Risk Management

CHAPTER - I

INTRODUCTION AND DESIGN OF STUDY

1.1 INTRODUCTION TO THE STUDY

The uncertainty in the future is known as the risk. The chance of the return on the

investment in the business is very highly uncertain. No business concern can give surety of

profit. I n every business activities there will be risks, these risks can create financial loss to the

company so we can say that all the risks are financial risks. The uncertainty can be seeing in

purchase, production, labor, finance, sales...

The managers are concentrating more on the risk management strategies because the

most critical decisions of the enterprises are very closely related to finance and an understanding

of the theory of financial risk management strategies provide them with conceptual and

analytical insights to make those decisions successfully. The fact is that the business needs a risk

free environment to make more profit.

MEANING OF FINANCIAL RISKS

In common all risks in the business are financial risks. That uncertainty in the business

that causes financial losses to the company is known as financial risks. These risks can be

measured in monitory terms. Risk management strategies are applicable to any type of business.

But the fact is that according to the nature of the business the strategies will differ. We can find

out some common characteristics in the strategies because the whole strategies are related with

reducing the risk

FINANCIAL STRATEGY

In order to manage the risks the management will adopt some financial strategies. These

financial strategies are related to the availability, usage, and management of the funds in the

most prescribed way in order to avoid the uncertainty. So the relevance of the risk management

is very high in the business. Under this head we can place the risk management strategy.

WHEN RISING OF FUNDS

Plans and policies related to the sources of funds deal with financing or capital-mix

decisions. Plans and policies have to be made for the following major factors:-

Capital structure; procurement of capital and working capital borrowings; reserves and

surplus as of funds; and the relationship with lenders, banks, and financial institutions. These

plans and policies are important since they determine how financial resources will be made

implementation of risk management strategies.

WHEN USING FUNDS

Usage of funds deal with investment or asset-mix decisions. The important factors that

relevant there are

Capital investment, fixed asset acquisition, current asset, loans and advances, dividend

decisions, and the relationship with shareholders. Usage of funds is important since it relates to

the efficiency and effectiveness of resource utilization in the process of risk avoidance. If the

plans and policies are not clear there will be loss to the company as the miss utilization or the

underutilization of the resources.

MANAGEMENT OF THE FUNDS

The management of the funds important area in risk management strategy. It basically

deals with the decisions related to the systemic aspects of the financial management strategies.

The major factors for which plans and policies related to the management of funds have to be

made are

The systems of finance, accounting, and budgeting, management control system, cash,

credit, cost control and reduction, and tax planning and advantages.

The management of funds can play a pivotal role in risk management as it aims at the

conservation and optimum utilization of funs objectives which are central to any strategic action.

Organizations which implement risk management strategies can not rigors of the proper

management of the funds. In fact, good management of funds often creates the difference

between a strategically successful and UN successful company.

Financial plans and policies, however, present a dilemma before a management. The

priorities of the management may often conflict with those of share holders. It is the

responsibility of the strategists to minimize such conflict.

Risk management strategies also address the following issues.

1. How, where and when the business will obtain funds, the timing of share issues and the

determination of the share issue prices

2. Best possible use of financial resources

3. Gearing of the firm

4. How to maximize the market valuation of the firm

5. What to do with the accumulated cash

6. Long-term financial planning for business expansion

7. Capital structure of the firm

8. Extended to which internally generated profits are reinvested within the company

9. Choice of financial criteria for selecting major capital investments

Successful risk management strategy will enable to

1. Replace capital assets when necessary

2. Cover loan and debenture interests as this falls due and repay the capital on maturity,

3. Build up sufficient reserves to meet contingencies,

4. Facilitates long term growth, and

5. Ensure that funds are available at the right time and at the lowest cost

MAINTAIN GOOD CAPITAL STRUCTURE

A public limited company can finance expansion in several ways - shares, debentures or

other loans or through retained profits. Shares have the advantage that dividends need not paid in

loss-making periods. However outsiders gain votes as has shares are issued that existing majority

shareholders may lose control. Debenture financing involves no loss of control as debenture

holders have no votes. But the risk of liquidation is higher because debenture interest must be

paid in full, on time, regardless of current financial circumstances.

Against this background, company sometimes prefers to finance themselves entirely, by

plugging back their own profits. There are no interest payments on retained earnings but the

danger is that while the value of a business goes up as profits are ploughed back, market prices

of the company's share may fall since high retention of profits necessarily reduces dividends.

Shareholders find no interest in buying shares of companies that do not pay good dividends.

Factors in capital structure selection

1. The friskiness’ of the markets in which the business operates

2. Estimates of future profits and capital requirements

3. Attitudes of senior managers and major share holders

4. Tax considerations

5. The extend of the need for flexibility

GEARING OF THE FIRM

A critical risk management strategy is the ratio of the company's borrowing to its total

share capital. This is known as the gearing of the business.

Companies that borrow heavily relative to their share capital are said to be highly geared

and vice versa. Lenders impose on borrowing companies a contractual restriction on the latter's

ability to borrow from other sources. This ensures that the lender has first claim on borrowing

company's asset if it goes into liquidation and there will be no other lender with claims on the

failed business funds.

WHEN FINANCING THE BUSINESS

Firm’s requirement for financial capital may be divided into two categories- fixed capital

and working capital. The source of business finance should be related to the purpose for which it

is required. Short-term finance should be used to bridge short-term deficits; long-term finance

should be used for purchasing long lived capital assets.

