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A

SUMMER TRAINING REPORT ON

AN ANALYSIS OF FLOW OF FUNDS


Submitted in the partial fulfillment for the degree of
Master of Business Administration

(Session 2009-11)

SUGAR MILLS LTD.

Under The Guidance of: Submitted By: Sh.GURMEET SINGH SAINI


Managing Director 3rd SEM. THE SHAHABAD CO-OPERATIVE no: 976696 Roll MBA-

RAJIV

I here by declare that the project entitled FUNDAMENTAL AND TECHNICAL ANALYSIS submitted in the partial fulfillment of the requirements for the degree of MBA to Swami Devi Dayal Institute of Management Studies under the guidance of MR. RAJIV SINGH,ACCOUNTANT (THE SHAHABAD CO-OPERATIVE SUGAR MILLS LTD.) is my original work and not submitted for the award of my any other degree, diploma, fellowship, or any other similar title or prizes.

RAJIV SAINI

ACKNOWLEDGEMENT

Knowledge is an experience gained in life, it is the choicest possession, which should not be shelved but should be happily shared with others. In this regard I am extremely fortunate having Mr. GURMEET SINGH as THE MANAGING DIRECTOR of THE SHAHABAD CO-OPERATIVE SUGAR MILLS LTD. Nothing concrete can be achieved without optimum combination of inspection and perspiration. Like all other studies, this work is also result of the interaction of a number of minds who directly or indirectly have contributed for completing this project. I owe a lot to many for the inspection part. But thinking people who have contributed to a project of a trainee little saying thank you at academic award. It gives me tremendous pleasure in acknowledging the valuable assistance extended to me by various personalities in successful completion of this project report. I am extremely grateful to Mr. Rajiv Khushwa, head training and development for providing me the proper guidance to undergo my training program. I, hereby, acknowledge my sincere gratitude to all those people at concern who gave me their valuable assistance and co-operation to complete my training at THE SHAHABAD CO-OPERATIVE SUGAR MILLS LTD.

RAJIV SAINI

Table of Contents:-

Title Page Certificate Declaration Acknowledgement CHAPTER 1: A BRIEF OVERVIEW OF THE SHAHABAD COOPERATIVE SUGAR MILLS LTD. An Introduction to THE SHAHABAD CO-OPERATIVE SUGAR MILLS LTD. Performances of the mills Area of operation CHAPTER 2: RESEARCH AND METHDOLOGY Objectives Problem Statement. Objectives of the research Research Design Data Collection Analysis & Interpretation CHAPTER 3: HISTORY OF SUGAR AND SUGAR INDUSTRY

CHAPTER 4: RATIO ANALYSIS OF THE SHAHABAD COOPERATIVE SUGAR MILLS LTD. Meaning of Ratio Analysis Advantages of Ratio Analysis Limitations of Ratio Analysis

Classification of Ratio CHAPTER 5: CONCLUSION

INTRODUCTION TO PROJECT
In order to determine whether the financial position of the company is satisfactory or the financial data are analyzed. Different methods are used for this purpose. I have chosen one of these methods that is Ratio Analysis. I am doing my summer internship in The Shahabad Cooperative Sugar Mill Ltd. and my project report is Fundamental and technical analysis of Sugar Mill. Primary objective of this report is to analyze the financial position of the company which is helpful in decision making as well as help to analyze the performance of the company in past. Ratio Analysis is the technique of analyzing financial statements. It helps in analyzing the financial soundness or weakness. Ratios are the quantitative relationship between two items for the purpose of comparison. The items which are present in profit and loss account and balance sheet are interrelated and this relationship can be calculated with the help of ratios. Ratios are used to analyze the profitability, activity or operating efficiency and solvency of the business. For preparing this report I am taking help of annual reports of company, various books. Technical analysis is a method of forecasting prices of stocks, bonds futures contracts, indices, or other financial instruments. The goal of technical analysis is to predict future price level or direction. It tends not to be the goal of technical analysis to explain why prices behave as they do; that would be fundamental analysis Technical analysis primarily studies the action of a financial market. The working principle behind technical analysis is that any influence on the market is already reflected in current price

levels. Followers of technical analysis believe that: 1) prices move in trends, 2) history repeats itself, and 3) the market discounts everything. Technical analysis involves the use of different kinds of charts, or other market indicators such as moving averages, volume and open interest, oscillators, Japanese candlesticks, Elliott Wave Theory, and cycle analysis.

It is important to understand that the realm of technical analysis is not limited to charting. Technical analysis is always primarily concerned with price trends. Anything that can influence the price trend is of interest to a technical analyst. As an example, many technical analysts monitor surveys of investor enthusiasm. These surveys attempt to gauge the general attitude of the investment community to determine whether investors are bearish or bullish. Technical analysts use these surveys to help determine whether a trend will reverse or whether a new trend will develop. A technical analyst would be alerted that a trend might change when these surveys report extreme investor reactions. When surveys are overly bullish, for example, a technical analyst will look for evidence that an uptrend will reverse. The logic being that if most investors are bullish, then they would have already bought the market (anticipating that the market will move higher). But because most investors are bullish and have invested, it is safe to assume that there are few buyers remaining in the market. With most investors long, there are more potential sellers in the market than buyers despite the fact that the overall attitude of investors is bullish. This implies that the market is set to trend down and is an example of a technical analysis concept called contrarian trading.

THE SHAHABAD CO-OPERATIVE SUGAR MILLS LTD.


Shahabad Markanda town is situated on Delhi-Chandigarh highway, at a distance of 20kms. from Kurukshetra towards Ambala. The Shahabad Co-operative Sugar Mill is situated on Shahabad-Ladwa road at a distance of 3kms. from National Highway i.e. DelhiChandigarh road towards Ladwa. The Shahabad Co-operative Sugar Mills Shahabad(M) was registered as Co-operative Society on 09-01-1976. The Letter of intent for establishment of the Sugar Mills of 1250 TCD was received on 14-07-1981 and the commercial production was started on 06-02-1985. The 1250 TCD plant has given excellent results. It was observed that Shahabad area has given potential for the increase in sugarcane production. It was decided to increase the capacity of the Mill from 1250 TCD to 3500 TCD. The plant started crushing at full capacity of 3500 TCD from 07-11-1995 i.e. from crushing season 1995-96.

The Board of Directors takes all the policy decisions of the Mills. The decisions during the meeting of Board of Directors are taken by the majority view and the government nominees have the dissenting power. If any Government nominee gives his dissenting note on any resolution then the matter is referred to the Government for the final decisions under section 29(3) of the Haryana Co-operative Societies Act 1984. The decision of the Government will be binding on the society and will be considered

as per resolution of the Society. As per bye-laws no.45 the B.O.D. shall consist of 16 Directors as under: Six Directors to be selected by the producer members admitted. Two Directors to be selected by the non-producer members admitted. Three Directors to be nominated by the State Government till Share Capital contributed by the Government is fully retired and load from financial institutions is repaid. Two nominee Directors of the Financial Institutions until load taken from them is repaid. Two Directors to be nominated by the State Government having intimate knowledge of the Sugar Industry and are professionally qualified. Managing Director as appointed by the State Government. The State Government has nominated three directors as under: Deputy Commissioner as Chairman. Managing Director, Haryana State Federation of Co-operative Sugar Mills Ltd., or his nominee. Registrar Co-operative Societies, or his nominee. As loan has been fully repaid by the Mills so no Director representing Financial Institutions is on the Board of Directors of the Shahabad Co-operative Sugar Mills.

As per bye-laws no. 56, there shall be an Executive Committee Consisting of seven persons as follow:-

Chairman of the Board of Directors as Ex-officio. Vice-Chairman.

