MBA Accounting Project, A STUDY ON FINANCIAL PERFORMANCE OF SARAVANA STORES FOODS PRIVATE LIMITED., CHENNAI.

A STUDY ON FINANCIAL PERFORMANCE OF SARAVANA STORES FOODS PRIVATE LIMITED., CHENNAI. By ABISH RAGHUL GANESH.R.L (Reg.No.97810631001)

A PROJECT REPORT Submitted to the FACULTY OF MANAGEMENT STUDIES In partial fulfillment of the requirements For the award of the degree Of MASTER OF BUSINESS ADMINISTRATION IN FINANCE

ANNA UNIVERSITY OF TECHNOLOGY TIRUNELVELI-627 007 NOV-DEC-2011 1

ABSTRACT “A study on financial performance of saravana stores foods private limited, Chennai.” This study concentrates on the financial performance of Saravana Stores Foods Private Limited at Chennai. The analysis is made with primary objective to find out the financial performance of the Saravana Stores Foods Private Limited. The secondary objective of the study is to find the company’s profitability and liquidity position, working capital pattern, and to forcast the company’s financial performance, The tools and methods used to analyzing financial statement were ratio analysis, performance analysis, trend analysis and working capital analysis. The study is based on secondary source of data. The data have been mainly obtained from annual reports, include balance sheet, profit and loss a/c of three consecutive years (20072010) of saravana stores foods pvt ltd. The findings of the study are working capital turnover ratio, inventory turn over ratio, cash turnover ratio, net profit ratio, operating profit ratio, return on capital employed ratio and the performance analysis of sales with operating profit, sales with profit after tax has decreased. The suggestions is Saravana Stores Foods Private Limited has high operating expenses due to increasing interest on loans as well as logistic expenses So it should try to reduce its operating expenses and the Trent analyze shows the company is incurring loss, so the SSFPL should try to avoid its operating expenses and there is no proper management for allocation of funds. So SSFPL should try to increase an effective management. The conclusion of the study for SSFPL can be listed in BSE or NSE .then only the company will receive funds from outsider and also increases its net profit. I hope the findings and suggestions will be helpful to improve the Financial Performance of the Saravana stores foods pvt ltd;

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CHAPTER - I INTRODUCTION 1.1 INTRODUCTION

A subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm's overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.

There are many different ways to measure financial performance, but all measures should be taken in aggregation. Line items such as revenue from operations, operating income or cash flow from operations can be used, as well as total unit sales. Furthermore, the analyst or investor may wish to look deeper into financial statements and seek out margin growth rates or any declining debt.

Finance holds the key to all human activity. It is guide for regulating investment decisions and expenditure and endeavors to squeeze the most out of every available rupee. The government too, treats it as a signpost, a beckon to responsibility that covers men, money, material, methods and management. Out of these finance is a resource and it has to be managed efficiently for the successful functioning of an enterprise. Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources.

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1.2 FINANCE FUNCTION OF A COMPANY Finance is the life blood of any company so the management has special attention towards it. A firm performs finance function efficiently so that the business goes on smoothly and interruption and the company remains not only able to grow on its own resources generated through surpluses. Finance function call for skill planning control and execution of s firm’s activities. Following are the three major decisions as function of finance 1. The Investment decision. 2. The Financing decision. 3. The Dividend policy decision.

1.3 THE INVESTMENT DECISION

The investment decision relates to the selection of assets in which funds will be invested by a firm. The assets that can be acquired fall into two broad groups I. Long term or Fixed assets II. Short term or Current assets

The financial manager has to carefully allocate the available funds to recover not only the cost of the fund but also must earned sufficient return on the investment. Two important aspects of the investment decision are:

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

The evolution of the prospective return of new investment



The measurement of cut off rate against that prospective return of new investment could be compared. Investment proposal should be evaluated in term of both expected and risk. In brief the main elements in the financial decision are



The long & short-term assets and their computation



The business risk complexion of the firm



Concept and measurement of the cost of capital



Efficient management of asset

1.4 FINANCING DECISION Financing decision is the second important function to be performed by the financial manager. Broadly, he or she must decide when, where & how to acquire funds to meet the firm’s investment needs. In practice, a firm considers many other factors such as control, flexibility, loan covenants, legal aspects etc. in deciding its capital structure.A company’s cost of capital is weighted average cost of the various sources of finance used by it.

1.5 DIVIDEND DECISION Dividend decision is the third major financial decision. The financial manager must decide whether the firm should distribute all profits, or retain them, or distribute a portion & retain the balance. The optimum dividend policy is one that maximizes the market value of the firm’s shares.

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1.6 CONCEPTS OF THE STUDY Balance sheet Balance sheet is a statement financial position of a business at a specified moment of time. It represents all the assets owned by the company at a particular moment of time and the claims of owners and outsiders against those assets all the time. It is in a snapshot of the financial condition of the business at the time. It is one of the most significance financial statements. Assets Assets representing economic resources are the valuable possessions owned by the firm. These possessions should be capable of being measured in monitory term. Assets are the future benefits. Assets may be classified into current assets and fixed asset. Whether an asset is fixed or current however depends on the nature of business itself. Current assets Current asset is an asset on the balance sheet which can either be converted to cash or used to pay current liabilities within 12 months. Typical current assets include cash, cash equivalents, short-term investments, accounts receivable, inventory and the portion of prepaid liabilities which will be paid within a year. On a balance sheet, assets will typically be classified into current assets and long-term assets. Fixed assets Fixed asset, also known as a non-current asset or as property, plant, and equipment (PP&E), is a term used in accounting for assets and property which cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed.

