IF: 2.462 SIT Journal of Management Vol.6. No. 2 December 2016, … · 2017-03-16 · IF: 2.462 SIT Journal of Management Vol.6. No. 2 December 2016, Pp. 46-70 48 | P a g e ISSN:

IF: 2.462 SIT Journal of Management

Vol.6. No. 2 December 2016, Pp. 46-70

46 | P a g e ISSN: 2278-9111; 6(2), 2016

Financial Statement Analysis and Its Impact on Financial Performance in A Corporate Company of India – An Empirical Analysis

Arup Kumar Bose*

ABSTRACT:

The aim of this research paper is to analyze the liquidity and profitability position of the company using

the financial tools. This study based on financial statements such as Ratio Analysis, Comparative balance

sheet. By using these tools combined it enables to determine in an effective manner. The study is made

to evaluate the financial position, the operational results as well as financial progress of a business

concern. This study explains ways in which ratio analysis can be of assistance in long-run planning,

budgeting and asset management to strengthen financial performance and help avoid financial

difficulties. The study not only throws on the financial position of a firm but also serves as a stepping

stone to remedial measures for Emami Limited. This project helps to identify and give suggestion the

area of weaker position of business transaction in “EMAMI LTD”.

Keywords: Financial statement Analysis, Ratio Analysis, Study of balance Sheet, Asset management

*Arup Kumar Bose; Assistant Professor; Department of Business Administration; Siliguri

Institute of Technology; Email id: [email protected]; M: +91-(0)9733065361.



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Introduction

Financial Management is that managerial activity which is concerned with the planning and

controlling of the firm’s financial resources. Though it was a branch of economics till 1890 as a

separate or discipline it is of recent origin.

Financial Management is concerned with the duties of the finance manager in a business firm.

He performs such varied tasks as budgeting, financial forecasting, cash management, credit

administration, investment analysis and funds procurement. The recent trend towards

globalization of business activity has created new demands and opportunities in managerial

finance.

The basic financial statement of the various reports that the companies issue to their shareholder,

the annual report is by far the most important. Two types of information are given in this report,

first there is a text that describes the firms operating results during the past year and discusses

new development that will affect future operations. Second there are few basic financial

statements such as the income statement, the balance sheet, the statement of retained earnings

and the sources and uses of funds statement. The financial statement taken together give an

accounting picture of the firm’s operation and financial positions. The following statements

were given by various researchers.“Financial statement analysis is largely a study of relationship

among the various financial factors in a business as disclosed by a single set of statements, and a

study of trends of these factors as shown in a series of statements”--- John N. Myer. “The

analysis and interpretation of financial statement are an attempt to determine the significance and

meaning of the financial statement data so that the forecast may be made of the prospects for

future earnings, ability to pay interest and debt maturities (both current & long term) and

profitability of a sound dividend policy”--- R.D. and Mc Muller. Thus, analysis of financial

statement means such a treatment of the information contained in the financial statement as to

afford a full diagnosis of the profitability and financial position of the firm concerned. Financial

statements are prepared and presented for the external users of accounting information. As these

statements are used by investors and financial analysts to examine the firm’s performance in

order to make investment decisions, they should be prepared very carefully and contain as much



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investment decisions, they should be prepared very carefully and contain as much information as

possible. Preparation of the financial statement is the responsibility of top management. The

financial statements are generally prepared from the accounting records maintained by the firm.

Analysis of Financial performances are of greater assistance in locating the weak spots at the

Emami limited even though the overall performance may be satisfactory. This further helps in

Financial forecasting and planning.

Communicate the strength and financial standing of the Emami Limited.

For effective control of business.

Ratio Analysis:

Ratio analysis is a widely-use tool of financial analysis. It can be used to compare the risk and return

relationships of firms of different sizes. It is defined as the systematic use of ratio to interpret the financial

statements so that the strengths and weakness of a firm as well as its historical performance and current

financial condition can be determined. The term ratio refers to the numerical or quantitative relationship

between two items and variables. These ratios are expressed as (i) percentages, (ii) fraction and (iii)

proportion of numbers

Tips to improve the financial health.

