Chapter – 1

Introduction

1

Chapter - I

INTRODUCTION ABOUT THE STUDY

1.1. INTRODUCTION

Financial Management is the specific area of finance dealing with the financial decision

corporations make, and the tools and analysis used to make the decisions. The discipline

as a whole may be divided between long-term and short-term decisions and techniques.

Both share the same goal of enhancing firm value by ensuring that return on capital

exceeds cost of capital, without taking excessive financial risks.

Capital investment decisions comprise the long-term choices about which projects

receive investment, whether to finance that investment with equity or debt, and when or

whether to pay dividends to shareholders. Short-term corporate finance decisions are

called working capital management and deal with balance of current assets and current

liabilities by managing cash, inventories, and short-term borrowings and lending (e.g., the

credit terms extended to customers).

Corporate finance is closely related to managerial finance, which is slightly broader in

scope, describing the financial techniques available to all forms of business enterprise,

corporate or not.One of the most important long term decisions for any business relates to

investment. Investment is the purchase or creation of assets with the objective of making

gains in the future. Typically investment involves using financial resources to purchase a

machine/ building or other asset, which will then yield returns to an organisation over a

period of time. Ratio analysis is primarily used to compare a company's financial figures

over a period of time, a method sometimes called trend analysis. Through trend analysis,

you can identify trends, good and bad, and adjust your business practices accordingly.

You can also see how your ratios stack up against other businesses, both in and out of

your industry.

1.2. OBJECTIVE OF THE STUDY

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1. To appraise financial position using the ratio analysis.

2. To determine the level of profit generated

3. To determine the expense and investments of the company

4. To study the liquidity position of the concern by considering the position of current

liabilities.

1.3. SCOPE FOR THE STUDY

Making big investment decisions means that we must allocate substantial amounts of

major resources of people, time, technology, intellectual capital, and, of course, money.

A high-quality decision process requires that our choices are doable and well formulated,

that consequences are understood and well explored, that our preferences are included

when comparing the full array of costs and benefits of the proposed decisions, and that

any actions we take are focused on getting results.

One of the most important long term decisions for any business relates to investment.

Investment is the purchase or creation of assets with the objective of making gains in the

future. Typically investment involves using financial resources to purchase a machine/

building or other asset, which will then yield returns to an organisation over a period of

time. Key considerations in making investment decisions are:

1. What is the scale of the investment - can the company afford it?

2. How long will it be before the investment starts to yield returns?

3. How long will it take to pay back the investment?

4. What are the expected profits from the investment?

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1.4. INDUSTRY OVERVIEW

Construction

In the fields of architecture and civil engineering, construction is a process that consists

of the building or assembling of infrastructure. Far from being a single activity, large

scale construction is a feat of human multitasking. Normally, the job is managed by a

project manager, and supervised by a construction manager, design engineer,

construction engineer or project architect.

For the successful execution of a project, effective planning is essential. involved with

the design and execution of the infrastructure in question must consider the

environmental impact of the job, the successful scheduling, budgeting, construction site

safety, availability of building materials, logistics, inconvenience to the public caused by

construction delays and bidding, etc.

Types of construction projects

In general, there are two types of construction:

1. Building construction

2. Industrial construction

Each type of construction project requires a unique team to plan, design, construct and

maintain the project.

GAAP has carved out a special niche for construction contractors. While there is no

FASB Statement for this area, AICPA Accounting Research Bulletin (ARB) No. 45,

Long-Term Construction-Type Contracts, (1955) and AICPA Statement of Position

(SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-

Type Contracts, (1981) address it specifically. There is also an excellent AICPA Audit

and Accounting Guide, Construction Contractors.

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Because most construction contracts by their nature are long-term, the underlying

accounting principle known as matching — expenses follow revenues — would be

violated if the revenue from the contract were recognized upon contract execution or sale

of the services. There are two methods of revenue recognition are allowed under the

preceding pronouncements for construction contractors.

One is percentage of completion (PC) method and the other is completed contract (CC)

method. Under the PC method, the construction contractor recognizes revenue over the

life of the construction contract based on the degree of completion: 50% completion

means recognition of one-half of revenues, costs, and income. Under the CC method, all

revenues, costs, and income are recognized only at completion of the construction

project, ordinarily at the end of the construction contract.

SOP 81-1 requires that the PC method be used in lieu of the CC method when all of the

following are present:

1. Reasonably reliable estimates can be made of revenue and costs;

2. The construction contract specifies the parties’ rights as to the goods, consideration to

be paid and received, and the resulting terms of payment or settlement;

3. The contract purchaser has the ability and expectation to perform all contractual duties;

and

4. The contract contractor has the same ability and expectation to perform.

The CC method is used in rare circumstances, which are set forth in SOP 81-1 to be any

of the following:

1. The contract is of a short duration (not defined), Such as 24 months or less. As a result,

the recognized revenue would not differ under the PC or CC methods;

2. The contract violates any one of the items 1 through 4 above; or

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3. The contract’s project exhibits documented extraordinary, nonrecurring business risks

(such as extinguishing oil well fires in a country while hostilities are continuing).

In applying these revenue recognition methods, it is important that the following five

items be kept in mind:

Generally, each construction contract is treated as a profit center, with its own revenues,

costs, and income. There are, however, circumstances in which multiple contracts,

change orders, or options, for example, create the issue of whether to combine contracts

into one profit center or to segment the contracts into separate profit centers.

SOP 81-1 sets forth the criteria for combining and segmenting construction contracts. As

a general rule, the more interrelated and cohesive a project — for example, through

substantial common costs, a single buyer, or concurrent performance of steps in the

project — the more the scales tip in favor of combining. In contrast, when 1) separate

project components have bids distinct from the entire project; 2) the buyer may choose to

accept any, all, or more of the bids; and 3) the components of the project have the

approximate revenues, costs, and income of a stand-alone project, then segmenting the

contract is permissible. For such segmentation, SOP 81-1 has additional requirements

that should be reviewed.

GAAP requires that the accrual method be used for all reported billings and costs and

losses.

Cost allocation is based on direct and indirect costs as well as construction period

interest.

Assets are represented by under billings (estimated costs and earnings exceed billings)

whereas liabilities are shown as overbillings (billings exceed estimated costs and

earnings).

