Need of the Project This projects is helpful in knowing the companies position of funds maintenance and setting the

standards for working capital inventory levels, current ratio level, quick ratio, current amount turnover level.2. This project is helpful to the managements for expanding the dualism & the project viability & present availability of funds.3. This project is also useful as it companies the present year data with the previous year data and there by it show the trend analysis, i.e. increasing fund or decreasingfund.4. Th e p roject i s don e en ti rely as a wh ol e en ti rel y. I t w ill gi ve overal l view of the organization and it is useful in further expansion decision to be taken by management. Objective of the Study The main objective of Ratio Analysis is to get knowledge about financial position of GNA Enterprises Ltd.Jamalpur . Specially, objectives of study are as follows : To find out the financial position of GNA Enterprises Ltd. For the year To know the future prospect of the company. To study the organizational structure of the company and its variousdepartments. To Determine the Profitability, Liquidity and Solvency ratio of the company. To study the present position of the GNA Enterprises Ltd. To offer appropriate suggestions for the better performance of theorganization.

Scope of the study The scope of study is limited to one concern only i.e. G u r u N a n a k A u t o Enterprises Ltd.2) The period consider 45 days.Th e scop e of th e s tudy i s li mi ted to coll ecti ng th e fin anci al d ata pub li sh ed i n th eannual reports of the company with reference to the objectives stated above and ananalysis of the data with a view to suggest favorable solution to various problemsrelated to financial performance

Research Methodology When we talk about the research methodology, we not any talk about the research methods but also considers the logic behind the method we use in the context of our research study and evaluate why we are using a particular method or technique so that the research are capable of being evaluated either by the researchers himself or but others .Research methodology is considered with in out the solution to a problem or need. It is also consider with the search of knowledge .For the fulfillment of he project on the analysis of the financial statement the sources of the data are as follow:-

Secondary Data: This source provides second hand information. Informationcol l ected th rough thi s sou rce w as extracted fro m comp any s jou rn al s, p amphl ets, brochures and manuals etc.These sources proved very fruitful and successful during the preparation of the report and completion of the report. Without this, the report could not be at the completion stage Primary Data: This is the most authentic and accurate source of data collection as it provides fresh and first hand information. Under this data is collected by personal interview of the concerned executives, daily customers of the concern. Direct face-to-face questioning was held with the staff members, vice president and daily customers.

INTRODUCTION RATIO ANALYSIS:

Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results. Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. MEANING OF RATIO: A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as so many times. As accounti ng ratio is an expression relating two figures or accounts or two sets of account heads or group contain in the financial statements. Ratio is numerical relationship between two variables which are connected with each other in some way or the other. Ratios may be expressed in any one of the following manners:

 As a number between 500 and 100 may be expressed as 5(500 divided by 100). As a fraction may be expressed as former being 5 times of the later. As a percentage the relationship between 100 and 500 may be expressed as 20% of the later. As a proportion relationship between 100 and 500 may be expressed as 1:5.

MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis. While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus on a technique, which is easy to use. It can provide you with a valuable investment analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares financial ratios of several companies from the same industry. Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. For example, you could use a ratio of a company's debt to its equity to measure a company's leverage. By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is

higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. However, you must be careful not to place too much importance on one ratio. You obtain a better indication of the direction in which a company is moving when several ratios are taken as a group. Ratio analysis facilitate the presentation of information of financial statements in simplified and concise and summarized form.

Definition:

In the words of Hund, William, Ratios are simply a means of highlighting in

arithmetical terms the relationship between figures drawn from financial statements.

FORMS OF RATIO:

Forms of Ratio

As a Pure Ratio
A] As a pure ratio:

As a Rate of Times

As a Percentage

For example the equity share capital of a company is Rs. 20,00,000 & the preference share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000: 5,00,000 or simply 4:1. B] As a rate of times: In the above case the equity share capital may also be described as 4 times that of preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit sales are 2.5 times that of cash sales. C] As a percentage: In such a case, one item may be expressed as a percentage of some other item. For example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales [ 10,00,000/50,00,000]

STEPS IN RATIO ANALYSIS

Selection of Relevant Data

Calculation of Appropriate Ratios

Comparison of Ratios

Interpretation of Ratios

Selection of relevant data from the financial statements depending upon the objective of the analysis.

Calculation of appropriate ratios from the above data. Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs.

Interpretation of ratio:- The interpretation of ratios is an important factor. The

inherent limitations of ratio analysis should be kept in mind while interpreting them. The impact of factors such as price level changes, change in accounting policies, window dressing etc., should also be kept in mind when attempting to interpret ratios. The interpretation of ratios can be made in the following ways. Single absolute ratio

Group of ratios Historical comparison Projected ratios Inter-firm comparison

TYPES OF COMPARISONS

Types of comparisons

Cross Section Analysis

Time Series Analysis

Combined Analysis

The ratio can be compared in three different ways 1] Cross section analysis: One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time. So it involves the comparison of two or more firms financial ratio at the same point of time. The cross sec tion analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. The firms performance may be compared with the performance of the leader in the industry in order to uncover the major operational inefficiencies. The cross section analysis is easy to be undertaken as most of the data required for this may be available in financial statement of the firm.

