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RAJBIR SINGH, MBA

A

PROJECT REPORT

ON

AN EMPERICAL STUDY OF FINANCIAL

STATEMENT OF LAST FIVE FINANCIAL

YEARS OF POLYPLASTICS (INDIA) PVT. LTD

Submitted to

Kurukshetra University, Kurukshetrain partial fulfilment for the degree of

Master in Business Administration (MBA)

SESSION : 2009-11

Under supervision of: Submitted by:

MS. AARTI RAJBIR SINGHFaculty, MBA-III Sem

IBMT, Kalawad Roll No.- 1125

Univ. Roll No._____

Institute of Business Management & Technology(IBMT)(Affiliated to Kurukshetra University, Kurukshetra and Approved By AICTE)

VILLAGE : KALAWAD, THANA CHHAPAR

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RAJBIR SINGH, MBA 2

STUDENT DECLARATION

This report is the result of my management training in Polyplastic Pvt. Ltd.,

Yamuna Nagar . I hereby declare that the Project Report Title AN EMPERICAL

STUDY OF FINANCIAL STATEMENT OF LAST FIVE FINANCIAL YEARS

OF POLYPLASTICS (INDIA) PVT. LTD, submitted in the partial fulfillment of

requirement for the degree of Masters of Business Administration. This report is a

bonafide research work carried out by me. No part of this report has been submitted

for the award on any other Diploma, Degree, Fellow ship or other similar title or

prize.

The report is based on my personal opinion hence cannot be referred to for official or

legal purpose.

RAJBIR SINGH

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RAJBIR SINGH, MBA 3

ACKNOWLEDGEMENT

This project involves many helping hands first of all I would like to thank all those,

who help me in completion the project and bringing out the timely submission of the

report. First and foremost I due a profound gratitude to Ms. AARTI, Faculty for her

hard work, enthusiasm and meticulous attention to detail to every stage of this

project.

I am extremely grateful to Mr. Pardeep Kumar, HOD and other faculty members

for their whole hearted co-operation.

Above all no words can express feeling of gratitude for my guardians, parents and my

friends, who supported me all through my project report. On the whole this

achievement is entirely due to the moral support and blessing at my parents and

teachers.

RAJBIR SINGH

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RAJBIR SINGH, MBA 4

PREFACE

This project report is the result of my 6 weeks of on job summer

training internship is an integrated part of the MBA course which thestudent has to perform and its aims at providing a first hand experience of

the industry to the students. This practical experience helps the student to

view the real business world closely, which in turn widely influences

their conceptions and perceptions about the corporate world.

In order to make students competent all the students are required to

take a real time project work under summer training in the MBAcurriculum. Project work not only helps to understand but also

practicality goes on in the corporate world and correlate the theoretical

concepts better which remains undiscovered in the classrooms.

I was really fortunate for getting an opportunity to prescribe my

summer training in a reputed, well-established company like Polyplastic

Pvt. Ltd..

I had make discussion with my training guide and he assigned me the

project AN EMPERICAL STUDY OF FINANCIAL STATEMENT OF

LAST FIVE FINANCIAL YEARS OF POLYPLASTICS (INDIA) PVT.

LTD which is an integral part of Polyplastic Pvt. Ltd. and it requires a

lot of extensive study to gather the information .It provided me a great

deal of exposure and I found the practical work totally different from that

of theoretical.

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RAJBIR SINGH, MBA 5

CONTENTS

Introduction to Project

Company Profile

Literature Review

Objectives of the Study

Research Methodology

o Research Design

o Methods of Data Collection

o Tools of Analysis

o Limitations

Financial Statements

Analysis & Interpretation

o Analysis of Ratios of Polyplastics

o Comparative Statement

o Statistical Tools

Findings of the Study

Suggestions/Recommendations

Conclusion

Bibliography

Annexure

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RAJBIR SINGH, MBA 6

INTRODUCTION TO PROJECT

In order to determine whether the financial position of the company issatisfactory or the financial data are analyzed. Different methods are used for

this purpose. I have chosen one of these methods that is Ratio Analysis.

I have done my summer internship in POLYPLASTICS and my project

report is Analysis of financial statements. Primary objective of this report

is to analyze the financial position of the company which is helpful indecision 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 itemswhich are present in profit and loss 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.

I have analyzed various key ratios of past 5 years (2005 to 2009) and make

graph of every ratio with comparison of last 5 years ratios through which we

can easily analyze that the company performance is improving every year and

future of the company is promising. I have also given financial highlights

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RAJBIR SINGH, MBA 7

that show assets, liabilities, investments, expenditure, income, provision for

tax of last five years.

For preparing this report I have gone through annual reports of company,various books, and data is also collected from companys site. I have also

identified the problems which exist in the company and have given

suggestions so that effective step can be taken by the company.

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RAJBIR SINGH, MBA 8

ABOUT - COMPANY

Polyplastics Industries (I) Pvt. Ltd. is a leading Indian Company manufacturing Automotive

components and Assemblies for OEN's. Including emblems (Electroplated, painted gold plated and

Hot stamped) automotive plastics moulded components wheel trims & wheel covers, electroplated

bigger parts (Radiator Grills, license plate Garnish, Hood strips). Decorative body side moulding,

assemblies control brackets, dash board. Component auto electrical assemblies Ash. trays, door

handles etc. The company is supported In-house design and development facilities like modern tool

room for manufacturing of moulds dies, jigs & fixtures facility is supported by loading. 3D

modelling software like

Pro Engineer

Catia

Unigraphics

"Over the last 40 years, Polyplastics has emerged into India's leading manufacturship or decorative

& other plastics parts & assemblies for atomobiles.

Company History

1967- The Company was established with a small Tool room for manufacturing machined

components.

1968- Installed 64T injection moulding machine for production of spares for telecommunication

coaxial cables.

1970- Add two injection moulding machine to increased demand of spacers.

1972- Built up facilities in Tool room to manufacture in house moulds.

1973- Diversified to manufacture telephone parts.

1975- 130T moulding machine added to produce telephone parts.

1976- Export of Co-oxial spacers started.

1977- Started work for defence & textile industry.

1982- Diversified into manufacture of automotive plasticparts.1983- Started production of automobile hot stamped emblems.

1986- Jet up in-house painting facility.

1987- Received award from all India Institute of Plastics federation for development of co-axial

spacers.

1988- Installed in house ABS electroplating facility.

1990- Added Ac control assemblies in the product line under took tool room expansion.

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RAJBIR SINGH, MBA 9

1991- Started production of Hub cops.

1992- Expanded moulding capacity by adding two more injection moulding machine 80T & 180T.

1993- Ultrasonic welding operations added in process.

1994- Production of Ash trays & door handles started.

1995- Further expansion in moulding shop with add of 300T & 80T injection moulding machines.

1996- Production of full wheel rim covers started.

1997- Company was awarded ISO-9002 certification by JUV-LERT of Germany & entered a Sakal

Riken Kogyo Co. Ltd.

1998- Enter into a technical collaboration with Zanini Auto. Group, Spain.

2000- Company was awarded QS-9000 certified by Tuv-Cert of Company.

2001- Installation of PRO-E software in our design add CNC, award Maruti Udyog Ltd.

2004- Installation of 450 Ton Injection moulding machine.

2005- Award for quality to Toyota Kirloskar Motors.

2006- Expansion of Tool room with CNC start up of Catia Design Centre new plant at Gurgaon.2007- Commissioning of Automatic Plating on Plastics accomplished TS-16949 & ISO-14001

certification.2008- Entered into technical collaboration "ZANINI AUTO GROUP, SPAIN". Silver award from

Honda Siel Cars India Ltd. certificate of appreciation from Honda Siel Cars India Ltd.2009- MS certification from Ford India Pvt. Ltd.

2008: Up-gradation of Tool Room & Installation of CNC milling machine(1900 x 855 mm bed size) in Tool Room.

2009: First Phase (Injection Molding & Painting) Completed. Production Started

in Sept,09 & Second Phase in March,10

2009: New plant in Bawal (construction started)

2010: Incorporation of New Company in Pune for manufacturing switch-gears &

control assemblies

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RAJBIR SINGH, MBA 10

ASSOCIATES

(Pencil Sailikna Hai)

K2CAD-E-M

Technology Pvt. Ltd.

