Ratio Analysis

I. Current Ratio:-
Formula:



Table 5.1



Interpretation:-
1) Above chart reveals that current ratio of the firm for years 2010, 2011, and 2012 is 2.14,
3.12, and 2.03 respectively. It means that for one rupee of liability firm has 2 rupees, 3
rupees, and 2 rupees of assets respectively.
2) In 2011 current ratio is at highest point i.e., 3.12 which is the result of increase in current
asset and decrease in current liabilities.
Year Current Assets
Current
Liabilities
Current Ratio
2011 18.45 8.62 2.14
2012 23.33 7.47 3.12
2013 37.6 18.44 2.03
0
0.5
1
1.5
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2.5
3
3.5
0
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10
15
20
25
30
35
40
2011 2012 2013
Graph 5.1
Current Assets Current Liabilities Current Ratio

FAMILY BUSINESS PLAN ON S.R.SHAH GROUP SURAJ SHAH 2

II. Quick ratio or Acid test ratio or Liquid ratio :-

Formula:-

Table 5.2
Year
Quick Assets (current Assets Stock and Prepaid
Expenses)
Current Liabilities Quick Ratio
2011 12.68 8.62 1.47
2012 18.00 7.47 2.40
2013 24.71 18.44 1.34


Interpretation:-
1) In the year 2012 liquidity ratio is increased from 1.47:1 to 2.40:1 that is due to the increase
in the quick assets by 5.68 lakhs and on the other hand, in 2013 it is decreased to 1.34.
2) Main reason behind this is increase in current liabilities by 114%.
3) In all years liquidity ratio of the firm exceeds the idle ratio of the firm, which indicates the
goo financial position of the firm.


0
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2.5
3
0
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10
15
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25
30
2011 2012 2013
Graph 5.2
Quick Assets Current Liabilities Quick Ratio

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III. Net profit Ratio:-

Formula:-


Table 5.4
Year Net Profit Net Sales Net Profit Ratio
2011 1.56 34.21 4.56%
2012 6.90 97.23 7.10%
2013 7.47 111.22 6.72%



Interpretation:-
1) It has been observed that the net profit of the firm is increased by 342% in 2012, which
provide remarkable growth in net profit ratio from 4.56% to 7.10%. It further increases in
2013 by 6.72%
2) Net sales of the firm is increased by 142% in 2011 and 14.39% in 2013.
3) Firm is having high net profit ratio which shows the profitability of the business.


0.00 %
1.00 %
2.00 %
3.00 %
4.00 %
% 5.00
% 6.00
7.00 %
8.00 %
0
20
40
60
80
100
120
2011 2012 2013
Graph 5.4
Net Profit Net Sales Net Profit Ratio

FAMILY BUSINESS PLAN ON S.R.SHAH GROUP SURAJ SHAH 4
IV. Return on capital Employed:-
Formula:-


Gross Capital Employed = Fixed Assets + Current Assets
Year
Net profit before tax and
interest
Gross Capital Employed Return on capital employed Ratio
2011 1.56 18.45 8.46%
2012 6.90 23.93 28.83%
2013 7.47 38.04 19.64%
Table No. 5.

Interpretation:-
1) Return on capital employed ratio has shown good results in 2012, whereas it is slightly
decreased in 2013 to 19.64%.
2) Return on capital employed ratio can be improved by increasing sales and profit margin
and reducing capital employed.


0.00 %
5.00 %
10.00 %
15.00 %
20.00 %
25.00 %
30.00 %
35.00 %
0
5
10
15
20
25
30
35
40
2011 2012 2013
Graph 5.6
Net Profit before tax and interest Gross Capital Employeed Return on Capital employed Ratio

FAMILY BUSINESS PLAN ON S.R.SHAH GROUP SURAJ SHAH 5
V. Stock Turnover Ratio:-

Formula:-

Table 5.7
Year Cost Of Goods Sold Average Inventory Stock Turnover Ratio
2011 32.33 28.84 1.12
2012 89.99 5.55 16.21
2013 97.48 9.11 10.7


