42610615 Ratio Analysis Project Report (1)

7/27/2019 42610615 Ratio Analysis Project Report (1)

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Contents

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Chapter No.

Description

Page No.

Chapter I

Introduction Industry profile Company profile

1-2 3-5 6 - 10 11 - 13

Chapter II

Research Methodology Need for the study Objectives of the study Sources of dataScope & Limitations of the study

Chapter III Chapter IV

Data Analysis and Interpretation Findings & Suggestions Conclusion Annexure Bibliography

14 54 55 56 57 58 59 60

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INTRODUCTIONFinancial Management is that managerial activity which is concerned

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with the planning and controlling of the firms finance. Finance is one of the foundations of all kinds of economic activities. Finance is the life-blood of a business. The financial management study deals with the process of procuring necessary financial resource and their judicious use with a view to maximizing the value of the firm and there by the value of the owners i.e. equity share holders ina company. Practicing managers are interest in this subject because among the most crucial decisions of the firm are those which relate to finance, and an understanding of the theory of financial management provides them with conceptual and analytical insights to make those decisions skillfully.

FINANCIAL MANAGEMENTFinancial Management emerged as a distinct field of study at the turn of this century many eminent persons defined it in the following ways.

DEFINITIONS: According the BONNEVILE AND DEWEY: Financing consists in the rising,providing and managing of all the money, capital or funds of any kind to be used in connection with the business. According to Prof.EZRA SOLOMAN:Financial Management is

concerned with the efficient use of any important economic resource, namely capital funds.

FINANCE FUNCTIONS: It may be difficult to separate the finance functions from production, marketing and other functions, but the functions themselves can be rea

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identified.

The functions of raising funds investing them in assets and

distributing returns earned from assets to shareholders are respectively known as. 1. Long term assets-mix (or) Investment Decision 2. Capital Mix (or) Financing Decision 3. Profit allocation (or) Dividend Decision 4. Short term asset Mix (or) Liquidity Decision

GOALS OF FINANCIAL MANAGEMENT: Maximize the value of the firm to its equity holders. Maximization of profit Maximization of earnings per share. Maximizationof return on equity (defined as equity earnings/net worth) Maintenance of liquid assets in the firm. Ensuring maximum operational efficiency through planning directing and controlling of the utilization of the funds. Building up of adequate reserves for financing growth and expansion.

INDUSTRY PROFILESugarcane is one of the important crops for the Indian Farmer. Sugar and Jiggeryare the main products that we get from sugarcane. Sugarcane

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belongs to the genus SACCHARAM. The word Sugar is derived from the Sanskrit wordSHARKARAM from which the word SACCHARAM seems to have been derived indicates the antiquity of knowledge of sugarcane in India. Sugar Industry is the second largest agro-based industry in India, next to textiles, producing an all time record of 186.22 lakh tones of direct plantation sugar as on 30th Arial, 2003. It hasemerged as the largest vacuum pan sugar producer in the world. Sugarcane is grown in about 102 countries in the world and India occupies the first rank from the point of area followed by Brazil and Cuba. Andhra Pradesh occupies the fifth place with regard to cane and cane production in the country. There are around 490 sugar mills across the

country with an aggregate installed capacity of 16.2 million tones. The historyof sugar industry in India begins in 1903 when a sugar factory was set up in Bihar and U.P each. In 1932 there were 32 factories operating in the country. In India, the cultivation of sugarcane is 10,000 miles tones. The average yield being56 tones per acre of total cultivating land is occupied by sugarcane cultivation. Sugarcane is grown in almost all part of India, except in colder regions andextreme North Jammu& Kashmir, Himachal Pradesh. The industry has developed at afast rate in Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. In India U.Pleads other States in Sugarcane production, followed by T.N and Maharashtra. Sugar comes under the Essential Commodities Act. Ipso facto, there has been control on all facets of the sugar trade. The licensing regime that regulates the installed capacity, the minimum support price for cane, the

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reservation of can area for mills and the control over price and movement of sugar as well its byproduct molasses, have all triggered a situation totally out ofsync with market realities. The Central Government will allot monthly sales sugar quota for each factory based on the stock available in the concerned factoryGodown. The Central Government removed the controls imposed under the EssentialCommodities Act, 1955 on stocking and movement and requiring licensing of dealers in respect of specified commodities with effect from 14th March, 2002 vide government of Indias Notification No. GSR 104(E), dated 15th February, 2002. With the coming into effect of the above order any dealer may freely by, stock, sell, transport, distribute, dispose, acquire, use or consume any quantity of wheat, paddy/rice, coarse grains, sugar, edible oil seeds and edible oil and shall not require a permit or license therefore under any order issued under the Essential Commodities Act, 1955.

Area wise distribution of sugar industry in A.P.S.No1

SectorCo-operative

No. of Industries18

Costal Area12

Rayalaseem a4

Telangana27


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2 3

Public sector Private sector Total

7 11 36

1 8 21

1 2 7

5 1 8

The list of Co-operative Sugar factories in A.P. 1. The Chittoor Co-operative sugars ltd, Chittoor.

2. The Chodavaram Co-operative sugars ltd, Chodavaram. 3. The Anakapalle Co-operative sugars ltd, Anakapalle. 4. The Etikuppaka Co-operative agricultural of industrial society ltd, Ethikuppaka. 5. Sir Vijayarama Gajapathi Co-operative sugars ltd. 6. The Amadavalasa Co-operative agricultural industrial society ltd, Srikakulam. 7. The West Godavari Co-operative sugars ltd, Eluru. 8. Palakollu Co-operative agricultural & industrial society ltd, Palakollu. 9. The Thandara Co-operative sugars ltd, Visakapatnam. 10. Nizamabad Co-operative sugars ltd, Nizamabad. 11. Sir Venkateswara Cooperative sugars ltd, Renigunta. 12. The Cuddapah Co-operative sugars ltd, Chennur. 13. The Nandyal Co-operative sugars ltd, Ponnapuram

. 14. The Kovur Co-operative sugars ltd, Nellore. 15. Nagarjuna Co-operative sugars mills ltd, Gurzala. 16. Nampaneni Venkata Rao Co-operative sugars ltd, Hanuman Junction. 17. Sri Hanuman Co-operative sugars ltd, Hanuman Junction. 18. Palair Co-operative sugars ltd, Ammagudem.

