1

A
PROJECT REPORT
ON
A STUDY ON RATIO ANALYSIS
AT VERKA MILK PLANT, MOHALI
KHALSA COLLEGE (ASR.) OF TECHNOLOGY AND BUSINESS STUDIES

MOHALI

IN PARTIAL FULFILLMENT FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

Submitted To: - Submitted by:-

Amritpal singh
ROLL NO. 867
MBA 3rd

DEPARTMENT OF BUSINESS ADMINISTRATION

KHALSA COLLEGE (ASR.) OF TECHNOLOGY AND BUSINESS STUDIES

MOHALI
SESSION- 2016-2018
 2

DECLARATION

I hereby affirm that the work presented in this project report is exclusively my own
and there are no collaborators. It does not contain any work for which a
degree/diploma has been awarded by any other University/ Institution.

Dated: (Amritpal Singh)

 3

CERTIFICATE

This is to certify that the work contained in this project report “A STUDY ON
RATIO ANALYSIS” embodies project work carried out by Amritpal Singh
himself under my supervision and that it is worthy of consideration for the award
of the degree of Master of Business Administration. The work has not been
submitted in part or full for the award of any other degree in any other University
in my knowledge.

Date: Supervisor`s Signature

 4

ACKNOWLEDGEMENT
I deeply express my profound gratitude and whole hearted thanks to the God
Almighty for giving me the wisdom and strength to undertake this project.

Amongst the wide panorama of people who provided me the inspiration, guidance
and encouragement, I take this opportunity to thank those who gave me indebted
assistance and constant encouragement for completing this project.

My beloved college, which provided necessary facilities, guidance and endless

encouragement, which helped me soundly. The institute is a boon to all of us not
only in completing our projects but also throughout the course of study under the
humanitarian grounds.

I record my thanks to my principal Dr. Harish Kumari for her support and
encouragements. I record my thanks to my Guide MS. LAKHWINDER KAUR
(Assistant Professor in Management) for his guidance and encouragements towards
me.

I also thank all the friends for their cooperation in successful completion of my
project.

I would like to thank all the faculty members for their excellent guidance and
dedicated involvement.

Dated: Amritpal Singh

 5

INDEX
Sr. No. Particulars Page no.
1 CHAPTER-1 1-10
COMPANY PROFILE
2 CHAPTER-2 11-15
INTRODUCTION OF THE TOPIC
3 CHAPTR-3 16-20
REVIEW OF LITERATURE
4 CHAPTER-4 21-22
OBJETIVES OF THE STUDY
5 CHAPTER-5 23-25
RESEARCH METHODOLOGY
Need of the study
Research design
Size of sample
Sampling techniques
Sources of data collection
Research instruments
Analysis tool
Limitations of the study
6 CHAPTER-6 26-53
DATA ANALYSIS AND INTERPRETATION
7 CHAPTER-7 54-55
FINDINGS
8 CHAPTER-8 56-58
CONCLUSION
9 CHAPTER-9 59-70
SUGGESTIONS
BIBLOGRAPHY
APPENDIX
 6

CHAPTER-1
COMPANY PROFILE
 7

INTRODUCTION TO ORGANISATION

THE PUNJAB STATE COOPERATIVE MILK PRODUCERS FEDRATION LIMITED; The

Punjab State Co-operative Milk Producers‟ Federation Limited (MILKFED) was established in
1973 by Punjab Diary Development cooperation under the Punjab State Co-operative Act, 1967
to safeguard commercial interest of milk producers farmers to save them from exploitation of
middleman, with their participation in its management and to provide quality milk and milk
products to consumers at competitive rates.
It came into existence with a twin objective;
First, to carry activities for promoting production, procurement and processing of milk for the
economic development of milk producers by providing remunerative milk market to them at
their door step.
Second, provide quality milk and milk products to consumers at reasonable rates.
Although the federation was registered much earlier, but it came to real self in the year 1983
when all the milk plants Punjab Dairy Development corporation Limited were handed over to
cooperative sector and the entire State was covered under operation Food program to give
farmers to a better deal and our valued customers better products. Today, when we look back,
Verka has fulfilled the promise to great extent. The setup of the organization is a three tier
system, Milk Producers Cooperative Societies at the village level, Milk Union at District level
and Milk Federation as an apex body at a State level. Milk production is a very important part of
agricultural economy in the State of Punjab. Punjab is one of smallest state in Indian Union with
a total area of 50,362 Sq. km. Dairy Farming is an old subsidiary profession in the rural area of
Punjab. Punjab is the second largest milk producing state in India, producing 10 % of country‟s
milk.
Some facts about Verka:
1 First Milk Plant of the State was setup at Verka near Amritsar.
2. The brand name of Milk and Milk Products was adopted as Verka.
3. The Foundation stone of Milk Plant Ludhiana was laid by Hon. S. Parkash Singh Badal the
CM of Punjab in 1970.
4. Commissioning of the Plant was done by Dairy Development Corporation in 1974.
5. Inauguration was done by Late Smt. Indira Gandhi the PM of India.
 8

6. The capacity of plant was 1 lac Liter per day, including power plant of 7MT and now the milk
plant with capacity of 4 lac Liter per day.
7. Village level cooperative societies were also formed on “Anand Pattern”. The system was run
by the farmers, of the farmers and for the farmers.
Registration:
Milk Union Plant was registered under co-operative Societies Act, 1961 on 30th January, 1979 by
the registrar co-operative societies, Punjab, Chandigarh and milk procurement was started in
July, 1980 in the hired premises.
About 21 Acers 6 canals of land for the present milk plant was purchased in June 1982 and the
foundation stone was laid in July, 1983 by the Hon‟ble Chief Minister, Sardar Darbara Singh for
the construction of milk plant at a cost of 4.32 Crores.
Milk chilling facilities were commenced on its own premises in January, 1985 and the milk plant
at its present shape is with a procurement capacity of 2 lakh 96 thousand as on March 31st 2013.

HISTORY OF PLANT
This plant has been established in 1980 by Punjab Dairy Development Corporation. The Punjab
Dairy Development Corporation and Milkfed are the two Government Dairy Organizations
which are running parallel to each other at this time. In 1982, both these organizations
submerged into one organization which is named as „Milkfed‟. „Milkfed‟ came into existence
with twin objective of providing remunerative milk market to the milk producers in the state by
value addition and marketing of produce one hand and to provide technical input to the milk
producers for the enhancement of milk production on other hand.
Set up of the organization is the three-tier system, Milk Produce‟s, Cooperative Societies at the
village level, 11 Milk Union at District Level, and Federation as an Apex Body at State Level,
Ropar Milk Union, Mohali includes about 860 milk producers* cooperative societies at the
village level which are distributed under 12 zones. Milk Plant has installed capacity to process 2,
00,000 liters of milk per day. Milk procurement is increasing gradually @ 5% per annum.
 9

ABOUT MILK PLANT MOHALI

It is the milk union amongst the 11 Milk Unions under MILKFED Group which is located at
S.A.S Nagar, Mohali (PUNJAB). It was registered on 05.07.1978 under Punjab Co-operative
Societies Act, 1961. It started its operations on September, 1980.

Current Position of Verka Milk Plant, Mohali:

A. Details of number of members and societies enrolled under Verka Milk Plant Mohali:

Financial Year No. of Societies Enrolled No. of Members Enrolled

2011-12 966 49237

2012-13 1010 50549
2013-14 1047 52596
2014-15 1051 57354
2015-16 1091 61950
2016-17 2010 65646
B. Details of milk procurement by Milk Plant Mohali:

Financial Year Milk Procurement Liters Per (%)age Increase

Kg/ LPKG
2011-12 217598 or 2.18 lakh 11%
2012-13 246895 or 2.47 lakh 13%
2013-14 274525 or 2.75 lakh 11%
2014-15 319504 or 3.19 lakh 16%
2015-16 296905 or 2.97 lakh 4%
2016-17 326587 or 3.35 lakh 12.87%

C. Details of City Supply of Milk by the Plant:

Financial Year City Supply LPD( Liters per (%) Increase

day)
2011-12 264024 or 2.64 lakh 15%
2012-13 301639 or 3.02 lakh 14%
 10

2013-14 314183 or 3.14 lakh 4%

2014-15 327184 or 3.27 lakh 4%
2015-16 355621 or 3.56 lakh 9%
2016-17 352589 or 3.96 lakh 13%

D. Distribution of Cattle Feed and Processed Seeds to Society Members:

The milk plant provides cattle feed and processed seeds to its society members. It also
provides a free of cost medical aid to cattle.

Financial Year Distribution of Cattle Feed in Distribution of Processed

Quintals (Qtl.) Seeds in Quintals (Qtl.)

