SUMMER TRAINING REPORT ON

RATIO ANALYSIS OF

PARDHAN INDUSTRIES JALANDHAR

Submitted to

Guru Nanak Dev University, Amritsar

Submitted in Partial fulfillment of the Degree of Bachelor of Commerce (Professional)-II
Supervised by: SURINDER SHARMA Lecturer in Commerce Doaba College JALANDHAR Submitted by: MANISH KASHYAP Roll No. 1129 B.Com (Prof.)-II Univ. Roll No.. Regd. No. SESSION 2008-09

DOABA COLLEGE JALANDHAR

STUDENT DECLARATION
This is to certify that I, MANISH KASHYAP student of B.Com (Prof.)-II, Roll No. 1129 have undergone summer training in Ratio Analysis of M/s PARDHAN INDUSTRIES based on it. All the theory contained in reports is from the list of books given in end in bibliography. I have not copied from any report submitted earlier this or any other university. This is purely original and authentic work.

MANISH KASHYAP

TEACHERS CERTIFICATE
This is to certify that, MANISH KASHYAP student of B.Com (Prof.)-II, Roll No. 1129 has undertaken project work on the topic Ratio Analysis of M/s. PARDHAN INDUSTRIES under my supervision and guidance. During this course he is found to be sincere and hard working.

Date :

SURINDER SHARMA Lecturer in Commerce Doaba College JALANDHAR

ACKNOWLEDGEMENT
This project work itself is an acknowledgement to the sincere efforts of all the individuals who have contributed for its completion. I would like to pay my profound gratefulness and express my sincere gratitude to my project guide Mr. SURINDER SHARMA lecturer in commerce dept. For his able guidance in carrying out my project successfully. I am also thankful to the DOABA COLLEGE JALANDHAR for extending the required help in the preparation of the project report. Last but not the least my special thanks to all the staff members of PARDHAN INDUSTRIES JALANDHAR for providing me detailed information about the project that helped me significantly in completion of this report.

MAN ISH KASHYAP

CONTENTS
CHAPTER 1: COMPANY PROFILE CHAPTER 2: INTRODUCTION TO RATIO ANALYSIS
Introduction to ratio analysis Meaning of ratio Use and significance of ratio analysis

CHAPTER 3: RESEARCH METHODOLOGY

Objectives of the study Collection of data Period of study Limitation of the study

CHAPTER 4: FINDING & ANALYSIS OF THE STUDY

Liquidity ratios Efficiency ratios Profitability ratios Solvency ratios

CHAPTER 5: SUGGESTIONS CHAPTER 6: CONCLUSION CHAPTER 7: BIBLOGRAPHY

AN INTRODUCTION Analysis and interpretation of financial statements can be done with comparative the help of various trend methods such as size statements, analysis, common

statements, fund flow analysis and cash flow analysis. The ratio analysis is one of the most powerful tools financial analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures and group of figures). It is with the help of ratio that the financial statements can be analyzed more clearly and decisions can be made from such analysis quite easily. MEANING OF RATIOS: A ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expression. According to Kohler, CIA ratio is a relation of one amount 'a' to another 'b', expressed as the ratio of a to b, a : b or a simple fraction, integer, decimal or percentage." A financial ratio is the relationship between two
6

accounting figures expressed mathematically. A ratio can be expressed as percentage by simply multiplying the ratio by 100. Ratios provide clues to the financial position of the concern. These are the pointers or the indicators of financial strength, send ness, position or the weakness of an enterprise. We can draw Statements can be analyzed more clearly and decisions can be made from such analysis quite easily. USE AND SIGNIFICANCE OF RATIO ANALYSIS: Ratio analysis is used as a device to analyze and interpret the financial health of enterprise. Just like a doctor examines his patient by recording his body temperature, blood pressure etc., before making his conclusion regarding illness, a financial analyst analyses the financial statements with various tools of analysis before commenting upon financial health or weakness of company. There are different parties interested in ratio analysis for knowing the financial position of the firm' for different purposes. The suppliers, banks, financial institution, investors, shareholders, management all make use of ratio analysis as a tool in evaluating financial position. (A) MANAGERIAL USES OF RATIO ANALYSIS. :
7

(1) Helps in Decision-Making. The information provided in financial statement is not an end in itself and no meaningful conclusions can be drawn from these statements alone. Thus ratio analysis help in making decisions from the information provided in financial statements. (2) Helps in Forecasting and Planning: Ratio analysis is much help in forecasting and planning. Planning is looking ahead and ratios calculated for the number of year work as a guide for the future. Meaningful conclusion can be drawn for the future from these ratios. (3) Helps in Communication: The financial strength and weakness of a firm arc communicated in a more easy and, understandable manner by the use of ratios. Thus ratios help in communication and enhance the value of financial statement. (4) Helps in Co-Ordination: Ratios even help in co-ordination, which is of utmost importance in effective business management. of Better communication of efficiency and weakness enterprise

results in better co-ordination in enterprises. (5) Helps in Control: Ratio analysis even help in effective control of business.
8