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History

The first huts and shelters were constructed by hand or with simple tools. As cities grew

during the Bronze Age, a class of professional craftsmen, like bricklayers and carpenters,

appeared. Occasionally, slaves were used for construction work. In the Middle Ages,

these were organized into guilds. In the 19th century, steam-powered machinery

appeared, and later diesel- and electric powered vehicles such as cranes, excavators and

bulldozers. Modern-day Construction involves creating awesome structures that can show

the beauty and creativity of the human intellect.

1.5. COMPANY OVERVIEW

Grace Field Builders and Developers Pvt. Ltd is engaged in construction business and

manufacturing of Cement Product. The company was incorporated during 2004 at

Rippon, wayanad district located in Kerala.

The constitution of the company in the beginning was a partnership, which was later a

limited company .The founder chairman Mr. Ashraf.P and Managing Director of the

company and K. Shihab and Kunjali are the board of directors. They have businesses in

textile industry ,Tea leaf agencies, whole sale dealer in Tea Powder and Real estate.

VISION

The vision of the company is:

To become a global player committed to international quality, standards, efficient

pricing and provide excellent service.

MISSION

The mission of the company is:

To optimize the value like customer satisfaction, creating share holders wealth

through human resource department

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PLANT LOCATION

The factory is situated at Rippon, meppadi, wayanad district. The registered office is

situated at Real Wedding centre Complex Ootty Road, vaduvanchal, wayanad District.

The auditors of the company is T.P. Poul and Associates, Kalpetta, wayanad.

The bankers are Vijaya Bank, South Indian Bank, Indian Bank and State Bank of India

OTHER GROUP OF INDUSTRIES

Real Wedding Centre - Textile Business

Real Associates – suppliers in Tea Leaf

Real Agencies - whole sale distributer in Tea dust

THE ORGANISATIONAL STRUCTURE

The Organization has 5 departments which are as follows.

Production Departments

Marketing Departments

Finance Departments

Human Resource Departments

Purchase Departments

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Chapter – II

Concept and Review literature

9

Chapter – II

CONCEPT AND REVIEW OF LITERATURE

2.1. CONCEPT

RATIO ANALYSIS

FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths and weaknesses of

the firm and establishing relationship between the items of the balance sheet and profit &

loss account.

Financial ratio analysis is the calculation and comparison of ratios, which are derived

from the information in a company’s financial statements. The level and historical trends

of these ratios can be used to make inferences about a company’s financial condition, its

operations and attractiveness as an investment. The information in the statements is used

by

Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity

position of the company.

Investors, to know about the present and future profitability of the company and

its financial structure.

Management, in every aspect of the financial analysis. It is the responsibility of

the management to maintain sound financial condition in the company.

RATIO ANALYSIS

The term “Ratio” refers to the numerical and quantitative relationship between two items

or variables. This relationship can be exposed as

Percentages

Fractions

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Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the financial

statements. So that the strengths and weaknesses of a firm, as well as its historical

performance and current financial condition can be determined. Ratio reflects a

quantitative relationship helps to form a quantitative judgment.

STEPS IN RATIO ANALYSIS

The first task of the financial analysis is to select the information relevant to the

decision under consideration from the statements and calculates appropriate

ratios.

To compare the calculated ratios with the ratios of the same firm relating to the

pas6t or with the industry ratios. It facilitates in assessing success or failure of the

firm.

Third step is to interpretation, drawing of inferences and report writing

conclusions are drawn after comparison in the shape of report or recommended

courses of action.

BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables. They enable analyst

to draw conclusions regarding financial operations. They use of ratios as a tool of

financial analysis involves the comparison with related facts. This is the basis of ratio

analysis. The basis of ratio analysis is of four types.

Past ratios, calculated from past financial statements of the firm.

Competitor’s ratio, of the some most progressive and successful competitor firm

at the same point of time.

Industry ratio, the industry ratios to which the firm belongs to

Projected ratios, ratios of the future developed from the projected or pro forma

financial statements

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NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements. It is

the process of establishing and interpreting various ratios for helping in making certain

decisions. It is only a means of understanding of financial strengths and weaknesses of a

firm. There are a number of ratios which can be calculated from the information given in

the financial statements, but the analyst has to select the appropriate data and calculate

only a few appropriate ratios. The following are the four steps involved in the ratio

analysis.

Selection of relevant data from the financial statements depending upon the

objective of the analysis.

Calculation of appropriate ratios from the above data.

Comparison of the calculated ratios with the ratios of the same firm in the past, or

the ratios developed from projected financial statements or the ratios of some

other firms or the comparison with ratios of the industry to which the firm

belongs.

INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent limitations of ratio

analysis should be kept in mind while interpreting them. The impact of factors such as

price level changes, change in accounting policies, window dressing etc., should also be

kept in mind when attempting to interpret ratios. The interpretation of ratios can be made

in the following ways.

Single absolute ratio

Group of ratios

Historical comparison

Projected ratios

Inter-firm comparison

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GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be a difficult task but their use is not

easy. Following guidelines or factors may be kept in mind while interpreting various

ratios are

Accuracy of financial statements

Objective or purpose of analysis

Selection of ratios

Use of standards

Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS

Aid to measure general efficiency

Aid to measure financial solvency

Aid in forecasting and planning

Facilitate decision making

Aid in corrective action

Aid in intra-firm comparison

Act as a good communication

Evaluation of efficiency

Effective tool

LIMITATIONS OF RATIO ANALYSIS

Differences in definitions

Limitations of accounting records

Lack of proper standards

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No allowances for price level changes

Changes in accounting procedures

Quantitative factors are ignored

Limited use of single ratio

Background is over looked

Limited use

Personal bias

CLASSIFICATIONS OF RATIOS

The use of ratio analysis is not confined to financial manager only. There are different

parties interested in the ratio analysis for knowing the financial position of a firm for

different purposes. Various accounting ratios can be classified as follows:

1. Traditional Classification

2. Functional Classification

3. Significance ratios

1. Traditional Classification

It includes the following.

Balance sheet (or) position statement ratio: They deal with the relationship

between two balance sheet items, e.g. the ratio of current assets to current

liabilities etc., both the items must, however, pertain to the same balance sheet.

