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VIVEK COLLEGE OF COMMERCE

CHAPTER - 1

INTRODUCTION

1.1 COMPANY PROFILE

Emami Ltd. (EL) is the flagship company of the Kolkata based Emami Group, which

is engaged in the business of manufacturing personal care and health care products for

over 3 decades and has diversified in the field of real estate, paper, biofuel, cement

etc. Some of the major brands of the company are Boroplus Antiseptic Cream,

Boroplus Prickly Heat Powder, Fair and Handsome Fairness Cream for men,

Navratna Oil, Himani Fast Relief, Mentho Plus balm, Sona Chandi Chyawanprash

and Amritprash, amongst others.

1.2 HISTORY OF THE COMPANY

Emami, which started as a cosmetics manufacturing company in the year 1974,

advancing with increased momentum has expanded into Emami Group of Companies

of today. Even though cosmetics and toiletries continue to be the main thrust area, the

other companies in the Emami Group are performing equally brilliantly. From health

care institution to medicines, from real estate to retailing and, from paper to writing

instruments, Hospital, Emami is creating one success story after another.

1.3 VISION AND MISSION

Vision

A company, which with the help of nature, caters to the consumers’ needs and their

inner cravings for dreams of better life, in the fields of personal and health care, both

in India and throughout the world.

A STUDY ON FINANCIAL PERFORMANCE USING RATIO ANALYSIS AT EMAMI LTD Page 1


Mission

To sharpen consumer insights to understand and meet their needs with value-

added differentiated products which are safe, effective & fast.

To integrate our dealers, distributors, retailers and suppliers into the Emami

family, thereby strengthening their ties with the company.

To recruit, develop and motivate the best talents in the country and provide

them with an environment which is demanding and challenging.

To strengthen and foster in the employees, strong emotive feelings of oneness

with the company.

To uphold the principals of corporate governance and move towards

decentralization to generate long term maximum returns for all stake owners.

To contribute whole heartedly towards the environment and society and to

emerge as a model corporate citizen.

1.4 BOARD OF DIRECTORS

The efficient functioning of this reputed company rests with the following

personalities.

Shri R S Agarwal, Executive Chairman Shri R S Goenka, Director

Shri Sushil Kr. Goenka, Managing Director Shri Mr Viren J Shah, Director

Shri Mr K N Memani, Shri Vaidya S Chaturvedi,

Shri Mr Mohan Goenka,Wholetime Director Shri Mr Aditya V Agarwal

Shri Mr Harsh V Agarwal Ms. Priti Sureka

Shri Mr Amit Kiran Deb Shri Mr S. B. Ganguly

Shri Mr Y. P. Trivedi Shri Sajjan Bhajanka



1.5 PROFILE OF THE ORGANIZATION

Emami Limited is in the business of manufacturing personal, beauty and health care

products. The company manufactures herbal and Ayurvedic products through the use

of modern scientific laboratory practices.

This blend enables the company to manufacture products that are mild, safe and

effective. The company's product basket comprises over 20 products, the major being

Boroplus Antiseptic Cream, Navratna Oil, Boroplus Prickly Heat Powder, Sona

Chandi Chyawanprash and Amritprash, Mentho Plus Pain Balm, Fast Relief, Golden

Beauty Talc, Madhuri Range of Products and others. The products are sold across all

states in India and in countries like Nepal, Sri Lanka, and the Gulf countries, Europe,

Africa and the Middle East, among others.

Manufacturing:

Emami’s products are manufactured in Kolkata, Puducherry, Guwahati and

Mumbai. The company commenced operations at its fully automated manufacturing

unit in Amingaon, Guwahati in 2003-04.

Network:

The company's dispersed manufacturing facilities are complemented with a strong

product throughput, facilitated by a robust distribution network of over 2100 direct

distributors and 3.9 lakhs retail outlets. With a view to reach its products deeper into

the country, direct selling has been extended to rural villages. As a result, rural sales

increased substantially in 2003-04 compared to the previous year. Emami is

headquartered in Kolkata. The company's branch offices are located across 27 cities in

India.

Promoters:

Emami is promoted by Shri R.S.Agarwal and Shri R.S.Goenka, Kolkata based

industrialists.

Emami’s shares are listed on the Calcutta Stock Exchange, Bombay Stock Exchange

and National Stock Exchange.



1.6 IT BACKBONE

Integrated Information Technology

An efficient information technology network is necessary for a dynamic FMCG

company where the market demands change faster than perhaps in any other industry.

At Emami, the integration of information technology transpires on a continuous basis.

This ensures that the company responds to changing market place realities faster than

its competitors and that its products reach retail shelves just when they are required.

In turn, this enhances brand loyalty and retains customers.

A successful implementation of the ERP in the offices, factories and depots

increased the company’s overall efficiency.

It enabled single-point data entry and multi-point information access. The status of

raw materials, packing materials, finished goods, indents and sales information gets

constantly updated through ERP. This has become possible due to the Point to Point

Leased Line connections.

As Emami is growing rapidly, the augmented business requirement calls for a

Standard ERP system. This would provide Real-Time information to the

Management, which would facilitate to take quick decision. The information could

also be available through email and Mobile phones. So Emami would be

implementing a Standard ERP system very shortly. Sales Forecasting, Demand

Planning, Process Management, Supply Chain Management, Primary and Secondary

Sales, I-Supplier, I-Expenses, I-Sales will be an integral part of the Standard ERP

system. Emami adopts the latest Technology for IT and communication system.

1.7 SALES AND DISTRIBUTION NETWORK

Our Marketing and Distribution Network:

Wide, penetrative and all encompassing. That is how Emami has planned its

distribution network. The success of Emami has been largely due to its superior

products that have reached the consumers even in the remotest regions of the country

and abroad.



Current Distribution Infrastructure:

5 Regions

25 Depots / C&F Agents

2,182 Direct Distributors

899 Distributors for Rural Coverage

Over 3,86,940 Retail outlets

Distribution Network

Four Mother depots

Kolkata

Vijayawada

Delhi

Nagpur

1.8 INTERNATIONAL MARKETING DIVISION

Vision:

To contribute profitably to the growth of the company, representing it with pride

across the globe, with a single-minded focus and dedication to establishing and

building global brands.

Global Presence of Emami:

Over the last 7 years, Emami’s presence has increased from merely few countries in

CIS to over 50 countries spanning across SAARC, Gulf, CIS, North America, Europe

and Africa. The company now is shifting its focus from broad basing (entering new

markets) to increasing the number of successful products in existing markets to

improve upon its operational efficiency.