Factors considered avoiding risks in selection of source of funds

1. Cost and flexibility

2. How quickly the funds are required

3. Extent of business assets that can be offered as security of loans

4. Repayment periods

5. Levels of risks associated with the company's operations

WHEN ISSUING SHARES

Public limited companies wishing to raise money by share issue will normally do so

through the “new issues market" which consists of institutions that specialize in the sale of new

shares although other methods are available. First the company will consult a merchant bank for

advice on

1. The timing of the issue

2. An appropriate issue price

3. How best to underwrite the flotation

USE OF VENTURE CAPITAL

With venture capital financing, an outside body- a merchant bank- takes shares in a

business in order to inject capital, then takes an agreed proportion of the profits for a specified

period and sells the shares back to the company at a predetermined future date at an agreed in the

initial contract. Venture capitalists are looking to invest in sound businesses that wish to expand

rapidly.

FORWARD EXCHANGE

Firms which import goods from foreign suppliers have to pay their bills in the currencies of

the foreign suppliers' countries which means that the importer must run the risk of depreciation

in its country's currency between the moment an order is placed and when the resulting debt has

to be settled. A depreciation in the exchange rate means that more units of domestic currency

have to be spend in order to purchase a given amount of foreign currency. Similar risks apply to

an exporting firm involving its foreign customers in the currencies of the latter's own countries.

1.2 SCOPE OF THE STUDY

This study analyzes the risk of Amaravathi Sri Venkatesa Paper Mills Pvt ltd for five year

between2008-2009 to 2012-2013. This study will give highlights of Amaravathi Sri Venkatesa

Paper Mill Ltd. This study also brings to time lights the areas whereAmaravathi Sri Venkatesa

Paper Mill Ltd Sales and service should improve to increase efficiency of its assets and funds

employed.

1.3 OBJECTIVES OF THE STUDY

To identify the credit risk and control them

To measure the extent and sources of exposure

To find each position a cost of capital appropriate to its risk

To provide information on the firm’s financial integrity to borrowers and

outside parties

To evaluate the performance of company in light of the risk taken to achieve

profits.

1.4 LIMITATION OF THE STUDY

The data were collected from secondary sources only.

Applications and analysis will differ.

Interpretations made by every person will also differ.

The present study is purely based on the organization. The validity of inference highly

depends on the validity of the data.

CHAPTER II

REVIEW OF LITERATURE

A risk assessment can only identify the probability of harm, assess the impact of it on key

individuals, and pose intervention strategies which may diminish the risk or reduce the harm.

Assessments cannot prevent risk (Hope and Sparks, 2000: 137).

The Report of the 21set Century Social Work Review (‘Changing Lives’) acknowledged

social work’s expertise in professional risk assessment and management and yet saw as a

challenge the increasing risk aversion mentality within the profession which constrains both

workers and users alike: ‘Many of the people who responded to our survey spoke of working in a

climate of fear, hoping that nothing would go wrong that would open them up to media

vilification’ (Scottish Executive, 2006: 52). Media coverage of ‘failures’ in risk assessment and

management, coupled with growing pressures for organizational accountability, risk

minimization and public safety have increasingly limited the role of the social worker. And yet a

key role of the social worker is to identify and assess not only a client’s need for protection from

self or others but also public and professional safety more generally.

Changing Livesencourages the involvement of users in those assessments of risk. Whilst

user involvement in risk assessment in social work is an innovative and welcomed development,

when coupled with the need for social workers to be accountable for effective risk management,

it nevertheless becomes one of the profession’s biggest challenges, as the Review has

highlighted. Clear channels of accountability need to be placed within a framework of

professional autonomy, whilst the overall service is expected to be underpinned by sound and

robust evidence-basedapproaches to risk assessment and management in an otherwise risk-averse

society. In order to inform and develop these aspirations in Scotland, this paper proposes an

international review of the literature within predominantly English-speaking countries about risk

assessment in social work. It is hoped that such a review will draw out the main issues inherent

in identifying risk within and between vulnerable groups, identify good practice and highlight the

implications for policy and practice in Scotland as recommended in the Report of the 21set

Century Social Work Review.

The main aim of the literature review is to better understand effective social work

practice which adheres to the following principles relating to risk assessment based on sound

evidence and analysis:

- Tools and other approaches to risk assessment which inform rather than replace professional

judgment;

- Clear accountability frameworks which enable professional autonomy;

- A common inter-agency understanding and language of risk assessment;

- Agreed inter-agency protocols for information sharing on risk;

- Risk assessment approaches that are integral to the overall management and minimization of

risk.

CHAPTER III

3.1RESEARCH METHODOLOGY

RESEARCH DESIGN

Research design is a statement or specification of procedure for collecting and analyzing

the information required for the selection of some specification problem it provides a scientific a

framework for conducting sources research investigation.

Types of Research

The researcher took up on analytical research for his project analyzes the financial

statement It., balance sheet of Maniranjan Diesel Sales and Service pvt.ltd.

Method of data collection

The main source of data includes secondary data. Secondary data are based on the five

years annual reports from 2004-05 to 2008-09. It also concern the data available in the

magazines, journals, websites and other sources

Analytical Designs

o Ratio Analysis

o Mean

o Standard deviation

o Coefficient variation

o Trend Analysis

MEANING OF MEAN

In statistics, the mean is the mathematical average of a set of numbers. The average is

calculated by adding up two or more scores and dividing the total by the number of scores.

Mean =∑X

N

MEANING OF STANDARD DEVIATION

Standard deviation is a number that tells you approximately how far the values in a data

set deviate from the mean (the average). The larger the standard deviation, the larger the

deviation.The smaller the standard deviation, the smaller the deviation. If all of the values are

equal, the standard deviation is equal to zero.

√∑X - X2

N

MEANING OF COFFICIENT VARIATION

A statistical measure of the dispersion of data points in a data series around the mean. It is

calculated as

The coefficient of variation represents the ratio of the standard deviation to the mean, and it is a

useful statistic for comparing the degree of variation from one data series to another, even if the

means are drastically different from each other.

RATIO ANALYSIS

Fundamental Analysis has a very broad scope. One aspect looks at the general

(qualitative) factors of a company. The other side considers tangible and measurable factors

(quantitative). This means crunching and analyzing numbers from the financial statements. If

used in conjunction with other methods, quantitative analysis can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income

statement, and cash flow statement. It's comparing the number against previous years, other

companies, the industry, or even the economy in general. Ratios look at the relationships

between individual values and relate them to how a company has performed in the past, and

might perform in the future.

