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IF: 2.462 SIT Journal of Management
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Financial Statement Analysis and Its Impact on Financial Performance in A Corporate Company of India – An Empirical Analysis
Arup Kumar Bose*
ABSTRACT:
The aim of this research paper is to analyze the liquidity and profitability position of the company using
the financial tools. This study based on financial statements such as Ratio Analysis, Comparative balance
sheet. By using these tools combined it enables to determine in an effective manner. The study is made
to evaluate the financial position, the operational results as well as financial progress of a business
concern. This study explains ways in which ratio analysis can be of assistance in long-run planning,
budgeting and asset management to strengthen financial performance and help avoid financial
difficulties. The study not only throws on the financial position of a firm but also serves as a stepping
stone to remedial measures for Emami Limited. This project helps to identify and give suggestion the
area of weaker position of business transaction in “EMAMI LTD”.
Keywords: Financial statement Analysis, Ratio Analysis, Study of balance Sheet, Asset management
*Arup Kumar Bose; Assistant Professor; Department of Business Administration; Siliguri
Institute of Technology; Email id: [email protected]; M: +91-(0)9733065361.
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Introduction
Financial Management is that managerial activity which is concerned with the planning and
controlling of the firm’s financial resources. Though it was a branch of economics till 1890 as a
separate or discipline it is of recent origin.
Financial Management is concerned with the duties of the finance manager in a business firm.
He performs such varied tasks as budgeting, financial forecasting, cash management, credit
administration, investment analysis and funds procurement. The recent trend towards
globalization of business activity has created new demands and opportunities in managerial
finance.
The basic financial statement of the various reports that the companies issue to their shareholder,
the annual report is by far the most important. Two types of information are given in this report,
first there is a text that describes the firms operating results during the past year and discusses
new development that will affect future operations. Second there are few basic financial
statements such as the income statement, the balance sheet, the statement of retained earnings
and the sources and uses of funds statement. The financial statement taken together give an
accounting picture of the firm’s operation and financial positions. The following statements
were given by various researchers.“Financial statement analysis is largely a study of relationship
among the various financial factors in a business as disclosed by a single set of statements, and a
study of trends of these factors as shown in a series of statements”--- John N. Myer. “The
analysis and interpretation of financial statement are an attempt to determine the significance and
meaning of the financial statement data so that the forecast may be made of the prospects for
future earnings, ability to pay interest and debt maturities (both current & long term) and
profitability of a sound dividend policy”--- R.D. and Mc Muller. Thus, analysis of financial
statement means such a treatment of the information contained in the financial statement as to
afford a full diagnosis of the profitability and financial position of the firm concerned. Financial
statements are prepared and presented for the external users of accounting information. As these
statements are used by investors and financial analysts to examine the firm’s performance in
order to make investment decisions, they should be prepared very carefully and contain as much
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investment decisions, they should be prepared very carefully and contain as much information as
possible. Preparation of the financial statement is the responsibility of top management. The
financial statements are generally prepared from the accounting records maintained by the firm.
Analysis of Financial performances are of greater assistance in locating the weak spots at the
Emami limited even though the overall performance may be satisfactory. This further helps in
Financial forecasting and planning.
Communicate the strength and financial standing of the Emami Limited.
For effective control of business.
Ratio Analysis:
Ratio analysis is a widely-use tool of financial analysis. It can be used to compare the risk and return
relationships of firms of different sizes. It is defined as the systematic use of ratio to interpret the financial
statements so that the strengths and weakness of a firm as well as its historical performance and current
financial condition can be determined. The term ratio refers to the numerical or quantitative relationship
between two items and variables. These ratios are expressed as (i) percentages, (ii) fraction and (iii)
proportion of numbers
Tips to improve the financial health.
Spend less money, or save more money or do both. If the annual income does nothing more than
remain constant, your financial condition will improve.The above statement may sound come
across as flippant, but it’s a fact of life, regardless. Needless to say we all have different
personalities and different responses to needs and desires in life. .
Steps to Improve Financial Performance
Given the challenges facing physicians, successful practices must take proactive steps to combat
negative trends and improve their overall financial performance.
To improve practice operations, processes can be streamlined to reduce costs; productivity
improvements can be implemented by physicians and employees to increase revenue; a reporting
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structure can be created that allows for better decision making by physicians and employees; and
a rewards system can be implemented to recognize hard-working employees.
To determine how you can improve your medical practice's performance, consider the following
management procedures.
