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FINANCIAL PERFORMANCE ANALYSIS ROOTS INDUSTRIES INDIA LIMITED

TAMIL NADU
by
R.YAMINI
Reg. No. 1120400108
Under the guidance of
DR. V.R.NEDUNCHEZHIAN
Professor
A PROJECT REPORT
submitted
In partial fulfillment of the requirements
for the award of the degree
of

MASTER OF BUSINESS ADMINISTRATION


Kumaraguru College of Technology
(An autonomous institution affiliated to Anna University, Coimbatore)
Coimbatore - 641 047
September, 2012
BONAFIDE CERTIFICATE
Certified that this project report titled “Financial Performance Analysis Of
Root’s Industries India Limited” is the bonafide work of
Ms.R.Yamini ,11MBA054 who carried out the project under my supervision.
Certified further, that to the best of my knowledge the work reported herein does
not form part of any other project report or dissertation on the basis of which a
degree or award was conferred on an earlier occasion on this or any other
candidate

Faculty guide Director


Dr. V.R.Nedunchezhian Dr.Vijila Kennedy
Professor KCTBS
KCTBS

Submitted for the project viva-voce examination held on

Internal Examiner External Examiner


DECLARATION

I, hereby declare that this project report entitled as “Financial


Performance Analysis Of Root’s Industries India Limited” , has
undertaken for academic purpose submitted to Anna University in partial
fulfillment of requirement for the award of degree of Master of

Business Administration. The project report is the record of the


original work done by me under the guidance of Dr.
V.R.Nedunchezhian, Professor during the academic year 2011-2012.

I, also declare hereby, that the information given in this report is


correct to the best of my knowledge and behalf.

Place: Coimbatore ...………………………

Date: (R.YAMINI)
ACKNOWLEDGEMENT

I express my gratitude to our beloved chairman Arutchelvar Dr. N. MAHALINGAM and


Management for the prime guiding spirit of Kumaraguru College of Technology for giving me
an opportunity to undergo the MBA Degree course and to undertake this project work.

I also thank our Madam Director Dr. Vijila Kennedy, for her encouragement and
continuous motivation.

I wish to express deep sense of obligation to Ms. S. Sangeetha, Assistant Professor (Senior
Grade), KCT Business School, for her guidance and support throughout the project from its
inception to its completion and also without whom we would be still seeking a direction to follow.

I would be failing in my duty if I do not extend my gratitude to my institution guide “


Dr.V.R.Nedunchezhian“without whose help the project would not have been finalized.

I would like to express thanks to” Dr.Kavidasan,Director,Roots Industries India


Limited and Mr.SampathKumar,Associate Head Training
&Development,Roots
Industries India limited andMr.G.Balasubramania,CompanySecretary,RootsMulticlean
Ltd,” and all staff working in Roots Industries India Ltd.,Coimbatore for their cooperation in this
project.

I thank my parents and family member for their moral support extended which was a great
help in project completion.

I am also thankful to all respondents for their kind cooperation.


Last but not least,I thank god for enabling me to complete the project and fulfill the
requirements of all my superiors.
TABLE OF CONTENTS

CHAPT
ERS TITLE PG.NO
1 INTRODUCTION 1
1.1 ABOUT THE STUDY 2
1.2 ABOUT THEORGANIZATION 5
1.3 STATEMENT OF PROBLEM 16
1.4 SCOPE OF THE STUDY 16
2 REVIEW OF LITERATURE 17
3 RESEARCH METHODOLOGY 21
3.1 TYPE OF RESEARCH 21
3.2 OBJECTIVES OF THE STUDY 21
3.3 DATA AND SOURCES OF DATA 21
3.4 TIME PERIOD COVERED 21
3.5 STATISTICAL TOOLS USED 21
3.6 LIMITATIONS OF THE STUDY 22
4 ANALYSIS & INTERPRETATION 23
4.1.1 LIQUIDITY RATIOS
A) CURRENT RATIO 23
B) LIQUID RATIO 25
C) ABSOLUTE LIQUID RATIO 27
D) INTERVAL MEASURE 29
E) DEBTORS TURNOVER RATIO 31
F) CREDITORS TURNOVER
RATIO 33
G) INVENTORY TURNOVER
RATIO 35
4.1.2 LONG TERM SOLVENCY RATIO
A) DEBT EQUITY RATIO 37
B) INTEREST COVERAGE RATIO 39
C) CAPITAL GEARING RATIO 41
D) PROPRIETORY RATIO 43
E) FIXED ASSET RATIO 45
4.1.3 ACTIVITY RATIO
A) FIXED ASSET TURNOVER
RATIO 46

B) TOTAL ASSET TURNOVER


RATIO 48
C) WORKING CAPITAL
TURNOVER RATIO 50
4.1.4 PROFITABILITY RATIO
A) IN RELATION TO SALE
A.1) GROSS PROFIT RATIO 52
A.2) OPERATING RATIO 54
A.3) OPERATING PROFIT RATIO 56
A.4) NET PROFIT RATIO 57
A.5) EXPENSE RATIO 59
B) IN RELATION TO
INVESTMENTS
B.1) RETURN ON INVESTMENT 61
B.2) RETURN ON EQUITY
CAPITAL 63
B.3) EARNING PER SHARE 65

FINDINGS, SUGGESTIONS AND


5 CONCLUSIONS
5.1 FINDINGS 67
5.2 SUGGESTIONS 69
5.3 CONCLUSION 70
5.4 SCOPE FOR FURTHER STUDY 71

6 BIBLIOGRAPHY 72

ABSTRACT

Financial analysis is the process of identifying the financial strength and weakness of the
firm by properly establishing the relationship between the items of the balance sheet and
profit and loss account.financial analysis can be undertaken by management of the firm or by
parties outside the firm,vizowners,creditors,investors and others.The nature of analysis will
differ depending on the purpose of analyst.

Ratio analysis is a powerful tool of financial statement analysis.A ratio is defined as “The
Indicated Quotient Of Two Mathematical Expressions” and as “The Relationship Between
Two Or More Things”.In financial statement analysis , a ratio is used as a benchmark for
evaluating the financial position and performance of a firm.The absolute accounting figures
reported in the financial statements do not provide a meaningful understanding of the
performance and financial position of a firm.
The study aims at comparing the last five years performance of Roots Industries India
Limited.

