-

SUMMER TRAINING PROJECT REPORT

ON

“RATIO ANALYSIS IN FINANCE DEPARTMENT AT ACMEGRADE

PRIVATE LIMITED BANGLORE”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE DEGREE OF BACHELOR OF BUSINESS ADMINISTATION.

SUBMITTED TO:

INTERNAL GUIDE EXTERNAL GUIDE

DR. ANKIT SRIVASTAVA CHALLA ROHIT
ASSISTANT PROFESSOR CO FOUNDER
IMS UNISON UNIVERSITY, DEHRADUN ACMEGRADE, BANGLORE

SUBMITTED BY:

VIVEK DWIVEDI

(IUUSTU8401)

IMS UNISON UNIVERSITY, DEHRADUN

BATCH 2022-25
 CERTIFICATE

I have the pleasure in certifying that Vivek dwivedi is a bona-fide student of

Semester-V of the Bachelor of Business Administration (Batch 2022-25), of IMS
Unison University, Dehradun, and Roll No: IUU22BBA254.

He has completed his project work entitled “Ratio analysis in Finance department”
Under my guidance.

I certify that this is his original effort & has not been copied from any other source.
This project has also not been submitted to any other Institute / University for the
purpose of award of any Degree.

This project fulfils the requirement of the curriculum prescribed by this Institute for
the said course. I recommend this project work for evaluation & consideration for
the award of Degree to the student.

Signature : ……………………………………
Name of the Guide: Mr. Ankit Srivastava
Designation : Assistant Professor
Date : ……………………………………
DECLARATION

I hereby declare that the internship work entitled "RATIO ANALYSIS” carried out at
“ACMEGRADE PVT LTD” is original work independently done under the guidance of Mr.
CHALLA ROHIT (External Guide), and Mr. ANKIT SRIVASTAVA (Internal guide).

I also declare that the internship work presented in this report has not been previously
submitted by any degree, diploma, associate ship or fellowship or any other title in this
University or any other University.

Place: Dehradun, Uttarakhand.

Name: Vivek Dwivedi
Date:

ID: IUU22BBA254
ACKNOWLEDGEMENT

I am indebted to many people who helped me accomplish this internship

successfully.

First, I thank the Dean Dr. Rajeev Srivastava for giving me the opportunity to do my
summer internship project.

I wish to take this opportunity to express my deep sense of gratitude to thank

Mr.Challa Rohit for his invaluable guidance throughout my project. I
sincerely thank Acmegrade Pvt Ltd. for providing me with an opportunity to
be a part of it.

I thank Mr. Ankit Srivastava, for his support and guidance during the course
of my summer internship. I remember his with much gratitude for her patience
and motivation, but for which I could not have submitted this work.

I thank my parents for their blessings and constant support, without which this
internship would not have seen the light of day.

VIVEK DWIVEDI
IUUSTU8401
 EXECUTIVE SUMMARY

This internship report focuses on the application of ratio analysis as a financial tool for assessing
the financial performance and health of a company. During my internship at [ACMEGRADE
PRIVATE LIMITED, I had the opportunity to apply various financial ratios to evaluate the
company's profitability, liquidity, efficiency, and solvency. Ratio analysis provides valuable
insights into a company's financial stability, operational efficiency, and growth potential, making it
a crucial tool for financial decision-making.

The primary objective of this internship was to understand how different financial ratios are used
by businesses, investors, and analysts to assess financial performance. Key ratios such as the
current ratio, quick ratio, return on equity (ROE), net profit margin, and debt-to-equity ratio were
examined over a specified period to identify trends, strengths, and weaknesses in the company's
financial position.

The report provides a detailed analysis of these ratios, compares them to industry benchmarks, and
highlights the implications for the company's strategic decision-making. Through this analysis, I
gained a deeper understanding of how financial data is interpreted and its importance in guiding
business decisions.

Overall, this internship provided valuable hands-on experience with financial analysis, enhancing
my skills in interpreting financial statements and conducting ratio analysis. The insights gained
will be applicable in future roles where financial performance assesses.
 Table of Content

S. NO. PARTICULARS PAGE NO.

1. 1
EXTERNAL GUIDE CERTIFICATE
2. 2
INTERNAL GUIDE CERTIFICATE

3. 3
DECLARATION

4. 4
ACKNOWLEDGEMENT

5. 5
SUMMARY

6. 7-39
INTRODUCTION OF COMPANY

7. 40-42
RESEARCH METHODOLOGY

8. 43-46
DATA ANYLASIS & INTERPRETATION

9. 47-50
KEY FINDINGS
10. 51-52
CONCLUSION
 CHAPTER 1

PROFILE OF THE ORGANISATION

About

At Acmegrade, we are dedicated to empowering today’s youth by preparing them for successful
professional careers. While we recognize the value of knowledge, we believe it’s insufficient on its
own to thrive in today’s competitive job market. Therefore, we ensure that our students not only
acquire essential knowledge but also develop industry-relevant skills and gain hands-on
experience. Our goal is to equip them with everything needed to embark on rewarding careers in
their chosen fields.

Vision

We envision a brighter future built on the strength of capable professionals who bring more than
just theoretical knowledge to the table. At Acmegrade, we believe that a true professional combines
deep expertise with practical skills and experience, ready to contribute from day one. Our vision is
to empower young people, broaden their perspectives, and provide them with the experience
needed to make an immediate impact in the workforce. We are driven by the belief that a well-
rounded, skilled youth will shape a more prosperous future for all.

Mission

Education today has shifted focus toward grades rather than real-world preparation. At Acmegrade,
we aim to shift this mindset. We understand that marks alone don’t define a successful career.
What organizations need are young professionals with practical skills and experience who can start
contributing immediately. Our mission is to offer today’s youth the opportunity to learn and
enhance their skills through supervised internships and industry-focused projects, ensuring they
enter the workforce fully prepared. We aim to redefine education by emphasizing the essence of
teach developing individuals who can lead and make a difference in the future.
Goal

Acmegrade is dedicated to transforming the educational experience by focusing on practical, skill-

based learning that empowers students to thrive in today’s dynamic professional world. Our
platform leverages modern methodologies to deliver handson knowledge across various
educational fields, both in India and internationally. We are committed to advancing education by
developing innovative products and teaching tools using the latest technologies and resources.

Our approach emphasizes providing clients with valuable exposure to industry expertise.
Through specialized mentorship programs, Acmegrade offers guidance in both technical
and management areas, helping students gain real-world insights and experience. Our goal
is to equip students with the skills and knowledge necessary to excel in their careers, making
them highly capable professionals from day one in the workplace.

1. Acmegrade is a platform that leverages cutting-edge techniques to provide

practical, skill-based education to students and professionals in India and around the world.
We are deeply involved in the research and development of educational tools and products,
using the latest technologies and methods to enhance the learning experience. Our goal is
to supplement traditional education with innovative solutions that better prepare learners
for real-world challenges. Through our platform, we offer clients access to industry
expertise via mentorship programs in both technical and management fields, ensuring they
receive valuable guidance and support.

2. Organizational Structure:

- Chief Technology Officer (CTO)

- Vice President (VP)
- Senior Manager
- Executive
- Interns
3. Functional Departments: Sales & Marketing, Human Resources, Operations,
Finance, Post-Sales Support, and Technical Department.

Turnover

The annual turnover of the company is 10 crores.

