Professional Documents
Culture Documents
RATIO ANALYSIS
With reference to
G.SATYANARAYANA
(Regd.No. 20854100010)
Under the esteemed guidance of
K.BALA KRISHNA, MBA.
Faculty Member In M.B.A Department
SURAMPALEM, E.G.Dt.
2008-2010
CERTIFICATE
PROJECT GUIDE:
Mr. K.BALA KRISHNA, M.B.A
DECLARATION
Any omission in data given above I am alone responsible for any act.
Place :
(G.SATYANARAYANA)
Date:
ACKNOWLEDGEMENT
I wish to thank Sri J.NAGENDRA KUMAR, HOD, ADITYA INSTITUTE
OF P.G. STUDIES for his valuable support in doing this project.
I am also
CONTENTS
CHAPTER-1
INTRODUCTION
OBJECTIVES OF STUDY
NEED FOR THE STUDY
METHODOLOGY
CHAPTER-II
INDUSTRY PROFILE
CHAPTER-III
COMPANY PROFILE
CHAPTER-IV
THEORETICAL FRAME WORK
CHAPTER-V
DATA ANALYSIS AND INTERPRETATIONS
CHAPTER-VI
FINDINGS
SUGGESTIONS
BIBLIOGRAPHY
CHAPTER I
INTRODUCTION
INTRODUCTION
management
principles
to
particular
financial
operation.
firm.
Financial
Management
implies
the
designing
and
Production
Marketing
Finance
FINANCE FUNCTIONS:
It may be difficult to separate the finance functions from production,
marketing and other functions, but the functions can be readily
identified. The functions of raising funds, investing them in assets and
distributing returns earned from assets to shareholders are respectively
known as financing decision and dividend decision.
A firm attempts to balance cash inflows and outflows while performing
these functions. This is called liquidity decision and we may add it to
the list of important finance decision or functions.
The Finance Functions include Long term asset mix or investment
decision capital mix or financing decision, profit allocation or dividend
decision, short term asset mix or liquidity decision.
INVESTMENT DECISION:
A firms investment decisions involves capital expenditures. They are
therefore referred as capital budgeting decisions. A Capital Budgeting
decision involves the decision of allocation of capital or commitment of
funds to long-term assets that would yield benefits in future.
Two
and
FINANCING DECISION:
Financing decision is the second important function to be performed by
finance manager. Broadly he/she must decide when, where from and
how to acquire funds to meet the firms investment needs. The central
issue before him or her is to determine the appropriate proportion of
equity and debt.
capital structure.
DIVIDEND DECISION:
Dividend decision is the third major financial decision.
The finance
manager must decide whether the firm should distribute all profits or
retain them or distribute a portion and retain the balance.
The
LIQUIDITY DECISION:
Investment in current assets affects the firms profitabilitys liquidity,
Current assets management that affects firms liquidity is yet another
efficiently for safeguarding the firm against the risk of ill liquidity. Lack
of liquidity in extreme situations can load to the firms insolvency. A
conflict between profitability and liquidity while managing current
assets. If the firm does not invest sufficient funds in current assets, it
may become ill liquid and therefore risky. In the situation the finance
manager assets and make sure that funds would be made available
when needed.
so
that
normalized
market
price
can
be
workout.
share temporarily but future profits of the company are likely to suffer
without sufficient researches development and the result will be a drop
in market price in the long run.
The object of the company maximizing profits does not consider the risk
or uncertainty of prospective earnings stream. The objective of profit
maximization does not allow for the effect of dividend policy on the
market price of the share.
A few
Treasury
interest movements.
2.
3.
Optimum debt equity mix is possible. The firms have to take the
using
financial
leverage necessarily
makes
a business
vulnerable to financial risk. Finding a correct trade off between the risk
and the improved return to shareholders is a challenging task for a
finance manager.
4.
The Ratio
sophisticated
forecasting
and
planning
procedures.
Ratios help to
METHODOLOGY
The data used for preparing this report is collected from primary
and secondary sources.
