Embed Size (px)
Citation preview
1
A
PROJECT REPORT ON
RATIO ANALYSIS
FOR
STEELCO GUJARAT LIMITED
SUBMITTED TO C.K.SHAH VIJAPURWALA INSTITUTE OF MANAGEMENT
IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE
DEGREE OF AWARD FOR MASTER OF BUSINESS ADMINISTRATION
UNDER
GUJARAT TECHNOLOGICAL UNIVERSITY
UNDER THE GUIDENCE OF
FACULTY GUIDE COMPANY GUIDE Mrs, Neelu NakraRMAR Mr, Bhagvat
SUBMITTED BY PARMAR VIPUL
ENROLLMENT NO:107050592017
2
ACKNOWLEGEMENT
I would like to thank Mr. MANISH C. SHAH training officer at learning
centre for providing me an opportunity to under go training in STEELCO
GUJARAT LTD.
I would like to thanks to Mr. BHAGVAT training manager and also
Mr. GHANSHYAM and MIRALI UPADHYAY for providing me necessary
guidance whenever needed any suggestion and also given me continues
encouragement.
I am thanking full to Mrs. Neelu Nakra who is my institute guide
(Faculty of MBA) and also all staff.
3
PREFACE
The objective of university education is to teach students
learning new things. The facts were release during the industrial training at
Steelco Gujarat Ltd.
The critical knowledge of any subject is important but without subject it
turns out to be useless. Thus an industrial training provides great
opportunities for a study to get a practical view of the various subjects in
real life situation.
Training provides opportunity to know and learn many aspects or facts the
real world and co related theoretical know.
I have selected Steelco Gujaral Ltd to training which manufactures Cold
Rolled Steel coils/sheets and Hor deep galvanized steel coils and
plain study various function of a corporate house.
The training provides a new platform to management student to prepare
some ground work.
4
DECLARATION
I Vipul Parmar here by declared that the report for Summer Training Project entitle
“RATIO ANALYSIS” is a result of my own work and my indebtedness to other work
publications, preferences, If any, have been duly acknowledge.
Place: Vadodara Signature Date: V.N.Parmar
5
INDEX
Sr. NO PARTICULAR PAGE
NO
1
INTRODUCTIN OF COMPANY
6
2 BOARD OF DIRECTORS 7
3 COMPANY PROFILE 8
4
PROCESS OF PRODUCTION 12
5 ORGANISATIONAL CHART 13
6
CERTIFICATE OF MARIT 14
7 USES OF PRODUCT 15
8 FINANCIAL MANAGEMENT 16
9 RESEARCH METHODOLOGY 19
10 RATIO ANANLYSIS 21
11 ADVANTAGES AN LIMITATION 51
12 CONCLUSION 53
13 BIBLIOGRAPHY 54
6
INTRODUCTION OF COMPANY
Steelco Gujarat Ltd (SGL) is promoted by Chandarias of the comcraft
international Business group (a leading NRI group) which is $2Billion
conglomerate with more than 200 units in & around 40 countries across the
globe. The chandarias have business interests in steel, aluminum, plastics
and chemical and electronics in Europe, America, Africa, Australia and
south East Asia.
The chandarias have set up steel units with annual processing capacity of
1 Million tones in various countries, including Kenya and Nigeria.
SGL is one of its kind engineering industries in Gujarat with ISO-9001 and
ISO-14001 certification from SGS international certification services India
having a strong committed work force of about 350 employees. This
500crore industry located at Palej, dist: Bharuch in Gujarat. The plant is
equipped with latest in cold rolling technology i.e. super efficient 6 hi H C
combination reversing cold rolling mill from Hitachi Japan with the capacity
to produce 200000 mt per annum & 70000 mt per annum installed capacity
of Hot dipped Galvanized flat products.
The end users of our products are automobile electrical goods engineering
bicycle, white goods industry. The products of SGL are exported to over 50
country and enjoyed highest reputation in term of quality and timely
deliveries to name few our products is exported to African countries, Nepal,
Singapore, Bhutan, China Etc.