One nominee Director of the Industrial Finance Corporation of India. Three Directors nominated by the Board at least one of them to be State Government nominee of the Board. Managing Director, who shall be the Ex-officio member convener. Performance:-

The working of The Shahabad operative Sugar Mills has been praise-worthy right from the inception. The Mills has set unique standards/records at National Level. The Mills has begged many technical efficiency awards and cane development awards at National Level. The details of the awards given to the Shahabad Cooperative Sugar Mills Ltd., by the National Federation of operative Sugar Factories Ltd., Delhi is given below:-

Co-

Co-

Efficiency Award Cane Development Efficiency Award Efficiency Award Technical Commendation Certificate Cane Development Efficiency Award Technical Commendation Certificate Technical Efficiency Award

1988-89 1988-89 1989-90 1990-91 1991-92 1993-94 1994-95

Best Financial Management Award Best Co-operative Sugar Mills Award 03 1st Prize in Financial Management Best Co-operative Sugar Factory 2nd Prize for Cane Development 1st Prize for Best Co-operative Mill Cane Development Award Technical Efficiency Award Best Co-operative Sugar Mills Award 2007-08 Best Co-operative Sugar Mills Award 2008-09

2002-03 20022003-04 2003-04 2003-04 2004-05 2005-06 2006-07

Share capital and dividends:The authorized share capital of the Shahabad Co-operative Sugar Mills Ltd. Is Rs.30 crores. Each share is of Rs. 100 each.This Mills has returned the State Government Share Capital of Rs.2 crores on the direction of the Registrar Cooperative Societies Haryana, Chandigarh on 16-03-99. The Mill has total share capital of Rs.16.16 crores of which Rs.1.47 crores is the share of the State Government.

For the first time, the Mills had distributed dividends @ 7.5% to all of its share holders in the year 1994-95 for the year 1993-94. Again as per decision taken in the BOD meeting on 10-06-1998, the Mill has distributed dividends @ 10% to all the shareholders for the year 1997-98. During the year 2006-07, the Mill has again distributed dividends @ 10% to its shareholders. This is the maximum dividend as per byelaws of the Mills.

The crushing season 2006-07 of the Mills was started on 18-11-2006 and worked up to 30-05-2007. The Mill has crushed 71.67 lacks qtls. of sugarcane and produced 7.25 lac quintals of sugar during the season 2006-07. The sugar

recovery for the season 2006-07 was achieved 10.05%. The Mill is paying sugarcane price for early, mid and general varieties @ Rs.138/_, Rs.128/_ & Rs.126/_ per quintal respectively

The payment to the farmers on account of supply of cane by them is directly made into the account of the growers through concerned bank with in 7days after the supply. Distribution of indents for the purchase of cane is done through computers & advance calendaring on the basis of Parta. The Mill has paid all cane price of Rs.9531.00 lacs to the farmers for the season 2006-07. The Mill has also disbursed bonus @ Rs.5/- per quintel in addition to the cane price fixed by the State Government to the suppliers against the cane supplied during the season 2004-05. Area of sugarmill :The area of the Mills is in radius of 32kms. It spread 16kms. towards Yamunanagar and 25 kms. in other directions. In the area of the Mills, there are three cane growers societies i.e. Radaur, Mustfabad & kesri, through which around 50% sugarcane is purchased directly from growers by the Mills.

Area of sugarcane The area under sugarcane is 42000 acres during the crushing season 2006-07. There are 400 villages in the reserved area of Shahabad Co-operative Sugar Mills. 11500 growers supply sugarcane to the Miils. For the convenience of the cane growers, the Mill has set up 27 cane Purchasing Centres in its reserved area. Purchi Distribution for the purchase of cane is done by the computer and advance

calendaring during the crushing season by the Mills. As per the policy of Haryana Government the payment to the growers is made within 7 days through banks and co-operatives societies, by the Mills. Under the sugarcane development plan, the Mill is providing various facilities to its cane growers to increase the production of sugarcane. Amongst the facilities, the facilities of interest free loan against the sugarcane seed for the development of high varieties, interest free loan and 10% subsidy for pesticides, hot and moist air treated sugarcane seed free of cost and subsidy @ 300 per acre for sowing treated seed are the main. The Mill has constructed a Kisan Rest House in its Cane Yard. The Rest House is equipped with all modern facilities for its growers so that no inconvenience is caused to the cane growers. Newly installed Co-generation plant:The Mill has expand its capacity of the plant from 3500 TCD to 6000 TCD along with 9-10 MW co-generation plant project has been planted by National Federation of Co-operative Sugar Factories Ltd., New Delhi with the cost of Rs.112 crores. As per Sugar Federation guidelines, the project report of expansion cum modernization has been implemented in two phases. The plant capacity will be enhanced from 3500 TCD to 5000 TCD in first phase and 5000 TCD to 6000 TCD along with 9 to 10 MW co-generation project will be taken up in the second phase. The Mill has installed on-line computer system in all the offices of the Mills & work of each section is being done through the on-line computer. The Government of Haryana has decided to set up a Distillery & Ethanol Project of 45 KLPD at Shahabad Co-operative Sugar Mills. The BOD of the Mills has also approved the Distillery & Ethanol Project.

Biological Laboratory To save the sugarcane crop from pest and insects, the Shahabad Cooperative Sugar Mills installed a Biological Laboratory in which Parasites are being given in cane growers free of cost.

Kisan Sewa Kendra To provide best quality fertilizers, seeds, pesticides & insecticides to the growers, the mills has started Kisan Sewa Kendra where growers can buy items on the rates cheaper than the market rates. Petrol Pump The Mill has also installed a Petrol Pump for the convenience of the farmers.

Magazines and Pamphlets are being distributed to farmers for providing latest technical knowledge about sugarcane.

Staff Strength & Facilities to Workers:-

The approved staff strength sanctioned for 1250 TCD plant was 769 out of which there are 270 permanent, 499 seasonal permanent & 86 daily wage employees. Due to expansion of the plant from 1250 TCD to 3500 TCD, the staff strength approved for the expanded plant is 898. The breakup of the approved staff strength (department wise), is as under:-

Permanent Seasonal

Daily

Total

Wagers

General & Accounts

114

33

147

Cane

54

160

27

241

Manufacturing

10

200

219

Engineering Total

121 299

151 544

19 55

291 898

The Registrar Co-operative Societies (Sugar Mills) has revised the staff strength of 3500 TCD plant. As per revised staff strength, the break-up of the approved staff strength (department wise) is as under:-

Permanent Seasonal

Daily

Total

Wagers

General & Accounts

95

29

124

Cane

54

137

30

221

Manufacturing

10

184

30

224

Engineering Total

127 286

125 475

30 90

282 851

At present 294 permanent, 459 seasonal permanent and 170 daily wagers are working in the Mills.

The Mill has 105 quarters and 50 dormitories for its employees. There is also a modern canteen in the Mills premises where the facilities of tea, meal etc. are available for workers. In addition to that, the Mill is also providing various facilities to the workers like dress, bonus, ex-gratia, encashment of earned leave, gratuity etc.

OBJECTIVES OF THE STUDY


Objective of Project Report : The main objective of the Project Report is Find the Ratio Analysis of company. And sub objectives of this report is understand the Meaning of Ratio, Pure Ratio or Simple Ratio, Advantages of Ratio Analysis, Limitations of Ratio Analysis, classification of Ratio, Liquidity Ratio, Profitability Ratio or Income Ratio, Activity & Turnover Ratio, Return on Capital Employed

MAIN OBJECTIVES: To study the organization from various fundamental parameters. organization from various technical

To study the parameters.

SUB OBJECTIVES: To understand the meaning of Ratio, Pure Ratio or Simple Ratio.

