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A

SUMMER TRAINING REPORT

ON

AN ANALYSIS OF FLOW OF FUNDS

Submitted in the partial fulfillment for the degree of

Master of Business Administration

(Session 2009-11)

SUGAR MILLS LTD.

Under The Guidance

of:

Submitted By:

Sh.GURMEET SINGH RAJIV

SAINI

Managing Director MBA-

3rd SEM.

THE SHAHABAD CO-OPERATIVE Rollno: 976696

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I here by declare that the project entitled FUNDAMENTAL AND

TECHNICAL ANALYSIS submitted in the partial fulfillment of the

requirements for the degree of MBA to Swami Devi Dayal Instituteof Management Studies under the guidance of MR. RAJIV

SINGH,ACCOUNTANT (THE SHAHABAD CO-OPERATIVE SUGAR

MILLS LTD.) is my original work and not submitted for the award of

my any other degree, diploma, fellowship, or any other similar title or

prizes.

RAJIV SAINI

ACKNOWLEDGEMENT

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Knowledge is an experience gained in life, it is the choicest

possession, which should not be shelved but should be happily

shared with others. In this regard I am extremely fortunate having

Mr. GURMEET SINGH as THE MANAGING DIRECTOR of THE

SHAHABAD CO-OPERATIVE SUGAR MILLS LTD.

Nothing concrete can be achieved without optimum combination of

inspection and perspiration. Like all other studies, this work is also

result of the interaction of a number of minds who directly or indirectly

have contributed for completing this project. I owe a lot to many for

the inspection part. But thinking people who have contributed to a

project of a trainee little saying thank you at academic award.

It gives me tremendous pleasure in acknowledging the valuable

assistance extended to me by various personalities in successful

completion of this project report.

I am extremely grateful to Mr. Rajiv Khushwa, head training and

development for providing me the proper guidance to undergo my

training program.

I, hereby, acknowledge my sincere gratitude to all those people at

concern who gave me their valuable assistance and co-operation to

complete my training at THE SHAHABAD CO-OPERATIVE SUGAR

MILLS LTD.

RAJIV SAINI

Table of Contents:-

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Classification of Ratio

CHAPTER 5: CONCLUSION

INTRODUCTION TO PROJECTINTRODUCTION TO PROJECTIn order to determine whether the financial position of the company is satisfactory

or the financial data are analyzed. Different methods are used for this purpose. I

have chosen one of these methods that is Ratio Analysis.

I am doing my summer internship in The Shahabad Cooperative Sugar Mill Ltd.

and my project report is Fundamental and technical analysis of Sugar Mill.

Primary objective of this report is to analyze the financial position of the company

which is helpful in decision making as well as help to analyze the performance ofthe company in past.

Ratio Analysis is the technique of analyzing financial statements.

It helps in analyzing the financial soundness or weakness. Ratios

are the quantitative relationship between two items for the

purpose of comparison. The items which are present in profit and

loss account and balance sheet are interrelated and this

relationship can be calculated with the help of ratios. Ratios are

used to analyze the profitability, activity or operating efficiencyand solvency of the business. For preparing this report I am

taking help of annual reports of company, various books.

Technical analysis is a method of forecasting prices of stocks,

bonds futures contracts, indices, or other financial instruments.

The goal of technical analysis is to predict future price level or

direction. It tends not to be the goal of technical analysis to

explain why prices behave as they do; that would be fundamentalanalysis Technical analysis primarily studies the action of a

financial market.

The working principle behind technical analysis is that any

influence on the market is already reflected in current price

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levels. Followers of technical analysis believe that: 1) prices move

in trends, 2) history repeats itself, and 3) the market discounts

everything. Technical analysis involves the use of different kinds

of charts, or other market indicators such as moving averages,

volume and open interest, oscillators, Japanese candlesticks,Elliott Wave Theory, and cycle analysis.

It is important to understand that the realm of technical analysis

is not limited to charting. Technical analysis is always primarily

concerned with price trends. Anything that can influence the price

trend is of interest to a technical analyst. As an example, many

technical analysts monitor surveys of investor enthusiasm. Thesesurveys attempt to gauge the general attitude of the investment

community to determine whether investors are bearish or bullish.

Technical analysts use these surveys to help determine whether a

trend will reverse or whether a new trend will develop. A technical

analyst would be alerted that a trend might change when these

surveys report extreme investor reactions. When surveys are

overly bullish, for example, a technical analyst will look for

evidence that an uptrend will reverse. The logic being that if mostinvestors are bullish, then they would have already bought the

market (anticipating that the market will move higher). But

because most investors are bullish and have invested, it is safe to

assume that there are few buyers remaining in the market. With

most investors long, there are more potential sellers in the

market than buyers despite the fact that the overall attitude of

investors is bullish. This implies that the market is set to trend

down and is an example of a technical analysis concept calledcontrarian trading.
http://en.wikipedia.org/wiki/Bearishhttp://en.wikipedia.org/wiki/Bullishhttp://en.wikipedia.org/wiki/Long_(finance%2529http://en.wikipedia.org/wiki/Contrarianhttp://en.wikipedia.org/wiki/Bearishhttp://en.wikipedia.org/wiki/Bullishhttp://en.wikipedia.org/wiki/Long_(finance%2529http://en.wikipedia.org/wiki/Contrarian

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THE SHAHABAD CO-OPERATIVE

SUGAR MILLS LTD.

Shahabad Markanda town is situated on Delhi-Chandigarh

highway, at a distance of

20kms. from Kurukshetra

towards Ambala. The

Shahabad Co-operative Sugar

Mill is situated on

Shahabad-Ladwa road at a

distance of 3kms. from

National Highway i.e. Delhi-Chandigarh road towards Ladwa. The Shahabad Co-operative

Sugar Mills Shahabad(M) was registered as Co-operative Society

on 09-01-1976. The Letter of intent for establishment of the Sugar

Mills of 1250 TCD was received on 14-07-1981 and the

commercial production was started on 06-02-1985. The 1250 TCD

plant has given excellent results. It was observed that Shahabad

area has given potential for the increase in sugarcane production.

It was decided to increase the capacity of the Mill from 1250 TCDto 3500 TCD. The plant started crushing at full capacity of 3500

TCD from 07-11-1995 i.e. from crushing season 1995-96.

The Board of Directors takes all the policy decisions of the

Mills. The decisions during the meeting of Board of Directors are

taken by the majority view and the government nominees have

the dissenting power. If any Government nominee gives hisdissenting note on any resolution then the matter is referred to

the Government for the final decisions under section 29(3) of the

Haryana Co-operative Societies Act 1984. The decision of the

Government will be binding on the society and will be considered

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as per resolution of the Society. As per bye-laws no.45 the B.O.D.

shall consist of 16 Directors as under:-

Six Directors to be selected by the producer members

admitted. Two Directors to be selected by the non-producer membersadmitted.

Three Directors to be nominated by the State Governmenttill Share Capital contributed by the Government is fullyretired and load from financial institutions is repaid.

Two nominee Directors of the Financial Institutions until loadtaken from them is repaid.

Two Directors to be nominated by the State Governmenthaving intimate knowledge of the Sugar Industry and areprofessionally qualified.

Managing Director as appointed by the State Government.

The State Government has nominated three directors as under:-

Deputy Commissioner as Chairman.

Managing Director, Haryana State Federation of Co-operativeSugar Mills Ltd., or his nominee.

Registrar Co-operative Societies, or his nominee.

As loan has been fully repaid by the Mills so no Director

representing Financial Institutions is on the Board of Directors

of the Shahabad Co-operative Sugar Mills.

As per bye-laws no. 56, there shall be an Executive Committee

Consisting of seven persons as follow:-

Chairman of the Board of Directors as Ex-officio.

Vice-Chairman.

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One nominee Director of the Industrial Finance Corporationof India.

Three Directors nominated by the Board at least one ofthem to be State Government nominee of the Board.

Managing Director, who shall be the Ex-officio memberconvener.