The main objectives of the study is to make an analysis on the financial performance of the
company for the past five years ,to calculate profitability turnover & financial ratios to assess
the financial position of Roots Industries India Limited,to study the efficiency and liquidity
position using ratios to study the trend of financial performance of the company, to assess
individual financial segments.
LIST OF TABLES

TABLE NO TITLE PAGE NO


1 CURRENT RATIO 23

2 LIQUID RATIO 25

3 ABSOLUTE LIQUID RATIO 27

4 INTERVAL MEASURE 28

5 DEBTORS TURNOVER RATIO 31

6 CREDITORS TURNOVER RATIO 33

7 INVENTORY TURNOVER RATIO 35

8 DEBT EQUITY RATIO 37

9 INTEREST COVERAGE RATIO 39

10 CAPITAL GEARING RATIO 41

11 PROPRIETORY RATIO 43

12 FIXED ASSET RATIO 45

13 FIXED ASSET TURNOVER RATIO 46

14 TOTAL ASSET TURNOVER RATIO 48

15 WORKING CAPITAL TURNOVER RATIO 50

16 GROSS PROFIT RATIO 52

17 OPERATING RATIO 54

18 OPERATING PROFIT RATIO 56

19 NET PROFIT RATIO 57

LIST OF CHARTS

CHART NO TITLE PAGE NO


1 CURRENT RATIO 24

2 LIQUID RATIO 26

3 ABSOLUTE LIQUID RATIO 28

4 INTERVAL MEASURE 30

5 DEBTORS TURNOVER RATIO 32

6 CREDITORS TURNOVER RATIO 34

7 INVENTORY TURNOVER RATIO 36

8 DEBT EQUITY RATIO 38

9 INTEREST COVERAGE RATIO 40

10 CAPITAL GEARING RATIO 42

11 PROPRIETORY RATIO 44

12 FIXED ASSET RATIO 45


13 FIXED ASSET TURNOVER RATIO 47

14 TOTAL ASSET TURNOVER RATIO 49

15 WORKING CAPITAL TURNOVER RATIO 51

16 GROSS PROFIT RATIO 53

17 OPERATING RATIO 55

18 OPERATING PROFIT RATIO 56

19 NET PROFIT RATIO 58

20 EXPENSE RATIO 60

21 RETURN ON INVESTMENT 62

22 RETURN ON EQUITY CAPITAL 64

20 EXPENSE RATIO 59

21 RETURN ON INVESTMENT 61

22 RETURN ON EQUITY CAPITAL 63

23 EARNING PER SHARE 65

CHAPTER 1

INTRODUCTION

Financial Ratio Analysis:


Ratio analysis is a process of determining and interpreting relationships between the items of financial statements to provide a meaningful understanding of the performance
and financial position of an enterprise. Ratio analysis is an accounting tool to present accounting variables in a simple, concise, intelligible and understandable form.
As per Myers “Ratio analysis is a study of relation ship among various financial factors in a business”
Objectives of Financial Ratio Analysis:
The objective of ratio analysis is to judge the earning capacity, financial soundness and operating efficiency of a business organization. The use of ratio in accounting and
financial management analysis helps the management to know the profitability, financial position and operating efficiency of an enterprise.
Advantages of Ratio Analysis:
The advantages derived by an enterprise by the use of accounting ratios are:
1) Useful in analysis of financial statements:
Bankers, investors, creditors, etc analysis balance sheets and profit and loss accounts by means of ratios.
2) Useful in simplifying accounting figures:
Accounting ratio simplifies summarizes and systematizes a long array of accounting figures to make them understandable. In the words of Biramn and Dribin,“ Financial ratios are
useful because they summarize briefly the results of detailed and complicated computation”
3) Useful in judging the operating efficiency of business:
Accounting Ratio are also useful for diagnosis of the financial health of the enterprise.Thisis done by evaluating liquidity, solvency, profitability etc. Such a evaluation enables
management to access financial requirements and the capabilities of various business units.
4) Useful for forecasting:
Helpful in business planning, forecasting. What should be the course of action in the immediate future is decided on the basis of trend ratios, i.e., ratio calculated for number of
years.
5) Useful in locating the weak spots:
Locating the weak spots in the business even though the overall performance may quite good. Management cab then pay attention to the weakness and take remedial action. For example if the
firm finds that the increase in distribution expense is more than proportionate to the results achieved, these can be examined in detail and depth to remove any wastage that may be there.
6) Useful in Inter-firm and Intra-firm comparison:
A firm would like to compare its performance with that of other firms and of industry in general. The comparison is called inter-firm comparison. If the performance of different units belonging
to the same firm is to be compared, it is called intra-firm comparison. Such comparison is almost impossible without accounting ratios. Even the progress of a firm from year to year cannot be
measured without the help of financial ratios. The accounting language simplified through ratios are the best tool to compare the firms and divisions of the firm.
Limitations of Financial Ratio Analysis:
1) False Results:
If Financial Statements are not correct Financial Ratio Analysis will also be correct.
2) Different meanings are put on different terms:
Elements and sun-elements are not uniquely defined. An enterprise may work out ratios on the basis of profit after Tax and interest while others work on profit before interest and Tax
.So, the Ratios will also be different so cannot be compared. But before comparison is to be done the basis for calculation of ratio should be same.
3) Not comparable:
If different firms follow different accounting Policies. Two enterprises may follow different Policies like some enterprises may charge depreciation at straight line basis while others charge at
diminishing value. Such differences may adversely affect the comparison of the financial statements.
4) Affect of Price level changes:
Normally no consideration is given to price level changes in Affect of Price level changes: Normally no consideration is given to price level changes in the accounting variables from which ratios
are computed. Changes in price level affects the comparability of Ratios. This handicaps the utility of accounting ratios.
5) Ignores qualitative factors:
Financial Ratios are on the basis of quantitative analysis only. But many times qualitative facts overrides quantitative aspects .For Example: Loans are given on the basis of accounting
Ratios but credit ultimately depends on the character and managerial ability of the borrower.
Under such circumstances, the conclusions derived from ratio analysis would be misleading.

6) Ratios may be worked out for insignificant and unrelated figures:


A ratio may be worked out for sales and investment in govt. securities. Such ratios will only be misleading. Care should be exercised to work out ratios between only such figures
which have cause and effect relationship. One should be reasonably clear as to what is the cause and what is the effect.
7) Difficult to evolve a standard Ratio:
It is very difficult to evolve a standard ratio acceptable at all times as financial and economic scenario are dynamic. Again the underlying conditions for different firms and
different industries are not similar, so an acceptable standard ratio cannot be evolved.
8) Window Dressing:
Financial Ratios will be affected by window dressing. Manipulations and window dressings affect the financial statements so they are going to affect the financial ratios also.
Therefore a particular ratio may not be a definite indicator of good or bad management.
9) Personal Bias:
Ratios have to be interpreted, but different people may interpret same ratios in different ways. Ratios are only tools of financial analysis but personal judgment of the analyst is
more important. If he does not posses requisite qualifications or is biased in interpreting the ratios, the conclusion drawn prove misleading.

CHAPTER 1

INTRODUCTION
1.1.ABOUT THE STUDY:

Finance is the life blood of modern business economy.we cannot imagine a business without finance in the modern world.It is the basic of all economic activities.no matter,the business is
big or small.The problem of finance and that of financial management is to be dealt with in every organization.The problem of finance is equally important to government,semi-governments and
private bodies and profit and non-profit organisations. It is therefore,essential to clearly understand the meaning of financial management ,its scope and goals.

