Mba Aman Proj

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Lc- Code:- 422 Page 1

ACKNOWLEDGMENT

I take this opportunity to express my profound gratitude and deepregards to my guide for his exemplary guidance, monitoring andconstant encouragement throughout the course of this thesis. Theblessing, help and guidance given by him time to time shall carry me along way in the journey of life on which I am about to embark.

I also take this opportunity to express a deep sense of gratitude toCompany Mentor, for his/her cordial support, valuable information andguidance, which helped me in completing this task through variousstages. I am obliged to the members for the valuable informationprovided by them in their respective fields. I am grateful for theircooperation during the period of my assignment.

Lastly, I thank almighty, my parents, brother, sisters and friends for theirconstant encouragement without which this assignment would not bepossible.

Amandeep Singh


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INDEX

S.no Name of Topic Page No.

1. Objective 4

2. Meaning Of Ratio Analysis 5-6

3. Type Of Comparisions 7-8

4. Classifications of Ratios 9-21

5. Importance of RationAnalysis

22-23

6. Limitations of Ratio

Analysis

25-26

7. Role of Ratio Analysis 27-47

8. Company Profile(AplabLtd)

48-67

9 Conclusion 6810. Bibliography 69


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OBJECTIVE:

To understand the information contained in financial statements with aview to know the strength or weaknesses of the firm and to make

forecast about the future prospects of the firm and thereby enabling thefinancial analyst to take different decisions regarding the operations ofthe firm.

RATIO ANALYSIS:

Fundamental Analysis has a very broad scope. One aspect looks at thegeneral (qualitative) factors of a company. The other side considerstangible and measurable factors (quantitative). This means crunching

and analyzing numbers from the financial statements. If used inconjunction with other methods, quantitative analysis can produceexcellent results.

Ratio analysis isn't just comparing different numbers from the balancesheet, income statement, and cash flow statement. It's comparing thenumber against previous years, other companies, the industry, or eventhe economy in general. Ratios look at the relationships betweenindividual 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 amathematical yardstick that measures the relationship two figures, whichare related to each other and mutually interdependent. Ratio is expressby dividing one figure by the other related figure. Thus a ratio is ancexpression 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 apure ratio or in absolute figures . As accounting ratio is an expressionrelating two figures or accounts or two sets of account heads or groupcontain in the financial statements.


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MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship ofitems or group of items in the financial statement are computed,

determined and presented.Ratio analysis is an attempt to derive quantitative measure or guidesconcerning the financial health and profitability of business enterprises.Ratio analysis can be used both in trend and static analysis. There areseveral ratios at the disposal of an analyst but their group of ratio hewould prefer depends on the purpose and the objective of analysis.While a detailed explanation of ratio analysis is beyond the scope of thissection, we will focus on a technique, which is easy to use. It canprovide you with a valuable investment analysis tool. This technique is

called cross-sectional analysis. Cross-sectional analysiscompares financial ratios of several companies from the same industry.Ratio analysis can provide valuable information about a company'sfinancial health. A financial ratio measures a company's performance ina specific area. For example, you could use a ratio of a company's debtto its equity to measure a company's leverage. By comparing theleverage ratios of two companies, you can determine which companyuses greater debt in the conduct of its business. A company whoseleverage ratio is higher than a competitor's has more debt per equity.

You can use this information to make a judgment as to which companyis a better investment risk. However, you must be careful not to placetoo much importance on one ratio. You obtain a better indication of thedirection in which a company is moving when several ratios are taken asa group.

OBJECTIVE OF RATIOS

Ratio is work out to analyze the following aspects of businessorganization-

A) Solvency-1) Long term2) Short term3) ImmediateB) Stability


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C) ProfitabilityD) Operational efficiencyE) Credit standingF) Structural analysis

G) Effective utilization of resourcesH) Leverage or external financing

FORMS OF RATIO:

Since a ratio is a mathematical relationship between two or morevariables / accounting figures, such relationship can can be expressed indifferent ways as followsA] 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 sharecapital 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 firmareRs. 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.C] As a percentage:In such a case, one item may be expressed as a percentage of some

other items. For example, net sales of the firm are Rs.50,00,000 & theamount of the gross profit is Rs. 10,00,000, then the gross profit may bedescribed 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 ratio2] Comparing the ratio with some predetermined standards. Thestandard ratio may be the past ratio of the same firm or industrysaverage ratio or a projected ratio or the ratio of the most successful firmin the industry. In interpreting the ratio of a particular firm, the analystcannot reach any fruitful conclusion unless the calculated ratio iscompared with some predetermined standard. The importance of a

correct standard is oblivious as the conclusion is going to be based onthe standard itself.


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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 of time. 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 becompared 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.

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 presentperformance 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 studythe behavior & pattern of ratio, then meaningful & comprehensiveevaluation of the performance of the firm can definitely be made. A trendof ratio of a firm compared with the trend of the ratio of the standard firmcan give good results. For example, the ratio of operating expenses tonet sales for firm may be higher than the industry average however, over

the years it has been declining for the


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firm, whereas the industry average has not shown any significantchanges. The combined analysis as depicted in the above diagram,which clearly shows that the ratio of the firm is above the industryaverage, but it is decreasing over the years & is approaching the

industry average.

PRE-REQUISITIES TO RATIO ANALYSIS

In order to use the ratio analysis as device to make purposefulconclusions, there are certain pre-requisites, which must be taken careof. It may be noted that these prerequisites are not conditions forcalculations for meaningful conclusions. The accounting figures areinactive in them & can be used for any ratio but meaningful & correctinterpretation &conclusion can be arrived at only if the following pointsare well considered.

1) The dates of different financial statements from where data is takenmust 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 caseof cross section analysis otherwise the results of the ratio analysis wouldbe 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 tocounter checks.5) Last but not least, the analyst must find out that the two figures being

used to calculate a ratiomust be related to each other, otherwise there isno purpose of calculating a ratio.


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CLASSIFICATION OF RATIO

BASED ON FINANCIAL BASED ON FUNCTION BASED

ON USER STATEMENT

1. BALANCE SHEET2. LIQUIDITY RATIO3. LEVERAGE RATIO SHORT TERM4. ACTIVITY RATIO CREDITORS STATEMENT5. PROFITABILITY6. RATIO FOR SHAREHOLDER

7. COMPOSITE8. COVERAGE

BASED ON FINANCIAL STATEMENT

Accounting ratios express the relationship between figures taken from

financial statements. Figures may be taken from Balance Sheet, P& PA/C, or both. One-way of classification of ratios is based upon thesources from which are taken.1] Balance sheet ratio:

If the ratios are based on the figures of balance sheet, they are calledBalance Sheet Ratios. E.g.ratio of current assets to current liabilities orratio of debt to equity. While calculating these ratios, there is no need torefer to the Revenue statement. These ratios study the relationship

between the assets & the liabilities, of the concern. These ratio help tojudge the liquidity, solvency & capital structure of the concern. Balancesheet ratios are Current ratio, Liquid ratio, and Proprietary ratio, Capitalgearing ratio, Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio:

Ratio based on the figures from the revenue statement is calledrevenue statement ratios. These ratios study the relationship between

the profitability & the sales of the concern. Revenue ratios are Gross


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profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operatingprofit ratio, Stock turnover ratio.

