A

Summer Training Report

“FINANCIAL RATIOS ANALYSIS”

AT

ALOK INDUSTRIES LIMITED VAPI(FROM 10 TH MAY 2010 TO 10 TH JULY 2010)

FOR THE PARTIAL FULFILLMENT TO DEGREE OFMASTER OF BUSINESS ADMINISTRATION

Department of Business and Industrial Management,

Veer Narmad South Gujarat UniversitySurat

Submitted to: - Submitted by:-

Ms. NAMRATA KHATRI. DHAVAL SHAH,(MENTOR & FACULTY MEMBER, MBA (FT), SEM II,DBIM,VNSGU) DBIM, VNSGU

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Preface

In this development and changing world, I feel proud for being a student of MBA full time

course offered by DEPARTMENT OF BUSINESS AND INDUSTRIAL MANAGEMENT, VEER

NARMAD SOUTH GUJARAT UNIVERSITY , SURAT.

This report states about the all the departments and their workings policies at the ALOK

INDUSTRIES LTD, PROCESSING PLANT BALITHA, TALUKA PARDI, VALSAD

Finance and Function of Finance are the part of Economic activities. As this report also include

the Financial Ratio Analysis which checks upon the efficiency of the firm. Ratios indicate the

trend or progress or downfall of the firm and are aid to measure financial solvency.

This project start with industry analysis, introduction of the company and organization, four

major departments of the firm they are finance, marketing, production and human resource.

Which are included in general training part and specific research includes concept definition,

literature review, objective of the research, research methodology, limitation of research, and the

ratio analysis of various ratios, and suggestion.

I am sure that this project report would give us enough food for covering different departments

of the firm and also the various ratios.

I have collected all the needed information for the project report at my best level and the

information provided are true and authentic.

DHAVAL SHAH,

MBA (FT), SEM II,DBIM, VNSGU

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STUDENT’S DECLARATION

Study of Various DepartmentsAnd

Financial Ratio Analysis

This Summer Project report entitled, “Financial Ratio Analysis of ALOK

INDUSTRIES LTD” has been submitted to DEPARTMENT OF BUSINESS AND

INDUSTRIAL MANAGEMENT at Veer Narmad South Gujarat University, Surat

in partially fulfillment of M.B.A. Degree.

Hereby I undersign that this Project Report has been completed by me under the

guidance of Ms. Namrata Khatri (Faculty Member, Department of Business and

Industrial Management, V.N.S.G.U. Surat.)

Study of this Project Report is entirely result of my own efforts and research and is

original in nature. All the information provided is true and authentic and is not

provided artificially. This project report is not submitted either in part or whole to

any other institute or university of any degree.

PLACE: SURAT DHAVAL SHAH,

MBA (FT), SEM II, DBIM, VNSGU

DATE:

3

Department of Business & Industrial Management

Department Certificate

This to certify that Mr. Dhaval Ajaykumar Shah, student of

MBA (FT) Semester II, DEPARTMENT OF BUSINESS AND

INDUSTRIAL MAMAGEMENT, V.N.S.G.U. has submitted summer

training report entitled “FINANCIAL RATIO ANALYSIS” report

at ALOK INDUSTRIES LTD. (PROCESSING DIVISION),VAPI have

been duly completed in satisfactory manner in partial

fulfillment for award of Degree of MBA, Veer Narmad South

Gujarat University, Surat under my guidance and

supervision.

It also certifies that the project is the research of own

works and is of sufficient management slander warrant is

presented for examination.

4

Ms Namrata Khatri Dr. Renuka Garg (Faculty Finance) (Head of Department)

(DBIM, VNSGU) (DBIM, VNSGU)

ACKNOWLEDGEMENT

To improve a little we need to make efforts. Not one or two but till the results. And to learn and act we need guidance. No study however big or small can be undertaken by our own self behind every act there are unforgettable memories, efforts, guidance and blessings if those persons without whom this training would not have gone even a small distance.

To be successful in any field practical knowledge is most important and MBA is incomplete without having a practical knowledge in this era of professionalism. The theoretical knowledge is only a half way in study network.

First of all I thank our DEPARTMENT OF BUSINESS AND INDUSTRIAL MANAGEMENT of MBA for giving me an opportunity to practically learn about the real happenings in this field and even the faculty member who spent valuable time in helping me to reach the best possible extent.

I the trainee am grateful to ALOK INDUSTRIES LTD. for giving me an opportunity in completing the summer training session and report.

In particular, I would like to greatly thank to:-

Ms. Deepal Desai (HR Executive) at ALOK INDUSTRIES LTD

Mr. Bhuvanesh Gupta (Finance Manager) who was my guide during the training session and he guided me in the field of marketing, finance and human resource.

Mr. Deepak Jain (Sr. Manager-Accounts) who provided me with the information I needed to calculating ratios

Mr. Murlimanohar. (Training & Development Mgr)

Ms. Renuka Garg (Head of Department, DBIM, V.N.S.G.U., Surat).

Ms. Namrata Khatri (Mentor and Faculty Member at DBIM, V.N.S.G.U., Surat).

They guided and motivated me whenever required. In spite of their busy schedule they spend their precious time with me and also gave all practical knowledge of real world which has to be faced by us and experience sharing moments which will be helpful in future life.

Thanking You.

5

DHAVAL SHAH,

MBA (FT), SEM II,DBIM, VNSGU

INDEX

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Chapter No. Content Page No.

1 Industry Profile 9-10

2 Company Profile 12-22

3 Key Departments

Production Department 25-28

Human Resource Department

30-35

Marketing Department 37-42

Finance Department 44-48

4 Research Report.Financial Ratio Analysis

50-54

5 Findings and interpretations 56-81

6 Conclusion and suggestion 83-84

Bibliography 85

Annexure 86-88

Objectives of summer training are as follows:

To gain the practical knowledge in the real business world.

To learn more about the professional atmosphere and adopt the professional behavior.

To learn how to innovate your ideas and achieve the main objective of the organization.

To know about all departments of the firm like finance, marketing, human resource and

production.

To know what is the production process, plant layout and location layout, maintenance of

machines, basic raw material, semi- finished goods and finished goods.

In department of marketing what is their distribution channel, their major customer, and

major competitors.

In department of finance, to know how the administration and maintenance of financial assets

takes place and how the working takes place in the organization related to finance.

To know financial position of the company and is efficient to carry all its current claims or

not by conducting financial ratio analysis.

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Chapter 1Chapter 1

IndustryIndustry Profile:Profile:

TextileTextile IndustryIndustry

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Chapter one

Industry Profile:

Textile Industry in India

Textile Industry in India is the second largest employment generator after agriculture. It holds

significant status in India as it provides one of the most fundamental necessities of the people.

Textile industry was one of the earliest industries to come into existence in India and it accounts

for more than 30% of the total exports. In fact Indian textile industry is the second largest in the

world, second only to China

Textile Industry is unique in the terms that it is an independent industry, from the basic

requirement of raw materials to the final products, with huge value-addition at every stage of

processing. Textile industry in India has vast potential for creation of employment opportunities

in the agricultural, industrial, organized and decentralized sectors & rural and urban areas,

particularly for women and the disadvantaged. Indian textile industry is constituted of the

following segments: Readymade Garments, Cotton Textiles including Handlooms, Man-made

Textiles, Silk Textiles, Woolen Textiles, Handicrafts, Coir, and Jute.

Till the year 1985, development of textile sector in India took place in terms of general policies.

In 1985, for the first time the importance of textile sector was recognized and a separate policy

statement was announced with regard to development of textile sector. In the year 2000, National

Textile Policy was announced. Its main objective was: to provide cloth of acceptable quality at

reasonable prices for the vast majority of the population of the country, to increasingly contribute

to the provision of sustainable employment and the economic growth of the nation; and to

compete with confidence for an increasing share of the global market. The policy also aimed at

achieving the target of textile and apparel exports of US $ 50 billion by 2010 of which the share

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of garments will be US $ 25 billion. The textile industry is anticipated to generate 12mn new

jobs in various sectors.

Strengths of Indian textile Industry

India has rich resources of raw materials of textile industry. It is one of the largest

producers of cotton in the world and is also rich in resources of fibers like polyester, silk,

viscose etc.

India is rich in highly trained manpower. The country has a huge advantage due to lower

wage rates. Because of low labor rates the manufacturing cost in textile automatically

comes down to very reasonable rates.

India is highly competitive in spinning sector and has presence in almost all processes of

the value chain.

Indian garment industry is very diverse in size, manufacturing facility, type of apparel

produced, quantity and quality of output, cost, requirement for fabric etc. It comprises

suppliers of ready-made garments for both, domestic or export markets.

Weaknesses of Indian textile Industry

Indian textile industry is highly fragmented in industry structure, and is led by small scale

companies. The reservation of production for very small companies that was imposed

with the intention to help out small scale companies across the country, led substantial

fragmentation that distorted the competitiveness of industry. Smaller companies do not

have the fiscal resources to enhance technology or invest in the high-end engineering of

processes. Hence they lose in productivity.

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Indian labor laws are relatively unfavorable to the trades and there is an urgent need for

labor reforms in India.

India seriously lacks in trade pact memberships, which leads to restricted access to the

other major markets.

Chapter 2Chapter 2

CompanyCompany Profile:Profile:

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AlokAlok

IndustriesIndustries

LimitedLimitedChapter 2

Company Profile:

12

History of company:-

Established in 1986 as a private limited company, Alok began with texturizing of yarn and

steadily expanded into weaving, knitting, processing, home textiles and readymade garments.

And to ensure quality and cost efficiencies Alok have integrated backward into cotton

spinning and manufacturing partially oriented yarn through the continuous polymerization

route. Alok also controls an extensive embroidery operation through its sister concern,

Grabble Alok Impex Ltd.

In 1993, Alok became a public limited company. Since then it have continued to increase the

scale of its operation and the range of its

activities. Today, Alok is amongst the “A

Group listed companies” on India’s leading

stock exchanges.

