MBA Project on Financial Ratios

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INTRODUCTION OBJECTIVE: To understand the information contained in financial statements with a view to know the strength or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby enabling the financial analyst to take different decisions regarding the operations of the firm.

RATIO ANALYSIS: Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measura measurable ble factors factors (quantit (quantitativ ative). e). This means means crunchin crunching g and analyzi analyzing ng numbe numbers rs from from the finan financia ciall statem statement ents. s. If used used in conju conjunc nctio tion n with with other  other  method hods,

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Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number  against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future.

MEANING OF RATIO: A ratio atio is one one figu figurre expr expres ess s in term terms s of anoth nother er figu figure re.. It is a mathematical yardstick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “ so

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many many times times”. ”. As accou accounti nting ng ratio ratio is an expr express ession ion relati relating ng two two figur figures es or  accou accounts nts or two two sets sets of acco account unt heads heads or group group conta contain in in the the finan financia ciall statements.

MEANING OF RATIO ANALYSIS: Ratio analysis is the method or process by which the relationship of  items or group of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis. While While a detai detaile led d expla explana natio tion n of ratio ratio analy analysis sis is beyo beyond nd the the scop scope e of this this section, we will focus on a technique, which is easy to use. It can provide you with a valuable investment analysis tool. This technique is called cross-sectional cross-sectional analysis. analysis. Cross-sectional Cross-sectional analysis compares financial ratios of several companies from the same industry. Ratio analysis can provide valuable information about a company's financial health. A finan financia ciall ratio ratio meas measure ures s a compa company ny's 's perfor performa manc nce e in a speci specific fic area. area. For  For  example, you could use a ratio of a company's debt to its equity to measure a company's leverage. By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. However, you must be careful not to place too much importance on one ratio. You obtain a better indication of the direction in which a company is moving when several ratios are taken as a group.

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OBJECTIVE OF RATIOS Ratio is work out to analyze the following aspects of business organizationA) Solv Solven ency cy-1) Long term term 2) Short term term 3) Immedia ediate te B) Stab Stabil ilit ity y C) Profit Profitab abili ility ty D) Operatio Operational nal efficien efficiency cy E) Credit Credit stand standing ing F) Struct Structura urall analy analysis sis G) Effective utilization utilization of of resources resources H) Leverag Leverage e or external external financ financing ing

FORMS OF RATIO: Since a ratio is a mathematical relationship between to or more variables / accounting figures, such relationship can be expressed in different ways as follows – A] As a pure ratio: For example the equity share capital of a company is Rs. 20,00,000 & the preference share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000: 5,00,000 or simply 4:1. B] As a rate of times: In the above case the equity share capital may also be described as 4 times that of preference share capital. Similarly, the cash sales of a firm are

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Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales can be described described as 2.5 [30,00,000/1 [30,00,000/12,00,000] 2,00,000] or simply by saying saying that the credit sales are 2.5 times that of cash sales. C] As a percentage: In such a case, one item may be expressed as a percentage of some other item. For example, net sales of the firm are Rs.50,00,000 & the amount of  the gross profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales [ 10,00,000/50,00,000]

STEPS IN RATIO ANALYSIS The ratio analysis requires two steps as follows: 1] Calculation of ratio 2] Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industry’s average ratio ratio or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calcu calculat lated ed ratio ratio is compa compared red with with some some prede predeter termi mined ned stand standard ard.. The The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself.

TYPES OF COMPARISONS The ratio can be compared in three different ways – 1] Cross section analysis: One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time. So it involves the comparison of two or more firm’s

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financial ratio at the same point of time. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. competitors. The firms performance may be compared compared with the performance of  the the lead leader er in the the ind industr ustry y in orde orderr to unco uncove verr the the majo majorr oper operat atio iona nall inefficiencies. The cross section analysis is easy to be undertaken as most of  the data required for this may be available in financial statement of the firm. 2] Time series analysis: The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years, an assessment can be made about the trend in progress of the firm, about the direction of progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. The Time series analysis looks for (1) important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of data\ 3] Combined analysis: If the cross section & time analysis, both are combined together to study the behavior & pattern of ratio, then meaningful & comprehensive evaluation of  the performance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. For example, the ratio of operating expenses to net sales for firm may be higher  than the industry average however, over the years it has been declining for the firm, whereas the industry average has not shown any significant changes.

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The combined analysis as depicted in the above diagram, which clearly shows that the ratio of the firm is above the industry average, but it is decreasing over  the years & is approaching the industry average.

PRE-REQUISITIES TO RATIO ANALYSIS In orde orderr to use the the rati ratio o anal analys ysis is as devi device ce to make make purp purpos osef eful ul conclusions, there are certain pre-requisites, which must be taken care of. It may be noted that these prerequisites are not conditions for calculations for  meaningful conclusions. The accounting figures are inactive in them & can be used for any ratio but meaningful & correct interpretation & conclusion can be arrived at only if the following points are well considered. 1) The dates dates of different different financial financial statements statements from where data data is taken taken must be same. 2) If poss possibl ible, e, only only audite audited d finan financia ciall statem statement ents s shou should ld be consi conside dered red,, otherwise there must be sufficient evidence that the data is correct.

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3) Accounti Accounting ng policies policies followed followed by different different firms firms must be same in case of  cross section analysis otherwise the results of the ratio analysis would be distorted. 4) One ratio ratio may not throw throw light on any perform performance ance of the firm. firm. Therefore Therefore,, a group of ratios must be preferred. This will be conductive to counter  checks. 5) Last Last but but not not least least,, the the analy analyst st must must find find out out that that the two figures figures being being used to calculate a ratio must be related to each other, otherwise there is no purpose of calculating a ratio.

CLASSIFICATION OF RATIO CLASSIFICATION OF RATIO

BASED ON FINANCIAL FINANCIAL

BASED ON FUNCTION FUNCTION

BASED ON

USER STATEMENT

1] BALANCE SHEET RATIO 2] REVENUE STATEMENT RATIO 3] COMPOSITE RATIO

1] LIQUIDITY RATIO

1] RATIOS FOR

2] LEVERAGE RATIO

SHORT TERM

3] ACTIVITY RATIO

CREDITORS

4] PROFITABILITY RATIO

2] RATIO FOR SHAREHOLDER

5] COVERAGE RATIO

3] RATIOS FOR MANAGEMENT 4] RATIO FOR LONG TERM CREDITORS

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BASED ON FINANCIAL STATEMENT Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet , P& P A/C, or  both. One-way of classification of ratios is based upon the sources from which are taken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. Ratios. E.g. ratio of current assets to current liabilities or ratio of  debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio: Ratio based on the figures from the revenue statement statement is called revenue statement ratios. These ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio.

3] Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement. There are two types of composite ratiosa) Some Some composite composite ratios ratios study the relatio relationshi nship p between between the profits profits & the investments of the concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc. b) Other Other compos composite ite ratios e.g. debtors debtors turnover turnover ratios, ratios, creditors creditors turnover  turnover  ratios, dividend payout ratios, & debt service ratios

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BASED ON FUNCTION: Accounting ratios can also be classified according to their functions in to liquidit liquidity y ratios, ratios, leverag leverage e ratios, ratios, activit activity y ratios, ratios, profitab profitability ility ratios ratios & turnover  turnover  ratios.

1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios.

2] Leverage ratios: It shows the relation relationship ship betwee between n proprietor proprietors s funds &

debts debts used in

financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios.

3] Activity ratios: It shows relationship between between the sales & the assets. It is also known as Turnover ratios & productivity productivity ratios e.g. stock turnover ratios, debtors turnover  ratios.

4] Profitability ratios: a) It shows the relationship between profits & sales e.g. operating ratios,

gross profit ratios, operating net profit ratios, expenses ratios b) It shows shows the relati relations onship hip between between profit profit & inves investm tment ent e.g. return return on investment, return on equity capital.

5] Coverage ratios: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.

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BASED ON USER: 1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2] Ratios for the shareholders: Return on proprietors fund, return on equity capital

3] Ratios for management: Return on capital employed, turnover ratios, operating ratios, expenses ratios 4] Ratios for long-term creditors: Debt equity ratios, return on capital employed, proprietor ratios.

