A STUDY ON RATIO ANALYSIS WITH SPECIAL …icmrr.org/nov_2015/IJFRR/201511205.pdfA STUDY ON RATIO ANALYSIS WITH SPECIAL REFERENCE TO VIJAYA DIARY V. VENKATA ... Increase in market share

A STUDY ON RATIO ANALYSIS WITH SPECIAL REFERENCE TO

VIJAYA DIARY

V. VENKATA RAO

Associate Professor, Department of Business Administration, Chirala Engineering College, Chirala-

523157, Prakasam (Dist), Andhra Pradesh

ABSTRACT

FINANCIAL ANALYSIS

Financial analysis is the process of identifying strengths and weaknesses of the firm by property

establishment relationship between the items of balance sheet and the profit and loss account.

Ratio Analysis

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as “The indicated quotient of

two mathematical expressions” and as “The relationship between the financial position and

performance of a firm. Ratios help to summarize the large quantities of financial data and to make

qualitative judgment about the firm’s financial performance. A single ratio in itself does not indicate

favorable or unfavorable condition. It should be compared with some standard. Standard may contains

of past ratios, projected ratios, comparative ratios or industry ratios.

In order to evaluate the financial performance of Vijaya Dairy the financial statements of study period

are used. To analyze the information presented in the income statements and balance sheets, ratios are

employed for a better financial analysis and review.

KEY WORDS:

Financial Statement Analysis- Objectives Of The Study - Company Profile- Organization-

Theoretical, Conceptual Frame Work- Nature And Meaning Of Ratio Analysis -Use Of Financial

Ratios Basic Comparison Of Ratios -Basic Comparison Of Ratios - Advantages Of Ratio Analysis-

Types Of Ratios- Liquidity Ratios- Current Ratio - Quick Ratio - Cash Ratio - Turnover Ratios -

Inventary Turnover Ratio -Debtors Turnover Ratio -Total Assets Turnover Ratio -Fixed Assets

Turnover Ratio -Current Assets Turnover Ratio- Profitability Ratios -Gross Profit Ratio - Net Profit

Ratio -Operating Ratio -Findings -Suggestions

INTRODUCTION

Goals of Financial Managements

All theories of financial management have as their principal goal, the maximization of shareholder’s

wealth. In other words, the objective of the firm should be to maximize the market value of its equity

shares for a corporate business. The market value of the firm’s equity capital reflects the risk-return

trade-off of investors in the market place. When a firm maximized the market value to its equity

shares, it ensures that its decisions are consistent with the risk-return preferences of the investors.

Maximization of Profit.

Maximization of earnings per share.

Maximization of return on equity.

INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEWISSN:2321-0354 - ONLINE ISSN:2347-1654 - PRINT - IMPACT FACTOR:0.720VOLUME 3, ISSUE 11, NOVEMBER 2015

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But they suffer from serious limitations, as they ignore considerations of timing of returns and the

element of risk.

It is also possible to have non-financial corporate objectives, which may or may not conflict with the

financial objective of shareholder wealth maximization, some of which are:

Total employment generation.

Employee welfare.

Rate of growth of business.

Increase in market share.

Technological leadership through substantial investment in Research & Development.

Customer Satisfaction.

Community Welfare.

About three decades ago, the scope of the financial management is confined only to the raising of the

funds, whenever needed and only little significance used to be attached to financial decision-making

and problem solving. Today, financial managers do not perform the role of just scorekeepers of

financial data and information and arranging funds whenever it is necessary. Rather they occupy key

position in solving complex management problems. Now financial management is on the day to shape

the fortunes of the enterprise by management the allocation of capital.

Using financial management techniques, it should be ensured that the funds are raised most

economically and used in the most efficient and effective manner.

Considering the importance of financial management the present study on Vijaya Dairy is undertaken

to review the financial performance on the company through ratio analysis. It is felt that a study of

this type has been considered necessary so that the practical approach to the subject of financial

management is better understood and the authenticity of various financial management techniques is

once again tested.

