INDEX

CHAPTER TITLES PAGE NO

I INTRODUCTION OF FINANCIAL 03
MANAGEMENT

II COMPANY PROFILE 14

III RATIO ANALYSIS 24

IV COMPARATIVE STATEMENT 45

V FINDING AND CONCULSION 50

1
 LIST OF TABLES & CHARTS

S.NO TITLE PAGE NO

3.1 GROSS PROFIT RATIO 19

3.2 NET PROFIT RATIO 20

3.3 OPERATING PROFIT RATIO 21

3.4 EQUITY RATIO 22

3.5 CURRENT RATIO 23

3.6 SOLVENTY RATIO 24

3.7 SHAREHOLDER EQUITY TURNOVER RATIO 25

3.8 TOTAL LIABILITIES TURNOVER RATIO 26

3.9 DEBT RATIO 27

3.10 RETURN ON TOTAL ASSETS RATIO 28

3.11 OPERATING RATIO 29

3.12 DEBT EQUITY RATIO 30

2
 CHAPTER-I

INTRODUCTION OF FINANCIAL MANAGEMENT

3
 CHAPTER I

1.1. INTRODUCTION:

Business concern needs finance to meet their requitements in the economic world. Any kind of
business activity depends on the finance. Hence, it is called as life blood of business
organization. Whether the business concerns are big or small, they need finance to fulfil their
business activities.

Financial Management is about preparing, directing and managing the money activities of a
company such as buying, selling and using money to its best results to maximise wealth or
produce best value for money. It is basically applying general management concepts to the cash
of the company.

1.2. MEANING OF FINANCE:

As per the dictionary, meaning finance is the management of large amounts of money, especially
by governments or large companies. If used as a verb it may mean providinfunding for a person
or an enterprise. The word has its origins to the French word finance meaning an end, settlement,
or retribution and used in the context of ending or settling a debt or a dispute. The notion is of
"ending" (by satisfying) something that is due. After adapting to English, the word is used to
define any type of management of money.

1.3. DEFINITIONS OF FINANCE:

Finance has been closely bound with money since it replaced barter as the means of
exchange. Finance is the lifeline of all activities; economic, social, and administrative. Finance
flows from the public as taxes to Government, as savings to banking and financial institutions,
and as share capital or bonds or debentures to the entrepreneur. It then gets used for a variety of
development and non-development activities through Government and other agencies and flows
back to the public as income in various ways.

4
1.4. DEFINITION OF FINANCIAL MANAGEMENT:

One needs money to make money. Finance is the life-blood of business and there must
be a continuous flow of funds in and out of a business enterprise. Money makes the wheels of
business run smoothly. Sound plans, efficient production system and excellent marketing
network are all hampered in the absence of an adequate and timely supply of funds.

Sound financial management is as important in business as production and marketing.

A business firm requires finance to commence its operations, to continue operations and for
expansion or growth. Finance is, therefore, an important operative function of business.

1.5. SCOPE OF FINANCIAL MANAGEMENT:

Some of the major scope of financial management are as follows:

1. Investment Decision

2. Financing Decision

3. Dividend Decision

4. Working Capital Decision.

1. Investment Decision:

The investment decision involves the evaluation of risk, measurement of cost of capital
and estimation of expected benefits from a project. Capital budgeting and liquidity are the two
major components of investment decision. Capital budgeting is concerned with the allocation of
capital and commitment of funds in permanent assets which would yield earnings in future.

Capital budgeting also involves decisions with respect to replacement and renovation
of old assets. The finance manager must maintain an appropriate balance between fixed and

5
current assets in order to maximise profitability and to maintain desired liquidity in the firm.
Capital budgeting is a very important decision as it affects the long-term success and growth of a
firm. At the same time it is a very difficult decision because it involves the estimation of costs
and benefits which are uncertain and unknown.

2. Financing Decision:

While the investment decision involves decision with respect to composition or mix of
assets, financing decision is concerned with the financing mix or financial structure of the firm.
The raising of funds requires decisions regarding the methods and sources of finance, relative
proportion and choice between alternative sources, time of floatation of securities, etc. In order
to meet its investment needs, a firm can raise funds from various sources.

3. Dividend Decision:

In order to achieve the wealth maximisation objective, an appropriate dividend policy

must be developed. One aspect of dividend policy is to decide whether to distribute all the profits
in the form of dividends or to distribute a part of the profits and retain the balance. While
deciding the optimum dividend payout ratio (proportion of net profits to be paid out to
shareholders).

4. Working Capital Decision:

Working capital decision is related to the investment in current assets and current
liabilities. Current assets include cash, receivables, inventory, short-term securities, etc. Current
liabilities consist of creditors, bills payable, outstanding expenses, bank overdraft, etc. Current
assets are those assets which are convertible into a cash within a year. Similarly, current
liabilities are those liabilities, which are likely to mature for payment within an accounting year.

6
1.6. OBJECTIVES OF FINANCIAL MANAGEMENT:

1. Profit maximization

Main aim of any kind of economic activity is earning profit. A business concern is
also functioning mainly for the purpose of earning profit. Profit is the measuring techniques to
understand the business efficiency of the concern.

The finance manager tries to earn maximum profits for the company in the short-term
and the long-term. He cannot guarantee profits in the long term because of business
uncertainties. However, a company can earn maximum profits even in the long-term, if:

 The Finance manager takes proper financial decisions

 He uses the finance of the company properly

2. Wealth maximization

Wealth maximization (shareholders’ value maximization) is also a main objective of

financial management. Wealth maximization means to earn maximum wealth for the
shareholders. So, the finance manager tries to give a maximum dividend to the shareholders. He
also tries to increase the market value of the shares. The market value of the shares is directly
related to the performance of the company. Better the performance, higher is the market value of
shares and vice-versa. So, the finance manager must try to maximize shareholder’s value.

