Summer Training Report of Win Medicare Pvt. Limited (Ratio Analysis)
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Transcript of Summer Training Report of Win Medicare Pvt. Limited (Ratio Analysis)
SUMMER TRAINING REPORT
ON
RATIO ANALYSIS
SUBMITTED BY
NIDHI MEHTA
MBA Batch 2009-2011
In Partial Fulfillment of the Requirements of the Degree of Master of Business Administration
SUBMITTED BY: SUBMITTED TO
NIDHI MEHTA
MBA PART-II
JECRC BUSINESS SCHOOL
PREFACE
Theories are being developed, designed and stated on the groundwork of their practical implementation
and usage. Work experience seems to e the most effective and indispensable factor of making an
individual an adept. This is because one can not do without being exposed to varying circumstances and
possible consequences. Training not only develops individual skills and abilities but also provides
proficiency in work performance.
This report served as a means to share my personal experiences while working on this project which
provided me platform where I was face to face with practical aspects of theoretical knowledge gained so
far.
This training projectt report has been prepared during the summer training of 45 working days in an
organization. It is an integral part of MBA curriculum. The summer training was challenging, gainful
and interesting and it gave real insight of corporate world.
ACKNOWLEDGMENT
I express my sincere thanks to my project mentor Mrs.Rashmi Sharma ,Lecturer,Deptt.MBA for
guiding me right from the inception till the successful completion of the project. I sincerely
acknowledge him for extending their valuable guidance, support for literature, critical reviews of project
and the report and above all the moral support he had provided to me with all stages of this project.
I would also like to thank the supporting staff Himanshu Vijay and K .K Varshney ,Finance
Department for their help and cooperation throughout our project.
NIDHI MEHTA
CERTIFICATE
TO WHOM SO EVER IT MAY CONCERN
This is to certify that MS NIDHI MEHTA, student of MBA from JECRC BUSINESS
SCHOOL, JAIPUR has undergone EIGHT Weeks summer training in the Accounts department of
our organization for the period from 17 JUNE , 2010 to 1 AUGUST, 2010 on the project titled “
Financial performance through Ratio Analysis “
HIS behavior and character is good and we wish all success for her future endeavors
For Win- Medicare Pvt. Limited
K.K.Varshney
Dy G.M - Accounts
Dated 3rd
AUGUST , 2010
place :- new delhi
DECLARATION
Herewith I declare that all information (textual contents) furnished in the undertaken project by the
assignee, are original and valid as per the facts and figures known to me. Further, the project has not
been submitted/published elsewhere, nor it has been sent for publication and austerely embodies the
live-project work undertaken by the undersigned at JECRC School of management, JAIPUR.
CONTENTS
S.No PARTICULARS Pg.No.
1. Preface 2
2. Acknowledgement 3
3. Introduction Of Industry 7
4. Introduction to Organization 17
5. Research methodology 23
6. Analysis & Interpretation 36
7. Facts & findings 60
8. SWOT Analysis 61
9. Conclusion 66
10. Recommendation & Suggestion 67
11. Bibliography 69
INTRODUCTION TO THE INDUSTRY
It is said that behind every successful business is a person who once made a courageous decision. In the
case of the Modi Group of companies, one of the largest conglomerates in India, the man who took the
big decision was Gujarmal Modi.
From humble beginnings in 1932 with only Rs.400/- in his pocket, Rai Bahadur Gujarmal Modi, the
founder of the Modi Group left the security of his home and family to create his own business. His belief
in himself and the concept of self-entrepreneurship was strong and he worked hard to create an empire.
Today the Modi Group is among the top Industrial Conglomerates in India. The Group has large number
of joint ventures with world leaders such as Philip Morris, Estee Lauder, Olivetti, Acatel, Revlon, Rank
Xerox and Walt Disney.
This is the story of Rai Bahadur Gujarmal Modi who founded the Group in year 1933. From then
on there was the Sugarcane Development Cooperative Society was set up in 1938-39.
Vanaspati factory, using cotton seed oil was set up in June 1939.
The washing soap factory utilizing the waste sludge was established in 1940.
The toilet soap factory emerged in the year 1941. Soaps were manufactured under the brand
names, Modi No.1 and Perfect soap.
The Modi Tin Factory was established in 1941 to fulfill the demand of the Vanaspati unit for tin
containers.
Modi Food Products was born on 28th
May 1941 this factory was separated from the sugar and
converted into a public limited company on 18th
December 1941.
Sometime later a new company, Modi Supplies Corporation Ltd. Was set up to process dry fruits
into cakes and tablets for the use of the armed forces.
A Biscuit manufacturing factory and a confectionary factory plant wads also set up in 1943.
NOTE ABOUT THE CHAIRMAN
UMESH K. MODI,CHAIRMAN,PRESIDENT&CEO
The youngest son of Rai Bahadur Gujar Mal Modi, Umesh K Modi, Chairman,President and CEO of
Modi Group Of Industries, is a name to reckon with in Indian industries firmament. A gold medalist in
chemical engineering, his futuristic vision and youthful dynamism have changed the complexion of the
domestic industrial scenario. Particularly creditworthy is his insistence and perseverance in introducing
innovative technologies, thereby aiding the countrys industrial development. In fitting gesture. The
Ministry of Industries honoured him with the “Man of the Year” award for 1984.
He has also held the prestigious chairmanship of various organizations such as the Steel furnance
Association of India, Western U.P Sugar Mills Association, Steel Wire Manufacturers Association of
India, Sponge Iron Association of India as well as the Presidentship of the Institute of Economic Studies.
He continues to be an active member and office-bearer of many international organizations such as the
Young Presodent organization, industrial Council Development, etc. Starting with the singular
inheritance of Modi Sugar Mills, his Group has chartered an unprecedented growth course driven by the
imaginative and practical dynamism of Umesh K. Modi.
With an annual turnover of 7.5 billion(US$155 million), and a highly motivated workforce of 3000 plus
employees, Umesh K. Modihas been a multifaceted portfolio of activities. The principal being with
sugar, consumer goods, pharmaceuticals,cosmetics, sponge iron and steel , engineering and power.
Umesh K. Modi has been instrumental in bringing the internationally renowned collaborations to India
and the group continuously monitors,markets and applies this proven blend of business acumen and
Entrepreneurial spirit to encash relevant opportunities.
GROUP OF COMPANIES
Modi Sugar Mills
SBEC Sugar Limited
Win-Medicare Pvt.Ltd
Modi Mundipharma Pvt. Limited
Win Healthcare
Modi Revlon Pvt. Ltd
Modi Distillery
Si-al SBEC Bioenergy Limited
Modi Senator (India) Pvt. Limited
Bihar Sponge Iron Limited
Morgardshammar India Limited
SBEC Systems (India) Limited
Technicast Engineers Limited
Modiline Travel Service Pvt. Limited
Barcode
MM Printers
H M Tubes Pvt. Limited
WIN-MEDICARE LIMITED
“Medicine is the most distinguished of all arts.” Hippo Crates
What began as a vision of healthcare business in early 1980s, Win-Medicare today is amongst the fastest
growing pharmaceutical companies in India and is considered the undisputed leader in select segment.
In a country with a highly fragmented Parma market, Win-Medicare enjoys a respectable share.
Sourcing technologies, pharmaceutical and healthcare products as well as the latest in research and
development from USA, Germany and Switzerland, Win-Medicare has grown from strength to strength
while pursuing its mission of fulfilling the healthcare needs of the country.
Win-Medicare began its business with a number of pioneering concepts and products from Sterling Drug
Inc., USA and concertedly worked towards making them established contemporary medical practice.
