A STUDY ON RATIO ANALYSIS

With reference to

COROMANDEL FERTILISERS LTD

A project report Submitted to Andhra University, Visakhapatnam in partial fulfillment for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by SURLA VARA PRASAD
!eg "o#$%&'()%%%(*+

Under the guidance of MRS. K. SRIDEVI, M.B.A.,

,aculty in -anagement Studies

DEPARTMENT OF MANAGEMENT STUDIES ADITYA INSTITUTE OF P.G STUDIES

(Affliated to Andhara University)

SURAMPALEM, E.G. Dt $%%./$%)%

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ADITYA INSTITUTE OF P.G STUDIES

Affiliated to Andhra University+ 0hones# %&&'$+ $'$$(1, $'$$'%, cell# .&22' *222$
ADB Road, SURAMPALEM !""#"$, Ea%t Goda&a'( D(%t'()t

CERTIFICATE

3his is to certify that the project entitled A St*d+ o, Rat(o A,a-+%(% I, COROMANDEL FERTILI.ERS LTD,

VISAK/APATNAM is the bonafide record of work done by M'. S. Va'a P'a%ad, R01. No. 234!#5333#$ during the period 2334 2353 in partial fulfillment of the re4uirement for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION in ADITYA INSTITUTE OF P.G. COLLEGE affiliated to AND/RA UNIVERSITY5

P'o60)t G*(d0.

/0ad o7 t80 D09a't:0,t

M'%. K. S'(d0&( M.B.A.,

M'. ;. Na10,d'a K*:a' M.B.A.,

DECLARATION

6 here by declare that the project work entitled RATIO ANALYSIS with reference to COROMANDEL FERTILISERS LTD, VISAK/APATNAM is originally prepared and submitted by me to AND/RA UNIVERSITY, V6SA78A0A3"A- in partial fulfillment of the re4uirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION. 3he empirical findings in the report are based on the data collected by me while preparing this project5 6t has not been submitted to any other university or publication at any time before5

PLACE< DATE<

S.VARA PRASAD

ACKNO=LEDMENT

6 wish to thank S'( ;.NAGENDRA KUMAR, 89AD :, 389 D90A!3-9"3 :, -A"A;9-9"3 S3UD69S 6" AD63<A 6"S363U39 :, 05; S3UD69S for his valuable support in doing this project5

6 thank my project guide, M'%. K. S'( D0&(, MBA =ecturer in -anagement Studies for providing me his valuable guidance and e>pertise in successful completion of this project5

6 think my project e>ternal guide C/.V.S.R.SAN;EEVA RAO ,inance -anager+ who shows infinite patience and perseverance in teaching, suggesting remedies for the problems encountered in my project and in answering all my 4uestions5 6 also e>tend my thanks to my friends for their cooperation during my entire project period5

S.VARA PRASAD

'

CONTENTS
C/APTER > 5< 6"3!:DU?36:" :@A9?36V9S :, S3UD< "99D ,:! 389 S3UD< -938:D:=:;< ,:! 389 S3UD< =6-63A36:" :, 389 S3UD<

C/APTER > 2< C/APTER "< C/APTER #< C/APTER !< C/APTER ?< ,6"D6";S, SU;;9S36:"S A"D SU--A!< A"A=<S6S A"D 6"39!0!93A36:" 389:!936?A= ,!A-9 W:!7 ?:-0A"< 0!:,6=9 6"DUS3!< 0!:,6=9

BIBLIOGRAP/Y

C/APTER I
INTRODUCTION

INTRODUCTION

,inancial -anagement is that managerial activity, which is concerned which the BplanningC and BcontrollingC of the firmDs financial resources5 3he financial management studies about the process of procuring and optimum utiliEation of financial resources with a view to ma>imiEe the value of the firm there by the value of the owners i5e5, e4uity shareholders5

,inance is life of blood of any business and holds the key to all the business as well as Fhuman activitiesD5 3he government also treats as a sign and healthy indicator to control and measure its steps5 ,inance plays the role in every economic situation where there is a present or future payment of money5 ,inancial management is broadly concerned with the ac4uisition and use of funds by a business firms5 3he scope of financial management can be defined in terms of following 4uestions#

)5 $5 15

8ow large should be the firm and how fast should it growG What should be composition on firmDs assetsG What should be the composition of firmDs financingG

&

F(,a,)0 a,d ot80' Ma,a10:0,t F*,)t(o,%<

3here e>ists an inseparable relationship between finance on the one hand and production marketing and other functions on almost all kinds of business activities, directly or indirectly, involve the ac4uisition and the use of funds5 ,inance functions call of skillful planning, control and e>ecution of a firmDs activities5 3hus, while performing the ,inance -anager should strive to ma>imiEe the market value of share5

Finance Decisions:Decision under finance function includes# )5 $5 15 (5 6nvestment Decisions5 ,inance Decisions5 Dividend Decisions =i4uidity Decision5

INVESTMENT DECISION:6nvestment decision involves the careful selection of profitable investment proposals, allocation of funds to the investment proposals with a view to obtain the net present value of the future earnings of company and to ma>imiEe its value5 6nvestment decision involves the decision of allocation of capital to long term assets capital budgeting decisions+ and short term assets management of working capital+ two important aspects of the investment decisions are evaluation of the prospective profitability of new investments5 3he measurement of cut/off rate against that the prospective return of new investments could be compared5 6nvestment decision involves risk, because of uncertain future investment proposals should, therefore be evaluated in terms of both e>pected return and risk5 .

FINANCE DECISION:,inance function includes where, where and how to ac4uire funds to meet the firm investments needs determining the proposition of e4uity and debt i5e5, ?apital Structure of the firm5 :nce optimum capital structure is designed finance manager raises the appropriate amount through the best available sources5 6n this area, one must be concentrated on debt e4uity mi>, the advantages and disadvantages of having debt component in capital mi>, impact of ta>ation and depreciation on earning per share etc5

DIVIDEND DECISION:Dividend decision is where the financial manager must decide whether the firm should distribute all profits or distribute a portion and retain the balance5 3he optimum dividend policy is that which ma>imiEes the market value of the shares5 ,or this determination of optimum dividend payment rate is essential the payment return is e4uivalent to the percentage of dividends to earning available to shareholders5

I!UIDIT" DECISION:,inance decision is generally affected by current assets management, so current assets should be managed efficiently for safeguarding the firm against the damages of lack of li4uidity5 3he main aim of decision is that to ensure that neither more is invested in current assets nor it should have insufficient investment in current assets5

)%

DEFINITION OF CORPORATION FINANCE@FINANCE MANAGEMENT<

BAccording to Wheeler, @usiness ,inance as Bthat business activity which is concerned with ac4uisition and conservation of capital funds in meeting the financial needs and overall objectives of business enterprise5C According to 9ncyclopedia of social sciences B?orporation ,inance is dealing with financial problems of ?orporate 9nterprisesC5

))

=8at (% F0't(-(A0'%
Agriculture is an important economic activity and serves as a back bone for economic development of a developing county like 6ndia5 Agriculture is a very vital sector of 6ndiaDs economy5 3i accounts for 1$H of the countries ;D0, provides employment to 2'H of the work force and earns $*H of 6ndiaDs foreign e>change5 Agriculture is helpful in accelerating the growth and improving the economy of the people5 3herefore, growth of agriculture is an indicator of health of the overall economy5 3he most important factor that contributes to the growth of agriculture is the use of fertiliEers5 6ndia soil has been depleted of the essential nutrients re4uired for the healthy growth and desired yield of crops5 3hese scarce nutrients, which help in providing nitrogen, phosphorus, calcium and iron necessary for the healthy growth of the crop5 -any industries in the company also depend on agricultural output, which serves as raw materials for their plants5 8ence fertiliEer industry has been selected for study5 ?oromandel fertiliEer is standing out position of the rest5 6t plays a major role by contributing around )152*H of the total production of fertiliEer in 6ndia5 -oreover, total arable land being limited, the only way out for the future is to increase yield through judicious application of fertiliEers and pesticides5 ?,= is well positioned to help the country address this challenge5 ?oromandel is an enterprise that contributes its products towards development of agriculture5 3he companyDs ambience and goodwill has attracted me to select the company5 3he company has different departments

)$

like ,inance, -arketing, and -anufacturing etc5 6 have done my project in finance department of ?oromandel ,ertiliEers =imited5

OB;ECTIVIES OF T/E STUDY

3he study of the ratio analysis is carried out to fulfill the following objectives5

3o know about the business activities of ,9!36=6I9!S =6-639D5

?:!:-A"D9=

3o find out the li4uidity position of the company through li4uidity ratios5

3o know about the long term solvency of the company from time to time5

3o find out the operating efficiency of the company through the profitability, activity ratios5

3o find out the capacity of the company in meeting the operating e>penses like interest on debt capital, the companyDs debtorDs collection period and its credit terms etc5

)1

NEED OF T/E STUDY

3he study has various benefits to various parties directly or+ indirectly and has great significance5

3his study gives me a practical insight into the organiEations activities and enables me to know the practical problems and solutions in ?oromandel ,ertiliEers =imited main the area of ,inancial -anagement5

6t is beneficial to top -anagement of the company by providing crystal clear picture of various aspects contributing for co+ i5e5, ,inancial position etc55

3he study is also beneficial to employees and offers motivation by showing various activities contributing for company growth5

3he investors who are interested in the companyDs shares will also get benefits by going through the study and can easily take a decision whether to invest or not in the company shares5

6t is helpful in financial as it focuses on daily cash flows management and funds flow management in the organiEation5 )(

,inance plans are central instruments for directing and co/ordination the financial effort5

MET/ODOLOGY
3he information is collected through primary and secondary sources during this project5 And some of the important 6nformation presented in this study with respect to ?,= is taken from -ethodology adopted this study is two fold in nature5 :ne information through discussion and second publications5 3he study period is of two monthsD duration5 3he source of information can be categoriEed into primary and secondary sources5

