds is said to have taken place when any
transaction makes changes in the amount of funds available before happening
of the transaction. If the effect of transaction results in the increase of funds, it is
called a source of funds and if it results in the decrease of funds, it is known as


2.


an application of funds. Further, in case the transaction does not change funds,
it is

said to have not resulted in the flow of funds. According to the working capital
concept of funds, the term ‘flow of funds’ refers to the movement of funds in the
working capital. If any transaction results in the increase in working capital, it is
said to be a source or inflow of funds and if it results in the decrease of working
capital, it is said to be an application or outflow of funds.

Uses, Significance and Importance of funds flow statement:
1. It helps in the analysis of financial operations
2. It throws light on many perplexing questions of general interest
3. It helps in the formation of realistic dividend policy
4. It helps in the proper allocation of resources
5. It helps in appraising the use of working capital

LIMITATIONS OF FUNDS FLOW STATEMENT
1. It should be remembered that a funds flow statement is not a substitute
of an income statement or a balance sheet.
2. It cannot reveal continuous changes.
3. It is not an original statement but simply a re-arrangement of data given
in the financial statement.
4. It is essentially historic in nature and projected funds flow statement
cannot be prepared with much accuracy.

 CASH FLOW STATEMENT:-


2.


Cash flow means inflow and outflow of cash. A Cash flow statement
depicts the changes in position of an organization from one period to another.
The difference between cash inflows and cash outflows is known as net cash
flow which can be either net cash inflow or net cash outflow.

The company in respect of which AS-3 is mandatory is required to
comply with AS-3 under Sec. 211 of the companies Act, 1956.This means that
statutory auditors of such companies are required to give an assertion in
respect of companies with AS-3.

CLASSFICATION OF CASH FLOWS:
1) Operating Activities: Operating activities are the principal
revenue activities of the enterprise. Example of cash flow
operation are:
 Cash payments of wages.
 Cash receipts from royalties, fees, commission and other
revenue.
 Cash payment to suppliers for goods and services.

2) Investing Activities: These are the acquisition and disposal of
loan term assets and other investments not included in cash
equivalents. Example of cash flow arising from investing activities
are:
 Cash receipts from disposal of fixed assets.


2.


 Cash payment to acquire fixed assets.
 Cash advances and loans made to third parties.
3) Financing activities: These are the activity that in changes in the
size and composition of the owner’s capital and borrowing of the
enterprise. Examples of cash flow arising from investing activities
are:
 Buy back of equity shares.
 Cash receipts from loans raised.
 Cash receipts from issue of shares and debentures, etc.

OBJECTIVES AND USES OF CASH FLOW STATEMENT:
1) Useful in cash planning.
2) Payment of dividend.
3) Cash from investing and financing activities.
4) Assesses cash flow from operating activities.
5) Explains reasons for surplus or shortage of cash.

LIMITATIONS OF FINANCIAL STATEMENTS ANALYSIS:-
1) Financial statement contains only those transactions which are in monetary
value and not the transaction which are non monetary factor such as cordial
relationships prevailing among workers reputation and prestige of
management etc.
2) Financial statements are competed 0n historical cost and there cannot
disclose the current work of an enterprise.


2.


3) Financial statements are based on certain accounting concepts and
conventions become unrealistic, of the result of such will be in accurate and
misleading.
4) Financial statement may not be quite helpful for inter firm comparison as
different firm adopted different accounting method.
5) Financial statement is influenced by personal judgment which may lead to
distorting the real picture of the state of affairs of concern.

RESEARCH – DESIGN – STUDY
Research design of study is a conceptual structure a sketch or plan laid
out for conducting the study. It is considered as a blue print of the final copy of
the project where it shows the activities undertaken while doing the study. It
constitutes the steps taken beginning with of collection of clarifying it.
Analyzing, interpreting, processing and finally putting it is a actual form.

2.1 Statement of problem:-


2.


The problem statement is that whether the company takes into
consideration external analyzed point of view with the help of past & latest
financial statement .financial position will try to be analyzed impartially.
There analysis gives a comprehensive performance evaluation in the
financial parameter of company’s financial performance. This will help in certain
decision making financial aspects of the company’s polices.

2.2 OBJECTIVE OF STUDY:
To overview the financial position of the company
 To Identify the factors affecting the finance and operational
performance
 To analyze the performance of company by ratio analysis
comparative balance sheet common size balance sheet and cash flow
statement
 To give certain suggestions on the basis of findings and conclusion
drawn.