PRIMARY DATA:
The Primary Data was collected on the basis of personal
observations, discussions and through interviews. I gathered data from
accounts department and MIS department of Regency Ceramics Ltd.,
Yanam.
SECONDARY DATA:
I mainly depended on secondary data i.e., published annual
financial statements of the company. I also collected data from kotaris
industry directory, journals, weekly magazines related to commerce and
industry and business news paper like economic times and business
line.
CHAPTER II
INDUSTRY PROFILE
It
The area of
Since
liberalization in the eighties the raising levels in the Income and the
Government encouragement in inserting the Infrastructure and the
reduction in interest rates have a boom to housing standards.
The
INDUSTRY CHARACTERISTICS:
1. Working Capital Intensive:
The raw materials have to be stored in advance. The clay has to
be stocked for at least four to six months as mixing is not possible
during rainy season and also could be heavier for transportation at that
time due to absorption. The costly glaze that are imported also have to
be stored for about four months.
Credit periods are also so long for the institution caters about 90
to 100 days as apposed to the 30 to 35 days for those serving in the
retail segment.
LPG or Naphtha are used as fuel for firing the tiles. Cost wise Natural
Gas is lowest, followed by Naphtha and LPG. Currently players in north
and west like KHAJARIA and BELL are at an advantage as they asses to
Natural Gas of HBG pipeline. Regency Ceramics to have an advantage
of basing their plant near Godavari basin and have an access to tatipalli
gas pipeline.
4. Location near Markets:
As transportation over a long distance is costly and profit comes
from returns, nearness to the markets plays an important role in
profitability.
JOHNSON, BELL and SPL rule the west; MURUDESWAR, REGENCY AND
SPARTEK share the south
PRODUCTION TECHNIQUES:
There are basically two techniques used. The newer single firing
and older double fast firing. A third double fast firing is also used less
frequently.
Generally double firing is batch processing and each batch takes
about 45 hours. Advantages are that the size and color variations are
minimum.
There are
1. Roller/roller
2. Tunnel/tunnel
3. Tunnel/roller
While the roller technology is for continuous production.
The tunnel
technology is for batch production. Single firing was introduced for the
first time in India for their floor tile manufacturing process.
Its fuel
growth in installed capacity in this sector. The demand for tiles from
different countries has highlighted that the Indian Industry needs to
concentrate on quality on a large scale basis to match the international
standards.
Ceramic happens to be an energy intensive industry and fuel is an
important component that calls for urgent attention.
India has
Its geographical
deterrents are the high energy and distribution costs along with the
import of glazes and colorants and appropriate advanced technologies.
Now the Government has opened up the imports, there a threat off
other Asian countries dumping their products in India.
MARKET STRUCTURE:
Ceramic tiles are being manufactured both in large and smallscale sectors, with great variance in sizes, quality and standards. There
are about 25 units in organized sector. The unorganized sector is hold
60% of share in the total market. The organized sector caters to the
needs of various states; the unorganized sector caters to the needs of
only local markets.
Company Name
Bell Ceramics
H R Johnson
Kajaria Ceramics
SPL
Madusudan India
Oriental Ceramics
Spartek
Floor Tiles
40,000
1,00,000
80,000
45,000
--------60,000
Wall Tiles
55,000
95,000
50,000
42,000
25,000
50,000
------
8
9
10
11
EI Parry
NITCO
Murudeswar
Regency Ceramics
----1,20,000
25,000
90,000
24,000
2,40,000
25,000
------
5,60,000
6,06,000
Ltd
Total
STATE COVERING
South
West
East
North
KASHMIR
CONSUMPTION
SHARE
30%
45% Highly
Competitive Zone
10%
15%
flooring, which is having 90% of the total market share. Mosaic tiles are
available at price range as of Rs.12-15 per Sq feet. The mosaic tiles are
not subject to any excise duty where as 16% excise duty is levied on
ceramic tiles. However the policy of the government is to reduce excise
duty on ceramic tiles to 10% as per Raja Celia committee report.
Already the excise duty on ceramic sanitary ware is reduce to 15%.
