TABLE OF CONTENTS Executive Summary Introduction Background of the Organization Company profile Significance of Study Concept Used in Study

Study Objectives of Study Scope of Study Research Methodology Limitations Data Analysis Findings Recommendation Conclusion Bibliography 1 2 3 4-6 7 8-33 34 35 36-37 38 39-51 52 53 54 55

EXECUTIVE SUMMARY

The analysis of the financial statement is done to attain the actual position of the organization. This information is very useful for all the related parties to the organization. It also helps to analyze the future aspect of the organization. The project basically aims to perform the Analysis of Financial Statements. The financial statements like balance sheet, income statement etc. In this project the special emphasis lies on Financial Position of organization. The research is done to know the profitability and financial position of the business. To analyze I use Analytical research design. The statistical tool used is Line Diagram and Ratio Analysis. For research the audited balance sheets are used.

INTRODUCTION OF PROJECT TOPIC Analysis of Financial Statements Financial statements provide information about the financial activities and position of a firm. In financial analysis, the data given in financial statements is classified into simple groups and a comparison of various groups is made with one another to pin-point the strong points and weaknesses of a business. For instance, if all items relating to current assets are placed in one group while all items relating to current liabilities are placed in another group, the comparison between the two groups will provide useful information. Actually the figures given in financial statements do not speak anything themselves. The analysis of these figures helps the interested reader by giving tongue to these mute heaps of figures. Important financial statements are: Balance sheet Profit & Loss statement Funds flow statement Cash flow statement It is the study of the companys financial statement from various view point. The analysis of financial statement reveals the nature of relationship between income and expenditure and the source and application of fund. The investors determine the financial position and the progress of company through analysis. Flowing type of analysis can be done for this purpose: Comparative financial statement. Trend analysis Common size statement Fund flow statement Cash flow statement Ratio analysis But for the purpose of the study, have taken the meaning of financial analysis by the following: Comparative financial statement Ratio analysis BACKGROUND OF THE ORGANIZATION

The History of Glass Making

No one knows exactly when or where glass was first made. Glass appears to have been produced as far back as the second millennium BC by the Egyptians & perhaps the Phoenicians. Yet evidently it originated in Mesopotamia, where pieces of well made glass have been found, believed to date from the third millennium BC. Glass was a lot less common back then than it is today. It was very precious, and in the Bible glass has been compared to gold. (Job 28:17) The art of glass making eventually reached Egypt. The Egyptians used a method called core-forming. A shaped core was made of clay and dung, then molten glass was wrapped around it and shaped by rolling it on a smooth surface. It was very much later, around the end of the 1st century BC, that a new method, glass blowing would revolutionise glass production. This art was probably discovered along the Eastern After the decline of the Roman Empire in the 4th & 5th centuries AD, the craft of glass making waned in Europe. The industry continued to thrive in Iran, Iraq & Egypt. In Europe, there was a limited revival of glass making in the early 12th Century, with the development of stained glass windows for cathedrals & monasteries. A flourishing glass industry did not develop in Europe until the end of the 13th Century, when Venice became a major glass making center. They may have picked up their glass making techniques through their contacts with the near East countries during the Crusades. The Venetian provided the link between the ancient & modern glass making arts. Venetian glass was noted for its brilliance & for its light, imaginative forms. So by the 15th Century, Venice had become the major producer of glassware in Europe. So highly esteemed were the Venetian glass makers, that they were forbidden to leave the Island of Murano, lest their precious trade secrets be imparted to others. However, it was to be another 2 centuries later that in 1676, an Englishman named George Ravenscroft made a discovery, that by adding lead to the glass that a far more brilliant sparkle was achieved. The Discovery of Lead Crystal The raw materials for making glass consist mainly of silica (sand). To melt the sand to make glass, the furnace has to reach a temperature of approximately 3,600F (1,982C). Because of the presence of iron in sand, glass with a greenish colour mostly results. So only sand of exceptional purity, white sand, is sought. In Ireland , this white sand is mainly sourced in the Wicklow mountains. In 1676, an Englishman named George Ravenscroft discovered that by adding lead oxide to the glass composition, a far more brilliant, sparkling glass could be produced than had ever been made before. Lead crystal has now been born. Besides the highly refractive appearance of lead crystal, this newly discovered glass was also much softer than regular glass, due to the properties of lead. This new softness made it easier to cut. The maximum lead content is 33%. However, 33% lead crystal requires a lot of skill in forming a shape at the blowing stage. So, lesser percentage lead content is often used, although the same sparkle is not achieved. Ireland though, has maintained a reputation world-wide for its skilled blowing of 33% lead crystal. COMPANY PROFILE

Duratuf Glass Industries Private Limited.

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Established in 1992 in Bhadhurgarh, near Delhi, GGI is India's leading flat and curved glass producer. DGIPL supply glass and glazing products to the automotives, security,bulletproof cars and architectural buildings both in India and Abroad under the brand name of DURATUF and DURASAFE. Duratuf Glass Industries is a Private Limited Company which is a conglomerate of four manufacturing units, One in Haryana, Two in Delhi and One in Bangalore. Mr. N.C. Gupta is the promoter and Managing Director of the company. He is a technical graduate and possesses a fine blend of techno-commercial accumenship. He is the anchor in bringing up the unit from "Nothing to something". Ever aware of the Indian and Sub Continent market, Duratuf Glass Industries (P) Ltd. Has followed a continuous program of innovation and expansion, embracing all aspects of glass processing, and specially the need of energy efficient glasses to combat the harsh climatic environment. Quality Policy / Processes Quality Assurance SPECIAL TECHNICAL COLLABORATION has lead us to the development of a range of different combination of GLASS & Polycarbonate (MARGUARD) of GE PLASTIC USA against explosive reducing potential damage from primary blasts and since these products do not splinter they eliminate secondary damage. The complete process is carried out under controlled pressure, vacuum & temperature to give homogeneous & constant quality against entire bullet resistant system. DGIPL Clients Clients VOLVO BUSES ASHOK LEYLAND TATA MOTORS TATA MARCOPOLO MAHINDRA & MAHINDRA SWARAJ MAZDA EICHER MOTORS LTD. JCBL & CERITA KINGLONG SITA SINGH & SONS ACGL SUTLEJ for MERCEDES BENZ HMM ACE CRANES JCB INDIA TEREX VECTRA LARSEN & TOUBRO TATA CRANES RUBY BUS HINDUSTAN MOTORS LTD. D.C. DESIGN

 S.T.U.S TTK PRESTIGE & MANY MORE

Duratuf Glass Industries Private Limited. 38/4, Jakhoda Village, Rohtak Road, Bahadurgarh, Haryana - 124507 (India)

CERAMIC DIVISION-I

SIGNIFICANCE OF THE STUDY

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In DGIPL, comparative study of different years Balance Sheet and Profit and Loss accounts will be helpful in determining businesss profitability and financial position in both short and long term. Even they can decide that which decision is more profitable for them. Every Businessman wants to know about their profit and losses during the year, how much capital they invested in the business, how much they are liable to pay and to whom, how much is owed to them and by whom. All this information will be attained by keeping a systematic record of each business transaction occurred during the year. To ascertain the accurate financial position of the business, a complete and systematic record of each business transaction is must. Through this the businessman can know the amount of purchases, sales, total expenses and the profit earned or loses incurred during the year. The comparative study of the different financial statements will be able to determine progress of the business and as a result it will be helpful for the businessman to take further confidence.
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financial decisions with

