INTRODUCTION TO RATIO ANALYSIS and

INTERPRETITION
OBJECTIVE:
To understand the information contained in financial statements with a
view to know the strength or weaknesses of the firm and to make forecast about
the future prospects of the firm and thereby enabling the financial analyst to
take different decisions regarding the operations of the firm.
RATIO ANALYSIS:
Fundamental Analysis has a very broad scope. One aspect looks at the
general (qualitative) factors of a company. The other side considers tangible
and measurable factors (quantitative). This means crunching and analying
numbers from the financial statements. !f used in con"unction with other
methods# quantitative analysis can produce e$cellent results.
%atio analysis isn&t "ust comparing different numbers from the balance
sheet# income statement# and cash flow statement. !t&s comparing the number
against previous years# other companies# the industry# or even the economy in
general. %atios look at the relationships between individual values and relate
them to how a company has performed in the past# and might perform in the
future.
MEANING OF RATIO:
A ratio is one figure e$press in terms of another figure. !t is a
mathematical yardstick that measures the relationship two figures# which are
related to each other and mutually interdependent. %atio is e$press by dividing
one figure by the other related figure. Thus a ratio is an e$pression relating one
1
number to another. !t is simply the quotient of two numbers. !t can be e$pressed
as a fraction or as a decimal or as a pure ratio or in absolute figures as ' so
many times(. As accounting ratio is an e$pression relating two figures or
accounts or two sets of account heads or group contain in the financial
statements.
MEANING OF RATIO ANALYSIS:
%atio analysis is the method or process by which the relationship of
items or group of items in the financial statement are computed# determined
and presented.
%atio analysis is an attempt to derive quantitative measure or guides
concerning the financial health and profitability of business enterprises. %atio
analysis can be used both in trend and static analysis. There are several ratios
at the disposal of an annalist but their group of ratio he would prefer depends
on the purpose and the ob"ective of analysis.
)hile a detailed e$planation of ratio analysis is beyond the scope of this
section# we will focus on a technique# which is easy to use. !t can provide you
with a valuable investment analysis tool.
This technique is called cross-sec!ona" ana"#s!s. *ross+sectional analysis
compares financial ratios of several companies from the same industry. %atio
analysis can provide valuable information about a company&s financial health. A
financial ratio measures a company&s performance in a specific area. For
e$ample# you could use a ratio of a company&s debt to its equity to measure a
company&s leverage. ,y comparing the leverage ratios of two companies# you
can determine which company uses greater debt in the conduct of its business.
A company whose leverage ratio is higher than a competitor&s has more debt
per equity. -ou can use this information to make a "udgment as to which
company is a better investment risk.
2
.owever# you must be careful not to place too much importance on one ratio.
-ou obtain a better indication of the direction in which a company is moving
when several ratios are taken as a group.
OBJECTIVE OF RATIOS
%atio is work out to analye the following aspects of business organiation+
A) /olvency+
0) 1ong term
2) /hort term
3) !mmediate
,) /tability
*) 4rofitability
5) Operational efficiency
6) *redit standing
F) /tructural analysis
7) 6ffective utiliation of resources
.) 1everage or e$ternal financing
FORMS OF RATIO:
/ince a ratio is a mathematical relationship between to or more variables
8 accounting figures# such relationship can be e$pressed in different ways as
follows 9
A$ As a %&re ra!o:
For e$ample the equity share capital of a company is %s. 2:#::#::: ;
the preference share capital is %s. <#::#:::# the ratio of equity share capital to
preference share capital is 2:#::#:::= <#::#::: or simply >=0.
B$ As a rae o' !(es:
3
!n the above case the equity share capital may also be described as >
times that of preference share capital. /imilarly# the cash sales of a firm are
%s. 02#::#::: ; credit sales are %s. 3:#::#:::. so the ratio of credit sales to
cash sales can be described as 2.< ?3:#::#:::802#::#:::@ or simply by saying
that the credit sales are 2.< times that of cash sales.
C$ As a %ercena)e:
!n such a case# one item may be e$pressed as a percentage of some
other item. For e$ample# net sales of the firm are %s.<:#::#::: ; the amount of
the gross profit is %s. 0:#::#:::# then the gross profit may be described as 2:A
of sales ? 0:#::#:::8<:#::#:::@
STEPS IN RATIO ANALYSIS
The ratio analysis requires two steps as follows=
0@ *alculation of ratio
2@ *omparing the ratio with some predetermined standards. The standard ratio
may be the past ratio of the same firm or industryBs average ratio or a pro"ected
ratio or the ratio of the most successful firm in the industry. !n interpreting the
ratio of a particular firm# the analyst cannot reach any fruitful conclusion unless
the calculated ratio is compared with some predetermined standard. The
importance of a correct standard is oblivious as the conclusion is going to be
based on the standard itself.
TYPES OF COMPARISONS
The ratio can be compared in three different ways 9
*$ Cross sec!on ana"#s!s:
4
One of the way of comparing the ratio or ratios of the firm is to compare
them with the ratio or ratios of some other selected firm in the same industry at
the same point of time. /o it involves the comparison of two or more firmBs
financial ratio at the same point of time. The cross section analysis helps the
analyst to find out as to how a particular firm has performed in relation to its
competitors. The firms performance may be compared with the performance of
the leader in the industry in order to uncover the ma"or operational
inefficiencies. The cross section analysis is easy to be undertaken as most of
the data required for this may be available in financial statement of the firm.
+$ T!(e ser!es ana"#s!s:
The analysis is called Time series analysis when the performance of a
firm is evaluated over a period of time. ,y comparing the present performance
of a firm with the performance of the same firm over the last few years# an
assessment can be made about the trend in progress of the firm# about the
direction of progress of the firm. Time series analysis helps to the firm to assess
whether the firm is approaching the long+term goals or not. The Time series
analysis looks for (0) important trends in financial performance (2) shift in trend
over the years (3) significant deviation if any from the other set of dataC
,$ Co(-!ned ana"#s!s:
!f the cross section ; time analysis# both are combined together to study
the behavior ; pattern of ratio# then meaningful ; comprehensive evaluation of
the performance of the firm can definitely be made. A trend of ratio of a firm
compared with the trend of the ratio of the standard firm can give good results.
For e$ample# the ratio of operating e$penses to net sales for firm may be higher
than the industry average however# over the years it has been declining for the
firm# whereas the industry average has not shown any significant changes.
5
The combined analysis as depicted in the above diagram# which clearly shows
that the ratio of the firm is above the industry average# but it is decreasing over
the years ; is approaching the industry average.
PRE-RE.UISITIES TO RATIO ANALYSIS
!n order to use the ratio analysis as device to make purposeful
conclusions# there are certain pre+requisites# which must be taken care of. !t
may be noted that these prerequisites are not conditions for calculations for
meaningful conclusions. The accounting figures are inactive in them ; can be
used for any ratio but meaningful ; correct interpretation ; conclusion can be
arrived at only if the following points are well considered.
0) The dates of different financial statements from where data is taken must
be same.
2) !f possible# only audited financial statements should be considered#
otherwise there must be sufficient evidence that the data is correct.
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3) Accounting policies followed by different firms must be same in case of
cross section analysis otherwise the results of the ratio analysis would be
distorted.
>) One ratio may not throw light on any performance of the firm. Therefore#
a group of ratios must be preferred. This will be conductive to counter
checks.
<) 1ast but not least# the analyst must find out that the two figures being
used to calculate a ratio must be related to each other# otherwise there is
no purpose of calculating a ratio.
CLASSIFICATION OF RATIO
CLASSIFICATION OF RATIO
,A/65 OD F!DAD*!A1 ,A/65 OD FED*T!OD ,A/65 OD
E/6%
/TAT6F6DT
0@ ,A1AD*6 /.66T 0@ 1!GE!5!T- %AT!O 0@ %AT!O/ FO%
%AT!O 2@ 16H6%A76 %AT!O /.O%T T6%F
2@ %6H6DE6 3@ A*T!H!T- %AT!O *%65!TO%/
/TAT6F6DT >@ 4%OF!TA,!1!T- 2@ %AT!O FO%
%AT!O %AT!O /.A%6.O156%
3@ *OF4O/!T6 <@ *OH6%A76 3@ %AT!O/ FO%
%AT!O %AT!O FADA76F6DT
>@ %AT!O FO%
1OD7 T6%F
7
*%65!TO%/
BASED ON FINANCIAL STATEMENT
Accounting ratios e$press the relationship between figures taken from
financial statements. Figures may be taken from ,alance /heet # 4; 4 A8*# or
both. One+way of classification of ratios is based upon the sources from which
are taken.
*$ Ba"ance s/ee ra!o:
!f the ratios are based on the figures of balance sheet# they are called
,alance /heet %atios. 6.g. ratio of current assets to current liabilities or ratio of
debt to equity. )hile calculating these ratios# there is no need to refer to the
%evenue statement. These ratios study the relationship between the assets ;
the liabilities# of the concern. These ratio help to "udge the liquidity# solvency ;
capital structure of the concern. ,alance sheet ratios are *urrent ratio# 1iquid
ratio# and 4roprietory ratio# *apital gearing ratio# 5ebt equity ratio# and /tock
working capital ratio.
+$ Re0en&e ra!o:
%atio based on the figures from the revenue statement is called revenue
statement ratios. These ratio study the relationship between the profitability ;
the sales of the concern. %evenue ratios are 7ross profit ratio# Operating ratio#
6$pense ratio# Det profit ratio# Det operating profit ratio# /tock turnover ratio.
,$ Co(%os!e ra!o:
These ratios indicate the relationship between two items# of which one is
found in the balance sheet ; other in revenue statement.
There are two types of composite ratios+
a) /ome composite ratios study the relationship between the profits ; the
investments of the concern. 6.g. return on capital employed# return on
proprietors fund# return on equity capital etc.
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b) Other composite ratios e.g. debtors turnover ratios# creditors turnover
ratios# dividend payout ratios# ; debt service ratios
BASED ON FUNCTION:
Accounting ratios can also be classified according to their functions in to
liquidity ratios# leverage ratios# activity ratios# profitability ratios ; turnover
ratios.
