Rajbir 12-10-10
-
Upload
sandeep-chauhan -
Category
Documents
-
view
219 -
download
0
Transcript of Rajbir 12-10-10
-
8/8/2019 Rajbir 12-10-10
1/90
RAJBIR SINGH, MBA
A
PROJECT REPORT
ON
AN EMPERICAL STUDY OF FINANCIAL
STATEMENT OF LAST FIVE FINANCIAL
YEARS OF POLYPLASTICS (INDIA) PVT. LTD
Submitted to
Kurukshetra University, Kurukshetrain partial fulfilment for the degree of
Master in Business Administration (MBA)
SESSION : 2009-11
Under supervision of: Submitted by:
MS. AARTI RAJBIR SINGHFaculty, MBA-III Sem
IBMT, Kalawad Roll No.- 1125
Univ. Roll No._____
Institute of Business Management & Technology(IBMT)(Affiliated to Kurukshetra University, Kurukshetra and Approved By AICTE)
VILLAGE : KALAWAD, THANA CHHAPAR
-
8/8/2019 Rajbir 12-10-10
2/90
RAJBIR SINGH, MBA 2
STUDENT DECLARATION
This report is the result of my management training in Polyplastic Pvt. Ltd.,
Yamuna Nagar . I hereby declare that the Project Report Title AN EMPERICAL
STUDY OF FINANCIAL STATEMENT OF LAST FIVE FINANCIAL YEARS
OF POLYPLASTICS (INDIA) PVT. LTD, submitted in the partial fulfillment of
requirement for the degree of Masters of Business Administration. This report is a
bonafide research work carried out by me. No part of this report has been submitted
for the award on any other Diploma, Degree, Fellow ship or other similar title or
prize.
The report is based on my personal opinion hence cannot be referred to for official or
legal purpose.
RAJBIR SINGH
-
8/8/2019 Rajbir 12-10-10
3/90
RAJBIR SINGH, MBA 3
ACKNOWLEDGEMENT
This project involves many helping hands first of all I would like to thank all those,
who help me in completion the project and bringing out the timely submission of the
report. First and foremost I due a profound gratitude to Ms. AARTI, Faculty for her
hard work, enthusiasm and meticulous attention to detail to every stage of this
project.
I am extremely grateful to Mr. Pardeep Kumar, HOD and other faculty members
for their whole hearted co-operation.
Above all no words can express feeling of gratitude for my guardians, parents and my
friends, who supported me all through my project report. On the whole this
achievement is entirely due to the moral support and blessing at my parents and
teachers.
RAJBIR SINGH
-
8/8/2019 Rajbir 12-10-10
4/90
RAJBIR SINGH, MBA 4
PREFACE
This project report is the result of my 6 weeks of on job summer
training internship is an integrated part of the MBA course which thestudent has to perform and its aims at providing a first hand experience of
the industry to the students. This practical experience helps the student to
view the real business world closely, which in turn widely influences
their conceptions and perceptions about the corporate world.
In order to make students competent all the students are required to
take a real time project work under summer training in the MBAcurriculum. Project work not only helps to understand but also
practicality goes on in the corporate world and correlate the theoretical
concepts better which remains undiscovered in the classrooms.
I was really fortunate for getting an opportunity to prescribe my
summer training in a reputed, well-established company like Polyplastic
Pvt. Ltd..
I had make discussion with my training guide and he assigned me the
project AN EMPERICAL STUDY OF FINANCIAL STATEMENT OF
LAST FIVE FINANCIAL YEARS OF POLYPLASTICS (INDIA) PVT.
LTD which is an integral part of Polyplastic Pvt. Ltd. and it requires a
lot of extensive study to gather the information .It provided me a great
deal of exposure and I found the practical work totally different from that
of theoretical.
-
8/8/2019 Rajbir 12-10-10
5/90
RAJBIR SINGH, MBA 5
CONTENTS
Introduction to Project
Company Profile
Literature Review
Objectives of the Study
Research Methodology
o Research Design
o Methods of Data Collection
o Tools of Analysis
o Limitations
Financial Statements
Analysis & Interpretation
o Analysis of Ratios of Polyplastics
o Comparative Statement
o Statistical Tools
Findings of the Study
Suggestions/Recommendations
Conclusion
Bibliography
Annexure
-
8/8/2019 Rajbir 12-10-10
6/90
RAJBIR SINGH, MBA 6
INTRODUCTION TO PROJECT
In order to determine whether the financial position of the company issatisfactory or the financial data are analyzed. Different methods are used for
this purpose. I have chosen one of these methods that is Ratio Analysis.
I have done my summer internship in POLYPLASTICS and my project
report is Analysis of financial statements. Primary objective of this report
is to analyze the financial position of the company which is helpful indecision making as well as help to analyze the performance of the company
in past.
Ratio Analysis is the technique of analyzing financial statements. It helps in
analyzing the financial soundness or weakness. Ratios are the quantitative
relationship between two items for the purpose of comparison. The itemswhich are present in profit and loss account and balance sheet are interrelated
and this relationship can be calculated with the help of ratios. Ratios are used
to analyze the profitability, activity or operating efficiency and solvency of
the business.
I have analyzed various key ratios of past 5 years (2005 to 2009) and make
graph of every ratio with comparison of last 5 years ratios through which we
can easily analyze that the company performance is improving every year and
future of the company is promising. I have also given financial highlights
-
8/8/2019 Rajbir 12-10-10
7/90
RAJBIR SINGH, MBA 7
that show assets, liabilities, investments, expenditure, income, provision for
tax of last five years.
For preparing this report I have gone through annual reports of company,various books, and data is also collected from companys site. I have also
identified the problems which exist in the company and have given
suggestions so that effective step can be taken by the company.
-
8/8/2019 Rajbir 12-10-10
8/90
RAJBIR SINGH, MBA 8
ABOUT - COMPANY
Polyplastics Industries (I) Pvt. Ltd. is a leading Indian Company manufacturing Automotive
components and Assemblies for OEN's. Including emblems (Electroplated, painted gold plated and
Hot stamped) automotive plastics moulded components wheel trims & wheel covers, electroplated
bigger parts (Radiator Grills, license plate Garnish, Hood strips). Decorative body side moulding,
assemblies control brackets, dash board. Component auto electrical assemblies Ash. trays, door
handles etc. The company is supported In-house design and development facilities like modern tool
room for manufacturing of moulds dies, jigs & fixtures facility is supported by loading. 3D
modelling software like
Pro Engineer
Catia
Unigraphics
"Over the last 40 years, Polyplastics has emerged into India's leading manufacturship or decorative
& other plastics parts & assemblies for atomobiles.
Company History
1967- The Company was established with a small Tool room for manufacturing machined
components.
1968- Installed 64T injection moulding machine for production of spares for telecommunication
coaxial cables.
1970- Add two injection moulding machine to increased demand of spacers.
1972- Built up facilities in Tool room to manufacture in house moulds.
1973- Diversified to manufacture telephone parts.
1975- 130T moulding machine added to produce telephone parts.
1976- Export of Co-oxial spacers started.
1977- Started work for defence & textile industry.
1982- Diversified into manufacture of automotive plasticparts.1983- Started production of automobile hot stamped emblems.
1986- Jet up in-house painting facility.
1987- Received award from all India Institute of Plastics federation for development of co-axial
spacers.
1988- Installed in house ABS electroplating facility.
1990- Added Ac control assemblies in the product line under took tool room expansion.
-
8/8/2019 Rajbir 12-10-10
9/90
RAJBIR SINGH, MBA 9
1991- Started production of Hub cops.
1992- Expanded moulding capacity by adding two more injection moulding machine 80T & 180T.
1993- Ultrasonic welding operations added in process.
1994- Production of Ash trays & door handles started.
1995- Further expansion in moulding shop with add of 300T & 80T injection moulding machines.
1996- Production of full wheel rim covers started.
1997- Company was awarded ISO-9002 certification by JUV-LERT of Germany & entered a Sakal
Riken Kogyo Co. Ltd.
1998- Enter into a technical collaboration with Zanini Auto. Group, Spain.
2000- Company was awarded QS-9000 certified by Tuv-Cert of Company.
2001- Installation of PRO-E software in our design add CNC, award Maruti Udyog Ltd.
2004- Installation of 450 Ton Injection moulding machine.
2005- Award for quality to Toyota Kirloskar Motors.
2006- Expansion of Tool room with CNC start up of Catia Design Centre new plant at Gurgaon.2007- Commissioning of Automatic Plating on Plastics accomplished TS-16949 & ISO-14001
certification.2008- Entered into technical collaboration "ZANINI AUTO GROUP, SPAIN". Silver award from
Honda Siel Cars India Ltd. certificate of appreciation from Honda Siel Cars India Ltd.2009- MS certification from Ford India Pvt. Ltd.
2008: Up-gradation of Tool Room & Installation of CNC milling machine(1900 x 855 mm bed size) in Tool Room.
2009: First Phase (Injection Molding & Painting) Completed. Production Started
in Sept,09 & Second Phase in March,10
2009: New plant in Bawal (construction started)
2010: Incorporation of New Company in Pune for manufacturing switch-gears &
control assemblies
-
8/8/2019 Rajbir 12-10-10
10/90
RAJBIR SINGH, MBA 10
ASSOCIATES
(Pencil Sailikna Hai)
K2CAD-E-M
Technology Pvt. Ltd.
It is a joint venture between "SAKE RIKEN KOGYO CO. Ltd.
Japan & Polyplastic. It manufacture Tool design, product
design of interior & exterior body parts like grills, wheel
covers.
UPEC It is a sister concern of polyplastics manufacture of plastics
moulds, dies, jigs & fixtures.
Sakae Riken Cogyo Co.
Ltd.
Major Automatic component supplier having head office in
Nagoya and Branches at Trishima sobue & Bisei in Japan and
Illnois, USA.
Zanin Auto Group,Spain
Major Automobile component supplier having head office inBarcelona, spain and branches in Franch, Brazil, Maxico &
USA.
