Adi.(Ratio Analysis)

8/13/2019 Adi.(Ratio Analysis)

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A STUDY ON

RATIO ANALYSIS

With reference to

COROMANDEL FERTILISERS LTD

A project report Submitted to Andhra University, Visakhapatnam in

partial fulfillment for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

SURLA VARA PRASAD

!eg "o#$%&'()%%%(*+

Under the guidance of

MRS. K. SRIDEVI, M.B.A.,

aculty in -anagement Studies

DEPARTMENT OF MANAGEMENT STUDIES

ADITYA INSTITUTE OF P.G STUDIES

(Affliated to Andhara University)

SURAMPALEM, E.G. Dt

$%%./$%)%

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ADITYA INSTITUTE OF P.G STUDIESAffiliated to Andhra University+

0hones# %&&'$+ $'$$(1, $'$$'%, cell# .&22' *222$

ADB Road, SURAMPALEM!""#"$, Ea%t Goda&a'

D%t't

CERTIFICATE

3his is to certify that the project entitled A St*d+ o Rato

Aa-+%% I COROMANDEL FERTILIERS LTD,

VISAK/APATNAMis the bonafide record of work done by M'. S. Va'a

P'a%ad, R01. No. 234!#5333#$ during the period 23342353 in partial

fulfillment of the re4uirement for the award of the Degree of MASTER OF

BUSINESS ADMINISTRATION in ADITYA INSTITUTE OF P.G.

COLLEGEaffiliated to AND/RA UNIVERSITY5

P'o60t G*d0. /0ad o7 t80 D09a't:0t

M'%. K. S'd0& M.B.A., M'. ;. Na10d'a K*:a' M.B.A.,

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DECLARATION

6 here by declare that the project work entitled RATIO

ANALYSIS with reference to COROMANDEL FERTILISERS LTD,

VISAK/APATNAM is originally prepared and submitted by me to

AND/RA UNIVERSITY, V6SA78A0A3"A- in partial fulfillment of the

re4uirements for the award of the degree of MASTER OF BUSINESS

ADMINISTRATION.

3he empirical findings in the report are based on the data collected

by me while preparing this project5 6t has not been submitted to any other

university or publication at any time before5

PLACE< S.VARA PRASAD

DATEecution of

a firms activities5 3hus, while performing the inance -anager should strive

to ma>imiEe the market value of share5

Finance Decisions:-

Decision under finance function includes#

)5 6nvestment Decisions5

$5 inance Decisions5

15 Dividend Decisions

(5 =i4uidity Decision5

INVESTMENT DECISION:-

6nvestment decision involves the careful selection of profitable

investment proposals, allocation of funds to the investment proposals with a

view to obtain the net present value of the future earnings of company and

to ma>imiEe its value5

6nvestment decision involves the decision of allocation of capital to

long term assets capital budgeting decisions+ and short term assets

management of working capital+ two important aspects of the investment

decisions are evaluation of the prospective profitability of new investments5

3he measurement of cut/off rate against that the prospective return of new

investments could be compared5 6nvestment decision involves risk, because of

uncertain future investment proposals should, therefore be evaluated in terms

of both e>pected return and risk5

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FINANCE DECISION:-

inance function includes where, where and how to ac4uire funds to

meet the firm investments needs determining the proposition of e4uity and

debt i5e5, ?apital Structure of the firm5 :nce optimum capital structure is

designed finance manager raises the appropriate amount through the best

available sources5 6n this area, one must be concentrated on debt e4uity mi>,

the advantages and disadvantages of having debt component in capital mi>,

impact of ta>ation and depreciation on earning per share etc5

DIVIDEND DECISION:-

Dividend decision is where the financial manager must decide

whether the firm should distribute all profits or distribute a portion and retain

the balance5

3he optimum dividend policy is that which ma>imiEes the market

value of the shares5 or this determination of optimum dividend payment rate

is essential the payment return is e4uivalent to the percentage of dividends to

earning available to shareholders5

I!UIDIT" DECISION:-

inance decision is generally affected by current assets management,

so current assets should be managed efficiently for safeguarding the firm

against the damages of lack of li4uidity5 3he main aim of decision is that to

ensure that neither more is invested in current assets nor it should have

insufficient investment in current assets5

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DEFINITION OF CORPORATION FINANCE@FINANCE

MANAGEMENT


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=8at % F0't-0'%

Agriculture is an important economic activity and serves as a back

bone for economic development of a developing county like 6ndia5

Agriculture is a very vital sector of 6ndias economy5 3i accounts for 1$H of

the countries ;D0, provides employment to 2'H of the work force and earns

$*H of 6ndias foreign e>change5 Agriculture is helpful in accelerating the

growth and improving the economy of the people5

3herefore, growth of agriculture is an indicator of health of the

overall economy5 3he most important factor that contributes to the growth of

agriculture is the use of fertiliEers5 6ndia soil has been depleted of the

essential nutrients re4uired for the healthy growth and desired yield of crops5

3hese scarce nutrients, which help in providing nitrogen, phosphorus,

calcium and iron necessary for the healthy growth of the crop5 -any

industries in the company also depend on agricultural output, which serves as

raw materials for their plants5

8ence fertiliEer industry has been selected for study5 ?oromandel

fertiliEer is standing out position of the rest5 6t plays a major role by

contributing around )152*H of the total production of fertiliEer in 6ndia5

-oreover, total arable land being limited, the only way out for the future is to

increase yield through judicious application of fertiliEers and pesticides5 ?=

is well positioned to help the country address this challenge5

?oromandel is an enterprise that contributes its products towards

development of agriculture5 3he companys ambience and goodwill has

attracted me to select the company5 3he company has different departments

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like inance, -arketing, and -anufacturing etc5 6 have done my project in

finance department of ?oromandel ertiliEers =imited5

OB;ECTIVIES OF T/E STUDY

3he study of the ratio analysis is carried out to fulfill the following

objectives5

3o know about the business activities of ?:!:-A"D9=9!36=6I9!S =6-639D5

3o find out the li4uidity position of the company through li4uidityratios5

3o know about the long term solvency of the company from time totime5

3o find out the operating efficiency of the company through the

profitability, activity ratios5

3o find out the capacity of the company in meeting the operatinge>penses like interest on debt capital, the companys debtors