*$ L!1&!d!# ra!os:
!t shows the relationship between the current assets ; current liabilities
of the concern e.g. liquid ratios ; current ratios.
+$ Le0era)e ra!os:
!t shows the relationship between proprietors funds ; debts used in
financing the assets of the concern e.g. capital gearing ratios# debt equity ratios#
; 4roprietory ratios.
,$ Ac!0!# ra!os:
!t shows relationship between the sales ; the assets. !t is also known as
Turnover ratios ; productivity ratios e.g. stock turnover ratios# debtors turnover
ratios.
2$ Pro'!a-!"!# ra!os:
a) !t shows the relationship between profits ; sales e.g. operating ratios#
gross profit ratios# operating net profit ratios# e$penses ratios
b) !t shows the relationship between profit ; investment e.g. return on
investment# return on equity capital.
3$ Co0era)e ra!os:
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!t shows the relationship between the profit on the one hand ; the claims
of the outsiders to be paid out of such profit e.g. dividend payout ratios ; debt
service ratios.
BASED ON USER:
*$ Ra!os 'or s/or-er( cred!ors:
*urrent ratios# liquid ratios# stock working capital ratios
+$ Ra!os 'or /e s/are/o"ders:
%eturn on proprietors fund# return on equity capital
,$ Ra!os 'or (ana)e(en:
%eturn on capital employed# turnover ratios# operating ratios# e$penses
ratios
2$ Ra!os 'or "on)-er( cred!ors:
5ebt equity ratios# return on capital employed# proprietor ratios.
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LI.UIDITY RATIO: -
1iquidity refers to the ability of a firm to meet its short+term (usually up to 0 year)
obligations. The ratios# which indicate the liquidity of a company# are *urrent
ratio# Guick8Acid+Test ratio# and *ash ratio. These ratios are discussed below
CURRENT RATIO
Mean!n):
This ratio compares the current assests with the current liabilities. !t is also
known as Iworking capital ratioB or I solvency ratioB. !t is e$pressed in the form of
pure ratio.
6.g. 2=0
For(&"a:
11
C&rren asses
C&rren ra!o 4
C&rren "!a-!"!!es
The current assests of a firm represents those assets which can be# in the
ordinary course of business# converted into cash within a short period time#
normally not e$ceeding one year. The current liabilities defined as liabilities
which are short term maturing obligations to be met# as originally contemplated#
with in a year.
*urrent ratio (*%) is the ratio of total current assets (*A) to total current
liabilities (*1). *urrent assets include cash and bank balancesJ inventory of raw
materials# semi+finished and finished goodsJ marketable securitiesJ debtors (net
of provision for bad and doubtful debts)J bills receivableJ and prepaid e$penses.
*urrent liabilities consist of trade creditors# bills payable# bank credit# provision
for ta$ation# dividends payable and outstanding e$penses. This ratio measures
the liquidity of the current assets and the ability of a company to meet its short+
term debt obligation.
*% measures the ability of the company to meet its *1# i.e.# *A gets converted
into cash in the operating cycle of the firm and provides the funds needed to
pay for *1. The higher the current ratio# the greater the short+term solvency.
This compares assets# which will become liquid within appro$imately twelve
months with liabilities# which will be due for payment in the same period and is
intended to indicate whether there are sufficient short+term assets to meet the
short+ term liabilities. %ecommended current ratio is 2= 0. Any ratio below
indicates that the entity may face liquidity problem but also %atio over 2= 0 as
above indicates over trading# that is the entity is under utiliing its current
assets.
LI.UID RATIO:
Mean!n):
12
1iquid ratio is also known as acid test ratio or quick ratio. 1iquid ratio compare
the quick assets with the quick liabilities. !t is e$pressed in the form of pure
ratio. 6.g. 0=0.
The term quick assets refer to current assets# which can be converted into#
cash immediately or at a short notice without diminution of value.
For(&"a:
.&!c5 asses
L!1&!d ra!o 4
.&!c5 "!a-!"!!es
Guick %atio (G%) is the ratio between quick current assets (GA) and *1. GA
refers to those current assets that can be converted into cash immediately
without any value strength. GA includes cash and bank balances# short+term
marketable securities# and sundry debtors. !nventory and prepaid e$penses are
e$cluded since these cannot be turned into cash as and when required.
G% indicates the e$tent to which a company can pay its current liabilities
without relying on the sale of inventory. This is a fairly stringent measure of
liquidity because it is based on those current assets# which are highly liquid.
!nventories are e$cluded from the numerator of this ratio because they are
deemed the least liquid component of current assets. 7enerally# a quick ratio of
0=0 is considered good. One drawback of the quick ratio is that it ignores the
timing of receipts and payments.
CAS6 RATIO
Mean!n):
This is also called as super quick ratio. This ratio considers only the absolute
liquidity available with the firm.
For(&"a:
13
Cas/ 7 Ban5 7 Mar5ea-"e sec&r!!es
Cas/ ra!o 4
Toa" c&rren "!a-!"!!es
/ince cash and bank balances and short term marketable securities are the
most liquid assets of a firm# financial analysts look at the cash ratio. !f the super
liquid assets are too much in relation to the current liabilities then it may affect
the profitability of the firm.
INVESTMENT 8 S6ARE6OLDER
EARNING PER SA6RE:-
Mean!n):
6arnings per /hare are calculated to find out overall profitability of the
organiation. An earnings per /hare represents earning of the company
whether or not dividends are declared. !f there is only one class of shares# the
earning per share are determined by dividing net profit by the number of equity
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shares.
64/ measures the profits available to the equity shareholders on each share
held.
For(&"a:
NPAT
Earn!n) %er s/are 4
N&(-er o' e1&!# s/are
The higher 64/ will attract more investors to acquire shares in the company as
it indicates that the business is more profitable enough to pay the dividends in
time. ,ut remember not all profit earned is going to be distributed as dividends
the company also retains some profits for the business
DIVIDEND PER S6ARE:-
Mean!n):
54/ shows how much is paid as dividend to the shareholders on each share
held.
For(&"a:
D!0!dend Pa!d o Ord!nar# S/are/o"ders
D!0!dend %er S/are 4
N&(-er o' Ord!nar# S/ares
DIVIDEND PAYOUT RATIO:-
Mean!n):
5ividend 4ay+out %atio shows the relationship between the dividend paid to
equity shareholders out of the profit available to the equity shareholders.
15
For(&"a:
D!0!dend %er s/are
D!0!dend Pa# o& ra!o 4 9*::
Earn!n) %er s/are
584 ratio shows the percentage share of net profits after ta$es and after
preference dividend has been paid to the preference equity holders.
GEARING
CAPITAL GEARING RATIO:-
Mean!n):
7earing means the process of increasing the equity shareholders return
through the use of debt. 6quity shareholders earn more when the rate of the
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return on total capital is more than the rate of interest on debts. This is also
known as leverage or trading on equity. The *apital+gearing ratio shows the
relationship between two types of capital vi= + equity capital ; preference
capital ; long term borrowings. !t is e$pressed as a pure ratio.
For(&"a:
Pre'erence ca%!a"7 sec&red "oan
Ca%!a" )ear!n) ra!o 4
E1&!# ca%!a" ; reser0e ; s&r%"&s
*apital gearing ratio indicates the proportion of debt ; equity in the financing of
assets of a concern.
PROFITABILITY
These ratios help measure the profitability of a firm. A firm# which generates a
substantial amount of profits per rupee of sales# can comfortably meet its
operating e$penses and provide more returns to its shareholders. The
relationship between profit and sales is measured by profitability ratios. There
are two types of profitability ratios= 7ross 4rofit Fargin and Det 4rofit Fargin.
17
GROSS PROFIT RATIO:-
Mean!n):
This ratio measures the relationship between gross profit and sales. !t is defined
as the e$cess of the net sales over cost of goods sold or e$cess of revenue
over cost. This ratio shows the profit that remains after the manufacturing costs
have been met. !t measures the efficiency of production as well as pricing. This
ratio helps to "udge how efficient the concern is ! managing its production#
purchase# selling ; inventory# how good its control is over the direct cost# how
productive the concern # how much amount is left to meet other e$penses ;
earn net profit.
For(&"a:
Gross %ro'!
Gross %ro'! ra!o 4 9 *::
Ne sa"es
NET PROFIT RATIO:-
Mean!n):
Det 4rofit ratio indicates the relationship between the net profit ; the sales it is
usually e$pressed in the form of a percentage.
For(&"a:
NPAT
Ne %ro'! ra!o 4 9 *::

Ne sa"es
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This ratio shows the net earnings (to be distributed to both equity and
preference shareholders) as a percentage of net sales. !t measures the overall
efficiency of production# administration# selling# financing# pricing and ta$
management. Kointly considered# the gross and net profit margin ratios provide
an understanding of the cost and profit structure of a firm.
RETURN ON CAPITAL EMPLOYED:-
Mean!n):
The profitability of the firm can also be analyed from the point of view of the
total funds employed in the firm. The term fund employed or the capital
employed refers to the total long+term source of funds. !t means that the capital
employed comprises of shareholder funds plus long+term debts. Alternatively it
can also be defined as fi$ed assets plus net working capital.
*apital employed refers to the long+term funds invested by the creditors and the
owners of a firm. !t is the sum of long+term liabilities and owner&s equity. %O*6
indicates the efficiency with which the long+term funds of a firm are utilied.
For(&"a:
NPAT
Re&rn on ca%!a" e(%"o#ed 4 9*::
Ca%!a" e(%"o#ed
FINANCIAL
These ratios determine how quickly certain current assets can be converted into
cash. They are also called efficiency ratios or asset utiliation ratios as they
measure the efficiency of a firm in managing assets. These ratios are based on
the relationship between the level of activity represented by sales or cost of
goods sold and levels of investment in various assets. The important turnover
ratios are debtors turnover ratio# average collection period# inventory8stock
19
turnover ratio# fi$ed assets turnover ratio# and total assets turnover ratio. These
are described below=
DEBTORS TURNOVER RATIO <DTO=
Mean!n):
5TO is calculated by dividing the net credit sales by average debtors
outstanding during the year. !t measures the liquidity of a firm&s debts. Det
credit sales are the gross credit sales minus returns# if any# from
customers. Average debtors are the average of debtors at the beginning
and at the end of the year. This ratio shows how rapidly debts are
collected. The higher the 5TO# the better it is for the organiation.