Performance:-

The working of The Shahabad Co-

operative Sugar Mills has been

praise-worthy right from theinception. The Mills has set unique

standards/records at National

Level. The Mills has begged many

technical efficiency awards and

cane development awards at

National Level. The details of the

awards given to the Shahabad Co-

operative Sugar Mills Ltd., by the National Federation of Co-operative Sugar Factories Ltd., Delhi is given below:-

Efficiency Award 1988-89

Cane Development Efficiency Award 1988-89

Efficiency Award 1989-90

Technical Commendation Certificate 1990-91

Cane Development Efficiency Award 1991-92

Technical Commendation Certificate 1993-94

Technical Efficiency Award 1994-95

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Best Financial Management Award 2002-03

Best Co-operative Sugar Mills Award 2002-

03

1st Prize in Financial Management 2003-04

Best Co-operative Sugar Factory 2003-04

2nd Prize for Cane Development 2003-04

1

st

Prize for Best Co-operative Mill 2004-05Cane Development Award 2005-06

Technical Efficiency Award 2006-07

Best Co-operative Sugar Mills Award

2007-08

Best Co-operative Sugar Mills Award

2008-09

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Share capital and dividends:-

The authorized share capital of the Shahabad Co-operative Sugar Mills Ltd. Is

Rs.30 crores. Each share is of Rs. 100 each.This Mills has returned the State

Government Share Capital of Rs.2 crores on the direction of the Registrar Co-

operative Societies Haryana, Chandigarh on 16-03-99. The Mill has total share

capital of Rs.16.16 crores of which Rs.1.47 crores is the share of the State

Government.

For the first time, the Mills had distributed dividends @ 7.5% to all of

its share holders in the year 1994-95 for the year 1993-94. Again as per decision

taken in the BOD meeting on 10-06-1998, the Mill has distributed dividends @

10% to all the shareholders for the year 1997-98. During the year 2006-07, the Mill

has again distributed dividends @ 10% to its shareholders. This is the maximum

dividend as per byelaws of the Mills.

The crushing season 2006-07 of the Mills was started on 18-11-2006

and worked up to 30-05-2007. The Mill has crushed 71.67 lacks qtls. of sugarcane

and produced 7.25 lac quintals of sugar during the season 2006-07. The sugar

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recovery for the season 2006-07 was achieved 10.05%. The Mill is paying

sugarcane price for early, mid and general varieties @ Rs.138/_, Rs.128/_ &

Rs.126/_ per quintal respectively

The payment to the farmers on account of supply of cane by them is

directly made into the account of the growers through concerned bank with in

7days after the supply. Distribution of indents for the purchase of cane is done

through computers & advance calendaring on the basis of Parta. The Mill has paid

all cane price of Rs.9531.00 lacs to the farmers for the season 2006-07. The Mill

has also disbursed bonus @ Rs.5/- per quintel in addition to the cane price fixed by

the State Government to the suppliers against the cane supplied during the season

2004-05.

Area of sugarmill :-

The area of the Mills is in radius of 32kms. It spread 16kms. towards

Yamunanagar and 25 kms. in other directions. In the area of the Mills, there are

three cane growers societies i.e. Radaur, Mustfabad & kesri, through which around

50% sugarcane is purchased directly from growers by the Mills.

Area of sugarcane

The area under sugarcane is 42000 acres during the crushing season 2006-07.

There are 400 villages in the reserved area of Shahabad Co-operative Sugar Mills.

11500 growers supply sugarcane to the Miils. For the convenience of the cane

growers, the Mill has set up 27 cane Purchasing Centres in its reserved area. Purchi

Distribution for the purchase of cane is done by the computer and advance

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Biological Laboratory

To save the sugarcane crop from pest and insects, the Shahabad Co-

operative Sugar Mills installed a Biological Laboratory in which Parasites are

being given in cane growers free of cost.

Kisan Sewa Kendra

To provide best quality fertilizers, seeds, pesticides & insecticides

to the growers, the mills has started Kisan Sewa Kendra where growers can buy

items on the rates cheaper than the market rates.

Petrol Pump

The Mill has also installed a Petrol Pump for the convenience of

the farmers.

Magazines and Pamphlets are being distributed to farmers for providing latest

technical knowledge about sugarcane.

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Staff Strength & Facilities to Workers:-

The approved staff strength sanctioned for 1250 TCD plant was 769 out of which

there are 270 permanent, 499 seasonal permanent & 86 daily wage employees. Due

to expansion of the plant from 1250 TCD to 3500 TCD, the staff strength approved

for the expanded plant is 898. The breakup of the approved staff strength

(department wise), is as under:-

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Permanent Seasonal Daily Total Wagers

General & Accounts 114 33 - 147

Cane 54 160 27 241

Manufacturing 10 200 9 219

Engineering 121 151 19 291

Total 299 544 55 898

The Registrar Co-operative Societies (Sugar Mills) has revised

the staff strength of 3500 TCD plant. As per revised staff strength, the break-up

of the approved staff strength (department wise) is as under:-

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Permanent Seasonal Daily Total Wagers

General & Accounts 95 29 - 124

Cane 54 137 30 221

Manufacturing 10 184 30 224

Engineering 127 125 30 282

Total 286 475 90 851

At present 294 permanent, 459 seasonal permanent and 170 daily

wagers are working in the Mills.

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The Mill has 105 quarters and 50 dormitories for its employees.

There is also a modern canteen in the Mills premises where the facilities of tea,

meal etc. are available for workers. In addition to that, the Mill is also providing

various facilities to the workers like dress, bonus, ex-gratia, encashment of earned

leave, gratuity etc.

OBJECTIVES OF THE STUDY

Objective of Project Report : The main objective of the Project Report isFind the Ratio Analysis of company. And sub objectives of this

report is understand the Meaning of Ratio, Pure Ratio or Simple

Ratio, Advantages of Ratio Analysis, Limitations of Ratio Analysis,

classification of Ratio, Liquidity Ratio, Profitability Ratio or Income

Ratio, Activity & Turnover Ratio, Return on Capital Employed

MAIN OBJECTIVES:

To study the organization from various fundamentalparameters.

To study the organization from various technicalparameters.

SUB OBJECTIVES:

To understand the meaning of Ratio, Pure Ratio or SimpleRatio.

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Advantages and Limitations of Ratio Analysis

Classification of Ratio

RESEARCH METHODOLOGY

The way in which the data are collected for the research project

Studies the sources and nature of the Federal tax law and of its legislative,

administrative and judicial explanations and interpretations, the

All of the techniques, methods and procedures adopted in terminology work to

carry out terminology research..Steps of research methodology:-

Problem Statement.

Objectives of the research

Research Design

Data Collection

Analysis & Interpretation

Problem Statement:-

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A Problem Statement is the description of the issues and the

problems which are supposed to be addressed by a problem

solving team. A problem solving team can be a management

team of a company, researchers etc. A business research paper

highlights the management issue which is to be resolved andproblem statement gives the concise description of the issue.

Therefore, problem statement gives a specific purpose to be

achieved. The primary aim of problem statement is to converge

the attention of the target audience towards one point. If the

scope of statement is too limited then it can limit the innovations

and creativity.

Problem Statement of the Research:- To study the Financial Position of the Sugar Mill. To study the creditworthiness of the Sugar Mill.

To study the long term & short term solvency of theSugar Mill.

To study the market value of shares..

OBJECTIVES OF THE RESEARCH

o MAIN OBJECTIVES:

To study the organization from various fundamentalparameters.

To study the organization from various technicalparameters.

o SUB OBJECTIVES:

To study various sources of raising capital with specialreference to The Shahabad Cooperative Sugar Mill.

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To study various working capital management strategiesfollowed by The Shahabad Cooperative Sugar Mill.