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LIQUIDITY RATIO: Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below

CURRENT RATIO Meaning: This ratio compares the current assests with the current liabilities. It is also known as ‘working capital ratio’ or ‘ solvency ratio’. It is expressed in the form of  pure ratio. E.g. 2:1 Formula : Current assets Current ratio = Current liabilities

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The current assests of a firm represents those assets which can be, in the ordinary course of business, converted into cash within a short period time, normally not exceeding one year. The current liabilities defined as liabilities which are short term maturing obligations to be met, as originally contemplated, with in a year. Curre Current nt ratio ratio (CR) (CR) is the ratio ratio of total total curre current nt asse assets ts (CA) (CA) to total total curr current ent liabilities (CL). Current assets include cash and bank balances; inventory of raw materials, semi-finished and finished goods; marketable securities; debtors (net of provision for bad and doubtful debts); bills receivable; and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and outstanding expenses. This ratio measures the liquidity of the current assets and the ability of a company to meet its shortterm debt obligation. CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. The higher the current ratio, the greater the short-term solvency. This compares assets, which will become liquid within approximately twelve months with liabilities, which will be due for payment in the same period and is intended to indicate whether there are sufficient short-term assets to meet the shortshort- term term liabil liabiliti ities. es. Reco Recomm mmen ende ded d curre current nt ratio ratio is 2: 1. Any ratio ratio belo below w indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above above indicat indicates es over over trading, trading, that is the entity is under under utilizin utilizing g its current current assets.

LIQUID RATIO: Meaning: Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1.

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The term quick assets refer to current assets, which can be converted into, cash immediately or at a short notice without diminution of value. Formula: Quick assets Liquid ratio =

Quick liabilities Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current assets that can be converted into cash immediately without any value strength. QA includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaid expenses are excluded since these cannot be turned into cash as and when required. QR indica indicate tes s the the extent extent to which which a comp company any can can pay its curre current nt liabil liabiliti ities es without relying on the sale of inventory. This is a fairly stringent measure of  liquidity because it is based on those current assets, which are highly liquid. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. Generally, Generally, a quick ratio of  1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments.

CASH RATIO Meaning: This is also called as super quick ratio. This ratio considers only the absolute liquidity available with the firm. Formula: Cash + Bank + Marketable securities Cash ratio

= Total current liabilities

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Since cash and bank balances and short term marketable securities are the most liquid assets of a firm, financial analysts look at the cash ratio. If the super  liquid assets are too much in relation to the current liabilities then it may affect the profitability of the firm.

INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:Meaning: Earnings per Share are calculated to find out overall profitability of the organization. An earnings per Share represents earning of the company whether or not dividends are declared. If there is only one class of shares, the earning per share are determined by dividing net profit by the number of equity shares. EPS measures the profits available to the equity shareholders on each share held.

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Formula: NPAT Earning per share = Number of equity share

The higher EPS will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time. But remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business

DIVIDEND PER SHARE:Meaning: DPS shows how much is paid as dividend to the shareholders on each share held. Formula: Dividend Paid to Ordinary Shareholders Dividend per Share = Number of Ordinary Shares

DIVIDEND PAYOUT RATIO:Meaning: Dividend Pay-out Ratio shows the relationship between the dividend paid to equity shareholders out of the profit available to the equity shareholders.

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Formula: Dividend per share

Dividend Pay out ratio =

*100 Earning per share

D/P ratio shows the percentage share of net profits after taxes and after  preference dividend has been paid to the preference equity holders.

GEARING

CAPITAL GEARING RATIO:Meaning: Geari Gearing ng means means the proce process ss of incre increasi asing ng the equit equity y share shareho holde lders rs retur return n through the use of debt. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio shows the relation relationship ship between between two types of capital capital viz: - equity equity capital capital & prefere preference nce capital & long term borrowings. It is expressed as a pure ratio.

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Formula: Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus Capital gearing ratio indicates indicates the proportion of debt & equity in the financing of  assets of a concern.

PROFITABILITY These ratios help measure the profitability of a firm. A firm, which generates a substa substanti ntial al amou amount nt of profit profits s per per rupee rupee of sales sales,, can comfor comfortab tably ly meet meet its oper operat atin ing g expe expens nses es and and prov provid ide e more more retu return rns s to its its shar shareh ehol olde ders rs.. The The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.

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GROSS PROFIT RATIO:Meaning: This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is I managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit. Formula: Gross profit Gross profit ratio

=

* 100 Net sales

NET PROFIT RATIO:Meaning: Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage. Formula: NPAT Net profit ratio =

* 100

Net sales This This rati ratio o show shows s the the net net earn earnin ings gs (to (to be dist distri ribu bute ted d to both both equi equity ty and and preference shareholders) as a percentage of net sales. It measures the overall effici efficienc ency y of produ producti ction, on, admin administ istra ratio tion, n, selli selling, ng, financ financing ing,, prici pricing ng and and tax 18

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management. management. Jointly considered, the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm. RETURN ON CAPITAL EMPLOYED:Meaning: The profitability of the firm can also be analyzed from the point of view of the total total funds funds emplo employe yed d in the firm. firm. The The term term fund fund empl employe oyed d or the the capita capitall employed refers refers to the total long-term source of funds. It means that the capital employed comprises of shareholder funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net working capital. Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the long-term funds of a firm are utilized.

Formula: NPAT Return on capital employed =

*100 Capital employed

FINANCIAL These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of  goods sold and levels of investment in various assets. The important turnover  ratios ratios are debtors debtors turnover turnover ratio, ratio, average average collecti collection on period, period, invento inventory/s ry/stock tock turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These are described below:

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DEBTORS TURNOVER RATIO (DTO) Meaning: DTO DTO is calc calcul ulat ated ed by divi dividi ding ng the the net net cred credit it sale sales s by aver averag age e debt debtor ors s outstanding outstanding during the year. It measures the liquidity of a firm's debts. Net cred credit it sale sales s are are the the gros gross s cred credit it sale sales s minu minus s retu return rns, s, if any, any, from from customers. Average debtors are the average of debtors at the beginning and and at the the end end of the the year year.. This This rati ratio o show shows s how how rapi rapidl dly y debt debts s are are collec collecte ted. d. The The highe higherr the DTO, DTO, the the bette betterr it is for for the the organ organiza izatio tion. n. Formula: Credit sales Debtors turnover ratio = Average debtors

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INVENTORY OR STOCK TURNOVER RATIO (ITR) Meaning: ITR refers to the number of times the inventory is sold and replaced during the accounting period. Formula: COGS Stock Turnover Ratio = Average stock

ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the management of inventories, and vice versa. However, a high inventory turnover may also result from a low level of inventory, which may lead lead to frequ frequent ent stock stock outs outs and and loss loss of sales sales and and custo custome merr good goodwil will. l. For  For  calculating ITR, the average of inventories at the beginning and the end of the year is taken. In general, averages may be used when a flow figure (in this case, cost of goods sold) is related to a stock figure (inventories).

FIXED ASSETS TURNOVER (FAT) The FAT ratio measures the net sales per rupee of investment in fixed assets. Formula: Net sales Fixed assets turnover = Net fixed assets This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets. However, this ratio should be used with caution because when the fixed assets of a firm are old and substantially deprecia depreciated, ted, the fixed fixed assets assets turnover turnover ratio tends to be high (because (because the denominator of the ratio is very low).

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PROPRIETORS RATIO: Meaning: Proprietary Proprietary ratio is a test of financial financial & credit strength of the business. It relates share sharehol holder ders s fund fund to total total asset assets. s. This This ratio ratio deter determi mines nes the the long long term term or  ultimate solvency of the company. In other other words, words, Propriet Proprietary ary ratio determ determines ines as to what what extent extent the owner’s inter interest est & expec expecta tatio tions ns are fulfi fulfille lled d from from the total total inves investm tment ent made made in the business operation. Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the form of percentage. Total assets also know it as net worth. Formula: Proprietary fund Proprietary ratio

=

OR Total fund

Shareholders fund Proprietary ratio = Fixed assets + current liabilities

STOCK WORKING CAPITAL RATIO: Meaning: This ratio shows the relationsh relationship ip between between the closing closing stock & the working capital. It helps to judge the quantum of inventories in relation to the working capital of the business. The purpose of this ratio is to show the extent to which working capital is blocked in inventories. The ratio highlights the predominance predominance of stocks in the current financial position of the company. It is expressed as a percentage. Formula: Stock Stock working capital ratio = Working Capital

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Stock working capital ratio is a liquidity ratio. It indicates the composition & quality of the working capital. This ratio also helps to study the solvency of a concern. It is a qualitative qualitative test of solvency. solvency. It shows the extent of funds blocked in stock. If investment in stock is higher it means that the amount of liquid assets is lower.