The analysis of financial statement reveals the nature of relationship between income and expenditure and the sources and application of funds.

The basic for financial planning,analysis and decision making is the financial information. Financial information is needed to predict,compare and evaluate the firm’s earning ability.It is also
required to aid in economic decision-making-investment and financial decision-making.

The financial information of an enterprise is contained in the financial statements or accounting reports.Three basic financial statements of great signifance to owners,management and investors
are balance sheet,profit and loss account and cash flow statement.

Every member of our company will have decent living standards. we care deeply for our families, for our environment and our society. we promise to pay back in full measure to
the society by way of selfless and unstinted service.
QUALITY POLICY:
They are committed to provide world-class products and services with due concern for the environment and safety of the society.
This will be achieved through total employee involvement, technology upgradation, cost reduction and continual improvement in

* Quality of the products and services


* Quality Management system
* Compliance to QMS requirements

Quality will reflect in everything They do and think

* Quality in behaviour
* Quality in governance
* Quality in human relation

QUALITY - AN ALL PERVASIVE ENTITY


Roots is committed to manufacture customer-centric and technology-driven products on par with international quality standards. For example, the horns manufactured
undergo a rigorous life-cycle test and are subjected to an endurance of over 200,000 cycles of performance while the industry norm requires only 100,000.

1.2 ABOUT THE ORGANIZATION


COMPANY PROFILE:
Roots Industries India Ltd. is a leading manufacturer of HORNS in India and the 11th largest Horn Manufacturing Company in the world. Headquartered in Coimbatore - India, ROOTS
has been a dominant player in the manufacture of Horns and other products like Castings and Industrial Cleaning Machines. Since its establishment in 1970, ROOTS has had a vision and
commitment to produce and deliver quality products adhering to International Standards.With a strong innovative base and commitment to Quality, Roots Industries India Ltd has occupied a key
position in both international and domestic market as suppliers to leading OEMs and after market. Similar to products, Roots has leading edge over competitors on strong quality system base.
Now, RIL is the first Indian Company and first horn manufacturing company in the world to get ISO/TS 16949 certification based on effective implementation of QS 9000 and VDA 6.1 system
requirement earlier. Roots' vision is to become a world class company manufacturing world class product, excelling in human relation.

VISION

we will stand technologically ahead of others to deliver world-class innovative products useful to our customers. we will rather lose our business than our customers' satisfaction. It is our aim that
the customer should get the best value for his money.

18

Roots believes in a quality culture that goes beyond just products. Equal emphasis is given to quality in human relation and quality in service. Roots in its journey towards Total Quality
Management has reached important milestones: ISO 9001, QS 9000, VDA 6.1, ISO/TS 16949 and ISO 14001 Certification, presently in the process of obtaining NABL accreditation for our
Metrology lab. The Group's TQM policy has a well-integrated Quality Circle Movement with active employee participation at various levels.

ENVIRONMENTAL POLICY
With due concern towards maintaining and improving the Quality of Life, Roots is committed for sustainable development by minimising pollution and conserving resources.

This will be achieved through continual improvement in Environmental Awareness of all employees & associates, Legal Compliance and Objective towards Environmental Protection. K.
Ramasamy
Chairman
Roots Group

HUMAN RESOURCE DEVELOPMENT:


Personal Culture
The management has been encouraging and promoting a very informal culture, "Personal touch", sense of belonging, enabling employees to become involved and contribute to the
success of the company. The top management also conscientiously inculcates values in the people.
Work Environment
Special and conscious efforts are directed towards house keeping of the highest order. Renovation and modernization of office premises and office support systems are carried out
on an on going basis.
Training
Roots believes in systematic training for employees at all levels. As a part of the Organizational Development efforts, training programmes are being conducted in-house, for
employees at all levels. In addition, staff are also sponsored for need based training programmes at leading Management Development Institutes.
Total Quality Management
Customer Focus is not merely a buzzword but it has become an important factor of every day work and has got internalized into the work environment. There is an equal emphasis
on internal customer focus leading to greater team efforts and better cross-functional relationship.
Quality Circle Movement
To ensure worker participation and team work on the shop-floor, Roots Industries India Ltd has a very effective Quality Circle Movement in the organization. As on today Roots
Industries India Ltd has 3 operating Quality Circles having 24 members and some of them have won awards at different conventions and competitions.
Through interaction with workmen in these sessions, a process of 2-way communication has been initiated and valuable feedback has been received on worker feelings, perception,
problems and attitudes. Simultaneously management has communicated the problems faced by them and the plans to overcome these problems.
Good Morning Assembly
The management aims in operator's mental & physical fitness and it is ensured through theGood Morning Assembly
The operators and shift supervisor, assemble before the I shift beginning and do occupation of fitness exercise, discuss about the Quality Safety & Production aspects of the
Previous shifts and take Quality / Safety oath.
The ERC consists of the best talent that includes engineering graduates, ITI brains and design engineers. The team works with top-notch tools like
· Proe2000i2 - for solid modeling
· AutoCAD 2000 - for Drafting
· CorelDraw V 8.0 - for Graphical Applications
Products
The RMCL product stable comprises of comprehensive cleaning solutions for a wide variety of industrial, commercial and domestic cleaning requirements. In India, all products
are backed by a wide network of After Sales Service centres. Products from RMCL are backed by critical research and design insights to suit specific Indian conditions and reflect
international styling.

Industries

Through interaction with workmen in these sessions, a process of 2 way communication has been initiated and valuable feedback has been received on worker feelings, perception, problems and
attitudes. Simultaneously management has communicated the problems faced by them and the plans to overcome these problems.
Roots has a strong people-oriented work culture that can be seen and felt across all its member concerns. Whether they work in group or in isolation, their effort is well appreciated and
achievements well rewarded. They have a sense of belonging and they revel in an environment of openness and trust. Cross-functional teams function as one seamless whole
and foster the true spirit of teamwork.

Roots as a learning organization systematically trains its employees at all levels. Conducted in-house, the training programmes equip them to meet new challenges head on. Employees are
encouraged to voice their feelings, ideas and opinions. There is a successful suggestion
scheme in operation and best suggestions are rewarded.

Lasting relationship will evolve only when people know that their work is valued and that they contribute meaningfully to the growth of the organization. At Roots, people across the group
companies, through interactions at workshops and seminars, get to know each other individually, share their common experiences and learn something about life.