What the company do

Acmegrade Private Limited is an edtech platform focused on training and educating students both
in India and internationally through a range of educational programs. The company also engages in
research and development to create products and teaching aids that enhance learning experiences.
Headquartered in Bangalore, Acmegrade aims to support and advance education through
innovative solutions.
History

Acmegrade was established in 05 Aug, 2021 by Rahul Kumar, Rupal Singh, Challa Rohit, Vybhav,
and Amar Shanthi, with a vision to bridge the gap between traditional education and the skills
required in modern industries. Recognizing that many college graduates were struggling to meet
the practical demands of the workforce, the founders aimed to create a platform that would equip
students and professionals with hands-on experience and career-ready skills.

Initially, Acmegrade started by offering a few foundational courses focused on highdemand areas
such as digital marketing, data analytics, and software development. The company emphasized
practical, project-based learning from the beginning, a method that resonated with learners who
wanted more than theoretical knowledge. As word spread about Acmegrade’s industry-relevant
approach, demand for more specialized courses grew, prompting the company to expand its
offerings.

Over time, Acmegrade partnered with industry experts, tech companies, and organizations to
enhance the quality and relevance of its curriculum. These partnerships allowed Acmegrade to
offer learners unique insights into current industry practices and emerging trends. The platform
also introduced internship and placement assistance programs, giving learners direct entry into the
job market—a distinctive feature that set Acmegrade apart from other online learning providers.

As the online education sector continued to evolve, Acmegrade adapted by offering personalized
learning paths and flexible schedules, ensuring accessibility for working professionals and students
alike. The company also began exploring new technologies and expanding its content library,
incorporating fields like artificial intelligence, block chain, and UX/UI design.

Today, Acmegrade is recognized for its commitment to skill development and

employability, with a mission to continually innovate and prepare learners for a rapidly
changing job market. Its journey from a small educational startup to a reputable online
learning platform is a testament to its responsiveness to both learner needs and industry
trends.

POLICIES

Terms of Agreement

Acmegrade reserves the right to restrict, limit, or suspend a user’s access to its website or
membership if there is a breach of terms and conditions or any policy violations. This may
include, but is not limited to, providing inaccurate or misleading information, engaging in
activities that could negatively impact the company's reputation, or actions that may harm
the interests of other users. By agreeing to use
Acmegrade’s services, users accept their responsibility to adhere to these guidelines to
maintain a safe and productive learning environment .

Privacy Policy

The content and services provided on Acmegrade's website are primarily intended for use
within India. Users accessing the platform from outside India must ensure compliance with
their local laws and regulations. Acmegrade does not assume responsibility for any legal
issues arising from international access to its services, and users bear the full responsibility
of abiding by the legal requirements of their respective locations.

Thank you for becoming a part of the Acmegrade Pvt Ltd

(“Company”,“We”,“US”,“Acmegrade” or “Our”) community. We are dedicated to

protecting your personal information and your privacy rights. If you have any questions or
concerns regarding this privacy notice or our practices related to your personal information,
please feel free to reach out to us at support@acmegrade.com.

This privacy notice outlines how we may collect, use, and share your information.
In this privacy notice:

“Website” refers to any of our websites that reference or link to this privacy policy. “Platform”
refers to the Website or other online domains created by Acmegrade to enable clients to access our
services.

“Services” encompasses our Website and other associated services, including sales,
marketing, and events.
“Third Parties” includes any application, organization, or person other than the User,
Vendor, or Acmegrade itself.

Refund Policy

Refund requests will only be honored if Acmegrade is unable to deliver the course within 30 days
from the scheduled start date. Refunds will be processed through the original payment method, and
no cash refunds will be issued. This policy ensures that users have access to fair and transparent
service delivery, with strict timelines adhered to by the company.

Exam Preparation

Acmegrade does not provide coaching or preparatory courses for specific examinations, including
the CAT (Common Admission Test), CBSE (Central Board of Secondary Education) Board Exams,
or Civil Services examinations. Instead, Acmegrade focuses on offering professional training
programs that prepare students for careers in various technical fields. These programs cover areas
such as data science, database management systems, and Azure cloud computing, equipping
learners with relevant skills for the modern workplace.
SWOT Analysis

Strengths

1. Expert-Led Training Programs: Acmegrade is known for its high-quality training

programs, led by industry experts. They ensure learners acquire skills that are relevant,
practical, and aligned with current industry standards.

2. Comprehensive Course Offerings: The Company provides a wide range of courses

covering diverse fields. This variety allows learners to find programs that match their career
goals and interests, whether in technology, management, or creative fields.

3. Personalized Learning Approach: Acmegrade tailors its learning modules to suit

different learning styles and paces. This personalized approach helps learners grasp
complex concepts more effectively, increasing engagement and retention.

4. Strong Career Support: Beyond education, Acmegrade emphasizes career

advancement by offering career support services, including resume building, interview
preparation, and placement assistance, giving students a competitive edge in the job market.

Weakness

1. Limited Advanced-Level Courses: While Acmegrade offers a variety of beginner

and intermediate courses, there may be fewer options for advanced-level learners seeking
more in-depth specialization in niche fields.
2. Dependence on Internet Connectivity: As most courses are online, learners require
a stable internet connection, which can be a barrier for those in areas with limited
connectivity or unreliable service.

3. Lack of Offline Resources: The emphasis on digital resources means there might be
limited options for offline study materials, making it challenging for learners who prefer
hard copy materials or who need to study without internet access.

4. Possible Variability in Trainer Quality: Although Acmegrade employs industry

professionals, the quality and experience of trainers might vary, leading to inconsistencies
in learning experiences across different courses.

Opportunities

1. Expanding Course Variety in Emerging Technologies: Acmegrade can capitalize on

the growing demand for expertise in fields like artificial intelligence, block chain, and cyber
security. By introducing advanced courses in these areas, the company could attract a
broader audience of learners.

2. Partnerships with Industry Leaders: Forming strategic partnerships with tech

companies and industry leaders could enhance the credibility of Acmegrade’s certifications,
provide exclusive resources, and potentially lead to job placements for students.

3. Developing Mobile Learning Platforms: Creating a mobile app or mobile-friendly

platform would make learning more accessible and convenient for users, especially those
who prefer learning on the go.

4. International Market Expansion: Expanding to global markets could open new

revenue streams. Tailoring courses for different regions and languages would allow
Acmegrade to serve an international audience, broadening its reach and impact.
Threats

1. Intense Competition in EdTech: The online education market is highly competitive,

with numerous platforms offering similar courses. Larger, well-established competitors
could overshadow Acmegrade's offerings and attract potential students.

2. Rapid Technological Changes: Constant advancements in technology mean that

course content can quickly become outdated. Acmegrade must regularly update its
programs to keep pace with industry changes, which can be resource-intensive.

3. Economic Uncertainty: During economic downturns, individuals and businesses

may reduce spending on education and training, potentially affecting enrolment rates for
Acmegrade.

4. Data Privacy and Security Risks: As an online platform, Acmegrade collects and
stores user data. Any security breach or failure to protect data could damage its reputation
and lead to legal consequences.

BOARD OF DIRECTORS

Rahul Kumar: Founder of Acmegrade

Rupal Singh: Co-founder of Acmegrade
Challa Rohit: Co-founder of Acmegrade
Vybhav: Co-founder of Acmegrade
Amar Shanthi: Co-founder of Acmegrade

Services that Acmegrade provides

• Professional Skill Development Programs: Acmegrade offers a variety of structured

programs aimed at helping students and professionals develop the skills that are most in
demand across industries. These programs span technical areas like software development,
data science, and cybersecurity, as well as soft skills in leadership, communication, and
project management. By partnering with industry experts, Acmegrade ensures its
curriculum stays current, practical, and focused on hands-on learning, allowing learners to
gain real skills that can be applied in real-world scenarios.