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COMPANY PROFILEINTRODUCTION: The Chittoor Co-operative Sugars Limited, Chittoor is the first agrobased major Industry in Rayalaseema area. 22.08.1955 under the APCS Act. It was first registered on

Its area of operation comprises of 192

villages in 21 Mandals. Factory is located along Cudalore - Kurnool National High way No 18, 3 KM towards Kurnool from Chittoor town. It owns 85.96

acres of land. It was first commissioned on 18.1.1963 with a licensed and installed capacity of 1000 tones cane crushing per a day. During 1974 its cane crushing capacity has been expanded to 1600 tones a day. Since 1989 modernization is being done in phases. Presently factory is working at an average cane crushing of1800-2000 tones a day.

Capital Structure: Original project cost was RS.128.50 lakhs. Present value of the Assets as on 31.3.2000 Rs.lakhs a) Land b) Buildings c) Plant & Machinery d)Other Assets e) Transport Vehicles f) Total 497.19 423.85 1155.70 34.73 19.94 2131.41

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Management: At present the elected board has assumed charge on 06.04.2000. The present board of Directors as detailed below: President Board of Directors Employees Director Total 1 14 1 16

Chief Executive & Functioning of various Departments: a) Chief executive of thesociety is Managing Director having a seat on the Board. b) There are five majordepartments: 1. Administrative 2. Engineering 3. Manufacturing 4. Agriculture 5. Accounts & finance c) All aspects of Accounting, sugar cane weighment and laboratory analysis reports are computerized during 1989-90. For better cane regulation, wireless System was also introduced during 1989. At all 8 division Head Quarters and at Administrative Office Wireless Stations and sets are installed. d)All policy matter is decided by Board/person-in-charge.

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Cane price: Before commencement of sugar cane crushing season, Government of India notifies statutory minimum cane price payable by each sugar factory. This isto be paid with in 14 days from the date of purchases. Over and above the statutory minimum cane price state Government announces a State advisory price payableby each Sugar Factory. This SAP is being paid by us. We have crushed cane for the season 1999-2000 is 2, 82,202,592 Mts with an average recovery 9.03%.

Sugar: Out of total sugar production of each season, 30% shall be delivered to Government nominees for public distribution system at notified levy price. For every season Government of India Notifies levy sugar price applicable to each Sugar Factory. Every month. Open market sugar is sold on tender system and is delivered against payment of cost plus duties.

Molasses: Molasses is a by product in the courses of manufacture of sugar. From1993 June molasses prices are decontrolled. Molasses is sold by inviting tenderson All India basis by publishing Tender notice.

Engineering & Manufacturing Departments: During off season engineering and manufacturing departments attend to overhauling and preventive maintenance and keep ready the plant for Cane Crushing. During season factory works round the Clock inthree shifts.

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Cane Department:Cane department is provided with sufficient executive staff. They

collect cane supply offers, from cane growers. Offers are being accepted restricting the quantities to individual member s 5 years supply average. Crop loans are sanctioned by Banks under tie up arrangements with factory. One month before commencement of Cane crushing, prepares maturity survey is conducted by drawing cane samples from agreement Cane fields. They are analyzed in Factorys laboratory.Based on the analysis, cane harvest & supply permits are issued to cane supplymembers limiting to factories daily cane crushing capacity. Factory provides about 60 to 80 hired Lorries to needy growers. 50% of transport charges up to 40kmdistance are subsidized by factory. Transport charges beyond 40 km are subsidized 100%.

Liaison Farm: Factory is having a sugar cane liaison farm in an extent 4.80 Hec.Factory brings improved varieties from sugar Cane research stations multipliesin its liaison farm and supplies seed to growers.

Total Strength of the Establishment:1. Permanent (Non Seasonal) 2. Seasonal Permanent 3. Consolidate Wages (Seasonal) 4. Daily Wager (NMR) 5. Total 68 94 167 244 573

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Wage Structure: The Wages of workers are covered by "Sugar Wage Board" recommendations at All India level". The minimum monthly wage of an

unskilled worker at starting of timescale is Rs.3901/-.Sugar year (season) is recorded from 1st Oct to 30th Sep next year. Generally cane crushing

operations are commenced during 3rd week of November and continued up to end ofApril next year. From May to October is off-season.

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RESEARCH METHODOLOGYNEED OF THE STUDYFinancial statements are prepared for the purpose of presenting a periodical review or report by the management and deal with the state of investment in business and result achieved during the period under review. They reflect a combinationof recorded facts, accounting conventions and personal judgments. The Ratio Analysis is the most powerful tool of the financial analysis. These people use rations to determine those financial characteristics of the firm in which they are interested. With the help of ratios, one can determine: 1. The ability of the firm to meet its current obligations. 2. The extent to which the firm has used itsalong-term solvency by borrowing funds.

3. The efficiency with which the firm is utilizing its assets ingenerating salesrevenue. 4. The overall operating efficiency and performance of the firm.

OBJECTIVES OF THE STUDYThe following are the objectives of the study: To assess the liquidity and proftability of CCS Ltd. To study financial position of the CCSL Ltd. To analyses the turn over efficiency of The CCS Ltd. To know the impact of liquidity solvencyand turnover efficiency on the shareholders of The CCS Ltd. To suggest feasiblesolution to improve the overall efficiency of The

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CCS Ltd.

SOURCES OF DATA Primary DataThe primary data was collected mainly with the interactions and discussions withthe companys executives.

