“Financial Analysis of Aplab Ltd.”

7/28/2019 Financial Analysis of Aplab Ltd.

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Mangalmay Institute of Management Studies, Greater Noida Page 1

A

Project Report On

Financial Analysis of Aplab Ltd.

Submitted to

In partial fulfillment for the course of

Post Graduate Diploma in Management

Under the Supervision of: Submitted By:Dr.ANSHUL SHARMA DURGESH MANI PATHAKFaculty & Guide at MIMS Batch PGDM (2009-11)

Roll No. 0911101020

Mangalmay Institute of Management Studies

Greater Noida


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TO WHOM SO EVER IT MAY CONCERN

This is to certify that the Summer Project Study Report, Titled

Financial Analysis of Ablab Ltd. submitted by Mr. Durgesh Mani

Pathak. as partial fulfillment of requirement of the two year PGDM

course is a bonafide work carried out by the student at our Institute.

This Final Project Study is his/her original work and has not been

submitted to any other University/Institute.

Project Mentor

Dr.Anshul SharmaDate:


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DECLARATION

I hereby declare that this project on Financial Analysis of Aplab Ltd. has

been prepared by me during the year 2010-2011 as a partial fulfillment of

PGDM course of Institute of Mangalmay Institute of Management Studies,

Gr. Noida. This Final project report has not been submitted to any other

university or institution for award of any degree or diploma so far.

Signature of the Student

Durgesh Mani Pathak

Roll No. 0911101020


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ACKNOWLEDGEMENT

It is my pleasure to extend my deep gratitude to Dr.Anshul Sharma.,

Faculty Guide, Mangalmay Institute of Management Studies, Gr. Noida,

for the help, cooperation and guidance received from him throughout the

tenure of this project.

I would like to take this opportunity to thank all other faculty members at

Mangalmay Institute of Management Studies, Gr. Noida, U.P, for their

cooperation.

I am grateful to Mr. R.P.Patil., Branch Manager , for there guidance and

help in this project. Their valuable and constructive suggestions at many

difficult situations are immensely acknowledged.

Finally I would like to thank all the staff of Aplab ltd, Delhi Branch,

Who helped me complete my project successfully.

DURGESH MANI PATHAK

MIMS,Gr. Noida


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PREFACE

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

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

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

relationships between individual values and relate them to how a company has

performed in the past, and might perform in the future.

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

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

both in trend and static analysis. There are several ratios at the disposal of an annalist

but their group of ratio he would prefer depends on the purpose and the objective of

analysis.

However, you must be careful not to place too much importance on one ratio. You

obtain a better indication of the direction in which a company is moving when several

ratios are taken as a group.


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TABLE OF CONTENTS

TOPIC PAGE

SECTION 1: INTRODUCTION

1.1 Research Methodology 7

1.2 Objective 8

SECTION 2: RATIO ANALYSIS

2.1 Meaning Of Ratio Analysis 9

2.2 Types Of Ratio Analysis 10-30

2.3 Role Of Ratio Analysis 31-36

SECTION 3 COMPANY PROFILE

3.1 About Company 37-44

3.2 Balance Sheet @ P&L Statement 45-52

SECTION 4: RATIO ANALYSIS OF COMPANY 53-72

SECTION 5: FINDINGS 73-74

SECTION 6: CONCLUSION 75

SECTION 7: BIBLIOGRAPHY 76


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RESEARCH METHODOLOGY

TYPE OF RESEARCH

In analytical research, the researcher has to use facts and information which is already

available to analyze and make a critical evaluation of the material. The study

conducted is a conclusive descriptive statistical study because after doing the study

the researcher comes to a conclusion regarding the position of the Company, its

viability, profitability etc... The study is statistical because throughout the study

percentage and ratio analysis is done to interpret the financial position of the

company.

RESEARCH TOOLS

Books of financial management

Information from Internet

Observation

Discussion

TECHNIQUES

Primary Data

The financial data was taken from the audited balance sheet.

Secondary Data

It was collected from the P&L A/c, balance sheet, reference books based on

financial management & management accounting. The various books and internet

helped in understanding the various theoretical concepts associated with the project

such as the significance of Cash flow Management & the way to interpret various

funds. All the figures required to carry out the ratio analysis were gathered from

financial statements such as P&L A/c, Balance sheet of the company. It is analyzed by

comparing ratios, percentage change from past year and is presented in the form of

pie chart, bar etcto make it understandable.


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INTRODUCTION

OBJECTIVE:

To understand the information contained in financial statements with a view to know

the strength or weaknesses of the firm and to make forecast about the future prospects

of the firm and thereby enabling the financial analyst to take different decisions

regarding the operations of the firm.

RATIO ANALYSIS:

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

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

factors (quantitative). This means crunching and analyzing numbers from the

financial statements. If used in conjunction with other methods, quantitative analysis

can produce excellent result.

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

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

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

relationships between individual values and relate them to how a company has

performed in the past, and might perform in the future.

MEANING OF RATIO:

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

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

mutually interdependent. Ratio is express by dividing one figure by the other related

figure. Thus a ratio is an expression relating one number to another. It is simply the

quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure

ratio or in absolute figures as somany times. As accounting ratio is an expression

relating two figures or accounts or two sets of account heads or group contain in the

financial statements.


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MEANING OF RATIO ANALYSIS:

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

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

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

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

both in trend and static analysis. There are several ratios at the disposal of an annalist

but their group of ratio he would prefer depends on the purpose and the objective of

analysis.

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

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

investment analysis tool.

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

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

provide valuable information about a company's financial health. A financial ratio

measures a company's performance in a specific area. For example, you could use a

ratio of a company's debt to its equity to measure a company's leverage. By

comparing the leverage ratios of two companies, you can determine which company

uses greater debt in the conduct of its business. A company whose leverage ratio is

higher than a competitor's has more debt per equity. You can use this information to

make a judgment as to which company is a better investment risk.

However, you must be careful not to place too much importance on one ratio. You

obtain a better indication of the direction in which a company is moving when several

ratios are taken as a group.


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OBJECTIVE OF RATIOS

Ratio is work out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate

B) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

FORMS OF RATIO:

Since a ratio is a mathematical relationship between to or more variables / accounting

figures, such relationship can be expressed in different ways as follows

A] As a pure ratio:

For example the equity share capital of a company is Rs. 20,00,000 & the preference

share capital is Rs. 5,00,000, the ratio of equity share capital to preference share

capital is 20,00,000: 5,00,000 or simply 4:1.

B] As a rate of times:

In the above case the equity share capital may also be described as 4 times that of

preference share capital. Similarly, the cash sales of a firm are

Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales

can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit

sales are 2.5 times that of cash sales.


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C] As a percentage:

In such a case, one item may be expressed as a percentage of some other item. For

example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs.

10,00,000, then the gross profit may be described as 20% of sales [

10,00,000/50,00,000]

STEPS IN RATIO ANALYSIS

The ratio analysis requires two steps as follows:

1] Calculation of ratio

2] Comparing the ratio with some predetermined standards. The standard ratio may be

the past ratio of the same firm or industrys average ratio or a projected ratio or the

ratio of the most successful firm in the industry. In interpreting the ratio of a particular

firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is

compared with some predetermined standard. The importance of a correct standard is

oblivious as the conclusion is going to be based on the standard itself.

