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A

SUMMER INTERNSHIP PROJECT REPORT


ON

The Study Of Ratio Analysis


At

SUBMITTED IN PARTIAL FULFULLMENT OF THE REQUIREMENT FOR THE


AWARD

OF

THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

(FINANCIAL MANAGEMENT)

SUBMITTED BY
Ms.Shubhangi Dattatray Shinde
MBA Financial Management
YEAR 2016-17

SUBMITTED TO
SAVITRIBAI PHULE UNIVERSITY OF PUNE

UNDER THE GUIDANCE OF


Prof.M.R.Jadhav

Matoshri Education Societys

Matoshri college of Management & Research


Centre,Eklahare,Nashik.

1
DECLARARION

I hereby declare that this project work on study of ratio analysis in partial fulfillment
of Master of business Administration degree course of Savitribai Phule University of Pune is
my own work and submitted by me under the guidance of Prof. M R Jadhav

I also declare that the present work has not been submitted by be to any other university for
the fulfillment of any degree or diploma.

I have prepared this report independently and I have gathered all the relevant information
personally. I have prepared this project for MBA curriculum 2017-2018.

DATE :-

PLACE :- Nashik

2
ACKNOWLEDGEMENT

I would like to this opportunity to express my respect & deep gratitude to Mr.
HEMANT D. RAAKH Branch Manager of MAHINDRA SONA LTD. NASHIK Nashik
division for his timely help & positive encouragement. I would also like to express my
gratitude towards my project guide Prof. M. R. JADHAV & also Dr. Y. M. Gosavi Director
of the institute for guiding me in successful completion of this project.

I expected my sincere thanks to all faculty members of the college and all employees of
mahindra sona ltd , Nasik, for their king guidance, cooperation and assistance in completing
this project.

3
TABLE OF CONTENTS
Chapter No. CHAPTER PAGE NO
1 INTRODUCTION
1.1 Object of the project
1.2 Selection of the topic
1.3 Objectives of the study
1.4 Statement of Hypothesis
1.5 Scope of the study
1.6 Rational / Contribution of the study
1.7 Limitations of the study
2 RESEARCH METHODOLOGY
2.1 Method of study
2.2 Sampling
2.3 Data collection
2.4 Presentation of data, Tools of analysis &
interpretation
3. PROFILE OF THE ORGANIZATION
3.1 History & general information
3.2 Organization
3.3 Products / Activities
3.4 Corporate & Functional Practices
4 REVIEW OF LITERATURE
4.1 Meaning & Concepts of the Topic
4.2 Basic theories of the topic
4.3 Review of Research on the selected topic
5 DATA PRESENTATION, ANALYSIS &
INTERPRETATION
6 FINDINGS
7 CONCLUSION
8 SUGGETIONS
9 REFFERENCES / BIBLIOGRAPHY

4
LIST OF TABLES
Sr. No Particulars Page Number
1 Current Ratio 42
2 Quick Ratio 43
3 Absolute Liquidity Ratio 45
4 Proprietary Ratio 46
5 Working Capital Turnover Ratio 47
6 Fixed asset Turnover Ratio 49
7 Capital Employed Turnover Ratio 50
8 Current Assets To Fixed Assets Ratio 51
9 Net Profit Ratio 53
10 Operating Profit Ratio 54
11 Return On Total Asset Ratio 56
12 Reserves & Surplus Capital Ratio 57
13 Return On Investment 59

LIST OF GRAPHS
Sr. No Particulars Page Number
1 Current Ratio 42
2 Quick Ratio 43
3 Absolute Liquidity Ratio 45
4 Proprietary Ratio 46
5 Working Capital Turnover Ratio 47
6 Fixed asset Turnover Ratio 49
7 Capital Employed Turnover Ratio 50
8 Current Assets To Fixed Assets Ratio 51
9 Net Profit Ratio 53
10 Operating Profit Ratio 54
11 Return On Total Asset Ratio 56
12 Reserves & Surplus Capital Ratio 57
13 Return On Investment 59

5
CHAPTER NO. 1
INTRODUCTION

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1.1 Object of the Project:-
The major objectives of the resent study are to known about financial strengths and
weakness of MENDRA SONA LIMITED LTD trough RATIO ANALYSIS.

The Main objectives of resent study aimed as:

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


measure the efficiency of the Company. To understand the liquidity, profitability and
efficiency position of the company during the study period. To evaluate and analyze various
facts of the financial performance of the company. To make comparisons between the ratio
during different periods.

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1.2 Introduction (Selection Of The Topic)

Financial analysis is the process of identifying the financial strengths and weaknesses of the
firm and establishing relationship between the items of the balance sheet and profit & loss
account.

Financial ratio analysis is the calculation and comparison of ratios. Which are derived from
the information in a companies financial statements. The level and historical trends of these
ratios can be used to make inferences about a companys financial condition in the statements
is used by

Trade creditors, to identify the firms ability to meet their claims i. e. liquidity position of the
company.

Investors, know about the present and future profitability of the company and its financial
structure.

