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Chapter – 1
Introduction
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Chapter - I
INTRODUCTION ABOUT THE STUDY
1.1. INTRODUCTION
Financial Management is the specific area of finance dealing with the financial decision
corporations make, and the tools and analysis used to make the decisions. The discipline
as a whole may be divided between long-term and short-term decisions and techniques.
Both share the same goal of enhancing firm value by ensuring that return on capital
exceeds cost of capital, without taking excessive financial risks.
Capital investment decisions comprise the long-term choices about which projects
receive investment, whether to finance that investment with equity or debt, and when or
whether to pay dividends to shareholders. Short-term corporate finance decisions are
called working capital management and deal with balance of current assets and current
liabilities by managing cash, inventories, and short-term borrowings and lending (e.g., the
credit terms extended to customers).
Corporate finance is closely related to managerial finance, which is slightly broader in
scope, describing the financial techniques available to all forms of business enterprise,
corporate or not.One of the most important long term decisions for any business relates to
investment. Investment is the purchase or creation of assets with the objective of making
gains in the future. Typically investment involves using financial resources to purchase a
machine/ building or other asset, which will then yield returns to an organisation over a
period of time. Ratio analysis is primarily used to compare a company's financial figures
over a period of time, a method sometimes called trend analysis. Through trend analysis,
you can identify trends, good and bad, and adjust your business practices accordingly.
You can also see how your ratios stack up against other businesses, both in and out of
your industry.
1.2. OBJECTIVE OF THE STUDY
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1. To appraise financial position using the ratio analysis.
2. To determine the level of profit generated
3. To determine the expense and investments of the company
4. To study the liquidity position of the concern by considering the position of current
liabilities.
1.3. SCOPE FOR THE STUDY
Making big investment decisions means that we must allocate substantial amounts of
major resources of people, time, technology, intellectual capital, and, of course, money.
A high-quality decision process requires that our choices are doable and well formulated,
that consequences are understood and well explored, that our preferences are included
when comparing the full array of costs and benefits of the proposed decisions, and that
any actions we take are focused on getting results.
One of the most important long term decisions for any business relates to investment.
Investment is the purchase or creation of assets with the objective of making gains in the
future. Typically investment involves using financial resources to purchase a machine/
building or other asset, which will then yield returns to an organisation over a period of
time. Key considerations in making investment decisions are:
1. What is the scale of the investment - can the company afford it?
2. How long will it be before the investment starts to yield returns?
3. How long will it take to pay back the investment?
4. What are the expected profits from the investment?
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1.4. INDUSTRY OVERVIEW
Construction
In the fields of architecture and civil engineering, construction is a process that consists
of the building or assembling of infrastructure. Far from being a single activity, large
scale construction is a feat of human multitasking. Normally, the job is managed by a
project manager, and supervised by a construction manager, design engineer,
construction engineer or project architect.
For the successful execution of a project, effective planning is essential. involved with
the design and execution of the infrastructure in question must consider the
environmental impact of the job, the successful scheduling, budgeting, construction site
safety, availability of building materials, logistics, inconvenience to the public caused by
construction delays and bidding, etc.
Types of construction projects
In general, there are two types of construction:
1. Building construction
2. Industrial construction
Each type of construction project requires a unique team to plan, design, construct and
maintain the project.
GAAP has carved out a special niche for construction contractors. While there is no
FASB Statement for this area, AICPA Accounting Research Bulletin (ARB) No. 45,
Long-Term Construction-Type Contracts, (1955) and AICPA Statement of Position
(SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-
Type Contracts, (1981) address it specifically. There is also an excellent AICPA Audit
and Accounting Guide, Construction Contractors.
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Because most construction contracts by their nature are long-term, the underlying
accounting principle known as matching — expenses follow revenues — would be
violated if the revenue from the contract were recognized upon contract execution or sale
of the services. There are two methods of revenue recognition are allowed under the
preceding pronouncements for construction contractors.
One is percentage of completion (PC) method and the other is completed contract (CC)
method. Under the PC method, the construction contractor recognizes revenue over the
life of the construction contract based on the degree of completion: 50% completion
means recognition of one-half of revenues, costs, and income. Under the CC method, all
revenues, costs, and income are recognized only at completion of the construction
project, ordinarily at the end of the construction contract.
SOP 81-1 requires that the PC method be used in lieu of the CC method when all of the
following are present:
1. Reasonably reliable estimates can be made of revenue and costs;
2. The construction contract specifies the parties’ rights as to the goods, consideration to
be paid and received, and the resulting terms of payment or settlement;
3. The contract purchaser has the ability and expectation to perform all contractual duties;
and
4. The contract contractor has the same ability and expectation to perform.
The CC method is used in rare circumstances, which are set forth in SOP 81-1 to be any
of the following:
1. The contract is of a short duration (not defined), Such as 24 months or less. As a result,
the recognized revenue would not differ under the PC or CC methods;
2. The contract violates any one of the items 1 through 4 above; or
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3. The contract’s project exhibits documented extraordinary, nonrecurring business risks
(such as extinguishing oil well fires in a country while hostilities are continuing).
In applying these revenue recognition methods, it is important that the following five
items be kept in mind:
Generally, each construction contract is treated as a profit center, with its own revenues,
costs, and income. There are, however, circumstances in which multiple contracts,
change orders, or options, for example, create the issue of whether to combine contracts
into one profit center or to segment the contracts into separate profit centers.
SOP 81-1 sets forth the criteria for combining and segmenting construction contracts. As
a general rule, the more interrelated and cohesive a project — for example, through
substantial common costs, a single buyer, or concurrent performance of steps in the
project — the more the scales tip in favor of combining. In contrast, when 1) separate
project components have bids distinct from the entire project; 2) the buyer may choose to
accept any, all, or more of the bids; and 3) the components of the project have the
approximate revenues, costs, and income of a stand-alone project, then segmenting the
contract is permissible. For such segmentation, SOP 81-1 has additional requirements
that should be reviewed.
GAAP requires that the accrual method be used for all reported billings and costs and
losses.
Cost allocation is based on direct and indirect costs as well as construction period
interest.
Assets are represented by under billings (estimated costs and earnings exceed billings)
whereas liabilities are shown as overbillings (billings exceed estimated costs and
earnings).