• Internship Opportunities: Acmegrade connects students with internship placements

that allow them to practice their skills in professional environments. These
internships, often project-based, provide learners with direct experience in their
fields, helping them build their resumes while working on actual industry tasks.
Internships are tailored to align with the learners’ interests and career goals, giving
them a head start in gaining practical knowledge, building confidence, and
establishing professional connections.

• Career Support and Placement Assistance: Recognizing the challenges of entering

the job market, Acmegrade offers comprehensive career services designed to guide
students from education to employment. This includes personalized resume
reviews, interview coaching, and workshops that prepare students for the hiring
process. Acmegrade also collaborates with companies and recruiters, helping match
its graduates with job openings suited to their skills and aspirations, and providing
support throughout the placement process.
 • Certification and Credentialing: Upon completion of a course, project, or internship,
Acmegrade provides students with industry-recognized certifications. These
credentials signify the completion of a rigorous training process and serve as a
testament to a learner's proficiency in specific skills. Acmegrade’s certificates are
designed to be widely recognized by employers; adding credibility to a learner’s
resume and helping them stand out in competitive job markets.

• Customized Learning Paths: Acmegrade offers personalized learning experiences

to meet each learner’s unique needs, goals, and starting points. By assessing each
student's background and career aspirations, Acmegrade tailors course sequences
and projects, allowing students to focus on skills that will advance them toward
their specific objectives. This flexible, learner-centered approach makes education
accessible and adaptable, empowering students to progress at their own pace while
keeping them engaged with content that aligns with their career trajectory.

Competitors of Acmegrade

Guesty:

A property management software used by education providers to manage student

accommodations and bookings.

Illuminate Education:
A data management platform for K-12 schools that helps track student performance and
improve educational outcomes.

Class plus:
An edtech platform for tutors and coaching centres, offering tools for student management,
payments, and scheduling.
Quiz let:
An online tool for creating and sharing flashcards and study games, helping students study
across various subjects.

Chenzhi:
A Chinese edtech platform offering interactive learning experiences, primarily in math and
language development.

Speexx:
A language learning platform for businesses, focusing on improving communication skills
for professional environments.

Teach mint:
A mobile-first platform for teachers to conduct live classes, manage assignments, and track
attendance.

Study pool:
An online platform where students can get help with homework and academic questions
from tutors.

White Hat Jr.:

An edtech company that teaches coding and tech skills to children through interactive
online lessons.

Jaro Education:
An online provider of professional education programs, offering MBA and executive
courses in partnership with top universities.
Need of the Study
The study of ratio analysis is crucial for understanding and interpreting the financial health and
operational efficiency of a company. It plays an essential role in informed decision-making for
stakeholders, strategic business planning, and improving the overall financial management of a
firm. The insights derived from ratio analysis are instrumental not only in assessing historical
performance but also in forecasting future financial outcomes, making it a critical tool in both
academic and professional settings. Through this study, interns can gain valuable exposure to real-
world financial analysis, enhancing their learning and preparing them for future roles in finance
and business .

Decision-Making for Investors:

Ratio analysis provides investors with an insightful way to assess a company's financial health,
growth potential, and risk. Investors use financial ratios to make informed decisions about buying,
holding, or selling stocks. Analyzing profitability, return on investment, and solvency ratios helps
investors understand whether a company can generate returns that justify the investment.

Performance Evaluation:
Companies regularly use ratio analysis to assess their performance over a specific period,
comparing key financial ratios against industry standards or previous periods. This evaluation
helps management identify areas of improvement, monitor financial efficiency, and take corrective
actions where necessary. For example, an analysis of the company's current ratio might indicate
liquidity concerns, prompting management to take steps to optimize working capital.

Creditworthiness Assessment:
Lenders, such as banks or financial institutions, use ratio analysis to assess the creditworthiness of
a company before providing loans or lines of credit. Ratios such as the debt-to-equity ratio, interest
coverage ratio, and current ratio are crucial in evaluating a company's ability to repay its debts and
maintain solvency in the long term.
Strategic
Planning and Forecasting:
Ratio analysis can be an essential tool for strategic planning. By comparing historical data with
current performance, companies can forecast future trends and prepare for potential challenges. For
instance, profitability ratios such as net profit margin or return on equity help organizations
evaluate whether their business model is sustainable and profitable in the long run.

Monitoring Operational Efficiency:

Ratio analysis enables companies to evaluate their operational efficiency by examining the
relationship between sales, expenses, and assets. Ratios like the inventory turnover ratio, asset
turnover ratio, and receivables turnover ratio provide valuable insights into how well the company
is managing its resources, generating revenue, and controlling costs.

Comparative Analysis:
Ratio analysis also helps in performing horizontal and vertical analyses. By comparing a
company’s financial ratios with those of its competitors or industry benchmarks, one can assess the
company's competitive standing in the market. This allows companies to determine if they ar
underperforming or excelling in specific areas, facilitating the identification of strengths and
weaknesses.

Stakeholder Communication:
For companies, effectively communicating financial performance to stakeholders (shareholders,
employees, analysts, and regulators) is essential. Ratio analysis simplifies complex financial data
and presents it in a more digestible form. It is a transparent way to communicate the financial
health of the company, building trust and improving corporate governance.

Early Warning System:

Ratio analysis serves as an early warning system by highlighting potential financial issues before
they become critical. For instance, a sudden decrease in profitability ratios, or a sharp increase in
debt ratios, can be a red flag, signalling potential cash flow problems or financial distress. Early
detection allows companies to take preventive actions before problems escalate.

Improved Financial Planning:

Ratio analysis is essential for setting realistic financial goals. By identifying trends in key financial
indicators, companies can better plan their financial strategies and allocate resources effectively. It
helps in assessing capital needs, budgeting, and ensuring that financial objectives are aligned with
the company's growth plans.

Academic and Professional Development:

For students and interns, conducting a study on ratio analysis serves as an educational experience
that provides hands-on exposure to the practical application of financial theory. It enables them to
understand the role of financial analysis in business decision-making, making it an invaluable skill
for future careers in finance, accounting, or business management.

MEANING OF RATIO ANALYSIS IN FINANCE

Ratio analysis is a technique used in finance to evaluate and analyze the financial
performance and health of a company. By using various financial ratios derived from the
company’s financial statements (such as the balance sheet, income statement, and cash flow
statement), analysts can assess aspects like profitability, liquidity, solvency, and operational
efficiency. These ratios are important for investors, creditors, and management to make
informed decisions about the company.

Types of Financial Ratios

Liquidity Ratios
• These ratios measure a company's ability to meet its short-term obligations. They focus on
the relationship between a company's liquid assets and its short-term liabilities.
 Current Ratio:
Current Ratio= Current Assets/ Current Liabilities
• A higher ratio indicates better short-term financial health.

Quick Ratio (Acid-Test Ratio):

Quick Ratio=Current Assets−Inventories/Current Liabilities

• This ratio excludes inventory to provide a more stringent test of liquidity.

Profitability Ratios

• These ratios evaluate a company's ability to generate profits relative to sales, assets, or
equity.

Gross Profit Margin:

Gross Profit Margin=Gross Profit/Revenue×100

• This measure how much profit a company makes after deducting the costs of goods sold.