Product Portfolio: The Product Portfolio can be broadly divided into three

Umbrellas’.

Emami – The products under this Umbrella Brand promise care for the skin.

The range consists of Skin care, Hair care, Dental care & Men’s care products.

Himani – Products under this Umbrella Brand promise cure. The range

consists of OTC medicines.

Ayucare – A range of new Life style enhancing products comprising of Single

ingredient herbs, food supplements, Neem & Aloe Vera range, Ayurvedic tea,

Massage oil, Essential oils & blends.

Emma – This range comprises of customized products as per the specific

needs put-up by the consumer. Typically these are all mass marketed products

sold to price conscious buyers. The range presently consists of Creams,

Lotions & Shampoos.

Future Strategy: Company’s business plan for International market comprises of the

following key factors.

Investment in potential markets for key Brands leading to Higher Possibility

of Returns in terms of Turnover and Market Development in the long run.

Adding new products for various key markets.

Customization of product offerings under the same brand – clubbing of

familiar products under the same brand.

Manufacturing facilities in High Tariff markets to make prices more

consumer-friendly.

Acquisition – In certain markets, company may consider buying existing

brands instead of trying to build one.

Brand Building Activities: Company spends on Media (TV and/or Press) Advertising

in select countries in CIS, SAARC, Indo-China and USA, Australia & UK. All the



markets are supported with POPs, Displays and other promotional material as per the

requirement.

1.9 INTRODUCTION TO THE STUDY

Financial Management is that managerial activity which is concerned with the

planning and controlling of the firm’s financial resources. Though it was a branch of

economics till 1890 as a separate or discipline it is of recent origin.

Financial Management is concerned with the duties of the finance manager in a

business firm. He performs such varied tasks as budgeting, financial forecasting, cash

management, credit administration, investment analysis and funds procurement. The

recent trend towards globalization of business activity has created new demands and

opportunities in managerial finance.

Financial statements are prepared and presented for the external users of

accounting information. As these statements are used by investors and financial

analysts to examine the firm’s performance in order to make investment decisions,

they should be prepared very carefully and contain as much investment decisions;

they should be prepared very carefully and contain as much information as possible.

Preparation of the financial statement is the responsibility of top management. The

financial statements are generally prepared from the accounting records maintained by

the firm.

Financial performance is an important aspect which influences the long term

stability, profitability and liquidity of an organization. Usually, financial ratios are

said to be the parameters of the financial performance. The Evaluation of financial

performance had been taken up for the study with “EMAMI LIMITED” as the

project.



Analysis of Financial performances is of greater assistance in locating the weak

spots at the Emami limited eventhough the overall performance may be satisfactory.

This further helps in

Financial forecasting and planning.

Communicate the strength and financial standing of the Emami limited.

For effective control of business.

CHAPTER – 2

DATA ANALYSIS AND INTERPRETATION

2.1 FINANCIAL PERFORMANCE EVALUATION USING RATIO

ANALYSIS

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “The

Indicated Quotient of Two Mathematical Expressions” and as “The Relationship

between Two or More Things”. In financial analysis, a ratio is used as a benchmark

for evaluating the financial position and performance of firm. The absolute accounting

figures reported in the financial statement do not provide a meaningful understanding

of the performance and financial position of a firm. The relationship between two

accounting figures, expressed mathematically is known as a financial ratio. Ratios

help to summaries large quantities of financial data and to make qualitative about the

firm’s financial performance.

The point to note is that a ratio reflecting a quantitative relationship helps to form a

qualitative judgment. Such is the nature of all financial ratios.

2.2 Significance of Using Ratios:

The significance of a ratio can only truly be appreciated when:

1. It is compared with other ratios in the same set of financial statements.

2. It is compared with the same ratio in previous financial statements (trend

analysis).



3. It is compared with a standard of performance (industry average). Such a

standard may be either the ratio which represents the typical performance of

the trade or industry, or the ratio which represents the target set by

management as desirable for the business.

2.3 Types of Ratios

2. 3.1 Liquidity Ratios

Liquidity refers to the ability of a firm to meet its short-term financial

obligations when and as they fall due.

The main concern of liquidity ratio is to measure the ability of the firms to

meet their short-term maturing obligations. Failure to do this will result in the

total failure of the business, as it would be forced into liquidation.

A. Current Ratio

The Current Ratio expresses the relationship between the firm’s current assets and

its current liabilities. Current assets normally include cash, marketable securities,

accounts receivable and inventories. Current liabilities consist of accounts payable,

short term notes payable, short-term loans, current maturities of long term debt,

accrued income taxes and other accrued expenses (wages).

Current assets Current Ratio = ________________

Current liabilities

Significance:



It is generally accepted that current assets should be 2 times the current liabilities.

In a sound business, a current ratio of 2:1 is considered an ideal one. If current ratio is

lower than 2:1, the short term solvency of the firm is considered doubtful and it shows

that the firm is not in a position to meet its current liabilities in times and when they

are due to mature. A higher current ratio is considered to be an indication that of the

firm is liquid and can meet its short term liabilities on maturity. Higher current ratio

represents a cushion to short-term creditors, “the higher the current ratio, the greater

the margin of safety to the creditors”.

Table 2.1 CURRENT RATIO

YearCurrent Assets

Rs. in lakhs

Current Liabilities

Rs. in lakhsRatio

2007-2008 22,960.80 9,447.73 2.43

2008-2009 20,897.99 14,797.21 1.41

2009-2010 41,140.55 15,374.66 2.68

2010-2011 51,736.47 30,208.83 1.71

2011-2012 62,901.40 38,163.51 1.65

(Source: Annual reports)

Interpretation:

As a conventional rule, a current ratio of 2:1 is considered satisfactory. This

rule is base on the logic that in a worse situation even if the value of current assets

becomes half, the firm will be able to meet its obligation. The current ratio represents

the margin of safety for creditors. The current ratio has been decreasing year after

year which shows decreasing working capital.

From the above statement the fact is depicted that the liquidity position of the

Emami limited is unsatisfactory because after the year 2010 the current ratio have

being decreasing below the standard ratio 2:1.

B. Quick Ratio

Measures assets that are quickly converted into cash and they are compared with

current liabilities. This ratio realizes that some of current assets are not easily



convertible to cash e.g. inventories. The quick ratio, also referred to as acid test ratio,

examines the ability of the business to cover its short-term obligations from its

“quick” assets only (i.e. it ignores stock). The quick ratio is calculated as follows

Quick assets Quick Ratio = ________________

Current liabilities

Significance:

The standard liquid ratio is supposed to be 1:1 i.e., liquid assets should be equal to

current liabilities. If the ratio is higher, i.e., liquid assets are more than the current

liabilities, the short term financial position is supposed to be very sound. On the other

hand, if the ratio is low, i.e., current liabilities are more than the liquid assets, the

short term financial position of the business shall be deemed to be unsound. When

used in conjunction with current ratio, the liquid ratio gives a better picture of the

firm’s capacity to meet its short-term obligations out of short-term assets.

