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7/28/2019 Financial Analysis of Aplab Ltd.
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A
Project Report On
Financial Analysis of Aplab Ltd.
Submitted to
In partial fulfillment for the course of
Post Graduate Diploma in Management
Under the Supervision of: Submitted By:Dr.ANSHUL SHARMA DURGESH MANI PATHAKFaculty & Guide at MIMS Batch PGDM (2009-11)
Roll No. 0911101020
Mangalmay Institute of Management Studies
Greater Noida
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TO WHOM SO EVER IT MAY CONCERN
This is to certify that the Summer Project Study Report, Titled
Financial Analysis of Ablab Ltd. submitted by Mr. Durgesh Mani
Pathak. as partial fulfillment of requirement of the two year PGDM
course is a bonafide work carried out by the student at our Institute.
This Final Project Study is his/her original work and has not been
submitted to any other University/Institute.
Project Mentor
Dr.Anshul SharmaDate:
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DECLARATION
I hereby declare that this project on Financial Analysis of Aplab Ltd. has
been prepared by me during the year 2010-2011 as a partial fulfillment of
PGDM course of Institute of Mangalmay Institute of Management Studies,
Gr. Noida. This Final project report has not been submitted to any other
university or institution for award of any degree or diploma so far.
Signature of the Student
Durgesh Mani Pathak
Roll No. 0911101020
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ACKNOWLEDGEMENT
It is my pleasure to extend my deep gratitude to Dr.Anshul Sharma.,
Faculty Guide, Mangalmay Institute of Management Studies, Gr. Noida,
for the help, cooperation and guidance received from him throughout the
tenure of this project.
I would like to take this opportunity to thank all other faculty members at
Mangalmay Institute of Management Studies, Gr. Noida, U.P, for their
cooperation.
I am grateful to Mr. R.P.Patil., Branch Manager , for there guidance and
help in this project. Their valuable and constructive suggestions at many
difficult situations are immensely acknowledged.
Finally I would like to thank all the staff of Aplab ltd, Delhi Branch,
Who helped me complete my project successfully.
DURGESH MANI PATHAK
MIMS,Gr. Noida
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PREFACE
Ratio analysis isn't just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It's comparing the number against previous years,
other companies, the industry, or even the economy in general. Ratios look at the
relationships between individual values and relate them to how a company has
performed in the past, and might perform in the future.
Ratio analysis is an attempt to derive quantitative measure or guides concerning the
financial health and profitability of business enterprises. Ratio analysis can be used
both in trend and static analysis. There are several ratios at the disposal of an annalist
but their group of ratio he would prefer depends on the purpose and the objective of
analysis.
However, you must be careful not to place too much importance on one ratio. You
obtain a better indication of the direction in which a company is moving when several
ratios are taken as a group.
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TABLE OF CONTENTS
TOPIC PAGE
SECTION 1: INTRODUCTION
1.1 Research Methodology 7
1.2 Objective 8
SECTION 2: RATIO ANALYSIS
2.1 Meaning Of Ratio Analysis 9
2.2 Types Of Ratio Analysis 10-30
2.3 Role Of Ratio Analysis 31-36
SECTION 3 COMPANY PROFILE
3.1 About Company 37-44
3.2 Balance Sheet @ P&L Statement 45-52
SECTION 4: RATIO ANALYSIS OF COMPANY 53-72
SECTION 5: FINDINGS 73-74
SECTION 6: CONCLUSION 75
SECTION 7: BIBLIOGRAPHY 76
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RESEARCH METHODOLOGY
TYPE OF RESEARCH
In analytical research, the researcher has to use facts and information which is already
available to analyze and make a critical evaluation of the material. The study
conducted is a conclusive descriptive statistical study because after doing the study
the researcher comes to a conclusion regarding the position of the Company, its
viability, profitability etc... The study is statistical because throughout the study
percentage and ratio analysis is done to interpret the financial position of the
company.
RESEARCH TOOLS
Books of financial management
Information from Internet
Observation
Discussion
TECHNIQUES
Primary Data
The financial data was taken from the audited balance sheet.
Secondary Data
It was collected from the P&L A/c, balance sheet, reference books based on
financial management & management accounting. The various books and internet
helped in understanding the various theoretical concepts associated with the project
such as the significance of Cash flow Management & the way to interpret various
funds. All the figures required to carry out the ratio analysis were gathered from
financial statements such as P&L A/c, Balance sheet of the company. It is analyzed by
comparing ratios, percentage change from past year and is presented in the form of
pie chart, bar etcto make it understandable.
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INTRODUCTION
OBJECTIVE:
To understand the information contained in financial statements with a view to know
the strength or weaknesses of the firm and to make forecast about the future prospects
of the firm and thereby enabling the financial analyst to take different decisions
regarding the operations of the firm.
RATIO ANALYSIS:
Fundamental Analysis has a very broad scope. One aspect looks at the general
(qualitative) factors of a company. The other side considers tangible and measurable
factors (quantitative). This means crunching and analyzing numbers from the
financial statements. If used in conjunction with other methods, quantitative analysis
can produce excellent result.
Ratio analysis isn't just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It's comparing the number against previous years,
other companies, the industry, or even the economy in general. Ratios look at the
relationships between individual values and relate them to how a company has
performed in the past, and might perform in the future.
MEANING OF RATIO:
A ratio is one figure express in terms of another figure. It is a mathematical yardstick
that measures the relationship two figures, which are related to each other and
mutually interdependent. Ratio is express by dividing one figure by the other related
figure. Thus a ratio is an expression relating one number to another. It is simply the
quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure
ratio or in absolute figures as somany times. As accounting ratio is an expression
relating two figures or accounts or two sets of account heads or group contain in the
financial statements.
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MEANING OF RATIO ANALYSIS:
Ratio analysis is the method or process by which the relationship of items or group of
items in the financial statement are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measure or guides concerning the
financial health and profitability of business enterprises. Ratio analysis can be used
both in trend and static analysis. There are several ratios at the disposal of an annalist
but their group of ratio he would prefer depends on the purpose and the objective of
analysis.
While a detailed explanation of ratio analysis is beyond the scope of this section, we
will focus on a technique, which is easy to use. It can provide you with a valuable
investment analysis tool.
This technique is called cross-sectional analysis. Cross-sectional analysis compares
financial ratios of several companies from the same industry. Ratio analysis can
provide valuable information about a company's financial health. A financial ratio
measures a company's performance in a specific area. For example, you could use a
ratio of a company's debt to its equity to measure a company's leverage. By
comparing the leverage ratios of two companies, you can determine which company
uses greater debt in the conduct of its business. A company whose leverage ratio is
higher than a competitor's has more debt per equity. You can use this information to
make a judgment as to which company is a better investment risk.
However, you must be careful not to place too much importance on one ratio. You
obtain a better indication of the direction in which a company is moving when several
ratios are taken as a group.
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OBJECTIVE OF RATIOS
Ratio is work out to analyze the following aspects of business organization-
A) Solvency-
1) Long term
2) Short term
3) Immediate
B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing
FORMS OF RATIO:
Since a ratio is a mathematical relationship between to or more variables / accounting
figures, such relationship can be expressed in different ways as follows
A] As a pure ratio:
For example the equity share capital of a company is Rs. 20,00,000 & the preference
share capital is Rs. 5,00,000, the ratio of equity share capital to preference share
capital is 20,00,000: 5,00,000 or simply 4:1.
B] As a rate of times:
In the above case the equity share capital may also be described as 4 times that of
preference share capital. Similarly, the cash sales of a firm are
Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales
can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit
sales are 2.5 times that of cash sales.
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C] As a percentage:
In such a case, one item may be expressed as a percentage of some other item. For
example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs.