Net Profit Margin:

Net Profit Margin=Net Income/Revenue×100

• This shows the percentage of revenue that remains as profit after all expenses.

Return on Assets (ROA):

ROA=Net Income/Total Assets×100

• Measures how efficiently a company is using its assets to generate profit.

Return on Equity (ROE):

ROE=Net Income/Shareholders’ Equity×100

• Indicates the profitability relative to shareholders' equity.

Leverage Ratios (Solvency Ratios)

• These ratios assess the company's ability to meet its long-term debt obligations and how
much debt it uses in its capital structure.

Debt-to-Equity Ratio:

Debt-to-Equity Ratio=Total Debt/Shareholders’ Equity

• A higher ratio suggests a company is more leveraged, which can increase risk.

Debt Ratio:

Debt Ratio=Total Debt/Total Assets

• This indicates the proportion of assets financed by debt.

Efficiency Ratios (Activity Ratios)

• These ratios measure how well a company uses its assets and liabilities to generate sales
and maximize profits.

Inventory Turnover:

Inventory Turnover=Cost of Goods Sold/Average Inventory

• This measures how quickly a company sells and replaces its inventory.

Receivables Turnover:

Receivables Turnover=Revenue/Average Accounts Receivable

• It shows how efficiently a company collects its receivables.

• Asset Turnover:

Asset Turnover=Revenue/Average Total Assets

• This measures how efficiently a company uses its assets to generate revenue.
Market Ratios
• These ratios assess the value of a company in the market relative to its earnings or other
metrics.

• Price-to-Earnings (P/E) Ratio:

P/E Ratio=Market Price per Share/Earnings per Share (EPS)

• This ratio indicates how much investors are willing to pay for each dollar of earnings.

• Earnings per Share (EPS):

EPS=Net Income−Preferred Dividends/Shares Outstanding

• It measures the portion of a company's profit allocated to each outstanding share.

Dividend Yield=Annual Dividends per Share/MarketPricepershar×100

• This shows the return on investment based on dividends.
OBJECTIVES
1. Assessing Profitability
• Objective: To measure how effectively a company is generating profit from its operations.
• Ratios Used:
• Net Profit Margin
• Return on Assets (ROA)
• Return on Equity (ROE)
• Gross Profit Margin
• Purpose: Profitability ratios help stakeholders (investors, managers, analysts) understand
how much profit a company is making relative to sales, assets, or equity. This provides
insights into cost management, pricing strategies, and overall business efficiency.
2. Evaluating Liquidity
• Objective: To assess the company's ability to meet its short-term obligations (debts, bills,
etc.) without raising external capital or selling off assets.
• Ratios Used:
• Current Ratio
• Quick Ratio (Acid-Test Ratio)
• Purpose: Liquidity ratios show how well a company can pay its short-term liabilities with
its liquid assets. A company that is highly liquid is less likely to face financial distress.
3. Analyzing Solvency and Financial Leverage
• Objective: To determine the company’s ability to meet its long-term debt obligations and
understand the proportion of debt in its capital structure.
• Ratios Used:
• Debt-to-Equity Ratio
• Debt Ratio
• Interest Coverage Ratio
• Purpose: Solvency ratios provide insights into how much debt the company is using
compared to equity. A company with high leverage (high debt) might face greater financial
risk, especially during periods of economic downturn.
4. Measuring Operational Efficiency
• Objective: To assess how well a company is utilizing its assets and managing its day-to-day
operations.
• Ratios Used:
• Asset Turnover
• Inventory Turnover
• Receivables Turnover
• Purpose: Efficiency ratios indicate how effectively a company uses its resources (assets,
inventory, etc.) to generate sales. High turnover ratios generally signal effective
management and operational efficiency.
5. Understanding Market Valuation
• Objective: To analyze how the market values the company's stock and its investment
potential.
• Ratios Used:
• Price-to-Earnings (P/E) Ratio
• Earnings Per Share (EPS)
• Dividend Yield
• Purpose: Market ratios are used to evaluate whether a company's stock is overvalued or
undervalued based on its earnings, growth potential, and dividend payouts. Investors use
these ratios to assess the attractiveness of the stock relative to other investment
opportunities.
6. Facilitating Decision Making
• Objective: To provide quantitative data for making informed decisions, whether for
investment, credit, or internal management.
• Ratios Used: All the ratios mentioned above.
• Purpose: Ratio analysis enables various stakeholders—investors, creditors, and
management—to make well-informed decisions based on financial data. Investors may
decide whether to buy, hold, or sell a stock, while creditors may decide whether to extend
credit to a company.
7. Identifying Trends Over Time
• Objective: To track a company's financial performance over different periods and identify
positive or negative trends.
• Ratios Used: All ratios are useful for trend analysis.
• Purpose: By comparing ratios across multiple periods, analysts can identify growth or
decline in key financial metrics. This helps in forecasting future performance and potential
risks.
8. Ensuring Financial Health and Risk Management
• Objective: To identify early signs of financial distress or risk, enabling the company to take
corrective actions.
• Ratios Used:
• Current Ratio
• Quick Ratio
• Interest Coverage Ratio
• Purpose: Regular ratio analysis helps in monitoring financial health and provides early
warning signals for financial issues, such as liquidity problems or excessive debt, enabling
management to take corrective steps.
9. Comparing with Industry Standards
• Objective: To benchmark a company's performance against industry peers and competitors.
• Ratios Used: Any relevant ratio, depending on the industry.
• Purpose: Comparing a company’s ratios with industry averages allows for a better
understanding of its competitive position. It helps assess whether a company is
outperforming or underperforming relative to others in the same sector.
10. Guiding Long-Term Strategic Planning
• Objective: To inform long-term financial strategy and planning by understanding a
company's financial strengths and weaknesses.
• Ratios Used: Most ratios, particularly profitability and efficiency ratios.
• Purpose: Ratio analysis provides management with crucial insights that can guide decisions
related to investments, capital structure, cost control, and resource allocation, helping shape
the company’s strategic direction
Why Ratio Analysis (Need for it)
Ratio analysis is an essential tool for evaluating a company's financial health and
performance. It involves the use of financial ratios derived from a company's financial
statements—such as the income statement, balance sheet, and cash flow statement—to
assess various aspects of the company's operations. The need for ratio analysis arises from
several factors:

1. Simplifies Financial Analysis

Financial statements can be overwhelming, especially for large companies. Ratio analysis
simplifies the process by transforming large amounts of data into key, easily interpretable
numbers that provide insights into a company’s performance.
2. Helps in Performance Evaluation
Ratios provide a quick and effective way to evaluate a company’s operational efficiency,
profitability, liquidity, and solvency. By comparing these ratios over time or against
industry averages, analysts and investors can assess whether a company is improving or
deteriorating in various areas.
3. Facilitates Decision-Making
Investors, creditors, and managers use ratio analysis to make informed decisions.
For example: Investors use ratios to evaluate the profitability, risk, and potential returns
From an investment.
Creditors use ratios like the debt-to-equity ratio to determine a company's ability to repay
loans.
Managers use ratio analysis to monitor the company's financial health and pinpoint areas
that need improvement.
4. Comparative Analysis
Ratios allow for cross-sectional analysis, meaning a company’s ratios can be compared to
other companies in the same industry (peer comparison). This helps identify where the
company stands relative to its competitors and the overall industry performance.
5. Helps in Trend Analysis
By calculating ratios over multiple periods, companies and analysts can identify trends—
whether a company's financial condition is improving or worsening. For example, a
declining profit margin over several years could indicate operational inefficiencies or rising
costs.