2011-12 26743 879

2012-13 26485 991
2013-14 28718 1150
2014-15 29038 1507
2015-16 19313 2216
2016-17 20145 2355

E. Details of Turnover of Verka Milk Plant:

Financial Year Turnover in Crores (Cr.)

2011-12 292.51
2012-13 372.54
2013-14 484.49
2014-15 500.58
2015-16 433.13
2016-17 501.65

F. Details of Financial Position of Milk Plant:

 11

Financial Year Net Profit in Crores (Cr.)

2011-12 6.23
2012-13 7.15
2013-14 7.88
2014-15 8.08
2015-16 6.04
2016-17 7.56

PRODUCTS OF MILK PLANT, MOHALI

Sweets Other Sweet Milk Ghee

Peda Cheese Kaju Standard Milk 1-liter MC

Mahadal Curd Burfi DTM Ghee 15kg Tin

Pinni Kheer Til Bhugga Premium milk

Dhoda Plain Lassi Til Milk Cake Skimmed milk

Pan Jiri Namkeen Lassi

Soan

Papdi Mix
 12

ORGANISATIONAL NETWORK OF VERKA

The management manages various sections in order to ensure smooth functioning of the plant. It
is impossible for the management to take decisions on every problem so, various duties and
responsibilities are delegated to various sections performing particular operations.
All the sections are interrelated and they contact each other frequently to share the desired
information.

MILK PLANT MOHALI

BOARD OF DIRECTOERS

CHAIRMAN

GENERAL MANAGER

M (PROC) M (PROD) M(QC) M (MKT) M (HRD) M(A/C)

DM DM DM DM SR. AST. DM

SUP OPERT. JDC F.S.R. JR. AST. DM

 13

DM HELP. LAB AST. S.R. CLERK CLERK

GENERAL MANAGER

DM
M(ENGG.) DM(PUR) DM (MIS) INS. SEC.
(STORE)

DM AST S.K. SR AST SEC. MEN

FOREMEN CLERK AST S.K. CLERK MECHANICS

ABBREVIATIONS USED IN THE ORGANIZATIONAL STRUCTURE:

1. DM (Deputy Manager); SR (Senior); JDC (Junior Diary Chemist); S.K. (Store Keeper)

2. AST (Assistant); HELP (Helper); OPERT (Operator); INC. SEC. (In charge Security)

3. SUP (Supervisor); F.S.R (Sales Representative)

4. PROC (Procurement); PROD (Production); QC (Quality Control); MKT (Marketing)

HRD (Human Resource Department); A/C (Accounts).

 14

NETWORKS OF VERKA
Verka is having an apex body at the state land known as MILKFED Punjab. To start with
functions in various fields of different unions in different Districts and to operate with Dairying
and Dairy fields that is the operation flood with assistance of National Dairy Co-operation
(NCD) Delhi and later on is launched to operate flood second which is affiliated to Punjab
MILKFED. It helps its affiliated districts milk Co-operations in 11 Districts.
These District Unions are:
1. Ropar Milk Union
2. Patiala Milk Union
3. Ludhiana Milk Union
4. Faridkot Milk Union
5. Ferozpur Milk Union
6. Sangrur Milk Union
7. Bathinda Milk Union
8. Gurdaspur Milk Union
9. Hoshiarpur Milk Union
10. Jalandhar Milk Union
11. Amritsar Milk Union
These Milk Unions carry out smooth functioning of marketing, procurement, cattle breeding
program through District Co-operative unions in 11 Districts of Punjab.
 15

SWOT ANLYISIS

STRENGTHS:
 Support of top management in the daily operations of the plant.
 Experienced, qualified and devoted work force.
 The brand name “Verka”.
 Own cattle feed plant and fodder seed grading station for supplying certified fodder
seeds.
 Good Corporate Governance and socially responsible organization.

WEAKNESSES:

 Perishability-Pasteurization has overcome this weakness partially. UHT gives milk long
life.
 Lack of control over yield-Theoretically, there is little control over milk yield.
 Woes of bad roads and inadequate transportation facility make milk procurement
problematic.
 All is not well with distribution.
 With so many newcomers entering this industry, competition is becoming tougher day by
day.

OPPORTUNITIES:

 Veterinary health care and breeding facilities are to be increased for improving genetic
milk yielding characters of animals.
 Feasibility of home delivery systems for city supply of milk to be implemented.
 General land of milk plant can be used for research and cultivation.

THREATS:

 Non- adoption of dairy farming as a side business by farmers.

 Increased salary bills as compared to turnover.
 Higher cost of raw material comparative to the pricing policy.
 16

CHAPTER - 2
INTRODUCTION OF TOPIC
 17

RATIO ANALYSIS:
Financial ratio analysis is the calculation and comparison of ratios, which are derived from the
information in a company‟s financial statements. The level and historical trends of these ratios
can be used to make inferences about a company‟s financial condition, its operations and
attractiveness as an investment.
The information in the statements is used by:
•Trade creditors- to identify the firm‟s ability to meet their claims i.e. liquidity position of the
company.
•Investors- to know about the present and future profitability of the company and its financial
structure.
•Management- in every aspect of the financial analysis. It is the responsibility of the
management to maintain sound financial condition in the company.

PROCESS OF RATIO ANALYSIS:

Selection of Relevant data from the financial statement

calculation of appropriate ratio from the given data

Interpretation of the ratio

comparison of past & present position of the company

INTERPRETATION OR EXPRESSION OF RATIOS:

1. Pure Ratio or Simple Ratio: It is expressed by the simple division of one number by another.
For example, if the current assets of the business are Rs. 2,00,000 and current liabilities are Rs.
1,00,000, thus, the ratio of current assets to current liabilities will be 2:1.
2. Rate or Times: It shows how many times a figure is in comparison to another figure. For
example, if a firm‟s credit sales during the year are Rs. 3,00,000 and its debtors at the end of the
year are Rs. 60,000, its debtor‟s turnover ratio will be 3,00,000/60,000 times i.e. 5 times. It
shows that the credit sales are 5 times compared to the debtors.
3. Fraction: Ratios can also be expressed in fractions. For example, the ratio of debts to equity is
say3/4 i.e. 0.75.
 18

4. Percentage: Here, we express the ratios in terms of percentage. For example, if a firm‟s
capital is Rs. 100,000 and its profit is Rs. 20,000, the ratio of profit to capital will be =
20,000*100/100,000=20%.
CLASSIFICATION OF RATIOS:

(1) Liquidity/Working capital ratios or ratios for short term solvency:

(a) Current Ratio
(b) Liquid/Quick/Acid Test Ratio
(c) Absolute Liquid Ratio
(2) Efficiency/Turnover/Performance/Turnover Ratios:
(a) Inventory/Stock Turnover Ratio
(b) Receivables/Debtors Turnover Ratio
(c) Wages Turnover Ratio
(d) Capital Turnover Ratio
(e) Working Capital Turnover Ratio
(f) Assets Turnover Ratio
(3) Profitability Ratios:

(a) Gross Profit Ratio

(b) Net Profit Ratio
(c) Operating Net Profit Ratio
Note: In case we have to calculate ratios for overall profitability, the following three ratios will
also be worked out in addition to the above mentioned five ratios.
(d) Return on Investment Ratio (ROI)
(e) Return on Equity Capital (ROEC)
(f) Earning Per Share (EPS)
(4) Solvency Ratios/Ratios for Long Term Solvency:
(a) Equity Ratio/Proprietary Ratio.
(b) Funded Debt to Total Capitalization Ratio
(c) Debt Equity Ratio
(d) Equity to Net Fixed Assets Ratio
(e) Net Fixed Assets to Funded Debt Ratio
(f) Debt Service/Interest Coverage Ratio
 19

A. ANALYSIS OF SHORT TERM FINANCIAL POSITON OR TEST OF LIQUIDITY

To meet its commitments, business needs liquid funds. The ability of the business to pay the
amount due to stakeholders as and when it is due is known as liquidity, and the ratios calculated
to measure it are known as „Liquidity Ratios‟. They are essentially short-term in nature.
To measure the liquidity of a firm, following ratios can be calculated:
1. Current Ratio.

2. Liquid or Quick or Acid Test Ratio.

3. Absolute Liquid Ratio or Cash Position Ratio.

1. CURRENT RATIO:
Current ratio is the proportion of current assets to current liabilities. It is expressed as follows:

Current Ratio= Current Assets/ Current Liabilities

Current Assets: those assets which can be converted into cash within an accounting period of
one year.
C.A=Cash in hand+ Cash at bank+ Marketable securities+ Short term investments+ Sundry
debtors+ Bills Receivables+ Stock including work in progress+ Prepaid expenses/unexpired
payments.
Current Liabilities: are those liabilities which are to be discharged within an accounting period of
one year.
C.L= Bills Payables+ sundry creditors+ Outstanding expenses+ Bank overdraft+ any other
liability payable within one year.
SIGNIFICANCE OF CURRENT RATIO:
The rule of thumb/ benchmark for this ratio is 2:1, meaning thereby that the current assets must
be twice of the current liabilities, because if the company has to pay off its current liabilities, it
will be left with a reasonable amount of working capital to carry on its day to day activities. And
even if the value of current assets comes down considerably the company will be in a position to
at least pay off its current liabilities.