10,00,000, then the gross profit may be described as 20% of sales [
10,00,000/50,00,000]
STEPS IN RATIO ANALYSIS
The ratio analysis requires two steps as follows:
1] Calculation of ratio
2] Comparing the ratio with some predetermined standards. The standard ratio may be
the past ratio of the same firm or industrys average ratio or a projected ratio or the
ratio of the most successful firm in the industry. In interpreting the ratio of a particular
firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is
compared with some predetermined standard. The importance of a correct standard is
oblivious as the conclusion is going to be based on the standard itself.
TYPES OF COMPARISONS
The ratio can be compared in three different ways
1] Cross section analysis:
One of the way of comparing the ratio or ratios of the firm is to compare them with
the ratio or ratios of some other selected firm in the same industry at the same point oftime. So it involves the comparison of two or more firms financial ratio at the same
point of time. The cross section analysis helps the analyst to find out as to how a
particular firm has performed in relation to its competitors. The firms performance
may be compared with the performance of the leader in the industry in order to
uncover the major operational inefficiencies. The cross section analysis is easy to be
undertaken as most of the data required for this may be available in financial
statement of the firm.
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2] Time series analysis:
The analysis is called Time series analysis when the performance of a firm is
evaluated over a period of time. By comparing the present performance of a firm with
the performance of the same firm over the last few years, an assessment can be made
about the trend in progress of the firm, about the direction of progress of the firm.
Time series analysis helps to the firm to assess whether the firm is approaching the
long-term goals or not. The Time series analysis looks for (1) important trends in
financial performance (2) shift in trend over the years (3) significant deviation if any
from the other set of data\
3] Combined analysis:
If the cross section & time analysis, both are combined together to study the behavior
& pattern of ratio, then meaningful & comprehensive evaluation of the performance
of the firm can definitely be made. A trend of ratio of a firm compared with the trend
of the ratio of the standard firm can give good results. For example, the ratio of
operating expenses to net sales for firm may be higher than the industry average
however, over the years it has been declining for the firm, whereas the industry
average has not shown any significant changes.
.
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PRE-REQUISITIES TO RATIO ANALYSIS
In order to use the ratio analysis as device to make purposeful conclusions, there are
certain pre-requisites, which must be taken care of. It may be noted that these
prerequisites are not conditions for calculations for meaningful conclusions. The
accounting figures are inactive in them & can be used for any ratio but meaningful &
correct interpretation & conclusion can be arrived at only if the following points are
well considered.
1) The dates of different financial statements from where data is taken must be
same.
2) If possible, only audited financial statements should be considered, otherwise
there must be sufficient evidence that the data is correct.
3) Accounting policies followed by different firms must be same in case of cross
section analysis otherwise the results of the ratio analysis would be distorted.
4) One ratio may not throw light on any performance of the firm. Therefore, a
group of ratios must be preferred. This will be conductive to counter checks.
5) Last but not least, the analyst must find out that the two figures being used to
calculate a ratio must be related to each other, otherwise there is no purpose of
calculating a ratio.
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CLASSIFICATION OF RATIO
CLASSIFICATION OF RATIO
BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER
STATEMENT
1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR
RATIO 2] LEVERAGE RATIO SHORT TERM
2] REVENUE 3] ACTIVITY RATIO CREDITORS
STATEMENT 4] PROFITABILITY 2] RATIO FOR
RATIO RATIO SHAREHOLDER
3] COMPOSITE 5] COVERAGE 3] RATIOS FOR
RATIO RATIO MANAGEMENT
4] RATIO FOR
LONG TERM
CREDITORS
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BASED ON FINANCIAL STATEMENT
Accounting ratios express the relationship between figures taken from financial
statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way
of classification of ratios is based upon the sources from which are taken.
1] Balance sheet ratio:
If the ratios are based on the figures of balance sheet, they are called Balance Sheet
Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While
calculating these ratios, there is no need to refer to the Revenue statement. These
ratios study the relationship between the assets & the liabilities, of the concern. These
ratio help to judge the liquidity, solvency & capital structure of the concern. Balance
sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio,
Debt equity ratio, and Stock working capital ratio.
2] Revenue ratio:
Ratio based on the figures from the revenue statement is called revenue statement
ratios. These ratio study the relationship between the profitability & the sales of the
concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net
profit ratio, Net operating profit ratio, Stock turnover ratio.
3] Composite ratio:
These ratios indicate the relationship between two items, of which one is found in the
balance sheet & other in revenue statement.
There are two types of composite ratios-
a) Some composite ratios study the relationship between the profits & the
investments of the concern. E.g. return on capital employed, return on
proprietors fund, return on equity capital etc.
b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios,
dividend payout ratios, & debt service ratios
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BASED ON FUNCTION:
Accounting ratios can also be classified according to their functions in to liquidity
ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.
1] Liquidity ratios:
It shows the relationship between the current assets & current liabilities of the concern
e.g. liquid ratios & current ratios.
2] Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing the
assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory
ratios.
3] Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover
ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios.
4] Profitability ratios:
a) It shows the relationship between profits & sales e.g. operating ratios, gross
profit ratios, operating net profit ratios, expenses ratios
b) It shows the relationship between profit & investment e.g. return on
investment, return on equity capital.
5] Coverage ratios:
It shows the relationship between the profit on the one hand & the claims of the
outsiders to be paid out of such profit e.g. dividend payout ratios & debt service
ratios.
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BASED ON USER:
1] Ratios for short-term creditors:
Current ratios, liquid ratios, stock working capital ratios
2] Ratios for the shareholders:
Return on proprietors fund, return on equity capital
3] Ratios for management:
Return on capital employed, turnover ratios, operating ratios, expenses ratios
4] Ratios for long-term creditors:
Debt equity ratios, return on capital employed, proprietor ratios.
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LIQUIDITY RATIO: -
Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year)
obligations. The ratios, which indicate the liquidity of a company, are Current ratio,
Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below
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CURRENT RATIO
Meaning:
This ratio compares the current assets with the current liabilities. It is also known as
working capital ratio or solvencyratio. It is expressed in the form of pure ratio.
E.g. 2:1
Formula:
Current assets
Current ratio =
Current liabilities
The current assests of a firm represents those assets which can be, in the ordinary
course of business, converted into cash within a short period time, normally not
exceeding one year. The current liabilities defined as liabilities which are short term
maturing obligations to be met, as originally contemplated, with in a year.
Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities
(CL). Current assets include cash and bank balances; inventory of raw materials,
semi-finished and finished goods; marketable securities; debtors (net of provision for
bad and doubtful debts); bills receivable; and prepaid expenses. Current liabilities
consist of trade creditors, bills payable, bank credit, provision for taxation, dividends
payable and outstanding expenses. This ratio measures the liquidity of the current
assets and the ability of a company to meet its short-term debt obligation.
CR measures the ability of the company to meet its CL, i.e., CA gets converted into
cash in the operating cycle of the firm and provides the funds needed to pay for CL.
The higher the current ratio, the greater the short-term solvency. This compares
assets, which will become liquid within approximately twelve months with liabilities,
which will be due for payment in the same period and is intended to indicate whether
there are sufficient short-term assets to meet the short- term liabilities. Recommended
current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity
problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is
under utilizing its current assets.
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LIQUID RATIO:
Meaning:
Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the
quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g.
1:1.
The term quick assets refer to current assets, which can be converted into, cash
immediately or at a short notice without diminution of value.
Formula:
Quick assets
Liquid ratio =
Quick liabilities
Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to
those current assets that can be converted into cash immediately without any value
strength. QA includes cash and bank balances, short-term marketable securities, and
sundry debtors. Inventory and prepaid expenses are excluded since these cannot be
turned into cash as and when required.
QR indicates the extent to which a company can pay its current liabilities without
relying on the sale of inventory. This is a fairly stringent measure of liquidity because
it is based on those current assets, which are highly liquid. Inventories are excluded
from the numerator of this ratio because they are deemed the least liquid componentof current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of
the quick ratio is that it ignores the timing of receipts and payments.
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CASH RATIO
Meaning:
This is also called as super quick ratio. This ratio considers only the absolute liquidity
available with the firm.
