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TRANSCRIPT
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INTRODUCTION
INDUSTRY PROFILE
Indian sugar Industry:
India is the second largest producer of sugar in the world. The Indian sugar
industry is the second largest agro industry located in the rural India. The Indian sugar
industry has a turnover of Rs.500 billion per annum and it contributes almost Rs.22.5
billion to the central and state as tax, and excise duty every year. It is the second largest
agro processing industry in the country offers cotton textiles.
About 50 million sugar cane farmers and a large number of agricultural laborers
are involved in sugar cane cultivation and ancillary activities, constituting 7.5% of therural population. The industry provides employment to about 2 million skilled/semiskilled
workers and others mostly from the rural areas.
The industry not only generates power for its own requirement but surplus power
for export to the grid based on by - product- bagasse. It also produces ethyl alcohol,
which is used for industrial and potable uses, and can also be used to manufacture
Ethanol, an ecology friendly and renewable fuel for blending with petrol.
The sugar industry in the country uses only sugar cane as input; hence sugar
companies have been established in large sugar cane growing states like Uttar Pradesh,
Maharashtra, Karnataka, Gujarat, Tamil Nadu and Andhra Pradesh. In the year 2003-04
these six states contribute more than 85% of total sugar production in the country. Exhibit
1 shows the state-wise sugar production in India for 2004-2005 and 2005-06.
The government de-licensed the sugar sector in the August 1998, there by
removing the restriction on the expansion of existing as well as on the establishment of
new units , with the only stipulation that a minimum distance of 15 kms would continue
to be observed between an existing sugar mill and a new mill.
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EXHIBIT 1: Sugar production by state in India (in Metric Million Ton):
There are 566 installed sugar mills in the country with a production capacity of
180 lakh Million tons of sugar, of which only 453 are working. These mills are located in
18 states of the country. Around 315 of the total installed mills are in the co-operative
sector, 189 in the private sector and 62 in the public sector.
The number of operating sugar mills in the country has increased from 29 in sugar
year (SY) 1930-31 to 412 by (S) Y1996-97 (sugar year = October 1 st to September
30th). The addition in number of mills was at its peak during seventies that when nearly
100 mills were added between 1970 and 1980 to increase the number of operating units to
300. The development of industry in the past is as given in table below.
The average capacity of the sugar mills in the industry has considerably moved up
from just 644 ton per day in SY 1930-31 to 2656 ton per day. But still the production of
sugar in India is inching. Industry was driven by horizontal growth (increase in number of
units) compared to the vertical growth witnessed in other countries (increase in average
capacity) Refer Exhibit (3)
1.1 Sugar Availability:
Sugarcane occupies about 2.7% of the total cultivated land and it is one of the
most important cash crops in the country. The area under sugar cane has gradually
increased from 2.7 million hectares in 1980-81 to 4.3 million hectares in 2006-07, mainly
because of much larger diversions of land from other crops to sugarcane by the farmers
for economic reasons. The sugarcane area, however, declined in the year 2003-04 to 3.9
million hectares and to 3.7 million hectares in 2004-05, mainly due to drought and pest
attack.
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From a level of 154 MMT in 1980-81, the sugarcane production increased to 241
MMT in 1990-91 and further to 296 MMT in 2000-2001. Since then it has been hovering
around 300 MMT until last year. In the season 2003-2004, however, sugarcane
production declined to drought and pest attack. Not only sugarcane acreage and sugarcane
production has bas been increasing, even drawl of sugarcane by sugar industry has also
been increasing over the years. In India, sugarcane is utilized by sugar mills as well as by
traditional sweeteners like Gur and Khandsari producers. However, the diversions of
sugarcane to Gur and Khandsari are lower in states of Maharashtra and Karnataka, as
compared to Northern states like Uttar Pradesh. Exhibit 2 gives data on sugarcane
utilization for different purposes.
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EXHIBIT 2: Sugar Utilization:
The three largest sugarcane growers in terms of production are Brazil, India and China,
yielding between them more than half of total sugar production. Exhibit 3 compares
production and yield figures for the top 11 sugar growing countries as shown below.