With the reduction of excise duty to the level of 10% and increase in the
capacities of various procedures, the ceramic tiles supply will increase
and the prices will come down making attractive to the consumer to go
in for ceramic tiles instead of Mosaic compared to mosaic tiles, laying of
ceramic floor tiles is much simply and less costly.
Market Share
16%
15%
13%
14%
10%
11%
11%
11%
100%
PRICE SENSITIVITY:
The market forces influence the prices of ceramic tiles. The prices
of ceramic tiles have fallen by about 20% in the last three years, as the
industry is facing price war and extended the credit period among major
players.
Low gestation
Export Market:
The ceramic tile production in the world is around three billion
Sq.Mts per year and the per capital ceramic tile consumption is also
showing an increased trend. There are many countries in the world,
which are depending on the other countries for their requirement of
ceramic tiles.
CHAPTER III
COMPANY PROFILE
COMPANY PROFILE
Thus
The
Regency
group
has
the
companies:
Regma Ceramics Limited, Karaikal
Regency Transport Carriers Limited, Yanam
Regency Glazes Limited, Yanam
Regma Packaging Pvt. Ltd., Yanam
Regency Clay Products Ltd., Krapa, A.P
Regency Educational Society, Yanam
Reccy Clay Products Pvt.Ltd., Karaikal
following
integrated
Pondicherry.
Regency
through
its
group
industries
is
providing
direct
The
with
international
Standards.
Dr.G.N.Naidu
has
been
SOCIAL OBLIGATIONS:
Regency Medical Services a Mobile Medical Hospital with a
dedicated medical team and equipped with all sophisticated medical
facilities has been set up by Regency to cater to the medical needs of
the poor people of Yanam and its surrounding places.
It is a mobile
and
Managing
Director
of
Regency
Ceramics
Limited,
ORGANISATIONAL
SET
UP
IN
REGENCY
CERAMICS
DIFFERENT
DEPARTMENTS
IN
LIMITED
S.NO
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
DEPARTMENT NAME
Quality Control
Research & Development
Projects & Expansion
Civil & House Keeping
Safety & Environment
Vehicles
Vehicle Maintenance
Utilities
Polishing
Work Shop
Personnel & Administration
General Administration
Security
Regency Medical Services
Canteen
REGENCY
CERAMICS
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
MAIN OBJECTIVE:
To produce the market quality tiles required for floor, wall &
Vitrified.
VISION:
CORE VALUES:
Social Responsibility
PROCESS DESCRIPTION:
The process description is different from Floor tiles to wall tiles.
FLOOR TILES:
Raw materials such as Ball Clay, Feldspar and Black Clay are
weighted in proportion in batch quantities and transferred to Ball Mill
through a belt conveyor.
provided to remove tramp iron particles. The raw materials are ground
in ball mill along with water to form slip.
stored in storage tanks. From the storage tanks the slip is pumped in to
spray drier by high pressure pump in autopsied the sherry falls down. It
becomes dry granulate powder with 6% moisture content, the dried
powder is stores in silos. From the silos the powder transforms required
sizes.
An
automatic feeding system transfers the tiles from drier to glaze lines
where different glazes and colorants are applied. Preparation of glazes
is carried out in wet mills with porcelain lining.
The tiles with the application of glazes and colorants are then
conveyed automatically in to the single layer fast firing kiln, where the
tiles are fired at above 1150 degree Celsius approximately. The fired
tiles coming out of the kiln are checked as per the quantity parameters.
Sorted out of different grades are packed in carton boxes. The carton
boxes are manually closed, strapped by strapping machine for exports
and placed on pallets.
product godown.
A)Floor tiles
B)Wall tiles
The aforesaid classification divides tiles into the most important groups,
according to the enclosed UNI Table, which has introduced in 1984, this
method of classification by referring to water absorption (porosity) and
shaping (pressing or extrusion).
4. CERAMIC BODIES:
Ceramic bodies can be divided in two main classes
a) Non calcareous for floor tiles
This class of bodies differs from the previous one, because it
does not contain carbonates, which are if at all present in very
low percentage
As matter of fact, their low water absorption as well as their
high nitrification degrees, typical of wall tiles excludes their
use.