collection period and its credit terms etc5

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NEED OF T/E STUDY

3he study has various benefits to various parties directly or+ indirectly and

has great significance5

3his study gives me a practical insight into the organiEations

activities and enables me to know the practical problems and

solutions in ?oromandel ertiliEers =imited main the area of

inancial -anagement5

6t is beneficial to top -anagement of the company by providing

crystal clear picture of various aspects contributing for co+ i5e5,

inancial position etc55

3he study is also beneficial to employees and offers motivation by

showing various activities contributing for company growth5

3he investors who are interested in the companys shares will also

get benefits by going through the study and can easily take a

decision whether to invest or not in the company shares5

6t is helpful in financial as it focuses on daily cash flows

management and funds flow management in the organiEation5

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inance plans are central instruments for directing and co/ordination

the financial effort5

MET/ODOLOGY

3he information is collected through primary and secondary sources

during this project5 And some of the important 6nformation presented in this

study with respect to ?= is taken from -ethodology adopted this study is

two fold in nature5 :ne information through discussion and second

publications5 3he study period is of two months duration5

3he source of information can be categoriEed into primary and

secondary sources5

P':a'+ dataecutives and others were busy the study was

primarily focused on secondary data5

?omparison of ?orianders performance with other organiEations

was not possible since the financial statements of other organiEations

were not available5

Duration of time is also a limitation5

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C/APTERII

INDUSTRY ANALYSIS

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FERTILIER INDUSTRY AT NATIONAL LEVEL

ertiliEers are of immense value to man5 3hey help the growth of

agriculture production5 6ndia is primarily an agricultural or an agro based

country5 8ence, it provides an immense role in providing support to millions

of people of the country5

3he use of fertiliEers enables the plant to increase the crop

production by absorbing greater amount of nutrients present in the soil5

8ence, the fertiliEers sector is one of the vital sectors in the economy of the

country5

:f late, a large number of private and public sector fertiliEer plants

have come up in the country5 3hese plants engage themselves in the

production of several simple and comple> fertiliEers such as urea, ammonium

phosphate and other comple> nitrogenous and phosphate fertiliEers, which

play a strategic role in catering to the needs of the various sectors of the

society5

Some of the major fertiliEers making companies are "agarjuna

ertiliEers and chemicals =td5, ?oromondel ertiliEers =td5, are the major

0hosphoric plants in the country5 6n fact, all the other fertiliEer "agarjuna

ertiliEers and ?hemicals =td5, ?oromandel ertiliEers =td5, are the major

0hosphoric plants in the country5 6n fact, all the other fertiliEer plants in the

country are either nitrogenous or 0otash based5

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MEANING AND ESSENTIAL ELEMENTS ertiliEerC5 0rimary nutrients "itrogen "+, 0hosphorus 0$:'+ and

0otash 7$:+ are normally supplied through chemical fertiliEers5

/ISTORY OF INDIAN FERTILIER INDUSTRY the selling prices of fertiliEers

providing for distributors margins

6n ).**, the ;overnment introduced a retention price scheme for

nitrogenous fertiliEers, which was lager e>tended to other fertiliEers5

3o make ade4uate 4uality of fertiliEers available to farmers in time,

;overnment also gave a freight subsidy, which covered the

movement of fertiliEers to the block head 4uarters5

Due to ample mishandling political interference, ;overnment gave

up all those plans and gave permissions for decontrol of 0hosphate

and 0otassium fertiliEers to the block head4uarters5

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PRESENT TRENDSisting plans to enable them to

achieve a production increase of $'/1%H5 3his did not help the units because

of the policy changes in )..$ resulting in decontrol of phosphate fertiliEers5

3he major objective of .thplan )..*/$%%$+ strategy is to frame long

term feed stock and price policies for fertiliEers and the steady tapering off of

subsidies5 6t also aims to encourage inflow of fresh investments and bring

about an increase in fertiliEer consumption5 3o realiEe optimum application,

the large price disparity between the different nutrients to rely optimum

applications will also have to be corrected5 6nfrastructure will have to be

strengthened to ensure smooth rail movement of fertiliEers and port handling

of imported nutrients5

3he lack of coherent fertiliEer policy made difficult by the political

uncertainties created by coalition compulsion at the ?entre, is telling on the

health of this vital industry, through production wise it has a better year in

)..*/.& than in the previous year5 3his underlined the need for the

comprehensive fertiliEer policy5 As a response to this, a high power

committee recommended scrapping of unit wise retention price cum subsidies

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scheme for both urea and comple> fertiliEers to facilitate balanced application

by farmers5 3he pricing methodology was based on long/range marginal cost

principle to enhance production efficiency5 3his pricing formula was also

proposed to increase new investments and efficient use of feedstock5

ertiliEer Association of 6ndia welcomed the suggestions to bring the

price DA0 and other comple> fertiliEers in line with the selling price or urea

to minimiEe in balance in price ration and promote balance fertiliEer use5

8aving become the 1rdlargest producer, 6ndias production of plant nutrients

during )..*/.& registered growth of )* and )2 percent5 3he major factor

responsible for improve production was the improvement in the feedstock

supply position5

LEGAL IMPLICATIONS

6n order to enforce discipline among the fertiliEer manufacturers,

government introduced number of legislative measures for supply of standard

fertiliEers to the ultimate consumers5

ESSENTIAL COMMODITIES ACT, 5!!(ECA)

3his was enacted by 0arliament on )/(/'' to regulate the

production, supply distribution, trade and commerce of essential commodities

in 6ndia, ertiliEer defined as one of the essential commodities5

FERTILIER MOVEMENT CONTROL ORDER, 5$"

3his was promulgated under Sec/1 or 9?A to ensure e4uitable

distribution of fertiliEers in different parts of the country, movement of

fertiliEers from one state to another is possible when authoriEed by ?entral or

State ;overnment5

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FERTILIER CONTROL ORDER, 54!(FCO)

