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DATA ANALYSIS AND INTERPRETATION

Performance of any institutions depends upon the efficiency of its management. It can be evaluate through financial analysis, which refers to the analytical study of financial statement. The analysis of financial statement of TTC Ltd. consists a study of relationship and trends to determent whether the financial position and the results as well as the financial progress of the unit are sound or not. The present study of financial statement analysis of TTC Ltd., Udyogmandal is done mainly with the help of Ratio Analysis, trend analysis, comparative statement analysis and cash flow analysis. It may help the management in its task of planning and forecasting.

Ratio Analysis:
The ratio analysis is one of the most powerful tool of financial analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures and group of figures).It is with the help of ratios that the financial statements can be analyzed more clearly and decisions made from such analysis.

MEANING OF RATIO:
A ratio is a simple arithmetical expression of relationship of one number to another. It may b defined as the indicated quotient of two mathematical expressions. According to Accountant's Hand Book by Wixon, Kell and Bedford a ratio "is an expression of the quantitative relationship between two numbers" In simple language ratio is one number expressed in terms of another and can be worked out by dividing one number into the other. A financial ratio is the relationship between two accounting figures expressed mathematically.

NATURE OF RATIO ANALYSIS:

Ratio analysis is a technique of analysis and interpretation of financial statement. It is the process of establishing, and interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an end in itself It is only a means of better'understanding of financial strengths and weakness of a firm. Calculation of mere ratios does not serve any purpose, unless several appropriate ratios are analyzed and interpreted. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios from the same keeping in mind the objective of analysis. The following are the four steps involved in the ratio analysis. 1.Selection of relevant data from the financial statement depending upon the objectives of the analysis. 2. Calculation of appropriate ratios from the above data.

iii. Comparison of the calculated ratios with the ratios of the same firm in the past, on the ratios developed from the protected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs. 4. Interpretation of the ratios. 5.Classification of Ratio Analysis (Purposes)

RATIO ANALYSIS IS USED FOR ANALYZING:

A..Short Term Financial Position of a Firm. B. Long Term Financial Position of a Firm C. Profitability of Firm.

A. ANALYSIS OF SHORT TERM FINANCIAL POSITION

TEST OF LIQUIDITY: The short term creditors of a company like suppliers of goods on credit and commercial banks providing short term loans are primarily interested in knowing the company's ability to meet its current or short term obligations as and when these become due. The short term obligations of a firm can be met only when there are sufficient liquid assets. Therefore, a firm must ensure that it does not suffer from lack of liquidity or the capacity to pay its current obligations due to lack of good liquidity position, its goodwill in the market is likely to be affected beyond repair. It will result in a loss of creditor's confidence in the firm and may cause even closure of the firm because such a situation represents unnecessarily excessive funds of the firm being tied up in current assets. Therefore it is very important to have a proper balance in regard to the liquidity of the firm. Two t}'pes of ratios can be calculated for measuring short term, financial position or short term solvency of a firm.

1.Liquidity Ratios 2. Efficiency Ratios 1. LIQUIDITY RATIOS: Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. The short term obligations are met by realizing amounts from current, floating or circulating assets. The current assets should either be liquid or near liquidity. These should be convertible into cash for paying obligations of short term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short term (current) liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. On the other hand, if current liabilities cannot be easily met out of current assets then liquidity position will be bad. The bankers, suppliers of goods and other short term creditors are interested in the liquidity of the concern. They will extend credit only if they are sure that current assets are enough to pay out the obligations. To measure the liquidity of a firm) the following ratios can be calculated.

Current Ratio Quick Ratio Absolute liquid ratio CURRENT RATIO: Current ratio may be defined as the relationship between current assets and current liabilities. The 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. Current ratio = Current assets / Current liabilities