CONCEPT USED IN STUDY ANALYSIS OF THE FINANCIAL STATEMENTS Financial statements present a mass of complex data in absolute monetary terms and reveal little about the liquidity, solvency and profitability of the business. In financial analysis, the data given in financial statements is classified into simple groups and a comparison of various groups is made with one another to pin-point the strong points and weaknesses of a business. For instance, if all items relating to current assets are placed in one group while all items relating to current liabilities are placed in another group, the comparison between the two groups will provide useful information. Actually the figures given in financial statements do not speak anything themselves. The analysis of these figures helps the interested reader by giving tongue to these mute heaps of figures. According to Finney and Miller : Financial analysis consists in separating facts according to some definite plan, arranging them in groups according to certain circumstances and then presenting them in a convenient and easily read and understandable form. According to John N. Myres : Financial analysis is largely a study of relationships among the various financial factors in a business, as disclosed by a single set of statements and a study of the trends of these factors as shown in a series of statements. These reports are usually presented to top management as one of their basis in making business decisions. Based on these reports, management may: Continue or discontinue its main operation or part of its business. Make or purchase certain materials in the manufacture of its product. Acquire or rent/lease certain machineries and equipments in the production of its goods. Issue stocks or negotiate for a bank loan to increase its working capital. Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business. Objective of financial analysis : To know the earning capacity or profitability To make comparative study with other firms To know the trend of the business To know the efficiency of management

Financial statements:-

Financial statements (or financial reports) are formal records of a business' financial activities. These statements provide an overview of a business' profitability and financial condition in both short and long term. There are four basic financial statements: Balance sheet : also referred to as statement of financial condition, reports on a company's assets, liabilities and net equity as of a given point in time. Income statement: also referred to as Profit or loss statement, reports on a company's results of operations over a period of time. Cash flow statement: reports on a company's cash flow activities, particularly its operating, investing and financing activities. For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements Objective of financial statements:"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions." Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities and equity are directly related to an organization's financial position. Reported income and expenses are directly related to an organization's financial performance.

Financial Position The financial position of an enterprise is affected by the economic resources it controls, its financial structure, its liquidity and solvency, and its capacity to adapt to changes in the environment in which it operates. The balance sheet presents this kind of information.

Performance Performance is the ability of an enterprise to earn a profit on the resources that have been invested in it. Information about the amounts and variability of profits helps in forecasting future cash flows from the enterprise's existing resources and in forecasting potential additional cash flows from additional resources that might be invested in the enterprise.

The Framework states that information about performance is primarily provided in an income statement. Changes in Financial Position Users of financial statements seek information about the investing, financing and operating activities that an enterprise has undertaken during the reporting period. This information helps in assessing how well the enterprise is able to generate cash and cash equivalents and how it uses those cash flows. The cash flow statement provides this kind of informations. Users of financial statements: Financial statements are used by a diverse group of parties, both inside and outside a business. Generally, these users are: 1. Internal Users: are owners, managers, employees and other parties who are directly connected with a company. Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis are then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's report to its stockholders, as it form part of its Annual Report. Employees also need these reports in making Collective Bargaining Agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings.

2.

External Users: are potential investors, banks, government agencies and other parties who

are outside the business but need financial information about the business for a diverse number of reasons. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are often used by investors and is prepared by professionals (financial analysts), thus providing them with the basis in making investment decisions Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures.
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Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company. Media and the general public are also interested in financial statements for a variety of reasons

Common to all of these user groups is their interest in the ability of an enterprise to generate cash and cash equivalents and of the timing and certainty of those future cash flows. The financial statements cannot provide all the information that users may need to make economic decisions. For one thing, financial statements show the financial effects of past events and transactions, whereas the decisions that most users of financial statements have to make relate to the future. Further, financial statements provide only a limited amount of the non-financial information needed by users of financial statements. While all of the information needs of these user groups cannot be met by financial statements, there are information needs that are common to all users, and general purpose financial statements focus on meeting these needs.

AUDIT AND LEGAL IMPLICATIONS: Although the legal statutes may differ from country to country, an audit of financial statements are usually, but not exclusively required for investment, financing, and tax purposes. These are usually performed by independent accountants or auditing firms. Results of the audit are summarized in an audit report that either provides an unqualified opinion on the financial statements or qualifications as to its fairness and accuracy. The audit opinion on the financial statements is usually included in the annual report. There has been much legal debate over who an auditor is liable to. Since audit reports tend to be addressed to the current shareholders, it is commonly thought that they owe a legal duty of care to them. But this may not be the case as determined by common law precedent. In Canada, auditors are liable only to investors using a prospectus to buy shares in the primary market. In the United Kingdom, they have been held liable to potential investors when the auditor was aware of the potential investor and how they would use the information in the financial statements. Nowadays auditors tend to include in their report liability restricting language, discouraging anyone other than the addressees of their report from relying
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on it. Liability is an important issue: in the UK, for example, auditors have unlimited liability. In the United States, especially in the post-Enron era there has been substantial concern about the accuracy of financial statements. Corporate officers, the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are personally liable for attesting that financial statements "do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report". Standards and regulations Different countries have developed their own accounting principles over time, making international comparisons of companies difficult. To ensure uniformity and comparability between financial statements prepared by different companies, a set of guidelines and rules are used. Commonly referred to as Generally Accepted Accounting Principles (GAAP), these set of guidelines provide the basis in the preparation of financial statements. Recently there has been a push towards standardizing accounting rules made by the International Accounting Standards Board ("IASB"). IASB develops International Financial Reporting Standards that have been adopted by Australia, Canada and the European Union (for publicly quoted companies only), are under consideration in South Africa and other countries. The United States Federal Accounting Standards Board has made a commitment to converge the U.S. GAAP and IFRS over time. Underlying Assumptions:The Framework sets out the underlying assumptions of financial statements: Accrual Basis The effects of transactions and other events are recognized when they occur, rather than when cash or its equivalent is received or paid, and they are reported in the financial statements of the periods to which they relate. Going Concern An entity preparing financial statements is presumed to be a going concern. If management has significant concerns about the entity's ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case there is required a series of disclosures. Qualitative Characteristics of Financial Statements These characteristics are the attributes that make the information in financial statements useful to investors, creditors, and others. The Framework identifies four principal qualitative characteristics:
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Understandability Relevance Reliability Comparability

Understandability Information should be presented in a way that is readily understandable by users who have a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently.

Relevance Information in financial statements is relevant when it influences the economic decisions of users. It can do that both by (a) helping them evaluate past, present, or future events relating to an enterprise (b) confirming or correcting past evaluations they have made. Materiality is a component of relevance. Information is material if its omission or misstatement could influence the economic decisions of users. Timeliness is another component of relevance. To be useful, information must be provided to users within the time period in which it is most likely to bear on their decisions. Reliability Information in financial statements is reliable if it is free from material error and bias and can be depended upon by users to represent events and transactions faithfully. Information is not reliable when it is purposely designed to influence users' decisions in a particular direction. Reliability is affected by the use of estimates and by uncertainties associated with items recognized and measured in financial statements. These uncertainties are dealt with, in part, by disclosure and, in part, by exercising prudence in preparing financial statements. Prudence is the inclusion of a degree of caution in the exercise of the judgments needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, prudence can only be exercised within the context of the other qualitative characteristics in the Framework, particularly relevance and the faithful representation of transactions in financial statements. Prudence does not justify deliberate overstatement of liabilities or expenses or

