A

PROJECT REPORT

ON

RATIO ANALYSIS

IN ANDHRA PRADESH GRAMEENA VIKAS BANK

(MAHABOOBNAGAR)

SUBMITTED
BY
M.KALYANI
(H.NO. 07361E0015)

This project Report submitted in partial fulfillment of the

requirement for the award of the degree of MASTER OF BUSINESS
ADMINISTRATION.

Under the valuable guidance of Mr. SURESH REDDY

PG.CENTER
MAHABOOBNAGAR

(AFFILIATED TO JNTU)
HYDERABAD
(2005-2007)
 DECLARATION

I here by declare that this project report entitled “ANALYSIS OF RATIOS” in the
“ANDHRA PRADESH GRAMEENA VIKAS BANK” (Mahabubnagar) has been
Prepared by me during the year 2006-07 under the Valuable Guidance of Mr.Suresh
Reddy Of PG Center OU Mahaboobnagar.

I also here by declare that this project report has not been Submitted to any other
university or institute for the award of any Degree or Diploma.

H.No:07361E0015 M.KALYANI
Place: Mahaboobnagar.
Date: (student signature)
 ACKNOWLEDGEMENT

I express my sincere thanks to Mr. T. HARIHARAN, the General Manager of

APGVB,Mr.V.K.VISWANADHAM MANAGER and also the staff Of APGVB for the
giving me the opportunity to work in their esteemed Organization. Inspired of their other
commitments and responsibilities they spared their valuable time and evinced interest in
completing my project Work.
I thanks to Mr. Surendraprasad(Head of Dept of commerce) and I deeply indebted to
Mr. Suresh Reddy.and Mr. Jahangir Who gave his valuable guidance in doing my
project work.
I owe a deep of gratitude and thanks to my father my mother and my Sisters who
helped me in completing my project work successfully.
 CONTENTS

CHAPTER I:
INTRODUCTION TO BANKING

CHAPTER II:
OBJECTIVE AND METHODOLOGY
 Objectives
 Methodology
 Scope of the study
 Period of the study
 Significance of the study
 Limitations of the study

CHAPTER III:
ORGANISATION’S PROFILE

CHAPTER IV:
THEORITICAL FRAMEWORK
 Concept of Ratio Analysis
 Need and Significance
 Classification of Ratios

CHAPTER V:
ANALYSIS AND INTERPRETATION

CHAPTER VI:
FINDINGS
CONCLUSIONS
SUGGESTIONS
BIBLIOGRAPHY
INTRODUCTION

Finance is defined as the provision of money at the

time when it is required. Every Enterprise, whether big,
medium of small, needs finance to carryon its operations and
to achieve its targets. In fact, finance is so indispensable to
day that it is rightly said Finance is lifeblood of an enterprise.
Without adequate finance, no enterprise can possibly
accomplish its objectives. Finance may be defined as the
provision of money at the time when it is required. Finance
refers to the management of flows of money through an
organization. It concerns with the application of skills in the
manipulation, use and control money.

DEFINITION OF FINANCE

Finance can be defined as the process of rising, providing and

administering of all the money / funds to be used in a business.
According to wheeler, Finance can be defined
as “that business activity which is concerned with the
acquisition and conservation of capital; funds in meeting the
financial needs and overall objectives of business enterprise”.
The subjective of Finance has been traditionally
classified into two classes:
1) Public Finance.
2) Private Finance.
a. Public finance:
It deals with the requirements, receipts &
disbursements of funds in the government
institutions like states, local self-government and
central government.

b. Private finance:

It is concerned with the requirements, receipts and

disbursements of funds in case of an individual, a
profit seeking business organization and non-profit
organization. Thus, Private Finance can be
classifies into:

♦ Personal Finance.
♦ Business Finance.
♦ Finance of non-profit organizations.

o Personal Finance deals with the analysis

of principles and practice4s involved in
managing one’s own daily need of funds.

o The term ‘Business Finance” connotes

Finance of business activities. It is
composed of two words – Business &
Finance. Thus, it is essential to
understand the meaning of two words,
 Business & Finance, which is the starting
point to develop the whole concept and
meaning of the term Business Finance.
The word ‘Business’ literally means a
‘stage of being busy’.

RAISING OF FINANCE
Finance can be raised from two forms:
a) Internal Forms of Financing.
 Management of Surplus.
(a) Dividend Policy.
(b) Bonus Shares

b) External Forms of Financing.

1. Debentures.
2. Stock Exchanges.
3. Underwriting of Securities.
 INTRODUCTION TO BANKING

BANKING:
Banking Regulation Act, 1949 Defines “Banking under section 5 as “Accepting for
the purpose of lending or investment of deposits of money from the public, repayable on
demand or otherwise and withdraw able by cheque daft order of otherwise”.
Section 5c of banking regulation act, defines banking company as any which transacts
the business of banking in India it is to noted the, a company engaged in the activity of
manufacturing or trade shall to be regarded as banking company, if it accepts deposits
merely for the purpose of financing its own business in terms of an explanation to said
clause of section5 of the banking regulation act.
The banking regulation act further provide that, no person other then banking
company or an approved banking institution can accept from the public, deposits of
money withdraw able by cheque.
FUNCTIONS OF COMMERCIAL BANKS
Section 6 a of Banking regulation act 1949 states various types pf business that can be
provided by banks. In the light of these provisions the important functions of commercial
bank can be summarized as follows:
• Accepting deposits from public
• Lending for approved purposes.
• Dealing with hundies, promissory note,coupons,drafts bills of lading, railway
receipts, warrants etc, and other instruments
• Securities whether transferable or negotiable or not.
• Issuing letters of credit and travelers cheques.
• Buying and selling of foreign exchange.
• Acquiring, holding, underwriting and dealing in stocks funds, shares, debentures,
bank etc.
• Receiving of all kinds of banks valuables for deposits or safe custody or otherwise
and providing safe deposits values.
• Collecting and transmitting money and securities.
• Acting as agents for any government or local authorities or any other persons.
• Carrying on and transacting every king of guarantee and indemnity business.
• Undertaking and executing or trusts.
• Undertaking the administration of estates as executor’s administrators.
• Trustees or otherwise.
• Hire-purchase and leasing.
• Issuing of credit cards.
• Setting up mutual funds.
• Factoring.
 INDIAN BANKING STRUCTURE

The structure of Indian Banking can be classified as under:-

• Central bank reserve bank of India.

• Commercial banks.
• Banks in public sector
• State bank of India.
• Subsidiaries of state bank of India.
• Nationalized banks.
• Regional rural banks.
• Banks in private sector
• Schedule banks incorporated in India.
• None scheduled banks.
• Foreign banks.
• Banks in the co-operative sector.
• Co-operative banks.
• Accepting of deposits
• Investment of funds.
 Structure of Indian banking system
The banking sector in India comprises of bank, big and
small, public, private, old and new, viable and non-viable.
There are wide diversities in there sizes, organizational
patterns, geographical presence and functional
specialization, Indian commercial banks operate both in
urban and rural areas.

Reserve
bank of
India

Scheduled
commercial
banks (96)

Public Private Regional

Foreign
sector bank sector bank rural bank
bank (40)
(27) (30) (196)

State bank
Urban co- State co-
of India &its Nationalize Old private New private
operative operative
subsidiaries d bank (19) bank (2) bank (8)
bank (52) bank (22)
(8)

Present position: At present, there are 296 scheduled

commercial banks in India. Of these 27 are public sector
bank, 196 are regional rural banks, 42 foreign banks and 31
private sector banks.
 In addition to the above, 52 URBAN CO-
OPERATIVE BANKS and 16 state co-operative banks are
scheduled banks.
A review of the various constitution of the
Indian banking sector can be made from the following.

s.n Types of Banks Branch Percentage share in

branch deposi credit profits
o banks (Numbe es
es ts
r) (numb
er)

1 Public sector 27 47,2 70.4 85. 83. 76.6

2 Private 89 3 3
sector 24 7.5 9.8
 Old 8 5,03 0.2 5.7 8.8 8.4
3  New 196 0 21. 5.4 5.0 5.8
4 RRBs 5 118 9 3.6 2.9 n.a

Local area 14,71 n.a n.a n.a

Banks 1
n.a
260 67,1
48
 RESERVE BANK OF INDIA

At the head of the Indian banking structure is the reserve bank of India, which as
central banking institutions of the country was brought into Existence by the reserve bank
of India act,1934.It started function in April 1935 with a share capital of rupees 5crores
divided into shares of rs.100 each fully paid up originally a shareholders bank it was
nationalized on 1st January 1949 by the reserve bank of Indian amendment act,1948.
It is entrusted with all the powers and function, which modern central banks have
some of those are derived from reserve bank of India act, 1934 and others from banking
regulation act 1949. The major function which the reserve bank of India performs are a
under.
The reserve bank of India is the central and apex bank institutions in India. It is a
state owned organization that functions as a corporate body with special posers and
obligations for serving the national interest.
Its major functions and responsibilities include:-
• Issue and management of currency
• Banker to the government
• Bankers bank
• Supervision and control of commercial and co-operative banks and other
Designated financial institutions .
• Promoting the development and healthy functioning of financial institutions.
 • Managing the rupee exchange and foreign exchange reserve.
• Regulating the expansion of money and credit.