Secondary DataMost of the calculations are made on the financial statements of the company andthe company provided financial statements for 5 years. Some of the informationregarding to the theoretical aspects were collected by referring standards textsand through internet.

SCOPE OF THE STUDY This project is as a reference guide or as a source of information. It gives theidea about the financial analysis of a firm. The study aims to study the liquidity position of the firm. Ratio Analysis has been used to analyses the financialposition of a firm. It deals with analysis an interpretation of data collectedthrough the sources primary and secondary data. Graphs and diagrams and

tabulation method are used to analyze and interpret the data collected.

LIMITATIONS OF THE STUDY The information used is primarily from historical reports available to the

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public and the same doesnt indicate the current situation of the firm. Detailed analysis could not be carried for the project work because of the limited time span. Since financial matters are sensitive in nature these same could not be acquired easily.

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RATIO ANALYSISRatio Analysis is one of the powerful tools of the financial analysis. A ratio can be defined as The indicated quotient of two mathematical expressions and as therelationship between two or more things. Ratio is

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thus, the numerical or an arithmetical relationship between two figures. Ratio is, thus, the numerical or an arithmetical relationship between two figures. It isexpressed where on figure is divided by another. In finance analysis ratio is used as a benchmark of a firm. A ratio is the relationship between two accountingitems expressed mathematically. Ratio analysis helps the analyst to make quantitative

judgment with regard to concerns financial position and performance. This relationship can be expressed as a percentage or as quotient. Ratio analysis is the systematic use of ratio to interpret the financial statements so that the strengthsand weakness of a firm as well as its historical performance and current financial position can be determined. Undisputedly the ratio analysis occupies place of prime importance.

DEFINITION:According to Prof. Spring field, Prof. Mass & Merrium, a ratio is defined as The indicated quotient of two mathematical impression and as The relationship between two (or) more things

SIGNIFICANCE OF RATIO ANALYSISRatio analysis is of great help of commercial bankers, trade creditors and institutional lenders. They judge the ability of borrowing enterprises by observing various ratios like the current ratio, acid test ratio, and turnover of

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receivables, inventory turnover, and coverage of interest by the level of earnings. Ratio analysis also helps long term creditors in knowing the ability of a borrowing enterprises to pay interest principal in case earnings decline they findvaluable the ratios of total debt to equity and total debt to total assets. Investors in shares judge the performance of the company by observing the per shareinto ratios like earnings per share, book value per share, market price per share, dividends per share etc. Lastly, ratio analysis is of great use of the management of the firm. Management of the firm is interested in every aspect of ratioanalysis as it is their over all responsibility to see that the resources of the firm are used most efficiently and effectively and that the firms financial conditions is sound.

STANDARDS FOR COMPARISONFor making a proper use of ratios, it is essential to have fixed standard for comparison. A ratio by itself has very little meaning unless it is compared to some appropriate standard. Selection of proper standards of comparison is a most important element is ratio analysis. The four most common standard used in ratio analysis are as follows: 1. Absolute 3. Horizontal 2. Historical 4. Budgeted

1. Absolute: Absolute standards are those, which become generally recognized asbeing desirable regardless of the type of the company, the time, stage of business cycle, or the objectives of the analyst.

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2. Historical: Historical standards involve comparing a companys own past performance as a standard for the present or future. But this standard may not providesound basis for judgment, as the historical figure a may not have represented anacceptable standard.

3. Horizontal: Incase of horizontal standards one company is compared with another or with average of other companies of the same nature. It is also called as intra-firm comparison.

4. Budgeted: The budgeted standard is arrived at after preparing the budget fora period. Ratios developed from actual performance are compared to the

planned ratios in the budget to examine the degree of accomplishment to the anticipated targets of the firms.

ADVANTAGES OF RATIO ANALYSIS1. It facilitate inter firm comparison. It reveals how well it serves. As a useful aid in financial forecasting future trends can be known in advance based on ratios relating to part sales, profits and financial position. 2. It facilitatescomparative study of the performance and, progress of a firm over a period of years. Such a study will reveal the directions in which the firm is moving. 3. Itserves as a useful tool for cost control. It reveals now efficiently a

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firm is managed and how effectively its assets are utilized. It serves as a means of communication to report on the strength and financial standing of a firm tothe management and external parties. It facilitates trend analysis. It revealsthe progress or decline of a firm over the years. It serves as diagnostic too toassess the financial health of a firm. It through light on its liquidity, solvency, profitability and capital gearing position.

OBJECTIVES OF RATIO ANALYSISRatio Analysis is the principal tool for analysis of financial statements. Otherconducts it not only by management but also like suppliers, banks tending, andinstitutions, prospective investors etc. The following are usually the objectives for which ratio analysis is conducted. I. II. III. IV. To evaluate financial position and performance of a firm. To indicate the trend or progress or down fall of a firm. To assess the credit worthiness of a firm, To assess the efficiencywith which working capital is being used in a firm.

LIMITATIONS OF RATIO ANALYSISStandards for ComparisonRatios of a company have meaning only when they are compared with some standardsand it is always a challenging job to find and adequate

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standard.

Company DifferencesSituations of two companies are never same. Similarly the factors

influencing the performance of a company in one year change in another year. Thus, the comparison of the ratios of two companies becomes difficult and meaning less when are operating in different situations.

Price Level ChallengesThe interpretation and comparison of the ratios are also rendered invalid by thechanging value of money; a change in the price level can seriously affect the validity of comparison of ratios computed for different time periods.

A STUDY OF RATIO ANALYSISSeveral ratios, calculated from the accounting date, can be grouped into variousclasses according to financial activity or function to be evaluated. Ratios arecomplied and studied for profitabilitys, assessment of financial position sufficiency of working capital strategies perused by the organization short term and long term solvency. Liquidity etc

TYPES OF RATIOSClassification according to nature of accounting statements is divided into three categories there are:

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1. Balance sheet Ratios 2. Profit and Loss A/C Ratios 3. Combined Ratios

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1. Balance sheet Ratios: These ratios are calculated to judge the financial position of the concern from long-term as well as short-term solvency point of view.These ratios can be divided into two broad categories.

