A Study of ratios as a Tool of Financial Statement Analysis GK Plastics Bhalavani (MBA Finance)

1
A ProjectReport
On
“Study of Ratios as a Tool of Financial Statement Analysis”
For
“G.K. Plastics, Bhalavani”
Submitted to
SAVITRIBAI PHULE UNIVERSITY OF PUNE
For the Partial fulfillment of
MASTER IN BUSINESS ADMINISTRATION (M.B.A.)
SUBMITTED By
“Mr. Abhijit Suresh Lokhande”
Under the guidance of
Prof. M.S.Bhayani
Through
SRES COLLEGE OF ENGINEERING,
Department of MBA, KOPERGAON
2014-2016

Sanjivani Rural Education Society’s,
COLLEGE OF ENGINEERING, KOPARGAON
DEPT. OF MBA
Certificate
This is to certify that Mr. Abhijit Suresh Lokhande has submitted a
summer project on “Study of Ratios as a Tool of Financial Statement
Analysis” to University of Pune for the partial fulfillment of Master in
Business Administration (M.B.A.).
We further certify that to the best of our knowledge and belief, the matter
presented in this project has not been submitted to any other Degree or
Diploma course.
Prof. M.S. BHAYANI Dr. B. M. LONDHE
Internal Guide Head of Department
External Examiner

ACKNOWLEDGMENT
The completion of my project is always due to efforts from
numerous people. I take this opportunity to express my gratitude to all
those who have helped me in undertaking and completing this project
successfully.
Sincere thanks to Prof. Bhayani mam.
I express my deep gratitude to all faculty of MBA department, for helping
me from time to time in the Project.
I owe my profound thankfulness to Prof. Dr. B.M. Londhe Who
guided me to furnish my work & showed me the direction towards
success ofthis Project.
Mr. Abhijit Suresh Lokhande

DECLARATION
I undersigned here by state that the report, entitled “Studyof Ratios
as a Tool of FinancialStatementAnalysis”. Is a genuine and benefited
work presented by me under the guidance of Prof. M. S. Bhayani.
The empirical findings in this project report are based on the data
collected by myself.
The matter presented in this report is not copied from any source.
The work has not been submitted for the award of any degree or
diploma earlier to Pune University, Pune or any other Universities.
The Project Report is submitted to Pune University, in the Partial
fulfillment of the degree of Master in Business Administration. In year
2015-16.
Date:- / /2015 Signature

Place:- KOPERGAON ( Mr. Abhijit Suresh Lokhande)
INDEX
Chapte
r No.
Chapter Name
Page
No.
1 Executive Summary 1
2 Introduction 5
3 Industry Profile 7
4 Company Profile 12
5 ProductProfile 18
6 Objective of Study 22
7 Research Methodology 24
8 Theoretical Background 35
9 Data Analysis and Interpretation 42
10 Findings 55
11 Conclusion 57
12 Suggestions 59
13 Learning Through project 61
14 Bibliography 63

Annexure
CHAPTER NO1
EXECUTIVE SUMMARY
INDUSTRIAL PROFILE
ABOUT PLASTIC & RUBBER INDUSTRYIN INDIA:-
Companies in this industry manufacture plastic bags and bottles, plastic film
and sheets, plastic pipe and foams, rubber hoses, and tires. Major companies
include US-based Berry Plastics, Cooper Tire & Rubber, Goodyear, and
Newell Rubbermaid, as well as Amcor (Australia), Bridgestone (Japan),
Michelin (France), Pirelli (Italy), and Reynolds Group Holdings (New
Zealand).
Top global suppliers of plastic and rubber products include China, Germany,
and the US. Producers are targeting countries such as India, China, and
Brazil for growth.
The INDIAN plastic and rubber product manufacturing industry includes
about 10,000 companies with combined annual revenue of about 230 billion
Rs.
NEED FOR THE STUDY
The study has been conducted for gaining practical knowledge about Ratio analysis of
''G.K.PLASTICS, BHALAVANI''
The study is undertaken as a part of the MBA curriculum in the form of summer
project for the fulfillment of the requirement of MBA degree.
TITLE OF THE PROJECT

“This project “Study Of Ratio's as a tool of Financial Statement Analysis” of
G.K.PLASTICS LTD.BHALAVANI.
OBJECTIVES:- To study ratios as a tool of financial statement analysis.
To know the financial strengths and weaknesses of the company.
To study the overall profitability of last four years by calculating profitability ratios
To know the liquidity position of the company, with the help of Current ratio.
SCOPE OF THE STUDY
The scope of the study is identified after and during the study is conducted. The
main scope of the study was to put into practical the theoretical aspect of the study
into real life work experience. The study of Ratio analysis further the study is based
on last 4 years Annual Reports. This study can be helpful for G. K. Plastics ltd.
for future business activity and financial decision in order to increase the
profitability and operational efficiency.
LIMITATIONS OF THE STUDY
The analysis is limited to just four years of data study for financial analysis.
Limited interaction with the concerned heads due to their busy schedule.
METHODOLOGY
In preparing of this project the information collected from the following sources.
The Primary data has been collected from Personal Interaction with staff members.
Secondary data:
The major source of data for this project was collected through

Balance sheet of G.K. PLASTICS.
Profit and loss account of 4 years
SAMPLING DESIGN
Sampling unit : Financial Statements.
Sampling Size : Last four years financial statements.
Tools Used: MS-Excel has been used to create charts and calculation.
Findings
Due to increase in sundry debtors the current assets increase more than current
liabilities therefore the current ratio shows increase.
In debtors turnover ratio due to increase in sale the ratio is increasing.
The study shows that the company liquidity position is not so good, because company
has blocked its maximum funds in the current assets by increase in debtors and also
blocked fixed assets which shows that the company had remain with the less working
capital.
CONCLUSION
This project of Ratio analysis in the production concern is not merely a work of the
project. But a brief knowledge and experience of that how to analyze the financial
performance of the firm. The study undertaken has brought in to the light of the
following conclusions.
After the analysis of financial statements it is found that companies status is better.
The co's overall position is at a good Position. Particularly the current years position
is well due to raise in the profit level from the last year position.