Management, in every aspect of the financial analysis. It is the responsibility of the


management to maintain sound financial condition in the company

8
1.3 Objectives Of The Study:

1. To Study the present financial system at MAHINDRA SONA Ltd

2. To determine the Profitability, Liquidity Ratios.

3. To analyze known the trend by using ratio of MAHINDRA SONA Ltd over last three
years.

4. To offer appropriate suggestion for the better performance of the organization.

9
1.4 Statement Of Hypothesis:

Research is the work that involves studying something & trying to discover facts
about it. Methodology is a system of method / principle for doing something.
Research can be done with the help of data collection which is of two types:
1) Primary Data
The information is collected through the primary sources like:
Talking with the employees of the department.
Getting information by observation e. g. in manufacturing processes.
Discussion with the head of department.
2) Secondary Data
The data is collected through the secondary sources like:
Study of various journals, notes & books
Annual Reports of the Company
Office manuals of the departments
Policy documents of various departments

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1.5 Scope Of The Study:

This study is about the ratio analysis of MAHINDRA SONA Ltd which is a part
of financial analysis. Ratio analysis perhaps the first financial tool developed to analyze and
interpret the financial statement and is still used widely for this purpose. Financial
performance analysis is a well researched area and innumerable studies have proved the
utility and usefulness of this analytical technique. This researched seeks to investigate and
constructively contribute to help:

The company in finding out the gray areas for improvement in performance.

The company to understand its own position over time.

The managers to understand their contribution to the performance of the company

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1.6 Rational / Contribution Of The Study

MAJOR FINDINGS:-

1) After the analysis is Financial Statements, Company status is weak, because the
Net working capital of the company is declared from the last years position,

2) The company profits are lower in the current year.

3) The company is utilizing the fixed assets, which majority help to the growth of the
organization. The company should maintain that perfectly.

4) The company fixed deposits are raised from the inception, it gives the other income
i. e. Interest on fixed deposits.

MAJOR SUGGESTION:-

1. To increase in utilization of current assets.

2. To expand the branch in other city.

3. To increase financial position.

4. To increase in sales of company

12
1.7 Limitations Of The Study:

1. The study provides an insight into the financial, personnel, marketing and other
aspects of MAHINDRA SONA Ltd. Every study will be bound with certain
limitation

2. The below mentioned are the constrains under which the study is carried.

3. One of the factors of the study was lack of availability of a sample information.
Most of the information has been kept confidential and as such as not asses as art
of policy of company.

13
CHAPTER NO. 2
RESEARCH METHODOLOGY

14
2.1 Methods Of Study:
Research Methodology

Research methodology refers to scientific procedure for the acquisition of knowledge


based on empirical observation and logical reasoning. The aim of research methodology is
merely collection analysis and interpretation of facts in the most systematic and objective
manner. Thus, the aim of methodology is limited and subservient.

Research Methodology is the way to systematically solve the research problem. It


may be understood as a science of studying how research is done scientifically. In this we
study the various steps that are adopted by the researcher in studying his research problem
along with the logic behind them. It is necessary for the researcher to know not only the
research methods but also the methodology.

All this means that it is necessary for the researcher to design his methodology for the
problem as the same may differ from problem to problem.

Research is the search for knowledge.

Research Methodology is the method used of collecting data through various sources
as well as analysis and interpretation of data.

It has always been important & essential to adopt certain per-decided method to study
any particular system.

In order to collect the required information following methods were adopted.

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Definition:

Clifford Woody, Research compromises defining and redefining problems,


formulating hypothesis or suggested solutions; collecting, organizing and evaluating
data; making deductions and reaching conclusions and last carefully testing the
conclusions to determine whether they fit the formulating hypothesis.

Types of Research:

1. DESCRIPTIVE RESEARCH: -
It includes surveys and fact-finding inquirers of different kind. The main purpose
of descriptive research is description of the state of affairs, as it exists at present.

2. ANALYTICAL RESEARCH: -
Analytical research has to use facts or information already available and analyze
these to make a critical evaluation of the material.

3. APPLIED RESEARCH: -
Applied research aims at finding solution for an immediate problem facing a society
or an industrial/business organization.
The certain aim of applied research is to discover a solution for some pressing
practical problem

4. FUNDAMENTAL RESEARCH: -
It is mainly concerned with generalization and with the formulation of a theory.
Basic research is directed towards finding information that has abroad base of
application and adds to the already existing organized body of scientific knowledge.

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5. QUANTITATIVE RESEARCH: -
It is based on the measurement of quantity or amount. It is application to
phenomena that can be expressed in terms of quantity.

6. QUALITATIVE RESEARCH: -
It is concerned with qualitative phenomenon that is phenomenon relating to or
involving quality or kind.

7. CONCEPTUAL RESEARCH: -
Conceptual research is that related to some abstract ideas or theory. Philosophers
and thinkers to develop new concept or to reinterpret existing once generally use it.

8. EMPIRICAL RESEARCH: -
Empirical research relies on experience or observation alone, often without due
regard for system and theory. It is database research, coming up with conclusions, which are
capable of being verified, by observation or experiment.

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2.2 Sampling:

Types of Sampling:

Probability Sampling: Simple Random Sampling, Stratified Random Sampling, Multi-


Stage Sampling.

What is each and how is it done?


How do we decide which to use?

How do we analyze the results differently depending on the type of sampling?

Non-probability Sampling: Why don't we use non-probability sampling schemes? Two


reasons:

We can't use the mathematics of probability to analyze the results.


In general, we can't count on a non-probability sampling scheme to produce
representative samples.

In mathematical statistics books (for courses that assume you have already taken a
probability course):

Described as assumptions about random variables


Sampling with replacement versus sampling without replacement

Simple Random Sampling:

A simple random sample (SRS) of size n is produced by a scheme which ensures that each
subgroup of the population of size n has an equal probability of being chosen as the sample

Stratified Random Sampling:

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Divide the population into "strata". There can be any number of these. Then choose a simple
random sample from each stratum. Combine those into the overall sample. That is a stratified
random sample. (Example: Church A has 600 women and 400 men as members. One way to
get a stratified random sample of size 30 is to take a SRS of 18 women from the 600 women
and another SRS of 12 men from the 400 men.)