A. Liquidity Ratios: If it is decided to study the liquidity position of the concerns, in order to highlight the relative strength of the concerns in meeting their current obligations to maintain sound liquidity and to pin point the difficulties if any in it, then liquidity ratios are calculated. These ratios are usedto measure the firms ability to meet short-term obligations. The important liquidity ratios are:

CURRENT RATIO:This is the most widely used ratio. It is the ratio of current assets to current liabilities. It shows a firms ability to cover its current liabilities with its current assets. This is also known as Working Capital Ratio. It isexpressed as follows: 25


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Current Assets Current Ratio = Current Liabilities

Generally current ratio of 2:1 is considered ideal for a concern i.e., Current Assets should be twice of the Current Liabilities. TABLE 4.1 Year Wise Total Current Assets and Current Liabilities of The CCSL Ltd., Chittoor. YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 CURRENT ASSETS 28,77,42,756 17,58,61,331 20,80,30,364 38,19,73,121 37,30,29,183 CURRENT LIABILITIES 18,91,05,178 14,23,09,387 14,87,32,016 18,96,05,315 27,31,27,341 RATIO IN % 1.52 1.20 1.40 2.00 1.40

(Source: Annual Reports of the CCSL)

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RATIOS

2.5 2 1.5 1 0.5 0 2003 2004 2005 2006 2007 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS

INTERPRETATION: Current ratio measures the firms short-term solvency. The standard norm for current ratio is (2:1). It is evident that in the year 2005-06 Current Ratio 2.00 is satisfactory. In remaining years current ratio is less then 2 isnot satisfactory. There fore it can be calculated that the liquidity performance of the company is poor.

QUICK RATIO: It shows a firms ability to met current Liabilities with its most liquid (quick) Assets. Liquid Assets are those assets, which are readily converted

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into cash. This is also known as Liquid Ratio and Acid Test Ratio. It is calculated as under;

LiquidRatio =

Liquid Assets CurrentLiabilities

TABLE 4.2 Year Wise Liquid Assets and Current Liabilities of The CCSL Ltd., Chittoor.

YEAR

LIQUID ASSETS

CURRENT LIABILITIES

RATIO IN %

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

6,80,79,952 7,90,11,591 9,79,87,205 7,66,08,657 9,34,86,511

18,91,05,178 14,23,09,387 14,87,32,016 18,96,05,315 27,31,27,341

0.36 0.55 0.66 0.40 0.34


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YEARS

RATIOS

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2003 2004 2005 2006 2007 2006-07 2005-06 2004-05 2003-04 2002-03

INTERPRETATION: This is the more penetrating test of liquidity than the currentratio. Generally a quick ratio is 1:1 it considered to represent a satisfactorycurrent financial condition. The quick ratio has never exceeded the standard ratio. Empirically the quick ratio has increased from 0.36 to 0.66 in 2002-03 to 2004-05 and declined from 0.40 to 0.34 in 2005-06 to 2006-07. Therefore it can beconcluded the liquidity performance of the company is absolutely poor.

CASH RATIO: Cash is most liquid Asset, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investment or marketable

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securities are equivalent of cash; therefore, they may be included in the computation of cash ratio. This Ratio also known as Absolute and Super Quick Ratio.

SecuritiesCashRatio =

CashandBank Balance + Short termmarketable CurrentLiabilities

TABLE 4.3 Year Wise Cash and Bank Balance plus short term securities and CurrentLiabilities of The CCSL Ltd., Chittoor.

RATIO YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 CASH AND BANK 53,79,219 1,59,03,765 2,00,18,969 73,90,813 1,79,39,018 CURRENT LIABILITIES IN % 18,91,05,178 1,23,09,387 14,87,32,016 18,96,05,315 27,31,27,341 0.028 0.11 0.13 0.030.06


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YEARS

RATIOS

0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2003 2004 2005 2006 2007 2006-07 2005-06 2004-05 2003-04 2002-03

INTERPRETATION: The desirable norm for cash ratio is 1:2. The cash ratio is verylow in 2002-03, 2005-06 and 2006-07 years. There after it is increased slightlythat is 0.028, 0.11 and 0.13 on the years 2002-03 to 2004-05 respectively and declined in 2005-06 to 0.03 then increases in 2006-07 to 0.06. Anyway finally thecompany failed in keeping sufficient cash and bank balance and marketable securities.

B. CAPITAL STRUCTURE RATIOS: These ratios help in ascertaining the long term solvency of a firm which depends on firms adequate resources. To meet its long termfunds

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requirements, appropriate debt equity mix to raise long term and earnings to payinterest and installment of long term loans in time. The following ratios can be calculated for this purpose: DEBT EQUITY RATIO: This ratio is calculated to measure the relative proportions of outsiders funds and shareholders funds investedin the company. This ratio is

determined to ascertain the soundness of long-term financial policies of the company and is also known as external equity ratio. follows. Term liabilities + Current Liabilities Total Debt Ratio = Equity Debt to equity Ratio of 2:1 in case of (i) and 2:3 in cases (ii) are acceptable. TABLE 4.6 Year Wise Fixed Assets andCapital Employed of The CCSL Ltd., Chittoor. YEAR 2002-2003 2003-2004 2004-20052005-2006 2006-2007 LONG TERM DEBTS 26,44,52,746 25,26,34,919 29,52,27,768 43,53,64,852 44,09,04,310 SHAREHOLDERS FUNDS 36,03,55,888 36,96,88,184 38,90,49,40439,30,37,111 39,81,47,818 RATIO IN % 0.73 0.68 0.76 1.10 1.10 It is calculated as


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RATIOS

1.2 1 0.8 0.6 0.4 0.2 0 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS2003 2004 2005 2006 2007

INTERPRETATION: This ratio gives results relating to the capital structure of the firm. 2:3 is the acceptable Debt Equity Ratio. Empirically the debt equity ratio declined only in the year of 2003-04 (0.68) remaining that all years were increased from 0.78 to 1.10. Therefore 1.10 means lenders have financed of CCSL Capital Employed in 2006-07.