2.3 SCOPE OF STUDY:
The study covers ratio analysis comparative balance sheet, common size
balance sheet and fund flow statement and accuracy of which purely depend on

the accuracy of financial statement and data found in annual reports available in
previous accounting periods.

2.5 REVIEW OF LITERATURE:


2.


 Basic Accounting : Sofat & Hiro
 Financial Accounting : A Dynamic approach
 Financial statement Analysis : Sinha
 Cost And Financial analysis : Shashi Gupta

2.4 METHODOLOGY:
The research methodology may be understood as science of studying
how research is done scientifically. It is a way to systemically solve the research
problem. In this research, an effort has been made to study the financial
condition and history of NCL .The performance is analyzed by different
technique of financial analysis and conclusion is drawn.

2.5 RESEARCH DESIGN:
For this research work description design used . It includes surveys &
fact finding enquiries of different kinds. The major purpose of descriptive
researcher has no control over the variable and the researcher can only report
what has happened and what is happening. This study tries to Financial
statement analysis in NCL company.

2.6 DATA SOURCE:
PRIMARY DATA:
The information collected for first time is called primary data. In
this research work the researcher adopted the operational and financial
performance of company through the direct interviews with finance personnel
and other employee of finance department.


2.


SECONDARY DATA:
The data is taken out from the published annual reports of the
company. In this research work, the researcher used books, broachers and
catalogs, official reports, website of company.

2.7 TECHNIQUES OF ANALYSIS:
The data are analyzed through ratio analysis common size
balance sheet, comparative balance sheet and fund flow analysis.

2.8 LIMITATIONS OF THE STUDY:
1) The study is conducted purely on the data made available as per the
financial statements of the company and interferences were drawn
on theoretical conventions.
2) The period of study was very less.
3) The conclusions have been drawn with not much comprehensive and
practical knowledge about the concern.

2.9 CHAPTER SCHEME:
 Introduction.
 Research & Design.
 Company profile.
 Theoretical Background.
 Data analysis Interpretation.
 Summary of findings.


2.


 Recommendation & conclusion.
 Bibliography.
 Annexure.

3.1 HISTORY AND BACKGROUND OF THE COMPANY

Natural Capsules Limited is a Public Limited Company established in the
year 1993 at Bangalore and in the year 2003 at Pondicherry. Natural Capsules
Limited is a well-equipped modern manufacturing plant to manufacture Hard
Gelatin Capsule shells, Hard Cellulose Capsule shells and Pharmaceutical Dosage
Forms in Capsule Dosage Form. The Company meets the statutory requirements
as laid down by the authorities in respect to cGMP and cGLP practices. Since its
inception, Natural Capsules has ensured to provide turnkey solutions to all its
customers. NCL has evolved and strengthened its endeavors by constantly
innovating through its excellent products. With a mission to enable “Technology
Assisted Business Transformation”, NCL ensure to deliver the best products
with a technological edge. The Company meets the statutory requirements as
laid down by the authorities in respect to cGMP and cGLP practices. Since its
inception, Natural Capsules has ensured to provide turnkey solutions to all its
customers. NCL has evolved and strengthened its endeavors by constantly
innovating through its excellent products. With a mission to enable “Technology
Assisted Business Transformation”, NCL ensure to deliver the best products
with a technological edge.


2.


3.2 NATURE OF ITS BUSINESS
The main objective of the company is to manufacture and market Hard
Gelatin Capsule shells and Hard Cellulose Capsule Shells (both printed and
unprinted). These capsules are sold in domestic and also exported to several
countries. The logical integration of NCL hard shell manufacturing to
formulation was initiated in the year 1998.The company is also engaged in
formulating the pharmaceutical dosage forms in Capsule dosage form, both
Pharma and Neutraceutical Products. The company is fully committed to
upgrade its facilities on a continuous basis to meet the requirements of National
and International

Standards, cGMP and cGLP practices. Natural Capsule has been serving the
pharmaceutical industry over a decade, comprising of two units – one at
Bangalore and other at Pondicherry.
The Pharmaceutical and Dietary supplement industries count on Natural
Capsules to supply hard two-piece Gelatin and Cellulose capsules. With
manufacturing sites at Bangalore and Pondicherry, we are serving customers on
quick service no matter where they are located. For the past 12 years, with the
greatest respect to the Customers, Natural Capsules has dedicated itself to the
production of the highest quality capsules.

3.3 BOARD OF DIRECTORS

Promoter Executive Directors 1) Sunil l Mundra--Managing Director
2)Laxminarayan—Wholetime Director


2.


