Final Project Ratio Analysis

Executive Summary:

Ratio Analysis is one of the techniques of financial analysis where ratios are used as a

yardstick for evaluating the financial condition and performance of a firm. Analysis and

interpretation of various accounting ratios gives a better understanding of financial condition

and performance of firm. Trend ratios indicate the direction of change in the performance –

improvement, deterioration or constancy- over the year.

Objectives:

1. To study the present financial system at Omkar Speciality Chemicals Ltd

2. To analyze the capital structure of the company with the help of Leverage ratio.

3. To evaluate operational efficiency, liquidity, and solvency of OSCL.

4. To compare the previous years and present year performance of the company.

5. To give suggestion based on the study.

Deliverables:-

Ratio analysis is a technique of analyzing the financial statement of industrial concerns. Now

a day this technique is sophisticated and is commonly used in business concerns. Ratio

analysis is not an end but it is only means of better understanding of financial strength and

and weakness of a firm.

Ratio analysis is one of the most powerful tools of financial analysis which helps in

analyzing and interpreting the health of the firm. Ratio’s are proved as the basic instrument in

the control process and act as back bone in schemes of the business forecast.

With the help of ratio we can determine :-

The ability of the firm to meet its current obligation.

The limit or extent to which the firm has used its borrowed funds.

The efficiency with which the firm is utilizing in generating sales revenue.

The operating efficiency and performance of the company.

1

CHAPTER 1

INTRODUCTION

2

1.1 INTRODUCTION

OSCL Company was originally incorporated as Omkar Speciality Chemicals Private Limited

on February 24, 2005 and took over business of the Proprietorship Firm M/s.Omkar

Chemicals which was in operation since 1983 with Mr.Pravin S. Herlekar as the Proprietor.

The Private Limited Company was converted into a Public Limited Company on March 18,

2010. OSCL is mainly engaged in the manufacture and sale of Speciality Chemicals and

Intermediates for Chemical and Allied Industries. Our has four Units at MIDC, Badlapur (E),

Dist: Thane, Maharashtra, India. The locations of our Units are as under:

Unit No.1– W-92(A), MIDC, Badlapur(E), Dist: Thane-421503, State: Maharashtra.

Unit No.2– F-24, MIDC, Badlapur (E), Dist: Thane-421503, State: Maharashtra.

Unit No.3– B-34, MIDC, Badlapur (E), Dist: Thane-421503, State: Maharashtra.

Unit No.4– F-10/1, MIDC, Badlapur (E), Dist: Thane-421503, State: Maharashtra.

3

1.2 HISTORY

Omkar Speciality Chemicals Limited is primarily involved in the production of Speciality

Chemicals and Pharma Intermediates.They manufacture a range of Organic, Inorganic and

Organo Inorganic Intermediates. The Inorganic Intermediates include Molybdenum

derivatives, Selenium derivatives, Iodine derivatives, Cobalt derivatives, Bismuth and

Tungsten derivatives and the organic intermediates include Tartaric acid derivatives and other

intermediates. These products find applications in various industries like Pharmaceutical

Industry, Chemical Industry, Glass Industry, Cosmetics, Ceramic Pigments and Cattle and

Poultry Feeds.

They are exporting their products to Europe, Canada, Asia, South America and Australia.

Company’s association with leading organizations in India and abroad has enabled to broaden

the business, to expand the existing product range and to develop new molecules as per the

specific demands of valued customers. The Company has basic research capabilities and has

recently acquired M/S.RISHICHEM RESEARCH LTD., [W-83(C), MIDC, Badlapur] as a

wholly owned subsidiary which is expected to provide a total RandD back-up to the

Company for all its future expansion and diversification programmes.

4

1.3 MAJOR MILESTONES

Milestones

1983 Total installed capacity of 6 MTPA for manufacture of Molybdenum Derivatives.

1983 Mr. Pravin S. Herlekar started a proprietary concern in name of Omkar Chemicals

1986 Launch of new Selenium Derivatives.

1995 Launch of Iodine Derivatives.

2005 Incorporated Omkar Speciality Chemicals Private Limited which took over entire

business of Omkar Chemicals, a proprietary concern of Mr Pravin Herlekar. The

installed capacity after takeover stood at 318 MT.

2005 Launch of organic intermediaries.

2009 Commenced commercial production started at Unit no. – II, with an installed

capacity of 375 MTPA.

2009 Increased the total installed capacity upto 750 MTPA.

2010 Converted into a Public Limited Company.

2010 Set up Unit no. III of the Company .

2010 Rishichem Research Limited became a wholly owned subsidiary. The Company is

engaged in manufacturing and RandD of speciality chemicals and pharma

intermediaries.

2011 Set up a Technology Centre for developing innovative processes and CRAMS

activities.

2011 Company got listed with Bombay Stock Exchange Limited (BSE) and National

Stock Exchange of India Limited (NSE).

2011 A successful Initial Public Offer whereby Company raised Rs. 7938 Lakhs.

2011 Got FDA approval for manufacturing Selenium Sulphide U.S.P. in Unit no. – III.

2011 Received ISO-9001-2008 certification for our Unit no. - II in respect of quality

management systems.

2012 OSCL gets Star Export House status from Ministry of Commerce and Industry

5

1.4 OUR STRENGTH

We are dedicated to achieving excellence in our work. Omkar Speciality Chemicals Limited

maintains the highest ethical and professional standards and strives to stay on the leading

edge in technology, in an ever-changing environment.

While our greatest strength is the ability to understand the client goals, our success is very

much attributed to strong teamwork, continuous R&D and the dedication and commitment

of each and every member of the OSCL family to deliver unsurpassed quality and reliable

products & services to the total satisfaction of all our customers.

We believe that our historical success and future prospects are directly related to a

combination of strengths, including the following

Multi product capability :- Our Company has a diverse product range comprising a mix of

organic, inorganic and organo inorganic intermediates Our Company’s product portfolio

comprises of more than 90 products in these segments. The products include inorganic

intermediates like derivatives of Molybdenum, Selenium, Iodine, Cobalt, and Bismuth ;

organic intermediates like Tartaric acid derivatives and various other organo inorganic

intermediates like Iodobenzene Diacetate, Dess Martin Periodinane, Vanadyl Sulphate etc.

Customer base:- We have a diverse customer base from different industry segments like

pharmaceutical, chemical, glass, cosmetics, ceramic pigments, etc. Further, we export our

products to various countries in Europe, Asia, North America, South America and Australia.

We focus on expanding our customer base by catering to the requirements of customers

from various industry segments.

Cost advantage: - We believe that we have developed processes for manufacture of pro

ducts in a cost effective manner. Our R&D team is continuously working on the processes

for our existing products in order to improve the production with optimum utilization of

resources and cost saving. This provides us a competitive edge over others and helps us to

widen our customer base.

Our quality control:- We have quality control departments at our Unit 1 and Unit 2 each,

the activities of which comprise of collection and preparation of samples, testing of raw

materials and other process inputs inspection, testing and quality certification of finished

products, preparation of technical information sheet and issue of certificate of analysis. Our

6

quality control laboratory is equipped with various equipments such as High Performance

Liquid Chromatographs (HPLC), Gas Chromatographs (GCs), vacuum dryer, sonicator,

Atomic Absorption Spectroscopy (AAS), spectrophotometer, etc. Our Unit 2 has been

granted ISO 9001:2008 for its quality management systems.

