REPORT ONSUMMER TRAINING "RATIO ANALYSIS OF JCT Ltd." SUBMITTED TOIn partial fulfilment of the requirement for the award of degree of MASTERS OF BUSINESS ADMINISTRATIONSubmitted to RAMGARHIA INSTITUTE OF ENGGINEERING & TECHONOLOGYSESSION(2012-2014)Supervised By: Submitted By: Mr. Sandeep Sachdeva Sunaina MBA 3rd sem. RAMGARHIA INSTITUTE OF ENGGINEERING & TECHONOLOGY

INDEXS.NO.PARTICULARSPAGE NO.

Preface

Acknowledgement

Summer training certificate

Executive summary

Chapter 1 Introduction of the company

1.1Profile of the company

1.2Company history

1.3Organisation structure

1.4Product range of the company

1.5HR Policies of the company

1.6Future prospects

Chapter 2Literature review

Chapter 3Research methodology

3.1Objectives of the study

3.2Need of the study

3.3Data collection

3.4Limitation of the study

Chapter 4 Data analysis

Chapter 5Finding, Suggestion & Conclusion

Bibliography

Annexure

DECLARATION

I Sunaina hereby declare that this project is the record of authentic work carried out by me during the academic year 2012 2013 and has not been submitted to any other University or Institute towards the award of any degree.

Signature of the student ( Sunaina)

PREFACEFinance is an important to business as blood is to the human body. It is adequate flow of finance with which business is started and run smoothly in an efficient way. Proper management of financial resources is of prime importance in any business and financial analysis leads towards this direction. The present project report shows financial health of JCT Ltd. (JAGATJIT COTTON TEXTILE). The picture of financial position in the company is shown with the help of various financial tools i.e. Ratio analysis. However, the work is subject to time constraints but still it is the analysis of annual report of company and can supplement the interpretation in having crucial decision in regard to financial management. As in todays competitive world, it is essential to have a sound financial position to make a firm capable of facing tough and competitive business environment.

ACKOWLEDGEMENT

The project would not have seemed the light of day without the help & guidance of many people. I take opportunity to convey my deepest gratitude to those individuals.I would like to express my heartfelt to all those who contributed directly or indirectly in preparation of this report. I would like to place on record my sincere gratitude and appreciation to my project guide Ms. DEEPA RAWAT , RAMGARHIA INSTITUTE OF ENGINEERING & TECHNOLOGY for her kind co-operation and guidance which enabled me to complete my projectI am indebted to my project guide Mr. Sanjay Maheshwari (G.M.-F&A), who gave me guidance, encouragement and inspiration throughout the project .I am very grateful to him for his support that enabled me to enhance my knowledge and helped to draft the report.I also express my sincere thanks to Mr. Sandeep Sachdeva for helping me and guiding me in completing my project.All in all, it was the pleasant learning experience for me in JCT Ltd, thanks to all seniors and staff for making it so memorable. It was their encouragement that, support and co operation, which made me, give some meaning to my project. Finally, I am very thankful to my family and God who has provided me support at every moment. I hope that company and interested readers will find this Project Work useful.

EXECUTIVE SUMMARYCompanies strive from day to day to make their business publicly strong, financially strong, and appeasing and profitable for its shareholders. Shareholders as well as the company's management use several tools to determine a company's health and direction. These tools are better known as ratio analysis. Ratios are among the more widely used tools of financial analysis because they provide clues to and symptoms of underlying conditions. Ratios help measure a company's liquidity, activity, profitability and leverage. These four measured sections show how ratio analysis is used in decision-making, how a firm can measure its financial situation and financial performance, and the strengths and weaknesses of the company. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas.Research aims to evaluation of ratio analysis in investment decision making, and to know the financial position of the company. The report aims to provide appropriate information about the industries and financial position with its ratios analyses technique. In literature review part where the extract materials from various books, magazines, news papers and internet resources. Research also consist the research methodology and data analyses and interpretation.Figures were obtained from comparative balance sheets and profit and loss statements from the relevant years as well as additional information that were forwarded by the board. This information enabled the development of percentage and ratio analysis which was then used to create the report. The investigation revealed that the company had not improved its position compared to previous years. The profitability of the company was significantly not better whilst the liquidity had remained reasonably steady. The solvency of the company had declined however, which affected the long-term obligations of the business. Overall, the company is in a not much sounder positionThere are some suggestions Company is following very conservative credit policy for its Debtors and there is need to increase the credit period for its debtors in order to increase its Sales and Profits. The companys fixed assets are continuously declining. There is a need to increase the fixed assets by raising low cost Outsiders Funds. The company is paying large amount on Non Operating Expenses due to which the companys overall profitability position is not good. The company should have to control its interest and financial charges in order to bring down the Non Operating Expenses

CHAPTER :- 1

AN INTRODUCTION OF THE THAPER GROUP

A visionary who wanted to lay the foundation of an enterprise that would help India through her formative years, founded the Thapar Group in the early 1920s. As pioneers they are the fourth largest industrial conglomerate in the country, with over 54 different companies and 80 manufacturing plants. Assets have accumulated over Rs. 24000 million with an annual turnover of about $2 billion. The group grows annually at the rate of over 19%. The group has diversified industrial interests that include paper, Chemicals, Textiles, Manmade Fibers, Glass, Electronics, Heavy Engineering, Diesel Engines, Power Equipment, Motor and Pump sets, Gensets, transmission and Distribution Equipments etc. Beyond this, the Thapar Group manufactures equipment for industries related to Aviation, Mining, Marine, Metallurgy, Oil exploration, Shipping, and Mechanical handling. Industrial products like Electronic Process Instrumentation Boilers and Furnaces, Steam and Energy Control Equipment are also the part of Thaper Groups activities. Software Growth is another area that Thaper Group has explored.Flagship that represents the Thaper Group:

Ballarpur Industries Ltd. JCT Ltd. Compton Greaves Ltd. Greaves Cotton and Company LtdThe companies have gone beyond their initial industrial interest and pioneered a wide range of products and services through their subsidiaries. The Thapar Groups spectacular growth in a span of over 80 years is a result of two factors:

A clear philosophy that governs the mission of business across all levels of hierarchy and the openness of mind to share global technologies with those who are willing and brave. The Thapar Groups manufacturing values ensure associations only with the worlds best and most capable corporations. The group owes its success to a well known attitude of doing business globally and nationally, an attitude that involves lighting changes, both in terms of technology, infrastructure, and ability to adopt the changing scenario at home and abroad, and a warm management philosophy that always puts people first.

J.C.T. FACTUALS 1.Established in : 1946 2.Operation of production : 19513.1950s Installed Capacity Spindle : 17856 Looms : 390 4. Present Installed Capacity Spindles : 63244 Open End Rotors : 1488 Looms : 450( Conventional) : 172 (Sulzer) : 69 (Air-Jet) 5.Annual Turnover (in Rs. Crores) : Rs.300 Exceeding 6. Manpower A. Workers 5000

B. Staff 530

7. Registered Office : Village Chohal Distt. Hoshiaspur 146024 (Pb.)8. Corporate Office : 305-309, 3rd floor Rattan Jyoti building 18, Rajendra palace New Delhi 110008

9.Export Market: United Kingdom U.S.A South East Asia Middle East Asia Bangladesh Srilanka Mauritius10. Domestic Market: Defence Services (largest consumers) Wholesale dealers and retailers Export merchants11. Company Secratory : Mr.S.C.Saxena12. Auditors : S.P chopra & co. Chartered accountants F-31, can naught place New Delhi- 1100013. Units a. Textiles : Phagwara(Punjab) : Sriganganagar(Rajasthan) b. Filament : Hoshiarpur(PunjabFABRIC RANGES:FABRIC STYLES: BULL DENIMS, TWILLS, CHINO, CORDS, CANVAS, DUCKS, FLANNEL, TUSSORES, YARN DYED SHIRTING, PRINTS UPTO 8 COLOURS.

FINISHES: MICRO-SANDING, PEACHING, SOFT-FINISH, STAFFFINISH, EASY CARE, WATER REPELLEMENT, RAIN AND STAIN PROOF.

