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PROJECT REPORT
ON
RATIO ANALYSIS
SUBMITTED
BY
M.KALYANI
(H.NO. 07361E0015)
PG.CENTER
MAHABOOBNAGAR
(AFFILIATED TO JNTU)
HYDERABAD
(2005-2007)
DECLARATION
I here by declare that this project report entitled “ANALYSIS OF RATIOS” in the
“ANDHRA PRADESH GRAMEENA VIKAS BANK” (Mahabubnagar) has been
Prepared by me during the year 2006-07 under the Valuable Guidance of Mr.Suresh
Reddy Of PG Center OU Mahaboobnagar.
I also here by declare that this project report has not been Submitted to any other
university or institute for the award of any Degree or Diploma.
H.No:07361E0015 M.KALYANI
Place: Mahaboobnagar.
Date: (student signature)
ACKNOWLEDGEMENT
CHAPTER I:
INTRODUCTION TO BANKING
CHAPTER II:
OBJECTIVE AND METHODOLOGY
Objectives
Methodology
Scope of the study
Period of the study
Significance of the study
Limitations of the study
CHAPTER III:
ORGANISATION’S PROFILE
CHAPTER IV:
THEORITICAL FRAMEWORK
Concept of Ratio Analysis
Need and Significance
Classification of Ratios
CHAPTER V:
ANALYSIS AND INTERPRETATION
CHAPTER VI:
FINDINGS
CONCLUSIONS
SUGGESTIONS
BIBLIOGRAPHY
INTRODUCTION
DEFINITION OF FINANCE
b. Private finance:
♦ Personal Finance.
♦ Business Finance.
♦ Finance of non-profit organizations.
RAISING OF FINANCE
Finance can be raised from two forms:
a) Internal Forms of Financing.
Management of Surplus.
(a) Dividend Policy.
(b) Bonus Shares
BANKING:
Banking Regulation Act, 1949 Defines “Banking under section 5 as “Accepting for
the purpose of lending or investment of deposits of money from the public, repayable on
demand or otherwise and withdraw able by cheque daft order of otherwise”.
Section 5c of banking regulation act, defines banking company as any which transacts
the business of banking in India it is to noted the, a company engaged in the activity of
manufacturing or trade shall to be regarded as banking company, if it accepts deposits
merely for the purpose of financing its own business in terms of an explanation to said
clause of section5 of the banking regulation act.
The banking regulation act further provide that, no person other then banking
company or an approved banking institution can accept from the public, deposits of
money withdraw able by cheque.
FUNCTIONS OF COMMERCIAL BANKS
Section 6 a of Banking regulation act 1949 states various types pf business that can be
provided by banks. In the light of these provisions the important functions of commercial
bank can be summarized as follows:
• Accepting deposits from public
• Lending for approved purposes.
• Dealing with hundies, promissory note,coupons,drafts bills of lading, railway
receipts, warrants etc, and other instruments
• Securities whether transferable or negotiable or not.
• Issuing letters of credit and travelers cheques.
• Buying and selling of foreign exchange.
• Acquiring, holding, underwriting and dealing in stocks funds, shares, debentures,
bank etc.
• Receiving of all kinds of banks valuables for deposits or safe custody or otherwise
and providing safe deposits values.
• Collecting and transmitting money and securities.
• Acting as agents for any government or local authorities or any other persons.
• Carrying on and transacting every king of guarantee and indemnity business.
• Undertaking and executing or trusts.
• Undertaking the administration of estates as executor’s administrators.
• Trustees or otherwise.
• Hire-purchase and leasing.
• Issuing of credit cards.
• Setting up mutual funds.
• Factoring.
INDIAN BANKING STRUCTURE
Reserve
bank of
India
Scheduled
commercial
banks (96)
State bank
Urban co- State co-
of India &its Nationalize Old private New private
operative operative
subsidiaries d bank (19) bank (2) bank (8)
bank (52) bank (22)
(8)
Banks 1
n.a
260 67,1
48
RESERVE BANK OF INDIA
At the head of the Indian banking structure is the reserve bank of India, which as
central banking institutions of the country was brought into Existence by the reserve bank
of India act,1934.It started function in April 1935 with a share capital of rupees 5crores
divided into shares of rs.100 each fully paid up originally a shareholders bank it was
nationalized on 1st January 1949 by the reserve bank of Indian amendment act,1948.
