Project report by vivek goyal

Financial Statement Analysis
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Final Year Project Report
On
“Comparative Statement Analysis of LT Foods Ltd.”
A report submitted to
Asian Business School, Noida
As a partial fulfillment of Full time
Post Graduate Diploma in Management (PGDM)
(Approved by AICTE, Ministry of HRD)
Submitted to: Submitted by:
Mrs. Kavita Khurana Vivek Goyal
Asian Business School ABS/PGDM/JULY16/161
Noida Batch: 2016-2018
Asian Business School (ABS)
A2, Sector – 125, Noida
Website: www.abs.edu.in

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Prof. Kavita Khurana Asian Business School
(Dept. Of Management) Plot- A2, Sec.- 125
Noida, 201303
CERTIFICATE
This is to certify that the project report entitled “Comparative Statement Analysis of
LT Food Ltd” is submitted to Asian Business School, in partial fulfillment of the
requirements for the award of the Post Graduate Diploma in Management, and is an
original work by Vivek Goyal, (Reg No. ABS/PGDM/JULY16/161) The project has
been done under my supervision & guidance and the project has not formed the basis for
the award of any degree or other similar title to any candidate.
Sign- Sign-
Internal Examiner (Project Guide) External Examiner (Viva expert)

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DECLARATION
It is certified that the Research Project Report entitled “Comparative Statement
Analysis of LT Food Ltd” submitted in the partial fulfillment of the requirement for the
degree of Post-Graduations Diploma in Management of Asian Business School, Noida is
a record of bonafide research project work conducted by me. I have collected the data
personally; the data given in the Research project report is genuine and original. I declare
that this Dissertation Report is my own work and it does not contravene any academic
offence as specified in the college’s regulations.
I confirm that this Dissertation Report does not contain information of a commercial or
confidential nature or included personal information other than that which would
normally be in the public domain unless the relevant permission have been obtained.
Further, I also declare that it is not submitted to any other College/Universities for the
award of Degree and Diploma.
Name: Vivek Goyal
Email: Goyalsonu126@gmail.com
LinkedIn: vivek-goyal-22503012a/
Date:
Place: Asian Business School, Noida Signature-

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ACKNOWLEDGEMENT
The success and final outcome of this project required a lot of guidance and assistance
from many people d I am fortunate to get such guidance and fortunate to get all this
throughout my project. Whatever I have done is only due to such guidance and assistance
and I would not forget to thank them
I have great pleasure in expressing my sincere gratitude and heartily thanks to my
beloved faculty, Ms. Kavita Khurana Professor, Asian Business School for consenting
to be my guide. She had been a great source of encouragement and inspired me
throughout my project. I am thankful to her for everything she has done for me.
I express my thanks to Associate Dean of Asian Business School, Noida. Dr.
Anubhuti Dwivedi for extending her support.
I would like to express my deepest gratitude to my Friends, Management, Department
staff, and my parents for their support and above all to God for showering his blessing
upon me.
A special word of thanks to all those whom I have failed to acknowledge.

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TABLE OF CONTENT
 Certificate 2
 Declaration 3
 Acknowledgement 4
Chapter-1
1.1 Introduction
 Branded rice industry 7
 Major export markets 8
1.2 Objective of the study 8
1.3 Company profile
 LT Foods Business Overview 8
 LT Foods Company History 9
 The Promoters 12
 Vision, Values and Mission 13
 Key Strengths 14
 Product range of the company 15
 Environmental Analysis 18
 Subsidiary of the company 18
 Milestones & Achievement 20
1.4 Fundamental Analysis 22
1.5 Earning23
1.6 Fundamental Analysis Tools 24
Chapter-2
 Literature Review 25

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Chapter-3
 Data Analysis
 Ratio Analysis of LT Foods 33
Chapter-4
 Finding , Suggestions & Recommendation 83
Chapter-5
 Conclusion 85
Chapter-6
 Bibliography 86

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BRANDED RICE INDUSTRY– INDIA
India’s rice industry has seen a transformation in the last decade, with growth of branded
business in the Indian market and a strong impetus to exports. Over the last four years, the
industry has shown strong revenue growth,
With an increasing focus on branded business, according to CRISIL Research, Euro
monitor & Ministry of Agriculture. Consumers are gradually switching towards branded
Basmati Rice as they become more quality and health conscious.
INDIA: BASMATI RICE – AN OVERVIEW
Basmati is nature’s gift to the Indian subcontinent. Its delightful aroma, taste and texture
make it the best among various types of rice in the world. The domestic basmati rice
market is estimated at ` 10,000 crore, while exports account for ` 19,000 crore. Basmati
makes up 75% of the total packaged rice industry pegged at ` 13,000 crore. Of the 25-29
MT of rice traded annually in the world market, basmati rice contributes around 10%.
Rice production in India has seen a remarkable growth over the last few decades. This has
led the nation to be recognized as the second-largest rice producer in the world. India’s
share in global
Rice production has been rising year on year. Changing consumer behavior and an
emerging modern food retail channel will
Support growth in the industry over the coming years. The Rabo bank report sees
considerable growth prospects in the domestic branded market in the future. An integrated
value chain focused on quality will be critical to sustain momentum. Capabilities in
procurement, distribution and branding will need to be developed in order to achieve the
next level of growth. As a result, the industry will also see an increase in supply chain
partnerships, consolidation and interest of investors in the coming years.

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MAJOR EXPORT MARKETS
Basmati rice is one of the major exports of India. A steady increase in production of rice
and availability of buffer stocks and the growing demand for basmati rice in the
international market has made India an important rice exporting country of the world.
Basmati rice is exported from India to many countries, especially to the Gulf and
European countries. Major export markets of Indian basmati rice include Saudi Arabia,
the United Arab Emirates
(UAE) and Iran. About 70% of export of basmati rice from India is to these three
countries. Export of rice to Iran, Kuwait, Yemen, Jordan, Iraq and the Netherlands has
been increasing. CRISIL Research expects demand-supply equilibrium to prevail over the
medium term. Demand for basmati rice exports is expected to remain steady.
Objective of financial Analysis
The number and types of people interested in financial statement have changed radically
over a period of time. They need varied information and fortunately such information
may be classified as relating to profitability, liquidity and solvency.
The Project “Analysis of Financial Statements” is undertaken to fulfill the
following objectives
 To estimate the earning capacity
 To gouge the financial position and performance of the company
 To determine the long terms liquidity of the funds as well as solvency
 To determine the debt capacity of the company
 To decide about the future prospective of the company
 To offer appropriate suggestions for the better performance of the organization
LT FOODS BUSINESS OVERVIEW
LT Foods Limited (LTFL) is a leading branded specialty foods company, with leading
brand positions in the countries, including India and the United States. Incorporated in
1990, it is primarily engaged in the business of milling, processing and marketing of
basmati rice. The Company is a consumer-focused company, dealing in specialty branded
basmati rice and having diversified into value-added staples and organic food products.

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Being in the rice business for decades, the Company is leveraging its existing strengths to
grow across brands, regions and tap newer Geographies. It has evolved from being a rice
trader in the 1980s, to a leading branded specialty food player, with a growing portfolio of
value added complimentary products. LTFL is a fully integrated entity with presence
across the supply chain – production, processing, distribution and sales.
LT Foods Ltd is an India-based company. The company is engaged in the manufacture
and sale of rice under the brand DAAWAT. They also manufacture and market parboiled
rice. Their product is marketed in more than 50 countries. The company's brand portfolio
includes DAAWAT Traditional Basmati Rice, DAAWAT Biryani Basmati Rice,
DAAWAT Pulav Basmati Rice, DAAWAT Super Basmati Rice and DAAWAT Rozana.
Their product portfolio also includes brown rice, white rice, steamed rice, parboiled rice
and organic rice. Their product range includes Select, Gold Basmati Rice, Super, Chef's
Secretz, Rozana, Devaaya Basmati Rice, Brown Rice, and Heritage.
L T FOODS LTD. (DAAWAT) - COMPANY HISTORY
LT Foods Ltd was incorporated on October 16, 1990 as a private limited company with
the name LT Overseas Pvt Ltd. In the year 1993, the company started their operations
using certain processing facilities of Lal Chand Tirath Ram Rice Mills (LCTRRM), an
associate concern, on lease. In the year 1993, they got their registration as manufacturer
exporter from APEDA. In May 3, 1994, the company was converted into a public limited
company and the name was changed to LT Overseas Ltd.
During the year 1994-95, the company filed the draft prospectus with SEBI and Stock
Exchanges in Mumbai, Delhi, Jaipur and Ahmedabad. The object of the issue was to part
finance the expansion programme for setting up a milling plant with a capacity of 2
MTPH. They received the observation letter from SEBI but they did not take the matter
forward on account of the then prevailing poor conditions in the capital markets.
In the year 1995, the company set up milling capacity (paddy to rice) of 4 MTPH, at
Sonipat. During the year 1995-96, the company registered the brand 'DAAWAT' in
United States of America. During the year 1997-98, they received 'APEDA Export award'
for outstanding contribution to promotion of agricultural and processed food products

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during the year 1996-97. In March 26, 1999, they took over the business of Lal Chand
Tirath Ram Rice Mills having milling capacity of 6 MTPH, thus increasing the total
milling capacity to 10 MTPH.
During the year 1999-2000, the company was recognized as Star Trading House by
Government of India. They launched the brand 'DAAWAT' in Mauritius, Saudi Arabia
and New Zealand. They started setting up a new manufacturing facility at Bahalgarh,
Haryana and in December 2000, they commenced commercial production.
During the next two years, they launched the brand 'DAAWAT' in Australia and Canada.
During the year 2002-03, the company increased the capacity in Bahalgarh unit from 4
TPH to 10 TPH, making the total capacity to 16 MTPH. During the year 2003-04, they
received Award from APEDA for export promotion and quality development of Basmati
Rice.
During the year 2004-05, the company increased the capacity in Bahalgarh unit from 10
TPH to 12 TPH, making the total capacity to 18 MTPH. Also, they received India Star
Award from Indian Institute of Packaging during the year. During the year 2006-07, the
company increased the total production capacity from 18 MTPH to 27 MTPH. Also, they
inaugurated the Silos Complex during the year.
During the year 2007-08, the company set up a state of the art plant at Mandideep, Bhopal
(MP). The production capacity of the company's main plant at Bahalgarh was increased
from 27 MTPH to 33 MTPH. With this addition, the total capacity increased to 50.50
MTPH. Also, they started Sales Depot operation in Chennai, to provide better services to
our esteem customers of Tamil Nadu state.
During the year, the company invested in LT Infotech (P) Ltd which is in to the business
of telecommunication and which has entered in to a joint venture with Cordia
International. In December 2007, the company's wholly owned subsidiary LTO North
America Inc acquired Kusha Inc, a largest distribution company in U.S. with the brand
name 'ROYAL'. With this acquisition, the company increased their market share in the
US market from 7% to 52%.
During the year 2008-09, the company incorporated LT Agri Services Pvt Ltd as a
Wholly Owned Subsidiary of Daawat Foods Ltd. In September 25, 2008, the name of the