1.5 VISION

To create total satisfaction among our valuable customers by way of providing

desired quality & quantity at most competitive prices & with timely deliveries

To become a prominent player in innovative technologies for a wide cross-section of

product segments

To continue achieving a YoY growth rate of 40% or more for next five years.

1.6 OMKAR SPECIALITY CHEMICALS LTD CUSTOMER’S

Divi's Laboratories Ltd Wockhardt Ltd

Dr.Reddy's Laboratories Ltd Glenmark Generics Ltd

Mylan Laboratories Ltd Sandoz Pvt. Ltd

Cipla Ltd Jubilant Life Sciences Ltd

Hetero Labs Ltd. MSN Laboratories Ltd

1.7 OMKAR SPECIALITY CHEMICALS LTD PRODUCTS

Products Cas No

Iodine Derivatives:-

Methyl Iodide 74-88-4

Ethyl Iodide 75-03-6

n-Butyl Iodide 542-69-8

N-propyl Iodide 107-08-4

2-Ethylhexyl Iodide 1653-16-3

Diiodomethane 75-11-6

7

Chloroiodomethane 593-71-5

5-Iodo-2-methylbenzoic Acid 54811-38-0

2-chloro-5-iodobenzoic acid 19094-56-5

Methyl-2-Iodobenzoate 610-97-9

2-Iodobenzoic Acid 88-67-5

3,5-Diiodosalicylic Acid 133-91-5

N -Iodosuccinimide 516-12-1

Trimethylsulfoxonium Iodide 1774-47-6

Iodine Monochloride 7790-99-0

5-Iodoanthranilic acid 5326-47-6

Iodoform 75-47-8

Potassium iodide 7681-11-0

Sodium Iodide 7681-82-5

Ammonium Iodide 12027-06-4

Cuprous Iodide 7681-65-4

Zinc Iodide 10139-47-6

Sodium Metaperiodate 7790-28-5

Potassium Iodate 7758-05-6

Calcium Iodate 40563-56-2

Iodic acid 7782-68-5

Periodic acid 10450-60-9

Hydriodic Acid 10034-85-2

Iodobenzene Diacetate 3240-34-4

Dess Martin Periodinane 87413-09-0

1,4-Diiodobenzene 624-38-4

4-Bromoiodobenzene 589-87-7

4-Chloroiodobenzene 637-87-6

Iodobenzene 591-50-4

4-Iodoaniline 540-37-4

4-Iodotoluene 624-31-7

4-Iodoanisole 696-62-8

4-Iodophenol 540-38-5

8

4,4'-Diiodobiphenyl 3001-15-8

Tetrabutylammonium Iodide 311-28-4

Intermediaries:-

1,3-Acetonedicarboxylic Acid 542-05-2

2,4-thiazolidinedione 2295-31-0

Benzeneseleninic Anhydride 17697-12-0

Bromoform 75-25-2

Pyridinium-P-Toluenesulfonate 24057-28-1

Pyridinium Chlorochromate 26299-14-9

Pyridinium Dichromate 20039-37-6

Vanadyl Acetylacetonate 3153-26-2

Vanadyl Sulphate 27774-13-6

Methyl Isobutyryl Acetate 42558-54-3

3' Chloropropiophenone 34841-35-5

Lasamide 2736-23-4

1,4-dioxane 123-91-1

potassium phthalimide 1074-82-4

4-Methylcyclohexanone 589-92-4

Cadmium Sulfide 1306-23-6

Indole-3-acetic acid 87-51-4

2-Bromopyridine 109-04-6

Triflic Anhydride 358-23-6

Cerium(III) Chloride 7790-86-5

Selenium Derivatives:-

Selenium Dioxide 7446-08-4

Selenium Sulfide (USP) 7488-56-4

Selenous Acid 7783-00-8

Sodium Selenate 13410-01-0

Sodium Selenite 10102-18-8

Zinc Selenite 13597-46-1

Diphenyl Diselenide 1666-13-3

Sodium Selenite Pentahydrate 26970-82-1

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Cadmium Selenide 1306-24-7

Molybdenum Derivatives:-

Ammonium Molybdate 12054-85-2

Molybdenum Disulfide 1317-33-5

Molybdenum Trioxide 1313-27-5

Molybdic Acid 7782-91-4

Phosphomolybdic Acid 12026-57-2

Sodium Molybdate 7790 - 28 – 5

Resolving Agent:-

Dibenzoyl-D-Tartaric Acid 80822-15-7

Dibenzoyl-L-Tartaric Acid 62708-56-9

Di-p-Anisoyl-D-Tartaric Acid 191605-10-4

Di-p-Anisoyl-L-Tartaric Acid 50583-51-2

Di-p-Toluoyl-D-Tartaric Acid 32634 – 68-7 / 71607-32-4

Di-p-Toluoyl-L-Tartaric Acid 32634-66-5 / 71607-31-3

Cobalt Derivatives:-

Cobalt Acetate 6147-53-1

Cobalt Carbonate 513-79-1

Cobalt Chloride 7791-13-1

Cobalt Nitrate 10026-22-9

Cobalt Oxide 1308-06-1

Cobalt Sulphate 10026-24-1

Bismuth Derivatives :-

Bismuth Ammonium Citrate 31886-41-6

Bismuth Citrate 813-93-4

Bismuth Hydroxide 10361-43-0

Bismuth Nitrate 10035-06-0

Bismuth Oxide 1304-76-3

Bismuth Oxychloride 7787-59-9

Bismuth Subcarbonate 892-10-4

Bismuth Subsalicylate 14882-18-9

Bismuth Subnitrate 1304-85-4

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1.8 PLANT & CAPACITY

In June 2005, the company took over the over the business of Omkar Chemicals, a

proprietary concern with an installed capacity of 318 MT, which was engaged in the

manufacture of cobalt, selenium and iodine derivatives in addition to molybdenum

derivatives. During the year 2006-07 Pursuant to a Share Purchase Agreement dated May

14, 2010 between our Company and the shareholders of Rishichem Research Limited, we

have purchased 1078 Equity Shares of Rishichem Research Limited thereby holding

99.82% and making it our wholly owned Subsidiary. In January 2006, the company

expanded the total installed capacity from 318 MT to 325 MT. In March 2007, they further

increased the installed capacity from 325 MT to 375 MT. In March 2009, the company set

up a new manufacturing facility, namely Unit 2 at MIDC, Badlapur (E) in Maharashtra

with an installed capacity of 375 MT. With this, the total installed capacity increased to

750 MT. In March 18, 2010, the company was converted into public limited company and

the name was changed to Omkar Speciality Chemicals Ltd. In May 2010, as per the share

purchase agreement, the company purchased 1078 equity shares of Rishichem Research

Ltd, and thus Rishichem Research Ltd became a wholly owned subsidiary company. The

company set up a new manufacturing facility, namely Unit 3 through their internal

accruals, at MIDC, Badlapur in Maharashtra with an installed capacity of 200 MT. The

commercial production at Unit 3 is likely to start in the month of March 2011. The

company proposes to expand their existing manufacturing facilities at Unit 1, Unit 2 and

Unit 3 located at MIDC, Badlapur in Maharashtra. This will enable them to increase the

capacity of their existing operations and further expand their product range. With this

proposed expansion, the company intends to expand their existing product lines in

Selenium, Molybdenum, Cobalt, Bismuth, etc. Further, they intend to create a facility for

new products in the field of metal oxides such as Cobalt Oxide, Molybdenum Trioxide,

Molybdenum Disulfide, etc. The company proposes to set up a new manufacturing facility,

namely Unit 4 at MIDC, Badlapur in Maharashtra with an installed capacity of 1250 MT

per annum. They propose to manufacture new molecules in Iodine derivatives and pharma

intermediates with new technologies comprising of catalytic high pressure reactions. In

view of the above proposed expansion, the total installed capacity of the company would

aggregate to 3650 MT per annum from the existing installed capacity of 950 MT per

annum.