Advantages and Limitations of Ratio Analysis Classification of Ratio

RESEARCH METHODOLOGY
The way in which the data are collected for the research project Studies the sources and nature of the Federal tax law and of its legislative, administrative and judicial explanations and interpretations, the All of the techniques, methods and procedures adopted in terminology work to carry out terminology research.. Steps of research methodology: Problem Statement. Objectives of the research Research Design Data Collection Analysis & Interpretation

Problem Statement:-

A Problem Statement is the description of the issues and the problems which are supposed to be addressed by a problem solving team. A problem solving team can be a management team of a company, researchers etc. A business research paper highlights the management issue which is to be resolved and problem statement gives the concise description of the issue. Therefore, problem statement gives a specific purpose to be achieved. The primary aim of problem statement is to converge the attention of the target audience towards one point. If the scope of statement is too limited then it can limit the innovations and creativity.

Problem Statement of the Research: To study the Financial Position of the Sugar Mill. To study the creditworthiness of the Sugar Mill. To study the long term & short term solvency of the Sugar Mill. To study the market value of shares. .

OBJECTIVES OF THE RESEARCH


o MAIN OBJECTIVES:

To study the organization from various fundamental parameters. organization from various technical

To study the parameters.

o SUB OBJECTIVES: To study various sources of raising capital with special reference to The Shahabad Cooperative Sugar Mill.

To study various working capital management strategies followed by The Shahabad Cooperative Sugar Mill.

RESEARCH DESIGN:Before examining types of research designs it is important to be clear about the role and purpose of research design. We need to understand what research design is and what it is not. We need to know where design ts into the whole research process from framing a question to nally analysing and reporting data

Descriptive research
Although some people dismiss descriptive research as `mere description', good description is fundamental to the research enterprise and it has added immeasurably to our knowledge of the shape and nature of our society. Descriptive research encompasses much government sponsored research including the population census, the collection of a wide range of social indicators and economic information such as household expenditure patterns, time use studies, employment and crime statistics

and the like. Descriptions can be concrete or abstract. A relatively concrete description might describe the ethnic mix of a community, the changing age prole of a population or the gender mix of a workplace Good description provokes the `why' questions of explanatory research. If we detect greater social polarization over the last 20 years (i.e. the rich are getting richer and the poor are getting poorer) we are forced to ask `Why is this happening?' But before asking `why?' we must be sure about the fact and dimensions of the phenomenon of increasing polarization. It is all very well to develop elaborate theories as to why society might be more polarized now than in the recent past, but if the basic premise is wrong (i.e. society is not becoming more polarized) then attempts to explain a non-existent phenomenon are silly. Of course description can degenerate to mindless fact gathering or what C.W. Mills (1959) called `abstracted empiricism'. There are plenty of examples of unfocused surveys and case studies that report trivial

information and fail to provoke any `why' questions or provide any basis for generalization. However, this is a function of inconsequential descriptions rather than an indictment of descriptive research itself.

DATA COLLECTION: Primary Data Secondary data: Annual Reports of the Sugar Mill. Journals of the Sugar Mill. Web sites. Different Authors Books.

ANALYSIS & INTERPRETATION:Graph &tables.

History of Sugar and Sugar Industry

India has been known as the original home of sugar and sugarcane. Indian mythology supports the above fact as it contains legends showing the origin of sugarcane. India is the second largest producer of sugarcane next to Brazil. Presently, about 4 million hectares of land is under sugarcane with an average yield of 70 tonnes per hectare. India is the largest single producer of sugar including traditional cane sugar sweeteners, khandsari and Gur equivalent to 26 million tonnes raw value followed by Brazil in the second place at 18.5 million tonnes. Even in respect of white crystal sugar, India has ranked No.1 position in 7 out of last 10 years.

Traditional sweeteners Gur & Khandsari are consumed mostly by the rural population in India. In the early 1930s nearly 2/3rd of sugarcane production was

utilised for production of alternate sweeteners, Gur & Khandsari. With better standard of living and higher incomes, the sweetener demand has shifted to white sugar. Currently, about 1/3rd sugarcane production is utilised by the Gur & Khandsari sectors. Being in the small scale sector, these two sectors are completely free from controls and taxes which are applicable to the sugar sector. The advent of modern sugar processing industry in India began in 1930 with grant of tariff protection to the Indian sugar industry. The number of sugar mills increased from 30 in the year 1930 - 31 to 135 in the year 1935-36 and the production during the same period increased from 1.20 lakh tonnes to 9.34 lakh tonnes under the dynamic leadership of the private sector. The era of planning for industrial development began in 1950-51 and Government laid down targets of sugar production and consumption, licensed and installed capacity, sugarcane production during each of the Five Year Plan periods. The targets and achievements during various plan periods are given below.

The discovery of sugarcane, from which sugar as it is known today, is derived dates back unknown thousands of years. It is thought to have originated in New Guinea, and was spread along routes to Southeast Asia and India. The process known for creating sugar, by pressing out the juice and then boiling it into crystals, was developed in India around 500 BC

Its cultivation was not introduced into Europe until the middle-ages, when it was brought to Spain by Arabs. Columbus took the plant, dearly held, to the West Indies, where it began to thrive in a most favorable climate

It was not until the eighteenth century that sugarcane cultivation was began in the United States, where it was planted in the southern climate of New Orleans. The very first refinery was built in New York City around 1690; the industry was established by the 1830s. Earlier attempts to create a successful industry in the U.S. did not fare well; from the late 1830s, when the first factory was built. Until 1872, sugar factories closed down almost as quickly as they had opened. It was 1872 before a factory, built in California, was finally able to successfully produce sugar in a profitable manner. At the end of that century, more than thirty factories were in operation in the U.S.

Manufucturing
Sugar (sucrose) is a carbohydrate that occurs naturally in every fruit and vegetable. It is a major product of photosynthesis, the process by which plants transform the sun's energy into food. Sugar occurs in greatest quantities in sugarcane and sugar beets from which it is separated for commercial use. The natural sugar stored in the cane stalk or beet root is separated from rest of the plant material through a process known as refining.

Pressing of sugarcane to extract the juice. Boiling the juice until it begins to thicken and sugar begins to crystallize. Spinning the crystals in a centrifuge to remove the syrup, producing raw sugar. Shipping the raw sugar to a refinery where it is washed and filtered to remove remaining non-sugar ingredients and color. Crystallizing, drying and packaging the refined sugar

Beet sugar processing is similar, but it is done in one continuous process without the raw sugar stage. The sugar beets are washed, sliced and soaked in hot water to separate the sugar -containing juice from the beet fiber. The sugar-laden juice is then purified, filtered, concentrated and dried in a series of steps similar to

cane sugar processing. For the sugar industry, capacity utilization is conceptually different from that applicable to industries in general. It depends on three crucial factors the actual number of ton of sugarcane crushed in a day, the recovery rate which generally depends on the quality of the cane and actual length of the crushing season.

RATIO ANALYSIS
Meaning of Ratio:- A ratio is simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to Accountants Handbook by Wixon, Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. Ratio Analysis:- Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication. It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It is helpful tool to aid in applying judgement, otherwise complex situations. Ratio analysis can represent following three methods. Ratio may be expressed in the following three ways : 1. Pure Ratio or Simple Ratio :- It is expressed by the simple division of one number by another. For example , if the current assets of a business are Rs. 200000 and its current liabilities are Rs. 100000, the ratio of Current assets to current liabilities will be 2:1.

2. Rate or So Many Times :- In this type , it is calculated how many times a figure is, in comparison to another figure. For example , if a firms credit sales during the year are Rs. 200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors. 3. Percentage :- In this type, the relation between two figures is expressed in hundredth. For example, if a firms capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit capital, in term of percentage, is 200000/1000000*100 = 20% ADVANTAGE OF RATIO ANALYSIS 1. Helpful in analysis of Financial Statements. 2. Helpful in comparative Study. 3. Helpful in locating the weak spots of the business. 4. Helpful in Forecasting. 5. Estimate about the trend of the business. 6. Fixation of ideal Standards. 7. Effective Control. 8. Study of Financial Soundness. LIMITATIONS OF RATIO ANALYSIS

1.

