financial statement

Analysis refers to the process of critical examination of the financial
information contained in the financial statement in order to understand and make
decisions regarding the operations of the firm. The analysis is basically study of the
relationship among various financial facts and figure as given in a set of financial
statements. Complex figures as given in this statements are dissectedbroken
up into simple and variable elements and significant relationship are established
between the elements of the same statements are different financial statements.
Financial Statement Analysis is one of the techniques of where ratios are used as a
yardstick for evaluating the financial condition and performance of a firm. Analysis and
interpretation of various accounting ratios gives a better understanding of financial
condition and performance of firm. Trend ratios indicate the direction of change in the
performance – improvement, deterioration or constancy- over the year.
Definitions:
“Financial statements are the products of financial accounting prepared by the
accountant the result of its activities and an analysis of what have been with earnings”
 SMITH ASHBURNE
“The analysis and interpretation of financial statement reveal each and every
aspect regarding the well bringing financial soundness., operational efficiency of the
concerned”.
 JOHN MYER
Financial analysis refers to the process of critical examination of financial
information contained in the financial statement in order to understand and make
decisions regarding the operations of the firm. This process of dissection establishing and
identifying the financial weakness and strength of the firm. It indicates two aspects of the
firm i.e. the profitability and financial position.
HYPOTHESIS:
• H1 accept. The financial position of company is increasing.
• H0 accept. The financial position of company is detraining.
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For the study SAI BABA AGRO INSUTRIES, is considered. The ratio analysis is
done using the Income statements and Balance Sheets of the company between 2005 to
2009.
Data Interpretation on trend ratio analysis is carried out at SAI BABA AGRO
INDUSTRIES . For study, of five years is considered and compared it’s performance
over the period of five years. For result analysis and MS Excel Software package are
used. From the analysis, I am able to indicate following finding of the firm
1. From the current ratio it is found that the ratio is not satisfactory because the %
increase in current assets is less than the % increase in current liabilities during the
year 2005-2009.The highest ratio recorded is 3.04 in 2005 and the lowest ratio
recorded is 0.42 in the year 2007.And less than the standard ratio.
2. From the gross profit ratio it is found that the ratio is satisfactory during the last
three years from 2007 to 2009. The highest ratio recorded in the year 2008 is
21.65 and the lowest ratio recorded is 0.11 in the year 2005.
3. From the operating profit ratio it is found that the ratio is highly satisfactory
during the considered financial years. The highest ratio recorded is 100.08 in the
year 2007 and the lowest is 66.56 in the year 2004.
Finally study concluded by giving some suggestion in view of improving
performance and efficiency of the company.
Ratio analysis is a technique of analyzing the financial statement of industrial
concerns. Now a day this technique is sophisticated and is commonly used in business
concerns. Ratio analysis is not an end but it is only means of better understanding of
financial strength and weakness of a firm.
Ratio analysis is one of the most powerful tools of financial analysis which helps
in analyzing and interpreting the health of the firm. Ratio’s are proved as the basic
instrument in the control process and act as back bone in schemes of the business
forecast.
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With the help of ratio we can determine
 The ability of the firm to meet its current obligation.
 The limit or extent to which the firm has used its borrowed funds.
 The efficiency with which the firm is utilizing in generating sales revenue.
 The operating efficiency and performance of the company .
Classification of Ratios
Ratios can be classified into different categories depending upon the basis of
classification.
I. TRADITIONAL CLASSIFICATION
Traditional Classification has been on the basis of financial statements, on which
ratio may be classified as follows.
1. Profit & Loss account ratios.
E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc
2.Balance sheet ratio.
E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc
3. Composite/Mixed ratio.
E.g. Stock Turnover Ratio, Debtors Turnover Ratios, Fixed Assets
Turnover Ratio etc
II. FUNCTIONAL CLASSIFICATION OF RATIOS
Functional ratios
1. Liquidity ratios
a) Current Ratio
b) Quick Ratio
2. Leverage Ratios
a) Debt-equity Ratio
b) Current Asset to Proprietor’s fund Ratio
III. PROBABILITY RATIOS
a. Gross profit Ratio
b. Operating profit Ratio
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c. Return on investment
IV. ACTIVITY RATIO
i. Inventory Turnover Ratio
ii. Asset Turnover Ratio:
a. Fixed Asset Turnover Ratio
b. Current Asset Turnover Ratio
iii. Working Capital Turnover Ratio.
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OBJECTIVES OF METHODOLOGY
Objectives of the study:
1. To help the management in its planning and forecasting activities.
2. To evaluate operational efficiency, liquidity, and solvency of SAI BABA AGRO
INDUSTRIES .
3. To help the management in having effective control over the activities of
different departments.
4. To compare the previous five years and present year performance of the
company.
5. To give suggestion and recommendation based on the study.
LIMITATION OF THE STUDY
1) The study is limited to few ratios because of non availability of detailed financial
data.
2) The study is used on secondary data such as annual report of the company
3) The reliability and accuracy of calculation depends more on information found in
profit and loss a/c and balance sheet.
4) The study is confined only to a period of 5 years.
METHODOLOGY
The study is conducted at SAI BABA AGRO INSUTRIES
SOURCES OF DATA COLLECTION
The data is collected in two types
1) PRIMARY DATA
2) SECONDARY DATA
1) Primary data:
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It will be collected with the help of interaction with the employee of SAI BABA
AGRO INDUSTRIES , and the internal guide.
2) Secondary data:
Through Annual Reports of the company, Magazine etc.
METHODOLOGY USED:
1. TYPES OF FINANCIAL STATEMENTS ADOPTED:
Following two types of financial statements are adopted in analyzing the
firm financial position
a. BALANCE SHEET.
b. Profit and Loss statements.
2. TOOLS OF FINANCIAL STATEMENT ANALYSIS USED
The following financial analysis tools are used in order to interpret the
financial position of the firm.
LIMITATIONS OF FINANCIAL STATEMENT:
1. ONLY INTERIM REPORTS:
Only interim statements don’t give a final picture of the concern. The data given
in these statements is only approximate. The actual position can only be determined when
the business is sold or liquidated.
2. DON’T GIVE EXTRA POSITION:
The financial statements are expressed in monetary values, so they appear to give
final and accurate position. The values of fixed assets in the balance sheet neither
represent the value for which fixed assets can be sold nor the amount which will be
required to replace these assets.
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3. HISTORICAL COSTS:
The financial statements are prepared on the basis of historical costs or original
costs. The value of assets decreases with the passage of time current price changes are not
taken into account. The statements are not prepared keeping in view the present economic
conditions. The balance sheet loses the significance of being an index of current
economic realities.
4. ACT OF NON MONITORY FACTORS IGNORED:
There are certain factors which have a bearing on the financial position and
operating results of the business but they don’t become a part of these statements because
they can’t be measured in monetary terms. Such factors may include in the reputation of
the management.
NO PRECISION:
The precision of financial statement data is not possible because the statements
deal with matters which can’t be precisely stated. The data are recorded by conventional
procedures followed over the years. Various conventions, postulates, personal judgments
etc.
CONCEPT OF FINANCIAL STATEMENT ANALYSIS:
The concept of financial statement analysis is based on mainly two aspects.
CURRENT ASSETS CURRENT LIABILITIES
 Cash in hand / at bank
 Bills receivable
 Sundry debtors
 Short term loans
 Temporary investment
 Accrued incomes
 Bills payable
 Sundry creditor
 Outstanding expenses
 Bank over draft
 Accrued expenses
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METHODS OF FINANIAL STATEMENT ANALYSIS :
The analysis an interpretation of financial statements is used to determine the
financial position and results of operation as well.
The following methods no analysis is generally used:-
1. Comparative statement
2. Common size statement
3. Trend analysis
4. Ratio analysis
5. Funds flow analysis
6. Cash flow analysis
COMPARATIVE STATEMENT :
Comparative financial statements are those statements which have been designed
in a way so as to provide time perspective to the consideration of various elements of
financial position embodied in such statements. In this statement figures of two or more
periods are placed side by side to facilitate comparison .
But the income statement and balance sheet can be prepared in form of
comparative financial statement.
COMPARATIVE INCOME STATEMENT
A comparative income statement shows the absolute figures for two or more
periods and the absolute change from one period to another period. The income statement
discloses net profit or net loss an account of operations. Since the figures are shown side
by side the reader can quickly ascertain that sales have increased or decreased. It is
calculated as
COMPARATIVE BALANCE SHEET
Comparative balance sheet shows as one or two or more dates can be used for
comparing assets and liabilities and finding out any increase or decrease in those items.
Thus, while in a single balance sheet the emphasis in a present position, it is on change in
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the comparative balance sheet. Such a balance sheet is very useful in studying the trends
in an enterprise.
GUIDELINES FOR INTERPRETATION OF COMPARATIVE BALANCE
SHEET .
While interpretation comparative balance sheet the interpreter is on expected to
study the following aspects
1. Current financial position and liquidity position
2. Long term financial position
3. Profitability of the concern
It is calculated as
COMPARATIVE FINANCIAL STATEMENT – ADVANTAGES
The comparative financial statements are useful for analysis of the following
1. Comparative statement indicates trend in sales. Cost of production , profits etc… and
help the analyst to evaluate the performance of company
2. Comparative statements can also be used to compare the performance of the firm with
the average performance of the industry or inter firm comparison
WEAKNESS :
The comparative financial statements suffer with following weaknesses
1. Inter firm comparison can be misleading if the firms are not identical in size
2. It can also mislead, if the period has witnessed changed in accounting policies.
3. There can also be problem with different accounting procedures with regard to
depreciation inventory valuation etc..
COMMON SIZE STATEMENT :
The common size statements balance and income statements are shown in
analytical percentage. The figures are shown as percentage of total assets liabilities and
total sales. The total assets are taken as hundred and different assets are expressed as a
percentage of the total. Similarly various liabilities are taken as a part of total liabilities.
These statements are also known as component percentage of hundred percent statements
because every individual item is stated as a percentage of total hundred.
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COMMON SIZE INCOME STATEMENT :
In common size income statement, the sales figure is taken as hundred and all
other figures of cost and expenses are expressed as percentage to sale when other cost and
expenses are reduced from sale figure of hundred. The balance figures is taken as net
profit this reveals the efficiency of the firm in generating revenue which leads to
profitability and we can make analysis of different components.
COMMON SIZE BALANCE SHEET
In common size balance sheet, the total of assets side or liabilities is taken as
hundred and all figures of assets and liabilities, capital reserve are expressed as a
proportion of the total that is hundred. It reveals the proportion of fixed assets to current
assets composition of fixed assets and current assets and composition of current
liabilities.
TREND ANALYSIS :
The financial statements may be analyzed by computing trends of series of
information. This method determines upwards or downwards and involves the
computation of the percentage relationship that each statement item leaves to same item
in base year. The information for number of years is taken up and one generally the first
year is taken as the base year.
FUNDS FLOW ANALYSIS :
This statement is prepared in order to know clearly the various sources where
from the funds are procured to finance the activities of a business concern during the
accounting period and also bring to highlight the uses of these funds.
CASH FLOW ANALYSIS
This statement is prepared to known clearly the various items of inflow and out
flow of cash. It is an essential tool for the short term financial analysis and is very helpful
in the evaluation of current liquidity of business concern.
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RATIO ANALYSIS :
It is done to develop meaningful relationship between individual items or groups
of items usually shown in periodical financial statements published by the concern an
accounting ration shows the relationship between the two interrelated accounting figures
as gross profit to sale current asset to current liabilities loaned capital to own capital etc.
ratio should not be calculated between the unrelated figures as sales and discount on issue
of shares operating costs & equity capital etc..
COST VOLUME PROFIT ANALYSIS :
According to the terminology of cost accounting of the institute of cost and
management accountants, marginal cost represents the amount of any given volume of
output is increased by one unit . in this context a unit may be single article a batch of
articles and order a stage of production capacity, a man noun a process or a department.
SIGNIFICANCE OF FINANCIAL STATEMENT ANALYSIS :
Financial statement analysis is a significance business activity because a
corporation’s financial statement provides useful information on its economic standing
profit levels. These statements also help an investor, a regulator or a company top
management understanding operating data, evaluate cash receipts and payments during a
period and a price owner’s investment in the company.
FACTORS ASSOCIATED WITH FINANCIAL CAPABILITY :
Every financial capability is effected by some of the factors in the organization
some of them or categorized here.
Insufficient income was regarded as major component to develop financial
capability. It is an effect on a self esteem and self belief.
DETERMINANTS OF FINANCIAL ANALYSIS:
The determinants of financial statement analysis of firm is the form of measures
of individual relationship in models linking various hypothesized casual wearable’s to
various performance measures. The casual variables usually describe some combination
of elements of environment.
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FINANCIAL STATEMENTS IN TERMS OF 5 COMPONENTS:
1. Cash & Equivalents : Good cash budgeting and forecasting systems provides
answers to key questions such as it is the cash level adequate to meet current
expenses as they come due? When & how much bank borrowing will be needed to
meet any cash shortfalls? When will be repayment expected ?
2. Amortization: Repayment of loan principal and interest a loan can be amortized
in several ways in including (a) in equal installments of amortization, where the
interest component of the payment reduces as the principal is paid down. (b) in
regular payment of varying amounts, often called “commercial Amortization
which results from paying of a constant principal each installment plus interest on
the amount of principal owd”.
3. Assets: An item of current or future economic benefit to an organization.
Examples cash, short terms investments, accounts receivable, grants receivable,
inventories, prepaid expenses, buildings, furniture’s and long term investments.
4. Audit: A financial statement as of a certain date, usually covering a 12 month
period, prepared by certified public accountant (CPA), that includes an opinion
letter ,a statement of financial position(Balance sheet), a statement of activities
(Income statements). A auditor can have an unqualified opinion, stating that the
organization appears to have followed all accounting rules.
5. Depreciation: A non cash expense associated with reducing a fixed asset book
value due to general wear and tear over its defined accounting or useful life.
Depreciation is only an approximation of the amount needed to replace fixed
assets.
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LITERATURE REVIEW
Financial statement analysis (or financial analysis) the process of
understanding the risk and profitability of a firm (business, sub-business or project)
through analysis of reported financial information, particularly annual and quarterly
reports.
Financial statement analysis consists of 1) reformulating reported financial
statements, 2) analysis and adjustments of measurement errors, and 3) financial ratio
analysis on the basis of reformulated and adjusted financial statements. The two first steps
are often dropped in practice, meaning that financial ratios are just calculated on the basis
of the reported numbers, perhaps with some adjustments. Financial statement analysis is
the foundation for evaluating and pricing credit risk and for doing fundamental company
valuation.
1. Financial statement analysis typically starts with reformulating the reported
financial information. In relation to the income statement, one common
reformulation is to divide reported items into recurring or normal items and non-
recurring or special items. In this way, earnings could be separated in to normal or
core earnings and transitory earnings. The idea is that normal earnings are more