PROPRIETORY RATIO: A variant of debt to equity ratio is the proprietary ratio, which shows the relationship between shareholders funds and total tangible assets. It focuses the attention on the general financial strength of the business enterprise. This ratio is worked out as follows:

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Shareholders Funds Proprietary Ratio = Total tangible Assets

TABLE 4.7 Year Wise Shareholders funds and Tangible Assets of The CCSL Ltd., Chittoor. YEAR SHAREHOLDERS FUNDS 2002-2003 2003-2004 2004-2005 2005-2006 2006-200736,03,55,888 36,96,88,184 38,90,49,404 39,30,37,111 39,81,47,818 TOTAL TANGIBLEASSETS 44,71,78,755 33,48,90,237 35,26,39,909 53,78,62,810 51,71,71,520 RATIO IN % 0.80 1.19 1.10 0.73 0.76


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RATIOS

1.2 1 0.8 0.6 0.4 0.2 0 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS2003 2004 2005 2006 2007

INTERPRETATION:The proprietary ratio is variant of Debt Equity ratio. The standard norm for proprietary Ratio is 1:3. The shareholder funds are high then compare to total tangible assets. Empirically in the years 2003-04 and 2004-05 it is very high that is 1.19 and 1.10. Therefore the company having a poor proprietaryratio.

2) PROFITABILITY RATIO: Profitability is the overall measure of the companies with regard to efficient and effective utilization of resources at their command.

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A company should earn profits to survive and grow over a long period of time. Profitability reflects the final result of business operation of the

business, to be able to funds from investors and for expansion and growth and tocontribute toward social overheads for the welfare of the society. GROSS PROFITRATIO: The gross profit should be adequate to cover fixed expenses dividends and building up of reserves. Higher the ratio, the better it is. A low ratio indicates unfavorable trend in the form of reduction in selling prices. This ratio tells gross margin on trading and is calculated as under:

GrossPr ofitRatio =

GrossPr ofit 100 Net Sales

TABLE 4.25 Year Wise Gross Profit and Net Sales of The CCSL Ltd., Chittoor. RATIO IN % -0.186 -0.191 -0.07 0.399 -0.098

YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

GROSS PROFIT -3,76,45,558 -2,50,57,043 -53,23,482 4,96,30,153 -3,64,74,371

NET SALES 20,14,86,573 13,05,17,437 6,99,20,394 12,40,87,187 36,88,53,567


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RATIOS

0.4 0.3 0.2 0.1 0 -0.1 -0.2 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS2003 2004 2005 2006 2007

INTERPRETATION: It expresses the relationship of gross profit on sales. A high gross profit ratio indicates a sign of good management as it implies that the cost of production is kept at low level. The GP Ratio seems negative balance acceptthe year 2006-07 of 39.9. The CCSL is maintaining poor grass profit ratio.

OPERATING RATIO:This ratio indicates the proportion that the cost of sales bearsto sales. Cost of sales includes direct cost of goods sold as well as other operating 37


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expenses (i.e., Administration, Selling and Distribution Expenses) which have matching relationship with sales. It is calculated as Follows:

OperatingRatio =

Cost of GoodsSold + OperatingExpenses 100 Net Sales

TABLE 4.26Year Wise Cost of Goods Sold, Operating Expenses and Net Sales of The CCSL Ltd.,Chittoor. COST OF GOODS SOLD + OPERATING EXP., 180854056 43149294 126380237 297068848 399471811 RATIO NET SALES IN % 201486573 130517437 69920394 124087187 368853567 0.897 0.330 1.807 2.394 1.083

YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007


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RATIOS

2.5 2 1.5 1 0.5 0 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS2003 2004 2005 2006 2007

INTERPRETATION: The lower ratio is better then higher the ratio, the less favourable it is because it would have a smaller margin of operating profit for the payment of dividends and the creation of reserves. The above table shows in the year 2005-06 is high operating ratio 239.4. The less operating ratio was recordedin 2003-04 33. Therefore the poor performance of CCSL in Operating Ratio.

3) COMBINED RATIOS: NET WORKING CAPITAL RATIO: -

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The difference between Current Assets and Current Liabilities excluding short-term bank borrowing in called Net Working Capital or Net Current Assets. Net Working Capital is some times used as a measure of a firms Liquidity. Net WorkingCapital Net Assets

Net WorkingCapitalRatio =

TABLE 4.5Year Wise Net Working Capital and Net Assets of The CCSL Ltd., Chittoor. YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 NET WORKING CAPITAL 9,86,37,5793,35,51,944 5,92,98,349 19,23,69,866 9,99,01,841 RATIO NET ASSETS IN % 62,48,08,634 6,22,32,103 68,42,77,172 82,84,01,963 83,53,54,221 0.158 0.54 0.86 0.23 0.20


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RATIOS

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2003 2004 2005 2006 2007 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS

INTERPRETATION: The Net Working Capital Ratio declined from 0.86 in 2004-05 to 0.12 in 2006-07 and increased 0.16 in 2002-03 to 0.86 in 2006-07. The company hasnot sufficient working capital. The lowest ratio in the year 2006-07 is 0.20 and the highest ratio in the year 2004-05 is 0.86.

FIXED ASSETS TURNOVER RATIO: It measures the efficiency of the Assets use. The efficient use of

assets will generate greater sales per rupee invested in all the Assets of a

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concern.