It is entrusted with all the powers and function, which modern central banks have
some of those are derived from reserve bank of India act, 1934 and others from banking
regulation act 1949. The major function which the reserve bank of India performs are a
under.
The reserve bank of India is the central and apex bank institutions in India. It is a
state owned organization that functions as a corporate body with special posers and
obligations for serving the national interest.
Its major functions and responsibilities include:-
• Issue and management of currency
• Banker to the government
• Bankers bank
• Supervision and control of commercial and co-operative banks and other
Designated financial institutions .
• Promoting the development and healthy functioning of financial institutions.
• Managing the rupee exchange and foreign exchange reserve.
• Regulating the expansion of money and credit.
RBI has wide-ranging powers to call for any information from banks relating to their
business and management. Banks have to submit a fortnightly statement of demand and
time liabilities. In the prescribed format, as on every reporting Friday. Banks have to
maintain statutory reserve s like statutory liquidator ration SLR and cash reserve ration
CRR as a percentage to the net demand and time liabilities a shown in the fortnightly
statement. Reserve bank of India is empowered to levies several penalties and any other
action under the relevant provisions of RBI act.
The power of RBI to inspect any of the bank offices have been strengthened
recently, with the setting up of a separate dept via, dept of banking supervisions DBS,
consequent to the recommendation of padmanabhan committee. As a par of prudential
supervisory reporting system, all the banks have to submit a detailed statement on a
quarterly basis. The system known as “off-site surveillance” system is an addition to the
current on site inspection by RBI.
Reserve bank of India is a monitory authority announces its monitory and credit
polices once in sixth months i.e. in the months of April and October every year indicating
its priorities and direction in the light of the economic situation these policies provide
significant information/guidelines for the banks to conduct their business.
OBJECTIVES AND METHODOLOGY OF THE STUDY:
OBJECTIVES.
The objectives of the study are as follows,
• To study business development activities relating to loans and advances.
• To study credit management in APGVB.
• To view credit standards and policies.
• To study collection policies.
• To study the cause for the failure in the repayment of loan within the prescribed
time by the loanees.
METHODOLOGY
The study is based on primary and secondary data. The primary data is collected
through a sample survey of the loanees about their socio-economic back ground. The
secondary data were collected from the annual credit plans from the district concerned
undertaken in the study and official records of Regional office NABARD Utmost
attention was paid to get the required data from commercial banks.RRBs and co-
operative banks.
RESEARCH DESIGN
A research design is the specification of methods and procedures for acquiring the
information on needed to structure or to solve problems. It is the overall operational
pattern of frame work of the project that stipulates what information is to be collected
from which sources, and by what procedures if it is a good design. It will ensure that the
information obtained is relevant to the research problem and that it was collected by
objective and economical procedures.
A research design might be described as a series of advance decisions that, taken
together from a specific master plan or model for conduct of the investigation. Although
Research design may be classified by many criteria, the most useful one concerns the
major purpose of the investigation. On the basis we may identify the broad classes of
designs as exploratory, descriptive, and casual.
EXPLORATORY STUDIES:
The major purposes of exploratory studies are the identification of problems. The
more precise formulation of problems (including the identification of relevant variables)
and the formulation of new alternative courses of action.
The design of exploratory studies is characterized by a great amount of flexibility and
adhoc versatility by the definition. The researcher is involved in investigating an area or
subject in which he or she is not sufficiently knowledgeable to have formulated detailed
research questions. No clear hypotheses have been developed about the problem. The
researcher is seeking information that enable him or her to formulate specific research
questions and/ or to state hypotheses about the problem. In short , the researcher seeks to
gain familiarity and / or achieve new insights into the problem situation.
Despite the necessity for flexibility in exploratory study design we can distinguish
three separate stages that are usually included in exploratory studies and typically
conducted in the sequence list.
1. A research of secondary information sources.
2. interviews with persons who are knowledge about the subject area.