If the ratio is less than 2:1, the company may face the problem of working capital.

If the ratio is more than 2:1, the company may face any of the following problems:

(a) Excess of cash

(b) Excess of debtors

(c) Piling up of stock.

* While calculating Current Ratio, we have taken loans and advances in the current assets. In
Current Liabilities we included the provisions to calculate Total Current Liabilities.
 20

Limitations of Ratio Analysis

Although financial ratios and ratio analysis have many advantages, they have disadvantages, too:
 Historical or old data enter in the calculation of financial ratios and ratio analysis, making
the information that they give far from being current.
 Various estimates go into calculating financial ratios, and therefore the information that
ratio analysis purport to provide may not be accurate.
 Financial ratios and ratio analysis may not be an appropriate tool to compare companies
from different sectors as they may be operating in extremely different economic
environments.
 They may not even be suitable to compare companies from the same sector as they may
have differing corporate accounting practices and operational policies.
 21

CHAPTER-3
REVIEW OF LITERATURE
 22

REVIEW OF LITERATURE

A number of National and International research studies have been carried out on different
aspects of financial performance by the researchers, economists and academicians in India.
Different authors have analyzed performance in different aspects. Very little research work has
been done on analysis of financial performance of Indian cement industry. Therefore, the present
chapter reviews the empirical studies related with different aspects of financial performance.
Literature review was divided in two category National review and International review.
NATIONAL REVIEW Kaura, M. N and Bola Subramanian (1979) analyzed ten cement
units during the period of study 1972 to 1977 shows that the financial performance of the
selected cement companies evidenced by Profitability, Liquidity and capital structure ratios has
declined. The non-availability of funds has affected the modernization of plants and periodic
rehabilitation of the kilns. Besides, the bottlenecks in supply of raw materials and power and
non-remunerative prices have reduced the capacity utilization, profits and cash flows. The
profitability and liquidity position in many cement companies have been affected adversely
because of the problems in supply of raw materials, transport and power
Nagarajrao B.S and Chandra K (1980) analyzed the financial efficiency of cement companies
for the selected period of the study 1970 -71 to 1977-78. It can be analyzed profitability of
selected cement companies has been found downward trend from 1970-71 to 1974-75 because
the reason of inflation, rising of manufacturing cost, continuous fall in capacity utilization due to
many reasons.
Kumar B. Das (1987) has made an analysis of the financial performance of the cement industry.
it can be analyzed that the net fixed assets as a percentage of total assets decreased for the period
1970-71 to 1977-78 that was 553.5% to 44.04 % respectively. Current liabilities have increased
than the current assets. Liquidity performance of the cement industry is not healthy during period
of the study. The Debt Asset ratio has downward during the period of the study and Debt Equity
ratio has slightly increased while net worth ratio has decreased over the years.
Nair N.K. (1991) has focused the productivity aspect of Indian Cement Industry. This study
emphasized that cement, being a construction material, occupied a strategic place in the Indian
economy. This study has revealed that, in 1990-91, the industry had an installed capacity of 60
million tons with a production of 48 million tons. In this study, the cement industry was
 23

forecasted to have a capacity growth of about 100 million tons by the year 2000. This study has
also analyzed the productivity and financial performance ratios of the cement industry with a
view to identifying the major problem areas and the prospects for solving them.
Dr. Dinesh A. Patel (1992) has analyzed Financial Analysis - A Study of Cement Industry of
India for the period of 1979-80 to 1988-89. He can analyze the profitability of the cement
industry, to examine the short term financial strength of the cement industry through the analysis
of working capital management and to analyze the long term financial strength through the
analysis of capital structure.
Subir Cokavn and Rejendra Vaidha (1993) have analyzed to evaluate the performance of
cement industry after decontrol. They found that the performance of the cement industry after
decontrol was characterized by outcomes that were generally competitive and welfare enhancing.
This study has revealed that the structure of the industry changed significantly with large
magnitude of relative technologically and superior capacity being created by many new entrants
into the industry. It was also noticed in this study that there were significant real price increase
and an associated increase in profitability. The performance of firms across the environment
during 1980's strategic group was different with firms operating relatively new and large plants
appeared to have an advantage. Further, the study has dealt with the nature and effect of inter-
firm heterogeneities in the cement industry.
Chandrasekaran N (1993) has made an attempt to examine determinants of profitability in
cement industry. He identified that profitability was determined by structural, as well as,
behavioral variables. He also identified that the other variables which influenced profitability
were growth of the firm, capital turnover ratio, management of working capital, inventory
turnover ratio etc. Some of the main changes in the cement period industry identified in this
study were: from complete control to decontrol, number of new entrants and substantial additions
of capacity, changing technology from inefficient wet process to efficient dry process and from
conditions of scarcity of cement to near gloat in the market.
.Govind Rao and Rao (1999) studied the impact of working capital on profitability in Indian
cement industry. It can be analyzed both positive as well as negative correlations between
working capital related ratios and profitability.
Ghosh S.K. and Maji S.G. (2004), in their paper, to examine the efficiency of Working capital
management of the Indian cement companies from the year 19921993 to 2001-2002. They
 24

conclude from the study indicated that the Indian cement industry, as a whole, did not perform
good perform during the selected period of the study.
Bardia (2006), in his study on Liquidity Management of Steel Authority of India Limited, has
analyzed the overall performance of liquidity maintained by steel sector and the amount tied-up
in various components of working capital. This study has found that there was a positive
relationship between liquidity and profitability.
Amalendu Bhunia (2007), studied on liquidity management, analyzed the the short term
financial strength through the analysis of the working capital management of selected iron and
steel companies in India. The study revealed that actual values of working capital have been
found to be lower than the estimated values of working capital for the companies, such as Steel
Authority of India Limited (SAIL) and Indian Iron and Steel Corporation (IISCO). There was a
poor liquidity performance existed in case of both SAIL and IISCO, inefficient inventory
management in case of SAIL and inefficient receivable management in case of both the
enterprises. It suggested that increase in additional investment in raw materials, reduction in the
burden of current liabilities were necessary in order to improve the inventory management and
liquidity position of these steel companies.
Sudipta Ghosho (2008) has analyzed the liquidity performance of Tata Iron and Steel Company
(TISCO). During the selected period of the study, it was found that the liquidity position of the
company, on the basis of current ratio as well as quick ratio, was not satisfactory. It indicated
that the share of current assets in total assets of the company, on an average, was 29.1 percent
during the period of study. It was suggested that to maintain overall control of liquidity position,
the company should give special attention to the management of current assets. He found that the
degree of influence of liquidity on its profitability was low and insignificant.
Rajamohan .S and Vijayaragavan T. (2008) have studied on production performance of
Madras Cement Limited. it can be analyzed the comparative production performance of Madras
cement and all other cement companies in India. Statistical method Mann-Whitney U-test was
applied. The results of analysis indicated that the production performance of selected unit was
equal to production performance of all other cement units in India.
Dharmendra S (2011) analyzed that Liquidity is in closely relation with the profitability of the
Indian Cement Industry as compared to the solvency ratios like Total Assets Ratio, Inventory
Turnover Ratio, Debt-Equity Ratio and Operating Expenses Ratio.
 25