7
Board of Directors
Mr. R.P CHANDARIA Director
Mr. RASHMI CHANDARIA Director
Mr. VIMAL CHANDARIA Alternate Director
DR. R.S. MAMAK Executive Vice Chairman
Mr. N.M. MOHNOT Dy. Managing Director
Mr. M.P. SINGH Director [Operations]
Mr. S.C SHETH Director
Mr. J. MEHRA Director
Mr. MAHENDRA LODHA Director
Mr. P G R Prasad Additional Director
REGISTERD OFFICE AND WORKS: Plot no.2 GIDC Estate, N.H. No. 8, Palej- 392220 Dist:Bharuch, Gujarat
8
Company profile
MISSION OF THE COMPANY
Future Plan of Action
To leverage global technology, for serving our customers with superior
coating systems built on innovative and superior products and world class
solutions.
To strengthen our leadership in Industrial coatings and propel for leadership
in Engeenering. & coatings, all to the delight of our stakeholders.
.
VISSION OF THE COMPONY
To wish to go which will form a cornerstone of all our further growth.
To the fact that the values based proposition has to be ultimate
foundation of our business.
9
Objectives Customer Satisfaction through:
Supply of consistent Quality Products
Timely Deliveries
Long Term Relationship
Brief Profile Steelco Gujarat Ltd. , an ISO 9001-2000 & ISO 14001 certified company is
the Indian Chapter of the $2.5 billion Comcraft Group having presence in
45 countries across the globe with 250 establishments in Steel, Aluminum,
Plastics, Chemicals, Non Ferrous metals, Engineering and Industrial
components.
Backed by Comcraft's managerial expertise and technological support from
Hitachi of Japan, Steelco Gujarat Ltd., makers of paper thin steel stands as
a force to reckon within the Indian scenario.
Situated at Palej, Dist. Bharuch, Gujarat, India.
50kms from Vadodara (Baroda) towards Mumbai on National
Highway No.8.
Commercial Production of Cold Rolled Steel products started in 1994
with capacity of 200,000 MT per annum.
Forward integration by installing a Continuous Hot Dip Galvanizing
Line in 1997 with capacity of 30,000 MT per annum.
Second Hot Dip Continuous Galvanizing line of capacity 50,000 MT per
annum commissioned in March 2004.
10
Facilities Our Plant is equipped with the latest in Cold Rolling Technology - super
efficient 6 Hi High Crown Combination Reversing Cold Rolling Mill from
Hitachi, Japan to enable rolling of superior grade finished sheets and coils.
Our 6 Hi HC Mill provides and ensures:
Excellent profile control
Thermal Crown compensation for removing rolling defects
and enhancing profile characteristics.
Heavy Reduction Rolling with better grain orientation
Reduced Edge Drop
Strengths Wide Product Range : Cold Rolled Sheets and Coils in the thickness
range of 0.12mm to 2.5mm and width range of 100 mm to 1300mm.
Galvanized Sheets (plain and corrugated) and Coils in the thickness range
of 0.12 mm to 0.70 mm and width range of 600 mm to 1000mm.
Wide Manufacturing Capability: Designed for today's specialized,
diversified and sophisticated applications.
Products as per BIS, JIS, ASTM, DIN, BS, EN and to any customer
specification.
11
Superior Dimensional Accuracy: Ensured by automatic gauge control
system. Sophisticated Cut to Length and slitting lines.
Excellent Surface Quality: Bright, Matt, Dull and Rough surfaces as per
customer requirement.
Loading Infrastructure: In house facility to stuff containers and thus
ensuring safety of material.
12
13
Organization Chart
14
15
Uses of product
Cold Rolled Steel products meets the customer specific requirements in
wide application areas such as Automobile body and components,
Refrigeration, Washing Machines, Electrical and Instrumentation panels,
Furniture and Office Equipment, Precision tubes and metal containers,
Railway coaches, Defense Components, Bicycle body and components,
Coated Sheets, Galvanized Sheets and Roofing applications.
Hot Dip Galvanized steel sheets and coils are used for roofing , ducting etc.
16
FINANCIAL MANAGEMENT
“Financial management means, it is the art and science of managing finance”
Money is the lifeblood of modern business. Money is required to
purchase expensive on raw materials, labor and operational and administrative
need of business. A human body with bones, flesh, skin, and different organs but
without blood is of no use; similarly an organization or an industry win without
finance is also useless.
