CHAPTER – IV

ANALYSIS AND INTERPRETATION

Finance is the described as the lifeblood of industry and is a pre-requisite for

mobilizing real resource to organize the production and marketing. Depending on

the nature of activity to be financed the business requires short term, medium term

and long term funds. The term finance deals with procurement of funds, use of

funds, and distribution of funds. The three important managerial finance functions

are:

 finance decision

 investment decision

 dividend decision

In a broader sense, it is concerned with planning and controlling a firm’s financial

resource. Financial performance analysis means a process of evaluating

relationship between different components of financial statements to obtain a better

understanding of firms’ position and performance.

Financial statements are summarized reports of accounting transactions. It contains

summarized information of the firms affairs organized systematically. They are:

 Balance sheet

 Income statement

The term ‘financial analysis’, also known as ‘analysis and interpretation of

financial statements’, refers to the process of determining financial strengths and

weaknesses of the firm by establishing strategic relationship between the items of

the balance sheets, profit and loss account and other operative data.
CURRENT RATIO

This ratio compares the current assets with the current liabilities. It is also

known as ‘working capital ratio’ or ‘solvency ratio’. It is expressed in the form of pure

ratio.

Formula:

Current assets

Current Ratio = -----------------------------

Current Liabilities

TABLE 4.1

CURRENT RATIO

CURRENT CURRENT
YEAR RATIO
ASSETS LIABILITIES

2011-2012 19515662 9861890 1.98

2012-2013 30577047 24563196 1.24

2013-2014 53378941 37036483 1.44

2014-2015 70856806 46252683 1.53

2015-2016 82100660 55428218 1.48

2016-2017 105371156 80026348 1.32

2017-2018 120594545 101508744 1.19

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18.
INTERPRETATION:

According to the rule of Thumb the standard ratio is 2:1. The ratio of the

company is 1.98%, 1.24%, 1.44%, 1.53% 1.48%, 1.32% and 1.19% during the period

2011-12, 2012-13, 2013-14, and 2014-2015, 2015-16, 2016-17, and 2017-2018

respectively. The ratio of the company is below than the accepted standard, so the

company’s current ratio was not in good position when compared to the period 2011-

12.

CHART 4.1

CURRENT RATIO
 1.98

1.53 1.48
1.44
1.32
1.24 1.19
RATIO

YEAR

LIQUID RATIO

Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compares

the quick assets with the quick liabilities. It is expressed in the form of pure ratio. 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:

Liquid assets

Liquid Ratio = ---------------------------

Current liabilities

TABLE 4.2
 LIQUID RATIO

LIQUID CURRENT
YEAR RATIO
ASSETS LIABILITIES

2011-2012 1933412 9861890 0.20

2012-2013 2244685 24563196 0.09

2013-2014 2897982 37036483 0.08

2014-2015 3246897 46252683 0.07

2015-2016 3126675 55428218 0.06

2016-2017 5343463 80026348 0.07

2017-2018 4583498 101508744 0.05

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18.

INTERPRETATION:

According to the rule of Thumb the standard ratio is 1:1. The liquid ratio of the

company is 0.20%, 0.09%, 0.08%, 0.07% 0.06%, 0.07% and 0.05% during the period

2011-12, 2012-13, 2013-14, and 2014-15, 2015-16, 2016-17, and 2017-18 respectively.

The ratio of the company is below than the accepted standard, so the company’s Liquid

ratio was not in good position when compared to the period 2011-12.

CHART 4.2

LIQUID RATIO
 0.2

0.09
RATIO 0.08
0.07 0.07
0.06
0.05

YEAR

INVENTORY TURNOVER RATIO

It refers to the number of times the inventory is sold and replaced during the

accounting period. It reflects the efficiency of inventory management. The higher the

ratio, the more efficient is the management of inventories and vice versa.