RBI has wide-ranging powers to call for any information from banks relating to their
business and management. Banks have to submit a fortnightly statement of demand and
time liabilities. In the prescribed format, as on every reporting Friday. Banks have to
maintain statutory reserve s like statutory liquidator ration SLR and cash reserve ration
CRR as a percentage to the net demand and time liabilities a shown in the fortnightly
statement. Reserve bank of India is empowered to levies several penalties and any other
action under the relevant provisions of RBI act.

The power of RBI to inspect any of the bank offices have been strengthened
recently, with the setting up of a separate dept via, dept of banking supervisions DBS,
consequent to the recommendation of padmanabhan committee. As a par of prudential
supervisory reporting system, all the banks have to submit a detailed statement on a
quarterly basis. The system known as “off-site surveillance” system is an addition to the
current on site inspection by RBI.
Reserve bank of India is a monitory authority announces its monitory and credit
polices once in sixth months i.e. in the months of April and October every year indicating
its priorities and direction in the light of the economic situation these policies provide
significant information/guidelines for the banks to conduct their business.
 OBJECTIVES AND METHODOLOGY OF THE STUDY:
OBJECTIVES.
The objectives of the study are as follows,
• To study business development activities relating to loans and advances.
• To study credit management in APGVB.
• To view credit standards and policies.
• To study collection policies.
• To study the cause for the failure in the repayment of loan within the prescribed
time by the loanees.

METHODOLOGY
The study is based on primary and secondary data. The primary data is collected
through a sample survey of the loanees about their socio-economic back ground. The
secondary data were collected from the annual credit plans from the district concerned
undertaken in the study and official records of Regional office NABARD Utmost
attention was paid to get the required data from commercial banks.RRBs and co-
operative banks.
RESEARCH DESIGN
A research design is the specification of methods and procedures for acquiring the
information on needed to structure or to solve problems. It is the overall operational
pattern of frame work of the project that stipulates what information is to be collected
from which sources, and by what procedures if it is a good design. It will ensure that the
information obtained is relevant to the research problem and that it was collected by
objective and economical procedures.
A research design might be described as a series of advance decisions that, taken
together from a specific master plan or model for conduct of the investigation. Although
Research design may be classified by many criteria, the most useful one concerns the
major purpose of the investigation. On the basis we may identify the broad classes of
designs as exploratory, descriptive, and casual.
EXPLORATORY STUDIES:
The major purposes of exploratory studies are the identification of problems. The
more precise formulation of problems (including the identification of relevant variables)
and the formulation of new alternative courses of action.
The design of exploratory studies is characterized by a great amount of flexibility and
adhoc versatility by the definition. The researcher is involved in investigating an area or
subject in which he or she is not sufficiently knowledgeable to have formulated detailed
research questions. No clear hypotheses have been developed about the problem. The
researcher is seeking information that enable him or her to formulate specific research
questions and/ or to state hypotheses about the problem. In short , the researcher seeks to
gain familiarity and / or achieve new insights into the problem situation.
Despite the necessity for flexibility in exploratory study design we can distinguish
three separate stages that are usually included in exploratory studies and typically
conducted in the sequence list.
1. A research of secondary information sources.
2. interviews with persons who are knowledge about the subject area.
3. The examination of analogous situations.
DESCRIPTIVE STUDIES:
Much research is concerned with describing market characteristics or functions. A
market- potential study is made that describes the number, distribution, and socio-
economic characteristics of potential customers of a product. A market share study is
conducted to determine the share of the market received by both the company and its
competitors, or a sales analysis is made that states sales by territory, type of account size
or model or product and like ,
Descriptive study is also made in product research, promotion research, distribution
research and pricing research.
For descriptive research, proposed data analysis and project output are critical
aspects of research planning.

CAUSAL STUDIES:
Although descriptive information is often helpful for predictive purposes, where
possible we would like to know the causes of what we are predicating the reasons why
Further we would like to know how these causal factors relate the effects that we are
predicting.
Source the data is taken from the secondary data. The data is helped from the book
“Land bank journal”, social action, Yojana, and Kurukshetra.
TIME OF STUDY:
The study period is from the year 2005-2007.
SCOPE.
The project has been done in the APGVB. The recoveries of the bank have been
taken. The study indicates the position of the bank.
PURPOSE OF THE STUDY:
The purpose of the study is to know the performance of the bank under various
categories like disbursement of loans, deposit mobilization, recovery of the loans.
LIMITATIONS:

1.This is a study conducted within a short period.

2.As the is conducted within limited period,it may not be detailed one&full-fleged.
 3.The study was conducted with the data available & the analysis was made
accordingly.

ORGANISATION PROFILE
 INTRODUCTION

Sangameshwara Grameena Bank was established on 31st March 1982 Regional

Rural Bank’s Act 1976,sponsored by State Bank of India with its Head office
atMahabubnagar. The service area of the Bank is Mahabubnagar district in the state of
Andhra Pradesh.The district geographical area is 18,47,000 hectares, which is
predominantly drought prone.The average rainfall of district is 604 mm. the farming
community is mostly dependent on rain fed agriculture. The river Krishna and river
Thungabadhra are flowing through the district. They are catering to the needs of
neighbouring districts as the water flows mostly towards other districts because
Mahabubnagar district district is situated in plateau. The Priyadarshini Jurala Project is
serving as an additional source of irrigation to the farming community. The Rajolibanda
Diversion Scheme is augmenting the irrigation sources in Alampur and Gadwal pockets
of the district.
The major soils of the district are red soil, black cotton soil and chalka soil. The
major crops of the district are paddy, jowar, groundnut, castor, cotton and red gram, the
horticulture crops viz., mango, guava, grapes, citrus and pomegranate are grown in a few
blocks in the district.
As the environment is drought prone due to scanty rainfall and insufficient
irrigational facilities, the people of the district are mostly dependent on labour works for
their livelihood. They migrate to neighbouring states besides other areas in the state. The
labourers of the district are popularly called as “Palamoor Labour”. The large
communities in the district are Agriculturists,shepherds and weavers. The sarees woven
at places like Kothakota, Narayanpet and Gadwal are popular with in and outside the
state.

BRANCH NETWORK

The area of operation of the Bank covers the entire district of Mahabubnagar with a
network of 73 branches (including 9 Satellite branches) , of which 7 branches are located
in semi urban centers and remaining 66 branches are functioning in rural areas. For
operational and administrative convenience, these branches are divided into two areas
under the control of two Area Managers. The organizational set up at Head office
consists of three Departments headed by Senior Managers to support the General
Manager and assist the Chief Executive of the Bank.

SHARE CAPITAL AND SHARE CAPITAL DEPOSIT

The authorized capital of the Bank is Rs. 50000 thousands and paid up capital is Rs.
10000 thousands consisting of 1,00,000 shares of Rs.100/- each. The share holders are
Government of India, State Bank of India and Government of Andhra Pradesh in the
ratio of 50:35:15 respectively.
The Bank was identified for restructuring under Phase-ii and received restructuring
funds from the three shareholders amounting to Rs. 198282 thousands. The amounts
received consist of Rs. 99141 thousands from Government of India Rs. 69399 thousands
from State Bank of India and Rs. 29742 thousands from Government of Andhra Pradesh.

ANDHRA PRADESH GRAMEENA VIKAS BANK- GENESIS

Government of India decided in 2005 for amalgamation of RRBs sponsored by same
Bank in the same state. Accordingly vide their Notification dated 31.03.2006 notified
formation of Andhra Pradesh Grameena Vikas Bank by amalgamation of the following
five RRBs sponsored by State Bank of India in Andhra Pradesh.