DEBT EQUITY RATIO: MEANING: This This rati ratio o comp compar ares es the the long long-t -ter erm m debt debts s with with shar shareh ehol olde ders rs fund fund.. The The relationship between borrowed funds & owners capital is a popular measure of  the long term financial solvency of a firm. This relationship is shown by debt equity ratio. Alternatively, this ratio indicates the relative proportion of debt & equity in financing the assets of the firm. It is usually expressed as a pure ratio. E.g. 2:1

Formula: Total long-term debt Debt equity ratio = Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means the process of the the incre increas asing ing the equity equity shar shareh ehold olders ers return return throu through gh the the use of debt. debt. Leverage is also known as ‘gearing’ or ‘trading on equity’. Debt equity ratio shows the margin of safety for long-term creditors & the balance between debt & equity.

RETURN ON PROPRIETOR FUND: Meaning: Return on proprietors fund is also known as ‘return on proprietors equity’ or  ‘return on shareholders investment’ or ‘ investment ratio’. This ratio indicates

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the relationship between net profit earned & total proprietors funds. Return on proprietors fund is a profitability ratio, which the relationship between profit & investment investment by the proprietors proprietors in the concern. concern. Its purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to  judge how efficient the concern is in managing the owner’s fund at disposal. This ratio is of practical importance to prospective investors & shareholders. Formula: NPAT Return on proprietors fund =

* 100 Proprietors fund

CREDITORS TURNOVER RATIO: It is same as debtors turnover ratio. It shows the speed at which payments are made to the supplier for purchase made from them. It is a relation between net credit purchase and average creditors Net credit purchase Credit turnover ratio = Average creditors

Months in a year  Average age of accounts payable = Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher  credit creditors ors turnov turnover er ratio ratio or a lower lower credi creditt period period enjoy enjoyed ed signif signifie ies s that that the cred credit itor ors s are are bein being g paid paid prom prompt ptly ly.. It enha enhanc nces es cred credit it wort worthi hine ness ss of the the company. A very low ratio indicates that the company is not taking full benefit of  the credit period allowed by the creditors.

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IMPORTANCE OF RATIO ANALYSIS: As a tool of financial management, ratios are of crucial significance. The impo import rtan ance ce of rati ratio o anal analys ysis is lies lies in the the fact fact that that it pres presen ents ts fact facts s on a compar comparat ative ive basis basis & enab enables les the draw drawing ing of interf interfere erence nce regar regardin ding g the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: 1] Liquidity position, 2] Long-term solvency, 3] Operating efficiency, 4] Overall profitability, 5] Inter firm comparison 6] Trend analysis.

1] LIQUIDITY POSITION: With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory satisfactory if  it is able to meet its current obligation when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short maturing maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a firm. The liquidity liquidity ratio are particular particularly ly useful useful in credit credit analysis analysis by bank bank & other  other  suppliers of short term loans.

2] LONG TERM SOLVENCY: Ratio Ratio analysi analysis s is equally equally useful useful for assessin assessing g the long-ter long-term m financi financial al viability of a firm. This respect of the financial position of a borrower is of  concern to the long-term creditors, security analyst & the present & potential owners of a business. The long-term solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power  & operating efficiency.

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Ratio Ratio analy analysi sis s revea reveals ls the the stren strength gth & weak weaknes nesse ses s of a firm firm in this this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt debt in which which case case its solve solvency ncy is expos exposed ed to serio serious us strai strain. n. Simila Similarly rly the various profitability ratios would reveal whether or not the firm is able to offer  adequate return to its owners consistent with the risk involved. 3] OPERATING EFFICIENCY: Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in management & utilization of its assets. The various activity ratios measures this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of  its assets- total as well as its components. 4] OVERALL PROFITABILITY: Unlike the outsides parties, which are interested in one aspect of the financia financiall position position of a firm, firm, the managemen managementt is constant constantly ly concerne concerned d about about overall profitability of the enterprise. That is, they are concerned about the ability of the firm to meets its short term as well as long term obligations to its credit creditors ors,, to ensur ensure e a reaso reasonab nable le retur return n to its owner owners s & secur secure e optim optimum um utilization of the assets of the firm. This is possible if an integrated view is taken & all the ratios are considered together. 5] INTER – FIRM COMPARISON: Ratio analysis not only throws light on the financial position of firm but also serves as a stepping-stone to remedial measures. This is made possible due to inter firm comparison & comparison with the industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of a firm with

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the industry average. It should be reasonably expected that the performance performance of  a firm should be in broad conformity with that of the industry to which it belongs. An inter firm comparison would demonstrate the firms position vice-versa its competitors. If the results are at variance either with the industry average or  with the those of the competitors, the firm can seek to identify the probable reasons & in light, take remedial measures. 6] TREND ANALYSIS: Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or  deteriorating over the years. This is made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in the fact that the analysts can know the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be satisfactory but the trend may be a declining one.

ADVANTAGES OF RATIO ANALYSIS Financ Financial ial ratios ratios are are esse essenti ntial ally ly concer concerned ned with with the ident identifi ificat cation ion of  significant accounting data relationships, which give the decision-maker insights into the financial performance of a company. The advantages of ratio analysis can be summarized as follows: 

Ratios Ratios facilita facilitate te conducti conducting ng trend trend analysi analysis, s, which which is importa important nt for  decision making and forecasting.



Ratio Ratio analys analysis is helps helps in the assessm assessment ent of the liquidit liquidity, y, operati operating ng efficiency, profitability and solvency of a firm.



Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.

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The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of  the firm.

LIMITATIONS OF RATIO ANALYSIS Ratio analysis has its limitations. These limitations are described below: 1] Information problems 

Ratios require quantitative information for analysis but it is not decisive about analytical output .



The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the company’s current financial position.



Where historical cost convention is used, asset valuations in the balance sheet could be misleading. Ratios based on this information will not be very useful for decision-making.

2] Comparison of performance over time 

When comparing performance over time, there is need to consider the changes in price. The movement in performance should be in line with the changes in price.



When comparing performance over time, there is need to consider the changes in technology. The movement in performance should be in line with the changes in technology.



Chang Changes es in accoun accountin ting g polic policy y may may affect affect the compar compariso ison n of resul results ts between different accounting years as misleading.

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3] Inter-firm comparison 

Com Compani panies es may have have diff differ eren entt capi capita tall stru struct ctur ures es and and to make ake comparison of performance when one is all equity financed and another  is a geared company it may not be a good analysis.



Selectiv Selective e applicat application ion of governm government ent incentiv incentives es to various various compani companies es may also distort intercompany comparison. comparing the performance of two enterprises may be misleading.



Inter-firm comparison may not be useful unless the firms compared are of the same size and age, and employ similar production methods and accounting practices.



Even within a company, company, comparisons can be distorted by changes in the price level.



Ratios provide only quantitative information, not qualitative information.



Ratios are calculated on the basis of past financial statements. They do not indicate future trends and they do not consider economic conditions.

PURPOSE OF RATIO ANLYSIS: 1] To identify aspects of a businesses performance to aid decision making 2] Quantitative process – may need to be supplemented by qualitative Factors to get a complete picture. 3] 5 main areas:

Liquidity – the ability of the firm to pay its way



Investment/shareholders – information to enable decisions to be made on the the exte extent nt of the the risk risk and and the the earn earnin ing g pote potent ntia iall of a busi busine ness ss investment



Gearing – information on the relationship between the exposure of the business to loans as opposed to share capital

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Profitability – how effective the firm is at generating profits given sales and or its capital assets



Financial – the the rate rate at whic which h the the comp compan any y sell sells s its its stoc stock k and and the the efficiency with which it uses its assets

ROLE OF RATIO ANALYSIS: It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the same figure & information, which is already appearing in the financial statement. At the same time, it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the mere preparation of financial statement. Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of performance, either individually or in relation to those of other firms in the same industry. The process of this appraisal is not complete until the ratio so computed can be compared with something, as the ratio all by them do not mean anything. This comparison may be in the form of intra firm comparison, inte interr firm firm comp compar aris ison on or comp compar aris ison on with with stan standa dard rd rati ratios os.. Thus Thus prop proper  er  comparison of ratios may reveal where a firm is placed as compared with earlier  period or in comparison with the other firms in the same industry. Ratio analysis is one of the best possible techniques available to the management management to impart the basic functions like planning & control. As the future is closely closely relate related d

to the the imme immedi diate ate past, past, ratio ratio calcula calculate ted d on the basis basis of 

historical financial statements may be of good assistance to predict the future. Ratio analysis also helps to locate & point out the various areas, which need the management attention in order to improve the situation. As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity, solvency, activity, profitability & overall performance, it ena enables bles the the

inte intere rest sted ed pers person ons s to know know the the

fina financ ncia iall

characteristics of an organisation & take the suitable decision.