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Liability Liabilities are debts payable in the future by the firm to its creditors. They represent economic obligation to pay cash or to provide goods on service in some future period. Expenditure of liability, bills payable, interest payable, tax payable, debenture, bonds borrowing from banks and financial institution, public deposits. Liabilities are two types’ current liability and long term liability.

Current liability Current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer. A more complete definition is that current liabilities are obligations that will be settled by current assets or by the creation of new current liabilities.

Long term liability Long-term liabilities are liabilities with a future benefit over one year, such as notes payable that mature longer than one year. In accounting, the long-term liabilities are shown on the right wing of the balance-sheet representing the sources of funds, which are generally bounded in form of capital assets. Examples of long-term liabilities are debentures, mortgage loans and other bank loans.

Ratio analysis Ratio analysis is a technique of analysis and interpretation of financial statement it is the process of establishing and interpreting various ratio for helping in making certain decision. 7

Working capital analysis Working capital is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities.

Performance analysis Performance analysis involves gathering formal and informal data to help customers and sponsors define and achieve their goals. Performance analysis uncovers several perspectives on a problem or opportunity, determining any and all drivers towards or barriers to successful performance, and proposing a solution system based on what is discovered.

Least Square Method The method of least squares is a standard approach to the approximate solution of over determined systems, i.e. sets of equations in which there are more equations than unknowns. "Least squares" means that the overall solution minimizes the sum of the squares of the errors made in solving every single equation. The most important application is in data fitting. The best fit in the least-squares sense minimizes the sum of squared residuals, a residual being the difference between an observed value and the fitted value provided by a model.

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CHAPTER – II PROFILES

2.1 COMPANY PROFILE Saravana store has entered the ice cream business with the launch of Jamaai brand of ice cream. Saravana Stores Foods Pvt.Ltd.(SSFPL), with its corporate office at Chennai, Tamilnadu was established in 2004 under the banner of the saravana stores group. The saravana stores group is committed to excellence in retail having five hyper-markets dealing in products ranging from vessels to textiles and gold jewellary. The group has a turnover of over Rs1500 crores per annum.

‘Jamaai’ is the flagship brand of the organization dedicated to manufacturing and marketing superior quality ice creams. The brand has a major presence in the states of Tamilnadu, Karnataka, Andra Pradesh, and Andaman & Nicobar Islands.

‘ Jamaai’ is manufactured at the organization’s state of-the-art manufacturing facility on the outskirts of Chennai, Tamilnadu. The plant has a manufacturing capacity of 30,000 liters per day and a storage capacity of 1,00,000 units. The products have a shelf of 12 months when stored at an average temperature of -150 C to -180 C.

Jamaai ice cream is available from exclusive dealers . it is widely present in all type retail stores . jamaai having over 1000 outlets in Chennai alone and in above 4500 outlets throughout Tamilnadu and south India.

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2.2 PRODUCT PROFILE

CUP ITEMS  Velvety vanilla 100 ml  Chocolate brunette 100 ml  Pleasing pista 100 ml  Silky strawberry 100 ml  Buttery butterscotch 100 ml  Fruit harmony 100 ml  Mango 100 ml  Almond whispers 125 ml  Peach punch 100 ml

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BAR ITEMS  Feasty couple  Chocobar  Mango couple  Orange grind  Groovy grapes  Rosy blush  Raspberry couple  Jumbo chocobar  Jamaai kulfi

BALL ITEMS  Velvety vanilla  Rosy blush SPECIALITIES  Cassata soft slab  Cake slab  Luv `n` romance  Jamaai king

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 Jamaai super delight

NOVELTY ITEMS  Senorita butterscotch  Senorita chocolate  Senorita nutty fruit  Rich sundae  Bubbly TUBS  Velvety vanilla  Chocolate brunette  Buttery butterscotch  Silky strawberry

BUFFETS  Velvety vanilla  Chocolate brunette  Pleasing pista  Silky strawberry

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 Buttery butterscotch  Almond whispers

2.3 INDUSTRY PROFILE The first commercial ice cream plant was established in Baltimore in 1851 by Jacob Fussell. Ice cream industry occupies place in India. It is one of the consumer goods industry its products is important popular diet India is an agriculture based country because of large number of cattle and large milk production most of the dairy and ice cream has developed in India is well ranked in world. Ice cream industry has bought magnificent change in the rural economy. It provides employment to the marginal farmers. The ice cream industry in India is currently estimated to be worth Rs 2000 crores.Growing at the healthy rate of approximately 12% year –on-year. The ice cream market in India has witnessed a steady growth over the last few decades. The growth in the ice cream industry has been primarily due to a strong distribution network and a good cold chain infrastructure. The ice cream market in India is divided into the brand market and grey market. The brand market is currently 100 million litter per annum value at 800 crores the grey market consists of small local players. The per capital consumption of ice cream in India is above 300 ml, as compared to the world average of 2.3 liters per annum. Statistics for the market share held by the top ice cream brands in India for the year 2009-2010 are as follows Amul

38%

Kwality walls

14%

Vadilal

12% 13

Mother dairy

08%

2.4 REVIEW OF LITERATURE John Mills 1found that addressing the relationships between board composition, board leadership structure, and firm financial performance demonstrates little consistency in results. In general, neither board composition nor board leadership structure has been consistently linked to firm financial performance.