P'(:a'+ data<
3he primary sources comprise information obtained from the manager of the finance department and various subordinates of the departments5

S0)o,da'+ data<
3he secondary source mainly comprises of the annul reports and other magaEines published by the company5 !eferring standard te>ts and reference books collected some of the information regarding theoretical aspects5

)'

LIMITATIONS OF T/E STUDY

9very study is conducted under some limitations5 Some of the limitations of the study are as follows5

3he scope for gathering data is very lessJ this is due to the fact that we are vocational trainees5

During the project period most of the staff members are busy with auditing and other works5 So they could not afford give full information5

Some of the information was not available due to the confidential matters5

Since officials, e>ecutives and others were busy the study was primarily focused on secondary data5

?omparison of ?orianderDs performance with other organiEations was not possible since the financial statements of other organiEations were not available5

Duration of time is also a limitation5

)2

C/APTER II
INDUSTRY ANALYSIS

)*

FERTILI.ER INDUSTRY AT NATIONAL LEVEL

,ertiliEers are of immense value to man5 3hey help the growth of agriculture production5 6ndia is primarily an agricultural or an agro based country5 8ence, it provides an immense role in providing support to millions of people of the country5 3he use of fertiliEers enables the plant to increase the crop production by absorbing greater amount of nutrients present in the soil5 8ence, the fertiliEers sector is one of the vital sectors in the economy of the country5 :f late, a large number of private and public sector fertiliEer plants have come up in the country5 3hese plants engage themselves in the production of several simple and comple> fertiliEers such as urea, ammonium phosphate and other comple> nitrogenous and phosphate fertiliEers, which play a strategic role in catering to the needs of the various sectors of the society5 Some of the major fertiliEers making companies are "agarjuna ,ertiliEers and chemicals =td5, ?oromondel ,ertiliEers =td5, are the major 0hosphoric plants in the country5 6n fact, all the other fertiliEer "agarjuna ,ertiliEers and ?hemicals =td5, ?oromandel ,ertiliEers =td5, are the major 0hosphoric plants in the country5 6n fact, all the other fertiliEer plants in the country are either nitrogenous or 0otash based5

)&

MEANING AND ESSENTIAL ELEMENTS<

,ertiliEer is defined as Bany material, organic or inorganic, natural or synthetic, which supplies one or more of the chemical elements re4uired for the plant growth5 A fertiliEer containing two or more nutrients and during the productions of which, chemical reaction takes place is called B?ompound or ?omple> ,ertiliEerC5 0rimary nutrients "itrogen "+, 0hosphorus 0 $:'+ and 0otash 7$:+ are normally supplied through chemical fertiliEers5

/ISTORY OF INDIAN FERTILI.ER INDUSTRY<

3he first fertiliEer factory in 6ndia was established at !anipet, 3amil "adu by 96D 0arry =td5, in ).%2 to produce super phosphate from the acidulation of crushed bones with an annual capacity of 2,(%% tons5 3his was followed by Dharmasri -aorajrji ?hemical ?ompany ,actory at Ambernath in -aharastra in ).$( and D?- at Delhi in ).2(, both produced any Super 0hosphate5 3he first production of nitrogenous fertiliEers viE5, Ammonium Sulphate was in )..1 as a by/product in the 3ata 6ron and Steel ?ompany at Aamshedpur5 3his was followed in ).() by production of small 4ualities of Ammonium Sulphate at @elagula, -ysore5 3he acute shortage of food immediately after the Second World War necessitated a fresh look at the ways of increasing production of food grains in the country5 6n this process, the needs for fertiliEers as an essential input for increased yields were realiEed5 As a result the ;overnment of 6ndia started a fertiliEer plant in Sindri5 6ndia was the fourth larges producer of "itrogenous fertiliEers in the world5 fertiliEers5 ). 6t was ranked & th in the phosphate

ROLE

OF

FERTILI.ERS

INDUSTRIES

=IT/

REFERENCE TO INDIAN AGRICULTURE<

Agriculture is a very vital sector of 6ndiaDs economy5 6t accounts for 1$H of the countries ;D0, provides employment to 2'H of the work force and earns $*H of the 6ndiaDs foreign e>change5 ;rowth of agriculture is an indicator of health of the overall economy5 3he most important factor that contributes to the growth of agriculture is the use of fertiliEers5 3he following points highlights the needs for fertiliEers5

3he development of fertiliEer industry in 6ndia has been synonymous with rapidly growing agriculture5

About '%H of the increase in crop productivity in recent times can be credited to the use of fertiliEers5

6ndia has different kinds of soils and agro/climatic regions5 ?enturies of cropping and inade4uate manure have left the 6ndian soil largely depleted of plant nutrients5

3o advise and educate the farmers about the use of fertiliEers and ensure the supply of 4ualitative products, a number of soil testing laboratories have been set up5 3hese helped the farmers in judicious use of fertiliEers5

3he consumption of fertiliEers is directly related to the availability of subsoil and surface water for irrigation and on the vagaries of the weather5

$%

3he consumption of fertiliEers is not evenly distributed5 3he imbalance has to be removed to bring about the optimum usage of fertiliEers5

3he 6ndia economic growth largely depends on agriculture5 8ealth of the fertiliEer indicates the trend of economic upturn andKor recession5

9arlier, the government used to fi> the selling prices of fertiliEers providing for distributorDs margins

6n ).**, the ;overnment introduced a retention price scheme for nitrogenous fertiliEers, which was lager e>tended to other fertiliEers5

3o make ade4uate 4uality of fertiliEers available to farmers in time, ;overnment also gave a freight subsidy, which covered the movement of fertiliEers to the block head 4uarters5

Due to ample mishandling political interference, ;overnment gave up all those plans and gave permissions for decontrol of 0hosphate and 0otassium fertiliEers to the block head4uarters5

$)

PRESENT TRENDS<
During the &th plant in )..$/.&, production came very close to )%%H capacity utiliEation in spite of the problems of sickness and raw material constraints5 3here would have been no shortfall in production during the & th plan but for the failure of planned capacity addition of seven lakh tones for nitrogen and $ lakh tones for phosphate due to feed stock supply constraints natural gas+5 6n case of phosphate fertiliEer which depends wholly on imported raw material only a small capacity addition was included in the & th plan with the adoption of pipe/reactor technology in the e>isting plans to enable them to achieve a production increase of $'/1%H5 3his did not help the units because of the policy changes in )..$ resulting in decontrol of phosphate fertiliEers5 3he major objective of .th plan )..*/$%%$+ strategy is to frame long term feed stock and price policies for fertiliEers and the steady tapering off of subsidies5 6t also aims to encourage inflow of fresh investments and bring about an increase in fertiliEer consumption5 3o realiEe optimum application, the large price disparity between the different nutrients to rely optimum applications will also have to be corrected5 6nfrastructure will have to be strengthened to ensure smooth rail movement of fertiliEers and port handling of imported nutrients5 3he lack of coherent fertiliEer policy made difficult by the political uncertainties created by coalition compulsion at the ?entre, is telling on the health of this vital industry, through production wise it has a better year in )..*/.& than in the previous year5 comprehensive fertiliEer policy5 3his underlined the need for the

As a response to this, a high power

committee recommended scrapping of unit wise retention price cum subsidies $$

scheme for both urea and comple> fertiliEers to facilitate balanced application by farmers5 3he pricing methodology was based on long/range marginal cost principle to enhance production efficiency5 3his pricing formula was also proposed to increase new investments and efficient use of feedstock5 ,ertiliEer Association of 6ndia welcomed the suggestions to bring the price DA0 and other comple> fertiliEers in line with the selling price or urea to minimiEe in balance in price ration and promote balance fertiliEer use5 8aving become the 1rd largest producer, 6ndiaDs production of plant nutrients during )..*/.& registered growth of )* and )2 percent5 3he major factor responsible for improve production was the improvement in the feedstock supply position5

LEGAL IMPLICATIONS
6n order to enforce discipline among the fertiliEer manufacturers, government introduced number of legislative measures for supply of standard fertiliEers to the ultimate consumers5

ESSENTIAL COMMODITIES ACT, 5B!!(ECA)

3his was enacted by 0arliament on )/(/'' to regulate the

production, supply distribution, trade and commerce of essential commodities in 6ndia, ,ertiliEer defined as one of the essential commodities5

FERTILI.ER MOVEMENT CONTROL ORDER, 5B$"

3his was promulgated under Sec/1 or 9?A to ensure e4uitable distribution of fertiliEers in different parts of the country, movement of fertiliEers from one state to another is possible when authoriEed by ?entral or State ;overnment5

$1

FERTILI.ER CONTROL ORDER, 5B4!(FCO)

With a view to ensure that the 4uality of fertiliEers is checked at manufacturing stage, statutory provisions have been made in the ,?: that each manufacturer has certain minimum testing facilities in their factory5 3he production of standard 4uality of fertiliEers alone does not ensure but the fertiliEers are delivered in the same chemical and physical condition duly protecting the nutrient contents5 -ost of fertiliEers being hygroscope in nature, their 4uality gets deteriorated if they are not properly packed, stored and distributed5

STANDARD OF =EIG/TS C MEASURES (PACKED COMMODITIES) RULES, 5B$$

Under Section /&1 of the Act, every package shall bear thereon a label securely affi>ed5 A definite plan and conspicuous declaration made in accordance with the provisions of the chapter in respect of name, address, net 4uantity, month and year of manufacture, common or genetic name of the commodity unit sale price etc5

SUBSIDIES TO FERTILI.ERS INDUSTRIES IN INDIA<

,ertiliEer subsidy is one of the important subsides related to agriculture sector in 6ndia5 3he other major subsidies are food subsidies electricity and canal water subsidy5 ,ertiliEer and food subsidies e>plicitly appear in the union budget, the power and subsidies are implicitly subsidies arising on account of lower user charged recovered from the consumers than the average cost associated with these inputs5

