Darshan Ratio Analysis

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OBJECTIVES OF PROJECT

To know the export procedure. To understand practical aspects. To know requirement of fund and document for Export. To know Government Policy regarding export of pharma chemical

product.

To learning about export benefits.


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CHAPTER III

RESEARCH METHODOLOGY


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Information regarding to the working management is collected by way of interviewing

persons and from documents and knows basic things relating to topic by observing the work.

PRIMARY DATA

I got lots of information by interviewing the related authorized persons. Especially regarding

the purchase procedure, sales procedure, about the debtors credit policy and import and

export procedure etc this method is helpful for getting practical information regarding

decision making where only figures are not sufficient. Also important when only

observations do not clear the ideas about topic.

SECONDARY DATA

This is method used for collecting information. This is a standard and reliable method of

gathering information. Information relating to company, variously norms set by banks while

borrowing loans for working capital, policy followed by company towards creditors and

debtors etc is collected through studying various documents. Various documents like budget

files, monthly report files, audit reports, document required at the time import and export etc.

ON SITE OBSERVSTION

With the help of observation one should know the actual process of working which we cannot

understand by reading or listening. This method is very essential especially to see actual

working of manufacturing in plant. Observation is also important to know purchasing

process, stores process for inventory management, sales etc. With the help of this method we


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know the cash management, monthly closing of accounts, verification of stocks etc. In this

way the overall functioning of the organization and its culture can be better understood by

actually observing the things.

Data analysis techniques

There are several tools of analyzing of working capital of a concern. The important of them

adopted as followed.

1. STATIC TOOLSFinancial Ratio Analysis

2. DYNAMIC TOOLSa) Balance Sheetb) Profit & Loss Account


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DATA ANALYSIS

ANDINTERPRETATION


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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 two or more

thing. The relationship between two accounting figures, expressed mathematically, is knownas financial ratio. Ratio helps to summaries large quantities of financial data and to make

qualitative judgment about the firms performance.

There are mainly three types of ratio consider for working capital:-

1. LIQUIDITY RATIO2. ACTIVITY RATIO3. LEVERAGE RATIO4. PROFITABILITY RATIO

INTERPRETATION OF RATIOS OF

1. LIQUIDITY RATIOSLiquidity refers to the ability of a firm to meet its obligations in the short run, usually

one year. Liquidity ratios are generally based on the relationship between current

assets (the sources for meeting short-term obligations) and current liabilities. The

important liquidity ratios are,

Current ratio:Indicate liquidity of the company the std is 2:1

Current ratio = Current Assets

Current Liabilites

Current asset = cash and bank balances, marketable securities, inventory of raw

materials, semi-finished goods and Finished Goods,bills receivables ,prepaid expensesand provision for bad debts.

Current Liabilites = Trade creditors, bills payable bank credit, provision for Tax,

Dividend etc

Rationale of Current Ratio : It indicates the ability of short-term solvency. It indicates

the rupee available for paying of current liabilities.


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Interpretation: The Current Ratio has been less in last Year compared to

2009-10 which Indicates that the company has lesser amount of cash available

for meeting up the current liabilities , but still the ratio is sat isfactory as lastyears is 2.32 :1 i.e. 2.32 rupee of asset is available to pay off 1 rupee debt.

3.35

2.32

0

0.5

1

1.5

2

2.5

3

3.5

4

2009-10 2010-11

Current ratio

Current ratio

Years 2009-10 2010-11

Current

Assets(in

cr.)

3.25 4.58

CurrentLiabilities

(in cr.)

0.97 1.97

sCurrent

Ratio(inpoints)

3.35 2.32


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Quick Ratio:It includes only the cash part of the assets. And hence is also called as Acid-test ratio.

Here Quick Ratio= Quick asset

Current liabilities

Quick asset includes= Cash in Bank / Hand, Debtors receivables and short term

marketable securities prepaid expenses and inventory.

Use: It is a rigorous measure of a firms ability to service short-term liabilities; it is

widely accepted as the best available test of investors in the firm.

Years 2009-10 2010-11

Quick Assets

(Cr.)

3 4.25

Current

Liabilities(Cr.)

0.97 1.97

Quick Ratio

(In Points)

3.10 1.16

3.1

1.16

0

0.5

1

1.5

2

2.5

3

3.5

2009-10 2010-11

Quick Ratio

Quick Ratio


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Interpretation : The standard ratio is 1:1 and it will decresing from 2009-10 to 20010-11,

here it is 1.16:1 which is more than standard it is good to be company.

2. ACTIVITY RATIOSTurnover ratios, also referred as activity ratios or assets management ratios, measure

how efficiently the assets are employed by firm. The important turnover ratios are,

Asset Turnover Ratio:This ratio is also known as the investment turnover ratio. Is based on the relationship

between the COGS and investments of a firm. The ratio however measures the

efficiency of a firm in managing and utilizing its assets. The higher the Turnover ratio

the more is the efficiency.

Fixed Asset Turnover Ratio = Net Sales *100

Net Fixed Assets

Years 2009-10 2010-11

NetSales(Cr.)

4.58 6.06

Net Fixed

Assets(Cr.)

1.09 1.01

Asset

TurnoverRatio(%)

42 60


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Interpretation : The asset/investment has been above increse last year at higher rate

comapre to 2009-10.It show above 60% for last year i.e. above 60% of asset were easily

converted in to COGS. Hence DPC is capable to convert the investments 55-60% into

COGS.

