GAURAV Ratio Analysis

8/8/2019 GAURAV Ratio Analysis

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C) Utility to Creditors:-

The creditors or suppliers extend short term credit to the concern. If the current assets

are quite sufficient to meet current liabilities then the creditors will not hesitate inextending credit facilities. Current & acid-test ratios will give an idea about the

financial position of the concern.

D) Utility to Employees:-

The employees are also interested in the financial position of the concern

especially profitability. Their wage increases & fringe benefits are elated to the

volume of profits earned by the concern. Various profitability ratios relating to gross

profits, operating profit, net profit, etc. enable employee to put forward their view

points for the increase of wages & other benefits.

E) Utility to Government:-

Government is interested to know the overall strength of the industry.

Government may base its future policies on the basis of industrial information

available from various units. The ratios may be used as indicators of overall financialstrength of public as well as private sector.

F) Tax Audit Requirements:-

Section 44 AB was inserted in the Income Tax Act by the Finance Act, 1984.under this

section every assessed engaged in any business & having turnover or gross receipts

exceeding Rs. 40 lak is required to get the accounts audited by a chartered accountant &

submit the tax audit report before the due date for filing the return under Section 139(1).



Types of Ratios

Income

Profitability

Liquidity

Bankruptcy

Coverage

Leverage

• Income Ratios

Turnover of Total Operating Assets

Net Sales= Turnover of Total Operating Assets Ratio

Total Operating Assets*

Obviously, an increase in sales will necessitate more operating assets at some point (sales

may rise without additional investment within a given range, however); conversely, an

inadequate sales volume may call for reduced investment.

*Total operating assets = total assets - (long-term investments + intangible assets)



Net Sales to Tangible Net Worth

Net Sales= Net Sales to Tangible Net Worth Ratio

Net Worth

This ratio indicates whether your investment in the business is adequately proportionate

to your sales volume. It may also uncover potential credit or management problems,

usually called "overtrading" and "under trading."

Overtrading, or excessive sales volume transacted on a thin margin of investment, presents a potential problem with creditors. Overtrading can come from considerable

management skill, but outside creditors must furnish more funds to carry on daily

operations.

Under trading is usually caused by management's poor use of investment money and their

general lack of ingenuity, skill or aggressiveness.



• Profitability Ratios

Closely linked with income ratios are profitability ratios, which shed light upon the

overall effectiveness of management regarding the returns generated on sales and

investment.

Gross Profit on Net Sales

Net Sales - Cost of Goods Sold

= Gross Profit on Net Sales Ratio

Net Sales

Does your average markup on goods normally cover your expenses, and therefore result

in a profit? This ratio will tell us. If your gross profit rate is continually lower than your

average margin, something is wrong! Be on the lookout for downward trends in your

gross profit rate. This is a sign of future problems for your bottom line.

This percentage rate can — and will — vary greatly from business to business, even

those within the same industry. Sales, location, size of operations, and intensity of

competition are all factors that can affect the gross profit rate.

• Net Operating Profit Ratios

Net Profit on Net Sales

EAT*= Net Profit on Net Sales Ratio

Net Sales



This ratio provides a primary appraisal of net profits related to investment. Once your

basic expenses are covered, profits will rise disproportionately greater than sales above

the break-even point of operations.

Net Profit to Tangible Net Worth

EAT= Net Profit to Tangible Net Worth Ratio

Tangible Net Worth

This ratio acts as a complementary appraisal of net profits related to investment. This

ratio sizes up the ability of management to earn a return.

Net Operating Profit Rate of Return

EBIT

= Net Operating Profit Rate of Return Ratio

Tangible Net Worth

Your Net Operating Profit Rate of Return ratio is influenced by the methods of financing

you utilize. Notice that this ratio employs earnings before interest and taxes, not earnings

after taxes. Profits are taken after interest is paid to creditors. A fallacy of omission

occurs when creditors support total assets.

Management Rate of Return

Operating Income= Management Rate of Return Ratio

Fixed Assets + Net Working Capital



This profitability ratio compares operating income to operating assets, which are defined

as the sum of tangible fixed assets and net working capital. This rate, which you may

calculate for your entire company or for each of its divisions or operations, determines

whether you have made efficient use of your assets. The percentage should be compared

with a target rate of return that you have set for the business.

