Declaration: Performance Using Ratio Analysis" Which Is Submitted by Me To Department of

RATUL MAITRA NTCC A90606417149 Page |1
DECLARATION
I Ratul Maitra of BBA (4A) hereby declare that the project titled “Study of financial
performance using ratio analysis” which is submitted by me to department of
management, Amity School of Business in Amity University
Kolkata in partial fulfilment of requirement for the award of degree Bachelor of Business
Administration has not been previously formed the basis for the award of any degree, or
other similar title or recognition.
The Author attests that permission has been obtained for the use of any copy righted
material appearing in the dissertation / project report other than brief experts requiring
only proper acknowledgment in scholarly writing and all such use in acknowledged.
Date: ___________
Ratul Maitra
A90606417149
Name and Signature of Student

CERTIFICATE
This is to certify that Mr. Ratul Maitra, student of BBA in Business Administration has carried
out work presented in the project of the Tem paper entitle “Study of financial performance
using ratio analysis” as a part of second year program of Bachelor of Business
Administration from Amity University, Kolkata under my supervision.
___________________________________
Prof. Ribhu Ray
Department of Management
ASBK ( Kolkata)
ACKNOWLEDGEMENT
The satisfaction that accompanies that the successful completion of any task would be
Incomplete without the mention of people whose ceaseless cooperation made it possible,
whose constant guidance and encouragement crown all efforts with success. I would like to
thank Prof. Debarghya Bagchi Head of Department management and Amity University for
giving me the opportunity to undertake this project. I would like to thank my faculty guide
Prof. Ribhu Ray sir who is the biggest driving force behind my successful completion of the
project. He has been always there to solve any query of mine and also guide me in the right
direction regarding the project. Without the help and inspiration, I would not have been
able to complete this project. Also I would like to thank my batch mates who guided me,
helped me and gave ides and motivation at each step.
________________________________________
Ratul Maitra
ABSTRACT
I express my sincere gratitude to my faculty guide Prof. Ribhu Ray Sir, for his able guidance,
continuous support and co-operation throughout my project, without which the present
work would not have been possible. My endeavour stands incomplete without dedicating
my gratitude to Sir. He has contributed a lot towards successful completion of my project
work. I would also like to express my gratitude to my family, friends for their unending
support and tiered less effort that kept me motivated throughout the completion of this
project.
In this project, titled “A STUDY ON FINANCIAL PERFORMANCE USING

RATIO ANALYSIS AT EMAMI LTD”.
This aim is to analysis the liquidity and profitability position of the company using the
financial tools. This study based on financial statements such as Ratio Analysis, Comparative
balance sheet. By using this tools combined it enables to determine in an effective manner.
The study is made to evaluate the financial position, the operational results as well as
financial progress of a business concern. This study explains ways in which ratio analysis can
be of assistance in long-range planning, budgeting and asset management to strengthen
financial performance and help avoid financial difficulties. The study not only throws on the
financial position of a firm but also serves as a stepping stone to remedial measures for
Emami Limited. This project helps to identify and give suggestion the area of weaker
position of business transaction in “EMAMI LTD”.
Yours Sincerely
RATUL MAITRA
INDEX
CONTENT PAGE NO.

1. INTRODUCTION 6
2. REVIEW OF LITERATURE 7
3. TYPES OF RATIO 8
4. CURRENT RATIO 9
5. QUICK RATIO 10
6. CASH RATIO 12
7. ACTIVITY RATIO 13
8. AVERAGE COLLECTION PERIOD 13
9. INVENTORY TURNOVER RATIO 16
10.WORKING CAPITAL TURNOVER 17
11.FIXED ASSETS TURNOVER RATIO 19
12.PROPRIETORY RATIO 20
13.DEBIT TO EQUITY RATIO 22
14.INTEREST COVERAGE RATIO 23
15.GROSS PROFIT MARGIN 25
16.NET PROFIT MARGIN 27
17.RETURN OF INVESTMENT 28
18.RETURN ON EQUITY 30
19.RETURN ON TOTAL ASSETS 32
20.COMPARATIVE BALANCESHEET 34
21.RESEARCH OBJECTIVE 36
22.RESEARCH METHODOLOGY 37
23.CONCLUSION 39
Introduction to the study