Formula:

Net sales
Inventory Turnover Ratio = ----------------------------------
Average inventory at cost

Average Inventory at Cost = Opening Stock + Closing Stock

2
 TABLE 4.3

INVENTORY TURNOVER RATIO

AVERAGE
YEAR NET SALES INVENTORY RATIO
AT COST

2011-2012 19243672 6334454 3.04

2012-2013 47528562 7840480 6.06

2013-2014 91683185 21360655 4.29

2014-2015 142877561 13817776 10.34

2015-2016 209776689 15782635 13.29

2016-2017 261527577 18135753 14.42

2017-2018 318976518 20596540 15.49

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18

INTERPRETATION:

The above table indicates that the inventory turnover ratio during the period

2011-12, 2012-13, 2013-14, 2014-15,2015-16, 2016-17, and 2017-18 is 3.04%, 6.06%,

4.29%, 10.34%, 13.29%, 14.42%, 15.49% respectively. The company’s turnover keeps

on improving and except in the year 2012-13. So, the inventory turnover ratio of the

company was increasing nature.

CHART 4.3

INVENTORY TURNOVER RATIO

 15.49
14.42
13.29

10.34

6.06
3.04 4.29

YEAR

DEBTORS TURNOVER RATIO

It is calculated by dividing the net credit sales by average debtors outstanding

during the year. It measures the liquidity of a firm's debts. Net credit sales are the gross

credit sales minus returns, if any, from customers. Average debtors are the average of

debtors at the beginning and at the end of the year. This ratio shows how rapidly debts

are collected. The higher the debtors’ turnover ratio the better it is for the organization.

Formula:

Total sales

Debtors Turnover Ratio = -------------------------

Debtors
 TABLE 4.4

DEBTORS TURNOVER RATIO

YEAR TOTAL SALES DEBTORS RATIO

2011-2012 19243672 9866471 1.95

2012-2013 47528562 17113588 2.78

2013-2014 91683185 33456178 2.74

2014-2015 142877561 46425518 3.08

2015-2016 209776689 55719462 3.76

2016-2017 261527577 72358177 3.61

2017-2018 318976518 86572571 3.68

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18.

INTERPRETATION:

The above table indicates that the debtor’s turnover ratio during the period

2011-12, 2012-13, 2013-14, 2014-15, 2015-16, 2016-17,and 2017-18 is 1.95%, 2.78%,

2.74%, 3.08%, 3.76%, 3.61%, and 3.68%, respectively. So, the company’s debt

collection period was changing with respect to the changes happened in the inventory

turnover level.

CHART 4.4
 DEBTORS TURNOVER RATIO

3.76 3.68
3.61

3.08
2.78 2.74

1.95

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

YEAR

WORKING CAPITAL TURNOVER RATIO

Working Capital of a concern is directly related to sales. It indicates the

velocity of the utilization of net working capital. This ratio measures the efficiency

with which the working capital is being used by a firm. This ratio is calculated by

dividing net sales by net working capital.

Formula:

Working Capital Turnover Ratio = Net Sales

Net Working Capital
 TABLE 4.5

WORKING CAPITAL TURNOVER RATIO

NET
YEAR NET SALES WORKING RATIO
CAPTIAL

2011-2012 19243672 9653772 1.99

2012-2013 47528562 6013851 7.90

2013-2014 91683185 16342458 5.61

2014-2015 142877561 24604123 5.80

2015-2016 209776689 26672442 7.86

2016-2017 261527577 25344808 10.31

318976518 19085801 16.71

2017-2018

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18

INTERPRETATION

According to the rule of Thumb the standard ratio is 1:1. The working capital

turnover ratio of the company is 1.99%, 7.90%, 5.61%, 5.80% 7.86%, 10.31% and

16.71% respectively during the period 2011-12, 2012-13, 2013-14, and 2014-15, 2015-

16, 2016-17, and 2017-18 respectively. The ratio of the company is above than the

accepted standard, so the company’s working capital turnover ratio is good position

when compared to the period 2011-12.

