Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

NIRAJ PROJECT

134 views

Published on

  • Be the first to comment

  • Be the first to like this

NIRAJ PROJECT

  1. 1. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 1 CHAPTER: 1 INTRODUCTION FINANCIAL ANALYSIS: It is the systematic numerical calculation of the relationship of one financial year with the order to measure the profitability, operational efficiency, solvency and the growth of business. The analysis simplifies, summarizes and systematizes the monotonous figures. It is used to identify the financial strength and weakness of a firm by evaluating relationship between the items of balance sheet and profit/loss account. PROCEDURE OF FINANCIAL STATEMENT ANALYSIS:  The analyst should acquaint himself with the principles and postulates of accounting.  The extent of analyst should be determined so that the sphere of work may be decided.  A relationship is established among financial statements with the help of tools and techniques of analysis such as ratios, trends, common size, fund flow etc. TECHNIQUES AND TOOLS OF FINANCIAL STATEMENTANALYSIS: Financial statements give complete information about assets, liabilities, equity, reserves, and profit and loss of an enterprise. They are not readily understandable to interested parties like creditors, shareholders, investors etc. Thus, various techniques are employed for analyzing and interpreting the financial statements.
  2. 2. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 2 Techniques of analysis of financial statements are mainly classified into three categories: (1) Cross-sectional analysis: It is also known as inter firm comparison. This analysis helps in analyzing financial characteristics of an enterprise with financial characteristics of another enterprise in that accounting period. For example, if company A has earned 15% profit on capital invested. This does not say whether it is adequate or not. If we analyze further and find that a similar company has earned 16% during the same period, then only we can make a conclusion that company B is better. Thus, it turns into a meaningful analysis. (ii) Time series analysis: It is also called as intra-firm comparison. According to this method, the relationship between different items of financial statement is established, comparisons are made and results obtained. The basis of comparison may be: – Comparison of the financial statements of different years of the same business unit. – Comparison of financial statement of a particular year of different business units. (iii) Cross-sectional cum time series analysis: This analysis is intended to compare the financial characteristics of two or more enterprises for a defined accounting period. It is possible to extend such a comparison over the year. This approach is most effective in analyzing of financial statements. The analysis and interpretation of financial statements is used to determine the financial position. A number of tools or methods or devices are used to study the relationship between financial statements. However, the following are the important tools which are commonly used for analyzing and interpreting financial statements: 1. Comparative financial statements 2. Common size statements 3. Trend analysis Ratio analysis
  3. 3. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 3 4. Funds flow analysis 5. Cash flow analysis 6. Ratio analysis 1. COMPARITIVE FINANCIAL STATEMENT: In brief, comparative study of financial statements is the comparison of the financial statements of the business with the previous year‟s financial statements. It enables identification of weak points and applying corrective measures. Practically, two financial statements (balance sheet and income statement) are prepared in comparative form for analysis purposes. Comparative Balance Sheet: The comparative balance sheet shows the different assets and liabilities of the firm on different dates to make comparison of balances from one date to another. The comparative balance sheet has two columns for the data of original balance sheets. A third column is used to show change (increase/decrease) in figures. The fourth column may be added for giving percentages of increase or decrease. While interpreting comparative Balance sheet the interpreter is expected to study the following aspects: (i) Current financial position and Liquidity position (ii) Long-term financial position (iii) Profitability of the concern 1. For studying current financial position or liquidity position of a concern one should examine the working capital in both the years. Working capital is the excess of current assets over current liabilities. 2. For studying the long-term financial position of the concern, one should examine the changes in fixed assets, long-term liabilities and capital. 3. The next aspect to be studied in a comparative balance sheet is the profitability of the concern. The study of increase or decrease in profit will help the interpreter to observe whether the profitability has improved or not. After studying various assets and liabilities an opinion should be formed about the financial position of the concern
  4. 4. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 4 2. COMMON SIZE STATEMENTS: The common size statements (Balance Sheet and Income Statement) are shown in analytical percentages. The figures of these statements are shown as percentages of total assets, total liabilities and total sales respectively. Common-size analysis (also called vertical analysis) expresses each line item on a single year's financial statement as a percent of one line item, which is referred to as a base amount. The base amount for the balance sheet is usually total assets (which is the same number as total liabilities plus stockholders' equity), and for the income statement it is usually net sales or revenues. By comparing two or more years of common-size statements, changes in the mixture of assets, liabilities, and equity become evident. 3. TREND PERCENTAGE ANALYSIS: The next important tool of analysis is trend percentage which plays significant role in analyzing the financial stature of the enterprise through base years‟ performance ratio computation. This not only reveals the trend movement of the financial performance of the enterprise but also highlights the strengths and weaknesses of the enterprise The following ratio is being used to compute the trend percentage = CURRENT YEAR / BASE YEAR * 100 4. CASH FLOW STATEMENT: A Cash Flow Statement depicts the changes in cash position of an organization from one period to another. The term „Cash‟ includes cash and bank balance. It is more useful for short term analysis and cash planning of the business.
  5. 5. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 5 The objectives of cash flow statement are:  Making long term planning for cash.  Projecting future cash position of a concern.  Evaluating the cash position of a firm.  To know about liquidity position. 5. FUND FLOW STATEMENT: Fund Flow Statement is a statement or schedule of fund this shows the sources of fund and application of fund and also the effective changes among them. It acts as a basis for financial plan and budgeting. This statement gives early warning of coming financial dangers. It acts as a complementary to income statement. 6. RATIO ANALYSIS: INTRODUCTION TO RATIO ANALYSIS: The Company‟s financial information is contained in balance sheet and profit/loss account. The figures contained in these statements are absolute and sometimes unconnected with one another. Forinstance company‟s profitability cannot be known unless together with the amount of profit and the capital employed is also seen. MEANING OF RATIO: A Ratio is only a comparison of the numerator with the denominator. The term Ratio refers to the quantitative relationship between two figures and obtained by dividing the former bytelatter. They are designed to show how one number is related to another. It is worked out by dividing one number by another.
  6. 6. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 6 MEANING OF RATIO ANALYSIS: Ratio Analysis is an important and old age technique of financial analysis. Ratio Analysis involves comparison of relevant figures or useful interpretation of statement. It is very useful techniqueto check upon the efficiency of a firm. Some Ratios indicate the trend or progress and downfall of the firm. MODES OF EXPRESSNG “RATIO “:  RATE: This is the ratio between the two numerical facts over a period of time. Example – stock turnover is 3 times a year.  PROPORTION: This is arrived by the simple division of one number by another. Example – current assets to current liability ratio is 3:1  PERCENTAGE: It is a special type of rate expressing the relationship in hundreds. It is arrived by multiplying the quotient by 100. Example – gross profit is 30% of sales. SIGNIFICANCE OF RATIOS AS TOOLS OF FINANCIAL ANALYSIS: Ratio Analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an end in itself. Ratio are significant both in vertical and horizontal analysis. Vertical analysis helps the analyst to judge whether the performance of the company is better. Use of the ratio in horizontal indicates whether the financial condition of the company is improving or deteriorating and whether the cost, profitability and efficiency are showing an upward trend or a downward trend.
  7. 7. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 7 GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS:  Accuracy of Financial Statements.  Objective of the Analysis.  Selection of ratio.  Use of standards. TYPES OF RATIO: Liquidity Ratio:  Current Ratio  Liquid Ratio  Absolute Ratio Accounting Ratio Traditional Functional P/L Account Balance sheet Composite Ratio Liquidity Ratio Turnov er Ratio Profita bility Ratio Leverage Ratio
  8. 8. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 8 Leverage Ratio / Solvency Ratio:  Solvency Ratio.  Debt-equity Ratio.  Proprietary Ratio.  Fixed assets to Ratio.  Current assets to Net worth ratio.  Fixed assets to Capital Employed Ratio.  Sales to Net worth Ratio.  Net worth Ratio.  Current liabilities to Net worth Ratio. Turnover ratios:  Inventory turnover ratio.  Debtor‟s turnover ratio.  Working Capital turnover ratio.  Fixed assets turnover ratio.  Current assets turnover ratio.  Total assets turnover ratio.  Capital turnover ratio. Profitability Ratio:  Net profit ratio  Gross profit ratio  Return on total assets
  9. 9. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 9 ADVANTAGES OF RATIO ANALYSIS:  Ratio analysis helps in decision making.  Ratio analysis helps in financial forecasting and planning.  Ratio analysis helps in communicating information in meaningful manner to the one for whom it is meant.  Ratio analysis aid to measure general efficiency.  Ratio analysis helps to measure financial solvency by comparing present ratio with the past ratio.  Ratio analysis helps in measuring profitability of the company by calculating gross profit, expenses and incomes.  Ratio analysis helps in measuring short term and long term financial position of the company.  Ratio analysis facilitates comparative analysis of the performance.  Helpful in simplifying accounting ratio.  Useful in improving future performance.