$(

COROMANDAL FERTILI.ER
?oromandel ,ertiliEers =imited incorporated in ).2(, was the result of the synergistic efforts of 9565D5 0arry 6ndia =imited, now belonging to the !s5($%% core -urugappa ;roup L of the leading business houses in 6ndia, and two major US corporations L ?hevron ?hemical ?ompany and 6nternational -inerals and ?hemical ?orporation 6-?+5 3his brought and 6ndia world Lclass technology for the production of high analysis fertiliEers5 6n )..' ?hevron ?hemical ?ompany disinvested their stake in favour of 6595D5 0arry and 6-? in end )..&5 After effecting buy/back of $% H of ?,=DS total shares in which the promoters did not participate, the ;roupDs stake has gone up to *&51(H5 3he 6ndian ,inancial 6nstitutions hold about *5'.H e4uity, the remaining )(5%*H being held by the public5 9ver since production commenced in ).2*, ?oromandel has been an active partner of the 6ndian farmer in the filed, helping him in his efforts to produce more from small land holdings5 6t has a crucial role in assisting 6ndia achieve self/sufficiency in food grain production5

LOCATION OF T/E PLANT<

?oromandel ,ertiliEers united plant is situated in '%% acres site at Visakhapatnam about ' 7ms from 8arbors5 3his site is leased from

Visakhapatnam 0ort 3rust from '% years with revival options5 ?omple> 0hosphatic fertiliEers are manufactured at the ?ompanyDs integrated plant using !ock 0hosphate imported from Africa, the 0acific and ?hina5 Sulphur is imported from Aapan and the -iddle 9ast5

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Due to increase in prices of 8ydrocarbons, operation of Urea and Ammonia productions facilities has been suspended5 Alternate arrangements are in place5 Ammonia, Urea and li4uid Sulphur are being imported at an economical rate5 6n )..' production was enhanced to ( lakhs -30A by retro/fitting the e>isting two trains of comple> fertiliEer plant5 With the commissioning of the ?omple> ? 3rain in the year $%%', production capacity was increased to 2 lakhs -30A5 Also, pollution controls levels were further improved and emission levels reduced5

S/ARE /OLDING PATTERNS<

-urugappa ;roup of companies holds *&51)H while the 6ndian ,inancials 6nstitutions hold about )$52$H5 6ndian 0ublic holds the balance .H5

$2

VISION, VALUES C BELIEFS

CORPORATE VISION<
3o be one of the leaders industry, with an all 6ndia presence, through #

8igh 4uality products and brand image5 -odern, cost effective and energy L efficient manufacturing facility5 Sustained growth in profitability5 8igh level of satisfaction to all stakeholders5

GUIDING PRINCIPLES<

Achieve

?ost/effective

operations

through

profitable

funds

management and efficient financial control5 ?reate cost and 4uality consciousness at all levels5 6ncrease levels of employee motivation, commitment and sense of belonging5 Adhere to an even improve upon statutory norms statutory norms on pollution control, environmental protection and ensure total safety to employees and neighborhood5 Use information 3echnology as a strategic tool for management5 0ropagate and adhere to ;roup values and beliefs5

$*

VALUES AND BELIEFS

AD#E$E
3o ethical norms in all dealings with shareholders, employees, customers, suppliers, financial institutions and government5

%$OVIDE
Value for money to customers through 4uality products and services5

T#$EAT
:ut people with respect and concern# provide opportunities to =ear, contribute and advance, recogniEe and reward initiative, innovativeness and creativity5

MAINTAIN
An organiEational climate conductive to trust, open communication and team spiritJ a style of operation, befitting our siEe, but reflecting moderation and humility.

MANA&E
9nvironment effectively harnessing opportunities5

DISC#A$&E
!esponsibilities to various sections of society and preserve environment,

$O'
6n an accelerate manner, consistent with values and beliefs, by continuous organiEation renewal5

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PRODUCTS
G'o:o' 5# "! 5#
?ontains nitrogen phosphate and potash5 8ighest total nutrients content 21H+ "M0 ratio same as DA05 @ut )(/1'/)( has e>tra )(H potash5 8ighest in phosphate 1'H+ @est for cotton, groundnut, chilly, Soya beans, potato etc5, "ot suitable for tobacco and grapes.

G'o:o' 24 24 3<
?omple> with highest "M0 in )#) ratio Uni4ue granulation by coating prilled urea with ammonium phosphate layer Such granule configuration ensures efficient utiliEation for nutrients5 8ighly suitable for paddy, wheat5

G'o:o' 23 23 3 5!<
Ammonium phosphate sulphate with "M0 in )#) ratio5 6ts special feature is )1H sulphur which is not available in most other fertiliEers5 3he response to the sulphur has been very encouraging in many crops, particularly oil seeds in sulphur deficient soil5

$.

G'o:o' 53 2? 2?<
A high analysis comple> fertiliEer containing all three major nutrients L "itrogen, 0hosphate and 0otash, was launched by ?,= in -arch $%%15 3his comple> contains 0hosphate and 0otash in the ration of )#), the highest among the "07 fertiliEers5 6ts uni4ue features being#

PARAMFOS 5? 23 3 5"
Ammonium 0hosphate Sulphate containing "itrogen, 0hosphate and Sulphur5 6t is the most preferred fertiliEer in drill/sown areas5

PARRY SUPER (SINGLE SUPER P/OSP/ATE)

,irst chemical fertiliEer to be manufactured in 6ndia5 ,avoured fertiliEer for dry land areas5 ?ontrols acidity in soil and increase productivity5

PARRY GOLD<
Ammonium 0hosphate Sulphate containing "itrogen and 0hosphate in )#) ration5 6t is an ideal fertiliEer for all corps grown in Sulphur deficient soils5

1%

BRIEF /ISTORY

5B?#<

?ompany set up by 96D 0arry "ow in -urugappa ;roup+ ?hevron ?hemical ?ompany 6nternational -inerals and ?hemicals ?orp5

3he last tow U5S5 ?ompanies have since divested their stake in favour :f 96D 0arry+5

5B?$<

0roduction started $5' lakhs -30A

5B4!<

?apacity enhances to 1 lakhs -30A

5BB!<

0roduction at ( lakhs -30A by retro/fitting e>isting two trains ?omple> ,ertiliEer 0lant

2333<

?ommissioned ?omple> ? train increasing the capacity to ( =akhs -30A

1)

A=ARDS GALORE
,A6 AWA!D received from ,ertiliEer Association of 6ndia for B6mprovement in :verall 0erformance of a ,ertiliEer UnitC for the year )..(/)..'5

,A6 AWA!D for the B@est production 0erformance of an :perating 0hosphoric Acid 0lantC for four consecutive years )..(/)..', )..'/ )..2, )..2/)..*, and )..*/)..&5

,A6 AWA!D for B@est performance in 9nvironment protection in "0K"07 fertiliEers plant Bfor the year )..'/.25

?ommendation -emento from 6-? ;lobal, USA for achieving three million safe working man hours without any lost time or accident, consecutively for the third time in September )..'5

!unner up Award B9nergy ?onservation and -anagementC given by Andhra 0radesh 0roductivity ?ouncil in )..'5

?ertificate of -erit for its house journal B3he ?oromandeliteC by 0ublic !elations Society of 6ndia, A505?hapter, in December, )..'5

1$

,irst 0riEe of Safety among )2$ ,ertiliEer ?ompanies in the 6nternational ,ertiliEers 6ndustries Sectional ?onte>t in )..$5 3he @est 6! Award from A0 0roductivity council in )..'5

ACCOUNTING POLICIES
3he accounts have been prepared primarily on the historical cost convention and in accordance with the mandatory accounting standards5 3he significant accounting polities followed by the company are stated below5 5.

F(D0d A%%0t%<
,i>ed Assets are shown at cost or valuation less depreciation5 ?ost comprises the purchases price and other attribute e>penses5 ,i>ed assets other than leasehold landKimprovement5 :ffice e4uipment, furniture fitting, certain vehicles and roads had been revalued on 1)st -arch )..), based on a valuation by an approved valuer5 3he indices, if any used are not stated in the valuation5

2.

D09'0)(at(o, o, F(D0d A%%0t%<

Depreciation has been provided on straight/line method5

Depreciation on assets revalued as at 1)st -arch )..) is provided on the basis of the residual technical life as ascertained by the valuer5 =easehold hold is being amortiEed over the lease period5

".

Fo'0(1, C*''0,)+ T'a,%a)t(o,%<

3ransactions made during the years in foreign currency are recorded at the e>change rate prevailing at the time of transactions5 Assets 11

and =iabilities related to foreign currency transactions remaining unsettled at the year end are translated at contract rates, when covered by foreign e>change contracts and at year end rates in other assets5

#.

I,&0%t:0,t%<
6nvestments are valued at cost of ac4uisition and related e>penses5

!.

I,&0,to'(0%<
Stores and spares are valued at monthly weighed average cost5 :ther inventories are valued at lower of cost and net realiEed value5 3he method of determination of cost of various categories of inventory is as follows#

a.

!aw -aterial > ,irst in first out method5 ?ost includes purchase cost and attributable e>penses5

E.

,inished goods and work L in L process L Weighted average cost of production which comprises of direct material costs, direct wages and appropriate overheads5 ;oods for resale L Weighted average cost5

?.

S*,d'+ D0Eto'% a,d Ad&a,)0%<

Specific debts and advances identified as irrecoverable and doubtful are written off or provided for respectively5

$.

R0&0,*0 R0)o1,(t(o,<

1(

a.