That is how they have evolved into a

diversified manufacturer of world-class

home textiles, garments, apparel fabrics

and polyester yarns, selling directly to

manufacturers, exporters, importers,

retailers and to some of the world’s top

brands.

Alok has recently entered the domestic retail segment through a wholly owned subsidiary,

Alok Retail India Limited, with a chain of stores named ‘H&A’ that offer garments and home

textiles at attractive price points. With the sales turnover of around Rs. 2966 crores in

F.Y.2008-09, Alok is amongst the fastest growing vertically integrated textile companies in

India.

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They have also ventured into the realty space through wholly owned subsidiaries with

investments in some prestigious projects in Mumbai.

Latest achievements of company are S.E.Z. (Social Economic Zone) and this plant held in

Surangi. S.E.Z. means no interference of government and police.

The joint adventure of company is making Embroidery Company with Austria company

name Garble Alok Impex Ltd. The company’s Sulzer division is in Dadara. The company’s

processing plant in Vapi. Company’s made-up Division is also in Vapi

Company’s Milestone.

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Years Events

1986 Incorporation of the Company

1993 Becomes a public limited company with a Rs. 4.5 crore IPO

1995 Sets up financial and technical collaboration with Grabal, Albert Grabher GmbH & Co

of Austria to make embroidered products through a joint venture company, Grabal

Alok Impex Ltd

2003 Export Trading House status granted

2004 Turnover surpasses Rs. 1,000 crore

2006 Texprocil silver trophy awarded for second highest export in manufacturer exporter – made ups category

2007 ISO 9001:2000 certification obtained 60 per cent stake in Mileta a.s.– a Czech Republic-based textile company

acquired Controlling stake in U.K based retail store chain, ‘qs’ (now Store Twenty one)

acquired Organic cotton contract farming commenced Gold Trophy for best export performance to ‘Focus LAC’ countries awarded by

Synthetic & Rayon Textile Export Promotion Council Awarded Silver trophy for highest fabric exports and Bronze trophy for highest

made ups export2008 Turnover crosses Rs. 2,000 crore

Exports crosses Rs. 1,000 crore Joint venture with National Textile Corporation (NTC) to develop, revive New

City Mills, Mumbai and Aurangabad Textile Mills, Aurangabad formed Awards from TEXPROCIL for 2007-2008 Gold Trophy for highest exports of bleached/yarn dyed/ printed fabrics Silver Trophy for highest export of made ups Bronze Trophy for highest global exports Special achievement award for exports in fabrics Awarded Outstanding Exporter of the Year – Textiles  at the International Trade

Awards 2007-08; presented by DHL CNBC TV 18 and powered by ICRA

Company’s SWOT analysis:-

SWOT Analysis is done in order to learn about the strength, weaknesses, opportunities & threats

of the company.

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STRENTH:-

During the year the Alok textiles export grew around 31% to RS.111 crores from RS.27 crores in

previous year. The total turnover of Alok Industries ltd RS.1069 crores had an increase of

34.47% over the previous year’s turnover of RS.795 crores. The profit before tax during the

years was Rs.93 crores an increase of 57.63% over the previous year’s figure of RS.59 crores.

Alok manufacturing facilities comprises some of the equipments that have met the stringent

requirement of global retailers & importers in terms of quality, pricing environment aspects.

WEAKNESS:-

As to state there are no specific weaknesses for Alok Industries, the only problems they are

facing is the heavy competition with the international market as well as foreign market.

OPPORTUNITIES:-

The Indian textiles Industry has a much more potential to grow in next organization because

major textile payers in U.S.A & Europe are out-location manufacturing company due to the high

cost of manufacturing.

The Govt. is supporting this industry by technology up gradation scheme, gradual reduction of

import duties on Textile Machineries, Rationalization of Indirect taxes. Etc.

The industry can avail opportunities that may come in from strategy-tie-up with textile giants

from the western word for supply of goods, technical know-how, equity participation, etc.

By this we can penetrate overseas market.

THREATS:-

Textile industry is facing some challenges also, so Alok Industry cannot remain insolent from

this corporation needs to become focused & Flexible.

They will have to define key principals required to achieve operational excellence & develop

strategies to become customer- focused organization.

Products of Alok Industry Ltd

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1) Cotton and Blended Yarn 2) Apperal Fabrics Wowen

3) Apparel Fabrics Knits 4) Work Wear Fabrics

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5) Garments Woven & Knitted 6) Home Textiles- Bed Linen

7) Polyester Texturized- Yarns 8) Going Organic & Going Green

9) Home Textiles-Terry Towels 10) Embroidery

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Company’s vision

To become the world's best integrated textile solutions enterprise with leadership position across

products and markets, exceeding customer & stakeholder expectation.

Company’s mission

They will:

Offer innovative, customized and value added services to our customers

Actively explore potential markets & products

Optimize use of all resources

Maximize people development initiatives

Become a process driven organization

Be a knowledge leader and an innovator in our businesses

Exceed compliances and global quality standards

Be an ethical, transparent and responsible global organization.

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Some of the Alok’s diversified

International and Domestic Customers

Competitors of Alok:-

Raymond company ltd.

Siyaram company ltd.

Century Textiles ltd.

Vardhaman ltd.

Welspun ltd.

GHCL ltd.

Nahar Textiles ltd.

Creative ltd.

Arvind mills

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Plant Locations

SPINNING • 412, Saily, Silvassa, U T of Dadra & Nagar Haveli

WEAVING • Babla Compound, Kalyan Road, Dist. Bhiwandi, Thane

• 17/5/1and521/1,RakholiSaily, Silvassa, U T of Dadra & Nagar

Haveli

• 209/1 & 209/4, Silvassa, Village Dadra, U T of Dadra & Nagar

Haveli

KNITTING • 17/5/1 and 521/1, Rakholi / Saily, Silvassa, U T of Dadra &

Nagar Haveli

PROCESSING • C-16/2, Village Pawane, TTC Industrial Area, MIDC, Navi

Mumbai, Dist. Thane

• 268, Village Balitha, Taluka Pardi, Dist. Valsad, Gujarat

• 254,VillageBalitha,Taluka Pardi, Dist. Valsad, Gujarat

GARMENTS • A 130-134, TTC Industrial Area, Khairne, MIDC, Navi Mumbai

• 374/2/2, Saily, Silvassa, U T of Dadra & Nagar Haveli

MADE UPS • 374/2/2, Saily, Silvassa, U T of Dadra & Nagar Haveli

• 268,VillageBalitha,Taluka Pardi, Dist. Valsad, Gujarat

POY • 521/1, Saily, Silvassa, U T of Dadra & Nagar Haveli

HEMMING • 103/2, Rakholi, Silvassa, U T of Dadra & Nagar Haveli

POY &

TEXTURISING

YARN

• 521/1, Saily, Silvassa, U T of Dadra & Nagar Haveli

Office Locations

REGISTERED

OFFICE:

B/43 Mittal tower Nariman Point,Mumbai-400 021.

CORPORATE

OFFICE:

Peninsula Tower, ‘A’ Wing,Peninsula Corporate Park,G. K. Marg, Lower Parel,Mumbai 400 013

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Divisions of Alok

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ORGANIZATIONAL CHART

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CEOMr. Aich

Project DirectorMr.S.C. Goyal

V. P. Made UpsS.P. Bhupna

President Prod.Mr. A K Pal

President Comm.Mr. A K Pal

V.P. EnggMr. Gurpal

Singh

Chief Mgr.UtilityMr. Kasat

DGM Maint.Mr.

Abbassi

Mgr. MIS & Costing

Mr. Singh

Mgr. ETPMr.

Raajeshkara

DGM HR.Mr.

Digvijay

Mgr. ExiseMr.

Sharma

V.P. AccountsMr. Bhuvanesh

Gupta

Mgr. PurchaseMr. Vinoj

Mgr. ITMr. Hetal Desai

Mgr. StoresMr. Dhavade

Wider WidthGMMr.

Waanchoo

KnitsVPMr.

Jagpat

Normal Width

VPMr.

Gohel

YarnDyingGMMr.

Naidu

PrintingDGMMr.

Parvani

Terry TowelGMMr.

Parvani

AV PPCMr. Sanjeev

Sen

DGM ProcessMr. Somendu

Sen

GM KnitsMr. Kaul

GM Q & AMr. Chuabal

GM Prod.& DevpMr. Jain

DGM FinishingMr. Shavant

DGM FoldingMr. Thakkar

Head Product Devp.

Mr. Vaidva

DGM Q & AMr.

Chakraborty

GM PPCMr.

Debashish

CEOMr. Aich

Chapter 3Chapter 3

KeyKey DepartmDepartm

entsents

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ProductProductionion

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DepartDepartmentment

Production Department

Production is one of the main stages of an enterprise without which a manufacturer can’t

survive. It converts the raw material into semi-finished goods and then converts into finished

goods.

According to Buffa, “Production management deals with decision making regarding production

of goods & services at the minimum cost according to demand of customers through the

management process of planning, directing, and controlling”.

Production Planning

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Alok produces textile products. Before producing product Company plans a schedule on a yearly

base, monthly bases & it goes very deeply by preparing a weekly schedule.

For preparing this schedule they consider the following points.

The lead of the product.

The preparation time of the product.

The demand of the product in market.

According to these points they use to plan the schedule and give the order to produce the

product.

Responsibility of the Production Manager

The responsibility of the production manager in to the Alok Company is as follows.

To control the cost of the production.

To motivate workers for maximum efforts.

To fulfill demand of the customer.

To plan production schedule.

To avoid defective goods.

To maintain enough semis finish goods as well as finish goods.

To decide on way of handling and re handling.

To maximize utilization of machinery and manpower.