On the contrary, feldspathic, sodic and or potassic fluxes (i.e.,
albite, pegmatite) which are produced at stronger vetrification
degrees and high temperatures are used.
SINGLE FIRING
Glazed/unglazed stoneware
Glazed/unglazed semi-stoneware
Water absorption 3 to
Monoporosa
Water absorption 10 to
6%
18%
5. PRODUCTION PROCESS:
Wall/Floor tiles
1) Grinding
The grinding of raw materials compounding ceramic body is
carried out in wet conditions through rubber or silica lined rotary
mills and with grinding load composed of silica pebbles.
Raw materials are weighed on a weighing bin and by means of a
conveyor loaded inside the mill, according to a predetermined
formula. Then a 50% quantity of water and a low percentage of
deflocculates are added to the dry product, in order to allow a
better flowing of the slip inside the mill.
The grinding process finishes when the particle size distribution of
raw
materials
reaches
the
requested
fineness;
this
being
2) Spray Drying:
The slip, coming from grinding and ready for spray drying or
drying process, so as to have the powder prepared for the
pressing phase, is then stored inside big underground tanks. This
slip is pumped at about 20 bar by nozzles which spray it in micro
spheres, inside a chamber where in counter current it meets with
a flow of hot air (about 400 Deg.C at the entry, 100 Deg.C at the
exit) which provides for the drying of the slip spheres by leaving
humidity from the middle towards the edges of the spray dried
powder spheres. Thereafter the powder is ready to be pressed.
3) Pressing:
This is the phase of tiles shaping. Tiles were obtained by loading
the powder into a die-set having variable cavities, according to the
requested sizes and then pressed with a determined to pressing
powder.
This powder, given by the oleo dynamic press divided by the total
pressing surface (total surface of tiles is called specific pressing
pressure and changes according to the type of product (wall tiles
about 210kgs/sqcm floor tiles about 350 kgs/sqcm and porcelain
tiles about 400 kgs/sqcm) the problems and the technological
characteristics of the process.
4) Drying:
Drying of tiles is carried out by using the stream of hot air which
by convection, warms up the tiles by allowing the gradual
5) Glazing:
With regard to wall and floor monoporosa the tiles coming out
from the drier are sent, still hot to the glazing line reaching the
first application at temperature (Deg.C) of about 80 Deg.C so as to
allow the evaporation of most of the water contained in the
glazes.
Otherwise, thats to say if tiles are cold, there will be the complete
absorption of glazes water in the support making it friable and
requiring a further drying process before firing.
The first application is given by the engobe, which a suspension
similar to the glaze, but much more refractory utilized as insulator
between support and glaze.
6) Firing:
It is carried out inside rapid continuous cycle roller kiln. From a
technological point of view, kilns are divided into five sections:
1. PRE-KILN
2. PRE-HEATING
3. FIRING
4. COOLING/CONTROLLED SUCTION
5. FINAL COOLING
7) Sorting or Classification:
At the kiln exit the material is transferred to the sorting line, where an
operator classifies the pieces according to the possible surface defects,
size flatness.
The classification includes three qualities plus scrap:
1st Quality: No visible defects at about 1.5 distances
2nd Quality: Small visible defects
3rd Quality: Evident defects
Scrap: Broken, cracked pieces and so on
European standards exactly state the lux with which tiles shall be lit up
the observation angle and the examination distance for tiles to be
classified.
CHAPTER IV
THEORETICAL FRAME WORK
RATIO ANALYSIS:
The ratio analysis has emerged as the principal technique of the
AFS. A ratio is a relationship expressed in mathematical terms between
two individual and groups of figures connected with each other in some
logical manner. The ratio analysis is based on the premise that a single
accounting figure by itself may not communicate any meaningful
information but when expressed as a relative to some other figure, it
may definitely give some significant information.
The relationship
For
Forms of Ratio:
Since a ratio is a mathematical relationship between to or more
variables/accounting figures, such relationship can be expressed
in different ways as follows:
As a pure ratio:
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.1200000 and the credit
sales are Rs.3000000. So the ratio of credit sales to cash sales
can be described as 2.5 (3000000/1200000) or simply by saying
that the credit sales are 2.5 times that of cash sales.