3. Proper estimation of total financial requirements

Proper estimation of total financial requirements is a very important objective of

financial management. The finance manager must estimate the total financial requirements of the
company. He must find out how much finance is required to start and run the company. He must
find out the fixed capital and working capital requirements of the company. His estimation must
be correct. If not, there will be shortage or surplus of finance.Estimating the financial
requirements is a very difficult job. The finance manager must consider many factors, such as the

7
type of technology used by company, number of employees employed, scale of operations, legal
requirements, etc.

4. Proper mobilization

Mobilization (collection) of finance is an important objective of financial

management. After estimating the financial requirements, the finance manager must decide about
the sources of finance. He can collect finance from many sources such as shares, debentures,
bank loans, etc.

5. Proper utilization of finance

Proper utilization of finance is an important objective of financial management. The

finance manager must make optimum utilization of finance. He must use the finance profitable.
He must not waste the finance of the company. He must not invest the company’s finance in
unprofitable projects. He must not block the company’s finance in inventories. He must have a
short credit period.

6. Maintaining proper cash flow

Maintaining proper cash flow is a short-term objective of financial management.

The company must have a proper cash flow to pay the day-to-day expenses such as purchase of
raw materials, payment of wages and salaries, rent, electricity bills, etc. If the company has a
good cash flow, it can take advantage of many opportunities such as getting cash discounts on
purchases, large-scale purchasing, giving credit to customers, etc. A healthy cash flow improves
the chances of survival and success of the company.

7. Survival of company

Survival is the most important objective of financial management. The company must survive in
this competitive business world. The finance manager must be very careful while making
financial decisions. One wrong decision can make the company sick, and it will close down.

8
8. Creating reserves

One of the objectives of financial management is to create reserves. The company must not
distribute the full profit as a dividend to the shareholders. It must keep a part of it profit as
reserves. Reserves can be used for future growth and expansion. It can also be used to face
contingencies in the future.

9. Proper coordination

Financial management must try to have proper coordination between the finance department and
other departments of the company.

10. Create goodwill

Financial management must try to create goodwill for the company. It must improve the image
and reputation of the company. Goodwill helps the company to survive in the short-term and
succeed in the long-term. It also helps the company during bad times.

11. Increase efficiency

Financial management also tries to increase the efficiency of all the departments of the company.
Proper distribution of finance to all the departments will increase the efficiency of the entire
company.

12. Financial discipline

Financial management also tries to create a financial discipline. Financial discipline means:

 To invest finance only in productive areas. This will bring high returns (profits) to the
company.
 To avoid wastage and misuse of finance.

9
13. Reduce cost of capital

Financial management tries to reduce the cost of capital. That is, it tries to borrow money at a
low rate of interest. The finance manager must plan the capital structure in such a way that the
cost of capital it minimized.

14. Reduce operating risks

Financial management also tries to reduce the operating risks. There are many risks and
uncertainties in a business. The finance manager must take steps to reduce these risks. He must
avoid high-risk projects. He must also take proper insurance.

1.7. FUNCTIONS OF FINANCIAL MANAGEMENT:

1. Estimation of capital requirements:

A finance manager has to make estimation with regards to capital requirements
of the company. This will depend upon expected costs and profits and future programmes and
policies of a concern. Estimations have to be made in an adequate manner which increases
earning capacity of enterprise.
2. Determination of capital composition:
Once the estimation have been made, the capital structure have to be decided. This
involves short- term and long- term debt equity analysis. This will depend upon the proportion of
equity capital a company is possessing and additional funds which have to be raised from outside
parties.
3. Choice of sources of funds:
For additional funds to be procured, a company has many choices like-

a. Issue of shares and debentures

b. Loans to be taken from banks and financial institutions

10
 c. Public deposits to be drawn like in form of bonds.

Choice of factor will depend on relative merits and demerits of each source and period of
financing.
4. Investment of funds:
The finance manager has to decide to allocate funds into profitable ventures so that
there is safety on investment and regular returns is possible.

5. Disposal of surplus:
The net profits decision have to be made by the finance manager. This can be done in
two ways:

a. Dividend declaration - It includes identifying the rate of dividends and other benefits like
bonus.
b. Retained profits - The volume has to be decided which will depend upon expansional,
innovation, diversification plans of the company.

6. Management of cash:
Finance manager has to make decisions with regards to cash management. Cash is
required for many purposes like payment of wages and salaries, payment of electricity and water
bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of
raw materials, etc.

7. Financial controls:

The finance manager has not only to plan, procure and utilize the funds but he also
has to exercise control over finances. This can be done through many techniques like ratio
analysis, financial forecasting, cost and profit control, etc

11
.

1.8. TYPES OF FINANCIAL MANAGEMENT:

1. Treasury and Capital Budget Management:

Capital budgeting is the planning procedure used to decide if a company’s fixed

assets, for example, new plant, new machinery; new research projects are worth of allocating
funds through the organization capitalization structure (equity, debt or profit earnings).
Numerous formal strategies are utilized in capital budgeting, For example: Profitability index,
Payback period, Net present value, Real options valuation, accountingrate of return, internal rate
of return, Equivalent annual cost and more. These management teams are likewise accountable
for raising funds and investing funds. In the event that an organization merge with another
organization or expands, team will facilitate the financial needs for merger or expansion.