2] Time series analysis: The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years, an assessment can be made about the trend in progress

of the firm, about the direction of progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. The Time series analysis looks for (1)important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of data. 3] Combined analysis: If the cross section & time analysis, both are combined together to study the behavior & pattern of ratio, then meaningful & comprehensive evaluation of the performance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. For example, the ratio of operating expenses to net sales for firm may be higher than the industry average however, over the years it has been declining for the firm, whereas the industry average has not shown any significant changes.

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

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PRE-REQUISITIES TO RATIO ANALYSIS In order to use the ratio analysis as device to make purposeful conclusions, there are certain prerequisites, which must be taken care of. It may be noted that these prerequisites are not conditions for calculations for meaningful conclusions. The accounting figures are inactive in them & can be used for any ratio but meaningful & correct interpretation & conclusion can be arrived at only if the following points are well considered: 1) The dates of different financial statements from where data is taken must be same. 2) If possible, only audited financial statements should be considered, otherwise there must be sufficient evidence that the data is correct. 3) Accounting policies followed by different firms must be same in case of cross section analysis otherwise the results of the ratio analysis would be distorted. 4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must be preferred. This will be conductive to counter checks. 5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio must be related to each other, otherwise there is no purpose of calculating a ratio.

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CLASSIFICATION OF RATIO

CLASSIFICATION OF RATIO

BASED ON FINANCIAL STATEMENT

BASED ON FUNCTION

BASED ON USER

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

1] LIQUIDITY RATIO 2] LEVERAGE RATIO 3] ACTIVITY RATIO 4] PROFITABILITY RATIO 5] COVERAGE RATIO

1] RATIOS FOR SHORT TERM CREDITORS 2] RATIO FOR SHAREHOLDER 3] RATIOS FOR MANAGEMENT 4] RATIO FOR

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LONG TERM CREDITORS

BASED ON FINANCIAL STATEMENT: Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet , P& L A/C, or both. One-way of classification of ratios is based upon the sources from which are taken.

1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are

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Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio.

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

BASED ON FUNCTION: Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios. 2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios. 3] Activity ratios:

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It shows relationship between the sales & the assets. It is also known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios. 4] Profitability ratios: It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios It shows the relationship between profit & investment e.g. return on investment, return on equity capital. 5] Coverage ratios: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.

BASED ON USER:

1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2] Ratios for the shareholders: Return on proprietors fund, return on equity capital. 3] Ratios for management: Return on capital employed, turnover ratios, operating ratios, expenses ratios

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4] Ratios for long-term creditors: Debt equity ratios, return on capital employed, proprietor ratios.

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

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CURRENT RATIO: Current ratio may be defined as the relationship between current assets and current liabilities. This ratio also known as Working capital ratio is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position (or) liquidity of a firm.

Current assets Current ratio = Current liabilities

Components of current ratio

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CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses

CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable

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

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LIQUID RATIO: Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1. The term quick assets refer to current assets, which can be converted into, cash immediately or at a short notice without diminution of value.

Quick or liquid assets Quick ratio = Current liabilities

Components of Quick or Liquid ratio QUICK ASSETS Cash in hand Cash at bank Bills receivable Sundry debtors Marketable securities CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current assets that can be converted into cash immediately without any value strength. QA includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaid expenses are excluded since these cannot be turned into cash as and when required. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on

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those current assets, which are highly liquid. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments.

ABSOLUTE LIQUID RATIO : . Although receivable, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence, absolute liquid ratio should also be calculated together with current ratio and quick ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets.

Absolute liquid assets Absolute liquid ratio = Current liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50% (or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth current liabilities in time as all the creditors are nor accepted to demand cash at the same time and then cash may also be realized from debtors and inventories.

Components of Absolute Liquid Ratio ABSOLUTE LIQUID ASSETS Cash in hand Cash at bank Interest on Fixed Deposit CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances

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Sundry creditors Dividend payable Income tax payable

INVESTMENT / SHAREHOLDER RATIO:

EARNING PER SAHRE:Earnings per Share are calculated to find out overall profitability of the organization. An earnings per Share represents earning of the company whether or not dividends are declared. If there is only

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one class of shares, the earning per share are determined by diniding net profits by the number of equity shares. EPS measures the profits available to the equity shareholders on each share held. Formula:

NPAT Earning per share = Number of equity share

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

DIVIDEND PER SHARE: DPS shows how much is paid as dividend to the shareholders on each share held.

Formula:

Dividend Paid to Ordinary Shareholders Dividend per Share = Number of Ordinary Shares

DIVIDEND PAYOUT RATIO:Dividend Pay-out Ratio shows the relationship between the dividend paid to equity shareholders out of the profit available to the equity shareholders. 23

Formula:

Dividend per share Dividend Pay out ratio = Earning per share *100

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

GEARING RATIO

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CAPITAL GEARING RATIO:Gearing means the process of increasing the equity shareholders return through the use of debt. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio shows the relationship between two types of capital viz: - equity capital & preference capital & long term borrowings. It is expressed as a pure ratio. Formula:

Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the financing of assets of a concern.

PROFITABILITY RATIO These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.

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GROSS PROFIT RATIO:This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is I managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit. Formula: Gross profit Gross profit ratio = Net sales * 100

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

Net profit after tax Net profit ratio= Net sales

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Net Profit after Tax = Net Profit () Depreciation () Interest () Income Tax

Net Sales = Income from Services

This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm.

