Summer Internship Project Report on

“Financial performance analysis”

submitted in partial fulfillment of the requirements for the degree of

Post Graduate Diploma in Management FINANCE

byNIRAJ JAYASWAL

(Roll No.___9______)

Under the guidance of

Mr.Ashutosh Gadekar

A Study Conducted for AFCIL INDUSTRIES PVT. LTD.

atIndira School of Business Studies,

Tathawade, Pune 411033

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ACKNOWLEDGEMENT

Words are indeed inadequate to convey my deep sense of gratitude to all those who have helped me in completing this summer project to the best of my ability. Being a part of this project has certainly been a unique and a very productive experience on my part.

I am really thankful to Mr. Suryakant, Senior Manager (Finance & Accounts) for making all kinds of arrangements to carry the project successfully and for guiding and helping me to solve all kinds of quarries regarding the project work. His systematic way of working and incomparable guidance has inspired the pace of the project to a great extent.

I would like to thank my mentor and project – coordinator, Mr. Ashutosh Gadekar for assigning me a project of such a great learning experience and acquainting me with real life project of financial analysis.I am very grateful to all lecturers of Indira School Of Businss Studies for their useful guidance and advise. This project would not have been successful without the help of Mr. Manik Desarda (Managing Director) of AFCIL Industries.I would also like to thank all the employees AFCIL Industries who have directly or indirectly helped me with their moral support for the completion of my project.last but not the least I would like to thank my parents and friends for their continous support and feedback without which this project would not have happened.

(NIRAJ JAYASWAL)

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TABLE OF CONTENTS

S N Contents Pg

No

1 Executive Summary 4

2 Introduction 5

3 Industry / Company overview 6

4 Review of Literature/ Theoretical Background 16

5 Objectives 19

6 Research Methodology 20

7 Data Analysis , Results and Interpretation 23

8 Conclusion 50

9 Recommendation 51

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EXECUTIVE SUMMARY

Afcil is a leading Manufacturer & Exporter of Foundry Chemicals, Castings, & Allied products, with over two decades of Experience in the manufacture and export of a wide range of foundry Chemicals, Castings and Allied products.

Afcil Foundry Chemicals Division has dedicated itself to the development and manufacture of a wide range of high quality Foundry Chemicals, to enable Foundries to enhance the Quality of their Castings and improve Productivity levels. Afcil provides an excellent cultured work environment that is open and congenial to growth as well as learning. Afcil is driven by the commitment of highly qualified, dedicated and technologically innovative people.The company believes in

"CUSTOMER SATISFACTION THROUGH CUSTOMER CARE”

"Assurance of products meeting the highest standards of Quality, User friendliness, Cost effectiveness, Timely delivery, and Personalized after sales service, look forward to a valued business association.

The project on financial analysis is done in AFCIL industries with the help of ratios to gain understanding of the concept of ratios and its application in practicality.

This project is based on primary data collected through personal interview of head of account department and other concerned staff member of finance department. But primary data collection had limitations such as matter confidential information thus project is based on secondary information collected through three years annual report of the company, supported by various books and internet sides. The data collection was aimed at study of working capital management of the company

Project is based on profit and loss accounts and the balance sheets from the period 2005-2008.

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Introduction

A finance manager must be able to tackle all the problems concerning with the financial aspects of a business. He has the responsibility to make appropriate and accurate decisions with regard to financing and investment decisions. The tools used for this analysis is Ratios analysis. Financial analysis is a powerful mechanism for grasping the financial strength and weaknesses of a company. The analysis is being done from the financial statements of the company. Financial ratios are used as a guiding tool for the analyst for predicting company’s financial performance and efficiency.

Financial statements serve as a mere statement of facts providing information about net profit, assets and liabilities of a firm. Ratio analysis act as a guiding tool that enables the investors and creditors to get a clear cut picture of a financial strength of a company by measuring the firms solvency and liquidity positions.

Business ratios are the guiding stars for the management of enterprises; they provide the targets and standards. They are helpful to managers in directing them towards the most

Beneficial long-term strategies as well as towards effective short-term decision-making. Ratio is an expression of the quantitative relationship between two numbers.

Ratio analysis is a technique of analysis and interpretation of financial statements. It is a process of establishing and interpreting various ratios for helping in making certain decisions.