BLENDS: 100% COTTON, POLYSTER: COTTON BLENDED FABRICS-65:35, 35:63, POLYSTER VISCOSE WITH BLEND 48:52.

TEXTILE INDUSTRY OVERVIEWJCT Limited commenced its textile operations in 1946.The Textiles Division of the company has grown to be one of the largest composite textile units in Northern India with an annual turnover of Rs. 300 crores (USD 70 million) .. Boasting of a 4500-strong work force and the capacity to produce 4 million metres of the finest cotton and blended fabrics every month, JCT is undoubtedly a major player in both the domestic and export markets.JCT has presence all over the world with exports to USA, Europe, Far East, Middle East, Mauritius, and other countries. The fabric is made for leading international brands complying with their standard JCT LIMITED PHAGWARA: AN OVERVIEW

In the field of cotton and blended fabrics, JCT has always been a trendsetter. It is one of the leading manufacturers and exporters of cotton and Synthetic textiles in the country.JCT limited Phagwara; a composite unit having spinning, weaving, and processing facilities. It was incorporated on 28th October, 1946 under the name of M/S Jagatjit Cotton textiles Mills. The establishment of JCT limited was the result of the decision taken by the government of India under the post war development plan. It was decided to locate the mill in the north India and after much discussion; Kapurthala was selected as a site for textile venture. It was M/S Karamchand Bros. Ltd. Who entered into a final contract with the government of India to set a mill at Phagwara (Punjab). The disadvantage of unfavorable weather was offset by other factors such as cheap labour, availability of raw material, and governments aid. Thus, the company came into existence in 1946. In the initial years, the business was on a small scale and the company was manufacturing only cotton fabrics. That is why it is called Jagatjit Cotton Textiles Ltd. Afterwards the company also started manufacturing cotton yarn, and nylon 6 filament yarns. JCT has made a big dent in synthetic markets by producing plain and fancy suiting; both piece dyed and fibber dyed and dyed yarn shirting in innumerable designs and weaves to cater the different segments of the market The policy of management to reinvest its profits year after year led the mill to grow rapidly into one of the leading textiles mill in the country. In 1995, Rs. 300 crores was invested for the modernization of the Phagwara unit. This unit is now one of the most modern units with the state of art technology.The management for over three decades has implemented the concept of participative management. The workers/ employees and their representatives are fully involved in the management and running the affairs of the company. This policy of management has generated tremendous goodwill for the company amongst its employees and the result is that the company has a committed workforce of about 5000 workers and 530 employees and the most cordial employee- employer relationship.As this is the era of cutthroat competition, JCT believes in quality, which results in leadership, and as result, this has led them to tremendous growth. JCT fabrics have captured profitable sections in the market. There has been a constant growth in the man-made fibber with a wide variety of nylon and polyester filament yarn. LOCATION OF JCT The mill is situated in Phagwara town on G.T. Road, the national highway number -1. It is 40 kilometers from Ludhiana towards Amritsar. The location of the mill is of great advantage as transportation of goods is cheaper, easier and quick. JCT PHAGWARA COMPLEXThe complex consists of a mill and the Thapar colony. In the mill, there is a main production unit, administration offices, go downs, stores, canteen, dispensary, and the turbines for the generation of electricity.The residential complex known as Thapar colony is for the officers and other employees. It includes gymnasium and club. The whole complex, thus, is like a small town in itself. CORPORATE PROFILE OF JCT LTDJCT Limited, the flagship company of the Thapar Group, has been a fore-runner in the field of Textiles ever since its inception in 1951. The Group has combined turnover of US $2 Billion in the year 2004-05. The groups constant endeavor has been to upgrade manufacturing processes and capacity to world standards, which has resulted in collaborations with some of biggest multinational corporations like TEIJIN SEKIE from Japan, NOY-VALLESINA, Zimmer AG, Hitachi Ltd., Corning, Mitsubishi Corporation, General Electrical, Westing house and David Brown.JCT Limited, under the leadership of Mr. M Thapar (Chairman) and Mr. Samir Thapar (Vice Chairman) is premier Indian Cotton Textiles and Nylon Filament Yarn manufacturer having manufacturing facilities in Northern India. JCT Limited is well renowned brand name in Cotton Textiles and Synthetic yarn communities in India and abroad. For their regular and consistent exports Govt. of India has awarded Export house status to the company for past 10years on regular basis. JCT belongs to THAPAR GROUP, one of the most reputed business groups in India. The Thapar group of companies was founded in early 1920s by Late Lala Karam Chand Thapar, which grew in size and scale to become the fourth largest conglomerate in the country during early 1990s with over 40 companies and 75 manufacturing plants. JCT Limited is an India-based company. The Company operates in two business segments: Textiles and Filament.

JCT is a leading name in the domestic and overseas textile markets with operations in two distinct business viz. cotton/blended textiles and nylon filament yarn. It ploughs on proudly as a multi-market company that is driven and fueled by culture and values that demand a high standard of performance and work ethics to establish itself as makers of finest products in the country. JCT Limited follows a balanced model for growth corporate responsibility and contribution towards social causes such as literacy and environment, sports and sportspersons development areas important as innovations in production techniques.

Domestic Market: The Company is a leader in Domestic segment and derives premium on its products. We are the first one to introduce Micro Denier Products in collaboration with Val Lesina- Italy. The group owes its success to a well known attitude of doing business, globally and nationally. An attitude that involves effecting lightning changes, both in terms of technologies and infrastructure and the ability to adapt to changing scenarios at home and abroad. Company has strong hold and efficient distribution across India and abroad.

International Market: The courage to look beyond national fences has today made filament division as leading exporter of value added product Nylon Filament Yarns from India.Today JCT has many Global Customers, satisfied with their product and service, few of their regular international markets are:

HISTORY OF THE JCT Year Events 1946- The Company was incorporated on 28th October in Kapurthala. The main object of the company is to manufacture cotton textile goods. The products manufactured are sheetings, shirting, cambric, dhoties, sarees, coating, mazril, mulls, etc. Counts ranging from 12s to 60s are spun and the cloth width varies from 27 inches to 66 inches.

1950-430 preference & 30,910 No.of equity shares allotted.1,815 pref.& 36135 shares forfeited.

1962- The Company acquired Benaras Cotton and Silk Mills.-4, 16,364 No. of rights of equity shares issued (prem. Rs 5, prop. of 1:1)

1963-Preference shares entitled to gross dividend of 6.5% P.A

1967-4, 16,275 No. of equity shares issued in prop. 1:2

1973- The Company entered in to a collaboration agreement with Thonburi Textile Mills, ltd., Bangkok whereby the Company was to render technical Knowhow for modernizing the existing weaving and processing facility besides its expansion by 21,600 spindles. This agreement was slightly revised during 1978-79.

1975-25,000 11% pref. shares issued.

1978- Shree Sadul textile, ltd. was merged with the Company on 28th October, and the merger was effected from 1st February 1977.-Taplon Synthetics Ltd. was amalgamated with the company with effect from 1st Feb. 1979. As per the scheme of amalgamation, 2,02,535.No. of Equity Shares of the company were allotted to the members of Taplon synthetics Ltd. after cancelling 28,200 No. of equity shares held by the company as investment in Taplon Synthetics Ltd.-2,38,108 No. of Equity Shares and 24,839 pref. shares allotted to members of Shree Sadul Textiles Ltd. upon its merger with the company.

1979-With effect from 1st February, Taplon synthetics Ltd was merged with the Company.-7,64,117 bonus Equity shares issued in proportion of 1:2 2,760 bonus equity shares remained to be allotted to non-resident shareholder.

1980- 2277026 rights equity shares issued at par in prop. 1:1, 319 bonus shares allotted to non residents (244) bonus shares remain to be allotted. 202535 No. of Equity Shares issued to members of Taplon Synthetics upon its merger.

