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CHAPTER 1

INDUSTRY PROFILE

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SUGAR INDUSTRY IN INDIA

India has been known as the original home of sugar and sugarcane. Indian mythology

supports the above fact as it contains legends showing the origin of sugarcane. India isthe second largest producer of sugarcane next to Brazil. Presently, about 4 million

hectares of land is under sugarcane with an average yield of 70 tonnes per hectare.

India is the largest single producer of sugar including traditional cane sugar

sweeteners, khandsari and Gur equivalent to 26 million tonnes raw value followed by

Brazil in the second place at 18.5 million tonnes. Even in respect of white crystal

sugar, India has ranked No.1 position in 7 out of last 10 years.

Traditional sweeteners Gur & Khandsari are consumed mostly by the rural population in

India. In the early 1930s nearly 2/3rd of sugarcane production was utilized for production of

alternate sweeteners, Gur & Khandsari. With better standard of living and higher incomes, the

sweetener demand has shifted to white sugar. Currently, about 1/3rd sugarcane production is

utilized by the Gur & Khandsari sectors. Being in the small scale sector, these two sectors are

completely free from controls and taxes which are applicable to the sugar sector.

The advent of modern sugar processing industry in India began in 1930 with grant of tariffprotection to the Indian sugar industry. The number of sugar mills increased from 30 in the

year 1930 - 31 to 135 in the year 1935-36 and the production during the same period

increased from 1.20 lakh tonnes to 9.34 lakh tonnes under the dynamic leadership of the

private sector.

The era of planning for industrial development began in 1950-51 and Government

laid down targets of sugar production and consumption, licensed and installed

capacity of sugarcane production during each of the Five Year Plan periods. Thetargets and achievements during various plan periods are given below.

The discovery of sugarcane, from which sugar as it is known today, is derived dates

back unknown thousands of years. It is thought to have originated in New Guinea, and

was spread along routes to Southeast Asia and India. The process known for creating

sugar, by pressing out the juice and then boiling it into crystals, was developed in

India around 500 BC

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Its cultivation was not introduced into Europe until the middle-ages, when it was

brought to Spain by Arabs. Columbus took the plant, dearly held, to the West Indies,

where it began to thrive in a most favorable climate.

It was not until the eighteenth century that sugarcane cultivation was began in the

United States, where it was planted in the southern climate of New Orleans. The very

first refinery was built in New York City around 1690; the industry was established

by the 1830s. Earlier attempts to create a successful industry in the U.S. did not fare

well; from the late 1830s, when the first factory was built. Until 1872, sugar factories

closed down almost as quickly as they had opened. It was 1872 before a factory, built

in California, was finally able to successfully produce sugar in a profitable manner. At

the end of that century, more than thirty factories were in operation in the U.S.

Manufacturing

Sugar (sucrose) is a carbohydrate that occurs naturally in every fruit and vegetable. It

is a major product of photosynthesis, the process by which plants transform the sun's

energy into food. Sugar occurs in greatest quantities in sugarcane and sugar beets

from which it is separated for commercial use. The natural sugar stored in the cane

stalk or beet root is separated from rest of the plant material through a process known

as refining.

Pressing of sugarcane to extract the juice.

Boiling the juice until it begins to thicken and sugar begins to crystallize.

Spinning the crystals in a centrifuge to remove the syrup, producing raw sugar.

Shipping the raw sugar to a refinery where it is washed and filtered to remove

remaining non-sugar ingredients and color.

Types of Sugar

There are many different types of sugar. Most of these are used only by food

processors and professional bakers and are not available in the supermarket. The types

of granulated sugars differ in crystal size. Each crystal size provides unique functional

characteristics that make the sugar appropriate for the food processor's special need.

Regular" sugar, as it is known to consumers, is the sugar found in every home's

sugar bowl and most commonly used in home food preparation. It is the white sugar

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called for in most cookbook recipes. The food processing industry describes "regular"

sugar as extra fine or fine sugar. It is the sugar most used by food processors because

of its fine crystals that are ideal for bulk handling and are not susceptible to caking

Fruit sugar is slightly finer than "regular" sugar and is used in dry mixes such as

gelatin desserts, pudding mixes and drink mixes. Fruit sugar has a more uniform

crystal size than "regular" sugar. The uniformity of crystal size prevents separation or

settling of smaller crystals to the bottom of the box, an important quality in dry mixes

and drink mixes

Bakers Specials crystal size is even finer than that of fruit sugar. As its name

suggests, it was developed specially for the baking industry. Bakers Special is used

for sugaring doughnuts and cookies as well as in some commercial cakes to produce

fine crumb texture.This sugar's crystal size is the finest of all the types of granulated

sugar. It is ideal for extra fine textured cakes and meringues, as well as for sweetening

fruits and iced-drinks since it dissolves easily. In England, a sugar very similar to

superfine sugar is known as caster or castor, named after the type of shaker in which

it is often packaged

Powdered sugar is granulated sugar ground to a smooth powder and then sifted. Itcontains about 3% corn starch to prevent caking. Confectioners sugar is available in

three grades ground to different degrees of fineness. The confectioners sugar available

in supermarkets is the finest of the three and is used in icings, confections and

whipping cream. The other two types of powdered sugar are used by industrial bakers.

Coarse sugar is normally processed from the purest sugar liquor. This processing

method makes coarse sugar highly resistant to color change or Inversion (natural

breakdown to fructose and glucose) at high temperatures. These characteristics are

important in making fondants, confections and liquors.

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CHAPTER 2

COMPANY PROFILE

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THE SHAHABAD CO-OPERATIVE SUGAR

MILLS LTD.

Shahabad Markanda town is situated on Delhi-Chandigarh highway, at a distance of

20kms. from Kurukshetra towards Ambala. The Shahabad Co-operative Sugar Mill is

situated on Shahabad-Ladwa road at a distance of 3kms. from National Highway i.e.

Delhi-Chandigarh road towards Ladwa. The Shahabad Co-operative Sugar Mills

Shahabad(M) was registered as Co-operative Society on 09-01-1976. The Letter of

intent for establishment of the Sugar Mills of 1250 TCD was received on 14-07-1981

and the commercial production was started on 06-02-1985. The 1250 TCD plant hasgiven excellent results. It was observed that Shahabad area has given potential for the

increase in sugarcane production. It was decided to increase the capacity of the Mill

from 1250 TCD to 3500 TCD. The plant started crushing at full capacity of 3500

TCD from 07-11-1995 i.e. from crushing season 1995-96.

Board of Directors

The Board of Directors takes all the policy decisions of the Mills. The decisions

during the meeting of Board of Directors are taken by the majority view and the

government nominees have the dissenting power. If any Government nominee gives

his dissenting note on any resolution then the matter is referred to the Government for

the final decisions under section 29(3) of the Haryana Co-operative Societies Act

1984. The decision of the Government will be binding on the society and will be

considered as per resolution of the Society. As per bye-laws no.45 the B.O.D. shall

consist of 16 Directors as under:-

Six Directors to be selected by the producer members admitted.

Two Directors to be selected by the non-producer members admitted.

Three Directors to be nominated by the State Government till Share Capital

contributed by the Government is fully retired and load from financial

institutions is repaid.

Two nominee Directors of the Financial Institutions until load taken from

them is repaid.

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Two Directors to be nominated by the State Government having intimate

knowledge of the Sugar Industry and are professionally qualified.

Managing Director as appointed by the State Government.

The State Government has nominated three directors as under:-

Deputy Commissioner as Chairman.

Managing Director, Haryana State Federation of Co-operative Sugar Mills

Ltd., or his nominee.

Registrar Co-operative Societies or his nominee.

As loan has been fully repaid by the Mill so no Director representing

Financial Institutions is on the Board of Directors of the Shahabad Co-operative

Sugar Mills.

As per bye-laws no. 56, there shall be an Executive Committee Consisting of

seven persons as follow:-

Chairman of the Board of Directors as Ex-officio.

Vice-Chairman.

One nominee Director of the Industrial Finance Corporation of India.

Three Directors nominated by the Board at least one of them to be State

Government nominee of the Board.

Managing Director, who shall be the Ex-officio member convener.