Major Customers:-
Maruti
Suzuki
Tata GN Opel Toyota Ford Honda
Flat Suzuki Honda Tafe Mahindra
Renault
Hyundai
Hero Honda John Deere WM Export Denso
OEM's
Swaraj
Mazda
Eicher
Delphi
GM Nissan Chevrolet Daewod
Automobile
Romania's
-
8/8/2019 Rajbir 12-10-10
11/90
RAJBIR SINGH, MBA 11
AWARDS & ACHIEVEMENTS:-
Kamal Gupta (MD) receiving award from Toyota Kirloskar Motor.
Kapil Gupta (Dir) receiving vendor award from Maruti Udyog Ltd.
Import substitution award presented by AIEPI, New Delhi.
Eicher award for design & development of plastic dash board for tractors.
Recognition from general motors India for outstanding performance in quality, service,
technology and price.
Recognition from Toyota Kirlostar Motor for meeting quality targets.
In technical collaboration with Sake Kiken Kogyo Co. Ltd. Japan & Zanini Auto Group,
Spain.
-
8/8/2019 Rajbir 12-10-10
12/90
RAJBIR SINGH, MBA 12
PRODUCTS:-Exterior Products:
Electroplated & painted radiator frt grills, hood & licence plate garnishes, Outer mirror covers,
wheel rim covers, centre labs, decorative eretro ded & moulded door moldings, bright bumpes
moldings, electroplated, painted, hot stamped & gold plated emblems & monograms.
Interior Products:
Ash trays, assembly control brackets, dash board components, air vent assemblies fan surrounds,
fuse boxes door handles & windows regulators, expansion tank, oil/water separators & speedometer
gears.
Product Share:- Product Share (%) Period: April 2008 to March 2009.
37% emblems (Chrome, Gold, Stamping)
32% Wheel Cover/caps.
13% Injection moulding
Closed loop centralised material dying.
Electro plating on plastics facility.
Vacuum cover houlding
Grill Painting
Double side adhesive tape cutting.
Conveyorised drying live.
Wheel cover painting facility.
Inspection and packing.
7% Door Midg (Pvc/Plated/Houlded)
7% Electroplating components.
4% A/c bracket & assembly.
-
8/8/2019 Rajbir 12-10-10
13/90
RAJBIR SINGH, MBA 13
ORGANIZATION
Managing Director Sr. Mgr. Works Director (Technical)
Purchase
Finance
HRD
Sales
Production
Maintance
Design & Develop
Tool Room
Process Improvement
Training Marketing
-
8/8/2019 Rajbir 12-10-10
14/90
RAJBIR SINGH, MBA 14
Organization
Managing
Director
Purchase
Finance
HRD
Training
Sr. Mgr.Works
Sales
Production
Maintenance
Director
(Technical)
Design &
Development
Tool Room
Quality
Assurance
Process
Improvement
Marketing
Extrusion
Moulding
Injection
Moulding
Electro-Plating
Gold Plating
Paint/Powder
Coating
Hot Stamping
Assembly
Section
Press Shop
-
8/8/2019 Rajbir 12-10-10
15/90
RAJBIR SINGH, MBA 15
FACILITIES:-
Design:- Tool design, Rapid Prototypes, Drawings, mould flow.
Tool Manufacturing:- (NC, Wirecut, Polishing)
Process:- Injection Moulding, Extrusion Moulding sheet Metal.Decoration:- Automatic electroplating, paining, vaccum metalizing, power cutting,
hot stamping.
Assembly:- Assembly, Hot welding, ultrasonic welding, Hot riveting, fusion.
Bonding, Hot Plate welding, tape fixing.
Production Facility:-
Moulding & Press Shop Decoration Assembly
1. Injection Moulding Electroplating Ultrasonic Welding
2. Extrusion Moulding Painting Hot Plate Welding
3. Thermoset Injection Hot Stamping Fusion Assembly
4. Compression Moulding Vaccume Metailizing
5. Sheet Metal Powder Coating
-
8/8/2019 Rajbir 12-10-10
16/90
RAJBIR SINGH, MBA 16
LITERATURE REVIEW
Jain T.R1., Statistics for M.B.A., page no. 1-15, 281-284, 301-305(second part), second
edition: 2008-2009, V.K. (India) enterprise, New Delhi : these pages help me to understand
the meaning of my statistical tools and also help in applying them.
Goel D.K.2 Management accounting and financial management, page no.4.1 to 4.83, third
edition 2006, Avichal publishing company, New Delhi: this text book helps me out to
understand the meaning of different ratios and their meaning..
Gupta Shashi K. & Sharma R.K.3 Financial Management, and page no. 88- 110, second
edition V.K publication Delhi: form this book I have cleared my financial concepts and their
meanings.
Maheshwari S.N.4 management accounting and financial control, page no. 206-219, third
edition, Avichal publication: from the above pages I got light on some analytical tools.
Kothari C.R.5 quantitative technique, page no.168-174, vikas publishing house pvt. Ltd.New
Delhi, 2007: this book helps me to know the meaning of various steps in the marketing
research.
Beri G. C.6 Marketing Research, page no. 1-13, third edition Tata McGraw Hill, New Delhi:
this book give me the knowledge of basic meaning of research that what it means and what
are its limitations..
Gupta S.P.7 statistical methods, page no. 221-249,321-356, fifth edition, V.K. publishing: this
book helps me in understanding the meaning and application of statistical tools.
Pandey I.M.8 Financial Management page no. 215-239, fifth edition, Vikas publication New
Delhi: from this book I got the interpretation of various parameters.
Sharma R.K.9 Management and Business Finance, page no. 77-89, second edition, kalyani
publication: help me to clear the meaning of varios terms in the financial statements.
-
8/8/2019 Rajbir 12-10-10
17/90
RAJBIR SINGH, MBA 17
Lev. Baruch10 In this how analysis of financial statements of organization is done and on the
basis of that comment upon the financial position of the organization.
Hooda R.P.11 (209-212): Calculation of Trend Analysis and its interpretation.
Ciaran Walsh12 P.No. (113-122): Analysis of liquidity of any firm by calculating current &
liquid ratio.
Mittal.R.K13 (28-30): It explains the preparing of comparative Balance Sheet and way of
interpreting it.
www.hdfcbank.com: This website provides me balance sheet and profit & loss account of
HDFC BANK.
www.hdfcdirect.com: This website helps in analysis of financial statements
www.financemaster.com: This website helps in theory about analysis of financial statements.
-
8/8/2019 Rajbir 12-10-10
18/90
RAJBIR SINGH, MBA 18
OBJECTIVES OF THE STUDY
To study the short-term solvency of Company
To study the relationship between debts and equity of Company
To study the profitability of Company
To study the liquidity position of company.
To find out the weakness & suggest various suggestions
-
8/8/2019 Rajbir 12-10-10
19/90
RAJBIR SINGH, MBA 19
RESEARCH METHODOLOGY
Research is a systematic and continues method of defining a problem, collecting the facts and
analyzing them, reaching conclusion forming generalizations.
Research methodology is a way to systematically solve the problem. It may be understood has a
science of studying how research is done scientifically. In it we study the various steps that all
generally adopted by a researcher in studying his research problem along with the logic behind them.
The scope of research methodology is wider than that of research method. Thus when we talk of
research methodology we not only talk of research methods but also consider the logic behind the
method we use in the context of our research study and explain why we are using a particular
method.
So we should consider the following steps in research methodology:
Meaning of research
Problem statement
Research design
Sample design
Data collection
Analysis and Interpretation of data
Meaning of Research
Research is defined as a scientific & systematic search for pertinent information on a specific
topic. Research is an art of scientific investigation. Research is a systemized effort to gain new
knowledge. It is a careful inquiry especially through search for new facts in any branch of
knowledge. The search for knowledge through objective and systematic method of finding solutionto a problem is a research.
-
8/8/2019 Rajbir 12-10-10
20/90
RAJBIR SINGH, MBA 20
Problem Statement
The research problems, in general refers to sum difficulty with a researcher experience in the contest
of either a particular a theoretical situation and want to obtain a salutation for same. The present
project has been undertaken to do the Financial Analysis at HDFC BANK.
Research Design
A research is the arrangement of the conditions for the collections and analysis of the data in a
manner that aims to combine relevance to the research purpose with economy in procedure. In fact,
the research is design is the conceptual structure within which research is conducted; it constitutes
the blue print of the collection, measurement and analysis of the data. As search the design includes
an outline of what the researcher will do from writing the hypothesis and its operational implication
to the final analysis of data.
The design is such studies must be rigid and not flexible and most focus attention on the following;
o What is the study about?
o Why is the study being made?
o Where will the study be carried out?
o What type of data is required?
o Where can be required data be found?
o What period of time will the study include?
o What will be sample design?
o What techniques of data collection will be used?
o How will the data be analyzed?
o In what style will the report be prepared?
-
8/8/2019 Rajbir 12-10-10
21/90
RAJBIR SINGH, MBA 21
Research Design can be categorized as:
Exploratory Research
Descriptive Research
Diagnostic Research
Experimental Research
The present study is descriptive in nature, as it studies only the existing financial statement and no
change is carried out. Research design is flexible enough to provide opportunity for considering
different aspects of problem under study. It helps in bringing into focus some inherent weakness in
enterprise regarding which in depth study can be conducted by management.
Sampling design:
A sample design is a definite plan for obtaining a sample from the sampling frame. It refers to the
technique or the procedure that is adopted in selecting the sampling units from which inferences
about the population is drawn. Sampling design is determined before the collection of the data.
Several decisions have to be taken in context to the decision about the appropriate sample selection
so that accurate data is obtained and efficient results are drawn.
Following questions have to be considered while sampling design-
What is the relevant population?
What is the parameter of interest?
What is the sampling frame?
What is the type of sample?
What sample size is needed?
How much will it cost?
The sample size of past one year is taken for present study due to time limitation.