In simple words, financial management is concerned with the
financial problems of the organization.
In Indian rayone industries is a separate financial department where in
all financial decision is taken by the experts, Indian rayone believes in maximum
profit at least cost but the finances in such a way that the goal of business say,
profit maximization is realized.
Taking a commercial business as the most common organizational structure,
the key objectives of financial management would be to:
Create wealth of the business.
Generate cash, and
Provide an adequate return on investment.
17
There are three key elements to the process of financial
management.
Financial Planning.
Management to need to ensure that enough funding is available at the
right time to meet the need of the business. In the short term, funding may be
needed to invest in equipment and stock, pay employees a fund sales made on
credit.
Financial Control:
Financial control is a critically important activity to the help the
business ensures that the business is meeting its objectives.
Financial Decision- Making:
A key financing decision is weather profits earned by the business should
be retained rather than distributed to shareholders via dividends. If dividends are
too high, the business may be starved of funding to reinvest in growing revenues
and profit further.
18
There Are Three Major Decisions:
(1) Investment Decision:
Investment decision related to the selection of assets in which funds
will be invested by the firm. The assets that can be acquired fall in two category (I)
Long term assets, which yield return over period of time in future (II) Short term
assets, which are convertible into cash within a year. This includes,
(1) Capital budgeting
(2) Working capital Management.
(2) Finance Decision:
Finance decision is generally concerned with financing mix or capital
structure or leverage. It is generally a decision made on the composition of capital
with reference to equity share and debt.
(3) Dividend Decision:
Dividend decision is generally related to distribution of dividend. Two
alternatives are available in dealing with the profits of a firm.
They can be distributed to the share holders as dividend as they can be retained in
business itself. The decision as to which course should be followed depends largely
on a significant element in dividend decision i.e. decide the dividend payout ratio
(D/P ratio).
19
RESERCH METHODOLOGY
There are various research methods. Out of various research methodsours
was descriptive research
DESCRIPTIVE RESERCH
Descriptive research studies are those studies which are concerned with
describing the characteristics of a particular individual,or a group or a firm. In
descriptive studies,the researcher must be able to define clearly,what he wants to
mesure and must find accurate methods for measuringit along with a clear cut
definition of population he wants
In steelco.co.we discussed various aspects of ratio analysis with various
employees of the organization so that we can understand how financial transaction
are managed in steelco.co.And also we wanted to relate it with the theory we have
studied up to now.For us here the more important aspect was the practical
implication of the different ratios.How important they are in a firm.so from that
perspective our research methodology was a descriptive one.
DATA COLLECTION
The data which we have collected for making this project is combination of
both primary and secondary data
PRIMARY DATA
This data had been collected through meetings and discussion with various
managers and employees of the finance department located at the administrative
building. At the same time we had visited various departments for collection of
data. The departments that had been visited are as follows:
-buget department
-main cash department
-billing and operation department
20
SECONDARY DATA
Apart from primary data certain secondary data were required for this
project .Following are sources of secondary data :
-annual reports
-cost and budget report
-Debtors report
-cash report
-sales report
The project titled “RATI ANALYSIS OF STEELCO
GUJARAT.LTD.”required a comparative analysis of ratio analysis in the
organization . The study will assist to evaluate the efficiency of the firm.
21
RATIO ANALYSIS
A) PROFITABILITY RATIO:
1. Gross Profit Ratio: -
It is a ratio expressing the relationship between gross profits
earned to net sales. It is a useful indication of profitability of business.
This ratio is expressed in percentage.
Formula: -
GROSS PROFIT RATIO = Gross Profit / Sales 100
Calculation: -
Year Gross Profit Sales Ratio
2009-10 33.75 471.83 7.15%
2008-09 24.26 425.38 5.70%
2007-08 15.52 361.53 4.29%
Chart: -
7.15%
5.70%
4.29%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Ratio
2009-10
2008-09
2007-08
22
Working Notes: -
(a)Gross profit = Net Sales + Closing Stock.
(b)Net Sales = Sales – Other Income.
Interpretation: -
Gross profit ratio of the company for the three years has decreased.
2009-2010 it was 7.15%, but in the 2008-2009 it was decreased by
5.70% and it was decreased by 4.29 % in the year 2007-2008 so, it is
bed for the company.