With a view to ensure that the 4uality of fertiliEers is checked at

manufacturing stage, statutory provisions have been made in the ?: that

each manufacturer has certain minimum testing facilities in their factory5

3he production of standard 4uality of fertiliEers alone does not ensure but

the fertiliEers are delivered in the same chemical and physical condition

duly protecting the nutrient contents5 -ost of fertiliEers being hygroscope

in nature, their 4uality gets deteriorated if they are not properly packed, stored

and distributed5

STANDARD OF =EIG/TS MEASURES (PACKED

COMMODITIES) RULES, 5$$

Under Section /&1 of the Act, every package shall bear thereon a

label securely affi>ed5 A definite plan and conspicuous declaration made in

accordance with the provisions of the chapter in respect of name, address, net

4uantity, month and year of manufacture, common or genetic name of the

commodity unit sale price etc5

SUBSIDIES TO FERTILIERS INDUSTRIES IN INDIAplicitly appear in the union budget,

the power and subsidies are implicitly subsidies arising on account of lower

user charged recovered from the consumers than the average cost associated

with these inputs5

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COROMANDAL FERTILIER

?oromandel ertiliEers =imited incorporated in ).2(, was the result

of the synergistic efforts of 9565D5 0arry 6ndia =imited, now belonging to the

!s5($%% core -urugappa ;roup L of the leading business houses in 6ndia,

and two major US corporations L ?hevron ?hemical ?ompany and

6nternational -inerals and ?hemical ?orporation 6-?+5 3his brought and

6ndia world Lclass technology for the production of high analysis fertiliEers5

6n )..' ?hevron ?hemical ?ompany disinvested their stake in favour of

6595D5 0arry and 6-? in end )..&5 After effecting buy/back of $% H of

?=S total shares in which the promoters did not participate, the ;roups

stake has gone up to *&51(H5 3he 6ndian inancial 6nstitutions hold about

*5'.H e4uity, the remaining )(5%*H being held by the public5

9ver since production commenced in ).2*, ?oromandel has been an

active partner of the 6ndian farmer in the filed, helping him in his efforts to

produce more from small land holdings5 6t has a crucial role in assisting 6ndia

achieve self/sufficiency in food grain production5

LOCATION OF T/E PLANTtra )(H potash5

8ighest in phosphate 1'H+

@est for cotton, groundnut, chilly, Soya beans, potato etc5,

"ot suitable for tobacco and grapes.

G'o:o' 24243 with highest "M0 in )#) ratio

Uni4ue granulation by coating prilled urea with ammonium

phosphate layer

Such granule configuration ensures efficient utiliEation for nutrients5

8ighly suitable for paddy, wheat5

G'o:o' 232335! contains 0hosphate and 0otash in the ration of )#), the

highest among the "07 fertiliEers5 6ts uni4ue features being#

PARAMFOS 5?2335"

Ammonium 0hosphate Sulphate containing "itrogen, 0hosphate and

Sulphur5

6t is the most preferred fertiliEer in drill/sown areas5

PARRY SUPER (SINGLE SUPER P/OSP/ATE)

irst chemical fertiliEer to be manufactured in 6ndia5

avoured fertiliEer for dry land areas5

?ontrols acidity in soil and increase productivity5

PARRY GOLDt in )..$5

3he @est 6! Award from A0 0roductivity council in )..'5

ACCOUNTING POLICIES

3he accounts have been prepared primarily on the historical cost

convention and in accordance with the mandatory accounting standards5 3he

significant accounting polities followed by the company are stated below5

5. F0d A%%0t% ed Assets are shown at cost or valuation less depreciation5 ?ost

comprises the purchases price and other attribute e>penses5 i>ed

assets other than leasehold landKimprovement5 :ffice e4uipment,

furniture fitting, certain vehicles and roads had been revalued on 1) st

-arch )..), based on a valuation by an approved valuer5 3he

indices, if any used are not stated in the valuation5

2. D09'0ato o F0d A%%0t%pected to be commissioned in $%%$5

"ational ertiliEers =imted, "angal 0anjab+ undertaken rebottle

necking of their ureaplant for upgrading their production levels to *

lakh tones by increasing $ lakh tonnes annually+5

A grass root urea plant is private sector by -Ks 0aharpu etiliEers,

8adia, and West @engal to produce around *5$ lakh tonnes5

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8adia, and West @engal to produce around *5$ lakh tonnes5

?oromandel ertiliEer =imited was farmed by under consortium of

two outstanding US firms and pioneer 6ndian ?ompany

6nternational minerals and ?hemicals ?orporation 6-?+, is the

worlds largest independent producer of fertiliEers5 6t manufacturers and

markets all the three major plant nutrients L "itrogen"+, 0hosphate0$:'+

and 0otash7$:+5

?hevron ranks among the worlds largest food manufacturers5 3he

company also contributes to the field of agricultural products encompassing

insecticides, fungicides and weed killers5

96D 9ast 6ndia Distilleries+ with its subsidiaries was 6ndias largest

fertiliEer producer and seller5 6t is well known in South 6ndia as compared to

"orth 6ndia do to the wide spread of Agricultural in Southern 0ort of 6ndia5

3he company ?= was fortunately incorporated on )'thuly, ).2)

but begins its operation in December, ).2*5 6t was installed with an Annual

?apacity of $5' lakh metric tonnes -3s+ of comple> fertiliEers5 3he :riginal

installed capacities assumed are#

&%,%%% -3+ metric tonnes of "itrogen

*&,%%%-3+ metric tonnes of 0hosphate

"ow, the company ?= belongs to -urugappa group a ?hemical

based industrial house who had ac4uired major holds in the year )..*/.&5

3he company has a factory at Visakhapatnam and :ffice at

@hubeneswar, @hopal, ?alcutta and "ew Delhi5 3he firm has a marketing

office at 8yderabad to lookafter the promotional activities in the state of

Andhra 0radesh5 3he company is very near to the harbour that it facilitates

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to receive raw materials5 3he company is importing li4uid Ammonia, !ock