Standard ratios

can be based upon pro-forma financial

statements and, variances if any, can be found by comparing the actual with standards so as to take co erective action at right time. (B) UTILITY TO THE SHAREHOLDERS: An investor in a company will like to assess financial position of concern where he is going to invest. His first interest will be security of his investment and then a return in form of dividend interest. For the first purpose he will try to assess the value of fixed assets and long term solvency ratios which will help him in profits of concern. (C) UTILITY TO CREDITORS: Creditors extend short-term credit to the concern. They are interested in their timely payments. If current assets of the concern are sufficient to meet current liabilities then the creditors will not hesitate in extending credit facilities. Current and quick 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 concern especially profitability. Their wage increases and amount of fringe benefits are related to volume of profits earned by the concern. Thus employees also make use of information available in financial
9

statements. (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 concern. Ratios may be used as indicators of overall financial strength of public as well as private sector.

RESEARCH METHODOLO GY
10

(A)

OBJECTIVES OF THE STUDY

The object of my study is to examine the short term solvency, long term solvency and Profitability ratio of Pardhan Industries Ltd. (B) COLLECTION OF DATA The study is primarily based on the secondary data. (C) PERIOD OF STUDY The Financial results of the last 5 years i.e. 2003-04 to 200708 were examined

11

LIMITATIONS OF THE STUDY

1.

To gather information, I had to depend on some of the personnel of the firms some of them were reluctant or were too busy.

2. There was lack of co-operation by the staff.

3.

Time was the main constraint of the study. As the study was to be completed in a very short span of time i.e. only 6 weeks & this time span was too compact to analysis such a wide & vast concept of ratio analysis.

4. According to firms norms, ethics, strategies etc the financial managers & executives were not allowed to disclose each & every information related to the topic.
5.

Due to business schedule of the financial incentives & officers there was delay in collection of data which further delayed completion of the analysis.

12

COMPANY PROFILE

13

FINDING & ANALYSIS OF THE STUDY

14

(A) LIQUIDITY RATIOS: Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. The short term obligations are met by realizing amount from current assets, floating or circulating assets. The current assets should be liquid or near liquidity. These should be convertible into cash for paying obligation of short term nature. To measure the liquidity of a firm the following ratios are calculated: (1) Current Ratio (2) Quick or Acid Test or Liquid Ratio (3) Absolute Liquid Ratio. 1. Current Ratio: Current Ratio is also known as working capital ratio. It is a measure of general liquidity and. is most widely used in making the analysis of short term CURRENT RATIO = financial position: CURRENT ASSETS CURRENT LIABILITIES Current assets include cash and those assets which can be easily converted into cash within a short period of time, generally one year, such as bills receivable, debtors, inventories, marketable securities. Prepaid expenses should be included in current assets because they represent payments made in advance. Current liabilities are those obligations which are payable within a short period of one year and include creditors, bills payable, dividend payable
15

etc. Bank overdraft is also included. CURRENT RATIO OF PARDHAN INDUSTRIES 2003042004-052005-062006-072007-08108948616.58 17127685.6853871378.69 10459048.07138512876.12 35400660.19103478867.6 32582281. 05125439734.7 53964333.46.365.153.913.172.32INTERPRETATION: As convention of current ratio minimum of 2: 1 is referred as rule of thumb. But it can vary depending upon nature of the firm. The current ratio of PARDHAN INDUSTRIES is highest in 2003-04 i.e. 6.36 and lowest in 2007-2008 i.e. 2.32 which show decreasing trend. But in all the years the current ratio of PARDHAN INDUSTRIES is more than the standard norm of 2: I, so we can say that the current ratio is satisfactory.

CURRENT RATIO

7 6 5 4 3 2 1 0

6.36 5.15 3.91 3.17 2.32

2003-04

2004-05

2005-06

2006-07

2007-08

16

2. Quick Ratio: It is more rigorous test of liquidity than current ratio. It may be defined as the ratio between quick or liquid assets and current liabilities. An asset is said to be liquid if it can be converted into cash within a short period without loss of value, Quick assets include all current assets less I inventories and prepaid expenses.

17

QUICK RATIO =

QUICK ASSETS CURRENT LIABILITIES

QUICK RATIO OF PARDHAN INDUSTRIES 2003-042004-052005-062006-072007-0888980424.6 17127685.6832191523.08 10459048.0788341631.47 3540060.1968304376.07 32582281.0573342150.11 53964333.45.1953.072.4952.11.5 INTERPRETATION: As a rule of thumb quick ratio of 1:1 is considered satisfactory. The quick ratio of PARDHAN INDUSTRIES has been satisfactory, over the years. It was very high in 2003-04 i.e. 5.195 but has reduced to 1.5 in 2007- 2008, still it is above standard norms. So we can say that the quick ratio is satisfactory.