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EVALUATION OF APLAB LIMITED THROUGH RATIO

COMPANY PROFILE THE COMPANY –

APLAB Limited is a professionally managed Public Limited company quoted on the Bombay Stock Exchange. Since its inception in 1962, APLAB has been serving the global market with wide range of electronic products meeting the international standards for safety and reliability such as UL, VDE etc. They specialize in Test and Measurement Equipment, Power Conversion and UPS UPS Syste Systems ms,, SelfSelf-Se Servi rvice ce Termi Termina nals ls for Bank Banking ing Sect Sector or and and Fuel Fuel Dispensers for Petroleum Sector. APLAB enjoys worldwide recognition for the quality of its products, business integrity and innovative engineering skills.

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ABOUT APLAB: 

Aplab started its operation in October 1962.



It is a professionally managed 40 years old public limited company.



It is quoted on BOMBAY STOCK EXCHANGE.



It serves customer global customer par excellence.



It specialized in Test & measurement instruments, power conversion, & UPS & fuel dispensers for petroleum sector.



It enjoys worldwide recognition for the quality of its business integrity & innovative engineering skills.

MISSION: 

To deliver high quality, carefully, engineered products, on time, with in budget, as per the customer specification in a manner profitable to both, our customers & so to us.

VISION: 

To be a global player, recognized for quality & integrity.



To be the TOP INDIAN COMPANY as conceived by our customers.



To be “ THE BEST ” company to work for, as rated by our employees.

GOAL: 32

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Goal at Aplab is extract ordinary customer service as we provide our  customer needs in the personal service industry.

CORPORATE MISSION – 1] To achieve healthy and profitable growth of the company in the interest of our  customers & the shareholders.

2] To enco encour urag age e

team teamwo work rk,,

rewa reward rd inno innova vati tion on and and

main mainta tain in heal health thy y

interpersonal relations within the organization.

3] To expand knowledge and remain at the leading edge in technology to serve the global market.

4] To underst understand and the custome customer’s r’s needs needs and provide solutions solutions than merely selling products.

5] To create create intel intellec lectu tual al capit capital al by inves investin ting g in hard hardwa ware re and and embe embedd dded ed software development.

VALUES & BELIEFS: Their values & beliefs required that they 

Treat employees with respect & give them an opportunity for input on how to continuously improve their service goals.



Offer opportunities for growth, professional development & recognition.



Provide most effective & corrective action, to resolve customer service issues, to ensure customer satisfaction.



Foster an open door policy, which encourages interaction, discussion & ideas to improve work environment & increase productivity.



“ Do it right the first time & every time” is their team commitment * our  way of doing business, it ensures as growth & prosperity.

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THE 21ST CENTURY SUCCESS –

APLAB had planned to enter the 21st Century with a program for a fast and healthy growth in the global market based on company’s high technology foundation and the reputation of four decades for prompt customer service and as a reliable solution provider. After completing three years in the new era, we can say with pride that we have been delivering our promises to our customers and the shareholders. APLAB has entered the field of Professional Services starting with the Banking and the Petroleum Industry. Focus on developing embedded system software has been also enhanced. We believe that professional services sector  is poised to grow at a very rapid pace.

QUALITY IS OUR WORK CULTURE - ISO 9001:2000

Quality at APLAB is a part of our people’s attitude. Entire organization is committed to create an environment that encourages individual excellence and a pers person onal al comm commit itme ment nt to qual qualit ity. y. In APLA APLAB, B, “Qua “Quali lity ty is ever everyb ybod ody’ y’s s responsibility” and all strive to “do it right the first time”. It is therefore natural that APLAB Limited is certified for quality with ISO 9001:2000 registration.

QUALITY POLICY: 

Aplab will deliver to its customer products & services that consistently meet or exceed their requirement.



Aplab Aplab will will achie achieve ve this this by total total commi commitm tment ent & involv involvem ement ent of every every individual.



Aplab Aplab will will enco encour urage age its emplo employe yees es & supp supplie liers rs to devel develop op qual quality ity prod produc ucts ts prev preve ent defec efects ts & make make conti ontinu nual al impr improv ovem emen entt in all processes.

QUALITY OBJECTIVE:

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Aplab is an ISO 9001:2000 certifies company.



100% customer satisfaction.



On time delivery every time reduction is out going PPM to 10,000 [4 sigma]

RESEARCH AND DEVELOPMENT

Developing innovative products with the latest technology is the core strength of APLAB. The Science & Technology Ministry of the Govt. of India accredits our R&D Laboratories. We have a large team of dedicated, highly qualified skilled engineers who excel in the latest state-of-the-art-technology. APLAB is recognized not only for manufacturing standard products but also in providing solutions and services as per the customer specifications. We spend more than 4% of the company revenue in Research & Development activities. Specific areas in which the company carries out R&D 1. Develo Developm pment ent of new new prod product uct espec especial ially ly hi-tec hi-tech h intel intellig ligent ent produc productt & electronic

transaction control system.

2. Impro Improve veme ment nt in the existin existing g produ products cts & produc productio tion n proc process esses, es, import import substitution. 3. Develop Developmen mentt of products products to suit export exports s markets. markets. 4. Customiz Customizing ing the products products to the customer customer’s ’s specificat specifications ions & adaptation adaptation of imported technology. The compa company ny has has achie achieve ved d its posit position ion of leade leadersh rship ip in the India Indian n instrumentation industry & continuous to maintain it through its strong grip of  technology. Almost all the products manufactured by the company are import

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substi substitut tution ion items items,, which which are are fully fully deve develop loped ed in house house.. It has has result resulted ed in considerable saving of foreign exchange. With the company, R&D is an ongoing process. The ministry of science & technology, Government of India, recognizes the company’s R&D. Through Through a continu continuous ous interact interaction ion with with producti production& on& Quality Quality Assura Assurance nce Department takes up redesign of existing products. This is done to achieve state of the art in our design & to bring about improvement to get maximum performance / cost ratio.

FUTURE PLAN OF ACTION Major Major R&D R&D activi activity ty is conc concent entrat rated ed around around up grada gradatio tion n of produ product ct design & re-alignment of production processes to bring about improved quality at lower cost. This will greatly help the company in facing competition in local markets from foreign companies.

EXPORT

APLAB currently exports over 25% of its production to Western Europe, Canada & USA. Over 30 million U.S. Dollars worth of Power Systems and Test Instru Instrume ments nts from from APLA APLAB B are today today opera operatio tional nal in UK, UK, Germ Germany any,, Fran France, ce, Sweden, Belgium, Canada, and USA & Australia.

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APLAB’S ORGANISATION CHART EXECUTIVE CHAIRMAN

MANAGING DIRECTOR REGIOAL HEAD:

DIRECTOR

MAEKETING

[TECHNICAL

DIRECTOR

- PE]

MUMBAI  NEWDELHI SECUNDARABAD BANGLORE CHENNAI

GENERAL MANAGER

FINANCE MANA MANAGE GER R

G.M

G.M.

MATERIAL

PROD PROD..

MARK MARKET ETIN ING G

MANA MANAGE GER R

&

G.M. ELTR ELTRAC AC PROD.

G.M. DESIG DESIGN N & DESIGN

DEVLOPMENT 37

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OFFICERS

STAFF

WORKERS

PRODUCTS OF APLAB: a. TEST TEST & MEASURE MEASUREMENT MENT INSTRUME INSTRUMENTS NTS b. HIGH HIGH POWER POWER AC SYSTEMS SYSTEMS (UPS, (UPS, Freque Frequency ncy Conver Converter, ter, Inverter, Isolation Transformer) c. HIGH HIGH POWER POWER DC SYST SYSTEMS EMS (DC (DC Power Power Supply Supply,, DC Uninterruptible Power Supply) d. ATM ATM INST INSTAC ACA ASH e. POWER

SUPPLIES IES,

CONV CONVER ERTE TERS RS,,

AC-DC -DC

SMPS SMPS,,

POWER

INVE INVERT RTER ERS, S,

SUPPLY, STAB STABIL ILIZ IZER ER,,

CONDITIONER, ISOLATION TRANSFORMER

ATM INSTACASH The Banking Automation Division of APLAB was launched in 1993, when we introduced INSTACASHIndia’s first indigenously manufactured ATM INSTACASH demonstrated APLAB’s skills in design, hardware manufacturing and software integrations.

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DC/DC /DC LINE LINE

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Our in house R&D group is constantly striving to scan the rapidly changing technology and offer suitable end to end solutions. We are into Self Service Delivery Systems, MICR Cheque Processing and Smart Card based solutions. The latest is IMAGEENABLED Cheque Processing solution- QUICKCLEAR.