In the mid-eighties, Win-Medicare took a quantum leap and tied up with Mundipharma Group of
Companies, a pharmaceutical giant from Switzerland, Mundipharma AG, Switzerland and its R&D and
manufacturing affiliates, Knapp Pharmaceutical Group, UK and the Purdue Fredrick Co., USA are
renowned for their novel formulation expertise, state-of-the –art production and Quality Assurance
facilities. The biggest gain from this venture is the topical microbicide Beta dines. In 75 countries, Beta
dine is trusted for its uncompromising antiseptic efficacy.
Amongst the recent growth and expansion bids, Win-Medicare has established licencing arrangement
with Merz & Co. GmbH, Germany for marketing their hepatotherapeutic and other pharmaceutical
products and IBSA, Switzerland for bolstering it‟s gynecological portfolio. The company is well
represented through an efficient Marketing and Distribution network in the Domestic, South Asian,
African and Middle East markets. Currently the company offers options for infection control, pain relief,
management of infertility and many other specialized areas.
MODI MUNDIPHARMA LIMITED
“Wherever the art of Medicine is loved, there also is love of humanity.” Hippo Crates
Encouraged by the success of Win-Medicare, another landmark joint venture was formed to serve the
health needs of the country. Christened Modi-Mundipharma Ltd., the tie up with the Mundipharma
Group of Switzerland has further strengthened the Group‟s positioned in the pharmaceutical segment.
Napp Pharmaceutical, UK (Mundipharma Group)
A rapidly growing Pharma company, Modi-Mundipharma draws its primary strength from sound
Research and Development as well as existing and effective formulations of the Mundiphama Group
companies‟ worldwide, Medical fraternity, across the length and breadth of India, perceives Modi-
Mundipharma to be a Parma company that offers long acting formulations in specialized
therapeutic segments. Modi-Mundipharma has reached this position with consistent exposure of the
benefits of revolutionary Continues technology at large and subsequent discussions of the brand benefits
derived from controlled drug delivery.
The focus of Modi-Mundipharma is to offer state-of-the-art and
latest high-tech pharmaceutical solutions through introduction of
differentiated products in the field of Asthma, Pain and Heart
diseases. The company is effectively represented in the Domestic and South Asian markets.
MODI REVLON LIMITED
The Dream Merchant
It started with one single product…nail enamel,
which was like nothing else anyone had ever seen. Then
followed the subsequent fashion breakthroughs, which
turned Revlon into an undisputed leader in the
cosmetic world. The images evoked by its very
mention are of the world‟s most beautiful women –
those with glorious hair, perfect nails, flattering make-
up and a glowing skin.
Modi-Revlon is the formidable alliance between the Modi Group and the world famous Revlon of
USA. Modi-Revlon has entered the Indian market and has redefined the concept of beauty care in India.
It brings to the Indian women an exciting range international cosmetics, toiletries and fragrances – all
adapted to suit the local conditions and preferences. Modi-Revlon draws on the expertise on Revlon‟s
premier Research Center bin Edison, New Jersey (USA), to harmonies its international product
offerings with the needs and preferences of the Indian women.
Mr. Jerry Lewin (Revlon); Mr. Umesh K. Modi and Mr.
Paul Block the company „thinks Global, but acts Local‟. The
manufacturing standards of Modi-Revlon are as exciting as
elsewhere in the world. The toughest QC standards in line with the
global norms are as followed. The products‟ advertising
features international celebrities and super models. Modi-
Revlon product portfolio currently consists of Lipsticks,
Nail Enamels, Eye and Face Make-up, Flex Shampoos,
Flex Conditioners, Charlie Cologne, Body Sprays, Talc and Fire and Ice cologne.
We
represent
Modi-Mundipharma Private Limited, a 50:50 JV between the privately held Mundipharma group
(known as Purdue Pharma in the US, Napp Laboratories in the UK and Mundipharma in Europe)
and Mr. Umesh K. Modi of the Modi Group of Industries, a leading business conglomerate in India.
Companies managed and controlled by Mr. Umesh K. Modi, span a wide range of businesses:
Pharmaceuticals: Modi Mundipharma, Win-Medicare and Win-Healthcare (Market leaders in several
formulations) alliances with Mundipharma group (Switzerland), Merz Pharma (Germany), Tillots
(Switzerland), Orion (Finland), HRA Pharma (France), IBSA (Switzerland), and LEO Pharma
(Denmark).
Cosmetics: Modi-Revlon: It was set-up in 1995, as collaboration between the Modi Mundipharma
(74%) and Revlon, Inc. USA (26%). Modi-Revlon was the first company in India to introduce the
concept of Beauty advisors in stores. Today, Modi Revlon has a distribution reach in more than 25,000
stores and includes more than 1500 beauty advisors. Modi Revlon is consistently growing since its
inception.
Other businesses, which our group has diversified into, include:
Modi Sugar, Modi Distillery, Iron & Steel, Writing Instruments, Bio-Energy, Entertainment and Modi
Motors
Details on our Pharmaceutical Business (Modi-Mundipharma and Win-Medicare)
Our two pharmaceutical companies coexist independently in terms of product portfolio, sale and
marketing networks (Modi Mundipharma has a field force in excess of 500 people, while Win
Medicare has its dedicated field force numbering 600 people) as well as distribution chain.
While Modi Mundipharma Private Limited focuses on products using the proprietary „Continus‟
time release technology of the Mundipharma group, Win Medicare private limited focuses on
products licensed from international partners such as Merz Pharma of Germany (HepaMerz,
Contractubex/ Mederma), Tillots of Switzerland (Asacol), IBSA of Switzerland
(Gonadotrophins), Orion Pharma of Finland (Divigel and other HRT products), HRA Pharma of
France (Norlevo – Emergency Contraceptive),and LEO Pharma of Denmark (DAIVONEX®
) for
their dermatology portfolio
OTC Division – Win Healthcare
Win Healthcare, today has pan-India presence in the top 50 metros towns with direct retail
coverage in almost 4000 outlets. The distribution comprises of a mix of Retail pharmacies,
Health & beauty outlets and departmental stores.
The market is being serviced using the Carrying and Forwarding agent model. Currently CFA‟s
are servicing the market using a network of Distributors and Sales Representatives.
The distribution cover will be extended to over 7500 outlets by end‟2008
Product range includes:
Mederma (Merz Pharma, Germany)- Under active promotion
Revlon Touch & Glow – OTC market launch commenced in April‟07
Absolute Whitening (Revlon, USA)
Nutritional Supplements – Locally sourced product to be launched in May‟08
Our business philosophy involves working with international pharmaceutical companies.
Some of our success stories are:
Betadine, has grown to be the undisputed leader in the Antiseptic Disinfectant market in India,
with a market share of 75% (more than 3 times the sale of its nearest competitor) inspite of
being about 30% premium priced to its competition, with over 30 competitive brands in the
Indian market.
Depending on the commercial viability and the partner‟s comfort we either import finished
products, or import bulk products with repackaging in India or manufacture the products locally
under license from the licensing partner.
Within India, we have offices in all the major cities and towns. We have a reach to over 200,000
drugstores across the country. We have four manufacturing plants and one of them is our new
production facility for exports, which is UKMHRA approved. In addition to our domestic
presence, we have our own sales and marketing teams in Sri Lanka, Bangladesh & Nepal while
we operate through distributors in South East Asia, East Africa and Eastern Europe.
We are looking for strategic alliances with companies such as yours, which have leading global
brands.
Future Plans:
a) Foreign Exchange Advisory Services
Foreign Exchange Treasury Products
International Trade Finance
Advisory Services
Corporate Foreign Exchange Exposure Management
b) Project Advisory Services
Identification of Project
Assistance in Letter of Intent, Foreign Collaboration Approval, etc.
Providing total and customized solutions in financial services, MLCS is synonym with
collective business acumen and strategy.
