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(PROJECT REPORT)
PREPARED BY:
Mohit Garg & Shweta Giri
APEEJAY INSTITUTE OF TECHNOLOGY, SCHOOL OF MANAGEMENT
GREATER NOIDA
CONTENTS
S.NO. CHAPTER
1. Organization-At Glance
2. Product Profile
3. Objectives
4. Project-Ratio Analysis
5. Categories of Ratios
6. Data Source
7. Calculations
8. Graphical Representation
9. Interpretation
10. Limitations
11. Bibliography
PREFACE
As an integral part of the curriculum, prescribed by UTTAR
PRADESH TECHNICAL UNIVERSITY, LUCKNOW, every student of Master of Business
Administration (MBA) after 2nd Semester has to go for Summer Training on the topic,
which is suggested by the organization based on their and student’s interest as well.
In this corporate world, the institutes are oriented towards
providing professional education due to the economic reforms in our country, which
enforce the institution to carry out such programmes, which are readily determined to
develop potential professionalism. This is the reason, which enforces the universities to
add such type of activities in their course curriculum. These works make a student to apply
his bookish knowledge into practicality.
The ELECTRICAL INDUSTRY, being an area of our interest, we
inspired from the various electrical components of HPL Group and domestic and
industrial requirement of their products. The HPL Group is using the latest technology
and quality components from the best sources across the world, keeping in view all type of
consumer segments’ their nature & requirement.
This project focuses the Ratio Analysis of past 3years’ data of the
organization. The project is divided into various chapters, which are mentioned in the
contents.
Apeejay Institute of Technology, Mohit Garg School of Management & Shweta GiriGreater Noida, (U.P)
ACKNOWLEDGEMENT
We would like to take this opportunity to thanks those people without
whose contribution this project would not have in its present shape. This formal
acknowledgement will hardly be sufficient to express our deep sense of gratitude to all of
them.
We would like to express our gratitude to CA. Gautam Seth
(Director- Finance, HPL Group) for his expert advice and encouragement during the
project.
We express our thanks to CA. Pankaj Chabra (G.M. Finance) for his
able guidance and invaluable suggestions throughout the project. We are also grateful to
Mr. Manish Sharma & Mr. Shiv Kumar for their support and cooperation at each and
every step for completion of our project.
.
At the outset, we would also like to extend our wholehearted appreciation
on the concerted efforts of Mrs. Himmi Jain & Mr. Sachin Pandey (HR Deptt.) to have
provided us a wonderful stay and co-operation at the organization.
We would like to thank all the faculty members of Apeejay Institute
of Technology, School Of Management, Gr.Noida for their support and guidance
throughout our summer training.
Date: Mohit Garg
& Shweta Giri
ORGANISATION- AT GLANCE
HPL Group, celebrating its golden jubilee, 1956:2006, has been pursuing vision of
creating a niche, as a major player in Indian Electrical Industry with commitment to state-
of-the-art technological world-class products.
HPL has under its umbrella on going, healthy and growing Joint Venture with
SOCOMEC S.A., France
MOELLER, Austria
ELEKTRA Tailfingen, Germany
HPL Group possess seven most modern manufacturing units, ISO 9001:2000 certified,
location at Gurgaon, Noida, New Delhi, Sonipat and Himachal Pradesh having 3,00,000
sq. feet covered area to manufacture products confirming to International and Indian
standards.
HPL Product Profile has the following Strategic Business Units:
LV Switchgears
LV Protection Devices
Metering and Energy Management System
Lighting
HPL Products have been tested at CPRI, ERDA, ERTL, and NPL etc according to Indian
Standards, whereas MCB’s, Rewireable Switches & Electronic Energy Meters carry ISI
marking. Further HPL products have approvals from CPWD, State PWD’s, MES, BSNL
and many more Institutional users.
HPL, with a turnover of around Rs.350crores, has a strong work force of over 2700
talented individuals, including Technocrats, Design and R&D Engineers and Marketing
Professionals.
HPL Group with Head Office at New Delhi has extensive Sales & Marketing Network of
63 Branches, over 600 Authorized Dealers and 4,000 Retailers across country who are
committed to provide solutions and services to customer’s delight. HPL is also exporting
its products to Middle East, SAARC and European Countries.
NEW LAUNCH
HPL Group, known for quality product manufacturing, is now entering in the world of
LIGHTING with own production of COMPACT FLUORESCENT LAMP. Installing two
most modern plants at its works at Sonipat. One of them is SPIRAL tube plant, which is
the first of its kind in the country. Using the latest technology and quality components
from the best sources across the world.
MANAGEMENT-
Mr. LALIT SETH (C.M.D.) –A visionary entrepreneur endowed with inimitable
dynamism and futuristic sagacity is a keen observer of market trends all over the world. It
was his distinctive idea of import substantiation that resulted in growth of HPL, having
experience of over 37 years in the Industry.