Formula:
Cash + Bank + Marketable securities
Cash ratio =
Total current liabilities
Since cash and bank balances and short term marketable securities are the most liquid
assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are
too much in relation to the current liabilities then it may affect the profitability of the
firm.
INVESTMENT / SHAREHOLDER
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EARNING PER SAHRE:-
Meaning:
Earnings per Share are calculated to find out overall profitability of the organization.
Earnings per Share represent earning of the company whether or not dividends are
declared. If there is only one class of shares, the earning per share are determined by
dividing net profit by the number of equity shares.
EPS measures the profits available to the equity shareholders on each share held.
Formula:
NPAT
Earning per share =
Number of equity share
The higher EPS will attract more investors to acquire shares in the company as it
indicates that the business is more profitable enough to pay the dividends in time. But
remember not all profit earned is going to be distributed as dividends the company
also retains some profits for the business
DIVIDEND PER SHARE:-
Meaning:
DPS shows how much is paid as dividend to the shareholders on each share held.
Formula:
Dividend Paid to Ordinary Shareholders
Dividend per Share =
Number of Ordinary Shares
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DIVIDEND PAYOUT RATIO:-
Meaning:
Dividend Pay-out Ratio shows the relationship between the dividend paid to equity
shareholders out of the profit available to the equity shareholders.
Formula:
Dividend per share
Dividend Pay out ratio = *100Earning per share
D/P ratio shows the percentage share of net profits after taxes and after preference
dividend has been paid to the preference equity holders.
GEARING
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CAPITAL GEARING RATIO:-
Meaning:
Gearing means the process of increasing the equity shareholders return through the
use of debt. Equity shareholders earn more when the rate of the return on total capitalis more than the rate of interest on debts. This is also known as leverage or trading on
equity. The Capital-gearing ratio shows the relationship between two types of capital
viz: - equity capital & preference capital & long term borrowings. It is expressed as a
pure ratio.
Formula:
Preference capital+ secured loan
Capital gearing ratio =
Equity capital & reserve & surplus
Capital gearing ratio indicates the proportion of debt & equity in the financing of
assets of a concern.
PROFITABILITY
These ratios help measure the profitability of a firm. A firm, which generates a
substantial amount of profits per rupee of sales, can comfortably meet its operating
expenses and provide more returns to its shareholders. The relationship between profit
and sales is measured by profitability ratios. There are two types of profitability
ratios: Gross Profit Margin and Net Profit Margin.
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GROSS PROFIT RATIO:-
Meaning:
This ratio measures the relationship between gross profit and sales. It is defined as the
excess of the net sales over cost of goods sold or excess of revenue over cost. This
ratio shows the profit that remains after the manufacturing costs have been met. It
measures the efficiency of production as well as pricing. This ratio helps to judge how
efficient the concern is I managing its production, purchase, selling & inventory, how
good its control is over the direct cost, how productive the concern , how much
amount is left to meet other expenses & earn net profit.
Formula:
Gross profit
Gross profit ratio = * 100
Net sales
NET PROFIT RATIO:-
Meaning:
Net Profit ratio indicates the relationship between the net profit & the sales it is
usually expressed in the form of a percentage.
Formula:
NPAT
Net profit ratio = * 100
Net sales
This ratio shows the net earnings (to be distributed to both equity and preference
shareholders) as a percentage of net sales. It measures the overall efficiency of
production, administration, selling, financing, pricing and tax management. Jointly
considered, the gross and net profit margin ratios provide an understanding of the cost
and profit structure of a firm.
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RETURN ON CAPITAL EMPLOYED:-
Meaning:
The profitability of the firm can also be analyzed from the point of view of the total
funds employed in the firm. The term fund employed or the capital employed refers to
the total long-term source of funds. It means that the capital employed comprises of
shareholder funds plus long-term debts. Alternatively it can also be defined as fixed
assets plus net working capital.
Capital employed refers to the long-term funds invested by the creditors and the
owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE
indicates the efficiency with which the long-term funds of a firm are utilized.
Formula:
NPAT
Return on capital employed = *100
Capital employed
FINANCIAL
These ratios determine how quickly certain current assets can be converted into cash.
They are also called efficiency ratios or asset utilization ratios as they measure the
efficiency of a firm in managing assets. These ratios are based on the relationship
between the level of activity represented by sales or cost of goods sold and levels of
investment in various assets. The important turnover ratios are debtors turnover ratio,
average collection period, inventory/stock turnover ratio, fixed assets turnover ratio,
and total assets turnover ratio. These are described below:
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DEBTORS TURNOVER RATIO (DTO)
Meaning:
DTO is calculated by dividing the net credit sales by average debtors outstanding
during the year. It measures the liquidity of a firm's debts. Net credit sales are the
gross credit sales minus returns, if any, from customers. Average debtors are the
average of debtors at the beginning and at the end of the year. This ratio shows how
rapidly debts are collected. The higher the DTO, the better it is for the organization.
Formula:
Credit sales
Debtors turnover ratio =
Average debtors
INVENTORY OR STOCK TURNOVER RATIO (ITR)
Meaning:
ITR refers to the number of times the inventory is sold and replaced during the
accounting period.
Formula:
COGS
Stock Turnover Ratio =
Average stock
ITR reflects the efficiency of inventory management. The higher the ratio, the more
efficient is the management of inventories, and vice versa. However, a high inventory
turnover may also result from a low level of inventory, which may lead to frequent
stock outs and loss of sales and customer goodwill. For calculating ITR, the average
of inventories at the beginning and the end of the year is taken. In general, averages
may be used when a flow figure (in this case, cost of goods sold) is related to a stock
figure (inventories).
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FIXED ASSETS TURNOVER (FAT)
The FAT ratio measures the net sales per rupee of investment in fixed assets.
Formula:
Net sales
Fixed assets turnover =
Net fixed assets
This ratio measures the efficiency with which fixed assets are employed. A high ratio
indicates a high degree of efficiency in asset utilization while a low ratio reflects an
inefficient use of assets. However, this ratio should be used with caution because
when the fixed assets of a firm are old and substantially depreciated, the fixed assets
turnover ratio tends to be high (because the denominator of the ratio is very low).
PROPRIETORS RATIO:
Meaning:
Proprietary ratio is a test of financial & credit strength of the business. It relates
shareholders fund to total assets. This ratio determines the long term or ultimate
solvency of the company.
In other words, Proprietary ratio determines as to what extent the owners interest &
expectations are fulfilled from the total investment made in the business operation.
Proprietary ratio compares the proprietor fund with total liabilities. It is usually
expressed in the form of percentage. Total assets also know it as net worth.
Formula:
Proprietary fundProprietary ratio = OR
Total fund
Shareholders fund
Proprietary ratio =
Fixed assets + current liabilities
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STOCK WORKING CAPITAL RATIO:
Meaning:
This ratio shows the relationship between the closing stock & the working capital. It
helps to judge the quantum of inventories in relation to the working capital of thebusiness. The purpose of this ratio is to show the extent to which working capital is
blocked in inventories. The ratio highlights the predominance of stocks in the current
financial position of the company. It is expressed as a percentage.
Formula:
Stock
Stock working capital ratio =
Working Capital
Stock working capital ratio is a liquidity ratio. It indicates the composition & quality
of the working capital. This ratio also helps to study the solvency of a concern. It is a
qualitative test of solvency. It shows the extent of funds blocked in stock. If
investment in stock is higher it means that the amount of liquid assets is lower.
DEBT EQUITY RATIO:
Meaning:
This ratio compares the long-term debts with shareholders fund. The relationship
between borrowed funds & owners capital is a popular measure of the long term
financial solvency of a firm. This relationship is shown by debt equity ratio.