As a percentage: in such a case, one item may be expressed as
percentage of some other item. For example, net sales of the firm
are Rs.5000000 and the amount of the gross profit may be
described as 20% of sales i.e., (Rs.1000000/5000000)*100 or
simply 20%.
Current ratio
Cash ratio
FORMULA:Current Ratio=
Current Assets
Current Liabilities
condition.
NET WORKING CAPITAL RATIO:The difference between current assets and current
liabilities excluding short term bank borrowings is called Net
Working Capital (NWA) (or) Net Current Assets (NCA). Net working
capital is sometimes used as a measure of a firms liquidity.
LEVERAGE RATIOS:The sort term creditors, like bankers and suppliers of raw material,
are more concerned with the firms current debt paying ability. On
the other hand, long term creditors like debentures holders,
financial institutions etc. are more concerned with the firms long
term financial strength. In fact, a firm should have a strong short
as well as long term financial position of the firm, financial
leverage, (or) capital structure ratios are calculated.
These ratios show the proportion of debt and equity in
financing the assets. These ratios are classified into the following
categories.
Debt Ratios
DEBT RATIO:Several debt ratios may be used to analyze the long term
solvency of firm. The firm may be interested in knowing the
proportion of the interest bearing debt (funded debt) in the
capital structure.
It may, therefore, compute debt ratio by dividing total
debt by capital employed (or) net assets.
DEBT EQUITY RATIO:The relationship between the lenders contributions for each rupee
of the owners contribution is called Debt Equity Ratio. The ratio
measures the relative claims of creditors and owners against the
firms assets. The ratio should be optimum higher ratio is
profitable debt e equity ratio shows the relation between longterm debt and share holders funds.
FORMULA:-
Total Debt
Net Worth
CAPITAL EMPLOYED TO NET WORTH RATIO:There is yet another alternative way of expressing the
basic relationship between debt and equity. This can find out
using the below formula.
Capital employed
Net Worth
FORMULA:-
FORMULA:Interest Coverage
EBIT
Interest
FORMULA:Inventory
AVERAGE COLLECTION PERIOD: The average number of days for which debtors remain
outstanding is called the Average collection Period.
Average collection Period=No .of Days in a year (360) / Debtors
Turnover
ASSETS TURNOVER RATIOS: Assets are used to generate sales. Therefore, a firm
should manage its assets efficiently to maximize sales. The
relationship between sales assets is called assets Turnover .
Several assets turnover ratios can be discussed below.
TOTAL ASSETS TURNOVER RATIO:Some analyst like to compute the total assets turnover in
addition to (or) instead of the net assets turnover. This ratio
shows the firms ability in generating sales from all financial
resources committed to total assets.
FIXED AND CURRENT ASSETS TURNOVE R: The firm may wish to know its efficiency of utilizing fixed
assets and current assets separately.
WORKING CAPITAL TURNOVER RATIO: A firm may also like relate net current assets
(or) net working capital gap to sales. It may thus compute
net working capital turnover
working capital.
PROFITABILITY RATIOS: A company should earn profit to survive and grow over a
long period of time . Profits are essential , but it would be wrong
and society.
NET PROFIT MARGIN: Net profit is obtained when operating expenses, interest and
taxes are subtracted from the gross profit. The net profit margin
ratio is measured by dividing profit after tax by sales
RETURN ON INVESTMENT: The term investment may refer to total assets (or) net assets
. The funds employed in net assets is know as capital employed.
The conventional approach of calculating return on
investment is to divide PAT by investment . It is therefore
appropriate to use one of the following measures of Return of
investment for comparing the operating efficiency of firms.
OPERATING PROFIT MARGIN:Taxes are not controllable by a firm, and also, one may not
know the marginal corporate tax rate while analyzing the
published data. Therefore, the margin ratio may be calculated on
before tax basis.
