RATIO ANALYSIS

OF

“SUNDARAM FASTENERS LTD.

SUBMITTED TO: Ms Riya Sharma

SUBMITTED BY: Yogesh Giri

INTRODUCTION OF RATIO ANALYSIS

1
1.1 RATIO ANALYSIS
The analysis of the financial statements and interpretations of financial
results of a particular period of operations with the help of 'ratio' is
termed as "ratio analysis." Ratio analysis used to determine the financial
soundness of a business concern. Alexander Wall designed a system of
ratio analysis and presented it in useful form in the year 1909.

1.3 Classification of Ratios

Accounting Ratios are classified on the basis of the different parties
interested in making` use of the ratios. A very large number of
accounting ratios are used for the purpose of determining the financial
position of a concern for different purposes. Ratios may be broadly
classified in to:
(1) Classification of Ratios on the basis of Balance Sheet.
(2) Classification of Ratios on the basis of Profit and Loss Account.
(3)Classification of Ratios on the basis of Mixed Statement (or) Balance
Sheet and Profit and Loss Account.
This classification further grouped in to:
I. Liquidity Ratios
II. Profitability Ratios
III. Turnover Ratios
IV. Solvency Ratios
V. Overall Profitability Ratios

2
1.6 TURN OVER RATIOS

Turnover Ratios may be also termed as Efficiency Ratios or

Performance Ratios or Activity Ratios. Turnover Ratios highlight the
different aspect of financial statement to satisfy the requirements of
different parties interested in the business. It also indicates the
effectiveness with which different assets are vitalized in a business.
Turnover means the number of times assets are converted or turned over
into sales. The activity ratios indicate the rate at which different assets
are turned over.
Depending upon the purpose, the following activities or turnover ratios
can be calculated:
1. Inventory Ratio or Stock Turnover Ratio (Stock Velocity)
2.Debtor's Turnover Ratio or Receivable Turnover Ratio (Debtor's
Velocity)
2 A. Debtor's Collection Period Ratio
3. Creditor's Turnover Ratio or Payable Turnover Ratio (Creditor's
Velocity)
3 A. Debt Payment Period Ratio Analysis
4. Working Capital Turnover Ratio
5. Fixed Assets Turnover Ratio
6. Capital Turnover Ratio.

3
1.7 SOLVENCY RATIOS

The term 'Solvency' generally refers to the capacity of the business to

meet its short-term and long term obligations. Short-term obligations
include creditors, bank loans and bills payable etc. Long-term
obligations consist of debenture, long-term loans and long-term creditors
etc. Solvency Ratio indicates the sound financial position of a concern to
carryon its business smoothly and meet its al obligations. Liquidity
Ratios and Turnover Ratios concentrate on evaluating the short-term
solvency of the concern have already been explained. Now under this
part of the chapter only the long-term solvency ratios are dealt with.

Some of the important ratios which are given below in order to

determine the solvency of the concern:
(1) Debt - Equity Ratio
(2) Proprietary Ratio
(3) Capital Gearing Ratio
(4) Debt Service Ratio or Interest Coverage Ratio

4
1.8. OVERALL PROFITABILITY RATIO

This ratio used to measure the overall profitability of a firm on the extent
of operating efficiency on investment turnover. Overall all Profitability
Ratio may be calculated in the following ways:

Overall Profitability Ratio =Net Profit / Sales x Sales / Total Assets.

This ratio is also called as “Return on Investments” (ROI) or “Return on

Capital Employed” (ROCE). It indicates the percentage of return on the
total capital employed in the business. This ratio measures the
relationship between net profit before interest and tax and capital
employed.

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COMPANY PROFILE

6
 COMPANY PROFILE

Started in 1966, Sundram Fasteners Limited has grown into a global

leader, manufacturing critical, high precision components for the
automotive, infrastructure, windmill and aviation sectors.

Our varied range of productions encompasses fasteners, power train

components, sintered metal products, iron powder, cold extruded parts,
radiator caps, water pumps, oil pumps and wind energy components.