Promoter Non Executive Directors 1) Sushi Kumar mundra—Director

Non Executives Independent Directors 1) S.Gopalan—Chairman
2) V.Balaji Bhatt--Director

3.4 MARKET SHARE

Around 4984 shareholders are of NATURAL CAPSULES LTD in the share

market. The present share is rupees 39 in the share market.

3.5 PROSPECTUS AND GROWTH

The growth of the company is linked to development of Pharmacy
sector. NCL’s world class technological knowledge & facilities provides a
magnitude of solutions to suit every customer’s need whether big or small.
During the year under review, the company’s turnover increased by 13% and
the company has

earned a Nat profit (before tax) of Rs.641.00 lacks as against net profit of
Rs.616.33 lacks in the previous year.
An amount of Rs.565.00 lacks was ploughed back from profits for funding
the ongoing expansion at Pondicherry. The export of the company has increased
by 33% during the year under consideration. Though there is drop in sales
realization due to rupee appreciation, with the commissioning of new
machineries in phases in the current year your Directors are hopeful of
maintaining the performance.


2.


3.6 PRODUCT PROFILE

NCL’s constant endeavors to research & most customer specific
requirement have resulted in manufacture of a wide range of capsules. The
Cellulose capsules and newly introduced variants form a part of NCL’s niche
products. NCL’s facility of dedicated manufacturing lines adopts stringent
procedures to manufacture hard Gelatin Capsules. Each of this manufacturing
line is housed as an independent unit to eliminate the risk of cross
contamination.

NAME OF THE PRODUCT

1. Hard Gelatin capsule shells.

2. Hard cellulose capsule shells.

3. BSE/TSE free Gelatin capsule shell.

4. Shiny Gelatin capsule shell.

5. SLS Free Gelatin capsule shell.

6. Halal certified Gelatin capsule shell.

7. Fortified Gelatin capsule shell.

8. Sweet Gelatin capsule shell.

9. Fast Release Gelatin capsule shell.


2.


10. Printed Gelatin/cellulose capsule shell.

3.7 OFFICE & MANUFACTURING UNITS

1. REGISTERED OFFICE.

102/, “Shreshta Bhumi”
No.87, K.R. Road,
BANGALORE—560004
KARNATAKA.
PH No.080-2667 1562,
E-mail: info@naturalcapsules.com

2. MANUFACTURING UNIT.
Plot No.7A2,
KIADB Industrial Area,
Attibele-562107
Bangalore.
PH No.08110-645068.

3.8 COMPETITORS

After the new economic policy in 1991, the economy opened its flood
gates to foreign investments and foreign companies to start their business in
India. As a result of this, ,many multinationals came into existence to compete
domestic industries in all sectors competitions from many MNC’s, domestic
industries and global industries such Ranbaxy Laboratories, Dr. Reddy's


2.


Laboratories, Cipla, Nicholas, Primal, Aurobindo Pharmacy, GlaxoSmithKline,
Lupin Laboratories, Sun Pharmaceutical Industries, Cadila Healthcare,
Wockhardt etc.

3.9 QUALITY CONTROL

“Dedication towards quality is the foundation for prosperity’, produce

quality products, capture global markets, excellence in the goal quality is the

soul and so on goes the caption adopted by NCL of quality control.

The Quality Control measure starts with the usage of the best indigenous
pharmaceutical grade Gelatin – the main raw material required for the
manufacturing, atomized capsule manufacturing machines, a sophisticated
quality control laboratory, a well documented system has put Natural Capsules
to produce consistently Zero Defect Product meeting to Customer requirement .
NCL takes no chances where quality is concerned. At Natural Capsules
Limited, Quality Assurance plays an integral part in monitoring all critical
process parameters like, temperature and humidity, measurable parameters
like, weight, length, outside diameter, dome thickness, wall thickness, profile,
physico-chemical & bacteriological tests and well defined systematic approach
that eliminates error in every stage of production to explore a product to meet
the customer requirement /satisfaction.

3.10 Milestone Of Natural Capsules Ltd.

YEAR


2.


1993 Natural Capsules Limited was incorporated as a Public Limited.
Company on 20th September with the Registrar of Companies,
Karnataka at Bangalore.
1994 The company has obtained the Certificate of Commencement of business
on the 19th January. The immediate objective of the company is to set
up
Manufacturing facilities for manufacture of Empty Hard Gelatin
Capsules with an installed capacity of 980 million Nos. per annum.
1995 The Company has acquired land admeasuring 8165 sq. miters.
From Karnataka Industrial Areas Development Board (KIADB) on lease
Cm sale basis.

