Final Project Ajay

8/8/2019 Final Project Ajay

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1. INTRODUCTION


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1.1 COMPANY PROFILE

Name of the organization

MAA MAHAMAYA CO-OPERATIVE SUGAR FACTORY LTD.

Registration number

D.R./2006/2121 AMBIKAPUR

Land

162 acres

Administration department

Co-operative department Chhattisgarh government

Product

Sugar

Location

Kerta Pumparpur, pratappur, surguja (C.G.)

Work area

All over surguja


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FINANCING PATTERN OF THE COMPANY

For the proposed scheme of Sugar complex, the financing pattern has beenproposed as under:-

N0. Particulars Percentage Amount

I

II

Equity from Promotersa) Individual membersb) Institutional membersState Govt. equity sharecapital

10%

45%

1170.00

5265.00

III Loan from

a) State Govt. b) Financial Institutions

c) Corp. Institutions/ otherinstitutions

45% 5265.00

Total 100% 11700.00

Table 1 Financing pattern of the company


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SUGAR PROJECT OF THE COMPANY

s.no. particulars Unit Parameter

1 Capacity utilization % 85-100

2 Gross season Days 100-160

3 Crushing per season day Day ton 2125-2500

4 Estimated cane crushing Lac. Ton 2.13-4.00

5 Sugar recovery % cane 9.50-11.0

6 Sugar production Lac.qtls. 2.019-4.400

7 Production of molasses % cane 4.5 % cane

8 Bagasse saving % cane 5.5 % cane

Table 2 Detail about sugar project of the company


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1.2DEFINITION AND PURPOSE OF THE PROJECT

1. The main purpose of the project is to find out the financial position of the

company. This helps banks, insurance companies as well as other financial

institutions in assessing a firm before sanction ing any loan to them and for

investors to finds the profitability of a firm.

2. To find out the trend analysis. This trends help in setting future plans and

forecasting, for e.g. Net Profit as expressed as a percentage of sales can be

forecasted on the basis of the past percentage of the same.

4. The study has great significance and provides benefits to various parties

whom directly or indirectly interact with the company.

5. It is beneficial to management of the company by providing crystal clear

picture regarding important aspects like liquidity, leverage, activity and

profitability.

6. The study is also beneficial to employees and offers motivation by showing

how actively they are contributing for companys growth.

7. The investors who are interested in investing in the companys shares will

also get benefited by going through the study and can easily take a decision

whether to invest or not to invest in the companys shares.


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1.3 OBJECTIVE AND SCOPE OF THE PROJECT

The main objectives of the study aimed as:

To evaluate the performance of the company by using ratios as a yardstick to

measure the efficiency of the company. To understand the liquidity, profitability

and efficiency positions of the company during the study period. Evaluate and

analyse various facts of the financial performance of the company and Make

comparisons between the ratios during different periods.

OBJECTIVES

1. To find out the profit pattern of the company over last three years.

2. To know the liquidity position of the company i.e. the ability of the company

to generate cash as and when required.

3. Highlights the long term solvency of the company i.e. the ability of the

company to repay its due as and when required.

4. Find out the efficiency of management and the utilisation of resources

available to the company.

5. Find out whether the financial position of the company is improving or

deteriorating over the years also the trend of the company can be compared with

the past data.

6. To learn the investment pattern of the company.

7. To examine the operations and activities of the company.


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SCOPE OF THE PROJECT

1. Measurement of Performance: To find out the profitability of a firm by

comparing the net profit with various parameters like sales, capital employed,total assets and so on. To find out the liquidity position can by computing ratios

like current ratio and liquid ratio. Solvency can be measured by computing ratio

like the debt equity ratio.

2. Analysis of trend: To find out trend between subsequent years. When

various ratios are computed for a period of say, 03 years, a trend can be

established. For example, Earnings per Share for the previous 03 years show a

definite trend of either moving up or moving down. In some cases, it may also

show a fluctuating trend. Thus, it becomes possible to compare the trend shown

by the firm's ratios with the trend shown by the industry. This comparison can

be an eye opener as it may reveal some important things..

3. Predicting the sickness of a business unit: if the sickness of a unit can be

predicted reasonably accurately, pre ventive measures can be taken to ensure that

the sickness is averted.

4. To find out Long term solvency: A firm has to constantly examine its long

term solvency. Solvency depends upon several things but the most important

factor is the combination between the owned funds and the borrowed funds. If

the proportion of borrowed funds is too high as compared to the owned funds,

there is every possibility that the firm's solvency is in danger. The reason is that

it may become difficult to service the debt and if the interest as well as the

principal repayment obligations is not met, the firm will be caught in a debt

trap. Therefore, the solvency position has been constantly watched..


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5. Overall Profitability: To find out the overall profitability by the Ratios like

the gross profit ratio, net profit ratio, return on capital employed, return on

shareholders, funds, return of total assets are some of the important ratios that

show the overall profitability of the firm.


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2. REVIEW OF LITERATURE


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THEORETICAL FRAMEWORK AND BACKGROUND THEORY

Ratio can be defined as numerical or an arithmetical relationship between two

figures. It is expressed when one figure is divided by the other.

For example, if 4000 is divided by 10000 the ratio can be expressed as 0.4 or

2:5 or 40%.

Ratio analysis is a three step process

(a) Calculate the ratio.

(b) Compare the ratio with a standard ratio applicable to a particular company.

(c) Find the conclusion which is used for decision making & control.

Ratio analysis is done in following 3 ways

(a) Cross rational analysis: - Under this methods the ratios of the company

are compared with other companies for e.g. : - comparing the ratio of Bajaj Auto

with that of Hero Honda Ltd. This method is useful to benchmark our company

with the competitors or industry loaders.

(b) Time Series Analysis: It is the method of comparing the performance of

our company over certain period of time. In this method trends are studies,

which are useful for future planning.

(c) Combined Analysis: In this method the above two methods arecombined & the trends of ratio is compared with some standard over a period of

time.