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EXHIBIT 3: Sugarcane production and consumption by country.
Most of the mills in India are not equipped to make refined sugar. Mills which are
designed to produce refined sugar can manufacture sugar not only from sugarcane but
also from raw sugar which can be imported. Therefore, such mills can run their
production all the year round, as opposed to single stage mills which are dependent upon
the seasonal supply of sugarcane.
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COMPANY PROFILE
Mr. Dhruv M. Sawhney, Chairman & Managing Director graduated with a
Masters in Mechanical Sciences from Emmanuel College, University of Cambridge, U.K.
and M.B.A with distinction from the Wharton School, University of Pennsylvania, U.S.A.
He was on the Dean's list for all terms, came second in the University, and is a life
member of Beta Gama Sigma. Mr. Sawhney has received the highest civilian award
"Chevalier de la Legion d'Honneur" from President Chirac of the French Republic.
Mr. Sawhney is a Past President of the Confederation of Indian Industry (CII), the
Indian Sugar Mills Association and the Sugar Technologists Association of India. He was
the first Chairman from the developing world of the International Society of Sugar CaneTechnologists. Mr. Sawhney has served on the Board of various public sector
organizations and chaired Government advisory councils on Industry, Energy and Sugar.
He chairs the Commonwealth Leadership Development Conferences founded by HRH
Prince Philip, The Duke of Edinburgh in 1956 to foster and broaden the understanding
and decision-making ability of individuals in the commonwealth countries. Mr Sawhney
is Deputy Chairman of the Evian Group and Chairman of the India Steering Committee of
the World Economic Forum, Switzerland. He also chairs CII's International and Internal
Audit Committees.
Mr. Sawhney takes a keen interest in education, and was a past Governor of the Indian
Institute of Management, Lucknow, the Management Institute at the University of Delhi
and Chairman of the Doon School, Dehra Dun, one of India's most famous Public
Schools. He is a Companion Member of the Chartered Institute of Management, U.K. and
chairs the Board of Trustees of Delhi's oldest private charitable hospital. He was
President of the All India Chess Federation for 12 years.
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TRIVENI NGINEERING AND INDUSTRIES LIMITED
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PERFORMANCE:
Particulars 2010-11 2011-12 % Increase
Sales (Gross) 12702.96 10212.92 24.38Sales (Net) 11920.37 9610.50 24.04
Operating Profit ( EBIDTA) 2130.00 1724.46 23.52
Interest and Financial Charges 229.96 304.67 (24.52)
Depreciation and amortization 288.25 178.73 61.29
Profit before tax (PBT) 1611.79 1241.06 29.87
Tax liability- Normal 165.32 235.29
- Net deferred tax charges 131.51 10.57Profit after tax (PAT) 1314.96 995.20 32.13
Surplus brought forward 82.40 44.55
Available for appropriation 1397.36 1039.75
APPROPRITATIONS
Provision for Dividend (included dividend
distribution tax)
Equity 147.54 93.95 57.04Preference - 2.70 -
Transfers to molasses reserves 1.27 0.83
Transfer to capital redemption reserves 19.87 19.87
Transfer to general reserves 1150.00 840.00
Surplus carried forwarded 78.68 82.40
Earning per equity share of Re. 1 each (in Rs.) 5.88 4.77 23.27
During the year under review, the company reported a record performance across the
following parameters:
Net sales increased 24.04 % to Rs 11920.37 million.
Profit after tax increased 32.13 % to Rs 1314.96 million.
There was a remarkable growth in turnover in all the engineering units accompanied by
an attractive increase in their respective margins. The company is optimistic of a similar
or higher growth in turnover and profit of all businesses in Financial Year 2011-12.
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CORPORATE INFORMATION:
Sl. No. Name and Address of Stock Exchange Stock Code
01. Bombay Stock Exchange Limited
Phiroze Jeejeebhoy Towers,
Dalal Street, Fort
Mumbai400023
532356
02. National Stock Exchange of India Ltd.
Exchange Plaza, 5th Floor, Plot no c/1, G block, Bandera (E),
Mumbai400051
TRIVENI
Enhancing shareholders value:
The Triveni public issue: The shares of Triveni Engineering & industries Limited are
listed on the Bombay stock Exchange and National stock Exchange, the major stock
exchange of India.