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deliberate understatement of assets or income, because the financial statements would not be neutral and, therefore, not have the quality of reliability. Comparability Users must be able to compare the financial statements of an enterprise over time so that they can identify trends in its financial position and performance. Users must also be able to compare the financial statements of different enterprises. Disclosure of accounting policies is essential for comparability. THE ELEMENTS OF FINANCIAL STATEMENTS Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements. The elements directly related to financial position (balance sheet) are: Assets :- An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. Liabilities :- A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. Equity :- Equity is the residual interest in the assets of the enterprise after deducting all its liabilities. The elements directly related to performance (income statement) are: Income :- Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Expenses :- Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or increase of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities of an enterprise. Gains represent increases in economic benefits and as such are no different in nature from revenue. The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the enterprise. Expenses that arise in the course of the ordinary activities of the enterprise include, for example, cost of sales, wages and depreciation. They usually take the form of
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an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment. Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the enterprise. Losses represent decreases in economic benefits and as such they are no different in nature from other expenses. . BALANCE SHEET An entity must normally present a classified balance sheet, separating current and non current assets and liabilities. Only if a presentation based on liquidity provides information that is reliable and more relevant may the current/non current split be omitted. In either case, if an asset (liability) category commingles amounts that will be received (settled) after 12 months with assets (liabilities) that will be received (settled) within 12 months, note disclosure is required that separates the longer-term amounts from the 12-month amounts. Current assets are cash; cash equivalent; assets held for collection, sale, or consumption within the enterprise's normal operating cycle; or assets held for trading within the next 12 months. All other assets are non current. Current liabilities are those to be settled within the enterprise's normal operating cycle or due within 12 months, or those held for trading, or those for which the entity does not have an unconditional right to defer payment beyond 12 months. Other liabilities are non current. Long-term debt expected to be refinanced under an existing loan facility is non current, even if due within 12 months. If a liability has become payable on demand because an entity has breached an undertaking under a long-term loan agreement on or before the balance sheet date, the liability is current, even if the lender has agreed, after the balance sheet date and before the authorization of the financial statements for issue, not to demand payment as a consequence of the breach. However, the liability is classified as noncurrent if the lender agreed by the balance sheet date to provide a period of grace ending at least 12 months after the balance sheet date, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment.

Minimum items on the face of the balance sheet:15

(a) property, plant and equipment; (b) investment property; (c) intangible assets; (d) financial assets (excluding amounts shown under (e), (h) and (i)); (e) investments accounted for using the equity method; (f) biological assets; (g) inventories; (h) trade and other receivables; (i) cash and cash equivalents; (j) trade and other payables; (k) provisions; (l) financial liabilities (excluding amounts shown under (j) and (k)); (m) liabilities and assets for current tax, (n) deferred tax liabilities and deferred tax assets, (o) minority interest, presented within equity; and (p) issued capital and reserves attributable to equity holders of the parent. Additional line items may be needed to fairly present the entity's financial position. Assets can be presented current then non current, or vice versa, and liabilities and equity can be presented current then non current then equity, or vice versa. A net asset presentation (assets minus liabilities) is allowed. The long-term financing:Fixed assets + Current assets - Short term payables = Long-term debt + Equity

INCOME STATEMENT All items of income and expense recognized in a period must be included in profit or loss unless a Standard or an Interpretation requires otherwise.
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Minimum items on the face of the income statement should include: (a) revenue; (b) finance costs; (c) share of the profit or loss of associates and joint ventures accounted for using the equity method; (d) a single amount comprising the total of (i) the post-tax profit or loss of discontinued operations and (ii) the post-tax gain or loss recognized on the disposal of the assets or disposal group(s) constituting the discontinued operation; and; (e) Tax expense; and (f) Profit or loss. The following items must also be disclosed on the face of the income statement as allocations of profit or loss for the period: (a) Profit or loss attributable to minority interest; and (b) Profit or loss attributable to equity holders of the parent. Additional line items may be needed to fairly present the enterprise's results of operations. No items may be presented on the face of the income statement or in the notes as "extraordinary items. Certain items must be disclosed either on the face of the income statement or in the notes, if material, including: (a) Write-downs of inventories to net realizable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs; (b) Restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring; (c) Disposals of items of property, plant and equipment; (d) Disposals of investments; (e) Discontinuing operations; (f) Litigation settlements; and (g) Other reversals of provisions. Expenses should be analyzed either by nature (raw materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc.) either on the face of the income statement or in the notes. CASH FLOW STATEMENTS

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In financial accounting, a cash flow statement is a financial statement that shows a company's incoming and outgoing money during a time period (often monthly or quarterly). The statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing, and financing activities. As an analytical tool the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard & is the International Accounting Standard that deals with cash flow statements. People and groups interested in cash flow statements include: Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses Potential lenders or creditors, who want a clear picture of a company's ability to repay Potential investors, who need to judge whether the company is financially sound Potential employees or contractors, who need to know whether the company will be able to afford compensation Objective of cash management 1 2 To make short-term forecasts about cash inflows and outflows of the firm. To find profitable avenues for investing surplus cash, arranging finance in case of cash deficit.

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INTRODUCTION TO RATIO ANALYSIS The RA has emerged as a principal technique of the AFS. A ratio is the relationship expressed in mathematical term between two individual and group of figures connected with each other in some logical manner. The RA is based on the premise that a single accounting figure by itself may not communicate any meaningful information but when expressed as a relative to some other figure, it may definitely give some significant information. The relationship between 2 or more accounting figures/groups is called a Financial Ratio. A Financial Ratio helps to summarize a large mass of financial data into a concise form & to make meaningful interpretations & conclusions about the performance & position of the firm. STEP IN RATIO ANALYSIS The RA requires two steps as follows: (i) (ii) Calculations of the Ratios. Comparing the ratios with some predetermined standards. The standard ratio may be the last ratio of the same firm or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standards. USE OF RATIO ANALYSIS Helpful in analysis of financial statement. Simplification of accounting data. Helpful in comparative study. Helpful in locating the weak spots of the business. Helpful in forecasting. Estimate about the trend of the business. Fixation of ideal standards. Effective control. Study of financial soundness.

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CLASSIFICATION OF RATIOS Broadly speaking, the operations and financial positions of the firms can be described by studying its profitability, its long term and short-term liquidity position and its operational activities. Therefore the ratios can be studied by classifying into the following groups: The Liquidity Ratios The Activity Ratios The Leverage Ratios The Profitability Ratios

The Liquidity Ratios: The term Liquidity refers to the maintenance of cash, bank balance and those assets which are easily convertible into cash in order to meet the liabilities as and when arising. The terms Liquidity ratios study the firms short-term solvency and its ability to pay off the liabilities. The day-to-day problems of financial management consist of the highly important task of finding sufficient cash to meet current obligations. The short-term liquidity risk arises primarily from the need to finance current operations. The liquidity ratios provide a quick measure of liquidity of the firm by establishing the relationship between its current assets and current liquidities. If the firm does not have sufficient liquidity, it may not be in a position to meet its commitments and thereby may lose its credit worthiness. A) CURRENT RATIO: - It is the most common & popular measure of studying the liquidity of a firm. It is an indicator of the firms ability to meet its short-term obligations. It matches the total current assets of the firm against its current liabilities. It s calculated as follows: CURRENT RATIO = Current Assets / Current Liabilities The Current Assets include those assets, which are in the form of cash or convertible into cash within a period of one year. SIGNIFICANCE The Current Ratio shows the extent to which the current assets are quickly convertible in to cash exceeds the liabilities that will be shortly payable. The current ratio, so calculated is compared with a standard ratio. Generally, a current ratio of 2:1 is considered to be satisfactory. A higher ratio indicates poor investment policies of the management & poor inventory control while a low ratio indicates lack of liquidity & shortage of working capital.