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History
The first huts and shelters were constructed by hand or with simple tools. As cities grew
during the Bronze Age, a class of professional craftsmen, like bricklayers and carpenters,
appeared. Occasionally, slaves were used for construction work. In the Middle Ages,
these were organized into guilds. In the 19th century, steam-powered machinery
appeared, and later diesel- and electric powered vehicles such as cranes, excavators and
bulldozers. Modern-day Construction involves creating awesome structures that can show
the beauty and creativity of the human intellect.
1.5. COMPANY OVERVIEW
Grace Field Builders and Developers Pvt. Ltd is engaged in construction business and
manufacturing of Cement Product. The company was incorporated during 2004 at
Rippon, wayanad district located in Kerala.
The constitution of the company in the beginning was a partnership, which was later a
limited company .The founder chairman Mr. Ashraf.P and Managing Director of the
company and K. Shihab and Kunjali are the board of directors. They have businesses in
textile industry ,Tea leaf agencies, whole sale dealer in Tea Powder and Real estate.
VISION
The vision of the company is:
To become a global player committed to international quality, standards, efficient
pricing and provide excellent service.
MISSION
The mission of the company is:
To optimize the value like customer satisfaction, creating share holders wealth
through human resource department
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PLANT LOCATION
The factory is situated at Rippon, meppadi, wayanad district. The registered office is
situated at Real Wedding centre Complex Ootty Road, vaduvanchal, wayanad District.
The auditors of the company is T.P. Poul and Associates, Kalpetta, wayanad.
The bankers are Vijaya Bank, South Indian Bank, Indian Bank and State Bank of India
OTHER GROUP OF INDUSTRIES
Real Wedding Centre - Textile Business
Real Associates – suppliers in Tea Leaf
Real Agencies - whole sale distributer in Tea dust
THE ORGANISATIONAL STRUCTURE
The Organization has 5 departments which are as follows.
Production Departments
Marketing Departments
Finance Departments
Human Resource Departments
Purchase Departments
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Chapter – II
Concept and Review literature
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Chapter – II
CONCEPT AND REVIEW OF LITERATURE
2.1. CONCEPT
RATIO ANALYSIS
FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths and weaknesses of
the firm and establishing relationship between the items of the balance sheet and profit &
loss account.
Financial ratio analysis is the calculation and comparison of ratios, which are derived
from the information in a company’s financial statements. The level and historical trends
of these ratios can be used to make inferences about a company’s financial condition, its
operations and attractiveness as an investment. The information in the statements is used
by
Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity
position of the company.
Investors, to know about the present and future profitability of the company and
its financial structure.
Management, in every aspect of the financial analysis. It is the responsibility of
the management to maintain sound financial condition in the company.
RATIO ANALYSIS
The term “Ratio” refers to the numerical and quantitative relationship between two items
or variables. This relationship can be exposed as
Percentages
Fractions
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Proportion of numbers
Ratio analysis is defined as the systematic use of the ratio to interpret the financial
statements. So that the strengths and weaknesses of a firm, as well as its historical
performance and current financial condition can be determined. Ratio reflects a
quantitative relationship helps to form a quantitative judgment.
STEPS IN RATIO ANALYSIS
The first task of the financial analysis is to select the information relevant to the
decision under consideration from the statements and calculates appropriate
ratios.
To compare the calculated ratios with the ratios of the same firm relating to the
pas6t or with the industry ratios. It facilitates in assessing success or failure of the
firm.
Third step is to interpretation, drawing of inferences and report writing
conclusions are drawn after comparison in the shape of report or recommended
courses of action.
BASIS OR STANDARDS OF COMPARISON
Ratios are relative figures reflecting the relation between variables. They enable analyst
to draw conclusions regarding financial operations. They use of ratios as a tool of
financial analysis involves the comparison with related facts. This is the basis of ratio
analysis. The basis of ratio analysis is of four types.
Past ratios, calculated from past financial statements of the firm.
Competitor’s ratio, of the some most progressive and successful competitor firm
at the same point of time.
Industry ratio, the industry ratios to which the firm belongs to
Projected ratios, ratios of the future developed from the projected or pro forma
financial statements
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NATURE OF RATIO ANALYSIS
Ratio analysis is a technique of analysis and interpretation of financial statements. It is
the process of establishing and interpreting various ratios for helping in making certain
decisions. It is only a means of understanding of financial strengths and weaknesses of a
firm. There are a number of ratios which can be calculated from the information given in
the financial statements, but the analyst has to select the appropriate data and calculate
only a few appropriate ratios. The following are the four steps involved in the ratio
analysis.
Selection of relevant data from the financial statements depending upon the
objective of the analysis.
Calculation of appropriate ratios from the above data.
Comparison of the calculated ratios with the ratios of the same firm in the past, or
the ratios developed from projected financial statements or the ratios of some
other firms or the comparison with ratios of the industry to which the firm
belongs.
INTERPRETATION OF THE RATIOS
The interpretation of ratios is an important factor. The inherent limitations of ratio
analysis should be kept in mind while interpreting them. The impact of factors such as
price level changes, change in accounting policies, window dressing etc., should also be
kept in mind when attempting to interpret ratios. The interpretation of ratios can be made
in the following ways.
Single absolute ratio
Group of ratios
Historical comparison
Projected ratios
Inter-firm comparison
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GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS
The calculation of ratios may not be a difficult task but their use is not
easy. Following guidelines or factors may be kept in mind while interpreting various
ratios are
Accuracy of financial statements
Objective or purpose of analysis
Selection of ratios
Use of standards
Caliber of the analysis
IMPORTANCE OF RATIO ANALYSIS
Aid to measure general efficiency
Aid to measure financial solvency
Aid in forecasting and planning
Facilitate decision making
Aid in corrective action
Aid in intra-firm comparison
Act as a good communication
Evaluation of efficiency
Effective tool
LIMITATIONS OF RATIO ANALYSIS
Differences in definitions
Limitations of accounting records
Lack of proper standards
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No allowances for price level changes
Changes in accounting procedures
Quantitative factors are ignored
Limited use of single ratio
Background is over looked
Limited use
Personal bias
CLASSIFICATIONS OF RATIOS
The use of ratio analysis is not confined to financial manager only. There are different
parties interested in the ratio analysis for knowing the financial position of a firm for
different purposes. Various accounting ratios can be classified as follows:
1. Traditional Classification
2. Functional Classification
3. Significance ratios
1. Traditional Classification
It includes the following.
Balance sheet (or) position statement ratio: They deal with the relationship
between two balance sheet items, e.g. the ratio of current assets to current
liabilities etc., both the items must, however, pertain to the same balance sheet.