1981 - The Company received a letter of intent from the Punjab State Industrial Development Corporation to participate in a 15,000 tonnes per annum, polyester staple fibre project to be set up at Hoshiarpur in the Company's nylon plant premises. -A technical collaboration agreement was entered into with E.I. Dupont, De Nemours of USA. A new Company under the name and style of Punjab Polyfibres, Ltd. was incorporated to implement this project. -A letter of intent was received to increase the capacity from 15,000 tonnes to 30,000 tonnes per annum. -The Company entered into a management & Technical Know-how Assistance Agreement with Chempaka Negri Lakshmi Textile SND, BHD at Malaysia

1983- 100000 13.5% pref. shares were issued. Rate of dividend on these pref. shares was increases to15% from 16th may 1984.These pref. shares are redeemable during 30th April1996-99

1986 - To improve the profitability of the Hoshiarpur unit, the Company took steps to convert a substantial part of its production capacity for the manufacture of polyester filament yarn. -A letter of intent was received for the manufacture of 15,000 TPA of polyester filament yarn. -At Sriganganagar unit operations were adversely affected due to workers strike for 3 months during October to December.

1987 - The Company offered 7,58,334-12.5% partly convertible secured redeemable debentures (E-Series) of Rs.120 each for cash at par on rights basis in the ratio of 1 debentures were allotted to retain over-subscription.

1988 - The Company took up implementations of the PFY project in stages. It was planned to add one spinning line to produce specialty yarn, in the first stage.- A dyeing plant was installed at Hoshiarpur, to increase the production of dyed yarn. In addition, a waste recycling plant was installed to increase the recovery of caprolactum from waste. In April, the name of the Company was changed from `Jagatjit Cotton Textile Mills, Ltd.' to JCT, Ltd.

1990 - With effect from 1st April the undertakings of Kidarnath Kishanchand Pvt. Ltd., (KKPL) and Sterling Steels & Wires, Ltd. (SSWL) were amalgamated with the Company. As per the scheme of amalgamation the following shares were allotted without payment in cash.

1991 - The profitability was adversely affected by various factors such as increase in interest rates, devaluation, and partial convertibility of Rupee etc. -The performance of the nylon and polyester filament yarn division was affected due to steep increase in excise duty, poor off take of textile material, increase in the cost of the basic raw material viz., caprolactum and import curbs. -Also the textile division was affected by the general recession in the textile market and unprecedented rise in cotton prices.

1992- The Company offered 9723759 No. of equity shares of Rs. 10 each at a premium of Rs.40 per Shares.-During October-November the Company offered 36637091. No. of equity shares of Rs.10 each for cash at premium of Rs.40 per shares on rights basis in the prop. 1:1 (all were taken up).

1993 - With a view to consolidating its position in the synthetic fiber industry, the Company undertook to set up a grass-root polyester simplex with facilities to manufacture polyester staple fiber, textile grade chips, PET resins up to 11,000 TPA all in the first phase. -With the rise in prices of cotton, it was proposed to shift production towards polyester blended fabrics. New varieties of cloth with high value addition were introduced. -The Textile division embarked upon a plan of modernization wherein older equipments were to be replaced with modern and efficient equipment.-Both 20000-5% and 24869-5% (income tax free) cumulative preference shares were redeemed.

1994 - The steel division entered into a tie up with a Korean Company for manufacture of wire ropes. -JCT Fibers Ltd., was merged with the Company. It was proposed to increase the polymer capacity to 65,000 TPA from 33,000 TPA. The said additional polymer was to be processed partly on polyester filament yarn and partly on polyester staple fibers. -The Company also undertook to invest in downstream equipment to manufacture additional polyester filament yarn and additional polyester staple fiber. -Under a modernization/replacement programmer, the Company proposed to install 48 high speed sophisticated looms and open end spinning machines at Phagwara.

2001 - The Company has decided hive-of its synthetic fiber division in Punjab and has also proposed to restructure its equity capital by reducing the face value of its shares from Rs 10 to Rs.2.50 -MM Thapar group flagship JCT has decided to induct three new professionals on the board. The new inductees are Raj Mohan Singh, head of the company's Phagwara unit, finance head; T N Subramanian and; S P Narang, secretary, The Institute of Company Secretaries of India . 2003 -JCT Members approve delisting from 3 exchanges (Ludhiana, Delhi and Kolkata)2004- JCT buys Senegal mill. JCT Limited, a pioneer in textiles in north India, is all set to spread its operations overseas. Through its subsidiary, CNLT Malaysia, JCT has acquired a composite textile mill in Senegal on a long-term lease

2005- JCT gets UN nod for carbon trading. Textile major JCT's rice husk-based power project at its plant in Phagwara, Punjab, has been registered with the UN panel for clean development mechanism (CDM) projects. CDM projects are those that qualify to trade carbon credits.

2007- JCT signs MOU with Dakshidin Corporation to produce water pumping & power generation Wind Mills, Dakshidin Signs MOU With Indian Conglomerate, JCT Limited Enters Multi-Billion Dollar Indian Market.

Organization structure1. Vice Chairman and Managing Director Mr.Samir Thapar Board of Directors2. Director(operations) Mr. Rajmohan Singh3. Mr.Makhan Saha4. Mr. Gordan Kathuria5. Mr. Satya Pal Narang6. Mr. Sanjay Sethhee IFCI Nominee BOARD OF DIRECTOR

MR. SAMIR THAPAR

MR.APAR SINGH DUGAL

MR.MAHESH SAHAI

MR. GORDHAN KATHURIA

MR.SATYA PAL NARANG

MR.VIPUL SINGLE

BANKERS

OBJECTIVES OF THE GROUP To consolidate and develop core business areas mainly: synthetic and textiles. To attain the position amongst the leading composite textiles mills in India and to retain its position among the top companies in the synthetic fiber industry. To expand and diversify into allied product areas and simultaneously increase global presence & develop international together with domestic market to achieve rapid growth. To evolve into a quality conscious, customer oriented and fast expanding organization.

CORPORATE PHILOSOPHY1. JCT believes in dignity of human beings.1. JCT believes that there exists a psychological contract between the organization and the employees, and the growth of both is interlinked.1. JCT strive to attract, develop, and retain the best talent available.1. JCT doesnt believe in any discrimination on the basis of caste, creed, religion, race, or gender.1. JCT believes in the concept of right person at the right job.1. JCT values merit and recognizes ability.1. JCT encourages teamwork and believes that this enhances problem-solving capabilities.1. JCT actively promotes sports and other cultural activities for cohesiveness and harmony.1. JCT knows that it is the part of the changing environment and that it has to be proactive to such changes. JCT continuously strives to be a better corporate citizen.

QUALITY POLICY OF JCT Customers satisfaction is the motto of JCT Ltd. They, therefore commit themselves to produce and deliver such fabrics so as to meet the customers demands

This is achieved by:1. Identifying customers requirements and converting them into products.1. Pursuing the process of continuous improvement by the employees of the organization.1. Ensuring that quality standards are maintained and upgraded to reflect the changing customers requirements.

MAJOR DEPARTMENTS OF JCT LIMITEDIn todays competitive world, the process of production is very important but the stand of the company becomes strong and sound if it moves towards productivity. This increase in productivity has to be achieved without sacrificing the quality of the end product. To meet the required objectives, the mill is divided into three main functions contributing equally to the effective and efficient working of the mill. These three major functions are subdivided into Departments and further into sections these three functions are as follows: A). Production Function B). Non Production Function C). Service FunctionProduction Function comprises of the following Departments: 1). SPINNINGA) Cotton SpinningB) Synthetic SpinningC) Spinning Auto-Coro/ Open End SpinningD) Spinning MaintenanceE) Post Spinning2). WEAVING A) Weaving Preparatory Conventional B). Weaving Conventional C). Weaving Preparatory Sulzer.(solder) D) Weaving Sulzer E) WEAVING AIR JET 3). PROCESSINGA) Synthetic ProcessingB) Cotton ProcessingC) FinishingD) Printing

