1 INTRODUCTION

INTRODUCTION

ABOUT RATIO ANALYSIS

The ratio analysis is the most powerful tool of financial analysis. Several ratios calculated from the
accounting data can be grouped into various classes according to financial activity or function to be
evaluated.
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2 DEFINITION:

“The indicate quotient of two mathematical expressions “and as “The relationship between two or
more things. “It evaluates the financial position and performance of the firm.
As started in the beginning many diverse groups of people are interested in analyzing financial
information to indicate the operating and financial efficiency and growth of firm. These people use
ratios to determine those financial characteristics of firm in which they interested with the help of
ratios one can determine.
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 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 the sales revenue.

 The overall operating efficiency and performance of firm.

The information contained in these statements is used by management, creditors, investors and others
to form judgment about the operating performance and financial position of firm. Uses of financial
statement can get further insight about financial strength and weakness of the firm if they properly
analyze information reported in these statements. Management should be particularly interested in
knowing financial strength of the firm to make their best use and to be able to spot out financial
weaknesses of the firm to take suitable corrective actions. The further plans firm should be laid down
in new of the firm’s financial strength and weaknesses. Thus financial analysis is the starting point for
making plans before using any sophisticated forecasting and planning procedures. Understanding the
past is a prerequisite for anticipating the future.
 NEED OF THE STUDY

The prevalent educational system providing the placement training at an industry being a part of the
curriculum has helped in comparison of theoretical knowledge with practical system. It has led to note
the convergences and divergence between theory and practice.
The study enables us to have access to various facts of the organization. It helps in understanding the
needs for the importance and advantage of materials in the organization, the study also helps to
exposure our minds to the integrated materials management the various procedures, methods and
technique adopted by the organization. The study provides knowledge about how the theoretical
aspects are put in the organization in terms of described below

 To pay wages and salaries.

 For the purchase of raw materials, spares and components parts.

 To incur day-to-day expenses.

 To meet selling costs such as packing, advertising.

 To provide credit facilities to customers.

 To maintain inventories and raw materials, work-in-progress and finished stock.

 Scope of the study

The scope of the study is limited to collecting financial data published in the annual reports of the
company every year. The analysis is done to suggest the possible solutions. The study is carried out for
4 years (2006– 10).

Using the ratio analysis, firms past, present and future performance can be analyzed and this study has
been divided as short term analysis and long term analysis. The firm should generate enough profits
not only to meet the expectations of owner, but also to expansion activities.

OBJECTIVE’S OF STUDY

1. To study and analyze the financial position of the Company through ratio analysis.

2. To suggest measures for improving the financial performance of organization.

3. To analyze the profitability position of the company.

4. To assess the return on investment.

5. To analyze the asset turnover ratio.

6. To determine the solvency position of company.

7. To suggest measures for effective and efficient usage of inventory.

REVIEW OF LITERATURE

FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths and weakness of the firm. It
is done by establishing relationships between the items of financial statements viz., balance sheet and
profit and loss account. Financial analysis can be undertaken by management of the firm, viz., owners,
creditors, investors and others.

Objectives of the financial analysis

Analysis of financial statements may be made for a particular purpose in view.

1. To find out the financial stability and soundness of the business enterprise.
2. To assess and evaluate the earning capacity of the business
3. To estimate and evaluate the fixed assets, stock etc., of the concern.
4. To estimate and determine the possibilities of future growth of business.
5. To assess and evaluate the firm’s capacity and ability to repay short and long term loans

Parties interested in financial analysis

The users of financial analysis can be divided into two broad groups

Internal users.

1. Financial executives
2. Top management

External users

1. Investors
2. Creditor.
3. Workers
4. Customers
5. Government
6. Public
7. Researchers

Significance of financial analysis

Financial analysis serves the following purpose:

To know the operational efficiency of the business:

The financial analysis enables the management to find out the overall efficiency of the firm. This
will enable the management to locate the weak Spots of the business and take necessary remedial
action.

Helpful in measuring the solvency of the firm:

The financial analysis helps the decision makers in taking appropriate decisions for strengthening
the short-term as well as long-term solvency of the firm.

Comparison of past and present results:

Financial statements of the previous years can be compared and the trend regarding various
expenses, purchases, sales, gross profit and net profit can be ascertained.

Helps in measuring the profitability:

Financial statements show the gross profit, & net profit.

