A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD

VIVEK COLLEGE OF COMMERCE

CHAPTER CHAPTER - 1 INTRODUCTION

1.1 COMPANY PROFILE

Emami Ltd. (EL) is the flagship company of the Kolkata based Emami Group, which is engaged in the business of manufacturing personal care and health care products for over 3 decades and has diversifie diversified d in the field of real estate, paper, biofuel, cement etc. Some of the major brands of the company are Boroplus Antiseptic Cream, Boroplus Prickly Pric kly Heat Pow Powder der,, Fai Fairr and Handsome Handsome Fairness Fairness Cre Cream am for men, Nav Navratn ratnaa Oil, Himani Fast Relief, Mentho Plus balm, Sona Chandi Chyawanprash and Amritprash, amongst others.

1.2 HISTORY OF THE COMPANY

Emam Emami, i, which which starte started d as a cosm cosmeti etics cs manu manufac factu turin ring g comp compan any y in the year year 1974 1974,, advancing with increased momentum has expanded into Emami Group of Companies of today. Even though cosmetics and toiletries continue to be the main thrust area, the other companies in the Emami Group are performing equally brilliantly. From health care institution to medicines, from real estate to retailing and, from paper to writing instruments, Hospital, Emami is creating one success story after another.

1.3 VISION AND MISSION

Vision

A company, which with the help of nature, caters to the consumers’ needs and their inner cravings for dreams of better life, in the fields of personal and health care, both in India and throughout the world.

A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 1

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Mission •

To sharpen consumer insights to understand and meet their needs with valueadded differentiated products which are safe, effective & fast.

•

To integrate our dealers, distributors, retailers and suppliers into the Emami family, thereby strengthening their ties with the company.

•

To recruit, develop and motivate the best talents in the country and provide them with an environment which is demanding and challenging.

•

To strengthen and foster in the employees, strong emotive feelings of oneness with the company. To upho uphold ld the the princ princip ipals als of corpo corporat ratee gove governa rnance nce and and move move towa toward rdss

•

decentralization to generate long term maximum returns for all stake owners. •

To contribu contribute te whole whole heartedl heartedly y towards towards the enviro environme nment nt and society and to emerge as a model corporate citizen.

1.4 BOARD OF DIRECTORS The efficient functioning of this reputed company rests with the following personalities.

Shri R S Agarw arwal, al, Ex Executiv tive Ch Chairm irman Shri Shri Sush Sushil il Kr. Kr. Goe Goenk nka, a, Man Manag aging ing Dire Directo ctorr Shri Mr K N Memani, Shri Mr Mohan Goenka,Wholetime Director Shri Mr Harsh V Agarwal Shri Mr Amit Kiran Deb Shri Mr Y. P. Trivedi

Shri hri R S Goenka, Dir Direecto ctor Shri Shri Mr Mr Viren Viren J Sha Shah, h, Dire Directo ctor r Shri Vaidya S Chaturvedi, Shri Mr Aditya V Agarwal Ms. Priti Sureka Shri Mr S. B. Ganguly Shri Sajjan Bhajanka

1.5 PROFILE OF THE ORGANIZATION


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Emami Limited is in the business of manufacturing personal, beauty and health care products. products. The company company manufactures manufactures herbal herbal and Ayurved Ayurvedic ic products products through through the use of of modern scientific laboratory practices. This This blend blend enable enabless the company company to manufa manufactur cturee products products that are mild, mild, safe and effective. The company's product basket comprises over 20 products, the major being Boroplus Antiseptic Cream, Navratna Oil, Boroplus Prickly Heat Powder, Sona Chandi Chyawanprash and Amritprash, Mentho Plus Pain Balm, Fast Relief, Golden Beauty Talc, Madhuri Range of Products and others. The products are sold across all states in India and in countries like Nepal, Sri Lanka, and the Gulf countries, Europe, Africa and the Middle East, among others. Manufacturing:

Emami’s products are manufactured manufactured in Kolkata, Kolkata, Puducherry, Puducherry, Guwahati and Mumbai. The company commenced operations at its fully automated manufacturing unit in Amingaon, Guwahati in 2003-04. Network:

The compan company's y's disperse dispersed d manufa manufactur cturing ing facilitie facilitiess are complem complemente ented d with with a strong strong product product throughput, throughput, facilitated by a robust distribution distribution network network of over 2100 2100 direct distributors and 3.9 lakhs retail outlets. With a view to reach its products deeper into the countr country, y, direct direct selling selling has been been extend extended ed to rural rural village villages. s. As a result, result, rural rural sales sales incr increa ease sed d subs substa tant ntia iall lly y in 2003 2003-0 -04 4 comp compar ared ed to the the prev previo ious us year year.. Emam Emamii is headquartered in Kolkata. The company's branch offices are located across 27 cities in India. Promoters:

Emam Emamii is prom promot oted ed by Shri Shri R.S. R.S.Ag Agarw arwal al and and Shri Shri R.S. R.S.Go Goen enka ka,, Kolk Kolkat ataa based based industrialists. Emami’s shares are listed on the Calcutta Stock Exchange, Bombay Stock Exchange and National Stock Exchange.

1.6 IT BACKBONE A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 3

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Integrated Information Technology

An efficient information technology network is necessary for a dynamic FMCG company where the market demands change faster than perhaps in any other industry. At Emami, the integration of information technology transpires on a continuous basis. This ensures that the company responds to changing market place realities faster than its competitors and that its products products reach retail shelves shelves just when they are required. required. In turn, this enhances brand loyalty and retains customers. A successful implementation of the ERP in the offices, factories and depots increased the company’s overall efficiency. It enabled single-point data entry and multi-point information information access. The status of raw mate materia rials, ls, pack packing ing mate materia rials, ls, finish finished ed good goods, s, inde indents nts and and sales sales infor informat matio ion n gets gets constantly updated through ERP. This has become possible due to the Point to Point Leased Line connections. As Emami Emami is growing growing rapidly, rapidly, the augmen augmented ted busine business ss require requiremen mentt calls calls for a Standard ERP system. This would provide Real-Time information to the Management, which would facilitate to take quick decision. The information could also be available through through email and Mobile phones. So Emami Emami would be implementing implementing a Standard Standard ERP system system very very shortly shortly.. Sales Sales Foreca Forecasting sting,, Demand Demand Plannin Planning, g, Process Process Manage Managemen ment, t, Supply Chain Management, Primary and Secondary Sales, I-Supplier, I-Expenses, ISales will be an integral part of the Standard ERP system. Emami adopts the latest Technology for IT and communication system.

1.7 SALES AND DISTRIBUTION NETWORK Our Marketing and Distribution Network:

Wide, Wide, penetr penetrative ative and all encomp encompassin assing. g. That That is how Emami has planned planned its distribu distributio tion n network network.. The success success of Emami Emami has been been largely largely due to its superio superior r products products that have reached the consumers consumers even in the remotest remotest regions of the country country and abroad. Current Distribution Infrastructure: A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 4

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5 Regions

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25 Depots / C&F Agents

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2,182 Direct Distributors

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899 Distributors for Rural Coverage

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Over 3,86,940 Retail outlets

Distribution Network

Four Mother depots •

Kolkata

•

Vijayawada

•

Delhi

•

Nagpur Nagpur

1.8 INTERNATIONAL MARKETING DIVISION Vision:

To contribute profitably to the growth of the company, representing it with pride across the globe, with a single-minded focus and dedication to establishing and building global brands. Global Presence of Emami:

Over the last 7 years, Emami’s presence has increased from merely few countries in CIS to over 50 countries spanning across SAARC, Gulf, CIS, North America, Europe and Africa. The company now is shifting its focus from broad basing (entering new markets) to increasing the number of successful products in existing markets to improve upon its operational efficiency.