Financial Management is that management activity which is concerned with the planning and
controlling of the firm’s financial resource. 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
firm. He performs such varied tasks as budgeting, financial 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
information. As these statements are used by investors and financial analysts to examine the
firm’s performance in order to make investment decisions, they should be prepared very
carefully and contain as much investment decisions, they should be prepared very carefully
and contain as much information as 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 had been
taken up for the study with “EMAMI LIMITED” as the project.
Analyses of Financial performances are 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.
 Communicate the strength and financial standing of the Emami limited.
 For effective control of business.

REVIEW OF LITERATURE
1.Financial statements Analysis: The financial statements provide some extremely useful
information to the extent that the balance sheet mirrors the financial position on a particular
date in terms of the structure of assets, liabilities and owners’ equity, and so on and the profit
an loss account shows the results of operations during a certain period of time in terms of the
revenues obtained and the cost incurred during the year. Thus, the financial statements
provide a summarized view of the financial position and operations of a firm. Therefore,
much an be learnt about a firm from a careful examination of its financial statements as
invaluable documents performance reports. The analysis of financial statements is thus, an
important aid to financial analysis.
The focus of financial analysis is on key figures in the financial statements and the
significant relationship that exists between them. The analysis of financial statements is a
process of evaluating the relationship between component parts of financial statements to
obtain a better understanding of the firm’s position and performance. The first task of the
financial analyst is to select the information relevant to the decision under consideration from
the total information contained in the financial statements. The second step is to arrange the
information in a way to highlight significant relationships. The final step is interpretation and
drawing of inferences and conclusion. In brief, the financial analysis is the process of
selection, relation and evaluation.
2.Ratio Analysis: Ratio analysis is a widely-use tool of financial analysis. It can be used to
compare the risk and return relationships of firms of different sizes. It is defined as the
systematic use of ratio to interpret the financial statements so that the strengths and weakness
of a firm as well as its historical performance and current financial condition can be
determined. The term ratio refers to the numerical or quantitative relationship between two
items and variables. These ratios are expressed as (i) percentages, (ii) fraction and (iii)
proportion of numbers. These alternative methods of expressing items which are related to
each other are, for purposes of financial analysis, referred to as ratio analysis. It should be
noted that computing the ratios does not add any information not already inherent in the
above figures of profits and sales. What the ratio do is that they reveal the relationship in a
more meaningful way so as to enable equity investors, management and lenders make better
investment and credit decisions.
Types of Ratios
1. Liquidity Ratios
Liquidity refers to the ability of a firm to meet its short-term financial 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.
 Current Ratio- The Current Ratio expresses the relationship between the firm’s
current assets and its current liabilities. Current assets normally include cash,
marketable securities, accounts receivable and inventories. Current liabilities consist
of accounts payable, short term notes payable, short-term loans, current maturities of
long term debt, accrued income taxes and other accrued expenses (wages).
Current assets
Current Ratio = _______________

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”.
CURRENT RATIO
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 half, the firm will be able to meet its obligation. The current ratio represents the
margin of safety for 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 satisfactory because all the five years current ratio
is not below the standard ratio
CURRENT RATIO
RATUL MAITRA NTCC A90606417149 P a g e | 10
 Quick Ratio :-Measures assets that are quickly converted into cash and they are
compared with current liabilities. This ratio realizes that some of current assets are not
easily convertible to cash e.g. inventories.
The quick ratio, also referred to as acid test ratio, examines the ability of the business
to cover its short-term obligations from its “quick” assets only (i.e. it ignores stock).
The quick ratio is calculated as follows:-
Quick assets
Quick Ratio = ____________________
Current liabilities
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.
QUICK RATIO
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 test of the liquidity 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. Because the entire five years liquid ratio is not below the standard ratio of 1:1.
QUICK RATIO
 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 securities. Both the debtors and the bills receivable are exclude
from liquid assets as there is always an uncertainty with respect to their realization. In
other words, liquid assets minus debtors and bills receivable are absolute liquid assets.
Cash Ratio = Cash in hand & at bank + Marketable securities
________________________________________________
Current Liabilities
Significance:-This ratio gains much significance only when it is used in conjunction with the
first two ratios. The accepted norm for this ratio is 50% or 0.5:1 or 1:2(i.e.,) Re. 1 worth
absolute liquid assets are considered adequate to pay Rs.2 worth current liabilities in time as
all the 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. This type of ratio is not widely used in practice.
CASH RATIO
Cash in Hand Current