0hosphate and Sulphur5 3he three elements which forms its raw materials5

3he company is e>tremely versatile and modern designed for easy

maintenance and efficient operations5

9ver since the ?entral ;overnment of 6ndia liberaliEed the

6ndustrial 0olicy in )..%s many companies in 6ndia in general have

struggled to face severe ;lobal ?ompletion and ?= is one the very few

companies to be able to stand up to the challenge and to do it an its own5

3his is possible because of the bread vision of the company5 3he ?ompany

that started off with an annual capacity of $5&% =akh -3 per annum in ).2*

stands with annual capacity of 25% lakh -3 of comple> fertiliEers as on today5

Another major aspect that has to be noted that the company has no

subsidiaries5

OB;ECTIVES OF CFL fertiliEers at minimum cost5

3o ma>imiEe, the efficiency of both the men and machinery

through continuous up gradation of technology and providing

training investment5

3o satisfy shareholders by giving them handsome returns on

their investment5

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S=OT ANALYSIS

ST$EN&T#S:

Very long e>perience in the field of producing and selling fertiliEers5

Up/to/date technology and continuous upgradation5

:ptimum capacity utiliEation

9njoying great brand and corporate image

Dealer and farmer loyalty5

inancially strong and firm5

"iche -arketing

Strong promotional attractive

Widespread sales network

-inimum =abour problem

Well/trained employees and good work culture5

'EA(NESS

"eglecting study based on sales promotion of retail outlets5

-arketing by intermediaries

0oor availability of product5

6mport of major raw materials

O%%O$TUNITIES

6ncreasing trend in using comple> fertiliEer areas5

=arge areas under each and oil seed crops

;rowling awareness and education among farmers community

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C/APTERIII

?OMPANY PROFILE

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Co:9a+ /%to'+

5!

6ndependent 6ndia realiEed that its largely agrarian economy needed a

thrust in the right direction for its people to benefit and prosper5 0rime

-inister awaharlal "ehru invited the ord oundation to carry out a

comprehensive study of 6ndian agriculture and give its recommendations5

3he study revealed a crucial need to produce indigenous chemical fertiliEers

to increase agricultural output to meet the countrys ever/increasing food

demand5

5?5

An industrial license was granted to three companies L 6-? the worlds

largest producer of fertiliEers then+, ?hevron ?hemical ?ompany a major

American player in fertiliEers K industrial chemicals+ and 9565D50arry 6ndia+

=imited 6ndias largest private fertiliEer producer with 2% years standing+ L

to set up a giant chemical fertiliEer comple>5

3he first @oard of Directors was constituted on :ctober )2, with 8 V !

6engar as its ?hairman5 :thers on the @oard included N ?ope, ?harles

Dennison, 7 ohn, Dr = @harat !am, A W 8orton, 3 ;ibson, S ?

Dholakia, V 7 !ao and !aja !ameswar !ao5 = = 0owell and 0 Davies were

the first -anaging Director and Dy5 -anaging Direct respectively5 Donald 6

-eikle was the first ?ompany Secretary5

5?2

-arket development commence in the form of a Bseeding programmeC5

9565D5 0arry was appointed ?=s principal sales agent in 6ndia for our

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product aptly name B;!:-:!C epitomising the idea of ;!:wing -:!e

food for the nation5

A (&15' acres site was identified at Visakhapatnam along the

B?oromandelC coast 6ndias east coast+, from where the ?ompany derived its

name5 3he land, taken under a '%/year lease from Visakhapatnam 0ort 3rust,

has a private jetty just ' km from the plant site5 With a capital investment of

!s5'% crores, =umus ?ompany undertook construction of the plant5

5?$

:n December )%, -r5 -orarji Desai, the then Deputy 0rime -inister of

6ndia, dedicated the fertiliser plant to the nation, in the presence of -r5 7asu

@rahmananda !eddy, the ?hief -inister of Andhra 0radesh5 ;randhi

!amamurthy, a local farmer, was given the honour of cutting the ribbon5

3he $(' ft high Urea prill tower was one of the tallest industrial structures

in 6ndia then5 3hough not operational today, it still presents a formidable

sight, towering against the skyline, recalling old memories for those who

were associated with its operation5

5$3

3he B;!:-:! farmerC was developed as a marketing symbol and

introduced on our bags to spread the message of Bhigher yields, bigger

profitsC5 3oday, farmer house holds across our addressable markets identify

?=s brand by this symbol5

5$5

3he B?oromandel =ectureC was instituted to provide a forum for thinkers,

economists, social and agricultural research scientists around the world to

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share their thoughts on issues of global concern such as food security,

environment and e>tension activity5

3he B@orlaug AwardC, instituted in honour of "obel =aureate Dr "orman

@orlaug father of the wheat revolution+, honours eminent men of science and

industry for their distinctive contribution to the cause of agriculture5 3his

reflects ?=s concern to develop a symbiotic interaction between

agriculture, industry and academia5

5$?

:ur fertiliser retail outlet at Secunderabad got a boost with garden lovers

fervently seeking small 4uantities of fertilisers for bigger and richer blooms

and fruit5

5$$

?= completed a decade of participation in augmenting agricultural

production for the nation5 6ts vital role covered soil nourishment, sharing

agronomic e>pertise, supporting agricultural education and rewarding

research L all of which had progressively grown in width and depth during the

decade5

543 3

0lans to diversify were afoot5 A BgroundbreakingC ceremony was

performed in "ovember ).&% at ?hilamkur Andhra 0radesh+, which is rich

in limestone deposits, to set up a one million tonne cement plant5 3he fully

computerised plant designed by world/renowned cement manufacturer

7rupp 0olysius of West ;ermany+ was commissioned in ).&(5 6t was later

sold to 6ndia ?ements in )..%1

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5!