The need of the study is to know the financial performance of the company. Ratio analysis is used for

analysis of the financial performance of Vijaya Dairy. The use of ratio analysis is unquestionable.

Ratios are helpful to study the financial performance of each and every element of financial

statements.

OBJECTIVES OF THE STUDY

The purpose of this chapter is to describe the objectives of the study efforts also made in this

to discuss the methodology employed for the completion of the study successfully. Further, attempts

are also made to deal with the significance of the study. Moreover, the limitation of the study is also

mentioned to enable the readers to understand the analysis presented within the framework of the

limitations of the study.



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The following are the detailed objectives of the study:

1. To review the growth and working of Vijaya Dairy.

2. To analysis the financial performance of the Vijaya Dairy from the point of view of solvency,

efficiency, profitability, liquidity etc.

3. To study the profitability performance of the Vijaya Dairy.

4. To suggest measures for the effective working of Vijaya Dairy.

5. To study the liquidity of position Vijaya Dairy.

COMPANY PROFILE

The Krishna district in Andhra Pradesh is endowed with rich agricultural and Livestock wealth which

are two main planks to keep the district ahead of others in the state. Agriculture and dairying is a

subsidiary occupation for the majority of People in the district. Most of them are marginal, poor

farmers and laborers. The Krishna district has great potential for milk production with a substantial

Marketable surplus to tap. The market oriented milk production is the key livestock activity to

generate stable income for the farmer. About 90percent of rural households are directly concerned

with livestock production.40percent are mainly dairy oriented. It is livelihood security to the rural

poor and buffers the risks due to crop failure.

The organized dairying in Krishna district commenced in 1965 by the state Govt with the

assistance of UNICEF. (United Nations International children Emergency Fund). Under a pilot project

named INTEGRATED MILK PROJECT- HYDERABAD AND VIJAYWADA (1960) a milk supply

scheme was introduced in 1965 to organize milk collection from the villages, to process at chilling

centre and supply pasteurized milk to the consumers at Vijayawada and Hyderabad. The milk supply

scheme was a great success with its services to the producers and quality supplies to the consumers.

The initial procurement network was gradually extended to all over the district within a span of 5

years. The “Milk Products factory “first of its kind in south India was established and commissioned

in Vijayawada by 1969.

Starting with a tiny procurement of 243 liters of milk on 11-2-1965 under the milk

chilling centre, pamarru, the collection in the district has surpassed one lake installed capacity of milk

products factory, Vijayawada within two years i.e.in 1971 necessitating additional capacities. The

units were under dairy development department (1971). The products manufactured at milk products

factory, Vijayawada such as butter, ghee, skim milk powder, whole milk powder and infant milk food

with the brand name Vijaya earned appreciation of consumers all over the country. The Vijaya

became synonym for superior quality competing AMUL. The milk project is a buzz word among the

public all over the region. The expansion of milk products factory, to meet the increased handling

needs has been taken up later under operation flood programmed by national dairy development board

(NDBB).

Organization:

Integrated Milk Project (1960)

Dairy Development Department (1971)

A P Dairy Development Corporation Ltd (1974)

AP Dairy Development Co-op Federation Ltd (1981)



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There was a big retinue of 1850 staff in different categories working under the dairy units in the

district under the administrative control of AP dairy development corporation (APDDC) a state Govt

undertaking in 1974.

The nationwide strategic and structural changes organized for dairy development activities across the

nation have brought the dairy units under the co-operative set up in Andhra Pradesh in 1981.

The replication of Anand pattern dairy co-operative in Krishna district has its beginning with the all

out support of NDDB. Primary milk producers co-operative society at village level and district milk

producers co-operative union at district level and AP dairy development co-operative federation at

state level have come in to being. Enormous infrastructure financed by NDDB under operation flood

program me was developed for procurement, processing and marketing in the district.