RETURN ON CAPITAL EMPLOYED:The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. The term fund employed or the capital employed refers to the total long-term source of funds. It means that the capital employed comprises of shareholder funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net working capital. Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the long-term funds of a firm are utilized.

Formula: NPAT Return on capital employed = Capital employed *100

FINANCIAL RATIO

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

DEBTORS TURNOVER RATIO (DTO) : Meaning: DTO 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 DTO, the better it is for the organization. Formula:

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Credit sales Debtors turnover ratio = Average debtors

Days in a year Average collection Period = Debtor turnover ratio

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

Net credit purchase Credit turnover ratio = Average creditors

Days in a year Average of accounts payable = Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. It enhances credit worthiness of the company. A very low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors.

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INVENTORY OR STOCK TURNOVER RATIO (ITR): ITR refers to the number of times the inventory is sold and replaced during the accounting period. Formula:

COGS Stock Turnover Ratio = Average stock

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

FIXED ASSETS TURNOVER (FAT): The FAT ratio measures the net sales per rupee of investment in fixed assets. Formula: Net sales Fixed assets turnover = Net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an in efficient use of assets.

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However, this ratio should be used with caution because when the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low).

PROPRIETORS RATIO: Meaning: Proprietary ratio is a test of financial & credit strength of the business. It relates shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the company In other words, Proprietary ratio determines as to what extent the owners interest & expectations are fulfilled from the total investment made in the business operation. Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the form of percentage. Total assets also know it as net worth. Formula: Proprietary fund Proprietary ratio = Total fund

OR

Shareholders fund Proprietary ratio = Fixed assets + current liabilities

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Components of Proprietary Ratio SHARE HOLDERS FUND Share Capital Reserves & Surplus Fixed Assets Current Assets Cash in hand & at bank Bills receivable Inventories Marketable securities Short-term investments Sundry debtors Prepaid Expenses TOTAL ASSETS

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

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

DEBT EQUITY RATIO: MEANING: This ratio compares the long-term debts with shareholders fund. The relationship between borrowed funds & owners capital is a popular measure of the long term financial solvency of a firm. This relationship is shown by debt equity ratio. Alternatively, this ratio indicates the relative proportion of debt & equity in financing the assets of the firm. It is usually expressed as a pure ratio. E.g. 2:1 Formula:

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

Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing the equity shareholders return through the use of debt. Leverage is also known as gearing or trading on equity. Debt equity ratio shows the margin of safety for long -term creditors & the balance between debt & equity.

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RETURN ON PROPRIETOR FUND: Meaning: Return on proprietors fund is also known as return on proprietors equity or return on shareholders investment or investment ratio. This ratio indicates the relationship between net profit earned & total proprietors funds. Return on proprietors fund is a profitability ratio, which the relationship between profit & investment by the proprietors in the concern. Its purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to judge how efficient the concern is in managing the owners fund at disposal. This ratio is of practical importance to prospective investors & shareholders.

Formula:

NPAT Return on proprietors fund = Proprietors fund * 100

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IMPORTANCE OF RATIO ANALYSIS As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of interference regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: 1] Liquidity position, 2] Long-term solvency, 3] Operating efficiency, 4] Overall profitability, 5] Inter firm comparison 6] Trend analysis.

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Liquidity position

Trend Analysis
Importance Of Ratio Analysis

Long term solvency

Inter firm Comparison Overall Profitabilit-y

Operating Efficiency

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

2] LONG TERM SOLVENCY: -

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Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This respect of the financial position of a borrower is of concern to the long-term creditors, security analyst & the present & potential owners of a business. The long-term solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power & operating efficiency. Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the risk involved. 3] OPERATING EFFICIENCY: Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in management & utilization of its assets. The various activity ratios measures this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of its assets- total as well as its components.

4] OVERALL PROFITABILITY: Unlike the outsides parties, which are interested in one aspect of the financial position of a firm, the management is constantly concerned about overall profitability of the enterprise. That is, they are

37

concerned about the ability of the firm to meets its short term as well as long term obligations to its creditors, to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken & all the ratios are considered together. 5] INTER FIRM COMPARISON: Ratio analysis not only throws light on the financial position of firm but also serves as a steppingstone to remedial measures. This is made possible due to inter firm comparison & comparison with the industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of a firm with the industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter firm comparison would demonstrate the firms position vice-versa its competitors. If the results are at variance either with the industry average or with the those of the competitors, the firm can seek to identify the probable reasons & in light, take remedial measures. 6] TREND ANALYSIS: Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in the fact that the analysts can know the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be satisfactory but the trend may be a declining one.

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ADVANTAGES OF RATIO ANALYSIS Financial ratios are essentially concerned with the identification of significant accounting data relationships, which give the decision-maker insights into the financial performance of a company. The advantages of ratio analysis can be summarized as follows: Ratios facilitate conducting trend analysis, which is important for decision making and forecasting. Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and solvency of a firm. Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of the firm.

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LIMITATIONS OF RATIO ANALYSIS Ratio analysis has its limitations. These limitations are described below: 1] Information problems: Ratios require quantitative information for analysis but it is not decisive about analytical output . The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the companys current financial position. Where historical cost convention is used, asset valuations in the balance sheet could be misleading. Ratios based on this information will not be very useful for decision-making.