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company was changed from LT Overseas Ltd to LT Foods Ltd to match the vision of the
company of becoming a Leading Global Food Company.
The company was conferred with APEDA Export Award in this year for the performance
pertaining to year 2007-08. Also, Daawat Foods Ltd, a wholly owned subsidiary company
received Export Excellence award for their excellence in operations and export by State
of Madhya Pradesh in their first full year of operations.
During the year 2009-10, the company bagged the 'Wheat Silos Project' on Build-Own-
Operate (BOO) basis for a period of 30 years from Punjab State Grains Procurement
Corporation Ltd, Government of Punjab for storage and handling of 50,000 MT of wheat.
The company's flagship brand, 'Daawat' increased its presence across the length and
breadth of the country.
The company, together with their subsidiary companies, is embarking on new food
products like Fast Cooking Brown Rice, Rice Cakes, Rice Chips and several rice based
snacks. The company is also exploring other segments in the food industry in addition to
contemplating line extensions in order to pursue sustainable growth.
To increase the acceptability of LT Overseas products globally, the company has taken
the lead in implementing industry best manufacturing practices & obtaining
internationally acclaimed certifications. LT Overseas (now LT Foods Ltd) was among the
first few in the rice industry to obtain the ISO 9001–2000 certification. Presently LT Food
has obtained certifications like HACCP, SQF, BRC, and Organic and EIC.
The company has a strong distribution network in all major basmati consuming cities in
India with more than a hundred distributors in each state. L T Overseas has also made
inroads into more than 50 countries across the globe including markets like USA, Canada,
UK , EU, middle east and Africa.

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The Promoters
Mr. Vijay Kumar Arora
Chairman & Managing Director
Mr. Surinder Kumar Arora
Managing Director
Mr. Ashwani Kumar Arora Mr. Rajesh Kumar Shrivastava
Chief Executive Officer Nominee Director
Mrs. Radha Singh Mr. Vivek Chandra
Independent Director CEO, Global Brand Business Head

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Name Category Mar-17 Dec-16 Sep-16 Jun-16 Mar-16
RAGHUVESH HOLDINGS PRIVATE
LIMITED
Promoter and Promoter
Group
11.62 11.62 11.62 11.62 11.62
ASHOK KUMAR ARORA Promoter and Promoter
Group
7.98 7.98 7.98 10.29 10.29
ASHWANI KUMAR ARORA Promoter and Promoter
Group
7.98 - - - 10.21
GURUCHARAN DASS ARORA Promoter and Promoter
Group
7.98 7.98 7.98 10.06 10.06
SURINDER KUMAR ARORA Promoter and Promoter
Group
7.98 - - - -
VIJAY KUMAR ARORA Promoter and Promoter
Group
7.98 7.98 7.98 10.22 10.22
SAKSHI ARORA Promoter and Promoter
Group
3.14 3.14 3.14 - -
VANDANA ARORA Promoter and Promoter
Group
3.14 3.14 3.14 - -
RANJU ARORA Promoter and Promoter
Group
2.9 2.9 2.9 - -
ANITA ARORA Promoter and Promoter
Group
2.85 2.85 2.85 - -
PARVESH RANI Promoter and Promoter
Group
2.55 2.55 2.55 2.55 2.55
Overseas corporate bodies Public shareholder 10.76 - - - -
INDIA AGRI BUSINESS FUND LTD Public shareholder 10.58 12.31 12.38 27.22 -
PUNJAB NATIONAL BANK Public shareholder 1.13 1.13 1 1 -
Dolly khanna Public shareholder 1.11 - - - -
Vision
Customer delight through value added Agri business
Values
 Ownership
Trust, dedication and commitment by empowering resources. Accountability and
responsibility to the people and respect for all.
 Passion for Excellence
Perseverance and endurance, with no compromising to remain best in class.

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 Customer Centricity
Offering superior customer experiences through safe and high quality products and
provide value for money.
 Business Ethics
Sincerity and honesty in delivering the best by being honest and transparent in our
processes.
 Innovation
Improving continuously by experimenting with new ideas for superior products and
process.
Mission
• To deliver value to the customer, be profitable and establish leadership in core markets
• To command top of mind recall with the customer by ensuring effective brand
promotion strategies
• Invest in research & development activities to deliver even better products and always
stay ahead
• Focus on increasing global footprint by venturing into newer markets and at the same
time forge fruitful alliances with entities operating within the same domain
Key Strengths
• Farm-to-fork coverage ensures responsible sourcing, absolute control on product quality
and direct engagement with customers
• Distribution approach of forging long-term partnership has led to an enviable network
of 450 distributors and 1,10,000 retail points and exports to over 60 countries
• One of the most professional Indian food companies with an empowering internal
culture and openness to external consulting and training in niche areas
• Uniquely positioned among peers with thought leadership in propagation of organic
farming, modern granary and spread of basmati cultivation to Madhya Pradesh

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Product range of the company includes:
 Dawat: LT Foods Ltd. is one of the country leading processor and exporter of
packaged rice foods under the flagship brand Daawat. The brand is among the top
players in the domestic branded Basmati Rice markets The Daawat brand has been a
great success in international markets as well. Quality based procurement, state of the
art milling plants, product quality and customer focus are a few things Daawat has
always been known for.
 Heritage: Heritage Basmati as a brand already made its presence felt for more than a
decade, its not just another product of LT Overseas Ltd. but is also one of the trusted
brands in the industry since years.
 Orange:It is long grain rice which is suitable for the daily needs of households. This is
very popular among the diverse population across geography.

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BASMATI RICE
Daawat’ Brand is #2 in the Indian market and Royal is #1 brand in US
 Branded sales account for 78% of the Basmati Rice sales
 Basmati Rice is exported to over 60 countries, with significant presence in USA
and Middle East
• Key Brands – Daawat, Royal, Devaaya, heritage, Rozana, Chef’s Secretz
VALUE ADDED PRODUCTS
 Healthy snacks - Commercial launch scheduled in 2013. Product range includes
Chips, Crisps and Mixes in multi variants
 Plans to introduce more value-added products on health & convenience plat for
•Key Brand – mymy
 Plans to launch value-added staples (atta, suji, maida, dalia)
• Key Brand – Devaaya
ORGANIC FOOD
 Products Portfolio includes Organic Rice (Basmati and non-Basmati), Soya,
Maize, Wheat, Sugar, Pulses, Spices, Nuts
 Plans to introduce value-added organic food products
• Key Brand – Ecolife
Private Label
INTERNATIONAL TRADING
 Currently, the Company trades in Basmati, non Basmati Rice, Maize, Wheat,
Corn and Sugar
 Non-Basmati Rice constitutes more than 90% of the sales
 Markets covered include Indonesia, Iraq, Russia and Africa

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OTHERS
• Grain Silos (Build Own and Operate model)
• By-products of rice (husk, bran)
• Grading of grains
• Rice palletes
• Wheat flour

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Environmental Analysis
Strength, Weakness, Opportunities, Threats (SWOT)
Strength:-
 Good image in market
 Ability to deliver in time
 Excellent distributorship network across India
 Latest Technology
 Good quality standards
 Better services
Weakness:-
 High priced compared to market
 Physical distance between plant & marketing department
Opportunities and Threats:-
 The growing domestic demand for basmati rice promises a very good future for
company’s core business. L.T. Food ltd manufacturing basmati rice for people and
some rice for charity and mainly export the goods.
Subsidiaries of the company
Indian subsidiaries:
 Daawat Foods (P) Limited The wholly owned subsidiary of LT Foods Ltd (formerly
known as LT Overseas Ltd) was set up with state of art technology, milling unit in
Mandideep, Bhopal, for production of parboiled rice. Rice processed here will cater to
the institutions and requirement of Middle East market as well. The company has made
investment of Rs 23.50crore in this subsidiaries.

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 Nature Bio Foods Limited The company recognized that organic food is future of the
world and in the same direction, company initiated steps few years back. For the same,
the wholly owned subsidiary of the company was incorporated to cater the need of
organic market which is approximately a market of $22 billion worldwide and growing
with the peace of 10%.
 Staple Distribution Company Ltd. Looking at the potential and boom in retail
business, Staple Distribution Company, a wholly owned subsidiary of the company has
been incorporated during the year to play and establish itself as a backend player for
Modern retail.
 Heritage: One of the popular brands in basmati rice, Heritage contributes about 10% to
company’s revenues. Preferred widely for mass catering across India for well over a
decade, this long-grain rice brand is available in multiple SKUs and is widely accepted
for its aroma, quality and competitive prices.
 MyMy: Post a successful pilot in Delhi and surrounding areas, ‘MyMy’ range of
packaged snacks is ready market expansion, starting from Hyderabad. These multigrain
chips, crisps and mixes are, roasted. With lesser fat content, ‘MyMy’ offers its
consumers a healthy snacking option with no compromise on taste. With a strong
distribution network already in place in Delhi with outreach to 2500 outlets, the
Company is well poised to capitalize on snacking market opportunities.
 Devaaya: Company’s leading basmati rice brand in the economy segment, ‘Devaaya’
has expanded its consumer offerings with the launch of branded staples during the year.
The product range includes Basmati rice as well as staples like Atta, Suzi, Besan, Dalia,
Poha, and Maida. Assuring consumers of responsible sourcing, Devaaya’s commitment
to test the products for 500 impurities gets amply captured in its tagline “Sirf saaf nahi,
Safe bhi” (not only clean, but also safe).