  10. 10. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 10 LIMITATION OF RATIO ANALYSIS:  Limitations use of a single ratio, usually single ratio does not convey much of a sense.  Lack of adequate standard, there is no well accepted standards or rules for all ratios which can be accepted as norms.  Inherent limitation of accounting.  Change of accounting procedure by a company often makes ratio analysis misleading.  Financial statement can easily be window dressed to present a better picture of company‟s profitability position to outsiders.  Absolute figure distortive, ratios devoid of absolute figures may prove distortive as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.  Price level changes, no consideration is made to the changes in price levels and this makes the interpretation of ratio invalid.  Background is overlooked.  Limited use, ratio analysis is not a substitute for sound judgments.
  11. 11. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 11 CHAPTER – 2 RESEARCH DESIGN TITLE OF THE STUDY: A Study on “RATIO ANALYSIS” at BHEL EPD, Bangalore. STATEMENT OF THE PROBLEM: Statement of problem is one of the important factors for determining the efficient analysis of ratio. The study undertaken is an effort to understand the financial performance of BHEL-EPD. As BHEL is one among various big companies in the electrical industry. So, in order to survive in the market BHEL have to compete with their competitors. Therefore, it is very important to evaluate the financial performance from time to time and market standing of the company in order to give a better scope to investors and creditors. SCOPE OF THE STUDY: The study provides information related to the topic “RATIO ANALYSIS” and some of the methods followed in analyzing it. The impact of proper management of financial ratio on the BHEL. The scope of research is limited to BHEL-EPD only.
  12. 12. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 12 OBJECTIVE OF THE STUDY:  To analyze the financial position of the concern over the last five years.  To examine the factors affecting financial and operational performance.  To identify the market strength of the company through short term projection.  To suggest measures for improving and accelerating the business performance.  To interpret and analysis different types of financial ratio.  To find out how effectively the company has utilized its financial resources to maximize the profitability and overall wealth of the firm. OPERATIONAL DEFINITIONS: The definition of concepts used in this reports has a bearing a meaning used in financial statement of the company. 1. Current assets:Inaccounting, a current asset is an asset on the balancesheet which can either be converted to cash or used to pay current liabilities within 12 months. Typical current assets include cash, cash equivalents, short-term investments, accounts receivable, inventory and the portion of prepaid liabilities which will be paid within a year. 2. Current liability:A company's debts or obligations payable within one year. Current liabilities appear on the company's balance sheet and include shortterm debt, accounts payable, accrued liabilities, and other debts. 3. Quick assets: The term quick assets refers to current assets, which can be converted into cash immediately. 4. Liquid liability: It means liability which are payable within short period of time.
  13. 13. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 13 5. Fixed assets:Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is a term used in accounting for assets and propertywhich cannot easily be converted into cash. 6. Capital Employed: This can be found by assigning the net working capital and net fixed assets. 7. Net worth:For a company, this is known as shareholders' equity and is determined by subtracting liabilities on the balance sheet from assets. For example, if a company has $45 million worth of liabilities and $65 million in assets, the company's net worth (shareholders' equity) is $20 million ($65 million - $45 million). METHODOLOGY OF STUDY: Research methodology involves preparation of a broad action plan of this study. This includes the following; 1) Collection of various financial information available in the company. 2) Visual observation and informal with official of the company. 3) Collection, tabulation and analysis of various ratios. SOURCE OF DATA:  PRIMARY DATA: It was obtained through personal interaction with company officials during project period.  SECONDARY DATA: It was obtained by,
  14. 14. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 14 1) Annual report and financial statement of BHEL. 2) Auditors report. 3) Journal, magazines published by BHEL. 4) Internet Website- www.bhel.com www.bhelepd.com SAMPLING METHOD:: The study has no scope to use any sample. As the study only contents with collecting data from the company annual report, internal department and other sources through analysis. PLAN OF ANALYSIS: The annual report of BHEL, brochures and other relevant secondary data was collected in order to classify and tabulate it for the purpose of analysis and interpretation. Data was analyzed with the help of ratio analysis as one of the financial techniques. REFERENCE PERIOD: The study is conducted based on the schedules of last five years i.e., 2005-06 to 2010-11.
  15. 15. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 15 LIMITATIONS OF THE STUDY:  This study no doubt deals with the relation to objective, but it does not claim completeness and total accuracy of its findings.  As the secondary data was mainly collected from annual report, the data available was limited.  The duration of the study is very short to conduct an in-depth study.  It has not been possible to calculate the entire ratio for the purpose of analysis due to non- availability of data.  This study is not able to predict the future performance of the company. So only past performance is evaluated.  All experienced things cannot be put on hard copy.
  16. 16. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 16 CHAPTER SCHEME: Chapter-1:INTRODUCTION: This includes the theoretical background of the study. PART-A: About Industry PART-B: About Subject Chapter-2:RESEARCH DESIGN: This chapter gives brief description about the objective of the study, methodology, scope, limitation of the study etc,. Chapter-3: COMPANY PROFILE: This chapter gives detailed information about the company. Chapter-4: DATA ANALYSISAND INTERPRETATION:This chapter contains of interpretation of data collected from different source converted them into ratio and presented in graph and tables for quick observation. Chapter-5: SUMMARY OF FINDING AND CONCLUSION: This chapter gives the summary of findings and conclusion of data collected from the source. Chapter-6: RECOMMENDATION AND SUGGESTIONS:This chapter comprises the summary of suggestions that could be made to improve loops of the company. Chapter-7: APPENDICES AND ANNEXURE: This chapter contains the copies of the financial statement of the last five years. Chapter-8:BIBLIOGRAPHY:This chapter contains different books, magazines websites referred for the effective study of ratio analysis.
  17. 17. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 17 CHAPTER-3 COMPANY PROFILE BRIEF HISTORY: In the year 1932, the government of Mysore established a department undertaking called “The government porcelain factory” to cater the needs of the equipment for its electricity department under the leadership and guidance of Sir.M.Vishveshwaraih. The amount of capital invested was Rs.303565 and the total employees were 200. The production was Rs 28500 and sales were Rs 21270. This was the only firm in the whole south India which manufactured and supplies high & low tension insulators to various electrical corporation and government. In the year 1957 in order to raise the production from 50 tons to 200 tons per month, GPS made collaboration with Negron Geisha Keisha (NGK) Japan Insulator Company. Later GPS was converted into public limited company. In 1957 and named Mysore Porcelain Limited. As MPL was running at heavy loss, BHEL took over porcelain limited with instance of government of Karnataka. Finally on May 21st 1980, MPL merged with BHEL, known as BHEL-EPD (Electro porcelain division)BHEL-EPD is today a leading manufacturing of high tension electro porcelain insulator and Ceralin with experience of over 50 years. BHEL EPD is the largest engineering and manufacturing enterprise in India in the energy related and infrastructure sector BHEL was established in late 50‟Sbhel was cater to core sector of Indian economy - power generation, transmission, transportation, telecommunication, renewable energy etc… BHEL has already attained ISO 9000 certification for quality management and ISO 14001 certification for environment management system. The company inherent potential coupled with its strong performance over the year has resulted in it being chosen as one of the „‟NAVARATNA‟‟ PSES, which are to be supported by the government in their Endeavour to become future global player. Today BHEL is the India‟s
  18. 18. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 18 top heavy electrical manufacturing company and ranks 12th in the world.It has the excellent track record of earning profit from more than 25 years which is the outstanding performance by any of the Indian organization. It is the 1st public sector organization to secure the best industrial relation award for the year 1983, instituted by all Indian organization for outstanding achievement in industrial relation. NATURE OF BUSINESS: The nature of the business carried by BHEL-EPD is to receive orders and produce electro porcelain insulators like Disk Insulators, Hallow Insulators, and Certain in accordance with the customer requirement and deliver the same on time. BHEL-EPD a manufacturing unit having a work force of around 1900 employees invites application for vacancies in the trade.