Product Portfolio: The Product Portfolio can be broadly divided into three Umbrellas’. A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 5

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•

Emami – The products under this Umbrella Brand promise care for the skin. The range consists of Skin care, Hair care, Dental care & Men’s care products.

•

Himani – Products under this Umbrella Brand promise cure. The range consists of OTC medicines.

•

Ayucare – A range of new Life style enhancing products comprising of Single ingredient herbs, food supplements, Neem & Aloe Vera range, Ayurvedic tea, Massage oil, Essential oils & blends.

•

Emma – This range comprises comprises of customized products products as per the specific needs put-up by the consumer. consumer. Typically Typically these are all mass marketed products products sold to price conscious conscious buyers. buyers. The range presently presently consists of Creams, Creams, Lotions Lotions & Shampoos.

Future Strategy: Company’s business plan for International market comprises of the

following key factors. •

Investment in potential markets for key Brands leading to Higher Possibility of Returns in terms of Turnover and Market Development in the long run.

•

Adding new products for various key markets.

•

Customization of product offerings under the same brand – clubbing of familiar products products under under the same same brand.

•

Manufacturing facilities in High Tariff markets to make prices more consumerfriendly.

•

Acquisition – In certain markets, company may consider buying existing brands instead of trying to build one.

Brand Building Activities: Company spends on Media (TV and/or Press) Advertising in select select countri countries es in CIS, CIS, SAARC SAARC,, Indo-C Indo-China hina and USA, USA, Austral Australia ia & UK. UK. All the markets are supported with POPs, Displays and other promotional material as per the requirement.

1.9 INTRODUCTION TO THE STUDY


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Financial Management is that managerial activity which is concerned with the planning planning and controlling controlling of the firm’s financial resources. Though Though it was a branch of economics till 1890 as a separate or discipline it is of recent origin.

Financial Management is concerned with the duties of the finance manager in a business business firm. He performs performs such varied tasks as budgeting, budgeting, financial forecasting, forecasting, cash management, credit administration, investment analysis and funds procurement. The recent trend towards globalization of business activity has created new demands and opportunities in managerial finance.

Financial statements are prepared and presented for the external users of accounting infor informat matio ion. n. As these these statem statemen ents ts are used used by inves investo tors rs and and finan financia ciall analy analysts sts to examine the firm’s performance in order to make investment decisions, they should be prepared prepared very carefully and contain as much investment investment decisions; decisions; they should be prepared prepared very carefully carefully and contain contain as much much information information as possible. possible. Preparation of the financial statement is the responsibility of top management. The financial statements are generally prepared from the accounting records maintained by the firm.

Financial performance is an important aspect which influences the long term stability, profitability and liquidity of an organization. Usually, financial ratios are said to be the parameters of the financial performance. The Evaluation of financial performance performance had been taken taken up for the study study with with “EMAMI “EMAMI LIMITED” LIMITED” as the the project. project. Analysis of Financial performances is of greater assistance in locating the weak spots at the Emami limited eventhough the overall performance may be satisfactory. This further helps in 

Financial forecasting and planning.

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Communicate the strength and financial standing of the Emami limited.

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For effective control of business.

CHAPTER CHAPTER – 2 A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 7

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DATA ANALYSIS AND INTERPRETATION INTERPRETATION

2.1 FINANCIAL PERFORMANCE EVALUATION USING RATIO ANALYSIS Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “The Indicat Indicated ed Quotien Quotientt of Two Two Mathem Mathematic atical al Expre Expression ssions” s” and as “The “The Relatio Relationsh nship ip between between Two or More Things”. Things”. In financial financial analysis, a ratio is used as a benchmark benchmark for evaluating the financial position and performance of firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the perfo performa rmanc ncee and and finan financia ciall posit position ion of a firm. firm. The The relat relation ionshi ship p betw betwee een n two two accounting accounting figures, expressed mathematically mathematically is known known as a financial ratio. Ratios help to summaries large quantities quantities of financial data and to make qualitative about the firm’s financial performance. The point to note is that a ratio reflecting a quantitative quantitative relationship helps helps to form a qualitative judgment. Such is the nature of all financial ratios.

2.2 Significance of Using Ratios : The significance of a ratio can only truly be appreciated when: 1. It is compared compared with other other ratios ratios in the same same set of financial financial statements. statements. 2. It is compar compared ed with the same ratio ratio in previou previouss finan financia ciall state stateme ments nts (trend (trend analysis). 3. It is com compare pared d with with a stan standa dard rd of perf perfor orma manc ncee (ind (indus ustr try y aver averag age) e).. Such Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business.


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2.3 Types of Ratios 2. 3.1 Liquidity Ratios •

Liqu Liquid idit ity y refe refers rs to the the abil abilit ity y of a firm firm to meet meet its its shor shortt-te term rm fina financ ncia iall obligations when and as they fall due.

•

The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation.

A. Current Ratio

The Current Ratio expresses the relationship between the firm’s current assets and its current current liabiliti liabilities. es. Current Current assets assets normall normally y include include cash, cash, marketa marketable ble securitie securities, s, account accountss receivab receivable le and invento inventories ries.. Curren Currentt liabiliti liabilities es consist consist of account accountss payabl payable, e, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages).

Current Ratio =

Current assets ________________ Current liabilities

Significance:

It is generally accepted that current assets should be 2 times the current liabilities. In a sound business, a current ratio of 2:1 is considered an ideal one. If current ratio is lower than 2:1, the short term solvency of the firm is considered doubtful and it shows that the firm is not in a position to meet its current liabilities in times and when they are due to mature. A higher current ratio is considered to be an indication that of the firm is liquid and can meet its short term liabilities on maturity. Higher current ratio represents a cushion to short-term creditors, “the higher the current ratio, the greater the margin of safety to the creditors”.


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Table 2.1 CURRENT RATIO

Year

Current Assets Rs. in lakhs

Current Liabilities Rs. in lakhs

2007-2008

22,960.80

9,447.73

2.43

2008-2009

20,897.99

14,797.21

1.41

2009-2010

41,140.55

15,374.66

2.68

2010-2011

51,736.47

30,208.83

1.71

2011-2012

62,901.40

38,163.51

1.65

Ratio

(Source: Annual reports) Interpretation:

As a conventional rule, a current ratio of 2:1 is considered satisfactory. This rule is base on the logic that in a worse situation even if the value of current assets becomes becomes half, the firm will be able to meet its obligation. The current ratio represents the margin of safety for creditors. creditors. The current ratio has been decreasing year after year which shows decreasing working capital. From the above statement the fact is depicted that the liquidity position of the Emami limited is unsatisfactory because after the year 2010 the current ratio have being decreasing below the standard ratio 2:1.

