A STUDY ON

FINANCIALPERFORMACE
A CASE STUDY ON BHARATHI SOAP WORKS Ltd.

A Project Report Submitted to the KRISHNA UNIVERSITY (KU) in partial fulfillment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

BY

G. SRIKANTH
(Regd No:Y11MBA134079)

G. DAVID RAJU MBA., M.Phil.

Asst Professor

Under the Guidance of

Dept. of Business Administration KBN College-PG Center, Vijayawada.

K.B.N COLLEGE P.G CENTRE

(Affiliated to Krishna University) VIJAYAWADA-520001
2011-13

DECLARATION
1

I affirm that the project work titled A STUDY ON FINANCIAL PERFORMANE OF BHARATHI SOAP WORKS LTD,GUNTUR being submitted by me to the Department of Business Adminstration of KBN COLLEGE PG CENTRE (Affiliated to Krishna University),Vijayawada, under the guidance of Mr.G.DAVID RAJU,
MBA, M.Phil, (Ph.D),

is my

own work and has not been submitted to any other University/Institution Degree/Diploma. for the award of any

Signature of the Candidate GUDAPATI.SRIKANTH Regd.No:Y11MBA134079

Station :VIJAYAWADA Date :

BONAFIDE CERTIFICATE
This is to certify that the project entitled A STUDY ON FINANCIAL PERFORMANE OF BHARATHI SOAP WORKS LTD, GUNTUR is the bonafide record of project work done by Mr. G.SRIKANTH Regd.No: Y11MBA134079 of MBA during the year 2011-13

Signature Head of the Department

Signature PROJECT GUIDE

Submitted for the Project Viva-Voce examination held on______________

INTERNAL EXAMINER EXAMINER

EXTERNAL

ACKNOWLEDGEMENT
I owe a great many thanks to a great many people who helped and supported me during the project work and writing the report.

I am grateful Dr Y.Narsimha Rao, M.Com, Ph.D., Director, KBN College P.G.Centre,Vijayawada , for permitting me to undergo summer training for a period of month in BHARATHI SOAP WORKS Ltd, GUNTUR.

My deepest thanks to
Assistant professor.

G.DAVID RAJU,

MBA, M.Phil, (Ph.D),

the Guide of the project for guiding and

correcting various documents of mine with attention and care. He has taken pain to go through the project and make necessary correction as and when needed

My deep sense of gratitude to

Mr.MANIKYAVELU,MD .,

[BHARATHI SOAP WORKS LTD.,] support and guidance of

MR.Subramanyam&MR.Ramarao.Thanks and appreciation

to the helpful people at [BHARATHI SOAP WORKS LTD.,], for their support.

I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishes.

Name & Signature of the Candidate

4

LIST OF TABLES
TABLE NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 TABLE NAME PAGE NO 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91

Current ratio Quick ratio Cash ratio Debt capital ratio To debt to total assets ratio Proprietory ratio Inventory turnover ratio Debtor turnover ratio Debtor collection period Fixed assets turnover ratio Working capital turnover ratio Total assets turnover ratio Gross profit ratio Net profit ratio Return on investment Return on equity

LIST OF GRAPHS

TABLE NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

GRAPH NAME

Current ratio Quick ratio Cash ratio Debt capital ratio To debt to total assets ratio Proprietory ratio Inventory turnover ratio Debtor turnover ratio Debtor collection period Fixed assets turnover ratio Working capital turnover ratio Total assets turnover ratio Gross profit ratio Net profit ratio Return on investment Return on equity

PAGE NO 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92

CONTENTS
CHAPTER NO NAME OF THE CHAPTER PAGE

CHAPTER NO I

INTRODUCTION Objectivs of Study Need of the Study Scope of the study Methodology of the study Limitations of the Study

CHAPTER NO II

INDUSTRY PROFILE

14

CHAPTER NO III

COMPANY PROFILE

34

CHAPTER NO IV

THERIOTICAL FRAME WORK

44

CHAPTER NO V

DATA ANALYSIS & INTERPRETATION 59

CHAPTER NO VI

FINDINGS, SUGGESTIONS CONCLUSION

93

BIBLIOGRAPHY

100

CHAPER-I

INTRODUCTION

RATIO ANALYSIS
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INTRODUCTION OF RATIO ANALYSIS:

Ratio analysis is the process of determining and interpreting numerical relationship based on financial statements. A ratio is a statistical yard stick that provides a measure of the relationship between variables of figures. Thus relationship can be expressed as a percentage on as quotient.

Ratio analysis is a powerful tool of financial analysis. In finance analysis ratio is used as a bench mark of a firm. The absolute accounting figures reported in the financial statements do provide a meaning full understanding of the performance and financial position of the firm. Ratio help summarize large quantities of financial data and to make qualitative judgment about the firms financial performances. Ratio analysis is the systematic use of ratio to interpret the Financial Statement so that the strength and weakness of a firm as well as its historical performance and current financial position can be determined. The relational of ratio analysis lies in the fact that it makes related information comparable. A single figure by it self has no meaning but when expressed in terms of related figure. It yields significant inferences.

Meaning of Ratio: A ratio is a comparison of the numerator with the

denominator. In other words, ratio expresses the significant relation ship between two figures. A percentage is also a ratio multiplies by 100.

The most common ratios which indicate the extent of liquidity of lack of it are the following. 1. Current ratio 2. Quick ratio 3. Cash ratio
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4. Net working capital ratio

OBJECTIVES OF THE STUDY:Following are the specific objectives of the present study: To study the financial position of the BHARATHI SOAP WORKS through ratios. To present the theoretical frame work relating to ratio analysis. To know the simplifying accounting figures between the years To know operational efficiency of the BHARATHI SOAP WORKS To know the locating of weak spot of the Business To know the profitability position of BHARATHI SOAP WORKS To know short term solvency position and liquidity position of the BHARATHI SOAP WORKS. To offer findings, suggestions and conclusions of study.

METHODOLOGY OF THE STUDY:The study has been conducted in the BHARATHI SOAP WORKS to examine ration analysis in order to enquire into the issues like liquidity, timelines and Material Management. The study has been undertaken in the Accounting & Finance departments of the BHARATHI SOAP WORKS

Primary Data:

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The primary data is collected by discussions with the functional managers, officers, staff and other members of the BHARATHI SOAP WORKS

Secondary Data: The secondary data is obtained from annual report and financial statement that is balance sheet and profit and loss account, annual reports, journals, and other informational publications of the BHARATHI SOAP WORKS and from the text books of financial management.

Techniques of analysis & Interpretation:1. Comparative Financial Statement 2. Common Size Statement 3. Trend Percentage Analysis 4. Funds Flow Statement 5. Cash Flow Statement 6. Net Working Capital Analysis 7. Ratio Analysis

SCOPE OF THE STUDY:-

This project is as a reference guide or as a source of information. It gives the idea about the financial analysis of a firm. The main objective of the study was to the study was to put into practical the theoretical aspect of the study into real life work experience.
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 The study aims to study the liquidity position of the firm. Ratio analysis has been used to analyses the financial position of the firm. It deals with analysis an interpretation of data collected through the sources primary and secondary data. Graphs and diagrams and tabulation method are used to analyze and interpret the data collect.

LIMITATIONS OF THE STUDY:-

The study is subject to some limitations. The study is limited a set universe comprising of the five years samples The controllable constraints are over looked. The study is purely based on the secondary data records available in the company like balance sheets, profit and loss accounts and annual reports. All above Captioned limitations of ratio analysis are duly considered while making the ratio analysis of BHARATHI SOAP WORKS. There was no scope of gathering current information, as the auditing has not been done by time of project work.

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13

CHAPER-II

INDUSTRY PROFILE

INDUSTRY PROFILE

14

After expanding at a snails pace, the market for personal wash products appears to have come to grinding halt in 2001. After posting modest single digit growth in 1997-2000 figures for the first seven months suggest that market for detergent soaps has actually shrunk. Estimates about the extent of declines in market size vary, Hindustan lever, which straddles. The category with 60% market share by value, say the market shrunk by 4.5% in value terms in the first half of 2001. The Indian Soap and Detergent Manufactures Association, puts the decline at 1%. Other industry sources suggest that the extent of Degrowth in the first eight months of 2005 could be as high as 7%.

DEVELOPMENT OF THE DETERGENT INDUSTRY:-

Although the start of the synthetic detergent industry is not shrouded in the veils of history as were the beginnings of the soap industry, it is nevertheless not easy to pinpoint exactly when the detergent industry, as such, came into being. The primary problem is to decide exactly what is being referred to as a synthetic detergent. The term itself leads to confusion. In the INDIA the words surfactant or syndet are being used, whilst in Europe the term 'ten side' (for tensio-active material) is coming into fashion. But if the shrinking market size suggest that Indian consumers are actually been cutting back on their use of detergent soaps, This is not really the case. In volume terms, the market for detergent soaps has continued to show a growth of 10% in the first eight months of 2005

15

The major players have certainly managed to sell more detergent soaps by volume but price competition in the segment and slew of promotional campaigns have reduced the effective realization per unit sold. This has probably neutralized the gains from volume expansion.