Year & at Bank Liabilities Ratio
Rs. in lakhs Rs. in lakhs
2001 – 2002 130.54 775.49 0.17
2002 – 2003 141.15 644.26 0.22
2003 – 2004 46.11 1154.12 0.04
2004 – 2005 34.43 1501.76 0.02
2005 – 2006 82.12 3905.45 0.02
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.
CASH RATIO
2. Activity Ratio:-If a 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.
 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 excessively long collection period implies a very liberal and inefficient credit and
collection performance.
 The delay in collection of cash impairs the firm’s liquidity. On the other hand, too low
a collection period is not necessarily 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 = ____________________
Debtors turnover ratio
Significance:-Average collection period indicates the quality of debtors by measuring the

rapidity or slowness in the 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 debtors. Similarly, a higher collection period implies as inefficient collection performance
which, in turn, adversely affects the liquidity or short term paying capacity of a firm out of its
current liabilities. Moreover, longer the average collection period, larger is the chances of bad
debts.
AVERAGE COLLECTION PERIOD
Debtors Turnover Ratio

Year Days Rs. in lakhs Days
2001 – 2002 360 4211.03 0.09
2002 – 2003 360 3100.98 0.12
2003 – 2004 360 4405.70 0.08
2004 – 2005 360 3524.79 0.10
2005 – 2006 360 3667.52 0.10
Interpretation:-The shorter the collection period, the better the quality of debtors. Since
a short collection period implies the prompt payment by debtors. Here, collection period
decrease from 2003-2004 and increased slightly in the year 2005-2006. Therefore the
average collection period of Emami ltd for the five years is satisfactory.
AVERAGE COLLECTION PERIOD
 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.
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.
INVENTORY TURNOVER RATIO
Cost of goods Average

Year sold Inventory Ratio
2001 – 2002 11209.73 3732.19 3.0
2002 – 2003 11939.46 3508.00 3.4
2003 – 2004 13708.36 3537.44 3.88
2004 – 2005 12609.33 3385.92 3.72
2005 – 2006 17543.71 3668.52 4.78
Interpretation:-A higher turnover ratio is always beneficial to the concern. In this the
number of times the inventory is turned over has been increasing from one year to another
year. This increasing turnover indicates immediate sales. And in turn activates production
process and is responsible for further development in the business. This indicates a good
inventory policy of the company. Thus the stock turnover ratios of Emami Limited, for the
five years are satisfactory.
INVENTORY TURNOVER RATIO
 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 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 of the
short term assets and funds will mean a reduction in the amount of capital employed,
thereby improving turnover. The following formula is used to measure this ratio:
Sales
Working capital turnover ratio = __________________
Net Working 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 capital or slow turnover of inventories and receivables or both. This
ratio can at best be used by making of comparative and trend analysis for different firms in
the same industry and for various periods.
WORKING CAPITAL TURNOVER RATIO
Sales Net Working Capital