permanent and hence more relevant for prediction and valuation. Normal earnings
are also separated into net operational profit after taxes (NOPAT) and net
financial costs. The balance sheet is grouped, for example, in net operating assets
(NOA), net financial debt and equity.
2. Analysis and adjustment of measurement errors question the quality of the
reported accounting numbers. The reported numbers can for example be a bad or
noisy representation of invested capital, for example in terms of NOA, which
means that the return on net operating assets (RNOA) will be a noisy measure of
the underlying profitability (the internal rate of return, IRR). Expensing of R&D is
an example when such investment expenditures are expected to yield future
economic benefits, suggesting that R&D creates assets which should have been
capitalized in the balance sheet. An example of an adjustment for measurement
errors is when the analyst removes the R&D expenses from the income statement
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and put them in the balance sheet. The R&D expenditures are then replaced by
amortization of the R&D capital in the balance sheet. Another example is to adjust
the reported numbers when the analyst suspects earnings management.
3. Financial ratio analysis should be based on regrouped and adjusted financial
statements. Two types of ratio analysis are performed: 3.1) Analysis of risk and
3.2) analysis of profitability:3.1) Analysis of risk typically aims at detecting the
underlying credit risk of the firm. Risk analysis consists of liquidity and solvency
analysis. Liquidity analysis aims at analyzing whether the firm has enough
liquidity to meet its obligations when they should be paid. A usual technique to
analyze illiquidity risk is to focus on ratios such as the current ratio and interest
coverage. Cash flow analysis is also useful. Solvency analysis aims at analyzing
whether the firm is financed so that it is able to recover from a loss or a period of
losses. A usual technique to analyze insolvency risk is to focus on ratios such as
the equity in percentage of total capital and other ratios of capital structure. Based
on the risk analysis the analyzed firm could be rated, i.e. given a grade on the
riskiness, a process called synthetic rating.Ratios of risk such as the current ratio,
the interest coverage and the equity percentage have no theoretical benchmarks. It
is therefore common to compare them with the industry average over time. If a
firm has a higher equity ratio than the industry, this is considered less risky than if
it is above the average. Similarly, if the equity ratio increases over time, it is a
good sign in relation to insolvency risk.3.2) Analysis of profitability refers to the
analysis of return on capital, for example return on equity, ROE, defined as
earnings divided by average equity. Return on equity, ROE, could be
decomposed: ROE = RNOA + (RNOA - NFIR) * NFD/E, where RNOA is return
on net operating assets, NFIR is the net financial interest rate, NFD is net financial
debt and E is equity. In this way, the sources of ROE could be clarified.
Unlike other ratios, return on capital has a theoretical benchmark, the cost
of capital - also called the required return on capital. For example, the return on
equity, ROE, could be compared with the required return on equity, kE, as
estimated, for example, by the capital asset pricing model. If ROE < kE (or
RNOA > WACC, where WACC is the weighted average cost of capital), then the
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firm is economically profitable at any given time over the period of ratio analysis.
The firm creates values for its owners.
Insights from financial statement analysis could be used to make forecasts
and to evaluate credit risk and value the firm's equity. For example, if financial
statement analysis detects increasing superior performance ROE - kE > 0 over the
period of financial statement analysis, then this trend could be extrapolated into
the future. But as economic theory suggests, sooner or later the competitive forces
will work - and ROE will be driven toward kE.
A financial statement (or financial report) is a formal record of the financial
activities of a business, person, or other entity. In British English—including United
Kingdom company law—a financial statement is often referred to as an account,
although the term financial statement is also used, particularly by accountants.
For a business enterprise, all the relevant financial information, presented in a
structured manner and in a form easy to understand, are called the financial statements.
They typically include four basic financial statements, accompanied by a management
discussion and analysis:
1. Statement of Financial Position: also referred to as a balance sheet, reports on a
company's assets, liabilities, and ownership equity at a given point in time.
2. Statement of Comprehensive Income: also referred to as Profit and Loss
statement (or a "P&L"), reports on a company's income, expenses, and profits
over a period of time. A Profit & Loss statement provides information on the
operation of the enterprise. These include sale and the various expenses incurred
during the processing state.
3. Statement of Changes in Equity: explains the changes of the company's equity
throughout the reporting period
4. Statement of cash flows: reports on a company's cash flow activities, particularly
its operating, investing and financing activities.
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For large corporations, these statements are often complex and may include an
extensive set of notes to the financial statements and explanation of financial policies
and management discussion and analysis. The notes typically describe each item on the
balance sheet, income statement and cash flow statement in further detail. Notes to
financial statements are considered an integral part of the financial statements.
Purpose of financial statements by business entities
"The objective of financial statements is to provide information about the financial
position, performance and changes in financial position of an enterprise that is useful to a
wide range of users in making economic decisions." Financial statements should be
understandable, relevant, reliable and comparable. Reported assets, liabilities, equity,
income and expenses are directly related to an organization's financial position.
Financial statements are intended to be understandable by readers who have "a
reasonable knowledge of business and economic activities and accounting and who are
willing to study the information diligently." Financial statements may be used by users
for different purposes:
• Owners and managers require financial statements to make important business
decisions that affect its continued operations. Financial analysis is then performed
on these statements to provide management with a more detailed understanding of
the figures. These statements are also used as part of management's annual report
to the stockholders.
• Employees also need these reports in making collective bargaining agreements
(CBA) with the management, in the case of labor unions or for individuals in
discussing their compensation, promotion and rankings.
• Prospective investors make use of financial statements to assess the viability of
investing in a business. Financial analyses are often used by investors and are
prepared by professionals (financial analysts), thus providing them with the basis
for making investment decisions.
• Financial institutions (banks and other lending companies) use them to decide
whether to grant a company with fresh working capital or extend debt securities
(such as a long-term bank loan or debentures) to finance expansion and other
significant expenditures.
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• Government entities (tax authorities) need financial statements to ascertain the
propriety and accuracy of taxes and other duties declared and paid by a company.
• Vendors who extend credit to a business require financial statements to assess the
creditworthiness of the business.
• Media and the general public are also interested in financial statements for a
variety of reasons.
Government financial statements
The rules for the recording, measurement and presentation of government
financial statements may be different from those required for business and even for non-
profit organizations. They may use either of two accounting methods: accrual accounting,
or cash accounting, or a combination of the two (OCBOA). A complete set of chart of
accounts is also used that is substantially different from the chart of a profit-oriented
business
Financial statements of not-for-profit organizations
The financial statements that not-for-profit organizations such as charitable
organizations and large voluntary associations publish, tend to be simpler than those of
for-profit corporations. Often they consist of just a balance sheet and a "statement of
activities" (listing income and expenses) similar to the "Profit and Loss statement" of a
for-profit. Charitable organizations in the United States are required to show their income
and net assets (equity) in three categories: Unrestricted (available for general use),
Temporarily Restricted (to be released after the donor's time or purpose restrictions have
been met), and Permanently Restricted (to be held perpetually, e.g., in an Endowment).
Personal financial statements
Personal financial statements may be required from persons applying for a
personal loan or financial aid. Typically, a personal financial statement consists of a
single form for reporting personally held assets and liabilities (debts), or personal sources
of income and expenses, or both. The form to be filled out is determined by the
organization supplying the loan or aid.
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Audit and legal implications
Although laws differ from country to country, an audit of the financial statements
of a public company is usually required for investment, financing, and tax purposes.
These are usually performed by independent accountants or auditing firms. Results of the
audit are summarized in an audit report that either provide an unqualified opinion on the
financial statements or qualifications as to its fairness and accuracy. The audit opinion on
the financial statements is usually included in the annual report.
There has been much legal debate over who an auditor is liable to. Since audit
reports tend to be addressed to the current shareholders, it is commonly thought that they
owe a legal duty of care to them. But this may not be the case as determined by common
law precedent. In Canada, auditors are liable only to investors using a prospectus to buy
shares in the primary market. In the United Kingdom, they have been held liable to
potential investors when the auditor was aware of the potential investor and how they
would use the information in the financial statements. Nowadays auditors tend to include
in their report liability restricting language, discouraging anyone other than the addressees
of their report from relying on it. Liability is an important issue: in the UK, for example,
auditors have unlimited liability.
In the United States, especially in the post-Enron era there has been substantial
concern about the accuracy of financial statements. Corporate officers (the chief
executive officer (CEO) and chief financial officer (CFO)) are personally liable for
attesting that financial statements "do not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by th[e] report." Making or certifying misleading financial statements
exposes the people involved to substantial civil and criminal liability. For example Bernie
Ebbers (former CEO of WorldCom) was sentenced to 25 years in federal prison for
allowing WorldCom's revenues to be overstated by billion over five years.
Standards and regulations
Different countries have developed their own accounting principles over time,
making international comparisons of companies difficult. To ensure uniformity and
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comparability between financial statements prepared by different companies, a set of
guidelines and rules are used. Commonly referred to as Generally Accepted Accounting
Principles (GAAP), these set of guidelines provide the basis in the preparation of
financial statements, although many companies voluntarily disclose information beyond
the scope of such requirements.
Recently there has been a push towards standardizing accounting rules made by
the International Accounting Standards Board ("IASB"). IASB develops International
Financial Reporting Standards that have been adopted by Australia, Canada and the
European Union (for publicly quoted companies only), are under consideration in South
Africa and other countries. The United States Financial Accounting Standards Board has
made a commitment to converge the U.S. GAAP and IFRS over time.
Inclusion in annual reports
To entice new investors, most public companies assemble their financial
statements on fine paper with pleasing graphics and photos in an annual report to
shareholders, attempting to capture the excitement and culture of the organization in a
"marketing brochure" of sorts. Usually the company's chief executive will write a letter to
shareholders, describing management's performance and the company's financial
highlights.
In the United States, prior to the advent of the internet, the annual report was
considered the most effective way for corporations to communicate with individual
shareholders. Blue chip companies went to great expense to produce and mail out
attractive annual reports to every shareholder. The annual report was often prepared in the
style of a coffee table book.
Moving to electronic financial statements
Financial statements have been created on paper for hundreds of years. The
growth of the Web has seen more and more financial statements created in an electronic
form which is exchangeable over the Web. Common forms of electronic financial
statements are PDF and HTML. These types of electronic financial statements have their
drawbacks in that it still takes a human to read the information in order to reuse the
information contained in a financial statement.
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More recently a market driven global standard, XBRL (Extensible Business
Reporting Language), which can be used for creating financial statements in a structured
and computer readable format, has become more popular as a format for creating
financial statements. Many regulators around the world such as the U.S. Securities and
Exchange Commission have mandated XBRL for the submission of financial
information.
The UN/CEFACT created, with respect to Generally Accepted Accounting
Principles, (GAAP), internal or external financial reporting XML messages to be used
between enterprises and their partners, such as private interested parties (e.g. bank) and
public collecting bodies (e.g. taxation authorities). Many regulators use such messages to
collect financial and economic information.
In financial accounting, a balance sheet or statement of financial position is a
summary of the financial balances of a sole proprietorship, a business partnership, a
corporation or other business organization, such as an LLC or an LLP. Assets, liabilities
and ownership equity are listed as of a specific date, such as the end of its financial year.
A balance sheet is often described as a "snapshot of a company's financial condition". Of
the four basic financial statements, the balance sheet is the only statement which applies
to a single point in time of a business' calendar year.
A standard company balance sheet has three parts: assets, liabilities and ownership
equity. The main categories of assets are usually listed first, and typically in order of
liquidity. Assets are followed by the liabilities. The difference between the assets and the
liabilities is known as equity or the net assets or the net worth or capital of the company
and according to the accounting equation, net worth must equal assets minus liabilities.
Another way to look at the same equation is that assets equals liabilities plus
owner's equity. Looking at the equation in this way shows how assets were financed:
either by borrowing money (liability) or by using the owner's money (owner's equity).
Balance sheets are usually presented with assets in one section and liabilities and net
worth in the other section with the two sections "balancing."
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A business operating entirely in cash can measure its profits by withdrawing the
entire bank balance at the end of the period, plus any cash in hand. However, many
businesses are not paid immediately; they build up inventories of goods and they acquire
buildings and equipment. In other words: businesses have assets and so they cannot, even
if they want to, immediately turn these into cash at the end of each period. Often, these
businesses owe money to suppliers and to tax authorities, and the proprietors do not
withdraw all their original capital and profits at the end of each period. In other words
businesses also have liabilities.
Types
A balance sheet summarizes an organization or individual's assets, equity and
liabilities at a specific point in time. We have two forms of balance sheet. They are the
report form and the account form. Individuals and small businesses tend to have simple
balance sheets. Larger businesses tend to have more complex balance sheets, and these
are presented in the organization's annual report. Large businesses also may prepare
balance sheets for segments of their businesses. A balance sheet is often presented
alongside one for a different point in time (typically the previous year) for comparison.
Personal balance sheet
A personal balance sheet lists current assets such as cash in checking accounts and
savings accounts, long-term assets such as common stock and real estate, current
liabilities such as loan debt and mortgage debt due, or overdue, long-term liabilities such
as mortgage and other loan debt. Securities and real estate values are listed at market
value rather than at historical cost or cost basis. Personal net worth is the difference
between an individual's total assets and total liabilities.
A small business bump that balance sheet lists current assets such as cash,
accounts receivable, and inventory, fixed assets such as land, buildings, and equipment,
intangible assets such as patents, and liabilities such as accounts payable, accrued
expenses, and long-term debt. Contingent liabilities such as warranties are noted in the
footnotes to the balance sheet. The small business's equity is the difference between total
assets and total liabilities.
21