  19. 19. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 19 INTRODUCTION TO THE INDUSTRY BRIEF HISTORY: Heavy Electrical Industryis an important manufacturing sector, catering to the need of energy sector & other industrial sectors. Major equipments like boilers, turbo generators, turbines, transformers, condensers, switch gears and relays and related accessories are manufactured by Heavy Electrical Equipment manufacturers. The performance of this Industry is closely linked to power program of the country. The Government of India has an ambitious mission of „Power for all by 2012‟ and planned power capacity addition of 78,577 MW. Throughout the 1990‟s and in recent years , industry experts have been trying to ascertain methods to achieve and sustain growth across segments in industry and to help India become manufacturing hub. The ever increasing demand for power in India has led to a widening gap between supply and demand of electrical industry to be able service the planned developmental needs in India. In the past two decades the industry has witnessed large scale consolidation. The consolidation has resulted in stronger companies with increased size, economies of scale, wider product ranges and enhanced financial strength. However the industry is still highly fragmented with more than 50% of manufactures with a turnover of less than Rs 500 million. This because there are many companies in the un organized sector that manufacture transformers, switch gears and other products in the lower technology fields There is a strong manufacturing base for the manufacture of Heavy Electrical equipments in the country. Manufacturers of Heavy Electrical equipment have absorbed latest technology
  20. 20. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 20 available in the world up to a unit capacity of 660 MW and gearing up for adopting super-critical technology for unit size of 800 MW and above for thermal sets. Industry is augmenting its installed capacity to meet the ambitious 11th Plan target and future growth of installation of nuclear reactors in the country. Gas turbines up to 260 MW Unit capacity and Transmission and Distribution equipment up to higher voltage class of 765 KV are also being manufactured by Indian Industry. Two Development Councils functioning under the Department, relating to Capital Goods & Engineering Industries i.e. Development Council for Machine Tool Industry and Development Council for Textile Machinery has been reconstituted. Heavy Electrical Industry covers power generation, transmission, and distribution and utilization equipments. Some major areas where these are used are the multi core projects for power generation including nuclear power stations, petrochemical complexes, chemical plants, integrated steel plants, non-ferrous metal units, etc. India is the only other developing country besides China,which produces a full range of electric power generation and transmission equipment. In fact,the history and growth of (Bharat Heavy Electricals Ltd.), a public sector enterprise under in the country, symbolizes the overall growth pattern of heavy electrical industry in the country.BHEL has the unique distinction of being one of the very few companies in the world, manufacturing all major power generating equipment under one roof. GROWTH OF BHEL-EPD: Electrical industry is expected to double in the world between 2002-2025. The growth in this sector is projected in the emerging economies. Industrial sector registered a growth of 5.8per cent for the period April-July 2011-12 as compared to 9.7per cent in the corresponding period of 2010-11.The growth in the manufacturing, mining and electricity sectors during April-July,
  21. 21. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 21 2011-12 over the corresponding period of 2010-11 have been 1.1 per cent, 6.0 per cent and 9.4 per cent respectively, which moved the overall growth in the General Index to 5.8 per cent Capital goods sector has registered a growth of 7.6 per cent during April-July 2011-12 as compared to the growth of 23.1 per cent during corresponding period of 2010-11.Consumer goods, Basic goods and intermediate goods recorded growth of 4.6 per cent, 7.9 per cent and 0.8per cent, respectively during April-July 2011-12 as compared to 10.0 per cent 5.2 per cent and 10.1 in same order. The consumer durables sector recorded a growth of 4.2per cent in April-July 2011-12 as compared to 18.4 per cent in the corresponding period of the year 2010-11.The Consumer non- durables sector grew at 4.9 per cent dueing 2011-12 as compared to 3.8 per cent in 2010-11. Global share in production of Indian companies: India is the only developing country besides china, which produces the entire range of electrical power generation and transmission. Indian companies enjoy majority of the market share in production across most segment in the industry. But large number of collaborations with foreign manufacturers is taking place which is leading to the growth of several joint venture companies. Bottlenecks’ in growth of the Indian heavy electrical industry: 1. Big challenges cited by industry experts are timely availability of raw materials and infrastructural deficiencies. 2. The government of India has set ambitious plans to increase the power generation capacity of India. However, there are doubts about whether these targets will be achieved due to sluggish growth of the sector.
  22. 22. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 22 FUTURE PROSPECT: 1. The Department of Heavy Industry announced it is formulating a plan to spur growth of the electrical equipment industry and reduce the demand-supply gap in the country. 2. The electrical equipment industry has an annual turnover of Rs 1 lakh crore, but due to its heterogeneous character, the industry has not received the focused attention of policymakers. 3. A Mission Plan 2012-2022 for the industry is being drawn with inputs from the Indian Electrical and Electronics Manufacturers Association (IEEMA) and stakeholders, an official statement said. The sector has a negative trade balance, which has been increasing in recent times. Its annual exports amount to Rs 20,000 crore, but India imports electrical items worth Rs 32,000 crore. The Plan, which will be finalized in about three months' time, would lay down a clear roadmap for enhancing competitiveness of the domestic electrical equipment sector. In this regard, IEEMA has engaged Ernst & Young to be the knowledge partner in this exercise. The government would intervene in areas like upgrading technology to meet future requirement, enhancing industry competitiveness, skill development and boosting exports of electrical equipment. "Once the recommended interventions are finalized, these will be dovetailed into the final Mission Plan and presented to the Development Council for Heavy Electrical & Allied Industries. The Mission Plan is slated to be finalized in about three month‟s time," it said.
  23. 23. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 23 BHEL-EPD AT A GLANCE: Name Bharat Heavy Electronics ltd Address Malleshwaram Corporation office and address BHEL house sire fort, new delhi-110049 India Area of land 369 acres Constitution undertaken Central government Year of establishment 1954 Trade mark BHEL Renamed EPD Capacity of units Insulators-8850 tons Ceralin-1490 tons Cost of Project 38 crores Man power at EPD 1100 Turn over 2010-11= 234.51 cr 2009-10= 194.27 cr 2008-09= 181.38 cr Means of finance External borrowing Bankers SBI, SBM, Canara Bank, State Bank of Hyderabad, Bank of America soon.
  24. 24. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 24 BOARD OF DIRECTORS: K. Ravi Kumar Chairman and Managing Director S.K. Jain Director (Human Resource) Mattur Director ( IS & P ) B.P. Rao Director ( power ) C.S. Verma Director ( Finance ) C.P. Singh Director ( R&D ) N.L. Simha Company Secretary OTHER DIRECTORS: 1) N. Gokulan 2) Dr. SurajitMitra 3) Sanjay Dadlika 4) Ashok Agarwal 5) Manish Gupta 6) ShekarDutta
  25. 25. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 25 VISION: A world class engineering enterprise committed to enhancing stock holder value. MISSION: To be an Indian multinational engineering enterprise providing total business solution through quality product, system, services in the field of energy, industry, transportation, infrastructure and other potential areas. VALUES: 1) Zeal to excel and Zest for change. 2) Integrity and fairness in all matters. 3) Respect for dignity and potential of individual. 4) Ensure speed of response. 5) Faster learning, creativity and teamwork.
  26. 26. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 26 QUALITY POLICY: Towards meeting its quality policy, BHEL-EPD is using the vehicle of quality management system, which is certified to ISO 9001:2000 services of standards by internationally acclaimed certifying agency BVQ1. Corporate quality and unit level quality structure enables requisites planning, control and implementation of companywide. Quality policy and objective which are linked to the company‟s vision statement. Calibration and testing laboratories of BHEL-EPD are accredited under National Accreditation Board for Calibration and Testing Laboratories (NABL). Scheme of laboratories which has got mutual recognition with APLAC and ILAC. Other than traditional quality system and it focuses is on, 1) Propagating quality management system and total quality management. 2) Formulating, implementing, monitoring, “Improvement plans” with focus on internal and external customer satisfaction. 3) Investigation and preventive actions on critical quality issues.
  27. 27. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 27 BUSINESS OPERATION: BHEL-EPD operation are organized around various business sector namely- power, transmission, transportation, telecommunication and renewable energy, over sea‟s operation. These enable BHEL-EPD to have a strong customer orientation, to be sensitive to his needs and respond quickly to the changes in the market.  POWER SECTOR: Power is the focal area for BHEL and comprises thermal, nuclear, gas, diesel and hydro dependence. BHEL sets account for nearly 65% of the total installed capacity in the country.  INDUSTRIAL SECTOR: BHEL-EPD manufactures and supplies major capital equipment and system like captive power plants, drives, turbines, industrial boilers and auxiliaries, gas turbines, sea less piles.  OIL & GAS: BHEL-EPD is supplying equipment for onshore drilling rigs viz., draw works, rotary tables, travelling block etc.  TRANSMISSION: BHEL-EPD supplies a wide range of products and system for transformer and distribution application. It includes power transformer instrument transformer, dry type transformer, capacitors, vacuum and SFG switch gear.  TRANSPORTATION: Most of the trains in the Indian railways, whether electric or diesel powered are equipped with BHEL‟s traction propulsion system and control the system and control the system supplied are both with DC drives and state of the art AC drives.  RENEWABLE ENERGY: BHEL-EPD has been manufacturing and supplying various renewable energy namely- power plant, solar laterns, street lighting, solar pump.  INTERNATIONAL OPERATION: BHEL-EPD has over the year established its reference in over 65 countries of the world.