Production Planning and Control

The aim of the department is fulfill the customer requirement on the time better quality and

coordinate with the marketing at head office and the production department at Silvassa (Rakholi)

Buyer-Head Office- PPC- Production

This Department is job is to

Check the possibility of availability yarn

Give the data to customer

Meet the given data

Instruct the production units as per priority

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Greige Department:

In this department all the raw material comes from Silvassa (Alok division 2nd branch). 95% of

raw material receives from Silvassa branch and rest from outside source/party. There are 3

godowns and centralized SAP system to know about the raw material. Then the stitching of

cloths is done and then lot no. is given to each set of roll with quality checked. It has the capacity

of producing 1.50 lack meters/day but they produce only 1.30 lack meter/day. Then this material

is send to Bleaching Department for further process.

Bleaching Department:

There are three machines in this department. These machines are imported from Germany.

1. Singedesigne: This machine works for shinning & designing the material.This batch is kept

in rotation for 8Hrs

2. Pre-treatment: This machine works for whiteness & smoothness of the material. There are

three procedures to the material whiteness & smoothness. There are INJECTA, EXTRACTA,

and IMPACTA.

Injecta: Gives the steam pressure to material in water at 200 C for stretching the cloth

from 5 mts to 7 mts.

Extracta: In this section the material is washed by hard washer, soft washer & steam

washer at 90 C.

Impacta: To remove the natural fats & waxes from the material they use this machine.

3. Mercerization: In this process the material is kept in role why dry process or wet process. If

the process is going for continuous process then the wet process is been role and to kept it in

go down it is kept as dry. For the dyeing process the material is been giving in wet form.

Dyeing Department:

In this process 3% color & one 1% chemical is pumped through CDR machine. Then after

dyeing the material the hard wash is done and then the material is been dried and the role is

been send to finishing department.

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Finishing Department:

Finishing is applied on the textile material by different chemical and mechanical means. The

finish to be applied on textile material depends upon the end of the fabric.

MACHINERY IN FINISHING DEPARTMENT

STENTER(Monforts) 3

BRUSHING MACHINE(Lafer) 1

SUEDING MACHINE(Lafer) 1

SANFORISER(Monforts) 1

Folding Department

After finishing the fabric comes to the folding department for the inspection and packing and

grading. Folding department works in four sections

1. Inspection and Grading

2. Recording & data entry

3. Grouping & Sampling

4. Packing

Laboratory Department:

Alok Industry is certified by ISI so the product is of good quality so this department for tests test of material is tested by this department or that there is different machine for check the yarn.

Printing Department:

This is the department were printing is done on the material came from engraving department.

There are 12 color shades in a machine. This machine name is Arioli Loop Ager from Germany.

This machine can color 90 meter of cloth in 1 min.

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Production process Flow Chart of Alok Industries Ltd.

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HumanHuman ResourcResourc

ee DepartDepartmentment

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Human Resources Department

Meaning:

Human Resource Management (HRM) is the function within an organization that focuses on

recruitment of, management of, and providing direction for the people who work in the

organization. Human Resource Management can also be performed by line managers.

Human Resource Management is the organizational function that deals with issues related to

people such as compensation, hiring, performance management, organization development,

safety, wellness, benefits, employee motivation, communication, administration, and training

Recruitment

For recruitment of worker/staff category employee for all unskilled, semi skilled and highly

grade the firm has different approaches like direct recruitment private employment, agencies,

advertisement in news papers and personal sources. Different technique is used for recruitment

as per situation, need, importance and urgency for recruitment of man power. Minimum

education qualification for trainee in STD 10th pass minimum age criteria for category whether

staff or worker is 18 years on the date of recruitment is must.

- Direct Recruitment:-

The company has adopted recruitment policy for workers belongs to un-skilled and semi skilled

grade employees. On every alternative day at the factory main gate personal department conducts

the recruitment activity at the factory gate for the persons willing to join the company.

- Through private Employment agencies:-

For the recruitment of skilled and highly skilled grade employees this type or recruitment source

are preferred. The data base of candidates with relative qualification experience and training is

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available with the agencies. As per our criteria we call prospective candidates for an interview

and evaluation the abilities intelligence attitude and experience.

- Through Newspaper:-

For the specific recruitment in many cases the application are invited through the advertisement

in regional/national news papers. All the application will be shown to concern department heads

of short listed candidates are called for interview.

- Through personal Source:-

We invite people for interview whose information/bio-data will come across/ brought to our

knowledge through any of their friend/relatives/classmates or senior or juniors working with our

organization.

Training and development

Every organization needs to have well framed and experienced employee to perform the

activities which have to perform. If the existing people can meet the recruitment then training is

of no importance. But it is found vice-versa as for existing employee also newer knowledge of

33

MR. SANJAY PANDEY

MR. MURLI (TRAINING &

DEVELOPMENT)

MR. KALPESH RAVAL

(EXECUTIVE. HR)

MR. SAMPATH

(ASST. MANAGER)

OF P&A

HRDMR. DIGVIJAY SINGH

(CHIEF MANAGER P & A)

various ways of doing and performing the task in more efficient and cost effective manner

keeping in touch with competitiveness, modernization and increase the versatility and

adoptability of employee.

As the jobs have become more complex, the importance and requirement of training has

increased to meet organization objectives. Training is process of learning a sequence of

organized input to improve the employees job skill, knowledge, and change in attitude towards

his work.

Training methods:-

On the job

Counseling/direction & guidance

In house training

External training

Employees at all levels are expected to endeavor for “self development” and should try to excel

in their performance on their present job and should prepare for future job.

Training modules:-

AWARENESS PROGRAM

QUALITY

PRODUCTIVITY/SKILLS DEVELOPMENT

SAFETY/HEALTH ENVIRONMENT

LATEST TRAND IN TECHONOLOGY

BEHAVIOURAL AND COMMUNICATION

HRM FOR LINE MANAGER

TECHNOLOGY ASPECTS

COMPUTER AWARNESS PROGRAMME

External training:-

34

Nomination is done for external programme for which there are no internal programmes. The

P&A department will maintain a list of training programme being organized in the country along

with evaluation report on the quality of these programs. Based on individual training

requirement, the P&A department will recommend to the A.Vp/E.D through the concerned

department heads, names of staff to be nominated for various training programmes.

In respect of external nomination, the participants on return of the programme attend by him to

the concerned manager and a copy of it along with a copy reading materials shall be sent to the

P&A department within maximum period of weeks from return of the training programme.

Ethics of employment

Alok Industries Ltd. is professionally managed company; therefore certain ethics of employment

is necessary for achieving climate in organization.

- No interview is to be conducted/Bio-data from be got filled-in without the approval of

personal dept.

- Personal dept arranges and conducts the requirements process only after approval for

requirement is sought. The interview panel is to be earned marked well in advance off the

interview and the interview briefing is required to be given to all the panel members by the

personal dept. No direct hope, commitments, whatsoever regarding employment should be

given to anyone.

- No compromise on quality standard of people should be made.

- Frank and free opinion should be exchanged during the course of interview by the panel.

- All appointment are subjected to credential verification and in case of false, part information

or concealed information, the employment of the concerned person is liable for termination,

without assigning any cause or notice or compensation in lieu thereof.

- All appointment will be subjected to production of satisfactory proof release by the previous

employer, salary terms, and previous employment and experience certificate of all previous

employers.

- All appointments are subjected to credentials given by the selected candidate being verified

and reference report being satisfactory. In case any employee gives wrong information or

conceal facts in either the “Application for employment” from or in subsequent declaration to

35

the company, his employment is liable for termination, without any notice or compensation

in lieu thereof.

Period of the candidate joining the duty, the personnel dept will complete following formalities.

Intimate the date of joining to the dept. head

Seating arrangement (Through personnel dep.)

Arrange through P&A for residential accommodation, if required or agreed upon

Draw up orientation/Training Programme

Finalize the job allocation/description with dept. / division head considering recruitment

objectives.

Induction:

The personnel dept. will be Responsible for

Completing joining formalities, such as joining report, checking of medical

Certificates and medical checkup etc.

Instruction to concern executive.

Acquainting to new entrant with organization structure, Rules & Regulation

Background and history of the company, local information and Assistance.

The induction programme of new entrant will is for five days.

After completing the cycle of indication the new entrant will be sent to the concerned dept.

whenever necessary, the P&A dept. will also issue a general circular regarding the new entrant

and his assignment, for information of all employees in company.

Types of appointment:

PERMANENT: All appointments will be against the permanent sanctioned vacancies. All

appointments would be on probation of six months. Confirmation will not be deemed to have

36

taken place, unless conveyed in writing. In the absence of any written communication, the

probationary period would automatically stand extended.

TEMPORARY: Wherever such appointments are authorized, they will be for limited

period, specified in their terms of appointments, not exceeding 60 days at any stage.

Extension of temporary period beyond 60 days shall also be authorized by A.V.P.

TRAINEES: The Company may engage, from time to time, services of such fresh

graduates/diploma holders (Technical and Non technical). Who on successful completion of

their training period would be absorbed in staff at suitable levels? The terms of appointment

and benefits/facilities for such appointments would be as finalized by the management from

time to time.

Payment of fare to candidates called for interview

Unless otherwise specified, payment of fare to all outstation candidates called for an interview

will be made on the following basis:-

A) All candidates called for Manager & above

B) All persons called for Dy. Manager & below fare

Joining expenses:

It is not the normal practice of the company to pay joining expenses incurred for selected

candidates for joining or moving his residence on selection. Exception this can only be

authorized by the M.D/E.D/A.V.P. in writing.

Letter of intent:

All candidates selected for appointment as staff shall be offered letter of intent indicates the position for

which they have been selected. Formal letter of appointment shall be handed over to the

candidate, on the term mutually agreed upon, on the day of joining duty.

Pre-joining formalities:

37

Candidates selected for joining as staff will be issued letter of intent indicating, a part

from the position for which selected, the date/ place of reporting, the documents etc. at the

time of reporting duties.