RESEARCH DESIGN:-

Before examining types of research designs it is important to be

clear

about the role and purpose of research design. We need to

understand

what research design is and what it is not. We need to know

where

design ts into the whole research process from framing a

question to

nally analysing and reporting data

Descriptive researchAlthough some people dismiss descriptive research as `mere

description',good description is fundamental to the research enterprise and it

has added immeasurably to our knowledge of the shape and

nature of

our society. Descriptive research encompasses much government

sponsored

research including the population census, the collection of a widerange of social indicators and economic information such as

household

expenditure patterns, time use studies, employment and crime

statistics

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and the like.

Descriptions can be concrete or abstract. A relatively concrete

description

might describe the ethnic mix of a community, the changing age

prole of a population or the gender mix of a workplace Good

description provokes the `why' questions of explanatory

research. If we detect greater social polarization over the last 20

years

(i.e. the rich are getting richer and the poor are getting poorer)

we areforced to ask `Why is this happening?' But before asking `why?'

we must

be sure about the fact and dimensions of the phenomenon of

increasing

polarization. It is all very well to develop elaborate theories as to

why

society might be more polarized now than in the recent past, but

if the

basic premise is wrong (i.e. society is not becoming more

polarized) then

attempts to explain a non-existent phenomenon are silly.

Of course description can degenerate to mindless fact gathering

or

what C.W. Mills (1959) called `abstracted empiricism'. There are

plenty

of examples of unfocused surveys and case studies that report

trivial

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information and fail to provoke any `why' questions or provide

any basis

for generalization. However, this is a function of inconsequential

descriptions rather than an indictment of descriptive researchitself.

DATA COLLECTION:- Primary Data

Secondary data:-

Annual Reports of the Sugar Mill. Journals of the Sugar Mill.

Web sites.

Different Authors Books.

ANALYSIS & INTERPRETATION:-Graph &tables.

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History of Sugar and Sugar

Industry

India has been known as the original home of sugar and sugarcane. Indian

mythology supports the above fact as it contains legends showing the origin of

sugarcane. India is the second largest producer of sugarcane next to Brazil.

Presently, about 4 million hectares of land is under sugarcane with an average

yield of 70 tonnes per hectare.

India is the largest single producer of sugar including traditional cane sugar

sweeteners, khandsari and Gur equivalent to 26 million tonnes raw value followed

by Brazil in the second place at 18.5 million tonnes. Even in respect of white

crystal sugar, India has ranked No.1 position in 7 out of last 10 years.

Traditional sweeteners Gur & Khandsari are consumed mostly by the rural

population in India. In the early 1930s nearly 2/3rd of sugarcane production was

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utilised for production of alternate sweeteners, Gur & Khandsari. With better

standard of living and higher incomes, the sweetener demand has shifted to white

sugar. Currently, about 1/3rd sugarcane production is utilised by the Gur &

Khandsari sectors. Being in the small scale sector, these two sectors are completely

free from controls and taxes which are applicable to the sugar sector.

The advent of modern sugar processing industry in India began in 1930 with grant

of tariff protection to the Indian sugar industry. The number of sugar mills

increased from 30 in the year 1930 - 31 to 135 in the year 1935-36 and the

production during the same period increased from 1.20 lakh tonnes to 9.34 lakh

tonnes under the dynamic leadership of the private sector.

The era of planning for industrial development began in 1950-51 and Government

laid down targets of sugar production and consumption, licensed and installed

capacity, sugarcane production during each of the Five Year Plan periods. Thetargets and achievements during various plan periods are given below.

The discovery of sugarcane, from which sugar as it is known today, is derived

dates back unknown thousands of years. It is thought to have originated in New

Guinea, and was spread along routes to Southeast Asia and India. The process

known for creating sugar, by pressing out the juice and then boiling it into crystals,

was developed in India around 500 BC

Its cultivation was not introduced into Europe until the middle-ages, when it was

brought to Spain by Arabs. Columbus took the plant, dearly held, to the West

Indies, where it began to thrive in a most favorable climate

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It was not until the eighteenth century that sugarcane cultivation was began in the

United States, where it was planted in the southern climate of New Orleans. The

very first refinery was built in New York City around 1690; the industry wasestablished by the 1830s. Earlier attempts to create a successful industry in the

U.S. did not fare well; from the late 1830s, when the first factory was built. Until

1872, sugar factories closed down almost as quickly as they had opened. It was

1872 before a factory, built in California, was finally able to successfully produce

sugar in a profitable manner. At the end of that century, more than thirty factories

were in operation in the U.S.

Manufucturing

Sugar (sucrose) is a carbohydrate that occurs naturally in every fruit and vegetable.

It is a major product of photosynthesis, the process by which plants transform the

sun's energy into food. Sugar occurs in greatest quantities in sugarcane and sugar

beets from which it is separated for commercial use. The natural sugar stored in the

cane stalk or beet root is separated from rest of the plant material through a process

known as refining.

Pressing of sugarcane to extract the juice.

Boiling the juice until it begins to thicken and sugar begins to crystallize.

Spinning the crystals in a centrifuge to remove the syrup, producing raw

sugar.

Shipping the raw sugar to a refinery where it is washed and filtered to

remove remaining non-sugar ingredients and color.

Crystallizing, drying and packaging the refined sugar

Beet sugar processing is similar, but it is done in one continuous process without

the raw sugar stage. The sugar beets are washed, sliced and soaked in hot water

to separate the sugar -containing juice from the beet fiber. The sugar-laden juice

is then purified, filtered, concentrated and dried in a series of steps similar to

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cane sugar processing.

For the sugar industry, capacity utilization is conceptually different from that

applicable to industries in general. It depends on three crucial factors the actual

number of ton of sugarcane crushed in a day, the recovery rate which generallydepends on the quality of the cane and actual length of the crushing season.

RATIO ANALYSIS

Meaning of Ratio:- A ratio is simple arithmetical expression of

the relationship of one number to another. It may be defined as

the indicated quotient of two mathematical expressions.

According to Accountants Handbook by Wixon, Kell and Bedford,a ratio is an expression of the quantitative relationship between

two numbers.

Ratio Analysis:- Ratio analysis is the process of determining

and presenting the relationship of items and group of items in the

statements. According to Batty J. Management Accounting Ratio

can assist management in its basic functions of forecasting,

planning coordination, control and communication.

It is helpful to know about the liquidity, solvency, capital

structure and profitability of an organization. It is helpful tool to

aid in applying judgement, otherwise complex situations.

Ratio analysis can represent following three methods.

Ratio may be expressed in the following three ways :

1. Pure Ratio or Simple Ratio :- It is expressed by the

simple division of one number by another. For example , if

the current assets of a business are Rs. 200000 and its

current liabilities are Rs. 100000, the ratio of Current assets

to current liabilities will be 2:1.

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2. Rate or So Many Times :- In this type , it is calculated

how many times a figure is, in comparison to another figure.

For example , if a firms credit sales during the year are Rs.

200000 and its debtors at the end of the year are Rs.

40000 , its Debtors Turnover Ratio is 200000/40000 = 5times. It shows that the credit sales are 5 times in

comparison to debtors.

3. Percentage :- In this type, the relation between two figures is

expressed in hundredth. For example, if a firms capital is

Rs.1000000 and its profit is Rs.200000 the ratio of profit

capital, in term of percentage, is 200000/1000000*100 = 20%

ADVANTAGE OF RATIO ANALYSIS

1. Helpful in analysis of Financial Statements.

2. Helpful in comparative Study.

3. Helpful in locating the weak spots of the business.

4. Helpful in Forecasting.

5. Estimate about the trend of the business.

6. Fixation of ideal Standards.

7. Effective Control.

8. Study of Financial Soundness.

LIMITATIONS OF RATIO ANALYSIS

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1. Comparison not possible if different firms adopt

different accounting policies.

2. Ratio analysis becomes less effective due to price

level changes.

3. Ratio may be misleading in the absence of absolute

data.

4. Limited use of a single data.

5. Lack of proper standards.

6. False accounting data gives false ratio.

7. Ratios alone are not adequate for proper

conclusions.