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Ratio Analysis should under taken only after the following precauti ons-

(a) The period of comparison must be the same.

(b) A accounting company policies must be the same of the companies whose

Ratios are been compared.

(c) A group of ratio should be prepared over a single ratio.

(d) A figure used to calculate ratios must be related to each other.

These are the following ratios which is helpful to find out financial position of

the company and with the help of these ratio management and financial

institution take decision about debt and profitabilit y position of the company.

TYPES OF RATIOS

PROFITABILITY RATIOS:

These ratios give an idea about the profitability of a business firm. Profit

and profitability differ from each other as profit is the difference between

income and expenditure while profitability is measured by comparing the profit

with some other parameter like sales, capital employed, total assets etc. The

ratios falling under this category are usually expressed in percentage. The

following are the ratios under this category:


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1. Gross Profit Ratio:

Gross Profit is the difference between the net sales (sales less sales returns) and

the cost of goods sold. This ratio is calculated with the help of the following

formula:

Gross Profit Ratio: Gross Profit/Net Sales x 100

This ratio shows the margin left after meeting the purchases and manufacturing

costs. It measures the efficiency of production as well as pricing. A high gross

profit ratio means a high margin for covering other expenses like administrative,

selling and distribution expenses, i.e. other than the cost of goods sold.

Therefore, higher the ratio, the better it is. It is also important for a business to

maintain this ratio on a higher side; otherwise it will be difficult to cover other

expenses. A firm should compare its gross profit ratio with the industry average

to find out where it stands. A firm can also compare its own ratio of the past

with the current year's ratio to find out its performance. This is known as intra-

firm comparison.

2. Net Profit Ratio:

This ratio shows the earnings left for shareholders (equity and preference) as a

percentage of net sales. It measures overall efficiency of all the functions

management etc. This ratio is very useful for prospective investors because it

reveals the overall profitability of the firm. Higher the ratio, the better it is

because it gives an idea of overall efficiency of the firm. This ratio is calculated

as follows:

Net Profit Ratio = Net Profit/Net Sales x 100

3. Operating Net Profit Ratio:

This ratio establishes the relationship between the net sales and the operating

net profit. The concept of operating net profit is different from the concept of


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net profit. Operating net profit is the profit arising out of business operations

only. This is calculated as follows:

Operating net profit - Net profit + Non-operating expenses-non-operating

income.

Alternatively, this profit can also be calculated by deducting only operating

expenses from gross profit. This ratio is calculated with the help of the

following formula.

Operating Net Profit Ratio = Operating Net Profit/Sales x 100

4. Operating Ratio:

This ratio is reciprocal to the operating net profit to sales to ratio. The cost of

goods sold + Operating expenses are compared to net sales. Non operating

expenses and non-operating incomes are excluded from this ratio. The

calculation of this ratio is as follows.

Operating Ratio - Cost of goods sold + operating expenses/Net sales x

100

5. Return On Capital Employed:

This ratio indicates the percentage of net profits before interest and tax to total

capital employed. The capital employed is calculated as follows.

Capital employed = Equity Capital+ Preference Capital + Reserves and

Surplus + Long Term Debt-Fictitious Assets

This ratio is calculated as follows,

Return on Capital Employed + Net Profit before Interest and Tax/Capital

Employed x 100


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This ratio is considered to be a very important one because it reflects the overall

efficiency with which capital is used. The ratio of a particular business should

be compared with other business firms in the same industry to find out the exact

position of the business.

6. Return On Equity:

This ratio, also known as return on shareholders funds or return on proprietor's

funds or return on net worth, indicates the percentage of net profit available for

equity shareholders to equity shareholders funds. In other words, this ratio

measures the return only on equity shareholders funds and not on total capital

employed.

The formula for calculation is as follows:

Return on equity = Net profit after interest, income tax and preference dividend

if any/Equity shareholders funds x 100

Note: Equity shareholders funds = Equity capital + Reserves and surplus

This ratio indicates the productivity of the owned funds employed in the firm.

However, in judging the profitability of a firm, it should not be overlooked that

during inflationary periods, the ratio may show an upward trend because the

numerator of the ratio represents current values whereas the denominator

represents historical values.

7. Return on Total Assets:

This ratio compares the net profit after tax with the total assets. The formula for

calculation of this ratio is as follows:

Return on Total Assets = Net Profit after Tax/Total Assets x 100


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8. Earnings per Share:

This is one of the important indicators of performance of a company. Earning

per share indicates the amount of profit available for distribution amongst the

equity shareholders. This ratio is calculated as shown below:

Earnings per Share: Net Profit after Interest, Income tax and Preference

Dividend/Number of Equity Share

As mentioned above, EPS is one of the important criteria for measuring the

performance of a company. If EPS increases, the possibility of a higher

dividend per share also increases. However, the dividend payment depends on

the policy of the company. Market price of shares of a company may also show

an upward trend if the EPS is showing a rising trend. However, it should be

remembered that EPS of different companies may very from company to

company due to the following different practices by different companies

regarding stock in trade, depreciation, source of rising finance, tax-planning

measures etc.

9. Price Earnings Ratio:

This ratio is calculated with the help of the following formula:

Price Earnings Ratio =Market Price per Equity Share/EPS

10. Dividend Payout Ratio:

EPS described the amount of profit available for equity shareholders. Dividend

Payout Ratio indicates the percentage of profit distributed as dividends to the

shareholders. A higher ratio indicates that the organization is following a liberal

policy regarding the dividend while a lower ratio indicates a conservative

approach of the management towards the dividend. The ratio is calculated as

shown below:

Dividend Payout Ratio = Dividend per Share/EPS x 100


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11. Dividend Yield Ratio:

This ratio compares the dividend per share with the market price of the share.

The formula for calculation is as follows:

Dividend Yield Ratio = Dividend per Share/Market Price per Share x 100

This ratio is very important for investors who purchase their shares in the open

market. They will evaluate their return against their investment, i.e. the market

price paid by them. The higher the ratio, the more attractive are their

investments.