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 LT International Limited LT International Ltd., a subsidiary of the company is
engaged in trading of varied merchandise.
 Royal: Royal is the second major contributor to revenue at USD 100 million besides
Daawat in LT Foods’ stable with demonstrated market leadership of about 45% in
North America. It is the largest selling basmati rice brand in the USA.
Overseas Subsidiaries:
 Kusha Inc. Kusha Inc. is the largest distribution company in US with the brand name
Royal and the said company has been acquired in December 2007 by LTO North
America Inc.– a wholly owned subsidiary of LT Foods Limited. This acquisition has
increased their market share from 7% to 52% appx in the US market.
 LT Foods North America Inc. LT Foods North America Inc., a wholly owned
subsidiary has been formed in California, to capture market share as well as to
strengthen their presence in U.S
.
 Sona Global Limited & Nice International FZE Middle east market has a potential
and to capture market share and strengthen their presence Sona Global Limited Dubai
and its subsidiary Nice International FZE, Dubai were formed and these are engaged in
trading of rice and rice products in the Middle East.
Milestones & Achievements:
2007–08
 Staple Distribution Company launched in domestic market to cater to the demands
of modern retail.
 State of the art plant set up in the Mandideep, Bhopal (MP.)

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 Acquired a top US Company, Kusha Inc; Kusha's brand, Royal is among the top
20 US brands: Company's share of the US market goes upto 52%.
2006–07
 Inauguration of Silos Complex
 Increase in capacity from 18 MTPH to 27 MTPH
2005–06
 Awarded Udyog Ratna by PHD chamber of commerce and industry presented by
Shri Bhupinder Singh Hooda, Chief Minister , Haryana for valuable contribution
to Economic Development of Haryana.
2004–05
 India Star Award from India Institute pf Packaging.
 Enhanced the capacity in Bahalgarh unit from 10TPH to 12 TPH , making the
owned capacity to 18 MTPN.2003–04
 Award from APEDA for export promotion and quality development of Basmati
rice.
2002–03
 Received the right to use APEDA certification mark Quality products of India for
export
 Enhanced the capacity in Bahalgarh unit TPH to 10 TPH , making the total
capacity to 16 MTPH2001–02
 Registered and launched the brand Daawat in Canada
 Obtained ISO 9000:2000 certification
 Obtained HACCP certification of SQF (Safe Quality Food) 20000CM for
comprehensive food safety and Quality management systems.
2000–01
 Started the processing facility at Bahalgharh Unit of 4 TPH
 Registered and launched the brand Daawat in Australia.
1999–2000
 Recognised as Star Trading House by Government of India

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 Registered and launched the brand Daawat in Mauritius Saudi Arabia and New
Zealand.
1998–99
 Took over the business of Lal Chand Tirath Ram Rice Mill having capacity of 6
TPH1997–98
 Awarded APEDA Export award for outstanding contribution to promotion of
agricultural and processed food products during the year 1996–97
1995–96
 Certificate of merit was awarded by APEDA for Significant contribution in the
export of India long grain rice
 Registered the brand Dawat in united States of America
1994–95
 Set up own milling capacity
1993–94
 Converted into a public Limited Company
1990–91
 Incorporation of our company as a Private limited company
Fundamental Analysis
Fundamental analysis is sometimes considered to be a foundation of solid investing. It
helps you determine the underlying health of a company by examining the business’ core
numbers: income statements, earnings releases, balance sheets, and other indicators of
economic health. From these fundamentals, potential investors can evaluate if a stock is
under- or over-valued.
Fundamental analysis begins with an individual stock, but it also extends to that
company’s larger context. It explores questions like these: Is the company competitive
within its industry? Is that industry growing or shrinking, compared to other sectors?
Shares of companies with strong fundamentals may go up over time, while fundamentally
weak companies may see their stock prices fall. This makes fundamental analysis
especially valuable to long-term investors.

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We’ve broken down the essentials of fundamental analysis into three instructive articles:
Fundamental Analytics Explained: Balance Sheets
A company’s balance sheet reflects its assets, liabilities, retained equities, and more.
Before you invest, be sure you understand these critical terms and what they reveal about
the financial health of your potential investment.
Fundamental Analytics Explained: Income Statements
How do you know if your company is doing well? Learn how to read an income
statement and how gross income and gross margin are calculated.
Fundamental Analytics Explained: Cash Flow Statements
Depending on the credit market, your company’s operating cash flow is critical to
surviving challenges. You’ll need a deep understanding of what a cash flow statement
reveals — and what it doesn’t — as you identify potential opportunities for growth.
Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to
know. How much money is the company making and how much is it going to make in the
future.
Earnings are profits. It may be complicated to calculate, but that’s what buying a
company is about. Increasing earnings generally leads to a higher stock price and, in some
cases, a regular dividend.
When earnings fall short, the market may hammer the stock. Every quarter, companies
report earnings. Analysts follow major companies closely and if they fall short of
projected earnings, sound the alarm. For more information on earnings, see my
article: It’s the Earnings.
While earnings are important, by themselves they don’t tell you anything about how the
market values the stock. To begin building a picture of how the stock is valued you need
to use some fundamental analysis tools.

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Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings,
growth, and value in the market. For convenience, I have broken them into separate
articles. Each article discusses related ratios. There are links in each article to the other
articles and back to this article.
The articles are:
1. Earnings per Share – EPS
2. Price to Earnings Ratio – P/E
3. Projected Earning Growth – PEG
4. Price to Sales – P/S
5. Price to Book – P/B
6. Dividend Payout Ratio
7. Dividend Yield
8. Book Value

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FINANCIAL ANALYSIS
INTRODUCTION
Financial Analysis is the process of determining the operating & financial characteristics
of a firm from accounting data & financial statement. The goal of such analysis is to
determine efficiency & performance of the firm management, as reflected in the financial
records and reports. Its main aim is to measure the firm’s liquidity, profitability and other
indications that business is conducted in a rational and orderly way.
The basic financial statement
Of the various reports that the companies issue to their shareholder, the annual report
is by far the most important. Two types of information are given in this report, first there
is a text that describes the firms operating results during the past year and discusses
new development that will affect future operations. Second there are few basic financial
statements - the income statement, the balance sheet ,the statement of retained earnings
and the sources and uses of funds statements.
The financial statement taken together give an accounting picture of the
firm’s operation and financial positions.
Financial statement analysis is largely a study of relationship among the various financial
factors in a business as disclosed by a single set of statements, and a study of trends of
these factors as shown in a series of statements”
--- John N. Myer
The analysis and interpretation of financial statement are an attempt to determine the
significance and meaning of the financial statement data so that the forecast may be made
of the prospects for future earnings, ability to pay interest and debt maturities (both
current & long term) and profitability of a sound
dividend policy”
--- R.D. and S. % Mc Muller
Thus, analysis of financial statement means such a treatment of the information contained
in the financial statement as to afford a full diagnosis of the profitability and financial
position of the firm concerned.

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Nature of financial statement
According to the American institute of certified public accountant
“……………. Financial statement reflected a combination of recorded facts, accounting
conventions and personal judgments.
Objective of financial Analysis
The number and types of people interested in financial statement have changed radically
over a period of time. They need varied information and fortunately such information
may be classified as relating to profitability, liquidity and solvency.
The Project “Analysis of Financial Statements” is undertaken to fulfill the
following objectives
 To estimate the earning capacity
 To gouge the financial position and performance of the company
 To determine the long terms liquidity of the funds as well as solvency
 To determine the debt capacity of the company
 To decide about the future prospective of the company
 To offer appropriate suggestions for the better performance of the organization
Bottom of Form
TypesofFinancialAnalysis
Financial analysis may be classified into different categories dependency upon
 The material used
 The method of operation followed in the analysis

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Graphicalrepresentation
(a)Accordingtomaterialused
Internal Analysis– this is performed by the corporate finance and accounting Department
and is more detailed than external analysis. These departments have available more details
and current information that is available to outsiders.
They are able to prepare perform or future statements and are able to produce a more
accurate and analysis of the firm’s strength and weakness.
External Analysis– outsiders to the firm such as creditors, stock-holders or investment
analysis perform this. It makes use of existing financial statement and involves a limited
access to confidential information on a firm.

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(b)Accordingtomodusoperationof analysis
Horizontal Analysis– this method of classified is based on the modus operandi of
analysis. Horizontal analysis refers to the comparison of the trend of each item in
the financial statement over a number of years or companies. The figures of this type of
analysis are presented horizontally over a number of columns. Such a column represents
a year of a company. This type of analysis is also called dynamic analysis‟ as it is based
on data from year to year, rather than on data of any one year
Vertical Analysis– it is frequently used for referring to ratios developed for one data or
one accounting period. Vertical analysis is also called static analysis. This is not very
conductive to a proper analysis of the firm’s financial position and its interpretation as it
does not enable to study data in respective. This can be provided by a study conducted
over a number of years so that comparison can be affected. Therefore, vertical analysis
is not very useful.
Financial Ratio and Utility
A ratio may be defined as a fixed relationship in degree or number between two
numbers. In finance, ratios are used to point out relationship that is not obvious from the
row data. Some uses financial ratios are following:-
(1) To Compare Different Companies in Some Industry: ratio can highlight the
factors association with successful and unsuccessful firms. They can reveal strong firms
and weak firms, overvalued undervalued firms.
(2) To Compare Different Industries: Every industry has its own unique set
of operating and financial characteristics. These can be identified with the help of ratios.
(3) To Compare Performance in The Different Time Periods: Over a period of years,
a firm or a industry develop certain forms that may indicate future success or failure. If
relationship changes in firms data over different time periods ,
the ratio may provide clues
and trends of future problems.

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Utility of Financial Analysis
Following are the advantages of Financial Analysis
With the help of ratios we can determine the ability of the firms to meet its current-
obligation.
 Overall operating efficiency and performance of the firm.
 Efficiency with which firms is utilizing its various assets in generating sales
Revenue.
 Ratios help in inter-firm and intra-firm comparison.
 They help in determining the financial strength by highlighting the liquidity.
 They are useful in comparison of performance.
 They are also useful in forecasting purpose.

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Introduction of Financial Analysis
INTRODUCTION
The ever changing, external & internal environment in which the organization operates to
achieve its goal has often leaded to change in the financial structure of the firm. This
change may be in the assets structure, capital structure or any other such type of the
change have often been found out of bring changes in the liquidity position, level of
activity & profitability of organization.
To be aware of various positions parties concerned with the organization often go for the
various type of analysis one of them being financial analysis, that is done to know about
the present performance of the firm in which they are either going to invest or do
business, with. The responsibility of management to look after the effective & efficient
utilization of resources of the overall sound financial situation of the organization,
increase their requirement to have a detailed report on probably each & every aspect of
financial position which may be liquidity, activity, profitability.
The presentation of an elaborate system of ratio analysis was made in 1909 by Alexander
wall, who criticized the bankers for its lopsided development owing to their decisions
regarding the grant of credit on current ratios alone.
Wall, one of the foremost proponents of ratio analysis, pointed out that, in order to get a
complete picture, it is necessary to consider relationship in financial statement other than
that of current assets to current liabilities – relationship that might be measured
quantitatively and used as checks on current ratio. Since then, comprehensive analysis by
means of calculation of a series rapidly became “all the range”
Based upon their wide range of requirement the general trend is of going for the financial
ratio analysis, which is also considered to be the most effective one capable of giving
detailed & accurate information, more detailed & accurate than any other type of financial
analysis.
Financial ratio analysis is an arithmetic relationship between two figures.