Year Rs. in lakhs Rs. in lakhs Ratio
2001 – 2002 18262.60 9181.32 1.99
2002 – 2003 19808.5 8181.53 2.42
2003 – 2004 21612.94 8572.61 2.52
2004 – 2005 21885.20 8382.88 2.61
2005 – 2006 30087.56 8044.02 3.74
Interpretation:-The Working Capital Turnover Ratio is increasing year after year. It can be
noted that the change is due to the fluctuation in sales or current liabilities. These higher ratio
are indicators of lower investment of working Capital and more profit.
Thus, Working Capital Turnover ratios for the five years are satisfactory.
WORKING CAPITAL TURNOVER RATIO
 Fixed Assets Turnover Ratio:-The fixed assets turnover ratio measures the
efficiency with which the firm has been using its fixed assets to generate sales. It is
calculated by dividing the firm’s sales by its net fixed assets as follows:
Sales
Fixed Assets Turnover =_______________
Net fixed assets
Significance:- This ratio gives an ideal about adequate investment or over investment or
under investment in fixed assets. As a rule, over-investment in unprofitable fixed 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.
FIXED ASSETS TURNOVER RATIO

Net Fixed
Year Sales Assets Ratio
2001 – 2002 18262.60 25169.20 0.73
2002 – 2003 19808.50 23599.92 0.84
2003 – 2004 21612.94 23293.33 0.93
2004 – 2005 21885.20 21863.99 1.00
2005 – 2006 30087.56 20245.48 1.49
Interpretation:-The fixed assets turnover ratio is increasing year after year. The overall
higher ratio indicates the efficient utilization of the fixed assets.Thus the fixed assets turnover
ratio for the five years are satisfactory as such there is no under utilization of the fixed assets.
FIXED ASSETS TURNOVER RATIO

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. 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.
 Proprietary Ratio:- This ratio is also known as ‘Owners fund ratio’ (or)
‘Shareholders equity ratio’ (or) ‘Equity ratio’ (or) ‘Net worth ratio’. This ratio
establishes the relationship between the proprietors’ fund and total tangible assets.
The formula for this ratio may be written as follows.
Proprietors’ funds
Proprietary Ratio = _____________________
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.
PROPRIETARY RATIO
Proprietors Fund Total Tangible Assets
2001 – 2002 27653.24 35932.12 0.77
2002 – 2003 27629.57 33237.8 0.83
2003 – 2004 27906.09 33710.84 0.83
2004 – 2005 31683.74 37139.68 0.85
2005 – 2006 33521.63 40904.75 0.82

Interpretation:-This ratio is particularly important to the creditors and it focuses on the

general financial strength of the business. A ratio of j50% will be alarming for 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 of the company.
PROPRIETARY RATIO
 Debt to Equity ratio:- 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 control over the firm with a limited investment:” The debt-equity ratio states
unambiguously the amount of assets provided by the outsiders for every one rupee of assets
provided by the shareholders of the company.
DEBT TO EQUITY RATIO
Total Debt Total Equity

2001 – 2002 7241.39 27653.24 0.26
2002 – 2003 4628.27 27629.57 0.17
2003 – 2004 4221.63 27906.09 0.15
2004 – 2005 3474.18 31683.74 0.11
2005 – 2006 3216.67 33521.63 0.10
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.
DEBT TO EQUITY RATIO
 Interest coverage ratio:-The times interest earned shows how many times the
business can pay its interest bills from profit earned. Present and prospective loan
creditors such as bondholders, are vitally interested to know how adequate the interest
payments on their loans are covered by the earnings available for such payments.
Owners, managers and directors are also interested in the ability of the business to
service the fixed interest charges on outstanding debt. The ratio is calculated as
follows:
DEBIT
Interest Coverage Ratio =_______________
Interest charges
Significance:-It is always 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.
INTEREST COVERAGE RATIO
EBIT Interest on Fixed Loans

2001 – 2002 1767.75 7241.39 0.24
2002 – 2003 2087.49 4628.27 0.45
2003 – 2004 2260.62 4221.63 0.54
2004 – 2005 3037.66 3474.18 0.87
2005 – 2006 5030.58 3216.67 1.56