APLAB LIMITED BALANCE SHEET AS AT 31 ST MARCH 2002 (RS.’000) AS AT 31ST 31ST 2002 2002 AS AT AT 31 ST 2002 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus

5,00,00 16,29,69 21,29,69

LOANS Secured Unsecured

12,13,48 3,67,99 15,81,47 1,06,85 38,18,01

DEFFERED TAX LIABILITY (NET) TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress

15,90,33 10,32,96 5,57,37 54,36 6,11,73 1,22,32

INVESTMENT CURRENT ASSESTS, LOANS & ADVANCES Inventories Sundary debtors Cash & bank balances Loan & advances

19,09,77 18,49,35 3,31,32 5,80,36 46,70,80

CURRENT LIABLITIES & PROVISIONS Current liabilities

15,36,09

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Provisions

57,57 15,93,66

NET CURRENT ASSESTS MISCELLANEOUS EXPENDITURE Total

30,77,14 6,84 3818,01

PROFIT & LOSS ACCOUNT FOR THE ENDED 31 ST MARCH 2002 (RS.’000) AS AT 31-3- 2002 AS AT 31-3-2002 INCOME: Sales and operating earnings Other income Variation in stock

48,19,19 80,50 1,31,07 50,30,76

EXPENCES: Materials consumed Purchase of trading goods Payments to & provision for employees Manufacturing expenses Excise duty Other expenses Interest & finance charges Depreciation Less: transferred to revaluation

18,97,28 8,61,75 9,95,04 2,21,37 65,05 5,76,71 2,60,22 1,05,37 1,15

PROFIT BEFORE TAX PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax Deferred tax liability / (Assets) PROFIT AFTER TAX Balance brought forward from previous year Balance available for appropriation

1,04,22 49,81,64 49,12

24,42 4,02 20,68 1 20,69

Appropriations: General reserve Surplus / (loss) carried to B/S Proposed dividend Tax on proposed dividend

20,68 1

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20,69 Basic earning per share (rupee) 0.41 0.41

BALANCE SHEET AS AT 31 ST MARCH 2003 (RS.’000) AS AT AT 31-331-3- 2003 AS AT AT 31-331-3- 2003 2003 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus

5,00,00 16,55,19 21,55,19

LOANS Secured Unsecured

10,27,55 4,53,16 14,80,71 87,21 37,23,11

DEFFERED TAX LIABILITY (NET) TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress

17,40,97 11,40,93 6,00,04 29,74 6,29,78 1,47,26

INVESTMENT CURRENT ASSESTS, LOANS & ADVANCES Inventories Sundary debtors Cash & bank balances Loan & advances

19,02,79 19,05,76 3,95,25 8,98,62 51,02,42

CURRENT LIABLITIES & PROVISIONS Current liabilities Provisions

20,41,56 1,20,76 21,62,32

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NET CURRENT ASSESTS MISCELLANEOUS EXPENDITURE TOTAL

29,40,10 5,97 37,23,11

PROFIT & LOSS ACCOUNT FOR THE ENDED 31 ST MARCH 2003 (RS.’000) AS AT 31-3- 2003 AS AT 31-3- 2003 INCOME: Sales and operating earnings Other income Variation in stock

59,62,22 15,04 (59,27) 59,17,99

EXPENCES: Materials consumed Purchase of trading goods Payments to & provision for Employees Manufacturing expenses Excise duty Other expenses Interest & finance charges Depreciation Less: transferred to revaluation

22,41,60 10,37,52 10,63,96 2,69,99 72,69 7,62,23 2,36,57 1,07,97 1,03

PROFIT BEFORE TAX PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax Deferred tax liability / (Assets) PROFIT AFTER TAX Balance brought forward from previous year Balance available for appropriation

1,06,94 57,91,50 1,26,49

63,19 (19,64) 82,94 1 82,95

Appropriations: General reserve Surplus / (loss) carried to B/S Proposed dividend Tax on proposed dividend

26,50 4 50,00 6,41 82,95

Basic earning per share (rupee)

1.66 42

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BALANCE SHEET AS AT 31 ST MARCH 2004 (RS.’000) AS AT AT 31-331-3- 2004 AS AT AT 31-331-3- 2004 2004 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus

5,00,00 17,42,59 22,42,59

LOANS Secured Unsecured

11,38,86 5,58,29 16,97.15 95,33 40,35,07

DEFFERED TAX LIABILITY (NET) TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress

18,41,58 12,40,03 6,01,55 15,29 6,16,84 1,48,34

INVESTMENT CURRENT ASSESTS, LOANS & ADVANCES Inventories Sundary debtors Cash & bank balances Loan & advances

21,46,20 19,51,56 4,49,74 850,58 53,98,08

CURRENT LIABLITIES & PROVISIONS Current liabilities Provisions

18,16,17 3,12,02 21,28,19

NET CURRENT ASSESTS TOTAL

32,69,89 40,35,07

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PROFIT & LOSS ACCOUNT FOR THE ENDED 31 ST MARCH 2004 (RS.’000) AS AT 31-3- 2004 AS AT 31-3-2004 INCOME: Sales and operating earnings Other income Variation in stock

73,90,47 31,39 53,99 74,75,85

EXPENCES: Materials consumed Purchase of trading goods Payments to & provision for employees Manufacturing expenses Excise duty Other expenses Interest & finance charges Depreciation Less: transferred to revaluation

28,51,40 14,03,33 12,94,47 3,07,51 70,08 9,17,94 2,46,30 1,10,89 93

PROFIT BEFORE TAX PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax Deferred tax liability / (Assets) PROFIT AFTER TAX Balance brought forward from previous year Balance available for appropriation

1,09,96 72,00,99 2,74,86 25,71 1,19,50 8,13 17294 4 1,72,98

Appropriations: General reserve Surplus / (loss) carried to B/S Proposed dividend Tax on proposed divident

88,30 7 75,00 9,61 1,72,98 3.46

Basic earning per share (rupee)

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BALANCE SHEET AS AT 31 ST MARCH 2005 (RS.’000) AS AT AT 31-331-3- 2005 AS AT AT 31-331-3- 2005 2005 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital Reserves and surplus

5,00,00 19,14,91 24,14,91

LOANS Secured Unsecured

17,23,12 5,36,89 22,60,01 92,02 47,66,94

DEFFERED TAX LIABILITY (NET) TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: depreciation Net block Capital work in progress

21,64,89 13,43,05 8,21,84 8,21,84 2,32,91

INVESTMENT CURRENT ASSESTS, LOANS & ADVANCES Inventories Sundary debtors Cash & bank balances Loan & advances

19,32,88 23,06,67 6,04,64 10,04,02 58,48,21

CURRENT LIABLITIES & PROVISIONS Current liabilities Provisions

16,55,15 4,80,87 21,36,02 37,12,19 47,66,19

NET CURRENT ASSESTS TOTAL

PROFIT & LOSS ACCOUNT FOR THE ENDED 31 ST MARCH 2005

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(RS.’000) AS AT 31-3- 2005 AS AT 31-3 2005 INCOME: Sales and operating earnings Other income Variation in stock

74,20,31 41,69 (38,45) 74,23,55

EXPENCES: Materials consumed Purchase of trading goods Payments to & provision for employees Manufacturing expenses Excise duty Other expenses Interest & finance charges Depreciation Less: transferred to revaluation

25,91,83 15,21,00 13,54,15 2,71,41 75,41 8,44,78 2,15,82 1,26,68 84

PROFIT BEFORE TAX PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax Deferred tax liability / (Assets) PROFIT AFTER TAX Balance brought forward from previous year  Balance available for appropriation

1,25,84 70,00,24 4,23,31

1,50,84 (3,31) 2,75,78 7 2,75,85

Appropriations: General reserve Surplus / (loss) carried to B/S Proposed dividend

1,73,20 3 90,00 2,75,85 5.52

Basic earning per share (rupee)

CALCULATIONS AND INTERPRETATION OF RATIO’S 1] CURRENT RATIO: 46

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Formula: Current assets Current ratio = Current liabilities YEAR Current assets Current liabilities Current ratio

2001-2002 46,70,80 15,93,66 2.93

2002-2003 51,08,39 21,62,32 2.36

2003-2004 53,98,08 21,28,19 2.53

2004 -2005 58,28,21 21,36,02 2.72

COMMENTS: In Aplab company the current ratio is 2.72:1 in 2004-2005. it means that for one one rupee rupee of curre current nt liabil liabiliti ities es,, the the curr current ent asset assets s are are 2.72 2.72 rupee rupee are are available to the them. In other words the current assets are 2.72 times the current liabilities. Almost 4 years current ratio is same but current ratio in 2004-2005 is bit higher, which makes company more sound. The consistency increase in the value of  current assets will increase the ability of the company company to meets its obligations & therefore from the point of view of creditors the company is less risky. The available working capital with the company is in increasing order. 2001-2002 - 30,77,14 2002-2003 - 29,46,07 2003-2004 - 32,69,89 2004-2005 - 36,92,19 The comp compan any y has has suffi sufficie cient nt worki working ng capit capital al to meet meets s its urgenc urgency/ y/ obligations. A company has a high percentage of its current assets in the form of working capital, cash that would be more liquid in the sense of being able to meet obligations obligations as & when they become become due. From this working working capital, the company meets its day-to-day financial obligations. Thus, the current ratio throws light on the company’s ability to pay its current liabilities out of its current assets. The Aplab Company’s has a very good liquidity position of company.