DEFINITIONS:-

Many definitions of synthetic detergent have been proposed, all of which are very wide. The Comity International de Derives Tension Actives has after several years of deliberation agreed on the following definitions: Detergent: Product the formulation of which is specially devised to promote the development of detergency. Note: A detergent is a formulation comprising essential constituents (surface active agents) and subsidiary constituents (builders, boosters, fillers and auxiliaries). Surface Active Agent: Chemical compound which, when dissolved or dispersed in a liquid is preferentially absorbed at an interface, giving rise to a number of physic-chemical or chemical properties of practical interest. The molecule of the compound includes at least one group with an affinity for markedly polar surfaces, ensuring in most cases solubilization in water, and a group which has little affinity for water. Note: Compositions in general are usually mixtures of such compounds. Amphiphilic Product: Product comprising in its molecule, at the same time one or more hydrophilic groups and one or more hydrophobic groups. Note: surface active agents are amphiphilic products.

SYNTHETIC DETERGENTS:-

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The term "synthetic detergent" is used throughout this article, for a material which cleans (or is used for cleaning), but in this definition soap is not included. Even so, this is still a wide definition, because, of course, it can refer to the active ingredient, or the solid, liquid, paste or powder compounded from this active matter. However, this should not lead to confusion, as the industry itself as yet makes no distinction in terminology between the basic material and the ready-for-use product. The first synthetic detergents which fall into our definition of the term seem to have been developed by the Germans in the First World War period to allow fats to be utilized for other purposes. These detergents were of the short-chain alkyl naphthalene sulphonate type, made by coupling propyl or butyl alcohols with naphthalene and subsequent sulphonation, and appeared under the general name of Nekal. These products proved to be only fair to moderately good detergents, but good wetting agents and are still being produced in large quantities for use as textile auxiliaries. In the late 1920s and early 1930s long-chain alcohols were sulphonated and sold as the neutralized sodium salts without any further additions except for sodium sulphate as an extender. In the early 1930s long-chain alkyl aryl sulphonates with benzene as the aromatic nucleus, and the alkyl portion made from a kerosene fraction, appeared on the market in the USA. Again, these were available as the sodium salts extended with sodium sulphate. Both the alcohol sulphates and

the alkyl aryl sulphonates were sold as such as cleaning materials, but did not make any appreciable impression on the total market. At the end of the Second World War alkyl aryl sulphonates had almost completely swamped the sales of alcohol sulphates for the limited uses to which they were applied as general cleaning materials, but the alcohol

17

sulphates were making big inroads into the shampoo field. An exception was Teepol, a secondary alcohol sulphate which remained popular for some years. In common, however, with other chemical developments during this century, progress was not in one direction only. The limiting factor is always the availability of raw materials in a particular country. Con-currently with the above developments, there were developed, both in Germany and the USA, the lgepon type of compounds of which lgepon-T, the sodium salt of oleyl tauride is an example, and in Germany the Mersolates, which are alkane sulphates. In the United Kingdom, Teepol, a secondary olefine sulphate from petrochemical sources, was manufactured in large quantities and is still being produced in England and western Europe to this day. Each of these basic materials has its advantages and disadvantages, but in considering the feasibility of production the following factors must be taken into account.

Availability of raw materials; Ease of manufacture; Cost of raw materials; Cost of manufacture; Suitability of finished product.

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We have purposely placed suitability last, as it is only too true that not always is the best material made available. As a result of its ease of manufacture and versatility, the alkyl benzene sulphonate very quickly gained a foothold in the market, and after the last war the existing keryl benzene was very quickly replaced by an alkyl benzene made from propylene tetramer coupled to benzene (PT benzene). This PT benzene very quickly displaced all other basic detergents and for the period 1950-65 considerably more than half the detergents used throughout the world were based on this.

SYNTHETIC DETERGENTS PRODUCTION:-

To give an idea about the enormous rise in synthetic detergent production, Table-1 compiled from figures submitted by the American Soap and Detergent Association and the German firm of Henkel & Cie shows both soap and detergent sales in the USA for various years to 1972.

SALES TURNOVER IN INDIA:-

INDIA Soap and Detergent sales (Year)

100 0

Soap Sales 1000 tons 1410 1340 583

Synthetic 1000 tons 4.5 655 1645

sales

1940 1950 1960

19

1972 1982 1992 2002 2007

587 620 580 620 650

4448 4680 4580 4850 4900

GRAPHICAL REPRESENTATION OF SALES TURNOVER IN INDIA:-

20

6000 5000 4000 3000 2000

1000
0 1940 1950 1960 1970 1980 1990 2000 2007

These figures reveal that immediately after the Second World War synthetics started making inroads into the production of soap, which now seems to have settled down to a constant whereas synthetics have increased enormously.

By 1959 although the US per capita consumption had somewhat leveled out, total production was still rising as shown in Table 2 which has been compiled from the 1963 Census of Manufacturers by the Bureau of Census of the US Department of Commerce and from the Henkel figures
PRODUCTION OF DETERGENTS IN FIGURES:21

Comparative Production Figures for Synthetic Detergents

Domestic detergents (solid)

Domestic detergents (liquid )

1950 (1000 tons) 1960 (1000 tons)

1200 1425

354 640

1970 (1000 tons)

2672

1773

1980 (1000 tons)

3000

2228

1990 (1000 tons)

3780

2872

2000 (1000 tons)

4280

3287

2007 (1000 tons)

4500

3885

GRAPHICAL REPRESENTATION OF PRODUCTION TURNOVER IN INDIA:-

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5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1950 1960 1970 1980 1990 2000 2007
domestic detergents(liquid) domestic detergents(solid)

The broad picture that appears from Table 2 is that while solid detergents (among which of course powders are included) are making great strides forward, the liquid detergents are increasing at a much faster rate.

LOW PRICED BRANDS:-

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Industry player commonly attribute the de-growth in the soap market to down trading. Detergent soaps are the highest penetrated product with in the FMCG market, reaching an estimate 95% of the urban and 87% of the rural house holds. The fairly high contribution from the rural markets makes this category sensitive to the fortune of the agricultural economy. The prolonged drought in north and west of the country (until 2000) and the sharp fall in farm disposable income has probably persuaded low income house holds to the down trend, that is shift from high to low price brands. This is indeed supported by the fact that with in detergent soaps, it is the discount segment (soaps that cost between 5-10 per 75gms) that has registered the highest growth rate over the past years. HLL to appear to endorse the phenomenon of down trading. There has been an inter-spectral shift in the soap market, with consumer down trading from premium and popular to discount soaps explains the companys spokesperson. However Mr. Hosherder.K press Godrej consumer care, begs to differ We think consumers have already pre-committed there incomes for installments on durables. The substitution of soap with shampoos for hair wash has also impacted the growth he said.

MORE OFFERINGS:-

This is despite the fact that this usually sleepy category has seen a spate of new players debut new offers in recent times. Over
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the past couple of years, NIRMA has lunched a slew of low priced soaps under the banner of NIRMA. Henkel spik has made a maiden foray in to the market with a far range of detergent soaps. The market leader HLL to relaynced several detergent soaps.

WASHING IMPROVEMENTS:-

After the war, when detergents started appearing in appreciable quantities on the retail market, it was noted that white cotton goods were not being washed as white as they should be. This was explained by the fact that although the active material was able to lift the dirt from the cloth it could not keep it in suspension. Hence small spots of dirt were being re-deposited uniformly over the whole surface area of the cloth while in the wash-tub or machine, thus giving the cloth a grey appearance.
BETTER QUALITY:-

The crowded market place has also brought a few benefits to the consumer marketers of soap have tried to woo consumers through un graded offerings and better quality soaps. Aided by low input prices, the marketers of detergents have increased the content in their brands, to offer better quality soaps at a low price. Industry watchers say the content in some brands has risen from 50-60% of earlier to 70%of late. Therefore, per unit realization an soaps have declined, the marketers of soap have actually sacrificed a part of their margins on hiking the content.
TOUGH TIMES A HEAD:-

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With competitive pressures on the rise and a large number of brands jostling for consumer attention in sluggish market likely to remain a different one for most players. Smaller players such as Godrej Consumer and Henkel Spic have been in a position to report rebust sales growth in the category over the past years despite the bruising competition. However, this is partly due to a relatively small base of comparison. Unless the market expands, the frenetic promotional activity may soon tell on the growth rate of players. And when it comes to sustaining a high decibel promotional campaign, HLLs size certainly gives is the where withal to do it.

RURAL REVIVAL:-

It appears that a genuine boost to the market size for detergent soaps will still have to come from a survival in rural demand. Evidence from the past does appear to suggest that a sharp rise in rural incomes would have a cascading affect on market in 1999, after a year of sluggish growth in 1998, demonstrated that a recovery in agricultural output does have on indirect impact on sales volumes of FMCG products. This year, reports of a good monsoon in the northern & western parts of the country have sparked off speculation about a revival in FMCG growth rates. The fact these two regions account for 60% of the demand for FMCG strengthens this agreement.