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.
INTEREST COVERAGE RATIO
3. 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 of a company should be aimed at maximizing profits, irrespective of
social consequences.
The ratios examined previously have tendered to measure management efficiency and risk.
 Gross Profit Margin:-Normally the gross profit has to rise proportionately with
sales. It can also be useful to compare the gross profit margin across similar
businesses although there will often be good reasons for any 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 have 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.
GROSS PROFIT MARGIN
Year Gross Profit Net Sales Ratio

2001 – 2002 7052.87 18262.60 38.62
2002 – 2003 7925.86 19808.5 40.01
2003 – 2004 7904.58 21612.94 36.57
2004 – 2005 9275.87 21885.20 42.38
2005 – 2006 12543.85 30087.56 41.69
Interpretation:- In the year 2002, the Gross Profit Ratio was 39% but then it increased to
40%, which shows a good profit earning capacity of the business with reference to its sales.
But in the year 2004, it decreased to 37% which may be due to increase in cost of production
or due to sales at lesser price. But thereafter, for the succeeding two years, it has increased
considerably, which indicates that the cost of production has reduced. Therefore the Gross
Profit Ratio for the five years reveals a satisfactory condition of the business.
GROSS PROFIT MARGIN
 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 Margin =______________________________ *100
Net Sales
Significance:- An objective of working net profit ratio is to determine the overall efficiency of
the business. Higher the net profit ratio, the better the 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.
NET PROFIT MARGIN

Year Net Profit Sales Ratio
2001 – 2002 2848.84 18262.60 15.60
2002 – 2003 2800.13 19808.5 14.14
2003 – 2004 2871.54 21612.94 13.29
2004 – 2005 3752.3 21885.20 17.15
2005 – 2006 5937.78 30087.56 19.74
Interpretation:-In the year 2002 the Net Profit is 15.60%, but in the year 2002-2003 it was
decreased to 14.14 and 13.29. Which may due to excessing selling and distribution expenses.
But thereafter for the succeeding years it has been increasing which indicates a better
performance of the company. Therefore the performance of the management should be
appreciated. Thus an increase in the ratio over the previous periods indicates improvement in
the operational efficiency of the business.
NET PROFIT MARGIN

 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, they will instruct the 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:-Return on capital employed shows overall profitability of the business. At 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.
RETURN ON INVESTMENT
Operating Profit Capital Employed

2001-2002 2531 35803 7.07
2002-2003- 2434 33355 7.30
2003-2004 2437.54 32556.72 7.49
2004-2005 3190.73 35637.92 8.95
2005-2006 4733.93 36999.30 12.79

Interpretation;- This ratio indicates that how much of the capital invested is returned in the
form 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 which is very much satisfactory.
RETURN ON INVESTMENT
 Return on Equity (ROE)
This ratio shows the profit attributable to the amount invested by the owners of the
business. It also shows potential 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. It reveals whether the firm
has earned a reasonable profit to its equity shareholders or not by comparing it with its own
past records, inter-firm comparison and comparison with the overall industry average. This
ratio is of significant use in the ratio analysis from the standpoint of the owners of the firm.
RETURN ON EQUITY
Net Profit after Tax

Year and Preference Equity Capital Ratio
Dividend Rs. in lakhs
Rs. in lakhs
2001 – 2002 2848.84 561.50 5.07
2002 – 2003 2800.13 561.50 4.99
2003 – 2004 2871.54 1123.00 2.56
2004 – 2005 3752.3 1223.00 3.07
2005 – 2006 5937.78 1223.00 4.86
Interpretation;-In the year 2002, the return on equity ratio is 5.07 but in the year 2003 it
reduced to 4.99, which may due to capital investment . And in the year 2005-2006 it
increased to 3.07 to .86. Therefore the return on equity ratio for the five years reveals a
satisfactory condition of the business.
RETURN ON EQUITY
 Return on Total assets :-This ratio is also known as the profit-to-assets ratio. This
ratio establishes the relationship between net profits and assets. As these two terms
have conceptual differences, the ratio may be calculated taking the meaning of the
terms according to the purpose and intent of analysis. Usually, the following 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 of other similar companies or for the industry as a whole, to
determine whether the rate of return is attractive. This ratio provides a valid basis for inter-
industry comparison.
RETURN ON TOTAL ASSETS
Net Profit after