2. Capital Structure Management:

In corporate finance, capital structure is the manner in which a company finances

through a mix of debt or equity securities. Debt financing comes as bond issues, while equity
comes from retained earnings or as a stock. Short-term debt financing, for example, working
capital necessities is likewise viewed as a major aspect of the capital structure. Here financial
management team is responsible for capital structure of a company’s short-term debts, long-term
debts, equities, preferred stocks and more.

3. Working Capital Management:

Working capital management of an organization refers to managing bookkeeping

methodology and accounting strategies intended to keep track of current assets, current
liabilities, cash flow, inventory turnover ratio, working capital ratio and much more. The basic
role of working capital management is to ensure the organization dependably keeps up adequate
liquid cash to meet its short-term debts and operational cost. This is one of the types of financial
management where team need to maintain working capital management to smoother company’s
operational cycle, and also to improve the company’s earnings.

12
 4. Financial Planning, Analysis and Control Management:

Financial planning is the undertaking of deciding regarding how a business will accomplish its
key objectives and targets. More often an organization makes a Financial Plan after the vision
and mission have been set. The Financial Plan describes each and every activities and exercises
needed to accomplish these goals. Financial analysis is the way toward analysing businesses,
budgets, projects and other finance related matters to decide their execution, suitability and
performance. Regularly, financial examination is utilized to break down whether a company is
steady, liquid or sufficiently productive to permit any investments. Financial controls are
procedures, arrangements and methods that are actualized to manage finances. Financial controls
framework give an instrument to management to screen the accomplishment of operational goals
and objectives. These types of financial management decisions are undertaken by teams who are
more often not responsible for the bookkeeping office, the budget division and the audit related
work.

5. Insurance and Risk Management:

Insurance and risk mostly have a similar objective towards minimizing the organization’s risk;
however distinctive strategies are implemented to accomplish these objectives. Risk management
team are accountable for minimizing the organization’s risk factors that are threat for their
business operations. For example: flood, fire or any other natural disasters.

13
 CHAPTER II

COMPANY PROFILE

14
 CHAPTER II
COMPANY PROFILE

SAKTHI MASALA INTERNATIONAL PRIVATE LIMITED

CIN U15495TZ2002PTC010119

Date of Incorporation 27 Mar, 2002

Status Active

Company Category Company limited by Shares

Company Sub-category Non-govt company

Company Class Private

Business Activity Manufacturing (Food stuffs)

Authorized Capital 50.0 lakhs

Paid-up Capital 1.5 lakhs

Paid-up Capital % 3.0

Registrar Office City Coimbatore

Registered State Tamil Nadu

Registration Number 10119

Registration Date 27 Mar, 2002

Website www.sakthimasala.com

15
HISTORY OF SAKTHI MASALA
The Queen of spices as the household name among the millions today, Mr.P.C.
DURAISAMY, the Founder of the Company was a small time turmeric trader, from a village
called Perundurai near Erode. He found SAKTHI TRADING COMPANY in 1975 and was
doing Turmeric Trading for some time. Later, he entered into the arena of pure spice powders
like Turmeric, Chilli and Coriander. His inquisitiveness let him to enter into masala world with
dauntless.

He encountered a lot of hurdles, since selling masala powders during those days
to the oriental women who are traditionally conservative, was not that easy. It was the concept
selling on "Easy Cooking" rather than marketing food products. With self -determination and
persistent attempts he was able to get into the kitchens of our country and the rest of the world.

The story may look like a miracle, but the hard work, the pot holes and the
bumps on the way and the stormy inclement weather are known only to him. The person who
stood behind him for all his achievements was his business partner and understanding life partner
Dr.Santhi Duraisamy, the Director of the Company.

SAKTHI TRADING COMPANY has transformed into SAKTHI MASALA

PRIVATE LIMITED named after its brand name "SAKTHI" in 1997. Now SAKTHI MASALA
manufactures over 50 varieties of Spice and Masala powders, over a dozen varieties of Pickles,
Flour varieties, Appalams, Ghee and Sunflower Oil. Sakthi Masala gives value addition to the
agricultural products which helps and encourages the farming community to market their
produces. Furthermore, they generate a lot of employment opportunities to the agricultural
labours and rural people.

The Company employs mostly women and differently abled persons from the
rural areas and makes them to lead an honorary life. The company has bagged with IS/ISO
9001:2008 certification from Bureau of Indian Standards, New Delhi. The customers of SAKTHI
MASALA are the house wives and those who need easy and quick cooking solutions.
Restaurants, hostels, hotels, canteens are the other prominent consumers. SAKTHI MASALA
reaches the houses located in every nook & corner of the country through its strong marketing
network.

16
LIST OF SERVICES
1.SAKTHIDEVI CHARITABLE TRUST

Sakthidevi Charitable Trust was founded in the year 1997 by Shri.P.C.Duraisamy,

Founder, Sakthi Masala, to promote the cause of community development services such as
upliftment of physically challenged and mentally retarded, Educational Assistance to pursue
higher Education, Appreciation to School Toppers in Government Public Examinations,
Establishment of Libraries in Government Schools & Mass Tree Plantations are the other social
welfare activities of Trust.