3] Composite ratio:

These ratios indicate the relationship between two items, of which oneis 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, returnon proprietors fund, return on equity capital etc.b) Other composite ratios e.g. debtors turnover ratios, creditors turnoverratios, dividend payout ratios, & debt service ratios.

BASED ON FUNCTION:

Accounting ratios can also be classified according to their functions in toliquidity 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, debtequity ratios, & Proprietary 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 ratiosb) It shows the relationship between profit & investment e.g. return oninvestment, return on equity capital.

5] Coverage ratios:


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Current ratio (CR) is the ratio of total current assets (CA) to total currentliabilities (CL). Current assets include cash and bank balances; inventoryof raw materials, semi-finished and finished goods; marketablesecurities; debtors (net of provision for bad and doubtful debts); bills

receivable; and prepaid expenses. Current liabilities consist of tradecreditors, bills payable, bank credit, and provision for taxation, dividendspayable and outstanding expenses. This ratio measures the liquidity ofthe current assets and the ability of a company to meet its short-termdebt obligation.CR measures the ability of the company to meet its CL, i.e., CA getsconverted into cash in the operating cycle of the firm and provides thefunds needed to pay for CL. The higher the current ratio, the greater theshort-term solvency. This compares assets, which will become liquid

within approximately twelve months with liabilities, which will be due forpayment in the same period and is intended to indicate whether thereare sufficient short-term assets to meet theshort- term liabilities. Recommended current ratio is 2: 1. Any ratio belowindicates that the entity may face liquidity problem but also Ratio over 2:1 as above indicates over trading, that is the entityis under utilizing itscurrent assets.

LIQUID RATIO:

Meaning:Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratiocomparesthe quick assets with the quick liabilities. It is expressed in the form ofpureratio. 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 assetsLiquid ratio =

Quick liabilities

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL.

QA


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refers to those current assets that can be converted into cashimmediatelywithout any value strength. QA includes cash and bank balances, short-term

marketable securities, and sundry debtors. Inventory and prepaidexpenses areexcluded since these cannot be turned into cash as and when required.QR indicates the extent to which a company can pay its current liabilitieswithout relying on the sale of inventory. This is a fairly stringent measureofliquidity because it is based on those current assets, which are highlyliquid.Inventories are excluded from the numerator of this ratio because they

aredeemed the least liquid component of current assets. Generally, a quickratio of1:1 is considered good. One drawback of the quick ratio is that it ignoresthetiming of receipts and payments.

CASH RATIO

Meaning:

This is also called as super quick ratio. This ratio considers only theabsoluteliquidity available with the firm.

Formula:

Cash + Bank + Marketable securitiesCash ratio =Total current liabilities

Since cash and bank balances and short term marketable securities arethemost liquid assets of a firm, financial analysts look at the cash ratio. Ifthe superliquid assets are too much in relation to the current liabilities then it may

affectthe profitability of the firm.


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INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:-

Meaning:Earnings per Share are calculated to find out overall profitability of theorganization. Earnings per Share represent earning of the companywhether or not dividends are declared. If there is only oneclass ofshares, the earning per share are determined by dividing net profit by

the number of equity shares. EPS measures the profits available to theequity shareholders on each shareheld.

Formula:NPAT

Earnings per share =Number of equity share

The higher EPS will attract more investors to acquire shares in thecompany as it indicates that the business is more profitable enough topay the dividends in time. But remember not all profit earned is going tobe distributed as dividends the company also retains some profits for thebusiness

DIVIDEND PER SHARE:-

Meaning:DPS shows how much is paid as dividend to the shareholders on eachshare held.Formula:

Dividend Paid to Ordinary ShareholdersDividend per Share =Number of Ordinary Shares


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DIVIDEND PAYOUT RATIO:-

Meaning:

Dividend Pay-out Ratio shows the relationship between the dividendspaid to equity shareholders out of the profit available to the equityshareholders.

Formula:

Dividend per shareDividend Payout ratio = *100Earning per share

D/P ratio shows the percentage share of net profits after taxes and afterpreference dividend has been paid to the preference equity holders.

GEARING

CAPITAL GEARING RATIO:-Meaning:Gearing means the process of increasing the equity shareholders returnthrough the use of debt. Equity shareholders earn more when the rate ofthe return on total capital is more than the rate of interest on debts. Thisis also known as leverage or trading on equity. The Capital-gearing ratioshows the relationship between two types of capital viz: - equity capital &preferencecapital & long term borrowings. It is expressed as a pure ratio.

Formula:

Preference capital+ secured loanCapital gearing ratio =Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in thefinancing ofassets of a concern.

PROFITABILITYThese ratios help measure the profitability of a firm. A firm, which

generates a substantial amount of profits per rupee of sales, cancomfortably meet its operating expenses and provide more returns to its


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shareholders. The relationship between profit and sales is measured byprofitability ratios. Thereare two types of profitability ratios: Gross Profit Margin and Net ProfitMargin.

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 excessof revenue over cost. This ratio shows the profit that remains after themanufacturing costs have been met. It measures the efficiency ofproduction as well as pricing. This ratio helps to judge how efficient theconcern is I managing its production,purchase, selling & inventory, how good its control is over the directcost, how productive the concern , how much amount is left to meetother expenses & earn net profit.

Formula:

Gross profitGross profit ratio = * 100Net sales

NET PROFIT RATIO:-

Meaning:

Net Profit ratio indicates the relationship between the net profit & thesales it is usually expressed in the form of a percentage.Formula:NPATNet 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 theoverall efficiency of production, administration, selling,financing, pricing


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and tax management. Jointly considered, the gross and net profit marginratios provide an understanding of the cost and profit structure of a firm.

RETURN ON CAPITAL EMPLOYED:-

Meaning:

The profitability of the firm can also be analyzed from the point of view ofthe total funds employed in the firm. The term fund employed or thecapital employed refers to the total long-term source of funds. It meansthat the capital employed comprises of shareholder funds plus long-termdebts. Alternatively it can also be defined as fixed assets plus networking 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-termliabilities and owner's equity. ROCE indicates the efficiency with whichthe long-term funds of a firm are utilized.

Formula:

NPATReturn on capital employed = *100Capital employed

FINANCIAL

These ratios determine how quickly certain current assets can beconverted into cash. They are also called efficiency ratios or assetutilization ratios as they measure the efficiency of a firm in managingassets. These ratios are based on the relationship between the level ofactivity represented by sales or cost of goods sold and levels ofinvestment 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 aredescribed below:

DEBTORS TURNOVER RATIO (DTO)

Meaning:


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DTO is calculated by dividing the net credit sales by average debtorsoutstanding during the year. It measures the liquidity of a firm's debts.Net credit sales are the gross credit sales minus returns, if any, fromcustomers. Average debtors are the average of debtors at the beginning

and at the end of the year. This ratio shows how rapidly debts arecollected. The higher the DTO, the better it is for the organization.

