A Study on Ratio Analysis at Amararaja b (1)

7/26/2019 A Study on Ratio Analysis at Amararaja b (1)

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A STUDY ON

RATIO ANALYSIS AT

AMARARAJA BATTERIES LIMITED (ARBL)

A PROJECT REPORT

Submitted in partial fulfillment of the

requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Under the Guidance of

S.SUJATHA M.B.A., M.PhilASSISTANT PROFESSOR OF MANAGEMENT STUDIES

SRM UNIVERSITY

BySUNEEL.R

(Reg.No.35080623)

DEPARTMENT OF BUSINESS ADMINISTRATION

SRM UNIVERSITY

YEAR-2010

SCHOOL OF MANAGEMENT

SRM UNIVERSITY


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SRM Nagar, Kattankulathur-603203

Phone: 044-27452270, 27417777, Fax: 044-27453903

[email protected], website:www.srmuniv.ac.in

________________________________________________________________________

BONAFIDE CERTIFICATE

Certified that this project report titled A STUDY ON RATIO ANALYSIS AT

AMARARAJA BATTERIES LIMITEDis the bonafide work of Mr.R.SUNEEL who carried

out the research under my supervision.

Certified further, that to the best of my knowledge the work reported here in does not form

part of any other Project report or dissertation on the basis of which a degree or award was

conferred on an earlier occasion on this or any other candidate.

Signature of the supervisor Signature of the HO

DECLARATION
mailto:[email protected],%20%20website:www.srmuniv.ac.inmailto:[email protected],%20%20website:www.srmuniv.ac.inmailto:[email protected],%20%20website:www.srmuniv.ac.in


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I hereby declare that the Project Report entitled A STUDY ON RATIO

ANALYSIS AT AMARARAJA BATTERIES LIMITED(ARBL) is a record of independent

research work submitted by me to SRM University, Chennai, for developing the real time

experience as well as award the degree of Master of Business Administration and has been carried

out during the period of my study at SRM UNIVERSITY, Chennai, Under the guidance of

S.SUJATHA, Department of MBA.

PLACE: Chennai (R.SUNEEL)

ACKNOWLEDGEMENT

I would like to express deepest gratitude and thanks to the Dr.JAYASREE SURESH,Head of

the Department for her valuable support in doing this project. She has been a source of

encouragement and guidance in all our endeavors.


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I would like to sincerely acknowledge thanks to Sri C.Ramachandra raju, Finance

Manager of Amararaja Batteries limited, Mr.C.Ravi Costing Manager of Amararaja Batteries

Limited for their moral support during the research work.

I express our profound thanks to S.SUJATHA project guide, for her consistent

encouragement and invaluable suggestion in completing this project, without his effort the

completion of this project would be practically impossible.

It gives me great pleasure to acknowledge my indebtedness to my family Members for

their substantial moral support and encouragement in my studies.

I would like to extend my sincere thanks toMy Dearest Friendsand alsomy classmates

for their unnerving support in the completion of the work.

(R. SUNEEL)

TABLEOFCONTENTS

Chapters

Titleand

Topics

Page

No

1 INTRODUCTION

Introduction12

2 OBJECTIVES&METHODOLOGY

Needofstudy

Scopeof

study

4

5


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Objectivesofstudy

ReviewofLiterature

ResearchMethodology

Limitationsof

study

6

719

20

21

3 COMPANYPROFILE

2229

4 DATAANALYSISANDINTERPRETATION 3060

5 FINDINGS&SUGGESTIONS

Findings

Suggestions

Conclusion

62

63

64

6 Annexure

BIBLOGRAPHY

6571

72

LISTOFTABLES

SI .NO PARTCULARS PAGE.NO

1

2

3

4

5

6

7

8

9

CURRENT RATIO

QUICK RATIO

CASH RATIO

NETWORKING CAPITAL RATIO

DEBT RATIO

DEBT EQUITY RATIO

INTEREST COVERAGE RATIO

TOTAL LIABILITIES RATIO

INVENTORY TURNOVER RATIO

31

33

35

36

37

39

41

42

43


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10

11

12

13

14

15

16

17

18

19

20

21

22

DEBTORS TURNOVER RATIO

FIXED ASSET TURNOVER RATIO

CURRENT ASSET TURNOVER RATIO

TOTAL ASSET TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

NET ASSET TURNOVER RATIO

CAPITAL TURNOVER RATIO

CREDITOR TURNOVER RATIO

GROSS PROFIT

NET PROFIT

OPERITING EXPENCES RATIO

RETURN ON INVESTMENT

RETURN ON EQUITY SHARE HOLDER FUND

45

46

48

49

50

51

52

53

54

56

57

59

60

LISTOFCHARTS

SI .NO PARTCULARS PAGE.NO

1

2

3

4

5

6

7

8

9

10

11

12

CURRENT RATIO

QUICK RATIO

CASH RATIO

NETWORKING CAPITAL RATIO

DEBT RATIO

DEBT EQUITY RATIO

INTEREST COVERAGE RATIO

TOTAL LIABILITIES RATIO

INVENTORY TURNOVER RATIO

DEBTORS TURNOVER RATIO

FIXED ASSET TURNOVER RATIO

CURRENT ASSET TURNOVER RATIO

32

34

35

36

38

40

41

42

44

45

47

48


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13

14

15

16

17

18

19

20

21

22

TOTAL ASSET TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

NET ASSET TURNOVER RATIO

CAPITAL TURNOVER RATIO

CREDITOR TURNOVER RATIO

GROSS PROFIT

NET PROFIT

OPERITING EXPENCES RATIO

RETURN ON INVESTMENT

RETURN ON EQUITY SHARE HOLDER FUND

49

50

51

52

53

55

56

58

59

60


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INTRODUCTION

ABOUTRATIOANALYSIS

The ratio analysis is the most powerful tool of financial analysis. Several ratios calculated

from the accounting data can be grouped into various classes according to financial activity or

function to be evaluated.

DEFINITION:

The indicate quotient of two mathematical expressions and as The relationship

between two or more things. It evaluates the financial position and performance of the firm.

As started in the beginning many diverse groups of people are interested in analyzing

financial information to indicate the operating and financial efficiency and growth of firm. These

people use ratios to determine those financial characteristics of firm in which they interested with

the help of ratios one can determine.

The ability of the firm to meet its current obligations.

INTRODUCTION


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The extent to which the firm has used its long-term solvency by borrowing funds.

The efficiency with which the firm is utilizing its assets in generating the sales revenue.

The overall operating efficiency and performance of firm.

The information contained in these statements is used by management, creditors,

investors and others to form judgment about the operating performance and financial

position of firm. Uses of financial statement can get further insight about financial strength

and weakness of the firm if they properly analyze information reported in these statements.

Management should be particularly interested in knowing financial strength of the firm to

make their best use and to be able to spot out financial weaknesses of the firm to take

suitable corrective actions. The further plans firm should be laid down in new of the firms

financial strength and weaknesses. Thus financial analysis is the starting point for making

plans before using any sophisticated forecasting and planning procedures. Understanding the

past is a prerequisite for anticipating the future.

Need of study


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NEED OF THE STUDY

The prevalent educational system providing the placement training at an industry being a

part of the curriculum has helped in comparison of theoretical knowledge with practical system. It

has led to note the convergences and divergence between theory and practice.

The study enables us to have access to various facts of the organization. It helps in

understanding the needs for the importance and advantage of materials in the organization, the

study also helps to exposure our minds to the integrated materials management the various

procedures, methods and technique adopted by the organization. The study provides knowledge

about how the theoretical aspects are put in the organization in terms of described below

To pay wages and salaries.

For the purchase of raw materials, spares and components parts.

To incur day-to-day expenses.

To meet selling costs such as packing, advertising.

To provide credit facilities to customers.

To maintain inventories and raw materials, work-in-progress and finished stock.


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Scopeofthestudy

The scope of the study is limited to collecting financial data published in the annual

reports of the company every year. The analysis is done to suggest the possible solutions. The

study is carried out for 4 years (2006 10).

Using the ratio analysis, firms past, present and future performance can be analyzed and

this study has been divided as short term analysis and long term analysis. The firm should

generate enough profits not only to meet the expectations of owner, but also to expansion

activities.