2] Comparison of performance over time: When comparing performance over time, there is need to consider the changes in price. The movement in performance should be in line with the changes in price. When comparing performance over time, there is need to consider the changes in technology. The movement in performance should be in line with the changes in technology. Changes in accounting policy may affect the comparison of results between different accounting years as misleading. 3] Inter-firm comparison: Companies may have different capital structures and to make comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis.

40

 Selective application of government incentives to various companies may also distort inter company comparison. comparing the performance of two enterprises may be misleading Inter-firm comparison may not be useful unless the firms compared are of the same size and age, and employ similar production methods and accounting practices. Even within a company, comparisons can be distorted by changes in the price level. Ratios provide only quantitative information, not qualitative information. Ratios are calculated on the basis of past financial statements. They do not indicate future trends and they do not consider economic conditions.

41

PURPOSE OF RATIO ANALYSIS: 1] To identify aspects of a businesses performance to aid decision making 2] Quantitative process may need to be supplemented by Qualitative Factors to get a complete picture. 3] 5 main areas: Liquidity the ability of the firm to pay its way Investment/shareholders information to enable decisions to be made on the extent of the risk and the earning potential of a business investment Gearing information on the relationship between the exposure of the business to loans as opposed to share capital Profitability how effective the firm is at generating profits given sales and or its capital assets Financial the rate at which the company sells its stock and the efficiency with which it uses its assets.

42

ROLE OF RATIO ANALYSIS: It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the same figure & information, which is already appearing in the financial statement. At the same time, it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the mere preparation of financial statement.

Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of performance, either individually or in relation to those of other firms in the same industry. The process of this appraisal is not complete until the ratio so computed can be compared with something, as the ratio all by them do not mean anything. This comparison may be in the form of intra firm comparison, inter firm comparison or comparison with standard ratios. Thus proper comparison of ratios may reveal where a firm is placed as compared with earlier period or in comparison with the other firms in the same industry.

Ratio analysis is one of the best possible techniques available to the management to impart the basic functions like planning & control. As the future is closely related to the immediate past, ratio calculated on the basis of historical financial statements may be of good assistance to predict the future. Ratio analysis also helps to locate & point out the various areas, which need the management attention in order to improve the situation.

As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity, solvency, activity, profitability & overall performance, it enables the interested persons to know the financial & operational characteristics of an organisation & take the suitable decision.

43

Liquidity Ratio Liquid ratio measures the ability of the unit to meet its short term obligations and reveals the short term financial strength or weakness. 1. CURRENT RATIO (Amount in lacs)

Current Ratio Year 2010 Current Assets 4508 Current Liabilities 3660 Ratio 1.23

2011

5686

5041

1.12

2012

7530

6325

1.19

44

2013

6854

6477

1.05

GRAPHICAL REPRESENTATION

Current Ratio

1.25 1.2 1.15

Ratio

1.23 1.19 1.12 1.05

Ratio

1.1 1.05

1
0.95

2010

2011
Year

2012

2013

Interpretation: 45

As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the firm. From the above diagram it is shown that the current ratio of GNA Enterprises Ltd. For year 2006, 2007, 2008 and 2009 are 1.23, 1.12, 1.19 and 1.05 respectively. In 2009 the current Ratio is decreased by 1.05 from the previous year i.e 1.19. It shows liquidity Position of the company is not good and the company shall not be able to pays its current liabilities in time without facing difficulties. Decrease in the Current Ratio Indicates that there has been a deterioration in the liquidity position of the company.

2. QUICK RATIO: (Amount in lacs.) Quick Ratio Quick Assets

Year

Current Liabilities

Ratio

2010 2011 2012 2013

2365 3354 4798 4675

3660 5041 6325 6477

0.65 0.67 0.76 0.72

46

GRAPHICAL REPRESENTATION

Quick Ratio
0.8 0.75

0.76 0.72
Quick

Quick 0.65 0.67 0.65 Ratio

0.7 0.6 0.55

2010 2011 2012 2013

Year
Interpretation:

As a Rule of Thumb or as a convention quick ratio of 1:1 is considered satisfactory.

From the above diagram it is shown that the Quick Ratio of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 0.65, 0.67, 0.76 and 0.72 respectively. Compare with 2012, the Quick ratio is decreased because the sundry debtors are decreased due to the decrease in the corporate tax and for that the provision created is also decreased. So, the ratio is also decreased with the 2013. So it show low quick ratio represents that the Company liquidity position is not good

3. ABOSULTE LIQUIDITY RATIO: (Amount in Lacs.) Absolute Liquid Ratio Year Absolute Liquid Assets Current Liabilities Ratio

47

2010 2011 2012 2013

28 452 669 400

3660 0.007 5041 0.089 6325 6477 0.11 0.06

GRAPHICAL REPRESENTATION

Interpretation: As a Rule of Thumb or as a convention Absolute Liquid or Cash ratio of 0.5 is considered satisfactory. From the above diagram it is shown that the Absolute Liquid Ratio of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 0.007, 0.089, 0.11 and 0.06 respectively. In 2013 Absolute Liquid ratio is decreased by 0.06 as compared to 2008 i.e 0.11.