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Performance:

The working of The Shahabad Co-operative Sugar Mills has been praise-worthy right

from the inception. The Mills has set unique standards/records at National Level. The

Mills has begged many technical efficiency awards and cane development awards at

National Level. The details of the awards given to the Shahabad Co-operative Sugar

Mills Ltd., by the National Federation of Co-operative Sugar Factories Ltd., Delhi is

given below:-

Efficiency Award 1988-89

Cane Development Efficiency Award 1988-89


Technical Commendation Certificate 1990-91

Cane Development Efficiency Award 1991-92

Technical Commendation Certificate 1993-94

Technical Efficiency Award 1994-95

Best Financial Management Award 2002-03

Best Co-operative Sugar Mills Award 2002-03

1st Prize in Financial Management 2003-04

Best Co-operative Sugar Factory 2003-04

2nd Prize for Cane Development 2003-04

1st Prize for Best Co-operative Mill 2004-05

Cane Development Award 2005-06

Technical Efficiency Award 2006-07




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Share Capital and Dividends:

The authorized share capital of the Shahabad Co-operative Sugar Mills Ltd. is Rs.30

crores. Each share is of Rs. 100 each. This Mills has returned the State Government

Share Capital of Rs.2 crores on the direction of the Registrar Co-operative Societies

Haryana, Chandigarh on 16-03-99. The Mill has total share capital of Rs.16.16 crores

of which Rs.1.47 crores is the share of the State Government.

For the first time, the Mills had distributed dividends @ 7.5% to all of its share

holders in the year 1994-95 for the year 1993-94. Again as per decision taken in the

B.O.D meeting on 10-06-1998, the Mill has distributed dividends @ 10% to all the

shareholders for the year 1997-98. During the year 2006-07, the Mill has again

distributed dividends @ 10% to its shareholders. This is the maximum dividend as per

byelaws of the Mills.

The crushing season 2006-07 of the Mills was started on 18-11-2006 and worked up

to 30-05-2007. The Mill has crushed 71.67 lacks qtls. of sugarcane and produced 7.25

lakh quintals of sugar during the season 2006-07. The sugar recovery for the season

2006-07 was achieved 10.05%. The Mill is paying sugarcane price for early, mid and

general varieties @ Rs.138/_, Rs.128/_ & Rs.126/_ per quintal respectively

The payment to the farmers on account of supply of cane by them is directly made

into the account of the growers through concerned bank with in 7days after the

supply. Distribution of indents for the purchase of cane is done through computers &

advance calendaring on the basis of Parta. The Mill has paid all cane prices of

Rs.9531.00 lakhs to the farmers for the season 2006-07. The Mill has also disbursed

bonus @ Rs.5/- per quintal in addition to the cane price fixed by the State

Government to the suppliers against the cane supplied during the season 2004-05.

Area of Sugar Mill:

The area of the Mills is in radius of 32kms. It spread 16kms. towards Yamunanagar

and 25 kms. in other directions. In the area of the Mills, there are three cane growers

societies i.e. Radaur, Mustfabad & kesri, through which around 50% sugarcane is

purchased directly from growers by the Mills.

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Area of sugarcane:

The area under sugarcane is 42000 acres during the crushing season 2006-07. There

are 400 villages in the reserved area of Shahabad Co-operative Sugar Mills. 11500

growers supply sugarcane to the Miils. For the convenience of the cane growers, the

Mill has set up 27 cane Purchasing Centres in its reserved area. Purchi Distribution

for the purchase of cane is done by the computer and advance calendaring during the

crushing season by the Mills. As per the policy of Haryana Government the payment

to the growers is made within 7 days through banks and co-operatives societies, by

the Mills.

Under the sugarcane development plan, the Mill is providing various facilities to its

cane growers to increase the production of sugarcane. Amongst the facilities, the

facilities of interest free loan against the sugarcane seed for the development of high

varieties, interest free loan and 10% subsidy for pesticides, hot and moist air treated

sugarcane seed free of cost and subsidy @ 300 per acre for sowing treated seed are

the main. The Mill has constructed a Kisan Rest House in its Cane Yard. The Rest

House is equipped with all modern facilities for its growers so that no inconvenience

is caused to the cane growers.

Newly installed Co-generation plant:

The Mill has expand its capacity of the plant from 3500 TCD to 6000 TCD along with

9-10 MW co-generation plant project has been planted by National Federation of Co-

operative Sugar Factories Ltd., New Delhi with the cost of Rs.112 crores. As per

Sugar Federation guidelines, the project report of expansion cum modernization has

been implemented in two phases. The plant capacity will be enhanced from 3500

TCD to 5000 TCD in first phase and 5000 TCD to 6000 TCD along with 9 to 10 MW

co-generation project will be taken up in the second phase.

The Mill has installed on-line computer system in all the offices of the Mills & work

of each section is being done through the on-line computer.

The Government of Haryana has decided to set up a Distillery & Ethanol Project of

45 KLPD at Shahabad Co-operative Sugar Mills. The BOD of the Mills has also

approved the Distillery & Ethanol Project.

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Biological Laboratory:

To save the sugarcane crop from pest and insects, the Shahabad Co-operative Sugar

Mills installed a Biological Laboratory in which Parasites are being given in cane

growers free of cost.

Kisan Sewa Kender:

To provide best quality fertilizers, seeds, pesticides & insecticides to the growers, the

mills have started Kisan Sewa Kendra where growers can buy items on the rates

cheaper than the market rates.

Petrol Pump:

The Mill has also installed a Petrol Pump for the convenience of the farmers.

Magazines and Pamphletsare being distributed to farmers for providing latest

technical knowledge about sugarcane.

Staff Strength & Facilities to Workers:

The approved staff strength sanctioned for 1250 TCD plant was 769 out of which

there are 270 permanent, 499 seasonal permanent & 86 daily wage employees. Due to

expansion of the plant from 1250 TCD to 3500 TCD, the staff strength approved for

the expanded plant is 898. The breakup of the approved staff strength (department

wise), is as under:-

Permanent Seasonal Daily Total

Wagers

General & Accounts 114 33 - 147

Cane 54 160 27 241

Manufacturing 10 200 9 219

Engineering 121 151 19 291

Total 299 544 55 898

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The Registrar Co-operative Societies (Sugar Mills) has revised the staff strength of

3500 TCD plant. As per revised staff strength, the break-up of the approved staff

strength (department wise) is as under:-

Permanent Seasonal Daily Total

Wagers

General & Accounts 95 29 - 124

Cane 54 137 30 221

Manufacturing 10 184 30 224

Engineering 127 125 30 282

Total 286 475 90 851

At present 294 permanent, 459 seasonal permanent and 170 daily wagers are working

in the Mills.

The Mill has 105 quarters and 50 dormitories for its employees. There is also a

modern canteen in the Mills premises where the facilities of tea, meal etc. are

available for workers. In addition to that, the Mill is also providing various facilities

to the workers like dress, bonus, ex-gratia, encashment of earned leave, gratuity etc.

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In order to determine whether the financial position of the company is satisfactory or

the financial data are analyzed. Different methods are used for this purpose. I have

chosen one of these methods that is Ratio Analysis.

The name of project report is Ratio analysis of The Shahabad Co-operative Sugar

Mill Ltd. Primary objective of this report is to analyze the financial position of the

company which is helpful in decision making as well as help to analyze the

performance of the company in past.

Ratio Analysis is the technique of analyzing financial statements. It helps in analyzing

the financial soundness or weakness. Ratios are the quantitative relationship between

two items for the purpose of comparison. The items which are present in profit andloss account and balance sheet are interrelated and this relationship can be calculated

with the help of ratios. Ratios are used to analyze the profitability, activity or

operating efficiency and solvency of the business.

Ratio:- A ratio is simple arithmetical expression of the relationship of one number to

another. It may be defined as the indicated quotient of two mathematical expressions.

According to Accountants Handbook by Wixon, Kell and Bedford, a ratio is an

expression of the quantitative relationship between two numbers.

Ratio Analysis: - Ratio analysis is the process of determining and presenting the

relationship of items and group of items in the statements. According to Batty J.

Management Accounting Ratio can assist management in its basic functions of

forecasting, planning coordination, control and communication.

It is helpful to know about the liquidity, solvency, capital structure and profitability

of an organization. It is helpful tool to aid in applying judgment, otherwise complex

situations.

Ratio may be expressed in the following three ways:

1. Pure Ratio or Simple Ratio:-It is expressed by the simple division ofone number by another. For example, if the current assets of a business are Rs.

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200000 and its current liabilities are Rs. 100000, the ratio of Current assets to

current liabilities will be 2:1.

2. Rate or So Many Times:- In this type, it is calculated how many

times a figure is, in comparison to another figure. For example , if a firms

credit sales during the year are Rs. 200000 and its debtors at the end of the

year are Rs. 40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It

shows that the credit sales are 5 times in comparison to debtors.

3. Percentage:-In this type, the relation between two figures is expressed in

hundredth. For example, if a firms capital is Rs.1000000 and its profit is

Rs.200000 the ratio of profit capital, in term of percentage, is

200000/1000000*100 = 20%

Steps In Ratio Analysis

The first task of the financial analysis is to select the information relevant to

the decision under consideration from the statements and calculates

appropriate ratios.

To compare the calculated ratios with the ratios of the same firm relating to

the past or with the industry ratios. It facilitates in assessing success or failure

of the firm.

Third step is to interpretation, drawing of inferences and report writing

conclusions are drawn after comparison in the shape of report or

recommended courses of action.