MEANING OF RATIO

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that

measures the relationship two figures, which are related to each other and mutually

interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is

an expression relating one number to another. It is simply the quotient of two numbers. It can be

expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “so many

times”. As accounting ratio is an expression relating two figures or accounts or two sets of

account heads or group contain in the financial statements.

MEANING OF RATIO ANALYSIS

Ratio analysis is the method or process by which the relationship of items or group of

items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the

financial health and profitability of business enterprises. Ratio analysis can be used both in trend

and static analysis. There are several ratios at the disposal of an annalist but their group of ratio

he would prefer depends on the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we will

focus on a technique, which is easy to use. It can provide you with a valuable investment

analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares

financial ratios of several companies from the same industry. Ratio analysis can provide valuable

information about a company's financial health. A financial ratio measures a company's

performance in a specific area. For example, you could use a ratio of a company's debt to its

equity to measure a company's leverage. By comparing the leverage ratios of two companies,

you can determine which company uses greater debt in the conduct of its business. A company

whose leverage ratio is higher than a competitor's has more debt per equity. You can use this

information to make a judgment as to which company is a better investment risk.However, you

must be careful not to place too much importance on one ratio. You obtain a better indication of

the direction in which a company is moving when several ratios are taken as a group.

CHAPTER – IV

ANALYSIS AND INTERPRETATION

4.1 OPERATING RATIO

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is

generally expressed in percentage.

The two basic components for the calculation of operating ratio are operating cost (cost

of goods sold plus operating expenses) and net sales. Operating expenses normally include (a)

administrative and office expenses and (b) selling and distribution expenses. Financial charges

such as interest, provision for taxation etc. are generally excluded from operating expenses.

Formula of operating ratio:

Operating Cost

Operating Ratio = __________________ × 100

Net sales

TABLE 4.1 OPERATING RATIO

YEAR OPERATING COST

(Rs in thousand)

NET SALES

(Rs in thousand)

RATIO

%

2008-2009 1801.13 7660.11 23.5

2009-2010 1609.99 7361.81 21.8

2010-2011 1791.17 9184.31 19.5

2011-2012 1745.36 9638.57 18.1

2012-2013 1767.59 9282.77 19.0

Sources: Annual Report

INFERENCE

Operating ratio shows the operational efficiency of the business. Lower operating ratio

shows higher operating profit. Higher operating risk in the year of 2008-2009 the rate was 23.5.

Later that year by year ratio is decrease gradually. That is in the year of 2009-2010 the

ratio was 21.8 and during the year of 2010-2011 the ratio is decreased by 19.5.

During the year of 2011-2012 the rate was decreased by 18.1 and it is increased by 19.0

in the year of 2012-2013. Last year Operating risk is increased by .99 Due to Lack performance

of employees.

Each and every year risk that is ratio value is reduced all the year except 2012-2013.

CHART 4.1

OPERATING RATIO

2008-2009 2009-2010 2010-2011 2011-2012 2012-20130

5

10

15

20

25

OPERATING RATIO

OPERATING RATIO

4.2 EXPENSE RATIO

Expense ratios indicate the relationship of various expenses to net sales. The operating

ratioreveals the average total variations in expenses. But some of the expenses may be increasing

while some may be falling. Hence, expense ratios are calculated by dividing each item of

expenses or group of expense with the net sales to analyze the cause of variation of the operating

ratio.

The ratio can be calculated for individual items of expense or a group of items of a

particular type of expense like cost of sales ratio, administrative expense ratio, selling expense

ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability

and higher the operating ratio, lower is the profitability.

While interpreting expense ratio, it must be remembered that for a fixed expense like

rent, the ratio will fall if the sales increase and for a variable expense, the ratio in proportion to

sales shall remain nearly the same.

Formula of Expense Ratio

Following formula is used for the calculation of expense ratio:

Particular expense

Particular Expense = ____________________ × 100

Net sales

http://www.accountingformanagement.com/operating_ratio.htm

http://www.accountingformanagement.com/operating_ratio.htm

TABLE 4.2

EXPENSE RATIO

YEAR EXPENSE

(Rs in thousand)

NET SALES

(Rs in thousand)

RATIO

%2008-2009 7231.31 7660.11 9.44

2009-2010 67766.11 7361.81 9.19

2010-2011 8519.62 9184.31 9.27

2011-2012 8743.65 9638.57 9.07

2012-2013 8356.67 9282.77 9.00


INFERENCE:-

From above the table shows that the ratio was decreased each and every year it indicates

all the year individual expenses also decreased and also increased sales volume.

In the Year of 2008-2009 the ratio is 9.44 it is very high expenses of the company.

During the year of 2009-2010 the ratio decreased by 9.19. And in the year of 2010-2011 the ratio

value is 9.27.

Later on that during the Year of 2011-2012 the rate value is 9.07 and it was decreased in

the year of 2012-2013 the rate value is 9.00.Every year the expense is gradually decreased. So it

indicates low risk of expense.

Finally the risk level of expenses decreased each and every year. It indicates that better

performance of the company and handle the good strategy to reduce the expenses.

Risk measured tools also indicates that low level cost spend to individual expenses.

CHART 4.2

EXPENSE RATIOS

2008-2009 2009-2010 2010-2011 2011-2012 2012-20138.7

8.8

8.9

9

9.1

9.2

9.3

9.4

9.5

EXPENSE RATIO

EXPENSE RATIO

4.3 AVERAGE COLLECTION PERIOD RATIOS

The Debtors / Receivable Turnover ratio when calculated in terms of days is known as

Average Collection Period or Debtors Collection Period Ratio. The average collection period

ratio represents the average number of days for which a firm has to wait before its debtors are

converted into cash.