TURNOVER RATIOS:

These ratios are also known as activity ratios or asset management ratios.

These ratios are very important for a business concern to find out how well the

facilities at the disposal of the concern are being used. These ratios are usually

calculated on the basis of sales or cost of goods sold. High turnover ratios

indicate better utilization of resources. The important turnover ratios are

discussed below.

1. Working Capital Turnover Ratio:

This ratio compares the net sales with net working capital of the business firm.

The indication given by this ratio is the number of times working capital is

turned around in a particular period. The ratio is calculated with the help of the

following formula:

Working Capital Turnover Ratio = Net Sales/Net Working Capital

* Net Working Capital = Current Assets-Current Liabilities.

The higher this ratio, the better is the utilization of the working capital and also

indication of lower working capital. However, a very high working capital

turnover ratio is a sign of over trading and a firm may face shortage of working

capital. A firm should compare this ratio with the ratio of other firms in the

same industry and also with the industry average to find out its position as


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compared to other firms. Similarly, an intra-firm comparison will also help to

find out the comparative performance of the firm.

2. Debtors Turnover Ratio:

One of the important decisions regarding financial management is about the

credit to be granted to the customers. There should be a well defined credit

policy, which should be followed carefully by a firm. The credit policy followed

by a firm is indicated by this ratio. This ratio is calculated with the help of the

following formula:

Debtors Turnover Ratio = Credit Sales/Average Accounts Receivables.

Average Accounts Receivables = Opening Balance of Debtors + Closing

Balance of Debtors/2 and Opening Balance of Bills Receivables + Closing

Balance of Bills Receivable/2.

The higher this ratio, lower is the collection period. On the other hand, a lower

ratio indicates higher collection period. The average collection period as shown

by this ratio should be compared with the credit period planned by the firm. If it

is more than the credit period planned by the firm, it should be analysed

carefully. It may mean efficient credit management or excessive conservatism

in credit granting, which may result in some loss of sales. On the other hand, if

the average collection period as indicated by this ratio is less than the credit

planned by the firm, it indicates that the credit policy by the firm is not that

efficient and hence, the firm may face liquidity crunch and therefore it needs to

be tightened.

3. Creditors Turnover Ratio:

Creditors Turnover Ratio indicates the credit period allowed by the creditors to

the firm. In other words, it is exactly opposite the above ratio. The formula for

calculation is as follows:

Creditors Turnover Ratio: Credit Purchases/Average Accounts Payable*


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* Average Accounts Payable: Opening Balance of Creditors + Closing Balance

of Creditors/2 and Opening Balance of Bills Payable + Closing Balance of Bills

Payable/2

A high turnover ratio indicates that the payment to creditors is quite

prompt but it also implies that the firm is not taking full advantage of the credit

allowed by the creditors. A lower ratio indicates that there is not much

promptness in the payment made to creditors and needs to be improved.

4. Inventory/Stock Turnover Ratio:

This ratio establishes a relationship between the cost of goods sold during a

given period and the average amount of inventory held during that period. The

indication given by this ratio is the number of times the finished stock is turned

over during a given accounting period. The ratio is calculated in the manner

given below:

Inventory/Stock Turnover Ratio = Cost of Goods Sold/Average Inventory

during that period*

* Average Inventory = Opening Inventory + Closing Inventory/2

Higher this ratio, the better it is because it shows rapid turnover of stock and

consequently shorter holding period. On the other hand, if this ratio is lower, it

will indicate that stock is slow moving and there is a longer holding period.

5. Fixed Assets Turnover Ratio:

This ratio indicates the amount of sales realized per rupee of investment in

fixed assets. Fixed assets are those assets, which are not acquired for re-sale. In

other words, they are meant for utilization in the business for the purpose of

improving its earning capacity whether this purpose is being fulfilled or not is

indicated by this ratio. The formula for calculation of this ratio is as follows:

Fixed Assets Turnover Ratio = Net Sales*/Net Fixed Assets**


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* Cost of goods sold may be taken in place of sales

* Net Fixed Assets = Cost-Depreciation

This ratio is more important for manufacturing concerns, if as it indicates the

utilization of fixed assets. As mentioned above, fixed assets are acquired

basically for improving the earning capacity of the busines s. However, it is

important to find out whether this purpose is fulfilled or not. This ratio is one of

the indicators of the same. A high ratio indicates higher amount of sales

generated per rupee of investment in fixed assets. A lower ratio indicates lowe r

sales per rupee of fixed assets and hence the investments in fixed assets are not

justified.

6. Sales to Capital Employed:

This ratio is also known as Capital Turnover Ratio and indicates sales per rupee

of capital employed. The formula for this ratio is as given below:

Sales to Capital Employed = Net Sales/Capital Employed*

*Capital Employed = Shareholders Funds + Long Term Liabilities.

Higher the ratio, the better it is as it will indicate better utilization of capital

employed, which will result in higher amount of turnover. However, a low

turnover ratio will indicate lower utilization of capital employed in making

sales.

FINANCIAL RATIOS:

As the name suggests, these ratios are calculated to judge the financial

position of a business firm from the long term as well as the short term angle.

The following ratios are included in this category.

As the name suggests, these ratios are calculated to judge the financial position

of a business firm from the long term as well as the short term angle. The

following ratios are included in this category.


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1. Current Ratio:

This ratio is calculated by dividing current assets by current liabilities. Current

ratio is also known as solvency ratio as it indicates how the expected current

claims are covered by current assets.

This ratio is calculated with the help of the following formula:

Current Ratio = Current Assets*/Current Liabilities**

*Current Assets mean assets, which have been purchased in order to convert

them into cash or into other current assets within a period of normally one year.

These assets include cash and bank balance, short term investments, bills

receivable, debtors, short term loans, invent ories and pre-paid expenses.

**Current Liabilities means liabilities with a short term duration, which is

normally up to one year from date of creation and are paid out of existing

current assets or by creating a new current liability. These liabilities include,

bank overdraft, bills payable, creditors, provision for taxation, outstanding

expenses, unclaimed dividends, short-term loans, outstanding interest, advance

payment received and portion of a debt expected to mature within a period of

one year.