8. Effect of personal ability and bias of the analyst.

CLASSIFICATION OF RATIO

Ratio may be classified into the four categories as follows:

A. Liquidity Ratio

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

B. Leverage or Capital Structure Ratio

a. Debt Equity Ratio

b. Debt to Total Fund Ratio

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c. Proprietary Ratio

d. Fixed Assets to Proprietors Fund Ratio

e.

Capital Gearing Ratio

f. Interest Coverage Ratio

C. Activity Ratio or Turnover Ratio

a. Stock Turnover Ratio

b. Debtors or Receivables Turnover Ratio

c. Average Collection Period

d. Creditors or Payables Turnover Ratio

e. Average Payment Period

f. Fixed Assets Turnover Ratio

g. Working Capital Turnover Ratio

D. Profitability Ratio or Income Ratio

(A) Profitability Ratio based on Sales :

a. Gross Profit Ratio

b. Net Profit Ratio

c. Operating Ratio

d. Expenses Ratio

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(B)Profitability Ratio Based on Investment :

I. Return on Capital Employed

II.

Return on Shareholders Funds :

a. Return on Total Shareholders Funds

b. Return on Equity Shareholders Funds

c. Earning Per Share

d. Dividend Per Share

e. Dividend Payout Ratio

f. Earning and Dividend Yield

g. Price Earning Ratio

LIQUIDITY RATIO

(A) Liquidity Ratio:- It refers to the ability of the firm to meet

its current liabilities. The liquidity ratio, therefore, are also calledShort-term Solvency Ratio. These ratio are used to assess the

short-term financial position of the concern. They indicate the

firms ability to meet its current obligation out of current

resources.

In the words of Saloman J. Flink, Liquidity is the ability of the

firms to meet its current obligations as they fall due.

Liquidity ratio include two ratio :-

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

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a. Current Ratio:- This ratio explains the relationship between

current assets and current liabilities of a business.

Formula:

Current ratio = Current Assets/Current liabilities

Current Assets:-Current assets includes those assets which can

be converted into cash with in a years time.

Current Assets = Cash in Hand + Cash at Bank + B/R + Short

Term Investment + Debtors(Debtors Provision) + Stock(Stock of

Finished Goods + Stock of Raw Material + Work in Progress) +

Prepaid Expenses.

Current Liabilities :- Current liabilities include those liabilities

which are repayable in a years time.

Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation +

Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans

Payable with in a Year.

PARTICULARS 2006 2007 2008 2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs)

CURRENT ASSETS:-

Inventory 7375.31 6067.44 11467.96 9535.40

Debtors 56.72 120.99 69.43

78.17

Cash & Bank balances 35.80 134.56 163.16

332.62

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Loan & Advances 2029.16 1346.42 1477.17

3120.79

Total 9496.99 7669.41 13177.72 13066.93

CURRENT LIABILITIES:-

Creditors 93.23 32.21 93.40

Other C.L 4103.41 2928.06 8763.28

Total 4196.64 2960.27 8856.68 8398.33

Current Ratio 2.26 2.59 1.48 1.56

Significance :- According to accounting principles, a current

ratio of 2:1 is supposed to be an ideal ratio.

It means that current assets of a business should, at least , be twice of its current

liabilities. The higher ratio indicates the better liquidity position, the firm will be

able to pay its current liabilities more easily. If the ratio is less than 2:1, it indicate

lack of liquidity and shortage of working capital.

The biggest drawback of the current ratio is that it is susceptible

to window dressing. This ratio can be improved by an equal

decrease in both current assets and current liabilities.

Comments:-

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As the current ratios of years 2006 & 2007 was more than the

rule of thumb which shows mills extra money was invested in

the current assets and specifically in the inventory which means

that there are extra funds are invested in the inventory.

Current ratio of years 2008 & 2009 was less the 2:1 which

was also un satisfactory because it shows that the mill

cannot repaid its short term obligations out of its current assets

easily . It has to take external funds if its liabilities demand for

payment within one year.

But while analyzing the financial position , we have toconsider other factors like:-

Nature of Product :- As the demand for sugar is on continue

basis so its investment in stock may have good symbols.

Goodwill:- As the Goodwill of the Mill is very good ,so it has

no problem in the payment of its creditors because they

have faith on the sugar mill that it will make their

payments timely. And in the actual The Sugar Mill has gain a

goodwill on its relations with the creditors.

Stock conversion ratio:- Its SCR is also satisfactory except

of year 2008 which is 14.5 months. So in the year 2008 its C.R

is unsatisfactory. In the other year , its liquidity position is

satisfactory.

b. Quick Ratio:- Quick ratio indicates whether the firm is in a

position to pay its current liabilities with in a month or

immediately.

Formula:

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Quick Ratio = Liquid Assets/ Current Liabilities

Liquid Assets means those assets, which will yield cash very shortly.

Liquid Assets = Current Assets Stock Prepaid Expenses

PARTICULARS 2006 2007 2008

2009


QUICK ASSETS:-

Debtors 56.72 120.99 69.43

78.17


332.62

Loan & Advances 2029.16 1346.42 1477.17

3120.79

Total 2121.68 1601.97 1709.76

3531.58


Creditors 93.23 32.21 93.40

Other C.L 4103.41 2928.06 8763.28

Total 4196.64 2960.27 8856.68 8398.33

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Quick Ratio:- 0.50 0.54 0.19

0.42

Significance :-An ideal quick ratio is said to be 1:1. If it is more,

it is considered to be better. This ratio is a better test of short-

term financial position of the company.

Comments:-

Quick Ratio of the Sugar Mill was unsatisfactory because it

was less than the ideal ratio 1:1 . It shows that its low

liquidity position.

But as it has fast moving stock in the years 2006.,2007&

2009, so its short term position was a little bit

unsatisfactory.

As in the year 2008 , its quick ratio & stock conversion ratio

was very unsatisfactory ,so in this year its liquidity position

was not good.

LEVERAGE OR CAPITAL STRUCTURE RATIO:-

(B) Leverage or Capital Structure Ratio :-This ratio disclose

the firms ability to meet the interest costs regularly and Long

term indebtedness at maturity.

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These ratio include the following ratios :

a. Debt Equity Ratio:- This ratio can be expressed in two

ways:

First Approach : According to this approach, this ratio

expresses the relationship between long term debts and

shareholders fund.

Formula:

Debt Equity Ratio=Long term Loans/Shareholders Funds or Net Worth

Long Term Loans:- These refer to long term liabilities which mature after one

year. These include Debentures, Mortgage Loan, Bank Loan, Loan from Financial

institutions and Public Deposits etc.

Shareholders Funds :- These include Equity Share Capital,

Preference Share Capital, Share Premium, General Reserve,

Capital Reserve, Other Reserve and Credit Balance of Profit &

Loss Account.

Second Approach : According to this approach the ratio is calculated as follows:-

Formula:

Debt Equity Ratio=External Equities/internal Equities

Debtequity ratio is calculated for using second approach.


2009


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EXTERNAL EQITIES:-

Long term funds 94.94 24.06 61.12 471.66

Short term funds 4196.64 2960.27 8856.68 8398.33

Total 4291.58 2984.33 8917.80 8869.99

INTERNAL EQITIES:-

Share Capital 1501.12 1367.27 1367.36 1367.40

Reserve & Surplus 5459.15 5086.88 4864.79 6797.68

Total 6958.93 6454.15 6232.15 8165.06

DEBT EQITY RATIO 0.62 0.46 1.41 1.09

Significance :- This Ratio is calculated to assess the ability of the firm to meet its

long term liabilities. Generally, debt equity ratio of is considered safe.

If the debt equity ratio is more than that, it shows a rather risky financial position

from the long-term point of view, as it indicates that more and more funds invested

in the business are provided by long-term lenders.

The lower this ratio, the better it is for long-term lenders because they are more

secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection

to long-term lenders.

Comments:-

The Debt Equity Ratio of the Sugar Mill indicates that they invest very less

amount from the long term funds. Sugar Mill has adopted a safe financial

planning from long term point of view.