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2] LIQUID RATIO: Formula: Quick assets Liquid ratio = Quick liabilities

YEAR Quick assets Quick liabilities Liquid ratio

2001-2002 21,80,67 15,93,66 1.36

2002-2003 23,01,01 21,62,32 1.06

2003-2004 24,01,30 21,28,19 1.12

2004 -2005 29,11,31 21,36,02 1.36

COMMENTS: The liqui liquid d or quick quick ratio ratio indic indicat ates es the the liqui liquid d finan financia ciall positi position on of an enterprise. enterprise. Almost in all 4 years years the liquid ratio is same, same, which is better better for the company to meet the urgency. The liquid ratio of the Aplab Company has increased from 1.12 to 1.36 in 2004-2005. Day to day solvency is more sound for company in 2004-2005 over the year 2003-2004. This This indica indicates tes that that the depen depende denc nce e on the shortshort-ter term m liabil liabiliti ities es & creditors are less & the company is following a conservative working capital policy. Liquid ratio of Company is favorable because the quick assets of the compa company ny are are more more than the quick quick liabili liabilitie ties. s.

The The liquid liquid ratio ratio shows shows the

company’s ability to meet its immediate obligations promptly.

3] PROPRIETORY RATIO: Formula: Proprietary fund Proprietary ratio

=

OR Total fund Shareholders fund

Proprietary ratio = Fixed assets + current liabilities

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YEAR Proprietary fund Total fund Proprietary ratio

2001-2002 21,29,69 52,82,53 40

2002-2003 21,55,19 57,38,17 37.55

2003-2004 22,42,59 66,14,92 33.90

2004 -2005 24,14,91 66,70,05 36.20

COMMENTS: The Proprietary ratio of the company is 36.20% in the year 2004-2005. 2004-2005. It means that the for every one rupee of total assets contribution of 36 paise has come from owners fund & remaining balance 66 paise is contributed by the outside creditors. This shows that the contribution by outside to total assets is more than the owners fund. This Proprietary ratio of the Company shows a downward trend for the last 4 years. As the Proprietary ratio is not favorable the Company’s long-term solvency position is not sound.

4] STOCK WORKING CAPITAL RATIO: Formula: Stock Stock working capital ratio = Working Capital

YEAR

2001-2002

Stock 19,09,77 Working Capital 30,77,14 Stock working 62.06 capital ratio

2002-2003

2003-2004

2004 -2005

19,02,79 29,46,07 64.58

21,46,20 32,69,89 65.63

19,32,88 37,12,19 52.06

COMMENTS: This ratio shows that extend of funds blocked in stock. The amount of  stock is increasing from the year 2001-2002 to 2003-2004. However in the year  2004-2005 it has declined to 52%. In the year 2004-2005 the sale is increased which affects decrease in stock that effected in increase in working capital in 2004-2005. It shows that the solvency position of the company is sound.

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5] CAPITAL GEARING RATIO: Formula: Preference capital+ secured loan

Capital gearing ratio = Equity capital & reserve & surplus

YEAR Secured loan Equity capital & reserves & surplus Capital gearing ratio

2001-2002 12,13,48 21,29,69

2002-2003 10,27,56 21,55,19

56.97

47.67

2003-2004 11,38,86 22,42,59

50.78

2004 -2005 1,72,312 2,41,491

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COMMENTS: Gearing means the process of increasing the equity shareholders return through the use of debt. Capital gearing ratio is a leverage ratio, which indicates the proportion of debt & equity in the financing of assets of a company. For the last 3 years [i.e.2001-2002 TO 2003-2004] Capital gearing ratio is all most same which indicates, near about 50% of the fund covering the secured loan position. But in the year 2004-2005 the Capital-gearing ratio is 71%. It means that during the year 2004-2005 company has borrowed more secured loans for the company’s expansion.

6] DEBT EQUITY RATIO: Formula: Total long term debt Debt equity ratio = Total shareholders fund

YEAR Long term debt Shareholders

2001-2002 15,81,47

2002-2003 14,80,70

2003-2004 16,97,15

2004 -2005 22,60,01

21,29,69

21,55,19

22,42,59

24,14,91

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fund Debt Equity Ratio

0.74

0.68

0.75

0.93

COMMENTS: The debt equity ratio is important tool of financial analysis to appraise the finan financia ciall struct structure ure of the comp compan any. y. It expre express sses es the the relat relation ion betwe between en the external equities & internal equities. This ratio is very important from the point of  view of creditors & owners. The rate of debt equity ratio is increased from 0.74 to 0.93 during the year 2001-2002 2001-2002 to 2004-2005. 2004-2005. This shows shows that with the increase increase in debt, the shareholders fund also increased. This shows long-term capital structure. The lower ratio viewed as favorable from long term creditors point of view.

7] GROSS PROFIT RATIO: Formula:

Gross profit Gross profit ratio

=

* 100 Net sales

YEAR 2001-2002 Gross profit 24,54,48 Net sales 43,45,46 Gross profit Ratio 56.48

2002-2003 37,65,90 51,02,37 73.80

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2003-2004 45,57,45 68,76,89 66.27

2004 -2005 42,37,52 68,09,78 62.22

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Gross profit Ratio Ratio 80 60 40

Gross profit Ratio Ratio

20 0 20012002

20022003

20032004

2004 2005

COMMENTS: The gross profit is the profit made on sale of goods. It is the profit on turn turnov over er.. In the the year year 2001 2001-2 -200 002 2 the the gros gross s prof profit it rati ratio o is 56.4 56.48% 8%.. It has has increased to 73.80% in the year 2002-2003 due to increase in sales without corresponding increase in cost of goods sold. However the gross profit ratio decreased to 66.27% in the year 2003-2004. It is further declined to 62.22% in the year 2004-2005, due to high cost of  purchases & overheads. Although the gross profit ratio is declined during the year 2002-2003 to 2004-2005. The net sales and gross profit is continuously increasing from the year 2001-2002 to 2004-2005.

8] OPERATING RATIO: Formula: COGS+ operating expenses

Operating ratio =

*100 Net sales

YEAR COGS + Operating expenses Net sales Operating ratio

2001-2002 18,90,98 + 2,21,37 + 5,76,71 43,45,46 61.88%

2002-2003 21,96,32 + 2,69,98 + 7,62,23 51,02,37 63.27%

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2003-2004 28,33,02 + 3,07,51 + 9,17,94 68,76,89 59%

2004 -2005 2,57,226+ 27,141+ 84,478 6,80,978 54.16%

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COMMENTS: The operating ratio shows the relationship between costs of activities & net sales. Operating ratio over a period of 4 years when compared that indicate the change in the operational efficiency of the company. The operating ratio of the company has decreased in all 4 year. This is due to increase in the cost of goods sold, which in 2001-2002 was 61.88%, in 2002-2003 was 63.27%, in 2003-2004 was 59% & in 2004-2005 it is 54.16%. though the cost has increased increased in 2002-2003 2002-2003 as compared to 2001-2002, 2001-2002, it is reducing continuously continuously over the next two years, indicate downward trend in cost but upward / positive trend in operational performance.

9] EXPENSE RATIO: The ratio of each item of expense or each group of expense to net sales is known known as ‘Expe ‘Expens nse e ratio ratio’. ’. The The expe expense nse ratio ratio bring brings s out out the the relati relation onsh ship ip betwe between en vario various us elem elemen ents ts of opera operatin ting g cost cost & net sales sales.. Expen Expense se ratio ratio analyzes each individual item of expense or group of expense& expresses them as a percentage in relation to net sales.