INTRODUCTION TO THE ORGANIZATION
As my project in Win Medicare Pvt. Ltd., I worked on the analysis of the financial position of the
company. For this main tool, which is used, is Ratio Analysis. Financial Analysis is the process of
identifying the financial strengths and weaknesses of the firm by properly establishing relationship
between the items of the balance sheet and profit and loss account.
“The science of financial analysis”, says Navin Chandra Joshi, “is assuming art increasingly important
role for appraising the real worth of a going concern.”
An analysis of several financial tools provides all-important basis for valuing securities and appraising
managerial programs. Financial analysis is a vital apparatus for the interpretation of financial statement.
Financial statements of a company include Trading and Profit and Loss Account, Profit and Loss
Appropriation and Balance Sheet.
These statements may be fruitfully used if they (statements) are analyzed and interpreted to have an
insight into the strengths and weaknesses of the firm.
UTILITY OF FINANCIAL ANALYSIS:
Financial analysis seeks to spotlight the significant facts and relationships concerning managerial
performance, corporate efficiency, financial strengths and weakness and credit worthiness of the
company.
Financial analysis can be undertaken by management of the firm, or by parties outside the firm, viz.
owners, creditors, investors and others to form firm. In other word it can be said that financial statements
are of much interest to a number of different groups like:
1. OWNERS
Owners can evaluate the efficiency of the firm to know about how efficient business is going on and
knowing the liquidity and financial position of the firm.
2. SHAREHOLDERS
Shareholders can evaluate the efficiency of the management and determine whether to buy, sell and hold
the shares.
3. CREDITORS
Creditors can find out the financial strength and capacity o a borrower, the value of a floating share on
the assets held as security and the value of unquoted shares.
4. MANAGEMENT
The top management can measure the success or otherwise of a company‟s operations, determine the
relative efficiency of various departments, processes and products appraise the individual performance
and evaluate the system of internal control.
5. LABOR UNION
The labor union assesses whether the company presently affords a wage increase.
6. ECONOMISTS
The economists analyze the financial statement with a view to studying the prevailing business and
economic condition
QUALITY OBJECTIVE
Products and service shall consistently satisfy customer needs.
To increase market share in organized sector.
Establish effective cost system to achieve consistent quality.
To improve all types of wastage perpetual.
To improve customer satisfaction through improvement in quality.
To reduce working capital for better utilization of resources.
GLOBAL PREFERENCE
Maintaining a lead in the domestic market is easy but what really counts is the rapport with international
customers. For any manufacturing unit the most important sector is the exports.
Win Medicare Company maintaining a lead in exporting products to countries likes Uganda, Dubai and
Pakistan.
WIN MEDICARE SPECIALIZE IN
The high quality products of Win Medicare Company are spun out daily on the machines ad technology.
All believes here specialized product has to be made specialized technologies and quality efforts are
required.
Win Medicare Company specializes in making all types of medicines.
VISION OF WIN MEDICARE
To be the leader in the medicare market in India, providing services that enhance productivity.
MISSION OF WIN MEDICARE
To generate adequate surplus.
To stimulate and accelerate all technical, administrational and financial efforts.
To develop manufacture market service and finance a complete range of welding processing
product and service so as to help over customer and make their officers more production.
STRATEGIC INTENT
To be number 1 company, to achieve this Win Medicare Co., Company has a mission, which is to
achieve environment and culture of quality.
CORPORATE GOAL
To grow profit and increase market share at a faster rate than competition in the market.
BUSINESS GOAL
1. CUSTOMER SATISFACTION:
To be in the no.1 customer satisfaction for all products, achieving significant progress towards the goal
of 100% satisfied customer and improvement in the percentage of vert satisfied customers.
2. EMPLOYEE MOTIVATION AND SATISFACTION:
To continue to drive significant year on year improvement in employee motivation and satisfaction to
achieve national leadership status.
3. MARKET SHARE:
To grow a customer base improve our productivity and manage a coverage in order to built continuous
improvement in market share in all strategic business thus consolidating “The Best Company Image”.
4. RETURN ON INVESTMENT:
To drive substantial growth as a means of operating income margins and assets utilizing, thus achieving
a premium return on assets in access of the corporate goal.
RESEARCH AND DEVELOPMENT
A well-equipped and staffed R & D Center has always played a vital role in offering suitable electrodes
to the welding industry. Continuous efforts of scientists and technicians have kept WIN MEDICARE,
in the forefront of welding technology. Department of Scientific & Industrial Research, Ministry of
Science & Technology Government of India have granted recognition to the R & D Center of the
Company.
ROLE OF FINANCE IN WIN MEDICARE PVT LTD.
The role of finance and accounts department of Win Medicare is not limited to the preparation of
accounts, presentation of accounts and publishing of annual reports but apart from this it has numerous
functions such as to:
Make a proper coordination with other department.
Establish and maintain adequate market.
To maintain adequate resources.
To provide insurance coverage.
To appraise economic and social forces and access their effect upon business.
To formulate and implement policies which are beneficial for the companies.
Through every department has its own importance in today‟s increasing business of Win Medicare but
finance/accounts serves the key role for the success of WIN MEDICARE.
FUNCTION OF FINANCE AND ACCOUNTS GROUP
1. FINANCE:
Arranging funds through centralized cash credit a/c being operated by corporate a/c for day-to-day
requirement. This is being managed by not keeping funds idle and also taking due care that all funds
requirement are met timely.
Financial advises on all matters involving out go of money. This is also liaison and interaction with
users. Indenting department, to fully understand and translate the same into monetary term.
2. PRE AUDIT:
Admitting personal claims of the individuals and arranging payments. Drawing regular personal claims
(pay, allowances and incentives etc) and arranging disbursement on due dates. Pre auditing of all
outsiders claims (suppliers, contractors etc).
3. MANAGEMENT ACCOUNTING:
Participation in tender committee and negotiation etc is a part of decision making process. Transfer
pricing in respect of research and development. Coordination control and maintenance of accounting in
respect of expenditure incurred for work.
RESEARCH METHODOLOGY
RESEARCH DESIGN
It is the arrangement of the conditions for collection and analysis of data in a manner that aims to
combine relevance to the research purpose with economy in procedure.
The research is explanatory in the beginning as the secondary data is collected mostly from the higher
management and some from middle management. This information is able to give knowledge about the
company and its share in the market.
SOURCES OF DATA
Both primary and secondary data were collected to meet the objective; the data is collected for the last
three years from the annual reports of the WIN MEDICARE LIMITED,. Due to non-availability of the
accounts of separation units, I measure the performance on the base of all aggregate units.
Data is taken as per the requirements of the study of the RATIO ANALYSIS. Secondary data is used for
it. Primary data is collected for the purpose of the theoretical part.
OBJECTIVES
To assess the significance of the financial ratios. By selecting a few parameters such as
liquidity, turnover and profitability.
To make the ratio as simple as for the every part of the aspect and find out those facts
which are directly used.
To study the financial position for the WIN MEDICARE CO., MODINAGAR.
Give suggestion towards the company factors to increase the efficiency‟s.
TOOLS OF ANALYSIS
Trading and profit and loss account, balance sheet and various schedules prepared at the end of the year
do not always convey to the reader the real significance of operating results financial health of the
business. And rarely can satisfactory diagnosis be reached on the basis of such information alone.
The analysis of the facts and related data was considered to be important and a number of techniques are
given below:
1. RATIO ANALYSIS:
An analysis of financial statements on the basis of ratio is known as ratio analysis. A ratio is a
mathematical relationship between two or more related items taken from financial statements. Ratio
analysis is very helpful to outsiders as well as to the management.