Harshad R. Tandel (2013) Analyzed that the Financial Analysis of selected Plastic
Manufacturing Industrial Units of Gujarat for the period 2000-01 to 2009-10. The main objective
of this study was to analysis and evaluate the financial performance of selected companies in
particular and the plastic industry in general with the help of composited such ratios like
Profitability, Activity, Liquidity and solvency. He judges the financial performance with the help
of Trend Analysis and Analysis of Variance. He can conclude that the liquidity and profitability
performance was not good, but in terms of activity and solvency performance of industry was
satisfactory.
Alovsat Muslumov (2005) analyzed that the privatization was associated with a declining value
added and shareholders‟ profitability in Turkish cement industry. A decline in the value added
and shareholders‟ profitability were mainly caused by the decrease in return on assets. The
decline in the return on asset was traced to declining asset productivity. These results are not
consistent with previous cross-sectional privatization studies and number of country studies.
Adolphus J. Toby (2008) has conducted a study on liquidity performance relationship of
Nigerian manufacturing companies. The results of the study have revealed a significant
relationship between liquidity, .profitability, efficiency and leverage measures. The study has
also made an attempt to suggest that in order to target money supply, monetary policy could be
used to facilitate monetary transmission mechanism by integrating a minimum liquidity
requirement for the manufacturing industry. Rationale for the present study.
Haq and Sohail and Zaman and Alma (2011) analyzed the relationship between Working
Capital Management and Profitability: A Case Study of Cement Industry in Pakistan. In this
study to analyzed the relationship between working capital management and profitability.
Researcher selected 14 companies in cement industry in the Khyber Pakhton khuwa Province
(KPK) of Pakistan. The study is totally depend on secondary data collected from the audited
financial statements of these companies which are listed in Karachi Stock Exchange for the
period spaning 20042009. The data was analyzed using the statistical techniques of correlation
coefficient and multiple regression analysis.
Hajihassani (2012) A Comparison of Financial Performance in Cement Sector in Iran. This
study exhibited comparison of financial performance for the period study 2006 to 2009. It can be
analyzed comparison of financial performance of selected cement companies by using various
financial ratios and measures of cement companies working in Iran. Financial ratios are divided
 26

into three categories In this concludes that the performance of cement companies on the basis of
profitability ratios different than on the basis of liquidity ratio and leverage ratio.
Dr. Abdul Graford Awan, Pervaiz Shahid, Jahanzeb Hassan, Waa’s Ahmad (2014) have
analyzed the impact of Working Capital Management on performance of cement sector in
Pakistan. The period of the study spanning from 2009 to 2013. The study is totally depending on
secondary data collected from the audited financial statements of these companies which are
listed in Karachi Stock Exchange. Return on was used as the dependent variable in order to test
the impact of Working Capital Management on firm‟s profitability and independent variables
were, Inventory Turnover in Days, Cash Conversion Cycle, Current Ratio, Quick Ratio, Gross
Working Capital, Average Payment, size of firm, and Funds allocated by government in Public
Sector Development Program. Panel Data method is used to study the impact of Working Capital
Management on profitability of Cement sector of Pakistan. He can conclude that cash conversion
cycle, Inventory turnover in Days and Average Payment Period has negative relation with firm
performance and their probability is significant. Current Ratio has proved statistically
insignificant and has negative impact on Return on Equity in this study.

These Literature reviews were related to various industries such as cement, steel and sugar in
India and abroad. Of these reviews, there is the major research conducted on the liquidity and
profitability management through the accounting tools. But no comprehensive study was carried
out on Financial Analysis of cement industry of India- A statistical Approach to analyze the
financial performance of cement industry.
 27

CHAPTER-4
OBJECTIVES OF THE STUDY
 28

OBJECTIVES OF THE STUDY

1. To analyze the financial statements of the company.

2. To simplify the accounting data.
3. To help in forecasting through detailed analysis.
4. To study the financial soundness of the firm.
29
 30

CHAPTER-5
RESEARCH METHODOLOGY
 31

RESEARCH METHODOLOGY:

Research refers to a search for knowledge. It can be defined as a scientific and systematic search
for the pertinent information on a specific topic. Every person, firm or an organization faces
large number of problems for which it needs to find solutions through scientific and systematic
procedures.
This project involved a systematic and scientific search for information, diagnosis of the present
ratios and the use of practical knowledge to develop an improved ratio analysis for the financial
statements of the company.

NEED OF THE STUDY:

1. The study has great significance and provides benefits to various parties whom directly or
indirectly interact with the company.
2. It is beneficial to management of the company by providing crystal clear picture regarding
important aspects like liquidity, leverage, activity and profitability.
3. The study is also beneficial to employees and offers motivation by showing how actively they
are contributing for company‟s growth.
4. The investors who are interested in investing in the company‟s shares will also get benefited
by going through the study and can easily take a decision whether to invest or not to invest in the
company‟s shares.

DEFINATION OF RESEARCH
“Research is systematic approach towards gain new knowledge”
According to random marry

METHODS OF DATA COLLECTION

 Primary Sources
 Secondary Sources
Primary Sources:
Primary data is collected by the researcher through direct contact, surveys and experiments.
In this research, primary data is collected through direct contact with the accounts officer.
 32

Secondary Sources:
Secondary sources involve the second hand sources of information. It is not collected directly but
is based on records.
In the research, secondary data is collected through following sources:
 Trading, Profit and loss account of Verka Milk Plant, Mohali
 Balance Sheet of Verka Milk Plant, Mohali
 Books of Financial Statement Analysis.
 Websites of the company.

RESEARCH DESIGN
Descriptive research design is used for the study. The major goal of a descriptive research is to describe
the events, phenomena, and situations. Since the description is based on scientific observation, it is
expected to be more accurate and precise than causal.

SAMPLE DESIGN
A sample design is a definite plan determined before any data are actually collected for obtaining
sample from a given population. Sampling is used to collect data from limited numbers whereas
census is used for large numbers. For the research, sampling method was used.
There are different types of sample design based on two factor namely the representation basis
and the element selection technique .There are two main categories under which various
sampling method can be put. There are
1. Probability sampling 2. Non probability sampling

This particular research the A study is on probability sampling. And in the simple random
sample is used.

PROBABILITY SAMPLING:
Probability sampling is based on the concept of random selection; the sample may be either
unrestricted or restricted. When each sample elements is drawn individually from the population
at large, then the sample so drawn is known as unrestricted sample, whereas all other forms of
sampling are covered under the term restricted.
 33

Simple random sample

Systematic sample
Stratified sample (proportionate & disproportionate)
Cluster sample

NON- PROBABILITY SAMPLING:

Non-probability sampling is that sampling procedure which does not afford any basis for
estimating the probability that each item in the population has of being included in the sample.
Judgment sampling
Convenient sampling
Quota sampling.
Snowball sampling

SAMPLE UNIT
A single section selected to research and gather statistics of whole.
Sample unit include the balance sheet of Verka milk plant ltd.

SIZE OF SAMPLE
A Small group of individual chosen from the study is known as sample size..

SAMPLE SIZE:
Balance sheet of Verka ltd

Limitations of the study

 Time is the main constraints of my study.

 Scattered respondents.
 Findings based on this study cannot be used in other organizations.
 34

 Availability of information was not sufficient because respondent were not fully aware of
ratio analysis
 35

CHAPTER-6
DATA ANALYSIS AND
INTERPRETATION
 36

TABLE-6.1 CURRENT RATIO ANALYSIS OF VERKA MILK PLANT,

MOHALI
Figures in lacs.

Particulars 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Current Assets 4134.76 5200.52 6178.52 5599.52 5593.33 6535.56

Current Liabilities 2390.21 3363.94 4034.75 3153.72 3836.82 4156.85

Current Ratio 1.73 1.55 1.53 1.78 1.45 1.84

For the last 5 years

Current Ratio
2
1.8
1.6
1.4
1.2
1
Current Ratio
0.8
0.6
0.4
0.2
0
2012-13 2013-14 2014-15 2015-16 2016-17

FIG. 6.1

INTERPRETATION: Above table shows the current ratio analysis of Verka Milk Plant,
Mohali. A sound financial position is considered when the assets are double or more than its
liabilities. In the year 20116-17, the assets are comparatively higher over its liabilities thus; the
financial position is most satisfactory in this year. After that it is 1.73:1 in 2015-16, but, in
financial year 20116-17 the ratio has fallen down to 1.45:1 which is not good for the company.
 37

TABLE 6.2 LIQUID RATIO ANALYSIS OF MILK PLANT, MOHALI

Particulars 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Current Assets 4134.76 5200.52 6178.52 5599.52 5593.33 5682.57

closing Stock 1641.50 2145.67 3009.20 3435.01 2899.46 6852.46

Inventories 107.31 198.39 183.34 182.08 265.27 365.87

Total Quick Assets 2385.95 2856.46 2985.98 1982.43 2428.60 5654.89

Current Liabilities 2390.21 3363.94 4034.75 3153.72 3836.82 3987.26

Liquid Ratio 1.00 0.85 0.74 0.63 0.63 0.71

Liquid Ratio
1.2

0.8

0.6
Liquid Ratio
0.4

0.2

0
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.2
 38

Interpretation: Above table shows the analysis of liquid ratio of Milk Plant, Mohali. In the year
20116-17, the liquid assets are 1 times to its liabilities which is considered to be an ideal ratio but
in the subsequent years it has been falling gradually, which is not a good sign for the company.

3. ABSOLUTE LIQUID RATIO:

Just as inventory is considered of doubtful liquidity, doubts can also be expressed so far as book
debts and bills receivable are concerned. Debtors may take long to be recovered and even a
sizable portion may be doubtful. In order to be very sure, only most liquid assets may be
considered for testing liquidity.
Absolute Liquid Ratio= Absolute Liquid Assets/Current Liabilities
Absolute Liquid Assets=Cash + Bank Balance + Short Term Securities
SIGNIFICANCE OF LIQUID RATIO:
The acceptance rule for this ratio is 0.5:1 or 1:2 i.e. Liquid assets worth Rs. 1 are considered
adequate to pay Current Liabilities worth Rs. 2 in time as, all the creditors are not expected to
demand cash at the same time and then, cash may be realized from the debtors and inventories.
ABSOLUTE LIQUID RATIO OF MILK PLANT, MOHALI

Figures in lacs.