26

However, it appears to be a bit early in the day to call it revival. For one, while the northern & western regions have received satisfactory rein, southern India has been the victim of very erratic monsoon. Second, given that the good monsoon in the current year succeeds two or three consecutive years of drought in some regions, there could be a substantial time tag before higher rural incomes translates into better FMCG demand. Third, farm product prices have dropped sharply in response to built up of surplus grain stocks. Therefore, even if a good monsoon translate into agricultural output, there is the question of

whether this will actually expand or shrink farm incomes. These factors suggest that it may be premature to take investment exposures in companies focused on detergent soaps in the hope of revival. If may be better to wait for concrete signs of o pickup in rural demand, which is certainly some way off.
THE SOAP MARKET; NOT EXACTLY BUILDING:Year 2003 2004 2005 2006 2007 Volume 4,32,254.00 4,48,141.00 4,56,040.00 4,71,000.00 4,98,800.00 Growth(%) 3.6 3.7 1.8 3.3 4.8 Realization(Rs/tons) 46,237.00 52,155.00 53,443.00 56,203.00 56,320.00 Growth(%) 10.5 12.8 2.5 5.2 0.2

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CARBOXYMETHYLCELLULOSE (CMC):-

The sodium salt of carboxymethylcellulose (CMC) had been known to industry for many years and, in fact, a French patent had been applied for in 1936,1 using CMC as an additive to washing materials. However, this patent was not developed extensively until the Second World War, when CMC was used in Germany on a moderately large scale, initially as an extender for soap which was in short supply, and then as an additive to the synthetic detergents being produced as a wartime substitute for soaps. When intelligence reports on the German industry were published, the use of CMC as an additive to synthetic detergent powders was noted and investigated and it was found that this addition eliminated the redeposit ion problem.

BUILDERS:-

Despite the considerable advances made in the production of the active detergent matter, by the end of the Second World War progress in the use of detergents for heavy-duty (cotton) washing was still relatively slow, although they had already displaced soaps to a considerable extent in the field of fine laundering and dish-washing. To improve the heavy-duty washing properties,

manufacturers turned for analogies to the soap industry. Soap for cotton washing had for many years been 'built' with alkaline materials such as carbonates, silicates, borax, and orthophosphates. All of these singly and in combination were tried with moderate success.
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Condensed phosphates had started appearing on the market in increasing quantities and from 1947 onwards heavy-duty detergent formulations were introduced, initially with tetra sodium pyrophosphate and then with sodium tripolyphosphate with startling success.
PRODUCTION OF SODIUM TRIPOLYPHOSPHATE:-

Tons 1947 1950 1959 1964 1967 1970 1972 1974 1984 1994 102,000 280,000 700,000 80,000,000 95,000,000 109,000,000 94,000,000 82,000,000 90,000,000 100,000,000

DATA: Taken from the INDIAN Department of Commerce figures It will be noted that there is a falling off after 1970. The reason is a combination of restrictions on and opposition to the use of phosphates, and also international shortages of raw materials.
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ENVIRONMENTAL ISSUES:-

Propylene tetramer benzene sulphonate held almost undisputed sway as the major ingredient used in washing operations till the early 1960s. Around this time it was noted, however, that sewage treatment problems were arising. The amount of foam on rivers was increasing and where water was being drawn from wells located close to household discharge points, the water tended to foam when coming out of the tap. This was attributed to the fact that propylene-based alkyl benzene sulphonates are not completely degraded by the bacteria naturally present in effluents, and was further narrowed down to the fact that it is the branched-chain formation of the alkyl benzene which hinders the attack by the bacteria. However, fatty acid sulphates were found to degrade very easily, and since all naturally occurring fatty acids from which fatty alcohols are produced are of the straight-chain variety (as also are the Ziegier alcohols which started appearing in commercial quantities at about this time), it seemed possible that a straight-chain alkyl benzene might be degradable. Methods of test were developed and it was, in fact, proved that linear alkyl benzene is biodegradable. Germany introduced legislation prohibiting the discharge of non-biologically degradable material into sewer systems. In the USA detergent manufacturers agreed voluntarily to switch over from PT benzene to linear alkyl benzene by June 1965. In the United Kingdom a similar type of 'gentleman's agreement' was entered into.

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The change to linear alkyl benzene (which can be considered as a return to a purified form of the keryl benzene in use twenty years previously) gave some rather surprising results. It was found that the detergency in a heavy-duty formulation using linear alkyl benzene sulphonate was approximately 10 per cent better than when using PT benzene sulphonate, solutions of the neutralized sulphonic acid had a lower cloud point, and pastes and slurries had a lower viscosity. The first two results were obviously advantageous and a lower viscosity in slurries had an advantage when the product was spray-dried to a powder, but when the LAS was sold as a liquid or paste detergent, this lower viscosity had to be overcome as sales appeal was lost. The manufacture of powders based on LAS posed some problems, however. Powders became sticky and lost their free-flowing characteristics, whether made by spray-drying or one of the other methods. Mouser and Rainer' have indicated that the actual isomer distribution of the linear alkalyte has an effect on the stickiness of the powder, with the 2-phenyl isomer giving the greatest tendency to stickiness and the 5or 6-phenyl isomer the least. Additives to overcome this tendency have therefore been developed. The switch to linear alkyl benzene is not, however, complete. In many parts of the world where the problem of sewage treatment is not serious, the PT benzene is still being used in ever-growing quantities. Also the Ziegler alcohols are now competitively priced with the linear alkyl benzenes, and alkane sulphonates are reappearing. Having successfully coped with the problem of biodegradation the industry faced a new attack. It appeared that in certain lakes and ponds algae started reproducing at an unprecedented rate. This was blamed on the extensive use of phosphates which are a food for these organisms, and again the detergent industry became the whipping boy, because tremendous amounts of sodium tripolyphosphate are used and then discharged down the sewer. (The term eutrophication, meaning nutrition by chemical
31

means, has been applied to this phenomenon.) It is not clear whether the blame should be taken solely by the detergent industry, as concurrently with the increase in the use of detergent phosphates there was an increase in the use of phosphate fertilizers, which also find their way into natural water systems. However, with the big international preoccupation with ecology the detergent industry is searching for an efficient substitute for sodium tripolyphosphate. To date a complete replacement has not been found but in the Scandinavian countries particularly, formulations of household powders are beginning to appear with appreciable portions of the phosphate replaced by NTA (nitrilo triacetic acid) which is a better sequestering agent than tripolyphosphate but has none of the other properties exhibited by the phosphate. There are fears that in time the extended use of NTA might bring new problems of this sort, as it contains nitrogen which is again a good fertilizer and nutrient for algae. The search is still going on for a phosphate substitute. NTA on its own will only partially replace phosphates. A mixture of NTA and borax has been suggested as a complete replacement but here again the borax might produce more problems than the phosphate is alleged to produce. Some of the hydroxy-polycarboxylic acids not containing nitrogen are also being considered.

Enzymes:The biggest single revolutionary trend in the detergent industry in the latter years has been the use of enzyme additives. Enzymes as aids to washing are not new to the industry. Proteolytic enzymes had been tried as additives to washing powders in Germany in the 1920s with only moderate success and again in Switzerland in the 1930s. Enzymes, which can be called organic catalysts, tend to hasten reactions and the proteolytic enzymes convert or 'break down' proteins wholly or partially into amino acids. The action is rather slow
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and the production costs high, but with improved methods of production and purification, strains of enzymes, usually in admixture with a proportion of amylase which breaks down starches, were developed which were relatively fast acting. These were added initially to 'pre-soak' detergents and found immediate acceptance in the European countries where washing habits were such that washing was normally soaked for a period prior to the wash proper. Better and better strains of enzymes were developed, with stability to a wider pH spectrum, stability against perborate and quicker action. In the United States detergent manufacturers resisted the incorporation of enzymes into their powders for some years after this type of powder had almost completely swept the board in Europe but in 1968 enzymatic powders started appearing there as well. The position at present is that enzymatic powders are now holding a large proportion of the household detergent market and formulations appeared made for machine washing. Some washing-machine manufacturers are now producing automatic washing machines with a 'Bio' programme which allows the washing to remain in contact with the detergent solution for an extended period of time at a relatively low temperature before beginning the washing and heating cycle. The future of enzymes is at the moment obscure as the production of enzymatic powders has raised its own problems, and one Scandinavian firm has already decided to withdraw its powder containing enzymes from the market, but other large firms are taking enzymes out of some of their powders while forging ahead with others.