ACCOUNTS RECEIVABLE PERIOD:Is the period in which the customers/debtors pay-back the amount hence.

Its also called as Bills receivables it is in terms of days.

Formula: Accounts receivable period= Total Debtors x 365

Net Sales

42

60

0

10

20

30

40

50

60

70

2009-10 2010-11

Asset Turnover ratio(%)


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Years 2009-10 2010-11

Total

Debtors(Cr.)

1.14 1.09

Net

Sales(Cr.)

4.58 6.06

Accounts

receivable

period(days)

90.85 65.65

Interpretation: The Debtors payable period in days have remain almost of 2 months for

Gacl it has been reduced to 50 days to the current year. For the predicted year it may 51

days.

90.85

65.65

0

10

20

30

40

50

60

70

80

90

100

2009-10 2010- 11

Account's Receivable Period(Days)

Account's Receivable

Period(Days)


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Invetory Turnover ratio:This indicates the number of times inventory is replaced during the year. It measures

the relationship between the COGS and the inventory level.

Formula := Net Sales ( including excise duty recovered)

Average Inventory

Average Inventory = (opening balance+ Closing Balance

Years 2009-10 2010-11

Net Sales(Cr.) 4.58 6.06

Avg Inventory

(Cr.)

0.53 1.89

Average

inventory

Ratio(Times)

8.64 3.21

8.64

3.21

0

1

2

3

4

5

6

7

8

9

10

2009-10 2010-11

Average I ve t ry rati (Times)

Average Inventory ratio(Times)


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Interpretation: Is similar to the Inventory holding period, but it shows the data in terms of

times. Here GACL was able to convert its inventory in COGS 13 times, the ratio is less

compared to previous year because of slow-down in demand and also because of the over-

stocking of chlorine . The predicted ratio for year 2008-09 is set-out to be 14 times

3.LEVERAGE RATIOS:

Financial leverage refers to the use of debt finance. While debt capital is a cheaper

source of finance, it is also a riskier source of finance. Leverage ratios help in

assessing the risk arising from the use of debt capital.

DEBT/EQUITY RATIO:Actually indicates the proportion ofDebt and Equity . i.e. the shareholders fund and

The Debt claims. Its major application is for long-term funding , but while funding

for the working capital Financial Institutions also consider this ratio for various

purposes importance for creditors, owners and firm itself. The higher the ratio is a

bad signal as owners are putting less money.

Debt/Equity= Secured Loans+Unsecured Loans -(secured+ unsecured Debts)

Share Capital+Reserve and Surplus

Years 2009-10 2010-11

Debt(Cr.) 0.03 0.07

Equity(Cr.) 2.99 2.99

Debt/Equity

Ratio(points)

0.01 0.023


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Interpretation: Here the last years ratio was 0.3:1 i.e. for every 0.3 rupee of debt thecompany has 1 rupee of owners capital. Since last 3 years the GACLs Debt funding for

long-term projects has been less as it less that 1(0ne).

INTEREST COVERAGE RATIO:Also known as time interest earned ratio It measures the debt servicing capacity

of a firm in so far as fixed interest on long-term loan concerned.

But it is also used for analysis as it indicates the companys capacity to pay-off the

long-term loan.

The lower the ratio more the company is burden by that expenses. When the interest

coverage ratio is less than 1.5 or lower its ability to meet the expenses may be

questionable and interest Coverage below 1 indicates that company is not generating

sufficient revenue to satisfy interest expense.

Formula: Profit before Interest and Taxation

Interest

0.01

0.023

0

0.005

0.01

0.015

0.02

0.025

2009-10 2010-11

De t/Eq ity ati ( i ts)

Debt/Equity

Ratio(Points)


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Years 2009-10 2010-11

PBIT(Cr.) 0.43 0.52

Interest(Cr.) 0.03 0.04

Interest

Coverage

Ratio(Times)

14.33 13

Interpretation : Here its calculated wrt Times, Hence in 2007-08 15.75 times the GACL was

able to pay-off the Interest.

12

12.5

13

13.5

14

14.5

2009-10 2010-11

Interest Coverage Ratio(Ti es)

I

terest

verage

ati

(Ti

es)


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Interpretation : The Working capital requirement for the year 2007-08 is 2085.27 which

indicates that the net working capital requirement has been reduced because of the last years

unused inventory and cash, also most of the cash is been utilized from internal accruals .

4.PROFITABILITY RATIO

Gross Profit Ratio:Formula:

= Gross Profit * 100

Net Sales

Years 2009-10 2010-11

Gross Profit(Cr.) 0.40 0.31

Net Sales ( Cr.) 4.58 6.06

Gross Profit

Ratio(%)

8.73 5.12

2.28

2.6 1

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2009-10 2010-11

Net W rki g capital( r.)

Net Working capital(Cr.)


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Net Profit RatioFormula:

= Net Profit * 100

Net Sales

Years 2009-10 2010-11

Net Profit(Cr.) 0.40 0.39

Net Sales ( Cr.) 4.58 6.06

Gross Profit

Ratio(Cr.)

8.73 6.44

8.73

5.12

0

1

2

3

4

5

6

7

8

9

10

2009-10 2010-11

Gr ss r fit ati (%)

Gr

ss

r

fit

ati

(

)


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8.73

6.44

0

1

2

3

4

5

6

7

8

9

10

2009-10 2010-11

Net r fit ati (%)

Net Profit Ratio(%)

Documents

Darshan Ratio Analysis