Ratio
2. Intra-firm comparison:
Ratio analysis also makes possible comparison of the
performance of the different divisions of the firm. The ratios are
helpful in deciding about a efficiency or otherwise in the past and
likely performance in the future.
3. Helps in Planning:
Ratio analysis helps in planning and forecasting.
Over a
CHAPTER V
DATA ANALYSIS AND
INTERPRETATION
CURRENT
CURRENT
RATIO
AR
2003-
ASSETS
5665.23
LIABILITIES
3198.55
1.77
2004
2004-
6975.05
3375.12
2.06
2005
2005-
7500.39
5196.62
1.44
2006
2006-
9108.15
2853.28
3.19
2007
2007-
9054.12
3216.35
2.81
2008
2008-
10568.05
4302.56
2.46
2009
INTERPRETATION:
As a conventional rule, a current ratio of 2 to 1 or more is
considered satisfactory. The company has a current ratio of 2.46 in the
year 2008-09. It increase year to year but in the past years 2006-07 it
was 3.19, 2007-08 it was 2.81 is higher than the 2008-09 and at the
same time the current ratio in 2004-05,2005-06 it is very low compare
with 2008-09 because the current assets decreased and the current
liabilities were increased.
From the analysis of last 6 years, the companys current ratio is at
satisfactory level except in the years 2003-04 and 2005-06.
Last
Six
Years.
QUICK ASSETS
CURRENT
RATIO
4384.31
4651.95
4729.75
6337.51
4720.23
5510.31
LIABILITIES
3198.55
3375.12
5196.62
2853.28
3216.35
4302.56
1.37
1.38
0.91
2.22
1.46
1.28
YEAR
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
INTERPRETATION:
Generally a quick ratio of 1:1 is considered to be satisfactory
because this means that the quick assets of the firm are just equal to
quick liabilities and there does not seem to be a possibility of default in
payment by the firm.
The quick ratio in the current year was 1.28. The Quick ratio was
satisfactory in the organization except in the year 2005-06 which was
0.91.
The Graph showing the Quick Ratio of Regency Ceramics Ltd for
Last Six Years.
RATIO
2.5
2
1.5
1
0.5
0
2003-2004 2004-2005 2005-2006 2006-200762007-2008 2008-2009
-----------------------------------Current Liabilities
(Rs in Lakhs)
YEAR
ABSOLUTE
CURRENT
LIQUID ASSETS
LIABILITIES
1055.34
3198.55
0.32
1122.43
3375.12
0.33
1031.02
5196.62
0.20
979.44
2853.28
0.34
1053.99
3216.35
0.32
991.47
4302.56
0.23
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
RATIO
INTERPRETATION:
The company maintains the ALR ratio at a magnitude of 0.23:1 in
the year 2008-09 and around 0.30:1 in all the previous years. In the
year 2006-07 it was 0.34 because absolute liquid assets was decreased
and at the same time current liabilities was increased and in the year
2005-06 it was 0.20 it is very low compare with the 2007-08 and in the
year 2003-04, 2004-05, 2007-08 the ratio was 0.32 & 0.33, 0.32
respectively.
Leverage Ratios:
Therefore leverage ratios can be analyzed in two different ways:
1. As degree of indebtedness
2. As ability to service the debt.
Measures of the degree of indebtedness:
The measures of identifying the degree of indebtedness attempt
to establish the relationship of the total liabilities or only long term
2.
extent to which the firm should employ the debt should be viewed in
terms of the size of the cushion provided by the shareholders funds. It
is calculated as follows:
Total long-term debts
Debt-Equity Ratio=
(Rs in
Lakhs)
YEAR
TOTAL LONG
TOTAL SHARE
TERM DEBTS
HOLDERS
RATIO
FUNDS
2003-2004
8050.93
4926.54
1.63
2004-2005
8135.13
5250.37
1.54
2005-2006
8470.29
6735.41
1.26
2006-2007
13022.71
6617.85
1.96
2007-2008
11932.45
6622.59
1.80
2008-2009
12051.76
6265.00
1.92
The Graph showing the Long Term Debt Equity Ratio of Regency
Ceramics
LtdforLastSixYears.