For(&"a:
Cred! sa"es
De-ors &rno0er ra!o 4
A0era)e de-ors
20
INVENTORY OR STOC> TURNOVER RATIO <ITR=
Mean!n):
!T% refers to the number of times the inventory is sold and replaced during the
accounting period.
For(&"a:
COGS
Soc5 T&rno0er Ra!o 4
A0era)e soc5
!T% reflects the efficiency of inventory management. The higher the ratio# the
more efficient is the management of inventories# and vice versa. .owever# a
high inventory turnover may also result from a low level of inventory# which may
lead to frequent stock outs and loss of sales and customer goodwill. For
calculating !T%# the average of inventories at the beginning and the end of the
year is taken. !n general# averages may be used when a flow figure (in this
case# cost of goods sold) is related to a stock figure (inventories).
FI?ED ASSETS TURNOVER <FAT=
The FAT ratio measures the net sales per rupee of investment in fi$ed assets.
For(&"a:
Ne sa"es
F!@ed asses &rno0er 4
Ne '!@ed asses
This ratio measures the efficiency with which fi$ed assets are employed. A high
ratio indicates a high degree of efficiency in asset utiliation while a low ratio
reflects an inefficient use of assets. .owever# this ratio should be used with
caution because when the fi$ed assets of a firm are old and substantially
21
depreciated# the fi$ed assets turnover ratio tends to be high (because the
denominator of the ratio is very low).
PROPRIETORS RATIO:
Mean!n):
4roprietary ratio is a test of financial ; credit strength of the business. !t relates
shareholders fund to total assets. This ratio determines the long term or ultimate
solvency of the company.
!n other words# 4roprietary ratio determines as to what e$tent the ownerBs
interest ; e$pectations are fulfilled from the total investment made in the
business operation.
4roprietary ratio compares the proprietor fund with total liabilities. !t is usually
e$pressed in the form of percentage. Total assets also know it as net worth.
For(&"a:
Pro%r!ear# '&nd
Pro%r!ear# ra!o 4 OR
Toa" '&nd
S/are/o"ders '&nd
Pro%r!ear# ra!o 4
F!@ed asses 7 c&rren "!a-!"!!es
STOC> AOR>ING CAPITAL RATIO:
Mean!n):
This ratio shows the relationship between the closing stock ; the working
capital. !t helps to "udge the quantum of inventories in relation to the working
capital of the business. The purpose of this ratio is to show the e$tent to which
working capital is blocked in inventories. The ratio highlights the predominance
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of stocks in the current financial position of the company. !t is e$pressed as a
percentage.
For(&"a:
Soc5
Soc5 Bor5!n) ca%!a" ra!o 4
Aor5!n) Ca%!a"
/tock working capital ratio is a liquidity ratio. !t indicates the composition ;
quality of the working capital. This ratio also helps to study the solvency of a
concern. !t is a qualitative test of solvency. !t shows the e$tent of funds blocked
in stock. !f investment in stock is higher it means that the amount of liquid
assets is lower.
DEBT E.UITY RATIO:
MEANING:
This ratio compares the long+term debts with shareholders fund. The
relationship between borrowed funds ; owners capital is a popular measure of
the long term financial solvency of a firm. This relationship is shown by debt
equity ratio. Alternatively# this ratio indicates the relative proportion of debt ;
equity in financing the assets of the firm. !t is usually e$pressed as a pure ratio.
6.g. 2=0
For(&"a:
Toa" "on)-er( de-
De- e1&!# ra!o 4
Toa" s/are/o"ders '&nd
5ebt equity ratio is also called as leverage ratio. 1everage means the process
of the increasing the equity shareholders return through the use of debt.
1everage is also known as IgearingB or Itrading on equityB. 5ebt equity ratio
shows the margin of safety for long+term creditors ; the balance between debt
; equity.
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RETURN ON PROPRIETOR FUND:
Mean!n):
%eturn on proprietors fund is also known as Ireturn on proprietors equityB or
Ireturn on shareholders investmentB or I investment ratioB. This ratio indicates the
relationship between net profit earned ; total proprietors funds. %eturn on
proprietors fund is a profitability ratio# which the relationship between profit ;
investment by the proprietors in the concern. !ts purpose is to measure the rate
of return on the total fund made available by the owners. This ratio helps to
"udge how efficient the concern is in managing the ownerBs fund at disposal.
This ratio is of practical importance to prospective investors ; shareholders.
For(&"a:
NPAT
Re&rn on %ro%r!eors '&nd 4 9 *::
Pro%r!eors '&nd
CREDITORS TURNOVER RATIO:
!t is same as debtors turnover ratio. !t shows the speed at which payments are
made to the supplier for purchase made from them. !t is a relation between net
credit purchase and average creditors
Ne cred! %&rc/ase
Cred! &rno0er ra!o 4
A0era)e cred!ors
Mon/s !n a #ear
A0era)e a)e o' acco&ns %a#a-"e 4
Cred! &rno0er ra!o
,oth the ratios indicate promptness in payment of creditor purchases. .igher
creditors turnover ratio or a lower credit period en"oyed signifies that the
24
creditors are being paid promptly. !t enhances credit worthiness of the company.
A very low ratio indicates that the company is not taking full benefit of the credit
period allowed by the creditors.
IMPORTANCE OF RATIO ANALYSIS:
As a tool of financial management# ratios are of crucial significance. The
importance of ratio analysis lies in the fact that it presents facts on a
comparative basis ; enables the drawing of interference regarding the
performance of a firm. %atio analysis is relevant in assessing the performance
of a firm in respect of the following aspects=
0@ 1iquidity position#
2@ 1ong+term solvency#
3@ Operating efficiency#
>@ Overall profitability#
<@ !nter firm comparison
L@ Trend analysis.
*$ LI.UIDITY POSITION: -
)ith the help of %atio analysis conclusion can be drawn regarding the
liquidity position of a firm. The liquidity position of a firm would be satisfactory if
it is able to meet its current obligation when they become due. A firm can be
said to have the ability to meet its short+term liabilities if it has sufficient liquid
funds to pay the interest on its short maturing debt usually within a year as well
as to repay the principal. This ability is reflected in the liquidity ratio of a firm.
The liquidity ratio are particularly useful in credit analysis by bank ; other
suppliers of short term loans.
+$ LONG TERM SOLVENCY: -
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%atio analysis is equally useful for assessing the long+term financial
viability of a firm. This respect of the financial position of a borrower is of
concern to the long+term creditors# security analyst ; the present ; potential
owners of a business. The long+term solvency is measured by the leverage8
capital structure ; profitability ratio %atio analysis s that focus on earning power
; operating efficiency.
%atio analysis reveals the strength ; weaknesses of a firm in this
respect. The leverage ratios# for instance# will indicate whether a firm has a
reasonable proportion of various sources of finance or if it is heavily loaded with
debt in which case its solvency is e$posed to serious strain. /imilarly the
various profitability ratios would reveal whether or not the firm is able to offer
adequate return to its owners consistent with the risk involved.
,$ OPERATING EFFICIENCY:
-et another dimension of the useful of the ratio analysis# relevant from
the viewpoint of management# is that it throws light on the degree of efficiency
in management ; utiliation of its assets. The various activity ratios measures
this kind of operational efficiency. !n fact# the solvency of a firm is# in the
ultimate analysis# dependent upon the sales revenues generated by the use of
its assets+ total as well as its components.
2$ OVERALL PROFITABILITY:
Enlike the outsides parties# which are interested in one aspect of the
financial position of a firm# the management is constantly concerned about
overall profitability of the enterprise. That is# they are concerned about the
ability of the firm to meets its short term as well as long term obligations to its
creditors# to ensure a reasonable return to its owners ; secure optimum
utiliation of the assets of the firm. This is possible if an integrated view is taken
; all the ratios are considered together.
3$ INTER C FIRM COMPARISON:
26
%atio analysis not only throws light on the financial position of firm but
also serves as a stepping+stone to remedial measures. This is made possible
due to inter firm comparison ; comparison with the industry averages. A single
figure of a particular ratio is meaningless unless it is related to some standard
or norm. one of the popular techniques is to compare the ratios of a firm with
the industry average. !t should be reasonably e$pected that the performance of
a firm should be in broad conformity with that of the industry to which it belongs.
An inter firm comparison would demonstrate the firms position vice+versa its
competitors. !f the results are at variance either with the industry average or
with the those of the competitors# the firm can seek to identify the probable
reasons ; in light# take remedial measures.
D$ TREND ANALYSIS:
Finally# ratio analysis enables a firm to take the time dimension into
account. !n other words# whether the financial position of a firm is improving or
deteriorating over the years. This is made possible by the use of trend analysis.
The significance of the trend analysis of ratio lies in the fact that the analysts
can know the direction of movement# that is# whether the movement is favorable
or unfavorable. For e$ample# the ratio may be low as compared to the norm but
the trend may be upward. On the other hand# though the present level may be
satisfactory but the trend may be a declining one.
ADVANTAGES OF RATIO ANALYSIS
Financial ratios are essentially concerned with the identification of
significant accounting data relationships# which give the decision+maker insights
into the financial performance of a company. The advantages of ratio analysis
can be summaried as follows=
%atios facilitate conducting trend analysis# which is important for
decision making and forecasting.
27
%atio analysis helps in the assessment of the liquidity# operating
efficiency# profitability and solvency of a firm.
%atio analysis provides a basis for both intra+firm as well as inter+firm
comparisons.
The comparison of actual ratios with base year ratios or standard
ratios helps the management analye the financial performance of
the firm.