Mr. RISHI SETH (Director), an MBA has been in business for the past 15 years
looking after the Energy Meter marketing, Production, Planning and General
Administration of a few units.
Mr. GAUTAM SETH (Director), a Qualified Chartered Accountant has been in
Business for 12 years and is handling Finance, Accounts, taxation and other related
activities.
Mr. R. K. Khanna is the Chief Executive of the Company’s plant at Gurgaon.
Being an Electrical Engineer and having 38 years of experience in electrical
manufacturing, he looks after the procurement, production, planning and allied activities
associated with the manufacture of the product.
Mr. C.P. Jain is an Electrical Engineer with 23 yrs of experience of manufacturing
electrical switchgear and other electrical production. He has worked with leading
companies like Jaipur Meters. He has been working with HPL Group for the past four
years and in charge of Research, Development and Quality Control.
Product Profile
METERING
Diris A40 Multifunction Energy Meter
Emfis Digital Multifunction Panel Mounted Meters
Panel Mounted Meter
HT Application Meter
Single & Three Phase Electronic Energy Meter
Trivector Meter
Prepaid Meter
Meter Box
HPL SWITCHGEARS
Load Break Switch
Fuse Links
Rotary Switches
Fuse Holders & Bases
MCB / MCCB
Changeover Switch
Distribution Systems
RCCB
CHANGEOVER SWITCHES
Socomec Changeover Switches
Motorized Changeover Switch
Digital Programmable Changeover Switch
Socomec Load Break Switch
HPL LIGHTING
Non Retrofit
Regular Retrofit
Mini Retrofit
Spiral Retrofit
MOELLER BUILDING AUTOMATION SYSTEMS
Miniature Current Breaker
Residual Current Circuit Breaker
Moulded Case Circuit Breaker & Switch Disconnector
Controlling & Switching Devices
Distribution Systems
RCBO
OBJECTIVES
The objectives of the project are: -
(i) Simplifies Financial Statements: Ratio analysis simplifies the comprehension of
financial statements. Ratios tell the whole story of changes in the financial condition of the
business.
(ii) Facilitates Inter-firm Comparison: Ratio Analysis provides data for inter-firm
comparison. Ratios highlight the factors associated with successful and unsuccessful
firms. They also reveal strong firms & weak firms, over-valued and under-valued firms.
(iii) Makes Intra-firm Comparison Possible: Ratio Analysis also makes possible
comparison of the performance of the different divisions of the firm. The ratios are helpful
in deciding about their efficiency or otherwise in the part and likely performance in the
future.
(iv) Helps in planning: Ratio analysis helps in planning and forecasting. Over a period
of time a firm or industry develops certain norms that indicate future success & failure. If
the relationship changes in firm’s data over different time periods, the ratios may provide
clues on trends and future problems.
(v) Review of resources allocation: A projected funds flow statement will help the
analyst in finding out how the management is going to allocate the scarce resources for
meeting the productive requirements of the business.
PROJECT : RATIO ANALYSIS
AN INTRODUCTION
Ratio Analysis is a very powerful analytical tool for measuring performance of an
organization. The ratio analysis concentrates on the inter-relationship among the figures
appearing in the aforementioned four financial statements. The ratio analysis helps the
management to analyze the past performance of the firm and to make further projections.
Ratio Analysis allows interested parties like shareholders, investors, creditors,
Government and analysts to make an evaluation of certain aspects of a firm’s
performance.
Ratio Analysis is a process of comparison of one figure against another, which make a
ratio, and the appraisal of the ratios to make proper analysis about the strengths and
weaknesses of the firm’s operations. The calculation of ratios is a relatively easy and
simple task but only the skilled analyst can make the proper analysis and interpretation of
the ratios. While interpreting the financial information, the analyst has to be careful in
limitations imposed by the accounting concepts and methods of valuation. Information of
non-financial nature will also be taken into consideration before a meaningful analysis is
made.
Ratio Analysis is extremely helpful in providing valuable insight into a company’s
financial picture. Ratios normally pinpoint a business strengths and weakness in two ways:
Ratios provide an easy way to compare today’s performance with past.
Ratios depict the areas in which a particular business is competitively advantaged
or disadvantaged through comparing ratios to those businesses of the same size
within the same industry.
