CHAPTER 1

INTRODUCTION
A Study of Financial Performance of Malnad Alloy Casting Private Ltd by Using Ratio
Analysis

1. General Introduction
Ratio analysis is one of the powerful tools of the financial analysis. A ratio can be
defined as the the indicated quotient of two mathematical expressions, and as the
relationship between two or more things. Ratio is, thus, the numerical or an arithmetical
relationship between the two figures. A ratio can be used as a yardstick for evaluating the
financial position and performance of a concern because the absolute accounting data
cannot provide meaningful understanding and interpretation. A ratio is the relationship
between two accounting items expressed mathematically. Ratio analysis helps the analyst
to make quantitative judgment with regard to concerns financial position and
performance.
Absolute figures are valuable but they standing alone convey no meaning unless
compared with another. Accounting ratios show inter-relationships which exist among
various accounting data. When relationships among various accounting data supplied by
financial statements are worked out, they are known as accounting ratios.
1.1 Statement of the problem:
The topic chosen for the project is A Study of Financial Performance of Malnad Alloy
Casting Private Ltd by Using Ratio Analysis

Primary use of financial statements are evaluating past performance and predicting the
future performance and both of these are facilitated by comparison. The financial
soundness in terms of liquidity, leverage and profitability are the main objective of an
organization. The analysis in this angle draw meaningful conclusion, so as to take right
Page 1

decision analytical techniques are required. Among such technique ratio analysis is very
useful method to follow. The profitability of the firm depends on the efficiency with
which fixed assets are used and the level of operating expenses to sales. To measure the
financial performance the financial statements are required. The study is undertaken to
process the financial data.
A financial ratio shows the relationship between two financial variables. It helps in
ascertaining financial condition of the company. Ratio analysis is a process of identifying
the financial strengths and weakness of the company. The problem area related to ratio
analysis.
1.2 Objectives for the study:

To understand the conceptual background of ratio analysis.

To analyze the performance trend of the company on the basis of ratio analysis.
To study the various accounting ratio, for the period of three years.
To evaluate the liquidity and profitability position of the company.
To know the ability of the company to meet its current obligation.
To provide suggestion in the light of finding.

1.3 Scope of the study:

The study is mainly comprised of analysis and comparison of performance of
industry by taking several parameters like Gross profit, Net profit, Reserve funds,
Investments, Total turnover etc. By choosing the 3 years of balance sheet, profit and loss
account, from the year 2012, 2013 and 2014 for ratio analysis.
1.4 Methodology of the study:

Sources of data
Data are facts, figures and other relevant materials, past and present, serving as bases for
study and analysis

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The data serves as the basis for the analysis. Without an analysis of factual data, no
specific inference can be drawn on the questions under study. Inferences based on
imagination or guesswork cannot provide correct answers to research questions. The
relevance, adequacy and reliability of data determine the quality of the findings of a study
for solving any problem, the primary requirement is data. Before conducting the study,
the sources of data are to be identified. They are:
I.

Primary data
Primary data are original sources from which the researcher directly collects data
that have not been previously available in the company's financial reports, web sites and
other relevant bulletins.
The major sources of primary data are
Manager
Accountant
Clerks

II.
.

Secondary data
These are the sources containing data, which have been collected and compiled for

another purpose. The secondary sources consist of readily available compendia and
already compiled statistical statements and reports, whose data may be used by researcher
for his studies. Secondary data have been collected from several sources

The major sources of secondary data are given below.

Reports/records
Web sites
Magazine
1.5 Sampling plan
Page 3

As this project work is company-specific, without involving any field survey, no

sampling plan has been drawn for the purpose of data collection
1.6 Tools and techniques of data collection
For the purpose of collecting and analyzing the data, simple statistical tools like
classification, Tabulation and Ratio analysis have been extensively used.

1.7 Review of literature:

Review of Literature refers to the collection of the results of the various researches
relating to the present study. It takes into consideration the research of the previous researchers
which are related to the present research in any way. Here are the reviews of the previous
researches related with the present study:
Bollen (1999) conducted a study on Ratio Variables on which he found three different
uses of ratio variables in aggregate data analysis: (1) as measures of theoretical concepts, (2) as a
means to control an extraneous factor, and (3) as a correction for heteroscedasticity. In the use of
ratios as indices of concepts, a problem can arise if it is regressed on other indices or variables
that contain a common component. For example, the relationship between two per capita
measures may be confounded with the common population component in each variable.
Regarding the second use of ratios, only under exceptional conditions will ratio variables be a
suitable means of controlling an extraneous factor. Finally, the use of ratios to correct for
heteroscedasticity is also often misused. Only under special conditions will the common form
forgers soon with ratio variables correct for heteroscedasticity. Alternatives to ratios for each of
these cases are discussed and evaluated.
Cooper (2000) conducted a study on Financial Intermediation on which he observed that
the quantitative behavior of business-cycle models in which the intermediation process acts
either as a source of fluctuations or as a propagator of real shocks. In neither case do we find
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convincing evidence that the intermediation process is an important element of aggregate

fluctuations. For an economy driven by intermediation shocks, consumption is not smoother than
output, investment is negatively correlated with output, variations in the capital stock are quite
large, and interest rates are procyclical. The model economy thus fails to match unconditional
moments for the U.S. economy. We also structurally estimate parameters of a model economy in
which intermediation and productivity shocks are present, allowing for the intermediation
process to propagate the real shock. The unconditional correlations are closer to those observed
only when the intermediation shock is relatively unimportant.
Gerrard (2001) conducted a study on The Financial Performance on which he found that
Using ratio analysis the financial performance of a sample of independent single-plant
engineering firms in Leeds is examined with regard to structural and locational differences in
establishments. A number of determinants of performance are derived and tested against the
constructed data base. Inner-city engineering firms perform relatively less well on all indicators
of performance compared with outer-city firms. The study illustrates the importance of using
different measures of performance since this affects the magnitude and significance of the results.
Financial support is necessary to sustain engineering in the inner city in the long run.
Schmidgall (2003) conducted a study on Financial Analysis Using the Statement of Cash
Flows on which he observed that Managers use many financial ratios to judge the health of their
businesses. With the recent requirement of a statement of cash flow (SCF) by the Financial
Accounting Standards Board, managers now have a new set of ratios that will give a realistic
picture of the business. The ratios include cash flow-interest coverage, cash flow-dividend
coverage, and cash flow from operations to cash flow in investments. These ratios are
particularly useful because they show changes in a hotel or restaurant's cash position over time,
rather than at a given moment, as is the case with many other ratios.

Murinde (2003) ) conducted study on Corporate Financial Structures on which he

observed that the financial structure of a sample of Indian non-financial companies using a new
and unique dataset consisting of a panel containing the published accounts of almost 900
Page 5

companies that published a full set of accounts every year during 1989-99. In a new departure in
the literature, the dataset includes quoted and unquoted companies. We compare the sources-uses
approach to analyzing company financial structures with the asset-liability approach. We use both
approaches to characterize and to compare the financial structures of Indian companies over
time; between quoted and unquoted companies; and between companies which belong to a
business group and those that do not. Finally, we compare our results to those obtained
previously for India and for the industrial countries.
McMahon (2005) conducted a study on Financial Information on which he found that
financial statements mean little to the uninitiated. This paper, explains, in layman's terms, how to
understand financial information. It covers measures of profitability. The second article will cover
measures of company liquidity and the use of financial ratios. This paper continues to explain
how to interpret and understand financial information. It deals with measures of liquidity,
solvency and fund flows and describes how to establish standards against which a company's
financial ratios can be compared.
Lee (2008) conducted a study on Financial Risk on which he observed that Financial
researchers, including those concentrating on the lodging industry, use various financial risk
measures for their studies. Examples of those risk measures are beta, earnings variability,
bankruptcy probability, debt-to-equity ratio and book-to-market ratio. The purpose of this study
is, first, to descriptively investigate various financial risk measures used in the lodging financial
literature by performing factor analysis and identifying four distinct risk groups. Second, this
study examines the predictive ability of the four risk groups for lodging firm performance. The
findings of this study suggest that strategic and stock performance risk factors better represent a
lodging firm's financial risk than do bankruptcy and firm performance risk factors, and also,
ROA than ROE better estimates lodging firm performance in terms of their relationships with
financial risk factors.
Johnson (2009) conducted a study on Financial Ratio patterns on which he found that the
properties and characteristics of financial ratios have received considerable attention in recent
years with interest primarily focused on determining the predictive ability of financial ratios and
related financial data. Principal areas of investigation have included the prediction of corporate
Page 6

bond ratings and the anticipation of financial impairment]. Related studies have examined the
characteristics of merged firms the differences in financial ratio averages among industries
whether firms seek to adjust their financial ratios toward industry averages the relationship
between accounting-determined and market-determined risk measures, and the influence of
financial ratios on analysts' judgments about impending bankruptcy The general conclusion to
emerge from these various research efforts is that a number of financial ratios have predictive
and descriptive utility when properly employed.
To summarize the literature, Ratio analysis is a key dimension of financial management,
suggesting a relationship between profit and loss as mentioned in the balance sheet of an
organization. Its appropriate use will go toward giving a true picture of the financial health of the
unit. Its benefits can be seen in areas of management, production, marketing, personnel
management etc
1.8 Limitations of the study:
The study was conducted only on the basis of data provided by the company.
The study is limited to MALNAD ALLOY CASTING PVT LTD only, so it cannot be
generalized.
The analysis is limited to just three years of data study (from year 2012 to year 2014) for
financial analysis..
In-depth study was not possible due to lack of time and access to the information is
limited.

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CHAPTER 2
INDUSTRY PROFILE
2.1 Introduction of the Industry
Today there is no product, which does not have one or more than one cast component. The
need for casting has become more important with the growth of industrial societies. Castings are
vital components of modern machines & transportation vehicles. The uses of castings are
manifold. Some of the important uses of castings are follows:
1. Cast metal parts are used for more than 90% of an automobile engine.
2. Air craft jet engine bladder.
3. Agricultural parts turbine vanes.
4. Machine tool structure.
5. Railway crossings.
6. Pump, filter and valve.
7. Auto component
8. Industrial machineries etc.
From the above application it is evident that without castings it is unlikely to bring into existence
most of the products today.
2.2 Origin of casting
A casting is the essential foundation of civilization. With it, man unlocked his future,
placing him on the path toward conquering his environment. History tells us this happened
Mesopotamia, todays modern Iraq.
The oldest casting in existence today is believed to be a frog, cast in copper. The frog, cast in
copper. The frogs complexity indicates that it was preceded by other simpler casting efforts.
Things went slow back then. Tin, came around in the 16th century, but man used earths ores 4500
years prior to this.
The Chinese got the nod for iron casting in around 1000B.C. India made steel in about 500 B.C.
civilization in general was casting brass by then, (brass=copper + zinc), which was many centuries
before the Christian era. All along this path all the techniques for. CASTING AND
MOULDING PROCESSES.were being discovered and recorded in to history.
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2.3 History of castings

The origin of castings goes back to over 5000 years ago. After the Paleolithic age and the
Neolithic age, which were both stone ages then, came the age of metals. This characterized the
use of metal weapons and instruments instead of stone. The first was the copper age where the
axes and hammers made of copper were used. Then came the Iron Age, after few centuries.
Weapons characterized this age and the ornaments made of iron. Then came the alloy of copper
and tin; these were contemporarily observed in all the upcoming civilization, Aryan civilization
and Babylonian civilization. Even the gold and silver instruments were casted and used in those
days.
As the demand for the automobiles, railways, industrial machinery, and machine tools
started increasing rapidly, the casting industries get the real impetus.
2.4 Meaning of casting
Casting is the process of giving shape to or reproducing an object by pouring its material
in liquid form into a mould. Casting is the process of the melting metal and pouring it into a
cavity that has been molded on a pattern into a desired shape. The metal is allowed to cool and
solidified. The solidified metal is

called the casting. Usually castings are manufactured in a

commercial setup called foundry. Thus, foundry is defined as a commercial setup for
manufacturing casting.
2.5 Types of Foundries
Foundries are classified according to the nature of work they undertake, such as:
1. Captive Foundry: This type of foundry forms an integral part of some manufacturing
organization, which requires the castings made by the captive foundry to manufacture its
products.
2. Jobbing Foundry: This type of foundry normally produces small number of castings of a
given type for different customer. Such foundry sometimes also undertakes mass production.