1999 The Company has set up facilities for manufacture of finished
Pharmaceutical formulations during the year.

2000 The Company has entered into agreement with CDSL & NSDL for
Dematerialization.

3.11 MISSION

1. To be header in the Pharmaceuticals industry.
2. Be the Best Service provider to the Customers all around.
3. Continuous quality improvement and cost reduction.
4. To increase the share in defense products.

3.12 VISSION


2.


1. passion for a balance growth
2. Internal focus
3. External focus
4. Focus on the present

3.13 OBJECTIVES

1. Customers satisfaction is of cordial value of NCL
2. Human assets are invaluable are individual resource, develop their
competencies
3. Mutual trust and prosperity determine healthy vendor relationship
4. Transparency in all our operation.
5. High concern for quality safety and warm environment in managing
operation.
6. Passion for share holder’s interest.


2.


4.1 TABLE SHOWING THE CURRENT RATIO:

CURRENT RATIO: (RS IN CRORE)


2.


YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO
2006-07 11.59 7.99 1.45
2007-08 12.57 7.37 1.70
2008-09 15.93 8.54 1.87
2009-10 15.42 9.14 1.69

Sources: Company Financial Statements
Analysis:

The current ratio of the company for the year 2006-07 is 1.45, 2007-08 is
1.70, 2008-09 is 1.87, and 2009-10 is 1.69, the current ratio has increased by
14.71% in the year 2007-08, again increase in year 2008-09 is 9.09%. There was
decrease value is found by 9.63% in year 2009-10.

Interpretation:

From the above table we can indicate that the current assets are more
than current liability of the company. The company has stable current assets in
meeting their liabilities. The company has better liquidity position to met the
demand for the current liabilities this indicates that the company can meet
immediate emergencies. The company stable increased current asset in the


2.


previous year, which had decreased in year 2010 the current ratio, was
gradually decreased by the year it has sufficient short terms solvency.

4.1 CHART SHOWING THE CURRENT RATIO:


2.


1.87
2 1.7 1.69
1.8
1.45
1.6

1.4

1.2

1
RATIO

0.8

0.6

0.4

0.2

0
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.2 TABLE SHOWING THE PROPRIETARY RATIO:

PROPRIETARY RATIO: (RS IN CRORE)

YEAR SHARE HOLDERS FUNDS TOTAL ASSETS RATIO
2006-07 13.25 25.74 0.51
2007-08 16.11 28.78 0.56
2008-09 19.46 35.58 0.55
2009-10 23.09 28.78 0.59

Analysis:

Proprietary ratio of the company for the year 2006 is 0.51, 2007 is 0.56,

and 2008 is 0.55 and also 2009 is 0.59. The proprietary ratio has increased by

8.93% in year 2006-07, and decreased 1.79% in year 2008-09, and there is

increased in positive value is found by 6.78% in the year 09-10.

Interpretation:


2.


From the above table we can state that the company has the promoters
did a sound investment planning. The proprietary ratio had decreased in the
year 2008-09, when compared 2008. This had increased in 2010. In the year
2010 the total assets had increased and share holders fund had also increased.
The proprietary ratio of the company indicates the company had used the only
initial fund to create assets, but also to create the further assets. The proprietor
is more than the assets value.

4.2 CHART SHOWING THE PROPRIETARY RATIO:


2.


0.59
0.6

0.58 0.56
0.55
0.56

0.54
0.51
0.52
RATIO

0.5

0.48

0.46
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.3 TABLE SHOWING THE WORKING CAPITAL TURNOVER

RATIO:

WORKING CAPITAL TURNOVER RATIO: (RS IN CRORE)

YEAR SALES WORKING RATIO

CAPITAL
2006-07 17.72 3.6 4.92
2007-08 20.19 5.2 3.88
2008-09 26.03 7.39 3.52
2009-10 29.00 6.28 4.62

Analysis:

The working capital turnover ratio of the company for the year 2007 is

44.92, 2008 is 3.88 and 2009 is 3.52 and 2010 is 4.62. This ratio has decreased

by 21.14% in the year 2007-08 and the year 2008-09 is decreased by 9.28%,

then it had increased by 23.81% in the year 2009-10.


2.


Interpretation:

From the above table we can indicate that the working capital turn over

ratio of the company has showing a wave movement that in the year 2007 it was

4.92 and it had been decreased in the next year and increased in the year 2010.