18

QUICK RATIO

6 5.195 5 4 3.07 3 2 1 0 2003-04

2.495 2.1 1.5

2004-05

2005-06

2006-07

2007-08

19

3. Absolute Liquid Ratio: Although receivables, debtors and bills receivables are generally more liquid than inventories yet there may be doubts regarding their realization into cash immediately or in time. Hence some authorities are of view that absolute liquid ratio should be computed along with current and quick ratio. Absolute Liquid assets include cash in hand, cash at bank, marketable securities and temporary investments. ABSOLUTE LIQUID RATIO = CURRENT LIABILITIES ABSOLUTE LIQUID ASSETS

ABSOLUTE LIQUID RATIO OF PARDHAN INDUSTRIES 2003-042004-052005-062006-0720070819267687.38 17127685.689992922.13 10459048.0716237980.79 35400660.1411099396 32582281.0518839183 53964333.41.120.960.460.340.35 INTERPRETATION: Acceptable norm for this ratio is 0.5 but again it should not be blindly followed as it differs from firm to firm. In PARDHAN INDUSTRIES absolute liquid ratio was highest in 2003-04 i.e. 1.12. But over the years it is declining. From the year 2003-04 it has gone below the standard norm. In 2007-08 it just 0.35 which is very below the standard. So the Company must take care to maintain its absolute liquid assets to acquire its satisfactory position in the future. ABSOLUTE LIQUID RATIO

1.2 1 0.8 0.6 0.4 0.2 0

1.12 0.96

0.46 0.34 0.35

2003-04

2004-05

2005-06

2006-07

2007-08

20

(B) EFFICIENCY RATIOS OR ACTIVITY RATIOS: Funds are invested in various types of businesses to make sales and earn profits. The efficiency with which assets are managed directly effects the volume of sales. Activity ratios measure the efficiency or effectiveness with which a firm manages its resources. These ratios are called turnover ratios because they indicate the speed with which assets are converted into sales. (1) Inventory or Stock Turnover Ratio: Inventory turnover ratio indicates the number of times the stock has Firm is able to J.11anage it's inventory, High ratio means low level of Been turned over during the period and evaluate the efficiency with which an inventories, which may moan loss of business opportunities. Low ratio means high level of inventory which means funds are unnecessarily blocked. INVENTORY TURNOVER RATIO = COST OF GOODS SOLD AVERAGE STOCK Where AVERAGE STOCK = Opening Stock + Closing Stock 2 INVENTORY TURNOVER RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006-07200708154746502.83 17108165.1876256756.42 18601851216975638.37 33226378242721262.6 40469343.5246296240.3 41770711.59.054.16.56.05.89

21

Interpretation: The ratio is highest in 2003-04 i.e. 9.05 times. In all the years inventory turnover is satisfactory because it is converted more than twice into sales. In 2007-2008 it is 5.89 times. The position is satisfactory. INVENTORY TURNOVER RATIO

10 9 8 7 6 5 4 3 2 1 0

9.05

6.5

6.0

5.89

4.1

2003-04

2004-05

2005-06

2006-07

2007-08

22

(2) Debtors Turnover Ratio and Average Collection Period: A concern may sell goods on cash as well as on credit. Debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of the firm to pay its short-term obligations in time depends upon the quality of debtors. Two kinds of ratios can be computed: DEBTORS TURNOVER RATIO: This ratio indicates the velocity of debt collection of a firm. In simple Words it indicates the number of times average debtors are turned over during a year. DEBTORS TURNOVER RATIO =ANNUAL CREDIT SALES AVERAGE DEBTORS INVENTORY TURNOVER RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006-07200708192184521.5797312604.58266823170.89315381391.50307019107.9454103786.3545930669.084712612 5.8064916864.6456383009.553.552.125.64.865.45 INTERPRETATION: Generally higher the ratio more effective is the management of debtors. There is no rule of thumb' and may be difficult from firm to firm. The debtor turnover ratio in PARDHAN INDUSTRIES is 3.55 times in 200304 which declined to 2.12 in 2004-05. In 2007-2008 it is 5.45 times which is quite satisfactory. DEBTORS TURNOVER RATIO

6 5 4 3 2.12 2 1 0 2003-04

5.6 4.86

5.45

3.55

2004-05

2005-06

2006-07

2007-08

23

AVERAGE COLLECTION PERIOD: This ratio represents the average number of days for which a firm has to wait before its. Receivables are converted into cash. AVERAGE COLLECTION PERIOD = DEBTOR TURNOVER RATIO 12 MONTHS

AVERAGE COLLECTION PERIOD OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070812/ 3.5512/ 2.1212/ 5.6612/ 4.8612/ 5.453.45.72.12.52.2 INTERPRETATION: Generally, shorter the period the better is the quality of debtors as short period implies quick payment of debtors. There is no standard norm for this ratio. In PARDHAN INDUSTRIES the average collection period is longest in 2004-05 i.e. 5.7 months which means very long credit period allowed to customers. But the company has improved upon its collection policies. It was 2.2 in 2007-08 which seems to be satisfactory and the firm should try to maintain it in the future also.

