A STUDY ON RATIO ANALYSIS AT AMARARAJA BATTERIES LIMITED (ARBL) A PROJECT REPORT MASTER OF BUSINESS ADMINISTRATION Under the Guidance of PDF

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A STUDY ON RATIO ANALYSIS AT AMARARAJA BATTERIES LIMITED (ARBL)                                              A PROJECT REPORT    Submitted in partial fulfillment of the requirement for the award of the degree of   MASTER OF BUSINESS ADMINISTRATION                                                     ...

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A STUDY ON

RATIO ANALYSIS AT AMARARAJA BATTERIES LIMITED (ARBL)                                              A PROJECT REPORT

   Submitted in partial fulfillment of the

requirement for the award of the degree of

  MASTER OF BUSINESS ADMINISTRATION

                                                     Under the Guidance of

   S.SUJATHA M.B.A., M.Phil ASSISTANT PROFESSOR OF MANAGEMENT STUDIES SRM UNIVERSITY                                                                

By

SUNEEL.R (Reg.No.35080623)

 

DEPARTMENT OF BUSINESS ADMINISTRATION SRM UNIVERSITY YEAR-2010     SCHOOL OF MANAGEMENT SRM UNIVERSITY  

Page 1 

SRM Nagar, Kattankulathur-603203 Phone: 044-27452270, 27417777, Fax: 044-27453903 [email protected], website:www.srmuniv.ac.in ________________________________________________________________________

BONAFIDE CERTIFICATE Certified that this project report titled “A STUDY ON RATIO ANALYSIS AT AMARARAJA BATTERIES LIMITED” is the bonafide work of Mr.R.SUNEEL who carried out the research under my supervision.

Certified further, that to the best of my knowledge the work reported here in does not form part of any other Project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the supervisor

Signature of the HOD

                                                                  

DECLARATION   

                 

 

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I hereby declare that the Project Report entitled “A STUDY ON RATIO

ANALYSIS AT AMARARAJA BATTERIES LIMITED(ARBL)” is a record of independent research work submitted by me to SRM University, Chennai, for developing the real time experience as well as award the degree of Master of Business Administration and has been carried out during the period of my study at SRM UNIVERSITY, Chennai, Under the guidance of S.SUJATHA, Department of MBA.

PLACE: Chennai

(R.SUNEEL)

 

     

                                              ACKNOWLEDGEMENT 

  I would like to express deepest gratitude and thanks to the Dr.JAYASREE SURESH, Head of the Department for her valuable support in doing this project. She has been a source of encouragement and guidance in all our endeavors.

 

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I would like to sincerely acknowledge thanks to Sri C.Ramachandra raju, Finance Manager of Amararaja Batteries limited, Mr.C.Ravi Costing Manager of Amararaja Batteries Limited for their moral support during the research work. I express our profound thanks to S.SUJATHA project guide, for her consistent encouragement and invaluable suggestion in completing this project, without his effort the completion of this project would be practically impossible.

It gives me great pleasure to acknowledge my indebtedness to my family Members for their substantial moral support and encouragement in my studies.

I would like to extend my sincere thanks to My Dearest Friends and also my classmates for their unnerving support in the completion of the work.

(R. SUNEEL)  

                                            TABLE OF CONTENTS    Chapters  1 

Title and Topics 

Page No 

INTRODUCTION • Introduction  

1‐2   

   2 

 

OBJECTIVES & METHODOLOGY 

 

• Need of study 

4 

• Scope of study 

5  Page 4 

3 

• Objectives of study 

6 

• Review of Literature 

7‐19 

• Research Methodology 

20 

• Limitations of study 

21 

COMPANY PROFILE

22‐29 

                4 

DATA ANALYSIS AND INTERPRETATION

5 

FINDINGS & SUGGESTIONS

 

• Findings  

62 

• Suggestions 

63 

• Conclusion 

64 

30‐60 

      6 

•

Annexure 

•

BIBLOGRAPHY 

65‐71  72 

   

                                              LIST OF TABLES  SI .NO

 

PARTCULARS

PAGE.NO

1

CURRENT RATIO

31

2

QUICK RATIO

33

3

CASH RATIO

35

4

NETWORKING CAPITAL RATIO

36

5

DEBT RATIO

37

6

DEBT EQUITY RATIO

39

7

INTEREST COVERAGE RATIO

41

8

TOTAL LIABILITIES RATIO

42

9

INVENTORY TURNOVER RATIO

43

Page 5 

10

DEBTORS TURNOVER RATIO

45

11

FIXED ASSET TURNOVER RATIO

46

12

CURRENT ASSET TURNOVER RATIO

48

13

TOTAL ASSET TURNOVER RATIO

49

14

WORKING CAPITAL TURNOVER RATIO

50

15

NET ASSET TURNOVER RATIO

51

16

CAPITAL TURNOVER RATIO

52

17

CREDITOR TURNOVER RATIO

53

18

GROSS PROFIT

54

19

NET PROFIT

56

20

OPERITING EXPENCES RATIO

57

21

RETURN ON INVESTMENT

59

22

RETURN ON EQUITY SHARE HOLDER FUND

60

       