John mills, the accedamy of

management journal, volume 4, pp 43, 1998

B.McGUIRE 2found that the relationship between perception of the firm’s corporate social responsibility and measures of their financial performance. Results show that a firm's prior performance, assessed by both stock-market returns and accounting-based measures, is more closely related to corporate social responsibility than is subsequent performance. Results also show that measures of risk are more closely associated with social responsibility than previous studies have suggested. B.McGUIRE, financial management, 1988, volume 2,pp 854

Charles R.Schwenk and Charles B.Shrader 3found that effects of formal strategic planning on financial performance in small firms. In this results show that a firm’s innovative and challenging to manage strategically consequently, it is important to assess the value of techniques like strategic planning for improving the financial performance of the firms. Charles R.Schwenk and Charles B.Shrader, Entrepreneurship: Theory and practical, volume 17, 1993

1 2 3

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CHAPTER III RESEARCH METHODOLOGY

Research methodology refers to the method that the researcher uses in performing research operation. It describes the various steps that are generally adopted by a researcher in studying the problem along with the logic behind them. It is a way is understood as a science of studying how research is done scientifically.

3.1 TITLE OF THE STUDY The Title of the project is “A study on financial performance of saravana stores foods private limited, Chennai.”

3.2 SCOPE OF THE STUDY 

The study on the financial performance helps the company to understand their

overall profitability position, solvency position of the concern.  It also helps the company to access the working capital condition and fluctuations from one period to another period.

3.3 NEED FOR THE STUDY  Financial analysis is a powerful mechanism which helps in ascertaining the strengths and weakness in the operation and financial position of the company. 15

3.4 OBJECTIVES OF THE STUDY    

To analyze the financial performance of Saravana Stores Foods Pvt. Ltd., To study the profitability and liquidity position of the firm. To study the working capital pattern of the company. To forecast the company’s financial performance.

3.5 DATA COLLECTION The study is based on secondary source of data. Secondary data have been mainly obtained from annual reports, include balance sheet, profit and loss account, of Saravana stores foods private ltd.

3.6 PERIOD OF STUDY The period of the study is limited to 3 years, i.e., from 2007-2008 to 2009 – 2010

3.7 RESEARCH DESIGN Research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combines relevance to the research purpose with economy in procedure. The research design used in the study is Analytical research design.

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3.8 TOOLS OF ANALYSIS Various methods of techniques used in analyzing financial statement include 1. 2. 3. 4.

Ratio Analysis Performance Analysis Least Square Method (Trend Forecasting Analysis) Working Capital Analysis

3.9 STATEMENT OF THE PROBLEM  The inefficient liquidity position in the company.  Improper profitability management.  There is no proper technique to measure the financial performance of the company.

3.10 LIMITATION OF THE STUDY  The analysis and interpretation has done on the basis of few statistical tools.  The study is heavily relies on secondary data.  The study is limited only to a period of three years from 2008-2010

.

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CHAPTER IV DATA ANALYSIS AND INTERPRETATION

4.1 RATIO ANALYSIS 1.CURRENT RATIO The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. It is expressed as follows: Current Ratio = Current assets / Current liabilities Table 4.1.1 Current Ratio Year 2008 2009 2010 Source: Secondary data

Current Assets ` 56167644.29 62245656 56190775

Current Liability ` 75085091.47 56253168 47871251

Ratio 0.74 1.10 1.17

Interpretation From the above table it is shown that the current ratio of the company has been increasing steadily during the year 2008 to 2010 from 0.74 to 1.17. The current ratio has an average of 1.00 for the period under the study. So all these situations represent the liability crisis faced by the company.

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Chart 4.1.1 Current Ratio

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2. LIQUIDITY RATIO The Acid-test or quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. Liquid Ratio = Liquid Assets / Current Liabilities Where Liquid Assets = Current Assets – Stock & Prepaid Expenses Table 4.1.2 Liquidity Ratio Year 2008 2009 2010 Source: Secondary data

Liquid Assets ` 2808002 33904359 29525201

Current Liability ` 75085091.47 56253168 47871251

Ratio 0.03 0.60 0.61

Interpretation From the above table it is found that the liquidity ratio of the company has increased from 0.03 to 0.60 then and also increased 0.60 to 0.61 from the period of study. It shows that the company having good liquidity position.