Sale of goods recogniEed at the point dispatch to customers5 Sales e>clude amount recovered e>cise duty and sales ta>5

E. ).

Dividend income from investments is accounted for when declared5 Subsidies# ?redit for ;overnment subsidies has been taken on the basis actual sales made by the company5

CFLFS MA;OR COMPETITORS

3he ,ertiliEers and ?hemicals 3ravancore =td ,A?3+5

;ujarat "armada Valleys ,ertiliEers M ?hemicals =td5, ;",?=+

;ujarat State ,ertiliEers ?ompany =td5, ;S,?=+

8industan =ever =td5, 8==+

6ndian ,armers ,ertiliEers ?o/operation =td 6,,?:+

-adras ,ertiliEers =td5, -,=+

0yrites and 0hosphates =td5, 00=+

!astriya ?hemical and ,ertiliEers ltd5, !?,+ 1'

Southern 0etrochemical 6ndustries ?orporation =td5, S06?+

Iuarii Agrochemicals =td5, IA=+

:swal ?hemicals and ,ertiliEers =td5, :?,=+

NON > FERTILI.ER ACTIVITIES

Sale of intermediates, such as Sulphuric acid, phosphoric acid and 8ydrofluosillic acid5 Sale of fertiliEer raw material such as sulphur , rock phosphate, potash etc5, Sale of by/product, viE5, gypsum and carbon dio>ide5 8andling of other cargo at our berth5

PRO;ECTS GOVERNMENT

UNDER

CONSIDERATION

BY

Setting up a grass root naphtha based urea plant by 6,,?: at "ellore in Andhra 0radesh to produce around * lakh tonnes5 3he plant is e>pected to be commissioned in $%%$5

"ational ,ertiliEers =imted, "angal 0anjab+ undertaken rebottle necking of their ureaplant for upgrading their production levels to * lakh tones by increasing $ lakh tonnes annually+5

A grass root urea plant is private sector by -Ks 0aharpu ,etiliEers, 8adia, and West @engal to produce around *5$ lakh tonnes5 12

8adia, and West @engal to produce around *5$ lakh tonnes5 ?oromandel ,ertiliEer =imited was farmed by under consortium of two outstanding US firms and pioneer 6ndian ?ompany 6nternational minerals and ?hemicals ?orporation 6-?+, is the worldDs largest independent producer of fertiliEers5 6t manufacturers and markets all the three major plant nutrients L "itrogen "+, 0hosphate 0 $:'+ and 0otash 7$:+5 ?hevron ranks among the worldDs largest food manufacturers5 3he company also contributes to the field of agricultural products encompassing insecticides, fungicides and weed killers5 96D 9ast 6ndia Distilleries+ with its subsidiaries was 6ndiaDs largest fertiliEer producer and seller5 6t is well known in South 6ndia as compared to "orth 6ndia do to the wide spread of Agricultural in Southern 0ort of 6ndia5 3he company ?,= was fortunately incorporated on )' th Auly, ).2) but begins its operation in December, ).2*5 6t was installed with an Annual ?apacity of $5' lakh metric tonnes -3s+ of comple> fertiliEers5 3he :riginal installed capacities assumed are# &%,%%% -3+ metric tonnes of "itrogen *&,%%% -3+ metric tonnes of 0hosphate "ow, the company ?,= belongs to -urugappa group a ?hemical based industrial house who had ac4uired major holds in the year )..*/.&5 3he company has a factory at Visakhapatnam and :ffice at @hubeneswar, @hopal, ?alcutta and "ew Delhi5 3he firm has a marketing office at 8yderabad to lookafter the promotional activities in the state of Andhra 0radesh5 3he company is very near to the harbour that it facilitates 1*

to receive raw materials5 3he company is importing li4uid Ammonia, !ock 0hosphate and Sulphur5 3he three elements which forms its raw materials5 3he company is e>tremely versatile and modern designed for easy maintenance and efficient operations5 9ver since the ?entral ;overnment of 6ndia liberaliEed the have

6ndustrial 0olicy in )..%Ds

many companies in 6ndia in general

struggled to face severe ;lobal ?ompletion and ?,= is one the very few companies to be able to stand up to the challenge and to do it an its own5 3his is possible because of the bread vision of the company5 3he ?ompany that started off with an annual capacity of $5&% =akh -3 per annum in ).2* stands with annual capacity of 25% lakh -3 of comple> fertiliEers as on today5 Another major aspect that has to be noted that the company has no subsidiaries5

OB;ECTIVES OF CFL<
3o enable the farmers Bgrow moreC by producing and supplying highly nutritious comple> fertiliEers at minimum cost5 3o ma>imiEe, the efficiency of both the men and machinery

through continuous up gradation of technology and providing training investment5 3o satisfy shareholders by giving them handsome returns on their investment5

1&

S=OT ANALYSIS
ST$EN&T#S:
Very long e>perience in the field of producing and selling fertiliEers5 Up/to/date technology and continuous upgradation5 :ptimum capacity utiliEation 9njoying great brand and corporate image Dealer and farmer loyalty5 ,inancially strong and firm5 "iche -arketing Strong promotional attractive Widespread sales network -inimum =abour problem Well/trained employees and good work culture5

'EA(NESS
"eglecting study based on sales promotion of retail outlets5 -arketing by intermediaries 0oor availability of product5 6mport of major raw materials

O%%O$TUNITIES
6ncreasing trend in using comple> fertiliEer areas5 =arge areas under each and oil seed crops ;rowling awareness and education among farmerDs community 1.

-odern farming practices 3he wide gap between demand and supply in 6ndian fertiliEer market

;iving

more

emphasis

the

use of comple> fertiliEer for

balanced fertiliEation5 ;overnment subsidy reduction on urea for facilitating the use of comple> fertiliEer5

T#$EATS
3he heavy competition in fertiliEer market5 ,re4uentKsubse4uent changes in government policies5 Shifting of demand from the companyDs products to competitorDs DA0 8uge consumption of urea cover comple> that is offered at lessor cost in the market. 3ynerance of the Agricultural sector by the present government5 Almost complete dependence on import of raw materials which will effect the company performance if the import prices are increased5

(%

C/APTER III
?OMPANY PROFILE

()

Co:9a,+ /(%to'+
5B!B
6ndependent 6ndia realiEed that its largely agrarian economy needed a thrust in the right direction for its people to benefit and prosper5 0rime -inister Aawaharlal "ehru invited the ,ord ,oundation to carry out a comprehensive study of 6ndian agriculture and give its recommendations5 3he study revealed a crucial need to produce indigenous chemical fertiliEers to increase agricultural output to meet the countryDs ever/increasing food demand5

5B?5
An industrial license was granted to three companies L 6-? the worldDs largest producer of fertiliEers then+, ?hevron ?hemical ?ompany a major American player in fertiliEers K industrial chemicals+ and 9565D50arry 6ndia+ =imited 6ndiaDs largest private fertiliEer producer with 2% yearsD standing+ L to set up a giant chemical fertiliEer comple>5 3he first @oard of Directors was constituted on :ctober )2, with 8 V ! 6engar as its ?hairman5 :thers on the @oard included A N ?ope, ?harles Dennison, A 7 Aohn, Dr = @harat !am, A W 8orton, A 3 ;ibson, S ? Dholakia, V 7 !ao and !aja !ameswar !ao5 = = 0owell and 0 A Davies were the first -anaging Director and Dy5 -anaging Direct respectively5 Donald 6 -eikle was the first ?ompany Secretary5

5B?2
-arket development commence in the form of a Bseeding programmeC5 9565D5 0arry was appointed ?,=Ds principal sales agent in 6ndia for our

($

product aptly name B;!:-:!C epitomising the idea of ;!:wing -:!e food for the nation5 A (&15' acres site was identified at Visakhapatnam along the B?oromandelC coast 6ndiaDs east coast+, from where the ?ompany derived its name5 3he land, taken under a '%/year lease from Visakhapatnam 0ort 3rust, has a private jetty just ' km from the plant site5 With a capital investment of !s5'% crores, =umus ?ompany undertook construction of the plant5

5B?$
:n December )%, -r5 -orarji Desai, the then Deputy 0rime -inister of 6ndia, dedicated the fertiliser plant to the nation, in the presence of -r5 7asu @rahmananda !eddy, the ?hief -inister of Andhra 0radesh5 ;randhi !amamurthy, a local farmer, was given the honour of cutting the ribbon5 3he $(' ft high Urea prill tower was one of the tallest industrial structures in 6ndia then5 3hough not operational today, it still presents a formidable sight, towering against the skyline, recalling old memories for those who were associated with its operation5

5B$3
3he B;!:-:! farmerC was developed as a marketing symbol and introduced on our bags to spread the message of Bhigher yields, bigger profitsC5 3oday, farmer house holds across our addressable markets identify ?,=Ds brand by this symbol5

5B$5
3he B?oromandel =ectureC was instituted to provide a forum for thinkers, economists, social and agricultural research scientists around the world to

(1

share their thoughts on issues of global concern such as food security, environment and e>tension activity5 3he B@orlaug AwardC, instituted in honour of "obel =aureate Dr "orman @orlaug father of the wheat revolution+, honours eminent men of science and industry for their distinctive contribution to the cause of agriculture5 3his reflects ?,=Ds concern to develop a symbiotic interaction between agriculture, industry and academia5

5B$?
:ur fertiliser retail outlet at Secunderabad got a boost with garden lovers fervently seeking small 4uantities of fertilisers for bigger and richer blooms and fruit5

5B$$
?,= completed a decade of participation in augmenting agricultural production for the nation5 6ts vital role covered soil nourishment, sharing agronomic e>pertise, supporting agricultural education and rewarding research L all of which had progressively grown in width and depth during the decade5

5B43 B3
0lans to diversify were afoot5 A BgroundbreakingC ceremony was performed in "ovember ).&% at ?hilamkur Andhra 0radesh+, which is rich in limestone deposits, to set up a one million tonne cement plant5 3he fully computerised plant designed by world/renowned cement manufacturer

7rupp 0olysius of West ;ermany+ was commissioned in ).&(5 6t was later sold to 6ndia ?ements in )..%1