INTERPRETATION: As a conventional rule, a current ratio is 2:1. It means every one rupee of current liabilities there must be current asset of rupees two. The current ratio of TCC Ltd. is ranged between 0.87 to 0.82. The current ratio of the company is not satisfactory. From the above table it is clear that current ratios sometimes showing increasing trend but not reached the satisfactory level. This means the short term debt paying capacity was not good. The main reason for the decrease in current ratio is that, in all seven years current liabilities of the company is more than the current asset, company's solvency position is not satisfactory. So the company should try to increase their current asset. So they can easily meet their short term obligations. () QUICK RATIO Quick ratio is' a more rigorous test of liquidity than the current ratio. The Term "Liquidity "refers to the ability of a firm to pay its short term obligations as and when they become due The two determinants of current ratio, as a measure of liquidity, are current assets and current liabilities .Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities .As asset is said to be liquid if it can be converted into cash with in short period without loss of value. Inventories and prepaid expenses are not included in liquid assets. While calculating quick or acid test ratio bank overdraft is not included in current liabilities

Quick ratio = Quick / liquid asset Current liability

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

QUICK/LIQUID ASSET 2887.77 1921.74 2568.69 2644.85 2414.75 2099.4 2346.27

CURRENT LIABILITY 4889.1 5063.93 5859.42 5583.33 5473.83 4701.13 4898.03

RATIO 0.59 0.38 0.44 0.47 0.44 0.45 0.48

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 RATIO

INTERPRETATION: As a rule of thumb, 1:1 is considered as satisfactory Quick Ratio. The higher Quick Ratio shows the company's better position. The Quick Ratio of the company from 2003 to 2010 is unsatisfactory, it means company finds difficult to meet its Short Term liabilities. For the last seven years the quick ratio of the company is fluctuating, a constant increase in Quick ratio cannot be seen. From the year 2007, its shows increasing trend, but it much below the rate of thumb. There is a hope for increase. (Ill) ABSOLUTE LIQUIDITY RATIO Absolute Liquidity Ratio measures the relationship between absolute liquid assets and current liabilities. Absolute liquid assets are those which are almost equivalent to cash. They include cash in hand, cash at bank and marketable securities or temporary investments. Absolute Liquidity Ratio= Cash +Marketable Securities ( Absolute Liquid Asset) Current Liability

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

RATIO 0.15 0.03 0.021 0.025 0.021 0.022 0.012

ABSOLUTE ASSET 710.41 166.17 124.12 139.28 115.26 102.49 58.85.

LIQUID CURRENT LIABILITY 4889.1 5063.93 5859.42 5583.33 5473.83 4701.13 4898.03

RATIO
0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 RATIO

INTERPRETATION: The acceptance norm for this ratio is 0:5:1. Here absolute liquid ratio ofTCC Ltd. is never a touch the standard level 0:5:1. Here the highest ratio is 0.15 in the year 200304. The reason for this is high current liabilities. Moreover, we cannot neglect the fact the government company like TCC will get short term fund easily and can easily meet its short term liabilities in time. TCC is keeping very low amount of cash to meet the requirements, therefore we can interpret that the company is advised to keep a thorough check on the current asset and current liabilities and also maintain adequate cash in hand, no funds are kept idle. 2 EFFICIENCY RATIOS: Funds are invested in various assets in business to make sale and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better management of assets, the large is the amount of sales and the profits Efficiency ratios measure the efficiency or effectiveness with which a firm manages its resources or assets. There ratios are also called turnover ratio because they indicate the speed with which assets are converted or turned over in the sales. The current ratio and acid testy ratio give misleading results if current assets include high amount of debtors due to slow credit collection. In same manner, current ratio may

be further misleading if the assets include high amount of slow moving = inventories. As both these ratios ignore the movement of current assets, it is important to calculate the following turnover or efficiency ratios to comment upon the liquidity or the efficiency with which the liquid resources are being used by a firm. Some important efficiency ratios are: 1)Inventory turn over ratio Debtors Turnover Ratio. Working Capital Turnover Ratio INVENTORY TURNOVER RATIO: Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of its business. But the level of inventory should neither be too high nor too low. i Inventory turnover is also known as stock variety. It would indicate whether inventory has been efficiently used or not. The puipose is to see whether only the required minimum funds have been locked up in inventory. Inventory turnover ratios indicate the number of times the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. A high inventory turnover indicates the efficient management of inventory because more frequently the stocks are sold, the lesser amount of money it required to finance the inventory. Net sales Inventory turnover ratio = net sales / inventory