CHAPTER NO 2
INTRODUCTION
INTRODUCTION:
Ratio Analysis is the process of determining and interpreting numerical
relationship based on financial statement. It is defined as the systematic use of ratio to
interpret the financial statement so that the strength and weakness of a firm as well as
its historical performance and current financial conditions can be determined.
During the study, show various types of ratios and how ratios are important in
the view of organization and how management use analysis of ratio for future
planning and determination of policies. I have properly studied all financial
documents and records and balance sheet to calculate the important ratio. Each ratio
focuses on the financial strength and weakness of the firm.
In this project, analysis is done by using primary data and secondary data and
discussion with various staff member in the organization and use projected balance
sheet and other general data.
Firms present their financial situation to stock holders, creditors and general
public through Critical Analysis of Financial Statements and Interpretations on basis
of Ratio Analysis, Cash flow statement etc. which are an important tool in the hands
of Management.
Ratio analysis isn't just comparing different numbers from the balance sheet,
income statement and cash flow statement. It's comparing the number against
previous years, other companies, the industry or even the economy in general. Ratios
look at the relationships between individual values and relate them to how a company
has performed in the past, and how it might perform in the future.

Comparing these ratios against numbers from previous years, other companies,
industry averages and the economy in general can tell you a lot about where a
company might be headed. Valuing a company is no easy task.
Ratio analysis is the method or process by which the relationship of item or
groups of items in the financial statements are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measures or guides
concerning the financial health and profitability of a business enterprise.
There are several ratios at the disposal of an analyst but the group of ratios he would
prefer depends on the purpose and the objectives of analysis.

CHAPTER NO 3
INDUSTRY PROFILE
Plastic & RubberProductManufacturing Industry Profile
Companies in this industry manufacture plastic bags and bottles, plastic film
and sheets, plastic pipe and foams, rubber hoses, and tires. Major companies
include US-based Berry Plastics, Cooper Tire & Rubber, Goodyear, and
Newell Rubbermaid, as well as Amcor (Australia), Bridgestone (Japan),
Michelin (France), Pirelli (Italy), and Reynolds Group Holdings (New
Zealand).
Top global suppliers of plastic and rubber products include China, Germany,
and the US. Producers are targeting countries such as India, China, and
Brazil for growth.
The INDIAN plastic and rubber product manufacturing industry includes
about 10,000 companies with combined annual revenue of about 230 billion
Rs.
COMPETITIVE LANDSCAPE
Because plastic products are widely used in industry and as consumer products,
demand depends on the overall health of the economy. The profitability of individual
companies depends on product mix and production efficiency. Large companies
have economies of scale in buying raw materials and in manufacturing commodity
products such as bottles and plastic film. Small companies can compete effectively by
specializing.
PRODUCTS, OPERATIONS & TECHNOLOGY

Major products include plastic bags and bottles, plastic film and sheets, plastic pipe .
CHAPTER NO 4
4. COMPANY PROFILE
COMPANYPROFILE

4.1 INTRODUCTION & HISTORY OF COMPANY
“G.K. PLASTICS”
Location:- “G.K. Plastics”, Gate No- 246/244,
Nagar-Kalian highway,
A/P-Bhalavani, Tal- Parner.
Dist- Ahmednagar.
A G.K. plastic is a partnership firm started in the year 2000. With
the partner
Mr. Garudkar Nandkumar & Mrs.GarudkarVijaya. It is located in rural
area at Bhalavani.
Currently in G.K. plastics 75 workers & 5 staff member are working.
The major product of G.K. plastics is H.D.P.E. fabrics pieces &
woven sacks. The fabric pieces are used in farm pond lining. The
company got ISI license in year 2012 & it works with the standards of
I.S.I.
The company has two strategic business unit-
• Tape plant Division
• Lamination plant

ORGANISATIONAL STRUCTURE OF G.

Jagdamba plastics Karnataka
Parnersahakarisakharkarkhana Andhrapradesh
Parasmiracale poly products Gujrat
National Horticultural mission
Diff. govt. schemes
Siddhivinayak plastics
Mahatma Phule Krushi Vidyapith
Prawara sahakari sakharkarkhana
Sangamner Bhag sahakari sakhar karkhana
Kukdi sahakari sakhar karkhana
Bhimashankar sahakari sakhar karkhana
CUSTOMERS IN MARKET
OUT SIDE STATE LEVELSTATE LEVEL

4.2. VISION OF THE COMPANY.
• Customer Delight
• To obtain maximum turnover
• Improved growth, profitability
• Trust on Technology
• Enriched Environment & society
• To be most sensitive regarding their employer
• To globalize their market.
4.3 MISSION OF THE COMPANY.
• Our employers will be capable to have fun & provide a competitive
edge.
• Creating wealth for all stockholders.

• Demanding that everything we do leads to a cleaner, healthier, safer
environment.
4.4. OBJECTIVES & GOALS OF COMPANY.
• To be most sensitive regarding their employees
• To be obtain maximized turn over
• Customer delight.
• Maintain Market leadership.
• Profitability.
• Improved growth.
• Enriched environment.

CHAPTER NO 5
5. PRODUCT PROFILE
The main product of company is H.D.PE/P.P, WOVEN SACKS & FABRIC PIECES.