3. The examination of analogous situations.
DESCRIPTIVE STUDIES:
Much research is concerned with describing market characteristics or functions. A
market- potential study is made that describes the number, distribution, and socio-
economic characteristics of potential customers of a product. A market share study is
conducted to determine the share of the market received by both the company and its
competitors, or a sales analysis is made that states sales by territory, type of account size
or model or product and like ,
Descriptive study is also made in product research, promotion research, distribution
research and pricing research.
For descriptive research, proposed data analysis and project output are critical
aspects of research planning.
CAUSAL STUDIES:
Although descriptive information is often helpful for predictive purposes, where
possible we would like to know the causes of what we are predicating the reasons why
Further we would like to know how these causal factors relate the effects that we are
predicting.
Source the data is taken from the secondary data. The data is helped from the book
“Land bank journal”, social action, Yojana, and Kurukshetra.
TIME OF STUDY:
The study period is from the year 2005-2007.
SCOPE.
The project has been done in the APGVB. The recoveries of the bank have been
taken. The study indicates the position of the bank.
PURPOSE OF THE STUDY:
The purpose of the study is to know the performance of the bank under various
categories like disbursement of loans, deposit mobilization, recovery of the loans.
LIMITATIONS:
ORGANISATION PROFILE
INTRODUCTION
BRANCH NETWORK
The area of operation of the Bank covers the entire district of Mahabubnagar with a
network of 73 branches (including 9 Satellite branches) , of which 7 branches are located
in semi urban centers and remaining 66 branches are functioning in rural areas. For
operational and administrative convenience, these branches are divided into two areas
under the control of two Area Managers. The organizational set up at Head office
consists of three Departments headed by Senior Managers to support the General
Manager and assist the Chief Executive of the Bank.
All the transferor RRBs were earning profits and possess commonality in
composition of their clientele mainly comprising of farmers and rural artisans with a
sprinkling of traders and businessmen. The loans disbursed by these RRBs are strikingly
similar in activities, crops financed etc.
OBJECTIVES
The primary objective of the amalgamation of these RRBs is the synergy that will be
created by effecting economy in administration and reduction in cost of marketing
products over a wide area. The Objectives are summarized as under:
To expand market area, to increase the depth of market and enhance the
market share.
To obtain higher rate of growth.
To facilitate economies of scale.
To pool and use manpower resources efficiently.
CORPORATE VALUATION
ORGANISATIONAL STRUCTURE OF
ANDHRA PRADESH GRAMEENA VIKAS BANK
*Deputed from the
sponsor bank.
G.M.-General
Manager.
B.M.-Branch
Manager.
BOARD OF DIRECTORS.
S.NO NAME DISIGNATION RULE
1 Shri.A.Anantha Krishna Chairman
2 Yet to be appointed Director Nominees of the
Central Govt U/S
9(i) of RRB
Act,1976
3 Yet to be appointed Director -do-
4 Shri.M.Chandrashekharan Director Nominee of RBI
U/S 9(i)(b) of RRB
Act,1976
5 Shri.R.S.Jagdale Director Nominee of
NABARD U/S 9(i)
(c) of RRB
Act,1976
6 Shri.Ch.H.Narasimha rao Director Nominees of the
sponser bank U/S
9(i)(d) of RRB
Act,1976
7 Shri.G.Y.R.S.K.Acharyulu Director -do-
8 Shri.A.Giridhar Director Nominees of the
Andhrapradesh U/S
9(i) of RRB
Act,1976
9 Smt.K.Damayanthi Director -do-
INTRODUCTION:
Rangareddy and Nalgonda district in the north, Nalgonda and Gunter in the East
kurnool surround Mahaboobnagar district in the south and Raichur Gulbargha districts of
Karnataka in the west. The total geographical are of the district is 18473sq.km. The
district has 5 revenue divisions 64 Mandals covering 1571 villages (1501 in habited). The
total population of the district as per 2001 census is 35.09 lakh consisting of 17.82 lakh
males and 17.27 lakhs females and the population density per esq. are 190. This district is
the largest district in telangana region of Andhra Pradesh within total geographic are of
18,473-lakh hector. Agriculture is the predominate occupation of the people and more
then 75% of the population depends on this sector.