It is a joint venture between "SAKE RIKEN KOGYO CO. Ltd.

Japan & Polyplastic. It manufacture Tool design, product

design of interior & exterior body parts like grills, wheel

covers.

UPEC It is a sister concern of polyplastics manufacture of plastics

moulds, dies, jigs & fixtures.

Sakae Riken Cogyo Co.

Ltd.

Major Automatic component supplier having head office in

Nagoya and Branches at Trishima sobue & Bisei in Japan and

Illnois, USA.

Zanin Auto Group,Spain

Major Automobile component supplier having head office inBarcelona, spain and branches in Franch, Brazil, Maxico &

USA.

Major Customers:-

Maruti

Suzuki

Tata GN Opel Toyota Ford Honda

Flat Suzuki Honda Tafe Mahindra

Renault

Hyundai

Hero Honda John Deere WM Export Denso

OEM's

Swaraj

Mazda

Eicher

Delphi

GM Nissan Chevrolet Daewod

Automobile

Romania's

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AWARDS & ACHIEVEMENTS:-

Kamal Gupta (MD) receiving award from Toyota Kirloskar Motor.

Kapil Gupta (Dir) receiving vendor award from Maruti Udyog Ltd.

Import substitution award presented by AIEPI, New Delhi.

Eicher award for design & development of plastic dash board for tractors.

Recognition from general motors India for outstanding performance in quality, service,

technology and price.

Recognition from Toyota Kirlostar Motor for meeting quality targets.

In technical collaboration with Sake Kiken Kogyo Co. Ltd. Japan & Zanini Auto Group,

Spain.

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PRODUCTS:-Exterior Products:

Electroplated & painted radiator frt grills, hood & licence plate garnishes, Outer mirror covers,

wheel rim covers, centre labs, decorative eretro ded & moulded door moldings, bright bumpes

moldings, electroplated, painted, hot stamped & gold plated emblems & monograms.

Interior Products:

Ash trays, assembly control brackets, dash board components, air vent assemblies fan surrounds,

fuse boxes door handles & windows regulators, expansion tank, oil/water separators & speedometer

gears.

Product Share:- Product Share (%) Period: April 2008 to March 2009.

37% emblems (Chrome, Gold, Stamping)

32% Wheel Cover/caps.

13% Injection moulding

Closed loop centralised material dying.

Electro plating on plastics facility.

Vacuum cover houlding

Grill Painting

Double side adhesive tape cutting.

Conveyorised drying live.

Wheel cover painting facility.

Inspection and packing.

7% Door Midg (Pvc/Plated/Houlded)

7% Electroplating components.

4% A/c bracket & assembly.

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ORGANIZATION

Managing Director Sr. Mgr. Works Director (Technical)

Purchase

Finance

HRD

Sales

Production

Maintance

Design & Develop

Tool Room

Process Improvement

Training Marketing

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Organization

Managing

Director

Purchase

Finance

HRD

Training

Sr. Mgr.Works

Sales

Production

Maintenance

Director

(Technical)

Design &

Development

Tool Room

Quality

Assurance

Process

Improvement

Marketing

Extrusion

Moulding

Injection

Moulding

Electro-Plating

Gold Plating

Paint/Powder

Coating

Hot Stamping

Assembly

Section

Press Shop

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FACILITIES:-

Design:- Tool design, Rapid Prototypes, Drawings, mould flow.

Tool Manufacturing:- (NC, Wirecut, Polishing)

Process:- Injection Moulding, Extrusion Moulding sheet Metal.Decoration:- Automatic electroplating, paining, vaccum metalizing, power cutting,

hot stamping.

Assembly:- Assembly, Hot welding, ultrasonic welding, Hot riveting, fusion.

Bonding, Hot Plate welding, tape fixing.

Production Facility:-

Moulding & Press Shop Decoration Assembly

1. Injection Moulding Electroplating Ultrasonic Welding

2. Extrusion Moulding Painting Hot Plate Welding

3. Thermoset Injection Hot Stamping Fusion Assembly

4. Compression Moulding Vaccume Metailizing

5. Sheet Metal Powder Coating

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LITERATURE REVIEW

Jain T.R1., Statistics for M.B.A., page no. 1-15, 281-284, 301-305(second part), second

edition: 2008-2009, V.K. (India) enterprise, New Delhi : these pages help me to understand

the meaning of my statistical tools and also help in applying them.

Goel D.K.2 Management accounting and financial management, page no.4.1 to 4.83, third

edition 2006, Avichal publishing company, New Delhi: this text book helps me out to

understand the meaning of different ratios and their meaning..

Gupta Shashi K. & Sharma R.K.3 Financial Management, and page no. 88- 110, second

edition V.K publication Delhi: form this book I have cleared my financial concepts and their

meanings.

Maheshwari S.N.4 management accounting and financial control, page no. 206-219, third

edition, Avichal publication: from the above pages I got light on some analytical tools.

Kothari C.R.5 quantitative technique, page no.168-174, vikas publishing house pvt. Ltd.New

Delhi, 2007: this book helps me to know the meaning of various steps in the marketing

research.

Beri G. C.6 Marketing Research, page no. 1-13, third edition Tata McGraw Hill, New Delhi:

this book give me the knowledge of basic meaning of research that what it means and what

are its limitations..

Gupta S.P.7 statistical methods, page no. 221-249,321-356, fifth edition, V.K. publishing: this

book helps me in understanding the meaning and application of statistical tools.

Pandey I.M.8 Financial Management page no. 215-239, fifth edition, Vikas publication New

Delhi: from this book I got the interpretation of various parameters.

Sharma R.K.9 Management and Business Finance, page no. 77-89, second edition, kalyani

publication: help me to clear the meaning of varios terms in the financial statements.

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Lev. Baruch10 In this how analysis of financial statements of organization is done and on the

basis of that comment upon the financial position of the organization.

Hooda R.P.11 (209-212): Calculation of Trend Analysis and its interpretation.

Ciaran Walsh12 P.No. (113-122): Analysis of liquidity of any firm by calculating current &

liquid ratio.

Mittal.R.K13 (28-30): It explains the preparing of comparative Balance Sheet and way of

interpreting it.

www.hdfcbank.com: This website provides me balance sheet and profit & loss account of

HDFC BANK.

www.hdfcdirect.com: This website helps in analysis of financial statements

www.financemaster.com: This website helps in theory about analysis of financial statements.

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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 the liquidity position of company.

To find out the weakness & suggest various suggestions

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RESEARCH METHODOLOGY

Research is a systematic and continues method of defining a problem, collecting the facts and

analyzing them, reaching conclusion forming generalizations.

Research methodology is a way to systematically solve the problem. It may be understood has a

science of studying how research is done scientifically. In it we study the various steps that all

generally adopted by a researcher in studying his research problem along with the logic behind them.

The scope of research methodology is wider than that of research method. Thus when we talk of

research methodology we not only talk of research methods but also consider the logic behind the

method we use in the context of our research study and explain why we are using a particular

method.

So we should consider the following steps in research methodology:

Meaning of research

Problem statement

Research design

Sample design

Data collection

Analysis and Interpretation of data

Meaning of Research

Research is defined as a scientific & systematic search for pertinent information on a specific

topic. Research is an art of scientific investigation. Research is a systemized effort to gain new

knowledge. It is a careful inquiry especially through search for new facts in any branch of

knowledge. The search for knowledge through objective and systematic method of finding solutionto a problem is a research.

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Problem Statement

The research problems, in general refers to sum difficulty with a researcher experience in the contest

of either a particular a theoretical situation and want to obtain a salutation for same. The present

project has been undertaken to do the Financial Analysis at HDFC BANK.

Research Design

A research is the arrangement of the conditions for the collections and analysis of the data in a

manner that aims to combine relevance to the research purpose with economy in procedure. In fact,

the research is design is the conceptual structure within which research is conducted; it constitutes

the blue print of the collection, measurement and analysis of the data. As search the design includes

an outline of what the researcher will do from writing the hypothesis and its operational implication

to the final analysis of data.

The design is such studies must be rigid and not flexible and most focus attention on the following;

o What is the study about?

o Why is the study being made?

o Where will the study be carried out?

o What type of data is required?

o Where can be required data be found?

o What period of time will the study include?

o What will be sample design?

o What techniques of data collection will be used?

o How will the data be analyzed?

o In what style will the report be prepared?