CHAPTER NO 6
6. OBJECTIVES & SCOPE OF THE STUDY
6.1 Objective of the Study
• To study ratios as a tool of financial statement analysis.
• To know the financial strengths and weaknesses of the company.
• To study the overall profitability of last four years by calculating
profitability ratios
• To know the liquidity position of the company, with the help of Current
ratio.
• To gain insight into long term solvency of “G.K. Plastics”.
6.2 Scope of the Study
The scope of study is limited to “G.K. Plastics Ltd.”And is an
attempt to find out the financial position during past 4 years, from the Balance

sheet and Profit & loss A/c of G. K. Plastics with reference given to ratio
analysis.
The focus area of the project is to study the different ratios which
reflect the financial position of G. K. Plastics are helpful for business
organisation for future financial activity .It is essential to increase the
productivity of the farmer .Government also help such types of firm to increase
the productivity and fulfill the need of population.
This study can be helpful for G. K. Plastics ltd. for future
business activity and financial decision in order to increase the profitability and
operational efficiency.
.
6.3 Limitations of the Study
1) Due to short period it is difficult to analyze all the information which is
required to maintain the standard of the project.
2) Due to business privacy policy it was difficult to get all relevant information
3) The research conducted was only regarding the information available till the
duration of the project

CHAPTER NO 7
7. RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
Research can be defined as the “search for knowledge or as any
systematic investigation to establish facts”. The primary purpose for applied
research (as opposed to basic research) is discovering, interpreting, and
the development of methods and systems for the advancement of
human knowledge on a wide variety of scientific matters of our world and the
universe.
The Advanced Learner’s Dictionary of Current English lays
down the meaning of research as “a careful investigation or inquiry especially
through search for new facts in any branch of knowledge.
Research may mean the first small step in an Endeavour to better
understand the change occurring and at times forced up on us as individuals or
as a society. Research a process involves-defining and redefining problem.
It is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically

The research is said to be a good if the methodology is adopted
properly. The design and implementation is depended on data available. There
are two types of Data sources i.e. Primary data and Secondary data.
7. 1 METHODS OF DATA COLLECTION
Methodology means the method, techniques, and way of
collecting information about which we want in every sector; every work is
related with specific method.
Specific method means a current way of do a specific job.
Research methodology is the kind of research taken to know the Market
appraisal strength and weakness of a company.
DATA COLLECTION
Data collection is a term used to describe a process of preparing
and collecting data. The purpose of data collection is to obtain information to
keep on record, to make decisions about important issues, to pass information
on to others.
Data collection usually takes place early on in an improvement
project, and is often formalized through a data collection planwhich often
contains the following activity.
• Pre collectionactivity – Agree goals, target data, definitions, methods
• Collection – data collection

• Present Findings – usually involves some form of sortinganalysis and/or
presentation.
There are two types of data collection methods used for the
preparation of the project which are as follows.
PRIMARY DATA
In primary data collection, you collect the data yourself using
methods such as discussion with the assembly workers and self observation.
The key point here is that the data you collect is unique to you and your
research and, until you publish, no one else has access to it.
There are many methods of collecting primary data and the main methods
include:
• Discussion
• Observation
The primary data, which is generated by the above methods, may
be qualitative in nature (usually in the form of words) or quantitative (usually
in the form of numbers or where you can make counts of words used). We

briefly outline these methods but you should also read around the various
methods.
The primary data collectionmethods used for the project are:
A very few amount of primary data is used for the study with the various
departmental heads of discussion and observation.
SECONDARY DATA
The Secondary Data on the other hand, are based on second-
hand information. The data which have been already been collected, compiled
& presented easier by any agency may be used for the purpose of investigated
such data may be called “Secondary Data”. Collecting the information with the
help of annual reports, magazines, internet, and reference book.
There are many sources of data and most people tend to
underestimate the number of sources and the amount of data within each of
these sources.
Sources can be classified as:
• Paper-based sources – books, journals, periodicals, abstracts, indexes,
directories, research reports, conference papers, market reports, annual
reports, internal records of organizations, newspapers and magazines.
The secondary data collectionsources used for this study are
• Company’s Balance Sheet, Annual Audit Report, Other Financial
Statements

• The Company’s Brochure
• Reference books
• World Wide Web (Internet), etc.
CHAPTER NO 8
8. THEROTICAL BACKGROUND
RATIO ANALYSIS
8.1 INTRODUCTION:-
Ratio analysis is an important technique, which is widely used for
interpreting financial statement. The technique serves as a tool for assessing the
current and long term financial soundness of a business. It is also used to
analysis various aspects of operating efficiency and level of profitability. A
German scholar used ratios for the first time in 1919.
Financial statements are prepared primary for decision making.
They play a dominant for decision making. They play a dominant role in
setting the framework of managerial decision.
DEFINITION:-

WixonKell and Bedford:-
“Ratio is expressions of quantitative relationship between figures drown
from financial statements.”
Hunt, Willant Donaldson:-
“Ratio are simply a means of highlighting in arithmetical terms, of
relationship between figures drown from financial statements.”
Conclusion: - financial ratios are useful because they summarize briefly the
result of detailed and computation.
8.2 Classificationof FinancialRatio
1. Balance Sheet Ratio
2. Profit & Loss Ratio
A) Profitabilityratio - B) Liquidity Ratio: - C) Solvency Ratio:
1. Gross Profit Ratio 1. Current Ratio 1.Debt Equity Ratio
2. Net Profit Ratio 2. Liquid Ratio 2.Propritory Ratio
3 Capitals Employed
ClassificationofFinancial Statements
Functional ClassificationTraditional Classification

D) Overall ProfitabilityRatio: - E) Efficiency Ratio:-
1. Return on Capital Employed 1. Inventory Turnover Ratio
2. Return on Share Holders Equity 2. Fixed Asset Turnover Ratio
3. Return on Assets 3. Total Asset Turnover Ratio

8.3 TYPES OF RATIO
A) Traditional Classification:-
Traditional classification of ratios is classification according to financial
statements. The various types of ratios as follows;
1) Balance Sheet Ratio:
Balance Sheet Ratios are also called financial ratios. These ratios explain the
numerical relationship between the two figures in the balance sheet.
2) Profit & Loss Ratio: -
These ratios are operating ratios. These ratios explain the relationship between the
two items or group of items of the profit and loss account.
B) Functional Classification:-
The most useful and popular classification of ratios is the Functional
classification i.e. Classification of ratios according to the function. Such ratios are as
follows,
1) Liquidity Ratio: -
The ratio measures the liquidity and solvency position of the enterprise.
2) Leverage Ratio: -
This indicates the relation use of debt and equity in financing the asset of the firm.
3) Activity Ratio: -
The ratio measures the efficiency in the employment of funds in the business
operations. They reflect the company’s level of activity in relation to its turnover.
4) ProfitabilityRatio: -
These ratios measures overall performance and profit earning capacity of the
business.