LIMITATIONS OF RATIO ANALYSIS
%atio analysis has its limitations. These limitations are described below=
*$ In'or(a!on %ro-"e(s
%atios require quantitative information for analysis but it is not decisive
about analytical output .
The figures in a set of accounts are likely to be at least several months
out of date# and so might not give a proper indication of the companyBs
current financial position.
)here historical cost convention is used# asset valuations in the balance
sheet could be misleading. %atios based on this information will not be
very useful for decision+making.
+$ Co(%ar!son o' %er'or(ance o0er !(e
)hen comparing performance over time# there is need to consider the
changes in price. The movement in performance should be in line with
the changes in price.
)hen comparing performance over time# there is need to consider the
changes in technology. The movement in performance should be in line
with the changes in technology.
28
*hanges in accounting policy may affect the comparison of results
between different accounting years as misleading.
,$ Iner-'!r( co(%ar!son
*ompanies may have different capital structures and to make
comparison of performance when one is all equity financed and another
is a geared company it may not be a good analysis.
/elective application of government incentives to various companies
may also distort intercompany comparison. comparing the performance
of two enterprises may be misleading.
!nter+firm comparison may not be useful unless the firms compared are
of the same sie and age# and employ similar production methods and
accounting practices.
6ven within a company# comparisons can be distorted by changes in the
price level.
%atios provide only quantitative information# not qualitative information.
%atios are calculated on the basis of past financial statements. They do
not indicate future trends and they do not consider economic conditions.
PURPOSE OF RATIO ANLYSIS:
0@ To identify aspects of a businesses performance to aid decision making
2@ Guantitative process 9 may need to be supplemented by qualitative
Factors to get a complete picture.
29
3@ < main areas=+
L!1&!d!# 9 the ability of the firm to pay its way
In0es(en8s/are/o"ders 9 information to enable decisions to be made
on the e$tent of the risk and the earning potential of a business
investment
Gear!n) 9 information on the relationship between the e$posure of the
business to loans as opposed to share capital
Pro'!a-!"!# 9 how effective the firm is at generating profits given sales
and or its capital assets
F!nanc!a" 9 the rate at which the company sells its stock and the
efficiency with which it uses its assets
ROLE OF RATIO ANALYSIS:
!t is true that the technique of ratio analysis is not a creative technique in
the sense that it uses the same figure ; information# which is already appearing
in the financial statement. At the same time# it is true that what can be achieved
by the technique of ratio analysis cannot be achieved by the mere preparation
of financial statement.
%atio analysis helps to appraise the firm in terms of their profitability ;
efficiency of performance# either individually or in relation to those of other firms
in the same industry. The process of this appraisal is not complete until the ratio
so computed can be compared with something# as the ratio all by them do not
mean anything. This comparison may be in the form of intra firm comparison#
inter firm comparison or comparison with standard ratios. Thus proper
comparison of ratios may reveal where a firm is placed as compared with earlier
period or in comparison with the other firms in the same industry.
%atio analysis is one of the best possible techniques available to the
management to impart the basic functions like planning ; control. As the future
is closely related to the immediate past# ratio calculated on the basis of
historical financial statements may be of good assistance to predict the future.
30
%atio analysis also helps to locate ; point out the various areas# which need the
management attention in order to improve the situation.
As the ratio analysis is concerned with all the aspect of a firms financial
analysis i.e. liquidity# solvency# activity# profitability ; overall performance# it
enables the interested persons to know the financial ; operational
characteristics of an organisation ; take the suitable decision.
EVALUATION OF APLAB LIMITED T6ROUG6 RATIO
COMPANY PROFILE
T6E COMPANY C
A41A, 1imited is a professionally managed 4ublic 1imited company
quoted on the ,ombay /tock 6$change. /ince its inception in 0ML2# A41A, has
been serving the global market with wide range of electronic products meeting
the international standards for safety and reliability such as E1# H56 etc. They
specialie in Test and Feasurement 6quipment# 4ower *onversion and E4/
/ystems# /elf+/ervice Terminals for ,anking /ector and Fuel 5ispensers for
4etroleum /ector. A41A, en"oys worldwide recognition for the quality of its
products# business integrity and innovative engineering skills.
ABOUT APLAB:
31
Aplab started its operation in October 0ML2.
!t is a professionally managed >: years old public limited company.
!t is quoted on ,OF,A- /TO*N 6O*.AD76.
!t serves customer global customer par e$cellence.
!t specialied in Test ; measurement instruments# power conversion# ;
E4/ ; fuel dispensers for petroleum sector.
!t en"oys worldwide recognition for the quality of its business integrity ;
innovative engineering skills.
MISSION:
To deliver high quality# carefully# engineered products# on time# with in
budget# as per the customer specification in a manner profitable to both#
our customers ; so to us.
VISION:
To be a global player# recognied for quality ; integrity.
To be the TO4 !D5!AD *OF4AD- as conceived by our customers.
To be ' T.6 ,6/T ( company to work for# as rated by our employees.
GOAL:
7oal at Aplab is e$tract ordinary customer service as we provide our
customer needs in the personal service industry.
CORPORATE MISSION C
0@ To achieve healthy and profitable growth of the company in the interest of our
customers ; the shareholders.
2@ To encourage teamwork# reward innovation and maintain healthy
interpersonal relations within the organiation.
32
3@ To e$pand knowledge and remain at the leading edge in technology to serve
the global market.
>@ To understand the customerBs needs and provide solutions than merely
selling products.
<@ To create intellectual capital by investing in hardware and embedded
software development.
VALUES ; BELIEFS:
Their values ; beliefs required that they +
Treat employees with respect ; give them an opportunity for input on
how to continuously improve their service goals.
Offer opportunities for growth# professional development ; recognition.
4rovide most effective ; corrective action# to resolve customer service
issues# to ensure customer satisfaction.
Foster an open door policy# which encourages interaction# discussion ;
ideas to improve work environment ; increase productivity.
' 5o it right the first time ; every time( is their team commitment P our
way of doing business# it ensures as growth ; prosperity.
T6E +*
ST
CENTURY SUCCESS C
A41A, had planned to enter the 20st *entury with a program for a fast
and healthy growth in the global market based on companyBs high technology
foundation and the reputation of four decades for prompt customer service and
as a reliable solution provider. After completing three years in the new era# we
can say with pride that we have been delivering our promises to our customers
and the shareholders.
A41A, has entered the field of 4rofessional /ervices starting with the
,anking and the 4etroleum !ndustry. Focus on developing embedded system
33
software has been also enhanced. )e believe that professional services sector
is poised to grow at a very rapid pace.
.UALITY IS OUR AOR> CULTURE - ISO E::*:+:::
Guality at A41A, is a part of our peopleBs attitude. 6ntire organiation is
committed to create an environment that encourages individual e$cellence and
a personal commitment to quality. !n A41A,# 'Guality is everybodyBs
responsibility( and all strive to 'do it right the first time(. !t is therefore natural
that A41A, 1imited is certified for quality with !/O M::0=2::: registration.
.UALITY POLICY:
Aplab will deliver to its customer products ; services that consistently
meet or e$ceed their requirement.
Aplab will achieve this by total commitment ; involvement of every
individual.
Aplab will encourage its employees ; suppliers to develop quality
products prevent defects ; make continual improvement in all
processes.
.UALITY OBJECTIVE:
Aplab is an !/O M::0=2::: certifies company.
0::A customer satisfaction.
On time delivery every time reduction is out going 44F to 0:#:::
%6/6A%*. AD5 56H61O4F6DT
5eveloping innovative products with the latest technology is the core
strength of A41A,. The /cience ; Technology Finistry of the 7ovt. of !ndia
accredits our %;5 1aboratories. )e have a large team of dedicated# highly
qualified skilled engineers who e$cel in the latest state+of+the+art+technology.
A41A, is recognied not only for manufacturing standard products but also in
providing solutions and services as per the customer specifications. )e spend
more than >A of the company revenue in %esearch ; 5evelopment activities.
34
/pecific areas in which the company carries out %;5
0. 5evelopment of new product especially hi+tech intelligent product ;
electronic transaction control system.
2. !mprovement in the e$isting products ; production processes# import
substitution.
3. 5evelopment of products to suit e$ports markets.
>. *ustomiing the products to the customerBs specifications ; adaptation
of imported technology.
The company has achieved its position of leadership in the !ndian
instrumentation industry ; continuous to maintain it through its strong grip of
technology. Almost all the products manufactured by the company are import
substitution items# which are fully developed in house. !t has resulted in
considerable saving of foreign e$change. )ith the company# %;5 is an ongoing
process. The ministry of science ; technology# 7overnment of !ndia# recognies
the companyBs %;5.
Through a continuous interaction with production; Guality Assurance
5epartment takes up redesign of e$isting products. This is done to achieve
state of the art in our design ; to bring about improvement to get ma$imum
performance 8 cost ratio.
FUTURE PLAN OF ACTION
Fa"or %;5 activity is concentrated around up gradation of product
design ; re+alignment of production processes to bring about improved quality
at lower cost. This will greatly help the company in facing competition in local
markets from foreign companies.
6O4O%T
A41A, currently e$ports over 2<A of its production to )estern 6urope#
*anada ; E/A. Over 3: million E./. 5ollars worth of 4ower /ystems and Test
35
!nstruments from A41A, are today operational in EN# 7ermany# France#
/weden# ,elgium# *anada# and E/A ; Australia.