The company issued 50 million equity shares in November 2009 and the issue was
oversubscribed more then ten times reflecting investor confidence. The equity shares of
RS. 1 each were issued through a book building process within a price range of Rs. 42.50.
While 97% of the demand was for shares in the upper band, the company prudently fixed
the issue price at Rs. 48 in general investor interest. Consequent to this issue, the equity
shares of the company were listed on NSE and BSE on 13 December 2008. As on 31
March 2009, reputed institutional investors including mutual funds, foreign institutional
investors and domastic banks held 21.53% of the companys shareholding. The closing
price of Triveni share at NSE on 31 March 2009 was Rs. 125.95, impaling a market
capitalisation of Rs.32480 million. The company has increased the limit of investment byFIIs to 49%, which will enable more international investors to participate in its growth
story.
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At Triveni, our principal achievement is that we started with one business, but leverage
our engineering knowledge to extend into four other growing and profitable business.
4500
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Dec-11 Jan-12 Feb-12 Mar-12
SHARE PERFORMANCE OF TRIVENI Vs
BSE SENSEX
Triveni Share Price- BSE low Triveni Share Price - BSE high
BSE Sensex low BSE Sensex high
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SUGAR BUSINESS GROUP (SBG)
Highlights, 2010-11
13% increase in turnover from Rs. 7676.07 million in 2011-12 to Rs. 8663.25 million.
Recovery of the Deoband sugar unit of the highest in Western UP during the 2010-11
sugar seasons.
60% increase in sugar capacity from TCD in 2011-12 to 40500 TCD.
Commissioning of the 7000 TCD Greenfield sugar unit in Sabitgarh in January 2011.
Outlook, 2011-12
Sugar prices are expected to stay firm for the next two years on account of domestic
demand and supply, high crude price influencing higher ethanol production as well as
due to other international factors.
The company will expend capacity from 40500 TCD to 61000 TCD in 2010-11
It will commission three Greenfield units in Chandanpur (6000 TCD) and Rani Nagal
(5500 TCD) by the start of the 2010-11 sugar season; the third plant in Narainpur
(6000 TCD) will be completed in the fourth quarter of 2011-12; capacity expansion of
the Ramkola sugar unit from 3500 TCD to 6500 TCD will be complete by the start of
the 2009-10 sugar season.
The company is setting up a captive 160 KLPD distillery for ethanol production that
will be commissioned in the fourth quarter of 2009-10.
Performance
The company achieved 7% higher crushed in 2011-12, a good performance as it
competed successfully with producers of alternative sweeteners to reduce cane diversion
and increase drawal of sugarcane. Further, the company produces Rs. 0.38 million tones
of White sugar in 2005-06. Due to late rains, winter frodt and overfertilisation, the sugar
recovereries in Western UP were lower by around 0.6-0.7% than what had been achieved
in 2011-12. Averages recover for our sugar units declined from 10.08% in 2011-12 to
9.59% in 2010-11 due to the aforesaid. It is to the companys credit that
despite poor
weather, the Deoband units reported one of the highest recoveries among
all Western UP sugar factories during the season under review.
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In Sugar Division area during the down turn, they invested in the modernization of the
sugar units to achieve benefits which are fully under their control and invested
additionally in the cogeneration plant to insulate themself from the sugar cycle,
developing an alternative stable revenue stream. Besides they invested in state-of-the-art
vacuum pans in a joint collaboration with sugar research international of Australia. The
result of these initiatives is that when the industry turned around, Triveni was in the right
place at the right time with the right capacity and the right efficiencies.
The government did not permit the import of white sugar during the last two years even
when a shortage was evident, but quite pragmatically allowed the import of raw sugar
under an advance License scheme with corresponding export obligations. Considering all
the factors and as described in detail in the Management Discussion and Analysis, the
sugar outlook appears stable till 2007.