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Ab. Liquidity Ratio

0.12 0.1

0.089

0.11 0.06

Ab. Liquid Ratio

0.08 0.06 0.04 0.02 0 2010 2011 2012

0.007
2013

Ab. Liquid Ratio

Year

Efficiency Ratio/ Activity Ratio 1. a) Debtor Turnover Ratio:(Amount in lacs.)

Debtor Turnover Ratio

Year

Net Cr. Sale

Avg. Debtor

Ratio

2010 2011

10613 15385

1963 2354

5.41 6.53

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2012 2013

17769 12860

3302 3023

5.38 4.25

GRAPHICAL REPRESENTATION

Debtor Turnover Ratio

8
6
DTR 4

6.53

5.41

5.38 4.25
DTR

2 0 2010 2011
Year
Interpretation: The higher the turnover ratio the better the trade credit management & the

2012

2013

better the liquidity of debtors

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From the above diagram it is shown that the Debtor Turnover Ratio of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 5.41, 6.53, 5.38 and 4.25 respectively.

In 2009 debtor turnover ratio is lower i.e 4.25 than the previous year i.e 5.38. So it shows companys position is not good in 2013.

b) Avg. Collection Period: (Amount in lacs.)

Average Collection Period

Year

Days

Debtor Turnover Ratio

ACP

2010 2011 2012 2013

365 365 365 365

5.41 6.53 5.38 4.25

67 56 68 86

51

Average Collection Period

100
ACP

67

56

68

86
Avg. Collection

0 2010 2011 2012 2013

Year
GRAPHICAL REPRESENTATION

Avg.

Interpretation:

There is no rule of thumb.. From the above diagram it is shown that the average collection period of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 67, 56, 68 and 86 days respectively. During the year 2011 average collection period is very low which indicates the better quality of debtors as the quick payments by them with in a shot period. During the year 2013 average collection period is very high as 86 days which indicate ting the inefficient performance of the debtor as by late payments.

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2. a) Creditor Turnover Ratio: (Amount in lacs.)

Creditor Turnover Ratio

Year

Net Cr. Purchases

Avg. Creditor

CTR

2010

5974

896

6.67

2011

8277

1180

7.01

2012

9492

1114

8.52

2013

6527

1081

6.03

GRAPHICAL REPRESENTATION Interpretation:

Lower the ratio better for the concern, there is no rule of thumb.

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From the above diagram it is shown that the creditor turnover ratio of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 6.67, 7.01, 8.52 and 6.03 days respectively. Compared with 2012 the creditor turnover ratio is decreased by 6.03 in 2013.

Creditor Turnover Ratio

10 6.67 7.01
CTR 5

8.52 6.03
Creditor Turnov

0 2010 2011 2012 2013

Year

b) Average Payment Period: (Amount in lacs.)

Average Payment Period

Year

Days

Avg. Creditors

APP

54

2010 2011 2012 2013

365 365 365 365

6.67 7.01 8.52 6.03

55 52 43 61

GRAPHICAL REPRESENTATION

55

Average Payment Period

80 60 APP 40 20 0 2010 2011 2012 2013
Year
Interpretation: Lower the ratio, the better is the liquidity position of the company and the Higher the ratio less liquid is the position of the company. From the above diagram it is shown that the average payment period of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 55, 52, 43 and 61 days respectively. During the year 2013 average payment period is very high which indicatating the less liquidity position of the company.

55

61 52 43
Avg. Payment Period

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3.a) Stock Turnover Ratio: (Amount in lacs.)

Stock Turnover Ratio

Year

COGS

Avg. Stock

STR

2010 2011 2012 2013

5596 8088 9022 7081

1954 2238 2532 2455

2.86 3.61 3.56 2.88

GRAPHICAL PRESENTATION

57

Stock Turnover Ratio

4 2.86
STR 2

3.61 3.56 2.88

Stock Turnover Ratio

0 2010 2011 2012 2013

Year
Interpretation: High Stock Turnover Ratio Indicates efficient management of inventory and the lower Stock Turnover Ratio indicates an inefficient management of inventory. From the above diagram it is shown that the stock turnover ratio of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 2.86, 3.61, 3.56 and 2.88 respectively. In 2012 the STR is decreased by 2.88 as compared to previous year

b) Average Consumption Period (Amount in lacs.) Average Consumption period Year Days Stock Turnover Ratio ACP

2010 2011

365 365

2.86

128 101 58

3.61 2012 2013 365 365 3.56 2.88 103 127

GRAPHICAL REPRESENTATION

Average Consumption Period

150 100
ACP

128 101 103

127

50 0 2010 2011 2012 2013

Year
Interpretation:

Avg. Consumption Period

From the above diagram it is shown that the Average consumption period of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 128, 101, 103 and 127 days respectively.

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In 2013 the ACP is Increased by 127 days as compared to previous year.

4) Working Capital Turnover Ratio: (Amount in lacs.)

Working Capital Turnover Ratio

Year

Net Sales

Working Capital

WCTR

2010

10613

848

12.5

2011

15385

645

23.8

2012

17769

1205

14.7

2013

12856

377

34.1

60

GRAPHICAL REPRESENTATION

Working Capital Turnover Ratio

40 30
WCTR 20

34.1 23.8 12.5 14.7

WCTR

10
0 2010 2011 2012 2013
Year
Interpretation Higher working capital turnover ration indicates efficient utilization of working capital and vice versa. From the above diagram it is shown that the Working capital Turnover ratio of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 12.5, 23.8, 14.7 and 34.1 respectively. Compared with 2012, working capital turnover ratio is increased by 34.1 in 2013, so it indicates efficient utilization of working capital of the company.

