Summer Project Presentation On

Financial Analysis Of Amul Industries Private Limited through Ratio Analysis

Prepared By:-

Dilavar Zala

(33)

ABOUT AMUL INDUSTRIES PVT. LTD.

Amul

Industries Private Limited is a recognized leading

company, engaged with various engineering products.

The company was started at Rajkot in the year 1988 Over a period of time Amul indusrties has emerged as one of the

leading manufacturer of quality products.

It has attained the position of one of the leading suppliers of

Connecting Rods, Crank Shafts, Anti Friction Roller Bearings,

Industrial Chains, Single & Double Cycle. Diesel Engines,

Forgings, Machine Refurbishing etc.

 Amul Industries core strength are Quality products, competitive

pricing and after sales support

Amul industries

"Never Compromise for quality and integrity"

Amul Industries is now in action and paying attention to develop

Nationwide as well as International market.

Objective Of The Project

To

understand the information contained in the financial

statements with the a view to know the strength and weaknesses of the firm
To obtain a true insight into financial position of the company. To make comparative study of financial statements of different

years.
To draw the correct picture of the financial operations of the

company in terms of liquidity, solvency, turnover, profitability etc.

To find out the reasons for unsatisfactory results.

Ratio Analysis
Ratio is a relationship between two variable or a ratio is an

expression of the quantitative relationship between two numbers

Ratio Analysis is a technique of analysis and interpretation of

financial statements. it is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performances and current financial condition can be determined.
Ratio analysis is one of the best possible & simple techniques

available to the management to impart the basic functions like planning & control.

Liquidity Ratios
(1) Current Ratio
YEAR 2008-2009 2009-2010 2010-2011

Current assets

6.02

9.98

10.81

Current liabilities
Current ratio

1.89
3.18

2.53
3.94

3.60
3.00

Comment:It measures the ability of a firm to meet its current liabilities, ideal current ratio is 2:1 and ratio proffered by bank is 1.33:1 The higher the current ratio, the greater the short term solvency of the firm

(2) Liquid/Quick Ratio

YEAR 2008-2009 2009-2010 2010-2011

Quick assets Quick liabilities Liquid ratio

2.26 1.89 1.38

4.74 2.53 1.87

6.49 3.60 1.8

Comment:Quick ratio is a fairly stringent measures of liquidity. It excludes inventories as its less liquid. Ideal quick ratio is 1:1

(3) Cash Ratio

YEAR 2008-2009 2009-2010 2010-2011

Cash & Bank Current Liabilities Cash Ratio

0.43 1.89

0.82 2.53

1.31 3.60

0.22

0.32

0.36

Comment:Cash and bank balances are most liquid assets of the firm, so analyst look at this ratio and even its also stringent measure of liquidity.

Leverage Ratios
(4) PROPRITEARY TURN OVER RATIO
YEAR 2008-2009 2009-2010 2010-2011

Equity Total assets Debt-Equity ratio

2.27 11.47 0.28

4.16 14.80 0.28

5.23 15.51 0.33

Comment:It is the ratio of proprietors fund or owners equity to total assets . It indicates the strength of financial foundation of the concern and serves as a measure of ultimate or long term solvency

(5)Debt to Equity Ratio

YEAR 2008-2009 2009-2010 2010-2011

Debt Equity Debt-Asset ratio

7.56 3.27 2.31

10.21 4.16 2.45

9.89 5.23 1.88

Comment:It shows the relative contribution of creditors and owners. The lower the debt-equity ratio, the higher the degree of protection enjoyed by the creditors. Higher the ratio means company is aggressive in financing its growth with debt.

Turnover Ratios
(6) Inventory Turnover
YEAR 2005-2006 2006-2007 2007-2008

Cost of goods sold Average Inventory Inventory ratio turnover

41.29 4.68 9.46

55.40 4.23 13.09

77.57 2.53 30.66

Comment:It measures how fast the inventory is moving through the firm and generating sales. It reflects the efficiency of inventory management.
Higher the ratio, the more efficient the management of inventories and vice a versa. Bt its not always true as high turnover may caused by low level of inventory.