Formula of Average Collection Period:

Following formula is used to calculate average collection period:

[(Trade Debtors × No. of Working Days) / Net Credit Sales]

Or

Average Account Receivables/ Net Credit Sales]

* Debtors and bills receivables are added.

*For calculating this ratio usually the number of working days in a year is assumed to be 360.

http://www.accountingformanagement.com/debtors_or_receivable_turnover_ratio.htm

TABLE 4.3AVERAGE COLLECTION PERIOD RATIOS

YEAR AVERAGE

ACCOUNTS

RECEIVABLES

CREDIT SALES RATIO

2008-2009 752.76 7660.11 10

2009-2010 605.08 7361.81 8.2

2010-2011 592.25 9184.81 6.4

2011-2012 684.66 9638.57 7.1

2012-2013 739.17 9282.77 8


INFERENCE:-

This ratio measures the quality of debtors. A short collection period implies prompt payment

by debtors. From above the table shows that in the year of 2008-2009 the ratio is 10 this is long

time of comparatively other year.

The ratio was decreased by 8.2 in the year of 2009-2010. In this year ratio value is reduced to

past year and 2010-2011 the ratio value is 6.4 it is very low collection period of this company.

In the year of 2011-2012 the rate value is 7.1 it is increased comparatively previous year and

2012-2013 in the year of ratio value is 8 in this year debtor’s quality is reduced.

Risk measured tools also indicates that average quality level of risk occur in that company.

CHART 4.3

AVERAGE COLLECTION PERIOD RATIOS

2008-2009 2009-2010 2010-2011 2011-2012 2012-20130

1

2

3

4

5

6

7

8

9

10

AVERAGE COLLECTION PERIOD RATIO

AVERAGE COLLECTION PERIOD RATIO

4.4 DEBTORS TURNOVER RATIO / ACCOUNTS RECEIVABLE

TURNOVER RATIO

Debtor’s turnover ratio or accounts receivable turnover ratio indicates the velocity of debt

collection of a firm. In simple words it indicates the number of times average debtors

(receivable) are turned over during a year.

The two basic components of accounts receivable turnover ratio are net credit annual

sales and average trade debtors. The trade debtors for the purpose of this ratio include the

amount of Trade Debtors & Bills Receivables. The average receivables are found by adding the

opening receivables and closing balance of receivables and dividing the total by two. It should be

noted that provision for bad and doubtful debts should not be deducted since this may give an

impression that some amount of receivables has been collected. But when the information about

opening and closing balances of trade debtors and credit sales is not available, then the debtors

turnover ratio can be calculated by dividing the total sales by the balance of debtors (inclusive of

bills receivables) given. and formula can be written as follows.

Formula of Debtors Turnover Ratio:

[Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors]

Or

[Debtors Turnover Ratio = Total Sales / Debtors]

TABLE 4.4DEBTORS TURNOVER RATIO | ACCOUNTS RECEIVABLE TURNOVER

RATIOS

(Rs in Thousands)

YEAR TOTAL SALES

(Rs in thousand)

DEBTORS

(Rs in thousand)

RATI0S

%2008-2009 7660.11 752.16 10.18

2009-2010 7361.81 605.08 12.16

2010-2011 9184.31 592.25 16

2011-2012 9638.57 684.06 14.09

2012-2013 9282.77 739.17 12.55


INFERENCE:-

Debtor’s turnover ratio indicates the number of times the debtors are turned over a year.

From above the table shows that the ratio was increased by 16 in the year of 2010-2011.The ratio

was decreased by 10.18 in the year of 2008-2009.

Starting year the ratio value is average level and it is increased to next year 2009-2010

the rate value is 12.16.

In the year of 2010-2011 the rate value is very high comparatively other years. In this

year only debtor turnover has been too increased.

Risk measured tools also indicates that low level of debtor turnover risk occur in that

company.

CHART 4.4

DEBTORS TURNOVER RATIO | ACCOUNTS RECEIVABLE TURNOVER

RATIOS

2008-2009 2009-2010 2010-2011 2011-2012 2012-20130

2

4

6

8

10

12

14

16

DEBTOR TURNOVER RATI0

DEBTOR TURNOVER RATI0

4.5 WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the velocity of the utilization of net working

capital. This ratio represents the number of times the working capital is turned over in the course

of year and is calculated as follows:

The two components of the ratio are cost of sales and the net working capital. If the

information about cost of sales is not available the figure of sales may be taken as the numerator.

Net working capital is found by deduction from the total of the current assets the total of the

current liabilities.

Formula of Working Capital Turnover Ratio:

Following formula is used to calculate working capital turnover ratio

[Working Capital Turnover Ratio = Cost of Sales / Net Working Capital]

TABLE 4.5

WORKING CAPITAL TURNOVER RATIOS

NET SALES

(Rs in Thousands)

NET WORKING CAPITAL

(Rs in Thousands)

RATIOS

%

2008-2009 7646.85 496.2 15.41

2009-2010 7383.25 680.09 10.85

2010-2011 9248.60 330.54 27.98

2011-2012 9565.01 534.33 17.90

2012-2013 9383.57 1436.61 6.53

Source: Annual Report

INFERENCE

From above the table shows that the rate is increased by 27.9 in the year of 2010-2011.

The ratio is decreased by 6.53 in the year of 2012-2013. It indicates comparatively last year poor

utilization of Working capital.

A high ratio indicates efficient utilization of working capital and a low ratio indicates

otherwise. But a very high working capital turnover ratio may also mean lack of sufficient

working capital which is not a good situation.

Initial year the ratio was 15.41 and next year it was decreased by 10.85 and also in the

year of 2011-2012 the rate was decreased by 17.90.

And finally in the year of 2012-2013 the rate was decreased by 6.53 it indicates that

sufficient working capital available in that company during the year of 2012-2013.

