Professional Documents
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Chapter 3
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Profit & loss account (or) revenue statement ratios: These ratios deal with the
relationship between two profit & loss account items, e.g. the ratio of gross
profit to sales etc.
Composite (or) inter statement ratios: These ratios exhibit the relation
between a profit & loss account or income statement item and a balance sheet
items, e.g. stock turnover ratio, or the ratio of total assets to sales.
2. Functional Classification
These include liquidity ratios, long term solvency and leverage ratios, activity
ratios and profitability ratios.
3. Significance ratios
Some ratios are important than others and the firm may classify them as
primary and secondary ratios. The primary ratio is one, which is of the prime
importance to a concern. The other ratios that support the primary ratio are
called secondary ratios.
IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS
ANALYSES ARE:
Liquidity ratio
Leverage ratio
Activity ratio
Profitability ratio
1. LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current obligations as
&when there becomes due. The short term obligations of a firm can be met
only when there are sufficient liquid assets. The short term obligations are met
by realizing amounts from current, floating (or) circulating assets The current
assets should either be calculated liquid (or) near liquidity. They should be
convertible into cash for paying obligations of short term nature. The
sufficiency (or) insufficiency of current assets should be assessed by comparing
them with short term current liabilities. If current assets can pay off current
liabilities, then liquidity position will be satisfactory.
To measure the liquidity of a firm the following ratios can be calculated
Current ratio
Quick (or) Acid-test (or) Liquid ratio
Absolute liquid ratio (or) Cash position ratio
(a) CURRENT RATIO:
Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio also known as Working capital ratio is a measure of
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general liquidity and is most widely used to make the analysis of a short-term
financial position (or) liquidity of a firm.
b) QUICK RATIO
Quick ratio is a test of liquidity than the current ratio. The term liquidity refers
to the ability of a firm to pay its short-term obligations as & when they become
due.
Quick ratio may be defined as the relationship between quick or liquid assets
and current liabilities. An asset is said to be liquid if it is converted into cash
within a short period without loss of value.
(c) ABSOLUTE LIQUID RATIO
Although receivable, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash
immediately or in time. Hence, absolute liquid ratio should also be calculated
together with current ratio and quick ratio so as to exclude even receivables
from the current assets and find out the absolute liquid assets.
2. LEVERAGE RATIOS
The leverage or solvency ratio refers to the ability of a concern to meet its long
term obligations. Accordingly, long term solvency ratios indicate firms ability
to meet the fixed interest and costs and repayment schedules associated with
its long term borrowings.
The following ratio serves the purpose of determining the solvency of the
concern.
(a) PROPRIETORY RATIO
A variant to the debt-equity ratio is the proprietary ratio which is also known
as equity ratio. This ratio establishes relationship between shareholders funds
to total assets of the firm.
3. ACTIVITY RATIOS
Funds are invested in various assets in business to make sales and earn profits.
The efficiency with which assets are managed directly affects the volume of
sales.
Activity ratios measure the efficiency (or) effectiveness with which a firm
manages its resources (or) assets. These ratios are also called Turn over
ratios because they indicate the speed with which assets are converted or
turned over into sales.