17
 2. SAKTHI HOSPITAL

Sakthi Hospital is run by the Trust to serve the public and free consultancy by
Specialised Doctors is offered in the fields of General Medicine, Ortho, Dental, Eye, ENT, Skin,
Gynecology, Peadiatric & Rehabilitation. Periodical Medical Camps are conducted by the
Specialised Doctors. The Trust is deputing Doctors and other Staff every week to conduct free
Medical Check-up and Counselling for the inmates of "The Home for the Elderly" run by Lions
Club of Erode Mid Town.

3.SAKTHI SCHOOL FOR MENTALLY RETARDED

A Special School is being run by the Trust for Mentally Retarded children upto
14 years, free of cost. After the training by Special Educators the children are being admitted to
the regular schools. Slow learners hailing from surrounding villages are given special training by
Special Educators during evenings to improve the learning skills. The School is approved by the
State Commissioner for the Disabled, Government of Tamilnadu.

4.SAKTHI REHABILITATION CENTRE

Sakthi Rehabilitation Centre run by the Trust is Constructed in 10000 Sq.ft and
fully equipped with latest equipments, offers free treatments daily to Physically & Mentally
Challenged Children by Qualified Physiotherapists in Exercise Therapy, Electro Theraphy,
Speech Therapy, Occupational Therapy. More than 150 children are benefitted. Further, a
Dietician is giving advice to the Children/Parents/General public on their diet habits to maintain
good health.

5.EDUCATIONAL ASSISTANCE CASH PRIZE TO SCHOOL TOPPERS

An Educational Assistance Programme, every year is being conducted by the

Trust, where Educational assistance is provided to pursue Higher Education in the field of
Medical, Engineering, Arts & Science. Erode district Government School Toppers (1st &2nd
rank) in 10th & 12th Public Examinations are appreciated with Cash Prize & Certificate . Every
year around 450 students are benefitted by these schemes.

18
 6.VAZHIKATTI (GUIDE) PROJECT

Under this Project, three Governments Schools located in Manickampalayam,

Chithode & Perundurai in Erode district are adopted. Libraries have been established in these
schools in the name of "Dr.A.P.J.Abdul Kalam" by the Trust. Staff members are appointed to
manage the Library. It benefits over 6000 students and Teachers. Apart from the above,
Personality Devevlopment programmes, Computer, Spoken-English, Home Keeping, Tailoring
classes are conducted at regular intervals.

7. TREE PLANTATION

Trust is maintaining a nursery and growing various types of saplings for free
supply to needy people, interested in Tree plantation under the project called "THALIR".

Cash Awards, Shields, Certificates, Gold Medals are given to best tree growers
in a function every year to encourage the general public in Tree plantation. More than One Lakh
saplings were supplied/planted at free of cost so far.

8. AID TO SCHOOLS

On request from Government / Municipal / Panchayat Schools for

construction of additional blocks, Library block, toilets, compound wall, water facilities, etc, the
Trust has been donating money for the construction of buildings etc, through Parents Teachers
Associations in various rural places in Erode district.

9.PROJECT "JEEVAN"

A unique project "JEEVAN" a basic life supporting training programme is

being conducted every month from September 2008 for the NCC, NSS, Youth Red Cross, Social
Service League Students, Public Service Personnel and other volunteers in partnership with
Indian Medical Association Nursing Home Board. This programme will be conducted for 4 years
for the benefit of the general public.

19
 CSR POLICY

CSR VISION

The company’s CSR Policy is framed in order to serve the society and its
upliftment in which the Company operates.

CSR MISSION

To contribute to the development of the society by providing quality health and

medical facility, quality education, self-developing facilities and creating awareness
about the necessity of the environment.

The company even before the CSR Regulations were implemented, had
voluntarily been an active player in contributing to the upliftment of health, education
and awareness of the people and the society.

CSR ACTIVITIES

THE CSR ACTIVITIES THAT SHALL BE PURSUED ARE:

Eradicating hunger, poverty and malnutrition, promoting health care and

preventive health care and sanitation (including contribution to Swachh Bharat) and
making available safe and drinking water.

20
 education, including special education and employment enhancing vocation
skills especially among children, women, elderly, and the different abled and livelihood
enhancement projects.

Promoting gender quality, empowering women, setting up homes and hostels

for women and orphans; setting up old age homes, day care centre and such other
facilities for senior citizens and measures for reducing inequalities faced by socially and
economically social groups.

Ensuring environmental sustainability, ecological balance, protection of flora

and fauna, animal welfare, agro forestry, conservation of natural resources and
maintaining quality of the soil, air and water.

CSR IMPLEMENTATION

21
 The Company shall undertake CSR activities on its own, to the extent
possible.

 Undertake CSR activities through a registered trust or a registered

society or a company established under section 8 of the Act or
otherwise which satisfies the eligibility criteria.
 Join / Collaborate with other companies.
 Make Contribution to various funds like Prime Minister's National
Relief Fund and any other fund set up by the Government which
shall qualify for CSR activities.

CSR FUNDS

The Company shall spend in every financial year, at least two percent of
the average net profits of the company made during the three immediately
preceding financial Years along with unspent money if any of the previous year.

CSR MONITORING

The CSR committee of the board or such other authorized person shall
present a report which shall state the:

 Activities undertaken during the year.

 Amount Spent and unspent during the year.
 Manner in which the amount was spent during the year.
 Make necesssary disclosure and reports as required under the
Companies 'Act 2013.

22
 CHAPTER III

RATIO ANALYSIS

23
 CHAPTER III

RATIO ANALYSIS

3.1. MEANING OF RATIO ANALYSIS:

One of the most important financial tools, which has come to be used very frequently
for analysing the financial strengths and weaknesses of an enterprise, is ratio analysis. Ratio
analysis is the process of determining and presenting in arithmetical terms the relationship
between figures and groups of figures drawn from these statements.