8.4 CATEGARIES OF RATIOS
The ratios may be classified under various ways, which may use various
criterions to do the same. However for the convenience purpose, the ratios are classified
under following groups.
1. Liquidity group
2. Turnover group
3. Profitability group
4. Solvency group
Figure 8.1 Classifications of Ratios

LIQUIDITY GROUP:
The ratios computed under this group indicate the short-term position of the
organization and also indicate the efficiency with which the working capital is being
used. Commercial banks and short-term creditors may be basically interested in the ratios
falling under this group. Two most important ratios may be calculated under this group.
Figure 8.2 Types of Liquidity Group Ratios
1)Current Ratio:- It is calculated as,
Current ratio indicates the backing available to current liabilities in the
form of current assets. In other words, higher current ratio indicates that there are
sufficient assets available with the organization, which can be converted in the form
of cash. A current ratio of 2:1 is supposed to be standard and ideal.

2)Liquid Ratio or Acid Test Ratio or Quick Ratio:-
It is calculated as,
Quick Assets
Liquid Ratio= -----------------------
Quick Liabilities
Here liquid assets include all assets except inventory and expenses and
liquid liabilities except overdraft or cash credit or o/s expenses.
Liquid ratio indicates the backing available to liquid liabilities in the form of
liquid assets. The term liquid assets indicate the assets, which can be converted in the
form of cash without any reduction in the value. Almost immediately whereas the term
liquid liabilities which are required to be paid almost immediately. In other words, a
higher liquid ratio indicates that there are sufficient assets available with the
organization, which can be converted in the form of cash almost immediately to pay off
those liabilities, which are to be paid off almost immediately. As such higher the liquid
ratio better will be the situation. A liquid ratio of 1:1 is supposed to be standard and
ideal.

TURNOVER GROUP:
Ratios computed under this group indicate the efficiency of the
organization to use the various kinds of assets by converting them in the form of sales.
Under this group the following classification of ratios are made.
1)FixedAssets Turnover Ratio:- It is calculated as,
A high fixed assets turnover ratio indicates the capability of the
organization to achieve maximum sales with the minimum investment
in fixed assets. It indicates that the fixed assets are turned over in the
form of sales more number of times.
2)Current Assets Turnover Ratio:- It is calculated as,
A high current assets turnover ratio indicates the capability of the organization to
achieve maximum sales with the maximum investment in current assets. It indicates
that the current assets are turned over in the form of sales more number of times.

3) Working Capital Turnover Ratio:- It is calculated as,
A high working capital turnover ratio indicates the capability of the
organization to achieve maximum sales with the minimum investment in the working
capital. It indicates that working capital is turned over in the form of sales more number
of times.
4) Inventory or Stock Turnover Ratio:- It is calculated as,
A high inventory turnover ratio indicates that maximum sales turnover is
achieved with the minimum investment in inventory. As such as a general rule, high
inventory turnover ratio is desirable.
5) Debtors Turnover Ratio:- It is calculated as,
This ratio indicates the speed at which the sundry debtors are converted in
the form of cash. However the intention is not correctly achieved by making the
calculation in this way. As such this ratio is normally supported by the calculation period,
which is calculated as above.

6) Capital Turnover Ratio:- It is calculated as,
This Ratio indicates the efficiency of the organization with which the
capital employed is being utilized. A high capital turnover ratio indicates the capability of
the organization to achieve maximum sales with minimum amount of capital employed.
As such higher the capital turnover better will be the situation.
SOLVENCY GROUP:
Ratios computed under this group indicate the long-term financial prospects of the
company. The shareholders debenture holders and other lenders of long-term
finance/term loan may be basically under this group. Following ratios may be computed
under this group.
Figure 8.3 Types of Solvency Group Ratios

1) Debt-equity Ratio:- It is calculated as,
Debt-equity ratio indicates the state of shareholders or owners in the
organization vis-à-vis that of the creditors. It indicates the cushion available to the
creditors on liquidation of the organization. A high debt-equity ratio may indicate that
financial status of the creditors is more than that of the owners. A very high debt-equity
ratio may make the proportion of investment in the organization a risky one. On the other
hand a very low debt equity rate may mean that the borrowing capacity of the
organization is being underutilized.
2) ProprietaryRatio:- It is calculated as,
This ratio indicates the extent to which the owner s funds are sunk in
different kinds of assets. If the owner s fund exceeds fixed assets, it indicates that a part
owners fund invested in the current assets also and if owners fund are less than fixed
assets it indicates that the creditors finance a part of fixed assets either by long term or
short term.

3) Capital Employed Ratio:-
This ratio indicates the extent to which the long-term funds are sunk in
fixed assets.
PROFITABILITY GROUP:
Figure 8.4Types of Profitability Group Ratios

1) Gross Profit Ratio:-
The gross profit ratio indicates the relation between production cost and
sales and efficiency with which the goods are produced or purchased. A high gross profit
ratio may indicate that the organization is able to produce or purchase at a relatively
lower cost.
2) Net Profit Ratio:- It is calculated as,
The net profit ratio indicates that portion of sales available to the owners after the
consideration of all types of expenses and costs either operating or non-operating or
normal or abnormal. A high net profit ratio indicates higher profitability of the business.