?hevron ?hemical ?ompany divested its stake in favour of 9565D50arry 6+

=imited in )..', followed by 6-? in )...5 9565D5 0arry 6+ =imited

ac4uired majority shareholding in ?=, making it a part of the -urugappa

;roup, a highly reputed industrial conglomerate5

2333

?=s growth over the years has been punctuated with several path/

breaking modernisation K upgradation programmes5 @egun in ).*', the

programme gathered momentum in )..$/.', when the Sulphuric Acid,

0hosphoric Acid and ?omple> ;ranulation plants were debottlenecked5

0roduction capacity wend up from the original $(*,%%% -3 to (%%,%%% -35

:n September $., -r5 " ?handrababu "aidu, the then ?hief -inister of

Andhra 0radesh, inaugurated a new comple> granulation train5 3his further

augmented capacity to 2%%,%%% -3, a boon to the entire farming community5

233"

:n uly )$, ?= consolidated its business by ac4uiring controlling stake

in ;odavari ertilisers M ?hemicals =imited ;?=+5

3o optimise synergy of operations in the ;roup, the arm 6nputs Division of

9565D 0arry 6+ =imited was merged with ?= on December )5

233#

-r5 V5 !avichandran took over as 0resident M W3D on anuary $$5

-r5 A5Vellayan took over as ?hairman on September )5

:ther Directors on the @oard are -r5 5ayaraman, -r5-5-5-urugappan,

-r5 35-5- "ambiar , -r5 -5753andon, -r5 D595Udwadia, -r5

S5Viswanathan M -r575A5"air5

3he first post/merger A;- of the ?ompany was held on uly )'5

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Loato%

?=Os has fertiliser plants in Visakhapatnam, 9nnore and !anipet and 0lant

0rotection ?hemicals plant at "avi -umbai, !anipet and ammu5 6t also has

marketing branches in the following states#

-adhya 0radesh

?hattisgarh

:rissa

Andhra 0radesh

7arnataka

3amilnadu

0unjab

8aryana

!ajasthan

;ujarat

-aharashtra

7erala

3amilnadu

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Aa'd% R0o1to%

3he A6 @est 0roduction 0erformance Award L $%%2 for the 0hosphoric

Acid 0lant at ViEag,

Award for $%%'/%2 @est 9nergy ?onservation in the ertiliser sector

received by ViEag 0lant on December )( $%%2, "ational 9nergy

?onservation Day5

3he A6 @est Video ilm Award L $%%2 for the film on F;romor

Sulphur for the 'th time5

"ational Award )st 0riEe+ for 8ouse ournal L $%%2 from 3he 0ublic

!elations Society of 6ndia, "ew Delhi, received for F3he Voice

house journal + for the $nd consecutive year5

"ational Award $nd 0riEe+ for Video ilm L $%%2 from 3he 0ublic

!elations Society of 6ndia, "ew Delhi received by -arketing

Department ertilisers + for the film B?heyuthaC 8elping 8and+

@ritish ?ouncil Five Star rating for Safety -anagement System in

)..&5

irst priEe for safety, among the )2$ fertiliser companies in the

6nternational ertiliser 6ndustries Sectional ?ontest5

Andhra 0radesh 0ollution ?ontrol @oards award for FWaste

-inimisation at Source and Adopting ?leaner 3echnologies for

$%%)/%$5

A6 award for F9nvironmental 0rotection in "0K"07 ertiliser 0lant

?ategory for )..'/.25

(*


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M%%o V%o

Vision:

3o be the leader in the phosphatic fertiliser industry, producing high

4uality fertilisers at low cost and giving satisfaction to all stake holders5

%)r*ose + Mission

3o enhance the prosperity of farmer through the supply of 4uality

farm inputs and related services to ensure value for money5

Va-*0% B0-07%

Adhere to ethical norms in all dealings with shareholders,

employees, customers, suppliers, financial institutions and

government

0rovide value for money to customers through 4uality

products and services

3reat our people with respect and concernJ provide opportunities to

learn contribute and advanceJ recogniEe and reward initiatives,

innovativeness and creativity5

-aintain an organiEation climate conducive to trust, open

communication and team spirit5 a style of operation befitting our

siEe, but reflecting moderation and humility

-anage environment effectively for harnessing opportunities

Discharge responsibilities to various sections of society and preserve

environment5

(&


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;row in an accelerated manner, consistent with values and beliefs,

by continuous organiEation renewal5

E,*orts

:ur products are e>ported to several countries5 We have our own

registrations for our products in several countries5 We also operate through

agents or distributors in countries where they have registered our products5

:ur e>ports presently account for about 1% H of the turnover

(.


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C/APTERIV

T/EORETICAL FRAME =ORK

'%


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RATIO ANALYSIS

!atio analysis is widely used tool of financial analysis5 3he term

ratio in it refers to the relationship e>pressed in mathematical terms

between two individual figures or group of figures connected to each other 6

some logical manner and are selected from financial statements of the

concern5 3he ratio analysis based on the fact that a single accounting figures

by itself may not communicate any meaningful information but when

e>pressed as a relative to some other figure, it may definitely provide

some significant information5 3he relationship between two accounting

figures in such a way that users can draw conclusions about the

performance, strengths and weaknesses of a firm5

CLASSIFICATION OF RATIOS


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!UIC( $ATIO:-

Nuick ratio is also called acid/test ratio, established a relationship

between 4uick or+ li4uid assets and current liabilities5 An asset 6s li4uid if it