2. COMPARITIVE STATEMENT:
These statement are those which summaries and present related accounting data for a number of years
incorporating therein the changes in individual items of financial statements. Comparative statements
can be prepared for income statement well as position statement or balance sheet.
3. TREND ANALYSIS:
Trend analysis is carried out by calculating trend ratio (percentages) and/or plotting the accounting data
on the graph paper or chart. Trend analysis of business facts is very significant from the point of view of
forecasting or budgeting. It discloses the changes in the financial and operating data between specific
periods.
RATIO ANALYSIS
An analysis of the financial statements with the help of ratio may be termed as “Ratio Analysis”. It
involves the process of computing, determine and presenting the relationship of items of financial
statements and comparison and interpretation of these ratios and uses them for future projections.
MEANING OF RATIO:
A ratio is a mathematical relationship between two related items expressed in quantitative firm. This
quantitative relationship may be expressed in either of the following ways:
a) In proportion: In this form the amounts if two items are being expressed in a common
denomination.
b) In rate or times or co-efficient: when ratio is expressed in this.
c) Form, it is called as turn over and is written in times.
d) In Percentage: a special type of rate, which expressed the relation in hundredth.
OBJECTIVE:
The objective of ratio analysis is to help management in analyzing and interpreting the financial
statement, to get adequate information useful for the performance of various functions like planning
coordination, control, communication and forecasting etc. Some general utility of ratio analysis is given
below:
a) Trends in cost, sales, profit and other facts are related by the past ratios and the future events can
be forecasted on the basis of such trends.
b) Ideal ratios may be constructed and the relation found between strategic ratios may be used or
achieving „desired coordination‟.
c) Ratios may be used as instrument of management control particularly in the areas of sales and
costs.
d) Ratios are also facilitating the function of communication.
e) Ratio also may be used as a measure of efficiency.
f) It helps to make profitable investments.
NEEDS FOR RATIO ANALYSIS:
The need or significance of ratio analysis arises due to the following facts:
a) Business facts shown in financial statement do carry any importance individually. Their
importance lies in the fact that they are interrelated and any correct or accurate conclusion is to be drawn
by their uses.
b) Ratio analysis as a tool for their interpretation of financial statements is also significant because
ratios help the analysis to have a deep peep into the data given in statements. Ratios provide power to
speak.
The uses of ratio analysis have increased have increased considerably. It is now being used as a device
to diagnose the financial health of a concern. Ratio analysis may highlight upon the few phases of the
business operation in which the outsiders are most interested. In financial analysis, a ratio is used as a
benchmark for evaluating the financial position and performance of the firm.
Thus ratio analysis is a powerful tool for both external and internal analysis.
STAGES FOR RATIO ANALYSIS:
The following procedure is generally followed, while analyzing the financial statements through ratio
analysis:
STEP I: Selection of the relevant data from the financial statements depending upon the objective of the
analysis.
STEP II: Calculation of appropriate ratios from the above data.
STEP III: Comparison of the calculated ratio with the ratios of the same from in the past, or there ratios
developed from projected financial statements or in the ratio‟s of some other, firm or the comparison
with the ratio of the industry to which the firm belongs.
STEP IV: Interpretation of ratios.
a) Balance sheet ratio: i.e., ratios calculated on the basis of tile figures of the balance sheet
only.
b) Profit and loss account ratios: i.e., ratios calculated on the basis of the figures of profit
and loss account only.
c) Combined ratio: i.e., ratios based on the figure of profit and loss account as well as
balance sheet.
STANDARD OF COMPARISON:
The ratio involved 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:
a) Past ratios, i.e., ratios calculated from the past financial statement of the same firm;
b) Competitors ratios, i.e., ratios of some selected firms, especially the most progressive and
successful competitor, at the same point in time;
c) Industry ratios, i.e., ratios of the industry to which the firm belongs;
ADVANTAGES OF RATIO ANALYSIS:
a) The detailed ideas of he working of a concern are found out.
b) The efficiency of a concern becomes evident when analysis is based on accounting ratios.
c) Comparison can be made on the basis of the ratio over a number of years to measure
profitability.
d) Accounting ratios reveal the financial position of a company than in turn make lending and
investment decision earlier.
e) If the accounting ratios are prepared for a number of years, then a trend is established which
helps in preparations of plans for the future.
f) Weakness in financial structure on account of incorrect policies in the past or present is revealed
through these accounting ratios.
g) Comparison can also be made between one department of a firm and another department of the
same firm to find out the performance of the various departments in the firm.
LIMITATIONS OF RATIO ANALYSIS:
a) False results:
Ratios are based upon the financial statements. In case financial statements are combined or the data
upon which the ratios are based is in combined, ratios calculated will be also be false and defective.
b) Limited comparability:
The ratio of the one firm cannot always be compared with the performance of other firm, if they do not
adopt uniform accounting policies.
c) Absence of standard university accepted technology.
d) Price level changes affect ratios:
e) Changes in price level often make comparison of figure for various years difficult.
f) Ignore qualitative factors:
Ratio analysis is the qualitative measurement of the performance of the business. It ignores the
qualitative aspect of the firm, how so ever important it may be. It shows that ratio is only one-sided
approach to measure the efficiency of the business.
g) No single standard ratio:
There is not a single word standard ratio, which can indicate the true performance of the business at all
time and in all circumstances. Every firm has to work in different situations and circumstances: so a
particular ratio can be not been supposed to be standard for every one.
h) Ratios may be worked out for significant and unrelated figures:
Accounting ratios may be worked out for any two figures even if they are not significantly related.
CARE IN USE OF RATIOS:
Ratio analysis is useful for financial analysis but to get better result ratio analysis is required to
done with care as several factors affect the efficiency of ratios. These factors are discussed
below:
a) Type of business under consideration affects the ratios and conclusions drawn from them.
b) Seasonal character of the business affects the ratio for a particular type of industry or
business enterprise.
c) Quality of assets also affects the ratio analysis and gives different interpretation to
different business enterprises.
d) Adequacy of data is another considers ratio for comparison of particular factors with each
other.
e) Modification of ratios reflects only the past performance and must be modified by future
trends of business.
f) Interpretation of ratios should not be relied upon is isolated and should be considered
with accounting document for interpretation.
g) Non-financial data ratios based on financial data of firm should be considered with non-
financial data to supplement the financial ratios and give better interpretation.
TYPES OF RATIO
Ratio can be classified for the purpose of exposition into four broad groups:
Liquidity ratio
Leverage ratio
Profitability ratio
Activity ratio
LIQUIDITY RATIO:
Liquidity ratios measure the short-term solvency or the short-term financial soundness of the business. It
is extremely essential for a firm to be able to meet its obligations they become due.
Liquidity ratio‟s measure the ratio ability of the firm to meet his current obligation, this ratio is also an
effective source to ascertain whether the working capital has been effectively utilizes.
Liquidity in the ratio means ability to repays loans. In fact analysis of liquidity needs the preparation of
cash budget and cash and fund flow statements but liquidity ratio by establishing a relationship between
cash and other current assets to current obligation provide a quick measure of liquidity.
The failure of company to meet its obligation, due to lack sufficient liquidity, will result in bad credit
image; loss of creditor‟s confidence, or even in lawsuits resulting in the closure of the company.
A very high degree of liquidity is also bad. Idle assets earn nothing. The firm‟s funds will be
unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance between
liquidity and lack of liquidity.
The ratios calculated for Win Medicare. which indicates the extent of liquidity are:
CURRENT RATIO
QUICK RATIO
CASH RATIO
NET WORKING CAPITAL RATIO
LEVERAGE RATIOS:
A firm should have a short-term as well as long-term financial position, to judge the long-term financial
leverage or capital structure. In other word, it can be said that this financial ratio‟s through light on the
long-term solvency of a firm as reflected in its ability to assure the long-term creditors with regard to:
a) Periodic payment of interest during the period of the loan.
b) Repayment of principal on maturity.