An unwavering focus on delivering quality has won Sundram Fasteners

Limited the trust of both OEM and aftermarket customers in highly
competitive markets like India, China, Germany, USA, UK, Italy,
France and Brazil.

The TVS Group

Sundram Fasteners Limited is part of the TVS Group of companies.
Founded in 1911 by T.V. Sundaram Iyengar, TVS has grown rapidly,
expanding its portfolio to become India’s largest automotive component
manufacturer. The group has, over the years, diversified into many
businesses, with total sales exceeding USD 8.5 billion.
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RESEARCH METHODOLOGY

8
RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem.

It may be understood as a science of studying how research is done
scientifically. So, the research methodology not only talks about the research
methods but also consider the logic behind the method used in the context of
the research study.

OBJECTIVES OF THE STUDY

● To understand the liquidity and profitability of the company during the

study period.
● To make comparisons between the ratios during different periods ( 2
years data from 2018 to 2019 )

RESEARCH DESIGN

Descriptive research is used in this study become it will ensure the

minimization of bias and maximization of reliability of data collected. The
researcher had to use fact and information already available through financial
statements of earlier years and analyze these to make critical evaluation to be
both descriptive and analytical in nature.
From the study the type of data to be collected and the procedure to be used
for this were decided.

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DATA COLLECTION

1) PRIMARY DATA
Primary data are those data, which is originally collected afresh.

2) SECONDARY DATA
The required data for the study are basically secondary in nature and the
data are collected through balance sheet and profit and loss account of
the company and through internet.

TOOL USED
● Tables
● Bar graphs
● Charts

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DATA ANALYSIS
&
INTERPRETATION

11
 DATA ANALYSIS

1) LIQUIDITY RATIO
A) CURRENT RATIO
TABLE 1

CALCULATION OF CURRENT RATIO

(RS
IN
CR
OR
E)

CAL
CUL
80 ATI
2018
60 127.38 ON
2019
OF
98.77
40 CUR
REN
20
21.97 25.34 4.49 4.49 T
0 RATI
Current assets Current liability Current ratio O
140
YEAR 2018 2019
120
Current assets
100
98.77 127.38
Current liability 21.97 25.34
Current ratio 4.49 4.49

INTERPRETATION
As we know that the ideal current ratio for any firm is 2:1 .if we see the
current ratio of the company for last 2year has remain same.

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B) QUICK RATIO
TABLE 2

CALCULATION OF QUICK RATIO

(RS IN CRORE)
YEAR 2017-18 2018-2019

Quick Assets 66.68 84.64

Current Liability 21.97 25.34

Quick Ratio 3.03 3.34

CALCULATION OF QUICK RATIO

2018
98.77-32.09 =66.68
2019
127.38-42.74 = 84.64

CALCULATION OF QUICK RATIO

90
80
70
60
50
2018
40 84.64
66.68 2019
30
20
21.97 25.34
10
0 3.03 3.34

Quick Assets Current Liability Quick

Ratio
INTERPRETATION
A quick ratio is an indication that the firm is liquid and has the ability to meet its
current liability in time. The ideal quick ratio is 1:1 Company’s quick ratio is more
than its ideal ratio. This shows that company has no liquidity problem.

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2) LEVERAGE OR CAPITAL STRUCTURE RATIO
A)DEBT EQUITY RATIO
TABLE 3
CALCULATIO
N OF DEBT
EQUITY
YEAR RATIO 2017-18 2018-2019
(
Long term loans .89 R 1.36
S
Shareholder’s funds 118.41 151.12
I
Debt equity ratio .007 N .009

C
R
O
CALCULATION OF DEBT EQUITY
R RATIO
160 E
)
140
120
100
80 2018
151.12
60 118.41 2019

40
20
0.89 1.36 0.007 0.009
0
Long term loans Shareholder’s funds Debt equity ratio

INTERPRETATION

This ratio suggests the claims of creditors and owners over the assets of the company. It shows
the best pictures (growth) of a company’s leverage. The leverage the figure , the higher is the
leverage the company enjoys. The calculate figure id 0.09 in 2019 which means that the
company has been constructive in the growth of their financial control in previous year but as
compare with 2018 the company DER is 0.07 which is lesser than previous year so the company
focus on this ratio to improve its market position but overall the company leverage is good.