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OBJECTIVESOFSTUDY

1. To study and analyze the financial position of the Company through ratio analysis.

2. To suggest measures for improving the financial performance of organization.

3. To analyze the profitability position of the company.

4. To assess the return on investment.

5. To analyze the asset turnover ratio.

6. To determine the solvency position of company.

7. To suggest measures for effective and efficient usage of inventory.


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REVIEWOFLITERATURE

FINANCIALANALYSIS

Financial analysis is the process of identifying the financial strengths and weakness of the firm.

It is done by establishing relationships between the items of financial statements viz., balance

sheet and profit and loss account. Financial analysis can be undertaken by management of the firm,

viz., owners, creditors, investors and others.

Objectivesofthefinancialanalysis

Analysis of financial statements may be made for a particular purpose in view.

1. To find out the financial stability and soundness of the business enterprise.

2. To assess and evaluate the earning capacity of the business

3. To estimate and evaluate the fixed assets, stock etc., of the concern.

4. To estimate and determine the possibilities of future growth of business.

5. To assess and evaluate the firms capacity and ability to repay short and long term loans

Partiesinterestedinfinancialanalysis

The users of financial analysis can be divided into two broad groups.

Internalusers

1. Financial executives

2. Top management

Externalusers

1. Investors

2. Creditor.

3. Workers

4. Customers

5. Government

6. Public

7. Researchers


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Significanceoffinancialanalysis

Financial analysis serves the following purpose:

Toknow

the

operational

efficiency

of

the

business:

The financial analysis enables the management to find out the overall efficiency of the firm. This will

enable the management to locate the weak Spots of the business and take necessary remedial action.

Helpfulinmeasuringthesolvencyofthefirm:

The financial analysis helps the decision makers in taking appropriate decisions for strengthening the

short-term as well as long-term solvency of the firm.

Comparisonofpastandpresentresults:

Financial statements of the previous years can be compared and the trend regarding various

expenses, purchases, sales, gross profit and net profit can be ascertained.

Helpsinmeasuringtheprofitability:

Financial statements show the gross profit, & net profit.

Interfirmcomparison:

The financial analysis makes it easy to make inter-firm comparison. This comparison can also be made for

various time periods.

BankruptcyandFailure:

Financial statement analysis is significant tool in predicting the bankruptcy and the failure of the business

enterprise. Financial statement analysis accomplishes this through the evaluation of the solvency position.

Helpsinforecasting:

The financial analysis will help in assessing future development by making forecasts and preparing

budgets.


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METHODSOFANALYSIS:

A financial analyst can adopt the following tools for analysis of the financial statements. These are

also termed as methods of financial analysis.

A. Comparative statement analysis

B. Common-size statement analysis

C. Trend analysis

D. Funds flow analysis

E. Ratio analysis

NATUREOFRATIOANALYSIS

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient

of mathematical expression" and as "the relationship between two or more things". A ratio is used as

benchmark for evaluating the financial position and performance of the firm. The relationship between

two accounting figures, expressed mathematically, is known as a financial ratio. Ratio helps to

summarizes large quantities of financial data and to make qualitative judgment about the firm's financial

performance.

The persons interested in the analysis of financial statements can be grouped under three head

owners (or) investors who are desired primarily a basis for estimating earning capacity. Creditors who are

concerned primarily with Liquidity and ability to pay interest and redeem loan within a specified period.

Management is interested in evolving analytical tools that will measure costs, efficiency, liquidity and

profitability with a view to make intelligent decisions.

STANDARDSOFCOMPARISON

The ratio analysis involves comparison for an useful interpretation of the financial statements. A

single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with

some standard. Standards of comparison are:

1. Past Ratios

2. Competitor's Ratios

3. Industry Ratios4. Projected Ratios


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PastRatios:Ratios calculated from the past financial statements of the same firm.

Competitor'sRatios:Ratios of some selected firms, especially the most progressive and successful

competitor at the same point in time.

IndustryRatios:

Ratios of the industry to which the firm belongs.

ProjectedRatios:Ratios developed using the projected financial statements of the same firm.

TIMESERIESANALYSIS

The easiest way to evaluate the performance of a firm is to compare its present ratios with past

ratios. When financial ratios over a period of time are compared, it is known as the time series analysis or

trend analysis. It gives an indication of the direction of change and reflects whether the firm's financialperformance has improved, deteriorated or remind constant over time.

CROSSSECTIONALANALYSIS

Another way to comparison is to compare ratios of one firm with some selected firms in the

industry at the same point in time. This kind of comparison is known as the cross-sectional analysis. It is

more useful to compare the firm's ratios with ratios of a few carefully selected competitors, who have

similar operations.

INDUSTRYANALYSIS

To determine the financial conditions and performance of a firm. Its ratio may be compared with

average ratios of the industry of which the firm is a member. This type of analysis is known as industry

analysis and also it helps to ascertain the financial standing and capability of the firm & other firms in the

industry. Industry ratios are important standards in view of the fact that each industry has its

characteristics which influence the financial and operating relationships.

TYPESOFRATIOS

Management is interested in evaluating every aspect of firm's performance. In view of the requirement of

the various users of ratios, we may classify them into following four important categories:

1. Liquidity Ratio

2. Leverage Ratio

3. Activity Ratio

4. Profitability Ratio


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3.1LiquidityRatio

It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios

help in establishing a relationship between cast and other current assets to current obligations to provide a

quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity and also that

it does not have excess liquidity. A very high degree of liquidity is also bad, idle assets earn nothing. The

firm's funds will be unnecessarily tied up in current assets. Therefore it is necessary to strike a proper

balance between high liquidity. Liquidity ratios can be divided into three types:

3.1.1 Current Ratio

3.1.2 Quick Ratio

3.1.3 Cash Ratio

3.1.1

Current

Ratio

Current ratio is an acceptable measure of firms short-term solvency Current assets includes cash

within a year, such as marketable securities, debtors and inventors. Prepaid expenses are also included in

current assets as they represent the payments that will not made by the firm in future. All obligations

maturing within a year are included in current liabilities. These include creditors, bills payable, accrued

expenses, short-term bank loan, income-tax liability in the current year.

The current ratio is a measure of the firm's short term solvency. It indicated the availability of

current assets in rupees for every one rupee of current liability. A current ratio of 2:1 is consideredsatisfactory. The higher the current ratio, the greater the margin of safety; the larger the amount of current

assets in relation to current liabilities, the more the firm's ability to meet its obligations. It is a cured -and

-quick measure of the firm's liquidity.

Current ratio is calculated by dividing current assets and current liabilities.

3.1.2QuickRatio

Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. An

asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value.

Cash is the most liquid asset, other assets that are considered to be relatively liquid asset and included in

quick assets are debtors and bills receivables and marketable securities (temporary quoted investments).

Current Assets

Current Ratio = ________________

Current Liabilities


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Inventories are converted to be liquid. Inventories normally require some time for realizing into

cash; their value also has a tendency to fluctuate. The quick ratio is found out by dividing quick assets by

current liabilities.

Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition.

Quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be used cautiously. A

company with a high value of quick ratio can suffer from the shortage of funds if it has slow- paying,

doubtful and long duration outstanding debtors. A low quick ratio may really be prospering and paying its

current obligation in time.

3.1.3CashRatio

Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its equivalent

current liabilities. Cash and Bank balances and short-term marketable securities are the most liquid assets

of a firm, financial analyst stays look at cash ratio. Trade investment is marketable securities of equivalent

of cash. If the company carries a small amount of cash, there is nothing to be worried about the lack ofcash if the company has reserves borrowing power. Cash Ratio is perhaps the most stringent Measure of

liquidity. Indeed, one can argue that it is overly stringent. Lack of immediate cash may not matter if the

firm stretch its payments or borrow money at short notice.

3.2LEVERAGERATIOS

Financial leverage refers to the use of debt finance while debt capital is a cheaper source of

finance: it is also a riskier source of finance. It helps in assessing the risk arising from the use of debt

capital. Two types of ratios are commonly used to analyze financial leverage.

1. Structural Ratios &

2. Coverage ratios.

Current assets - InventoriesQuick Ratio = _________________________

Current Liabilities

Cash and bank balances + Current Investment

Cash Ratio= --------------------------------------------------------------------

Current Liabilities


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Structural Ratios are based on the proportions of debt and equity in the financial structure of firm.

Coverage Ratios shows the relationship between Debt Servicing, Commitments and the sources

for meeting these burdens.