Page 9

3. Production Foundry: It is highly mechanized and can produce castings in large scale
economically.
4. Semi-Production Foundry: It is a combination of jobbing foundry and production foundry
as regarding its nature and work are concerned.
2.6 Growth and Development of Industry
Today India is the third largest producer of castings in the world with approximately
5,000 facilities spread across the country and a production of around 9.5 million tons per year
The various types of castings which are produced are ferrous, non ferrous, Aluminum
Alloy, graded cast iron, ductile iron, Steel etc for application in Automobiles, Railways, Pumps
Compressors & Valves, Diesel Engines, Cement/Electrical/Textile Machinery, Aero & Sanitary
pipes & Fittings etc& Castings for special applications.
However, Grey iron castings have the major share i.e. approx 68% of total castings
produced.
There are approx5000 units out of which 85% can be classified as Small Scale units &
10% as Medium & 5% as Large Scale units.
Approx 800 units are having International Quality Accreditation. Several large foundries
are modern & globally competitive & are working at nearly full capacity. Most foundries use
cupolas using LAM Coke. There is growing awareness about environment & many foundries are
switching over to induction furnaces & some units in Agra are changing over to coke less
cupolas.

Page 10

Production in Million Tones

Chart No-2.1: Production in Million Tones

(Source: Foundry informatics centre)

2.7 Exports trends
The Exports have been showing healthy trends approx 25-30% YOY as can be seen from
the charts below. However, the current exports for FY 2013-14 are approxRs. 12180 Crore. The
exports are slowdown due to weak demand.
Chart No-2.2: Export of Castings in India

(Source: Foundry informatics centre)

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2.8 Employment
The industry directly employs about 5,00,000 people & indirectly about 1,50,000 people
& is labor intensive. The small units are mainly dependant on manual labor However, the
medium & large units are semi/ largely mechanized & some of the large units are world class.
2.9 Important Foundry clusters in India
Chart No-2.3:Important Foundry clusters in India

(Source: Foundry informatics centre)

2.9.1An overview of the foundry clusters in India:
There are more than 5,000 foundry units in India, having an installed capacity of
approximately 7.5 million tons per annum. The majority (nearly 95%) of the foundry units in
India falls under the category of small-scale industry. The foundry industry is an important
employment provider and provides direct employment to about half a million people.

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A peculiarity of the foundry industry in India is its geographical clustering. Some of the major
foundry clusters in the country are shown in the map.
Typically, each foundry cluster is known for catering to some specific end-use markets.
For example, the Coimbatore cluster is famous for pump-sets castings, the Kolhapur and the
Belgaum clusters for automotive castings and the Rajkot cluster for diesel engine castings.
A summary of the five major foundry clusters in India - Belgaum, Batala/Jalandhar,
Coimbatore, Kolhapur and Rajkot - is provided below.
2.9.2 Foundry Cluster: Belgaum
Belgaum, located in the state of Karnataka, is an important foundry cluster. There are
about 100 foundry units at Belgaum. The geographical spread of the cluster includes Udyambag
and Macche industrial areas. The foundry industry at Belgaum came up primarily to cater to the
needs of the automobile industry at Pune.
Belgaum is recognised to be a reliable source of high precision, high volume and
economical castings. A significant percentage (almost 20%) of the foundry units at Belgaum has
ISO 9000 certification and export casting.
The foundry industry at Belgaum caters to a wide variety of end-use applications as can
be seen from the table below.
Table No-2.1: Distribution of foundry units at Belgaum by end-use markets
Particulars
Automotive/oil engines
Pumps/valves
Electric motors
Tractors/agricultural implements
Food processing industry
Others
(Source: The Institute of Indian Foundrymen)

Distribution of foundry
31 %
21 %
10 %
7%
5%
26 %

Cupola is the most common melting furnace at Belgaum. Three out of every four foundry
use cupola as their main melting furnace. Most of the cupolas are of conventional designs.

Page 13

Divided blast cupola is not very common yet in the cluster. Low ash coke is commonly used in
the cupolas.
About 40% of the foundry units have electric induction furnace, which are used either as
the main melting furnace or for duplexing with cupola. A relatively small percentage (about 5%)
of the foundry units uses rotary furnaces.
2.9.3 Foundry Cluster: Coimbatore
Coimbatore, located in the state of Tamil Nadu, is an important foundry cluster in
Southern India. The foundry industry at Coimbatore came up mainly to cater to the needs of the
local textile and pump-set industries. There are about 600 foundry units in Coimbatore. The
geographical spread of the cluster includes ThanneerPandal/Peelamedu, Ganapathy, SIDCO,
Singanallur, Mettupalayam Road and Arasur Village.
Most of the foundry units cater to the needs of the domestic market. Small percentages
(about 10%) of the foundry units are also exporting castings. Nearly half the number of foundry
units is manufacturing castings for the pump-set industry. The distribution of the foundry units
by end-use markets is given below.
Table No-2.2: Distribution of foundry units at Coimbatore by end-use segments
Particulars
Pumps/valves
Food processing industry
Textile machinery
Electric motors
Automotive
Others
(Source: The Institute of Indian Foundrymen)

Distribution of foundry
46 %
7%
6%
6%
4%
31 %

Cupola is the predominant melting furnace employed by the foundry units. Majority
(about 70%) of the cupolas in the cluster are of conventional designs. Electric induction furnaces
are used by just 10% of the foundry units, mainly to manufacture graded castings and for
duplexing operation.

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2.9.4 Foundry Cluster: Batala and Jalandhar

Batala and Jalandhar, located in the state of Punjab, are important foundry clusters in
Northern India. The majority of the foundry units is in the small-scale and produces grey iron
castings. About 15% of the foundry units are also exporting their products.
The foundry units at Batala and Jalandhar are predominantly making machinery parts and
agricultural implements. Castings for a number of other end-use applications are also produced
as can be seen from the table below.
Table No-2.3: Distribution of foundry units by end-use segments
Particulars
Automotive/oil engines
Tractor parts
Pumps/fans
Machine parts
Agricultural implements
Others
(Source: The Institute of Indian Foundrymen)

Distribution of foundry
8%
6%
10 %
33 %
35 %
8%

Cupola is the predominant melting furnace employed by about 95% of the foundry units
at Batala and Jalandhar. The majority of the cupolas are of conventional designs. The foundry
units at Batala and Jalandhar usually use high-ash coke in the cupolas.
2.9.5 Foundry Cluster: Kolhapur
Kolhapur, located in the state of Maharashtra, is an important foundry cluster for
automotive castings. Historically, the foundry cluster came up to cater to the casting
requirements of the local industries like oil engine manufacturing, sugar mills and machine tool
industry. There are about 250 foundry units at Kolhapur. The geographical spread of the cluster
includes Kolhapur, Sangli, Ichalkaranji and Hatkanangale areas.
A significant percentage of foundry units (about 25%) at Kolhapur are exporting castings.
The foundry units cater to a wide range of end-use sectors, as can be seen from the following
table.
Table No-2.4: Distribution of foundry units at Kolhapur by end-use markets
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Particulars
Automotive/oil engines
Pumps/valves
Sugar industry
Tractor parts/agricultural implements
Others
(Source: The Institute of Indian Foundrymen)

Distribution of foundry
42 %
17 %
6%
4%
31 %

Cupola is the predominant melting furnace employed by about 75% of the foundry units.
The majority of cupolas in the cluster are of conventional type. Divided blast cupola (DBC) can
be found in some of the foundry units. Most of the foundries use low ash coke. A number of
foundry units (about 40%) have electric induction furnace, which is used to manufacture graded
castings and for duplexing with cupola.
2.9.6 Foundry Cluster: Rajkot
Rajkot, located in the state of Gujarat, is an important foundry cluster in Western India.
There are about 500 foundry units at Rajkot. The cluster came-up mainly to cater to the casting
requirements of the local diesel engine industry. The geographical spread of the cluster includes
AjiVasahat, Gondal Road and Bhavanagar Road areas.
Majority of the foundry units at Rajkot produces grey iron castings for the domestic market. A
relatively small percentage (about 10%) of the foundry units exports castings such as electric
motor castings, etc.
Apart from oil engines, the foundry units at Rajkot cluster caters to a number of other end-use
applications, as can be seen from the table below.

Table No-2.5:Distribution of foundry units at Rajkot by end-use markets

Particulars

Distribution of foundry
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Oil engines
Automotive/textile
Machine tools
Pumps/valves
Others
(Source: The Institute of Indian Foundrymen)

42 %
15 %
11 %
7%
25 %

Cupola is by far, the predominant melting furnace used by nearly 90% of the foundry
units. Most of the cupolas are of conventional type. A local cupola design, called 'Rajkot cupola',
is quite popular in the cluster. Use of low ash coke is common among the foundry units. A
smaller number of foundry units (about 10%) producing castings for the automotive industry use
electric induction furnace for melting.
2.10 Future Prospects
The Indian foundry industry generates revenue of about $12 billion, with exports worth
about $2 billion. The Government of India has outlined a manufacturing policy recognizing the
importance of manufacturing in the growth of the Indian economy with a target to increase the
share of manufacturing in GDP from 17 to 25 per cent and the simultaneous creation of millions
of jobs. This will necessitate a strong foundation for the foundry sector which is one of the most
vital feeder industries to support the manufacturing sector.
Based on past trends and future projections, the Indian foundry industry needs to grow by
at least three times the current capacity within the next ten years to meet the growing
requirements of the domestic and future export markets. Also, globally India is becoming a more
sought out destination for future foreign investment,
2.10.1 Projected Market Size
While there is a growth expected in the auto-sector and the casting sector alike, the
domestic market is set to surge at least 3 times by 2016. The auto sector alone should go up to
$10 billion by 2016 and the casting industry is projected to be a $19.2 billion industry by 2016.
The global growth rate for castings follows approximately twice the global growth rate in
GDP in absolute terms. So apart from the domestic demand, Indias exports are to go up to $3
billion with a 20% growth in direct exports.
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Table No-2.6:Projected Market Size

Particular

Current Value

Projected Growth by

Contribution
32% of demand

$ US 2.5 billion

2016
$US 10 billion

Casting Industry for

Over 90% of the local

(2.18 MT)
$ US 18 billion

$ US 19.2 billion

manufacturing
India Exports

demand is locally met

15% of production

$ US 1 billion

(17-18 MT)
$ US 3 billion

Auto Sector Demand

Current

(Source: Foundry informatics center)

2.10.2 Projected Demand-Supply Gap
While there is a clear picture of demand side, the supply side is not prepared to make pro
rate Investments to take up the opportunity arising out of growth. Even assuming that the past
growth rate would continue there will be a large demand supply gap in excess of 11 million TPA
by year 2016.

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2.2 COMPANY PROFILE

2.2.1 Details of the Company

Name of the company

M/S Malnad Alloy Casting Private Ltd.

[MACPL]

Regd.office/works

36-A, Shimoga-Bhadravathi Industrial Area,

Machenahalli-577 222,
Shimoga.

Phone Number

(08182) 246141/0246143
+97-8182-246142

Fax Number
E-mail

MACPL@sancharnet.in

Web address

Malnadcastings.com

Contact persons

H.C.Ravindranath
(Managing Director)
Y.V.MadhukarJois
(Commercial Director)

Products

Alloy Steel, Stainless Steel, Nickel Alloy

Castings To All International Standards For
Process

Bankers

Pumps,

Valves

Engineering Industries.
M/s State Bank of Mysore
Main Branch, B.H.Road
Shimoga-577201.

2.2.2 Background of the Company

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And

General

The company is situated at Shimoga-Bhadravathi industrial area Machenahalli which is

260kms from Bangalore on national highway 206 & 9kms from Bhadravathi a well-known steel
city. The unit is located in 45 acres plot with built up area of 45,300 sq. feet.
The foundry started commercial production in the year 1985 and is managed by a team of
highly experienced foundry professionals headed by Mr. H.C.RAVEEDRANATH (M E)
(foundry tech) who has more than 35 years experience in foundry industry under various
capacities.
The company is equipped with one number of 1000kg/1500kgs connected to a power
pack of 450kw medium frequency induction furnaces & one number of 150kg/350kg connected
to a power pack of 175kw medium frequency induction furnace with all accessories with this
company can produce quality castings weighting from 1kg to 1000kgs single piece.
2.2.3 Nature of Business Carried
M/S MACPL is a modern alloy steel foundry geared to manufacture quality alloy steel,
stainless steel & nickel alloy castings to all international standards for process pumps valves &
general engineering industries.
The company has adopted 100% no-brake process using Australian make continuous
mixer both for core making & moulding with results in superior surface finish internal soundness
& reliability. Company has also installed shell core shooter for production of small castings with
accurate core profile.
The company is equipped with electrically operated batch type heat treatment furnace
with automatic temperature indicator cum controller. Graphic recorded & the visitor controls for
a predetermined heat treatment cycle with controlled heating. The company has captive
generating set of 1375KVA requirement of foundry. The entire operation of the company right
from placement of purchase order of raw materials & consumables to invoicing of materials
manufactured by the company covering entire process has been computerized. In the process
company has developed good information management system.