This ratio indicates the coverage of current assets to the current liabilities. In

other words, it indicates the proportion of current assets available for meeting

the current liabilities. Normally it is expected that the current ratio should be

2:1, which indicates that current assets should be twice as compared to the

current liabilities. However, for proper inference the composition of current

assets should not be overlooked. If a majority of current assets are in the form of

inventories, which is the least liquid current asset, even a 2:1 ratio will not

indicate the favourable position. Similarly, a very high current ratio will not

indicate a favourable position as it means that there is an excessive investment

in current assets is made. This will result in decrease in profitability due to

blocking of large funds in working capital.


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2. Liquid/Quick/Acid Test Ratio:

This ratio is a better tool to measure the ability to day-to-day commitments. It

is the ratio between the liquid assets and liquid liabilities. From the Balance

Sheet, liquid assets are calculated by deducting inventories and prepaid

expenses from current assets. Liquid liabilities are current liabilities less bank

overdraft. The formula for calculation of this ratio is as follows:

Liquid Ratio = Liquid Current Assets/Liquid Liabilities

The ideal liquid ratio is considered to be 1:1, which means that liquid current

assets should be equal to the liquid current lia bilities. This ratio indicates

whether the firm has the ability to pay its short-term liabilities or not.

3. Debt-Equity Ratio:

This ratio is calculated to measure the comparative propor tion of borrowed

funds and shareholders funds invested in the firm. A firm raises funds through

owned funds, which are also called as shareholders funds, or proprietors funds

as well as borrowed funds. The proportion between these two sources should be

properly balanced; otherwise the firm may face problems. This ratio indicates

this proportion and is calculated as shown below:

Debt-Equity Ratio = Long Term Debt/Shareholders Funds*

*Shareholders funds = Share capital + Reserves and Surplus

Ideally this ratio should be 2:1, which means that debt can be twice as

compared to the owned funds. A ratio less than 2:1 will indicate that the firm is

not taking any risk and is mainly using shareholders funds for financing its

requirements. However, if this ratio is above 2:1, it will indicate that the firm is

using mainly borrowed funds to finance its requirements. This may prove to be

more risky in the future and hence a firm should keep a constant watch on this

ratio.


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4. Proprietary Ratio:

It is primarily the ratio between the proprietor's funds and total assets. This ratio

is calculated with the help of the following formula:

Proprietary Ratio: Proprietor's Funds/Total Assets

This ratio indicates the proportion of proprietor's funds used for financing the

total assets. As a very rough measure, it is suggested that 2/3rd to 3/4th of the

total assets should be financed through the proprietor's funds while the balance

may be financed through borrowings. A high ratio will indicate high financia l

strength but a very high ratio will indicate that the firm is not using external

funds adequately.

5. Current Assets to Fixed Assets:

This ratio shows the proportion of current assets to fixed assets. As described in

current ratio, current assets are held for converting them into cash in a short

period of time while fixed assets are held for long -term purposes, i.e. to enhance

the earning capacity of the firm. This ratio indicates the proportion betw een the

two and is calculated with the help of the following formula

Current Assets to Fixed Assets = Current Assets/Fixed Assets


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Table 3 various ratios and their significance

Ratio formula significance

(A) Activity/

Turnover ratio

1. Inventory turnover

ratio

2. Debtors turnover

ratio (DTR)

3. Working capital

turnover ratio

Sales or COGS/average

or closing inventory

Credit sales/sundry

debtors

Sales/working capital

1. If this ratio is

more then one which

means company is

having high efficiency in

inventory management.

1. If this ratio is high

which means the credit

period is low.

2. This ratio reflects the

credit policy of the

company and the

efficiency of its

collection department

from its customers.

1. W.C of company

depends upon its

turnover.

2. Higher the turnoverhigher should be the

W.C.

3. When the company

maintain this ratio high

its means that it achieves


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4. Fixed Assets

turnover ratio

5. Capital turnover

ratio (CTR)

(B) liquidity ratio

1. current ratio

Sales/net fixed assets

Sales/

Capital employed (equity

+ reserve + pref. +

debenture + long turnloan)

or

net fixed assets +

net current assets

current assets/ current

liabilities

its sales target with

minimum W.C. it also

reflects the W.C.

management of the

Company.

1. The management

should try to maintain

this ratio equals to one

which means that the

fixed asset of the

company are beingutilised efficiently by the

mgmt.

1. The Management

is expected to utilize the

capital employed in the

business as profitable aspossible.

1. Idle ratio is 2.

2. Banks accepts ratio of

1.33 for granting

working capital loans.

3. If this ratio is very


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2. liquid ratio or quick

ratio

(C) solvency ratio

1.debt-equity ratio

2.Interest coverage

ratio

Current assets-

(prepaid expenses and

balance stock)/ current

liabilities-(bankoverdraft)

Long term debts/equity +

reserve+ preference

capital

EBIT/

interest on loan

high it means that the

current assets are more

required.

4. If this ratio is too low,

it means that the

company is low on

liquidity.

1. Idle ratio is 1.

2. If the ratio is too high

it means the cash is lying

idle. If the ratio is toolow it will give rise to

liquidity problem.

1. It shows the solvency

of the company.

2. Higher the ratio, lowerthe solvency.

3. Lower the ratio, higher

the solvency.

4. It shows the company

dependence on borrowed

funds.

1. It shows the

capability of the

company to pay interest.

2. Bank and financial

institutions take their

decision on the basis of


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3. Debt service

coverage ratio (DSCR)

(D) Profitability

Ratio

1. gross profit ratio

2. Operation profit

ratio

EAT + Depreciation +

interest/

Principle + interest

Gross profit x 100/sales

Sales-operation

expanses/sales x 100

this ratio.

3. Higher the ratio

greater is the assurance

to bank and financial

institution for interest

recovery.