Alternatively, this ratio indicates the relative proportion of debt & equity in financing
the assets of the firm. It is usually expressed as a pure ratio. E.g. 2:1
Formula:Total long-term debt
Debt equity ratio =
Total shareholders fund
Debt equity ratio is also called as leverage ratio. Leverage means the process of the
increasing the equity shareholders return through the use of debt. Leverage is also
known as gearing or trading on equity. Debt equity ratio shows the margin of
safety for long-term creditors & the balance between debt & equity.
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RETURN ON PROPRIETOR FUND:
Meaning:
Return on proprietors fund is also known as return on proprietors equity or returnon shareholders investment or investment ratio. This ratio indicates the relationship
between net profit earned & total proprietors funds. Return on proprietors fund is a
profitability ratio, which the relationship between profit & investment by the
proprietors in the concern. Its purpose is to measure the rate of return on the total fund
made available by the owners. This ratio helps to judge how efficient the concern is in
managing the owners fund at disposal. This ratio is of practical importance to
prospective investors & shareholders.
Formula:
NPAT
Return on proprietors fund = * 100
Proprietors fund
CREDITORS TURNOVER RATIO:
It is same as debtors turnover ratio. It shows the speed at which payments are made to
the supplier for purchase made from them. It is a relation between net credit purchase
and average creditors
Net credit purchase
Credit turnover ratio =
Average creditors
Months in a year
Average age of accounts payable =Credit turnover ratio
Both the ratios indicate promptness in payment of creditor purchases. Higher creditors
turnover ratio or a lower credit period enjoyed signifies that the creditors are being
paid promptly. It enhances credit worthiness of the company. A very low ratio
indicates that the company is not taking full benefit of the credit period allowed by the
creditors.
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IMPORTANCE OF RATIO ANALYSIS
As a tool of financial management, ratios are of crucial significance. The importance
of ratio analysis lies in the fact that it presents facts on a comparative basis & enables
the drawing of interference regarding the performance of a firm. Ratio analysis is
relevant in assessing the performance of a firm in respect of the following aspects:
1] Liquidity position,
2] Long-term solvency,
3] Operating efficiency,
4] Overall profitability,
5] Inter firm comparison6] Trend analysis.
1] LIQUIDITY POSITION: -
With the help of Ratio analysis conclusion can be drawn regarding the liquidity
position of a firm. The liquidity position of a firm would be satisfactory if it is able to
meet its current obligation when they become due. A firm can be said to have the
ability to meet its short-term liabilities if it has sufficient liquid funds to pay theinterest on its short maturing debt usually within a year as well as to repay the
principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio are
particularly useful in credit analysis by bank & other suppliers of short term loans.
2] LONG TERM SOLVENCY: -
Ratio analysis is equally useful for assessing the long-term financial viability of a
firm. This respect of the financial position of a borrower is of concern to the long-term creditors, security analyst & the present & potential owners of a business. The
long-term solvency is measured by the leverage/ capital structure & profitability ratio
Ratio analysis s that focus on earning power & operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The
leverage ratios, for instance, will indicate whether a firm has a reasonable proportion
of various sources of finance or if it is heavily loaded with debt in which case its
solvency is exposed to serious strain.
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3] OPERATING EFFICIENCY:
Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint
of management, is that it throws light on the degree of efficiency in management &
utilization of its assets. The various activity ratios measures this kind of operational
efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon
the sales revenues generated by the use of its assets- total as well as its components.
4] OVERALL PROFITABILITY:
Unlike the outsides parties, which are interested in one aspect of the financial position
of a firm, the management is constantly concerned about overall profitability of theenterprise. That is, they are concerned about the ability of the firm to meets its short
term as well as long term obligations to its creditors, to ensure a reasonable return to
its owners & secure optimum utilization of the assets of the firm. This is possible if an
integrated view is taken & all the ratios are considered together.
5] INTERFIRM COMPARISON:
Ratio analysis not only throws light on the financial position of firm but also serves as
a stepping-stone to remedial measures. This is made possible due to inter firm
comparison & comparison with the industry averages. A single figure of a particular
ratio is meaningless unless it is related to some standard or norm. one of the popular
techniques is to compare the ratios of a firm with the industry average. It should be
reasonably expected that the performance of a firm should be in broad conformity
with that of the industry to which it belongs. An inter firm comparison would
demonstrate the firms position vice-versa its competitors. If the results are at variance
either with the industry average or with the those of the competitors, the firm can seek
to identify the probable reasons & in light, take remedial measures.
6] TREND ANALYSIS:
Finally, ratio analysis enables a firm to take the time dimension into account. In other
words, whether the financial position of a firm is improving or deteriorating over the
years. This is made possible by the use of trend analysis.
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ADVANTAGES OF RATIO ANALYSIS
Financial ratios are essentially concerned with the identification of significant
accounting data relationships, which give the decision-maker insights into the
financial performance of a company. The advantages of ratio analysis can be
summarized as follows:
Ratios facilitate conducting trend analysis, which is important for decision
making and forecasting.
Ratio analysis helps in the assessment of the liquidity, operating
efficiency, profitability and solvency of a firm.
Ratio analysis provides a basis for both intra-firm as well as inter-firm
comparisons.
The comparison of actual ratios with base year ratios or standard ratios
helps the management analyze the financial performance of the firm.
LIMITATIONS OF RATIO ANALYSIS
Ratio analysis has its limitations. These limitations are described below:
1] Information problems
Ratios require quantitative information for analysis but it is not decisive about
analytical output .
The figures in a set of accounts are likely to be at least several months out of
date, and so might not give a proper indication of the companys current
financial position.
Where historical cost convention is used, asset valuations in the balance sheet
could be misleading. Ratios based on this information will not be very useful
for decision-making.
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PURPOSE OF RATIO ANALYSIS:
1] To identify aspects of a businesses performance to aid decision making
2] Quantitative processmay need to be supplemented by qualitative
Factors to get a complete picture.
3] 5 main areas:-
Liquiditythe ability of the firm to pay its way
Investment/shareholdersinformation to enable decisions to be made on the
extent of the risk and the earning potential of a business investment
Gearing information on the relationship between the exposure of the
business to loans as opposed to share capital
Profitabilityhow effective the firm is at generating profits given sales and
or its capital assets
Financial the rate at which the company sells its stock and the efficiency
with which it uses its assets
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ROLE OF RATIO ANALYSIS
It is true that the technique of ratio analysis is not a creative technique in the sense
that it uses the same figure & information, which is already appearing in the financial
statement. At the same time, it is true that what can be achieved by the technique of
ratio analysis cannot be achieved by the mere preparation of financial statement.
Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of
performance, either individually or in relation to those of other firms in the same
industry. The process of this appraisal is not complete until the ratio so computed can
be compared with something, as the ratio all by them do not mean anything. This
comparison may be in the form of intra firm comparison, inter firm comparison orcomparison with standard ratios. Thus proper comparison of ratios may reveal where
a firm is placed as compared with earlier period or in comparison with the other firms
in the same industry.
Ratio analysis is one of the best possible techniques available to the management to
impart the basic functions like planning & control. As the future is closely related to
the immediate past, ratio calculated on the basis of historical financial statements may
be of good assistance to predict the future. Ratio analysis also helps to locate & point
out the various areas, which need the management attention in order to improve the
situation.
As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e.
liquidity, solvency, activity, profitability & overall performance, it enables the
interested persons to know the financial & operational characteristics of an
organisation & take the suitable decision.
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EVALUATION OF APLAB LIMITED THROUGH RATIO
COMPANY PROFILE
APLAB Limited is a professionally managed Public Limited company quoted on theBombay Stock Exchange. Since its inception in 1962, APLAB has been serving the
global market with wide range of electronic products meeting the international
standards for safety and reliability such as UL, VDE etc. They specialize in Test and
Measurement Equipment, Power Conversion and UPS Systems, Self-Service
Terminals for Banking Sector and Fuel Dispensers for Petroleum Sector. APLAB
enjoys worldwide recognition for the quality of its products, business integrity and
innovative engineering skills.
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ABOUT APLAB:
Aplab started its operation in October 1962.