B.)

QUICK RATIO: 20

It is also called Acid test or Liquid Ratio. Quick Ratio is worked out to test the short-term liquidity of the firm in its current form. This ratio establishes the relationship between liquid Current Assets & the Current liabilities. A currents asset is considered to be liquid if it is convertible into cash without loss of time & value. On the basis of this definition of liquid assets, the inventory is singled out of total Current Assets as the inventory is considered to be potentially liquid. The reason for keeping inventories out is that it may become obsolete, unsaleable or out of fashion & always require time for releasing into cash. QUICK RATIO = Liquid Assets / Current Liabilities SIGNIFICANCE: Quick ratio is an indicator of short-term solvency of the firm. In fact, it is a better indicator of liquidity as it involves computation of Liquid Assets, which means the illiquid portion of the current assets is eliminated. Quick ratio is considered as a further refinement of current ratio. Generally a quick ratio of 1:1 is considered to be satisfactory because this means that the Quick Assets of the firm are just equal to the current liabilities & there does not seem to be a possibility of default in payment by the firm.

THE ACTIVITY RATIOS

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The activity ratios are also called the Turnover Ratios or Performance Ratios. An activity ratio is a measure of movement & thus indicates as to how frequently an account has moved/turned over during a period. It shows as to how efficiently & effectively the assets of the firm are being utilized. These Ratios are usually calculated with reference to sales/cost of goods sold & are expressed in terms of rate or times. Activity ratios for each type of assets are calculated separately. Following are the important Activities Ratios. A) Capital Turnover Ratio (CTR): - Capital Turnover indicates the speed or rate with which Capital Employed is rotated in the process of doing business. Efficient Rotation of capital would lead to higher profitability. The Resultant Ratio would show the number of times the capital has been rotated in the process of doing business. The Ratio is calculated as follows: Capital Turnover Ratio = Net sales / Capital Employed CTR establishes the relationship between sales & capital employed. The objective of working out this ratio is to determine how efficiently the Capital Employed is being used. Higher the ratio, greater is the sales made per rupee of Capital Employed in the firm & hence higher is the profit. A low CTR refers to low sales generated in relation to Capital Employed or excessive Capital being used in the firm. B) Fixed Assets Turnover Ratio: - This Ratio shows how to well the fixed assets are being utilized. If compared with a previous period, it indicates whether the investment in fixed assets has been judicious or not. The Ratio is calculated as follows: Fixed Assets Turnover Ratio = Net sales / Fixed Assets In computing Fixed Assets Turnover Ratio, the fixed assets are generally taken at written down value at the end of the year. Fixed Assets Turnover Ratio indicates how efficiently the fixed assets are used. If there is an increase in the ratio, it will indicate that there is improvement in the utilization of fixed assets. If there is a fall in the ratio, it is a case for the management to investigate the fall; if fixed assets remain idle for any reason, the Turnover Ratio will decrease.

C)

Net Working Capital Turnover Ratio: - This Ratio indicates the number of times a unit invested in working capital produces sale. In other words, this ratio indicates the efficiency in the utilization of short-term funds in making the sales. Net working capital means excess of

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current assets over current liabilities careful handling of short-term funds will mean a reduction in the amount of capital employed thereby improving turnover. The Ratio is calculated as follows: The Ratio is calculated as follows: NWC Turnover Ratio = Net sales / Net Working Capital SIGNIFICANCE This ratio indicates whether or not Working Capital has been effectively utilized in making sales. It shows the number of times a unit invested in a working capital produces sale. D) Stock Turnover Ratio or Inventory Turnover Ratio:- This ratio establishes the relationship between the cost of goods sold during a given period & the average amount of inventory carried during that period. It indicates whether stock has been efficiently utilized or not, the purpose being to check whether only the required minimum has been locked up in stocks. The Ratio is calculated as follows: Stock Turnover Ratio = Cost of goods sold / Average Stock or Inventory Cost Of Goods Sold = Opening Stock + Purchases + Direct Expenses Closing Stock. SIGNIFICANCE Stock turnover Ratio indicates whether stock has been efficiently used or not. The purpose of this ratio is to check whether only the required minimum amount has been invested in stock. Higher the ratio, better it is, since it indicates that more sales are being produced by a rupee of investment in stocks. A low Stock turnover may reflect a dull business, over investment in stocks, accumulation of stock at the end of the period in anticipation of higher prices or unsaleable goods etc.

E)

Debtors Turnover Ratio or Accounts Receivable Turnover Ratio: - In case the firm sells the goods on credit, the realization of sales revenue is delayed & the receivables (Debtors &/or Bills) are credited. The cash is realized from these receivables at a later stage. The speed with which these receivable are collected affects the liquidity position of the firm. The receivable

23

turnover ratio revels the velocity of receivable collection by matching the annual credit sales to the average receivables as follows: Receivable Turnover Ratio = Annual net Credit Sale / Average Receivables In case details regarding opening & closing Receivables & credit sales are not given, the ratio may be worked out as follows: Debtors Turnover Ratio = Total Sales / Account Receivables SIGNIFICANCE Debtors turnover ratio indicates the efficiency with which the amounts due from debtors are collected. The higher the ratio, the better it is, since it would indicate that debts are being collected more quickly. Prompt collection of book debts will release funds, which may then be put to some other use. F) Average Collection Period or Debtors Day: - This ratio shows the number of days, for which sales remain uncollected. The Ratio is calculated as follows: Average Collection Period = Days in a year / Debtors Turnover SIGNIFICANCE Debt collection period do the customer enjoy a measure of the average credit period? It indicates the average time leg between sales & collection thereof. A shorter collection period indicates prompt payment by debtors, which reduces the chances of bed debts. A longer collection period indicates the risk of collection of debts & increase in the cost of collection, also loss of interest on the money due from the debtors.

G)

Creditors Turnover Ratio or Accounts Payable Ratio: - This ratio indicates the velocity with which payment for credit purchases are made to creditors. The term Accounts Payable includes Creditors & Bills Payable.

The Ratio is calculated as follows: Creditors Turnover Ratio = Total Credit Purchase / Average Accounts Payable In case the details regarding the credit Purchases, opening & closing accounts payable are not given, the ratio may be worked out as follows:
24

Creditors Turnover Ratio = Total Purchase / Accounts Payable SIGNIFICANCE Creditors turnover ratio indicates whether the firm is actually enjoying the credit promised by suppliers. If the firm enjoy lower credit period, it means creditors are being promptly & the firm is not taking the full advantage of credit facilities. H) Average Payment Period or Age of Purchases or Credit Enjoyed (APP) : - The Purpose of computing average payment period is to indicate the speeds with which the payments for credit purchases are made to creditors. The Ratio is calculated as follows: Average Payment Period = Days in a Year/Creditors Turnover

SIGNIFICANCE: The Average payment period can be meaningfully evaluated by comparing it with the credit period allowed by the suppliers. To the extent possible, a firm should try to maintain the APP, which I approximately equal to the credit terms of the supplier. This will help improving the goodwill & credit worthiness of the firm in the market. The suppliers are primarily concerned with APP since it provides with an idea of the payment pattern of the firm. On the other hand, if a firm is unable to maintain the APP as required by the supplier, it indicates that the facilities given by the creditors are not being fully utilized or that the firm is unnecessarily damaging its credit in the market.

