ratio analysis of vpl.

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INTRODUCTION

The Indian textile industry has a significant presence in the economy as well as in the

international textile economy. Its contribution to the Indian economy is manifested in

terms of its contribution to the industrial production, employment generation and foreign

exchange earnings. It contributes 20 percent of industrial production, 9 percent of excise

collections, 18 percent of employment in the industrial sector, nearly 20 percent to the

countrys total export earning and 4 percent to the Gross Domestic Product.

In human history, past and present can never ignore the importance of textile in a

civilization decisively affecting its destinies, effectively changing its social scenario. A

brief but thoroughly researched feature on Indian textile culture.

HISTORY OF TEXTILE INDUSTRY

India has been well known for her textile goods since very ancient times. The traditional

textile industry of India was virtually decayed during the colonial regime. However, the

modern textile industry took birth in India in the early nineteenth century when the first

textile mill in the country was established at fort gloster near Calcutta in 1818. The

cotton textile industry, however, made its real beginning in Bombay, in 1850s. The first

cotton textile mill of Bombay was established in 1854 by a Parsi cotton merchant then

engaged in overseas and internal trade. Indeed, the vast majority of the early mills were

the handiwork of Parsi merchants engaged in yarn and cloth trade at home and Chinese

and African markets.

The first cotton mill in Ahmedabad, which was eventually to emerge as a rival centre toBombay, was established in 1861. The spread of the textile industry to Ahmedabad was

largely due to the Gujarati trading class.

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The cotton textile industry made rapid progress in the second half of the nineteenth

century and by the end of the century there were 178 cotton textile mills; but during the

year 1900 the cotton textile industry was in bad state due to the great famine and a

number of mills of Bombay and Ahmedabad were to be closed down for long periods

The two world War and the Swadeshi movement provided great stimulus to the Indian

cotton textile industry. However, during the period 1922 to 1937 the industry was in

doldrums and during this period a number of the Bombay mills changed hands. The

second World War, during which textile import from Japan completely stopped,

however, brought about an unprecedented growth of this industry. The number of mills

increased from 178 with 4.05 lakh looms in 1901 to 249 mills with 13.35 lakh looms in

1921 and further to 396 mills with over 20 lakh looms in 1941. By 1945 there were 417

mills employing 5.10 lakh workers.

The cotton textile industry is rightly described as a Swadeshi industry because it was

developed with indigenous entrepreneurship and capital and in the pre-independence era

the Swadeshi movement stimulated demand for Indian textile in the country.

The partition of the country at the time of independence affected the cotton textile

industry also. The Indian union got 409 out of the 423 textiles mills of the undivided

India. 14 mills and 22 per cent of the land under cotton cultivation went to Pakistan.

Some mills were closed down for some time. For a number of years since independence,

Indian mills had to import cotton from Pakistan and other countries.

After independence, the cotton textile industry made rapid strides under the Plans.

Between 1951 and 1982 the total number of spindles doubled from 11 million to 22million. It increased further to well over 26 million by 1989-90

Textile constitutes the single largest industry in India. The segment of the industry during

the year 2000-01 has been positive. The production of cotton declined from 156 lakh

bales in 1999-2000 to 1.40 lakh bales during 2000-01. Production of man-made fibre

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increased from 835 million kgs in 1999-2000 to 904 million kgs during the year 2000-01

registering a growth of 8.26%. The production of spun yarn increased to 3160 million

kgs during 2000-01 from 3046 million kgs during 1999-2000 registering a growth of

3.7%. The production of man-made filament yarn registered a growth of 2.91% during

the year 1999-2000 increasing from 894 million kgs to 920 million kgs. The production

of fabric registered a growth of 2.7% during the year 1999-2000 increasing from 39,208

million sq mtrs to 40,256 million sq mtrs. The production of mill sector declined by 2.6%

while production of handloom, powerloom and hosiery sector increased by 2%, 2.7% and

5.1% respectively. The exports of textiles and garments increased from Rs. 455048

million to Rs. 552424 million, registering a growth of 21%. Growth in the textile

industry in the year 2003-2004 was Rs. 1609 billion. And during 2004-05 production of

fabrics touched a peak of 45,378 million squre meters. In the year 2005-06 up to

November, production of fabrics registered a further growth of 9 percent over the

corresponding period of the previous year. With the growing awareness in the industry of

its strengths and weakness and the need for exploiting the opportunities and averting

threats, the government has initiated many policy measures as follows.

STRUCTURE OF INDIAS TEXTILE INDUSTRY

The textile sector in India is one of the worlds largest. The textile industry today is

divided into three segments:

1. Cotton Textiles

2. Synthetic Textiles

3. Other like Wool, Jute, Silk etc.

All segments have their own place but even today cotton textiles continue to dominate

with 73% share. The structure of cotton textile industry is very complex with co

existence of oldest technologies of hand spinning and hand weaving with the most

sophisticated automatic spindles and loom. The structure of the textile industry is

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extremely complex with the modern, sophisticated and highly mechanized mill sector on

the one hand and hand spinning and hand weaving (handloom sector) on the other in

between falls the decentralised small scale powerloom sector.

Unlike other major textile-producing countries, Indias textile industry is comprised

mostly of small-scale, nonintegrated spinning, weaving, finishing, and apparel-making

enterprises. This unique industry structure is primarily a legacy of government policies

that have promoted labor-intensive, small-scale operations and discriminated against

larger scale firms:

Composite Mills.

Relatively large-scale mills that integrate spinning, weaving and, sometimes, fabric

finishing are common in other major textile-producing countries. In India, however, these

types of mills now account for about only 3 percent of output in the textile sector. About

276 composite mills are now operating in India, most owned by the public sector and

many deemed financially sick. In 2003-2004 composite mills that produced 1434 m.sq

mts of cloth. Most of these mills are located in Gujarat and Maharashtra.

Spinning.

Spinning is the process of converting cotton or manmade fiber into yarn to be used for

weaving and knitting. This mills chiefly located in North India. Spinning sector is

technology intensive and productivity is affected by the quality of cotton and the cleaning

process used during ginning. Largely due to deregulation beginning in the mid-1980s,

spinning is the most consolidated and technically efficient sector in Indias textile

industry. Average plant size remains small, however, and technology outdated, relative toother major producers. In 2002/03, Indias spinning sector consisted of about 1,146 small-

scale independent firms and 1,599 larger scale independent units.

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Weaving and Knitting.

The weaving and knits sector lies at the heart of the industry. In 2004-05, of the total

production from the weaving sector, about 46 percent was cotton cloth, 41 percent was

100% non-cotton including khadi, wool and silk and 13 percent was blended cloth. Three

distinctive technologies are used in the sector handlooms, power looms and knitting

machines. Weaving and knitting converts cotton, manmade, or blended yarns into woven

or knitted fabrics. Indias weaving and knitting sector remains highly fragmented, small-

scale, and labour-intensive. This sector consists of about 3.9 million handlooms, 380,000

power loom enterprises that operate about 1.7 million looms, and just 137,000 looms in

the various composite mills. Power looms are small firms, with an average loom capacity

of four to five owned by independent entrepreneurs or weavers. Modern shuttle less

looms account for less than 1 percent of loom capacity.