CHART 4.5WORKING CAPITAL TURNOVER RATIO

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

0

5

10

15

20

25

30

YEAR WORKING CAPITAL RATIO RATIO

YEAR WORKING CAPITAL RATIO RATIO

4.6RETURN ON CAPITAL EMPLOYED

Capital employed and operating profits are the main items. Capital employed may be

defined in a number of ways. However, two widely accepted definitions are "gross capital

employed" and "net capital employed". Gross capital employed usually means the total assets,

fixed as well as current, used in business, while net capital employed refers to total assets minus

liabilities. On the other hand, it refers to total of capital, capital reserves, revenue reserves

(including profit and loss account balance), debentures and long term loans.

Formula of return on capital employed ratio:

[Return on Capital Employed= (Adjusted net profits*/Capital employed) ×100]

Net profit before interest and tax minus income from investments.

Gross capital employed = Fixed assets + Investments + Current assets

Net capital employed = Fixed assets + Investments + Working capital*.

Working capital = current assets − current liabilities.

TABLE 4.6RETURNS ON CAPITAL EMPLOYED

(Rs in Thousands)

YEAR NET PROFIT

(Rs in Thousands)

CAPITAL EMPLOYED

(Rs in Thousands)

RATIOS

%

2008-2009 54.45 3623.17 1.2

2009-2010 162.82 3844.64 2.3

2010-2011 92.41 3974.8 3.6

2011-2012 181.80 4923.49 2.8

2012-2013 310.77 7078.46 4.7


INFERENCE:-

The ratio can be found for a number of years so as to find a trend as to whether the

profitability of the company is improving or otherwise same position. From above the table

shows that the rate was increased by 4.3 in the year of 2012-2013. The ratio is decreased by 1.5

in the year of 2008-2009. Last year good return capital.

It is starting year very low level of capital employed and it was increased in the year 2010-

2011 and straight opposite position of the rate value is 2.3 in the year of 2010-2011.

In this ratio next two years that is 2011-2012 to 2012-2013 for both year rate values is

gradually increased.

Risk measured tools also indicates that average level of capital employed in that company.

CHART 4.6 RETURNS ON CAPITAL EMPLOYED

2008-2009 2009-2010 2010-2011 2011-2012 2012-20130

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

RETURN ON CAPITAL EMPLOYED

RETURN ON CAPITAL EMPLOYED

4.7 CURRENT ASSETS TO PROPRIETOR'S FUND RATIO

Current Assets to Proprietors' Fund Ratio establish the relationship between current assets

and shareholder's funds. The purpose of this ratio is to calculate the percentage of

shareholders’funds invested in current assets.

Formula:

Current Assets to Proprietors Funds = Current Assets / Proprietor's Funds

TABLE 4.7CURRENT ASSETS TO PROPRIETOR'S FUND RATIO

YEAR CURRENT ASSETS

(Rs in Thousands)

PROPRIETOR'S FUNDS

(Rs in Thousands)

RATIOS

%

2008-2009 1992.23 1198.39 1.6

2009-2010 2369.75 1337.73 1.7

2010-2011 2661.27 1231.07 2.1

2011-2012 3124.27 1377.38 2.3

2012-2013 3933.25 1722.85 2.2


INFERENCE:-

From above the table shows that the rate was increased by 2.3 in the year of 2011-2012. The

decreased in the year by 1.6 in the year of 2008-2009.Company using for Current Asset each and

every will be increased. Proprietor funds value also increased all the year.

The rate value is 1.6 in the year of 2008-2009 due to lack of Proprietor’s funds and high level of

current assets.

In the year of 2009-2010 the ratio value is increased by 1.7 this has to increased current

assets value.

In the year of 2011-2012 the ratio value is increased by 2.3 in this year comparatively

previous year Proprietor’s funds has to add.

Risk measured tools also indicates that danger level of capital employed in that company.

CHART 3.7CURRENT ASSETS TO PROPRIETOR'S FUND RATIO

2008-2009 2009-2010 2010-2011 2011-2012 2012-20130

0.5

1

1.5

2

2.5

CURRENT ASSETS TO PROPRIETOR'S FUND RATIO

CURRENT ASSETS TO PROPRIETOR'S FUND RA-TIO

4.8 PROPRIETORS RATIO

Proprietary ratio is a test of financial & credit strength of the business. It relates

shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the

company.

In other words, Proprietary ratio determines as to what extent the owner’s interest &

expectations are fulfilled from the total investment made in the business operation.

Proprietary ratio compares the proprietor fund with total liabilities. It is usually

expressed in the form of percentage. Total assets also know it as net worth.

Formula:

Shareholders fund

Proprietary ratio = OR Total Assets

Shareholders fund

Proprietary ratio =

Fixed assets + current liabilities

TABLE 4.8PROPRIETARY RATIO

YEAR SHAREHOLDERS

FUNDS

TOTAL ASSETS RATIO

2008-2009 1198.39 3686.82 0.32

2009-2010 1337.73 4387.57 0.30

2010-2011 1231.07 4278.11 0.28

2011-2012 1377.38 5142.21 0.26

2012-2013 1722.85 7200.58 0.23


INFERENCE:-

From above the table shows that Proprietary Ratio 2008-2009 during this period it was

0.32.Later it was decreased year by year. During the period of 2012-2013 it was 0.23. It shows

that shareholders usage of fund year by year was less.

Higher level of ratio is 0.32 in the year of 2008-2009 and later it was decreased all the years.

The reason was assets usage is very less and shareholders’ funds value is increased. 2010-2011

the rate was decreased by 0.28 due to increase the assets value and decreased the shareholders’

funds value.

In the year of 2012-2013 the ratio value is 0.23 8 in this year only increased for both

shareholders’ funds value and total asset value.