CHART 4.5
 WORKING CAPITAL TURNOVER RATIO

2011-2012
4%

2012-2013
14%
2017-2018 2011-2012
30%
2012-2013

2013-2014 2013-2014
10% 2014-2015
2015-2016
2016-2017
2014-2015
10% 2017-2018
2016-2017
18%
2015-2016
14%

AVERAGE COLLECTION PERIOD

The average collection period represents the average number of days for which

a firm has to wait before its receivables are converted into cash. It can be

calculated as:

Formula:

Average Collection Period Ratio = No. Of Days

Debtors Turnover Ratio

TABLE 4.6
 AVERAGE COLLECTION PERIOD RATIO

DEBTORS
[Link] DAYS COLLECTION
YEAR TURNOVER
YEAR PERIOD
RATIO

2011-2012 365 1.95 187

2012-2013 366 2.78 131

2013-2014 365 2.74 133

2014-2015 365 3.08 118

2015-2016 365 3.76 97

2016-2017 366 3.61 101

2017-2018 365 3.68 99

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18

INTERPRETATION

In the above analysis the period is fluctuating throughout the study period. It
was at its highest in the year 2011-12, at 187 and the lowest in the year 2015-16 at 97.

CHART 4.6

AVERAGE COLLECTION PERIOD RATIO

 200 187

180
160
131 133
140
118
120 101
97 99
100
80
60
40
20
0

YEAR

NET PROFIT RATIO

This ratio indicates the overall efficiency of the firm in carrying out its business

activities. It indicates the relationship of net profit to sales. Net profit ratio is calculated

as

Formula:
Net Profit
Net Profit Ratio = ------------------------- * 100
Sales
 Net profit = Gross profit – administrative expenses, selling and distribution
expenses and finance expenses, including depreciation and other provisions.

TABLE 4.7

NET PROFIT RATIO

NET PROFIT
YEAR NET SALES RATIO
AFTER TAX

2011-2012 3918325 19243672 20

2012-2013 8784751 47528562 18

2013-2014 11162609 91683185 12

2014-2015 9080194 142877561 6

2015-2016 10492862 209776689 5

2016-2017 12472733 261527577 4

2017-2018 17972509 318976518 5

SOURCE: Computed from published annual reports of the company

from 2011-12 to 2017-18

INTERPRETATION:

In the above analysis the ratio is fluctuating throughout the study period. It

was at its highest in the year 2011-12at 20 and the lowest in the year 2016-17 at

4.

CHART 4.7
 NET PROFIT RATIO

20
20
18
18

16

14
12
12
RATIO

10

8
6
6 5 5
4
4

YEAR

ABSOLUTE LIQUID RATIO

Absolute liquid ratio is calculated by taking liquid assets such as cash & bank

balance and short term investment and current liabilities such as bank overdraft. Hence

it is useful for the organization for the immediate arrangement of cash.

Formula:
 A L R = Cash & Bank / Current liabilities

TABLE 4.8

ABSOLUTE LIQUID RATIO

YEAR CASH &BANK CURRENT RATIO

LIABILITIES

2011-2012 1933412 9861890 0.19

2012-2013 2244685 24563196 0.09

2013-2014 2897982 37036483 0.07

2014-2015 3246897 46252683 0.07

2015-2016 3126675 55428218 0.05

2016-2017 5343463 80026348 0.06

2017-2018 4583498 101508744 0.04

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18

INTERPRETATION:

In the above analysis the ratio is fluctuating throughout the study

period. It was at its highest in the year 2010-11, at 0.19 and the lowest in the
year 2016-17at 0.04.
 CHART 4.8

ABSOLUTE LIQUID RATIO

0.19
0.2

0.15
RATIO

0.09
0.1 0.07 0.07
0.05 0.06
0.04
0.05

YEAR

INVENTORY TO SALES RATIO

The inventory to sales ratio looks at investment in inventory in relation to monthly

sales amount. The inventory to sales ratio helps you identify recent increases in

inventory. In contrast, the average inventory investment period may only report

inventory information from the previous year, if that was the was the only information

available to calculate the period.