((

5BB! BB
?hevron ?hemical ?ompany divested its stake in favour of 9565D50arry 6+ =imited in )..', followed by 6-? in )...5 9565D5 0arry 6+ =imited

ac4uired majority shareholding in ?,=, making it a part of the -urugappa ;roup, a highly reputed industrial conglomerate5

2333
?,=Ds growth over the years has been punctuated with several path/ breaking modernisation K upgradation programmes5 @egun in ).*', the programme gathered momentum in )..$/.', when the Sulphuric Acid, 0hosphoric Acid and ?omple> ;ranulation plants were debottlenecked5 0roduction capacity wend up from the original $(*,%%% -3 to (%%,%%% -35 :n September $., -r5 " ?handrababu "aidu, the then ?hief -inister of Andhra 0radesh, inaugurated a new comple> granulation train5 3his further augmented capacity to 2%%,%%% -3, a boon to the entire farming community5

233"
:n Auly )$, ?,= consolidated its business by ac4uiring controlling stake in ;odavari ,ertilisers M ?hemicals =imited ;,?=+5

3o optimise synergy of operations in the ;roup, the ,arm 6nputs Division of 9565D 0arry 6+ =imited was merged with ?,= on December )5

233#
-r5 V5 !avichandran took over as 0resident M W3D on Aanuary $$5 -r5 A5Vellayan took over as ?hairman on September )5 :ther Directors on the @oard are -r5 A5Aayaraman, -r5-5-5-urugappan, -r5 35-5- "ambiar , -r5 -5753andon, -r5 D595Udwadia, -r5 S5Viswanathan M -r575A5"air5 3he first post/merger A;- of the ?ompany was held on Auly )'5

('

Lo)at(o,%

?,=Os has fertiliser plants in Visakhapatnam, 9nnore and !anipet and 0lant 0rotection ?hemicals plant at "avi -umbai, !anipet and Aammu5 6t also has marketing branches in the following states# -adhya 0radesh ?hattisgarh :rissa Andhra 0radesh 7arnataka 3amilnadu 0unjab 8aryana !ajasthan ;ujarat -aharashtra 7erala 3amilnadu

(2

AGa'd% C R0)o1,(t(o,%
3he ,A6 @est 0roduction 0erformance Award L $%%2 for the 0hosphoric Acid 0lant at ViEag, Award for $%%'/%2 @est 9nergy ?onservation in the ,ertiliser sector received by ViEag 0lant on December )( $%%2, "ational 9nergy ?onservation Day5 3he ,A6 @est Video ,ilm Award L $%%2 for the film on F;romor SulphurD for the 'th time5 "ational Award )st 0riEe+ for 8ouse Aournal L $%%2 from 3he 0ublic !elations Society of 6ndia, "ew Delhi, received for F3he VoiceD house journal + for the $nd consecutive year5 "ational Award $nd 0riEe+ for Video ,ilm L $%%2 from 3he 0ublic !elations Society of 6ndia, "ew Delhi received by -arketing Department ,ertilisers + for the film B?heyuthaC 8elping 8and+ @ritish ?ouncil F,ive StarD rating for Safety -anagement System in )..&5 ,irst priEe for safety, among the )2$ fertiliser companies in the 6nternational ,ertiliser 6ndustries Sectional ?ontest5 Andhra 0radesh 0ollution ?ontrol @oardDs award for FWaste -inimisation at Source and Adopting ?leaner 3echnologiesD for $%%)/%$5 ,A6 award for F9nvironmental 0rotection in "0K"07 ,ertiliser 0lant ?ategoryD for )..'/.25

(*

M(%%(o, C V(%(o,
Vision:
3o be the leader in the phosphatic fertiliser industry, producing high 4uality fertilisers at low cost and giving satisfaction to all stake holders5

%)r*ose + Mission
3o enhance the prosperity of farmer through the supply of 4uality farm inputs and related services to ensure value for money5

Va-*0% C B0-(07%
Adhere to ethical norms in all dealings with shareholders, employees, government 0rovide value for money to products and services 3reat our people with respect and concernJ provide opportunities to learn contribute and advanceJ recogniEe and reward initiatives, innovativeness and creativity5 -aintain an organiEation climate conducive to trust, open customers through 4uality customers, suppliers, financial institutions and

communication and team spirit5 a style of operation befitting our siEe, but reflecting moderation and humility -anage environment effectively for harnessing opportunities Discharge responsibilities to various sections of society and preserve environment5

(&

;row in an accelerated manner, consistent with values and beliefs, by continuous organiEation renewal5

E,*orts
:ur products are e>ported to several countries5 We have our own registrations for our products in several countries5 We also operate through agents or distributors in countries where they have registered our products5 :ur e>ports presently account for about 1% H of the turnover

(.

C/APTER IV
T/EORETICAL FRAME =ORK

'%

RATIO ANALYSIS
!atio analysis is widely used tool of financial analysis5 3he term ratio in it refers to the relationship e>pressed in mathematical terms between two individual figures or group of figures connected to each other 6 some logical manner and are selected from financial statements of the concern5 3he ratio analysis based on the fact that a single accounting figures by itself may not communicate any meaningful information but when

e>pressed as a relative to some other figure, it may definitely provide some significant information5 3he relationship between two accounting users can draw conclusions about the

figures in such a way that

performance, strengths and weaknesses of a firm5

CLASSIFICATION OF RATIOS<
Several ratios, calculated from the accounting data, can be grouped into various classes according to financial activity or function to be

evaluated5 3he parties interested in financial analysis are shout and long term creditors, owners and management5 Short/term creditors main interest is in the li4uidity position or + the solvency of the firm5 =ong / term

creditors, on the other hand, are more interested in the long/term solvency and profitability of the firm5 3here are different parties interested in the ration analysis for knowing the financial position of a firm for different purpose5 3he ratios can be classified into the following four important categories5 =i4uidity ratios =everage ratios or+ Solvency ratios Activity or+ 3urnover ratios ')

0rofitability ratios

I!UIDIT" $ATIOS<
=i4uidity ratios measure the ability of the firm to meet its current obligations5 6n fact, analysis of li4uidity needs the preparation of cash budgets and cash and funds flow statementsJ but li4uidity ratios, by establishing a relationship between cash and other current assets to current obligations =iabilities+, provide a 4uick measure of li4uidity5 A firm should ensure that it does not suffer form lack of li4uidity and also thar it does not have e>cess li4uidity5 3he most common ratios, which indicate the e>tent of li4uidity or+ lack of it are ?urrent !atios Nuick !atio or+ Acid 3est !atio ?ash !atio "et Working ?apital !atio

CU$$ENT $ATIO:?urrent ratio is calculated by dividing current assets by current liabilities5 3he current assets ratio is a measure of the firmDs short/term solvency5 3he ratio e>presses the relation between current assets and current liabilities5 6t is also known as working capital ratio5

FO$MU A:?urrent Assets ?urrent !atio P ?urrent =iabilities

'$

!UIC( $ATIO:Nuick ratio is also called acid/test ratio, established a relationship between 4uick or+ li4uid assets and current liabilities5 An asset 6s li4uid if it can be converted into cash immediately or+ reasonably soon without a loss of value5 ?ash is the most li4uid asset5

FO$MU A:?urrent Assets / 6nventories Nuick !atio P ?urrent =iabilities

CAS# $ATIO:Since cash is the most li4uid asset, a financial analyst may e>amine cash ratio and its e4uivalent to current liabilities5 3rade investment or+ marketable securities is e4uivalent of cash thereforeJ they may be included in the computation of cash ratio5

FO$MU A:?ash Q -arketable Securities ?ash !atio P ?urrent =iabilities According to conventional rule a cash ratio of %5'#) is applicable5

NET 'O$(IN& CA%ITA $ATIO:3he difference between current assets and current liabilities e>cluding shot/term bank borrowing is called "et Working ?apital "W?+ or+ "et ?urrent Assets "?A+5 "et working capital is sometimes used as a measure of a firmDs li4uidity5

'1

FO$MU A:"et Working ?apital "et Working ?apital !atio P "et Assets

EVE$A&E $ATIO:3he short/term creditors, like bankers and suppliers of raw material, are more concerned with the firmDs current debt/paying ability5 :n the other hand, long/term creditors like debenture holders, financial institutions etc5 are more concerned with the firmDs long/term financial strength5 6n fact, a firm should have a strong short as well as long/term financial position of the firm5 ,inancial leverage or+ capital structure ratios are calculate5 3hese ratios show the proportion of debt and e4uity in financing the assets5 3hese ratios are classified in the following categories5 Debt !atio Debt/e4uity !atio ?apital 9mployed to "et Worth !atio :ther Debt !atios 6nterest ?overage !atio

DE-T $ATIO:Several debt ratios may be used to analyEe the long/term solvency of firm5 3he firm may be interested in knowing the proportion of the interest bearing debt funded debt+ in the capital structure5 6t may, therefore, compute debt ratio by dividing total debt by capital employed or+ net assets5 '(

FO$MU A:3otal Debt Debt !atio P ?apital 9mployed or+ "et Assets 3otal Debt

NOTE:3he capital employed e4uals net assets that consist of net fi>ed assets and net current assets5 "et current assets are current assets minus current liabilities e>cluding interest bearing short/term debt for working capital5 3hese relationships are "et ,i>ed Assets Q ?urrent Assets ",A+ Q ?A+ P "W Q 3D Q ?= ",A Q ?A L ?= P "W Q3D ",A Q "?A L ?= P "W Q 3D "A P ?9

DE-T E!UIT" $ATIO:3he relationship between the lenderDs contributions for each rupee of the ownerDs contribution is called BDebt 94uity !atioC5 3he ratio measures the relative claims of creditors and owners against the firm assets5 3he ratio should be optimum higher ratio is profitable debt e4uity ratio shows the relation between long/term debt and share holders funds5

FO$MU A:3otal Debt Debit 94uity !atio P ''