Fabric Finishing.

Fabric finishing (also referred to as processing), which includes dyeing, printing, and

other cloth preparation prior to the manufacture of clothing, is also dominated by a large

number of independent, small-scale enterprises. Overall, about 2,300 processors are

operating in India, including about 2,100 independent units and 200 units that are

integrated with spinning, weaving, or knitting units.

Clothing.

Apparel is produced by about 77,000 small-scale units classified as domestic

manufacturers, manufacturer exporters, and fabricators (subcontractors).

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INDIAS MAJOR COMPETITIORS IN THE WORLD

To understand Indias position among other textile producing the industry contributes 9%

of GDP and 35% of foreign exchange earning, Indias share in global exports is only 3%

compared to Chinas 13.75% percent. In addition to China, other developing countries are

emerging as serious competitive threats to India. Looking at export shares, Korea (6%)

and Taiwan (5.5%) are ahead of India, while Turkey (2.9%) has already caught up and

others like Thailand (2.3%) and Indonesia (2%) are not much further behind. The reason

for this development is the fact that India lags behind these countries in investment

levels, technology, quality and logistics. If India were competitive in some key segments

it could serve as a basis for building a modern industry, but there is no evidence of such

signs, except to some extent in the spinning industry.

Indias Competitive Position in Stages of Textile Manufacture

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PROFILE OF THE GROUP AND UNIT

The industrial city- Ludhiana nestles the corporate Headquarters of the Oswal Group of

industries. The Oswal Empire comprises of Anshupati Textiles Limited situated in

Ludhiana, Vardhman Polytex Limited situated in Bathinda, Vinayak Textile Mills

situated in Ludhiana. Oswal group is earning laurels by exporting yarn of international

quality to several countries and VPL Bathinda is an ISO 9001-2000 certified company

and VTM is granting authorization to use the Trademark USTERIZED USTER think

quality.

BACK DROP:

OSWAL GROUP is a premier of textile group of northern India having its corporate

office situated at Ludhiana, Punjab,(India). The organization has existence for last 30

year in core competency of spinning. It was earlier part of the Vardhman Group.but

after settlement between two brother in 2003, we have named ourselves as Oswal Group

has mainly into Spinning and Dyeing of all type of Yarn in different manufacturing of

Garments. The group has ambitious plan to diversify in future but in textiles related

Activities.

Oswal Group will achieve a turnover of Rs.800 crores by strengthening its core

competencies and capacities in Textile and diversified business to create value for its

stakeholders.(USD 110 millions). The group has very good potential and high presence

in the textiles industry with well set manufacturing set up for 100% cotton, Polyester

cotton, Worsted Spun Yarn ,Dyed Yarn, and other blended yarns. All the group units

have state of the art technology imported from machinery giant in Europe, Japan, China

and many other countries. To ensure quality commitment to its valuable customers, the

R&D department is well equipped with latest R&D equipments. Continuous efforts are

always being made to further improve the quality and match the industry standard to

meet the actual requirements of its quality conscious customers.

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COMPANY STRUCTURE:

8

OSWAL GROUP

VPLBATHINDA

VTM

LUDHIANA

ANSHUPATI

LUDHIANA

F.M. Hammerle

Textiles Ltd

AMKYRON

INTERNATIONAL PVT.

LTD. LUDHIANA

VPL

NALAGARH


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Anshupati Textiles Limited, based at Ludhiana in Punjab, the worsted spinning units in

the Indian subcontinent with 8000 worsted spindles installed, manufactures the Machine

Knitting Yarn, Mink Yarn and Fancy yarn, with vast product range, to meet every sort of

count combination demand of its prospective customers. The quality yarn in this unit is

manufactured using state of art technology imported from Europe, which is fully backed

with ultra modern R&D equipment for consistent quality. The yarn manufactured from

this unit holds a very strong reputation and demand both in domestic and international

market.

Vinayak Textile Mills, a unit at Ludhiana in Punjab with 50000 cotton spindles

installed,

is manufacturing 100% cotton yarn and Polyster yarn with vast range of count selection

varies from NE 10s to 40s both in carded and combed varieties.

F.M. Hammerle Textiles Ltd. In 2008, the Company entered into a joint venture

agreement with F.M. Hammerle Group, Austria for setting up a green field project for

manufacture of quality yarn and piece dyed shirting fabric with annual capacity of 12

million meters. For this purpose, a new company in the name of 'Oswal F.M. Hammerle

Textiles Ltd.' has been floated which will set-up its plant at Village Kagal, Dist.

Kolhapur (Maharashtra). The Company has 76% equity in the said joint venture company

and 24% equity is held by F.M. Hammerle Group. The civil construction has already

commenced.

The F.M. Hammerle (FMH) Group of Austria is a well-known name in the international

textile scene for more than 160 years now. Through this venture, VPL has entered into

the field of manufacturing high-end shirting fabric. The subsidiary was set up by VPL ina technical and marketing collaboration with the FMH group.

Amkyron International Pvt Ltd, a garment manufacturing company incorporates in

1999. At present, company is having present capacity of 2000 piece per day casual wear

including trouser, t shirts, cargo, shorts and jackets and is under active consideration for

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further expansion. The company is providing third party shipments of all kind shipments

of all kind garments whether in fine knits, for woven for world class brand like, dockers,

walmart, arrow(USA) etc and for leading Indian brands like, provogue, life style, ginny

and jonny, bare etc.

Vardhman Polytex Limited (VPL), Bathinda : It is a unit based at Bathinda in Punjab.

Earlier this mill was known as Punjab Mohta Polytex Limited. Its foundation stone was

laid on 12th June 1983. The plant was commissioned on 4th December 1986 . It was

taken over and in corporated by Mahavir Spinning Limited in 1988. Thus it became the

subsidiary of Mahavir Spinning Ltd. At the time of amalgamation it had 9000 spindles

and 504 rotors making the total of 11520 spindles. In 1991 the name of the unit was

changed to Vardhman Polytex Limited, as a separate company. But going on after the

family settlements in 2003, the unit came under Oswal Group. This unit had been

awarded with ISO-9002 certificate by the bureau of Indian Standards after the final audit,

which took place in the unit on 26th July 1996.

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VPL BATHINDA-AN OVERVIEW

This unit is situated on badal road bathinda in the cotton belt of punjab .this unit was

established in 1988.Vardhman Polytex Limited (VPL) (formerly known as Punjab Mohta

Polytex Limited was promoted as a Joint Sector Company by Mohta Industries Limited

(MIL) and Punjab State Industrial Development Corporation Limited, (PSIDC), and was

incorporated in the name of Punjab Mohta Polytex Limited. In 1988, Mahavir Spinning

Mills Limited (MSML) took over with approval of Board of Industrial and Financial

Reconstruction (BIFR) a mini steel plant by the name of Mohta Alloys and Steel Works

at Ludhiana belonging to Mohta Industries Limited, a sick Company under Section 15(1)

of SICA, 1985.