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From the shareholders point of view, it indicates unsatisfactory position because

it indicates that Mill has not been able to use low outsiders funds to magnify their

earnings.

By analyzing this ratio, we can interpret that Sugar Mill uses a funds by ploughing

back of profits in the mill. Along Mill uses the short term funds in comparison of

long term funds.

Thus the sugar Mill can use more funds from outside so that it can increase its

earning & shareholders earning.

b. Debt to Total Funds Ratio : This Ratio is a variation of the debt equity ratio and

gives the same indication as the debt equity ratio. In the ratio, debt is expressed in

relation to total funds, i.e., both equity and debt.

Formula:

Debt to Total Funds Ratio = Long-term Loans/Shareholders funds + Long-

term Loans

PARTICULARS 2006 2007 20082009


Long term funds 94.94 24.05 61.12 471.66

Shareholders Funds 6958.93 6454.15 6232.15 8165.68

Debt to total funds ratio 1.34% 0.5% 1% 0.6%

Significance :- Generally, debt to total funds ratio of 0.67:1 (or

67%) is considered satisfactory. In other words, the proportion of long term loans

should not be more than 67% of total funds.

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A higher ratio indicates a burden of payment of large amount of interest charges

periodically and the repayment of large amount of loans at maturity. Payment of

interest may become difficult if profit is reduced. Hence, good concerns keep the

debt to total funds ratio below 67%. The lower ratio is better from the long-term

solvency point of view.

Comments:-

In the year 2006 , Debt to total funds ratio is 1.34% which is less than the

67% but it is its highest ratio in this year it uses more debts in the

comparison of other years .

In the year 2007, this ratio dec. with a very much amount which shows Sugar

Mill has not relied on outside sources for raising long term funds. There is enough

scope for the company

c. Proprietary Ratio:- This ratio indicates the proportion of total

funds provide by owners or shareholders.

Formula:

Proprietary Ratio = Shareholders Funds/Total assets

PARTICULARS 2006 2007 2008 2009


SHAREHOLDERS FUNDS:-

Share Capital 1501.12 1367.27 1367.36 1367.40

Reserve & Surplus 5459.15 5086.88 4864.79 6797.68

Total 6958.93 6454.15 6232.15 8165.06

Total Assets:-

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Fixed Assets 1483.28 1497.52 1700.64 3696.54

Investment 271.58 271.58 271.58 271.58

Current Assets 9496.99 7669.41 13177.72 13066.93

Total 11251.65 9438.31 15149.95 17035.05

Proprietary Ratio:- 61.84% 68.38% 41.14% 47.93%

Significance :-This ratio should be 33% or more than that. In other words, the

proportion of shareholders funds to total funds should be 33% or more.

A higher proprietary ratio is generally treated an indicator of

sound financial position from long-term point of view, because it

means that the firm is less dependent on external sources of

finance.

If the ratio is low it indicates that long-term loans are less secured

and they face the risk of losing their money.

Comments: - As this ratio should be more than 33% because this shows that

the firm is less dependent on the external sources of finance.

In the year 2006, it is 61.84% which shows a very sound position of

Sugar mill. Similarly in the year 2007, it increase by 7% and indicates ahealthy position of the Sugar mill.

In the year 2008 &2009, this ratio decrease but shows the sound

position of Sugar mill.

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It shows that a large part of Assets are financed from Shareholders

funds.

d. Fixed Assets to Proprietors Fund Ratio :- This ratio is also

known as fixed assets to net worth ratio.

Formula:

Fixed Asset to Proprietors Fund Ratio = Fixed Assets/Proprietors Funds (i.e., Net

Worth) *100

PARTICULARS 2006 2007 2008 2009

FIXED ASSETS:- 1483.28 1497.52 1700.64 3696.54

PROPRIETORS FUND:- 6958.93 6454.15 6232.15 8165.06

F.A to Proprietors Fund Ratio 20.66% 23.20% 27.28% 45.27%

Significance :- The ratio indicates the extent to which

proprietors (Shareholders) funds are sunk into fixed assets.

Normally , the purchase of fixed assets should be financed by

proprietors funds. If this ratio is less than 100%, it would mean

that proprietors fund are more than fixed assets and a part of

working capital is provided by the proprietors. This will indicate

the long-term financial soundness of business.

Comments: - As this ratio shows that how the proprietors funds are used in

the firm and higher ratio is considered good for the firm.

In the years 2006, 2007, 2008 it shows a very low ratio which indicates

that the proprietors fund are invested in the working capital.

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In the year 2009 it increase, which shows a positive position for the

Sugar mill and its proprietors that its Shareholders Capital are now used

for Fixed Assets.

e.Capital Gearing Ratio:- This ratio establishes a relationship

between equity capital (including all reserves and undistributed

profits) and fixed cost bearing capital.

Formula:

Capital Gearing Ratio = Equity Share Capital+ Reserves + / Fixed cost Bearing

Capital

Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures +

Long Term Loan

PARTICULARS 2006 2007 2008 2009


Share Capital 1501.12 1367.27 1367.36 1367.40

Reserve & Surplus 5459.15 5086.88 4864.79 6797.68

Total 6958.93 6454.15 6232.15 8165.06

Fixed cost Bearing Cap. 94.94 24.05 61.12 471.66

Capital Gearing Ratio:- 73.30% 268.36% 101.97% 17.31%

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Significance:- If the amount of fixed cost bearing capital is more

than the equity share capital including reserves an undistributed

profits), it will be called high capital gearing and if it is less, it will

be called low capital gearing.

The high gearing will be beneficial to equity shareholders when

the rate of interest/dividend payable on fixed cost bearing

capital is lower than the rate of return on investment in

business.

Thus, the main objective of using fixed cost bearing capital is to

maximize the profits available to equity shareholders.

Comments:- Fixed cost bearing capital is very low in comparison to

shareholders funds. It indicates low Capital Gearing Ratio.

Low Capital Gearing Ratio is helpful when the cost of shareholders

funds is less than the fixed cost bearing capitals cost.

In the year 2006 the cost of shareholders is very low and in other

years it is nil because no dividend was declared to shareholders.

So, it shows a right decision of Low Capital Gearing.

f. Interest Coverage Ratio:- This ratio is also termed as Debt

Service Ratio. This ratio is calculated as follows:

Formula:

Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed

Interest Charges

PARTICULARS 2006 2007 2008 2009

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N/P BEFORE INT.:- 2682.48 1073.80 32.31

2539.62

FIXED INT. CHARGES:- 193.59 74.95 350.93 606.75

Interest Coverage Ratio 14 times 14 times 0.09 times 4 times

Significance :-This ratio indicates how many times the interestcharges are covered by the profits available to pay interest

charges.

This ratio measures the margin of safety for long-term lenders.

This higher the ratio, more secure the lenders is in respect of

payment of interest regularly. If profit just equals interest, it is an

unsafe position for the lender as well as for the company also, as

nothing will be left for shareholders.

An interest coverage ratio of 6 or 7 times is considered

appropriate.

Comments:-

ACTIVITY RATIO OR TURNOVER RATIO

(C) Activity Ratio or Turnover Ratio :- These ratio arecalculated on the bases of cost of sales or sales, therefore, these

ratio are also called as Turnover Ratio. Turnover indicates the

speed or number of times the capital employed has been rotated

in the process of doing business. Higher turnover ratio indicates

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the better use of capital or resources and in turn lead to higher

profitability.

It includes the following :

a. Stock Turnover Ratio:- This ratio indicates the relationship

between the cost of goods during the year and average stock

kept during that year.