                                                LIST OF CHARTS  SI .NO

 

PARTCULARS

PAGE.NO

1

CURRENT RATIO

32

2

QUICK RATIO

34

3

CASH RATIO

35

4

NETWORKING CAPITAL RATIO

36

5

DEBT RATIO

38

6

DEBT EQUITY RATIO

40

7

INTEREST COVERAGE RATIO

41

8

TOTAL LIABILITIES RATIO

42

9

INVENTORY TURNOVER RATIO

44

10

DEBTORS TURNOVER RATIO

45

11

FIXED ASSET TURNOVER RATIO

47

12

CURRENT ASSET TURNOVER RATIO

48

Page 6 

13

TOTAL ASSET TURNOVER RATIO

49

14

WORKING CAPITAL TURNOVER RATIO

50

15

NET ASSET TURNOVER RATIO

51

16

CAPITAL TURNOVER RATIO

52

17

CREDITOR TURNOVER RATIO

53

18

GROSS PROFIT

55

19

NET PROFIT

56

20

OPERITING EXPENCES RATIO

58

21

RETURN ON INVESTMENT

59

22

RETURN ON EQUITY SHARE HOLDER FUND

60

   

               

                  

 

   

Page 7 

         

• INTRODUCTION  

                     

                                                    INTRODUCTION  ABOUT RATIO ANALYSIS   

The ratio analysis is the most powerful tool of financial analysis. Several ratios calculated

from the accounting data can be grouped into various classes according to financial activity or function to be evaluated. •

DEFINITION: 

                  “The indicate quotient of two mathematical expressions “and as “The relationship between two or more things. “It evaluates the financial position and performance of the firm. As started in the beginning many diverse groups of people are interested in analyzing financial information to indicate the operating and financial efficiency and growth of firm. These people use ratios to determine those financial characteristics of firm in which they interested with the help of ratios one can determine. •  

The ability of the firm to meet its current obligations. Page 8 

•

The extent to which the firm has used its long-term solvency by borrowing funds.

•

The efficiency with which the firm is utilizing its assets in generating the sales revenue.

•

The overall operating efficiency and performance of firm.

    

The information contained in these statements is used by management, creditors,

investors and others to form judgment about the operating performance and financial position of firm. Uses of financial statement can get further insight about financial strength and weakness of the firm if they properly analyze information reported in these statements. Management should be particularly interested in knowing financial strength of the firm to make their best use and to be able to spot out financial weaknesses of the firm to take suitable corrective actions. The further plans firm should be laid down in new of the firm’s financial strength and weaknesses. Thus financial analysis is the starting point for making plans before using any sophisticated forecasting and planning procedures. Understanding the past is a prerequisite for anticipating the future.

   

               

 

 

 

• Need of study  

• Scope of study • Objectives

Page 9 

NEED OF THE STUDY The prevalent educational system providing the placement training at an industry being a part of the curriculum has helped in comparison of theoretical knowledge with practical system. It has led to note the convergences and divergence between theory and practice.

The study enables us to have access to various facts of the organization. It helps in understanding the needs for the importance and advantage of materials in the organization, the study also helps to exposure our minds to the integrated materials management the various procedures, methods and technique adopted by the organization. The study provides knowledge about how the theoretical aspects are put in the organization in terms of described below

9 To pay wages and salaries. 9 For the purchase of raw materials, spares and components parts. 9 To incur day-to-day expenses. 9 To meet selling costs such as packing, advertising. 9 To provide credit facilities to customers. 9 To maintain inventories and raw materials, work-in-progress and finished stock.

                       

Page 10 

                                                      Scope of the study 

  The scope of the study is limited to collecting financial data published in the annual reports of the company every year. The analysis is done to suggest the possible solutions. The study is carried out for 4 years (2006– 10).

 

  Using the ratio analysis, firms past, present and future performance can be analyzed and

this study has been divided as short term analysis and long term analysis. The firm should generate enough profits not only to meet the expectations of owner, but also to expansion activities. 

         

 

 

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                                        OBJECTIVE’S OF STUDY    1. To study and analyze the financial position of the Company through ratio analysis. 2. To suggest measures for improving the financial performance of organization. 3. To analyze the profitability position of the company. 4. To assess the return on investment. 5. To analyze the asset turnover ratio. 6. To determine the solvency position of company. 7. To suggest measures for effective and efficient usage of inventory.  

 

Page 12 

REVIEW OF LITERATURE 

  FINANCIAL ANALYSIS  Financial analysis is the process of identifying the financial strengths and weakness of the firm. It is done by establishing relationships between the items of financial statements viz., balance sheet and profit and loss account. Financial analysis can be undertaken by management of the firm, viz., owners, creditors, investors and others.