The district is relatively elevated in the north and west and the latitude gradually
decline from North West to southwest to southwest and lies between north latitude 15-55
and 17-29 and west longitude 77-15 and 79-15 in the southwest. There are hill ranges
extending from north to south achampet while taluka consisting of lat topped hills. The
are above the arid region of the Deccan plateau, the climate of the district is generally
hot.
The average maximum temperature in the summer months varies between 40 c-22c
and minimum 10c-24 in the winter months. The maximum rainfall is experienced during
the southwest monsoon and in the early par of the northeast monsoon. The normal
rainfall of the district is 604mm (revised from 754mm for 2001) with large variations
from year to year. The avg rainy days in a yr are 46 only.
a) Cultivators 656
b) Of (a) small and 467
marginal farmers
c) Agricultural laborers 777
d) Artisans 83
e) House hold and cottage 68
industries
f) Alight agro activates 27
g) Other workers 306
7. Land utilization (Area ha)
a) Geographical area 1847115
b) Net shown area 749447
c) Forest area 266355
d) Fallow land 65598
e) Land not available for 175602
cultivation
f) Cropping intensity 117
g) Area under high 661100
Yielding varieties
8. Size of holding (995-96) No % area (%)
(Lakh) (In 000 ha)
a) Less than one 1.728 26.35 1210
10.00
b) Between one and two 2.941 44.82 6055
50.00
c) Above two 10891 28.82 4844
40.00
Total 6.560 100.00 12109
9. Irrigation (ha)
a) Net irrigated area 139,123,17
b) Sources of irrigation
1) Wells and tube wells 124,443,95
2) Tanks 964,3
3) Canals 11,183,67
4) Other (lift irrigation) 2,531,25
10. Consumption of organic and Organic fertilizer 20 tons
chemical chemical fertilizers 100kgs
Fertilizer and pesticide
(Per ha) Pesticides 750 mi/ha
11. Agricultural support
Facilities
a) Seed/fertilizers/pesticide 36
deposit
b) Rural markets/mandis 16
c) Rural godowns 43(total capacity of 62,640
mts)
d) Cold storages 2(total capacity of 1000mts)
12. Animal husbandry
a) Plough animals (in lakh) 6.46
b) Diary animals 1192
i) Cows 9.23
ii) Buffalos 2.96
c) Sheep 32.9
d) Goat 4.93
e) Poultry 41.96
INTRODUCTION OF RATIOS
RATIO ANALYSIS
INTRODUCTION:-
Ratio Analysis is the process of establishing a significant relationship between the
items of financial statements to provide a meaningful understanding of the performance
and financial position of the firm.
Using the term “Ratio” in relation of financial statements analysis, it may properly
mean “An Accounting Ratio” or “Financial Ratio”, defined as the mathematical
relationship between two accounting figures, having mutual cause and effect relationship
to produce a meaningful and useful ratio. Ratio is a simple mathematical expression
between two items in a more meaningful way which help us to draw conclusions.
MEANING OF RATIO:-
A ratio is a simple arithmetical expression of the relation of one number to another. It
may be defined as the indicated quotient of two mathematical expressions.
According to Accountant’s Handbook by Wixon, Kell and Bedford, a ratio “is an
expression of the quantitative relationship between two numbers”.
2) Helps in financial forecasting and planning: Ratio analysis is of much help in financial
forecasting and planning. Planning is looking ahead and the ratios calculated for a
number of years work as a guide for the future. Meaningful conclusions can be drawn for
future from these ratios.
5) Helps in Control: Ratio analysis even helps in making effective control of the business.
Standards ratios can be based upon proforma financial statements and variances or
deviations, if any, can be found by comparing the actual with the standards so as to take a
corrective action at the right time. The weakness or otherwise, if any, come to the
knowledge of the management which helps in effective control of the business.
6) Other Uses: There are so many other uses of the ratio analysis as it is an essential part
of the budgetary control and standard costing. Ratios are immense importance in the
interpretation of financial statements as they bring the strength or weakness of the firm.
Here,
Operating Profit = Profit before interest on long term borrowings and tax
Capital Employed = Equity Share Capital + Preference Share Capital + Undistributed
Profit + Reserves and Surplus + Long-term Liabilities – Fictitious Assets – Non-business
Assets.
Alternatively.