B. Quick Ratio

Measures assets that are quickly converted into cash and they are compared with curre current nt liabil liabiliti ities es.. This This ratio ratio realiz realizes es that that some some of curre current nt asset assetss are not not easil easily y convertible to cash e.g. inventories. The quick ratio, also referred to as acid test ratio, examines examines the ability of the business business to cover cover its short-term obligations obligations from its “quick” assets only (i.e. it ignores stock). The quick ratio is calculated as follows

Quick Ratio =

Quick assets ________________ ________________ Current liabilities


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Significance:

The standard liquid ratio is supposed to be 1:1 i.e., liquid assets should be equal to current liabilities. If the ratio is higher, i.e., liquid assets are more than the current liabilities, the short term financial position is supposed to be very sound. On the other hand, if the ratio is low, i.e., current liabilities are more than the liquid assets, the short term financial position of the business shall be deemed to be unsound. When used in conjunction with current ratio, the liquid ratio gives a better picture of the firm’s capacity to meet its short-term obligations out of short-term assets.

Table 2.2 QUICK RATIO Year

Current Assets Rs. in lakhs


Ratio

2007-2008

18,950.83

9,447.73

2.01

2008-2009

13,578.18

14,797.21

0.92

2009-2010

33,279.58

15,374.66

2.16

2010-2011

39,545.36

30,208.83

1.31

2011-2012

51,960.27

38,163.51

1.36

(Source: Annual reports)

Interpretation:

As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. It is a more rigorous and penetrating penetrating test of the liquidity position position of a firm. But the liquid ratio has been decreasing year after year which indicates a high operation of the business.

From the above statement, it is clear that the liquidity position of the Emami limited is satisfactory. Since the entire five years liquid ratio is not below the standard ratio of 1:1.


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C. Cash ratio:

This is also known as cash position ratio or super quick ratio. It is a variation of quick ratio. This ratio establishes the relationship between absolute liquid assets and current liabilities. Absolute liquid assets are cash in hand, bank balance and readily marketable marketable securities. Both the debtors debtors and the bills receivable are exclude exclude from liquid assets as there is always an uncertainty uncertainty with respect to their realization. In other words, liquid assets minus debtors and bills receivable are absolute liquid assets. The cash ratio is calculated as follows

Cash in hand & at bank + Marketable securities Cash Ratio = ________________________________________ ________________________________________ Current liabilities

Significance:

This ratio gains much significance only when it is used in conjunction with the first two ratios ratios.. The The accep accepte ted d norm norm for for this this ratio ratio is 50% 50% worth worth absol absolute ute liquid liquid assets assets are considered considered adequate to pay Rs.2 worth current liabilities in time as all the creditors creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories. This test is a more rigorous measure of a firm’s liquidity position. position. This This type of of ratio is not not widely widely used in in practice. practice. Table 2.3 CASH RATIO Year

Cash in Hand & at Bank Rs. in lakhs


Ratio

2007-2008

280.27

9,447.73

0.03

2008-2009

1,077.07

14,797.21

0.07

2009-2010

15,979.79

15,374.66

1.04

2010-2011

20,415.10

30,208.83

0.68

2011-2012

27,247.65

38,163.51

0.71

(Source: Annual reports) A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 12

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Interpretation:

The acceptable norm for this ratio is 50% or 1:2. But the cash ratio is below the accepted norm. So the cash position is not utilized effectively and efficiently.

2.3.2 Activity Ratio:

If a business business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. Unless the business continues to generate high turnover, assets will be idle as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to assess how active various assets are in the business.

A. Average Collection Period:

The average collection period measures the quality of debtors since it indicates the speed of their collection. •

The shorter the average collection period, the better the quality of debtors, as a short collection period implies the prompt payment by debtors.

•

The average collection period should be compared against the firm’s credit terms and policy to judge its credit and collection efficiency.

•

An excessive excessively ly long long collecti collection on period period implies implies a very very liberal liberal and ineffici inefficient ent credit and collection performance.

•

The delay in collection of cash impairs the firm’s liquidity. On the other hand, too low a collection collection period is not necessarily favorable, favorable, rather it may indicate a very restrictive credit and collection policy which may curtail sales and hence adversely affect profit.

360 days Average collection period = _____________________ Debtor’s turnover ratio


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Significance:

Average collection period indicates the quality of debtors by measuring the rapidity or slowness slowness in the collection collection process. Generally, the shorter the average collection period, the better is the quality of debtors as a short collection period implies quick payment by debt debtors ors.. Simil Similarl arly, y, a highe higherr colle collecti ction on perio period d impl implies ies as ineffi inefficie cient nt colle collecti ction on performance performance which, which, in turn, turn, adversely adversely affects affects the liquidity liquidity or short short term paying paying capacity capacity of a firm out of its current liabilities. Moreover, longer the average collection period, larger is the chances of bad debts.

Table 2.4 AVERAGE COLLECTION COLLECTION PERIOD

Year

Days

Debtors + Bills receivables

Debtors Turnover Ratio Rs. in lakhs

Days

2007-2008

360

3,402.93

17.15

20.99

2008-2009

360

5,074.98

14.57

24.71

2009-2010

360

7,273.47

13.84

26.01

2010-2011

360

9,107.99

13.2

27.27

2011-2012

360

7,893.30

17.6

20.45


The shorter the collection period, the better the quality of debtors. Since a short collect collection ion period period implies implies the prompt prompt paymen paymentt by debtors debtors.. Here, Here, collect collection ion period period increased in 2010-2011 and decreased in the year 2011-2012. Therefore the average collection period of Emami ltd for the five years is satisfactory. Since the number of days have decreased.

B. Inventory Turnover Ratio:

This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in selling its product. It is calculated by dividing he cost of goods sold by the average inventory.


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Cost of goods sold Inventory Turnover Ratio = ___________________ Average Inventory Significance:

This ratio is calculated to ascertain the number of times the stock is turned over during the periods. In other words, it is an indication of the velocity of the movement of the stock during the year. In case of decrease in sales, this ratio will decrease. This serves as a check on the control of stock in a business. This ratio will reveal the excess stock and accumulation of obsolete or damaged stock. The ratio of net sales to stock is satisfactory relationship, if the stock is more than three-fourths of the net working capital. This ratio gives the rate at which inventories are converted into sales and then into cash and thus helps in determining the liquidity of a firm.