24

AVERAGE COLLECTION PERIOD

6 5 4 3 3.4

5.7

2.5 2.1

2.2

2 1 0 2003-04

2004-05

2005-06

2006-07

2007-08

25

(3) Creditors Turnover Ratio and Average Payment Period : Creditors Turnover Ratio: In the course of business operation a firm has to make credit purchases and incur short term liabilities. A supplier of goods i.e. creditor is naturally interested in finding out how much time the firm is likely to take in repaying its trade creditors. CREDITORS TURNOVER RATIO = ANNUAL CREDIT PURCHASES AVERAGE CREDITORS

CREDITORS TURNOVER RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070817622756.41 13669025.3387140271. 94 13100834.70269616842.55 21154895.02264410571.68 31336367.77303713149.32 29269411.2412.896.6512.768.4410.38INTERPRETATION: Creditor turnover ratio indicates the velocity with which the creditors are turned over in relation to purchases. Generally higher the creditor velocity the better it is. In PARDHAN INDUSTRIES the ratio was not very good in 2003-04 and 2005-06 i.e. 12.89 limes and 12.76 times respectively. However it was satisfactory in 2004-05 i.e. 6.65 times. In 2007-08 it is 10.38 times which is not very satisfactory because it shows the creditors are not allowing sufficient credit period to the company. The company should try to improve it in the future. CREDITORS TURNOVER RATIO

14 12 10 8 6 4 2 0

12.89

12.76 10.38 8.44 6.65

2003-04

2004-05

2005-06

2006-07

2007-08

26

AVERAGE PAYMENT PERIOD: This represents the average number of days taken by the firm to pay creditors. AVERAGE PAYMENTS PERIOD = CREDITORS TURNOVER RATIO 12 MONTHS

AVERAGE PAYMENTS PERIOD OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070812 12.8912 6.6512 12.7612 8.4412 10.380.91.80.91.421.16 INTERPRETATION: As far as the payment period is concerned lower the ratio, better is the liquidity position of the firm and higher the ratio, less liquid is the position of the firm. It is clear from the table that PARDHAN INDUSTRIES is not enjoying a long period of red it for the past 5 years. The credit period in 2003-04 and 2005-06 is very low i.e. about 1 month. On the other hand, it may also signify that the liquidity position of the firm is good, that is why it is repaying its debts quickly but on the other hand it may also be said that the firm cannot take benefit occurring from the long credit period. The company should try lo lake more credit period from its suppliers. AVERAGE PAYMENTS PERIOD

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2003-04

1.8 1.42 1.16 0.9 0.9

2004-05

2005-06

2006-07

2007-08

27

(4) Working Capital Turnover Ratio: Working capital of the concern is directly related to sales. Working capital is excess of current assets over current liabilities. Working capital turnover indicates the velocity of utilization of net working capital. This ratio indicates the number of times working capital is being used by the firm. A higher ratio indicates efficiency with which working capital is being used. WORKING CAPITAL TURNOVER = COST OF GOODS SOLD AVERAGE WORKING CAPITAL WORKING CAPITAL TURNOVER OF PARDHAN INDUSTRIES2003-042004-052005-062006-07200708154746502.83 77345145.5076256756.42 67616630.75216975638.37 73262273.25242721262.6 87004401.28246296240.3 71185993.940.201.132.962.793.46 INTERPRETATION: This ratio is quite low in 2003-04 which is 0.20 times, which is not good for the company and shows that the company is not utilizing its working capital efficiently. It is highest in 2007-08 i.e. 3.46 times which seems quite good. The company should make efforts to improve it even more and utilize its working capital more effectively.

28

WORKING CAPITAL TURNOVER RATIO

4 3.5 3 2.5 2 1.5 1 0.5 0 2003-04

3.46 2.96 2.79

1.13

0.2 2004-05 2005-06 2006-07 2007-008

29

(C) PROFITABILITY RATIOS: The primary objective of the business is to earn profit. The business needs profit not only for existence but also for expansion and diversification. The investors want an adequate return on their investments, workers want higher wages and creditors want higher interest and soon. Profits are therefore a useful measure of overall efficiency of a business. Profit to the management are the test of efficiency and measure of control to owners, a measure of tax paying capacity etc. The various profitability ratios are:(a) GENERAL PROFITABILITY RATIOS: Gross Profit Ratio: It measures the relationship of gross profit to net sales. The gross profit ratio indicates the extent to which selling prices of goods per unit may decline without resulting in losses on operations of a firm. GROSS PROFIT RATIO = GROSS PROFIT x 100 NET SALES GROSS PROFIT RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070837438018.74 192184521.5721055848.16 97312604.5849847532.52 266823170.8972660128.95 315381391.5061158580.60 307454820.919.4821.6318.6823.0419.89 INTERPRETATION: There is no standard norm for this ratio and may vary from business to business but gross profit may be adequate to cover the operating expenses. The gross profit ratio of PARDHAN INDUSTRIES is 23.04% in 2006-07 which is the highest in the 5 years. It was lowest in 2005-06 i.e. 18.68%. The ratio has again declined in 2005-06. The Company must take care of its gross profits and also reduce its cost of goods sold to ensure a better profitability position. GROSS PROFIT RATIO