A ratio expresses simply in one number the result of a comparison between two figures.
It is calculated by dividing one figure by the other. The quotient so obtained is the ratio of the
figures. When the relationship between two figures of the balance sheet is established, the ratio
so calculated is called balance sheet ratio.

The ratio of current assets to current liabilities is the example of balance sheet ratio. If
relationship between the figures of profit and loss account is established, the result so found is

24
regarded as income statement ratio. Ratio of gross profit to sales is the example of income
statement ratio.

When the relationship of figures in income statement and balance sheet is established,
e.g., the ratio of net profit to total capital employed, the ratio is known as inter-statement ratio.

Ratio may be expressed in either of three ways. It may be a quotient obtained by

dividing one value by the other. This unit of expression is called as ‘times’. If the quotient is
multiplied by one hundred, the unit of expression becomes percentage’. It may also be stated in
terms of ‘proportion’ between the two figures. Thus, times, percentages and proportions are three
forms of expressing ratio.

The ratio analysis involves two types of comparison for a useful interpretation of the
financial statements. A ratio itself does not indicate favourable or unfavourable position. It must
be compared with some standard. First, such comparison is comparison of present ratio with past
and expected future ratios for the same firm

LIMITATIONS OF RATIO ANALYSIS:

Ratio analysis involves comparing information taken from the financial

statements to gain a general understanding of the results, financial position, and cash flows
of a business. This analysis is a useful tool, especially for an outsider such as a credit
analyst, lender, or stock analyst. These people need to create a picture of the financial
results and position of a business just from its financial statements. However, there are a
number of limitations of ratio analysis to be aware of. They are:

 HISTORICAL:

All of the information used in ratio analysis is derived from actual

historical results. This does not mean that the same results will carry forward into the
future. However, you can use ratio analysis on pro forma information and compare it
to historical results for consistency.

25
 HISTORICAL VERSUS CURRENT COST:

The information on the income statement is stated in current costs (or

close to it), whereas some elements of the balance sheet may be stated at historical
cost (which could vary substantially from current costs). This disparity can result in
unusual ratio results.

 INFLATION:

If the rate of inflation has changed in any of the periods under review,
this can mean that the numbers are not comparable across periods. For example, if
the inflation rate was 100% in one year, sales would appear to have doubled over the
preceding year, when in fact sales did not change at all.

 AGGREGATION:

The information in a financial statement line item that you are using for
a ratio analysis may have been aggregated differently in the past, so that running the
ratio analysis on a trend line does not compare the same information through the
entire trend period.

 OPERATIONAL CHANGES:

A company may change its underlying operational structure to such an

extent that a ratio calculated several years ago and compared to the same ratio today
would yield a misleading conclusion. For example, if you implemented a constraint
analysis system, this might lead to a reduced investment in fixed assets, whereas a
ratio analysis might conclude that the company is letting its fixed asset base become
too old.

 ACCOUNTING POLICIES:

Different companies may have different policies for recording the same
accounting transaction. This means that comparing the ratio results of different
companies may be like comparing apples and oranges. For example, one company
might use accelerated depreciation while another company uses straight-line
depreciation, or one company records a sale at gross while the other company does
so at net.
26
  BUSINESS CONDITIONS:

You need to place ratio analysis in the context of the general business
environment. For example, 60 days of sales outstanding for receivables might be
considered poor in a period of rapidly growing sales, but might be excellent during
an economic contraction when customers are in severe financial condition and unable
to pay their bills.

 INTERPRETATION:

It can be quite difficult to ascertain the reason for the results of a ratio.
For example, a current ratio of 2:1 might appear to be excellent, until you realize that
the company just sold a large amount of its stock to bolster its cash position. A more
detailed analysis might reveal that the current ratio will only temporarily be at that
level, and will probably decline in the near future

 COMPANY STRATEGY:

It can be dangerous to conduct a ratio analysis comparison between two

firms that are pursuing different strategies. For example, one company may be
following a low-cost strategy, and so is willing to accept a lower gross margin in
exchange for more market share. Conversely, a company in the same industry is
focusing on a high customer service strategy where its prices are higher and gross
margins are higher, but it will never attain the revenue levels of the first company.

 POINT IN TIME:

Some ratios extract information from the balance sheet. Be aware that
the information on the balance sheet is only as of the last day of the reporting period.
If there was an unusual spike or decline in the account balance on the last day of the
reporting period, this can impact the outcome of the ratio analysis.

In short, ratio analysis has a variety of limitations that can restrict its usefulness. However,
as long as you are aware of these problems and use alternative and supplemental methods to
collect and interpret information, ratio analysis is still useful.

27
ADVANTAGES OF RATIO ANALYSIS:

There are multiple kinds of ratios, each explaining various aspects of the company
performance and therefore they have their own advantages. Together, several ratios help in
determining an overall stronghold of the company and also the areas of improvement.

1. EFFICIENCY

Ratios such as the inventory turnover or sales turnover ratios help in understanding
how well the company is using its assets and resources to generate sales or using up inventory. If
these ratios are higher, that means the company is highly efficient, however, if these ratios are
falling over time, then it could imply that the inventory is building up, the product is getting
obsolete, marketing or sales strategy is lacking and so on.

2. SOLVENCY

These ratios are helpful in analysing whether the assets owned by the company are
sufficient to meet the short and long term viability of the company. These are looked by the debt
rating agencies such as the S&P and the Moody’s to present how risky is the company for
investment. These include coverage ratios, current ratio, quick ratio and so on.

