Analysis pre final

8/7/2019 Analysis pre final

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CHAPTER 5:

ANALYSIS ANDINTERPRETATION


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Introduction:

Analysis and Interpretation are the two most essential steps in the process of

analyzing the Financial Statements of a concern with the help of various financial

ratios.

Analysis means to observe various ratios, to identify changes taking places

in such ratios, and to find out the reasons of such changes, if any. The level and

historical trends of these ratios can be used to make inferences about a company'sfinancial condition, its operations and attractiveness as an investment.

Interpretation means to draw out meaningful conclusions after the

observation of such ratios.

In this chapter, the analysis of the financial statements of Green Assam

Company Pvt. Ltd. is done using regression analysis, common size and comparative

balance sheets and income statement, financial ratios, a graph is drawn which shows

the result on chart and it is followed by interpretation of the ratio.


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REGRESSION ANALYSIS

1. The dependent variable is expenses and the independent variable is Sales.

The expenses depend on the sales as the sales increase there is an increase in

sales.

PARTICULARS 2007-08 2008-09 2009-10

SALES (X) 99187984 95471568 123003842

EXPENSES (Y) 87391440 81745252 99316920

We can write the equation as :

Y= b+ mx

Here, m= slope of the line and b is the x intercept.

Regression Statistics

Multiple R 0.898868805

R Square 0.807965128

Adjusted R

Square

0.615930256

Standard

Error

4090678.244

Observations 3

ANOVA df SS MS F Significance F

Regression 1 7.04049E+13 7.04E+1

3

4.2073875

4

0.288780303

Residual 1 1.67336E+13 1.67E+1

3

Total 2 8.71386E+13

Coefficients Standard

Error

t Stat P-

valu

e

Lower 95% Upper

95%

Lower

95.0%

Upper

95.0%

Intercep

t X

-

140574843.

6

76732977.1

3

-1.832 0.31 -1115559761 8.34E+0

8

-

1.1E+0

9

8.34E+08

Variable

1

3.24023738 1.57968527

4

2.05119

2

0.28 -

16.83156713

23.31204 -

16.8316

23.31204

Observatio

n

Predicted Y Residuals Standard Residuals

1 10490324.15 1363337.845 0.471327921

2 17449978.18 -3322276.18 -1.1485645543 22293601.67 1958938.335 0.677236633


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ANALYSIS

A r-square value of .9622 shows that there is a very strong relationship between

Sales and expenses. All points do not exactly lie on a straight line but the scatter is

very less. Since the slope that is the X variable 1 is 1.633573 is a positive value so

for every increase in Sales there is a positive increase in Y. X variable coefficient

also represents that for every change in sales there is 1.633573 change in expenses.

We can say that expenses increase by a larger margin than sales which is a negative

sign for the company. The X intercept is -140574843.6 which shows that the value of

expenses when the sales is zero.

The difference between the observed value of the dependent variable (y) and the

predicted value. Each data point has one residual.Residuals are the vertical distances


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of each point from the regression line. The residual model plot is showing a random

pattern, as we observe two residuals marked at the higher end of the X axis and one

residual marked at the lower end indicating a good fit for a linear model

2. The dependent variable here is interest and the independent variable is Loan

funds. The amount of interest obligation will vary according to the amount of

loan funds.

PARTICULARS 2007-08 2008-09 2009-10

Interest ( Y) 595190 362622 786848

Loan Funds ( X ) 412930 5803776 0


Y= b+ mxHere, m= slope of the line and b is the x intercept.


Multiple R 0.919426

R Square 0.845345

Adjusted R

Square

0.690689

Standard

Error

118150.8

Observations 3

df SS MS F Significanc

e F

Regression 1 7.63E+1

0

7.63E+1

0

5.46599

1

0.257307

Residual 1 1.4E+10 1.4E+10

Total 2 9.03E+1

0

Coefficients Standar

d Error

t Stat P-value Lower

95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercep

t

706548.1463 86669.23 8.15223

8

0.07770

3

-

394689

180778

5

-

394689

1807785

X

Variable

1

0.060318831 0.0258 -2.33795 0.25730

7

-

0.3881

4

0.2675 -

0.3881

4

0.2675

Observatio

n

Predicted Y Residual

s

Standard

Residual

s

1 681640.6914 -86450.7 -1.03478

2 356471.1623 6150.838 0.073623


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3 706548.1463 80299.85 0.961154

ANALYSIS

Interest and loan funds have R-square at 0.84 which shows there is a high

degree of relationship between interest and loan funds. This also shows that

with increase or decrease in loan funds there is an increase or decrease in

interest liability of the firm. Here the X variable is positive which shows that

there is a positive relation between interest and loan funds. We can say infuture if the company borrows money with every increase in Loan funds the

interest liability of the firm also goes up by 0.061. The value of the X

intercept is 706548.1463 that shows the value of interest when loan funds is

zero.

The residual model plot is showing a random pattern, as we observe one

residuals marked at the higher end of the X axis and one residual marked at

the lower end while the third one is marked on the y axis indicating a good fit

for a linear model.


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3. The investment in total asset is depended on the sources of shareholders

funds. Here total asset is the depended variable and shareholders fund is the

independent variable.

PARTICULARS 2007-08 2008-09 2009-10

Shareholders Fund ( X) 63755090 71334064 86668096

Total Assets ( Y) 65270676 77864721 87111887


Y= b+ mx



Multiple R 0.960718R Square 0.922979

Adjusted R

Square

0.845959

Standard

Error

4302871

Observations 3


e F


4

2.22E+1

4

11.9835

3

0.179029

Residual 1 1.85E+1

3

1.85E+1

3

Total 2 2.4E+14

Coefficient

s

Standard

Error


95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercep

t

10052598 1942634

4

0.51747

2

0.69599

6

-

2.4E+0

8

2.57E+0

8

-

2.4E+0

8

2.57E+08

X

Variable

1

0.902291 0.260648 3.46172

4

0.17902

9

-

2.40955

4.214135 -

2.40955

4.214135

Observatio

n

Predicted

Y

Residual

s

Standard

Residual

s

1 6757821

9

-2307543 -0.75841

2 7441665

6

3448065 1.133267


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3 8825240

9

-1140522 -0.37485

ANALYSIS

The r-square is 0.96 which shows that there is again a high degree of regression

between shareholders fund and total asset. The total asset increases or decreasessimilarly with an increase or decrease in the value of shareholders fund. The slope

of the line is 0.90 which shows that with every increase in shareholders fund the total

asset also increases by 0.90. The X intercept is 10052598 which shows the value of

total asset when the shareholders fund is bought down to zero.

The residual again is a scatter diagram which shows that axis indicating a good fit for

a linear model.


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4. The net profit a firm earns is affected by the interest obligation a firm has to bear.