CHART 4.8PROPRIETARY RATIO

2008-2009 2009-2010 2010-2011 2011-2012 2012-20130

0.05

0.1

0.15

0.2

0.25

0.3

0.35

PROPRIETARY RATIO

PROPRIETARY RATIO

4.9 CAPITAL GEARING RATIO

Gearing means the process of increasing the equity shareholders return through the use of

debt. Equity shareholders earn more when the rate of the return on total capital is more than the

rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing

ratio shows the relationship between two types of capital viz: - equity capital & preference

capital & long term borrowings. It is expressed as a pure ratio.

Formula:

Preference capital+ secured loan

Capital gearing ratio =

Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the financing of assets

of a concern.

TABLE 4.9CAPITAL GEARING RATIO

YEAR EQUITY CAPITAL

(Rs In thousands)

FIXED INTEREST

(Rs In thousands)

RATIOS

%

2008-2009 209.26 277.36 0.75

2009-2010 209.26 298.72 0.70

2010-2011 209.26 297.91 0.70

2011-2012 209.26 275.11 0.76

2012-2013 240.10 324.27 0.74


INFERENCE

From above the table shows that capital gearing ratio of 2009-2010 to 2010-2011 in the

year 0.70. The ratio decreased due to amount of fund, in the year 2011-2012 the ratio increased

from 0.70 to 0.76 due to high loans.

In the year of 2008-2009 the rate was 0.75 and 2009-2010 the rate was 0.70 it is decreased

comparatively previous year.

In the year of 2010-2011 the rate was 0.70 and during the year of 2011-2012 the rate was

0.76.

Risk measured tools also indicates that average level of capital gearing in that company.

CHART 4.9CAPITAL GEARING RATIO

2008-2009 2009-2010 2010-2011 2011-2012 2012-20130.66

0.67

0.68

0.69

0.7

0.71

0.72

0.73

0.74

0.75

0.76

CAPITAL GEARING RATIO

CAPITAL GEARING RATIO

4.10INVENTORY OR STOCK TURNOVER RATIO (ITR)

ITR refers to the number of times the inventory is sold and replaced during the

accounting period.

Formula:

Net sales

Stock Turnover Ratio =

Average stock

ITR reflects the efficiency of inventory management. The higher the ratio, the more

efficient is the management of inventories, and vice versa. However, a high inventory turnover

may also result from a low level of inventory, which may lead to frequent stock outs and loss of

sales and customer goodwill. For calculating ITR, the average of inventories at the beginning and

the end of the year is taken. In general, averages may be used when a flow figure (in this case,

cost of goods sold) is related to a stock figure (inventories).

TABLE 4.10INVENTORY OR STOCK TURNOVER RATIO (ITR)

YEARNET SALES

(Rs in thousands)

AVERAGE INVENTORY

(Rs in thousands)

RATIOS%

2008-20097660.11 690.59 11.09

2009-20107361.81 1300.97 5.65

2010-20119184.57 1652.19 5.5

2011-20129638.57 1899.73 5.07

2012-20139282.77 1888.78 4.91


INFERENCE

In 2008-2009 the Inventory Turnover Ratio was 11.09 and it has decreased to 4.91 during

the period of 2012-2013. This shows a low capacity of company to use of it inventory. So

company should maintain a favorable ratio of inventory to maintain company efficiency.

In the year of 2009-2010 the ratio was 5.65 and during the period of 2010-2011 the ratio

was 5.5 it is increased gradually.

In the year of 2011-2012 the year of 5.07 it is increased by previous year.

Risk measured tools also indicates that average level of Inventory in that company.

CHART 4.10INVENTORIES OR STOCK TURNOVER RATIO (ITR)

2008-2009 2009-2010 2010-2011 2011-2012 2012-20130

2

4

6

8

10

12

INVENTORY OR STOCK TURNOVER RATIO

INVENTORY OR STOCK TURNOVER RATIO

3.11 TREND ANALYSIS

In trend analysis, the method of least square is used for this study.

The straight line (trend) equation is y = a+bx

The normal equation are ∑Y = Na+b∑x

∑XY = a∑x + b∑X2

For ∑X = 0, we have

a = ∑Y / N

b = ∑XY / ∑X

TABLE 3.11TREND ANALYSIS FOR DIRECT MATERIAL

YEAR DIRECT MATERIAL (Y)

(X) (X)2 XY TREND VALUE

2008-2009 5369.89 -2 4 -10739.78 5289.51

2009-2010 5118.15 -1 1 -5118.15 5707.45

2010-2011 6666.52 0 0 0 6125.39

2011-2012 6907.43 1 1 6907.43 6543.33

2012-2013 6564.97 2 4 13129.94 6961.27

TOTAL 30626.96 0 10 4179.44

Source: Annual report

LET X=x=2010-2011

The straight line (trend) equation is Y= a+bx

For =∑x=0, we have

A=∑Y/ N=30626.96/5

=6125.39

And b=∑XY / ∑X2=4179.44/10

=417.94

Example:-The expected value for 2009-2010 is Y= a+bX

=6125.39+ (417.94*3) = Rs.7379.2

PROJECTED TREND FOR NEXT FIVE YEARS

(Rs in thousands)

YEARTREND VALUE

(Rs in thousands)

2013-2014 7379.21

2014-2015 7797.15

2015-2016 8215.09

2016-2017 8633.03

2017-2018 9050.97

Source: Calculated value

INFERENCE:-:

The above table represents the trend value for direct material for five years.

It is found that expected amount of direct material for the year 2013-2014 to 2017-2018

has been in the increased manner.

In the year of 2008-2009 the trend value was 5289.51. Later it was increased all the

years.

Raw material value is not constant every year it has been changed.

The forecasting expatiation five years raw material trend value is also increased each and

every year.

This company run for future very well and profitability one.