OVERALL PROFITABILITY GROUP:
Figure 8.5 Types of Overall Profitability Group Ratios
1) Return on Assets: It is calculated as,
Return on assets measures the profitability of the investment in a firm. As
such higher return on assets will always be preferred. However Return on assets does not
indicate the profitability of various sources of funds, which finance total assets.

2) Return on Capital Employed:-
Return on capital employed measures the profitability of the capital
employed in the business. A high return on capital employed indicates a better and
profitable use of long-term funds of owners and creditors. As such a high return on
capital employed is preferred.
3) Return on Shareholder Funds:-
This ratio indicates the profitability of a firm in relation to the fund
supplied by the shareholders.

CHAPTER NO 9
9. Data Analysis and interpretation
DATA ANALYSIS is done by use of calculations of the data collected by means of statistical
methods like average, mean, etc. Conclusions and findings of the data were done with the use
of Assumptions. For this various practical aspects and problems were taken into consideration
after discussion with the supplier and the engineers of the company.
9.1 LIQUIDITY GROUP:-
1) CURRENT RATIO:-
Ta
ble
9.1
Cal
cul
ati
on
Current Ratio
2010-2011
Rs,
2011-2012
Rs
2012-2013
Rs,
2013-2014
Rs
Current Asset 8873464.45 9680334 11768191 12249145.52
Current
Liabilities
2115509.07 4071812 5277293 2339378.80
Current Ratio 4.2:1 2.3:1 2.2:1 5.2:1

Graph 9.1 Current Ratio
Interpretation:
 Current ratio measures the relationship between current Assets and Current Liabilities.
Current ratio of 2:1 is considered satisfactory. From the above calculation it is found
that company has managed the current assets and current liabilities in good manner
because the ratio is increased from 2.2 to 5.2 which are greater than standard ratio.
 As the ratio is higher, firms Liquidity Positionis better.
 Higher the Current Ratio, better is the firm from Lenders perspective.
 The Firm has to be cautious of very high ratio.
2) Liquid Ratio:-
4.2
2.3 2.2
5.2
0
1
2
3
4
5
6
2010-11 2011-2012 2012-2013 2013-2014
Current ratio
Current ratio

Particulars
2010-2011
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Liquid Assets 7618943.45 7418216 9959537 10078120.52
Liquid
liabilities
2115509.07 4071812 5277293 2339378.80
Quic Ratio 3.60 :1 1.82:1 1.88:1 4.3:1
Table 9.2 Calculation of Quick Ratio or Liquid Ratio
Graph
9.2
Quick
Ratio
or
Liquid
Ratio
Interpretation:-
 Liquid ratio shows the liquidity position of the company. Normally Liquid ratio of 1:1 is
considered as satisfactory from the above calculation it is found that company is having
good liquidity because the ratio in 2012-13is greater than the standard ratio.
 As the Quick Ratio of the Firm is better, the firm will be able to meet its Current
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2010-2011 2011-2012 2012-2013 2013-2014
3.6
1.82 1.88
4.3
Liquid Ratio
Quick Ratio

Liabilities at short notice.
TURNOVER GROUP:
1) Fixed Asset Turnover Ratio:-
Particulars
2010-2011
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net Sales 97944400 102063295 110820645 117645321.43
Fixed Asset 3356365.99 2715389 2881920 3180301.38
Fixed Asset
Turnover
Ratio
29.18 37.5 38.45 37
Table 9.3 Calculation of Fixed Assets Turnover Ratio

Graph 9.3 Fixed Assets Turnover Ratio
Interpretation:
 This Ratio is calculated to measure adequacy of the firm in investment in Fixed Asset.
As the firms Ratio is increasing every year, its investment in Fixed Assets is quite
adequate.
 The Profitability of the Firm Increases.
0
5
10
15
20
25
30
35
40
45
2010-2011 2011-2012 2012-2013 2013-2014
Fixed Asset Turnover Ratio
Fixed asset turnover ratio

2) Current Assets Turnover Ratio:-
Table 9.4 Calculation of Current Assets Turnover Ratio
Particulars
2010-2011
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net sales 97944400 102063295 110820645 117645321.43
Avg Current
Asset
8873464.45 9680334 11768191 12249145.52
Current Asset
Turnover
Ratio
11 Times 10.5 Times 9.4 Times 9.6 Times

Graph 9.4 Current Asset Turnover Ratio
Interpretation:-
 This Ratio indicates how many times the Current Assets turn into Sales in a year. Here
the firms’ ratio is decreasing from 2010 to 2014.This shows that the firm’s efficiency
level is not too good.
 In the year 2013-2014 the ratio has increased, it means that the firm’s efficiency level is
improving.
 Higher ratio implies that the firm can achieve larger Sales with smaller capital, exhibits
better profitability to the extent of savings made in the cost of funds.
8.5
9
9.5
10
10.5
11
2010-2011 2010-2011 2012-2013 2013-2014
Current Asset Turnover Ratio
Current asset turnover ratio

3) Working Capital Ratio:-
Particulars 2010-2011
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net sales 97944400 102063295 110820645 117645321.43
Working
Capital
6757955.38 5608522 6490898 9909766.72
Working
Capital Ratio
1.45:1 18.1:1 1.70:1 11.8:1
Table 9.5 Calculation of Working Capital Ratio