MarketiMarketingng

38

DepartDepartmentment

Marketing Department

Marketing is an important activity in our society. Marketing today requires more proximity

towards customer. It also requires:

1) Of end users more understanding.

2) Creating more moment of truth and delight.

39

3) Retaining customer.

4) Relationship marketing.

Modern definition of Marketing: -

“Marketing is continues process of discovery and translating consumer wants into appropriate

product services. Creating demand for this product and serving the demand with the help of

distribution such as wholesaler and retailer. “

The American marketing association defined marketing as:-

The performance of business activities that directs the flow of goods and services from

producer to customer

Marketing management:-

Marketing management is an ongoing process involving identification of consumer need and

wants of converting them into appropriate products and satisfying the demand of consumer who

are the most merciless, meanest and toughest marketing disciplinary. It is an important functional

area of business.

-According to Phillip Kotler:

“The market concept is customer orientation backed by integrated marketing aimed at

generated customer satisfaction to satisfy organizational goals.”

40

4Ps of Marketing Mix

Product

Alok is more concern about the product they are always try to give qualitative product to their

buyers, they have product planning & control department.

This is playing vital role in the organization. It creates the link between the production

department and marketing department. It exchanges the information between the departments.

Manufacturing plans are made, based upon input from marketing and designing .The

development of fabric deciding the specification is done by designing while the acceptability to

market and the quality is decided by market.

They conduct booking session twice in a year in order to decide what should be produced for

season.

A yearly plan is 1st made based upon the expectation of marketing. The capacity balancing is

then done & the entire production is divided in to the available production capacity at various

locations depending upon the capacity loading, the requirement for marketing the converted into

manufacturing.

41

Raw material, Dyes& Chemicals, other horizontal inputs and optimum utilization of capacity are

the major balancing factors which decide the feasibility of timely delivery.

After allocation of plants of various location .Any problem faced at any location need an

immediate attention so that other location take up the production need in order to meet the

deadline of delivery.

Place

Alok is basically fabric manufacturer so they are not selling their product directly. They are

selling their product retailer like Wal-Mart, M&S. They are distributing their product through

agent for international buyers. The web has created a platform whereby organizations can now

directly communicate with the customers, as a result of which many of the channels are being

disinter mediated. This disintermediation does not necessarily mean that they completely

eliminate the intermediaries, but rather when it comes to shipping the products it may outsource

some of the distribution functions like the storage, transportation from third party firms.

Price

Pricing strategy at Alok: Pricing is one of the linchpins of marketing strategy and success.

Every organization has their own technique for pricing & Alok is one of them. The company

adjusts product prices to reflect changes in costs and demand and to account for variation in

buyers and situations. Many times they are using online auctions. It is a popular and innovative

way of pricing. Top Management or Responsible person who has authority, they can be

participating in online auction where buyers bid against each other. The highest bidder wins.

They are using Geographical pricing to decide the price. It includes Geographical

considerations strongly influence prices when costs must cover shipping heavy, bulky, low-unit-

cost materials. Buyers are all over the world so there are variations in price in different area of

the world. Another strategy is value pricing where they are offering right quality at fair price.

Many times they compromise with the price when order in bulk. Price is also depending upon

the quality of product. They are always providing high quality product.

Basic structure of Price: Total Fabric Price=Basic price of fabric + Overhead + Transportation

cost + Profit.

42

Promotion

The next element of the marketing mix is deciding the appropriate set of ways in which to

communicate with customers to foster their awareness of the product, knowledge about its

features, interest in purchasing, likelihood of trying the product and/or repeat purchasing it.

Effective marketing requires an integrated communications plan combining both personal selling

efforts and non-personal ones such as advertising, sales promotion, direct marketing and public

relations. Put together, they are referred to as the promotion mix.

Elements of Promotion

Personal Selling

Sales Promotion

Public Relations (PR.

Direct Mail

Trade Fairs and Exhibitions

Advertising

Sponsorship

Alok is promoting their self in such approaches like trade faire & exhibition. It helps to make

new contacts and renewing old ones. The main purpose is to increase awareness and to

encourage trial & attract the new customer.

They also promoting through sponsorship where company pay associated with particular events

like Fashion show the attributes of the event are then associated with the organization.

Direct mail is the very highly focused way to develop relationship with customer. The mail is

sent out to the potential buyers and responses are carefully monitored.

43

Branch Offices of Marketing Plants

Bangalore

Chennai

Delhi

Sri Lanka

United States

Bangladesh

Vapi

Silvassa

Navi Mumbai

Thane

Marketing strategies:-

The choice of marketing strategies hinges on a number of consideration like the company’s.

Current market share.

Current and Planned Capacity

Customer price sensitivity.

Marketing Growth.

Competitors.

The company may find a number of alternatives for fulfilling its purpose but it needs to be select

one The company needs monitor the impact of marketing strategies on its sales, market shares,

cost, profit and long term investment

Strategies related to Product:

A product means a bundle of benefits, which satisfy the human need. According William

Stanton, “A product is a complex of tangible attributes including packing, color and service

which the buyer expect as offering of satisfaction of wants and need.”

Quality:-

For Alok Industries ltd. quality stands at a first place. And it is most important to any production

house. Also consumer satisfaction is the best scale for the quality measures and they are favor in

Alok Industries Ltd.

44

Packing and Labeling:-

- In Alok product are packed as per the convenience of consumer. So packing is also changed

on the basis of customer.

- The pacing are also change on the basis of the customer feedback.

- The products for exporting are packed separately using some specific material only.

Brand name:

- Brand name is the effective tool to identify and to differentiate

- The product from the competitor’s product.

- Brand name is an attractive parameter for the customer while they choose one among

different product.

- Alok industries ltd .has brand name “ALOK “itself.

Sales department:

In sales department firstly consumer inquiry for our product if consumer like the material of

company so he give order of some quality and from that we make A sales order and the

procedure of sales department is begin.

So consumer check the material and then he give order then companies authorized person decide

that the sales should be done or not if authorized person approve so the department see the when

another parties order will full fill then give date and try to finish that order.

When the order is full filled by department they inform the party and also say to collect their

order when the party comes to collect the order they make legal document and make Challan and

the payment in some specific time period.

45

FinanceFinance DepartDepartmentment

46

Finance Department

Finance is the lifeblood of the industries because we cannot imagine business without finance, as

it is the central point of all the business activity. Whether big or small, government finance

function is of equal importance. Finance is defined as the provision of money at the time it is

wanted.

Till 1950 finance function was regarded as the function only of rising finance of the business.

There after it has undergone remarkable changes over the time. Since last 30 to 40 years the

important function of finance management is of effective efficient utilization of finance.

Financial management means rising of adequate funds at the minimum cost and using them

effectively in the business. It is concerned with financial problem in business.

Management Hierarchy

Accounts & Finance Department

47

V.P ACCOUNTS(Mr. Bhuvanesh Gupta)

Senior Manager Accounts

FINANCE & ACCOUNTS DEPARTMENT

Procedure of Accounting Department

Gate Entry

Store department GRN (Goods Receipt Note)

Accounts

Booking Checking Payment Audit

Booking process

Payment process

Importance of Finance Department:-

48

Accounts Officers

Assistants

Accounts Booking(Assistant)

Manager (Check)

VP Accounts(Sign)

Assistant Manager (Check sign)

VP Accounts(Sign)

Party Distribute

1. Finance is required for the scheme of modernization, expansion and development of

existing enterprise.

2. The financial plan helps to check out the success of the company.

3. The effective financial plan will provide sufficient funds to business.

4. Finance department is always linked with success of other departments where it is

responsible to provide necessary finance.

Responsibility of finance Department

In modern enterprises the financial manager occupies a key position. He is one of the dynamic

members of the management and his role day by day becoming more pervasive, progressive,

intensive and significant in solving complex problem. The responsibility of financial manager

includes:

Raising of funds

Minimizing cost of funds raised

Allocate funds prudently

Control the working of an organization

Maintain enough liquidity

Registered Maintained:-

Cash and bank book

Sales register

Debit Note

Credit Note

Purchase register

Trial Balance

Profit & Loss A/C

Balance Sheet

Accounting Procedure:

49

Here the entries are made and it is sent to the head office and there the account is maintained.

The account procedure starts from the raw material enter to the company. The procedure of

account as follows:-

1. The security officers firstly check the goods or raw material enters at the gate and note down

the no. of vehicle.

2. Then the goods and brought to the quality control lab where it is check and approval is OK

then the goods are stored in the stored department and the entry is made there.

3. The book entry is done after the material stored

4. After the book entry is sanded to the account department where the bill order slips are

compared with other.

5. After the document are checked and signed by the head of the department and manager and

manager and the data are entered in the particular account.

6. Then the daily entries are mail to head office.

7. After making the entries the payment activity is made during the period.

8. The required fund for the payment generally comes from the head office.

Credit policy of Alok:

Credit is facility provided by the company, which enables the creditor to extend the pay off

period to some days as per company’s policy. Alok generally provided the credit facility of 30

days to all the parties or consumer of product.

Dividend:-

Dividend is that amount of capital or profit, which is shared between the shareholders of the

company after meeting all the expenses. The director had authorized the payment of an interim

dividend of Rs.60 per share during the year the expenses. The director had authorized the

payment of an interim dividend of Rs.60 per share during the year.

Export:-

During the year made the export and the efforts are made to achieve the higher growth.

Insurance:-

50

Plant and machinery, stock, building etc of the companies have been adequate insured.

Accounting policy of Alok:

Basic of preparation of financial statement:- The accompanying financial statement has

been prepared under historical cost convention in accordance with generally accepted

accounting principles and provisions of the company

Use of estimates: - The preparation of financial statement in conformity with the generally

accepted accounting principles required estimates and assumptions to be made that affect

the reported amounts of assets and liabilities on the date of the financial statement and the

reported amounts of revenues and expenses during the period.

Fixed assets: - Fixed assets are recorded at the cost of acquisition including incidental

expenses. They are stated at historical cost.