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CHAPER-III

COMPANY PROFILE

34

COMPANY PROFILE
SRI.A.MANICKAVEL, Proprietor of BHARATHI SOAP WORKS, came to GUNTUR in 1980 with 2000/- cash and brought some detergents cakes cases from CHENNAI by train and he sold the soaps by rickshaw canvassing door to door. He got good response in Guntur. Then he planed to start a factory at Guntur with a initial capital investment of 65000/- and started business on 8-7-1981 at Pothurivari thota, Maya bazaar, Guntur under the name and style of m/s BHARATHI SOAP WORKS. The industry was registered under small scale industries (SSI) unit with district industries centre, Guntur. In the initial stage he run his factory with 12 workers with manual labour. Later with his hard work he earned and shifted to Gorantla village, Guntur mandal in 1985. In the factory manickavel has introduced power mortars in Guntur for the first time. In the initial stage the products were sold only in prakasam district & Guntur district only. But, now with their commitment for the industry growth they worked a lot. The result of hard is the company has got a great reputation not only in Andhra Pradesh but also in remaining states of southern India. This is achieved by appointing salesmen at different areas. Through its management & staff coordination, it acquired a good position in the detergent industry.

GROWTH & EXPANSION OF BHARATHI SOAP WORKS:-

The company is expanding their performance day to day. They also implemented new machines to improve production capacity & they supplied
35

the goods in time. The company has expanded due to quality & quantity management. The initial works capital of company is Rs.65000/- but now it reached Rs.64,98,817/-(nearly hundred times of initial capital). This shows the staff coordination towards company objectives. The company has too increased its marketing & promotional activities when we go to reports of the company sales turnover. The report shows that company has increased sales to Rs.8,71,19,174/- when compared to 24,00,000/in the initial stage of the company.
PRODUCTS :SI NO BRAND NAME

1 2 3 4 5 6 7 8

BLUE DIAMOND MAGIC BHAVANI SUPER POWER BINKA SAREGAMA TRIPLE X ( XXX ) XXX RUF & TUF ( DISH WASH ) TRIPLE X DETERGENT POWDER

QUALITY OBJECTIVES OF ORGANISATION:-

To improve sales compared to last year To improve the consumer satisfaction level To reduce the wastage in production
36

 To update the knowledge of the employees To continually improve the process

QUALITY POLICY:-

The company has set a quality policy for better growth in the market by taking a edge over remaining organizations in the industry. The policy is: satisfy our costumer by providing quality and services to strive towards continual improvement of the company
SALES TURNOVER OF THE COMPANY:-

YEAR 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

PRODUCTS Detergents & powder Detergents & powder Detergents & powder Detergents & powder Detergents & powder Detergents & powder Detergents & powder

SALES TURNOVER(RS) 1,60,85,051.07 6,09,56,134.06 7,27,69,815.33 8,71,19,174.47 10,11,99,557.10 19,09,69,819.00 34,43,23,299.36

37

GRAPHICAL REPRESENTATION:-

400000000

350000000
300000000 250000000 200000000 150000000 100000000 50000000 0

M/S Bharathi Soap Works initially manufactured only medium products now they are manufacturing Premium, Economy quality products. To face competition by improving market share they introduced different types new brands and packing styles to suit the desires of the consumers.

38

The main aim of the company is to supply quality products to consumers. Quality is more important than profit. It is the key factor for the success of the company. The company stress upon the quality of the products rather than its profit margins. This motivational policy to earn huge market share at all places of southern India.
PRODUCTION CAPACITY:-

The company has an excellent production capacity. The present installed production capacity of the company is 35-40 Tons of detergent soaps per day and 20 Tons of detergents powder per day. The machines are operated according to the demand in the market in that particular situation.
WORKERS WELFARE:-

At present there are 76 workers at production department and 5 employees at office, 2 employees in the canteen and 17 employees as transport workers. The company provides complete assistance and facilities to the employees, workers dedicatedly contributed to increase its market share. The working environment brings about a pleasant atmosphere and enables the employees work dedicatedly. And also he is providing employment for mare than 1000 families in directly for marketing his products all over southern India.

39

ORGANIZATION STRUCTURE:-

The companys organization structure is as follows

FUTURE PLANNING:-

The company is planning to introduce quality liquid blue and toilet soaps in the short period.
ANNAM TRADERS:-

This is sister concern of the Bharathi soap works. The above firm was established in the year 1990. The main activities are sellers of detergent cakes, washing powder, chemicals, dates, salt, and other general goods. This firm also providing employment to nearly 100 families.

40

AWARDS WON BY THE COMPANY:-

The prestigious awards received by the MANAGING DIRECTOR of BSW are: Best entrepreneur for the year of 2004 received on 26th January 2005 from the hands of collector of the district A national award INDIRA GANDHI SADHBHAVANA for the year of 2005 received on 21st November 2005

SOCIAL ACTIVITIES:-

SRI.A.MANICKAVEL, managing director of Bharathi Soap Works is the hon. President of Tamil Cultural Association. The association main activity is to arrange and promote cultural programs to their association members and social services like distributing free note books, uniform to the poor students. This association also contributing the cyclone relief funds to chief minister of various state governments of southern INDIA. He is also president for the Nadargal Munnetra sangam. This sangam isrunning a school under the name of kamaraj public school at Tadepalle mandal of Guntur district. This school is providing good education to poor students who are financially week. He is also enjoying one more honorable post as president of WALC Foundation (welfare artificial limb centre). Under this foundation he is providing monetary support to this association to providing freely artificial limbs to the handicapped poor people. Manickavel is most populars social worker and philanthropist in Guntur. He is directly or indirectly helped, helping the needy, like missions

41

and charity institutions, orphanages, home for the aged mentally challenged persons. He is also helping through lions club and rotary club; by conducting free eye testing camps etc. He has also donated to natural calamity funds to all states in India regularly. Every year he has been donating educational funds for books, cloths, fees etc to poor children directly through Bala Bharathi in Guntur. He is also interested to participate in the spiritual, cultural and sports activities in the city and entire AP and donating the funds to the conductors & participants.
CERTIFIACTION:-

The details of the company quality management & quantity management, The Company have MOODY INTERNATIONAL CERTIFICATION for quality management. It is also an ISO 9001:2000 certification in its Excellency.
LOGO OF MAJOR BRAND IN THE COMPANY:-

42

CERTIFIED LOGO OF THE COMPANY:-

43

CHAPER-IV

theriotical frame work

44

THERIOTICAL FRAME WORK

Meaning of Ratio: A ratio is a comparison of the numerator with the

denominator. In other words, ratio expresses the significant relation ship between two figures. A percentage is also a ratio multiplies by 100.

The most common ratios which indicate the extent of liquidity of lack of it are the following. 5. Current ratio 6. Quick ratio 7. Cash ratio 8. Net working capital ratio

1.

CURRENT RATIO:
The current ratio is calculated by dividing current assets by current

liabilities. Current Assets Current ratio = -----------------Current Liabilities

The current assets of a firm represent those assets which can be converted into cash with in a short period of time, normally not exceeding one year and include cash and bank balances, marketable securities, inventory of raw material, semi-finished and finished goods, debtors, bill receivables and prepaid expenses.

45

Current liabilities include creditors, bills payable, accrued expenses short-term bank loan, income tax liability and long term debt maturing in the current year. The current ratio is a measure of the firms short term solvency. It indicates the ability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current liabilities.

2.

QUICK RATIO:
Quick ratio establishers a relationship between quick or liquid assets and

currents liabilities. An assets is liquid it can be converte4d into cash immediately on reasonable soon with out loss of value. Cash is the most liquid assets. Other assets that are considered to be relatively liquid and included in quick assets are debtors and bill receivable and marketable securities. Inventories are considered to be less liquid as they normally requires some time for realizing into cash and their value also has a tendency to fluctuate. The quick ratio is calculated by dividing quick assets by current liability. Quick Assets Quick ratio = ------------------------------------Current liabilities Quick ratio is a rigorous measure of a firm ability to service short term liabilities.

3. CASH RATIO:
Cash is the most liquid assets. Cash ratio is the ratio of cash and its equivalent to Current liabilities. Trade investment or marketable securities are equivalent of cash. Therefore, they may be included in the computation of cash ratio

46

Marketable securities Cash ratio or super quick ratio = ----------------------------------

Current liabilities

4. NET WORKING CAPITAL:

The difference between current assets and current liabilities excluding short-term Borrowings is called Net Working capital (NWC) or Net current assets(NCA).net working Capital measures the firms potential reservoir of funds. It is considered that between two Firms, the one having the larger net working capital has greater ability to meet its current Obligations. This is not necessarily so that measure of liquidity is a relationship, rather than the difference between assets and current liabilities. Net working capital Net working capital ratio = -----------------------------Net assets

LEVERAGE RATIOS:
Leverage refers to the use of debt finance Debt capital is a cheaper source of finance and it is also a risky source of finance leverage ratios help in assessing the risk arising from the use of debt capital. The short-term creditors like bankers and suppliers of raw materials are more concerned with the firms current debt paying ability. On the other hand long term creditors, like debenture holder, financial institutions etc are more concerned with the firms long-term financial institutions etc are more concerned with the firms long term financial strength. So, a firm should have a strong short as well as long term financial position. Financial

leverages of capital structure ratios are calculated to judge the long-term financial position of the firm. Leverage ratios indicate mix of fund provided by owners and lenders. There should be an approximate mix of debt and

owners equality in financing firms assets.