ENGINEERING RESEARCH CENTRE


The Engineering Research Centre (ERC) is involved in the continuous improvement and enhancement of design to increase performance and reliability. The ERC functioning under three
distinct heads cater to the needs of Roots Industries, Roots Multiclean and Roots Auto Products.
Though there is a three-pronged operational ethos, the ERC is integrated and meshed seamlessly with one single objective: that of design research and performance monitoring. Through
extensive product engineering, the ERC cell of ROOTS achieves the following:
· Designing and developing new products with customer focus.
· Conducting required tests to ensure product reliability.
· Initiating necessary corrective and preventive action for ensuring peak performance
· Fine-tuning products with available components to satisfy customer requirements
·
·
·
· Partners
·
· RMCL partners with several brands in different world markets and it exclusively represents these brands in India:
··
·· Hako, Germany
·
·· Multicleaners
·
·· Minuteman / Powerboss, USA
·
·· Sweepers and Scrubbers
·
··· Soteco, Italy

·· Wet and Dry Vacuum Cleaners


·
··· TTS, Italy

·· Compact Janitorial trolleys


·
··· Delfin, Italy

· · Wide range of extra heavy duty industrial vacuums.


·
··· Cleanfix, Switzerland

·· Single Disc Scrubbers

·
··· Schwarze, Australia

·· Truck Mounted Sweepers


·
·· Capitani, Italy
·
·· Steam Cleaners

·
·· Research & Development:

· ROOTS MULTICLEAN has emerged over the years as a strong engineering company, recognizing the importance of Research and Development. This has lead to the

· significant investments towards R&D facilities. ROOTS ENGINEERING RESEARCH CENTRE (ERC) is a central facility that caters to the entire
Roots Group of Companies in the areas of Product Development, Tool Development and Facilities Development.
·
· Research activities are being carried out constantly to provide state-of-the art products which meet global standards. Innovation and intelligence meet to
cater to the challenges we face in the cleaning industry.
·
· Advanced state-of-the-art softwares like CAD/CAM etc. are extensively made use of for product design and development activities. Our team of trained
and experienced Engineers work through the year for designing world class products, meeting global market needs as well their safety standards.

·
·· MILESTONES:
1970 Promotes American Auto Service for manufacture of Electric Horns.

1972 First to manufacture Servo Brakes for Light Motor Vehicles.

1984 Roots Auto Products Private Limited was established to manufacture Air Horns.
Die Casting Unit commences commercial operations.

1988 Polycraft, a unit for Plastic Injection Moulding was established.

1990 Roots Industries India Ltd takes over Electric Horn business.

1992 RMCL enters into Techno-Financial collaboration with M/s. HakoWerke


GmbH, Germany.

1992 Roots Industries India Ltd obtains the National Certification - ISI mark of quality.

1994 Production of floor cleaning equipment commences.


Roots Industries India Ltd wins American International Quality Award.

1999 Becomes the first horn manufacturer in Asia to obtain QS 9000

2000 Becomes the first horn manufacturer in Asia to obtain VDA 6.1 and the first in the
world to win ISO / TS 16949

2000 The first to introduce digitally controlled air horns and low frequency, low decibel
irritation free Jumbo Air Horns.

2003 Roots Industries India Ltd., Horn Division is accredited with ISO 14001 : 1996

2003 Roots Industries India Ltd., upgraded its ISO / TS 16949 from 1999 version to
2002 version

2004 Roots Industries India Ltd (RIL) opens its 100% exclusive Export Oriented Unit
at their Horn Division, Thoppampatti, Coimbatore to cater the needs of Ford
North America.

2004 RIL's EOU commences its supplies to Ford, North America

2004 Roots Multiclean Limited (RMCL) inaugurates its 100% EOU Plant at Kovilpalayam,
Coimbatore

2004 Roots Cast Private Limited (RCPL) inaugurates its Unit II at Arugampalayam,
Coimbatore

2004 Roots Auto Products Pvt Ltd (RAPPL) expands with its Machining Division at
Arugampalayam, Coimbatore

2004 RIL successfully launches its Malaysian Plant

2004 The group company American Auto Service is accredited with ISO 9001 : 2000

2005 Roots Industries India Ltd., is certified with MS 9000, a pre-requisite for Q1
award for Ford Automotive Operations Suppliers. Focus on Systems and Processes

2005 Roots Metrology & Testing Laboratory has been accredited by National
Accreditation Board for testing & calibration in the field of Mechanical – Linear &
Angular

2005 Roots Industries India Ltd., is awarded Q1 by Ford Motor Company

2005 Roots Industries India Ltd., Horn Division upgraded its ISO : 14001 from 1996
version to 2004 version.

ALLIANCES

GLOBAL ALLIANCES FOR COMPETITIVE ADVANTAGE


Roots is a leading Original Equipment supplier to major vehicle manufacturers like Mercedez Benz, Mitsubishi, Mahindra & Mahindra, Toyota, Fiat, TELCO, Harley Davidson,
Navistar etc. The ever demanding requirements of Customer Satisfaction has strengthened the R & D
activities and increased Roots technical competence to international standards.
Roots Multiclean Ltd. (RMCL) is a joint venture with HakoWerke GmbH & Co., Germany, one of the largest cleaning machine manufacturers with global operations. RMCL is the
sole representative in India and SAARC countries for HakoWerke's entire range of cleaning equipment. The quality of RMCL products is so well established that Hako buys back a
major portion for their global market. RMCL also represents several global manufacturers of cleaning products and is gearing itself up to provide customized, total cleaning solutions.

THE ROOT GROUP:


Roots Industries India Ltd Electric Horns
Roots Auto Products Private Limited Air Horns,Switches& Controllers
Roots Multiclean Limited Cleaning Machines
Roots Cast Private Limited Aluminium& zinc Pressure Die cast
Roots Precision Products Dies, Tools, Jigs & Fixtures
Roots Metrology Laboratory Instrument Calibration, Quality System,
Consultancy
Roots Polycraft Plastic Components
R.K.Nature Cure Home Nature Cure Therapy,Yoga& Massages
SatchidanandaJothiNikethan International School
Integral Yoga Institute Yoga and Meditation
Roots Industries Malaysia Sdn.Bhd. Electric Horns

ORGANIZATION CHART - Roots Group Companies - Corporate Functions

CHAIRMAN

DIRECTOR

(FINANCE)

FINANCE QUALITY HUMAN INFORMATION


TRAINING RESOURCE TECHNOLOGY

CHIEF FINANCE SENIOR VICE


DIRECTOR DIRECTOR
OFFICER PRESIDENT

1.3 STATEMENT OF THE PROBLEM:


Financial statements by themselves do not give the full-fledged picture about the different facts of the company’s financial position.
The company is running in profit but still it would not take any steps for expansion activity.so this study to whether the profitability position of the company is sufficient to
make any expansion or not.
During the course of the project work,the financial details were analyzed to understand the strength and weaknesss of the company in terms of finance.