So, the net profit is the dependent variable and the interest is the independent

variable.

PARTICULAR

S

2007-08 2008-09 2009-10

Net Profit 11853662 14127702 24252540

Interest 595190 362622 786848


Y= b+ mx



Multiple R 0.730093

R Square 0.533035

Adjusted R

Square

0.066071

Standard

Error

6378921

Observations 3


e F


3

4.64E+1

3

1.1414

9

0.478954

Residual 1 4.07E+1

3

4.07E+1

3

Total 2 8.71E+1

3

Coefficient

s

Standard

Error


95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercep

t

3552396 1288513

4

0.27569

7

0.82874 -

1.6E+0

8

1.67E+0

8

-

1.6E+0

8

1.67E+08

X

Variable

1

- 22.68449 21.2321 1.06840

5

0.47895

4

-

247.095

292.4638 -

247.095

292.4638

Observatio

n

Predicted

Y

Residual

s

Standard

Residual

s

1 1705397

5

-5200313 -1.15291

2 1177829

0

2349412 0.520867

3 2140163 2850901 0.632048


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9

ANALYSIS

The r-square for net profit and interest is 0.53 which shows there is a mild

realtionship existing between interest and net profit. The relationship between the

variables is not high but definately a relation exist between the variables. The slpoe

of the line is - 22.6 which shows that when there is an increse in net profit there is22.6 decrease in interest. This shows that in future if company wants to increase its

net profit it has to decrease its interest. The X- intercept is 3552396 which is the net

profit the firm will achieve if the company no interest obligations.

If we join the points on the residual plots we will get a cyclical figure which

indicates it is not a good fit for a linear model. We need more variables to analyse

this equation.


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5. The net sale of the company is a key determinant of the companys gross

profit. In the linear equation net sales is the independent variable and the

gross profit is the dependent variable.

PARTICULARS 2007-08 2008-09 2009-10

Gross Profit 41948806 42035332 58257050

Net Sales 99187984 95471568 123003842


Y= b+ mx



Multiple R 0.99165

R Square 0.98337

Adjusted R

Square

0.96674

Standard Error 1712602

Observations 3


e F


4

1.73E+1

4

59.1328

9

0.082326

Residual 1 2.93E+1

2

2.93E+1

2

Total 2 1.76E+1

4

Coefficient

s

Standar

d Error


95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercep

t

-1.9E+07 8640322 -2.15178 0.27695

3

-

1.3E+0

8

9119364

8

-

1.3E+0

8

91193648

X

Variable

1

0.623356 0.081063 7.68979

1

0.08232

6

-

0.40664

1.653356 -

0.40664

1.653356

Observatio

n

Predicted

Y

Residual

s

Standard

Residual

s

1 4323736

1

-1288555 -1.06405

2 4092071

1

1114621 0.920419

3 5808311

6

173934.3 0.14363


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ANALYSIS

There is very strong relationship existing between gross profit and net sales. All the

points lie almost on the same line which shows that the relationship is very strong.

Any increase or decrease in net sales has an huge impact on the gross profit. The X

variable is 0.623 which shows that with every increase in net sales the gross profit

increases by 0.623. So if the company wants to increase its gross profit it has to

increase its net sales. The X intercept is -18592050.39 which the value of gross profit

is if the company achieves zero sales figures.

The residual model plot is showing a random pattern, as we observe one residuals

marked at the higher end of the X axis and one residual marked at the lower end

while the third one is marked on the y axis indicating a good fit for a linear model.

6. The amount a company needs is depended on the need for these funds. The

time horizon of the investment and monetary obligation tied with such


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decision. So, the amount a company raises by loan is depended on how much

a company needs for purchasing net block..

PARTICULARS 2007-08 2008-09 2009-10

Loan Funds 412930 5803776 0Net Block 18786030 17002346 19177264


Y= b+ mx



Multiple R 0.994415

R Square 0.988862

Adjusted R

Square

0.977723

StandardError

483312.9

Observations 3


e F


3

2.07E+1

3

88.7800

9

0.067313

Residual 1 2.34E+1

1

2.34E+1

1

Total 2 2.1E+13

Coefficient

s

Standar

d Error


95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercept 52960584 5408034 9.79294

5

0.06478

3

-

1.6E+0

7

1.22E+0

8

-

1.6E+0

7

1.22E+08

X Variable 1 -2.77746 0.294775 -9.42232 0.06731

3

-

6.52293

0.968007 -

6.52293

0.968007

Observation Predicte

d Y

Residual

s

Standard

Residuals

1 783075.8 -370146 -1.08308

2 5737193 66583.48 0.194829

3 -303562 303562.3 0.888248


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ANALYSIS

The r-square for the given equation is 0.98 which provides for a strong relationship

between the variables loan funds and net block. The variables fall almost on the same

line. The X variable is-2.77746 which shows that there is a negative relation

between them. When there is a increase in net block there is a decrease of 2.77746 in

loan funds. These shows company does not use much of the loan funds to finance its

net block requirements. As, net block is a long term investment company prefers not

to use debt financing for it. In future if we bring down the net block to zero then also

we will have loan funds of Rs. 52960584.

The residual plot is scattered well with one point above the x-axis and the other

below the x axis while the third point is almost on the y axis. This resembles a good

fit for a linear model.


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7. The net block is also depended on the shareholders fund. When the company

decides to purchase long term asset it can finance through shareholders fund.

So, in the below equation shareholders fund is the depended variable and net

block is the independent variable.

PARTICULARS 2007-08 2008-09 2009-10

Shareholders Fund 63755090 71334064 86668096

Net Block 18786030 17002346 19177264


Y= b+ mx



Multiple R 0.354626

R Square 0.12576Adjusted R

Square

-0.74848

Standard

Error

1533039

Observations 3


e F


1

3.38E+1

1

0.1438

5

0.769216

Residual 1 2.35E+1

2

2.35E+1

2

Total 2 2.69E+1

2

Coefficient

s

Standar

d Error


95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercep

t

15718362 6921274 2.27102

2

0.26406 -

7.2E+0

7

1.04E+0

8

-

7.2E+0

7

1.04E+08

X

Variable

1

0.035221 0.092864 0.37927

6

0.76921

6

-

1.14473

1.215174 -

1.14473

1.215174

Observatio

n

Predicted

Y

Residual

s

Standard

Residual

s

1 1796389

2

822138 0.758414

2 18230833 -1228487 -1.13327


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3 1877091

5

406348.6 0.374853

ANALYSIS

There is a low degree of regression between the share holders fund and net block.