A] MANUFACTURING EXPENSES: Formula: Manufacturing expenses Manufacturing expense ratio =

*100 Net sales

YEAR Manufacturing expenses Net sales Manufacturing expenses ratio

2001-2002 2,21,37

2002-2003 2,69,98

2003-2004 3,07,51

2,71,41

43,45,46 5%

51,02,37 5.29%

68,76,89 4.47%

68,09,78 3.98%

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COMMENTS: The manufacturing expense is shows the downward trend. During the year  2001–2002 to 2002-2003 the manufacturing expense increased because there is increase in the charges like labour, rent , power & electricity, repair to plant & machine machinery ry & miscel miscellane laneous ous works expenses expenses..

The manufact manufacturin uring g expense expense

during the year 2001-2002 to 2004-2005 is decreased from 5% to 3.96%. This indicates that the company has control over the manufacturing expense.

B] OTHER EXPENSES: Formula: Other expenses Other expense ratio =

*100 Net sales

YEAR Other expenses Net sales Other expenses ratio

2001-2002 5,76,71 43,45,46 13.2%

2002-2003 7,62,23 51,02,37 14.93%

2003-2004 9,17,94 68,76,89 13.34%

2004 -2005 8,44,78 68,09,78 12.40%

COMMENTS: The other expense of company is increased during the 2001-2002 to 20032004, because increase increase in the charges of rent of office, equipment equipment lease rental, printing printing & station stationary, ary, advertis advertiseme ement nt & publici publicity, ty, transpor transportt outward outward & other  other  charges. But during the year 2004-2005 the other expenses is decrease from 13.34% to 12.40%. Because decrease in equipment lease rental, advertisement & publicity, transport charges, commission & discount, sales tax & purchase tax . This indicates that the company also controlling the other expenses.

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10) NET PROFIT RATIO Formula: NPAT Net profit ratio =

* 100 Net sales

YEAR NPAT Net sales Net profit ratio

2001-2002 20,98 434546 0.48

2002-2003 82,94 51,02,37 1.6

2003-2004 1,72,94 68,76,89 2.5

2004 -2005 2,75,78 68,09,78 4.04

NET PROFI PR OFIT T 5 4 3 2 1 0 2001-2002 2002-2003 2003-2004 2004-2005

COMMENTS: The net profit ratio of the company is low in all year but the net profit is increasing order from this ratio of 4 year it has been observe that the from 2001-2002 to 2004-2005 the net profit is increased i.e. in 2003 it is increased by 1.12 in 2003-2004 by 0.9 & in 2004-2005 by 1.54. Profitability ratio of company shows considerable increase. Company’s sales have increased in all 4 years & at the same time company has been successful in controlling the expenses i.e. manufacturing & other expenses. It is a clea clearr inde index x of cost cost cont contro rol, l, mana manage geri rial al effi effici cien ency cy & sale sales s promotion.

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11] STOCK TURNOVER RATIO: Formula: COGS Stock Turnover Ratio = Average stock

YEAR COGS Average stock Stoc Stock k Turn Turnov over  er  Ratio

2001-2002 18,90,98 5,49,90 3.4

2002-2003 21,96,32 5,97,58 3.6

2003-2004 28,33,02 6,73,11 4.20

2004 -2005 25,72,26 6,89,30 3.73

COMMENTS: Stock turnover ratio shows the relationship between the sales & stock it means how stock is being turned over into sales. The stock turnover ratio is 2001-2002 was 3.4 times which indicate that the stock stock is being being turned into sales sales 3.4 times times during the year. year. The inventor inventory y cycle makes 3.4 round during the year. It helps to work out the stock holding period, it means the stock turnover ratio is 3.4 times then the stock holding period is 3.5 months [12/3.4=3.5months]. This indicates that it takes 3.5 months for stock to be sold out after it is produced. For the last 4 years stock turnover ratio is lower than the standard but it is in increasing order. In the year 2001-2002 to 2004-2005 the stock turnover  ratio has improved from 3.4 to 3.73 times, it means with lower inventory the company has achieved greater sales. Thus, the stock of the company is moving fast in the market.

12] RETURN ON CAPITAL EMPLOYED: Formula: NPAT

Return on capital employed =

*100 Capital employed

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YEAR 2001-2002 NPAT 20,68 Capital employed 38,18,01 Return on capital 0.54 employed

2002-2003 82,94 37,23,11 2.23

2003-2004 1,72,94 40,35,07 4.28

2004 -2005 2,75,78 47,66,93 5.79

COMMENTS: The return on capital employed shows the relationship between profit & investment. Its purpose is to measure the overall profitability from the total funds made available by the owner & lenders. The return on capital employed of Rs.5 indicate that net return of Rs.5 is earned on a capital employed of Rs.100. this amount of Rs.5 is available to take care of interest, tax,& appropriation. The return on capital employed is show-increasing trend, i.e. from 0.54 to 5.79. All of sudden in 2001-2002 the return on capital employed increased from 0.54 to 5.79. This indicates a very high profitability on each rupee of investment & has a great scope to attract large amount of fresh fund.

13] EARNING PER SHARE: Formula: NPAT

Earning per share = Number of equity share YEAR 2001-2002 NPAT 20,98,000 No.ofequity share 50,00,000 Earning per share 0.41

2002-2003 82,94,000 50,00,000 1.66

2003-2004 1,72,94,000 50,00,000 3.46

2004 -2005 2,75,78,000 50,00,000 5.52

COMMENTS: Earning per share is calculated to find out overall profitability of the company. company. Earning per share represents represents the earning of the company company whether or  not dividends are declared. The Earning per share is 5.52 means shareholder gets Rs. 5.52 for each share of Rs. 10/-. In other words the shareholder earned Rs. 5.52 per share.

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The The net net prof profit it afte afterr tax tax of the the comp compan any y is incr increa easi sing ng in all all year years. s. Therefore the shareholders earning per share is increased continuously from 2001-2002 2001-2002 to 2004-2005 by 0.41 to 05.52. 05.52. This shows it is continuous continuous capital appreciation per unit share by 0.41 to 05.52.

The above diagram shows the Earning per share and Dividend per share is increasing rapidly. It is beneficial to the shareholders and prospective investor  to invest the money in this company.

14] DIVIDEND PAYOUT RATIO: Formula: Dividend per share

Dividend Pay out ratio =

* 100 Earning per share

YEAR 2001-2002 Dividend per   share Earning per share 0.41 Divid Dividen end d payou payoutt ratio

2002-2003 1 1.66 60.24

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2003-2004 1.50 3.46 43.35

2004 -2005 1.80 5.52 32.60

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COMMENTS: In the year 2002-2003 and 2003-2004 the Dividend pay out ratio is 60.24 and 43.35 respectively. In the year 2002-2003 the company has declared the dividend 60.24 and the balance 39.76 is retained with them for the expansion. The company has not earned more profit in the year 2001-2002 hence the compa company ny has has not declar declared ed divide dividend nd in the the year year 20012001-20 2002. 02.

Howe Howeve verr the

company has declared more dividends in the year 2002-2003 as the company has sufficient profit. In the year 2004 the company has declared 1.50 dividends per share hence the earning per share has doubled. From this one can say that the company is more conservative for expansion.

15] COST OF GOODS SOLD: Formula: COGS Cost of goods sold Ratio =

* 100 Net sales

YEAR COGS Net sales Cost of goods sold ratio

2001-2002 18,90,98 43,45,46 43.51

2002-2003 21,96,32 51,02,37 43.04

2003-2004 28,33,02 68,76,89 41.19

2004 -2005 25,72,26 68,09,78 37.77

COMMENTS: This ratio shows the rate of consumption of raw material in the process of production. In the year 2001-2002 the cost of goods sold ratio is 43.51% so the gross profit is 56.49%. it indicates that in 2001-2002, the 43% of raw material is consumed in the process of production. During the last 4 years the rate of cost of goods sold ratio is continuously decreasi decreasing ng however however the gross gross profit profit & sales sales is increas increased ed during during the same period.

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16] CASH RATIO: Formula: Cash + Bank + Marketable securities Cash ratio

= Total current liabilities

YEAR Cash + Bank + Marketable securities Total current liabilities Cash ratio

2001-2002 3,31,32

2002-2003 3,95,25

2003-2004 4,49,74

2004 -2005 6,04,64

15,93,66

21,62,32

21,28,19

21,36,02

0.20

0.18

0.21

0.28

COMMENTS: This ratio is called as super quick ratio or absolute liquidity ratio. In the year 2001-2002 the cash ratio is 0.20 & then it is decreased to 0.18 in the year  2002-2003. Then again it is increased to 0.21 in the year 2003-2004 & 0.28 in the year 2004-2005. This shows that the company has sufficient cash, bank balance, & marketable securities to meet any contingency.