Spend less money, or save more money or do both. If the annual income does nothing more than

remain constant, your financial condition will improve.The above statement may sound come

across as flippant, but it’s a fact of life, regardless. Needless to say we all have different

personalities and different responses to needs and desires in life. .

Steps to Improve Financial Performance

Given the challenges facing physicians, successful practices must take proactive steps to combat

negative trends and improve their overall financial performance.

To improve practice operations, processes can be streamlined to reduce costs; productivity

improvements can be implemented by physicians and employees to increase revenue; a reporting



49 | P a g e ISSN: 2278-9111; 6(2), 2016

structure can be created that allows for better decision making by physicians and employees; and

a rewards system can be implemented to recognize hard-working employees.

To determine how you can improve your medical practice's performance, consider the following

management procedures.

1) Internal Cost Reduction Strategies

Cost reduction strategies focus on reducing the internal costs generated by medical services

provided to the marketplace.

2) External Cost Reduction Strategies

These strategies include the cost of services purchased from outside consultants or vendors.

3) Asset and Credit Management Strategies

These strategies ensure that you are getting the most value from the resources invested in your

practice.

4) Personnel Resources

When managed properly, personnel costs and productivity can have a substantial impact on

practice profitability.

5) Management Reporting

The use of timely, relevant, properly formatted reports to manage your practice cannot be

overstated. This is a crucial link between setting financial and operational goals and managing

the practice to achieve them.

Research Objectives:

Primary Objective:

To evaluate the financial efficiency of “EMAMI LIMITED”.

Secondary Objectives: i. To analyze the liquidity solvency position of the firm.

ii. To study the working capital management of the company.

iii. To understand the profitability position of the firm.

iv. To assess the factors influencing the financial performance of the organization.

v. To understand the overall financial position of the company.



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Research Methodology:

Methodology:

The project evaluates the financial performance one of the company with help of the most appropriate

tool of financial analysis like ratio analysis and comparative balance sheet. Hence, it is essentially fact

finding study.

Primary Data:

Primary data is the first hand information that is collected during the period of research. Primary data

has been collected through discussions held with the staffs in the accounts department. Some types of

information were gathered through oral conversations with the cashier, taxation officer etc.

Secondary Data:

Secondary data studies whole company records and company’s balance sheet in which the project work

has been done. In addition, a number of reference books, journals and reports were also used to

formulate the theoretical model for the study. And some information were also drawn from the

websites.

Tools used in analysis:

Ratio analysis

Period of study:

The study covers the period of 2001-2002 to 2005-2006 in Emami Limited.

Data Analysis and Interpretation:

Financial Performance Evaluation Using Ratio Analysis

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “The Indicated Quotient of

Two Mathematical Expressions” and as “The Relationship between Two or More Things”. In financial

analysis, a ratio is used as a benchmark for evaluating the financial position and performance of firm. The



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absolute accounting figures reported in the financial statement do not provide a meaningful understanding

of the performance and financial position of a firm. The relationship between two accounting figures,

expressed mathematically is known as a financial ratio. Ratios help to summaries large quantities of

financial data and to make qualitative about the firm’s financial performance. The point to note is that a

ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all

financial ratios.

Significance of Using Ratios:

The significance of a ratio can only truly be appreciated when:

1. It is compared with other ratios in the same set of financial statements.

2. It is compared with the same ratio in previous financial statements (trend analysis).

3. It is compared with a standard of performance (industry average). Such a standard may be

4. either the ratio which represents the typical performance of the trade or industry, or the ratio

5. which represents the target set by management as desirable for the business.