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Manufacturing

Unit

Capacity(June2012) Utilization Products

manufactured

Unit 1, Badlapur,

Thane

~600 mtpa ~67.6% in

Q1FY13

Iodine, selenium,

molybdenum

compounds and

other derivatives

Unit 2, Badlapur,

Thane

~1025 mtpa Organic synthesis

Unit 3, Badlapur,

Thane

~75 mtpa Selenium sulphide

Unit 4, Badlapur,

Thane

- Proposed for new

facility of organic

chemicals.

Presently used as

warehouse.

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Start

Receipt of invoices from Vendor

Scrutinising the invoices with Delivery Challan, Purchase Order, Goods Received Note

Query? Transfer to concerned person/vendor for necessary correction

Sent for bill booking

STOP

1.8 FINANCE PROCESS

Internal Audit

Bill Booking

13

Start

Bill Book-ERP

Tally

Match Tally & ERP Amount entry

STOP

Tax Deducted At Source Management: -16 A

14

Start

Entry-Tally-ERP

Monthly Return File-TDS Payable

27 A Quarterly Return [FUV File Submit]

Download Forum 16 A

Prepared Covering Letter

Stop

Start

Vendor Payment

15

16

CHAPTER 2

LITERATURE REVIEW & METHODOLOGY

2.1 LITERATURE REVIEW

17

Review of literature refers to the collection of the results of the various researches relating to

the present study. It takes into consideration the research of the previous researchers which

are related to the present research in any way. Here are the reviews of the previous researches

related with the present study.

Bollen (1999):-

Conducted a study on Ratio Variables on which he found three different uses of ratio

variables in aggregate data analysis:

As measures of theoretical concepts,

As a means to control an extraneous factor, and

As a correction for heteroscedasticity.

In the use of ratios as indices of concepts, a problem can arise if it is regressed on other

indices or variables that contain a common component. For example, the relationship

between two per capita measures may be confounded with the common population

component in each variable. Regarding the second use of ratios, only under exceptional

conditions will ratio variables be a suitable means of controlling an extraneous factor.

Finally, the use of ratios to correct for heteroscedasticity is also often misused. Only under

special conditions will the common form forgers soon with ratio variables correct for

heteroscedasticity.

Cooper (2000):-

Conducted a study on Financial Intermediation on which he observed that the quantitative

behaviour of business-cycle models in which the intermediation process acts either as a

source of fluctuations or as a propagator of real shocks. In neither case do we find convincing

evidence that the intermediation process is an important element of aggregate fluctuations.

For an economy driven by intermediation shock consumption is not smoother than output,

investment is negatively correlated with output, variations in the capital stock are quite large,

and interest rates are pro cyclical. The model economy thus fails to match unconditional

moments for the US economy. We also structurally estimate parameters of a model economy

in which intermediation and productivity shocks are present, allowing for the intermediation

process to propagate the real shock. The unconditional correlations are closer to those

observed only when the intermediation shock is relatively unimportant.

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2.2 RESEARCH METHODOLOGY

Research Methodology is a systematic way to solve any research problem. It may be

understood as a science of studying how research is done scientifically.

Methodology of Study:-

This study was aimed by systematic design. Collection analysis, reporting of data and finding

relevant for ratio analysis of Omkar Speciality Chemicals Ltd, Badlapur. A descriptive study was

done to obtain an accurate description. The information is collected through secondary sources

during the project. That information was utilized for calculating performance evaluation and

based on that, interpretations were made.

Sources of secondary data:

1. Most of the calculations are made on the financial statements of the company provided

statements.

2. Referring standard texts and referred books collected some of the information regarding

theoretical aspects.

3. Method- to assess the performance of he company method of observation of the work in

finance department in followed.

Limitations :

1. The study provides an insight into the financial, personnel, marketing and other aspects of

OSCL. Every study will be bound with certain limitations.

2. The below mentioned are the constraints under which the study is carried out.

3. One of the factors of the study was lack of availability of ample information. Most of the

information has been kept confidential and as such as not assed as art of policy of company.

Time is an important limitation. The whole study was conducted in a period of 60 days,

which is not sufficient to carry out proper interpretation and analysis

19

CHAPTER 3

PROJECT PROFILE

3.1 PROJECT PROFILE

20

Meaning of Ratio:- The term ‘Ratio’ refers to the numerical or quantitative relationship

between two items or variables. This relationship can be exposed as

Percentages

Fractions

Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the financial

statements. So that the strengths and weaknesses of a firm, as well as its historical

performance and current financial condition can be determined. Ratio reflects a quantitative

relationship helps to form a quantitative judgment.

Steps In Ratio Analysis:-

The first task of the financial analysis is to select the information relevant to the

decision under consideration from the statements and calculates appropriate ratios.

To compare the calculated ratios with the ratios of the same firm relating to the past or

with the industry ratios. It facilitates in assessing success or failure of the firm.

Nature of Ratio Analysis:-

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the

process of establishing and interpreting various ratios for helping in making certain decisions.

It is only a means of understanding of financial strengths and weaknesses of a firm. There are

a number of ratios which can be calculated from the information given in the financial

statements, but the analyst has to select the appropriate data and calculate only a few

appropriate ratios.

Interpretation of the Ratios:-

The interpretation of ratios is an important factor. The inherent limitations of ratio analysis

should be kept in mind while interpreting them.The impact of factors such as price level

changes, change in accounting policies, window dressing etc., should also be kept in mind

when attempting to interpret ratios. The interpretation of ratios can be made in the following

ways.

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Single absolute ratio

Group of ratios

Historical comparison

Projected ratios

Inter-firm comparison

Guidelines Or Precautions For Use of Ratio:-

The calculation of ratios may not be a difficult task but their use is not easy Following

guidelines or factors may be kept in mind while

Interpreting various ratios are

Accuracy of financial statements

Objective or purpose of analysis

Selection of ratios

Use of standardsRatio may be expressed in the following three ways :

Pure Ratio or Simple Ratio :- It is expressed by the simple division of one number

by another. For example , if the current assets of a business are Rs. 200000 and its

current liabilities are Rs. 100000, the ratio of ‘Current assets to current liabilities’ will

be 2:1.