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

RATIO NET SALES 6.83 9123.33 13.77 8868.57 11.25 10877.3 11.79 12320.7 9.22 9390.6 8.01 12061.3 6.59 10747.8

INVENTORY 1336.39 644.19 967 1044.91 1018.27 1504.21 1631.59

RATIO
16 14 12 10 8 6 4 2 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 RATIO

INTERPRETATION: Generally a high inventory turnover indicates the efficient management of inventory, more frequently the stocks are sold, the lesser amount of money is required to finance the inventory and low inventory ratio indicates an inefficient management of inventory. Here in the year 2004-05 shows increasing trend after that shows decreasing trend. Inventory turnover ratio is not satisfactory ii. Debtors Turnover Ratio: A concern may sell goods on cash as well as on credit. Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy. But the effect of a liberal credit policy may result in trying up substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be converted into cash within a short period and included in current assets. Hence, the liquidity position of a concern to pay its short term obligations in time depends upon the quality of its trade debtors. Debtors turnover ratio indicates the velocity of debt collection of firm. In simple words, it indicates the number of times average debtors are turned over during a year. Generally, the higher the value of debtors turnover the more efficient is the management of debtors or more liquid are the debtors. But a precaution is needed while interpreting a very high debtors turnover ratio because very high ratio may imply a firm's inability due to lack of resources to sell on credit thereby losing sales and profits. Debtors Turnover Ratio: = Total sales / Debtors.

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

RATIO 7.76 9.29 9.9 8.65 7.64 12.38 9.52

TOTAL SALES 9123.33 8868.57 10877.3 12320.7 9390.6 12062.7 10752.5

DEBTORS 1175.4 954.67 1098.56 1424.95 1229.14 974.11 1129.79

14 12 10 8 6 4 2 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 RATIO

INTERPRETATION: Debtors turnover ratio shows increasing trend in the year 2004-05and 2005-06 .It means company is more efficient in managing debtors /sales but after 2005-06 it shows; decreasing trend .In the year 2008-09 it increased and reaches 12.38 .It is above the average .It shows that in that year the time lag between the credit sales and collection was short. But in the year 2009, it again started to show decreasing trend. iii. Working Capital Turnover Ratios: Working capital of a concern is directly related to sales, the current assets like | debtors, bills receivables, cash, and stock etc. change with the increase or decrease in sales. Working capital turnover ratio indicates the velocity of utilization of net working capital. This ratio indicates the number of times the working capital is turned over in . the course of a year. This ratio measures the efficiency with which the working capital is being used by a firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio is not a good situation for any firm and hence dare must be taken while interpreting the ratio. Cost of Sale (Or Sales) Working Capital Turnover Ratio: Net Working Capital Working Capital = Current Assets - Current Liabilities. YEAR RATIO NET SALES NET WORKING

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

-14.69 -3.58 -4.76 -6.6 -4.66 -11.33 -12.06

9123.33 8868.57 10877.3 12320.7 9390.6 12061.3 10747.8

CAPITAL -621.26 -2475.18 -2283.36 -1866 -2016.6 -1064.68 -891.36

RATIO
0 -2 -4 -6 -8 -10 -12 -14 -16 RATIO 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION: In the studied 7 years, working capital turnover ratio of TCC is negative, because of negative working capital. In all year's current liabilities exceed the current assets. If we ignore the negative, all ratios are found to be satisfactory. From this table we can understand that the working capital turnover ratio is fluctuating. In the beginning period, it shows an increasing trend then declines and again increases. The highest working capital turnover was -3.58 during 2004-05 and lowest was -14.69 in 2003- 04. A highest working capital turnover ratio indicates efficient utilization of working capital and vice versa. The main reason for this the increase in current liabilities of the company. . Analysis of Long Term Financial Position of a Firm: The term solvency refers to the ability of a concern to meet its long term obligation. The long term indebtedness of a firm includes debenture holders, financial institutions providing medium and long term and other creditors selling goods on installment basis. The long term creditors of a firm are primarily interested in knowing the firm's ability to pay regularly interest on long term borrowings, repayment of the principal amount at the maturity and the security of their loans. Accordingly, long term solvency ratios indicate a firm's ability to meet the fixed interest and costs and repayment schedules associated with its long term borrowings. The following ratio serves the purpose of determining the solvency of the concern: Debt Equity Ratio. Proprietary Ratio. Fixed Asset to Net Worth Ratio. i.Debt Equity Ratio: Debt Equity Ratio also known as External-Internal Equity Ratio is calculated to measure the relative claims of outsiders and the owners (i.e. shareholders) against the firm's assets. This ratio indicates the relationship between the external equities or the outsider's funds and the internal equities or shareholders funds. A ratio of 1:1 may be usually considered to be a satisfactory ratio,