Significance of Ratio Analysis

1. Helpful in analysis of Financial Statements.

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2. Helpful in comparative Study.

3. Helpful in locating the weak spots of the business.

4. Helpful in Forecasting.

5. Estimate about the trend of the business.6. Fixation of ideal Standards.

7. Effective Control.

Limitations of Ratio Analysis

1. Comparison not possible if different firms adopt different accounting

policies.

2. Ratio analysis becomes less effective due to price level changes.

3. Ratio may be misleading in the absence of absolute data.

4. Limited use of a single data.

5. Lack of proper standards.

6. False accounting data gives false ratio.

7. Ratios alone are not adequate for proper conclusions.

8. Effect of personal ability and bias of the analyst.

Classification of Ratio

A. Liquidity Ratio

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

B. Leverage or Capital Structure Ratio

a. Debt Equity Ratio

b. Debt to Total Fund Ratio

c. Proprietary Ratio

d. Fixed Assets to Proprietors Fund Ratio

e. Capital Gearing Ratio

f. Interest Coverage Ratio

C. Activity Ratio or Turnover Ratio

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a. Stock Turnover Ratio

b. Debtors or Receivables Turnover Ratio

c. Average Collection Period

d. Creditors or Payables Turnover Ratio

e. Average Payment Period

f. Fixed Assets Turnover Ratio

g. Working Capital Turnover Ratio

D. Profitability Ratio or Income Ratio

(A) Profitability Ratio based on Sales:

a. Gross Profit Ratio

b. Net Profit Ratio

c. Operating Ratio

d. Expenses Ratio

(B)Profitability Ratio Based on Investment:

I. Return on Capital Employed

II. Return on Shareholders Funds:

a. Return on Total Shareholders Funds

b. Return on Equity Shareholders Funds

c. Dividend Per Share and Earning Per Share

d. Earning and Dividend Yield

e. Dividend Payout Ratio

g. Price Earning Ratio

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CHAPTER 4

RESEARCH

METHODOLOGY

RESEARCH METHODOLOGY

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This part of the report i.e. Research Methodology is intended to give the details of the

conceptual framework within which the study has been carried out. For conducting

the project there needs to be proper methodology or step-by-step decision making in

order to make the project successful.

The overall study of finance department will be done by spending the schedule time in

each section of department designed in given fashion. The functions of every section

will be observed very minutely by studying their day to day activities and studying

there in the processes and methods involved in the functions and decision making.

This section covers the following aspects:

A. Objectives of the Study

B. Research Methodology

A: OBJECTIVES OF THE STUDY

To study the short-term solvency of Company

To study the relationship between debts and equity of Company

To study the profitability of Company To study Trends in Ratios of 4 years

B: RESEARCH METHODOLOGY

The methodology adopted in this study is basically analysis and interpretation.

Analysis of various ratios of financial statements is done to evaluate the performance

of The Shahabad Cooperative Sugar Mill Ltd. The financial statement has been

collected from the finance department of the company. The data were arranged, that is

various items of annual reports after appropriate reshuffling were arranged to

represent the form suitable for analysis and interpretation. No definite procedure of

step is followed for arranging data. Generally each case involves a different

procedure. However, the items are rearranged in such a way that all items needed for

calculating a particular ratio are easily available but are also free from doubt.

Ratio Analysis is basically concerned with interrelation of different items at a

particular point of time that is the date of financial statement. Thus, for this project,

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various ratios for successive period are calculated in order to see the trend in the

relationship of different items during the period of study. Though, significant ratios

can be calculated from various standpoints, the classification by functions has been

taken up for the purpose of study. The ratios have been compared to the standards,

norms of the ratio in the industry and secondly, a horizontal analysis has been carried

out suitable conclusions have been drawn, but these views, ideas and opinions are

based on the analysis, comparison and the study of the trend.

Research Design:

The research design is a pattern or an outline of research project working. It is a

statement of only essential elements of study, those that provide basic guidelines forthe details of the project. The function of research design is to provide for the

collection of relevant evidence with minimal expenditure of effort, time and money.

The present study is being conducted followed by Descriptive Research Design.

Descriptive Research Study:

Descriptive research study are those studies which are concerned with describing the

characteristics of a particular individual, or of a group, whereas diagnostic researchstudies determine the frequency with which something occur or its associated with

something else. As against this, study concerned with specific prediction, with

narration of facts and characteristics concerning individual, group or situation are all

the example of descriptive research study.

METHODS OF DATA COLLECTION

Primary Data Collection

The data collected through primary means is based upon the personal

discussion with the officers working under the finance department.

Secondary Data Collection

Secondary data collection is mainly based upon:

Annual reports of The Shahabad Cooperative Sugar Mill Ltd. Shahabad.

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Other documents and files of The Shahabad Cooperative Sugar Mill Ltd.

Shahabad.

Book and Journals

Techniques of Study

There are various ratios which are used in the study like:

1. Current ratio = Current Assets/Current liabilities

2. Quick Ratio = Liquid Assets/ Current Liabilities

3. Debt Equity Ratio=External Equities/internal Equities

4. Debt to Total Funds Ratio = Long-term Loans/Shareholders funds + Long

term Loans

5. Proprietary Ratio = Shareholders Funds/Total assets

6. Fixed Asset to Proprietors Fund Ratio = Fixed Assets/Proprietors Funds (i.e.,

Net Worth) *100

7. Capital Gearing Ratio = Equity Share Capital+ Reserves + / Fixed cost

Bearing Capital

8. Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed

Interest Charges

9. Stock Turnover Ratio = Cost of Goods Sold / Average Stock

10. Stock conversion Period= 12 months/ stock turnover ratio

11. Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R

12. Average Collection Period = Debtors + Bills Receivable / Credit Sales per

day

13. Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio

14. Creditors Turnover Ratio = Net credit Purchases / Average Creditors +

Average B/P

15. Average Payment Period = 12 months or 365 days / Creditors Turnover Ratio

16. Fixed Assets Turnover Ratio = Cost of Goods Sold/ Net Fixed Assets

17. Working Capital Turnover Ratio= Cost of Goods Sold / Working Capital

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18. Gross Profit Ratio = Gross Profit / Net Sales *100

19. Net Profit Ratio = Net Profit / Net sales *100

a. Operating Net Profit = Operating Net Profit / Net Sales *100

20. Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100

21. Expenses Ratio :-

(a) Material Consumed Ratio = Material Consumed/Net Sales*100

(b) Direct Labour cost Ratio = Direct labour cost / Net sales*100

(c) Factory Expenses Ratio = Factory Expenses / Net Sales *100

(d) Office and Administrative Expenses Ratio = Office and Administrative

Exp./ Net Sales*100

(e) Selling Expenses Ratio = Selling Expenses / Net Sales *100

(f) Non- Operating Expenses Ratio = Non-Operating Exp./Net sales*100

22. Return on Capital Employed = Profit before interest, tax and dividends/Capital

Employed *100

23. Return on Total Shareholders Funds = Net Profit after Interest and Tax / Total

Shareholders Funds

24. Earning Per Share = Net Profit Dividend on Preference Shares / No. of

Equity Shares

25. D.P.S. = Dividend paid to Equity Shareholders / No. of Equity Shares *100

26. D.P.R = D.P.S. / E.P.S. *100

Limitations of Study

This ratio analysis is subject to the following assumptions and limiting

conditions:

1. Information, estimates, and opinions contained in this report are obtained from

sources considered to be reliable. However, we assume no liability for such

sources.

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2. The analysis contemplates facts and conditions existing as of the analysis date.

Events and conditions occurring after that date have not been considered, and

we have no obligation to update our report for such events and conditions.

3. It is only a study of interim reports.

4. Analysis is based only on monetary information and non monetary factors are

ignored.

5. Price level changes are not considered.

6. Going concern principle does not allow the analysis to give an exact picture.

7. This ratio analysis assumes that the Company will continue to operate as a

going concern, and that the character of its present business will remain intact.

8. Analysis is only a means and not an end in itself. The analyst makes

interpretation and draws his own conclusions. Different people do it

differently.

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CHAPTER 5

RATIO ANALYSIS OF THESHAHABAD CO-OPERATIVE

SUGARMILL LTD.

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DATA ANALYSIS

This chapter outlines the analysis the ratio of Sugarmill.A ratio is simply one number

expressed in terms of another. It is found by dividing one number into the another.