The Khatauli sugar unit is being modernized and expanded to 16000 tcd and they are
planning to setup three new units, one of which will be set up at Sabitgarh, district
Bulundshahar, UP. All these units would have capacity of 5000-7000 tcd, expandable to
12000tcd. As a result, they expect their sugarcane crushing capacity to significantly rise
over our current base of 25250 tcd.
THE BRANDED SUGAR (SHAGUN)
The Companys branded sugar is manufactured in Khatauli
and marketed under the Shagun Brand. The companyannounced this sugar in 26 September 2003.the branded
sugar provides in 1-5 KG.packets. During the year under
review, the off take of Branded sugar increased by 44 % to
6522 MT. While the market of branded sugar is not large,
demand is increasing due to increased urbanization and life
style changes.And the branded sugar of Triveni Shagun is
packaged in a state-of-the-art sugar packaging section located
in the sugar factory premises. The sugar packaging section is considered to be the best
designed sugar packaging sections amongst all the players in branded sugar business in
India.
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THE COGENERATION GROUP (CBG)
Plant: Khatauli and Deoband Bagasse-based cogeneration power is a renewable, enviournmant friendly driver of
sustainable development. The government of India has issued the national electricity
policy, which calls for the promotion of cogeneration and generation from renewable
Sources of energy.
Performance, 2011-12
222% increased in the divisions revenue from Rs. 188.03 million in 2011-12to Rs.
605.5 million.
304% increased in EBIDTA from Rs. 58.6 million in 2010-11 to Rs. 237 million.
Commissioning of new 23 MW co-generation plant in Khatauli reported PLF of over
98% in March 2010.
92% plant load factor for the Deoband unit across 207 days of working (99% and
100% PLF in February and March 2011 respectively).
Power purchase agreement with Utter Pradesh Power Corporation Ltd. (UPPCL), the
buyer for the power supplied to the grid; timely payments from UPPCL for the power
supplied.
Cogen plant at
Khatauli was one
of the quickest
commissioning
schedules for co-
generation plants
in India.
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Trivenis co-generation units
DEOBAND:
State of the art, bagasse-based co-generation unit with a capacity of 22 MW. The company captivity consumed 31 % of the electricity produced by this plant and
the rest was supplied to the Utter Pradesh power corporation Limited, secured by a
ten-year power purchase agreement.
Plant operated at an average plant load factor of 92% for the 207 days it was
operational in 2007-08; PLF could have been higher but for fuel shortage during the
start of the sugar season and high grid disturbances in January 2008. Plant achieved
99 % and 100 % PLF in February 2007 and March 2008 respectively.
KHATAULI:
State of the art and energy efficient, bagaees-based 23 MW cogeneration power plant
(commenced operation during 2010-11 sugar season).
The company captivity consumed 25 % of the electricity produced by this plant and
the rest was supplied to the Utter Pradesh Power Corporation Limited, secured
through a 10- year power purchase agreement.
One of the quickest commissioning schedules for co-generations plant in India.
Commenced the export of power in October 2010. After an initial period of
stabilization, the cogen plant has achieved full capacity; PLF was over 98 % for
March 2008.
Additionally utilizes continuous Electro de-ionization (CEDI) process in its Boiler
feed water system (installed through the companys water business Group) with the
objective to rationalize bulk acid and alkali handling as well as improve water quality.
This is the largest CEDI-based water treatment module in India and the first in a
power plant in the country.
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TECHNOLOGYS
TECHNOLOGIES IN SUGAR DIVISION:
Continuous Vacuum Pan
Syrup Clarifier System
Short Retention Clarifier
Continuous vacuum Pan
Developed by Triveni SRI Limited, a wholly owned subsidiary, in association
with Sugar Research International (SRI) of Mackay, Australia, the CVC was installed in
the Deoband sugar factory for usage on C massecuite, the first time an SRI pan was
installed for C massecuite in a sulphitation plant.