Multi-Stage Sampling:

Sometimes the population is too large and scattered for it to be practical to make a list of the
entire population from which to draw a SRS. For instance, when the polling organization
samples US voters, they do not do a SRS. Since voter lists are compiled by counties, they
might first do a sample of the counties and then sample within the selected counties.

Research area Nashik

Types of
Descriptive Research
Research

Sampling Stratified Random


Method Sampling

Primary Data Observation/Discussions

Secondary
By Report & Files
Data

Analysis of
%, Table, chart
Data

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2.3 Data Collection:

Types of Data:-

1. First type is the Primary data which was collected personally to be used and studied
to prepare and reach objectives already mentioned

2. The secondary data was already prepared so there data was only used to reach the
aims and objectives of this project. These data has been collected from the financial
reports of the company.

How the data was collected:

The sources of collecting the primary data was trough interviews, observation and
questionnaire, however the secondary one was collected from the financial statements
already available to the employees of the company and some which was published.

1. Questionnaire

2. Personal Interview

3. Printed and Digital Sources

The data is collected through the secondary Sources like:

1. Annual report of the company

2. Financial balance sheets of Three years

3. Income Statements

4. Financial

5. Different report prepared by finance department

20
RESEARCH FRAMEWORK:- This study bases on the about. MAHINDRA SONA Ltd for
a detailed study of its financial statements documents and systems ratios finally to recognize
and determine the position of the company.

Types of data which helped to prepare this report:

1. first type is the Primary data which was collected personally to be used and studied to
prepare and reach the objectives already mentioned.

2. The secondary data which was already prepared so these data was only used to reach
the aims and objectives of this project. These data has been collected from the
financial reports of the company.

How the data was collected

The sources of collecting the primary data was through interviews, observation and
questionnaire, however the secondary one was collected from the financial statements already
available to the employees of the company and some of which was published.

A) Questionnaire:-

This method of data collection is quite popular. In this method a questionnaire- which consist
a set of question in a definite form is send person concerned with a request to answer the
questions and return questionnaire. The responds have to answer the question on their own.

For the purpose of fulfilling different parts of my project. I prepared a limited number of
questionnaire. These questionnaire were e-mailed to the related person in the company

B) Personal interviews:

Personal interviews method requires a person known as the interviewer asking questions
generally in a face to face contact to other person or person.

In the same cases I had the chance to ask my question personally from the Head of Accounts
development and Head Of HR Department regarding the information I needed.

Different question and information I could collect during these two methods are:

1. The beginning and history of the MAHINDRA SONA Ltd

2. Number of staff working the different department.

3. The mission and vision of the company

4. Areas of operation

5. Other company related information

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C)Printed and Digital Sources:

The secondary data I collected was through the study of the financial statement already
existed in the company in form of printed files or digital files reserved in the company for
further references. I had chosen these files because of the reliability and suitability of these
information which I was also sure about the accuracy of them.

These files consist of.

1. annual report of the company

2. financial balance sheet

3. income statements

4. financial reports

5. Different reports prepared by finance Department

22
2.4) Presentation Of Data, Tools Of Analysis & Interpretation

Data Presentation Tools


The data collection is presented in the form of:

1)Account Statement of the firm

2)Bar diagrams

TITLE : study of ratio analysis of MAHINDRA SONA Ltd, nashik

COMPANY NAME: MAHINDRA SONA Ltd.

Objectives
1. To Study the present financial system at MAHINDRA SONA Ltd

2. To determine the Profitability, Liquidity Ratios.

3. To analyze known the trend by using ratio of MAHINDRA SONA Ltd over last three
years.

4. To offer appropriate suggestion for the better performance of the organization.

23
CHAPTER NO. 3
PROFILE OF THE ORGANIZATION

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3.1 History & General Information

MAHINDRA SONA was first manufacture in the year 1998 in nashik, which is located in
satpur MIDC on the Nashik- Satpur road is the driveline system. Some 30 km from the
historic city of Nashik. This plant become a part of Raymond Group in 2005 as part of the
companys acculisition of a majority stake in ring gears.

A company Ring Gears offers on interesting array of automotive components that are finding
increasing application in the domestic as well as international auto market.

Starter ring Gears pvt ltd has a large setup of machineries of a reputed makes both indian &
imported such as WWW, DRUMMOND, HURTH, GLEASON, HMT etc. installed in a
different section to attain specialty & to meet customers requirement. Timely, all these
section has a team of trained & qualified personnel to produce only quality product.

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3.2 Organizational Profile

Name of the company :- Mahindra sona ltd, Nashik

Address :- MIDC area satpur , Nashik

Date of work :-1 JUNE 2017 to 31 JULY 2017

Date of Establishment :- 1990

Annual Turnover :- 3 crore

Type of work :- manufacturing automobile ring gears

Constitution type :- partnership firm

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List of Organization comes under it.

1) Kirloskar Oil engine


2) John dere equip. pvt Ltd

3) Mahindra & Mahindra

4) Eicher Motor Ltd

5)Swaraj engines Ltd

6)Simpsan India

7) Same Deutz

8)Greaves Ltd

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Organization Chart

Board Of Director

Chairman

Manager

Technical Head Of Department

Engineers

Supervisors

Accountant

Office Assistant

People Staff

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3.3 Product Of Flywheel Ring Gaers

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Manufacturing Process

The process of manufacturing quality starter ring gears involves four major processes as
explain below.

1.Forging Process:-

Equipped with Rounding technology, along with Hydraulic process, Flash Bust welding &
Stress reliving process, for ring forging.

2.Machining process:-

equipped with heavy lathes, CNC Turning center Gear Hobbing, Gear chamfering, Drill
Machine, Dynamic Balancing.