From the analysis and interpretation of financial statements ,it is clear that the company’s liquidity position is satisfactory but improvement is required. Profitability ratios show the firm is decreasing its profits year after year due to increasing operating cost and recommendations were provided as to providing efficient inventory system and improvising on the debtors of the collection period .

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Industry Overview

A foundry is a factory which produces metal castings from either ferrous or non-ferrous alloys. Metals are turned into parts by melting the metal into a liquid, pouring the metal in a mold, and then removing the mold material or casting. The most common metal alloys processed are aluminum and cast iron. However, other metals, such as steel, magnesium, copper, tin, and zinc, can be processed.

There are more than 5,000 foundry units in India, having an installed capacity of approximately 7.5 million tonnes per annum. The majority (nearly 95%) of the foundry units in India falls under the category of small-scale industry.

The foundry industry is an important employment provider and provides direct employment to about half a million people.

A peculiarity of the foundry industry in India is its geographical clustering. Some of the major foundry clusters in the country are shown in the map.

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The Indian Metal casting( Foundry Industry ) is well established. According to the recent World Census of Castings by Modern Castings, USA India ranks as no 6 country in the world producing an estimated 6 Million MT of various grades of Castings as per International standards .

The various types of castings which are produced are ferrous, non ferrous, Aluminum Alloy, graded cast iron, ductile iron, Steel etc for application in Automobiles, Railways, Pumps Compressors & Valves, Diesel Engines, Cement/Electrical/Textile Machinery, Aero & Sanitary pipes & Fittings etc & Castings for special applications. However, Grey iron castings is the major share approx 70 % of total castings produced.

There are approx 4500 units out of which 80% can be classified as Small Scale units & 10% each as Medium & Large Scale units. Approx 500 units are having International Quality Accreditation. The large foundries are modern & globally competitive & are working at nearly full capacity. Most foundries use cupolas using LAM Coke. There is growing awareness about environment & many foundries are switching over to induction furnaces & some units in Agra are changing over to coke less cupolas.

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Exports

The Exports are showing Healthy trends approx 25-30% YOY as can be seen from the charts below. The current exports for FY 2005-06 are approx USD 800 Million.

Employment

The industry directly employs about 5,00,000 people & indirectly about 1,50,000 people & is labour intensive. The small units are mainly dependant on manual labour However, the medium & Large units are semi/ largly mechanized & some of the large units are world class.

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Product Mix

Grey iron is the major component of production followed by steel, ductile iron & non ferrous as Shown below

The Indian Foundry Industry is trying to focus on higher value added castings to beat the competition

Investments

India would need approx. $ 3 Billion in investment to meet the demand of growing domestic industry and strong export drive.

Following the economic reforms the Govt. of India has reduced tariffs on imported capital goods as a result the annual average amount of FDI is reported to have increased but is still one tenth of the annual FDI in China. The reforms also encourage the privatization of industry enabling foreign companies to invest or enter into joint ventures with Indian Foundries. FDI projects are permitted an automatic approval process. Several International

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corporate from USA, EU and East Asian Countries have increased overseas foundry operations in India. i.e. VOLVO foundries in Chennai and Suzuki in Haryana. Sundaram Clayton has joined hands with Cummins. Hundai Motors, Delphi. Ford India, Tata-Cummins, GM and Ford have contracts of foundry products for export with a value of $ 40 Million.

Rawmaterial&Energy

Since 2003 the steep increase in cost of raw materials and energy have resulted in the closure of approx. 500 units, Overall India is exporter of Pig Iron but must import Scrap metals and Coke etc. Cost recovery for material and energy is very difficult as most contracts are long term contracts with out any clause for price adjustment. India has to import coke & scrap. Moulding sand is locally available & India has an advantage on this account .

Energy cost typically vary between 12-15%

Labour

India has major competitive advantage over the foundry industries in the developed countries. The total labour cost account for 12-15%

Technology

Govt. of India ( GOI ) has encouraged technology transfer through JV with foreign Companies and GOI has cooperated with UNIDO with many foundry clusters. Indian foundry industry has an edge over China for producing complex machined and precision castings as per international quality standards. The GOI also helps upgrade foundry clusters. The clusters in Belgium, Coimbatore and Howrah are undergoing modernization under the industrial infrastructure upgradation scheme. More of such clusters are likely to follow

The Institute of Indian Foundrymen has plans to strengthen and develop various foundry clusters.