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The company has a good quality setup. Melt chemistry is controlled by Direct Reading
Spectrometer supplied by M/S. Spectra Analytical instruments Kleve, Germany. All heats are
numbered and test certificates are provided for each heat. Hundred percent visual inspections
carried out on all castings and dimensional inspection is done on sample castings NDT tests like
Radiography are done on first sample castings and thereafter as required by customers.
The company has supplied castings under third party inspection agencies like UDHE
INDIA, NPC, NTPC LLOYDS, IRS, PPIL, etc.
The companys quality system was awarded ISO 9002 certificate by RWTUV
GERMANY in the year 1995 and subsequently re- certified as per ISO 9001:2000 in year 2005.
The company has approval in accordance with AD merkblatt WO/TRD100 and PED approval by
RWTUV Germany.
The company has installed capacity of around 2100 tons and at present is producing
around 160 tons per month. The major part of companys production is for the valve, out of
which nearly 40% to 50% is for ball valves. The company has developed expertise in making
quality valve & pump castings in all grades of stainless steel like CF-8M(SS 316), CF-8(SS 304),
CN-7M(Alloy-20), CF-3(SS 304L), CF-3(SS 316L), Duplex stainless steel like CD-4M CU,
CD4MCUN, Gr.4A & Gr.5A etc. And Nickel Base Alloys like CW-12MW, N-12MV, inconel600,625,825 etc,
The company is directly exporting castings to Spain, U.K., Netherlands, and Australia&
United States of America. And almost 40% of the companys product goes to 100% export
oriented unit.
2.2.4 Vision, Mission & Quality Policy
Vision:
To become a global entity for the supply of finished cast components in the wide range of
materials with highly committed and socially responsible employees

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Mission:
1. To meet the castings requirements of the country using latest state of the art technology in
wide range of materials at competitive cost.
2. Provide stable employment and develop highly skilled technical labour and wide vendor
base.
3. Adopt environmental-friendly technology and create awareness on energy conservation.
4. Serve the community around through welfare schemes.
Quality and Objective Policies:
The quality policy of MACPL is to ensure manufacture, supply products of high quality
to the complete satisfaction of each customer, & thus achieve leadership in market as reputed &
reliable supplies. To achieve this goal M/S MACPL shall continuously pursue these objectives.
1. Strive continuously towards the goal of making products right first time and every time.
2. Train and motivate employees for continuous improvement of quality and productivity.
3. Develop lasting relationship with suppliers and customers through continuous
4.
5.
6.
7.

improvement of quality.
Strive towards making work environment safe and environment friendly.
Strive towards reducing production cost through waste minimization.
Strive towards increase of export to 20% in next 10 years.
Update the systems to suit the changing needs of the customers as well as technology

changes.
8. Measure the achievement of these objectives and progress towards excellence in
manufacturing.

2.2.5 List of customers

Page 22

PARTY
M/S MVC

PLACE
HUBLI

PRODUCT
Steel/Nickel Alloy Casting

M/S MVP
HUBLI
L&T Ltd.
CHENNAI
National heavy engineering PUNE

for ball valves

Centrifugal process pumps
Tyre M/C Manufactures
Sugar machinery

co-operative ltd.
M/S CPV engineering Pvt. HUBLI

Centrifugal process pumps

Ltd.
VK Pumps (i) Ltd.
BHEL
M/S Petrochemical

NASIK
TRICEY
CHENNAI

Metering & dozing pumps

Valve components
Gare valves

engineering enterprises
M/S Uniklinger Ltd.

AHMEDNAGAR

Piston valves

100% EOU
Advance valves global
NODIA
M/S British engines (i) Pvt. BANGALRE

Dual plate check valve

Thermal plant castings for

Ltd.
Flowserve (i) control PL

BANGALORE

export
Globe & ball valves type

Flow serve MPLV

HUBLI

control valves.
Centrifugal pumps

Espee IACIDADES

SPAIN

Valve components

HYDRA.SL
SPIRAX-SARCO LTD.
Flowserve

UK
AUSTRALIA

Valve components
Mechanical seals

Direct Export

Page 23

Gebrpladdet BV
Flowserve

NETHERLANS
SINGAPURE

Earthmoving equation
Globe & ball valve type
control valves

2.2.6 Product Profile

The major part of companys production is for valve industry out of which nearly 40 to
50% is for Ball Valves. The company has developed expertise in making quality and pump
castings in all grades of stainless steel like cf-8m (ss316), cf-8(ss304) cn-7m(alloy20), cf3(ss304), cf-3m(ss3161), duplex stainless steel like cd-4m cu, cd-4m cun-gr 4A and gr 5A etc. in
addition, Nickel base alloys like cw-12 mw, n-12mv, inconel-600, 625, 825 etc.
The following are the various Valves and Pumps manufactured in the company
VALVES

PUMPS

Ball valve.

Self-priming pumps

Plug valve

Stage casting pumps

Gate valve
TYPE
Glob
valve
Stainless
steel

Centrifugal process pumps

GRADE
Melting4A
and dozing pumps
A 890 GRADE

Butterfly valve

A 890GRADE
Steam 5A
pumps

Safety release valve

CF-8M (SS316),
Hydraulic eye ends
CF-8 (SS304)

Control valve

CA-15, CN-7M(ALLOY-20)
CF-3 (SS3041)
3M (SS316L)

Nickel alloy

CD-4M CV, DIN-1, 4408/1.458

CW-12MW
N-12MV
CW6M
INCONEL625 (CW6MV)

Alloy steel

INCONEL 600(CY40)
WCB, LCB, LC3, LCC,WC6, WC9, C5,etc.
Page 24

Alloy
Types:

2.2.7 Area of Operation

The area of operation of this company includes global, national, & regional. The
company is directly exporting casting to Spain, UK, Netherlands, Australia, and USA & almost
40% of the companys product goes to 100% export oriented units.
2.2.8 Infrastructure Facilities
Land and Building
Malnad Alloy Castings Pvt. Ltd. Is situated in Machenhalli industrial area, which is just 9
km from Bhadravathi a well-known steel city. The company is located in an area of about 4
acres, in which the built-in area is about 2 acres; remaining 2 acres includes a well-maintained
garden and a spacious parking lot. 2 acres of built in area consists of production unit (135
square meters), inspection shop (24 square meters), pattern shop and storage (49 square meters),
and office building (25 square meters).
Water
All the blocks of the factory are connected with Intercom. The company has well laid
internal tat roads. Water is an important element for a foundry. MACPL gets its water supply
from KIADB and a bore well. It also has a large overhead tank for storing water.
Power
The company has a direct express feeder line from the grid to factory for continuous
clean power without breakages or voltage fluctuation. It has contracted demand of 1000 KVA
from the KPTCL. The company also has Two DG sets 850 KVL capacity to provide backup
power supply in case of failure in grid supply.
Safety Measures
The group has ensured the availability of adequate protective attire and equipment for its
workers working in the sensitive area where working could be hazardous. Complete guidelines
for safe operations have been prominently displayed in the respective operation area. The group
has schemes for insurance of workers against injuries/fatality while on duty. The unit are insured

Page 25

against natural calamities, have firefighting equipments in place and are capable of thwarting
risk of any major natural calamities.
2.2.9 Competitors Information
There are on potential competitors for this company inside Karnataka. However, major

competitors do exist outside the state. There are as follows:

Samco Valve, Chenni
Ranganathan Industries, Coimbatore
Shah Preci Casting, Kolhapur
Aruna Alloys Industries, Madhurai
Some of the local competitors are

Eshwari Tech
Pragathi Alloys
Shantala Sperocast Pvt Ltd
2.2.10 Future growth and Prospects
In order to remain competitive in the world market in future, it is a necessity to slash past
while improving the quality and keeping in the environmental considerations. Focusing on
design: fist, improve design capability in metal casting are critical to the industrys ability to
produce cast products that are competitive world wide. Improvements in this arena will enable
metal casting to manufacture past is not possible with current design constraints, there by
opening new markets. Improve design will also reduce testing tryout on the shop floor and
replace it with computer based design and analysis, significantly reducing energy and
environment impacts. Improvements in the metal casting process can be achieved by focusing on
these interrelated areas.
Preventing the sand through recycling.
The expansion program of manufacturing capabilities involves including continuous
mixture of sand operation.
CNC machining and testing equipment will be upgraded to cater to increasing customer
expectations.
To enter marine segment in a big way.
Capability to meet future needs and expectation of customers.
Increase the revenue from overseas business segment substantially.
Page 26

 To satisfy employee needs.

To improve infrastructural facilities.
Adopting proper plan of action at a right time.

2.2.11 SWOT ANALYSIS

Strength
The company enjoys good human resource.
The company is financially sound.
Easy availability of raw material, i.e., steel scrap.
The company has adopted latest technology for operation.
The greatest strength of MACPL is its highly skilled and committed employees.
Large infrastructure & manufacturing facilities.
Strong research and development.
The company has experienced office staff.
The management of the company maintains a cordial relationship with the workforce.
The company uses the upgrade technology to minimize the wastages in the production
department.
Weakness
Transport facility is not good. The employees have to walk a long way from the nearest
bus stop.
The company does not have its own products to sell. It should rely heavily on customer
orders.
The company depends heavily on the casual workforce in its production activity,

Page 27

 The company outsources the transport requirement to carry goods to the customer place.
Lack of space inside the production department.

Opportunities
The company has links with the firms, which are situated in different parts of Europe
Thus, the company can expand its business in Europe, which is a potential market for
industrial machines
By maintaining its product quality, the company can enter different foreign markets.
Cheap and skilled labor provides an opportunity for the company for producing quality
goods economically and efficiently.
Presence of auto majors in the region, especially in south India.
Industrialization is at booming pace nowadays, which acts as a good opportunity for the
foundry industry.
Liberal import-export policies framed by the government of India are also an opportunity
for the company in exporting its goods and importing the necessary materials from
foreign countries.
Threats
Pollution control norms laid down by the government are getting stringent.
Rising cost of raw materials.
Threat from spurious component manufactures.

Page 28

 Technological inequality among foundries. I.e. a technologically underdeveloped foundry

may not stand long in front of a foundry using latest technology.
Industries heavily rely on non-renewable resource. These resources may get exhausted.
Increasing competition.
Research and development initiatives.
A liberal import-export policy has made the Chinese steel industries to enter India. With
their cheap products, they can kill domestic industries

2.2.12 Financial Statement

Page 29

BALANCE SHEET AS AT 31.03.2014

PARTICULARS
I

EQUITY AND LIABILITIES

31.03.2014

31.03.2014

89,88,000

89,88,000

Shareholder's funds
(a) Share Capital
(b) Reserves & Surplus

18,85,91,544

15,82,33,534

3,22,66,104

48,44,545

59,06,531

43,46,566

18,77,04,973

15,82,60,925

8,49,90,607

11,95,90,751

50,10,664

46,43,679

2,64,56,309

1,96,26,546

Non-Current Liabilities
(a) Long-term Borrowings
(b) Deferred tax liability (net)
CURRENT LIABILITIES
(a) Short-term borrowings
(b) Trade payables
(c) Other Current liabilities
(d) Short term provisions
TOTAL

53,99,14,731

47,85,34,546

I
I

ASSETS
NON-CURRENT ASSETS
(a) FIXED ASSETS
(i) Tangible Assets

11,19,15,068

6,21,92,725

(ii) Intangible Assets

1,05,999

1,45,713

(b) Non-Current Investments

29,95,590

29,95,590

(c) Long-term loans and advances

71,85,757

56,73,526

(a) Inventories

11,68,05,092

12,84,17,722

(b)Trade Receivables

22,67,88,502

20,74,19,400

48,17,505

89,78,732

2,68,083

2,83,857

6,90,33,136

6,24,27,280

53,99,14,731

47,85,34,546

Current Assets

(c) Cash & bank balances

(d) Short-term loans and advances
(e) Other Current assets
TOTAL

Page 30

STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED 31.03.2014

PARTICULARS
31.03.2014
31.03.2013
I

INCOME

Revenue from Operations (Gross)

Less: Excise Duty
Revenue from Operations (Net)

77,81,90,012
5,98,80,757
71,83,09,255

75,90,51,908
5,83,10,017
70,07,41,891

1,91,98,126

9,982,055

TOTAL REVENUE

73,75,07,381

71,07,23,946

EXPENDITURE
Cost of Material Consumed

37,99,15,710

41,96,27,903

Other Income

II

Changes in Inventories of Work in process

Employee Benefits Expense
Finance Costs
Depreciation and Amortisation Expense
Other Expenses
TOTAL EXPENSES

III

VI

11,646,535
(9,069,047)
4,19,47,258
3,32,64,417
2,55,71,187
1,47,42,567
73,70,810
66,98,817
21,25,47,715
20,12,74,046
67,89,99,215
66,65,38,702

Profit before tax

Tax Expenses
Current Tax
Deferred Tax

5,85,08,166

4,41,85,244

1,83,58,000
15,59,965

1,41,38,000
8,80,431

Profit for the year

3,85,90,201

2,91,66,813

VI
I

429.35

EPS (Basic & Diluted)

CHAPTER 3
THEORETICAL BACKGROUND OF THE STUDY
Page 31

334.28

3.1 Nature and meaning of financial analysis

Analysis means, critical examination of the given information. Financial Analysis
involves critical examination of accounting information given in the financial statements.
Financial analysis consists of the application of analytical tools and techniques to the data in
financial statements in order to derive from the measurements and relationship that are
significant and useful for decision making. The process of financial analysis can be explained in
different ways according to the data in financial statements in order to derive from the
measurements and relationship that are significant and useful for decision making. The process
of financial analysis can be explained in different ways according to the objectives to be
obtained. According to Myer Financial analysis is largely a study of relationship among the
various financial factors in a business as disclosed by a single set of statement and a study of the
trend of these factors as shown in a series of statements in a simple way, The financial analysis is
the statement of the information contained in the financial statement is such a way that it will
make a full analysis of profitability and financial position of the firm. Above all financial
analysis reduces reliability on intuition guesses and thus narrows the areas of uncertainty that is
present in all decision making processes.
3.2 Objectives of Financial Analysis:
Financial Analysis helps to assess the financial position and profitability, which helps in
various managerial decision making process. Ratio analysis is such tool used in analyzing the
financial statement. It helps in comparing the financial statement over a period of year or
comparison between firms in the industry.
Some of The Main Objectives Of Financial Analysis Are:

To analyze the operational efficiency of the firm.