Table 2.2 QUICK RATIO

YearCurrent Assets

Rs. in lakhs

Current Liabilities

Rs. in lakhsRatio

2007-2008 18,950.83 9,447.73 2.01

2008-2009 13,578.18 14,797.21 0.92

2009-2010 33,279.58 15,374.66 2.16

2010-2011 39,545.36 30,208.83 1.31

2011-2012 51,960.27 38,163.51 1.36


Interpretation:

As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all

current claims. It is a more rigorous and penetrating test of the liquidity position of a



firm. But the liquid ratio has been decreasing year after year which indicates a high

operation of the business.

From the above statement, it is clear that the liquidity position of the Emami

limited is satisfactory. Since the entire five years liquid ratio is not below the standard

ratio of 1:1.

C. Cash ratio:

This is also known as cash position ratio or super quick ratio. It is a variation of

quick ratio. This ratio establishes the relationship between absolute liquid assets and

current liabilities. Absolute liquid assets are cash in hand, bank balance and readily

marketable securities. Both the debtors and the bills receivable are exclude from

liquid assets as there is always an uncertainty with respect to their realization. In other

words, liquid assets minus debtors and bills receivable are absolute liquid assets. The

cash ratio is calculated as follows

Cash in hand & at bank + Marketable securities

Cash Ratio = ________________________________________

Current liabilities

Significance:

This ratio gains much significance only when it is used in conjunction with the first

two ratios. The accepted norm for this ratio is 50% worth absolute liquid assets are

considered adequate to pay Rs.2 worth current liabilities in time as all the creditors

are not expected to demand cash at the same time and then cash may also be realized

from debtors and inventories. This test is a more rigorous measure of a firm’s

liquidity position. This type of ratio is not widely used in practice.

Table 2.3 CASH RATIO



YearCash in Hand

& at BankRs. in lakhs

Current Liabilities

Rs. in lakhsRatio

2007-2008 280.27 9,447.73 0.03

2008-2009 1,077.07 14,797.21 0.07

2009-2010 15,979.79 15,374.66 1.04

2010-2011 20,415.10 30,208.83 0.68

2011-2012 27,247.65 38,163.51 0.71


Interpretation:

The acceptable norm for this ratio is 50% or 1:2. But the cash ratio is below the

accepted norm. So the cash position is not utilized effectively and efficiently.

2.3.2 Activity Ratio:

If a business does not use its assets effectively, investors in the business would

rather take their money and place it somewhere else. In order for the assets to be used

effectively, the business needs a high turnover.

Unless the business continues to generate high turnover, assets will be idle as it is

impossible to buy and sell fixed assets continuously as turnover changes. Activity

ratios are therefore used to assess how active various assets are in the business.

A. Average Collection Period:

The average collection period measures the quality of debtors since it indicates

the speed of their collection.

The shorter the average collection period, the better the quality of debtors, as a

short collection period implies the prompt payment by debtors.

The average collection period should be compared against the firm’s credit

terms and policy to judge its credit and collection efficiency.

An excessively long collection period implies a very liberal and inefficient

credit and collection performance.

The delay in collection of cash impairs the firm’s liquidity. On the other hand,

too low a collection period is not necessarily favorable, rather it may indicate a



very restrictive credit and collection policy which may curtail sales and hence

adversely affect profit.

360 daysAverage collection period = _____________________

Debtor’s turnover ratio

Significance:

Average collection period indicates the quality of debtors by measuring the rapidity or

slowness in the collection process. Generally, the shorter the average collection

period, the better is the quality of debtors as a short collection period implies quick

payment by debtors. Similarly, a higher collection period implies as inefficient

collection performance which, in turn, adversely affects the liquidity or short term

paying capacity of a firm out of its current liabilities. Moreover, longer the average

collection period, larger is the chances of bad debts.

Table 2.4 AVERAGE COLLECTION PERIOD

YearDays Debtors + Bills

receivables

Debtors Turnover Ratio

Rs. in lakhsDays

2007-2008 360 3,402.93 17.15 20.99

2008-2009 360 5,074.98 14.57 24.71

2009-2010 360 7,273.47 13.84 26.01

2010-2011 360 9,107.99 13.2 27.27

2011-2012 360 7,893.30 17.6 20.45


Interpretation:

The shorter the collection period, the better the quality of debtors. Since a short

collection period implies the prompt payment by debtors. Here, collection period

increased in 2010-2011 and decreased in the year 2011-2012. Therefore the average



collection period of Emami ltd for the five years is satisfactory. Since the number of

days have decreased.

B. Inventory Turnover Ratio:

This ratio measures the stock in relation to turnover in order to determine how

often the stock turns over in the business.

It indicates the efficiency of the firm in selling its product. It is calculated by dividing

he cost of goods sold by the average inventory.

Cost of goods soldInventory Turnover Ratio = ___________________

Average Inventory

Significance:

This ratio is calculated to ascertain the number of times the stock is turned over

during the periods. In other words, it is an indication of the velocity of the movement

of the stock during the year.

In case of decrease in sales, this ratio will decrease. This serves as a check on the

control of stock in a business. This ratio will reveal the excess stock and accumulation

of obsolete or damaged stock. The ratio of net sales to stock is satisfactory

relationship, if the stock is more than three-fourths of the net working capital. This

ratio gives the rate at which inventories are converted into sales and then into cash

and thus helps in determining the liquidity of a firm.


Table 2.5 INVENTORY TURNOVER RATIO

YearCost of goods

soldRs. in lakhs

Average Inventory

Rs. in lakhsRatio

2007-2008 24,836.24 2.429.53 10.22

2008-2009 30,876.88 3,780.00 8.17

2009-2010 38,204.41 4,234.14 9.02

2010-2011 34,675.68 5,662.67 6.12

2011-2012 41,512.10 6,040.83 6.87



Interpretation:

A higher turnover ratio is always beneficial to the concern. In this the number of

times the inventory is turned over has been decreasing from one year to another year.

This decreasing turnover indicates average sales. And in turn activates production

process and is responsible for further development in the business. This indicates the

inventory policy of the company should be improved.

Thus the stock turnover ratios of Emami Limited, for the five years are

unsatisfactory.