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Financial ratio analysis is a study of ratio between various items of groups of items in
financial statement. It also based upon various financial ratios, which are calculated from
the data provided in company’s balance sheet & profit and loss account.
As per I.M.Pandey “Financial ratio in the relationship between two accounting figures,
expressed mathematically”.
Nature
Ratio analysis is a powerful tools a financial analysis. In financial analysis, a ratio is used
as a benchmark.
For evaluating the financial position & performance of the firm. The relationship between
two accounting figures, expressed mathematically, is known as a financial ratio. Ratio
helps to summarized large quantity of financial data & to make qualitative judgment
about the firm’s financial performance.
This relationship is an index or yardstick, which permits qualitative judgments to be,
formed about the firm’s ability to, meets its current obligations.
It measured the firm’s liquidity. The greater the ratio, the greater the firm’s liquidity &
vice-versa. The point to be note is that a ratio reflecting a quantitative relationship helps
to form qualitative judgments. Such is the nature of all financial ratios.
USES OF FINANCIAL ANALYSIS FOR DIFFERENT PARTIES
The analysis and interpretation of financial is an important accounting activity. The end
users of business statement are interested in these statements primarily as an aid to
determine the financial position and the results of the operations. There are different
parties interested in the financial analysis of their statement and their aims and to different
parties:
To The Financial Executives: The first party interested in the financial statements
analysis is the finance department of the business concern itself to the financial managers
such analysis provides a deep insight into the financial condition of the enterprises and

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the view of the past performance which helps in future decision making. The
financial statements give vital information concerning the position of the enterprise as
well the result of the operations.
To The Top Management: The top management of the concern is also increase in the
analysis of these statements because it helps them reaching conclusions regarding :
Performance appraisal of overall business activities. Enquire about current financial
position and long-term strategic planning. Queries concerning the relationship of earning
to trends in sales etc. Queries concerning the relationship of earning to investment.
To The Creditors: The analysis of these statements is very essential to the
creditors. Also some aspect of enterprises operations are of interested to creditors in
regard to liquidity of funds, soundness of financial structure, profitability of the
operations, effectiveness of working capital management etc.
To The Investors And Others: Investors presents as well as prospects are also interested
in the measurement of earning capacity of the securities. Investors have been increasingly
concerned with the cash generation capability of an enterprise, primarily in term of the
flexibility available to such enterprise to acquire other business and new assets on an
advantage basis for Thai purpose.

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Ratio Analysis
Introduction
The analysis of the financial statements and interpretations of financial results of a
particular period of operations with the help of 'ratio' is termed as "ratio analysis." Ratio
analysis used to determine the financial soundness of a business concern. Alexander Wall
designed a system of ratio analysis and presented it in useful form in the year 1909.
Meaning and Definition
The term 'ratio' refers to the mathematical relationship between any two inter-related
variables. In other words, it establishes relationship between two items expressed in
quantitative form.
According J. Batty, Ratio can be defined as "the term accounting ratio is used to describe
significant relationships which exist between figures shown in a balance sheet and profit
and loss account in a budgetary control system or any other part of the accounting
management."
Ratio can be used in the form of (1) percentage (20%) (2) Quotient (say 10) and (3) Rates.
In other words, it can be expressed as a to b; a: b (a is to b) or as a simple fraction, integer
and decimal. A ratio is calculated by dividing one item or figure by another item or
figure.
Analysis or Interpretations of Ratios
The analysis or interpretations in question may be of various types. The following
approaches are usually found to exist:
(a) Interpretation or Analysis of an Individual (or) Single ratio.
(b) Interpretation or Analysis by referring to a group of ratios.

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(c) Interpretation or Analysis of ratios by trend.
(d) Interpretations or Analysis by inter-firm comparison.
Principles of Ratio Selection
The following principles should be considered before selecting the ratio:
(1) Ratio should be logically inter-related.
(2) Pseudo ratios should be avoided.
(3) Ratio must measure a material factor of business.
(4) Cost of obtaining information should be borne in mind.
(5) Ratio should be in minimum numbers.
(6) Ratio should be facilities comparable.
Advantages of Ratio Analysis
Ratio analysis is necessary to establish the relationship between two accounting figures to
highlight the significant information to the management or users who can analyze the
business situation and to monitor their performance in a meaningful way.
The ratio analysis is one of the most powerful tools of financial analysis. It is use as
a device to analysis and interprets the financial health of enterprise. Just like a doctor
examines his conclusion regarding the illness and before giving his treatment, a financial
analyst analyses the financial statement with various tools of analysis before commenting
upon the financial bearlth or weakness of an enterprise. “A ratio is known as a symptom
like blood pressure, the pulse rate or the temperature of the Individual” It is with help of
ratios that the financial statements can be analyzed and decision made from such analysis.

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HELPS IN DIVISION MAKING: Financial statements are prepared primarily for
decision making, but the information provided in financial statements is not an end in
itself and no meaningful conclusions can be drawn from these statements alone. Ratio
analysis helps in making decisions from the information provided in these financial
statements.
HELPS IN FINANCIAL FORCASTING AND PLANNING: Ratios analysis is of
much help in financial forecasting and planning. Planning is looking ahead and the ratios
calculated for a number of year’s work as a guide for t he future. Meaningful
conclusions can be drawn for future from these ratios. Thus, ratio analysis helps in
forecasting and planning.
HELPS IN COMMUNICATING: The financial strength and weakness of a firm are
communicated in a more easy and understandable manner by the use of ratios the
information contained in a financial statements conveyed in a meaning full manner to the
one for the whom it is meant. Thus, ratios help in communicating and enhance the value
of financial statements.
HELPS IN COORDINATION: Ratios even helps in coordinating, which is utmost
important in effective business management. Better communication of efficiency and
weakness of an enterprise results in better coordination in the enterprise.
HELPS IN CONTROL: Ratio analysis even helps in making effective control
of the business. Standard ratios can be based upon Performa Financial Statements and
variance or deviations, if any, can be founded by comparing the actual with the standards
so as to take corrective action at the right time. The weakness or otherwise, if any, come
to the knowledge of the management which helps ineffective control of the business.
Limitations of Ratio Analysis
Ratio analysis is one of the important techniques of determining the performance of
financial strength and weakness of a firm. Though ratio analysis is relevant and useful

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technique for the business concern, the analysis is based on the information available in
the financial statements. There are some situations, where ratios are misused, it may lead
the management to wrong direction. The ratio analysis suffers from the following
limitations:
 Ratio analysis is used on the basis of financial statements. Number of limitations
of financial statements may affect the accuracy or quality of ratio analysis.
 Ratio analysis heavily depends on quantitative facts and figures and it ignores
qualitative data. I Therefore this may limit accuracy.
 Ratio analysis is a poor measure of a firm's performance due to lack of adequate
standards laid for ideal ratios.
 It is not a substitute for analysis of financial statements. It is merely used as a tool
for measuring the performance of business activities.
 Ratio analysis clearly has some latitude for window dressing.
 It makes comparison of ratios between companies which is questionable due to
differences in methods of accounting operation and financing.
 Ratio analysis does not consider the change in price level, as such, these ratio will
not help in drawing meaningful inferences.
OBJECTIVEOFTHESTUDY
An analysis of financial statements with the help of ratio‟ may be termed as “Ratio
Analysis”. It implies the process of computing determining & presenting the relationship
of the terms or group of items of the financial statements. It also involves the comparison
& interpretation of these ratios & use of them for future projections.
And the fund flow arises when the net effect of the transaction is to increase or
decrease the amount of working capital. Normally, a firm will have some transactions that
will change net working capital & some that will cause no change in net working capital
include most of items of profit & loss account and those business events, which
simultaneously effect both current & non-current balance sheet items.

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CLASSIFICATION OF RATIOS
Ratio may be classified in a number of ways to suit any particular purpose. Different
kinds of ratio statement are selected for different types of situations. Mostly, the purpose
for which the ratios are used and the kind of the data available determine the nature of
analysis. In general, the following basis of classification is invogue.
Traditional classification or classification according to the statements from which
ratios are derived:
A basis of classification of ratios which readily suggests itself is according to the
statement to which the determinants of a ratio belong. From this angle, ratios are
classified as thus:
Balance Sheet Ratios: These ratios are also called financial ratios. They deal with the
relationship between two items, or group of item, which are together in the balance sheet,
example current ratio, liquid ratio, proprietary ratio, fixed assets ratio, capital gearing
ratio, and debt equity ratio.
Profit & Loss Account Ratios: These ratios are also called operating ratios. The items
used for the calculation of these ratios are usually taken out from the
profit and loss statement. Example
operating ratio, expensive ratio, net profit ratio, gross profit ratio, stock turnover ratio.
Inter-statement Ratios or Combined Ratios: the information required for the
compilation of these ratios is normally drawn from both the balance sheet, and
profit & loss account.
Example
Return on capital employed, return on proprietors‟ funds or share holders‟ investment,
and return on total investment, debtors Turnover ratio, creditor’s turnover ratio, fixed
assets turnover ratio, working capital turnover ratio.