Formula:

Credit salesDebtors turnover ratio =

Average debtors

INVENTORY OR STOCK TURNOVER RATIO (ITR)

Meaning:

ITR refers to the number of times the inventory is sold and replacedduring the accounting period.

Formula:

COGSStock Turnover Ratio =Average stock

ITR reflects the efficiency of inventory management. The higher theratio, the more efficient is the management of inventories, and viceversa. However, a high inventory turnover may also result from a low

level of inventory, which may lead to frequent stock outs and loss ofsales and customer goodwill. For calculating ITR, the average ofinventories at the beginning and the end of theyear is taken. In general, averages may be used when a flow figure (inthiscase, cost of goods sold) is related to a stock figure (inventories).

FIXED ASSETS TURNOVER (FAT)


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The FAT ratio measures the net sales per rupee of investment in fixedassets.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 whilea low ratio reflects an inefficient use of assets. However, this ratio shouldbe used with caution because when the fixed assets of a firm are oldand substantially depreciated, the fixed assets turnover ratio tends to behigh (because the

denominator of the ratio is very low).

PROPRIETORS RATIO:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business. Itrelates shareholders fund to total assets. This ratio determines the longterm or ultimate solvency of the company.In other words, Proprietary ratio determines as to what extent theownersinterest & expectations are fulfilled from the total investment made in thebusiness operation.Proprietary ratio compares the proprietor fund with total liabilities. It isusually expressed in theform of percentage. Total assets also know it asnet 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 & theworking capital. It helps to judge the quantum of inventories in relation tothe working capital of the business. The purpose of this ratio is to showthe extent to which working capital is blocked in inventories. The ratiohighlights the predominance of stocks in the current financial position ofthe company. It is expressed as apercentage.

Formula:StockStock 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 thesolvency of a concern. It is a qualitative test of solvency. It shows theextent of funds blocked in stock. If investment in stock is higher it meansthat the amount of liquid assets is lower.

DEBT EQUITY RATIO:

MEANING:

This ratio compares the long-term debts with shareholders fund. Therelationship betweenborrowed funds & owners capital is a popularmeasure of the long term financial solvency of a firm. This relationship is

shown by debt equity ratio. Alternatively, this ratio indicates the relativeproportion of debt & equity in financing the assets of the firm. It is usuallyexpressed as a pure ratio.E.g. 2:1

Formula:

Total long-term debt

Debt equity ratio =Total shareholders fund


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Debt equity ratio is also called as leverage ratio. Leverage means theprocess of the increasing the equity shareholders return through the useof debt. Leverage is also known as gearing or trading on equity. Debt

equity ratio shows the margin of safety for long-term creditors & thebalance between debt & equity.

RETURN ON PROPRIETOR FUND:

Meaning:

Return on proprietors fund is also known as return on proprietorsequity or return on shareholders investment or investment ratio. This

ratio indicates the relationship between net profits earned & totalproprietors funds. Return on proprietors fund is a profitability ratio,whichthe relationship between profit & investment by the proprietors inthe concern. Its purpose is to measure the rate of return on the total fundmade available by the owners. This ratio helps to judge how efficient theconcern is in managing the owners fund at disposal. This ratio is ofpractical importance to prospective investors & shareholders.

Formula:NPAT

Return on proprietors fund = * 100Proprietors fund

CREDITORS TURNOVER RATIO:

It is same as debtors turnover ratio. It shows the speed at whichpayments are made to the supplier for purchase made from them. It is a

relation between net credit purchase and average creditors

Net credit purchaseCredit turnover ratio =Average creditors

Months in a yearAverage age of accounts payable =

Credit turnover ratio


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Both the ratios indicate promptness in payment of creditor purchases.Higher creditors turnover ratio or a lower credit period enjoyed signifiesthat the creditors are being paid promptly. It enhances credit worthiness

of the company. A very low ratio indicates that the company is not takingfull benefit of the credit period allowed by the creditors.

IMPORTANCE OF RATIO ANALYSIS:

As a tool of financial management, ratios are of crucial significance. Theimportance of ratio analysis lies in the fact that it presents facts on a

comparative basis & enables the drawing of interference regarding theperformance of a firm. Ratio analysis is relevant in assessing theperformance 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 comparison

6] Trend analysis.

1] LIQUIDITY POSITION: -With the help of Ratio analysis conclusion can be drawn regarding theliquidity position of a firm. The liquidity position of a firm would besatisfactory if it is able to meet its current obligation when they becomedue. A firm can be said to have the ability to meet its short-term liabilitiesif it has sufficient liquid funds to pay the interest on its short maturingdebt usually within a year as well as to repay the principal. This ability isreflected in the liquidity ratio of a firm. The liquidity ratio is particularlyuseful in credit analysis by bank & other suppliers of short term loans.


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2] LONG TERM SOLVENCY: -

Ratio analysis is equally useful for assessing the long-term financialviability 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 bythe leverage/capital structure & profitability ratio Ratio analysis s that focus on earningpower & 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 varioussources of finance or if it is heavily loaded with debt in which case itssolvency is exposed to serious strain. Similarly the various profitability

ratios would reveal whether or not the firm is able to offer adequatereturn to its owners consistent with the risk involved.

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 ofefficiency in management & utilization of its assets. The various activityratios measure this kind of operational efficiency. In fact, the solvency ofa firm is ultimate analysis, dependent upon the sales revenuesgenerated 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 thefinancial position of a firm, the management is constantly concernedabout overall profitability of the enterprise. That is, they are concernedabout the ability of the firm to meets its short term as well as long termobligations to itscreditors, to ensure a reasonable return to its owners & secure optimum

utilization of the assets of the firm. This is possible if an integrated viewis taken & all the ratios are considered together.

5] INTERFIRM COMPARISON:

Ratio analysis not only throws light on the financial position of firm butalso serves as a stepping-stone to remedial measures. This is madepossible due to inter firm comparison & comparison with the industryaverages. A single figure of a particular ratio is meaningless unless it is

related to some standard or norm. One of the popular techniques is tocompare the ratios of a firm with the industry average. It should be


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reasonably expected that the performance of a firm should be in broadconformity with that of the industry to which it belongs. An inter firmcomparison would demonstrate the firms position vice-versa itscompetitors. If the results are at variance either with the industry

average or with the those of the competitors, the firm can seek to identifythe probable reasons & in light, take remedial measures.

6] TREND ANALYSIS:

Finally, ratio analysis enables a firm to take the time dimension intoaccount. In other words, whether the financial position of a firm isimproving or deteriorating over the years. This is made possible by theuse of trend analysis. The significance of the trend analysis of ratio lies

in the fact that the analysts can know the direction of movement, that is,whether the movement is favorableor unfavorable. For example, the ratio may be low as compared to thenorm but the trend may be upward. On the other hand, though thepresent level may be satisfactory but the trend may be a declining one.