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5)

Total Asset Turnover Ratio: (Amount in lacs.)

Total Asset Turnover Ratio

Year

Net Sales

Total Assets

TATR

2010

10613

7264

1.46

2011

15385

9361

1.64

2012

17769

13346

1.33

2013

12856

13802

0.93

62

GRAPHICAL REPRESENTATION

Total Asset Turnover Ratio

2 1.5
TATR

1.46

1.64 1.33 0.93

Total Asset Turnover Ratio

1 0.5 0 2010 2011 2012

2013

Year
Interpretation: From the above diagram it is shown that the total Asset Turnover ratio of GNA Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 1.46, 1.64, 1.33 and 0.93 respectively.

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From 2011 it is decrease by year by year. In 2013 Total Asset Turnover ratio is decrease by 0.93 as compare to previous year i.e 1.33.

6) Fixed Asset Turnover Ratio: (Amount in lacs.)

Fixed Asset Turnover Ratio

Year

Sales

Fixed Assets

FATR

2010 2011 2012 2013

10613 15385 17769 12856

2757 3675 5816 6947

3.8 4.2 3.1 1.9

64

GRAPHICaL REPRESENTATION

65

Fixed Asset Turnover Ratio

5 4
FATR

3.8

4.2 3.1

3 2 1 0 2010 2011 2012 Year 2013 1.9

Fixed Asset Turnover Ratio

Interpretation: From the above diagram it is shown that the fixed Asset Turnover ratio of GNA Enterprises Ltd. For year 2006, 2007, 2008 and 2009 are 3.8, 4.2, 3.1 and 1.9 respectively. From 2007 it is decrease by year by year. In 2009 Fixed Asset Turnover ratio is decrease by 1.9 as compare to previous year i.e 3.1

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7) Current Asset Turnover Ratio: (Amount in lacs.)

Current Asset Turnover Ratio

Year

Sales

Current Assets

CATR

2006

10613

4508

2.4

2007

15385

5686

2.7

2008

17769

7530

2.4

2009

12856

6854

1.9

67

GRAPHICAL REPRESENTATION

Current Asset Turnover Ratio

3 2.4 2
CATR

2.7

2.4 1.9
Current Asset Turnover Ratio

1 0 2006
Interpretation:

2007 2008 Year

2009

From the above diagram it is shown that the Current Asset Turnover ratio of GNA Enterprises Ltd. For year 2006, 2007, 2008 and 2009 are 2.4, 2.7, 2.4 and 1.9 respectively.

From 2007 it is decrease by year by year. In 2009 Current Asset Turnover ratio is decrease by 1.9 as compare to previous year i.e 2.4.

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Profitability Ratio 1) Gross Profit Ratio: (Amount in lacs.)

Gross Profit Ratio

Year

Gross Profit

Net Sales

G.P Ratio

2006

10444

10613

98

2007

14974

15385

97

2008

16817

17769

95

2009

12057

12856

94

69

GRAPHICAL REPRESENTATION

99 98 97

G ros s P rofit R atio

97

98

G .P R atio

96 95 94 93 92 G .P R atio 2006 98 2007 97 2008 95 2009 94

95 94

Year

Interpretation: There is no rule of thumb for gross profit ratio, Higher the ratio is better for the concern and vice versa. From the above diagram it is shown that the Gross Profit ratio of GNA Enterprises Ltd. For year 2006, 2007, 2008 and 2009 are 98%, 97%, 95% and 94% respectively. The gross profit ratio of the company is decrease year by year from 98% to 94% from 2006 to 2009.

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2) Net Profit Ratio: (Amount in lacs.)

Net Profit Ratio

Year

Net Profit

Net Sales

N.P Ratio

2006

121

10613

1.2%

2007

504

15385

3.3%

2008

665

17769

3.7%

2009

(86)

12856

(0.66)%

71

GRAPHICAL REPRESENTATION

Net Profit Ratio

N.P Ratio

3.70% 3.30%

N.P Ratio

1.20%

2006

2007

2008

2009 -0.66%

Year

Interpretation: Higher the ratio better is the Profitability for the concern. From the above diagram it is shown that the Net Profit ratio of GNA Enterprises Ltd. For year 2006, 2007, 2008 and 2009 are 1.2%, 3.3%, 3.7% and (0.66)% respectively. From 2006 to 2008 Net Profit ratio is increased every year but in 2009 it decreased by (0.66)% so it indicate that company profitability position is not good.

3) Operating Cost Ratio:

72

(Amount in lacs.)

Operating Cost Ratio

Year

Operating Cost

Net Sales

OCR

2006

15675

10613

1.5

2007

22255

15385

1.4

2008

25720

17769

1.4

2009

19030

12856

1.5

73

GRAPHICAL REPRESENTATION

Operating Cost Ratio

Operating Cost Ratio

1.5 1.5

1.4 1.4

2006

Year 2007

2008

2009

Interpretation: Lower the Ratio is better for the concern. From the above diagram it is shown that the operating cost ratio of GNA Enterprises ltd for the year 2006, 2007, 2008 and 2009 are 1.5, 1.4, 1.4 and 1.5 respectively. From 2007 and 2008 the operating cost ratio is same but in 2009 it is increased by 1.5.