Profit & loss account (or) revenue statement ratios: These ratios deal with the

relationship between two profit & loss account items, e.g. the ratio of gross profit

to sales etc.,

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Composite (or) inter statement ratios: These ratios exhibit the relation between a

profit & loss account or income statement item and a balance sheet items, e.g.

stock turnover ratio, or the ratio of total assets to sales.

2. Functional Classification

These include liquidity ratios, long term solvency and leverage ratios, activity ratios and

profitability ratios.

3. Significance ratios

Some ratios are important than others and the firm may classify them as primary and

secondary ratios. The primary ratio is one, which is of the prime importance to a concern.

The other ratios that support the primary ratio are called secondary ratios.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS

ARE

1. Liquidity ratio

2. Leverage ratio

3. Activity ratio

4. Profitability ratio

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current obligations as & when there

becomes due. The short term obligations of a firm can be met only when there are

sufficient liquid assets. The short term obligations are met by realizing amounts from

current, floating (or) circulating assets The current assets should either be calculated

liquid (or) near liquidity. They should be convertible into cash for paying obligations of

short term nature. The sufficiency (or) insufficiency of current assets should be assessed

by comparing them with short-term current liabilities. If current assets can pay off current

liabilities, then liquidity position will be satisfactory.

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To measure the liquidity of a firm the following ratios can be calculated

Current ratio

Quick (or) Acid-test (or) Liquid ratio

Absolute liquid ratio (or) Cash position ratio

(a) CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current

liabilities. This ratio also known as Working capital ratio is a measure of general liquidity

and is most widely used to make the analysis of a short-term financial position (or)

liquidity of a firm.

Components of current ratio

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

Sundry debtors  

Prepaid expenses  

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(b) QUICK RATIO

Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the

ability of a firm to pay its short-term obligations as & when they become due. Quick ratio

may be defined as the relationship between quick or liquid assets and current liabilities.

An asset is said to be liquid if it is converted into cash with in a short period without loss

of value.

Components of quick or liquid ratio

QUICK ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Sundry debtors Short-term advances

Marketable securities Sundry creditors

Temporary investments Dividend payable

  Income tax payable

(c) ABSOLUTE LIQUID RATIO

Although receivable, debtors and bills receivable are generally more liquid than

inventories, yet there may be doubts regarding their realization into cash immediately or

in time. Hence, absolute liquid ratio should also be calculated together with current ratio

and quick ratio so as to exclude even receivables from the current assets and find out the

absolute liquid assets.

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50%

(or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth

current liabilities in time as all the creditors are nor accepted to demand cash at the same

time and then cash may also be realized from debtors and inventories.

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Components of Absolute Liquid Ratio

ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Interest on Fixed Deposit Bills payable

  Short-term advances

  Sundry creditors

  Dividend payable

  Income tax payable

2. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to meet its long term

obligations. Accordingly, long term solvency ratios indicate firm’s ability to meet the

fixed interest and costs and repayment schedules associated with its long term

borrowings.

The following ratio serves the purpose of determining the solvency of the concern.

Proprietory ratio

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(a) PROPRIETORY RATIO

A variant to the debt-equity ratio is the proprietory ratio which is also known as equity

ratio. This ratio establishes relationship between share holders funds to total assets of the

firm.

SHARE HOLDERS FUND TOTAL ASSETS

Share Capital Fixed Assets

Reserves & Surplus Current Assets

  Cash in hand & at bank

  Bills receivable

  Inventories

  Marketable securities

  Short-term investments

  Sundry debtors

Prepaid Expenses

3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn profits. The

efficiency with which assets are managed directly effect the volume of sales. Activity

ratios measure the efficiency (or) effectiveness with which a firm manages its resources

(or) assets. These ratios are also called “Turn over ratios” because they indicate the speed

with which assets are converted or turned over into sales.

Working capital turnover ratio

Fixed assets turnover ratio

Capital turnover ratio

Current assets to fixed assets ratio

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(a) WORKING CAPITAL TURNOVER RATIO

It indicates the velocity of the utilization of net working capital. This indicates the no. of

times the working capital is turned over in the course of a year. A higher ratio indicates

efficient utilization of working capital and a lower ratio indicates inefficient utilization.

Components of Working Capital

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

Sundry debtors  

Prepaid expenses  

(b) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit

earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed

assets. Lower ratio means under-utilization of fixed assets.

(c) CAPITAL TURNOVER RATIOS

Sometimes the efficiency and effectiveness of the operations are judged by comparing the

cost of sales or sales with amount of capital invested in the business and not with assets

held in the business, though in both cases the same result is expected. Capital invested in

the business may be classified as long-term and short-term capital or as fixed capital and

working capital or Owned Capital and Loaned Capital. All Capital Turnovers are

calculated to study the uses of various types of capital.

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(d) CURRENT ASSETS TO FIXED ASSETS RATIO

This ratio differs from industry to industry. The increase in the ratio means that trading is

slack or mechanization has been used. A decline in the ratio means that debtors and

stocks are increased too much or fixed assets are more intensively used. If current assets

increase with the corresponding increase in profit, it will show that the business is

expanding.

Component of Current Assets to Fixed Assets Ratio

CURRENT ASSETS FIXED ASSETS

Cash in hand Machinery

Cash at bank Buildings

Bills receivable Plant

Inventories Vehicles

Work-in-progress  

Marketable securities  

Short-term investments  

Sundry debtors  

Prepaid expenses  

4. PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits. Because profit is the

engine, that drives the business enterprise.

Net profit ratio

Return on total assets

Reserves and surplus to capital ratio

Earnings per share

Operating profit ratio

Price – earning ratio

Return on investments

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(a) NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and sales and

indicates the efficiency of the management in manufacturing, selling administrative and

other activities of the firm.

It also indicates the firm’s capacity to face adverse economic conditions such as price

competitors, low demand etc. Obviously higher the ratio, the better is the profitability.

(b) RETURN ON TOTAL ASSETS

Profitability can be measured in terms of relationship between net profit and assets. This

ratio is also known as profit-to-assets ratio. It measures the profitability of investments.

The overall profitability can be known.

(c) RESERVES AND SURPLUS TO CAPITAL RATIO

It reveals the policy pursued by the company with regard to growth shares. A very high

ratio indicates a conservative dividend policy and increased ploughing back to profit.