1) Internal Cost Reduction Strategies
Cost reduction strategies focus on reducing the internal costs generated by medical services
provided to the marketplace.
2) External Cost Reduction Strategies
These strategies include the cost of services purchased from outside consultants or vendors.
3) Asset and Credit Management Strategies
These strategies ensure that you are getting the most value from the resources invested in your
practice.
4) Personnel Resources
When managed properly, personnel costs and productivity can have a substantial impact on
practice profitability.
5) Management Reporting
The use of timely, relevant, properly formatted reports to manage your practice cannot be
overstated. This is a crucial link between setting financial and operational goals and managing
the practice to achieve them.
Research Objectives:
Primary Objective:
To evaluate the financial efficiency of “EMAMI LIMITED”.
Secondary Objectives: i. To analyze the liquidity solvency position of the firm.
ii. To study the working capital management of the company.
iii. To understand the profitability position of the firm.
iv. To assess the factors influencing the financial performance of the organization.
v. To understand the overall financial position of the company.
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Research Methodology:
Methodology:
The project evaluates the financial performance one of the company with help of the most appropriate
tool of financial analysis like ratio analysis and comparative balance sheet. Hence, it is essentially fact
finding study.
Primary Data:
Primary data is the first hand information that is collected during the period of research. Primary data
has been collected through discussions held with the staffs in the accounts department. Some types of
information were gathered through oral conversations with the cashier, taxation officer etc.
Secondary Data:
Secondary data studies whole company records and company’s balance sheet in which the project work
has been done. In addition, a number of reference books, journals and reports were also used to
formulate the theoretical model for the study. And some information were also drawn from the
websites.
Tools used in analysis:
Ratio analysis
Period of study:
The study covers the period of 2001-2002 to 2005-2006 in Emami Limited.
Data Analysis and Interpretation:
Financial Performance Evaluation Using Ratio Analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “The Indicated Quotient of
Two Mathematical Expressions” and as “The Relationship between Two or More Things”. In financial
analysis, a ratio is used as a benchmark for evaluating the financial position and performance of firm. The
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absolute accounting figures reported in the financial statement do not provide a meaningful understanding
of the performance and financial position of a firm. The relationship between two accounting figures,
expressed mathematically is known as a financial ratio. Ratios help to summaries large quantities of
financial data and to make qualitative about the firm’s financial performance. The point to note is that a
ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all
financial ratios.
Significance of Using Ratios:
The significance of a ratio can only truly be appreciated when:
1. It is compared with other ratios in the same set of financial statements.
2. It is compared with the same ratio in previous financial statements (trend analysis).
3. It is compared with a standard of performance (industry average). Such a standard may be
4. either the ratio which represents the typical performance of the trade or industry, or the ratio
5. which represents the target set by management as desirable for the business.
Balance Sheets of EMAMI LTD as on 31st March W.E.F 2001 – 2006
Particulars
31st March 2001 Rs. in lakhs
31st March 2002 Rs. in lakhs
31st March
2003 Rs. in lakhs
31st March
2004 Rs. in lakhs
31st March
2005 Rs. in lakhs
31st March
2006 Rs. in lakhs
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Current Ratio
The Current Ratio expresses the relationship between the firm’s current assets and its current
liabilities. Current assets normally include cash, marketable securities, accounts receivable and
inventories. Current liabilities consist of accounts payable, short term notes payable, short-term
loans, current maturities of long term debt, accrued income taxes and other accrued expenses
(wages).