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CLASSIFICATION OF RATIOS
This classification further grouped in to:
I. Liquidity Ratios
II. Profitability Ratios
III. Turnover Ratios
IV. Solvency Ratios
V. Overall Profitability Ratios
I. LIQUIDITY RATIOS
Liquidity Ratios are also termed as Short-Term Solvency Ratios. The term liquidity
means the extent of quick convertibility of assets in to money for paying obligation of
short-term nature. Accordingly, liquidity ratios are useful in obtaining an indication of a
firm's ability to meet its current liabilities, but it does not reveal h0w effectively the cash
resources can be managed. To measure the liquidity of a firm, the following ratios are
commonly used:
(1) Current Ratio. (2) Quick Ratio (or) Acid Test or Liquid Ratio. (3) Absolute Liquid
Ratio (or) Cash Position Ratio.
(1) Current Ratio
Current Ratio establishes the relationship between current Assets and current Liabilities.
It attempts to measure the ability of a firm to meet its current obligations. In order to
compute this ratio, the following formula is used :
Current Ratio = Current Assets ∕ Current Liabilities

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The two basic components of this ratio are current assets and current liabilities. Current
asset normally means assets which can be easily converted in to cash within a year's time.
On the other hand, current liabilities represent those liabilities which are payable within a
year. The following table represents the components of current assets and current
liabilities in order to measure the current ratios :
Interpretation of Current Ratio: The ideal current ratio is 2: 1. It indicates that current
assets double the current liabilities is considered to be satisfactory. Higher value of
current ratio indicates more liquid of the firm's ability to pay its current obligation in time.
On the other hand, a low value of current ratio means that the firm may find it difficult to
pay its current ratio as one which is generally recognized as the patriarch among ratios.
Advantages of Current Ratios:
(1) Current ratio helps to measure the liquidity of a firm.
(2) It represents general picture of the adequacy of the working capital position of a
company.
(3) It indicates liquidity of a company.
(4) It represents a margin of safety, i.e., cushion of protection against current creditors.
(5) It helps to measure the short-term financial position of a company or short-term
solvency of a firm.
Disadvantages of Current Ratio:
(1) Current ratios cannot be appropriate to all businesses it depends on many other
factors.
(2) Window' dressing is another problem of current ratio, for example, overvaluation of
closing stock.
(3) It is a crude measure of a firm's liquidity only on the basis Of quantity and not quality
of current assets.

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(2) Quick Ratio (or) Acid Test or Liquid Ratio
Quick Ratio also termed as Acid Test or Liquid Ratio. It is supplementary to the current
ratio. The acid test ratio is a more severe and stringent test of a firm's ability to pay its
short-term obligations 'as and when they become due. Quick Ratio establishes the
relationship between the quick assets and current liabilities. In order to compute this ratio,
the below presented formula is used:
Liquid Ratio = Current assets – stock and prepaid expenses
Current Liabilities
Quick Ratio can be calculated by two basic components of quick assets and current
liabilities.
Quick Assets = Current Assets - (Inventories + Prepaid expenses)
Current liabilities represent those liabilities which are payable within a year.
The ideal Quick Ratio of I: I is considered to be satisfactory. High Acid Test Ratio is an
indication that the firm has relatively better position to meet its current obligation in time.
On the other hand, a low value of quick ratio exhibiting that the firm's liquidity position is
not good.
Advantages
(I) Quick Ratio helps to measure the liquidity position of a firm.
(2) It is used as a supplementary to the current ratio.
(3) It is used to remove inherent defects of current ratio.
(3) Absolute Liquid Ratio
Absolute Liquid Ratio is also called as Cash Position Ratio (or) Over Due Liability Ratio.
This ratio established the relationship between the absolute liquid assets and current
liabilities. Absolute Liquid Assets include cash in hand, cash at bank, and marketable
securities or temporary investments. The optimum value for this ratio should be one, i.e.,
1: 2. It indicates that 50% worth absolute liquid assets are considered adequate to pay the

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100% worth current liabilities in time. If the ratio is relatively lower than one, it
represents that the company's day-to-day cash management is poor. If the ratio is
considerably more than one, the absolute liquid ratio represents enough funds in the form
of cash to meet its short-term obligations in time. The Absolute Liquid ratio can be
calculated by dividing the total of the Absolute Liquid Assets by Total Current Liabilties.
Thus,
Absolute Liquid Ratio = Absolute Liquid Assets / Current liabilities
II. PROFITABILITY RATIOS
The term profitability means the profit earning capacity of any business activity. Thus,
profit earning may be judged on the volume of profit margin of any activity and is
calculated by subtracting costs from the total revenue accruing to a firm during a
particular period. Profitability Ratio is used to measure the overall efficiency or
performance of a business. Generally, a large number of ratios can also be used for
determining the profitability as the same is related to sales or investments.
The following important profitability ratios are discussed below:
1. Gross Profit Ratio.
2. Operating Ratio.
3. Operating Profit Ratio.
4. Net Profit Ratio.
5. Return on Investment Ratio.
6. Return on Capital Employed Ratio.
7. Earning Per Share Ratio.
8. Dividend Payout Ratio.
9. Dividend Yield Ratio.
10. Price Earning Ratio.
11. Net Profit to Net worth Ratio.

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(1) Gross Profit Ratio
Gross Profit Ratio established the relationship between gross profit and net sales. This
ratio is calculated by dividing the Gross Profit by Sales. It is usually indicated as
percentage.
Gross Profit Ratio = Gross Profit / Net sales x 100
Gross Profit = Sales - Cost of Goods Sold
Net Sales - Sales Return (or) Return Inwards
Higher Gross Profit Ratio is an indication that the firm has higher profitability. It also
reflects the effective standard of performance of firm's business. Higher Gross Profit
Ratio will be result of the following factors.
(1) Increase in selling price, i.e., sales higher than cost of goods sold.
(2) Decrease in cost of goods sold with selling price remaining constant.
(3) Increase in selling price without any corresponding proportionate increase in cost.
(4) Increase in the sales mix.
A low gross profit ratio generally indicates the result of the following factors :
(l) Increase in cost of goods sold.
(2) Decrease in selling price.
(3) Decrease in sales volume.
(4) High competition.
(5) Decrease in sales mix.
Advantages
(1) It helps to measure the relationship between gross profit and net sales.
(2) It reflects the efficiency with which a firm produces its product.
(3) This ratio tells the management, that a low gross profit ratio may indicate unfavorable
purchasing and mark-up policies.
(4) A low gross profit ratio also indicates the inability of the management to increase
sales.

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(2) Operating Ratio
Operating Ratio is calculated to measure the relationship between total operating
expenses and sales. The total operating expenses is the sum total of cost of goods sold,
office and administrative expenses and selling and distribution expenses. In other words,
this ratio indicates a firm's ability to cover total operating expenses. In order to compute
this ratio, the following formula is used:
Operating Ratio = Operating Cost / Net sales x 100
Operating Cost = Cost of goods sold + Administrative Expenses + Selling and
Distribution Expenses
Net Sales = Sales – Sales return
(3) Operating Profit Ratio
Operating Profit Ratio indicates the operational efficiency of the firm and is a measure of
the firm's ability to cover the total operating expenses. Operating Profit Ratio can be
calculated as:
Operating Profit Ratio = Operating Profit / Net sales x 100
Operating Profit = Net Sales – Operating Cost
= Net Sales - (Cost of Goods Sold + Office and Administrative
Expenses + Selling and Distribution Expenses)
= Gross Profit - Operating Expenses
= Net Profit + Non-Operating Expenses Non-Operating Income.
Net Sales = Sales - Sales Return (or) Return Inwards
(4) Net Profit Ratio
Net Profit Ratio is also termed as Sales Margin Ratio (or) Profit Margin Ratio (or) Net
Profit to Sales Ratio. This ratio reveals the firm's overall efficiency in operating the
business. Net profit Ratio is used to measure the relationship between net profit (either
before or after taxes) and sales. This ratio can be calculated by the following formula:
Net Profit Ratio = Net Profit After Tax / Net Sales x 100

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Net profit includes non-operating incomes and profits. Non-Operating Incomes such as
dividend received, interest on investment, profit on sales of fixed assets, commission
received, discount received etc. Profit or Sales Margin indicates margin available after
deduction cost of production, other operating expenses, and income tax from the sales
revenue. Higher Net Profit Ratio indicates the standard performance of the business
concern.
Advantages
(1) This is the best measure of profitability and liquidity.
(2) It helps to measure overall operational efficiency of the business concern.
(3) It facilitates to make or buy decisions.
(4) It helps to determine the managerial efficiency to use a firm's resources to generate
income on its invested capital.
(5) Net profit Ratio is very much useful as a tool of investment evaluation.
(5) Return on Investment Ratio
This ratio is also called as ROL This ratio measures a return on the owner's or
shareholders' investment. This ratio establishes the relationship between net profit after
interest and taxes and the owner's investment. Usually this is calculated in percentage.
This ratio, thus can be calculated as:
Return on Investment Ratio = Net Profit / Shareholders ‘Fund or (Investment) x 100
Shareholder's Investments = Equity Share Capital + Preference Share Capital + Reserves
and Surplus - Accumulated Losses
Net Profit = Net Profit - Interest and Taxes
Advantages
(1) This ratio highlights the success of the business from the owner's point of view.
(2) It helps to measure an income on the shareholders' or proprietor's investments.
(3) This ratio helps to the management for important decisions making.
(4) It facilitates in determining efficiently handling of owner's investment.

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(6) Return on Capital Employed Ratio
Return on Capital Employed Ratio measures a relationship between profit and capital
employed. This ratio is also called as Return on Investment Ratio. The term return means
Profits or Net Profits. The term Capital Employed refers to total investments made in the
business. The concept of capital employed can be considered further into the following
ways:
(a) Gross Capital Employed
(b) Net Capital Employed
(c) Average Capital Employed
(d) Proprietor's Net Capital Employed
(a) Gross Capital Employed = Fixed Assets + Current Assets
(b) Net Capital Employed = Total Assets - Current Liabilities Opening Capital
Employed + Closing
(c) Average Capital Employed = Capital employed / 2
(d) Proprietor's Net Capital Employed = Fixed Assets + Current Assets – Outside
Liabilities (both long-term and short-term)
In order to compute this ratio, the below presented formulas are used:
(1) Return on Capital Employed = Net profit after tax / Gross capital employed x
100
(2) Return on Capital Employed = Net Profit after taxes before interest / Gross
capital employed x 100
(7) Earnings Per Share Ratio
Earnings per Share Ratio (EPS) measures the earning capacity of the concern from the
owner's point of view and it is helpful in determining the price of the equity share in the
market place. Earnings Per Share Ratio can be calculated as:
Earnings Per Share Ratio = Net Profit after tax / No. of Equity Shares