‘Rate’ or ‘So Many Times :- In this type , it is calculated how many times a figure

is, in comparison to another figure. For example , if a firm’s credit sales during the

year are Rs. 200000 and its debtors at the end of the year are Rs. 40000 , its Debtors

Turnover Ratio is 200000/40000 = 5 times. It shows that the credit sales are 5 times

in comparison to debtors.

Percentage :- In this type, the relation between two figures is expressed in hundredth.

For example, if a firm’s capital is Rs.1000000 and its profit is Rs.200000 the ratio of

profit capital, in term of percentage, is 200000/1000000*100 = 20%

Advantages Of Ratio Analysis:-

Helpful in analysis of Financial Statements.

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Helpful in comparative Study.

Helpful in locating the weak spots of the business.

Helpful in Forecasting.

Estimate about the trend of the business.

Fixation of ideal Standards.

Effective Control.

Study of Financial Soundness.

Limitation of Ratios Analysis:-

Comparison not possible if different firms adopt different accounting policies.

Ratio analysis becomes less effective due to price level changes.

Ratio may be misleading in the absence of absolute data.

Limited use of a single data.

Lack of proper standards.

False accounting data gives false ratio.

Ratios alone are not adequate for proper conclusions.

Effect of personal ability and bias of the analyst.

Classification of Ratios:-

The use of ratio analysis is not confined to financial manager only. There are different parties

interested in the ratio analysis for knowing the financial position of a firm for different

purposes. Various accounting ratios can be classified as follows:

1. Traditional Classification

2. Functional Classification

3. Significance ratio

1.Traditional Classification:- It includes the following.

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Balance sheet (or) position statement ratio: They deal with the relationship between

two balance sheet items, e.g. the ratio of current assets to current liabilities etc., both

the items must, however, pertain to the same balance sheet.

Profit and loss account (or) revenue statement ratios: These ratios deal with the

relationship between two profit and loss account items, e.g. the ratio of gross profit to

sales etc.

Composite (or) inter statement ratios: These ratios exhibit the relation between a

profit and loss account or income statement item and a balance sheet items, e.g. stock

turnover ratio, or the ratio of total assets to sales.

2.Functional Classification:- These include

Liquidity Ratios

Solvency Ratios

Activity Ratios

Profitability Ratios.

3.Significance Classification:- Some ratios are important than others and the firm may

classify them as primary and secondary ratios. The primary ratio is one, which is of the prime

importance to a concern. The other ratios that support the primary ratio are called secondary

ratios.

In The View of Functional Classification The Ratios Are:-

Liquidity Ratios

Solvency Ratios

Activity Ratios

Profitability Ratios.

1.Liquidity Ratios:- It refers to the ability of the firm to meet its current liabilities. The

liquidity ratio, therefore, are also called ‘Short-term Solvency Ratio’.These ratio are used to

24

assess the short-term financial position of the concern. They indicate the firm’s ability to

meet its current obligation out of current resources.

In the words of Saloman J. Flink, “Liquidity is the ability of the firms to meet its current

obligations as they fall due”.

Liquidity Ratios Include Three Ratios :-

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

c. Super Quick Ratio

a. Current Ratio:- This ratio explains the relationship between current assets and current

liabilities of a business.

Formula:-Current Assets/Current Liabilities

Current Assets:- ‘ Current assets’ includes those assets which can be converted into cash with

in a year’s time.

Current Assets:-Cash in Hand + Cash at Bank + B/R + Short Term Investment +

Debtors(Debtors – Provision) + Stock(Stock of Finished Goods + Stock of Raw Material +

Work in Progress) + Prepaid Expenses, Marketable Securities, Short Term Loans and

Advances, Advance Payment of Income Tax.

Current Liabilities :- ‘Current liabilities’ include those liabilities which are repayable in a

year’s time.

Current Liabilities:-Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed

Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable with in a Year,

Income Received in Advance.

25

Current Ratio

(Amount In Lakhs) (Amount In Lakhs)

Year Current Assets Current Liabilities Ratio

2011 13305.49 3425.56 3.88

2012 13762.12 10390.12 1.32

2013 15,961.62 12360.99 1.29

2011 2012 20130

0.5

1

1.5

2

2.5

3

3.5

43.88

1.32 1.29 Current Ratio

Interpretation:-

According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio. It

means that current assets of a business should, at least , be twice of its current liabilities. The

higher ratio indicates the better liquidity position, the firm will be able to pay its current

liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of

working capital.

When compared with 2012, it implies that for every one rupee of current liabilities 1.29 are

available to met them in others words current assets are one- and half more times then current

liabilities. There is an increase in the provision for tax, because the debtors are raised and for

that the provision is created. The sundry debtors have increased due to the increase to

corporate taxes.

26

From the current ratio it is derived that the ratio is not satisfactory because the % increase in

current assets is less than the increase in current liabilities during the year 2011-2013. The

highest ratio recorded in 2.82 in 2011 and the lowest ratio recorded is 1.29 in the year 2013

and plus it is less than the standard ratio.

The other current assets include the interest attained from the deposits. Though there is an

increase in current assets or the ratio is less than 2:1 it indicate lack of liquidity and shortage

of working capital.

b. Quick Ratio or Acid Test Ratio:- Quick ratio indicates whether the firm is in a position to

pay its current liabilities with in a month or immediately.

‘Quick Assets’ means those assets, which will yield cash very shortly.

‘Quick Liability’ means to those liabilities those were a company’s debt or obligations that

are due within a year.

Formula:-Quick Asset/Quick Liability

Quick Ratio


Year Quick Assets Quick Liabilities Ratio

2011 10297.74 3425.56 3.01

2012 8495.87 10390.12 0.82

2013 9605.57 12360.99 0.78

27

2011 2012 20130

0.5

1

1.5

2

2.5

3

3.5 3.01

0.820000000000001 0.78

Quick Ratio

Interpretation:-

Quick assets are those assets which can be converted into cash with in a short period of time,

say to six months. This ratio is a better test of short-term financial position of the company.

From the quick ratio it is found that the ratio is not satisfactory because the ratios recorded

during the year were less than the standard ratio. In the year 2011 the ratio recorded was 3:1

which came down to 0.82 and 0.78 in 2013 and the current year ratio then the standard ratio.

An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better As there is an

decrease in quick assets then quick liabilities this ratio is less then then 2:1. So there are less

possibility of providing funds at short term.

c. Super Quick Ratio:- Super Quick Ratio measures the relationship between cash and

marketable securities and current liabilities.

Formula:-Cash + Marketable Securities /Current Liabilities

Super Quick Ratio

28


Year Cash + Marketable Securities Current Liabilities Ratio

2011 3860.19 3425.56 1.13

2012 3140.36 10390.12 0.30

2013 2157.47 12360.99 0.17

2011 2012 20130

0.2

0.4

0.6

0.8

1

1.2

1.12999999999999

0.3

0.17

Super Quick Ratio

Interpretation:-

An ideal super quick ratio below 1 is said to be fine. This ratio measures the ability of the

enterprise to meet its short term obligation as & when due without relying upon the

realisation of the stock & debtors.

