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A REPORT ON
SUMMER PROJECT WORK
OF RATIO ANALYSIS
FOR
BELL CERAMICS LTD.
Submitted to:-
GUJARAT TECHNOLOGICAL UNIVERSITY, AHMEDABAD
Prepared by :-
Nilam G. Gandhi
ID NO.:-107420592002
MBA First Year
Under the Guidance of :-
Prof. Bhavik Mehta
Prof. Rajkumari Soni
PARUL INSTITUTE OF ENGG. & TECH. (PIET) – MBA
P.O.- LIMDA, TALUKA – WAGHODIA
DIST – VADODARA, GUJARAT.
CERTIFICATE FROM COMPANY
2
CERTIFICATE FROM FACULTY GUIDE
CERTIFICATE
This is to certify that the project work entitled “RATIO ANALYSIS OF BELL
CERAMIC LTD., BARODA” was carried out by GANDHI NILAM G. in
partial fulfillment of the Award of the degree in “Master of Business
Administration” to the GUJARAT TECHNOLOGICAL UNIVERSITY,
AHMEDABAD in the year 2010 - 2012. It is certified that all
correction/suggestion indicated for internal assessment have been incorporated
in the Report deposited in the department library. The project report has been
approved as it satisfies the academic requirements in respect of project work
prescribed for the “Master of Business Administration Degree”.
Signature of Guide Signature of Director
Name of Guide Name of Director
College : Parul Institute Engineering and Technology,
MBA Department ( Ins. Code 742 )
3
DECLARATION
I here by declare that the project report entitled, “RATIO ANALYSIS OF
BELL CERAMICS LTD.” submitted as per the requirement for the degree of
Master of Business Administration of Parul Institute of Engineering and Technology
(G.T.U.) is an original piece of research work carried out by me under the guidance of
Prof. Bhavik Mehta and Prof. Rajkumari Soni. The information has been collected
from genuine and authentic sources. This project is not submitted for the award of any
type of other degree, diploma or any other similar title or prizes.
PLACE :- Vadodara NAME OF CANDIDATE:-
Miss. Nilam Gandhi
DATE :-
4
ACKNOWLEDMENT
“Perseverance inspiration and motivation have always played a key role in
success of any venture”. I hereby express my deep sense of gratitude to all the
personalities involved directly and indirectly in my project work.
I would thank to God for their blessing and my parents also for their valuable
suggestion and support in my project report.
With an immense pleasure, I would like to express my thanks to Ms. Mukti
Mehta (Deputy Finance Manager), project guide for having given me this privilege of
working under her and completing this study.
I would also like to thank Mr. G P Zala (GM of Finance), Mr. P D Baxi (Head
of Account), Mr. Bhaskar (Asst. manager of Finance), who have rendered their whole
hearted support at all times for the successful completion of this project report.
I would also like to thank all staff members at Corporate office as well as at
Dora office of Bell Ceramics Ltd. ,who have helped me for this project directly or
indirectly.
Last but not least, I would like to express my sincere gratitude to Bhavik sir
and other faculty members who have taught me in my entire MBA curriculum and our
HOD, Dr. P G K Murthy, who has always been a source of guidance, inspiration and
motivation.
However, I accept the sole responsibility for any possible errors of omission
and would be extremely grateful to the readers of this project report if they bring such
mistakes to my notice.
5
TABLE OF CONTENTS
CH. NO. TOPIC PAGE NO.Title Page 1Certificates i. From company 2 ii. From Faculty Guide 3Declaration 4Acknowledgement 5Table of Contents 6Executive Summary 7
PART – I ORGANISATION PROFILE1. Introduction 92. Company Profile 10
Evolution & History 11Vision & Mission 12Organization chart of the company 13Products & Distribution Network 14Orient Ceramic & Industries ltd 15Bell Acquisition 16Major Competitors of Bell Ceramic Tiles in India 17
3. Finance Department Organization chart & Activities 18
My learning from the study of company 19PART – 2 PROJECT STUDY
4. Overview of the study 215. Research Methodology 226. Ratio Analysis
Meaning & Importance 23 Standards of the Ratio 24 Advantages & Uses of Ratio Analysis 24 Limitations of Ratio Analysis 26 Sources of data for ratios 27 Purpose & Types of Ratios 27 Forms of Ratios 28 Users of Financial Ratios 29 Classification of various ratios 30
7. Ratio Calculations Profitability Ratios 32 Liquidity Ratios 47 Leverage Ratio 56 Turnover Ratio 61
8. SWOT Analysis 729. Findings & Interpretation 7410. Conclusion & Limitations 7511. Recommendations & Suggestions 76
6
Appendices 77Bibliography 82
EXECUTIVE SUMMARY
The products and the company are very familiar to the people in the urban
area. In some areas there is a tough competition with major players such as Kajaria,
Somany and Nitco etc.
But along with the competition from national players there is a dominating
threat in the market from local players which are generally from Gujarat (i.e. morbi
tiles) they have exploited the market trends , they sell at very low rates and offer huge
commissions. The quality also varies.
So, as the consumer in the small town prefer having cheap tiles. local tiles
purely satisfied these needs and therefore sells more.
Bell products are known in the market for its quality. Many dealers were
interested in sub dealership rather than dealership because of financial constraints,
lack of awareness and motivation. So the company should try to concentrate on
promotional plans. Existing dealer’s complaint of packaging procedures. Many
dealers complaint of an imperfect, unattractive, insufficient, uninformative catalogue
and compared with kajaria’s catalogue, which is quite impressive as the people in
small towns mainly gets attract due to colors, shades, designs rather than quality
which is a key strength of Bell products so the company should try to make the
catalogue more impressive. But right now the sales of the company are decreased due
to the competition.
7
PART – I
ORGANISATIONAL
PROFILE
8
CHAPTER - 1
INTRODUCTION :-
After preparation of the financial statements, one may be interested in
knowing the position of an enterprise from different points of view. This can be done
by analyzing the financial statement with the help of different tools of analysis such as
ratio analysis, funds flow analysis, cash flow analysis, comparative statement
analysis, etc.
Here I have done financial analysis by ratios. In this process, a meaningful
relationship is established between two or more accounting figures for comparison.
Financial ratios are widely used for modeling purposes both by practitioners
and researchers. The firm involves many interested parties, like the owners,
management, personnel, customers, suppliers, competitors, regulatory agencies, and
academics, each having their views in applying financial statement analysis in their
evaluations.
Financial statements are those statements which provide information about
profitability and financial position of a business. It includes two statements, i.e., profit
& loss a/c or income statement and balance sheet or position statement.
The income statement presents the summary of the income earned and the
expenses incurred during a financial year. Position statement presents the financial
position of the business at the end of the year.
Before understanding the meaning of analysis of financial statements, it is
necessary to understand the meaning of analysis and financial statements . Analysis
means establishing a meaningful relationship between various items of the two
financial statements with each other in such a way that a conclusion is drawn.
Thus, analysis of financial statements means establishing meaningful
9
relationship between various items of the two financial statements, i.e., income
statement and position statement.
CHAPTER - 2
COMPANY PROFILE:-
TYPE :- Private Limited Company
INCORPORATED ON :- 18 th October , 1985
REGISTERED OFFICE :-
Address :- Village : Dora, Taluka : Amod, District :Bharuch-392 230. Gujarat (India). Phone :- +91-2641-235151,235153 Fax :- +91-2641-235160
KEY PERSON :- Mr. K M Pai (MD)
INDUSTRY :- Ceramic Tiles
PRODUCTS :- Wall & Floor Tiles
10
EMPLOYEES :- + 700
WEBSITE :- http://www.bellceramic.com
EVOLUTION & HISTORY :-
The company was incorporated on 18th October,1985, at Dora, Gujarat,
and obtained a certificate of commencement of business on 8th November,
1985.
It was promoted by R. K. Jatia and R. G. N. Swamy, a non resident India.
The aim of the company is to manufacture world class ceramic glazed wall
and floor tiles.
The company undertook to set up a plant for the manufacture of 20000
tonnes per annum of ceramic wall tiles and floor tiles.
The company proposed install a project to manufacture ceramic glazed
floor tiles with the installed capacity of 55000 tonnes per annum at
Hoskote, Karnataka in 1994.
In 1996, the project of floor tiles with installed capacity of 55000 TPA was
undertaken.
Present installed capacity of Bell is 10 lacs square meters per month.
This company is accredited with ISO 9001:2000 and 14001.
Gujarat Plant :-
Located at village DORA ,TA. AMOD, DIST.- BHARUCH, GUJARAT.