3.Heat Treatment Process:-

Induction Hardening Automatic controlled team peering finance.

4. Testing process : All required measuring instruments, hardness, tester & crack testing
facility

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.

3.4 Corporate And Functional Practices

Mission:-

Mahendra sona Pvt Ltd will provide the customer, both external and internal with total
quality excellence of a product and service that fully meet his expectation in every respect
and is superior in value to that which can be obtained elsewhere.

We will conduct our business with total integrity.

To Maintain ISO TS16949:2002 system in the organization & reaching every possible
customer through website interaction & visit

Vision:-

To be at the top of the distribution service by prompt, quick and reliable service with
sophisticated technology, to meet and excel the customer requirements.

To improve production processes & system to produce better quality ring gears from time to
time.

To constantly evolve processes to improve productivity to produce production cost.

Ensure year to year growth in turnover by developing new customers & increasing market
share with the existing customers.

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Values:-

Care for our customer

Quality of Services

Reliability and efficiency

Ethical and moral conduct

Superior performance

Integrity

Entrepreneurship

Respect for people

Working together

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CHAPTER NO : 4
REVIEW OF LITERATURE

33
4.1 Meaning And Concept Of The Topic:

Concept Of Ratio Analysis

Definition of Ratio Analysis:-

Ratio analysis is a fundamental means of examining the health of a company by studying


the relationships of key financial variables. Many analysis believe ratio analysis is the most
important aspect of the analysis process. A firms ratios are normally compared to the ratios of
other companies in that firm industry or tracked over time internally in order to see trends.
For example, the debt ratio compares a companys total debt to its total assets. If a firms debt
ratio is low relative to its competitors ratios or has decreased since last year, the firm is less
dependent on debt and is therefore perhaps a less risky investment. To evaluate companies
analysis use many ratios, including measures of liquidity, profitability, debt, operating
performance , each flow, and valuation

Meaning Of Ratio:

A ratio is one figure express in terms of another figure. It is mathematical yardstick that
measure the relationship two figures, which are related to each other and mutually
interdependent. Ratio is express by dividing one figure by the other related figure. Thus a
ratio is an expression relating one number to another. It is simply the quotient of two
numbers. It can be expressed as a fraction or as a decimal or in absolute figures as so many
times. As accounting ratio is an expression relating two figures or accounts or two sets of
account heads or group contain in the financial statements.

Meaning Of Ratio Analysis:-


Ratio analysis is the method or process by which the relationship of items or group of
items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial
health and profitability of business enterprise. Ratio analysis can be used both in trend and
static analysis. There are several ratios at disposal of an analysis but their group of ratio he
would prefer depends on the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section. We will
focus on a technique, which is easy to use. It can provide you with a valuable investment
analysis tool.

Ratio analysis can provide valuable information about a companys financial health. A
financial ratio measures a company performance an a specific area. For example, you could
use a ratio of a companys debt to its equity to measure a companys leverage. By comparing
the leverage ratios of two companies, you can determine which company uses grater debt in
the conduct of its business. A company whose leverage ratio is higher than a competitors has

34
more debt per equity. You can use this information to make a judgment as to which company
is a better investment risk.

However, you must be careful not to place too much importance on one ratio. You obtain a
better indication of the direction in which a company is moving when several ratios are taken
as a group.

Ratio Analysis:-
The term Ratio refers to the numerical and quantitative relationship between two items or
variables. This relationship can be exposed as

Percentage Fraction Proportion of number

Ratio analysis is defined as the systematic use of the ratio to interpret the financial
statements. So that the strengths and weaknesses of a firm, as well as its historical
performance and current financial condition can be determined. Ratio reflects a quantitative
relationship helps to form a quantitative judgment.

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4.2 ) Steps In Ratio Analysis:-
The first task of the financial analysis is to select the information relevant to the decision
under consideration from the statements and calculates appropriate ratios.

To compare the calculated ratios with the ratios of the same firm relating to the past or
with the industry ratios. It facilities in assessing success or failure of the firm.

Third step is to in ter4pretation, drawing of inferences and report writing conclusion are
drawn after comparison in the shape of report or recommended courses of action.

Basis Or Standards Of Comparisons:-


ratios are relative figures reflecting the relation between variables. They enable analyst to
draw conclusions regarding financial operation. They use of ratios as a tool of financial
analysis involves the comparison with related facts. This is the basis of ratio analysis. The
basis of ratio analysis is of four types.

Past ratios, calculated from past financial statement of the firm.

Competitors ratio, of the some most progressive and successful competitor


firm at the same point of time.

Industry ratio, the industry ratios to which the firm belongs to

Projected ratios, ratios of the future developed from the projected or pro forma
financial statements

Nature Of Ratio Analysis:-

Ratio is a technique of analysis and interpretation of financial statements. Is the process of


establishing and interpreting various ratios for helping in making certain decision. It is only a
means of a understanding of financial strengths and weaknesses of a firm. There are a number
of ratios which can be calculated from the information given in the financial statement but the
analysis has to select the appropriate data and calculate only a few appropriate ratios. The
following are the four steps involved in the ratio analysis.

Selection of relevant data from the financial statements depending upon the objectives
of the analysis.

Calculation of appropriate ratios from the above data.

Comparison of the calculated ratios with the ratios of the same firm in the past, or the
ratios developed from projected financial statements or the ratios of some other firms
or the comparison with ratios of the industry to which the firm belongs.

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4.3 Interpretation Of The Ratios

The interpretation of ratios is an important factor. The inherent limitation of ratio analysis
should be kept in mind while interpreting them. The impact of factors such as price level
changes, change in accounting policies, window dressing etc., should also kept in mind then
attempting to interpret ratios. The interpretation of ratios can be made in the following ways.

