RATIO ANALYSIS

1. Liquidity ratio
2. Leverage ratio
3. Activity ratio
4. Profitability ratio

1. Liquidity ratio
a) Current Ratio-
Current Asset
Current Ratio = ----------------------------

Current Liabilities
YEAR 04-03 03-02
CURRENT 5441473 1371483
ASSETS
CURRENT 1275111 660246
LIABILITIE
S
CURRENT 4.26 2.07
RATIO

 Comment:
In this case the ratio has increased to 4.26 from 2.07,as compared to
last year.This is mainly due to the enormous increase in the current assets of the
company,which was mainly due to increase in cash balances from the initial public
offering(IPO) made in march 2004
As seen from the figures,the Current liabilities have increased by nearly 100%
while on the other hand current assets have increased by 300%.
A higher current ratio represents higher margin of safety for meeting
short term obligations,i.e strong liquidity position.Here,company can meet its
liabilities easily.although company has increased its inventories as well as debtors
to meet increase in sales,it has got enough liquid cash from IPO,which is deposited
with scheduled banks and can be used for long term investments.As the equit
shareholders have strong preferences for capital gains,company can easily plough
back the money and earn higher profits.
 1.b) Quick Ratio

Current Asset – Inventories – prepaid Exp.

Quick Ratio = ------------------------------------------------
Current Liabilities

YEAR 04-03 03-02

CURRENT 5441473 1371483
ASSETS
INVENTORY 839521 466962
CURRENT 1275111 660246
LIABILITIES
RATIO 3.60 1.369

COMMENT:
The ratio has increased to 3.6 in 2003-04 as compared to 1.3 in 2002-03.The
current assets have increased in greater proportion as compared to increase in inventories.
Since major increase in inventories comprises of increase in raw material cost and work
in progress, indicating that the production has increased and the inventory is not locked
up since sales has increased.
As the ratio is much greater than 1 in 2003-04,the company has strong liquidity
position of company .It can still afford to use its liquid cash for supplementing higher
production or make larger investments .

2. LEVERAGE RATIOS:
. a) Debt to Equity Ratio

Total Debt
Debt to Equity Ratio =
Equity

Debt=secured loans+unsecured loans+(deferred tax liability-deferred assets)

Equity = share capital+ reserve and surplus

YEAR 04-03 03-02

LOAN FUNDS 546912 685654
SHARE 500000 18377
CAPITAL
RESERVE 4918314 1248721
DEF.TAX LIA. 176680 143057
RATIO 0.13 0.65

The Ratio shows the declining trend from, which indicates increasing cash accrual and
debt repayment.
Secured loans have decreased by 19%,where although cash credit for working capital
facilities have increased,the term loans taken for fixed asset acquisitions have been paid
off in the year.The deferment of sales tax for various plants have added to deferred tax
liability.
Cash have been accrued on account of issue of IPO which has increased the share capital
by large amount,which also added to share premium account in reserves.Thus
contribution of funds for the business by debtors has decreased in comparison with
owners of the firm.
Although cost of raising equity by public issue is higher than debt,but it has less financial
risk as company can plough back money to get capital gains in future.The company has
valuable growth options and there can be unforeseen needs ,thus in future company can
use its reserve borrowing power.

B) Debt To Asset Ratio:

 TOTAL DEBT
RATIO = ------------------------------
TOTAL ASSETS

Debt=secured loans+unsecured loans+(deferred tax liability-deferred assets)

Total assets=fixed assets+current assets +investments

YEAR 04-03 03-02

LOAN FUNDS 546912 685654
DEF.TAX LIA. 176680 143057
FIXED ASSETS 1984215 1299742
CURRENT 5441473 1371483
ASSETS
INVESTMENT 89329 84829
RATIO 0.096 0.3

c)Total debt ratio-

TOTAL DEBT
RATIO = ------------------------------
CAPITAL EMPLOYED

Capital employed =net worth +total borrowings

YEAR 04-03 03-02
LOAN FUNDS 546912 685654
DEF.TAX LIA. 176680 143057
TOTAL DEBT 723592 828711
CAPITAL 5965226 1952752
EMPLOYED
RATIO 0.121 0.424

COMMENT:
As compared to last year ,company has reduced the debt component.Also,it has
deployed less of debt in assets. The cash generated from operating activities was enough
to meet some expenditures like purchase of fixed assets and repayment of loans,as well as
large cash was generated by issue of share capital.
Thus the company has gone for less financial risk in future as it has used less
amount of debts for purchasing assets
d)Capital equity ratios