Working capital turnover ratio
Fixed assets turnover ratio
10 | P a g e
11 | P a g e
Mar '08 Mar '09 Mar '10 Mar '11 Mar '12
11.04
11.04
17.47
17.47
17.47
11.04
11.04
17.47
17.47
17.47
0
0
0
0
0
0
0
0
0
0
150.11
183.1
740.11
813.95
926.07
40.57
33.89
106.02
103.77
99.23
201.72
228.03
863.6
935.19 1042.77
156.56
178.85
287.22
415.24
548.62
246.19
246.69
417.5
506.35
564.73
447.91
474.72
1281.1 1441.54
1607.5
Application of Funds
Mar '08
Gross Block
Less: Accum Depreciation
NET Block
Capital Work in Progress
Investments
Inventories
Sundry Debtors
Cash & Bank Balance
Total Current Assets
Loans and Advances
Fixed Deposits
Total CA, Loans And Advances
Deffered Credit
Current Liabilities
Provisions
Total CL & Provisions
Net Current Assets
Miscellaneous Expenses
Total Assets
Contingent Liabilities
Book Value (Rs)
Mar '09
534.04
559.63
204.27
224.72
329.77
334.91
18.42
36.53
0.86
10.87
101.29
93.33
92.17
89.77
1.37
0.64
194.83 183.7$
31.95
49.15
0
0
226.78
232.89
0
0
118.44
118.83
9.45
21.64
127.89
140.47
98.89
92.42
0
0
447.94
474.73
37.96
42.39
145.93
175.8
Mar '10
1257.46
410.31
847.15
45.11
114.59
164.15
164.15
16.21
344.86
164.61
0.58
510.05
0
195.93
39.87
235.8
274.25
0
1281.1
41.14
686
Mar '11
1378.99
472.51
906.48
82.03
104.58
215.78
215.78
11.18
454.15
210.47
0.22
664.84
0
258.53
57.89
316.42
348.42
0
1441.51
129.57
475.97
Mar '12
1661.49
545.21
1116.28
27.47
147.07
209.95
209.95
4.56
434.61
225.6
0.14
660.35
0
246.31
97.36
343.67
316.68
0
1607.5
73.19
108.03
12 | P a g e
PROFIT & LOSS ACCOUNT OF HINDUSTAN NATIONAL GLASS & INDUSTRIES LIMITED
Mar '07
Income
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
Mar '08
Mar '09
Mar '10
Mar '11
474.89
66.45
409.44
4.09
7.48
421.01
595.4
79.81
515.59
4.45
-3.22
516.82
1184.34
126.76
1021.58
6.27
-4.25
1023.6
1438.6
125.76
1312.84
-8.2
11.46
1316.1
1449.88
92.59
1357.29
30.92
2.63
1390.84
185.76
111.56
23.3
6.65
12.19
8.36
0
347.82
221.17
135.1
26.84
6.76
15.88
8.86
0
414.61
426.25
271.88
58.59
11.05
20.8
23.34
0
809.91
562.35
368.41
68.89
9.28
23.85
52.55
0
1085.33
551.03
375.59
86.91
9.23
25.81
29.58
0
1078.15
69.1
73.19
14.41
58.78
29.5
0
29.28
2.9
32.18
8.24
23.95
162.06
0
0.77
0.11
97.76
102.21
19.1
83.11
33.12
0
49.99
1.4
51.39
17.15
34.24
193.43
0
1.1
0.15
207.42
213.69
23.47
190.22
70.13
0
120.09
13.96
134.05
-26.27
160.34
383.64
0
6.99
1.19
238.97
230.77
43.45
187.32
74.75
0
112.57
5.23
117.8
10.05
107.75
522.98
0
8.73
1.48
281.77
312.69
47.17
265.52
86.12
0
179.4
3.62
183.02
27.85
155.2
527.11
0
13.1
2.04
110.43
21.69
7
145.93
110.43
31.01
10
175.8
110.43
145.19
40
686
174.68
61.68
50
475.97
873.39
17.77
75
108.03
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Exp
Se l l i ng &Admi n Exp
Miscelleneous Exp
Preoperative Exp Capitali
Total Expenses
Ope ra ti ng Profi t
PBDIT
Interest
PBDT
Depreciation
Other Written Off
Profit Before Tax
Extra ordinary items
PBT(post extra-ord items)
Tax
Reported Net profit
Total value Addition
Perferance Divident
Equity Dividend
Corporate Dividend Tax
Per share data(annual.)