Profit & loss account (or) revenue statement ratios: These ratios deal with the
relationship between two profit & loss account items, e.g. the ratio of gross profit
to sales etc.,
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Composite (or) inter statement ratios: These ratios exhibit the relation between a
profit & loss account or income statement item and a balance sheet items, e.g.
stock turnover ratio, or the ratio of total assets to sales.
2. Functional Classification
These include liquidity ratios, long term solvency and leverage ratios, activity ratios and
profitability ratios.
3. Significance ratios
Some ratios are important than others and the firm may classify them as primary and
secondary ratios. The primary ratio is one, which is of the prime importance to a concern.
The other ratios that support the primary ratio are called secondary ratios.
IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS
ARE
1. Liquidity ratio
2. Leverage ratio
3. Activity ratio
4. Profitability ratio
1. LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current obligations as & when there
becomes due. The short term obligations of a firm can be met only when there are
sufficient liquid assets. The short term obligations are met by realizing amounts from
current, floating (or) circulating assets The current assets should either be calculated
liquid (or) near liquidity. They should be convertible into cash for paying obligations of
short term nature. The sufficiency (or) insufficiency of current assets should be assessed
by comparing them with short-term current liabilities. If current assets can pay off current
liabilities, then liquidity position will be satisfactory.
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To measure the liquidity of a firm the following ratios can be calculated
Current ratio
Quick (or) Acid-test (or) Liquid ratio
Absolute liquid ratio (or) Cash position ratio
(a) CURRENT RATIO:
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio also known as Working capital ratio is a measure of general liquidity
and is most widely used to make the analysis of a short-term financial position (or)
liquidity of a firm.
Components of current ratio
CURRENT ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Inventories Short-term advances
Work-in-progress Sundry creditors
Marketable securities Dividend payable
Short-term investments Income-tax payable
Sundry debtors
Prepaid expenses
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(b) QUICK RATIO
Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the
ability of a firm to pay its short-term obligations as & when they become due. Quick ratio
may be defined as the relationship between quick or liquid assets and current liabilities.
An asset is said to be liquid if it is converted into cash with in a short period without loss
of value.
Components of quick or liquid ratio
QUICK ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Sundry debtors Short-term advances
Marketable securities Sundry creditors
Temporary investments Dividend payable
Income tax payable
(c) ABSOLUTE LIQUID RATIO
Although receivable, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or
in time. Hence, absolute liquid ratio should also be calculated together with current ratio
and quick ratio so as to exclude even receivables from the current assets and find out the
absolute liquid assets.
Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50%
(or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth
current liabilities in time as all the creditors are nor accepted to demand cash at the same
time and then cash may also be realized from debtors and inventories.
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Components of Absolute Liquid Ratio
ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Interest on Fixed Deposit Bills payable
Short-term advances
Sundry creditors
Dividend payable
Income tax payable
2. LEVERAGE RATIOS
The leverage or solvency ratio refers to the ability of a concern to meet its long term
obligations. Accordingly, long term solvency ratios indicate firm’s ability to meet the
fixed interest and costs and repayment schedules associated with its long term
borrowings.
The following ratio serves the purpose of determining the solvency of the concern.
Proprietory ratio
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(a) PROPRIETORY RATIO
A variant to the debt-equity ratio is the proprietory ratio which is also known as equity
ratio. This ratio establishes relationship between share holders funds to total assets of the
firm.
SHARE HOLDERS FUND TOTAL ASSETS
Share Capital Fixed Assets
Reserves & Surplus Current Assets
Cash in hand & at bank
Bills receivable
Inventories
Marketable securities
Short-term investments
Sundry debtors
Prepaid Expenses
3. ACTIVITY RATIOS
Funds are invested in various assets in business to make sales and earn profits. The
efficiency with which assets are managed directly effect the volume of sales. Activity
ratios measure the efficiency (or) effectiveness with which a firm manages its resources
(or) assets. These ratios are also called “Turn over ratios” because they indicate the speed
with which assets are converted or turned over into sales.
Working capital turnover ratio
Fixed assets turnover ratio
Capital turnover ratio
Current assets to fixed assets ratio
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(a) WORKING CAPITAL TURNOVER RATIO
It indicates the velocity of the utilization of net working capital. This indicates the no. of
times the working capital is turned over in the course of a year. A higher ratio indicates
efficient utilization of working capital and a lower ratio indicates inefficient utilization.
Components of Working Capital
CURRENT ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Inventories Short-term advances
Work-in-progress Sundry creditors
Marketable securities Dividend payable
Short-term investments Income-tax payable
Sundry debtors
Prepaid expenses
(b) FIXED ASSETS TURNOVER RATIO
It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit
earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed
assets. Lower ratio means under-utilization of fixed assets.
(c) CAPITAL TURNOVER RATIOS
Sometimes the efficiency and effectiveness of the operations are judged by comparing the
cost of sales or sales with amount of capital invested in the business and not with assets
held in the business, though in both cases the same result is expected. Capital invested in
the business may be classified as long-term and short-term capital or as fixed capital and
working capital or Owned Capital and Loaned Capital. All Capital Turnovers are
calculated to study the uses of various types of capital.
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(d) CURRENT ASSETS TO FIXED ASSETS RATIO
This ratio differs from industry to industry. The increase in the ratio means that trading is
slack or mechanization has been used. A decline in the ratio means that debtors and
stocks are increased too much or fixed assets are more intensively used. If current assets
increase with the corresponding increase in profit, it will show that the business is
expanding.
Component of Current Assets to Fixed Assets Ratio
CURRENT ASSETS FIXED ASSETS
Cash in hand Machinery
Cash at bank Buildings
Bills receivable Plant
Inventories Vehicles
Work-in-progress
Marketable securities
Short-term investments
Sundry debtors
Prepaid expenses
4. PROFITABILITY RATIOS
The primary objectives of business undertaking are to earn profits. Because profit is the
engine, that drives the business enterprise.
Net profit ratio
Return on total assets
Reserves and surplus to capital ratio
Earnings per share
Operating profit ratio
Price – earning ratio
Return on investments
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(a) NET PROFIT RATIO
Net profit ratio establishes a relationship between net profit (after tax) and sales and
indicates the efficiency of the management in manufacturing, selling administrative and
other activities of the firm.
It also indicates the firm’s capacity to face adverse economic conditions such as price
competitors, low demand etc. Obviously higher the ratio, the better is the profitability.
(b) RETURN ON TOTAL ASSETS
Profitability can be measured in terms of relationship between net profit and assets. This
ratio is also known as profit-to-assets ratio. It measures the profitability of investments.