can be converted into cash immediately or+ reasonably soon without a loss of

value5 ?ash is the most li4uid asset5

FO$MUA:-

?urrent Assets / 6nventories

Nuick !atio P

?urrent =iabilities

CAS# $ATIO:-

Since cash is the most li4uid asset, a financial analyst may e>amine

cash ratio and its e4uivalent to current liabilities5 3rade investment or+

marketable securities is e4uivalent of cash thereforeJ they may be included in

the computation of cash ratio5

FO$MUA:-

?ash Q -arketable Securities

?ash !atio P

?urrent =iabilities

According to conventional rule a cash ratio of %5'#) is applicable5

NET 'O$(IN& CA%ITA $ATIO:-

3he difference between current assets and current liabilities

e>cluding shot/term bank borrowing is called "et Working ?apital "W?+

or+ "et ?urrent Assets "?A+5 "et working capital is sometimes used as a

measure of a firms li4uidity5

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FO$MUA:-

"et Working ?apital

"et Working ?apital !atio P

"et Assets

EVE$A&E $ATIO:-

3he short/term creditors, like bankers and suppliers of raw material,

are more concerned with the firms current debt/paying ability5 :n the other

hand, long/term creditors like debenture holders,financial institutions etc5 are

more concerned with the firms long/term financial strength5 6n fact, a firm

should have a strong short as well as long/term financial position of the firm5

inancial leverage or+ capital structure ratios are calculate5

3hese ratios show the proportion of debt and e4uity in financing the

assets5 3hese ratios are classified in the following categories5

Debt !atio

Debt/e4uity !atio

?apital 9mployed to "et Worth !atio

:ther Debt !atios

6nterest ?overage !atio

DET $ATIO:-

Several debt ratios may be used to analyEe the long/term solvency of

firm5 3he firm may be interested in knowing the proportion of the interest

bearing debt funded debt+ in the capital structure5

6t may, therefore, compute debt ratio by dividing total debt by capital

employed or+ net assets5

'(


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FO$MUA:-

3otal Debt 3otal Debt

Debt !atio P or+

?apital 9mployed "et Assets

NOTE:-

3he capital employed e4uals net assets that consist of net fi>ed

assets and net current assets5 "et current assets are current assets minus

current liabilities e>cluding interest bearing short/term debt for working

capital5 3hese relationships are

"et i>ed Assets Q ?urrent Assets

"A+ Q ?A+ P "W Q 3D Q ?=

"A Q ?A L ?= P "W Q3D

"A Q "?A L ?= P "W Q 3D

"A P ?9

DET E!UIT" $ATIO:-

3he relationship between the lenders contributions for each rupee of

the owners contribution is called BDebt 94uity !atioC5 3he ratio measures

the relative claims of creditors and owners against the firm assets5

3he ratio should be optimum higher ratio is profitable debt e4uity

ratio shows the relation between long/term debt and share holders funds5

FO$MUA:-

3otal Debt

Debit 94uity !atio P

''


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"et Worth

CA%ITA EM%O"ED TO NET 'O$T# $ATIO:-

3here is yet another alternative way of e>pressing the basic

relationship between debt and e4uity5 3his can be find out by using the below

formula5

FO$MUA:-

?apital 9mployed

?apital 9mployed to "et Work !atio P

"et Worth

OT#E$ DET $ATIO:-

?urrent liabilities are generally e>cluded from the computation of

=everage !atio5 :ne may like to include them on to ground that they are

important determinates of the firms financial risk since they represent

obligations and e>ert pressure on the firm and restrict its activities5

FO$MUA:-

3otal =iabilities

3otal =iabilities to =ong/term und !atio P

3otal Assets

INT$EST COVE$A&E $ATIO:-

3he interest coverage ratio or the times/interest Learned is used to

test the firms debt L servicing capacity5 3he interest coverage ratio is

computed by dividing earnings before interest and ta>es 9@63+ by interest

charges5

FORMULA


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6nterest

'*


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ACTIVITY RATIO

unds of creditors and owners are invested in various assets to

generate sales and profits5 3he better the management of assets, the larger the

amount of sales5 Activity ratios are employed to evaluate the efficiency with

which the firm manages and utiliEes its assets5 3hese ratios are also called

B3urnover !atios C because they indicate the speed with which assets are

being converted or+ turned over into sales5

Activity !atios, thus, involve a relationship between sales and

assets5 3he Activity ratios are classified into some categories such as

6nventory 3urnover !atio

Debtors 3urnover !atio

Assets 3urnover !atio

Average ?ollection 0eriod

Working ?apital 3urnover !atio

INVENTO$" TU$NOVE$ $ATIO:-

6nventory 3urnover indicates the efficiency of the firm in producing

and selling its product5 6t is calculated by dividing the cost of goods sold by

the average inventory5

FO$MUA:-

?ost of ;oods Sold

6nventory !atio P

Average 6nventory

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3he average inventory is the average of opening and closing

balances of inventory5 6n a manufacturing company inventory of finished

goods is used to calculate inventory turnover5

DETO$ TU$NOVE$ $ATIO:-

A firm sell goods for cash and credit5 ?redit is used as a marketing

tool by a number of companies5 When the firm e>tends credits to its

customers, debtors are created in the firms accounts5 Debtors are convertible

into cash over a short period and therefore, are included in current into cash

over a short period and therefore, are included in current assets5

Debts turnover is also called as Account !eceivable 3urnover5

Debtors turnover is found out by dividing credit sales by average debtors5

FO$MUA:-

?redit Sales

Debtors 3urnover !atio P

Average Debtors

Debtors turnover indicates the number of times debtors turnover each

year5 ;enerally, the higher the value of debtors turnover, the more efficient is

the management of credit5

AVE$A&E COECTION %E$IOD:-

3he average number of days for which debtors remain outstanding is

called the BAverage ?ollection 0eriodC5

"o5of Days in a year 12%+

Average ?ollection 0eriod P

Debtors 3urnover

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Debtors

R "o5 of Days in a year 12%+

Sales

3he collection period ratio thus helps an analyst in two respects5

6n determining the collectability of debtors and thus, the efficiency

of collection efforts5

6n ascertaining the firms comparative strength and advantage

relative to its credit policy and performance vis//vis the

competitors credit policies and performance5

ASSETS TU$NOVE$ $ATIOS:-

Assets are used to generate sales5 3herefore, a firm should manage

its assets efficiently to ma>imiEe sales5 3he relationship between sales and

assets is called BAssets 3urnoverC5 Several assets turnover ratios can be

discussed below.