CATEGORIES OF RATIOS
i. Solvency Ratios
Debt-Equity Ratio
Capital Gearing Ratio
Debt Service Coverage Ratio
Current Ratio
Quick Ratio
ii. Activity Ratios
Inventory Turnover Ratio
Debtor Turnover Ratio
Creditors Ratio
Average Collection Period
Average Payment Period
iii. Profitability Ratios
Return on investment (ROI)
Earning per share (EPS)
Return on assets
Gross Profit Ratio
Net Profit Ratio
iv. Market Test Ratios
Dividend payout Ratio
Price / Earning Ratio
v. Operating Ratios
Material Cost Ratio
Labour Cost Ratio
Factory Overhead Ratio
Selling & Distribution Exp. Ratio
1. Current Ratio-
This ratio indicates the extent of the soundness of the current financial position of an
undertaking and the degree of safety provided to the creditors. The higher the current ratio,
the larger amount of rupee available per rupee of current liability, the more the firm’s
ability to meet current obligation and greater safety of funds of short term creditors.
Current Assets are those assets that can be converted into cash within a year. Current
Liabilities & Provisions are those liabilities that are payable within a year. A current ratio
of 2:1 indicates a highly solvent position. Banks consider a current ratio of 1.33:1 as
minimum acceptable level for providing working capital finance. The constituents of the
current assets are as important as the current assets themselves for evaluation of
company’s solvency position
CURRENT ASSETSCURRENT RATIO =
CURRENT LIABILITIES
2. Quick Ratio-
Quick ratio is a more defined tool to measure liquidity of an organization. It is a better test
of financial strength than the current ratio, because it excludes very slow-moving
inventories and the items of current assets that cannot be converted into cash easily. This
ratio shows the extent of cushion of protection provided from the quick assets to the
current creditors. A quick ratio of 1:1 is usually considered satisfactory though it is again a
rule of thumb only.
This ratio is also called Acid Test Ratio. This ratio serves as a supplement to the current
ratio in analyzing liquidity.
LIQUID ASSETSQUICK RATIO =
CURRENT LIABILITIES
3. Debt-Equity Ratio-
Capital is derived from two sources: Shares and Loans. If the proportion of debt to equity
is low, a company is said to be low-geared, and vice versa. A Debt-Equity Ratio of 2:1 is
the norm accepted by financial institutions for financing of projects. Higher debt-equity
ratio may be permitted for highly capital-intensive industries like petrochemicals, power
etc. The higher the gearing, the more volatile return to the shareholders.
Debt means long-term debt while equity is capital & free reserves. A high ratio indicates
large outside borrowings and consequently a larger outside stake in the business.
LONG TERM DEBTSDEBT-EQUITY RATIO =
SHARE HOLDERS’ FUNDS
4. Return on Investment ( ROI ) –
The strategic aim of a business enterprise is to earn a return on capital. If in any particular
case, the return in the long run is not satisfactory, then the deficiency should be corrected
or the activity be abandoned for a more favorable one. Measuring the historical
performance of an investment centre calls for a comparison of the profit that has been
earned with capital employed. The rate of return on investment is determined by dividing
net profit or income by the capital employed or investment made to achieve that profit.
ROI analysis provides a strong incentive for optimal utilization of the assets of the
company. This encourages managers to obtain assets that will provide a satisfactory return
on investment and to dispose of assets that are not providing an acceptable return.
NET OPERATING INCOME RETURN ON INVESTMENT =
CAPITAL EMPLOYED
5. Debtors Turnover Ratio-
Debtors turnover, which measures whether the amount of resources tied up in debtors, is
reasonable and whether the company has been efficient in covering debtors into cash.
Thus, it is an indicative of efficiency of trade credit management. The lower the debtor’s
turnover ratio, the better the trade credit management and better the quality (liquidity) of
debtors i.e. prompt payment by customers. An excessively long collection period, on the
other hand, indicates the very liberal, ineffective and inefficient credit and collection
policy.
SALES DEBTOR’S TURNOVER RATIO =
AVERAGE RECIEVABLES
6. Debtors Collection Period-
Average Collection Period, which measures how long it take to collect amounts from
Debtors. The actual collection period can be compared with the stated credit terms of the
company. If it is longer than those terms, then this indicates some insufficiency in the
procedures for collecting debts.
DEBTORS’ TURNOVER RATIO DEBTORS’ COLLECTION PERIOD =
365
7. Creditors Turnover Ratio-
It is similar to Debtors’ Turnover Ratio. It indicates the speed with which payments for
credit purchases are made to the creditors. The term Accounts Payable includes ‘Trade
Creditors’ and ‘Bills Payable’.
A higher ‘creditors turnover ratio’ signifies that the creditors are being paid promptly, thus
enhancing the creditworthiness of the company. However, a very favorable ratio to this
effect also shows that the business is not taking full advantage of credit facility that can be
allowed by the creditors.
PURCHASES CREDITORS’ TURNOVER RATIO =
AVERAGE PAYABLES
8. Creditors’ Payment Period-
The measurement of creditor payment period shows the average time taken to pay for
goods and services purchased by the company. In general, the longer the credit period
achieved the better, because delays in payment mean that the operations of the company
are being financed interest free by suppliers’ funds. But there will be a point beyond
which, if they are operating in a seller’s market, may harm the company. If too long a
period is taken to pay creditors, the credit rating of the company may suffer, thereby
making it more difficult to obtain supplier in the future.