It is a professionally managed 40 years old public limited company.
It is quoted on BOMBAY STOCK EXCHANGE.
It serves customer global customer par excellence.
It specialized in Test & measurement instruments, power conversion, & UPS
& fuel dispensers for petroleum sector.
It enjoys worldwide recognition for the quality of its business integrity &
innovative engineering skills.
MISSION: To deliver high quality, carefully, engineered products, on time, with in
budget, as per the customer specification in a manner profitable to both, our
customers & so to us.
VISION:
To be a global player, recognized for quality & integrity.
To be the TOP INDIAN COMPANY as conceived by our customers.
To be THE BEST company to work for, as rated by our employees.
GOAL:
Goal at Aplab is extract ordinary customer service as we provide our customer
needs in the personal service industry.
CORPORATE MISSION1] To achieve healthy and profitable growth of the company in the interest of our
customers & the shareholders.
2] To encourage teamwork, reward innovation and maintain healthy interpersonal
relations within the organization.
3] To expand knowledge and remain at the leading edge in technology to serve theglobal market.
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4] To understand the customers needs and provide solutions than merely selling
products.
5] To create intellectual capital by investing in hardware and embedded software
development.
VALUES & BELIEFS:
Their values & beliefs required that they -
Treat employees with respect & give them an opportunity for input on how to
continuously improve their service goals. Offer opportunities for growth, professional development & recognition.
Provide most effective & corrective action, to resolve customer service issues,
to ensure customer satisfaction.
Foster an open door policy, which encourages interaction, discussion & ideas
to improve work environment & increase productivity.
Do it right the first time & every time is their team commitment * our way
of doing business, it ensures as growth & prosperity.
THE 21ST
CENTURY SUCCESS
APLAB had planned to enter the 21st Century with a program for a fast and healthy
growth in the global market based on companys high technology foundation and the
reputation of four decades for prompt customer service and as a reliable solution
provider. After completing three years in the new era, we can say with pride that we
have been delivering our promises to our customers and the shareholders.
APLAB has entered the field of Professional Services starting with the Banking and
the Petroleum Industry. Focus on developing embedded system software has been
also enhanced. We believe that professional services sector is poised to grow at a very
rapid pace.
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QUALITY IS OUR WORK CULTURE - ISO 9001:2000
Quality at APLAB is a part of our peoples attitude. Entire organization is committed
to create an environment that encourages individual excellence and a personalcommitment to quality. In APLAB, Quality is everybodys responsibility and all
strive to do it right the first time. It is therefore natural that APLAB Limited is
certified for quality with ISO 9001:2000 registration.
QUALITY POLICY:
Aplab will deliver to its customer products & services that consistently meet
or exceed their requirement.
Aplab will achieve this by total commitment & involvement of every
individual.
Aplab will encourage its employees & suppliers to develop quality products
prevent defects & make continual improvement in all processes.
QUALITY OBJECTIVE:
Aplab is an ISO 9001:2000 certifies company.
100% customer satisfaction.
On time delivery every time reduction is out going PPM to 10,000
[4 sigma]
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RESEARCH AND DEVELOPMENT
Developing innovative products with the latest technology is the core strength of
APLAB. The Science & Technology Ministry of the Govt. of India accredits our
R&D Laboratories. We have a large team of dedicated, highly qualified skilled
engineers who excel in the latest state-of-the-art-technology. APLAB is recognized
not only for manufacturing standard products but also in providing solutions and
services as per the customer specifications. We spend more than 4% of the company
revenue in Research & Development activities.
Specific areas in which the company carries out R&D
1. Development of new product especially hi-tech intelligent product &electronic transaction control system.
2. Improvement in the existing products & production processes, import
substitution.
3. Development of products to suit exports markets.
4. Customizing the products to the customers specifications & adaptation of
imported technology.
The company has achieved its position of leadership in the Indian
instrumentation industry & continuous to maintain it through its strong grip of
technology. Almost all the products manufactured by the company are import
substitution items, which are fully developed in house. It has resulted in considerable
saving of foreign exchange. With the company, R&D is an ongoing process. The
ministry of science & technology, Government of India, recognizes the companys
R&D.
Through a continuous interaction with production& Quality Assurance
Department takes up redesign of existing products. This is done to achieve state of the
art in our design & to bring about improvement to get maximum performance / cost
ratio.
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FUTURE PLAN OF ACTION
Major R&D activity is concentrated around up gradation of product design & re-
alignment of production processes to bring about improved quality at lower cost. This
will greatly help the company in facing competition in local markets from foreign
companies.
EXPORT
APLAB currently exports over 25% of its production to Western Europe, Canada &
USA. Over 30 million U.S. Dollars worth of Power Systems and Test Instruments
from APLAB are today operational in UK, Germany, France, Sweden, Belgium,
Canada, and USA & Australia.
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APLABS ORGANISATION CHART
EXECUTIVE
CHAIRMAN
MANAGING
DIRECTOR
DIRECTOR MAEKETING
[TECHNICAL DIRECTOR
- PE]
GENERAL
MANAGER
FINANCE G.M G.M. MATERIAL G.M. G.M.
MANAGER PROD. MARKETING MANAGER ELTRAC
DESIGN
& PROD. &
DESIGN DEVLOP-
MENT
OFFICERS
STAFF
WORKERS
REGIOAL
HEAD:MUMBAI
NEWDELHI
SECUNDA-
RABADBANGLORE
CHENNAI
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APLAB LIMITED
BALANCE SHEET AS AT 31ST
MARCH 2002(RS.000)
AS AT 31ST 2002 AS AT 31 2002
SOURCES OF FUNDS
SHAREHOLDERS FUND
Share capital 5,00,00
Reserves and surplus 16,29,69
21,29,69
LOANS
Secured 12,13,48
Unsecured 3,67,99
15,81,47
DEFFERED TAX LIABILITY (NET) 1,06,85
TOTAL 38,18,01
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 15,90,33
Less: depreciation 10,32,96
Net block 5,57,37
Capital work in progress 54,36
6,11,73INVESTMENT 1,22,32
CURRENT ASSESTS, LOANS &
ADVANCES
Inventories 19,09,77
Sundary debtors 18,49,35
Cash & bank balances 3,31,32
Loan & advances 5,80,36
46,70,80
CURRENT LIABLITIES &PROVISIONS
Current liabilities 15,36,09
Provisions 57,57
15,93,66
NET CURRENT ASSESTS 30,77,14
MISCELLANEOUS EXPENDITURE 6,84
Total 3818,01
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PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST
MARCH
2002
(RS.000)
AS AT 31-3- 2002 AS AT 31-3-2002
INCOME:
Sales and operating earnings 48,19,19
Other income 80,50
Variation in stock 1,31,07
50,30,76
EXPENCES:
Materials consumed 18,97,28
Purchase of trading goods 8,61,75
Payments to & provision for 9,95,04Employees
Manufacturing expenses 2,21,37
Excise duty 65,05
Other expenses 5,76,71
Interest & finance charges 2,60,22
Depreciation 1,05,37