Share in issue(lakhs)
Earning per share (Rs)
Equity Dividend(%)
Book va l ue (Rs )
13 | P a g e
0.65:1
0.84:1
1.17:1
0.95:1
1.71:1
Current Ratio
1.8
1.6
1.4
1.2
Column1
Series 2
0.8
Current Ratios
0.6
0.4
0.2
0
2008
2009
2010
2011
2012
Interpretation:
The ideal level of current ratio is 2:1.we shown too much higher ratio its good
for the company. Higher the current ratio, the larger is the amount of rupees
available per rupees of current liabilities, the more is the firms ability to meet
current obligation and greater is safety of fund of short term creditors.
Companys current ratio is not better than its ideal level. But if we see the
current ratio of the company for last five years it has decreased from 2007 to
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2010. The current ratio of company is near the ideal ratio. This depicts that
companys liquidity position is much better in previous years. Its current assets
are more than its current liabilities in 2011.
2. Quick Ratio
(Amount in Cr.)
Table 3.2
For Year 2008
For Year 2009
For Year 2010
0.98:1
1.35:1
1.37:1
1.31:1
1.12:1
Quick Ratio
1.6
1.4
1.2
1
Series 3
0.8
Series 2
0.6
Series 1
0.4
0.2
0
2008
2009
2010
2011
2012
Interpretation:
Quick assets are those assets which can be converted into cash within a short
period of time, say to six months. So, here the sundry debtors which are with
the long period does not include in the quick assets.
A quick ratio is an Indication that the firm is liquid and the ability to meet its
current liabilities in time. The Ideal quick ration is 1:1, Company Quick ratio is
more than the ideal ratio. So, the Quick ratio is increased because the sundry
debtors are increased due to the increase in the corporate tax and for that the
15 | P a g e
provision created is also increased. So, the ratio is also increased from 2008
and the ration is more than ideal ration from 2008 to 2011. This shows
Company has strong liquidity position.
1.27
0.55
0.61
0.60
0.55
Series 3
Series 2
0.6
Series 1
0.4
0.2
0
2008
2009
2010
2011
2012
Interpretation:
The ratio suggests the claims of creditors and owners over the assets of the
company. Suppose the ratio comes to be 1:2 or 0.5:1, it says that for every Rs 1
financed by debts, there is Rs 2 being brought in by the equity shareholders.
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0.011
0.053
0.082
0.043
0.018
17 | P a g e
Series 3
0.04
Series 2
Series 1
0.03
0.02
0.01
0
2008
2009
2010
2011
2012
Interpretation:
According to the rule of thumb the absolute liquid assets is 0.5/1. But when we
calculate the figure is less 0.011 in 2008, 0.082 in 2010 and 0.018 in 2012 that
means the company was not able to satisfy its primary cash requirement with
cash generation by operation. Because of in both years the company Liquidity
ratio is extremely lower in each year for that company has not sufficient Assets
to meet the requirement of its liabilities. According to the balance sheet the
company has less cash and its assets were increase but in other side its liability
was also increases due to the credit purchase and credit sales. So the company
must focus on its Debtor and its cash transaction and also minimize its liability.
These ratio shows that company carries a small amount of cash. But there is
nothing to be worried about the lack of cash because company has reserve,
borrowing power & long term investment. In India, firms have credit limits
sanctioned from banks and can easily draw cash.
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Table 3.5
For Year 2008
6.58
15.60
8.11
11.25
Series 3
Series 2
Series 1
6
4
2
0
2008
2009
2010
2011
2012
Interpretation:
The net profit ratio is the overall measure of the firms ability to turn each
rupee of income from services in net profit. If the net margin is inadequate the
firm will fail to achieve return on shareholders funds. High net profit ratio will
help the firm service in the fall of income from services, rise in cost of
production or declining demand.
This ratio shows whether the company has good gross profit or not. So the
figure 8.11 % in 2011 and 11.25% in 2012 which shows that is quiet
unimpressive and the company is not making good profit. Here the gross profit
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increase in 2012 but still the company has not enough gross profit and HNG Ltd
profit margin increase every year because of its inventory turnover ratio but it
is not enough.