Current assets Current Ratio = _______________
Current liabilities
Fixed Assets (A) 27150 25169.20 23599.92 23293.33 21863.99 20245.48
Investment ( B ) 214 806.11 812.09 690.78 5391.05 8709.80
Current Assets : Inventories Sundry Debtors Cash and Bank Balance Loans and Advances
4426 4151 93 2331
3038.38 4211.03 130.54 2576.86
3977.63 3100.98
141.15 1606.03
3097.26 4405.70
46.11 2177.66
3674.58 3524.79
34.43 2650.84
3662.46 3667.52
82.12 4537.37
Total current Assets (C)
11001 9956.81 8825.79 9726.73 9884.64 11949.47
Total Assets ( A+B+C ) 38365 35932.12 33237.8 33710.84 37139.68 40904.75
Shareholders Funds : Share Capital Reserves and Surplus Deferred Tax
812 27924 202
561.50 27091.4 262.00
561.50
27068.07 335.70
1123.00
26783.09 429.00
1223.00
30460.74 480.00
1223.00
32298.63 261.00
Total Shareholders Funds(A)
28938 27915.24 27965.27 28335.09 32163.74 33782.63
Loan Funds : Secured loans Unsecured loans
6769 1968
6716.08 525.31
4505.38
122.89
4104.48
117.15
3375.82
98.36
3124.08
92.59
Total Loan Funds ( B ) 8737 7241.39 4628.27 4221.63 3474.18 3216.67
Current Liabilities and Provision( C)
690
775.49
644.26 1154.12 1501.76 3905.45
Total Liabilities (A+B+C )
38365 35932.12 33237.8 33710.84 37139.68 40904.75
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Significance:
It is generally accepted that current assets should be 2 times the current liabilities. In a sound business,
a current ratio of 2:1 is considered an ideal one. If current ratio is lower than 2:1, the short term
solvency of the firm is considered doubtful and it shows that the firm is not in a position to meet its
current liabilities in times and when they are due to mature. A higher current ratio is considered to be
an indication that of the firm is liquid and can meet its short term liabilities on maturity. Higher current
ratio represents a cushion to short-term creditors, “the higher the current ratio, the greater the margin
of safety to the creditors”.
CURRENT RATIO
Year
Current Ratio
Rs. in lakhs
Current Liabilities
Rs. in lakhs
Ratio
2001 – 2002
2002 – 2003
2003 – 2004
2004 – 2005
2005 – 2006
9956.81
8825.79
9726.73
9884.64
11949.47
775.49
644.26
1154.12
1501.76
3905.45
12.83
13.69
8.43
6.56
3.06
Interpretation:
As a conventional rule, a current ratio of 2:1 is considered satisfactory. This rule is base on the
logic that in a worse situation even if the value of current assets becomes half, the firm will be
able to meet its obligation. The current ratio represents the margin of safety for creditors. The
current ratio has been decreasing year after year which shows decreasing working capital.
From the above statement the fact is depicted that the liquidity position of the Emami limited is
satisfactory because all the five years current ratio is not below the standard ratio 2:1.
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CURRENT RATIO
Quick Ratio
Measures assets that are quickly converted into cash and they are compared with current
liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g.
inventories.
The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its
short-term obligations from its “quick” assets only (i.e. it ignores stock). The quick ratio is
calculated as follows
Quick assets
Quick Ratio = ___________________
Current liabilities
Significance:
The standard liquid ratio is supposed to be 1:1 i.e., liquid assets should be equal to current
liabilities. If the ratio is higher, i.e., liquid assets are more than the current liabilities, the short
term financial position is supposed to be very sound. On the other hand, if the ratio is low, i.e.,
current liabilities are more than the liquid assets, the short term financial position of the business
shall be deemed to be unsound. When used in conjunction with current ratio, the liquid ratio
gives a better picture of the firm’s capacity to meet its short-term obligations out of short-term
assets.
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QUICK RATIO
Year
Quick Assets
Rs. in lakhs
Current Liabilities
Rs. in lakhs
Ratio
2001 – 2002
2002 – 2003
2003 – 2004
2004 – 2005
2005 – 2006
6918.43
4848.16
6629.47
6210.06
8287.01
775.49
644.26
1154.12
1501.76
3905.45
8.92
7.52
5.74
4.13
2.12
Interpretation:
As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. It is
a more rigorous and penetrating test of the liquidity position of a firm. But the liquid ratio has
been decreasing year after year which indicates a high operation of the business. From the above
statement, it is clear that the liquidity position of the Emami limited is satisfactory. Because the entire
five years liquid ratio is not below the standard ratio of 1:1.
QUICK RATIO
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Average Collection Period:
The average collection period measures the quality of debtors since it indicates the speed of their
collection.
The shorter the average collection period, the better the quality of debtors, as a short
collection period implies the prompt payment by debtors.
The average collection period should be compared against the firm’s credit terms and
policy to judge its credit and collection efficiency.
An excessively long collection period implies a very liberal and inefficient credit and
collection performance.
The delay in collection of cash impairs the firm’s liquidity. On the other hand, too low a
collection period is not necessarily favorable, rather it may indicate a very restrictive
credit and collection policy which may curtail sales and hence adversely affect profit.
365 days Average collection period = ____________________
Debtors turnover ratio
Significance:
Average collection period indicates the quality of debtors by measuring the rapidity or slowness
in the collection process. Generally, the shorter the average collection period, the better is the
quality of debtors as a short collection period implies quick payment by debtors. Similarly, a
higher collection period implies as inefficient collection performance which, in turn, adversely
affects the liquidity or short term paying capacity of a firm out of its current liabilities.