It helps to assess the long term solvency of the organization.
It helps in comparative analysis within the firm and between the firms in the industry.
The trend analysis helps in forecasting and preparation of budgets.
It assesses the present and future earning capacity of the firm.
To helps in analyzing the financial stability of the firm.
It helps in analyzing the accuracy and meaning of the financial data.
Page 32

3.3 Techniques of Financial Analysis

The most commonly used Techniques of financial analysis are:

Comparative Financial Statement Analysis (Trend Analysis).

Common Size OR Measurement Statement Analysis.
Fund Flow Statement Analysis.
Cash Flow Statement Analysis.
Net Working Capital Analysis.
Ratio Analysis.

Tools for Financial Statement Analysis

Following the important tools which are used for undertaking FSA:
a)
b)
c)
d)
e)
f)
g)
h)

Comparative Statements
Common Size Statements
Ratio Analysis
Trend Analysis
Du-Pont analysis
Fund flow analysis
Cash flow analysis
Cost-volume profit analysis

FINANCIAL STAMENTS
The financial statements are the end product of financial accounting process. The
financial statements are nothing but the financial information presented in concise and capsule
form, and the financial information is the information relating to the financial position of any
firm. The basic source which provides the financial information is the annual report of the
company, which is presented by the company to its shareholders at the annual general meeting.
This annual report contains the chairmans report, the balance sheet, and the income statement.
The auditors report together with number of schedules, annexure, etc. though the presentation of
annual report is a statutory requirement under the companies act, 1956, every firm prepares the
following financial statements.
1. The Balance Sheet
2. The Income Statement

Page 33

BALANCE SHEET
The balance sheet is regarded as the most significant and basic financial statement of any
firm. The balance sheet is prepared by a firm to present a summary of financial position at a
given point of time, usually at the end of a financial year.
It shows the state of affairs of the firm and the contribution of the owners of the firm. The
balance sheet in fact balances the assets of the firm against its financing, i.e., the total value of
the assets must be equal to the total claims against the firm and this can be stated as
Total assets=Total claims = {Liabilities + shareholders equity}
The balance sheet includes:
I.
II.

Assets
Liabilities
Assets:
Assets are the monitory value of the resources that are owned by the concern at a
measurable cost. A resource is valuable if it is in the form of cash or convertible into cash or
expected to benefit in the future operation of the business. Assets includes
1.
2.
3.
4.

Physical resources like land, machinery, plant, building, stocks, etc.

Non-physical resources like cash, securities, accounts receivables, etc.
Intangible resources like goodwill, trademark, etc.
Future benefit like expenses paid in advance.
Liabilities:
Liabilities are obligations of the concern. It refers to the amount owed by a business to
other parties, either for purchase of goods on credit (or) for the purchase of assets on credit (or)
for the loans borrowed (or) for the services received on credit.
INCOME STATEMENT;
It is also known as profit and loss account or the statement of earnings. This statement
summarizes the revenues and expenses of the firm for an accounting period. It gives the details
Page 34

of sources of income and expenses and thus it provides the summary of the operating results of
the firm for a specific period. It matches the revenues with the costs that are incurred in
generating the revenues, and shoe the difference between the two as the net profit made or net
loss incurred during the period. The income statement shows the results of the operations of the
firm during the period. The income statement is therefore a flow report against the balance sheet,
which is a stock report or a status report. The income statements depict the earning capacity of
the firm during the period under consideration.
The main contents of the income statement are

Gross profit
Operating expenses
Operating profit
Non-operating surplus/deficit
Profit before interest and tax
Interest
Profit before tax
Tax
Profit after tax

Procedure of financial statement analysis:

Generally there are three steps, involved in the analysis of financial statements. They are
selection, classification and interpretation. The first step involves selection of information/data
relating to the purpose of analysis of financial statements. The second step involves the
methodical classification of the data and the last and third step includes drawing inferences and
conclusions.
Thus, the main elements which are used in the process of analysis and interpretation are as
follows:
1. Re-arrangements of financial statements:
Page 35

For analysis, it is necessary to reclassify the data contained in the financial statement into
purposive classes so that minimum information from every data for analysis can be obtained.
Reclassification and rearrangement of different data depends upon the purpose of analysis.
2. Comparison:
After the classification of data of financial statements into different categories, it is necessary to
derive comparative data of the same enterprise of the past period if it is a time series analysis. In
case of cross sectional analysis, it is necessary to derive comparative data of the same accounting
period of the similar or comparable enterprise. For this comparative study is essential.
3. Analysis:
Comparative financial data are then analyzed with references to financial characteristics such as
profitability, solvency and liquidity.
4. Interpretation:
The concluding part of financial statement analysis is interpretation of financial information
generated in the process of financial statement analysis. The interpretation should be precise and
point toward the movement of various financial parameters. Finally it will be presented to the
management in the form of reports.

ANALYSIS /DESIGN
Camels Ratios

Introduction:
As Credit unions will be aware, the Final Report on the Commission of Credit Unions made the
following recommendation: It is the Commissions view that the CAMELS system is preferable
as a way of assessing viability. It is a tried and tested mechanism internationally which draws
from prudential returns and onsite monitoring. Furthermore, it offers a ready way of thinking
Page 36

about viability as both an holistic concept and a relative assessment framework. However, for
the purposes of informing future decisions about credit unions, CAMELS needs to be augmented
with forward looking analysis, based on a PCAR and other metrics.

The ILCU Monitoring Department uses the PEARLS Monitoring system, as developed and
endorsed by WOCCU and PEARLS is in use in credit unions worldwide. Initially the ILCU
adopted the PEARLS system following passing of the following Resolution at BDM 2003:
Resolution No. 47:That this Biennial Delegate Meeting, in keeping with best international
credit union standards and practice, adopts the PEARLS Monitoring System amended as
appropriate to suit the Irish Credit Union Movement circumstances.

Next steps review of both systems: The ILCU Monitoring Department are currently
reviewing and comparing the CAMEL and PEARLS systems, and the different approaches taken
under each system, in order to go forward following best international practices, and in order to
provide the best possible financial reporting and information to ILCU credit unions that are
facing an extremely challenging environment. The ILCU Monitoring Department has been
consulting with WOCCU regarding the merits and limitations of both PEARLS and CAMEL(S)
systems.

During this review we must also be mindful of pending legislation and the Commissions
recommendations regarding the introduction of a Prudential Rule Book: that would set out in
detail what is required in each of the relevant areas. The Rule Book should include prudential
controls, limits, standards and requirements on key areas, including: reserves; lending;
investments; borrowing; members savings; liquidity. The goals and benchmarks that will be set
out must be incorporated into the ILCU Monitoring system.

Page 37

The ILCU Monitoring and ICT Departments are looking at including CAMEL dashboards in the
ILCUbis platform, which would provide the relevant visual indicators for ILCU credit unions.

Differences between PEARLS and CAMELS systems: The PEARLS system quantitatively
evaluates the financial structure of the credit union balance sheet. The advantage of this approach
is that this quantitative objectivity limits the possibility of a supervisor or examiner influencing a
rating. This is one of the primary reasons ILCU originally selected PEARLS in 2003.
CAMEL is different from PEARLS because CAMEL is a mix of both quantitative and
qualitative factors, whereas PEARLS is just quantitative. Under NCUAs approach to CAMEL,
none of the numbers assigned in the CAMEL Ratings System are purely quantitative. Rather the
number assigned which ranged from 1 through 5 (with 1 being the best and 5 being
weakest) for the overall CAMEL rating and for each of the components of CAMEL depends on
the NCUA examination teams overall holistic opinion of the credit unions condition after taking
into account the numerical ratios required by other NCUA regulations, (such as NCUAs
regulation on regulatory capital ratios). The examiners subjective judgments therefore are the
determining factor regarding what numbers are assigned.

If the ILCU incorporate a CAMEL system in time (on the ILCUbis platform), additional
risk scoring of credit unions based on their overall profile and a risk assessment may be
part of the new system. This risk scoring would be based on current ILCU knowledge of
the credit union, reviews of credit union risk management plans and/or strategic plans, and
ongoing field officer inspections.

Example CAMEL Ratios the ILCU are considering:

Page 38

Key NCUA CAMEL Ratios

1 Capital

Code 1 (strongest) >20

Code 5 (weakest) <5%

Delinquent Loans/Loans

Code 1 (strongest) <1.5%

Code 5 (weakest) >25%

Net Charge offs/Loans

Code 1 (strongest) <0.5%

Code 5 (weakest) >10%

Code 1 (strongest) >1%

Code 5 (weakest) <0.15%

2 Asset Quality

3 Earnings
Return on assets

NCUA CAMEL Ratios

ILCU PEARLS Ratios equivalent

1 Capital

E6 Capital Ratio

2 Asset Quality
Delinquent Loans/Loans

A1 Ratio

Net Charge offs/Loans

A1c Ratio

3 Earnings

R3 Total Inc/Avg Total Assets

Other considerations:

Page 39

The Central Bank is continuing to use statutory Ratios (such as Regulatory Reserve, Liquidity)
which match our current ILCU PEARLS ratios, and are not adopting CAMEL. The Central Bank
is not assigning CAMEL type scores 1-5 for Regulatory ratios. The credit unions ratio is either
compliant or not compliant, a score is not assigned. However, a low RRR would obviously
draw Regulatory attention. As mentioned earlier, a CAMEL type system would be in keeping
with the PRISM Regulatory framework.

CAMEL(S) Background: The CAMEL system is the National Credit Union Associations (
NCUA) supervisory monitoring system for U.S. credit unions. The NCUA adopted CAMEL
initially back in 1987. An S was added to CAMEL S (S standing for Sensitivity to market) later
added for banks only, the S is not applicable for credit unions.

NCUA information on CAMEL: The CAMEL rating system is based upon an evaluation of
five critical elements of a credit union's operations: Capital Adequacy, Asset Quality,
Management, Earnings, and Liquidity/Asset-Liability Management. CAMEL is designed to take
into account and reflect all significant financial, operational, and management factors examiners
assess in their evaluation of a credit union's performance and risk profile.
Examiners rate credit unions based on their assessment of the individual credit union rather than
against peer averages. The CAMEL ratings should reflect the condition of the credit union
regardless of peer performance. Examiners are expected to use their professional judgment and
consider both qualitative and quantitative factors when analyzing a credit union's performance.
Since numbers are often lagging indicators of a credit union's condition, the examiner must also
conduct a qualitative analysis of current and projected operations when assigning CAMEL
ratings.
Part of the examiners qualitative analysis includes an assessment of the credit unions risk
management program. In Risk Focused Examinations (RFEs), examiners assess the amount and
Page 40

direction of risk exposure in seven categories: Credit, Interest Rate, Liquidity, Transaction,
Compliance, Reputation, and Strategic (seven risk categories) and determine how the nature and
extent of these risks affect one or more CAMEL components.

Although the CAMEL composite rating should normally bear a close relationship to the
component ratings, the examiner does not derive the composite rating solely by computing an
arithmetic average of the component ratings. Examiners consider the interrelationships between
CAMEL components when assigning the overall rating. Some of the evaluation factors are
reiterated under one or more of the components to reinforce the interrelationships between
components. The sections below contain the CAMEL component and composite ratings.