The overall profitability can be known.
(c) RESERVES AND SURPLUS TO CAPITAL RATIO
It reveals the policy pursued by the company with regard to growth shares. A very high
ratio indicates a conservative dividend policy and increased ploughing back to profit.
Higher the ratio better will be the position.
(d) EARNINGS PER SHARE
Earnings per share is a small verification of return of equity and is calculated by dividing
the net profits earned by the company and those profits after taxes and preference
dividend by total no. of equity shares.
The Earnings per share is a good measure of profitability when compared with EPS of
similar other components (or) companies, it gives a view of the comparative earnings of a
firm.
(e) OPERATING PROFIT RATIO
Operating ratio establishes the relationship between cost of goods sold and other
operating expenses on the one hand and the sales on the other.
However 75 to 85% may be considered to be a good ratio in case of a manufacturing
under taking.
Operating profit ratio is calculated by dividing operating profit by sales.
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(f) PRICE - EARNING RATIO
Price earning ratio is the ratio between market price per equity share and earnings per
share. The ratio is calculated to make an estimate of appreciation in the value of a share
of a company and is widely used by investors to decide whether (or) not to buy shares in
a particular company.
Generally, higher the price-earning ratio, the better it is. If the price earning ratio falls,
the management should look into the causes that have resulted into the fall of the ratio.
(g) RETURN ON INVESTMENTS
Return on share holder’s investment, popularly known as Return on investments (or)
return on share holders or proprietor’s funds is the relationship between net profit (after
interest and tax) and the proprietor’s funds.
The ratio is generally calculated as percentages by multiplying the above with 100.
2.2. REVIEW OF LITERATURE
Ratios are a valuable analytical tool when used as part of a thorough financial analysis.
They can show the standing of a particular company, within a particular industry.
However, ratios alone can sometimes be misleading. Ratios are just one piece of the
financial jigsaw puzzle that makes up a complete analysis. (Leslie Rogers, 1997)
Financial ratios are widely used to develop insights into the financial performance of
companies’ by both the evaluators’ and researchers’. The firm involves many interested
parties, like the owners, management, personnel, customers, suppliers, competitors,
regulatory agencies, and academics, each having their views in applying financial
statement analysis in their evaluations. Evaluators’ use financial ratios, for instance, to
forecast the future success of companies, while the researchers' main interest has been to
develop models exploiting these ratios. Many distinct areas of research involving
financial ratios can be differentiated. (Barnes, 1986) Financial ratios can be divided into
several, sometimes overlapping categories. . Trend analysis works best with three to five
years of ratios. The second type of ratio analysis, cross-sectional analysis, compares the
ratios of two or more companies in similar lines of business. One of the most popular
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forms of cross-sectional analysis compares a company's ratios to industry averages. These
averages are developed by statistical services and trade associations and are updated
annually. (Ezzamel, Mar-Molinero and Beecher, 1987)
Financial ratios can also give mixed signals about a company's financial health, and can
vary significantly among companies, industries, and over time. Other factors should also
be considered such as a company's products, management, competitors, and vision for the
future. (Fieldsend, Longford and McLeay, 1987) There are many different ratios and
models used today to analyze companies. The most common is the price earnings (P/E)
ratio. It is published daily with the transactions of the New York Stock Exchange,
American Stock Exchange, and NASDAQ. These quotations show not only the most
recent price but also the highest and lowest price paid for the stock during the previous
fifty-two weeks, the annual dividend, the dividend yield, the price/earnings ratio, the
day's trading volume, high and low prices for the day, the changes from the previous
day's closing price. The price to earnings (P/E) ratio is calculated by dividing the current
market price per share by current earnings per share. It represents a multiplier applied to
current earnings to determine the value of a share of the stock in the market. The price-
earnings ratio is influenced by the earnings and sales growth of the company, the risk (or
volatility in performance), the debt equity structure of the company, the dividend policy,
the quality of management, and a number of other factors. A company's P/E ratio should
be compared to those of other companies in the same industry. (Garcia-Ayuso, 1994)
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Chapter – III
Research and methodology
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CHAPTER III
RESEARCH METHODOLOGY
3.1. RESEARCH METHODOLOGY
This chapter presents the basic methodology and requirements in research. It includes the
method of research, source of data, treatment of data, and tools, which were used in the
study.
3.2. RESEARCH DESIGN
Research design can be fixed as a framework or blue print for conducting the research
project. A research without research design will be just like a doing work without any
idea about it. So it is very much vital in research work. The study is partially descriptive
in nature and partially analytical in nature as efforts are taken to describe as well to
analyses the various areas of functions in financial affairs of the company.
3.3. RESEARCH INSTRUMENT
This research is based on secondary source of data and consists of annual reports, articles,
web sites, and books.
3.4. SOURCE OF DATA COLLECTION
The related information was collected from published annual reports of Grace Field
Builders and Developers Pvt. Ltd. The annual reports contain the results of Grace Field
Builders and Developers Pvt. Ltd. The annual reports containing the results of past
performance is considered to be the most important & most reliable.
Data required for the analysis is to obtain purely from secondary sources. The data with
respect to current assets, current liabilities, sales, Purchases and other balance sheet items
were collected from the published annual reports and reports of the company.
The study is mainly conducted on the basis secondary sources of data for which are
resorted to the annual reports of Grace Field Builders and Developers Pvt. Ltd. The
study was carried out in accounts Department of Grace Field Builders and Developers
Pvt. Ltd.
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3.5. FINANCIAL TOOLS
Ratio analysis
Ratio Analysis is a technique of analysis and interpretation of financial statement.
It is a process of establishing and interpreting various ratios for helping in making
certain decision Ratio analysis is not an end in itself. Accounting ratio is used to
describe significant relationship which exist b/w figure shown in balance sheet
and profit and loss account in budgetary entry control system any part of
accounting organization.
Correlation
Correlation is a statistical measurement of the relationship between two variables.
Possible correlations range from +1 to –1. A zero correlation indicates that there
is no relationship between the variables. A correlation of –1 indicates a perfect
negative correlation, meaning that as one variable goes up, the other goes down.
A correlation of +1 indicates a perfect positive correlation, meaning that both
variables move in the same direction together.