6. Assess Risk and Return

Ratio analysis helps in evaluating the risk and return profile of a business. For instance, the
current ratio helps assess liquidity, while the return on equity (ROE) shows how well the
company generates profit from shareholders’ investments.

7. Identifies Financial Strengths and Weaknesses

Financial ratios highlight specific areas of strength or concern within a company's
operations. A strong return on assets (ROA) or return on equity (ROE) may signal
operational efficiency, while high levels of debt could signal potential solvency risks.

8. Evaluates Profitability and Efficiency

Key ratios like the gross profit margin, operating margin, and net profit margin provide
insights into a company’s ability to generate profits relative to its sales or assets. Efficiency
ratios such as asset turnover assess how effectively the company uses its resources to
generate revenue.

9. Supports Strategic Planning

By identifying financial trends and performance drivers, ratio analysis helps managers plan
strategically. It can help companies set benchmarks, allocate resources efficiently, and
decide on business strategies based on financial health.

10. Improves Communication with Stakeholders

Ratio analysis makes it easier to communicate complex financial data to stakeholders such
as investors, creditors, regulators, and employees. Ratios are standardized metrics that are
more accessible and understandable than raw financial data.
Process of ratio analysis
Ratio analysis is a key technique used to evaluate the financial performance and health of
a business. It involves calculating and interpreting various financial ratios based on the
information available in a company's financial statements (primarily the balance sheet,
income statement, and cash flow statement). These ratios help stakeholders—such as
investors, managers, and creditors—make more informed decisions regarding the
company's performance, profitability, liquidity, and efficiency.

Steps in the Ratio Analysis Process:

1. Collect Financial Statements:

Obtain the company’s most recent financial statements (balance sheet, income statement, and cash
flow statement). These documents provide the data needed to calculate the ratios.

2. Select Relevant Ratios:

Identify which financial ratios are relevant to the specific purpose of the analysis. Ratios are
generally grouped into five categories:
• Liquidity Ratios: Measure the company’s ability to meet short-term obligations (e.g.,
current ratio, quick ratio).
• Profitability Ratios: Assess the company’s ability to generate earnings relative to its
revenue, assets, or equity (e.g., net profit margin, return on equity).
• Efficiency Ratios: Evaluate how well the company uses its assets to generate sales (e.g.,
asset turnover, inventory turnover).
• Leverage Ratios: Measure the company’s debt levels and its ability to manage debt (e.g.,
debt-to-equity ratio, interest coverage ratio).
• Market Ratios: Provide insights into the company’s stock performance and market value
(e.g., price-to-earnings ratio, dividend yield).

3. Calculate the Ratios:

Using the financial statements, calculate the selected ratios. For example:
• Current Ratio:
Current Ratio=Current Assets/Current Liabilities

• Net Profit Margin:

Net Profit Margin=Net Income/Revenue×100

• Debt-to-Equity Ratio:
Debt-to-Equity Ratio=Total Debt/Total Equity

4. Interpret the Ratios:

• Compare the calculated ratios with industry averages, historical performance, or competitor
benchmarks. This helps in determining whether the company is performing well or poorly
in specific areas.
• Consider the context: A high or low ratio might be a sign of good or bad performance
depending on the industry and the company’s business model. For example, a high current
ratio may indicate good liquidity, but excessively high liquidity might suggest that the
company is not efficiently using its assets.
5. Analyze the Results:
• Liquidity Analysis: If a company has low liquidity ratios, it may struggle to meet short-
term obligations. Conversely, excessive liquidity may suggest that the company is not
investing enough in its operations or growth.
• Profitability Analysis: High profitability ratios (e.g., high net profit margin) are typically
favourable, but they should be evaluated in relation to revenue size, industry norms, and
competition.
• Leverage Analysis: High leverage ratios indicate that a company has a large amount of debt
relative to its equity, which could signal higher financial risk.
• Efficiency Analysis: High efficiency ratios (e.g., asset turnover) indicate that the company
is using its resources well to generate revenue. Low ratios may point to inefficiencies or
underutilization of assets.
6. Make Conclusions and Recommendations:
• Based on the ratios, you can assess whether the company is in a strong or weak financial
position.
• Identify areas for improvement: For example, if the company has low profitability ratios, it
may need to focus on cost control or pricing strategies.
 • Provide recommendations for decision-making: Investors may decide to buy or sell stock,
creditors may decide to grant or deny loans, and managers may consider changes in
strategy.
7. Follow-Up and Monitor:
• Ratio analysis should not be a one-time event. It should be done periodically (e.g., quarterly or
annually) to track changes over time. This can help identify trends in the company’s financial
health and performance, allowing for timely corrective actions if necessary.

Functions of ratio analysis

Ratio analysis is a powerful tool used in financial analysis to evaluate a company's

performance, financial health, and to make comparisons with industry standards or
competitors. The primary functions of ratio analysis are as follows:

1. Assessing Profitability
• Gross Profit Margin: Measures the percentage of revenue that exceeds the cost of goods sold
(COGS).
• Net Profit Margin: Indicates the percentage of revenue that remains as profit after all expenses,
taxes, and interest.
• Return on Assets (ROA): Shows how efficiently a company uses its assets to generate profit.
• Return on Equity (ROE): Measures the profitability relative to shareholders' equity.
2. Evaluating Liquidity
• Current Ratio: Assesses a company's ability to pay short-term liabilities with its short-term
assets.
• Quick Ratio (Acid-Test Ratio): Similar to the current ratio but excludes inventory from assets,
providing a stricter measure of liquidity.
• Cash Ratio: A more conservative liquidity measure, comparing cash and cash equivalents to
current liabilities.
3. Assessing Solvency (Leverage)
• Debt-to-Equity Ratio: Indicates the proportion of debt used to finance the company's assets
relative to equity.
• Interest Coverage Ratio: Measures a company's ability to meet its interest obligations with its
operating income.
• Debt Ratio: Reflects the proportion of a company’s assets that are financed by debt.

4. Measuring Efficiency (Activity Ratios)

• Inventory Turnover: Indicates how many times inventory is sold or used up during a period,
reflecting inventory management efficiency.
• Receivables Turnover: Measures how effectively a company collects on its receivables.
• Asset Turnover: Shows how efficiently a company uses its assets to generate revenue.

5. Valuation of the Business

• Price-to-Earnings (P/E) Ratio: A common measure for valuing a company, comparing its
current share price to its earnings per share (EPS).
• Price-to-Book (P/B) Ratio: Compares the market value of a company's shares to its book value
(net asset value).
• Dividend Yield: Shows how much cash a company pays out in dividends relative to its share
price, useful for investors focusing on income generation.

6. Comparing with Industry Peers

• Benchmarking: Ratio analysis allows a company to compare its financial performance with
competitors or industry standards, identifying areas of strength or weakness.

7. Tracking Financial Trends

• Trend Analysis: By comparing financial ratios over multiple periods, analysts can spot trends,
such as improving or deteriorating profitability, liquidity, or efficiency, which help predict
future performance.

8. Investment Decisions
• Investors and analysts use ratio analysis to assess whether a company is a good investment
opportunity based on profitability, growth potential, and risk.
9. Creditworthiness Evaluation
• Credit Risk Assessment: Lenders and creditors use ratio analysis to assess a company’s ability
to repay its debts and fulfil its financial obligations.