CAMEL COMPONENT RATINGS

CAPITAL
A credit union is expected to maintain capital commensurate with the nature and extent of risk to
the institution and the ability of management to identify, measure, monitor, and control these
risks. The effect of credit, market, and other risk on the credit unions financial condition is
considered when evaluating capital adequacy. The types and quantity of risk inherent in a credit
unions activities will determine the extent to which it may be necessary to maintain capital to
properly reflect the potentially adverse consequences these risks may have on the institutions
capital. Regulatory capital requirements are minimum levels and separate and distinct from a
credit unions need to maintain capital commensurate with the level of risk inherent in
operations.

Page 41

RATINGS
A capital adequacy rating of 1 indicates sound capital relative to the credit unions current and
prospective risk profile.
A rating of 2 indicates satisfactory capital relative to the credit unions current and prospective
risk profile.
A capital adequacy rating of 3 reflects less than satisfactory capital that does not fully support the
credit unions current and prospective risk profile. The rating indicates a need for improvement.
A capital adequacy rating of 4 indicates deficient capital. In light of the credit unions current and
prospective risk profile, viability of the credit union may be threatened. Financial support from
outsiders may be required.
A rating of 5 indicates critically deficient capital in light of the credit unions current and
prospective risk profile such that the credit unions viability is threatened. Immediate assistance
from external sources or financial support is required.

ASSET QUALITY
The asset quality rating reflects the quantity of existing and potential credit risk associated with
the loan and investment portfolios, other real estate owned (OREO), and other assets, as well as
off-balance sheet transactions. The ability of management to identify, measure, monitor, and
control credit risk is also reflected here. The evaluation of asset quality should consider the
adequacy of the allowance for loan and lease losses and weigh the exposure to counterparty
issuer or borrower default under actual or implied contractual agreements. All other risks that
may affect the value or marketability of a credit unions assets, including but not limited to the
seven risk categories, should be considered.

Page 42

RATINGS

A rating of 1 indicates sound asset quality and credit administration practices. Identified
weaknesses are minor in nature and risk exposure is modest in relation to capital adequacy and
managements abilities. Asset quality is of minimal supervisory concern.
A rating of 2 indicates satisfactory asset quality and credit administration practices. The level and
severity of classifications and other weaknesses warrant a limited level of supervisory attention.
Risk exposure is commensurate with capital adequacy and managements abilities.
A rating of 3 is assigned when asset quality or credit administration practices are less than
satisfactory. Trends may be stable or indicate deterioration in asset quality or an increase in risk
exposure. The level and severity of classified assets, other weaknesses, and risk require an
elevated level of supervisory concern. There is generally a need to improve credit administration
and risk management practices.
A rating of 4 is assigned to credit unions with deficient asset quality or credit administration
practices. The levels of risk and problem assets are significant, inadequately controlled, and
subject the credit union to potential losses that, if left unchecked, may threaten the credit unions
viability.
A rating of 5 represents critically deficient asset quality or credit administration practices that
present an imminent threat to the credit unions viability.

MANAGEMENT

Page 43

The capabilities of the board of directors and management, in their respective roles, to identify,
measure, monitor, and control the risks of a credit unions activities and to ensure a credit unions
safe, sound, and efficient operation in compliance with applicable laws and regulations is
reflected in this rating. Generally, directors need not be actively involved in day-to-day
operations; however, they provide clear guidance establishing acceptable risk exposure levels
thru appropriate policies, procedures, and practices. Senior management is responsible for
developing and implementing policies, procedures, and practices that translate the boards goals,
objectives, and risk limits into prudent operating standards.

Management practices need to address the seven risk categories and other risks commensurate
with the nature and scope of a credit unions activities. Sound management practices are
demonstrated by active oversight by the board of directors and management; competent
personnel; adequate policies, processes, and controls taking into consideration the size and
sophistication of the credit union; maintenance of an appropriate audit program and internal
control environment; and effective risk monitoring and management information systems. This
rating should reflect the boards and managements ability as it applies to all aspects of the credit
unions operations as well as other financial service activities in which the credit union is
involved.

RATINGS
A rating of 1 indicates sound performance by management and the board of directors and sound
risk management practices relative to the credit unions size complexity, and risk profile. All
significant risks are consistently and effectively identified, measured, monitored, and controlled.
Management and the board have demonstrated the ability to promptly and successfully address
existing and potential problems and risks.
A rating of 2 indicates satisfactory management and board practices relative to the credit unions
size, complexity, and risk profile. In general, significant risks are effectively identified,
measured, monitored, and controlled. Management and the board have demonstrated the ability
Page 44

to promptly and successfully address existing and potential problems and risks. Minor
weaknesses may exist but are not material.
A rating of 3 indicates management and board performance that needs improvement or risk
management practices that are less than satisfactory given the nature of the credit unions
activities. Problems and significant risks may be inadequately identified, measured, monitored,
and controlled. The capabilities of management or the board of directors may be insufficient for
the type, size, or condition of the institution.
A rating of 4 indicates deficient management and board performance or risk management
practices that are inadequate considering the nature of a credit unions activities. The level of
problems and risk exposure is excessive. Problems and significant risks are inadequately
identified, measured, monitored, or controlled and require immediate action by the board and
management to preserve the soundness of the institution. Replacing or strengthening the board
may be necessary.
A rating of 5 indicates critically deficient management and board performance or risk
management practices. Management and the board of directors have not demonstrated the ability
to correct problems and implement appropriate risk management practices. Problems and
significant risks are inadequately measured, monitored, or controlled and now threaten the
continued viability of the institution. Replacing or strengthening management or the board of
directors is necessary.

EARNINGS
This rating reflects the adequacy of current and future earnings to fund capital commensurate
with the credit unions current and prospective financial and operational risk exposure, potential
changes in economic climate, and strategic plans. Earnings can be affected by excessive or
inadequately managed credit risk that may result in loan losses and require additions to the
allowance for loan and lease losses, or by market risk that may unduly expose a credit unions
Page 45

earnings to volatility in interest rates. The quality of earnings may also be diminished by undue
reliance on extraordinary gains or nonrecurring events. Future earnings may be adversely
affected by an inability to forecast or control funding and operating expenses, improperly
executed or ill-advised business strategies, or poorly managed or uncontrolled exposure to other
risks.

RATINGS
A rating of 1 indicates earnings that are sound. Adequate capital and allowance levels already
exist after consideration is given to asset quality, growth, and risk factors.
A rating of 2 indicates earnings that are satisfactory. Earnings are sufficient to reach adequate
capital and allowance levels after consideration is given to asset quality, growth, and risk factors.
A rating of 3 indicates earnings that need to be improved. Earnings may not fully support current
and future capital and allowance funding commensurate with the credit unions overall condition,
growth, and risk factors.
A rating of 4 indicates earnings that are deficient. Earnings are insufficient to support current and
future capital and allowance funding commensurate with the credit unions overall condition,
growth, and risk factors.
A rating of 5 indicates earnings that are critically deficient and represent a distinct threat to the
credit unions viability. Earnings do not support current and future capital and allowance funding
commensurate with the credit overall condition, growth, and risk factors.

LIQUIDITY (AND ASSET-LIABILITY MANAGEMENT)

Liquidity

Page 46

In evaluating the adequacy of the credit unions liquidity position, consideration should be given
to the current and prospective sources of liquidity compared to funding needs. Consideration is
also given to the adequacy of asset-liability management (ALM) practices relative to the credit
unions size, complexity, and risk profile. In general, ALM management practices should ensure
the credit union is able to maintain liquidity sufficient to meet financial obligations in a timely
manner and meet member share and loan demands. Practices should reflect the ability of the
credit union to manage unplanned changes in funding sources as well as react to changes in
market conditions that affect the ability to quickly liquidate assets with minimal loss. In addition,
ALM practices should ensure liquidity is not maintained at high cost or through undue reliance
on funding sources that may not be available in times of financial stress or adverse changes in
market conditions.
The liquidity management system should be commensurate with the complexity of the balance
sheet and adequacy of capital. This includes evaluating the mechanisms in place to monitor and
control risk, managements response when risk exposure approaches or exceeds the credit
unions risk limits, and corrective action taken when necessary.

Asset-Liability Management
Asset-liability Management (ALM) is the process of evaluating, monitoring, and controlling
changes in the credit unions market and balance sheet risk. These risks can adversely affect
earnings and capital adequacy. When evaluating ALM, consideration should be given to
managements ability to identify, measure, monitor, and control risk, the credit unions size, the
nature and complexity of its activities, and the adequacy of capital and earnings in relation to its
level of market risk exposure. The primary source of market risk arises from sensitivity to
changes in interest rates.

This rating will reflect the overall adequacy of established policies, limits, and the effectiveness
of risk optimization strategies. These policies should outline individual responsibilities, the credit
unions risk tolerance, and ensure timely monitoring and reporting to the decision makers.
Page 47

RATINGS
A rating of 1 indicates liquidity and ALM practices are sound. There is minimal potential that the
capital adequacy will be materially affected by internal and external factors such as a shift in
interest rates. Liquidity and ALM are sound for the size, sophistication, and risk taken by the
credit union. The degree of market risk taken by the credit union is supported. The credit union
has reliable access to sufficient sources of funds on favorable terms to meet present and
anticipated liquidity needs.
A rating of 2 indicates satisfactory liquidity and ALM practices. The credit union has access to
sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs.
Modest weaknesses may be evident in ALM. Market rate sensitivity is adequately controlled and
there is only moderate potential that the adequacy of capital will be materially affected by
internal and external factors such as a shift in interest rates. ALM practices are satisfactory for
the size, sophistication, and market risk accepted by the credit union. The degree of market risk
taken by the credit union is supported.
A rating of 3 indicates liquidity and/or ALM practices in need of improvement. Credit unions
rated a 3 may lack ready access to funds on reasonable terms or may evidence significant
weaknesses in ALM practices. Control of market risk needs improvement or there is significant
potential the adequacy of capital will be materially affected by internal and external factors such
as a shift in interest rates. Risk management practices need to be improved given the size,
sophistication, and level of market risk accepted by the credit union. The degree of market risk
taken by the credit union is not adequately supported.
A rating of 4 indicates deficient liquidity and/or inadequate ALM practices. Credit unions rated a
4 may not have or be able to obtain a sufficient volume of funds on reasonable terms to meet
liquidity needs. The control of market risk is unacceptable or there is high potential the adequacy
of capital will be materially affected by internal and external factors such as a shift in interest
rates. ALM practices are deficient for the size, sophistication, and level of market risk accepted
by the credit union. The degree of market risk taken by the credit union is not supported.
Page 48

A rating of 5 indicates liquidity and/or ALM practices so critically deficient that the continued
viability of the credit union is threatened. Credit unions rated 5 require immediate external
financial assistance to meet maturing obligations or other liquidity needs. Market risk sensitivity
is unacceptable or the level of the risk taken is an imminent threat to the credit unions viability.
ALM practices are inadequate for the size, sophistication, and level of market risk accepted by
the credit union.

CAMEL COMPOSITE RATINGS

Rating 1 - Credit unions in this group are sound in every respect and generally have components
rated 1 and 2. Any weaknesses are minor and can be handled in a routine manner by the board of
directors and management. These credit unions are the most capable of withstanding
unpredictable business conditions and are resistant to outside influences such as economic
instability in their trade area. These credit unions are in substantial compliance with laws and
regulations. As a result, they exhibit sound performance and risk management practices relative
to the credit unions size, complexity, and risk profile, and give no cause for supervisory concern.

Rating 2 Credit unions in this group are fundamentally sound. For a credit union to receive this
rating, generally no component rating should be more severe than a 3. Only moderate
weaknesses are present and are well within the board of directors and managements capabilities
and willingness to correct. These credit unions are stable and are capable of withstanding
business fluctuations. These credit unions are in substantial compliance with laws and
regulations. Overall risk management practices are satisfactory relative to the credit unions size,
complexity, and risk profile. There are no material supervisory concerns and, as a result, the
supervisory response is informal and limited.

Page 49

Rating 3 - Credit unions in this group exhibit some degree of supervisory concern in one or
more of the component areas. These credit unions exhibit a combination of weaknesses that may
range from moderate to severe; however, the magnitude of the deficiencies generally will not
cause a component to be rated more severely than 4. Management may lack the ability or
willingness to effectively address weaknesses within appropriate time frames. Credit unions in
this group generally are less capable of withstanding business fluctuations and are more
vulnerable to outside influences than those rated a composite 1 or 2. Additionally, these credit
unions may be in significant noncompliance with laws and regulations. Risk management
practices may be less than satisfactory relative to the credit unions size, complexity, and risk
profile. These credit unions require more than normal supervision which may include
enforcement actions. Failure appears unlikely, however, given overall strength and financial
capacity of these credit unions.