APLABFS ORGANISATION C6ART
E?ECUTIVE
C6AIRMAN

MANAGING
DIRECTOR
DIRECTOR MAE>ETING
GTEC6NICAL DIRECTOR
- PE$
GENERAL
MANAGER
FINANCE GHM GHMH MATERIAL GHMH GHMH
MANAGER PRODH MAR>ETING MANAGER ELTRAC DESIGN
; PRODH ;
DESIGN
DEVLOP-
MENT
36
REGIOAL
HEAD:
MUMBAI
NEWDELHI
SECUNDA-
RABAD
BANGLORE
CHENNAI
OFFICERS
STAFF
AOR>ERS
PRODUCTS OF APLAB:
a. T6/T ; F6A/E%6F6DT !D/T%EF6DT/
b. .!7. 4O)6% A* /-/T6F/ (E4/# Frequency *onverter#
!nverter# !solation Transformer)
c. .!7. 4O)6% 5* /-/T6F/ (5* 4ower /upply# 5*
Eninterruptible 4ower /upply)
d. ATF !D/TA*A/.
e. 4O)6% /E441!6/# A*+5* 4O)6% /E441-# 5*85*
*ODH6%T6%/# /F4/# !DH6%T6%/# /TA,!1!Q6%# 1!D6
*OD5!T!OD6%# !/O1AT!OD T%AD/FO%F6%
ATM INSTACAS6
The ,anking Automation
5ivision of A41A, was
launched in 0MM3# when we
introduced !D/TA*A/.+
!ndiaBs first indigenously
manufactured ATF
!D/TA*A/. demonstrated
A41A,Bs skills in design#
hardware manufacturing
and software integrations.
37
Our in house %;5 group is constantly striving to scan the rapidly changing
technology and offer suitable end to end solutions. )e are into /elf /ervice
5elivery /ystems# F!*% *heque 4rocessing and /mart *ard based solutions.
The latest is !FA766DA,165 *heque 4rocessing solution+ GE!*N*16A%.
APLAB LIMITED
BALANCE S6EET AS AT ,*
ST
MARC6 +::+
(%/.B:::)
AS AT ,*ST +::+ AS AT ,*
ST
+::+
SOURCES OF FUNDS
S6ARE6OLDERS FUND
/hare capital <#::#::
%eserves and surplus 0L#2M#LM
20#2M#LM
LOANS
/ecured 02#03#>R
Ensecured 3#LS#MM
0<#R0#>S
DEFFERED TA? LIABILITY <NET= 0#:L#R<
TOTA1 ,IJ*IJ:*
APPLICATION OF FUNDS
FI?ED ASSETS
7ross block 0<#M:#33
1ess= depreciation 0:#32#ML
Det block <#<S#3S
*apital work in progress <>#3L
L#00#S3
INVESTMENT *J++J,+
CURRENT ASSESTSJ LOANS ;
ADVANCES
!nventories 0M#:M#SS
/undary debtors 0R#>M#3<
*ash ; bank balances 3#30#32
1oan ; advances <#R:#3L
>L#S:#R:
CURRENT LIABLITIES ;
PROVISIONS
*urrent liabilities 0<#3L#:M
38
4rovisions <S#<S
0<#M3#LL
NET CURRENT ASSESTS 3:#SS#0>
MISCELLANEOUS E?PENDITURE L#R>
Toa" ,I*IJ:*
PROFIT ; LOSS ACCOUNT FOR T6E ENDED ,*
ST
MARC6 +::+
(%/.B:::)
A/ AT 30+3+ 2::2 AS AT ,*-,-+::+
INCOME:
/ales and operating earnings >R#0M#0M
Other income R:#<:
Hariation in stock 0#30#:S
3:J,:JKD
E?PENCES:
Faterials consumed 0R#MS#2R
4urchase of trading goods R#L0#S<
4ayments to ; provision for M#M<#:>
6mployees
Fanufacturing e$penses 2#20#3S
6$cise duty L<#:<
Other e$penses <#SL#S0
!nterest ; finance charges 2#L:#22
5epreciation 0#:<#3S
1ess= transferred to revaluation 0#0< 0#:>#22
2EJI*JD2
PROFIT BEFORE TA? >M#02
PRIOR YEAR ADJUSTMENT <NET=
PROVISION FOR TA?ATION
*urrent ta$ 2>#>2
5eferred ta$ liability 8 (Assets) >#:2
PROFIT AFTER TA? +:JDI
,alance brought forward from previous
year 0
Ba"ance a0a!"a-"e 'or a%%ro%r!a!on +:JDE
A%%ro%r!a!ons:
7eneral reserve 2:#LR
/urplus 8 (loss) carried to ,8/ 0
4roposed dividend
Ta$ on proposed dividend
39
+:JDE
Bas!c earn!n) %er s/are <r&%ee=
:H2*
:H2*
BALANCE S6EET AS AT ,*
ST
MARC6 +::,
(%/.B:::)
AS AT ,*-,- +::, AS AT ,*-,- +::,
SOURCES OF FUNDS
S6ARE6OLDERS FUND
/hare capital <#::#::
%eserves and surplus 0L#<<#0M
20#<<#0M
LOANS
/ecured 0:#2S#<<
Ensecured >#<3#0L
0>#R:#S0
DEFFERED TA? LIABILITY <NET= RS#20
TOTA1 ,KJ+,J**
APPLICATION OF FUNDS
FI?ED ASSETS
7ross block 0S#>:#MS
1ess= depreciation 00#>:#M3
Det block L#::#:>
*apital work in progress 2M#S>
L#2M#SR
INVESTMENT 0#>S#2L
CURRENT ASSESTSJ LOANS ;
ADVANCES
!nventories 0M#:2#SM
/undary debtors 0M#:<#SL
*ash ; bank balances 3#M<#2<
1oan ; advances R#MR#L2
<0#:2#>2
CURRENT LIABLITIES ;
PROVISIONS
*urrent liabilities 2:#>0#<L
4rovisions 0#2:#SL
20#L2#32
40
NET CURRENT ASSESTS 2M#>:#0:
MISCELLANEOUS E?PENDITURE <#MS
TOTA1 ,KJ+,J**
PROFIT ; LOSS ACCOUNT FOR T6E ENDED ,*
ST
MARC6 +::,
(%/.B:::)
A/ AT 30+3+ 2::3 AS AT ,*-,- +::,
INCOME:
/ales and operating earnings <M#L2#22
Other income 0<#:>
Hariation in stock (<M#2S)
3EJ*KJEE
E?PENCES:
Faterials consumed 22#>0#L:
4urchase of trading goods 0:#3S#<2
4ayments to ; provision for 0:#L3#ML
6mployees
Fanufacturing e$penses 2#LM#MM
6$cise duty S2#LM
Other e$penses S#L2#23
!nterest ; finance charges 2#3L#<S
5epreciation 0#:S#MS
1ess= transferred to revaluation 0#:3 0#:L#M>
3KJE*J3:
PROFIT BEFORE TA? 0#2L#>M
PRIOR YEAR ADJUSTMENT <NET=
PROVISION FOR TA?ATION
*urrent ta$ L3#0M
5eferred ta$ liability 8 (Assets) (0M#L>)
PROFIT AFTER TA? R2#M>
,alance brought forward from previous
year 0
Ba"ance a0a!"a-"e 'or a%%ro%r!a!on I+JE3
A%%ro%r!a!ons:
7eneral reserve 2L#<:
/urplus 8 (loss) carried to ,8/ >
4roposed dividend <:#::
Ta$ on proposed dividend L#>0
I+JE3
Bas!c earn!n) %er s/are <r&%ee= *HDD
41
BALANCE S6EET AS AT ,*
ST
MARC6 +::2
(%/.B:::)
AS AT ,*-,- +::2 AS AT ,*-,- +::2
SOURCES OF FUNDS
S6ARE6OLDERS FUND
/hare capital <#::#::
%eserves and surplus 0S#>2#<M
22#>2#<M
LOANS
/ecured 00#3R#RL
Ensecured <#<R#2M
0L#MS.0<
DEFFERED TA? LIABILITY <NET= M<#33
TOTA1 2:J,3J:K
APPLICATION OF FUNDS
FI?ED ASSETS
7ross block 0R#>0#<R
1ess= depreciation 02#>:#:3
Det block L#:0#<<
*apital work in progress 0<#2M
L#0L#R>
INVESTMENT 0#>R#3>
CURRENT ASSESTSJ LOANS ;
ADVANCES
!nventories 20#>L#2:
/undary debtors 0M#<0#<L
*ash ; bank balances >#>M#S>
1oan ; advances R<:#<R
<3#MR#:R
CURRENT LIABLITIES ;
PROVISIONS
*urrent liabilities 0R#0L#0S
4rovisions 3#02#:2
20#2R#0M
NET CURRENT ASSESTS 32#LM#RM
TOTA1 2:J,3J:K
42
PROFIT ; LOSS ACCOUNT FOR T6E ENDED ,*
ST
MARC6 +::2
(%/.B:::)
A/ AT 30+3+ 2::> AS AT ,*-,-+::2
INCOME:
/ales and operating earnings S3#M:#>S
Other income 30#3M
Hariation in stock <3#MM
K2JK3JI3
E?PENCES:
Faterials consumed 2R#<0#>:
4urchase of trading goods 0>#:3#33
4ayments to ; provision for 02#M>#>S
6mployees
Fanufacturing e$penses 3#:S#<0
6$cise duty S:#:R
Other e$penses M#0S#M>
!nterest ; finance charges 2#>L#3:
5epreciation 0#0:#RM
1ess= transferred to revaluation M3 0#:M#ML
S2#::#MM
PROFIT BEFORE TA? 2#S>#RL
PRIOR YEAR ADJUSTMENT <NET= 2<#S0
PROVISION FOR TA?ATION
*urrent ta$ 0#0M#<:
5eferred ta$ liability 8 (Assets) R#03
PROFIT AFTER TA? 0S2M>
,alance brought forward from previous
year >
Ba"ance a0a!"a-"e 'or a%%ro%r!a!on *JK+JEI
A%%ro%r!a!ons:
7eneral reserve RR#3:
/urplus 8 (loss) carried to ,8/ S
4roposed dividend S<#::
Ta$ on proposed dividend M#L0
*JK+JEI
Bas!c earn!n) %er s/are <r&%ee= ,H2D
43
BALANCE S6EET AS AT ,*
ST
MARC6 +::3
(%/.B:::)
AS AT ,*-,- +::3 AS AT ,*-,- +::3
SOURCES OF FUNDS
S6ARE6OLDERS FUND
/hare capital <#::#::
%eserves and surplus 0M#0>#M0
2>#0>#M0
LOANS
/ecured 0S#23#02
Ensecured <#3L#RM
22#L:#:0
DEFFERED TA? LIABILITY <NET= M2#:2
TOTA1 >S#LL#M>
APPLICATION OF FUNDS
FI?ED ASSETS
7ross block 20#L>#RM
1ess= depreciation 03#>3#:<
Det block R#20#R>
*apital work in progress +
R#20#R>
INVESTMENT 2#32#M0
CURRENT ASSESTSJ LOANS ;
ADVANCES
!nventories 0M#32#RR
/undary debtors 23#:L#LS
*ash ; bank balances L#:>#L>
1oan ; advances 0:#:>#:2
<R#>R#20
CURRENT LIABLITIES ;
PROVISIONS
*urrent liabilities 0L#<<#0<
4rovisions >#R:#RS
20#3L#:2
NET CURRENT ASSESTS 3S#02#0M
TOTA1 >S#LL#0M
44
PROFIT ; LOSS ACCOUNT FOR T6E ENDED ,*
ST
MARC6 +::3
(%/.B:::)
A/ AT 30+3+ 2::< AS AT ,*-, +::3
INCOME:
/ales and operating earnings S>#2:#30
Other income >0#LM
Hariation in stock (3R#><)
S>#23#<<
E?PENCES:
Faterials consumed 2<#M0#R3
4urchase of trading goods 0<#20#::
4ayments to ; provision for 03#<>#0<