Depreciation :- Depreciation on the fixed assets is provided on written down value method

excepted in respect of non-factory

Investment;- Investment classified as long term investments a fare started at the cost

provision is made to recognize a declined, other than temporary n the value of investment.

Foreign Currency Transaction; - Transaction in foreign currency is recorded at the

original rate of return exchange in force at the time transaction is affected.

Revenue Recognition: - Revenue in respect of insurance, interest, etc is recognized only

with it is reasonably certain that the ultimate collection will be made.

Audit System: - Audit is the process of checking, verifying and inspecting the financial

procedure and position of the company. They are two types of audit are carried out in Alok

51

Internal audit

Statutory audit

Chapter 4Chapter 4

ResearcResearchh

Report:Report:

52

Financial RatioFinancial Ratio AnalysisAnalysis

Research Objectives:

1. To measure the firm’s ability to meet current obligations and its short term liquidity

position by conducting analysis of liquidity ratios (here ratio no 1 & 2).

2. To measure the firm’s long term financial strength, and the proportion of debt and

equity in financing the firm’s assets by analyzing leverage ratios (here ratio 2, 3 & 4).

3. To measure the firm’s efficiency in utilizing and managing its assets by doing analysis

of activity ratios (here ratio 5,6,7 & 8)

4. To measure the firm’s overall efficiency, profitability and effectiveness from

profitability ratio(here ratio 9,10,11,12,13,14&15)

5. To have the knowledge about the financial management of the firm that how a firm

manages its funds or capital in order to achieve its objectives.

6. To know how the administrative and maintenance of financial assets takes place.

Research Methodology

According to my study I have used exploratory design method as it is based on the primary &

secondary data and the information and data were given by the Vice President- Accounts &

Finance Mr. Bhuvanesh Gupta and Sr. Manager-Accounts Mr. Deepak Jain to know the

53

firm’s position and can it implies all its current claims in this competitive world by analyzing

various ratios. My analysis is totally based on primary & secondary source of data provided by

the firm.

Data collection plan

METHODS OF DATA COLLECTION: The data has collected in two ways.

Primary Data:

- Primary data are those, which are collected for the first time, and they are original in character.

Primary data gives higher accuracy and facts, which is very helpful for any research and its

findings.

- For primary data, I personally met Vice President- Accounts & Finance Mr. Bhuvanesh Gupta

and Sr. Manager-Accounts Mr. Deepak Jain, and other staff members for the collection of

required information

Secondary data:

- The secondary data are those, which are already collected by someone for some purpose and

are available for the present study.

- Secondary data was collected from the Company’s Annual Report and other financial

statements, websites and other such sources.

Limitation of the Report

I tried to work best in preparing the report, still there are some obstacles, which come in the way

and stop me to get 100% result. These limitations are sometimes overcome but sometimes they

become unavoidable. Some of the limitations, which I faced in preparing the report, are as

follow:-

1. Due to their busy schedule they were not able to spend more time with me.

54

2. Detailed information of data was not given due to which ratio analysis were not

concluded.

3. As audit was held the staffs was busy and company kept their data confidential.

Outline of the study

Financial Ratio Analysis

Introduction

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated

quotient of two mathematical expressions” and as “the relationship between two or more

things”. In financial analysis, a ratio is used as a benchmark for evaluating the financial position

and performance of the firm. The absolute accounting figures reported in the financial statements

do not provide a meaningful understanding of the performance and financial position of a firm.

An accounting figure conveys meaning when it is related to some other relevant information. For

e.g., a Rs. 5 crore NP may look impressive, but firm’s performance can be said to be good or bad

only when NP figure is related to the firms investments.

The relationship between two accounting figures, expressed mathematically, is known as a financial ratio

(or simply as a ratio). Ratio helps to summarize large quantities of financial data and to make qualitative

judgment about the firm’s financial performance. For e.g., consider Current Ratio, it is calculated by

dividing current assets by current liabilities: a ratio indicates a relationship – a quantified relationship

between current assets and current liabilities. This relationship is an index or yard stick, which permits a

55

qualitative judgment to be formed about the firm’s ability t meet its current obligations. It measures firm’s

liquidity. The greater the ratio, greater is the firm’s liquidity and vice versa. The point to note is that a

ratio reflecting a quantitative relationship helps to make qualitative judgment. Such is the nature of all

financial ratios.

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 decisions. It gives us

better understanding of financial strengths and weaknesses of a firm.

Standards of comparison

The Ratio analysis involves comparison for a useful interpretation of the financial statements. A

single ratio in itself does not indicate favorable or unfavorable condition. It should be compared

with some standard. Standards of comparison may consist of:

Past Ratios, i.e., ratios calculated from the past financial statements of the same firm.

Competitor’s Ratios i.e., ratios of some selected firms especially the most progressive and

successful competitor, at the same point in time.

Industry Ratio i.e., the ratio of industry to which the firm belongs; and

Projected Ratio i.e., the ratios developed using the projected, or proforma, financial statements

of the same firm.

Classification or Types of Financial Ratios

Several ratios, calculated from the accounting data, can be grouped into various classes

according to financial activity or function to be evaluated. As stated earlier the parties interested

in financial analysis are short and long term creditors, owners and management. Short-term

creditors’ main interest is in the liquidity position or the short-term solvency and profitability of

the firm. Long-term creditors’ on the other hand, are more interested in the long term solvency

and profitability of the firm. Similarly owners concentrate on the firm’s profitability and

56

financial condition. Management is interested in evaluating every aspect of the firm’s

performance. They have to protect the interest of all parties and see that the firm grows

profitably.

In view of the requirements of the various users of the ratios, we may classify them into the

following four important categories

1. Liquidity ratios

2. Capital structure/leverage ratios

3. Activity ratios

4. Profitability ratios

57

Classification of Financial Ratios

(A) Liquidity Ratios:

1. Current ratio

2. Liquidity ratio or Quick ratio or acid test ratio

(B) Leverage Ratios

1. Total Debt Ratio

2. Debt-Equity Ratio

3. Interest Coverage Ratio

(C) Activity Ratios

1. Inventory/Stock turnover Ratio.

2. No. of days Inventory

3. Debtor’s turnover Ratio

4. Working capital turnover Ratio

(D) Profitability Ratios

1. Gross Profit Margin

2. Net Profit Margin

3. Rate of return on Investments (ROI) OR Rate of return on Capital Employed

(ROCE)

4. Asset Turnover Ratio

5. Rate of return on Equity

6. Earnings per Share

58

Chapter 5Chapter 5Findings Findings

AndAnd InterpretaInterpreta

tionstions59

Findings and Interpretations

(A) Liquidity Ratios:

These ratios analyse the short-term financial position of a firm and indicate the ability of the firm

to meet its short-term commitments (current liabilities) out of its short-term resources (current

assets).

These are also known as ‘solvency ratios’. The ratios which indicate the liquidity of a

firm are:

1. Current ratio

2. Liquidity ratio or Quick ratio or acid test ratio

(1) Current ratio

It is calculated by dividing current assets by current liabilities.

Where,

Current assets, includes Current Liabilities, includes

60

Current ratio = Current assets Current liabilities

Inventories of raw material, Work in progress, finished goods, stores and spares, sundry Debtors/receivables, short term loans deposits and advances, cash in hand and bank, prepaid expenses, incomes receivables and marketable investments And short term securities.

sundry creditors/bills payable, outstanding expenses, unclaimed dividend, advances received, incomes received in advance, provision for taxation, proposed dividend, instalments of loans payable within 12

months, bank overdraft and cash credit

Conventionally a current ratio of 2:1 is considered satisfactory

The current ratio is a measure of the firm’s short-term solvency. It indicates the availability of

current assets in rupees for every one rupee of current liability. A ratio of greater than one means

that the firm has more current assets than current claims against them. Current ratios for last five

years of Alok Industries Ltd are as under.

The Current Ratios for the last five years of the company are as under

YearsTotal Current assets

(Rs. Crore)Total Current liabilities

(Rs. Crore)Current Ratio

2004-05 1359.21 647.3 2.099814615

2005-06 1403.87 668.1 2.101287232

2006-07 1992.66 1371.21 1.453212856

2007-08 3377.53 2341.16 1.442673717

2008-09 2685.93 1976.02 1.359262558

Years 2004-05 2005-06 2006-07 2007-08 2008-09Current ratio 2.1:1 2.1:1 1.45:1 1.44:1 1.35:1

61

2004-05 2005-06 2006-07 2007-08 2008-090

0.5

1

1.5

2

2.5 2.1 2.1

1.45 1.44 1.35

Chart 1 current ratio

Years

Interpretation of Current Ratio

Conventionally a current ratio of 2:1 is considered satisfactory for a company. This means in a

worse condition, even if the value of company’s Current Assets becomes half, the firm is able to

meet its obligations

It can be seen from past records that CR in years 2004-05 & 2006-07 is 2:1 which meets

the ideal ratio for a company as company is able to meet its obligations very well. So CR

in these years can be interpreted to be sufficiently liquid.

But in years 2006-07 & 2007-08 this ratio has decreased to 1.45 & 1.44 respectively but

still company manages to meets its obligations as its current assets are more than its

current liabilities.

In year 2008-09 the decreasing trend continues and CR becomes 1.35, as far as meeting

obligations is concerned, it is still able to, so this ratio can’t be said to be an insufficiently

liquid but if this decreasing trend continues for next few years then it would be a matter

of concern for company’s liquidity position. For the time being company’s CR can be

interpreted as moderately liquid but an alarming one.

Suggestions:

Since last three years CR has shown a decreasing trend, so Company needs to invest

more in its current assets if it fails to do so then in near future company’s CL may

increase over CA and short term liquidity position might be in threatening condition and

it may struggle to meet its current obligations.