Mohta Industries Limited (MIL) had also promoted M/s.Punjab MohtaPolytex Limited

(PMPL). Consequent to the take over of MIL by MSML. the shareholding of MIL in

PMPL passed on to MSML. The shareholding of PSIDC in PMPL was also acquired by

MSML in discharge of its obligations under the Joint Sector Agreement entered into by

MIL with PSIDC. As a result of this acquisition, PMPL (since renamed as VardhmanPolytex Limited) became a subsidiary of MSML with effect from June, 1989.

The Spinning Unit at Bathinda started commercial production in December, 1984 with an

installed capacity of 9504 spindles and 504 rotors. In that year, the Company achieved

sales of Rs 153 lacs and earned profit before depreciation, interest and tax (PBDIT) of

Rs. 52 lacs. In the year 1985-86, the Company was able to increase its sales to Rs.581

lacs and earned PBDIT of Rs. 93 lacs.

After becoming a member Company of Vardhman Group in 1988-89, the Company

achieved a turnover of Rs. 1642 lacs and earned PBDIT of Rs. 410 lacs. The new

management reviewed the project and enhanced the capacity with additions of 12060

spindles thereby increasing the capacity of the spinning unit at Bathinda to 22464

spindles. The expansion was completed during 1980-90. With the implementation of the

scheme,the Company's sales in the year 1889-90 increased from Rs. 1642 lacsin 1988-89

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to Rs.2154 lacs and earned PBDIT of Rs. 697 lacs in the year 1989-90 as compared to

Rs. 410 lacs in the year 1988-89.

VPL, in 1990-91, added a new Worsted Spinning Unit at Ludhiana with a capacity of

4800 spindles to manufacture worsted yarn of various counts from acrylic and

acrylic/wool blends. The capacity of the plant now stands increased to 8000 spindles.

The Company implemented a new Spinning Unit at Baddi,Distt. Nalagarh in Himachal

Pradesh with a total installed capacity of 39120 spindles at an estimated project cost of

Rs.6825 lacs. With the commencement of commercial production by the new spinning

unit, the sales of the Company increased to Rs.6315 lacs in 1993-94 against Rs. 5252

lacs in the year 1992-93. PBDIT has also increased to Rs. 1507 lacs in 1993-94 against

Rs. 890 lacs in the financial year 1992-93.

The load of the plant is 8.4 mw.vpl bathinda is drawing electric power from P.S.E.B.

The factory has also their own generation plant.there is 4.1 MW WARTSILLA

generators which runs 24 hours.

Vardhman Polytex Limited (VPL) (formerly known as Punjab Mohta Polytex Limited)

was promoted as a Joint Sector Company by Mohta Industries Limited (MIL) and Punjab

State Industrial Development Corporation Limited, (PSIDC), and was incorporated in the

name of Punjab Mohta Polytex Limited.

The Spinning Unit at Bathinda started commercial production in December, 1984 with an

installed capacity of 9504 spindles and 504 rotors. In that year, the Company achieved

sales of Rs 153 lacs and earned profit Rs. 52 lacs.

In the year 1985-86, the Company was able to increase its sales to Rs.581 lacs and earned

PBDIT of Rs. 93 lacs.

After becoming a member Company of Vardhman Group in 1988-89, the Company

achieved a turnover of Rs. 1642 lacs and earned PBDIT of Rs. 410 lacs. The newmanagement reviewed the project and enhanced the capacity with additions of 12060

spindles thereby increasing the capacity of the spinning unit at Bathinda to 22464

spindles.

The Company's sales in the year 1989-90 the Company achieved a turnover of Rs.2154

lacs and earned PBDIT of Rs. 697 lacs . VPL, in 1990-91, added a new Worsted

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Spinning Unit at Ludhiana with a capacity of 4800 spindles to manufacture worsted yarn

of various counts from acrylic and acrylic/wool blends. The capacity of the plant now

stands increased to 8000 spindle

The Company is presently implementing a new Spinning Unit at Baddi, Distt. Nalagarh

in Himachal Pradesh with a total installed capacity of 40800 spindles at an estimated

project cost of Rs. 100 Crore approx.

PRESENT BUSINESS OF THE COMPANY

The Company is presently engaged in manufacture of coarse, medium and fine counts of

100% cotton yarn, 100% acrylic yarn, acrylic/cotton yarn, polyester/ cotton yarn and tyre

cord yarns.

VISION & MISSION

Vision

We at Oswal Group will achieve a turnover of Rs 1000 crore by 2012 by strengthening

its core competencies and capacities in Textiles and diversified businesses to create value

for its Stakeholders.

Mission

Oswal Group is on a learning curve, will expand capacities in Textiles and reinforce

Customer-delight by manufacturing world-class quality using state-of-the-art technology.

Group Philosophy

Total Customer Delight

Competing with the best

Total Quality People

Product Quality a way of life

State of Art Technology with ultramodern R & D facilities

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Respect of every Oswal Group Parivar Member

Achieving Excellence through culture integration

Change a way of life

Act as responsible corporate citizen and discharge our social responsibilities

Manufacturing process:

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1. MIXING

The different varieties of cotton are issued as per product mix from the raw material

section in bale from. The different varieties of cotton and different lots are 23 mixed

together as per the requirement of end product and standard recommended mixings. The

material is conditioned in mixing for 24 hours.

2. BLOW ROOM

The cleaning and opening of fibers is done is a sequence of beaters. Main purpose is to

reduce tuft size , remove the trash particles abd foreign matter etc, which often comes in

the bales

3. CARDING

further cleaning of fibers is done and fibres are opened into single fibers extent i.e. main

purpose is further removal of trash in cotton and the parallelization of fibres. From the

carding machine, the material is delivered in the form of sliver.

4. DRAW FRAME

The purpose of this process is to reduce the wt/yard in the card sliver 6 to 8 end of card

slivers are doubled together in this process to reduce variations and further drafting is

done to reduce the wt/yard of sliver.

5. LAP FORMER

20-25 Precombed draw slivers are fed together to produce a lap sheets of fibres which is

wound on the spools.

6. COMBERS

The laps prepared on lap former are fed to combers. The main purpose of combing

process is to remove the short fibres from the material in the form of noil. The average

noil percebtage carries from 15 to 18%. The material is deleivered in the form of sliver.

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7. SPEED FRAME

The finisher draw frame sliver is fed to the speed frames for conversion into the roving

form. In this process wt/yard of the sliver is reduced, slight twist is given to the fleece

and the material deleivered in the form roving, wound on the plastic bobbins

8. RING FRAME

The roving is fed to ring frame for conversion into yarn. In the process the wt/yard of

roving are reduced as per requirements of ultimate user and the deleivered yarn is wound

on the plastic bobbins.

9. WINDING

In this process, the yarn is wound on paper cones to produce bigger package as per

requirement of market. The weight varies from 1.2 kg to 2.2. kg. during the process, in

addition to the formation of bigger packages, the yarn faults are also removed with help

of electronic yarn cleaner.

10. DOUBLING

In case of type cord the process is same upto winding. After cone winding the yarn is fed

into cheese winding. In the process 2 ply or 4 ply is to be done as per requiremntets.