• Liquidity Ratios

While liquidity ratios are most helpful for short-term creditors/suppliers and bankers,

they are also important to financial managers who must meet obligations to suppliers of

credit and various government agencies. A complete liquidity ratio analysis can help

uncover weaknesses in the financial position of your business.

Quick Ratio

Cash + Marketable Securities + Accounts Receivable (net)= Quick Ratio

Current Liabilities

Also known as the "acid test," this ratio specifies whether your current assets that could

be quickly converted into cash are sufficient to cover current liabilities. Until recently, a

Current Ratio of 2:1 was considered standard. A firm that had additional sufficient quick

assets available to creditors was believed to be in sound financial condition.

Receivables Turnover

Total Credit Sales= Receivables Turnover Ratio

Average Receivables Owing

Another indicator of liquidity, Receivables Turnover Ratio can also indicate

management's efficiency in employing those funds invested in receivables. Net credit



sales, while preferable, may be replaced in the formula with net total sales for an

industry-wide comparison.

Current Debt to Net Worth

Current Liabilities= Current Debt to Net Worth Ratio

Tangible Net Worth

Your business should not have debt that exceeds your invested capital. This ratio

measures the proportion of funds that current creditors contribute to your operations. For

small businesses a ratio of 60 percent or above usually spells trouble. Larger firms should

start to worry at about 75 percent.

Funded Debt to Net Working Capital

Long-Term Debt= Funded Debt to Net Working Capital Ratio

Net Working Capital

Funded debt (long-term liabilities) = all obligations due more than one year from the

balance sheet date (Note): Long-term liabilities should not exceed net working capital.



• Bankruptcy Ratios

Many business owners who have filed for bankruptcy say they wish they had seen some

warning signs earlier on in their company's downward spiral. Ratios can help predict

bankruptcy before it's too late for a business to take corrective action and for creditors to

reduce potential losses. With careful planning, predicted futures can be avoided before

they become reality. The first five bankruptcy ratios in this section can detect potential

financial problems up to three years prior to bankruptcy.

Working Capital to Total Assets

Net Working Capital= Working Capital to Total Assets Ratio

Total Assets

This liquidity ratio, which records net liquid assets relative to total capitalization, is the

most valuable indicator of a looming business disaster. Consistent operating losses will

cause current assets to shrink relative to total assets.

A negative ratio, resulting from negative net working capital, presages serious problems.

EBIT to Total Assets

EBIT

= EBIT to Total Assets RatioTotal Assets

How productive are your business's assets? Asset values come from earning power.

Therefore, whether or not liabilities exceed the true value of assets (insolvency) depends

upon earnings generated



Sales to Total Assets

Total Sales= Sales to Total Assets Ratio

Total Assets

This ratio, which uncovers management's ability to function in competitive situations

while not excluding intangible assets, is inconclusive if studied by itself. But when

viewed alongside, Working Capital to Total Assets, Retained Earnings to Total Assets,and EBIT to Total Assets, it can confirm whether your business is in imminent danger.

Equity to Debt

Market Value of Common + Preferred Stock

= Equity to Debt RatioTotal Current + Long-Term Debt

This ratio shows you by how much your business's assets can decline in value before it

becomes insolvent.



• Coverage Ratios

Times Interest Earned

EBIT= Times Interest Earned Ratio

I

EBIT = earnings before interest and taxes

I = dollar amount of interest payable on debt

The Times Interest Earned Ratio shows how many times earnings will cover fixed-

interest payments on long-term debt.

• Leverage Ratios

This group of ratios calculates the proportionate contributions of owners and creditors toa business, sometimes a point of contention between the two parties. Creditors like

owners to participate to secure their margin of safety, while management enjoys the

greater opportunities for risk shifting and multiplying return on equity that debt offers.

Note: Although leverage can magnify earnings, it exaggerates losses.

Equity Ratio

Common Shareholders' Equity= Equity Ratio

Total Capital Employed

The ratio of common stockholders' equity (including earned surplus) to total capital of the

business shows how much of the total capitalization actually comes from the owners.