We can observe that the working capital turnover ratio increased when

compared in the year 2007-08.

4.3 CHART SHOWING THE WORKING CAPITAL TURNOVER

RATIO:


2.


4.92
4.62
5
3.88
4.5
3.52
4

3.5

3

2.5

2
RATIO

1.5

1

0.5

0
2006-07 2007-08 2008-09 2009-10

YEAR

4.4 TABLE SHOWING RETURN ON INVESTMENT RATIO:

RETURN ON INVESTMENT RATIO: (RS IN CRORE)


2.


YEAR Profit before tax & interest CAPITAL EMPLOYED RATIO
2006-07 3.8 13.25 28.68
2007-08 4.41 15.97 27.61
2008-09 6.26 19.46 32.17
2009-10 6.71 23.09 29.06

Analysis:

The return on investment ratio of the company for the year 2007 is

28.68, 2008 is 27.61, 2009 is 32.17 and 2010 is 29.06. This ratio has decreased

3.73% in the year 2007-08, and then increased by 14.17% in the year 2008-09.

There has small decrease by 9.67% in the year 2009-10.

Interpretation:

From the above table we can indicate that ‘profit before tax & interest' of

the company had increased drastically for the year 2008 to 2009 and decreased

for 2010 which has decrease to return on investment of the company. This

shows that the return on investment in year 2010 is not better than the previous

year.

4.4 CHART SHOWING RETURN ON INVESTMENT RATIO:


2.


33 32.17

32

31
28.68 29.06
30

27.61
29
O
A
R
T
I

28

27

26

25
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.5 TABLE SHOWING NET PROFIT RATIO:

NET PROFIT RATIO: (RS IN CRORE)

YEAR PROFIT AFTER TAX SALES RATIO
2000-01 599.71 134740.03 0.44
2001-02 535.19 142414.87 0.37
2002-03 2610.06 168117.00 1.55
2003-04 2416.60 176574.59 1.36


Analysis:

The net profit ratio of the company for the year 2007 is 15, 2008 is 12.83,

2009 is 15.29 and 2010 is 14.72. This ratio has decreased by 14.47% in year


2.


2007-08 then it is increased by 16.09% in the year 2008-09. There has

decreased by 3.73% in year 2009-10.

Interpretation:

From the above table shows that the net profit of the company has
increased from last two years has result the net profit ratio is also increase. The
company net profit ratio is minimum from first two years and this profit had
grown up, when compared to last two years. This shows the company better to
earn a profit.

4.5 CHART SHOWING NET PROFIT RATIO:


2.


15.29
15.5 15
14.72

15

14.5

14

13.5 12.83
O
A
R
T
I

13

12.5

12

11.5
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.6 TABLE SHOWING ADMINISTRATION EXPENSES RATIO:

ADMINISTRATION EXPENSES RATIO: (RS IN CRORE)

YEAR Administrative & selling expenses SALES RATIO
2006-07 1.79 17.72 10.10
2007-08 2.03 20.19 10.05
2008-09 3.02 26.03 11.60
2009-10 3.41 29 11.76

Analysis:

The administrative & selling expenses ratio of the company for the year

2007 is 10.10, 2008 is 10.05, 2009 is 11.60 and 2010 is 11.76. This ratio has

decreased by 0.50% in the year 2008; it is increased by 13.36% in the year

2008-09. There has been increase by 1.36% in the year 2009-10.

Interpretation:


2.


From the above analysis we can indicate that the administration & selling
expenses ratio of the company has been not decrease by all the four years. The
administrating & selling expenses decreased indicate the efficiency of the
management of the company. The company should not maintain better
administrative & selling expenses which is the effect the profit of the company.
The company should be very careful to cut down the administration & selling
expenses.

4.6 CHART SHOWING ADMINISTRATION EXPENSES:


2.


11.76
12
11.6

11.5

11

10.1
10.5
10.05
O
A
R
T
I

10

9.5

9
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.7 TABLE SHOWING TOTAL ASSETS RATIO:

TOTAL ASSETS RATIO: (RS IN CRORE)

YEAR TOTAL ASSETS CAPITAL EMPLOYED RATIO
2006-07 25.74 13.25 1.94
2007-08 28.78 15.97 1.80
2008-09 35.58 19.46 1.83
2009-10 39.3 23.09 1.70


Analysis:

The total asset ratio of the company for the year 2007 is 1.94, 2008 is

1.80, 2009 is 1.83 and 2010 is 1.70. This ratio has decreased by 7.22% in the


2.


year 2007-08; it has increased by 1.64% in the year 2008-09. This ratio has

decreased by 7.10% in the year 2009-10.