Tangible Fixed and Intangible Assets + Current Assets – Current Liabilities.
This ratio is considered to be the most important ratio because it reflects the overall
efficiency with which capital is used. This ratio is a helpful tool for making capital
budgeting decisions; a project yielding higher return is favoured.
7) Return on Shareholder’s Fund:
When it is desired to work out the profitability of the company from the
shareholders point of view, then it is calculated by the following formula:
Return on Shareholder’s Fund = Net Profit after Interest and Tax × 100
Shareholders Funds
8) Return on Equity Shareholders Fund:
This ratio is a measure of the percentage of net profit to equity shareholders
funds. The ratio is expressed as follows:
Return on Equity Shareholders Fund =
Net Profit after Tax, Interest and Preference Dividend
Equity Shareholders Funds
Here,
Equity Shareholders Fund = Equity Share Capital + Capital Reserves + Revenue
Reserves + Balance of Profit and Loss Account – Fictitious Assets – Non-business Assets
9) Return on Total Assets:
This ratio is calculated to measure the profit after tax against the amount
invested in total assets to ascertain whether assets are being utilized properly or not. It is
calculated as under:
Return on Total Assets = Net Profit after Tax × 100
Total Assets
This ratio is a measure of the collectibility of accounts receivables and tells about
how the credit policy of the company is being enforced. Suppose, a company allows 30
days credit to its customers and the ratio is 45; it is cause of anxiety to the management
because debts are outstanding for a period of 45 days. Efforts should be made to make the
collection machinery efficient so that the amount due from debtors may be realised in
time. Higher the ratio, more the chances of bad debts and lower the ratio, less the chances
of bad debts.
Debtors Turnover Ratio = Credit Sales_
Average Debtors
(g) Creditors (or Accounts Payable) Turnover Ratio: This ratio gives the average credit
period enjoyed from the creditors and is calculated as under:
Credit Purchases____________
Average Accounts Payable (Creditors + B/P)
A high ratio indicates that creditors are not paid in time while a low ratio gives an
idea that the business is not taking full advantages of credit period allowed by the
creditors.
Sometimes it is also required to calculate the average payment period (or average
age of payables or debt period enjoyed) to indicate the speed with which payments for
credit purchases are made to creditors. It is calculated as
a). Liquidity Ratios: These ratios are used to measure the firm’s ability to meet short term
obligations. They compare short term obligations to short term (or current) resources
available to meet these obligations. From these ratios, much insight can be obtained into
the present cash solvency of the firm and the firm’s ability to remain solvent in the event
of adversity. The important liquidity ratios are:
All current assets cannot be treated as investments which are easily marketable
and sold in case cash is required. For this purpose, the liquid ratio is worked out.
The desirable norm for this ratio is 1:2, i.e., Re. 1 worth of absolute liquid assets
are sufficient for Rs.2 worth of current liabilities. Even though the ratio gives a more
meaningful measure of liquidity, it is not in much use because the idea of keeping a large
cash balance or near cash items has long since been disproved. Cash balance yields no
return and as such is barren.
Projected cash operating expenses include cost of goods sold (excluding depreciation)
and selling and administration expenses payable in cash. It measures the time period for
which a firm can operate on the basis of present liquid assets without resorting to next
year’s revenue. The higher the ratio, the better it is.
IV.STABILITY RATIOS:
These ratios help in ascertaining the long term solvency of a firm which depends
on firm’s adequate resources to meet its long term funds requirements, appropriate debt
equity mix to raise long term funds and earnings to pay interest and instalment of long
term loans in time (i.e., coverage ratios). The following ratios can be calculated for this
purpose:
Fixed Assets_
Capital Employed
This ratio gives an idea as to what part of the capital employed has been used in
purchasing the fixed assets for the concern. If the ratio is less than one it is good for the
concern. The ideal ratio is .67.
This ratio should be 1:3, i.e., one-third of the assets minus current liabilities should be
acquired by shareholders funds and the other two-thirds of the assets should be financed
by outsider’s funds. It focuses the attention on the general financial strength of the
business enterprise.