Balance Sheets of EMAMI LTD as on 31st March W.E.F 2001 – 2006

Particulars

31st March 2001 Rs. in lakhs

31st March 2002 Rs. in lakhs

31st March

2003 Rs. in lakhs

31st March

2004 Rs. in lakhs

31st March

2005 Rs. in lakhs

31st March

2006 Rs. in lakhs



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Current Ratio

The Current Ratio expresses the relationship between the firm’s current assets and its current

liabilities. Current assets normally include cash, marketable securities, accounts receivable and

inventories. Current liabilities consist of accounts payable, short term notes payable, short-term

loans, current maturities of long term debt, accrued income taxes and other accrued expenses

(wages).

Current assets Current Ratio = _______________

Current liabilities

Fixed Assets (A) 27150 25169.20 23599.92 23293.33 21863.99 20245.48

Investment ( B ) 214 806.11 812.09 690.78 5391.05 8709.80

Current Assets : Inventories Sundry Debtors Cash and Bank Balance Loans and Advances

4426 4151 93 2331

3038.38 4211.03 130.54 2576.86

3977.63 3100.98

141.15 1606.03

3097.26 4405.70

46.11 2177.66

3674.58 3524.79

34.43 2650.84

3662.46 3667.52

82.12 4537.37

Total current Assets (C)

11001 9956.81 8825.79 9726.73 9884.64 11949.47

Total Assets ( A+B+C ) 38365 35932.12 33237.8 33710.84 37139.68 40904.75

Shareholders Funds : Share Capital Reserves and Surplus Deferred Tax

812 27924 202

561.50 27091.4 262.00

561.50

27068.07 335.70

1123.00

26783.09 429.00

1223.00

30460.74 480.00

1223.00

32298.63 261.00

Total Shareholders Funds(A)

28938 27915.24 27965.27 28335.09 32163.74 33782.63

Loan Funds : Secured loans Unsecured loans

6769 1968

6716.08 525.31

4505.38

122.89

4104.48

117.15

3375.82

98.36

3124.08

92.59

Total Loan Funds ( B ) 8737 7241.39 4628.27 4221.63 3474.18 3216.67

Current Liabilities and Provision( C)

690

775.49

644.26 1154.12 1501.76 3905.45

Total Liabilities (A+B+C )

38365 35932.12 33237.8 33710.84 37139.68 40904.75



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Significance:

It is generally accepted that current assets should be 2 times the current liabilities. In a sound business,

a current ratio of 2:1 is considered an ideal one. If current ratio is lower than 2:1, the short term

solvency of the firm is considered doubtful and it shows that the firm is not in a position to meet its

current liabilities in times and when they are due to mature. A higher current ratio is considered to be

an indication that of the firm is liquid and can meet its short term liabilities on maturity. Higher current

ratio represents a cushion to short-term creditors, “the higher the current ratio, the greater the margin

of safety to the creditors”.

CURRENT RATIO

Year

Current Ratio

Rs. in lakhs

Current Liabilities

Rs. in lakhs

Ratio

2001 – 2002

2002 – 2003

2003 – 2004

2004 – 2005

2005 – 2006

9956.81

8825.79

9726.73

9884.64

11949.47

775.49

644.26

1154.12

1501.76

3905.45

12.83

13.69

8.43

6.56

3.06

Interpretation:

As a conventional rule, a current ratio of 2:1 is considered satisfactory. This rule is base on the

logic that in a worse situation even if the value of current assets becomes half, the firm will be

able to meet its obligation. The current ratio represents the margin of safety for creditors. The

current ratio has been decreasing year after year which shows decreasing working capital.

From the above statement the fact is depicted that the liquidity position of the Emami limited is

satisfactory because all the five years current ratio is not below the standard ratio 2:1.



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CURRENT RATIO

Quick Ratio

Measures assets that are quickly converted into cash and they are compared with current

liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g.

inventories.