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

Cash in Hand 0.73 1.58 0.39 1.18 0.28

Cash at Bank 1624.58 1848.43 1877.91 810.06 1317.43

Absolute Liquid Assets 1625.31 1850.01 1878.3 811.24 1317.71

Current Liabilities 2390.21 3363.94 4034.75 3153.72 3836.82

Absolute Liquid Ratio 0.68 0.55 0.47 0.26 0.34

 39

For the last 5 years

Absolute Liquid Ratio

0.8

0.7

0.6

0.5

0.4 Absolute
Liquid Ratio
0.3

0.2

0.1

0
2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION: Above table the absolute liquid ratio of the plant whose ideal ratio is
considered to be 0.5:1. In the financial year 2009-10, it was 0.68 times which shows that absolute
liquid assets are quite sufficient to pay its current liabilities whereas it has declined in the next
year but still is fulfilling the ideal ratio. But, in the year 2014-15, 2015-16 and 2016-17, it has not
been able to fulfill the ideal ratio which is not a good sign for the plant.

B. ANALYSIS OF ACTIVITY RATIO OR EFFICIENCY RATIO OR CURRENT

ASSETS MOVEMENT RATIO
Efficiency of a business enterprise implies the effective and intensive utilization of available
resources-both fixed and fluctuating. It indicates the speed with which various operations are
being performed. Optimum utilization of assets, effective utilization of working capital and
similar other operations have marked bearing not only on the profitability but also helps in
significant improvement in liquidity position.
Turnover refers to rotation or utilization of a resource or an asset in the process of business
activity-the number of times a unit is turned over.
 40

The result here is expressed in integers rather than percentage. The ratios are:
1. Stock Turnover Ratio.
2. Assets Turnover Ratio.
3. Capital Turnover Ratio.
4. Working Capital Ratio.
5. Wages Turnover Ratio.

1. STOCK TURNOVER RATIO:

Stock turnover measures the number of times a company can sell its average level of Stock
during a year. Holding it up for long times is not desirable because of its inherent problems and it
should be disposed-off as quickly as possible. A value of 6 for e.g. means that the company
could sell its average level of stock six times-every two months-during the year.
Stock Turnover= Cost of goods sold/ Average Stock

Cost of Goods Sold= Opening Stock + Purchases + Carriages + Wages + Other Direct
Expenses – Closing Stock or Net Sales – Gross Profit
Average Stock= (opening stock +closing stock)/2

SIGNIFICANCE OF STOCK TURNOVER RATIO:

A high turnover indicates efficient stock control, sound sales policies, dealing in quality goods,
reputation in the market and better competitive strength. It is not out of place to mention that, in
the time of present economic meltdown, only those concerns could absorb the shocks of business
stability, which enjoyed high stock turnover. A low turnover is an indication of stock of
poor/obsolete quality, slow moving goods, poor selling techniques, over buying of merchandise
and over valuation of inventory in hand etc.

TABLE- 6.4

STOCK TURNOVER OF VERKA MILK PLANT, MOHALI

Figure in Lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Cost of Goods Sold 27502.92 35013.59 45664.6 47234.49 56533.74
 41

Opening Stock 1440.12 2145.67 2145.66 3009.20 3434.99

Closing Stock 1641.50 2145.67 3009.2 3435.01 2899.46
Total Stock 3081.62 4291.33 5154.86 6444.21 6334.45
Average Stock 1540.81 2145.67 2577.43 3222.11 3167.23
Stock Turnover Ratio 17.85 16.32 17.72 14.66 17.85

For last 5 years

Stock Turnover Ratio

20
18
16
14
12 Stock Turnover Ratio
10
8
6
4
2
0
2012-13 2013-14 2014-15 2015-16 2016-17

FIG. 6.4

INTERPRETATION: Above table show the stock turnover ratio of the plant. It is the frequency
of the conversion of stock into sales. There has been a cyclic fluctuation in the stock turnover
ratio. In the year 2016-17, the ratio is 17.85 times which shows that the company is utilizing its
stock in a efficient manner whereas, in 2015-16 it has fallen down to 16.32 times.
Then in 2011-12 it has again recovered and in the following year it has again fallen down. In the
year 2016-17 it is equal to the year 2015-16 which means the company has made a good amount
of sales than last years.
 42

2. ASSETS TURNOVER RATIO:

This ratio is also called General Turnover or Capital Turnover. The idea of working out this ratio
is to ascertain the contribution made by assets towards sales. This relationship indicates the
efficiency or otherwise of the utilization of assets. This ratio may be studied in its total aspect
and also in break-up.
Total assets turnover= Net Sales/Total assets = No. of times

SIGNIFICANCE OF ASSETS TURNOVER RATIO:

A rise in fixed assets turnover indicates more intensive utilization of assets, while a fall in the
turnover suggests under- utilization of installed capacity. The capacity of fixed assets has to be
evaluated because if they over work, there are chances of excessive depreciation and even of
break down.

* We do not include fictitious assets.

TABLE-6.5

ASSETS TURNOVER RATIO OF MILK PLANT, MOHALI

Figure in Lacs.

Particulars 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Sales 29251.3 37252.32 48449.1 50058.5 59703.6 603467.01

Total Assets 5999.38 7296.43 8730.35 8870.48 10767.7 11564.89

Asset Turnover Ratio 4.88 5.11 5.55 5.64 5.54 6.56

For the last 5 years

 43

Asset Turnover Ratio

5.80

5.60

5.40

5.20 Asset Turnover

Ratio
5.00

4.80

4.60

4.40
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.5

INTERPRETATION: Above table shows the asset turnover ratio of the plant which means how
effectively the assets are utilized by the company to increase its sales. In the year 2015-16, the
turnover ratio is highest i.e. 5.64 times which means the assets are efficiently utilized and it is a
good sign for the company. In the year 2016-17, the ratio has fallen down to 5.54 times which
means assets efficiency has been reduced which is not a good sign.

3. CAPITAL TURNOVER RATIO:

This ratio shows the relationship of the net sales and total capital employed. This ratio is used to
access or evaluate how the company is using its capital to make a production and convert it into
sales.

Capital Turnover Ratio = Net Sales / Capital Employed.

Capital Employed = Current Assets + Fixed Assets - Current Liabilities
SIGNIFICANCE OF CAPITAL TURNOVER RATIO:
It shows how the company is using its capital in its production as well as converting it into sales.
„Higher the ratio, better it is‟.
 44

TABLE-6.6

CAPITAL TURNOVER RATIO OF MILK PLANT, MOHALI

Figure in Lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Net Sales 29251.33 37252.32 48449.1 50058.5 59703.6
Current Assets 4134.76 5200.52 6178.52 5599.52 5593.33
Fixed Assets 1864.62 2095.91 2551.83 3270.96 5174.38
Current Liabilities 2390.21 3363.94 4034.75 3153.72 3836.82
Capital Employed 3609.17 3932.49 4695.6 5716.76 6930.89
Capital Turnover Ratio 8.10 9.47 10.32 8.76 8.61

For last 5 years

 45

Capital Turnover Ratio

12.00

10.00

8.00

6.00
Capital Turnover Ratio
4.00

2.00

0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG. 6.6

INTERPRETATION: Above table shows the efficiency of utilization of the capital of the
company to generate production. The capital turnover of the company was highest in the
financial year 2016-17, i.e. 10.32 times which means that the company has utilized its capital to
the maximum of its efficiency. In the next years 2016-17 and 2015-16, it has fallen down which
is not a good and effective turnover ratio.

4. WORKING CAPITAL TURNOVER RATIO:

Working capital has close relationship with the volume of sales. With every increment in sales
value, there is a need of additional working capital. If a business man is able to enhance his
volume of sales with a given amount of working capital, it denotes that he is prompt in his
collection of debts along with enjoying better credit period from his suppliers. In other words, he
has been successful in utilizing his working capital in an efficient manner. A high rate of
debtors‟ turnover coupled with better inventory turnover and a low rate of creditor‟s turnover
contribute towards efficient utilization of working capital.

Working Capital Turnover Ratio = Sales/Working Capital

Working Capital= Current Assets – Current Liabilities
SIGNIFICANCE OF WORKING CAPITAL TURNOVER RATIO:
 46

The objective of ascertaining this ratio is whether or not; working capital has been efficiently
utilized in making sales. It measures the rate of the working capital utilization. „Higher the Ratio,
better it is‟.