47

The use of debt is advantageous for shareholders in two ways. They can retain control of the firm with a limited stake. Their earnings will be magnified. When firm earns a rate of return on the total capital employed higher than the interest rate on the borrowed funds. However, if cost of debt is higher than the forms over all rate of return, the earnings of the share holders will be reduced. In addition, there is a threat of insolvency. Thus, use of debt magnifies the share holders earnings as well as increases their risk. A highly debt burdened firm will fund difficulty in raising funds from creditors and owners in future. Creditors treat the owners equity as a margin of safety. If the equity base is thin, the creditors risk will be high. Thus, leverage ratios are calculated to measure the financial risk and the firms ability of using debt to share holders advantage.

Leverage ratios are calculated from the balance sheet items to determine the proportion of debt in total financing. Leverage ratio is also computed from the profits and loss items by determining the extent to which operation profits are sufficient to cover the fixed charges. The following are the different leverage rations.

1. 2. 3. 4. 5.

Debt ratio Debt equity ratio Capital employed to net worth Interest coverage ratio Fixed charges coverage ratio.

1. Debt ratio:
Debt ratio is used to analyze the long-term solvency of a firm. It helps in knowing the proportion of the interest bearing debt in the capital structure.

48

Debt ratio is computed by dividing total debt by capital employed (CE) or Net Assets (NA). Total debt will include short and long-term borrowings from financial institutions, debentures bonds, deferred payment arrangement for buying capital equipment, bank borrowings, public deposits and any other interest bearing loan. Capital employed will include total debt and net worth. Debt ration = Debt ------------------------------Equity

2. Debt Equity Ratio: The debt equity ratio shows the relative contribution of creditors and owners debt equity ratio is measure of the long term financial solvency of a firm. This ratio indicated the relative proportions of debt and equity in The relation ship between outsiders clam and owners capital can be shown in different ways and accordingly, there are many variants of the debt equity ratio.

financing the assets of the firm.

One approach is to express the debt equity ratio in terms of the relative proportion of long-term debt and shareholders equity. Thus Long-term debt Debt equity ratio= ---------------------------Share holders equity

The debt considered here is exclusively of current liabilities. The share holders equity includes. Equity and preference share capital Past accumulated profits but excludes fictitious assets.

49

Another approach to the calculation of the debt equity ratio is to relate the total Debt to the share holders equity. Total debt Debt Equity Ration = -----------------------Shareholders Equity

3. Capital Employed to net worth:

This ratio is another way to express the basic relationship between debt and equity. Through this ratio one can know the amount of funds that are being contributed together by and owners for each rupee of the owners contribution.

Capital employed to net worth=

Capital employed -----------------------------------Net worth

ACTIVITY RATIOS:
Activity ratios are concerned with measuring the efficiency in asset management. These ratios are also called efficiency ratios or asset utilization ratios. The efficiency with which the assets are used would be reflected in the speed and rapidly with which assets are converted into sales. The greater is the rate of turnover or conversion, the more efficient is the utilization other things being equal. For this reason, such ratios are also designated as turnover ratios. Turnover is the primary mode for measuring the extent of efficient employment of assets by relating the assets to sales. An activity ratio may therefore be defined as a test of the relationship between sales and the various assets of a firm. Depending upon the various types of assets, there are various types of activity ratios.

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1.

Accounts Receivable Turnover Ratio:

A firm sells goods for cash and credit. Credit is used as a marketing tool

by a number of companies. When the firm extends credit to its customers accounts receivables (debtors) are created in the firms accounts. Debtors are expected to be converted into cash over a short period and therefore included in current assets. The liquidity position of the firm depends on the quality of debtors to a great extent.

Accounts receivable turn over indicates how many times accounts receivables turn over during year. Accounts receivable turn over is found out by dividing credit sales by averaged account receivables. Credit Sales Accounts Receivable Turnover = --------------------------------Average accounts receivables

2. Average collection period:

The average collection period represents the number of days worth credit sales that is locked in accounts receivables (Debtors). It measures the quality of debtors since it indicates the speed of their collection. The average collection period and accounts receivables turnover are related as follows. 365 Average Collection Period = -----------------------------------Accounts receivables turnover The average collection period may be compared with the firms credit terms to judge the efficiency of credit management.

51

The collection period Ratio helps in two aspects In determining the collect ability of debtors and thus, the efficiency of collection efforts and In ascertaining the firms comparative strength and advantage relative. To its credit policy and performance vis--vis the competitors credit policies and performance.

3. Fixed Assets Turnover:

Fixed Assets turnover ratio measures sales per rupee of investments in fixed assets. This ratio measures the efficiency with which fixed assets are employed. It is defined as Sales Fixed assets turn over = ------------------------------Fixed assets

4. Total Assets Turnover:

Assets are used to generate sales. A firm should manage its assets efficiency to maximize sales. The relation ship between sales and assets is called assets turnover. Assets turnover ratio is computed by dividing sales by total assets. Net Sales Total Assets turn over = ----------------------Total assets

D. Profitability Ratios:
A company should earn profits to survive and grow over a long period of time. Profitability reflects the final result of business operations. Profit must be earned to sustain the operation of the business to be able to funds from investors and for expansion and growth and to contribute toward social overheads for the welfare of the society.
52

Profits are the different between revenues and expenses over a period time. Profit is the ultimate output of the company and it will have no future it fails to make sufficient profits.

The Profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of return on their investment.

This is possible only when the company earns sufficient profits. Generally two types of profitability ratios are calculated.

1. 2.

Profitability in relation to sales. Profitability in relation to investment.

The profitability ratios are as follows Gross profit margin Net profit margin Operating expenses ratio Return on investment Return on equity Return on total assets Earnings per share Dividend per share Dividend pay out ratio Price earnings ratio

1.

Gross Profit Margin:

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The first profitability ratio in relation to sales is the gross profit margin. It is calculated by dividing the gross profit by sales. Gross profit Gross Profit margin = ----------------------- X 100
Net Sales Gross profit is the difference between net sales and cost of goods sold. The gross profit margin reflects the efficiency with which the management producers each unit of product. This ratio indicates the average spread between the cost of goods sold and sales revenue. Gross profit margin shows the margin left meeting manufacturing costs. It measures the efficiency if production well as pricing.

2. Net Profit Margin:

The net profit margin ratio is computed by dividing net profit by sales. Net Profit Net Profit margin = ----------------------- X 100 Net Sales

Net profit margin establishes a relationship between net profit and sales indicates managements efficiency in manufacturing administrating and selling the product. This ratio is the overall measure of the firms ability to turn each rupee sales into net profit. A net profit margin shows the earning left for shareholders as a percentage of net sales. This ratio also indicates the firms capacity to

withstand adverse economic conditions. Gross and net profit margin ratios provide a valuable understanding of the cost and profit structure of the firm and enable to identify the source of business efficiency / inefficiency.

3. Operating Expenses Ratio:

54

The operating expenses ratio is a yardstick of operating efficiency. This ratio is computed by dividing operating expenses by sales. Operating expenses Operating Expenses Ratio = ----------------------- X 100 Sales Operating expense include cost of goods sold plus selling expenses and general and administrative expenses. The operating ratio indicates the average

aggregate variations in expenses where some of the expenses may be increasing while others may be failing. Operating expenses ratio is effected to by a number of factors such as internal factors, employees, managerial efficiency and external uncontrollable factors.

4. Return on Investment:
The term investment may refer to total assets or net assets. The funds employed in net assets are known as a capital employed. Net assets net fixed assets plus current assets minus current liabilities excluding bank loans capital employed is equal to net worth plus debt. Return on investment is calculated by dividing earning before interest and tax by assets or capital employed. EBIT Return on investment (ROI) = ---------------------------------------Net assets (or) Capital employed

5. Return on Equity:
Return on equity is of great interest to equity shareholders. Ordinary shareholders are entitled to the residual profits. If rate of dividend is not fixed the earning may be distributed to shareholders or retained in the business. A return on shareholders equity is calculated to see the profitability of owners investment. The return on equity is net profit after taxes divided by share holders equity or net worth. Profit after taxes Return on Equity (ROE) = ------------------------------------55

Shareholder Funds The shareholders equity or net worth will include paid up share capital share premium and reserves and surplus less accumulated losses. Return on equity measures the profitability of equity funds invested in the firm. It is very important measure because of it reflects the productivity of the ownership capital employed in the form. It is influenced by several factors like earning power debt equity ratio and average cost of debt funds and tax rate.

6. Return on Total Assets (ROA) Ratio:

The profitability ratio is measured in terms of the relationship between net profits and assets. The Return on assets may also be called Profit to asset ratio. There various approach possible to define net profits and assets. Profit After taxes Return on Total Assets = ------------------------------- X 100 Total assets

The return on assets based on this ratio would be an under estimate as the interest paid the credit of is excluded form the net profits in point of fact the real return on total assets is the net earnings available to owners and interest as assets are financed by owners as well as creditors.

7. Earnings per share (EPS) Ratio:

Another way of measuring profitability of ordinary shareholders investment is earnings per share. The earnings per share are calculated by dividing the profit after taxes by the total number of ordinary shares out standing. Profit After taxes Earnings per Share (EPS) = --------------------------------------------Number of ordinary share outstanding

56

Earnings per share (EPS) simply shows the profitability of firm on a per share basis. It does not reflect how much is paid as dividend and how much is retained in the business. As a profitability index, earnings per share are a valuable and widely used ratio.