14
B) DEBT TO TOTAL FUNDS

TABLE 4

CALCULATE OF DEBT TO TOTAL FUNDS RATIO

(RS IN CRORE)
YEAR 2017-18 2018-2019

Long term loans .89 1.36

Shareholder’s funds 118.41 151.12

Debt to total funds .00751 .00892

CALCULATE OF DEBT TO TOTAL FUNDS RATIO

160
140
120
100
80 2018
151.12
60 118.41 2019

40
20
0.89 1.36 0.007501.00892
0
Long term loans Shareholder’s funds Debt to total
funds

INTERPRETATION
This ratio is less than 0.67 in both the year which shows better long term
solvency position of the company as higher ratio indicates a burden of
payment of large amount of loans at maturity.

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C) PROPRIETARY RATIO
TABLE 5
CALCULATE OF PROPRIETARY RATIO

(RS IN CRORE)
YEAR 2017-18 2018-2019

Shareholder’s fund 118.41 151.12

Long term loans .89 1.36

PROPRIETARY RATIO 99.25% 99.11%

CALCULATE OF PROPRIETARY RATIO

160
140
120
100
80 2018
151.1
60 118.412 2019
99.25 99.11
40
20
0.89 1.36
0
Shareholder’s fund Long term loans PROPRIETARY RATIO

INTERPRETATION
This ratio highlights the fact as to what is the proportion of proprietors
and outsider in financing the total business as the company’s ratio is
more than 50% in both the year so it depicts sound financial position of
a company.

16
D) FIXED ASSET TO PROPRIETAR’S FUNDS

TABLE 6

CALCULATE OF FIXED ASSET TO PROPRIETOR’S FUND

(RS IN CRORE)
YEAR 2017-18 2018-2019

Fixed assets 41.61 44.33

Proprietor’s funds 118.41 151.12

FIXED ASSETS TO 35.1% 23.3%

PROPRIETOR’S FUNDS

CALCULATE OF FIXED ASSET TO PROPRIETOR’S

FUND
160
140
120
100
80 151.12 2018
60 118.41
2019
40
20 41.61 44.33 35.1 23.3
0
Fixed assets Proprietor’s funds FIXED ASSETS TO
PROPRIETOR’S FUNDS

INTERPRETATION
Proprietor’s funds is more than fixed than assets an both the year but the ratio
reduce to 29.3% in the current year which is not the good indicator for the
company as this ratio shows the long term financial soundness of business.

17
E) CAPITAL GEARING RATIO
TABLE 7
CALCULATION OF CAPITAL GEARING RATIO
(RS IN CRORE)

YEAR 2017-18 2018-2019

Equity share capital 8.33 8.33

P&L balance 31.61 32.71

Fixed cost bearing capital .89 1.36

CAPITAL GEARING RATIO 44.87 30.17

CALCULATION OF CAPITAL GEARING

RATIO
50

40

30
44.87 2018
20
31.6132.71 30.17 2019
10
8.33 8.33 0.89 1.36
0
Equity share P&L balance Fixed cost CAPITAL
capital bearing capital GEARING RATIO

INTERPRETATION
Capital gearing ratio is a useful tool to analyze the capital structure of a company.
as fixed cost bearing capital is less than the equity share capital in both the years
then this shows that the company the company is low geared which is not
beneficial for the equity shareholders.

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3) ACTIVITY RATIO
A) STOCK TURNOVER RATIO
TABLE 8
CALCULATION OF STOCK TURNOVER RATIO
(RS IN CRORE)
YEAR 2017-18 2018-2019

Cost of goods sold 122.95 134.24

Average stock 24.49 37.41

STOCK TURNOVER RATIO 5.02 3.588

CALCULATION OF COST OF GOODS SOLD

2018
62.71-39.7 = 122.95
2019
174.47-40.23 = 134.24

CALCULATION OF STOCK TURNOVER RATIO

160
140
120
100
80
2017
60 134.24
122.95
2018
40
20 37.41
24.49 5.02 3.588
0
Cost of goods sold Average stock STOCK
TURNOVER
RATIO

INTERPRETATION
This ratio show how rapidly the inventory is turning in to receivables through sales. In 2018 the company has
inventory turnover ratio but in 2019 it has reduce to 3.588 times this shows that the company’s inventory
management techniques is less efficient as compare to last year.