Graph9.5
Working
Capital
Turnover Ratio
Interpretation:-
 We can interpret that the firms Working Capital Ratio is quite Fluctuating. More quickly
the firm turns over different current assets into Cash, More efficient is the firm.
 This fluctuation is due to the changes in the proportion of the firms Current Asset and
Current Liabilities. In the year 2010-2011 the Current liabilities are almost doubled, so
the ratio has gone quite up.
4) Inventory Turnover Ratio:-
0
2
4
6
8
10
12
14
16
18
20
2010-2011 2011-2012 2012-2013 2013-2014
working capital turnover ratio
working capital turnover ratio

Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net Sales 97944400 102063295 110820645 117645321.43
Average
Inventory
1202171.5 1758319.5 1035386 1989839.5
Inventory
Turnover Ratio
81.4 times 58times 104times 59times
Table 9.6 Calculation of Inventory Turnover Ratio
Graph 9.6 Inventory Turnover Ratio
0
20
40
60
80
100
120
2010-2011 2011-2012 2012-2013 2013-2014
Inventory Turnover Ratio
Inventory Turnover Ratio

Interpretation:-
 We can interpret that the firms Inventory Ratio is quite Fluctuating. Though the sales are
rising but yet the inventory level is much fluctuating.
 This fluctuation is due to the changes in the proportion of the Inventory of the company.
In the year 2011-2012 the Inventory level greatly fell down though there was rise in
sales and then again in year 2012-2013 the inventory level increased greatly.
6) Debtors Turnover Ratio:-
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net Credit Sales 97944400 102063295 110820645 117645321.43
Closing Sundry Debtors 6523924.45 7092318 7655375 7789460.24
Debtors Turnover Ratio 15 14.4 14.8 15.1
Table 9.7 Calculation of Debtors Turnover Ratio

Graph 9.7 Debtors Turnover Ratio
Interpretation:-
 This ratio indicates the speed with which debtors are turned over during the year. Here it
signifies that the liquidity position of debts in the firm is good in the year 2010, 2013,
and 2014. It is because firm has done better Receivables Management.
In the 2011 the ratio has gone down because much of the receivables of the firm are not
yet received.
6) Capital Turnover Ratio:-
2010-2011 2011-2012 2012-2013 2013-2014
15 14.4 14.8 15.1
Debtors Turnover Ratio
Debtors turnover ratio

Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Sales 97944400 102063295 110820645 117645321.43
Capital
Employed
14614821.37 14189411 15238318 40411068.1
Capital
Turnover
Ratio
6.70 7.19 7.27 2.91
Graph 9.8 calculations Capital Turnover Ratio
Graph
9.8
Capital
Turnover Ratio
Interpretation:-
0
1
2
3
4
5
6
7
8
2010-20`11 2011-2012 2012-2013 2013-2014
Capital Turnover Ratio

 This ratio indicates the time span in which the Capital Employed is turned over during
the year. It signifies the Capital Structure of the firm. Better the ratio better is the
Capital structure.
 Here we can interpret firms ratio is quite fluctuating. It better in the year 2010-2011
comparatively.
SOLVENCY RATIO:-
1) Debt-Equity Ratio:-
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Long term Debt 1734048.91 1328387.56 1310345 25227000
Net Worth 6007194.83 6594717 7650612 8308815.85
Debt-Equity
Ratio
0.29 0.20 0.17 3.03
Table 9.9 Calculation of Debt-Equity Ratio

Graph 9.9 Debt-Equity Ratio
Interpretation:-
 Lower the debt-equity better is the ratio. Here in the trend of debt ratios indicates
reduction in the proportion of debt up to the year 2012.this indicates that the growth is
coming more and more from shareholders fund rather than debt.
 In the year 2013-2014, the ratio has gone high which is unfavorable for the firm this is
because the firm has increased proportion of debt in its capital structure.
2) ProprietaryRatio:-
0
0.5
1
1.5
2
2.5
3
3.5
2010-2011 2011-2012 2012-2013 2013-2014
Debt-Equity Ratio
Debt-Equity Ratio

Rs,
2011-2012
Rs,
2012-2013,
Rs,
2013-2014
Rs
Total Asset 16730330.44 18261223 20515611 42750446.90
Owner funds 6007194.83 6594717 7650612 8308815.85
Proprietary
Ratio
2.78 2.76 2.68 5.14
Table9.10 Calculation of Proprietary Ratio
Graph 9.10 Proprietary Ratio
Interpretation:-
0
1
2
3
4
5
6
2010-2011 2011-2012 2012-2013 2013-2014
Proprietory Ratio
Proprietory ratio

 It measures the proportionate contribution of the proprietor in the total assets.
 Here we can interpret that contribution of proprietary fund is almost same till 2012-
2013. But in the year 2013-14 it has increased which signifies qualitative and
quantitative improvement in fund. It results in improvement in the financial position of
firm.
3) Capital Employed Ratio:-
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Fixed Asset 3356365.99 2715389 2881920 3180301.38
Capital Employed 14614821.37 14189411 15238318 40411068.1
Capital Employed
Ratio
22.9% 19.1% 18.9% 7.8%
Table 9.11 Calculation of Capital Employed Ratio

Graph 9.11 Capital Employed Ratio
Interpretation:-
 This ratio indicates the extent to which the long-term funds are sunk in fixed assets.
 Here we can interpret that capital employed fund is almost same till 2012-2013. But in
the year 2013-14 it has decreased which signifies long term fund are less sunk in fixed
assets
PROFITABILITY GROUP:-
0
5
10
15
20
25
2010-2011 2011-2012 2012-2013 2013-2014
Capital Employed Ratio

1) Gross Profit Ratio:-
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
G.P 3358315 3281087.98 3174177 3379017.43
Net Sales 97944400 102063295 110820645 117645321.43
G.P. ratio 30% 32% 28% 28%
Table 9.12 Calculation of Gross Profit Ratio
Graph 9.12 Gross Profit Ratio
Interpretation:-
26
27
28
29
30
31
32
33
2010-2011 2011-2012 2012-2013 2013-2014
G.P.Ratio