25 21.63 20 15 10 5 0 2003-04

23.04 18.68 19.89

19.48

2004-05

2005-06

2006-07

2007-08

30

Net Profit Ratio: This ratio establishes the relationship between net profit and sales and indicates the efficiency of management in manufacturing, selling, Administration and the activities of the firm .It indicates the firm's capacity to face adverse economic conditions such as price competition, low demand etc. Higher the ratio, the better is the profitability and vice-versa. NET PROFIT RATIO = NET PROFIT x 100 NET SALES NET PROFIT RATIO OF PARDHAN INDUSTRIES 2003-042004-052005-062006-0720070820677041.98 192184521. 576738550.70 97312604.5823392673.42 266823170.8936770679.38 315381391.524433867.34 307454820.910.766.928.7611.667.95INTERPRETATION: The net profit ratio in PARDHAN INDUSTRIES is highest in 2006-07 i.e. 11.66% which is not very satisfactory. In all the other years it is woven less. This may be due to excessive operating expenses. The company must check its wasteful expenses and try to improve it in the future, as the current profits don't seem to be much satisfactory. In last year it was only 7.95%.

31

NET PROFIT RATIO

14 12 10 8 6 4 2 0 2003-04

11.66 10.76 8.76 6.92 7.95

2004-05

2005-06

2006-07

2007-08

32

(b) OVERALL PROFITABILITY RATIOS: The following are the important overall profitability ratios: (1) Return on shareholders investment or net worth This ratio is popularly known as return on investment and is the relationship between net profits and shareholders funds. This ratio is of great Importance to the present and the prospective shareholders as well as to the management of the company, as this ratio reveals how well the resources of the firm are being used. RETURN ON INVESTMENT = NET PROFITS x 100 SHAREHOLDERS FUNDS RETURN ON INVESTMENT OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070820677041.98 60200087.896738550.70 66067134.5923392673.42 89460008.0136717801.38 126177809.424433867.34 118409900.734.3510.2026.1529.0021.00INTERPRETATION: Generally, higher the ratio, better are the results. The ratio should be compared with other similar firms in the same industry. On seeing the position of PARDHAN INDUSTRIES we can say that the ratio was maximum in 2003-04 that is 34.35% but in after years it is showing a declining trend and was lowest in 2004-05 i.e. 10.2%. In 2006-07 the ratio has improved to 29% but has again fallen to 21% the next year. The Company should try to improve this ratio.

40 35 30 25 20 15 10 5 0 2003-04

34.35 29 26.15 21

10.2

2004-05

2005-06

2006-07

2007-08

33

(2) Return on Equity Capital: The ordinary shareholders are more interested in the profitability of a Company and the performance of a company should be judged on the basis of a return on equity capital of the company. Return on equity capital is the relationship between profits of a company and its equity capital. RETURN ON EQUITY CAPITAL = NET PROFIT EQUITY SHARE CAPITAL (PAID-UP) RETURN ON EQUITY CAPITAL OF PARDHAN INDUSTRIES2003-042004-052005-062006-072007-08 2067741. 98 25000006738550.7 2500000623392673.42 250020036717801.38 1000080024433867.34 10000800827.08269.54935.63367.15244.31 INTERPRETATION: This ratio of PARDHAN INDUSTRIES seems to be quite satisfactory in almost all the years. It was very high i.e. 935.63% in 2005-06. However it has fallen sharply since then. It was 367.15% in 2006-07 and reduced further to 244.31% in the last year.

34

RETURN ON EQUITY CAPITAL RATIO

1000 900 800 700 600 500 400 300 200 100 0 2003-04

935.63 827.08

367.15 269.54 244.31

2004-05

2005-06

2006-07

2007-08

35

(3) Earnings per Share: Earning per share is a small variation of return on equity and is calculated by dividing the net profits by the total number of equity shares. EARNING PER SHARE = NUMBER OF EQUITY SHARES NET PROFIT

EARNING PER SHARE OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070820677041. 98 250006738550.70 2500023392673.42 2500236717801.38 10000824433867.34 100008827.08269.54935.63367.15244.31 INTERPRETATION: The earning per share is a good measure of profitability and when compared with E.P.S. of similar other companies, it gives a view of the comparative earnings or earning power of a firm. The E.P.S. of PARDHAN INDUSTRIES was very high in 2005-06 that is 935.63 but has fallen since. The number of equity shares has also increased in 2006-07.