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Advantages
(1) This ratio helps to measure the price of stock in the market place.
(2) This ratio highlights the capacity of the concern to pay dividend to its shareholders.
(3) This ratio used as a yardstick to measure the overall performance of the concern.
(8) Dividend Payout Ratio
This ratio highlights the relationship between payment of dividend on equity share capital
and the profits available after meeting tax and preference dividend. This ratio indicates
the dividend policy adopted by the top management about utilization of divisible profit to
pay dividend or to retain or both. The ratio, thus, can be calculated as:
Dividend Payout Ratio = Equity Dividend / Net profit after tax and preference
dividend x 100
OR
= Dividend Per Share / Earnings per equity share x 100
(9) Dividend Yield Ratio:
Dividend Yield Ratio indicates the relationship is established between dividend per share
and market value per share. This ratio is a major factor that determines the dividend
income from the investors' point of view. It can be calculated by the following formula:
Dividend yield ratio = Dividend per share / Market value per share x 100
(10) Price Earning Ratio:
This ratio highlights the earning per share reflected by market share. Price Earning Ratio
establishes the relationship between the market price of an equity share and the earning
per equity share. This ratio helps to find out whether the equity shares of a company are
undervalued or not. This ratio is also useful in financial forecasting. This ratio is
calculated as:
Price Earning Ratio = Market Price per equity share / Earning per share

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(11) Net Profit to Net Worth Ratio
This ratio measures the profit return on investment. This ratio indicates the established
relationship between net profit and shareholders' net worth. It is a reward for the
assumption of ownership risk. This ratio is calculated as:
Net Profit to Net Worth = Net profit after tax / Shareholders net worth x 100
Shareholder Net Worth = Total tangible net worth
Company’s net assets – Long term liabilities
Total Tangible Net Worth = Shareholders ‘Fund + Profit retained in business
Advantages
A Textbook of Financial Cost and Management Accounting
(1) This ratio determines the incentive to owners.
(2) This ratio helps to measure the profit as well as net worth.
(3) This ratio indicates the overall performance and effectiveness of the firm.
(4) This ratio measures the efficiency with which the resources of a firm have been
employed.
III. TURNOVER RATIOS
Turnover Ratios may be also termed as Efficiency Ratios or Performance Ratios or
Activity Ratios. Turnover Ratios highlight the different aspect of financial statement to
satisfy the requirements of different parties interested in the business. It also indicates the
effectiveness with which different assets are vitalized in a business. Turnover means the
number of times assets are converted or turned over into sales. The activity ratios indicate
the rate at which different assets are turned over.
Depending upon the purpose, the following activities or turnover ratios can be calculated:
1. Inventory Ratio or Stock Turnover Ratio (Stock Velocity)
2. Debtor's Turnover Ratio or Receivable Turnover Ratio (Debtor's Velocity)

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2 A. Debtor's Collection Period Ratio
3. Creditor's Turnover Ratio or Payable Turnover Ratio (Creditor's Velocity)
3 A. Debt Payment Period Ratio
4. Working Capital Turnover Ratio
5. Fixed Assets Turnover Ratio
6. Capital Turnover Ratio.
(1) Stock Turnover Ratio
This ratio is also called as Inventory Ratio or Stock Velocity Ratio.
Inventory means stock of raw materials, working in progress and finished goods. This
ratio is used to measure whether the investment in stock in trade is effectively utilized or
not. It reveals the relationship between sales and cost of goods sold or average inventory
at cost price or average inventory at selling price. Stock Turnover Ratio indicates the
number of times the stock has been turned over in business during a particular period.
While using this ratio, care must be taken regarding season and condition price trend.
Supply condition etc. In order to compute this ratio, the following formulae are used:
(1) Stock Turnover Ratio = Net Sales / Inventory
(2) Stock Turnover Ratio = Net sales / Average inventory at cost
The above said formulas can be used on the basis of the information given in the
illustration.
Advantages
(1) This ratio indicates whether investment in stock in trade is efficiently used or not.
(2) This ratio is widely used as a measure of investment in stock is within proper limit or
not.
(3) This ratio highlights the operational efficiency of the business concern.
(4) This ratio is helpful in evaluating the stock utilization.
(5) It measures the relationship between the sales and the stock in trade.
(6) This ratio indicates the number of times the inventories have been turned over in
business during a particular period.

Page | 49
(2) Debtor's Turnover Ratio
Debtor's Turnover Ratio is also termed as Receivable Turnover Ratio or Debtor's
Velocity. Receivables and Debtors represent the uncollected portion of credit sales.
Debtor's Velocity indicates the number of times the receivables are turned over in
business during a particular period. In other words, it represents how quickly the debtors
are converted into cash. It is used to measure the liquidity position of a concern. This ratio
establishes the relationship between receivables and sales. Two kinds of ratios can be
used to judge a firm's liquidity position on the basis of efficiency of credit collection and
credit policy. They are (A) Debtor's Turnover Ratio and (B) Debt Collection Period.
These ratios may be computed as :
Debtor's Turnover Ratio = Net credit sales / Account receivables
Net Credit Sales = Total sales – (Cash sales + Sales return)
Accounts Receivable = Sundry debtors + Bills receivables
Average Accounts Receivable = Opening receivables + Closing receivables / 2
It is to be noted that opening and closing receivable and credit sales are not available, the
ratio may be calculated as
Debtor's Turnover Ratio = Total sales / Account receivables
2 (A) Debt Collection Period Ratio
This ratio indicates the efficiency of the debt collection period and the extent to which the
debt have been converted into cash. This ratio is complementary to the Debtor Turnover
Ratio. It is very helpful to the management because it represents the average debt
collection period. The ratio can be calculated as follows:
(a) Debt Collection Period Ratio = Month or Days in a year / Debtor’s turnover
(b) Debt Collection Period Ratio = Average account receivables x Month or days in a
year / Net credit sales for the year

Page | 50
Advantages of Debtor's Turnover Ratio
(1) This ratio indicates the efficiency of firm's credit collection and efficiency of credit
policy.
(2) This ratio measures the quality of receivable, i.e., debtors.
(3) It enables a firm to judge the adequacy of the liquidity position of a concern.
(4) This ratio highlights the probability of bad debts lurking in the trade debtors.
(5) This ratio measures the number of times the receivables are turned over in business
during a particular period.
(6) It points out the liquidity of trade debtors, i.e., higher turnover ratio and shorter debt
collection period indicate prompt payment by debtors. Similarly, low turnover ratio and
higher collection period implies that payment by trade debtors are delayed:
(3) Creditor's Turnover Ratio
Creditor's Turnover Ratio is also called as Payable Turnover Ratio or Creditor's Velocity.
The credit purchases are recorded in the accounts of the buying companies as Creditors to
Accounts Payable. The Term Accounts Payable or Trade Creditors include sundry
creditors and bills payable. This ratio establishes the relationship between the net credit
purchases and the average trade creditors. Creditor's velocity ratio indicates the number of
times with which the payment is made to the supplier in respect of credit purchases. Two
kinds of ratios can be used for measuring the efficiency of payable of a business concern
relating to credit purchases. They are: (1) Creditor's Turnover Ratio (2) Creditor's
Payment Period or Average Payment Period. The ratios can be calculated by the
following formulas:
Creditor's Turnover Ratio = Net Credit Purchases / Average Accounts Payable
Net Credit Purchases = Total Purchases – Cash Purchases
Average Accounts Payable = Opening Payable + Closing Payable / 2
Average Payment Period = Month or days in a year / Creditors turnover ratio
OR
=Average trade creditors / Net credit purchase x 365

Page | 51
Significance: A high Creditor's Turnover Ratio signifies that the creditors are being paid
promptly. A lower ratio indicates that the payment of creditors are not paid in time. Also,
high average payment period highlight the unusual delay in payment and it affect the
creditworthiness of the firm. A low average payment period indicates enhancing the
creditworthiness of the company.
(4) Working Capital Turnover Ratio: This ratio highlights the effective utilization of
working capital with regard to sales. This ratio represent the firm's liquidity position. It
establishes relationship between cost of sales and networking capital. This ratio is
calculated as follows:
Working Capital Turnover Ratio = Net Sales / Working Capital
Net Sales = Gross Sales - Sales Return
Working Capital = Current Assets - Current Liabilities
(5) Fixed Assets Turnover Ratio
This ratio indicates the efficiency of assets management. Fixed Assets Turnover Ratio is
used to measure the utilization of fixed assets. This ratio establishes the relationship
between cost of goods sold and total fixed assets. Higher the ratio highlights a firm has
successfully utilized the fixed assets. If the ratio is depressed, it indicates the under
utilization of fixed assets. The ratio may also be calculated as:
Fixed Assets Turnover Ratio = Cost of goods sold / Total fixed assets
OR
= Sales / Net Fixed Assets
Components of Fixed Assets (or) Non-Current Assets
(1) Goodwill
(2) Land and Building
(3) Plant and Machinery
(4) Furniture and Fittings
(5) Trade Mark
(6) Patent Rights and Livestock

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(7) Long-Term Investment
(8) Debt Balance of Profit and Loss Account
(9) Discount on Issue of Shares
(10) Discount on Issue of Debenture
(11) Preliminary Expenses
(12) Other Deferred Expenses
(14) Government or Trust Securities
(15) Any other immovable prosperities.
(6) Capital Turnover Ratio
This ratio measures the efficiency of capital utilization in the business. This ratio
establishes the relationship between cost of sales or sales and capital employed or
shareholders' fund. This ratio may also be calculated as:
(3) Capital Turnover Ratio = Cost of sales / Capital employed
OR
= Sales / Capital Employed
Capital Employed = Shareholder’s ‘Funds + Long term loans
OR
= Total assets – Current liabilities
(4) Capital Turnover Ratio = Cost of sales / Shareholders’ Fund
Components of Capital Employed (Shareholders' Fund + Long-Term Loans)
(1) Equity Share Capita
(2) Preference Share Capital
(3) Debentures
(4) Long-Term Loans
(5) Share Premium
(6) Credit Balance of Profit and Loss Account

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(7) Capital Reserve
(8) General Reserve
(9) Provisions
(10) Appropriation of Profits
IV. SOLVENCY RATIOS
The term 'Solvency' generally refers to the capacity of the business to meet its short-term
and longterm obligations. Short-term obligations include creditors, bank loans and bills
payable etc. Long-term obligations consists of debenture, long-term loans and long-term
creditors etc. Solvency Ratio indicates the sound financial position of a concern to
carryon its business smoothly and meet its all obligations. Liquidity Ratios and Turnover
Ratios concentrate on evaluating the short-term solvency of the concern have already
been explained. Now under this part of the chapter only the long-term solvency ratios are
dealt with. Some of the important ratios which are given below in order to determine the
solvency of the concern:
(1) Debt - Equity Ratio
(2) Proprietary Ratio
(3) Capital Gearing Ratio
(4) Debt Service Ratio or Interest Coverage Ratio
(1) Debt Equity Ratio
This ratio also termed as External - Internal Equity Ratio. This ratio is calculated to
ascertain the firm's obligations to creditors in relation to funds invested by the owners.
The ideal Debt Equity Ratio is 1: 1. This ratio also indicates all external liabilities to
owner recorded claims. It may be calculated as
(a) Debt - Equity Ratio = External Equities / Internal Equities
OR
(b) Debt - Equity Ratio = Outsider’s Fund / Shareholder’s Fund