  28. 28. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 28 PRODUCT AND SERVICE PROFILE: Product Profile: BHEL-EPD provides variety of products but the most important product generally they provide includes, HIGH TENSION INSULATORS: 1) DISK INSULATOR: Technical Characteristics: a) Rating – 45KNE.MS b) Creep age distance – 280mm to 540mm c) Coupling designation – 16mm, 20mm, 24mm, 28mm d) Application – Transmission lines from 11Kv to 800kv 2) STATION POST INSULATOR: Technical Characteristics: a) Cantilever strength – 4kn to 12kn b) Creep age distance – 16mm to 31mm c) Application – As bus support and in insulator 3) SOLID CORE TRACTION INSULATOR: Technical Characteristics: a) Cantilever strength – up to 370 mkgt b) Tensional strength – up to 555 mkgt c) Creep age distance – up to 1050mm d) Application – 25kv Railways Traction
  29. 29. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 29  WEAR RESISTANT MATERIALS: 1) Ceralin: It is an abrasion and erosion resistant, high alumina ceramic lining material. 2) Air pre heater. 3) Boiler. 4) Capacitor. 5) Energy meter. 6) Battery powered road vehicle. 7) Power station control equipment. 8) Transformers. DISK INSULATORS: STATION POST INSULATOR:
  30. 30. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 30 TRANSFORMER: BOILERS: AIR PRE HEATER:
  31. 31. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 31 SYSTEM / SERVICE PROFILE: 1) Power generation system:  Turnkey power station.  Combined cycle power plants.  Cogeneration system.  Spares management. 2) Transmission system:  Substation switch yards.  HVDC Transmission system.  Power system studies. 3) Transportation system:  Traction system.  Urban transportation system. 4) Industrial system:  Industrial drives and control system.  Spares management.  Erection commissioning. CUSTOMER PROFILE:  For Disc Insulators: 1. Karnataka power transmission corporation. 2. Tamilnadu state electricity board. 3. Maharashtra state electricity board. 4. Punjab state electricity board. 5. Andrapradesh state electricity board. 6. Rajasthan state electricity board. 7. Uttarpradeshstate electricity board. 8. Delhi state electricity board.
  32. 32. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 32 9. Kuala state electricity board. 10. Meghalaya state electricity board.  For Solid Core Insulators: 1. Indian Railways. 2. ABB. 3. Siemens. 4. Sisters unit. 5. Switch gear manufactures. COMPETITORS:  Insulators: 1. Birla NGK Insulators. 2. Modern Insulators Ltd. 3. Saravana Insulators Ltd. 4. WS Insulators Ltd. 5. Sea Drivers, France. 6. Dalian Porcelain Insulators, China  Ceralin: 1. CUMI, Hosur. 2. CERAM, Rourkela.
  33. 33. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 33 MARKET SHARE: (Ownership pattern) As for as the ownership of BHEL-EPD is concerned 67.72% of equity is held by the government of India and 32.28% is held by financial institution and employees of BHEL-EPD Manufacturers. BHEL-EPD has built an enviable reputation for high quality and reliability of equipment. As central government is holding major portion share capital of 67.72% as BHEL-EPD is government undertaking. 3.11FUTURE PROSPECTS AND GROWTH: 1) To maintain a leading position as quality equipment system and service in field of conversion of energy for application in area of power, oil and gases exploration and industries. 2) To utilize company‟s resource to expand business in the area of defence, communication and electronics. GROWTH: To ensure a steady growth by enhancing the competitive edge of BHEL-EPD, in existing business, new areas and international operation so as to fulfill national expectation.
  34. 34. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 34 CHAPTER – 4 DATA ANALYSIS AND INTERPRETATION  LIQUIDITY RATIO: Liquidity refers to the ability of a concern to meet its current obligation as and when they become due. Liquidity ratios are calculated to measure the short term financial soundness of the business. This ratio assesses the capacity of the company to repay its short term liability. Liquidity in the ratio means ability to repay loans. This ratio is an effective source to ascertain whether the working capital has been utilized. Following ratios are calculated to determine the liquidity or short term solvency of the company: I. Current Ratio : ( Working Capital Ratio ) II. Quick Ratio : ( Quick Ratio ) III. Cash Position Ratio : ( Absolute Liquidity Ratio )
  35. 35. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 35 1. Current Ratio: Current ratio may be defined as the relationship between current assets and current liabilities. It is the common ratio for measuring liquidity. It judges whether the current assets are sufficient to meet its current liabilities. The company should not depend on its long term source to pay its short term liabilities. Current assets are those, the amount of which can be realized within a period of one year. Current liability are those amount which are payable within period of one year. FORMULA: CURRENT RATIO =CURRENT ASSETS CURRENT LIABILITY TABLE 01: CURRENT RATIO (Rs in Crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 CURRENT ASSETS 50.83 48.93 65.34 82.58 103.80 CURRENT LIABILITY 44.70 69.18 100.14 109.52 126.75 CURRENT RATIO 1.137 0.708 0.652 0.754 0.818 ANALYSIS: The above table reveals that the current ratio of the company was decreased to 0.652 in 2008-09 compare to 2006-07, 2007-08, where it was 1.137 and 0.708 respectively. But the ratio rapidly increased to 0.754 and 0.818 in the year 2009-10, 2010-11.
  36. 36. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 36 GRAPH 01: CURRENT RATIO INFERENCE: An increase in the current ratio represents improvement in the liquidity position of a firm which a decrease in the current ratio indicates that there has been deterioration in the liquidity position of the firm. The ideal and standard current ratio is 2:1. The current ratio of the company was decreased to 0.652 in 2008-09 compare to 2006-07, 2007-08, where it was 1.137 and 0.708 respectively. But the ratio rapidly increased to 0.754 and 0.818 in the year 2009- 10, 2010-11This is not satisfactory, so company should improve the current assets to meet standard ratio of 2:1. 1.137 0.708 0.652 0.754 0.818 0 0.2 0.4 0.6 0.8 1 1.2 2006-07 2007-08 2008-09 2009-10 2010-11 CURRENT RATIO CURRENT RATIO YEARS
  37. 37. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 37 2. Quick Ratio: Quick ratio is defined as the relationship between quick assets and quick liabilities. The term quick assets or liquid assets refer current assets, which can be converted into cash immediately. They include cash & bank balance, bills receivable, debtors, short term investments. Quick liabilities include creditors, bills payable and outstanding expenses. The quick ratio supplements current ratio. FORMULA:QUICK RATIO = QUICK ASSETS / QUICK LIABILITY TABLE 02: QUICK RATIOS (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 QUICK ASSETS 33.40 30.25 48.69 64.33 74.90 QUICK LIABILITY 44.70 69.18 100.14 109.52 126.75 QUICK RATIO 0.747 0.437 0.486 0.587 0.590 ANALYSIS: The above table reveals that the quick assets ratio of the company is decreased to 0.437 and 0.486 in 2007-08, 2008-09 compared to 2006-07 where it was 0.747. It increased to 0.590 in the year 2010-11.
  38. 38. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 38 GRAPH 02: QUICK RATIO INFERENCE: The standard quick ratio is 1:1. Usually, a high quick ratio is an indication that the firm is liquid and has the ability to meet its current and liquid liabilities in time and on the other hand a low quick ratio represents that the firm‟s liquidity position is not good. The quick assets ratio of the company is decreased to 0.437 and 0.486 in 2007-08, 2008-09 compared to 2006-07 where it was 0.747. It increased to 0.590 in the year 2010-11. But it is not satisfactory because the company is not able to meet the rule of thumb 1:1. 0.747 0.437 0.486 0.587 0.59 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 2006-07 2007-08 2008-09 2009-10 2010-11 QUICK RATIO QUICK RATIO YEARS
  39. 39. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 39 3. Cash Position Ratio: This ratio is also called „ABSOLUTE LIQUIDITY RATIO‟.This is a variation of quick ratio. This ratio measures liquidity in terms of cash and cash items, short term current liabilities. FORMULA: CASH POSITION RATIO = ABSOLUTE LIQUID ASSET QUICK LIABILITY TABLE 03: CASH POSITION RATIO (Rs in Crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 ABSOLUTE LIQUID ASSETS 33.4 30.25 48.69 64.33 74.90 QUICK LIABILITY 44.70 69.18 100.14 109.52 126.75 CASH POSITION RATIO 0.74 0.43 0.48 0.58 0.59 ANALYSIS: The above table reveals that the cash position ratio was decreased to 0.43 and 0.48 in the year 2007-08, 2008-09 respectively when compared to 2006-07 where it was 0.74.But the ratio was increased to 0.59 in 2010-11.
  40. 40. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 40 GRAPH 03: CASH POSITION RATIO INFERENCE:The standard cash position ratio is 0.5:1. The cash position ratio was decreased to 0.43 and 0.48 in the year 2007-08, 2008-09 respectively when compared to 2006-07 where it was 0.74.But the ratio was increased to 0.59 in 2010-11. 0.74 0.43 0.48 0.58 0.59 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 2006-07 2007-08 2008-09 2009-10 2010-11 CASH POSITION RATIO CASH POSITION RATIO years
  41. 41. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 41  LEVERAGE RATIO OR SOLVENCY RATIO: Solvency means the ability of the business to repay its outside liabilities. Here the term solvency ratio has been used to mean long term financial planning of the business. Solvency ratio measures the relationship between external equities and internal equities. TYPES OF LEVERAGE RATIO / SOLVENCY RATIO:  Solvency Ratio.  Debt-equity Ratio.  Proprietary Ratio.  Fixed assets to Ratio.  Current assets to Net worth ratio.  Fixed assets to Capital Employed Ratio.  Sales to Net worth Ratio.  Net worth Ratio.  Current liabilities to Net worth Ratio.