Higher the ratio better will be the position.

(d) EARNINGS PER SHARE

Earnings per share is a small verification of return of equity and is calculated by dividing

the net profits earned by the company and those profits after taxes and preference

dividend by total no. of equity shares.

The Earnings per share is a good measure of profitability when compared with EPS of

similar other components (or) companies, it gives a view of the comparative earnings of a

firm.

(e) OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold and other

operating expenses on the one hand and the sales on the other.

However 75 to 85% may be considered to be a good ratio in case of a manufacturing

under taking.

Operating profit ratio is calculated by dividing operating profit by sales.

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(f) PRICE - EARNING RATIO

Price earning ratio is the ratio between market price per equity share and earnings per

share. The ratio is calculated to make an estimate of appreciation in the value of a share

of a company and is widely used by investors to decide whether (or) not to buy shares in

a particular company.

Generally, higher the price-earning ratio, the better it is. If the price earning ratio falls,

the management should look into the causes that have resulted into the fall of the ratio.

(g) RETURN ON INVESTMENTS

Return on share holder’s investment, popularly known as Return on investments (or)

return on share holders or proprietor’s funds is the relationship between net profit (after

interest and tax) and the proprietor’s funds.

The ratio is generally calculated as percentages by multiplying the above with 100.

2.2. REVIEW OF LITERATURE

Ratios are a valuable analytical tool when used as part of a thorough financial analysis.

They can show the standing of a particular company, within a particular industry.

However, ratios alone can sometimes be misleading. Ratios are just one piece of the

financial jigsaw puzzle that makes up a complete analysis. (Leslie Rogers, 1997)

Financial ratios are widely used to develop insights into the financial performance of

companies’ by both the evaluators’ and researchers’. The firm involves many interested

parties, like the owners, management, personnel, customers, suppliers, competitors,

regulatory agencies, and academics, each having their views in applying financial

statement analysis in their evaluations. Evaluators’ use financial ratios, for instance, to

forecast the future success of companies, while the researchers' main interest has been to

develop models exploiting these ratios. Many distinct areas of research involving

financial ratios can be differentiated. (Barnes, 1986) Financial ratios can be divided into

several, sometimes overlapping categories. . Trend analysis works best with three to five

years of ratios. The second type of ratio analysis, cross-sectional analysis, compares the

ratios of two or more companies in similar lines of business. One of the most popular

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forms of cross-sectional analysis compares a company's ratios to industry averages. These

averages are developed by statistical services and trade associations and are updated

annually. (Ezzamel, Mar-Molinero and Beecher, 1987)

Financial ratios can also give mixed signals about a company's financial health, and can

vary significantly among companies, industries, and over time. Other factors should also

be considered such as a company's products, management, competitors, and vision for the

future. (Fieldsend, Longford and McLeay, 1987) There are many different ratios and

models used today to analyze companies. The most common is the price earnings (P/E)

ratio. It is published daily with the transactions of the New York Stock Exchange,

American Stock Exchange, and NASDAQ. These quotations show not only the most

recent price but also the highest and lowest price paid for the stock during the previous

fifty-two weeks, the annual dividend, the dividend yield, the price/earnings ratio, the

day's trading volume, high and low prices for the day, the changes from the previous

day's closing price. The price to earnings (P/E) ratio is calculated by dividing the current

market price per share by current earnings per share. It represents a multiplier applied to

current earnings to determine the value of a share of the stock in the market. The price-

earnings ratio is influenced by the earnings and sales growth of the company, the risk (or

volatility in performance), the debt equity structure of the company, the dividend policy,

the quality of management, and a number of other factors. A company's P/E ratio should

be compared to those of other companies in the same industry. (Garcia-Ayuso, 1994)

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Chapter – III

Research and methodology

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CHAPTER III

RESEARCH METHODOLOGY

3.1. RESEARCH METHODOLOGY

This chapter presents the basic methodology and requirements in research. It includes the

method of research, source of data, treatment of data, and tools, which were used in the

study.

3.2. RESEARCH DESIGN

Research design can be fixed as a framework or blue print for conducting the research

project. A research without research design will be just like a doing work without any

idea about it. So it is very much vital in research work. The study is partially descriptive

in nature and partially analytical in nature as efforts are taken to describe as well to

analyses the various areas of functions in financial affairs of the company.

3.3. RESEARCH INSTRUMENT

This research is based on secondary source of data and consists of annual reports, articles,

web sites, and books.

3.4. SOURCE OF DATA COLLECTION

The related information was collected from published annual reports of Grace Field

Builders and Developers Pvt. Ltd. The annual reports contain the results of Grace Field

Builders and Developers Pvt. Ltd. The annual reports containing the results of past

performance is considered to be the most important & most reliable.

Data required for the analysis is to obtain purely from secondary sources. The data with

respect to current assets, current liabilities, sales, Purchases and other balance sheet items

were collected from the published annual reports and reports of the company.

The study is mainly conducted on the basis secondary sources of data for which are

resorted to the annual reports of Grace Field Builders and Developers Pvt. Ltd. The

study was carried out in accounts Department of Grace Field Builders and Developers

Pvt. Ltd.

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3.5. FINANCIAL TOOLS

Ratio analysis

Ratio Analysis is a technique of analysis and interpretation of financial statement.

It is a process of establishing and interpreting various ratios for helping in making

certain decision Ratio analysis is not an end in itself. Accounting ratio is used to

describe significant relationship which exist b/w figure shown in balance sheet

and profit and loss account in budgetary entry control system any part of

accounting organization.

Correlation

Correlation is a statistical measurement of the relationship between two variables.

Possible correlations range from +1 to –1. A zero correlation indicates that there

is no relationship between the variables. A correlation of –1 indicates a perfect

negative correlation, meaning that as one variable goes up, the other goes down.

A correlation of +1 indicates a perfect positive correlation, meaning that both

variables move in the same direction together.

3.6. HYPOTHESIS

The following hypothesis were established to test the relationship between different

variables through correlation

There is no relationship between Net sales Vs. Net profit

There is no relationship between Net sales Vs. Total Assets

There is no relationship between Net sales Vs. Gross Profit

There is no relationship between Net sales Vs. current assets

There is no relationship between Net Profit Vs. Working Capital

Chapter – IV

27

Data analysis & Interpretation

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CHAPTER - IV

4.1. RATIO ANALYSIS

LIQUIDITY RATIO

4.1. CURRENT RATIO

The following table shows the ratio of current asset to the current liabilities.