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The term External Equities refers to total outside liabilities and the term Internal Equities
refers to all claims of preference shareholders and equity shareholders' and reserve and
surpluses.
(c) Debt - Equity Ratio = Total long-Term Debt / Total Long-term Funds
OR
(d) Debt - Equity Ratio = Total Long-term Funds / Shareholders’ Fund
The term Total Long-Term Debt refers to outside debt including debenture and long-term
loans raised from banks.
(2) Proprietary Ratio
Proprietary Ratio is also known as Capital Ratio or Net Worth to Total Asset Ratio. This
is one of the variant of Debt-Equity Ratio. The term proprietary fund is called Net Worth.
This ratio shows the relationship between shareholders' fund and total assets. It may be
calculated as :
Proprietary Ratio = Shareholder’s Fund / Total Assets
Shareholders' Fund = Preference Share Capital + Equity Share Capital + All
Reserves and Surplus
Total Assets = Tangible Assets + Non-Tangible Assets + Current Assets (or) All
Assets including Goodwill
Significance: This ratio used to determine the financial stability of the concern in general.
Proprietary Ratio indicates the share of owners in the total assets of the company. It
serves as an indicator to the creditors who can find out the proportion of shareholders'
funds in the total assets employed in the business. A higher proprietary ratio indicates
relatively little secure position in the event of solvency of a concern. A lower ratio
indicates greater risk to the creditors. A ratio below 0.5 is alarming for the creditors
(3) Capital Gearing Ratio
This ratio also called as Capitalization or Leverage Ratio. This is one of the Solvency
Ratios. The term capital gearing refers to describe the relationship between fixed interest

Page | 55
and/or fixed dividend bearing securities and the equity shareholders' fund. It can be
calculated as shown below:
Capital Gearing Ratio = Equity share capital / Fixed interest bearing funds
Equity Share Capital = Equity Share Capital + Reserves and Surplus
Fixed Interest Bearing Funds = Debentures + Preference Share Capital + Other
Long-Term Loans
A high capital gearing ratio indicates a company is having large funds bearing fixed
interest and/or fixed dividend as compared to equity share capital. A low capital gearing
ratio represents preference share capital and other fixed interest bearing loans are less
than equity share capital.
(4) Debt Service Ratio
Debt Service Ratio is also termed as Interest Coverage Ratio or Fixed Charges Cover
Ratio. This ratio establishes the relationship between the amount of net profit before
deduction of interest and tax and the fixed interest charges. It is used as a yardstick for the
lenders to know the business concern will be able to pay its interest periodically. Debt
Service Ratio is calculated with the help of the following formula:
Interest Coverage Ratio = Net before interest and taxes / Fixed Interest
charges x 100
V. OVERALL PROFITABILITY RATIO
This ratio used to measure the overall profitability of a firm on the extent of operating
efficiency it enjoys. This ratio establishes the relationship between profitability on sales
and the profitability on investment turnover. Overall all Profitability Ratio may be
calculated in the following ways:
Overall Profitability Ratio = Net Profit / Sales x Sales / Total assets
DU Pont Control Chart (or) DU Pont Analysis
ROI indicates the efficiency of the concern which depends upon the working operations
of the concern. Net Profit Ratio and Capital Turnover Ratio, as often called is usually
computed on the basis of the chart represented by DU Pont. Thus it is known as "DU Pont
Chart." This system of control was applied for the first time by DU Pont Company of the

Page | 56
United States of America. The DU Pont chart helps to the management to identify the
areas of problems for the variations in the return on investment so that actions may
initiate to improve the performance. The following chart can explain the ROI effect by a
number of factors.
Balance sheet of LT Foods
As at March 31, 2016
Notes
March
31,2016
March
31,2015
EQUITY And LIABLITIES
Shareholders' funds
Share capital 3 2,666.32 2,645.36
Reserve and surplus 4 51,010.59 43,626.90
53,676.91 46,272.26
Minority Interest 3,428.45 3,445.28
Non Current liabilities
Long-term borrowings 5 3,756.79 8,884.54
Other long-term liabilities 6 9.89 9.78
Long-term provisions 7 137.56 133.72
Deferred tax liabilities (net)
3,904.24 9,028.04
Current liabilities
Short-term borrowings 8 152,026.64 154,984.03
Trade Payables 9
total outstanding dues of micro, small and medium enterprises 438.78 643.28
total outstanding dues of creditors other than micro, small and medium
enterprises 14,505.17 9,352.69
Other current liabilities 10 13,097.27 17,475.21
Short-term provisions 7 5,355.95 3,331.22
185,423.81 185,786.43

Page | 57
246,433.41 244,532.01
Assets
Non-Current assets
Fixed assets
Tangible assets 11 28,336.64 29,502.58
Intangible assets 12 7,785.00 7,536.27
Capital work in progress 2,442.81 1,465.24
Non-Current investments 13 642.05 693.51
Long term loans and advances 14 16,762.73 2,869.57
Deferred tax assets (net) 15 727.77 119.90
Other non-current assets 16 37.64 271.07
56,734.64 42,458.14
Current assets
Inventories 17 129,957.87 136,221.57
Trade receivables 18 37,573.25 31,792.22
Cash and bank balances 19 3,232.18 2,120.50
Short-term loans and advances 14 18,892.23 31,883.81
Other current assets 16 43.24 55.77
189,698.77 202,073.87
246,433.41 244,532.01
Balance sheet of LT foods
Notes
March
31,2015
March
31,2014
Shareholders' funds
Share capital 3 2,645.36 2,630.56
46,272.26 39,093.24

Page | 58
Deferred tax liabilities (net) 127.62
9,028.04 13,005.01
Current liabilities
Short-term borrowings 8 154,984.03 132,143.21
Trade Payables 9 14,832.68
total outstanding dues of micro, small and medium enterprises 643.28
enterprises 9,352.69
Other current liabilities 10 17,475.21 12,542.34
Short-term provisions 7 3,331.22 4,601.84
185,786.43 164,120.07
244,532.01 219,270.66
Assets
Non-Current assets
Fixed assets
Tangible assets 11 29,502.58 27,419.14
Intangible assets 12 7,536.27 7,550.03
Capital work in progress 1,465.24 1,856.30
Long term loans and advances 14 2,869.57 2,112.40
Deferred tax assets (net) 15 119.90
42,458.14 39,787.40
Current assets
Inventories 17 136,221.57 134,935.35
Trade receivables 18 31,792.22 32,612.72

Page | 59
202,073.87 179,483.26
244,532.01 219,270.66
Balance sheet of LT foods
Notes
March
31,2014
March
31,2013
Shareholders' funds
Share capital 3 2,630.56 2,616.84
39,093.24 31,076.52
Deferred tax liablities (net) 127.62 182.37
13,005.01 11,919.80
Current liabilities
Short-term borrowings 132,143.21 125,109.58
Trade Payables 14,832.68 15378.49
total outstanding dues of micro, small and medium enterprises 8
enterprises 9
Other current liabilities 12,542.34 9,230.39
Short-termprovisions 4,601.84 2,154.28
10 164,120.07 151,872.74
7 219,270.66 197273.71
Assets
Non-Current assets
Fixed assets
Tangible assets 27,419.14 26,882.31
Intangible assets 7,550.03 6,977.22

Page | 60
Capital work in progress 11 1,856.30 1,169.25
Long term loans and advances 2,112.40 2,382.83
Deferred tax assets (net) 13
15 39,787.40 38,290.74
16
Current assets
Inventories 134,935.35 105,988.05
Trade receivables 32,612.72 37,218.04
14 179,483.26 158,982.97
16 219,270.66 197,273.71
Profit & Loss of LT Foods
For the year March 31, 2016
Notes March 31,2016 March 31,2015
Income
Revenue from operations 20 297,342.28 273,458.15
Other income 21 620.33 4,520.09
Prior period items 5.58
Total revenue 297,968.19 277,978.24
Expenses
Cost of materials consumed 22 145,583.15 144,239.18
Purchases of stock in trade 23 62,054.39 65,273.69
Changes in inventories of finished goods and stock in trade 24 2,844.29 -3288.88
Indirect expenses
Employee benefits 25 8,977.53 7,421.92
Finance Costs 26 14,780.20 15,114.91
Depreciation, amortization and impairment 12 & 13 5,151.93 4,657.36
Other expenses 27 42,221.90 33,430.30

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281,613.39 266,856.56
Profit before exceptional item and tax 16,354.80 11,121.68
Exceptional item loss due to fire 4,400.00
Profit before tax 11,954.80 11,121.68
Tax expense
Current Year
Income tax current year 4,891.96 3,621.55
Deferred tax -279.32 -211.52
Earlier year
Current tax 77.63 70.06
Minimum alternative tax 17.02 -30.09
Profit after tax 7,247.51 7,641.59
Share of profit/loss transferred to minority 16.82 -392.94
Share of loss of associates 53.4
7,210.93 7,248.65
Earnings per equity share 31
Basic 27.23 27.46
Diluted 27.14 27.23
For the year ended March 31, 2015
Notes March 31,2015 March 31,2014
Income
Other income 21 4,520.09 1,857.88
Prior period items
Total revenue 277,978.24 249,268.49
Expenses
Changes in inventories of finished goods and stock in trade 24 -3288.88 -15,233.70
Indirect expenses
Employee benefits 25 7,421.92 6,386.56
Finance Costs 26 15,114.91 11,341.79
Depreciation, amortization and impairment 12 & 13 4,657.36 3,740.13

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Other expenses 27 33,430.30 30,512.44
266,856.56 236,166.61
Exceptional item loss due to fire -3.9
Tax expense
Current Year
Deferred tax -211.52 -43.19
Earlier year
Current tax 70.06
Minimum alternative tax -30.09
Profit after tax 7,641.59 8,480.23
Share of profit/loss transferred to minority -392.94 -647.7
Share of loss of associates
7,248.65 7,832.53
Basic 27.46 29.82
Diluted 27.23 29.52
For the year ended March 31, 2014
Income Notes March 31,2014 March31,2013
Other income 21 1,857.88 2,190.50
Prior period items
Total revenue 249,268.49 222,958.01
Expenses
Changes in inventories of finished goods and stock in trade 24 -15,233.70 -16967.72
Indirect expenses
Employee benfits 25 6,386.56 4,947.04
Finance Costs 26 11,341.79 11,712.90
Depreciation,amortisation and impairment 12 & 13 3,740.13 3,883.84