NET ASSETS TU$NOVE$:-

3he firm can compute B"et Assets 3urnoverC simply by dividing

sales by net assets5

FO$MUA:-

Sales

"et Assets 3urnover !atio P

"et Assets

2%


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TOTA ASSETS TU$NOVE$ $ATIOS:-

Some analysts like to compute the total assets turnover in addition to

or+ instead of the net assets turnover5 3his ratio shows the firms ability in

generating sales from all resources committed to total assets5

FO$MUA:-

Sales

3otal Assets 3urnover !atio P

3otal Assets

FI.ED AND CU$$ENT ASSETS TU$NOVE$:-

3he firm may wish to know its efficiency of utiliEing fi>ed assets

and current assets separately5

FO$MUA:-

Sales

i>ed Assets 3urnover !atio P

"et i>ed Assets

3he current assets turnover is

Sales

?urrent Assets 3urnover !atio P

?urrent Assets

'O$(IN& CA%ITA TU$NOVE$ $ATIO:-

A firm may also like to relate net current assets or+ net working

capital gap to sales5 6t may thus compute net working capital turnover by

dividing sales by net working capital5

2)


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FO$MUA:-

Sales

"et Working ?apital 3urnover !atio P

"et ?urrent Assets

PROFITABILITY RATIOSimiEing profits, irrespective of concerns for customers, employees,

suppliers or+ social conse4uences5 6t its unfortunate that the word B0rofit Cis

looked upon as a term of abuse since some firms always that want to

ma>imiEe profits at the cost of employees, customers and society5

0rofit is difference between revenues and e>penses over a period of

time5 0rofit is ultimate B:utputC of a company, and will have no future if it

fails to make sufficient profits5 3he profitability ratios are calculated to

measure the operating efficiency of a company5

;enerally, two major types of profitability ratios are calculated such as

0rofitability in relation to Sales

0rofitability in relation to investment5

3he following are the some of important profitability !atios5

;ross profit -argin

"et profit -argin

!eturn on 6nvestment

!eturn on 94uity

!eturn on ?apital 9mployed

2$


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3he conventional approach of calculating return on investment is to

divide 0A3 by 6nvestment5 6t is therefore appropriate to use one of the

following measures of !eturn on investment for comparing the operating

efficiency of firms5

FO$MUA:-

"et 0rofit After 3a>

!eturn of 3otal Assets P

3otal Assets

$ETU$N ON E!UIT":-

A return on shareholders e4uity is calculated to see the profitability

of owners investment5 3he share holder e4uity are net worth will include

paid up share capital, share premium and surpluses less accumulated losses5

"et worth can also be found by subtracting total liabilities form total assets5

FO$MUA:-

0rofit After 3a>

!eturn of 94uity P

"et Worth

O%E$ATIN& %$OFIT MA$&IN:-

3a>es are not controllable by a firm, and also, one may not know the

marginal corporate ta> rate while analyEing the published data5 3herefore, the

margin ratio may be calculated on before ta> basis5

FO$MUA:-

9@63

:perating 0rofit !atio P

"et Sales

2(


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C/APTERV

ANALYSIS AND INTERPRETATION

2'


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CURRENT RATIO

?urrent ratio may be defined as the relationship between current

assets and current liabilities5 3his ratio, also known as working capital ratio,

is a measure of general li4uidity and is most widely used to make the analysis

of a short/term financial position or li4uidity of a firm5

?U!!9"3 ASS93S

?U!!9"3 !A36: P

?U!!9"3 =6A@6=6369S

?alculation of ?urrent !atio of ?=5 rom $%%(/%' to $%%&/%.

(R%. -aH8%)

YEA

R

C*''0t

a%%0t%

C*''0t

La-t0%

C*''0

t

'ato

$%%(/$%%' '(($%5(' $*)2)5') $5%%

$%%'/$%%2 .2.&152( (.&$'52$ )5.(

$%%2/$%%* ))*1*15.

&

'1'.&5&( $5).

$%%*/$%%& )2$**25.

)

*1).'5&& $5$$

$%%&/$%%. 1*$21&52

$

).*)125)) )5&.

3able )5&

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Inter*retation: -

rom the above table it is clear that the ratio is increased in the year

$%%(/%' by $H this is due to increase in current assets5 6n the year $%%'/%2

the ratio is decreased by 1H due to increase in current assets5 6n the year

$%%2/%* the ratio is increased by )$H and in the year $%%*/%& it was

increased by )H this is due to increase in current assets and it will show the

how firm maintains the margin of safety5

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GRAP/ICAL REPRESENTATION

CURRENT RATIO

1.8

1.9

2

2.1

2.2

2.3

2004-2005 2005-2006 2006-2007 2007-2008

YEARS

RS

INL

AKHS

Current ratio

2008-2009

2&


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UICK RATIO

Nuick ratio is also known as =i4uid !atio or Acid 3est !atio5 3he

term li4uidity reforms to the ability of a firm to pay its short term obligation

as and when they become due5 Nuick ratio may be defined as the relationship

between NuickKli4uid assets and current or li4uid liabilities5 An asset is said

to be li4uid if it can be converted into cash within a short period without loss

of value5

NU6?7 ASS93S

NU6?7 !A36:P

?U!!9"3 =6A@6=6369S

NU6?7 ASS93S P ?U!!9"3 ASS93S/ 6"V9"3:!69S Q 0!90A6D

9T09"S9S+

Ca-*-ato o7 *H Rato o7 CFL. F'o: 233#3! to 23343

(R%. -aH8%)

Y0a' *H

A%%0t%

C*''0t

La-t0%

*H

Rato

$%%(/$%%'

)1$&15&

.

$*)2'5') %5(.

$%%'/$%%2

)1)%&5%

.

(.&$'52$ %5$2

$%%2/$%%*

11%%%5*

'

'1'.&5&( %52$

$%%*/$%%&

)2&.%5'

.

*1).'5&& %5$1

$%%&/$%%.

&&%$&5&

'

)211%252* %5'(

2.


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3able )5.