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COMPANY OVERVIEW

AFCIL GROUP OF COMPANIES well known as Afcil, centrally located in PUNE, INDIA was founded in 1975 under the able shoulders of our Chairman Mr. Manik Desarda who has expertise in the field of the foundry Industry since the last three decades.

Afcil is a leading Manufacturer & Exporter of Foundry Chemicals, Castings, & Allied products, with over two decades of Experience in the manufacture and export of a wide range of foundry Chemicals, Castings and Allied products.

Afcil Foundry Chemicals Division has dedicated itself to the development and manufacture of a wide range of high quality Foundry Chemicals, to enable Foundries to enhance the Quality of their Castings and improve Productivity levels.

Its wide product range includes:

Core and Mould Binders

Sand Additives

Resin Coated Sand

Parting Agent

Water Based Core / Mould Coatings in Various Refractory Bases

Solvent Based Core / Mould Coatings in Various Refractory Bases

Exothermic and Insulating Compounds

Exothermic and Insulating Sleeves : Open & Blind

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Hot Strength Additives

Slaghold (Perlite)

Bentonite

Carbon Pick Up

Treatment Fluxes

Allied Products

The products have been manufactured with the aim to enhance Productivity, Quality, Economy, and User friendliness, while not compromising on Quality, Consistency and Environment friendliness. To achieve this the company manufactures products in an individual, electronically monitored, accurately controlled & tested batches. The Production process and Production equipment meets the environmental regulations.

The center of excellence, the R & D department works on one objective:

"Analyze The Past, Cast The Future"

With the forethought of Foundry Industry constantly changing, becoming more challenging, subject to strict environmental regulations & severe competition; Afcil takes the innovative approach with groundbreaking Research through the intelligent and effective use of Technology & Ecology. Its in house R & D Dept is equipped with ultra modern equipment and highly qualified Chemists and Metallurgists with expertise in their field of work.Technical & Commercial service to the customers is the foundation pillar of the company. Sales & Marketing Department works in hand with all departments and thereby this enables to analyze and offer solution to customers' problems.

In INDIA the company has a nationwide network to provide customers Technical & Commercial Services that far exceeds customer expectation.Some of the countries they export Foundry Chemicals to include European countries, USA, CHINA, FRANCE, UAE, USSR etc.

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Afcil started seeking and establishing more and more strategic alliance to enhance and widen national and international activities in supplying the quality castings under the supervision of highly qualified and trained personnel.

Afcil provides an excellent cultured work environment that is open and congenial to growth as well as learning. Afcil is driven by the commitment of highly qualified, dedicated and technologically innovative people.The company believes in

"CUSTOMER SATISFACTION THROUGH CUSTOMER CARE”

"Assurance of products meeting the highest standards of Quality, User friendliness, Cost effectiveness, Timely delivery, and Personalized after sales service, we know look forward to a valued business association .

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Some of the major customers which company have:

TATAMOTORSLIMITED

BAJAJ TEMPO LIMITED

KIRLOSKAR BROTHERS LIMITED

KIRLOSKAR OILENGINES LIMITED

KIRLOSKARPNEUMATIOCSCO.LIMITED

SIMPLEX CASTING LIMITED, BHILAI.

BHARAT HEAVI ELECTRICALS LIMITED, HYDRABAD, BHOPAL, HARIDWAR.

SHANTHI GEARS LIMITED

BEEKAY ENGINEERINGAND CASTING LIMITED

BHILAI ENGG.CORP.LTD

SHRIRAM FOUNDRY LTD.

ASHTA LINERS PVT.LTD

WALCHANDNAGAR INDUSTRIES LTD.

CASPRO METALS LTD.

GREAVES COTTON LTD.