17] RETURN ON PROPRIETORS FUND: Formula: NPAT Return on proprietors fund =

* 100 Proprietors fund

YEAR NPAT Proprietors fund Return on proprietors fund

2001-2002 20,68 21,29,69 0.97

2002-2003 82,94 21,55,19 3.84

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2003-2004 1,72,94 22,42,59 7.71

2004 -2005 2,75,78 24,14,91 11.41

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COMMENTS: Return Return on proprie proprietors tors fund shows shows the relation relationshi ship p betwee between n profits profits & investments by proprietors in the company. In the year 2002-2003 the return on proprietors fund is 3.84% it means the net return of Rs. 3 approximately is earned on the each Rs. 100 of funds contributed by the owners. Duri During ng the the last last 4 year years s the the rate rate of retu return rn on prop propri riet etor ors s fund fund is in increasing order. The return on proprietors fund during the year 2001-2002 to 2004-2005 is increased from 0.97% to 11.41%. It shows that the company has a very large returns available to take care of high dividends, large transfers to reserve etc. & has a great scope to attract large amount of fresh fund from owners.

18] RETURN ON EQUITY: Formula: NPAT Return on equity share capital =

* 100 No. of equity share

YEAR NPAT No. of equity share Return on equity share capital

2001-2002 20,68 50,000 4.13

2002-2003 82,94 50,000 16.5

2003-2004 1,72,94 50,000 34.58

2004 -2005 2,75,78 50,000 55

COMMENTS: This ratio shows the relationship between profit & equity shareholders fund in the company. It is used by the present / prospective investor for deciding whether to purchase, keep or sell the equity shares. In the year 2002-2003 the return on proprietors fund is 16.5%, which means the net return of Rs. 16, is earned on the each Rs.100 of the funds contributed by the equity shareholders. The rate of return on equity share capital is increased from4.13% to 55% during the year 2001-2002 to 2004-2005. This shows that the company has a very large returns available to take care of high equity dividend, large transfers 61

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to reserve, & also company has a great scope to attract large amount to fresh funds by issue of equity share & also company has a very good price for equity shares in the BSE.

19] OPERATING PROFIT RATIO: Formula: Operating profit Operating profit ratio =

*100 Net sales

COMMENTS: Operating profit ratio shows the relationship between operating profit & the sales sales.. The The opera operatin ting g profi profitt is equal equal to gross gross profi profitt minus minus all opera operatin ting g expenses or sales less cost of goods sold and operating expenses. The operatin operating g profit profit ratio ratio of 7.11% 7.11% indicate indicates s that average average operatin operating g margin of Rs.7 is earned on sale of Rs. 100. this amount of Rs. 7 is available for  meeting non operating expenses. In the other words operating profit ratio 7.11% means that 7.11% of net sales remains as operating profit after meeting all operating expenses. During the last 4 years the operating profit ratio is increased from 7.11% to 9.38%. It indicates that the company has great efficiency in managing all its operations of production, purchase, inventory, selling and distribution and also has control over the direct and indirect costs. Thus, company has a large margin is available to meet non-operating expenses and earn net profit.

20] CREDITORS TURNOVER RATIO: Formula: Net credit purchase Credit turnover ratio = Average creditors

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Months in a year  Average age of accounts payable = Credit turnover ratio

YEAR 2001-2002 Net credit 21,21,43 purchase Average creditors 5,88,42 Credit turnover  3.6 times ratio Average age of  3.3 months accounts payable

2002-2003 22,71,80

2003-2004 29,08,61

2004 -2005 25,29,04

7,91,21 3.6 times

6,96,86 4 times

7,80,39 3 times

3.3 months

3 months

4 months

COMMENTS: The creditors turnover ratio shows the relationship between the credit purchase and average trade creditors. It shows the speed with which the payments are made to the suppliers for the purchase made from them. The credit turnover ratio of 4, indicate that the creditors are being turned over 4times during the year. It indicates the number of rounds taken by the credit cycle of payables during the year. There is no standard ratio in absolute term. The creditors ratio for the year 2001-2002 2001-2002 and 2002-2003 as good as the same, but it is increased increased by 3.6 to 4 in 2003-2004.this means the company has settled the creditors dues very fastly than the previous year. DEBTORS TURNOVER RATIO: Formula: Credit sales Debtors turnover ratio = Average debtors

Days in a year  Debt collection period = Debtor’s turnover 

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YEAR 2001-2002 Credit sales 47,77,48 Average debtors 18,49,35 Debtors turnover  2.5 times ratio Debt collection 146 days period

2002-2003 55,21,33 19,05,76 2.8 times

2003-2004 74,87,36 19,51,56 3.8 times

2004 -2005 68,09,78 23,06,67 2.9 times

130 days

96 days

125 days

COMMENTS: Debtor’s turnover ratio is alternative known as “ Accounts Receivable Turno Turnover ver Ratio Ratio”. ”. This This ratio ratio meas measure ures s the the colle collect ctibi ibilit lity y of debt debtors ors & other  other  accou accounts nts receiv receivab able, le, it mean means s the the rate rate at which which the the trade trade debts debts are being being collected. The Debtors turnover ratio of 2.5 indicates that the debtors are being turned over 2.5 times during the year. It means that the credit cycle of debtors makes 2.5 rounds during the year. It helps to workout the debt collection collection period i.e. 146 days [365/ 2.5 = 146]. This indicates that it take146 days on an average for the debtors to be settled. Debt collection period indicates indicates the duration of the credit cycle of the debtors. The Debtors turnover ratio is almost same during the year 2001-2002 to 2004-2005, which indicates that the debts are being collected at a fast speed during the year. The operating cycle of the debtors is short. In other words the debts collection period is short which result into less chance of bad debts.

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SUMMARY OF FINANCIAL POSITION OF APLAB LIMITED After going through the various ratios, I would like to state that: •

The short-term solvency of the company is quite satisfactory.

•

Immediate solvency position of the company is also quite satisfactory. The company can meet its urgent obligations immediately.

•

Credit policies are effective.

•

Over all profitability position of the company is quite satisfactory.

•

Stock turnover rate is satisfactory. Stock of the company is moving fast in the market.

•

The company is paying promptly to the suppliers.

•

The return on capital employed is satisfactory.

The management should take care of inventory management and speed up the movement of stock. Effective selling technique or product modification may be adopted to face the competitors and to improve the financial position of the company by taking appropriate decisions.

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CONCLUSION: The focus of financial analysis is on key figures contained in the financial statem statement ents s and and the the signif signific icant ant relat relation ionsh ship ip that that exits exits.. The The relia reliabil bility ity and and significance attach to the ratios will largely on hinge upon the quality of data on which they are best. They are as good for as bad as the data it self. Financ Financial ial ratios ratios are are a usefu usefull by produ product ct of finan financia ciall statem statemen entt and provide provide standard standardized ized measure measures s of firms firms financia financiall positio position, n, profita profitabili bility ty and riskiness. It is an important and powerful tool in the hands of financial analyst. By calc calcul ulat atin ing g one one or othe otherr rati ratio o or grou group p of rati ratios os he can can anal analyz yze e the the performance of a firm from the different point of view. The ratio analysis can help in understanding the liquidity and short-term solvency of the firm, particularly for the trade creditors and banks. Long-term solvency position as measured by different debt ratios can help a debt investor  or financial institutions to evaluate the degree of financial risk. The operational efficiency of the firm in utilizing its assets to generate profits can be assessed on the basis of different turnover ratios. The profitability of the firm can be analyzed with the help of profitability ratios. However the ratio analyses suffers from different limitations also. The ratios need not be taken for granted and accepted at face values. These ratios are numerous numerous and there are wide wide spread spread variations variations in the same measure measure.. Ratios generally generally do the work of diagnosing a problem only and failed to provide the solution to the problem.

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BIBLIOGRAPHY

REFERENCE BOOKS – 

FINANCIAL MANAGEMENT Theory, Concepts & problems R.P.RUSTAGI



FINANCIAL MANAGEMENT Text and problems M.Y. KHAN AND P. K. JAIN



MANAGEMENT ACCOUNTING AINAPURE



FINANCIAL MANAGEMENT L.N. CHOPDE D.N. CHOUDHARI S.L. CHOPDE

ANAUAL REPORTS OF APLAB LIMITED    

2001-2002 2002-2003 2003-2004 2004-2005

WEBSIDES 

www.bizd.ac.uk/compfact/ratio



www.cecunc.org.com/business/financial



www.zeromillion.com.business/financial

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