The short-term creditors like bankers and suppliers of raw material are more concerned with the

firm's current debt-paying ability. On the other hand, long-term creditors like debenture holders, financial

institutions are more concerned with the firm's long-term financial strength. To judge the long-term

financial position of firm, financial leverage ratios are calculated. These ratios indicated mix of funds

provided by owners and lenders.

There should be an appropriate mix of Debt and owner's equity in financing the firm's assets. The

process of magnifying the shareholder's return through the use of Debt is called "financial leverage" or

"financial gearing" or "trading on equity". Leverage Ratios are calculated to measure the financial risk

and the firm's ability of using Debt to share holder's advantage.

Leverage Ratios can be divided into five types.

3.2.1 Debt equity ratio.

3.2.2 Debt ratio.

3.2.3 Interest coverage ratio

3.2.4 Proprietary ratio.

3.2.5 Capital gearing ratio

3.2.1Debtequityratio

It indicates the relationship describing the lenders contribution for each rupee of the owner's

contribution is called debt-equity ratio. Debt equity ratio is directly computed by dividing total debt by

net worth. Lower the debt-equity ratio, higher the degree of protection. A debt-equity ratio of 2:1 is

considered ideal. The debt consists of all short term as well as long-term and equity consists of net worth

plus preference capital plus Deferred Tax Liability.

Long term Debts

Debt Equity Ratio = ----------------------

Share holder funds (Equities)


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3.2.2Debtratio

Several debt ratios may used to analyze the long-term solvency of a firm. The firm may be

interested in knowing the proportion of the interest-bearing debt in the capital structure. It may, therefore,

compute debt ratio by dividing total total debt by capital employed on net assets. Total debt will include

short and long-term borrowings from financial institutions, debentures/bonds, deferred payment

arrangements for buying equipments, bank borrowings, public deposits and any other interest-bearing

loan. Capital employed will include total debt net worth.

3.2.3InterestCoverageRatio

The interest coverage ratio or the time interest earned is used to test the firms debt servicing

capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes by interest

charges. The interest coverage ratio shows the number of times the interest charges are covered by funds

that are ordinarily available for their payment. We can calculate the interest average ratio as earnings

before depreciation, interest and taxes divided by interest.

3.2.4Proprietaryratio

The total shareholder's fund is compared with the total tangible assets of the company. This ratio

indicates the general financial strength of concern. It is a test of the soundness of financial structure of the

concern. The ratio is of great significance to creditors since it enables them to find out the proportion of

share holders funds in the total investment of business.

Debt

Debt Ratio = ----------

Equity

EBIT

Interest Coverage ratio = ---------------

Interest

Net worth

Proprietary Ratio = -------------------------------------- x 100

Total tan ible assets


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3.2.5Capitalgearingratio:

This ratio makes an analysis of capital structure of firm. The ratio shows relationship between

equity share capital and the fixed cost bearing i.e., preference share capital and debentures.

3.3ACTIVITYRATIOS

Turnover ratios also referred to as activity ratios or asset management ratios, measure how

efficiently the assets are employed by a firm. These ratios are based on the relationship between the level

of activity, represented by sales or cost of goods sold and levels of various assets. The improvement

turnover ratios are inventory turnover, average collection period, receivable turn over, fixed assets

turnover and total assets turnover.

Activity ratios are employed to evaluate the efficiency with which the firm manages and utilize its assets.

These ratios are also called turnover ratios because they indicate the speed with which assets are being

converted or turned over into sales. Activity ratios thus involve a relationship between sales and assets. A

proper balance between sales and assets generally reflects that asset utilization.

Activityratiosaredividedintofourtypes:

3.3.1 Total capital turnover ratio

3.3.2 Working capital turnover ratio

3.3.3 Fixed assets turnover ratio

3.3.4 Stock turnover ratio

3.3.1Totalcapitalturnoverratio:This ratio expresses relationship between the amounts invested

in this assets and the resulting in terms of sales. This is calculated by dividing the net sales by total sales.

The higher ratio means better utilization and vice-versa.

Some analysts like to compute the total assets turnover in addition to or instead of net assets

turnover. This ratio shows the firm's ability in generating sales from all financial resources committed to

total assets.

Equity capital

Capital gearing ratio = -----------------------------------------------

P.S capital +Debentures +Loans

Sales

Total assets turnover = ----------------------------

Ca ital em lo ed.


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3.3.2 Working capital turnover ratio: This ratio measures the relationship between working

capital and sales. The ratio shows the number of times the working capital results in sales. Working

capital as usual is the excess of current assets over current liabilities. The following formula is used to

measure the ratio:

3.3.3Fixedassetturnoverratio:The firm may which to know its efficiency of utilizing fixed

assets and current assets separately. The use of depreciated value of fixed assets in computing the fixed

assets turnover may render comparison of firm's performance over period or with other firms.

The ratio is supposed to measure the efficiency with which fixed assets employed a high ratio

indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets.

However, in interpreting this ratio, one caution should be borne in mind, when the fixed assets of firm are

old and substantially depreciated, the fixed assets turnover ratio tends to be high because the denominator

of ratio is very low

3.3.4Stockturnoverratio

Stock turnover ratio indicates the efficiency of firm in producing and selling its product. It is

calculated by dividing the cost of goods sold by the average stock. It measures how fast the inventory is

moving through the firm and generating sales.

The stock turnover ratio reflects the efficiency of inventory management. The higher the ratio,

the more efficient the management of inventories and vice versa .However, this may not always be true.

A high inventory turnover may be caused by a low level of inventory which may result if frequent stock

outs and loss of sales and customer goodwill.

Sales

Working capital turnover ratio = -------------------------------

Working capital

Net sales

Fixed asset turnover ratio = -------------------------

Fixed assets

Cost of goods sold

Stock turnover ratio = ------------------------------

Average stock

Opening stock + Closing stock

Average stock = --------------------------------------------

2


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3.4PROFITABILITYRATIOS

A company should earn profits to survive and grow over a long period of time. Profits are

essential but it would be wrong to assume that every action initiated by management of a company should

be aimed at maximizing profits. Profit is the difference between revenues and expenses over a period of

time.

Profit is the ultimate 'output' of a company and it will have no future if it fails to make sufficient

profits. The financial manager should continuously evaluate the efficiency of company in terms of profits.

The profitability ratios are calculated to measure the operating efficiency of company. Creditors want to

get interest and repayment of principal regularly. Owners want to get a required rate of return on their

investment.

Generally, two major types of profitability ratios are calculated:

Profitability in relation to sales

Profitability in relation to investment

ProfitabilityRatioscanbedividedintosixtypes:

3.4.1 Gross profit ratio

3.4.2 Operating profit ratio

3.4.3 Net profit ratio

3.4.4 Return on investment

3.4.5 Earns per share

3.4.6 Operating expenses ratio

3.4.1Grossprofitratio

First profitability ratio in relation to sales is the gross profit margin the gross profit marginreflects.

The efficiency with which management produces each unit of product. This ratio indicates the

average spread between the cost of goods sold and the sales revenue. A high gross profit margin is a sign

of good management. A gross margin ratio may increase due to any of following factors: higher sales

prices cost of goods sold remaining constant, lower cost of goods sold, sales prices remaining constant. A

low gross profit margin may reflect higher cost of goods sold due to firm's inability to purchase raw

materials at favorable terms, inefficient utilization of plant and machinery resulting in higher cost of

production or due to fall in prices in market.


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This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of

production as well as pricing. To analyze the factors underlying the variation in gross profit margin, the

proportion of various elements of cost (Labor, materials and manufacturing overheads) to sale may

studied in detail.

3.4.2Operatingprofitratio

This ratio expresses the relationship between operating profit and sales. It is worked out by

dividing operating profit by net sales. With the help of this ratio, one can judge the managerial efficiencywhich may not be reflected in the net profit ratio.

3.4.3Netprofitratio

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross

profit. Net profit margin ratio established a relationship between net profit and sales and indicates

management's efficiency in manufacturing, administering and selling products.

This ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm with

a high net margin ratio would be in an advantageous position to survive in the face of falling selling

prices, rising costs of production or declining demand for product

This ratio shows the earning left for share holders as a percentage of net sales. It measures

overall efficiency of production, administration, selling, financing. Pricing and tax management. Jointly

considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit

structure of the firm and enable the analyst to identify the sources of business efficiency / inefficiency.