The R-square is only 0.12 which shows that both shareholders fund and net block of

the company are hardly related to each other. Movement of the independent variable

that is net block does not have a substantial impact on the shareholders fund. The X

variable is 0.03522 that is in future if we increase the net block by one the

shareholders fund will also increase by 0.035. This is positive which signifies that

both move in the same direction. The intercept is 15718362 which shows that the in

future if the net block is bought down to zero then the shareholders fund will remain

at 15718362.

The If we join the points on the residual plots we will get a cyclical figure which


this equation.


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1 1.07E+08 -7924816 -1.151

2 9206011

2

3411456 0.495479

3 1.18E+08 4513360 0.655519

ANALYSIS

The r-square is 0.78 which shows that there is existence of a relationship between the

sales and sundry debtors. The sales and sundry debtors are not that far apart from thestraight line. The X variable is -63.912 which shows that with every increase in

sundry debtors the sales decline by 63.912. The sales and sundry debtors have a

negative relationship. In future if the companys sundry debtors come down to zero

then the companys sale will remain 124449895.1.

If we join the points on the residual plots we will get a cyclical figure which


this equation.


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PARTICULARS 31st

March,2008

31st

March,2009

Increase/

(Decrease)

% of Increase

or ( Decrease)

I SOURCE OF FUNDS

1.SHARE HOLDER'S

FUNDS

(a) Share Capital 9600000 9600000 - -(b) Reserves & Surplus 54155090 61734064 7578974 13.99

TOTAL (1) 63755090 71334064 7578974 13.99

2.DEFERRED TAX

LIABILITY

1102656 726880 (375776) (34.07)

3.LOAN FUNDS

Secured 412930 3776 (409154) (99.08)

Unsecured 0 5800000 5800000 100

TOTAL (2) 412930 5803776 5390846 1305.5

TOTAL SOURCE OF

FUNDS (1+2+3)

65270676 77864720 12594044 19.29

II. APPLICATION OF

FUNDS :

FIXED ASSETS :

Gross Block 65407666 65771866 (36420

0)

(0.55682)

Less : Depreciation 46621636 48769520 (2147884

)

(4.60705)

Net Block 18786030 17002346 1783684 9.494736

INVESTMENTS 11629206 12606996 (977790) (8.40805)

CURRENT ASSETS,

LOANS & ADVANCES :

Inventories 4938960 2931840 2007120 40.63851

Sundry Debtors 272032 507554 (235522) (86.5788)

Cash & Bank Balances 22898564 28189574 (5291010) (23.1063)

Loans & Advances 32496325 42059888 (9563563) (29.4297)

60605881 73688856 (13082975) (21.587)

LESS : CURRENT

LIABILITIES

Current Liabilities 18099440 12322518 5776922 31.91768

Provisions 7651000 13110960 (5459960) (71.3627)

25750440 25433478 316962 1.230899

NET CURRENT ASSETS 34855441 48255378 (13399937) (38.4443)

65270677 77864720 (12594043) (19.2951)


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ANALYSIS

1. There is a significant increase in unsecured funds by 1305.5% were as the

secured funds have decreased by 99.08% in the same time. The company has

opted for financing through unsecured sources. This also implies that the

companys interest obligation will go up since the interest rate on unsecured

funds is higher than secured funds.

2. The share capital has remained same from 2007-08 to 2008-09 but there has

been a increase in reserve and surplus by 13.99% which suggest that

company may be looking for a possible expansion or purchase of assets like

machinery.

3. There has been a slight decrease in gross block by .055% which suggest that

during the year the year there has been sale of asset.

4. The sundry debtors have decreased by 86.57% which shows that the firm has

opted for more of cash sales rather than credit sales which will definitely

improve the working capital of the firm and also will decrease the collection

of debt cost of the firm.

5. The investment has decreased by 8.40% , the cash and bank balances of the

firm has also decreased by 23.10% so the firm has less liquid asset in the fy

2008-09 compared to 2009-10.Company has also decreased its loans andadvances by almost 30% which shows that firm is in need for cash as it is

collecting the loans and advances given by the firm. We see that firm is trying

to capitalize the liquid asset it has, These signifies that either the firm is in

need for funds to fulfil its long term needs

6. The current liabilities of the firm has increased by 32 % while the current

assets has decreased by 22% at the same time which again signifies the need

for short term fund requirements for the firm.


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7. The health of the firm seems to be deteriorating in fy-2008-09 compared to

2007-08 the companys borrowings is going up while the company is

financing its short term needs by liquidating its assets like investments and

recovering the loans and advances advanced by it. Sundry debtors of the

company have increased while at the same time the current liabilities have

increased

PARTICULARS 31st

March,2009

31st

March,2010

Increase/ (Decrease) % of

Increase or

( Decrease)

I SOURCE OF

FUNDS

1.SHARE HOLDER'S

FUNDS

(a) Share Capital 9600000 9600000 - -

(b) Reserves & Surplus 61734064 77068096 (15334032) (24.8389)

TOTAL (1) 71334064 86668096 (15334032) (21.4961)

2.DEFERRED TAX

LIABILITY

726880 443790 283090 38.94591

3.LOAN FUNDS

Secured 3776 0 3776 100

Unsecured 5800000 0 5800000 100TOTAL (2) 5803776 0 5803776 100

TOTAL SOURCE OF

FUNDS (1+2+3)

77864720 87111886 (9247166) (11.8759)

II. APPLICATION OF

FUNDS :

FIXED ASSETS :

Gross Block 65771866 69441620 (3669754) (5.57952)

Less : Depreciation 48769520 50264356 (1494836) (3.0651)

Net Block 17002346 19177264 (2174918) (12.7919)

INVESTMENTS 12606996 14433770 (1826774) (14.4902)

CURRENT ASSETS,

LOANS &

ADVANCES :

Inventories 2931840 3361760 (429920) (14.6638)

Sundry Debtors 507554 94011 413543 81.47764

Cash & Bank Balances 28189574 38524727 (10335153) (36.663)

Loans & Advances 42059888 43884486 (1824598) (4.3381)

73688856 85864982 (12176126) (16.5237)

LESS : CURRENT

LIABILITIES &

PROVISIONS :Current Liabilities 12322518 13055061 (732543) (5.9447509)


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Provisions 13110960

19309070

(6198110) (47.2742652)

25433478 32364131 (6930653) (27.250118)

NET CURRENT

ASSET

48255378

53500851

(5245473) (10.870235)

77864720 87111885 (9247165) (11.8759369)

ANALYSIS

1. The company has brought down its liability to zero. It has cleared off both

the secured and unsecured debt. This will definitely bring down the

interest liability in the coming years. We can also say that debts were

paid at the mid or end of the year as the company has paid some interest

for the fy-2009-10 .

2. The reserve and surplus has decreased by about a quarter which might

have been a possible way to finance the paying off loan funds which the

company has bought down to zero.

3. The gross block of the company has decreased again in the fy 2009-10

which signifies the possible sell of asset pertaining to the block.