36

EARNINGS PER SHARE RATIO

1000 900 800 700 600 500 400 300 200 100 0 2003-04

935.63 827.08

367.15 269.54 244.31

2004-05

2005-06

2006-07

2007-08

37

(4) Return on Capital Employed The return on capital employed establishes the relationship between profits and the capital employed. It is the primary ratio and is most widely used to measure the overall profitability and efficiency of u business. The term 'Capital Employed' refers to the total amount of investments made in the business. It may be : a) Gross Capital Employed: It comprises the total assets, fixed as well as current, used in the business. (b) Net Capital Employed: It comprises the total assets used in the business less its current liabilities. Accordingly, return on capital employed can be : Return on gross capital employed. Return on net capital employed. RETURN ON GROSS CAPITAL EMPLOYED = ADJUSTED NET PROFITS x 100 GROSS CAPITAL EMPLOYED

38

RETURN ON GROSS CAPITAL EMPLOYED OF PARDHAN INDUSTRIES2003-042004-052005062006-072007-0822868883.98 122556026.39082449.76 79992520.6928151657.42 185027703.536717801.38 162341483.7824433867.34 205679862.4418.6611.3515.2122.6111.88 RETURN ON NET CAPITAL EMPLOYED = ADJUSTED NET PROFITS x 100 NET CAPITAL EMPLOYED

RETURN ON GROSS CAPITAL EMPLOYED

25 20 15 11.35 10 5 0 2003-04

22.61 18.66 15.21 11.88

2004-05

2005-06

2006-07

2007-08

39

40

RETURN ON NET CAPITAL EMPLOYED OF PARDHAN INDUSTRIES2003-042004-052005-062006072007-0822868883.98 105428340.79082449.76 69533472.6228151657.42 149627043.436717801.38 129759202.7324433867.34 15171552921.6913.0618.8128.2916.11 INTERPRETATION: In PARDHAN INDUSTRIES the return on gross and net capital employed is high in the year 2004-05 which is 18.66% and 21.69% respectively. Both were lowest in the year 2004-05. Again in 2005-06 it has reduced to 15.21% and 18.81%. This is due to the reason that the amount of fixed assets has increased and also the current assets have increased, so the ratio has reduced.

41

RETURN ON NET CAPITAL EMPLOYED

30 25 20 15 10 5 0 2003-04

28.29

21.69 18.81 16.11 13.06

2004-05

2005-06

2006-07

2007-08

42

INTRODUCTION TO RATIO ANALYSIS

43

(d) LONG TERM SOLVENCY The term 'solvency' refers to the ability of a concern to meet its long term obligations. The long-term indebtedness of a firm includes debenture holders, financial institutions, providing medium and long-term loans and other creditors selling goods on installment basis. The long term creditors of a firm are primarily interested in knowing the ability to pay regularly interest on long-term borrowings, repayment of principal amount at the time of maturity and security of their loans. Accordingly, long term solvency ratios indicate a firm's ability to meet the fixed interest and costs and repayment schedules associated with its long term borrowings. (1) Debt-Equity Ratio: The debt equity ratio is calculated to measure the extent to which debt financing has been used in a business. The ratio indicates the proportionate claims of owners and outsiders against the firm's assets. The purpose is to get an idea of the cushion available to outsider on the liquidation of the firm. DEBT EQUITY RATIO =OUTSIDERS FUNDS x 100 INSIDERS FUNDS

44

DEBT EQUITY RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070862355938.39 60200087.8915540886.10 66067134.5997483695.53 89460008.0136163674.39 126177809.487269961. 74 118409900.71.040.241.090.290.74 DEBT EQUITY RATIO

1.2 1.04 1 0.8 0.6 0.4 0.24 0.2 0 2003-04 2004-05

1.09

0.74

0.29

2005-06

2006-07

2007-08

INTERPRETATION: The interpretation of this ratio depends primarily upon the financial policies of the firm. A ratio of 1: 1 may be usually considered to be satisfactory. Generally, a low ratio is considered as favourable from the long term creditors point of view because high proportion of the owners funds provide larger margin of safety for them. In case of PARDHAN INDUSTRIES the ratio is satisfactory in the year 2003-04 i.e. 1.04. But it had become quite low in 2004-05 which is 0.24 which is due to repayment of its loans. The ratio has again improved in 2005-06 i.e. 1.09. Again due to repayment of loan in 2006-07 the ratio has failed to 0.29. In present year it is 0.74. The company should try to maintain its debt equity ratio. 2) Funded Debt to Total Capitalisation: The ratio establishes a link between long term funds raised from outsider and total long-term funds available in the business. Funded debt is that part of total capitalization, which is financed by outsiders. FUNDED DEBT TO TOTAL CAPITALIZATION = FUNDED DEBT x 100 TOTAL CAPITALISATION

FUND DEBT TO TOTAL CAPITALISATION OF PARDHAN INDUSTRIES2003-042004-052005062006-072007-0845228252.71 105428340.65081838.03 71148972.6262083035.39 151543043.43581393.34 45