(7) Fixed Asset Turnover Ratio

YEAR 2008-2009 2009-2010 2010-2011

Fixed Asstes Sales F.A turnover ratio

5.29 49.95 0.106

4.80 59.43 0.08

4.52 82.46 0.054

Comment:It measures sales per rupee investment in fixed assets and the efficiency with which assets are employed. A high ratio indicates a high degree of efficiency in asset utilization and low ratio indicates inefficient use of assets.

(8) Total Asset Turnover Ratio

YEAR 2008-2009 2009-2010 2010-2011

Sales Total Assets T.A turnover ratio

49.95 11.47 4.35

59.43 14.73 4.03

82.46 15.51 5.31

Comment:It measures how overall assets are employed in the firm.

Higher the ratio means, company is efficiently using its assets to generate sales and vice versa.

(9) Debtors Turnover Ratio

YEAR 2008-2009 2009-2010 2010-2011

Sales Debtors Debtors turnover ratio

49.95 1.86 27

59.43 3.56 17

82.46 4.14 20

Comment:This ratio shows how many times sundry debtors turnover during the year. The higher the debtors turnover the greater the efficiency of credit management.

(10) Average Collection Period

YEAR 2008-2009 2009-2010 2010-2011

Days Debtor Turnover Avg Collection

360 27 14

360 17 22

360 20 18

Comment:It shows the number of days worth of credit sales that is locked in sundry debtors or it shows the number day it takes to receive the payment from debtor.

A lower average collection period is seen as optimal, because this means that it does not take a company very long to turn its receivables into cash.

Profitability Ratio
(11) Net Profit Ratio
YEAR 2008-2009 2009-2010 2010-2011

Net Profit Sales Net Profit ratio

0.99 49.95 1.98%

1.24 59.43 2.10%

1.51 82.46 1.83%

Comment:It measures the profitability and overall efficiency of the firm. It shows the earnings left for shareholders as percentage of net sales. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss.

(12) Expense Ratio

YEAR 2008-2009 2009-2010 2010-2011

Expenses
Salea R.O.C

1.92
49.95 3.84%

2.16
59.43 6.63%

2.71
82.46 3.28%

Comment:With the help of expenses ratio we can easily find out that expenses like selling, administrative and financial are how much percentage of the net sales of the company.

(13) Gross Profit

YEAR 2008-2009 2009-2010 2010-2011

Gross Profit Sales R.O.E

5.66 49.95 11.33%

4.03
59.43

4.89 82.46 5.93%

6.79%

Comment:This ratio expresses the relationship between gross profits and Net sales, net sales means credit + cash sales sales return. With the help of this ratio we can find out that gross profit is how much percentage of the net sales.

Liquidity Ratios
Name Of the Ratio Current Ratio Quick Ratio Cash Ratio Amul ind. Pvt. Limited 3 1.81 0.36s Competitor 2.61 1.52 0.56

Comment: As far as liquidity ratios are concerned companys ratio are higher than its competitor. Current and liquid both the ratios are higher which shows that company have sufficient liquidity and assets to pay its liabilities. Liquidity position of the company is better as compare to its competitor.

Whereas cash ratio of the company is lower than its competitor because its companys policy to keep less cash in hand.

Turnover Ratios
Name Of the Ratio Fixed Assets Turnover Total Assets Turnover Inventory Turnover Debtors Turnover Average Collection Period Amul ind. Pvt. Limited 0.054 5.31 30.66 20 18 Competitor 0.068 6.81 28.51 22 17

Comment: Companys inventory management is good as compare to its competitor as its converting inventory 6.68 times a year to sales which more than its competitor but at the same time companys fixed and total assets turnover ratios are lower which shows that assets are not effectively managed to generate sales so company needs to improve upon it as compare to competitors. Average collection period and expense ratio of the company are merely same as competitors.