Financial statements, i.e., Profit and Loss account and Balance Sheet prepared at the

end of the year do not always convey to the reader the final profitability and financial

health of the business. They contain various facts and figures and it is for the reader to

conclude, whether these facts indicate a good or bad managerial performance. Ratio

analysis is the most important tool of analyzing these financial statements. Some

important objects and advantages derived by a concern by the use of accounting ratios

are:

Helpful in Analysis of Financial Statements

Simplification of Accounting Data

Helpful in comparative Study

Helpful in Locating the Weak Spots of the business

Helpful in forecasting

Study of Financial Soundness

All of the mentioned ratios are very important for examining the firm on

various aspects. For the purpose of present study, some of these ratios have beenapplied

LIQUIDITY RATIO

(A) Liquidity Ratio: - It refers to the ability of the firm to meet its current

liabilities. The liquidity ratio, therefore, are also called Short-term Solvency Ratio.

These ratios are used to assess the short-term financial position of the concern. They

indicate the firms ability to meet its current obligation out of current resources.

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In the words of Saloman J. Flink, Liquidity is the ability of the firms to meet its

current obligations as they fall due.

Liquidity ratio includes two ratios:-

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

a.Current Ratio: - Current ratio may be defined as the relationship between current

assets and current liabilities. This ratio also known as Working capital ratio is a

measure of general liquidity and is most widely used to make the analysis of a short-

term financial position (or) liquidity of a firm.

This ratio explains the relationship between current assets and current liabilities of a

business.

Formula:

Current ratio = Current Assets/Current liabilities

Current Assets:-Current assets includes those assets which can be converted into

cash with in a years time.

Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment +

Debtors (Debtors Provision) + Stock (Stock of Finished Goods + Stock of Raw

Material + Work in Progress) + Prepaid Expenses.

Current Liabilities:-Current liabilities include those liabilities which are repayable in a

years time.

Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation +

Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable

within a Year.

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Table:-1

PARTICULARS 2007 2008 2009 2010

Rs. (in Lacs) Rs. (in Lacs) Rs. (in Lacs) Rs. (in Lacs)

CURRENT ASSETS:-

Inventory 7375.31 6067.44 11467.96 9535.40

Debtors 56.72 120.99 69.43 78.17

Cash & Bank balances 35.80 134.56 163.16 332.62

Loan & Advances 2029.16 1346.42 1477.17 3120.79

Total 9496.99 7669.41 13177.72 13066.93

CURRENT LIABILITIES:-

Creditors 93.23 32.21 93.40 96.83

Other C.L 4103.41 2928.06 8763.28 8301.50

Total 4196.64 2960.27 8856.68 8398.33

Current Ratio 2.26 2.59 1.48 1.56

Graph:-1

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YEARS

Significance:-

According to accounting principles, a current ratio of 2:1 is supposed to be an ideal

ratio.It means that current assets of a business should, at least, be twice of its current

liabilities. The higher ratio indicates the better liquidity position, the firm will be able to pay

its current liabilities more easily. If the ratio is less than 2:1, it indicates lack of liquidity and

shortage of working capital.

The biggest drawback of the current ratio is that it is susceptible to window

dressing. This ratio can be improved by an equal decrease in both current assets and

current liabilities.

Interpretation:-

As the current ratios of years 2007 & 2008 was more than the rule of thumb which

shows mills extra money was invested in the current assets and specifically in

the inventory which means that there are extra funds are invested in the inventory.

Current ratio of years 2009 & 2010 was less the 2:1 which was also un

satisfactory because it shows that the mill cannot repaid its short term

obligations out of its current assets easily . It has to take external funds if its liabilities

demand for payment within one year.

But while analyzing the financial position , we have to consider otherfactors

like:-

Nature of Product: - As the demand for sugar is on continue basis so its investment

in stock may have good symbols.

Goodwill:- As the Goodwill of the Mill is very good ,so it has no problem in

the payment of its creditors because they have faith on the sugar mill that it

will make their payments timely. And in the actual The Sugar Mill has gain a

goodwill on its relations with the creditors.

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Stock conversion ratio: - Its SCR is also satisfactory except of year 2009 which is

14.5 months. So in the year 2009 its S.C.R is unsatisfactory. In the other year, its

liquidity position is satisfactory.

b. Quick Ratio: - Quick ratio is a test of liquidity than the current ratio. The term

liquidity refers to the ability of a firm to pay its short-term obligations as & when they

become due. Quick ratio may be defined as the relationship between quick or liquid

assets and current liabilities. An asset is said to be liquid if it is converted into cash

within a short period without loss of value.Quick ratio indicates whether the firm is in a

position to pay its current liabilities within a month or immediately.

Formula:

Quick Ratio = Liquid Assets/ Current Liabilities

Liquid Assets means those assets, which will yield cash very shortly.

Liquid Assets = Current Assets Stock Prepaid Expenses

Table:-2

PARTICULARS 2007 2008 2009 2010


QUICK ASSETS:-

Debtors 56.72 120.99 69.43 78.17Cash & Bank balances 35.80 134.56 163.16 332.62

Loan & Advances 2029.16 1346.42 1477.17 3120.79

Total 2121.68 1601.97 1709.76 3531.58


Creditors 93.23 32.21 93.40 96.83

Other C.L 4103.41 2928.06 8763.28 8301.50

Total 4196.64 2960.27 8856.68 8398.33

Quick Ratio: - 0.50 0.54 0.19 0.42

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Graph:-2

YEARS

Significance:-

An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This

ratio is a better test of short-term financial position of the company.

Interpretation:-

Quick Ratio of the Sugar Mill was unsatisfactory because it was less than the

ideal ratio 1:1 . It shows that its low liquidity position.

But as it has fast moving stock in the years 2007.,2008& 20010, so its short

term position was a little bit unsatisfactory.

As in the year 2009 , its quick ratio & stock conversion ratio was very

unsatisfactory ,so in this year its liquidity position was not good.

LEVERAGE OR CAPITAL STRUCTURE RATIO:-

(B) Leverage or Capital Structure Ratio: - The leverage or solvency ratio refers to

the ability of a concern to meet its long term obligations. Accordingly, long term

solvency ratios indicate firms ability to meet the fixed interest and costs and

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repayment schedules associated with its long term borrowings.

These ratios disclose the firms ability to meet the interest costs regularly and Long

term indebtedness at maturity.

These ratios include the following ratios:

a. Debt Equity Ratio: - This ratio can be expressed in two ways:

First Approach: According to this approach, this ratio expresses the

relationship between long term debts and shareholders fund.

Formula:

Debt Equity Ratio=Long term Loans/Shareholders Funds or Net Worth

Long Term Loans: -These refer to long term liabilities which mature after one

year. These include Debentures, Mortgage Loan, Bank Loan, and Loan from

Financial institutions and Public Deposits etc.

Shareholders Funds: - These include Equity Share Capital, Preference Share

Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit

Balance of Profit & Loss Account.

Second Approach:According to this approach the ratio is calculated as follows:-

Formula:

Debt Equity Ratio=External Equities/internal Equities

Debt equity ratio is calculated for using second approach.

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Table:-3

PARTICULARS 2007 2008 2009 2010Rs. (in Lacs) Rs. (in Lacs) Rs. (in Lacs) Rs. (in Lacs)

EXTERNAL EQUITIES:-

Long term funds 94.94 24.06 61.12 471.66Short term funds 4196.64 2960.27 8856.68 8398.33

Total 4291.58 2984.33 8917.80 8869.99

INTERNAL EQUITIES:-

Share Capital 1501.12 1367.27 1367.36 1367.40

Reserve & Surplus 5459.15 5086.88 4864.79 6797.68

Total 6958.93 6454.15 6232.15 8165.06

DEBT EQUITY RATIO 0.62 0.46 1.41 1.09

Graph:-3

YEARS

Significance:-

This Ratio is calculated to assess the ability of the firm to meet its long term

liabilities. Generally, debt equity ratio of is considered safe.

If the debt equity ratio is more than that, it shows a rather risky financial position

from the long-term point of view, as it indicates that more and more funds invested in

the business are provided by long-term lenders.

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The lower this ratio, the better it is for long-term lenders because they are more secure

in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-

term lenders.

Interpretation:-

The Debt Equity Ratio of the Sugar Mill indicates that they invest very less

amount from the long term funds. Sugar Mill has adopted a safe financial planning

from long term point of view.

From the shareholders point of view, it indicates unsatisfactory position because it

indicates that Mill has not been able to use low outsiders funds to magnify their

earnings.By analyzing this ratio, we can interpret that Sugar Mill uses a funds by

ploughing back of profits in the mill. Along Mill uses the short term funds in

comparison of long term funds.

Thus the sugar Mill can use more funds from outside so that it can increase its earning

& shareholders earning.

b. Debt to Total Funds Ratio:This Ratio is a variation of the debt equity ratio

and gives the same indication as the debt equity ratio. In the ratio, debt is expressed in

relation to total funds, i.e., both equity and debt.

Formula:

Debt to Total Funds Ratio = Long-term Loans/Shareholders funds + Long-term

Loans

Table:-4

PARTICULARS 2007 2008 2009 2010


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Long Term Funds 94.94 24.05 61.12 471.66

Shareholders Funds 6958.93 6454.15 6232.15 8165.68

Debt to Total Funds Ratio 1.34% 0.5% 1% 0.6%

Graph:-4

YEARS

Significance:-

Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory. In

other words, the proportion of long term loans should not be more than 67% of total

funds.