4. The investments have again in this year decreased by 15% which might

have been used to pay off the debt obligation of the firm.

5. In the fy 2009-10 the sundry debtors have increased by 82% which is

completely opposite to the last year. This signifies that the firm is

allowing more credit to its customers in order to increase its sales. The

collection cost might go up with such a policy.


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6. The cash balance and loan and advances have again decreased which

might be due to the company paying off huge debt which it had taken in

the previous year.

7. In the year 2009-10 the current liabilities has also decreased by 6% which

is a good signal for the company.

8. The overall health of the company seems to be improving in the financial

year 2009-10 compared to 2008-09. The companys debt obligation has

gone down considerably and the current liabilities have also declined. Thecompanys fixed assets, reserves and investments have also declined but it

has been done mainly to pay off the debt.

PARTICULARS 31st

March

2008

31st

March 2009

Increase /

( Decrease)

% of Increase /

(Decrease)

I N C O M E :

Sales 99187984 95471568 (3716416) (3.746841)

Other Income 2621568 2549270 (72298) (2.757815)

101809552 98020838 (3788714) (3.721374)

E X P E N D I T U R E

Expenses 87391440 81745252 (5646188) (6.460802)

Interest 595190 362622 (232568) (39.07458)

Depreciation 2564450 2147884 (416566) (16.24387)

90551080 84255758 (6295322) (6.952233)

PROFIT FOR THE

YEAR

11258472 13765080 2506608 22.2642

PROVISION FOR

TAXATION :

Income Tax 2450000 2030000 (420000) (17.14286)

Agriculture Income-tax 1706000 1180000 (526000) (30.83236)

Fringe Benefit Tax 33000 33320 320 0.9697

Deferred Tax - Credit 1610600 375776 (1234824) (76.66857)

5799600 3619096 (2180504) (37.59)

PROFIT AFTER

TAXATION

8680072 10897536 2217464 25.546

Balance brought

forward

1679136 1155090 (524046) (31.20926)

10359208 12052626 1693418 16.347


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ANALYSIS

1. The sales of the company have declined by 4% and even the other income

have also declined by 3% which shows that the demand for companys

product have declined in the fy 2008-09 from the fy 2007-08.

2. The expenses of the company have also decreased by 6.5% which might have

been due to the decrease in the sales.

3. The interest obligation of the firm has also declined which is a good signal of

the firm.

4. Although the sales and income of the company has decreased but still the

gross profit of the company has increased this is because the expenses,

interest and depreciation has also decreased.

5. The total tax obligation has declined by 38 % which has which shows that the

company has used its resources carefully and managed its tax carefully.

6. The companys net profit after tax has increased by 17 % which is due to the

decline in the tax liability and decrease in sales.

7. The overall condition of the company has declined although there has been a

increase net profit as the sales and other income of the company has declined.

The profit has increased due to decrease in expenses.

PARTICULARS 31stMarch

31stMarch 2010

Increase or( Decrease)

% ofIncrease or


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2009 (Decrease)

I N C O M E :

Sales 9547156

8

123003842 (27532274) (28.8382)

Other Income 2549270 2950400 (401130) (15.7351)9802083

8

125954242 (27933404) (28.4974)

E X P E N D I T U R

E

Expenses 8174525

2

99316920 (17571668) (21.4956)

Interest 362622 786848 (424226) (116.988)

Depreciation 2147884 2384782 (236898) (11.0294)

8425575

8

102488550 (18232792) (21.6398)

PROFIT FOR THE

YEAR

1376508

0

23465692 (9700612) (70.4726)

PROVISION FOR

TAXATION :

Income Tax 2030000 3664000 (1634000) (80.4926)

Agriculture Income-

tax

1180000 2498000 (1318000) (111.695)

Fringe Benefit Tax 33320 36110 (2790) (8.37335)

Deferred Tax -

Credit

375776 283090 92686 24.66523

2867544 5915020 (3047476) (106.27)

PROFIT AFTER

TAXATION

1089753

6

17550672 (6653136) (61.0517)

Balance brought

forward

1155090 1734064 (578974) (50.1237)

1205262

6

19284736 (7232110) (60.0044)

1. The sales of the company has declined from fy 2008-09 to fy 2009-10,This is

not a good sign for the company as the decline in sales is for the consecutive

year.

2. The other income of the company has also declined which is not a good sign

for the company.


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3. The expenses of the company has declined by 22% which is not a good sign

for the company has declined it can due to the declining sales. The decline in

expenses cannot be termed as a good sign for the company as this is due to

the decline in sales.

4. The interest rate obligation of the firm has gone down as the company pays

off most of its debt in this year. This is huge relief to the company as there is

the burden on the profits of the company will be brought down.

5. The total expenses of the firm has come down in the Fy-2009-10 which islargerly due to the decrease in expenses and interest obligation.

6. We see a decline in profits by 71% as compared to last year this is due to

decline in sales and other income. This is a very bad signal for the company.

As, this signifies that the companys financial strength is declining.

7. The net profit for the year has come down by 60% this is also due to the huge

decline in sales and other income. This is not a good situation for the

company.

8. The overall condition of the firm has come down in the fy 2009-10 as

compared to 2008-09 this is signified by decline in net and gross profits, low

sales and other income.


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PARTICULARS 31st

March,20

08

% 31st

March,2009

% 31st

March,201

0

%

I LIABILITIES

1.SHARE HOLDER'SFUNDS

(a) Share Capital 9600000 10.54 9600000 9.29 9600000 8.03

(b) Reserves & Surplus 54155090 59.49 61734064 59.76 77068096 64.50

TOTAL (1) 63755090 70.04 71334064 69.05 86668096 72.54

2.DEFERRED TAX

LIABILITY

1102656 1.21 726880 0.70 443790 0.37

3.LOAN FUNDS

Secured 412930 0.45 3776 0.003 0 0

Unsecured 0 0 5800000 5.61 0 0

TOTAL (2) 412930 0.45 5803776 5.618468

0 0

4.CURRENTLIABILITI

ES

Current Liabilities 18099440 19.88 12322518 11.9290

7 13055061

10.92

Provisions 7651000 8.40 13110960 12.6923

4 19309070

16.16

25750440 28.29 25433478 24.6214

1 32364131

27.08

TOTAL LIABILITIES

(1+2+3 +4)

91021117 100 103298198 100

119476017

100

II. TOTAL ASSETS

FIXED ASSETS :

Gross Block 65407666 71.85 65771866 63.6718

4 69441620

58.12

Less : Depreciation 46621636 51.22 48769520 47.2123

6 50264356

42.07

Net Block 18786030 20.63 17002346 16.4594

8 19177264

16.05

INVESTMENTS 11629206 12.77 12606996 12.2044

7

14433770 12.08

CURRENT ASSETS,

Inventories 4938960 5.42 2931840 2.838233361760

2.81

Sundry Debtors 272032 0.29 507554 0.49134

8 94011

0.078

Cash & Bank Balances 22898564 25.15 28189574 27.2895

1 38524727

32.24

Loans & Advances 32496325 35.70 42059888 40.7169

6 43884486

36.73

60605881 66.58 73688856 71.3360

5 85864982

71.86

TOTAL ASSETS 91021117 100 103298198 100119476017

100


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ANALYSIS

1. The reserves and surplus form the major part of liabilities side of the

company. The reserves and surplus of the company has increased over the

year from 2007-08,2008-09 and 2009-10. While this is opposite for the share

capital % of total liabilities which is constantly on a decline in this years.