Formula:

Stock Turnover Ratio = Cost of Goods Sold / Average Stock

Here, Cost of goods sold = Net Sales Gross Profit

Average Stock = Opening Stock + Closing Stock/2

PARTICULARS 2006 2007 2008 2009


Cost of Goods Sold:-

Sales 12643.81 12238.03 7192.5714468.0

Gross Profit 3100.43 1781.39 612.65

3270.63

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Cost of goods sold 9543.38 10456.64 6579.92

11197.37

Average Stock:-

Opening Stock 8089.81 7238.41 5912.17

11218.17

Closing Stock 7238.41 5912.17 11218.17

9292.88

Average Stock 7664.11 6575.29 8565.57

10255.93

Stock Turnover Ratio 1.25 times 1.59 times .77 times

1.92 times

Significance:-This ratio indicates whether stock has been used

or not. It shows the speed with which the stock is rotated into

sales or the number of times the stock is turned into sales during

the year.

The higher the ratio, the better it is, since it indicates that stock is

selling quickly. In a business where stock turnover ratio is high,

goods can be sold at a low margin of profit and even than the

profitability may be quit high.

Comments:- This ratio shows the speed with which the stock is

converted into sales. While analysing, we have consider the nature of

product.

As the sugar is manufactured seasonally in 4-5 months in a year. So it

has to stock out a large amount in inventory should be converted into sales

before starting next manufacturing cycle of season.

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According to this all, the ratios are satisfactory except the year 2008 in

which it is 0.77 times which is very low.

b. Stock Conversion Period:- It may also be of interest to

see average time taken for clearing the stock . This can be

possible by calculating inventory conversion period. This period

is calculated by dividing the number of months by stock turnover

ratio.

Formula,

Stock conversion Period= 12 months/stock turnoverratio

PARTICULARS 2006 2007 2008 2009

Stock Turnover Ratio 1.25times 1.59times .77times 1.92times

Stock conversion Period 9.6 months 7.55 ms 15.6 ms

6.25 ms

Comments:- This ratio of all year is satisfactory except the year 2008.In

this year it is 15.6 months it means stock was hold for 15.6 months in the

mill

But in the next year sugar mill adopts right polices and achieve a very

satisfactory stock conversion ratio.

c. Debtors Turnover Ratio :- This ratio indicates the

relationship between credit sales and average debtors during the

year :

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Formula:

Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R

While calculating this ratio, provision for bad and doubtful debts is

not deducted from the debtors, so that it may not give a false

impression that debtors are collected quickly.


2009


Net Credit Sales:- 1264.38 1223.80 1798.14

3617.00

Debtors:- 56.72 120.99 69.43

78.17

Average Debtors:- 56.72 88.86 95.21

73.80

Debtor Turnover Ratio 22.29 13.77 18.88

49.01

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Significance :- This ratio indicates the speed with which the

amount is collected from debtors. The higher the ratio, the better

it is, since it indicates that amount from debtors is being collected

more quickly. The more quickly the debtors pay, the less the risk

from bad- debts, and so the lower the expenses of collection andincrease in the liquidity of the firm.

By comparing the debtors turnover ratio of the current year with

the previous year, it may be assessed whether the sales policy of

the management is efficient or not.

Comments:- As this ratio indicates the speed with which the amount is

collected from debtors.

Ratio of sugar mill is satisfactory in all the years. In the year 2007 it decrease

from 2006 but even then it is satisfactory

d. Average Collection Period :- This ratio indicates the time

with in which the amount is collected from debtors and bills

receivables.

Formula:

Average Collection Period = Debtors + Bills Receivable / Credit Sales per day

Here, Credit Sales per day = Net Credit Sales of the year / 365

Second Formula :-

Average Collection Period = Average Debtors *365 / Net Credit Sales

Average collection period can also be calculated on the bases of Debtors

Turnover Ratio. The formula will be:

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Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio


2009


Debtor Turnover Ratio 22.29 13.77 18.88

49.01

Average Collection Period 16 days 27days 19days 8days

Significance :-This ratio shows the time in which the customers

are paying for credit sales. A higher debt collection period is thus,

an indicates of the inefficiency and negligence on the part of

management. On the other hand, if there is decrease in debt

collection period, it indicates prompt payment by debtors which

reduces the chance of bad debts.

Comments:- This ratio of sugar mill indicates that sugar mill has a very

Sugar mill have good relations with its dealers and customers. They all make

their payment within one month on maximum basis.

d. Creditors Turnover Ratio :- This ratio indicates the

relationship between credit purchases and average creditorsduring the year .

Formula:-

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Creditors Turnover Ratio = Net credit Purchases / Average Creditors + Average

B/P

Note :- If the amount of credit purchase is not given in the question, the ratio may

be calculated on the bases of total purchase.

PARTICULARS 2006 2007 2008 2009


Net Credit Purchases:- 721.08 759.70 992.62 753.93

Creditors:- 93.23 32.21 93.40

Average Creditors:- 93.23 62.72 62.81

Creditors Turnover Ratio 7.73 12.11 15.80

Significance :- This ratio indicates the speed with which the

amount is being paid to creditors. The higher the ratio, the better

it is, since it will indicate that the creditors are being paid more

quickly which increases the credit worthiness of the firm.

Comments:- Comments: - It shows that the speed with which the

amount is being paid to creditors. It shows the relationship withcreditors and creditworthiness. This ratio of the sugar

mill is also very satisfactory in all the years.

So sugar mill has healthy relations with the creditors and its

creditworthiness is strong.

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d. Average Payment Period :- This ratio indicates the period

which is normally taken by the firm to make payment to its

creditors.

Formula:-

Average Payment Period = Creditors + B/P/ Credit Purchase per day

This ratio may also be calculated as follows :

Average Payment Period = 12 months or 365 days / Creditors Turnover Ratio

PARTICULARS 2006 2007 2008 2009


Creditors Turnover Ratio 7.73 12.11 15.80

Average Payment Period 47 days 30 days 23 days

Significance :- The lower the ratio, the better it is, because a

shorter payment period implies that the creditors are being paid

rapidly.

Comments:- Sugar mill has a strong ratio of average payment period.

This ratio indicates that sugar mill unpaid its creditor within the maximum

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days of 50 days which indicates a very strong policy of sugar mill for its

creditworthiness

d. Fixed Assets Turnover Ratio :- This ratio reveals how

efficiently the fixed assets are being utilized.

Formula:-

Fixed Assets Turnover Ratio = Cost of Goods Sold/ Net Fixed Assets

Here, Net Fixed Assets = Fixed Assets Depreciation


2009



Sales 12643.81 12238.03 7192.57

14468.0

Gross Profit 3100.43 1781.39 612.65

3270.63


11197.37

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Fixed Assets 1483.28 1497.52 1700.64 3696.54

Fixed Assets Turnover Ratio 6.43 6.98 3.86 3.02

Significance:- This ratio is particular importance in

manufacturing concerns where the investment in fixed asset is

quit high. Compared with the previous year, if there is increase inthis ratio, it will indicate that there is better utilization of fixed

assets. If there is a fall in this ratio, it will show that fixed assets

have not been used as efficiently, as they had been used in the

previous year.

Comments:- As in the year 2007 fixed assets turnover is inc. this means

efficient use of fixed assets but in the year 2008 and 2009 the ratio decrease.

Which is a negative sign. It means that now fixed assets are not efficiently

used in the sugar mill.

By efficient use of fixed assets sugar mill can increase its profits.

e. Working Capital Turnover Ratio :- This ratio reveals how

efficiently working capital has been utilized in making sales.

Formula :-

Working Capital Turnover Ratio= Cost of Goods Sold / Working Capital

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Here, Cost of Goods Sold = Opening Stock + Purchases +

Carriage + Wages + Other Direct Expenses - Closing Stock

Working Capital = Current Assets Current Liabilities


2009



Sales 12643.81 12238.03 7192.57

14468.0

Gross Profit 3100.43 1781.39 612.65

3270.63


11197.37

Working Capital:-

CURRENT ASSETS:-

Inventory 7375.31 6067.44 11467.96 9535.40

Debtors 56.72 120.99 69.43

78.17


332.62

Loan & Advances 2029.16 1346.42 1477.17

3120.72

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Total 9496.99 7669.41 13177.72 13066.93


Creditors 93.23 32.21 93.40

Other C.L 4103.41 2928.06 8763.28

Total 4196.64 2960.27 8856.68 8398.33

Working Capital:- 5300.35 4709.14 4321.04 4668.60

W.Cap Turnover Ratio 1.80 times 2.22 times 1.45 times 2.49 times

Significance :-This ratio is of particular importance in non-

manufacturing concerns where current assets play a major role in

generating sales. It shows the number of times working capital

has been rotated in producing sales.