ADVANTAGES OF RATIO ANALYSIS

Financial ratios are essentially concerned with the identification of

significant accounting data relationships, which give the decision-makerinsights into the financial performance of a company. The advantages ofratio analysis can be summarized as follows:

decision making and forecasting.

alysis helps in the assessment of the liquidity, operatingefficiency, profitability and solvency of a firm.

-firm as well as inter-firmcomparisons.

s or standardratios helps the management analyze the financial performance ofthe firm.


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LIMITATIONS OF RATIO ANALYSIS

Ratio analysis has its limitations. These limitations are described below:1] Information problems

about analytical output.

out of date, and so might not give a proper indication of the companyscurrent financial position.

balance sheet could be misleading. Ratios based on this information willnot be very useful for decision-making.

2] Comparison of performance over time

When comparing performance over time, there is need to consider thechanges in price. The movement in performance should be in line withthe changes in price.

changes in technology. The movement in performance should be in linewith the changes in technology.

between different accounting years as misleading.

3] Inter-firm comparison

nt capital structures and to makecomparison of performance when one is all equity financed and anotheris a geared company it may not be a good analysis.

may also distort intercompany comparison. Comparing the performanceof two enterprises may be misleading.


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-firm comparison may not be useful unless the firms comparedare of the same size and age, and employ similar production methodsand accounting practices.

a company, comparisons can be distorted by changes inthe price level.

information.

do not indicate future trends and they do not consider economicconditions.

PURPOSE OF RATIO ANLYSIS:

1] To identify aspects of a businesss performance to aid decisionmaking2] Quantitative processmay need to be supplemented by qualitative

Factors to get a complete picture.

3] 5 main areas:-the ability of the firm to pay its way

information to enable decisions to be madeon the extent of the risk and the earning potential of a businessinvestment

information on the relationship between the exposure of thebusiness to loans as opposed to share capital

how effective the firm is at generating profits given salesand or its capital assets

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 creatRETURN ONCAPITAL EMPLOYED:-

Meaning:

The profitability of the firm can also be analyzed from the point of view ofthe total funds employed in the firm. The term fund employed or thecapital employed refers to the total long-term source of funds. It meansthat the capital employed comprises of shareholder funds plus long-term

debts. Alternatively it can also be defined as fixed assets plus networking capital. Capital employed refers to the long-term funds investedby the creditors and the owners of a firm. It is the sum of long-termliabilities and owner's equity. ROCE indicates the efficiency with whichthe 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 beconverted into cash. They are also called efficiency ratios or assetutilization ratios as they measure the efficiency of a firm in managingassets. These ratios are based on the relationship between the level ofactivity represented by sales or cost of goods sold and levels ofinvestment in various assets. The important turnover ratios are debtorsturnover ratio, average collection period, inventory/stock turnover ratio,fixed assets turnover ratio, and total assets turnover ratio. These aredescribed below:


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Meaning:

DTO is calculated by dividing the net credit sales by average debtorsoutstanding during the year. It measures the liquidity of a firm's debts.Net credit sales are the gross credit sales minus returns, if any, fromcustomers. Average debtors are the average of debtors at the beginningand at the end of the year. This ratio shows how rapidly debts arecollected. The higher the DTO, the better it is for the organization.

Formula:

Credit salesDebtors turnover ratio =Average debtors


Meaning:

ITR refers to the number of times the inventory is sold and replacedduring theaccounting period.

Formula:COGSStock Turnover Ratio =Average stock

ITR reflects the efficiency of inventory management. The higher the

ratio, the more efficient is the management of inventories, and viceversa. However, a high inventory turnover may also result from a lowlevel of inventory, which may lead to frequent stock outs and loss ofsales and customer goodwill. For calculating ITR, the average ofinventories at the beginning and the end of theyear is taken. In general, averages may be used when a flow figure (inthiscase, cost of goods sold) is related to a stock figure (inventories).



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The FAT ratio measures the net sales per rupee of investment in fixedassets.

Formula:

Net salesFixed 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 whilea low ratio reflects an inefficient use of assets.However, this ratio shouldbe used with caution because when the fixed assets of a firm are oldand substantially depreciated, the fixed assets turnover ratio tends to behigh (because the

denominator of the ratio is very low).

PROPRIETORS RATIO:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business. Itrelates shareholders fund to total assets. This ratio determines the longterm or ultimate solvency of the company. In other words, Proprietaryratio determines as to what extent the owners interest & expectationsare fulfilled from the total investment made in the business operation.Proprietary ratio compares the proprietor fund with total liabilities. It isusually expressed in the form of percentage. Total assets also know it asnet worth.

Formula:

Proprietary fundProprietary ratio = OR

Total fund

Shareholders fund

Proprietary ratio =


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Fixed assets + current liabilities

STOCK WORKING CAPITAL RATIO:Meaning:

This ratio shows the relationship between the closing stock & theworking capital. It helps to judge the quantum of inventories in relation tothe working capital of the business. The purpose of this ratio is to showthe extent to which working capital is blocked in inventories. The ratiohighlights the predominance of stocks in the current financial position ofthe company. It is expressed as a percentage.

Formula:

StockStock 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 thesolvency of a concern. It is a qualitative test of solvency. It shows theextent of funds blocked in stock. If investment in stock is higher it meansthat the amount of liquid assets is lower.

DEBT EQUITY RATIO:

MEANING:

This ratio compares the long-term debts with shareholders fund. Therelationship between borrowed funds & owners capital is a popularmeasure of the long term financial solvency of a firm. This relationship isshown by debt equity ratio. Alternatively, this ratio indicates the relativeproportion of debt & equity in financing the assets of the firm. It is usuallyexpressed as a pure ratio.E.g. 2:1

Formula:Total long-term debt


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Debt equity ratio is also called as leverage ratio. Leverage means theprocess of the increasing the equity shareholders return through the useof debt. Leverage is also known as gearing or trading on equity. Debtequity ratio shows the margin of safety for long-term creditors & thebalance between debt & equity.


Meaning:

Return on proprietors fund is also known as return on proprietorsequity or return on shareholders investment or investment ratio. Thisratio indicates the relationship between net profits earned & totalproprietors funds. Return on proprietors fund is a profitability ratio,which the relationship between profit & investment by the proprietors inthe concern. Its purpose is to measure the rate of return on the total fundmade available by the owners. This ratio helps tojudge how efficient the concern is in managing the owners fund atdisposal. This ratio is of practical importance to prospective investors &shareholders.

Formula:

NPATReturn on proprietors fund = * 100Proprietors fund


It is same as debtors turnover ratio. It shows the speed at whichpayments are made to the supplier for purchase made from them. It is arelation between net credit purchase and average creditors

Net credit purchaseCredit turnover ratio =Average creditors


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Months in a yearAverage 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 signifiesthat the creditors are being paid promptly. It enhances credit worthinessof the company. A very low ratio indicates that the company is not takingfull benefit of the credit period allowed by the creditors.