Table 2.5 INVENTORY TURNOVER RATIO

Year

Cost of goods sold Rs. in lakhs

Average Inventory Rs. in lakhs

2007-2008

24,836.24

2.429.53

10.22

2008-2009

30,876.88

3,780.00

8.17

2009-2010

38,204.41

4,234.14

9.02

2010-2011

34,675.68

5,662.67

6.12

2011-2012

41,512.10

6,040.83

6.87

Ratio



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Interpretation:

A higher turnover ratio is always beneficial to the concern. In this the number of times the inventory is turned over has been decreasing from one year to another year. This This decreas decreasing ing turnov turnover er indicate indicatess average average sales. sales. And in turn turn activate activatess produc production tion process and is responsible responsible for further further development development in the business. business. This indicates indicates the inventory policy of the company should be improved. Thus Thus the the stock stock turn turnov over er ratio ratioss of Emam Emamii Limi Limited ted,, for for the the five five years years are unsatisfactory. C. Working capital turnover ratio:

This ratio shows the number of times the working capital results in sales. In other words, this ratio indicates the efficiency or otherwise in the utilization of short term funds in making sales. Working capital means the excess of current current assets over current liabilities. In fact, in the short run, it is the current assets and current liabilities which pay a major role. A careful handling handling of the short term assets and funds will mean a redu reducti ction on in the the amou amount nt of capita capitall emplo employe yed, d, thereb thereby y impro improvi ving ng turno turnove ver. r. The The following formula is used to measure this ratio: Sales Working capital turnover ratio = _____________________ Net Working Working Capital Capital Significance:

This ratio is used to assess the efficiency with which the working capital has been utilized in a business. A higher working capital turnover indicates either the favorable turnover of inventories and receivables and/or the inadequate of net working capital accompanied by low turnover of inventories and receivables. A low ratio signifies either the excess of net working working capital or slow turnover turnover of inventories inventories and receivables or both. This ratio can at best be used by making of comparative comparative and trend analysis for different firms in the same industry and for various periods.


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Table 2.6 WORKING CAPITAL TURNOVER RATIO

Year

Sales Rs. in lakhs

Net Working Capital Rs. in lakhs

2007-2008

58,371.04

13,513.07

4.32

2008-2009

73,952.01

6,100.78

12.12

2009-2010

100,685.42

25,765.89

3.91

2010-2011

1,20,238.04

21,527.64

5.59

2011-2012

1,38,981.45

24,737.89

5.62

Ratio


Interpretation:

The Working Capital Turnover Ratio is decreasing year after year. It can be noted that the change is due to the fluctuation fluctuation in sales or current liabilities. These lower ratios are indicators of higher investment of working Capital and less profit. Thus, Working Capital Turnover ratios for the five years are unsatisfactory.

D. Fixed Assets Turnover Ratio:

The fixed assets turnover ratio measures the efficiency with which the firm has been using its fixed fixed assets to generate sales. It is calculated by dividing dividing the firm’s sales by its net net fixed assets assets as follows: follows: A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 17

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Sales Fixed Assets Turnover =________________ Net fixed assets Significance:

This ratio gives an ideal about adequate investment or over investment or under investm investment ent in fixed fixed assets. assets. As a rule, rule, over-inv over-investm estment ent in unprofi unprofitab table le fixed fixed assets assets should be avoided to the possible extent. Under-investment is also equally bad affecting unfavorably the operating costs and consequently the profit. In manufacturing concerns, the ratio is important and appropriate, since sales are produced not only by use of working capital but also the capital invested in fixed assets. An increase in this ratio is the indicator of efficiency in work performance and a decrease in this ratio speaks of unwise and improper investment in fixed assets. Table 2.7 FIXED ASSETS TURNOVER RATIO Year

Sales Rs. in lakhs

Net Fixed Assets Rs. in lakhs

2007-2008

58,371.04

9,129.34

6.39

2008-2009

73,952.01

64,927.57

1.14

2009-2010

100,685.42

56,705.23

1.78

2010-2011

1,20,238.04

56,242.71

2.14

2011-2012

1,38,981.45

52,847.68

2.63

Ratio


The fixed assets turnover ratio is decreasing year after year. The overall lower ratio indicates the inefficient utilization of the fixed assets. Thus the fixed assets turnover ratios for the five years are not satisfactory.

2.3.3 Financial Leverage (Gearing) Ratios

•

The ratios indicate the degree to which the activities of a firm are supported by creditors’ funds as opposed to owners.


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•

The relationship of owner’s equity to borrowed funds is an important indicator of financial strength.

•

The debt requires fixed interest payments and repayment of the loan and legal

action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicates a cushion (surplus) which shields creditors against possible losses from default in payment.

A. Proprietary Ratio:

This ratio is also known as ‘Owners fund ratio’ (or) ‘Share ‘ Shareholders holders equity ratio’ (or) ‘Equity ratio’ (or) ‘Net worth ratio’. This ratio establishes the relationship relationship between the proprietors’ proprietors’ fund and total tangible assets. The formula for this ratio may be written as follows.

Proprietary Ratio =

Proprietors’ funds _____________________ _____________________ Total tangible assets

Significance:

This ratio represents the relationship of owner’s funds to total tangible assets, higher the ratio or the share of the shareholders in the total capital of the company, better is the long term solvency position of the company. This ratio is of importance to the creditors who can ascertain the proportion of the shareholders’ funds in the total assets employed in the firm. A ratio below 50% may be alarming for the creditors since they may have to lose heavily in the event of company’s liquidation on account of heavy losses.


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Table 2.8 PROPRIETARY PROPRIETARY RATIO Total Tangible Assets Rs. in lakhs

Year

Proprietors Fund Rs. in lakhs

2007-2008

28,900.22

32,090.14

0.90

2008-2009

29,916.95

85,825.56

0.35

2009-2010

61,937.17

97,845.78

0.63

2010-2011

68,301.67

107,979.18

0.63

2011-2012

69,725.51

115,749.08

0.60

Ratio

Ratio (%)

90.00 35.00 63.00 63.00 60.00


Interpretation:

This ratio is particularly important to the creditors and it focuses on the general financial strength of the business. A ratio of 50% will be alarming for the the creditors. As such the proprietary ratio of the five years is above 50%. Therefore it indicates relatively little danger to the creditors, etc and a better performance performance of the company. company.

B. Debt to Equity ratio A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 20

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This ratio indicates the extent to which debt is covered by shareholders’ funds. It reflects the relative position of the equity holders and the lenders and indicates the company’s policy on the mix of capital funds. The debt to equity ratio is calculated as follows:

Total debt Debt to Equity Ratio = ____________ Total Equity Significance:

The importance of debt-equity ratio is very well reflected in the words of Weston and brigham which are reproduced here: “Debt-equity ratio indicates to what extent the firm depends upon outsiders for its existence. For the creditors, this provides a margin of safety. For the owners, it is useful to measure the extent to which they can gain the benefits of maintaining maintaining control over the firm with a limited investment:” investment:” The debtequity ratio states unambiguously the amount of assets provided by the outsiders for every one rupee of assets provided by the shareholders of the company.

Table 2.9 DEBTS TO EQUITY RATIO

Year

Total Debt Rs. in lakhs

Total Equity Rs. in lakhs

Ratio

2007-2008

3,825.82

28,900.22

0.13

2008-2009

44,818.98

29,916.95

1.50

2009-2010

25,905.71

61,937.17

0.42

2010-2011

11,208.01

68,301.67

0.16

2011-2012

5,554.88

69,725.51

0.08



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Interpretation:

The debt to equity ratio is decreasing year after year. A low debt equity ratio is considered favorable from management. It means greater claim of shareholders over the assets of the company than those of creditors. For the company also, the servicing of debt is less burdensome and consequently its credit standing is not adversely affected. Therefore debt to equity ratio is satisfactory to the company.