1. Bank calculates

DSCR for the period

during which the loan is

repaid able.

2. Generally a ratioof 1.5 to 2 is considered

satisfied.

1. When this ratio goes

down the purchase and production activities

need to be looked into

and the purchase and

production manager are

held responsible.

1. This ratio

highlights the operating

efficiency of the

company.


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3. Net profit ratio

4. Return on

investment or return on

capital employed

(E) Investibility ratio

1. earning per share

(EPS)

EAT/sales x100

EAT x 100/

Sales or

EAT x Sales/ x 100

Sales, Cap. employed

EAT-pref dividend/

No. of equity share

1. It shows the

overall efficiency of the

company.

2. This ratio

indicates how much

amount is available to

the equity share holder.

3. If this ratio is high

it means that the total

expenses of the business

are low.

1. It shows the

overall efficiency of the

company.

2. Higher the ROI means

overall management ofthe company is efficient

and effective

1. It shows the

earning power of the

company.

2. Investor would


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2. Dividend per share

(DPS)

3. Dividend payout

ratio

4. Retention Ratio

5. Price earning Ratio

(P/E Ratio)

Total dividend Amt./

no. of equity share

DPS/

EPS

1- Dividend payout ratio

Mark. price per share/

earning per share

like to invest in that

company which have a

high EPS.

1. It shows the

dividend policy of

company.

1. It shows the Amt.

of dividend that the

company is going to

distribute out of total profit available to the

equity shareholders.

1. It shows the policy

of the company towards

the reserves.

2. When the

retention ratio is high itmeans that the wants to

create more and more

reserve for its expenses

for its expansions and

diversification plan.

1. Higher the P/E

ratio more is the share

price. Generally such

share will be preferred


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6. Dividend yield Ratio DPS/

MRKT Price per share

by investor in booming

market Condition and in

anticipation of further

market growth.

1. The investors

decide the Amount of

earning that they should

earn from their

investment therefore theystudy the dividend yield

for different shares.


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3. RESEARCH METHODOLOGY


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Method of Research

Exploratory and constructive research has been followed in this project.

Firstly, I have identified the problems of the company which is related to profit,

investment pattern, operational activity and sales. Then find the causes of the

problem and give the suggestion according to the problem.

Objective of the research

1. To find out the profit and investment pattern of the company.

2. To find out the liquidity and solvency position of the company.

3. To find the feasibility of operational activities.

Data type

Primary and secondary data.

I have used secondary data for project research. The secondary data was

collected from the progress report and financial statement of last 3 years of the

company which was provided by the finance department of the company.


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Data collection procedure

The procedure

Step I - Progress report and financial statement of last 3 years was given by the

company.

Step II The data was further analysed by using the tool like ratio analysis.

Step III After analysing the ratios, interpreted the ratios and finally gave the

recommendation and c onclusion.

The area of data collection

Finance department of the company.

The presentation of data

Table and column chart.


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4.RESULT AND INTERPRETATIONS


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34

4.1 DETAILS ABOUT THE OUTCOME OF THE RESEACH

Table 4 outcome of the project on the basis of final statement

Particulars 2007 2008 2009

Sales 50000000 65000000 80000000

Gross profit 10000000 15000000 20000000

Net profit before interest and

tax

9925744 10896885 21760471

Current assets 9686432 17312959 40397604

Current liabilities 500000 5000000 25270814

Fixed assets 7943912 152617600 745347042

Long term debts. ---- ----- 423000000

Short term debts. ---- 4263051 14872806

Interest ---- ------- 15263014

EBT 9925744 10896885 6497457

Taxes 2977723 3269066 1949237

EAT 6948021 7627819 4548220

Equity capital 7204600 300495844 428348308

No. of equity share 720460.0 30049584.4 42834830.8


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35

4.2 DATA ANAL AND DATA INTE ETATION OF

RE LT

Rati

T are the followi ratio whi h i hel ful for fi i the fi ancial

position of the company.

1. Gross profit ratio

Gross profit rati ross profit/ net sales*100


Sales 50000000 65000000 80000000

Gross profit 10000000 15000000 20000000

Ratio 20 23 25

Table 5 calculation of gross profit ratio

Graph 1 trend of gross profit

20

23

2

0

5

10

15

20

25

30

2007 2008 2009

gross profit ratio

ratio


36/70

36

Interpretation

A high gross profit ratio means a high margin for covering other expenses like

administrative, selling and distribution expenses, i.e. Other then the cost of

goods sold. Therefore, higher the ratio, the better it is. . It is also important for abusiness to maintain this ratio on a higher side; otherwise it will be difficult to

cover other expenses. A firm should compare its gross profit ratio with the

industry average to find out where it stands. A firm can also compare its own

ratio of the past with the current year's ratio to find out its performance. This is

known as intra-firm comparison. Here gross profit ratio continuously increasing

over the period. It shows that if company sales their product in large scale, cost

of good sold is decreased and it may be because of less raw material and

variable cost.


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37

2. Net profit ratio

Net profit ratio = net profit/ sales *100

Parti lar 2007 2008 2009

Sales 50000000 65000000 80000000

Net profit 6948021 7627819 4548220

ratio 13.89 11.73 5.68

Table 6 calculation of net profit

Graph 2 trend of net profit

Interpretation

This ratio is very useful for prospective investors because it reveals the overallprofitability ofthe firm. Hi herthe ratio, the betteritis because it gives an i ea

of overall efficiency ofthe firm. In 2007 net profit ratio is high because of zero

interest and less operating expenses. In 2009 net profit ratio is less because of

high interest amount and other expenses.

0

2

4

8

10

12

14

2007 2008 2009

13.89

11.73

5.