Profitability Ratios
Name of the Ratio Amul ind. Pvt.
Limited Net Profit Ratio Return On Assets
Return On Capital

Competitor

1.83% 27.00% 12.67%

1.58% 27.89% 13.94%

Employed Comment: On Equity Return

20.55%

22.70%

Net profit ratio of the company is higher than its close competitor which is good for the company, it shows that companys margin on sales is higher than its competitors.
But at the same time other profitability ratios like return on assets, return on capital employed and return on equity is lower than the competitors which means company has to improve it, it means that companys assets and capital employed is generating less sales as compare to its competitors. So company has to take steps to employ its assets, equity and capital in such way that it could generate more sales and profit.

SUMMARY OF FINANCIAL POSITION OF AMUL IND.

The company has strong short term liquidity position as both the liquidity

ratios i.e current and quick are favourable and appreciable which concludes that company has got sufficient assets to pay off short term debts as and when they fall due.

The company has strong solvency position as all the solvency ratios are

favourable. Debt-equity ratio is low which states that companys assets are financed through equity more and greater protection enjoyed by the creditors.

Most of the turnover ratios are showing favorable results which means

that assets are efficiently employed by the firm and its generating
maximum sales.

FINDINGS
The current ratio shows in fluctuating trends as 3.18 in the

year 2008-09, 3.94 in the year 2009-10 and 3.00 during the year 2010-11 .This shows continuous increases in both current assets and current liabilities. The quick ratio is also in a fluctuating trend throughout the period 08 09 to 2010-11 resulting as 1.38, 1.87 and 1.80. This shows the companys present liquidity position is satisfactory. The super quick ratio also shows increases fluctuating trend throughout the period 2008-09 to 2010-11 resulting as 0.22, 0.32 and 0.36. This shows that industries can easily change its current assets in to the liquidity form. The gross profit ratio of the industry has been decreased from 11.33% to 5.93% from the year 2008-09 to 2010-11. The net profit ratio is 1.99% in the year 2008-09 than it increases and become 2.10% in the year 2009-10 and then again decreases and become 1.83% in the year 2010-11.

 The expenses ratio of the industry has been

decline from 3.84% to 3.28% from the year 200809 to 2010-11. The debtors turnover ratio is 27 in the year 200809 then it decline and become 17 in the year 2009-10 and then it become 20 in the year 201011. The debt collection period is 14 days in the year 2008-09 and then it increases and become 22 days in the year 2009-10 and then again decreases and become 18 days in the year 201011. The payment turnover ratio is 19.52 in the year 2008-09 and then it become 18.92 in the year 2009-10 and then it become 18.71 which is a little bit decline in the year 2010-11. The total turnover ratio is increases from 4.35 to

 The proprietary

turnover ratio is 0.28 which is constant for both financial year 2008-09 and 2009-10 and then it increases and become 0.33 in the year 2010-11. The debt equity ratio shows a fluctuating trend it is 2.31 in the year 2008-09 and then it increases and become 2.45 in the year 2009-10 and then again decline and become 1.88 in the year 2010-11. The solvency ratio also shows a fluctuating trend it is 0.65 in the year 2008-09 and then it increases and become 0.68 in the year 2009-10 and then again decline and become 0.63 in the year 2010-11. The inventory turnover ratio is 9.46 in the year 200809 and then it increases and become 13.09 in the year 2009-10 and then it increases more and become 30.66 in the financial year 2010-11. The fixed assets turnover is 0.106 in the year 2008-09 and then it decline and become 0.080 in the year 2009-10 and then again decline and become 0.054 in the financial year 2010-11.

Recommendations
The net sales of the company in 20010-11 is Rs. 82.46

crore which is more than the previous financial years 2009-10 & 2010-11 it shows that the productivity of the industry increases day by day and industry should adopt new technologies to improve productivity. The ideal current ratio should be 2:1, and from calculating the current ratios of previous three years financial year it is found that in each year it is always more than 1, it show that firm have sufficient current assets to fulfill its current liabilities but industry should maintain more funds also to fulfill its short term obligations . The industry should adopt proper inventory management system to maintain its inventory turnover ratio Industry should adopt proper depreciation method for the right valuation of its fixed assets .