-
8/8/2019 Rajbir 12-10-10
22/90
RAJBIR SINGH, MBA 22
Data Collection
The task of data collection is begins after a research problem has been defined and research
designed/ plan chalked out. Data collection is to gather the data from the population. The data can be
collected of two types:
Primary data
Secondary data
Primary Data:
The Primary data are those, which are collected afresh and for the first time, and thus happened to be
original in character. There are several methods of primary data collection:
Observation Method
Interview Method
Schedules Questionnaires
Secondary Data:
The Secondary data are those which have already been collected by some one else and which have
already been passed through the statistical tool. Methods of collection of Secondary data are:
Books
Website
Journal.
In the present study I have made use of secondary data collected from their website and from their
records.
Analysis and Interpretation of Data
The data collected in the aforesaid manner have been tabulated in condensed from to draw the
meaningful results. The different techniques are adopted to analyze the data. All the data and
material is arranged through internal resources and the last part of the project consists of the
conclusions drawn from the report, a brief summary and recommendation and giving the final touch
to the report by stating a conclusion.
-
8/8/2019 Rajbir 12-10-10
23/90
RAJBIR SINGH, MBA 23
TOOLS FOR FINANCIAL ANALYSIS
Financial statements contain absolute figures of assets, liabilities, revenues, expenses and profit or
loss of an enterprise. They do not reveal the earning capacity, liquidity and financial soundness of
the enterprise. They are not readily understandable to their users. Hence, they are analysed to present
them in simple and understandable form. Various tools or devices employed for analysing the
financial statements are as follows:
(i) Comparative Statements
(ii) Common Size Statements
(iii) Trend Analysis
(iv) Accounting Ratios
(i) Comparative Statements: When financial statements figures for two or more years are placed
side-by-side to facilitate comparison, these are called 'Comparative Financial Statements'. In
such a statement figures of production, sales, expenses, profits etc. are put side-by-side to
draw conclusions about the profitability and financial health of the business. It also indicates
the trend of change as well as the strong points and weak point of the enterprise.
(ii) Common Size Statements: In these statements, various figures are converted into percentage
to some common base. In profit and loss account, sales figure is taken at 100 and all other
figurers are expressed as percentage of sale. Similarly, in balance sheet total assets are taken
at 100 and all assets are expressed as percentage of the total.
(iii) Trend Analysis: It is one of the most useful form of horizontal analysis in making
comparative study of the financial statements for a number of years. For calculating trend
percentages any year is selected as the 'base year'. Each them of the base year is assumed to
be equal to 100 and on that basis the percentage of each item of each year is calculated. The
trend percentage is helpful in revealing the trend increase or decrease in various items.
Accounting Ratios: A ratio is simply one number expressed in relation to another and a study of the
relationships between various items or groups of items is known as 'ratio analysis'. It simplifies and
summarises a long array of accounting data to provide useful information regarding the liquidity,
solvency, profitability etc.
-
8/8/2019 Rajbir 12-10-10
24/90
RAJBIR SINGH, MBA 24
LIMITATIONS
This ratio analysis is subject to the following assumptions and limitingconditions:
1) Information, estimates, and opinions contained in this report are obtainedfrom sources considered to be reliable. However, we assume no liability for
such sources.
2) The analysis contemplates facts and conditions existing as of the analysis
date. Events and conditions occurring after that date have not been
considered, and we have no obligation to update our report for such events
and conditions.
3) It is only a study of interim reports.
4) Analysis is based only on monetary information and non monetary factors
are ignored.
5) Price level changes are not considered.
6) Going concern principle does not allow the analysis to give an exact
picture.
7) This ratio analysis assumes that the Company will continue to operate as a
going concern, and that the character of its present business will remain
intact.
8) Analysis is only a means and not an end in itself. The analyst makes
interpretation and draws his own conclusions. Different people do it
differently.
9) Changes in accounting procedure by a firm may often make financial
statements misleading.
10) This report was prepared under the direction of Mr. Ashok Maini,
Financial Executive (assistant).
-
8/8/2019 Rajbir 12-10-10
25/90
RAJBIR SINGH, MBA 25
FINANCIAL STATEMENTS
Financial statements refer to such statements which contains financial information about an
enterprise. They report the profitability and the financial position of the business at the end of
accounting period. The term financial statement includes at least two statements which theaccountant prepares at the end of an accounting period. The two statements are:-
1. The Balance Sheet
2. Profit And Loss Account
They provide some extremely useful information to the extent that balance Sheet mirrors the
financial position on a particular date in terms of the structure of assets, liabilities and owners equity,
and so on and the Profit And Loss account show s the results of operations during a certain period of
time in terms of the revenues obtained and the cost incurred during the year. Thus the financial
statement provides a summarized view of financial positions and operation of a firm.
Meaning of Financial Analysis:
Financial statements present a mass of complex data in absolute monetary terms and reveal little
about the liquidity, solvency and profitability of the business. In financial analysis, the data given in
financial statements is classified into simple groups and a comparison of various groups is made one
another to pin-point the strong points and weaknesses of a business. For instance, if all items relating
to current assets are placed in one group while all items relating to current liabilities are placed in
another group, the comparison between the two groups will provide useful information. Actually the
figures given in financial statements do not speak anything themselves. The analysis of these figures
helps the interested reader by giving tongue to these mute heaps of figures.
In the words of Finney and Miller:
"Financial analysis consists in separating facts according to some definite plan, arranging
them in groups according to certain circumstances and then presenting them in a convenient
and easily read and understandable form".
-
8/8/2019 Rajbir 12-10-10
26/90
RAJBIR SINGH, MBA 26
IMPORTANCE OF FINANCIAL ANALYSIS
The significance of the financial statement analysis may be studied from the point of view various
parties as follows:
1. Significance for Management: Management of a firm is always interested in the solvency,profitability and the capital structure of the firm. They want to make sure that the business must
be in a solvent position to pay the debts as and when they fall due.
2. Significance for Investors: Investors and shareholders of the business are interested in the
longevity of the business enterprise and therefore, they want to know the earning capacity of the
business and its prospects for future growth and prosperity.
3. Significance for Creditors: There are two types of creditors, (i) Short-term creditors, and (ii)
Long-term creditors.
(i) Short-term creditors want to know the liquidity of the business, i.e., to know whether the
company will have sufficient current assets and cash to pay their debts or not.
(ii) Long-term creditors want to know two things namely: (1) Whether the company will be able
to pay the interest consistently, and (2) Whether the company will be able to pay their debts
when they fall due.
4. Significance for Government: Government can judge on the basis of analysis of financial
statements, which industry is progressing on the desired lines and which industry needs the
financial help.
5. Significance for other Financial Institutions: All the financial institutions which provide finance
to the industries such as Banks, Insurance Companies, Unit Trust etc.
6. Significance for Stock Exchange Authorities: They analyse the financial statements of a
company to determine its price earning ratio and earning per share (E.P.S.). With the help of
such analysis, the market price of a company's share is determined.
7. Significance for Researchers: Analysis of financial statements of a company is of much
importance to a researcher who is conducting research in respect of the profitability, efficiency,
financial soundness and future growth potential of that company.
TYPES OR METHODS OF FINANCIAL ANALYSIS
Financial analysis is an art and as such there are various approaches towards financial analysis. Two
basic approaches or types of analysis are:
(i) Horizontal Analysis (ii) Vertical Analysis
-
8/8/2019 Rajbir 12-10-10
27/90
RAJBIR SINGH, MBA 27
(i) Horizontal Analysis: In such type of analysis, financial statements for a number of years are
reviewed and analysed. Figures for two or more years are contained in such type of analysis
and these figures are placed side-by-side to facilitate comparison. Such analysis indicates the
increase or decrease in these items not only in absolute figures but also in percentage form.
Thus, it involves making comparisons and establishing relationship among related items of
an enterprise for a number of years. When data about sales, cost of production, profits etc.,
are compared for two or more years of a firm, they indicate the areas of strength and
weakness of the enterprise. It also helps in knowing the trend of the business. Since such type
of analysis is based on the data from year-to-year rather than only one year, it is also called
'Dynamic Analysis'.
(ii) Vertical Analysis: In such type of analysis, financial statements for a single ratios. It involves
a study of the quantitative relationship among various items of Balance Sheet or Profit &
Loss Account of a single period. The items in the financial statement are expressed as a
percentage to total and the total is taken as equivalent to 100. Statements containing such
analysis are termed as 'Common Size Statements'.
The Common Size Profit and Loss Account shows each element of Cost as a percentage of sales. It helps in
analysng cost and operating results of the year. similarly in a common size Balance Sheet various assets can
be expressed as percentage o total assets.
-
8/8/2019 Rajbir 12-10-10
28/90
RAJBIR SINGH, MBA 28
MEANING OF RATIO:
Ratios are relationship expressed in mathematical term between figures, which are connected with
each other in some manner. Obviously, no purpose will be comparing two sets of figures, which are
not at all connected to each other.
Ratios can be expressed in four ways:
1. Proportion: - It is expressed by the simple division of one number by another. For example, if
the current assets of a business are Rs. 2,00,000 and its current liabilities are Rs. 1,00,000,
the ratio of current assets to current liabilities will be 2:1.
2. Rate or So Many Times: - In this type, it is calculated how many times a figure is, in
comparison to another figure. For example, if a credit sales during the year are Rs. 2,00,000
and its debtors at the end of the year are Rs. 40,000, its Debtors Turnover Ratio = 2,00,000/
40,000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors.
3. Percentage: - In this type, the relation between two figures is expressed in hundredth. For
example, if a firms capital is Rs. 10,00,000 and its profit is Rs. 2,00,000, the ratio of profit to
capital, in terms of percentage, is 2,00,000/ 10,00,000 x 100 = 20%.
4. Fraction: - Say, net profit is one-fifth of capital.
-
8/8/2019 Rajbir 12-10-10
29/90
RAJBIR SINGH, MBA 29
ADVANTAGES OF RATIO ANALYSIS
Helpful in analysis of financial statements.
Simplification of accounting data.
Helpful in comparative study.
Helpful in locating the weak spots of the business.
Helpful in forecasting.
Estimate about the trend of the business.