A high working capital turnover ratio shows efficient use of

working capital and quick turnover of current assets like stock

and debtors.

A low working capital turnover ratio indicates under-utilisation of

working capital.

Comments:- As this shows the number of times the working capital has

been rotated in sales.

Now by analysing this ratio of sugar mill we can say in the year

2008 sugar mill has not made proper utilisation of working capital. In the

year 2006 it is 1.80 times means it is OK.

In the year 2007 and 2009 it shows an efficient use of working

capital in producing sales.

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Profitability Ratios or Income Ratios

(D) Profitability Ratios or Income Ratios:-The main object of

every business concern is to earn profits. A business must be able

to earn adequate profits in relation to the risk and capitalinvested in it. The efficiency and the success of a business can be

measured with the help of profitability ratio.

Profitability ratios are calculated to provide answers to the

following questions:

i. Is the firm earning adequate profits?

ii. What is the rate of gross profit and net profit on sales?

iii. What is the rate of return on capital employed in the firm?

iv. What is the rate of return on proprietors (shareholders)

funds?

v. What is the earning per share?

Profitability ratio can be determined on the basis of either salesor investment into business.

(A) Profitability Ratio Based on Sales :

a) Gross Profit Ratio : This ratio shows the relationship

between gross profit and sales.

Formula :

Gross Profit Ratio = Gross Profit / Net Sales *100

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Here, Net Sales = Sales Sales Return


2009


Gross Profit;- 3100.43 1781.38 612.65

3270.63

Net Sales:- 12643.80 12238.03 7191.56

14468.09

Gross Profit Ratio:- 24.52% 14.55% 8.5%

22.6%

Significance:-This ratio measures the margin of profit available

on sales. The higher the gross profit ratio, the better it is. No idealstandard is fixed for this ratio, but the gross profit ratio should be

adequate enough not only to cover the operating expenses but

also to provide for deprecation, interest on loans, dividends and

creation of reserves.

Comments:- This ratio should be higher and higher in the year 2006 it

shows a satisfactory G.P ratio which cans over operating and non operating

G.P efficiently.

In the year 2007 it decreases. and also in the year 2008 it decrease. to

a very low value which can not cover its operating exp.

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If we analyse deeply we can find reason for this that is in the

year2008 sales of sugar are very less but it cost of manufacturing is remain

high because of high fixed coast.

In the year 2009 it shows a very high like in G.P ratio. Which showsa great possibility of net profit?

b) Net Profit Ratio:- This ratio shows the relationship between

net profit and sales. It may be calculated by two methods:

Formula:

Net Profit Ratio = Net Profit / Net sales *100

Operating Net Profit = Operating Net Profit / Net Sales

*100

Here, Operating Net Profit = Gross Profit Operating Expenses such as Office and

Administrative Expenses, Selling and Distribution Expenses, Discount, Bad Debts,

Interest on short-term debts etc.

PARTICULARS 2006 2007 2008 2009


Net Profit:- 2488.89 998.85 (318.62) 1932.87

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Operating Net Profit:-

Gross Profit 3100.43 1781.38 612.65 3270.63

Operating Exp. 702.43 786.33 780.71 889.74

Operating Net Profit 2398.00 955.05 (168.06) 2300.89

Net Sales;- 12643.80 12238.03 7191.56

14468.09

Net Profit Ratio:- 19.68% 8.16% (4.43%)

13.36%

Operating Net Profit:- 18.97% 7.80% (2.34%) 15.90%

Significance :-This ratio measures the rate of net profit earned on sales. It helps in

determining the overall efficiency of the business operations. An increase in the

ratio over the previous year shows improvement in the overall efficiency andprofitability of the business.

Comments:- this ratio is very important ratio for all the stake holders

because it shows the possibility of their returning on their investment.

If we see the trend of this ratio , it shows a declining trend in three

year whichl as negative impact on the profitibility of the buisness

unifficietyof the sugar mill mgt.

But in the year 2008, it inc with a very high pate which shows

passibility of Recovering all the losses of previous year.

(c) Operating Ratio:- This ratio measures the proportion of an enterprise cost of

sales and operating expenses in comparison to its sales.

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Formula:

Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100

Where, Cost of Goods Sold = Opening Stock + Purchases +

Carriage + Wages + Other Direct Expenses - Closing Stock

Operating Expenses = Office and Administration Exp. + Selling

and Distribution Exp. + Discount + Bad Debts + Interest on Short-

term loans.

Operating Ratio and Operating Net Profit Ratio are inter-related. Total of both

these ratios will be 100.

PARTICULARS 2006 2007 2008 2009

Rs.(inLacs) Rs.(inLacs) Rs.(inLacs) Rs.(inLacs)


Sales 12643.81 12238.03 7192.57

14468.0

Gross Profit 3100.43 1781.39 612.65

3270.63

Total 9543.38 10456.64 6579.92

11197.37

Operating Exp.:- 702.43 786.33 780.71 889.74

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Net Sales;- 12643.80 12238.03 7191.56

14468.09

Operating Ratio:- 81.63% 92.2% (102.34%)

83.54%

Significance:- Operating Ratio is a measurement of the

efficiency and profitability of the business enterprise. The ratio

indicates the extent of sales that is absorbed by the cost of goods

sold and operating expenses. Lower the operating ratio is better,

because it will leave higher margin of profit on sales.

Comments:- This ratio is invuasing in first three year. If we analyse its

reasons. These are that, sales of the sugar mills are dedining but operating

ttepenses remain on high rangerather than decrease propertionately to the

sales.

In the year 2009, its show a decrease in this ratio which means profitability

of sugar mill.

(d) Expenses Ratio:- These ratio indicate the relationshipbetween expenses and sales. Although the operating ratio reveals

the ratio of total operating expenses in relation to sales but some

of the expenses include in operating ratio may be increasing while

some may be decreasing. Hence, specific expenses ratio are

computed by dividing each type of expense with the net sales to

analyse the causes of variation in each type of expense.

The ratio may be calculated as :

(a) Material Consumed Ratio = Material Consumed/Net Sales*100

(b) Direct Labour cost Ratio = Direct labour cost / Net sales*100

(c) Factory Expenses Ratio = Factory Expenses / Net Sales *100

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(a), (b) and (c) mentioned above will be jointly called cost of

goods sold ratio.

It may be calculated as:

Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales*100

(d) Office and Administrative Expenses Ratio = Office and

Administrative Exp./ Net Sales*100

(e) Selling Expenses Ratio = Selling Expenses / Net Sales *100

(f) Non- Operating Expenses Ratio = Non-Operating Exp./Net

sales*100


2009

Rs.(inLacs) Rs.(inLacs) Rs.(inLacs) Rs.(inLacs)

Material Consumed:- 8070.73 8923.33 4619.48

9465.38

Direct Labour:- 709.77 736.91 900.68

834.33

Factory Expenses:- 762.88 796.41 1059.74897.68

Office & Admini.Exp.:- 622.73 725.52 746.21

804.68

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Selling & Dist. Exp.:- 79.70 60.81 39.50

85.06

Non Operating Exp.:- 193.59 74.95 350.93

606.75

Net Sales:- 12643.80 12238.03

7191.56 14468.09

Material Con. Ratio:- 63.83% 72.91% 64.23%

65.42%

Direct Labour Ratio:- 5.61% 6.02% 12.52%

5.76%

Factory Exp. Ratio:- 6.03% 6.51% 14.73?