Table No: 4.1

CURRENT RATIO (Rs in ‘000)

Current Assets Current Liabilities Ratio

2006 585.74 79.04 7.41

2007 697.65 318.84 2.19

2008 720.21 160.65 4.48

2009 913.28 471.17 1.94

2010 1156.42 302.66 3.82

 Average     3.87

Interpretation

In the year of 2006 current ratio 7.41, in 2008 the ratio is 4.48, in 2010 the ratio is 3.82,

2007 the ratio is 2.19 and 2009 the ratio is 1.94

As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the

firm. The huge increase in sundry debtors resulted an increase in the ratio, which is above

the benchmark level of 2:1 which shows the comfortable position of the firm.

29

CHART NO: 4.1. CURRENT RATIO

2006 2007 2008 2009 20100

1

2

3

4

5

6

7

87.41

2.19

4.48

1.94000000000001

3.82

ratio

YEAR

RATI

OS

30

4.2. QUICK RATIO

The following table shows the ratio of quick assets to current liabilities

Table No:4.2

Quick Ratio (Rs in ‘000)

Year Quick Assets Current Liabilities Ratio

2006 585.74 79.04 7.41

2007 524.70 318.84 1.65

2008 698.83 160.65 4.35

2009 894.33 471.17 1.9

2010 1154.31 302.66 3.81

 Average     3.82

Interpretation

In the year of 2006 the quick ratio is 7.41, 2008 the quick ratio is 4.35, 2010 the quick

ratio is 3.81, 2009 the quick ratio is 1.9 and 2007 the quick ratio is 1.65.

As a rule, the quick ratio with 1:1 (or) more is considered as satisfactory position of the

firm. This is above the benchmark level of 1:1 which shows the comfortable position of

the firm.

31

Chart No. 4.2 QUICK RATIO

2006 2007 2008 2009 20100

1

2

3

4

5

6

7

8 7.41

1.65

4.35

1.9

3.81

Ratio

Ratio

Years

Ratio

s

32

4.3. ABOSULTE LIQUIDITY RATIO

The following table shows that the ratio of absolute liquid assets to current

liabilities

Table No. 4.3

ABOSULTE LIQUIDITY RATIO (Rs in

‘000)

Year Absolute Liquid Assets Current Liabilities Ratio

2006 310.04 79.04 3.92

2007 108.59 318.84 0.34

2008 394.66 160.65 2.46

2009 538.50 471.17 1.14

2010 356.49 302.66 1.18

Average       

Interpretation

In the year of 2006 the absolute liquid ratio is 3.92, 2008 the absolute liquid ratio is 2.46,

2010 the absolute liquid ratio is 1.18, in 2009 the absolute liquid ratio is 1.14 and in the

year of 2007 the absolute liquid ratio is 0.34.

The acceptable norm for this ratio is 1:2; this is above the benchmark level of 1:2 which

shows the comfortable position of the firm, except in the year of 2007.

33

Chart No: 4.3 ABSOLUTE LIQUID RATIO

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

4.5

3.92

0.34

2.46

1.139999999999991.18000000000001

Category 1

years

Ratio

s

34

LEVERAGE RATIOS

1.3PROPRIETORY RATIO

The following table showing that the proprietory ratio.

Table No. 4.4

PROPRIETORY RATIO (Rs in ‘000)

Year Share Holders Funds Total Assets Ratio

2006 676.79 785.72 0.86

2007 533.01 884.38 0.6

2008 702.31 891.58 0.79

2009 564.73 1063.85 0.53

2010 970.60 1298.05 0.75

 Average     0.71

Interpretation

In the year of 2006 the proprietory ratio is 0.86, in 2008 0.79, in 2010 0.75, in 2007 0.6,

and in the year of 2009 the proprietory ratio is 0.53

There is no increase in the capital from the year 2007. The share holder’s funds include

capital and reserves and surplus. The reserves and surplus is increased due to the increase

in balance in profit and loss account, which is caused by the increase of income from

sales

35

Chart No: 4.4 PROPRIETORY RATIO

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

10.86000000000000

1

0.600000000000001

0.79

0.53

0.750000000000004

ratio

Years

ratio

s

36

ACTIVITY RATIOS

4.5 WORKING CAPITAL TURNOVER RATIO

The below table shows that the working capital turnover ratio of five years.

Table No: 4.5

Working capital turnover ratio (Rs in ‘0000)

Year Income From Sales Working Capital Ratio

2006 363.09 506.70 0.72

2007 538.99 378.80 1.42

2008 727.28 553.55 1.31

2009 555.50 442.11 1.26

2010 966.54 853.75 1.13

 Averag

e      1.17

Interpretation

In the year of 2007 the working capital turn over ratio is 1.42, in 2008 1.31, in 2009 1.26,

in 2010 1.13 and in the year of 2006 the ratio is 0.72

The average working capital ratio of five years is 1.17, which is comfortable for the firm

37

Chart No: 4.5 WORKING CAPITAL TURNOVER RATIO

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0.720000000000001

1.421.31 1.26

1.12999999999999

ratio

years

Ratio

s

38

4.6. FIXED ASSETS TURNOVER RATIO

The following table shows that the fixed assets turnover ratio of five years.

Table No: 4.6

Fixed Assets Turnover Ratio (Rs in ‘000)

Year Cost of sales Net Fixed Assets Ratio

2006 363.09 288.34 1.26

2007 538.99 295.68 1.82

2008 727.28 171.37 4.24

2009 555.50 150.56 3.69

2010 966.54 141.63 6.82

 Averag

e     3.57 

Interpretation

In the year of 2010 the fixed assets turnover ratio is 6.82, 4.24 in 2008, 3.69 in

2009, 1.82 in 2007 and 1.26 in 2006.