As a general rule, there should be an appropriate mix of debt and owner‟s equity in financing the firm‟s
assets, the manner in which assets are financed has the number of implications.
The process of magnifying the shareholder‟s return through the employment of debt is called “financial
leverage” or “trades on equity”.
If the cost of debt is higher than the firms overall rate of return, the earning of shareholder‟s will be
reduced on addition there is a threat of insolvency of the firm is actually liquidated for non-payment of
debt holder‟s dues the worst sufferers will be shareholders the residual owners.
OBJECTIVES OF LIQUIDITY RATIOS
Solvency refers to the financial capability of the enterprises in honoring their long term commitments
(obligations) these ratios serve our following purposes:
a) Ascertaining capability to honor long term obligation, such as repayment of loan and interest;
there on.
b) Ensuring long-term financial stability of the business.
c) Measuring relationship between internal and external equity.
d) Leverage ratios may be calculated to determine the proportion of debt in total financing.
Those calculated for these studies are:
DEBT-EQUITY RATIO
TOTAL DEBT RATIO
INTEREST COVERAGE RATIO
FIXED ASSETS RATIO
DEBT TO TOATAL FUNDS
RESERVE TO CAPIAL RATIO
CAPITAL GEARING RATIO
PROPRIETORY RATIO
TURNOVER RATIOS:
Turnover means “sales”, so turnover ratio is related to sales. It is an accepted fact that sales have direct
relationship with the performance which really means of the business. Higher sales mean better
performance which really means of the business. Fund is invested in various assets in business to make
sales and to earn profit. The efficiency with which assets are managed directly affects the volume of
sales.
The better the management of assets, the larger is the amount of sales and profits.
This ratio indicates the speed with which assets are converted or turned over into sales.
Depending upon the purpose, a number of turnover ratios can be calculated.
Activity ratios involve a relationship between sales 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 assets utilization.
Those calculations for this study are:
TOTAL CAPITAL TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO
FIXED ASSETS TURNOVER RATIO
DEBTOR‟S TURNOVER RATIO
CREDITOR‟S TURNOVER RATIO
PROFITABILITY RATIOS:
It is fact that sufficient profit must be earned to sustain the operations of the business to be able to obtain
funds from investor‟s for expansion and growth and to contribute towards the social overheads for the
welfare of the society.
Profit is the difference between revenue and expenses over period of times.
Profit is the ultimate output of the company; it will have no, future if it fails to make sufficient profit.
Therefore the profit ability ratios are calculated to measure the operating efficiency of the company.
Generally, the major types of profitability ratios are:
Profitability in relation to sales.
Profitability in relation to investment.
A company should be able to produce adequate profit on each rupee of sales. The profitability of the
company should also be evaluated in term of firm‟s investment in assets and in term of capital
contribution between creditor‟s and owners.
If the company profit has to be examined from the point of view of all investors, his appropriate measure
of profit is operating profit.
Operating profit is equivalent of earning before interest and tax when the firm does not have non-
operating in company. This measure of profit shows earning arising directly from the commercial
operation of the business without the effect of financing.
Those calculations for this study are:
GROSS PROFIT RATIO
NET PROFIT RATIO
EXPENSE RATIO
- SELLING AND DISTRIBUTION EXPENSES RATIO
- OFFICE EXPENSES RATIO
- RATIO OF MATERIAL CONSUMED
- RATIO OF DIRECT LABOR
- RATIO OF FACTORY EXPENSES
-
OPERATING EXPENSES RATIO
RETURN ON INVESTMENT RATIO\
LIQUIDITY RATIOS
CURRENT RATIO:
Current ratio may be defined as the relationship between current assets and current liabilities.
The ratio indicates the short-term financial soundness of the company. It judge whether the current
assets are sufficient to meet obligation out of the current assets.
The ratio known as working capital ratio is a measure of general liquidity and is most widely used make
the analysis of short-term financial position or liquidity of a firm. It s calculated by dividing the total
current assets by the total of current liabilities.
Current assets are those assets, which are converted into cash within one year, and current liabilities are
those liabilities, which are to be paid within a year.
ANALYSIS & INTERPRETATION
OBJECTIVE AND SIGNIFICANCE:
This ratio is an indicator of the firm‟s ability to promptly meet its short-term liability. It is used
to assets the short-term financial position.
This ratio is calculated as follow:
CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES
Where,
Year 2007 2008 2009
<--------Value - Rs in Millions-------
A) Current assets:
Inventories 313.76 331.89 385.29
Sundry Debtor 280.68 420.24 405.78
Cash in hand and Bank 171.03 135.07 149.68
Loans & Advances 871.09 713.47 787.01
Total (A) 1636.58 1600.69 1727.78
B) Current Liabilities:
Sundry Creditor‟s 442.47 557.85 614.32
Provision 449.79 94.86 119.64
Total (B) 892.27 651.93 733.97
Then the ratio is: 1.83 2.45 2.36
Remarks:
A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current
obligation in time as when they become due, vise versa. As a convention the minimum two to one ratio
e.g. 2:1 is referred as a banks rule of thumb.
QUICK RATIO:
Quick ratio establishes a relationship between quick assets or liquid assets and current liabilities.
An asset is a liquid if it can be converted into cash immediately or reasonably soon without a loss of
value.
Cash is considered most liquid assets.
OBJECTIVE AND SIGNIFICANCE:
This ratio is also an indicator of short term solvency of the firm. It is used to test the short-term liquidity
of the firm in its correct form.
This is calculated as by dividing of liquid assets by current liabilities.
CURRENT ASSETS – INVENTORIES
QUICK RATIO =
CURRENT LIABILITIES
Where,
Year 2007 2008 2009
<--------Value - Rs in Millions-------
A) Current assets:
Inventories 313.76 331.89 385.29
Sundry Debtor 280.68 420.24 405.78
Cash in hand and Bank 171.03 135.07 149.68
Loans & Advances 871.09 713.47 787.01
Total (A) 1636.58 1600.69 1727.78
B) Current Liabilities:
Sundry Creditor‟s 442.47 557.85 614.32
Provision 449.79 94.86 119.64
Total (B) 892.27 651.93 733.97
Then the ratio is: 1.48 1.95 1.83
Remarks:
Usually high quick ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time. As a rule of thumb or as a convention quick ratio of one to one ratio e.g. 1:1 is
considerably satisfactory.
CASH RATIO:
Since cash is the most liquid assets are examined cash ratio and its equivalent to current liabilities.
Trade investment or marketable securities are equivalent of cash; therefore, they may be included in the
computation of cash ratio.
CASH + MARKETABLE SECURITIES
CASH RATIO =
CURRENT LIABILITIES
Year 2007 2008 2009
<--------Value - Rs in Millions-------
A) Cash 546.36 639.58 539,14
Add. Marketable Securities -------- -------- --------
546.36 639.58 539.14
B) Current Liabilities:
Year 2007 2008 2009
<--------Value - Rs in Millions-------
Sundry Creditor‟s 442.47 557.85 614.32
Provision 449.79 94.86 119.64
Total (B) 892.27 651.93 733.97
Then ratio is: 0.61 0.98 0.73
Remarks:
The acceptable norms for this ratio are 50% or 0.5:1 or 1:2
NET WORKING CAPITAL RATIO:
The difference between current assets and liabilities is called Net Working Capital Ratio.
Net Working Capital used as a measure of a firm‟s liquidity. It is considered as that‟s between two
firm‟s the one having the larger Net Working Capital has the greater ability to meet its current
obligation.