TYPES OF COMPARISONS

The ratio can be compared in three different ways

1] Cross section analysis:

One of the way of comparing the ratio or ratios of the firm is to compare them with

the ratio or ratios of some other selected firm in the same industry at the same point oftime. So it involves the comparison of two or more firms financial ratio at the same

point of time. The cross section analysis helps the analyst to find out as to how a

particular firm has performed in relation to its competitors. The firms performance

may be compared with the performance of the leader in the industry in order to

uncover the major operational inefficiencies. The cross section analysis is easy to be

undertaken as most of the data required for this may be available in financial

statement of the firm.


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2] Time series analysis:

The analysis is called Time series analysis when the performance of a firm is

evaluated over a period of time. By comparing the present performance of a firm with

the performance of the same firm over the last few years, an assessment can be made

about the trend in progress of the firm, about the direction of progress of the firm.

Time series analysis helps to the firm to assess whether the firm is approaching the

long-term goals or not. The Time series analysis looks for (1) important trends in

financial performance (2) shift in trend over the years (3) significant deviation if any

from the other set of data\

3] Combined analysis:

If the cross section & time analysis, both are combined together to study the behavior

& pattern of ratio, then meaningful & comprehensive evaluation of the performance

of the firm can definitely be made. A trend of ratio of a firm compared with the trend

of the ratio of the standard firm can give good results. For example, the ratio of

operating expenses to net sales for firm may be higher than the industry average

however, over the years it has been declining for the firm, whereas the industry

average has not shown any significant changes.

.


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PRE-REQUISITIES TO RATIO ANALYSIS

In order to use the ratio analysis as device to make purposeful conclusions, there are

certain pre-requisites, which must be taken care of. It may be noted that these

prerequisites are not conditions for calculations for meaningful conclusions. The

accounting figures are inactive in them & can be used for any ratio but meaningful &

correct interpretation & conclusion can be arrived at only if the following points are

well considered.

1) The dates of different financial statements from where data is taken must be

same.

2) If possible, only audited financial statements should be considered, otherwise

there must be sufficient evidence that the data is correct.

3) Accounting policies followed by different firms must be same in case of cross

section analysis otherwise the results of the ratio analysis would be distorted.

4) One ratio may not throw light on any performance of the firm. Therefore, a

group of ratios must be preferred. This will be conductive to counter checks.

5) Last but not least, the analyst must find out that the two figures being used to

calculate a ratio must be related to each other, otherwise there is no purpose of

calculating a ratio.


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CLASSIFICATION OF RATIO

CLASSIFICATION OF RATIO

BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER

STATEMENT

1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR

RATIO 2] LEVERAGE RATIO SHORT TERM

2] REVENUE 3] ACTIVITY RATIO CREDITORS

STATEMENT 4] PROFITABILITY 2] RATIO FOR

RATIO RATIO SHAREHOLDER

3] COMPOSITE 5] COVERAGE 3] RATIOS FOR

RATIO RATIO MANAGEMENT

4] RATIO FOR

LONG TERM

CREDITORS


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BASED ON FINANCIAL STATEMENT

Accounting ratios express the relationship between figures taken from financial

statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way

of classification of ratios is based upon the sources from which are taken.

1] Balance sheet ratio:

If the ratios are based on the figures of balance sheet, they are called Balance Sheet

Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While

calculating these ratios, there is no need to refer to the Revenue statement. These

ratios study the relationship between the assets & the liabilities, of the concern. These

ratio help to judge the liquidity, solvency & capital structure of the concern. Balance

sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio,

Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio:

Ratio based on the figures from the revenue statement is called revenue statement

ratios. These ratio study the relationship between the profitability & the sales of the

concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net

profit ratio, Net operating profit ratio, Stock turnover ratio.

3] Composite ratio:

These ratios indicate the relationship between two items, of which one is found in the

balance sheet & other in revenue statement.

There are two types of composite ratios-

a) Some composite ratios study the relationship between the profits & the

investments of the concern. E.g. return on capital employed, return on

proprietors fund, return on equity capital etc.

b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios,

dividend payout ratios, & debt service ratios


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BASED ON FUNCTION:

Accounting ratios can also be classified according to their functions in to liquidity

ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios:

It shows the relationship between the current assets & current liabilities of the concern

e.g. liquid ratios & current ratios.

2] Leverage ratios:

It shows the relationship between proprietors funds & debts used in financing the

assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory

ratios.

3] Activity ratios:

It shows relationship between the sales & the assets. It is also known as Turnover

ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios.

4] Profitability ratios:

a) It shows the relationship between profits & sales e.g. operating ratios, gross

profit ratios, operating net profit ratios, expenses ratios

b) It shows the relationship between profit & investment e.g. return on

investment, return on equity capital.

5] Coverage ratios:

It shows the relationship between the profit on the one hand & the claims of the

outsiders to be paid out of such profit e.g. dividend payout ratios & debt service

ratios.


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BASED ON USER:

1] Ratios for short-term creditors:

Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:

Return on proprietors fund, return on equity capital

3] Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses ratios

4] Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratios.


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LIQUIDITY RATIO: -

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year)

obligations. The ratios, which indicate the liquidity of a company, are Current ratio,

Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below


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CURRENT RATIO

Meaning:

This ratio compares the current assets with the current liabilities. It is also known as

working capital ratio or solvencyratio. It is expressed in the form of pure ratio.

E.g. 2:1

Formula:

Current assets

Current ratio =

Current liabilities

The current assests of a firm represents those assets which can be, in the ordinary

course of business, converted into cash within a short period time, normally not

exceeding one year. The current liabilities defined as liabilities which are short term

maturing obligations to be met, as originally contemplated, with in a year.

Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities

(CL). Current assets include cash and bank balances; inventory of raw materials,

semi-finished and finished goods; marketable securities; debtors (net of provision for

bad and doubtful debts); bills receivable; and prepaid expenses. Current liabilities

consist of trade creditors, bills payable, bank credit, provision for taxation, dividends

payable and outstanding expenses. This ratio measures the liquidity of the current

assets and the ability of a company to meet its short-term debt obligation.

CR measures the ability of the company to meet its CL, i.e., CA gets converted into

cash in the operating cycle of the firm and provides the funds needed to pay for CL.

The higher the current ratio, the greater the short-term solvency. This compares

assets, which will become liquid within approximately twelve months with liabilities,

which will be due for payment in the same period and is intended to indicate whether

there are sufficient short-term assets to meet the short- term liabilities. Recommended

current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity

problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is

under utilizing its current assets.


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LIQUID RATIO:

Meaning:

Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the

quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g.

1:1.

The term quick assets refer to current assets, which can be converted into, cash

immediately or at a short notice without diminution of value.

Formula:

Quick assets

Liquid ratio =

Quick liabilities

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to

those current assets that can be converted into cash immediately without any value

strength. QA includes cash and bank balances, short-term marketable securities, and

sundry debtors. Inventory and prepaid expenses are excluded since these cannot be

turned into cash as and when required.

QR indicates the extent to which a company can pay its current liabilities without

relying on the sale of inventory. This is a fairly stringent measure of liquidity because

it is based on those current assets, which are highly liquid. Inventories are excluded

from the numerator of this ratio because they are deemed the least liquid componentof current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of

the quick ratio is that it ignores the timing of receipts and payments.