RATIO
2.5
2
1.5
1
0.5
0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
-------------------Interest Charges.
(Rs in
Lakhs)
YEAR
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
EBIT
INTEREST
RATIO
2895.30
3423.29
3233.74
1386.08
1335.17
1076.68
CHARGES
899.28
1322.32
1113.64
1333.34
1263.90
1380.95
3.22
2.59
2.90
1.04
1.06
0.78
INTERPRETATION:
This ratio measures as to how many time the interest liability of
the firm is covered with the operating profits of the firm.
In the above case the Interest Coverage ratio of the firm was 0.78
times that of interest liability in the year 2008-09 as compared to 3.22
times in the year 2003-04.
Ltd
for
LastSixYears.
RATIO
3.5
3
2.5
2
1.5
1
0.5
0
2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Activity Ratios:
The Activity Ratios are also called the turnover ratios or
performance ratios. A turnover ratio or an activity ratio is a measure of
movement and thus indicates as to how frequently an account has
moved/turned over during a period. It shows as to how efficiently and
effectively the assets of the firm are being utilized.
Some of the important activity ratios are:
Inventory Turnover Ratio
Receivables Turnover Ratio (Debtors)
Payables Turnover Ratio (Creditors)
Working Capital Turnover Ratio
Total Assets Turnover Ratio
Fixed Assets Turnover Ratio
Capital Turnover Ratio.
-----------------------Average Inventory
------------------------------------2
COST OF
AVERAGE
RATIO
GOODS SOLD
2003-2004
9482
2004-2005
11128
2005-2006
13623
2006-2007
13345
2007-2008
12978
2008-2009
12858
INTERPRETATION:
INVENTORY
1134.53
1802.01
2456.87
3309.86
4091.49
4695.82
8.36
6.18
5.54
4.03
3.17
2.74
In the year 2008-09 the ITR is 2.74 if we compare with the last 5 years
it is very low. In the year 2003-04 the ratio was 8.36 because here the
cost of goods sold was increased. In the year 2004-05 it falls to 6.18.
RATIO
9
8
7
6
5
4
3
2
1
0
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
YEAR
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
CREDIT
SALES
13060.17
15372.67
17703.30
15738.01
15346.01
15632.10
AVERAGE
DEBTORS
2349.73
2673.01
2944.21
3227.02
2620.87
3571.64
RATIO
5.56
5.75
6.01
4.88
5.86
4.38
INTERPRETATION:
In the year 2008-09 the ratio was 4.38, it was low as compared to
the previous years.
2004-05 it was 5.75 and in the year 2005-06 it was 6.01 and in the year
2006-07 it was 4.88 and in the year 2007-08 it was 5.86. Increase of
debtors turnover ratio means increase the credit sales and average
debtors, Increase the credit sales create customer relationship between
company and customers.
RATIO
7
6
5
4
3
2
1
0
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
365
=
-------------------------------Payables Turnover Ratio
CREDIT
PURCHASES
3515.68
4442.39
5282.64
4793.53
5340.42
5286.22
(Rs in Lakhs)
AVERAGE
RATIO
PAYABLES
1900.00
1.85
2116.22
2.10
4560.79
1.16
2524.01
1.90
2699.31
1.98
3954.90
1.34
INTERPRETATION:
In the year 2008-09 the ratio was 1.34 and 2007-08 it was
1.98 and in the year 2003-04, 2004-05, 2005-06 , 2006-07 the ratios
were 1.85,2.10,1.16,1.90 respectively.
RATIO
2.5
2
1.5
1
0.5
0
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEAR
2003-04
TOTAL SALES
13060.17
(Rs in Lakhs)
WORKING
RATIO
CAPITAL
2466.68
5.29
2004-05
2005-06
2006-07
2007-08
2008-09
15372.67
17703.30
15738.01
15346.01
15632.10
3599.94
2303.77
6254.87
5837.77
6265.49
4.27
7.68
2.52
2.63
2.49
INTERPRETATION:
This ratio reflects turnover of the firms net working capital during
the year. The higher the ratio the more efficient is the management in
converting he working capital available in to sales.