Non Production Function comprises of the following Departments:1). Warehousea) Mendingb) Grey Foldingc) Cotton Ware Housed) Synthetic Warehousee) Exports Warehouse2). Marketinga) Domestic Marketingb) RMG Marketingc) Exports Marketing3) Raw Material Department4) Fabric Development Department5) Production Planning Department6) Research and Development7) ISO DepartmentService Function comprises of the following Department:A) Human Resource DepartmentB) Finance and Accounts DepartmentC) Information Technology DepartmentD) Administration DepartmentE) Purchase DepartmentF) Engineering DepartmentG) Labour & Industrial Relation DepartmentE) FINANCE AND ACCOUNTSFinance department is one of the important sections of the company. The main idea behind maintaining the records is to judge the accurate position of the company regarding the profits made or the losses incurred by the company. The objectives of the finance department are: To ascertain the results of the business activities carried on during the year. To show the financial position of the business as on a particular date.To meet the requirements of the taxation authorities, investors, management, and owners. This department is divided into following sections:1) Raw Material Section2) Store Section Stores Accounting Insurance C Form/D Form3) Establishment Section Salary Wages LTA Medical Allowances Bonus4) General Account Furniture Maintenance Other Expenses Refreshment Expenses5) Bank (Finance)6) Debtors Account Direct Through Banks7) Assets/Depreciation Account Original Cost Depreciation WDV Costing: Pre-Production Costing Routine Costing Productions Returns Budgeting:Budgets are prepared monthly, quarterly and yearly as per the requirement.is carried at an interval of 6 months. The external audit includes the following: Observation Non conformity Suggestion for further improvement To provide & maintain the network as well as the Computer hardwares of the companyA) FINANCE AND ACCOUNTS DEPARTMENTFinance department is one of the important sections of the company. The main idea behind maintaining the records is to judge the accurate position of the company regarding the profits made or the losses incurred by the company. The objectives of the finance department are: To ascertain the results of the business activities carried on during the year. To show the financial position of the business as on a particular date. To meet the requirements of the taxation authorities, investors, management and owners.This department is divided into following section:1) Raw Material Section2) Store Section Stores Accounting Insurance C Form and D Form3) Establishment Section Salary Wages LTA Medical Allowances Bonus4) General Account Furniture Maintenance Other Expenses Refreshment Expenses5) Bank (Finance)6) Debtors Account Direct Through Banks7) Assets and Depreciation Accounts Original Cost Depreciation WDV8) Costing Pre-Production Costing Routine Costing Productions Returns9) Budgeting Budgets are prepared monthly, quarterly and yearly as per the requirement.

B) PURCHASE DEPARTMENTAll the purchases made by the mill are made through this department (except the raw materials). This department manages the purchase of the following items: New Machinery Dyes and Chemicals Packing Materials Capital Goods Spare parts for all machines C) ADMINSTRATION DEPARTMENTThe administration department ensures Office Establishment, Dispatch, Transportation, Records Leave & Insurance of the company. The main objectives of this department are: Office Establishment Transportation Records Leave Insurance

D) FACTORY DEPARTMENTThe factory department ensures safety, security and welfare of the workers of the company. The main objectives of this department are: To ensure safety and security of the staff and workers. Disciplinary actions in regard to workers. Recruitments of workers and allotment of departments. To keep the record of the attendance of the staff members and the workers. To prepare the statement of the salary and wages of the staff and the workers.This department is also called the personnel department. It ensures the safety, security and welfare of the staff and workers. It takes care of disciplinary actions and sports. This department is further divided into following sections:-1. Time Office: This section deals with recording of time of workers, staff members and trainees with the help of numbered cards.2. Safety Department: There are three safety officers in JCT. If an accident occurs inside the plant then proper enquiry is done so that this could be avoided in the future.3. Security Department: This department makes all arrangements of security in the factory.4. Establishment: This department makes the records of wages and salaries of staff and workers. Employees Staff Insurance Corporation provides the staff members free medical service

WELFARE ACTIVITES Educational Free education for girl students up to 10+2 Nominal fee for boy-students of 10+1 and 10+2 Prizes/scholarship for meritorious students: A prize of Rs.500 is awarded to all students obtaining 1st division in Class 10 and a scholarship of Rs.150 is given to them every month for as long as they continue their studies. Textile Workers Educational Institute The school was started in 1960 as a Middle School and at present around 50 dedicated teachers are imparting education to about 2000 students up to 10+2 level in Arts, Science and Commerce subjects. The school is affiliated to Punjab School Education Board. It has got airy Class-rooms, play-grounds, well-equipped Science Laboratories, Computer Lab, Conference Room, Staff Rooms, Canteen, etc.. Its Library consists of educational and informative books. The children of the employees are getting education almost free. Stipend is paid to brilliant students in case they continue their studies even after passing out from the school. To enhance the knowledge, tours to different places are arranged for the students. The school is known in the region for its Extra Curricular Activities, especially in sports. Blood Donation/ Hospital Throughout the year, free medical check-up camps are arranged in the mills residential campus for employees and their families as well as outside the colony for general public. Free Eye Check-up and Operation Camps are organized in the mills colony with the assistance of team of eye-specialist doctors for general public. Blood Donation Camps are held where the employees donate blood. Social The Thapar Ladies' Club provides entertainment for the ladies. Incentive is given to a worker if he or his spouse undergoes an operation for family planning. A crche for small children is provided. Community Hall is available for marriages and other functions. Buses ply for children of the employees going to local schools as well as those in Jalandhar. Facilities for swimming, gymnasium, steam bath, squash, badminton, lawn tennis, billiards and table tennis are available to employees and their families. Bank ATM facility is available near the mill's Colony Gate for the employees.

ENVIRONMENTAL POLICYJCT Limited is committed to protecting the environment through: Optimally using of raw materials and energy. Efficiently and safely handling and storage of products. Maintaining a safe working environment. Training employees on safety and environmental issues. Continually improving the environmental conditions. SWOT ANALYSIS OF JCTSWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieve that objective. Strengths: attributes of the person or company that are helpful to achieving the objective(s). Weaknesses: attributes of the person or company that are harmful to achieving the objective(s). Opportunities: external conditions that are helpful to achieving the objective(s). Threats: external conditions which could do damage to the objective(s) STRENGTHS One of the oldest known fabric manufacturers. Good name in the market for superior stuff of cloth. One of the biggest manufacturers of the widest range/ variety of cotton fabrics. Acquisition of 9002 gave the company a new position. Highly modern and sophisticated machines. Competent and well disciplined staff. No labour trouble. Good network of loyal dealers. Extensive use of computers in each and every department. Company provides the maximum facilities to its employees. WEAKNESS Do not manufacture high or premium quality fabrics. Never advertised the acquisition of ISO 9002. No training is imparted to employees to progress further or to acquire position in an organisation. Not ready for deep penetration into the market. Designing of cloth is not very good. Overheads are high which leads towards the financial crisis. Export division is centralised in Mumbai. Lack of new and fresh skill. Lack of team work. Advertisement of its product as compared to other textile companies such as Raymonds and Reliance is very less.

OPPORTUNITIES Vast market for value added products. Bring into practise the new business policies and practises which are being used elsewhere in the industry for better utilization of resources. Prospects of export. Should go directly to the end user through exclusive show

THREATS Heavy competition due to MNC. Unsecured financial position. Delay in implementation of any kind of assignment could prevent from keeping pace with newer technology.

New blood/ competent person not ready to join the firm.Product Range of the CompanyJCT started the business on a small and the company was manufacturing only cotton fabrics and this is the reason why it is called Jagjit Cotton Textiles Ltd. But now the company is called JCT Ltd. and has also started manufacturing Synthetic Fibbers', Cotton Yarn, Nylon and Filament Yarn.

JCT is synonymous with the highest quality. With stringent control at every stage of the production process, it is no wonder that the Textile Division of JCT Ltd. is the first in the industry in the country to be accredited with ISO-9002 Certification.

The mill produces a wide range of fabrics in variety of weaves like Twill Stains, Dobbies, Cords, Oxfords, and Plains etc. The product range includes bottom weight fabrics like Bull Denims, Drills, Gabardine, Chino, Cords, Dobbies, Ducks and Canvasses, Flannel, Satin, Defence Fabric including camouflage, Piece Dyed Shirting, Yarn Dyed Shirting, Workwear Fabrics, Tussores, Lycra Strech Fabric etc. in both 100% cotton and poly/cotton blends in various combination in warp and weft in the range of 110 GSM with single as well as piled yarn.