This indicates cash & marketable securities available for each rupee of current liability. A

very high super quick ratio indicates high liquidity at the cost of profitability since ideal cash

does not generate any return & marketable securities generate a return at a lower rate. From

the super quick ratio it is derived that this ratio is also decreasing over period of time it came

down to 0.17 in 2013 from 0.30 in 2012 & 1.13 in 2011 as no standard is set but below 1 is

said to be fine

Since cash is more in this case there are know return but even cash is less then current

liability it is below 1 it is said to be fine.

29

2. Solvency Ratios:- This ratio disclose the firm’s ability to meet the interest costs regularly

and Long term indebtedness at maturity.

Solvency Ratios Include Five Ratios:-

a. Debt Equity Ratio

b. Total Assets to Debt Ratio

c. Proprietary Ratio

d. Interest Coverage Ratio

a. Debt Equity Ratio:- This ratio expresses the relationship between long term debts and

shareholder’s fund.

Formula:-Debt/Equity

Debt:-These refer to long term liabilities which mature after one year. These include

Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public

Deposits etc.

Equity:- These include Equity Share Capital, Preference Share Capital, Share Premium,

General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit and Loss

Account.

Debt Equity Ratio


Year Debt Equity Ratio

2011 4535.64 9223.97 0.49

2012 7384.36 10583.49 0.70

2013 11638.96 12677.66 0.92

30

2011 2012 20130

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0.49

0.700000000000001

0.93

Debt Equity Ra-tio

Interpretation:-

This Ratio is calculated to assess the ability of the firm to meet its long term liabilities.

Generally, debt equity ratio of is considered safe .If the debt equity ratio is more than that, it

shows a rather risky financial position from the long-term point of view, as it indicates that

more and more funds invested in the business are provided by long-term lenders.

The lower this ratio, the better it is for long-term lenders because they are more secure in that

case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders.

From the debt equity ratio it is found that the ratio recorded during the year 2011,2012,&

2013 is not satisfactory as the ratios are not nearer to the standard ratio though there is

increase in the debt equity ratio it increase to 0.92 in 2013 from 2012 it was 0.70.

Debt Equity Ratio establishes a relationship between long term debts & shareholders’ funds.

The objective of computing this ratio is to measure the relative proportion of debt & equity in

financing the assets of the firm & this can be seen by the above graph as it is less then 2:1.

b. Total Assets to Debt Ratio:- Total Assets to Debt Ratio establishes relationship between

total assets and total long term debts.

Formula:-Total Assets/Long Term Debts

Total Assets:-Fixed Assets + Current Assets

Long Term Debt:-Debentures, Other Borrowed Funds

Total Asset to Debt Ratio

31


Year Total Assets Long Term Debts Ratio

2011 17250.16 4535.64 3.8

2012 21666.62 7384.36 2.93

2013 28254.60 11638.96 2.43

2011 2012 20130

0.5

1

1.5

2

2.5

3

3.5

43.8

2.93

2.43

Total Asset to Debt Ratio

Interpretation:-

Total Asset to Debt Ratio indicates the margin of safety to long term debts. The above graph

shows that the company has the ability to pay off its long term debts. A high total assets to

debt ratio implies the use of more equity then debt. From the total assets to debt ratio is

satisfactory of 2013 as it has decreased from the previous year that is from 2.93 to 2.43. The

ratio recorded in 2011 was 3.8 it implies that in 2011 the use of more equity is done then

debt.

c. Proprietary Ratio:-This ratio measures a relationship between equity and total assets. This

ratio indicates the proportion of total funds provide by owners or shareholders.

Formula:-Proprietors Funds/Total Assets*100

Proprietors Funds:- Total Assets:-Fixed Assets + Current Assets

32

Proprietary Ratio


Year Proprietors Funds Total Assets Ratio

2011 9223.97 17250.16 0.54

2012 10583.49 21666.62 0.49

2013 12677.66 28254.60 0.45

2011 2012 20130

0.1

0.2

0.3

0.4

0.5

0.6 0.540.49

0.45

Proprietory Ra-tio

Interpretation:-

This ratio should be 33% or more than that. In other words, the proportion of shareholders

funds to total funds should be 33% or more. A higher proprietary ratio is generally treated an

indicator of sound financial position from long-term point of view, because it means that the

firm is less dependent on external sources of finance. If the ratio is low it indicates that long-

term loans are less secured and they face the risk of losing their money. From the proprietary

ratio it is derived that the ratio is decreasing from 0.49 in came down to 0.45 in 2013. The

highest ratio recorded was in the year 2011 indicating larger safety for creditors & vice versa.

The proprietary ratio establishes the relationship between shareholders funds to total assets. It

determines the long-term solvency of the firm. This ratio indicates the extent to which the

33

assets of the company can be lost without affecting the interest of the company. Comparing

all three years the shareholders’ are more then 33% of its total funds even though there is

decline from 2011 to 2013 it shows that there long term loans are less secured and they face

the risk of losing their money.

d..Interest Coverage Ratio:- Interest Coverage Ratio establishes relationship between net

profit before interest and tax on long term debt.

Formula:-Net Profit Before Interest and Tax/Interest on Long Term

Interest Coverage Ratio


Year Net Profit Before Interest &

Tax

Interest on Long Term Times

2011 2481.07 527.62 4.70

2012 2759.80 809.53 3.41

2013 3064.24 743.16 4.12

34

2011 2012 20130

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5 4.7

3.41

4.12

Interest Coverage Ratio

.

Interpretation:-

This ratio indicates how many times the interest charges are covered by the profits available

to pay interest charges. This ratio measures the margin of safety for long-term lenders.

The higher the ratio, more secure the lenders is in respect of payment of interest regularly. If

profit just equals interest, it is an unsafe position for the lender as well as for the company

also , as nothing will be left for shareholders. From the interest coverage ratio it is found that

the ratio has increased from 3.41 times in 2012 to 4.12 times in 2013. As the ratio is high the

firm’s ability to pay interest is high but in 2011 it was 4.70 implying lesser use of debt & very

efficient operations were carried out.

The company has the servicing capacity so far as the fixed interest on long term debt is

concerned as there is an increase in profit before tax then the previous year also there is an

increase then the previous year it is considered appropriate.

3.Activity Ratios:- These ratio are calculated on the bases of ‘cost of sales’ or sales, therefore,

these ratio are also called as ‘Turnover Ratio’. Turnover indicates the speed or number of

times the capital employed has been rotated in the process of doing business. Higher turnover

ratio indicates the better use of capital or resources and in turn lead to higher profitability.

Activity Ratio Includes Three Ratios:-

a .Stock Turnover Ratio

35

b. Debtors Turnover Ratio

c. Average Collection Period

d. Creditors Turnover Ratio

e. Average Payment Period

a .Stock Turnover Ratio:- This ratio indicates the relationship between the cost of goods during

the year and average stock kept during that year.

Formula:-Cost of Goods Sold/Average Stock

Cost of goods sold = Net Sales – Gross Profit

Average Stock = Opening Stock + Closing Stock/2

OR

Stock Turnover Ratio:- Sales/Stock

Stock Turnover Ratio


Year Sales Stock Times

2011 10676 3007.75 3.55

2012 16694.80 5266.25 3.17

2013 20153.12 635.05 3.17

36

2011 2012 20132.9

3

3.1

3.2

3.3

3.4

3.5

3.6 3.55

3.17 3.17 Stock Turnover Ratio

Interpretation:-

This ratio indicates whether stock has been used or not. It shows the speed with which the stock

is rotated into sales or the number of times the stock is turned into sales during the year.