Fixation of ideal standards.
Effective control.
Study of financial soundness.
LIMITATIONS OF RATIO ANALYSIS
False accounting data gives false ratios.
Comparison not possible if different firms adopt different accounting policies.
Ratio analysis becomes less effective due to price level changes.
Ratios may be misleading in the absence of absolute data.
Limited use of single ratio.
Window-dressing.
Lack of proper standards.
Ratios alone are not adequate for proper conclusions.
Effect of personal ability and bias of the analyst.
-
8/8/2019 Rajbir 12-10-10
30/90
RAJBIR SINGH, MBA 30
CLASSIFICATION OF RATIOS
Ratios can be classified into different categories depending upon the basis of classification. The
traditional classification has been on the basis of the financial statement to which the determinants of
the ration belong. On this basis ratios can be classified as: -
1. Profit and loss account ratios i.e. ratios calculated on the basis of the item of the Profit and
loss account only. Eg: - gross profit ratio, stock turnover ratio etc.
2. Balance sheet ratios i.e. ratios calculated on the basis of the figures of Balance sheet only.
Eg: - debt equity ratio, current ratio etc.
3. Composite ratios or Inter statement ratios i.e. ratios based on the figures of P&L account as
well as the Balance sheet, Eg. Fixed asset turnover ratio, overall profitability ratio etc.
In order these ratios serve as tool of financial analysis, they are now classified as: -
1. Profitability Ratios.
2. Leverage Ratios.
3. Turnover Ratios.
4. Liquidity Ratios.
-
8/8/2019 Rajbir 12-10-10
31/90
RAJBIR SINGH, MBA 31
RATIO ANALYSIS OF
POLYPLASTIC PVT.
LIMITED
(2005 to 2009)
-
8/8/2019 Rajbir 12-10-10
32/90
RAJBIR SINGH, MBA 32
Ratio Analysis of Polyplastic Limited
For the financial year 2005
LIQUIDITY RATIOS
1. Current ratio = current assets---------------------Current liability
Current assets (Rs. In lacs)
Inventories 5686.30Sundry debtors 5803.17Cash & bank balances 280.07Other C.A. 3.18Loans & advances 4465.44
-------------16238.16
-------------Current liabilities
Current liabilities 7484.91Provision 863.30
-----------8348.21-----------
Current ratio = 16238.16------------ = 1.9458348.21
2. Liquidity ratio = quick assets--------------------Current liability
Liquid assets = current assets inventory16238.16 5686.30 = 10551.86
-
8/8/2019 Rajbir 12-10-10
33/90
RAJBIR SINGH, MBA 33
Quick ratio = 10551.86------------ = 1.2648348.21
LEVERAGE RATIOS
1. Debt equity ratio = external equities---------------------Internal equities
External equities
Secured loans 1321.86Unsecured loans 3063.95
-----------4385.81-----------
Internal equities
Share capital 736.95Reserve & surplus 14464.92
----------15201.87
-----------
Debt equity ratio = 4385.81------------- = 0.288515201.87
2. Proprietor / equity ratio = shareholders fund-----------------------
Total assets
Total assets:
Fixed assets 3322.16Investment 7273.07Current assets 16238.16
--------------26833.39
--------------
-
8/8/2019 Rajbir 12-10-10
34/90
RAJBIR SINGH, MBA 34
Equity ratio = 15201.87----------- = 0.56726833.39
3. Fixed assets to net worth = fixed assets----------------------Shareholders fund
= 3322.16------------ = 0.21815201.87
ACTIVITY RATIO
1. Inventory turnover ratio = cost of goods sold------------------------
Average stock
Cost of goods sold:
Purchases 8150.64Manufacturing expenses 10623.13
-------------18773.77Less: increase / decrease stock 749.05
------------18024.72------------
Inventory turnover ratio = 18024.72------------ = 5.241
3439.175Average stock = Opening stock + closing stock
-------------------------------------2
= 3064.65 + 3813.70------------------------ = 3439.175
2
-
8/8/2019 Rajbir 12-10-10
35/90
RAJBIR SINGH, MBA 35
2. Debtors turnover ratio = Net credit sales--------------------Average debtors
= 25625.98-------------------------- = 4.919(5803.17+ 4626.94)/2
3. Average collection period = 365--------------------------Debtors turnover ratios
= 365-------- = 74 days approx.4.919
4. Fixed assets turnover ratio = cost of goods sold-----------------------Net fixed assets
= 18024.72------------ = 5.425
3322.16
5. Current assets turnover ratio = COGS---------
C/A
= 18024.72------------ = 1.1116238.16
-
8/8/2019 Rajbir 12-10-10
36/90
RAJBIR SINGH, MBA 36
PROFITABILITY RATIOS
1. Gross profit ratio = Gross profit--------------- * 100Net sales
G.P. = net sales COGS= 25625.68 18024.72= 7600.96
G.P. ratio = 7600.96------------- * 100 = 29.6625625.68
2. Net profit ratio = Net profit------------ * 100Net sales
= 1549.83------------ * 100 = 8.601
18024.72
3. Return on total assets = profit before interest & tax---------------------------------
Total assets1084.43
= ----------- = 0.0426833.39
-
8/8/2019 Rajbir 12-10-10
37/90
-
8/8/2019 Rajbir 12-10-10
38/90
RAJBIR SINGH, MBA 38
Quick ratio = 13467.64------------ = 1.21711066.08
LEVERAGE RATIOS
1. Debt equity ratio = external equities---------------------Internal equities
External equities
Secured loans 2107.36Unsecured loans 2976.21
-----------5083.57
-----------
Internal equities
Share capital 736.95Reserve & surplus 14856.94
-----------15593.89
-----------
Debt equity ratio = 5083.57------------- = 0.32615593.89
2. Proprietor / equity ratio = shareholders fund-----------------------
Total assets
Total assets:
Fixed assets 3462.96Investment 7219.98Current assets 20290.98
--------------30973.92
--------------
-
8/8/2019 Rajbir 12-10-10
39/90
RAJBIR SINGH, MBA 39
Equity ratio = 15593.89----------- = 0.50330973.92
3. Fixed assets to net worth = fixed assets----------------------Shareholders fund
= 3462.96------------ = 0.22215593.89
ACTIVITY RATIO
1. Inventory turnover ratio = cost of goods sold------------------------
Average stock
Cost of goods sold:
Purchases 6702.12Manufacturing expenses 15279.08
-------------21981.2Less: increase / decrease stock 558.98
------------21422.22------------
Inventory turnover ratio = 21422.22------------ = 5.234
4093.19Average stock = Opening stock + closing stock
-------------------------------------2
= 4372.68 + 3813.70------------------------ = 4093.19
2
-
8/8/2019 Rajbir 12-10-10
40/90
RAJBIR SINGH, MBA 40
2. Debtors turnover ratio = Net credit sales--------------------Average debtors
= 30746.78----------------------- = 4.188
(5803.17+ 8880.50)/2
3. Average collection period = 365----------------------------Debtors turnover ratios
365= -------- = 87 days approx.
4.188
4. Fixed assets turnover ratio = cost of goods sold-----------------------Net fixed assets
= 21422.22
------------ = 6.1863462.96
5. Current assets turnover ratio = COGS---------C/A
= 21422.22------------ = 1.056
20290.98
-
8/8/2019 Rajbir 12-10-10
41/90
RAJBIR SINGH, MBA 41
PROFITABILITY RATIOS
1. Gross profit ratio = Gross profit--------------- * 100Net sales
G.P. = net sales COGS= 30746.78 21422.22= 9324.56
G.P. ratio = 9324.56------------- * 100 = 30.3330746.78
2. Net profit ratio = Net profit------------ * 100Net sales
= 600.34
------------ * 100 = 1.95330746.78
3. Return on total assets = profit before interest & tax-------------------------------
Total assets
1719.74= ---------- = 0.056
30973.92
-
8/8/2019 Rajbir 12-10-10
42/90
RAJBIR SINGH, MBA 42
Ratio Analysis of Polyplastic Pvt. ltd.
For the financial year 2007
LIQUIDITY RATIOS
1. Current ratio = current assets-----------------
Current liability
Current assets (Rs. In lacs)
Inventories 11914.46Sundry debtors 11951.36Cash & bank balances 1059.26Other C.A. 1.84Loans & advances 3871.52
-------------28798.44-------------
Current liabilities
Current liabilities 18960.27Provision 2504.99
-----------21465.26-----------
Current ratio = 28798.44------------ = 1.3421465.26
2. Liquidity ratio = quick assets-----------------Current liability
Liquid assets = current assets inventory28798.44 - 11914.36 = 16884.08
-
8/8/2019 Rajbir 12-10-10
43/90
RAJBIR SINGH, MBA 43
Quick ratio = 16884.08------------ = 0.78621465.26
LEVERAGE RATIOS
1. Debt equity ratio = external equities---------------------Internal equities
External equities
Secured loans 1750.42Unsecured loans 1938.54
-----------3688.96
-----------Internal equities
Share capital 736.95Reserve & surplus 16288.41
-----------
17025.36-----------
Debt equity ratio = 3688.96------------- = 0.21717025.36
2. Proprietor / equity ratio = shareholders fund-----------------------
Total assetsTotal assets:
Fixed assets 6106.14Investment 7219.98Current assets 28798.44
--------------42124.56
--------------
-
8/8/2019 Rajbir 12-10-10
44/90
RAJBIR SINGH, MBA 44
Equity ratio = 17025.36----------- = 0.40442124.56
4. Fixed assets to net worth = fixed assets----------------------Shareholders fund
= 6106.14------------ = 0.35917025.36
ACTIVITY RATIO
1. Inventory turnover ratio = cost of goods sold------------------------
Average stockCost of goods sold:
Purchases 14492.17Manufacturing expenses 19210.64
-------------
33702.81Less: increase / decrease stock 2452.69------------31250.12------------
Inventory turnover ratio = 31250.12------------ = 5.585599.025
Average stock = Opening stock + closing stock-------------------------------------
2= 4372.68 + 6825.37
------------------------ = 5599.0252
-
8/8/2019 Rajbir 12-10-10
45/90
RAJBIR SINGH, MBA 45
2. Debtors turnover ratio = Net credit sales--------------------Average debtors
= 40470.72----------------------- = 3.885
(11951.36+ 8880.50)/2
3. Average collection period = 365-------------------------------
Debtors turnover ratios
365= -------- = 94 days approx.