As a tool of financial management, ratios are of crucial significance. Theimportance of ratio analysis lies in the fact that it presents facts on acomparative basis & enables the drawing of interference regarding theperformance of a firm. Ratio analysis is relevant in assessing theperformance of a firm in respect of the following aspects:






6] Trend analysis.

1] LIQUIDITY POSITION: -

With the help of Ratio analysis conclusion can be drawn regarding theliquidity position of a firm. The liquidity position of a firm would be

satisfactory if it is able to meet its current obligation when they becomedue. A firm can be said to have the ability to meet its short-term liabilities


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if it has sufficient liquid funds to pay the interest on its short maturingdebt usually within a year as wellas to repay the principal. This ability is reflected in the liquidity ratio of afirm. The liquidity ratio is particularly useful in credit analysis by bank &

other suppliers of short term loans.


Ratio analysis is equally useful for assessing the long-term financialviability of a firm. This respect of the financial position of a borrower is ofconcern 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 earningpower& operating efficiency.

Ratio analysis reveals the strength & weaknesses of a firm in thisrespect. The leverage ratios, for instance, will indicate whether a firmhas a reasonable proportion of various sources of finance or if it isheavily loaded with debt in which case its solvency is exposed to seriousstrain. Similarly thevarious profitability ratios would reveal whether or not the firm is able tooffer adequate return to its owners consistent with the risk involved.

3] OPERATING EFFICIENCY:

Yet another dimension of the useful of the ratio analysis, relevant fromthe viewpoint of management, is that it throws light on the degree ofefficiency in management & utilization of its assets. The various activityratios measure this kind of operational efficiency. In fact, the solvency of

a firm isultimate analysis, dependent upon the sales revenues generatedby 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 thefinancial position of a firm, the management is constantly concernedabout overall profitability of the enterprise. That is, they are concernedabout the ability of the firm to meets its short term as well as long term

obligations to its


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creditors, to ensure a reasonable return to its owners & secure optimumutilization of the assets of the firm. This is possible if an integrated viewis taken & all the ratios are considered together.


Ratio analysis not only throws light on the financial position of firm butalso serves as a stepping-stone to remedial measures. This is madepossible due to inter firm comparison & comparison with the industryaverages. A single figure of a particular ratio is meaningless unless it isrelated to some standard or norm. One of the popular techniques is tocompare the ratios of a firm with the industry average. It should bereasonably expected that the performance of a firm should be in broad

conformity with that of the industry to which it belongs. An inter firmcomparison would demonstrate the firms position vice-versa itscompetitors. If the results are at variance either with the industryaverage or with the those of the competitors, the firm can seek to identifythe probablereasons & in light, take remedial measures.

6] TREND ANALYSIS:

Finally, ratio analysis enables a firm to take the time dimension intoaccount. In other words, whether the financial position of a firm isimproving or deteriorating over the years. This is made possible by theuse of trend analysis. The significance of the trend analysis of ratio liesin the fact that the analysts can know the direction of movement, that is,whether the movement is favorableor unfavorable. For example, the ratio may be low as compared to thenorm but the trend may be upward. On the other hand, though thepresent level may be satisfactory but the trend may be a declining one.


Financial ratios are essentially concerned with the identification ofsignificant accounting data relationships, which give the decision-maker

insights into the financial performance of a company. The advantages ofratio analysis can be summarized as follows:


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efficiency, profitability and solvency of a firm.

a basis for both intra-firm as well as inter-firmcomparisons.

ratios helps the management analyze the financial performance of thefirm.



about analytical output.

several monthsout of date, and so might not give a proper indication of the companyscurrent financial position.

balance sheet could be misleading. Ratios based on this information willnot be very useful for decision-making.


changes in price. Themovement in performance should be in line with the changes in price.




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comparison of performance when one is all equity financed and another

is a geared company it may not be a good analysis.

lective application of government incentives to various companiesmay also distort intercompany comparison. Comparing the performanceof two enterprises may be misleading.


the price level.

information.

s are calculated on the basis of past financial statements. Theydo not indicate future trends and they do not consider economicconditions.


1] To identify aspects of a businesss performance to aid decisionmaking

2] Quantitative processmay need to be supplemented by qualitative


3] 5 main areas:-

the ability of the firm to pay its way



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how effective the firm is at generating profits given sales

and or its capital assets

the rate at which the company sells its stock and theefficiency with which it uses its assets


It is true that the technique of ratio analysis is not a creatRETURN ONCAPITAL EMPLOYED:-

Meaning:

The profitability of the firm can also be analyzed from the point of view ofthe total funds employed in the firm. The term fund employed or thecapital employed refers to the total long-term source of funds. It meansthat the capital employed comprises of shareholder funds plus long-termdebts. Alternatively it can also be defined as fixed assets plus networking capital. Capital employed refers to the long-term funds investedby the creditors and the owners of a firm. It is the sum of long-termliabilities and owner's equity. ROCE indicates the efficiency with whichthe long-term funds of a firm are utilized.

Formula:NPAT

Return on capital employed = *100Capital employed.

FINANCIAL

These ratios determine how quickly certain current assets can beconverted into cash. They are also called efficiency ratios or assetutilization ratios as they measure the efficiency of a firm in managingassets. These ratios are based on the relationship between the level ofactivity represented by sales or cost of goods sold and levels ofinvestment in various assets. The important turnover ratios are debtors

turnover ratio, average collection period, inventory/stock turnover ratio,


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fixed assets turnover ratio, and total assets turnover ratio. These aredescribed below:


Meaning:

DTO is calculated by dividing the net credit sales by average debtorsoutstanding during the year. It measures the liquidity of a firm's debts.Net credit sales are the gross credit sales minus returns, if any, fromcustomers. Average debtors are the average of debtors at the beginningand 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


Meaning:

ITR refers to the number of times the inventory is sold and replacedduring the accounting period.

Formula:

COGSStock Turnover Ratio =

Average stock

ITR reflects the efficiency of inventory management. The higher theratio, the more efficient is the management of inventories, and viceversa. However, a high inventory turnover may also result from a lowlevel of inventory, which may lead to frequent stock outs and loss ofsales and customer goodwill. For calculating ITR, the average ofinventories at the beginning and the end of theyear is taken. In general, averages may be used when a flow figure (in

thiscase, cost of goods sold) is related to a stock figure (inventories).


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The FAT ratio measures the net sales per rupee of investment in fixedassets.

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 whilea low ratio reflects an inefficient use of assets. However, this ratio shouldbe used with caution because when the fixed assets of a firm are oldand substantially depreciated, the fixed assets turnover ratio tends to behigh (because thedenominator of the ratio is very low).

PROPRIETORS RATIO:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business. Itrelates shareholders fund to total assets. This ratio determines the longterm or ultimate solvency of the company. In other words, Proprietaryratio determines as to what extent the owners interest & expectationsare fulfilled from the total investment made in the business operation.Proprietary ratio compares the proprietor fund with total liabilities. It isusually expressed in the form of percentage. Total assets also know it asnet worth.