3.6. HYPOTHESIS
The following hypothesis were established to test the relationship between different
variables through correlation
There is no relationship between Net sales Vs. Net profit
There is no relationship between Net sales Vs. Total Assets
There is no relationship between Net sales Vs. Gross Profit
There is no relationship between Net sales Vs. current assets
There is no relationship between Net Profit Vs. Working Capital
Chapter – IV
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Data analysis & Interpretation
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CHAPTER - IV
4.1. RATIO ANALYSIS
LIQUIDITY RATIO
4.1. CURRENT RATIO
The following table shows the ratio of current asset to the current liabilities.
Table No: 4.1
CURRENT RATIO (Rs in ‘000)
Current Assets Current Liabilities Ratio
2006 585.74 79.04 7.41
2007 697.65 318.84 2.19
2008 720.21 160.65 4.48
2009 913.28 471.17 1.94
2010 1156.42 302.66 3.82
Average 3.87
Interpretation
In the year of 2006 current ratio 7.41, in 2008 the ratio is 4.48, in 2010 the ratio is 3.82,
2007 the ratio is 2.19 and 2009 the ratio is 1.94
As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the
firm. The huge increase in sundry debtors resulted an increase in the ratio, which is above
the benchmark level of 2:1 which shows the comfortable position of the firm.
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CHART NO: 4.1. CURRENT RATIO
2006 2007 2008 2009 20100
1
2
3
4
5
6
7
87.41
2.19
4.48
1.94000000000001
3.82
ratio
YEAR
RATI
OS
30
4.2. QUICK RATIO
The following table shows the ratio of quick assets to current liabilities
Table No:4.2
Quick Ratio (Rs in ‘000)
Year Quick Assets Current Liabilities Ratio
2006 585.74 79.04 7.41
2007 524.70 318.84 1.65
2008 698.83 160.65 4.35
2009 894.33 471.17 1.9
2010 1154.31 302.66 3.81
Average 3.82
Interpretation
In the year of 2006 the quick ratio is 7.41, 2008 the quick ratio is 4.35, 2010 the quick
ratio is 3.81, 2009 the quick ratio is 1.9 and 2007 the quick ratio is 1.65.
As a rule, the quick ratio with 1:1 (or) more is considered as satisfactory position of the
firm. This is above the benchmark level of 1:1 which shows the comfortable position of
the firm.
31
Chart No. 4.2 QUICK RATIO
2006 2007 2008 2009 20100
1
2
3
4
5
6
7
8 7.41
1.65
4.35
1.9
3.81
Ratio
Ratio
Years
Ratio
s
32
4.3. ABOSULTE LIQUIDITY RATIO
The following table shows that the ratio of absolute liquid assets to current
liabilities
Table No. 4.3
ABOSULTE LIQUIDITY RATIO (Rs in
‘000)
Year Absolute Liquid Assets Current Liabilities Ratio
2006 310.04 79.04 3.92
2007 108.59 318.84 0.34
2008 394.66 160.65 2.46
2009 538.50 471.17 1.14
2010 356.49 302.66 1.18
Average
Interpretation
In the year of 2006 the absolute liquid ratio is 3.92, 2008 the absolute liquid ratio is 2.46,
2010 the absolute liquid ratio is 1.18, in 2009 the absolute liquid ratio is 1.14 and in the
year of 2007 the absolute liquid ratio is 0.34.
The acceptable norm for this ratio is 1:2; this is above the benchmark level of 1:2 which
shows the comfortable position of the firm, except in the year of 2007.
33
Chart No: 4.3 ABSOLUTE LIQUID RATIO
2006 2007 2008 2009 20100
0.5
1
1.5
2
2.5
3
3.5
4
4.5
3.92
0.34
2.46
1.139999999999991.18000000000001
Category 1
years
Ratio
s
34
LEVERAGE RATIOS
1.3PROPRIETORY RATIO
The following table showing that the proprietory ratio.
Table No. 4.4
PROPRIETORY RATIO (Rs in ‘000)
Year Share Holders Funds Total Assets Ratio
2006 676.79 785.72 0.86
2007 533.01 884.38 0.6
2008 702.31 891.58 0.79
2009 564.73 1063.85 0.53
2010 970.60 1298.05 0.75
Average 0.71
Interpretation
In the year of 2006 the proprietory ratio is 0.86, in 2008 0.79, in 2010 0.75, in 2007 0.6,
and in the year of 2009 the proprietory ratio is 0.53
There is no increase in the capital from the year 2007. The share holder’s funds include
capital and reserves and surplus. The reserves and surplus is increased due to the increase
in balance in profit and loss account, which is caused by the increase of income from
sales
35
Chart No: 4.4 PROPRIETORY RATIO
2006 2007 2008 2009 20100
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
10.86000000000000
1
0.600000000000001
0.79
0.53
0.750000000000004
ratio
Years
ratio
s
36
ACTIVITY RATIOS
4.5 WORKING CAPITAL TURNOVER RATIO
The below table shows that the working capital turnover ratio of five years.
Table No: 4.5
Working capital turnover ratio (Rs in ‘0000)
Year Income From Sales Working Capital Ratio
2006 363.09 506.70 0.72
2007 538.99 378.80 1.42
2008 727.28 553.55 1.31
2009 555.50 442.11 1.26
2010 966.54 853.75 1.13
Averag
e 1.17
Interpretation
In the year of 2007 the working capital turn over ratio is 1.42, in 2008 1.31, in 2009 1.26,
in 2010 1.13 and in the year of 2006 the ratio is 0.72
The average working capital ratio of five years is 1.17, which is comfortable for the firm
37
Chart No: 4.5 WORKING CAPITAL TURNOVER RATIO
2006 2007 2008 2009 20100
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
0.720000000000001
1.421.31 1.26
1.12999999999999
ratio
years
Ratio
s
38
4.6. FIXED ASSETS TURNOVER RATIO
The following table shows that the fixed assets turnover ratio of five years.
Table No: 4.6
Fixed Assets Turnover Ratio (Rs in ‘000)
Year Cost of sales Net Fixed Assets Ratio
2006 363.09 288.34 1.26
2007 538.99 295.68 1.82
2008 727.28 171.37 4.24
2009 555.50 150.56 3.69
2010 966.54 141.63 6.82
Averag
e 3.57
Interpretation
In the year of 2010 the fixed assets turnover ratio is 6.82, 4.24 in 2008, 3.69 in
2009, 1.82 in 2007 and 1.26 in 2006.