Public Business Entities balance sheet structure
Guidelines for balance sheets of public business entities are given by the
International Accounting Standards Board and numerous country-specific
organizations/companys.
Balance sheet account names and usage depend on the organization's country and
the type of organization. Government organizations do not generally follow standards
established for individuals or businesses.
If applicable to the business, summary values for the following items should be
included in the balance sheet: Assets are all the things the business owns, this will include
property, tools, cars, etc.
Assets
Current assets
1. Cash and cash equivalents
2. Accounts receivable
3. Inventories
4. Prepaid expenses for future services that will be used within a year
Non-current assets (Fixed assets)
1. Property, plant and equipment
2. Investment property, such as real estate held for investment purposes
3. Intangible assets
4. Financial assets (excluding investments accounted for using the equity method,
accounts receivables, and cash and cash equivalents)
5. Investments accounted for using the equity method
6. Biological assets, which are living plants or animals. Bearer biological assets are
plants or animals which bear agricultural produce for harvest, such as apple trees
grown to produce apples and sheep raised to produce wool.
22

Liabilities
See Liability (accounting)
1. Accounts payable
2. Provisions for warranties or court decisions
3. Financial liabilities (excluding provisions and accounts payable), such as
promissory notes and corporate bonds
4. Liabilities and assets for current tax
5. Deferred tax liabilities and deferred tax assets
6. Unearned revenue for services paid for by customers but not yet provided
Equity
The net assets shown by the balance sheet equals the third part of the balance sheet,
which is known as the shareholders' equity. It comprises:
1. Issued capital and reserves attributable to equity holders of the parent company
(controlling interest)
2. Non-controlling interest in equity
Formally, shareholders' equity is part of the company's liabilities: they are funds "owing"
to shareholders (after payment of all other liabilities); usually, however, "liabilities" is
used in the more restrictive sense of liabilities excluding shareholders' equity. The
balance of assets and liabilities (including shareholders' equity) is not a coincidence.
Records of the values of each account in the balance sheet are maintained using a system
of accounting known as double-entry bookkeeping. In this sense, shareholders' equity by
construction must equal assets minus liabilities, and are a residual.
Regarding the items in equity section, the following disclosures are required:
1. Numbers of shares authorized, issued and fully paid, and issued but not fully paid
2. Par value of shares
3. Reconciliation of shares outstanding at the beginning and the end of the period
4. Description of rights, preferences, and restrictions of shares
5. Treasury shares, including shares held by subsidiaries and associates
6. Shares reserved for issuance under options and contracts
7. A description of the nature and purpose of each reserve within owners' equity
23