The place is around 60 km away from VADODARA.
Dora plant has production installed capacity of 63.87 lacs square meters
per annum of wall and floor tiles.
This is the Registered office of the Bell Ceramics Ltd.
Present capacity of the Plant is 17000 sqm per day.
11
Karnataka Plant :-
Located at Village CHOKKANHALLI , TA. HOSKOTE , DIST.-
BANGLORE (Rural) , KARNATAKA.
Bangalore plant has an installed capacity of 82.13 lacs square meters per
annum of floor tiles.
The plant was started on 26th March, 1998.
The place is about 70 km away from Banglore City.
This plant produces floor tiles only.
VISION :-
“To become the most preferred provider of tiling solutions”.
MISSION:-
“To delight every individual associated with Bell by providing innovative and
quality product & services on an ongoing basis”.
12
ORGANISATION CHART OF THE COMPANY :-
13
PRODUCTS OF BELL CERAMIC :-
Board of Directors
Managing Director
Corporate Office
Dora Unit
Hoskote Unit
Finance Department
Marketing Department
AccountDepartment
HRD Department
Production Department
Stores Department
QC Department
Finance Department
Marketing Department
Production Department
Stores Department
QC Department
Purchase Department
14
DISTRIBUTION NETWORK :-
ORIENT CERAMICS & INDUSTRIES LTD. :-
BELL CERAMICS
DORA (GUJARAT)1985
HOSKOTE (KARNATAKA) (1995)
WALL TILES FLOOR TILES FLOOR TILES
QUALITY
FIRST COMMERCIAL ECONOMY
SELLING
From Warehouse From Depot
Depot (Stock Transfer)
Dealer Project Dealers Project
15
OCIL was formed on 18th May 1977 as a public limited company and has
been at the forefront of innovation in home décor ever since.
The Company's manufacturing unit is at Sikandarabad, Uttar Pradesh.
Orient Ceramics and Industries Limited is an India-based company. The
Company is engaged in manufacture of Ceramic Tiles. The Company also
manufactures ultra-vitrified tiles.
The Company's product portfolio includes Orient Tiles, Europa Tiles and
Stiler Tiles.
Current Installed Capacity of the company is 220000 TPA.
VISION OF THE COMPANY :-
“Delight Customers &
Reward shareholders by
providing Innovative solutions
that are
FAMOUS for QUALITY”
16
BELL ACQUISITION :-
OCIL had bought 68% shares of Bell Ceramics in December, 2010.
OCIL, which became India's largest tile maker after the acquisition with a
10 per cent market share at present, had bought 68% in Bell at a cost of Rs
19 crore.
Bell's operational efficiency improved from 60-65 per cent to 80-85 per
cent with little or no investments.
Bell’s production capacity increases to 30 crore square feet of walls and
floors every year after acquisition.
Bell’s distribution network is very good in west and south zone of India,
while Orient’s distribution network is very good in north zone. Because of
acquisition both company’s distribution network can be spread in all over
India.
17
Major Competitors of Bell Ceramic Tiles in India :-
1. HR JOHNSON
2. KAJARIA CERAMICS LTD.
3. SOMANY PILKINGTON LTD.
4. MURUDESHWAR CERAMICS LTD.
5. NITCO TILES LTD.
6. ORIENT CERAMICS LTD.
7. RESTILLE CERAMICS LTD.
8. EURO CERAMICS PVT LTD.
18
CHAPTER – 3 :- FINANCE DEPARTMENT
ORGANISATION CHART :-
ACTIVITIES DONE BY FINANCE DEPARTMENT :-
Finance department of the company is at corporate office, Vadodara. All
financial activities are handled by the finance department at corporate office.
Following activities are done by the finance department.
Handling Bank loan and its transactions.
Handling selling & distribution expenses like salary of salesmen, traveling
expenses, commission of the salesman, advertisement expenses, etc.
Handling administration cost, finance cost, taxes, etc.
Payment to creditors.
Consolidated statements are also made here.
MDMr. K M Pai
GM
Mr. G P ZalaMr. G P Zala
President (Marketing)Mr. A N Rangaswamy
ManagerAt Corporate
ManagerAt Dora
ManagerAt Hoskote
Officers OfficersOfficers
19
MY LEARNING FROM THE STUDY OF COMPANY :-
Before summer internship at Bell Ceramic, I had not any experience of
Working in a good company. I have learn many areas of the company.
Before joining bell I was only known about tiles are that it is used for flooring
and wall. But I was not aware about different types of tiles like vitrified tile, ceramic
tile, joint free (edge- cut) tile, group 5 series etc. and I come to know about the history
of the tile and its industrial statistics. So that is also helpful to me.
During my training, we went to Dora for three days and we learnt the process
for making tiles practically. We also learnt about the different departments like
account department, hr department, production department, stores department,
warehouse department, purchase department, etc. under the observation of head of
respective department.
At dora, they are using the FIFO method for inventory. We are also aware
from taxes related to production company.
After doing the company, I can aware about the activities done in the different
departments, especially in finance department. I understand the difference between
practical knowledge and theoretical knowledge.
20
PART – II
PROJECT
STUDY
21
CHAPTER – 4 :- OVERVIEW OF STUDY
SCOPE OF THE STUDY :-
Ceramic tiles come under the ‘Building material Industry’. Over the years ,
Indian building material Industry grow at a fast pace of almost 16 % per annum due
to boom in real estate and construction industry. Increase in income levels and
availability of a range of financing options for housing is enabling rapid growth in
housing construction.
In India , growth rate of building material industry is at very high and
constantly growing. By this project finding , we have been trying to catch the demand
and opportunities of various tile making organizations for their commercial and
residential needs.
OBJECTIVE OF THE STUDTY :-
My soul objective of this report confines with following facts :
Ratio analysis is a powerful tool of financial analysis. It gives a fair
indication of a company’s financial health.
Calculation of ratios to know the financial position of the company.
Comparison with the past years ratio to know the company’s performance,
i.e, Time series analysis.
Comparison of ratios with other tile producing companies to know the
company’s position in the market.
It gives the indication of direction of change and reflects whether the
organization’s financial position and performance has improved,
deteriorated or remained constant over period of time.
To understand the information contained in financial statements with a
view to know the strength or weaknesses of the firm and to make forecast
about the future prospects of the firm and thereby enabling the financial
analyst to take different decisions regarding the operations of the firm.
22
CHAPTER – 5 :- RESEARCH METHODOLOGY
METHODOLOGY :-
The research involved extensive and intensive studies of Bell Ceramics Ltd. In
this report a sincere effort has been made to study the financial statement analysis of
the company. During this training, I study the financial position and performance of
the company. At last , I have given the interpretation and conclusion of the study.
DATA RESOURCES :-
The whole of my study based on secondary data. Secondary data are most
useful to me for my report.
SECONDARY DATA :-
During the time period of my study, I have taken help of the following
secondary data.
Induction material of the company
Annual report of the company
Balance sheet of last four years of the company
Income statement of last four years of the company.
Financial statement of the orient and somany.
23
CHAPTER – 6 :- RATIO ANALYSIS
Meaning of Ratio Analysis :-
Ratio analysis is one of the techniques of financial analysis to evaluate the
financial condition and performance of a business concern. Simply, ratio means the
comparison of one figure to other relevant figure or figures.
According to Myers, " Ratio analysis of financial statements is a study of
relationship among various financial factors in a business as disclosed by a single set
of statements and a study of trend of these factors as shown in a series of statements."
Importance of Ratio Analysis :-
To assess the earning capacity or profitability of the firm.
To assess the operational efficiency and managerial effectiveness.
To assess the short term as well as long tern solvency of the company.
To identify the reasons for change in profitability and financial position of
the company.
To make time series analysis.
To make forecasts about future prospects of the company.
To assess the progress of the company over a period of time.
To help in decision making and control.
To guide or determine the dividend action.
To provide important information for granting credit.
24
Standards of Ratio Analysis :-
The Ratio Analysis involves comparison for a useful interpretation of the
financial statements. A single ratio itself does not indicate favourable or unfavourable
condition. It should be compared with some standard. Standard of comparison may
consist of :
1 ) Past Ratios :-
Ratios calculated from the past financial statements of the same firm.
2 ) Competitor’s Ratios :-
Ratios of some selected companies, especially the most progressive and
successful competitor, at the same point in time.
3 ) Industry Ratio :-
Ratios of the industries to which the company belongs. In this case, Tile
Industry.
4 ) Projected Ratio :-
Ratios developed using the projected, or proforma, financial statements of
the same firm.