The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business

where stock turnover ratio is high, goods can be sold at a low margin of profit and even than

the profitability may be quit high. From the inventory turnover ratio it is derived that the ratio

is satisfactory as the inventory holding period is good, compared during the financial year

2011.

Stock turnover of Omkar Speciality Ltd is same as compare to the previous year and it has a

high speed in rotating stock into share. As it can rotate the stock quickly profit will be achieved

even at low margin.

b. Debtors Turnover Ratio:- Debtors Turnover Ratio indicates relationship between credit sales

and average debtors and average bills receivable during the year.

Formula:- Net Credit Sales/Average Debtors

37

Debtors Turnover Ratio


Year Net Credit Sales Average Debtors Times

2011 10676 2721.44 3.92

2012 16694.80 3848.52 4.34

2013 20153.12 6147.11 3.28

2011 2012 20130

0.5

1

1.5

2

2.5

3

3.5

4

4.5 3.924.34

3.28

Debtors Turnover Ratio

Interpretation:-

This ratio indicates the speed in which the amount is collected from debtors. The higher the

ratio the better it is, since it indicates that the amount from debtors is being collected more

quickly. From the debtors turnover ratio it s derived that the ratio is satisfactory as there is

decline from 4.34 times in 2012 to 3.28 in 2013.

From the above graph it can be seen that as there is an decrease in the speed from the previous

year in collecting from debtors but as appropriate standard is not set it is fine to have 3.20 times

as a speed.

c. Average Collection Period:- This ratio indicates the time with in which the amount is

collected from debtors and bills receivables.

38

Formula:- Average Debtors *365 / Net Credit Sales

This ratio may also be calculated as follows :-

12 months or 365 days / Debtors Turnover Ratio.

Average Collection Period


Year Days DebtorsTurnover

Ratio

Days

2011 365 3.92 93 days

2012 365 4.34 84 days

2013 365 3.28 111 days

Interpretation:-

This ratio shows the time in which the customers are paying for credit sales. A higher debt

collection period is thus, an indicates of the inefficiency and negligence on the part of

management. From average collection period shows that there is a incline in collection from

debtors from 84 days in 2012 to 111 days in 2013 as compare to the previous year

comparison there was an decline from 93 days in 2011 to 84 days in 2012.

39

2011 2012 20130

20

40

60

80

100

120

9384

111

Average Collection Period

On the other hand, if there is decrease in debt collection period, it indicates prompt payment

by debtors which reduces the chance of bad debts. As there is an increase in collection from

the previous year it increases the company’s chance of bad debts.

d. Creditors Turnover Ratio:- Creditors Turnover Ratio indicates relationship between credit

purchase and average creditors and average bills payable.

Formula:- Credit Purchase/Average Creditors

Creditors Turnover Ratio


Year Net Credit Purchase Average Creditors Times

2011 8514 2214.96 3.84

2012 11874.19 2526.30 4.70

2013 11217.64 2765.93 4.05

2011 2012 20130

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

3.84

4.7

4.05

Creditors Turnover Ratio

Interpretation:-

This ratio indicates the speed in which the amount is being paid to the creditors. The higher

ratio the better it is, since it will indicate that the creditors are being paid more quickly which

40

increases the credit worthiness of the firm. From creditors turnover ratio it is found that in

2012 the ratio has increase as compared to 2011 that is from 3.84 times to 4.7 times which

came down to 4.05 in 2013.

Since there is slight decrease then the 2012 but better then 2011 there is considerable good

speed in paying out to creditors .

e. Average Payment Period:- This ratio indicates the period which is normally taken by the firm

to make payment to its creditors.

Formula:- Creditors / Credit Purchase

This ratio may also be calculated as follows :

Average Payment Period = 12 months or 365 days / Creditors Turnover Ratio

Average Payment Period


Year Days Creditors Turnover

Ratio

Days

2011 365 3.84 95 days

2012 365 4.70 78 days

2013 365 4.05 90 days

41

2011 2012 20130

10

20

30

40

50

60

70

80

90

10095

78

90

Average Payment Pe-riod

Interpretation:- :-

From average payment period it is derived that there is a decline in paying off to creditors as

compared to the previous year from 78 days it came down to 90 days. The lower the ratio, the

better it is, because a shorter payment period implies that the creditors are being paid rapidly.

Since there is an increase in the payment period from last year it implies that the creditors are

not being paid rapidly.

4.Profitability Ratios:- The main object of every business is to earn profits. A business must

be able to earn adequate profits in relation to the risk and capital invested in it. The efficiency

and the success of a business can be measured with the help of profitability

Profitability Ratio can be determined on the basis of sales or on the basis of investment into

business.

A) Profitability Ratio In Relation To Sales:-

a. Gross Profit Ratio

b. Net Profit Ratio

c. Operating Profit Ratio

d. Operating Cost Ratio

a. Gross Profit Ratio:- Gross Profit Ratio shows the relationship between gross profit to net

sales.

42

Formula:- Gross Profit/Net Sales*100

Here, Net Sales= Sales – Sales Return

Gross Profit Ratio


Year Gross Profit Net Sales Ratio

2011 2671.93 10676 0.25

2012 4670.70 16694.80 0.24

2013 4702.41 20153.12 0.23

2011 2012 20130.22

0.225

0.23

0.235

0.24

0.245

0.250.25

0.24

0.23 Gross Profit Ratio

Interpretation-

This ratio measures the margin of profit available on sales. The higher the gross profit the

better it is, no ideal standard is fixed for this ratio but, the gross profit should be adequate

enough not only to cover the operating expenses but also to provide for depreciation and

interest on loans ,dividends and creation of reserves. The gross profit is fluctuating from 2011

to 2012 it declines 1 percent & from 2012 it fluctuates 2 percent in 2013 though there is

decline it shows that gross profit is 23 % of sales then if deducting from 100 the result 77 %

is the ratio of cost of goods sold.

b. Net Profit Ratio:- Net Profit Ratio shows the relation between net profit and sales

43

Formula:- Net Profit/Sales* 100

Net Profit Ratio


Year Net Profit Net Sales Ratio

2011 1547.34 10676 0.15

2012 1644.07 16694.80 0.09

2013 2080.10 20153.12 0.10

2011 2012 20130

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16 0.15

0.090.1

Net Profit Ratio

Interpretation:-

This ratio measures the rate of net profit earned on sales. It helps in determining the overall

efficiency of the business operations. An increase in the ratio of the previous year shows

improvement in the overall efficiency and profitability of the business. From the net profit it

is found that there is a satisfactory result from the last year that is increased from 0.9 to 0.10

but the highest was recorded in the year 2011 that is 0.15. As shown in the above graph there

is an increase in the net profit from 2012 which was decrease then the previous year also .So

the overall efficiency of the firm is profitable.

44

c. Operating Profit Ratio:- Operating Profit Ratio shows the relation between operating profit

and net sales.

Formula:- Operating Profit/Net Sales*100

Operating Profit:- Gross Profit – Operating Expenses such as Office and Administrative

Expenses, Selling and Distribution Expenses, Discount, Bad Debts, Interest on Short Term

Debts.