2. Net Profit Ratio: -
Net profit is obtained interest and taxes are subtracting from the
gross profit. The net profit margin ratio is measured by dividing profit
after tax by sales.
Net profit margin ratio establishes a relationship between net profit
and sales and indicates management efficiency in manufacturing
administering and selling the products. This ratio is over all measured of
the firm’s liability to tern each profit margin may decline due to fall in
sales price or increase in the cost of production.
Formula: -
NET PROFIT = Net Profit / Sales 100
23
Calculation: -
Chart: -
7.42%
6.02%
4.67%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Ratio
2009-10
2008-09
2007-08
Working Notes: -
(A) Net profit = Gross profit – (Deprecation financial expenses +
expenses + interest + tax + administration expenses + selling &
distribution expenses.)
(B)Net sales = Sales – Other income.
Interpretation: -
Net profit ratio of the company was for the year 2009-10 it was
7.42%, which was decreased by 6.02% in year 2007-08, & in 2007-0 it
was decreased by 6.73%, which is good for the company.
Year Net profit
(Rs. In Lakhs)
Net sales
(Rs. In Lakhs)
Ratio
2009-10 35.06 471.83 7.42%
2008-09 25.60 452.38 6.02%
2007-08 16.87 361.53 4.67%
24
3. Return on capital employed: -
It is an index of profitability of business and obtained by
comparing net profit with capital employed. The ratio is normally
expressed in the percentage. The turn capital employed includes share
capital, reserves and long learns such as debentures.
Formula: -
RETURN ON CAPITAL-EMPLOYED
= Profit / Capital employed
Calculation: -
Chart: -
15.81%
12.50%
8.48%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Ratio
2009-10
2008-09
2007-08
Year P.B.I.T
(Rs. In Lakhs)
Capital
Employed (Rs.
In Lakhs)
Ratio
2009-10 35.06 221.80 15.81%
2008-09 25.60 204.88 12.50%
2007-08 16.87 198.94 8.48%
25
Working Notes: -
(a) Profit = Profit Before Interest and Tax (PBIT).
(b) Capital Employed = Fixed Assets+ Current Assets
Interpretation: -
Return on capital employed of the company was for the year
2007-08it was 8.48%, & which was increase to 12.50% in 2008-09- & in
2009-10it was increased to 15.81%, which is good for the company.
4. Return On Share Holder’s Fund: -
In order to judge the efficiency with which the proprietor’s funds
are employed in the business, this ratio is ascertained. Proprietor’s
equity or proprietor’s funds include share capital and reserves. It is of
great practical importance to the prospective investors, as it enables the
profitability of the company to be compared with that of the other
company. It also indicates whether the return on proprietor’s funds is
enough in relation to the risk that they undertake. This ratio shows what
amount of dividend is likely to be received on shares. Naturally when
return on shareholder’s fund is to be calculated, the profit should be after
interest and tax i.e. PAT – Profit After Tax.
Formula: -
26
RETURN ON SHARE HOLDER’S FUND
= Profit/ Shareholder’s Fund 100
Calculation: -
Chart: -
5. Return on
Equity
Year Profit
(Rs. In Lakhs)
Share
Holder’s Fund
(Rs. In lakhs)
Ratio
2009-10 2.31 29.92 112.80%
2008-09 (10.09) 25.08 96.73%
2007-08 (13.87) 0.34 4564.71%
0
1000
2000
3000
4000
5000
RATIO
2009-10
2008-09
2007-08
27
shareholders fund : -
This ratio measures a relationship between net profit after interest
& tax &preference dividend and equity share holders fund.
The objective of computing this ratio is to find out how efficiently
the funds supplied by the equity share holders have been used.
Formula: -
RETURN ON EQUITY SHARE HOLDER’S FUND
= Profit- Preference dividend/ Shareholder’s Fund 100
Calculation: -
Year Profit
(Rs. In Lakhs)
SHARE
HOLDERS FUND
(Rs. In crores)
Ratio
2009-10 1.14 29.92 3.81%
2008-09 (1.90) 25.08 7.57%
2007-08 (2.50) 0.34 735.29%
Working Notes: -
(a) Profit = Profit After Tax (PAT).