CAP.EQUITY CAPITAL EMPLOYED

RATIO= ------------------------------
NET WORTH

YEAR 04-03 03-02

CAPITAL 5965226 1952752
EMPLOYED
NET WORTH 5418314 1267098
RATIO 1.1 1.541

Comment:
The decrease in ratio from 1.54 to 1.1 is primarily due to decrease in
borrowings.company has repaid its long term secured loans,while term loans have
substantially decreased,with some bank borrowings for funding working capital.cash
from operating activities and share premium amount in reserve can offset debt and
company can decide to avoid debt completely if it generates even higher profits from
operating activities to fund its higher working capital requirement.
 e)Interest Coverage Ratio

EBDIT
Interest Coverage Ratio =
Interest

EBDIT=Earnings before depn,interest and tax

YEAR 04-03 03-02

EBDIT 1629009 646357

interest 15677 48920

ratio 103.9 13.21

Comment:

In this case,for the company interest have declined nearly 70%, as there was a
substantial decrease in borrowing rates.Also the earnings have gone up mainly due to
increased sales .As this ratio shows how many times the interest charges are covered by
EBIT. From point of view of creditors, the larger the coverage, the greater is the ability of
firm to handle fixed charge liabilities and the more assured payment of interest to the
creditors. Thus,a lender like a bank or financial institutions will lend higher
amount .From company’s view,too high a ratio may imply unused debt capacity. Since
company has raised money from issue,it can behave conservatively while using debts.

.
3.ACTIVITY RATIOS :
a) Inventory Turn Over Ratio :

Cost of Goods Sold

Inventory Turnover Ratio = -----------------------------------------
Average Inventory

C.O.G.S=raw material consumed+power consumed+lab consumables +plant and m/c

repair

Average inventory = (current year +previous yr)/2

Inventory Holding Period = 360/ Inventory Turn Over Ratio

Year 04-03 03-02

RAW MAT. 2592371 1295824
POWER 171125 128007
LAB CONSUM. 23232 10869
M/C REPAIR 58855 40192
COGS 2845583 1474892
AVG. INV. 653241 466962
I.T.R 4.35 3.15
INVENTORY 82.7 114.2
HOLDING
PERIOD (DAYS)
COMMENT:

It is seen that the ratio has increased thus leading to less inventory holding period
A high ratio would signify that inventory sells fast and stays on the shelf or in the
warehouse for less time.

High Ratio implies good inventory management, it shows that company has ability to
meet demand of customers and reduces the excessive investment in the inventory .i .e it
invests in inventory as according to sales in the market

b)Debtors Turn Over Ratio

Total Sale (Credit)

Debtors Turnover Ratio =------------------------------------
Average Debtors

No. Of Days Of Collection Period =360/ Debtors Turnover Ratio

YEAR 04-03 03-02

SALES 5309108 2746409

AVG. 948551 737467

DEBTORS
D.T .R 5.59 3.72

NO.OF 64.4 96.6

DAYS

Comment:
Company has reduced the no. of days of collection period from 96 days to 64
days.i.e it is collecting cash more rapidly and maintains greater efficiency of credit
management.For the company, market is strong with comparatively less competition
hence the company insists on cash payment and since project cycle is long with
research,it even asks for advance payment in some cases.Since working capital required
is large ,company still has debtors to increase sales
c)Creditors Turn Over Ratio
Credit Purchase
Creditors Turnover Ratio =
Average Creditors

No. of days of credit =360/credit turnover ratio

YEAR 04-03 03-02

PURCHASE 2615603 1306693

(R.M+LAB)
SUNDRY 976040 534034
CREDITORS
RATIO 2.67 2.44

NO. OF DAYS 134 147

Comment :

The Creditors Turn Over Ratio is an important tool of analysis as a firm

can reduce its requirement of current assets by relying on supplier’s credit. Here,Credit
Turn over Ratio is not too high this indicates that the company takes good advantage of
credit facility. But ,no. of days has reduced by a small amount which might indicate that
either company has enough cash and hence is hesitant to take materials on credit or the
creditors are cautious of the future plans and so reducing credit period.

d)Asset Turnover Ratio-

 ASSET TURNOVER NET SALES
RATIO = -------------------
NET ASSETS

YEAR 04-03 03-02

NET SALE 5309106 2746409
FIXED ASSETS 1984215 1299742
CURRENT ASSETS 5441473 1371483
INVESTMENT 89329 84829
NET ASSET 7515017 2756504
(fixed+current+investments)
RATIO 0.70 0.99

Comment:
The net sales have nearly doubled in two years but net assets including fixed
assets .current assets and investments have increased by 2.8 times,which is the main
reason for decrease in asset turnover ratio.The company has got high cash and bank
balance in current assets due to IPO in march ’04,leading to 300% increase in
current asset value.Although fixed asset turnover ratio has increased but the large
change in current assets,shows that assets can be relatively better manageable.In
long term,company can use the share capital to augment the productivity .

e)net working capital ratio

NET W/C NET SALES

RATIO = -------------------
NET WORK.CAP
 YEAR 04-03 03-02
NET SALE 5309106 2746409
NET WORK.CAP 4166362 711237
RATIO 1.27 3.86