39
Chart No: 4.6. Fixed Assets Turnover Ratio
2006 2007 2008 2009 20100
1
2
3
4
5
6
7
8
1.261.82
4.243.69
6.82
ratio
Years
ratio
s
40
4.7. CAPITAL TURNOVER RATIO
The following table showing the ratio of cost of goods sold to capital employed for
the period of five years
Table No: 4.7
Capital Turnover Ratio (Rs in ‘000)
Year Cost of goods sold Capital Employed Ratio
2006 363.09 371.75 0.98
2007 538.99 533.01 1.01
2008 727.28 702.31 1.04
2009 555.50 564.73 0.98
2010 966.54 970.60 0.99
Averag
e 1.00
Interpretation
The above table shows that, in the year of 2008 the capital turnover ratio is 1.04, 1.01 in
2007, 0.99 in 2010, 0.98 in 2009 and 2006
41
Chart No: 4.7 CAPITAL TURNOVER RATIO
2006 2007 2008 2009 20100.95
0.96
0.97
0.98
0.99
1
1.01
1.02
1.03
1.04
1.05
0.98
1.01
1.04
0.98
0.99Ratio
Years
Ratio
s
42
4.8CURRENT ASSETS TO FIXED ASSETS RATIO
The below table showing the current assets to fixed assets ratio for the period of five
years
Table No: 4.8
Current assets to fixed assets Ratio (Rs in ‘000)
Year Current Assets Fixed Assets Ratio
2006 585.24 199.98 2.93
2007 697.65 186.72 3.74
2008 720.21 171.37 4.20
2009 913.28 150.56 6.07
2010 1156.42 141.63 8.17
Average 5.02
Interpretation
In the year of 2010 the current assets to fixed assets ratio is 8.17, in 2009
6.07, in 2008 4.20, in 2007 3.74, in 2006 2.93
43
Chart No: 4.8 CURRENT ASSETS TO FIXED ASSETS RATIO
2006 2007 2008 2009 20100
1
2
3
4
5
6
7
8
9
2.93
3.744.2
6.04
8.17
Ratio
years
ratio
s
44
GENERAL PROFITABILITY RATIOS
4.9. NET PROFIT RATIO
The below table showing the net profit ratio for the period of five years.
Table No: 4.9
Net profit ratio (Rs in ‘000)
Year Net Profit After Tax Net sales Ratio
2006 211.23 360.39 0.59
2007 161.25 538.99 0.30
2008 169.29 727.28 0.23
2009 182.59 555.50 0.33
2010 405.86 966.54 0.42
Averag
e 0.37
Interpretation
In the year of 2006, the net profit ratio is 0.59, in 2010 the ratio is 0.42, in 2009 the ratio
is 0.33, in 2007 the ratio is 0.30 and in the year of 2008 the net profit ratio is 0.23
45
Chart No. 4.9 NET PROFIT RATIO
2006 2007 2008 2009 20100
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.59
0.3
0.23
0.330000000000002
0.42
Ratios
years
ratio
s
46
4.10. OPERATING PROFIT
The below table showing the operating profit ratio for the period of five years.
Table No: 4.10
Operating Profit Ratio (Rs in ‘000)
Year Operating Profit Net sales Ratio
2006 360.94 363.09 0.99
2007 275.76 538.99 0.51
2008 295.40 727.28 0.41
2009 315.86 555.50 0.57
2010 671.92 966.54 0.70
Average 0.64
Interpretation
In the year of 2006 the operating profit ratio is 0.99, in 2010 the ratio is 0.70, in 2009 the
ratio is 0.57, in 2007 the ratio is 0.51, in the year of 2008 the operating profit ratio is
0.41.
47
Chart No: 4.10 OPERATING PROFIT
2006 2007 2008 2009 20100
0.2
0.4
0.6
0.8
1
1.2
0.99
0.51
0.41
0.57
0.700000000000001
Ratios
years
Ratio
s
48
4.11. RETURN ON TOTAL ASSETS RATIO
The below table showing the Return on Total Assets Ratio for the period of five years.
Table No: 4.11
Return on total assets ratio (Rs in ‘000)
Year Net Profit After Tax Total Assets Ratio
2006 211.23 785.72 0.27
2007 161.25 884.38 0.18
2008 169.29 891.58 0.19
2009 182.59 1063.85 0.17
2010 405.86 1298.05 0.31
Average 0.22
INTERPRETATION
In the year of 2010 the ratio is 0.31, in 2006 the ratio is 0.27, in 2008 the ratio is 0.19, in
2007 the ratio is 0.18 and in the year of 2009 the return on total assets ratio is 0.17.
49
Chart No: 4.11 RETURN ON TOTAL ASSETS RATIO
2006 2007 2008 2009 20100
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.27
0.18 0.190.17
0.310000000000002
Ratios
Ratios
Years
Ratio
s
.
50
4.12. RESERVES & SURPLUS TO CAPITAL RATIO
The below table showing the reserve and surplus to capital ratio for the period of five
years.
Table No: 4.12
Reserve and surplus to capital ratio (Rs. In ‘000)
Year Reserves & Surplus Capital Ratio
2006 655.99 20.79 31.54
2007 345.82 187.19 1.85
2008 515.11 187.19 2.75
2009 377.54 187.19 2.02
2010 783.40 187.19 4.19
Average 8.47
Interpretation
In the year of 2006 the reserve and surplus to capital ratio is 31.54, in the year of 2010
the ratio is 4.19, in the year of 2008 the ratio is 2.75, in 2009 the ratio is 2.02, in 2007 the
ratio is 1.85
The reserves & surplus is decreased in the year 2009, due to the payment of dividends
and in the year 2010 the profit is increased. But the capital is remaining constant from the
year 2007. So the increase in the reserves & surplus caused a greater increase in the
current year’s ratio compared with the older.
51
Chart No. 4.12 RESERVE & SURPLUS TO CAPITAL RATIO
2006 2007 2008 2009 20100
5
10
15
20
25
30
3531.54
1.85 2.75 2.024.19
Ratios
Years
Ratio
s
52
4.13. RETURN ON INVESTMENT
The below table showing the return on investment ratio for the period of five years
Table No: 4.13
Return on investment ratio (Rs. In ‘000)
Year Net Profit After Tax Share Holders Fund Ratio
2006 211.23 676.79 0.31
2007 161.25 533.01 0.3
2008 169.29 702.31 0.24
2009 182.59 564.73 0.32
2010 405.86 970.60 0.42
Average 0.32
Interpretation
In the year of 2010 the return on investment ratio is 0.42, in 2009 the ratio is 0.32, in
2006 the ratio is 0.31, in 2007 the ratio is 0.30, in 2008 the return on investment ratio is
0.24
53
Chart No: 4.13 RETURN ON INVESTMENT
2006 2007 2008 2009 20100
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.310000000000002 0.3
0.24
0.320000000000002
0.42
Ratios
Years
Ratio
s
54
4.14 GROSS PROFIT RATIO
The below table showing the gross profit ratio for the period of five years.