TABLE-6.7

WORKING CAPITAL TURNOVER ANALYSIS OF MILK PLANT, MOHALI

Figure in Lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Net Sales 29251.33 37252.32 48449.1 50058.5 59703.6
Current Assets 4134.76 5200.52 6178.52 5599.52 5593.33
Current Liabilities 2390.21 3363.94 4034.75 3153.72 3836.82
Net Working Capital 1744.55 1836.58 2143.77 2445.8 1756.51

Working Capital Turnover Ratio 16.77 20.28 22.60 20.47 33.99

For the last 5 year

Working Capital Turnover Ratio

40.00
35.00
30.00
25.00
20.00 Working Capital
Turnover Ratio
15.00
10.00
5.00
0.00
2012-13 2013-14 2014-15 2015-16 2016-17
 47

INTERPRETATION: Above table show the working capital turnover ratio of the company. An
increasing trend in this ratio is good for the company. In the 1st three years 2013-14, 2014-15 and
2015-16, the working capital turnover ratio of the company has shown an increasing trend which
is good for the company. Then it has fallen down to 22.60 times in the year 2016-17 but, has
recovered at a drastic rate of 33.99 times in 2016-17 which shows a good sign for the plant.

5. WAGES TURNOVER RATIO: Wages turnover ratio is the ratio calculated to know how
much wages is spent to generate sales.
Wages Turnover Ratio= Salary to Supervisor+ wages to workers and casual workers +
Labour Expenses+ Contribution to EPF + ESI + Administration Charges / Net Sales

EPF= Employee Provident Fund

ESI= Employee Statutory Insurance

TABLE-6.8
WAGES TURNOVER ANALYSIS OF MILK PLANT, MOHALI

Figure in Lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Salary to Supervisor 80.08 105.27 123.08 134.11 127.27
Wages to workers 943.58 1138.63 1305.21 1206.69 1124.19
Wages to Casual workers 2.02 2.91 3.43 2.89 2.58
Labour Contract Expenses 199.01 260.41 324.73 642.96 602.99
Contribution to EPF 83.76 102.1 102.92 125.34 118.43
ESI 1.36 4.7 1.93 2.69 1.43
Admin Charges EPF 15.75 17.03 16.43 19.81 18.22
Pension Scheme 36.34 27.82 23.75 24.86 20.91
Total Wages Expenses 1361.9 1658.87 1901.48 2159.35 2016.02
Net Sales 29251.33 37252.32 48449.1 50058.5 59703.6
Wages Turnover Ratio 0.05 0.04 0.04 0.04 0.03
 48

For last 5 years

Wages Turnover Ratio

0.05
0.05
0.04
0.04
0.03
Wages Turnover
0.03
Ratio
0.02
0.02
0.01
0.01
0.00
2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION: Above table shows the wages turnover ratio of milk plant Mohali. A lower
ratio is considered to be better as it ensures efficient utilization of wages and more sales. The
ratio is lowest in the year 2015-16, which is 0.03 times the sales and it means there has been
optimum utilization of wages. It is highest in the year 2016-17; it means in that year there was no
efficient utilization of wage funds.

C. ANALYSIS OF PROFITABILITY RATIOS:

Maximization of profit, along with wealth maximization has ever been the twin goals of every
business enterprise. The survival and sustenance, coupled with growth and expansion, to a large
extent, depends on the capacity to earn, at least reasonable amount of profit year after year. This
 49

point has been vindicated in the present day set up of economic slowdown when only financially
sound companies, having steady earning capacity, have been able to exist.
Profitability ratios measure the following aspects of the company‟s profitability such as:
 What is the rate of profit on sales?
 Whether the profits are increasing or decreasing? And if decreasing, then why?
 Whether an adequate return is being obtained on capital employed.
Profitability ratios include the following ratios:
1. Gross Profit Ratio
2. Net Profit Ratio
3. Return on Equity Ratio
4. Return on Investment or Capital Employed Ratio
5. Earnings per Share (EPS)

1. GROSS PROFIT RATIO:

Gross profit represents margin the margin between net sales and cost of goods sold.This ratio is
an indicator of the extent of average mark-up on the cost of goods. Gross profit is calculated by
preparing the trading account of the company.
Gross Profit Ratio= Gross Profit / Net Sales*100
Gross Profit = Sales+ Closing Stock– Opening Stock– Purchases– all Direct Expenses
Net Sales=Sales – Sales Returns
SIGNIFICANCE OF G/P RATIOS:
Higher the ratio, better it is. Larger is this gap, the greater is the scope of absorbing various
indirect expenses and yet leaving net profit for the owners.
Efficiency of sales management can better be appreciated by comparing the G.P ratio of two
periods or by comparing this ratio of one unit with that of another. Absolute increase in G.P. may
not be taken as a real sign of efficiency, unless it is accompanied by an increase in the ratio.
This ratio has to be analyzed with utmost care and caution because, increase in the ratio at times
may be on account of manipulation of figures. Otherwise an increasing ratio is always desirable

TABLE-6.9

GROSS PROFIT ANALYSIS OF VERKA MILK PLANT, MOHALI

 50

Figures in Lacs.

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

Gross Profit 1748.41 2238.74 2784.5 2823.95 3169.87

Net Sales 29251.33 37252.32 48449.1 50058.5 59703.59

Gross Profit Ratio (%age) 5.98 6.01 5.75 5.64 5.31

For last 5 years

Gross Profit Ratio ( In %age)

6.20

6.00

5.80

5.60 Gross Profit Ratio

( In %age)
5.40

5.20

5.00

4.80
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.9

INTERPRETATION: Above table reveal the gross profit ratio of the company which is the ratio
between cost of goods sold and the net sales of the company. In the year 2014-15, the company
has earned highest profits of 6.01% which is 0.3% higher than that of last year i.e. 2015-16. In
the next years we can directly judge from fig. 3.9 that there has been a continuous decline in the
 51

gross profit and it is lowest in the year 2016-17 to 5.31%. It means the profits of company have
fallen down subsequently in the last 3 years.

2. NET PROFIT RATIO:

It is a measure of the overall profitability of an organization. An adequate amount of net profit
satiates all the stakeholders. It is calculated by preparing the profit and loss account of the
company. If the gross profit of the company is going up and the net profit is going down, then it
is considered that there are more indirect expenses such as selling expenses, advertisements, etc.

Net Profit Margin Ratio = Net profit / Net Sales * 100

Net Profit= Gross Profit + all the indirect incomes and gains – all the indirect expenses and
losses.
Net Sales= Sales- Sales Return

SIGNIFICANCE OF NET PROFIT RATIO:

The higher the ratio is, more is the net profit and better it is. If the percentage of net profits is
going up then, we can say that the profitability of company is good and the resources are being
utilized effectively.

TABLE-6.10

NET PROFIT RATIO ANALYSIS OF VERKA MILK PLANT, MOHALI

Figure in Lacs.

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

Net Profit 623.08 715.06 787.68 807.78 846.16

Net Sales 29251.33 37252.32 48449.1 50058.5 59703.59

Net Profit Margin Ratio (%age) 2.13 1.92 1.63 1.61 1.42

For the last 5 years

 52

2.50

2.00

1.50
Net Profit Margin
Ratio (In %age)
1.00

0.50

0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.10

INTERPRETATION: Above table show the net profit ratio which reveals the net profit of the
company after deducting any kinds of indirect gains and expenses. The net profit ratio has been
highest in the year 2016-17 to 2.13% of net sales but, in the subsequent years it has shown a
decline in it which is not a good sign for the company and it shows that there are more indirect
incomes in the company rather than its profit from sales.

3. RETURN ON EQUITY RATIO:

This ratio shows the relationship between net income, after preference dividend, and common
stockholder‟s equity-how much income is earned for each Re.1 belonging to the equity
shareholders. It is usually expressed in percentage.
Return on Equity Ratio = Net Profit after Interest & Taxes / Shareholder’s Fund*100
Shareholders’ fund = Equity share capital + Reserves and surpluses – Accumulated losses,
if any.
SIGNIFICANCE:
This ratio is calculated to access the earning capacity of the equity share capital.
Equity shareholders are the real owners of the company and they expect a fair return on their
funds. Higher is the ratio more will be the amount of profit available to equity shareholders and,
more satisfied they will be.
 53

TABLE-6.11
RETURN ON EQUITY RATIO ANALYSIS OF MILK PLANT, MOHALI

Figure in Lacs.