CREDITORS’ TURNOVER RATIO CREDITORS’ PAYMENT RATIO =
365
9. Stock Turnover Ratio-
A considerable amount of company’s capital may be tied up in the financing of raw
materials, work-in-progress and finished goods. It is important to ensure that the level of
stocks is kept as low as possible, consistent with the need to fulfill customer’s order in
time.
This ratio indicates whether investment in inventory is efficiently used or not. It, therefore,
explains whether investment in inventories is with in the proper limit or not.
Inventory ratio can be calculated regarding each constituent of inventory. It may thus be
calculated regarding raw materials, work-in-progress and finished goods.
COST OF GOODS SOLD INVENTORY TURNOVER RATIO =
AVERAGE INVENTORY
10. Inventory Holding Period-
The measurement of Inventory Holding Period shows the average period of holding
various inventories i.e. raw material, work-in-progress & finished goods. The actual
holding period can be compared with the stated investment and sales policy of the
company. If it is longer than those terms, then this indicates some insufficiency in the
procedures for supply chain management.
STOCK TURNOVER RATIO INVENTORY HOLDING PERIOD =
365
11. Material Cost Ratio-
This ratio is the test of the operational efficiency with which the business is being carried.
The material cost ratio should be low enough to leave a portion of sales to give a fair
return to investors.
The comparison of this ratio will indicate whether the cost component is high or low in the
figure of sales. In case the comparison shows that there is increase in this ratio, the reason
for such increase should be found out and management be advised to check the increase.
MATERIALS CONSUMED MATERIAL COST RATIO =
SALES
12. Net Profit Ratio-
This ratio reflects net profit margin on the total sales after deducting all expenses but
before deducting interest and taxation. This ratio measures the efficiency of operation of
the company. The net profit is derived from gross profit after deducting administration,
selling & distribution expenses. The non-operating incomes and expenses are ignored in
computation of net profit before tax, depreciation and interest.
This ratio could be compared with that of the previous years and with that of competitors
to determine the trend in net profit margins of the company and its performance in the
industry.
NET PROFITNET PROFIT RATIO =
NET SALES
13. Gross Profit Ratio-
The ratio measures the gross profit on the total net sales made by the company. The gross
profit represents the excess of sales proceeds during the period under observation over
their cost, before taking into account administration, selling & distribution and financing
charges.
When everything is normal, the gross profit margin should remain unchanged, irrespective
of the level of production and sales, since it is based on the assumption that all costs
deducted when computing gross profit that are directly variable with sales. A stable gross
profit margin is therefore, the norm and any variation from it calls for careful
investigations.
GROSS PROFITGROSS PROFIT RATIO =
NET SALES
DATA SOURCES:
For computing the various ratios, I have taken the data from:
(i) The company’s past 3 years’ audited balance sheets and profit & loss account with various
groupings and schedules provided by the company itself.
(ii) Moreover, for calculating industry’s ratios I have taken the audited past 3 years’ balance
sheets and profit & loss account with their groupings and schedules of their major competitor
Havell’s India Limited which is available on its website.
HPL SOCOMEC PVT. LTD.
2003-04 2004-05 2005-06 IDEAL RATIO
CURRENT RATIO : 3.50 1.79 1.53 2:1
QUICK RATIO : 2.93 1.39 1.28 1:1
COMMENTS & SUGGESTIONS:
Both the ratios for all the three years were not indicating consistency in current assets/
liabilities.
In the year 2003-04, current ratio was too high. It means so many funds are lying idle.
In the next year i.e. 2004-05, the current liabilities increased drastically and the
ratio became satisfactory & nearer to ideal.
In 2005-06, the current liabilities were further increased or current assets were utilized.
Quick ratio in year 2003-04 was too much. It indicates company made heavy
investments in their liquid assets.
In subsequent years quick ratio was satisfactory.
Current ratio should further improved by having more current asset or reducing
current liabilities.
The company should optimize its current assets/ liabilities’ level.
The company should check its inventory hold-ups.
DEBT – EQUITY: 2003-04 2004-05 2005-06 IDEAL RATIO
RATIO 0.33 0.31 0.29 2:1
COMMENTS & SUGGESTIONS:
The debt-equity ratio is very low.
The debt-equity ratio indicates that the company is less geared and more relying on
equity funds.
Company can consider long-term debts to finance further funds.
2003-04 2004-05 2005-06
RETURN ON INVESTMENT: 0.10 0.07 0.07
COMMENTS & SUGGESTIONS:
ROI is not satisfactory for all the 3 years.
It is decreasing year by year.