Interpretation:

From the above analysis we can indicate that the total assets ratio of the

company has increased for last two years and decreased in the year 2008 &

2010. The company has shown the higher productivity of the total resources.

The usage of the total resources was optimum leading to profitability and it has

straightly gone up in 2010 thus incurring profit.

4.7 CHART SHOWING TOTAL ASSETS RATIO:


2.


1.94
1.95

1.9
1.83

1.85 1.8

1.8

1.7
1.75
RATIO

1.7

1.65

1.6

1.55
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.8 TABLE SHOWING DEBT EQUITY RATIO:

DEBT EQUITY RATIO: (RS IN CRORE)

YEAR TOTAL DEBT SHARE HOLDERS FUNDS RATIO
2006- 2.74 13.25 0.21
07
2007- 1.19 16.11 0.07
08
2008- 6.29 5.68 0.32
09
2009- 5.68 23.09 0.25
10

Analysis:

The debt equity ratio of the company for the year 2007 is 0.21, 2008 is

0.07 and 2009 is 0.32 and 20010 is 0.25. The debt equity ratio has decreased

66.67% in 2008 and ratio has been increased %78.13 in the year 2009 and

again decreased by 21.88%, in the year 2010.

Interpretation:


2.


From the above table state that we can infer that the share holders funds

is more than the debt of the company the company debt equity ratio is very

much control to indicate it much lower than industrial norm. It indicate that the

company had declined much more money from the promoters it is clear from

last year performance of the company debt equity is not subsequently decreased

the debt equity ratio of the company up to the industrial standards, which

indicates that the company is in good long term solvency

4.8 CHART SHOWING DEBT EQUITY RATIO:


2.


0.35 0.32

0.3
0.25

0.25 0.21

0.2

0.15
RATIO

0.07
0.1

0.05

0
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.9 TABLE SHOWING QUICK RATIO:

QUICK RATIO: (RS IN CRORE)

YEAR QUICK ASSETS CURRENT LIABILITY RATIO
2006- 10.22 7.99 1.28
07
2007- 10.63 7.37 1.44
08
2008- 14.42 8.54 1.69
09
2009- 14.06 9.14 1.54
10

Analysis:

The quick ratio of the company for the year 2006-07 is 1.28, 2007-08 is

1.44, 2008-09 is 1.69 and 2009-10 is 1.54. The quick ratio has increased by

11.11% in the year 2007-08 and the year 2008-09 is increased by 14.79% there

is decreased value found by 8.88% in the year2009-10.

Interpretation:


2.


For the above table we can infer that in year 2007 the company had a

quick ratio of 1.28 indicating. The company must be investing their cash on

assets or a short term lending. The ratio had increased in the year 2008 and

again it had increased in the year 2009 and decrease in last years. However it

represents the company ability to their immediate cash requirements. In the

year 2010 the quick ratio is 1.54% if current liability which indicates that the

company has good solvency

4.9 CHART SHOWING QUICK RATIO:


2.


1.69
1.8
1.54
1.6 1.44
1.28
1.4

1.2

1

0.8
RATIO

0.6

0.4

0.2

0
2006-07 2007-08 2008-09 2009-10

YEAR

4.10 TABLE SHOWING ABSOLUTE RATIO:


2.


ABSOLUTE RATIO: (RS IN CRORE)

YEAR ABSOLUTE ASSETS CURRENT LIABILITIES RATIO
2006- 0.16 7.99 0.020

07
2007- 0.77 7.37 0.104

08
2008- 0.13 8.54 0.02

09
2009- 0.11 9.14 0.012

10

Analysis:

The absolute ratio of the company for the year 2007 is 0.020, 2007 is
0.104, and 2008 is 0.20, and 2010 is 0.012.The absolute ratio has increased by
80.77% in the year 2007-08, and decreased 80.77% in the year 2008-09 and
again decreased 40% in the year 09-10.

Interpretation:
From the above table we can state that absolute ratio of the company had
fluctuated from the year to year. This ratio had increased in the year 2008 when
compared last years. Here the absolute assets is not increased constantly and
the current liabilities had increased the absolute ratio of the company indicate


2.


the company is maintain a sufficient cash balances to met the emergency
requirements in year 2010. It shows the liquidity of the company is Average.

4.10 CHART SHOWING ABSOLUTE RATIO:


2.