C. Interest coverage ratio

The times interest earned shows how many times the business can pay its interest bills from profit profit earned. earned. Present and prospective prospective loan creditors creditors such as bondho bondholders, lders, are vitally interested to know how adequate the interest payments on their loans are covered by the earnings earnings available for such payments. Owners, managers and directors directors are also intere intereste sted d in the the abili ability ty of the the busin business ess to servi service ce the fixed fixed inte interes restt charg charges es on outstanding debt. The ratio is calculated as follows:

EBIT Interest Coverage Ratio = _______________

Interest charges

Significance: A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 22

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It is always desirable desirable to have profit more than the interest payable. In case profit is either equal or lesser than the interest, the position will be unsafe. It will show that there this nothing left for the shareholders and the position of the lendors is also unsafe. A high ratio is a sign of low burden of dept servicing and lower utilization of borrowing capacity. From the points of view of creditors, the larger the coverage, the greater the ability of the firm to handle fixed charges liabilities and the more assessed the payment of interest to the creditors. In contrast the low ratio signifies the danger the signal that the firm is highly dependent on borrowings and its earnings cannot meet obligations fully. The standard for this ratio for an industrial undertaking is 6 to 7 times.

Table 2.10 INTEREST COVERAGE RATIO

Year

EBIT Rs. in lakhs

Interest on Fixed Loans Rs. in lakhs

2007-2008

9,274.87

3,825.82

2.42

2008-2009

10,175.56

44,818.98

0.23

2009-2010

20,057.92

25,905.71

0.77

2010-2011

26,912.22

11,208.01

2.40

2011-2012

29,893.50

5,554.88

5.38

Ratio


Interpretation:

The Interest coverage ratio is increasing year after year. A high ratio is a sign of low burden of dept servicing and lower utilization of borrowing capacity. Therefore this ratio is satisfactory to the company. A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 23

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2.3.4 Profitability Ratios

Profitability is the ability of a business to earn profit over a period of time. Although the profit figure is the starting point for any calculation of cash flow, as already pointed out, profitable companies can still fail for a lack of cash. •

A company should earn profits to survive and grow over a long period of time.

•

Profits are essential, but it would be wrong to assume that every action initiated by management management of a company company should be aimed at maximizing maximizing profits, irrespective of social consequences.

The ratios examined previously have tendered to measure management efficiency and risk. A. Gross Profit Margin •

•

Normally Normally the gross gross profit profit has to rise proportiona proportionately tely with with sales. It can can also also be usef useful ul to comp compar aree the the gros grosss prof profit it marg margin in acro across ss simi simila lar r businesses businesses although although there there will often often be good good reasons reasons for any disparity. disparity. Gross profit Gross Profit Margin = ________________ ________________

*100

Sales Significance:

The gross profit ratio helps in measuring the results of trading or manufacturing operations. It shows the gap between revenue and expenses at a point after which an enterprise has to meet the expenses related to the non-manufacturing activities, like marketing, administration, finance and also taxes and appropriations. The gross profit shows the gap between revenue and trading costs. It, therefore, indicates the extent to which the revenue has a potential to generate a surplus. In other words, the gross profit reveals the mark up on the sales. Gross profit ratio reveals profit earning capacity of the business with reference to its sale. Increase in gross profit ratio will mean reduction in cost of production or direct expenses or sale at a reasonably good price and decrease in the will mean increased cost of production or sales at a lesser price. Higher gross profit ratio is always in the interest of the business.


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Table 2.11 GROSS PROFIT MARGIN

Year

Gross Profit Rs. in lakhs

Net Sales Rs. in lakhs

Ratio

2007-2008

35,790.84

58,371.04

0.61

2008-2009

43,075.13

73,952.01

0.58

2009-2010

62,481.01

100,685.42

0.62

2010-2011

82,455.39

1,20,238.04

0.68

2011-2012

99,820.00

1,38,981.45

0.71

Ratio (%)

61.00 58.00 62.00 68.00 71.00


Interpretation:

In the year 2007, the Gross Profit Ratio was 61% but then it decreased to 58%, which shows a low profit earning capacity of the business with reference to its sales. But in the year 2010, it increased to 62% which may be due to increase in sales. But thereafter, for the succeeding two years, it has increased considerably, which indicates that the cost of production production has reduced. reduced. Therefore Therefore the Gross Profit Ratio for the five years reveals a satisfactory condition of the business.


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B. Net Profit Margin

This is a widely used measure of performance and is comparable across companies in similar industries. The fact that a business works on a very low margin need not cause alarm because there are some sectors in the industry that work on a basis of high turnover and low margins, for examples supermarkets and motorcar dealers. What is more important in any trend is the margin and whether it compares well with similar businesses.

Earnings after interest and taxes Net Profit Profit Margin Margin =________ =_____________ __________ _________ ________ ________ ____ *100 Net Sales

Significance:

An objective of working net profit ratio is to determine the overall efficiency of the business. business. Higher Higher the net profit ratio, the better the business. business. The net profit ratio indicates the management’s ability to earn sufficient profits on sales not only to cover all revenue operating expenses of the business, the cost of borrowed funds and the cost of merchandising or servicing, but also to have a sufficient margin to pay reasonable compensation to shareholders on their contribution to the firm. A high ratio ensures adequate return to shareholders as well as to enable a firm to with stand adverse economic conditions. A low margin has an opposite implication.


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Table 2.12 NET PROFIT MARGIN Net Profit Before Tax Rs. in lakhs

Sales Rs. in lakhs

Ratio

2007-2008

9,274.87

58,371.04

0.16

2008-2009

10,175.56

73,952.01

0.14

2009-2010

21,270.72

100,685.42

0.21

2010-2011

26,749.47

1,20,238.04

0.19

2011-2012

29,613.50

1,38,981.45

0.19

Year

Ratio (%)

16.00 14.00 21.00 19.00 19.00


Interpretation:

In the year 2007 the Net Profit is 16%, but in the year 2008-2009 it was decreased to 14% which may due to excessing selling and distribution expenses. But thereafter for the succeeding years years it has been increasing which indicates a better performance of the company. Therefore the performance of the management should be appreciated. Thus an increa increase se in the ratio ratio over over the the prev previou iouss perio periods ds indica indicate tess impro improve veme ment nt in the the operational efficiency of the business.


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C. Return on Investment (ROI)

Income is earned by using the assets of a business productively. The more efficient the production, the more profitable the business. The rate of return on total assets indicates the degree of efficiency with which management has used the assets of the enterprise during an accounting period. This is an important ratio for all readers of financial statements. Investors have placed funds with the managers of the business. The managers used the funds to purchase assets which will be used to generate returns. If the return is not better than the investors can achieve elsewhere, elsewhere, they will instruct the managers managers to sell the assets and they will invest elsewhere. The managers lose their jobs and the business liquidates.

Operating profit Return on Investment =

___________________ ___________________ Capital Employed

Significance:

Retu Return rn on capit capital al empl employ oyed ed shows shows over overall all prof profita itabil bility ity of the busin business ess.. At first first minimum return on capital employed should be determined and then the actual rate of return on capital employed should be determined and compared with the normal return. The return and capital employed is a fair measure of the profitability of any concern with the result that even the result of dissimilar industries may be compared.