C. Working capital turnover ratio:

This ratio shows the number of times the working capital results in sales. In other

words, this ratio indicates the efficiency or otherwise in the utilization of short term

funds in making sales. Working capital means the excess of current assets over

current liabilities. In fact, in the short run, it is the current assets and current liabilities

which pay a major role. A careful handling of the short term assets and funds will

mean a reduction in the amount of capital employed, thereby improving turnover. The

following formula is used to measure this ratio:

SalesWorking capital turnover ratio = _____________________

Net Working Capital

Significance:

This ratio is used to assess the efficiency with which the working capital has been

utilized in a business. A higher working capital turnover indicates either the favorable

turnover of inventories and receivables and/or the inadequate of net working capital

accompanied by low turnover of inventories and receivables. A low ratio signifies

either the excess of net working capital or slow turnover of inventories and

receivables or both. This ratio can at best be used by making of comparative and trend

analysis for different firms in the same industry and for various periods.



Interpretation:

The Working Capital Turnover Ratio is decreasing year after year. It can be noted

that the change is due to the fluctuation in sales or current liabilities. These lower

ratios are indicators of higher investment of working Capital and less profit.

Thus, Working Capital Turnover ratios for the five years are unsatisfactory.

D. Fixed Assets Turnover Ratio:

The fixed assets turnover ratio measures the efficiency with which the firm has

been using its fixed assets to generate sales. It is calculated by dividing the firm’s

sales by its net fixed assets as follows:

SalesFixed Assets Turnover =________________

Net fixed assets

Significance:

This ratio gives an ideal about adequate investment or over investment or under

investment in fixed assets. As a rule, over-investment in unprofitable fixed assets

should be avoided to the possible extent. Under-investment is also equally bad

affecting unfavorably the operating costs and consequently the profit. In

manufacturing concerns, the ratio is important and appropriate, since sales are

produced not only by use of working capital but also the capital invested in fixed


Table 2.6 WORKING CAPITAL TURNOVER RATIO

YearSales

Rs. in lakhs

Net Working Capital

Rs. in lakhsRatio

2007-2008 58,371.04 13,513.07 4.32

2008-2009 73,952.01 6,100.78 12.12

2009-2010 100,685.42 25,765.89 3.91

2010-2011 1,20,238.04 21,527.64 5.59

2011-2012 1,38,981.45 24,737.89 5.62



assets. An increase in this ratio is the indicator of efficiency in work performance and

a decrease in this ratio speaks of unwise and improper investment in fixed assets.

Interpretation:

The fixed assets turnover ratio is decreasing year after year. The overall lower ratio

indicates the inefficient utilization of the fixed assets.

Thus the fixed assets turnover ratios for the five years are not satisfactory.

2.3.3 Financial Leverage (Gearing) Ratios

The ratios indicate the degree to which the activities of a firm are supported by

creditors’ funds as opposed to owners.

The relationship of owner’s equity to borrowed funds is an important indicator

of financial strength.

The debt requires fixed interest payments and repayment of the loan and legal

action can be taken if any amounts due are not paid at the appointed time. A

relatively high proportion of funds contributed by the owners indicates a cushion

(surplus) which shields creditors against possible losses from default in payment.

A. Proprietary Ratio:

This ratio is also known as ‘Owners fund ratio’ (or) ‘Shareholders equity ratio’ (or)

‘Equity ratio’ (or) ‘Net worth ratio’. This ratio establishes the relationship between

the proprietors’ fund and total tangible assets. The formula for this ratio may be

written as follows.


Table 2.7 FIXED ASSETS TURNOVER RATIO

YearSales

Rs. in lakhs

Net Fixed Assets

Rs. in lakhsRatio

2007-2008 58,371.04 9,129.34 6.39

2008-2009 73,952.01 64,927.57 1.14

2009-2010 100,685.42 56,705.23 1.78

2010-2011 1,20,238.04 56,242.71 2.14

2011-2012 1,38,981.45 52,847.68 2.63



Proprietors’ fundsProprietary Ratio = _____________________

Total tangible assets

Significance:

This ratio represents the relationship of owner’s funds to total tangible assets,

higher the ratio or the share of the shareholders in the total capital of the company,

better is the long term solvency position of the company. This ratio is of importance

to the creditors who can ascertain the proportion of the shareholders’ funds in the total

assets employed in the firm. A ratio below 50% may be alarming for the creditors

since they may have to lose heavily in the event of company’s liquidation on account

of heavy losses.

Interpretation:

This ratio is particularly important to the creditors and it focuses on the general

financial strength of the business. A ratio of 50% will be alarming for the creditors.

As such the proprietary ratio of the five years is above 50%.

Therefore it indicates relatively little danger to the creditors, etc and a better

performance of the company.


Table 2.8 PROPRIETARY RATIO

YearProprietors

FundRs. in lakhs

Total Tangible

Assets Rs. in lakhs

RatioRatio (%)

2007-2008 28,900.22 32,090.14 0.90 90.00

2008-2009 29,916.95 85,825.56 0.35 35.00

2009-2010 61,937.17 97,845.78 0.63 63.00

2010-2011 68,301.67 107,979.18 0.63 63.00

2011-2012 69,725.51 115,749.08 0.60 60.00



B. Debt to Equity ratio

This ratio indicates the extent to which debt is covered by shareholders’ funds. It

reflects the relative position of the equity holders and the lenders and indicates the

company’s policy on the mix of capital funds. The debt to equity ratio is calculated as

follows:

Total debt

Debt to Equity Ratio = ____________

Total Equity

Significance:

The importance of debt-equity ratio is very well reflected in the words of Weston

and brigham which are reproduced here: “Debt-equity ratio indicates to what extent

the firm depends upon outsiders for its existence. For the creditors, this provides a

margin of safety. For the owners, it is useful to measure the extent to which they can

gain the benefits of maintaining control over the firm with a limited investment:” The

debt-equity ratio states unambiguously the amount of assets provided by the outsiders

for every one rupee of assets provided by the shareholders of the company.


Table 2.9 DEBTS TO EQUITY RATIO

YearTotal DebtRs. in lakhs

Total EquityRs. in lakhs Ratio

2007-2008 3,825.82 28,900.22 0.13

2008-2009 44,818.98 29,916.95 1.50

2009-2010 25,905.71 61,937.17 0.42

2010-2011 11,208.01 68,301.67 0.16

2011-2012 5,554.88 69,725.51 0.08



Interpretation:

The debt to equity ratio is decreasing year after year. A low debt equity ratio is

considered favorable from management. It means greater claim of shareholders over

the assets of the company than those of creditors. For the company also, the servicing

of debt is less burdensome and consequently its credit standing is not adversely

affected. Therefore debt to equity ratio is satisfactory to the company.