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CASH RATIO

Meaning:

This is also called as super quick ratio. This ratio considers only the absolute liquidity

available with the firm.

Formula:

Cash + Bank + Marketable securities

Cash ratio =

Total current liabilities

Since cash and bank balances and short term marketable securities are the most liquid

assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are

too much in relation to the current liabilities then it may affect the profitability of the

firm.

INVESTMENT / SHAREHOLDER


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EARNING PER SAHRE:-

Meaning:

Earnings per Share are calculated to find out overall profitability of the organization.

Earnings per Share represent earning of the company whether or not dividends are

declared. If there is only one class of shares, the earning per share are determined by

dividing net profit by the number of equity shares.

EPS measures the profits available to the equity shareholders on each share held.

Formula:

NPAT

Earning per share =

Number of equity share

The higher EPS will attract more investors to acquire shares in the company as it

indicates that the business is more profitable enough to pay the dividends in time. But

remember not all profit earned is going to be distributed as dividends the company

also retains some profits for the business

DIVIDEND PER SHARE:-

Meaning:

DPS shows how much is paid as dividend to the shareholders on each share held.

Formula:

Dividend Paid to Ordinary Shareholders

Dividend per Share =

Number of Ordinary Shares


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DIVIDEND PAYOUT RATIO:-

Meaning:

Dividend Pay-out Ratio shows the relationship between the dividend paid to equity

shareholders out of the profit available to the equity shareholders.

Formula:

Dividend per share

Dividend Pay out ratio = *100Earning per share

D/P ratio shows the percentage share of net profits after taxes and after preference

dividend has been paid to the preference equity holders.

GEARING


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CAPITAL GEARING RATIO:-

Meaning:

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

use of debt. Equity shareholders earn more when the rate of the return on total capitalis more than the rate of interest on debts. This is also known as leverage or trading on

equity. The Capital-gearing ratio shows the relationship between two types of capital

viz: - equity capital & preference capital & long term borrowings. It is expressed as a

pure ratio.

Formula:

Preference capital+ secured loan

Capital gearing ratio =

Equity capital & reserve & surplus

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

assets of a concern.

PROFITABILITY

These ratios help measure the profitability of a firm. A firm, which generates a

substantial amount of profits per rupee of sales, can comfortably meet its operating

expenses and provide more returns to its shareholders. The relationship between profit

and sales is measured by profitability ratios. There are two types of profitability

ratios: Gross Profit Margin and Net Profit Margin.


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GROSS PROFIT RATIO:-

Meaning:

This ratio measures the relationship between gross profit and sales. It is defined as the

excess of the net sales over cost of goods sold or excess of revenue over cost. This

ratio shows the profit that remains after the manufacturing costs have been met. It

measures the efficiency of production as well as pricing. This ratio helps to judge how

efficient the concern is I managing its production, purchase, selling & inventory, how

good its control is over the direct cost, how productive the concern , how much

amount is left to meet other expenses & earn net profit.

Formula:

Gross profit

Gross profit ratio = * 100

Net sales

NET PROFIT RATIO:-

Meaning:

Net Profit ratio indicates the relationship between the net profit & the sales it is

usually expressed in the form of a percentage.

Formula:

NPAT

Net profit ratio = * 100

Net sales

This ratio shows the net earnings (to be distributed to both equity and preference

shareholders) as a percentage of net sales. It measures the overall efficiency of

production, administration, selling, financing, pricing and tax management. Jointly

considered, the gross and net profit margin ratios provide an understanding of the cost

and profit structure of a firm.


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RETURN ON CAPITAL EMPLOYED:-

Meaning:

The profitability of the firm can also be analyzed from the point of view of the total

funds employed in the firm. The term fund employed or the capital employed refers to

the total long-term source of funds. It means that the capital employed comprises of

shareholder funds plus long-term debts. Alternatively it can also be defined as fixed

assets plus net working capital.

Capital employed refers to the long-term funds invested by the creditors and the

owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE

indicates the efficiency with which the long-term funds of a firm are utilized.

Formula:

NPAT

Return on capital employed = *100

Capital employed

FINANCIAL

These ratios determine how quickly certain current assets can be converted into cash.

They are also called efficiency ratios or asset utilization ratios as they measure the

efficiency of a firm in managing assets. These ratios are based on the relationship

between the level of activity represented by sales or cost of goods sold and levels of

investment in various assets. The important turnover ratios are debtors turnover ratio,

average collection period, inventory/stock turnover ratio, fixed assets turnover ratio,

and total assets turnover ratio. These are described below:


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DEBTORS TURNOVER RATIO (DTO)

Meaning:

DTO is calculated by dividing the net credit sales by average debtors outstanding

during the year. It measures the liquidity of a firm's debts. Net credit sales are the

gross credit sales minus returns, if any, from customers. Average debtors are the

average of debtors at the beginning and at the end of the year. This ratio shows how

rapidly debts are collected. The higher the DTO, the better it is for the organization.

Formula:

Credit sales

Debtors turnover ratio =

Average debtors

INVENTORY OR STOCK TURNOVER RATIO (ITR)

Meaning:

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

accounting period.

Formula:

COGS

Stock Turnover Ratio =

Average stock

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

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

turnover may also result from a low level of inventory, which may lead to frequent

stock outs and loss of sales and customer goodwill. For calculating ITR, the average

of inventories at the beginning and the end of the year is taken. In general, averages

may be used when a flow figure (in this case, cost of goods sold) is related to a stock

figure (inventories).


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FIXED ASSETS TURNOVER (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed assets.

Formula:

Net sales

Fixed assets turnover =

Net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high ratio

indicates a high degree of efficiency in asset utilization while a low ratio reflects an

inefficient use of assets. However, this ratio should be used with caution because

when the fixed assets of a firm are old and substantially depreciated, the fixed assets

turnover ratio tends to be high (because the denominator of the ratio is very low).

PROPRIETORS RATIO:

Meaning:

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

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

solvency of the company.

In other words, Proprietary ratio determines as to what extent the owners interest &

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

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

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

Formula:

Proprietary fundProprietary ratio = OR

Total fund

Shareholders fund

Proprietary ratio =

Fixed assets + current liabilities


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STOCK WORKING CAPITAL RATIO:

Meaning:

This ratio shows the relationship between the closing stock & the working capital. It

helps to judge the quantum of inventories in relation to the working capital of thebusiness. The purpose of this ratio is to show the extent to which working capital is

blocked in inventories. The ratio highlights the predominance of stocks in the current

financial position of the company. It is expressed as a percentage.

Formula:

Stock

Stock working capital ratio =

Working Capital

Stock working capital ratio is a liquidity ratio. It indicates the composition & quality

of the working capital. This ratio also helps to study the solvency of a concern. It is a

qualitative test of solvency. It shows the extent of funds blocked in stock. If

investment in stock is higher it means that the amount of liquid assets is lower.

DEBT EQUITY RATIO:

Meaning:

This ratio compares the long-term debts with shareholders fund. The relationship

between borrowed funds & owners capital is a popular measure of the long term

financial solvency of a firm. This relationship is shown by debt equity ratio.

Alternatively, this ratio indicates the relative proportion of debt & equity in financing

the assets of the firm. It is usually expressed as a pure ratio. E.g. 2:1

Formula:Total long-term debt

Debt equity ratio =

Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means the process of the

increasing the equity shareholders return through the use of debt. Leverage is also

known as gearing or trading on equity. Debt equity ratio shows the margin of

safety for long-term creditors & the balance between debt & equity.