SRI is one of the sugar machinery technology authorities in the world; its
subsidiary, Triveni SRI Limited, has an exclusive license in India from SRI International
for many of their products. Owing to technical improvements made on the CVP, Triveni
and SRI are now eligible to jointly own the intellectual property for this new improved
vacuum pan. Company has in the past presented these details in a paper jointly presented
with SRI at a convention of the International Society for Sugar Sugarcane Technology.
The contribution of
the division to the
companys revenue
increased from
16.9% in 2010-2011
to 22.6% in 2011-
2012
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Syrup Clarifier System:
Installed at the Deoband and Khatauli sugar plants to improve the quality of sugar,
this licensed product from SRI has been sold to EID parry in Tamil Nadu, where it is
working efficiently.
Short retention Clarifier:
To be installed in 2011-12 at the Khatauli unit and at the new plant, the
clarification of juice is achieved in only 30 minutes while in a normal clarifier juice is
retained for approximately 150 minutes. This prevents the inversion of sugar and also
leads to an improved sugar recovery and quality.
Mill-Tandem:
Designed and manufactured by the company (captive technology), installed in
companys sugar plants. The mill-tandem has proved to be one of the most efficient in
India: reflected in the reduction in Bagasse losses and increase in reduced mills extraction
(RME); RME for the unit is 96 while that of the industry is around 95; bagasse loss in the
unit is 1.6 compared to 1.9 for the rest of the industry; strong design feature ensures a
negligible downtime. Triveni has set up over 65 sugar plants and supplied over 300 cane
mills to sugar factories in India and overseas.
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FINANCIAL REWIEW
KEY PARAMETRES:
2010-11 2011-12
Return on Net worth (RONW) (%) 72.59 38.92
Return on Capital employed (ROCE) (%) 3.52 29.34
Total Debt Equity Ratio (Times) 2.74 0.79
EBDITA margin (%) 17.94 17.87
PAT margin (%) 10.36 11.03
Interest Cover (Times) 4.89 8.60
Book value (Rs. Per equity share of Re. 1, post bonus) 7.91 19.82
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CORPORATE INFORMATION
Chairman and Managing Director
Mr. Dhruv M. Sawhney
Board of Directors
Dr. F.C. Kohli
Lt. Gen. K.K. Hazari (Retd.)
Mr. M. K. Daga
Mr. R. C. Sharma
Mr. V. Venkateswarlu
Mr. R. K. Kapoor (IDBI Nominee)
Vice President (legal) and Company Secretary
Mr. V.P. Ghuliani
Bankers
Punjab National Bank
Central Bank of India
Canara Bank
Oriental bank of Commerce
Union Bank of India
Standard Chartered Bank
State Bank of Travancore
UTI bank Ltd.
Auditors
M/s. J.C. Bhalla & Co.
Branch Auditors
M/s. Virmani & Associates
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COMPANYS BUSINESS LOCATIONS
Registered Office
Deoband, District Saharanpur
Utter Pradesh247554
Phone: (01336) 222497, 222185,222866
Fax: 222220
Corporate Office
Express Trade Towers, 8th floor
15-16, sector 16 A, Noida 201301 (UP)
Phone: (0120) 5308000
Fax: 5311010-11
Share department/investors grievances
Express Trade Tower; 8th floor
15-16, sector- 16 A Noida 201301 (U.P.)
STD code: 0120
Phone: 4308000
Fax: 4311010-11
Email:shares@trivenigroup. Com
Registrar and share transfer agents
For equity shares held in physical and electronic mode.
M/s Karvy computer share Pvt. Ltd. Karvy house,46,
Avenue 4 Street No. 1, Banjara Hills Hyderabad 500034
STD Code :040 Phone: 23312454,23320751
Fax: 23311968
Email: [email protected]
Turbine business group
12-A, peenya industrial Area, Peenya, Banglore-560058
STD Code: 080
Phone: 28394721(4 lines), 28394843, 28394771
Fax: 28395211
mailto:shares@trivenigroupmailto:shares@trivenigroupmailto:shares@trivenigroupmailto:[email protected]:[email protected]:[email protected]:shares@trivenigroup -
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LITERATURE REVIEW
Chaote GN, Tanaka K(1979) Stated that financial ratio analysis allows a hospital to
evaluate its own performance over time and to compare itself with other hospitals.Through reclassification procedures, potential distortions are reduced, and administrative
decisions can be based on more reliable rations. Step 1 reclassifies financial statements
for analysis, step 2 computes and explains ratios, and step 3 combines ratios into patterns
for interpretations. Step 4 describes the 209-hospital sample, step 5 compares three
individual hospitals' ratios to industry ratios, and step 6 discusses behavior of two
hospitals' ratios and industry ratios over time.