A higher ratio indicates a burden of payment of large amount of interest charges

periodically and the repayment of large amount of loans at maturity. Payment of

interest may become difficult if profit is reduced. Hence, good concerns keep the debt

to total funds ratio below 67%. The lower ratio is better from the long-term solvency

point of view.

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Interpretation:-

In the year 2007 , Debt to total funds ratio is 1.34% which is less than the 67%

but it is its highest ratio in this year it uses more debts in the comparison of

other years .

In the year 2008, this ratio dec. with a very much amount which shows Sugar Mill has

not relied on outside sources for raising long term funds. There is enough scope for

the company

c. Proprietary Ratio:-This ratio indicates the proportion of total funds provide

by owners or shareholders.

Formula:

Proprietary Ratio = Shareholders Funds/Total assets

Table:-5


SHAREHOLDERS FUNDS:-Share Capital 1501.12 1367.27 1367.36 1367.4

Reserve & Surplus 5459.15 5086.88 4864.79 6797.68

Total 6958.93 6454.15 6232.15 8165.06

Total Assets:-

Fixed Assets 1483.28 1497.52 1700.64 3696.54

Investment 271.58 271.58 271.58 271.58

Current Assets 9496.99 7669.41 13177.72 13066.93

Total 11251.65 9438.31 15149.95 17035.05

Proprietary Ratio: - 61.84% 68.38% 41.14% 47.93%

Graph:-5

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YEARS

Significance:-

This ratio should be 33% or more than that. In other words, the proportion of shareholders

funds to total funds should be 33% or more. A higher proprietary ratio is generally treated an

indicator of sound financial position from long-term point of view, because it means that the

firm is less dependent on external sources of finance.

If the ratio is low it indicates that long-term loans are less secured and they face the risk of

losing their money.

Interpretation:-

As this ratio should be more than 33% because this shows that the firm is less

dependent on the external sources of finance.

In the year 2007, it is 61.84% which shows a very sound position of Sugar mill.

Similarly in the year 2008, it increase by 7% and indicates a healthy position of the

Sugar mill.

In the year 2009 &2010, this ratio decrease but shows the sound position of Sugar

mill. It shows that a large part of Assets are financed from Shareholders funds.

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d. Fixed Assets to Proprietors Fund Ratio: -This ratio is also known as fixed assets to

net worth ratio. It is also known as sales to fixed assets ratio. This ratio measures the

efficiency and profit earning capacity of the firm. Higher the ratio, greater is the

intensive utilization of fixed assets. Lower ratio means under-utilization of fixed

assets.

Formula:

Fixed Asset to Proprietors Fund Ratio = Fixed

Assets/Proprietors Funds (i.e., Net Worth) *100

Table:-6

PARTICULARS 2007 2008 2009 2010

FIXED ASSETS: - 1483.28 1497.52 1700.64 3696.54

PROPRIETORS FUND: - 6958.93 6454.15 6232.15 8165.06

F.A to Proprietors Fund Ratio 20.66% 23.20% 27.28% 45.27%

Graph:-6

YEARS

Significance:-The ratio indicates the extent to which proprietors (Shareholders)

funds are sunk into fixed assets. Normally, the purchase of fixed assets should be

financed by proprietors funds. If this ratio is less than 100%, it would mean that

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proprietors fund are more than fixed assets and a part of working capital is provided

by the proprietors. This will indicate the long-term financial soundness of business.

Interpretation:-

As this ratio shows that how the proprietors funds are used in the firm and higher

ratio is considered good for the firm.

In the years 2007, 2008, 2009 it shows a very low ratio which indicates that the

proprietors fund are invested in the working capital.

In the year 2010 it increase, which shows a positive position for the Sugar mill and its

proprietors that its Shareholders Capital are now used for Fixed Assets.

e.Capital Gearing Ratio: -This ratio establishes a relationship between equity

capital (including all reserves and undistributed profits) and fixed cost bearing capital.

Formula:

Capital Gearing Ratio = Equity Share Capital+ Reserves + / Fixed

cost Bearing Capital

Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures +

Long Term Loan

Table:-7

PARTICULARS 2007 2008 2009 2010


Share Capital 1501.12 1367.27 1367.36 1367.40

Reserve & Surplus 5459.15 5086.88 4864.79 6797.68

Total 6958.93 6454.15 6232.15 8165.06

Fixed cost Bearing Cap. 94.94 24.05 61.12 471.66

Capital Gearing Ratio:- 73.30% 268.36% 101.97% 17.31%

Graph:-7

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YEARS

Significance:-

If the amount of fixed cost bearing capital is more than the equity share capital

including reserves an undistributed profits), it will be called high capital gearing andif it is less, it will be called low capital gearing.

The high gearing will be beneficial to equity shareholders when the rate of

interest/dividend payable on fixed cost bearing capital is lower than the rate of return

on investment in business.

Thus, the main objective of using fixed cost bearing capital is to maximize the profits

available to equity shareholders.

Interpretation:-

Fixed cost bearing capital is very low in comparison to shareholders funds. It

indicates low Capital Gearing Ratio.

Low Capital Gearing Ratio is helpful when the cost of shareholders funds is less than

the fixed cost bearing capitals cost.

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In the year 2007 the cost of shareholders is very low and in other years it is nil

because no dividend was declared to shareholders.

So, it shows a right decision of Low Capital Gearing.

f. Interest Coverage Ratio: -This ratio is also termed as Debt Service Ratio.

This ratio is calculated as follows:

Formula:

Interest Coverage Ratio = Net Profit before charging interest and tax/Fixed

Interest Charges

Table:-8


N/P BEFORE INT.:- 2682.48 1073.80 32.31 2539.62

FIXED INT. CHARGES: - 193.59 74.95 350.93 606.75

Interest Coverage Ratio 14 times 14 times 0.09 times 4 times

Graph:-8

YEARS

Significance:-

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This ratio indicates how many times the interest charges are covered by the profits

available to pay interest charges. This ratio measures the margin of safety for long-

term lenders. This higher the ratio, more secure the lenders is in respect of payment

of interest regularly. If profit just equals interest, it is an unsafe position for the lender

as well as for the company also, as nothing will be left for shareholders.

An interest coverage ratio of 6 or 7 times is considered appropriate.

Interpretation:-

This Ratio is low as comparatively to the ideal in 2010. It was very good in 2007,

2008 as it was double of ideal .In 2009 it was very low which shows less security for

lenders.

ACTIVITY RATIO OR TURNOVER RATIO

(C) Activity Ratio or Turnover Ratio: - These ratios are calculated on the

bases of cost of sales or sales, therefore, these ratios are also called as Turnover

Ratio. Turnover indicates the speed or number of times the capital employed has been

rotated in the process of doing business. Higher turnover ratio indicates the better use of

capital or resources and in turn lead to higher profitability.

It includes the following:

a. Stock Turnover Ratio: -This ratio indicates the relationship between the cost

of goods during the year and average stock kept during that year.

Formula:

Stock Turnover Ratio = Cost of Goods Sold / Average Stock

Here, Cost of goods sold = Net Sales Gross Profit

Average Stock = Opening Stock + Closing Stock/2

Table:-9

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PARTICULARS 2007 2008 2009 2010


Cost of Goods Sold:-

Sales 12643.81 12238.03 7192.57 14468.0

Gross Profit 3100.43 1781.39 612.65 3270.63

Cost of goods sold 9543.38 10456.64 6579.92 11197.37Average Stock:-

Opening Stock 8089.81 7238.41 5912.17 11218.17

Closing Stock 7238.41 5912.17 11218.17 9292.88

Average Stock 7664.11 6575.29 8565.57 10255.93

Stock Turnover Ratio 1.25 times 1.59 times .77 times 1.92 times

Graph:-9

YEARS

Significance:-

This ratio indicates whether stock has been used or not. It shows the speed with which

the stock is rotated into sales or the number of times the stock is turned into sales

during the year.

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The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a

business where stock turnover ratio is high, goods can be sold at a low margin of

profit and even than the profitability may be quite high.

Interpretation:-

This ratio shows the speed with which the stock is converted into sales. While

analyzing, we have consider the nature of product.

As the sugar is manufactured seasonally in 4-5 months in a year. So it has to stock out

a large amount in inventory should be converted into sales before starting next

manufacturing cycle of season.

According to this all, the ratios are satisfactory except the year 2009 in which it is

0.77 times which is very low.

b. Stock Conversion Period:- Itmay also be of interest to see average time

taken for clearing the stock. This can be possible by calculating inventory conversion

period. This period is calculated by dividing the number of months by stock turnover

ratio.