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RETURN ON PROPRIETOR FUND:

Meaning:

Return on proprietors fund is also known as return on proprietors equity or returnon shareholders investment or investment ratio. This ratio indicates the relationship

between net profit earned & total proprietors funds. Return on proprietors fund is a

profitability ratio, which the relationship between profit & investment by the

proprietors in the concern. Its purpose is to measure the rate of return on the total fund

made available by the owners. This ratio helps to judge how efficient the concern is in

managing the owners fund at disposal. This ratio is of practical importance to

prospective investors & shareholders.

Formula:

NPAT

Return on proprietors fund = * 100

Proprietors fund

CREDITORS TURNOVER RATIO:

It is same as debtors turnover ratio. It shows the speed at which payments are made to

the supplier for purchase made from them. It is a relation between net credit purchase

and average creditors

Net credit purchase

Credit turnover ratio =

Average creditors

Months in a year

Average age of accounts payable =Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher creditors

turnover ratio or a lower credit period enjoyed signifies that the creditors are being

paid promptly. It enhances credit worthiness of the company. A very low ratio

indicates that the company is not taking full benefit of the credit period allowed by the

creditors.


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IMPORTANCE OF RATIO ANALYSIS

As a tool of financial management, ratios are of crucial significance. The importance

of ratio analysis lies in the fact that it presents facts on a comparative basis & enables

the drawing of interference regarding the performance of a firm. Ratio analysis is

relevant in assessing the performance of a firm in respect of the following aspects:

1] Liquidity position,

2] Long-term solvency,

3] Operating efficiency,

4] Overall profitability,

5] Inter firm comparison6] Trend analysis.

1] LIQUIDITY POSITION: -

With the help of Ratio analysis conclusion can be drawn regarding the liquidity

position of a firm. The liquidity position of a firm would be satisfactory if it is able to

meet its current obligation when they become due. A firm can be said to have the

ability to meet its short-term liabilities if it has sufficient liquid funds to pay theinterest on its short maturing debt usually within a year as well as to repay the

principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio are

particularly useful in credit analysis by bank & other suppliers of short term loans.

2] LONG TERM SOLVENCY: -

Ratio analysis is equally useful for assessing the long-term financial viability of a

firm. This respect of the financial position of a borrower is of concern to the long-term creditors, security analyst & the present & potential owners of a business. The

long-term solvency is measured by the leverage/ capital structure & profitability ratio

Ratio analysis s that focus on earning power & operating efficiency.

Ratio analysis reveals the strength & weaknesses of a firm in this respect. The

leverage ratios, for instance, will indicate whether a firm has a reasonable proportion

of various sources of finance or if it is heavily loaded with debt in which case its

solvency is exposed to serious strain.


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3] OPERATING EFFICIENCY:

Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint

of management, is that it throws light on the degree of efficiency in management &

utilization of its assets. The various activity ratios measures this kind of operational

efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon

the sales revenues generated by the use of its assets- total as well as its components.

4] OVERALL PROFITABILITY:

Unlike the outsides parties, which are interested in one aspect of the financial position

of a firm, the management is constantly concerned about overall profitability of theenterprise. That is, they are concerned about the ability of the firm to meets its short

term as well as long term obligations to its creditors, to ensure a reasonable return to

its owners & secure optimum utilization of the assets of the firm. This is possible if an

integrated view is taken & all the ratios are considered together.

5] INTERFIRM COMPARISON:

Ratio analysis not only throws light on the financial position of firm but also serves as

a stepping-stone to remedial measures. This is made possible due to inter firm

comparison & comparison with the industry averages. A single figure of a particular

ratio is meaningless unless it is related to some standard or norm. one of the popular

techniques is to compare the ratios of a firm with the industry average. It should be

reasonably expected that the performance of a firm should be in broad conformity

with that of the industry to which it belongs. An inter firm comparison would

demonstrate the firms position vice-versa its competitors. If the results are at variance

either with the industry average or with the those of the competitors, the firm can seek

to identify the probable reasons & in light, take remedial measures.

6] TREND ANALYSIS:

Finally, ratio analysis enables a firm to take the time dimension into account. In other

words, whether the financial position of a firm is improving or deteriorating over the

years. This is made possible by the use of trend analysis.


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ADVANTAGES OF RATIO ANALYSIS

Financial ratios are essentially concerned with the identification of significant

accounting data relationships, which give the decision-maker insights into the

financial performance of a company. The advantages of ratio analysis can be

summarized as follows:

Ratios facilitate conducting trend analysis, which is important for decision

making and forecasting.

Ratio analysis helps in the assessment of the liquidity, operating

efficiency, profitability and solvency of a firm.

Ratio analysis provides a basis for both intra-firm as well as inter-firm

comparisons.

The comparison of actual ratios with base year ratios or standard ratios

helps the management analyze the financial performance of the firm.

LIMITATIONS OF RATIO ANALYSIS

Ratio analysis has its limitations. These limitations are described below:

1] Information problems

Ratios require quantitative information for analysis but it is not decisive about

analytical output .

The figures in a set of accounts are likely to be at least several months out of

date, and so might not give a proper indication of the companys current

financial position.

Where historical cost convention is used, asset valuations in the balance sheet

could be misleading. Ratios based on this information will not be very useful

for decision-making.


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PURPOSE OF RATIO ANALYSIS:

1] To identify aspects of a businesses performance to aid decision making

2] Quantitative processmay need to be supplemented by qualitative

Factors to get a complete picture.

3] 5 main areas:-

Liquiditythe ability of the firm to pay its way

Investment/shareholdersinformation to enable decisions to be made on the

extent of the risk and the earning potential of a business investment

Gearing information on the relationship between the exposure of the

business to loans as opposed to share capital

Profitabilityhow effective the firm is at generating profits given sales and

or its capital assets

Financial the rate at which the company sells its stock and the efficiency

with which it uses its assets


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ROLE OF RATIO ANALYSIS

It is true that the technique of ratio analysis is not a creative technique in the sense

that it uses the same figure & information, which is already appearing in the financial

statement. At the same time, it is true that what can be achieved by the technique of

ratio analysis cannot be achieved by the mere preparation of financial statement.

Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of

performance, either individually or in relation to those of other firms in the same

industry. The process of this appraisal is not complete until the ratio so computed can

be compared with something, as the ratio all by them do not mean anything. This

comparison may be in the form of intra firm comparison, inter firm comparison orcomparison with standard ratios. Thus proper comparison of ratios may reveal where

a firm is placed as compared with earlier period or in comparison with the other firms

in the same industry.

Ratio analysis is one of the best possible techniques available to the management to

impart the basic functions like planning & control. As the future is closely related to

the immediate past, ratio calculated on the basis of historical financial statements may

be of good assistance to predict the future. Ratio analysis also helps to locate & point

out the various areas, which need the management attention in order to improve the

situation.

As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e.

liquidity, solvency, activity, profitability & overall performance, it enables the

interested persons to know the financial & operational characteristics of an

organisation & take the suitable decision.