Rating 4 - Credit unions in this group generally exhibit unsafe and unsound practices or
conditions. There are serious financial or managerial deficiencies that result in unsatisfactory
performance. The problems range from severe to critically deficient. The weaknesses and
problems are not being satisfactorily addressed or resolved by the board of directors and
management. Credit unions in this group generally are not capable of withstanding business
fluctuations. There may be significant noncompliance with laws and regulations. Risk
management practices are generally unacceptable relative to the credit unions size, complexity,
and risk profile. Close supervisory attention is required, which means, in most cases,
enforcement action is necessary to address the problems. Credit unions in the group pose a risk
to the National Credit Union Share Insurance Fund (NCUSIF). Failure is a distinct possibility if
the problems and weaknesses are not satisfactorily addressed and resolved.

Rating 5 Credit unions in this group exhibit extremely unsafe and unsound practices and
conditions; exhibit a critically deficient performance; often contain inadequate risk management
practices relative to the credit unions size, complexity, and risk profile; and are of the greatest
supervisory concern. The volume and severity of problems are beyond management's ability or
Page 50

willingness to control or correct. Immediate outside financial or other assistance is needed in

order for the credit union to be viable. Ongoing supervisory attention is necessary. Credit unions
in this group pose a significant risk to the NCUSIF and failure is highly probable.

The following are the various types of ratios followed by the society to analyze its financial
performance
1) Current Ratio:
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is
most widely used to make the analysis of a short term financial position or liquidity of a firm. It
is calculated by dividing the total of current assets by total of the current liabilities.
Current assets
Current ratio =
Current liability
Generally current ratio of 2:1 is considered ideal for a concern i.e., current assets should
be twice of the current liabilities.

2) Liquid Ratio:
Liquid ratio, also known as Acid Test or Quick Ratio, is a more is a more rigorous test of
liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay is short
Page 51

term obligation as and when they become due. The two determinants of current ratio, as a
measure of liquidity, are current assets and current liabilities.

Liquid assets
Liquid ratio =
Liquid liability
1:1 ratio is considered ideal ratio for a concern because it is wise to keep the liquid assets
at least equal to the liquid liabilities at all times.
3) Inventory Turnover Ratio:
This ratio establishes the relationship between the cost of goods sold during a given
period and the average amount of stock carried during the period
Cost of goods sold
Inventory turnover ratio =
Average stock
.
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.
4) Fixed Assets Turnover Ratio:
This ratio indicates the efficiency with which the firm is utilizing its investment in fixed
assets such as plant and machinery, land and building etc. It is computed as under.
Cost of sales
Fixed assets turnover =
Net fixed assets
Generally speaking, high ratio indicates eff9icient utilization of fixed assets in generating
sales and a low ratio may signify that the firm has an excessive investment in fixed assets.
5) Reserves to Equity Ratio:

Page 52

The ratio establishes relationship between Reserves to Equity share capital. The ratio
indicates that how much profits are generally retained by the firm for the future growth. Higher
the ratio, generally, better is the position of the firm.
Reserves
Reserves to equity Ratio =
Share capital

6) Proprietary Ratio or Equity Ratio:

A variant to the debt equity ratio is the proprietary ratio, which is also known as equity
ratio. This ratio establishes the relationship between shareholders funds to total assets of the firm.
The ratio should be 1:3.
Shareholders funds
Proprietary or Equity ratio =
Total assets
7) Fixed Assets to Net Worth Ratio:
The ratio establishes the relationship between fixed assets and shareholders funds, i.e.,
share capital plus reserves, surpluses and retained earnings. The ratio can be calculated as
follows:
Net fixed assts
Fixed assets to net worth ratio =
Shareholders funds
(Net fixed assets = fixed assets depreciation)

8) Current Assets to Proprietors Funds Ratio:

Page 53

This is calculated got by dividing value of current assets by the amount of proprietors
funds. The purpose of ratio is to show the percentage of proprietors funds invested in current
assets there are case where a higher proportion of current assets to proprietors funds as compared
with the proportion of fixed assets is derived to be an indication of the business.
Current assets
Current assets to proprietors funds ratio =
Proprietors funds

9) Debt Equity Ratio:

It measures the extent of equity covering the debt. This ratio is calculated to measure the
relative proportions of outsiders funds invested in the company. This ratio is determined to
ascertain the soundness of long term financial policies of that company and is also known as
external internal equity ratio.
Debt equity ratio is the ratio, which express the relationship between Debt & Equity. Debt
equity shows the real-time contribution of creditors and owners. It indicated the ownership funds
available to debt holders. The ideal debt equity ratio is 0.5:1 but there is no standard formula to
calculate the maximum debt/equity ratio of the company

Long term debt

Debt-equity Ratio =
Share holders fund
10) Ratio of Current Assets to Fixed Assets:
This ratio is worked out as:
Current assets
Ratio of current assets to fixed assets

=
Fixed assets

Page 54

This ratio will differ from industry to industry and, therefore, no standard can be laid
down. A decrease in the ratio may mean that trading is slack or more mechanization has been
put through. An increase in the ratio may reveal that inventories and debtors have unduly
increased or fixed assets have been intensively used. An increase in the ratio, accompanied by
increase in profit, indicates the business is expanding.
11) Net Profit to Capital Employed Ratio:
Net Working capital is more a measure of cash flow than a ratio. It is an indication of
short term financial health of a business. It is computed as:
Current assets - Current liabilities
The result of this ratio or measure is either a positive or a negative number. A positive
number indicates that the company has enough liquid assets to pay off short term obligations.
Working capital ratio must be looked at over a period of time (several years). A declining ratio
over several years may indicate that the companys financial position is not sound. Banks or
Society generally look at net working capital over a period of time to determine a companys
financial strength. The eligibility of bank loans are also tied to minimum working capital
requirements.
Net Profit
Net Profit to capital employed ratio =
Capital employed

12) Fixed Assets Ratio:

This ratio explains whether the firms has raised adequate long term funds to meet its
fixed assets requirement and is calculated as under:
Fixed assets
Fixed assets ratio =
Capital employed

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This ratio gives an idea as t what part of the cap0ital employed has been used in
purchasing the fixed assets for the concern. If the ratio is less then one is the good for the
concern. The ideal ratio is 0.67
13) Operating Ratio:
This is also an important profitability ratio. This ratio explains the relationship between
cost of goods sold and operating expenses on the one hand and sales on the other.
Cost of the goods sold + Operating expenses
Operating ratio =

*100
Net sales

14) Net Working Capital Ratio:

Net working capital (NWC)
Net working capital ratio =
(Net assets (or) Capital Employed)

15) Cost of Materials Expense Ratio:

Material consumed
Cost of materials ratio =

*100
Net sales

This ratio presents the relationship that exists between cost of material consumed and the
net sales. It indicates the portion of the sales which is consumed by the material cost.
16) Office and Administrative Expenses Ratio:
Office and administrative overhead
Office and administrative ratio =

*100
Net sales

17) Capital Turnover Ratio:

The term capital employed includes,

Page 56

Capital employed = Total Assets/ Total liabilities Current liabilities.

Cost of sales
Capital turnover ratio =
Capital Employed
This ratio shows the efficiency with which capital employed in a business is used. A high
capital turnover ratio indicates the possibility of greater profit and a low capital turnover ratio is
sign of insufficient sales and possibility of lower profits.
18) Gross Profit Ratio:
This ratio expresses the relationship between gross profit and sales. It is calculated as
follows.
Gross profit
Gross profit ratio =

*100
Net sales

Net sales = Sales Sales Returns

This ratio is usually expressed in percentage.
Gross profit ratio indicates the average margin on the goods sold. It shows whether the
selling prices are adequate of not. It also indicates the extent to which selling prices may be
reduced without resulting in losses.
19) Net Profit Ratio:
The net profit ratio is the overall measure of a firms ability to turn each rupee of sales
into profit. It indicates the efficiency with which a business is managed. A firm with a high profit
ratio is in an advantageous position to survive in the face of rising cost of production and falling
selling prices. Where the net profit ratio is low, the firm will find it difficult to withstand these
types of adverse conditions.
This is the ratio of net profit to net sales. It is computed as:
Net profit
Page 57

Net Profit Ratio =

*100
Net sales

The concept of net profit is different from the operating profit. In calculating the net
profit, all non-operating expenses and losses are also deducted and all non-operating incomes on
investments are added.
20) Return on Proprietors Equity:
This is known as Return on Shareholders Funds. It shows the ratio of net profit to owners
equity.
Net profit
Return on Proprietors Equity=

*100
Shareholders Funds

Net profit for purpose of this ratio is calculated after charging interest on long term
liabilities and payment of taxes. For the purpose of this ratio, average of the figure relating to
shareholders funds in the beginning and at the end of the period is taken.
Return on shareholder fund is a very effective measure of the profitability of an enterprise. This
ratio measures the return on the total equity of the shareholders. It should be compared with the
ratios of other similar companies to determine whether the rate of return is attractive. In fact, this
is one of the most important relationships in financial statement analysis.

Page 58

CHAPTER 4

MALNAD ALLOY CASTINGS PVT LTD

STATEMENT OF PROFIT & LOSS AS ON 2012 TO 2014
PARTICULARS
31.03.2014
31.03.2013
31.03.2012
INCOME
Revenue from Operations
(Gross)
Less: Excise Duty
Revenue from Operations (Net)

77,81,90,012
5,98,80,757
71,83,09,255

75,90,51,908
5,83,10,017
70,07,41,891

66,12,13,728
4,88,64,920
61,23,48,808

1,91,98,126

99,82,055

18,17,992

73,75,07,381

71,07,23,946

61,41,66,800

37,99,15,710

41,96,27,903

38,34,22,972

1,16,46,535
4,19,47,258
2,55,71,187

-90,69,047
3,32,64,417
1,47,42,567

-2,15,56,912
2,50,65,872
98,78,314

73,70,810
21,25,47,715
67,89,99,215

66,98,817
20,12,74,046
66,65,38,702

58,40,959
16,18,02,473
56,44,53,678

Profit before tax

Tax Expenses
Current Tax
Deferred Tax

5,85,08,166

4,41,85,244

4,97,13,122

1,83,58,000
15,59,965

1,41,38,000
8,80,431

1,63,80,762
3,42,978

VI

Profit for the year

3,85,90,201

2,91,66,813

3,29,89,382

VII

EPS (Basic & Diluted)

429.35

334.28

370.85

Other Income
TOTAL REVENUE
II

III

EXPENDITURE
Cost of Material Consumed
Changes in Inventories of
Work in process
Employee Benefits Expense
Finance Costs
Depreciation and Amortisation
Expense
Other Expenses
TOTAL EXPENSES

Page 59

MALNAD ALLOY CASTINGS PVT LTD

BALANCE SHEET AS ON 2012 TO 2014
PARTICULARS
31.03.2014 31.03.2013
31.03.2012
EQUITY AND LIABILITIES
`
`
`
Shareholder's funds
(a) Share Capital
89,88,000
89,88,000
89,88,000
18,85,91,54 15,82,33,53
(b) Reserves & Surplus
4
4
13,58,56,673
Non-Current Liabilities
(a) Long-term Borrowings
3,22,66,104
48,44,545
87,39,115
(b) Deferred tax liability (net)
59,06,531
43,46,566
34.66,135
CURRENT LIABILITIES
18,77,04,97
3

(a) Short-term borrowings

(b) Trade payables
(c) Other Current liabilities
(d) Short term provisions
TOTAL
I
I

8,49,90,607
50,10,664
2,64,56,309
53,99,14,73
1

15,82,60,92
5
11,95,90,75
1
46,43,679
1,96,26,546
47,85,34,54
6

39,33,89,777

11,19,15,06
8
1,05,999
29,95,590
71,85,757

6,21,92,725
1,45,713
29,95,590
56,73,526

5,33,04,871
1,85,428
29,95,590
53,61,626

11,68,05,09
2
22,67,88,50
2
48,17,505
2,68,083
6,90,33,136
53,99,14,73
1

12,84,17,72
2
20,74,19,40
0
89,78,732
2,83,857
6,24,27,280
47,85,34,54
6

8,97,47,336
11,80,01,113
68,44,230
2,17,47,175

ASSETS
NON-CURRENT ASSETS
(a) FIXED ASSETS
(i) Tangible Assets
(ii) Intangible Assets
(b) Non-Current Investments
(c) Long-term loans and advances
Current Assets
(a) Inventories
(b)Trade Receivables
(c) Cash & bank balances
(d) Short-term loans and advances
(e) Other Current assets
TOTAL

Page 60

10,72,00,848
15,03,73,811
84,70,942
6,55,083
6,48,41,578
39,33,89,777

RATIO ANALYSIS AND INTERPRITATION

1) Current Ratio:
Current assets
Current ratio =
Current liability
Table: 4.1 Current Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
2012-13
41,77,12,318
Current Assets
30,41,62,553
Current Liabilities
Ratio
1.37
(Source: Annual Reports of 2012 to 2014)

2011-12
40,75,26,991
30,21,21,901
1.35

CHART: 4.1 Current Ratio of Malnad Alloy Casting Pvt. Ltd.