Name of the RRB Date of Area of operation

Establishment
Nagarjuna Grameena 30.04.76 Khammam and Nalgonda
Bank districts
Sri Visakha Grameena 30.09.76 Srikakulam,
Bank Vizianagaram and
Visakhapatnam districts.
Sangameshwara 31.03.82 Mahabubnagar
Grameena Bank
Manjira Grameena Bank 31.03.82 Medak district
Kakathiya Grameena 28.06.82 Warangal district
Bank

All the transferor RRBs were earning profits and possess commonality in
composition of their clientele mainly comprising of farmers and rural artisans with a
sprinkling of traders and businessmen. The loans disbursed by these RRBs are strikingly
similar in activities, crops financed etc.

OBJECTIVES
The primary objective of the amalgamation of these RRBs is the synergy that will be
created by effecting economy in administration and reduction in cost of marketing
products over a wide area. The Objectives are summarized as under:
 To expand market area, to increase the depth of market and enhance the
market share.
  To obtain higher rate of growth.
 To facilitate economies of scale.
 To pool and use manpower resources efficiently.

CORPORATE VALUATION

The amalgamation concept of RRBs is perceived by the Government of India and

provisions for such amalgamation has been incorporated in sub section (1) of section
23A of the Regional Rural Banks Act. 1976 (21 of 1976). The share holders of RRBs,
Viz. Government of India, Sponsor Bank and the respective State Government contribute
to the subscribed and paid up share capital in the ratio of 50:35:15. The present
amalgamation proposal does not envisage any change in the pattern of ownership of the
RRBs. Hence, the question of payment of money to the existing shareholders as an
outcome of the amalgamation process does not arise, since the shareholders and the
holding pattern remains unchanged in the post amalgamation. The crucial issue of
corporate valuation to determine the value or market price of its share need not be given
primacy, as otherwise would have been the case.
(1) Capital structure
In terms of section 5 of the RRB Act 1976, the authorized capital of the
transferee RRB (amalgamated RRB) shall be Rs. 5 crores divided in 5 lakh number
of fully paid shares of Rs. 100 each. The subscribed share capital of the amalgamated
5 RRBs shall be equal to the subscribed share capital of transferor RRBs, shall be
deemed to have been transferred and deemed as subscribed share capital of the
amalgamated RRB.
(2) Name of the amalgamated RRB
Considering all aspects, the Local Head Office, State Bank of India, Hyderabad
has Recommended that the amalgamated RRB shall be called as “Andhra Pradesh
Grameena Vikas Bank” with its Head Quarters at Warangal which is well connected
with the capital of the state and other District Head Quarters of other transferor RRBs
by road and rail, centrally located, with the required infra structure facilities and is
easily accessible from every branch.
(3) Operational Area
 The five RRBs sponsored by SBI in Andhra Pradesh cover 8 districts, Viz.,
Warangal (KGB), Medak (MGB), Khammam and Nalgonda (NGB), Mahabubnagar
(SGB) and Srikakulam, Vizianagaram and Visakhapatnam (SGVB). The
amalgamated RRB will cover all the 8 districts with geographical area of 94,700 sq.
kms. with a larger network of 483 branches and aggregate owned funds of Rs 197.07
crores. The amalgamated RRB
(APGVB) will become stronger
and competent to enhance business
comprehensively.
(4)Organisational Structure
The amalgamated RRB (APGVB)
consists
of a three-tier structure , Viz.,
Head Office,
Controlling Office and branches. The
Controlling Office in the middle tier will
Cover 50 to 100 branches and will be
headed by General manager (SMGS-V-
AGM) deputed from the Sponsor Bank.

ORGANISATIONAL STRUCTURE OF
ANDHRA PRADESH GRAMEENA VIKAS BANK
*Deputed from the
sponsor bank.
G.M.-General
Manager.
B.M.-Branch
Manager.

BOARD OF DIRECTORS.
S.NO NAME DISIGNATION RULE
1 Shri.A.Anantha Krishna Chairman
2 Yet to be appointed Director Nominees of the
Central Govt U/S
9(i) of RRB
Act,1976
3 Yet to be appointed Director -do-
4 Shri.M.Chandrashekharan Director Nominee of RBI
U/S 9(i)(b) of RRB
Act,1976
5 Shri.R.S.Jagdale Director Nominee of
NABARD U/S 9(i)
(c) of RRB
Act,1976
6 Shri.Ch.H.Narasimha rao Director Nominees of the
sponser bank U/S
9(i)(d) of RRB
Act,1976
7 Shri.G.Y.R.S.K.Acharyulu Director -do-
8 Shri.A.Giridhar Director Nominees of the
Andhrapradesh U/S
9(i) of RRB
Act,1976
9 Smt.K.Damayanthi Director -do-

INTRODUCTION:
 Rangareddy and Nalgonda district in the north, Nalgonda and Gunter in the East
kurnool surround Mahaboobnagar district in the south and Raichur Gulbargha districts of
Karnataka in the west. The total geographical are of the district is 18473sq.km. The
district has 5 revenue divisions 64 Mandals covering 1571 villages (1501 in habited). The
total population of the district as per 2001 census is 35.09 lakh consisting of 17.82 lakh
males and 17.27 lakhs females and the population density per esq. are 190. This district is
the largest district in telangana region of Andhra Pradesh within total geographic are of
18,473-lakh hector. Agriculture is the predominate occupation of the people and more
then 75% of the population depends on this sector.
The district is relatively elevated in the north and west and the latitude gradually
decline from North West to southwest to southwest and lies between north latitude 15-55
and 17-29 and west longitude 77-15 and 79-15 in the southwest. There are hill ranges
extending from north to south achampet while taluka consisting of lat topped hills. The
are above the arid region of the Deccan plateau, the climate of the district is generally
hot.
The average maximum temperature in the summer months varies between 40 c-22c
and minimum 10c-24 in the winter months. The maximum rainfall is experienced during
the southwest monsoon and in the early par of the northeast monsoon. The normal
rainfall of the district is 604mm (revised from 754mm for 2001) with large variations
from year to year. The avg rainy days in a yr are 46 only.

LAND USE PARTICULARS AND PRESENT STATUS:

 Out of the rural geographical are of 18,473 hectares, the net are sown in the
district is around 8.76 lakhs hectares constituting 47% the remaining area is either being
fallow uncultivated or forestland. The district has got 5.86 lakhs cultivators and 6.27 lakh
agricultural labs ours. The important crops raised into the district are paddy, jawar,
castor, red gram, groundnut, cotton, green gram, sunflower, ragi, bajra, chilies etc., the
district has classified as drought prone zone and monsoon is very erratic. They are
covered under rain fed crops fluctuates from year to year depending upon percolation of
water into the soil. The area under food crops is decreasing year after year, specially
jowar, groundnut and bajra crops, because of less commercial value when compared to
other commercial crops like cotton, caster ad chilies since last 3yr during kharif season
area under maize crop has been considerably increased due to higher yields compared to
jowar crop. The present emphasis of the dept is to bring more area under pluses and
oilseed crops like red gram, castor etc.

DISTRICT PROFILE AT A GLANCE:

1. NAME OF THE MAHABOOBNAGAR

DISTRICT
2. Geographical area 18432 sq km
a) Number of talaqua 16
b) No of villages 1475
(inhabited)
c) No of villages (not 69
inhabited)
d) No of villages electrify 1475
e) No of villages connected 715
by all whether roads
f) No of villages having 1218
supply of portable water
3. Rain fall (mm) Normal: 604 2001-02
2002-03
Actual: 675024 538.7
4. Agro-climatic region and Southern telangana agro-
 zone climatic zone
5. Population (2001 census) (In 000)
a) Male 1782
b) Female 1727
c) Total 3509
d) Population density or sq 190
km
e) Population below 2389
poverty line
6. Classification of workers (In 000)