THEORITICAL, CONCECPTUAL FRAME WORK

The financial statement provides a summarized view of the financial position and operations of the

firm. The focused of financial analysis is process of identifying the financial strength and weakness of

the firm by properly establishing relationships between the items of the balance sheet, profit and loss

account.

NATURE AND MEANING OF RATIO ANALYSIS

Ratio analysis is a widely used and powerful tool of analysis it is defined as the systematic use of ratio

to interpret the financial statements so that the strengths and weaknesses the firm and its historical

performance and current financial condition can be determined. A ratio is defined as the relationship

between two or more things. The absolute accounting figures reported in the financial statements do

not provide meaningful information if and only if it is related to some other relevant information.

USE OF FINANCIAL RATIOS

To evaluate firms financial condition and performance the financial analyst need to perform check up

on various aspects of the firm Financial Wealth. We calculate ratios because in this way only to get a

comparison and to make a qualitative judgment about the firm’s financial performance.

TYPES OF RATIOS

I. LIQUIDITY RATIOS

It is extremely essential for a firm to be able to meet its obligations, as they become due liquidity ratio

measure the ability of the firm to meet its current obligations. These ratios are calculated to comment

up on the short-term paying capacity of a concern. The most common ratios, which indicate the extent

of liquidity (or) lack of it, are:

Current Ratio

Quick Ratio

Cash Ratio



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II. TURNOVER RATIOS

The Turnover Ratio’s can be use full to know the efficiency of the Firm the following ratios may be

considered as Turnover Ratio are:

1. Inventory Turnover Ratio 2. Debtors Turnover Ratio

3. Total Assets Turnover Ratio 4. Fixed Assets Turnover Ratio

5. Current Assets Turnover Ratio

III. PROFITABILITY RATIOS

Profitability Ratio can be Useful to Know the Profitability Position of the Firm. The following ratios

may consider profitability ratios

1. Gross Profit Ratio 2. Net Profit Ratio

3. Operating Ratio

IV. LEVERAGE RATIO

Leverage ratio can be useful to know the leverage position of the firm it means the firm is able or not

to meet long term Obligations. The following ratios may consider leverage ratio

1. Debt and Equity Ratio 2. Proprietary Ratio

DATA ANALYSIS AND INTERPRETETION

Analysis on Financial Statements of VIJAYADIARY

TableNo:1 - Current Ratio of VIJAYA DIARY During. Year of 2010-2014

Year Current Asset Current Liability’s Ratio

2009-10

36,60,19,510.00

8,05,77,127.00

4.54

2010-11

37,61,38,089.00

8,51,75,327.00

4.41

2011-12

35,02,86,679.22

6,86,30,755.00

5.10

2012-13

31,24,59,716.00

7,00,01,761.68

4.46

2013-14

32,26,57,248.60

73146792.44

4.41



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Interpretation:

As a conventional rule, a ratio of 2:1 more is considered satisfactory. It represents a margin of safety

of creditors. The higher the ratio, the greater the safety. However, an arbitrary standard of 2:1 should

not be blindly followed. This is so because the current ratio is a test of quantity not quality. If firm’s

current asset consists of doubtful and slow paying debtors and obsolete stock, then its short-term

solvency is threatened.

This firm is maintaining good standards of current ratio. But the firm has to pay attention that the ratio

should go beyond the norms. But we compare the year – 2013 ratio with year – 2012 then it is not

satisfactory.