Objectives of the financial analysis    Analysis of financial statements may be made for a particular purpose in view. 1. To find out the financial stability and soundness of the business enterprise. 2. To assess and evaluate the earning capacity of the business 3. To estimate and evaluate the fixed assets, stock etc., of the concern. 4. To estimate and determine the possibilities of future growth of business.

5. To assess and evaluate the firm’s capacity and ability to repay short and long term loans

Parties interested in financial analysis  The users of financial analysis can be divided into two broad groups.

Internal users  1. Financial executives 2. Top management

External users  1. Investors 2. Creditor. 3. Workers 4. Customers 5. Government 6. Public

7. Researchers  

   

Page 13 

Significance of financial analysis  Financial analysis serves the following purpose:

To know the operational efficiency of the business:  The financial analysis enables the management to find out the overall efficiency of the firm. This will enable the management to locate the weak Spots of the business and take necessary remedial action.

Helpful in measuring the solvency of the firm:  The financial analysis helps the decision makers in taking appropriate decisions for strengthening the short-term as well as long-term solvency of the firm.

 

Comparison of past and present results:  Financial statements of the previous years can be compared and the trend regarding various expenses, purchases, sales, gross profit and net profit can be ascertained.     Helps in measuring the profitability: 

Financial statements show the gross profit, & net profit.

Inter‐firm comparison:  The financial analysis makes it easy to make inter-firm comparison. This comparison can also be made for various time periods.

 

Bankruptcy and Failure:  Financial statement analysis is significant tool in predicting the bankruptcy and the failure of the business enterprise. Financial statement analysis accomplishes this through the evaluation of the solvency position.

 

Helps in forecasting:    The financial analysis will help in assessing future development by making forecasts and preparing budgets.

   

Page 14 

METHODS OF ANALYSIS:  A financial analyst can adopt the following tools for analysis of the financial statements. These are also termed as methods of financial analysis. A. Comparative statement analysis B. Common-size statement analysis C. Trend analysis D. Funds flow analysis E. Ratio analysis

NATURE OF RATIO ANALYSIS  Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient of mathematical expression" and as "the relationship between two or more things". A ratio is used as benchmark for evaluating the financial position and performance of the firm. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio. Ratio helps to summarizes large quantities of financial data and to make qualitative judgment about the firm's financial performance. The persons interested in the analysis of financial statements can be grouped under three head owners (or) investors who are desired primarily a basis for estimating earning capacity. Creditors who are concerned primarily with Liquidity and ability to pay interest and redeem loan within a specified period. Management is interested in evolving analytical tools that will measure costs, efficiency, liquidity and profitability with a view to make intelligent decisions.

STANDARDS OF COMPARISON  The ratio analysis involves comparison for an useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison are: 1. Past Ratios 2. Competitor's Ratios 3. Industry Ratios 4. Projected Ratios  

Page 15 

Past Ratios: Ratios calculated from the past financial statements of the same firm. Competitor's Ratios:  Ratios of some selected firms, especially the most progressive and successful competitor at the same point in time.  

Industry Ratios: Ratios of the industry to which the firm belongs.   Projected Ratios: Ratios developed using the projected financial statements of the same firm.    

TIME SERIES ANALYSIS  The easiest way to evaluate the performance of a firm is to compare its present ratios with past ratios. When financial ratios over a period of time are compared, it is known as the time series analysis or trend analysis. It gives an indication of the direction of change and reflects whether the firm's financial performance has improved, deteriorated or remind constant over time.

CROSS SECTIONAL ANALYSIS  Another way to comparison is to compare ratios of one firm with some selected firms in the industry at the same point in time. This kind of comparison is known as the cross-sectional analysis. It is more useful to compare the firm's ratios with ratios of a few carefully selected competitors, who have similar operations.

INDUSTRY ANALYSIS  To determine the financial conditions and performance of a firm. Its ratio may be compared with average ratios of the industry of which the firm is a member. This type of analysis is known as industry analysis and also it helps to ascertain the financial standing and capability of the firm & other firms in the industry. Industry ratios are important standards in view of the fact that each industry has its characteristics which influence the financial and operating relationships.

  TYPES OF RATIOS  Management is interested in evaluating every aspect of firm's performance. In view of the requirement of the various users of ratios, we may classify them into following four important categories: 1. Liquidity Ratio 2. Leverage Ratio 3. Activity Ratio 4. Profitability Ratio

   

Page 16 

3.1 Liquidity Ratio  It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios help in establishing a relationship between cast and other current assets to current obligations to provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity and also that it does not have excess liquidity. A very high degree of liquidity is also bad, idle assets earn nothing. The firm's funds will be unnecessarily tied up in current assets. Therefore it is necessary to strike a proper balance between high liquidity. Liquidity ratios can be divided into three types: 3.1.1 Current Ratio 3.1.2 Quick Ratio 3.1.3 Cash Ratio

3.1.1 Current Ratio  Current ratio is an acceptable measure of firm’s short-term solvency Current assets includes cash within a year, such as marketable securities, debtors and inventors. Prepaid expenses are also included in cur...