"et Worth

CA%ITA EM% O"ED TO NET 'O$T# $ATIO:3here is yet another alternative way of e>pressing the basic relationship between debt and e4uity5 3his can be find out by using the below formula5

FO$MU A:?apital 9mployed ?apital 9mployed to "et Work !atio P "et Worth

OT#E$ DE-T $ATIO:?urrent liabilities are generally e>cluded from the computation of =everage !atio5 :ne may like to include them on to ground that they are important determinates of the firmDs financial risk since they represent obligations and e>ert pressure on the firm and restrict its activities5

FO$MU A:3otal =iabilities

3otal =iabilities to =ong/term ,und !atio P 3otal Assets

INT$EST COVE$A&E $ATIO:3he interest coverage ratio or the times/interest Learned is used to test the firmDs debt L servicing capacity5 3he interest coverage ratio is computed by dividing earnings before interest and ta>es 9@63+ by interest charges5

FORMULA<
9@63 6nterest ?overage P '2

6nterest

'*

ACTIVITY RATIO
,unds of creditors and owners are invested in various assets to generate sales and profits5 3he better the management of assets, the larger the amount of sales5 Activity ratios are employed to evaluate the efficiency with which the firm manages and utiliEes its assets5 3hese ratios are also called B3urnover !atios C because they indicate the speed with which assets are being converted or+ turned over into sales5 Activity !atios, thus, involve a relationship between sales and assets5 3he Activity ratios are classified into some categories such as 6nventory 3urnover !atio Debtors 3urnover !atio Assets 3urnover !atio Average ?ollection 0eriod Working ?apital 3urnover !atio

INVENTO$" TU$NOVE$ $ATIO:6nventory 3urnover indicates the efficiency of the firm in producing and selling its product5 6t is calculated by dividing the cost of goods sold by the average inventory5

FO$MU A:?ost of ;oods Sold 6nventory !atio P Average 6nventory

'&

3he average inventory is the average of opening and closing balances of inventory5 6n a manufacturing company inventory of finished goods is used to calculate inventory turnover5

DE-TO$ TU$NOVE$ $ATIO:A firm sell goods for cash and credit5 ?redit is used as a marketing tool by a number of companies5 When the firm e>tends credits to its customers, debtors are created in the firmDs accounts5 Debtors are convertible into cash over a short period and therefore, are included in current into cash over a short period and therefore, are included in current assets5 Debts turnover is also called as Account !eceivable 3urnover5 Debtors turnover is found out by dividing credit sales by average debtors5

FO$MU A:?redit Sales Debtors 3urnover !atio P Average Debtors Debtors turnover indicates the number of times debtors turnover each year5 ;enerally, the higher the value of debtors turnover, the more efficient is the management of credit5

AVE$A&E CO

ECTION %E$IOD:-

3he average number of days for which debtors remain outstanding is called the BAverage ?ollection 0eriodC5 "o5of Days in a year 12%+ Average ?ollection 0eriod P Debtors 3urnover

:r+ '.

Debtors R "o5 of Days in a year 12%+ Sales

3he collection period ratio thus helps an analyst in two respects5

6n determining the collectability of debtors and thus, the efficiency of collection efforts5

6n ascertaining the firmDs comparative strength and advantage relative to its credit policy and performance vis/S/vis the competitorDs credit policies and performance5

ASSETS TU$NOVE$ $ATIOS:Assets are used to generate sales5 3herefore, a firm should manage its assets efficiently to ma>imiEe sales5 3he relationship between sales and assets is called BAssets 3urnoverC5 Several assets turnover ratios can be discussed below.

NET ASSETS TU$NOVE$:3he firm can compute B"et Assets 3urnoverC simply by dividing sales by net assets5

FO$MU A:Sales "et Assets 3urnover !atio P "et Assets

2%

TOTA ASSETS TU$NOVE$ $ATIOS:Some analysts like to compute the total assets turnover in addition to or+ instead of the net assets turnover5 3his ratio shows the firmDs ability in generating sales from all resources committed to total assets5

FO$MU A:Sales 3otal Assets 3urnover !atio P 3otal Assets

FI.ED AND CU$$ENT ASSETS TU$NOVE$:3he firm may wish to know its efficiency of utiliEing fi>ed assets and current assets separately5

FO$MU A:Sales ,i>ed Assets 3urnover !atio P "et ,i>ed Assets 3he current assets turnover is Sales ?urrent Assets 3urnover !atio P ?urrent Assets

'O$(IN& CA%ITA TU$NOVE$ $ATIO:A firm may also like to relate net current assets or+ net working capital gap to sales5 6t may thus compute net working capital turnover by dividing sales by net working capital5 2)

FO$MU A:Sales "et Working ?apital 3urnover !atio P "et ?urrent Assets

PROFITABILITY RATIOS<
A company should earn profits to survive and grow over a long period of time5 0rofits are essential, but it would be wrong to assume that every action initiated by management of a company should be aimed at ma>imiEing profits, irrespective of concerns for customers, employees, suppliers or+ social conse4uences5 6t its unfortunate that the word B0rofit Cis looked upon as a term of abuse since some firms always that want to ma>imiEe profits at the cost of employees, customers and society5 0rofit is difference between revenues and e>penses over a period of time5 0rofit is ultimate B:utputC of a company, and will have no future if it fails to make sufficient profits5 3he profitability ratios are calculated to measure the operating efficiency of a company5 ;enerally, two major types of profitability ratios are calculated such as 0rofitability in relation to Sales 0rofitability in relation to investment5

3he following are the some of important profitability !atios5 ;ross profit -argin "et profit -argin !eturn on 6nvestment !eturn on 94uity !eturn on ?apital 9mployed 2$

:perating 0rofit -argin

&$OSS %$OFIT MA$&IN<

3he first profitability ratio in relation to sales is the gross profit margin or+ gross margin ratio5 3he gross profit margin reflects the efficiency with which management produces each unit of product5 3he ratio indicates the average spread between the cost of goods sold and the sales revenue5 3he ;ross 0rofit !atio is calculated by dividing the gross profit by sales5

FO$MU A:;ross 0rofit ;ross 0rofit -argin P Sales A high gross profit margin ratio is a sign of good management5

NET %$OFIT MA$&IN:"et profit is obtained when operating e>penses, interest and ta>es are subtracted from the gross profit5 3he net profit margin ratio is measured dividing profit after ta> by sales5

FO$MU A0rofit After 3a> "et 0rofit -argin !atio P Sales "et profit -argin !atio establishes a relationship between net profit and sales and indicates managementDs efficiency in manufacturing, administering and selling the products5

$ETU$N ON INVESTMENT:3he term investment may refer to total assets or+ net assets5 3he funds employed in net assets is known as capital employed5 21

3he conventional approach of calculating return on investment is to divide 0A3 by 6nvestment5 6t is therefore appropriate to use one of the following measures of !eturn on investment for comparing the operating efficiency of firms5

FO$MU A:"et 0rofit After 3a> !eturn of 3otal Assets P 3otal Assets

$ETU$N ON E!UIT":A return on shareholders e4uity is calculated to see the profitability of ownerDs investment5 3he share holder e4uity are net worth will include paid up share capital, share premium and surpluses less accumulated losses5 "et worth can also be found by subtracting total liabilities form total assets5

FO$MU A:0rofit After 3a> !eturn of 94uity P "et Worth

O%E$ATIN& %$OFIT MA$&IN:3a>es are not controllable by a firm, and also, one may not know the marginal corporate ta> rate while analyEing the published data5 3herefore, the margin ratio may be calculated on before ta> basis5

FO$MU A:9@63
:perating 0rofit !atio P "et Sales 2(

C/APTER V
ANALYSIS AND INTERPRETATION

2'

CURRENT RATIO

?urrent ratio may be defined as the relationship between current assets and current liabilities5 3his ratio, also known as working capital ratio, is a measure of general li4uidity and is most widely used to make the analysis of a short/term financial position or li4uidity of a firm5

?U!!9"3 ASS93S ?U!!9"3 !A36: P ?U!!9"3 =6A@6=6369S

?alculation of ?urrent !atio of ?,=5 ,rom $%%(/%' to $%%&/%. (R%.(, -aH8%) YEA R C*''0,t a%%0t% C*''0,t L(aE(-(t(0% C*''0 ,t 'at(o $%%(/$%%' $%%'/$%%2 $%%2/$%%* '(($%5(' .2.&152( ))*1*15. & $%%*/$%%& )2$**25. ) $%%&/$%%. 1*$21&52 $ ).*)125)) )5&. *1).'5&& $5$$ $*)2)5') (.&$'52$ '1'.&5&( $5%% )5.( $5).

3able )5& 22

Inter*retation: ,rom the above table it is clear that the ratio is increased in the year $%%(/%' by $H this is due to increase in current assets5 6n the year $%%'/%2 the ratio is decreased by 1H due to increase in current assets5 6n the year $%%2/%* the ratio is increased by )$H and in the year $%%*/%& it was

increased by )H this is due to increase in current assets and it will show the how firm maintains the margin of safety5

2*

GRAP/ICAL REPRESENTATION

CURRENT RATIO
RS IN LAKHS 2.3 2.2 2.1 2 1.9 1.8 2004-2005 2005-2006 2006-2007 YEARS 2007-2008 2008-2009 Current ratio

2&

IUICK RATIO
Nuick ratio is also known as =i4uid !atio or Acid 3est !atio5 3he term li4uidity reforms to the ability of a firm to pay its short term obligation as and when they become due5 Nuick ratio may be defined as the relationship between NuickKli4uid assets and current or li4uid liabilities5 An asset is said to be li4uid if it can be converted into cash within a short period without loss of value5 NU6?7 ASS93S NU6?7 !A36:P ?U!!9"3 =6A@6=6369S

NU6?7 ASS93S P ?U!!9"3 ASS93S/ 6"V9"3:!69S Q 0!90A6D 9T09"S9S+ Ca-)*-at(o, o7 I*()H Rat(o o7 CFL. F'o: 233# 3! to 2334 3B (R%. (, -aH8%) Y0a' I*()H A%%0t% )1$&15& $%%(/$%%' . )1)%&5% $%%'/$%%2 . 11%%%5* $%%2/$%%* ' )2&.%5' $%%*/$%%& . &&%$&5& $%%&/$%%. ' 2. )211%252* %5'( *1).'5&& %5$1 '1'.&5&( %52$ (.&$'52$ %5$2 C*''0,t L(aE(-(t(0% $*)2'5') I*()H Rat(o %5(.