Net Working Capital measures the firm‟s potential reservoir of funds. It can be related to net assets or
capital employed.
NET WORKING CAPITAL
NET WORKING CAPITAL =
NET ASSETS
Net Working Capital:
Year 2007 2008 2009
<--------Value - Rs in Millions-------
Current Assets 1636.58 1600.69 1727.78
Less: current liabilities 892.27 651.93 733.97
744.31 948.75 993.81
NET ASSETS:
Year 2007 2008 2009
<--------Value - Rs in Millions-------
FIXED ASSETS (LESS
DEPRICATION) 119.34 135.43 176.45
ADD. NET CURRENT ASSETS
(CA-CL) 744.31 948.75 993.81
863.65 1048.18 1170.26
Then the ratio is: 0.80 0.91 0.85
Remarks:
Higher the ratio higher the liquidity.
Table 1
LIQUIDITY RATIO‟S
YEAR
2007
2008
2009
CURRENT RATIO
1.83
2.45
2.36
QUICK RATIO
1.48
1.95
1.83
CASH RATIO
0.61
0.98
0.73
WORKING CAPITAL RATIO
0.80
0.91
0.85
COMMENT:
In the above calculation of liquidity ratio, the entire ratios are good but above the standard ratio limit
of the liquidity except the cash ratio.
In the current ratio of the company in year the 2007, 2008, 2009 the ratio is 1.83, 2.45, and 2.36
respectively.
These ratios of liquidity indicate the over capitalization of current assets.
In quick ratio, the ratio shows the company enjoys the high liquidity position; it is good forever too
much liquidity is not beneficial for the company future and the quick ratios are also more than the
standard ratio.
The cash ratio of the company, the ratio is well; it means that the company keeps sufficient cash.
Working capital ratio shows the liquidity position of the company is good.
So overall liquidity position of the company is satisfactory and the Current Ratio and Quick Ratio shows
over the standard ratio.
LEVERAGE RATIO:
Win Medicare is one of the units of the Modi Industries Ltd.
So it is hard to calculate the Leverage Ratio as a separately because its shares are jointly issued and in-
group the debts are taken.
So calculation is separately not possible because separate data‟s are not available.
ACTIVITY RATIO
A) CAPITAL TURNOVER RATIO:
Turnover here indicates the speed or rate with which capital employed is rotated in the process of doing
business. Efficient rotation of capital would to higher profitability. The resulted raw would show the
number of times and capital has been in the process of during business.
OBJECTIVE AND SIGNIFICANCE:
Capital turnover ratio establishes the relationship between sales and capital employed.
The objective of working out this ratio is to determine how efficiently the capital employed is being
used and this in turn shows the promises of profitability and efficiency of management.
It is calculated as Capital Turnover Ratio.
NET SALES
CAPITAL TURNOVER RATIO =
CAPITAL EMPLOYED
CAPITAL EMPLOYED:
Year 2007 2008 2009
<--------Value - Rs in Millions-------
FIXED ASSETS 119.34 135.43 176.45
Add. WORKING CAPITAL 744.31 948.75 993.81
TOTAL 863.65 1084.19 1170.25
Net Working Capital:
Year 2007 2008 2009
<--------Value - Rs in Millions-------
Current Assets 1636.58 1600.69 1727.78
Less: current liabilities 892.27 651.93 733.97
744.31 948.75 993.81
SALES 2007 2008 2009
2787.52 3176.52 3517.66
Then ratio is: 3.22 2.92 3.01
Remarks:
Higher the ratio the better it is. However too high a ratio may indicate over trading resulting in paucity
of funds.
WORKING CAPITAL TURNOVER RATIO:
Working capital of a concern is directly related to sales „the current assets like debtors, bill receivable,
cash, and stock etc. change with the increase or decrease of sales. The working capital is taken as:
Working capital = Current Assets – Current Liabilities
Working capital turnover ratio indicates the velocity of the Utilization of net working capital. This ratio
indicates the number of times the working capital is turn over in the course of a year.
This ratio can be calculated as under:
SALES
WORKING CAPITAL TURNOVER =
WORKING CAPITAL
Where,
Year 2007 2008 2009
<--------Value - Rs in Millions-------
Sales 2787.52 3176.52 3517.66
Working Capital
Current Assets 1636.58 1600.69 1727.78
Less: current liabilities 892.27 651.93 733.97
TOTAL 744.31 948.75 993.81
Then the ratio is: 3.75 3.34 3.53
Remarks:
A higher the ratio indicates efficient utilization of working capital.
FIXED ASSETS TURNOVER RATIO:
Fixed assets are used in the business for producing goods to be sold.
The effective utilization of fixed assets will result in increased production and reduced cost.
It also ensures whether investment in the assets have been judicious or not.
OBJECTIVE AND SIGNIFICANCE:
Fixed assets turnover ratio indicates how efficiently or other wise the fixed assets are used.
The following formula is used for measurement of the ratio:
NET SALES
FIXED ASSETS TURNOVER =
FIXED ASSETS
Where,
Year 2007 2008 2009
<--------Value - Rs in Millions-------
Sales 2787.51 3176.52 3517.52
Net FIXED ASSETS 119.34 135.43 176.44
Then the ratio is: 23.35 23.45 19.93
Remarks:
Higher the ratio is it better of the business. An increasing trend shows the financial assets are utilized
efficiently to achieve higher sales.
DEBTOR‟S TURNOVER RATIO:
This ratio establishes the relationship between net credit sales and averages of debtor‟s of the year.
OBJECTIVE AND SIGNIFICANCE:
This ratio indicates the efficiency with which debts are collected. It will be in the interest of business. If
the ratio is higher which will indicate the debts are collected quickly.
This ratio is calculated as by the following formula:
TOTAL SALES
DEBTOR‟S TURNOVER RATIO =
ACCOUNT RECEIVABLE
Year 2007 2008 2009
<--------Value - Rs in Millions-------
TOTAL SALES 2787.52 3176.52 3517.66
TOTAL DEBTOR 280.68 420.24 405.78
Then the ratio is: 9.93 7.55 8.66
Remarks:
Higher the ratio indicates economy and efficiency in the collection of amount due. It shows that
collection performance of Win Medicare is improving year by year. Credit period has been reduced to 3
months to 2 months in 2008.
CREDITOR‟S TURNOVER RATIO:
Creditor‟s turnover ratio indicates the velocity with which the payment for credit purchase is made to
creditors.
OBJECTIVE AND SIGNIFICANCE:
Creditor‟s turnover ratio is the debt payment enjoyed with indicates whether the firm is enjoying
actually the credit premised by suppliers.
This ratio of Modi Arc Electrode Ltd. is calculated as follows:
TOTAL PURCHASE
CREDITOR‟S TURNOVER RATIO =
ACCOUNT PAYABLE
Year 2007 2008 2009
<--------Value - Rs in Millions-------
TOTAL PURCHASES 1227.10 1394.95 1605.58
TOTAL PAYABLE 114.31 239.83
Then the ratio is: 11.95 16.98 11.09
Remarks:
Higher creditor‟s turnover ratio indicates that company is increasing trend prompt in paying its creditor
which enhance its creditworthiness but it also signify that company is taking full advantages of credit
facilities provide by creditor‟s period is beneficial for the company
Table 2)
ACTIVITY RATIOS
YEAR
2007
2008
2009
TOTAL CAPITAL TURNOVER
3.22
2.92
3.01
WORKING CAPITAL TURNOVER
3.75
3.34
3.53
FIXED ASSETS TURNOVER
23.35
23.45
19.93
DEBTORS TURNOVER
9.93
7.55
8.66
CREDITORS TURNOVER
11.95
16.98
11.09
COMMENT:
In the above calculation of turnover ratio of the company, the ratio of these shows that the performance
of business is better and all the available resources are well utilized.