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Table 2.13 RETURN ON INVESTMENT

Year

Operating Profit Rs. in lakhs

Capital Employed Rs. in lakhs

2007-2008

9,274.87

28,900.22

0.32

2008-2009

10,175.56

29,916.95

0.34

2009-2010

21,270.72

61,937.17

0.32

2010-2011

26,749.47

68,301.67

0.39

2011-2012

29,613.50

69,725.51

0.43

Ratio

Ratio (%)

32.00 34.00 32.00 39.00 43.00


Interpretation:

This ratio indicates that how much of the capital invested is returned in the form f orm of net profit. This ratio is increasing year after year which indicates the capital employed is returned in the form of net profit. In the same manner, returns from capital employed for the succeeding years are good. Thus, the Return on Investment ratio for the five years shows the efficiency of the business business which is very much satisfactory satisfactory..


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D. Return on Equity (ROE)

This ratio shows the profit attributable to the amount invested by the owners of the business. business. It also shows potential potential investors investors into the business what they might hope to receive as a return. The stockholders’ equity includes share capital, share premium, distributable and non-distributable reserves. The ratio is calculated as follows:

Net profit after taxes and preference dividend Return on Equity =_______________________________ =__________________________________________ ___________ Equity capital

Significance:

This ratio measures the profitability of the capital invested in the business by equity shareholders. As the business is conducted with a view to earn profit, return on equity capital measures the business success and managerial efficiency. efficiency. It reveals whether the firm has earned a reasonable profit to its equity shareholders or not by comparing it with with its own past records, records, inter-fir inter-firm m compari comparison son and compari comparison son with with the overall overall industry average. This ratio is of significant use in the ratio analysis from the standpoint of the owners of the firm.

Table 2.14 RETURN ON EQUITY

Year

Net Profit after Tax and Preference Dividend Rs. in lakhs

Equity Capital Rs. in lakhs

2007-2008

9,274.87

28,900.22

0.32

32.00

2008-2009

8,751.50

29,916.95

0.29

29.00

2009-2010

16,540.27

61,937.17

0.27

2010-2011

22,749.22

68,301.67

0.33

2011-2012

25,681.30

69,725.51

0.37

Ratio

Ratio (%)

27.00 33.00 37.00



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Interpretation:

In the year 2008, the return on equity ratio is 32% but in the year 2009 it decreased to 29%, which may due to capital investment. And in the year 20011-2012 it increased to 37%. Therefore the return on equity ratio for the five years reveals a satisfactory condition of the business.

E. Return on Total assets

This ratio is also known as the profit-to-assets ratio. This ratio establishes the relati relation onshi ship p betwe between en net net profit profitss and and asset assets. s. As these these two two term termss have have conce concept ptua uall differences, the ratio may be calculated taking the meaning of the terms according to the purpose and intent of analysis. Usually, Usually, the following formula formula is used to determine the return on total assets ratio. Return on total assets = (Net profit after taxes and interest / Total assets) * 100 Significance:

This ratio measures the profitability of the funds invested in a firm but doe not reflect on the profitability of the different sources of total funds. This ratio should be compared with the ratios ratios of other similar companies companies or for for the industry industry as a whole, whole, to determine determine whether the rate of return is attractive. This ratio provides a valid basis for interindustry comparison. A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 31

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Table 2.15 RETURN ON TOTAL ASSETS

Year

Net Profit after Tax and Interest Rs. in lakhs

Total Assets Rs. in lakhs

Ratio

2007-2008

9,274.87

32,938.94

0.28

2008-2009

10,175.56

10,399.08

0.98

2009-2010

20,057.92

19,002.75

1.06

2010-2011

26,912.22

1,07,979.18

0.25

2011-2012

29,893.50

1,15,749.08

0.26


Interpretation:

The return on total assets ratio had decreased earlier but again the trend is increasing year after year. This increasing ratio indicates the effective funds invested. Therefore the return on Total Assets ratio for the five years reveals a satisfactory condition of the business.

F. Earnings per share:

This ratio explains to this point deal with the performance and financial condition of the company. These ratio’s provide information for the managers (who are interested in evaluating the performance of the company) and for creditors (who are interested in the company’s ability to pay its obligations). We will now take a look at ratios that focus on


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the interests of the owners – Shareholder ratios. These ratios translate the overall results of operations so that they can be compared in terms of a share of stock. Usually, the following formula is used to determine the Earnings Per Share.

NPAT NPAT- Pref. Dividend Dividend Earnings per share = ______________________________ ______________________________ Number Number of Equity Equity Shares Shares

Table 2.16 EARNINGS PER SHARE (EPS)

Year

Net Profit after Tax and Preference Dividend Rs. in lakhs

2007-2008

9,274.87

6,21,45,177

14.92

2008-2009

8,751.50

6,35,59,074

13.77

2009-2010

16,540.27

2010-2011

22,749.22

2011-2012

25,681.30

No of Equity Shares

EPS

72,970,941. 00 15,13,11,74 6 15,13,11,74 6

22.67 15.03 16.97


Interpretation: A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 33

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The return on Earning Per Share had decreased during the period of 2008-2009 to 13.77. However the company performed well after the same. The Earnings Per Share increased year after year to 16.97 in 2011-12.

2.4 COMPARATIVE STATEMENT: A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 34

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Compara Comparative tive study study of financia financiall stateme statement nt is the compari comparison son of the financia financiall statement of the business with the previous year’s financial statements and with the performance performance of other competitive competitive enterprises, enterprises, so that weaknesses weaknesses may be identified identified and remedial measures applied.

Comparative statements can be prepared for both types of financial statements i.e., Balance sheet as well as profit and loss account. The comparative profits and loss account will present a review of operating activities of the business. The comparative balance shows the effect of operations operations on the assets and liabilities that change in the financial position during the period under consideration.

Comparative analysis is the study of trend of the same items and computed items into or more financial statements of the same business enterprise on different dates.

The presentation of comparative financial statements, in annual and other reports, enhances the usefulness of such reports and brings out more clearly the nature and trends of current changes affecting the enterprise.

While the single balance sheet represents balances of accounts drawn at the end of an accounting period, the comparative balance sheet represent not nearly the balance of accounts drawn on two different dates, but also the extent of their increase or decrease between between these two dates. The single single balance sheet focuses on the financial financial status of the concern as on a particular date, the comparative balance sheet focuses on the changes that have taken place in one accounting period. The changes are the direct outcome of operational operational activities, conversion of assets, liability and capital form into others as well as various interactions among assets, liability and capital.