Formula:Proprietary fund

Proprietary 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 & theworking capital. It helps to judge the quantum of inventories in relation tothe working capital of the business. The purpose of this ratio is to showthe extent to which working capital is blocked in inventories. The ratiohighlights the predominance of stocks in the current financial position ofthe company. It is expressed as apercentage.

Formula:

StockStock 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 thesolvency of a concern. It is a qualitative test of solvency. It shows theextent of funds blockedin stock. If investment in stock is higher it means that the amount ofliquid assets is lower.

DEBT EQUITY RATIO:

MEANING:

This ratio compares the long-term debts with shareholders fund. Therelationship between borrowed funds & owners capital is a popular

measure of the long term financial solvency of a firm. This relationship isshown by debt equity ratio. Alternatively, this ratio indicates the relativeproportion of debt & equity in financing the assets of the firm. It is usuallyexpressed as a pure ratio.E.g. 2:1

Formula:Total long-term debt

Debt equity ratio =


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Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means theprocess of the increasing the equity shareholders return through the use

of debt. Leverage is also known as gearing or trading on equity. Debtequity ratio shows the margin of safety for long-term creditors & thebalance between debt & equity.


Meaning:

Return on proprietors fund is also known as return on proprietors

equity or return on shareholders investment or investment ratio. Thisratio indicates the relationship between net profits earned & totalproprietors funds. Return on proprietors fund is a profitability ratio,which the relationship between profit & investment by the proprietors inthe concern. Its purpose is to measure the rate of return on the total fundmade available by the owners. This ratio helps to judge how efficient theconcern is in managing the owners fund at disposal. This ratio is ofpractical importance to prospective investors & shareholders.

Formula:

NPATReturn on proprietors fund = * 100Proprietors fund


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 arelation between net credit purchase and average creditors .

Net credit purchase

Credit turnover ratio =Average creditors

Months in a year


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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 signifiesthat the creditors are being paid promptly. It enhances credit worthinessof the company. A very low ratio indicates that the company is not takingfull benefit of the credit period allowed by the creditors.


As a tool of financial management, ratios are of crucial significance. Theimportance of ratio analysis lies in the fact that it presents facts on acomparative basis & enables the drawing of interference regarding theperformance of a firm. Ratio analysis is relevant in assessing theperformanceof a firm in respect of the following aspects:






6] Trend analysis.

1] LIQUIDITY POSITION: -

With the help of Ratio analysis conclusion can be drawn regarding theliquidity position of a firm. The liquidity position of a firm would besatisfactory if it is able to meet its current obligation when they becomedue. A firm can be said to have the ability to meet its short-term liabilities

if it has sufficient liquid funds to pay the interest on its short maturingdebt usually within a year as well


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as to repay the principal. This ability is reflected in the liquidity ratio of afirm. The liquidity ratio is particularly useful in credit analysis by bank &other suppliers of short term loans.


Ratio analysis is equally useful for assessing the long-term financialviability of a firm. This respect of the financial position of a borrower is ofconcern to the long-term creditors, security analyst & the present &potential owners of a business. The long-term solvency is measured bythe 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 varioussources of finance or if it is heavily loaded with debt in which case itssolvency is exposed to serious strain. Similarly the various profitabilityratios would reveal whether or not the firm is able to offer adequatereturn to its owners consistent with the risk involved.

3] OPERATING EFFICIENCY:

Yet another dimension of the useful of the ratio analysis, relevant fromthe viewpoint of management, is that it throws light on the degree ofefficiency in management & utilization of its assets. The various activityratios measure this kind of operational efficiency. In fact, the solvency ofa firm is,ultimate analysis, dependent upon the sales revenuesgenerated 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 thefinancial position of a firm, the management is constantly concernedabout overall profitability of the enterprise. That is, they are concernedabout the ability of the firm to meets its short term as well as long termobligations to itscreditors, to ensure a reasonable return to its owners & secure optimumutilization of the assets of the firm. This is possible if an integrated viewis taken & all the ratios are considered together.



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Ratio analysis not only throws light on the financial position of firm butalso serves as a stepping-stone to remedial measures. This is madepossible due to inter firm comparison & comparison with the industryaverages. A single figure of a particular ratio is meaningless unless it is

related to some standard or norm. One of the popular techniques is tocompare the ratios of a firm withthe industry average. It should be reasonably expected that theperformance of a firm should be in broad conformity with that of theindustry to which it belongs. An inter firm comparison would demonstratethe firms position vice-versa its competitors. If the results are at varianceeither with the industry average or with the those of the competitors, thefirm can seek to identify the probablereasons & in light, take remedial measures.

6] TREND ANALYSIS:

Finally, ratio analysis enables a firm to take the time dimension intoaccount. In other words, whether the financial position of a firm isimproving or deteriorating over the years. This is made possible by theuse of trend analysis. The significance of the trend analysis of ratio liesin the fact that the analysts can know the direction of movement, that is,whether the movement is favorableor unfavorable. For example, the ratio may be low as compared to thenorm but the trend may be upward. On the other hand, though thepresent level may be satisfactory but the trend may be a declining one.


Financial ratios are essentially concerned with the identification ofsignificant accounting data relationships, which give the decision-makerinsights into the financial performance of a company. The advantages ofratio analysis can be summarized as follows:


ps in the assessment of the liquidity, operatingefficiency, profitability and solvency of a firm.

-firm as well as inter-firmcomparisons.


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rdratios helps the management analyze the financial performance of thefirm.



n for analysis but it is not decisiveabout analytical output.

out of date, and so might not give a proper indication of the companyscurrent financial position.

orical cost convention is used, asset valuations in thebalance sheet could be misleading. Ratios based on this information willnot be very useful for decision-making.


ere is need to consider thechanges in price. The movement in performance should be in line withthe changes in price.




comparison of performance when one is all equity financed and anotheris a geared company it may not be a good analysis.

lective application of government incentives to various companies

may also distort intercompany comparison. Comparing the performanceof two enterprises may be misleading.


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the price level.

information.e calculated on the basis of past financial statements. They

do not indicate future trends and they do not consider economicconditions.


1] To identify aspects of a businesss performance to aid decisionmaking

2] Quantitative processmay need to be supplemented by qualitative


3] 5 main areas:-the ability of the firm to pay its way



how effective the firm is at generating profits given salesand or its capital assets

the rate at which the company sells its stock and theefficiency with which it uses its assets


It is true that the technique of ratio analysis is not a creative techniquein the sense that it uses the same figure & information, which is already


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appearing in the financial statement. At the same time, it is true thatwhat can be achieved by the technique of ratio analysis cannot beachieved by the mere preparation of financial statement. Ratio analysishelps to appraise the firm in terms of their profitability & efficiency of

performance, either individually or in relation to those of other firmsin the same industry. The process of this appraisal is not complete untilthe ratio so computed can be compared with something, as the ratio allby them do not mean anything. This comparison may be in the form ofintra firm comparison, inter firm comparison or comparison with standardratios. Thus proper comparison of ratios may reveal where a firm isplaced as compared with earlierperiod or in comparison with the other firms in the same industry. Ratioanalysis is one of the best possible techniques available to the

management to impart the basic functions like planning & control. As thefuture is closely related to the immediate past, ratio calculated on thebasis ofhistorical financial statements may be of good assistance to predict thefuture. 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 financialanalysis i.e. liquidity, solvency, activity, profitability & overallperformance, it enables the interested persons to know the financial &operational characteristics of an organisation & take the suitabledecision.