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Research Design can be categorized as:

Exploratory Research

Descriptive Research

Diagnostic Research

Experimental Research

The present study is descriptive in nature, as it studies only the existing financial statement and no

change is carried out. Research design is flexible enough to provide opportunity for considering

different aspects of problem under study. It helps in bringing into focus some inherent weakness in

enterprise regarding which in depth study can be conducted by management.

Sampling design:

A sample design is a definite plan for obtaining a sample from the sampling frame. It refers to the

technique or the procedure that is adopted in selecting the sampling units from which inferences

about the population is drawn. Sampling design is determined before the collection of the data.

Several decisions have to be taken in context to the decision about the appropriate sample selection

so that accurate data is obtained and efficient results are drawn.

Following questions have to be considered while sampling design-

What is the relevant population?

What is the parameter of interest?

What is the sampling frame?

What is the type of sample?

What sample size is needed?

How much will it cost?

The sample size of past one year is taken for present study due to time limitation.

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Data Collection

The task of data collection is begins after a research problem has been defined and research

designed/ plan chalked out. Data collection is to gather the data from the population. The data can be

collected of two types:

Primary data

Secondary data

Primary Data:

The Primary data are those, which are collected afresh and for the first time, and thus happened to be

original in character. There are several methods of primary data collection:

Observation Method

Interview Method

Schedules Questionnaires

Secondary Data:

The Secondary data are those which have already been collected by some one else and which have

already been passed through the statistical tool. Methods of collection of Secondary data are:

Books

Website

Journal.

In the present study I have made use of secondary data collected from their website and from their

records.

Analysis and Interpretation of Data

The data collected in the aforesaid manner have been tabulated in condensed from to draw the

meaningful results. The different techniques are adopted to analyze the data. All the data and

material is arranged through internal resources and the last part of the project consists of the

conclusions drawn from the report, a brief summary and recommendation and giving the final touch

to the report by stating a conclusion.

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TOOLS FOR FINANCIAL ANALYSIS

Financial statements contain absolute figures of assets, liabilities, revenues, expenses and profit or

loss of an enterprise. They do not reveal the earning capacity, liquidity and financial soundness of

the enterprise. They are not readily understandable to their users. Hence, they are analysed to present

them in simple and understandable form. Various tools or devices employed for analysing the

financial statements are as follows:

(i) Comparative Statements

(ii) Common Size Statements

(iii) Trend Analysis

(iv) Accounting Ratios

(i) Comparative Statements: When financial statements figures for two or more years are placed

side-by-side to facilitate comparison, these are called 'Comparative Financial Statements'. In

such a statement figures of production, sales, expenses, profits etc. are put side-by-side to

draw conclusions about the profitability and financial health of the business. It also indicates

the trend of change as well as the strong points and weak point of the enterprise.

(ii) Common Size Statements: In these statements, various figures are converted into percentage

to some common base. In profit and loss account, sales figure is taken at 100 and all other

figurers are expressed as percentage of sale. Similarly, in balance sheet total assets are taken

at 100 and all assets are expressed as percentage of the total.

(iii) Trend Analysis: It is one of the most useful form of horizontal analysis in making

comparative study of the financial statements for a number of years. For calculating trend

percentages any year is selected as the 'base year'. Each them of the base year is assumed to

be equal to 100 and on that basis the percentage of each item of each year is calculated. The

trend percentage is helpful in revealing the trend increase or decrease in various items.

Accounting Ratios: A ratio is simply one number expressed in relation to another and a study of the

relationships between various items or groups of items is known as 'ratio analysis'. It simplifies and

summarises a long array of accounting data to provide useful information regarding the liquidity,

solvency, profitability etc.

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LIMITATIONS

This ratio analysis is subject to the following assumptions and limitingconditions:

1) Information, estimates, and opinions contained in this report are obtainedfrom sources considered to be reliable. However, we assume no liability for

such sources.

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.

9) Changes in accounting procedure by a firm may often make financial

statements misleading.

10) This report was prepared under the direction of Mr. Ashok Maini,

Financial Executive (assistant).

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FINANCIAL STATEMENTS

Financial statements refer to such statements which contains financial information about an

enterprise. They report the profitability and the financial position of the business at the end of

accounting period. The term financial statement includes at least two statements which theaccountant prepares at the end of an accounting period. The two statements are:-

1. The Balance Sheet

2. Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet mirrors the

financial position on a particular date in terms of the structure of assets, liabilities and owners equity,

and so on and the Profit And Loss account show s the results of operations during a certain period of

time in terms of the revenues obtained and the cost incurred during the year. Thus the financial

statement provides a summarized view of financial positions and operation of a firm.

Meaning of Financial Analysis:

Financial statements present a mass of complex data in absolute monetary terms and reveal little

about the liquidity, solvency and profitability of the business. In financial analysis, the data given in

financial statements is classified into simple groups and a comparison of various groups is made one

another to pin-point the strong points and weaknesses of a business. For instance, if all items relating

to current assets are placed in one group while all items relating to current liabilities are placed in

another group, the comparison between the two groups will provide useful information. Actually the

figures given in financial statements do not speak anything themselves. The analysis of these figures

helps the interested reader by giving tongue to these mute heaps of figures.

In the words of Finney and Miller:

"Financial analysis consists in separating facts according to some definite plan, arranging

them in groups according to certain circumstances and then presenting them in a convenient

and easily read and understandable form".

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IMPORTANCE OF FINANCIAL ANALYSIS

The significance of the financial statement analysis may be studied from the point of view various

parties as follows:

1. Significance for Management: Management of a firm is always interested in the solvency,profitability and the capital structure of the firm. They want to make sure that the business must

be in a solvent position to pay the debts as and when they fall due.

2. Significance for Investors: Investors and shareholders of the business are interested in the

longevity of the business enterprise and therefore, they want to know the earning capacity of the

business and its prospects for future growth and prosperity.

3. Significance for Creditors: There are two types of creditors, (i) Short-term creditors, and (ii)

Long-term creditors.

(i) Short-term creditors want to know the liquidity of the business, i.e., to know whether the

company will have sufficient current assets and cash to pay their debts or not.

(ii) Long-term creditors want to know two things namely: (1) Whether the company will be able

to pay the interest consistently, and (2) Whether the company will be able to pay their debts

when they fall due.

4. Significance for Government: Government can judge on the basis of analysis of financial

statements, which industry is progressing on the desired lines and which industry needs the

financial help.

5. Significance for other Financial Institutions: All the financial institutions which provide finance

to the industries such as Banks, Insurance Companies, Unit Trust etc.

6. Significance for Stock Exchange Authorities: They analyse the financial statements of a

company to determine its price earning ratio and earning per share (E.P.S.). With the help of

such analysis, the market price of a company's share is determined.

7. Significance for Researchers: Analysis of financial statements of a company is of much

importance to a researcher who is conducting research in respect of the profitability, efficiency,

financial soundness and future growth potential of that company.

TYPES OR METHODS OF FINANCIAL ANALYSIS

Financial analysis is an art and as such there are various approaches towards financial analysis. Two

basic approaches or types of analysis are:

(i) Horizontal Analysis (ii) Vertical Analysis

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(i) Horizontal Analysis: In such type of analysis, financial statements for a number of years are

reviewed and analysed. Figures for two or more years are contained in such type of analysis

and these figures are placed side-by-side to facilitate comparison. Such analysis indicates the

increase or decrease in these items not only in absolute figures but also in percentage form.

Thus, it involves making comparisons and establishing relationship among related items of

an enterprise for a number of years. When data about sales, cost of production, profits etc.,

are compared for two or more years of a firm, they indicate the areas of strength and

weakness of the enterprise. It also helps in knowing the trend of the business. Since such type

of analysis is based on the data from year-to-year rather than only one year, it is also called

'Dynamic Analysis'.

(ii) Vertical Analysis: In such type of analysis, financial statements for a single ratios. It involves

a study of the quantitative relationship among various items of Balance Sheet or Profit &

Loss Account of a single period. The items in the financial statement are expressed as a

percentage to total and the total is taken as equivalent to 100. Statements containing such

analysis are termed as 'Common Size Statements'.