P Smith(1990) Stated that ratio analysis has been a tool of analysts for as long as
financial statements have been prepared. Yet its limitation to considering only one
numerator and one denominator severely limits its usefulness. This paper extends the
traditional ratio analysis to permit the incorporation of any number of dimensions of
performance, using data envelopment analysis. The method produces measures of
corporate efficiency, together with a wealth of supporting information. The strengths and
weaknesses of the method applied to financial statements are appraised.
Paavo Yli- Olli and IIKKa Virtanen(1990) Stated that we develop, on the economy-
wide level, empirically-based classification patterns for twelve commonly used financial
ratios and measure the long-term stability and structural invariance of these patterns. The
data are based on annual reports of U.S. and Finnish industrial firms for the periods 1947-
75 and 1974-84, respectively. The selected financial ratios are, according to a priori
classification, the measures of short-term solvency, long-term solvency, profitability, and
efficiency. Classification patterns are developed using factor analysis and the stability and
invariance analyses are carried out via transformation analysis. The following factors are
found: solvency, profitability, efficiency, and dynamic liquidity. Classification patterns
are developed using ratio indices in first-difference form. This is necessary because of
clear trend in the time series. Further, empirical results show that different aggregation
methods lead to different results. The theoretically better value-weighted indices give
more accurate and easier-to-intepret empirical results. Factor patterns based on these
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indices display time-series stability and cross-sectional invariance. This confirms the
importance of aggregation method in ratio analysis.
Francis Edum- Fotwe(1996) Stated that there is a variety of financial ratio analytical
methodologies for evaluation of construction companies corporate performance and
identifying potential insolvent contractors. These methodologies comprise traditional
approaches, subjective index and ratio models. The shortcomings of the financial ratio
analytical methods are highlighted and some approachesto improving their efficiency
presented. It has been suggested that standardizing the assessment criteria of subjective
index methods for the construction industry can reduce the variation in different expert
evaluations and so lead to a more uniform assessment. Secondly, the transformation
approach has been recommended as a means of improving the efficiency of ratio models.
Zeller TL, Stanko BB, Cleverley WO(1997) Stated that using audit financial data in a
study of 2,189 not-for-profit hospitals for the period 1989-1992, six financial
characteristics of performance were defined. These characteristics are profitability factor,
fixed-asset efficiency, capital structure, fixed-asset age, working capital efficiency, and
liquidity. The statistical output also shows the specific sets of financial ratios that can be
used to measure the six characteristics of hospital performance. The results of this study
can be beneficial to healthcare financial managers, hospital boards, policy groups, and
other relevant entities because it affords them a clear understanding of an institution's
financial performance.
Hepu Deng, Chung - Hsing Yeh, Robert J. Willis(2000) Simultaneous consideration of
multiple financial ratios is required to adequately evaluate and rank the relative
performance of competing companies. This paper formulates the inter-company
comparison process as a multi-criteria analysis model, and presents an effective approachby modifying TOPSIS for solving the problem. The modified TOPSIS approach can
identify the relevance of the financial ratios to the evaluation result, and indicate the
performance difference between companies on each financial ratio. To ensure that the
evaluation result is not affected by the inter-dependence of the financial ratios, objective
weights are used. As a result, the comparison process is conducted on a commonly
accepted basis and is independent of subjective preferences of various stakeholders. An
empirical study of a real case in China is conducted to illustrate how the approach is used
for the inter-company comparison problem. The result shows that the approach can reflect
the decision information emitted by the financial ratios used. The comparison of objective
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weighting methods suggests that, with the modified TOPSIS approach, the entropy
measure compares favourably with other methods for the case study conducted.