(b) Share Holder’s Fund = Share Capital + Reserves.
28
Interpretation: -
Return on shareholders fund of the company was for the year
2005-06 it was 30.02%, which was increased to 36.56% in year 2006-07,
& in 2007-08 it was increased to 40.41%, which is good for the
company.
Chart: -
Working Notes: -
(A) Profit = Profit After Tax (PAT).
(B) Share Holder’s Fund = Share Capital + Reserves.
Interpretation: -
Return on equity shareholders fund of the company was for the
year 2007-08 it was -735.29%, which was Decreased to -7.57% in year
2008-09, & in 2009-10 it was increased to 3.81%, which is good for the
company.
3.81%-7.75%
-735.29%-800.00%
-600.00%
-400.00%
-200.00%
0.00%
200.00%
Ratio
2009-10
2008-09
2007-08
29
6. Operating Ratio: -
It is a ratio showing relationship between cost goods sold plus
operating expenses and net sales. It shows the efficiency the
management. The higher the ratio, the less will be the margin available
to proprietary. The ratio is also usually expressed as a percentage.
Formula: -
OPERATING RATIO
= Cost of Goods Sold + Operating Expenses / Sales 100
Calculation: -
Year Cost Of
Goods
Sold
(Rs. In
Lakhs)
Operating
Expenses
(Rs. In
Lakhs)
Sales
(Rs. In
Lakhs)
Ratio
2009-10 - 66.07 471.83 14%
2008-09 - 59.74 425.38 14%
2007-08 - 30.37 361.53 8%
30
Chart: -
14.00%14.00%
8.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Ratio
2009-10
2008-09
2007-08
Working Notes: -
(A) Cost of goods sold = Manufacturing expenses + Purchases of
trading goods + Selling & distribution- Exp.
(B) Operating Expenses = Financial Exp. + Administration Exp.
+ Selling Exp.
(C) Net Sales = Sales – Other income.
Interpretation: -
Operating ratio of the company was for the year 2007-08 it was
8%, which was incresed 14% in year 2008-09, & in 2009-10 it was same
as to 14%, which is good for the company
7. Earning Per Share Ratio: -
This ratio shows the profitability available to the equity shareholders on
per share. This is the most important ratio from point of view of outsiders.
This ratio measures the net profit earned on per share.
Formula: -
EARNING PER SHARE RATIO
= PAT – Pref. Share Dividend / No. Of Equity Share
31
Calculation: -
Chart: -
Working Notes: -
A) Profit after interest and tax – preference share dividend
B) No. of equity share
Interpretation: -
Earning per share ratio of the company was for the year 2007-08
it was- 2.50, which was decreased to in year 2008-09 -1.89 , & in 2009-
10 it was increased to 1.13, which is good for the company.
YEAR PAT (Rs. In
Lakhs)
NO. OF Equity
Shares (Rs. Lakhs)
Ratio
2009-10 4.84 425.62 1.13
2008-09 -8.08 425.62 1.89
2007-08 -10.63 425.62 2.50
1.13
-1.89
-2.5-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
RATIO
2009-10
2008-09
2007-08
32
(B). LIQUIDITY RATIO
3. Current ratio:
Current ratio indicates the current position. Current ratio obtained by
dividing current assets by the current liabilities. Current assets includes cash
and those assets which can be converted in to cash with in a year such as
marketable securities, debtors and inventories, short term bank loans, income
tax liability and long debt maturing in the current year.
The current ratio is a measure of the firm’s short-term solvency.
Formula: -
CURRENT RATIO = Current Assets / Current Liabilities
Calculation: -
Chart: -
Year Current Assets (Rs.
In Lakhs)
Current Liabilities
(Rs. In Lakhs)
Ratio
2007-08 152.68 117.12 1.30
2006-07 136.36 107.74 1.27
2005-06 120.46 121.98 0.99
33
1.3 1.27
0.99
0
0.2
0.4
0.6
0.8
1
1.2
1.4
RATIO
2009-10
2008-09
2007-08
Working notes: -
(A) Current assets = Cash & Bank balance, stock + Debtors +
Bills receivable + Short term investment + Prepaid expenses + Loan &
Advances.