Comparison not possible if different firms adopt different accounting policies.

2. Ratio analysis becomes less effective due to price level changes. 3. Ratio may be misleading in the absence of absolute data. 4. Limited use of a single data. 5. Lack of proper standards. 6. False accounting data gives false ratio. 7. Ratios alone are not adequate for proper

conclusions. 8. Effect of personal ability and bias of the analyst. CLASSIFICATION OF RATIO Ratio may be classified into the four categories as follows: A. Liquidity Ratio a. Current Ratio b. Quick Ratio or Acid Test Ratio B. Leverage or Capital Structure Ratio a. Debt Equity Ratio b. Debt to Total Fund Ratio

c. Proprietary Ratio d. Fixed Assets to Proprietors Fund Ratio e. Capital Gearing Ratio f. Interest Coverage Ratio

C. Activity Ratio or Turnover Ratio a. Stock Turnover Ratio b. Debtors or Receivables Turnover Ratio c. Average Collection Period d. Creditors or Payables Turnover Ratio e. Average Payment Period f. Fixed Assets Turnover Ratio

g. Working Capital Turnover Ratio D. Profitability Ratio or Income Ratio

(A) Profitability Ratio based on Sales : a. Gross Profit Ratio b. Net Profit Ratio c. Operating Ratio d. Expenses Ratio

(B) Profitability Ratio Based on Investment : I. Return on Capital Employed

II. Return on Shareholders Funds : a. Return on Total Shareholders Funds b. Return on Equity Shareholders Funds c. Earning Per Share d. Dividend Per Share e. Dividend Payout Ratio f. Earning and Dividend Yield

g. Price Earning Ratio LIQUIDITY RATIO (A) Liquidity Ratio:- It refers to the ability of the firm to meet its current liabilities. The liquidity ratio, therefore, are also called Short-term Solvency Ratio. These ratio are used to assess the short-term financial position of the concern. They indicate the firms ability to meet its current obligation out of current resources. In the words of Saloman J. Flink, Liquidity is the ability of the firms to meet its current obligations as they fall due. Liquidity ratio include two ratio :a. Current Ratio b. Quick Ratio or Acid Test Ratio

a. Current Ratio:- This ratio explains the relationship between current assets and current liabilities of a business. Formula: Current ratio = Current Assets/Current liabilities

Current Assets:-Current assets includes those assets which can be converted into cash with in a years time. Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors(Debtors Provision) + Stock(Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid Expenses. Current Liabilities :- Current liabilities include those liabilities which are repayable in a years time. Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable with in a Year. PARTICULARS 2006 2007 2008 2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) CURRENT ASSETS:Inventory Debtors 78.17 Cash & Bank balances 332.62 7375.31 6067.44 56.72 11467.96 120.99 9535.40 69.43

35.80

134.56

163.16

Loan & Advances 3120.79 Total

2029.16

1346.42

1477.17

9496.99

7669.41

13177.72

13066.93

CURRENT LIABILITIES:Creditors Other C.L Total 93.23 4103.41 4196.64 32.21 2928.06 2960.27 93.40 8763.28 8856.68 8398.33

Current Ratio

2.26

2.59

1.48

1.56

Significance :- According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio. It means that current assets of a business should, at least , be twice of its current liabilities. The higher ratio indicates the better liquidity position, the firm will be able to pay its current liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of working capital. The biggest drawback of the current ratio is that it is susceptible to window dressing. This ratio can be improved by an equal decrease in both current assets and current liabilities.

Comments:-

As the current ratios of years 2006 & 2007 was more than the rule of thumb which shows mills extra money was invested in the current assets and specifically in the inventory which means that there are extra funds are invested in the inventory. Current ratio of years 2008 & 2009 was less the 2:1 which was also un satisfactory because it shows that the mill cannot repaid its short term obligations out of its current assets easily . It has to take external funds if its liabilities demand for payment within one year.

But while analyzing the financial position , we have to consider other factors like:Nature of Product :- As the demand for sugar is on continue basis so its investment in stock may have good symbols. Goodwill:- As the Goodwill of the Mill is very good ,so it has no problem in the payment of its creditors because they have faith on the sugar mill that it will make their payments timely. And in the actual The Sugar Mill has gain a goodwill on its relations with the creditors. Stock conversion ratio:- Its SCR is also satisfactory except of year 2008 which is 14.5 months. So in the year 2008 its C.R is unsatisfactory. In the other year , its liquidity position is satisfactory.

b. Quick Ratio:- Quick ratio indicates whether the firm is in a position to pay its current liabilities with in a month or immediately. Formula:

Quick Ratio = Liquid Assets/ Current Liabilities

Liquid Assets means those assets, which will yield cash very shortly. Liquid Assets = Current Assets Stock Prepaid Expenses PARTICULARS 2009 2006 2007 2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs)

QUICK ASSETS:Debtors 78.17 Cash & Bank balances 332.62 Loan & Advances 3120.79 Total 3531.58 CURRENT LIABILITIES:Creditors Other C.L Total 93.23 4103.41 4196.64 32.21 2928.06 2960.27 93.40 8763.28 8856.68 8398.33 56.72 120.99 69.43

35.80

134.56

163.16

2029.16

1346.42

1477.17

2121.68

1601.97

1709.76

Quick Ratio:0.42

0.50

0.54

0.19

Significance :- An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This ratio is a better test of shortterm financial position of the company.

Comments:Quick Ratio of the Sugar Mill was unsatisfactory because it was less than the ideal ratio 1:1 . It shows that its low liquidity position. But as it has fast moving stock in the 2009, so its short term position unsatisfactory. years 2006.,2007& was a little bit

As in the year 2008 , its quick ratio & stock conversion ratio was very unsatisfactory ,so in this year its liquidity position was not good.

LEVERAGE OR CAPITAL STRUCTURE RATIO:(B) Leverage or Capital Structure Ratio :- This ratio disclose the firms ability to meet the interest costs regularly and Long term indebtedness at maturity.

These ratio include the following ratios : a. Debt Equity Ratio:- This ratio can be expressed in two ways: First Approach : According to this approach, this ratio expresses the relationship between long term debts and shareholders fund. Formula: Debt Equity Ratio=Long term Loans/Shareholders Funds or Net Worth

Long Term Loans:- These refer to long term liabilities which mature after one year. These include Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public Deposits etc. Shareholders Funds :- These include Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account. Second Approach : According to this approach the ratio is calculated as follows:Formula: Debt Equity Ratio=External Equities/internal Equities

Debt equity ratio is calculated for using second approach. PARTICULARS 2009 2006 2007 2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs)

EXTERNAL EQITIES:Long term funds Short term funds Total INTERNAL EQITIES:Share Capital Reserve & Surplus Total 1501.12 5459.15 6958.93 1367.27 5086.88 6454.15 1367.36 4864.79 6232.15 1367.40 6797.68 8165.06 94.94 4196.64 4291.58 24.06 2960.27 2984.33 61.12 8856.68 8917.80 471.66 8398.33 8869.99

DEBT EQITY RATIO

0.62

0.46

1.41

1.09

Significance :- This Ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally, debt equity ratio of is considered safe. If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term point of view, as it indicates that more and more funds invested in the business are provided by long-term lenders. The lower this ratio, the better it is for long-term lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders.

Comments:The Debt Equity Ratio of the Sugar Mill indicates that they invest very less amount from the long term funds. Sugar Mill has adopted a safe financial planning from long term point of view.