3able )5.

I,t0'9'0tat(o,# /
,rom the above table it is clear that the ratio is increased in the year $%%(/%' by $*H due to decrease li4uid assets5 6n the year $%%'/%2 the ratio is decreased by (*H5 6n the year $%%2/%* the ratio is increased by )1&H due to increase in li4uid assets5 6n the year $%%*/%& the ratio is decreased by 2$H due to decrease in li4uid assets 4uick ratio not satisfactory5

*%

GRAP/ICAL REPRESENTATION

QUICK RATIO
RS IN LAKHS 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 YEARS

Quick Ratio

*)

NET =ORKING CAPITAL RATIO

3he difference between current assets and current liabilities is called "et Working ?apital5 3he "et Working ?apital ratio is calculated by dividing net working capital with net assets or capital employed5 ?urrent asserts include cash and bank balances, investment, raw materials, advance payments, consumable stores and spares, finished goods, stock in process K semi finished goods, sundry debtors, prepaid e>penses5 ?urrent liabilities consists of account payable, short/term notes payable, current matures of long term debt, accrued income ta> and other accrued e>penses5 "et assets include "et Working ?apital and finished assets5

3he ratio is used as a measure of firmDs li4uidity5 3he ratio measures the firmDs potential reservoir of funds5

W:!76"; ?A063A= "93 W:!76"; ?A063A= !A36: P 3:3A= ASS93S

*$

Ca-)*-at(o, o7 N0t =o'H(,1 Ca9(ta- Rat(o o7 CFL. F'o: 233" 3# to 233$ 34 (R%. (, LaH8%) Y0a' $%%(/$%%' $%%'/$%%2 $%%2/$%%* $%%*/$%%& $%%&/$%%. =o'H(,1 Ca9(ta$*$'&5.( (*)'&5%$ 21**'5)( &.'&)5%1 ).*)125)) TotaA%%0t% '(($%5(' .2.&152( ))*1*15.& )2$**25.) $.$2'%5*' N0t =o'H(,1 Ca9(ta%5'% %5(. %5'( %5'' %52%

3able $5%

I,t0'9'0tat(o,#
,rom the table it is clear that the ratio is increased in the year $%%(/%' by $H due to increase in current assets5 6n the year $%%'/%2 the ratio is increased by $H5 6n the year $%%2/%* the ratio is increased by )%H and in the year $%%*/%& the ratio is increased by $H due to increase current assets and this will tell the reservoir of funds is related to the net current assets.

*1

GRAP/ICAL REPRESENTATION

NET WORKING CAPITAL

0.6 0.5 0.4 RS IN LAKHS 0.3 0.2 0.1 0 20042005 20052006 20062007 20072008 20082009

RATIO

YEARS

*(

DEBTORS TURNOVER RATIO

DebtorsD turnover ratio indicates the velocity of debt collection of firm5 6n simple it indicates the number of times average debtors are turned over during a year5 ;enerally the higher the value of debtors turnover the more efficient is the management of debtorsKsales or more li4uid the debtors5 Similarly low debtorsD turnover implies inefficient management of debtorsKrates and less li4uid debtors5 "93 ?!9D63 A""UA= SA=9S D9@3:!S 3U!":V9! !A36: P AV9!A;9 D9@3:!S :09"6"; D9@3:!SQ?=:S6"; D9@3:!S AV9!A;9 D9@3:!S P $ Ca-)*-at(o, o7 D0Eto'% T*',o&0' Rat(o o7 CFL. F'o: 233# 3! to 2334 3B !s5 6n =akhs+ A&0'a10 D0Eto'% )1%'&52' )%11*5(& )112151% )1)''5$* )%(1151% D0Eto'% T*',o&0' Rat(o &5(' )$5%1 )%5') )25&$ $)5)%

Y0a' $%%(/$%%' $%%'/$%%2 $%%2/$%%* $%%*/$%%& $%%&/$%%.

N0t C'0d(t Sa-0% ))%$&&5.. )$(1')5(( )(%1.*5)$ $$%'.&5&( $$%).'5*%

3able $5)

Inter*retation: -

*'

,rom the above table it is clear that the ratio is decreased in the year $%%(/%' by )H this is due to decrease in credit sales5 6n the year $%%'/%2 the ratio is increased by ($H due to increase in credit sales5 6n the year $%%2/%* the ratio is decreased by )1H due to decreases in credit sales and in the year $%%*/ %& the ratio is increased by 2H this is due to huge increase in credit sales5 6n the year $%%&/%. the ratio is increased by 'H due to increase in credit sales5

*2

GRAP/ICAL REPRESENTATION

DEBT ORST URNOVE RRAT IO

25 20 LAK H S 15 10 5 0 2 00 4- 2005- 2006- 2007 - 200820 05 2006 2007 2 00 8 200 9 Y EAR S RATIO

AVERAGE COLLECTION PERIOD

**

3he second type of ratio of measuring the li4uidity of a firmDs debtors is the average collection period5 3his ratio is fact interrelated with the dependent upon, the receivables turnover ratio5 ":5:, DA<S 6" <9A! AV9!A;9 ?:==9?36:" 09!6:D P D9@3:!S 3U!":V9! !A36:

?alculation of Average ?ollection 0eriod of ?,=5 ,rom $%%(/%' to $%%&/%. (R%. I, LaH8%) Y0a' No. o7 Da+% $%%(/$%%' $%%'/$%%2 $%%2/$%%* $%%*/$%%& $%%&/$%%. 12' 12' 12' 122 12' D0Eto'% T*',o&0' Rat(o &5 (' )$5%1 )%5') )25&$ $)5)% A&0'a10 Co--0)t(o, P0'(od (15$$ 1%51( 1(5*( $)5*2 )*5$.

3able $5$

I,t0'9'0tat(o,# /
,rom the above table it is clear that the ratio is increased in the year $%%(/%' by )H5 6n the year $%%'/%2 the ratio is decreased by 1%H this is due to good collection policy5 6n the year $%%2/%* the ratio is increased by )'H due to lack in collection policy and in the year $%%*/%& the ratio is decreased by 1*H due to better collection policy5 6n the year $%%&/%. the ratio is decreased by 1%H due to better collection policy5

*&

GRAP/ICAL REPRESENTATION

AVERAGE COLLECTION PERIOD

45 40 35 30 25 DAYS 20 15 10 5 0

RATIO

20042005

20052006

20062007 YEARS

20072008

20082009

INVENTORY TURNOVER RATIO

9very firm has to maintain a certain level of inventory, so as to meet the re4uirements of the business 5@ut the level of inventory should neither be

*.

too high nor too low5 6nventory turnover ratio is also known as stock velocity5 6t would indicate whether inventory has been efficiently used or not5 ?:S3 :, ;::DS S:=D 6"V9"3:!< 3U!":V9! !A36:P AV9!A;9 6"V9"3:!<

:09"6";6"V9"3:!<Q ?=:S6";6"V9"3:!<

AV9!A;9 6"V9"3:!<P 5 $

?alculation of 6nventory 3urnover !atio of ?,=5 ,rom $%%(/%' to $%%&/%. !s5 6n =akhs+ Y0a' Co%t o7 Good% So-d $%%(/$%%' $%%'/$%%2 $%%2/$%%* $%%*/$%%& $%%&/$%%. )1*&1*5$1 )'.($252& )2%$&'5$$ $&&2$*5*$ 1$'''(5*' ).(%$5.' $.1$%511 (%%%)5*) 21(*.5*( &%$$'5*1 A&0'a10 I,&0,to'+ I,&0,to'+ T*',o&0' Rat(o *5%2 '5(( (5%) (5'' (5%'

3able $51

&%

I,t0'9'0tat(o,# /
,rom the above table it is clear that the ratio is increased in the year $%%(/%' by 'H this id due to increase in sales5 6n the year $%%'/%2 the ratio is decreased by $1H and in the year $%%2/%* the ratio is decreased by $2H this is due to decrease in sales5 6n the year $%%*/%& the ratio was increased by )1H and in the year $%%&/%. the ratio was decrease by ))H5

&)

GRAP/ICAL REPRESENTATION

INVENTORY TURNOVER RATIO

RATIO RS IN LAKHS 8 7 6 5 4 3 2 1 0 2004-2005 2005-2006 2006-2007 YEARS 2007-2008 2008-2009

&$

INVENTORY /OLDING PERIOD

3he second type of ratio of measuring the li4uidity of a firmDs 6nventory is the average collection period5 3his ratio is fact interrelated with the dependent upon, the receivables turnover ratio5 ":5:, DA<S 6" <9A! 6"V9"3:!< 8:=D6"; 09!6:D P 6"V9"3:!< 3U!":V9! !A36: Ca-)*-at(o, o7 A&0'a10 Co--0)t(o, P0'(od o7 CFL. F'o: 233" 3# to 233$ 34 (R%. I, LaH8%) Y0a' No. o7 Da+% 12' 12' 12' 122 12' I,&0,to'+ T*',o&0' Rat(o *5%2 '5(( (5%) (5'' (5%' I,&0,to'+ /o-d(,1 P0'(od ')5*% 2*5)1 .)5%. &%5(. .%5)$

$%%(/$%%' $%%'/$%%2 $%%2/$%%* $%%*/$%%& $%%&/$%%.