VIR ALLOYS

HOGNOUS INDIA

JAYANTHI CASTING

STAR CASTING

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ONKAR FOUNDERS

THEORITICAL BACKGROUND

The study has been undertaken to examine and understand the management of finance by examining the structure of liquidity position, leverage position and profitability position of the company for the past three years that is from 2005-2008.The study reveals that the liquidity position and working capital position were satisfactory during the period of study. Regarding the turnover ratios, the efficiency in management of fixed assets and total assets must be increased. With respect to debt equity position, it was evident that the companies rely more upon the external funds. Return on investment suggests that the profitability position has been increasing at a moderate rate. The study has been undertaken to compare the financial performance in terms of financial parameters like, profits, return on assets and productivity.

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The following are the four steps involved in the ratio analysis:

1) Selection of relevant data from the financial statements depending upon the objective of the analysis.

2) Calculation of appropriate ratios from the above data.

3) Comparison of the calculated ratios of the same firm in the past, or die ratios developed from the projected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs.

4) Interpretation of the ratios

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TYPES OF RATIOS

« Liquidity Ratios

« Long Term Solvency

« Activity Ratios

« Profitability Ratios

MANAGERIAL USES OF RATIO ANALYSIS

« Helps in decision making

« Helps in financial forecasting and planning

« Helps in communication and enhance the value of financial statements

« Helps in better coordination in the enterprise and effective control of the business

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OBJECTIVES

1.To study the growth and development of Indian Foundry industry.

2. To study the behaviour of liquidity and profitability of AFCIL industries.

3. To analyze the factors determining the liquidity and profitability.

4. understanding the concept of ratio analysis

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RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying now research is done systematically. In that various steps, those are generally adopted by a researcher in studying his problem along with the logic behind them.

It is important for research to know not only the research method but also know methodology. The procedures by which researcher go about their work of describing, explaining and predicting phenomenon are called methodology. Methods comprise the procedures used for generating, collecting and evaluating data. All this means that it is necessary for the researcher to design his methodology for his problem as the same may differ from problem to problem. Data collection is important step in any project and success of any project will be largely depend upon now much accurate you will be able to collect and how much time, money and effort will be required to collect that necessary data, this is also important step.

Data collection plays an important role in research work. Without proper data available for analysis you cannot do the research work accurately.

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Types of data collection

There are two types of data collection methods available.

1. Primary data collection

2. Secondary data collection

1) Primary data

The primary data is that data which is collected fresh or first hand, and for first time which is original in nature. Primary data can collect through personal interview, questionnaire etc. to support the secondary data.

2) Secondary data collection method

The secondary data are those which have already collected and stored. Secondary data easily get those secondary data from records, journals, annual reports of the company etc. It will save the time, money and efforts to collect the data. Secondary data also made available through trade magazines, balance sheets, books etc.

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This project is based on primary data collected through personal interview of head of account department and other concerned staff member of finance department. But primary data collection had limitations such as matter confidential information thus project is based on secondary information collected through three years annual report of the company, supported by various books and internet sides. The data collection was aimed atstudy of working capital management of the company

Project is based on profit and loss accounts and the balance sheets from the period 2005-2008.

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DATA ANALYSIS AND INTERPRETATION

Types Of Ratios

LIQUIDITY RATIOS

There are ratios, which measure the short-term solvency or financial position of a firm.

These ratios are calculated to comment upon the short term paying capacity of a concern or the firm ability to meet its current obligations.

The various liquidity ratios are as follows:

1) Current Ratio 2) Quick Ratio

CURRENT RATIO

Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of the short-term position or liquidity of a firm. It is calculated by dividing the total of current assets by total of the current liabilities.

Current Ratio = Current Assets/ Current Liabilities

CURRENT RATIO

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Year Current Asset Current liabilities Current Ratio

2007-2008 6,19,88,011 2,56,24,696 2.419

2006-2007 4,54,09,927 2,66,41,066 1.704

2005-2006 3,83,17,816 2,51,37,807 1.524

Inferences:

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The Current ratio represents a margin of safety for creditors. The higher the ratio, the greater the margin of safety; the larger the amount of current assets in relation to current liabilities, the more the firms ability to meet its current obligations.

The ratio is 1.52 in the year 2005 – 2006 and 1.70 in the year 2006-2007 and it increased to 2.19 in the year 2007-2008. The main reason for increase of ratio was increase in the current assets.

Ideal Ratio is 2:1. Current ratio exceeding 1.5 is satisfactory for the business. Since the current ratio is higher than the normal benchmark, the short-term solvency of the firm is satisfactory.