The total capital turnover shows good sign of increasing trend, which indicate the efficient use of the
employed capital in sales.
The working capital turnover ratio, it shows the better utilization of the working capital incurred in the
operation.
The above fixed assets turnover ratio shows a good sign and indicates that company utilized its fixed
assets in good manner in conversion of its net assets to the sales.
The debtor‟s turnover ratio shows of increases trend year by year that means the company provide its
credit payment period to its customers, which indicate the liberal debt collection policy of the company.
The calculated creditor‟s turnover ratio indicates the company enjoys good credit payment period from
its creditor‟s.
So, overall the turnover ratio of the company is good except the debtor‟s turnover ratio, which shows the
liberal collection policy, and more credit collection period given to its customers which is not beneficial
of company growth.
PROFITABILITY RATIOS
A) GROSS PROFIT RATIO:
Gross profit equal the difference between net sales revenue and the cost of goods sold.
The gross profit margin reflects the efficiency with which management produces the each unit of
product.
This ratio indicates the average speed between the cost of goods sold and the sales revenue.
It is calculated by dividing gross profit by sales.
OBJECTIVE AND SIGNIFICANCE:
Gross profit ratio is a reliable guide to the adequacy of selling prices and efficiency of stock control.
The help of following formula calculates it:
GROSS PROFIT
GROSS PROFIT RATIO = X 100
NET SALES
OR
Sales – Cost of goods sold
X 100
Net sales
Where,
Year 2007 2008 2009
<--------Value - Rs in Millions-------
GROSS PROFIT 294.11 334.21 125.22
NET SALES 2787.52 3176.52 3517.66
Then the ratio is: 10.5% 10.52% 3.55%
Remarks:
Higher the ratio better is the result.
B) NET PROFIT RATIO:
A commonly used measure is return on sales after termed net profit margin.
This ratio establishes a relationship between net profit and sales and indicates management efficiency in
manufacturing, administrating, and selling the product.
This ratio is the overall measure of the firm‟s ability to turn each rupee sales into net profit.
If the net margin is inadequate firm will fail to achieve the satisfactory return on owner‟s equity.
OBJECTIVE AND SIGNIFICANCE:
Net profit ratio helps in determining the efficiency of the business.
Objective of working net profit ratio is to determine whether operating cost is with in the desired
parameters or not.
This ratio of Win Medicare Pvt Ltd is calculated from the following formula:
NET PROFIT
NET PROFIT RATIO = X 100
NET SALES
Year 2007 2008 2009
<--------Value - Rs in Millions-------
Net profit 175.84 201.56 83.47
Net sales 2787.52 3176.52 3517.66
Then the ratio is: 6.3% 6.34% 2.37%
Remarks:
Higher the ratio is better is the profitable.
C) EXPENSES RATIO:
Expense ratios are calculated to ascertain the relationship that exists between operating expenses and
volume of sales.
These ratios are calculated by dividing the sales into each individual operating expense.
It indicates the portion of sales, which is consumed by the various operating expenses.
OBJECTIVE AND SIGNIFICANCE:
These ratios are valuable in comparing various firms in the same industry of operating data from year to
year for the same firm.
The expenses ratios are calculated as by the following formula:
a)
MATERIAL COST
RAW-MATERIAL USED = X 100
NET SALES
Year 2007 2008 2009
<--------Value - Rs in Millions-------
RAW -MATERIAL 1227.10 1394.61 1605.58
NET SALES 2787.52 3176.52 3517.66
Then the ratio is: 44.02% 43.9% 45.64%
b)
DIRECT LABOUR COST
RATIO OF DIRECT LABOUR = X 100
NET SALES
Year 2007 2008 2009
<--------Value - Rs in Millions-------
DIRECT LABOUR 28.56 28.29 30.08
NET SALES 2787.52 3176.52 3517.66
Then the ratio is: 1.02% 0.89% 0.85%
c)
FACTORY EXPENSES
RATIO OF FACTORY EXPENSES = X 100
NET SALES
Year 2007 2008 2009
<--------Value - Rs in Millions-------
FACTORY EXPENSES 382.95 409.65 488.04
NET SALES 2787.52 3176.52 3517.66
Then the ratio is: 13.73% 12.89% 13.87%
e) SELLING AND DISTRIBUTION EXPENSES RATIO =
SELLING AND DISTRIBUTION EXPENSES
X 100
NET SALES
Year 2005 2006 2007
<--------Value - Rs in Millions-------
SELLING AND
DISTRIBUTION EXPENSES 840.05 982.98 1272.00
NET SALES 2787.52 3176.52 3517.66
Then the ratio is: 30.13% 30.94% 36.16%
D) OPERATING EXPENSES RATIO:
This ratio measures the extent of cost incurred for making the sales. This ratio matches cost of goods
sold plus other operating expenses on the one hand with net sales on other hand.
OBJECTIVE AND SIGNIFICANCE:
Operating profit is the test of the operational efficiency of the business. It shows the percentage of sales
that are absorbed by the cost of sales and operating expenses.
This ratio of Win Medicare Ltd. as calculated as follows:
OPERATING EXPENSES RATIO =
COST OF GOODS SOLD + OTHER OPERATING EXPENSES X 100
NET SALES
Year 2007 2008 2009
<--------Value - Rs in Millions-------
COST OF GOODS SOLD 2105.33 2520.44 3206.48
Add. OPERATING EXPENSES 523.97 620.65 679.57
TOTAL 2629.20 3141.09 3886.05
Then the ratio is: 74% 70% 73%
Remarks:
Lower the ratio of the net operating expenses is beneficial for the company.
RETURN ON INVESTMENT:
The term investment may refer to total assets or net assets. The funds employed in the net assets are
known as capital employed.
The conventional approach of calculating return on investment (ROI) is to divide profit after tax by
investment.
Investment represents tool of funds supplied by shareholders and lenders, while profit after tax
represents residue income of shareholder, therefore, it is conceptually unsound to use profit after tax in
the calculation of ROI. It is calculated as under:
EBIT
RETURN ON INVESTMENT = X 100
NET ASSETS
Where,
Year 2007 2008 2009
<--------Value - Rs in Millions-------
EBIT 294.11 334.21 125.22
NET ASSETS 894.56 1114.33 1216.78
Then the ratio is: 32.87% 30% 10.29%
Remarks:
Higher the ratio better is the results and vice versa because return on investment is decreasing every year
which is not good for the company.
Table 3)
PROFITABILITY RATIOS
YEAR
2007 (%)
2008 (%)
2009 (%)
GROSS PROFIT RATIO
10.5
10.52
3.55
NET PROFIT RATIO
6.3
6.34
2.37
MATERIAL COST
44.02
43.9
45.64
LABOUR COST
1.02
0.89
0.85
FACTORY EXPENSES
13.73
12.89
13.87
SELLING EXPENSES
30.13
30.94
36.16
OPERATING
EXPENSES
74
70
73
RETURN ON
INVESTMENT
32.87
30
10.29
COMMENT:
In the above-calculated ratio of the profitability ratio of the company, the entire ratio shows a good sign
of except the increases in the expense ratio.
The gross profit ratio indicates the good sign but not satisfactory in the year 2007, 2008 and 2009 the
ratio is 10.5%, 10.52% and 3.55% respectively.
The net profit ratio shows good and increasing trend sign, which indicate the operation expenses, is in
desired parameters.
The factory expenses ratio, administration ratio, selling and distribution ratio indicates in under
controlled.
Material and labor cost shows slightly increase; it is due to increase in sale and high cost of raw
material.
The operating ratio of this year is too much high in comparison to other years.
Return on investment ratio is good and satisfactory in the performance of the company.