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Chart 4.1.2 Liquidity Ratio

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3. ABSOLUTE LIQUIDITY RATIO It is otherwise called as cash position ratio. It relates to the sum of cash & Marketable Securities to the current liabilities. Absolute Liquid Ratio = Cash / Current Liabilities Table 4.1.3 Absolute Liquidity Ratio Year 2008 2009 2010 Source: Secondary data

Cash ` 3261900.37 12126704 1679275

Current Liability ` 75085091.47 56253168 47871251

Ratio 0.04 0.21 0.03

Interpretation The above table shows the absolute liquidity ratio of the company. The ratio is increased 0.04 to 0.21 then the ratio is decreased 0.21 to 0.03. The ratio has an average 0.09 for the period of study. It shows that the company needs to improve its absolute liquidity position. Chart 4.1.3 Absolute Liquidity Ratio

4. WORKING CAPITAL TURNOVER RATIO

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It is also known as Working Capital Leveraged Ratio. This ratio indicated whether or not working capital has been effectively utilized in making sales. If higher sales volume can be achieved with relatively small amount of working capital. It is an indication of operating efficiency. Working Capital Turnover Ratio = Net Sale / Working Capital Table 4.1.4 Working Capital Turnover Ratio Year 2008 2009 2010 Source: Secondary data

Net Sales ` 261618526.59 368760184 344570020

Working Capital ` (18917447.18) 5992488 8319524

Ratio (13.83) 61.54 41.42

Interpretation The above table shows the working capital turnover ratio of the company. A higher ratio indicates efficient utilization of working capital. The average of the working capital turnover ratio is 89.13 from the period of study.Chart 4.1.4 Working Capital Turnover Ratio

5. INVENTORY TURNOVER RATIO Every firm has to maintain a certain level of inventory in order to meet the requirement of the business. But the level of inventory should neither be too high nor to low. This indicates the relationship between inventory and sales. 23

Inventory Turnover Ratio = Sales / Average Inventory Table 4.1.5 Inventory Turnover Ratio Year 2008 2009 2010 Source: Secondary data

Sales ` 261618526.59 368760184 344570020

Average Inventory ` 5991528.43 27179391 26665574

Ratio 43.67 13.56 12.92

Interpretation The above table shows the inventory turnover ratio of the company. The ratio has a decreasing trend. The average ratio is 23.38 for the period of 2008 to 2010. It indicates the company has effective inventory management. Chart 4.1.5 Inventory Turnover Ratio

6. CASH TURNOVER RATIO It is also known as Cash Velocity. Cash turnover ratio is the relationship between sales and cash. It indicates the number of items the cash is turned out of the business of cash reserves.

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Cash Turnover Ratio = Sales / Cash Table 4.1.6 Cash Turnover Ratio Year 2008 2009 2010 Source: Secondary data

Sales ` 261618526.59 368760184 344570020

Cash ` 3261900.37 12126704 11679275

Ratio 80.20 30.40 29.50

Interpretation The above table shows the cash turnover ratio of the company. The ratio has a decreasing trend. The average ratio is 46.70 for the period of 2008 to 2010. It indicates the company needs to improve its cash as well as sales. Chart 4.1.6 Cash Turnover Ratio

7. TOTAL ASSETS TURNOVER RATIO A firm must manage its total assets efficiency and should generate maximum sales through their utilization. Total Assets Turnover Ratio = Net Sales / Total Assets Table 4.1.7 Total Assets Turnover Ratio 25

Year 2008 2009 2010 Source: Secondary data

Sales ` 261618526.59 368760184 344570020

Total Assets ` 204862566.58 241330065 265633006

Ratio 1.28 1.53 1.29

Interpretation The above table shows that the company total assets turnover of the company. The ratio has increased from 1.28 to 1.53 and then the ratio has decreased from 1.53 to 1.29. The average ratio is 1.37 for the period of study. It shows the company need to improve its total assets turnover position. Chart 4.1.7 Total Assets Turnover Ratio

8. FIXED ASSET TURNOVER RATIO This ratio indicates the extent to which the investment in fixed assets contributes towards sales. If compared with the previous period, it indicates whether the investment in fixed assets has been careful or not. Fixed Assets Turnover Ratio = Net Sales / Fixed Assets Table 4.1.8 Fixed Asset Turnover Ratio

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Year 2008 2009 2010 Source: Secondary data

Sales ` 261618526.59 368760184 344570020

Fixed Assets ` 148694922.29 179084410 209442231

Ratio 1.76 2.05 1.64

Interpretation The above table shows that the fixed assets ratio of the company. The ratio has increased from 1.76 to 2.05 and then the ratio has decreased from 2.05 to 1.64. The average ratio is 1.82 for the period of study. It shows that the company needs to improve its fixed assets turnover position. Chart 4.1.8 Fixed Assets Turnover Ratio

9. CURRENT ASSETS TURNOVER RATIO It shows the relationship between sales and current assets. The current assets should increase proportionately to sales. Current Assets Turnover Ratio = Sales / Current Assets Table 4.1.9 Current Assets Turnover Ratio Year 2008 2009

Sales ` 261618526.59 368760184

Current Assets ` 56167644.29 62245656 27

Ratio 4.66 5.92

2010 Source: Secondary data

344570020

56190775

6.13

Interpretation The above table shows that the current assets turnover ratio of the company. The ratio has increased from 4.66 to 5.92 and then also increased from 5.92 to 6.13. The average ratio is 5.57 for the period of study. It shows that the company is managing its current assets effectively.