129759202.733305628.34 151715529.43.070.410.030.22

46

INTERPRETATION: There is no rule of thumb in this case but still a lesser reliance on outsiders is better for the company because lesser debt will mean more profit margin for the shareholders as lesser interests will have to be paid on long term debts. In PARDHAN INDUSTRIES this ratio was 0.41% in 2005-06 but failed to 0.03% in 2006-07. But it again rose to 0.22% in 2007-08which is satisfactory. FUNDED DEBT TO TOTAL CAPITALIZATION RATIO

0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2003-04

0.43

0.41

0.22

0.07 0.03

2004-05

2005-06

2006-07

2007-08

47

(3) Ratio of Long Term Debt to Shareholders This ratio indicates that to what extent of shareholders funds, long term financing has been used. RATIO OF LONG TERM DEBTS = LONG TERM DEBITS x 100 TO SHAREHOLDERS FUNDS SHAREHOLDERS FUNDS RATIO OF LONG TERM DEBTS TO SIIAREHOLDERS FUNDS OF PARDHAN INDUSTRIES2003042004-052005-062006-072007-0845228252.71 60200087.895081838.03 66067134.5962083035.39 89460008.013581393.34 126177809.3933305628.34 118409900.70.750.080.69.030.28 INTERPRETATION: An equal contribution of both debt and owners funds can be regarded as satisfactory. But if debt finance is less than the shareholders' funds it will provide a cushion to the outsiders so it will be good for a company. The ratio in PARDHAN INDUSTRIES was quite satisfactory in 2003-04 and 2005-06 which is 0.75% and 0.69% respectively. But it is quite low in 2004-05 and 2006-07 which is0.08% and.03% respectively. But it has improved slightly in 2007-08 i.e. 0.28%. The company should try to improve the ratio in future.

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RATIO OF LONG TERM DEBTS TO SHAREHOLDESR FUNDS

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

0.75 0.69

0.28

0.08 0.03 2003-04 2004-05 2005-06 2006-07 2007-08

49

(4) Proprietary Ratio or Equity Ratio: This ratio establishes the relationship between shareholders funds and total assets of the firm. It is an important ratio for determining long term solvency of a firm. The ratio can be calculated as under: PROPRIETARY = SHAREHOLDERS FUNDS x 100 TOTAL ASSETS PROPRIETARY RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006-072007-08 60200087.89 122556026.2866067134.59 81608020.6989460008.01 186943703.54126177809.4 162341483.78118409900.7 205679862.40.490.810.480.770.58 INTERPRETATION: As equity ratio represents the relationship of owners' funds to total assets, higher the ratio or the share of shareholders funds in the total capital of company better is the long-term solvency position of company. In PARDHAN INDUSTRIES the ratio is the lowest in the year 2005-06 which is just 0.48%. In 2004-05 it was the highest which is 0.81% which is good sign for the long term solvency of the firm. But it has reduced to 0.77% in 2006-07 and further to 0.58% in 2007-08 still it can be said to be a satisfactory ratio. The company should try not to let the ratio reduce further. PROPERIETORY OR EQUITY RATIO

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2003-04

0.81

0.77

0.58 0.49 0.48

2004-05

2005-06

2006-07

2007-08

50

(5) Solvency Ratio: This ratio is small variant of equity ratio and can be calculated as 100 equity ratio. The ratio indicates the relationship between the total liabilities to outsiders to total assets of a firm and can be calculated as: SOLVENCY RATIO = LIABILITIES TO OUTSIDERS x 100 TOTAL ASSETS SOLVENCY RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070862355938.3915540886.197483695.5336163674.3987269668.71122556026.2881608020.69186943703.59 126177809.4118409900.70.510.190.520.290.73 INTERPRETATION: The lower is the ratio of total liabilities to total assets, more satisfactory and stable in the long-term solvency position of the firm. Presently, in PARDHAN INDUSTRIES the ratio is very high i.e.0. 73% as compared to last year this was 0.29%. It was lowest in 2004-05 i.e. 0.19. The ratio is not satisfactory in 2007-08 and company should take steps to reduce upon this ratio.

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SOLVENCY RATIO

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2003-04

0.73

0.51

0.52

0.29 0.19

2004-05

2005-06

2006-07

2007-08

52

(6) Fixed Assets to Net Worth Ratio: The ratio establishes the relationship between fixed assets and shareholders funds. The' ratio can be calculated as follows: FIXED ASSETS TO NETWORTH RATIO = FIXED ASSETS X 100 SHARE HOLDERS FUNDS FIXED ASSETS TO NETWORTII RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006072007-0813607409.7 60200087.8926121142.00 66067134.5946514827.42 89460008.0156946616.14 126177809.477324127.08 118409900.70.230.400.520.450.65INTERPRETATION: This ratio indicates the extent to which shareholders' funds are sunk into fixed assets. If the ratio is less than 100% it implies that owners funds are I more than fixed assets and a part of working capital is provided by the shareholders. When the ratio is more than 100% it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance fixed assets. In PARDHAN INDUSTRIES the ratio was quite low in 2003-04 i.e. 0.23%. In subsequent years the ratio is showing an improving trend and now the ratio is 0.65% in 2007-08 which indicate that now apart from fixed assets being fully financed by owners funds, part of owners fund are also utilized for financing working capital. So now the position of company is satisfactory. FIXED ASSETS TO NETWORTH RATIO