Page | 63
Other expenses 27 30,512.44 28,531.70
Prior period items
236,166.61 214,752.49
Exceptional item loss due to fire -3.9 -72.15
Tax expense
Current Year
Deferred tax -43.19 -329.65
Earlier year
Current tax
Minimum alternative tax
Profit after tax 8,480.23 6007.46
Share of profit/loss transferred to minority -647.7 -402.27
Share of loss of associates
7,832.53 5605.19
Basic 29.82 21.45
Diluted 29.52 21.22
Ratio Analysis Of LT Foods
Liquidity Ratios
1. Current Ratio
Formula March 31,2014 March 31,2015 March 31,2016
Current Assets/ Current
Liabilities
1.09 1.08 1.02

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Interpretation:- Current ratio is used to assess the ability of the enterprise to meet its
short-term liabilities promptly. Company’s current ratio has decreased from 1.09 in year
20013-14 to 1.08 in year 2014-15 to 1.02. So it can be concluded that in the financial year
2015-16, company’s funds are not efficiently used and the decreased current ratio shows
that the company’s capacity to meet its current liability has decreased indicating a risk on
the short term financial position of the firm.
2. Quick Ratio
Formula March 31,2014 March 31,2015 March
31,2016
Liquid Assets/ Current
Liablities
0.27 0.35 0.32
0.98
1
1.02
1.04
1.06
1.08
1.1
Current Ratio
March 31,2014
March 31,2015
March 31,2016

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Interpretation:- This ratio is used to assess the short term debt paying capacity of an
enterprise. The quick ratio of the company has increased from 0.27 in financial year
2013-14 to 0.32 in financial year 2015-16 which shows that the company’s ability to pay
its current liabilities has increased over a year
Profitability Ratios
1. Gross Profit Margin
Gross Profit/ Net Sales x 100 26.10 25.81 29.36
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Quick Ratio
March 31,2014
March 31,2015
March 31,2016

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Interpretation: It can be seen that the gross profit margin of the company is declined
from 26.10% to 25.81% in 2015 but in the year 2016 the there is improvement in the
gross profit margin of the company and it becomes 29.36% from 25.81%.
This shows that Companies with high gross margins will have a lot of money left over to
spend on other business operations, such as research and development or marketing, so be
on the lookout for downward trend in the margin rate over the time period.
2. Operating Profit Margin
Formula March 31,2014 March 31,2015 March 31,2016s
Operating Profit/ Net Sales x 100 5.25 4.00 6.56
24
25
26
27
28
29
30
Gross Profit Ratio
March 31,2014
March 31,2015
March 31,2016

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Interpretation : In the year 2015 the operating profit margin id low as compared to the
previous year, which is not good for the company, but in the year 2016 the company is
able to improved the Operating profit margin from 4.00 to 6.56.
The higher operating margin is more favorable compared with a lower ratio because this
shows that the company is making enough money from its ongoing operation to pay its
variable costs as well as its fixed costs.
3. Net Profit Ratio
Net Profit / Net Sales x
100
3.40 2.74 2.43
0
1
2
3
4
5
6
7
Operating Profit Ratio
March 31,2014
March 31,2015
March 31,2016

Page | 68
Interpretation: Net profit (NP) ratio is a useful tool to measure the overall profitability
of the business. A high ratio indicates the efficient management of the affairs of business.
But here the graph is depicting that the net profit ratio of the company is declining
continuously from past 3 years, which is not good for the company.
4. Return on Investment ratio
Net Profit /
Shareholders 'Fund x
100
33.52 16.51 13.50
0
0.5
1
1.5
2
2.5
3
3.5
4
Net Profit Ratio
March 31,2014
March 31,2015
March 31,2016

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Interpretation: A higher ROI means that investment gains compare favorably to
investment costs. But this shows that the percentage of return on investment is declining
yearly. In 2014 it is 33.52%, in 2015 it is declined to 16.51% and in 2016 it declines more
to 13.50%.
It shows that it is not favorable for the company.
5. Return on Capital Employed Ratio
Net Profit/ Gross capital
Employed
3.86 4.54 3.44
0
5
10
15
20
25
30
35
40
Return On Investment Ratio
March 31,2014
March 31,2015
March 31,2016

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Interpretation:- Return on Capital Employed Ratio measures a relationship between
profit and capital employed. In the year 2013-14 the ratio is 3.86 which increased in
2014-15 to 4.54 and in 2015-16 the ratio is declined to 3.44. The company made higher
investment in the year 2014-15.
6. Earnings per Share Ratio
Net Profit/ No of
Shares
29.82 27.46 27.23
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Return On Capital Employed ratio
March 31,2014
March 31,2015
March 31,2016

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Interpretation: The higher the return on investment ratio, the more efficient the company
is using its asset base to generate sales. But here the ROI is more in year 2014 as
compared to 2015 and 2016. It means the company is not using its asset base eficinely
like they were doing in 2014, there ROI goes down from 29.82 to 27.23.
7. Net Worth to Net Profit Ratio
Formula March 31,2014 March
31,2015
March 31,2016
Net Profit/ Shareholders net worth x
100
4.10 3.24 2.99
25.5
26
26.5
27
27.5
28
28.5
29
29.5
30
30.5
Earnings Per Share Ratio
March 31,2014
March 31,2015
March 31,2016

Page | 72
Interpretation: A low ratio is indicative of greater solvency because the lower the ratio
becomes, the more funds are available to meet current obligations. The higher the ratio
becomes, the lower your solvency, since more funds are tied up with fixed assets. A ratio
0.75 or higher is usually undesirable because it indicates that the firm is vulnerable to
solvency problems.
And here the ratio is more than 0.75 in all the three years but it is also getting declined
year by year, from 4.10 to 2.99.
8. EBITDA
31,2016
EBITDA/ Net Sales 0.18 0.25 0.21
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Net Worth To Net Profit Ratio
March 31,2014
March 31,2015
March 31,2016

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Interpretation: EBITDA stands for earnings before interest taxes depreciation and
amortization. In the year 2013-14 EBITDA is 0.18 which increased to 0.25 in 2014-15
and again declined in 2015-16. This shows that the company has more profit before the
taxes and interest.
Turnover Ratios
1. Stock Turnover Ratio
31,2016
Gross Profit / Net Sales x 100 26.10 25.81 29.36
0
0.05
0.1
0.15
0.2
0.25
0.3
EBITDA
March 31,2014
March 31,2015
March 31,2016

Page | 74
Interpretation: Higher stock turnover ratio is considered a positive indicator of effective
inventory management. And this graph also shows that the ratio is going higher year by
year, which is a single of the better performance of the company in terms of inventory
The ratio increases from 26.10 to 29.36.
2. Debtor’s Turnover Ratio
31,2016
Total Sales / Trade receivables 7.64 8.74 7.93
0
0.5
1
1.5
2
2.5
Stock Turnover Ratio
March 31,2014
March 31,2015
March 31,2016

Page | 75
Interpretation: A high ratio can also suggest that the company has a conservative policy
regarding its extension of credit. A low ratio, in a similar way, can also suggest a few
things about a company, such as that the company may have poor collecting processes, a
bad credit policy or none at all, or bad customers or customers with financial difficulty. A
low ratio can also often mean that the company has a high amount of cash receivable for
collection from its various debtors, should it improve its collection processes
Here the ratio is comparatively lower than 2015.
3. Working capital turnover ratio
7
7.2
7.4
7.6
7.8
8
8.2
8.4
8.6
8.8
9
Debtor's Turnover Ratio
March 31,2014
March 31,2015
March 31,2016
Formula March 31,2014 March
31,2015
March 31,2016
Net sales/ Working Capital 0.55 0.46 1.69

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Interpretation: An extremely high working capital turnover ratio can indicate that a
company does not have enough capital to support it sales growth; collapse of the
company may be imminent. This is a particularly strong indicator when the accounts
payable component of working capital is very high, since it indicates that
management cannot pay its bills as they come due for payment.
But according to this in the year 2014 and 2015 the ratio is slightly low as compared to
each other but in 2016 the ratio jumps from 0.46 to 1.69, which is high as compared to
previous years.
4. Capital Turnover Ratio
Sales / Capital
Employed
4.48 4.65 4.87
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Working Capital Turnover Ratio
March 31,2014
March 31,2015
March 31,2016

Page | 77
Interpretation: A high capital turnover ratio indicates the capability of the organization
to achieve maximum sales with minimum amount of capital employed. Higher the capital
turnover ratio better will be the situation. Here the situation is good because the ratio is
increasing year t year i.r from 4.48 to 4.47 from year 2014 to 2016
Solvency Ratios
1. Debt – equity ratios
Debt / Equity 4.68 4.35 3.65
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5
Capital Turnover ratio
March 31,2014
March 31,2015
March 31,2016

Page | 78
Interpretation: Debt-to-equity ratio which is low, say 0.1, would suggest that the
company is not fully utilizing the cheaper source of finance (i.e. debt) whereas a debt-to-
equity ratio that is high, say 0.9, would indicate that the company is facing a very high
financial risk. But in this the ratios is in between high to low.
2. Debt –Asset ratios
Debt / Asset 0.83 1.82 0.79
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Debt - Equity Ratio
March 31,2014
March 31,2015
March 31,2016

Page | 79
Interpretation: If debt to assets equals 1, it means the company has the same amount of
liabilities as it has assets. This company is highly leveraged. A company with a DTA of
greater than 1 means the company has more liabilities than assets. Currently the ratio is
less than which is 0.79 and the assets of the company is more than its liability. But in the
year the liability is more than assets.
3. Proprietary ratios
Shareholder fund / Total Assets 0.17 0.18 0.013
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Debt - Asset Ratio
March 31,2014
March 31,2015
March 31,2016

Page | 80
Interpretation: Proprietary ratio can be interpreted as good if it is high because a higher
proprietary ratio would imply that company has enough capital to repay its creditors
whenever any such demand is made by the creditors. A lower proprietary ratio would
imply that company is not in a position to pay all of its creditors and therefore a low
proprietary ratio is a cause of concern for the creditors of the company. In the year 2016
the ratio as compared to previous years.
4. Gearing Ratio
Long-term liabilities / Capital
employed x 100
0.23 0.15 0.061
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
Proprietory Ratio
March 31,2014
March 31,2015
March 31,2016

Project report by vivek goyal

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