The income statement can be prepared in one of two methods. The Single Step
income statement takes a simpler approach, totaling revenues and subtracting expenses to
find the bottom line. The more complex Multi-Step income statement (as the name
implies) takes several steps to find the bottom line, starting with the gross profit. It then
calculates operating expenses and, when deducted from the gross profit, yields income
from operations. Adding to income from operations is the difference of other revenues
and other expenses. When combined with income from operations, this yields income
before taxes. The final step is to deduct taxes, which finally produces the net income for
the period measured.
Usefulness and limitations of income statement
Income statements should help investors and creditors determine the past financial
performance of the enterprise, predict future performance, and assess the capability of
generating future cash flows through report of the income and expenses.
However, information of an income statement has several limitations:
• Items that might be relevant but cannot be reliably measured are not reported (e.g.
brand recognition and loyalty).
• Some numbers depend on accounting methods used (e.g. using FIFO or LIFO
accounting to measure inventory level).
• Some numbers depend on judgments and estimates (e.g. depreciation expense
depends on estimated useful life and salvage value).
Guidelines for statements of comprehensive income and income statements of business
entities are formulated by the International Accounting Standards Board and numerous
country-specific organizations, for example the FASB in the U.S..
Names and usage of different accounts in the income statement depend on the
type of organization, industry practices and the requirements of different jurisdictions.
If applicable to the business, summary values for the following items should be included
in the income statement:
Operating section
• Revenue - Cash inflows or other enhancements of assets of an entity during a
period from delivering or producing goods, rendering services, or other activities
24

that constitute the entity's ongoing major operations. It is usually presented as
sales minus sales discounts, returns, and allowances.Every time a business sells a
product or performs a service, it obtains revenue. This often is referred to as gross
revenue or sales revenue.
• Expenses - Cash outflows or other using-up of assets or incurrence of liabilities
during a period from delivering or producing goods, rendering services, or
carrying out other activities that constitute the entity's ongoing major operations.
o Cost of Goods Sold (COGS) / Cost of Sales - represents the direct costs
attributable to goods produced and sold by a business (manufacturing or
merchandizing). It includes material costs, direct labour, and overhead
costs (as in absorption costing), and excludes operating costs (period costs)
such as selling, administrative, advertising or R&D, etc.
o Selling, General and Administrative expenses (SG&A or SGA) -
consist of the combined payroll costs. SGA is usually understood as a
major portion of non-production related costs, in contrast to production
costs such as direct labour.
 Selling expenses - represent expenses needed to sell products (e.g.
salaries of sales people, commissions and travel expenses,
advertising, freight, shipping, depreciation of sales store buildings
and equipment, etc.).
 General and Administrative (G&A) expenses - represent
expenses to manage the business (salaries of officers / executives,
legal and professional fees, utilities, insurance, depreciation of
office building and equipment, office rents, office supplies, etc.).
o Depreciation / Amortization - the charge with respect to fixed assets /
intangible assets that have been capitalised on the balance sheet for a
specific (accounting) period. It is a systematic and rational allocation of
cost rather than the recognition of market value decrement.
o Research & Development (R&D) expenses - represent expenses included
in research and development.
25

Expenses recognised in the income statement should be analysed either by nature
(raw materials, transport costs, staffing costs, depreciation, employee benefit etc.) or by
function (cost of sales, selling, administrative, etc.). (IAS 1.99) If an entity categorises by
function, then additional information on the nature of expenses, at least, – depreciation,
amortisation and employee benefits expense – must be disclosed. (IAS 1.104) The major
exclusive of costs of goods sold, are classified as operating expenses. These represent the
resources expended, except for inventory purchases, in generating the revenue for the
period. Expenses often are divided into two broad sub classicifications selling expenses
and administrative expenses.
Non-operating section
• Other revenues or gains - revenues and gains from other than primary business
activities (e.g. rent, income from patents). It also includes unusual gains that are
either unusual or infrequent, but not both (e.g. gain from sale of securities or gain
from disposal of fixed assets)
• Other expenses or losses - expenses or losses not related to primary business
operations, (e.g. foreign exchange loss).
• Finance costs - costs of borrowing from various creditors (e.g. interest expenses,
bank charges).
• Income tax expense - sum of the amount of tax payable to tax authorities in the
current reporting period (current tax liabilities/ tax payable) and the amount of
deferred tax liabilities (or assets).
Irregular items
They are reported separately because this way users can better predict future cash flows -
irregular items most likely will not recur. These are reported net of taxes.
• Discontinued operations is the most common type of irregular items. Shifting
business location(s), stopping production temporarily, or changes due to
technological improvement do not qualify as discontinued operations.
Discontinued operations must be shown separately.
26

No items may be presented in the income statement as extraordinary items under
IFRS regulations, but are permissible under US GAAP. Extraordinary items are both
unusual (abnormal) and infrequent, for example, unexpected natural disaster,
expropriation, prohibitions under new regulations. [Note: natural disaster might not
qualify depending on location (e.g. frost damage would not qualify in Canada but would
in the tropics).]
Additional items may be needed to fairly present the entity's results of operations.
Disclosures
Certain items must be disclosed separately in the notes (or the statement of
comprehensive income), if material, including:
• Write-downs of inventories to net realisable value or of property, plant and
equipment to recoverable amount, as well as reversals of such write-downs
• Restructurings of the activities of an entity and reversals of any provisions for the
costs of restructuring
• Disposals of items of property, plant and equipment
• Disposals of investments
• Discontinued operations
• Litigation settlements
• Other reversals of provisions
Earnings per share
Because of its importance, earnings per share (EPS) are required to be disclosed on the
face of the income statement. A company which reports any of the irregular items must
also report EPS for these items either in the statement or in the notes.
There are two forms of EPS reported:
• Basic: in this case "weighted average of shares outstanding" includes only actual
stocks outstanding.
• Diluted: in this case "weighted average of shares outstanding" is calculated as if
all stock options, warrants, convertible bonds, and other securities that could be
transformed into shares are transformed. This increases the number of shares and
27

so EPS decreases. Diluted EPS is considered to be a more reliable way to
measure EPS.
Sample income statement
The following income statement is a very brief example prepared in accordance
with IFRS. It does not show all possible kinds of items appeared a firm, but it shows the
most usual ones. Please note the difference between IFRS and US GAAP when
interpreting the following sample income statements.
Bottom line
"Bottom line" is the net income that is calculated after subtracting the expenses
from revenue. Since this forms the last line of the income statement, it is informally
called "bottom line." It is important to investors as it represents the profit for the year
attributable to the shareholders.
After revision to IAS 1 in 2003, the Standard is now using profit or loss for the
year rather than net profit or loss or net income as the descriptive term for the bottom line
of the income statement.
Requirements of IFRS the International Accounting Standards Board issued a revised
IAS 1: Presentation of Financial Statements, which is effective for annual periods
beginning.
A business entity adopting IFRS must include:
• a Statement of Comprehensive Income or two separate statements comprising:
1. an Income Statement displaying components of profit or loss and
2. a Statement of Comprehensive Income that begins with profit or loss
(bottom line of the income statement) and displays the items of other
comprehensive income for the reporting period.
Items and disclosures
The statement of comprehensive income should include:
1. Revenue
2. Finance costs (including interest expenses)
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3. Share of the profit or loss of associates and joint ventures accounted for using the
equity method
4. Tax expense
5. A single amount comprising the total of (1) the post-tax profit or loss of
discontinued operations and (2) the post-tax gain or loss recognised on the
disposal of the assets or disposal group(s) constituting the discontinued operation
6. Profit or loss
7. Each component of other comprehensive income classified by nature
8. Share of the other comprehensive income of associates and joint ventures
accounted for using the equity method
9. Total comprehensive income
The following items must also be disclosed in the statement of comprehensive income as
allocations for the period:
• Profit or loss for the period attributable to non-controlling interests and owners of
the parent
• Total comprehensive income attributable to non-controlling interests and owners
of the parent
No items may be presented in the statement of comprehensive income (or in the income
statement, if separately presented) or in the notes as extraordinary items.
Financial statement analysis is, of course, the underlying purpose of preparing
financial statements. Everyone who looks at your financial statements will be
automatically performing some form of analysis. Your banker will quickly analyze them
to determine your capability of paying back a loan.
Your investor(s) will always perform a financial statement analysis to determine if
you have been performing according to plan, and/or whether your business is a good
investment.
Your suppliers will analyze your financial statements to determine your credit worthiness
—and so on.
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The important thing to remember is: everyone who looks at your financial
statements will conduct a financial statement analysis, in one form or another. That is
why your statements need to be as accurate and truthful as possible.
You, as well as your business, will be judged according to your financial statements.
But the most important aspect of financial statement analysis is the analysis you perform
yourself.
There are three major analyses you need to make. There are many others as well, but
we’ll stick to the three major ones here, as follows:
1. Actual vs. Planned Performance
You did considerable business planning before you started your business
(and you likely updated it for the banks, investors, or suppliers), complete
with pro forma financial statements (no matter how crude).
2. Trend Analysis
By comparing current financial statements to previous financial statements
you can see which areas of your business have changed, and by how much.
3. Industry Comparisons
4. This analysis is not only a comparison or your business’s performance to
others in your industry, but also to standards set by your banker, your
investor(s), your advisory group, or even yourself.
• Balance Sheet Ratios.
Balance Sheet ratios typically measure the strength of your business, using the
following formulas:
o Current Ratio — This is one of the most widely used tests of financial
strength, and is calculated by dividing Current Assets by Current
Liabilities. This ratio is used to determine if your business is likely to be
able to pay its bills.
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Obviously, a minimum acceptable ratio would be 1:1; otherwise your company would not
be expected to pay its bills on time. A ratio of 2:1 is much more acceptable, and the
higher, the better.
o Quick Ratio — This is sometimes called the “acid test” ratio because it
concentrates on only the more liquid assets of your business. It is
calculated by dividing the sum of Cash and Receivables by Current
Liabilities.
It excludes inventories or any other current asset that might have questionable liquidity.
Depending on your history for collecting receivables, a satisfactory ratio is 1:1.
o Working Capital — Bankers especially, watch this calculation very
closely as it deals more with cash flow than just a simple ratio. Working
Capital equals Current Assets minus Current Liabilities.
Quite often your banker will tie your loan approval amount to a minimum Working
Capital requirement.
o Inventory Turnover Ratio — Not every business has an inventory that
needs to be of concern, and if that is your situation you can ignore this
ratio.
This ratio tells you if your inventory is turning over fast enough, and is calculated by
dividing Net Sales by your average Inventory (at cost).
If you are concerned about your inventory, then you definitely should watch this ratio
carefully when comparing it to industry guidelines.
o Leverage Ratio — This is another of the analyses used by bankers to
determine if your business is credit worthy. It basically shows the extent
your business relies on debt to keep operating. This ratio is calculated by
dividing Total Liabilities by Net Worth (total assets minus total liabilities).
Obviously, the higher the ratio is, the more risky it becomes to extend credit to your
business.
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This is often the calculation a supplier to your business will make before extending credit
to you.
• P&L Ratios
Profit and Loss (P&L) financial statements also have some important ratio
calculations for your financial statement analysis:
o Gross Profit Ratio — This is the most common calculation on your P&L
—it is simply your Gross Profit divided by Net Sales. Often, different
industries will have standard guidelines that you can compare your
business’s numbers to.
It is also desirable to watch your trends and not let this number move too far from your
target.
o Net Profit Ratio — This calculation is simply Net Pre-tax Profit divided
by Net Sales. Other than wanting this number to be as large as possible, I
usually don’t pay too much attention to it because it includes too many
non-operating costs (depreciation, amortization, etc.) to be of any real
analysis value. (Your banker may be interested however.)
o Management Ratios.
There are a couple of other ratios that interested outside parties will want to
analyze:
o Return on Assets — This is calculated by dividing Net Pre-tax Profit by
Total Assets. The ratio is supposed to indicate how efficiently you are
utilizing your assets.
To me, this is a useless analysis for helping you run your business. However, bankers and
investors will always calculate this ratio if you don’t.
o Return on Investment (ROI) — To a bank or investor this is the most
important ratio of all. It is supposed to tell you—the business owner—if
32