The Common Size Profit and Loss Account shows each element of Cost as a percentage of sales. It helps in

analysng cost and operating results of the year. similarly in a common size Balance Sheet various assets can

be expressed as percentage o total assets.

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MEANING OF RATIO:

Ratios are relationship expressed in mathematical term between figures, which are connected with

each other in some manner. Obviously, no purpose will be comparing two sets of figures, which are

not at all connected to each other.

Ratios can be expressed in four ways:

1. Proportion: - It is expressed by the simple division of one number by another. For example, if

the current assets of a business are Rs. 2,00,000 and its current liabilities are Rs. 1,00,000,

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 credit sales during the year are Rs. 2,00,000

and its debtors at the end of the year are Rs. 40,000, its Debtors Turnover Ratio = 2,00,000/

40,000 = 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. 10,00,000 and its profit is Rs. 2,00,000, the ratio of profit to

capital, in terms of percentage, is 2,00,000/ 10,00,000 x 100 = 20%.

4. Fraction: - Say, net profit is one-fifth of capital.

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ADVANTAGES OF RATIO ANALYSIS

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.

Estimate about the trend of the business.

Fixation of ideal standards.

Effective control.

Study of financial soundness.

LIMITATIONS OF RATIO ANALYSIS

False accounting data gives false ratios.

Comparison not possible if different firms adopt different accounting policies.

Ratio analysis becomes less effective due to price level changes.

Ratios may be misleading in the absence of absolute data.

Limited use of single ratio.

Window-dressing.

Lack of proper standards.

Ratios alone are not adequate for proper conclusions.

Effect of personal ability and bias of the analyst.

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CLASSIFICATION OF RATIOS

Ratios can be classified into different categories depending upon the basis of classification. The

traditional classification has been on the basis of the financial statement to which the determinants of

the ration belong. On this basis ratios can be classified as: -

1. Profit and loss account ratios i.e. ratios calculated on the basis of the item of the Profit and

loss account only. Eg: - gross profit ratio, stock turnover ratio etc.

2. Balance sheet ratios i.e. ratios calculated on the basis of the figures of Balance sheet only.

Eg: - debt equity ratio, current ratio etc.

3. Composite ratios or Inter statement ratios i.e. ratios based on the figures of P&L account as

well as the Balance sheet, Eg. Fixed asset turnover ratio, overall profitability ratio etc.

In order these ratios serve as tool of financial analysis, they are now classified as: -

1. Profitability Ratios.

2. Leverage Ratios.

3. Turnover Ratios.

4. Liquidity Ratios.

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RATIO ANALYSIS OF

POLYPLASTIC PVT.

LIMITED

(2005 to 2009)

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Ratio Analysis of Polyplastic Limited

For the financial year 2005

LIQUIDITY RATIOS

1. Current ratio = current assets---------------------Current liability

Current assets (Rs. In lacs)

Inventories 5686.30Sundry debtors 5803.17Cash & bank balances 280.07Other C.A. 3.18Loans & advances 4465.44

-------------16238.16

-------------Current liabilities

Current liabilities 7484.91Provision 863.30

-----------8348.21-----------

Current ratio = 16238.16------------ = 1.9458348.21

2. Liquidity ratio = quick assets--------------------Current liability

Liquid assets = current assets inventory16238.16 5686.30 = 10551.86

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Quick ratio = 10551.86------------ = 1.2648348.21

LEVERAGE RATIOS

1. Debt equity ratio = external equities---------------------Internal equities

External equities

Secured loans 1321.86Unsecured loans 3063.95

-----------4385.81-----------

Internal equities

Share capital 736.95Reserve & surplus 14464.92

----------15201.87

-----------

Debt equity ratio = 4385.81------------- = 0.288515201.87

2. Proprietor / equity ratio = shareholders fund-----------------------

Total assets

Total assets:

Fixed assets 3322.16Investment 7273.07Current assets 16238.16

--------------26833.39

--------------

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Equity ratio = 15201.87----------- = 0.56726833.39

3. Fixed assets to net worth = fixed assets----------------------Shareholders fund

= 3322.16------------ = 0.21815201.87

ACTIVITY RATIO

1. Inventory turnover ratio = cost of goods sold------------------------

Average stock

Cost of goods sold:

Purchases 8150.64Manufacturing expenses 10623.13

-------------18773.77Less: increase / decrease stock 749.05

------------18024.72------------

Inventory turnover ratio = 18024.72------------ = 5.241

3439.175Average stock = Opening stock + closing stock

-------------------------------------2

= 3064.65 + 3813.70------------------------ = 3439.175

2

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2. Debtors turnover ratio = Net credit sales--------------------Average debtors

= 25625.98-------------------------- = 4.919(5803.17+ 4626.94)/2

3. Average collection period = 365--------------------------Debtors turnover ratios

= 365-------- = 74 days approx.4.919

4. Fixed assets turnover ratio = cost of goods sold-----------------------Net fixed assets

= 18024.72------------ = 5.425

3322.16

5. Current assets turnover ratio = COGS---------

C/A

= 18024.72------------ = 1.1116238.16

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PROFITABILITY RATIOS

1. Gross profit ratio = Gross profit--------------- * 100Net sales

G.P. = net sales COGS= 25625.68 18024.72= 7600.96

G.P. ratio = 7600.96------------- * 100 = 29.6625625.68

2. Net profit ratio = Net profit------------ * 100Net sales

= 1549.83------------ * 100 = 8.601

18024.72

3. Return on total assets = profit before interest & tax---------------------------------

Total assets1084.43

= ----------- = 0.0426833.39

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Quick ratio = 13467.64------------ = 1.21711066.08

LEVERAGE RATIOS


External equities


-----------5083.57

-----------

Internal equities


-----------15593.89

-----------



Total assets

Total assets:


--------------30973.92

--------------

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Equity ratio = 15593.89----------- = 0.50330973.92


= 3462.96------------ = 0.22215593.89

ACTIVITY RATIO


Average stock

Cost of goods sold:


-------------21981.2Less: increase / decrease stock 558.98

------------21422.22------------

Inventory turnover ratio = 21422.22------------ = 5.234

4093.19Average stock = Opening stock + closing stock

-------------------------------------2

= 4372.68 + 3813.70------------------------ = 4093.19

2

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= 30746.78----------------------- = 4.188

(5803.17+ 8880.50)/2

3. Average collection period = 365----------------------------Debtors turnover ratios

365= -------- = 87 days approx.

4.188

4. Fixed assets turnover ratio = cost of goods sold-----------------------Net fixed assets

= 21422.22

------------ = 6.1863462.96

5. Current assets turnover ratio = COGS---------C/A

= 21422.22------------ = 1.056

20290.98

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G.P. = net sales COGS= 30746.78 21422.22= 9324.56

G.P. ratio = 9324.56------------- * 100 = 30.3330746.78


= 600.34

------------ * 100 = 1.95330746.78

3. Return on total assets = profit before interest & tax-------------------------------

Total assets

1719.74= ---------- = 0.056

30973.92

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Ratio Analysis of Polyplastic Pvt. ltd.


LIQUIDITY RATIOS

1. Current ratio = current assets-----------------

Current liability



-------------28798.44-------------

Current liabilities


-----------21465.26-----------

Current ratio = 28798.44------------ = 1.3421465.26

2. Liquidity ratio = quick assets-----------------Current liability

Liquid assets = current assets inventory28798.44 - 11914.36 = 16884.08

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Quick ratio = 16884.08------------ = 0.78621465.26

LEVERAGE RATIOS


External equities


-----------3688.96

-----------Internal equities


-----------

17025.36-----------



Total assetsTotal assets:


--------------42124.56

--------------

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Equity ratio = 17025.36----------- = 0.40442124.56


= 6106.14------------ = 0.35917025.36

ACTIVITY RATIO


Average stockCost of goods sold:


-------------

33702.81Less: increase / decrease stock 2452.69------------31250.12------------

Inventory turnover ratio = 31250.12------------ = 5.585599.025

Average stock = Opening stock + closing stock-------------------------------------

2= 4372.68 + 6825.37

------------------------ = 5599.0252

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= 40470.72----------------------- = 3.885

(11951.36+ 8880.50)/2

3. Average collection period = 365-------------------------------

Debtors turnover ratios

365= -------- = 94 days approx.