There may be some investments that are not generating required return & these
should be disposed off.
There may be some unutilized or less utilized assets.
2003-04 2004-05 2005-06
DEBTORS’ TURNOVER RATIO : 1.58 2.75 2.59
DEBTORS’ COLLECTION PERIOD : 231 133 141
COMMENTS & SUGGESTIONS:
Debtors’ turnover ratio is very low & not satisfactory.
Its collection period is very high so significant funds are locked up in the form of
debtors.
It indicates the company has very liberal collection policy.
Company should reduce the credit time and collect the debts timely.
2003-04 2004-05 2005-06
CREDITORS’ TURNOVER RATIO : 5.74 9.51 4.86
CREDITORS’ PAYMENT PERIOD : 64 38 75
COMMENTS & SUGGESTIONS:
Creditors turnover ratio & payment period is satisfactory.
It should be maintained like this.
Company should try to increase credit period so as to company can get interest free
funds in form of creditors.
2003-04 2004-05 2005-06
GROSS PROFIT RATIO : 27.35 18.98 18.01
NET PROFIT RATIO : 6.09 3.54 2.94
COMMENTS & SUGGESTIONS:
Gross profit ratio and net profit ratio is decreasing year to year. So company should
try find out the reasons behind it.
Gross profit should remain same irrespective of production level.
Thus, company should check its direct expenses.
In 2005-06, the net profit ratio is too low, as compared to previous years.
2003-04 2004-05 2005-06
MATERIAL COST RATIO : 0.69 0.78 0.79
COMMENTS & SUGGESTIONS:
Material cost is increasing but is justified because the cooper rate is increasing
worldwide.
It should be maintained and try to check further increase.
2003-04 2004-05 2005-06
RAW MAT. TURNOVER RATIO : 8.98 11.58 10.72
RAW MAT. HOLDING PERIOD : 41 32 34
COMMENTS & SUGGESTIONS:
The raw material turnover ratio is satisfactory.
It signifies that company holds sufficient raw material in its store.
However, its possible to have some more raw material with them otherwise the
company may face the problem in the form of under stocking.
2003-04 2004-05 2005-06
FIN. GOODS TURNOVER RATIO : 133.95 236.13 115.30
FIN. GOODS HOLDING PERIOD : 3 2 3
COMMENTS & SUGGESTIONS:
It is very low & holds less quantity of finished goods.
The company should increase its production level.
There is a great possibility that the company face the under stock condition.
The company should have about 2 months’ holding period.
SOCOMEC HPL PVT. LTD.
2003-04 2004-05 2005-06 IDEAL RATIO
CURRENT RATIO : 0.73 0.92 1.11 2:1
QUICK RATIO : 0.42 0.46 0.75 1:1
COMMENTS & SUGGESTIONS:
Both the ratios are not satisfactory because the company have less current assets and
more current liabilities.
It indicates bad solvency condition in the short term.
Company is not financially sound to pay its short-term liabilities.
However, it is improving year by year and should maintain healthy improvement
rate.
DEBT – EQUITY: 2003-04 2004-05 2005-06 IDEAL RATIO
RATIO 0.00 0.00 0.00 2:1
COMMENTS & SUGGESTIONS:
The debt-equity ratio indicates that the company is ungeared and more relying on
equity funds.
Company can borrow long-term debts to finance their funds.
2003-04 2004-05 2005-06
RETURN ON INVESTMENT : 0.15 0.14 0.15
COMMENTS & SUGGESTIONS:
ROI is better and shows consistency for throughout the three years.
It should be maintain like this.
It should be further improved by optimum utilization of assets.
2003-04 2004-05 2005-06
DEBTORS’ TURNOVER RATIO : 3.12 4.94 4.81
DEBTORS’ COLLECTION PERIOD : 117 74 76
COMMENTS & SUGGESTIONS:
The ratio is slightly higher.
It indicates the company has liberal collection policy towards their debtors’.
Company should make efficient and timely efforts to collect their debts.
There is a great possibility to have bad & doubtful debts.
Significant funds are locked up in debtors.
2003-04 2004-05 2005-06
CREDITORS’ TURNOVER RATIO : 1.85 2.97 3.33
CREDITORS’ PAYMENT PERIOD : 197 123 110
COMMENTS & SUGGESTIONS:
The creditors’ turnover is very low; it indicates that creditors are not paid promptly.
However, creditors are interest free borrowings but delays in payment may harm the
relationship with suppliers.
It may negatively effect the crediting of the company.
Thus, timely payment should be made to creditors.
2003-04 2004-05 2005-06
GROSS PROFIT RATIO : 30.23 27.18 22.88
NET PROFIT RATIO : 11.61 8.66 7.74
COMMENTS & SUGGESTIONS:
Both the ratios are satisfactory & sound good.