(B) Current Liabilities = Liabilities & Provision.
Interpretation: -
Liquidity ratio of the company was for the year 2007-08 it was
0.99 which was increased to in year 2008-09. 1.27& in 2009-10 it was
increased to 130, which is good for the company.
2. Liquid ratio: -
A variant of current ratio is the liquid ratio, which is designed to show the
amount of cash available to meet immediate payments. It is obtained by
dividing liquid assets by liquid liabilities. Sometimes accountants do not
prefer to include bank overdraft in current liabilities on the argument that it
is generally a permanent way of conservation it is always good to include bank
overdraft. Stock is excluded from the list of quick current assets because they
are not expected to be converted into cash. In the liquid ratio the absolute
figures of the three year.
Formula: -
34
LIQUID RATIO= Liquid Assets / Liquid Liabilities
Calculation: -
Year Liquid Assets
(Rs.In Lakhs)
Liquid Liabilities
(Rs. In Lakhs)
Ratio
2009-10 42.03 113.08 0.37
2008-09 61.38 104.39 0.59
2007-08 42.71 119.11 0.36
Chart: -
0.37
0.59
0.36
0
0.1
0.2
0.3
0.4
0.5
0.6
Ratio
2009-10
2008-09
2007-08
Working notes: -
(A) Liquid Assets = Current Assets – Stock.
(B) Liquid Liabilities = Current Liabilities – Bank Overdraft.
Interpretation: -
Liquid ratio of the company was for the year 2007-08 it was 036,
which was increased to in year 2008-09 0.59, & in 2009-10 it was
decreased to 037, which is good for the company. The company should
try to get more profit.
35
(C). LEVERAGE RATIO
. Debt-equity Ratio: -
This ratio expresses the relationship of long-term
liabilities to net worth. Long-term debts are those, which are
repayable after one year and this are other that those appearing
under “Current Liabilities” include debentures and other secured
and unsecured loans which are repayable after one year on the
other hand, if the debt is at lower level improvement in the earning
on net worth is possible, provided the growth plans are to be
funded from untapped borrowings. The other expect of high debt is
that case of a full in sales.
Formula: -
DEBT-EQUITY RATIO
= Long term fund / proprietor’s Fund 100
Calculation: -
Year Long Term
Debt (Rs.In crores)
Proprietor’s
Fund (Rs.In crores)
Ratio
2009-10 75.47 29.92 252.24
2008-09 75.48 25.08 300.96
2007-08 76.62 0.34 22535.29
36
Chart: -
Working Notes: -
(A) Long Term Funds = Loans and Advances.
(B) Proprietor’s Funds = Share capital + Reserves.
Interpretation: -
Debt equity ratio of the company was for the year 2007-08 it was
0.44, which was decreased in year 2008-09 0.25 & in 2009-10 it was
increased to 0.28 which is good for the company. The company should
try to get more profit.
252.24 300.96
22535.29
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
Ratio
2009-10
2008-09
2007-08
37
2. Proprietary ratio: -
The ratio shows the proportion of proprietors funds to the total
assets employed in the business.The proprietor’s fund or share-holders
equity surplus. The ratio indicates the amount of capital contributed by
the proprietor’s .The higher the ratio, the higher proprietors & the
financial position of business.
Formula: -
PROPRIETORY RATIO
= Proprietors Funds / Total Assets 100
Calculation: -
Year Proprietors Funds
(Rs.In Lakhs)
Total Assets
(Rs.In Lakhs)
Ratio
2007-08 29.92 105.38 28%
2006-07 25.08 100.56 25%
2005-06 0.34 76.96 44%
Chart: -
28.00%25.00%
44.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
Ratio
2007-08
2006-07
2005-06
38
Working Notes: -
(A) Proprietor’s Fund = Share Capital + Reserves.
(B) Total Assets = Fixed Assets + Current Assets.
Interpretation: -
Proprietor’s ratio of the company was for the year 2007-08 it was
44%, which was decreased to in year 2008-09 25%, & in 2007-08 it was
increased to 28%, which is not good for the company.
39
3. Long Term Funds To Fixed Assets : -
The fixed assets should always be acquired out of long-term funds
meaning there by that this ratio should not be less then 100.