Table No: 4.14
Gross profit Ratio (Rs. In ‘000)
Year Gross profit Net sales Ratio
2006 360.94 363.09 0.99
2007 275.76 538.99 0.51
2008 295.40 727.28 0.41
2009 315.86 555.50 0.56
2010 671.92 966.54 0.69
Average 0.63
Interpretation
In the year of 2006 the gross profit ratio is 0.99, in the year of 2010 the ratio is 0.69, in 2009 the ratio is 0.56, in 2007 the ratio is 0.51 and in the year of 2008 the gross profit ratio is 0.41
55
Chart No: 4.14 GROSS PROFIT RATIO
2006 2007 2008 2009 20100
0.2
0.4
0.6
0.8
1
1.2
0.99
0.51
0.41
0.56
0.690000000000001
Series 1
Years
Ratio
s
56
4.15 OPERATING COST RATIO
The below table showing that the operating cost Ratio for the period of five years.
Table No: 4.15
Operating cost Ratio (Rs. In ‘000)
Year Operating cost Net sales Ratio
2006 181.93 363.09 0.50
2007 234.51 538.99 0.43
2008 253.80 727.28 0.34
2009 26249 555.50 0.47
2010 318.60 966.54 0.32
Average 0.41
Interpretation
In the year of 2006, the operating cost ratio is 0.50, in 2009 the ratio is 0.47, in 2007 the ratio is 0.43, in 2008 the ratio is 0.34 and in the year of 2010 the operating cost ratio is 0.32
57
Chart No: 4.15 Operating cost Ratio
2006 2007 2008 2009 20100
0.1
0.2
0.3
0.4
0.5
0.6
0.5
0.43
0.34
0.47
0.320000000000002
Ratio
Years
Ratio
s
58
4.16 RETURN ON GROSS CAPITAL EMPLOYED
The below table showing that the ratio of return on grass capital employed for the period
of five years.
Table No: 4.16
Return on Gross Capital Employed (Rs. In ‘000)
Years Adjusted net profit Gross capital employed Ratio
2006 211.23 371.75 0.56
2007 161.25 533.01 0.30
2008 169.29 702.31 0.24
2009 182.59 564.73 0.32
2010 405.86 970.60 0.41
Average 0.37
Interpretation
In the year of 2006, the ratio of return on gross capital employed is 0.56, in 2010 the ratio
is 0.41, in 2009 the ratio is 0.32, in 2007 the ratio is 0.30, in 2008 the ratio is 0.24
59
Chart No: 4.16 RETURN ON GROSS CAPITAL EMPLOYED
2006 2007 2008 2009 20100
0.1
0.2
0.3
0.4
0.5
0.6 0.56
0.3
0.24
0.320000000000002
0.41
Ratio
years
Ratio
s
60
4.17 EXPENSE RATIO
The below table showing that the expense ratio for the period of five years.
Table No: 4.17
Expense Ratio (Rs. In ‘000)
Year Expenses Net sales Ratio
2006 181.93 363.09 0.50
2007 234.51 538.99 0.43
2008 253.80 727.28 0.34
2009 262.49 555.50 0.47
2010 318.60 966.54 0.32
Average 0.41
Interpretation
In the year of 2006, the expense ratio is 0.50, in 2009 the ratio is 0.47, in 2007 the ratio is 0.43, in 2008 the ratio is 0.34 and in the year of 2010 the expense ratio is 0.32
61
Chart No: 4.17 EXPENSE RATIO
2006 2007 2008 2009 20100
0.1
0.2
0.3
0.4
0.5
0.6
0.5
0.43
0.34
0.47
0.320000000000002
Ratio
years
Ratio
s
62
4.18 RATIO OF CURRENT LIABILITIES TO PROPRIETORS FUND
The below table showing that the ratio of current liabilities to proprietors fund for the
period of five years.
Table No: 4.18
Ratio of current liabilities to proprietors fund (Rs. In ‘000)
Years Current liabilities Share holders fund Ratio
2006 79.03 676.79 0.11
2007 318.84 533.01 0.59
2008 160.65 702.31 0.22
2009 471.17 564.73 0.83
2010 302.66 970.60 0.31
Average 0.41
Interpretation
In the year of 2009 the current liabilities to proprietors fund is 0.83, in 2007 the ratio is
0.59, in 2010 the ratio is 0.31, in 2008 the ratio is 0.22, in 2006 the ratio is 0.11.
63
Chart No: 4.18 RATIO OF CURRENT LIABILITIES TO PROPRIETORS FUND
2006 2007 2008 2009 20100
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0.11
0.59
0.22
0.830000000000001
0.310000000000002 Ratio
Years
Ratio
s
64
4.19. RATIO OF CURRENT ASSETS TO PROPRIETORS FUND
The below table showing that the ratio of current assets to proprietors fund for the period
of five years.
Table No: 4.19
Ratio of Current Assets to Proprietors Fund (Rs. In ‘000)
Years Current assets Share holders fund Ratio
2006 585.74 676.79 0.86
2007 697.65 533.01 1.3
2008 720.21 702.31 1.02
2009 913.28 564.73 1.61
2010 1156.42 970.60 1.19
Average 1.2
Interpretation
In the year of 2009 the ratio of current assets to proprietors fund is 1.6, in 2007 the ratio
is 1.3, in 2010 the ratio is 1.19, in 2008 the ratio is 1.02, in 2006 the ratio is 0.86.
65
Chart No. 4.19 RATIO OF CURRENT ASSETS TO PROPRIETORS FUND
2006 2007 2008 2009 20100
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
0.860000000000001
1.3
1.02
1.61
1.19000000000001
Ratio
Years
Ratio
s
66
4.2. CORRELATION
4.20. Testing of relationship between net profit vs. Net sales.
The relationship between Net profit vs. Net sales is showing in the following table.
Ho: There is no relationship between Net sales vs. Net profit.
H1: There is relationship between Net sales vs. Net profit.