3.89

4. Fixed assets turnover ratio cost of goods sold= -------------------------

Net fixed assets

31250.16= --------------- = 5.1186106.14

5. Current assets turnover ratio COGS= ----------

C/A

31250.16

= ------------ = 1.08528798.44

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1. Gross profit ratio Gross profit= --------------- * 100

Net sales

G.P. = net sales COGS= 40470.72 31250.16= 9220.56

G.P. ratio = 9220.56------------- * 100 = 22.7840470.72


= 1725.58

------------ * 100 = 4.26440470.72

3. Return on total assets = profit before interest & tax------------------------------

Total assets3329.56

= ---------- = 0.07942124.56

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LIQUIDITY RATIOS

1. Current ratio = Current assets--------------------Current liability



-------------47387.39

-------------Current liabilities


-------------42495.93

--------------

Current ratio = 47387.39-------------- = 1.1242495.93

2. Liquidity ratio = Quick assets-------------------Current liability

Liquid assets = current assets inventory47387.39 16901.70 = 30485.69

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Quick ratio = 30485.69------------- = 0.71742495.93

LEVERAGE RATIOS

1. Debt equity ratio = External equities-----------------------

Internal equities

External equities


-----------3708.93

-----------

Internal equities


-------------20984.98

-------------


2. Proprietor / equity ratio = Shareholders fund------------------------

Total assets

Total assets:


--------------67111.78

--------------

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Equity ratio = 20984.98-------------- = 0.313

67111.78

3. Fixed assets to net worth = Fixed assets------------------------Shareholders fund

9457.94= ------------ = 0.45

20984.98

ACTIVITY RATIO

1. Inventory turnover ratio = Cost of goods sold--------------------------

Average stock

Cost of goods sold:

Purchases 44980.87

Manufacturing expenses 29395.27-------------74376.14

Less: increase / decrease stock 4683.05-------------69693.09

-------------

Average stock = Opening stock + closing stock

--------------------------------------2

= 6825.37 + 11508.42--------------------------- = 9166.90

2

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2. Debtors turnover ratio = Net credit sales-----------------------

Average debtors

= 87579.60--------------------------- = 5.81(18211.62 + 11951)/2

3. Average collection period = 365------------------------------Debtors turnover ratios

= 365-------- = 63 days approx.

5.81

4.Fixed assets turnover ratio = Cost of goods sold-------------------------

Net fixed assets

= 69693.09------------- = 7.3699457.94

5. Current assets turnover ratio = COGS------------

C/A

= 69693.09-------------- = 1.471

47387.39

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G.P. = Net sales COGS= 87579.60 69693.09= 17886.51

G.P. ratio 17886.51= ------------- * 100 =20.42

87579.60

2. Net profit ratio = Net profit-------------- * 100Net sales

= 4505.82------------- * 100 =5.14587579.60

3. Return on total assets = profit before interest & tax-------------------------------

Total assets

= 7474.02----------- = 0.11167111.78

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LIQUIDITY RATIOS

1. Current ratio = Current assets--------------------Current liability

Current assets (Rs.in lacs)


-------------61340.2

-------------Current Liabilities


-------------48577.80--------------

Current ratio = 61340.2-------------- = 1.2648577.80

2. Liquidity ratio = Quick assets-------------------Current liability

Liquid assets = current assets inventory61340.2-22445.71 = 38894.49

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Quick ratio = 38894.49------------- = 0.80148577.80

LEVERAGE RATIOS

1. Debt equity ratio = External equities-----------------------

Internal equitiesExternal equities


-----------8587.85

-----------

Internal equities


-------------27113.94

-------------


2. Proprietor / equity ratio = Shareholders fund------------------------

Total assets

Total assets:


--------------84226.90

--------------

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Equity ratio = 27113.94-------------- = 0.322

84226.90

3. Fixed assets to net worth = Fixed assets------------------------Shareholders fund

14827.93= ------------ = 0.547

27113.94ACTIVITY RATIO

1. Inventory turnover ratio = Cost of goods sold--------------------------

Average stockCost of goods sold:


-------------

87789.66Less: increase / decrease stock 1383.04-------------89172.70-------------

Average stock = Opening stock + closing stock--------------------------------------

2

= 11508.42+10125.38--------------------------- = 10816.9

2

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2. Debtors turnover ratio = Net credit sales-----------------------

Average debtors

= 113568.88--------------------------- = 5.12(18211.62 +26137.05)/2

3. Average collection period = 365------------------------------Debtors turnover ratios

= 365-------- = 71 days approx.

5.12

4.Fixed assets turnover ratio = Cost of goods sold-------------------------

Net fixed assets

= 89172.70------------- = 6.0414827.93

5. Current assets turnover ratio = COGS------------

C/A

= 89172.70-------------- = 1.453

61340.20

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G.P. = Net sales COGS= 113568.88 89172.70= 24396.18

G.P. ratio 24396.18= ------------- * 100 =21.48

113568.88

2. Net profit ratio = Net profit-------------- * 100Net sales

= 6991.16

--------------* 100 =6.155113568.88

3. Return on total assets = profit before interest & tax--------------------------------

Total assets

= 10806.84----------- = 0.151

71464.50

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THE POLYPLASTICS PVT. LTD.

COMPARISION OF BALANCE SHEETS FOR THE LAST

5 YEARS (2005 2009) (Rs. in Lacs)

S.no PARTICULARS 30-9-2005 30-9-2006 30-9-2007 30-09-2008 30.09.200

A LIABILITIES1. SHARE CAPITAL

a) Authorized 850 850 850 850 8

b) Issued, sub & paid up 736.95 736.95 736.95 736.95 736

2. RESERVE & SURPLUSa) Capital reserve& other 458.31 458.31 458.31 458.31 458

b) General reserve 10181.10 10281.10 10481.10 10981.10 11731

c) Profit & loss a/c 3825.51 4117.53 5349 8808.62 14187

3. OWNERS FUNDS (1b+2) 15201.87 15593.89 17025.36 20984.98 27114

4. SECURED LOANS 1321.86 2107.6 2750.42 1982.89 5981

5. UNSECURED LOANS 3063.95 2976.21 1938.54 1726.04 2606

6. LOANS FUNDS (4+5) 4385.81 5083.57 4688.96 3708.93 8587

7. CURRENT LIBILITIES 7484.91 9118.41 18960.27 36855.67 39894

8. PROVISIONS 863.30 1947.67 2504.99 5640.26 8683

9. TOTAL (3+6+7+8) 28672.84 31743.54 43179.58 63230.22 84279

B ASSETS 28672.84 31743.54 43179.58 63230.22 84279

1. FIXED ASSETS

a) Gross block 8647.11 9175.71 11790.85 15911.52 19710

b) Depreciation 5341.47 5809.88 6360.94 7146.16 8339

c) Net block (a-b) 3305.64 3365.83 5429.91 8765.36 11371

d) Cap work in progress 16.52 97.13 676.23 692.58 3456

e) Total (c+d ) 3322.16 3462.96 6106.14 9457.94 14827

2. INVESTMENTS 7273.07 7219.98 7219.98 10266.45 80583. DEFERRED TAX ASSETS NIL NIL NIL 78.06 52

4. CURRENT ASSETS, LOANS & ADVANCES

a) Inventory 5686.30 6823.34 11914.46 16901.70 22445

b) Sundry debtors 5803.17 8880.50 11951.36 18211.62 26137

c) Cash balance 280.07 751.93 1059.26 1598.86 1056

d) Other Current Assets 3.18 2.87 1.84 6.67 20

e) Loans & advances 4465.44 3832.34 3871.52 10668.54 11680

f) Total (a to e) 16238.16 20290.98 28798.44 47387.39 61340

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THE POLYPLASTICS PVT. LTD.