Less: transferred to revaluation 1,15 1,04,22
49,81,64
PROFIT BEFORE TAX 49,12PRIOR YEAR ADJUSTMENT (NET)
PROVISION FOR TAXATION
Current tax 24,42
Deferred tax liability / (Assets) 4,02
PROFIT AFTER TAX 20,68
Balance brought forward from previous year 1
Balance available for appropriation 20,69
Appropriations:General reserve 20,68
Surplus / (loss) carried to B/S 1
Proposed dividend
Tax on proposed dividend
20,69
Basic earning per share (rupee)
0.41
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BALANCE SHEET AS AT 31ST
MARCH 2003(RS.000)
AS AT 31-3- 2003 AS AT 31-3- 2003
SOURCES OF FUNDS
SHAREHOLDERS FUND
Share capital 5,00,00
Reserves and surplus 16,55,19
21,55,19
LOANS
Secured 10,27,55
Unsecured 4,53,16
14,80,71
DEFFERED TAX LIABILITY (NET) 87,21
TOTAL 37,23,11
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 17,40,97
Less: depreciation 11,40,93
Net block 6,00,04
Capital work in progress 29,74
6,29,78
INVESTMENT 1,47,26CURRENT ASSESTS, LOANS &
ADVANCES
Inventories 19,02,79
Sundary debtors 19,05,76
Cash & bank balances 3,95,25
Loan & advances 8,98,62
51,02,42
CURRENT LIABLITIES &
PROVISIONSCurrent liabilities 20,41,56
Provisions 1,20,76
21,62,32
NET CURRENT ASSESTS 29,40,10
MISCELLANEOUS EXPENDITURE 5,97
TOTAL 37,23,11
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PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST
MARCH
2003
(RS.000)
AS AT 31-3- 2003 AS AT 31-3- 2003
INCOME:
Sales and operating earnings 59,62,22
Other income 15,04
Variation in stock (59,27)
59,17,99
EXPENCES:
Materials consumed 22,41,60
Purchase of trading goods 10,37,52
Payments to & provision for 10,63,96Employees
Manufacturing expenses 2,69,99
Excise duty 72,69
Other expenses 7,62,23
Interest & finance charges 2,36,57
Depreciation 1,07,97
Less: transferred to revaluation 1,03 1,06,94
57,91,50
PROFIT BEFORE TAX 1,26,49PRIOR YEAR ADJUSTMENT (NET)
PROVISION FOR TAXATION
Current tax 63,19
Deferred tax liability / (Assets) (19,64)
PROFIT AFTER TAX 82,94
Balance brought forward from previous year 1
Balance available for appropriation 82,95
Appropriations:General reserve 26,50
Surplus / (loss) carried to B/S 4
Proposed dividend 50,00
Tax on proposed dividend 6,41
82,95
Basic earning per share (rupee) 1.66
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BALANCE SHEET AS AT 31ST
MARCH 2004(RS.000)
AS AT 31-3- 2004 AS AT 31-3- 2004
SOURCES OF FUNDS
SHAREHOLDERS FUND
Share capital 5,00,00
Reserves and surplus 17,42,59
22,42,59
LOANS
Secured 11,38,86
Unsecured 5,58,29
16,97.15
DEFFERED TAX LIABILITY (NET) 95,33
TOTAL 40,35,07
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 18,41,58
Less: depreciation 12,40,03
Net block 6,01,55
Capital work in progress 15,29
6,16,84
INVESTMENT 1,48,34CURRENT ASSESTS, LOANS &
ADVANCES
Inventories 21,46,20
Sundary debtors 19,51,56
Cash & bank balances 4,49,74
Loan & advances 850,58
53,98,08
CURRENT LIABLITIES &
PROVISIONSCurrent liabilities 18,16,17
Provisions 3,12,02
21,28,19
NET CURRENT ASSESTS 32,69,89
TOTAL 40,35,07
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PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST
MARCH
2004
(RS.000)
AS AT 31-3- 2004 AS AT 31-3-2004
INCOME:
Sales and operating earnings 73,90,47
Other income 31,39
Variation in stock 53,99
74,75,85
EXPENCES:
Materials consumed 28,51,40
Purchase of trading goods 14,03,33
Payments to & provision for 12,94,47Employees
Manufacturing expenses 3,07,51
Excise duty 70,08
Other expenses 9,17,94
Interest & finance charges 2,46,30
Depreciation 1,10,89
Less: transferred to revaluation 93 1,09,96
72,00,99
PROFIT BEFORE TAX 2,74,86PRIOR YEAR ADJUSTMENT (NET) 25,71
PROVISION FOR TAXATION
Current tax 1,19,50
Deferred tax liability / (Assets) 8,13
PROFIT AFTER TAX 17294
Balance brought forward from previous year 4
Balance available for appropriation 1,72,98
Appropriations:General reserve 88,30
Surplus / (loss) carried to B/S 7
Proposed dividend 75,00
Tax on proposed dividend 9,61
1,72,98
Basic earning per share (rupee) 3.46
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BALANCE SHEET AS AT 31ST
MARCH 2005(RS.000)
AS AT 31-3- 2005 AS AT 31-3- 2005
SOURCES OF FUNDS
SHAREHOLDERS FUND
Share capital 5,00,00
Reserves and surplus 19,14,91
24,14,91
LOANS
Secured 17,23,12
Unsecured 5,36,89
22,60,01
DEFFERED TAX LIABILITY (NET) 92,02
TOTAL 47,66,94
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 21,64,89
Less: depreciation 13,43,05
Net block 8,21,84
Capital work in progress -
8,21,84
INVESTMENT 2,32,91CURRENT ASSESTS, LOANS &
ADVANCES
Inventories 19,32,88
Sundary debtors 23,06,67
Cash & bank balances 6,04,64
Loan & advances 10,04,02
58,48,21
CURRENT LIABLITIES &
PROVISIONSCurrent liabilities 16,55,15
Provisions 4,80,87
21,36,02
NET CURRENT ASSESTS 37,12,19
TOTAL 47,66,19
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PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST
MARCH
2005
(RS.000)
AS AT 31-3- 2005 AS AT 31-3 2005
INCOME:
Sales and operating earnings 74,20,31
Other income 41,69
Variation in stock (38,45)
74,23,55
EXPENCES:
Materials consumed 25,91,83
Purchase of trading goods 15,21,00
Payments to & provision for 13,54,15
Employees
Manufacturing expenses 2,71,41
Excise duty 75,41
Other expenses 8,44,78
Interest & finance charges 2,15,82
Depreciation 1,26,68
Less: transferred to revaluation 84 1,25,84
70,00,24
PROFIT BEFORE TAX 4,23,31
PRIOR YEAR ADJUSTMENT (NET)PROVISION FOR TAXATION
Current tax 1,50,84
Deferred tax liability / (Assets) (3,31)
PROFIT AFTER TAX 2,75,78
Balance brought forward from previous year 7
Balance available for appropriation 2,75,85
Appropriations:
General reserve 1,73,20Surplus / (loss) carried to B/S 3
Proposed dividend 90,00
2,75,85
Basic earning per share (rupee) 5.52
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CALCULATIONS AND INTERPRETATION OF RATIOS
1] CURRENT RATIO:
Formula:
Current assets
Current ratio =
Current liabilities
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Current assets 46,70,80 51,08,39 53,98,08 58,28,21
Current liabilities 15,93,66 21,62,32 21,28,19 21,36,02
Current ratio 2.93 2.36 2.53 2.72
COMMENTS:
In Aplab company the current ratio is 2.72:1 in 2004-2005. it means that for one rupee
of current liabilities, the current assets are 2.72 rupee are available to the them. In
other words the current assets are 2.72 times the current liabilities.
Almost 4 years current ratio is same but current ratio in 2004-2005 is bit higher,
which makes company more sound. The consistency increase in the value of current
assets will increase the ability of the company to meets its obligations & therefore
from the point of view of creditors the company is less risky.
The available working capital with the company is in increasing order.
2001-2002 - 30,77,14
2002-2003 - 29,46,07
2003-2004 - 32,69,89
2004-2005 - 36,92,19
The company has sufficient working capital to meets its urgency/ obligations. Acompany has a high percentage of its current assets in the form of working capital,
cash that would be more liquid in the sense of being able to meet obligations as &
when they become due. From this working capital, the company meets its day-to-day
financial obligations.
Thus, the current ratio throws light on the companys ability to pay its current
liabilities out of its current assets. The Aplab Companys has a very good liquidity
position of company.
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2] LIQUID RATIO:
Formula:
Quick assets
Liquid ratio =
Quick liabilities
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Quick assets 21,80,67 23,01,01 24,01,30 29,11,31
Quick liabilities 15,93,66 21,62,32 21,28,19 21,36,02
Liquid ratio 1.36 1.06 1.12 1.36
COMMENTS:
The liquid or quick ratio indicates the liquid financial position of an enterprise.