Table No: 2 - Quick Ratio VIJAYA DIARY., During Year of 2010-2014

4

4.5

5

5.5

Current Ratio of VIJAYA DIARY

Year Quick Asset Current Liability’s Ratio

2009-10

15,30,70,240.00

8,05,77,127.00

1.89

2010-11

15,05,47,554.00

8,51,75,327.00

1.64

2011-12

11,67,98,238.00

6,86,30,755.00

1.41

2012-13

90166767.00

7,00,01,761.68

1.99

2013-14

80045728.00

73146792.44

0.97



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Interpretation:

Generally a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. At

though quick ratio is a more penetrating test of liquidity than the current ratio. Yet it should be used

cautiously. A quick ratio of 1:1 or more does not necessarily simply sound liquidity position. The

firm’s quick ratio during past 4 years is nearly equal to the required norm. So we can the firm is

maintained good liquidity position. But the year – 2014 the ratio is not satisfactory, because the quick

ratio of less than 1:1.

Table No:3 - Absolute Ratio of VIJAYA DIARY During Year of 2010-2014

0

0.5

1

1.5

2

0

0.2

0.4

0.6

0.8

1

1.2

2009-10 2010-11 2011-12 2012-13 2013-14

Year Absolute liquid Assets Current Liability’s Ratio

2009-10

9,64,74,942.00

8,05,77,127.0

1.19

2010-11

9,12,17,919.00

8,51,75,327.00

0.99

2011-12

5,55,05,742.00

6,86,30,755.00

0.67

2012-13

4,46,05,917.00

7,00,01,761.68

0.59

2013-14

4,02,29,615.42

73146792.44

0.48



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Interpretation:

The generally accepted norms of the absolute liquid assets are 0.5 to 1. It is measure to know the

company’s ability to meet its immediate payments. By observing the above calculation, we can say

that firm’s cash balances are adequate to meet its immediate obligations. But the year – 2014 the

absolute liquid ratio is less than 0.5, so it is dissatisfactory.

LEVERAGE RATIO’S

1. DEBT – EQUITY RATIO

The term debit signifies total indebtedness of the company as shown by its short and long-term

obligations. Equity refers to the aggregate ownership interest measured by the total share capital plus

any reserves. This may rightly and legitimately be appropriate to the shareholders Appropriate to the

shareholders; Ideal Ratio usually recommended is 2:1 as such if the debt is less than two times the

equity. The logical conclusion is that the financial structure of the concern is sound. On the other

hand, if the debt is more than two times the equity, the conclusion is the financial structure of the

undertaking is weak.

Long Term Debt

DEBT – EQUITY RATIO= --------------------------

Share holders Funds

Shareholders fund= Equity + General Reserve + Dividend Reserve + Net Profit

Table No:4

Debt-Equity Ratio of VIJAYA DIARY During Year of 2010-2014

Year Long Term Debt Share holders funds Ratio

2009-10

21,11,82,611.00

7,09,58,032.00

2.97

2010-11

20,93,74,185.00

7,31,86,896.00

2.86

2011-12

19,44,94,096.00

7,13,58,574.00

2.72

2012-13

16,03,60,089.00

9,60,53,867.00

1.68

2013-14

16,04,76,827.00

9,68,03,125.41

1.66



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Interpretation:

Debt – equity ratio is calculated to know the proportion of interest bearing debt component in the

capital structure. It shows the extent to which debt financing has been used in the business. A high

ratio means the claims of creditors are greater than those of owners. The loan agreement any require a

firm to maintain a certain level of working capital, fix limits to salaries etc.

The firm’s debt position is also steadily increasing over past 4 years. This would results increasing

burden of interest and further declining in profits

2. CAPITAL EMPLOYED TO NET WORTH RATIO

Capital gearing refers to the proportion between fixed interest bearing funds and non-fixed interest

bearing funds a proportion must be reasonable between these two funds to in order to keep the cost of

capital at the minimum.