3.89
4. Fixed assets turnover ratio cost of goods sold= -------------------------
Net fixed assets
31250.16= --------------- = 5.1186106.14
5. Current assets turnover ratio COGS= ----------
C/A
31250.16
= ------------ = 1.08528798.44
-
8/8/2019 Rajbir 12-10-10
46/90
RAJBIR SINGH, MBA 46
PROFITABILITY RATIOS
1. Gross profit ratio Gross profit= --------------- * 100
Net sales
G.P. = net sales COGS= 40470.72 31250.16= 9220.56
G.P. ratio = 9220.56------------- * 100 = 22.7840470.72
2. Net profit ratio = Net profit------------ * 100Net sales
= 1725.58
------------ * 100 = 4.26440470.72
3. Return on total assets = profit before interest & tax------------------------------
Total assets3329.56
= ---------- = 0.07942124.56
-
8/8/2019 Rajbir 12-10-10
47/90
RAJBIR SINGH, MBA 47
Ratio Analysis of Polyplastic Pvt. ltd.
For the financial year 2008
LIQUIDITY RATIOS
1. Current ratio = Current assets--------------------Current liability
Current assets (Rs. In lacs)
Inventories 16901.70Sundry debtors 18211.62Cash & bank balances 1598.86Other C.A. 6.67Loans & advances 10668.54
-------------47387.39
-------------Current liabilities
Current liabilities 36855.67Provision 5640.26
-------------42495.93
--------------
Current ratio = 47387.39-------------- = 1.1242495.93
2. Liquidity ratio = Quick assets-------------------Current liability
Liquid assets = current assets inventory47387.39 16901.70 = 30485.69
-
8/8/2019 Rajbir 12-10-10
48/90
RAJBIR SINGH, MBA 48
Quick ratio = 30485.69------------- = 0.71742495.93
LEVERAGE RATIOS
1. Debt equity ratio = External equities-----------------------
Internal equities
External equities
Secured loans 1982.89Unsecured loans 1726.04
-----------3708.93
-----------
Internal equities
Share capital 736.95Reserve & surplus 20248.03
-------------20984.98
-------------
Debt equity ratio = 3708.93------------- = 0.17720984.98
2. Proprietor / equity ratio = Shareholders fund------------------------
Total assets
Total assets:
Fixed assets 9457.94Investment 10266.45Current assets 47387.39
--------------67111.78
--------------
-
8/8/2019 Rajbir 12-10-10
49/90
RAJBIR SINGH, MBA 49
Equity ratio = 20984.98-------------- = 0.313
67111.78
3. Fixed assets to net worth = Fixed assets------------------------Shareholders fund
9457.94= ------------ = 0.45
20984.98
ACTIVITY RATIO
1. Inventory turnover ratio = Cost of goods sold--------------------------
Average stock
Cost of goods sold:
Purchases 44980.87
Manufacturing expenses 29395.27-------------74376.14
Less: increase / decrease stock 4683.05-------------69693.09
-------------
Average stock = Opening stock + closing stock
--------------------------------------2
= 6825.37 + 11508.42--------------------------- = 9166.90
2
-
8/8/2019 Rajbir 12-10-10
50/90
RAJBIR SINGH, MBA 50
Inventory turnover ratio = 69693.09------------ = 7.6029166.90
2. Debtors turnover ratio = Net credit sales-----------------------
Average debtors
= 87579.60--------------------------- = 5.81(18211.62 + 11951)/2
3. Average collection period = 365------------------------------Debtors turnover ratios
= 365-------- = 63 days approx.
5.81
4.Fixed assets turnover ratio = Cost of goods sold-------------------------
Net fixed assets
= 69693.09------------- = 7.3699457.94
5. Current assets turnover ratio = COGS------------
C/A
= 69693.09-------------- = 1.471
47387.39
-
8/8/2019 Rajbir 12-10-10
51/90
RAJBIR SINGH, MBA 51
PROFITABILITY RATIOS
1. Gross profit ratio = Gross profit--------------- * 100Net sales
G.P. = Net sales COGS= 87579.60 69693.09= 17886.51
G.P. ratio 17886.51= ------------- * 100 =20.42
87579.60
2. Net profit ratio = Net profit-------------- * 100Net sales
= 4505.82------------- * 100 =5.14587579.60
3. Return on total assets = profit before interest & tax-------------------------------
Total assets
= 7474.02----------- = 0.11167111.78
-
8/8/2019 Rajbir 12-10-10
52/90
RAJBIR SINGH, MBA 52
Ratio Analysis of Polyplastic Pvt. ltd.
For the financial year 2009
LIQUIDITY RATIOS
1. Current ratio = Current assets--------------------Current liability
Current assets (Rs.in lacs)
Inventories 22445.71Sundry debtors 26137.05Cash & bank balances 1056.16Other C.A. 20.55Loans & advances 11680.73
-------------61340.2
-------------Current Liabilities
Current liabilities 39894.18Provision 8683.62
-------------48577.80--------------
Current ratio = 61340.2-------------- = 1.2648577.80
2. Liquidity ratio = Quick assets-------------------Current liability
Liquid assets = current assets inventory61340.2-22445.71 = 38894.49
-
8/8/2019 Rajbir 12-10-10
53/90
RAJBIR SINGH, MBA 53
Quick ratio = 38894.49------------- = 0.80148577.80
LEVERAGE RATIOS
1. Debt equity ratio = External equities-----------------------
Internal equitiesExternal equities
Secured loans 5981.13Unsecured loans 2606.72
-----------8587.85
-----------
Internal equities
Share capital 736.95Reserve & surplus 26376.99
-------------27113.94
-------------
Debt equity ratio = 8587.85------------- = 0.31727113.94
2. Proprietor / equity ratio = Shareholders fund------------------------
Total assets
Total assets:
Fixed assets 14827.93Investment 8058.77Current assets 61340.20
--------------84226.90
--------------
-
8/8/2019 Rajbir 12-10-10
54/90
RAJBIR SINGH, MBA 54
Equity ratio = 27113.94-------------- = 0.322
84226.90
3. Fixed assets to net worth = Fixed assets------------------------Shareholders fund
14827.93= ------------ = 0.547
27113.94ACTIVITY RATIO
1. Inventory turnover ratio = Cost of goods sold--------------------------
Average stockCost of goods sold:
Purchases 54778.81Manufacturing expenses 33010.85
-------------
87789.66Less: increase / decrease stock 1383.04-------------89172.70-------------
Average stock = Opening stock + closing stock--------------------------------------
2
= 11508.42+10125.38--------------------------- = 10816.9
2
-
8/8/2019 Rajbir 12-10-10
55/90
RAJBIR SINGH, MBA 55
Inventory turnover ratio = 87789.66------------ = 8.1210816.90
2. Debtors turnover ratio = Net credit sales-----------------------
Average debtors
= 113568.88--------------------------- = 5.12(18211.62 +26137.05)/2
3. Average collection period = 365------------------------------Debtors turnover ratios
= 365-------- = 71 days approx.
5.12
4.Fixed assets turnover ratio = Cost of goods sold-------------------------
Net fixed assets
= 89172.70------------- = 6.0414827.93
5. Current assets turnover ratio = COGS------------
C/A
= 89172.70-------------- = 1.453
61340.20
-
8/8/2019 Rajbir 12-10-10
56/90
RAJBIR SINGH, MBA 56
PROFITABILITY RATIOS
1. Gross profit ratio = Gross profit--------------- * 100Net sales
G.P. = Net sales COGS= 113568.88 89172.70= 24396.18
G.P. ratio 24396.18= ------------- * 100 =21.48
113568.88
2. Net profit ratio = Net profit-------------- * 100Net sales
= 6991.16
--------------* 100 =6.155113568.88
3. Return on total assets = profit before interest & tax--------------------------------
Total assets
= 10806.84----------- = 0.151
71464.50
-
8/8/2019 Rajbir 12-10-10
57/90
RAJBIR SINGH, MBA 57
THE POLYPLASTICS PVT. LTD.
COMPARISION OF BALANCE SHEETS FOR THE LAST
5 YEARS (2005 2009) (Rs. in Lacs)
S.no PARTICULARS 30-9-2005 30-9-2006 30-9-2007 30-09-2008 30.09.200
A LIABILITIES1. SHARE CAPITAL
a) Authorized 850 850 850 850 8
b) Issued, sub & paid up 736.95 736.95 736.95 736.95 736
2. RESERVE & SURPLUSa) Capital reserve& other 458.31 458.31 458.31 458.31 458
b) General reserve 10181.10 10281.10 10481.10 10981.10 11731
c) Profit & loss a/c 3825.51 4117.53 5349 8808.62 14187
3. OWNERS FUNDS (1b+2) 15201.87 15593.89 17025.36 20984.98 27114
4. SECURED LOANS 1321.86 2107.6 2750.42 1982.89 5981
5. UNSECURED LOANS 3063.95 2976.21 1938.54 1726.04 2606
6. LOANS FUNDS (4+5) 4385.81 5083.57 4688.96 3708.93 8587
7. CURRENT LIBILITIES 7484.91 9118.41 18960.27 36855.67 39894
8. PROVISIONS 863.30 1947.67 2504.99 5640.26 8683
9. TOTAL (3+6+7+8) 28672.84 31743.54 43179.58 63230.22 84279
B ASSETS 28672.84 31743.54 43179.58 63230.22 84279
1. FIXED ASSETS
a) Gross block 8647.11 9175.71 11790.85 15911.52 19710
b) Depreciation 5341.47 5809.88 6360.94 7146.16 8339
c) Net block (a-b) 3305.64 3365.83 5429.91 8765.36 11371
d) Cap work in progress 16.52 97.13 676.23 692.58 3456
e) Total (c+d ) 3322.16 3462.96 6106.14 9457.94 14827
2. INVESTMENTS 7273.07 7219.98 7219.98 10266.45 80583. DEFERRED TAX ASSETS NIL NIL NIL 78.06 52
4. CURRENT ASSETS, LOANS & ADVANCES
a) Inventory 5686.30 6823.34 11914.46 16901.70 22445
b) Sundry debtors 5803.17 8880.50 11951.36 18211.62 26137
c) Cash balance 280.07 751.93 1059.26 1598.86 1056
d) Other Current Assets 3.18 2.87 1.84 6.67 20
e) Loans & advances 4465.44 3832.34 3871.52 10668.54 11680
f) Total (a to e) 16238.16 20290.98 28798.44 47387.39 61340
-
8/8/2019 Rajbir 12-10-10
58/90
RAJBIR SINGH, MBA 58
THE POLYPLASTICS PVT. LTD.