  42. 42. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 42 1. Debt Equity Ratio: Debt equity ratio is a relationship between share holders fund and outsider‟s fund. It indicates the proportion of shareholders fund and long term debt in the capital structure. Outsider‟s funds include all long term and short term debts. Shareholder‟s fund consists of preference share capital, equity capital and reserves & surplus. FORMULA: DEBT EQUITY RATIO = OUTSIDER FUND SHAREHOLDERS FUND TABLE 04: DEBT EQUITY RATIOS (Rs in crores ) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 OUTSIDER FUND 0.48 0.42 0.30 0.65 0.87 SHAREHOLDER FUND 14.24 14.67 15.35 21.47 55.06 DEBT EQUITY RATIO 0.033 0.028 0.019 0.030 0.015 ANALYSIS: The above table reveals that in the year 2006-07, the debt equity ratio is 0.033 and in the year 2007-08 it is 0.028 showing decline debts and increasing equity compared to last year. But in the year 2009-10 the ratio shows a mere increase of 0.002.In 2010-11 debt equity ratio is decreased to 0.015.
  43. 43. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 43 GRAPH 04: DEBT EQUITY RATIO INFERENCE: The standard debt equity ratio is 2:1. In the year 2006-07, the debt equity ratio is 0.033 and in the year 2007-08 it is 0.028 showing decline debts and increasing equity compared to last year. But in the year 2009-10 the ratio shows a mere increase of 0.002.In 2010- 11 debt equity ratio is decreased to 0.015 0.033 0.028 0.019 0.03 0.015 0 0.005 0.01 0.015 0.02 0.025 0.03 0.035 2006-07 2007-08 2008-09 2009-10 2010-11 DEBT EQUITY RATIO DEBT EQUITY RATIO YEARS
  44. 44. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 44 2. Proprietary Ratio: This is also known as „owners fund ratio‟. Proprietary Ratio is the relationship between proprietors fund and total assets. FORMULA:PROPRIETARY RATIO = SHAREHOLDERDS FUND TOTAL ASSETS TABLE 05: PROPRIETARY RATIOS YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 SHAREHOLDERS FUND 14.24 14.67 15.35 21.47 55.06 TOTAL ASSETS 63.51 60.85 75.64 91.84 111.21 PROPRIETARY RATIO 0.22 0.24 0.20 0.23 0.49 ANALYSIS: The above table reveals that the proprietary ratio was 0.22, 0.24, 0.20, and 0.23 in the year 2006-07, 2007-08, 2008-09, and 2009-10 respectively. But in the year 2010-11 ratio has been rapidly increased to 0.49.
  45. 45. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 45 GRAPH 05: PROPRIETARY RATIO INFERENCE: The standard proprietary ratio is 5:1.The ratio was 0.22, 0.24, 0.20, and 0.23 in the year 2006-07, 2007-08, 2008-09, and 2009-10 respectively. But in the year 2010-11 ratio has been rapidly increased to 0.49. Though the company‟s performance is gradually increasing, it could not make up to the ideal ratio of 0.5 times. This indicates a sign of risk for the creditors of the company. 0.22 0.24 0.2 0.23 0.49 0 0.1 0.2 0.3 0.4 0.5 0.6 2006-07 2007-08 2008-09 2009-10 2010-11 PROPRIETARY RATIO PROPRIETARY RATIO YEARS
  46. 46. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 46 3. Solvency Ratio: Solvency Ratio is the ratio between the total assets and the total liabilities of a company. The solvency ratio is, generally expressed as a proportion. FORMULA: SOLVENCY RATIO = TOTAL ASSETS TOTAL LIABILITIES TABLE 06: SOLVENCY RATIOS (RsIncrores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 TOTAL ASSETS 63.51 60.85 75.64 91.84 112.01 TOTAL LIABILITY 45.18 69.60 100.44 110.17 127.62 SOLVENCY RATIO 1.40 0.87 0.75 0.83 0.87 ANALYSIS: The above table reveals that in the year 2006-07 the ratio was 1.40. But rapidly it has decreased in next 4 preceding years where the ratio was 0.87, 0.75, 0.83, and 0.87 respectively.
  47. 47. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 47 GRAPH 06: SOLVENCY RATIO INFERENCE: There is no standard or ideal solvency ratio. In the year 2006-07 the ratio was 1.40. But rapidly it has decreased in next 4 preceding years where the ratio was 0.87, 0.75, 0.83, and 0.87 respectively. 1.4 0.87 0.75 0.83 0.87 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 2006-07 2007-08 2008-09 2009-10 2010-11 SOLVENCY RATIO SOLVENCY RATIO YEARS
  48. 48. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 48 4. Current Assets to Net worth: Current assets to Net worth are the ratio between current assets and net worth. This ratio indicates the proportion of current assets financed by the owner. FORMULA: CURRENT ASSETS TO NETWORTH RATIO = CURRENT ASSETS / NETWORTH TABLE 07: CURRENT ASSETS TO NETWORTH RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 CURRENT ASSETS 50.83 48.93 65.34 82.58 103.80 NETWORTH 14.24 14.67 15.35 21.47 55.06 CURRENT ASSETS TO NETWORTH RATIO 3.56 3.33 4.25 3.84 1.88 ANALYSIS: The above table reveals that ratio as gradually increased to 4.25 in 2008-09 when compared to 2006-07 and 2007-08 where it was 3.56, 3.33 respectively. But it has drastically decreased to 1.88 in 2010-11.
  49. 49. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 49 GRAPH 07: CURRENT ASSETS TO NETWORTH RATIO INFERENCE: There are no ideal or standard current assets to net worth ratio. The ratio as gradually increased to 4.25 in 2008-09 when compared to 2006-07 and 2007-08 where it was 3.56, 3.33 respectively. But it has drastically decreased to 1.88 in 2010-11. The company has low current assets to net worth ratio, so the financial strength of company is bad. 3.56 3.33 4.25 3.84 1.88 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2006-07 2007-08 2008-09 2009-10 2010-11 CURRENT ASSETS TO NETWORTH RATIO CURRENT ASSETS TO NETWORTH RATIO YEARS
  50. 50. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 50 5. Fixed assets to Net worth ratio: This ratio shows the relationship between fixed assets and net worth. It indicates as to what extent the share holders have invested on the fixed assets, which constitute the main structure of the business. FORMULA: FIXED ASSETS TO NETWORTH RATIO = FIXED ASSETS NETWORTH TABLE 08: FIXED ASSETS TO NET WORTH RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 FIXED ASSETS 12.68 11.92 10.30 9.26 8.21 NETWORTH 14.24 14.67 15.35 21.47 55.06 F.A TO NETWORTH RATIO 0.89 0.81 0.67 0.43 0.14 ANALYSIS: The above graph reveals that the fixed assets to net worth ratio as gradually decreased to 0.81, 0.67, 0.43 and 0.14 in the year 2007-08, 2008-09, 2009-10 and 2010-11 respectively, when compared to 2006-07 where it was 0.89.
  51. 51. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 51 GRAPH 08: F.A TO NETWORTH RATIO INFERENCE: The standard or ideal fixed assets to net worth ratio for an industrial undertaking are 2/3 or 67%. That is, fixed assets should not constitute more than 2/3 or 67% of the proprietor‟s fund. The fixed assets to net worth ratio as gradually decreased to 0.81, 0.67, 0.43 and 0.14 in the year 2007-08, 2008-09, 2009-10 and 2010-11 respectively, when compared to 2006-07 where it was 0.89. 0.89 0.81 0.67 0.43 0.14 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 2006-07 2007-08 2008-09 2009-10 2010-11 F.A TO NETWORTH RATIO F.A TO NETWORTH RATIO YEARS
  52. 52. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 52 6. Sales to Net worth ratio: Sales to net worth ratio is the relationship between Net sales and net worth. FORMULA: SALES TO NETWORTH RATIO = NET SALES NETWORTH TABLE 09 SHOWING SALES TO NET WORTH RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 NET SALES 141.29 155.80 181.38 194.27 234.51 NETWORTH 14.24 14.67 15.35 21.47 55.06 SALES TO NETWOTH RATIO 9.92 10.62 11.81 9.04 4.25
  53. 53. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 53 GRAPH 09: SALES TO NETWORTH RATIO INFERENCE: The sales to net worth ratio was increased to 11.81 in 2008-09 when compared to 2006-07 and 2007-08 where the ratio was 9.92 and 10.62 respectively. Later in the year 2010-11 the ratio has drastically decline to 4.25. 9.92 10.62 11.81 9.04 4.25 0 2 4 6 8 10 12 14 2006-07 2007-08 2008-09 2009-10 2010-11 SALES TO NETWOTH RATIO SALES TO NETWOTH RATIO YEARS
  54. 54. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 54 7. Current Liability to Net Worth: It is the ratio between current liability and net worth. This ratio indicates the relative contribution of the short term creditor and the owners in the capital of an enterprise. FORMULA: CURRENT LIABILITY TO NETWORTH RATIO= CURRENT LIABILITY NETWORTH TABLE 10: CURRENT LIABILITIES TO NET WORTH (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 CURRENT LIABILITY 44.70 69.18 100.14 109.52 126.75 NETWORTH 14.24 14.67 15.35 21.47 55.06 CURRENT LIABILITY TO NETWORTH 3.13 4.71 6.52 5.10 2.30 ANALYSIS:The above table reveals that in the year 2006-07 and 2007-08 the ratio was 3.13, 4.71 respectively. But the ratio has rapidly increased to 6.52 in 2008-09 and decline to 2.30 in the year 2010-11.