Advantages & Uses of Ratio Analysis :-
There are various groups of people who are interested in analysis of financial
position of a company. They use the ratio analysis to workout a particular financial
characteristic of the company in which they are interested. Ratio analysis helps the
various groups in the following manner: 1. To workout the profitability:
Accounting ratio help to measure the profitability of the business by
calculating the various profitability ratios. It helps the management to know
about the earning capacity of the business concern. In this way profitability
ratios show the actual performance of the business.
2. To workout the solvency:
25
With the help of solvency ratios, solvency of the company can be measured.
These ratios show the relationship between the liabilities and assets. In case
external liabilities are more than that of the assets of the company, it shows the
unsound position of the business. In this case the business has to make it
possible to repay its loans.
3. Helpful in analysis of financial statement:-
Ratio analysis help the outsiders just like creditors, shareholders, debenture-
holders, bankers to know about the profitability and ability of the company to
pay them interest and dividend etc.
4. Helpful in comparative analysis of the performance:-
With the help of ratio analysis a company may have comparative study of its
performance to the previous years. In this way company comes to know about
its weak point and be able to improve them.
5. To simplify the accounting information:-
Accounting ratios are very useful as they briefly summarize the result of
detailed and complicated computations.
6. To workout the operating efficiency:-
Ratio analysis helps to workout the operating efficiency of the company with
the help of various turnover ratios. All turnover ratios are worked out to
evaluate the performance of the business in utilizing the resources.
7. To workout short-term financial position:-
Ratio analysis helps to workout the short-term financial position of the
company with the help of liquidity ratios. In case short-term financial position
is not healthy efforts are made to improve it.
8. Helpful for forecasting purposes:-
Accounting ratios indicate the trend of the business. The trend is useful for
estimating future. With the help of previous years’ ratios, estimates for future
26
can be made. In this way these ratios provide the basis for preparing budgets
and also determine future line of action.
Limitations of Ratio Analysis. :-
In spite of many advantages, there are certain limitations of the ratio analysis
techniques and they should be kept in mind while using them in interpreting financial
statements. The following are the main limitations of accounting ratios:
1. Limited use of a single ratio:-
Ratios can be useful only when they are computed in sufficient large number.
A single ratio usually, does not convey much of meaning. To make a better
understanding or interpretation number of ratios have to be calculated which is
likely to confused the analyst in making any meaningful conclusions.
2. Lack of standards:-
There are no well accepted standards or rules of thumbs for all ratios,
which can be accepted as norms. It renders interpretation of difficult ratios.
3. Effect of Price Level Changes:-
Price level changes often make the comparison of figures difficult over a
period of time. Changes in price affects the cost of production, sales and also
the value of assets. Therefore, it is necessary to make proper adjustment for
price-level changes before any comparison.
4. Qualitative factors are ignored:-
Ratio analysis is a technique of quantitative analysis and thus, ignores
qualitative factors, which may be important in decision making. For example,
average collection period may be equal to standard credit period, but some
debtors may be in the list of doubtful debts, which is not disclosed by ratio
analysis.
5. Effect of window-dressing:-
27
In order to cover up their bad financial position some companies resort to
window dressing. They may record the accounting data according to the
convenience to show the financial position of the company in a better way.
6. Costly Technique:-
Ratio analysis is a costly technique and can be used by big business houses.
Small business units are not able to afford it.
7. Misleading Results:-
In the absence of absolute data, the result may be misleading. For example, the
gross profit of two firms is 25%. Whereas the profit earned by one is just Rs.
5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs.
10,00,000 and sales are Rs. 40,00,000. Even the profitability of the two firms
is same but the magnitude of their business is quite different.
8. Incomparability :-
Not only industries differ in nature , the forms of similar business widely
differ in their sizes and accounting procedures. It makes comparison of ratio
difficult and misleading.
Sources of data for Financial Ratios :-
Values used in calculating the financial ratios can be taken from following
sources :
Balance Sheet
Income statement
Statement of cash flows
Statement of Retained earnings
Purpose and Types of Ratios :-
1) Profitability Ratio :-
It measures the firm’s use of its assets and control of its expenses to generate
28
an acceptable rate of return.
2) Liquidity Ratio :-
It measure the availability of cash to pay debt.
3) Efficiency Ratio :-
It measure how quickly a firm converts non-cash assets to cash assets.
4) Debt Ratio :-
It measure the firm's ability to repay long-term debt.
5) Market Ratio :-
It measure investor response to owning a company's stock and also the cost of
issuing stock.
Forms of Ratios :-
1) As a pure ratio:-
For example the equity share capital of a company is Rs. 20,00,000 & the
preference share capital is Rs. 5,00,000, the ratio of equity share capital to
preference share capital is 20,00,000: 5,00,000 or simply 4:1.
2) As a rate of times:-
In the above case the equity share capital may also be described as 4 times that
of preference share capital. Similarly, the cash sales of a firm are Rs.
12,00,000 & credit sales are Rs. 30,00,000. sothe ratio of credit sales to cash
sales can be described as 2.5 [30,00,000/12,00,000]or simply by saying that
the credit sales are 2.5 times that of cash sales.
3) As a percentage:-
In such a case, one item may be expressed as a percentage of some other item.
For example, net sales of the firm are Rs.50,00,000 & the amount of the gross
profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales
[ 10,00,000/50,00,000]
29
Steps in Ratio Analysis :-
The Ratio analysis require three steps as follows :
1) Collect the information from the financial statements.
2) To arrange information in a way to highlight significant relationship.
3) Comparing the ratio with some predetermined standards.
Users of Financial Ratios :-
Analysis of financial statement has become very significant due to widespread
interest of various parties in the financial result of a business unit. The various
persons interested in the analysis of financial statements are:-
1 ) Short- term creditors
They are interested in knowing whether the amounts owing to them will be
paid as and when fall due for payment or not.
2 ) Long –term creditors
They are interested in knowing whether the principal amount and interest
thereon will be paid on time or not.
3 ) Shareholders
They are interested in profitability, return and capital appreciation.
4 ) Management
The management is interested in the financial position and performance of the
enterprise as a whole and of its various divisions.
5 ) Trade unions
They are interested in financial statements for negotiating the wages or
salaries or bonus agreement with management.
6 ) Taxation authorities
30
These authorities are interested in financial statements for determining the tax
liability.
7 ) Researchers
They are interested in the financial statements in undertaking research in
business affairs and practices.
8 ) Employees
They are interested as it enables them to justify their demands for bonus and
increase in remuneration.
Classification of Various Ratios :-
1 ) Profitability Ratio :-
A) In relation to sales
Gross profit ratio
Operating profit ratio
Net profit ratio
Expense ratio
B) In relation to investment :-
Return on investment
Return on Equity
Return on total asset
Earning per share
Price earning ratio
2 ) Liquidity Ratio :-
Current ratio
Acid test ratio
Cash ratio
Cash Conversion Cycle
3 ) Leverage Ratio :-
31
Debt equity ratio
Debt asset ratio
Interest coverage ratio
4 ) Turnover Ratio :-
Inventory turnover
Debtors turnover
Average collection period
Fixed asset turnover
Total asset turnover
Working capital turnover
32
CHAPTER – 7 :- RATIO CALCULATIONS
PROFITABILITY RATIOS :-
In the income statement, there are four levels of profit or profit margins –
gross profit, operating profit, pretax profit and net profit. The term "margin" can
apply to the absolute number for a given profit level and/or the number as a
percentage of net sales/revenues.
The objective of margin analysis is to detect consistency or positive/negative
trends in a company's earnings. Positive profit margin analysis translates into positive
investment quality.
Generally, two major types of profitability ratios are calculated :
A ) In relation to Sales
B ) In relation to Investment.
A ) In relation to Sales :-
1 ) GROSS PROFIT RATIO :-
The Gross Profit Ratio reflects the efficiency with which management
produces each unit of product. This ratio indicates the average spread between the
cost of goods sold and sales revenue.
The gross profit margin is used to analyze how efficiently a company is using
its raw materials, labor and manufacturing-related fixed assets to generate profits. A
higher margin percentage is a favorable profit indicator.
Formula :-
Gross Profit
33
Gross Profit Ratio = --------------------- x 100
Net Sales
Gross Profit = Sales – Cost of Goods sold
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Gross Profit -565.94 1235.97 350.39 533.34
Net Sales 16184.2 18880.8 15330.2 14677.5
Gross Profit Ratio -3.50% 6.55% 2.30% 3.63%
Analysis on the basis of Past years :-
The company’s gross profit for the year 2010-11 is higher than 2009-10. This
is good sign for the company. This ratio shows that the company has to reduce its cost
of goods sold (manufacturing related expenses) to increase its Gross profit.