From the shareholders point of view, it indicates unsatisfactory position because it indicates that Mill has not been able to use low outsiders funds to magnify their earnings. By analyzing this ratio, we can interpret that Sugar Mill uses a funds by ploughing back of profits in the mill. Along Mill uses the short term funds in comparison of long term funds. Thus the sugar Mill can use more funds from outside so that it can increase its earning & shareholders earning.

b. Debt to Total Funds Ratio : This Ratio is a variation of the debt equity ratio and gives the same indication as the debt equity ratio. In the ratio, debt is expressed in relation to total funds, i.e., both equity and debt. Formula: Debt to Total Funds Ratio = Long-term Loans/Shareholders funds + Longterm Loans PARTICULARS 2009 2006 2007 2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Long term funds Shareholders Funds Debt to total funds ratio 94.94 6958.93 1.34% 24.05 6454.15 0.5% 61.12 6232.15 1% 471.66 8165.68 0.6%

Significance :- Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory. In other words, the proportion of long term loans should not be more than 67% of total funds.

A higher ratio indicates a burden of payment of large amount of interest charges periodically and the repayment of large amount of loans at maturity. Payment of interest may become difficult if profit is reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower ratio is better from the long-term solvency point of view. Comments:In the year 2006 , Debt to total funds ratio is 1.34% which is less than the 67% but it is its highest ratio in this year it uses more debts in the comparison of other years . In the year 2007, this ratio dec. with a very much amount which shows Sugar Mill has not relied on outside sources for raising long term funds. There is enough scope for the company

c. Proprietary Ratio:- This ratio indicates the proportion of total funds provide by owners or shareholders. Formula: Proprietary Ratio = Shareholders Funds/Total assets PARTICULARS 2006 2007 2008 2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) SHAREHOLDERS FUNDS:Share Capital Reserve & Surplus Total Total Assets:1501.12 5459.15 6958.93 1367.27 5086.88 6454.15 1367.36 4864.79 6232.15 1367.40 6797.68 8165.06

Fixed Assets Investment Current Assets Total

1483.28 271.58 9496.99 11251.65

1497.52 271.58 7669.41 9438.31

1700.64 271.58 13177.72 15149.95

3696.54 271.58 13066.93 17035.05

Proprietary Ratio:-

61.84%

68.38%

41.14%

47.93%

Significance :- This ratio should be 33% or more than that. In other words, the proportion of shareholders funds to total funds should be 33% or more. A higher proprietary ratio is generally treated an indicator of sound financial position from long-term point of view, because it means that the firm is less dependent on external sources of finance. If the ratio is low it indicates that long-term loans are less secured and they face the risk of losing their money. Comments: - As this ratio should be more than 33% because this shows that the firm is less dependent on the external sources of finance. In the year 2006, it is 61.84% which shows a very sound position of Sugar mill. Similarly in the year 2007, it increase by 7% and indicates a healthy position of the Sugar mill. In the year 2008 &2009, this ratio decrease but shows the sound position of Sugar mill.

It shows that a large part of Assets are financed from Shareholders funds.

d. Fixed Assets to Proprietors Fund Ratio :- This ratio is also known as fixed assets to net worth ratio. Formula: Fixed Asset to Proprietors Fund Ratio = Fixed Assets/Proprietors Funds (i.e., Net Worth) *100 PARTICULARS FIXED ASSETS:2006 1483.28 2007 1497.52 6454.15 23.20% 2008 1700.64 6232.15 27.28% 2009 3696.54 8165.06 45.27%

PROPRIETORS FUND:- 6958.93 F.A to Proprietors Fund Ratio 20.66%

Significance :- The ratio indicates the extent to which proprietors (Shareholders) funds are sunk into fixed assets. Normally , the purchase of fixed assets should be financed by proprietors funds. If this ratio is less than 100%, it would mean that proprietors fund are more than fixed assets and a part of working capital is provided by the proprietors. This will indicate the long-term financial soundness of business. Comments: - As this ratio shows that how the proprietors funds are used in the firm and higher ratio is considered good for the firm. In the years 2006, 2007, 2008 it shows a very low ratio which indicates that the proprietors fund are invested in the working capital.

In the year 2009 it increase, which shows a positive position for the Sugar mill and its proprietors that its Shareholders Capital are now used for Fixed Assets.

e. Capital Gearing Ratio:- This ratio establishes a relationship between equity capital (including all reserves and undistributed profits) and fixed cost bearing capital. Formula: Capital Gearing Ratio = Equity Share Capital+ Reserves + / Fixed cost Bearing Capital

Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures + Long Term Loan PARTICULARS 2006 2007 2008 2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Share Capital Reserve & Surplus Total Fixed cost Bearing Cap. Capital Gearing Ratio:1501.12 5459.15 6958.93 94.94 73.30% 1367.27 5086.88 6454.15 24.05 268.36% 1367.36 4864.79 6232.15 61.12 101.97% 1367.40 6797.68 8165.06 471.66 17.31%

Significance:- If the amount of fixed cost bearing capital is more than the equity share capital including reserves an undistributed profits), it will be called high capital gearing and if it is less, it will be called low capital gearing. The high gearing will be beneficial to equity shareholders when the rate of interest/dividend payable on fixed cost bearing capital is lower than the rate of return on investment in business. Thus, the main objective of using fixed cost bearing capital is to maximize the profits available to equity shareholders. Comments:- Fixed cost bearing capital is very low in comparison to shareholders funds. It indicates low Capital Gearing Ratio. Low Capital Gearing Ratio is helpful when the cost of shareholders funds is less than the fixed cost bearing capitals cost. In the year 2006 the cost of shareholders is very low and in other years it is nil because no dividend was declared to shareholders. So, it shows a right decision of Low Capital Gearing.

f. Interest Coverage Ratio:- This ratio is also termed as Debt Service Ratio. This ratio is calculated as follows: Formula: Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed Interest Charges PARTICULARS 2006 2007 2008 2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) N/P BEFORE INT.:2539.62 FIXED INT. CHARGES:Interest Coverage Ratio 193.59 14 times 2682.48 1073.80 32.31

74.95 14 times

350.93 0.09 times

606.75 4 times

Significance :- This ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. This ratio measures the margin of safety for long-term lenders. This higher the ratio, more secure the lenders is in respect of payment of interest regularly. If profit just equals interest, it is an unsafe position for the lender as well as for the company also, as nothing will be left for shareholders. An interest coverage ratio of 6 or 7 times is considered appropriate. Comments:ACTIVITY RATIO OR TURNOVER RATIO
(C) Activity Ratio or Turnover Ratio :- These ratio are calculated on the bases of cost of sales or sales, therefore, these ratio are also called as Turnover Ratio. Turnover indicates the speed or number of times the capital employed has been rotated in the process of doing business. Higher turnover ratio indicates

the better use of capital or resources and in turn lead to higher profitability. It includes the following : a. Stock Turnover Ratio:- This ratio indicates the relationship between the cost of goods during the year and average stock kept during that year. Formula: Stock Turnover Ratio = Cost of Goods Sold / Average Stock

Here, Cost of goods sold = Net Sales Gross Profit Average Stock = Opening Stock + Closing Stock/2

PARTICULARS

2006

2007

2008

2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Cost of Goods Sold:Sales 14468.0 Gross Profit 3270.63 12643.81 12238.03 7192.57

3100.43

1781.39

612.65

Cost of goods sold 11197.37 Average Stock:Opening Stock 11218.17 Closing Stock 9292.88 Average Stock 10255.93 Stock Turnover Ratio 1.92 times

9543.38

10456.64

6579.92

8089.81

7238.41

5912.17

7238.41

5912.17

11218.17

7664.11

6575.29

8565.57

1.25 times

1.59 times

.77 times

Significance:- This ratio indicates whether stock has been used or not. It shows the speed with which the stock is rotated into sales or the number of times the stock is turned into sales during the year. The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business where stock turnover ratio is high, goods can be sold at a low margin of profit and even than the profitability may be quit high. Comments:- This ratio shows the speed with which the stock is converted into sales. While analysing, we have consider the nature of product. As the sugar is manufactured seasonally in 4-5 months in a year. So it has to stock out a large amount in inventory should be converted into sales before starting next manufacturing cycle of season.