  55. 55. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 55 GRAPH 10: CURRENT LIABILITY TO NETWORTH INFERENCE: The ideal current liability to net worth ratio is 1/3. In the year 2006-07 and 2007-08 the ratio was 3.13, 4.71 respectively. But the ratio has rapidly increased to 6.52 in 2008- 09 and decline to 2.30 in the year 2010-11. 3.13 4.71 6.52 5.1 2.3 0 1 2 3 4 5 6 7 2006-07 2007-08 2008-09 2009-10 2010-11 CURRENT LIABILITY TO NETWORTH CURRENT LIABILITY TO NETWORTH
  56. 56. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 56 8.NetWorth Ratio: Net worth ratio is a variant of the debt equity of total assets over liabilities in other words it means owners fund. FORMULA:NET WORTH RATIO = NETWORTH / TOTAL ASSETS TABLE 11 SHOWING NET WORTH RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 NETWORTH 14.24 14.67 15.35 21.47 55.06 TOTAL SALES 141.29 155.80 181.38 194.27 234.51 NETWORTH RATIO 0.10 0.09 0.08 0.11 0.23 ANALYSIS: The above table reveals that in 2006-07 the net worth ratio was 0.10, but it drastically decreased to 0.09 and0.08 in 2007-08 and 2008-09 respectively. There was rapid increase of 0.23 in 2010-11 when compared to 2009-10 where it was 0.11.
  57. 57. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 57 GRAPH11: NETWORTH INFERENCE: In 2006-07 the net worth ratio was 0.10, but it drastically decreased to 0.09 and0.08 in 2007-08 and 2008-09 respectively. There was rapid increase of 0.23 in 2010-11 when compared to 2009-10 where it was 0.11. 0.1 0.09 0.08 0.11 0.23 0 0.05 0.1 0.15 0.2 0.25 2006-07 2007-08 2008-09 2009-10 2010-11 NETWORTH RATIO NETWORTH RATIO YEARS
  58. 58. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 58  Efficiency Ratio or Turnover Ratio: Turnover ratio refers to ratios which measures the level of activities or the operating efficiency of an enterprise. The prime activity of any business enterprises is to sale its produces and the various operations under taken a business an enterprise contributes to its sales. So Turnover ratio explains the relationship between sales and various assets of the company. As the turnover ratios are calculated on the basis of turnover, they are called as turnover ratio. Types of turnover ratios:  Inventory turnover ratio.  Debtor‟s turnover ratio.  Working Capital turnover ratio.  Fixed assets turnover ratio.  Current assets turnover ratio.  Total assets turnover ratio.  Capital turnover ratio.
  59. 59. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 59 1. Inventory turnover ratio: This ratio establishes relationship between cost of goods sold during a given period and average amount of inventory held during that period. Inventory turnover ratio indicates whether investment in inventory is efficiently used or not. It also measures the effectiveness of the firm‟s sales efforts. FORMULA:INVENTORY TURNOVER RATIO = NET SALES AVERAGE INVENTORY TABLE 12: INVENTORY TURNOVER RATIOS (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 NET SALES 141.29 155.80 181.38 194.27 234.51 AVG INVENTORY 17.43 18.68 16.65 18.25 28.90 INVENTORY TURNOVER RATIO 8.10 8.34 10.89 10.64 8.11 ANALYSIS:The above table reveals that the inventory turnover ratio in the year 2006-07, 2007-08 was 8.10, 8.34 respectively. The ratio has rapidly increased to 10.89 and 10.64 in 2008- 09, 2009-10. But inventory turnover ratio has decline to 8.11 in the year 2010-11.
  60. 60. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 60 GRAPH 12: INVENTORY TURNOVER RATIO INFERENCE: It measures the velocity of conversion of stock into sales. A high inventory turnover ratio indicates efficient management of inventory and low inventory turnover ratio indicates an inefficient management of inventory. The inventory turnover ratio in the year 2006- 07, 2007-08 was 8.10, 8.34 respectively. The ratio has rapidly increased to 10.89 and 10.64 in 2008-09, 2009-10. But inventory turnover ratio has decline to 8.11 in the year 2010-11. 8.1 8.34 10.89 10.64 8.11 0 2 4 6 8 10 12 2006-07 2007-08 2008-09 2009-10 2010-11 INVENTORY TURNOVER RATIO INVENTORY TURNOVER RATIO YEARS
  61. 61. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 61 2. Debtors Turnover Ratio: Debtor turnover ratio shows an average number of times debtors are turned over a year. The purpose of this ratio is discussing the credit collection power of the firm. This ratio is established between accounts receivable and net credit sales of the period. FORMULA: DEBTOR TURNOVER RATIO = NET SALES ACCOUNT RECEIVABLE TABLE 13: DEBTOR TURNOVER RATIOS (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 NET SALES 141.29 155.80 181.38 194.27 234.51 ACCOUNT RECEIVABLE 24.44 19.80 35.27 45.73 46.00 DEBTOR TURNOVER RATIO 5.78 7.86 5.14 4.24 5.09 ANALYSIS:The above table reveals that in the year 2007-08 the ratio has increased to 7.86 which indicate the efficiency of the staff entrusted with collection of book debts when compared to 2006-07 where the ratio was 5.78. Even in the year 2008-09, 2009-10, 2010-11 the ratio has drastically drop down to 5.14, 4.24, 5.09 respectively.
  62. 62. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 62 GRAPH 13: DEBTOR TURNOVER RATIO INFERENCE: In the year 2007-08 the ratio has increased to 7.86 which indicates the efficiency of the staff entrusted with collection of book debts when compared to 2006-07 where the ratio was 5.78. Even in the year 2008-09, 2009-10, 2010-11 the ratio has drastically drop down to 5.14, 4.24, 5.09 respectively. 23.04 15.2 5.21 7.21 10.21 0 5 10 15 20 25 2006-07 2007-08 2008-09 2009-10 2010-11 DEBTOR TURNOVER RATIO WORKING CAPITAL TURNOVER RATIO YEARS
  63. 63. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 63 3. Working capital turnover: Working Capital Turnover Ratio indicates the velocity of the utilization of net working capital. This ratio indicates the number of times the working capital is turned over a year. It is a good measure of over trading and under trading. FORMULA: WORKING CAPITAL TURNOVER RATIO = SALES NET WORKING CAPITAL
  64. 64. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 64 TABLE 14 WORKING CAPITAL TURNOVER RATIOS (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 SALES 141.29 155.80 181.38 194.38 234.51 NET WORKING CAPITAL 6.13 10.25 34.80 26.94 22.95 WORKING CAPITAL TURNOVER RATIO 23.04 15.20 5.21 7.21 10.21 ANALYSIS: The above table reveals that the working capital turnover ratio in the year 2006- 07 was 23.04, but the ratio has drastically come down to 15.20 and 5.21 in 2007-08, 2008-09 respectively. Later slowly the ratio has grown to 7.21 and 10.21 in 2009-10, 2010-11 respectively.
  65. 65. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 65 GRAPH 14: WORKING CAPITAL TURNOVER RATIO INFERENCE: There is no standard working capital turnover ratio. Though there is no standard ratio, one can say that a higher working capital turnover ratio indicates the efficiency of the company and lower working capital turnover ratio indicates the inefficiency of the company in the utilization of working capital. The working capital turnover ratio in the year 2006-07 was 23.04, but the ratio has drastically come down to 15.20 and 5.21 in 2007-08, 2008-09 respectively. Later slowly the ratio has grown to 7.21 and 10.21 in 2009-10, 2010-11 respectively. 23.04 15.2 5.21 7.21 10.21 0 5 10 15 20 25 2006-07 2007-08 2008-09 2009-10 2010-11 WORKING CAPITAL TURNOVER RATIO WORKING CAPITAL TURNOVER RATIO YEARS
  66. 66. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 66 4. Fixed Assets Turnover Ratio: Fixed assets turnover ratio explains the relationship between sales fixed assets. This ratio indicates the sales generated by rupee invested in fixed assets. FORMULA: FIXED ASSETS TURNOVER RATIO = SALES NET FIXED ASSETS TABLE 15: FIXED ASSETS TURNOVER RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 SALES 141.29 155.80 181.38 194.27 234.51 NET FIXED ASSETS 12.68 11.92 10.30 9.26 8.21 FIXED ASSETS TURNOVER RATIO 11.14 13.07 17.60 20.97 28.56 ANALYSIS: The above table reveals that the ratio was 11.14, 13.07, 17.60, 20.97, and 28.56 in the year 2006-07, 2007-08, 2008-09, 2009-10, and 2010-2011 respectively.