8. Dividend per share Ratio:

The net profit belongs to share holders but the income that they really receive is the amount is the amount of earnings distributed as cash dividends. Therefore large number of present and potential investors is dividend per share rather than earnings per share. Dividend per share (DPS) is the earning distributed to ordinary shareholders dividend by number of ordinary shares outstanding.

Earnings paid to share holders Dividend per Share (DPS) = ------------------------------------------------Number of ordinary shares outstanding

9. Dividend Payout Ratio:

Dividend Pay out ratio is dividend per share dividend by the earning per share. Dividend per share Pay out ratio = ---------------------------------Earnings per share

10. Price Earning Ratio:

Price Earnings ratio is the most popular financial statistic in stock market. It is widely used by the security analyst to value the firms

performance as expected by investors. It indicates investors judgment or expectations about the firms performance. The price earnings ratio is a summary measure which
57

primarily reflects the following factors, growth prospect, risk characteristics shareholders orientation, corporate image and degree of liquidity. The price Earnings ratio is defined as: Market price per share Price earning ratio = -----------------------------------Earnings per share

The market price per share may be the price prevailing on a certain day the average price over a period of time. The earnings per share are profit after taxes less preference dividend by the number of equity shares outstanding.

Diagnostic Role of Ratios:

The essence of the financial soundness of a company lies in balancing its goals. Commercial strategy and product market choices and resultant financial needs. The company should have financial capability and flexibility to pursue its commercial strategy. Ratio analysis is a very useful analytical technique to raise pertinent questions on a number of managerial issues. While accessing the financial health of the company with the relating to the companys profitability, assets utilization, liquidity, financing and strategies capabilities may be sough

58

CHAPER-V

DATA ANALYSIS & INTERPRETATION

59

DATA ANALYSIS & INTERPRETATION

CLASSIFICATION OF RATIOS: Classification from the point of Financial Management is as follows 1. 2. 3. 4. Liquidity Ratio Leverage Ratio Turnover Ratio Profitability Ratio

Liquidity ratio measure the firms ability to meet current obligations. Leverage ratios show the proportion of debt and equity in financing the firms assets; Activity ratios reflect the firms efficiency in utilizing its assets and profitability ratios measure overall performance and effectiveness of the firm. 1. LIQUIDITY RATIO:Liquidity refers to the ability of a firm to meet its obligations in the short run, usually one year. Liquidity ratios are generally based on

relationship between current assets (the sources for meeting short term obligations) and current liabilities. The important liquidity ratios are : current ratio, liquidity ratio etc.

a. CURRENT RATIO :
The current ratio is calculated by dividing current assets by current liabilities. Current assets include cash and those assets, which can be

converted into cash with in a year, such as marketable securities, debtors and inventories.

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Current liabilities include creditors, bills payable, accrued expenses, short term bank loans, income tax liability and long term debt maturing in current. Current Assets Current Ratio = Current Liabilities

CURRENT RATIO TABLE

TABLE-1 YEAR CURRENT ASSETS 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 4248.609 10199.538 14859.904 15550.534 24913.040 CURRENT LIABILITIES 5972.913 17079.226 19233.117 20264.866 32487.368 0.711 0.597 0.772 0.767 0.776 RATIO

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CURRENT RATIO

Barchart-1

100% 80% 60% 0.711 40% 20% 0% 2005-06 2006-07 2007-08 2008-09 2009-10 0.597 0.772 0.767 0.776 RATIO

INTERPRETATION: The company current ratio has been decreasing from year to year since 2005-2007. The company current ratio slightly changed from year to year since 2008-2010. Company current assets had fluctuations occurred during the study period from the year 2005-2009 similarly current liabilities increased over proportion than current assets.

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b.QUICK RATIO/LIQUID RATIO This ratio establishes a relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon with out a loss or value cash is the most liquid assets; other assets are bills receivables, debtors and marketable securities. Inventories are considered to be less liquid. The ratio shows that the immediately available assets, which assets are Immediately converted in to cash to meet the short term solvency of the firm. Quick assets Quick ratio = Current liabilities

TABLE-2 YEAR LIQUID ASSETS LIQUID LIABILITIES 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 570.865 2679.388 4258.715 5148.951 3422.914 5972.913 17079.226 19233.117 20264.866 32487.368 0.095 0.156 0.221 0.254 0.105 RATIO

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QUICK RATIO/LIQUID RATIO

Barchart-2

0.3 0.25 0.2 0.15 0.1 0.05 0 0.156 0.221

0.254

0.095

0.105

RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION :

The company quick ratio has been increasing from year to year since 2005-2009. The company quick ratio has been decreasing in the year 2009-2010.
Company has maintained quick assets lowest is 570.865 in the year 2005-2006.

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CASH RATIO /ABSOLUTE LIQUID ASSETS RATIO

Marketable securities Cash ratio = Current liabilities

This ratio is also is known as super quick ratio. The firm must be maintained 0.5:1 Cash ratio is better. It reflects only the absolute liquidity available with firm.
TABLE-3 YEAR CASH CURRENT LIABILITIES 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 39.466 177.043 285.179 2875.2 1140.502 5972.913 17079.226 19233.117 20264.866 32487.368 0.007 0.010 0.015 0.142 0.035 RATIO

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CASH RATIO /ABSOLUTE LIQUID ASSETS RATIO

Barchart-3

0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0

0.142

RATIO

0.035 0.007 0.01 0.015

2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION :

Company cash ratio had gone up from 2005-2009 .i.e. 0.007-0.142 Company cash ratio had been decreasing from 2009-2010 i.e.0.142 to 0.035.
The company has maintained cash lowest is 39.466 in the year 20052006.

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3.LEVERAGE RATIOS:Financial leverage refers to the use of the debt finance. While debt capital is a cheaper source of finance. Leverage ratios help in assessing the risk arising from the use of debt capital. DEBT CAPITAL RATIO (or) DEBT EQUITY RATIO

Long term debt

Debt equity ratio =

Capital

Debt equity ratio is the ratio of the total debt in the firm (both long term and short term ) to equity :is the sum of equity share capital and preferential share capital. This ratio identified value is 0.33% of capital
TABLE-4 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 DEBT 6512.448 10320.108 15117.559 17051.198 18136.397 CAPITAL 5396.505 9788.548 14113.914 19623.142 18008.338 RATIO 1.206 1.054 1.071 1.868 1.007

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DEBT CAPITAL RATIO (or) DEBT EQUITY RATIO

Barchart-4

2 1.5 1

1.868

1.206 1.054

1.071

1.007 RATIO

0.5 0 2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION :

The debt ratio was decreased from year since 2005-2007. The ratio was increased from year since 2007-2009 i.e.1.071 to 1.868. The ratio likely fall down from year 2009-2010.

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TOTAL DEBT TO TOTAL ASSETS RATIO

Debt equity ratio is the ratio of the total debt in the firm (both current and fixed ) assets : where the assets is the sum of machinery, equipment buildings debtors inventory cash etc;

Total debt

Total assets TABLE-5 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 TOTAL DEBT 12688.397 27426.596 34377.939 37469.497 50623.766 TOTAL ASSETS 17792.002 37221.871 47996.057 56569.235 68328.700 RATIO 0.71 0.73 0.71 0.66 0.74

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TOTAL DEBT TO TOTAL ASSETS RATIO

Barchart-5

0.76 0.74 0.72 0.7 0.68 0.66 0.64 0.62 2005-06 2006-07 2007-08 2008-09 0.66 0.71 0.73 0.71

0.74

RATIO

2009-10

INTERPRETATION :

The company total debt to assets ratio has been increased from the year to year since 2005-2007. Total debt to total assets ratio in decreased from the year to year since 2007-2009. Total debt to total assets ratio increased in the year since 2009-2010.

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PROPRIETARY RATIO :It is a variant of debt equity ratio. It establishes relationship between the proprietors funds and the total tangible assets. The ratio is of particular importance to the creditors who can find out the proportion of shareholders funds in the total assets employed in the business. Shareholders funds Proprietary ratio = Total assets X100

TABLE-6
YEAR SHARE HOLDERS FUND 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 6887.115 13440.521 18656.267 25329.022 18008.338 18137.761 37268.003 48544.712 57092.639 68632.104 0.379 0.361 0.384 0.444 0.262 TOTAL ASSETS RATIO

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PROPRIETARY RATIO

Barchart-6

0.5 0.4 0.3 0.2 0.1 0 0.379 0.361 0.384

0.444

0.262
RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION :

During the period proprietary ratio slightly decreased from year to year since 2005-2007.i.e.0.379 to 0.361 The ratio has been increased from 2007-2009 i.e.0.384 to 0.444 The ratio has been decreased from the year 2009 to 2010.