Year Taxes and Interest Total Assets Ratio
2001 – 2002 2848.84 35156.63 8.10
2002 – 2003 2800.13 32593.54 8.59
2003 – 2004 2871.54 32556.72 8.82
2004 – 2005 3752.3 35637.92 10.53
2005 – 2006 5937.78 36999.3 16.05
Interpretation:- The return on total assets ratio 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.
RETURN ON TOTAL ASSETS

4. Comparative statement:-Comparative study of financial statement is the comparison

of the financial statement of the business with the previous year’s financial statements
and with the performance of other competitive enterprises, so that weaknesses may be
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 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 these two dates. The single balance sheet focuses on the 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 activities, conversion of assets, liability and capital form into
others as well as various interactions among assets, liability and capital.
Comparative Balance Sheet as on 31st March 2005 – 2006
Change in
Particulars 31st March 31st March Absolute Percentage
2005 2006 Figure Increase or
Rs. in lakhs Rs. in lakhs Rs. in lakhs Decrease
Fixed Assets (A) 21863.99 20245.48 (1618.51) 7.40
Investment ( B ) 5391.05 8709.80 3318.75 61.56
Current Assets :
Inventories 3674.58 3662.46 (12.12) 0.33
Sundry Debtors 3524.79 3667.52 142.73 4.05
Cash and Bank Balance 34.43 82.12 47.69 138.51
Loans and Advances 2650.84 4537.37 1886.53 71.17
Total current Assets ( C ) 9884.64 11949.47 2064.83 20.89
Total Assets ( A+B+C ) 37139.68 40904.75 3765.07 10.14
Shareholders Funds :
Share Capital 1223.00 1223.00 - -
Reserves and Surplus 30460.74 32298.63 1837.89 6.03
Deferred Tax 480.00 261.00 (219) 45.63
Total Shareholders Funds 32163.74 33782.63 1618.89 5.03
(A)
Loan Funds :
Secured loans 3375.82 3124.08 (251.74) 7.46
Unsecured loans 98.36 92.59 (5.77) 5.87
Total Loan Funds ( B ) 3474.18 3216.67 (257.51) 7.41
Current Liabilities and 1501.76 3905.45 2403.69 160.06
Provision( C)
Total Liabilities (A+B+C) 37139.68 40904.75 3765.07 10.14
Interpretation:-The comparative balance sheet of the company reveals during 2006, that
there has been a decrease in the fixed assets of Rs.(1618.51) lakhs, which indicates sale of
fixed assets and an inflow of cash. The long term loan has reduced by Rs.(257.51) 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.2064.83 lakhs which indicate a firm’s better credit
policy. The current liability has also increased by Rs.2403.69 lakhs, which indicates that the
payment of liabilities is not made within the stipulated period.
The investment has increased by Rs.3318.75 lakhs as such the investment of the company
on the shares in its subsidiary company has increased, which indicates on outflow of cash.
The overall financial position of the company for the year (2005-2006) is satisfactory.
SUGGESTION, RECOMMENDATION
1. The liquidity position of the company can be utilized in a better or other effective
purpose.
2. The company can be use the credit facilities provided by the creditors.
3. The debt capital is not utilized effectively and efficiently. So the company can extend
its debt capital.
4. Efforts should be taken to increase the overall efficiency in return out of capital
employed by making used of the available resource effectively.
5. The company can increase its sources of funds to make effective research and
development system for more profits in the years to come.
Research Objectives
Research objectives refer to the main aim for conducting a particular research work on a
predefined topic. Here, the topic is about the “Performance Appraisal and its effectiveness on
IT Industries”. And the objectives for this research work are as follows :-
1. To develop my understanding of the subject – Performance Appraisal System
implemented in various organizations varies according to the need and suitability.
Through my research, I have tried to study the kind of appraisal used in the
organisation and the various pros and cons of this type of system.
2. To enhance the welfare of employees – The Appraisal system is conceived by