  67. 67. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 67 GRAPH 15: FIXED ASSETS TURNOVER RATIO INFERENCE:The standard fixed assets turnover ratio is 5 times. So, a fixed assets turnover ratio of 5 times or more indicates better utilization of fixed assets and on the other hand, a fixed assets turnover ratio is less than 5 times is an indication of under utilization of fixed assets. The fixed assets turnover ratio of the company is increased to 20.97 and 28.56 in 2009-10, 2010-11 respectively, compare to the year 2006-07, 2007-08, 2008-09 where it was 11.14, 13.07, and 17.60 respectively. So the fixed assets turnover ratio is more than 5 times, which indicates better utilization of fixed assets. 0 5 10 15 20 25 30 2006-07 2007-08 2008-09 2009-10 2010-11 FIXED ASSETS TURNOVER RATIO FIXED ASSETS TURNOVER RATIO YEARS
  68. 68. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 68 5. Current Assets Turnover Ratio: This ratio refers to the relationship Between sales and current assets. FORMULA: CURRENT ASSETS TURNOVER RATIO = SALES CURRENT ASSETS TABLE 16: CURRENT ASSETS TURNOVER RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 SALES 141.29 155.80 181.38 194.27 234.51 CURRENT ASSETS 50.83 48.93 65.34 82.58 103.80 CURRENT ASSETS TURNOVER RATIO 2.77 3.18 2.77 2.35 2.25 ANANLYSIS:The above table reveals that the ratio was increased to 3.18 in 2007-08, compared to the year 2006-07, where ratio was 2.77. In the year 2008-09, 2009-10, 2010-11 it decreased to 2.77, 2.35 and 2.25 respectively.
  69. 69. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 69 GRAPH 16: CURRENT ASSETS TURNOVER RATIO INFERENCE: There is no standard or ideal current assets turnover ratio. The ratio was increased to 3.18 in 2007-08, compared to the year 2006-07, where ratio was 2.77. In the year 2008-09, 2009-10, 2010-11 it decreased to 2.77, 2.35 and 2.25 respectively. 2.77 3.18 2.77 2.35 2.25 0 0.5 1 1.5 2 2.5 3 3.5 2006-07 2007-08 2008-09 2009-10 2010-11 CURRENT ASSETS TURNOVER RATIO CURRENT ASSETS TURNOVER RATIO YEARS
  70. 70. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 70 6. Total Assets Turnover Ratio: Total Assets Turnover Ratio is the ratio between total assets and turnover or sales. FORMULA: TOTAL ASSETS TURNOVER RATIO = NET SALE TOTAL ASSETS TABLE 17: TOTAL ASSETS TURNOVER RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 NET SALE 141.29 155.80 181.38 194.27 234.51 TOTAL ASSETS 63.51 60.85 75.64 91.84 112.01 TOTAL ASSETS TURNOVER RATIO 2.22 4.18 2.39 2.11 2.09 ANALYSIS: The above table reveals that the total assets turnover ratio was Recorded to 4.18 in 2007-08, when compared to 2006-07 where the ratio was 2.22. In the next 3 years, the ratio has increased to 2.77, 2.35 and 2.25.
  71. 71. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 71 GRAPH17: TOTAL ASSETS TURNOVER RATIO INFERENCE: The standard total assets turnover ratio is that the sales should be at least 2 times the value of the sales. A total assets turnover ratio of 2 times or more indicates the over trading of total assets while a low ratio reveals idle capacity. The total assets turnover ratio was recorded to 4.18 in 2007-08, when compared to 2006-07 where the ratio was 2.22. In the next 3 years, the ratio has increased to 2.77, 2.35 and 2.25. The total assets turnover ratio is more than 2 times, so this shows that assets have utilized effectively. 2.22 4.18 2.39 2.11 2.09 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2006-07 2007-08 2008-09 2009-10 2010-11 TOTAL ASSETS TURNOVER RATIO TOTAL ASSETS TURNOVER RATIO YEARS
  72. 72. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 72  PROFITABILITY RATIO: Profitability ratio measures the profitability of a concern. A company should earn profit to survive and grow over a long period of time. TYPES OF PROFITABILITY RATIO:  Net profit ratio  Gross profit ratio  Return on total assets
  73. 73. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 73 1. Net Profit Ratio: Net profit ratio expressed the relationship between gross and net sales. It shows what percentage of sale is left after meeting all costs. FORMULA: NET PROFIT RATIO = NET PROFIT / NET SALES *100 TABLE 18: NET PROFIT RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 NET PROFIT 8.95 15.06 14.90 17.55 38.50 NET SALES 141.29 155.80 181.38 194.27 234.51 NET PROFIT RATIO 6.33 9.66 8.21 9.03 16.41 ANALYSIS:The above table reveals that the net profit ratio of the companyis increased to 9.66 in the year 2007-08, compared to 2006-07 where it was 6.33. The ratio was decreased to 8.21 in 2008-09 and increased to 9.03, 16.41in 2009-10 and 2010-11 respectively
  74. 74. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 74 GRAPH 18: NET PROFIT RATIO INFERENCE: The net profit ratio of the company is increased to 9.66 in the year 2007-08, compared to 2006-07 where it was 6.33. The ratio was decreased to 8.21 in 2008-09 and increased to 9.03, 16.41 in 2009-10 and 2010-11 respectively. 6.33 9.66 8.21 9.03 16.41 0 2 4 6 8 10 12 14 16 18 2006-07 2007-08 2008-09 2009-10 2010-11 NET PROFIT RATIO NET PROFIT RATIO YEARS
  75. 75. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 75 2. Grossprofit ratio: Gross profit ratio expresses the relationship between gross profit and net sales. It indicates the efficiency of production or trading operation. FORMULA: GROSS PROFIT RATIO = GROSS PROFIT / NET SALES * 100 TABLE 19:GROSS PROFIT RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 GROSS PROFIT 9.00 15.27 13.55 15.52 36.00 NET SALES 141.29 155.80 181.38 194.27 234.51 GROSS PROFIT RATIO 6.36 9.80 7.47 7.98 15.35 ANALYSIS:The above table shows that the gross profit ratio was increased to 9.80 in 2007- 08, when compared to the year 2006-07 where it was 6.36. But later gradually it was increased to 7.47, 7.98, and 15.35 in 2008-09, 2009-10, and 2019-11 respectively.
  76. 76. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 76 GRAPH 19: GROSS PROFIT RATIO INFERENCE:The gross profit indicates the extent to which selling prices of goods may decline without resulting in looses on operation of a company. The gross profit ratio was increased to 9.80 in 2007-08, when compared to the year 2006-07 where it was 6.36. But later gradually it was increased to 7.47, 7.98, and 15.35 in 2008-09, 2009-10, and 2019-11 respectively. 6.36 9.8 7.47 7.98 15.35 0 2 4 6 8 10 12 14 16 18 2006-07 2007-08 2008-09 2009-10 2010-11 GROSS PROFIT RATIO GROSS PROFIT RATIO YEARS
  77. 77. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 77 3. Return on Total Assets ratio: This ratio is calculated to measure the productivity of total assets. FORMULA: Net profit after tax *100 Total Assets TABLE 20: RETURN ON TOTAL ASSEST RATIO (Rs in crores) YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Net profit after Tax 12.44 11.07 11.75 17.87 51.46 Total assets 63.51 60.85 75.64 91.84 112.01 Return on Total Assets RATIO 19.58 18.19 15.53 19.45 45.94 ANALYSIS: Theabove table shows that the return on total asset ratio in 2006-07 was 19.58, which was drastically declined to 18.19, 15.53 in 2007-08 and 2008-09. But later gradually it was increased to 19.45 and 45.94 in 2009-10, and 2010-11 respectively.