1.4 SCOPE OF THE STUDY:


· To know overall performance of the organization.
· To take a proper financial planning.
· Proper use of surplus.
· Growth and expansion of the organization.
· Proper cash management.
· Showing the status of any organization or a firm at a given period of time.
· Shows the result of the operation made by the business during a particular period.

CHAPTER 2

REVIEW OF LITERATURE

Mabwe Kumbirai and Robert Web1


This paper investigates the performance of South Africa’s commercial bankingsector for the period 2005- 2009. Financial ratios are employed to
measurethe profitability, liquidity and credit quality performance of five large SouthAfrican based commercial banks. The study found that overall bank performanceincreased
considerably in the first two years of the analysis. A significant changein trend is noticed at the onset of the global financial crisis in 2007, reaching itspeak during 2008-2009. This
resulted in falling profitability, low liquidity anddeteriorating credit quality in the South African Banking sector.
Amalendu Bhunia, Sri Somnath Mukhuti and Sri Gautam Roy2 Tihe present study aims to identify the financial strengths and weaknesses of the Indian public sector pharmaceutical enterprises by
properly establishing relationships between the items of the balance sheet and profit and loss account. The study covers two public sector drug and pharmaceutical enterprises listed on BSE. The
study is of crucial importance to measure the firm’s liquidity, solvency, profitability, stability and other indicators that the business is conducted in a rational and normal way; ensuring enough
returns to the shareholders to maintain at least its market value.

1 Mabwe Kumbirai and Robert Web“A financial Ratio Analysis of Commercial Bank Performance in South Africa” , African Review of Economics and Finance, Vol.
2, No. 1, Dec 2010

2 Amalendu Bhunia, Sri Somnath Mukhuti and Sri Gautam Roy”Financial Performance Analysis-A Case Study”Current Research Journal of S ocial Sciences
3(3): 269-275, 2011 ISSN: 2041-3246

M.AVINASH,B.PRABHAVATHY and S.SIVA 3


Financial analysis is the process of identifying the financial strengths and weakness of the firm from the available accounting data and financial statements.
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
relationship between component parts of financial statements to obtain a better understanding of the firm’s position and performance. This study aims at analyzing the overall financial efficiency
of the firm.

Tze San Ong and Cia Ling Teo,Boon Heng Teh4


the objective of this paper is to find out whether the local banks have achieved performance efficiency during the post merger period namely
in the areas of profitability, cost savings, liquidity, shareholders’ wealth and solvency. Basically, three methods was employed to compare pre-post merger performance, First,
comparison and analysis of ratios are used to compare the performance of local banks during the pre-merger period and post-merger period .Second, paired sample t-test determines
the significance differences in financial performance before and after the merger activity and third, Data Envelopment Analysis (DEA) approach measure the improvement in
bank’s efficiency after the merger. Overall, Banks’ merger in Malaysia does not bring significance difference on the financial performance after the merger. The merger in
Malaysian bank only brings significance improvement in ROE, expenses to income, EPS and DPS.

13
M.Avinash,B.Prabhavathy,S.SivA”A Study On Financial Efficiency Of Pipdic (Pondicherryindustrial Promotion Development And Investment Corporation Ltd) “Arth Prabhand: A
Journal Of Economics And Management Vol.1 Issue 1, April 2012, Issn
4
Tze San Ong and Cia Ling Teo,Boon Heng The” Analysi s On Financial Performance And Efficiency Changes Of Malaysian Commercial Banks After Mergers And
Acquisitions “International Journal of Business and Management T omorrow Vol. 1 No. 2

system satisfaction. Furthermore, the results using structural equation modeling indicate that performance measurement diversity is associated with the satisfaction of performance
measurement system. These outcomes show that companies benefit from performance measurement systems that incorporate a wide range of financial and non-financial
performance measures. Finally, this study has verified further research opportunities that could enrich the understanding of performance measurement systems.

15 Puwanenthiren Pratheepkanth “ capital structure and financial performance:evidence from selected business companiesin colombo stock exchange sri lanka”Journal
of Arts, Science & Commerce ■ E-ISSN 2229-4686 ■ ISSN 2231-4172
6
Majdy Zuriekat , Rafat Salameh , Salah Alrawashdeh “Participation in Performance Measurement Systems and Level of Satisfaction” International Journal of Business and Social
Science Vol. 2 No. 8; May 2011

the purpose of this study is to classify the commercial banks in Oman in cohesive categories on the basis of their financial characteristics revealed by the financial
ratios. A total of five Omani commercial banks with more than 260 branches were financiallyanalyzed, and simple regression was used to estimate the impact of asset
management,operational efficiency, and bank size on the financial performance of these banks. Thestudy found that the bank with higher total capital, deposits, credits, or total
assets does notalways mean that has better profitability performance.

the first objective of this study was to determine and evaluate the effects of bank-specific factors; Capital adequacy, Asset quality, liquidity,
operational cost efficiency and income diversification on the profitability of commercial
banks in Kenya. The second objective was to determine and evaluate the effects of market structure factors; foreign ownership and market concentration, on the profitability of
commercial banks in Kenya. This study adopted an explanatory approach by using panel data research design to fulfill the above objectives. Annual financial statements of 38
Kenyan
Puwanenthiren Pratheepkanth5
Capital structure is most significant discipline of company’s operations. This researcher constitutes an attempt to identify the impact between Capital Structure and
Companies Performance, taking into consideration the level of Companies Financial Performance.The analyze has been made the capital structure and its impact on Financial Performance
capacity during 2005 to 2009 financial year of Business companies in SriLanka. The results shown the relationship between the capital structure and financial performance is negative
association.Co-efficient of determination ,F and t values.It is reflect the insignificant level of theBusiness Companies in Sri Lanka. Hence Business companies mostly depend on the debtcapital.
iii
Therefore, they have to pay interest expenses much.

the aim of this study was to investigate the use of variety of financial and non-financial performance measures identified in performance measurement
systems literature. Based on survey responses from 87 Financial Managers, performance measurement diversity explains how participation leads to a greater level of
commercial banks from 2002 to 2008 were obtained from the CBK and Banking Survey 2009. The data was analyzed using multiple linear regressions method. The analysis showed that all the
bank
specific factors had a statistically significant impact on profitability, while none of the market factors had a significant impact. Based on the findings the study recommends policies that would
encourage revenue diversification, reduce operational costs, minimize credit risk and encourage banks to minimize their liquidity holdings. Further research on factors influencing the liquidity of
commercials banks in the country could add value to the profitability of banks and academic literature.

iv 7
Majdy Zuriekat , Rafat Salameh , Salah Alrawashdeh “Participation in Performance Measurement Systems and Level of Satisfaction” International Journal of Business and Social Science Vol. 2 No. 8; May 2011

8
Tobias Olweny , Themba Mamba Shipho “ Effects Of Ba nking Sectoral Factors On The Profitability Of Commercial Banks In Kenya “Economi cs and Finance Review Vol. 1(5) pp. 01 – 30,
July, 2011 ISSN: 2047 - 0401

CHAPTER 3

RESEARCH METHODOLOGY

CHAPTER 3

METHODOLOGY
3.1 TYPE OF RESEARCH:
Research Design:
The study is aimed at assessing the financial performance precisely the research design adopted here is based on the analytical method.
Analytical Research Design:
Analytical research design is the design where the researcher has used the facts or information already available and analyzed them to make a critical evaluation.
3.2 OBJECTIVES OF THE STUDY:
The objectives of this study are as follows:
PRIMARY OBJECTIVE:
· To assess the overall financial performance of the company.
SECONDARY OBJECTIVE:
· To determine the profitability, liquidity, Turnover and solvency position of the company.