A n alysis of Fin an cial

Long term debt Debt. Equity R Shareholders Fund

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

RATIO 2.29 2.39 2.27 2.19 1.89 1.89 2

LONG TERM SHARE HOLDERS DEBT FUND 4889.38 2131.19 5088.02 2131.19 4855.54 2131.19 4674.08 2131.19 4029.88 2131.19 4008.13 2131.19 4266.5 2131.19

3 2.5 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

RATIO

INTERPRETATION: In the case of business concern and acceptable norm for this ratio is considered to be 2:1. The debt equity ratio of TCC shows ups and down trend but overall result is satisfactory. The high ratio shows that the claims of creators are greater than those of owners. Low ratio indicate great claim of owners than creditors. The high ratio is not good for business concern from the above calculations; we can conclude that TCC has an appropriate debt solvency ii Proprietary Ratio: A variant, to the Debt Equity Ratio is the proprietary ratio which is also known as Equity Ratio or Shareholder's to Total Equities Ratio or Net Worth to Total Assets Ratio. This ratio establishes the relationship between shareholder's funds to Total Assets of the firm. The Ratio of proprietor's funds to total funds is an important ratio for determining long term solvency of a firm. Shareholder's Funds Proprietary Ratio = Total Assets Under this, higher the ratio or the share of the shareholders in the total capital of the company, better is the long term solvency position of the company. This ratio indicates the extent to which the assets of the company can be lost without affecting the interest of creditors of the company YEAR RATIO SHARE TOTAL

A n alysis of Fin an cial

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

0.25

0.19 0.2 0.17 0.16 0.18 0.19 0.19

HOLDERS FUND 2131.19 2131.19 2131.19 2131.19 2131.19 2131.19 2131.19

ASSET 11354.39 10903.4 12516.57 13127.22 12028.2 11463.11 11460.53

0.2

0.15 RATIO 0.1

0.05

0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

A n alysis of Fin an cial Statements of TCC

INTERPRETATION: The acceptable norm of the ratio is 0.33. Here the proprietary ratio of TCC never touches the acceptable norm. Therefore, we can assume that the creditors are in great risk. The highest proprietary ratio was 0.196 in the year 2004-05 and the lowest was 0.16 in the year 2006-07. The main reason for the unsatisfactory level of proprietary ratio is the high value of total asset and low value of shareholders fund of the company. iii. Fixed Asset to Net Worth Ratio: This ratio establishes the relationship between fixed assets and shareholder's funds i.e. Share capital plus reserves and surplus and retained earnings. The ratio can be calculated as follows: Fixed Assets(after depreciation) Fixed Asset to Net Worth Ratio: Shareholders' Funds The ratio of fixed assets to net worth indicates the extent to which shareholder's funds are sunk into the fixed assts. Generally, the purchase of fixed assets should be financed by shareholders equity including reserves, surplus and retained earnings. If the ratio is less than 100%, it implies that owner's funds are more than total fixed assets and a part of the working capital is provided by the shareholders. When the ratio is more than 100%, it implies that owner's funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. There is no rate of thumb to interpret this ratio but 60 to 65%, is considered to be satisfactory ratio in case of industrial undertakings. YEAR RATIO FIXED SHAREHOLDERS ASSET FUND 2003-04 3.31 7060.97 2131.19 2004-05 3 6399.19 2131.19 2005-06 3.75 7998.21 2131.19 2006-07 4.41 9406.43 2131.19 2007-08 4.01 8558.1 2131.19 2008-09 3.65 7783.04 2131.19
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 RATIO

2009-10

3.39

7221.63

2131.19

INTERPRETATION: The ratio of fixed asset to net worth is unsatisfactory, but in the year 05-06 and 06-07, it shows significance increase. Although again declined, then increased to some extent. It is because of fixed asset shows an increasing trend. C. Analysis of Profitability of Firm