you are investing your time, and money, properly, or should you just
liquidate your business and put the money into a savings account.
This, of course, is pure bull … concocted by non-entrepreneurs and academics who have
no idea what it means to be an entrepreneur.
Having said that, I do realize it can be of some value to a banker or investor—they
likely want to know if they could make a better return on their money by investing or
loaning it to someone other than you. So, for that purpose, it can be valuable … to them.
To calculate your Return on Investment, divide your Net Pre-tax Profit by your Net
Worth (total assets minus total liabilities).
Ratio analysis is a technique of analyzing the financial statement of industrial
concerns. Now a day this technique is sophisticated and is commonly used in business
concerns. Ratio analysis is not an end but it is only means of better understanding of
financial strength and and weakness of a firm.
Ratio analysis is one of the most powerful tools of financial analysis which helps
in analyzing and interpreting the health of the firm. Ratio’s are proved as the basic
instrument in the control process and act as back bone in schemes of the business
forecast.
With the help of ratio we can determine
 The ability of the firm to meet its current obligation.
 The limit or extent to which the firm has used its borrowed funds.
 The efficiency with which the firm is utilizing in generating sales revenue.
 The operating efficiency and performance of the company .
Classification of Ratios
Ratios can be classified into different categories depending upon the basis of
classification.
I. TRADITIONAL CLASSIFICATION
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Traditional Classification has been on the basis of financial statements, on which
ratio may be classified as follows.
1. Profit & Loss account ratios.
E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc
2.Balance sheet ratio.
E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc
3. Composite/Mixed ratio.
E.g. Stock Turnover Ratio, Debtors Turnover Ratios, Fixed Assets
Turnover Ratio etc
34

II. FUNCTIONAL CLASSIFICATION OF RATIOS
Functional ratios
2. Liquidity ratios
c) Current Ratio
d) Quick Ratio
2. Leverage Ratios
c) Debt-equity Ratio
d) Current Asset to Proprietor’s fund Ratio
III. PROBABILITY RATIOS
a. Gross profit Ratio
b. Operating profit Ratio
c. Return on investment
IV. ACTIVITY RATIO
i. Inventory Turnover Ratio
ii. Asset Turnover Ratio:
c. Fixed Asset Turnover Ratio
d. Current Asset Turnover Ratio
iii. Working Capital Turnover Ratio.
36

COMPANY PROFILE & INDUSTRY PROFILE
Rice Mill Industry
Rice is the staple food for almost 65% of the population in India. Paddy in its raw form
cannot be consumed by human beings. It needs to be suitably processed for obtaining
rice. Rice milling is the process which helps in removal of hulls and barns from paddy
grains to produce polished rice. Rice forms the basic primary processed product obtained
from paddy and this is further processed for obtaining various secondary and tertiary
products. The basic rice milling processes consist of the following process.
Process
• Pre Cleaning: Removing all impurities and unfilled grains from paddy
• De-stoning: Separating small stones from paddy
• Parboiling (Optional): Helps in improving the nutritional quality by
gelatinization of starch inside the rice grain. It improves the milling recovery
percent during deshelling and polishing / whitening operation
• Husking: Removing husk from paddy
• Husk Aspiration: Separating the husk from brown rice/ unhusked paddy
• Paddy Separation: Separating the unhusked paddy from brown rice
• Whitening: Removing all or part of the bran layer and germ from brown rice
• Polishing: Improving the appearance of milled rice by removing the remaining
bran particles and by polishing the exterior of the milled kernel
• Length Grading: Separating small and large brokens from head rice
• Blending: Mixing head rice with predetermined amount of brokens, as required
by the customer
• Weighing and bagging: Preparing the milled rice for transport to the customer
Status of Rice Milling Units in India
Rice milling is the oldest and the largest agro processing industry of the country.
It has a turn over of more than Rs.25,500 crore per annum. It processes about 85 million
tonnes of paddy per year and provides staple food grain and other valuable products
required by over 60% of the population. Paddy grain is milled either in raw condition or
after par-boiling, mostly by single hullers of which over 82,000 are registered in the
37

country. Apart from it there are also a large number of unregistered single hulling units in
the country. A good number (60%) of these are also linked with par-boiling units and sun
-drying yards. Most of the tiny hullers of about 250-300 kg/hr capacities are employed for
custom milling of paddy. Apart from it double hulling units number over 2,600 units,
under run disc shellers cum cone polishers numbering 5,000 units and rubber roll shellers
cum friction polishers numbering over 10,000 units are also present in the country.
Further over the years there has been a steady growth of improved rice mills in the
country. Most of these have capacities ranging from 2 tones /hr to 10 tones/ hr.
India is the second largest producer of rice in the world. The mechanized sector of
rice milling industry handles more than 45 million tones of paddy annually. About 10-15
million tonnes are processed through large scale modern mills involved in producing fine
quality of rice for export market. The major portion of paddy is still processed through
hullers which are usually low capacity mills and result in very high percentage of broken.
In these hullers both shelling and polishing operations are carried out simultaneously and
there is no control on the polishing of rice. As a result impure bran mixed with husk is
obtained and a higher breakage of rice of rice results in loss of revenue. To overcome
these problems it is necessary to carry out the shelling and polishing in two separate units.
A mini rice mill has been developed by CFTRI, Mysore and many manufacturers
have sprung up having their own versions. The Sheller is a compact unit designed on the
dens metric classification principle; the polisher could be light either vertical cone
polisher or a horizontal roller polisher.
Salient features of mini rice mill
• 1-4 percent extra yield of head rice depending on the variety
• Production of pure rice bran free from husk
• Control over degree of polishing from 3 percent onwards
• Capacity as low as 500 kg of paddy/hour and can also serve as custom milling unit
The pure bran can be supplied to solvent extraction industry after stabilization for
production of edible rice bran oil. Chemical stabilization process is easy to operate
compared to steam or roasting treatment. The principal of the process lies in maintaining
38

country. Apart from it there are also a large number of unregistered single hulling units in
the country. A good number (60%) of these are also linked with par-boiling units and sun
-drying yards. Most of the tiny hullers of about 250-300 kg/hr capacities are employed for
custom milling of paddy. Apart from it double hulling units number over 2,600 units,
under run disc shellers cum cone polishers numbering 5,000 units and rubber roll shellers
cum friction polishers numbering over 10,000 units are also present in the country.
Further over the years there has been a steady growth of improved rice mills in the
country. Most of these have capacities ranging from 2 tones /hr to 10 tones/ hr.
India is the second largest producer of rice in the world. The mechanized sector of
rice milling industry handles more than 45 million tones of paddy annually. About 10-15
million tonnes are processed through large scale modern mills involved in producing fine
quality of rice for export market. The major portion of paddy is still processed through
hullers which are usually low capacity mills and result in very high percentage of broken.
In these hullers both shelling and polishing operations are carried out simultaneously and
there is no control on the polishing of rice. As a result impure bran mixed with husk is
obtained and a higher breakage of rice of rice results in loss of revenue. To overcome
these problems it is necessary to carry out the shelling and polishing in two separate units.
A mini rice mill has been developed by CFTRI, Mysore and many manufacturers
have sprung up having their own versions. The Sheller is a compact unit designed on the
dens metric classification principle; the polisher could be light either vertical cone
polisher or a horizontal roller polisher.
Salient features of mini rice mill
• 1-4 percent extra yield of head rice depending on the variety
• Production of pure rice bran free from husk
• Control over degree of polishing from 3 percent onwards
• Capacity as low as 500 kg of paddy/hour and can also serve as custom milling unit
The pure bran can be supplied to solvent extraction industry after stabilization for
production of edible rice bran oil. Chemical stabilization process is easy to operate
compared to steam or roasting treatment. The principal of the process lies in maintaining
39

pH of the bran to the level where the lipase activity would be negligible and within safe
limit for Free Fatty Acids (FFA) which is 2-4 percent for edible over bran which
inactivates enzymes to nearly zero level.
Process Flow Chart
About 40 litres of commercially available concentrated hydrochloric acid is required for
one tonne of bran. Mixers of drum type are used for spraying HCL over bran.
Present paddy production of country is 91-92 million Tonne and substantial quality is
processed at cottage scale level.
Technical aspects
Location
There is a vast potential for installing mini rice mills in all paddy growing areas, as a rural
small scale activity.
40