THE LEVERAGE RATIOS The leverage ratios are also called as Solvency Ratios. The term Solvency implies ability of a concern to meet its long-term indebtedness. Some important solvency ratios are: A) Debt Equity Ratio (DE Ratio): - The DE Ratio is worked out to ascertain soundness of the long-term financial policies of the firm. The DE Ratio is based on the assumption that the extent to which a firm should employ the debt should be viewed in terms of the size of the cushion provided by the shareholders funds.
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The Ratio is calculated as follows: DE Ratio = Debt (Long Term Loans)/Equity (Shareholders Funds) Debt means long term loans i.e. debentures, loan from long-term financial institution. Equity means shareholders i.e. preference share capital, equity share capital, reserves; Accumulated profits less losses & fictitious assets like preliminary expenses. SIGNIFICANCE: Since the debt involves firms commitment to pay interest over the long run & eventually to repay the principal amount, the financial analyst, the debt lender, the preference shareholders, the equity shareholders & the management pay close attention to the degree of indebtedness & capacity of the firm to serve the debts. The more the debt a firm uses, the higher is the probability that the firm may be unable to fulfill its commitments towards its debt lender. The DE Ratio throws light on the margin of safety available to the debt lenders of the firm. If a firm with a high DE Ratio fails then a chunk of the financial loss may have to be borne by the debt holder of the firm. The greater the DE Ratio, higher would be the risk of lenders. Also the term of credit will become unfavorable to the firm. On the other hand a low DE Ratio implies a low risk to lenders & creditors of the firm. A question that now arises is that what should be the ideal DE Ratio. The answer to the above question is that a balance between the proportions of debt equity should be maintained so as to take care of the interest of lenders, shareholders & the firm as a whole. In India, this ratio is taken as acceptable as 2:1. If the DE Ratio is more than that, it shows a rather risky financial position from long-term point of view. However, 1:1 is considered as the ideal DE Ratio. B) Interest Coverage Ratio: When a business borrows money, the lender is interested in finding out whether the business would earn sufficient profits to pay periodically the interest charges. A ratio, which expresses this, is called Interest Coverage Ratio or Debt Service Ratio or Fixed Charges Cover. The Ratio is calculated as follows: Interest Coverage Ratio = Net Profit Before Interest & Tax Interest on Fixed (Long Term) Loans or Debentures SIGNIFICANCE: This ratio indicates how many times the profit covers fixed interest. It measures margin of safety for the lenders. If profit just equals interest, it is a bad position for the company as nothing will be left for
26

shareholders & lenders. Higher the ratio, more secure will be the lender in respect of his periodical interest income.
C)

Total Debt Ratio: The total Debt Ratio compares the total Debts (Long Term as well as Short Term) with the total assets.

The Ratio is calculated as follows: Total Debt Ratio = Total Debts / Total Assets OR

Total Debt Ratio = (Long Term Debts + Current Liabilities) (Total Debts + Net Worth) SIGNIFICANCE: The total debt ratio depicts the proportion of total assets financed by the total liabilities. The remaining assets are financed by the shareholders funds. Higher the total debt ratio, the more risky is the solution because all liabilities are to be repaid sooner or later. Moreover, higher liabilities imply greater financial risk also.

D). Fixed Assets Ratio: It must be known that fixed assets should be financed only out of long-term funds. The ratio will be 1, if long-term funds are equal to fixed assets. If the ratio is less than 1, it means that the firm has adopted the imprudent policy of using short-term funds for acquiring fixed assets; on the other hand, a very high ratio would indicate that long-term funds are being used for short-term purposes i.e. for financing working capital. It is not good from the firms point of view because it is usually more difficult to raise long-term funds. The Ratio is calculated as follows: Fixed Assets Ratio = Net Fixed Assets Shareholders fund + Long Term Loans SIGNIFICANCE: This ratio is important to ascertain the proper investments of funds from the point o view of longterm financial soundness. It indicates as to what extent fixed assets are financed out of long term funds. This ratio should normally be more then 1. If it is less than 1, it means that the firm has followed the wrong policy of using short-term funds for long term needs.

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E.) Proprietary Ratio: This ratio establishes the relationship between the proprietors & shareholders funds & the total assets. It is expressed as: Proprietary Ratio = Proprietors funds or Shareholders / Total Assets SIGNIFICANCE: The ratio is of particular importance to the creditors who can find out the proportion of shareholders funds in the total assets employed in the business. A high proprietary ratio will indicate a relatively little danger to creditors etc., in the event of forced reorganization or winding up of the company. A low proprietary ratio indicates greater risk to the creditors since in the event of loss a part of their money may be lost besides loss to the proprietors of the business. A ratio below 50% may be alarming for the creditors since they may have to lose heavily in the event of companys liquidation on the account of heavy losses.

THE PROFITABILITY RATIOS The Profitability Ratios measures the profitability or the operational efficiency of the firm. There are two groups of persons who may be specifically interested in the analysis of the profitability of the firm. These are: The management, which is interested in the overall profitability & operational efficiency of the firm. The equity shareholders who are interested in the ultimate returns available to them. Both of these parties and any other party such as creditors can measure the profitability of the firm in terms of the profitability ratios, broadly, the profitability ratios are calculated by relating the returns with the:
A)

Sales of the firm Assets of the firm Owners contribution Profitability Ratios Based On Sales Of The Firm: -Profit is a factor of sales & is earned indirectly as a part of the sales revenue. So, whenever a firm makes sale, it earns profit (in
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general). But How Much? How the Total Sales Revenue is going to be used for meeting the cost o goods sold, deprecation, indirect expenses, tax liability & return to shareholders etc. The profitability ratios based on sales can be further divided into:

PROFIT MARGIN RATIOS The profit margin refers to the profit contributed by per rupee of sales revenue & therefore, the

profit margin ratios measure the relationship between the profit & the sales. Different profit margin ratios have been suggested as follows:
1)

Gross Profit Ratios (GP Ratio): The GP ratio is calculated by comparing GP of the firm with the net sales as follows: Gross Profit Ratio = (Gross Profit / Net Sales)*100

SIGNIFICANCE: GP Ratio is a reliable guide to the adequacy of selling prices & efficiency of trading activities. This ratio should be adequate to cover the Administrative & Marketing expenses & to provide for fixed charges, dividends & building up of reserves. Higher the GP Ratio, the better it is. When GP Ratio is studied as a time series, it may give the increasing or decreasing trend & hence an idea of the level of operating efficiency of the firm. For a single year, the GP Ratio may not indicate much about the efficiency level of the firm. 2) Net Profit Ratio (NP Ratio):- The NP Ratio establishes the relationship between the net profit Net Profit Ratio = {Profit (after tax) / Net Sales}*100 The NP Ratio measures the efficiency of the management in generating additional revenue over & above the total cost of operations; the NP Ratio shows the overall efficiency in Manufacturing, Administrative, Selling & distributing the product. SIGNIFICANCE: The NP Ratio is worked out to determine the overall efficiency of the business. Higher the NP Ratio, the better the business. An increase in the ratio over the previous period shows improvement in the operational efficiency. 3) Operating Profit Ratio (OP Ratio):- The operating profit refers to the pure operating profit of (after tax) of the firm & the net sales & may be calculated as follows:

the firm i.e. the profit generated by the operation of the firm & hence is calculated before considering any financial charge (such as interest payment), non operating income / loss & tax liabilities etc. The Ratio is calculated as follows: OP Ratio = (Operating Profit / Net Sales)*100 SIGNIFICANCE:

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The OP Ratio shows the percentage of pure profit earned on every 1rupee of sales made. The OP Ratio will be less than the GP Ratio as the indirect expenses such as general & administrative expenses; selling expenses & depreciation charge etc. are deducted from the GP to arrive at the operating profits. 1. Operating Ratio:-This ratio measures the extent of cost incurred for making the sale. The Ratio is calculated as follows: Operating Ratio = (Cost of Goods Sold + Operating Expenses / Net Sales)*100 Operating Ratio plus net profit ratio is 100 i.e. the two ratios are interrelated. SIGNIFICANCE: Operating ratio is the test of operational efficiency of the business. It shows the percentage of sales that is absorbed by the cost of sales & operating expenses, lower the operating ratio, the better it is, because it would leave higher margin to meet interest, dividend etc. thus, operating ratio helps us to determine whether the cost content has increased or decreased in the figure of sales & also helps us to determine which element of the cost has gone up or down.