It0'9'0tato# /

rom the above table it is clear that the ratio is increased in the

year $%%(/%' by $*H due to decrease li4uid assets5 6n the year $%%'/%2 the

ratio is decreased by (*H5 6n the year $%%2/%* the ratio is increased by )1&H

due to increase in li4uid assets5 6n the year $%%*/%& the ratio is decreased by

2$H due to decrease in li4uid assets 4uick ratio not satisfactory5

*%


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QUICK RATIO

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

YEARS

RS

IN

LAKHS

Quick Ratio

*)


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NET =ORKING CAPITAL RATIO

3he difference between current assets and current liabilities is called

"et Working ?apital5 3he "et Working ?apital ratio is calculated by dividing

net working capital with net assets or capital employed5 ?urrent asserts

include cash and bank balances, investment, raw materials, advance

payments, consumable stores and spares, finished goods, stock in process K

semi finished goods, sundry debtors, prepaid e>penses5 ?urrent liabilities

consists of account payable, short/term notes payable, current matures of long

term debt, accrued income ta> and other accrued e>penses5 "et assets include

"et Working ?apital and finished assets5

3he ratio is used as a measure of firms li4uidity5 3he ratio measures

the firms potential reservoir of funds5

W:!76"; ?A063A=

"93 W:!76"; ?A063A= !A36: P

3:3A= ASS93S

*$


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Ca-*-ato o7 N0t =o'H1 Ca9ta- Rato o7 CFL. F'o: 233"3# to

233$34

(R%. LaH8%)

Y0a' =o'H1

Ca9ta-

Tota-

A%%0t%

N0t =o'H1

Ca9ta-

$%%(/$%%' $*$'&5.( '(($%5(' %5'%

$%%'/$%%2 (*)'&5%$ .2.&152( %5(.

$%%2/$%%* 21**'5)( ))*1*15.& %5'(

$%%*/$%%& &.'&)5%1 )2$**25.) %5''

$%%&/$%%. ).*)125)) $.$2'%5*' %52%

3able $5%

It0'9'0tato#

rom the table it is clear that the ratio is increased in the year $%%(/%' by $H

due to increase in current assets5 6n the year $%%'/%2 the ratio is increased by

$H5 6n the year $%%2/%* the ratio is increased by )%H and in the year $%%*/%&

the ratio is increased by $H due to increase currentassets and this will tell the

reservoir of funds is related to the net current assets.

*1


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0

0.1

0.2

0.3

0.4

0.5

0.6

RS IN LAKHS

2004-

2005

2005-

2006

2006-

2007

2007-

2008

2008-

2009

YEARS

NET WORKING CAPITALRATIO


*(


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DEBTORS TURNOVER RATIO

Debtors turnover ratio indicates the velocity of debt collection of

firm5 6n simple it indicates the number of times average debtors are turned

over during a year5 ;enerally the higher the value of debtors turnover the

more efficient is the management of debtorsKsales or more li4uid the debtors5

Similarly low debtors turnover implies inefficient management of

debtorsKrates and less li4uid debtors5

"93 ?!9D63 A""UA= SA=9S

D9@3:!S 3U!":V9! !A36: P

AV9!A;9 D9@3:!S

:09"6"; D9@3:!SQ?=:S6"; D9@3:!S

AV9!A;9 D9@3:!S P

$

Ca-*-ato o7 D0to'% T*'o&0' Rato o7 CFL. F'o: 233#3! to 23343

!s5 6n =akhs+

Y0a'N0t C'0dt

Sa-0%

A&0'a10

D0to'%

D0to'%

T*'o&0'

Rato

$%%(/$%%' ))%$&&5.. )1%'&52' &5('

$%%'/$%%2 )$(1')5(( )%11*5(& )$5%1

$%%2/$%%* )(%1.*5)$ )112151% )%5')

$%%*/$%%& $$%'.&5&( )1)''5$* )25&$

$%%&/$%%. $$%).'5*% )%(1151% $)5)%

3able $5)

Inter*retation: -

*'


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rom the above table it is clear that the ratio is decreased in the year $%%(/%'

by )H this is due to decrease in credit sales5 6n the year $%%'/%2 the ratio is

increased by ($H due to increase in credit sales5 6n the year $%%2/%* the ratio

is decreased by )1H due to decreases in credit sales and in the year $%%*/

%& the ratio is increased by 2H this is due to huge increase in credit sales5

6n the year $%%&/%. the ratio is increased by 'H due to increase in credit

sales5

*2


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0

5

10

15

20

25

LAKHS

2004-

2005

2005-

2006

2006-

2007

2007-

2008

2008-

2009

YEARS

DEBTORS TURNOVER RATIO

RATIO

AVERAGE COLLECTION PERIOD

**


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INVENTORY TURNOVER RATIO

9very firm has to maintain a certain level of inventory, so as to meet

the re4uirements of the business 5@ut the level of inventory should neither be

0

5

10

1520

25

30

35

40

45

DAYS

2004-

2005

2005-

2006

2006-

2007

2007-

2008

2008-

2009

YEARS

AVERAGE COLLECTION PERIOD

RATIO

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too high nor too low5 6nventory turnover ratio is also known as stock velocity5

6t would indicate whether inventory has been efficiently used or not5

?:S3 : ;::DS S:=D

6"V9"3:!< 3U!":V9! !A36:P

AV9!A;9 6"V9"3:! or compound fertiliEers5

15 mi>ed fertiliEers5

?oromondal fertiliEers ltd was established in the year ).2( at

visakhapatnam near sriharipuram5 9T6- bank of WAS86";3:" , US and

industrial development bank of 6ndia provided the financial assistance to the

company5the plant started its production from December ).2*5

?oromandal has paid been concrn towards environment and other pollution

control measures5

3here are two concepts of working capital 5they are gross concept

and net concept5 3he gross working capital concept focuses attention on two

aspects of current assets management5

a+ optimum investment in current assets and

b+ financing of current assets5

.*


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3he net working capital concept focuses attention on two as pects of

current assets and current liabilities management5

a+ in indicates the li4uidity position of the firm and

b+suggests the e>tent to which working capital needs may be financed by

permanent sources of funds5

?oromndal is maintaining good working capital turnover5 Usually any

firm tries to decrease length of its operating cycle 5 even coromandal

fertiliEers ltd5, has made successful attempt to reduce its operating cycle5

.&


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BIBLIOGRAP/Y

BOOKSI.M.PANDEY

Faa- :aa10:0t >PRASANNA C/ANDRA

Maa10:0t ao*t1 >S.N.MA/ES=ARI

=0%t0< .7-da.o:

Adi.(Ratio Analysis)

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Transcript of Adi.(Ratio Analysis)