Process of Manufacture
The mini rice mill consists of a paddy-cleaner, sheller, separator and a polisher.
The separator is a compact unit designed on the densimetric classification principle. The
polisher could be either a vertical cone polisher or a horizontal rotor polisher. Even a
huller used for milling could serve as a polisher though there may be more breakage of
rice.
The most important feature of the mill is that the shelling and polishing are kept
separate. Because of the low capacity, a centrifugal sheller is most commonly employed.
Different units could be used as polisher. For maximum advantage, it is necessary to use a
paddy separator, whereby need of a high polish can be avoided.
Tribal’s/villagers go to long distances to get their paddy processed for domestic
consumption. They also resort manual processing where quality of rice produced is very
poor. Entrepreneurs can set up mini rice mills as a service unit for custom milling. Mini
rice mills are also viable in small paddy growing pockets of the country.
The Basmati rice could also be processed in mini rice mills which an attractive proposal.
Rice mill consists of:
• Cleaner
• Sheller
• Separator
• Polisher
In case of production parboiled rice the paddy is soaked in water for 10-12 hours and then
steam dried before transfer to sheller.
The machines are commercially available from manufacturers. Those interested in
manufacturing of mini rice mills can contact CFTRI Mysore for design/ Technology. To
promote the improved rice milling, government is offering subsidies.
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By products
Rice Bran for supply to solvent extraction plants after stabilization
Paddy husk- use in particle board industry, rice husk cement Down line products like rice
flakes ‘poha’ units could also be set up which offer good return.
The flow diagram of the various unit operations are as follows:
Status of Rice Milling Units in India
Rice milling is the oldest and the largest agro processing industry of the country. At
present it has a turn over of more than 25,500/- crore per annum. It processes about 85
million tonnes of paddy per year and provides staple food grain and other valuable
products required by over 60% of the population. Paddy grain is milled either in raw
condition or after par-boiling, mostly by single hullers of which over 82,000 are
registered in the country. Apart from it there are also a large number of unregistered
42

single hulling units in the country
A good number (60 %) of these are also linked with par-boiling units and sun -drying
yards. Most of the tiny hullers of about 250-300 kg/hr capacities are employed for custom
milling of paddy. Apart from it double hulling units number over 2,600 units, underrun
disc shellers cum cone polishers numbering 5,000 units and rubber roll shellers cum
friction polishers numbering over 10,000 units are also present in the country. Further
over the years there has been a steady growth of improved rice mills in the country. Most
of these have capacities ranging from 2 tonnes /hr to 10 tonnes/ hr
Need for improved rice mills:
The recovery of whole grains in a traditional rice mill using steel hullers for dehusking is
around 52-54%. There is excessive loss in the form of coarse and fine brokens. Further
loss of large portion of endosperm layers during the dehusking operation further
accentuates the problem. Against it, the recovery percent of whole grains in modern rice
mills using rubber roll shellers for dehusking operation is around 62-64%. The whole
grain recovery percent further increases to 66-68% in case of milling of parboiled paddy.
Thus it can be seen that there is an overall improvement of recovery of whole grains by
about 10-14% if one uses rubber roll shellers for rice milling operations. The conversion
ratio ( i.e. recovery % of various final product and byproduct for every 100 kg feed of raw
paddy) for these improved rice mills are can be as follows:
1. Percent of milled rice : 62-68%
2. Percent of rice bran : 4-5%
3. Percent of rice husk : 25%
4. Percent of germ wastages : 2%-8%
It has been observed that dehusking using rubber roll shellers reduces the risk of breaking
the grain because husk is pulled off almost at once and pressure is applied by means of
resilient surfaces across the width of the grain, where kernels, generally are much more
uniform than they are by length. Moreover, the process does not remove the internal
epidermis of the husk. Thus the deshelled grains with their silver skin envelope are
protected against scratches and keep longer and better while the silver skin and the germ
43

increases the quantity of bran which is produced while whitening
The improved rice mills have a better husk and rice bran aspiration system. The same
prevents mixing of fine brokens with rice bran. Therefore the quality of rice bran obtained
is better. It has also been observed that the location of rice mills are confined to a few
selected production centres. Their development as a village level agro processing unit is
yet to take a proper shape. In the absence of village level rice milling unit, the farmers
have to travel great distances for milling the rice. This leads to increased transportation
and handling losses.
Thus there is a need to develop improved rice mills as a village level agro processing unit
for bringing about technical upgradation and development of the sector. Value addition
and generation of gainful and sustainable employment opportunities are the other possible
benefits arising out of this agro processing industry. The Central Govt. is also providing a
big boost towards the development of this industry. It has since repealed w.e.f. May 27,
1998 the Rice Milling Industry (Regulation) Act, 1958 and Rice Milling Industry
(Regulation and licensing) Rules , 1959. Further, rice milling sector which was earlier
reserved for the small scale sector, have now been dereserved. As such, no license/
permission is now required for setting up a rice mill.
The various construction requirement of an improved rice milling unit are as follows:
1. Raw paddy godown
2. Cleaning unit
3. Drier and necessary supporting structures such as, boiler /blower system etc.
4. Milling section
5. Finished product stores
6. Machine rooms
44

7. Auxiliary structures such as office, watch and ward etc.
Technology:
It is better to use rubber roll shellers for dehusking of paddy in the unit for better
performance.
Plant and machinery and electricals:
The details of the nature and type of plant and machinery, their capacity, power
consumption, level of automation varies upon the market needs, nature and type of the
end products and the investment capacity of the entrepreneur. Whenever paddy is
required to be parboiled prior to deshelling, a parboiling unit with steam boilers has to be
installed by the milling unit. The same will increase the P&M cost. The details of plant
and machinery for the rice milling unit are as follows:
1. Paddy cleaner
2. Rubber Roll Paddy Shellers
3. Paddy Separators
4. Blowers , Husk and Barn Aspirators
5. Paddy Polishers
6. Rice grader/ aspirator
7. Bucket Elevators
45

Product and its applications
Rice is the kernel part of paddy and is obtained by removal of the paddy husk and
thin layer of bran. Rice milling is the process of removal of these and then polishing it.
The whole process has to be accomplished with care to avoid breakage of rice and
improve recovery. The rice again is available in the husk, market in two varieties- Raw
and parboiled. The raw rice is obtained by simply milling the raw paddy, while parboiled
variety is the one in which the paddy is first partly boiled and dried before milling. Par
boiled rice is preferred in some parts of the country such as Assam, West Bengal, Orissa,
some parts of Bihar etc. The process of milling for both is same except the boiling part of
paddy. The milling process provides whole rice as the main product and Husk, Bran and
Broken rice as Bye products. Husk is sold in the market as a fuel, Bran for extraction of
Oil and broken rice is consumed as a cheaper variety of rice.
Industry Profile and Market Assessment
Rice is a staple food in most parts of the country particularly in South, East and
North Eastern States. It is also consumed on regular basis in Kashmir and not so regularly
in the Northern states of Punjab, Haryana and some parts of Uttar Pradesh. The demand
for any food product is always there particularly if it is a regular diet item like Rice or
wheat. It is an essential for survival. It is consumed by all the members of the population
may be either in fine costly variety by rich or the coarse cheap variety by the poor. The
demand for rice will always be there so long the humanity survives.
Manufacturing Process & Know How
The process of rice milling for retrieval of rice kernel is an age old one. Even
today in villages' rice is de-husked from paddy manually by women using wooden bars
and wooden vessels. The paddy is constantly subjected to slow soft hammering for
removing the husk sheath and then the fine bran layer is removed. The modern rice mill
converts this manual process into a mechanized one using mechanical devices.
The process comprises cleaning of the paddy to remove stones, dust, chaff etc.
The cleaned lot is fed into the de-husker machine where with the help of rubber rollers
husk is separated. The Brown rice so obtained is then taken to huller where polishing is
done by mild friction created within the polishing chamber. The resulting polished rice
46

and bran are separated and collected. Recovery of edible rice is around 80%. Bye
products constitute about 15%whereas balance 5% is waste and process loss.
Know how is available with Central Food Technology Research Institute Mysore.
The machinery is all indigenously available.
The production capacity envisaged is 600 tonnes of Rice per year.
About Organization:
SRI SAI BABA AGRO INDUSTRIES was established in the year 2002 with a
consolidate the fragmented rice industry . In a short span of time it has risen to be one
of leading millers and exporters in the industry under Mr. A. Ramana Kumar . A unique
business model , the goodwill of the customers has enabled the company to consolidate
on its leadership position.
47

ANALYSIS & INTREPRETATION
I. Liquidity Ratio
Liquidity ratio measures the ability of the firm to meet its current obligation
(liabilities). In fact analysis of liquidity needs the preparation of cash budget and cash and
fund flow statement but liquidity ratio, by establishing a relationship between cash and
other current asset to current obligation, to provide a quick measure of liquidity. A firm
should ensure that it doesn’t suffer lack of liquidity and also that it dose not have excess
liquidity.
The common liquidity ratios are:-
1. Current Ratio
Current ratio may be defined as the relationship between current asset and
current liabilities. This is a measure of general liquidity & is most widely used to make
analysis of short-turn financial position or liquidity of firm. It is calculated by dividing
the total current assets by total current liabilities.
Current Ratio = Current Assets
Current Liabilities
48