2. The secured loan earlier formed .45% of the total liabilities of the company

but this has been declining in the subsequent years we also see that the

company has finally bought it to zero. This will mean lesser interest burden

for the firm and may result in increase in profits.

3. The unsecured loans formed 6% of the total liability in the second year while

it was zero in the first year and it was again bought down to zero in the last

year. The sudden rise in unsecured funds may be to fulfil certain short term

needs of the company.

4. The current liabilities have also constantly declined in the three years which

is a good signal for the company.

5. The gross block has constantly declined in the three years. Gross block are a

major part of the company total assets as it forms 60-70% of the total asset of

the firm. This needs to be most carefully managed.

6. The investment in all the years have declined by a small margin which shows

that the company. Investment form 12% of the companys total assets.

7. The loan and advances advanced by the firm is forms the other major part of

the companys total asset. It ranges from 35-40%. They are increasing in all

the three years as the percentage of the total assets.


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8. The total current assets of the company forms 65-70% of the companys total

assets while the fixed assets form 30-40% of the companys total assets.

I. LIQUIDITY RATIO:

1. CURRENT RATIO:

The current ratio is a popular financial ratio used to test a company's liquidity

(also referred to as its current orworking capital position) by deriving the proportion

of current assets available to cover current liabilities. Current ratio means how much

amount of current asset a firm has to pay one rupee of current liabilities. Hence this
http://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/l/liquidity.asphttp://www.investopedia.com/terms/w/workingcapital.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/l/liquidity.asphttp://www.investopedia.com/terms/w/workingcapital.asp


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ratio judges the efficiency of the company to meet is short term requirements and

also its liquidity position.

The concept behind this ratio is to ascertain whether a company's short-term

assets (cash, cash equivalents, marketable securities, receivables and inventory) are

readily available to pay off its short-term liabilities (notes payable, current portion of

term debt, payables, accrued expenses and taxes). In theory, the higher the current

ratio, the better. A current ratio of 2:1 is considered as standard.

TABLE 5.1

PARTICULARS 2007 08 2008 09 2009 - 10

CURRENT ASSETS 60605880 73688857 85864984

CURRENT LIABILITIES 25750440 25433478 32364131

RATIO 2.35 2.90 2.65

GRAPH 5.1


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Interpretation:

Green Assam Company private limited has taken a good care of its

liquidity position over the past three years. The current ratio of the company has been

over the standard norms all the three years, it being 2.35:1, 2.90:1, and 2.65:1 in

2008, 2009 and 2010 respectively. The working capital position of the firm is very

strong and it has available resources to meet its short term liabilities. This is a

positive sign for the company.

2. QUICK RATIO


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The quick ratio, also known as the quick assets ratio or the acid-test ratio -

is a liquidity indicator that further refines the current ratio by measuring the amount

of the most liquid current assets there are to cover current liabilities.

The quick ratio is more conservative than the current ratio because it

excludes inventory and other current assets, which are more difficult to turn into

cash. Therefore, a higher ratio means a more liquid current position. A liquid ratio of

1:1 is considered ideal.

Where,

Quick assets = current assets inventory prepaid expenses

TABLE 5.2

GRAPH 5.2

PARTICULARS 2007 08 2008 09 2009 10

QUICK ASSETS 55666920 70757017 82503224

CURRENT

LIABILITIES

25750440 25433478 32364131

RATIO 2.16 2.78 2.55
http://www.investopedia.com/terms/q/quickratio.asphttp://www.investopedia.com/terms/a/acidtest.asphttp://www.investopedia.com/terms/l/liquidasset.asphttp://www.investopedia.com/terms/q/quickratio.asphttp://www.investopedia.com/terms/a/acidtest.asphttp://www.investopedia.com/terms/l/liquidasset.asp


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INTERPRETATION:

The company maintains a strong liquidity status. The liquid ratio of thecompany is 2.16, 2.78 and 2.55 respectively for years 2008, 2009 and 2010. This

means the company has Rs 2.55 amount of liquid assets in 2010 to pay off Re 1

amount of current liability, which reflects its efficiency in liquidity management. The

company has also succeeded in maintaining a consistency in keeping good liquid

ratio, as for all the three years, the ratio is above the ideal ratio of 1:1.

3. ABSOLUTE LIQUID RATIO / CASH RATIO


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The absolute liquid ratio or cash ratio is an indicator of a company's

liquidity that further refines both the current ratio and the quick ratioby measuring

the amount of cash, cash equivalents or short term invested funds there are in current

assets to cover current liabilities.

This ratio gains much significance only when it is used in conjunction with

the current and liquid ratios. A standard of 0.5 : 1 absolute liquidity ratio is

considered an acceptable norm. That is, from the point of view of absolute liquidity,

fifty paisa worth of absolute liquid assets are considered sufficient for one rupee

worth of liquid liabilities.

TABLE 5.3

GRAPH 5.3

PARTICULARS 2007 08 2008 09 2009 10

Cash & Bank Balances 22898564 28189574 38524727

Current Liabilities 25750440 25433478 32364131

RATIO 0.89 1.11 1.89
http://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/q/quickratio.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/q/quickratio.asp


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INTREPRETATION:

The absolute liquid ratio of Green Assam Company Pvt. Ltd is 0.89:1 in

2007-08, 1.11:1in 2008-09 and 1.89:1 in 2009-10. The company keeps a good level

of absolute liquid assets, which includes only cash in this case, as the company donot

have any short-term investments. The ideal ratio is 0.50:1, and the company is above

the standard ratio in all the three years. This also shows that the short-term credibility

of the company is good as any organization would not hesitate in giving credit to the

company, its absolute liquidity being so strong.

II. LONG TERM SOLVENCY RATIOS


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1. DEBT - EQUITY RATIO:

The debt-equity ratio is a leverage ratio that compares a company's total

liabilities to its total shareholders' equity. This is a measurement of how much

suppliers, lenders, creditors and obligors have committed to the company versus

what the shareholders have committed.