C. Interest coverage ratio

The times interest earned shows how many times the business can pay its interest

bills from profit earned. Present and prospective loan creditors such as bondholders,

are vitally interested to know how adequate the interest payments on their loans are

covered by the earnings available for such payments. Owners, managers and directors

are also interested in the ability of the business to service the fixed interest charges on

outstanding debt. The ratio is calculated as follows:

EBIT

Interest Coverage Ratio = _______________

Interest charges

Significance:

It is always desirable to have profit more than the interest payable. In case profit is

either equal or lesser than the interest, the position will be unsafe. It will show that

there this nothing left for the shareholders and the position of the lendors is also

unsafe. A high ratio is a sign of low burden of dept servicing and lower utilization of

borrowing capacity. From the points of view of creditors, the larger the coverage, the

greater the ability of the firm to handle fixed charges liabilities and the more assessed

the payment of interest to the creditors. In contrast the low ratio signifies the danger

the signal that the firm is highly dependent on borrowings and its earnings cannot



meet obligations fully. The standard for this ratio for an industrial undertaking is 6 to

7 times.

Interpretation:

The Interest coverage ratio is increasing year after year. A high ratio is a sign of

low burden of dept servicing and lower utilization of borrowing capacity. Therefore

this ratio is satisfactory to the company.

2.3.4 Profitability Ratios

Profitability is the ability of a business to earn profit over a period of time.

Although the profit figure is the starting point for any calculation of cash flow, as

already pointed out, profitable companies can still fail for a lack of cash.

A company should earn profits to survive and grow over a long period of time.


Table 2.10 INTEREST COVERAGE RATIO

YearEBIT

Rs. in lakhs

Interest on Fixed LoansRs. in lakhs

Ratio

2007-2008 9,274.87 3,825.82 2.42

2008-2009 10,175.56 44,818.98 0.23

2009-2010 20,057.92 25,905.71 0.77

2010-2011 26,912.22 11,208.01 2.40

2011-2012 29,893.50 5,554.88 5.38



Profits are essential, but it would be wrong to assume that every action

initiated by management of a company should be aimed at maximizing profits,

irrespective of social consequences.

The ratios examined previously have tendered to measure management efficiency and

risk.

A. Gross Profit Margin

Normally the gross profit has to rise proportionately with sales.

It can also be useful to compare the gross profit margin across similar

businesses although there will often be good reasons for any disparity.

Gross profit

Gross Profit Margin = ________________ *100

Sales

Significance:

The gross profit ratio helps in measuring the results of trading or manufacturing

operations. It shows the gap between revenue and expenses at a point after which an

enterprise has to meet the expenses related to the non-manufacturing activities, like

marketing, administration, finance and also taxes and appropriations.

The gross profit shows the gap between revenue and trading costs. It, therefore,

indicates the extent to which the revenue has a potential to generate a surplus. In other

words, the gross profit reveals the mark up on the sales. Gross profit ratio reveals

profit earning capacity of the business with reference to its sale. Increase in gross

profit ratio will mean reduction in cost of production or direct expenses or sale at a

reasonably good price and decrease in the will mean increased cost of production or

sales at a lesser price. Higher gross profit ratio is always in the interest of the

business.


Table 2.11 GROSS PROFIT MARGIN

YearGross ProfitRs. in lakhs

Net SalesRs. in lakhs Ratio

Ratio (%)

2007-2008 35,790.84 58,371.04 0.61 61.00

2008-2009 43,075.13 73,952.01 0.58 58.00

2009-2010 62,481.01 100,685.42 0.62 62.00

2010-2011 82,455.39 1,20,238.04 0.68 68.00

2011-2012 99,820.00 1,38,981.45 0.71 71.00



Interpretation:

In the year 2007, the Gross Profit Ratio was 61% but then it decreased to 58%,

which shows a low profit earning capacity of the business with reference to its sales.

But in the year 2010, it increased to 62% which may be due to increase in sales. But

thereafter, for the succeeding two years, it has increased considerably, which indicates

that the cost of production has reduced. Therefore the Gross Profit Ratio for the five

years reveals a satisfactory condition of the business.

B. Net Profit Margin

This is a widely used measure of performance and is comparable across

companies in similar industries. The fact that a business works on a very low margin

need not cause alarm because there are some sectors in the industry that work on a

basis of high turnover and low margins, for examples supermarkets and motorcar

dealers. What is more important in any trend is the margin and whether it compares

well with similar businesses.

Earnings after interest and taxesNet Profit Margin =______________________________ *100

Net Sales

Significance:

An objective of working net profit ratio is to determine the overall efficiency of

the business. Higher the net profit ratio, the better the business. The net profit ratio



indicates the management’s ability to earn sufficient profits on sales not only to cover

all revenue operating expenses of the business, the cost of borrowed funds and the

cost of merchandising or servicing, but also to have a sufficient margin to pay

reasonable compensation to shareholders on their contribution to the firm. A high

ratio ensures adequate return to shareholders as well as to enable a firm to with stand

adverse economic conditions. A low margin has an opposite implication.

Interpretation:

In the year 2007 the Net Profit is 16%, but in the year 2008-2009 it was decreased

to 14% which may due to excessing selling and distribution expenses. But thereafter

for the succeeding years it has been increasing which indicates a better performance

of the company. Therefore the performance of the management should be appreciated.

Thus an increase in the ratio over the previous periods indicates improvement in the

operational efficiency of the business.

C. Return on Investment (ROI)

Income is earned by using the assets of a business productively. The more

efficient the production, the more profitable the business. The rate of return on total

assets indicates the degree of efficiency with which management has used the assets


Table 2.12 NET PROFIT MARGIN

Year

Net Profit Before TaxRs. in lakhs

SalesRs. in lakhs Ratio

Ratio (%)

2007-2008 9,274.87 58,371.04 0.16 16.00

2008-2009 10,175.56 73,952.01 0.14 14.00

2009-2010 21,270.72 100,685.42 0.21 21.00

2010-2011 26,749.47 1,20,238.04 0.19 19.00

2011-2012 29,613.50 1,38,981.45 0.19 19.00



of the enterprise during an accounting period. This is an important ratio for all readers

of financial statements.

Investors have placed funds with the managers of the business. The managers

used the funds to purchase assets which will be used to generate returns. If the return

is not better than the investors can achieve elsewhere, they will instruct the managers

to sell the assets and they will invest elsewhere. The managers lose their jobs and the

business liquidates.