EVALUATION OF APLAB LIMITED THROUGH RATIO

COMPANY PROFILE

ABOUT COMPANY

APLAB Limited is a professionally managed Public Limited companyquoted on the Bombay Stock Exchange. Since its inception in 1962,APLAB has been serving the global market with wide range of electronicproducts meeting the international standards for safety and reliability

such as UL, VDE etc. They specialize in Test and Measurement


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Equipment, Power Conversion and UPS Systems, Self-ServiceTerminals 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.

ABOUT APLAB:

&UPS & fuel dispensers for petroleum sector.

&innovative engineering skills.

MISSION:

budget, as per the customer specification in a manner profitable to both,our customers & so to us.

VISION:recognized for quality & integrity.

GOAL:

customer needs in the personal service industry.

CORPORATE MISSION


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1] To achieve healthy and profitable growth of the company in theinterest of our customers & the shareholders.

2] To encourage teamwork, reward innovation and maintain healthyinterpersonal relations within the organization.

3] To expand knowledge and remain at the leading edge in technologyto serve the global market.

4] To understand the customers needs and provide solutions thanmerely selling products.

5] To create intellectual capital by investing in hardware and embeddedsoftware development.

VALUES & BELIEFS:

Their values & beliefs required that they -ve them an opportunity for input on

how to continuously improve their service goals.

recognition.

issues, to ensure customer satisfaction.

& ideas to improve work environment & increase productivity.

every time is their team commitment * ourway of doing business, it ensures as growth & prosperity.

THE 21STCENTURY SUCCESS

APLAB had planned to enter the 21st Century with a program for a fastand healthy growth in the global market based on companys hightechnology foundation and the reputation of four decades for prompt

customer service and as a reliable solution provider. After completing


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three years in the new era, we can say with pride that we have beendelivering 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 embeddedsystem software has been also enhanced. We believe that professionalservices sector is poised to grow at a very rapid pace.

QUALITY IS OUR WORK CULTURE - ISO 9001:2000

Quality at APLAB is a part of our peoples attitude. Entire organizationis committed to create an environment that encourages individualexcellence and a personal commitment to quality. In APLAB, Quality is

everybodys responsibility and all strive to do it right the first time. It istherefore natural that APLAB Limited is certified for quality with ISO9001:2000 registration.

QUALITY POLICY:ver to its customer products & services that consistently

meet or exceed their requirement.

individual.

products prevent defects & make continual improvement in allprocesses.

QUALITY OBJECTIVE:

CALCULATIONS AND INTERPRETATION OF RATIOS

1] CURRENT RATIO:

Formula:

Current assetsCurrent ratio =


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Current liabilities

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Current assets 46,70,80 51,08,39 53,98,08 58,28,21

Current liabilities 15,93,66 21,62,32 21,28,19 21,36,02Current 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 thatfor one rupee of current liabilities, the current assets are 2.72 rupee areavailable to the them. In other words the current assets are 2.72 timesthe current liabilities. Almost 4 years current ratio is same but currentratio in 2004-2005 is bit higher, which makes company more sound. The

consistency increase in the value of current assets will increase theability of the company to meets its obligations & therefore from the pointof view of creditors the company is less risky.

The available working capital with the company is in increasing order.2001-2002 - 30,77,142002-2003 - 29,46,072003-2004 - 32,69,892004-2005 - 36,92,19The company has sufficient working capital to meets its urgency/obligations. A company has a high percentage of its current assets in theform of working capital, cash that would be more liquid in the sense ofbeing able to meet obligations as & when they become due. From thisworking capital, the company meets its day-to-day financial obligation.Thus, the current ratio throws light on the companys ability to pay its

current liabilities out of its current assets. TheAplab Companys has avery good liquidity position of company.

2] LIQUID RATIO:

Formula:Quick assetsLiquid ratio =

Quick liabilities

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Quick assets 21,80,67 23,01,01 24,01,30 29,11,31

Quick liabilities 15,93,66 21,62,32 21,28,19 21,36,02Liquid ratio 1.36 1.06 1.12 1.36


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COMMENTS:The liquid or quick ratio indicates the liquid financial position of anenterprise. 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 AplabCompany has increased from 1.12 to 1.36 in 2004-2005. Day to daysolvency is more soundfor company in 2004-2005 over the year 2003-2004. This indicates thatthe dependence on the short-term liabilities & creditors are less & thecompany is following a conservative working capitalpolicy. Liquid ratio of Company is favorable because the quick assets ofthe company are more than the quick liabilities. The liquid ratio showsthe companys abilityto meet its immediate obligations promptly.

3] PROPRIETORY RATIO:

Formula:Proprietary fund

Proprietary ratio = OR

Total fund

Shareholders fundProprietary ratio =Fixed assets + current liabilities

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Proprietary fund 21,29,69 21,55,19 22,42,59 24,14,91Total 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. Itmeans that the for every one rupee of total assets contribution of 36paise has come from owners fund & remaining balance 66 paise iscontributed by the outside creditors. This shows that the contribution by

outside to total assets is more than the owners fund. This Proprietaryratio of the Company shows a downward trend for the last 4 years. As


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the Proprietary ratio is not favorable the Companys long-term solvencyposition is not sound.

4] STOCK WORKING CAPITAL RATIO:

Formula:StockStock working capital ratio =Working Capital

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Stock 19,09,77 19,02,79 21,46,20 19,32,88

Working Capital 30,77,14 29,46,07 32,69,89 37,12,19Stock workingcapital ratio62.06 64.58 65.63 52.06

COMMENTS:This ratio shows that extend of funds blocked in stock. The amount ofstock is increasing from the year 2001-2002 to 2003-2004. However inthe year 2004-2005 it has declined to 52%. In the year 2004-2005 thesale is increased which affects decrease in stock that effected inincrease 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 loanCapital gearing ratio =Equity capital & reserve & surplus

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Secured loan 12,13,48 10,27,56 11,38,86 1,72,312Equity capital &reserves &surplus21,29,69 21,55,19 22,42,59 2,41,491Capital gearing

ratio56.97 47.67 50.78 71


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Gearing means the process of increasing the equity shareholders returnthrough the use of debt. Capital gearing ratio is a leverage ratio, whichindicates

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 ratiois all most same which indicates, near about 50% of the fund coveringthe secured loan position. But in the year 2004-2005 the Capital-gearingratio is 71%. It means that during the year 2004-2005 company hasborrowed more secured loans for the companys expansion.