62

Also company should indentify its slow paying debtors and insist them to be quick in

payment

Moreover, company needs to exercise control over slow moving and absolute stock of

goods, which impairs company’s ability to pay bills on time

(2) Quick Ratio or Acid Test Ratio or also known as Liquidity ratio

Quick ratio, also called acid test ratio, establishes a relationship between quick, or liquid, assets

and current liabilities. An asset is liquid if it can be converted into cash immediately or

reasonably soon without a loss of value. Cash is the most liquid asset. Other assets are

considered to be relatively liquid and included in quick assets are debtors and bills receivables

and marketable securities. Inventories are considered to be less liquid. Inventories normally

require some time for realizing into cash; their value also has a tendency to fluctuate.

Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial

condition. Although quick ratio is a more penetrating test of liquidity than the current ratio, yet it

should be used cautiously. A quick ratio of 1:1 or more does not necessarily imply sound

liquidity position. It should be remembered that all debtors may not be liquid, and cash may be

immediately needed to pay operating expenses. It should also be noted that inventories are not

absolutely non-liquid. To a measurable extent, inventories are available to meet current

obligations. Thus, a company with a high value of quick ratio can suffer from the shortage of

funds if it has slow paying, doubtful and long duration outstanding debtors. On the other hand, a

company with a low value of quick ratio may really be prospering and paying its current

obligation in time if it has been turning over its inventories efficiently. Nevertheless, the quick

ratio remains an important index of the firm’s liquidity.

It is calculated by dividing quick current assets by current liabilities (quick current liabilities)

Where,

Quick assets are current assets (as stated earlier) less prepaid expenses and inventories.

Conventionally a quick ratio of 1:1 is considered satisfactory.

63

Quick ratio = Quick assets Current liabilities

Quick Ratio for last five year of company is as under:

YearsQuick Assets(Rs. Crore)

Total current liabilities(Rs. Crore)

Quick Ratio

2004-05 999.85 647.3 1.5446469952005-06 1049.5 668.1 1.5708726242006-07 1522.04 1371.21 1.1099977392007-08 2692.15 2341.16 1.1499214062008-09 1739.8 1976.02 0.880456676

Years 2004-05 2005-06 2006-07 2007-08 2008-09Quick ratio 1.54:1 1.57:1 1.11:1 1.11:1 0.88:1

2004-05 2005-06 2006-07 2007-08 2008-090

0.5

1

1.5

2 1.54 1.57

1.11 1.110.88

Chart 2 Quick ratio

Years

Interpretation of liquid ratio:

Generally, a quick ratio 0f 1:1 is considered to represent a satisfactory current financial

condition.

In years 2004-05 & 2005-06 quick ratio, is almost more than 1.5 times which implies that

company’s quick assets are 1.5 times more than its liabilities this is because company is

able to convert its assets into cash very successfully. This ratio sets a very rosy current

liquidity condition as company has enough cash to meet its current obligation.

In years 2006-07 & 2007-08 this ratio has reduced to 1.11 times but still company has

managed to be in line with standard ratio, although the ratio has decreased but it cant be

64

said insufficiently liquid as company liquid assets are almost equal to its current

liabilities.

In year 2008-09 the decreasing trend continues and ratio becomes 0.88 times which is

does not sounds good as company may find it difficult to meets its obligations as its

liquid assets are less than its current liabilities.

Suggestions

Company needs to have more liquid asset in form of cash as cash is considered to the

most liquid asset.

Also Company needs to exercise control over its investment in inventories as inventories

are considered to less liquid as compared to BR and other readily convertible or

marketable securities. If company fails to do so then it may not be able to meet its current

obligation.

(B) Gearing ratios or Leverage ratios

These ratios indicate the long term solvency of a firm and indicate the ability of the firm to meet

its long-term commitment with respect to:

repayment of principal on maturity or in predetermined instalments at due dates and

Periodic payment of interest during the period of the loan.

The process of magnifying the shareholders return through the use of debt is called, “financial

leverage” or “financial gearing” or “trading on equity” Theses ratios are calculated to measure the

financial risk and the firm’s ability of using debt to shareholder’s advantage. Leverage ratio can

be calculated from the Balance Sheet items to determine the proportions of debt in total

financing. They can also be computed from profit & loss items by determining the extent to

which operating profits are sufficient to cover the fixed charges.

Leverage ratios are classified as under:

1. Total Debt Ratio.

2. Debt-equity Ratio.

3. Interest coverage Ratio.

1. Total Debt Ratio

65

Several debt ratios may be used to analyze the long-term solvency of a firm. The firm may be

interested in knowing the proportion of the interest – bearing debt (also called funded debt) in the

capital structure. It may, therefore, compute debt ratio by dividing total debt by capital employed

or net assets. Total debt will include short and long term borrowings from financial institutions,

debentures/bonds, deferred payment arrangements for buying capital equipments, bank

borrowings, public deposits and any other interest – bearing loans. Capital employed will include

total debt and net worth.

The firm may be interested in knowing the proportion of the interest bearing debt (also called

funded debt) in capital structure. It may therefore compute debt ratio by dividing total debt (TD)

by capital employed (CE) or Net Assets (NA).

Where, Total Debt (TD) will include short and long term borrowings from financial institutions,

debentures/bonds, deferred payment arrangements for buying capital equipments, bank

borrowings, public deposits and any other interest-bearing loan.

Capital Employed (CE) will include Total Debt (TD) + Wet Worth (NW)

Debt ratio for last five years of the company is as under:

YearsTotal Debt(Rs Crore)

Capital employed(Rs Crore) Debt Ratio

2004-05 1403.24 2001.31 0.701160742005-06 2212.5 3020.03 0.7326086162006-07 3336.76 4361.2 0.7651013482007-08 5767.31 7198.65 0.8011654962008-09 6596.35 8351.42 0.789847715

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Debt ratio 0.701:1 0.732:1 0.765:1 0.801:1 0.789:1

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Debt Ratio = Total Debt (TD) Capital Employed (CE)

2004-05 2005-06 2006-07 2007-08 2008-090.64

0.66

0.68

0.7

0.72

0.74

0.76

0.78

0.8

0.82

0.701000000000001

0.732000000000001

0.765000000000001

0.8010.789

Chart 3 Total Debt Ratio

Years

Interpretation of Total Debt Ratio:

Generally, total debt ratio of 2/3 is considered satisfactory.

Here the company’s total debt ratio has shown an increasing trend from years 2004-05 to

2006-07. Almost more than 70% of company’s net assets (capital employed) are being

financed by lenders in these years.

In year 2007-08 company total debt ratio is highest i.e. 0.801 which means lenders have

financed 80% or about four-fifths of company net assets (capital employed). It obviously

implies that owners have provided remaining one fifth or just 20%, i.e. the stake of

owners is quite low in the total capital employed of the company.

In year 2008-09 this ratio is 0.708 which in no sense is satisfactory as is surpasses

conventional ratio of 0.66. From creditor’s point of view, the trend is risky and

undesirable.

Suggestions:

Company needs to improve its debt position by reducing debt in its capital mix, otherwise

it may led to creditors’ pressures and constraints on managements independent

functioning and energies. If company fails to reduce its debt, it may get entangled in a

Debt Trap.

67

1) Debt- Equity Ratio

The relationship describing the lenders’ contribution for each rupee of the owners’ contribution

is called debt- equity ratio. It is directly computed by dividing total debt by net worth.

YearsTotal Debt(Rs. Crore)

Net worth(Rs. Crore) Debt-equity Ratio

2004-05 1403.24 598.07 2.3462805362005-06 2212.5 807.53 2.7398362912006-07 3336.76 1024.44 3.2571551292007-08 5767.31 1431.34 4.0293082012008-09 6596.35 1755.06 3.758475494

Years 2004-05 2005-06 2006-07 2007-08 2008-09Debt Equity 2.34:1 2.73:1 3.25:1 4.02:1 3.75:1

2004-05 2005-06 2006-07 2007-08 2008-090

0.51

1.52

2.53

3.54

4.5

2.342.73

3.25

4.02 3.75Chart 4 Debt Equity Ratiio

Years

Interpretation of Debt Equity Ratio:

Generally, A Debt- equity ratio of 2:1 is considered to be conventional.

68

Debt-Equity Ratio = Total Debt (TD) Net worth (NW)

But here like total debt ratio, debt equity ratio also seems to be very unconventional and

undesirable.

Debt equity ratio has also shown an increasing trend from years 2004-05 to 2007-08. In year

2007-08 ratio is highest i.e. 4.02 times. In year 2008-09 it has reduced to 3.75 times, but then too

it doesn’t sound much impressive as company’s debt is much higher than its owners’ stake.

Suggestion:

It’s high time for company to think about its indebtedness. Company needs to reduce its

debt capital in order to sound financially strong. Otherwise, company may suffer great

strains, it may even fail to pay interest charges of creditors, as a result their pressure and

control may further tightened.

There is a need to strike a proper balance between use of debt and Equity.

2) Interest Coverage Ratio:

Debt ratio described above are static in nature and fail to indicate the firms’ ability to meet

interest (and other fixed charges) obligations. The Interest Coverage ratio or the times-interest-

earned is used to test the firms’ debt-servicing capacity. The interest coverage ratio is computed

by dividing earnings before interest and taxes (EBIT) by interest charges. The interest coverage

ratio shows number of times the interest charges are covered by the funds that are ordinarily

available for their payment. Since taxes are computed after interest, interest is calculated in

relation to earnings before tax. Depreciation is a non-cash item. Therefore, funds equal to

depreciation are also available to pay interest charges.