0.12 0.104

0.1

0.08

0.06
RATIO

0.04
0.02
0.02
0.012

0.02

0
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.11 TABLE SHOWING OPERATING RATIO:

OPERATING RATIO: (RS IN CRORE)

YEAR OPERATING PROFIT SALES RATIO
2006- 4.74 17.73 26.73

07
2007- 5.54 20.19 27.44

08
2008- 7.43 26.03 28.54

09
2009- 7.78 29.00 26.83

10

Analysis

The operating ratio of the company for the year 2007 is 26.73, 2008 is

27.44, 2009 is 28.54 and 2010 is 26.83. This ratio has increased by 2.59% in the

year 2008 and again ratio is increased 3.85% in the year 2009. There is a

decrease of 5.99% in the year 2010.


2.


Interpretation

From the above table indicate the operating cost of the company has

been increased in year 2008 and 2009. There is direct relationship between

operating expenses and sales. This ratio has decreased which indicate the

effective management of cost. The industry average for any company should not

more than 80% of this ratio.

4.11 CHART SHOWING OPERATING RATIO:


2.


29
28.54

28.5

28
27.44

27.5

26.83
27 26.73
RATIO

26.5

26

25.5
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.12 TABLE SHOWING RETURN ON SHAREHOLDERS FUND

RATIO:

RETURN ON SHAREHOLDERS FUND RATIO: (RS IN CRORE)

YEAR OPERATING PROFIT SHARE HOLDERS FUND RATIO
2006- 4.74 13.25 35.77

07
2007- 5.54 16.11 38.18

08
2008- 7.43 19.46 38.18

09
2009- 7.78 23.09 33.69

10

Analysis:

The return on shareholders’ fund ratio of the company for the year 2007

is 35.77, 2008 is 34.39, 2009 is 38.18 and 2010 is 33.69. This ratio has

decreased by 3.86% in year 2008, then it had increased by 9.93% and it had

decreased by 11.76% in the year 2010.

Interpretation


2.


From the above table shows that the return on share holders fund ratio

had decreased in the first year and it had been increased in year 2009. The

shareholders fund had decreased in year 2010 when compared to last 3 years.

The operating profit has more share holders fund also more. When the company

gets amore profit the share holders invest more funds in the company’s shares.

4.12 CHART SHOWING RETURN ON SHAREHOLDERS FUND

RATIO:


2.


38.18
39

38

37
35.77
36

34.39
35
33.69
RATIO

34

33

32

31
2006-07 2007-08 2008-09 2009-10

YEAR

4.13 TABLE SHOWING FIXED INTEREST COVER RATIO:

FIXED INTEREST COVER RATIO: (RS IN CRORE)


2.


YEAR OPERATING PROFIT INTEREST CHARGED RATIO
2006- 4.74 0.19 24.94

07
2007- 5.54 0.12 46.17

08
2008- 7.43 0.10 74.3

09
2009- 7.78 0.31 25.10

10


Analysis

The fixed interest cover ratio of the company for the year 2007 is
24.94,2008 is 46.17, 2009 is 74.3 and 2010 is 25.10. This ratio has increased by
45.98% in the year 2008; again it will increased by 37.86% in the year 2009.
And decreased by 66.22% in the year 2010.

Interpretation:

From the above analysis shows that the fixed interest cover ratio has
increased. The interest charged from the operating profit decreased from year
to year leads to increase in the fixed interest cover ratio. The operating profit in
year 2010 is not more than 2007 to 2009 and the interest is very high from the


2.


same year when compared to previous years. This shows that the company has
barrowed more funds by others.

4.13 CHART SHOWING FIXED INTEREST COVER RATIO:

74.3
80

70

60
46.17
50

40
24.94 25.1
RATIO

30

20

10

0
2006-07 2007-08 2008-09 2009-10

YEAR


2.


4.14 TABLE SHOWING CAPITAL EMPLOYED RATIO:

CAPITAL EMPLOYED RATIO: (RS IN CRORE)

YEAR SALES CAPITAL EMPLOYED RATIO
2006- 17.73 13.25 1.34

07
2007- 20.19 15.97 1.27

08
2008- 26.03 19.46 1.34

09
2009- 29.00 23.09 1.26

10


2.



Analysis:

The capital employed ratio of the company for the year 2007 is 1.34,

2008 is 1.27, 2009 is 1.34 and 2010 is 1.26.This ratio has decreased by 5.22% in

the year 2007-08, it is increased by 5.22% in the year 2008-09, than it will

decreased by 5.97% in the year 2009-10.