JCT offers a wide range of finishes like Micro-sanding, Peaching, Soft Finish, Resin Finish/ Wrinkle Free/ Easy Care, Water Rapellant/ Rain and Stain Proof finish, stiff finish for canvas clothes etc. JCT is the pioneer in manufacturing Organic cotton fabrics-specially designed eco-friendly fabrics. JCTs commitment to globalization is reflected in exports of its Organic cotton fabrics, Wide Width Sheeting, Dyed Bottom Weight Twills and Dyed Shirting.

Twills, Natural Twills, Bull Denim, Canvas and Flannels on a regular basis to USA, UK, Europe, Mauritius, South America, Far East and Middle East.

The JCT Fabric has captured profitable sections of the market. There has been a constant growth in the manmade fibers with a wide variety of nylon and polyester filament yarn. After the unfavourable climate conditions, and the continuous rising of prices of raw material and in spite of difficult trading conditions, the company has been able to maintain its profitability. This is because of the better quality products and effective marketing strategies.

HR Policies of the Company Safety and Health PolicyTotal customers satisfaction is the motto of JCT Ltd. (Phagwara)So that the targets are achieved and humanity and productivity is saved and served To achieve the motto of total customer satisfaction with total safety of its employee.JCT Ltd. management is committed to provide safe and hazard free working environment through its policy of:- Detecting & removing unsafe working condition and undesired work practices by incorporating the statutory requirement into its system. Considering that avoiding accident is an essential part of every operation of the company. Through Education and Training develop safety aware employees who may work safety to solve himself and his fellow employees and maintain continuous interest in safety through safety activities By creating the concept of safety that the safety is everybodys business and inbuilt safety is the integral part of our developing activities. Development ProgramsAs a part of overall corporate attempt to significantly upgrade the technical and behavioral skills of its employees. JCT arranges developmental programs like supervisory developmental programs. For this Company conduct a number of in house training programs every year involving the faculty from plant and HRD department.Executives are also encouraged to participate in external training programs, workshops, seminars etc. The Companys policy has always been to give the top most priority to human resource development with a view to improving the effectiveness on the job in organizational communication and in their attitude towards work.

Computer TrainingJCT Ltd. arranges computer training programs for its employees and staff members, which has helped in gaining exposures to modern techniques in the field of computer education. Other Training Activities Small group activities Effective management Management of Human Resources Training to trainers Statistical quality controlJCT has its own very well trained teams of hockey, cricket, football etc. through which JCT tends to prove that to prove that work and play hand in hand. FUTURE PROSPECTUS

To produce Quality Products to meet customer requirements. Meet the quality standards of the domestic & international customers. Satisfy the internal & external customers. Facilitates the best facilities to its employees in comparison to other industries in this belt. Overall growth & development of its employees. Initiate for the welfare of Society, State & of the Country.

CHAPTER :-2

RATIO ANALYSIS INTRODUCTIONRatio analysis is a widely used tool of financial analysis. It 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. The term ratio refers to the numerical or quantitative relationship between two variables. Ratio Analysis uses a combination of financial or operating data from a company or industry to provide a basis of comparison. Each ratio measures a unique relationship that may impact others.The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of your business. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavourable trends that may be starting. According to Batty J. Management Accounting:

Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication.

RATIO ANALYSISThe term "Ratio" refers to the numerical and quantitative relationship between two items or variables. This relationship can be exposed as

Percentages Fractions Proportion of numbers

Ratio analysis is a process of determining and interpreting relationships between figures of financial statements. 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.

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. Third step is to interpretation, drawing of inferences and report writing conclusions are drawn after comparison in the shape of report or recommended courses of action.

BASIS OR STANDARED OF COMPARSION

Ratios are relative figures reflecting the relation between variables. They enable analyst to draw conclusions regarding financial operations. They use of ratios as a tool of financial analysis involves the comparison with related facts. This is the basis of ratio analysis. The basis of ratio analysis is of four types.

Past ratios, calculated from past financial statements of the firm. Competitors ratio, of the sum most progressive and successful competitor firm at the same point of time. Industry ratio, the industry ratios to which the firm belongs to Projected ratios, ratios of the future developed from the projected or pro forma financial statements

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. The following are the four steps involved in the ratio analysis. Selection of relevant data from the financial statements depending upon the objective of the analysis. Calculation of appropriate ratios from the above data. Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs. Interpretation of the ratio.

INTERPRETATION OF 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. Single ratio Group ratio. Projected ratio Historical ratio Inter-firm ratio GUIDELINS OR PERCAUTION FOR USE OF RATIOSThe calculation of ratios may not be a difficult task but their use is not easy. Followingguidelines or factors may be kept in mind while interpreting various ratios is

Accuracy of financial statements Objective or purpose of analysis Selection of ratios Use of standards

USE AND SIGNIFICANCE OF RATIO ANALYSISA. MANAGERAIL USES OF RATIO ANALYSIS Help in decision making: financial statements are prepared primarily for decision making. but the information provide in financial statements is not an end in its self and no meaningful conclusion can be draw from these statements alone. ratio analysis help in making decisions from the information provided in these financial statements. Help in financial forecasting & planning:ratio analysis is of much help in financial forecasting and planning. planning is looking ahead and the ratios calculate for a number of years work as a guide for the future. meaningful can be drawn for future from these ratios. thus, ratio analysis helps in forecasting and planning. Help in communicating:the financial strength and weakness of a firm are communicated in a more easy and understandable manner by use of ratios the information contained in the financial statements is conveyed in a meaningful manner to the one for whom it is meant. thus, ratio helps in communication and enhance the value of the financial statements. Help in coordination:ratio helps in coordination which is of utmost importance in effective business management. better communication of efficiency and weakness of an enterprise results in a better coordination in the enterprise. Help in control:ratio analysis helps in making effective control of the business. Other uses:it is an essential part of the budgetary control and standard costing. ratio are also importance in the analysis and interpretation of financial statements as they bring the strength and weakness of the firm. B.UTILITY TO SHARE HOLDER, INVESTOR:an investor in the company will like to asses the financial position of the concern where he is going to invest. his first interest will be the security office investment and then a return in form of dividend or interest for that purpose he will try to asses the value of fixed asset and the loan raised against them. the investor will feel satisfy only if the concern has sufficient amount of assets. ratio analysis will be useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not.C.UTILITY TO CREDITORS:the creditor extend short term credit to the concern. they are interested to know whether financial position of the concern warrants to their payments at a specific time or not. D.UTILITY TO EMPLOYEES:the employees are also interested in the financial position of the concern specially profitability. the wages increases and about of fringe benefits are related to the volume of profits earned by the concern the employees make use of information available in financial statements. various profitability ratios relating to gross profit, operating profit , net profit etc unable employee to put forward their view point for the increase of wages and other benefits. E. UTILITY TO GOVERNMENTS:government is interested to know the overall strength of the industry. government may base its future policies on the basis of industrial information available from various units. the ratio may be used as indicator of overall financial strength of the public as well as private sector. in the absence of reliable economic information, government plans and policies may not be prove successful. F. TAX AUDIT REQUIREMENTS: section 44 AB was inserted in the income tax act, 1984 under this section every assesses engaged in any business and having turnover or gross receipts exceeding Rs. 40 lakhs is required to get the accounts date for feeling the return of income under section 139(1). in case of professional a similar is required if the gross receipts exceed Rs. 10 lakh. clause 32 of the income tax act required that the following accounting ratio should be given. GROSS PROFIT NET PROFIT STOCK IN TRADE FINISHED GOODS PRODUCED

LIMITATION OF RATIO ANALYSIS

limited use of a single ratio:a single ratio, usually, does not conveyed much of a sense. to make a better interpretation a number of ratio have to be calculated which is likely to confuse the analyst then help him in making any meaningful conclusion. lack of adequate standards:there are no well accepted standards or rule of thumb for all ratios which can be accepted as norms. it readers interpretation of the ratio difficult. Inherent limitation of accounting:like financial statements, ratios also suffers from the inherent weakness of the accounting records such as their historical nature. ratios of the past are not necessarily true indicators of the future.