Solvency Ratio 1) Debt Equity Ratio: (Amount in lacs.)

74

Debt Equity Ratio

Year

Long Term Debt

Equity

DER

2006

5741

1523

3.8

2007

6934

2427

2.9

2008

10254

3092

3.3

2009

10811

2991

3.6

GRAPHICAL REPRESENTATION

75

Debt Equity Ratio

4 3.5 Debt Equity Ratio 3 2.5 2

3.8 3.3 2.9

3.6

1.5
1 0.5 0 Debt Equity Ratio 2006 3.8 2007 2.9 Year 2008 3.3 2009 3.6

Interpretation: Generally a low ratio is considered as a favourable for the concern. From the above diagram it is shown that the Debt Equity ratio of GNA Enterprises ltd for the year 2006, 2007, 2008 and 2009 are 3.8, 2.9, 3.3 and 3.6 respectively. Compare with 2008 the debt equity ratio is increased by 3.6 in 2009.

2)Funded Debt to Total Capitalisation Ratio: (Amount in lacs.)

76

Funded Debt to Total Capitalisation Ratio

Year

Long Term Debt

Equity+ Long Term Debt

Ratio

2006

5741

7264

79%

2007

6934

9361

74%

2008

10254

13346

76%

2009

10811

13802

78%

GRAPHICAL REPRESENTATION

77

Funded Debt toTotal Capitalisation Ratio

80% 78%
Ratio

79% 76% 74%

78%

76%

74%
72% 70% 2006 79% 2007 74%
Year

Ratio

Ratio

2008 76%

2009 78%

Interpretation: There is not rule of thumb but if the ratio is smaller better it will be, upto 50% or 55% this ratio may be to tolerable and not beyond. From the above diagram it is shown that the Funded Debt to Total Capitalisation ratio of GNA Enterprises ltd for the year 2006, 2007, 2008 and 2009 are 79%, 74%, 76% and 78% respectively. Compare with 2008 the ratio is increased by 78% in 2009.

2) Proprietory/ Equity Ratio : (Amount in lacs.)

78

Proprietory/ Equity Ratio

Year

Equity

Total Assests

Ratio

2006

1523

7264

20%

2007

2427

9361

25%

2008

3092

13346

23%

2009

2991

13802

21%

GRAPHICAL REPRESENTATION

79

Proprietory Ratio
25% 25% 20%
Proprietory15% Ratio

23% 21%

20%

10% 5% 0% 2006 2007 2008 2009

Year

Proprietory Ratio

Interpretation: Higher the ratio or the share of the shareholders in the total capital of the company, better is the long term solvency position of the company. From the above diagram it is shown that the Proprietory/ equity ratio of GNA Enterprises ltd for the year 2006, 2007, 2008 and 2009 are 20%, 25%, 23% and 21% respectively. In 2009 the proprietory ratio decreased by 21% as compare to the previous year i.e 23%.

3) Fixed Assets to Net Worth Ratio: (Amount in lacs.)

80

Fixed Assets to Net Worth Ratio

Year

Net Fixed Assets

Equity

Ratio

2006

2757

1523

181

2007

3675

2427

151

2008

5816

3092

188

2009

6947

2991

232

GRAPHICAL REPRESENTATION

81

Fixed Assests to Net Worth Ratio

250% 200% 150% Ratio 100% 50% 181% 151% 232% 188%

Ratio

0%
2006
Interpretation: From the above diagram it is shown that the Fixed Assets to Net Worth ratio of GNA Enterprises ltd for the year 2006, 2007, 2008 and 2009 are 181%, 151%, 188% and 232% respectively. In 2009 the ratio is increased by 232% as compare to the previous year i.e 188%. If the ratio more than the 100% it implies that owners funds are not sufficient to finance the fixed assets and the company has to depend upon outsiders to finance the fixed assets.

2007

2008
Year

2009

4) Current Assets to Equity Ratio: (Amount in lacs.)

82

Current Assets to Equity Ratio

Year

Current Assets

Equity

Ratio

2006

4508

1523

2.9

2007

5686

2427

2.3

2008

7530

3092

2.4

2009

6854

2991

2.2

GRAPHICAL REPRESENTATION

83

Current Assests to Equity Ratio

3 2.5 2 Ratio1.5 1 0.5 0 2006
Interpretation: From the above diagram it is shown that the Current Assets to equity ratio of GNA Enterprises ltd for the year 2006, 2007, 2008 and 2009 are 2.9, 2.3, 2.4 and 2.2 respectively. In 2009 the ratio is decreased by 2.2% as compare to the previous year i.e 2.4.

2.9 2.3

2.4
2.2

Ratio

2007

2008
Year

2009

Overall Profitability Ratio 1) Return on Shareholders Investment Ratio: (Amount in lacs.)