CHART 4.11TREND ANALYSES FOR DIRECT MATERIAL

2013-2014 2014-2015 2015-2016 2016-2017 2017-20180

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

TREND VALUE

TREND VALUE

TABLE 4.12TREND ANALYSIS FOR DIRECT LABOUR

(Rs in thousands)

YEAR DIRECT LABOUR(Y) (X) (X)2 XY TREND

VALUE

2008-2009 477.85 -2 4 -955.7 234.69

2009-2010 311.89 -1 1 -311.89 289.24

2010-2011 263.81 0 0 0 343.81

2011-2012 282.93 1 1 282.93 398.38

2012-2013 382.60 2 4 1530.4 452.95

TOTAL 1719.80 0 10 545.74

Source: Annual report of Amaravathi Sri Venkatesa Paper Mills Pvt Ltd

LET X=x=2010-2011

The straight line (trend) equation is Y=a+bx


A=∑Y/ N=1719.08/5 =343.81

And b=∑XY / ∑X2=545.74/10 =54.57

Example:-The expected value for 2009-2010 is Y=a+bX

=343.81+ (54.57*3)

= Rs.507.52


(Rs in thousands)

YEAR TREND VALUE

(Rs in thousands)2013-2014 507.52

2014-2015 562.09

2015-2016 616.66

2016-2017 671.23

2017-2018 725.8

INFERENCE

The above table represents the trend value for direct labour for five years.



In the year of 2008-2009 the trend value is 234.69. Later it was increased all the years of

labours trend value.


every year.


CHART 4.12TREND ANALYSIS FOR DIRECT LABOUR

2013-2014 2014-2015 2015-2016 2016-2017 2017-20180

100

200

300

400

500

600

700

800

TREND VALUE

TREND VALUE

TABLE 4.13TREND ANALYSIS FOR DIRECT EXPENSES

(Rs in thousands)

YEAR DIRECT

EXPENSES

(X) (X)2 XY TREND

VALUE2008-2009 1323.28 -2 4 -2646.56 1264.5

2009-2010 1105.15 -1 1 -1105.15 1312.57

2010-2011 1527.36 0 0 0 1360.64

2011-2012 1462.43 1 1 1462.43 1408.71

2012-2013 1384.99 2 4 2769.98 1456.78

TOTAL 6803.21 0 10 480.7


LET X=x=2010-2011



A=∑Y/ N=6803.2/5

=1360.64

And b=∑XY / ∑X2=480.7/10 =48.07


=1360.64+ (48.07*3)=Rs.1504.85


(Rs in thousands)

YEAR TREND VALUE

(Rs in thousands)

2013-2014 1504.85

2014-2015 1552.92

2015-2016 1600.99

2016-2017 1649.06

2017-2018 1697.13

INFERENCE

The above table represents the trend value for direct expenses for five years.

It is found that expected amount of direct material for the year 2013-2014to 2017-2018



direct expenses trend value.


every year.


CHART 4.13TREND ANALYSIS FOR DIRECT EXPENSES

2013-2014 2014-2015 2015-2016 2016-2017 2017-20181400

1450

1500

1550

1600

1650

1700

TREND VALUE

TREND VALUE

TABLE 4.14TREND ANALYSIS FOR ADMINISTRATION OVERHEAD

YEAR ADMINISTRATION

OVERHEAD (Y)

(X) (X)2 XY TREND

VALUE

2008-2009 111.61 -2 4 -223.22 95.23

2009-2010 88.83 -1 1 -88,83 98.69

2010-2011 80.42 0 0 0 101.15

2011-2012 103.94 1 1 103.94 104.61

2012-2013 121.39 2 4 242.78 108.07

TOTAL 505.78 0 10 34.67


LET X=x=2010-2011



A=∑Y/ N=505.78/5

=101.15

And b=∑XY / ∑X2=34.67/10

=3.46


=101.15+ (3.46*3)

= Rs.111.53


(Rs in thousands)

YEAR TREND VALUE

2013-2014 111.53

2014-2015 114.99

2015-2016 118.45

2016-2017 121.91

2017-2018 125.37

INFERENCE

The above table represents the trend value for administration overhead for five years.






every year.


CHART 4.14TREND ANALYSIS FOR ADMINISTRATION OVERHEAD

2013-2014 2014-2015 2015-2016 2016-2017 2017-2018100

105

110

115

120

125

130

TREND VALUE

TREND VALUE

TABLE 4.15TREND ANALYSIS FOR SELLING AND DISTRIBUTION OVERHEAD

YEAR SELLING AND

DISTRIBUTION

OVERHEAD(Y)

(X) (X)2 XY TREND

VALUE

2008-2009 164.95 -2 4 -329.9 164.01

2009-2010 148.72 -1 1 -148.72 169.01

2010-2011 190.99 0 0 0 170.37

2011-2012 183.95 1 1 183.95 173.55

2012-2013 163.24 2 4 326.48 176.73

TOTAL 851.85 0 10 31.18


LET X=x=2010-2011



A=∑Y/ N=851.85/5

=170.37

And b=∑XY / ∑X2=31.81/1O =3.18


=170.37+ (3.18*3)= Rs.179.91


(Rs in thousands)

YEAR TREND VALUE

(Rs in thousands)

2013-2014 179.91

2014-2015 183.09

2015-2016 186.27

2016-2017 189.45

2017-2018 192.63

INFERENCE

The above table represents the trend value for selling and distribution overhead for five

years.






every year.