Chart 4.1.9 Current Assets Turnover Ratio

10. NET PROFIT RATIO This measures the relationship between net profit and sales of the firm. It indicate management’s ability to operate the business with sufficient success not only to recover expenses like depreciation and interest but also to leave a margin of reasonable compensation to the owner for providing their capital at risk. Net Profit Ratio = Net Profit / Sales *100 Table 4.1.10 Net Profit Ratio Year

Net Profit `

Sales ` 28

Ratio

2008 2009 2010 Source: Secondary data

(4037501.06) (45127041) (13722946)

261618526.59 368760184 344570020

(1.54) (12.23) (3.98)

Interpretation The above table shows the net profit ratio of the company. The ratio has decreased in year by year. The average ratio is -5.92 for the period of study 2008 to 2010. It indicates the company incurring loss. So the company needs to improve its net profit. Chart 4.1.10 Net Profit Ratio

11. PROFIT BEFORE TAX TO AVERAGE CAPITAL EMPLOYED Profit before tax to average capital employed ratio establishes the relationship between profit before tax and average capital employed. Profit before Tax to Average Capital Employed = Profit before Tax / Average Capital Employed Table 4.1.11 Profit before Tax to Average Capital Employed Year Profit Before Tax ` 2008 1491061.54 2009 (45127041) 2010 (12946407) Source: Secondary data

Ave capital employed ` 167612369.47 185076898 217761755

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Ratio 0.008 (0.24) (0.05)

Interpretation The above table shows that the profit before tax to average capital employed. The ratio has decreased from 0.008 to -0.24 and then normally increased to -0.05. The average ratio is -0.094 for the period of study 2008 to 2010. It shows the company has been suffering loss. Chart 4.1.11 Profit before Tax to Average Capital Employed

12. PROFIT BEFORE TAX TO SALES It establishes the relationship between profit before tax and sales. This ratio is calculated by dividing profit before tax with the net sales. Profit before Tax to Sales = Profit before Tax / Sales Table 4.1.12 Profit before tax to Sales Year Profit Before Tax ` 2008 1491061.54 2009 (45127041) 2010 (12946407) Source: Secondary data

Sales ` 261618526.59 368760184 344570020

Interpretation 30

Ratio 0.005 (0.12) (0.03)

From the above table it can be inferred that the profit before tax shows decreasing trend for the period is 2008 to 2010. Because of increasing operating expenses. It shows that company needs to improve its sales and also minimize its operating expenses. Chart 4.1.12 Profit before Tax to Sales

13. DEBTORS TO CURRENT ASSETS RATIO This ratio examines the relationship between the debtors balance and current assets. A firm with a very high ratio would expose the creditors to higher risk. Accompany should have either a very high ratio or very low ratio. Debtors to Current Asset Ratio = Debtors / Current Assets 4.1.13 Debtors to Assets Ratio Year 2008 2009 2010 Source: Secondary data

Debtors ` 7466405.26 7846287 13217277

Current Assets ` 56167644.29 62245656 56190775

Interpretation

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Ratio 0.13 0.12 0.23

The above table shows that the debtors to current assets ratio of the company. This ratio indicates the debtors occupying level in current assets. The above table shows a fluctuation in ratios which indicates that the adopting right strategy for collecting its debts. Chart 4.1.13 Debtors to Current Assets Ratio

14. OPERATING PROFIT RATIO Operating profit ratio examines relationship between operating profit and net sales. A firm with a high ratio it expose the high operating profit. Accompany should have neither a low ratio it expose the low operating profit. Operating Profit ratio = Operating profit / Net Sales * 100 Table 4.1.14 Operating Profit Ratio Year 2008 2009 2010 Source: Secondary data

Operating Profit ` 1491061.54 (45127041) (12946407)

Net Sales ` 261618526.59 368760184 344570020

Interpretation

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Ratio 0.005 (0.12) (0.03)

The above table shows that the operating profit of the company. The ratio has decreased from 0.56 to -24.36. The average ratio is -9.89 for the period of 2008 to 2010. It shows the company needs to increase its operating profit. Chart 4.1.14 Operating Profit Ratio

15. RETURN ON CAPITAL EMPLOYED RATIO Return on capital employed ratio examines relationship between operating profit and capital employed. Return on capital employed ratio = Operating profit / Capital Employed * 100 Table 4.1.15 Return on Capital Employed Ratio Year 2008 2009 2010 Source: Secondary data

Operating Profit ` 1491061.54 (45127041) (12946407)

Capital Employed ` 167612369.47 185076898 217761755

Interpretation

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Ratio 0.89 (24.38) (5.94)

The above table shows that the return on capital employed of the company. The ratio has decreasing trend. The average ratio is -9.81 for the period of 2008 to 2010. It shows the company needs to improve its capital employed. Chart 4.1.15 Return on Capital Employed

PERFORMANCE ANALYSIS Table 4.1.16 Performance Analysis of Sales with Operating Profit Sales

Operating Profit

Operating

Year 2008

` 261618526.59

Sales % -

` 1491061.54

Profit % -

2009

185201832

70.79

(45127041)

(26.50)

2010

220940124

19.29

(12946407)

(28.69)

Source: Secondary data Interpretation 34

As per the general concept, the operating profit should be directly proportional to sales. But due to increase in operating expenses, the sales with operating profit has decreased from 26.50% to 28.69%. Table 4.1.17 Performance Analysis of Operating Profit with Profit after Tax Operating Profit

Operating

Profit after tax

Profit after tax

Year 2008

` 1491061.54

Profit % -

` (4037501.06)

% -

2009

(45127041)

(26.50)

(45127041)

(17.69)

2010

(12946407)

(28.69)

(13722946)

(30.41)

Source: Secondary data Interpretation The above table shows there is a negative relationship between operating profit and profit after tax. This indicates that there is increase in operating expenses. The operating profit has decreased from – 26.50% to – 28.69%.