6mployees
Fanufacturing e$penses 2#S0#>0
6$cise duty S<#>0
Other e$penses R#>>#SR
!nterest ; finance charges 2#0<#R2
5epreciation 0#2L#LR
1ess= transferred to revaluation R> 0#2<#R>
S:#::#2>
PROFIT BEFORE TA? >#23#30
PRIOR YEAR ADJUSTMENT <NET=
PROVISION FOR TA?ATION
*urrent ta$ 0#<:#R>
5eferred ta$ liability 8 (Assets) (3#30)
PROFIT AFTER TA? 2#S<#SR
,alance brought forward from previous
year S
Ba"ance a0a!"a-"e 'or a%%ro%r!a!on +JK3JI3
A%%ro%r!a!ons:
7eneral reserve 0#S3#2:
/urplus 8 (loss) carried to ,8/ 3
4roposed dividend M:#::
+JK3JI3
Bas!c earn!n) %er s/are <r&%ee= 3H3+
CALCULATIONS AND INTERPRETATION OF RATIOFS
45
*$ CURRENT RATIO:
For(&"a:
C&rren asses
C&rren ra!o 4
C&rren "!a-!"!!es
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
C&rren asses >L#S:#R: <0#:R#3M <3#MR#:R <R#2R#20
C&rren "!a-!"!!es 0<#M3#LL 20#L2#32 20#2R#0M 20#3L#:2
C&rren ra!o 2.M3 2.3L 2.<3 2.S2
COMMENTS:
!n Aplab company the current ratio is 2.S2=0 in 2::>+2::<. it means that
for one rupee of current liabilities# the current assets are 2.S2 rupee are
available to the them. !n other words the current assets are 2.S2 times the
current liabilities. Almost > years current ratio is same but current ratio in 2::>+
2::< is bit higher# which makes company more sound. The consistency
increase in the value of current assets will increase the ability of the company to
meets its obligations ; therefore from the point of view of creditors the company
is less risky. (The available working capital company is in increasing order.
2::0+2::2 + 3:#SS#0>
2::2+2::3 + 2M#>L#:S
2::3+2::> + 32#LM#RM
2::>+2::< + 3L#M2#0M
The company has sufficient working capital to meets its urgency8
obligations. A company has a high percentage of its current assets in the form
of working capital# cash that would be more liquid in the sense of being able to
meet obligations as ; when they become due. From this working capital# the
company meets its day+to+day financial obligations.
Thus# the current ratio throws light on the companyBs ability to pay its
current liabilities out of its current assets. The Aplab *ompanyBs has a very
good liquidity position of company.
+$ LI.UID RATIO:
46
For(&"a:
.&!c5 asses
L!1&!d ra!o 4
.&!c5 "!a-!"!!es
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
.&!c5 asses 20#R:#LS 23#:0#:0 2>#:0#3: 2M#00#30
.&!c5 "!a-!"!!es 0<#M3#LL 20#L2#32 20#2R#0M 20#3L#:2
L!1&!d ra!o 0.3L 0.:L 0.02 0.3L
COMMENTS:
The liquid or quick ratio indicates the liquid financial position of an
enterprise. Almost in all > years the liquid ratio is same# which is better for the
company to meet the urgency. The liquid ratio of the Aplab *ompany has
increased from 0.02 to 0.3L in 2::>+2::<. 5ay to day solvency is more sound
for company in 2::>+2::< over the year 2::3+2::>.
This indicates that the dependence on the short+term liabilities ;
creditors are less ; the company is following a conservative working capital
policy.
1iquid ratio of *ompany is favorable because the quick assets of the
company are more than the quick liabilities. The liquid ratio shows the
companyBs ability to meet its immediate obligations promptly.
,$ PROPRIETORY RATIO:
For(&"a:
4roprietary fund shareholders fund
4roprietary %atioT+++++++++++++++++++++++++++ or T ++++++++++++++++++++++++++++++++++++++++
T!"# $%&' $()e' "**e!*+,%--.L(".(#(!(e*
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
47
Pro%r!ear# '&nd 20#2M#LM 20#<<#0M 22#>2#<M 2>#0>#M0
Toa" '&nd <2#R2#<3 <S#3R#0S LL#0>#M2 LL#S:#:<
Pro%r!ear# ra!o >: 3S.<< 33.M: 3L.2:
COMMENTS:
The 4roprietary ratio of the company is 3L.2:A in the year 2::>+2::<. !t
means that the for every one rupee of total assets contribution of 3L paise has
come from owners fund ; remaining balance LL paise is contributed by the
outside creditors. This shows that the contribution by outside to total assets is
more than the owners fund. This 4roprietary ratio of the *ompany shows a
downward trend for the last > years. As the 4roprietary ratio is not favorable the
*ompanyBs long+term solvency position is not sound.
2$ STOC> AOR>ING CAPITAL RATIO:
For(&"a:
Soc5
Soc5 Bor5!n) ca%!a" ra!o 4
Aor5!n) Ca%!a"
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
Soc5 0M#:M#SS 0M#:2#SM 20#>L#2: 0M#32#RR
Aor5!n) Ca%!a" 3:#SS#0> 2M#>L#:S 32#LM#RM 3S#02#0M
Soc5 Bor5!n)
ca%!a" ra!o
L2.:L L>.<R L<.L3 <2.:L
COMMENTS:
This ratio shows that e$tend of funds blocked in stock. The amount of
stock is increasing from the year 2::0+2::2 to 2::3+2::>. .owever in the year
2::>+2::< it has declined to <2A. !n the year 2::>+2::< the sale is increased
which affects decrease in stock that effected in increase in working capital in
2::>+2::<.
!t shows that the solvency position of the company is sound.
3$ CAPITAL GEARING RATIO:
48
For(&"a:
Pre'erence ca%!a"7 sec&red "oan
Ca%!a" )ear!n) ra!o 4
E1&!# ca%!a" ; reser0e ; s&r%"&s

YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
Sec&red "oan 02#03#>R 0:#2S#<L 00#3R#RL 0#S2#302
E1&!# ca%!a" ;
reser0es ;
s&r%"&s
20#2M#LM 20#<<#0M 22#>2#<M 2#>0#>M0
Ca%!a" )ear!n)
ra!o
<L.MS >S.LS <:.SR S0
COMMENTS:
7earing means the process of increasing the equity shareholders return
through the use of debt. *apital gearing ratio is a leverage ratio# which indicates
the proportion of debt ; equity in the financing of assets of a company.
For the last 3 years ?i.e.2::0+2::2 TO 2::3+2::>@ *apital gearing ratio is all
most same which indicates# near about <:A of the fund covering the secured
loan position. ,ut in the year 2::>+2::< the *apital+gearing ratio is S0A. !t
means that during the year 2::>+2::< company has borrowed more secured
loans for the companyBs e$pansion.
D$ DEBT E.UITY RATIO:
For(&"a:
Toa" "on) er( de-
De- e1&!# ra!o 4
Toa" s/are/o"ders '&nd
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
Lon) er( de- 0<#R0#>S 0>#R:#S: 0L#MS#0< 22#L:#:0
S/are/o"ders
'&nd
20#2M#LM 20#<<#0M 22#>2#<M 2>#0>#M0
De- E1&!# Ra!o :.S> :.LR :.S< :.M3
49
COMMENTS:
The debt equity ratio is important tool of financial analysis to appraise the
financial structure of the company. !t e$presses the relation between the
e$ternal equities ; internal equities. This ratio is very important from the point of
view of creditors ; owners.
The rate of debt equity ratio is increased from :.S> to :.M3 during the
year 2::0+2::2 to 2::>+2::<. This shows that with the increase in debt# the
shareholders fund also increased. This shows long+term capital structure. The
lower ratio viewed as favorable from long term creditors point of view.
K$ GROSS PROFIT RATIO:
For(&"a:
Gross %ro'!
Gross %ro'! ra!o 4 9 *::
Ne sa"es
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
Gross %ro'! 2>#<>#>R 3S#L<#M: ><#<S#>< >2#3S#<2
Ne sa"es >3#><#>L <0#:2#3S LR#SL#RM LR#:M#SR
Gross %ro'! Ra!o <L.>R S3.R: LL.2S L2.22
50
7ross profit %atio
:
2:
>:
L:
R:
2::0+
2::2
2::2+
2::3
2::3+
2::>
2::> +
2::<
7ross profit %atio
COMMENTS:
The gross profit is the profit made on sale of goods. !t is the profit on
turnover. !n the year 2::0+2::2 the gross profit ratio is <L.>RA. !t has increased
to S3.R:A in the year 2::2+2::3 due to increase in sales without corresponding
increase in cost of goods sold. .owever the gross profit ratio decreased to
LL.2SA in the year 2::3+2::>.