To a large degree, the debt-equity ratio provides another vantage point on

a company's leverage position, in this case, comparing total liabilities to

shareholders' equity, as opposed to total assets in the debt ratio. A lower the

percentage means that a company is using less leverage and has a stronger equity

position. 2:1 is considered to be an ideal debt equity ratio.

TABLE 5.4

GRAPH 5.4

PARTICULARS 2007 08 2008 09 2009 10

Total Liabilities 26163370 31237254 32364131

Shareholders Equity 63755090 71334064 86668096

RATIO 0.41 0.44 0.37
http://www.investopedia.com/terms/d/debtequityratio.asphttp://www.investopedia.com/terms/l/leverageratio.asphttp://www.investopedia.com/terms/s/shareholdersequity.asphttp://www.investopedia.com/terms/d/debtequityratio.asphttp://www.investopedia.com/terms/l/leverageratio.asphttp://www.investopedia.com/terms/s/shareholdersequity.asp


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INTREPRETATION:

The debt equity ratio of the Green Assam Company Pvt Ltd is 0.37:1 in the

year 2009-10. This indicates that the company relies on owners funds to finance most

of its capital requirements. The amount of borrowed fund available in the company is

40 paisa compared to every rupee of share capital, while the ideal ratio says that a

company should have 2 rupees of borrowed funds for every 1 rupee of capital. The

company is enjoying the fruits of financial leverage, which could help the firm earn

even higher profits.

2. PROPRIETARY RATIO


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This ratio indicates the extent to which Tangible Assets are financed by

Owners Fund.

The higher this Proprietary ratio denotes that the shareholders have provided

the funds to purchase the assets of the concern instead of relying on other sources of

funds like bank borrowings, trade creditors and others. However, too high a

proprietary ratio means that management has not effectively utilize cheaper sources

of finance like trade and long term creditors. 0.5 : 1 is considered as ideal

proprietary ratio

Where,

Shareholders funds = Share capital + reserves fictitious assets

TABLE 5.5

GRAPH 5.5

PARTICULARS 2007 08 2008 09 2009 10

Shareholders Fund 63755090 71334064 86668096

Total Assets 65270676 77864721 87111887

RATIO 0.98 0.92 0.99
http://basiccollegeaccounting.com/financial-ratio-proprietary-ratio/http://basiccollegeaccounting.com/financial-ratio-proprietary-ratio/


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INTERPRETATION:

Proprietary ratio shows the extent to which the owners funds are utilized to

acquire fixed assets. In 2009-10, the proprietary ratio of the company is 0.99:1,which means that the company has 99 paisa financed from owners fund, for every

rupee of fixed assets. This shows that the debt liability of the firm is too less and the

company dont need to pay any interest. But the company is not availing the benefits

of leveraging as around 99% of the fixed assets are financed by owners. The ideal

ratio is .50:1. Hence, the ratio is both favourable as well as unfavourable for the

company.


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3. INTEREST COVERAGE RATIO

The interest coverage ratio is used to determine how easily a company can

pay interest expenses on outstanding debt. The ratio is calculated by dividing a

company's earnings before interest and taxes (EBIT) by the company's interest

expenses for the same period.

The lower the ratio, the more the company is burdened by debt expense.

The ability to stay current with interest payment obligations is absolutely critical for

a company as a going concern. While the non-payment of debt principal is a

seriously negative condition, a company finding itself in financial/operational

difficulties can stay alive for quite some time as long as it is able to service its

interest expenses

TABLE 5.6

PARTICULARS 2007 08 2008 09 2009 10

Net Profit 11853662 14127702 24252540

Interest 595190 362622 786848

RATIO 19.92 38.96 30.82
http://www.investopedia.com/terms/i/interestcoverageratio.asphttp://www.investopedia.com/terms/e/ebit.asphttp://www.investopedia.com/terms/i/interestcoverageratio.asphttp://www.investopedia.com/terms/e/ebit.asp


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GRAPH 5.6

INTERPRETATION:

The interest coverage ratio of Green Assam Company Pvt. Ltd for the

year is 30.82 times. This means the net profit of the company before paying its

interest and taxes is 30.82 times that of the interest. This makes it very clear that the

company faces no problem in paying off the interest due on its long term

borrowings are the net profit is much higher than the interest. The institutional fund

providers would feel very secure giving additional loans to the company if needed

as the company has maintained high interest coverage ratio for the past three years

as well. This also indicates that the company should focus on borrowed funds for

additional capital as the company is not taking the advantages of financial leverage.

III. ACTIVITY RATIO


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1. INVENTORY TURNOVER RATIO

Inventory turnover is an activity ratio that measures the companys

effectiveness by dividing cost of goods sold (an income statement item) by the

average inventory balance (a balance sheet item.) Since cost of goods sold represents

the inventory that leaves the firm, the ratio allows the investor to see how frequently

the company needs to replenish its existing inventory.

Inventory turnover ratio measures the velocity of conversion of stock into

sales. Usually a high inventory stock velocity indicates efficient management of

inventory because more frequently the stocks are sold; the lesser amount of money is

required to finance the inventory.

A low inventory turnover ratio indicates an inefficient management of

inventory, over-investment in inventories, dull business, poor quality of goods, stock

accumulation, accumulation of obsolete and slow moving goods and low profits as

compared to total investment.

TABLE 5.7

GRAPH 5.7

PARTICULARS 2007 08 2008 09 2009 10

COGS 59020018 55443336 64316872

Average Stock 5829380 3935400 3146800

RATIO (times) 17.02 24.26 39.09
http://financial-education.com/2007/01/31/activity-ratios/http://financial-education.com/2007/01/31/activity-ratios/


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INTERPRETATION:

From the above findings it will not be wrong to say that the inventory

management of Green Assam Company Pvt. Ltd is very efficient. The inventory

turnover ratio of the company for the year 2009-10 is 39.09 times, which indicates

that in the year 2009, the inventory of the company was converted into sales for

39.09 times, which is quite high. The company needs to keep such high inventory

turnover because the main product of the company is tea, which is perishable in

nature. The tea produced by the company, is in high demand in the local markets,

and has ready buyers for all the produced.


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2. ACCOUNTS REVEIVABLES TURNOVER RATIO

Debtors turnover ratio or accounts receivables turnover ratio indicates the

velocity of debt collection of a firm. In simple words it indicates the number of times

average debtors are turned over during a year.

The two basic components of Accounts Receivables turnover ratio are net

credit annual sales and average trade debtors. The trade debtors for the purpose of

this ratio include the amount of Trade Debtors & Bills Receivables. This ratio is

expressed in Times

Debtors turnover ratio indicates the number of times the debtors are

turned over a year. The higher the value of debtors turnover the more efficient is the

management of debtors or more liquid the debtors are.

TABLE 5.8

Note: The credit sales of the company are 10% of its total sales.