After the yarn is fed into ring doubling and required is given in 2 or 4 ply yarn. In the

next process in assembly cheese winding is get the package in the package in the required

form to be fed into T.F.O. in T.F.O. final yarn is prepared in the form of cheese and

required T.P.I. is given to the final yarn in process

11. PACKING

In this process, the cones/cheese are packed in bags or cartoons as per the requirements

of the market. In addition to the packing the material is checked thoroughly to avoid

mixing of different materials.

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RATIO ANALYSIS

FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths and

weaknesses of the firm and establishing relationship between the items of the balance

sheet and profit & loss account.

Financial ratio analysis is the calculation and comparison of ratios, which

are derived from the information in a companys financial statements. The level and

historical trends of these ratios can be used to make inferences about a companys

financial condition, its operations and attractiveness as an investment. The information in

the statements is used by

Trade creditors, to identify the firms ability to meet their claims i.e. liquidity

position of the company.

Investors, to know about the present and future profitability of the company and

its financial structure.

Management, in every aspect of the financial analysis. It is the responsibility of

the management to maintain sound financial condition in the company.

RATIO ANALYSIS

The term Ratio refers to the numerical and quantitative relationship

between two items or variables. This relationship can be exposed as

Percentages

Fractions

Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the

financial statements. So that the strengths and weaknesses of a firm, as well as its

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historical performance and current financial condition can be determined. Ratio reflects a

quantitative relationship helps to form a quantitative judgment.

STEPS IN RATIO ANALYSIS

The first task of the financial analysis is to select the information relevant to the

decision under consideration from the statements and calculates appropriate

ratios.

To compare the calculated ratios with the ratios of the same firm relating to the

pas6t or with the industry ratios. It facilitates in assessing success or failure of the

firm.

Third step is to interpretation, drawing of inferences and report writing

conclusions are drawn after comparison in the shape of report or recommended

courses of action.

BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables. They

enable analyst to draw conclusions regarding financial operations. They use of ratios as a

tool of financial analysis involves the comparison with related facts. This is the basis of

ratio analysis. The basis of ratio analysis is of four types.

Past ratios, calculated from past financial statements of the firm.

Competitors ratio, of the some most progressive and successful competitor firm

at the same point of time.

Industry ratio, the industry ratios to which the firm belongs to

Projected ratios, ratios of the future developed from the projected or pro forma

financial statement

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NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios for helping in

making certain decisions. It is only a means of understanding of financial strengths and

weaknesses of a firm. There are a number of ratios which can be calculated from the

information given in the financial statements, but the analyst has to select the appropriate

data and calculate only a few appropriate ratios. The following are the four steps

involved in the ratio analysis.

Selection of relevant data from the financial statements depending upon the

objective of the analysis.

Calculation of appropriate ratios from the above data.

Comparison of the calculated ratios with the ratios of the same firm in the past, or

the ratios developed from projected financial statements or the ratios of some

other firms or the comparison with ratios of the industry to which the firm

belongs.

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be a difficult task but their use is not

easy. Following guidelines or factors may be kept in mind while interpreting various

ratios are

Accuracy of financial statements

Objective or purpose of analysis

Selection of ratios

Use of standards

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Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS

Aid to measure general efficiency

Aid to measure financial solvency

Aid in forecasting and planning

Facilitate decision making

Aid in corrective action

Aid in intra-firm comparison

Act as a good communication

Evaluation of efficiency

Effective tool

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE

1. Liquidity ratio

2. Leverage ratio

3. Activity ratio

4. Profitability ratio

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current obligations

as & when there becomes due. The short term obligations of a firm can be met only when

there are sufficient liquid assets. The short term obligations are met by realizing amounts

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from current, floating (or) circulating assets The current assets should either be calculated

liquid (or) near liquidity. They should be convertible into cash for paying obligations of

short term nature. The sufficiency (or) insufficiency of current assets should be assessed

by comparing them with short-term current liabilities. If current assets can pay off

current liabilities, then liquidity position will be satisfactory.

To measure the liquidity of a firm the following ratios can be calculated

Current ratio

Quick (or) Acid-test (or) Liquid ratio

Absolute liquid ratio (or) Cash position ratio

(a) CURRENT RATIO:

Current ratio may be defined as the relationship between current

assets and current liabilities. This ratio also known as Working capital ratio is a measure

of general liquidity and is most widely used to make the analysis of a short-term financial

position (or) liquidity of a firm.

Current assets

Current ratio =

Current liabilities

Components of current ratio

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

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Sundry debtors

Prepaid expenses

(b) QUICK RATIO

Quick ratio is a test of liquidity than the current ratio. The term liquidity

refers to the ability of a firm to pay its short-term obligations as & when they become

due. Quick ratio may be defined as the relationship between quick or liquid assets and

current liabilities. An asset is said to be liquid if it is converted into cash with in a short

period without loss of value.

Quick or liquid assets

Quick ratio =

Current liabilities

Components of quick or liquid ratio

QUICK ASSETS CURRENT LIABILITIES




Sundry debtors Short-term advances

Marketable securities Sundry creditors

Temporary investments Dividend payable

Income tax payable

(c) ABSOLUTE LIQUID RATIO

Although receivable, debtors and bills receivable are generally more

liquid than inventories, yet there may be doubts regarding their realization into cash

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immediately or in time. Hence, absolute liquid ratio should also be calculated together

with current ratio and quick ratio so as to exclude even receivables from the current

assets and find out the absolute liquid assets.

Absolute liquid assets

Absolute liquid ratio =

Current liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms for

this ratio is 50% (or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are consideredto pay Rs.2 worth current liabilities in time as all the creditors are nor accepted to

demand cash at the same time and then cash may also be realized from debtors and

inventories.

Components of Absolute Liquid Ratio

ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES


Cash at bank Bank over draftInterest on Fixed Deposit Bills payable

Short-term advances

Sundry creditors

Dividend payable

Income tax payable

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2. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to meet its

long term obligations. Accordingly, long term solvency ratios indicate firms ability to

meet the fixed interest and costs and repayment schedules associated with its long term

borrowings.

The following ratio serves the purpose of determining the solvency of the

concern.

Proprietory ratio

(a) PROPRIETORY RATIO

A variant to the debt-equity ratio is the proprietory ratio which is also

known as equity ratio. This ratio establishes relationship between share holders funds to

total assets of the firm.

Shareholders funds

Proprietory ratio =

Total assets

SHARE HOLDERS FUND TOTAL ASSETS

Share Capital Fixed Assets

Reserves & Surplus Current Assets

Cash in hand & at bank

Bills receivable

Inventories

Marketable securities

Short-term investments

Sundry debtors

Prepaid Expenses

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3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn

profits. The efficiency with which assets are managed directly effect the volume of sales.

Activity ratios measure the efficiency (or) effectiveness with which a firm manages its

resources (or) assets. These ratios are also called Turn over ratios because they indicate

the speed with which assets are converted or turned over into sales.

Working capital turnover ratio

Fixed assets turnover ratio

Capital turnover ratio

Current assets to fixed assets ratio

(a) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales.