Gross profit

Gross profit ratio = ------------------------x 100

Net sales

Operating profit

Operating profit ratio = ---------------------------x 100

Net sales

Net Profit

Net Profit Ratio = --------------------------- x 100

Net sales


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3.4.4Returnoninvestment:This is one of the most important profitability ratios. It indicates the

relation of net profit with capital employed in business. Net profit for calculating return of investment

will mean the net profit before interest, tax, and dividend. Capital employed means long term funds.

3.4.5Earningspershare

This ratio is computed by earning available to equity share holders by the total amount of equity

share outstanding. It reveals the amount of period earnings after taxes which occur to each equity share.

This ratio is an important index because it indicates whether the wealth of each share holder on a per

share basis as changed over the period.

3.4.6Operatingexpensesratio

It explains the changes in the profit margin ratio. A higher operating expenses ratio is unfavorable

since it will leave a small amount of operating income to meet interest, dividends. Operating expenses

ratio is a yardstick of operating efficiency, but it should be used cautiously. It is affected by a number of

factors such as external uncontrollable factors, internal factors. This ratio is computed by dividing

operating expenses by sales. Operating expenses equal cost of goods sold plus selling expenses and

general administrative expenses by sales.

E.B.I.T

Return on investment = ---------------------------------------- x 100

Capital employed

Net profit

Earnings per share = ------------------------------------ x 100

Number of equity shares

Operating expenses

Operating expenses ratio = ----------------------------- x 100

Sales


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ResearchMethodology

ResearchDesign

In view of the objects of the study listed above an exploratory research design has been

adopted. Exploratory research is one which is largely interprets and already available information

and it lays particular emphasis on analysis and interpretation of the existing and available

information.

To know the financial status of the company.

To know the credit worthiness of the company.

To offer suggestions based on research finding.

DataCollectionMethods

PrimaryData

Information collected from internal guide and finance manager. Primary data is first hand

information.

SecondaryData

Company balance sheet and profit and loss account. secondary data is second hand

information.

DataCollectionTools

To analyze the data acquire from the secondary sources Ratio AnalysisThe scope of the

study is defined below in terms of concepts adopted and period under focus.

First the study of Ratio Analysis is confined only to the Amarraja Batteries Limited.

Secondly the study is based on the annual reports of the company for a period of 4 years

from 2006-07 to 2009-10 the reason for restricting the study to this period is due time constraint.

LIMITATIONS


27/79

The study was limited to only four years Financial Data.

The study is purely based on secondary data which were taken primarily from

Published annual reports of Amararaja batteries Ltd.,

There is no set industry standard for comparison and hence the inference is made

on general standards.

The ratio is calculated from past financial statements and these are not indicators of

future.

The study is based on only on the past records.

Non availability of required data to analysis the performance.

The short span of the time provided also one of limitations.


28/79

Company profile


29/79

COMPANYPROFILE

Amara Raja Batteries (ARBL) incorporated under the companies Act, 1956 in 13 th

February 1985, and converted into public Limited Company on 6thSeptember 1990.

The chairman and Managing Director of the company is Sri Gala Ramachandra Naidu,

ARBL is a first company in India, which manufactures Values regulated Lead Acid (VRLA)

Batteries. The main objectives of the company are a manufacturing of good quality of Sealed

Maintenance Free (SMF) acid batteries. The company is setting up to Rs.1, 920 lakhs plant is in

185 acres in Karakambadi village, Renigunta Mandal. The project site is notified under B

category.

The company has the clear-cut policy of direct selling without any intermediate. So they

have set up six branches and are operated by corporate operations office located in Chennai. The

company has virtual monopoly in higher A.H.(Amp Hour) rating Market its product VRLA . It is

also having the facility for industrial and automotive batteries.

Amara Raja is 5 S Company and its aim are to improve the work place environment by

using 5S techniques which is A systematic and rational approach to workplace organization and

methodical house keeping with a sense of purpose, consisting of the following five elements

CULTURE AND ENVIRONMENT

Amara Raja is putting a number of HRD initiatives to foster a spirit of togetherness and a

culture of meritocracy. Involving employees at all levels in building organizational

support plans and in evolving our vision for the organization.

ARBL encourages initiative and growth of young talent allows the organization to develop

innovation solution and ideas.

Benchmark pollution control measures, energy conversation measures, waste reduction

schemes, massive green belt development programs, employee health monitoring and

industrial safety programs have helped ARBL to take further environment management

program.

Amara Raja has now targeted to secure the ISO 14001 certification.


30/79

QUALITY POLICY

ARBLs main aim is to achieve customer satisfaction through the collective

commitment of employees in design; manufacture and marketing of reliable power systems,

batteries, allied products and services.

To accomplish above, ARBL focus on

Establishing superior specifications for our products and processes.

Employing state-of-the-art technologies and robust design principles.

Striving for continuous improvements in process and product quality.

Implementing methods and techniques to monitor quality levels.

Providing prompt after sales service.

RESEARCH & DEVELOPMENT

Specific areas in which the company carries out R&D are;

New product development.

Process technology up gradation.

Application engineering for new market place.

Quality improvement.

Benefits derived as a result of above R&D,

Developed 4v/200 AH batteries.

Design optimization of higher AH batteries for DOT application.

Design optimization of batteries 92v/1285 AH for TL/AC-Railway application.

Formation cycle optimization results in reduced duration and rejection.

Chemist curing cycle optimization.

Manufacture of automobile battery for four-wheeler vehicles.


31/79

FUTURE PLAN OF ACTION

Commercialization of motorcycle batteries.

Development of new range high integrity VRLA cell design.

Establishment of product for new application segment.

Studies on paste additives to enhance the battery performance.

In-depth evaluation of metal surface treatment chemical to reduce the process cycle time.

Validating alternative grades of propylene to conserve energy and to improve productivity.

MILE STONES

YEAR Mile stone

1997 100 crores turnover

1997 ISO-9001 Accreditation

1999 S-9000 Accreditation

2002 SO-14001 Certification

AWARDS

The spirit of Excellence- Awarded by academy of fine arts, Tirupati.

Best Entrepreneur of the year 1998-awarded by Hyderabad Management

Association.

Industrial Economist Business Excellence Award 1991- Awarded by the industrial

Economist, Chennai.

Excellence Award-by institution of economic studies (ES), New Delhi.

Udyog Rattan Award- by institution of economic studies, New Delhi.

QI CERTIFICATE 2002 - By FORD Company


32/79

AMARA RAJA GROUP OF COMPANIES

AMARA RAJA POWER SYSTEMS PRIVATE Ltd. (ARPSL), Karakambadi,

Tirupati.

MANGAL PRECISION PRODUCTS PRIVATE Ltd1. (MPPL1), Karakambadi,

Tirupati.

MANGAL PRECISION PRODUCTS PRIVATE Ltd2. (MPPL2), Petamitta, Chittoor.

AMARA RAJA ELECTRONICS PRIVATE LIMITED (AREPL), Dighavamgham,

Chittoor.

GALLA FOODS PRIVATE LIMITED (GFPL), Puthalapattu Mandal, Chittoor.

This ratio is calculated by dividing sales in to current assets. This ratio expressed the

number of times current assets are being turn over in stated period. This ratio shows how well

the current assets are being used in business. The higher ratio is showing that better utilization

of the current assets another a low ratio indicated that current assets are not being efficiently

utilized.

INDUSTRIAL BATTERY DIVISION (IBD)

Amara Raja has become the benchmark in the manufacturer of industrial batteries. India is

one of the largest and fastest growth markets for industrial batteries in the world. Amara Raja is

leading in the front, with an 80% market share is stand by VRAL batteries point of view. It is also

having the facility for production plastic components.

ARBL id the first company in India to manufacture VRLA (SMF) Batteries. The initial

investment of the company has Rs.1920 lakhs; the total land is around 18 acres in Karambadi

village, Renigunta Mandal. The project site is notified under B category.

Capacity

The capacity per the year 2005-2006 of IBD is 3, 70,000 cells per annum.

Products

Amara Raja being the first entrant in this industry and has the privilege of pioneering VRLA

technology in India.

Amara Raja has established itself as a reliable supplier of high quality products to major

segments like Telecom, Railways and power.

2. PLATE PREPARATION

Using lead oxide production in earlier stage positive and negative paste is prepared with

addition of sulphuric acid and water. These pastes are applied to respective grids using industrial

fasting machines.


33/79

3. CALL ASSEMBLY

Here positive and negative grids are separated by a sheet of fibreglass mat bush bars are

welded and as assembled into a jar or container to form battery cells. Then these cells are

assembled according to the customers specification into battery sets or systems.