PROFITABILITY RATIOS BASED ON INVESTMENTS / ASSETS. The profitability of the firm can be analyzed with reference to assets employed to earn a return. It

can also be analyzed with reference to profit earned per rupee of investment made in the firm. There are two important profitability ratios based on assets / investment of the firm. 1. Return on Assets: - The ROA measures the profitability of the firm in terms of assets employed

in the firm. The ROA is calculated by establishing the relationship between the profits & the assets employed to earn the profits. The Ratio is calculated as follows: ROA = (Net Profit after Tax / Total Assets)*100 The ROA shows as to how much is the profit earned by the firm per rupee of assets used. SIGNIFICANCE: The ROA measures the overall efficiency of the management in generating profits, given a given level of assets at its disposal. The ROA essentially relates the profit to the size of the firm (which is measured in terms of the assets). If a firm increases its size but is unable to increase its profits proportionately, then the ROA will decrease. In such a case increasing the size of assets i.e. the size of the firm will not by itself advance the financial welfare of the owners.

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2.

Return on Capital or Return on Investment (ROI): - The sources used by the business consist

of both proprietors (shareholders) funds and loans. The overall performance can be judged by working out a ratio between profit earned and capital employed. The resultant ratio usually expressed as a percentage is called ROI. The purpose is to ascertain how much income the use of Rs.100 of capital generates. The Ratio is calculated as follows: ROI = (Profit Before interest Tax and dividend / Capital Employed)*100 SIGNIFICANCE: ROI judges the overall performance of the concern. It measures how efficiently the sources entrusted to the business are being used. In other words what is the earning power of the net assets of the business? The ROI is a fair measure of the profitability of any concern with the result that even the results of dissimilar industries may be compared.

PROFITABILITY ANALYSIS FROM THE POINT OF VIEW OF OWNERS.

Ultimately the profit of the firm belongs to the owners who have invested their funds in the form of equity share capital or preference share capital or retained earnings. Therefore, the profits of the firm should be analyzed from the point of view of the owners. As a matter of fact, the net profit after tax belongs to the shareholders. The profitability of the firm can be analyzed from the point of view of owners funds in different prospective as follows:
1)

Return on equity (ROE): The ROE examines profitability from the perspective of the equity investors by relating profit available for the equity shareholders with the book value of equity investment. The Ratio is calculated as follows: -

ROE = {(Net Profit Preference dividend) / Equity Shareholders Fund}*100 SIGNIFICANCE: The ROE relates the profit available to equity shareholders. This ratio is used to compare the performance of the companys equity capital with that of other companies, which are alike in equity. The investor will favor the company with higher ROE.
2)

Earnings per Share (EPS): - The profitability of the firm can also be measured in terms of number of equity shares. This is known as EPS and is calculated as follows: EPS = (Net Profit Preference dividend) / No. Of Equity Share

31

The EPS calculation in a time series analysis indicates whether the firms EPS is increasing or decreasing. SIGNIFICANCE: The more the earning per share better are the performance and the prospects profit of the company.

3)

Dividend Per Share (DPS): Sometimes the equity shareholders may not be interested in the EPS but in the return which they are actually receiving from the firm in the form of dividends. The amount of profit distributed to shareholders per share is known as DPS and is calculated as follows: DPS = (Total Profit Distributed) / No. Of Equity Share

4)

Dividend Payout Ratio (DP Ratio): The DP Ratio is the ratio between the DPS and EPS of the firm i.e. it refers to the proportion to the EPS which has been distributed by the company as dividends. OBJECTIVE OF THE STUDY

1. To make the comparative study of the financial statements of the business. 2. To know the earning capacity or profitability of the business. 3. To know financial position of the business. 4. To know the trend of the business.

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SCOPE OF THE STUDY DGIPL is trying to expand its business. They are improving the cost competitiveness without sacrificing the quality of their products. They are planning to achieve continued improvements in quality and reliability to increase the market share. They are also focusing on customer's needs and develop products and services that meet and exceed their expectations. They are capable of executing challenging assignments.

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RESEARCH METHODOLOGY RESEARCH Research in a common parlance refers to search for knowledge. Research is a original contribution to the existing stock of knowledge making for its advancement. It is the pursuit of truth with the help of my study, observation, comparison and experiment. RESEARCH METHODOLOGY Research Methodology is a systematically way of solving the research problem. There are various steps that are generally adopted in studying the research problem along with logic behind them. The methods that are used in performing research operations are the research methods. The object of the research, particularly the applied research, is to arrive at a solution for a given problem, the available data and the unknown aspects of the problem have to be related to each other to make a solution possible. Decision making is not a part of research, but research certainly facilitates the decision For Example, an architect, who designs a building, has to consciously evaluate the basis of his decisions i.e.; he has to evaluate why and what basis he selects particular size, number and location of doors, windows and ventilators, uses particular material and not others and the like. Similarly, in research the scientist has to expose the research decisions to evaluations before they are implemented. He has to specify very clearly and precisely what decisions he selects and why he selects them so that they can be evaluated by others also.

RESEARCH DESIGN

34

Research design is a plan that specifies the data sources from which data is to be collected and the type of information that is relevant for the research problem. The research approach selected by me was descriptive cum exploratory as this is best suited to know the financial position of the business. Universe and Survey Population:For my report, I consider the different years balance sheet and profit and loss account of the organization to know the profitability and financial position of the business. Sample: We take the last three year balance sheet and profit and loss account as sample. The aim of the present study is know the financial position of the business. This study is based on the information collected from already existing data. Data collection: Collection of data is very important for research because if data is inadequate then we cannot get the good result of our research problem. In this context I used the secondary data. In Brief: Research Design Data Source of Data Statistical Tools ::::Analytical Secondary Audited Balance Sheets Line Diagram and Ratio Analysis

LIMITATIONS 1. Some figures have not been disclosed by the organization. 2. They are hesitating in telling some secret points which they consider while maintaining their accounts.
35

3. The time given for the study of the financial statements was not appropriate to know the detail of each transaction without which proper judgment about the performance is not possible. 4. Research may cause some errors in the administering of the research due to the lack of experience. 5. This report is prepared mostly with the help of secondary data.

DATA ANALYSIS While doing the research work, it is often found that the data which we are having are inadequate and unsuitable and hence it become necessary to collect data, modify it and get required results. There are different ways for analyzing the data. One way to analyze the data is ratio analysis. A ratio is simply one number expressed in terms of another. The ratio analysis involves comparison for a useful interpretation of financial statements. A single ratio in itself does not indicate favorable or unfavorable position. It should be compared with that of past ratios of some organization. Financial statement i.e. profit & loss account and balance sheet prepared at the end of the year do not always convey the real profitability and financial health of the business. Ratio analysis discloses the position of business with different viewpoints.