Working capital = Current assets - Current liabilities

It indicates the velocity of the utilization of net working capital. This

indicates the no. of times the working capital is turned over in the course of a year. A

higher ratio indicates efficient utilization of working capital and a lower ratio indicates

inefficient utilization.

Working capital turnover ratio=cost of goods sold/working capital.

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Components of Working Capital

CURRENT ASSETS CURRENT LIABILITIES




Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payableSundry debtors

Prepaid expenses

(b) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the

efficiency and profit earning capacity of the firm. Higher the ratio, greater is the intensive

utilization of fixed assets. Lower ratio means under-utilization of fixed assets.

Cost of Sales

Fixed assets turnover ratio =

Net fixed assets

Cost of Sales = Income from Services

Net Fixed Assets = Fixed Assets - Depreciation

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(c) CAPITAL TURNOVER RATIOS

Sometimes the efficiency and effectiveness of the operations are judged

by comparing the cost of sales or sales with amount of capital invested in the business

and not with assets held in the business, though in both cases the same result is expected.

Capital invested in the business may be classified as long-term and short-term capital or

as fixed capital and working capital or Owned Capital and Loaned Capital. All Capital

Turnovers are calculated to study the uses of various types of capital.

Cost of goods sold

Capital turnover ratio =Capital employed

Cost of Goods Sold = Income from Services

Capital Employed = Capital + Reserves & Surplus

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(d) CURRENT ASSETS TO FIXED ASSETS RATIO

This ratio differs from industry to industry. The increase in the ratio

means that trading is slack or mechanization has been used. A decline in the ratio means

that debtors and stocks are increased too much or fixed assets are more intensively used.

If current assets increase with the corresponding increase in profit, it will show that the

business is expanding.

Current Assets

Current Assets to Fixed Assets Ratio =

Fixed Assets

Component of Current Assets to Fixed Assets Ratio

CURRENT ASSETS FIXED ASSETS

Cash in hand Machinery

Cash at bank Buildings

Bills receivable Plant

Inventories Vehicles

Work-in-progress

Marketable securities

Short-term investments

Sundry debtors

Prepaid expenses

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4. PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits.

Because profit is the engine, that drives the business enterprise.

Net profit ratio

Return on total assets

Reserves and surplus to capital ratio

Earnings per share

Operating profit ratio

Price earning ratio

Return on investments

(a) NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and

sales and indicates the efficiency of the management in manufacturing, selling

administrative and other activities of the firm.

Net profit after tax

Net profit ratio=

Net sales

Net Profit after Tax = Net Profit () Depreciation () Interest () Income Tax

Net Sales = Income from Services

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It also indicates the firms capacity to face adverse economic conditions

such as price competitors, low demand etc. Obviously higher the ratio, the better is the

profitability.

(b) RETURN ON TOTAL ASSETS

Profitability can be measured in terms of relationship between net profit

and assets. This ratio is also known as profit-to-assets ratio. It measures the profitability

of investments. The overall profitability can be known.

Net profit

Return on assets =

Total assets

Net Profit = Earnings before Interest and Tax

Total Assets = Fixed Assets + Current Assets

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(c) RESERVES AND SURPLUS TO CAPITAL RATIO

It reveals the policy pursued by the company with regard to growth shares.

A very high ratio indicates a conservative dividend policy and increased ploughing back

to profit. Higher the ratio better will be the position.

Reserves& surplus

Reserves & surplus to capital =

Capital

(d) EARNINGS PER SHARE

Earnings per share is a small verification of return of equity and is

calculated by dividing the net profits earned by the company and those profits after taxes

and preference dividend by total no. of equity shares.

Net profit after taxEarnings per share =

Number of Equity shares

The Earnings per share is a good measure of profitability when compared

with EPS of similar other components (or) companies, it gives a view of the comparative

earnings of a firm.

(e) OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold and

other operating expenses on the one hand and the sales on the other.

Operating cost

Operation ratio =

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Net sales

However 75 to 85% may be considered to be a good ratio in case of a

manufacturing under taking.

Operating profit ratio is calculated by dividing operating profit by sales.

Operating profit = Net sales - Operating cost

Operating profit

Operating profit ratio =

Sales

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(f) PRICE - EARNING RATIO

Price earning ratio is the ratio between market price per equity share and

earnings per share. The ratio is calculated to make an estimate of appreciation in the

value of a share of a company and is widely used by investors to decide whether (or) not

to buy shares in a particular company.

Generally, higher the price-earning ratio, the better it is. If the price

earning ratio falls, the management should look into the causes that have resulted into the

fall of the ratio.

Market Price per Share

Price Earning Ratio =

Earnings per Share

Capital + Reserves & Surplus

Market Price per Share =

Number of Equity Shares

Earnings before Interest and Tax

Earnings per Share =

Number of Equity Shares

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(g) RETURN ON INVESTMENTS

Return on share holders investment, popularly known as Return on

investments (or) return on share holders or proprietors funds is the relationship between

net profit (after interest and tax) and the proprietors funds.

Net profit (after interest and tax)

Return on shareholders investment =

Shareholders funds

The ratio is generally calculated as percentages by multiplying the above

with 100.

PRE-REQUISITIES TO RATIO ANALYSIS

In order to use the ratio analysis as device to make purposeful conclusions, there are

certain pre-requisites, which must be taken care of. It may be noted that these

prerequisites are not conditions for calculations for meaningful conclusions. The

accounting figures are inactive in them & can be used for any ratio but meaningful &

correct interpretation & conclusion can be arrived at only if the following points are well

considered.

1) The dates of different financial statements from where data is taken must be same.

2) If possible, only audited financial statements should be considered, otherwise there

must be sufficient evidence that the data is correct.

3) Accounting policies followed by different firms must be same in case of cross section

analysis otherwise the results of the ratio analysis would be distorted.

4) One ratio may not throw light on any performance of the firm. Therefore, a group of

ratios must be preferred. This will be conductive to counter checks.

5) Last but not least, the analyst must find out that the two figures being used to calculate

a ratio must be related to each other, otherwise there is no purpose of calculating a ratio.

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IMPORTANCE OF RATIO ANALYSIS:

As a tool of financial management, ratios are of crucial significance. The importance of

ratio analysis lies in the fact that it presents facts on a comparative basis & enables the

drawing of interference regarding the performance of a firm. Ratio analysis is relevant in

assessing the performance of a firm in respect of the following aspects:

1] Liquidity position,

2] Long-term solvency,

3] Operating efficiency,

4] Overall profitability,

5] Inter firm comparison

6] Trend analysis.

1] LIQUIDITY POSITION: -

With the help of Ratio analysis conclusion can be drawn regarding the liquidity position

of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its

current obligation when they become due. A firm can be said to have the ability to meet

its short-term liabilities if it has sufficient liquid funds to pay the interest on its short

maturing debt usually within a year as well as to repay the principal. This ability is

reflected in the liquidity ratio of a firm. The liquidity ratio are particularly useful in credit

analysis by bank & other suppliers of short term loans.

2] LONG TERM SOLVENCY: -

Ratio analysis is equally useful for assessing the long-term financial viability of a firm.