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B) DEBTORS TURNOVER RATIO
TABLE 8
CALCULATION OF DEBTORS
TURNOVER RATIO
(
YEAR 2017-18 2018-2019
R
S
Sales 162.71 174.47
I
Average Debtors 48.57 N 65.90

DEBTOR TURNOVER 3.35 C 2.64

RATIO R
O
R
E
CALCULATION OF DEBTORS
) TURNOVER RATIO
200
180
160
140
120
100 2018
80 162.71174.47 2019
60
40
65.9
20 48.57
3.35 2.64
0
Sales Average Debtors DEBTOR TURNOVER
RATIO

INTERPRETATION
This ratio indicates the speed with which debtors are being converted or turnover in to
sales. The higher the values or turnover in to sales. The higher the values of debtors
turnover , the more efficient is the management of credit. But in the company the debtor’s
turnover ratio is decreasing. This shows that the company is not utilizing is debtor
efficiency. Now their credit policy become liberal as compared to previous.

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C) CREDITORS TURNOVER RATIO
TABLE 9
CALCULATION OF CREDITORS TURNOVER RATIO

(RS IN CRORE)
YEAR 2017-18 2018-2019

Net credit purchase 100.71 94.91

Average creditors 19.41 23.87

Average bills payable _ _

CREDITORS 5.18 3.97

TURNOVER RATIO

CALCULATION OF CREDITORS TURNOVER RATIO

120

100

80

60
2018
100.7914.91
40
2019
20
19.4123.87
0 0 5.18 3.97
0
Net credit Average Average bills CREDITORS
purchase creditors payable
TURNOVER
RATIO

INTERPRETATION
As the company’s creditors turnover ratio has decreased so it indicate less period of credit
enjoyed by business it may due to the fact that either has better liquidity position, believe
in availing cash discount and consequently enjoys better credit standing in the market.

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4) PROFITIBILTY RATIO
A) GROSS PROFIT RATIO
TABLE 10
CALCULATION OF GROSS PROFIT RATIO
(
RS
YEAR 2017-18 2018-2019
IN
CR
Gross Profit 39.76 OR 40.23
E)

Net Sales 162.71 174.47

GROS PROFIT RATIO 24.43 23.05

CALCULATION OF GROSS PROFIT RATIO

200

150

100 2018
162.71174.47 2019
50

39.76 40.23 24.43 23.05

0
Gross Profit Net Sales GROS PROFIT RATIO

INTERPRETATION
Gross profit is the result of the relationship between prices, sales volume and costs.
The gross margin represents the limit beyond which fall in sales prices are outside the tolerance
limit. In this company, in 2018, gross profit is 24.5% it is good for every company but after one
year it was fallen down to 23% in 2019 which shows that the company is not making good profit.

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B) NET PROFIT RATIO

TABLE 11
CALCULATION OF NET PROFIT RATIO

(RS IN CRORE)
YEAR 2017-18 2018-2019

Operating net profit 22.41 15.23

Net Sales 162.71 174.47

NET PROFIT 13.77 8.72

CALCULATION OF NET PROFIT RATIO

200
180
160
140
120
100 2018
80 162.71174.47 2019
60
40
20
22.41 15.23 13.77
0 8.72

Operating net profit Net Sales NET

PROFIT

INTERPRETATION
The net profit ratio is the measure of the firm’s ability to turn each rupee of income from services
in net profit if the net margin inadequate the firm will fail to achieve return on shareholder’s
funds. In 2018 net profit is 13.77 and in 2019 it decrease 8.72 which is not good for the
company.