Table 4.1.18 Performance Analysis of Sales with Net Fixed Assets Sales

Net Fixed Assets

Net Fixed

Year 2008

` 261618526.59

Sales % -

` 148694922.29

Assets % -

2009

185201832

70.79

179084410

20.44

2010

220940124

19.29

209442231

16.95

Source: Secondary data Interpretation It is evident from the table that the sales are proportionate to net fixed assets. So there is a positive relationship. As new machineries are purchased, it has affected the profit of the company. 35

Table 4.1.19 Performance Analysis of Sales with Capital Employed Sales

Capital Employed

Capital

Year 2008

` 261618526.59

Sales % -

` 167612369.47

Employed % -

2009

185201832

70.79

185076898

10.42

2010

220940124

19.29

217761755

17.67

Source: Secondary data Interpretation The above table shows that there is positive relationship between sales and capital employed. As the capital employed has increased from 10.42% to 17.67%.

Table 4.1.20 Performance Analysis of Sales with Working Capital Sales

Working Capital

Working

Year 2008

` 261618526.59

Sales % -

` (18917447.18)

Capital % -

2009

185201832

70.79

5992488

(31.68)

2010

220940124

19.29

8319524

38.83

Source: Secondary data Interpretation According to this table sale has increased as the working capital has increase and this is due to increase in expenses and also indicate company utilization of funds. The working capital has increased from – 31.68% to 38.83%.

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Table 4.1.21 Performance Analysis of Profit after Tax with Net Fixed Assets Profit After Tax

Profit After

Net Fixed Assets

Net Fixed

Year 2008

` (4037501.06)

Tax % -

` 148694922.29

Assets % -

2009

(45127041)

(17.69)

179084410

20.44

2010

(13722946)

(30.41)

209442231

16.95

Source: Secondary data Interpretation The above table shows that the profit after tax should be directly proportionate to net fixed assets but due to increase in depreciation and tax the profit has steeply decreased from – 17.69% to – 30.41%.

Table 4.1.22 Performance Analysis of Profit after Tax with Capital Employed Profit After Tax

Profit After

Capital Employed

Capital

Year 2008

` (4037501.06)

Tax % -

` 167612369.47

Employed % -

2009

(45127041)

(17.69)

185076898

10.42

2010

(13722946)

(30.41)

217761755

17.67

Source: Secondary data Interpretation The above table shows there is negative relationship between profit after tax and capital employed. Because of the depreciation of assets has increased continuously. Profit after tax has decreased.

Table 4.1.23 Performance Analysis of Net Fixed Assets with Depreciation 37

Net Fixed Assets

Net Fixed

Depreciation

Depreciation

Year 2008

` 148694922.29

Assets % -

` 18310754.73

% -

2009

179084410

20.44

32493244

77.45

2010

209442231

16.95

30013046

92.37

Source: Secondary data Interpretation The above table demonstrates that net fixed asset is proportionate to depreciation. This shows that the company has been utilizing the machinery to the fullest capacity.

Table 4.1.24 Performance Analysis of Profit after Tax with Sales Profit After Tax

Profit After

Sales

Sales

Year 2008

` (4037501.06)

Tax % -

` 261618526.59

% -

2009

(45127041)

(17.69)

185201832

70.79

2010

(13722946)

(30.41)

220940124

19.29

Source: Secondary data Interpretation The above table shows the sale has increased. But the profit after tax decreases due to the interest on loan and other expenses, the profit decreases. To sum up, the company has vast amount of loan.

Table 4.1.25 Performance Analysis of Fixed Assets with Current Assets

38

Fixed Assets

Fixed Assets

Current Assets

Current Assets

Year 2008

` 148694922.29

% -

` 56167644.29

% -

2009

179084410

20.44

62245656

10.82

2010

209442231

16.95

56190775

90.27

Source: Secondary data Interpretation From the above table shows the positive relationship between fixed assets and current assets. The current assets having some fluctuations, it indicates the company running position. The current asset has increased from 10.82% to 90.27%

LEAST SQARE METHOD (TREND FORECASTING ANALYSIS) "Least squares" means that the overall solution minimizes the sum of the squares of the errors made in solving every single equation. The most important application is in data fitting. The best fit in the least-squares sense minimizes the sum of squared residuals, a residual being the difference between an observed value and the fitted value provided by a model. Table 4.1.26 Least Square Method on Loans Year

Loans

2008 2009 2010 2011 2012 2013

` 166321442.19* 250534099* 128985971* 144611699.55** 125943963.96** 107276228.37**

Source: Secondary data Interpretation 39

Using trend forecast the loan for the years 2011 to 2013 is calculated as 144611699.55, 125943963.96, and 107276228.37.