COMPARITIVE STATEMENT OF P & L FOR THE LAST

5 YEARS (2005 2009) (Rs. in Lacs)

S.no PARTICULARS 30-9-2005 30-09-2006 30-9-2007 30-9-2008 30-9-2009

A EXPENDITURE:

1. Cost of Goods Purchased 8150.64 6702.12 14492.17 44980.87 54778.81

2. Manufacturing exp. 10623.13 15279.08 19210.64 29395.27 33010.85

3. Employees cost 2759.30 4059.15 3933.35 5250.01 7259.40

4. Adm. & selling exp. 2231.06 2204.27 2336.84 5119.42 6243.18

5. Interest 530.52 743.91 658.20 730.94 859.31

6. Depreciation 562.21 593.71 726.16 972.02 1348.517. Total expenses (1 to 7) 24853.86 29582.24 41357.36 86448.53 103500.06

8. Inc/Dec. in WIP & FG. 749.05 558.98 2452.69 4683.05 1383.04

9. Total (7+8) 25602.91 30141.22 43810.05 91131.10 102117.02

B INCOME:

1. Sales & service income 25626.98 30746.78 43683.27 93039.93 120386.53

2. Other income 786.57 1576.46 1101.40 926.25 2031.33

3. Profit from farm operations 4.02 2.24 3.89 2.71 4.42

4. Total income (1+2+3) 26417.57 32325.48 44788.56 93968.89 122422.28

C Net Profit: (B4-A9) 814.66 2184.26 978.51 2837.79 20305.26

D Provision For Tax: -995.92 375.49 945.76 2283.34 3730.37

E Profit After Tax (C-D) 1810.58 1808.77 32.75 554.45 16574.89

F Balance In P&L A/C B/F 2358.51 4169.09 5977.86 9854.82 15799.78

G TOTAL N.P. (E+F) 169.09 5977.86 6010.61 10409.27 32374.67

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THE POLYPLASTICS PVT. LTD. RATIO

ANALYSIS OF 2005 TO 2009

S.no PARTICULARS 30-9-2005 30-9-2006 30-9-2007 30-9-2008 30-9-2009

A LIQUIDITY RATIO

1. Current Ratio 1.945 1.834 1.34 1.12 1.26

2. Liquidity Ratio 1.264 1.217 0.786 0.72 0.801

B

LEVERAGE RATIO

1. Debt Equity Ratio 0.2885 0.326 0.217 0.18 0.3172. Proprietor/equity Ratio 0.567 0.503 0.404 0.31 0.322

3. Fixed Assets To Net worth 0.218 0.222 0.359 0.45 0.547

C ACTIVITY RATIO

1. Inventory Turnover Ratio 5.241 5.234 5.58 7.60 8.12

2. Debtors Turnover Ratio 4.919 4.188 3.885 5.81 5.12

3. Average Collection Period 74 87 94 63 71

4. Fixed Assets Turnover Ratio 5.425 6.186 5.113 7.37 6.04

5. Current Assets Turnover 1.11 1.056 1.083 1.47 1.453

D Profitability Ratios

1. Gross profit ratio 29.66 30.33 22.78 20.42 21.48

2. Net Profit Ratio 8.601 1.953 4.264 5.14 6.155

3. Return on Total Assets 0.04 0.056 0.079 0.111 0.151

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ANALYSIS OFFINANCIAL RATIOS

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1. CURRENT RATIO:

The current ratio is a measure of the firms short term solvency. It indicates

the availability of current assets in rupees for every one rupees of current

liability. Current ratio 2:1 or more are considered satisfactory.

1.9451.834

1.34

1.121.26

0

0.20.4

0.6

0.8

1

1.2

1.41.6

1.8

2

2004-05 2005-06 2006-07 2007-08 2008-09

CURRENT RATIO

INTERPRETATION

The company current ratio in previous years are satisfactory but in current

year the current ratio is 1.26:1 which shows that short term solvency of the

firm is not good and more safer will be the interest of share holders. Because

the higher ratio is the indicator of good investment policy of the firm.

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2. LIQUIDITY RATIO:

INTERPRETATION

This ratio helps us to know the overall liquidity position of the company and

current year Liquidity ratio of company is 0.801:1 shows that company has

sound liquidity position. In this ratio inventory and prepaid expenses are not

taken because it is less liquid then other current assets.

1.264 1.217

0.786 0.72 0.801

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2004-05 2005-06 2006-07 2007-08 2008-09

LIQUIDITY RATIO

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3. DEBT EQUITY RATIO:

The debt equity ratio of the firm is low 0.317:1 but the ratio of 1:1 considered

satisfactory which indicates that firm has to bear no burden of fixed interest

charges in the year of low profit.

DEBT EQUITY RATIO

0.2885

0.326 0

.217

0.18

0.317

0

0.05

0.1

0.15

0.2

0.250.3

0.35

2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION

And it will also have to accept restrictive conditions for raising funds in

future. It is also indicates lower margin of safety to long term lenders but it is

better then last years and company is also increasing there reserves for future

options.

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4. PROPRIETARY EQUITY RATIO/ NET WORTH TO

TOTAL ASSETS RATIO

This ratio shows that how much funds have been provided by shareholder for

investment in assets of business.

PROPRIETOR / EQUITY RATIO

0.567

0.503

0.404

0.31 0.322

0

0.1

0.2

0.3

0.4

0.5

0.6

2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION

This ratio is 0.322:1 which is low, the creditor can be suspicious about the

repayment of their debt on liquidation of the company therefore, external

funds should be utilized to a limited extend. This ratio should be 33% or

more than that. A higher proprietary ratio generally treated as sound financial

position from long-term point of view. But this ratio of current year is low,

which is a danger signal for long term lenders as it indicates a lower margin

of safety available to them. The lower the ratio, the less secured are the long

term loans and they face the risk of losing their money.

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5.FIXED ASSETS TO NET WORTH RATIO.

INTERPRETATION

The main objective of this ratio is to find out what proportion of ownersfunds are invested in fixed assets.

FIXED ASSETS TO NET WORTH

0.218 0.222

0.359

0.450.547

00.1

0.2

0.3

0.4

0.5

0.6

2004-05 2005-06 2006-07 2007-08 2008-09

Fixed assets are included after charging depreciation. The ratio is .547 that

are 55% and this is less then 100% which reflects that either company have

high working capital or are being debt capital. But in this case second option

is better as company have high amount of debt capital and most assets are

purchased out of it only, it is difficult for the company to liquidate its assets

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6. FIXED ASSETS TURNOVER RATIO

This ratio shows how fixed assets have been utilized to increase sales.

Generally, high fixed assets turnovers are preferred since they indicate a

better efficiency in fixed assets utilization.

5.425

6.186

5.113

7.37

6.04

0

1

2

3

4

56

7

8

2004-05 2005-06 2006-07 2007-08 2008-09

FIXED ASSETS TURNOVER RATIO

INTERPRETATION

The fixed assets turnover ratio is high (6.04 times). There is increase in this

ratio as compared to previous years; it will indicate that there is better

utilization of fixed assets. It appears that the activity of the business is

relatively constant, with a slight upward trend. The ratio also confirms that

the business places a much greater reliance on working capital than it does on

the fixed assets. And moreover fixed asset doesnt contributing in generating

sales. But in this business heavy machinery and fixed capital is required so

amount of fixed capital is far more than the sales.

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7. CURRENT ASSETS TURNOVER RATIO

This ratio shows how current assets have been utilized to increase sales.

Generally, high current assets turnovers are preferred since they indicate a better

efficiency in current assets utilization.

CURRENT ASSETS TURNOVER RATIO

1.111.056

1.083

1.47 1.453

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION

This ratio is in declining trend in last years but there is increase in ratio from

1.083 in 2007 to 1.453 in 2009 which means that current assets are but then

also better then fixed asset turnover ratio, this shows that company is neitherutilizing its current asset efficiently nor fixed asset to increase its sales rather

company is depending on its external debts to increase its sales more then

internal sources

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8. GROSS PROFIT RATIO

Gross profit is the result of relationship among sales and cost and price. High

gross profit is the sign of efficient management. Normally the gross profit has

to rise proportionately with sales. It can also be useful to compare the gross

profit margin across similar businesses although there will often be good

reasons for any disparity.

GROSS PROFIT RATIO

29.66

30.33 2

2.78

20.42

21.48

0

5

10

15

20

25

30

35

2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATIONThe ratio above shows the decreasing trend in the gross profit since the ratio

has not improved from 22.78% in 2007 to 21.48% on 2009. This indicates

that the rate is decrease in cost of goods sold.

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9. NET PROFIT RATIO

INTERPRETATION

This ratio is also called net profit margin. Greater the ratio more profitable

the business will be. This ratio is used to measure the overall profitability of

the business.