But the ratios are decreasing year by year so, company should pay attention in order to
improve it.
The company must make this ratio consistent and try to maintain it.
2003-04 2004-05 2005-06
MATERIAL COST RATIO : 0.65 0.69 0.74
COMMENTS & SUGGESTIONS:
The material cost is neither too high nor too low.
It shows consistency and sounds good.
But company should check its further increase.
2003-04 2004-05 2005-06
RAW MAT. TURNOVER RATIO : 5.53 6.31 7.31
RAW MAT. HOLDING PERIOD : 66 58 50
COMMENTS & SUGGESTIONS:
The raw material turnover ratio & its holding period are satisfactory.
It means company is holding sufficient amount of raw material in stores and should
maintain this level in future.
But the holding period shows a declining trend, which demands attention towards it.
Sufficient raw material causes low ordering & carrying cost as well and helps to
avoid the condition of over\under stocking.
2003-04 2004-05 2005-06
FIN. GOODS TURNOVER RATIO : 31.85 32.83 36.99
FIN.GOODS HOLDING PERIOD : 11 11 10
COMMENTS & SUGGESTIONS:
The finished goods turnover ratio is high and the holding period is very low.
The company should hold more finished goods in its store.
Company may face under stocking condition so, should increase its production
level.
Thus, company should make more investment in their stock, which will improve the
current ratio also.
HPL INDIA LTD.
2003-04 2004-05 2005-06 IDEAL RATIO
CURRENT RATIO : 0.49 0.55 0.32 2:1
QUICK RATIO : 0.18 0.25 0.14 1:1
COMMENTS & SUGGESTIONS:
Both the ratios are very low. It indicates the company has fewer current assets.
It shows that company is not financially sound.
Company is not able to pay its short-term debts.
Company should increase current assets and reduce current liabilities.
DEBT – EQUITY : 2003-04 2004-05 2005-06 IDEAL RATIO
RATIO 0.00 0.00 0.00 2:1
COMMENTS & SUGGESTIONS:
The debt-equity ratio indicates that the company is ungeared and more relying on
equity funds.
Company can borrow long-term debts to raise funds.
Company can consider for debentures or long-term bank borrowings.
2003-04 2004-05 2005-06
RETURN ON INVESTMENT : 0.01 0.01 0.02
COMMENTS & SUGGESTIONS:
ROI is very poor. It indicates company is not using their assets efficiently.
There may be some assets, which are not generating expected return. These should
be disposed off.
It shows weak management as far as asset-utilization is concerned.
For improvement in ROI assets should be maximum utilized.
2003-04 2004-05 2005-06
DEBTORS’ TURNOVER RATIO : 5.08 6.35 5.72
DEBTORS’ COLLECTION PERIOD : 72 57 64
COMMENTS & SUGGESTIONS:
The debtors’ turnover ratio & its collection period are satisfactory.
It shows efficient receivable management and timely collection.
It should be maintained consistently and check any further variations.
2003-04 2004-05 2005-06
CREDITORS’ TURNOVER RATIO : 0.32 0.34 0.35
CREDITORS’ PAYMENT PERIOD : 1148 1068 1034
COMMENTS & SUGGESTIONS:
Creditors’ turnover ratio is very low it means creditors are paid promptly.
Creditors’ payment period is very high & it is beyond the limit.
It is required serious steps to be taken.
It may cause to suffer credit rating to the company.
It may also affect the relationship with suppliers.
2003-04 2004-05 2005-06
GROSS PROFIT RATIO : 54.77 61.98 59.04
NET PROFIT RATIO : 0.33 0.94 1.42
COMMENTS & SUGGESTIONS:
Gross profit ratio is very high & net profit ratio is very poor.
It indicates that company is spending huge amount on administrative and selling &
distribution.
Company should take serious steps to find out the reasons behind the higher gross
profit ratio.
2003-04 2004-05 2005-06
MATERIAL COST RATIO : 0.39 0.33 0.37
COMMENTS & SUGGESTIONS:
The material cost is satisfactory.
It shows consistency, which is the good sign for company.
It should be maintained like this and check further increase.
2003-04 2004-05 2005-06
RAW MAT. TURNOVER RATIO : 1.16 1.59 1.94
RAW MAT. HOLDING PERIOD : 315 230 188
COMMENTS & SUGGESTIONS:
Raw material ratio is very low and holding period is very high.
It signifies company has locked up significant amount in raw material’s stock.
It may cause to bear sufficient amount in the form carrying cost.
Company should hold appropriate amount of raw material.
2003-04 2004-05 2005-06
FIN. GOODS TURNOVER RATIO : 7.00 12.38 14.90
FIN. GOODS HOLDING PERIOD : 52 29 25
COMMENTS & SUGGESTIONS:
Finished goods turnover ratio and its holding period is not satisfactory.