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III TURN OVER RATIOS Turnover ratio measures how efficiently the assets are employed by the firm. Funds of creditors and owners are invested in various assets to generate sales and profits. These ratios are based on the relationship between the level of activity, represented by sales or cost of goods sold and levels of various assets.
1. STOCK TURNOVER RATIO :

These ratio measures how many times on an average stock is sold during the year. High inventory turnover ratio is always beneficial to the business. Lower inventory turn over shows that the stock is blocked and not immediately sold. It shows the poor performance of the business. Cost of good sold Inventory turn over ratio = Avg. Inventory TABLE-7
YEAR COST OF AVG.INVENTORY RATIO

GOODS SOLD 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 9714.509 43309.875 47084.221 51982.445 68806.473 3751.462 4847.555 4509.355 10122.406 14971.195 2.589 8.934 10.441 5.135 4.595

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INVENTORY TURN OVER RATIO :

Barchart-7

12 10 8 6 4 2 0 2.589

10.441

8.934

5.135

4.595

RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION :

The inventory turnover ratio has been increasing and decreasing in the study period The inventory turnover ratio increased from the year since 2005-2008.
The inventory turnover had decreased from the year to year since 2008-

2010

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DEBTORS TURNOVER RATIO

The ratio indicates the extent to which the debts have been collected in time. It gives the average debt collection period. The ratio is very helpful to the lenders because it explain to them whether their borrowers are collecting money with is a reasonable time. Net Sales Debtors turnover ratio = Average trade debtors

Opening debtors + closing debtors Average Debtors = 2 TABLE-8

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 SALES 16085.051 60956.134 72769.815 87119.114 101199.557 Avg.Debtors 297.3485 1119.0290 2831.5805 2682.606 1780.867 RATIO 54.094 54.472 25.699 32.475 56.826

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DEBTORS TURNOVER RATIO

Barchart-8

60
50 40 30 20 10 0

54.094

54.472

56.826

32.475 25.699
RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION :

During the period had been observing debtors turnover ratio hike from year since 2005-2007.i.e.54.094 to 54.472 The year 2007-2009 the ratio decreased to 25.6999 The ratio had been increased from year to year since 2008-2010.

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DEBTOR COLLECTION RATIO

This ratio indicates the extent to which the debts have been collected in time the debt collection period indicates the average debt collection period this ratio is a good indicator to the lenders of the firm,because it explains to the whether their borrower is collection from its debt in time. An increase in this period indicates blockage of funds in debtors.

365 Debtors collection period ratio = Debtors turnover ratio TABLE-9

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 DAYS 365 365 365 365 365 DEBTOR TURNOVER RATIO 54.094 54.472 25.699 32.475 56.826 RATIO 6.747 6.700 14.202 11.239 6.423

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Debtors Turnover Ratio

DEBTOR TURNOVER RATIO 60 50 40 30 20 10 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 14.202 6.747 6.7 11.239 6.423 25.699 32.475 54.094 54.472 56.826 RATIO

DEBTOR COLLECTION RATIO

Barchart-9

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16 14 12 10 8 6 4 2 0 2005-06 2006-07 2007-08 2008-09 2009-10

RATIO

INTERPRETATION :

During the period, the average collection period ratio decreased 6.747 to 6.700 in the year 2005-2007 The year 2007-2009,the increasing from 6.700 to 14.202.
Debtors collection period ratio decreased from year to year since 2008-

2010. Debtors collection period ratio has been decreasing and increasing in the study period. Because of debtor turnover ratio fluctuated year to year.

FIXED ASSETS TURNOVER RATIO Assets are used to generate sales therefore the firm should manage its assets efficiently to maximize sales. The relationship between

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sales and assets is called assets turnover. The firm can compute fixed assets turnover simply by dividing sales by fixed assets. Sales Fixed assets turnover ratio = Fixed assets

TABLE-10

YEAR

SALES

NET ASSETS

FIXED

RATIO

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

16085.051 60956.134 72769.815 87119.114 101199.557

13543.393 26993.262 33136.153 41018.701 43415.660

1.187 2.285 2.196 2.123 2.330

FIXED ASSETS TURNOVER RATIO

80

Barchart-10

2.5 2 1.5 1 0.5 0 2005-06 1.187

2.285

2.196

2.123

2.33

RATIO

RATIO 2006-07 2007-08 2008-09 2009-10

INTERPRETATION

Fixed assets turnover ratio has been increased from the year 2005-2007 i.e. 1.187 to 2.285. The ratio has been decreased from the year 2009 i.e.2.285 to 2.123 In the year 2009-2010 the ratio increased to 2.330.

WORKING CAPITAL TURNOVER RATIO

81

It is determined by relating the inventory of the total networking capital i.e., current assets and current liabilities. This is used to see the percentage of inventory i.e., stock is relation to total assets of the company. This is used to see whether inventory ratio is stable in relation to the working capital.

Net sales Working capital turnover ratio = Networking capital

Networking capital = current assets current liabilities.

TABLE-11

YEAR

SALES

NET WORKING CAPITAL

RATIO

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

16085.051 60953.134 72769.815 87119.114 101191.557

-1724.304 -6879.688 -4373.216 -4714.332 -7574.328

-9.32 -8.85 -16.63 -18.47 -13.36

WORKING CAPITAL TURNOVER RATIO

82

Barchart-11

0 -5 -10 -15 -20 2005-06 2006-07 -16.63 2007-08 -18.47 2008-09

RATIO

-9.32

-8.85 -13.36 2009-10

RATIO

INTERPRETATION :

During the period working capital turnover ratio has been increased from 9.32 to -8.85 since the year 2005-2007.

In the year 2007-2008 the ratio decreased from -8.85 to -16.63. In the year 2008-2010 the ratio slightly decreased from -16.63 to 18.47. The ratio has been increased from -18.47 to -13.36 since the year 20092010.

TOTAL ASSETS TURNOVER RATIO

83

Net sales Total Assets turnover ratio = Net total assets This is depicts the turnover of total assets during the course of business this ratio indicate, whether capitalization is proper it disproportionate amount has been invested in assets this ratio will communicate this massage. TABLE-12
YEAR SALES NET ASSETS 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 16085.051 60953.134 72769.815 87119.114 101199.557 17792.002 37221.871 47996.057 56569.235 68328.700 0.904 1.637 1.516 1.540 1.480 TOTAL RATIO

TOTAL ASSETS TURNOVER RATIO

84

Barchart-12

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2005-06 0.904

1.637

1.516

1.54

1.48

RATIO

2006-07

2007-08

2008-09

2009-10

INTERPRETATION :

During the study period total assets turnover ratio had been increasing from the year 2005 to 2007from 0.90 to 1.637. In the year 2007-2008 total assets turnover ratio decreased from 1.637 to 1.516 The year 2008 to 2009 the ratio increased from 1.516 to 1.540 because due to increased the total assets as well as net sales also. In the year 2009-2010 the ratio decreased from 1.540 to 1.480

IV PROFITABILITY RATIO

85

Profitability is an indication of the efficiency with which the operations of the business are carried on. A lower profitability may arise due to the lack of control over the expenses. Banker, financial statements and other creditors look at the profitability rations as an indicator whether or not the firms earns substantially more than it pays interest for the use of borrowed funds.
1. GROSS PROFIT RATIO :

It is calculated by dividing the gross margin by sales. This ratio shows the profits relative to sales after three direct production costs are deducted. It may be used as an indicator of the efficiency of the production operation and the relation between production costs and selling price. Gross Profit Gross profit ratio = Net Sales TABLE-13
YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 GROSS PROFIT 6207.753 18346.246 28187.471 25900.505 32279.216 NET SALES 16085 60953.134 72769.815 87119.114 1011199.557 RATIO 38.593 30.097 38.735 29.729 31.896

X 100

GROSS PROFIT RATIO

86

Barchart-13
38.735 30.097 29.729 31.896

40 35 30 25 20 15 10 5 0

38.593

RATIO

2005-06

2006-07

2007-08

2008-09

2009-10

INTERPRETATION :

The gross profit of the company gradually increasing from 6207.753 to 32279.216 since the year 2005-2010. The gross profit ratio has been decreasing from 38.593 to 30.097. In the year 2007-2008 the gross profit ratio has been increased from 30.097 to 38.735. In the year 2008-2009 the gross profit ratio fall down from 38.735 to 29.729. In the year 2009-2010 gross profit ratio increased slightly from 29.729 to 31.896. The gross profit ratio highest in the year 2007-2008 the ratio is 38.735.

NET PROFIT RATIO :

87

This ratio is measured by dividing profit after tax by sales. It indicated managements efficiency in manufacturing, administering and selling the products. The ratio is the overall measure of the firms

Net Profit Net profit ratio = Net Sales X 100

TABLE-14 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 NET PROFIT 1490.610 3651.973 4542.353 5705.880 4392.926 NET SALES 16085.051 60953.134 72769.815 87119.114 101199.557 RATIO 9.267 5.991 6.242 6.549 4.340

NET PROFIT RATIO

88

Barchart-14

10 8

9.267 6.549 4.34

5.991 6

6.242

4
2 0 2005-06 2006-07 2007-08 2008-09 2009-10

RATIO

INTERPRETATION :

Net profit ratio has decreased from year 2005-2007 i.e.9.267-5.991. Net profit ratio has been increased from year to year since 2007-2009 i.e.5.991 to 6.549. In the year 2007-2008 the ratio has been decreased from 6.549 to 4.340.