6] DEBT EQUITY RATIO:

Formula:Total long term debt


YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Long term debt 15,81,47 14,80,70 16,97,15 22,60,01Shareholders

fund21,29,69 21,55,19

22,42,59 24,14,91Debt Equity Ratio 0.74 0.68 0.75 0.93

COMMENTS:The debt equity ratio is important tool of financial analysis to appraisethe financial structure of the company. It expresses the relation between

the external equities & internal equities. This ratio is very important fromthe point of view of creditors & owners. The rate of debt equity ratio isincreased 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 alsoincreased. This shows long-term capital structure. Thelower ratio viewed as favorable from long term creditors point of view.

7] GROSS PROFIT RATIO:

Formula:


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Gross profitGross profit ratio = * 100

Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Gross profit 24,54,48 37,65,90 45,57,45 42,37,52Net sales 43,45,46 51,02,37 68,76,89 68,09,78Gross profit Ratio 56.48 73.80 66.27

COMMENTS:

The gross profit is the profit made on sale of goods. It is the profit onturnover. In the year 2001-2002 the gross profit ratio is 56.48%. It hasincreased to 73.80% in the year 2002-2003 due to increase in saleswithoutcorresponding increase in cost of goods sold. However the gross profitratiodecreased to 66.27% in the year 2003-2004.It is further declined to 62.22% in the year 2004-2005, due to high costofpurchases & overheads. Although the gross profit ratio is declined duringtheyear 2002-2003 to 2004-2005. The net sales and gross profit iscontinuouslyincreasing from the year 2001-2002 to 2004-2005.

8] OPERATING RATIO:Formula:COGS+ operating expenses

Operating ratio = *100Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005COGS +Operatingexpenses18,90,98 +2,21,37 +

5,76,7121,96,32 +


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2,69,98 +7,62,2328,33,02 +3,07,51 +

9,17,942,57,226+27,141+84,478Net sales 43,45,46 51,02,37 68,76,89 6,80,978Operating 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 thatindicate the change in the operational efficiency of the company. Theoperating ratio of the company has decreased in all 4 year. This is dueto 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 is54.16%. though the cost has increased in 2002-2003 as compared to2001-2002, reducing continuously over the next two years, indicatedownward trend in costbut upward / positive trend in operational performance.

9] EXPENSE RATIO:

The ratio of each item of expense or each group of expense to net salesis known as Expense ratio. The expense ratio brings out therelationship between various elements of operating cost & net sales.Expense ratio analyzes each individual item of expense or group ofexpense& expresses themas a percentage in relation to net sales.

A] MANUFACTURING EXPENSES:Formula:Manufacturing expenses

Manufacturing expense ratio = *100Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Manufacturing

expenses2,21,37 2,69,98 3,07,51 2,71,41


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Net sales 43,45,46 51,02,37 68,76,89 68,09,78Manufacturing

expenses ratio5% 5.29% 4.47% 3.98%

COMMENTS:The manufacturing expense is shows the downward trend. During theyear 20012002 to 2002-2003 the manufacturing expense increasedbecause 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 isdecreased from 5% to 3.96%. This indicates that the company hascontrol over the manufacturing expense.

B] OTHER EXPENSES:Formula:Other expensesOther expense ratio = *100Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005Other expenses 5,76,71 7,62,23 9,17,94 8,44,78Net sales 43,45,46 51,02,37 68,76,89 68,09,78Other expensesratio13.2% 14.93% 13.34% 12.40%

COMMENTS:

The other expense of company is increased during the 2001-2002 to2003-2004, because increase in the charges of rent of office, equipmentlease rental, printing & stationary, advertisement & publicity, transportoutward & other charges. But during the year 2004-2005 the otherexpenses is decrease from 13.34% to 12.40%. Because decrease inequipment lease rental, advertisement& publicity, transport charges, commission & discount, sales tax &purchase tax .This indicates that the company also controlling the otherexpenses.


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10) NET PROFIT RATIOFormula:NPAT

Net profit ratio = * 100

Net sales

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005NPAT 20,98 82,94 1,72,94 2,75,78Net sales 434546 51,02,37 68,76,89 68,09,78Net profit ratio 0.48 1.6 2.5 4.04

COMMENTS:The net profit ratio of the company is low in all year but the net profit isincreasing order from this ratio of 4 year it has been observe that thefrom 2001-2002 to 2004-2005 the net profit is increased i.e. in 2003 it isincreased by 1.12 in 2003-2004 by 0.9 & in 2004-2005 by 1.54.Profitability ratio of company shows considerable increase. Companyssales have increased in all 4 years & at the same time company hasbeen successful in controlling the expenses i.e. manufacturing & otherexpenses.It is a clear index of cost control, managerial efficiency & sales

promotion.012345

2001-2002 2002-2003 2003-2004 2004-2005

11] STOCK TURNOVER RATIO:

Formula:COGSStock Turnover Ratio =Average stock

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005


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COGS 18,90,98 21,96,32 28,33,02 25,72,26Average stock 5,49,90 5,97,58 6,73,11 6,89,30Stock TurnoverRatio

3.4 3.6 4.20 3.73

COMMENTS:Stock turnover ratio shows the relationship between the sales & stock itmeans how stock is being turned over into sales.The stock turnover ratio is 2001-2002 was 3.4 times which indicate thatthe stock is being turned into sales 3.4 times during the year. Theinventorycycle makes 3.4 round during the year. It helps to work out the stock

holdingperiod, it means the stock turnover ratio is 3.4 times then the stockholdingperiod is 3.5 months [12/3.4=3.5months]. This indicates that it takes 3.5monthsfor stock to be sold out after it is produced.For the last 4 years stock turnover ratio is lower than the standard but itis in increasing order. In the year 2001-2002 to 2004-2005 the stockturnoverratio has improved from 3.4 to 3.73 times, it means with lower inventorythecompany has achieved greater sales. Thus, the stock of the company ismovingfast in the market.

12] RETURN ON CAPITAL EMPLOYED:

Formula:NPAT

Return on capital employed = *100Capital employed

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005NPAT 20,68 82,94 1,72,94 2,75,78Capital employed 38,18,01 37,23,11 40,35,07 47,66,93Return on capitalemployed0.54 2.23 4.28 5.79

COMMENTS:


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The return on capital employed shows the relationship between profit &investment. Its purpose is to measure the overall profitability from thetotal 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 availableto take care of interest, tax,& appropriation.The return on capital employed is show-increasing trend, i.e. from 0.54to 5.79. All of sudden in 2001-2002 the return on capital employedincreased from 0.54 to 5.79. This indicates a very high profitability oneach rupee of investment & has a great scope to attract large amount offresh fund.

13] EARNING PER SHARE:

Formula:NPAT

Earning per share =Number of equity share

YEAR 2001-2002 2002-2003 2003-2004 2004 -2005NPAT 20,98,000 82,94,000 1,72,94,000 2,75,78,000No.ofequity share 50,00,000 50,00,000 50,00,000 50,00,000Earning 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 companywhether or not dividends are declared.The Earning per share is 5.52 means shareholder gets Rs. 5.52 for eachshare 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

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