Formula :
Inventory to sales = Inventory
Sales
Where,
Sales = annual sales in a year
Inventory = opening stock + closing stock
2

TABLE 4.9

INVENTORY TO SALES RATIO

YEAR INVENTORY SALES RATIO

2011-2012 6334453 19243672 0.32

2012-2013 7840479 47528562 0.16

2013-2014 10680327 91683185 0.11

2014-2015 13817776 142877561 0.09

2015-2016 15782634 209776689 0.07

2016-2017 18135752 261527577 0.06

2017-2018 20596539 318976518 0.07

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18

INTERPRETATION:

In the above analysis the ratio is fluctuating throughout the study

period. It was at its highest in the year 2011-12, at 0.32 and the lowest in the

year 2016-17 at 0.06.

 CHART 4.9

INVENTORY TO SALES RATIO

8% 7% 2011-2012
8%
36% 2012-2013
2013-2014
14% 18% 2014-2015
10%
2015-2016
2016-2017
2017-2018

CAPITAL TURNOVER RATIO

Managerial efficiency is also calculated by establishing the relationship between cost

of sales or sales with the amount of capital invested in the business

Formula

Capital turnover ratio = Sales

Capital employed

Where,
Sales = annual sales of the company

Capital employed= total assets – current liabilities

 TABLE 4.10

CAPITAL TURNOVER RATIO

CAPITAL
YEAR SALES RATIO
EMPLOYED

2011-2012 19243672 10637068 1.80

2012-2013 47528562 23271952 2.04

2013-2014 91683185 31441529 2.91

2014-2015 142877561 38604374 3.70

2015-2016 209776689 51830397 4.04

2016-2617 261527577 47756535 5.47

2017-2018 318776518 45655012 6.98

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18

INTERPRETATION:

The above table indicates that the capital turnover ratio during the period 2011-

12, 2012-13, 2013-14, 2014-15,2015-16, 2016-17, and 2017-18 is 1.80%,

2.04%, 2.91%, 3.70%, 4.04%, 5.47%, 6.98% respectively. The company’s

turnover keeps on improving. In the capital turnover ratio of the company was

increasing nature.
 CHART 4.10

CAPITAL TURNOVER RATIO

7 6.98

6
5.47
5
RATIO

4 4.04
3.7
3 2.91

2 2.04
1.8

YEAR

FIXED ASSETS TURNOVER RATIO

These ratios express the number of times fixed asset are being turned over in a

stated period. It also indicated the adequacy of sales is sales is relation to the relation to

the investment in fixed assets. It shows whether fixed assets are being efficiency used or

not. A higher rate shows efficient utilization of fixed assets.

Formula:
Turnover
Fixed assets turnover ratio =
Net Fixed Assets
 TABLE 4.11

FIXED ASSET TURNOVER RATIO

YEAR SALES FIXED ASSET RATIO

2011-2012 19243672 19586337 0.98

2012-2013 47528562 45993586 1.03

2013-2014 91683185 65638557 1.39

2014-2015 142877561 80903585 1.76

2015-2016 209776689 102247636 2.05

2016-2017 261527577 121603365 2.15

2017-2018 318776518 139913284 2.27

SOURCE: Computed from published annual reports of the company

from 2011-12 to 2017-18

INTERPRETATION:

According to the rule of Thumb the standard ratio is 2:1. The ratio of the

company is 0.98%, 1.03%, 1.39%, 1.76% 2.05%, 2.15% and 2.27% respectively

during the period 2011-12, 2012-13,2013-14, and 2014-15, 2015-16, 2016-17,

and 2017-18 respectively. The ratio of the company is above than the accepted

standard, so the company’s fixed asset turnover ratio is normal position when

compared to the period 2011-12.