Single absolute ratio

Group of ratios

Historical comparison

Projected ratios

Inter-firm comparison

Guidelines of Precautions For Use Of Ratios:-

To calculation of ratios may not be a difficult task but there is not easy. Following
guideline or factors may be kept in mind while interpreting various ratios are

Accuracy of financial statements

Objectives or purpose of analysis

Selection of ratios

Use of standards

Caliber of the analysis

Importance Of Ratio Analysis:-

Ratio analysis is an important technique of financial analysis. It is a means for judging the
financial health of a business enterprise. It determines and interprets the liquidity, solvency,
profitability, etc., of a business enterprise.

It becomes simple to understand various figures in the financial statements through


the use of different ratios. Financial ratios simplify, summaries, and systematize the
accounting figures presented in the financial statements.

With the help of ratio analysis, comparison of profitability and financial soundness
can be made between one industry and another. Similarly comparison of current year

37
figures can also be made with those of previous years with the help of ratio analysis
and if some weak points are located, remedial measures are taken to correct them.

If accounting ratios are calculated for a number of years, they will reveal the trend of
costs, sales, profits and other important facts. Such trends are useful fore planning.

Financial ratios, based on a desire level of activities, can be set as standard for judging
actual performance of a business. For example, if owners of a business aim at earning
profit @25% on the capital which is prevailing rate of return in the industry then this
rate of 25% becomes as standard. The rate of profit of each years is compared with
this standard and the actual performance of the business can be judged easily.

Ratio analysis discloses the position of business with different viewpoint. It discloses
the position of business with liquidity viewpoint, solvency view point, profitability
viewpoint, etc. with the help of such a study, we can draw conclusion regarding the
financial health of business enterprise.

Classification Of Ratios:- The use of ratio analysis is not confined to financial manager
only. There are different parties interested in the ratio analysis for knowing the financial
position of a firm for different purposes. Various accounting ratios can be classified as
follows.

1. Traditional Classification
2. Functional Classification
3. Significance ratios
1. Traditional Classification
Balance sheet (or) position statements ratio: They deal with the relationship between two
balance sheet items, e g. the ratio of current assets to current liabilities etc., both the items
must, however, pertain to the same balance sheet.

Profit & loss account (or) revenue statements ratio: These ratio deal with the relationship
between two profit & loss account items, e.g. ratio of gross profit to sales etc.

Composite (or) inter statement ratios: These ratios exhibit the relation between a profit & loss
account or income statement item and a balance sheet items, e.g. stock turnover ratio, or the
ratio of total assets to sales.

2. Functional classification
These include liquidity ratios, long term solvency and leverage ratios, activity ratios and
profitability ratios.

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3. Significance ratios
Some ratios are important than others and the firm may classify them as primary and
secondary ratios. The primary ratio is one, which is of the prime importance to a concern. The
other ratios that support the primary ratio are called secondary ratios.

Types Of Ratio Analysis

1. Liquidity ratio

2. leverage ratio

3. activity ratio

4. profitability ratio

39
CHAPTER NO. 5
DATA PRESENTATION ,ANALYSIS &
INTERPRETATION

40
LIQUIDITY RATIO

1. Calculation of Current Ratio:-

Current ratio

Current ratio =

Current Liabilities

Table no.1 (Amount in Rs)

Year Current asset Current Labilities Current Ratio

2013 -2014 84,71,053 44,19,880 1.91

2014-2015 88,53,384 47,11,719 1.87

2015-2016 11,316,363 30,20,665 3.73

Graph no.1

41
Interpritation:
As a conventional current ratio of 2 to 1 or more is considered satisfactory. The Flywheel
Ring Gears Pvt Ltd has a current ratio of 2014-2015 is 3.73:1 in 2012-2013 is 1.9:1.
Therefore , it may be interpreted to be sufficiently liquid. This rule based on logic the current
ratio is more because of increase in the current assets. In the 2012-2013

Current liabilities are decreased because of the borrowing of the co. is less.

The huge increase is sundry debtors resulted an increase in the ratio. Which is above the
benchmark level 2:1 which show the comfortable position of the firm.

2. Calculation of Quick or Acid- Test Ratio:-

Current asset-Inventories

Quick Ratio =

Current Liabilities- Bank over draft

Table no.2 (Amount in Rs.)

Year Liquid assets Liquid Liabilities Liquid Ratio

2013-2014 82,71,053 44,19,880 1.87

2014-2015 86,53,719 47,11,719 1.83

2015-2016 11,295,363 30,29,665 3.73

42
Interpretation
1;1 liquid ratio is considered as satisfactory and except for the year 2011the ratio is less than
1 year 2015. So we say that the liquid ratio is satisfactory. It is inferred from above
observation that the company is able to meet its short term liabilities.

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3.Calculation of Absolute Liquidity Ratio:-
Absolute Liquid Assets

Absolute Liquidity Ratio =

Current Liabilities

Table no.3 (Amount in Rs.)

Year Liquid assets Liquid Liabilities Liquid Ratio

2013-2014 48,95,311 44,19,880 1.10

2014-2015 53,47,177 47,11,719 1.14

2015 -2016 34,92,925 30,29,665 1.15

Graph no.3

44
Interpretation

The current asset which are ready in the form of cash are considered as absolute liquid
assets. Here, cash and bank balance and the interest on fixed assets are absolute liquid asset.

In the year 2012-2013, in the cash and bank balance is decreased due to decrease in the
deposits and the current liabilities are also reduced because of the payment of dividend. In the
year 2014-2015 that causes a slight increase in the current years ratio.