3. LIQUIDITY

This is the ratio that implies how much a company has invested in cash and near-
cash securities and is helpful in analysing how much money could the company generate at a
short notice to fulfil an unforeseen event. However, a very high investment in liquid assets can
also imply that the company is missing out on greater interest from the investment in less liquid
securities. Therefore a right level of liquidity is desired.

4. MARKET PERFORMANCE

Ratios such as the P/E ratio, P/Sales ratio, P/BV ratio, EV/EBITDA and so on help
in understanding whether the company is over or undervalued in comparison with its peer group

28
and should an investor include the stock at the given level of risk involved. Further, it also helps
the management to understand how a company’s performance reflects the share price and what
kind of future strategy should it adopt.

5. PROFITABILITY

Ratios such as the Gross Profit Margin, Net Profit Margin, Return on Equity help in
understanding how much is it worth investing in the company. If the Net Profit margin is very
low but the Gross Profit Margin is very high, this implies that the overheads of the company are
a little on the higher side and the company should look into these to find out if there is an area of
improvement.

6. PLANNING

Once the management has the ratios in front of them, they can develop future
strategies such as capital expansion related investments or whether leasing is a better option than
buying a fixed asset. Combining the information with the future market expectations helps the
management in developing a longterm expansion plan which is executed in phases over time.

7. BUDGETING

Operating expenses and other annual expenses and investments are also planned
based on the ratios, for example, if the inventory turnover ratio is very high, the management can
place bulk orders and build up inventory to reduce ordering cost if the expectation of demand
remains unchanged

8. CROSS-SECTIONAL COMPARISON

After bringing various company ratios on the same page by recalculating them based
on the same accounting principles and assumptions, a good within sector or industry comparison
can be made and seen how well a company is performing with respect to its competitors.

29
9. TIME SERIES ANALYSIS

Over time, if a company’s return on equity or the net profit margin is increasing then
it is a good sign for investors who seek higher returns. Further ratios such as the dividend payout
ratio help in assessing the growth opportunities available with the company. For example, if the
company is giving out very high dividends, certain growth-seeking investors may not want to
continue their investments assuming that the capital gain will be lower in the future, however,
value-oriented investors would prefer such stock whose dividend flow is constant.

10. COHESIVE APPROACH TO LOOK AT FINANCIAL STATEMENTS

Certain ratios have inputs from various financial statements and these help in
combining them and informing a complete analysis without missing out information due to data
being available in different statements. An example could be the Return on equity.

3.1. GROSS PROFIT RATIO:

Gross profit ratio is a profitability ratio that shows the relationship between gross profit
and total net sales revenue. It is a popular tool to evaluate the operational performance of the
business. The ratio is computed by dividing. The gross profit figure by net sales.

Gross profit
Gross profit ratio = ----------------------------- *100
sales

S.NO YEAR GROSS PROFIT SALES PERCENTAGE

1 2019 30000 10,000 2.97%
2 2020 28,330 7,100 4.98%

30
 4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2019 2020

GROSS PROFIT RATIO

INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
gross profit ratio was increased for 4.98 in financial year 2019-2020 compare to 2.97 in financial
year 2018-2019.

3.2. NET PROFIT RATIO

Net profit ratio issues with the net profit ratio. The net profit ratio is really a short-term
measurement, because it does not reveal a company’s actions to maintain profitability over the
long term, as may be indicated by the level of capital investment or expenditures for advertising,
training, or research and development.

Net profit
Net profit ratio=---------------------*100
Sales

S.NO YEAR NET PROFIT SALES PERCENTAGE

1 2019 5,493 10,010 0.54%
2 2020 4,193 7,103 0.59%

31
 NET PROFIT RATIO

0.6

0.59

0.58

0.57

0.56

0.55

0.54

0.53

0.52

0.51
2019 2020

INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
net profit ratio was increased for 0.59 in financial year 2019-2020 compare to 0.54 in financial
year 2018-2019.

3.3. OPERATING PROFIT RATIO

Operating profit ratio is calculated by dividing the operating net profit by sales. This ratio
helps in determining the ability of the management in running the business.

Operating profit
Operating profit ratio=--------------------------------*100
Sales

S.NO YEAR OPERATING PROFIT SALES PERCENTAGE

1 2019 6,537 10,010 0.65%
2 2020 5,829 7,103 0.82%

32
INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
Operating profit ratio was increased for 0.65 in financial year 2019-2020 compare to 0.82 in
financial year 2018-2019.

3.4. EQUITY RATIO

The equity ratio is a financial ratio indicating the relative proportion of equity used to finance a
company’s assets. The two components are often taken from the firm’s balance sheet or
statement of financial position if the company’s equities are publicly traded.

Shareholder equity
Equity ratio=------------------------------
Total assets

S.NO YEAR SHAREHOLDER TOTAL PERCENTAGE

EQUITY ASSETS
1 2019 7,293,464 7,347,294 0.9926%
2 2020 7,247,741 7,301,010 0.9927%

33
 EQUITY RATIO
0.993

0.993

0.993

0.993

0.993

0.993

0.993

0.993

0.993

0.993
2019 2020

INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
Equity ratio was increased for 0.9927 in financial year 2019-2020 compare to 0.9926 in financial
year 2018-2019.

3.5. CURRENT RATIO

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term and
long-term obligations. To calculate the ratio, analysis compare current assets to current liability.