COMPARITIVE STATEMENT OF P & L FOR THE LAST
5 YEARS (2005 2009) (Rs. in Lacs)
S.no PARTICULARS 30-9-2005 30-09-2006 30-9-2007 30-9-2008 30-9-2009
A EXPENDITURE:
1. Cost of Goods Purchased 8150.64 6702.12 14492.17 44980.87 54778.81
2. Manufacturing exp. 10623.13 15279.08 19210.64 29395.27 33010.85
3. Employees cost 2759.30 4059.15 3933.35 5250.01 7259.40
4. Adm. & selling exp. 2231.06 2204.27 2336.84 5119.42 6243.18
5. Interest 530.52 743.91 658.20 730.94 859.31
6. Depreciation 562.21 593.71 726.16 972.02 1348.517. Total expenses (1 to 7) 24853.86 29582.24 41357.36 86448.53 103500.06
8. Inc/Dec. in WIP & FG. 749.05 558.98 2452.69 4683.05 1383.04
9. Total (7+8) 25602.91 30141.22 43810.05 91131.10 102117.02
B INCOME:
1. Sales & service income 25626.98 30746.78 43683.27 93039.93 120386.53
2. Other income 786.57 1576.46 1101.40 926.25 2031.33
3. Profit from farm operations 4.02 2.24 3.89 2.71 4.42
4. Total income (1+2+3) 26417.57 32325.48 44788.56 93968.89 122422.28
C Net Profit: (B4-A9) 814.66 2184.26 978.51 2837.79 20305.26
D Provision For Tax: -995.92 375.49 945.76 2283.34 3730.37
E Profit After Tax (C-D) 1810.58 1808.77 32.75 554.45 16574.89
F Balance In P&L A/C B/F 2358.51 4169.09 5977.86 9854.82 15799.78
G TOTAL N.P. (E+F) 169.09 5977.86 6010.61 10409.27 32374.67
-
8/8/2019 Rajbir 12-10-10
59/90
RAJBIR SINGH, MBA 59
THE POLYPLASTICS PVT. LTD. RATIO
ANALYSIS OF 2005 TO 2009
S.no PARTICULARS 30-9-2005 30-9-2006 30-9-2007 30-9-2008 30-9-2009
A LIQUIDITY RATIO
1. Current Ratio 1.945 1.834 1.34 1.12 1.26
2. Liquidity Ratio 1.264 1.217 0.786 0.72 0.801
B
LEVERAGE RATIO
1. Debt Equity Ratio 0.2885 0.326 0.217 0.18 0.3172. Proprietor/equity Ratio 0.567 0.503 0.404 0.31 0.322
3. Fixed Assets To Net worth 0.218 0.222 0.359 0.45 0.547
C ACTIVITY RATIO
1. Inventory Turnover Ratio 5.241 5.234 5.58 7.60 8.12
2. Debtors Turnover Ratio 4.919 4.188 3.885 5.81 5.12
3. Average Collection Period 74 87 94 63 71
4. Fixed Assets Turnover Ratio 5.425 6.186 5.113 7.37 6.04
5. Current Assets Turnover 1.11 1.056 1.083 1.47 1.453
D Profitability Ratios
1. Gross profit ratio 29.66 30.33 22.78 20.42 21.48
2. Net Profit Ratio 8.601 1.953 4.264 5.14 6.155
3. Return on Total Assets 0.04 0.056 0.079 0.111 0.151
-
8/8/2019 Rajbir 12-10-10
60/90
RAJBIR SINGH, MBA 60
ANALYSIS OFFINANCIAL RATIOS
-
8/8/2019 Rajbir 12-10-10
61/90
RAJBIR SINGH, MBA 61
1. CURRENT RATIO:
The current ratio is a measure of the firms short term solvency. It indicates
the availability of current assets in rupees for every one rupees of current
liability. Current ratio 2:1 or more are considered satisfactory.
1.9451.834
1.34
1.121.26
0
0.20.4
0.6
0.8
1
1.2
1.41.6
1.8
2
2004-05 2005-06 2006-07 2007-08 2008-09
CURRENT RATIO
INTERPRETATION
The company current ratio in previous years are satisfactory but in current
year the current ratio is 1.26:1 which shows that short term solvency of the
firm is not good and more safer will be the interest of share holders. Because
the higher ratio is the indicator of good investment policy of the firm.
-
8/8/2019 Rajbir 12-10-10
62/90
RAJBIR SINGH, MBA 62
2. LIQUIDITY RATIO:
INTERPRETATION
This ratio helps us to know the overall liquidity position of the company and
current year Liquidity ratio of company is 0.801:1 shows that company has
sound liquidity position. In this ratio inventory and prepaid expenses are not
taken because it is less liquid then other current assets.
1.264 1.217
0.786 0.72 0.801
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2004-05 2005-06 2006-07 2007-08 2008-09
LIQUIDITY RATIO
-
8/8/2019 Rajbir 12-10-10
63/90
RAJBIR SINGH, MBA 63
3. DEBT EQUITY RATIO:
The debt equity ratio of the firm is low 0.317:1 but the ratio of 1:1 considered
satisfactory which indicates that firm has to bear no burden of fixed interest
charges in the year of low profit.
DEBT EQUITY RATIO
0.2885
0.326 0
.217
0.18
0.317
0
0.05
0.1
0.15
0.2
0.250.3
0.35
2004-05 2005-06 2006-07 2007-08 2008-09
INTERPRETATION
And it will also have to accept restrictive conditions for raising funds in
future. It is also indicates lower margin of safety to long term lenders but it is
better then last years and company is also increasing there reserves for future
options.
-
8/8/2019 Rajbir 12-10-10
64/90
RAJBIR SINGH, MBA 64
4. PROPRIETARY EQUITY RATIO/ NET WORTH TO
TOTAL ASSETS RATIO
This ratio shows that how much funds have been provided by shareholder for
investment in assets of business.
PROPRIETOR / EQUITY RATIO
0.567
0.503
0.404
0.31 0.322
0
0.1
0.2
0.3
0.4
0.5
0.6
2004-05 2005-06 2006-07 2007-08 2008-09
INTERPRETATION
This ratio is 0.322:1 which is low, the creditor can be suspicious about the
repayment of their debt on liquidation of the company therefore, external
funds should be utilized to a limited extend. This ratio should be 33% or
more than that. A higher proprietary ratio generally treated as sound financial
position from long-term point of view. But this ratio of current year is low,
which is a danger signal for long term lenders as it indicates a lower margin
of safety available to them. The lower the ratio, the less secured are the long
term loans and they face the risk of losing their money.
-
8/8/2019 Rajbir 12-10-10
65/90
RAJBIR SINGH, MBA 65
5.FIXED ASSETS TO NET WORTH RATIO.
INTERPRETATION
The main objective of this ratio is to find out what proportion of ownersfunds are invested in fixed assets.
FIXED ASSETS TO NET WORTH
0.218 0.222
0.359
0.450.547
00.1
0.2
0.3
0.4
0.5
0.6
2004-05 2005-06 2006-07 2007-08 2008-09
Fixed assets are included after charging depreciation. The ratio is .547 that
are 55% and this is less then 100% which reflects that either company have
high working capital or are being debt capital. But in this case second option
is better as company have high amount of debt capital and most assets are
purchased out of it only, it is difficult for the company to liquidate its assets
-
8/8/2019 Rajbir 12-10-10
66/90
RAJBIR SINGH, MBA 66
6. FIXED ASSETS TURNOVER RATIO
This ratio shows how fixed assets have been utilized to increase sales.
Generally, high fixed assets turnovers are preferred since they indicate a
better efficiency in fixed assets utilization.
5.425
6.186
5.113
7.37
6.04
0
1
2
3
4
56
7
8
2004-05 2005-06 2006-07 2007-08 2008-09
FIXED ASSETS TURNOVER RATIO
INTERPRETATION
The fixed assets turnover ratio is high (6.04 times). There is increase in this
ratio as compared to previous years; it will indicate that there is better
utilization of fixed assets. It appears that the activity of the business is
relatively constant, with a slight upward trend. The ratio also confirms that
the business places a much greater reliance on working capital than it does on
the fixed assets. And moreover fixed asset doesnt contributing in generating
sales. But in this business heavy machinery and fixed capital is required so
amount of fixed capital is far more than the sales.
-
8/8/2019 Rajbir 12-10-10
67/90
RAJBIR SINGH, MBA 67
7. CURRENT ASSETS TURNOVER RATIO
This ratio shows how current assets have been utilized to increase sales.
Generally, high current assets turnovers are preferred since they indicate a better
efficiency in current assets utilization.