Capital Employed

Capital Employed Turnover Ratio: --------------------------------------------

Net Worth

Capital Employed = Fixed Assets + Net Working Capital

Net Worth = Shareholders Funds

Table No:5 - Capital Employed To Net worth Ratio of VIJAYA DIARY., During Year of 2010-

2014

0

0.5

1

1.5

2

2.5

3

3.5

2009-10 2010-11 2011-12 2012-13 2013-2014

year Capital Employed Net Worth Ratio

2009-10 50,99,66,601.00

7,09,58,032.00

7.18

2010-11 52,11,61,127.00

7,31,86,896.00

7.12

2011-12

51,06,77,090.00

7,13,58,574.00

7.16

2012-13

48,36,72,711.00

9,60,53,867.00

5.03

2013-14

49,06,11,515.20

9,68,03,125.41

5.07



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Interpretation:

This ratio is a way of expressing the basic relation between debt and equity. One may want to know

how much funds are bearing contributed together by lenders and owners for each rupee of owner’s

contribution. By observing the calculated ratio for past 4 years the ratio was some fluctuations. But

the current year – 2014 compare with the previous year – 2012 then it is increased a few percentage.

3. INTEREST COVERAGE RATIO

This ratio is used to indicate the number of times interest change has been earned and how much

safety margin is available to the shareholders. It is computed by dividing profit before interest and

taxes by interest changes. A high ratio is a sign of low burden of borrowings of business.

Table:6 - Interest Coverage Ratio of VIJAYA DIARY., During Year of 2010-2014

Interpretation:

The interest coverage ratio to test the firm’s debt servicing capacity. It shows the number of times the

interest charges are covered by firm’s earning before tax. A higher ratio is desirable, but too high

indicates that the firm is very conservation in using debt. A lower ratio indicates excessive use of

debt. These firm earnings are just 1 or 2 times more than that of interest payment

0

2

4

6

8

2009*-10 2010-11 2011-12 2012-13 2013-14

Capital Employed to Net Worth Ratio

EBIT

Interest Coverage Ratio: ------------------

Interest

Year EBIT INTEREST RATIO

2009-10

1,17,38,751.00

7,09,58,032.00

1.19

2010-11

1,69,76,459.00

7,31,86,896.00

1.87

2011-12

1,34,93,834.00

7,13,58,574.00

1.28

2012-13

75,08,861.00

67,42,928.00

1.11

2013-14

75,61,766.60

64,42,512.00

1.17



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TURNOVER RATIO’S

1. INVENTORY TURNOVER RATIO

This ratio indicates the number of times inventory or stock is replaced during the year. It measures

relationship between cost of goods sold and inventory level. It helps the management to know

whether the stock of finished goods held sales are reasonable or unreasonable as compared with

predetermined standard. Again it helps to determine even the liquidity of a concern as it indicates the

rate at which the inventory or stock is converted into sales and then into cash.

Cost of

Goods Sold = Sales – Gross Profit,

Average Stock = Opening Stock + Closing Stock / 2

TableNo:7

Inventory Turnover Ratio of VIJAYA DIARY.During Year of 2010-2014

Year Cost of Goods sold Average Stock Ratio

2009-10

96,90,04,975.00

7,09,58,032.00

4.34

2010-11

94,91,93,784.00

7,31,86,896.00

4.32

2011-12

83,47,00,042.00

7,13,58,574.00

3.63

2012-13

99,13,50,689.00

22,78,90,695.00

4.35

2013-14

113,20,11,174.00

23,24,52,235.00

4.87

Interpretation:

Inventory turnover ratio indicates the efficiency of the firm in producing and selling its production. It

shows how rapidly the inventory is turning into receivable through sales. Generally a high ratio is

indicative of good inventory management. A low inventory ratio implies excessive inventory levels

0

1

2

3

4

5

6

2009-10 2010-11 2011-12 2012-13 2013-14

Cost of Goods sold

Inventory Turnover Ratio: -----------------------------------------

Average Stock



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than warranted by production and sales activities are obsolete inventory. This firm inventory turnover

ratio is gradually increased year by year. This firm inventory turnover ratio is nearly equal to y.