the management but mostly does not take into consideration the opinion of the
employees. This can lead to adverse problems in the organisations. Therefore by
this study I have attempted to put forth the opinion of the employee with respect
to the acceptability of the performance appraisal system.
3. To conduct a study on social behaviour – Social behaviour is a very

unpredictable aspect of human life but social research is an attempt to acquire
knowledge and to use the same for social development.
4. To exercise social control and predict changes in behaviour – The ultimate

objective of my research is to make it possible to predict the behaviour of
individuals by studying the factors that govern and guide them.
5. To study the performance appraisal system – In order to gain knowledge

regarding the performance appraisal systems in different IT Industries and their
effectiveness in different IT Industries.
6. To understand and evaluate performance appraisal mechanism in operation –

To know how the performance appraisal mechanism is used in the operations in
different IT Industries.
7. To determine the talent of the employees and make future plans – To determine
the talent, strength and quality of the performing employees in the IT Firms and
plan for future requirements and for an ideal “organisational structure”, identify
gaps and take important actions.
8. To enrich the career and succession planning of the employees – To enrich the
career and succession planning of the employees and to build in-house pool of
talent for the future needs of the HOD’s and GM’s.
Research Methodology
Work performance appraisal systems assess the employee’s effectiveness, work habits and
also the quality of the work produced. The research methodology used to evaluate the
accuracy and effectiveness of the appraisal instrument takes different forms and depends on
the type of career professional under the microscope for evaluation, but the foundation for all
evaluations rests on several basic research techniques. The evaluation methodology
corroborates the original employee evaluations and performance appraisals through
supporting multiple research reporting measures.
The research methodologies used to evaluate the employee performance appraisal systems in
the IT Industries are as follows :-
1. Correlating Data and Appraisals – Correlating operational data on employee
firing and reprimands offers one way to assess the validity of the employee
appraisal systems in place at the workplace. Tracking the staff members with
negative feedback during evaluations and noting the types of reprimands and
retraining necessary to improve work skills or performance allows administrative
officers a chance to correlate the negative comments with the requests for
improvement. Long term correlations allow tracking of the employees’
improvement or the staff fired after failed attempts at remediation.
2. Self-Assessments and Supervisor Evaluations – Other forms of evaluation for
performance appraisal systems include input from employees using self-
assessment tools and also supervisor appraisals of the system of evaluation. The
employee self-reflection offers the vantage point of examining the evaluation from
the worker level. The supervisors offer the viewpoint of a middle-upper-level
management evaluator. Both have a unique stake in the appraisal process and also
experience in dealing with a variety of appraisal system users. Grouping both
workers and supervisors into separate and anonymous feedback groups provides
candid opinions on the perceived validity of the appraisal system. While some
viewpoints offer only biased information, common threads and repeated
comments do provide validity for some of the assessment areas.
3. Direct Observation – The use of multiple research measures to evaluate
performance appraisal systems includes using secondary outside assessment teams
to support or challenge the original appraisal staff findings. Hiring a professional
assessment firm to visit the workplace on a formal and informal basis provides
feedback independent form in-house evaluations by staff or workers. Meeting
with the outside assessment team prior to the visit focuses the evaluation on key
issues noted on the in-house assessment. Direct observation methods by outside
teams using video of the workplace also offer an independent research method for
correlating the employee performance with the appraisals.
4. Client or Customer Evaluations – Another research methodology used to
evaluate the findings from employee performance appraisal systems involves
setting up an additional study involving work customers or business clients. This
secondary evaluation takes the form of written comment forms, telephone surveys
or online questionnaires where the client answers questions developed to test the
validity of the original performance appraisal. When the original appraisal cited
staff failing to follow up on customer care, for instance, the questions developed
for a secondary evaluation probe this area in depth to validate or disprove the
original assessment.
5. Checklists – In this system, a large number of statements that describe a specific
job are given. Each statement has a weight or scale value attached to it. While
rating an employee the supervisor checks all those statements that most closely
describe the behaviour of the individual under assessment. The rating sheet is then
scored by averaging the weights of all the statements checked by the rater. A
checklist is constructed for each job by having persons who are quite familiar with
the jobs. These statements are then categorised by the judges and weights are
assigned to the statements in accordance with the value attached by the judges.
CONCLUSION:-
The study is made on the topic financial performance using ratio analysis with five years
data in Emami Limited. The current and liquid ratio indicates the short term financial
position of Emami Ltd. whereas debt equity and proprietary ratios shows the long term
financial position. Similarly, activity ratios and profitability ratios are helpful in evaluating
the efficiency of performance in EmamiLtd.The financial performance of the company for
the five years is analyzed and it is proved that the company is financially sound.