3.3 DATA AND SOURCES OF DATA


The period of the study started from the financial year 2006-2007 to 2010-2011 .For this purpose the sample data is taken for five years from audited report.Theanalysis of the financial
performance necessitates accurate and reliable data.Therefore the source for collecting the data include secondary data.
3.4STATISTICAL TOOLS USED
ACCOUNTING TOOL
RATIO ANALYSIS:
To ratio analysis is an accounting tool used to analyze the liquidity position and relationship between two numeric terms, there are various ratios have been used.A ratio is a mathematical
relationship between two items expressed in quantitative terms.
CHARTS & DIAGRAMS:
Charts,schedules and diagram are used to have a quick and clear view of the study

3.5 LIMITATIONS:
In order to do the research articulately utmost care has been taken but still it can have certain limitations
· The analysis is made using secondary data only.
· The period of study only for five years from 2006-2011
· This study is applicable only to Roots Industries India Ltd, Coimbatore.

CHAPTER 4

ANALYSIS & INTERPRETATION


CHAPTER 4

DATA ANALYSIS AND INTERPRETATION 4.1 ANALYSIS AND INTERPRETATION


The financial data for past 5 years have been analysed and various accounting ratios have been calculated,analysed and interpreted as follows:
4.1.1 LIQUIDITY RATIOS:
A.CURRENT RATIO:
The current ratio is a popular financial ratio used to test a company's liquidityby deriving the proportion of current assets available to cover current liabilities.The concept behind this ratio
is to ascertain whether a company's short-term assets are readily available to pay off its short-term liabilities

Formula:
CURRENT RATIO = CURRENT ASSETS/ CURRENT LIABILITIES

YEARS CURRENT CURRENT CURRENT RATIO


ASSETS LIABILITIES
(RUPEES IN (RUPEES IN
CRORES) CRORES)
2012-2013 70.01 59.11 1.18
2013-2014 75.59 63.89 1.18
2014-2015 81.26 67.56 1.20
2015-2016 85.70 80.75 1.06
2016-2017 90.93 84.49 1.08

INTERPRETATION:
· In current ratio the larger is the amount of rupee of current asset available per rupee of current liability,the more is the firms ability to meet current obligations and the
greater is the safety of funds of short term creditors.
· During the last five years the current ratio is below 1. The decrease of current asset will adversely affect the ability of firm to meet its obligation.

100
90
80
70
60
50 Current Assets
40 Current Liabil-
30 ities
20 Current Ratio
10
0
2012 2013 2014 2015 2016
- - - - -
2013 2014 2015 2016 2017
B.LIQUID RATIO:
Liquid ratiois also termed as "Liquidity Ratio","Acid Test Ratio" or "Quick Ratio". The true liquidity refers to the ability of a firm to pay its short term obligations.It is a liquidity
indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The liquid ratio is more conservative than the
current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash.

Formula:
LIQUID RATIO = LIQUIDASSETS/ CURRENT LIABILITIES
YEARS LIQUID ASSETS CURRENT LIQUID RATIO
(RUPEES IN LIABILITIES
CRORES) (RUPEES IN
CRORES)
2012-2013 37.62 59.11 0.64
2013-2014 41.45 63.89 0.65
2014-2015 49.21 67.56 0.73
2015-2016 52.42 80.75 0.65
2016-2017 58.32 84.49 0.69

INTERPRETATION:

· One defect of the current ratio is that it fails to convey any information on the composition of the current asset of a firm. A rupee
of cash is more readily available to meet current obligations.
· The liquid ratio is a more rigorous and penetrating test of the liquidity position of a firm.
· During the last five years the large part of the current assets of the firm is tied up in slow moving and unsaleable inventories and
slow paying debts.the firm would find it difficult to pay its current liabilities.

90

80

70

60

50
Liquid Asset
Current Liabilities
40
Liquid Ratio
30

20

10

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
C.ABSOLUTE LIQUID RATIO:

Absolute liquidityis represented by cash and near cash items. It is a ratio of absolute liquid assets to current liabilities. The
absolute liquid assets are cash, bank and marketable securities. It is to be observed that receivablesare eliminated from the list of
liquid assets in order to obtain absolute liquid assets since there may be some doubt in their liquidity.

Formula:
ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUIDASSETS/ CURRENTASSETS

ABSOLUT
YEARS E CURRENT ABSOLUTE
LIQUID LIQUID
ASSETS LIABILITIES RATIO
(RUPEES
IN (RUPEES IN
CRORES) CRORES)
2012-
2013 4.21 59.11
0.07
2013- 0.0
2014 4.43 63.89 7
2014- 0.0
2015 4.57 67.56 7
2015- 0.0
2016 4.79 80.75 6
2016- 0.0
2017 4.91 84.49 6

INTERPRETATION:
· During the last five years the
absolute liquid ratio is below one.

· It means that liquidity of the company is not satisfactory.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.

90

80

70

60

50
Absolute liquid asset
Current liabilities
40
Absolute liquid ratio
30

20

10

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
D.INTERVAL MEASURE:
Comparison of current asset and current liabilities, the liquidity position of a firm may be examined to measure whether the liquid assets are sufficient relative to the firm’s daily cash
requirements for operating expenses.such a measure of liquidity is called interval measure or the defensive interval ratio.

Formula:
INTERVAL MEASURE= LIQUID ASSET/AVG DAILY CASH OPERATING
EXPENSES

YEARS LIQUID ASSETS AVERAGE DAILY DAYS


(RUPEES IN CASH
CRORES) OPERATING
EXPENSES
(RUPEES IN
CRORES)

2012-2013 37.62 0.24 170


2013-2014 41.45 0.30 174
2014-2015 49.21 0.28 191
2015-2016 52.42 0.34 195
2016-2017 58.32 0.40 199

INTERPRETATION:

· The interval measure is based on past expenditure and future plans.The ratio measures the timespan a firm can
operate on present liquid assets.
· During 2012-2013 170 days indicates that the firm has liquid assets which can meet the operating cash
requirements of business for 170 days without resorting to future revenues.
· In 2012-2013 170 days is considered to be low ratio its weakness indicated by low current and liquid ratios.
· A higher ratio in 2016-2017 it is 199 days would be favourable as it would reflect the ability to meet cash
requirement for a longer period of time.It provides a safety margin to the firm in determining its ability to meet
basic operating cost.