The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its

short-term obligations from its “quick” assets only (i.e. it ignores stock). The quick ratio is

calculated as follows

Quick assets

Quick Ratio = ___________________

Current liabilities

Significance:

The standard liquid ratio is supposed to be 1:1 i.e., liquid assets should be equal to current

liabilities. If the ratio is higher, i.e., liquid assets are more than the current liabilities, the short

term financial position is supposed to be very sound. On the other hand, if the ratio is low, i.e.,

current liabilities are more than the liquid assets, the short term financial position of the business

shall be deemed to be unsound. When used in conjunction with current ratio, the liquid ratio

gives a better picture of the firm’s capacity to meet its short-term obligations out of short-term

assets.



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QUICK RATIO

Year

Quick Assets

Rs. in lakhs

Current Liabilities

Rs. in lakhs

Ratio

2001 – 2002

2002 – 2003

2003 – 2004

2004 – 2005

2005 – 2006

6918.43

4848.16

6629.47

6210.06

8287.01

775.49

644.26

1154.12

1501.76

3905.45

8.92

7.52

5.74

4.13

2.12

Interpretation:

As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. It is

a more rigorous and penetrating test of the liquidity position of a firm. But the liquid ratio has

been decreasing year after year which indicates a high operation of the business. From the above

statement, it is clear that the liquidity position of the Emami limited is satisfactory. Because the entire

five years liquid ratio is not below the standard ratio of 1:1.

QUICK RATIO



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Average Collection Period:

The average collection period measures the quality of debtors since it indicates the speed of their

collection.

The shorter the average collection period, the better the quality of debtors, as a short

collection period implies the prompt payment by debtors.

The average collection period should be compared against the firm’s credit terms and

policy to judge its credit and collection efficiency.

An excessively long collection period implies a very liberal and inefficient credit and

collection performance.

The delay in collection of cash impairs the firm’s liquidity. On the other hand, too low a

collection period is not necessarily favorable, rather it may indicate a very restrictive

credit and collection policy which may curtail sales and hence adversely affect profit.

365 days Average collection period = ____________________

Debtors turnover ratio

Significance:

Average collection period indicates the quality of debtors by measuring the rapidity or slowness

in the collection process. Generally, the shorter the average collection period, the better is the

quality of debtors as a short collection period implies quick payment by debtors. Similarly, a

higher collection period implies as inefficient collection performance which, in turn, adversely

affects the liquidity or short term paying capacity of a firm out of its current liabilities.

Moreover, longer the average collection period, larger is the chances of bad debts.

AVERAGE COLLECTION PERIOD

Year

Days

Debtors Turnover Ratio

Rs. in lakhs

Days

2001 – 2002

2002 – 2003

2003 – 200

2004 – 2005

2005 – 2006

360

360

360

360

360

4211.03

3100.98

4405.70

3524.79

3667.52

0.09

0.12

0.08

0.10

0.10



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Interpretation:

The shorter the collection period, the better the quality of debtors. Since a short collection

period implies the prompt payment by debtors. Here, collection period decrease from 2003-

2004 and increased slightly in the year 2005-2006. Therefore the average collection period of

Emami ltd for the five years are satisfactory.

AVERAGE COLLECTION PERIOD

Working capital turnover ratio:

This ratio shows the number of times the working capital results in sales. In other words, this

ratio indicates the efficiency or otherwise in the utilization of short term funds in making sales.

Working capital means the excess of current assets over current liabilities. In fact, in the short

run, it is the current assets and current liabilities which pay a major role. A careful handling of

the short term assets and funds will mean a reduction in the amount of capital employed, thereby

improving turnover. The following formula is used to measure this ratio:

Sales

Working capital turnover ratio = _____________________

Net Working Capital

Significance:

This ratio is used to assess the efficiency with which the working capital has been utilized in a

business. A higher working capital turnover indicates either the favorable turnover of inventories



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and receivables and/or the inadequate of net working capital accompanied by low turnover of

inventories and receivables. A low ratio signifies either the excess of net working capital or slow

turnover of inventories and receivables or both. This ratio can at best be used by making of

comparative and trend analysis for different firms in the same industry and for various periods.