TABLE-1.1 Current Ratio
Ye
ar
Current Current Ratio
Assets Liabilities
2004-05 430076093 141205546 3.04
2005-06 343665293 224758035 1.5
2006-07 336389326 802862101 0.42
2007-08 417811267 868538140 0.48
2008-09 349345761 774530918 0.45
CURRENT RATIO
3.04
1.5
0.42 0.48 0.45
0
0.5
1
1.5
2
2.5
3
3.5
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR
RATIO
Ratio
INTERPRETATION
The above table shows that SAI BABA AGRO INDUSTRIES ’s current ratio has
decreased from 3.04 to 1.5 in the year 2005 and 2006 and in the year 2007 it was
drastically fluctuated to 0.42 and then the year 2008 it raise to 0.48 but again decreased to
0.45 in the 2009 .
The company had the fluctuation of 24.20% increase in current assets and 8.18%
in current liabilities. in the year 2009 the current assets has decreased by 16.38% and
10.82% in current liabilities.
An ideal current ratio is 2:1 for every one rupee of current liabilities, current
assets of doable rupee are available. The current ratio determines margin of safety for
creditors, there has been decrease in the ratio during 2009 compared with 2008.
49

2. Quick Ratio/Acid Test Ratio
Quick ratio establishes relationship between quick or liquid assets & current
liabilities. It is also known as acid test ratio. An asset is said to be liquid if it can be
converted into case within short period of time without loss of value. The prepaid
expenses and stock were excluded.
Quick ratio = Quick asset
Current Liabilities
TABLE-1.2 Quick Ratio
Year Quick Current Ratio
Assets Liabilities
2004-05 2842892837 141205546 2.01
2005-06 177992977 224758035 0.79
2006-07 138313276 802862101 0.17
2007-08 127813793 868538140 0.15
2008-09 170711841 774530918 0.22
QUICK RATIO
2.01
0.79
0.17 0.15 0.220
0.5
1
1.5
2
2.5
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
YEAR
RATIO
Ratio
INTERPRETATION:
The above table shows that the quick assets of SAI BABA AGRO INDUSTRIES
has decreased from 2.01 to 0.79 in the year 2005 and 2006 and had drastically fluctuation
to 0.17 and 0.15 in the year 2007 and 2008 and had slight raise to 0.22 in the year 2009.
The company had fluctuation 7.59% decrease in quick asset and 8.18% increase in
current liabilities and in the year 2009 there was increase in quick asset 33.56% and
10.82% decrease in current liabilities.
50

This ratio measures firm’s ability to serve short term liabilities. The ideal quick ratio is
“1”. A low quick ratio represents that firm’s liquidity poison is not good.
II. Leverage Ratios
Leverage ratios are also known as capital structure ratio. These ratios indicate
mix of funds provided by owners & lenders. As a general rule these should be appropriate
mix debt & owners equity in financing the firm’s assets.
Leverage ratios are calculated to judge the long long-term financial position of
the company. Some of the popular leverage ratios are:
a. Debt-Equity Ratio
Debt-Equity ratio shows the relative contribution of creditors and owners. Debt-
Equity also known as External-Internal equity ratio. It is calculated to measure the
relative claims of outsiders against firm assets.
Debt-Equity Ratio = Total Debt
Net Worth
TABLE-2.1 Debt Equity Ratio
INTERPRETATION
The table shows that the total debt ratio of SAI BABA AGRO INDUSTRIES had
increase in the year 2005 and 2006 from 0.61 to 0.62 and had fluctuation to 0.52 in the
year 2007 and further increased to 0.82 in the 2008 and 0.93 in the year 2009. The
company had increase in the total debt by 3.27% and 0.23% in net worth and in the year
2009 the debt was increased by 11.02% and 0.188% in net worth.
51
Year Total Debt Net Worth Ratio
2004-05 554110249 43052429 0.61
2005-06 499246293 63171947 0.62
2006-07 547168647 568828076 0.52
2007-08 565092766 570188858 0.82
2008-09 627397167 571266087 0.93

Debt equity ratio measures ultimate solvency of the company. It provides a
margin of safety to creditors, thus when the ratio is smaller the creditors are more
secured. An appropriate debt equity ratio is 0.33.A ratio higher than this is an indication
of risky financial policies.
52

b. Current Assets to Proprietor’s funds ratio
This ratio is calculated by dividing total current assets by shareholders funds. It
indicates the extent to which proprietor funds are invested in current assets. There is no
rule of thumb for this ratio & depending upon the nature of the business there may be
different ratios for different firms.
CA to PF ratio = Current Assets
Proprietors Fund
TABLE-2.2 Current Assets to Proprietors Fund
Year Current Assets Proprietors Fund
Ratio
2004-05 430076093 217335000 1.97
2005-06 343665293 217400000 1.58
2006-07 336389326 217530000 1.55
2007-08 417811264 218018495 1.92
2008-09 349345761 223983274 1.56
C/A TO PROPRIETARY RATIO
1.97
1.58 1.55
1.92
1.56
0
0.5
1
1.5
2
2.5
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR
RATIO
Ratio
53

INTERPRETATION
The table of current assets to proprietary ratio shows that the ratio has been
decreased by 1.97 to 1.58 in the year 2005 and 2006 and 1.55 in the year 2007 and then
raises to 1.92 in the year 2008 and then decreased to 1.56 in the year 2009.
There was raise in current asset by 24.20% in the year 2008 and proprietary fund
by 0.22% and further in 2009 there was decrease by 16.38% in current asset and there
was increase by 2.73% in proprietary fund
This ratio indicates the extent to which proprietors fund are invested in current
asset
54

III. Profitablility Ratios
The primary objective of a business undertaking is to earn profits. Profit is the
difference between revenue & expenses over a period of time. Profit is output of a
company & company will have no further if it fails to make sufficient profit Profits are
thus a useful measure of overall efficiency of a firm.
These ratios are calculated to measure the operating efficiency of the company.
Beside management, creditors, owners are also interested in the profitability of the
company. Generally profitability ratios are calculated either in relation to sales or in
relation to investment. The various profitable ratios are:
I In Relation to Sales
a) Gross Profit Ratio
G.P.Ratio measures the relationship between gross profits & sales; it is usually
represented in percentage. Thus Gross profit margin highlights the production efficiency
at a concern
G.P.Ratio= Gross Profit X 100
Sales
G.P.Ratio indicate the extent to which selling price of goods per unit may decline
without resulting in losses on operations of firm. It reflect efficiency with which firm
produces the product.
55

TABLE-3.1 Gross Profit Ratio
Year Gross Profit Sales Ratio
2004-05 32048846 269842495 0.11
2005-06 119992232 622678642 0.19
2006-07 81751169 592532689 13.8
2007-08 98156497 453435123 21.65
2008-09 79531898 736206987 10.8
GROSS PROFIT RATIO
0.11 0.19
13.8
21.65
10.8
0
5
10
15
20
25
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR
RATIO
Ratio
INRTEPRETATION
The above table shows the gross profit ratio of SAI BABA AGRO INDUSTRIES
the table indicates that the ratio in the year 2005 was 0.11 and in the year 2006 it raised to
0.19.further it had drastically change in gross profit to 13.8 in the year 2007 and 21.65 in
the year 2008 ,but decreased to 10.8 in the year 2009.
The company had fluctuated by increase of 20.06% in gross profit and decrease by
23.47 % in the year 2008 and in the year 2009 there is decrease in gross profit by 18.97%
and increase in sales by 62.36%.
56

The gross profit indicates the degree to which the selling price of goods per unit
may decline without resulting in losses on operation of the firm .It reflects the efficiency
with which firm produces its products.
b) Operating Ratio
It is the relation between cost of goods sold & operating expenses on one hand &
the sales on the other hand. It measures the cost of operations per rupee of sales.
Operating Ratio = Operating Cost X 100
Sales
TABLE-3.2 Operating Ratio
Year Operating Cost Sales Ratio
2004-05 179620260 269842495 66.56
2005-06 498590333 622678642 80.07
2006-07 592997583 592532689 100.8
2007-08 447200049 453435123 98.62
2008-09 545311535 736206987 74.04
OPERATING RATIO
66.56
80.07
100.8 98.62
74.04
0
20
40
60
80
100
120
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR
RATIO
Ratio
INTREPRETATION
The above table shows the firm’s operating ratio increasing drastically from
66.56 in the year 2005 to 80.07 and 100.8 in the years 2006 and 2007 but further
fluctuating to 98.62 in the year 2008 and 74.04 in the year 2009 .
57

There is a decrease in operating cost by 24.58% and 92.34% in sales but in the
year 2009 there was increase by 21.93% in operating cost and 62.36% in sales.
An increase in the ratio over a previous period is an indication of improvement in
an operational efficiency of a concern the higher the ratio is more successful the business
is ,but a lower ratio indicates large amount of manufacturing expenses.
2. Profitability in relation to Investment
a. Return on shareholders Investment:
Return on shareholders investments, popularly known as ROI. It is the
relationship between net profit after tax & shareholders funds. Thus this ratio is
considered as affective indicator of the company’s profitability because it reflects the
success of management in the efficient utilization of the owner’s investment.
ROI=. Net Profit after Tax X 100
Shareholders fund
Year Sales Current Assets Ratio
2004-05 269842495 430076093 0.62
2005-06 622678642 343665293 1.81
2006-07 592532689 336389326 1.76
2007-08 453435123 417811264 1.09
2008-09 736206987 349345761 2.11
58

INTREPRETATION:
The above table reveals that there is increase in the return on investment from
20% in the year 2005 to 29% in the year 2006 but fell down to 7.01% in the year 2007
.Further in the year 2008 there was a drastically raise to 24.41% but fluctuated to 0.04%
in the year 2009.
Through the analysis we found that in the year 2009 the net profit was decreased
by 99.82% and increased shareholders fund by 0.73. This ratio is used to measure the
overall efficiency of a concern ,the higher the ratio the better the results will be as this
ratio reveals how well the resources of a concern are being used.
59