Operating Profit Ratio


Year Operating Profit Net Sales Ratio

2011 1953.45 10676 0.18

2012 1950.27 16694.80 0.12

2013 2321.08 20153.12 0.12

45

2011 2012 20130

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.180.18

0.12 0.12

Operating Profit Ra-tio

Interpretation:-

This ratio measures the rate of net profit earned on sales. It helps in determining the overall

efficiency of the business operations. An increase in the ratio of the previous year shows

improvement in the overall efficiency and profitability of the business.

As there is not any change in the operating profit from the previous year i.e 2012 as their was 5

points decline in 2012 as compared to 2011 there is normal profit efficiency in the company.

d. Operating Cost Ratio:- Operating Cost Ratio measures the relationship between operating

cost and net sales.

Formula:- Cost of Goods Sold + Operating Expenses/Net Sales* 100

Cost of Goods Sold:- Opening Stock + Purchase + Carriage + Wages + Other Direct Expenses

– Closing Stock

Operating Expenses:- Office And Administration + Selling And Distribution Expenses +

Discount + Bad Debts + Interest on Short Term Debts.

46

Operating Cost Ratio


Year Cost of Goods Sold+

Operating Expenses

Net Sales Ratio

2011 8747.43 10676 0.82

2012 13892.7 16694.80 0.83

2013 16870.99 20153.12 0.84

2011 2012 20130.81

0.815

0.82

0.825

0.83

0.835

0.84

0.820000000000001

0.830000000000001

0.840000000000001

Operating Cost Ratio

Interpretation:-

Operating Cost Ratio is a measurement of the efficiency and profitability of the business

enterprise. This ratio indicates the extent of sales that is absorbed by the cost of goods sold

and operating expenses. Lower the operating cost ratio is the better, because it will leave

higher margin of profit on sales. From operating cost ratio it is derived that the ratio

calculated for the considered financial years is not good as there is increase in ratios from

2011-2013 that is 0.82-0.83 & 0.83-0.84.

B) Profitability Ratio In Relation To Investment:- This ratio reflects the true capacity of the

resources employed in the enterprise. Sometimes the profitability ratio based on sales are

high whereas profitability ratio based on investment are low. Since the capital is employed

47

to earn profit, this ratios are the real measure of the success of the business and managerial

efficiency.

a. Return on Total Assets

b. Return on Capital Employed

c. Return on Equity Shareholders Funds

d. Earnings Per Share

e. Price Earning Ratio

a. Return on Total Assets:- Return on total assets measures a relationship between net profit

before interest and tax and total assets.

Formula:- Net Profit Before Interest and Tax /Total Assets *100

This ratio may also be calculated as follows :

Formula:- Net Profit After Tax + Interest –Tax Advantage/Total Assets*100

Return on Total Assets


Year Net Profit After Tax + Interest

+ Tax Advantage

Total Assets Ratio

2011 1903.75 17250.16 0.11

2012 2191.20 21666.62 0.10

2013 2582.10 28254.60 0.09

48

2011 2012 20130

0.02

0.04

0.06

0.08

0.1

0.12 0.110.1

0.09

Return On Total Assets

Interpretation:

This ratio helps to find out how efficiently the assets have been used by the management. An

indicator of how profitable a company is relative to its total assets. ROA gives an idea as to

how efficient management is at using its assets to generate earnings. Calculated by dividing a

company's annual earnings by its total assets From return on total assets it is derived that the

ratio is not satisfactory as it is declining year after year that is from 0.11-0.10 & from 0.10-

0.09 in the financial year.

b. Return on Capital Employed:- Return on Capital Employed ratio reflects the overall

profitability of the business. It is calculated by comparing the profit earned and the capital

employed to earn it and is usually in percentage.

Formula:- Profit Before Interest And Tax/Capital Employed * 100

Where Capital Employed= Equity Share Capital + Preference Share Capital + All Reserves + P

& L A/C Balance + Long Term Loans – Fictitious Assets – Non Operating Assets.

Capital Employed= Fixed Assets + Working Capital Or Long Term Borrowings + Long Term

Provisions + Short Term Borrowing.

49

Return on Capital Employed


Year Net Profit Before Interest &

Tax

Capital Employed Ratio

2011 2481.07 4158.58 0.59

2012 2757.20 7486.95 0.36

2013 3064.24 11752.10 0.26

2011 2012 20130

0.1

0.2

0.3

0.4

0.5

0.60.59

0.36

0.26 Return On Capital Employed

Interpretation:-

Since profit is the overall objective of the business enterprise, this ratio is the barometer of the

overall performance of the enterprise, it measures how efficiently the capital employed is being

use. With the help of this ratio shareholders can also find out whether they will receive regular

or higher dividend or not.

There is an decrease in ratio from previous year it is doubtful whether the company will be in a

position to pay off dividends to shareholders

50

c. Return on Equity Shareholders Funds:- Equity Shareholders Funds of a company are more

interested in knowing the earning capacity of their funds in the business. As such, this ratio

measures the profitability of the funds belonging to the equity shareholders’.

Formula:- Earnings After Tax – Preference Dividend/Equity Share Capital + Reserves and

Surplus – Fictitious Assets* 100

Return on Equity Shareholders Funds


Year Earnings After Tax Equity Shareholders’

Funds

Ratio

2011 1014.04 9223.97 0.11

2012 1644.67 10583.49 0.16

2013 2080.10 12677.66 0.27

2011 2012 20130

0.05

0.1

0.15

0.2

0.25

0.3

0.11

0.16

0.27

Return On Equity Shareholders' Funds

51

Interpretation:-

This ratio measures how efficiently shareholders’ funds are being used in the business. It is a

true measure of the efficiency of the management since it shows what the earning capacity of

the shareholders’ .If the ratio is high , it is better, because in such a case equity shareholders’

may be given higher dividend.

There is an increase in return on equity shareholders funds from 2011 to 2013 this shows that

the firm has good earning capacity.

d. Earnings Per Share:- :- This ratio measure the profit available to the equity shareholders on a

per share basis. All profit left after payment of tax and preference dividend are available to

equity shareholders.

Formula:- Earnings After Tax – Preference Dividend/ Number of Equity Shares

Earning Per Share


Year Earnings After Tax Number of Equity

Shares

Rs

2011 1014.04 196.28 5.16

2012 1644.67 196.28 8.38

2013 2080.10 196.28 10.60

52

2011 2012 20130

2

4

6

8

10

12

5.16

8.38

10.6

Earning Per Share

Interpretation:-

This ratio helpful in the determining of the market price of the equity share of the company.

The ratio is also helpful in estimating the capacity of the company to declare dividends on

equity shares. From the earning per share it is derived that the result is satisfactory that is the

ratio is increasing that is from Rs 5- Rs8.38 & from Rs 8.38 – Rs 10.60.

This ratio represent profit earned by the company on the number of equity shares issued. As

there is an increase in earning from share from 2011 to 2013 it s estimated that the firm has

the capacity to declare dividends.

e. Price Earning Ratio:- This ratio is between market price of equity shares & earning per

share. This ratio is calculated to estimate of appreciation in the value of a share of a company

& widely used by investors to decide whether or not to buy shares in a particular company.