Formula: -
Long term fund to fixed assets ratio
= Long Term Fund / Fixed assets
Calculation: -
Year Long Term
Fund (Rs.Lakhs)
Fixed assets (Rs.In Lakhs)
Ratio
2009-10 105.38 69.12 1.52
2008-09 100.56 68.52 1.47
2007-08 76.96 78.48 0.98
Chart: -
1.52 1.47
0.98
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Ratio
2009-10
2008-09
2007-08
(A) long term funds = Eq. Share capital + Reserve surplus +
Secured loans + Unsecured Loans
(B) fixed asset
40
Interpretation: -
Long term funds to fixed asset ratio of the company was for the
year 2007-08 it was 0.98, which was increased to in year 2008-09 1.47,
& in 2009-10 it was increased to 1.52, which is good for the company.
41
(D) ACTIVITY / EFFICIENCY RATIO
1. STOCK TURNOVER RATIO: -
The number of times the average stock is turn over during the year
is known as stock turn over. It is computed by dividing the cost of goods
sold by the average stock.
The objective of computing this ratio is to determine the efficiency
with which the inventory is utilized.
Formula: -
STOCK TURNOVER RATIO
= Cost of goods sold / Average stock
Calculation: -
Year C.O.G.S. Average
Stock
Ratio
2009-10 436.77 27.67 15.78
2008-09 400.00 18.75 21.33
2007-08 345 19.44 17.75
42
Chart: -
15.78
21.33
17.75
0.00
5.00
10.00
15.00
20.00
25.00
Ratio
2009-10
2008-09
2007-08
Working notes: -
(A) cost of goods sold = sales – gross profit
(B) average stock = opening stock +closing stock/2
Interpretation: -
Stock turnover ratio of the company was for the year 2005-06 it
was 4.07, which was increased to in year 2006-07 4.52, & in 2007-08 it
was decreased to 4.20, which is not good for the company.
43
2. TOTAL ASSETS TURNOVER RATIO: -
The amount invested in business is invested in all assets jointly and
sales are affected through them to earn profits. so in order to find out
relation between total assets to sales.
Formula: -
TOTAL ASSETS TURNOVER RATIO = SALES / TOTAL ASSETS
Calculation: -
Year Sales (Rs in Lakhs)
Total Assets (Rs.In Lakhs)
Ratio
2009-10 471.83 105.38 4.48
2008-09 425.38 100.56 4.23
2007-08 361.53 76.96 4.70
Chart: -
4.48
4.23
4.70
3.90
4.00
4.10
4.20
4.30
4.40
4.50
4.60
4.70
Ratio
2009-10
2008-09
2007-08
44
Working notes: -
(A) sales
(B) total assets
Interpretation: -
Total assets turn over ratio in year 2007-08 it was 4.70 & it is
decreasing in 2008-09 2.23 it was also increasing in 2009-10 4.48 so it is
good for the company.
45
3. DEBTORS RATIO: -
The debtor’s turnover suggest the number of times the amount of
credit sales is collected during the year, while debtor ratio indicates the
number of days during which the dues for credit sales are collected.
Suppose the debtors ratio is sixty days, it means that debtor’s pay their
dues for credit sales after sixty days of making the sales.
Formula: -
DEBTOR’S TURN OVER RATIO
= Debtor’s + Bill receivable / Credit Sales 365
Calculation: -
Year Debtors +B.R. (Rs.In Lakhs)
Credit Sales (Rs.In Lakhs)
Ratio
2009-10 55.33 471.83 43
2008-09 37.49 425.38 32
2007-08 38.88 361.53 39
Chart:-
43
32
39
0
10
20
30
40
50
Ratio
2009-10
2008-09
2007-08
46
Working notes: -
(A) debtors +bills receivable
(B) credit sales
Interpretation: -
The credit receivable period during 2007 was-08 39 days which
decrease to 32 days in 2008-09.and increased to 43 days in 2009-10.
More credit facility is not good for the company.
47
4. CREDITORS RATIO: -
The creditor’s turnover suggest the number of times the amount of
credit purchase is collected during the year, while creditors ratio
indicates the number of days during which the dues for credit purchases
are collected. Suppose the creditors ratio is sixty days, it means that
creditor’s pay their dues for credit purchases after sixty days of making
the purchase.