Year Net profit Net sales
2006 211234 360398
2007 161259 538990
2008 169292 727287
2009 182596 555506
2010 405864 966549
Results:
Correlation= 0.73
INTERPRETATION
Based on the above analysis the correlation result is 0.73 there for null hypothesis is
accepted and alternative hypothesis was rejected. Hence, it has proven that there will be
no significant relationship between profit and sales
67
4.21. Testing of relationship between net sales vs. Total assets
The relationship between net sales vs. total assets is showing in the following table.
Ho: there is no relationship between net sales vs. total assets
H1: there is relationship between Net sales Vs. Total Assets
Year Net sales Total Assets
2006 360398 785721
2007 538990 884381
2008 727287 891583
2009 555506 1063852
2010 966549 1298051
Results:
Correlation = 0.83
INTERPRETATION
Based on the above analysis the correlation result is 0.83 there for null hypothesis is
accepted and alternative hypothesis was rejected. Hence, it has proven that there will be
no significant relationship between assets and sales
68
4.22. Testing of relationship between net sales vs. Gross profit
The relationship between Net sales Vs. Gross Profit is showing in the following table.
Ho: there is no relationship between Net sales vs. Gross Profit
H1: there is relationship between Net sales Vs. Gross Profit
Year Net Sales Gross profit
2006 360398 360948
2007 538990 275768
2008 727287 295405
2009 555506 315867
2010 966549 671926
Results:
Correlation= 0.72
INTERPRETATION
Based on the above analysis the correlation result is 0.72 there for null hypothesis is
accepted and alternative hypothesis was rejected. Hence, it has proven that there will be
no significant relationship between gross profit and sales
69
4.23. Testing of relationship between net sales vs. Current assets
The relationship between Net sales Vs. Current Assets is showing in the following table.
Ho: There is no relationship between Net sales Vs. Current Assets.
H1: There is relationship between Net Sales Vs. Current Assets
Year Net Sales Current assets
2006 360398 585741
2007 538990 697653
2008 727287 720210
2009 555506 913282
2010 966549 1156420
Results:
Correlation= 0.83
INTERPRETATION
Based on the above analysis the correlation result is 0.83 there for null hypothesis is
accepted and alternative hypothesis was rejected. Hence, it has proven that there will be
no significant relationship between current assets and sales
70
4.24. Testing of relationship between net profit vs. Working capital
The relationship between Net profit Vs. Working capital is showing in the following
table.
Ho: There is no relationship between Net profit Vs. Working capital
H1: There is relationship between Net profit Vs. working Capital.
Year Net Profit Working Capital
2006 211234 506701
2007 161259 378807
2008 169292 553554
2009 182596 442111
2010 405864 853754
Results:
Correlation= 0.94
INTERPRETATION
Based on the above analysis the correlation result is 0.94 there for null hypothesis is
accepted and alternative hypothesis was rejected. Hence, it has proven that there will be
no significant relationship between working capital and Net Proft
71
4.25. Testing of relationship between net profit vs. Total assets
The relationship between Net profit Vs. Total assets is showing in the following table.
Ho: There is no relationship between Net profit Vs. Total Assets
H1: There is relationship between net profits Vs. total assets
Year Net Profit Total Assets
2006 211234 785721
2007 161259 884381
2008 169292 891583
2009 182596 1063852
2010 405864 1298051
Results:
Correlation= 0.81
INTERPRETATION
Based on the above analysis the correlation result is 0.81 there for null hypothesis is
accepted and alternative hypothesis was rejected. Hence, it has proven that there will be
no significant relationship between net profit and total assets
72
Chapter – V
73
Findings, summary & conclusion
CHAPTER V
FINDINGS, SUMMARY AND CONCLUSION
5.1 FINDINGS OF THE STUDY
1. The current ratio has shown in a fluctuating trend as 7.41, 2.19, 4.48, 1.98, and
3.82 during 2006 of which indicates a continuous increase in both current assets
and current liabilities
2. The quick ratio is also in a fluctuating trend through out the period 2006 – 10
resulting as 7.41, 1.65, 4.35, 1.9, and 3.81. The company’s present liquidity
position is satisfactory.
3. The absolute liquid ratio has been decreased from 3.92 to 1.18, from 2006 – 10.
4. The proprietory ratio has shown a fluctuating trend. The proprietory ratio is
increased compared with the last year. So, the long term solvency of the firm is
increased.
5. The working capital increased from 0.72 to 1.13 in the year 2006 – 10.
74
6. The fixed assets turnover ratio is in increasing trend from the year 2006 – 10
(1.26, 1.82, 4.24, 3.69, and 6.82). It indicates that the company is efficiently
utilizing the fixed assets
7. The capital turnover ratio is increased form 2006 – 08 (0.98, 1.01, and 1.04) and
decreased in 2006 to 0.98. It increased in the current year as .99
8. The current assets to fixed assets ratio is increasing gradually from 2006 – 10 as
2.93, 3.74, 4.20, 6.07 and 8.17. It shows that the current assets are increased
than fixed assets.
9. The net profit ratio is in fluctuation manner. It increased in the current year
compared with the previous year form 0.33 to 0.42.
10. The net profit is increased greaterly in the current year. So the return on total
assets ratio is increased from 0.17 to 0.31.
11. The Reserves and Surplus to Capital ratio is increased to 4.19 from 2.02. The
capital is constant, but the reserves and surplus is increased in the current year
12. The earnings per share was very high in the year 2006 i.e., 101.56. That is
decreased in the following years because number of equity shares are increased
and the net profit is decreased. In the current year the net profit is increased due
to the increase in operating and maintenance fee. So the earnings per share is
increased
13. The operating profit ratio is in fluctuating manner as 0.99, 0.51, 0.41, 0.57 and
0.69 from 2006 – 10 respectively.
14. Price Earnings ratio is reduced when compared with the last year. It is reduced
from 3.09 to 2.39, because the earnings per share is increased.
15. The return on investment is increased from 0.32 to 0.42 compared with the
previous year. Both the profit and shareholders funds increase cause an increase
in the ratio.
75
5.2 SUMMARY
1. After the analysis of Financial Statements, the company status is better, because
the Net working capital of the company is doubled from the last year’s position.
2. The company profits are huge in the current year; it is better to declare the
dividend to shareholders.
3. The company is utilising the fixed assets, which majorly help to the growth of the
organisation. The company should maintain that perfectly.
4. The company fixed deposits are raised from the inception, it gives the other
income i.e., Interest on fixed deposits.
76
5.3 CONCLUSION
The company’s overall position is at a good position. Particularly the current year’s
position is well due to raise in the profit level from the last year position. It is better for
the organization to diversify the funds to different sectors in the present market scenario.
77