CHART 4.15TREND ANALYSIS FOR SELLING AND DISTRIBUTION OVERHEAD

2013-2014 2014-2015 2015-2016 2016-2017 2017-2018170

175

180

185

190

195

TREND VALUE

TREND VALUE

TABLE 4.16TREND ANALYSIS FOR TOTAL COST

YEAR TOTAL COST

(Y)

(X) (X)2 XY TREND

VALUE2008-2009 7697.58 -2 4 -15395.16 561.58

2009-2010 6965.68 -1 1 -6965.68 4375.81

2010-2011 8729.1 0 0 0 8190.04

2011-2012 8940.69 1 1 8940.69 12004.23

2012-2013 8617.19 2 4 17234.38 15818.46

TOTAL 40950.24 0 10 3814.23


LET X=x=2010-2011



A=∑Y/ N=40950/5

=8190.04

And b=∑XY / ∑X2=3814.23/10

=381.42


=8190.04+ (3814.23*3) = Rs. 19632.69


(Rs in thousands)

YEAR TREND VALUE

(Rs in thousands)

2013-2014 19632.69

2014-2015 23446.92

2015-2016 27261.15

2016-2017 31075.38

2017-2018 34889.61

INFERENCE

The above table represents the trend value for Total cost five years.






every year.


CHART 4.16TREND ANALYSIS FOR TOTAL COST

2013-2014 2014-2015 2015-2016 2016-2017 2017-20180

5000

10000

15000

20000

25000

30000

35000

TREND VALUE

TREND VALUE

CHAPTER V

FINDINGS, RECOMMENDATION AND CONCLUSION

5.1 FINDINGS

From the table of Operation Ratio Higher operating risk in the year of 2008-2009 the rate was

23.5. During the year of 2012-2013 the ratio is decreased by 19.0.

Found the table from Expense ratio increased by 9.44 in the year 0f 2004-2005.Decreased by

9.00 in the year 2004-2005.

Referred the Average collection period ratio increased by 10 in the year of 2004-

2005.Decreased by 6.4 in the year of 2006-2007.

It taken the table Debtor’s turnover ratio increased by 16 in the year of 2006-2007.Decreased by

10.18 in the year of 2004-2005.

It extract from Working capital Turnover ratio is increased by 27.5 in the year of 2006-


To found Return on Capital Employed ratio increased by 4.3 in the year of 2008-


From the table is an extracted Current asset to proprietor's fund ratio the rate was increased by

2.3 in the year of 2007-2008. The is decreased in the year by 1.6 in the year of 2004-2005.

From the table referred Inventory Turnover Ratio was increased by 11.09 in the year of 2004-

2005. It is decreased by 5.5 in the year of 2006-2007.

From the table taken Capital Gearing Ratio was increased by 0.76 in the year of 2007-2008. It is

decreased by 0.70 in the year of 2005-2006 to 2007-2008.

From the table found Proprietary Ratio was increased by 0.32 in the year of 2004-2005. And

during the period of 2008-2009 proprietary Ratio decreased by0.23.

The statistical tools of trend analysis has been shown that (Direct Material, Direct Labour,

Administration Overhead, Selling and Distribution Overhead, Direct Expenses, and Total Cost).

All are increased in next five years. (i.e.) 2009-2010 to 2013-2014.

From the tableDirect material Trend analysis in the year of 2012-2013 the trend value is

9050.97. It is increased comparatively previous year.

From the tableDirect referred LabourTrend analysis in the year of 2012-2013 the trend value is


From the tableextract Administritation overhead Trend analysis in the year of 2012-2013 the

trend value is 1697.13. It is increased comparatively previous year.

From the tableReferred Selling and Distribution overhead Trend analysis in the year of 2012-

2013 the trend value is 192.63. It is increased comparatively previous year.

From the tablefound Direct expenses Trend analysis in the year of 2012-2013 the trend value is


From the tablefound Total cost Trend analysis in the year of 2012-2013 the trend value is


5.2 SUGGESTION

This company must have to increase the inventory level based on that they have to increaseboth

the sales and profitability also.

Company owners try to gain benefit of maintaining control investment is more in the Business.

And also must have to reduce the credit risk level of the company.

Try to increase the Proprietors funds that will helps to reduce the greater risk of payment to the

creditors.

Maintenance of proper records and physical verification of the assets by the management is

necessary.

To avoid risk on inventory the company maintains records of the inventory, and periodic

physical verification is also necessary.

To avoid risk on the labour make long term settlement with labour unions. Maintenance of

continuous cordial industrial relation with the employees.

This company must have to maintain cordial relationship between field officers and clients.

The monitoring of employee’s behavior periodically is essential

First analysis about the clients’ behavior. Capacity of clients to repay amount means to pay to

loans and motivated to the clients.

Make the clients’ to feel our service apart from profit making.

By increasing the bank balance, the company can improve the liquid ratio.

Net working capital should be increased.

4.3 CONCLUSION

From the analysis it is concluded that the Amaravathi Sri Venkatesa paper mills (Pvt) Limited.

Have satisfactory level of risk management ability. Only with limited number of capital it still in

the market.

The sales volume is increasing at a decreasing rate. The business has good strategic control

point.

Also the company should be able to revise their strategy.

The have the good knowledge that the customers are the king of the market. The always analyses

the whole business environment.

The company should control the credit to the customer it will reduce the risk of the company.

The time gap between the client and company is very high. So the company would make it as

less.

Company must reduce operational risk, because it will affects the labourefficiency of the

company.

REFERENCES

BOOKS:

1. Financial Management, S.N Maheswari

2. Principles of Management Accounting, S.N Maheswari

3. Management and Cost Accounting, Charlest. Horn green, AlnoorBhimani,

SrikantM.Datar. George foster

4. Managing Financial information, David davies.

5. Management Accounting, Terry lucey.

6. Kothari C.R. “Research Methodology”, VishwaPrakashan, New Delhi, 1997.

7. Khan M.Y and Jain P.K “Financial Management” Tata MsGraw-Hill Publishing

company, New Delhi,1993.

8. Gupta S.P, “Statistical Methods”, Sultan Chand and Sons publishers, New Delhi, 1996.

WEBSITE.

www.Maniranjan.Com

www.managemetparadise.com

www.financialterms.com

http://www.financialterms.com/

http://www.managemetparadise.com/

http://www.Maniranjan.Com/

ANNUAL REPORTOF AMARAVATHI SRI VENKATESA PAPER MILLS PVT LTD

MADATHUKULAM

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