Leverage Ratios

4.Calculation of Propriety Ratio:-

Total Assets

Propriety Ratio =

Proprietors Fund

Note: Owners find is equal to shareholders Funds

Year Share Holders Total Assets Ratio


Funds
2013-2014 55,47,311 99,67,191 1.79
2014-2015 56,47,365 10,359,084 1.83
2015-2016 97,06,001 12,732,666 1.31
Graph no.4

45
Interpretation

The propriety ratio establishes the relationship between shareholders funds to


total assets. It determines the long term solvency if the firm. This ratio indicates the extent
to which the assets of the company can be lost without affecting the interest of the company.

There is no increase in the capital form the year 2012-2013. The share holders finds include
capital and reserve and surplus. The reserve and surplus is increase due to the increase in
balance in profit and loss account, which is caused by the increase of from services.

Total assets includes fixed current assets. The fixed asset are reduced because of the
depreciation and there are no major increments in the fixed assets. The current assets are
increased with the year 2013-2014. total asset are also increased than precious year, which
resulted an increase in the ratio than older.

ACTIVITY RATIOS

5.Calculation of Working Capital Turnover Ratio:


Income from sales

Working Capital Turnover Ratio =

Working Capital

46
Table no.5 ( Amount in Rs)

Year Income from Sale Working Capital Ratio

2013-2014 49,64,054 40,51,173 1.22

2014-2015 55,55,064 41,41,665 1.34

2015-2016 96,65,490 82,89,698 1.16


(Source: Profit & loss A/c Balance sheet)

Graph no.5

Interpretation

Income from services is greatly increased due to the extra invoice for operation &
Maintenance fee and working capital is also increased greater due to the increase in from
services because the huge increase in current assets.

The income from services is raised and the current assets are also raised together resulted in
the decreased of the ratio 2014-2015 compared with 2013-2014

47
6.Calculation Of Fixed Assets Turnover Ratio:-

Income from sale

Fixed Assets Turnover Ratio =

Net Fixed Assets

Table no.6 (Amount in Rs)

Year Income From Sales Net Fixed Assets Ratio

2013-2014 49,64,054 14,96,138 3.31

2014-2015 55,55,064 15,05,700 3.68

2015-2016 96,65,490 14,16,303 6.82

(Source: profit & Loss A/C Balance Sheet)

Graph no.6

48
INTERPRETATION

Fixed assets are used in the business for producing the goods to be sold. This ratio
shows the firms ability in generating sales from all financial resources committed to total
assets. The ratio indicates the account of one rupee investment in fixed assets.

The income from services is greaterly increased in the current year due to the
increase in the Operation & Maintenance fee due to the increase in extra invoice and the net
fixed assets are reduced because of the increased charge of depreciation. Finally, that effected
a huge increase in the ratio compared with the previous years ratio.

7.Calculation of Capital Employed Turnover Ratio:-

Income from sales

Capital Employed Turnover Ratio =

Capital Employed

Table no.7 (Amount in Rs.)

Year Income From Sales Capital Employed Ratio

2013-2014 49,64,054 55,47,311 0.89

2014-2015 55,55,064 56,47,365 0.98

2015-2016 96,65,490 97,06,001 0.99

(Source: profit & Loss A/C Balance Sheet)

Graph no.7

49
INTERPRETATION

This is another ratio to judge the efficiency and effectiveness of the company like
profitability ratio

The income from services is greaterly . increased compared with the previous year and the
total capital employed includes capital and reserves & surplus . due to huge increase in the
net profit the capital employed is also increased along with income from services. Both are
effected in the increment of the ratio of current year.

8.Calculation of Current Assets To Fixed Assets Ratio:-

Current Assets

Current Assets to Fixed Assets Ratio =

Fixed Assets

Year Current Assets Fixed Assets Ratio

2013-2014 84,71,053 14,96,138 5.66

2014- 2015 88,53,384 15,05,700 5.87

2015-2016 11,316,363 14,16,303 7.99

50
(Source Balance Sheet)

Graph no.8

INTERPRETATION

Current assets are increase due to the increase in sundry debtors and the net fixed assets of
the firm are decreased due to the charge of depreciation and there is no major increment in
the fixed assets.

The increment in current assets and the decrease in fixed assets resulted an increase in the
ratio compared with the previous year.

51
PROFITABILITY RATIOS

GENERAL PROFITABILATY RATIOS

9.Calculation Of Net Profit Ratio:-

Net profit

Net profit ratio = X 100

sales

Table no.9 (Amount in Rs)

Year Current Assets Fixed Assets Ratio


2013-2014 19,09,998 49,64,054 32.43
2014-2015 18,19,922 55,55,064 32.74

2015-2016 30,27,044 95,65,490 31.31


(source: Profit & Loss A/C)

Graph no.9

52
Interpretation

The net profit ratio is the overall measure of the firms ability to turn each rupee of income
from services in net profit. If the net margin is inadequate the firm will fail to achieve return
on shareholders funds. High net profit ratio will help the firm service in the fall of income
from services, rise in cost of production or declining demand.

The net profit is increased because the income from services is increased. The increment
resulted a slight decrease in 2013-2014 ratio compared with the year 2014-2015

10)Calculation of Operating Profit:-

Operating profit

Operating profit =

Income from sales

Table no.10 (Amount in Rs)

Year Operating profit Income from sales Ratio


2013-2014 27,50,112 49,64,054 0.55
2014-2015 31,58,671 55,55,064 0.57

2015-2016 67,19,267 96,65,490 0.69


(Source: profit & Loss A/C)

53
Graph no.10

Interpretation

The operating profit ratio is used to measure the relationship between net profits and sales of
a firm. Depending on the concept, it will decide.