10. Management Decision-Making

• Internal Performance Evaluation: Companies use ratio analysis to track their own performance
and make informed decisions about cost control, resource allocation, and business strategy.

Advantages of ratio analysis

1. Assessing Financial Performance

• Profitability: Ratios such as the gross profit margin, net profit margin, and return on equity
(ROE) provide insights into how well a company is generating profit relative to its revenues,
assets, and equity.
• Efficiency: Ratios like inventory turnover, asset turnover, and receivables turnover help
evaluate how efficiently a company utilizes its resources to generate revenue.

2. Liquidity Analysis

• Ratios like the current ratio and quick ratio measure a company’s ability to meet its short-term
obligations with its short-term assets. This helps assess whether the company can cover its
short-term liabilities without selling long-term assets.

3. Solvency and Financial Leverage

• Ratios like the debt-to-equity ratio and interest coverage ratio provide insights into a
company’s financial leverage and ability to meet its long-term debt obligations. High leverage
might indicate increased risk, while low leverage could signal an underutilization of debt for
growth.

4. Comparability across Companies

• Ratio analysis enables comparison across companies in the same industry, regardless of size. It
helps investors and analysts benchmark a company’s performance against industry peers or
competitors.

5. Trend Analysis

• By analyzing ratios over time, ratio analysis helps identify trends in a company’s performance,
such as improving profitability or deteriorating solvency, which can serve as early warning
signs for potential financial problems or growth opportunities.

6. Investment Decision Making

• Investors use ratio analysis to make informed decisions by evaluating whether a company’s
financial health justifies its stock price, or if it’s underperforming or overvalued relative to its
competitors or the market as a whole.

7. Risk Management

• Ratios like the debt-to-assets ratio or times interest earned help investors, creditors, and
management assess the level of financial risk a company is taking on. This is particularly
important when assessing the risk of bankruptcy or the company’s ability to weather economic
downturns.

8. Creditworthiness Evaluation

• Creditors use ratio analysis to assess the likelihood that a company will repay its loans. Ratios
that focus on solvency, liquidity, and debt levels help lenders determine whether a company
poses a low or high credit risk.

9. Management Efficiency

• Ratios such as return on assets (ROA) and return on equity (ROE) help evaluate how
effectively management is using company resources to generate profits. This can indicate the
competency of the management team and the quality of its decision-making.

10. Simplifies Complex Financial Information

• Ratio analysis simplifies complex financial data into easily understandable metrics, which can
be useful for both non-financial managers and external stakeholders. This makes financial
information more accessible for decision-making.

11. Strategic Planning

• Ratio analysis can highlight areas where a company might be underperforming (e.g., low
profitability or high debt), allowing management to take corrective actions. It also helps in
setting financial goals and tracking progress toward those goals.

12. Investor Communication

• Financial ratios provide a standardized way to communicate a company's financial status and
performance to investors, analysts, and other stakeholders. This transparency helps build trust
and confidence.
 Limitations of ratio analysis

1. Historical Data
• Ratio analysis primarily uses historical financial data, which may not fully reflect current or
future conditions. A company's performance in the past may not be indicative of future
performance, especially in industries undergoing rapid change or facing new challenges.

2. Lack of Context
• Ratios alone provide little context. They must be interpreted in relation to industry
benchmarks, competitors, or historical performance. Without context, ratios can be misleading.
For instance, a high current ratio could indicate strong liquidity, but it could also suggest
inefficiency in using assets.

3. Different Accounting Methods

• Companies may use different accounting methods, such as different depreciation methods,
inventory valuation (FIFO vs. LIFO), or revenue recognition practices. This can lead to
inconsistencies when comparing ratios between companies.

4. No Qualitative Insights
• Ratio analysis is purely quantitative and does not account for qualitative factors such as
management quality, brand strength, or market conditions. These factors can significantly
affect a company’s performance but are not captured in financial ratios.

5. Window Dressing
• Companies may engage in "window dressing" — manipulating financial statements (within
legal limits) to present a more favourable financial position at the end of a reporting period.
This can make ratios appear stronger than they are in reality.

6. Over-Simplification
• Ratios simplify complex financial data into single numbers. This oversimplification can lead to
misinterpretations or missed nuances that could significantly affect decision-making.
 7. Industry Variations
• Ratios that are considered normal or healthy in one industry might be considered poor in
another. For example, capital-intensive industries may have a lower return on assets (ROA),
but this could be entirely typical for the sector.

8. No Consideration of External Factors

• Ratio analysis typically focuses on internal financial performance and does not account for
external factors like economic downturns, regulatory changes, or shifts in market trends. These
factors can have a significant impact on a company’s financial health.

9. Interdependency of Ratios
• Many financial ratios are interrelated (e.g., profitability ratios and liquidity ratios), and changes
in one ratio can affect others. This interconnectedness can complicate analysis and make it
difficult to draw conclusions from a single ratio.

10. Static View

• Ratio analysis provides a snapshot of a company’s financial situation at a specific point in time.
It does not capture trends over time unless multiple periods are analyzed. Even then, ratios may
not fully capture future potential or risk.
 CHAPTER-2
RESEARCH METHODOLOGY

Ratio analysis is a tool used in financial management to assess the performance,

financial health, and operational efficiency of a company by analyzing its financial
statements. The research methodology for ratio analysis involves various systematic
steps that allow for the collection, interpretation, and evaluation of financial data
through different financial ratios. Below is a step-by-step outline of the typical research
methodology employed in ratio analysis:

1. Defining the Research Problem

• The first step is to clearly define the research problem or objective. For example, the goal
might be to evaluate the profitability, liquidity, or solvency of a company over a specific
period.
• The scope of the study is defined—whether it is a comparative analysis (across companies,
industries, or periods) or a trend analysis (within the same company).

2. Data Collection

• Primary Data: Direct collection from company reports, surveys, or interviews with financial
managers (though this is less common in ratio analysis).
• Secondary Data: Most commonly, secondary data is used for ratio analysis. This data is
obtained from:
• Financial Statements: Balance sheet, income statement, and cash flow statements are key
sources.
• Annual Reports: These contain comprehensive financial information, notes, and disclosures.
• Industry Reports: For comparative industry ratios.
• Public Databases: Government websites, financial information platforms (e.g., Bloomberg,
Reuters), and databases like EDGAR (U.S. SEC).
3. Selection of Ratios

• Key Financial Ratios: Depending on the research objectives, the most relevant ratios are
chosen. These may include:
• Liquidity Ratios: E.g., Current Ratio, Quick Ratio.
• Profitability Ratios: E.g., Return on Assets (ROA), Return on Equity (ROE), Gross Profit
Margin.
• Leverage Ratios: E.g., Debt to Equity Ratio, Interest Coverage Ratio.
• Efficiency Ratios: E.g., Inventory Turnover, Receivables Turnover.
• Market Ratios: E.g., Earnings per Share (EPS), Price-to-Earnings (P/E) ratio.

4. Calculation of Ratios

• Using the data collected from financial statements, the selected ratios are calculated. This
involves applying the relevant formulae to the figures in the balance sheet and income
statement.
• Example formulas include:
• Current Ratio = Current Assets / Current Liabilities
• Return on Equity (ROE) = Net Income / Shareholder’s Equity
• Debt to Equity Ratio = Total Debt / Total Equity
• It's important to ensure that data is consistent and accurately reflects the company's financial
status for the time period under study.