(Source: Table 4. 1)
Page 61

2011-12
33,15,42,262
23,63,39,854
1.40

Interpretation:
The above table shows the calculation of current ratio. An arbitrary standard of current
ratio is 2:1 indicates that for every one rupee of current liability two rupee of current assets is
available. In the year 2011-12 ratio was 1.40 in the year 2012-13 ratio was decreases 1.35 and in
the year 2013-14 increases 1.37. This shows that the company is having less current liabilities
than current Assets.
2) Liquid Ratio:
Liquid assets
Liquid ratio =
Liquid liability
Table: 4.2: Liquid Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
Liquid assets
Liquid liabilities
Ratio
(Source: Annual Reports of 2012 to 2014)

2013-14
29,95,81,195
30,41,62,553
0.98

Page 62

2012-13
27,81,40,237
30,21,21,901
0.92

2011-12
22,41,91,552
23,63,39,854
0.95

CHART4.2: Liquid Ratio of Malnad Alloy Casting Pvt. Ltd.

Liquid Ratio
1.00
0.98
0.96
0.94
0.92
0.90
0.88

2012-13

2011-12

2010-11

(Source: Table 4.2)

Interpretation:
The above table shows the calculation of quick ratio. It shows that companys liquidity
position is favourable in all 3 years as compared to the standard ratio of 1:1 is considered to
represent a satisfactory current financial position. In the above quick ratio is not satisfactory
because it is less than standard. On low account of such a low ratio, the Company may find itself
in serious financial difficulties.
3) Inventory Turnover Ratio:
Cost of goods sold
Inventory turnover ratio =
Average stock

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Table: 4.3: Inventory Turnover Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
Cost of goods sold
Average Stock
Time
(Source: Annual Reports of 2012 to 2014)

2013-14
65,98,01,089
5,84,02,546
11.30

2012-13
65,65,56,647
6,42,08,861
10.23

2011-12
56,26,35,686
5,36,00,424
10.50

CHART: 4.3: Inventory Turnover Ratio of Malnad Alloy Casting Pvt. Ltd.

(Source: Table 4.3)

Interpretation:
The above table shows the calculation of inventory turnover ratio. In the year 2011-12
ratio of inventory turnover was 10.50 times, in the year 2012-13 decreased to 10.23 times, but
again in the year 2013-14 increased to 11.30 times. In the year 2012-13 cost of goods sold is high
compare the other two years so ratio is low, but company has been good inventory turnover. It is
good sign for the company.
4) Fixed Assets Turnover Ratio:
Cost of sales
Fixed assets turnover =
Net fixed assets
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Table: 4.4: Fixed Assets Turnover Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
cost of Sales
Net Fixed Assets
Time
(Source: Annual Reports of 2012 to 2014)

2013-14
65,98,01,089
11,20,21,067
5.89

2012-13
65,65,56,647
6,23,38,438
10.53

2011-12
56,26,35,686
5,34,90,299
10.52

CHART: 4.4: Fixed Assets Turnover Ratio of Malnad Alloy Casting Pvt. Ltd.

Fixed Assets Turnover Ratio

12.00
10.00
8.00
6.00
4.00
2.00
0.00

2012-13

2011-12

2010-11

(Source: Table 4.4)

Interpretation:
The above table shows the calculation of fixed assets turnover ratio. In the year 2011-12
and 2012-13 the ratio is 10.52 and 10.53 respectively, and the year 2013-14 the ratio is 5.89.
During the year 2013-14 company purchase some of the fixed assets and increase net fixed assets
so ratio is low compare to the last two years. This indicates the firm efficient utilisation of fixed
assets generating sales.
Page 65

5) Reserves to Equity Ratio:

Reserves
Reserves to equity Ratio =
Share capital
Table: 4.5: Reserves to Equity Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
Reserves
Share capital
Ratio
(Source: Annual Reports of 2012 to 2014)

2013-14
18,85,91,544
89,88,000
20.98

2012-13
15,82,33,534
89,88,000
17.60

2011-12
13,58,56,673
89,88,000
15.12

CHART: 4.5: Reserves to Equity Ratio of Malnad Alloy Casting Pvt. Ltd

Reserves to Equity Ratio

25.00
20.00
15.00
10.00
5.00
0.00

2012-13

2011-12

2010-11

(Source: Table 4.5)

Interpretation:
The reserves are the appropriations form profit which belongs to the shareholders. The
reserves to equity ratio measures the extant of reserve compared to share capital.
The above table shows the calculation of reserves to equity ratio. In all three year i.e.
from 2011-12 to 2013-14 company has maintained good reserves. Its increase by year to year.
This indicates that high profits are generally retained by the firm for the future growth. Higher
the ratio generally better is the position of the firm.
Page 66

6) Proprietary Ratio or Equity Ratio:

Shareholders funds
Proprietary or Equity ratio =
Total assets
Table: 4.6: Proprietary Ratio or Equity Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
Shareholders funds
Total assets
Ratio
(Source: Annual Reports of 2012 to 2014)

2013-14
19,75,79,544
53,99,14,731
0.366

2012-13
16,72,21,534
47,85,34,546
0.349

2011-12
14,48,44,673
39,33,89,777
0.368

CHART: 4.6: Proprietary Ratio or Equity Ratio of Malnad Alloy Casting Pvt. Ltd

Proprietary Ratio or Equity Ratio

0.370
0.365
0.360
0.355
0.350
0.345
0.340

2012-13

2011-12

(Source: Table 4.6)

Interpretation:
Page 67

2010-11

The ratio measures the extent of shareholders fund to total assets. The ratio should be
standard is 1:3. The company was 0.368 in the year 2011-12, slightly decreased to 0.349 in the
year 2012-13 and again increased to 0.366 in the year 2013-14. This ratio has been increasing
with the increase in total assets. This indicate the greater the long term stability of the company
and consequently greater protection to creditors.
7) Fixed Assets to Net Worth Ratio:
Net fixed assts
Fixed assets to net worth ratio =
Shareholders funds
Table: 4.7: Fixed Assets to Net Worth Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Net fixed assts
11,20,21,067
Shareholders funds
19,75,79,544
Ratio
0.57
(Source: Annual Reports of 2012 to 2014)

2012-13
6,23,38,438
16,72,21,534
0.37

2011-12
5,34,90,299
14,48,44,673
0.37

CHART: 4.7: Fixed Assets to Net Worth Ratio of Malnad Alloy Casting Pvt. Ltd.

Fixed Assets to Net Worth Ratio

0.60
0.50
0.40
0.30
0.20
0.10
0.00

2012-13

2011-12

(Source: Table 4.7)

Interpretation:

Page 68

2010-11

The above table reveals that percentage of fixed assets value contributed by its owners is
increasing year to year. In the year 2011-12 and 2012-13 ratios is 0.37. in the year 2013-14
increases 0.57 implies that funds are sufficient to finance the fixed assets & the firm has not to
depends upon outside to finance fixed assets .

8) Current Assets to Proprietors Funds Ratio:

Current assets
Current assets to proprietors funds ratio =
Proprietors funds
Table: 4.8: Current Assets to Proprietors Funds Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Current assets
41,77,12,318
Proprietors funds
19,75,79,544
Ratio
2.11
(Source: Annual Reports of 2012 to 2014)

2012-13
40,75,26,991
16,72,21,534
2.44

2011-12
33,15,42,262
14,48,44,673
2.29

Chart: 4.8: Current Assets to Proprietors Funds Ratio of Malnad Alloy Casting Pvt. Ltd.

Current Assets to Proprietors Funds Ratio

2.50
2.40
2.30
2.20
2.10
2.00
1.90

2012-13

2011-12

(Source: Table4. 8)
Interpretation:
Page 69

2010-11

The above table shows the relationship between the current assets and proprietors funds.
Reveals that proprietors fund & investments are increasing in proportionately and Current assets
are also increasing but not proportionately. So in the year 2011-12 ratio was 2.29, in the Year
2012-13 has increased to 2.44 its happens due to high inventory and high cash and bank balance
& next year 2013-14 again decreased to 2.11.
9) Debt Equity Ratio:
Long term debt
Debt-equity Ratio =
Share holders fund
Table: 4.9: Debt Equity Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Long term debt
3,22,66,104
Share holders fund
19,75,79,544
Ratio
0.16
(Source: Annual Reports of 2012 to 2014)

2012-13
48,44,545
16,72,21,534
0.03

2011-12
87,39,115
14,48,44,673
0.06

CHART: 4.9: Debt Equity Ratio of Malnad Alloy Casting Pvt. Ltd.

Debt Equity Ratio

0.18
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00

2012-13

2011-12

(Source: Table 4.9)

Interpretation:

Page 70

2010-11

This ratio indicates the relative proportion of debt and equity in financing the assets of the
company. A ratio of 0.5:1 is satisfactory from the point of view of creditor and company. In the
year 2013-11 ratio was low 0.06, in the year 2012-2013 deceased to 0.03, in the year 2013-14
again increased to 0.16. The company retained more reserves and surplice not borrowing from
outside funds. So ratio is very low to compare the standard.
10) Ratio of Current Assets to Fixed Assets:
Current assets
Ratio of current assets to fixed assets

=
Fixed assets

Table: 4.10: Ratio of Current Assets to Fixed Assets of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Current assets
41,77,12,318
Fixed assets
11,20,21,067
Ratio
3.73
(Source: Annual Reports of 2012 to 2014)

2012-13
40,75,26,991
6,23,38,438
6.54

2011-12
33,15,42,262
5,34,90,299
6.20

CHART: 4.10: Ratio of Current Assets to Fixed Assets of Malnad Alloy Casting Pvt. Ltd.

Ratio of Current Assets to Fixed Assets

7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00

2012-13

2011-12

(Source: Table 4.10)

Interpretation:
Page 71

2010-11

The above table shows that ratio of current assets to fixed assets. This indicates
relationship between the current assets and fixed assets. Ratio was 6.20 in the year, its increased
to 6.54 for the next year 2012-13 and decreased to 3.73 in the year 2013-14, the ratio has highly
due to purchase and used more fixed assets compare the last two year, so the ratio was decreased
and low.
11) Net Profit to Capital Employed Ratio:
Net Profit
Net Profit to capital employed ratio =
Capital employed
Capital employed = Total Assets - Current Liability
Table: 4.11: Net Profit to Capital Employed Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Net Profit
3,85,90,201
Capital employed
23,57,52,178
Ratio
0.164
(Source: Annual Reports of 2012 to 2014)

Page 72

2012-13
2,91,66,813
17,64,12,645
0.165

2011-12
3,29,89,382
15,70,49,923
0.210

CHART: 4.11: Net Profit to Capital Employed Ratio of Malnad Alloy Casting Pvt. Ltd.

Net Profit to Capital Employed Ratio

0.250
0.200
0.150
0.100
0.050
0.000

2012-13

2011-12

2010-11

(Source: Table 4.11)

Interpretation:
The net profit to capital employed ratio the proportion of net profit compared capital
employed. In the year 2011-12 ratio was 0.210, in the next two consecutive years 2012-13 and
2013-14 the ratio was 0.165 and 0.164 respectively. Its means company has more profit in the
year 2011-12 compare next two year. In the year 2013-14 the net profit has increased further
there is increasing more of capital employed which has resulted in decrease in ratio.
12) Fixed Assets Ratio:
Fixed assets
Fixed assets ratio =
Capital employed
Table: 4.12: Fixed Assets Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars

2013-14
Page 73

2012-13

2011-12

Fixed assets
11,20,21,067
Capital employed
23,57,52,178
Ratio
0.475
(Source: Annual Reports of 2012 to 2014)

6,23,38,438
17,64,12,645
0.353

5,34,90,299
15,70,49,923
0.341

CHART: 4.12: Fixed Assets Ratio of Malnad Alloy Casting Pvt. Ltd.

Fixed Assets Ratio

0.500
0.450
0.400
0.350
0.300
0.250
0.200
0.150
0.100
0.050
0.000

2012-13

2011-12

2010-11

(Source: Table 4.12)

Interpretation:
This ratio shows the proportion of funds supplied by fixed assets in the capital employed
in the business. The percentage of fixed assets value contributed by its capital is increasing year
by year, in the year 2011-12 ratio was 0.341, in the year 2012-13 increases 0.353, in the year
2013-14 increases 0.475 implies that funds are sufficient to finance the fixed assets. The increase
in the ratio is due to increase in fixed assets as compared to capital employed in 2013-14.
13) Operating Ratio:
Cost of the goods sold + operating expenses
Operating ratio =

*100
Net sales

Table: 4.13: Operating Ratio of Malnad Alloy Casting Pvt. Ltd.