Formula,

Stock conversion Period= 12 months/stock turnover ratio

Table:-10

PARTICULARS 2007 2008 2009 2010

Stock Turnover Ratio 1.25times 1.59times .77times 1.92times

Stock conversion Period 9.6 months 7.55 months 15.6 months 6.25 months

Graph:-10

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YEARS

Interpretation:-

This ratio of all year is satisfactory except the year 2009.In this year it is 15.6 months

it means stock was hold for 15.6 months in the mill.

But in the next year sugar mill adopts right polices and achieve a very satisfactory

stock conversion ratio.

c. Debtors Turnover Ratio: - This ratio indicates the relationship between

credit sales and average debtors during the year:

Formula:

Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R

While calculating this ratio, provision for bad and doubtful debts is not deducted from

the debtors, so that it may not give a false impression that debtors are collected

quickly.

Table:-11

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PARTICULARS 2007 2008 2009 2010


Net Credit Sales: - 1264.38 1223.80 1798.14 3617.00

Debtors: - 56.72 120.99 69.43 78.17

Average Debtors: - 56.72 88.86 95.21 73.80

Debtor Turnover Ratio:- 22.29 13.77 18.88 49.01

Graph:-11

YEARS

Significance:-

This ratio indicates the speed with which the amount is collected from debtors. The

higher the ratio, the better it is, since it indicates that amount from debtors is being

collected more quickly. The more quickly debtors pay, the less the risk from bad-

debts, and so the lower the expenses of collection and increase in the liquidity of the

firm. By comparing the debtors turnover ratio of the current year with the previous

year, it may be assessed whether the sales policy of the management is efficient or

not.

Interpretation:-

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As this ratio indicates the speed with which the amount is collected from debtors.

Ratio of sugar mill is satisfactory in all the years. In the year 2008 it decrease from

2007 but even then it is satisfactory

d. Average Collection Period: - This ratio indicates the time with in which

the amount is collected from debtors and bills receivables.

Formula:

Average Collection Period = Debtors + Bills Receivable / Credit Sales per day

Here, Credit Sales per day = Net Credit Sales of the year / 365

Second Formula:-

Average Collection Period = Average Debtors *365 / Net Credit Sales

Average collection period can also be calculated on the bases of Debtors Turnover

Ratio. The formula will be:

Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio

Table:-12

PARTICULARS 2007 2008 2009 2010


Debtor Turnover Ratio 22.29 13.77 18.88 49.01

Average Collection Period 16 days 27days 19days 8days

Graph:-12

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YEARS

Significance:-

This ratio shows the time in which the customers are paying for credit sales. A higher

debt collection period is thus, an indicator of the inefficiency and negligence on the

part of management.

On the other hand, if there is decrease in debt collection period, it indicates prompt

payment by debtors which reduces the chance of bad debts.

Interpretation:-

This ratio of sugar mill indicates that sugar mill has a very

Sugar mill have good relations with its dealers and customers. They all make their

payment within one month on maximum basis.

d. Creditors Turnover Ratio: - This ratio indicates the relationship between

credit purchases and average creditors during the year.

Formula:-

Creditors Turnover Ratio = Net credit Purchases / Average Creditors + AverageB/P

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Note: - If the amount of credit purchase is not given in the question, the ratio may be

calculated on the bases of total purchase.

Table:-13


Net Credit Purchases: - 721.08 759.70 992.62 753.93

Creditors: - 93.23 32.21 93.40 96.83

Average Creditors: - 93.23 62.72 62.81 61.75

Creditors Turnover Ratio 7.73 12.11 15.80 12.21

Graph:-13

YEARS

Significance:-

This ratio indicates the speed with which the amount is being paid to creditors. The

higher the ratio, the better it is, since it will indicate that the creditors are being paid

more quickly which increases the credit worthiness of the firm.

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Interpretation:-It shows that the speed with which the amount is being paid to

creditors. It shows the relationship with creditors and creditworthiness. This ratio of

the sugar mill is also very satisfactory in all the years.

So sugar mill has healthy relations with the creditors and its creditworthiness is

strong.

d. Average Payment Period:-This ratio indicates the period which is normally

taken by the firm to make payment to its creditors.

Formula:-

Average Payment Period = Creditors + B/P/ Credit Purchase per day

This ratio may also be calculated as follows:

Average Payment Period = 12 months or 365 days/Creditors Turnover Ratio

Table:-14

PARTICULARS 2007 2008 2009 2010

Rs. (in Lacs) Rs.(in Lacs) Rs. (in Lacs) Rs. (in Lacs)Creditors Turnover Ratio 7.73 12.11 15.80 12.21

Average Payment Period 47 days 30 days 23 days 29 days

Graph:-14

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YEARS

Significance:-The lower the ratio, the better it is, because a shorter payment period

implies that the creditors are being paid rapidly.

Interpretation:-

Sugar mill has a strong ratio of average payment period. This ratio indicates that sugar

mill unpaid its creditor within the maximum days of 50 days which indicates a very

strong policy of sugar mill for its creditworthiness

d. Fixed Assets Turnover Ratio:-This ratio reveals how efficiently the fixed

assets are being utilized.

Formula:-

Fixed Assets Turnover Ratio = Cost of Goods Sold/Net Fixed Assets

Here, Net Fixed Assets = Fixed Assets Depreciation

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Table:-15

PARTICULARS 2007 2008 2009 2010



Sales 12643.81 12238.03 7192.57 14468.00

Gross Profit 3100.43 1781.39 612.65 3270.63

Cost of goods sold 9543.38 10456.64 6579.92 11197.37

Fixed Assets 1483.28 1497.52 1700.64 3696.54

Fixed Assets Turnover Ratio 6.43 6.98 3.86 3.02

Graph;-15

YEARS

Significance:-

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This ratio is particular importance in manufacturing concerns where the investment in

fixed asset is quite high. Compared with the previous year, if there is increase in this

ratio, it will indicate that there is better utilization of fixed assets.

If there is a fall in this ratio, it will show that fixed assets have not been used as

efficiently, as they had been used in the previous year.

Interpretation:-

As in the year 2008 fixed assets turnover is inc. this means efficient use of fixed

assets but in the year 2009 and 2010 the ratio decrease which is a negative sign. It

means that now fixed assets are not efficiently used in the sugar mill.

By efficient use of fixed assets sugar mill can increase its profits.

e. Working Capital Turnover Ratio: - This ratio reveals how efficientlyworking capital has been utilized in making sales.

Formula:-

Working Capital Turnover Ratio= Cost of Goods Sold / Working Capital

Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other

Direct Expenses - Closing Stock

Working Capital = Current Assets Current Liabilities

Table:-16

PARTICULARS 2007 2008 2009 2010

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Sales 12643.81 12238.03 7192.57 14468.00

Gross Profit 3100.43 1781.39 612.65 3270.63

Cost of goods sold 9543.38 10456.64 6579.92 11197.37

Working Capital:-CURRENT ASSETS:-

Inventory 7375.31 6067.44 11467.96 9535.40

Debtors 56.72 120.99 69.43 78.17

Cash & Bank balances 35.80 134.56 163.16 332.62

Loan & Advances 2029.16 1346.42 1477.17 3120.72

Total 9496.99 7669.41 13177.72 13066.93


Creditors 93.23 32.21 93.40 96.83

Other C.L 4103.41 2928.06 8763.28 8301.50

Total 4196.64 2960.27 8856.68 8398.33Working Capital: - 5300.35 4709.14 4321.04 4668.60

W.Cap Turnover Ratio 1.80 times 2.22 times 1.45 times 2.49 times

Graph:-16

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YEARS

Significance:-

This ratio is of particular importance in non-manufacturing concerns where current

assets play a major role in generating sales. It shows the number of times working

capital has been rotated in producing sales. A high working capital turnover ratio

shows efficient use of working capital and quick turnover of current assets like stock

and debtors. A low working capital turnover ratio indicates under-utilization of

working capital.

Interpretation:-

As this shows the number of times the working capital has been rotated in sales.

Now by analyzing this ratio of sugar mill we can say in the year 2009 sugar mill has

not made proper utilization of working capital. In the year 2007 it is 1.80 times means

it is ok. In the year 2008 and 2010 it shows an efficient use of working capital in

producing sales.

Profitability Ratios or Income Ratios

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(D) Profitability Ratios or Income Ratios: - The main object of every

business concern is to earn profits. A business must be able to earn adequate profits in

relation to the risk and capital invested in it. The efficiency and the success of a

business can be measured with the help of profitability ratio.

(A) Profitability Ratio Based on Sales:

a) Gross Profit Ratio:This ratio shows the relationship between gross profit andsales.