Current assets
Current ratio=---------------------------
Current liabilities

S.NO YEAR CURRENT ASSETS CURRENT PERCENTAGE

LIABILITIES
1 2019 7,347,294 53,830 1.36%
2 2020 7,301,010 53,269 1.37%

34
 CURRENT RATIO
1.372

1.37

1.368

1.366

1.364

1.362

1.36

1.358

1.356

1.354
2019 2020

Series 1

INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
Current ratio was increased for 1.37 in financial year 2019-2020 compare to 1.36 in financial
year 2018-2019.

3.6. SOVENCY RATIO

A solvency ratio measures the extent to which assets cover commitments for future payments,
the liabilities. The solvency ratio of an insurance company is the size of its capital relative to all
risks it has taken.

Shareholder equity
Solvency ratio=------------------------------
Total assets

S.NO YEAR SHAREHOLDER TOTAL PERCENTAGE

EQUITY ASSETS
1 2019 7,293,464 7,347,294 0.9926%

35
 2 2020 7,247,741 7,301,010 0.9927%

SOLVENCY RATIO

2020

2019

0.993 0.993 0.993 0.993 0.993 0.993 0.993 0.993 0.993 0.993

INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
solvency ratio was increased for 0.9927 in financial year 2019-2020 compare to 0.9926 in
financial year 2018-2019.

3.7. SHAREHOLDER EQUITY TURNOVER RATIO

36
 Equity Turnover an activity ratio reflecting firm’s equity management. Shareholders it can
be calculated by dividing the company’s net sales by average stockholder’s equitiy. High values
of the equity turnover ratio indicate the efficient shareholder’s equity use.

Sales
Shareholder equity turnover ratio=-----------------------------
Shareholder equity

S.NO YEAR SALES SHAREHOLDER PERCENTAGE

EQUITY
1 2019 10,010 7,293,464 0.137%
2 2020 7,103 7,247,741 0.098%

SHAREHOLDER EQUITY TURNOVER RATIO

2019 2020

INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
shareholder equity turnover ratio was decreased for 0.098 in financial year 2019-2020 compare
to 0.137 in financial year 2018-2019.

37
3.8. TOTAL LIABILITIES TURNOVER RATIO

Turnover ratio. A turnover ratio represents the amount of assets or liabilities that a company
replaces in relation to its sales. The concept is useful for determining the efficiency with which a
business utilizes its assets

Sales
Total liabilities turnover ratio=-------------------------
Total debt

S.NO YEAR SALES TOTAL DEBT PERCENTAGE

1 2019 10,010 4,142,338 2.41%
2 2020 7,103 4,495,783 1.57%

TOTAL LIABILITIES TURNOVER

2020

2019

0 0.5 1 1.5 2 2.5 3

Series 1

INTERPRETATION

38
The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
total liabilities turnover ratio was decreased for 1.57 in financial year 2019-2020 compare to 2.41
in financial year 2018-2019.

3.9. DEBT RATIO

Debt ratio is a financial ratio that indicates the percentage of a company’s assets that are
provided via debt. It is the ratio of total debt and total assets or alternatively.

Total debt
Debt ratio=-------------------------
Total assets

S.NO YEAR TOTAL DEBT TOTAL ASSETS PERCENTAGE

1 2019 4,142,338 7,347,294 5.63%
2 2020 4,495,783 7,301,010 6.15%

DEBT RATIO

2020

2019

5.3 5.4 5.5 5.6 5.7 5.8 5.9 6 6.1 6.2

39
INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
debt ratio was increased for 6.15 in financial year 2019-2020 compare to 5.63 in financial year
2018-2019.

3.10. RETURN ON TOTAL ASSETS RATIO

Return on total assets (ROTA) is a ratio that measures a company’s earnings before interest and
taxes (EBIT) relative to its total net assets…. EBIT is used instead of net profit to keep the
metric focused on opening earnings without the influence of tax or financing differences when
compared to similar companies.

Net profit
Return on total assets ratio= --------------------
Total assets

S.NO YEAR NET PROFIT TOTAL ASSETS PERCENTAGE

1 2019 5,493 7,347,294 7.47%
2 2020 4,193 7,301,010 5.74%

40
 RETURN ON TOTAL ASSETS RATIO
8

0
2019 2020

INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
return on total assets ratio was decreased for 5.74 in financial year 2019-2020 compare to 7.47 in
financial year 2018-2019.

3.11. OPERATING RATIO

In finance, the opening ratio is a company’s operating expenses as a percentage of revenue. This
financial ratio is most commonly used for industries which requite a large percentage of revenues
to maintain operations, such as railroads. In railroading, an operating ratio of 80 or lower is
considered desirable.

Cost of goods sold

Operating ratio= ---------------------------------
sales

41
 S.NO YEAR COST OF GOODS SALES PERCENTAGE
SOLD
1 2019 113,229 10,010 0.11%
2 2020 109,035 7,103 0.15%

OPERATING RATIO

2020

2019

0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16

INTERPRETATION

The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
operating ratio was increased for 0.15 in financial year 2019-2020 compare to 0.11 in financial
year 2018-2019.

3.12. DEBT TO EQUITY RATIO

42
The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders
equity and debt used to finance a company’s assets. Closely related to leveraging, the ratio is
also known as risk, gearing or leverage.