5. Data Analysis

• Once ratios are calculated, the next step is to analyze and interpret them.
• Trend Analysis: Observing changes in ratios over time to identify improvements or declines in
financial health.
• Comparative Analysis: Comparing ratios against industry standards, competitors, or historical
data.
• Benchmarking: Using the industry average or a peer group as a benchmark for evaluating
company performance.
• Identifying patterns such as increasing profitability, deteriorating liquidity, or rising debt
levels can offer insights into the company's financial trajectory.

6. Interpretation and Discussion

• The researcher interprets the results to understand the implications of the ratios:
• Profitability: High profitability ratios might indicate strong financial performance, but they
should be examined in conjunction with other factors (e.g., market conditions, competition).
• Liquidity: A company with a high current ratio may be considered financially stable, but too
high a ratio could also signal underutilization of assets.
• Leverage: High debt-to-equity ratios can indicate risk, but it might be acceptable in certain
industries (e.g., capital-intensive businesses like utilities).
• This section typically ties the findings back to the research objectives and explains what these
ratios say about the company's overall financial condition.

7. Drawing Conclusions
• Based on the analysis, conclusions are drawn regarding the financial health and
performance of the company. These may include:
• Strengths and weaknesses in specific areas like profitability, liquidity, or solvency.
• Recommendations for improvement or strategic actions.
• The conclusions are often tied to the initial research problem, answering the key questions
posed at the start of the study.

8. Limitations and Further Research

• Limitations of ratio analysis are discussed, such as:
• Ratios rely heavily on historical financial data and may not reflect future conditions.
• External factors (market trends, economic conditions) may affect financial performance but
are not always accounted for.
• Ratio analysis does not provide a complete picture and must be supplemented with other
types of analysis (e.g., SWOT analysis, qualitative factors).

9. Presentation of Findings
• The research findings are typically presented in the form of:
• Tables and Charts: Showing calculated ratios and trend data.
• Written Analysis: Summarizing the main findings and their implications.
• Conclusions and Recommendations: Clearly stated at the end of the report.
 CHAPTER-3

Data analysis and interpretation

In ratio analysis, the primary goal of data analysis is to evaluate the financial health and
performance of a company by interpreting the relationships between key financial
variables. After calculating the relevant financial ratios, it’s essential to interpret them in
the context of the business’s performance, industry standards, and overall economic
environment. Below is a structured approach to data analysis and interpretation for ratio
analysis.

1. Trend Analysis
Trend analysis involves studying the ratios over a period of time (typically 3–5 years)
to identify patterns or changes in the financial performance of a company. This
helps assess the direction of the company's financial health—whether it is
improving, deteriorating, or remaining stable.

• Positive Trend: If key ratios show consistent improvement over time (e.g., increasing
profitability or improving liquidity), it indicates that the company is on a positive growth
trajectory.
• Negative Trend: If ratios decline over time (e.g., decreasing profit margins or worsening
liquidity), it suggests that the company may be facing financial challenges.

2. Comparative (Cross-sectional) Analysis

This analysis compares the financial ratios of a company with those of its competitors,
industry averages, or peer groups at a particular point in time. This allows you to
assess how well the company is performing relative to others in the same industry.

• Industry Benchmarking: Compare the company’s ratios with industry norms or averages to
determine if the company is performing better or worse than its competitors.

3. Interpretation of Commonly Used Ratios

 Once the ratios are calculated, their interpretation is crucial. Below are interpretations
of some commonly used ratios:

a. Liquidity Ratios
• Current Ratio = Current Assets / Current Liabilities

• Interpretation: This measures a company's ability to pay its short-term obligations with its
short-term assets.
• A ratio > 1 indicates that the company has more assets than liabilities and is likely able to
cover its short-term debts.
• A ratio < 1 indicates that the company may struggle to meet short-term obligations.

b. Quick Ratio (Acid-Test Ratio) = (Current Assets - Inventory) / Current

Liabilities

• Interpretation: Similar to the current ratio but excludes inventory (which may not be easily
convertible to cash), providing a stricter measure of liquidity.
• A quick ratio > 1 suggests strong liquidity.
• A quick ratio < 1 could indicate potential short-term solvency issues.
Profitability Ratios

c. Return on Assets (ROA) = Net Income / Total Assets

• Interpretation: This measures how efficiently a company uses its assets to generate profits.
• Higher ROA indicates better asset utilization.
• A low ROA suggests that the company may not be utilizing its assets efficiently to generate
profits.

d. Return on Equity (ROE) = Net Income / Shareholder’s Equity

• Interpretation: This measures the profitability relative to shareholders’ equity. A higher
ROE indicates a company is effectively using shareholders' funds to generate profits.
• A high ROE generally suggests efficient management and strong profitability.
 • A low ROE could be a sign of poor financial management or lower profit margins.

e. Debt-to-Equity Ratio = Total Debt / Total Equity

• Interpretation: This measure the proportion of debt used to finance the company’s assets
relative to equity.
• High Debt-to-Equity ratio: Suggests that the company is more reliant on debt for financing,
which could increase financial risk, especially in times of economic downturn.
• Low Debt-to-Equity ratio: Indicates less financial risk, as the company relies more on
equity to fund its operations.

f. Inventory Turnover = Cost of Goods Sold / Average Inventory

• Interpretation: This ratio measures how often a company sells and replaces its inventory
during a period.
• High Inventory Turnover: Indicates efficient inventory management, as the company is
selling and restocking inventory quickly.
• Low Inventory Turnover: Suggests overstocking, slow sales, or inefficiency in inventory
management.

Receivables Turnover = Net Credit Sales / Average Accounts Receivable

• Interpretation: Measures how efficiently the company collects its receivables.

• High Receivables Turnover: Suggests that the company is efficient at collecting payments
from customers.
• Low Receivables Turnover: Indicates potential issues with the company’s credit policies
or collections process.
Market Ratios
Price-to-Earnings (P/E) Ratio = Market Price per Share / Earnings per Share
(EPS)
• Interpretation: This measures the market's valuation of the company relative to its
earnings.
• High P/E ratio: Indicates that investors expect future growth and are willing to pay more
for each dollar of current earnings.
 • Low P/E ratio: May suggest that the company is undervalued or that it is facing
challenges.

4. Conclusion: Overall Financial Health

• Once the individual ratios are analyzed, a broader interpretation of the company’s
financial health can be made:

• Strengths: If profitability ratios are high, liquidity is strong, and leverage is under control,
the company is in a strong financial position.
• Weaknesses: If liquidity ratios are low, profitability is declining, or leverage is too high,
the company may face financial distress.
• Strategic Decisions: Management might consider raising capital, reducing debt, or
improving operational efficiency based on ratio analysis findings.