4. FORMATION

In this process cells are filled with the electrolyte (surphuric acid) and then the set is

charged and discharged repeatedly, after final charging the battery comes out ready to be used.

Competitors

The Major competitors for Amara Raja Batteries are Exude industries Ltd, and GNB.

AUTOMOTIVE BATTERY DIVISION (ABD)

ARBL has inaugurated its new automotive plant at Karakambadi in Tirupati on September

24th, 2001. This plan is a part of the most completely integrated battery manufacturing facility in

India with all critical components, including plastics sourced in-house from existing facilities on

site. In this project, Amara Rajas strategic alliance partners Johnson Control Inc., of USA have

closely worked technology and plant engineering. It is also having the facility for producing

plastic components required for automotive batteries.

Capacity

With an existing production capacity of 5 lakhs units of automotive batteries, the new

Greenfield plant will now be able to produce 1 million batteries per annum. This is the first phase

in the enhancement of Amara Rajas production capacity, for this the company has invested Rs.45

crores and the next phase, at an additional cost of Rs.25 crores, for this the production capacity

will be increase to 2 million units and the company has estimated to complete around 3 years,

after that ARBL will become the single largest battery of manufacturer in Asia. The fiscal year

2005-2006s capacity Of ABD is 2.2 million numbers of batteries per year.

Products

The products of ABD are

Amaron Hi-way

Amaron Harvest

Amaron shield

Amaron Highlife

The plastic products of ABD arejars and jar covers.


34/79

Customers

ARBL has prestigious OEM (Original Equipment Manufacture) clients like FORD,

GENERAL MOTORS, DAEWOO MOTORS, MERCEDES BENZ, DAIMLER CHRYSLER,

MARUTI UDYOG LTD., premier Auto Ltd., and recent acquired a preference supplier alliance

with ASHOK LEYLAND, HINDUSTAN MOTORS, TELCO, MAHINDRA & MAHINDRA and

SWARAJ MAZDA.

COMPETITORS

EXIDE

PRESTOLITE

AMCO.

MAJOR USERS

1. RAILWAYS

Train lighting air conditioning, diesel engine starting, signaling systems, control

systems, emergency breaking systems, and telecommunications.

2. TELECOMMUNICATION

Central office power plants, microwave repeaters station, RAX in public building,

emergency lighting system at airports, fire alarm system etc.,

3. POWER SYSTEMS

Switch gear control systems, powerhouse control systems, rural street lighting etc.

4. UPS SYSTEM

Back up power to computers in progress control systems in industry etc.

5. TRACTION

Forklift trucks, earth moving machinery, mining locomotives and road vehicles etc.

6. PETROCHEMICALSOffshare and noshore oil exploration lighting systems, security systems etc.

7. DEFENCE

Defence communication, aircraft and helicopter ground starting, stationary and mobile

diesel engine starting etc.


35/79

PRODUCTION PROCESS

The process for the production of lead acid batteries consists essentially of five operations

described below

1. GRID CASTING

In the process grids to hold the active materials are made. Battery grids are produced using

microprocessor-casting machines with patented alloys. Different sizes of moulds are used to get

the required size of grids.

2. PLATE PREPARATION

Using lead oxide production in earlier stage positive and negative paste is prepared with

addition of sulphuric acid and water. These pastes are applied to respective grids using industrial

fasting machines.

3. CALL ASSEMBLY

Here positive and negative grids are separated by a sheet of fibreglass mat bush bars are

welded and as assembled into a jar or container to form battery cells. Then these cells are

assembled according to the customers specification into battery sets or systems.

4. FORMATION

In this process cells are filled with the electrolyte (surphuric acid) and then the set is

charged and discharged repeatedly, after final charging the battery comes out ready to be used.

5. TESTING & INSPECTION

Testing the battery is discharged to the customer it is tested for quality specifications.


36/79

Data analysis &

Interpretation


37/79

DATAANALYSISANDINTERPRETATIONS

4.1LIQUIDITYRATIOS

4.1.1 CURRENT RATIO

The ratio between all current assets and all current liabilities; another way of expressing

liquidity. It is a measure of the firms short-term solvency. It indicates the availability of current

assets in rupees for every one rupee of current liability. A ratio of greater than one means that the

firm has more current assets than current claims against them.

Table4.1.1Currentratio

S.No

Year

CURRENTASSETSCURRENT

LIABILITIESCURRENTRATIO

1.200607 1,612,642,497 638,958,266 2.52

2.200708 2,280,704,176 1,181,003,846 1.93

3.

200809 3,500,193,294 1,312,272,610 2.67

4.

200910 5,975,961,025 2,020,744,952 2.96

Current AssetsCurrent ratio = -----------------------------------------

Current Liabilities


38/79

Interpr

decreas

the yea

in the y

0.

1.

2.

etation:

The standa

ed to 1.93

r 2009 and

ear 2008.

200

2.

d norm fo

uring the

it has incre

o the ratio

607

2

Gr

current rat

ear 2007 a

ased to 2.9

was satisfa

200708

1.93

aph4.1.1C

io is 2:1. D

d increase

6 in the ye

ctory.

20

urrentrati

uring the y

d to 2.67 i

r 2010. T

0809

.67

ar 2006 th

2008 and

e ratio ab

200910

2.96

e ratio is 2.

t is increas

ve was sta

52 and it h

ed to 2.67 i

dard exce

s

n

t


39/79

4.1.2.Quickratio

Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities. An

asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value.

Table4.1.2QuickRatio

S.NO YearQUICKASSETS CURRENTLIABILITIES QUICKRATIO

1 200607 1,171,683,584 638,958,266 1.83

2 200708 1,708,741,955 1,181,003,846 1.45

3.200809 2,578,479,879 1,312,272,610 1.96

4. 2009104,032,625,321 2,020,744,952 1.99

Current Assets Inventories

Quick Ratio = _______________

Current liabilities


40/79

Interpr

1.83 fr

year 2

standar

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

tation:

he standar

m 2.45. T

09 and th

norm so t

200607

norm for

hen, it dec

n it increa

he ratio wa

2007

Gr

the quick

eased to 1.

sed to 1.9

s satisfacto

8 20

ph4.1.2

Q

atio is 1:1.

45 in the y

in the ye

y.

0809

ickRatio

Quick rati

ear 2008.

r 2010.

200910

o is decrea

nd it has

However t

sed in the

increased t

he ratio w

ear 2007

1.96 in t

s above t

o

e

e


41/79

4.1.3.

S.

3

Interpr

I

quick

Market

ashratio

O

.

.

tation:

all the ab

atio is 1:

ble Securi

: The ratio

Year

200607

200708

200809

200910

ove years t

the com

ies.

0

0.05

0.1

0.15

0.2

0.25

0.3

Cash

between c

Tabl

CAS

BA

169,121,

205,212,

256,000,

511,453,

Gr

he absolute

any is fai

200607

Ca

atio = __

C

sh plus ma

e4.1.3Cash

&BANK

ANCES

827

363

280

739

ph4.1.3Ca

quick rati

ed in kee

200708

h & Bank

_ _______

rrent liabilit

rketable se

Ratio

C

LIA

638,95

1,181,00

1,312,27

2,020,74

shRatio

is very lo

ing suffic

200809

alances

____

ies

urities and

RRENT

BILITIES

8,266

3,846

,610

,952

. The sta

ent Cash

200910

current lia

CA

dard norm

& Bank

ilities.

H RATIO

0.26

0.17

0.20

.25

for absolu

alances a

e

d


42/79

4 1 4

liabiliti

Interpr

2007.

to 0.61i

NET WOR

es excludin

S.NO

1

2

3

4

tation:

Net

rom that

n 2010 but

Net w

RKING CA

g short-ter

Ta

Year

200607

200708

200809

200910

Working

ear the rati

condition

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

rking capi

APITAL RA

bank borr

ble4.1.4Ne

NETWO

CAPI 973,6

1,099,7

2,187,9

3,955,21

Graph4.1.

apital ratio

o increased

f business

200607

al ratio =

ATIO

: The

owing is ca

tworkingc

RKING

AL4,231

0,330

0,684

,073 6,5

Networki

is 0.45 in

to 0.50 in

orking ca

200708

____

Ne

difference

lled net wo

pitalratio

,935,207,7

,191,397,0

,817,892,8

01,134,460

gcapitalra

006 but in

2008 and f

ital is not

200809

Net worki

________

t assets

etween cu

rking capit

NE

CAP14

06

62

0

io

reased to

llowed in

hortage.