WORKING CAPITAL TURNOVER RATIO

Year

Sales

Rs. in lakhs

Net Working Capital

Rs. in lakhs

Ratio

2001 – 2002

2002 – 2003

2003 – 2004

2004 – 2005

2005 – 2006

18262.60

19808.5

21612.94

21885.20

30087.56

9181.32

8181.53

8572.61

8382.88

8044.02

1.99

2.42

2.52

2.61

3.74

Interpretation:

The Working Capital Turnover Ratio is increasing year after year. It can be noted that the change is due to

the fluctuation in sales or current liabilities. These higher ratio are indicators of lower investment of

working Capital and more profit.

Thus, Working Capital Turnover ratios for the five years are satisfactory.

WORKING CAPITAL TURNOVER RATIO



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Fixed Assets Turnover Ratio:

The fixed assets turnover ratio measures the efficiency with which the firm has been using its

fixed assets to generate sales. It is calculated by dividing the firm’s sales by its net fixed assets as

follows:

Sales

Fixed Assets Turnover =________________

Net fixed assets

Significance:

This ratio gives an ideal about adequate investment or over investment or under investment in

fixed assets. As a rule, over-investment in unprofitable fixed assets should be avoided to the

possible extent. Under-investment is also equally bad affecting unfavorably the operating costs

and consequently the profit. In manufacturing concerns, the ratio is important and appropriate,

since sales are produced not only by use of working capital but also the capital invested in fixed

assets. An increase in this ratio is the indicator of efficiency in work performance and a decrease

in this ratio speaks of unwise and improper investment in fixed assets.

FIXED ASSETS TURNOVER RATIO

Year

Sales

Rs. in lakhs

Net Fixed Assets

Rs. in lakhs

Ratio

2001 – 2002

2002 – 2003

2003 – 2004

2004 – 2005

2005 – 2006

18262.60

19808.50

21612.94

21885.20

30087.56

25169.20

23599.92

23293.33

21863.99

20245.48

0.73

0.84

0.93

1.00

1.49

Interpretation:

The fixed assets turnover ratio is increasing year after year. The overall higher ratio indicates the

efficient utilization of the fixed assets.

Thus the fixed assets turnover ratio for the five years are satisfactory as such there is no under

utilization of the fixed assets.



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FIXED ASSETS TURNOVER RATIO

Proprietary Ratio:

This ratio is also known as ‘Owners fund ratio’ (or) ‘Shareholders equity ratio’ (or) ‘Equity

ratio’ (or) ‘Net worth ratio’. This ratio establishes the relationship between the proprietors’ fund

and total tangible assets. The formula for this ratio may be written as follows

Proprietors’ funds

Proprietary Ratio = _____________________

Total tangible assets

Significance:

This ratio represents the relationship of owner’s funds to total tangible assets, higher the ratio or

the share of the shareholders in the total capital of the company, better is the long term solvency

position of the company. This ratio is of importance to the creditors who can ascertain the

proportion of the shareholders’ funds in the total assets employed in the firm. A ratio below 50%

may be alarming for the creditors since they may have to lose heavily in the event of company’s

liquidation on account of heavy losses.



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PROPRIETARY RATIO

Year

Proprietors Fund

Rs. in lakhs

Total Tangible Assets

Rs. in lakhs

Ratio

2001 – 2002

2002 – 2003

2003 – 2004

2004 – 2005

2005 – 2006

27653.24

27629.57

27906.09

31683.74

33521.63

35932.12

33237.8

33710.84

37139.68

40904.75

0.77

0.83

0.83

0.85

0.82

Interpretation:

This ratio is particularly important to the creditors and it focuses on the general financial strength

of the business. A ratio of j50% will be alarming for the creditors. As such the proprietary ratio

of the five years is above 50%. Therefore it indicates relatively little danger to the creditors, etc. And

a better performance of the company.

PROPRIETARY RATIO

Profitability Ratios

Profitability is the ability of a business to earn profit over a period of time. Although the profit

figure is the starting point for any calculation of cash flow, as already pointed out, profitable

companies can still fail for a lack of cash.