We can thus calculate this ratio as earnings before interest taxes, depreciation and amortization

(EBITDA) divided by interest

A ratio of 6 to 7 times is considered satisfactory

Years EBIDTA Interest Interest coverage

69

Interest coverage Ratio = (EBITDA) Interest

(Rs Crore) (Rs Crore) Ratio

2004-05 244.75 63.68 3.84343593

2005-06 301.26 66.78 4.511230907

2006-07 410.96 89.04 4.615453729

2007-08 547.75 131.83 4.154972313

2008-09 822.61 304.12 2.704886229

Years 2004-05 2005-06 2006-07 2007-08 2008-09Interest. Coverage Ratio 3.84 4.51 4.62 4.15 2.7

2004-05 2005-06 2006-07 2007-08 2008-090

0.51

1.52

2.53

3.54

4.55

3.844.51 4.62 4.15

2.7

Chart 5 Interest Coverage Ratio

Years

Interpretation of Interest Coverage Ratio:

A ratio of 6 to 7 times is considered satisfactory.

Here Interest coverage Ratio has shown an increasing trend from years 2004-05 to 2006-

07 and has shown a decreasing trend in last two years.

In year 2008-09 ratio is lowest i.e. 2.7 times. In year 2006-07 the ratio is highest i.e. 4.62

times, but is not at all satisfactory when compared 6-7 times. This indicates excessive use

of debt or inefficient operations.

70

Suggestions:

As seen earlier in case of total Debt ratio and Debt-equity ratio, even interest coverage

ratio is not satisfactory this is because of the reason that company uses too much of debt

capital, so it needs to review its portfolio regarding use of debt in its capital mix.

Moreover the company should make efforts to improve the operational efficiency, or to

retire debt to have a comfortable coverage ratio. And this can be done by analysing the

variability of the company’s cash flows over time

(C) Activity Ratios

Funds of creditors and owners are invested in various assets generate sales and profit. The better

the management of assets the larger is the amount of sales. Activity ratios are employed to

evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also

called as turn over ratios because they indicate the speed at with which assets are being

converted or turned over into sales. Activity ratios, thus involve a relationship between sale and

assets. A proper balance between sales and assets generally reflects that assets are managed well.

Several activity ratios can be calculated to judge the effectiveness of asset utilization.

Activity ratios can be further classified as under:

1) Inventory/Stock turnover Ratio.

2) No. of days Inventory.

3) Debtor’s turnover Ratio.

4) Asset Turnover Ratio.

5) Working capital turnover Ratio.

1) Inventory/ Stock turnover Ratio:

71

This ratio indicates the number of times inventory is replaced during the year. It measures the

relationship between cost of goods sold and the inventory level. This ratio calculated by dividing

Cost of Goods Sold (COGS) by Average stock (or inventory)

Where,

Cost of Goods Sold (COGS) implies Sales – Operating Profit or EBITDA.

Average Inventory implies total Inventory/2.

Yearscost of goods sold

(Rs. Crore)Average inventories

(Rs. Crore) STR2004-05 999.75 181.635 5.5041704522005-06 1119.44 179.075 6.2512355162006-07 1423.72 232.23 6.1306463422007-08 1622.66 343.79 4.7199162282008-09 2154.32 471.92 4.565011019

72

Inventory turnover Ratio: Cost of goods sold (COGS) Average inventory

Years 2004-05 2005-06 2006-07 2007-08 2008-09Inventory Turnover Ratio

5.5 times

6.25 times

6.13 times

4.71 times

4.56 times

2004-05 2005-06 2006-07 2007-08 2008-09

0

1

2

3

4

5

6

75.5

6.256.13

4.714.56

Chart 6 Inventory Turnover Ratio

Years

Interpretation of ITR

There is no such standard ratio available; therefore comparison shall be made on basis of past

trends. But high inventory ratio is indicative of good inventory management. And low inventory

implies excessive inventory level than warranted by production and sales activities.

In year 2005-06 the ratio is highest i.e. 6.25 times, which means company is turning its

inventory of finished goods into sales 6.25 times in a year.

In year the ratio has shown a decreasing trend and has finally reached to 4.56 times,

which means company’s efficiency in turning its inventories is getting reduced.

Suggestions

Company needs to reduce investment in sluggish inventories that leads to unnecessary

tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So

the absolute inventories must be written off.

2) No. Of Days Inventory:

This ratio is calculated by dividing no. of days in a year with inventory turnover ratio. Generally

for the sake of convenience we take 360 days for calculating this ratio

73

No of day’s inventory: 360 DaysAverage inventory

YearsDays

in a yearinventory turnover

No. of Days, Inventory

2004-05 360 5.5 65.454545452005-06 360 6.25 57.62006-07 360 6.13 58.727569332007-08 360 4.71 76.433121022008-09 360 4.56 78.94736842

Years 2004-05 2005-06 2006-07 2007-08 2008-09No. of Days,Inventory

65 Days

57 Days

58 Days

76 Days

78 Days

2004-05 2005-06 2006-07 2007-08 2008-09

01020304050607080 65

57 58

76 78Chart 7 No. of Days,Inventory

Years

Interpretation of no. of days

Here more inventory days indicates that company is holding its stock for longer period of

time and investments in inventories is blocked which would increase costs and reduce

profits, on the contrary less inventory holding days is indicative of good inventory

management system for a company

In year 2005-06 the holding period is least i.e.57days and then onwards it has shown an

increasing trend and was highest in year 2008-09 i.e.78days.

Suggestion:

74

Company should investigate and find out slow moving or absolute stock and take

appropriate steps to write-off them as soon as possible otherwise this will adversely affect

working capital and liquidity position of the company

Company needs to reduce investment in sluggish inventories that leads to unnecessary

tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So

the absolute inventories must be written off

3) Debtors Turnover Ratio

This ratio is a test of the liquidity of the debtors of a firm. It shows the relationship between credit sales and debtors.

Years 2004-05 2005-06 2006-07 2007-08 2008-09Debtors turnover(days)

120 Days

91 Days

109 Days

102 Days

108 Days

2004-05 2005-06 2006-07 2007-08 2008-09

0

20

40

60

80

100

120

120

91

109102 108

Chart 8 Debtors turnover(days)

Years

Interpretation of Debtors Ratio or Average collection period

75

Debtors Turnover Ratio = Credit Sales X 360 days

Debtors

This ratio is indicative of the efficiency of the trade credit management. A high turnover

ratio and shorter collection period indicates prompt payment by the debtor. On the

contrary low turnover ratio and longer collection period indicates delayed payments by

the debtor. In general a high debtor turnover ratio and short collection period is

preferable.

Collection period is kept on increasing every year which is not favorable for a company.

It implies that company’s credit and collection policy is inefficient and liberal.

Suggestion:

Company should improve its collection policy by improving credit terms and policy.

4) Assets turnover ratio

Some analysts like to compute the total assets turnover in addition to or instead of the net assets

turnover. This ratio shows the firm’s ability in generating sales from all financial resources

committed to total assets.

Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to

maximize its sales. The relationship between sales and assets is called assets turnover.

YearsSales

(Rs. Crore)Capital Employed

(Rs. Crore) Assets Turnover

Ratio2004-05 1224.5 2001.31 0.6118492392005-06 1420.7 3020.03 0.470425792006-07 1824.68 4361.2 0.4183894342007-08 2170.41 7198.65 0.3015023652008-09 2976.93 8351.42 0.356457944

Years 2004-05 2005-06 2006-07 2007-08 2008-09Assets turnover

0.61 Times

0.47 times

0.41 times

0.31 times

0.35 times

76

Assets Turnover Ratio = Total SalesCapital

Employed

2004-05 2005-06 2006-07 2007-08 2008-09

0

0.1

0.2

0.3

0.4

0.5

0.6

0.70.61000000

0000001

0.470.41

0.3 0.35

Chart 9 Assets Turnover Ratio

Years

Interpretation of Asset turns over Ratio.

Ratio of more than one should be considered to be satisfactory. But here company is not

able to maintain that ratio which means there are unutilized or underutilized assets in

company.

In the year 2004-05 the ratio is highest but doest show any satisfaction. As since

company is able to generate only 0.60Rs of sales for every one rupee capital employed in

net assets. Besides this in year 2007-08 this condition has gone worsen as ratio reached

its lowest level i.e. 0.3 which shows company’s inefficiency in utilizing its assets.

Suggestions

Company’s sales have increased but not in the proportion of increase in net assets or

capital employed.

Company needs to improve a lot as far as operational performance is concerned, more

sales promotion activities should be carried out t increase sales at this given level of

assets On the other hand it necessary to check whether assets are properly valued ie.

Whether undervalued or overvalued because valuation of assets is very important.

77

5) Working Capital turnover ratio:

A firm may also like to relate net current assets (or net working capital gap) to sales. It may thus

compute net working capital turnover by dividing sales by net working capital.

Where, Networking Capital =( Total Current Assets)-(Total Current Liabilities)

YearsSales

(Rs. Crore)

Net Working Capital

(Rs. Crore)

Working capital

turnover2004-05 1224.5 711.91 1.7200207892005-06 1420.7 735.77 1.930902322006-07 1824.68 621.45 2.936165422007-08 2170.41 1036.37 2.0942424042008-09 2976.93 709.91 4.193390711

Years 2004-05 2005-06 2006-07 2007-08 2008-09Working capitalTurnover

1.72 times

1.93 times

2.93 times

2.09 times

4.19 times

78

Working Capital turnover = SalesNet Working Capital

Interpretation of Working capital Turnover Ratio

From this point of view company’s working operational performance is quite sound.

Since from year 2004-05 to 2008-09 working capital turnover ratios has shown an increasing

trend. In year 2008-09 this ratio is highest i.e. 4.19times which implies that for every one rupee

of working capital company is able to generate 4.19 rupee of sales.

This is because company’s sales have increased year by year one the one hand while on

the other hand net working capital has reduced.

Suggestions

Company must maintain this level of working capital but not being so optimistic it should

see that net working capital doesn’t get reduced which stagnates growth. Because due to

inadequate working capital it becomes difficult for the firm to undertake profitable

project.

79

D) Profitability Ratios

Profit is the difference between revenues and expenses over a period of time (usually one year).