a) Cultivators 656
b) Of (a) small and 467
marginal farmers
c) Agricultural laborers 777
d) Artisans 83
e) House hold and cottage 68
industries
f) Alight agro activates 27
g) Other workers 306
7. Land utilization (Area ha)
a) Geographical area 1847115
b) Net shown area 749447
c) Forest area 266355
d) Fallow land 65598
e) Land not available for 175602
cultivation
f) Cropping intensity 117
g) Area under high 661100
Yielding varieties
8. Size of holding (995-96) No % area (%)
(Lakh) (In 000 ha)
a) Less than one 1.728 26.35 1210
10.00
b) Between one and two 2.941 44.82 6055
50.00
c) Above two 10891 28.82 4844
40.00
Total 6.560 100.00 12109
9. Irrigation (ha)
a) Net irrigated area 139,123,17
b) Sources of irrigation
1) Wells and tube wells 124,443,95
2) Tanks 964,3
3) Canals 11,183,67
4) Other (lift irrigation) 2,531,25
10. Consumption of organic and Organic fertilizer 20 tons
chemical chemical fertilizers 100kgs
Fertilizer and pesticide
(Per ha) Pesticides 750 mi/ha
11. Agricultural support
Facilities
a) Seed/fertilizers/pesticide 36
deposit
b) Rural markets/mandis 16
c) Rural godowns 43(total capacity of 62,640
mts)
d) Cold storages 2(total capacity of 1000mts)
12. Animal husbandry
a) Plough animals (in lakh) 6.46
b) Diary animals 1192
i) Cows 9.23
ii) Buffalos 2.96
c) Sheep 32.9
d) Goat 4.93
e) Poultry 41.96
INTRODUCTION OF RATIOS
 RATIO ANALYSIS
INTRODUCTION:-
Ratio Analysis is the process of establishing a significant relationship between the
items of financial statements to provide a meaningful understanding of the performance
and financial position of the firm.
Using the term “Ratio” in relation of financial statements analysis, it may properly
mean “An Accounting Ratio” or “Financial Ratio”, defined as the mathematical
relationship between two accounting figures, having mutual cause and effect relationship
to produce a meaningful and useful ratio. Ratio is a simple mathematical expression
between two items in a more meaningful way which help us to draw conclusions.

MEANING OF RATIO:-
A ratio is a simple arithmetical expression of the relation of one number to another. It
may be defined as the indicated quotient of two mathematical expressions.
According to Accountant’s Handbook by Wixon, Kell and Bedford, a ratio “is an
expression of the quantitative relationship between two numbers”.

IMPORTANCE OF RATIO ANALYSIS:

The importance of ratio analysis lies in the fact that it presents facts on a comparative
basis and enables the drawing of inferences regarding the performance of a firm Ratio
Analysis in relevant in assessing the performance of a firm in respect of the following
points.
LIQUIDITY POSITION:
With the help of ratio analysis conclusions can be drawn regarding the liquidity
position of the firm. The liquidity ratios are particularly useful in credit analysis by
banks and other suppliers of short-term loans.
OPERATING EFFICIENCY
It is relevant from the view point of management, and it throws light on the
degree of efficiency in management and utilization of assets.

OVER ALL PROFITABILITY :

In this, the management in constantly concerned about the overall profitability of
the enterprise. They are concerned about the ability of the firm to meet its short term as
well as long term obligations to creditors to ensure reasonable returns to its owners and
secure optimum utilization of firm’s assets.

SIGNIFICANCE OF RATIO ANALYSIS:

Ratios are significant in both the vertical and horizontal analysis. In vertical
analysis, ratios help the analyst to form a judgment whether the performance of the firm
at a given point of time is in good position or not use of ratios in horizontal analysis
indicates whether the financial condition of the firm is improving or deteriorating and
whether cost profitability of efficiency is showing an upward trend or downward trend.

NATURE OF RATIO ANALYSIS:-

Ratio analysis is a technique of analysis and interpretation of financial statements.
It is the process of establishing and interpreting various ratios for helping in making
certain decisions. Ratios provide clues to the financial position of the concern. These are
the pointers or indicators of financial strength, soundness, position or weakness of an
enterprise. One can draw conclusions about the exact financial positions of a concern
with the help of ratios. Calculation of mere ratios does not serve any purpose, unless
several appropriate ratios are analyzed and interpreted. The following are the four steps
involved in the ratio analysis.
  Selection of relevant data from the financial statements depending upon the
objective of the analysis
 Calculation of appropriate ratios from the above data
 Comparison of the calculated ratios with the ratios of the same firm in the past, or
the ratios developed from the projected financial statement or the ratios of some
other firms or the comparison with ratios of the industry to which the firm belongs

OBJECTIVES OF RATIO ANALYSIS:

 To measure the overall financial position of Avon organic private ltd
 To study the important aspects like liquidity, leverage, activity and profitability of
the company
 To find out the operating efficiency of the company
 To suggest measres for improving the performance of the company in the light of
the above

UTILITY OF RATIO ANALYSIS:

The ratio analysis is the most powerful tool of the financial analysis. Many
diverse groups of people are interested in analyzing the financial information to indicate
the operating and financial efficiency, and growth of the firm. These people use ratios
to determine those financial characteristics of the firm in which they are interested with
the help of ratios, one can determine:
 The ability of the firm to meet its current obligations
 The extent to which the firm has used its long-term solvency by borrowing funds
 The efficiency with which the firm is utilizing its assets in generating sales
revenue and
 The overall operating efficiency and performance of the firm

NEED AND SIGNIFICANCE OF RATIO ANALYSIS:-

 The ratio analysis is one of the most important and powerful tools of financial
analysis, to determine a particular financial characteristic of the firm. It is used as a
device to analyze and interpret the financial health of an enterprise. It is with help of
ratios that the financial statements can be analyzed more clearly and decisions made from
such analysis.
The use of ratios is not confined to financial managers only but there are different
parties interested in to ratio analysis for knowing the financial position of a firm for
different purposes. The supplier of good on credit, banks, financial institutions, investors,
shareholders and management all make use of ratio analysis as a tool in evaluating the
financial position and performance of a firm for granting credit, providing loans or
making investments in the firm and can point out whether the condition is strong, good,
questionable or poor. The conclusions can also be drawn as to whether the performance
of the firm is improving or deteriorating.

(A) Managerial Uses of Ratio Analysis

1) Helps in decision-making: Financial statements are prepared primarily for decision-
making. But the information provided in financial statements is not an end in itself and no
meaningful conclusion can be drawn from these statements alone. Ratio Analysis helps in
making decisions from the information provided in these statements

2) Helps in financial forecasting and planning: Ratio analysis is of much help in financial
forecasting and planning. Planning is looking ahead and the ratios calculated for a
number of years work as a guide for the future. Meaningful conclusions can be drawn for
future from these ratios.

3) Helps in communicating: The financial strength and weakness of a firm are

communicated in a more easy and understandable manner by the use of ratios. The
information contained in the financial statements is conveyed in a meaningful manner to
which it is meant. Thus, ratios help in communicating and enhance the value of the
financial statements.
4) Helps in co-ordination: Ratios even help in co-ordination which is of utmost
importance in effective business management. Better communication of efficiency and
weakness of an enterprise results in better co-ordination in the enterprise.

5) Helps in Control: Ratio analysis even helps in making effective control of the business.
Standards ratios can be based upon proforma financial statements and variances or
deviations, if any, can be found by comparing the actual with the standards so as to take a
corrective action at the right time. The weakness or otherwise, if any, come to the
knowledge of the management which helps in effective control of the business.
6) Other Uses: There are so many other uses of the ratio analysis as it is an essential part
of the budgetary control and standard costing. Ratios are immense importance in the
interpretation of financial statements as they bring the strength or weakness of the firm.

(B) Utility of Shareholders / Investors:

An investor in the company will like to assess the financial position of the
concern where he is going to invest. His first interest will be the security of his
investment and then a return in the form of dividend or interest. Long term solvency
ratios will help in accessing financial position of the concern. Probability ratios, on the
other hand, will be useful to determine profitability position. Ratio analysis will be useful
to the investor in making up his mind whether present financial position of the concern
warrants further investments or not.
(C) Utility to Creditors:
The creditors or suppliers extend short-term credit to the concern. They are
interested to know whether financial position of the concern warrants their payments at a
specified time or not. The concern pays shot-term creditors out of its current assets. If the
current assets are quite sufficient to meet the current liabilities then the creditor will not
hesitate in extending credit facilities. Current and acid-test ratio will give an idea about
the current financial position of the concern.
(D) Utility to Employees:
The employees are also interested in the financial position of the concern
especially profitability. Their wage increases and amount of fringe benefits are related to
the volume of profits earned by the concern. The employees make use of information
available in financial statements. Various profitability ratios relating to gross profit,
operating profit, net profit etc., enable employees to put forward their viewpoint for the
increase of wages and other benefits.
(E) Utility to Government:
Government is interested to know the overall strength of the industry. Various
financial statements published by industrial units are used to calculate ratios for
determining short-term, long-term and overall financial position of the concerns.
Profitability indexes can also be prepared with the help of ratios. Government may base
its future policies on the basis of industrial information available from various units. The
ratios may be used as indicators of overall financial strength of public and private sectors.