% 6.21%

Office & Adm Ratio:- 4.93% 5.93% 10.37%

5.56%

Selling & Dist Ratio:- 0.62% 0.49% 0.54%

0.58%

Non Operating Ratio:- 1.53% 0.61%

4.87% 4.19%

Significance:- Various expenses ratio when compared with thesame ratios of the previous year give a very important indication

whether these expenses in relation to sales are increasing,

decreasing or remain stationary. If the expenses ratio is lower,

the profitability will be greater and if the expenses ratio is higher,

the profitability will be lower.

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Comments:-

(B) Profitability Ratio Based on Investment in the

Business:-

These ratio reflect the true capacity of the resources employed in the enterprise.

Sometimes the profitability ratio based on sales are high whereas profitability ratio

based on investment are low. Since the capital is employed to earn profit, these

ratios are the real measure of the success of the business and managerial efficiency.

These ratio may be calculated into two categories:

I. Return on Capital Employed

II. Return on Shareholders funds

I. Return on Capital Employed :- This ratio reflects theoverall profitability of the business. It is calculated bycomparing the profit earned and the capital employed toearn it. This ratio is usually in percentage and is alsoknown as Rate of Return or Yield on Capital.

Formula:

Return on Capital Employed = Profit before interest, tax and dividends/

Capital Employed *100

Where, Capital Employed = Equity Share Capital + Preference

Share Capital + All Reserves + P&L Balance +Long-Term Loans-

Fictitious Assets (Such as Preliminary Expenses OR etc.) Non-

Operating Assets like Investment made outside the business.

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Capital Employed = Fixed Assets + Working Capital


2009


Profits Before Int. 2682.48 1073.80 32.31

2539.62

Capital Employed:-

Fixed Assets 1483.28 1497.52 1700.64 3696.54

Working Capital 5300.35 4709.14 4321.04 4668.60

Total 6783.63 6199.66 6021.68

8365.14

Return on Capital Employed 39.54% 17.32% 0.005%

30.36%

Significance:-

Since profit is the overall objective of a business enterprise,

this ratio is a barometer of the overall performance of the

enterprise. It measures how efficiently the capital employed in the

business is being used.

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Even the performance of two dissimilar firms may be compared

with the help of this ratio.

The ratio can be used to judge the borrowing policy of the

enterprise.

This ratio helps in taking decisions regarding capital investment

in new projects. The new projects will be commenced only if the

rate of return on capital employed in such projects is expected

to be more than the rate of borrowing.

This ratio helps in affecting the necessary changes in the

financial policies of the firm.

Lenders like bankers and financial institution will be determine

whether the enterprise is viable for giving credit or extending

loans or not.

With the help of this ratio, shareholders can also find outwhether they will receive regular and higher dividend or not.

Comments:- :-As this ratio shows the overall performance of the capital

in year 2006, this ratio is high and also more than the rate of borrowing

means the sound possision of the sugar mill. In the year 2007 it decreases

but it is more than the rate borrowing.

In the year 2008 it decreases with a high rate that it goes in losses. It

means sugar mill might hare problem of finance from outside like banks,

instilutions.

In the year 2009, it cover all the lossesand make high return on

Capital Employed. So now the sugar mill have a great scope from outside.

II. Return on Shareholders Funds :-

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Return on Capital Employed Shows the overall profitability of the funds supplied

by long term lenders and shareholders taken together. Whereas, Return on

shareholders funds measures only the profitability of the funds invested by

shareholders.

These are several measures to calculate the return on

shareholders funds:

(a) Return on total Shareholders Funds :-

For calculating this ratio Net Profit after Interest and Tax is

divided by total shareholders funds.

Formula:

Return on Total Shareholders Funds = Net Profit after Interest and Tax / Total

Shareholders Funds

Where, Total Shareholders Funds = Equity Share Capital +

Preference Share Capital + All Reserves + P&L A/c Balance

Fictitious Assets


2009


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2009


Net Profits 2187.24 998.85 (318.62)

1932.87

No. of Equity Shareholsers 1501000 1367000 1367000 1367000

Earning Per Share 145.71 73.06 (23.30) 141.39

Significance:- This ratio helpful in the determining of the marketprice of the equity share of the company. The ratio is also helpful

in estimating the capacity of the company to declare dividends on

equity shares.

Comments:-In the year 2006, 2009, sugar mill can declare a smart

frightened income for the shareholders.

But in the year 2008 it suffer from negative gps. It is advisable to keep

reserve in the year of profit so the sugar mill can declare a constant divided all the

year

(d) Dividend Per Share (D.P.S.):- Profits remaining after

payment of tax and preference dividend are available to equity

shareholders.

But of these are not distributed among them as dividend . Out of

these profits is retained in the business and the remaining isdistributed among equity shareholders as dividend. D.P.S. is the

dividend distributed to equity shareholders divided by the number

of equity shares.

Formula:

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D.P.S. = Dividend paid to Equity Shareholders / No. of Equity

Shares *100


2009


Dividend Paid 645.40 140.31 Nil

Nil

No. of Equity Shareholdsers 1501000 1367000 1367000 1367000

D.P.S. 42.99 10.26 Nil Nil

(e) Dividend Payout Ratio or D.P. :- It measures the

relationship between the earning available to equity shareholders

and the dividend distributed among them.

Formula:

D.P. = Dividend paid to Equity Shareholders/ Total

Net Profit belonging to Equity Shareholders*100

OR

D.P. = D.P.S. / E.P.S. *100

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2009


D.P.S. 42.99 10.26 Nil

Nil

E.P.S 145.71 73.06 (23.30) 141.39

Dividend Payout Ratio 0.29 0.14 Nil Nil

Comments:-

(f) Earning and Dividend Yield :- This ratio is closely related to

E.P.S. and D.P.S. While the E.P.S. and D.P.S. are calculated on the

basis of the book value of shares, this ratio is calculated on the

basis of the market value of share

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(g) Price Earning (P.E.) Ratio:- Price earning ratio is the ratio

between market price per equity share & earnings per

share. The ratio is calculated to make an estimate ofappreciation in the value of a share of a company & is

widely used by investors to decide whether or not to

buy shares in a particular company.

Significance :-This ratio shows how much is to be invested in the market in this

companys shares to get each rupee of earning on its shares. This ratio is used to

measure whether the market price of a share is high or low

CONCLUSION

Finance is the main driver of every industry. This sector of manufacturing various

machinery presses vessels, boilers, sugar machinery iron casting is the booming sector

now days and have great potential. Economy of India is improving, GDP is also showing

rising tread and government is focusing on infrastructure development such as roads,

ports, housing etc. Now its upon the company how it grabs the opportunity and for this

company requires finance.

Ratio analysis is helpful in decision making as well as help to analyze the performance of

company in past. These financial decisions are divided into two parts Long term and

short term decisions and their primary goal is to increase the corporate value by ensuring

that return on capital exceeds cost of capital, without taking any financial risks. Capital

investment decisions are related to the long-term choices for which projects receive

investment in which financial manager have to decide whether to invest in equity or debt

or to pay dividend 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 borrowing and lending. These

decisions are the main base of an organization.

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SUGGESTIONS

1. Short term Liquidity of the firm is not sound as the firms do not have

sufficient current assets to pay its current obligation. So company should

improve its current assets position.

2. The system should be designed by delegating adequate power to eachmanager /officer.

3. Company should maintain the optimum capital structure which contains the

minimum cost of capital with appropriate voting power (decision making

power) towards the top level management.

4. The internal checks should be building to minimize the mistakes due to less

capacity utilization.

5. Company should maintain the currently growth rate of current assets

turnover ratio to get benefit of best utilization of current asset

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BIBLIOGRAPHY

MANAGEMENT ACCOUNTING AND FINANCIAL MANAGEMENT

BY:

DR. R.K. SHARMA & SHASHI .K. GUPTA I.M. PANDEY

KHAN & JAIN

ANNUAL REPORTS OF THE SHAHBAD COOPERATIVE SUGAR MILL LTDSHAHBAD.

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