Comparison with competitors
Bell Orient Somany
Gross Profit 533.34 1821.00 5166.00
Net Sales 14677.5 28964.00 71058.00
Gross Profit Ratio 3.63% 6.29% 7.27%
34
Analysis on the basis of Competitors :-
From the above three companies, Somany’s gross profit and net sales both are
higher than orient and bell. Somany’s cost of goods sold is less than its sells. This
ratio shows that manufacturing related expenses of Somany are lower against its sales.
Bell Ceramic has to reduce its cost of goods sold and increase its sales to increase the
gross profit.
2 ) OPERATING PROFIT MARGIN :-
The operating margin is the measurement of management’s efficiency. It
compares the quality of a company’s activity to its competitors. A business that has a
higher operating margin is generally doing better as long as the gains didn't come by
piling on debt or taking highly risky speculations with shareholders' money.
Management has much more control over operating expenses than its cost of sales
outlays.
The operating margin also serves as an indicator of the cost-competitiveness
compared to peers where individual costs cannot be determined easily.
Formula :-
Operating Profit
Operating Profit Margin = ----------------------- x 100
Net Sales
Comparison with past years
35
Year 2007- 08 2008- 09 2009-10 2010-11
Operating Profit -799.97 1050.98 140.74 0.10
Net Sales 16184.2 18880.8 15330.2 14677.5
Operating Profit Margin -4.94% 5.57% 0.92% 0.001%
Analysis on the basis of Past years :-
The operating profit ratio of the company for 2010-11 is very lower than last
two years, which indicates inefficiency of the management. The company has to
increase its operating income to stand in the competition. The management of the
company can control the operating expenses to increase its operating profit.
Comparison with competitors
Bell Orient Somany
Operating Profit 0.10 1601.00 5162.00
Net Sales 14677.5 28964.00 71058.00
Operating Profit Margin 0.001% 5.53% 7.26%
36
Analysis on the basis of Competitors :-
The operating profit ratio of the company for 2010-11 is very lower than its
competitors. Orient and Somany’s operating expenses are very less against their sales
in compare to Bell Ceramic. The management of the Bell Ceramic has to reduce its
operating expenses to stand in the competition.
3 ) NET PROFIT RATIO :-
The net profit margin tells us how much of each rupee of sales is left over for
the owners after all expenses and taxes. The profit margin tells us how much profit a
company makes for every rupee it generates in revenue or sales. Profit margins vary
by industry, but all else being equal, the higher a company's profit margin compared
to its competitors, the better.
Formula :-
Net Profit
Net Profit Ratio = ---------------- x 100
Net Sales
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Net profit (PAT) -2182.44 33.30 -637.32 -481.93
Net Sales 16184.2 18880.8 15330.2 14677.5
37
Net Profit Ratio -13.50% 0.18% -4.16% -3.28%
Analysis on the basis of Past years :-
The company is doing the loss from last two years. The company’s loss for
2010-11 is lower than last year, which is good sign for the company.
The company is takeover by Orient Ceramic & Industries Ltd because of the
loss. And after the acquisition with Orient Ceramic, Bell has an opportunity to
increase its performance again.
Comparison with competitors
Bell Orient Somany
Net profit (PAT) -481.93 1196.00 2343.00
Net Sales 14677.5 28964.00 71058.00
Net Profit Ratio -3.28% 4.13% 3.30%
38
Analysis on the basis of Competitors :-
Here, Net profit margin of the Orient Ceramic is higher, which shows the
efficient management of the company. Now, the Bell Ceramic is takeovered by the
Orient, Bell’s management has a good opportunity to work under the effective
management. And because of this Bell can improve its performance.
4 ) EXPENSE RATIO :-
The specific expense ratio explains the changes in the profit margin ratio. This
ratio indicates the specific variations in expense. This ratios light on managerial
policies and programmes. The high ratio indicates the high expenses of the company.
The low ratio indicates the low expenses of the company.
Formula :-
Specific Expense
Expense Ratio = ------------------------ x 100
Net Sales
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Material Expense 5514.27 6069.02 4585.74 4506.69
39
Personnel Expense 1622.86 1682.38 1611.8 1757.40
Manufacturing & Selling Exp. 7697.88 9639.66 7258.02 7487.55
Net Sales 16184.2 18880.8 15330.2 14677.5
Material Expense Ratio 34.07% 32.14% 29.91% 30.70%
Personnel Expense Ratio 10.03% 8.91% 10.51% 11.97%
Manufacturing & Selling Exp.
Ratio
47.56% 51.06% 49.11% 51.01%
Analysis on the basis of Past years :-
All specific expense ratios of the company for 2010-11 are little increase than
last year, which is satisfactory for the company. There is very little fluctuation
between all four year’s specific expense ratio. The company has try to reduce these
expenses to increase the net profit.
Comparison with competitors
Bell Orient Somany
Material Expense 4506.69 6348.00 10364.00
Personnel Expense 1757.40 3297.00 5431.00
Manufacturing & Selling Exp. 7487.55 11551.00 22503.00
Net Sales 14677.5 28964.00 71058.00
40
Material Expense Ratio 30.70% 21.92% 14.60%
Personnel Expense Ratio 11.97% 11.38% 7.64%
Manufacturing & Selling Exp.
Ratio
51.01% 39.88% 31.67%
Analysis on the basis of Competitors :-
If we compare the Bell Ceramic with its competitors, we can show that the
material, personnel and manufacturing expenses of the company are higher than the
Orient and Somany. Bell Ceramic has to reduce its expenses to earn the net profit.
B ) In relation to Investment :-
1 ) RETURN ON INVESTMENT :-
The conventional approach of calculating ROI is to divide PAT by Investment.
Investment represent pool of funds supplied by shareholders and lenders, while PAT
represent residue income of shareholders. Therefore it is unsound to use PAT in
calculation of ROI. We have use EBITDA level to calculate the ROI.
Formula :-
EBITDA
41
Return on Investment = ------------------ x 100
Total Asset
EBITDA = Earnings Before Interest, taxes, depreciation and amortization
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
EBITDA 332.82 2170.25 1255.34 1109.62
Total Asset 14115.82 12887.25 12410.79 17949.23
Return on Investment 2.36% 16.84% 10.11% 6.18%
Analysis on the basis of Past years :-
Return on investment of the company is lower than past years, which is not
good for the company. For the year 2008-09, this ratio of the company was good. The
company has to increase its return ROI. The company received less interest on its
investment.
Comparison with competitors
Bell Orient Somany
EBITDA 1109.62 2579.00 6888.00
Total Asset 17949.25 17624.67 32257.00
42
Return on Investment 6.18% 14.63% 21.35%
Analysis on the basis of Competitors :-
ROI of the Somany is higher than other two companies. The high ROI of the
company shows the better performance. Bell’s performance is worst than its
competitors.
2 ) RETURN ON EQUITY :-
This ratio indicates the profitability of an entity's capital investments. If this
ratio is lower than the rate at which the company borrows, any further rise in debt will
lead to negative earnings growth. This ratio is calculated to see the profitability of
owner’s investment in the company.
Formula :-
PAT
Return on Equity = ------------------- x 100
Net Worth
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
PAT -2182.4 33.3 -637.33 -481.94
Net Worth 4610.44 3677.71 3677.71 8902.28
43
Return on Equity -47.33% 0.91% -17.33% -5.41%
Analysis on the basis of Past years :-
As the company is doing loss, company can not give the dividend to the equity
shareholders. Company’s loss is decreasing, so equity shareholder’s will get dividend
on their shares in near future.
Comparison with competitors
Bell Orient Somany
PAT -481.93 1196.00 2343.00
Net Worth 8902.28 6882.2 10247
Return on Equity -5.41% 17.38% 22.87%
44
Analysis on the basis of Competitors :-
The Somany Tiles gives more return to its equity shareholders. As we know
Bell is suffering from loss and its financial position is not good, it can not give any
type of return to equity shareholders. Market price of the share of Bell is also lower
than its face value.
3 ) RETURN ON TOTAL ASSET :-
This ratio indicates how profitable a company is relative to its total assets.
The return on assets (ROA) ratio illustrates how well management is employing the
company's total assets to make a profit. The higher the return, the more efficient
management is in utilizing its asset base.