250

200

150
Liquid Assets
Average daily cash operating
expenses
100 Days

50

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
E.DEBTORS TURNOVER RATIO:
Debtors turnover ratio or accounts receivable turnover ratio indicates the velocityof debt collection of a firm. In simple words it indicates the number of times average debtors are turned
over during a year.

Formula:
DEBTORSTURNOVER RATIO = TOTAL SALES /DEBTORS

YEARS NET CREDIT AVERAGE TRADE TIMES


ANNUAL SALES DEBTORS
(RUPEES IN (RUPEES IN
CRORES) CRORES)
2012-2013 100.22 35.60 2.82
2013-2014 70.21 34.56 2.03
2014-2015 74.58 25.15 2.97
2015-2016 71.92 29.41 2.46
2016-2017 81.36 32.75 2.48

INTERPRETATION:
· The analysis of the creditors turnover ratio is an important tool of analysis as a firm can reduce its requirement of current asset by repaying to the suppliers.
· During the year 2006-2007,2008-2009, 2009-2010,2010-2011ratio is low it indicative of shorter time-lag between credit purchase and cash payment.
· But during the year 2007-2008,the ratio is high it shows that debts are not being payed rapidly.
120

100

80

Net credit annual sales


60
Average trade debtors
Times
40

20

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
F.CREDITORS TURNOVER RATIO:
In the course of business operations a firm has to make credit purchases and incur short–term liabilities. A supplier of goods i.e., c reditor is naturally interested in finding out how much
time the firm is likely to take in repaying its trade creditors.
Creditors Turnover ratio is similar to the debtors turnover ratio. It compares creditors with the total credit purchases.
It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include both sundry creditors and bills payable. Same as debtors turnover ratio,creditors turnover ratio
can be calculated.

Formula:
CREDITORS TURNOVER RATIO = CREDIT PURCHASE / AVERAGE TRADE CREDITORS

YEARS NET CREDIT AVERAGE TRADE TIMES


ANNUAL CREDITORS
PURCHASES (RUPEES IN
(RUPEES IN CRORES)
CRORES)
2012-2013 67.93 21.19 3.21
2006-2007 36.44 16.73 2.17
2007-2008 42.69 19.71 2.16
2008-2009 47.81 25.89 1.84
2009-2010 40.05 36.05 1.11
2010-2011 56.47 47.67 1.18

INTERPRETATION:
· Debt equity ratio reflects the relative claims of creditors and shareholders against the assets of the firm.
· This ratio reflects the relative contribution of creditors and owners of business in its financing.
· Higher ratio in 2006-2007 as 2.17 it shows a large share of financing by the creditors of the firm.
· Low ratio in2009-2010 as 1.11 it implies a small claim of creditors.
· G.INVENTORY TURNOVER RATIO:
·
· Stock turnover ratio and inventory turnover ratioare the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the
cost of average inventory during a particular period. It is expressed in number of times.Inventoryturn over ratio indicates the numberof time and evaluates the efficiency with
which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not.
·
· Average inventory and cost of goods sold are the two elements of this ratio. Average inventory is calculated by adding the stock in the beginning and at the end of
the period and dividing it by two. In case of monthly balances of stock, all the monthly balances are added and the total is divided by the number of months for which the average
is calculated.

·
· Formula:
·
· INVENTORY TURNOVER RATIO = COST OF GOODS SOLD / AVERAGE INVENTORY AT COST

·
YEARS COST OF GOODS AVERAGE TIMES
SOLD INVENTORY AT
(RUPEES IN COST
CRORES) (RUPEES IN
CRORES)
2012-2013 91.25 15.02 6.08
2013-2014 94.19 15.85 5.94
2014-2015 100.35 17.12 5.86
2015-2016 114.20 17.65 6.47
2016-2017 99.63 20.56 4.85
INTERPRETATION:
· This ratio indicates how fast inventory is sold .during the year 2006-2007,2007-2008,2008-2009,the ratio is high is good from viewpoint of liquidity.
· During the year 2009-20110,2010-2011 the ratio is low would signify that inventory does not sell fast and stays on the shelf or in the warehouse for a long time.

·
·· 4.1.2 LONG TERM SOLVENCY RATIO

·· A.DEBT EQUITY RATIO:

· Debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much
suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.
·
· To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders'
equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity
position.

·
·· Formula:

· DEBT EQUITY RATIO =[OUTSIDERSFUNDS / SHAREHOLDERSFUNDS]


YEARS OUTSIDER’S SHAREHOLDER’S DEBTEQUITY
FUNDS FUNDS RATIO
(RUPEES IN (RUPEES IN
CRORES) CRORES)

CRORES)
2006-2007 16.73 15.01 1.11
2007-2008 19.71 18.71 1.05
2008-2009 25.89 13.83 1.87
2009-2010 36.05 2.98 12.09
2010-2011 47.64 5.52 8.63

B.INTEREST COVERAGE RATIO:


Interest coverage ratio is also known as debt service ratio or debt service coverageratio.This ratio relates the fixed interest charges to the income earned by the business. It indicates
whether the business has earned sufficient profits to pay periodically the interest charges on outstanding debt. The lower the ratio, the more the company is burdened by debt expense.

Formula:
INTEREST COVERAGE RATIO = NET PROFIT BEFORE INTEREST AND TAX /
FIXED INTEREST CHARGES

YEARS NET PROFIT FIXED INTEREST TIMES


(AFTER CHARGES
INTEREST &
TAX)
2006-2007 4.67 1.31 3.56
2007-2008 5.28 1.52 3.47
2008-2009 10.67 1.44 7.40
2009-2010 15.74 0.72 21.86
2010-2011 16.78 0.62 27.06
INTERPRETATION:
· Interest coverage ratio measure the debt servicing capacity of a firm as fixed interest on long term loan is concerned.
· In 2007-2008 the ratio is low is 3.47 is a danger signal that the firm is using excessive debt and does not have the ability to offer assured payment of interest to the lenders.
· During 2008-2009 the coverage the greater is 7.40 the ability of the firm to handle fixed charge liabilities and more assured is the payment of interest to them.
· But 2010-2011 the ratio is too high is 27.06 it imply unused debt capacity.
· C.CAPITAL GEARING RATIO:
·
· Capital gearing ratio is mainly used to analyze the capital structure of a company.The term capital structure refers to the relationship between the various long-term
form of financing such as debentures, preference and equityshare capital including reserves and surpluses. Leverage of capital structure ratios are calculated to test the long-term
financial position of a firm.
·
· Equity share capital includes equity share capital and all reserves and surpluses items that belong to shareholders. Fixed interest bearingfundsincludes debentures,
preference share capital and otherlong-term loans.