200910

g capital

__

rrent asset

l or net cu

WORKING

ITALRATI0.50

0.50

0.57

.61

.50 in the

009 also a

and curre

rent assets.

ext year i.e

nd increase

t

.

.,

d


43/79

4.2LEVERAGERATIOS

4.2.1DebtRatio

If the firm may be Interested in knowing the proportion of the interest bearing debt

in the capital structure.

Table4.2.1Debtratio

S.No Year

TOTAL DEBT

TOTAL

DEBT + NET

WORTH

DEBT RATIO

1.200607 233,058,880 2,039,907,551 0.11

2.200708 378,672,427 2,391,525,347 0.16

3.200809 1,407,083,880 3,843,741,557 0.37

4.

200910 3,162,620,560 3,493,635,030 1.10

Total Debt

Debt ratio = -----------------------------------------

Total Debt + Net Worth


44/79

Interpr

T

year 2

increas

conclu

collecti

etation:

is ratio gi

06 it incr

d to 0.37

e that the

on of debt.

0.

0.

0.

0.

1.

es results

ased to 0.

& 1.10 in

company

0

2

4

6

8

1

2

20060

0.11

Gr

relating to

11 & 0.16

he year 20

s depende

7 2007

0.16

ph4.2.1D

the capital

in the co

09& 2010.

ce on de

8 2008

0.3

btratio

structure o

responding

From the

t is increa

09 2009

1.

f a firm. D

years 200

above in fl

sing. It is

10

ebt ratio is

7 & 2008.

uctuating t

not better

0.08 in t

Again it

rend we ca

position i

e

s

n

n


45/79

4.2.2Debtequityratio

Debt equity ratio indicates the relationship describing the lenders contribution for each

rupee of the owners contribution is called debt- equity ratio. Debt equity ratio is computed bydividing Long term Liabilities divided by Equity. Lower debt equity ratio higher the degree of

protection. A debt-equity ratio of 2:1 is considered ideal.

Table4.2.2Debtequityratio

S.No Year

TOTALDEBTNETWORTH D.E.RATIO

1.2006

07

233,058,880

1,806,848,671

0.13

2.200708 378,672,427 2,012,852,920 0.19

3.200809 1,407,083,880 2,436,657,677 0.58

4.

200910 3,162,620,560 3,331,014,470 0.95

LONG TERM LIABILITIES

Debt equity ratio = -----------------------------------------

EQUITY


46/79

Interpr

Th

theyea

therati

fundis

etation:

eratiogiv

r2006

and

ohasincre

increasing.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

sresultsr

itincrease

asedto0.5

200607

0.13

Graph

latingtot

to

0.13

&

8&0.95.

2007

0.1

4.2.2Debt

ecapitals

0.19in

the

ecancon

08

9

equityrati

tructureof

year2007

cludethat

00809

0.58

afirm.De

and2008.

I

hecompa

200910

0.95

tequityra

nthe

year

ydepends

tiois0.09i

009&

201

onthede

n

0

t


47/79

4.2.3I

covere

S.N

1

2

3

4

Interpr

94.76 i

year 20

interest

4.2.4T

TERESTC

by funds t

Y

20

20

20

20

tation: Int

the year 2

09 and it

ed to inves

TALLIABI

I

VERAGE

hat are ordi

ar

E

607

708

809

910

1

erest cover

007. But, i

gain decre

the mone

ITIESRATI

nterest cov

ATIO: The

narily avail

Table4

IT

137,259,58

386,899,73

742,908,74

,588,690,2

Graph

age ratio i

is decreas

ased to 12.

in this co

O

0

20

40

60

80

100

2006

erage ratio

ratio show

able for th

.2.3Interest

INTER

3

8 1

1 3

99 12

4.2.3Inter

07.56 in t

d to 28.80

9 in the

pany.

7 200708

= __

the numb

ir payment

coverager

ST

,448,427

,435,515

,924,293

9,308,874

stCoverag

he year 20

in the year

ear 2010.

200809

________

In

r of times

.

tio

I.C.RAT

ratio

6. It is inc

2008 and d

n this posi

00910

BIT

_________

erest

the interes

IO

94.76

28.80

24.02

12.29

reased aut

ecreased to

ion outsid

charges a

matically

24.02 in t

investors

e

o

e

s


48/79

T

S.N

1

2

3

4

Interpr

total lia

2009 &

Form

otal liabilit

talAsset

2

2

2

2

tation: In

bilities inc

2010.

la: Total

Tot

ies: Curre

: Fixed

Table

Year

0607

07

08

0809

0910

he years, 2

eased to 0.

0

0.1

0.2

0.3

0.4

0.5

0.6

Liabilities

al Assets

t liabilities

assets+I

4.2.4:Total

TOTA

LIABILIT

872,017

1,559,676

2,719,356

5,183,,36

Graph4.

200607 200

006 & 200

and the ra

4.3 ACT

+ Secured

Loans.

vestment

Liabilitiesr

IEST

,146 2,

,273 3,

,490 5,

,512 8,

.4:TotalLi

08 200809

the total li

tio increas

IVITY

& Unsecur

s+Curren

tio

TALASSET

09,793,13

92,541,50

92,107,12

83,886,03

bilitiesrati

200910

abilities is

d to 0.5 &

ATIOS

d

tassets

ST.L.RA

0.2&0.3 bu

0.6 in the c

IO

0.3

0.4

0.5

0.6

t in the yea

orrespondi

2008 the

g years of


49/79

4.3.1Inventoryturnoverratio

It indicates the firm efficiency of the firm in producing and selling its product. It is calculated

by dividing the cost of goods sold by the average inventory.

Cost of goods sold = Raw materials consumed +payments &benefits to employees +mfr, selling

&admin expenses +duties & taxes

Table4.3.1: Inventoryturnoverratio

S.NO Year

COSTOFGOODS

SOLDAVGINVENTORY I.T.RATIO

1

200607

2,228,549,828

374,102,223

5.96

2 200708 3,499,805,230 506,460,567 6.91

O

3200809 5,324,665,192 746,837,818 7.13

4200910 9,782,463,974 1,432,524,559 6.83

Cost of goods sold

Inventory turnover ratio =_____________________

Avera e inventor


50/79

Interpr

year 20

2009.

year th

tation:

nventory t

07. Then, i

ut, it is dec

t is compa

0

1

2

3

4

5

6

7

8

20

rnover rati

t is increas

reased to

y producti

607

Graph4.3

o is 5.57 t

ed to 6.91

.83 in the

on is also i

200708

.1: Inventor

mes in the

in the yea

ear 2010.

creased. S

20080

yturnoverr

year 2006.

2008 and

Inventory t

bsequentl

9 20

atio

But, it is i

again incre

rn over ra

sales are a

0910

ncreased t

ased to 7.1

io increase

lso increas

o 5.96 in t

3 in the ye

for year b

d.

e

r

y


51/79

4.3.2

Debtor

Sales =

Interpr

times i

&7.25

ebtorst

s turnover

Gross Sale

S.NO

1

2

3

4

tation: D

the year 2

imes in the

Debtors

rnoverr

ndicates th

s

Year

200607

200708

200809

200910

ebtors tur

007 and in

years 200

0

1

23

4

5

6

7

8

turnover

tio: It is f

e number o

Table4.3.

SAL

2,685,4

4,458,2

7,451,0

13,499,8

Graph4.3

over ratio

reased to

&2010.

200607

atio =

und out b

f times deb

:Debtorst

S

6,096

5,779

2,998

7,499

.2:Debtors

s 4.31 tim

.92 times i

200708

_______

Ave

dividing t

tors turno

rnoverrati

AVERAGE

DEBTORS

560,689,8

753,113,3

,158,032,7

,862,113,4

urnoverrat

s in the ye

the year

200809

ales

________

rage Debto

e credit sa

er each ye

D

81

38

67

98

io

r 2006 an

008 and it

200910

rs

es by aver

r.

.T.RATIO

4.79

5.92

6.43

7.25

it is incre

increased t

ge debtors.

sed to 4.7

6.43 tim

.

9

s


52/79

4.3.3Fixedassetturnoverratio

The ratio is supposed to measure the efficiency with which fixed assets are employed a high ratio

indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets.