QUICK RATIO

Quick Ratio, also known as acid test or Liquid Ratio is more rigorous test of liquidity than the current ratio. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash within a short period without loss of value. In that sense, cash in hand and cash at bank are most liquid assets. The other assets, which can be included in the liquid assets and sundry debtors, marketable securities and short-term or temporary investments. Inventories cannot be termed to be liquid asset because they cannot be converted into cash immediately without a sufficient loss of value. In the same manner, prepaid expense is also excluded from the list of quick/liquid assets because they are not expected to be converted into cash

Quick Ratio = Quick Assets/Quick Liabilities

Quick Assets = Current Assets (Inventories + Prepaid expenses)

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Quick Liabilities = Current Liabilities (Bank Overdraft Cash Credit)

QUICK RATIO

Year Quick Asset Quick Liabilities Quick Ratio

FY2007-08 3,83,89,273 2,56,24,696 1.49

FY2006-07 3,51,74,452 1,95,17,932 1.8

FY2005-06 3,20,74,620 1,64,31,721 1.95

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Inferences:

As the quick ratio is higher than the normal benchmark of 1:1, the liquidity of the firm is good. In 2005– 2006 the ratio was 1.95, in 2006-2007 it was 1.802 which then reduced to 1.498 in 2007-2008 showing that the ratios are within the acceptable limits. As the Current ratio and Quick ratio are within the acceptable limits, company's liquidity position and short term solvency is satisfactory.

2. LONG TERM SOLVENCY RATIOS

The various Long Term Solvency Ratios are as follows:

1) Debt Equity Ratio

2) Interest Covering Ratio

3) Capital Gearing Ratio

4) Fixed Asset to Long Term Fund Ratio

5) Proprietary Ratio

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DEBT - EQUITY RATIO

Debt equity ratio is also known as External internal equity ratio is calculated to measure the relative claims of outsiders and the owners against the firm¡¦s assets. These ratios indicates the relationship between the external equities or the outsiders funds and the internal equities or the share holders funds. The two basic components of the ratio are outsiders funds, i.e.., external equities and shareholders funds, i.e. internal equities. The outsiders funds include all debts/liabilities to outsiders, whether long-term or short term or whether in the form of debentures bonds, mortgage or bills. The shareholders funds consist of equity share capital, preference share capital, capital reserves, revenue for contingencies, sinking funds etc. the accumulated losses and differed expenses, if any, should be deducted from the total to find out shareholders funds. When the accumulated losses or differed expenses are deducted from the shareholders funds, it is called net worth and the ratio may be termed as the ratio may be termed as debt to net worth ratio.

Debt-Equity Ratio = Debt/Equity

The Benchmark for this ratio is 2:1. Debt equity ratio measures the Leverage, Long term Solvency and Financial Risk of the company. Debt equity ratio of 2 or less than two indicates that the long-term solvency of the company is satisfactory. If this ratio is greater than 2 it indicates financial risk. Low debt equity ratio indicates higher borrowing capacity of the firm.

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DEBT EQUITY RATIO (DER)

Year Debt Equity DER

FY2007-08 3,40,23,116 1,40,33,051 2.42

FY2006-07 2,48,32,304 1,03,69,257 2.39

FY2005-06 2,25,63,121 1,40,78,986 1.60

Inferences:

The Debt equity ratio is increasing from the past 3 years, indicating that, the company’s debt liability has increased at higher proportion than its equity over the previous year.

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PROPRIETARY RATIO

The proprietary ratio represents the proportion of proprietors’ funds to total assets. A higher percentage denotes that the owners have provided the funds to purchase the assets of the concern instead of relying on external funds.

However too high a proprietary ratio indicates that the management has not effectively utilized the other cheaper sources of finance like long term creditors .

Proprietary Ratio = Proprietary Fund / Total Assets

Total Assets = Net Fixed Assets + Net Current Assets

PROPRIETARY RATIO

Year Proprietary Fund

Total Asset Proprietary Ratio

FY2007-08 1,40,33,051 4,32,87,120 0.32

FY2006-07 1,03,69,257 3,26,17,832 0.31

FY2005-06 1,40,78,986 4,22,09,221 0.33

Inferences:

The proprietary ratio in 2005-2006 is 0.33 and in 2007-2008 it is 0.32 showing a constant change and indicating that the proprietary ratio is low

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and the enterprise is relying a lot more on external sources of funds like bank borrowing ,trade creditors and others.