Table: 2.17 Comparative Balance Sheets as on 31 st March 2007 – 2008 A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 35

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Change in 31st March

31st March

Absolute

2008

2007

Figure

Rs. in lakhs

Rs. in lakhs

Rs. in lakhs

Fixed Assets (A)

9,129.34

8,128.80

1,000.54

Investment ( B )

10,083.63

7,817.91

2,265.72

Inventories

4,009.97

4,119.85

(109.88)

Sundry Debtors

3,402.93

4,577.19

(1,174.26)

280.27

1,841.81

(1,561.54)

Loans and Advances

15,267.63

5,352.26

9,915.37

Total current Assets (C)

22,960.80

15,891.11

7,069.69

Total Assets ( A+B+C )

42,173.77

31,837.82

10,335.95

Share Capital

1,242.90

1,242.90

Reserves and Surplus

27,657.32

21,699.43

5,957.89

212.9

258.17

(45.27)

28,900.22

23,200.50

5,699.72

3,519.46

2,281.35

1,238.11

306.36

260.57

45.79

3,825.82

2,541.92

1,283.90

9,447.73

6,095.40

3,352.33

42,173.77

31,837.82

10,335.95

Particulars

Current Assets :

Cash and Bank Balance

Shareholders Funds :

Deferred Tax Total Shareholders Funds(A) Loan Funds :

Secured loans Unsecured loans Total Loan Funds ( B ) Curr Curren entt Liab Liabil ilit itie iess Provision( C)

and and

Total Liabilities (A+B+C )

Interpretation: A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD 36

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The comparative balance sheet of the company reveals during 2008, that there has been an increase in the fixed assets of Rs. 1,000.54 lakhs, which indicates purchase of fixed assets. The cash or funds paid for purchase of fixed assets have decreased the cash balance of the company. This limited cash balance is utilized for the repayment of loan, which is increased from Rs. 5,352.26 lakhs to Rs. 15,267.63 lakhs for meeting out current current liabiliti liabilities es and provision provision and also for making making investm investment ent,, which which has been been increased from Rs. 7,817.91 lakhs to Rs. 10,083.63 lakhs. The investment has increased from Rs. 7,817.91 lakhs to Rs. 10,083.63 lakhs, which indicates the investment has been properly made. The The over overall all finan financi cial al posit positio ion n of the comp compan any y for the year year (2007 (2007-20 -2008 08)) is satisfactory.


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Table: 2.18 Comparative Balance Sheets as on 31 st March 2008 – 2009

Change in

Particulars Fixed Assets (A) Investment ( B )

31st March

31st March

Absolute

2009

2008

Figure

Rs. in lakhs

Rs. in lakhs

Rs. in lakhs

64,927.57

9,129.34

55,798.23

3,707.58

10,083.63

(6,376.05)

7,319.81

4,009.97

3,309.84

5,074.98

3,402.93

1,672.05

1,077.07

280.27

796.80

7,426.13

15,267.63

(7,841.50)

20,897.99

22,960.80

(2,062.81)

89,533.14

42,173.77

47,359.37

1,313.11

1,242.90

70.21

28,603.84

27,657.32

946.52

595.54

212.9

382.64

29,916.95

28,900.22

1,016.73

37,306.08

3,519.46

33,786.62

7,512.90

306.36

7,206.54

44,818.98

3,825.82

40,993.16

14,797.21

9,447.73

5,349.48

89,533.14

42,173.77

47,359.37

Current Assets :

Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Total current Assets (C) Total Assets ( A+B+C ) Shareholders Funds :

Share Capital Reserves and Surplus Deferred Tax Total Shareholders Funds(A) Loan Funds :

Secured loans Unsecured loans Total Loan Funds ( B ) Current Liabilities Provision( C)

and



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Interpretation:

The comparative balance sheet of the company reveals during 2009, that there has has been been an incre increase ase in the fixed fixed assets assets of Rs. Rs. 55,79 55,798. 8.23 23 lakhs, lakhs, whic which h indica indicates tes purchase purchase of fixed assets. The cash or fund paid for purchase of fixed assets has decreased the cash balance of the company.

The current current assets assets have have decrease decreased d by Rs. (2,062.81 (2,062.81)) lakhs; lakhs; this indicates indicates firm’s firm’s better credit policy. policy. Further the current liability liability also increased by Rs. 5,349.48 lakhs, lakhs, it indicates that firm do not have good liquidity position therefore they are not able to pay liabilities within stipulated period.

The fact depicts that the policy of the company is to pay all liabilities both in current and long-term liabilities within the stipulated period using both current assets and fixed assets.

The investment investment has decreased from Rs. 10,083. 10,083.63 63 lakhs to Rs. 3,707.58 3,707.58 lakhs, which indicates the investment is not been properly made.

The The over overall all finan financi cial al posit positio ion n of the comp compan any y for the year year (2008 (2008-20 -2009 09)) is unsatisfactory.


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31st March

Absolute

2010

2009

Figure

Rs. in lakhs

Rs. in lakhs

Rs. in lakhs

Fixed Assets (A)

56,705.23

64,927.57

(8,222.34)

Investment ( B )

5,371.76

3,707.58

1,664.18

Inventories

7,860.97

7,319.81

541.16

Sundry Debtors

7,273.47

5,074.98

2,198.49


15,979.79

1,077.07

14,902.72

Loans and Advances

10,026.32

7,426.13

2,600.19


41,140.55

20,897.99

20,242.56


103,217.54

89,533.14

13,684.40

Share Capital

1,513.12

1,313.11

200.01


60,424.05

28,603.84

31,820.21

695.54

595.54

100.00

61,937.17

29,916.95

32,020.22

Secured loans

14,923.35

37,306.08

(22,382.73)

Unsecured loans

10,982.36

7,512.90

3,469.46

Total Loan Funds ( B )

25,905.71

44,818.98

(18,913.27)

15,374.66

14,797.21

577.45

103,217.54

89,533.14

13,684.40

Particulars

Current Assets :


Deferred Tax Total Shareholders Funds(A) Loan Funds :

Current Liabilities Provision( C) Total Liabilities (A+B+C )

and


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Interpretation:

The comparative balance sheet of the company reveals during 2010, that there has been a decrease in the fixed assets of Rs. (8,222.34) lakhs, which indicates sale of fixed assets. The cash and bank balance have increased by Rs. 14,902.72 lakhs. This fact indicates that the firm has utilized both current and fixed assets for the repayment of long term loans as such there loan amount has reduced by Rs. (18,913.27) lakhs.

The current current assets assets have have increase increased d by Rs. 20,242 20,242.56 .56 lakhs; lakhs; this indicates indicates firm’s firm’s flexible credit policy as such the debtors have been increase by Rs. 2,198.49. Further the current current liability liability also increased increased by Rs. 577.45 577.45 lakhs, lakhs, it indicat indicates es that that firm has not paid the liabilities within within the stipulated stipulated period. period.

The investment has increased by Rs. 1,664.18 1,664.18 lakhs, which indicates an outflow of fund.

The The over overall all finan financi cial al posit positio ion n of the comp compan any y for the year year (2009 (2009-20 -2010 10)) is satisfactory.


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31st March

Absolute

2011

2010

Figure

Rs. in lakhs

Rs. in lakhs

Rs. in lakhs

Fixed Assets (A)

48,892.45

56,705.23

(7,812.78)

Investment ( B )

16054.99

5,371.76

10,683.23

Inventories

12,191.11

7,860.97

4,330.14

Sundry Debtors

9,107.99

7,273.47

1,834.52


20,415.10

15,979.79

4,435.31

Loans and Advances

10,022.27

10,026.32

(4.05)


51,736.47

41,140.55

10,595.92


116,683.91

103,217.54

13,466.37

Share Capital

1,513.12

1,513.12

0.00


66,788.55

60,424.05

6,364.50

Deferred Tax

1,370.00

695.54

674.46

Total Shareholders Funds(A)

68,301.67

61,937.17

6,364.50

Secured loans

15,248.14

14,923.35

324.79

Unsecured loans

2,925.27

10,982.36

(8,057.09)

Total Loan Funds ( B )

18,173.41

25,905.71

(7,732.30)

Current Liabilities and Provision( C)

30,208.83

15,374.66

14,834.17


116,683.91

103,217.54

13,466.37

Particulars

Current Assets :


Loan Funds :


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Interpretation:

The comparative balance sheet of the company reveals during 2011, that there has been a decrease in the fixed assets of Rs. (7,812.78) lakhs, which indicates sale of fixed assets and an inflow of cash. The long term loan has reduced by Rs. (7,732.30) lakhs, which indicates the repayment of loan. This fact depicts that the loan is relayed through the cash received by sale of fixed assets.