In the year 2008-09 the working capital turnover ratio 2.49 it was
decreased as compare with the previous years in the year 2003-04 the
ratio was 5.29 and in the year 2004-05 the ratio was 4.27 it was
decreased other than the 2003-04 and in the year 2005-06 it was 7.68
and in the year 2006-07 it was 2.52 and in the year 2007-08 it was 2.63.
It means that there is a lot of fluctuations in the working capital turnover
ratio in the organisation.
RATIO
9
8
7
6
5
4
3
2
1
0
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Net Sales
=
-----------------------Average tangible assets
This ratio measures the per rupee sales generated by per rupee of
tangible assets being maintained by the firm.
That the
YEAR
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
TOTAL SALES
13060.17
15372.67
17703.30
15738.01
15346.01
15632.10
TOTAL ASSETS
16176.02
18570.05
22526.97
24780.56
23900.86
24576.82
RATIO
0.81
0.83
0.79
0.64
0.64
0.64
INTERPRETATION:
This
ratio
indicates
the
utilisation
of
total
assets
in
the
RATIO
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
TOTAL SALES
13060.17
15372.67
17703.30
15738.01
15346.01
15632.10
(Rs in Lakhs)
NET FIXED
RATIO
ASSETS
10829.17
1.21
11008.89
1.40
14487.41
1.22
15289.35
1.03
14534.07
1.06
13618.97
1.15
INTERPRETATION:
In the year 2008-09 the FAT ratio is 1.15and year, 2003-04,
2004-05, 2005-06, 2006-07,2007-2008 the ratio was 1.21, 1.40, 1.22,
1.03, 1.06.
Compare with the last 3 years the Net fixed assets was
2004-05
2005-06
2006-07
2007-08
2008-09
Net Sales
=
-----------------------Capital Employed
The higher the ratio the greater is the sales made per rupee of
capital employed in the firm and hence higher is the profit. Low capital
turn over ratio refers to low sales generated in relation to capital
employed or excessive capital being used in the firm.
TOTAL
SALES
13060.17
15372.67
17703.30
15738.01
15346.01
15632.10
(Rs in Lakhs)
CAPITAL
RATIO
EMPLOYED
12977.47
1.01
13385.50
1.15
15205.70
1.16
19640.56
0.80
18555.04
0.83
18316.76
0.85
INTERPRETATION:
The efficiency of the firm in utilizing its capital in turning up the
sales can be known by this ratio. Generally higher ratio is preferred as
high turnover leads to increase in profit.
In the year 2003-04 the ratio was 1.01 and in the year 2008-09 it
was 0.85, here there is no greater difference between previous years.
RATIO
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
CHAPTER VI
FINDINGS AND SUGGESTIONS
FINDINGS:
The liquidity ratios are not according to standards they are not
following any norms. They are fluctuating year to year. During
the Year 2008-09 they are par behind the standards.
The absolute liquid ratio is very high. But as per the previous year
2007-08 is 0.32, but in the year 2008-09 it was 0.23, but it very
low other than
2006-07.
The company uses more debt content then their owners funds to
finance fixed assets.
The Company long-term debts is high other than the share holder
funds.
In 2003-04 the interest charges was 899.28 lakhs but in the year
2008-09 it was 1380.95 Lakhs which is very high.
SUGGESTIONS:
After under taking the work ratio analysis with reference to Regency
Ceramics Limited and after finding out the facts it has been suggested
that
Since the liquidity ratios are not according to standards, they are
not follow the norms and they are fluctuating year to year. So, it
has been suggested that to reduce the current liabilities are to
increase current assets to maintain regularity in liqudity ratios.
The firm should maintain a regular debt to equity ratio if the debt
content is increased the firm should try to increase the equity by
adding profits.
BIBLIOGRAPHY
Financial Management
S.C.Kuchal
Financial Management
I.M.Pandey
Financial Management
P.V.Kulakarni
Annual Reports
S.N.Maheswari
Old Records
Company website:www.info@regency tiles.com