Debt to Equity Ratio

Debt + Preferred Long-Term= Debt to Equity Ratio

Common Stockholders' Equity

A high ratio here means less protection for creditors. A low ratio, on the other hand,

indicates a wider safety cushion (i.e., creditors feel the owner's funds can help absorb

possible losses of income and capital).



RESEARCHMETHODOLOG

Y



RESEARCH METHODOLOGY

The study is made on the basis of secondary data. The annual by the firms were of greathelp collection the necessary information. In addition to this, the personal of “GENERALMILLS INDIA PVT LTD” were very co-operative in forwarding the necessaryinformation as and when required.

Tools for data collection

Data require for this project is mainly tow type’s i.e. primary data & secondary data and Ialso use the Graphs in analysis of ratio which help to understand to every one.

Primary Data: -

Those are collected fresh and the time and this happens to be original in character.The primary data were collected through personal ineraction with the manager andofficial of the frim.

Secondary Data: -

Secondary data means data is already available i.e. they refer the data which havealready been collected and analyzed by someone else, then he has to look into varioussources form whose he can obtain them, usually the publications technical trade

journal books, Magazines and Net and Reports of company etc.

• SOURCES OF COLLECTION OF DATA:-

1. Staff of the GENERAL MILLS INDIA PVT LTD

2. Magazines and Net

3. Journal Books of GENERAL MILLS INDIA PVT LTD

4. Annual General Report of 2002-03, 2003-04, 2005-06 and 2006-07



DATA ANALYSIS



BALANCE SHEET FOR THE LAST FOUR YEARS (CURRENCY :IN RUPEES)

Schedule 2003 2004 2006 2007

SOURCES OF FUNDS Shareholders' funds

Share capital 3 1,253,940,000 1,803,940,000 640,197,000 1,300,197,000

Reserves and surplus- share premium 288,562,500 288,562,500 47,305,294 47,305,294

Loan funds

Secured 4 55,274,469

Unsecured 5 357,500,001 187,500,000 425,574,576

1,955,276,970 2,280,002,500 687,502,294 1,773,076,870

APPLICATION OF FUNDS

Fixed Assets Gross block 6 506,087,872 226,869,898 298,374,511 322,247,600

Less: Accumulated deprecation 69,937,609 79,190,444 121,491,977 147,737,700

Net block 439,150,263 147,679,454 176,882,534 174,509,900

Capital work in progress 2,221,109 5,051,866 10,197,228 8,343,741

441,371,372 152,731,320 187,079,762 182,853,641

Current Assets, Loans & Advances

Inventories 7 115,927,433 159,588,841 160,182,311 288,456,802

Sundry Debtors 8 22,404,499 67,532,889 81,975,383 195,300,489Cash and Bank balances 9 40,130,969 73,982,222 40,355,066 684,208,080

Loans and advances 10 72,500,662 88,578,699 114,531,881 156,105,241

250,963,563 389,682,651 397,044,641 1,324,070,612Less: Current liabilities andprovisions

Current liabilities 11 147,247,819 206,291,962 244,576,327 302,604,084

Provisions 12 4,206,130 11,119,715 15,926,562 26,419,047

Net current assets 99,509,614 172,270,974 136,541,752 995,047,481

Profit and Loss Account 1,414,395,984 1,955,000,206 363,880,780 595,175,748

1,955,276,970 2,280,002,500 687,502,294 1,773,076,870



PROFIT AND LOSS ACCOUNT FOR THE LAST FOUR YEARSfor the year ended 31 March

Schedule 2003 2004 2006 2007

Income

Gross Sales- manufactured goods 714,620,331 927,630,136 1,142,382,086 1,578,493,729Less: Excise Duty 3,352,445 3,567,171 13,049,932 24,338,814

Net Sales- manufactured goods 711,267,886 924,062,965 1,129,332,154 1,554,154,915