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

Net Profit After Interest & Taxes 509.19 564.03 562.14 558.39 596.17

Shareholders Fund 383.65 501.42 629.07 638.45 648.49

Return On Equity Ratio 1.33 1.12 0.89 0.87 0.92

For last 5 years

 54

Return On Equity Ratio

1.40

1.20

1.00

0.80
Return On
0.60 Equity Ratio

0.40

0.20

0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.11

4. RETURN ON INVESTMENT OR CAPITAL EMPLOYED RATIO:

This ratio establishes the relationship between net profits after interest and tax and the
proprietors‟ funds. Shareholders‟ funds/net worth/equity/proprietors funds, include equity share
capital, preference share capital, reserves and surpluses minus accumulated losses.
Return On Investment Ratio = Profit Before Interest & Taxes / Capital
Employed
Capital Employed = Fixed Assets + Current Assets - Liabilities
SIGNIFICANCE OF RETURN ON INVESTMENTS RATIO:
This is one of the most important ratios for measuring the overall efficiency of an organization.
As the primary objective of business is to maximize profits, this ratio indicates the extent to
which this objective has been accomplished. This ratio is of great significance both for the
present and perspective shareholders. As this ratio reveals how effectively the resources are
being put to use, a higher ratio indicates better results. This ratio is very useful for inter firm
comparisons.
 55

TABLE-6.12

RETURN ON INVESTMENT RATIO ANALYSIS OF MILK PLANT, MOHALI

Figure in Lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Profit Before Interest & Taxes 620.10 711.47 783 802.71 840.54
Fixed Assets 1864.62 2095.91 2551.83 3270.96 5174.38
Current Assets 4134.76 5200.52 6178.52 5599.52 5593.33
Current Liabilities 2390.21 3363.94 4034.75 3153.72 3836.82
Capital Employed 3609.17 3932.49 4695.6 5716.76 6930.89
Return On Investment Ratio 0.17 0.18 0.17 0.14 0.12

Return On Investment Ratio

0.20
0.18
0.16
0.14
0.12
Return On
0.10 Investment
0.08 Ratio
0.06
0.04
0.02
0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.12
 56

5. EARNINGS PER SHARE:

Earnings per share (EPS), is perhaps the most quoted of all financial statistics. EPS is the only
ratio that must appear on the face of the income statement. It indicates the amount of earnings
that an equity share commands.
E.P.S. = Net Profit after Taxes -Preference Dividend / No. of Equity Shares

SIGNIFICANCE: The significance of this result flows from the fact that the higher the earnings
per share, the more is the scope for a higher rate of dividend to the equity shareholders and also
of retained earnings to build up the inner strength of the organization. This ratio is very helpful to
small investors. This ratio is widely used for inter-company comparisons.

TABLE-6.13
EARNING PER SHARE OF MILK PLANT, MOHALI

Figure in lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Net Profit After Taxes 50918639 56402945 56277217 55838583 59616561
No. of Equity Shares 50000 50000 100000 100000 100000
E.P.S. (Per share value Rs. 1000) 101837 112806 56277 55839 59617

For the last 5 years

E.P.S. (Per share value Rs. 1000)

120000

100000

80000

60000 E.P.S. (Per

share value Rs.
40000
1000)
20000

0
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.13
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INTERPRETATION: Above table shows the earning per share value of Verka Milk Plant,
Mohali. According to the data, in the initial years when the amount of shares was 50,000 in
2015-16 and 20116-17, the earnings per share were high but in the subsequent years, the
numbers of shares have been increased to 1 lac but, the earnings has fallen down due to fall in
the net profits of the company.
D. ANALYSIS OF LONG-TERM FINANCIAL POSITION OR SOLVENCY RATIO:
Solvency of a business means its ability to meet its long term obligations i.e. servicing the debt
and ensuring the repayment of principal as and when it becomes due. The appraisal of the
solvency of an organization is no less important than its profitability and efficiency. Debenture
holders, bond holders, mortgagors and other long term creditors are primarily interested in
ascertaining whether the company is sufficiently strong to timely meet its long term
commitments or not. They would be very much interested to study the financial structure, the
contribution of long term lenders vis-à-vis the owners to the total capital employed.
These ratios are:
1. Debt to Equity or Shareholders‟ fund Ratio
2. Proprietary Ratio or Equity Ratio.
3. Debt to Asset Ratio.
4. Funded Debt to Total Capitalization Ratio.
5. Fixed Assets to Proprietors‟ Fund Ratio.
6. Current Assets to Proprietors‟ Fund Ratio.
7. Interest Coverage Ratio.
1. DEBT TO EQUITY RATIO:
It is also called external-internal equities ratio. This ratio tells us about the comparative claims of
outsiders and the owners in the total equities of an organization. The claims of lenders,
mortgagors, bond holders, suppliers and creditors etc. are matched with those of owners. The
management should try to keep a balance between the two.

Debt Equity Ratio= Outsiders fund/ Shareholder’s funds (OR)

Debt to Shareholders Fund Ratio = Debt / Equity
Debt = Current Liabilities + Secured Loans
Equity= Share Capital + Reserve & Surplus - Depreciation Reserves
SIGNIFICANCE:
This ratio is calculated to access the ability of the firm to meet its long term liabilities. Generally
a ratio of 2:1 is considered to be highly satisfactory for the company and a ratio more than this
shows a risky financial position for long run.
*In order to calculate, Shareholder‟s fund we include Share Capital and Reserves and Surplus
and deduct Depreciation as it is already included in Reserves and Surplus as a Depreciation
Reserve Fund.
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TABLE-6.14
DEBT EQUITY RATIO ANALYSIS OF MILK PLANT, MOHALI

Figure in Lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Debt 2467.25 3375.94 4061.75 3543.95 5427.65
Equity 1859.44 2078.2 2136.47 2054.06 2760.83
Debt Equity Ratio 1.33 1.62 1.90 1.73 1.97
For the last 5 years

Debt Equity Ratio

2.50

2.00

1.50

1.00 Debt Equity

Ratio

0.50

0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG. 6.14

INTERPRETATION: Above table show the debt-equity ratio which is the relationship between
long term debts and shareholder‟s funds of the company. The most appropriate ratio has been
obtained in the year 2016-17 i.e. 1.97 times which is almost close to the ideal ratio of 2:1. After
that it has been satisfactory in year 2015-16 to 1.90 times. The data analysis shows that the
company has tried to raise its funds from outside sources year by year which is beneficiary for
the company.

2. EQUITY RATIO:
 59

This ratio is variously known as Proprietary Ratio, Net Worth to Total Assets Ratio, and
Shareholders‟ Equity to Total Equities Ratio. It is an important test to judge the long term
solvency of an organization
Equity Ratio =Proprietors Funds/ Total assets
Proprietor’s funds: Equity share capital+ Reserves and surplus – Depreciation Reserves.
Total assets: All assets except fictitious assets.

SIGNIFICANCE:
This ratio tells us about the contribution made by the shareholders in the total assets of the
company. More is the contribution, better it is for long term creditors/lenders.

TABLE-6.15

EQUITY RATIO ANALYSIS OF MILK PLANT, MOHALI

Figure in Lacs.

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

Shareholder's Fund 1859.44 2078.20 2136.47 2054.06 2760.83

Total assets 5999.38 7296.43 8730.35 8870.48 10767.7

Equity Ratio 0.31 0.28 0.24 0.23 0.26

 60

For the last 5 years.

Equity Ratio
0.35

0.30

0.25

0.20
Equity Ratio
0.15

0.10

0.05

0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG. 6.15

INTERPRETATION: Above show the equity ratio of the plant which shows the proportion of
owner‟s funds in the total assets of the company. The owner‟s fund in the assets has been
showing a declining trend in the first four financial years but, it has increased in the last year i.e.
2016-17 to 0.26 times which is 0.3 times more than the last year. Overall the equity ratio of the
company is satisfactory.
3. DEBT TO ASSET RATIO:

It is the relationship between debt and the total assets of the company. In this case, a lower ratio
is considered better for the company and shows a sound solvency position of the firm.
Debt to assets Ratio= Total Liabilities/ Total Assets
SIGNIFICANCE:
This ratio helps to access the firm‟s portion of liabilities to its total assets. A higher ratio here
indicates that, the firm has more amounts of liabilities to fulfill.