PARTICULARS 2007 08 2008 09 2009 10

Credit Sales 9918798.4 9547156.8 12300384.2

Average Receivables 258398 389793 300782

RATIO (times) 38.39 24.49 40.89


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GRAPH 5.8

INTERPRTATION:

The debtors turnover ratio of Green Assam Company Pvt. Ltd. is

40.89 times in 2009-10, which is very high as compared to the standard ratio,

that is around 6 times. The reason for such high debtors turnover ratio is that

most of the output of the company is sold in auction, which gives very small

period for repayment. The demand of the tea produced by the firm is also

very high, which reduces the debt repayment period. The company has

maintained high debtors turnover ratio over the past few years.

3. DEBTORS COLLECTION PERIOD RATIO:


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The Debtors / Receivable Turnover ratio when calculated in terms of

dayss is known as Average Collection Period orDebtors Collection Period Ratio.

This ratio shows in average, the number of days taken by a debtor to pay off its

debts.

This ratio measures the quality of debtors. A short collection period

implies prompt payment by debtors. It reduces the chances of bad debts. Similarly, a

longer collection period implies too liberal and inefficient credit collection

performance. It is difficult to provide a standard collection period of debtors. But, it

may also be noted that if the average collection period is too low, it may mean thatthe company is very much strict on its debtors for collection of debts, hence they

should be a bit liberal on them.

TABLE 5.9

GRAPH 5.9

PARTICULARS 2007 08 2008 09 2009 10

Receivables Turnover

Ratio

383.86 244.93 408.95

RATIO 9.51 14.90 8.93
http://www.accountingformanagement.com/debtors_or_receivable_turnover_ratio.htmhttp://www.accountingformanagement.com/debtors_or_receivable_turnover_ratio.htm


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INTERPRETATION:

The average collection period of Green Assam Pvt. Ltd is 9.51 days. This

shows that the collection policy of the company is very strong and the company has

good quality of debtors who are very prompt in payment. But this may also be a bit

harsh on the part of the debtors if the company is trying to be too strict in terms on

debt repayment, and may lead to long term loss for the firm. The demand of the tea

produced by the firm is very high, which reduces the debt repayment period.


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4. ACCOUNTS PAYABLE TURNOVER RATIO

This ratio is similar to the debtors turnover ratio. It compares creditors

with the total credit purchases. It signifies the credit period enjoyed by the firm in

paying creditors. Accounts payable include both sundry creditors and bills payable.

Creditors turnover ratio indicates the number of times the creditors are

turned over a year. A high creditors turnover ratio shows that the creditors are paid

promptly. This situation enhances the credit worthiness of the company. However a

very favorable ratio to this effect also shows that the business is not taking the full

advantage of credit facilities allowed by the creditors.

TABLE 5.10

PARTICULARS 2007 08 2008 09 2009 10

Purchases 7800902 7713362 10769270

Average Payables 18501063 15210979 12688789

RATIO 0.42 0.51 0.85
http://www.accountingformanagement.com/debtors_or_receivable_turnover_ratio.htmhttp://www.accountingformanagement.com/debtors_or_receivable_turnover_ratio.htm


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GRAPH 5.10

INTERPRETATION:

The creditors turnover ratio of the firm for the year 2009-10 is 0.85

times. This signifies that the creditors of the company turns 0.85 times in a year. The

creditors turnover ratio for Green Assam Company Pvt. Ltd. seems to be

misleading. When the Assistant accountant of the firm was contacted, it was

informed that the purchases is low because the company uses tea leaves grown in

their own tea estate. On the other hand, the creditors includes the amount payable to

the estates who provide tea leaves to meet the deficit, as well as other suppliers like

suppliers of tools, oils and lubricants, etc.

5. WORKING CAPITAL TURNOVER RATIO


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Working capital turnover ratio indicates the velocity of the utilization of

net working capital.

The two components of the ratio are cost of sales and the net working

capital. If the information about cost of sales is not available the figure of sales may

be taken as the numerator. Net working capital is found by deduction from the total

of the current assets the total of the current liabilities.

The working capital turnover ratio measures the efficiency with which the

working capital is being used by a firm. A high ratio indicates efficient utilization ofworking capital and a low ratio indicates otherwise. But a very high working capital

turnover ratio may also mean lack of sufficient working capital which is not a good

situation.

TABLE 5.11

GRAPH 5.11

PARTICULARS 2007 08 2008 09 2009 10

Sales 99187984 95471568 123003842

Net Working Capital 34855440 48255379 53500853

RATIO (IN TIMES) 2.85 1.98 2.30


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INTERPRETATION:

The working capital turnover ratio of the company for the year 2009-10 is

2.30 times which shows efficient management of working capital in the company.

This also signifies that the working capital in the firm is adequate enough to carry out

the daily workings of the company and also meet the short term liabilities. The firm

is also seen to be consistently maintaining high working capital turnover ratio over

the past three years. Although there is a dip in working capital turnover ratio as

compared to 2007-08, it is still not dissatisfactory.

6. FIXED ASSETS TURNOVER RATIO


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Fixed asset turnover is the ratio ofsales (on the Profit and loss account)

to the value offixed assets (on the balance sheet). It indicates how well the business

is using its fixed assets to generate sales, specifically property, plant and equipments.

This ratio measures the efficiency and profit earning capacity of the concern.

There is no exact number that determines whether a company is doing a

good job of generating revenue from its investment in fixed assets. This makes it

important to compare the most recent ratio to both the historical levels of the

company along with peer company and/or industry averages. On the other hand,

Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means

under-utilization of fixed assets.

TABLE 5.12

GRAPH 5.12

PARTICULARS 2007 08 2008 09 2009 10

Net Sales 99187984 95471568 123003842

Net Fixed Assets 18786030 17002346 19177264

RATIO 5.28 5.62 6.41
http://en.wikipedia.org/wiki/Saleshttp://en.wikipedia.org/wiki/Fixed_assethttp://en.wikipedia.org/wiki/Saleshttp://en.wikipedia.org/wiki/Fixed_asset


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INTERPRETATION:

The company is maintaining a fixed asset turnover ratio of 6.41 times for

the year 2009-10. This indicates efficient utilization of fixed assets for generation of

sales. There is a also a steady growth in the fixed asset turnover ratio of the firm over

the past three years, from 5.28 in 2007-08 to 5.62 in 2008-09 and 6.41 in 2009-10.

The main reason for a high fixed asset turnover ratio would be use of high tech

machineries and optimum utilization of resources.

IV. PROFITABILITY RATIO


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1. GROSS PROFIT RATIO

Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed

as a percentage. It expresses the relationship between gross profit and sales. The

basic components for the calculation of gross profit ratio are gross profit and net

sales. Net sales means sales minus sales returns. Gross profit would be the difference

between net sales and cost of goods sold.