  78. 78. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 78 GRAPH20: RETURN ON TOTAL ASSETS RATIO INFERENCE:The return on total assets ratio in 2006-07 was, when compared to the year 2006-07was 19.58, which was drastically declined to 18.19, 15.53 in 2007-08 and 2008-09. But later gradually it was increased to 19.45 and 45.94 in 2009-10, and 2010-11 respectively. . 19.58 18.19 15.53 19.45 45.94 0 5 10 15 20 25 30 35 40 45 50 2006-07 2007-08 2008-09 2009-10 2010-11 Return on Total Assets Ratio Return on Total Assets RATIO YEARS
  79. 79. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 79 CHAPTER – 5 SUMMARY OF FINIDING AND CONCLUSION. The purpose of the study as stated in the objective was to analyze the financial wealth of the company through in-depth study of ratio analysis of last 5 years and based on assessment to provided suitable suggestions. Analysis is done using ratios and inferences were drawn from the results obtained through use of ratio analysis. SUMMARY OF FINDING: Since the company‟s current assets are not sufficient to meet its current liabilities, the company has to depend on its long term sources to pay off the liabilities. The company‟s current ratio position is not at a satisfactory level over the past 5 years i.e., 2006-07 to 2010-11.  The current ratio of the company was decreased to 0.652 in 2008-09 compare to 2006-07, 2007-08, where it was 1.137 and 0.708 respectively. But the ratio rapidly increased to 0.754 and 0.818 in the year 2009-10, 2010-11.  The standard proprietary ratio is 5:1.The ratio was 0.22, 0.24, 0.20, and 0.23 in the year 2006-07, 2007-08, 2008-09, and 2009-10 respectively. But in the year 2010-11 ratio has been rapidly increased to 0.49. Though the company‟s performance is gradually increasing, it could not make up to the ideal ratio of 0.5 times. This indicates a sign of risk for the creditors of the company.  The standard cash position ratio is 0.5:1. The cash position ratio was decreased to 0.43 and 0.48 in the year 2007-08, 2008-09 respectively when compared to 2006-07 where it was 0.74.But the ratio was increased to 0.59 in 2010-11.  During 2010-11, the debt has decreased to 0.01. This paves way for the analysis of future trend of the company. Debt equity ratio of the firm is less than the ideal ratio of 2:1. It means that the long term financial position of the company is not sound.
  80. 80. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 80  The proprietary ratios of the firm over the 5 years are less than standard requirement of 0.5:1. This is because shareholder‟s funds are less than the total assets. It indicates that loans are not secured; it is a sign of risk for the creditors of the firm. Hence, the general financial position is not satisfactory.  Current assets to net worth ratio of the firm over the years are more than the required ratio of 0.33 times. It indicates that the company‟s performance is satisfactory.  The fixed assets to net worth ratio of the firm fulfill the ideal ratio of 0.33 times. It indicates better performance of the company.  The ratios over the years are less than one, which is the standard ratio for ascertaining the solvency position of the firm. Since the required ratio is fulfilled, the firm is supposed to be solvent.  The net sales to net worth ratio are 11.81 times in the year 2008-09. This indicates that the financial performance of the company is good.  Since there is no standard ratio for inventory ratio, the higher ratio of 10.89 recorded in the year 2008-09 indicates that the stock management of the company is effective and efficient as compared to previous year.  As compared to past five years, the debts are recovered quickly. This indicates that the debts are efficiently collected during the year. This reflects the effectiveness of the credit sales policy of the management. Hence, the company‟s financial position is stronger.  The working capital of the company has shown a significant increase from 7.21 times in 2009-10 to 10.21 times in 2010-11. This indicates the working capital has efficiently utilized. Therefore, the company is financially sound.  The current assets turnover ratio shows efficient utilization of current assets resulting in increased production and reduced cost. There is a higher ratio of 3.18 times in 2007-08 which indicates better performance of the company.  There is an increasing trend in the capital turnover ratio for the past 5 years. This indicates the efficiency in the utilization of capital employed. Hence, company‟s financial performance is sound and satisfactory. Finally, ratio analysis enables a firm to take dimension into account. In other words, whether the financial position of a firm is important to maintain Deteriorating over the years.
  81. 81. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 81 CONCLUSION FROM THE STUDY: The ratio analysis of BHEL-EPD from 2006-07 to 2011-12 reveal that the company has grown substantially with respect to its total assets. Short term solvency position of the company is not well determined by current ratio and liquid ratio which indicates that the company has to improve its short term solvency.  BHEL-EPD is a leading manufacturer of high tension electro porcelain insulators with experience of over 75 years. Apart from being recipient of the ISO-9001 certificate for quality systems in design and manufacture, ISO-14001 and OHSAS-18001 for its performance in the areas of environment and safety.  BHEL-EPD supplies its product to power grid, state electricity boards, NTPC, railways, cement industry, OEMs and Coal industries in the country. It also supplies to Oman, UK, USA and Italy.  Over the years, the enterprise has acquired proficiency in imparting training to professionals in the field of strategic management, contract management, project management, activity based costing.  BHEL-EPD is proving to be different by raising sales and earning sufficient profit, which are studied and analyzed under the various heads of ratio.  The profit of BHEL-EPD has increased to 38.50crores in the year 2010-11, where it was 17.55crores, 14.91crores, 15.06crores, and 8.95crores in the year 2009-10, 2008-09, 2007-08 and 2006-07. With the help of above information, it can be concluded that the company has a good financial planning, as a results it has a good financial position and also good market leadership in spite of heavy competition.
  82. 82. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 82 CHAPTER- 6 SUGGESTIONS FOR FUTURE RESEARCH: As you know, very well that success is not overnight performance, it takes a long way; such thing can be targeted and aimed properly when one can rectify his mistakes, justify his expense and magnify his vision.  The analysis reveals that the current ratio, quick ratio and absolute liquid ratio are approximately low over the year. So the company as to give importance to invest in the current assets and review so that funds is available for long term use.  During 2010-11, the debt has decreased to 0.01. This paves way for the analysis of future trend of the company. Debt equity ratio of the firm is less than the ideal ratio of 2:1. It means that the long term financial position of the company is not sound.  Current assets to net worth ratio of the firm over the years are more than the required ratio of 0.33 times. It indicates that the company‟s performance is satisfactory. So the company should try to maintain the high performance.  The net sales to net worth ratio are 11.81 times in the year 2008-09. This indicates that the financial performance of the company is good.  Net profit is showing an improvement in the year 2010-11 but it is very low for electricity industry. Hence, the company as to reduce the operating expenses and increases the profit of the company.  The BHEL-EPD company debtor‟s collection takes long time, so the company as to take certain step to recover the credit as early as possible.  The company should increase its liquidity position through investing in readily marketable securities, thereby maintaining sufficient working capital.  It is advised to increase the company‟s shareholder‟s funds or net worth by decreasing outsider‟s funds or debt in order to enhance the financial position of the concern.
  83. 83. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 83 5 YEARS BALANCE SHEET OF BHEL(EPD): 2010-11 2009-10 2008-09 2007-08 2006-07 RESOURCES 1.OWNERS FUND 3.6 3.6 3.6 4.1 7.65 RESERVES AND SURPLUS 51.46 17.87 11.75 11.07 20.09 TOTAL 55.06 21.47 15.35 15.17 20.09 2.OUTSIDERS: UNSECUREDLOANS 0.87 0.65 0.3 0.42 0.48 TOTAL 1& 2 55.93 22.12 15.65 15.59 20.57 ULTILIZATION OF RESOURCES: FIXED ASSETS - GROSS BLOCK 59.16 58.05 56.88 56.84 55.28 LESS-DEPRECIATION 50.94 48.79 46.58 44.92 42.6 NET BLOCK 8.21 9.26 10.3 11.92 12.68 CAPITAL EXPENDITURE IN PROGRESS 0.66 0.01 0.83 FUNDS FROMCORP.OFFICE 0.07 0.84 2.33 0.93 INTER DIVISION ACCOUNTS 69.94 38.98 37.81 23.92 NET CURRENT ASSETS: CURRENT ASSETS 93.08 75.73 61.54 45.12 47.77 LOANS AND ADVANCES 10.72 6.85 3.8 3.81 3.06 TOTAL 103.8 82.58 65.34 48.93 50.83 LESS-CURRENT ASSETS 83.96 76.28 47.38 40.2 30.38 PROVISION 42.79 33.24 52.76 28.98 44.7 NET CURRENT ASSETS: -22.95 -26.95 -34.8 -20.25 6.13 TOTAL 55.93 22.12 15.65 15.59 20.57
  84. 84. A STUDY ON RATIO ANALYSIS AT BHEL REVA INSTITUTE OF SCIENCE AND MANAGEMENT, BANGALORE . Page 84 CHAPTER:7 BIBLOGRAPHY 1. AroraM.N, Management Accounting, Sultan Chand and Sons, New Delhi, 2009. 2. M.Y.Khan, P.K. Jai, Management Accounting, Third Edition, Hill Publishing Co., Ltd., New Delhi, 2004. 3. Prasanna Chandra, Financial Management Theory and practice, Tata McGrawHill Publishing Co., Ltd, New Delhi. 4. Dr. S.N. Maheshwari, Elements of Financial Management, Sultan Chand and Sons,5th Edition, New Delhi. Journals: 1. Journal of Financial Management and analysis-Ekambaram.s.k 2. The five years annual reports of Bharat Heavy Electrical Limited. Website: WWW.SBSL.com WWW.google.com WWW.Businessworld .com WWW.bhel.com

×