Sales- Traded goods 38,375,290 17,385,794 29,460,874 46,686,596

Total Net Sales 749,643,176 941,448,759 1,158,793,028 1,600,841,511

Other Income 13 1,574,052 170,350 19,235,293 68,278,198

751,217,228 941,619,109 1,178,028,321 1,669,119,709

Expenses

Cost of goods sold 14 466,637,879 569,265,804 756,065,488 1,076,253,832

Purchase of traded goods 11,610,913 9,000,437 27,935,741 29,363,639

Personnel costs 15 69,845,479 81,213,374 105,675,553 143,944,363

Selling, general and adminirtisation 16 465,529,996 456,543,879 451,363,513 574,896,657

Depreciation and amortization 6 21,031,072 23,022,645 22,519,284 27,618,264

Interest (including interest on term loans) 48,227,920 38,599,784 10,197,887 42,450,612

1,082,883,259 1,177,645,923 1,373,757,466 1,894,527,367

Loss for the year before one off items 331,666,031 236,026,814

Goodwill written off 6a 151,512,500

Settlement of dispute 18 16,014,908

Net loss for the year 331,666,031 403,554,222 195,729,145 225,407,658

Balance in profit & loss A/c brought forward 1,082,729,953 1,414,395,984 165,690,233 363,880,780

Add: Non compete fees written off 6b 137,050,000

Less: Provision for fringe benefit tax 2,461,402 5,887,310

Net loss for the year after taxation 198,190,547 231,294,968Balance in profit & loss A/c carriedforward 1,414,395,984 1,955,000,206 363,880,780 595,175,748

Earnings per share 25 3 3 4 3.56



• Current Ratio = Current Assets, Loans & Advances / CurrentLiabilities & Provision

Particulars 2007 2006 2004 2003

Current Assets 1,324,070,612 397,044,641 389,682,651 250,963,563

Current Liabilities 754,597,707 260,502,889 404,911,677 564,228,419

Current Ratio 1.75 1.52 0.96 0.44

00.20.40.60.8

11.21.41.61.8

RATIO

2007 2006 2004 2003

YEAR

Cureent Ratio

Cureent Ratio

• Interpretation:

As a conventional rule, a current ratio of 2:1 or even 1.5:1 is considered satisfactory. Thesolvency ratio indicates ability of a concern to meet its total liabilities out of its totalassets. In the 2007 the position is good i.e. 1.75, in the year 2006, 2004 and 2003 the ratioare 1.52, 0.96 and 0.44 respectively.



• Liquid Ratio = Current Assets - Inventories / Current Liabilities -Bank Over Draft

Particulars 2007 2006 2004 2003

Current Assets 1,324,070,612 397,044,641 389,682,651 250,963,563

Inventory 288,456,802 160,182,311 159,588,841 115,927,433

Current Assets - Inventories 1,035,613,810 236.862,330 230,093,810 135,036,130

Current Liabilities 754,597,707 260,502,889 404,911,677 564,228,419

Bank Over Draft Nil Nil Nil Nil

Current Liabilities - Bank Over Draft 754,597,707 260,502,889 404,911,677 564,228,419

Liquid Ratio 1.37 0.9 0.57 0.24

0

0.2

0.4

0.6

0.8

1

1.2

1.4

RATIO

2007 2006 2004 2003

YEAR

Liquid Ratio

Liquid Ratio

• Interpretation:

The Liquid ratio in 2007, 2006, 2004 and 2003 is 1.37, 0.9, 0.57 and 0.24 respectively.An ideal liquid ratio is 1:1. It is represent the highly solvent position of the company.



• Absolute Liquid Assets = Absolute Liquid Assets / CurrentLiabilities

Particulars 2007 2006 2004 2003

Absolute Liquid Assets 684,208,080 40,355,066 73,982,222 40,130,969Current Assets 302,604,084 244,576,327 404,911,677 564,228,419

Absolute Liquid Ratio 2.26 0.16 0.18 0.07

0.00

0.50

1.00

1.50

2.00

2.50

RATIO

2007 2006 2004 2003

YEAR

Absoluted Liquid Ratio

Absoluted Liquid Ratio

• Interpretation:

The company Absolute Liquid ratio is 2.26:1 and an ideal ratio is 0.5:1. It means thatmore than 50% of current assets are highly liquied.