The net margin ratio shows that the margin is fluctuating over time with

slight improvement from 1.953% of 2005 to 6.155% of 2009, which shows

that there is constant improvement in financial position of company.

NET PROFIT RATIO

8.601

1.953

4.2645.14

6.155

0

2

4

6

8

10

2004-05 2005-06 2006-07 2007-08 2008-09

Despite of increase in depreciation charges, cost of borrowings etc. company

profits are increasing which is due to increase in its sales.

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10. INVENTORY TURNOVER RATIO:

This ratio establishes the relationship between cost of goods sold and average

inventory and indicate the fact that whether the investment in inventory iswithin a proper limit or not. With this ratio we can judge that in how many

time the stock can be converted into sales during the year. It also evaluates

the inventory policy of the management.

INVENTORY TURNOVER RATIO

5.241 5.234 5.58

7.68.12

0

12

3

4

5

6

7

89

2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION

The inventory turnover ratio is 8.12 times which is good indicates that stock

is being sold fast and not kept in godown for longer period and it also express

the fact that there is low investment in inventory because in this main raw

material that is used in cement production is limestone and company have

there own mines of it. With increase in production sales are also increasing

and inventory turnover is showing increasing trend.

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11. RETURN ON TOTAL ASSETS

With the help of this ratio we can calculate over all profitability of all

resources. Income is earned by using the assets of a business productively.

The more efficient the production is, the more is the business profitable. The

rate of return on total assets indicates the degree of efficiency with which

management has used the assets of the enterprise during an accounting

period.

RETURN ON TOTAL ASSESTS RATIO

2004-05, 0.04

2005-06, 0.056

2006-07, 0.079

2007-08, 0.111

2008-09, 0.151

INTERPRETATION

Returns on total assets are showing rising trend. It has increased from 0.111

in 2008 to 0.151 in 2009.Which means now assets are being utilized in

business in better way then in past but then also the ratio is very low which

shows that assets are not utilizing by management in proper manner but as

with increased capacity utilization and power generation project this ratio

will defiantly continue its trend with improved ratio.

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12. AVERAGE COLLECTION PERIOD

INTERPRETATION

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

A higher debt collection period is thus, an indication of the inefficiency and

negligence on the part of management. But there is decrease in debt

collection period in current year 2008 though it has increased a little again in

2009. It indicates prompt payment by debtors, which reduces the chances of

bad debts. So it is good.

74

8794

63

71

0

10

20

30

40

50

60

70

80

90

100

2004-05 2005-06 2006-07 2007-08 2008-09

AVERAGE COLLECTION PERIOD RATIO

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STATISTICAL TOOLS

Correlation

Introduction in our day to day life, we find many examples when a mutual relationship exists

between two variables i.e. with fall or rise in the value of one variable, the fall or rise take place in

the value of other variable. For example, price of a commodity rises as the demand for the

commodity goes up. upto a certain time period, weight of a person increases with the increase in the

age. Similarly, the temperature rises with the rises in the sunlight. These facts indicates that there is

certainly some mutual relationship that exists between the demand for a commodity and its price, the

age of a person and his commodity and the sunlight and temperature.

The correlation refers to the statistical technique used in measuring the closeness of the relationship

between the variables.

Definition of Correlation:

1. "Correlation analysis deals with the association between two or more variables " Simpson

and Kafka

2. "If two or more quantities vary in sympathy, so that movement in the one tend to be

accompanied by corresponding movements in the other, then they are said to be correlated-

Conner

Degree of Correlation

Sr. No. Degree of correlation Positive Negative

1. Perfect correlation +1 -1

2. High Degree of

correlation

Between +0.75 to +1 Between -0.75 to 1

3. Moderate Degree of

correlation

Between +0.25 to +0.75 Between -0.25 to -0.75

4. Low degree of correlation Between 0 to +0.25 Between 0 to -0.25

5. Absence of correlation 0 0

Why to Use Correlation:

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Different types of statistical tools are available but for using specifically correlation is of having amajor reason i.e. only this and this statistical tool was giving the satisfactory results. I have to showthe relationship between sales and profits, which can be purely defined with the help of thisstatistical tool only.

Furthermore, with the help of time series analysis we can define the further trends of business by

using trend analysis.

Karl Pearson's coefficient of correlation method:

Karl Pearson's coefficient of correlation method is the main important method to calculate the

correlation between two variables:

( ) ( )N

dydy

N

dxdx

N

dydxdxdy

r 22

2

2

=

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Financial expenses denoted by x.

Retained earning denoted by y.

2005 2006 2007 2008 2009

X 7944 7015.25 6570.89 9597.45 16358.50

Y 707.05 1028.39 1335.22 1862.46 2349.39

Calculation of coefficient correlation

X A = 8000Dx

dx2 Y A=1500dy

dy2 Dxdy

7944 -56 3136 707.0

5

-792.95 628769.7 44405.2

7015.2

5

-984.75 969732.56 1028.

39

-471.61 222415.99 464417.94

6570.8

9

-1429.11 2042355.3 1335.

22

-164.78 27152.448 235488.74

9597.4

5

1594.45 2542270.8 1862.

46

362.46 131377.25 577924.34

16358.

50

8358.5 69864522 2349.

39

849.39 721463.37 7099626.3

N = 5 dx =

7483.09

dx2 =

75422016

dy = -

217.49

dy2 =

1731178.7

dxdy =

8421862.5

( ) ( )

( ) ( )5

217.49-1731178.7

5

09.748375422016

5

217.49-7483.098421862.5

r22

=

5

47301.91731178.7

5

5599663575422016

5

1627497.28421862.5

r

=

0.389468.71731171119932775422016

9.44325492.5842186r

+=

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8.417217164222689

1.9874736r=

0.21051538

1.974736

2.141213.90801

1.9874736r

8=

=

r = 0.83It shows high degree positive correlation between financial expenses and retained earnings.

XLSTAT 7.1 - Correlation Tests - 9/27/2009 at 6:57:56 PMVariable 1: workbook = Book1 / sheet = Sheet1 / range = $E$8:$E$12 / 5 rows and 1 columnVariable 2: workbook = Book1 / sheet = Sheet1 / range = $F$8:$F$12 / 5 rows and 1 columnSignificance level:0.05

Pearson's correlation coefficient test (parametric test):

Observed value 0.832Two-tailed p-value

0.081

Alpha 0.05

Decision:At the level of significance Alpha=0.050 the decision is to not reject thenull hypothesis of absence of correlation.In other words, the correlation is not significant.

Scattergram of the data

0

500

1000

1500

2000

2500

0 5000 10000 15000 20000

financial exp.

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TREND ANALYSIS

Meaning

Trend refers to long-term tendency of data over a period of time. The data of time series are subject

to change over a period of time. But over a long period of time, the data of time series have a

tendency to increase or decrease or remain constant.

According to Prof. Hirsch

By Trend sometimes also called secular trend we mean the long run gradual growth or decline in

the series.

Objective of Trend Analysis/ Time series1. Study of Past Behaviour- Analysis of time series studies the past behaviour of data and

indicates the changes that have taken place in the past.

2. Prediction for future - On the basis of analysis of time series, future predictions can be made

easily.

3. Estimation of Trade Cycles- Cyclical fluctuations in time series give idea about the changes

taking place in the business like Boom, Recession, Depression and Recovery.

4. Comparison with other Time Series- By comparing the different time series together, their

cause and effect relationship can be more elaborately analyzed.

5. Study of Present Variations- It is also helpful in studying the present variations in different

economic variables like national income, export-import, price etc.

6. Universal Utility- Time series analysis benefits all classes like businessmen,

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TREND ANALYSIS OF REPORTED NET PROFIT OF POLYPLASTIC PVT LTD.