Gross profit ratio may be indicated to what extent the selling prices of goods

per unit may be reduced without incurring losses on operations. It reflects efficiency

with which a firm produces its products. As the gross profit is found by deducting

cost of goods sold from net sales, higher the gross profit better it is. Ideal GP Ratio

is 25% to 30%. The rate of gross profit must be enough to cover all operating and nn

operating expenses and leave sufficient amount of profits for owners.

TABLE 5.13

GRAPH 5.13

PARTICULARS 2007 08 2008 09 2009 10

Gross Profit 41948806 42035332 58257050

Net Sales 99187984 95471568 123003842

RATIO (%) 42.29 % 44.03 % 47.36 %
http://www.accountingformanagement.com/cost_of_goods_sold_definition.htmhttp://www.accountingformanagement.com/cost_of_goods_sold_definition.htm


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INTERPRETATION:

The Gross Profit of Green Assam Company Pvt. Ltd. as a percentage of

sales for the year 2009-10 is 47.36%. This means, for every rupee of sales, the

company is earning approximately 47 paisa of profit, after deducting all the direct

expenses incurred in manufacturing tea from tea leaves. The Gross profit ratio of the

firm is much higher than the ideal ratio of 25 30%. There is a steady growth in the

gross profit ratio of the company over the past three years. The main reasons of such

high gross profit ratio would be high selling price of the finished goods. The

company uses tea leaves grown in their own estates to meet the partial requirement

of raw materials. This may also be a reason for high rate of gross profit.


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2. NET PROFIT RATIO

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is

expressed as percentage. The two basic components of the net profit ratio are the net

profit and sales. The net profits are obtained after deducting income-tax and,

generally, non-operating expenses and incomes are excluded from the net profits for

calculating this ratio. Thus, incomes such as interest on investments outside the

business, profit on sales of fixed assets and losses on sales of fixed assets, etc are

excluded.

NP ratio is used to measure the overall profitability and hence it is very

useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the

firm shall not be able to achieve a satisfactory return on its investment.

This ratio also indicates the firm's capacity to face adverse economic

conditions such as price competition, low demand, etc. Obviously, higher the ratio

the better is the profitability.

TABLE 5.14

GRAPH 5.14

PARTICULARS 2007 08 2008 09 2009 10

Net Profit (after tax) 8680072 10897536 17550672

Net Sales 99187984 95471568 123003842

RATIO 8.75 % 11.41 % 14.27 %


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3. OPERATING PROFIT RATIO

It is the ratio between operating profit and sales. Operating profit is the

excess of gross profit over the operating cost. It is also called Earnings or Profit

before Interest and Tax. It indicates the operating efficiency or inefficiency of a

business in terms of operating profit.

The operating profit margin ratio indicates how much profit a company

makes after paying forvariable costs of production such as wages, raw materials, etc,

as well as other operating expenses like office expenses, selling and distribution

expenses, etc. It is expressed as a percentage of sales and shows the efficiency of a

company controlling the costs and expenses associated with business operations.

This ratio uncovers situations where a company is relying on actions other than

operations to generate an income. Investing activities and sales of assets generate

revenue, but these actions are not usually sustainable and regular as maintaining a

steady flow of sales.

A high, or increasing Operating Profit Percentage is usually a positive

sign, showing the company is increasingly able to generate sales from its operations.

TABLE 5.15

PARTICULARS 2007 08 2008 09 2009 10

Operating Profit 11853662 14127702 24252540

Net Sales 99187984 95471568 123003842

RATIO 11.95 % 14.80 % 19.72 %
http://www.wikicfo.com/Wiki/Variable%20Cost.ashxhttp://www.wikicfo.com/Wiki/Variable%20Cost.ashx


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GRAPH 5.15

INTERPRETATION

The operating profit ratio of Green Assam Company Pvt. Ltd shows that

in the year 2009-10, the company is earning 19 paisa of operating profit for every

rupee of sales made. Even after paying off all the operating expenses, profit left to

the company before paying interest and taxes in 19.72% in year 2009-10. The growth

rate of the company in terms of operating profit is quite good, as the operating profit

ratio increases from 11.95% in 2007-08 to 14.80% in 2008-09 and further to 19.72%

in 2009-10. The reason for high operating profit ratio in 2009 may be due to increase

in net sales of the company, which is allowing company to enjoy the fruits of

economies of large scale.


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4. RETURN ON CAPITAL EMPLOYED

The return on capital employed (ROCE) ratio, expressed as a percentage,

complements the return on equity (ROE) ratio by adding a company's debt liabilities,

or funded debt, to equity to reflect a company's total "capital employed". This

measure narrows the focus to gain a better understanding of a company's ability to

generate returns from its available capital base.

By comparing net income(before tax) to the sum of a company's debt and

equity capital, investors can get a clear picture of how the use of leverage impacts a

company's profitability. Financial analysts consider the ROCE measurement to be a

more comprehensive profitability indicator because it gauges management's ability to

generate earnings from a company's total pool of capital.

As the primary objective of business is to earn profit, higher the return on

capital employed, the more efficient the firm is in using its funds. The ratio can be

found for a number of years so as to find a trend as to whether the profitability of the

company is improving or otherwise.

TABLE 5.16

PARTICULARS 2007 08 2008 09 2009 10

Net Profit (before Tax) 11853662 14127702 24252540

Capital Employed 64168020 77137840 86668096

RATIO 18.47% 18.31% 27.98%
http://www.investopedia.com/terms/r/roce.asphttp://www.investopedia.com/terms/r/returnonequity.asphttp://www.investopedia.com/terms/r/roce.asphttp://www.investopedia.com/terms/r/returnonequity.asp


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GRAPH 5.16

INTERPRETATION

The rate of return on capital employed of Green Assam Company Pvt.

Ltd. is 27.98% for the year 2009-10, which is quite satisfactory. This indicates that

the company is aptly capitalized, as it generated 27.98% of profit as compared to its

gross capital employed. If compared to preceding years, the ratio has been constant

for years 2007-08 and 2008-09 but a steep growth is seen in the year 2009-10. The

company meets the primary objective of business, which is profit, very well. This

shows that the capital of the firm is efficiently utilized to generate profits, hence

reflecting an efficient management.

5. RETURN ON ASSETS


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INTERPRETATION:

The return on assets ratio of Green Assam Company Pvt. Ltd is 27.84%

for the year 2009-10. This indicates that the net profit of the firm (before interest and

taxes) is 27.84% of that of the fixed assets. This shows a highly efficient

management of resources at the company. The company is hearing high returns on

the investment made on assets. The rate of return on assets is seen to be constant over

2007-08 and 2008-09 but there us a steep increase in the rate in year 2009-10, which

would probably because of purchase of new and better machineries.

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