Formula: -
CREDITOR’S TURN OVER RATIO
= creditor’s + Bill Payable / Credit Sales 365
Calculation: -
Year Creditors +B/P. (Rs.Lakhs)
Credit purchase (Rs.In Lakhs)
Ratio
2007-08 113.08 372.02 111
2006-07 104.39 341.38 112
2005-06 119.11 291.79 150
48
Chart: -
111 112
150
0
20
40
60
80
100
120
140
160
Ratio
2009-10
2008-09
2007-08
Working notes: -
(A) sundry creditors+ bills payable
(B) credit purchase
Interpretation: -
The credit payment period during 2007-08 was 150 days which
decreased to 112days in 2008-09.and also decreased to 111 days in
2009=10. more credit facility is goods for the company.
49
5. Working Capital Turnover Ratio: -
This ratio establishes a relationship between net sales and working
capital.
The objective of computing this ratio is to determine the efficiency
with which working capital is utilized.
Formula: -
WORKING CAPITAL TURNOVER RATIO
=Net Sales / Working Capital
Calculation: -
Year Sales (Rs. In Crores)
Working
Capital (Rs. In Crores)
Ratio
2009-10 471.83 1.90 248
2008-09 425.38 3.43 124
2007-08 361.53 2.50 145
Chart: - 248
124145
0
50
100
150
200
250
Ratio
2009-10
2008-09
2007-08
50
Working notes: -
(A) Net sales
(B) Working capital
Interpretation:-
Working capital turnover ratio of the company was for the year
2007-08 it was 145 which was decreased to in year 2008-09 124, & in
2009-10 it was increased to 248s, which is good for the company.
51
ADVANTAGE & LIMITATION
Advantages and 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: -
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.
To workout the solvency: 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.
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.
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.
To simplify the accounting information: Accounting ratios are very useful as
they briefly summaries the result of detailed and complicated computations.
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.
52
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:
Limited Comparability: Different firms apply different accounting policies.
Therefore the ratio of one firm can not always be compared with the ratio of other
firm. Some firms may value the closing stock on LIFO basis while some other
firms may value on FIFO basis. Similarly there may be difference in providing
depreciation of fixed assets or certain of provision for doubtful debts etc.
False Results: Accounting ratios are based on data drawn from accounting
records. In case that data is correct, then only the ratios will be correct. For
example, valuation of stock is based on very high price, the profits of the concern
will be inflated and it will indicate a wrong financial position. The data therefore
must be absolutely correct.
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.
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.
Effect of window-dressing: 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.
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.
53
CONCLUSION
After going through the six week long training program, functioning
of the organization which I observed from that it can be concluded that STEELCO
GUJARAT Ltd. is the large scale manufacturing organization and successful
player in the market. The company has the strong financial structure and has a
good reputation in the market.
All the departments are functioning very well in the company. Which
is I can said on the basis of various findings and summery of each department. In
HR Department Company is focusing more on training and development of
employee for that company is inviting foreigners in the company for good
development, the company is providing good welfare to the employees to motivate
them. In production department the company is more focusing on in the R&D, and
also they are using advanced technology, the company is importing most of the
raw materials from outside of the India still company is providing all the product
with very cheaper price then their competitor . In marketing department company
is more focusing in exporting, it has vast market for it’s product, they are more
focusing on R&D company is giving more priority to the customers than any other
objective. On the basis of finance department i can say that company is more
focusing on investment and expanding the business, they are giving good dividend
to their shareholders but company are facing the problem to stabilize the EPS.
During my summer training I have done some finding my own
way that given as below. STEELCO GUJARAT Ltd. is having latest technology
and highly skilled workers so that it can produce better quality product in desire
firm.
It is having coordination facility in organization so that the work can be done
in very less time. The Company is well known in its quality and also its market
share is rising now days so the future is very bright for the company. The workers
are happy with the welfare facilities which the company provides. IThe
organization provides training like physical and psychological so that workers
give desire result
54
BIBLIOGRAPHY
Web References:
www.steelcogujrat.com
www.moneycontrol.com
Book: FINANCE MANAGEMENT ( I.M.PANDEY)
Annual report of Steelco.co
Secondary data from Steelco.co