This ratio shows how well the fixed assets are being used to

generate sales in the business. The ratio expresses the number of times fixed assets are being turnover in a stated period. It is calculated as under: Sales NetFixed Assets

Fixed Assets Turnover Ratio =

TABLE 4.11 Year Wise Sales and Net Fixed Assets of The CCSL Ltd., Chittoor. RATIO YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 SALES 20,14,86,573 13,05,17,437 6,99,20,394 12,40,87,187 36,88,53,567 NET FIXED ASSETS IN % 22,21,36,732 22,21,36,732 22,25,77,781 22,51,07,533 23,58,34,849 0.91 0.59 0.31 0.55 1.56


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RATIOS

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2003 2004 2005 2006 2007

2006-07 2005-06 2004-05 2003-04 2002-03

YEARS

INTERPRETATION: This ratio measures the efficiency of the assets use. The high ratio is the better performance. On the other hand, a low ratio indicates that fixed assets are not being efficiently utilized. Therefore the CCSL did not utilize well. Only in the years 2002-03 and 2006-07 utilized the fixed Assets

effectually.

TOTAL ASSETS TURNOVER RATIO: This ratio is calculated by dividing the net salesby the value of total assets. A higher ratio is an indicator of over-trading oftotal assets while a low

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reveals idle capacitor. The traditional standard for the ratio is two times. NetSales Total Assets

Total Assets Turnover Ratio =

TABLE 4.12Year Wise Net Sales and Total Assets of The CCSL Ltd., Chittoor. RATIO YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 SALES 20,14,86,573 13,05,17,437 6,99,20,394 12,40,87,187 36,88,53,567 TOTAL ASSETS IN % 51,46,60,808 40,27,85,78343,59,05,864 60,98,74,373 61,16,60,751 0.39 0.32 0.16 0.20 0.60


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RATIOS

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS2003 2004 2005 2006 2007

INTERPRETATION: The traditional standard for the ratio is two times. In the year2006-07 got the higher total Assets Turnover ratio 0.60 on other hand lower ratio got in the year 2004-05 of 0.16. Therefore the CCSL indicates idle capacity of total Assets.

CURRENT ASSETS TURNOVER RATIO: By calculating this ratio we can that, for generating a sale of one rupee

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we can know how much they company invested in current assets.

Current Assets Turnover Ratio =

Sales Current Assets

TABLE 4.13 Year Wise Sales and Current Assets of The CCSL Ltd., Chittoor. RATIOYEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 SALES 20,14,86,573 13,05,17,437 6,99,20,394 12,40,87,187 36,88,53,567 CURRENT ASSETS IN % 28,77,42,756 17,58,61,331 20,80,30,364 38,19,73,121 37,30,29,183 0.70` 0.74 0.34 0.32 0.99


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RATIOS

1.2 1 0.8 0.6 0.4 0.2 0 2003 2004 2005 2006 2007 2006-07 2005-06 2004-05 2003-042002-03

YEARS

INTERPRETATION: The higher CATR more efficient in management and utilization ofassets. Empirically the current asset turnover ratio is declined from 0.74 to 0.32 in years 2003-04 to 20005-06. The higher turnover recorded in the year 2006-07 i.e. 0.99. Therefore we conclude that the current Asset turnover ratio of company shows poor results.

INVENTORY TURNOVER RATIO: It denotes the speed at which the inventory will be converted into sales, thereby contributing for the profits of the concern. When all other factors remain constant, greater the turnover of inventory more will beefficiency of its

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management. This ratio is calculated as follows: Cost of GoodsSold Average Stockheldduring thePeriod

Inventory Turnover Ratio =

TABLE 4.14 Year Wise Cost of Goods Sold and Average Stock held during the periodof The CCSL Ltd., Chittoor. COST OF GOODS SOLD 16,82,44,221 3,26,16,707 1,15,24,675 26,08,49,917 38,23,18,650 RATIO AVERAGE STOCK IN % 23,41,47,891 13,75,97,982 8,28,84,312 18,27,22,687 26,48,82,289 0.718 0.237 0.139 1.427 1.443

YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007


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RATIOS

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2003 2004 2005 2006 2007 2006-07 2005-06 2004-052003-04 2002-03

YEARS

INTERIPRETATION: The inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. A low inventory turnover implies excessive inventory levels than required for production. The company have high ratioof inventory except in the 2005-06 i.e. 0.139 it is not good. That is all stockstored in god owns.

CAPITAL TURNOVER RATIO: It shows the efficiency of capital employed in the business by

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computing how many times capital employed is turned-over in a stated period. Theratio is ascertained as follows:Sales CapitalEmployed

CapitalTurnover Ratio =

TABLE 4.15Year Wise Sales and Capital Employed of The CCSL Ltd., Chittoor. RATIO YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 SALES 20,14,86,573 13,05,17,437 9,69,20,394 12,40,87,187 36,88,53,567 CAPITAL EMPLOYED IN % 62,48,08,634 62,23,23,103 68,42,77,172 82,84,01,963 83,90,52,028 0.32 0.21 0.14 0.15 0.44


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0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0

RATIOS

2006-07 2005-06 2004-05 2003-04 2002-03

YEARS2003 2004 2005 2006 2007

INTERPRETATION: The high capital turnover ratio it indicates greater profit on other hand when it is low it indicates sufficient sales are not being made and profits and lower. Empirically, the actual capital turnover ratio has declined from 0.32 to 0.14 and increased from 0.15 to 0.44 in 2005-06 to 2006-07. Finally the CCSL capital Turnover Ratio is not Satisfactory. In the year 2006-07 is 0.44 the CTR recorded.