Operating profit

Return on Investment = ___________________

Capital Employed

Significance:

Return on capital employed shows overall profitability of the business. At first

minimum return on capital employed should be determined and then the actual rate of

return on capital employed should be determined and compared with the normal

return. The return and capital employed is a fair measure of the profitability of any

concern with the result that even the result of dissimilar industries may be compared.

Interpretation:


Table 2.13 RETURN ON INVESTMENT

YearOperating

ProfitRs. in lakhs

Capital Employed

Rs. in lakhsRatio

Ratio (%)

2007-2008 9,274.87 28,900.22 0.32 32.00

2008-2009 10,175.56 29,916.95 0.34 34.00

2009-2010 21,270.72 61,937.17 0.32 32.00

2010-2011 26,749.47 68,301.67 0.39 39.00

2011-2012 29,613.50 69,725.51 0.43 43.00



This ratio indicates that how much of the capital invested is returned in the form of

net profit. This ratio is increasing year after year which indicates the capital employed

is returned in the form of net profit. In the same manner, returns from capital

employed for the succeeding years are good.

Thus, the Return on Investment ratio for the five years shows the efficiency of the

business which is very much satisfactory.

D. Return on Equity (ROE)

This ratio shows the profit attributable to the amount invested by the owners of

the business. It also shows potential investors into the business what they might hope

to receive as a return. The stockholders’ equity includes share capital, share premium,

distributable and non-distributable reserves. The ratio is calculated as follows:

Net profit after taxes and preference dividendReturn on Equity =__________________________________________

Equity capital

Significance:

This ratio measures the profitability of the capital invested in the business by equity

shareholders. As the business is conducted with a view to earn profit, return on equity

capital measures the business success and managerial efficiency. It reveals whether

the firm has earned a reasonable profit to its equity shareholders or not by comparing

it with its own past records, inter-firm comparison and comparison with the overall

industry average. This ratio is of significant use in the ratio analysis from the

standpoint of the owners of the firm.



Interpretation:

In the year 2008, the return on equity ratio is 32% but in the year 2009 it

decreased to 29%, which may due to capital investment. And in the year 20011-2012

it increased to 37%. Therefore the return on equity ratio for the five years reveals a

satisfactory condition of the business.

E. Return on Total assets

This ratio is also known as the profit-to-assets ratio. This ratio establishes the

relationship between net profits and assets. As these two terms have conceptual

differences, the ratio may be calculated taking the meaning of the terms according to

the purpose and intent of analysis. Usually, the following formula is used to determine

the return on total assets ratio.

Return on total assets = (Net profit after taxes and interest / Total assets) * 100

Significance:

This ratio measures the profitability of the funds invested in a firm but doe not reflect

on the profitability of the different sources of total funds. This ratio should be

compared with the ratios of other similar companies or for the industry as a whole, to


Table 2.14 RETURN ON EQUITY

Year

Net Profit after Tax and

Preference Dividend

Rs. in lakhs

Equity Capital

Rs. in lakhsRatio

Ratio (%)

2007-2008 9,274.87 28,900.22 0.32 32.00

2008-2009 8,751.50 29,916.95 0.29 29.00

2009-2010 16,540.27 61,937.17 0.27 27.00

2010-2011 22,749.22 68,301.67 0.33 33.00

2011-2012 25,681.30 69,725.51 0.37 37.00



determine whether the rate of return is attractive. This ratio provides a valid basis for

inter-industry comparison.

Interpretation:

The return on total assets ratio had decreased earlier but again the trend is

increasing year after year. This increasing ratio indicates the effective funds invested.

Therefore the return on Total Assets ratio for the five years reveals a satisfactory

condition of the business.

F. Earnings per share:

This ratio explains to this point deal with the performance and financial condition of

the company. These ratio’s provide information for the managers (who are interested

in evaluating the performance of the company) and for creditors (who are interested in

the company’s ability to pay its obligations). We will now take a look at ratios that

focus on the interests of the owners – Shareholder ratios. These ratios translate the

overall results of operations so that they can be compared in terms of a share of stock.

Usually, the following formula is used to determine the Earnings Per Share.

NPAT- Pref. Dividend

Earnings per share = ______________________________

Number of Equity Shares


Table 2.15 RETURN ON TOTAL ASSETS

YearNet Profit after

Tax and InterestRs. in lakhs

Total AssetsRs. in lakhs

Ratio

2007-2008 9,274.87 32,938.94 0.28

2008-2009 10,175.56 10,399.08 0.98

2009-2010 20,057.92 19,002.75 1.06

2010-2011 26,912.22 1,07,979.18 0.25

2011-2012 29,893.50 1,15,749.08 0.26



Interpretation:

The return on Earning Per Share had decreased during the period of 2008-

2009 to 13.77. However the company performed well after the same. The Earnings

Per Share increased year after year to 16.97 in 2011-12.


Table 2.16 EARNINGS PER SHARE (EPS)

Year

Net Profit after Tax and

Preference Dividend

Rs. in lakhs

No of Equity Shares

EPS

2007-2008 9,274.87 6,21,45,177 14.92

2008-2009 8,751.50 6,35,59,074 13.77

2009-2010 16,540.27 72,970,941.00 22.67

2010-2011 22,749.22 15,13,11,746 15.03

2011-2012 25,681.30 15,13,11,746 16.97



2.4 COMPARATIVE STATEMENT:

Comparative study of financial statement is the comparison of the financial

statement of the business with the previous year’s financial statements and with the

performance of other competitive enterprises, so that weaknesses may be identified

and remedial measures applied.

Comparative statements can be prepared for both types of financial statements i.e.,

Balance sheet as well as profit and loss account. The comparative profits and loss

account will present a review of operating activities of the business. The comparative

balance shows the effect of operations on the assets and liabilities that change in the

financial position during the period under consideration.

Comparative analysis is the study of trend of the same items and computed items

into or more financial statements of the same business enterprise on different dates.

The presentation of comparative financial statements, in annual and other reports,

enhances the usefulness of such reports and brings out more clearly the nature and

trends of current changes affecting the enterprise.



While the single balance sheet represents balances of accounts drawn at the end of

an accounting period, the comparative balance sheet represent not nearly the balance

of accounts drawn on two different dates, but also the extent of their increase or

decrease between these two dates. The single balance sheet focuses on the financial

status of the concern as on a particular date, the comparative balance sheet focuses on

the changes that have taken place in one accounting period. The changes are the direct

outcome of operational activities, conversion of assets, liability and capital form into

others as well as various interactions among assets, liability and capital.