According to this all, the ratios are satisfactory except the year 2008 in which it is 0.77 times which is very low.

b. Stock Conversion Period:- It may also be of interest to see average time taken for clearing the stock . This can be possible by calculating inventory conversion period. This period is calculated by dividing the number of months by stock turnover ratio. Formula, Stock conversion Period= 12 months/ stock turnover ratio

PARTICULARS Stock Turnover Ratio

2006 1.25times

2007 1.59times 9.6 months

2008 .77times

2009 1.92times 15.6 ms

Stock conversion Period 6.25 ms

7.55 ms

Comments:- This ratio of all year is satisfactory except the year 2008.In this year it is 15.6 months it means stock was hold for 15.6 months in the mill But in the next year sugar mill adopts right polices and achieve a very satisfactory stock conversion ratio.

c. Debtors Turnover Ratio :- This ratio indicates the relationship between credit sales and average debtors during the year :

Formula: Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R

While calculating this ratio, provision for bad and doubtful debts is not deducted from the debtors, so that it may not give a false impression that debtors are collected quickly.

PARTICULARS 2009

2006

2007

2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Net Credit Sales:3617.00 Debtors:78.17 Average Debtors:73.80 Debtor Turnover Ratio 49.01 1264.38 1223.80 1798.14

56.72

120.99

69.43

56.72

88.86

95.21

22.29

13.77

18.88

Significance :- This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm. By comparing the debtors turnover ratio of the current year with the previous year, it may be assessed whether the sales policy of the management is efficient or not. Comments:- As this ratio indicates the speed with which the amount is collected from debtors. Ratio of sugar mill is satisfactory in all the years. In the year 2007 it decrease from 2006 but even then it is satisfactory d. Average Collection Period :- This ratio indicates the time with in which the amount is collected from debtors and bills receivables.

Formula: Average Collection Period = Debtors + Bills Receivable / Credit Sales per day

Here, Credit Sales per day = Net Credit Sales of the year / 365 Second Formula :Average Collection Period = Average Debtors *365 / Net Credit Sales

Average collection period can also be calculated on the bases of Debtors Turnover Ratio. The formula will be:

Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio PARTICULARS 2009 2006 2007 2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Debtor Turnover Ratio 49.01 Average Collection Period 16 days 22.29 13.77 18.88

27days

19days

8days

Significance :- This ratio shows the time in which the customers are paying for credit sales. A higher debt collection period is thus, an indicates of the inefficiency and negligence on the part of management. On the other hand, if there is decrease in debt collection period, it indicates prompt payment by debtors which reduces the chance of bad debts. Comments:- This ratio of sugar mill indicates that sugar mill has a very Sugar mill have good relations with its dealers and customers. They all make their payment within one month on maximum basis.

d. Creditors Turnover Ratio :- This ratio indicates the relationship between credit purchases and average creditors during the year . Formula:-

Creditors Turnover Ratio = Net credit Purchases / Average Creditors + Average B/P

Note :- If the amount of credit purchase is not given in the question, the ratio may be calculated on the bases of total purchase.

PARTICULARS

2006

2007

2008

2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Net Credit Purchases:Creditors:Average Creditors:Creditors Turnover Ratio 721.08 93.23 93.23 7.73 759.70 32.21 62.72 12.11 992.62 93.40 62.81 15.80 753.93

Significance :- This ratio indicates the speed with which the amount is being paid to creditors. The higher the ratio, the better it is, since it will indicate that the creditors are being paid more quickly which increases the credit worthiness of the firm. Comments:- Comments: - It shows that the speed with which the amount is being paid to creditors. It shows the relationship with creditors and creditworthiness. This ratio of the sugar mill is also very satisfactory in all the years. So sugar mill has healthy relations with the creditors and its creditworthiness is strong.

d. Average Payment Period :- This ratio indicates the period which is normally taken by the firm to make payment to its creditors. Formula:Average Payment Period = Creditors + B/P/ Credit Purchase per day

This ratio may also be calculated as follows : Average Payment Period = 12 months or 365 days / Creditors Turnover Ratio

PARTICULARS

2006

2007

2008

2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Creditors Turnover Ratio Average Payment Period 7.73 47 days 12.11 30 days 15.80 23 days

Significance :- The lower the ratio, the better it is, because a shorter payment period implies that the creditors are being paid rapidly. Comments:- Sugar mill has a strong ratio of average payment period. This ratio indicates that sugar mill unpaid its creditor within the maximum

days of 50 days which indicates a very strong policy of sugar mill for its creditworthiness

d.

Fixed Assets Turnover Ratio :- This ratio reveals how efficiently the fixed assets are being utilized. Formula:-

Fixed Assets Turnover Ratio = Cost of Goods Sold/ Net Fixed Assets

Here, Net Fixed Assets = Fixed Assets Depreciation PARTICULARS 2009 2006 2007 2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Cost of Goods Sold:Sales 14468.0 Gross Profit 3270.63 Cost of goods sold 11197.37 12643.81 12238.03 7192.57

3100.43

1781.39

612.65

9543.38

10456.64

6579.92

Fixed Assets Fixed Assets Turnover Ratio

1483.28 6.43

1497.52 6.98

1700.64 3.86

3696.54 3.02

Significance:This ratio is particular importance in manufacturing concerns where the investment in fixed asset is quit high. Compared with the previous year, if there is increase in this ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in this ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the previous year. Comments:- As in the year 2007 fixed assets turnover is inc. this means efficient use of fixed assets but in the year 2008 and 2009 the ratio decrease. Which is a negative sign. It means that now fixed assets are not efficiently used in the sugar mill. By efficient use of fixed assets sugar mill can increase its profits.

e.

Working Capital Turnover Ratio :- This ratio reveals how efficiently working capital has been utilized in making sales. Formula :-

Working Capital Turnover Ratio= Cost of Goods Sold / Working Capital

Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct Expenses - Closing Stock Working Capital = Current Assets Current Liabilities

PARTICULARS 2009

2006

2007

2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Cost of Goods Sold:Sales 14468.0 Gross Profit 3270.63 Cost of goods sold 11197.37 Working Capital:CURRENT ASSETS:Inventory Debtors 78.17 Cash & Bank balances 332.62 Loan & Advances 3120.72 7375.31 6067.44 56.72 11467.96 120.99 9535.40 69.43 12643.81 12238.03 7192.57

3100.43

1781.39

612.65

9543.38

10456.64

6579.92

35.80

134.56

163.16

2029.16

1346.42

1477.17

Total

9496.99

7669.41

13177.72

13066.93

CURRENT LIABILITIES:Creditors Other C.L Total Working Capital:W.Cap Turnover Ratio 93.23 4103.41 4196.64 5300.35 1.80 times 32.21 2928.06 2960.27 4709.14 2.22 times 93.40 8763.28 8856.68 4321.04 8398.33 4668.60

1.45 times 2.49 times

Significance :- This ratio is of particular importance in nonmanufacturing concerns where current assets play a major role in generating sales. It shows the number of times working capital has been rotated in producing sales. A high working capital turnover ratio shows efficient use of working capital and quick turnover of current assets like stock and debtors. A low working capital turnover ratio indicates under-utilisation of working capital. Comments:- As this shows the number of times the working capital has been rotated in sales. Now by analysing this ratio of sugar mill we can say in the year 2008 sugar mill has not made proper utilisation of working capital. In the year 2006 it is 1.80 times means it is OK. In the year 2007 and 2009 it shows an efficient use of working capital in producing sales.