• DEBT / EQUITY RATIO = DEBET / EQUITY

Particulars 2007 2006 2004 2003

Debt 287,213,617 228,200,205 389,682,651 250,963,563

Equity 752,326,546 323,621,514 137,502,294 128,258,115Debt / Equity Ratio 0.36 0.71 1.35 1.00

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

RATIO

2007 2006 2004 2003

YEAR

Debt / Equity Ratio

Debt / Equity Ratio

• Interpretation:

The Debt-Equity ratio of company in 2006 is 0.71 and it is well with in the accepted of 2:1. The company long-term solvency is more satisfactory. Since the proportion of debtto equity is low, the company is said to be low greater and could not reap the benefit of trading on equity.



• Proprietary Ratio = Share Capital + Reserve & Surplus / TotalAssets * 100

Particulars 2007 2006 2004 2003Share Capital + Reserve & Surplus 752,326,546 323,621,514 137,502,294 1,542,502,500Total Assets 1,506,924,253 584,124,403 542,413,971 692,334,935Propriety Ratio 0.5 0.55 0.25 2.22

0

0.5

1

1.5

2

2.5

RATIO

2007 2006 2004 2003

YEAR

Properiety Ratio

Properiety Ratio

• Interpretation:

The high propriety ratio indicates the strong financial position of the business. The higher the ratio, the better it is.



• Inventory Turnover Ratio = Cost of Goods Sold / AverageInventory

Particulars 2007 2006 2004 2003Cost of Goods Sold 1,076,253,832 756,065,488 569,265,804 466,637,879Average Inventory 175,501,199 142,956,404 116,531,601 71,411,326Inventory Turnover Ratio 6.13 5.29 4.89 6.53

0

1

2

3

4

5

6

7

RATIO

2007 2006 2004 2003

YEAR

Inventory Turnover Rat io

Inventory Turnover Rat io

• Interpretation:

The company is having low inventory turnover ratio, and the company’s working capitalmight be tied up in financing inventory. The Inventory Turnover ratio in 2007 and 2006is 6.13 and 5.29 respectively.



• Inventory Ratio = Inventory / Current Assets * 100

Particulars 2007 2006 2004 2003Inventory 288,456,.802 160,182,311 159,588,841 115,927,433Current Assets 1,324,070,612 397,044,641 404,911,677 250,963,563Inventory Ratio 21.79 40.34 39.41 46.19

0

10

20

30

40

50

RATIO

2007 2006 2004 2003

YEAR

Inventory Ratio

Inventory Ratio

• Interpretation:

Inventory ratio in the 2007, 2006, 2004 and 2003 is 21.79%, 40.34%, 39.41% and46.19%. There is clear indication that 40% of current assets are locked up in the forminventory.



• Gross Profit Ratio = Sales - Cost of Goods Sold / Sales

Particulars 2007 2006 2004 2003

Sales 524,587,679 402,727,540 372,182,955 283,005,297

Cost of Goods Sold 1,600,841,511 1,158,793,028 941,448,759 749,643,176Gross Profit Ratio 32.78 34.75 39.53 37.75

05

1015

2025303540

RATIO

2007 2006 2004 2003

YEAR

Gross Profit Ratio

Gross Profit Ratio

• Interpretation:

The ratio measures the gross profit margin on the total net sales made by the company. In2007, 2006, 2004 and 2003 the gross profit ratio is 32.78%, 34.75%, 39.53% and 37.75respectively.



• Materials Cost Ratio = Material Consumed / Sales * 100

Particulars 2007 2006 2004 2003Material Consumed 1,073,274,427 779,831,517 563,945,616 473,685,807Sales 1,600,841,511 1,158,793,028 941,448,759 749,643,176Materials Cost Ratio 67.04 67.3 59.90 63.19

56

58

60

62

64

66

68

RATIO

2007 2006 2004 2003

YEAR

Materials Cost Ratio

Materials Cost Ratio

• Interpretation:

The Material Cost ratio in 2007, 2006, 2004 and 2003 is 67.04, 67.3, 59.90 and 63.19respectively. The Material Cost ratio is very high.