8

net profit ratio

ratio


38/70

38

3. Return on capital employed ratio

Return on capital employed = earning before interest and tax /capital employed

*100

Capital employed = equity capital + preference capital + reserves and surplus+long term debt fictitious assets

particulars 2007 2008 2009

EBIT 9925744 10896885 21760471

E uity capital 7204600 300495844 428348308

Long term debts. ---- ----- 423000000

ratio 137.76 3.62 2.55

Table 7 calculation of return on capital employed ratio

Graph 3 trend of return on capital employed ratio

Interpretation

This ratio is considered to be a very important one because it reflects the overall

efficiency with which capitalis used. The ratio of a particular business should

be compared with other business firms in the same industry to find outthe exact

position ofthe business. In 2007 return on capital employed ratio is high

0

20

40

60

80

100

120

140

2007 2008 2009

137.76

3.62 2.55

return on capital employed

ratio


39/70

39

because there was no borrowing and less equity capital. In 2008 ratio is less

because there was no borrowing funds but company has employed more equity

capital. In 2009 ratio is very less because of high borrowed fund and more

equity capital employed.


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40

4. Return on equity

Return on equity = EAT/ equity shareholders funds* 100


EAT 6948021 7627819 4548220

Equity capital 7204600 300495844 428348308

ratio 96.43 2.53 1.06

Table 8 calculation of return on equity ratio

Graph 4 trend of return on equity ratio

Interpretation

This ratio indicates the productivity ofthe owned funds employed in the firm.However, injudging the profitability of a firm, it should not be overlooked that

during inflationary periods, the ratio may show an upward trend because the

numerator ofthe ratio represents current values whereas the denominator

represents historical values. In 2007 return on equity is very high because of

high profit and less equity capital. In 2008 and 2009 ratio is very low because of

less profit and more equity capital employed.

0

20

40

60

80

100

2007

2008

2009

96.43

2.53

1.06

return on equity

ratio


41/70

41

5. Return on total assets

Return on total assets = net profit aftertax /total assets *100


EAT 6948021 7627819 4548220

Total assets 17630344 320655780 977139664

ratio 39.40 2.37 0.46

Table 9 calculation of return on total assets

Graph 5 trend of return on total assets

Interpretation

Return on assets should be high because it shows the company position on

market and further action might be taken according to this ratio. So it should be

high which shows the strong financial position ofthe company. In 2007 returnon total assets is very high because whether company has utilized fixed assets

more efficiently or operating expenses is very low. In 2008 and 2009 ratio is

very low because total assets is very high as proportion to net profit, it means

whether company has not been utilizing assets efficiently or operating expenses

is high.

39.4

2.37

0.46

0

5

10

15

20

25

30

35

40

45

2007 2008 2009

return on totalassets

ratio


42/70

42

6. Working capital turnover ratio

Working capitalturnover ratio = net sales / net working capital (CA-C


Net sales 50000000 65000000 80000000

Current assets 9686432 17312959 40397604

Currentliabilities 500000 5000000 25270814

Working capital 9186432 12312959 15126790

ratio 5.44 5.27 5.28

Table 10 calculation of working capital turnover ratio

Graph 6 trend of working capital ratio

Interpretation

The higherthis ratio, the better is the utilization ofthe working capital and also

indication of lower working capital. However, a very high working capital

turnover ratio is a sign of overtrading and a firm may face shortage of working

capital. In 2007 it shows highest percentage of working capital ratio because

5.15

5.

5.

5

5.

5.

5

5.

5. 5

007

008

009

5.

5.

75.

8

working capitalratio

ratio


43/70

43

company has less current liabilities. But in 2008 and 2009 it shows

comparatively less percentage because sales have not been increased as

proportion to working capital. But it is good for company because higher ratio

can be causes for shortage of working capital.


44/70

44

7. Fi ed assets turnover ratio

Fixed turnover ratio = net sales / net fixed assets


Sales 50000000 65000000 80000000

Fixed assets 7943912 152617600 745347042

ratio 6.29 0.42 0.10

Table 11 calculation of fi ed turnover ratio

Graph 7 trend of fi ed turnover ratio

Interpretation

This ratio is more important for manufacturing concerns as it indicates the

utilization of fixed assets. Fixed assets are acquired basically forimproving the

earning capacity of the business. However, it is important to find out whether

this purpose is fulfilled or not. This ratio is one ofthe indicators ofthe same. A

0

1

2

3

4

5

7

2007 2008 2009

.29

0.42

0.1

fixed assetsturnoverratio

ratio


45/70

45

high ratio indicates higher amount of sales generated per rupee of investment in

fixed assets. A lower ratio indicates lower sales per rupee of fixed assets and

hence the investments in fixed assets are not justified. Here, in 2007 fixed assets

turnover is very high because company has utiliz ed fixed assets more efficiently

but in 2008 and 2009 it came down. In 2008 and 2009 fixed has been more

employed but sales did not increase. it shows that fixed assets has not been used

more effectively for manufacturing.


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46

8. Sales to capital employed ratio

Sales to capital employed = sales/ capital employed

Capital employed = shareholders funds + long term liabilities


Sales 50000000 65000000 80000000

Shareholders funds 7204600 300495844 428348308

Long term liabilities ---- ----- 423000000

ratio 6.94 0.21 0.10

Table 12 calculation of sales to capital employed ratio

Graph 8 trend of sales to capital employed ratio

Interpretation

Higher the ratio, the better it is as it will indicate better utilization of capital

employed, which will result in higher amount of turnover. However, a low

turnover ratio will indicate lower utilization of capital employed in making

sales. Here, in 2007 there was less shareholders fund and no long term debts so

6.94

0.

1 0.1

0

1

3

4

5

6

7

8

007

008

009

sales to ca ital employe

rati s


47/70


48/70

48

9. Current ratio

Current ratio = current assets / currentliabilities


Current assets 9686432 17312959 40397604

Currentliabilities 500000 5000000 25270814

ratio 19.37 3.45 1.59

Table 13 calculation of current ratio

Graph 9 trend of current ratio

Interpretation

This ratio indicates the coverage of current assets to the currentliabilities. In

other words, itindicates the proportion of current assets available for meeting

the currentliabilities. Normally itis expected thatthe current ratio should be

one. very high current ratio will notindicate a favourable position as it means

0

2

4

6

8

10

12

14

16

18

20

2007 2008 2009

19.37

3.45

1.59

currentratio

ratio


49/70

49

that there is an excessive investment in current assets is made. This will result in

decrease in profitability due to blocking of large funds in working capital.