36

Ratios may be classified into following catagories: 1. Profitability ratio. 2. Liquidity ratio. 3. Activity ratio. 4. Solvency ratio.

37

PROFITABILITY RATIOS Gross Profit Ratio:Particulars Gross profit Sales ANALYSIS:Gross Profit Ratio = Gross Profit / Sales * 100 In 2007 In 2008 In 2009 = 4,96,682 / 26,07,459 * 100 = 19.05% = 9,50,784 / 55,50,920 * 100 = 17.12% = 11,78,008 / 78,66,787 * 100 = 14.97 % 2007 4,96,682.00 26,07,459.00 2008 9,50,784.00 55,50,920.00 2009 11,78,008.00 78,66,787.00

INTERPRETATION:In spite of increase in gross profit and sales in absolute terms over three years, their gross profit ratio shows a declining trend over these years i.e. from 19.05% in 2007 to 14.97% in 2009. The reason for the fall in gross profit ratio may be that they had reduced the sale price of their products to increase the sales.

Net Profit Ratio:Particulars Net profit Sales ANALYSIS:Net Profit Ratio = Net Profit / Sales * 100 In 2007 In 2008 In 2009 = 92,367 / 26,07,459 * 100 = 3.54% = 92,367 / 55,50,920 * 100 = 2.63% = 2,08,479 / 78,66,787 * 100 = 2.65 % 2007 92,367.00 26,07,459.00 2008 92,367.00 55,50,920.00 2009 2,08,479.00 78,66,787.00

INTERPRETATION:-

38

In spite of increase in the net profit and sales in absolute terms in over three years, the net profit ratio shows a declining trend from 3.54% in 2007 to 2.63% in 2008. But after that is start increasing. The reason for the fall was due to the decline in the gross profit ratio.

Operating Ratio:Particulars COGS Operating Expenses Sales ANALYSIS :Operating Expenses Ratio = Cost of Goods Sold + Operating Expenses / Sales * 100 In 2007 = 21,31,77.00 + 4,04,317.00 / 26,07,459.00 * 100 = 97.27% In 2008 = 48,26,636.00 + 8,04,716.00 / 55,50,920.00 * 100 = 101.44% In 2009 = 66,88,779.00 + 9,69,530.00 / 78,66,787.00 * 100 = 97% 2007 21,31,77.00 4,04,317.00 26,07,459.00 2008 48,26,636.00 8,04,716.00 55,50,920.00 2009 66,88,779.00 9,69,530.00 78,66,787.00

INTERPRETATION:With the increase in sales, the cost of goods sold also start increasing thats why the operating ratio also increase from 97.27% in 2007 to 101.44% in 2007 but after that it start declining from 101.44% in 2007 to 97% in 2008. This ratio indicates the extent of sales that is absorbed by the cost of goods sold and operating expenses.

Return on Capital Employed:Particulars Net profit Capital Employed ANALYSIS :Return on Capital Employed = Net profit / Capital Employed * 100 In 2007 = 92,367.00 / 11,36,458.00 * 100 = 8.12%
39

2007 92,367.00 11,36,458.00

2008 1,46,068.00 9,19,714.00

2009 2,08,479.00 8,39,928.00

In 2008 In 2009

1,46,068.00 / 9,19,714.00 * 100 = 15.88%

= 2,08,479.00 / 8,39,928.00 * 100 = 24.00%

INTERPRETATION:The return on capital employed is increasing from 8.12% in 2007 to 24% in 2009. It indicates that capital employed is being used efficiently.

LIQUIDITY RATIOS Current Ratio:Particulars Current Assets Current liabilities ANALYSIS:Current Ratio = Current Assets / Current liabilities In 2007 In 2008 In 2009 = 18,18,364.00 / 6,57,839.00 = 2.76 times = 15,78,320.00 / 10,91,225.00 = 1.44 times = 18.05,511.00 / 14,66,130.00 = 1.23 times 2007 18,18,364.00 6,57,839.00 2008 15,78,320.00 10,91,225.00 2009 18.05,511.00 14,66,130.00

INTERPRETATION:Current ratio has been declining from 2.76 in 2007 to 1.23 in 2009. Since the ratio has gone below its ideal standard of 2, their capacity to meet its short-term liabilities is not satisfactory. This is because increase in the current assets is also being followed by increase in the current liabilities. Their Short term financial position is not satisfactory.

Quick Ratio:Particulars Quick Assets Current liabilities 2007 7,00,964.00 6,57,839.00 2008 6,65,720.00 10,91,225.00
40

2009 13,91,511.00 14,66,130.00

ANALYSIS:Quick Ratio = Quick Assets / Current liabilities In 2007 In 2008 In 2009 = 7,00,964.00 / 6,57,839.00 = 1.06 times = 6,65,720.00 / 10,91,225.00 = 0.61 times = 13,91,511.00 / 14,66,130.00 = 0.94 times

INTERPRETATION:Quick ratio has been declining from 1.06 in 2007 to 0.61 in 2008 and then again it starts increasing from 0.61 in 2009 to 0.94 in 2009 but the ratio has below its ideal standard of 1, their capacity to meet its short-term liabilities is not satisfactory. It is satisfactory in the first year but it come down in second year. And in the third year it is nearer to the ideal norm of 1:1

ACTIVITY RATIOS Inventory Turnover Ratio:Particulars COGS Average Stock ANALYSIS:Inventory Turnover Ratio = Cost of Goods Sold / Average Stock In 2007 In 2008 In 2009 = 21,31,77.00 / 6,83,600.00 = 3.118 times = 48,26,636.00 / 10,12,500.00 = 4.76 times = 66,88,779.00 / 6,63,300.00 = 10.08 times 2007 21,31,77.00 6,83,600.00 2008 48,26,636.00 10,12,500.00 2009 66,88,779.00 6,63,300.00

INTERPRETATION:There is an increase in the inventory turnover ratio from 3.12 in 2007 to 10.08 in 2008. This indicates that they are rapidly turning the stock into sales.

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Debtors Turnover Ratio:Particulars Sales Average Debtor ANALYSIS :Debtors Turnover Ratio = Sales / Average Debtor In 2007 = 26,07,459.00 / 4,65,853.00 = 5.59 times In 2008 = 55,50,920.00 / 5,21,110.00 = 10.65 times In 2009 = 78,66,787.00 / 8,57,633.00 = 9.17 times 2007 26,07,459.00 4,65,853.00 2008 55,50,920.00 5,21,110.00 2009 78,66,787.00 8,57,633.00

INTERPRETATION:Increase in debtors turnover ratio from 5.59 in 2007 to 10.65 in 2008 indicates that amount from debtors is being collected more quickly. But after that the ratio starts declining from 10.65 in 2008 to 9.17 in 2009.

Comparative Balance Sheet of DGIPL as on 31st march, 2007 & 2008

Particulars

2007

2008

Increase or Decrease over 2007 73,921.00

%Increase or Decrease over 2007 11.18%

Fixed assets :- (A) Working capital :- (B) Current assets (I) Current liabilities (II) Working capital (I + II) Capital Employed (A + B) Less : Secured loan Shareholder's Fund

6,61,161.00

7,35,082.00

18,42,368.00 10,23,499.00 8,18,869.00 14,80,030.00 (3,43,572.00) 11,36,458.00

15,78,320.00 12,61,427.00 3,16,893.00 10,51,974.00 (1,32,260.00 ) 9,19,714.00

(2,64,048.00) 2,37,928.00 (5,01,976.00) (4,28,056.00) (2,11,312.00) (2,16,744.00)

-14.33% 23.25% -61.30% -28.92% -61.50% -19.07%

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Represented by :Capital

11,36,458.00

9,19,714.00

(2,16,744.00)

-19.07%

Comments :1. Fixed Assets have increased by Rs. 73,921 i.e. 11.18% increase 2. Capital has decreased by Rs. 2,16,744 i.e. 19% decrease. It has made the financial position of the company weak. 3. Current assets have decrease by 14.33%, whereas current liabilities have increased by 23.25%. It has resulted in the decrease of working capital of the firm.