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A company should earn profits to survive and grow over a long period of time.

Profits are essential, but it would be wrong to assume that every action initiated by

management of a company should be aimed at maximizing profits, irrespective of social

consequences.

The ratios examined previously have tendered to measure management efficiency and risk.

A. Gross Profit Margin

Normally the gross profit has to rise proportionately with sales.

It can also be useful to compare the gross profit margin across similar businesses

although there will often be good reasons for any disparity.

Gross profit

Gross Profit Margin = ________________ *100

Sales

Significance:

The gross profit ratio helps in measuring the results of trading or manufacturing operations. It

shows the gap between revenue and expenses at a point after which an enterprise has to meet the

expenses related to the non-manufacturing activities, like marketing, administration, finance and

also taxes and appropriations.

The gross profit shows the gap between revenue and trading costs. It, therefore, indicates the

extent to which the revenue have a potential to generate a surplus. In other words, the gross

profit reveals the mark up on the sales. Gross profit ratio reveals profit earning capacity of the

business with reference to its sale. Increase in gross profit ratio will mean reduction in cost of

production or direct expenses or sale at a reasonably good price and decrease in the will mean

increased cost of production or sales at a lesser price. Higher gross profit ratio is always in the

interest of the business.



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GROSS PROFIT MARGIN

Year Gross Profit

Rs. in lakhs

Net Sales

Rs. in lakhs

Ratio

2001 – 2002

2002 – 2003

2003 – 2004

2004 – 2005

2005 – 2006

7052.87

7925.86

7904.58

9275.87

12543.85

18262.60

19808.5

21612.94

21885.20

30087.56

38.62

40.01

36.57

42.38

41.69

Interpretation:

In the year 2002, the Gross Profit Ratio was 39% but then it increased to 40%, which shows a

good profit earning capacity of the business with reference to its sales. But in the year 2004, it

decreased to 37% which may be due to increase in cost of production or due to sales at lesser

price. But thereafter, for the succeeding two years, it has increased considerably, which indicates

that the cost of production has reduced. Therefore the Gross Profit Ratio for the five years

reveals a satisfactory condition of the business.

GROSS PROFIT MARGIN



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Net Profit Margin

This is a widely used measure of performance and is comparable across companies in similar

industries. The fact that a business works on a very low margin need not cause alarm because

there are some sectors in the industry that work on a basis of high turnover and low margins, for

examples supermarkets and motorcar dealers. What is more important in any trend is the margin

and whether it compares well with similar businesses.

Earnings after interest and taxes

Net Profit Margin =______________________________ *100

Net Sales

Significance:

An objective of working net profit ratio is to determine the overall efficiency of the business.

Higher the net profit ratio, the better the business. The net profit ratio indicates the

management’s ability to earn sufficient profits on sales not only to cover all revenue operating

expenses of the business, the cost of borrowed funds and the cost of merchandising or servicing,

but also to have a sufficient margin to pay reasonable compensation to shareholders on their

contribution to the firm. A high ratio ensures adequate return to shareholders as well as to enable

a firm to with stand adverse economic conditions. A low margin has an opposite implication.

NET PROFIT MARGIN

Year

Net Profit

Rs. in lakhs

Sales

Rs. in lakhs

Ratio

2001 – 2002

2002 – 2003

2003 – 2004

2004 – 2005

2005 – 2006

2848.84

2800.13

2871.54

3752.3

5937.78

18262.60

19808.5

21612.94

21885.20

30087.56

15.60

14.14

13.29

17.15

19.74



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Interpretation:

In the year 2002 the Net Profit is 15.60%, but in the year 2002-2003 it was decreased to 14.14

and 13.29. Which may due to excessing selling and distribution expenses. But thereafter for the

succeeding years it has been increasing which indicates a better performance of the company.

Therefore the performance of the management should be appreciated. Thus an increase in the

ratio over the previous periods indicates improvement in the operational efficiency of the

business.