The primary objective of a business undertaking is to earn profit. Profit earning is considered essential for the survival of the business. On the of FinancialLord Keynes's words of Statements of TCC Analysis

"Profit is engine that drives business enterprise". A business needs profit not only for its existence but also expansion and diversification. The investors want an adequate return on their investments, workers want higher wages, creditors want higher security for their interest and loan and so on. A business enterprise can discharge its obligations to the various segments of the society only through earning of profit, Profits are, thus, a useful treasure of efficiency of a business. Profits to the management are the test of efficiency and a measurement of control; to owners, a measure of worth of their investment; to the creditors, the margin of safety; to employees, a source of fringe benefits to government a measure of taxpaying capacity and the basis of legislative action; to customers, a hint to demand for better quality and price cuts, to an enterprise, less cumbersome source of finance for growth and existence and finally to the country, profits are an index of economic progress. Profitability ratios are calculated to measure to overall efficiency of the business. Generally, profitability ratios are calculated other in relation to sales or in relation to | investment. Profitability Ratios can be classified in two types: General Profitability Ratios. Overall Profitability Ratios. 1.General Profitability Ratios: Following are some General Profitability Ratios. i. Gross Profit Ratio. ii. Net Profit Ratio. iii. Operating Ratio. iv. Operating Profit Ratio GROSS PROFIT RATIO: Gross profit Ratio measure the relationship of gross profit to net sales and is usually represented as a percentage .Thus, it is calculated by dividing the gross profit by sales. Gross profit Ratio = Gross profit x 100 Net sales GROSS PROFIT = COST OF GOOD SOLD- SALES The gross profit ratio indicates the extent to which the selling price of goods may without resulting in losses on operations of a firm, it reflects the efficiency with which a firm produces its products . Higher the gross profit ratio better the result .there is no standard norms for gross profit ratio. A low gross profit ratio , generally indicate high cost of goods sold due to un favorable purchasing policies , lesser sales , lower selling prices , excessive competition over investment in plant and machinery etc..

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

RATIO GROSS PROFIT 29.37 2679.34 34.86 3091.91 33.29 3621.11 33.85 4170.1 , 26.11 2452.27 29.92 3608.34 30.62 3291.49/

NET SALES 9123.33 8868.57 10877.3 12320.7 9390.6 12061.3 10747.8

Analysis of Financial Statements of TCC

40 35 30 25 20 15 10 5 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 RATIO

INTERPRETATION A low gross profit ratio is due to the marginal increase in the value of the raw materials consumed and manufacturing expenses etc. " a gross profit ratio is the valuable indicator of the firm's ability to utilize effectively the outside sources of funds. In 2003-04 Gross profit ratio was 29% and 2004-05 and 2005-06, it was 34.86 and 33% respectively. In the year 2007-08, sales decreased along with gross profit ratio decreased. It was 26.13%. It implies a predominant increase in cost of production.. NET PROFIT RATIO: net profit ratio establishes a relationship between net profit and sales, and indicates the efficiency of the management in manufacturing, selling administrative and other activities of the firm .This ratio is the overall measure of firm's profitability and is calculated as : Net profit ratio =( Net profit after tax /Net sales)* 100

The two basie elements of the ratio are net profit and sales. The ratio is very useful as if the profit is not sufficient; the firm shall not able to achieveof Financial Statements of TCC its a satisfactory return on Analysis investments. Obviously, higher the ratio better is the profitability. YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 RATIO NET PROFIT 0.9 83.23 -9.35 -829.24 4.81 523.01 0.4 48.52 0.3 27.67 -2.33 -280.55 -2.32 -249.17 NET SALES 9123.33 8868.57 10877.3 12320.67 9390.6 12061.25 10747.84

6 4 2 0 -2 -4 -6 -8 -10 -12 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 RATIO

INTERPRETATION : Net profit ratio of company is showing fluctuating trend. It reaches highest 4.8% in 200506 as a result of sales increase. In the year 2006-07, sales was maximum, but profit is low due to increase in cost of fuel, employee cost, interest burden for loan taken etc. Another reason for the decrease in net profit is depreciation policy followed by the company. As compared to loss in 2004-05 company is in better position now.