Interpretation:

From the above analysis we can infer that the capital employed ratio

during the first year of operation, company has lesser sales. Company was not

Maintaining a low capital turn over, there has been increased the capital

turnover ratio from the year 2007 and 2010.

4.14 CHART SHOWING CAPITAL EMPLOYED RATIO:


2.


1.34 1.34

1.34

1.32

1.3

1.27
1.28
1.26
RATIO

1.26

1.24

1.22
2006-07 2007-08 2008-09 2009-10

YEAR

4.15 TABLE SHOWING FINANCIAL LEVERAGE RATIO:


2.


FINANCIAL LEVERAGE RATIO: (RS IN CRORE)

YEAR OPERATING PROFIT PROFIT BEFORE TAX RATIO
2006- 4.74 3.64 1.30

07
2007- 5.54 4.30 1.29

08
2008- 7.43 6.17 1.20

09
2009- 7.78 6.41 1.21

10


Analysis:

The financial leverage ratio of the company for the year 2007 is 1.30,

2008 is 1.29, 2009 is 1.20 and 2010 is 1.21.This ratio has decreased by 0.77% in

the year 2007-08, again also decreased by 6.98% in the year 2008-09 and again

has decreased by 0.83% in the year 2009-10.

Interpretation:

From the above analysis we can state that the financial leverage ratio has
decreased last 3 years. The profit before tax has increased for last 3 years. This
shows that expenses through interests have been increased in the year 2009


2.


which indicates that the borrowing funds have increased in the year. Hence the
operating profit has high and the profit before tax has low for the y ear 2004.
This shows that the company has paid less interest for their borrowers.

4.15 CHART SHOWING CAPITAL FINANCIAL LEVERAGE RATIO:


2.


1.3
1.29
1.3

1.28

1.26

1.24
1.21
1.22 1.2
RATIO

1.2

1.18

1.16

1.14
2006-07 2007-08 2008-09 2009-10

YEAR

4.16 TABLE SHOWING MATERIAL CONSUMED RATIO:


2.


MATERIAL CONSUMED RATIO: (RS IN CRORE)

YEAR MATERIAL CONSUMED SALES RATIO(%)
2006- 7.45 17.73 42.02

07
2007- 8.24 20.19 40.81

08
2008- 10.18 26.03 39.11

09
2009- 11.39 29.00 39.28

10

Analysis:

The material consumed ratio of the company for the year 2007 is 42.02,

2008 is 40.81, 2009 is 39.11 and 2010 is 39.28. This ratio has been decreased by


2.


2.88% in the year 2007-08; again it has decreased by 4.66% in the year 2008-

09.There was positively increased by 0.43% in the year 2009-10.

Interpretation:

From the above analysis we can infer that the percentage of material

consumed has increased. If the material consumed and sales increases the ratio

also increases, when the material consumed has decreases the ratio also

decreased. This shows that the company has consumed more and more material

leads to increased in the sales.

4.16 CHART SHOWING MATERIAL CONSUMED RATIO:


2.


42.5 42.02

42

41.5 40.81

41

40.5

40
39.28
39.11
RATIO

39.5

39

38.5

38

37.5
2006-07 2007-08 2008-09 2009-10

YEAR

4.17 TABLE SHOWING EARING PER SHARE RATIO:


2.


EARING PER SHARE (EPS):
(RS IN CRORE)

Year Profit after tax Number of equity Earnings
shares per share
2006-2007 2.46 0.43 5.72

2007-2008 2.59 0.45 5.76

2008-2009 3.98 0.45 8.84

2009-2010 4.27 0.45 9.48


ANALYSIS:
The equity per share ratio of the company for the year 2007 is 5.72, 2008

is 5.76, 2009 is 8.84 and 2010 is 9.48. This ratio has been increased by 0.69% in

the year 2007-08; again it has increased by 34.84% in the year 2008-09.There

was positively increased by 6.75% in the year 2009-10.

INTERPRETATION:

From the above table, it can easily understood that the company EPS is

steadily progressed. The share capital of the company has not increased but


2.


profit after tax is increased without the proportionate increase in the net

income.

4.17 CHART SHOWING EARING PER SHARE RATIO:


2.


9.48
10 8.84

9

8

7 5.76
5.72
6

5
RATIO

4

3

2

1

0
2006-07 2007-08 2008-09 2009-10

YEAR


2.

Ritesh project 1

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (13)

Similar to Ritesh project 1

Similar to Ritesh project 1 (20)

Ritesh project 1