This respect of the financial position of a borrower is of concern to the long-termcreditors, security analyst & the present & potential owners of a business. The long term

solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis

that focus on earning power & operating efficiency.

Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage

ratios, for instance, will indicate whether a firm has a reasonable proportion of various

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sources of finance or if it is heavily loaded with debt in which case its solvency is

exposed to serious strain. Similarly the various profitability ratios would reveal whether

or not the firm is able to offer adequate return to its owners consistent with the risk

involved.

3] OPERATING EFFICIENCY:

Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of

management, is that it throws light on the degree of efficiency in management &

utilization of its assets. The various activity ratios measures this kind of operational

efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the

sales revenues generated by the use of its assets- total as well as its components.

4] OVERALL PROFITABILITY:

Unlike the outsides parties, which are interested in one aspect of the financial position of

a firm, the management is constantly concerned about overall profitability of the

enterprise. That is, they are concerned about the ability of the firm to meets its short term

as well as long term obligations to its creditors, to ensure a reasonable return to its

owners & secure optimum utilization of the assets of the firm. This is possible if an

integrated view is taken & all the ratios are considered together.

5] INTER FIRM COMPARISON:

Ratio analysis not only throws light on the financial position of firm but also serves as a

stepping-stone to remedial measures. This is made possible due to inter firm comparison

& comparison with the industry averages. A single figure of a particular ratio is

meaningless unless it is related to some standard or norm. one of the popular techniquesis to compare the ratios of a firm with the industry average. It should be reasonably

expected that the performance of a firm should be in broad conformity with that of the

industry to which it belongs.An inter firm comparison would demonstrate the firms

position vice-versa its competitors. If the results are at variance either with the industry

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average or with the those of the competitors, the firm can seek to identify the probable

reasons & in light, take remedial measures.

6] TREND ANALYSIS:

Finally, ratio analysis enables a firm to take the time dimension into account. In other

words, whether the financial position of a firm is improving or deteriorating over the

years. This is made possible by the use of trend analysis. The significance of the trend

analysis of ratio lies in the fact that the analysts can know the direction of movement, that

is, whether the movement is favorable or unfavorable. For example, the ratio may be low

as compared to the norm but the trend may be upward. On the other hand, though the

present level may be satisfactory but the trend may be a declining one.

PURPOSE OF RATIO ANLYSIS:

1] To identify aspects of a businesses performance to aid decision making

2] Quantitative process may need to be supplemented by qualitative Factors to get a

complete picture.

3] 5 main areas:-

Liquidity the ability of the firm to pay its way

Investment/shareholders information to enable decisions to be made on the extent

of the risk and the earning potential of a business investment

Gearing information on the relationship between the exposure of the business to

loans as opposed to share capital

Profitability how effective the firm is at generating profits given sales and or its

capital assets

Financial the rate at which the company sells its stock and the efficiency withwhich it uses its assets

ROLE OF RATIO ANALYSIS:

It is true that the technique of ratio analysis is not a creative technique in the sense that it

uses the same figure & information, which is already appearing in the financial

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statement. At the same time, it is true that what can be achieved by the technique of ratio

analysis cannot be achieved by the mere preparation of financial statement. Ratio

analysis helps to appraise the firm in terms of their profitability & efficiency of

performance, either individually or in relation to those of other firms in the same

industry. The process of this appraisal is not complete until the ratio so computed can be

compared with something, as the ratio all by them do not mean anything. This

comparison may be in the form of intra firm comparison, inter firm comparison or

comparison with standard ratios. Thus proper comparison of ratios may reveal where a

firm is placed as compared with earlier period or in comparison with the other firms in

the same industry. Ratio analysis is one of the best possible techniques available to the

management to impart the basic functions like planning & control. As the future is

closely related to the immediate past, ratio calculated on the basis of historical financial

statements may be of good assistance to predict the future. Ratio analysis also helps to

locate & point out the various areas, which need the management attention in order to

improve the situation. As the ratio analysis is concerned with all the aspect of a firms

financial analysis i.e. liquidity, solvency, activity, profitability & overall performance, it

enables the interested persons to know the financial & operational characteristics of an

organisation & take the suitable decision.

ADVANTAGES OF RATIO ANALYSIS:

With the help of the ratio you can predict financial position of the company.

After showing the ratio its easy for bank to work with a company

We can compare two firm after seen there ratio

Its help to forecasting and make future plan of the company

With the help of the ratio we can locate the weak spot or problem of the company

Its also help in cost control in the firm

With the help of the ratio employee can know about the company and its helping in

their job.

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LIMITATIONS OF RATIO ANALYSIS

Ratio analysis has its limitations. These limitations are described below:

1] Information problems

Ratios require quantitative information for analysis but it is not decisive about

analytical output .

The figures in a set of accounts are likely to be at least several months out of date, and

so might not give a proper indication of the companys current financial position.

Where historical cost convention is used, asset valuations in the balance sheet could

be misleading. Ratios based on this information will not be very useful for decision-

making.

2] Comparison of performance over time

When comparing performance over time, there is need to consider the changes in

price. The movement in performance should be in line with the changes in price.

When comparing performance over time, there is need to consider the changes in

technology. The movement in performance should be in line with the changes in

technology.

Changes in accounting policy may affect the comparison of results between different

accounting years as misleading.

3] Inter-firm comparison

Companies may have different capital structures and to make comparison of

performance when one is all equity financed and another is a geared company it may not

be a good analysis.Selective application of government incentives to various companies may also distort

intercompany comparison. comparing the performance of two enterprises may be

misleading.

Inter-firm comparison may not be useful unless the firms compared are of the same

size and age, and employ similar production methods and accounting practices.

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Even within a company, comparisons can be distorted by changes in the price level.

Ratios provide only quantitative information, not qualitative information.

Ratios are calculated on the basis of past financial statements. They do not indicate

future trends and they do not consider economic conditions.

Review of previous study

Ratio-analysis is a concept or technique which is as old as accounting concept. Financial

analysis is a scientific tool. It has assumed important role as a tool for appraising the real

worth of an enterprise, its performance during a period of time and its pit falls. Financial

analysis is a vital apparatus for the interpretation of financial statements. It also helps to

find out any cross-sectional and time series linkages between various ratios.Unlike in the past when security was considered to be sufficient consideration for banks

and financial institutions to grant loans and advances, nowadays the entire lending is

need-based and the emphasis is on the financial viability of a proposal and not only on

security alone. Further all business decision contains an element of risk. The risk is more

in the case of decisions relating to credits. Ratio analysis and other quantitative

techniques facilitate assessment of this risk.

Trend ratio involve a comparison of the ratio of a firm over time, that is present ratio are

compared with past ratio for the same firm. The comparison of the profitability of a firm,

say year 1 though 5 is an illustration of a trend ratio. Trend ratio indicate the direction of

change in the performance-improvement, deterioration or constancy-over the years.

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NEED FOR THE STUDY

1. The study has great significance and provides benefits to various parties

whom directly or indirectly interact with the company.

2. It is beneficial to management of the company by providing crystal clear

picture regarding important aspects like liquidity, leverage, activity and

profitability.