Almost in all 4 years the liquid ratio is same, which is better for the company to meet
the urgency. The liquid ratio of the Aplab Company has increased from 1.12 to 1.36
in 2004-2005. Day to day solvency is more sound for company in 2004-2005 over the
year 2003-2004.
This indicates that the dependence on the short-term liabilities & creditors are less &
the company is following a conservative working capital policy.
Liquid ratio of Company is favorable because the quick assets of the company are
more than the quick liabilities. The liquid ratio shows the companys ability to meet
its immediate obligations promptly.
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3] PROPRIETORY RATIO:
Formula:
Proprietary fund
Proprietary ratio = OR
Total fund
Shareholders fund
Proprietary ratio =
Fixed assets + current liabilities
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Proprietary fund 21,29,69 21,55,19 22,42,59 24,14,91
Total fund 52,82,53 57,38,17 66,14,92 66,70,05Proprietary ratio 40 37.55 33.90 36.20
COMMENTS:
The Proprietary ratio of the company is 36.20% in the year 2004-2005. It means that
the for every one rupee of total assets contribution of 36 paise has come from owners
fund & remaining balance 66 paise is contributed by the outside creditors. This shows
that the contribution by outside to total assets is more than the owners fund. This
Proprietary ratio of the Company shows a downward trend for the last 4 years. As the
Proprietary ratio is not favorable the Companys long-term solvency position is not
sound.
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4] STOCK WORKING CAPITAL RATIO:
Formula:
Stock
Stock working capital ratio =
Working Capital
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Stock 19,09,77 19,02,79 21,46,20 19,32,88
Working Capital 30,77,14 29,46,07 32,69,89 37,12,19
Stock working
capital ratio
62.06 64.58 65.63 52.06
COMMENTS:
This ratio shows that extend of funds blocked in stock. The amount of stock is
increasing from the year 2001-2002 to 2003-2004. However in the year 2004-2005 it
has declined to 52%. In the year 2004-2005 the sale is increased which affects
decrease in stock that effected in increase in working capital in 2004-2005.
It shows that the solvency position of the company is sound.
5] CAPITAL GEARING RATIO:
Formula:
Preference capital+ secured loan
Capital gearing ratio =Equity capital & reserve & surplus
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Secured loan 12,13,48 10,27,56 11,38,86 1,72,312
Equity capital &
reserves & surplus
21,29,69 21,55,19 22,42,59 2,41,491
Capital gearing
ratio
56.97 47.67 50.78 71
COMMENTS:
Gearing means the process of increasing the equity shareholders return through the
use of debt. Capital gearing ratio is a leverage ratio, which indicates the proportion of
debt & equity in the financing of assets of a company.
For the last 3 years [i.e.2001-2002 TO 2003-2004] Capital gearing ratio is all most
same which indicates, near about 50% of the fund covering the secured loan position.
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But in the year 2004-2005 the Capital-gearing ratio is 71%. It means that during the
year 2004-2005 company has borrowed more secured loans for the companys
expansion.
6] DEBT EQUITY RATIO:
Formula:
Total long term debt
Debt equity ratio =
Total shareholders fund
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Long term debt 15,81,47 14,80,70 16,97,15 22,60,01
Shareholders fund 21,29,69 21,55,19 22,42,59 24,14,91
Debt Equity Ratio 0.74 0.68 0.75 0.93
COMMENTS:
The debt equity ratio is important tool of financial analysis to appraise the financial
structure of the company. It expresses the relation between the external equities &
internal equities. This ratio is very important from the point of view of creditors &
owners.
The rate of debt equity ratio is increased from 0.74 to 0.93 during the year 2001-2002
to 2004-2005. This shows that with the increase in debt, the shareholders fund also
increased. This shows long-term capital structure. The lower ratio viewed as favorable
from long term creditors point of view.
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7] GROSS PROFIT RATIO:
Formula:
Gross profitGross profit ratio = * 100
Net sales
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Gross profit 24,54,48 37,65,90 45,57,45 42,37,52
Net sales 43,45,46 51,02,37 68,76,89 68,09,78
Gross profit Ratio 56.48 73.80 66.27 62.22
Gross profit Ratio
0
20
40
60
80
2001-
2002
2002-
2003
2003-
2004
2004 -
2005
Gross profit Ratio
COMMENTS:
The gross profit is the profit made on sale of goods. It is the profit on turnover. In the
year 2001-2002 the gross profit ratio is 56.48%. It has increased to 73.80% in the year
2002-2003 due to increase in sales without corresponding increase in cost of goods
sold. However the gross profit ratio decreased to 66.27% in the year 2003-2004.
It is further declined to 62.22% in the year 2004-2005, due to high cost of purchases
& overheads. Although the gross profit ratio is declined during the year 2002-2003 to
2004-2005. The net sales and gross profit is continuously increasing from the year
2001-2002 to 2004-2005.
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8] OPERATING RATIO:
Formula:
COGS+ operating expenses
Operating ratio = *100Net sales
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
COGS +
Operating
expenses
18,90,98 +
2,21,37 +
5,76,71
21,96,32 +
2,69,98 +
7,62,23
28,33,02 +
3,07,51 +
9,17,94
2,57,226+
27,141+
84,478
Net sales 43,45,46 51,02,37 68,76,89 6,80,978
Operating ratio 61.88% 63.27% 59% 54.16%
COMMENTS:
The operating ratio shows the relationship between costs of activities & net sales.
Operating ratio over a period of 4 years when compared that indicate the change in
the operational efficiency of the company.
The operating ratio of the company has decreased in all 4 year. This is due to increase
in the cost of goods sold, which in 2001-2002 was 61.88%, in 2002-2003 was
63.27%, in 2003-2004 was 59% & in 2004-2005 it is 54.16%. though the cost hasincreased in 2002-2003 as compared to 2001-2002, it is reducing continuously over
the next two years, indicate downward trend in cost but upward / positive trend in
operational performance.
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9] EXPENSE RATIO:
The ratio of each item of expense or each group of expense to net sales is known as
Expense ratio. The expense ratio brings out the relationship between various
elements of operating cost & net sales. Expense ratio analyzes each individual item ofexpense or group of expense& expresses them as a percentage in relation to net sales.
A] MANUFACTURING EXPENSES:
Formula:
Manufacturing expenses
Manufacturing expense ratio = *100
Net sales
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Manufacturing
expenses
2,21,37 2,69,98 3,07,51 2,71,41
Net sales 43,45,46 51,02,37 68,76,89 68,09,78
Manufacturing
expenses ratio
5% 5.29% 4.47% 3.98%
COMMENTS:
The manufacturing expense is shows the downward trend. During the year
20012002 to 2002-2003 the manufacturing expense increased because there is
increase in the charges like labour, rent , power & electricity, repair to plant &
machinery & miscellaneous works expenses. The manufacturing expense during the
year 2001-2002 to 2004-2005 is decreased from 5% to 3.96%. This indicates that the
company has control over the manufacturing expense.
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B] OTHER EXPENSES:
Formula:
Other expenses
Other expense ratio = *100Net sales
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Other expenses 5,76,71 7,62,23 9,17,94 8,44,78
Net sales 43,45,46 51,02,37 68,76,89 68,09,78
Other expenses
ratio
13.2% 14.93% 13.34% 12.40%
COMMENTS:
The other expense of company is increased during the 2001-2002 to 2003-2004,
because increase in the charges of rent of office, equipment lease rental, printing &
stationary, advertisement & publicity, transport outward & other charges. But during
the year 2004-2005 the other expenses is decrease from 13.34% to 12.40%. Because
decrease in equipment lease rental, advertisement & publicity, transport charges,
commission & discount, sales tax & purchase tax . This indicates that the companyalso controlling the other expenses.