Chart 4.1.26 Loan forecasting for forthcoming year

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Table 4.1.27 Least Square Method on Working Capital Year

Working Capital

2008 2009 2010 2011 2012 2013

` (18917447.18)* 5992488* 8319524* 25701826.12** 39320311.71** 52938797.30**

Source: Secondary data Interpretation Using trend forecast the working capital for the years 2011 to 2013 is calculated as 25701826.12, 39320311.71, and 52938797.30. Chart 4.1.27 Working Capital forecasting for forthcoming year

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Table 4.1.28 Least Square Method on Sales Year

Sales

2008 2009 2010 2011 2012 2013

` 261618526.59* 185201832* 220940124* 181908424.94** 161569223.66** 141230022.37**

Source: Secondary data Interpretation Using trend forecast the sales for the year 2011 to 2013 is calculated as 181908424.94, 161569223.66, and 141230022.37 respectively. Chart 4.1.28 Sales forecasting for forthcoming year

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Table 4.1.29 Least Square Method on Net Profit Year

Net Profit

2008 2009 2010 2011 2012 2013

` (4037501.06)* (45127041)* (13722946)* (30647940.96)** (35490663.43)** (40333385.90)**

Source: Secondary data Interpretation Using trend forecast the net profit for the year 2011 to 2013 is calculated as (30647940.96), (35490663.43), and (40333385.90) respectively. Chart 4.1.29 Net Profit forecasting for forthcoming year

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Table 4.1.30 Least Square method on Current Assets Year

Current Assets

2008 2009 2010 2011 2012 2013

` 56167644.29* 62245656* 56190775* 58224489.06** 58236054.42** 58247619.78**

Source: Secondary data Interpretation Using trend forecast the current assets for the years 2011 to 2013 is calculated as 58224489.06, 58236054.42, and 58247619.78 respectively. Chart 4.1.30 Current Assets forecasting for forthcoming year

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Table 4.1.31 Least Square Method on Current Liabilities Year

Current Liabilities

2008 2009 2010 2011 2012 2013

` 75085091.47* 56253168* 47871251* 32522663.02** 18915742.80** 5308822.57**

Source: Secondary data Interpretation Using trend forecast the current liabilities for the years 2011 to 2013 is calculated as 32522663.02, 18915742.80, and 5308822.57 respectively. Chart 4.1.31 Current Liabilities forecasting for forthcoming year

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Table 4.1.32 Schedule of Changes in Working Capital 2008-2009 Particulars

2008 `

2009 `

Increase `

Raw material Input vat Inventories sundry debtors Cash & bank balance Loans & advances TOTAL (A) CURRENT LIABILITY

22096094.60 443531.56 5991528.43 7466405.26 3261900.37 16878184.07 56167644.29

25623358 2049165 2717939 7846287 12126704 11882202 62245656

3527263.40 1605633.44

Sundry creditors Provisions TOTAL (B) WORKING CAPITAL

69469272.55 5615818.92 75085091.47 (18917447.18

56128234 124934 56253168 599248

Decrease `

CURRENT ASSETS

(A-B)

)

8

Interpretation 46

3273589.43 379881.74 8864803.63 4995982.07

13341038.55 5490884.92

The above table shows the schedule of changes in working capital for the period of 2008-2009. It shows that the working capital of the company has increased.

Table 4.1.33 Schedule of Changes in Working Capital 2009-2010 Particulars

2009 `

2010 `

Raw material Input vat Inventories sundry debtors Cash & bank balance Loans & advances TOTAL (A) CURRENT LIABILITY

25623358 2049165 2717939 7846287 12126704 11882202 62245656

8852699 2077227 26665574 13217277 1679275 3698723 56190775

Sundry creditors Provisions TOTAL (B) WORKING CAPITAL

56128234 124934 56992488 599248

44092882 3778369 47871251 831952

Increase `

Decrease `

CURRENT ASSETS

(A-B)

8

16770659 28062 23947635 5370990 10447429 8183479

12035352 3653435

4

Interpretation The above table shows the schedule of changes in working capital for the period of 2009-2010. It indicates that the working capital of the company has increased.

47

CHAPTER V FINDINGS AND SUGGESTIONS 5.1 FINDINGS OF THE STUDY  The Current Assets ratio has been increasing steadily from 0.74 to 1.17. The average current ratio is 1.00 for the period of study from 2008 to 2011.  The Liquidity ratio has increased from 0.03 to 0.60. The average liquidity ratio is 41.00 for the period of study from 2008 to 2010.  The Absolute Liquidity ratio has decreased from 0.21 to 0.03 because the cash in hand decreased and also the current liability has decreased. The average absolute liquidity ratio is 0.09 for the period of study.  The Working Capital Turnover ratio has decreased from 61.54 to 41.42 but it is good compared to previous year. The average working capital turnover ratio is 89.13 for the period of study.  The Inventory Turnover ratio has decreased from 13.56 to 12.92. The average inventory turnover ratio is 23.38 for the period of study.  The Cash Turnover ratio has decreased from 80.20 to 29.50. The firm is having low liquidity position. The average cash turnover ratio is 46.70 for the period of study.  The Total Assets turnover ratio is to maintained at a satisfactory level by the company. The average total assets turnover ratio is 1.82 for the period of study.  The Fixed Assets Turnover ratio has reduced in the year of 2010 from 2.05 to 1.64. The average fixed assets turnover ratio is 1.82 for the period of study.  The Current Assets Turnover ratio has increased from 5.92 to 6.13. The average current assets turnover ratio is 5.57 for the period of study.  The Net Profit ratio has decreased year by year from -1.54 to -12.23.It indicates the firm has suffering loss. The average net profit ratio is -5.92 for the period of study. 48