Formula:- Market Price of Share/Earning Per Share

Price Earning Ratio


Year Market Price of Share Earning Per Share Times

2011 140 5.00 28

2012 140 8.38 16

2013 140 13.2 13

53

2011 2012 20130

5

10

15

20

25

30 28

16

13 Price Earning Ratio

Interpretation:-

This ratio shows how much is to be invested in the market in this company’s share to get each

rupee of earning in its shares. This ratios is used to measure whether the market price of share

is high or low. From the price earning ratio it is found that the result is not satisfactory as the

ratio is decreasing year after that is from 28times- 16.7 times & from 16.7 times – 13.2 times

in the financial year. The above graph show that there is an decrease in market price of the

share from 2011 to 2013 it means that the company is not growing & has no good prospects.

54

CHAPTER 4

FINDINGS, SUGGESTIONS & CONCLUSION

55

4.1 FINDINGS

1. The company may improve its current ratio by decreasing the current liabilities

because in the year 2012-2013 current assets are decreased and it may also improve

its quick ratio

2. The company may decrease its total debt as there is increase in total debt the year

2012-2013 the company may increase its investment in current assets.

3. Long terms solvency of the company has to be improved by limiting amount invested

by outsiders to the amount invested by the owner of the company . this can be

achieved by purchasing the shares gradually.

4. The proper management of the inventory can improve liquidity position and

efficiency of the company.

56

4. 2 SUGGESTIONS

Decrease in Current ratio: According to accounting principles, a current ratio of 2:1 is

supposed to be an ideal ratio. It means that current assets of a business should, at least, be

twice of its current liabilities. The firm should start increasing their stock for the current

requirement & to improve credit management in terms of under accounts receivable at the

same time the firm should not make full use of its current borrowing capacity also long-term

borrowing to repay the short-term debt can also improve this ratio. Therefore a firm should

have a reasonable current ratio.

Operating cost ratio has increase considerably:- Operating Cost Ratio or OCR is a percentage

(%) and is perhaps the best indicator of the overall efficiency of a lending institution. For this

reason, the Ratio is also commonly referred to as the efficiency Ratio: it measures the

institutional cost of delivering loan services. The lower the Operating Cost Ratio, the higher

the efficiency of an institution. It is affected by increasing or decreasing operational costs

relative to the average loan portfolio outstanding. The firm should start using cost cutting

technique so that their cost of goods sold will decrease plus their operating expense should be

decrease. Operating leverage can be measured through the following ratios: (1) fixed costs to

total costs; (2) percentage change in operating income to the percentage change in sales

volume; and (3) net income to fixed charges. An increase in fixed costs to total assets and

percentage change in operating income to the percentage change in sales volume or a

decrease in net income to fixed charges shows higher fixed charges, resulting in greater

instability.

57

4.3 CONCLUSION

Study of ratio analysis of Omkar Speciality Ltd reveals the performance of the company in

terms of financial aspects. It is found that there is increase in net profit after tax during 2011

to 2013. The cash balance is also increased for the above said years this is due to company’s

revised policy in debt collection. It is also observed that the current ratio is not so satisfactory

which creates chunks in the current assets in the form of sundry debtors and inventory.

Particularly the current year’s position is well due to raise in the profit level from the last year

position.

58

Learning from Project:-

It is very important to utilize the resources and to reduce losses in efficient manner. While

finding downtime we understand that every minute is very important for any organization.

To find out the deficiencies along with their root causes in any process is quite difficult. But

while finding the deficiencies and their constraints we have come across many industrial

problems. Sometimes ignorance while working was cause of losses and it can hampers the

organization

Progress and by bringing down the product quality. Sometimes operator knew the causes of

losses more than the executive/engineer, but they still do not want to check their ignorance,

So motivation of such worker became important.

Problems faced during Project:

Due to their company work, the actual interaction to the manager was very less. There was

also infrastructure problem because of which we could not get access to a lot of company

data. Because of these reasons. Our project time was reduced to a great extend the above

material is developed under the above constraints.

59

BIBLIOGRAPHY

Websites:-

http://www.omkarchemicals.com/

http://www.moneycontrol.com/

http://www.investopedia.com/

Books:-

Financial Management by Khan M and P.K. Jain

Financial Management by Prasanna Chandra

Annual Report of Omkar Speciality Chemicals Ltd 2013

Annual Report of Omkar Speciality Chemicals Ltd 2012

60

Annexure:-

BALANCE SHEET AS AT MARCH 31, 2013

(Rupees in Lakh, except for share if otherwise stated)

As on 31st March

2013

As on 31st March

2012

EQUITY AND LIABILITIES

Shareholders’ Funds

Share Capital 1,962.80 1,962.80

Reserves And Surplus 10,358.61 8,620.69

Money Received Under Warranty 356.25 -

12,677.76 10,583.49

Non Current Liabilities

Long Term borrowings 2,990.05 467.66

Deferred tax liabilities (Net) 112.67 122.76

Long-term provisions 113.23 102.59

3,215.95 693.01

Current Liabilities

Short-term borrowings 8,648.91 6,916.70

Trade payables 2,765.93 2,526.30

Other current liabilities 391.97 658.11

Short-term provisions 554.18 289.01

12,360.99 10,390.12

TOTAL 28,254.60 21,666.62

ASSETS

Non Current Assets

Fixed Assets

Tangible Assets 4,393.34 3,625.38

Intangible Assets 53.11 3.49

Capital Work-in-Progress 4,017.97 3,047.38

Intangible Assets under Development 1.50 17.71

Non Current Investments 1,086.39 212.08

61

Long-term Loans and Advances 2,740.67 998.29

12,292.98 7,904.50

Current Assets

Inventories 6,356.05 5,266.25

Trade Receivables 6,147.11 3,848.52

Cash and Cash Equivalents 2,157.47 3,140.36

Short-term Loans and Advances 43.10 408.01

Other Current Assets 1,257.89 1,098.98

15,961.62 13,762.12

TOTAL 28,254.60 21,666.62

STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED MARCH 31, 2013

62

(Rupees in Lakh, except for share if otherwise stated)

For the year ended

March 31, 2013

For the year ended

March 31, 2012

INCOME

Revenue from Operation 20,153.12 16,694.80

Other income 579.40 369.86

Total Revenue 20,732.52 17,064.66

EXPENDITURE

Cost of Material Consumed 11,935.71 10,773.33

Purchase of stock in trade 3,509.26 1,817.96

Changes in inventories of Finished Goods,

Work in progress and Stock in Trade (1,808.51) (1,157.10)

Employee benefits expense 800.54 638.34

Finance Costs 743.16 809.53

Depreciation and Amortization expense 568.43 562.09

Other Expenses 2,083.45 1,302.93

Total Expenditure 17,832.04 14,747.08

Profit before tax 2,900.48 2,317.58

Tax Expenses

Previous year adjustments 27.59 2.44

Current Tax 802.91 612.70

Deferred Tax (10.12) 57.77

Profit for the period 2,080.10 1,644.67

Earnings per equity share (in Rs.)

Basic 10.60 8.38

Diluted 10.59 8.38

Face Value of Equity Shares (in Rs.) 10-00 10

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Documents

Final Project Ratio Analysis