(d) Capital Gearing Ratio:
This ratio establishes the relationship between the fixed interest-bearing
securities and equity shares of a company. It is calculated as follows:
Profit/Expenses ratio:
45000000
40000000
35000000
30000000 Particulars
25000000 Profit
20000000 Expenses
15000000 Ratio
10000000
5000000
0
50000000
45000000
40000000
35000000 Particulars
30000000 Profit
25000000
20000000 Total Assets
15000000 Ratio
10000000
5000000
0
CURRENT RATIO:
30000000
25000000
20000000 Particulars
Current assets
15000000
Other liabilities
10000000 Ratio
5000000
30000000
25000000
20000000 Particulars
Current assets
15000000
Fixed assets
10000000 Ratio
5000000
0
2500000
Particulars
2000000
Fixed assets
1500000
1000000 Capital
employed
500000 Ratio
INTERPRETATION: It is observed with the above graph that the % of fixed assets
over its capital employed is decreasing every year from the last three years. Bank
has to maintain a consistent fixed assets position over their capital employed.
Debt Equity Ratio:
DE= Long term debts/ Share holder funds
45000000
40000000 Particulars
35000000
30000000 Long term
25000000 debts
20000000 Share holder
15000000 funds
10000000
Ratio
5000000
0
INTERPRETATION: It is showing that the long term debts of the bank is going on
increasing every year. It is not a good symbol for the bank. It is better if the bank
cut down their long term liabilities. Other wise bank has to pay more amounts
towards interest on the debts borrowed. Ultimately it will reduces the profitability
of the bank.
ABSOLUTE QUICK RATIO:
AQR=Cash/Current liabilities
14000000
12000000
10000000 Particulars
8000000 cash
6000000 Current liabilities
4000000 Ratio
2000000
0
50000000
45000000
40000000
35000000 Particulars
30000000 Shareholders fund
25000000
20000000 Totalassets
15000000 Ratio
10000000
5000000
0
1600000
1400000
1200000
Particulars
1000000
Reserve
800000
Capital
600000
Ratio
400000
200000
0
2500000
2000000
Particulars
1500000
PAT
1000000 Net Worth
Ratio
500000
INTERPRETATION:
The higher the ratio,it is better to shareholders.
RETURN ON ASSET RATIO:
ROAR=Profit After Tax(PAT)/Total Assets
50000000
45000000
40000000
35000000 Particulars
30000000
PAT
25000000
20000000 Total Assets
15000000 Ratio
10000000
5000000
0
INTERPRETATION:
The higher the ratio,it is better to shareholders. The percentage
of total assets are increased&the PAT is also increased.The overall ratio is
satisfactory.
FINDINGS
--------------
The recovery position of the bank for the current financial year is improved with this
bank will get more opportunity to sanction more loans to the various sectors.How ever
loans given to other than agriculture sector is decreasing. Bank has to concentrate on this
issue also.
SUGGESTIONS.
The main issue in the new millennium is to reorient the structure functioning and
management of the banking institutions. There should be a well conceived action
programme to provide specific guide points to banks in the areas of professionalism and
efficiency induction of modern technology. Systematic training through effective
interplay of inter cooperative relationship mobilization of resources and enhancing
participation of members in decision making process and reducing dependence Gove
assistance
The failure of certain banks in achieving their objectives cannot be looked as isolated
issue. This general tendency prevailing in the entire banking movement and particular
problems faced by banks or influencing the marketing organizations involved in the
banking movement. The highly distressing problem is mounting over dues
The raising over dues has paralyzed the entire credit structure the lake of supervision and
inability of peasants to pay back their loans are the major factors responsible for the
mounting over dues. The proper supervision of loan trained and qualified staff and
imparting banking education may be helpful in the reduction of over dues. This, apart the
loaning policy and structure should be revised in favour of small micro projects such as
diary, agriculture and poultry. The loan applications and projects should be carefully
checked by the cooperatives before the loan advancement. It is logically to point out that
banks cannot survive in the present commercial and economic world.
An efficient dynamic and strong leadership is a must for the development of the
movement. An ideal cooperative leader should be a respectable figure in agriculture and
business community who can understand and analyze the complexities of a large scale
modern business organization.
BIBILOGRAPHY
1.www.answers.com
2.www.encyclopedia.com
4.www.Investopedia.com
5.Previous projects.