RETUTURN ON INVESTMENT(or)CAPITALEMPLOYED

89

The Return on capital employed ratio is measured in terms of the relation ship between PBIT and capital employed. It can be calculated as below formula Net Profit after tax Return on capital employed = Capital Employed X 100

TABLE-15 YEAR PROFIT TAX 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 1490.610 3651.973 4542.353 5705.880 4392.926 AFTER CAPITAL EMPLOYED 11819.039 20142.645 28762.940 36304.369 35841.332 12.611 15.130 15.792 15.716 12.250 RATIO

RETUTURN ON INVESTMENT (or) CAPITAL EMPLOYED

90

Barchart-15
15.792 15.716 12.25

16 14 12 10 8 6 4 2 0 2005-06 12.611

15.13

RATIO

2006-07

2007-08

2008-09

2009-10

INTERPRETATION :

During the study period, return on investment ratio 12.611 to 18.130 since the year 2005-2007.

increase from

In the year 2007-2008 the ratio fall down from 18.130 to 15.792. In the year 2008-2009 the ratio had fall down slightly 15.792 to 15.716. In the year 2009-2010 the ratio decreased from 15.716 to 12.25 The highest proportion of return on investment is 18.130 in the year 2006-2008.

RETURN ON EQUITY
91

The return on equity establishes a relationship between net profit and capital of the firm

Return on Equity =

Net Profit after tax -----------------------------x100 Capital Employed

TABLE-16 YEAR PROFIT TAX 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 1490.610 3651.973 4542.353 5705.880 4392.926 5396.505 9788.548 14113.548 19623.142 18008.338 27.621 37.308 37.183 29.007 24.393 AFTER EQUITY RATIO

RETUTURN ON EQUITY
92

Barchart-16

40 35 30 25 20 15 10 5 0

37.308 27.621

37.183 29.007 24.393

RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION :

During the study period return on equity gradually increased from 27.621 to 37.308 since the year 2005-2008. From the year 2008 to 2010, return on equity ratio had been decreasing from 37.308 to 24.393 The highest return on equity ratio is 37.308 since the year 2005 to 2010.

93

CHAPER-Vi

FINDINGS & SUGGESTIONS

FINDINGS
94

1. The current ratio of the Bharathi Soap Works did not reach 2:1 ratio in the study period i.e. unsatisfactory of the current ratio because current liabilities is higher than current assets. 2. The quick ratio did not reach 1:1 ratio in the study period i.e. unsatisfactory of the quick liquid position of the study period. current liabilities excess than quick assets. 3. The absolute quick ratio is unsatisfactory in the study period. Because it did not reach 0.5:1 it is finding that cash position is very poor in the study period. 4. It is finding that Bharathi Soap Works equity position is less than debt in the study period. 5. Total debt to total assets ratio indicates total assets are more than total debt. 6. The proprietary ratio shows the total tangible assets maintaining more than net worth. 7. The inventory turnover ratio increasing gradually even though it is not satisfactory except the year 2007-2008.i.e.10.441 8. Debtors turnover ratio increased from 2005-2009 remaining year 20072008 decreased and 2008-2009 debtors turnover ratio increased slightly. 9. debtors collection period indicates the collection period indicates the collection period of Bharathi Soap Works vary from year to year

95

10. The fixed assets turnover ratio increased year to year because net fixed assets increased year to year than net sales. This ratio was satisfactory to Bharathi Soap Works. 11. The working capital turnover ratio of the company is very poor performance of working capital because of the study period company maintained negative net working capital. 12. Total assets turnover ratio is slightly increasing year to year. Because every year net sales increasing level higher than total assets increasing level. 13. Gross profit ratio was increased from the year 2005-2008, in the year 2008-2009 the gross profit ratio has been decreased 9% and in the year 2009-2010 the gross profit ratio increased. However ,Gross profit ratio is Bharathi Soap Works. 14. Net profit ratio has been fall down in the year 2006-2007 i.e.9.267 to 5.991. A Again increased from the year 2007-2009 and it is decreased in the year 2009-2010. 15. Return on investment ratio is increasing and decreasing in the study period. The highest return on investment ratio in the year 2006-2007 i.e. 18.130 is the best year for Bharathi Soap Works. The return on investment ratio indicates satisfactory in the study period. 16. Return on equity ratio was increased from the year since 2005-2008 in the year 2008-2010 decreased by more than 3% and in the year 20072008 it is decreased by 4%. The highest return on equity is 37.308 in the year 2007-2008.

SUGGESTIONS
96

1. It is suggested to Bharathi Soap Works need to increase in the volume of current assets and decrease the proportion of current liabilities for the purpose of to meet the working capital requirements.

2. It is suggested to Bharathi Soap Works need to increase the quick assets at least equal to the current liabilities is better to Bharathi Soap Works.

3. It is suggested to Bharathi Soap Works need to increase the cash volume at least half of the current liabilities for the purpose to meet day to day financial requirements.

4. It is suggested to Bharathi Soap Works increase the equity volume because it is going to insolvency. Now more debt than equity than may consider highly leveraged.

5. It is suggested to It is suggested to Bharathi Soap Works need to increase the total assets because total debt is more than total assets i.e.un satisfactory to company.

6. It is suggested to Bharathi Soap Works to increase the net worth is better to the company.

7. It is suggested to Bharathi Soap Works to inventory has to maintain same level of the year like 2008-2009 is better to Bharathi Soap Works .In the year 2008-2009 average inventory 10122,406.

8. It is suggested to company to increasing the debtors levels is better to Bharathi Soap Works .For the purpose of to improve the current assets volume.

97

9. It is suggested to maintain the minimum debtors collection period is better to Bharathi Soap Works. Because of present received rupee value is more valuable than will be received rupee in future.

10. It is suggested to Bharathi Soap Works

maintain the same level of fixed

assets is better to the Bharathi Soap Works .Then the company can maximum utilize the fixed assets.

11. It is suggested to company working capital should be increase is better to Bharathi Soap Works. Because net working capital is too poor performance except 2005-2006. More ever need to improve the net working capital performance.

12. It is suggested to Bharathi Soap Works need to increase the total assets is better for the purpose of to develop the organization and organization smooth running.

13. It is suggested to Bharathi Soap Works to maintain the same gross profit ratio in future also. Because of gross profit was satisfactory in the study period.

14. It is suggested to Bharathi Soap Works should be increase the net profit is better. It is possible with minimize operating expenses. Then Bharathi Soap Works can increase net profit volume.

15. It is suggested to Bharathi Soap Works the same proportion of the investment is better to Bharathi Soap Works to make the fair returns in future also. Because Return On Investment is satisfactory in the study period.

16. It is suggested to company to improve the shareholders fund is better. Return on Equity satisfactory in the study period.

98

CONCLUSION:A study on ratio analysis in BHARATHI SOAP WORKS., is satisfactory. Over all liquidity, Leverage position, turnover position and profitability Position and profitability position is satisfactory

BALANCE SHEETS OF BHARATHI SOAP WORKS

99

Particulars I. Source of funds : 1.Share holders fund Share capital 2. Loan fund Secured loan Un secured loan Total II. Application of funds 1. Fixed assets 2.Investments 3.current assets a. Inventory b.Sundry debtors c.Cash & bank Balance d.Other current assets e.Loans,advances Total Less: current liabilities Net working capital Total

2005-06

2006-07

2007-08

2008-06

2009-10

4796.310 5112.06 9908.516 9310.175 405.253 4004.122 458.624 87.307 25.200 566.133 5141.386 4948.298 193.088 9908.516

5396.505 6512.358 11908.953 13543.393 89.864 3530.106 136.073 39.466 147.638 395.326 4248.609 5972.913 -1724.304 11908.953

9788.548 10320.108 20108.656 26993.262 33.989 5519.909 2101.985 177.043 2029.312 400.360 10228.609 17079.226 -6850.617 20108.656

14113.914 15117.559 29231.453 33136.153 468.513 10175.201 3561.176 285.179 425.988 412.362 14859.904 19233.117 -4373.213 29231.453

19623.142 13984.949 36675.122 41018.701 370.753 10069.611 1804.036 2875.200 331.972 469.715 15550.534 20264.866 -4714.332 36675.122

100

BIBILOGRAPHY:

FINANCIAL MANAGEMENT

I.M.PANDEY

FINANCIAL MANAGEMENT THOERY AND PRACTICE COST AND MANAGEMENT ACCOUTING R.P.TRIVEDI MANOJ TRIDEVI M.Y.KHAN P.K.JAIN

PRINCIPLES OF MANAGEMENT

S.N.MAHESWARI

FINANCIAL MANAGEMENT

K.GUPTA

WEBSITE www.bharathisoapworks.com

ANNUAL REPORTS OF BHARATHI SOAP WORKS

101

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103

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