Profitability Ratios or Income Ratios (D) Profitability Ratios or Income Ratios:- The main object of every business concern is to earn profits. A business must be able to earn adequate profits in relation to the risk and capital invested in it. The efficiency and the success of a business can be measured with the help of profitability ratio. Profitability ratios are calculated to provide answers to the following questions: i. ii. iii. iv. Is the firm earning adequate profits? What is the rate of gross profit and net profit on sales? What is the rate of return on capital employed in the firm? What is the rate of return on proprietors (shareholders) funds? What is the earning per share?

v.

Profitability ratio can be determined on the basis of either sales or investment into business. (A) Profitability Ratio Based on Sales : a) Gross Profit Ratio : This ratio shows the relationship between gross profit and sales. Formula : Gross Profit Ratio = Gross Profit / Net Sales *100

Here, Net Sales = Sales Sales Return

PARTICULARS 2009

2006

2007

2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Gross Profit;3270.63 Net Sales:14468.09 Gross Profit Ratio:22.6% 3100.43 1781.38 612.65

12643.80

12238.03

7191.56

24.52%

14.55%

8.5%

Significance:- This ratio measures the margin of profit available on sales. The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for deprecation, interest on loans, dividends and creation of reserves. Comments:- This ratio should be higher and higher in the year 2006 it shows a satisfactory G.P ratio which cans over operating and non operating G.P efficiently. In the year 2007 it decreases. and also in the year 2008 it decrease. to a very low value which can not cover its operating exp.

If we analyse deeply we can find reason for this that is in the year2008 sales of sugar are very less but it cost of manufacturing is remain high because of high fixed coast. In the year 2009 it shows a very high like in G.P ratio. Which shows a great possibility of net profit?

b) Net Profit Ratio:- This ratio shows the relationship between net profit and sales. It may be calculated by two methods: Formula: Net Profit Ratio = Net Profit / Net sales *100 Operating Net Profit = Operating Net Profit / Net Sales *100

Here, Operating Net Profit = Gross Profit Operating Expenses such as Office and Administrative Expenses, Selling and Distribution Expenses, Discount, Bad Debts, Interest on short-term debts etc.

PARTICULARS

2006

2007

2008

2009

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Net Profit:2488.89 998.85 (318.62) 1932.87

Operating Net Profit:Gross Profit Operating Exp. 3100.43 702.43 1781.38 786.33 612.65 780.71 3270.63 889.74

Operating Net Profit Net Sales;14468.09

2398.00

955.05 12643.80

(168.06) 12238.03

2300.89 7191.56

Net Profit Ratio:13.36% Operating Net Profit:18.97%

19.68%

8.16%

(4.43%)

7.80%

(2.34%)

15.90%

Significance :- This ratio measures the rate of net profit earned on sales. It helps in determining the overall efficiency of the business operations. An increase in the ratio over the previous year shows improvement in the overall efficiency and profitability of the business. Comments:- this ratio is very important ratio for all the stake holders because it shows the possibility of their returning on their investment. If we see the trend of this ratio , it shows a declining trend in three year whichl as negative impact on the profitibility of the buisness unifficietyof the sugar mill mgt. But in the year 2008, it inc with a very high pate which shows passibility of Recovering all the losses of previous year.

(c) Operating Ratio:- This ratio measures the proportion of an enterprise cost of sales and operating expenses in comparison to its sales.

Formula: Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100

Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct Expenses - Closing Stock Operating Expenses = Office and Administration Exp. + Selling and Distribution Exp. + Discount + Bad Debts + Interest on Shortterm loans.

Operating Ratio and Operating Net Profit Ratio are inter-related. Total of both these ratios will be 100.

PARTICULARS

2006 Rs.(inLacs)

2007 Rs.(inLacs)

2008

2009

Rs.(inLacs) Rs.(inLacs)

Cost of Goods Sold:Sales 14468.0 Gross Profit 3270.63 Total 11197.37 Operating Exp.:702.43 12643.81 12238.03 7192.57

3100.43

1781.39

612.65

9543.38

10456.64

6579.92

786.33

780.71

889.74

Net Sales;14468.09 Operating Ratio:83.54%

12643.80

12238.03

7191.56

81.63%

92.2%

(102.34%)

Significance:- Operating Ratio is a measurement of the efficiency and profitability of the business enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods sold and operating expenses. Lower the operating ratio is better, because it will leave higher margin of profit on sales. Comments:- This ratio is invuasing in first three year. If we analyse its reasons. These are that, sales of the sugar mills are dedining but operating ttepenses remain on high rangerather than decrease propertionately to the sales. In the year 2009, its show a decrease in this ratio which means profitability of sugar mill. (d) Expenses Ratio:- These ratio indicate the relationship between expenses and sales. Although the operating ratio reveals the ratio of total operating expenses in relation to sales but some of the expenses include in operating ratio may be increasing while some may be decreasing. Hence, specific expenses ratio are computed by dividing each type of expense with the net sales to analyse the causes of variation in each type of expense. The ratio may be calculated as : (a) Material Consumed Ratio = Material Consumed/Net Sales*100 (b) Direct Labour cost Ratio = Direct labour cost / Net sales*100 (c) Factory Expenses Ratio = Factory Expenses / Net Sales *100

(a), (b) and (c) mentioned above will be jointly called cost of goods sold ratio. It may be calculated as: Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales*100 (d) Office and Administrative Expenses Ratio = Office and Administrative Exp./ Net Sales*100 (e) Selling Expenses Ratio = Selling Expenses / Net Sales *100 (f) Non- Operating Expenses Ratio = Non-Operating Exp./Net sales*100

PARTICULARS 2009 Rs.(inLacs) Material Consumed:9465.38 Direct Labour:834.33 Factory Expenses:897.68 Office & Admini.Exp.:804.68

2006

2007

2008

Rs.(inLacs) Rs.(inLacs) 8070.73

Rs.(inLacs) 4619.48

8923.33

709.77

736.91

900.68

762.88

796.41

1059.74

622.73

725.52

746.21

Selling & Dist. Exp.:85.06 Non Operating Exp.:606.75 Net Sales:7191.56 14468.09 Material Con. Ratio:65.42% Direct Labour Ratio:5.76% Factory Exp. Ratio:% 6.21% Office & Adm Ratio:5.56% Selling & Dist Ratio:0.58% Non Operating Ratio:4.87% 4.19%

79.70

60.81

39.50

193.59

74.95

350.93

12643.80

12238.03

63.83%

72.91%

64.23%

5.61%

6.02%

12.52%

6.03%

6.51%

14.73?

4.93%

5.93%

10.37%

0.62%

0.49%

0.54%

1.53%

0.61%

Significance:- Various expenses ratio when compared with the same ratios of the previous year give a very important indication whether these expenses in relation to sales are increasing, decreasing or remain stationary. If the expenses ratio is lower, the profitability will be greater and if the expenses ratio is higher, the profitability will be lower.

Comments:(B) Profitability Business:Ratio Based on Investment in the

These ratio reflect the true capacity of the resources employed in the enterprise. Sometimes the profitability ratio based on sales are high whereas profitability ratio based on investment are low. Since the capital is employed to earn profit, these ratios are the real measure of the success of the business and managerial efficiency. These ratio may be calculated into two categories: I. Return on Capital Employed II. Return on Shareholders funds I. Return on Capital Employed :- This ratio reflects the overall profitability of the business. It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is usually in percentage and is also known as Rate of Return or Yield on Capital.