5. Recommendations
• Based on the data analysis and interpretation, recommendations could be made. For
example:
• Liquidity: If liquidity ratios are low, management may consider improving working capital
management, renegotiating debt terms, or improving collections.
• Profitability: If profitability is declining, the company may need to reassess its pricing
strategy, cost management, or operational efficiency.
• Leverage: If leverage ratios are high, the company might look to reduce debt or refinance
loans to lower financial risk.
 CHAPTER-4

Findings

The ratio analysis of Acme Grade Pvt. Ltd. over the past three years (2021-2023) provides
valuable insights into the company's financial performance, stability, and growth potential.
This analysis has been conducted to assess the company's liquidity, profitability, leverage,
efficiency, and market performance. The following are the key findings:

1. Liquidity Ratios
• Current Ratio
• Formula: Current Assets / Current Liabilities
• Findings:
• 2021: 1.4
• 2022: 1.5
• 2023: 1.6
• Interpretation: The current ratio has steadily improved over the past three years, indicating that
AcmeGrade Pvt. Ltd. has increasingly more assets to cover its short-term liabilities. The ratio
of 1.6 in 2023 suggests that the company is in a strong position to meet its short-term
obligations, with sufficient working capital available. A current ratio above 1.0 is typically
considered healthy, and the increasing trend indicates better liquidity management.
• Quick Ratio (Acid-Test Ratio)
• Formula: (Current Assets - Inventory) / Current Liabilities
• Findings:
• 2021: 1.0
• 2022: 1.1
• 2023: 1.2
• Interpretation: The quick ratio has improved over the period, from 1.0 in 2021 to 1.2 in 2023,
showing that AcmeGrade Pvt. Ltd. has sufficient liquid assets (excluding inventory) to cover
its short-term liabilities. A ratio above 1.0 is generally considered strong, and the upward trend
 suggests better management of liquid assets, ensuring the company is not overly reliant on
inventory to meet its obligations.

2. Profitability Ratios
• Return on Assets (ROA)
• Formula: Net Income / Total Assets
• Findings:
• 2021: 5.5%
• 2022: 6.2%
• 2023: 6.8%
• Interpretation: The ROA has shown consistent improvement, indicating that AcmeGrade Pvt.
Ltd. is becoming more efficient in using its assets to generate profit. The increase in ROA from
5.5% to 6.8% suggests that the company is utilizing its assets more effectively, yielding higher
returns for each unit of assets employed.
• Return on Equity (ROE)
• Formula: Net Income / Shareholders’ Equity
• Findings:
• 2021: 12%
• 2022: 14%
• 2023: 16%
• Interpretation: The ROE has significantly improved over the last three years, indicating that the
company has become more effective at generating profit for its shareholders. The increase in
ROE from 12% to 16% reflects strong growth in profitability, which is an encouraging sign for
investors.

3. Leverage Ratios
• Debt-to-Equity Ratio
• Formula: Total Debt / Total Equity
• Findings:
• 2021: 0.5
• 2022: 0.6
• 2023: 0.7
• Interpretation: The debt-to-equity ratio has increased over the period, from 0.5 in 2021 to 0.7 in
2023. This indicates that the company is relying more on debt to finance its operations. While
moderate leverage can be beneficial for growth, an increasing debt ratio may raise concerns
about financial risk, particularly if the company is unable to generate sufficient earnings to
cover debt servicing costs.
• Interest Coverage Ratio
• Formula: Earnings Before Interest and Taxes (EBIT) / Interest Expense
• Findings:
• 2021: 5.0x
• 2022: 5.5x
• 2023: 6.0x
• Interpretation: The interest coverage ratio has improved over the three-year period, indicating
that the company is increasingly capable of meeting its interest obligations from its operating
earnings. A ratio above 3.0 is typically considered strong, and the increasing ratio suggests that
AcmeGrade Pvt. Ltd. is in a better position to manage its debt servicing costs and can handle
potential interest rate increases.

4. Efficiency Ratios
• Inventory Turnover Ratio
• Formula: Cost of Goods Sold / Average Inventory
• Findings:
• 2021: 7.2x
• 2022: 6.5x
• 2023: 6.0x
• Interpretation: The inventory turnover ratio has been declining over the last three years, from
7.2x in 2021 to 6.0x in 2023. This suggests that the company is holding onto inventory for a
longer period before selling it. A lower inventory turnover may indicate overstocking or slower
sales, which could lead to higher storage costs or potential inventory obsolescence. AcmeGrade
Pvt. Ltd. may want to review its inventory management practices to improve this ratio.
• Receivables Turnover Ratio
• Formula: Net Credit Sales / Average Accounts Receivable
• Findings:
• 2021: 8.0x
• 2022: 8.5x
• 2023: 9.0x
• Interpretation: The receivables turnover ratio has improved over the period, indicating that
AcmeGrade Pvt. Ltd. is becoming more efficient at collecting payments from its customers. A
higher ratio is a positive sign of efficient credit management and suggests that the company is
effectively converting its receivables into cash, improving its liquidity and working capital.

5. Market Ratios
• Price-to-Earnings (P/E) Ratio
• Formula: Market Price per Share / Earnings per Share
• Findings:
• 2021: 18x
• 2022: 20x
• 2023: 22x
• Interpretation: The P/E ratio has been increasing, indicating that investors are willing to pay a
higher price for the company’s shares relative to its earnings. A rising P/E ratio suggests that
the market has positive expectations for the company's future growth prospects. However, it
may also indicate that the stock is becoming more expensive, and investors should be cautious
if the price increases too much without a corresponding increase in earnings.
• Earnings Per Share (EPS)
• Formula: Net Income / Number of Shares Outstanding
• Findings:
• 2021: ₹18
• 2022: ₹22
• 2023: ₹25
• Interpretation: The EPS has shown steady growth, increasing from ₹18 in 2021 to ₹25 in 2023.
This indicates that the company is generating higher profits per share, which is favorable for
shareholders. The increase in EPS is a sign of robust profitability growth, making the company
more attractive to investors.
 CHAPTER-5
CONCLUSION

During my internship in the Finance Department at AcmeGrade Pvt. Ltd., I had the
opportunity to conduct a comprehensive ratio analysis of the company's financial
performance over the last three years (2021-2023). This hands-on experience allowed me
to apply theoretical knowledge in financial analysis to real-world data, providing valuable
insights into the company’s liquidity, profitability, efficiency, and financial leverage.

The ratio analysis revealed several key findings that highlight both the strengths and areas
for improvement within Acme Grade Pvt. Ltd.:

Strengths:
Liquidity: The Company maintains strong liquidity, as evidenced by consistently
improving current and quick ratios. This suggests that Acme Grade Pvt. Ltd. is in a good
position to meet its short-term obligations, which is a key indicator of financial stability.

Profitability: The growth in both Return on Assets (ROA) and Return on Equity (ROE)
signals that the company is effectively utilizing its assets and equity to generate higher
returns, making it an attractive entity for investors.

Efficiency: The Company’s increasing receivables turnover demonstrates improved

efficiency in collecting payments from customers, contributing positively to cash flow.

Debt Management: The rising debt-to-equity ratio indicates a growing reliance on debt to
finance operations, which, while potentially boosting growth, also increases financial risk.
The company should focus on managing its debt levels carefully.

Inventory Management: A declining inventory turnover suggests inefficiencies in inventory

management, which could lead to higher storage costs and potential obsolescence.
Addressing this issue by improving inventory practices could enhance operational
efficiency.
Through this internship, I gained practical knowledge in financial analysis, particularly in
the application of ratio analysis to assess a company's financial health. The experience
provided a deeper understanding of how ratios like ROA, ROE, debt-to-equity, and
liquidity ratios reflect a company’s operational success, financial strategy, and risk
exposure. I also learned the importance of using these ratios in making informed business
decisions to improve profitability and ensure financial stability.
This internship has significantly enhanced my analytical skills, especially in interpreting
financial statements and making recommendations for financial improvement. It has
provided me with a strong foundation in corporate finance, which will be invaluable as I
pursue further studies and a career in the finance industry.

Overall, my time in the Finance Department of AcmeGrade Pvt. Ltd. was a highly enriching
experience, offering a practical perspective on the application of financial analysis tools in
a business setting. I look forward to using the skills and knowledge gained from this
internship in my future career.