Table 3.6
For Year 2008
For Year 2009
For Year 2010
For Year 2011
For Year 2012
16.02%
13.44%
12.50%
14.41%
9.90%
Series 3
8%
Series 2
6%
Series 1
4%
2%
0%
2008
2009
2010
2011
2012
Interpretation:
Gross profit is the result of the relationship between prices, sales volume and
costs. A change in the gross margin can be brought about by changes in any of
these factors. The gross margin represents the limit beyond which fall in sales
prices are outside the tolerance limit.
In this company in 2008 gross profit margin is 16.02%, its good for the every
company, but after one year it was fallen down to 9.90%. In 2011-12 margin
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was very low compare to previous year. So the figure 16.02 % in 2008, 12.50%
in 2010 and 14.41% in 2011 which shows that is quiet unimpressive and the
company is not making good profit.
Table 3.7
For Year 2008
For Year 2009
For Year 2010
For Year 2011
For Year 2012
18.96%
20.30%
18.20%
20.76%
16.36%
20%
15%
Series 3
Series 2
10%
Series 1
5%
0%
2008
2009
2010
2011
2012
Interpretation:
This ratio shows that effectiveness of a company's management by comparing
operating expense to net sales. Here the operating Ratio is 18.96 % in 2008
and 18.20% in 2010this is less. In compare the operating ratio is decrease in
2012 that means decrease in operating cost that increase total productivity.
21 | P a g e
This means that the company has not able to generate more margin as it
expense in operating sector. Using this ratio the invertors not interested in
investing more in money in the company if its operating Ratio low because
they believe that return is not being debt.
Critical Analysis
Analysis on Primary Data:
1. Monthly Income of the Employees:
Responses
<10000
10000-20000
20000-30000
30000-40000
>40000
TOTAL
No. of Respondents
15
16
5
6
8
50
Monthly Income
<10000
10000-20000
20000-30000
30000-40000
>40000
Results: From the above data it can be interpreted that almost 62% people have
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Responses
Respondents
Yes
No
27
20
Cant Say
TOTAL
50
30
25
20
Column2
15
Column1
Series 1
10
0
Yes
No
Can't Say
Results: 54% employees said that that their seniors discuss job with them while 40%
said they dont.
Interpretation:
Respondents
Yes
32
No
14
Cant Say
TOTAL
50
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35
30
25
Column2
20
Column1
15
Series 1
10
5
0
Yes
No
Can't Say
Result: 64% said they have proper safety measures in departments while 28% said
otherwise.
Interpretation: Workers works in a safe environment.
4. Cooperative superiors
Responses
Respondents
Yes
43
No
TOTAL
50
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50
45
40
35
30
Series 3
25
Column2
20
Column1
15
10
5
0
Yes
No
Results: 86% feels their superiors are cooperative while 14% thinks otherwise.
Interpretation: Relationship among the employees is very cordial.
5. Dependants in a family
Responses
No. of Respondents
None
15
20
More than 3
TOTAL
50
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25.00
20.00
15.00
Series 3
Series 2
10.00
Series 1
5.00
0.00
None
More than 3
Results:
Interpretation
6. Regarding capacity building
Responses
No. of Respondents
None
In-house Training
23
Outdoor training
19
Arrange seminars
TOTAL
50
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None
In-house training
Series 1
Series 2
Series 3
Outdoor training
Arrange seminars
10
15
20
25
50
45
40
35
30
Series 3
25
Series 2
20
Series 1
15
10
5
0
Yes
No
27 | P a g e
Responses
No. Of Respondents
Yes
22
No
28
TOTAL
50
30
25
20
Series 3
15
Series 2
Series 1
10
0
Yes
No
Results:
Interpretation:
9. Procedure followed for recruitment
Responses
No. of Respondents
Campus Placement
Written Examination
15
GD & PI
25
Walk-In Interview
TOTAL
50
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30
25
20
Series 3
15
Series 2
Series 1
10
0
Campus placement Written Examination
GD & PI
Walk-In Interview
Results:
Interpretation:
10. Regarding feeling secured in company
Responses
No. of Respondents
Yes
44
No
Cant Say
TOTAL
50
29 | P a g e
50
45
40
35
30
Series 3
25
Series 2
20
Series 1
15
10
5
0
Yes
No
Can't say
Results:
Interpretation:
11. On behalf of feeling secured about the money in company
Responses
No. of Respondents
Yes
28
No
Cant Say
15
TOTAL
50
30 | P a g e
30
25
20
Series 3
15
Series 2
Series 1
10
0
Yes
No
Can't Say
Results:
Interpretation:
12. Rating of the company
Responses
No. of Respondents
Excellent
15
Good
30
Average
Poor
TOTAL
50
31 | P a g e
35
30
25
20
Series 3
Series 2
15
Series 1
10
5
0
Excellent
Good
Average
Results:
Interpretation:
Responses
Respondents
Yes
10
No
40
Total
50
Poor
32 | P a g e
45
40
35
30
25
Series 3
Series 2
20
Series 1
15
10
5
0
Yes
No
Results: 20% employees are thinking of a shift while 80% thinks its better here.