·
·· Formula:

·· CAPITAL GEARING RATIO = EQUITY SHARE CAPITAL / FIXED INTEREST

· BEARING FUNDS

·
YEARS EQ.SHARE PREF CAPITAL + CAPITAL
CAPITAL + LONG TERM GEARING RATIO
RESERVES & DEBT
SURPLUS (RUPEES IN
(RUPEES IN CRORES)

D.PROPRIETORY RATIO:
Proprietary ratio is also known as Equity Ratio or Net worth to total assets or shareholder equity to total equity. It establishes relationship between proprietor's funds to total resources of
the unit. Where proprietor's funds refer to Equity share capital and Reserves, surpluses and to total assets.
Formula:
PROPRIETARY RATIO =SHAREHOLDER’S FUNDS / TOTAL ASSETS

YEARS SHAREHOLDER’S TOTAL ASSETS PROPRIETORY


FUNDS RATIO
2006-2007 16.73 52.19 0.32
2007-2008 19.71 61.59 0.32
2008-2009 25.89 73.61 0.35
2009-2010 36.05 75.51 0.47
2010-2011 47.64 101.30 0.47

INTERPRETATION:
· Proprietor’s fund ratio shows the general strength of the company.It is very important for the creditors because it helps them to find out the proportion of shareholder’s
funds in the total asset used in the business.
· Higher ratio indicates a secured position to creditors and lower ratio indicates greater risk to creditors.
· A ratio below 50% may be alarming for the creditors since they may also have to lose heavily in the event of the company’s liquidation o n account of heavy losses.
· In this firm the equity share are not issued to general public.during the last five years the ratio is below 50% .but it is quiet satisfactory.
E.FIXED ASSET RATIO:
Fixed asset ratioestablishes the relationship between long term fundsand fixed assets. Since
financial management advocates that fixed assets should be purchased out of long term funds only.

Formula:
FIXED ASSETS RATIO = NET FIXED ASSETS / LONG TERM FUNDS

YEARS FIXED ASSETS TOTAL LONG FIXED ASSET


(RUPEES IN TERM FUNDS RATIO
CRORES) (RUPEES IN
CRORES)
2006-2007 18.57 15.01 1.23
2007-2008 19.04 18.71 1.01
2008-2009 21.44 13.83 1.55
2009-2010 20.61 2.98 6.91
2010-2011 23.58 5.52 4.27

INTERPRETATION:
· In 2006-2007,2007-2008,2008-2009 the fixed asset ratio is unsatisfactory ,but in 2009-2010 fixed asset utilization is better.
· In 2010-2011 the fixed asset ratio is slowly decline and it is satisfactory.

4.1.3 ACTIVITY RATIO


A.FIXED ASSET TURNOVER RATIO:
Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern.Higher the ratio,
greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets.
Formula:
FIXED ASSETSTURNOVER RATIO = COST OF SALES / NETFIXED ASSETS
YEARS SALES FIXED ASSETS FIXED ASSET
(RUPEES IN (RUPEES IN TURNOVER
CRORES) CRORES) RATIO
2006-2007 76.22 18.57 4.10
2007-2008 89.34 19.04 4.69
2008-2009 96.09 21.44 4.48
2009-2010 94.82 20.61 4.60
2010-2011 121.67 23.58 5.15

INTERPRETATION:
 The standard fixed turnover ratio is 5 times means better utilization of asset .
In 2006-2007,2007-2008,2008-2009,2009-2010 it is lower ratio because it is below
5 times so it indicates under-utilisation of fixed assets.
 During 2010-2011 the ratio is 5.15 it indicates better utilization of fixed assets.

During 2006-2007 the ratio is quit satisfactory but in 2010-2011 the ratio is below 2 it indicates that the asset areunder utilized
B.TOTAL ASSET TURNOVER RATIO:
The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. This ratio considers all assets, current and fixed. Those
assets include fixed assets, like plant and equipment, as well as inventory, accounts receivable, as well as any other current assets.

Formula:
TOTAL ASSET TURNOVER RATIO = NET SALES/TOTAL ASSETS

YEARS NET SALES TOTAL ASSET TIMES


(RUPEES IN (RUPEES IN
CRORES) CRORES)
2006-2007 76.22 52.19 1.46
2007-2008 89.34 61.59 1.45
2008-2009 96.09 73.61 1.30
2009-2010 94.82 75.51 1.25
2010-2011 121.67 101.30 1.20

INTERPRETATION:
· Total asset turnover ratio of 2 times or more indicates that assets are utilized efficiently and a ratio below 2 indicates that the asset areunder-utilised.
C.WORKING CAPITAL TURNOVER RATIO:
Working capital turnover ratioindicates the velocity of the utilization of net working capital.This ratio represents the number of times the working capital is turned over
in the course of year.
Formula:
WORKING CAPITAL TURNOVER RATIO = CURRENT ASSET – CU RRENT
LIABILITIES

YEARS COST OF GOODS NET WOKING TIMES


SOLD CAPITAL
(RUPEES IN (RUPEES IN
CRORES) CRORES)
2006-2007 76.22 13.41 5.68
2007-2008 89.34 19.03 4.69
2008-2009 96.09 19.25 4.99
2009-2010 94.82 18.18 5.21
2010-2011 121.67 24.85 4.89

INTERPRETATION:
· Working capital ratio in 2006-2007the high ratio.so indicates the effient utilization of working capital .
· Lower ratio is 4.69 during 2007-2008 it implies that the firm has not utilized the working capital effiently.
4.1.4 PROFITABILITY RATIO
A). IN RELATION TO SALE
A.1.GROSS PROFIT RATIO:
Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between grossprofit and sales.
The basic components for the calculation of gross profit ratioare grossprofit and net sales. Net sales means that sales minus sales returns.
Grossprofit would be the difference between net sales and cost of goods sold.Cost of goods sold in the case of a trading concern would be equal to opening stock plus
purchases, minus closing stock plus all direct expenses relating to purchases.

Formula:
GROSS PROFIT RATIO= (GROSSPROFIT / NET SALES) × 100

YEARS GROSS PROFIT NET SALES PERCENTAGE


(RUPEES IN (RUPEES IN
CRORES) CRORES)
2006-2007 5.94 76.22 7.79
2007-2008 5.15 89.34 5.76
2008-2009 10.76 96.09 11.19
2009-2010 14.63 94.82 15.42
2010-2011 9.71 121.67 7.98
\
INTERPRETATION:
· But in 2007-2008 the gross profit ratio is low as 5.76 .it is definitely a danger signal,warranting a careful and detailed analysis of the factors responsible for it.
· In 2009-2010 the gross profit ratio is high to sales is a sign of good management as it implies that the cost of production of the firm is relatively low.

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