Inter‐firm comparison:
The financial analysis makes it easy to make inter-firm comparison. This comparison can also be
made for various time periods.
Bankruptcy and Failure:
Financial statement analysis is significant tool in predicting the bankruptcy and the failure of the
business enterprise. Financial statement analysis accomplishes this through the evaluation of the
solvency position.

Helps in forecasting:
The financial analysis will help in assessing future development by making forecasts and preparing
budgets.

METHODS OF ANALYSIS:

A financial analyst can adopt the following tools for analysis of the financial statements.
These are also termed as methods of financial analysis.
 A. Comparative statement analysis
B. Common-size statement analysis
C. Trend analysis
D. Funds flow analysis
E. Ratio analysis

NATURE OF RATIO ANALYSIS

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated
quotient of mathematical expression" and as "the relationship between two or more things". A ratio is
used as benchmark for evaluating the financial position and performance of the firm. The relationship
between two accounting figures, expressed mathematically, is known as a financial ratio. Ratio helps
to summarizes large quantities of financial data and to make qualitative judgment about the firm's
financial performance.

The persons interested in the analysis of financial statements can be grouped under three head
owners (or) investors who are desired primarily a basis for estimating earning capacity. Creditors who
are concerned primarily with Liquidity and ability to pay interest and redeem loan within a specified
period. Management is interested in evolving analytical tools that will measure costs, efficiency,
liquidity and profitability with a view to make intelligent decisions.

STANDARDS OF COMPARISON
The ratio analysis involves comparison for an useful interpretation of the financial statements.
A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared
with some standard. Standards of comparison are:

1. Past Ratios
2. Competitor's Ratios
3. Industry Ratios
4. Projected Ratios

Past Ratios: Ratios calculated from the past financial statements of the same firm.
Competitor's Ratios: Ratios of some selected firms, especially the most progressive and successful
competitor at the same point in time.
Industry Ratios: Ratios of the industry to which the firm belongs.
Projected Ratios: Ratios developed using the projected financial statements of the same firm.

TIME SERIES ANALYSIS

The easiest way to evaluate the performance of a firm is to compare its present ratios with
past ratios. When financial ratios over a period of time are compared, it is known as the time series
analysis or trend analysis. It gives an indication of the direction of change and reflects whether the
firm's financial performance has improved, deteriorated or remind constant over time.

CROSS SECTIONAL ANALYSIS

Another way to comparison is to compare ratios of one firm with some selected firms in the
industry at the same point in time. This kind of comparison is known as the cross-sectional analysis. It
is more useful to compare the firm's ratios with ratios of a few carefully selected competitors, who
have similar operations.
INDUSTRY ANALYSIS

To determine the financial conditions and performance of a firm. Its ratio may be compared
with average ratios of the industry of which the firm is a member. This type of analysis is known as
industry analysis and also it helps to ascertain the financial standing and capability of the firm & other
firms in the industry. Industry ratios are important standards in view of the fact that each industry has
its characteristics which influence the financial and operating relationships.

Research Methodology

Research Design
In view of the objects of the study listed above an exploratory research design has been adopted.
Exploratory research is one which is largely interprets and already available information and it lays
particular emphasis on analysis and interpretation of the existing and available information.

 To know the financial status of the company.

 To know the credit worthiness of the company.
 To offer suggestions based on research finding.

Data Collection Methods

Primary Data
Information collected from internal guide and finance manager. Primary data is first hand information.

Secondary Data
Company balance sheet and profit and loss account. secondary data is second hand information.

Data Collection Tools

To analyze the data acquire from the secondary sources “Ratio Analysis”The scope of the study is
defined below in terms of concepts adopted and period under focus.
First the study of Ratio Analysis is confined only to the Amarraja Batteries Limited.
Secondly the study is based on the annual reports of the company for a period of 4 years from 2006-07
to 2009-10 the reason for restricting the study to this period is due time constraint.

LIMITATIONS

 The study was limited to only four years Financial Data.

 The study is purely based on secondary data which were taken primarily from Published annual
reports of IIFL Finance Limited.
 There is no set industry standard for comparison and hence the inference is made on general
standards.
 The ratio is calculated from past financial statements and these are not indicators of future.
 The study is based on only on the past records.
 Non availability of required data to analysis the performance.
 The short span of the time provided also one of limitations.
 CHAPTER
-3
. Company Profile