IV. Activity Ratios:
Funds are invested in various assets in business to make sales & earn profit. The
efficiency with which assets are managed directly affects the volume of sales. The better
the management of assets, the larger is the amount of sales & the profit. Activity ratio
measures the efficiency or effectiveness with which a firm manages its resources or
assets. These ratios are also called turnover ratio because they indicate the speed with
which assets are converted or turned over into sales.
The various activity ratios are:
a. Inventory Turnover Ratio:
Inventory turnover ratio indicates the number of times stock has been turned over
during the period & evaluates efficiency with which a firm is able manage inventory.
The ratio is calculated by dividing the net sales divided by average inventory at
cost.
ITR= Net Sales .
Average Inventory at Cost
Average inventory should be taken for calculating stock turnover ratio. Adding the
stock in the beginning & at the end of period & dividing it by 2 to calculate average
inventory.
Year Net Sales Average Inventory Ratio
2004-05 269842495 149040556 1.81
2005-06 622678642 114404573 2.44
2006-07 592532689 312640080 1.9
2007-08 453435123 484623044 0.94
2008-09 736206987 379314434 1.94
60

INVENTORY TURNOVER RATIO
1.81
2.44
1.9
0.94
1.94
0
0.5
1
1.5
2
2.5
3
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR
RATIO
Ratio
INTERPRETATION:
The table shows the increase in the inventory turnover ratio from 1.81 to 2.44 in
the year 2005 and 2006 .In the year 2007 there was a fluctuation to 1.9 and further to 0.94
in the year 2008,but in the year 2009 there was a drastically increase to 1.94.
The company had 23.47% decrease in net sales and increase by 55.00% in average
inventory but in the year 2009 there was increase in net sales by 62.36% and decrease by
21.73% in average inventory.
Inventory turnover ratio signifies the liquidity of the inventory. A high ratio
implies good inventory management ,a low ratio results in blocking of funds in inventory.
The reference value of this ratio 9 and the maximum conversion period is 388.
61

b. Assets Turnover Ratio:
Assets are used to generate sales. Therefore a firm should manage its assets
efficiency to maximum sales. Assets turnover ratio shows relationship between sales &
assets. The various assets turnover ratio are:]]
i. Fixed Assets Turnover Ratio:
This ratio establishes the relationship between the costs of goods sold and fixed assets. It
can be calculated by ,
Fixed Assets Turnover Ratio = Sales
Fixed Assets
TABLE : 4.2 Fixed Assets Turnover Ratio
F/A TURNOVER RATIO
0.51
1.16
1.04
0.8
1.29
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR
RATIO
Ratio
62
Year Sales Net Fixed Assets Ratio
2004-05 269842495 523585135 0.51
2005-06 622678642 532690595 1.16
2006-07 592532689 568828676 1.04
2007-08 453435123 570188858 0.80
2008-09 736206987 571266087 1.29

INTREPRETATION:
The table reveals that there is increase in fixed asset turnover ratio from 0.51 in
the year 2005 to 1.16 in the year 2006 but decreased to 1.04 in the year 2007 and
drastically fluctuation to 0.8 in the year 2007 and raise in the year to 1.29 in the year
2009.
The company had 23.47% decrease in net sales and increase in fixed assets by
0.23% in the year 2008 and further in the year 2009 it had increase net sales by 62.36%
and increase by 0.18% in fixed assets.
One of the cautions to be kept in mind that when fixed assets are old and
substantially depreciated the ratio tenders to be high, because, the denominator of the
ratio will be low.
63

ii. Current Assets Turnover Ratio:
This ratio is indicates how many net sales are made for every rupee of investment in
current assets.
Current Assets Turnover Ratio = Sales
Current Assets
TABLE: 4.3 Current Assets Turnover Ratio
0.62
1.81 1.76
1.09
2.11
0
0.5
1
1.5
2
2.5
2004-05 2005-06 2006-07 2007-08 2008-09
RATIO
YEAR
C/A TURNOVER RATIO
Ratio
INTREPRETATION:
The table reveals that the current ratio has drastically increase from 0.62 the year
2005 to 1.81 in the year 2006 but again there was a decrease to 1.76 in the year 2007 and
64
Year Net Profit Shareholder Fund Ratio
2004-05 43052429 217335000 20%
2005-06 63171947 217400000 29%
2006-07 15245938 217530000 7.01%
2007-08 51045767 218018495 23.41%
2008-09 91423 223983274 0.04%

1.09 in the year 2008. But there was a drastically increase of ratio to 2.11 in the year
2009.
The company had decrease of 23.47% in net sales and increase in current assets
by 24.20% . In the year 2009 there was increase in net sales by 62.36% and 16.38%
decrease in currents assets.
d. Working Capital turnover Ratio:
A firm may also related net current assets to sales. Working capital turnover ratio
indicates the velocity of the utilization of net working capital.
Working Capital Turnover Ratio= Sales
Net Current Assets
TABLE:4.4 Working Capital Turnover Ratios
65
Year Sales Net Current Assets Ratio
2004-05 269842495 458642451.5 1.22
2005-06 622678642 162529306.4 3.37
2006-07 592532689 2288870547 0.12
2007-8 453435123 118907258.5 5.23
2008-09 736206987 72690853.4 8.15

working capital turnover ratio
1.22
3.37
0.12
5.23
8.15
0
1
2
3
4
5
6
7
8
9
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
year
ratio
Ratio
66

INTERPRETATION
The table reveals that the working capital turnover ratio of SAI BABA AGRO
INDUSTRIES in the year 2005 was 1.22 and increased to 3.37 in the year 2006.but in
the year 2007 there was a drastically fluctuation to 0.12 in the year 2007 further there was
a high increase in working capital turnover ratio to 5.23 in the year 2008 and 8.15 in
2009.
There is decrease in net sales by 23.47% and 94.80% in net current assets in the
year 2008 and in the year 2009 the net sales increased by 62.36% and decreased by
38.86% in net current assets.
The assets turnover ratio measures the efficiency of a firm in managing and
utilizing the assets. Higher turnover ratio, more efficient is the management utilization of
the assets while low turnover are indicative of under utilization of available resources and
presence of idle capacity. In operational terms, it implies that firm can expand its activity
level without requiring additional capital investments.
67

FINDINGS
I . LIQUIDITY RATIO:
1. From the current ratio it is found that the ratio is not satisfactory because the %
increase in current assets is less than the % increase in current liabilities during the
year 2005-2009.The highest ratio recorded is 3.04 in 2005 and the lowest ratio
recorded is 0.42 in the year 2007.And less than the standard ratio.
2. From the quick ratio it is found that the ratio is not satisfactory because the ratios
recorded during the year were less than the standard ratio. In the year 2008 the
ratio recorded is 0.15 and the ratio recorded highest was 2.01 in the year 2005.
II . LEVERAGE RATIO:
1. From the debt equity ratio it is found that the ratio recorded during the year
2005,2006,& 2007 is satisfactory as the ratios are near to the standard ratio but
during the year 2008&2009 it is not satisfactory as the ratios are very high
compared to the standard ratio.
2. From the current assets to proprietors fund ratio is not satisfactory as the
proprietary funds invested in the current assets is less in the year 2009 is less
compared to previous years .The highest ratio recorded is 1.97 in the year 2005
and the lowest ratio recorded is 1.55 in the year 2007.
III . PROFITABILITY RATIOS:
1. From the gross profit ratio it is found that the ratio is satisfactory during the last
three years from 2007 to 2009. The highest ratio recorded in the year 2008 is
21.65 and the lowest ratio recorded is 0.11 in the year 2005.
68

2. From the operating profit ratio it is found that the ratio is highly satisfactory
during the considered financial years. The highest ratio recorded is 100.08 in the
year 2007 and the lowest is 66.56 in the year 2004.
3. From the return on investment it is found that the ratio calculated for the
considered financial years is good . The ratio is satisfactory as the return on
investment is effective and good, comparing the previous years.
IV . ACTVTY RATIOS :
1. From the inventory turnover ratio it is found that the ratio is not satisfactory as the
inventory holding period is very high, compared during the financial years.
2. From the fixed assets turnover ratio it s found that the ratio is satisfactory as the
ratios are rising yearly during the comparative years.
69

Suggestion
1. The company may improve its current ratio by decreasing the current liabilities
because in the year 2008-09 current assets are decreased and it may also improve
its quick ratio.
2. The company may decrease its total debt as there is increase in total debt the year
2008-09. The company may increase its investment in current assets.
3. Long terms solvency of the company has to be improved by limiting amount
invested by outsiders to the amount invested by the owner of the company . This
can be achieved by purchasing the shares gradually.
4. The proper management of the inventory can improve liquidity position and
efficiency of the company.
70

CONCLUSION
Study of ratio analysis of Sri Say Baba Agro Industries. Reveals the performance
of the company in terms of financial aspects. It is found that there is increase in sales
gross profit during 2005 to 2009. The cash balance is also increased for the above Saied
years this is due to company’s revised policy in debt collection. It is also observed that
the current ratio is not so satisfactory which creates chunks in the current assets in the
form of sundry debtors and inventory.
71

Bibliography
1). Annual reports of SAI BABA AGRO INSUTRIES. For 2005, 2006, 2007, 2008,
2009.
2). J Made Gouda “Accounting for managers”
3). Khan M and P.K. Jain “Financial management”
72

QUESTIONNAIRE
1. Profession [a]
a. Business man
B. private employed
c. Government employed
D. others
2. Marital status [b]
A. married
B. single
3. Income level of the respondents [c]
a. < 10,000Rs
b. 10000-25,000
c. 25,000-50,000
d. above 50,000
4. preferred investment plan [c]
a. Bank FD
b. ULIP
C. Mutual funds
d. Stock market
5. What type of mutual funds you prefer ? [b]
a. Debt funds
b. Equity funds
c. Hybrid funds
73

6. Risk preference in mutual funds [MF] investment plan [c]
a. High risk
b. Moderate risk
c. Low risk
7. What type of scheme you prefer much [a]
a. Open – Ended
b. Closed – Ended
8. What is your period of investment [a]
a. Long term
b. Short term
9. In which sector fund do you prefer much in estate funds [b]
a. Financial funds
b. Utility funds
c. Technology funds
d. Healthcare funds
10. Why do u prefer in investing in mutual funds [b]
a. Tax savings
b. Risk cover
c. Others
74

financial statement

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