Formula :-
PBIT
Return on Total Asset = ------------------ x 100
Total Asset
PBIT = Profit before Interest and Taxes = Operating Profit
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
PBIT -799.97 1050.98 140.74 0.10
Total Asset 14115.82 12887.25 12410.79 17949.23
Return on Total Asset -5.67% 8.16% 1.13% 0.001%
45
Analysis on the basis of Past years :-
The management of Bell Ceramic is very inefficient in using the assets to earn
more profit. Because of inefficient management, return on total asset is decreases very
much. After paying taxes and interest, this ratio will show negativity.
Comparison with competitors
Bell Orient Somany
PBIT 0.10 1601.00 5162.00
Total Asset 17949.25 17624.67 32257
Return on Total Asset 0.001% 9.08% 16%
46
Analysis on the basis of Competitors :-
Return on Total Asset of the Bell Ceramic shows its poor performance.
Somany’s management is very efficient to earn return on its Total Asset.
4 ) EARNING PER SHARE :-
The profitability of the shareholder’s investment can be measured by
calculating the Earning per Share. EPS simply shows the profitability of the company
on a per share basis. The higher EPS indicates the higher earning per share and the
lower EPS indicates the lower earning per share. It does not reflect how much is paid
as dividend.
Formula :-
PAT – Pref. Dividend
Earning per Share = ------------------------------
No. of Equity Shares
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
PAT -2182.4 33.3 -637.33 -481.94
No. of Equity Shares 365.21 365.21 365.21 121.74
Earning per Share Rs.-5.98 Rs. 0.10 Rs.-1.75 Rs.-3.96
47
Analysis on the basis of Past years :-
Preference dividend is not given to the preference shareholder, so it is
excluded here. As we seen above, the company is making loss, EPS of the company is
negative. Equity shareholder of the company can not earn any rupee per share because
of its loss.
Comparison with competitors
Bell Orient Somany
PAT -481.93 1196.00 2343.00
No. of Equity Shares 121.74 1053 345
Earning per Share Rs.-3.96 Rs. 1.14 Rs. 6.79
Analysis on the basis of Competitors :-
EPS of the Somany Tiles is higher than bell and orient. Shareholders will like
to invest in somany’s shares because it has high EPS. If shareholders invest in Bell’s
shares, they have to face loss on their investment.
48
LIQUIDITY RATIOS:-
Liquidity ratios attempt to measure a company's ability to pay off its short-
term debt obligations. This is done by comparing a company's most liquid assets (or,
those that can be easily converted to cash), its short-term liabilities.
The ratios used here are current, quick and cash ratio. We will also see the
cash conversion cycle of the company.
1 ) CURRENT RATIO :-
The current ratio is a financial ratio designed to tell the level of current assets
compared to current liabilities. The current ratio is a measurement of the company’s
short term solvency. It indicates the availability of current assets in rupees for every
one rupee off current liability.
The current ratio is also called as working capital ratio, as working capital is
the difference between current assets and current liabilities.
Formula :-
Current Asset
Current Ratio = -------------------------
Current Liabilities
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Current Asset (Rs. In Lacs) 4998.53 5544.83 4679.73 5178.59
Current Liabilities (Rs. In lacs) 4962.16 5005.8 4373.26 4261.32
Current Ratio 1.007: 1 1.11: 1 1.07: 1 1.22: 1
49
Analysis on the basis of Past years :-
Current ratio measures the ability of the firm to meet its current liabilities. It
represent margin of safety for creditors. A ratio of greater than one means that the
firm has more current assets than current claims against them. The company’s current
ratio for the year 2010-11 is 1.22 : 1 which is greater than the past three years, which
is good for the company. However, as compare to standard ratio i.e, 2:1 , the
company’s ratio is lower, liquidity position of the company is increasing.
Comparison with competitors
Bell Orient Somany
Current Asset (Rs. In Lacs) 5178.59 14140.01 30193
Current Liabilities (Rs. In lacs) 4261.32 6586.29 15701
Current Ratio 1.22 : 1 2.15 : 1 1.92 : 1
50
Analysis on the basis of Competitors :-
Current ratio of the Orient Ceramic is better, because it is higher than the
standard ratio 2:1. Perfect liquidity position of the company can be measure after
excluding inventory.
2 ) ACID TEST RATIO (QUICK RATIO) :-
The Acid Test Ratio (also called the Quick Test or Liquidity Ratio),
establishes a relationship between quick or liquid assets and current liabilities. An
asset is liquid if it can be converted into cash immediately or reasonably soon without
a loss of value.
Inventories are considered to be less liquid. Inventories are required some time
for realizing into cash. Therefore, Inventories can not be included in the current asset
to calculate this ratio. This ratio gives more accurate result than the current ratio.
Formula :-
Current Asset - Inventories
Quick Ratio = --------------------------------------
Current Liabilities
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Current Asset (Rs. In Lacs) 4998.53 5544.83 4679.73 5178.59
Inventories 3077.06 3720.33 2984.12 3412.84
Current Liabilities (Rs. In lacs) 4962.16 5005.8 4373.26 4261.32
Quick Ratio 0.39: 1 0.36: 1 0.39: 1 0.41: 1
51
Analysis on the basis of Past years :-
The standard quick ratio is 1 : 1. The company’s quick ratio for the year 2010-
11 is higher than past three years, which is good for the company but it is lower than
the standard ratio. Company’s maximum fund is locked in the inventory.
Comparison with Competitors
Bell Orient Somany
Current Asset (Rs. In Lacs) 5178.59 14140.01 30193
Inventories 3412.84 6905.24 9764
Current Liabilities (Rs. In lacs) 4261.32 6586.29 15701
Quick Ratio 0.41: 1 1.10: 1 1.30: 1
Analysis on the basis of Competitors :-
Orient and Somany’s quick ratio is higher than the standard ratio, which
52
shows that these companies have less inventory level. Bell’s inventory level is high
and its more funds are blocked in inventory. This ratio shows that Bell’s liquidity
position is not good.
3 ) CASH RATIO :-
Cash is the most liquid asset. Trade investment or marketable securities are
equivalent of cash, therefore they may be included in the computation of cash ratio.
Formula :-
Cash + Marketable securities
Cash Ratio = ------------------------------------------
Current Liabilities
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Cash Equivalents 49.31 40.43 47.16 56.15
Marketable Securities 0 0 0 0
Current Liabilities 4962.16 5005.8 4373.26 4261.32
Cash Ratio 0.0099 : 1 0.0081 : 1 0.011 : 1 0.013 : 1
Analysis on the basis of Past years :-
This company carries small amount of cash. There is nothing to be worried
about the lack of cash, because the company has reserve borrowing power.
53
And the company’s cash and bank balances also continuously increasing from the
year 2008-09.
Comparison with competitors
Bell Orient Somany
Cash Equivalents 56.15 189.42 1472
Marketable Securities 0 0 0
Current Liabilities 4261.32 6586.29 15701
Cash Ratio 0.013 : 1 0.029 : 1 0.094 : 1
Analysis on the basis of Competitors :-
The Bell Ceramic has less cash in comparing to its competitors. But bell has
taken the cash credit from the Bank of India and Punjab National Bank. Because of
CC facility, the company is not worried about the lack of cash.
4 ) CASH CONVERSION CYCLE :-
The cash conversion cycle (CCC) measures the number of days a company's
cash is tied up in the the production and sales process of its operations and the benefit
it gets from payment terms from its creditors. The shorter this cycle, the more liquid
the company's working capital position is. The CCC is also known as the "cash" or
"operating" cycle.
54
Formula :-
Cash Conversion Cycle = DIO + DSO – DPO
Where,
DIO = Days Inventory Outstanding
DSO = Days Sales Outstanding
DPO = Days Payable Outstanding
Closing Inventory
DIO = --------------------------
Net Sales per Day
Where,
Net Sales per Day = Net Sales / 365
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Closing Inventory 3077.06 3720.33 2984.12 3412.84
Net Sales per Day 44.34 51.73 42.00 40.21
Days Inventory outstanding 69 72 69 85
Comparison with competitors
Bell Orient Somany
Closing Inventory 3412.84 6905.24 9764
Net Sales per Day 40.21 79.35 194.68
Days Inventory outstanding 85 87 50
Closing Debtor
DSO = -------------------------
Net Sales per Day
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Closing Debtors 1196.7 1225.52 1248.06 1354.45
Net Sales per Day 44.34 51.73 42.00 40.21
55
Days Sales outstanding 27 24 30 34
Comparison with competitors
Bell Orient Somany
Closing Debtors 1354.45 4031.7 12933
Net Sales per Day 40.21 79.35 194.68
Days Sales outstanding 34 51 66
Closing Creditors
DPO = ------------------------
Net sales per day
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Closing Creditors 4850.83 4889.9 4306.35 4261.32
Net Sales per Day 44.34 51.73 42.00 40.21
Days Payable outstanding 109 95 103 106
Comparison with competitors
Bell Orient Somany
Closing Creditors 4261.32 6291.65 12493
Net Sales per Day 40.21 79.35 194.68
Days Payable outstanding 106 79 64
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
DIO 69 72 69 85
+ DSO 27 24 30 34
- DPO 109 95 103 106
= Cash Conversion Cycle -13 days 1 day -4 days 13 days
56
Analysis on the basis of Past years :-
DIO of the company for current year is higher than last years, it means
inventory is taken more time to convert into sales in compare to last years. DSO of the
company is also higher, which shows that debtors are taken more time than last years.