Moreover, longer the average collection period, larger is the chances of bad debts.
AVERAGE COLLECTION PERIOD
Year
Days
Debtors Turnover Ratio
Rs. in lakhs
Days
2001 – 2002
2002 – 2003
2003 – 200
2004 – 2005
2005 – 2006
360
360
360
360
360
4211.03
3100.98
4405.70
3524.79
3667.52
0.09
0.12
0.08
0.10
0.10
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Interpretation:
The shorter the collection period, the better the quality of debtors. Since a short collection
period implies the prompt payment by debtors. Here, collection period decrease from 2003-
2004 and increased slightly in the year 2005-2006. Therefore the average collection period of
Emami ltd for the five years are satisfactory.
AVERAGE COLLECTION PERIOD
Working capital turnover ratio:
This ratio shows the number of times the working capital results in sales. In other words, this
ratio indicates the efficiency or otherwise in the utilization of short term funds in making sales.
Working capital means the excess of current assets over current liabilities. In fact, in the short
run, it is the current assets and current liabilities which pay a major role. A careful handling of
the short term assets and funds will mean a reduction in the amount of capital employed, thereby
improving turnover. The following formula is used to measure this ratio:
Sales
Working capital turnover ratio = _____________________
Net Working Capital
Significance:
This ratio is used to assess the efficiency with which the working capital has been utilized in a
business. A higher working capital turnover indicates either the favorable turnover of inventories
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and receivables and/or the inadequate of net working capital accompanied by low turnover of
inventories and receivables. A low ratio signifies either the excess of net working capital or slow
turnover of inventories and receivables or both. This ratio can at best be used by making of
comparative and trend analysis for different firms in the same industry and for various periods.
WORKING CAPITAL TURNOVER RATIO
Year
Sales
Rs. in lakhs
Net Working Capital
Rs. in lakhs
Ratio
2001 – 2002
2002 – 2003
2003 – 2004
2004 – 2005
2005 – 2006
18262.60
19808.5
21612.94
21885.20
30087.56
9181.32
8181.53
8572.61
8382.88
8044.02
1.99
2.42
2.52
2.61
3.74
Interpretation:
The Working Capital Turnover Ratio is increasing year after year. It can be noted that the change is due to
the fluctuation in sales or current liabilities. These higher ratio are indicators of lower investment of
working Capital and more profit.
Thus, Working Capital Turnover ratios for the five years are satisfactory.
WORKING CAPITAL TURNOVER RATIO
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Fixed Assets Turnover Ratio:
The fixed assets turnover ratio measures the efficiency with which the firm has been using its
fixed assets to generate sales. It is calculated by dividing the firm’s sales by its net fixed assets as
follows:
Sales
Fixed Assets Turnover =________________
Net fixed assets
Significance:
This ratio gives an ideal about adequate investment or over investment or under investment in
fixed assets. As a rule, over-investment in unprofitable fixed assets should be avoided to the
possible extent. Under-investment is also equally bad affecting unfavorably the operating costs
and consequently the profit. In manufacturing concerns, the ratio is important and appropriate,
since sales are produced not only by use of working capital but also the capital invested in fixed
assets. An increase in this ratio is the indicator of efficiency in work performance and a decrease
in this ratio speaks of unwise and improper investment in fixed assets.
FIXED ASSETS TURNOVER RATIO
Year
Sales
Rs. in lakhs
Net Fixed Assets
Rs. in lakhs
Ratio
2001 – 2002
2002 – 2003
2003 – 2004
2004 – 2005
2005 – 2006
18262.60
19808.50
21612.94
21885.20
30087.56
25169.20
23599.92
23293.33
21863.99
20245.48
0.73
0.84
0.93
1.00
1.49
Interpretation:
The fixed assets turnover ratio is increasing year after year. The overall higher ratio indicates the
efficient utilization of the fixed assets.
Thus the fixed assets turnover ratio for the five years are satisfactory as such there is no under
utilization of the fixed assets.
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FIXED ASSETS TURNOVER RATIO
Proprietary Ratio:
This ratio is also known as ‘Owners fund ratio’ (or) ‘Shareholders equity ratio’ (or) ‘Equity
ratio’ (or) ‘Net worth ratio’. This ratio establishes the relationship between the proprietors’ fund
and total tangible assets. The formula for this ratio may be written as follows
Proprietors’ funds
Proprietary Ratio = _____________________
Total tangible assets
Significance:
This ratio represents the relationship of owner’s funds to total tangible assets, 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 is of importance to the creditors who can ascertain the
proportion of the shareholders’ funds in the total assets employed in the firm. A ratio below 50%
may be alarming for the creditors since they may have to lose heavily in the event of company’s
liquidation on account of heavy losses.