 CHART4.11

FIXED ASSET TURNOVER RATIO

2.27
2.15
2.05
1.76
1.39
1.03
0.98

2011-2012 2012- 2013- 2014- 2015- 2016- 2017-

2013 2014 2015 2016 2017 2018
YEAR

WORKING CAPITAL TO TOTAL ASSETS RATIO

The working capital/total assets ratio, frequently found in studies of corporate

problems, is a measure of the net liquid assets of the firm relative to the total

capitalization. Working capital is defined as the difference between current assets and

current liabilities. Liquidity and size characteristics are explicitly considered.

Ordinarily, a firm experiencing consistent operating losses will have shrinking current

assets in relation to total assets. Of the three liquidity ratios evaluated, this one proved

to be the most valuable.

 TABLE 4.12

WORKING CAPITAL TO TOTAL ASSETS RATIO

WORKING RATIO (IN

YEAR TOTAL ASSETS
CAPITAL TIMES)

2011-2012 9653772 40014620 0.241

2012-2013 6013851 78412195 0.077

2013-2014 16342458 121856953 0.134

2014-2015 24604123 155713863 0.158

2015-2016 26672442 189359275 0.141

2016-2017 25344808 233154039 0.109

2017-2018 19085801 267758301 0.071

SOURCE: Computed from published annual reports of the company from

2011-12 to 2017-18

INTERPRETATION:

In the above analysis the ratio is fluctuating throughout the study period.

It was at its highest in the year 2011-12, at 0.241 and the lowest in the year

2016-17 at 0.071.
 CHART 4.12

WORKING CAPITAL TO TOTAL ASSETS RATIO

0.3

0.25
0.241

0.2
RATIO

0.158
0.15
0.141
0.134

0.109
0.1

0.077
0.071
0.05

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

RETAINED EARNINGS TO TOTAL ASSETS RATIO

Retained earnings are the account which reports the total amount of reinvested

earning or losses of a firm over its entire life. The account is also referred to as earned

surplus. It should be noted that the retained earnings account is subject to

"manipulation" via corporate Quasi-reorganizations and stock dividend declarations.

For example, a relatively young firm will probably show a low RE/TA ratio because it

has not had time to build up its cumulative profits.

 TABLE 4.13

RETAINED EARNINGS TO TOTAL ASSETS RATIO

RETAINED RATIO (IN

YEAR TOTAL ASSETS
EARNINGS TIMES)

2011-2012 9231836 40014620 0.231

2012-2013 18032890 78412195 0.229

2013-2014 25495021 121856953 0.209

2014-2015 29231816 155713863 0.188

2015-2016 39560680 189359275 0.209

2016-2017 44839875 233154039 0.192

2017-2018 51714031 267758301 0.193

SOURCE: Computed from published annual reports of the company

from 2011-12to 2017-18

INTERPRETATION:

In the above analysis the ratio is fluctuating throughout the study period.

It was at its highest in the year 2011-12, at 0.231 and the lowest in the year

2014-15 at 0.188.
 CHART 4.13

RETAINED EARNINGS TO TOTAL ASSETS RATIO

0.231 0.229
0.209 0.209
0.188 0.192 0.193

YEAR

EBIT TO TOTAL ASSETS RATIO

This ratio is a measure of the true productivity of the firm’s assets, independent

of any tax or leverage factors. Since a firm’s ultimate existence is based on the earning

power of its assets, this ratio appears to be particularly appropriate for studies dealing

with corporate failure. Furthermore, insolvency in a bankrupt sense occurs when the

total liabilities exceed a fair valuation of the firm’s assets with value determined by the
earning power of the assets. As wewill show, this ratio continually outperforms other

profitability measures, including cash flow.