3. The study is also beneficial to employees and offers motivation by

showing how actively they are contributing for companys growth.

4. The investors who are interested in investing in the companys shares will

also get benefited by going through the study and can easily take a decision

whether to invest or not to invest in the companys shares.

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Objectives

The main objectives of resent study aimed as:

To evaluate the performance of the company by using ratios as a yardstick to measure the

efficiency of the company. To understand the liquidity, profitability and efficiency

positions of the company during the study period. To evaluate and analyze various facts

of the financial performance of the company. To make comparisons between the ratios

during different periods

Objective of Study:

To know the financial condition of the company.

Interpret the financial statement so that the strength and weakness of a firm

Historical performance and current financial condition can be determined.

To analyze the liquidity position of the company.

Throw light on a long term solvency of a firm.

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METHODOLOGY

This research study is based on secondary data, means data that are already available i.e.

the data which have been already collected and analyzed by some one else.

Secondary data are used for the study of Ratio analysis of this company. To collect the

data I have refer Company annual report, annual magazine, last 2 year balance sheet,

and cash flow statements.

Sources of secondary data:

1. Most of the calculations are made on the financial statements of the

company provided statements.

2. Referring standard texts and referred books collected some of the

information regarding theoretical aspects.

3. Method- to assess the performance of he company method of observation

of the work in finance department in followed.

Research Design:

A research design is the specification of method and procedure for accruing the

information needed. It is overall operational pattern of frame work of project that

stipulates what information is to be collected for source by that procedures

Descriptive Research design is appropriate for this study.

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Descriptive study is used to study the situation. This study helps to describe the situation.

A detail descriptive about present and past situation can be found out by the descriptive

study. In this involves the analysis of the situation using the secondary data.

Current Ratio:

Current assets

Current ratio =

Current liabilities

Particulars 2010-2011 2011-2012

Current Assets 31583.16 15849.17

Current Liabilities 30911.94 35455.9

Current Ratio 1.02 0.44

Interpretation:

A relatively high current ratio is an indication that the firm is liquid and has ability to

pay its current obligations in time as and when they become due. On the other hand, a

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relatively low current ratio represents that the liquidity position of the firm is not good

and the firm shall not be able to pay its current liabilities in time without facing

difficulties. Current ratio has moved down from 1.02 to 0.44, which indicates that there

has been deterioration in the liquidity position of VARDHMAN. As a rule of thumb or as

a convention quick ratio of 2:1 is considered satisfactory.

Quick Ratio:

Quick or liquid assets

Quick ratio =

Current liabilities

Particulars 2010-2011 2011-2012

Liquid Assets 17144.42 12747.66


Quick Ratio 0.55 0.35

Interpretation:

Usually, a high acid test ratio is an indication that the firm is liquid and has the ability to

meet its current or liquid liabilities in time and on the other hand a low quick ratio

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represents that the firms liquidity position is not good.

As a rule of thumb or as a convention quick ratio of 1:1 is considered satisfactory.

Absolute Liquid Ratio:

Absolute liquid assets

Absolute liquid ratio =

Current liabilities

Particulars 2010-2011 2011-2012

Absolute liquid

Assets

2239.86 483.50


Absolute liquid

Ratio

0.072 0.013

Interpretation:

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Although receivables, debtors and bill receivables are generally more liquid than

inventories, yet there may be doubts regarding their realization into cash immediately or

in time. Here the company acid test ratio decreased and its is low than the thumb rule

Debt Equity Ratio:

Outsider funds

Debt Equity ratio =

Shareholders funds

Particulars 2010-2011 2011-2012

Outsider Funds 42850.38 38649.65

Shareholder Funds 17603.45 9380.11

Debt Equity Ratio 2.43 4.12

Interpretation:

The D/E ratio is an important tool of financial analysis to appraise the financial structure

of a firm. It has important implication from the view point of the creditors, owners, and

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the firm itself. The ratio reflect the relative contribution of creditors and owners of

business in its financing. A high ratio shows a large share of financing by the creditors of

the firm, a low ratio implies a small claim of creditors.

The rate of debt equity ratio is increased from 2.43 to 4.12 during the year 2010-2011 to

2011-2012. This shows that with the increase in debt, the shareholders fund also

increased. This shows long-term capital structure. The lower ratio viewed as favorable

from long term creditors point of view.

Inventory turnover ratio:

Net sales

Inventory turnover ratio =Average inventory at cost

Particulars 2010-2011 2011-2012

Net sales 71644.39 74927.60

Average inventoryat cost

10722.94 8770.52

Inventory turnoverRatio

6.68 8.53

Interpretation:

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Inventory stock turnover ratio measure how quickly inventory is sold. It is a test of

efficient inventory management. To judge whether the ratio of a firm is satisfactory or

not, higher ratio shows efficient use of inventory.

As we can see from the graph that in the year 2010--2011 to 2011-2012 is 6.68 to 8.53 so

we can say that inventory is converted into finished goods highest in this year which

indicate the highest efficient use of the inventory.

Debtors turnover ratio:

Net sales

Debtors turnover ratio =

Average trade debtors

Particulars 2010-2011 2011-2012

Net sales 71644.39 74927.60

Average trade debtors 7343.08 4800.48

Debtors turnover Ratio 9.75 15.60

Interpretation:

The analysis of the debtors turnover ratio supplements the information regarding the

liquidity of one item of current asset of the firm. The ratio measure how rapidly debts are

collected. A higher ratio is indicator of shorter time lag between credit sales and cash

sales.

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The Debtors turnover ratio of 15.60 indicates that the debtors are being turned over 15.60

times during the year. It means that the credit cycle of debtors makes 15.60 rounds during

the year. The Debtors turnover ratio is increase during the year 2010-2011 to 2011-2012,

which indicates that the debts are being collected at a fast speed during the year. The

operating cycle of the debtors is short. In other words the debts collection period is short

which result into less chance of bad debts.

Working capital turnover ratio:

Net sales

Working capital turnover ratio =

Average net working capital

Particulars 2010-2011 2011-2012

Net sales 71644.39 74927.60

Average net

working capital

15077.81 (9467.35)

Working capital

turnover Ratio

4.75 (7.91)

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Interpretation:

This ratio indicates the number of times the working capital is turned over in the course

of year. This ratio measures the efficiency with which the working capital is being used

by a firm.A higher ratio indicates efficient utilization and low ratio indicates otherwise.

But a very high ratio is not a good situation for any firm and hence care must be taken

while interpreting the ratio. In 2011-2012 the ratio is decreased, so this is not good for

the company

Inventory ratio:

Inventory

Inventory ratio =

Current assets

Particulars 2010-2011 2011-2012

Inventory 14,439.5

4

3101.5

1

Current assets 17144.42 15849.17

Inventory ratio 0.84 0.19

Interpretation:

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This ratio shows a relation between sales and inventory. It shows the no of time an inventory

is converted in to sales over a year. Altogether the inventory turnover ratio means lesser the

stock as compare to sales where as lesser the inventory turnover ratio means more inventory

in stock.