However, in interpreting this ratio, one caution should be borne in mind. When the fixed assets of the

firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high because the

denominator of the ratio is very low.

Sales = Gross Sales

Netfixedassets: Netblock

Table4.3.3:Fixedassetturnoverratio

S.NO Year

SALESNETFIXED

ASSETSF.A.T.RATIO

1 2006072,685,436,096 948,631,374 2.83

2200708

4,458,295,779 1,043,547,559 4.27

3200809

7,451,032,998 1,568,304,581 4.75

4 20091013,499,867,499 1,888,508,475 7.15

Net Sales

Fixed Asset Turnover Ratio = __________

Net Fixed Asset


53/79

Interpr

Fixed a

the yea

tation:

ssets turn o

2008 the r

0

1

2

3

4

5

6

7

8

20062007

ver ratio is

atio is 4.27

Graph

4.3.

200708

2.01 in the

and it cont

3:

Fixed

ass

200809

year 2006

inued up to

t

turnover

200910

nd it is inc

4.75 and t

ratio

reased to 2

7.15 in th

.83 in the

e years 200

ear 2007. I

9&2010.

n


54/79

4.3.4

Interpr

year 20

2.26 i

increas

urrentas

S.NO

1

2

3

4

tation:

Current a

07. But, in

the year

ng.

0.

1.

2.

Curre

setturno

Year

200607

200708

200809

200910

Gr

ssets turno

the year 2

2010. Fr

0

5

1

5

2

5

2006

t asset tur

erratio

Table4.3.

SAL

2,685,436

4,458,2

7,451,03

13,499,8

ph4.3.4Cu

er ratio is

08 the rati

m above

7 2007

nover ratio

: Currenta

SC

AS

,096 1,6

5,779 2,2

2,998 3,5

7,499 5,9

rrentassets

1.68 in th

is increas

we can c

08 200

= _C

setturnove

URRENT

SETS

12,642,497

80,704,176

00,193,294

75,961,025

turnoverra

e year 200

ed to 1.95

nclude tha

09 200

Sales

_________rrent asset

rratio

C.A.

tio

and it is

nd it conti

t current

910

_____

. RATIO

1.67

1.95

2.12

2.26

ecreased t

nuously in

ssets turn

1.67 in t

reased up

ver ratio

e

o

s


55/79

4.3.5

test of

require

Total a

Interpr

Tot

to 1.55

otalasse

This rat

anagerial

in the inter

sets: Fixe

S.NO

1

2

3

4

tation:

l assets ra

in the year

Total

sturnov

o ensures

efficiency a

st of the co

assets +

Year

200607

200708

200809

200910

Graph

io is 0.83 i

2010.It me

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

200

asset turn

rratio

hether the c

nd business

pany.

urrent asse

Table

4.3

SAL

2,685,4

4,458,2

7,451,0

13,499,8

4.3.5:Total

n the year

ns Total

607 2

ver ratio =

apital empl

performan

s + Invest

.5:Total

ass

S

6,096

5,779

2,998

7,499

assetsturn

006 and it

ssets is inc

0708

___

C

yed has be

e. Higher

ents

etturnover

OTALASSE

,809,793,1

,692,541,5

,292,107,1

,683,886,0

verratio

gradually i

eased in e

00809

Sales

________

a ital em l

n effectivel

otal capital

ratio

TS T.

32

08

28

37

ncreased y

ery year.

200910

___

ed

used or no

turnover ra

.T.RATIO

0.96

1.21

1.41

1.55

ear by year

t. This is al

tio is alwa

and reache

o

s

d


56/79

4.3.6

capital

This ra

S.N

1

2

3

4

Interpr

Wo

2007. I

higher

4.3.7

orkingca

A firm m

turnover in

io indicate

Y

20

20

20

20

tation:

rking capit

the year 2

he workin

etasset

pitalturn

y also like

icates for

whether o

T

ar

607

708

809

9101

l turnover

008 increa

capital tur

urnoverr

orking ca

overrati

to relate ne

ne rupee o

r not worki

ble4.3.6:

SALES

,685,436,0

,458,295,7

,451,032,9

3,499,867,

raph4.3.6:

ratio is 2.4

ed to 4.05

nover the

atio

0

1

2

3

4

5

2006

pital turno

t current as

f sales the

g capital

orkingcapi

NET

96 9

9 1,0

98 2,1

99 3,9

Working

c

1 in the ye

. Again it

ore favora

7 200708

er ratio

sets or net

ompany n

as been eff

talturnove

CURREN

SSETS3,684,231

99,700,330

87,920,684

55,216,073

pitalturnov

r 2006 an

ecreased t

le for the

200809

________

Worki

orking ca

eds how m

ectively uti

ratio

T

erratio

it is incre

3.41 in th

ompany.

00910

ales

________

g capital

ital to sale

any net cur

lized mark

.C.T. RA

2.76

4.05

3.41

3.41

ased to 2.7

year 2009

___

s. Working

rent assets.

t sales.

TIO

6 in the ye

&2010. T

r

e


57/79

Net As

S.N

1

2

3

4

Interpr

2007 a

slightly

4.3.8

ets: Net F

2

2

2

2

tation:

Net Ass

d it is incr

in

apitaltur

xed Assets

Year

0607

0708

0809

0910

ts turnove

ased to 2.

reased

noverrat

0

0.5

1

1.5

2

2.5

Net Asse

+ Net Cur

Table4.3.

SALE

2,685,436

4,458,295

7,451,032

13,499,86

Graph4.

20062007

ratio is 1.

3 in the ye

to

o

t Turnover

ent Assets

7: Netasse

NE

,096 1,

,779 2,

,998

3,

,499 6,

.7: Netas

200708

1 in the ye

r 2008. A

2.08

Ratio =

tturnoverr

ASSETS

35,207,71

91,397,00

17,892,86

01,134,46

etturnover

200809

ar 2006 an

d, it decre

in

Sale

________

tio

1.39

2.03

1.95

2.08

ratio

200910

it is incre

sed to 1.9

the

__

N.A.T.RAT

ased to 1.3

in the yea

year

IO

9 in the ye

2009 and

201

r

it

.


58/79

S.N

1

2

3

4

Interpr

2007 a

. Then,

4.3.9

The ra

Y

20

20

20

20

tation:Cap

d it is incr

it increase

reditors

io obtains

ear

607

708

809

9101

tal turnove

ased to 1.

to 2.03 in

urnover

0

0.5

1

1.5

2

2.5

apital tur

y dividing

Table4.

SALES

,685,436,0

,458,295,7

,451,032,9

3,499,867,

Graph4.3.

r ratio is 0

8 in the ye

the year 20

atio

200607

over ratio

sales with

3.8: capital

CAPI

96 2,1

79

2,5

98 3,9

99 6,6

:capitaltur

.98 in the

r 2008 an

10.

200708

= __

he capital

turnoverra

ALEMPLO

70,834,86

11,537,66

79,834,51

63,141,08

noverratio

ear 2006 a

again it is

200809

________

Capital

mployed.

io

ED

nd it is inc

increased t

200910

ales

________

Employed

C.T.RAT

1.24

1.78

1.87

2.03

eased 1.24

o 1.87 in t

IO

in the ye

e year 200

r

9


59/79

The r

S.N

1

2

3

4

Interpr

and it

2009 b

tio obtain

Y

20

20

20

20

tation:

Credito

s suddenly

t increased

d by dividi

ar

607 1,

708

809 4,

9108,

rs turnove

decreased

in the nex

0

2

4

6

8

10

12

2

reditors t

ng the ann

able4.3.9:

PURCHASE

22,358,58

,244,170,1

86,818,72

25,662,26

Graph4.3.9

r ratio is 6.

to 5.1 in t

year 2010

4.4

00607

urnover ra

al credit p

reditorstu

SC

5 19

72 44

1 59

5 7,

:Creditorst

1 in the ye

e year 200

to 11.47.

ROFITAB

200708

io = ____

rchases wi

noverratio

VERAGE

EDITORS

2,242,196

1,904,975

1,059,052

81,427,12

urnoverrati

r 2006. It i

and it sud

ILITYRATI

200809

________

Avge.

h average

o

s increased

denly incr

OS

200910

urchases

_______

reditors

ccounts pa

C.T.RATI

7.4

5.1

6.9

11.47

to 7.4 in t

ased to 6.

yable.