Profit is the ultimate ‘output’ of a company, and it will have no future if it fails to make

sufficient profits. Therefore the financial manager should continuously evaluate the efficiency of

the company in terms of profits. The profitability ratios are calculated to measure the operating

efficiency of the company. Besides management of the company, creditors and owners are also

interested in the profitability of the firm. Creditors want to get repayment of their principal

regularly. Owners want to get a required rate of return on their investments. This is only possible

when the company earns enough profits.

Profitability Ratios can be classified as under:

1) Gross Profit Margin

2) Net Profit Margin

3) Rate of return on Investments (ROI) OR Rate of return on Capital Employed (ROCE).

4) Rate of return on Equity

5) Earnings per Share.

1) Gross Profit Margin:

The Gross Profit Margin reflects the efficiency with which management produces each unit of

product. This ratio indicates the average spread between the cost of goods sold and the sales

revenue. A firm should have a reasonable gross profit margin to ensure coverage of its operating

expenses and ensure adequate return to the owners of the business i.e. shareholders.

To judge whether the ratio is satisfactory or not, it should be compared with the firm’s past ratios

or with the ratio of similar firms in the same industry or with the industry average.

This ratio is calculated by dividing gross profit by sales. It is expressed as a percentage.

80

Gross Profit Margin = EBIT Sales

YearsEBIT

(Rs. Crore)Sales

(Rs. Crore)GP Margin

(%)2004-05 187.19 1224.5 15.287062005-06 220.78 1420.7 15.540232006-07 278.92 1824.68 15.285972007-08 385.79 2170.41 17.774982008-09 589.11 2976.93 19.78918

Years 2004-05 2005-06 2006-07 2007-08 2008-09Gross Profit Margin(%) 15.28% 15.54% 15.28% 17.77% 19.78%

2004-05 2005-06 2006-07 2007-08 2008-09

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%20.00%

15.28% 15.54% 15.28%17.77%

19.78%Chart 11 Gross Profit Margin(%)

Years

Interpretation of GP ratio:

GP ratio has shown an increasing trend which shows company’s profitability condition is

well also company’s operating efficiency is also satisfactory.

In years 2007-08 and 2008-09 there is more than 2% & 4%increase in GP ratio

respectively as compared to that of year 2005-06, which indicates that company is

operating at an efficient pace. This is because both sales and operating profit have

increased in these years.

Suggestions

Company should maintain this pace of selling finished goods so that it can fetch desired

rate of operating profit.

81

Moreover company should make efforts to reduce its variable costs in order to earn more

profit margins in near future.

2) Net Profit Margin:

This ratio is calculated by dividing net profit by sales. It is expressed as a percentage.

This ratio is indicative of the firm’s ability to leave a margin of reasonable compensation to the

owners for providing capital, after meeting the cost of production, operating charges and the cost

of borrowed funds.

YearsPAT

(Rs Crore)Sales

(Rs Crore)NP Margin

(%)2004-05 89.25 1224.5 7.2886892005-06 109.21 1420.7 7.6870562006-07 135.18 1824.68 7.4084222007-08 167.73 2170.41 7.7280332008-09 188.37 2976.93 6.32766

Years 2004-05 2005-06 2006-07 2007-08 2008-09Net Profit Margin (%) 7.29% 7.69% 7.40% 7.73% 6.33%

2004-05 2005-06 2006-07 2007-08 2008-090.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

7.29% 7.69% 7.40% 7.73%6.33%

Chart 12 Net Profit Margin(%)

82

Net Profit Margin = PAT Sales

Interpretation of NP Ratio:

Company’s NP ratio trend has shown an increasing during the years 2004-05 to 2005-06.

But after that it has shown a decreasing trend from year 2006-07 to 2008-09.

This reduction in the ratio is also due to making more cost of goods sold, as company’s

other charges are reduced as compare to previous year but ratio has reduced. This doesn’t

sounds profitable.

Suggestion:

So company must purchase the material as and when needed so as to reduce cost of goods

sold. And company also needs to exercise control over its unnecessary administrative and

office expenses.

If company is not able to control its cost of goods sold it will damage its profitability

position which reduce investor’s confidence.

3) Rate of return on Investments (ROI)

OR Rate of return on Capital Employed (ROCE).

This ratio measures the relationship between net profit and capital employed. It indicates how

efficiently the long-term funds of owners and creditors are being used.

YearsEBIDTA

(Rs Crore)Total Assets(Rs Crore)

ROCE(%)

2004-05 244.75 2246.33 10.895552005-06 301.26 3317.81 9.0800862006-07 410.96 4795.95 8.5688972007-08 547.75 7887.79 6.9442772008-09 822.61 9159.58 8.98087

Years 2004-05 2005-06 2006-07 2007-08 2008-09ROCE(%) 10.89% 9.08% 8.56% 6.94% 8.98%

83

Rate of return on Capital Employed = EBIDTATotal Assets

2004-05 2005-06 2006-07 2007-08 2008-09

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00% 10.89%

9.08%8.56%

6.94%

8.98%

Chart 14 Return on Capital employed(%)

Years

Interpretation of return on capital Employed:

In year 2004 -05 return on capital employed is highest i.e. 10.89% in these five years and

in year 2007-08 this return is minimum i.e. about 7% but again in year this ratio has

increased to almost 9% which may be termed as quiet satisfactory.

4) Return on Shareholders’ equity

This ratio measures the relationship of profits to owner’s funds. Shareholders fall into two

groups i.e. preference shareholders and equity shareholders.

Years 2004-05 2005-06 2006-07 2007-08 2008-09ROE(%) 14.92% 13.52% 13.19% 11.71% 10.73%

84

Return on Shareholders’ equity = PATNet Worth

YearsPAT

(Rs Crore)Net worth(Rs Crore)

ROE(%)

2004-05 89.25 598.07 14.9232005-06 109.21 807.53 13.523962006-07 135.18 1024.44 13.19552007-08 167.73 1431.34 11.718392008-09 188.37 1755.06 10.73297

2004-05 2005-06 2006-07 2007-08 2008-09

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%14.92%

13.52%13.19%

11.71%10.73%

Chart 14 Return on Equity (Rs.)

Years

RO

E (R

s.)

Interpretation of Return on Equity:

ROE indicates how well the firm has used the resources of owners. In fact, this ratio is

one of the most important relationships in financial analysis. The earning a satisfactory

return is most desirable objective of the business.

Here company is having highest return on equity i.e. of almost 15% in the year

2004 -05

While in concluding years this ratio has shown a decreasing trend and has reached

to 10.73% in the year 2008-09.

This ratio is of great concern to present as well as prospective shareholders as

company is able to generate at least 10% on its net worth.

5) Earnings per Share

years 2004-05 2005-06 2006-07 2007-08 2008-09EPS 7.25 6.68 9.7 11.4 9.64

85

7.256.68

9.7

11.4

9.64

0

2

4

6

8

10

12

EP

S (

Rs

)

2004-05 2005-06 2006-07 2007-08 2008-09

Years

Chart 15 Earning Per Share

Interpretation of EPS

EPS calculation is made over years indicate whether or not the firm’s earning power on per-share

basis has changed over that period. The EPS of the Company simply shows the profitability of

the firm on a per-share basis, it does not reflect how much dividend and how much is the

retained earnings in the business.

In the year 2007-08 EPS is highest i.e. 11.4 Rs per share, but in year 2008-09 it is less than even

10 Rs. Per share.

86

Chapter 6Chapter 6

SuggestiSuggestionsons

87

Chapter Six

Conclusion and Suggestion

Company needs to invest more in its current assets if it fails to do so then in near future

company’s CL may increase over CA and short term liquidity position might be in

threatening condition and it may struggle to meet its current obligations.

Company needs to keep more liquid asset in form of cash as cash is considered to the

most liquid asset.

Company needs to exercise control over its investment in inventories as inventories are

considered to less liquid as compared to BR and other readily convertible or marketable

securities. If company fails to do so then it may not be able to meet its current obligation.

Company needs to improve its debt position by reducing debt in its capital mix, otherwise

it may led to creditors’ pressures and constraints on managements independent

functioning and energies. If company fails to reduce its debt, it may get entangled in a

Debt Trap.

It’s high time for company to think about its indebtedness. Company needs to reduce its

debt capital in order to sound financially strong. Otherwise, company may suffer great

strains, it may even fail to pay interest charges of creditors, as a result their pressure and

88

control may further tightened. Company needs to review its portfolio regarding use of

debt in its capital mix.

The company should make efforts to improve the operational efficiency, or to retire debt

to have a comfortable coverage ratio, by analysing the variability of the company’s cash

flows over time

Failure of reducing investment in sluggish inventories doing so may lead to increased

costs and reduced profits. So the absolute inventories must be written off.

Company should investigate and find out slow moving or absolute stock and take

appropriate steps to write-off them as soon as possible otherwise this will adversely affect

working capital and liquidity position of the company

Company needs to reduce investment in sluggish inventories that leads to unnecessary

tied-up of funds. Failure of doing so may lead to increased costs and reduced profits. So

the absolute inventories must be written off

Company should improve its collection policy by improving credit terms and policy.

More sales promotion activities should be carried out t increase sales at this given level of

assets. On the other hand it necessary to check whether assets are properly valued i.e.

whether undervalued or overvalued because valuation of assets is very important.

Company should make efforts to reduce its variable costs in order to earn more profit

margins in near future.

So company must purchase the material as and when needed so as to reduce cost of goods

sold. And company also needs to exercise control over its unnecessary administrative and

office expenses.

If company is not able to control its cost of goods sold it will damage its profitability

position which reduce investor’s confidence.

89

Bibliography

Book Referred:

- Financial Management- By I M Pandey, Ninth Edition, Part 5, Chapter 25, Pg.

no 518-541.

- Annual Reports of Alok industries ltd., years-2001-02, 2005-06 & 2008-09.

Websites visited:

- http://www.iloveindia.com/economy-of-india/textile-industry.html

- http://www.alokind.com.

90

91

Annexure

92

93

94