TABLE-6.16

DEBT TO ASSET RATIO OF VERKA MILK PLANT, MOHALI

Figure in Lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
 61

Total Liabilities 2467.25 3375.94 4061.75 3543.95 5427.65

Total Assets 5999.38 7296.43 8730.35 8870.48 10767.7
Debt to Asset Ratio 0.41 0.46 0.47 0.40 0.50
For the last 5 years

Debt to Asset Ratio

0.60

0.50

0.40
Debt to Asset
0.30 Ratio
0.20

0.10

0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG. 6.16

INTERPRETATION: Above show the relationship between outside funds and total assets of the
company i.e. the proportion of outsider funds in the total assets of the company. The ratio is
highest in the year 2016-17 which means the company has more liabilities to pay this year. It is
lowest to 0.40 times in the previous year 2015-16 which means the company has more assets this
year to pay off its liabilities.
4. FIXED ASSETS TO PROPRIETORS FUND RATIO:
This ratio establishes the relationship between the fixed assets and shareholder‟s funds. i.e. share
capital plus reserves and surplus after deducting depreciation reserves.
Fixed Assets to Net worth Ratio=Fixed Assets/ shareholder’s Equity
*Fixed assets here are excluding depreciation.
SIGNIFICANCE:
It measures the contribution of stockholders and the contribution of debt sources in the fixed
assets of the company. If the assets to stockholders are more than 1, it means that stockholders‟
equity is less than the fixed assets of the company and the company is using debt to finance a
 62

portion of fixed assets. If the ratio is less than 1, it means stockholders equity is more than fixed
assets and along with financing fixed assets it is a part of working capital also.
Generally, a ratio of 0.60 to 0.70 or 60% to 70 % is considered satisfactory for most of the
concerns.

TABLE-6.17

FIXED ASSETS TO PROPRIETOR’S FUND RATIO OF MILK PLANT MOHALI

Figures in lacs.

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

Fixed assets 827.41 968.68 1297.53 1834.72 3373.12

Shareholder‟s Funds 1859.44 2078.2 2136.47 2054.06 2760.83

Fixed assets to equity Ratio 0.44 0.47 0.61 0.89 1.22

For the last 5 year

Fixed assets to equity Ratio

1.40
1.20
1.00
0.80
Fixed assets to equity
0.60 Ratio
0.40
0.20
0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.17

INTERPRETATION: Above show the proportion of current assets to the owner‟s equity of the
plant. In the 1st four years up to 2016-17, the ratio is less than 1 which means it is less than
 63

100%, it shows that the owner‟s funds are more than the total fixed assets. In the year 2016-17, it
is more than 1 which means owners‟ funds are not sufficient to finance the fixed assets and the
firm has to depend more upon outside sources to finance its fixed assets. As per the Rule of
Thumb year 2015-16 has been the year with satisfactory fixed assets to equity ratio of 0.61 or
60%.

5. CURRENT ASSETS TO PROPRIETOR,S FUND RATIO:

It is the proportion of current assets to the total equity of the shareholders of the organization.

Current Ratio to Proprietor’s Funds Ratio= Current Assets/ Proprietor’s Fund

SIGNIFICANCE:
This ratio indicated the extent to which, proprietor‟s funds are invested in the current assets.
There is no fixed rule of thumb for this ratio as there are different types of organizations but, a
higher ratio is always considered better.

TABLE-6.18

CURRENT ASSETS TO PROPRIETOR’S RATIO ANALYSIS OF MILK PLANT,

MOHALI

Figures in lacs.
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Current Assets 4134.76 5200.52 6178.52 5599.52 5593.33
Shareholder's funds 1859.44 2078.2 2136.47 2054.06 2760.83
Current Assets to Equity Ratio 2.22 2.50 2.89 2.73 2.03
 64

For the last 5 years

Current Assets to Equity Ratio

3.50

3.00

2.50

2.00
Current Assets to
1.50 Equity Ratio

1.00

0.50

0.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG.6.18

INTERPRETATION: Above the current ratio to proprietor‟s funds ratio of the plant. In the year
20116-17, the current assets are highest to 2.89 times the current assets. This indicates that the
company has the most sufficient funds to finance its fixed assets. But, in the next two years
2015-16 and 2016-17, the ratio has been subsequent fall in the ratio which means the company
has to depend more upon the outsider‟s for its financing activities.
5. INTEREST COVERAGE RATIO: This ratio establishes the relationship of EBIT (Earnings
before Interest and Taxes) with the annual interest payable on long term loans. The long term
lenders are interested in the capacity of the company to ensure the payment of interest accruing
on their loans in time without any difficulty and default. Since interest is a charge against profit,
the more is the amount of earnings, the less is the risk as to the payment of interest.
Interest Coverage Ratio= EBIT/Interest Expenses

EBIT= Net Profit+ Interest + Advanced Taxes

SIGNIFICANCE:

This ratio is calculated to assess the firm‟s ability to pay the interest for its fixed interest bearing
securities like loans and debentures. Higher the interest coverage ratio, indicates that fixed
interest loan providers are more secure for their returns.
 65

TABLE-6.19

INTEREST COVERAGE RATIO ANALYSIS OF MILK PLANT, MOHALI

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

EBIT 512.17 567.62 783 802.71 840.54
Interest Expenses 2.98 3.59 4.67 5.07 5.63
Interest Coverage Ratio 171.87 157.97 167.67 158.33 149.30
For the last 5 years

Interest Coverage Ratio

175.00
170.00
165.00
160.00 Interest Coverage
155.00 Ratio
150.00
145.00
140.00
135.00
2012-13 2013-14 2014-15 2015-16 2016-17

FIG. 6.19

INTERPRETATION: Aboveshows the interest coverage ratio of the company. In all the years
the earnings has been quite satisfactory in order to cover the interest expenses of the company.
As it is clear from the figure that the ratio has been highest in the year 2015-16 which means that
the earning capacity to pay off the interest rate was highest in this year. But it has been very low
in the year 2016-17 which means the company has earned less and may face problems in paying
off its liabilities.
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CHAPTER-7
FINDINGS
 67

1. Current Ratio
 Overall the company is in good liquid position.
 This means company has sufficient cash or cash equitant to pay its current obligations.
2. Stock Turnover Ratio
 Stock Turnover Ratio is good as it shows that sales of current year increase.
 Asset Turnover Ratio is lower which states that it isn‟t going that much good.
 Overall Activity Ratio is going good but company has to focus on Asset Turnover Ratio
and Capital Turnover Ratio.
3. Profitability Ratio
 GP fallen from 3 subsequent years.
 NP declined in subsequent year.
 Equity per share is declined by three subsequent years.
 Profitability Ratio is not good.
 Company has to focus to raise its GP, NP & EPS.
4. Solvency Ratio
 Company raises its funds from outsiders.
 Equity Ratio is good.
 Solvency Ratio is also satisfactory.
 68

CHAPTER-8
CONCLUSIONS
 69

CONCLUSIONS:

1. From the point of view of long term liquidity position of the company, it can be seen from
table 6.1 that current assets are always higher than the current liabilities, it shows a satisfactory
liquidity position of the company.

2. It can be seen from figure 6.4 that the stock turnover ratio has been showing a cyclic
fluctuation in the conversion of stock into sales which means at one year the ratio has gone up
and while on the other year it is falling down.

3. As per the data revealed by Assets Turnover Ratio in table 6.5, it shows that the most efficient
utilization of assets in converting them into sales has been done in the year 2016-17.

4. From the point of view of long term financial position, the company‟s debt equity ratio has
always shown a higher equity than debts in all the years. It means the company is less dependent
on outside sources for its financing.

5. Table 6.15, reveals the equity ratio of the company which shows that the owner‟s equity has
shown a declining trend in the total assets of the company but it has shown a rising trend in the
last year i.e. 2016-17.

6. The Interest Coverage Ratio has been quite satisfactory in the company (Table and fig.6.19). It
has been well maintained as the earnings of the company have been quite good to pay back the
long term borrowings of the company.

7. The Fixed Assets to Shareholder‟s Fund Ratios in fig. 6.17 have shown an increasing trend in
the fixed assets comparative to the equity which means the company has sufficient assets to meet
the claims of the shareholders.

8. If we take a glance at the overall data of the company, we can see that the best financial
position in terms of solvency, liquidity and profitability has been gained by the company in the
year 2016-17. It has been the best financial year for the company in all the 5 years.
 70

Although, there has been a series of fluctuations in the financial position year by year, some have
been good and some have been bad for the operations of the plant but, if we make an overall
analysis of the ratios it shows that the “Overall Financial position of the company is Sound”.

CHAPTER-9
SUGGESTIONS
 71

Suggestions

1. As the unit running at loss the general manager should take the initiative to recover its loss either
through the diversification through increasing the sales.
2. There should be proper training cell for the employees as well as trainees.
3. The performance of the unit can be improved upon by insuring less wastage.
4. There should be check on the dealers of the units so they cannot be corrupt.
5. New recruitments should be there so as to maintain proper sufficient staff.
6. Marketing department should try to increase its sales by giving knowledge
& awareness of Verka quality of products.
 72

BIBLIOGRAPHY

AUTHOR BOOK

Khan & Jain Management Accounting

Gupta, Shasli.k Financial Management

Websites:-

 www.scribd.com
 http://verka.coop
 www.accountingformanagement.org
 www.slideshare.com

OTHER SOURCE OF INFORMATION

Annual Reports of VERKA MILK PLANT.
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APPENDIX
74
75
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