It shows inconsistency & varies rapidly which is not good for the company.
Initially it is fine but afterwards it reduced to a great extent.
The company may suffer the problem of under-stocking.
Company should hold sufficient amount of finished goods.
HPL PROTECTION TECHNOLOGIES LTD.
2003-04 2004-05 2005-06 IDEAL RATIO
CURRENT RATIO : 0.95 1.44 0.95 2:1
QUICK RATIO : 0.77 0.95 0.68 1:1
COMMENTS & SUGGESTIONS:
Current ratio and quick ratio is very low and not satisfactory.
It indicates that company having fewer amounts of current assets and current
liabilities are comparatively high.
Reducing the current liabilities and increasing current assets should improve it.
It shows that company is not financially sound in short run and not able to pay
current liabilities.
DEBT – EQUITY : 2003-04 2004-05 2005-06 IDEAL RATIO
RATIO 0.00 0.00 0.00 2:1
COMMENTS & SUGGESTIONS:
The debt-equity ratio indicates that the company is ungeared and more relying on
equity funds.
Company should take some long-term debts to finance funds.
2003-04 2004-05 2005-06
RETURN ON INVESTMENT : 0.14 0.14 0.08
COMMENTS & SUGGESTIONS:
Initially ROI is satisfactory but afterwards it falls drastically.
Company should try to find out the reasons behind its falling.
Company may be holding some assets that are not giving required return these
should be disposed off.
Unutilized or less utilized assets should be used efficiently.
2003-04 2004-05 2005-06
DEBTORS’ TURNOVER RATIO : 3.73 3.56 3.53
DEBTORS’ COLLECTION PERIOD : 98 103 103
COMMENTS & SUGGESTIONS:
Debtors’ turnover period is high. It means debtors are not making timely payment.
Company may have liberal collection policy and should reduce credit period to 2
months (approx)
It shows the company blocked its funds with debtors’.
It may cause to increase bad debts.
Company should make a proper debt-collection strategy.
2003-04 2004-05 2005-06
CREDITORS’ TURNOVER RATIO : 1.12 2.07 1.82
CREDITORS’ PAYMENT PERIOD : 326 176 201
COMMENTS & SUGGESTIONS:
The creditors’ turnover ratio & payment period is not favorable.
Creditors’ payment period is too high which shows creditors’ are not paid promptly.
This high payment period can harm relationship with creditors so it should be
reduced a paid their amount in time.
It may affect negatively on company’s credit rating.
2003-04 2004-05 2005-06
GROSS PROFIT RATIO : 38.63 11.44 33.06
NET PROFIT RATIO : 11.38 15.31 15.87
COMMENTS & SUGGESTIONS:
Both gross & net profit ratio is favorable.
The gross profit ratio inconsistency must be check. Net Profit Ratio shows
consistency.
Company should review its operating expenses because it seems slightly higher.
Both should be maintained and check any variation.
2003-04 2004-05 2005-06
MATERIAL COST RATIO : 0.60 0.87 0.66
COMMENTS & SUGGESTIONS:
The material cost ratio is inconsistent and tries to maintain consistency.
In 2003-04 & 2005-06 ratio is satisfactory but in 2004-05 it was too high.
This indicates that wastage of material is quiet noticeable.
All the raw materials should be used in a proper manner.
2003-04 2004-05 2005-06
RAW MATERIAL TURNOVER RATIO : 30.92 32.51 12.76
RAW MATERIAL HOLDING PERIOD : 12 11 29
COMMENTS & SUGGESTIONS:
The raw material ratio is very high and holding period is very low.
It shows that company is holding less amount of raw material.
Company may even face the problem of under-stocking. Company should hold
sufficient raw material.
2003-04 2004-05 2005-06
FINISHED GOODS TURNOVER RATIO : 6.06 5.88 4.31
FINISHED GOODS HOLDING PERIOD : 60 62 85
COMMENTS & SUGGESTIONS:
Finished goods’ holding period & its ratio is satisfactory. Somehow it is consistent
too.
It should be maintained and try to avoid any further variation.
However it shows increasing trend so it should be checked.
Sufficient finished goods help to avoid the problem under/ over stocking and avoid
the blocking of funds as well.
HAVELL’S ELECTRONICS PVT. LTD.
2003-04 2004-05 2005-06 IDEAL RATIO
CURRENT RATIO : 0.87 0.99 0.79 2:1
QUICK RATIO : 0.40 0.49 0.45 1:1
COMMENTS & SUGGESTIONS:
Both the ratios are not satisfactory.
It shows that company is holding fewer amounts of current assets.
In this situation company is not able to pay its short term debts.
Company should increase its current assets and reduce current liabilities.