2. DEBTORS TURNOVER RATIO

It shows the relationship between sales and debtors of the firm. It also measures the liquidity of the

firm. This ratio indicates the rate at which debts are collected influences the liquidity of the concern.

In other words this is the ratio, which indicates the average time taken by the firm to collect debts. It

is the ratio, which indicates the average collection period or the average period of credit allowed to

debtors. If the actual period of credit or the ideal period of credit like 30 days the indication is that the

credit period is not efficient.

Credit Sales

Debtors Turnover Ratio : --------------------

Average Debtors

TableNo:8 -Debtors Turnover Ratio tio of VIJAYA DIARY., During Year of 2010-2014

Interpretation:

Debtor’s turnover ratio indicates the number of times debtors turnover each year. Generally higher the

value of debtor’s turnover, the more efficient is the management of credit.

0

20

40

60

80

100

2009-10 2010-11 2011-12 2012-13 2013-14

Year Credit Sales Average Debtor Ratio

2009-10

113,27,36,082.00

4,63,63,362.00

24.43

2010-11

111,60,29,507.00

3,37,77,078.00

33.04

2011-12

97,54,17,837.30

3,69,90,175.00

26.36

2012-13

1,13,15,91,543.00

2,10,66,544.00

53.71

2013-14

129,87,20,532.00

1,48,75,506.00

87.30



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The firm’s debtor’s turnover ratio is gradually increasing over past 4 years, which is a good indication

about firm’s credit receivables management. Current year – 2014 the ratio is more increased compare

with previous years.

FIXED ASSETS TURNOVER RATIO

This ratio established a relationship between Net sales and Fixed Assets. Net sales mean Gross Sales –

Sales return. Net Fixed Assets means Gross fixed Assets – Depreciation thereon. This ratio is to

determine the efficiency with which the Fixed Assets are utilized

Net Sales

Fixed Assets Turnover Ratio : ---------------------------

Net Fixed Assets

TableNo:9 - Fixed Assets Turnover Ratio tio of VIJAYA DIARY During Year of 2010-2014

Year Net Sales Net Fixed Assets Ratio

2009-10

113,27,36,082.00

22,45,24,216.00

5.04

2010-11

111,60,29,507.00

23,63,84,594.00

4.72

2011-12

97,54,17,837.30

23,38,58,547.00

4.06

2012-13

1,13,15,91,543.00

23,96,67,380.00

4.72

2013-14

129,87,20,532.00

24,47,07,191.00

5.31

Interpretation:

The firm may wish to know its efficiency of utilizing fixed assets in generating sales. Higher the ratio

better utilization of assets and vice – versa. By observing the above data we can interpreting that for

generating a sale of rupee, the firm needs nearly Rs 0.20 to Rs 0.25 investment in fixed assets. Current

year - 2014 ratio is increased to 5.31 compare with year – 2013.

0

1

2

3

4

5

6

2009-10 2010-11 2011-12 2012-13 2013-14



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TOTAL ASSETS TURNOVER RATIO

This ratio indicates the efficiency or inefficiency India the use of total resources or assets of a

concern. The standard ratio is that the sales should be at least two times the value of the assets. A total

assets turnover ratio of 2 times or more indicates that the assets of a concern have been utilized

effectively. This ratio is a good index of the utilization of the owner’s funds. It is also indicates.

Whether there is over trading or under trading. Again it indicates whether there is over capitalization

or under capitalization. If the volume of sales India relation to net worth is reasonable, the indication

is the owner’s funds have been effectively utilized

Total Assets Turnover Ratio: Net Sales / Total Assets

TableNo:10 - Fixed Assets Turnover Ratio tio of VIJAYA DIARY.., During Year of 2010-2014

Year

Net Sales

Total Assets Ratio

2009-10

113,27,36,082.00

59,05,43,728.00

1.92

2010-11

111,60,29,507.00

61,25,22,682.00

1.82

2011-12

97,54,17,837.30

59,62,48,465.00

1.63

2012-13

1,13,15,91,543.00

56,13,49,254.53

2.01

2013-14

129,87,20,532.00

57,59,66,512.79

2.25

0

0.5

1

1.5

2

2.5

2009-10 2010-11 2011-12 2012-13 2013-14



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Interpretation:

The total assets turnover ratio is decreasing. This implies that growth of the company is not sufficient.