84

Return On Shareholder Investment Ratio

Year

Profit after Tax

Equity

Ratio

2006

154

1523

0.10

2007

559

2427

0.23

2008

700

3092

0.22

2009

(17)

2991

(0.005)

GRAPHICAL REPRESENTATION

85

Return On Shareholders Investment Ratio

0.25 0.23 0.2 0.15 0.22

Ratio

0.1 0.05 0 2006 -0.05

0.1

Ratio

2007

2008

2009

-0.005

Year

Interpretation: Higher the ratio better for the overall efficiency for the concern. From the above diagram it is shown that the Return on Shareholders Investment ratio of GNA Enterprises ltd for the year 2006, 2007, 2008 and 2009 are 0.1, 0.23, 0.22 and (0.005) respectively. In 2009 the ratio is decreased by (0.005) as compare to the previous year i.e 0.22. So this ratio indicates that company overall efficiency is not satisfactory.

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Findings
The company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. The company does not have an internal audit system conducted by the firm of chartered accountants. According to the records of the company, there are no dues of sales tax, income tax, customs tax/ wealth tax, excise duty which have not been deposited on account of any dispute. The company has not defaulted in repayment of dues to a financial institution, bank or debenture holders. The company has not given any guarantee for loans taken by others from bank or financial institution. The term loans have been applied for the purpose for which they were raised. The company has not issued any debentures. The company has not raised any money by public issues during the year. The Current ratio of the company in 2013is decreased by 1.05 as compared to the previous year i.e 1.19. Quick ratio of the company in 2013 is decreased by 0.72 as compare to last year i.e 0.76. The Quick ratio of the company is less <1 that indicates unsound short term solvency position of the company. The Debtor turnover ratio is high in 2011 and 2013 years are 6.53 and 5.38 respectively but in 2013 it is decreased by 4.25. The Creditor turnover ratio is increased in 2010 to 2013 by 6.67 to 8.52 respectively But in 2013 it falls down by 6.03.

87

The stock turnover ratio of the company has been decreased from 3.61 to 2.88 from 2011 to 2013. Fixed Assets Turnover Ratio is decreased from every year i.e 3.8 to 1.9 from 2010 to 2013.

Current ratio is fall down by 1.9 in 2009 as compared to last year i.e 2.4. Gross profit ratio is fall by every year i.e 98% to 94% from 2006 to 2009 respectively. Net profit ratio is negative in 2009 year by (0.66) it indicates that companys profitability position is noy sound. In 2009 working capital is increased by 34.1 that indicates efficient utilization of working capital of the company. In 2009 operating cost ratio is increased by 1.5 as compared to previous year i.e 1.4. Debt equity ratio is increased by 3.6 in 2009 yr so it is considered as unfavourable for the company. In 2009 Proprietory/ Equity ratio is decreased by 21% as compare to the previous year i.e 23%. Fixed Assets to Net Worth ratio is increased by 232% in 2009 it shows that owners funds of the company are not sufficient to finance the fixed assets and the company has to depend upon outsiders to finance the fixed assets.

Return on Shareholder investment ratio is negative in 2009 i.e (0.005); it shows company overall efficiency is not satisfactory.

88

Limitation of the study 1) The project on Financial Performance Analysis is very time constraint process. 2) To gather information, I had to depend on some of the personnel of the firms; some of the them were too busy. 3) According to Companys norms, ethics, strategies etc the Financial Managers and Executives were not allowed to disclose each and every information related to the topic. 4) There is some area restriction for trainee.

89

Suggestions
GNA Enterprises Ltd. Should Increase its capacity utilization. It should work full capacity to minimize its cost of production. With this increase in capacity utilization, the total cost will spread over more units by decreasing per unit cost. Gross profit of the Company is reducing continuously last four years and Net profit should be increase through Control of raw material costs and other overhead costs. It also possible through improvement in research and development. The company need to Improve their liquidity position. GNAE Ltd must move into higher segment to capture more market. The Company must take serious steps to reduce the cost of inputs like coal, power etc. To face the present global challenges the human resources development should be develop to improve various skills among the employees specially the motivational skills and having the regular training for the employees about various development in the market. The sundry Debtors should be efficiently managed so that the outstanding are to be cleared at short intervals. Company should

90

The Company should have an internal audit system conducted by the firm of chartered accountants. The Company need to be issue the debentures. The Company should increase their capital through public invitation. The Company should reduce taking loan from banks.

Conclusion Financial ratios are a useful by product of financial statement and provide standardized measures of Company financial position, profitability and riskiness. It is an important and powerful tool in the hands of financial analyst. By calculating one or other ratio or group of ratios he can analyze the performance of a firm from the different point of view. The ratio analysis can help in understanding the liquidity and short-term solvency of the firm, particularly for the trade creditors and banks. Long-term solvency position as measured by different debt ratios can help a debt investor or financial institutions to evaluate the degree of financial risk. The operational efficiency of the firm in utilizing its assets to generate profits can be assessed on the basis of different turnover ratios. The profitability of the firm can be analyzed with the help of profitability ratios. So after calculating the ratio on the basis of information provided by the GNA enterprises Ltd. Company, I can say that the liquidity and profitability position of the company is not satisfactory because of the recession. Working capital turnover ratio of the company indicates the efficient utilization of working capital of the company.

91

However the ratio analyses suffers from different limitations also. The ratios need not be taken for granted and accepted at face values. These ratios are numerous and there are wide spread variations in the same measure. Ratios generally do the work of diagnosing a problem only and failed to provide the solution to the problem.

92