DPO is quite high than last year, which shows that company is taking 3 times more
time than DSO into payment to creditors.
Comparison with competitors
Bell Orient Somany
DIO 85 87 50
+ DSO 34 51 66
- DPO 106 79 64
= Cash Conversion Cycle 13 days 59 days 52 days
57
Analysis on the basis of Competitors :-
DIO of the Somany tiles is better than others. DSO of the Bell Ceramic is
better than its competitors. DPO of bell ceramic is higher that shows that it is taken
more time into payment of creditors than its competitors. Averagely, CCC of the Bell
ceramic is better than its competitors.
LEVERAGE RATIOS :-
The short term creditors, like bankers and suppliers of raw material, are more
concerned with the company’s current debt- paying ability. On the other hand, long
term creditors, like debenture holders, financial institutions, etc. are more concerned
with the company’s long term financial strength. To judge the long term financial
position of the company, leverage ratios are calculated.
1 ) DEBT EQUITY RATIO :-
Debt can increase a company's return on equity, but too much can take a
company into bankruptcy. The debt to equity ratio measures how much money a
company should safely be able to borrow over long periods of time. A great sign of
prosperity is when a balance sheet shows the amount of long term debt has been
decreasing for one or more years.
Formula :-
Total Debt
Debt Equity Ratio = --------------------------------
Share holder’s Equity
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Total Debt 14467.54 14215.34 13106.34 13308.27
Shareholder’s Equity 3652.14 3652.14 3652.14 1217.38
Debt Equity Ratio 3.96times 3.89times 3.59times 10.93times
58
Analysis on the basis of Past years :-
The debt equity ratio shows lender’s contribution for each rupee of owner’s
contribution. The debt equity ratio for the year 2010-11 is higher than last three years,
which indicates that company more relies on debt funds and less on equity funds. This
is not good sign for the company. If the company more focus on equity funds, it has to
pay less interest on debt funds.
Comparison with competitors
Bell Orient Somany
Total Debt 9046.95 10280.41 19444
Shareholder’s Equity 1217.38 1053 690
Debt Equity Ratio 7.43 times 9.76 times 28.18 times
Analysis on the basis of Competitors :-
59
In compare to competitors, Bell’s long term debt is lower. This is good sign
for the company. Bell’s debt equity ratio is lower than its competitors, which is good
for the company.
2 ) DEBT ASSET RATIO :-
The debt ratio compares a company's total debt to its total assets, which is
used to gain a general idea as to the amount of leverage being used by a company. A
low percentage means that the company is less dependent on leverage, i.e, money
borrowed from and/or owed to others. The lower the percentage, the less leverage a
company is using and the stronger its equity position. In general, the higher the ratio,
the more risk that company is considered to have taken on.
Total capital Employed = Total Net Asset
Formula :-
Total Debt
Debt Ratio = -----------------------
Total Asset
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Total Debt 9505.38 9209.54 8733.08 9046.95
Total Asset 14115.82 12887.25 12410.79 17949.23
Debt Asset Ratio 0.67 : 1 0.71 : 1 0.70 : 1 0.50 : 1
60
Analysis on the basis of Past years :-
The debt asset ratio measures the extent to which borrowed funds support the
firms assets. The company is having lower ratio than past years. It indicates that less
assets are financed with the debts fund.
Comparison with competitors
Bell Orient Somany
Total Debt 9046.95 10280.41 19444
Total Asset 17949.25 17624.67 32257
Debt Ratio 0.50: 1 0.58: 1 0.60: 1
Analysis on the basis of Competitors :-
This ratio shows that the Bell Ceramic has stronger position of equity funds
than its competitors. Bell Ceramic is using less leverages than orient and Somany.
3 ) INTEREST COVERAGE RATIO :-
The Interest coverage ratio is used to test the company’s debt servicing
capacity. This ratio shows the number of times the interest charges are covered by
funds that are ordinarily available for their payment. A higher ratio is desirable but
too high ratio indicates that the company is very conservative in using debt, and that it
is not using credit to the best advantage of shareholders. A lower ratio indicates
excessive use of debt, or inefficient operations.
61
Formula :-
EBIT
Interest Coverage Ratio = ----------------------
Interest
EBIT = Earnings Before Interest & taxes.
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
EBIT -799.97 1050.98 140.74 0.10
Interest 1295.48 1163.21 1088.02 1534.30
Interest Coverage Ratio -0.62 0.90 0.13 0.0001
Analysis on the basis of Past years :-
The interest coverage ratio of the company is very lower than past two years,
which shows inefficient operations of the company. This is not satisfactory for debt
providers. When a company's interest coverage ratio is only 1.5 or lower, its ability to
meet interest expenses may be questionable.
Comparison with competitors
Bell Orient Somany
EBIT 0.10 1601.00 5162.00
Interest 1534.30 832.00 1795.00
Interest Coverage Ratio 0.0001 1.92 2.88
62
Analysis on the basis of Competitors :-
Bell Ceramic’s interest coverage ratio is lower than its competitors. This is not
satisfactory for the debt providers of the Bell Ceramic in compare to its competitors.
The interest coverage ratio of Bell is lower than 1.5, which shows questionable
position of the company to cover the interest expenses.
TURNOVER RATIOS
Turnover Ratio indicate the speed with which assets are being converted or
turned over into sales. These ratios also known as “Activity Ratios”. These ratios are
employed to evaluate the efficiency with which the company manages and utilizes its
assets.
1 ) INVENTORY TURNOVER RATIO :-
The inventory turnover ratio, also known as inventory turn, tells an investor
how often a company sells through its inventory. Generally, the faster inventory is
turned, the less risk of loss and the more efficient management is handling capital.
Formula :-
Net Sales
Inventory Turnover = ------------------------
Closing Inventory
63
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Net Sales 16184.2 18880.8 15330.2 14677.5
Closing Inventory 3077.06 3720.33 2984.12 3412.84
Inventory Turnover 5.26times 5.08times 5.14times 4.30times
Analysis on the basis of Past years :-
Inventory turnover indicates the efficiency of the company in producing and
selling the tiles. It is lower than the past three years. Days of Inventory holding also
increases from last years, i.e, 360/4.30 = 84 days. It implies that,
Company maintains excessive inventory level than demanded by
production and sales.
Slow moving of inventory than last years.
Comparison with competitors
Bell Orient Somany
Net Sales 14677.5 28964.00 71058.00
Closing Inventory 3412.84 6905.24 9764
Inventory Turnover 4.30 times 4.19 times 7.28 times
64
Analysis on the basis of Competitors :-
Inventory turnover ratio of Bell is lower than Somany, which indicates that the
somany’s inventory moving speed is higher than bell ceramics.
2 ) DEBTORS TURNOVER RATIO :-
The company sells goods for cash and credit. When the company extends
credits to its customers, debtors are created in the company’s accounts. Debtors are
convertible into cash in short period of time, therefore they are included in the current
assets. The liquidity position of the company depends on the quality of debtors.
Formula:-
Net Sales
Debtors Turnover = ---------------------
Closing Debtors
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Net Sales 16184.2 18880.8 15330.2 14677.5
Closing Debtors 1196.7 1225.52 1248.06 1354.45
Debtors Turnover 13.52times 15.41times 12.28times 10.84times
65
Analysis on the basis of Past years :-
Generally, the higher the value of debtor’s turnover, the more efficient is the
management of credit. But here, Debtor’s turnover ratio for the current year is lower
than the past years, which shows the less efficient management of credit than last
years. As the company’s debtors turnover ratio is decreasing since three years,
company has to improve the policies related to credit management.