NET PROFIT MARGIN

Return on Total assets

This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationship

between net profits and assets. As these two terms have conceptual differences, the ratio may be

calculated taking the meaning of the terms according to the purpose and intent of analysis.

Usually, the following formula is used to determine the return on total assets ratio.

Net profit after taxes and interest * 100

Return on total assets = -------------------------------------------

Total assets

Significance:

This ratio measures the profitability of the funds invested in a firm but doe not reflect on the

profitability of the different sources of total funds. This ratio should be compared with the ratios



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of other similar companies or for the industry as a whole, to determine whether the rate of

return is attractive. This ratio provides a valid basis for inter-industry comparison.

RETURN ON TOTAL ASSETS

Interpretation:

The return on total assets ratio is increasing year after year . This increasing ratio indicates the

effective funds invested. Therefore the return on Total Assets ratio for the five years reveals a

satisfactory condition of the business.

RETURN ON TOTAL ASSETS

Year

Net Profit after Taxes and

Interest

Rs. in lakhs

Total Assets

Rs. in lakhs

Ratio

2001 – 2002

2002 – 2003

2003 – 2004

2004 – 2005

2005 – 2006

2848.84

2800.13

2871.54

3752.3

5937.78

35156.63

32593.54

32556.72

35637.92

36999.3

8.10

8.59

8.82

10.53

16.05



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Findings of the Study

1) The current ratio is above 2 in all the five years. The same level of current assets and

current liabilities may be maintained since the current assets are less profitable, when

compared to fixed assets.

2) The liquid ratio is decreasing year after year. Though the ratio is above 1 in all the five

years, it is preferable to improve upon the situation. This may be due to the fact that the

stock is major composition of current assets, which excludes liquid assets. The firm

should try to clear the stocks.

3) The cash ratio is decreasing year after year. So it shows that the cash position is not

utilized effectively and efficiently.

4) The average collection period is decreasing year after year so it shows the better is the

quality of debtors as a short collection period and implies quick payment by debtors.

5) The inventory turnover ratio from the five years indicated a good inventory policy and

efficiency of business operations of the company.

6) The working capital turnover ratio has been increasing during the five years, which indicates

that there is lowest investment of the working capital and more profit. More profit is in the

sense that there is higher ratio.

7) The proprietary ratio in all the five years is above the satisfactory level, that is, 50%. It indicates

the creditors are in a safer side and there is no pressure from them.

8) The debt to equity ratio is decreasing year after year, which indicates , the servicing of debt is

less burdensome and consequently its credit standing is not adversely affected.

9) The Net Profit for the five years has been increasing which shows that the selling and

distribution expenses are under control and there is a good operational efficiency of the

business concern.

10) Comparative balance sheet proves that the financial performance for each succeeding year is

very much satisfactory as compared with its previous year during the period of 2001-2006.

11) It can be stated that the working capital management of the company seems to be satisfactory.

But in certain years there is decrease in working capital, which is due to higher amount of

current liabilities especially, increasing in provision for dividend and taxation and creditors. The

company should try to decrease the current liabilities and provision by making timely payment.



68 | P a g e ISSN: 2278-9111; 6(2), 2016

Suggestion and Recommendation

1. The liquidity position of the company can be utilized in a better or other effective

purpose.

2. The company can be use the credit facilities provided by the creditors.

3. The debt capital is not utilized effectively and efficiently. So the company can extend its

debt capital.

4. Efforts should be taken to increase the overall efficiency in return out of capital employed

by making used of the available resource effectively.

5. The company can increase its sources of funds to make effective research and

development system for more profits in the years to come.

Conclusion

The study is made on the topic financial performance using ratio analysis with five years data in

Emami Limited. The current and liquid ratio indicates the short term financial position of Emami

Ltd. whereas debt equity and proprietary ratios shows the long term financial position. Similarly,

activity ratios and profitability ratios are helpful in evaluating the efficiency of performance in

Emami Ltd.The financial performance of the company for the five years is analyzed and it is

proved that the company is financially sound.

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