The operating profit ratio is increased compared with the last year. The earnings are
increased due to the increase in the income from services because of operation &
maintenance fee. The ratio is increased slightly compared with the previous year.

11)Calculation of Return on Total Assets Ratio:-

Net Profit After Tax

Return on Total Assets Ratio =

Total Assets

Table no.11 (Amount in Rs)

54
Year Reserve & surplus Capital Ratio

2013-2014 36,75,383 18,71,928 1.96

2014-2015 37,75,437 18,71,928 2.02

2015-2016 78,34,073 18,71,928 4.19

(Source: profit & Loss A/C & Balance sheet)

Graph no.11

Interpretation
This is the ratio between net profit and total assets. The ratio indicates the return on total
assets in the form of profits.
The net profits is increased in the current year because of the increment in the income from
services due to the increases in operation & maintenance fee. The fixed assets are reduced
due to the change OD depreciation and no major increments in fixed assets are increased
because of sundry debtors and that effects an increase in the ratio compared with the last year
i.e. 2014-2015.

55
12)Calculation of Reserve & surplus to capital Ratio:-

Reserve & surplus

Reserve & surplus to capital Ratio =

Capital

Table no.12 (Amount in Rs)

Year Reserve & surplus Capital Ratio

2013-2014 16,09,998 99,67,191 0.16

2014-2015 18,19,222 10,359,084 0.17

2015-2016 30,27,044 12,732,666 0.24

(Source: Balance sheet)

56
Graph no.12

Interpretation

The ratio is used to reveal the policy pursued by the company a very high ratio indicates a
conservative dividend policy and vice-versa. Higher the ratio better will be the position.

The reserve & surplus is decreased in the year 2012-2013, due to the payment of dividends
and in the year 2014-2015 the profit is increased. But the capital is remaining constant from
the year 2013-2014. So the increase in the reserve & surplus caused a greater increase in the
years ratio compared with the older.

OVERALL PROFITABILITY RATIOS

1)Calculation of Return on Investment:-

Net Profit After Tax

Return on Investment:- =

Share Holders Fun

57
Table no.13 (Amount in Rs)

Year Net Profit AfterTax Share Holders Fund Ratio

2013-2014 16,09,998 55,47,311 0.29


2014-2015 18,19,222 56,47,365 0.32
2015-2016 30,27,044 97,06,001 0.31
Graph no.13

(source: Profit & Loss A/c Balance sheet)

Interpretation
58
This is the ratio between net profits and shareholders funds. The ratio is generally calculated
as percentage multiplying with 100.

The net profit is increased due to the increase in the income from services and the
shareholders funds are increase because of reserve & surplus. So the ratio is decreased in the
current year.

CHAPTER NO. 6
FINDINGS

59
Finding Of The Study

1.The Current Ratio has Shown In A Fluctuating Trend As 1.91, 1.87 And 3.37 During 2012-
2013 Of Which Indicates A Continuous Increase In Both Current Assets And Current
Liabilities.

2.The Quick Ratio Is Also In Fluctuating Trend Through The Period 2012-2013 To 2014-
2015 Resulting At 1.87, 1.83 And 3.73. The Companys Present Liquidity Position
Satisfactory.

3.The Absolute Liquid Ratio Has Been Increased From 1.10 To 1.15 From 2012-2013 To
2013-2014.

4.The Propriety Ratio Has Shown A Fluctuating Trend. The Propriety Ratio Is Increased
Compared With The Last Year. So The Long Term Solvency Of The Firm Is Increased.

5.The Working Capital Decreased From 1.22 To1.16 In The Year2012-2013 To 2014-2015.

6.The Fixed Assets Turnover Ratio Is In Increasing Trend From The Year 2012-2013 To
2014-2015(3.31, 3.68 And 6.82). It Includes That The Company Is Efficiently Utilizing The
Fixed Assets.

7.The Capital Turnover Ratio Is Increased Form 2012-2013 To 2014-2015(0.89, 0.98 And
0.99). It Increased In The Current As 0.99.

8.The Current Assets To Fixed Assets Ratio Is Increasing Gradually From 2012-20132 To
2014-2015 As 5.66, 5.87 And 7.99. It Shows That The Current Assets Are Increased Than
Fixed Assets.

9. The Net Profit Ratio Is Decreased In The Current Year Compared With Previous Year
From 0.33 To 0.31.

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10. The Operating Profit Ratio Is In Fluctuating Manner As 0.55, 0.57 And 0.69 From 2012-
2013 To 2014-2015 Respectively.

11.The Return On Total Assets Ratio Is Increased In The Current Year. So The Return On
Total Assets Ratio Is Increased From 0.17 To 0.24.

12 The Reserves And Surplus To Capital Ratio Is Increased To 4.19 From 2.02. The Capital Is
Constanta, But The Reserves And Surplus In Increased In The Current Year.

13.The Return On Investment Is Decreased From 0.32 To 0.31 Compared With The Previous
Year.

61
CHAPTER

NO.7

CONCLUSION

62
Conclusion

The companys overall position is at a good position. Particularly the current years
positions is well due to lower in the profit level from the last year position. It is better
for the organization to diversity the funds to different sectors in the present market
scenario.

Ratios make the related information comparable. A single figure by itself has no
meaning, but when expressed in terms of a related figure, it yields significant
interferences. Thus ratios are relative figures reflecting the relationship between
related variables. Their use as tools of financial analysis involves their comparison as
single ratios, like absolute figures, are not of much use.