WORKING CAPITAL TURNOVER RATIO: This ratio is also known as Sales to Working Capital. It shows the number of times working capital is turned-over in a stated period. The higher

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is the ratio, the lower is the investment in working capital and the greater arethe profits. It is calculated as follows. Sales Net WorkingCapital

WorkingCapitalTurnover Ratio =

TABLE 4.16

Year Wise Sales and Net Working Capital ofThe CCSL Ltd., Chittoor. NET WORKING CAPITAL 9,86,37,578 3,35,51,944 5,92,98,34819,23,67,806 9,99,01,842 RATIO IN % 2.04 3.89 1.18 0.64 3.69

YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

SALES 20,14,86,573 13,05,17,437 6,99,20,394 12,40,87,187 36,88,53,567


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RATIOS

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS2003 2004 2005 2006 2007

INTERPRETATION: This ratio measures the relationship between sales and net working capital. In the years2003-04 and 2006-07 recorded as the highest working capital turnover ratio i.e. 3.89 and 3.69 respectively. In the year 2005-06 recordedas the lowest working capital turnover ratio. The higher indicates more favorable it is for the company. In CCSL WCTR is highly fluctuating in the ratios

DEBTORS TURNOVER RATIO: It indicates the number of times on the average the receivable is turn over in each year. The higher the value of ratio, the more is theefficient 53


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management of debtors. It measures the accounts receivables in terms of number of days of credit sales during a particular period. It is calculated as follows;

Debtors Turnover Ratio =

Credit Sales AverageDebtors

TABLE 4.18 Year Wise Credit Sales and Average Debtors of The CCSL Ltd., Chittoor. RATIO YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 SALES 20,14,86,573 13,05,17,437 6,99,20,394 12,40,87,187 36,88,53,567 AVERAGE DEBTORS IN % 5,38,40,312 5,46,53,535 6,09,75,610 6,28,32,487 5,90,67,738 3.74 2.39 1.15 1.97 6.24


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RATIOS

7 6 5 4 3 2 1 0 2003 2004 2005 2006 2007 2006-07 2005-06 2004-05 2003-04 2002-03

YEARS

INTERPRETATION: The debtors turnover ratio indicates the rate of which cash is generated by turnover of debtors. The debtor turnover ratio indicates a nonsatisfactory collection program. Empirically the debtors turnover ratio was declined from 3.74 to 1.15 in the years 2002-03 to 2004-05. Then it is increased form 1.97 to 6.24 in the years 2005-06 and 2006-07 respectively. The high value of DTR wasmore efficient in management of credit. Therefore we conclude that there is being poor debtors turnover ratio maintained by CCSL.

DEBTORS COLLECTION PERIOD:It indicates on an average that credit sales are pending uncollected by

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the concern. The also reflects the credit policy and terms of the concern. It shows the quality of debtors since it ventilates the speed at which debtors are collected. The collection period will be calculated as under. Daysina year DebtorsTurnover Ratio

CollectionPeriod =

TABLE 4.19 Year Wise Days in a year and Debtors Turnover Ratio of The CCSL Ltd.,Chittoor. DEBTORS TURNOVER RATIO 0.74 2.39 1.15 1.97 6.24 97.59 152.72 317.39 185.28 58.49 RATIO

YEAR 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

DAYS IN A YEAR 365 365 365 365 365


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RATIOS

350 300 250 200 150 100 50 0 2006-07 2005-06 2004-05 2003-04

YEARS2003 2004 2005 2006 2007

2002-03

INTERPRETATION: Collection period measures the rapidity or slowness with which money is collected from them. The average number of days for which the debtors remain outstanding. Empirically the average collection period rose from 97.9 to 317.39 in the years from 2002-03 to 2004-05. Then reduced slightly from 185.28 to58.49 in the years from 2005-06 to 2006-07

CREDITORS TURNOVER RATIO:This ratio gives the Average Credit period enjoyed fromthe creditors. A low ratio indicates that creditors are not paid in time whilea high ratio gives an

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idea that the business is not taking full advantages of credit period allowed bythe creditors.

RATIOS

2 1.5 1 0.5 0 CreditPurchases 2006-07 Aberage AccountsPayable 2005-06 2004-05 TABLE 4.20 2003-04 2002-03 Year Wise Credit Purchases and Average Account Payableof Creditors Turnover Ratio =

YEARS

The CCSL Ltd., Chittoor. 2003 2004 YEAR 2005 2006 2007 PURCHASES 10,57,81,021 4,74,68,010 5,68,36,705 17,43,54,860 24,08,95,871 Average Accounts Payable 9,45,03,276 7,11,05,381 7,43,16,695 9,47,53,345 13,65,14,358 RATIO IN % 1.12 0.66 0.801.84 1.76

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007


INTERPRETATION: The creditors turnover ratio on the basis of credit purchases. Low ratio indicates that creditors are not paid in time. In the period of 2003-04company did not purchase raw material so in that period the creditors ratio is nil. In 58


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2004-05 recorded low ratio i.e. 0.80 it is not good. In the year 2005-06 and 2006-07 recorded high ratio 1.84 and 1.76 respectively

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FINDINGS The standard cash ratio is 0.50:1. The company is not able to maintain sufficient cash at bank and cash in hand. having the ratio 0.07 only. The CCSL is not maintaining the sufficient working capital. It is more fluctuating in net working capital ratio. Lenders have contributed more funds then owners. Lenders In 2005-06 company is

contribution is 1.10 times of owner contribution. Total Liabilities have increased year by year except in 2004-05. The total Liability is 1.65 times more than the total asset. The current Assets are used very will in the year 2006-07 is 0.99. And the years from 2004-05 to 2005-06 is decreased to 0.32. Remaining that twoyears current Assets utilization is satisfied. The Inventory turnover ratio hasincreased in this study but it has declined to 0.139 in 2004-05. The company failed to maintain the efficiency of selling and producing its products. The GrossProfit margin is in very poor position in this study and it was

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increased to 39.90 in 2005-06, but it was not sufficient to the company. It is shows very poor performance of the company. Remaining years are shows loss. The operating expenses are too high in this study. The operating

expenses are very large than the sales. The position is very danger to the CCSL.