Formula: Return on Capital Employed = Profit before interest, tax and dividends/ Capital Employed *100

Where, Capital Employed = Equity Share Capital + Preference Share Capital + All Reserves + P&L Balance +Long-Term LoansFictitious Assets (Such as Preliminary Expenses OR etc.) NonOperating Assets like Investment made outside the business.

Capital Employed = Fixed Assets + Working Capital

PARTICULARS 2009

2006

2007

2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Profits Before Int. 2539.62 Capital Employed:Fixed Assets Working Capital Total 8365.14 Return on Capital Employed 30.36% 1483.28 5300.35 1497.52 4709.14 6783.63 1700.64 4321.04 6199.66 3696.54 4668.60 6021.68 2682.48 1073.80 32.31

39.54%

17.32%

0.005%

Significance: Since profit is the overall objective of a business enterprise, this ratio is a barometer of the overall performance of the enterprise. It measures how efficiently the capital employed in the business is being used.

Even the performance of two dissimilar firms may be compared with the help of this ratio. The ratio can be used to judge the borrowing policy of the enterprise.

This ratio helps in taking decisions regarding capital investment in new projects. The new projects will be commenced only if the rate of return on capital employed in such projects is expected to be more than the rate of borrowing. This ratio helps in affecting the necessary changes in the financial policies of the firm.

Lenders like bankers and financial institution will be determine whether the enterprise is viable for giving credit or extending loans or not. With the help of this ratio, shareholders can also find out whether they will receive regular and higher dividend or not. Comments:- :- As this ratio shows the overall performance of the capital in year 2006, this ratio is high and also more than the rate of borrowing means the sound possision of the sugar mill. In the year 2007 it decreases but it is more than the rate borrowing. In the year 2008 it decreases with a high rate that it goes in losses. It means sugar mill might hare problem of finance from outside like banks, instilutions. In the year 2009, it cover all the lossesand make high return on Capital Employed. So now the sugar mill have a great scope from outside.

II. Return on Shareholders Funds :-

Return on Capital Employed Shows the overall profitability of the funds supplied by long term lenders and shareholders taken together. Whereas, Return on shareholders funds measures only the profitability of the funds invested by shareholders. These are several shareholders funds: measures to calculate the return on

(a) Return on total Shareholders Funds :For calculating this ratio Net Profit after Interest and Tax is divided by total shareholders funds. Formula: Return on Total Shareholders Funds = Net Profit after Interest and Tax / Total Shareholders Funds

Where, Total Shareholders Funds = Equity Share Capital + Preference Share Capital + All Reserves + P&L A/c Balance Fictitious Assets

PARTICULARS 2009

2006

2007

2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs)

Profits after Int. & Tax 1932.87

2488.89

998.85

(318.62)

Shareholders Fund:Share Capital Reserve & Surplus Total Return on Shs Funds 23.67% 1501.12 5459.15 6958.93 1367.27 5086.88 6454.15 35.77% 1367.36 4864.79 6232.15 15.48% 1367.40 6797.68 8165.06 (5.11%)

Significance:- This ratio reveals how profitably the proprietors funds have been utilized by the firm. A comparison of this ratio with that of similar firms will throw light on the relative profitability and strength of the firm. Comments:-. Similarly to return on the Capital Employed , this ratio is satisfactory in the all expect in 2008 which show under utilisation of funds in the sugar mill. (b) Earning Per Share (E.P.S.) :- This ratio measure the profit available to the equity shareholders on a per share basis. All profit left after payment of tax and preference dividend are available to equity shareholders. Formula: Earning Per Share = Net Profit Dividend on Preference Shares / No. of Equity Shares

PARTICULARS 2009

2006

2007

2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Net Profits 1932.87 2187.24 998.85 (318.62)

No. of Equity Shareholsers 1501000 Earning Per Share 145.71

1367000 73.06

1367000 (23.30)

1367000 141.39

Significance:- This ratio helpful in the determining of the market price of the equity share of the company. The ratio is also helpful in estimating the capacity of the company to declare dividends on equity shares. Comments:-In the year 2006, 2009, sugar mill can declare a smart frightened income for the shareholders. But in the year 2008 it suffer from negative gps. It is advisable to keep reserve in the year of profit so the sugar mill can declare a constant divided all the year (d) Dividend Per Share (D.P.S.):- Profits remaining after payment of tax and preference dividend are available to equity shareholders. But of these are not distributed among them as dividend . Out of these profits is retained in the business and the remaining is distributed among equity shareholders as dividend. D.P.S. is the dividend distributed to equity shareholders divided by the number of equity shares. Formula:

D.P.S. = Dividend paid to Equity Shareholders / No. of Equity Shares *100

PARTICULARS 2009

2006

2007

2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Dividend Paid Nil No. of Equity Shareholdsers 1501000 D.P.S. 42.99 645.40 140.31 Nil

1367000 10.26

1367000 Nil

1367000 Nil

(e) Dividend Payout Ratio or D.P. :- It measures the relationship between the earning available to equity shareholders and the dividend distributed among them. Formula:

D.P. = Dividend paid to Equity Shareholders/ Total Net Profit belonging to Equity Shareholders*100 OR

D.P. = D.P.S. / E.P.S. *100

PARTICULARS 2009

2006

2007

2008

Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) Rs.(in Lacs) D.P.S. Nil E.P.S Dividend Payout Ratio 145.71 0.29 42.99 10.26 Nil

73.06 0.14

(23.30) Nil

141.39 Nil

Comments:-

(f) Earning and Dividend Yield :- This ratio is closely related to E.P.S. and D.P.S. While the E.P.S. and D.P.S. are calculated on the basis of the book value of shares, this ratio is calculated on the basis of the market value of share

(g) Price Earning (P.E.) Ratio:- Price earning ratio is the ratio between market price per equity share & earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company & is widely used by investors to decide whether or not to buy shares in a particular company. Significance :- This ratio shows how much is to be invested in the market in this companys shares to get each rupee of earning on its shares. This ratio is used to measure whether the market price of a share is high or low

CONCLUSION
Finance is the main driver of every industry. This sector of manufacturing various machinery presses vessels, boilers, sugar machinery iron casting is the booming sector now days and have great potential. Economy of India is improving, GDP is also showing rising tread and government is focusing on infrastructure development such as roads, ports, housing etc. Now its upon the company how it grabs the opportunity and for this company requires finance. Ratio analysis is helpful in decision making as well as help to analyze the performance of company in past. These financial decisions are divided into two parts Long term and short term decisions and their primary goal is to increase the corporate value by ensuring that return on capital exceeds cost of capital, without taking any financial risks. Capital investment decisions are related to the long-term choices for which projects receive investment in which financial manager have to decide whether to invest in equity or debt or to pay dividend to shareholders. Short-term corporate finance decisions are called working capital management and deal with balance of current assets and current liabilities by managing cash, inventories, and short-term borrowing and lending. These decisions are the main base of an organization.

SUGGESTIONS
1. Short term Liquidity of the firm is not sound as the firms do not have sufficient current assets to pay its current obligation. So company should improve its current assets position.

2. The system should be designed by delegating adequate power to each manager /officer.

3. Company should maintain the optimum capital structure which contains the minimum cost of capital with appropriate voting power (decision making power) towards the top level management.

4. The internal checks should be building to minimize the mistakes due to less capacity utilization.

5. Company should maintain the currently growth rate of current assets turnover ratio to get benefit of best utilization of current asset

BIBLIOGRAPHY

MANAGEMENT ACCOUNTING AND FINANCIAL MANAGEMENT

BY:

DR. R.K. SHARMA & SHASHI .K. GUPTA I.M. PANDEY KHAN & JAIN ANNUAL REPORTS OF THE SHAHBAD COOPERATIVE SUGAR MILL LTD SHAHBAD.