Comparison with competitors
Bell Orient Somany
Net Sales 14677.5 28964.00 71058.00
Closing Debtors 1354.45 4031.7 12933
Debtors Turnover 10.84 times 7.18 times 5.49 times
66
Analysis on the basis of Competitors :-
Collection of the debtors are made in 33 days (365 / 10.84) for bell ceramic,
which is lower than its competitors. This ratio shows that debtors of Bell are
converted into cash in the short period. Because of this Bell Ceramic can pay its debt
earlier and can use the cash for inventory purchase.
3 ) AVERAGE COLLECTION PERIOD :-
The Average collection period indicates the time in which the company collect
its debt. The lower collection period shows the efficient credit management. The
higher collection period shows the inefficient credit management of the company.
Formula :-
360
Average Collection Period = -----------------------
Debtors Turnover
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Debtors Turnover 13.52 15.41 12.28 10.84
Average Collection Period 27 days 23 days 29 days 33 days
67
Analysis on the basis of Past years :-
Average collection period of the company is higher than last three years,
which indicates the liberal collection policy of the company and more funds locked up
in the debtors. The credit period of the company should be short and collection of
debts should be made timely.
Comparison with competitors
Bell Orient Somany
Debtors Turnover 10.84 7.18 5.49
Average Collection Period 33 days 50 days 66 days
Analysis on the basis of Competitors :-
Average collection period of the Bell Ceramic is better than its competitors.
Whether it is higher than 30 days, it is satisfactory for the company.
4 ) FIXED ASSET TURNOVER RATIO :-
The company may wish to know its efficiency of utilizing fixed assets. To
compute this ratio Net fixed assets are used.
Net Fixed Asset = Fixed Asset – Depreciation
It measures sales per rupee of investment in fixed asset and efficiency with
which fixed assets are employed. The high ratio indicates a high degree of efficiency
of company in asset utilization. The low ratio indicates inefficient use of assets.
68
Formula :-
Net Sales
Fixed Asset Turnover = ---------------------
Net Fixed Asset
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Net Sales 16184.2 18880.8 15330.2 14677.5
Net Fixed Asset 12645.4 11890.7 10806.9 16307.9
Fixed Asset Turnover 1.28times 1.59times 1.41times 0.90times
Analysis on the basis of Past years :-
The Fixed asset turnover of the company for current year reflects the lower
ratio than the past three years, which indicates the inefficient use of fixed asset by the
management.
Comparison with competitors
Bell Orient Somany
Net Sales 14677.5 28964.00 71058.00
Net Fixed Asset 16307.9 8063.13 17593
Fixed Asset Turnover 0.90 times 3.59 times 4.04 times
69
Analysis on the basis of Competitors :-
Fixed Asset turnover ratio of the Somany Tiles is better in compare to its
competitors. Bell Ceramic has very lower fixed asset turnover ratio. It is indicate that
the Bell Ceramic is not used its fixed asset properly. The management of the company
is inefficient in using the fixed asset against its sales.
5 ) TOTAL ASSET TURNOVER :-
Total asset turnover is meant to measure a company's efficiency in using its
assets and ability in generating sales from all financial resources committed to total
asset. The higher the number, the better for the company, although investors must be
sure compare a business to its industry. The higher a company's asset turnover, the
lower its profit margin tends to be (and visa versa).
Formula :-
Net Sales
Total Asset Turnover = ---------------------
Total Asset
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Net sales 16184.2 18880.8 15330.2 14677.5
Total Asset 14115.82 12887.25 12410.79 17949.23
Total Asset Turnover 1.15times 1.47times 1.24times 0.82times
70
Analysis on the basis of Past years :-
The company’s total asset turnover ratio for 2010-11 is lower than past years,
which indicates less ability of the company in generating sales from total asset.
Ability of the management of the company is decreasing.
Comparison with Competitors
Bell Orient Somany
Net sales 14677.5 28964.00 71058.00
Total Asset 17949.25 17624.67 32257
Total Asset Turnover 0.82 times 1.64 times 2.20 times
Analysis on the basis of Competitors :-
Total Asset turnover of Bell Ceramic is lower than its competitors, which
shows inefficiency of the management in generating sales by its total asset.
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6 ) WORKING CAPITAL TURNOVER :-
The company may like to relate working capital with the sales. Working
capital is the difference of current assets and current liabilities. It is also known as the
“Net Current Asset”. Working capital tells how much money is on hand for the
company to use in day to day operations. The low working capital ratio indicates the
good balance of cash on hand. The high ratio indicates less balance of cash on hand
against sells.
Formula :-
Net Sales
Working Capital Turnover = ----------------------
Working Capital
Working Capital = Current Asset – Current Liabilities
Comparison with past years
Year 2007- 08 2008- 09 2009-10 2010-11
Net Sales 16184.2 18880.8 15330.2 14677.5
Working capital 36.37 539.03 306.47 917.27
Working Capital Turnover 445 Times 35.03Times 50.02Times 16 Times
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Analysis on the basis of Past years :-
The company’s current year’s ratio is much lower than last three years, which
indicates good cash balance on hand of the company for day to day operations. The
company may need much cash to purchase the raw material for making the tiles.
Working capital of the company is increasing, which is good sign for the company.
Comparison with competitors
Bell Orient Somany
Net Sales 14677.5 28964.00 71058.00
Working capital 917.27 7553.72 14492
Working Capital Turnover 16 times 3.83 times 4.90 times
Analysis on the basis of Competitors :-
In compare to Orient and Somany, Bell Ceramic has less cash on hand. Bell
Ceramic has to increase its working capital to increase the cash balance on hand.
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CHAPTER – 8 SWOT ANALYSIS
Strength :
Usage of natural gas as fuel for its Gujarat plant.
Well-established Marketing Network across the country.
Flexibility to switch production between wall and floor tiles at Dora to
capture market as and when required.
Good acceptance of the products in domestic markets.
The usage of dry process technology at the Banglore plant is at full
capacity utilization, which is first of its kind in India, has helped Bell to
reduce fixed cost per Square meter.
Goodwill of Bell Ceramic Ltd is very good in south India.
Weaknesses :
Paid high interest charges.
Usage of LPG gas at Banglore unit.
Fewer Design for production at Banglore unit in floor tile segment.
Continuous losses may affect its goodwill. Market price of the share is
already affected due to loss.
Opportunities :
The company has introduced trading market.
Acquisition with the Orient Ceramic & Industries Ltd.
Increase in Real Estate market, therefore company can increase its sells in
big projects.
The company has introduced new designs of wall tiles and floor tiles.
If the company has its own transportation, it can reduce the cost.
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Threats :
Competition is very high in tile industry.
Increase the bank interest charges.
Bargaining power of customers.
Increase in the charges of Gas.
Excessive losses incurred by company can have bad impression in the
mind of customer.
High cost of transportation may affect the sales.
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CHAPTER – 9
FINDINGS & INTERPRETATION
After doing the ratio analysis of Bell Ceramic Ltd. I have finded following things:
The company is done loss from last two years.
Bell ceramic has to improve its distribution network in North India,
because in North India company’s business is not spread. Company has to
improve its marketing strategies to spread the business.
Company’s distribution network in south and west India is very good.
Company’s credit policies are not good. In the payment of creditors, they are
taking long time. This period is very long because of long supply chain.
They purchase the inventory in advance before monsoon start. Thus, inventory
blocked more space of the factory.
Company’s cost of goods sold is higher than its sales. Therefore company’s
gross profit is lower.
Company’s manufacturing expenses are higher than its sales. Therefore its
operating profit is lower.
Now a days company is doing its sales on advance basis. It means company
takes advance payment form the new buyers of tiles. In some cases, company
is giving 10 days period of payment.
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CHAPTER – 10 CONCLUSION & LIMITATIONS
Conclusion drawn from the study of Ratio Analysis in Bell Ceramic Ltd.
Ratio analysis has a major significance in analysing the financial
performance of a company over a period of time. Decisions affecting
product prices, per unit costs, volume or efficiency have an impact on the
profit margin or turnover ratios of a company.
Financial ratios are essentially concerned with the identification of
significant accounting data relationships, which give the decision-maker
insights into the financial performance of a company.
The analysis of financial statements is a process of evaluating the
relationship between component parts of financial statements to obtain a
better understanding of the company’s position and performance.
Ratio analysis in view of its several limitations should be considered only
as a tool for analysis rather than as an end in itself. The reliability and
significance attached to ratios will largely hinge upon the quality of data
on which they are based. They are as good or as bad as the data itself.
Nevertheless, they are an important tool of financial analysis.
LIMITATIONS OF THE STUDY:-
Ratio analysis is based on only mathematical interpretation of the figures.