39

Chart No: 4.6. Fixed Assets Turnover Ratio

2006 2007 2008 2009 20100

1

2

3

4

5

6

7

8

1.261.82

4.243.69

6.82

ratio

Years

ratio

s

40

4.7. CAPITAL TURNOVER RATIO

The following table showing the ratio of cost of goods sold to capital employed for

the period of five years

Table No: 4.7

Capital Turnover Ratio (Rs in ‘000)

Year Cost of goods sold Capital Employed Ratio

2006 363.09 371.75 0.98

2007 538.99 533.01 1.01

2008 727.28 702.31 1.04

2009 555.50 564.73 0.98

2010 966.54 970.60 0.99

 Averag

e     1.00 

Interpretation

The above table shows that, in the year of 2008 the capital turnover ratio is 1.04, 1.01 in

2007, 0.99 in 2010, 0.98 in 2009 and 2006

41

Chart No: 4.7 CAPITAL TURNOVER RATIO

2006 2007 2008 2009 20100.95

0.96

0.97

0.98

0.99

1

1.01

1.02

1.03

1.04

1.05

0.98

1.01

1.04

0.98

0.99Ratio

Years

Ratio

s

42

4.8CURRENT ASSETS TO FIXED ASSETS RATIO

The below table showing the current assets to fixed assets ratio for the period of five

years

Table No: 4.8

Current assets to fixed assets Ratio (Rs in ‘000)

Year Current Assets Fixed Assets Ratio

2006 585.24 199.98 2.93

2007 697.65 186.72 3.74

2008 720.21 171.37 4.20

2009 913.28 150.56 6.07

2010 1156.42 141.63 8.17

 Average      5.02

Interpretation

In the year of 2010 the current assets to fixed assets ratio is 8.17, in 2009

6.07, in 2008 4.20, in 2007 3.74, in 2006 2.93

43

Chart No: 4.8 CURRENT ASSETS TO FIXED ASSETS RATIO

2006 2007 2008 2009 20100

1

2

3

4

5

6

7

8

9

2.93

3.744.2

6.04

8.17

Ratio

years

ratio

s

44

GENERAL PROFITABILITY RATIOS

4.9. NET PROFIT RATIO

The below table showing the net profit ratio for the period of five years.

Table No: 4.9

Net profit ratio (Rs in ‘000)

Year Net Profit After Tax Net sales Ratio

2006 211.23 360.39 0.59

2007 161.25 538.99 0.30

2008 169.29 727.28 0.23

2009 182.59 555.50 0.33

2010 405.86 966.54 0.42

 Averag

e     0.37

Interpretation

In the year of 2006, the net profit ratio is 0.59, in 2010 the ratio is 0.42, in 2009 the ratio

is 0.33, in 2007 the ratio is 0.30 and in the year of 2008 the net profit ratio is 0.23

45

Chart No. 4.9 NET PROFIT RATIO

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.59

0.3

0.23

0.330000000000002

0.42

Ratios

years

ratio

s

46

4.10. OPERATING PROFIT

The below table showing the operating profit ratio for the period of five years.

Table No: 4.10

Operating Profit Ratio (Rs in ‘000)

Year Operating Profit Net sales Ratio

2006 360.94 363.09 0.99

2007 275.76 538.99 0.51

2008 295.40 727.28 0.41

2009 315.86 555.50 0.57

2010 671.92 966.54 0.70

 Average      0.64

Interpretation

In the year of 2006 the operating profit ratio is 0.99, in 2010 the ratio is 0.70, in 2009 the

ratio is 0.57, in 2007 the ratio is 0.51, in the year of 2008 the operating profit ratio is

0.41.

47

Chart No: 4.10 OPERATING PROFIT

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

0.99

0.51

0.41

0.57

0.700000000000001

Ratios

years

Ratio

s

48

4.11. RETURN ON TOTAL ASSETS RATIO

The below table showing the Return on Total Assets Ratio for the period of five years.

Table No: 4.11

Return on total assets ratio (Rs in ‘000)

Year Net Profit After Tax Total Assets Ratio

2006 211.23 785.72 0.27

2007 161.25 884.38 0.18

2008 169.29 891.58 0.19

2009 182.59 1063.85 0.17

2010 405.86 1298.05 0.31

 Average      0.22

INTERPRETATION

In the year of 2010 the ratio is 0.31, in 2006 the ratio is 0.27, in 2008 the ratio is 0.19, in

2007 the ratio is 0.18 and in the year of 2009 the return on total assets ratio is 0.17.

49

Chart No: 4.11 RETURN ON TOTAL ASSETS RATIO

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.27

0.18 0.190.17

0.310000000000002

Ratios

Ratios

Years

Ratio

s

.

50

4.12. RESERVES & SURPLUS TO CAPITAL RATIO

The below table showing the reserve and surplus to capital ratio for the period of five

years.

Table No: 4.12

Reserve and surplus to capital ratio (Rs. In ‘000)

Year Reserves & Surplus Capital Ratio

2006 655.99 20.79 31.54

2007 345.82 187.19 1.85

2008 515.11 187.19 2.75

2009 377.54 187.19 2.02

2010 783.40 187.19 4.19

 Average     8.47

Interpretation

In the year of 2006 the reserve and surplus to capital ratio is 31.54, in the year of 2010

the ratio is 4.19, in the year of 2008 the ratio is 2.75, in 2009 the ratio is 2.02, in 2007 the

ratio is 1.85

The reserves & surplus is decreased in the year 2009, due to the payment of dividends

and in the year 2010 the profit is increased. But the capital is remaining constant from the

year 2007. So the increase in the reserves & surplus caused a greater increase in the

current year’s ratio compared with the older.

51

Chart No. 4.12 RESERVE & SURPLUS TO CAPITAL RATIO

2006 2007 2008 2009 20100

5

10

15

20

25

30

3531.54

1.85 2.75 2.024.19

Ratios

Years

Ratio

s

52

4.13. RETURN ON INVESTMENT

The below table showing the return on investment ratio for the period of five years

Table No: 4.13

Return on investment ratio (Rs. In ‘000)

Year Net Profit After Tax Share Holders Fund Ratio

2006 211.23 676.79 0.31

2007 161.25 533.01 0.3

2008 169.29 702.31 0.24

2009 182.59 564.73 0.32

2010 405.86 970.60 0.42

 Average     0.32

Interpretation

In the year of 2010 the return on investment ratio is 0.42, in 2009 the ratio is 0.32, in

2006 the ratio is 0.31, in 2007 the ratio is 0.30, in 2008 the return on investment ratio is

0.24

53

Chart No: 4.13 RETURN ON INVESTMENT

2006 2007 2008 2009 20100

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.310000000000002 0.3

0.24

0.320000000000002

0.42

Ratios

Years

Ratio

s

54

4.14 GROSS PROFIT RATIO

The below table showing the gross profit ratio for the period of five years.