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EVALUATION OF APLAB LIMITED THROUGH RATIO

COMPANY PROFILE

APLAB Limited is a professionally managed Public Limited company quoted on theBombay Stock Exchange. Since its inception in 1962, APLAB has been serving the

global market with wide range of electronic products meeting the international

standards for safety and reliability such as UL, VDE etc. They specialize in Test and

Measurement Equipment, Power Conversion and UPS Systems, Self-Service

Terminals for Banking Sector and Fuel Dispensers for Petroleum Sector. APLAB

enjoys worldwide recognition for the quality of its products, business integrity and

innovative engineering skills.


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ABOUT APLAB:

Aplab started its operation in October 1962.

It is a professionally managed 40 years old public limited company.

It is quoted on BOMBAY STOCK EXCHANGE.

It serves customer global customer par excellence.

It specialized in Test & measurement instruments, power conversion, & UPS

& fuel dispensers for petroleum sector.

It enjoys worldwide recognition for the quality of its business integrity &

innovative engineering skills.

MISSION: To deliver high quality, carefully, engineered products, on time, with in

budget, as per the customer specification in a manner profitable to both, our

customers & so to us.

VISION:

To be a global player, recognized for quality & integrity.

To be the TOP INDIAN COMPANY as conceived by our customers.

To be THE BEST company to work for, as rated by our employees.

GOAL:

Goal at Aplab is extract ordinary customer service as we provide our customer

needs in the personal service industry.

CORPORATE MISSION1] To achieve healthy and profitable growth of the company in the interest of our

customers & the shareholders.

2] To encourage teamwork, reward innovation and maintain healthy interpersonal

relations within the organization.

3] To expand knowledge and remain at the leading edge in technology to serve theglobal market.


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4] To understand the customers needs and provide solutions than merely selling

products.

5] To create intellectual capital by investing in hardware and embedded software

development.

VALUES & BELIEFS:

Their values & beliefs required that they -

Treat employees with respect & give them an opportunity for input on how to

continuously improve their service goals. Offer opportunities for growth, professional development & recognition.

Provide most effective & corrective action, to resolve customer service issues,

to ensure customer satisfaction.

Foster an open door policy, which encourages interaction, discussion & ideas

to improve work environment & increase productivity.

Do it right the first time & every time is their team commitment * our way

of doing business, it ensures as growth & prosperity.

THE 21ST

CENTURY SUCCESS

APLAB had planned to enter the 21st Century with a program for a fast and healthy

growth in the global market based on companys high technology foundation and the

reputation of four decades for prompt customer service and as a reliable solution

provider. After completing three years in the new era, we can say with pride that we

have been delivering our promises to our customers and the shareholders.

APLAB has entered the field of Professional Services starting with the Banking and

the Petroleum Industry. Focus on developing embedded system software has been

also enhanced. We believe that professional services sector is poised to grow at a very

rapid pace.


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QUALITY IS OUR WORK CULTURE - ISO 9001:2000

Quality at APLAB is a part of our peoples attitude. Entire organization is committed

to create an environment that encourages individual excellence and a personalcommitment to quality. In APLAB, Quality is everybodys responsibility and all

strive to do it right the first time. It is therefore natural that APLAB Limited is

certified for quality with ISO 9001:2000 registration.

QUALITY POLICY:

Aplab will deliver to its customer products & services that consistently meet

or exceed their requirement.

Aplab will achieve this by total commitment & involvement of every

individual.

Aplab will encourage its employees & suppliers to develop quality products

prevent defects & make continual improvement in all processes.

QUALITY OBJECTIVE:

Aplab is an ISO 9001:2000 certifies company.

100% customer satisfaction.

On time delivery every time reduction is out going PPM to 10,000

[4 sigma]


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RESEARCH AND DEVELOPMENT

Developing innovative products with the latest technology is the core strength of

APLAB. The Science & Technology Ministry of the Govt. of India accredits our

R&D Laboratories. We have a large team of dedicated, highly qualified skilled

engineers who excel in the latest state-of-the-art-technology. APLAB is recognized

not only for manufacturing standard products but also in providing solutions and

services as per the customer specifications. We spend more than 4% of the company

revenue in Research & Development activities.

Specific areas in which the company carries out R&D

1. Development of new product especially hi-tech intelligent product &electronic transaction control system.

2. Improvement in the existing products & production processes, import

substitution.

3. Development of products to suit exports markets.

4. Customizing the products to the customers specifications & adaptation of

imported technology.

The company has achieved its position of leadership in the Indian

instrumentation industry & continuous to maintain it through its strong grip of

technology. Almost all the products manufactured by the company are import

substitution items, which are fully developed in house. It has resulted in considerable

saving of foreign exchange. With the company, R&D is an ongoing process. The

ministry of science & technology, Government of India, recognizes the companys

R&D.

Through a continuous interaction with production& Quality Assurance

Department takes up redesign of existing products. This is done to achieve state of the

art in our design & to bring about improvement to get maximum performance / cost

ratio.


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FUTURE PLAN OF ACTION

Major R&D activity is concentrated around up gradation of product design & re-

alignment of production processes to bring about improved quality at lower cost. This

will greatly help the company in facing competition in local markets from foreign

companies.

EXPORT

APLAB currently exports over 25% of its production to Western Europe, Canada &

USA. Over 30 million U.S. Dollars worth of Power Systems and Test Instruments

from APLAB are today operational in UK, Germany, France, Sweden, Belgium,

Canada, and USA & Australia.


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APLABS ORGANISATION CHART

EXECUTIVE

CHAIRMAN

MANAGING

DIRECTOR

DIRECTOR MAEKETING

[TECHNICAL DIRECTOR

- PE]

GENERAL

MANAGER

FINANCE G.M G.M. MATERIAL G.M. G.M.

MANAGER PROD. MARKETING MANAGER ELTRAC

DESIGN

& PROD. &

DESIGN DEVLOP-

MENT

OFFICERS

STAFF

WORKERS

REGIOAL

HEAD:MUMBAI

NEWDELHI

SECUNDA-

RABADBANGLORE

CHENNAI


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APLAB LIMITED

BALANCE SHEET AS AT 31ST

MARCH 2002(RS.000)

AS AT 31ST 2002 AS AT 31 2002

SOURCES OF FUNDS

SHAREHOLDERS FUND

Share capital 5,00,00

Reserves and surplus 16,29,69

21,29,69

LOANS

Secured 12,13,48

Unsecured 3,67,99

15,81,47

DEFFERED TAX LIABILITY (NET) 1,06,85

TOTAL 38,18,01

APPLICATION OF FUNDS

FIXED ASSETS

Gross block 15,90,33

Less: depreciation 10,32,96

Net block 5,57,37

Capital work in progress 54,36

6,11,73INVESTMENT 1,22,32

CURRENT ASSESTS, LOANS &

ADVANCES

Inventories 19,09,77

Sundary debtors 18,49,35

Cash & bank balances 3,31,32

Loan & advances 5,80,36

46,70,80

CURRENT LIABLITIES &PROVISIONS

Current liabilities 15,36,09

Provisions 57,57

15,93,66

NET CURRENT ASSESTS 30,77,14

MISCELLANEOUS EXPENDITURE 6,84

Total 3818,01


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PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST

MARCH

2002

(RS.000)

AS AT 31-3- 2002 AS AT 31-3-2002

INCOME:

Sales and operating earnings 48,19,19

Other income 80,50

Variation in stock 1,31,07

50,30,76

EXPENCES:

Materials consumed 18,97,28

Purchase of trading goods 8,61,75

Payments to & provision for 9,95,04Employees

Manufacturing expenses 2,21,37

Excise duty 65,05

Other expenses 5,76,71

Interest & finance charges 2,60,22

Depreciation 1,05,37

Less: transferred to revaluation 1,15 1,04,22

49,81,64

PROFIT BEFORE TAX 49,12PRIOR YEAR ADJUSTMENT (NET)

PROVISION FOR TAXATION

Current tax 24,42

Deferred tax liability / (Assets) 4,02

PROFIT AFTER TAX 20,68

Balance brought forward from previous year 1

Balance available for appropriation 20,69

Appropriations:General reserve 20,68

Surplus / (loss) carried to B/S 1

Proposed dividend

Tax on proposed dividend

20,69

Basic earning per share (rupee)

0.41


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MARCH 2003(RS.000)

AS AT 31-3- 2003 AS AT 31-3- 2003

SOURCES OF FUNDS

SHAREHOLDERS FUND



21,55,19

LOANS

Secured 10,27,55

Unsecured 4,53,16

14,80,71

DEFFERED TAX LIABILITY (NET) 87,21

TOTAL 37,23,11


FIXED ASSETS



Net block 6,00,04


6,29,78

INVESTMENT 1,47,26CURRENT ASSESTS, LOANS &

ADVANCES





51,02,42

CURRENT LIABLITIES &

PROVISIONSCurrent liabilities 20,41,56

Provisions 1,20,76

21,62,32


MISCELLANEOUS EXPENDITURE 5,97

TOTAL 37,23,11


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MARCH

2003

(RS.000)

AS AT 31-3- 2003 AS AT 31-3- 2003

INCOME:


Other income 15,04

Variation in stock (59,27)

59,17,99

EXPENCES:





Excise duty 72,69




Less: transferred to revaluation 1,03 1,06,94

57,91,50

PROFIT BEFORE TAX 1,26,49PRIOR YEAR ADJUSTMENT (NET)


Current tax 63,19

Deferred tax liability / (Assets) (19,64)

PROFIT AFTER TAX 82,94


Balance available for appropriation 82,95



Proposed dividend 50,00

Tax on proposed dividend 6,41

82,95

Basic earning per share (rupee) 1.66


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MARCH 2004(RS.000)

AS AT 31-3- 2004 AS AT 31-3- 2004

SOURCES OF FUNDS

SHAREHOLDERS FUND



22,42,59

LOANS

Secured 11,38,86

Unsecured 5,58,29

16,97.15


TOTAL 40,35,07


FIXED ASSETS



Net block 6,01,55


6,16,84


ADVANCES




Loan & advances 850,58

53,98,08



Provisions 3,12,02

21,28,19


TOTAL 40,35,07


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MARCH

2004

(RS.000)

AS AT 31-3- 2004 AS AT 31-3-2004

INCOME:


Other income 31,39

Variation in stock 53,99

74,75,85

EXPENCES:





Excise duty 70,08




Less: transferred to revaluation 93 1,09,96

72,00,99

PROFIT BEFORE TAX 2,74,86PRIOR YEAR ADJUSTMENT (NET) 25,71


Current tax 1,19,50

Deferred tax liability / (Assets) 8,13

PROFIT AFTER TAX 17294


Balance available for appropriation 1,72,98




Tax on proposed dividend 9,61

1,72,98



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MARCH 2005(RS.000)

AS AT 31-3- 2005 AS AT 31-3- 2005

SOURCES OF FUNDS

SHAREHOLDERS FUND



24,14,91

LOANS

Secured 17,23,12

Unsecured 5,36,89

22,60,01


TOTAL 47,66,94


FIXED ASSETS



Net block 8,21,84

Capital work in progress -

8,21,84


ADVANCES





58,48,21



Provisions 4,80,87

21,36,02


TOTAL 47,66,19


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MARCH

2005

(RS.000)

AS AT 31-3- 2005 AS AT 31-3 2005

INCOME:


Other income 41,69

Variation in stock (38,45)

74,23,55

EXPENCES:



Payments to & provision for 13,54,15

Employees


Excise duty 75,41




Less: transferred to revaluation 84 1,25,84

70,00,24

PROFIT BEFORE TAX 4,23,31

PRIOR YEAR ADJUSTMENT (NET)PROVISION FOR TAXATION

Current tax 1,50,84

Deferred tax liability / (Assets) (3,31)

PROFIT AFTER TAX 2,75,78


Balance available for appropriation 2,75,85

Appropriations:

General reserve 1,73,20Surplus / (loss) carried to B/S 3


2,75,85



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CALCULATIONS AND INTERPRETATION OF RATIOS

1] CURRENT RATIO:

Formula:

Current assets

Current ratio =

Current liabilities

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Current assets 46,70,80 51,08,39 53,98,08 58,28,21

Current liabilities 15,93,66 21,62,32 21,28,19 21,36,02

Current ratio 2.93 2.36 2.53 2.72

COMMENTS:

In Aplab company the current ratio is 2.72:1 in 2004-2005. it means that for one rupee

of current liabilities, the current assets are 2.72 rupee are available to the them. In

other words the current assets are 2.72 times the current liabilities.

Almost 4 years current ratio is same but current ratio in 2004-2005 is bit higher,

which makes company more sound. The consistency increase in the value of current

assets will increase the ability of the company to meets its obligations & therefore

from the point of view of creditors the company is less risky.

The available working capital with the company is in increasing order.

2001-2002 - 30,77,14

2002-2003 - 29,46,07

2003-2004 - 32,69,89

2004-2005 - 36,92,19

The company has sufficient working capital to meets its urgency/ obligations. Acompany has a high percentage of its current assets in the form of working capital,

cash that would be more liquid in the sense of being able to meet obligations as &

when they become due. From this working capital, the company meets its day-to-day

financial obligations.

Thus, the current ratio throws light on the companys ability to pay its current

liabilities out of its current assets. The Aplab Companys has a very good liquidity

position of company.


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2] LIQUID RATIO:

Formula:

Quick assets

Liquid ratio =

Quick liabilities

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Quick assets 21,80,67 23,01,01 24,01,30 29,11,31

Quick liabilities 15,93,66 21,62,32 21,28,19 21,36,02

Liquid ratio 1.36 1.06 1.12 1.36

COMMENTS:

The liquid or quick ratio indicates the liquid financial position of an enterprise.

Almost in all 4 years the liquid ratio is same, which is better for the company to meet

the urgency. The liquid ratio of the Aplab Company has increased from 1.12 to 1.36

in 2004-2005. Day to day solvency is more sound for company in 2004-2005 over the

year 2003-2004.

This indicates that the dependence on the short-term liabilities & creditors are less &

the company is following a conservative working capital policy.

Liquid ratio of Company is favorable because the quick assets of the company are

more than the quick liabilities. The liquid ratio shows the companys ability to meet

its immediate obligations promptly.


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3] PROPRIETORY RATIO:

Formula:

Proprietary fund

Proprietary ratio = OR

Total fund

Shareholders fund

Proprietary ratio =

Fixed assets + current liabilities

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Proprietary fund 21,29,69 21,55,19 22,42,59 24,14,91

Total fund 52,82,53 57,38,17 66,14,92 66,70,05Proprietary ratio 40 37.55 33.90 36.20

COMMENTS:

The Proprietary ratio of the company is 36.20% in the year 2004-2005. It means that

the for every one rupee of total assets contribution of 36 paise has come from owners

fund & remaining balance 66 paise is contributed by the outside creditors. This shows

that the contribution by outside to total assets is more than the owners fund. This

Proprietary ratio of the Company shows a downward trend for the last 4 years. As the

Proprietary ratio is not favorable the Companys long-term solvency position is not

sound.