Comment:
Here, the relative increase in current assets(300%)is very larger than that of
current liabilities(95%),which is mainly due to increase in cash balance.Hence,the ratio is
decreasing

4.PROFITABILITY RATIOS:
 a)Gross Profit margin Ratio

Gross Profit margin Gross Profit

Ratio =
Net Sale

Here COGS= raw mat.+salaries+transportation+selling expense+commission

YEAR 01-02 00-01

NET SALE 5309106 2746409

COGS 3015063 1590102
GROSS PROFIT 2294043 1135307
RATIO 0.43 0.42

 Comment :

The gross profit margin reflect the efficiency with which management
produces each unit of product.we can see that this efficiency was nearly same in both
years.The net sales have increases proportionately as the profit has increased. Thus
with higher production, company is able to sustain the level of gross profit margin.

b)Net Profit margin Ratio(%) :

PAT
nNet Profit Ratio = X 100

TOTAL SALES

YEAR 04-03 03-02

NET SALE 5309108 2746409

PAT 1246726 358734
RATIO 23.4 % 13.06 %

Comment:
Since ratio has increased it shows that company has better operational and cost price
effectiveness.A reasonable margin is available to all owners who have provided their
capital at risk.The company has earned higher income(100%) with equal rise in
sales,specially export sales revenue has increased.Also, other income like exchange
fluctuation in revenue transaction has increased.

c)PBT% ratio-
PBT
PBT% = ---------------
TOTAL SALES

YEAR 04-03 03-02

NET SALE 5309108 2746409

PBT 1474802 477266
RATIO 27.7 % 17.37 %

d) PBDIT% ratio-
PBDIT
PBDIT% = ---------------
TOTAL SALES

YEAR 04-03 03-02

TOTAL SALE 5309108 2746409

PBDIT 1629009 646357
RATIO 30.6 % 23.5 %

e) PBIT% ratio-
PBIT
PBIT% = ---------------
TOTAL SALES

YEAR 04-03 03-02

TOTAL SALE 5309108 2746409

PBIT 1262403 407654
RATIO 23.7 % 14.8 %
Comment:
Company has paid less interest in 2004,due to less borrowing rates.So even if
accumulated depreciation has increased, company is able to earn more income with 97%
increase in sales, thus giving higher PBT ratio , PBDIT ratio and PBIT ratio.

f)Return on investment:

PBIT
Return on investment = X 100
CAPITAL EMPLOYED

YEAR 04-03 03-02

CAPITAL 5965226 1952752

EMPLOYED
PBIT 1262403 407654
RATIO 0.21 0.208

Comment:

This signifies that the capital employed by the company has gained nearly same amount
of returns. Company has invested for long term investments and in building plants which
will yield them higher returns when it is matured.

g)Return on Equity:
 PAT
Return on equity Ratio = ----------------------x 100
Net worth

YEAR 04-03 03-02

PAT 1246726 358734

NET WORTH 5418314 1267098
RATIO 0.23 0.283

Comment:

The company has got higher share capital on account of IPO,while the sales revenue
had also increased .Thus for every one rupee of net worth,the profit receivable has
decreased very insignificantly .If some amount of share capital is used efficiently to
increase productivity and total production by investing in assets,profits will continue to
increase at higher levels,thus giving higher returns on equity

h) Earning Per Share

Profit Available to Equity Share Holders

Earning per Share =
Number of Equity Shares

YEAR 04-03 03-02

PAT 1246726000 358734000

NO. OF SHARES 100000000 3675300
EPS 12.4 97.60
 Comment:

Earning Per Share Ratio measures the profit available to the equity
shareholders on a per share basis, since the number of shares have increased when
IPO was issued.Hence,the amount that they can get on every share held decreased .
Company can increase its operations on a larger level by using share capital and thus
earn consecutively increasing profits,which will further increase EPS

CHART
 2004 2003
RATIO
Liquidity Ratio
Current Ratio 1.65 1.60
Liquid Ratio 1.0 1.01

Long Term Solvency Ratio

Debt To equity Ratio 0.66 0.51
Debt To Total Asset 0.30 0.24
Interest Coverage Ratio 3.87 12.51
Proprietary Ratio 0.46 0.47

Profitability Ratio (All in %)

Gross Profit Ratio 31.02 32.83
Net Profit Ratio 1.45 5.50
Operating Profit Ratio 7.21 10.84
Return On Asset Ratio 3.31 8.85
Return On Capital Employed Ratio 5.51 13.68

Inventory Turnover Ratio 5.07 6.62

Debtors Turn Over Ratio 6.91 7.75
Creditors Turn Over Ratio 2.9 3.62
Fixed Asset Turn Over Ratio 1.44 1.93
Working Capital Turnover Ratio 5.57 5.93