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

Particulars 2007 2006 2004 2003Cost of Goods Sold 1,076,253,832 756,065,488 569,265,804 466,637,879Operating Expenses 574,896,657 451,363,513 456,543,879 465,529,996Sales 1,600,841,511 1,158,793,028 941,448,759 749,643,176Operating Ratio 103.14 104.2 108.96 124.34

0

20

40

60

80

100120

140

RATIO

2007 2006 2004 2003

YEAR

Operating Ratio

Operating Ratio

• Interpretation:

The Operating ratio is very high. This is not good for company. The operating ratio in2007, 2006, 2004 and 2003 is 103.14, 104.2, 108.96 and 124.34 repectively.



• Net Profit Ratio = 100% - Operating Ratio

Particulars 2007 2006 2004 2003Operating Ratio 103.14 104.2 108.96 124.34Net Profit Ratio -3.14 -4.2 -8.96 -24.34

-25

-20

-15

-10

-5

0

RATIO

2007 2006 2004 2003

YEAR

Net Profit Ratio

Net Profit Ratio

• Interpretation

The Net Profit ratio shows a loss for the years 2007, 2006, 2004 and 2003. The net profit ratio is -3.14, -4.2, -8.96 and -24.34 respectively.



FINDINGS



FINDINGS

Current ratio is good in 2007 and 2006 but in 2004 is low. An ideal current ratio is2:1

A quick ratio of 1:1 is usually considered satisfactory it is again a rule of thumbonly. In 2007 and 2006 comparatively other two years.

In 2006 Absolute Liquid ratio is 2.26. In means that more than 50% of currentassets are highly liquid.

The Debt-Equity ratio of company in 2007 is 0.71 and it is well.

Inventory ratio us a clear indication that in 21.79% of current assets are locked upin the form in inventory in 2007.

In 2007 and 2003 inventory ratio are more than 2006 and 2004. The companyworking capital might be tied up in finance inventory.



CONCLUSION



CONCLUSION

Number of factors should be taken into consideration before reaching a conclusion aboutshort-term and long-term financial position and performance of the concern.

Some of the factors are

Type of business carried on.Type of product manufacture.Reputation of the concern.Type of assets available to invest.Type of funds brought in for working.

The company is integrated specialized manufacturing food production. For systematiclong rang planning will serve vital and dynamic document, which will guide GeneralMills India Pvt Ltd. In the years to make a profit, and further to improve the service to thespecialized food products as well as customers, the food production will be exported tosome of the most discerning markets of the world.

General Mills India Pvt Ltd faces its future nit with apprehension but with full confidenceand in process serve, its owner, the government, its customer, its employees and itssuppliers by effectively fulfilling the role that has been assigned to it.



LIMITATION



LIMITATION

Following are the limitions which were faced on the project.

Limitation of primary data

Managers executive of a company are not ready to share confidential information aboutcertain financial issue. Official are bound by some rules and regulation of company sothey are not able.

Confidential financial information cannot be disclosedOfficial of a company cannot be disclosed confidential financial information.

Other

The study is limited to “GENERAL MILLS PVT LTD” and the findings need notapply in a similar sense to other similar firms.

The data available are based on annul reports.

The time was very limited and hence one could not probe as deep into the problem as one would have linked to.

The objective was to collect as much as possible having no access to other recordsof the company except the published statements, the interpretation of the resultsmight not be perfect and accurate.



RECOMMONDATIONS



RECOMMONDATIONS

The company should maintain the current ratio for the years by proper maintaining current assets and current liabilities.

The company should properly utilize its liquid assets by employing it in better technologies. Which may increase the efficiency and quality of the products?

The company should reduce cost of production and also operating cost, whichmay ultimately increase the profits of the company.

The company should improve our competitiveness through improved materialutilization and reduced process cost.

The company should increase there efficiencies of net working capital and tomaintain adequate level of working capital.



BIBLIOGRAPHY



BIBLIOGRAPHY

Books:-

Financial Management: - Prasanna Chandra

Financial Management: - Ravi M. Vechalakar

Cost & Management Account: - Ravi Kishor

Magazines:-

Annual General Report

Company Document

Internet Cities:-

www.genmills.com

www.google.com .

http://www.genmills.com/

http://www.google.com/


http://www.genmills.com/


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GAURAV Ratio Analysis

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