Ratio analysis has a major significance in analyzing the financial performance of a


company over a period of a time. Decision affecting product prices per unit costs,
volume or efficiency have an impact on the profit margin or turnover ratios of a
company.

Financial ratios are essentially concerned with the identification of significant


accounting data relationship, which give the decision maker insights into the financial
performance of a company.

The analysis of financial statements is a process of evaluating the relationship


between component parts of Financial statements to obtain a better understanding of a
firm position and performance.

The first task of financial analysis is to select the information relevant to the decision
under consideration from the total information contained in the financial statements.
The second step is to arrange the information in a way to highlight significant
relationship. The final step is interpretation and drawing of inferences and conclusion.
In brief, financial analysis is the process of selection, relation and evaluation.

63
CHAPTER

NO.

SUGGESTIONS

64
Suggestions

Increased current liabilities can be reduced by effective payment mechanism to the


raw material suppliers, contractors and other suppliers. Use of modern techniques like
JIT, ABC analysis and EQQ will help tro manage materials effectively, resulting in
reduced current liabilities.

Budgeting techniques is an effective tool to manage the period expanses and works as
a feedback mechanism which ensures avoidable losses.

Firm has achieved cost reduction in area like depreciation and maintenance. It should
maintain such techniques which will result in reduced cost.

Firm should maintain its current level of production and if possible try for maximum
capacity utilization. This will help profitability as a result of economies of scale.

65
CHAPTER NO.9
REFFERENCE & BIBLIOGRAPHY

66
REFERNCES
BOOKS Referred

Financial Management I. M. Pandey

Management Accounting- Sharma & Gupta

Basic Financial Management - M .Y. Khan

Annual Report

Web Sites:-

www.wikipedia.com

67
APPENDIX

68
Balance sheet on 31 march 2015
Particulars 2016-2015 2015-2014 2014-2013

Sources funds: ;

1) SHAREHOLDERS FUNDS

(a)capital 18,71,928 18,71,928 18,71,928

(b)reserves and surplus 78,34,073 37,75,437 36,75,383

2) DEFFERED TAX LIABILITY

TOTAL 97,06,001 56,47,365 55,47,311

APPLICATION OF FUND

1) FIXED ASSET

(A) Gross block 31,05,759 29,76,798 28,53,489

(b)Less: Depreciation 16,89,456 14,71,098 13,57,351

(c)Net Block 14,16,303 15,05,700 17,96,138

2)CURRENT ASSETS LOANS


AND ADVANCE

() Sundry Detors 78,23,438 35,06,207 35,75,742

()Cash And Bank Balance 34,04,352 51,69,032 47,56,284

() Other Current Assets 15,222 85,775 66,555

()Loans and Advance 11,316,363 92,930 72,472

21,59,691 88,53,384 84,71,053

LESS : CURRENT
LIABILITIES AND
PROVISIONS

()Liabilities 21,59,691 38,59,126 36,67,528

()provisions 8,66,974 8,52,596 7,52,352

30,26,665 47,11,719 44,19,880

NET CURRENT ASSET 82,89,698 41,41,665 40,51,173

TOTAL 97,06,001 56,47,365 55,47,311

69
Profit and Loss Account For the period ended on 31 March 2015
Particulars 2016-2015 2015-2014 2014-2013

I. Incomes

Income from sales 96,65,490 55,55,064 49,64,054

Other Income 2,39,822 2,28,589 2,19,762

Total 99,05,312 57,8,653 51,83,816

II.EXPENDDITURE

Administrative and other Express 83,33,475 75,59,971 62,23,656

83,33,475 75,59,971 62,23,656

Less Expenditure reimbursable under


operation

And maintenance agreement 49,47,430 49,34,989 44,89,861

Total 31,86,045 26,24,982 24,33,704

III. PROFIT BEFORE DECLARATION 67,19,297 31,58,671 27,50,112


& TAXATION

Provision of taxation 2,18,357 2,27,991 2,21,343

Iv.PROFIT BEFORE TAXATION. 65,00,910 29,30,680 25,28,719

Provision for Taxation

-Current 34,29,200 10,68,044 8,76,521

-Fringe Benefit 44,666 43,414 42,250

V.PROFIT BEFORE TAXATION 30,27,044 18,19,222 16,09,998

Surplus Brought forward from previous year 31,78,732 38,38,430 22,28,432

Vl.PROFIT AVAILABLE FOR 62,05,776 56,57,652 38,38,430


APPROPRIATION

Transfer to General Reserve - 24,78,920

VII.BALANCE CARRIED TO BALANCE 62,05,776 31,78,732 38,38,430


SHEET

Table of Financial Ratio of FLYWHEEL RING GEARS PVT LTD for


last three years

70
Sr. Particulars 2016-2015 2015-2014 2014-2013
NO

1 Current Ratio 3.73 1.87 1.91

2 Quick Ratio 3.73 1.83 1.87

3 Absolute Liquidity Ratio 1.15 1.14 1.10

4 Propritory Ratio 1.31 1.83 1.79

5 Working Capital Turnover Ratio 1.16 1.34 1.22

6 Fixed Assets Current Ratio 6.82 3.68 3.31

7 Capital Employed Turnover 0.99 0.98 0.89


Ratio

8 Current assets TO Fixed Assets 7.99 5.87 5.66


Fixed Assets Ratio

9 Net Profit Ratio 31.31 32.74 32.43

10 Operating Profit Ratio 0.69 0.57 0.55

11 Return On Total Assets Ratio 0.24 .017 0.16

12 Reserve And Surplus Capital 4.19 2.02 1.96


Ratio

13 Return ON Investment 0.31 0.32 .029

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