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2003-04

0.65 0.52 0.45 0.4

0.23

2004-05

2005-06

2006-07

2007-08

53

(7) Fixed Assets Ratio: The ratio indicates the extent to which the total fixed assets are financed by long term funds of the company: FIXED ASSETS RATIO = FIXED ASSETS TOTAL LONG TERM FUNDS FIXED ASSETS RATIO OF PARDHAN INDUSTRIES2003-042004-052005-062006-0720070813607409.726121142.0045614827.4256946616.1477324127.68105428340.671148972.62151543043.412 9759202.71517155290.130.37 0.310.440.51INTERPRETATION: Generally, the total of fixed assets should be equal to total of the long-term funds or say the ratio should be 100%. But in case the fixed assets exceed the total of the long-term funds it implies that the firm has financed a part of the fixed assets out of current funds or the working capital, which is not good policy. And if the total long-term funds are more than total fixed assets, it means that a part of the working capital requirement is met out of the long-term funds of the company. In PARDHAN INDUSTRIES the ratio was lowest in 2003-04 which was just 0.13%. PARDHAN INDUSTRIES has tried to improve the ratio over the years. Presently it is about 0.51% which is quite satisfactory but company should try to improve it further.

54

FIXED ASSETS RATIO

0.6 0.51 0.5 0.4 0.3 0.2 0.1 0 2003-04

0.44 0.37 0.31

0.13

2004-05

2005-06

2006-07

2007-08

55

(8) Ratio of Current Assets to Proprietors Funds: This ratio indicates the extent to which proprietors funds are invested in the current assets. CURRENT ASSETS TO = CURRENT ASSETS PROPRIETORS FUNDS PROPRIETORS FUNDS 2003-042004-052005-062006-072007-08108948616.58 60200087.8953871378.69 66067134.591358512876.12 89460008.01103478867.64 126177809.4125439734.76 118409900.71.810.821.550.821.05 INTERPRETATION: There is no rule of thumb for this ratio. It may vary depending upon firm to firm.

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CURRENT ASSETS TO PROPRIETORS FUNDS

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0

1.81 1.55

1.05 0.82 0.82

2003-04

2004-05

2005-06

2006-07

2007-08

57

SUGGESTION S

58

SUGGESTIONS For good liquidity position firm must increase its current assets like cash in hand, cash at bank, debtor etc. & it should reduce current liabilities. It is should try to use its working capital more efficiently for earning more profits. Firm must try to decrease its expensive. Firm should try to increase its sale for earning profits. Management must adopt a good strategy to meet out the more profits. Firm should increase its fixed assets and working capital must not be used for acquiring fixed properties. Firm should enhance domestic market to increase the more sales. Knowledge cannot be gained only on the basis of theoretical understanding from books. A practical insight is necessary for the learning process to complete and effective. This is especially in case of management education.

59

CONCLUSION

60

CONCLUSION In the report financial position of PARDHAN INDUSTRIES is studied with the help of various ratios. The study of financial status is divided in 3 parts: liquidity, profitability and solvencing. To make the analysis more effective a comparison of over 5 years has been made. The liquid ratio of the company seems to be in satisfactory position although it should try to improve the absolute liquid assets. In case of efficiency ratios inventory turnover ratio and debtors turnover ratio are quite satisfactory but the creditors turnover ratio is not very satisfactory. It reveals company is not getting enough credit period from its creditors. It should also improve its working capital turnover ratio and utilize working capital more effectively. The company's profit has fallen in the current year and also its cost of goods sold has increased. The company's current profit position is not satisfactory and it must reduce its wasteful expenditures. The company has raised its equity capital but should try to improve on return on investment, return on capital employed. The solvency position of PARDHAN INDUSTRIES seems to be quite satisfactory but it can certainly make it better. The company should maintain its stand on ratios like debt equity, equity ratio, and fixed assets ratio. It should take steps to reduce the solvency ratio. To sum up, it can be said that company's overall financial position is quite sound. Yet it should take steps to increase its profit and reduce wasteful expenses.

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BIBLIOGRAPY

62

BIBLIOGRAPHY S. NO.AUTHOR NAME OF BOOK 1.IM Pandey Financial management 2.M.Y. Khan & PK Jain Financial management 3.R.K. Sharma Shashi Gupta Management accounting 4.SN MaheshwariManagement accounting 5.SC Kuchhal Financial Management

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