Here, in 2007 company blocked their capital in current assets excessively.

Comparatively ratio is good in 2008 and 2009 it means company utilized

working capital efficiently.


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50

10. Current assets to fi ed assets

Current assets to fixed assets = current assets/ fixed assets


Current assets 9686432 17312959 40397604

Fixed assets 7943912 152617600 745347042

ratio 1.21 0.11 0.05

Table 14 calculation of current assets to fi ed assets ratio

Graph 10 trends of current assets to fi ed assets ratio

Interpretation

This ratio shows the proportion of current assets to fixed assets. As described incurrent ratio, current assets are held for converting them into cash in a short

period oftime while fixed assets are held forlong-term purposes, i.e. to enhance

the earning capacity ofthe firm. Here we can see the pattern of ratio is declining

over 2007 to 2009 because company has invested more funds toward fixed

assets. It means the earning capacity ofthe company is going down in same

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2007 2008 2009

1.21

0.11

0.05

currentassetstofixed assets

ratio


51/70

51

pattern. So the company has to utilise fixed assets more effectively so that the

earning capacity of the company can be increased.


52/70

52

11. Debt-equity ratio

Debt-equity ratio = long term debt/ equity + reserve + preference capital


Long term debt ---- ----- 423000000

Equity 7204600 300495844 428348308

ratio 0.00 0.00 0.98

Table 15 calculation of debt- equity ratio

Graph 11 trend of debt equity ratio

Interpretation

Debt-equity ratio shows the solvency ofthe company. Higherthe ratio lowers

the solvency and lowerthe ratio higherthe solvency. It shows the company

depends on borrowed funds. It should be one that means company is in good

position to repay the loans. It shows the financial position ofthe company.

Here, in 2007 and 2008 the debt-equity ratio is 0 thats Means Company has not

borrowed any funds from market and itis using their own funds and they dont

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2007 2008 2009

0 0

0.98

debt-equityratio

ratio


53/70

53

have to pay loan. In 2009, it shows 0.98% that means capital has less capital

fund for payment of debt.


54/70

54

12. Interest coverage ratio

Interest coverage ratio = EBIT/ Interest on loan


EBIT 9925744 10896885 21760471

Interest on loan ---- ------- 15263014

ratio 00.00 00.00 1.42

Table 16 calculation ofinterest coverage ratio

Graph 12 trend ofinterest coverage ratio

Interpretation

It shows the capacity of the company to pay interest. Bank and financialinstitutions take their decision on the basis of this ratio. If ratio is high it is

surety to bank and financial institutions for interest recovery. Here there is no

loan in 2007 and 2008. In 2009 ratio is 1.42 it means company has good

position to repay the loan.

0 0

1.42

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2007 2008 2009

Interest coverage ratio

ratio


55/70

55

5. CONCLUSION

1. If accounting ratios are calculated for a number of years, a trend can be

established. This trend helps in setting future plans and forecasting, for e.g. Net

Profit as expressed as a percentage of sales can be forecasted on the basis of the

past percentage of the same.

2. The overall Performance of the company was good in year 2007 because of

less loan and good operating activity but in 2008 and 2009 the performance of

the company is not good due to high borrowed funds and poor management.

3. Production and selling department is not performing good thats why

company require more inventory and working capital.

4. Current ratio should be one but current ratio of the company is very high over

the period it means company has blocked their capital in inventory excessively.

7. Company has invested more funds towards fixed capital and it has not been

utilizing efficiently and sales were not increased as proportion to capital

employed over the period.


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56

6. LIMITATIONS

Limitation of the research

1. One of the serious limitations of the project is that company has been running

for last 4 or 5 years so it is difficult to find out exact financial position of the

company.

2. Another limitation of the study was lack of availability of ample information.

Most of the information has been kept confidential and as such as not assed asart of policy of company.

3. Time is an important limitation. The whole study was conducted in a period

of 60 days, which is not sufficient to carry out proper interpretation and

analysis.


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57

7. RECOMMENDATION

1. Net profit ratio is continuously decreasing over the period and other hand

gross profit ratio is continuously increasing over the period it means operatingand administration expenses is very high so company has to minimize these

expenses.

2. Debt. Equity ratio shows the solvency of the company. Higher ratio, lower

solvency. Lower ratio, higher solvency. It shows the companys dependence on

borrowed funds. Debt- Equity ratio should be 1. Here, debt equity ratio in 2007

and 2008 is zero it means company has no debts so we can say that it shows

higher solvency and in 2009 it is 0.98 it means debts is higher then equity

capital so company should maintain it equal s to one .

3. Fixed assets turnover ratio is very low in 2008 and 2009 so company should

utilize fixed assets efficiently so that sales can be increased.

4. Return on investment shows the overall efficiency of the company . Return oninvestment is good in 2007 but it is very less in 2008 and 2009 its means

company should try to increase sales or reduce expenses.

5. Company has invested excessively towards current assets it means company

blocked their money in inventory or working capital so company should try to

maintain their current assets.


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58

ANNEXURE

Maa mahamaya co-operative sugar factory

Profit & loss statement

Year 2006-07

particular Amt.{Rs.} Particulars Amt

{Rs.}

Purchase

Wages

CarriagesGross profit

Office stationary

project report fees

Rent of link office

Encouragementexpenses

services tax

bank commission

vehicle expenses

typing expenses

expenses for welcome

of guests

Travelling & otherexpenses

postage expenses

35000000

2500000

250000010000000

50000000

28236

65000

13500

2134

7956

216

1760

5161

3817

39251

1645

Sales

Gross profit

Entry fee received

Interest received on saving

A/C

50000000

50000000

10000000

78300

16120


59/70

59

net profit 9925744

10094420 10094420


60/70

60


Balance sheet

0n 31.03.07

Liabilities Amt.(rs). Assets Amt .(rs.)