Table: 2.17 Comparative Balance Sheets as on 31st March 2007 – 2008

Particulars

31st March

2008

Rs. in lakhs

31st March

2007

Rs. in lakhs

Change in

Absolute

Figure

Rs. in lakhs

Fixed Assets (A) 9,129.34 8,128.80 1,000.54

Investment ( B ) 10,083.63 7,817.91 2,265.72

Current Assets :

Inventories 4,009.97 4,119.85 (109.88)

Sundry Debtors 3,402.93 4,577.19 (1,174.26)

Cash and Bank Balance 280.27 1,841.81 (1,561.54)

Loans and Advances 15,267.63 5,352.26 9,915.37

Total current Assets (C) 22,960.80 15,891.11 7,069.69

Total Assets ( A+B+C ) 42,173.77 31,837.82 10,335.95

Shareholders Funds :

Share Capital 1,242.90 1,242.90

Reserves and Surplus 27,657.32 21,699.43 5,957.89

Deferred Tax 212.9 258.17 (45.27)



Total Shareholders Funds(A)

28,900.22 23,200.50 5,699.72

Loan Funds :

Secured loans 3,519.46 2,281.35 1,238.11

Unsecured loans 306.36 260.57 45.79

Total Loan Funds ( B ) 3,825.82 2,541.92 1,283.90

Current Liabilities and Provision( C) 9,447.73 6,095.40 3,352.33

Total Liabilities (A+B+C ) 42,173.77 31,837.82 10,335.95

Interpretation:

The comparative balance sheet of the company reveals during 2008, that

there has been an increase in the fixed assets of Rs. 1,000.54 lakhs, which indicates

purchase of fixed assets. The cash or funds paid for purchase of fixed assets have

decreased the cash balance of the company. This limited cash balance is utilized for

the repayment of loan, which is increased from Rs. 5,352.26 lakhs to Rs. 15,267.63

lakhs for meeting out current liabilities and provision and also for making investment,

which has been increased from Rs. 7,817.91 lakhs to Rs. 10,083.63 lakhs.

The investment has increased from Rs. 7,817.91 lakhs to Rs. 10,083.63 lakhs,

which indicates the investment has been properly made.

The overall financial position of the company for the year (2007-2008) is

satisfactory.




Particulars

31st March

2009

Rs. in lakhs

31st March

2008

Rs. in lakhs

Change in

Absolute

Figure

Rs. in lakhs

Fixed Assets (A) 64,927.57 9,129.34 55,798.23

Investment ( B ) 3,707.58 10,083.63 (6,376.05)

Current Assets :

Inventories 7,319.81 4,009.97 3,309.84

Sundry Debtors 5,074.98 3,402.93 1,672.05

Cash and Bank Balance 1,077.07 280.27 796.80

Loans and Advances 7,426.13 15,267.63 (7,841.50)

Total current Assets (C) 20,897.99 22,960.80 (2,062.81)

Total Assets ( A+B+C ) 89,533.14 42,173.77 47,359.37




Share Capital 1,313.11 1,242.90 70.21

Reserves and Surplus 28,603.84 27,657.32 946.52

Deferred Tax 595.54 212.9 382.64

Total Shareholders Funds(A) 29,916.95 28,900.22 1,016.73

Loan Funds :

Secured loans 37,306.08 3,519.46 33,786.62

Unsecured loans 7,512.90 306.36 7,206.54

Total Loan Funds ( B ) 44,818.98 3,825.82 40,993.16



Interpretation:

The comparative balance sheet of the company reveals during 2009, that there

has been an increase in the fixed assets of Rs. 55,798.23 lakhs, which indicates

purchase of fixed assets. The cash or fund paid for purchase of fixed assets has

decreased the cash balance of the company.

The current assets have decreased by Rs. (2,062.81) lakhs; this indicates firm’s

better credit policy. Further the current liability also increased by Rs. 5,349.48 lakhs,

it indicates that firm do not have good liquidity position therefore they are not able to

pay liabilities within stipulated period.

The fact depicts that the policy of the company is to pay all liabilities both in

current and long-term liabilities within the stipulated period using both current assets

and fixed assets.

The investment has decreased from Rs. 10,083.63 lakhs to Rs. 3,707.58 lakhs,

which indicates the investment is not been properly made.




unsatisfactory.


Particulars

31st March

2010

Rs. in lakhs

31st March

2009

Rs. in lakhs

Change in

Absolute

Figure

Rs. in lakhs

Fixed Assets (A) 56,705.23 64,927.57 (8,222.34)

Investment ( B ) 5,371.76 3,707.58 1,664.18

Current Assets :

Inventories 7,860.97 7,319.81 541.16

Sundry Debtors 7,273.47 5,074.98 2,198.49

Cash and Bank Balance 15,979.79 1,077.07 14,902.72

Loans and Advances 10,026.32 7,426.13 2,600.19


Total Assets ( A+B+C ) 103,217.54 89,533.14 13,684.40




Share Capital 1,513.12 1,313.11 200.01


Deferred Tax 695.54 595.54 100.00


Loan Funds :

Secured loans 14,923.35 37,306.08 (22,382.73)

Unsecured loans 10,982.36 7,512.90 3,469.46

Total Loan Funds ( B ) 25,905.71 44,818.98 (18,913.27)

Current Liabilities and Provision( C) 15,374.66 14,797.21 577.45


Interpretation:


has been a decrease in the fixed assets of Rs. (8,222.34) lakhs, which indicates sale of

fixed assets. The cash and bank balance have increased by Rs. 14,902.72 lakhs. This

fact indicates that the firm has utilized both current and fixed assets for the repayment

of long term loans as such there loan amount has reduced by Rs. (18,913.27) lakhs.

The current assets have increased by Rs. 20,242.56 lakhs; this indicates firm’s

flexible credit policy as such the debtors have been increase by Rs. 2,198.49. Further

the current liability also increased by Rs. 577.45 lakhs, it indicates that firm has not

paid the liabilities within the stipulated period.

The investment has increased by Rs. 1,664.18 lakhs, which indicates an outflow of

fund.


satisfactory.