 Profit before tax to Average Capital Employed has decreased from 0.008 to -0.24. The average ratio is -0.094 for the period of study 2008 to 2010.  Profit before tax to Sales ratio has decreased from 0.005 to -0.03 because of the company operating expenses has increased. The average ratio is -0.145 for the period of study.  Debtors to Current Assets ratio has been increased from 0.12 to 0.23. It shows the fluctuation in ratios which indicates collection method of company. The average debtors to current assets ratio is 0.16 for the period of study.  The Operating Profit ratio has decreased from 0.005 to 0.03 because the company’s operating expenses has increased. The average operating profit ratio is -9.89 for the period of study.  Return on Capital Employed ratio has been decreased in the year of 2009 and 2010. The average ratio is -9.81 for the period of study.  The performance analysis of sales with operating profit has decreased from 19.29% to -28.69% in the year of 2009 and 2010.  The performance analysis of operating profit with Profit after tax has decreased from -28.69% to -30.41%. It indicates that the operating expenses have increased.  The performance analyze of Sales with Net fixed assets has shown positive relationship and also sales has decreased from 70.79% to 19.29%. It indicates the new machinery purchased.  There is positive relationship between sales and capital employed. As the working capital has increased and this is due to increase in expenses. Capital employed is increased from 10.42% to 17.67%  The performance analyze of Sales with Working capital has increased due to the increasing expenses. The working capital has increased from -31.68% to 38.83% for the period of study.  The profit after tax should be directly proportionate to net fixed assets but due to increase in depreciation and tax the profit has steeply decreased. The profit after tax has decreased from -17.69% to -30.41% for the period of study.  The performance analysis of Profit after tax with capital employed has negative relationship. Because of the increased in depreciation. The profit after tax has decreased.  The performance analysis of Net fixed assets proportionate to Depreciation. This shows that the company is utilizing its capacity effectively. And also depreciation has increased from 77.45% to 92.37% for the period of study.

49



The performance analyze of Sales with Profit after tax has decreased. Because the interest on loans has increased. The sale has decreased from 70.79% to 19.29% for the

period of study.  There is positive relationship between fixed assets and current assets. The current asset has some fluctuations. The current asset has increased from 10.82% to 90.27% for the period of study.  Using trend forecast the loan for the years, 2011 is ` 144611699.55, 2012 is ` 125943963.96 and 2013 is ` 107276228.37.  Using trend forecast the working capital for the years 2011is` 25701826.12, 2012 is ` 39320311.71 and 2013 is ` 52938797.30.  Using trend forecast the sales for the years 2011 is ` 181908424.94, 2012 is ` 161569223.66 and 2013 is ` 141230022.37.  Using trend forecast the net profit for the years 2011 is ` (-30647940.96), and 2012 is ` (35490663.43), and 2013 is ` (- 40333385.90).  Using trend forecast the current assets for the years 2011 is ` 58224489.06, 2012 is ` 58236054.42 and 2013 is ` 58247619.70.  Using trend forecast the current liabilities for the years 2011 is ` 32522663.02, 2012 is ` 18915742.80 and 2013 is ` 5308822.57.  The Working Capital has increased in the year of 2008-2009 and 2009-2010 respectively.

5.2 SUGGESTIONS

 The SSFPL has high operating expenses due to increasing interest on loans as well as logistics expenses. So it should try to reduce its operating expenses. 50

 Since the ratio analysis shows satisfactory level of the SSFPL, it can maintain the same and improve it.  The Trend Analyze shows the company is incurring loss. So the SSFPL should try to avoid its loss through reducing its operating expenses.  The SSFPL don’t have the proper management for allocation of funds. So the SSFPL should try to increase an effective management.  The SSFPL can be listed in BSC or NSC. Then only the company will receive fund from outsiders and also increase its net profit.

5.3 CONCLUSION

The research entitled “A study on Financial Performance of Saravana Stores Foods Pvt, Ltd” included Ratio Analysis, Trend Analysis, Performance Analysis, and Working Capital 51

Analysis for a period of 3 years from 2008-2010 reveals that the Sales, Inventory management, and Working capital is satisfactory level and there are areas of concern such as Net profit which needs to be addressed. The study helps to apply the theoretical knowledge to practice. I have made a sincere effort to make the report a correct one. The study helps me to improve my knowledge in financial management. I hope the findings and suggestions will be helpful to improve the Financial Performance of the Saravana stores foods pvt ltd;

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