Partners capital A/c

7204600

(+)net profit 9925744

Current liabilities

17130344

500000

Fixed assets

Current assets --

Advance A/c[employee]

30000

(-) 28500

others

Co-operative bank A/c

7299020

(-) 170176

7943912

1500

2556088

7128844

17630344 17630344


61/70

61



Year 2007-08

Particular Amt.(rs.) particular Amt.(rs.)

Purchase

Wages

Material overheads

Carriage

Other direct expensesGross profit

Entry fee

link office rent

stationary

labour (computer)

Project report fee

service tax

Bank search charges

vehicle expenses

(Petrol & other)

typing & photocopy

sundry expenses

magazine fee

inauguration expenses

bank processing charges

bank guarantee commission

Nivida expenses

25000000

10000000

5000000

5000000

500000015000000

65000000

2500

4500

41755

19000

65000

7956

2800

7700

2098

2735

1600

638311

300000

11250000

88702

Sales

Gross profit

Entry fee

Interest received or

saving A/C

sales of nivida form

65000000

65000000

15000000

2900

157096

10366009


62/70

62

maandai

Bank commission

salary

Plant & land test fee

environment control

committee fee

electricity expenses

Stamp charges for land

purchase

Advertisements exp

Travelling & other

expensesNet profit

4000

7116

88614

51490

200000

561779

31649

1023844

22597110896885

25526005 25526005


63/70

63


Balance sheet

On 31.03.08

Liabilities Amt.(rs.) assets Amt.(rs.)

Partner's

Capital A/C

(i) Personal

17130344

(+) 13365500(+)net profit 10896885

41392729

(ii) State govt.

270000000

Security Deposit :-

(i)Urgent money deposit

A/C 4200000(ii)S.D. discount deposit

A/C 22481

(iii)Income tax/TDS

Discount deposit

10570

(iv)Advance discount

deposit 30000

311392729

4263051

Security deposit at

Bank

(i) Co-operative bank

saving A/C No. 1253

7128844(+) 288120887

= 295249731

(-) 147502002

= 147747729

(ii) Apex bank saving

A/C Raipur 1000

(iii) SBI, current A/C

Ambikapur 21525

(iv) SBI, fix deposit A/C

Ambikapur 2500000

(v) Co-operative bank

saving A/C No. 1257

Ambikapur 500

150270754


64/70

64

Current liabilities 5000000

Investment in share

Capital

(i) Share purchased of

national co-operative

sugar factory, new Delhi

10000

(ii) Share purchased of

I.E.S. New Delhi

20000

Security deposit at

other department(i)Commercial tax

department Ambikapur

20000

(ii)electricity board C.G.

404467

Current assets--

others

Advance A/C

(employee)

1500

(+) 281330

=282830

(-)226637

Ded stock A/c

Cash

30000

424467

17215322

56193

20550

20894


65/70

65

Fixed assets---

vehicle A/C

Land A/C

Plant and machinery a/c

1253347

341700

151022553

320655780 320655780


66/70

66



Year 2008-09

particulars Amt. particulars Amt.

Purchase

WagesCarriage

Other direct expensesGross profit

Salary

Employees travellingallowance & others

Office stationary

Telephone expensesVehicle expenses(fuel)

Vehicleexpenses(repairs)

Guest house expenses

Postage expensesOther expenses

Advertisement expensesBank commission

Tact expenses

Guest house rentexpenses

Vehicle insurancecharges

Emergency expensesAdvertisement expensesElectricity processing

30000000

200000007500000

250000020000000

80000000

1501464

158703

62975

28976101421

27296

3949

4160125102

231167610353

4000

18276

19170

846110125

Sales

Gross profit

Entry feeInterest received on

saving a/c

Sale of nivida form

Other incomes

80000000

80000000

20000000

1300

5281340

9000

1481551


67/70

67

chargesElectricity expenses

Net profit

5000611613

21760471

26773191 26773191


68/70

68

MAA MAHAMAYA CO-OPERATIVE SUGAR FACTORY

BALANCE SHEET ON

YEAR ENDING 31.03.09

Liabilities Amt. assets Amt.

Partners capital

Personal 53483308(+)net profit 21760471

State govt 423000000

Security deposit

Govt. loan

Other deposit

Security timelycommissioning

Retention money

Royalty money

E.D. for delay

Performance securitydeposit

Liquid damage money

S.D. discount deposit

Income tax discount

Land from sub co-operative department C.G.

Current liabilities

Bills payable

498243779

4405000

423000000

400920

194304

1170418

1269699

744105

228000

6447093

13267

15752265

7800

Security deposit at bank

Co-operative banksaving a/c no. 1253

Co-operative bank

saving a/c no. 1257

Apex bank saving a/c,Raipur

SBI current a/cambikapur

SBI fixed deposit a/c

ambikapur

Co-operative bank a/c

Investment in share

capital

Share purchased of

national co-operativesugar factory

Share purchased of

I.E.S. new Delhi

Current assets

Advance a/c (employee)

Ded stock a/c

37763328

475

1000

21525

2500000

150000000

10000

20000

45544

371295


69/70

69

Interest payable a/c

Others Current liabilities

15263014

10000000

977139664

Other Current assets

Fixed assets

Plant& machinery a/c

Land a/c

Vehicle a/c

Security deposit at otherdepartment

Commercial taxdepartment, ambikapur

Electricity board C.G.

B.S.N.L.

39980765

157096109

586580154

1670779

20000

1057690

1000

977139664


70/70

BIBLIOGRAPHY

Book references

Financial Management (5th

edition) by Prasanna Chandra, TATA McGraw-

Hill Publishing Company Limited New Delhi-110004, 2002.

Financial Management (9th

edition) - by I.M.Pandey, Vikash Publishing House,

New Delhi-11004, 1999

Website

www.researchmedia.com available on 17th

July 2010.

Documents

Documents like balance sheet, progress report, provided by the finance

department of sugar factory.