Formula: Gross Profit Ratio = Gross Profit / Net Sales *100

Here, Net Sales = Sales Sales Return

Table:-17

PARTICULARS 2007 2008 2009 2010


Gross Profit:- 3100.43 1781.38 612.65 3270.63

Net Sales: - 12643.80 12238.03 7191.56 14468.09

Gross Profit Ratio:- 24.52% 14.55% 8.5% 22.6%

Graph:-17

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YEARS

Significance:-

This ratio measures the margin of profit available on sales. The higher the gross profit

ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio

should be adequate enough not only to cover the operating expenses but also to

provide for depreciation, interest on loans, dividends and creation of reserves.

Interpretation:-

This ratio should be higher and higher in the year 2007 it shows a satisfactory G.P

ratio which cans over operating and non operating G.P efficiently.

In the year 2008 it decreases and also in the year 2009 it decreases to a very low value

which can not cover its operating exp.

If we analyse deeply we can find reason for this that is in the year2009 sales of sugar

are very less but it cost of manufacturing is remain high because of high fixed coast.

In the year 2010 it shows a very high like in G.P ratio which shows a great possibility

of net profit.

b) Net Profit Ratio:- This ratio shows the relationship between net profit and sales

indicates the efficiency of the management in manufacturing, selling administrative

and other activities of the firm It also indicates the firms capacity to face adverse

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economic conditions such as price competitors, low demand etc. Obviously higher the

ratio, the better is the profitability.. It may be calculated by two methods:

Formula:

Net Profit Ratio = Net Profit / Net sales *100

Operating Net Profit = Operating Net Profit / Net Sales *100

Here, Operating Net Profit = Gross Profit Operating Expenses such as Office and

Administrative Expenses, Selling and Distribution Expenses, Discount, Bad Debts,

Interest on short-term debts etc.

Table:-18

PARTICULARS 2007 2008 2009 2010


Net Profit: - 2488.89 998.85 (318.62) 1932.87

Operating Net Profit:-

Gross Profit 3100.43 1781.38 612.65 3270.63

Operating Expenses 702.43 786.33 780.71 889.74

Operating Net Profit 2398.00 955.05 (168.06) 2300.89

Net Sales: - 12643.80 12238.03 7191.56 14468.09

Net Profit Ratio: - 19.68% 8.16% (4.43%) 13.36%

Operating Net Profit:- 18.97% 7.80% (2.34%) 15.90%

Graph:-18

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YEARS

Significance:-

This ratio measures the rate of net profit earned on sales. It helps in determining the

overall efficiency of the business operations. An increase in the ratio over the

previous year shows improvement in the overall efficiency and profitability of the

business.

Interpretation:-

This ratio is very important ratio for all the stake holders because it shows the

possibility of their returning on their investment.

If we see the trend of this ratio, it shows a declining trend in three year which asnegative impact on the profitability of the business inefficiency of the sugar mill mgt.

But in the year 2009, it inc with a very high rate which shows possibility of

Recovering all the losses of previous year.

(c) Operating Ratio: - This ratio measures the proportion of an enterprise cost of

sales and operating expenses in comparison to its sales. However 75 to 85% may be

considered to be a good ratio in case of a manufacturing under taking.

Formula:

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

Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages +

Other Direct Expenses - Closing Stock

Operating Expenses = Office and Administration Exp. + Selling and Distribution Exp.

+ Discount + Bad Debts + Interest on Short- term loans.

Table:-19

PARTICULARS 2007 2008 2009 2010

Rs. (inLacs) Rs. (inLacs) Rs. (inLacs) Rs. (inLacs)


Sales 12643.81 12238.03 7192.57 14468.00

Gross Profit 3100.43 1781.39 612.65 3270.63

Total 9543.38 10456.64 6579.92 11197.37

Operating Exp.:- 702.43 786.33 780.71 889.74

Net Sales: - 12643.80 12238.03 7191.56 14468.09

Operating Ratio: - 81.63% 92.2% (102.34%) 83.54%

Graph:19

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YEARS

Significance:-

Operating Ratio is a measurement of the efficiency and profitability of the business

enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods

sold and operating expenses. Lower the operating ratio is better, because it will leave

higher margin of profit on sales.

Interpretation:-

This ratio is falling in first three year. If we analyse its reasons, these are that, sales of

the sugar mills are declining but operating expenses remain on high range rather than

decrease proportionately to the sales. In the year 2010, its show a decrease in this ratio

which means profitability of sugar mill.

(d) Expenses Ratio:-These ratios indicate the relationship between expenses and

sales. Although the operating ratio reveals the ratio of total operating expenses in

relation to sales but some of the expenses include in operating ratio may be increasing

while some may be decreasing. Hence, specific expenses ratio are computed by

dividing each type of expense with the net sales to analyse the causes of variation in

each type of expense.

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The ratio may be calculated as:

(a) Material Consumed Ratio = Material Consumed/Net Sales*100

(b) Direct Labour cost Ratio = Direct labour cost / Net sales*100

(c) Factory Expenses Ratio = Factory Expenses / Net Sales *100

(a), (b), and (c) mentioned above will be jointly called cost of goods sold ratio.

It may be calculated as:

Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales*100

(d) Office and Administrative Expenses Ratio = Office and Administrative Exp. / NetSales*100

(e) Selling Expenses Ratio = Selling Expenses / Net Sales *100

(f) Non- Operating Expenses Ratio = Non-Operating Exp. /Net sales*100

Table:-20

PARTICULARS 2007 2008 2009 2010

Rs. (in Lacs) Rs. (in Lacs) Rs. (in Lacs) Rs. (in Lacs)Material Consumed: - 8070.73 8923.33 4619.48 9465.38

Direct Labour: - 709.77 736.91 900.68 834.33

Factory Expenses: - 762.88 796.41 1059.74 897.68

Office & Admini.Exp.:- 622.73 725.52 746.21 804.68

Selling & Dist. Exp.:- 79.70 60.81 39.50 85.06

Non Operating Exp.:- 193.59 74.95 350.93 606.75

Net Sales: - 12643.80 12238.03 7191.56 14468.09

Material Con. Ratio: - 63.83% 72.91% 64.23% 65.42%

Direct Labour Ratio: - 5.61% 6.02% 12.52% 5.76%

Factory Exp. Ratio: - 6.03% 6.51% 14.73% 6.21%Office & Adm Ratio: - 4.93% 5.93% 10.37% 5.56%

Selling & Dist Ratio: - 0.62% 0.49% 0.54% 0.58%

Non Operating Ratio: - 1.53% 0.61% 4.87% 4.19%

Significance:-

Various expenses ratio when compared with the same ratios of the previous year give

a very important indication whether these expenses in relation to sales are increasing,

decreasing or remain stationary.

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If the expenses ratio is lower, the profitability will be greater and if the expenses ratio

is higher, the profitability will be lower.

(B) Profitability Ratio Based on Investment in the Business:-

These ratios reflect the true capacity of the resources employed in the enterprise.

Sometimes the profitability ratio based on sales is high whereas profitability ratio

based on investment is low. Since the capital is employed to earn profit, these ratios

are the real measure of the success of the business and managerial efficiency.

This ratio may be calculated into two categories:

I. Return on Capital Employed

II. Return on Shareholders funds

I. Return on Capital Employed : - This ratio reflects the overall

profitability of the business. It is calculated by comparing the profit earned and the

capital employed to earn it. This ratio is usually in percentage and is also known

as Rate of Return or Yield on Capital.

Formula:

Return on Capital Employed = Profit before interest, tax and dividends/Capital

Employed *100

Where, Capital Employed = Equity Share Capital + Preference Share Capital + All

Reserves + P&L Balance +Long-Term Loans- Fictitious Assets (Such as Preliminary

Expenses OR etc.) Non-Operating Assets like Investment made outside thebusiness.

Capital Employed = Fixed Assets + Working Capital

Table:-21

PARTICULARS 2007 2008 2009 2010


Profits Before Int. 2682.48 1073.80 32.31 2539.62

Capital Employed:-Fixed Assets 1483.28 1497.52 1700.64 3696.54

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Working Capital 5300.35 4709.14 4321.04 4668.60

Total 6783.63 6199.66 6021.68 8365.14

Return on Capital Employed 39.54% 17.32% 0.005% 30.36%

Graph:-21

YEARS

Significance:-

Since profit is the overall objective of a business enterprise; this ratio is a

barometer of the overall performance of the enterprise. It measures how

efficiently the capital employed in the business is being used.

Even the performance of two dissimilar firms may be compared with the help

of this ratio.

The ratio can be used to judge the borrowing policy of the enterprise.

This ratio helps in taking decisions regarding capital investment in new

projects. The new projects will be commenced only if the rate of return on

capital employed in such projects is expected to be more than the rate of

borrowing.

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This ratio helps in affecting the necessary changes in the financial policies of

the firm.

Lenders like bankers and financial institution will be determine whether the

enterprise is viable for giving credit or extending loans or not. With the help of this ratio, shareholders can also find out whether they will

receive regular and higher dividend or not.