The company failed to convert it is total assets into sales efficiently and effectively.

The ratio was decreased in year – 2011 to 1.82, and also in the year - 2012 it decreased to

1.63. In the year – 2013 the ratio increased to 2.01, and again increased to 2.25 in the year – 2014.

PROFITABILITY RATIO’S

1. GROSS PROFIT RATIO

It is the ratio, which expresses the relationship between gross profit and sales. The actual gross profit

ratio is compared with the gross profit ratio of the previous year and those are concern carrying on

similar business, If it is high then it is an indication good results and vice versa. This ratio indicates

the gross results of trading or the overall margin within which a business undertaking most limit its

operation expenses to earn sufficient profit.

TableNo:11 - Gross Profit Ratio of VIJAYA DIARY During Year of 2010-2014

Year Gross Profit

Net Sales

Ratio

2009-10

16,28,31,107.00

113,27,36,082.00

14.37

2010-11

16,68,35,723.00

111,60,29,507.00

14.94

2011-12

14,07,17,795.00

97,54,17,837.30

14.42

2012-13

17,42,12,457.00

1,13,15,91,543.00

15.39

2013-14

23,63,33,910.00

129,87,20,532.00

18.19

0

5

10

15

20

2009-10 2010-11 2011-12 2012-13 2013-14

Gross Profit Ratio: {Gross Profit / Sales} x 100



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Interpretation:

The gross profit margin reflects the efficiency with which management producers each unit of

product. This ratio indicates the average spread between the cost of goods sold and the sales revenue.

The firm’s gross profit ratio was gradually decreasing over past 3 years, and from last 2 years the ratio

is gradually increasing. Which is a cautious indication about the firm’s operating efficiency.

2. NET PROFIT RATIO

It is calculated by dividing net profit to sales. This ratio provides good insight into the overall

efficiency to the business and better utilization of the total resources. This ratio indicates the quantum

of profit earned by a concern. A low net profit ratio indicates that the profitability of the concern is

good. A low net profit ratio indicates that the profitability of the enterprises is poor.

Net Profit Ratio: {Net Profit / Sales} x 100

TableNo:12 - Net Profit Ratio of VIJAYA DIARY During Year of 2010-2014

Year Net Profit Sales Rtio

2009-10

3,90,129.00

113,27,36,082.00

0.034

2010-11

25,41,070.00

111,60,29,507.00

0.220

2011-12

4,38,639.00

97,54,17,837.30

0.040

2012-13

5,10,623.00

1,13,15,91,543.00

0.045

2013-14 7,64,257.00

129,87,20,532.00

0.059

Interpretation:

Net profit margin establishes a relationship between net profit and sales. It is over all measure of

firm’s ability to turn each rupee sales into net profit. This ratio also indicates the firm’s capacity to

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

2009-10 2010-11 2011-12 2012-13 2013-14



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withstand adverse economic conditions. It would really be difficult for a low net margin firm to with

stand these adversities. This firm’s net profit is very lowering even compared with its gross profit

results. It shows a very high administrative and other expenses of the firm, which have to the control.

RETURN ON EQUITY RATIO

This ratio is computed by dividing profits before tax divided by net worth. It measures the

productivity of shareholder’s funds. A higher ratio shows the better utilization of owner’s funds and

higher productivity.

(i) This Ratio indicates the productivity of shareholder’s fund.

(ii) It also gives the shareholders and idea of the return of their funds.

(iii) It is also useful for inter-firm and inters industry comparisons.