LIMITATIONS OF RATIO ANALYSIS: -

The ratio analysis is one of the most powerful tools of financial management.
Though ratios are simple to calculate and easy to understand, they suffer from some
serious limitations:
1) Limited use of a Single Ratio: A single ratio does not convey much of a sense. To
make better interpretation a number of ratios have to be calculated which is likely to
confuse the analyst than help him in making any meaningful conclusion.
2) Lack of Adequate Standards: There are no well accepted standards or rules of thumb
for all ratios which can be accepted as norms. It renders interpretation of the ratios
difficult.
3) Inherent Limitations of Accounting: Like financial statements, ratios also suffer from
the inherent weakness of accounting records such as their historical nature. Ratios of the
past are not necessarily true indicators of the future.
4) Change of Accounting Procedure: Changes in accounting procedure by a firm often
makes ratio analysis misleading where the change in valuation of methods of inventories,
which make the stock turnover ratio to be lucrative and an unfavorable gross profit ratio.
5) Window Dressing: Financial Statements can easily be window dressed to present a
better picture of its financial and profitability position to outsiders. Hence, one has to be
very careful in making a decision from ratios calculated from such financial statements.
But it may be very difficult for an outsider to know about the window dressing made by a
firm.
6) Personal Bias: Ratios are only means of financial analysis and not an end in itself.
Ratios have to be interpreted and different people may interpret the same ratio in different
ways.
7) Uncomparable: Not only industries differ in their nature but also the firms of the
similar business widely differ in their size and accounting procedures, etc. It makes
comparison of ratios difficult and misleading. Moreover, comparisons are made difficult
due to differences in definitions of various financial terms used in the ratio analysis.
8) Absolute figures Distortive: Ratios devoid of absolute figures may prove distortive as
ratio analysis is primarily a quantitative analysis and not a qualitative analysis.
9) Price Level Changes: While making ratio analysis, no consideration is made to the
changes in price levels and this makes the interpretation of ratios invalid.
10) Ratios no Substitutes: Ratio analysis is merely a tool of financial statements. Hence,
ratios become useless if separated from the statements from which they are computed.
 It is difficult to decide on the proper basis of comparison.
 The comparison is rendered difficult because of differences in situations of two
companies or of one company over years.
 The price level changes make the interpretations of ratios invalid.
 The differences in the definitions of items in the balance sheet and the profit and
loss statement make the interpretation of ratios difficult.
 The ratios calculated at a point of time are less informative and defective as they
suffer from short-term changes.
CLASSIFICATION OF RATIOS:
Ratios may be classified in a number of ways keeping in view the particular
purpose. Ratios indicating profitability are calculated on the basis of the profit and loss
account; those indicating financial position are computed on the basis of the balance
sheet and those which show operating efficiency or productivity or effective use of
resources are calculated on the basis of figures in the profit and loss account and the
balance sheet. This classification is rather crude and unsuitable to determine the
profitability and financial position of the business. To achieve this purpose effectively,
ratios may be classified as:
I. Profitability ratios
II. Turnover ratios
III. Financial ratios
These are discussed one by one as follows:
I. PROFITABILITY RATIOS
Profitability ratios are of utmost importance for a concern. These ratios are
calculated to enlighten the end results of business activities which is the sole criterion of
the overall efficiency of a business concern. The following are the important profitability
ratios:
1. Gross Profit Ratio:
This ratio tells gross margin on trading and is calculated as under:
Gross Profit Ratio = Gross Profit × 100
Net Sales
2. Operating Ratio:
This ratio indicates the proportion that the cost of sales bears to sales. Cost of
sales includes direct cost of goods sold as well as other operating expenses,
administration, selling and distribution expenses which have matching relationship with
sales. It excludes income and expenses which have no bearing on production and sales,
i.e., non-operating incomes and expenses as interest and dividend received on investment,
interest paid on long-term loans and debentures, profit or loss on sale of fixed assets or
long-term investments. It is calculated as follows:
Operating Ratio = Cost of Goods Sold + Operating Expenses × 100
Net Sales
Here,
Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses + Manufacturing
Expenses – Closing Stock of Sales – Gross Profit
Operating Expenses = Administrative Expenses + Selling and Distribution Expenses
Lower the ratio, the better it is. Higher the ratio, the less favourable it is because it
would have a smaller margin of operating profit for the payment of dividends and the
creation of reserves. This ratio should be analysed further to throw light on the levels of
efficiency prevailing in different elements of total cost.
3. Expenses Ratios:
These are calculated to ascertain the relationship that exists between operating
expenses and volume of sales. The following ratios will help in analysing operating ratio:
(i) Material Consumed Ratio
= Material Consumed × 100
Net Sales
(ii) Conversion Cost Ratio
= Labour Expenses + Manufacturing Expenses × 100
Net Sales
(iii) Administrative Expenses Ratio
= Administrative Expenses Ratio × 100
Net Sales
(iv) Selling and Distribution Expenses Ratio
 = Selling and Distribution Expenses × 100
Net Sales

The total of these four ratios will be equal to operating ratio.

4. Operating Profit Ratio:

This ratio establishes the relationship between operating profit and sales and is
calculated as follows:
Operating Profit Ratio = Operating Profit × 100
Net Sales
Where
Operating Profit = Net Profit + Non-operating Expenses – Non-Operating Income
(or)
= Gross Profit – Operating Expenses
Operating profit ratio can also be calculated with the help of operating ratio as
follows:
Operating Profit Ratio = 100 - Operating Ratio.
This ratio indicates the portion remaining out of every rupee worth of sales after all
operating costs and expenses have been met. Higher the ratio the better it is.
5. Net Profit Ratio:
This ratio is very useful to the proprietors and prospective investors because it
reveals the overall profitability of the concern. This is the ratio of net profit after taxes to
net sales and is calculated as follows:
Net Profit Ratio = Net Profit after Tax × 100
Net Sales
The ratio differs from the operating profit ratio in as much as it is calculated after
deducting non-operating expenses, such as loss on sale of fixed assets etc., from
operating profit and adding non-operating income like interest or dividends on
investments, profit on sale of investments or fixed assets, etc., to such profit. Higher the
ratio, the better it is because it gives idea of improved efficiency of the concern.
6. Return on Capital Employed (Overall Profitability Ratio):
This ratio is an indicator of the earning capacity of the capital employed in
the business. This ratio is calculated as follows:
Return on Capital Employed = Operating Profit × 100
Capital employed

Here,
Operating Profit = Profit before interest on long term borrowings and tax
Capital Employed = Equity Share Capital + Preference Share Capital + Undistributed
Profit + Reserves and Surplus + Long-term Liabilities – Fictitious Assets – Non-business
Assets.
Alternatively.
Tangible Fixed and Intangible Assets + Current Assets – Current Liabilities.
This ratio is considered to be the most important ratio because it reflects the overall
efficiency with which capital is used. This ratio is a helpful tool for making capital
budgeting decisions; a project yielding higher return is favoured.
7) Return on Shareholder’s Fund:
When it is desired to work out the profitability of the company from the
shareholders point of view, then it is calculated by the following formula:
Return on Shareholder’s Fund = Net Profit after Interest and Tax × 100
Shareholders Funds
8) Return on Equity Shareholders Fund:
This ratio is a measure of the percentage of net profit to equity shareholders
funds. The ratio is expressed as follows:
Return on Equity Shareholders Fund =
Net Profit after Tax, Interest and Preference Dividend
Equity Shareholders Funds
Here,
Equity Shareholders Fund = Equity Share Capital + Capital Reserves + Revenue
Reserves + Balance of Profit and Loss Account – Fictitious Assets – Non-business Assets
9) Return on Total Assets:
This ratio is calculated to measure the profit after tax against the amount
invested in total assets to ascertain whether assets are being utilized properly or not. It is
calculated as under:
Return on Total Assets = Net Profit after Tax × 100
Total Assets

10) Earning per Share:

This helps in determining the market price of equity shares of the company and
in estimating the company’s capacity to pay dividend to its equity shareholders. It is
calculated as follows:
Earning Per Share = Net Profit after Tax + Preference Dividend
Number of Equity Shares
If there are both preference and equity share capitals, then out of net income first
of all preference dividends should be deducted in order to find out the net income
available for equity shareholders. The performance and prospects of the company are
affected by earning per share. If earning per share increases, there is a possibility that the
company may pay more dividend or issue bonus shares. In short the market price of the
share of a company will be affected by all these factors. A comparison of earning per
share of the company with another company will also help in deciding whether the equity
capital is being effectively used or not.
Though the earning per share is the most widely published data, yet it should be
used cautiously as earning per share cannot represent the various financial operations of
the business. Moreover, the financial data collected in respect of different companies may
be affected by different practices followed by the companies relating to stock in trade,
depreciation etc. This ultimately will affect the calculation of earning per share and that is
why earning per share should be used with precaution while comparing the performance
and prospects of two companies.
11) Price Earning Ratio:
 This ratio indicates the market value of every rupee earning in the firm and is
compared with industry average. High ratio indicates the share is overvalued and low
ratio shows that share is undervalued. It is computed by the following formula:
Price Earning Ratio = Market price per equity share
Earning per share
12) Payout Ratio:
This is determined as follows:
Payout Ratio = Dividend per equity share
Earning per share

Complementary of this ratio is retained Earning Ratio. It is calculated as follows:

Retained Earning Ratio = Retained Earnings × 100

Total Earnings
This ratio indicates as to what proportion of earning per share has been used for
paying dividend and what has been retained for ploughing back. This ratio is very
important from shareholder’s point of view as it tells him that if a company has used
whole or substantially the whole of it’s earning for paying dividend and retained nothing
for future growth and expansion purposes, then there will be very dim chances of capital
appreciation in the price of shares of such company. In other words, an investor who is
more interested in capital appreciation must look for a company having low payout ratio.
13) Dividend Yield Ratio:
This is computed as under:
Dividend Yield Ratio = Dividend per share × 100

Market price per share

This ratio is important for those investors who are interested in the dividend income. As
the shareholder purchases the shares in the open market, so his yield (rate of return) is not
equal to the dividend declared by the company. In fact, he calculates dividend per share
by dividing the rate of dividend by paid-up value of share. Then he calculates yield by
dividing dividend per share by the market price of share.
II .TURNOVER RATIOS :
 These ratios are very important for a concern to judge how well facilities at the
disposal of the concern are being used or to measure the effectiveness with which a
concern uses its resources at its disposal. These ratios are usually calculated on the basis
of sales or cost of sales and are expressed in integers rather than as a percentage. Such
ratios should be calculated separately for each type of asset. Higher the turnover ratio, the
better the profitability and use of capital or resources will be. The following are the
important turnover ratios usually calculated by a concern.

(a) Sales to Capital Employed (or Capital Turnover) Ratio:

This ratio shows the efficiency of capital employed in the business by
computing how many times capital employed is turned-over in a stated period. The ratio
is ascertained as follows.
Sales___________________________
Capital Employed (i.e. Shareholders Fund + Long-term Liabilities)
The higher the ratio, the greater are the profits. A low capital turnover ratio should
be taken to mean that sufficient sales are not being made and profits are lower.
(b) Sales to Fixed Assets (or Fixed Assets Turnover) Ratio:
This ratio expresses the number of times fixed assets are being turned-
over in a stated period. It is calculated as under:
Sales_______________________
Net Fixed Assets (i.e., Fixed Assets less Depreciation)
This ratio shows how well the fixed assets are being used in the business. The ratio
is important in case of manufacturing concerns because sales are produced not only by
use of current assets but also by amount invested in fixed assets. The higher is the ratio,
the better is the performance. On the other hand, a low ratio indicates that fixed assets are
not being efficiently utilised.
(c) Sales to Working Capital (or Working Capital Turnover) Ratio:
This ratio shows the number of times working capital is turned-over in a
stated period. It is calculated as follows:
 Sales________________________
Net Working Capital (i.e., Current Assets – Current Liabilities)
The higher is the ratio, the lower is the investment in working capital and the
greater are the profits. However, a very high turnover of working capital is a sign of
overtrading and may put the concern into financial difficulties. On the other hand, a low
working capital turnover ratio indicates that working capital is not efficiently utilised.

(d) Total Assets Turnover Ratio:

This ratio is calculated by dividing the net sales by the value of total
assets (i.e. Net Sales ÷ Total Assets). A high ratio is an indicator of over-trading of total
assets while a low ratio reveals idle capacity. The traditional standard for the ratio is two
times.
(e) Stock Turnover Ratio:
This ratio, also known as inventory turnover ratio, establishes
relationship between cost of goods sold during a given period and the average amount of
inventory held during a given accounting period. This ratio reveals the number of times
finished stock is turned over during a given accounting period. Higher the ratio, the better
it is because it shows that finished stock is rapidly turned-over. On the other hand, a low
stock turnover ratio is not desirable because it reveals the accumulation of obsolete stock,
or the carrying of too much stock. This ratio is calculated as follows:

Stock Turnover Ratio = Cost of Good Sold_________

Average Stock held during the period

Where, Cost of Goods Sold =

Opening Stock + Purchases + Manufacturing Expenses – Closing Stock (or)
Sales – Gross profit.
Average Stock = Opening Stock + Closing Stock
2
(f) Receivables (or Debtors) Turnover Ratio:
This ratio measures the accounts receivables (trade debtors and bills receivables) in terms
of number of days of credit sales during a particular period. This ratio is calculated as
follows:
Debtors Turnover Ratio = Net Credit Sales
Average Debtors
The collection period is calculated as under:
Collection Period = 365________
Debtors Turnover Ratio
(or)
= Average Debtors × No. of days in a period.
Net Credit Sales

This ratio is a measure of the collectibility of accounts receivables and tells about
how the credit policy of the company is being enforced. Suppose, a company allows 30
days credit to its customers and the ratio is 45; it is cause of anxiety to the management
because debts are outstanding for a period of 45 days. Efforts should be made to make the
collection machinery efficient so that the amount due from debtors may be realised in
time. Higher the ratio, more the chances of bad debts and lower the ratio, less the chances
of bad debts.
Debtors Turnover Ratio = Credit Sales_
Average Debtors

Collection Period = Days in a year____

Debtors Turnover Ratio

(g) Creditors (or Accounts Payable) Turnover Ratio: This ratio gives the average credit
period enjoyed from the creditors and is calculated as under:

Credit Purchases____________
Average Accounts Payable (Creditors + B/P)
 A high ratio indicates that creditors are not paid in time while a low ratio gives an
idea that the business is not taking full advantages of credit period allowed by the
creditors.
Sometimes it is also required to calculate the average payment period (or average
age of payables or debt period enjoyed) to indicate the speed with which payments for
credit purchases are made to creditors. It is calculated as

Average age of Payables = Months (or days) in a year

Creditors Turnover Ratio
II. FINANCIAL RATIOS
These ratios are calculated to judge the financial position of the concern from long
term as well as short-term solvency point of view. These ratios can be divided into two
broad categories:
a) Liquidity Ratios
b) Stability Ratios.

a). Liquidity Ratios: These ratios are used to measure the firm’s ability to meet short term
obligations. They compare short term obligations to short term (or current) resources
available to meet these obligations. From these ratios, much insight can be obtained into
the present cash solvency of the firm and the firm’s ability to remain solvent in the event
of adversity. The important liquidity ratios are:

(a) Current Ratio (or Working Capital Ratio):

This is the most widely used ratio. It is the ratio of current assets to current
liabilities. It shows a firm’s ability to cover its current liabilities with its current assets. It
is expressed as follows:

Current Ratio = Current Assets_

Current Liabilities
Generally 2:1 is considered ideal for a concern i.e., current assets should be twice of the
current liabilities. If the current assets are two times of the current liabilities, there will be
no adverse effect on business operations when the payment of current liabilities is made.
If the ratio is less than 2, difficulty may be experienced in the payment of current
liabilities and day-to-day operations of the business may suffer. If the ratio is higher than
2, it is very comfortable for the creditors but, for the concern, it is indicator of idle funds
and a lack of enthusiasm for work.

All current assets cannot be treated as investments which are easily marketable
and sold in case cash is required. For this purpose, the liquid ratio is worked out.