Interpretation: Most of the employees are loyal to the company and will provide a good
workforce for long time.
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Chapter 4
35 | P a g e
In the present study I have analysed the working management of Hindustan National
Glass and Industries Ltd. I found that inventory is increasing which shows that
company has sufficient stocks to meet up out production of the company. Inventory
Turnover Ratio measures the velocity of conversion of stock into sales. Usually, a
high inventory turnover indicates efficient management of inventory because more
frequently the stocks are sold; the lesser amount of money is required financing the
inventory.
The Inventory Turnover Ratio is decreasing which is not a good sign for the company.
The business firm has adequate internal control procedure commensurate with the
size of the firm and nature of its business for the purchase of stores, machinery,
equipment and other assets and with regards to sale of goods. From the comparative
study of inventory turnover it is clear that stock velocity indicates inefficient
management of inventory during the year 2009.
So the companys performance outlook continues to be positive and optimistic. The
company remains confident of delivering of strong operating and financial
performance. Efficient stock velocity indicates efficient management of inventory of
the firm and no slow movement of the stock due to damaged goods.
1. In Context of Period in service it has been found that 64% employees have
been working for more than 15 years in the company and only 2% have been
working for less than 5 years. So it can be concluded that the company has
stopped recruiting new employees and is not interested in recruiting casual
employees.
2. In context of Monthly salary it has been observed that 94% of the employees
have earning ranging from Rs. 10000-30000. It can be concluded that the
company has not given increment although it is a profit making concern.
3. In lieu of Discussion of job with seniors it has been found that 54% employees
said they discuss their jobs with their seniors, while 40% said they dont. From
above it can be concluded that although most of the employees discuss their
jobs with the seniors but still a good number of employees do not discuss.
4. In context of Safety measures in departments it is seen that 64% employees
claim they have proper safety measures while 28% said they dont. Thus it can
be concluded that the company does not provide safety measures to every
departments.
36 | P a g e
5. In context of cooperative superiors it has been found that 86% claimed their
superiors are cooperative while 14% claimed they are not. While most of the
employees share cordial relationship with seniors there are some disgruntled
employees.
6. In context of Dependants in family it has been found that 40% employees has
3 dependants in their family, 30% has 2 dependants in their family, 16% has 1
dependant, 12% has more than 3 dependants and only 2% are single.
7. In context of Capacity building 46% said the company organises in house
trainings, 38% said the company arranges outdoor training and 16% claims the
company arranges seminars for capacity building. Thus it can be conclude that
the company does everything possible for capacity building.
8. In context of Canteen facility it has been found that 44% employees found the
9. Employees have security in the company.
10. Employees feel their money is safe in the company.
11. Employees have very good feeling about the company.
12. In context of Rating of company 30% rated the company as excellent, 60%
rated good, 8% rated average and 2% rated poor. So it can be concluded that
employees have good feeling about their company
13.
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