INTEREST COVERAGE RATIO

A ratio used to determine how easily a company can pay interest on outstanding debt .The ratio is calculated by dividing a company ‘s earnings before interest and taxes of one period by the company’s interest expenses of the same period. The lower the ratio ,the more the company is burdened by debt expense, higher the ratio means the enterprise is easily able to met its interest obligations from profits.

Interest Coverage Ratio = EBDIT/ Interest payment

INTEREST COVERAGE RATIO (ICR)

Year EBDIT Interest Payment ICR

FY2007-08 3,14,71,559 55,07,181 5.71

FY2006-07 2,06,49,394 29,36,045 7.03

FY2005-06 1,87,45,432 19,34,214 8.34

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Inference:

In 2005-2006 the interest coverage ratio was 8.34 which reduced to 7.03 in 2006-2007 and then further reduced to 5.71in 2007-2008,this suggests that in comparison to year 2005-2006 with year 2007-2008 the ratio has significantly reduced and the enterprise is not very good in meting with its interest obligation .

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ACTIVITY RATIOS

The various liquidity ratios are as follows:

1) Debtors Turnover Ratio

2) Average Collection Period

3) Creditors Turnover Ratio

4) Average Payment Period

5) Fixed Assets Turnover Ratio

6) Working Capital Turnover Ratio

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DEBTORS TURNOVER RATIO

Debtor's turnover ratio throws light on the credit and collection policies of the business and thus related to liquidity.

Debtors Turnover = Credit Sales/Average Accounts Receivable

DEBTORS TURNOVER RATIO (DTR)

Year Credit Sales Avg.Receivables DTR

FY2007-08 8,87,79,405 3,34,96,243 2.65

FY2006-07 5,55,44,779 2,18,80,936 2.53

FY2005-06 3,97,21,654 1,64,75,692 2.41

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Inferences:

Debtor's turnover ratio throws light on the credit and collection policies of the business and thus related to liquidity. This table shows that the Debtors turnover ratio is 2.41 in 2005-2006 and in 2006-07 there is a increase in the ratio as 2.53. In the year 2007-08there is a futher increase in the ratio as 2.65.

The Debtor’s turnover ratio shows that the firm is not utilizing its resources effectively. Debtor’s turnover ratio of 2.65 for 2008 is not satisfactory for a manufacturing company. The low Debtor's turnover ratio for indicates that the company is having a significant portion of slow paying Debtors.

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AVERAGE COLLECTION PERIOD

The average collection period measures the quality of debtors since it indicates the speed of their collection. The shorter the average collection period, the better the quality of debtors, since a short collection period implies the prompt payment by debtors. The average collection period should be compared against the firm's credit terms and policy to judge its credit and collection efficiency.

Average Collection Period = No. of working days / Debtors Turnover Ratio

AVERAGE COLLECTION PERIOD (ACP)

Year DTR No. of Months ACP (mth)

FY2007-08 2.65 12 4.5

FY2006-07 2.53 12 4.7

FY2005-06 2.41 12 4.9

Inferences:

From the above we can understand that, in 2005-2006 the ratio was 4.9 and by the year 2007-2008 it was 4.5. For a company like AFCIL industries, the average collection period should be between 1.5-2 months. The average collection period of 4.5 months for 2008 indicates that the collection policy of the company is not satisfactory.

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CREDITORS TURNOVER RATIO

In the course of business operations, a firm has to make credit purchases and incur short-term liabilities. A supplier of goods i.e. creditor is naturally interested in finding out how much time the firm is likely to take in repaying its trade creditors. The analysis for creditor’s turnover is basically the same as of debtor’s turnover ratio except that in place of average daily sales, average daily purchases are taken as the other component of the ratio and in place of average daily sales

Creditors Turnover = Credit Purchases/Average Accounts Payable

CREDITORS TURNOVER RATIO (CTR)

Year Credit Purchase Avg.Accounts Payable CTR

FY2007-08 5,31,42,731 2,21,94,822 2.39

FY2006-07 3,95,41,667 1,56,50,348 2.24

FY2005-06 4,00,23,125 1,65,12,346 2.42

Inferences:

Creditor’s turnover ratio indicates the velocity with which the creditors are turned over in relation to purchases. Higher the creditor’s velocity better it is or lower the creditor’s velocity , less favourable the results are. This table shows that the Creditors turnover ratio is 2.42 in 2005-2006 and in 2006-07 there is a decrease in the ratio as 2.24 and a further decrease in 2007-08 to 2.39 .Therefore the results are not favourable.