As we can see that in the year2011-12 ratio is that is lower than 2010-11 that is 0.19. That

means investment in inventory is decrease, which gives bad indication and in 2010-11 is

good indication because investment is increase .The position of year shows a downward

trend, which means that the enterprise is investing more in its inventories as compare to its

sale.

Current Asset Turnover Ratio:

Total sales

Current Assets turnover ratio =

Current assets

Particulars 2010-2011 2011-2012

Total sales 71644.39 74927.60

Current assets 17144.42 15849.17

Current asset

turnover ratio

4.17 4.72

Current asset turnover ratio

4.17

4.72

2010-2011

2011-2012

Current asset turnover

ratio

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Interpretation: This ratio indicates the efficiency with which current asset turn into sales. A

higher ratio implies by and large more efficient use of fund. Thus a high turnover ratio

indicates reduced lock-up of fund in current assets. An analysis of this ratio over a period of

time reflects working capital management of a firm.

Current assets turn over ratio is good for the years of2011-12. For the year2010-11 it was

decreasebecause companys current assets are higher than its liability.

But we can say that the companys position is better then the last year.

Cash Ratio:

Cash in hand+ cash at bank

Cash ratio =

Average inventory at cost

Particulars 2010-2011 2011-2012

Cash in hand +cash at bank 2239.86 483.50

Liquid assets 17144.42 12747.66

Cash ratio 0.13 0.037

Interpretation:

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The cash ratio is perhaps the most stringent measure of liquidity indeed. One can argue that it

is overly stringent lack of immediate can may not matter it. The firm can starch its payment

or borrow many of short notice cash and bank balance and short term marketable security

and liable assets of firm financial analysis looks at cash ratio which is define.

Management has to maintain a level of cash ratio so that cash is required urgently they can

get it. Too high level of cash loss the opportunity to earn interest on that capital.

We can see that Cash ratio is initially high in the year of2010-2011that is 0.13. But its start

decreasing from next year. it was 0.037. This level is well and good for the company.

Earning per share:

NPAT

Earning per share =

No of equity shares

Particulars 2010-2011 2011-2012

NPAT 2,669.97 (8141.22)

No of equity share 1,33,39,193 1,62,42,957

Earning per share 20.02 (50.12)

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Interpretation:

Earning per share is calculated to find out overall profitability of the company. Earning

per share represents the earning of the company whether or not dividends are declared.

The Earning per share is -50.12 means company had suffer huge losses in 2011-2012. In

other words the shareholder does not earned any dividend..

Therefore the shareholders earning per share is decreased from 2010-2011 to 2011-2012

by 20.02 to -50.12. This shows it is capital depreciation per unit share.

Net profit ratio:

Net sales

Net profit ratio =

NPAT

Particulars 2010-2011 2011-2012

NPAT 2,669.97 (8141.22)

Net sales 71644.39 74927.60Net profit ratio 3.72 (10.86)

Interpretation:

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The net profit ratio of the company is very low from 2010-2011 to 2011-2012 the net

profit is decreased i.e by 3.72 in 2010-2011 by -10.86 in 2011-2012. Profitability ratio of

company shows considerable decrease. Companys sales have increased. But net profit

ratio is decresed. It was very bad year of company.

Return on capital employed:

Net Profit

Return on capital employed =

Share capital

Particulars 2010-2011 2011-2012

Net Profit 2,669.97 (8141.22)

Capital 17603.45 9380.11

Return on capital employed 0.15 (0.86)

Return on capital employed

0.15

0.86-

2010-2011

2011-2012

Return on capi talemployed

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Interpretation:

The return on capital employed shows the relationship between profit & investment. Its

purpose is to measure the overall profitability from the total funds made available by the

owner & lenders. The return on capital employed of Rs.-0.86 indicate that company has

not available to take care of interest, tax,& appropriation in 2011- 2012. The return on

capital employed is show-decreasing trend, i.e. from 0.15 to -0.86. All of sudden in one

year. This indicates a company suffers very high loss in2011-2012

Proprietary ratio:

Shareholder funds

Proprietary ratio =

Total assets

Particulars 2010-2011 2011-2012

Shareholder funds 17603.45 9380.11

Total assets 71554.69 65047.46

Proprietary ratio 0.24 0.14

Interpretation

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Th e e qu ity rat io es ta bl ish es th e r ela t io nsh ip be tw ee n shareholders funds

to total assets. It determines the long-term solvency ofthe firm. This ratio indicates the

extent to which the assets of the company can be lost without affecting the interest of the

company.

Conclusion

The focus of financial analysis is on key figures contained in the financial statements and

the significant relationship that exits.. Financial ratios are a useful by product of financial

statement and provide standardized measures of firms financial position, profitability and

risky. It is an important and powerful tool in the hands of financial analyst. By analyzing

the balance sheet we conclude that any change in the working capital will have an effect

on a business's cash flows. A positive change in working capital indicates that the

business has paid out cash, for example in purchasing or converting inventory, paying

creditors etc. Hence, an increase in working capital will have a negative effect on the

business's cash holding. However, a negative change in working capital indicates lower

funds to pay off short term liabilities (current liabilities), which may have bad

repercussions to the future of the company.The profitability position of the firm is very

bad it has not enough profits because of high prices of cotton at the time of purchase and

a sudden fall in prices at the time of sale of the finished product.. The study of ratio

analysis concludes that the company needs more working capital to meet its commitment.

The organization doesnt have sufficient funds to meet its current obligation at time when

arise which is due to its low working capital and inefficient management of funds.

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Suggestions

1. The firm need to do some efforts to improve its liquidity position.

2. The firm need to focus more on the use of working capital.

3. The firm should increase its own equity rather than depending on outside sources.

4. The firm should raise its current assets.

5. It should maintain the reserves for future contingencies.

Limitations of Study:

During the study of this project some limitation I have found which are as below,

It is quite hard to find various items from the balance sheet.

Being a Private organization sometimes it gets difficult to get the information.

Price level over the years goes on changing, therefore, the ratios of various yearscannot be compared.

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Available information for the study of ratio analysis is limited.

From the study of ratio analysis, I have found that it is a very difficult task

to maintain ideal ratios in such a big organization. There are various factors

affecting while managing ratio analysis like credit policy, inventory management

system , production cycle etc. But it is very important to manage it every

situation.

BIBLIOGRAPHY:

Pandey I.M., Financial Management; Vikas Publishing House Pvt. Ltd.

Chandra Prasanna; Financial Management: Theory and Practice; Tata Mc Graw Hill.

Van Horne, Jame C; fundamentals of Financial Management.

Rustagi R.P.;Principles of Financial management.

Annual reports of VPL.

www.vardhmanpolytex ltd .

www.bizd.ac.uk/compfact/ratio

www.cecunc.org.com/business/financial

www.zeromillion.com.business/financial
http://www.vardhman/http://www.bizd.ac.uk/compfact/ratiohttp://www.cecunc.org.com/business/financialhttp://www.zeromillion.com.business/financialhttp://www.vardhman/http://www.bizd.ac.uk/compfact/ratiohttp://www.cecunc.org.com/business/financialhttp://www.zeromillion.com.business/financial

ratio analysis of vpl.

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