!t is further declined to L2.22A in the year 2::>+2::<# due to high cost of
purchases ; overheads. Although the gross profit ratio is declined during the
year 2::2+2::3 to 2::>+2::<. The net sales and gross profit is continuously
increasing from the year 2::0+2::2 to 2::>+2::<.
I$ OPERATING RATIO:
For(&"a:
COGS7 o%era!n) e@%enses
O%era!n) ra!o 4 9*::
Ne sa"es

YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
COGS 7
O%era!n)
e@%enses
0R#M:#MR U
2#20#3S U
<#SL#S0
20#ML#32 U
2#LM#MR U
S#L2#23
2R#33#:2 U
3#:S#<0 U
M#0S#M>
2#<S#22LU
2S#0>0U
R>#>SR
Ne sa"es >3#><#>L <0#:2#3S LR#SL#RM L#R:#MSR
O%era!n) ra!o L0.RRA L3.2SA <MA <>.0LA
51
COMMENTS:
The operating ratio shows the relationship between costs of activities ;
net sales. Operating ratio over a period of > years when compared that indicate
the change in the operational efficiency of the company.
The operating ratio of the company has decreased in all > year. This is
due to increase in the cost of goods sold# which in 2::0+2::2 was L0.RRA# in
2::2+2::3 was L3.2SA# in 2::3+2::> was <MA ; in 2::>+2::< it is <>.0LA.
though the cost has increased in 2::2+2::3 as compared to 2::0+2::2# it is
reducing continuously over the ne$t two years# indicate downward trend in cost
but upward 8 positive trend in operational performance.
E$ E?PENSE RATIO:
The ratio of each item of e$pense or each group of e$pense to net sales is
known as I6$pense ratioB. The e$pense ratio brings out the relationship between
various elements of operating cost ; net sales. 6$pense ratio analyes each
individual item of e$pense or group of e$pense; e$presses them as a
percentage in relation to net sales.
A$ MANUFACTURING E?PENSES:
For(&"a:
Man&'ac&r!n) e@%enses
Man&'ac&r!n) e@%ense ra!o 4 9*::
Ne sa"es
YEAR +::*-+::+ +::+-+::, +::,-+::2 2004 -2005
Man&'ac&r!n)
e@%enses
2#20#3S 2#LM#MR 3#:S#<0 2/71/41
Ne sa"es >3#><#>L <0#:2#3S LR#SL#RM 68/09/78
Man&'ac&r!n)
e@%enses ra!o
<A <.2MA >.>SA 3.980
52
COMMENTS:
The manufacturing e$pense is shows the downward trend. 5uring the year
2::092::2 to 2::2+2::3 the manufacturing e$pense increased because there
is increase in the charges like labour# rent # power ; electricity# repair to plant ;
machinery ; miscellaneous works e$penses. The manufacturing e$pense
during the year 2::0+2::2 to 2::>+2::< is decreased from <A to 3.MLA. This
indicates that the company has control over the manufacturing e$pense.
B$ OT6ER E?PENSES:
For(&"a:
O/er e@%enses
O/er e@%ense ra!o 4 9*::
Ne sa"es
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
O/er e@%enses <#SL#S0 S#L2#23 M#0S#M> R#>>#SR
Ne sa"es >3#><#>L <0#:2#3S LR#SL#RM 68/09/78
O/er e@%enses
ra!o
03.2A 0>.M3A 03.3>A 02.>:A
COMMENTS:
The other e$pense of company is increased during the 2::0+2::2 to 2::3+
2::># because increase in the charges of rent of office# equipment lease rental#
printing ; stationary# advertisement ; publicity# transport outward ; other
charges. ,ut during the year 2::>+2::< the other e$penses is decrease from
03.3>A to 02.>:A. ,ecause decrease in equipment lease rental# advertisement
; publicity# transport charges# commission ; discount# sales ta$ ; purchase
ta$ . This indicates that the company also controlling the other e$penses.
53
*:= NET PROFIT RATIO
For(&"a:
NPAT
Ne %ro'! ra!o 4 9 *::

Ne sa"es
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
NPAT 2:#MR R2#M> 0#S2#M> 2#S<#SR
Ne sa"es >3><>L <0#:2#3S LR#SL#RM LR#:M#SR
Ne %ro'! ra!o :.>R 0.L 2.< >.:>
:
0
2
3
>
<
2::0+2::2 2::2+2::3 2::3+2::> 2::>+2::<
NET PROFIT
COMMENTS:
The net profit ratio of the company is low in all year but the net profit is
increasing order from this ratio of > year it has been observe that the from
2::0+2::2 to 2::>+2::< the net profit is increased i.e. in 2::3 it is increased by
0.02 in 2::3+2::> by :.M ; in 2::>+2::< by 0.<>.
4rofitability ratio of company shows considerable increase. *ompanyBs
sales have increased in all > years ; at the same time company has been
successful in controlling the e$penses i.e. manufacturing ; other e$penses.
!t is a clear inde$ of cost control# managerial efficiency ; sales
promotion.
54
**$ STOC> TURNOVER RATIO:
For(&"a:
COGS
Soc5 T&rno0er Ra!o 4
A0era)e soc5
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
COGS 0R#M:#MR 20#ML#32 2R#33#:2 2<#S2#2L
A0era)e soc5 <#>M#M: <#MS#<R L#S3#00 L#RM#3:
Soc5 T&rno0er
Ra!o
3.> 3.L >.2: 3.S3
COMMENTS:
/tock turnover ratio shows the relationship between the sales ; stock it
means how stock is being turned over into sales.
The stock turnover ratio is 2::0+2::2 was 3.> times which indicate that
the stock is being turned into sales 3.> times during the year. The inventory
cycle makes 3.> round during the year. !t helps to work out the stock holding
period# it means the stock turnover ratio is 3.> times then the stock holding
period is 3.< months ?0283.>T3.<months@. This indicates that it takes 3.< months
for stock to be sold out after it is produced.
For the last > years stock turnover ratio is lower than the standard but it
is in increasing order. !n the year 2::0+2::2 to 2::>+2::< the stock turnover
ratio has improved from 3.> to 3.S3 times# it means with lower inventory the
company has achieved greater sales. Thus# the stock of the company is moving
fast in the market.
*+$ RETURN ON CAPITAL EMPLOYED:
For(&"a:
NPAT
Re&rn on ca%!a" e(%"o#ed 4 9*::
Ca%!a" e(%"o#ed
55
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
NPAT 2:#LR R2#M> 0#S2#M> 2#S<#SR
Ca%!a" e(%"o#ed 3R#0R#:0 3S#23#00 >:#3<#:S >S#LL#M3
Re&rn on ca%!a"
e(%"o#ed
:.<> 2.23 >.2R <.SM
COMMENTS:
The return on capital employed shows the relationship between profit ;
investment. !ts purpose is to measure the overall profitability from the total
funds made available by the owner ; lenders.
The return on capital employed of %s.< indicate that net return of %s.< is
earned on a capital employed of %s.0::. this amount of %s.< is available to take
care of interest# ta$#; appropriation.
The return on capital employed is show+increasing trend# i.e. from :.<> to <.SM.
All of sudden in 2::0+2::2 the return on capital employed increased from :.<>
to <.SM. This indicates a very high profitability on each rupee of investment ;
has a great scope to attract large amount of fresh fund.
*,$ EARNING PER S6ARE:
For(&"a:
NPAT
Earn!n) %er s/are 4
N&(-er o' e1&!# s/are

YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
NPAT 2:#MR#::: R2#M>#::: 0#S2#M>#::: 2#S<#SR#:::
NoHo'e1&!# s/are <:#::#::: <:#::#::: <:#::#::: <:#::#:::
Earn!n) %er s/are :.>0 0.LL 3.>L <.<2
COMMENTS:
6arning per share is calculated to find out overall profitability of the
company. 6arning per share represents the earning of the company whether or
not dividends are declared.
The 6arning per share is <.<2 means shareholder gets %s. <.<2 for each
share of %s. 0:8+. !n other words the shareholder earned %s. <.<2 per share.
56
The net profit after ta$ of the company is increasing in all years.
Therefore the shareholders earning per share is increased continuously from
2::0+2::2 to 2::>+2::< by :.>0 to :<.<2. This shows it is continuous capital
appreciation per unit share by :.>0 to :<.<2.
The above diagram shows the 6arning per share and 5ividend per share
is increasing rapidly. !t is beneficial to the shareholders and prospective investor
to invest the money in this company.
*2$ DIVIDEND PAYOUT RATIO:
For(&"a:
D!0!dend %er s/are
D!0!dend Pa# o& ra!o 4 9 *::
Earn!n) %er s/are

YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
D!0!dend %er
s/are
+ 0 0.<: 0.R:
Earn!n) %er s/are :.>0 0.LL 3.>L <.<2
D!0!dend %a#o&
ra!o
+ L:.2> >3.3< 32.L:
57
COMMENTS:
!n the year 2::2+2::3 and 2::3+2::> the 5ividend pay out ratio is L:.2>
and >3.3< respectively. !n the year 2::2+2::3 the company has declared the
dividend L:.2> and the balance 3M.SL is retained with them for the e$pansion.
The company has not earned more profit in the year 2::0+2::2 hence the
company has not declared dividend in the year 2::0+2::2. .owever the
company has declared more dividends in the year 2::2+2::3 as the company
has sufficient profit. !n the year 2::> the company has declared 0.<: dividends
per share hence the earning per share has doubled. From this one can say that
the company is more conservative for e$pansion.
*3$ COST OF GOODS SOLD:
For(&"a:
COGS
Cos o' )oods so"d Ra!o 4 9 *::
Ne sa"es
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
COGS 0R#M:#MR 20#ML#32 2R#33#:2 2<#S2#2L
Ne sa"es >3#><#>L <0#:2#3S LR#SL#RM LR#:M#SR
Cos o' )oods
so"d ra!o
>3.<0 >3.:> >0.0M 3S.SS
COMMENTS:
This ratio shows the rate of consumption of raw material in the process
of production. !n the year 2::0+2::2 the cost of goods sold ratio is >3.<0A so
the gross profit is <L.>MA. it indicates that in 2::0+2::2# the >3A of raw
material is consumed in the process of production.