Table No: 4.14

Gross profit Ratio (Rs. In ‘000)

Year Gross profit Net sales Ratio

2006 360.94 363.09 0.99

2007 275.76 538.99 0.51

2008 295.40 727.28 0.41

2009 315.86 555.50 0.56

2010 671.92 966.54 0.69

Average 0.63

Interpretation

In the year of 2006 the gross profit ratio is 0.99, in the year of 2010 the ratio is 0.69, in 2009 the ratio is 0.56, in 2007 the ratio is 0.51 and in the year of 2008 the gross profit ratio is 0.41

55

Chart No: 4.14 GROSS PROFIT RATIO

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

0.99

0.51

0.41

0.56

0.690000000000001

Series 1

Years

Ratio

s

56

4.15 OPERATING COST RATIO

The below table showing that the operating cost Ratio for the period of five years.

Table No: 4.15

Operating cost Ratio (Rs. In ‘000)

Year Operating cost Net sales Ratio

2006 181.93 363.09 0.50

2007 234.51 538.99 0.43

2008 253.80 727.28 0.34

2009 26249 555.50 0.47

2010 318.60 966.54 0.32

Average 0.41

Interpretation

In the year of 2006, the operating cost ratio is 0.50, in 2009 the ratio is 0.47, in 2007 the ratio is 0.43, in 2008 the ratio is 0.34 and in the year of 2010 the operating cost ratio is 0.32

57

Chart No: 4.15 Operating cost Ratio

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.5

0.43

0.34

0.47

0.320000000000002

Ratio

Years

Ratio

s

58

4.16 RETURN ON GROSS CAPITAL EMPLOYED

The below table showing that the ratio of return on grass capital employed for the period

of five years.

Table No: 4.16

Return on Gross Capital Employed (Rs. In ‘000)

Years Adjusted net profit Gross capital employed Ratio

2006 211.23 371.75 0.56

2007 161.25 533.01 0.30

2008 169.29 702.31 0.24

2009 182.59 564.73 0.32

2010 405.86 970.60 0.41

Average 0.37

Interpretation

In the year of 2006, the ratio of return on gross capital employed is 0.56, in 2010 the ratio

is 0.41, in 2009 the ratio is 0.32, in 2007 the ratio is 0.30, in 2008 the ratio is 0.24

59

Chart No: 4.16 RETURN ON GROSS CAPITAL EMPLOYED

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6 0.56

0.3

0.24

0.320000000000002

0.41

Ratio

years

Ratio

s

60

4.17 EXPENSE RATIO

The below table showing that the expense ratio for the period of five years.

Table No: 4.17

Expense Ratio (Rs. In ‘000)

Year Expenses Net sales Ratio

2006 181.93 363.09 0.50

2007 234.51 538.99 0.43

2008 253.80 727.28 0.34

2009 262.49 555.50 0.47

2010 318.60 966.54 0.32

Average 0.41

Interpretation

In the year of 2006, the expense ratio is 0.50, in 2009 the ratio is 0.47, in 2007 the ratio is 0.43, in 2008 the ratio is 0.34 and in the year of 2010 the expense ratio is 0.32

61

Chart No: 4.17 EXPENSE RATIO

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.5

0.43

0.34

0.47

0.320000000000002

Ratio

years

Ratio

s

62

4.18 RATIO OF CURRENT LIABILITIES TO PROPRIETORS FUND

The below table showing that the ratio of current liabilities to proprietors fund for the

period of five years.

Table No: 4.18

Ratio of current liabilities to proprietors fund (Rs. In ‘000)

Years Current liabilities Share holders fund Ratio

2006 79.03 676.79 0.11

2007 318.84 533.01 0.59

2008 160.65 702.31 0.22

2009 471.17 564.73 0.83

2010 302.66 970.60 0.31

Average 0.41

Interpretation

In the year of 2009 the current liabilities to proprietors fund is 0.83, in 2007 the ratio is

0.59, in 2010 the ratio is 0.31, in 2008 the ratio is 0.22, in 2006 the ratio is 0.11.

63

Chart No: 4.18 RATIO OF CURRENT LIABILITIES TO PROPRIETORS FUND

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.11

0.59

0.22

0.830000000000001

0.310000000000002 Ratio

Years

Ratio

s

64

4.19. RATIO OF CURRENT ASSETS TO PROPRIETORS FUND

The below table showing that the ratio of current assets to proprietors fund for the period

of five years.

Table No: 4.19

Ratio of Current Assets to Proprietors Fund (Rs. In ‘000)

Years Current assets Share holders fund Ratio

2006 585.74 676.79 0.86

2007 697.65 533.01 1.3

2008 720.21 702.31 1.02

2009 913.28 564.73 1.61

2010 1156.42 970.60 1.19

Average 1.2

Interpretation

In the year of 2009 the ratio of current assets to proprietors fund is 1.6, in 2007 the ratio

is 1.3, in 2010 the ratio is 1.19, in 2008 the ratio is 1.02, in 2006 the ratio is 0.86.

65

Chart No. 4.19 RATIO OF CURRENT ASSETS TO PROPRIETORS FUND

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

0.860000000000001

1.3

1.02

1.61

1.19000000000001

Ratio

Years

Ratio

s

66

4.2. CORRELATION

4.20. Testing of relationship between net profit vs. Net sales.

The relationship between Net profit vs. Net sales is showing in the following table.

Ho: There is no relationship between Net sales vs. Net profit.

H1: There is relationship between Net sales vs. Net profit.

Year Net profit Net sales

2006 211234 360398

2007 161259 538990

2008 169292 727287

2009 182596 555506

2010 405864 966549

Results:

Correlation= 0.73

INTERPRETATION

Based on the above analysis the correlation result is 0.73 there for null hypothesis is

accepted and alternative hypothesis was rejected. Hence, it has proven that there will be

no significant relationship between profit and sales

67

4.21. Testing of relationship between net sales vs. Total assets

The relationship between net sales vs. total assets is showing in the following table.