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4] STOCK WORKING CAPITAL RATIO:

Formula:

Stock

Stock working capital ratio =

Working Capital

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Stock 19,09,77 19,02,79 21,46,20 19,32,88

Working Capital 30,77,14 29,46,07 32,69,89 37,12,19

Stock working

capital ratio

62.06 64.58 65.63 52.06

COMMENTS:

This ratio shows that extend of funds blocked in stock. The amount of stock is

increasing from the year 2001-2002 to 2003-2004. However in the year 2004-2005 it

has declined to 52%. In the year 2004-2005 the sale is increased which affects

decrease in stock that effected in increase in working capital in 2004-2005.

It shows that the solvency position of the company is sound.

5] CAPITAL GEARING RATIO:

Formula:

Preference capital+ secured loan

Capital gearing ratio =Equity capital & reserve & surplus

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Secured loan 12,13,48 10,27,56 11,38,86 1,72,312

Equity capital &

reserves & surplus

21,29,69 21,55,19 22,42,59 2,41,491

Capital gearing

ratio

56.97 47.67 50.78 71

COMMENTS:

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

use of debt. Capital gearing ratio is a leverage ratio, which indicates the proportion of

debt & equity in the financing of assets of a company.

For the last 3 years [i.e.2001-2002 TO 2003-2004] Capital gearing ratio is all most

same which indicates, near about 50% of the fund covering the secured loan position.


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But in the year 2004-2005 the Capital-gearing ratio is 71%. It means that during the

year 2004-2005 company has borrowed more secured loans for the companys

expansion.

6] DEBT EQUITY RATIO:

Formula:

Total long term debt

Debt equity ratio =

Total shareholders fund

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Long term debt 15,81,47 14,80,70 16,97,15 22,60,01

Shareholders fund 21,29,69 21,55,19 22,42,59 24,14,91

Debt Equity Ratio 0.74 0.68 0.75 0.93

COMMENTS:

The debt equity ratio is important tool of financial analysis to appraise the financial

structure of the company. It expresses the relation between the external equities &

internal equities. This ratio is very important from the point of view of creditors &

owners.

The rate of debt equity ratio is increased from 0.74 to 0.93 during the year 2001-2002

to 2004-2005. This shows that with the increase in debt, the shareholders fund also

increased. This shows long-term capital structure. The lower ratio viewed as favorable

from long term creditors point of view.


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7] GROSS PROFIT RATIO:

Formula:

Gross profitGross profit ratio = * 100

Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Gross profit 24,54,48 37,65,90 45,57,45 42,37,52

Net sales 43,45,46 51,02,37 68,76,89 68,09,78

Gross profit Ratio 56.48 73.80 66.27 62.22

Gross profit Ratio

0

20

40

60

80

2001-

2002

2002-

2003

2003-

2004

2004 -

2005

Gross profit Ratio

COMMENTS:

The gross profit is the profit made on sale of goods. It is the profit on turnover. In the

year 2001-2002 the gross profit ratio is 56.48%. It has increased to 73.80% in the year

2002-2003 due to increase in sales without corresponding increase in cost of goods

sold. However the gross profit ratio decreased to 66.27% in the year 2003-2004.

It is further declined to 62.22% in the year 2004-2005, due to high cost of purchases

& overheads. Although the gross profit ratio is declined during the year 2002-2003 to

2004-2005. The net sales and gross profit is continuously increasing from the year

2001-2002 to 2004-2005.


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8] OPERATING RATIO:

Formula:

COGS+ operating expenses

Operating ratio = *100Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

COGS +

Operating

expenses

18,90,98 +

2,21,37 +

5,76,71

21,96,32 +

2,69,98 +

7,62,23

28,33,02 +

3,07,51 +

9,17,94

2,57,226+

27,141+

84,478

Net sales 43,45,46 51,02,37 68,76,89 6,80,978

Operating ratio 61.88% 63.27% 59% 54.16%

COMMENTS:

The operating ratio shows the relationship between costs of activities & net sales.

Operating ratio over a period of 4 years when compared that indicate the change in

the operational efficiency of the company.

The operating ratio of the company has decreased in all 4 year. This is due to increase

in the cost of goods sold, which in 2001-2002 was 61.88%, in 2002-2003 was

63.27%, in 2003-2004 was 59% & in 2004-2005 it is 54.16%. though the cost hasincreased in 2002-2003 as compared to 2001-2002, it is reducing continuously over

the next two years, indicate downward trend in cost but upward / positive trend in

operational performance.


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9] EXPENSE RATIO:

The ratio of each item of expense or each group of expense to net sales is known as

Expense ratio. The expense ratio brings out the relationship between various

elements of operating cost & net sales. Expense ratio analyzes each individual item ofexpense or group of expense& expresses them as a percentage in relation to net sales.

A] MANUFACTURING EXPENSES:

Formula:

Manufacturing expenses

Manufacturing expense ratio = *100

Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Manufacturing

expenses

2,21,37 2,69,98 3,07,51 2,71,41

Net sales 43,45,46 51,02,37 68,76,89 68,09,78

Manufacturing

expenses ratio

5% 5.29% 4.47% 3.98%

COMMENTS:

The manufacturing expense is shows the downward trend. During the year

20012002 to 2002-2003 the manufacturing expense increased because there is

increase in the charges like labour, rent , power & electricity, repair to plant &

machinery & miscellaneous works expenses. The manufacturing expense during the

year 2001-2002 to 2004-2005 is decreased from 5% to 3.96%. This indicates that the

company has control over the manufacturing expense.


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B] OTHER EXPENSES:

Formula:

Other expenses

Other expense ratio = *100Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Other expenses 5,76,71 7,62,23 9,17,94 8,44,78

Net sales 43,45,46 51,02,37 68,76,89 68,09,78

Other expenses

ratio

13.2% 14.93% 13.34% 12.40%

COMMENTS:

The other expense of company is increased during the 2001-2002 to 2003-2004,

because increase in the charges of rent of office, equipment lease rental, printing &

stationary, advertisement & publicity, transport outward & other charges. But during

the year 2004-2005 the other expenses is decrease from 13.34% to 12.40%. Because

decrease in equipment lease rental, advertisement & publicity, transport charges,

commission & discount, sales tax & purchase tax . This indicates that the companyalso controlling the other expenses.


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10) NET PROFIT RATIO

Formula:

NPAT

Net profit ratio = * 100

Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

NPAT 20,98 82,94 1,72,94 2,75,78

Net sales 434546 51,02,37 68,76,89 68,09,78

Net profit ratio 0.48 1.6 2.5 4.04

0

1

2

3

4

5

2001-2002 2002-2003 2003-2004 2004-2005

NET PROFIT

COMMENTS:

The net profit ratio of the company is low in all year but the net profit is increasing

order from this ratio of 4 year it has been observe that the from 2001-2002 to 2004-

2005 the net profit is increased i.e. in 2003 it is increased by 1.12 in 2003-2004 by 0.9

& in 2004-2005 by 1.54.