5uring the last > years the rate of cost of goods sold ratio is continuously
decreasing however the gross profit ; sales is increased during the same
period.
58
*D$ CAS6 RATIO:
For(&"a:
Cas/ 7 Ban5 7 Mar5ea-"e sec&r!!es
Cas/ ra!o 4
Toa" c&rren "!a-!"!!es
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
Cas/ 7 Ban5 7
Mar5ea-"e
sec&r!!es
3#30#32 3#M<#2< >#>M#S> L#:>#L>
Toa" c&rren
"!a-!"!!es
0<#M3#LL 20#L2#32 20#2R#0M 20#3L#:2
Cas/ ra!o :.2: :.0R :.20 :.2R
COMMENTS:
This ratio is called as super quick ratio or absolute liquidity ratio. !n the
year 2::0+2::2 the cash ratio is :.2: ; then it is decreased to :.0R in the year
2::2+2::3. Then again it is increased to :.20 in the year 2::3+2::> ; :.2R in
the year 2::>+2::<.
This shows that the company has sufficient cash# bank balance# ; marketable
securities to meet any contingency.
*K$ RETURN ON PROPRIETORS FUND:
For(&"a:
NPAT
Re&rn on %ro%r!eors '&nd 4 9 *::
Pro%r!eors '&nd
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
NPAT 2:#LR R2#M> 0#S2#M> 2#S<#SR
Pro%r!eors '&nd 20#2M#LM 20#<<#0M 22#>2#<M 2>#0>#M0
Re&rn on
%ro%r!eors '&nd
:.MS 3.R> S.S0 00.>0
59
COMMENTS:
%eturn on proprietors fund shows the relationship between profits ;
investments by proprietors in the company. !n the year 2::2+2::3 the return on
proprietors fund is 3.R>A it means the net return of %s. 3 appro$imately is
earned on the each %s. 0:: of funds contributed by the owners.
5uring the last > years the rate of return on proprietors fund is in
increasing order. The return on proprietors fund during the year 2::0+2::2 to
2::>+2::< is increased from :.MSA to 00.>0A.
!t shows that the company has a very large returns available to take care
of high dividends# large transfers to reserve etc. ; has a great scope to attract
large amount of fresh fund from owners.
*I$ RETURN ON E.UITY:
For(&"a:
NPAT
Re&rn on e1&!# s/are ca%!a" 4 9 *::
NoH o' e1&!# s/are
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
NPAT 2:#LR R2#M> 0#S2#M> 2#S<#SR
NoH o' e1&!#
s/are
50/000 50/000 50/000 50/000
Re&rn on e1&!#
s/are ca%!a"
4.13 16.5 34.58 55
COMMENTS:
This ratio shows the relationship between profit ; equity shareholders
fund in the company. !t is used by the present 8 prospective investor for deciding
whether to purchase# keep or sell the equity shares.
!n the year 2::2+2::3 the return on proprietors fund is 0L.<A# which
means the net return of %s. 0L# is earned on the each %s.0:: of the funds
contributed by the equity shareholders.
The rate of return on equity share capital is increased from>.03A to <<A
during the year 2::0+2::2 to 2::>+2::<. This shows that the company has a
very large returns available to take care of high equity dividend# large transfers
60
to reserve# ; also company has a great scope to attract large amount to fresh
funds by issue of equity share ; also company has a very good price for equity
shares in the ,/6.
*E$ OPERATING PROFIT RATIO:
For(&"a:
O%era!n) %ro'!
O%era!n) %ro'! ra!o 4 9*::
Ne sa"es
COMMENTS:
Operating profit ratio shows the relationship between operating profit ;
the sales. The operating profit is equal to gross profit minus all operating
e$penses or sales less cost of goods sold and operating e$penses.
The operating profit ratio of S.00A indicates that average operating
margin of %s.S is earned on sale of %s. 0::. this amount of %s. S is available for
meeting non operating e$penses. !n the other words operating profit ratio S.00A
means that S.00A of net sales remains as operating profit after meeting all
operating e$penses.
5uring the last > years the operating profit ratio is increased from S.00A
to M.3RA. !t indicates that the company has great efficiency in managing all its
operations of production# purchase# inventory# selling and distribution and also
has control over the direct and indirect costs. Thus# company has a large
margin is available to meet non+operating e$penses and earn net profit.
+:$ CREDITORS TURNOVER RATIO:
For(&"a:

Ne cred! %&rc/ase
Cred! &rno0er ra!o 4
A0era)e cred!ors
61

Mon/s !n a #ear
A0era)e a)e o' acco&ns %a#a-"e 4
Cred! &rno0er ra!o
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
Ne cred!
%&rc/ase
20#20#>3 22#S0#R: 2M#:R#L0 2<#2M#:>
A0era)e cred!ors <#RR#>2 S#M0#20 L#ML#RL S#R:#3M
Cred! &rno0er
ra!o
3.L times 3.L times > times 3 times
A0era)e a)e o'
acco&ns %a#a-"e
3.3 months 3.3 months 3 months > months
COMMENTS:
The creditors turnover ratio shows the relationship between the credit purchase
and average trade creditors. !t shows the speed with which the payments are
made to the suppliers for the purchase made from them.
The credit turnover ratio of ># indicate that the creditors are being turned
over >times during the year. !t indicates the number of rounds taken by the
credit cycle of payables during the year.
There is no standard ratio in absolute term. The creditors ratio for the
year 2::0+2::2 and 2::2+2::3 as good as the same# but it is increased by 3.L
to > in 2::3+2::>.this means the company has settled the creditors dues very
fastly than the previous year.
DEBTORS TURNOVER RATIO:
For(&"a:
Cred! sa"es
De-ors &rno0er ra!o 4
A0era)e de-ors
Da#s !n a #ear
De- co""ec!on %er!od 4
De-orFs &rno0er
62
YEAR +::*-+::+ +::+-+::, +::,-+::2 +::2 -+::3
Cred! sa"es >S#SS#>R <<#20#33 S>#RS#3L LR#:M#SR
A0era)e de-ors 0R#>M#3< 0M#:<#SL 0M#<0#<L 23#:L#LS
De-ors &rno0er
ra!o
2.< times 2.R times 3.R times 2.M times
De- co""ec!on
%er!od
0>L days 03: days ML days 02< days
COMMENTS:
5ebtorBs turnover ratio is alternative known as ' Accounts %eceivable
Turnover %atio(. This ratio measures the collectibility of debtors ; other
accounts receivable# it means the rate at which the trade debts are being
collected.
The 5ebtors turnover ratio of 2.< indicates that the debtors are being
turned over 2.< times during the year. !t means that the credit cycle of debtors
makes 2.< rounds during the year. !t helps to workout the debt collection period
i.e. 0>L days ?3L<8 2.< T 0>L@. This indicates that it take0>L days on an average
for the debtors to be settled. 5ebt collection period indicates the duration of the
credit cycle of the debtors.
The 5ebtors turnover ratio is almost same during the year 2::0+2::2 to
2::>+2::<# which indicates that the debts are being collected at a fast speed
during the year. The operating cycle of the debtors is short. !n other words the
debts collection period is short which result into less chance of bad debts.
SUMMARY OF FINANCIAL POSITION OF APLAB LIMITED
After going through the various ratios# ! would like to state that=
The short+term solvency of the company is quite satisfactory.
!mmediate solvency position of the company is also quite satisfactory.
The company can meet its urgent obligations immediately.
*redit policies are effective.
Over all profitability position of the company is quite satisfactory.
/tock turnover rate is satisfactory. /tock of the company is moving fast in
the market.
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The company is paying promptly to the suppliers.
The return on capital employed is satisfactory.
The management should take care of inventory management and speed up the
movement of stock. 6ffective selling technique or product modification may be
adopted to face the competitors and to improve the financial position of the
company by taking appropriate decisions.
CONCLUSION:
The focus of financial analysis is on key figures contained in the financial
statements and the significant relationship that e$its. The reliability and
significance attach to the ratios will largely on hinge upon the quality of data on
which they are best. They are as good for as bad as the data it self.
Financial ratios are a useful by product of financial statement and
provide standardied measures of firms financial position# profitability and
riskiness. !t is an important and powerful tool in the hands of financial analyst.
,y calculating one or other ratio or group of ratios he can analye the
performance of a firm from the different point of view.
The ratio analysis can help in understanding the liquidity and short+term
solvency of the firm# particularly for the trade creditors and banks. 1ong+term
solvency position as measured by different debt ratios can help a debt investor
or financial institutions to evaluate the degree of financial risk. The operational
efficiency of the firm in utiliing its assets to generate profits can be assessed
on the basis of different turnover ratios. The profitability of the firm can be
analyed with the help of profitability ratios.
.owever the ratio analyses suffers from different limitations also. The
ratios need not be taken for granted and accepted at face values. These ratios
are numerous and there are wide spread variations in the same measure.
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%atios generally do the work of diagnosing a problem only and failed to provide
the solution to the problem.
BIBLIOGRAP6Y
REFERENCE BOO>S C
FINANCIAL MANAGEMENT
Theory# *oncepts ; problems
RHPHRUSTAGI
FINANCIAL MANAGEMENT
Te$t and problems
MHYH >6AN AND PH >H JAIN
MANAGEMENT ACCOUNTING
AINAPURE
FINANCIAL MANAGEMENT
LHNH C6OPDE
DHNH C6OUD6ARI
SHLH C6OPDE
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ANAUAL REPORTS OF APLAB LIMITED
+::*-+::+
+::+-+::,
+::,-+::2
+::2-+::3
AEBSIDES -
BBBH-!LdHacH&58co(%'ac8ra!o
BBBHcec&ncHor)Hco(8-&s!ness8'!nanc!a"
BBBHLero(!""!onHco(H-&s!ness8'!nanc!a"
66