Return on Equity Ratio: Profit After Tax / Net Worth

TableNo;13 - Return on Equity Ratio of VIJAYA DIARY. During Year of 2010-2014

Year

Profit After Tax Net Worth Ratio

2009-10

3,90,129.00

7,09,58,032.00

0.55

2010-11

25,41,070.00

7,31,86,896.00

3.47

2011-12

4,38,639.00

7,13,58,574.00

0.006

2012-13

5,10,623.00

9,60,53,867.00

0.531

2013-14

7,64,257.00

9,68,03,125.00

0.79

Interpretation:

Return on equity indicates how well the firm has used the resources of owners. In fact, this ratio is one

of the most important relationships in financial analysis. This ratio reflects the extent to which the

main objective i.e. earnings of satisfactory return to owners has been accomplished.

The return on equity of this firm is also very low due to low net profit margin. Assessment of

managements responsible to produce fair return to their owners should be made.

0

1

2

3

4

2009-10 2010-11 2011-12 2012-13 2013-14



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FINDINGS

1. The company’s liquidity position is good as indicated by the current Ratio and quick ratio.

Both the ratios are high and above the standard norms showing that the company maintaining

excessive current assets.

2. The company’s debt capital is more as compared to equity share. It is nearly 3 times of the

equity capital which is increasing the burden of interest and thus declining the earning to the

shareholders.

3. The debtor’s turnover is improving through the past 5 years but declined in the current year.

The firm’s average collection period is very low, nearly 10 days indicating that the restrictive

credit policy.

4. The company gross profit is satisfactory, but the net profit is very less. It shows that the

company operating expenses are very high. It necessary to control the operating expenses to

increase the profit.

5. The company shareholders are getting very low return on their capital, it decreases the market

value of the share, which leads to decrease in the total value of company.

6. The firm is efficiently managing it receivables. But the firm is not efficiently utilizing credit

management procedures in the case of purchases.

7. The Net profit margin is very low because of the high administrative charges and interest

burden. The company stock turnover ratio is good. Stock is moving at a declining rate

throughout the year.

8. On and average, the return of the firm on its investment is only just two present, which are

very low steps to be taken to increase this rate.

SUGGESTIONS

1. During the year 2011-12, large percentage of funds was blocked and was idle, due to which

current assets position was bad.

2. Receivables are very low in the company with the relaxation in the credit policy definitely

sales will rise and it leads to better profits.

3. The company is borrowing funds from external sources like band and other sources. It is

burden for company. Hence, I suggest the company to strengthen the reserves base, through

which it can escape from interest overheads.

4. Though the company is providing welfare facilities to the employees, still the organization

have to put efforts to motivate towards better production by providing financial & non-

financial incentives.



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5. The demand position can be improved by introducing methods like door delivery facility

which would facilitate enhancement in profits of company.

6. A healthy current ratio is maintained by the company but the cash position maintained by the

firm is not satisfactory. For efficient maintenance of the current assets it has to maintain

additional cash refers.

7. The liquidity position of the firm is satisfactory. It is maintain the current assets properly.

During the years 2009-10 there was a problem with liquidity due to inadequacy of quick assets.

I suggest the company to take care of the position of the quick assets in future.

8. The inventory turnover ratio has been in the steady position. The position of inventory is very

good. I suggest the company to concentrate on the sales position & invoke them for

maintaining a better position of inventory in future.

References

1. Vijaya Diary Financial Statements

2. Financial Management Text Book Author, IM Pandy, Vikas Publishers,9th Edition.

3. Financial Analysis and Accounting, P. Premchand Babu and M. Madam Mohan, Himalaya



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Documents

A STUDY ON RATIO ANALYSIS WITH SPECIAL …icmrr.org/nov_2015/IJFRR/201511205.pdfA STUDY ON RATIO ANALYSIS WITH SPECIAL REFERENCE TO VIJAYA DIARY V. VENKATA ... Increase in market share