Change of accounting procedures:change of accounting procedures by a firm often makes ratio analysis misleading e.g. a change in the valuation methods of inventories from FIFO to LIFO increases the cost of sales and reduces considerably the value of closing stocks which makes stock turnover ratio to be lucrative and unfavourable gross profit ratio. Window dressing:financial statement can easily be window dressed to present a better picture of its financial and profitability position to outsiders. hence ones has to be very careful in making a decision from ratio calculated from such financial statements. but it may be very difficult for an outsider to know about the window dressing made by a firm. Personal bias:ratio are only means of financial analysis and not an end in itself. ratio have to be interpreted and different people may interpret the same ratio in different ways. Uncomparable:it make comparison of ratios difficult and misleading. moreover comparison are made difficult due to differences in definition of various financial terms used in ratio analysis. Absolute figure distortive:ratio devoid of absolute figure may prove distractive as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.

Price level changes:while making ratio analysis, no consideration is made to the change in price level and this makes the interpretation of ratios invalid. Ratios no substitutes:ratio is merely a tool of financial statement. hence, ratios become useless if separated from the statements from which they are computed. Clues not conclusion :ratio provide only clues to analysts and not final conclusions. these ratios have to be interoperated by these experts and there are no standard rule for interpretation.

CLASSIFICATION OF RATIO

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. Classification of ratio depend upon the objective and availability of data.various accounting ratios can be classified as follows:

1. Traditional Classification 2. Functional Classification 3. Significance ratios

1. Traditional Classification: It includes the following.

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 & loss account (or) revenue statement ratios: These ratios deal with the relationship between two profit & 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 & 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, long term solvency and leverage ratios, activity ratios and profitability ratios.3. Significance ratios :

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 RATIO ARE

Liquidity ratio Leverage ratio Activity /Performance/Turnover ratio Profitability ratio

1. LIQUIDITY RATIOS:- Liquidity represents one's ability to pay its current obligations or short term debts within a period less than one year .Liquidity ratios, therefore measure a company's liquidity position.the ratio are important from the viewpoint of its creditors as well as management. The Liquidity position of the company can be measured by mainly using two liquidity ratios such as follows: Current Ratio Quick/Liquidity/Acid Test Ratio

A.) CURRENT RATIO:

Current ratio is the ratio, which express relationship between current asset and current liabilities. Current asset are those which can be converted into cash within a short period of time, normally not exceeding one year. Current liabilities include those liabilities which are repayable in a years time. This ratio also known as Working capital ratio is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position of a firm.

Current ratio = Current assets Current liabilities

Significance: - The current ratio of 2:1 is the standard ratio. It means the current assets are twice as comparison to the current liabilities and they are sufficient to meet the short term obligation. The higher ratio indicates the better liquidity position; the firm will be able to pay its current liabilities more easily. Components of Current Ratio-

CURRENT ASSETS CURRENT LIABILITES

Cash in hand Sundry debtors

Cash at bank Bills receivable

Bills receivable Outstanding expenses

Inventories Bank overdraft

Short term investment Taxes etc., payable

Sundry debtors Dividends payable

Prepaid expenses Short term advances

Recoverable expenses Sundry creditors

Marketable securities

B.) QUICK RATIO:. A distinction is made between quick current assets and current liability. Quick current assets are those current assets which are convertible into cash rather early. As inventory is not likely to be realized early, the sum is not treated as quick assets.

QUICK RATIO = QUICK ASSETS CURRENT LIABILITES-BANK OD

QUICK ASSETS = CURRENT ASSETS - (INVENTORIES+PREPAID EXP)Significance:- Quick Assets means those assets, which will yield cash very shortly.An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This ratio is a better test of short term financial position of the company.

Components of Quick or Liquid Ratio-QUICK ASSETS CURRENT LIABILITES

Cash in handOutstanding expenses

Cash at bankBank overdraft

Sundry debtorsBills payable

Marketable securitiesSundry creditors

Temporary investmentsDividend payable

Income tax payable

Short term advances

2. LEVERAGE RATIOS:-The leverage or solvency ratio refers to the ability of a concern to meet its long term obligations. Accordingly, long term solvency ratios indicate firms ability to meet the fixed interest and costs and repayment schedules associated with its long term borrowings. The following ratios can be calculated.

Debt Equity Ratio. Proprietary Ratio or Equity Ratio. Solvency Ratio or Ratio of Liability to Total Assets. Fixed Assets to Net Worth or Proprietors funds Ratio. Fixed Assets to Long-term Funds or Fixed assets Ratio Ratio of Current Assets to Proprietors FundsA.) Debt-Equity ratio:Debt-equity ratio which expresses the relationship between debt and Equity. This ratio explains how far owned funds are sufficient to pay outside liabilities. It is also known as External-internal Ratio.

Debt-equity Ratio = Outsiders funds/ Shareholders fundsOr = Debt /equityOr = External Equity /Internal Equity

Significance:- A ratio of 1:1 may be usually considered to be a satisfactory ratio although there cannot be any rule of thumb or standard norm for all types of businesses. Components of debt equity Ratio:OUTSIDERS FUNDSHAREHOLDER FUND

Current liabilityEquity share capital

DebenturePreference share capital

Mortgage loanCapital reserve

Bank loan Reserve & surplus

Long term loanProfit and loss a/c

BondsShare premium

B.) PROPRIETORY RATIO OR EQUITY RATIO:A variant to the debt-equity ratio is the proprietary ratio which is also known as equity ratio. This ratio establishes relationship between share holders funds to total assets of the firm Proprietary ratio = Shareholder fund Total assets

.Significance:- The proportion of shareholders funds to total funds should be 33% or more. If the ratio is low it indicates that long-term loans are less secured and they face the risk of losing their money.Components of Proprietary Ratio-SHARE HOLDERS FUNDTOTAL ASSETS

Share CapitalFixed assets

Reserve and SurplusCURRENT ASSETS

Cash in hand & at bank

Bills receivable

Inventories

Marketable securities

Sundry debtors

Prepaid expenses

C.) Solvency Ratio or Ratio of Liability to Total Assets :This ratio is a small variant of equity and can be simply calculated as 100-equity ratio. This ratio indicates the relationship between the total liabilities to outsiders to total assets of a firm and can be calculated as followed:Solvency Ratio = Total liabilities to Outsiders/Total assetsOr = 100-proprietory ratio

Significance:- lower the ratio of solvency ratio ,more satisfactory or state is the long-term solvency position of a firm.

D.) Fixed assets to Net worth ratio:This ratio is also known as fixed to proprietors funds. The ratio establishes relationship between fixed and shareholders funds i.e. share capital plus reserve, surplus and retained earnings. This ratio calculated follows:-Fixed assets to Net worth ratio = Fixed Assets (after depreciation) / Shareholders Fund *100

Significance:- Normally , the purchase of fixed assets should be financed by shareholders funds. If this ratio is less than 100%, it would mean that proprietors fund are more than fixed assets and a part of working capital is provided by the proprietors. This will indicate the long-term financial soundness of business.SHAREHOLDER'S FUNDFIXED ASSETS

Equity share capitalMachinery

Preference share capitalLand & building

Capital reservePlant

Reserve & surplus Vehicles

Profit and loss a/c

Share premium

(-) Deferred expenses

E.)Fixed Assets to Long-term Funds:This ratio is also known as fixed assets ratio. A variant to the ratio of fixed assets to total long term funds which is calculated as follows:-Fixed Assets to Long-term Funds = Fixed Assets (after depreciation)/Total long term funds*100

Total Long Term Funds = shareholder funds + long term borrowing Long term borrowing = Total Debt Current liability

F.) Current assets to proprietarys Ratio:The ratio is calculated by dividing the total of current assets by the amount of shareholders funds. The ratio indicates extent to which proprietors funds are invested in current assets. There is no rule of thumb for this ratio and depending upon business.Current assets to proprietors funds = Current Assets/ Shareholders Fund*100

Significance:- There is no rule of thumb for this ratio and depending upon the nature of the business there may be different ratios for different firms.