Interpretation:-
1) Inventory turnover ratio has been increased in 2012 from 1.12 to 16.21 which is good for
the firm
2) Higher inventory turnover ratio shows inventory has been handled efficiently in the
company and it indicates positive liquidity position of the firm

VI. Debtors Turnover Ratio:-
Formula:-
0
2
4
6
8
10
12
14
16
18
0
20
40
60
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100
120
2011 2012 2013
Graph 5.7
Cost of Goods Sold Average Inventotary Stock Turnover Ratio

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Table 5.8

Interpretation:-
1) The graph has shown the upward movement throughout the three years. Through the
graphical representation we can observe that it increase from 3.86 to 8.89 and 8.89 to 9.30
in 2011, 2012 and 2013 respectively. It has resulted in efficient credit management system.
2) The debtors turnover ratio of 9.30 indicates that the debtors are being turned over 9.30
times during year. It means that the credit cycle of the debtors makes 9.30 rounds during
the year. It helps to work out the debt collection period i.e., 39 days [365 days / 9.30] it
indicates that it takes 39 days on an average for debtors to be settled. Debt collection period
indicates the duration of the credit cycle of the debtors.


IX. Creditors Turnover Ratio:-
Formula:-

Year Net Credit Sales Accounts Receivables Debtors Turnover Ratio
2011 34.21 8.86 3.86
2012 97.23 10.93 8.89
2013 111.22 11.95 9.30
0
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8
9
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0
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100
120
2011 2012 2013
Graph 5.8
Net Credit Sales Average Inventotary Debtors Turnover Ratio

FAMILY BUSINESS PLAN ON S.R.SHAH GROUP SURAJ SHAH 7
Table 5.9
Year Net Credit Purchases Accounts Payables Creditors Turnover Ratio
2011 38.10 8.62 4.42
2012 89.47 6.83 13.09
2013 104.43 17.71 5.90



Interpretation:-
1) Creditors turnover ratio establishes the relationship between the net credit purchase and
the trade average trade creditors. It shows the speed at which the payments are made to the
suppliers for the purchase made from them.
2) The creditors turnover ratio of 5.90 indicates that the creditors are being turned over 5.90
times during year. It means that the credit cycle of the creditors makes 5.90 rounds during
the year. It helps to work out the debt payment period i.e., 61 days [365 days / 5.90] it
indicates that it takes 61 days on an average for creditors to be settled. Debt payment period
indicates the duration of the credit cycle of the creditors.



0
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14
0
20
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60
80
100
120
2011 2012 2013
Graph 5.9
Net Credit Purchases Accounts Payables Creditors Turnover Ratio

FAMILY BUSINESS PLAN ON S.R.SHAH GROUP SURAJ SHAH 8
X. Debt Equity Ratio:
Formula:-

Table 5.10
Year Outsiders Fund Shareholders Fund Debt Equity Ratio
2011 7.00 2.82 2.48
2012 7.88 8.57 0.91
2013 6.74 12.85 0.52
Interpretation:-
1) The debt equity ratio is important tool of financial analysis to apprise the financial structure
of the company. It expresses the relationship between the external equities and internal
equities. This ratio is very important from the point view of creditors and owners.
2) Debt equity ratio of the firm is continuously decreasing throughout three years i.e., 2.48 to
0.91, and 0.91 to 0.52. This is mainly because of increase in shareholders fund and decrease
in outsiders fund.



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2.5
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2011 2012 2013
Graph 5.10
Outsiders Fund Shareholders Fund Debt Equity Ratio

FAMILY BUSINESS PLAN ON S.R.SHAH GROUP SURAJ SHAH 9
Growth Plan

Currently our family business is working in sangli district and limited to only one district, in next
5 years business is looking forward to acquire dealership in 5 more districts. Also business is
planning to start its branches in 4 more cities. And each of it will handed over to outside peoples
to run. As far as my position in the current business is concerned I have different options open
such as joining our current business at Madhavnagar, Starting my own different branch in the same
city, or take over the dealership in different city. And I will make my choice among this after
actually working in my family business for some years.