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10) NET PROFIT RATIO
Formula:
NPAT
Net profit ratio = * 100
Net sales
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
NPAT 20,98 82,94 1,72,94 2,75,78
Net sales 434546 51,02,37 68,76,89 68,09,78
Net profit ratio 0.48 1.6 2.5 4.04
0
1
2
3
4
5
2001-2002 2002-2003 2003-2004 2004-2005
NET PROFIT
COMMENTS:
The net profit ratio of the company is low in all year but the net profit is increasing
order from this ratio of 4 year it has been observe that the from 2001-2002 to 2004-
2005 the net profit is increased i.e. in 2003 it is increased by 1.12 in 2003-2004 by 0.9
& in 2004-2005 by 1.54.
Profitability ratio of company shows considerable increase. Companys sales have
increased in all 4 years & at the same time company has been successful in
controlling the expenses i.e. manufacturing & other expenses.
It is a clear index of cost control, managerial efficiency & sales promotion.
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11] STOCK TURNOVER RATIO:
Formula:
COGS
Stock Turnover Ratio =
Average stock
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
COGS 18,90,98 21,96,32 28,33,02 25,72,26
Average stock 5,49,90 5,97,58 6,73,11 6,89,30
Stock Turnover
Ratio
3.4 3.6 4.20 3.73
COMMENTS:
Stock turnover ratio shows the relationship between the sales & stock it means how
stock is being turned over into sales.
The stock turnover ratio is 2001-2002 was 3.4 times which indicate that the stock is
being turned into sales 3.4 times during the year. The inventory cycle makes 3.4
round during the year. It helps to work out the stock holding period, it means the stock
turnover ratio is 3.4 times then the stock holding period is 3.5 months
[12/3.4=3.5months]. This indicates that it takes 3.5 months for stock to be sold out
after it is produced.
For the last 4 years stock turnover ratio is lower than the standard but it is in
increasing order. In the year 2001-2002 to 2004-2005 the stock turnover ratio has
improved from 3.4 to 3.73 times, it means with lower inventory the company has
achieved greater sales. Thus, the stock of the company is moving fast in the market.
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12] RETURN ON CAPITAL EMPLOYED:
Formula:
NPAT
Return on capital employed = *100Capital employed
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
NPAT 20,68 82,94 1,72,94 2,75,78
Capital employed 38,18,01 37,23,11 40,35,07 47,66,93
Return on capital
employed
0.54 2.23 4.28 5.79
COMMENTS:
The return on capital employed shows the relationship between profit & investment.
Its purpose is to measure the overall profitability from the total funds made available
by the owner & lenders.
The return on capital employed of Rs.5 indicate that net return of Rs.5 is earned on a
capital employed of Rs.100. this amount of Rs.5 is available to take care of interest,
tax,& appropriation.
The return on capital employed is show-increasing trend, i.e. from 0.54 to 5.79. All
of sudden in 2001-2002 the return on capital employed increased from 0.54 to 5.79.
This indicates a very high profitability on each rupee of investment & has a great
scope to attract large amount of fresh fund.
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13] EARNING PER SHARE:
Formula:
NPAT
Earning per share =Number of equity share
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
NPAT 20,98,000 82,94,000 1,72,94,000 2,75,78,000
No.ofequity share 50,00,000 50,00,000 50,00,000 50,00,000
Earning per share 0.41 1.66 3.46 5.52
COMMENTS:
Earnings per share are calculated to find out overall profitability of the company.
Earning per share represents the earning of the company whether or not dividends are
declared.
The Earning per share is 5.52 means shareholder gets Rs. 5.52 for each share of Rs.
10/-. In other words the shareholder earned Rs. 5.52 per share.
The net profit after tax of the company is increasing in all years. Therefore the
shareholders earning per share is increased continuously from 2001-2002 to 2004-
2005 by 0.41 to 05.52. This shows it is continuous capital appreciation per unit share
by 0.41 to 05.52.
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14] DIVIDEND PAYOUT RATIO:
Formula:
Dividend per share
Dividend Pay out ratio = * 100Earning per share
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Dividend per share - 1 1.50 1.80
Earning per share 0.41 1.66 3.46 5.52
Dividend payout
ratio
- 60.24 43.35 32.60
COMMENTS:
In the year 2002-2003 and 2003-2004 the Dividend pay out ratio is 60.24 and 43.35respectively. In the year 2002-2003 the company has declared the dividend 60.24 and
the balance 39.76 is retained with them for the expansion. The company has not
earned more profit in the year 2001-2002 hence the company has not declared
dividend in the year 2001-2002. However the company has declared more dividends
in the year 2002-2003 as the company has sufficient profit. In the year 2004 the
company has declared 1.50 dividends per share hence the earning per share has
doubled. From this one can say that the company is more conservative for expansion.
15] COST OF GOODS SOLD:
Formula:
COGS
Cost of goods sold Ratio = * 100
Net sales
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
COGS 18,90,98 21,96,32 28,33,02 25,72,26Net sales 43,45,46 51,02,37 68,76,89 68,09,78
Cost of goods sold
ratio
43.51 43.04 41.19 37.77
COMMENTS:
This ratio shows the rate of consumption of raw material in the process of
production. In the year 2001-2002 the cost of goods sold ratio is 43.51% so the gross
profit is 56.49%. it indicates that in 2001-2002, the 43% of raw material is consumed
in the process of production.
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16] CASH RATIO:
Formula:
Cash + Bank + Marketable securities
Cash ratio =Total current liabilities
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
Cash + Bank +
Marketable
securities
3,31,32 3,95,25 4,49,74 6,04,64
Total current
liabilities
15,93,66 21,62,32 21,28,19 21,36,02
Cash ratio 0.20 0.18 0.21 0.28
COMMENTS:
This ratio is called as super quick ratio or absolute liquidity ratio. In the year 2001-
2002 the cash ratio is 0.20 & then it is decreased to 0.18 in the year 2002-2003. Then
again it is increased to 0.21 in the year 2003-2004 & 0.28 in the year 2004-2005.
This shows that the company has sufficient cash, bank balance, & marketable
securities to meet any contingency.
17] RETURN ON PROPRIETORS FUND:
Formula:
NPAT
Return on proprietors fund = * 100
Proprietors fund
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
NPAT 20,68 82,94 1,72,94 2,75,78
Proprietors fund 21,29,69 21,55,19 22,42,59 24,14,91
Return on
proprietors fund
0.97 3.84 7.71 11.41
COMMENTS:
Return on proprietors fund shows the relationship between profits & investments by
proprietors in the company. In the year 2002-2003 the return on proprietors fund is
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3.84% it means the net return of Rs. 3 approximately is earned on the each Rs. 100 of
funds contributed by the owners.
During the last 4 years the rate of return on proprietors fund is in increasing order.
The return on proprietors fund during the year 2001-2002 to 2004-2005 is increased
from 0.97% to 11.41%.
It shows that the company has a very large returns available to take care of high
dividends, large transfers to reserve etc. & has a great scope to attract large amount of
fresh fund from owners.
18] RETURN ON EQUITY:
Formula:
NPAT
Return on equity share capital = * 100
No. of equity share
YEAR 2001-2002 2002-2003 2003-2004 2004 -2005
NPAT 20,68 82,94 1,72,94 2,75,78
No. of equity share 50,000 50,000 50,000 50,000
Return on equity
share capital
4.13 16.5 34.58 55
COMMENTS:
This ratio shows the relationship between profit & equity shareholders fund in the
company. It is used by the present / prospective investor for deciding whether to
purchase, keep or sell the equity shares.
In the year 2002-2003 the return on proprietors fund is 16.5%, which means the net
return of Rs. 16, is earned on the each Rs.100 of the funds contributed by the equity
shareholders.
The rate of return on equity share capital is increased from4.13% to 55% during the
year 2001-2002 to 2004-2005. This shows that the company has a very large returns
available to take care of high equity dividend, large transfers to reserve, & also
company has a great scope to attract large amount to fresh funds by issue of equity
share & also company has a very good price for equity shares in the BSE.
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