DEBT – EQUITY : 2003-04 2004-05 2005-06 IDEAL RATIO
RATIO 0.00 0.00 0.00 2:1
COMMENTS & SUGGESTIONS:
The debt-equity ratio indicates that the company is ungeared and more relying on
equity funds.
Company should consider long term debts to finance further funds.
2003-04 2004-05 2005-06
RETURN ON INVESTMENT : 0.04 0.05 0.07
COMMENTS & SUGGESTIONS:
ROI is not satisfactory because it is too less.
Company should dispose off those assets which are not generating required rate of
return.
Assets should be used to the fullest and try to increase productivity.
2003-04 2004-05 2005-06
DEBTORS’ TURNOVER RATIO : 5.29 5.81 4.21
DEBTORS’ COLLECTION PERIOD : 69 63 87
COMMENTS & SUGGESTIONS:
Debt-Turnover ratio and its collection period are satisfactory.
It shows the better debt management and timely collection.
It should be maintain like this because it avoids the unnecessary locking of funds.
In 2005-06 collection period is higher so company should check the further
increase.
2003-04 2004-05 2005-06
CREDITORS’ TURNOVER RATIO : 1.20 1.47 1.42
CREDITORS’ PAYMENT PERIOD : 304 249 258
COMMENTS & SUGGESTIONS:
Creditors’ turnover ratio and its payment period are not satisfactory.
It indicates that creditors are not paid promptly.
It may affect the credit rating of the company or may harm the relationship with
suppliers.
Thus. Creditors should be paid within 2 to 3 months.
2003-04 2004-05 2005-06
GROSS PROFIT RATIO : 34.14 26.66 23.81
NET PROFIT RATIO : 1.61 2.59 4.81
COMMENTS & SUGGESTIONS:
Gross profit ratio is satisfactory but it shows the declining trend so company should
review its manufacturing expenses.
Initially net profit ratio is not satisfactory but it shows improving trend which is a
good sign for the company.
Still the N/P ratio should be further improved. So level of operating expenses should also
checked.
2003-04 2004-05 2005-06
MATERIAL COST RATIO : 0.50 0.60 0.65
COMMENTS & SUGGESTIONS:
Material cost ratio is satisfactory and consistent.
It shows the better efficiency of purchasing department.
It should be maintained and try to remain constant.
2003-04 2004-05 2005-06
RAW MATERIAL TURNOVER RATIO : 2.29 3.58 4.54
RAW MATERIAL HOLDING PERIOD : 160 102 80
COMMENTS & SUGGESTIONS:
In 2003-04 & 2004-05 raw material holding period is too much. But in 2005-06 it is
quite appropriate.
It shows the declining trend. To the some extent it is good sign for the company.
Company should try to reduce the holding period to 45 to 60 days.
2003-04 2004-05 2005-06
FINISHED GOODS TURNOVER RATIO : 19.65 16.26 12.16
FINISHED GOODS HOLDING PERIOD : 19 22 30
COMMENTS & SUGGESTIONS:
Finished goods turnover ratio and its holding period is not satisfactory.
It shows that company is maintaining lower inventory level of finished goods.
Company may face the problem of under stocking so should try to increase
productivity.
LIMITATIONS OF RATIO ANALYSIS
The following limitations must be taken into account:
(i) Ratios are calculated from financial statements, which are affected by the financial
bases and policies adopted on such matters as depreciation and the valuation of
stocks.
(ii) Financial statements do not represent a complete picture of the business, but merely
a collection of facts, which can be expressed in monetary terms. These may not refer
to other factors, which affect performance.
(iii) Over use of ratios as controls on managers could be dangerous, in that management
might concentrate more on simply improving the ratio than on dealing with the
significant issues.
(iv) A ratio is a comparison of two figures, a numerator and a denominator. In comparing
ratios it may be difficult to determine whether differences are due to changes in the
numerator, or in the denominator or in both.
(v) Ratios are inter-connected. They should not be treated in isolation. The effective use
of ratios, therefore, depends on being aware of all these limitations and ensuring that,
following comparative analysis, they are used as a trigger point for investigation and
corrective action rather than being treated as meaningful in themselves.
(vi) The analysis of ratios clarifies trends and weakness in performance as a guide to
action as long as proper comparisons are made and the reasons for adverse trends or
deviations from the norm are investigated thoroughly.
BIBLOGRAPHY
RAVI M. KISHORE : TAXMANN’S
COST ACCOUNTING & FINANCIAL
MANAGEMENT
Dr. S.N. MAHESHWARI : SULTAN CHAND & SONS
FINANCIAL & MANAGEMENT
ACCOUNTING
C.A’s STUDY MATERIAL : BOARD OF STUDIES (ICAI)
FINANCIAL MANAGEMENT
PE (II)
WEBSITES : www.hplindia.com
www.havells.com
www.investopedia.com
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