Total debt
Debt to equity ratio=---------------------
Shareholder equity

S.NO YEAR TOTAL DEBT SHAREHOLDER PERCENTAGE

EQUITY
1 2019 4,142,338 7,293,464 5.67%
2 2020 4,495,783 7,247,741 6.20%

DEBT TO EQUITY RATIO

2019 2020

INTERPRETATION

43
The above chart shows that decline trend from the financial year 2018-2019 and 2019-2020. The
return on total assets ratio was increased for 5.67 in financial year 2019-2020 compare to 6.20 in
financial year 2018-2019.

CHAPTER IV

COMPARATIVE STATEMENT

44
 CHAPTER IV

COMPARATIVE STATEMENT

MEANING OF COMPARATIVE STATEMENT:

The comparative financial statements are statements of the financial position at different periods;
of time. The elements of financial position are shown in a comparative form so as to give an idea
of financial position at two or more periods. Any statement prepared in a comparative form will
be covered in comparative statements.

From practical point of view, generally, two financial statements (balance sheet and income
statement) are prepared in comparative form for financial analysis purposes. Not only the
comparison of the figures of two periods but also be relationship between balance sheet and
income statement enables an in depth study of financial position and operative results.

TYPES OF COMPARATIVE STATEMENT:

There are two types of comparative statements which are as follows

45
1. Comparative income statement

2. Comparative balance sheet

1. COMPARATIVE INCOME STATEMENT

Income statements provide the details about the results of the operations of the business, and
comparative income statements provide the progress made by the business over a period of a few
years. This statement also helps in ascertaining the changes that occur in each line item of the
income statement over different periods.The comparative income statement not only shows the
operational efficiency of the business but also helps in comparing the results with the
competitors, over different time periods. This is possible by comparing the operational data
spanning multiple periods of accounting.

2. COMPARATIVE BALANCE SHEET

Comparative balance sheet analyses the assets and liabilities of business for the current
year and also compares the increase or decrease in them in relative as well as absolute
parameters.A comparative balance sheet not only provides the state of assets and liabilities in
different time periods, but it also provides the changes that have taken place in individual assets
and liabilities over different accounting periods.

ADVANTAGES OF COMPARATIVE STATEMENT

(A) COMPARISON:

The comparative statements show the figures of various firms or number of years side
by side i.e. both for inter-firm comparison and intra-firm comparison.

(B) HORIZONTAL ANALYSIS:

The variables are arranged horizontally for the purpose of analysis and interpretations
of data taken from financial statements for assessing profitability, overall efficiency and financial
position of a firm.

46
(C) TREND ANALYSIS:

The comparative financial statement helps to ascertain the ‘trend’ relating to sales,
cost of goods sold, operating expenses etc. so that a proper comparison can easily be made which
helps the analyst to understand the overall performance of a firm.

(D) TREND AND DIRECTIONS:

The comparative financial statement provides necessary information for comparison

of trends in related items e.g. the analyst can compare the trend of sales with the trend of
accounts receivable which gives very useful information. A 20% increase in accounts receivable
and an increase of sales by only 10% warrants investigation into the reasons for this difference in
the rate of increase.

(E) EVALUATION:

The comparative financial statement helps the analyst to compare Performance the
performance of one firm with that of other similar firm in the industry and also compare the
performance of the competitors in the line. This comparison helps to find out the weakness or
strength of a firm and to take adequate steps.

(F) MEASURING FINANCIAL:

Comparative financial statements help to measure important Distress financial ratios

which are used for predicting financial distress and predicting corporate failure with the help of
Multivariate Model.

DISADVANTAGES OF COMPARATIVE STATEMENT

(A) INTER-FIRM COMPARISON:

Inter firm comparison will only be effective if both the firms follow the same
accounting principles, method of valuations of stocks, assets etc. i.e. all the accounting concepts
47
and conventions, which in real world situation, are not identically followed by both the firms e.g.
Firm A follows the FIFO method of valuing stock whereas Firm B follows LIFO method for the
same.

(B) INFLATIONARY EFFECT:

Comparative financial statements do not recognise the change in prices level and, as
such, it will be of no use.

(C) ASCERTAINING CORRECT TREND:

It is very difficult to ascertain the correct trend if there is a structural changes in a

firm which are frequently happened.

(D) UNIFORMITY IN PRINCIPLE:

There must be a consistency while following accounting principles, concepts and

convention. But in practice, this is not done and as such, multi-year analysis becomes useless.

48
 UNIT- V

FINDING AND CONCLUTION

49
 UNIT V

FINDING AND CONCLUTION

FINDING

 The gross profit ratio is 4.98% on 2020 is founded.

 The net profit ratio is 0.59% on 2020 is founded.

 The operating profit ratio is 0.82% on 2020 is founded.

 The equity ratio 0.9927% on 2020 is founded.

 The current ratio 1.37% on 2020 is founded.

 The solvency ratio 0.9927% on 2020 is founded.

 The shareholder equity turnover ratio 0.098% on 2020 is founded.

 The total liabilities turnover ratio 1.57% on 2020 is founded.

 The debt ratio 6.15% on 2020 is founded.

 The return on total assets ratio 5.74% on 2020 is founded.

 The operating ratio 0.15% on 2020 is founded.

 The debt to equity ratio 6.20% on 2020 is founded.

50
CONCLUTION

This project entitled that customer satisfaction of Sakthi Masala Products. The overall analyse of
the study indicate that at presents so many varieties of products available even the customer were
satisfied product smell, taste, quality, cost, packing of the sakthi masala products in SALEM
District.Like this maintain to development the limited to next stage. And with regard to
resource, the limited is take utilization of the assets properly. And to maintain the capital
properly.

51