SUGGESTIONS The CCSL has to increase its current asset such as cash in hand and cash at banketc. By disposing off the unutilized assets such as old machinery and there byincrease its liquidity position. The company has to maintain standard liquidityratios to meet the liquidity obligation. The company is maintaining the lower equity fund. But, the CCSL having the insolvency position for increasing the debtfund. It is suggest that the company has to convert the reserves to assets. TheDebtor Turnover Ratio has decreased from 5.07 times to 1.98 times. Generally, the higher the value of Debtor Turnover, the more efficient to the management of credit. The CCSL has to improve the debt collection ratio. The lower gross profitmargin might reflect higher cost of goods sold due to the firms inability to purchase raw material (can etc.,) at favorable term, inefficient utilization of plant and machinery of over investment in plant and machinery, resulting in highercost of production. It suggests the Chief Account Officer has detected the causes of a falling Gross margin and initiate action to improve the Gross Margin.

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The CCSL has the higher operating Expenses.

A higher Operating

Expenses Ratio is unfavorable. The Operating Expenses are more than the sales are danger to the company; the CCSL must decrease the operating expenses.

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CONCLUSIONThe Preponderance of current liabilities over the current assets has escalated the net working capital requirement of CCSL. Substantial amount capital is blocked in the inventory sugar of longer period partially due to policies of government and partially associated with tender quotations. CCSL turns its fixed assets faster than current assets. In fact it is because of such a relative faster turnover of fixed assets that it becomes break even long ago. Despite the companys lifetime sourcing strategy where by its purchases sugar cane from the farmer in thevicinity of CCSL on ensured long term basis so as to have smooth inflow of rawmaterials sugar as quite prequel for its assistance to farmers such as finance and provision of agricultural inputs such as fertilizers seeds and pesticide profit of CCSL escalated because of excessive overhead and polling up interest on. Remain due to erection of new sugar factories in the vicinity of CCSL, there hasbeen a shortage of sugar cane and as a result a significant chunk of its capacity unutilized.

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BALANCE SHEET OF THE CHITTOOR COOPERATIVE SUGARS LTD., AS ON 31ST MARCH 2003 TO1ST APRIL 2007.

LiabilitiesShare Capital Deposits & Borrowings Deposits Borrowings Outstanding Interest Payable Adjusting Heads Due by Reserves Undistributed Profits Audit Fund Reserve Fundyet to be Invested Difference between Assets & Liabilities

200314,09,58,700

200414,09,60,300

200514,09,61,400

200614,11,40700

200714,25,53,600

2,88,36,536 23,56,12,210

2.88.12.457 .22,38,22,462

2,91,54,180 26,60,73,588

3,10,24,046 40,43,40,806,

3,52,01,887 405702423

60,94,478

2,71,90,688

4,05,25,798

4,90,24,989

4,69,27,852

18,29,12,074 21,93,57,188 64,227 9,695

11,50,20,074 22,87,27,884 64,227 9,695

10,81,07,592 24,80,88,004 64,227 9,695

14,04,81,701 2,51,896,411 64,227 9,695

22,61,00,864 25,55,94,218 64,227 9,695

24,703

24,703

24,703

24,703


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24,703

29,92,13,004

36,18,46,708 40,27,85,782

39,71,03,323 43,59,05,864

40,81,32,905 60,98,74,373

50,05,18,718 611660751

Total

51,46,60,807

Assets

2003

2004

2005

2006 65

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Cash on Hand Balance with Bank:Current Account Saving Account Shares in other Cooperative Institutions Deposits with various Agencies Fixed Deposits with BanksLoans & Advances to Members Loans to other Co-op., Sugar Factories Adjusting Heads Due to Interest Receivable Value of Assets Value of Closing Stock 1. Stores Stocks 2. Packing Material 3. Stationery 4. Sugar 5. Sugar in Process 6. Molasses 7.Molasses in Process 8. FMP Raw Material & Feed 9. Pesticides 10. Fertilizers

12,83,980 17,15,099 23,80,140 2,28,550 12,54,826 2,50,000 64,61,883 30,00,000 5,44,12,361 18,26,489 12,62,06,460 2,02,69,709 1,78,240 26,375 19,19,96,948 2,54,382 69,07,475 65

22,575 13,49,422 1,45,31,768 2,28,550 12,61,226 22,50,000 63,86,630 10,00,000 5,48,94,708 18,26,489 12,62,06,460 2,01,00,2 21 1,78,240 18,671 7,60,05,445 2,34,802 2,86,092

18,78,931 91,72,861 89,67,176 2,28,550 12,71,226 27,50,000 90,85,236 10,00,000 6,70,56,512 18,26,489 1266,47,509 2,00,46,5 93,100 43,727 7,88,6,404 00 1,06,60,683

141,219 1,66,827 70,82,767 2,28,550 12,67,226 2,50,000 87,82,893 10,00,000 586,08,462 18,26,489 12,91,77,261 200,66,210 6,85,016 28,366 26,77,46,257 82,93,497 82,22,629 3,02,613

95,083 33,68,313

2,28,550 12,67,226 2,50,000 1,41,93,990 10,00,000 5,95,27,013 18,26,489 13,99,04,578 1,88, 22,314 22,784 40,809 24,67,11,289 62,98,461 66,19,003 8,01,5

9,200 50 20,474 00 00

5,7 00 20,474 00 00 20,474 362250 00 20,474 00 00 74 97

20,4 00 205940

Deficits

Total

47,944 47,944 47,944 47,944 47,944 51,46,60,807 40,27,85,782 43,59,05,864 60,98,74,333 611660751

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BIBLIOGRAPHY1. Pandey I.M, FINANCIAL MANAGEMENT, Vikas Publishing House Pvt., Ltd., New Delhi, 9th Edition

2. Jain S.P & Narang K.L, FINANCIAL ACCOUNTING & ANALYSIS,

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kalyani Publishers, Ludhiana. 3. Prasanna Chandra, FUNDAMENTALS OF FINANCIAL

MANAGEMENT, Tata Mc Graw-Hill Publishing Company Ltd., New Delhi.

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Documents

42610615 Ratio Analysis Project Report (1)