(b) Liquid (or Acid Test or Quick) Ratio:

This is the ratio of liquid assets to liquid liabilities. It shows a firm’s ability to meet
current liabilities with its most liquid (quick) assets. 1:1 ratios is considered ideal ratio for
a concern because it is wise to keep the liquid assets at least equal to the liquid liabilities
at all times. Liquid assets are those assets which are readily converted into cash and will
include cash balances, bills receivable, sundry debtors and short-term investments.
Inventories and prepaid expenses are not included in liquid assets because the emphasis is
on the ready availability of cash in case of liquid assets. Liquid liabilities include all
items of current liabilities except bank overdraft. This ratio is the ‘acid test’ of a
concern’s financial soundness. It is calculated as under:

Liquid Ratio = Liquid Assets_______

Current (or Liquid) Liabilities
(c) Absolute Liquidity (or Super Quick) Ratio:
Though receivables are generally more liquid than inventories, there may be debts
having doubt regarding their real stability in time. So, to get idea about the absolute
liquidity of a concern, both receivables and inventories are excluded from current assets
and only absolute liquid assets, such as cash in hand, cash at bank and readily realizable
securities are taken into consideration. Absolute liquidity ratio is calculated as follows:
 Cash in hand and at bank + Short-term marketable securities
Current Liabilities

The desirable norm for this ratio is 1:2, i.e., Re. 1 worth of absolute liquid assets
are sufficient for Rs.2 worth of current liabilities. Even though the ratio gives a more
meaningful measure of liquidity, it is not in much use because the idea of keeping a large
cash balance or near cash items has long since been disproved. Cash balance yields no
return and as such is barren.

(d) Defensive Internal Ratio:

It examines the firm’s liquidity position in terms of its ability to meet projected daily
expenditure for operations. It is calculated as follows:
Defensive Internal Ratio = Quick Assets_________
Projected daily cash requirements

Projected daily cash requirements are computed as follows:

= Projected cash annual operating expenses

No. of days in a year

Projected cash operating expenses include cost of goods sold (excluding depreciation)
and selling and administration expenses payable in cash. It measures the time period for
which a firm can operate on the basis of present liquid assets without resorting to next
year’s revenue. The higher the ratio, the better it is.

(e) Ratio of Inventory to Working Capital:

In order to ascertain that there is no overstocking, the ratio of inventory to working
capital should be calculated. It is worked out as follows:
= Inventory___
Working Capital
Working Capital is the excess of current assets over current liabilities. Increase in volume
of sales requires increase in size of inventory, but from a sound financial point of view,
inventory should not exceed amount of working capital. The desirable ratio is 1:1.

IV.STABILITY RATIOS:
These ratios help in ascertaining the long term solvency of a firm which depends
on firm’s adequate resources to meet its long term funds requirements, appropriate debt
equity mix to raise long term funds and earnings to pay interest and instalment of long
term loans in time (i.e., coverage ratios). The following ratios can be calculated for this
purpose:

(a) Fixed Assets Ratio:

This ratio explains whether the firm has raised adequate long term funds to
meet its fixed assets requirements and is calculated as under:

Fixed Assets_
Capital Employed

This ratio gives an idea as to what part of the capital employed has been used in
purchasing the fixed assets for the concern. If the ratio is less than one it is good for the
concern. The ideal ratio is .67.

(b) Ratio of Current Assets to Fixed Assets:

This ratio is worked out as:
Current Assets
Fixed Assets
This ratio will differ from industry to industry and, therefore, no standard can be laid
down. A decrease in the ratio may mean that trading in slack or more mechanization has
been put through. An increase in the ratio may reveal that inventories and debtors have
unduly increased or fixed assets have been intensively used. An increase in the ratio,
accompanied by increase in profit, indicates the business is expanding.
(C)Debt Equity Ratio:
This ratio is calculated to measure the relative proportions of outsider’s funds
and shareholders funds invested in the company. This ratio is determined to
ascertain the soundness of long term financial policies of the company and is also
known as external-internal equity ratio. It is calculated as follows:
Debt Equity Ratio = Long Term Debts
(i) Shareholder’s Funds
(or)

Long Term Debts______

(ii) Shareholder’s Funds + Long Term Debts

Whether a given debt to equity ratio shows a favourable or unfavourable financial

position of the concern depends on the industry and the pattern of earning. A low ratio is
generally viewed as favourable from long-term creditor’s point of view, because a large
margin of protection provides safety for the creditors. The same low ratio may be taken
as quite unsatisfactory by the shareholders because they find neglected opportunity for
using low-cost outsider’s funds to acquire fixed assets that could earn a high return.
Keeping in view the interest of both (shareholders and long-term creditors), debt to equity
ratio of 2:1 in case of (i) and 2:3 in case of (ii) is acceptable.
(c) Proprietary Ratio:
A variant of debt to equity ratio is the proprietary ratio which shows the
relationship between shareholders funds and total tangible assets. This ratio is
worked out as follows:
Shareholders Funds
Total Tangible Assets

This ratio should be 1:3, i.e., one-third of the assets minus current liabilities should be
acquired by shareholders funds and the other two-thirds of the assets should be financed
by outsider’s funds. It focuses the attention on the general financial strength of the
business enterprise.
(d) Capital Gearing Ratio:
This ratio establishes the relationship between the fixed interest-bearing
securities and equity shares of a company. It is calculated as follows:

Fixed Interest – bearing Securities

Equity Shareholders Fund
ANALYSIS
 Balance sheet As On 31-3-05 to 31-3-08

Particulars Schedule.No 31.3.2008 31.3.2007 31.3.2006 31.3.2005

Liabilities &
Capital
Capital 1 50000 50000 5000 5000
Capital 1A 890850 890850 890850 890850
Deposits
Reserves and 2 1517397 1147866 1029851 799239
Surplus
Deposits 3 29335124 27180087 21889479 18752713
Borrowings 4 12830881 8369738 6057546 4067097
Other 5 3397386 3856830 2443871 2865889
liabilities and
Provisions
Total 48021638 41495371 32361597 27425788
Assets
Cash and 6 3008252 2287249 1711839 1483110
Balances
with RBI
Balances 7 10740686 10485746 6601026 4751714
with banks
and money at
call and
shortnotiece
Investments 8 6651010 6034257 5691605 5468161
Advances 9 26572788 20572499 17606867 14924594
Fixed Assets 10 71904 73740 80721 74645
Other Assets 11 976998 2041887 669539 723564
Total 48021638 41495371 32361597 27425788
Contingent 12 45553 52112 45504 37409
liabilities
Profit and loss Account As On 31-03-05 to 31-03-08

Particulars Schedule 31.3.200 31.3.200 31.3.2006 31.3.2005

No 8 7
I.INCOME
Interest Earned 13 4478955 3126470 2567669 2427667
Other Income 14 469811 248396 220486 159509
TOTAL 4948766 3374866 2788155 2587176
II.EXPENDITURE
Interest Expended 15 2080646 1547835 1302255 1149409
Operating Expenses 16 1425904 1416988 1069887 829693
Provisions and 900042 255147 185401 76935
Contingenceis
TOTAL 4406592 3219970 2557543 2056037
III.PROFIT
Net Profit for the year 542174 154896 230612 531139
Excess provision written NIL 12219 NIL 6793
back
Profit brought forward 761686 664830 498292 55418
TOTAL 1131217 782845 728904 593350
IV.APPROPRIATIONS
Transfer to statutory 73906 21159 49135 68848
Resrve
Transfer to other Reseves NIL NIL 14939 26210
Profit carried to 1057311 761686 664830 498292
Balancesheet
Interest rate on Deposits
Period Interest Rate % p.a.
15 days to 45 days 5.25
46 days to179 days 5.75
180 days to less than 1 year 6.00

1 year to less than 2 years 6.25

2 years to less than 5 years 6.50

5 years and above 7.00

Interest Rate on Advances.

Particulars Interest rate % p.a.

1. Crop loans including AGL,RMG,KCC
Up to Rs 25000 10
25001-50000 11
2. Agricultural loans
Up to Rs 50000 11
Above 50000 12
3.Allied agricultural term loans
Up to Rs 50000 11
Above Rs 50000 12
4. ISB cash credit, term loans and
composite term loans including transport
operators
Up to Rs 200000 12
Above Rs 200000 13
5.Self help groups
Direct to group 10
Through MACs/VO 11
6.Gold loan personal purpose 13
7.Consumer durables and personal loans
Up to Rs 50000 14
Above Rs 50000(MAX 1 Lakh) 13.5
8.Mortagage loans 12
9.Housing loans
Up to Rs 300000 10
Above Rs 300000 11
For repairs (Max 2 lakhs) 10
10.Education loans
Up to Rs 200000 10
Above Rs 200000 11
11.Demand loans 12
12.Vehicle loans
New vehicle 10
Old vehicle(Not more than 5 years) 12
13.Small and medium enterprise loans 12
14.Clean overdrafts 15

Profit/Expenses ratio:

Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005

Profit 1057311 761686 664830 329968
Expenses 44065922 3219970 2557543 309846
Ratio 23.9 23.6 26 106.49

45000000
40000000
35000000
30000000 Particulars
25000000 Profit
20000000 Expenses
15000000 Ratio
10000000
5000000
0

INTERPRETATION: The above graph is showing the amount of profit returned on

the expenses incurred by the bank. It is showing that from the year 2005 the % of
profit over expenses is coming down every year. Bank has to take steps to get
recovery of at least 25% of expenses from the profit.