O

e year 200

in the ye

7

r


60/79

4.4.1Grossprofitratio

This ratio shows that the margin left after meeting manufacturing costs. It measures the

efficiency of production as well as pricing.

Gross profit= Net sales-Cost of goods sold

Cost of goods sold= Opening stock+ material consumed+ mfg .exp- closing stock

Table4.4.1:Grossprofitratio

S.NO YearGROSSPROFIT SALES G.P.RATIO(%)

1 200607 456,886,268 2,685,436,096 17

2 200708 958,490,549 4,458,295,779 21.5

3 2008092,126,367,806 7,451,032,998 28.5

4

2009

10

3,717,403,516 13,499,867,499 27.5

Gross profit

Gross profit margin Ratio = ____________ X100

Net sales


61/79

Interpr

F

to 17

decreas

activiti

tation:

rom the ab

&21.5%

ed to 27.5

s.

1

1

2

2

3

ove we can

in 2007&

% in the

atio

2006

Graph

say that gr

2008 and a

ear 2010.

07

4.4.1:Gros

oss profit r

gain it inc

The com

00708

profitratio

atio is 16.2

eased to 2

any is ma

200809

% in the ye

8.5% in t

intaining p

2009

ar 2006 bu

e year 20

roper cont

10

it increase

9 and it

ol on tra

d

s

e


62/79

4.4.2

conditi

face fall

Interpr

During

becaus

5.3 in t

4.4.3

Netprofi

ns. A firm

ing selling p

S.NO

1

2

3

4

tation:

the year 2

of decreas

e year 200

perating

tratio:T

ith a high

rices, rising

Ye

2006

2007

2008

2009

06 the net

ed in admi

8 and it ag

expenses

8

6

4

2

0

2

4

6

8

20

Net pr

his ratio als

net margin

costs of pro

Ta

r

07

08

09

10

Graph4.

profit mar

istration a

in increase

ratio

607 2007

fit ratio=

indicates t

ratio would

duction or d

ble4.4.2:N

PROFITAF

TAX

86,900,5

238,465,7

470,434,5

9,436,315,

.2:Netpro

in is 0.7 it

d selling e

d to 6.3 in

08 200809

Net pr

______

Net sal

e firm's ca

be in an ad

eclining de

tprofitrati

ER

63

2,6

30 4,4

75 7,4

11 13,

itratio

suddenly i

xpenses. In

009 and to

200910

fit

__ X I00

es

acity to wit

vantageous

and for the

SALES

85,436,096

58,295,779

51,032,99

99,867,49

ncreased t

the next y

6.99 in the

stand adve

position to

product.

NET

MAR

6

3.2% in t

ar, it again

year 2010.

rse econom

urvive in t

PROFIT

GIN(%)

.2

.3

.3

.99

e year 200

increased

c

e

7

o


63/79

The Operating expenses ratio explains the changes in the profit margin ratio. A higher operating

expense is unfavorable since it will leave a small amount of operating income to meet interest, dividends.

Operating expenses X 100Operating expenses ratio= __________________

Sales

Operating expenses =Admin expenses+ Selling expenses

Table4.4.3: Operatingexpensesratio

S.NO YearOPERATING

EXPENSESSALES O.E.RATIO

I

1200607 376,620,609 2,685,436,096 14.02

2 200708 550,626,756 4,458,295,779 12.35

3 200809 767,790,197 7,451,032,998 10.30

4

200910

1,388,735,777 13,499,867,499 10.30

Graph

4.4.3:Operating

expenses

ratio


64/79

Interpretation:

Operating expenses ratio is 17.86%of sales in the year 2006 it decreased to 14.02% in

the year 2007 and decreased in 2008 to12.35% and again it decreased in the next year 2009 to

10.30% and continued the same way. Then, it reached 10.30% in the year 2010.

4.4.4ReturnonInvestment

The conventional approach of calculated ROI is to divide PAT by investment.

EBIT


65/79

Table4.4.4:Returnoninvestment

S.NO YearEBIT

CAPITAL

EMPLOYEDR.O.I.RATIO

1 200607 137,259,583 2,170,834,866 0.06

2 200708 386,899,738 2,511,537,662 0.15

3 200809 742,908,741 3,979,834,518 0.19

4 200910 1,588,690,299 6,663,141,085 0.24

Graph4.4.4: ReturnonInvestment

0

0.05

0.1

0.15

0.2

0.25

200607 200708 200809 200910

Interpretation:

Return on Investment is very low in all years. But, in the year 2006, it reached to

6.51 due to less earnings.

4.4.6Returnonequityshareholdersfund

The return on equity share holders fund explains about the return of share holders with they

get on their investment.


66/79

Table4.4.6:Returnonequityshareholder'sfund

S.NO Year PROFITAFTER

TAXNETWORTH R.O.E.RATIO(%)

1 200607 86,900,563 1,806,848,671 4.8

2 200708 238,465,730 2,012,852,920 11.8

3 200809 470,434,575 2,436,657,677 19.3

4

200910

943,631,511

3,331,014,470

28.33

Graph4.4.7:Returnonequityshareholder'sfund

Net profit

Return on equity share holders fund= _________________

Equity share holders fund

0

5

10

15

20

25

30

200607 200708 200809 200910

Interpretation:

Return on equity in the year 2006 is 0.8 and it increased suddenly to 4.8 in the year 2007

and again it increased to 11.8 in the year 2008. Return on Equity of the company is at

satisfactory level and then it increased to 19.3 in 2009 and again increased to 28.33 in 2010 .


67/79

CHAPTER-5

Findings

Suggestions

Conclusion


68/79

Page 68

FINDINGS

Except in the year 2008, the company is maintaining current ratio as 2 and more, standard

which indicates the ability of the firm to meet its current obligations is more. It shows

that the company is strong in working funds management.

The company is maintaining of quick assets more than quick ratio. As the company

having high value of quick ratio. Quick assets would meet all its quick liabilities with out

any difficulty.

The company is failed in keeping sufficient cash & bank balances and marketable

securities.

In above all current assets and liabilities ratios are better that also it is double the

normal position. Observe the absolute & super quick ratio the company cash

performance is down position.

In the year 2006 debt equity ratio is 0.08 (8%) but it is increased to 0.11 (11%) &

0.16(16%) in 2007 and 2008 increased every year. It shows that the company is losing

its condition.

Net working capital ratio is 0.45 in 2006 but also 0.50 in 2007. It is increased very highbut condition of business working capital is not shortage .

Debt Equity ratio is increasing every year. It indicates the company depends on the debt

fund increasing.

Total liabilities ratio is also increasing year by year.

In the year 2006, the interest coverage ratio 7.56 which increased to 94.76 in the year

2007 and high fluctuations in the followed years. In this position, outside investors are

interested to invest their money in this company.

The company is declining of its coverage ratio to serve long term debts.

Inventory turnover also increased for year by year that is company production is also

increased. Subsequently sales are also increased.

The net profit ratio of the company increasing over the study period. Hence the

organization having the good control over the operating expenses.


69/79

Page 69

SUGGESTIONS

The company has to increase the profit maximization and has to decrease the operating

expenses.

By considering the profit maximization in the company the earning per share, investment

and working capital also increases. Hence, the outsiders are also interested to invest.

The company should maintain sufficient cash and bank balances; they should invest the

idle cash in marketable securities or short term investments in shares, debentures, bonds

and other securities.

The company must reduce its debtors collection period from 83 & 84 days to 40 days be

adopting credit policy by providing discounts to the debtors.

Return on investment is fluctuates every year. The company has to make efforts in

increasing return on investments by reducing its administration, selling and other

expenses.

The company should increase its interest coverage ratio to serve long term debts.

The net profit of the company is increasing over the study period. Hence the organization

maintaining good control on all trees of expenses.

The dividend per share has observed as raising trend over the study period, hence it may

be suggested Amara Raja Batteries Limited should take key interest to maximize the

share holder wealth by increasing dividend pay out.


70/79

Page 70

Conclusion

Liquidity ratios, both current ratio and quick ratio are showing effectiveness inliquidity as in all the years current ratio is greater than the standard 2:1 and quick ratio is

greater than the standard 1:1 ratio.

The firm is maintaining a low cash balance and marketable securities which means theydone cash payments.

Debt equity ratio, solvency ratio and interest coverage ratio are showing an averageincrease in the long term solvency of the firm.

The proprietary ratio is showing an average inc

A Study on Ratio Analysis at Amararaja b (1)

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