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PROPRIETARY RATIO
Year
Proprietors Fund
Rs. in lakhs
Total Tangible Assets
Rs. in lakhs
Ratio
2001 – 2002
2002 – 2003
2003 – 2004
2004 – 2005
2005 – 2006
27653.24
27629.57
27906.09
31683.74
33521.63
35932.12
33237.8
33710.84
37139.68
40904.75
0.77
0.83
0.83
0.85
0.82
Interpretation:
This ratio is particularly important to the creditors and it focuses on the general financial strength
of the business. A ratio of j50% will be alarming for the creditors. As such the proprietary ratio
of the five years is above 50%. Therefore it indicates relatively little danger to the creditors, etc. And
a better performance of the company.
PROPRIETARY RATIO
Profitability Ratios
Profitability is the ability of a business to earn profit over a period of time. Although the profit
figure is the starting point for any calculation of cash flow, as already pointed out, profitable
companies can still fail for a lack of cash.
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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, irrespective of social
consequences.
The ratios examined previously have tendered to measure management efficiency and risk.
A. Gross Profit Margin
Normally the gross profit has to rise proportionately with sales.
It can also be useful to compare the gross profit margin across similar businesses
although there will often be good reasons for any disparity.
Gross profit
Gross Profit Margin = ________________ *100
Sales
Significance:
The gross profit ratio helps in measuring the results of trading or manufacturing operations. It
shows the gap between revenue and expenses at a point after which an enterprise has to meet the
expenses related to the non-manufacturing activities, like marketing, administration, finance and
also taxes and appropriations.
The gross profit shows the gap between revenue and trading costs. It, therefore, indicates the
extent to which the revenue have a potential to generate a surplus. In other words, the gross
profit reveals the mark up on the sales. Gross profit ratio reveals profit earning capacity of the
business with reference to its sale. Increase in gross profit ratio will mean reduction in cost of
production or direct expenses or sale at a reasonably good price and decrease in the will mean
increased cost of production or sales at a lesser price. Higher gross profit ratio is always in the
interest of the business.
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GROSS PROFIT MARGIN
Year Gross Profit
Rs. in lakhs
Net Sales
Rs. in lakhs
Ratio
2001 – 2002
2002 – 2003
2003 – 2004
2004 – 2005
2005 – 2006
7052.87
7925.86
7904.58
9275.87
12543.85
18262.60
19808.5
21612.94
21885.20
30087.56
38.62
40.01
36.57
42.38
41.69
Interpretation:
In the year 2002, the Gross Profit Ratio was 39% but then it increased to 40%, which shows a
good profit earning capacity of the business with reference to its sales. But in the year 2004, it
decreased to 37% which may be due to increase in cost of production or due to sales at lesser
price. But thereafter, for the succeeding two years, it has increased considerably, which indicates
that the cost of production has reduced. Therefore the Gross Profit Ratio for the five years
reveals a satisfactory condition of the business.
GROSS PROFIT MARGIN
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Net Profit Margin
This is a widely used measure of performance and is comparable across companies in similar
industries. The fact that a business works on a very low margin need not cause alarm because
there are some sectors in the industry that work on a basis of high turnover and low margins, for
examples supermarkets and motorcar dealers. What is more important in any trend is the margin
and whether it compares well with similar businesses.
Earnings after interest and taxes
Net Profit Margin =______________________________ *100
Net Sales
Significance:
An objective of working net profit ratio is to determine the overall efficiency of the business.
Higher the net profit ratio, the better the business. The net profit ratio indicates the
management’s ability to earn sufficient profits on sales not only to cover all revenue operating
expenses of the business, the cost of borrowed funds and the cost of merchandising or servicing,
but also to have a sufficient margin to pay reasonable compensation to shareholders on their
contribution to the firm. A high ratio ensures adequate return to shareholders as well as to enable
a firm to with stand adverse economic conditions. A low margin has an opposite implication.