Particulars

31st March

2011

Rs. in lakhs

31st March

2010

Rs. in lakhs

Change in

Absolute

Figure

Rs. in lakhs

Fixed Assets (A) 48,892.45 56,705.23 (7,812.78)

Investment ( B ) 16054.99 5,371.76 10,683.23

Current Assets :

Inventories 12,191.11 7,860.97 4,330.14

Sundry Debtors 9,107.99 7,273.47 1,834.52


Loans and Advances 10,022.27 10,026.32 (4.05)


Total Assets ( A+B+C ) 116,683.91 103,217.54 13,466.37




Share Capital 1,513.12 1,513.12 0.00


Deferred Tax 1,370.00 695.54 674.46


Loan Funds :

Secured loans 15,248.14 14,923.35 324.79

Unsecured loans 2,925.27 10,982.36 (8,057.09)

Total Loan Funds ( B ) 18,173.41 25,905.71 (7,732.30)

Current Liabilities and Provision( C)

30,208.83 15,374.66 14,834.17


Interpretation:



fixed assets and an inflow of cash. The long term loan has reduced by Rs. (7,732.30)

lakhs, which indicates the repayment of loan. This fact depicts that the loan is relayed

through the cash received by sale of fixed assets.

The current asset has increased by Rs. 10,595.92 lakhs which indicate a firm’s

better credit policy. The current liability has also increased by Rs. 14,834.17 lakhs,

which indicates that the payment of liabilities is not made within the stipulated period.

The investment has increased by Rs. 10,683.23 lakhs as such the investment of the

company on the shares in its subsidiary company has increased, which indicates on

outflow of cash.




satisfactory.


Particulars

31st March

2012

Rs. in lakhs

31st March

2011

Rs. in lakhs

Change in

Absolute

Figure

Rs. in lakhs

Fixed Assets (A) 46,662.83 48,892.45 (2,229.62)Investment ( B ) 9078.17 16054.99 (6,976.82)

Current Assets :

Inventories 10,941.13 12,191.11 (1,249.98)Sundry Debtors 7,893.30 9,107.99 (1,214.69)


Loans and Advances 16,819.32 10,022.27 6,797.05Total current Assets (C) 62,901.40 51,736.47 11,164.93



Total Assets ( A+B+C ) 118,642.40 116,683.91 1,958.49Shareholders Funds :

Share Capital 1,513.12 1,513.12 0.00

Reserves and Surplus 68,212.39 66,788.55 1,423.84Deferred Tax 1,450.00 1,370.00 80.00

Total Shareholders Funds(A) 69,725.51 68,301.67 1,423.84Loan Funds :

Secured loans 10,743.23 15,248.14 (4,504.91)

Unsecured loans 10.15 2,925.27 (2,915.12)Total Loan Funds ( B ) 10,753.38 18,173.41 (7,420.03)



Interpretation:



fixed assets and an inflow of cash. The long term loan has reduced by Rs. (7,420.03)

lakhs, which indicates the repayment of loan. This fact depicts that the loan is relayed

through the cash received by sale of fixed assets.

The current asset has increased by Rs. 11,164.93 lakhs which indicate a firm’s

better credit policy. The current liability has also increased by Rs. 7,954.68 lakhs,

which indicates that the payment of liabilities is not made within the stipulated period.

The investment has decreased by Rs. (6,976.82) lakhs as such the investment of the

company on the shares in its subsidiary company has decreased, which indicates on

outflow of cash.




satisfactory.

CHAPTER – 4

CONCLUSION

SUMMARY

COMBINED RATIO’SYEAR

2007-

2008

2008-

2009

2009-

2010

2010-

2011

2011-

2012

Current Ratio 2.43 1.41 2.68 1.71 1.65Quick Ratio 2.01 0.92 2.16 1.31 1.36Cash Ratio 0.03 0.07 1.04 0.68 0.71Average Collection Period (Days) 20.99 24.71 26.01 27.27 20.45Inventory Turnover Ratio 10.22 8.17 9.02 6.12 6.87Working Capital Turnover Ratio 4.32 12.12 3.91 5.59 5.62Fixed Assets Turnover Ratio 6.39 1.14 1.78 2.14 2.63Proprietary Ratio (%) 90.00 35.00 63.00 63.00 60.00Debts To Equity Ratio 0.13 1.50 0.42 0.16 0.08Interest Coverage Ratio 2.42 0.23 0.77 2.40 5.38Gross Profit Margin (%) 61.00 58.00 62.00 68.00 71.00Net Profit Margin (%) 16.00 14.00 21.00 19.00 19.00



Return On Investment (%) 32.00 34.00 32.00 39.00 43.00Return On Equity (%) 32.00 29.00 27.00 33.00 37.00Return On Total Assets 0.28 0.98 1.06 0.25 0.26Earnings Per Share (EPS) 14.92 13.77 22.67 15.03 16.97

1. The study is made on the topic financial performance using ratio analysis with

five years data in Emami Limited.

2. The current and liquid ratio indicates the short term financial position of

Emami Ltd. whereas debt equity and proprietary ratios shows the long term

financial position.

3. Similarly, activity ratios and profitability ratios are helpful in evaluating the

efficiency of performance in Emami Ltd.

4. The current ratio is above 1 in all the five years. The level of current assets

and current liabilities must be improved.

5. The liquid ratio is increasing year after year. Though the ratio is above 1 in all

the five years, it is preferable to improve upon the situation. This may be due

to the fact that the stock is major composition of current assets, which

excludes liquid assets. The firm should try to clear the stocks.

6. The cash ratio is increasing year after year. So it shows that the cash position

is utilized effectively and efficiently.

7. The average collection period is decreasing year after year so it shows the

better is the quality of debtors as a short collection period and implies quick

payment by debtors.

8. The inventory turnover ratio for the five years indicated an improvement in

inventory policy and efficiency of business operations of the company.



9. The working capital turnover ratio has been decreasing during the five years,

which indicates that there is higher investment of the working capital and

average profit.

10. The proprietary ratio in all the five years is above the satisfactory level, that is,

50%. It indicates the creditors are in a safer side and there is no pressure from

them.

11. The debt to equity ratio is decreasing year after year, which indicates, the

servicing of debt is less burdensome and consequently its credit standing is not

adversely affected.

12. The Net Profit for the five years has been increasing which shows that the

selling and distribution expenses are under control and there is a good

operational efficiency of the business concern.

13. It can be stated that the working capital management of the company seems to

be satisfactory. But in certain years there is decrease in working capital, which

is due to higher amount of current liabilities especially, increasing in provision

for dividend and taxation and creditors. The company should try to decrease

the current liabilities and provision by making timely payment.

The financial performance of the company for the five years is analyzed and it

is proved that the company is financially sound.



CHAPTER – 6

BIBLOGRAPHY

WEBSITES:

www.encyclopedia.com

www.emamigroup.com


http://www.emamigroup.com/

http://www.encyclopedia.com/


BOOKS:

Management Accounting – Ainapure – Manan Prakashan