 Gross profit is excess to total sales revenue over its cost of goods sold. It reflects
Production Efficiency.
 Here we can interpret that till 2011-2012 the efficiency of the firm is good, but in the
succeeding year it has gone down and has remained constant. This is because the Sales
of firm has gone down in 2013 and 2014.
2) Net Profit Ratio:-
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net Profit 841406.08 898366 925137 1078165.36
Net Sales 97944400 102063295 110820645 117645321.43
Net Profit
Ratio
0.85% 0.88% 0.83% 0.92%
Table 7.13 Calculation of Net Profit Ratio

Graph. 9.13 Calculation of Net Profit Ratio
Interpretation:-
 Net Profit reflects the overall profitability of the firm.
 Here we can see that overall profitability of firm is increasing with the increase in ratio.
OVERALL PROFITABILITY GROUP:-
0.78
0.8
0.82
0.84
0.86
0.88
0.9
0.92
2010-2011 2011-2012 2012-2013 2013-2014
Net Profit Ratio

1) Return on Fixed Asset Ratio:-
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net Profit 841406.08 898366 925137 1078165.36
Fixed Asset 3356365 2715389 2881920 3180301.38
Return on Fixed Asset 25% 33% 32% 34%
Table 7.14 Return on Fixed Assets
Graph 9.14 Returns on Fixed Assets
Interpretation:-
0
5
10
15
20
25
30
35
2010-2011 2011-2012 2012-2013 2013-2014
Return On Fixed Asset

 This ratio indicates the amount of profit obtained from the investment in fixed assets.
 From the graph, we can easily see that the returns on fixed assets are increasing except
in year 2010-2011 there was small fall down on returns but again the returns increased in
the year 2011-2012.
2) Return on Capital Employed:-
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net profit 841406.08 898366 925137 1078165.36
Interest 716230 834969 634547 592485
Capital
Employed
14614821.37 14189411 15238318 40411068.1
Return on
Capital
Employed
10.65% 12.2% 10.23% 4.1%
Table 9.15 Calculation of Returns on Capital Employed

Graph 9.15 Return on Capital Employed
Interpretation:-
 Efficiency of the firm in using capital at its disposal is reflected by its Returns on Capital
Employed.
 Here the trend shows that Return on Capital Employed is good till 2012-2013, but it
decreases in 2013-2014. This is because capital employed by firm has tremendously
increased in 2012-2013.
0
2
4
6
8
10
12
14
2010-2011 2011-2012 2012-2013 2013-2014
Return On Capital Employed

3) Return on Shareholder Fund/Equity:-
Rs,
2011-2012
Rs,
2012-2013
Rs,
2013-2014
Rs,
Net Profit 841406.08 898366 925137 1078165.36
Shareholder
Fund
6007194.83 6594717 7650612 8308815.85
Return on
Shareholder
fund
14% 13.6% 12% 12.9%
Table 9.16 Calculation of Shareholders Fund

Graph 9.16 Returns on Shareholder Fund
Interpretation:-
 Return on Equity is the return that firm generates on funds provided by Equity
shareholders. Here the ratio is decreasing because the proportion between Net profit and
shareholders fund is decreasing.
 Increasing Return on Equity denotes improving efficiency of firm in handling its
shareholders fund. Here the decreasing ratio denotes to be unfavorable for the firm.
11
11.5
12
12.5
13
13.5
14
2010-2011 2011-2012 2012-2013 2013-2014
Return On Shareholder Fund

FINDINGS
Findings:
The following were the findings for this project:
1. In spite of increase in turnover in the year 2010-2011 from 97944400 to 117645321.43 in the year
2013-2014, the Net Profit has not increased in same because there is a reduction The Current Ratio
increased from 2.2 in year 2012-2013 to 5.2 in year 2013-2014. It is evident that this has resulted
because of reduction in Sundry Creditors from 3873571 to 5208779.
2. Due to increase in sundry debtors the current assets increase more than current liabilities therefore
the current ratio show increase.
3. Due to maximum debtors it shows companies more working cash have been blocked and more
current ratio i.e. 5.2 is also not a good.
4. In debtors turnover ratio due to increase in sale the ratio is increasing.
5. As per debt equity ratio, proprietary ratio, and capital employed ratio we come to know the
company’s solvency.
6. The profitability ratio shows the returns on each investment and capital.
7. As per above study the liquidity group shows the liquidity position of the company. The study
shows that the company liquidity position is not so good, because company has blocked its
maximum funds in the current assets by increase in debtors and also blocked fixes assets which
shows that the company had remain with the less working capital.
8. As per solvency group we come to know the company’s solvency position, the company had raised
the debt in the total capital structure which effect on company’s solvency it can be happen in the
future that company has to closed down its business due to increase more in debts.
9. As per profitability group come to know the company’s profitability due to more increase in debtors
company had blocked its funds and profit also therefore the gross profit ratio is decline
Chapter No 10

Recommendations
Based on the extensive study carried out for two months the following were the suggestions &
recommendations for this project to the company:
1. The company should increase its Gross Profit Margin or increase the turnover. If it which has to
increase its Net Profit.
2. The company should try to restore the Credit period from its Creditors so that more funds are
available to the Company
3. Company should try to keep its Sales or Borrowings within manageable proportion. it should also
try to reduce Debt-equity ratio to 1:1.
4. The company’s liquidity is more so company should reduce its liquidity by that company’s
profitability could be more
Chapter no 11

CONCLUSION
CONCLUSION
After the analysis of financial statements, the company status is better, because the Net
working capital of the company is increased 10 times from the last year’s position.The company profits
are huge in the current year; it is better to declare the dividend to share holders. Even the Debt to equity
ratio has also greatly increased.
The company is utilizing the fixed assets, which majorly help to the growth of the organization. The
company should maintain that perfectly.The company’s overall position is at a good position.
Particularly the current year’s position is well due to raise in the profit level from the last year position.
It is better for the organization to diversify the funds to different sectors in the present market scenario.
CHAPTER NO 12