YEAR Profit Y (Rs. In

Crore)

Deviations from

2007 X

XY x2

2005 1206.18 -2 - 2412.36 4

2006 1637.11 -1 -1637.11 1

2007 2007.20 0 0 0

2008 2540.07 1 2540.07 1

2009 3110.22 2 6220.44 4

Y=10498.78 X=0 XY=4711.04 x2 = 10

The equation of the straight line trend is

Y= a + bX

Since x=0

a = y/N, b = xy/x2

Substituting values, we get

a = 10498.78/5 = 2099.756 = 2100 (app.)

b = 4711.04/10 = 471.104 = 471

Thus the straight line trend is

y = 2099 + 471x, Origin = 2008, X unit = 1 Year,

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GRAPH SHOWING TREND LINE

0

1000

2000

3000

4000

5000

6000

2002 2004 2006 2008 2010 2012 2014

EARS

NETPROFI

ACTUAL VALUES TREND VALUES

YEAR ACTUAL VALUES TREND VALUES

2005 1206.18 1158

2006 1637.11 1629

2007 2007.20 21002008 2540.07 2571

2009 3110.22 3042

2008 3513

2009 3984

2010 4455

2011 4926

2012 5397

Error!

Interpretation:

The Projection of Profit for the year 20010 is 4455 crore.

In the year 2007 was able to achieve more than its Expected Profits.

In the year 2008 was not able to achieve more than its Expected Profits.

In the year 2009 was not able to achieve its Expected Profits.

The Profits of Co. shows an increasing trend.

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REGRESSION

Regression is the study of the nature of the nature of relationship between the variables so that one

may be able to predict the unknown value of one variable for a known value of another variable.

Definition:

"Regression analysis measures the nature and extent of the relation between two or more variables.

Thus, enables us to make predictions". Hirsch

REGRESSION ANALYSIS

X is denoted for administrative expenses

Y is denoted for operating profit

2005 2006 2007 2008 2009

X 2365.53 1801.17 1248.31 2727.18 4946.69

Y 882.84 2087.76 2679.78 3269.94 3793.56

Calculation of Regression Equation

X A=2600

dx

Dx2 Y A=2600

Dy

dy2 Dxdy

2365.53 -234.47 54976.18 882.84 -17171.6 2948638.4 402622.5

1801.17 -798.83 6318129.36 2087.76 -512.24 262389.81 409192.67

1248.31 -1351.69 1827065.8 2679.78 179.78 32320.848 -243006.82

2727.18 1727.18 2983150.7 3269.94 669.94 448819.6 1157106.9

4946.69 2346.69 5506953.9 3793.56 1193.56 1424585.4 2800915.3

x=13088.

88

dx=1688.88

dx2=11010275

y=12713.88

dy=186.12

dy2=5116754

dxdy=4526830.5

78.26175

88.13088

N

x

X ===

78.25425

88..12713

N

xX ===

( )

=

22 dxdxN

dydxdxdxNbyx

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2)88.1688(110102755

)12.186(88.16885.45268305

=

6.285231555051375

34.31433422634152byx

+=

44.052199060

22948486byx ==

( )22 dydyN

dydxdxdyNbxy

=

2)12.186(51167545

)12.186(88.16885.45268305

=

654.3464025583770

34.31433422634152

+=

9.025549130

22948486==

(i) Regression equation:

Regression equation of X on Y Regression equation of Y on X

)YY(bxyXX =

X 2617.78=0.9(y-2542.78)

x = 0.9y-2288.50+2617.78

x = 0.9y + 329.278

)Xx(byxYY =

Y 2542.78=0.44(x-2617.78)

x = 0.44x-1151.823+2542.78

x = 0.44x + 1390.95

(ii) Regression lines:In order to draw up the two regression lines on the graph. We shall have to plot the given

values of x and the computed values of y and the given value of y and the computed v values of x.

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Computed value of y

Regression equation of y on x

when x = 2365.53, y = 0.44 2365.53 + 1390.95 = 1040.833 + 1390.95 = 2431.78

when x = 1801.17, y = 2183.46

when x = 1248.31, y 1940.206

when x = 2727.18, y = 2590.90

when x = 4946.69, y = 3567.49

Computed value of x

Regression equation of x on y

X = 0.9y + 329.278when y = 882.84, x = 0.9 882.84+ 329.278 = 1123.834

when y = 2087.76, x = 2208.262

when y = 2679.78, x = 2741.08

when y = 3269.94, x = 3272.224

when y = 3793.56, x = 3743.48

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Model 1 1607284.417

1607284.417

1.391 0.323

esiduals 3 3467140.861

1155713.620

otal 4 5074425.27

8Model parameters:

arameter

Value Standarddeviation

Student's t Pr > t Lowerbound 95

%

Upper bound 95 %

ntercept 1372.457 1102.717 1.245 0.302 -2136.883

4881.796

X 0.447 0.379 1.179 0.323 -0.759 1.654

he equation of the model writes: OPERATING PROFIT = 1372.4566922265 + 0.447066253099387*X

redictions, residuals, and confidence intervals:

Obseration

s

Weights

X Operating profit

Operating profit(model)

Residuals

Standardized

residuals

LowerConf.Mean

UpperConf.Mean

LowerConf.Indiv.

Upper Conf.Indiv.

bs1 1 2365.530 882.840 2430.005 -1547.165

-1.439 869.998 3990.013

-1330.13

7

6190.148

bs2 1 1801.170 2087.760 2177.699 -89.939 -0.084 357.911 3997.487

-1697.43

7

6052.835

bs3 1 1248.310 2679.780 1930.534 749.246 0.697 -321.306

4182.374

-2165.29

7

6026.365

bs4 1 2727.180 3269.940 2591.687 678.253 0.631 1055.968

4127.405

-1158.44

4

6341.817

bs5 1 4946.690 3793.560 3583.955 209.605 0.195 384.638 6783.272

-1100.13

3

8268.042

Durbin-Watson statistic: d = 0.880

Data and regression line

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

1000 1500 2000 2500 3000 3500 4000 4500 5000

X

OPERATINGPROFIT

Observations Predictions

C onf. o n pre d (95 .00 %) C on f. o n m ean (95. 00% )

X / Standardized residuals

-2

-1.5

-1

-0.5

0

0.5

1

1000 1500 2000 2500 3000 3500 4000 4500 5000

X

Standardizedresiduals

OPERATING PROFIT / Standardized residuals Standardized residuals

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CHI-SQUARE TEST

Set up the null hypothesis that observed reported net profit matches with expected net profit.

Applying x2 test on the value of net profit.

Year Observed value

(O)

Expected value

(E)

(O E) (O E)2

2006 1637.11 1629 8.11 65.77

2007 2007.20 2100 -94.8 8987.04

2008 2540.07 2571 -30.93 956.66

2009 3110.22 3042 68.22 4653.96

(O-E)2 =14663.43

Degree of freedom = v = 4-1 = 3

The tabulated value of2 at 5%

Level of significance for 3 d.f. = 7.82

The tabulated value of2 at 5% level of significance for 3 d.f. = 7.82

Result:

Since the calculated value of2 is more than the table value, so we do not accept the null hypothesis

and conclude that expected value of sales does not matches with observed value of sales.

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FINDINGS OF STUDY

1. The company current ratio in previous years are satisfactory but in current

year the current ratio is 1.26:1 which shows that short term solvency of the

firm is not good.

2. Current year Liquidity ratio of company is 0.801:1 shows that company has

sound liquidity position.

3. The debt equity ratio of the firm is low 0.317:1 but the ratio of 1:1 considered

satisfactory which indicates that firm has to bear no burden of fixed interest

charges in the year of low profit.

4. Proprietary equity ratio is 0.313:1 which a danger signal for long term lenders

is as it indicates a lower margin of safety available to them.

5. Fixed assets to net worth ratio is .547 that are 55%and this is less then 100%,

it is difficult for the company to liquidate its assets.

6. The fixed assets turnover ratio is high (6.04 times). There is increase in this

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

7. Current assets turnovers ratio is in declining trend in last years but there is

increase in ratio from 1.083 in 2007 to 1.453 in 2009.

8. Gross profit ratio shows the decreasing trend in the gross profit since the ratio

has not improved from 22.78% in 2007 to 21.48% on 2009. This indicates

that the rate in decrease in cost of goods sold.

9. The net profit ratio shows that the margin is fluctuating over time with slight

improvement from 1.953% of 2006 to 6.155% of 2009

10. The inventory turnover ratio is 8.12 times which is good indicates that

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

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11. Returns on total assets are showing a little bit rising trend which means

now assets are utilizing in business in better way.

12. There is decrease in debt collection period in current year 2009 it

indicates prompt payment by debtors, which reduces the chances of baddebts. So it is good.

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SUGGESTIONS/RECOMMENDATIONS

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

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