CURRENT ASSETS TURNOVER RATIO
1.111.056
1.083
1.47 1.453
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2004-05 2005-06 2006-07 2007-08 2008-09
INTERPRETATION
This ratio is in declining trend in last years but there is increase in ratio from
1.083 in 2007 to 1.453 in 2009 which means that current assets are but then
also better then fixed asset turnover ratio, this shows that company is neitherutilizing its current asset efficiently nor fixed asset to increase its sales rather
company is depending on its external debts to increase its sales more then
internal sources
-
8/8/2019 Rajbir 12-10-10
68/90
RAJBIR SINGH, MBA 68
8. GROSS PROFIT RATIO
Gross profit is the result of relationship among sales and cost and price. High
gross profit is the sign of efficient management. 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 RATIO
29.66
30.33 2
2.78
20.42
21.48
0
5
10
15
20
25
30
35
2004-05 2005-06 2006-07 2007-08 2008-09
INTERPRETATIONThe ratio above shows the decreasing trend in the gross profit since the ratio
has not improved from 22.78% in 2007 to 21.48% on 2009. This indicates
that the rate is decrease in cost of goods sold.
-
8/8/2019 Rajbir 12-10-10
69/90
RAJBIR SINGH, MBA 69
9. NET PROFIT RATIO
INTERPRETATION
This ratio is also called net profit margin. Greater the ratio more profitable
the business will be. This ratio is used to measure the overall profitability of
the business.
The net margin ratio shows that the margin is fluctuating over time with
slight improvement from 1.953% of 2005 to 6.155% of 2009, which shows
that there is constant improvement in financial position of company.
NET PROFIT RATIO
8.601
1.953
4.2645.14
6.155
0
2
4
6
8
10
2004-05 2005-06 2006-07 2007-08 2008-09
Despite of increase in depreciation charges, cost of borrowings etc. company
profits are increasing which is due to increase in its sales.
-
8/8/2019 Rajbir 12-10-10
70/90
RAJBIR SINGH, MBA 70
10. INVENTORY TURNOVER RATIO:
This ratio establishes the relationship between cost of goods sold and average
inventory and indicate the fact that whether the investment in inventory iswithin a proper limit or not. With this ratio we can judge that in how many
time the stock can be converted into sales during the year. It also evaluates
the inventory policy of the management.
INVENTORY TURNOVER RATIO
5.241 5.234 5.58
7.68.12
0
12
3
4
5
6
7
89
2004-05 2005-06 2006-07 2007-08 2008-09
INTERPRETATION
The inventory turnover ratio is 8.12 times which is good indicates that stock
is being sold fast and not kept in godown for longer period and it also express
the fact that there is low investment in inventory because in this main raw
material that is used in cement production is limestone and company have
there own mines of it. With increase in production sales are also increasing
and inventory turnover is showing increasing trend.
-
8/8/2019 Rajbir 12-10-10
71/90
RAJBIR SINGH, MBA 71
11. RETURN ON TOTAL ASSETS
With the help of this ratio we can calculate over all profitability of all
resources. Income is earned by using the assets of a business productively.
The more efficient the production is, the more is the business profitable. The
rate of return on total assets indicates the degree of efficiency with which
management has used the assets of the enterprise during an accounting
period.
RETURN ON TOTAL ASSESTS RATIO
2004-05, 0.04
2005-06, 0.056
2006-07, 0.079
2007-08, 0.111
2008-09, 0.151
INTERPRETATION
Returns on total assets are showing rising trend. It has increased from 0.111
in 2008 to 0.151 in 2009.Which means now assets are being utilized in
business in better way then in past but then also the ratio is very low which
shows that assets are not utilizing by management in proper manner but as
with increased capacity utilization and power generation project this ratio
will defiantly continue its trend with improved ratio.
-
8/8/2019 Rajbir 12-10-10
72/90
RAJBIR SINGH, MBA 72
12. AVERAGE COLLECTION PERIOD
INTERPRETATION
This ratio shows the time in which the customers are paying for credit sales.
A higher debt collection period is thus, an indication of the inefficiency and
negligence on the part of management. But there is decrease in debt
collection period in current year 2008 though it has increased a little again in
2009. It indicates prompt payment by debtors, which reduces the chances of
bad debts. So it is good.
74
8794
63
71
0
10
20
30
40
50
60
70
80
90
100
2004-05 2005-06 2006-07 2007-08 2008-09
AVERAGE COLLECTION PERIOD RATIO
-
8/8/2019 Rajbir 12-10-10
73/90
RAJBIR SINGH, MBA 73
STATISTICAL TOOLS
Correlation
Introduction in our day to day life, we find many examples when a mutual relationship exists
between two variables i.e. with fall or rise in the value of one variable, the fall or rise take place in
the value of other variable. For example, price of a commodity rises as the demand for the
commodity goes up. upto a certain time period, weight of a person increases with the increase in the
age. Similarly, the temperature rises with the rises in the sunlight. These facts indicates that there is
certainly some mutual relationship that exists between the demand for a commodity and its price, the
age of a person and his commodity and the sunlight and temperature.
The correlation refers to the statistical technique used in measuring the closeness of the relationship
between the variables.
Definition of Correlation:
1. "Correlation analysis deals with the association between two or more variables " Simpson
and Kafka
2. "If two or more quantities vary in sympathy, so that movement in the one tend to be
accompanied by corresponding movements in the other, then they are said to be correlated-
Conner
Degree of Correlation
Sr. No. Degree of correlation Positive Negative
1. Perfect correlation +1 -1
2. High Degree of
correlation
Between +0.75 to +1 Between -0.75 to 1
3. Moderate Degree of
correlation
Between +0.25 to +0.75 Between -0.25 to -0.75
4. Low degree of correlation Between 0 to +0.25 Between 0 to -0.25
5. Absence of correlation 0 0
Why to Use Correlation:
-
8/8/2019 Rajbir 12-10-10
74/90
RAJBIR SINGH, MBA 74
Different types of statistical tools are available but for using specifically correlation is of having amajor reason i.e. only this and this statistical tool was giving the satisfactory results. I have to showthe relationship between sales and profits, which can be purely defined with the help of thisstatistical tool only.
Furthermore, with the help of time series analysis we can define the further trends of business by
using trend analysis.
Karl Pearson's coefficient of correlation method:
Karl Pearson's coefficient of correlation method is the main important method to calculate the
correlation between two variables:
( ) ( )N
dydy
N
dxdx
N
dydxdxdy
r 22
2
2
=
-
8/8/2019 Rajbir 12-10-10
75/90
RAJBIR SINGH, MBA 75
Financial expenses denoted by x.
Retained earning denoted by y.
2005 2006 2007 2008 2009
X 7944 7015.25 6570.89 9597.45 16358.50
Y 707.05 1028.39 1335.22 1862.46 2349.39
Calculation of coefficient correlation
X A = 8000Dx
dx2 Y A=1500dy
dy2 Dxdy
7944 -56 3136 707.0
5
-792.95 628769.7 44405.2
7015.2
5
-984.75 969732.56 1028.
39
-471.61 222415.99 464417.94
6570.8
9
-1429.11 2042355.3 1335.
22
-164.78 27152.448 235488.74
9597.4
5
1594.45 2542270.8 1862.
46
362.46 131377.25 577924.34
16358.
50
8358.5 69864522 2349.
39
849.39 721463.37 7099626.3
N = 5 dx =
7483.09
dx2 =
75422016
dy = -
217.49
dy2 =
1731178.7
dxdy =
8421862.5
( ) ( )
( ) ( )5
217.49-1731178.7
5
09.748375422016
5
217.49-7483.098421862.5
r22
=
5
47301.91731178.7
5
5599663575422016
5
1627497.28421862.5
r
=
0.389468.71731171119932775422016
9.44325492.5842186r
+=
-
8/8/2019 Rajbir 12-10-10
76/90
RAJBIR SINGH, MBA 76
8.417217164222689
1.9874736r=
0.21051538
1.974736
2.141213.90801
1.9874736r
8=
=
r = 0.83It shows high degree positive correlation between financial expenses and retained earnings.
XLSTAT 7.1 - Correlation Tests - 9/27/2009 at 6:57:56 PMVariable 1: workbook = Book1 / sheet = Sheet1 / range = $E$8:$E$12 / 5 rows and 1 columnVariable 2: workbook = Book1 / sheet = Sheet1 / range = $F$8:$F$12 / 5 rows and 1 columnSignificance level:0.05
Pearson's correlation coefficient test (parametric test):
Observed value 0.832Two-tailed p-value
0.081
Alpha 0.05
Decision:At the level of significance Alpha=0.050 the decision is to not reject thenull hypothesis of absence of correlation.In other words, the correlation is not significant.
Scattergram of the data
0
500
1000
1500
2000
2500
0 5000 10000 15000 20000
financial exp.
-
8/8/2019 Rajbir 12-10-10
77/90
RAJBIR SINGH, MBA 77
TREND ANALYSIS
Meaning
Trend refers to long-term tendency of data over a period of time. The data of time series are subject
to change over a period of time. But over a long period of time, the data of time series have a
tendency to increase or decrease or remain constant.
According to Prof. Hirsch
By Trend sometimes also called secular trend we mean the long run gradual growth or decline in
the series.
Objective of Trend Analysis/ Time series1. Study of Past Behaviour- Analysis of time series studies the past behaviour of data and
indicates the changes that have taken place in the past.
2. Prediction for future - On the basis of analysis of time series, future predictions can be made
easily.
3. Estimation of Trade Cycles- Cyclical fluctuations in time series give idea about the changes
taking place in the business like Boom, Recession, Depression and Recovery.
4. Comparison with other Time Series- By comparing the different time series together, their
cause and effect relationship can be more elaborately analyzed.
5. Study of Present Variations- It is also helpful in studying the present variations in different
economic variables like national income, export-import, price etc.
6. Universal Utility- Time series analysis benefits all classes like businessmen,
-
8/8/2019 Rajbir 12-10-10
78/90
RAJBIR SINGH, MBA 78
TREND ANALYSIS OF REPORTED NET PROFIT OF POLYPLASTIC PVT LTD.