3. ACTIVITY RATIOS:-These ratios are known as efficiency ratios or turnover ratios. The funds of the owners and creditors are used to finance various assets of the firm. The efficiency of the firm depends upon the speed with which these assets are turned over or generate sales. The relationship between various assets and sales are reflected in activity turnover ratios. Higher turnover ratios indicate the better use of capital or resources and in turn lead to higher profitability.Turnover ratio include: Working capital turnover ratio Fixed assets turnover ratio Debtor turnover ratio or receivable turnover ratio and average collection period Creditor turnover ratio and average collection period Inventory turnover ratio or stock turnover ratio and inventory conversion period

A.) WORKING CAPITAL TURNOVER RATIO:

Working capital of a concern is directly related to sales. This ratio reveals how efficiently working capital has been utilized in making sales.

Working Capital Turnover Ratio = Cost of Goods Sold Working Capital

Significance:- This ratio is of particular importance in nonmanufacturing concerns where current assets play a major role in generating sales. A high working capital turnover ratio shows efficient use of working capital and quick turnover of current assets like stock and debtors.

B.) FIXED ASSETS TURNOVER RATIO:Fixed assets ratios is also termed as the ratio sales to fixed assets. fixed assets turnover indicates how efficiently fixed assets are used. it measure the efficiency with which the firm has been its fixed assets to generate sales. this ratio is calculated in following manners: Fixed assets turnover ratio = Cost of goods sold Net fixed assets

Cost of sales = Income from services

Net fixed assets = Fixed assets - Depreciation

Significance:- This ratio is particular importance in manufacturing concerns where the investment in fixed asset is quite high. If there is increase in this ratio, it will indicate that there is better utilization of fixed assets.C.).a) Debtors Turnover Ratio: This ratio indicates the number of times the debtors are turned over during a year. This shows the relationship between credit sales and average debtors during the year.Debtor Turnover Ratio = Net Credit Sales/Average Debtors + Average B/R

Significance:- The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firmb.) Average collection period:The average collection period represents the average number of days for which a firm has to wait before its receivables are converted into cash.

Average collection period= working days in a year/debtors turnover ratio

Significance:- A higher debt collection period is thus, an indicates of the inefficiency and negligence on the part of management. 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.D.).a) Creditors Turnover Ratio: This ratio indicates relationship between credit purchases and average creditors during the year.

Creditors Turnover Ratio = Net credit Purchases / Average Creditors + Average B/P

Significance:- The higher the ratio, the better it is, since it will indicate that the creditors are being paid more quickly which increases the credit worthiness of the firm.b). Average payment period :The average payment period represents the average number of days taken by the firm to pay its creditors.Average payment period= working days in a year/creditors turnover ratio

Significance:- The lower the ratio, the better it is, because a shorter payment period implies that the creditors are being paid rapidly.

E.) a.) INVENTORY TURNOVER RATIO :inventory turnover ratio is also known as stock turnover ratio. inventory ratio shows the relationship between the cost of goods sold and average inventory. this ratio measures how frequently the company's inventory turned into sales. this ratio is calculated by using following formula. Inventory turnover ratio = Cost of goods sold Average stock

in the absence of the cost of goods of sold and average stock, the following formula can be used to calculate inventory turnover ratio. Inventory turnover ratio = Sales Closing inventory

COGS =Opening stock+ Purchases+ Carriage inward+ Direct wages or Expenses - Closing stock Or COGS = Sales - Gross profit

Average stock = Opening stock + Closing stock 2

Significance:- 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.b.) Inventory conversion period :Inventory conversion period is calculated for clearing the stocks and it is calculated by dividing the number of days by inventory turnover ratio.

Inventory conversion period=working days in a year/inventory turnover ratio

4. PROFITABILITY RATIOS:-The main object of every business concern 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 ratio.

Gross profit to sales ratio. Net profit to sales ratio Operating Ratio Operating profit ratio Expenses RatioA.) Gross profit Ratio : The gross profit to sales ratio establishes relationship between gross profit and sales to measure the relative operating efficiency of the firm to reflect pricing policy.

Gross Profit Ratio = Gross Profit / Net Sales *100 Significance:- This ratio measures the margin of profit available on sales. The higher the gross profit ratio, the better it is.

B.) NET PROFIT RATIO :

Net profit ratio establishes a relationship between net profit (after tax) and sales and indicates the efficiency of the management in manufacturing, selling administrative and other activities of the firm. Net profit ratio=

Net Profit / Net sales *100

Net Profit after Tax = Net Profit () Depreciation () Interest () Income Tax

Net Sales = Income from Services

Significance:- An increase in the ratio over the previous year shows improvement in the overall efficiency and profitability of the business.C.) Operating Ratio :This ratio measures the proportion of an enterprise cost of sales and operating expenses in comparison to its sales.Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100

Significance:- Operating Ratio and Operating Net Profit Ratio are inter-related. Total of both these ratios will be 100.Lower the operating ratio is better, because it will leave higher margin of profit on sales.D.) Operating profit ratio: This ratio includes the relationship between operating profits and sales.Operating profit ratio=operating profit/net sales*100

Operating profit = Net sales-Operating costSignificance:- Higher this ratio shows efficiency of a firmE.) Expenses Ratio :These ratio indicate the relationship of various expenses and net sales. The operating ratio reveals the average total variations in expenses. Expense ratios are calculated by dividing each item of expenses with the net sales to analyze the causes of variation of the operating ratio.

Expenses ratio=particular expenses/net sales*100

Significance:- If the expenses ratio is lower, the profitability will be greater and if the expenses ratio is higher, the profitability will be lower.

CHAPTER :- 2

LITERATURE REVIEW

Many researchers have studied financial ratios as a part of working capital Management; however, very few of them have discussed the working capital Policies in specific. Some earlier work by Gupta and Heffner (1972) examined the differences in financial ratio averages between industries. The Conclusion of both the studies was that differences do exist in mean profitability, Activity, leverage and liquidity ratios amongst industry groups. Pinches et al. (1973) used factor analysis to develop seven classifications of ratios, and found that the classifications were stable over the 1951-1969 time periods. In a regional study, Pandey and Parera (1997) provided an empirical evidence of working capital management policies and practices of the private sector manufacturing companies in Sri Lanka. The information and data for the study were gathered through questionnaires and interviews with chief financial officers of a sample of manufacturing companies listed on the Colombo Stock Exchange. They found that most companies in Sri Lanka have informal working capital policy and company size has an influence on the overall working capital policy (formal or informal) and approach (conservative, moderate or aggressive). Moreover, company profitability has an influence on the methods of working capital planning and control.

Chu et al. (1991) analyzed the hospital sectors to observe the differences of financial ratios groups between hospital sectors and industrial firms sectors. Their study concluded that financial ratios groups were significantly different from those of industrial firms ratios as well these ratios were relatively stable over the five years period. A significance relationship for about half of industries studied indicated that results might vary from industry to industry. Another aspect of working capital management has been analyzed by Lamberson (1995) who studied how small firms respond to changes in economic activities by changing their working capital positions and level of current assets and liabilities. Current ratio, current assets to total assets ratio and inventory to total assets ratio were used as measure of working capital while index of annual average coincident economic indicator was used as a measure of economic activity. Contrary to the expectations, the study found that there is very small relationship between charges. in economic conditions and changes in working capital. However, Weinraub and Visscher (1998) have discussed the issue of aggressive and conservative working capital management policies by using quarterly data for a period of 1984 to 1993 of US firms. Their study looked at ten diverse industry groups to examine the relative relationship between their aggressive/conservative working capital policies. The authors have concluded that the industries had distinctive and significantly different working capital management policies. Moreover, the relative nature of the working capital management policies exhibited remarkable stability over the ten-year study period. The study also showed a high and significant negative correlation between industry asset and liability policies and found that when relatively aggressive working capital asset policies are followed they are balanced by relatively conservative working capital financial policies.