TABLE 4.14

EBIT TO TOTAL ASSETS RATIO

RETAINED RATIO (IN

YEAR TOTAL ASSETS
EARNINGS TIMES)

2011-2012 7173389 40014620 0.179

2012-2013 15244113 78412195 0.194

2013-2014 20474434 121856953 0.168

2014-2015 33589704 155713863 0.216

2015-2016 67636829 189359275 0.357

2016-2017 66630779 233154039 0.286

2017-2018 87678570 267758301 0.327

SOURCE: Computed from published annual reports of the company

from 2011-12 to 2017-18

INTERPRETATION:

In the above analysis the ratio is fluctuating throughout the study period.

It was at its highest in the year 2015-16 at 0.357 and the lowest in the year 2013-

14 at 0.168.
 CHART 4.14

EBIT TO TOTAL ASSETS RATIO

0%
2011-
0% 2012
2012-
10% 2013
19%
2013-
11% 2014
2014-
2015
17% 10% 2015-
2016

12%
21%

RECIPROCAL OF DEBT-EQUITY RATIO

Debt-Equity ratio develops the relationship between owned funds and the

borrowed funds. This reflects the extent to which borrowed capital is used in place of

equity capital. Business firms acquire assets both with owners and creditors funds. The

larger portion of the funds provided by the owners, the less risk is assumed by creditors.

The debt-equity ratio is worked out as:

Total Debt
Debt − Equity Ratio =
Sharehlder′s fund
 TABLE 4.15

RECIPROCAL OF DEBT-EQUITY RATIO

OUTSIDERS SHAREHOLDERS RATIO (IN

YEAR
FUNDS FUNDS TIMES)

2011-2012 9861890 22667444 0.435

2012-2013 24563196 33381927 0.736

2013-2014 37036483 50675922 0.731

2014-2015 46252683 60495143 0.765

2015-2016 55428218 87245961 0.635

2016-2017 80026348 105821063 0.756

2017-2018 101508744 122484810 0.829

SOURCE: Computed from published annual reports of the company

from 2011-12 to 2017 -18

INTERPRETATION:

In the above analysis the ratio is fluctuating throughout the study period.

It was at its highest in the year 2017-18, at 0.829 and the lowest in the year

2011-12 at 0.435.
 CHART 4.15

RECIPROCAL OF DEBT-EQUITY RATIO

2017-2018
0.829

2016-2017
0.756

2015-2016
0.635

2014-2015
0.765

2013-2014
0.731

2012-2013
0.736

2011-2012
0.435
YEAR

SALES TO TOTAL ASSETS RATIO

The capital-turnover ratio is a standard financial ratio illustrating the sales

generating ability of the assets. It is one measure of management’s capacity in dealing

with competitive conditions. This final ratio is quite important because it is the least

significant ratio on an individual basis. In fact, based on the uni variate statistical

significance test, it would not have appeared at all. However, because of its unique
relationship to other variables in the model, the sales/total assets ratio ranks second in

its contribution to the overall discriminating ability of the model.

TABLE 4.16

SALES TO TOTAL ASSETS RATIO

RATIO (IN
YEAR SALES TOTAL ASSETS
TIMES)

2011-2012 19243672 40014620 0.481

2012-20133 47528562 78412195 0.606

2013-2014 91683185 121856953 0.752

2014-2015 142877561 155713863 0.918

2015-2016 209776689 189359275 1.108

2016-2017 261527577 233154039 1.122

2017-2018 318976518 267758301 1.191

SOURCE: Computed from published annual reports of the company

from 2011-12 to 2017-18

INTERPRETATION:

In the above analysis the ratio is fluctuating throughout the study

period. It was at its highest in the year 2017-18, at 1.191 and the lowest in the

year 2011-12 at 0.481.

 CHART 4.16

SALES TO TOTAL ASSETS RATIO

1.191
1.2 1.108 1.122

1 0.918

0.8 0.752

0.606
RATIO

0.6
0.481

0.4

0.2

YEAR