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AVERAGE PAYMENT PERIOD

The average payment period ratio represents the average number of days taken by the firm to pay its creditors. Generally lower the ratio, the better is the liquidity position and higher the ratio, less liquid is the position of the firm.

Average Payment Period = No. of working days / Creditors Turnover Ratio

AVERAGE PAYMENT PERIOD (APP)

Year CTR No.of Months APP

FY2007-08 2.39 12 5.02

FY2006-07 2.24 12 5.35

FY2005-06 2.42 12 4.95

Inferences:

The average payment period ratio represents the average number of days taken by the firm to pay its creditors. Generally lower the ratio, the better is the liquidity position and higher the ratio, less liquid is the position of the firm. In 2005-06 the average payment period was 4.95 which increased to 5.02 in 2007-08 showing a constant change. The average payment period of the company is around five months which is satisfactory.

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FIXED ASSET TURNOVER RATIO

The fixed asset turnover ratio shows the relationship between the annual net sales and the amount of fixed assets. It measures the companys ability to generate sales from its investments in plant ,property and equipment.

Fixed asset Turnover Ratio = Turn Over / Net Fixed Assets

FIXED ASSET TURNOVER RATIO (FATR)

Year Net Sales Fixed Asset FATR

FY2007-08 8,87,79,405 2,07,74,034 4.27

FY2006-07 5,55,44,779 1,91,22,695 2.9

FY2005-06 3,97,21,654 1,64,39,744 2.41

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Inferences:

Fixed Assets Turnover Ratio shows the ability to generate sales per rupee of fixed assets. The ratio is increasing over the years, indicating that the firm is effectively utilizing its resources in Fixed Assets. The high Fixed Assets Turnover Ratio indicates an increasing trend in capacity utilization, which would result in increasing profitability. Even though the fixed assets turnover ratio suggests an increasing trend in the ratio there is scope for more full capacity utilization of the resources in the firm.

TOTAL ASSET TURNOVER RATIO

Total asset Turnover Ratio = Turn Over / Net Total Assets

It measures a firms efficiency at using its assets in generating sales or revenue .The higher the number the better.

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TOTAL ASSET TURNOVER RATIO (TSTR)

Year Net Total Asset Sales TSTR

FY2007-08 4,32,87,120 8,87,79,405 2.05

FY2006-07 3,26,17,832 1,85,47,979 0.56

FY2005-06 4,22,09,221 3,97,21,654 0.94

Inference:

In 05-06 the ratio was 0.94 and in 07-08 it shows a significant increase to 2.05 suggesting a high efficiency in using the assets.

WORKING CAPITAL TURNOVER RATIO

Working Capital Turnover Ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations ,in general sense higher the ratio better it is for the company because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

Working capital turnover = Turn Over / Net Working Capital

WORKING CAPITAL TURNOVER RATIO (WCTR)

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Year Sales Working Capital WCTR

FY2007-08 8,87,79,405 3,63,63,315 2.44

FY2006-07 5,55,44,779 1,87,68,861 2.95

FY2005-06 3,97,21,654 1,28,79,871 3.08

Inference:

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The Working Capital Turnover Ratio was 3.08 in 2005-2006 and decreased to 2.44.The decreasing trend was due to slow paying debtors. The working capital turnover ratio suggests that the working capital is being efficiently utilized.

4. PROFITABILITY RATIOS

1) Gross Profit Ratio

2) Operating Profit Ratio

3) Net Profit Ratio

4) Operating Ratio

5) Return on Investments

GROSS PROFIT RATIO

Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage .it expresses a the relationship between gross profit and sales.