Declaration: Performance Using Ratio Analysis" Which Is Submitted by Me To Department of

Uploaded by

Copyright:

Available Formats

Declaration: Performance Using Ratio Analysis" Which Is Submitted by Me To Department of

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Declaration: Performance Using Ratio Analysis" Which Is Submitted by Me To Department of

Uploaded by

Copyright:

Available Formats

RATUL MAITRA NTCC A90606417149 Page |1

Name and Signature of Student

Prof. Ribhu Ray

In this project, titled “A STUDY ON FINANCIAL PERFORMANCE USING

CONTENT PAGE NO.

Introduction to the study

 Financial forecasting and planning.

 Communicate the strength and financial standing of the Emami limited.

 For effective control of business.

Current Ratio = _______________

Interpretation:- As a conventional rule, a current ratio of 2:1 is considered satisfactory.

Cash Ratio = Cash in hand & at bank + Marketable securities

Cash in Hand Current

2002 – 2003 141.15 644.26 0.22

2003 – 2004 46.11 1154.12 0.04

2004 – 2005 34.43 1501.76 0.02

2005 – 2006 82.12 3905.45 0.02

 Average Collection Period:

Average collection period = ____________________

Debtors turnover ratio

Significance:-Average collection period indicates the quality of debtors by measuring the

AVERAGE COLLECTION PERIOD

Debtors Turnover Ratio

2002 – 2003 360 3100.98 0.12

2003 – 2004 360 4405.70 0.08

2004 – 2005 360 3524.79 0.10

2005 – 2006 360 3667.52 0.10

AVERAGE COLLECTION PERIOD

efficiency of the firm in selling its product. It is calculated by dividing he cost of

Cost of goods sold

Inventory Turnover Ratio = ___________________

INVENTORY TURNOVER RATIO

Cost of goods Average

2002 – 2003 11939.46 3508.00 3.4

2003 – 2004 13708.36 3537.44 3.88

2004 – 2005 12609.33 3385.92 3.72

2005 – 2006 17543.71 3668.52 4.78

INVENTORY TURNOVER RATIO

Working capital turnover ratio = __________________

Net Working Capital

WORKING CAPITAL TURNOVER RATIO

Sales Net Working Capital

2002 – 2003 19808.5 8181.53 2.42

2003 – 2004 21612.94 8572.61 2.52

2004 – 2005 21885.20 8382.88 2.61

2005 – 2006 30087.56 8044.02 3.74

WORKING CAPITAL TURNOVER RATIO

Fixed Assets Turnover =_______________

Net fixed assets

FIXED ASSETS TURNOVER RATIO

2002 – 2003 19808.50 23599.92 0.84

2003 – 2004 21612.94 23293.33 0.93

2004 – 2005 21885.20 21863.99 1.00

2005 – 2006 30087.56 20245.48 1.49

FIXED ASSETS TURNOVER RATIO

Proprietary Ratio = _____________________

Total tangible assets

2002 – 2003 27629.57 33237.8 0.83

2003 – 2004 27906.09 33710.84 0.83