The current asset has increased by Rs. 10,595.92 lakhs which indicate a firm’s better credit policy. The current liability has also increased increased by Rs. 14,834.17 14,834.17 lakhs, which indicates that the payment of liabilities is not made within the stipulated period.

The investment investment has increased by Rs. 10,683.23 lakhs as such the investment investment of the company on the shares in its subsidiary company has increased, which indicates on outflow of cash.



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31st March

Absolute

2012

2011

Figure

Rs. in lakhs

Rs. in lakhs

Rs. in lakhs

Fixed Assets (A)

46,662.83

48,892.45

(2,229.62)

Investment ( B )

9078.17

16054.99

(6,976.82)

10,941.13

12,191.11

(1,249.98)

7,893.30

9,107.99

(1,214.69)


27,247.65

20,415.10

6,832.55

Loans and Advances

16,819.32

10,022.27

6,797.05


62,901.40

51,736.47

11,164.93


118,642.40

116,683.91

1,958.49

1,513.12

1,513.12

0.00

68,212.39

66,788.55

1,423.84

1,450.00

1,370.00

80.00

69,725.51

68,301.67

1,423.84

10,743.23

15,248.14

(4,504.91)

10.15

2,925.27

(2,915.12)

10,753.38

18,173.41

(7,420.03)

38,163.51

30,208.83

7,954.68

118,642.40

116,683.91

1,958.49

Particulars

Current Assets :

Inventories Sundry Debtors


Share Capital Reserves and Surplus Deferred Tax Total Shareholders Funds(A) Loan Funds :

Secured loans Unsecured loans Total Loan Funds ( B ) Current Liabilities Provision( C) Total Liabilities (A+B+C )

and


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Interpretation:

The comparative comparative balance sheet of the company company reveals during 2012, that there has been a decrease in the fixed assets of Rs. (2,229.62) lakhs, which indicates sale of fixed assets and an inflow of cash. The long term loan has reduced by Rs. (7,420.03) lakhs, which indicates the repayment of loan. This fact depicts that the loan is relayed through the cash received by sale of fixed assets.

The current asset has increased by Rs. 11,164.93 lakhs which indicate a firm’s better credit policy. The current liability has also increased increased by Rs. 7,954.68 lakhs, which indicates that the payment of liabilities is not made within the stipulated period.

The investment has decreased by Rs. (6,976.82) lakhs as such the investment of the company on the shares in its subsidiary company has decreased, which indicates on outflow of cash.



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CHAPTER CHAPTER – 4 CONCLUSION

SUMMARY COMBINED RATIO’S

2007-

YEAR 20082009-

Current Ratio Quick Ratio Cash Ratio Average Collection Period (Days) Inventory Turnover Ratio Working Capital Turnover Ratio Fixed Assets Turnover Ratio Proprietary Ratio (%) Debts To Equity Ratio Interest Coverage Ratio Gross Profit Margin (%) Net Profit Profit Margin Margin (%) Return On Investment (%) Return On Equity (%) Return On Total Assets Earnings Per Share (EPS)

2008 2.43 2.01 0.03 20.99 10.22 4.32 6.39 90.00 0.13 2.42 61.00 16.00 32.00 32.00 0.28 14.92

2009 1.41 0.92 0.07 24.71 8.17 12.12 1.14 35.00 1.50 0.23 58.00 14.00 34.00 29.00 0.98 13.77

2010 2.68 2.16 1.04 26.01 9.02 3.91 1.78 63.00 0.42 0.77 62.00 21.00 21.00 32.00 27.00 1.06 22.67

2010-

2011-

2011 1.71 1.31 0.68 27.27 6.12 5.59 2.14 63.00 0.16 2.40 68.00 19.00 19.00 39.00 33.00 0.25 15.03

2012 1.65 1.36 0.71 20.45 6.87 5.62 2.63 60.00 0.08 5.38 71.00 19.00 19.00 43.00 37.00 0.26 16.97

1. The study study is made on the topic topic financial financial perform performance ance using using ratio ratio analysis analysis with five years data in Emami Limited.

2. The current current and and liquid liquid ratio indicates indicates the short short term financial position position of Emami Emami Ltd. whereas debt equity and proprietary ratios shows the long term financial position. position.

3. Similarl Similarly, y, activity activity ratios ratios and profitab profitability ility ratios ratios are helpful helpful in evaluat evaluating ing the efficiency of performance in Emami Ltd.

4. The curren currentt ratio is above above 1 in all the five years. years. The The level of current current assets assets and current liabilities must be improved.


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5. The liquid liquid ratio ratio is increasin increasing g year after after year. Thoug Though h the ratio is above above 1 in all the five years, it is preferable preferable to improve improve upon the situation. This may be due to the fact that the stock is major composition of current assets, which excludes liquid assets. The firm should try to clear the stocks.

6. The cash cash ratio ratio is increasin increasing g year year after year. year. So it shows shows that the the cash positio position n is utilized effectively and efficiently.

7. The average average collection collection period period is decreasing decreasing year after after year so it shows the better better is the quality of debtors as a short collection period and implies quick payment by debtors. debtors.

8. The The invent inventor ory y turno turnove verr ratio ratio for the the five five years years indicat indicated ed an impro improve veme ment nt in inventory policy and efficiency of business operations of the company.

9. The worki working ng capital capital turnove turnoverr ratio has been decrea decreasing sing during during the five five years, years, which which indicat indicates es that that there there is higher higher investment investment of the working working capital capital and average profit.

10. The proprietary proprietary ratio in all the five years years is above the satisfactory level, level, that is, 50%. It indicates the creditors are in a safer side and there is no pressure from them.

11. 11. The The debt debt to equit equity y ratio ratio is decre decreasi asing ng year year after after year, year, whic which h indica indicate tes, s, the the servicing of debt is less burdensome and consequently its credit standing is not adversely affected.

12. The Net Profit Profit for the five years years has been increasin increasing g which shows shows that the selli selling ng and and distr distribu ibutio tion n expen expenses ses are unde underr cont control rol and and there there is a good good operational efficiency of the business concern.


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13. It can be stated that the working capital managemen managementt of the company seems to be satisfactory. But in certain years there is decrease in working capital, which is due to higher amount of current liabilities especially, increasing in provision for dividend and taxation and creditors. The company should try to decrease the current liabilities and provision by making timely payment.

The financial performance of the company for the five years is analyzed and it is proved that the company is financially sound.


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CHAPTER CHAPTER – 6 BIBLOGRAPHY

WEBSITES:



www.encyclopedia.com



www.emamigroup.com

BOOKS:



Management Accounting – Ainapure – Manan Prakashan


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A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD

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