NET PROFIT MARGIN
Year
Net Profit
Rs. in lakhs
Sales
Rs. in lakhs
Ratio
2001 – 2002
2002 – 2003
2003 – 2004
2004 – 2005
2005 – 2006
2848.84
2800.13
2871.54
3752.3
5937.78
18262.60
19808.5
21612.94
21885.20
30087.56
15.60
14.14
13.29
17.15
19.74
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Interpretation:
In the year 2002 the Net Profit is 15.60%, but in the year 2002-2003 it was decreased to 14.14
and 13.29. Which may due to excessing selling and distribution expenses. But thereafter for the
succeeding years it has been increasing which indicates a better performance of the company.
Therefore the performance of the management should be appreciated. Thus an increase in the
ratio over the previous periods indicates improvement in the operational efficiency of the
business.
NET PROFIT MARGIN
Return on Total assets
This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationship
between net profits and assets. As these two terms have conceptual differences, the ratio may be
calculated taking the meaning of the terms according to the purpose and intent of analysis.
Usually, the following formula is used to determine the return on total assets ratio.
Net profit after taxes and interest * 100
Return on total assets = -------------------------------------------
Total assets
Significance:
This ratio measures the profitability of the funds invested in a firm but doe not reflect on the
profitability of the different sources of total funds. This ratio should be compared with the ratios
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of other similar companies or for the industry as a whole, to determine whether the rate of
return is attractive. This ratio provides a valid basis for inter-industry comparison.
RETURN ON TOTAL ASSETS
Interpretation:
The return on total assets ratio is increasing year after year . This increasing ratio indicates the
effective funds invested. Therefore the return on Total Assets ratio for the five years reveals a
satisfactory condition of the business.
RETURN ON TOTAL ASSETS
Year
Net Profit after Taxes and
Interest
Rs. in lakhs
Total Assets
Rs. in lakhs
Ratio
2001 – 2002
2002 – 2003
2003 – 2004
2004 – 2005
2005 – 2006
2848.84
2800.13
2871.54
3752.3
5937.78
35156.63
32593.54
32556.72
35637.92
36999.3
8.10
8.59
8.82
10.53
16.05
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Findings of the Study
1) The current ratio is above 2 in all the five years. The same level of current assets and
current liabilities may be maintained since the current assets are less profitable, when
compared to fixed assets.
2) The liquid ratio is decreasing year after year. Though the ratio is above 1 in all the five
years, it is preferable to improve upon the situation. This may be due to the fact that the
stock is major composition of current assets, which excludes liquid assets. The firm
should try to clear the stocks.
3) The cash ratio is decreasing year after year. So it shows that the cash position is not
utilized effectively and efficiently.
4) The average collection period is decreasing year after year so it shows the better is the
quality of debtors as a short collection period and implies quick payment by debtors.
5) The inventory turnover ratio from the five years indicated a good inventory policy and
efficiency of business operations of the company.
6) The working capital turnover ratio has been increasing during the five years, which indicates
that there is lowest investment of the working capital and more profit. More profit is in the
sense that there is higher ratio.
7) The proprietary ratio in all the five years is above the satisfactory level, that is, 50%. It indicates
the creditors are in a safer side and there is no pressure from them.
8) The debt to equity ratio is decreasing year after year, which indicates , the servicing of debt is
less burdensome and consequently its credit standing is not adversely affected.
9) The Net Profit for the five years has been increasing which shows that the selling and
distribution expenses are under control and there is a good operational efficiency of the
business concern.
10) Comparative balance sheet proves that the financial performance for each succeeding year is
very much satisfactory as compared with its previous year during the period of 2001-2006.
11) It can be stated that the working capital management of the company seems to be satisfactory.
But in certain years there is decrease in working capital, which is due to higher amount of
current liabilities especially, increasing in provision for dividend and taxation and creditors. The
company should try to decrease the current liabilities and provision by making timely payment.
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Suggestion and Recommendation
1. The liquidity position of the company can be utilized in a better or other effective
purpose.
2. The company can be use the credit facilities provided by the creditors.
3. The debt capital is not utilized effectively and efficiently. So the company can extend its
debt capital.
4. Efforts should be taken to increase the overall efficiency in return out of capital employed
by making used of the available resource effectively.
5. The company can increase its sources of funds to make effective research and
development system for more profits in the years to come.
Conclusion
The study is made on the topic financial performance using ratio analysis with five years data in
Emami Limited. The current and liquid ratio indicates the short term financial position of Emami
Ltd. whereas debt equity and proprietary ratios shows the long term financial position. Similarly,
activity ratios and profitability ratios are helpful in evaluating the efficiency of performance in
Emami Ltd.The financial performance of the company for the five years is analyzed and it is
proved that the company is financially sound.
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