Learning Through Project
Learning through project is important because it enables us to:
Explore the reasons why things are (or are not) working well and make changes to help
you achieve your outcomes.
Gather information about the impact of your project, that will help you report to funders
and others about how your project is performing and how you've adapted it to changing
circumstances
It talks about and provide evidence of your impact, your achievements and your
experience and to identify good practice
Build a culture of reflection and analysis within organization that helps people to
improve the quality of their work.
About monitoring and evaluation:
I have gathered information on a regular basis to see how my project is doing.
This monitoring information helped me check progress against agreed plans, and useful
to report back to project guide.
I have got answers of key questions, for example, how and why certain outcomes were
achieved.
This means bringing monitoring information together and collecting additional
information, analyzing it, then reflecting and learning from findings.
CHAPTER NO 13

 I have got knowledge about ratios as a tool of financial statement
analysis.
 I have understood the financial strengths and weaknesses of the
company.
 I have studied the overall profitability of last four years by calculating
profitability ratios
 Now I also know the liquidity position of the company, with the help
of Current ratio.
 Got insight into long term solvency of “G.K. Plastics”.

BIBLIOGRAPHY
 Basic accounts and finance for non accountants/ D.K. Chatterjee / Himalaya
publishing house /Page .No.- 6.8, 6.10- 6.16
 Annual reports from 2009 -10to 2012-13.
 Financial management /S.C. Kuchhal / 16th Edition reprint 2007/ Chaitanya
publishing house /Reference: Page .No : 7.2-7.4, 7.18 , 7.21
 Financial management/ Dr. N.M. Vechalkar /Nirali prakashan /Reference: Page .No
: 7.13 – 7.23, 4.3-4.4
 www.slideshare.net
 www.scribd.com
 www.oppapers.net
CHAPTER NO 14

Annexure
G.K.PLASTICS LTD, BHALAVANI
Balance Sheet as on 31st March, 2011
LIABILITIES 2010-11 ASSETS 2010-11
CAPITAL FIXED ASSETS
Opening Balance 3313407.75
As per fixed assets
schedule 3356365.99
Add:Net Profit 841406.08
Add: IT Refund 2007-08
Add: Income from
salary
Add: Capital Incentive 2000000.00 INVESTMENT
6154813.83 Investment in shares 3799500.00
Less: Drawing 42590
Investment in SBI Mutual
fund 200000.00
Less: LIC 57029
Investment in PNB Mutual
fund 25000.00
Less:IT paid for 2008-
09 Land Gut No. 121/1
Less: TDS 48000 Land Gut No. 109 476000.00
6007194.83
SECURED LOANS CURRENT ASSETS
Cash credit from SBI 6196577.63 Closing Stock 1254521.00
Term Loan SBI 1085896.91
Sundry debtors(As per
enclosed list) 6523924.45
Car loan from PNB
Vehicle Finance(TATA
finance) 648152.00 Deposits(Assets) 29105.00
Loan & Advances
(Asset)(As per enclosed
list) 952754.00
UNSECURED LOANS Cash in hand 62956.00
(As per enclosed list) 677000.00 Bank A/C's 50204.00
TDS
CURRENT
LIABILITIES
Provision(As per
Sundry creditors(As per
16730330.44 16730330.44

As per fixed assets
schedule 2715389.00
Add: IT Refund 2007-08 4410.00
Add: Income from salary
Add: Capital Incentive INVESTMENT
Less: Drawing 56914.00
Investment in SBI
Mutual fund 200000.00
Less: LIC 59242.00
Investment in PNB
Mutual fund 25000.00
Less:IT paid for 2008-09 199098.00 Land Gut No. 121/1 1365000.00
Less: TDS Land Gut No. 109 476000.00
6594717.00
Term Loan SBI 534887.56
Car loan from PNB
Vehicle Finance(TATA finance) 116500.00 Deposits(Assets) 132917.00
Loan & Advances
(Asset)(As per
TDS
CURRENT LIABILITIES
Provision(As per enclosed list) 198241.00
Sundry creditors(As per enclosed list) 3873571.00
18261223.00 18261223.00

As per fixed assets
schedule 2881920.00
Add: Income from salary 300000.00
INVESTMENT
fund 200000.00
Less: LIC 109242.00
fund 25000.00
Land Gut No. 121/1 1365000.00
Land Gut No. 109 476000.00
7650612.00
Term Loan SBI
Car loan from PNB 633345.00
Vehicle Finance(TATA finance) Deposits(Assets) 132917.00
Loan & Advances
list) 1849540.00
TDS 36944.00
CURRENT LIABILITIES
Provision(As per enclosed list) 68514.00
Sundry creditors(As per enclosed list) 5208779.00
20515611.00 20515611.00

Opening Balance 7650611.49 As per fixed assets schedule 3180301.38
Add: Income from salary 300000.00
INVESTMENT
Less: Self assesment tax 09-
10 218972.00 New Land Purchase 2150000.00
Less: Self assesment tax 10-
11 238198.00
fund 200000.00
fund 25000.00
Less: LIC 98000.00 Land Gut No. 121/1 1365000.00
Land Gut No. 109 476000.00
8308815.85
SBI Car Loan 550000.00
Car loan from PNB 547421.00 Statutory Current assets 421797.00
HDFC Loan 79166.62 Deposits(Assets) 32917.00
Loan & Advances
list) 1753487.00
TDS 10122.00
CURRENT LIABILITIES
Provision(As per enclosed
list) 226631.00
Sundry creditors(As per
42750446.90 42750446.90

A Study of ratios as a Tool of Financial Statement Analysis GK Plastics Bhalavani (MBA Finance)

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