Profit/Total assets ratio

Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005

Profit 1057311 761686 664830 329968
Total Assets 48021638 41495371 32361597 4718067
Ratio 2.2 1.83 2.05 6.99

50000000
45000000
40000000
35000000 Particulars
30000000 Profit
25000000
20000000 Total Assets
15000000 Ratio
10000000
5000000
0

INTERPRETATION: In the current financial year profit over total assets is

increased. How ever it is not enough to cover total assets. Presently the position of
profit over total assets is satisfactory but, it is better to the bank to improve the
ratio.

CURRENT RATIO:

CR= Current Assets/ Current liabilities ratio

Particulars 31.3.200 31.3.200 31.3.2006 31.3.2005

 8 7
Current assets 2754978 2261438 18276406 4707162
6 6
Other liabilities 3397386 3856830 2443871 459549
Ratio 810.91 586.34 747.84 1024.3

30000000

25000000
20000000 Particulars
Current assets
15000000
Other liabilities
10000000 Ratio
5000000

INTERPRETATION: The above graph is showing the ratio of current assets

over current liabilities. In the current financial year the % of current assets over
current liabilities is increased. It is the indication of sound solvency position of the
bank.
CURRENT ASSETS/FIXED ASSETS
Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005
Current assets 27549786 22614386 18276406 4707162
Fixed assets 71904 73740 80721 10905
Ratio 38315 30668 22641 43165

30000000

25000000
20000000 Particulars
Current assets
15000000
Fixed assets
10000000 Ratio
5000000
0

INTERPRETATION: The above graph is showing current assets position

over fixed assets of the bank. It is showing that, in the current year there is sound
increase in the current assets over fixed assets. Which is indicating that bank is
trying to maintain strong solvency position. However it is not good if we consider
long term benefits.
Fixed Assets Ratio:
FAR=Fixed assets/ Capital employed
Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005
Fixed assets 71904 73740 80721 10905
Capital employed 2413247 2043716 1925701 1695089
Ratio 2.979 3.608 4.19 0.643

2500000
Particulars
2000000
Fixed assets
1500000

1000000 Capital
employed
500000 Ratio

INTERPRETATION: It is observed with the above graph that the % of fixed assets
over its capital employed is decreasing every year from the last three years. Bank
has to maintain a consistent fixed assets position over their capital employed.
Debt Equity Ratio:
DE= Long term debts/ Share holder funds

Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005

Long term 42166005 35549825 27947025 22819810
debts
Share holder 2413247 2043716 1925701 1695089
funds
Ratio 1747.27 1739.47 1451.26 1346.23

45000000
40000000 Particulars
35000000
30000000 Long term
25000000 debts
20000000 Share holder
15000000 funds
10000000
Ratio
5000000
0

INTERPRETATION: It is showing that the long term debts of the bank is going on
increasing every year. It is not a good symbol for the bank. It is better if the bank
cut down their long term liabilities. Other wise bank has to pay more amounts
towards interest on the debts borrowed. Ultimately it will reduces the profitability
of the bank.
ABSOLUTE QUICK RATIO:
AQR=Cash/Current liabilities

Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005

Cash 2287249 12772995 8312865 6234824
Current 3856830 10958052 2443871 2865888
liabilities
Ratio 0.59 1.16 3.40 2.17

14000000
12000000
10000000 Particulars
8000000 cash
6000000 Current liabilities
4000000 Ratio
2000000
0

INTERPRETATION:The Absolute Liquid Ratio is 1.22 or 0.5.From the

above graph ,we can analyse that the ratio was favourable.It shows that the bank
are adequate cash meet can meet its current liabilities.
PROPRIETORY RATIO:
PR=Shareholders fund/total assets

Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005

Shareholders 2458247 2088716 1970701 1740089
fund
Total assets 48021638 41495371 32361597 27425788
Ratio 5.11 5.03 6.08 6.3

50000000
45000000
40000000
35000000 Particulars
30000000 Shareholders fund
25000000
20000000 Totalassets
15000000 Ratio
10000000
5000000
0

INTERPRETATION: From the above data it can be observed that

proprietory ratio has been decreasing in 2006-07&increased at decreasing rate in
2007-08.
RESERVE CAPITAL RATIO:
RCR=Reserve/capital

Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005

Reserve 1517397 1147866 1029851 799239
Capital 940850 940850 940850 940850
Ratio 1.6 1.22 1.09 0.85

1600000
1400000
1200000
Particulars
1000000
Reserve
800000
Capital
600000
Ratio
400000
200000
0

INTERPRETATION:From the above data it can be observed that Reserve

capital ratio is improving from 0.85to1.6 in 2007-08.
Return on Net Worth:
RONW=Profit After Tax(PAT)/Net Worth

Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005

PAT 761686 664830 498292 55418
Net Worth 2458247 2088716 1970701 1740089
Ratio 0.031 0.25 0.318 0.37

2500000

2000000
Particulars
1500000
PAT
1000000 Net Worth
Ratio
500000

INTERPRETATION:
The higher the ratio,it is better to shareholders.
RETURN ON ASSET RATIO:
ROAR=Profit After Tax(PAT)/Total Assets

Particulars 31.3.2008 31.3.2007 31.3.2006 31.3.2005

PAT 761686 664830 498292 55418
Total Assets 48021638 41495371 32361597 27425788
Ratio 0.015 0.016 0.015 0.0020

50000000
45000000
40000000
35000000 Particulars
30000000
PAT
25000000
20000000 Total Assets
15000000 Ratio
10000000
5000000
0

INTERPRETATION:
The higher the ratio,it is better to shareholders. The percentage
of total assets are increased&the PAT is also increased.The overall ratio is
satisfactory.
FINDINGS
--------------
The recovery position of the bank for the current financial year is improved with this
bank will get more opportunity to sanction more loans to the various sectors.How ever
loans given to other than agriculture sector is decreasing. Bank has to concentrate on this
issue also.

SUGGESTIONS.

1.Mobilise low cost deposits and improve its position.

2. Decrease the non performing assets.
3. Increase the share capital.
4. Provide timely credit to the needy persons.
5. Minimise the expenditure.
6. Liberalise the loan sanctioning procedure.
7.Reduce the time to sanction the loan.
8. Render prompt consumer service.
9. Make regular inspection of the financed sectors.
10. Take legal action on non payment of lones.
11. Take appropriate action for realization of the amounts involved under
misappropreiation.
 CONCLUSION

The main issue in the new millennium is to reorient the structure functioning and
management of the banking institutions. There should be a well conceived action
programme to provide specific guide points to banks in the areas of professionalism and
efficiency induction of modern technology. Systematic training through effective
interplay of inter cooperative relationship mobilization of resources and enhancing
participation of members in decision making process and reducing dependence Gove
assistance
The failure of certain banks in achieving their objectives cannot be looked as isolated
issue. This general tendency prevailing in the entire banking movement and particular
problems faced by banks or influencing the marketing organizations involved in the
banking movement. The highly distressing problem is mounting over dues
The raising over dues has paralyzed the entire credit structure the lake of supervision and
inability of peasants to pay back their loans are the major factors responsible for the
mounting over dues. The proper supervision of loan trained and qualified staff and
imparting banking education may be helpful in the reduction of over dues. This, apart the
loaning policy and structure should be revised in favour of small micro projects such as
diary, agriculture and poultry. The loan applications and projects should be carefully
checked by the cooperatives before the loan advancement. It is logically to point out that
banks cannot survive in the present commercial and economic world.
 An efficient dynamic and strong leadership is a must for the development of the
movement. An ideal cooperative leader should be a respectable figure in agriculture and
business community who can understand and analyze the complexities of a large scale
modern business organization.

BIBILOGRAPHY

1.www.answers.com

2.www.encyclopedia.com

3.RBI bankers journal

4.www.Investopedia.com

5.Previous projects.

6.Financial management—Khan & Jain

7.Accounting for management—Sharma & Shashi.K.Gupta.