Therefore it ignores the factors such as management style, motivation of
workers, leadership styles, etc.
It is affected by changes in price level.
It is affected by changes in accounting procedures.
It is also affected by limited information of competitors.
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CHAPTER – 11 RECOMMENDATIONS & SUGGESTION
Ratio Analysis is the best tool to measure the company’s performance.
Bell Ceramic has to use Economic Order Quantity method for purchasing
its raw material.
It has to use more equity fund than debts for the business operations. If the
company used the equity funds more, its debt can be decreased.
Credit policy of the company can be improved by reducing the supply
chain.
As the company is taken over by Orient Ceramic & Industries Ltd, it has to
good opportunity to work under good management.
It is not using its assets very well. It has to used its assets properly for
business purpose.
It has good debtors turnover ratio. It shows it collects its receivables in
short period. But all this collection is paid to the bank against its cash
credit. If the company use this fund for other activities which is helpful in
improving itself, it can get good returns.
It can buy its own vehicles to reduce its transportation cost.
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APPENDICES :-
1 ) BALANCE SHEET
Balance Sheet of BELL CERAMIC for four years (RS. In Lakhs)
ParticularsSch.No.
2007-08 2008-09 2009-10 2010-11
SOURCES OF FUNDS SHAREHOLDER'S FUND Share Capital 1 3652.14 3652.14 3652.14 1217.38 Reserve & Surplus 2 958.3 25.57 25.57 7684.90 Total Shareholder’s fund 4610.44 3677.71 3677.71 8902.28 LOAN FUNDS Secured Loan 3 8792.94 8217.59 7527.33 6390.72 Unsecured Loan 4 712.44 991.95 1205.75 2656.23 Total Debt 9505.38 9209.54 8733.08 9046.95 Total Capital Employed 14115.82 12887.25 12410.79 17949.23
APPLICATION OF FUNDS FIXED ASSETS 5 Gross Block 23536.2 23899.8 23930.8 30536.5 Less: Depreciation 10902.5 12010.6 13123.9 14228.6 Net Block 12633.7 11889.3 10806.9 16307.9 Capital Work in progress 11.71 1.47 0 0 Total Net Fixed Asset 12645.4 11890.7 10806.9 16307.9 INVESTMENTS 6 0.01 0.01 0.01 0 DEFERRED TAX ASSET (NET) 56.63 46.05 248.62 570.81 CURRENT ASSETS, LOANS & ADVANCES 7 Inventories 3077.06 3720.33 2984.12 3412.84 Sundry Debtors 1196.7 1225.52 1248.06 1354.45Cash and Bank Balances 49.31 40.43 47.16 56.15 Loans and Advances 675.46 558.55 400.39 355.15 4998.53 5544.83 4679.73 5178.59 LESS: CURRENT LIABILITIES & PROVISIONS 8 Current Liabilities 4850.83 4889.9 4306.35 4261.32 Provisions 111.33 115.9 66.91 0
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4962.16 5005.8 4373.26 4261.32
NET CURRENT ASSETS 36.37 539.03 306.47 917.27 PROFIT AND LOSS ACCOUNT 9 1377.45 411.42 1048.75 153.27 Total Asset 14115.82 12887.25 12410.79 17949.23
No. of Equity Shares (in Lakhs) 365.21 365.21 365.21 121.74Market value of Equity share
Balance Sheet of Bell, Orient & Somany for 2010-11 (Rs. In Lakhs)
Particulars
For the year
endedBELL31.3.11
For the year
endedORIENT31.3.11
For the year
endedSOMANY
31.3.11
SOURCES OF FUNDSSHAREHOLDER'S FUNDShare Capital 1217.38 1053 690Reserve & Surplus 7684.9 5829.2 9557 8902.28 6882.2 10247 LOAN FUNDS 9046.95 10280.41 19444
Defferd Tax Liability 0 462.06 2566 Total Capital Employed 17949.23 17624.67 32257
APPLICATION OF FUNDSFIXED ASSETSNet Fixed Asset 16307.9 8063.13 17593
INVESTMENTS 0 2007.82 172 Deffered tax Asset 570.81 0 0 CURRENT ASSETS, LOANS & ADVANCESInventories 3412.84 6905.24 9764Sundry Debtors 1354.45 4031.7 12933
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Cash and Bank Balances 56.15 189.42 1472Loans and Advances 355.15 3013.65 6024 5178.59 14140.01 30193LESS: CURRENT LIABILITIES & PROVISIONSCurrent Liabilities 4261.32 6291.65 12493Provisions 0 294.64 3208
4261.32 6586.29 15701
NET CURRENT ASSETS 917.27 7553.72 14492 PROFIT AND LOSS ACCOUNT 153.27 0 0 Total Asset 17949.25 17624.67 32257
No. of Equity Shares (in Lakhs) 121.74 1053 345
2 ) INCOME STATEMENT :-
Income Statement of Bell Ceramic Ltd. (RS. In Lakhs)
Particulars 2007-08 2008-09 2009-10 2010-11INCOME Sales 17371.6 20063.3 16456.5 16049.8Excise duty paid 1187.43 1182.54 1126.28 1372.33Net Sales 16184.2 18880.8 15330.2 14677.5Other Operating Income 0 0 0 148.99
Total Income 16184.20 18880.80 15330.20 14826.49 EXPENDITURE Inventory Variance 986.82 -693.13 616.76 -116.54Purchases ( Traded Goods) 0 0 0 159.97Material 5514.27 6069.02 4585.74 4506.69Depreciation 1132.79 1119.27 1114.6 1109.52Personnel 1622.86 1682.38 1611.8 1757.40Manufacturing, Administration & Selling 7697.88 9639.66 7258.02 7487.55Prior Period Adjustment 6.21 12.62 2.54 -78.20Amortization of Miscellaneous Expenditure 23.34 0 0 0.00
Total Expenditure 16984.17 17829.82 15189.46 14826.39
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Operating Profit -799.97 1050.98 140.74 0.10 EBITDA Level 332.82 2170.25 1255.34 1109.62 Other Income 234.03 184.99 209.65 533.24 Gross Profit -565.94 1235.97 350.39 533.34 Interest 1295.48 1163.21 1088.02 1534.30 Profit after Interest but before Exceptional items -1861.42 72.76 -737.63 -1000.96 Exceptional Items 0 0 0 201.64 Profit(+)/Loss(-)from Ordinary Activities before tax -1861.42 72.76 -737.63 -799.32 Tax Expenses 90.23 -39.46 100.31 317.39 Net Profit(+)/Loss(-)from Ordinary Activities after tax -1771.19 33.30 -637.32 -481.93 Extra Ordinary items-Depreciation written back/Others 411.25 0 0 0 PROFIT / (LOSS) AFTER TAX -2182.44 33.30 -637.32 -481.93
Income Statement of Bell, Orient & Somany for 2010-11 (Rs.in Lacs)
Particulars Bell Orient Somany
INCOME Sales 16049.8 31197.00 75178.00Excise duty paid 1372.33 2233.00 4120.00Net Sales 14677.5 28964.00 71058.00Other Operating Income 148.99 220.00 430.00
Total Income 14826.49 29184.00 71488.00 EXPENDITURE Inventory Variance -116.54 -1185 -2108Purchases ( Traded Goods) 159.97 6594.00 28410.00
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Material 4506.69 6348.00 10364.00Depreciation 1109.52 978.00 1726.00Personnel 1757.40 3297.00 5431.00Manufacturing, Administration & Selling 7487.55 11551.00 22503.00Prior Period Adjustment -78.20 0.00 0.00
Total Expenditure 14826.39 27583.00 66326.00 Operating Profit 0.10 1601.00 5162.00 EBITDA Level 1109.62 2579.00 6888.00 Other Income 533.24 220.00 4.00 Gross Profit 533.34 1821.00 5166.00 Interest 1534.30 832.00 1795.00 Profit after Interest but before Exceptional items -1000.96 989.00 3371.00 Exceptional Items 201.64 678.00 0.00
Profit(+)/Loss(-)from Ordinary Activities before tax -799.32 1667.00 3371.00 Tax Expenses 317.39 471.00 1028.00 Net Profit(+)/Loss(-)from Ordinary Activities after tax -481.93 1196.00 2343.00 Extra Ordinary items-Depreciation written back/Others 0 0 0 PROFIT / (LOSS) AFTER TAX -481.93 1196.00 2343.00
BIBLIOGRAPHY :-
http//www.investopedia.com
http//www.bellceramic.com
http//www.orientceramic.com
http//www.somanytiles.com
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http//www.iccts.com
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