Ho: there is no relationship between net sales vs. total assets

H1: there is relationship between Net sales Vs. Total Assets

Year Net sales Total Assets

2006 360398 785721

2007 538990 884381

2008 727287 891583

2009 555506 1063852

2010 966549 1298051

Results:

Correlation = 0.83

INTERPRETATION

Based on the above analysis the correlation result is 0.83 there for null hypothesis is

accepted and alternative hypothesis was rejected. Hence, it has proven that there will be

no significant relationship between assets and sales

68

4.22. Testing of relationship between net sales vs. Gross profit

The relationship between Net sales Vs. Gross Profit is showing in the following table.

Ho: there is no relationship between Net sales vs. Gross Profit

H1: there is relationship between Net sales Vs. Gross Profit

Year Net Sales Gross profit

2006 360398 360948

2007 538990 275768

2008 727287 295405

2009 555506 315867

2010 966549 671926

Results:

Correlation= 0.72

INTERPRETATION

Based on the above analysis the correlation result is 0.72 there for null hypothesis is

accepted and alternative hypothesis was rejected. Hence, it has proven that there will be

no significant relationship between gross profit and sales

69

4.23. Testing of relationship between net sales vs. Current assets

The relationship between Net sales Vs. Current Assets is showing in the following table.

Ho: There is no relationship between Net sales Vs. Current Assets.

H1: There is relationship between Net Sales Vs. Current Assets

Year Net Sales Current assets

2006 360398 585741

2007 538990 697653

2008 727287 720210

2009 555506 913282

2010 966549 1156420

Results:

Correlation= 0.83

INTERPRETATION

Based on the above analysis the correlation result is 0.83 there for null hypothesis is

accepted and alternative hypothesis was rejected. Hence, it has proven that there will be

no significant relationship between current assets and sales

70

4.24. Testing of relationship between net profit vs. Working capital

The relationship between Net profit Vs. Working capital is showing in the following

table.

Ho: There is no relationship between Net profit Vs. Working capital

H1: There is relationship between Net profit Vs. working Capital.

Year Net Profit Working Capital

2006 211234 506701

2007 161259 378807

2008 169292 553554

2009 182596 442111

2010 405864 853754

Results:

Correlation= 0.94

INTERPRETATION

Based on the above analysis the correlation result is 0.94 there for null hypothesis is

accepted and alternative hypothesis was rejected. Hence, it has proven that there will be

no significant relationship between working capital and Net Proft

71

4.25. Testing of relationship between net profit vs. Total assets

The relationship between Net profit Vs. Total assets is showing in the following table.

Ho: There is no relationship between Net profit Vs. Total Assets

H1: There is relationship between net profits Vs. total assets

Year Net Profit Total Assets

2006 211234 785721

2007 161259 884381

2008 169292 891583

2009 182596 1063852

2010 405864 1298051

Results:

Correlation= 0.81

INTERPRETATION

Based on the above analysis the correlation result is 0.81 there for null hypothesis is

accepted and alternative hypothesis was rejected. Hence, it has proven that there will be

no significant relationship between net profit and total assets

72

Chapter – V

73

Findings, summary & conclusion

CHAPTER V

FINDINGS, SUMMARY AND CONCLUSION

5.1 FINDINGS OF THE STUDY

1. The current ratio has shown in a fluctuating trend as 7.41, 2.19, 4.48, 1.98, and

3.82 during 2006 of which indicates a continuous increase in both current assets

and current liabilities

2. The quick ratio is also in a fluctuating trend through out the period 2006 – 10

resulting as 7.41, 1.65, 4.35, 1.9, and 3.81. The company’s present liquidity

position is satisfactory.

3. The absolute liquid ratio has been decreased from 3.92 to 1.18, from 2006 – 10.

4. The proprietory ratio has shown a fluctuating trend. The proprietory ratio is

increased compared with the last year. So, the long term solvency of the firm is

increased.

5. The working capital increased from 0.72 to 1.13 in the year 2006 – 10.

74

6. The fixed assets turnover ratio is in increasing trend from the year 2006 – 10

(1.26, 1.82, 4.24, 3.69, and 6.82). It indicates that the company is efficiently

utilizing the fixed assets

7. The capital turnover ratio is increased form 2006 – 08 (0.98, 1.01, and 1.04) and

decreased in 2006 to 0.98. It increased in the current year as .99

8. The current assets to fixed assets ratio is increasing gradually from 2006 – 10 as

2.93, 3.74, 4.20, 6.07 and 8.17. It shows that the current assets are increased

than fixed assets.

9. The net profit ratio is in fluctuation manner. It increased in the current year

compared with the previous year form 0.33 to 0.42.

10. The net profit is increased greaterly in the current year. So the return on total

assets ratio is increased from 0.17 to 0.31.

11. The Reserves and Surplus to Capital ratio is increased to 4.19 from 2.02. The

capital is constant, but the reserves and surplus is increased in the current year

12. The earnings per share was very high in the year 2006 i.e., 101.56. That is

decreased in the following years because number of equity shares are increased

and the net profit is decreased. In the current year the net profit is increased due

to the increase in operating and maintenance fee. So the earnings per share is

increased

13. The operating profit ratio is in fluctuating manner as 0.99, 0.51, 0.41, 0.57 and

0.69 from 2006 – 10 respectively.

14. Price Earnings ratio is reduced when compared with the last year. It is reduced

from 3.09 to 2.39, because the earnings per share is increased.

15. The return on investment is increased from 0.32 to 0.42 compared with the

previous year. Both the profit and shareholders funds increase cause an increase

in the ratio.

75

5.2 SUMMARY

1. After the analysis of Financial Statements, the company status is better, because

the Net working capital of the company is doubled from the last year’s position.

2. The company profits are huge in the current year; it is better to declare the

dividend to shareholders.

3. The company is utilising the fixed assets, which majorly help to the growth of the

organisation. The company should maintain that perfectly.

4. The company fixed deposits are raised from the inception, it gives the other

income i.e., Interest on fixed deposits.

76

5.3 CONCLUSION

The company’s overall position is at a good position. Particularly the current year’s

position is well due to raise in the profit level from the last year position. It is better for

the organization to diversify the funds to different sectors in the present market scenario.

77