Interpretation:-As this ratio shows the overall performance of the capital in year

2007, this ratio is high and also more than the rate of borrowing means the sound

position of the sugar mill. In the year 2008 it decreases but it is more than the rate

borrowing.

In the year 2009 it decreases with a high rate that it goes in losses. It means sugar mill

might hare problem of finance from outside like banks, institutions.

In the year 2010, it cover all the losses and make high return on Capital Employed. So

now the sugar mill has a great scope from outside.

II. Return on Shareholders Funds:-

Return on Capital Employed Shows the overall profitability of the funds supplied by

long term lenders and shareholders taken together. Whereas, Return on shareholders

funds is measures only the profitability of the funds invested by shareholders.

These are several measures to calculate the return on shareholders funds:

(a) Return on total Shareholders Funds:-

For calculating this ratio Net Profit after Interest and Tax is divided by total

shareholders funds.

Formula:

Return on Total Shareholders Funds = Net Profit after Interest and Tax / Total

Shareholders Funds

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Where, Total Shareholders Funds = Equity Share Capital + Preference Share Capital

+ All Reserves + P&L A/c Balance Fictitious Assets

Table:-22

PARTICULARS 2007 2008 2009 2010

Rs. (in Lacs) Rs. (in Lacs) Rs.(in Lacs) Rs. (in Lacs)

Profits after Int. & Tax 2488.89 998.85 (318.62) 1932.87

Shareholders Fund:-

Share Capital 1501.12 1367.27 1367.36 1367.40

Reserve & Surplus 5459.15 5086.88 4864.79 6797.68

Total 6958.93 6454.15 6232.15 8165.06

Return on Shs Funds 35.77% 15.48% (5.11%) 23.67%

Graph:-22

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YEARS

Significance:-

This ratio reveals how profitably the proprietors funds have been utilized by the firm.

A comparison of this ratio with that of similar firms will throw light on the relative

profitability and strength of the firm.

Interpretation:-

Similarly to return on the Capital Employed, this ratio is satisfactory in the all expect

in 2009 which show under utilization of funds in the sugar mill.

(b) Earning Per Share (E.P.S.):- This ratio measure the profit available to the equity

shareholders on a per share basis. All profit left after payment of tax and preference

dividend is available to equity shareholders. The Earnings per share is a good measure

of profitability when compared with EPS of similar other components (or) companies,

it gives a view of the comparative earnings of a firm.

Formula:

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Earning Per Share = Net Profit Dividend on Preference Shares / No. of Equity

Shares

Table:-23


Net Profits 2187.24 998.85 (318.62) 1932.87

No. of Equity Shareholders 1501000 1367000 1367000 1367000

Earning Per Share 145.71 73.06 (23.30) 141.39

Graph:-23

YEARS

Significance:- This ratio is helpful in the determining of the market price of the

equity share of the company. The ratio is also helpful in estimating the capacity of the

company to declare dividends on equity shares.

Interpretation:-

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In the year 2007, 2010, sugar mill can declare a smart frightened income for the

shareholders.

But in the year 2009 it suffer from negative gps. It is advisable to keep reserve in the

year of profit so the sugar mill can declare a constant divided all the year

(d) Dividend Per Share (D.P.S.):- Profits remaining after payment of tax and

preference dividend are available to equity shareholders.

But of these are not distributed among them as dividend. Out of these profits is

retained in the business and the remaining is distributed among equity shareholders as

dividend. D.P.S. is the dividend distributed to equity shareholders divided by the

number of equity shares.

Formula:

D.P.S. = Dividend paid to Equity Shareholders / No. of Equity Shares *100

Table:-24

PARTICULARS 2007 2008 2009 2010

Rs. (in Lacs) Rs.(in Lacs) Rs. (in Lacs) Rs. (in Lacs)

Dividend Paid 645.40 140.31 Nil Nil

No. of Equity Shareholders 1501000 1367000 1367000 1367000

D.P.S. 42.99 10.26 Nil Nil

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Graph:-24

YEARS

(e) Dividend Payout Ratio or D.P. :-It measures the relationship between the

earning available to equity shareholders and the dividend distributed among them.

Formula:

D.P. = D.P.S. / E.P.S. *100

Table:-25

PARTICULARS 2007 2008 2009 2010


D.P.S. 42.99 10.26 Nil Nil

E.P.S 145.71 73.06 (23.30) 141.39

Dividend Payout Ratio 0.29 0.14 Nil Nil

Graph:-25

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YEARS

Interpretation:-

Dividend Payout Ratio shows that how much dividend is to be paid to shareholders.

In 2009-10 no dividend was paid.

(f) Earning and Dividend Yield: -This ratio is closely related to E.P.S. and

D.P.S. While the E.P.S. and D.P.S. are calculated on the basis of the book value of

shares, this ratio is calculated on the basis of the market value of share

(g) Price Earning (P.E.) Ratio: -Price earning ratio is the ratio between market

price per equity share & earnings per share. The ratio is calculated to

make an estimate of appreciation in the value of a share of a company

& is widely used by investors to decide whether or not to buy shares in

a particular company.

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CHAPTER 6FINDINGS ANDSUGGESTIONS

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FINDINGS & SUGGESTIONS

The company current ratio in previous years are satisfactory but in

current year the current ratio is 1.56:1 which shows that short term

solvency of the firm is not good.

1. Current year Liquidity ratio of company is 0:42 shows that company has low

liquidity position.

2. The debt equity ratio of the firm is low 1.09:1 but the ratio of 1:1 considered

satisfactory which indicates that firm has to bear burden of fixed interest

charges in the year of low profit.

3. Proprietary equity ratio is 47.93:1 which a good signal for long term lenders is

as it indicates a high margin of safety available to them.

4. Fixed assets to net worth ratio in 2009 is 45.27% and this is less than 100%, it

is difficult for the company to liquidate its assets.

5. Capital Gearing Ratio is 17.31% in 2009 and it has decreased very much

which shows that it has low Capital Gearing.

6. Interest Coverage Ratio is 4 times in 2009, which shows less security to the

lenders in respect of payment of interest regularlly.

7. The inventory turnover ratio is 1.92 times which is good indicates that stock is

being sold fast and not kept in go down for longer period.

8. Debtor Turnover Ratio is 49.01 in 2009, which is good signal there are less

baddebts.

9. There is decrease in Average collection period in current year 2009; it

indicates prompt payment by debtors, which reduces the chances of bad debts.

So it is good.

10. Creditors Turnover Ratio is 12.21 in 2009 and it is satisfactory in all years, So

it shows healthy relations of Surarmill with its creditors.

11. The Average Payment Period of Sugarmill is 29 days in 2009 and in previous

years also it is less than 50 days so it shows that mill is paying rapidly to its

creditors.

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12. The fixed assets turnover ratio is 3.02 times. There is decrease in this ratio; it

will indicate that there is lack of proper utilization of fixed assets.

13. Working Capital Ratio is 2.49 times in 2009,which is greater than before

shows efficent utilization of working capital.

14. Gross profit ratio shows the decreasing trend in the gross profit from 24.52%

in 2006 to 8.55% on 2008. But in 2009 ratio has increased upto 22.6% this

indicates that the rate of increase in cost of goods sold.

15. The net profit ratio shows that there is improvement in net profits after 2008

and it is 13.36%.

16. The Expense ratios shows that there is mostly decrease in expenses of mill.

17. Return on Shareholders Funds is 30.36% which shows that in 2009 Sugarmill

had covered all of its losses ,so it has scope of arranging funds from outsiders.

SUGGESTIONS

1) Short term Liquidity of the firm is not sound as the firms do not have

sufficient current assets to pay its current obligation. So company should

improve its current assets position.

2) The system should be designed by delegating adequate power to each

manager/officer.

3) Company should maintain the optimum capital structure which contains

the minimum cost of capital with appropriate voting power (decision

making power) towards the top level management.

4) The internal checks should be building to minimize the mistakes due to

less capacity utilization.

5) Company should maintain the currently growth rate of current assets

turnover ratio to get benefit of best utilization of current asset

6) The employees should give the time to the trainees to tell about the

activities of the mills.

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CHAPTER 7CONCLUSION

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CONCLUSION

Finance is the main driver of every industry. This sector of manufacturing various

machinery presses vessels, boilers, sugar machinery iron casting is the booming sector

now days and have great potential. Economy of India is improving, GDP is also

showing rising tread and government is focusing on infrastructure development such

as roads, ports, housing etc. Now its upon the company how it grabs the opportunity

and for this company requires finance.

Ratio analysis is helpful in decision making as well as help to analyze the

performance of company in past. These financial decisions are divided into two parts

Long term and short term decisions and their primary goal is to increase the corporate

value by ensuring that return on capital exceeds cost of capital, without taking any

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