So, over all profitability position of the company is good except the increasing percentages in the
operating expense and expenses ratio.
SWOT ANALYSIS
SWOT is an acronym for the internal Strength and Weaknesses of a firm and environmental
Opportunities and Threats facing that firm.
Table : SWOT ANALYSIS
Strengths
1) Most powerful player
2) Experience
3) Distribution infrastructure
4) Rural reach
Weakness
1) Government’s control
2) Large size
3) People’s perception
4) Retail market share
5) Unexplored areas
Opportunities
1) More revenue
2) Modernization
3) Extensifying infrastructure
Threats
1) Tastes of competitors
2) Price wars
3) Better-equipped competitors
Source: www.winmedicare.com
STRENGHTS
1) Most Powerful Player
Win-Medicare began its business with a number of pioneering concepts and products from Sterling
Drug Inc., USA and concertedly worked towards making them established contemporary medical
practice. The company is well represented through an efficient Marketing and Distribution network
in the Domestic, South Asian, African and Middle East markets. Currently the company offers
options for infection control, pain relief, management of infertility and many other specialized areas.
2) Experience
Win-Medicare has been in the pharma sector from the past 41 years. During the years it has gathered
a lot of valuable expertise and learned the trick of the trade the tougher way. It has enjoyed unlimited
protection and nurturing from the government, which helped it grow and gain a substantial hold of
the market. This experience will be valued more as and when it will face competition with the
upcoming firms in the sector.
3) Distribution Infrastructure
The Company operates the largest marketing network of 220 sale points, in the country. It has 5026
captive consumer outlets and 52 jubilee retail outlets. This has facilitated uninterrupted supply of
products throughout the year. Such an extensive distribution network is nothing but the muscles of
the organization making it stronger and tougher to compete with. The focus of Modi-Mundipharma
is to offer state-of-the-art and latest high-tech pharmaceutical solutions through introduction of
differentiated products in the field of Asthma, Pain and Heart diseases. The company is effectively
represented in the Domestic and South Asian markets.
4) Rural Reach
In rural areas Win-Medicare has 231 multipurpose distribution centers. Win-Medicare is well
represented through an efficient Marketing and Distribution network in the Domestic, South Asian,
African and Middle East markets. Currently the company offers options for infection control, pain
relief, management of infertility and many other specialized areas.
WEAKNESSES
1) Government‟s Control
The functioning of Win-Medicare is greatly influenced by the government policy and regulations.
The government has 62% stake in the company, thus, enjoying the control of the company. There
is always a risk of its proposal being rejected as there is uncertain political environment
prevailing often in the country.
2) Large Size
Win-Medicare is a huge organization having its head office at New Delhi. It employs 1200
employees in various levels of organizational hierarchy. Numerous departmental layers could
lead to slowing down of processes and inefficient performance. This hinders the fast growth of
the organization within and overall.
3) People‟s Perception
In our country, the perception of the corporate and consumers towards government organizations
and offices is not favorable, hence though Win-Medicare has performed excellently it is still
viewed as an inefficient company, not getting the due importance it deserves.
4) Retail Market Share
Even though Win-Medicare controls most of the retail outlets it has the market share of only
33.8% in Parma and 39.6% Cosmetics share in respectively over the last year. This is
comparatively too small compared to its size, reach and production. This is because of the fact
that its retail outlets are concentrated more in semi-urban areas and rural areas.
5) Unexplored Areas
The Company has very little presence in the central and southern parts of the country. Neither do
they have any refineries in these regions.
OPPORTUNITIES
1) More Revenue
With the dismantling of Administered Pricing Mechanism (APM) in the year 2002, Win-
Medicare has been able to fix the prices of its products without government intervention resulting
in an upsurge in revenue earning. Firstly, since the new players will use the infrastructure
facilities provided by Win-Medicare and pay for the services rendered. For example, Win-
Medicare has signed the marketing rights agreement for 10 years with HUL. Secondly, by
reducing the existing prices to the permissible extent and providing better facilities will help them
capture more market share.
2) Modernization
The liberalization of the economy has attracted many foreign players to invest in our country,
more and more MNC‟s are trying to enter the Pharma sector. They will bring with them the latest
technology and high amount of funds to invest. Win-Medicare can utilize their services by means
of joint ventures, collaborations and tie-ups, for modernization and capacity augmentation of its
plants and refineries increasing the quality as well as the quantity of its products.
3) Intensifying Infrastructure
The competitors entering the sector are still not fully operational. While they are building up there
infrastructure Win-Medicare should grab the opportunity to extend and strengthen itself in deficit
areas. It can modernize its plants and augment capacity, extend pipelines to middle and southern
regions facilitating cheaper transport in those areas. Also more jubilee retail outlets, which are
state-of-the-art, should be commissioned in different parts of the country for greater customer
satisfaction.
THREATS
1) Tastes of Competitors
In the recent past there has been active private participation in the sector. With the government
opening the upstream sector and taking away the sole right of distribution from PSU‟s, private
players see a lot of scope for business. Various national and multinational companies have been
lured into this field. For example Lakme has already entered the field and has started production
and Hindustan Unilever are following suit. Win-Medicare shift from a monopoly in a protected
environment to a free market will not be easy.
2) Price Wars
In this free market era, where all the firms have the full liberty to control the prices of their
products, a price war is sure to happen in the near future since, this will be a major factor of
determining their market share. MNC‟s may be able to make this war harsher by cutting down
prices even below the permissible level, initially to capture market share.
3) Better-Equipped Competitors
The new players will give tough competition, as they will have latest technology and more
advanced research and development resources, skills and expertise. They will have better and
more efficient machines capable of producing more and better. They will have easy access to
foreign markets due to their global presence and standards.
LIMITATION
The study is limited to three years only.
Price level changes are not considered.
Time is short for deep research.
Separate records of the all units are not available.
No comparison made with other firm‟s ratio while during the study period and making
conclusion time.
The readjusted and regroup figure slightly affects the ratio figures.
Study is limited with the one unit of Modi Group company.
The data is used in the project have been taken from annual report only. Hence, grouping and sub
grouping and animalization of data may slightly affect the results.
SUGGESTION
Although WIN MEDICARE PVT LTD, NEW DELHI has satisfied the ratios. The following are the
suggestion being made out by me as observed during study of the performance through ratio analysis:
Company should increase its sales of all the production units with increase in the sales of the
company that can be able to increase its financial position.
Company should decrease the operating expenses to increase its operating profit.
Maximize the production capacity.
Maintain the amount of current sales level and try to increase it.
Maximize the utilization of fixed assets and working capital.
All other management, personal and administrative suggestion to be incorporated.
To follow the strict credit collection policy.
Reduce the current assets and quick assets ratio to maintain the standard ratio.
Cash ratio performance is poor. So make policies to improve it.
Return on investment is in satisfactory position and then try to maintain it in future.
Try to start those companies, which are closed due to non-availability of funds.
Try to best utilization of the available resources.
Try to maintain the standard ratio in the financial ratios.
CONCLUSION
If these ratios are properly followed the capital investment in the current assets is above the standard
ratio and the cash position of the company would substantially improve.
The Turn Over Ratio give good sign of the success but in the debtor‟s turnover ratio shows that
company provided more credit period of payment to its customer which is not beneficial for it.
The Profitability Ratio all indicate good sign but increase in the operating and financial expenses of the
company, which is not good sign for the company future.
Return on Investment Ratio is satisfactory, it indicate the overall performance of the company is good
and they enjoy a good position of profitability.
BIBLIOGRAPHY
BOOKS-
KHAN & JAIN: “Accounting”
M.R.AGRAWAL: “Mamagement accounting”
Websites:
www.google.co.in
www.winmedicare.com