Sathyamoorthi (2002) focused on good corporate governance and in turn effective management of business assets. He observed that more emphasis is given to investment in fixed assets both in management area and research. However, effective management working capital has been receiving little attention and yielding more significant results. He analyzed selected Co-operatives in Botswana for a period of 1993-1997 and concluded that an aggressive approach has been followed by these firms during all the four years of study. Filbeck and Krueger (2005) highlighted the importance of efficient working capital management by analyzing the working capital management policies of 32 non-financial industries in USA. According to their findings significant differences exist between industries in working capital practices over time.

Maria Zain (2008), in this articles he discuss about the return on assets is an important percentage that shows the companys ability to use its assets to generate income. He said that a high percentage indicates that companys is doing a good utilizing the companys assets to generate income. He notices that the following formula is one method of calculating the return on assets percentage. Return on Assets = Net Profit/Total Assets. The net profit figure that should be used is the amount of income after all expenses, including taxes. He enounce that the low percentage could mean that the company may have difficulties meeting its debt obligations. He also short explains about the profit margin ratio Operating Performance .He pronounces that the profit margin ratio is expressed as a percentage that shows the relationship between sales and profits. It is sometimes called the operating performance ratio because its a good indication of operating efficiencies. The following is the formula for calculating the profit margin. Profit Margin = Net Profit/Net Sales.

Diane White (2008), He refer that the accounts receivable is an important analytical tool for measuring the efficiency of receivables operations is the accounts receivable turnover ratio. Many companies sell goods or services on account. This means that a customer purchases goods or services from a company but does not pay for them at the time of purchase. Payment is usually due within a short period of time, ranging from a few days to a year. These transactions appear on the balance sheet as accounts receivable. Gopinathan Thachappilly (2009), in this articles he discuss about the Financial Ratio Analysis for Performance evaluation. It analysis is typically done to make sense of the massive amount of numbers presented in company financial statements. It helps evaluate the performance of a company, so that investors can decide whether to invest in that company. Here we are looking at the different ratio categories in separate articles on different aspects of performance such as profitability ratios, liquidity ratios, debt ratios, performance ratios, investment evaluation ratios.James Clausen (2009), He state that the Profitability Ratio Analysis of Income Statement and Balance Sheet Ratio analysis of the income statement and balance sheet are used to measure company profit performance. He said the learn ratio analyses of the income statement and balance sheet. The income statement and balance sheet are two important reports that show the profit and net worth of the company. It analyses shows how the well the company is doing in terms of profits compared to sales. He also shows how well the assets are performing in terms of generating revenue. He defines the income statement shows the net profit of the company by subtracting expenses from gross profit (sales cost of goods sold). Furthermore, the balance sheet lists the value of the assets, as well as liabilities. In simple terms, the main function of the balance sheet is to show the companys net worth by subtracting liabilities from assets. He said that the balance sheet does not report profits, theres an important relationship between assets and profit. The business owner normally has a lot of investment in the company assets.Gopinathan Thachappilly (2009), He discuss about the Profitability Ratios Measure Margins and Returns such as gross, Operating, Pretax and Net Profits, ROA ratio, ROE ratio, ROCE ratio. However, he determines the Gross profit is the surplus generated by sales over cost of goods sold. He discussion about the Gross Profit Margin = Gross Profit/Net Sales or Revenue. Moreover, Operating profits are arrived at by deducting marketing, administration and depreciation and R&D costs from the gross margin. Nonetheless, He explains about the operating profit margin. Operating Profit Margin = Operating Profit/Net Sales or Revenue. Nevertheless, pretax profits are computed by deducting non-operational expenses from operating profits and by adding non-operational revenues to it. Pretax Profit Margin = Pretax Profit/Net Sales or Revenue .Nonetheless, he also analysis about the net profit margin.Net Profit Margin = Net Profit/Net Sales or Revenue. He also explains that the returns on resources used dividend into three categories such as ROA, ROE, and ROCE: At first the Return on Assets = Net Profit/ (Total Assets at beginning of the period + Total Assets at the close of the period)/2) - The denominator is the average total assets employed during the year. Return on Equity = Net Profit/ (Shareholders' Equity at the beginning of the year + Shareholders' Equity at the close of the year)/2).ROCE ratio: Return on Capital Employed = Net Profit/ (Average Shareholders' Equity + Average Debt Liabilities) - Debt Liabilities. James Clausen (2010), in this article he barfly express about the liquidity ratio. He Pronounce that it is analysis of the financial statements is used to measure company performance. It also analyses of the income statement and balance sheet. Investors and lending institutions will often use ratio analyses of the financial statements to determine a company profitability and liquidity. If the ratios indicate poor performance, investors may be reluctant to invest. Therefore, the current ratio or working capital ratio, measures current assets against current liabilities. The current ratio measures the companys ability to pay back its short-term debt obligations with its current assets. He thinks a higher ratio indicates the company is better equipped to pay off short-term debt with current assets. Wherefore, the acid test ratio or quick ratio, measures quick assets against current liabilities. Quick assets are considered assets that can be quickly converted into cash. Generally they are current assets less inventory.Gopinathan Thachappilly (2010), in this articles he express about debt management. He mention that the Ratio of Debt to Equity has Implications for return on equity debt ratios check the financial structure of the business by comparing debt against total capital, against total assets and against owners' funds. The ratios help check how "leveraged" a company is, and also the financial maneuverability of the company in difficult times. The concepts of leverage and other issues are examined below. The Debt Ratios formula is that Debt Ratio = Total Liabilities / Total Assets (Total liabilities include even non-interest-bearing operational liabilities) and Debt to Equity Ratio (Debt Capital Ratio) = Total Liabilities / Shareholders' Equity. Capitalization (Term Debt Ratio) = Long-term Debt / (Long-Term Debt + Shareholders' Equity).Interest Coverage Ratio = Profit before Interest and Taxes (PBIT) / Interest Expense. Simultaneously, debt ratios and the related interest coverage ratio checks the soundness of a company's financing policies. One the one hand, use of debt funds can enhance returns to owners. On the other hand, high debt can mean that the company will find it difficult to raise funds during lean periods of business. Lucia Jenkins (2010), Understanding the use of various financial ratios and techniques can help in gaining a more complete picture of a company's financial outlook. He thinks the most important thing is fixed cost and variable cost. Fixed costs are those costs that are always present, regardless of how much or how little is sold. Some examples of fixed costs include rent, insurance and salaries. Variable costs are the costs that increase or decrease in ratios proportion to sales.Gopinathan Thachappilly(2010),he also state that the Liquidity Ratios help Good Financial .He know that a business has high profitability, it can face short-term financial problems and its funds are locked up in inventories and receivables not realizable for months. Any failure to meet these can damage its reputation and creditworthiness and in extreme cases even lead to bankruptcy. In addition to, liquidity ratios are work with cash and near-cash assets of a business on one side, and the immediate payment obligations (current liabilities) on the other side. The near-cash assets mainly include receivables from customers and inventories of finished goods and raw materials. Coupled with, current ratio works with all the items that go into a business' working capital, and give a quick look at its short-term financial position. Current assets include Cash, Cash equivalents, Marketable securities, Receivables and Inventories. Current liabilities include Payables, Notes payable, accrued expenses and taxes, and Accrued installments of term debt). Current Ratio = Current Assets / Current Liabilities. Similarly, Quick ratio excludes the illiquid items from current assets and gives a better view of the business' ability to meet its maturing liabilities. Quick Ratio = Current Assets minus (Inventories + Prepaid expenses + Deferred income taxes + other illiquid items) / Current Liabilities. In the final ratio under this article is cash ratio .Cash ratio excludes even receivables that can take a long time to be converted into cash. Cash Ratio = (Cash + Cash equivalents + Marketable Securities) / Current Liabilities.

James Clausen (2011), He denotes that about the total asset ratio. The calculation uses two factors, total revenue and average assets to determine the turnover ratio. When calculating for a particular year, the total revenue for that year is used. Instead of using the year ending asset total from the balance sheet, a more accurate picture would be to use the total average assets for the year. Once the average assets are determined for the same time period that revenue is compared, the formula for calculating the asset turnover ratio is. Total Revenue / Averag