3able $5(

I,t0'9'0tat(o,# /
,rom the above table it is clear that the ratio is decreased in the year $%%(/%' by 'H this is due to slow movement of stock5 6n the year $%%'/%2 the ratio is increased by 1%H and in the year $%%2/%* the ratio is increased by 1%H and in the year $%%2/%* the ratio is increased by 1%H this is due to accurate of movement of stock5 6n the year $%%*/%& the ratio is decreased by )$H5 6n the year $%%&/$%%. increased by )$H this is due to grow up of stock5

&1

GRAP/ICAL REPRESENTATION

INVENTORY HOLDING PERIOD RATIO

100 90 80 70 60 DAYS 50 40 30 20 10 0

RATIO

20042005

20052006

20062007 YEARS

20072008

20082009

&(

=ORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the velocity of the utiliEation of net working5 3his ratio indicates the number if times the working capital is turned over in the course of a year5 3his ratio measures the efficiency with which the working capital being used by a firm5 A higher ratio indicates efficient utiliEation of working capital and a low ratio indicates otherwise5 ?:S3 :, ;::DS S:=D W:!76"; ?A063A= 3U!":V9! !A36: P "93W:!76"; ?A063A=

Ca-)*-at(o, o7 =o'H(,1 Ca9(ta- T*',o&0' Rat(o o7 CFL. F'o: 233" 3# to 233$ 34. (R%. I, LaH8%) Y0a' N0t Sa-0% N0t =o'H(,1 Ca9(ta=o'H(,1 Ca9(taT*',o&0' Rat(o 15.(

)%*'%(5* $%%(/$%%' $ )$)$)25( $%%'/$%%2 % )12*1(52 $%%2/$%%* & $)2&('51 $%%*/$%%& ' $)''$&5* $%%&/$%%. & &'&$&5$. $5') &.'&)5%1 $5($ 21**'5)( $5)' (*)'&5%$ $5'* $*$'&5.(

3able $5' &'

I,t0'9'0tat(o,<
,rom the above table it is clear that the ratio is decreased in the year $%%(/%' this is due to less efficient use of working capital5 6n the year $%%'/ %2 it was decreased by 1'H and in the year $%%2/%* the ratio is decreased by )*H5 6n the year $%%*/%& the ratio is increased by )1H due to efficient use of working capital5

&2

GRAP/ICAL REPRESENTATION

WORKING CAPITAL TURN OVER RATIO RS IN LAKHS RATIO 6 5 4 3 2 1 0 20042005 20052006 2006 20072007 2008 YEARS 20082009

&*

CREDITORS TURNOVER RATIO

?reditorDs turnover ratio indicates the velocity of ?redit collection of firm5 6n simple it indicates the number of times average ?reditors are turned over during a year5 ;enerally the higher the value of ?reditors turnover the more efficient is the management of ?reditorsKsales or more li4uid the ?reditors5 Similarly low ?reditorsD turnover implies inefficient management of ?reditorsKrates and less li4uid ?reditors5 "93 ?!9D63 0U!?8AS9 ?!9D63:!S 3U!":V9! !A36: P AV9!A;9 ?!9D63:!S
:09"6"; ?!9D63:!SQ?=:S6"; ?!9D63:!S

AV9!A;9 ?!9D63:!S P $ Ca-)*-at(o, o7 C'0d(to'% T*',o&0' Rat(o o7 CFL. F'o: 233" 3# to 233$ 34 (R%. I, LaH8%) Y0a' N0t C'0d(t P*')8a%0 .1$''52& )$&*&251$ )1&11'5$% $'.**&511 $2)''15&1 A&0'a10 C'0d(to'% $$2.*5%* 1(*.$5.) (()$*5.$ '1&)'5'2' 2%&$151* C'0d(to'% T*',o&0' Rat(o (5)% 15*% 15)( (5&1 (51%

$%%(/$%%' $%%'/$%%2 $%%2/$%%* $%%*/$%%& $%%&/$%%.

3able $52

I,t0'9'0tat(o,# /
,rom the above table it is clear that there is decrease in the ratio by )*H in the year $%%(/%' this is due to decrease in net credit purchased5 &&

6n the year $%%'/%2 the ratio is decreased by )%H as well as in the year $%%2/%* it was decreased by )'H this is due to decrease in credit purchases and in the year $%%*/%& the ratio was increased by '(H this is due to increase in credit purchased5 6n the year $%%&/%. the ratio was decreased by )(H due to decrease in credit purchases5

&.

GRAP/ICAL REPRESENTATION

CREDITORS TURNOVER RATIO

RS IN LAKHS 6 5 4 3 2 1 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 YEARS RATIO

.%

CAS/ RATIO
3he cash ratio is computed by dividing cash by current assets5 8ere cash means cash, marketable securities5 ?urrent liabilities consist of account payable, short/term notes payable, current matures of long term debt, accrued income ta>es and other accrued e>penses5 Since cash is the most li4uid asset, this ratio shows the li4uidity position of the company5 3rade investment of marketable securities are e4uivalent of the cash, therefore theory may be included in the computation of the cash ratio5 ?AS8 A"D @A"7 @A=A"?9 ?AS8 !A36: P ?U!!9"3 ASS93S Ca-)*-at(o, o7 Ca%8 Rat(o o7 CFL. 7'o: 233" 3# to 233$ 34 (R% .I, LaH8%) Y0a' Ca%8 a,d Ba,H Ba-a,)0 $%%(/$%%' $%%'/$%%2 $%%2/$%%* 1$&15.( $(115%& )2.(.5) 2 $%%*/$%%& 221)52( C*''0,t A%%0t% '(($%5(' .2.&152( ))*1*15. & )2$**25. ) $%%&/$%%. 1()(.5$ &
3able $5.

Ca%8 Rat(o 25%1( $5'%. )(5((%

(5%*(

1*$21&52 $

.5)2

.)

I,t0'9'0tat(o,<
,rom the above table it is clear that the cash ratio is increased in the year $%%(/%' by .%&H but in the year $%%'/%2 it was increased by 2%H this is due to increase in cash and bank balance5 6n the year $%%2/%* the ratio was decreased by '('H this is due to decrease in cash and bank balances where as in the year $%%*/%& the ratio was increased by )&*H this is due to increase in cash and bank balances5

.$

GRAP/ICAL REPRESENTATION

CAS HR ATIO
1 6 1 4 1 2 1 0 R SIN L AK H S 8 6 4 2 0

R ATIO 2004- 2005- 2006- 2007- 20082005 2006 2007 2008 2009 Y EAR S

.1

C/APTER IV
FINDINGS AND SUGGESTIONS

.(

FINDINGS
)5 3he current ration should be $#) as per the conventional rule5 3he current ratio of the form in the year $%%& to %. was decreased to )5&. due to increasing of current liabilities5 $5 3he li4uidity position of the firm is satisfactory to obey its current oblications5 15 !aw material holding days increased in $%%$ to $%%1 but in$%%(to $%%' it again decrease5 (5 '5 25 Work in process days has been constant from $%%) to $%%'5 3he finished goods holding have decreased gradually $%%) to $%%' 3he collection period increased from $%%) to $%%1 but again decreased in $%%( to $%%'5 *5 3he payment deferral period decreased in $%%$M$%%1 and again increased in $%%( to $%%'5 &5 .5 3he inventory turnover ratio increased in $%%( M $%%'5 3he inventory turnover ratio stable up to $%%* to %& even cost of goods was increased due to average stock5 3his ratio was decreased in current year (5%' because average stock was increased to &%,$$'5*1 lakhs5 )%5 3he networking capital ratio increased in $%%2 to %.5

.'

SUGGESTIONS
)5 3he company should try to reduce its cost of production by reducing carrying costs and other costs associated with inventory5

$5

Since the company has very good brand name and it has wide infrastructure in importing raw materials , it should encash these strengths in doing more trading activities5

15

3he overall performance of the company is in better position5 3he company should maintain this level to stand in competition by efficient managerial performances5

(5

3he company needs to improve current ratio of the firm in order to ac4uire the standards norm of current ratio of $#)5

'5

3he company has e>perienced manpower in

technical and 653

fields 5the services of these people can be used by undertaking technical consultancy jobs outside, thereby increasing the sources of income for the company5

.2

SUMMARY
,ertiliEers are of immense value to mankind5 3hey help the growth of agricultural produce5 6ndia is primarily an agricultural or an agro based country5 ,ertiliEers are basically of two types5 :rganic ?hemical

3he 1 types of nutrients re4uired for proper growth of plant are ",0Mk5 ,ertiliEers are classified as )5 $5 15 straight fertiliEers5 comple> or compound fertiliEers5 mi>ed fertiliEers5 ?oromondal fertiliEers ltd was established in the year ).2( at visakhapatnam near sriharipuram5 9T6- bank of WAS86";3:" , US and industrial development bank of 6ndia provided the financial assistance to the company5the plant started its production from December ).2*5 ?oromandal has paid been concrn towards environment and other pollution control measures5 3here are two concepts of working capital 5they are gross concept and net concept5 3he gross working capital concept focuses attention on two aspects of current assets management5 a+ b+ optimum investment in current assets and financing of current assets5

.*

3he net working capital concept focuses attention on two as pects of current assets and current liabilities management5 a+ in indicates the li4uidity position of the firm and b+suggests the e>tent to which working capital needs may be financed by permanent sources of funds5 ?oromndal is maintaining good working capital turnover5 Usually any firm tries to decrease length of its operating cycle 5 even coromandal

fertiliEers ltd5, has made successful attempt to reduce its operating cycle5

.&

BIBLIOGRAP/Y

BOOKS<

F(,a,)(a- :a,a10:0,t >I.M.PANDEY F(,a,)(a- :a,a10:0,t >PRASANNA C/ANDRA Ma,a10:0,t a))o*,t(,1 >S.N.MA/ES=ARI

=0E%(t0< GGG.)7-(,d(a.)o:

..