YEAR Profit Y (Rs. In
Crore)
Deviations from
2007 X
XY x2
2005 1206.18 -2 - 2412.36 4
2006 1637.11 -1 -1637.11 1
2007 2007.20 0 0 0
2008 2540.07 1 2540.07 1
2009 3110.22 2 6220.44 4
Y=10498.78 X=0 XY=4711.04 x2 = 10
The equation of the straight line trend is
Y= a + bX
Since x=0
a = y/N, b = xy/x2
Substituting values, we get
a = 10498.78/5 = 2099.756 = 2100 (app.)
b = 4711.04/10 = 471.104 = 471
Thus the straight line trend is
y = 2099 + 471x, Origin = 2008, X unit = 1 Year,
-
8/8/2019 Rajbir 12-10-10
79/90
RAJBIR SINGH, MBA 79
GRAPH SHOWING TREND LINE
0
1000
2000
3000
4000
5000
6000
2002 2004 2006 2008 2010 2012 2014
EARS
NETPROFI
ACTUAL VALUES TREND VALUES
YEAR ACTUAL VALUES TREND VALUES
2005 1206.18 1158
2006 1637.11 1629
2007 2007.20 21002008 2540.07 2571
2009 3110.22 3042
2008 3513
2009 3984
2010 4455
2011 4926
2012 5397
Error!
Interpretation:
The Projection of Profit for the year 20010 is 4455 crore.
In the year 2007 was able to achieve more than its Expected Profits.
In the year 2008 was not able to achieve more than its Expected Profits.
In the year 2009 was not able to achieve its Expected Profits.
The Profits of Co. shows an increasing trend.
-
8/8/2019 Rajbir 12-10-10
80/90
RAJBIR SINGH, MBA 80
REGRESSION
Regression is the study of the nature of the nature of relationship between the variables so that one
may be able to predict the unknown value of one variable for a known value of another variable.
Definition:
"Regression analysis measures the nature and extent of the relation between two or more variables.
Thus, enables us to make predictions". Hirsch
REGRESSION ANALYSIS
X is denoted for administrative expenses
Y is denoted for operating profit
2005 2006 2007 2008 2009
X 2365.53 1801.17 1248.31 2727.18 4946.69
Y 882.84 2087.76 2679.78 3269.94 3793.56
Calculation of Regression Equation
X A=2600
dx
Dx2 Y A=2600
Dy
dy2 Dxdy
2365.53 -234.47 54976.18 882.84 -17171.6 2948638.4 402622.5
1801.17 -798.83 6318129.36 2087.76 -512.24 262389.81 409192.67
1248.31 -1351.69 1827065.8 2679.78 179.78 32320.848 -243006.82
2727.18 1727.18 2983150.7 3269.94 669.94 448819.6 1157106.9
4946.69 2346.69 5506953.9 3793.56 1193.56 1424585.4 2800915.3
x=13088.
88
dx=1688.88
dx2=11010275
y=12713.88
dy=186.12
dy2=5116754
dxdy=4526830.5
78.26175
88.13088
N
x
X ===
78.25425
88..12713
N
xX ===
( )
=
22 dxdxN
dydxdxdxNbyx
-
8/8/2019 Rajbir 12-10-10
81/90
RAJBIR SINGH, MBA 81
2)88.1688(110102755
)12.186(88.16885.45268305
=
6.285231555051375
34.31433422634152byx
+=
44.052199060
22948486byx ==
( )22 dydyN
dydxdxdyNbxy
=
2)12.186(51167545
)12.186(88.16885.45268305
=
654.3464025583770
34.31433422634152
+=
9.025549130
22948486==
(i) Regression equation:
Regression equation of X on Y Regression equation of Y on X
)YY(bxyXX =
X 2617.78=0.9(y-2542.78)
x = 0.9y-2288.50+2617.78
x = 0.9y + 329.278
)Xx(byxYY =
Y 2542.78=0.44(x-2617.78)
x = 0.44x-1151.823+2542.78
x = 0.44x + 1390.95
(ii) Regression lines:In order to draw up the two regression lines on the graph. We shall have to plot the given
values of x and the computed values of y and the given value of y and the computed v values of x.
-
8/8/2019 Rajbir 12-10-10
82/90
RAJBIR SINGH, MBA 82
Computed value of y
Regression equation of y on x
when x = 2365.53, y = 0.44 2365.53 + 1390.95 = 1040.833 + 1390.95 = 2431.78
when x = 1801.17, y = 2183.46
when x = 1248.31, y 1940.206
when x = 2727.18, y = 2590.90
when x = 4946.69, y = 3567.49
Computed value of x
Regression equation of x on y
X = 0.9y + 329.278when y = 882.84, x = 0.9 882.84+ 329.278 = 1123.834
when y = 2087.76, x = 2208.262
when y = 2679.78, x = 2741.08
when y = 3269.94, x = 3272.224
when y = 3793.56, x = 3743.48
-
8/8/2019 Rajbir 12-10-10
83/90
RAJBIR SINGH, MBA 83
Model 1 1607284.417
1607284.417
1.391 0.323
esiduals 3 3467140.861
1155713.620
otal 4 5074425.27
8Model parameters:
arameter
Value Standarddeviation
Student's t Pr > t Lowerbound 95
%
Upper bound 95 %
ntercept 1372.457 1102.717 1.245 0.302 -2136.883
4881.796
X 0.447 0.379 1.179 0.323 -0.759 1.654
he equation of the model writes: OPERATING PROFIT = 1372.4566922265 + 0.447066253099387*X
redictions, residuals, and confidence intervals:
Obseration
s
Weights
X Operating profit
Operating profit(model)
Residuals
Standardized
residuals
LowerConf.Mean
UpperConf.Mean
LowerConf.Indiv.
Upper Conf.Indiv.
bs1 1 2365.530 882.840 2430.005 -1547.165
-1.439 869.998 3990.013
-1330.13
7
6190.148
bs2 1 1801.170 2087.760 2177.699 -89.939 -0.084 357.911 3997.487
-1697.43
7
6052.835
bs3 1 1248.310 2679.780 1930.534 749.246 0.697 -321.306
4182.374
-2165.29
7
6026.365
bs4 1 2727.180 3269.940 2591.687 678.253 0.631 1055.968
4127.405
-1158.44
4
6341.817
bs5 1 4946.690 3793.560 3583.955 209.605 0.195 384.638 6783.272
-1100.13
3
8268.042
Durbin-Watson statistic: d = 0.880
Data and regression line
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
6000
7000
8000
1000 1500 2000 2500 3000 3500 4000 4500 5000
X
OPERATINGPROFIT
Observations Predictions
C onf. o n pre d (95 .00 %) C on f. o n m ean (95. 00% )
X / Standardized residuals
-2
-1.5
-1
-0.5
0
0.5
1
1000 1500 2000 2500 3000 3500 4000 4500 5000
X
Standardizedresiduals
OPERATING PROFIT / Standardized residuals Standardized residuals
-
8/8/2019 Rajbir 12-10-10
84/90
RAJBIR SINGH, MBA 84
CHI-SQUARE TEST
Set up the null hypothesis that observed reported net profit matches with expected net profit.
Applying x2 test on the value of net profit.
Year Observed value
(O)
Expected value
(E)
(O E) (O E)2
2006 1637.11 1629 8.11 65.77
2007 2007.20 2100 -94.8 8987.04
2008 2540.07 2571 -30.93 956.66
2009 3110.22 3042 68.22 4653.96
(O-E)2 =14663.43
Degree of freedom = v = 4-1 = 3
The tabulated value of2 at 5%
Level of significance for 3 d.f. = 7.82
The tabulated value of2 at 5% level of significance for 3 d.f. = 7.82
Result:
Since the calculated value of2 is more than the table value, so we do not accept the null hypothesis
and conclude that expected value of sales does not matches with observed value of sales.
-
8/8/2019 Rajbir 12-10-10
85/90
RAJBIR SINGH, MBA 85
FINDINGS OF STUDY
1. The company current ratio in previous years are satisfactory but in current
year the current ratio is 1.26:1 which shows that short term solvency of the
firm is not good.
2. Current year Liquidity ratio of company is 0.801:1 shows that company has
sound liquidity position.
3. The debt equity ratio of the firm is low 0.317:1 but the ratio of 1:1 considered
satisfactory which indicates that firm has to bear no burden of fixed interest
charges in the year of low profit.
4. Proprietary equity ratio is 0.313:1 which a danger signal for long term lenders
is as it indicates a lower margin of safety available to them.
5. Fixed assets to net worth ratio is .547 that are 55%and this is less then 100%,
it is difficult for the company to liquidate its assets.
6. The fixed assets turnover ratio is high (6.04 times). There is increase in this
ratio; it will indicate that there is better utilization of fixed assets.
7. Current assets turnovers ratio is in declining trend in last years but there is
increase in ratio from 1.083 in 2007 to 1.453 in 2009.
8. Gross profit ratio shows the decreasing trend in the gross profit since the ratio
has not improved from 22.78% in 2007 to 21.48% on 2009. This indicates
that the rate in decrease in cost of goods sold.
9. The net profit ratio shows that the margin is fluctuating over time with slight
improvement from 1.953% of 2006 to 6.155% of 2009
10. The inventory turnover ratio is 8.12 times which is good indicates that
stock is being sold fast and not kept in go down for longer period.
-
8/8/2019 Rajbir 12-10-10
86/90
RAJBIR SINGH, MBA 86
11. Returns on total assets are showing a little bit rising trend which means
now assets are utilizing in business in better way.
12. There is decrease in debt collection period in current year 2009 it
indicates prompt payment by debtors, which reduces the chances of baddebts. So it is good.
-
8/8/2019 Rajbir 12-10-10
87/90
RAJBIR SINGH, MBA 87
SUGGESTIONS/RECOMMENDATIONS
1. Short term Liquidity of the firm is not sound as the firms do not have
sufficient current assets to pay its current obligation. So company should
improve its current assets position.
2. The system should be designed by delegating adequate power to each
manager /officer.
3. Company should maintain the optimum capital structure which contains
the minimum cost of capital with appropriate voting power (decision making
power) towards the top level management.
4. The internal checks should be building to minimize the mistakes due to
less capacity utilization.
5. Company should maintain the currently growth rate of current assets
turnover ratio to get benefit of best utilization of current asset