Profitability ratio of company shows considerable increase. Companys sales have

increased in all 4 years & at the same time company has been successful in

controlling the expenses i.e. manufacturing & other expenses.

It is a clear index of cost control, managerial efficiency & sales promotion.


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11] STOCK TURNOVER RATIO:

Formula:

COGS

Stock Turnover Ratio =

Average stock

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

COGS 18,90,98 21,96,32 28,33,02 25,72,26

Average stock 5,49,90 5,97,58 6,73,11 6,89,30

Stock Turnover

Ratio

3.4 3.6 4.20 3.73

COMMENTS:

Stock turnover ratio shows the relationship between the sales & stock it means how

stock is being turned over into sales.

The stock turnover ratio is 2001-2002 was 3.4 times which indicate that the stock is

being turned into sales 3.4 times during the year. The inventory cycle makes 3.4

round during the year. It helps to work out the stock holding period, it means the stock

turnover ratio is 3.4 times then the stock holding period is 3.5 months

[12/3.4=3.5months]. This indicates that it takes 3.5 months for stock to be sold out

after it is produced.

For the last 4 years stock turnover ratio is lower than the standard but it is in

increasing order. In the year 2001-2002 to 2004-2005 the stock turnover ratio has

improved from 3.4 to 3.73 times, it means with lower inventory the company has

achieved greater sales. Thus, the stock of the company is moving fast in the market.


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12] RETURN ON CAPITAL EMPLOYED:

Formula:

NPAT

Return on capital employed = *100Capital employed

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

NPAT 20,68 82,94 1,72,94 2,75,78

Capital employed 38,18,01 37,23,11 40,35,07 47,66,93

Return on capital

employed

0.54 2.23 4.28 5.79

COMMENTS:

The return on capital employed shows the relationship between profit & investment.

Its purpose is to measure the overall profitability from the total funds made available

by the owner & lenders.

The return on capital employed of Rs.5 indicate that net return of Rs.5 is earned on a

capital employed of Rs.100. this amount of Rs.5 is available to take care of interest,

tax,& appropriation.

The return on capital employed is show-increasing trend, i.e. from 0.54 to 5.79. All

of sudden in 2001-2002 the return on capital employed increased from 0.54 to 5.79.

This indicates a very high profitability on each rupee of investment & has a great

scope to attract large amount of fresh fund.


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13] EARNING PER SHARE:

Formula:

NPAT

Earning per share =Number of equity share

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

NPAT 20,98,000 82,94,000 1,72,94,000 2,75,78,000

No.ofequity share 50,00,000 50,00,000 50,00,000 50,00,000

Earning per share 0.41 1.66 3.46 5.52

COMMENTS:

Earnings per share are calculated to find out overall profitability of the company.

Earning per share represents the earning of the company whether or not dividends are

declared.

The Earning per share is 5.52 means shareholder gets Rs. 5.52 for each share of Rs.

10/-. In other words the shareholder earned Rs. 5.52 per share.

The net profit after tax of the company is increasing in all years. Therefore the

shareholders earning per share is increased continuously from 2001-2002 to 2004-

2005 by 0.41 to 05.52. This shows it is continuous capital appreciation per unit share

by 0.41 to 05.52.


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14] DIVIDEND PAYOUT RATIO:

Formula:

Dividend per share

Dividend Pay out ratio = * 100Earning per share

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Dividend per share - 1 1.50 1.80

Earning per share 0.41 1.66 3.46 5.52

Dividend payout

ratio

- 60.24 43.35 32.60

COMMENTS:

In the year 2002-2003 and 2003-2004 the Dividend pay out ratio is 60.24 and 43.35respectively. In the year 2002-2003 the company has declared the dividend 60.24 and

the balance 39.76 is retained with them for the expansion. The company has not

earned more profit in the year 2001-2002 hence the company has not declared

dividend in the year 2001-2002. However the company has declared more dividends

in the year 2002-2003 as the company has sufficient profit. In the year 2004 the

company has declared 1.50 dividends per share hence the earning per share has

doubled. From this one can say that the company is more conservative for expansion.

15] COST OF GOODS SOLD:

Formula:

COGS

Cost of goods sold Ratio = * 100

Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

COGS 18,90,98 21,96,32 28,33,02 25,72,26Net sales 43,45,46 51,02,37 68,76,89 68,09,78

Cost of goods sold

ratio

43.51 43.04 41.19 37.77

COMMENTS:

This ratio shows the rate of consumption of raw material in the process of

production. In the year 2001-2002 the cost of goods sold ratio is 43.51% so the gross

profit is 56.49%. it indicates that in 2001-2002, the 43% of raw material is consumed

in the process of production.


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16] CASH RATIO:

Formula:

Cash + Bank + Marketable securities

Cash ratio =Total current liabilities

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

Cash + Bank +

Marketable

securities

3,31,32 3,95,25 4,49,74 6,04,64

Total current

liabilities

15,93,66 21,62,32 21,28,19 21,36,02

Cash ratio 0.20 0.18 0.21 0.28

COMMENTS:

This ratio is called as super quick ratio or absolute liquidity ratio. In the year 2001-

2002 the cash ratio is 0.20 & then it is decreased to 0.18 in the year 2002-2003. Then

again it is increased to 0.21 in the year 2003-2004 & 0.28 in the year 2004-2005.

This shows that the company has sufficient cash, bank balance, & marketable

securities to meet any contingency.

17] RETURN ON PROPRIETORS FUND:

Formula:

NPAT

Return on proprietors fund = * 100

Proprietors fund

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

NPAT 20,68 82,94 1,72,94 2,75,78

Proprietors fund 21,29,69 21,55,19 22,42,59 24,14,91

Return on

proprietors fund

0.97 3.84 7.71 11.41

COMMENTS:

Return on proprietors fund shows the relationship between profits & investments by

proprietors in the company. In the year 2002-2003 the return on proprietors fund is


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3.84% it means the net return of Rs. 3 approximately is earned on the each Rs. 100 of

funds contributed by the owners.

During the last 4 years the rate of return on proprietors fund is in increasing order.

The return on proprietors fund during the year 2001-2002 to 2004-2005 is increased

from 0.97% to 11.41%.

It shows that the company has a very large returns available to take care of high

dividends, large transfers to reserve etc. & has a great scope to attract large amount of

fresh fund from owners.

18] RETURN ON EQUITY:

Formula:

NPAT

Return on equity share capital = * 100

No. of equity share

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005

NPAT 20,68 82,94 1,72,94 2,75,78

No. of equity share 50,000 50,000 50,000 50,000

Return on equity

share capital

4.13 16.5 34.58 55

COMMENTS:

This ratio shows the relationship between profit & equity shareholders fund in the

company. It is used by the present / prospective investor for deciding whether to

purchase, keep or sell the equity shares.

In the year 2002-2003 the return on proprietors fund is 16.5%, which means the net

return of Rs. 16, is earned on the each Rs.100 of the funds contributed by the equity

shareholders.

The rate of return on equity share capital is increased from4.13% to 55% during the

year 2001-2002 to 2004-2005. This shows that the company has a very large returns

available to take care of high equity dividend, large transfers to reserve, & also

company has a great scope to attract large amount to fresh funds by issue of equity

share & also company has a very good price for equity shares in the BSE.

7/28/2019 Financial Analysis of Aplab

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“Financial Analysis of Aplab Ltd.”

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