Gross Profit Ratio = Gross Profit x 100

Sales

GROSS PROFIT RATIO (GPR)

Year Gross Profit Sales GPR

FY2007-08 2,79,77,443 8,87,79,405 31.51

FY2006-07 1,85,47,979 1,85,47,979 33.39

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FY2005-06 1,44,25,714 3,97,21,654 36.31

Inference:

The ratio in 2005-2006 was 36.31% and in 2007-2008 it was reduced to 31.51% owing to the increasing direct expenses during the year 2006-2008.

OPERATING PROFIT RATIO

It is the relationship operating profit or earning before interest and tax to sales it is expressed in percentage.

Operating Profit Ratio = EBIT x 100

Sales

OPERATING PROFIT RATIO (OPR)

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Year EBIT SALES OPR

FY2007-08 3,14,71,559 8,87,79,405 35.44

FY2006-07 2,06,49,394 5,55,44,779 37.17

FY2005-06 1,61,49,621 3,97,21,654 40.65

Inference:

The operating profit was 40.65% in 2005-2006 and in 2007-2008 it reduced to 35% this reduction was due to increasing operating expenses ,due to this reason the company is showing a decreasing trend in profits.

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NET PROFIT RATIO

The net profit ratio is the relationship between the net profit and the sales, generally expressed in percentage terms.

Net Profit Ratio = PAT x 100

Sales

NET PROFIT RATIO (NPR)

Year PAT Sales NPR

FY2007-08 22886313 88779405 25.77

FY2006-07 16252720 55544779 29.26

FY2005-06 12967210 39721654 32.64

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Inference:

The net profit was 32 % in 2005-2006 and reduced to 25% in 2008 owing to increasing operating expenses.

OPERATING RATIO

It is the relationship between the operating cost and the sales

Operating Ratio = Total Operating Cost x 100

Sales

OPERATING RATIO (OR)

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Year Operating Cost Sales OR

FY2007-08 5,73,07,846 8,87,79,405 64.56%

FY2006-07 3,48,95,385 5,55,44,779 62.83%

FY2005-06 2,35,72,033 3,97,21,654 59.35%

Inference:

The ratio was 60% in 2005-2006 and then it reduced to 63% in 2006-2007 and further was 65% in 2007-2008.

The ratio shows the growing trend in the operating cost suggesting that the company should control its operating cost.

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RETURN ON INVESTMENT

ROI measures how effectively the firm uses its capital to generate profit;the higher the ROI the better.Its a performance measure used to evaluate the efficiency of an investment .

Return On Investment = EBIT x 100

Capital Employed

RETURN ON INVESTMENT (ROI)

Year EBIT Capital Employed

ROI

FY2007-08 3,14,71,559 4,79,56,167 65%

FY2006-07 2,06,49,394 4,07,01,561 50%

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FY2005-06 1,84,32,163 3,66,42,107 50%

Inference:

The ratio is showing an increasing trend from 2005 to the year 2008 ,it is showing the ratio is increasing from 50% to a significant growth of 15% to 65%,which shows there is high return on investment.

CONCLUSION

Financial performance is an important aspect, which influences the long term stability ,profitability and liquidity of an organization. Usually financial ratios are said to b the parameters of the financial performance of the company with the help of ratios.

From the analysis and interpretation of financial statements ,it is clear that the company’s liquidity position is satisfactory but improvement is required.Profitability ratios show the firm is decreasing its profits year after year.

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From the analysis we can conclude that the company’s short term solvency is not comfortable .company should take actions to secure the long term solvency position.

From the management point of view we can conclude that the management should take effective measures to improve its profitability by controlling the operating cost.

RECOMMEDATIONS

The company should productively utilize the funds.

Company should take steps to reduce the debt equity ratio and bring it within acceptable limits.

It should take measures t improve its interest coverage ratio.

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Company is having a significant portion of slow paying debtors,company should take action so that improvements may be incorporated.

The company should take effective measures to improve its profitability by controlling the operating cost.

Modernization with latest technology.

Efficient inventory management system is required .

BIBLIOGRAPHY

Following sources have been sought for the preparation of this report:

Corporate Intranet

Financial Statements(Annual Reports)

Direct interaction with the employees of the company

Internet

Textbooks on financial management

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I.M. PandeyKhan and Jain

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