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C) OPERATING RATIO
TABLE 12
CALCULATION OF OPERATING RATIO
(RS IN CRORE)
YEAR 2017-18 2018-2019

Cost of goods sold 122.95 134.24

Operating expenses 17.35 25.00

Net Sales 162.71 174.47

OPERATING RATIO 86.22 91.27

CALCULATION OF OPERATING RATIO

200
180
160
140
120
100 2018
80 174.47
162.71
60 2019
122.91534.24
40 86.2291.27
20 17.35 25
0
Cost of goods Operating Net Sales OPERATING
sold expenses RATIO

INTERPRETATION
This ratio shows that effectiveness of a company’s management by comparing
operating expenses to net sales. In this sales company in 2018 operating ratio
is
86.22 and in 2019 it is 91.27 which is increasing as compare to previous
year because of increase in net sales.
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 FINDINGS

● Ideal current ratio for any firm is 2:1 .if we see the current ratio of the
company for last 2year has remain same
● The ideal quick ratio is 1:1 Company’s quick ratio is more than its ideal
ratio. This shows that company has no liquidity problem.
● The calculate figure id 0.09 in 2019 which means that the company has
been constructive in the growth of their financial control in
previous
year but as compare with 2018 the company DER is 0.07
which is lesser than previous year so the company focus on this ratio
to improve
its market position but overall the company leverage is good.
● Ratio is less than 0.67 in both the year which shows better long term
solvency position of the company as higher ratio indicates a burden of
payment of large amount of loans at maturity.
● To what is the proportion of proprietors and outsider in financing the
total business as the company’s ratio is more than 50% in both the year
so it depicts sound financial position of a company.
● Proprietor’s funds is more than fixed than assets an both the year but
the ratio reduce to 29.3% in the current year which is not the good
indicator for the company as this ratio shows the long term financial
soundness of business.
● Capital gearing ratio is a useful tool to analyze the capital structure of a
25
company. as fixed cost bearing capital is less than the equity
● Share capital in both the years then this shows that the company
the company is low geared which is not beneficial for the equity
shareholders.
● The inventory is turning in to receivables through sales. In 2018
the company has inventory turnover ratio but in 2019 it has reduce
to 3.588 times this shows that the company’s inventory
management techniques is less efficient as compare to last year.
● This ratio indicates the speed with which debtors are being
converted or turnover in to sales. The higher the values or turnover
in to sales. The higher the values of debtors turnover, the more
efficient is the management of credit. But in the company the
debtor’s turnover ratio is decreasing. This shows that the company
is not utilizing is debtor efficiency. Now their credit policy
becomes liberal as compared to previous.
● As the company’s creditors turnover ratio has decreased so it
indicate less period of credit enjoyed by business it may due to the
fact that either has better liquidity position, believe in availing cash
discount and consequently enjoys better credit standing in the
market.

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● Gross profit is the result of the relationship between prices, sales
volume and costs.
● The gross margin represents the limit beyond which fall in sales
prices are outside the tolerance limit. In this company, in 2018,
gross profit is 24.5% it is good for every company but after one
year it was fallen down to 23% in 2019 which shows that the
company is not making good profit.
● The net profit ratio is the measure of the firm’s ability to turn each
rupee of income from services in net profit if the net margin
inadequate the firm will fail to achieve return on shareholder’s
funds. In 2018 net profit is 13.77 and in 2019 it decrease 8.72
which is not good for the company.
● This ratio shows that effectiveness of a company’s management by
comparing operating expenses to net sales. In this sales company
in 2018 operating ratio is 86.22 and in 2019 it is 91.27 which is
increasing as compare to previous year because of increase in net
sales.

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CONCLUSION AND RECOMMENDATION

28
 CONCLUSION
Finance is the life blood of every business. Without effective financial
management a company cannot survive in this world. A prudent
manager has to measure the working capital policy followed by the
company.

This company is going good if we about liquidity ratio it is increasing

from the last year fixed assets are also increasing compare to the
previous year and equity share capital remain same in the current year.

Debtor’s turnover ratio has decreased which shows that the company is
not utilizing its debtor’s efficiency and creditor’s turnover ratio has also
reduced which indicates less period of credit enjoyed by the business. A
profitability ratio decrease which is not the good indicator for the
company as efficiency of a business is measured in terms of profit.

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