Comparative Balance sheet of DGIPL as on 31st march, 2008 & 2009

Particulars

2008

2009

Increase or Decrease over 2008 -26,477.00

% Increase or Decrease over 2008 -3.60%

Fixed assets :- (A) Working capital :- (B) Current assets (I) Current liabilities (II) Working capital (I + II) Capital Employed (A + B) Less : Secured loan Shareholder's Fund Represented by :Capital

7,35,082.00

8,08,605.00

15,78,320.00 12,61,427.00 3,16,893.00 10,51,974.00 (1,32,260.00 ) 9,19,714.00

18,58,951.0 0 17,27,628.0 0 1,13,323.00 8,39,928.00 8,39,928.00

2,80,631.00 4,66,201.00 (1,85,570.00) 2,12,047.00 -79,787.00

17.70% 36.95% -58.55% -20.15% -8.68%

9,19,714.00

8,39,928.00

-79,787.00

-8.67%

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Comments:1. Fixed Assets have decreased by Rs. 26,477.00 i.e. 3.6% decrease 2. Capital has decreased by Rs. 79,787.00 i.e. 8.67% decrease. 3. Current assets have increase by Rs. 2,80,631 i.e. 17.7%, whereas current liabilities have increased by 36.95% . It has resulted in the decrease of working capital of the firm.

Comparative Income Statement of DGIPL as on 31st march, 2007 & 2008

Particulars

2007

2008

Increase or Decrease over 2007

%Increase or Decrease over 2007

Sales Less:- Cost of Sales Gross Profit (A) Less:- Operating Expenses Administrative Expenses(i) Selling Expenses (ii) Total Operating Expenses(B) Net Profit (A+B)

26,07,459.0 0 21,10,777.0 0 4,96,682.00 3,03,237.00 1,01,079.00 4,04,316.00 92,366.00

55,50,920.00 29,43,461.00 46,00,136.00 9,50,784.00 6,43,773.00 1,60,943.00 8,04,716.00 1,46,068.00 24,89,359.00 4,45,102.00 3,40,536.00 59,864.00 4,00,400.0 53,702.00 112.88% 117.93% 91.42% 112.30% 59.22% 99.03% 58.14%

Comments:-

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1. In 2007, sales have been increased by Rs. 29,43,461 i.e. 112.88%, but cost of sales has also increased by Rs. 24,89,359 i.e. 117.93%. as a result of which the gross profit has increased but only by 91.42%. This means that increase in sales was relatively expensive. 2. Operating expenses have also been increased by 99%. Administrative expenses, included in operating expenses have alone increased heavily and this must be a cause of concern and selling expenses also goes up by 59%.

Comparative Income Statement of DGIPL as on 31st march, 2008 & 2009

Particulars

2008

2009

Increase or Decrease over 2008 23,15,867.00 20,88,643.00 2,27,224.00 1,72,086.00 -7,273.00 1,64,813.00 62,411.00

%Increase or Decrease over 2008 41.72% 45.40% 23.89% 28.51% -3.60% 20.28% 42.72%

Sales Less:- Cost of Sales Gross Profit (A) Less:- Operating Expenses Administrative Expenses(i) Selling Expenses (ii) Total Operating Expenses(B) Net Profit (A+B)

55,50,920.00 46,00,136.00 9,50,784.00 6,43,773.00 1,60,943.00 8,04,716.00 1,46,068.00

78,66,787.00 66,99,779.00 11,78,008.00 7,75,623.00 1,93,906.00 9,69,529.00 2,08,479.00

Comments:3. In 2008, sales have been increased by Rs. 23,15,867 i.e. 41.72%, but cost of sales has also increased by Rs. 20,88,643 i.e. 45%, as a result of which the gross profit has increased but only by 23%. This means that increase in sales was relatively expensive in term of purchase and other direct charges.

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4. Operating expenses have also been increased by 20.48%. Administrative expenses, included in operating expenses have alone increased heavily and this must be a cause of concern and selling expenses have come down by 3.6% in spite of increase in sales. This is a favorable sign.

SUGGESTIONS & RECOMMENDATIONS The whole research work gave a scope to know the performance of the organization during last few years. It is not possible to change the financial position of the organization with in a day but necessary changes must be implemented so that there will be improvement in the financial position and performance in next few years. In regard to this, there are few recommendations which will be more profitable for the organization: Improve their capacity to meet the short term liabilities. Make the marketing more and more effective in such a way that sales and gross profit both will increase with increase in the gross profit ratio. Try to reduce the expenses. Make the efficient use of capital. Improve the credit policy of the company in such a way that the amount from the debtor is being collected more quickly. Develop relationship with suppliers emphasizing continuous improvement in product quality, delivery and supply.

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FINDINGS 1. The ratio analysis is helpful for the comparative study. 2. The gross profit and the sales of the organization had been increasing but the gross profit ratio has been decline from 19.05% in 2007 to 14.97% in 2009. The net profit ratio is also declining from 3.54% in 2007 to 2.66 % in 2009. 3. The operating expenses and the cost of goods sold both have been increasing with sales. So the operating ratio is increasing from 97.27% in 2007 to 101.44% in 2008, then it starts deceasing in 2009.ss 4. Return on capital employed was continuously increasing. It was 8.12% in 2008 and increased to 24% in 2009. This was because the net profit was increasing every year and on the same tine capital employed is decreasing every year. So we cannot say that the capital was being used efficiently. 5. Current ratio was decreasing from 2.76 times in 2007 to 1.23 times in 2009 which was below the ideal ratio. This shows that their capacity to meet the short term liabilities was not satisfactory. 6. Quick ratio was also declining frome1.06 times in 2007 to 0.61 times in 2008 which was below the ideal standard of 1. But after that it starts increasing and nearer to the ideal norm of 1:1. 7. Inventory turnover ratio was continuously increasing from 3.12 times in 2007 to 10.08 times in 2009 which shows that they are rapidly turning their stock into sales whereas debtor turnover ratio was also increasing from 5.59 times in 2007 to 10.65 times in 2008 which means that the amount from debtor was being collected quickly.

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CONCLUSION After analyzing the last three years financial statement of the organization, we come to the conclusion that they are increasing their sales in the cut throat competition and this will be continue in the future also. But in the case of ratios especially in profitability ratios we got some disappointment. Their gross profit and net profit ratio was continuously declining and the operating ratio was increasing which shows that their expenses over the sales were more. Current ratio and quick ratio both were below the ideal standard. Only inventory turnover ratio was increasing. Their current assets were increasing. They had controlled their operating expenses up to a certain extent. They are trying to improve the performance of their organization.

BIBLIOGRAPHY Kothari, C.R., 2003 (Research Methodology, III edition) Goel, D.K. & Goel, Rajesh 2008, Avichal Publishing Company Financial Management by I. M. Pandey, Vikas Publishing Company

Website: www.duratufglass.com
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