Particulars

2013-14
Page 74

2012-13

2011-12

cost of goods sold + Operating Exp 67,95,34,591

Net sales
71,83,09,255
Percentage
94.60%
(Source: Annual Reports of 2012 to 2014)

67,61,41,863
70,07,41,891
96.49%

57,94,55,793
61,23,48,808
94.63%

CHART: 4.13: Operating Ratio of Malnad Alloy Casting Pvt. Ltd.

Operating Ratio
97.00%
96.50%
96.00%
95.50%
95.00%
94.50%
94.00%
93.50%

2012-13

2011-12

2010-11

(Source: Table 4.13)

Interpretation:
This ratio explains the relationship between cost of goods sold and operating expenses on
the one hand and net sales in the other hand. Operating ratio indicates that for every Re. 1 of net
sales, the operating cost is in the year 2011-12 the 94.63% ratio, in the year 2012-13 the 96.49%
(paisa) ratio and the year 2013-14 the 94.60% ratio. The decrease in the ratio due to decrease in
cost of goods sold as compared to net sales in 2013-14.
14) Net Working Capital Ratio:
Net working capital (NWC)
Net working capital ratio =
(Net assets (or) Capital Employed)
Table: 4.14: Net Working Capital Ratio of Malnad Alloy Casting Pvt. Ltd.

Page 75

Particulars
2013-14
Net working capital (NWC)
11,35,49,765
Capital employed
23,57,52,178
Ratio
0.482
(Source: Annual Reports of 2012 to 2014)

2012-13
10,54,05,090
17,64,12,645
0.597

2011-12
9,52,02,408
15,70,49,923
0.606

CHART: 4.14: Net Working Capital Ratio of Malnad Alloy Casting Pvt. Ltd.

Net Working Capital Ratio

0.700
0.600
0.500
0.400
0.300
0.200
0.100
0.000

2012-13

2011-12

2010-11

(Source: Table 4.14)

Interpretation:
The above table shows the calculations of net working capital ratio. This ratio helps to
indicating the efficiency with current assets, current liability and total capital employed. In the
year 2011-12 ratio was 0.606, in the year 2012-13 decreased to 0.597 and the next year 2013-14
again decreased to 0.482 its shows the company has sufficient capital in use of working capital.

15) Cost of Materials Expense Ratio:

Material consumed
Cost of materials ratio =

*100
Net sales
Page 76

Table: 4.15: Cost of Materials Expense Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Material consumed
37,99,15,710
Net sales
71,83,09,255
Percentage
52.89%
(Source: Annual Reports of 2012 to 2014)

2012-13
41,96,27,903
70,07,41,891
59.88%

2011-12
38,34,22,972
61,23,48,808
62.62%

CHART: 4.15: Cost of Materials Expense Ratio of Malnad Alloy Casting Pvt. Ltd.

Cost of Materials Expense Ratio

64.00%
62.00%
60.00%
58.00%
56.00%
54.00%
52.00%
50.00%
48.00%

2012-13

2011-12

2010-11

(Source: Table 4.15)

Interpretation:
The above table shows the cost of material consume of the company in different years. In
the year 2011-12 the cost of material was 62.62% of sales, in the year 2012-13 its decreased to
59.88% and the year 2013-14 the cost was again decreased by 52.89%.The net sales is increase
by year to year but cost of material consumption is decrease so percentage of the cost of material
is comes down by year to year it is good sign for the company.
16) Office and Administrative Expenses Ratio:
Office and administration overhead
Office and administrative ratio=

*100
Net sales
Page 77

Table: 4.16: Office and Administrative Expenses Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Office and administration overhead
1,37,04,199
Net sales
71,83,09,255
Percentage
1.91%
(Source: Annual Reports of 2012 to 2014)

2012-13
1,23,33,295
70,07,41,891
1.76%

2011-12
1,05,53,687
61,23,48,808
1.72%

CHART:4.16: Office and Administrative Expenses Ratio of Malnad Alloy Casting Pvt. Ltd.

Office and Administrative Expenses Ratio

1.95%
1.90%
1.85%
1.80%
1.75%
1.70%
1.65%
1.60%

2012-13

2011-12

2010-11

(Source: Table 4.16)

Interpretation:
This ratio indicates the extent of administration and office expenses in sales of the firm. In
the year 2011-12the expenses was 1.72%, in the year 2012-13 increased to 1.76% and the 201314 again increased to 1.91%. There is administration and office expenses increased by year to
year, there is net sales also increased but not proportionately so its not good sign for the
company.

17) Capital Turnover Ratio:

Cost of sales
Capital turnover ratio =
Capital Employed
Page 78

Table: 4.17: Capital Turnover Ratio of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Cost of sales
65,98,01,089
Capital Employed
23,57,52,178
Time
2.80
(Source: Annual Reports of 2012 to 2014)

2012-13
65,65,56,647
17,64,12,645
3.72

2011-12
56,26,35,686
15,70,49,923
3.58

CHART: 4.17: Capital Turnover Ratio of Malnad Alloy Casting Pvt. Ltd.

Capital Turnover Ratio

4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00

2012-13

2011-12

2010-11

(Source: Table 4.17)

Interpretation:
This ratio shows the efficiency with which capital employed in a business is used. In the
year 2011-12 sales was more than 3.58 times of capital employed, in the year 2012-13 sales
increased to 3.72 times and the year 2013-14 sales decreased to 2.80 times.
In the year 2011-12 to 2012-13 it is good, in the year 2013-14 also good but more capital
employed use so the capital turnover is less compare the last two years.
18) Gross Profit Ratio:
Gross profit
Gross profit ratio =

*100
Net sales

Table: 4.18: Gross Profit Ratio of Malnad Alloy Casting Pvt. Ltd.
Page 79

Particulars
2013-14
Gross profit
5,85,08,166
Net sales
71,83,09,255
Percentage
8.15%
(Source: Annual Reports of 2012 to 2014)

2012-13
4,41,85,244
70,07,41,891
6.31%

2011-12
4,97,13,122
61,23,48,808
8.12%

CHART: 4.18: Gross Profit Ratio of Malnad Alloy Casting Pvt. Ltd.

Gross Profit Ratio

9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

2012-13

2011-12

2010-11

(Source: Table 4.18)

Interpretation:
The gross profit ratio indicates the average margin on the goods sold. The company
makes a profit in the year 2011-12 ratio was 8.12%, in the year 2012-13 deceased to 6.31% and
the year 2013-14 again increased to 8.15%.
In the 2012-13 gross profit less compare with 2011-12 and 2013-14. During the year
2012-13 the company makes a low profit due to increasing cost of material consumed.
19) Net Profit Ratio:
Net profit
Net Profit Ratio =

*100
Net sales

Table: 4.19: Net Profit Ratio of Malnad Alloy Casting Pvt. Ltd.

Page 80

Particulars
2013-14
Net profit
3,85,90,201
Net sales
71,83,09,255
Percentage
5.37%
(Source: Annual Reports of 2012 to 2014)

2012-13
2,91,66,813
70,07,41,891
4.16%

2011-12
3,29,89,382
61,23,48,808
5.39%

CHART: 4.19: Net Profit Ratio of Malnad Alloy Casting Pvt. Ltd.

Net Profit Ratio

6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

2012-13

2011-12

2010-11

(Source: Table 4.19)

Interpretation:
The net profit ratio is the overall measure of a firms ability to turn each rupee of sales
into profit. This ratio helps in indicating the efficiency with which affairs of the business are
being carried on. Here the ratio is 5.39% in the year 2011-12. Ratio is decreased to 4.16% in the
2012-13 and the year 2013-14 it again increasing to 5.37%.
In the year 2011-12 and 2013-14 is high net profit compare the year 2012-13. In the year
2012-13 the cost of material consumed are high so net profit is low in during the year 2012-13.

Page 81

20) Return on Proprietors Equity:

Net profit
Return on Proprietors Equity=

*100
Shareholders Funds

Table: 4.20: Return on Proprietors Equity of Malnad Alloy Casting Pvt. Ltd.
Particulars
2013-14
Net profit
3,85,90,201
Shareholders fund
19,75,79,544
Percentage
19.53%
(Source: Annual Reports of 2012 to 2014)

2012-13
2,91,66,813
16,72,21,534
17.44%

2011-12
3,29,89,382
14,48,44,673
22.78%

CHART: 4.20: Return on Proprietors Equity of Malnad Alloy Casting Pvt. Ltd.

Return on Proprietors Equity

25.00%
20.00%
15.00%
10.00%
5.00%
0.00%

2012-13

2011-12

2010-11

(Source: Table 4. 20)

Interpretation:
Return on shareholders funds is a very effective measure of the profitability of an
enterprise. Here the ratio in the year 2011-12 was 22.78%, in the year 2012-13 ratio is decreased
to 17.44% and the 2013-14 ratio is 19.53%.
Ratio in the 2012-13 is low compare with the years 2013-11 and 2013-14. In the year
2012-13 the net profit is low due to high cost of goods sold so ratio also low.
Page 82

CHAPTER 5
SUMMARY OF FINDINGS, CONCLUSION AND SUGGESTIONS
5.1 Summary of Findings
The current ratio of the company is below standard of 2:1 for the past three years. The
current ratio of the company for the current year 2013-14 is 1.37 which is bellow the
standard of 2:1 furthers the current ratio of the company decreasing over the years.
The quick ratio of the company is bellow the standard of 1:1 for the past three years,
which reveals that the firm does not enjoy a good liquidity position.
The inventory turnover ratio of the company is satisfactory its increase year by year the
past three years ratio is more than 10 times.
During the year 2013-14 company purchase some of the fixed assets and increase net
fixed assets so ratio is low compare to the last two years. This indicates the firm efficient
utilization of fixed assets generating sales.
The reserve to equity ratio has increased compared to the previous year due to high
profits are generally retained by the firm for the future growth.
The proprietary ratio has increased in the due to increase reserves and surplus.
The fixed assets to net worth ratio have increased over the years as the fixed assets have
increased for current year.
The current assets to proprietary ratio have decreased further, as inventory, cash and bank
balance is low during the current year compare the previous year.
The debt equity ratio has increased during the current year due to company borrow the
long term loan from a bank.
The ratio of current assets to fixed assets has decreased highly due to increased more
fixed assets during the year as there is purchased land, building and equipments.
There has been the net profit has increased further there is increasing more of capital
employed which has resulted in decrease in ratio.
The fixed assets ratio has increased due to increase in fixed assets as compared to capital
employed.
The operating ratio has decreased due to decreased in cost of goods sold, however, there
is also an increase in net sales compare the previous year.
The net working capital ratio has decreased due to increase in working capital as
compared to capital employed.

Page 83

 The cost of material expenses ratio has decreased due to the net sales is increase by year
to year but cost of material consumption is decrease so percentage of the cost of material
is comes down by year to year.
The office and administrative expenses ratio has increased due to there is increase in sales
accompanied by increase in loss of fixed assets during the year.
The capital turnover ratio has decreased in 2013-14 there is decrease in cost of sales and
increased in capital employed as compared to previous year.
The gross profit ratio has increased in 2013-14 there is in gross profit are increase, due to
decrease the cost of material consumption.
The net profit ratio the year 2011-12 and 2013-14 is high net profit compare the year
2012-13. In the year 2012-13 the cost of material consumed are high so net profit is low
in during the year 2012-13.
The return on proprietary ratio is increase due to increasing the net profit compare the
previous year.

5.2 suggestions
The current ratio and Quick ratio of the company doesnt reach standard ratio so
company need to concentrate on increasing the current ratio by increasing in current asset
and Quick Assets.
The company needs to focus on maintain adequate liquidity in order to be able to meet its
current obligations immediately.
Page 84

 The company must be increasing current assets its helps to increase the liquidity position
of the company.
There has been increase in sales however the office and administration expenses have
also increased which have reduced the profit. Hence, the company must focus on cost
control measures.
The company borrow long term loan during the year must discharge some of its loans and
reduce its financial burden and reduce it interest obligations.
5.3 Conclusion
The Study of the ratio analysis of Malnad Alloy Casting Private Ltd reveals the
performance of the company in terms of financial aspects. It is found that there is an increase in
sales, net profit, gross profit during 2013-14 the cash balance is also increased for the above said
year. It is also observed that the current ratio is not satisfactory. Quick ratio is decreased year by
year. As Net working capital ratio is also decreased year by year. Further the company
performance and efficiency can be improved by above mentioned points in the suggestion.

Page 85

BIBLIOGRAPHY
Company Manuals like
Directors report
Annual reports of the MACPL
Websites
MACPL@sancharnet.in
Text Books
Management Accounting Principal and Practice 11th edition Shashi K. Guptha,

R.K Sharma,
Financial Accounting R Narayanaswamy Prentice Hall India, 3/e
Management Accounting p - Himalaya Publishing House M.N. Arora
J made Gowda, Accounting for managers Himalaya Publishing House,
Financial Accounting P.C. Thulsian Pearson Education India, 1/e
Accounting For Managers Jawaralal Himalaya Publishing House,

Page 86