Kaiser sera (1996) We are focusing on three alternative techniques-linear discriminant
analysis, logit analysis and genetic algorithms-that can be used to empirically select
predictors for neural networks in failure prediction. The selected techniques all have
different assumptions about the relationships between the independent variables. Linear
discriminant analysis is based on linear combination of independent variables, logit
analysis uses the logistical cumulative function and genetic algorithms is a global search
procedure based on the mechanics of natural selection and natural genetics. In an
empirical test all three selection methods chose different bankruptcy prediction variables.
The best prediction results were achieved when using genetic algorithms.
Ahmad H.Jumah, Douglas wood, (2000) This article investigates the business
performance of a sample of companies announcing outsourcing contracts. Performance
effects are investigated by measures including operating profit, earnings margin, return on
shareholders capital, reduction in employment cost and research and development
expenditure prior to and subsequent to the outsourcing announcement. The conclusion is
that outsourcing companies profitability and liquidity decrease in years in which
outsourcing announcements occur, and tend to increase in the subsequent year. Also, it is
possible that the short-term and long-term financial structure of outsourcing companies is
altered
Hyunjoon kim (2002) This study examines the risk features of hotel real estate
investment trust (REIT) firms. In particular, it investigates the systematic and
unsystematic risk of hotel REIT stocks and the determinants of their systematic risk, or
beta. Using the financial data of 19 U.S. hotel REIT firms from 1993 through 1999, theauthors found that 84% of the firms'total risk was contributed by firm-specific,
unsystematic risk. Systematic risk correlated positively with debt leverage and growth but
negatively with firm size. These findings suggest that growth via mergers and
acquisitions and less reliance on debt financing may help lower systematic risk and
enhance hotel REITs'value.
Tomas Ekland,(2003) In this paper, we illustrate the use of the self-organizing map
technique for financial performance analysis and benchmarking. We build a database of
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financial ratios indicating the performance of 91 international pulp and paper companies
for the time period 19952001. We then use the self-organizing map technique to analyze
and benchmark the performance of the five largest pulp and paper companies in the
world. The results of the study indicate that by using the self-organizing maps, we are
able to structure, analyze, and visualize large amounts of multidimensional financial data
in a meaningful manner
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COMPANYS STRENGTHS
Advanced technological assets and capital equipment, represented by world-class
continuous vacuum pans at the B (sugar boiling) and C (sugar boiling) stages, resulting in
boiling consistency, uniform crystal size, reduced molasses purity, decline in steam
consumption and enhanced product quality. The technology and intellectual property for
this equipment were jointly developed with Sugar Research International, the premier
Australian organization.
Positive recall in a competitive marketplace, translating into a premium and quicker
off-take.
The location of the sugar manufacturing plants in the fertile Doab region (between the
Ganga and Yamuna rivers), resulting in a superior sugarcane quality and an exceptionally
high yield.
Canal water availability over a large part of the region, representing one of the highest
penetrations of man-made water intervention in India, reducing the companys
dependence on monsoon vagaries.
Established culture of cane cultivation in the region.
Largest cane crushing capability across any one unit in India (18.66 million quintals
in the 2008-09-sugar season at Khatauli); a quicker crush enables the farmer to grow
wheat on fallow land and earn an attractive supplementary income.
Excellent cane procurement logistics, critical for any large sugar unit, demonstrated in
the systematic pooling of cane from no less then 220 purchase centers in the Khatauli
command area without any shortage or inventory pile-up.
Dependable relations with more than 160,000 farmers across the Khatauli, Deoband
and Ramkola command areas, resulting in a reliable and increasing supply of sugarcane.
Strong in-house technical and project management capability, resulting in the
commissioning of the Deoband co-generation project in the fastest implementation time
lines; proposed expansion of the Khatauli capacity from 11750 tcd to 16000 tcd.
Vast project execution experience in setting up sugar plants and carrying out
expansions in view of our earlier experience in sugar plant machinery and through our
subsidiary, Triveni SRI Limited.
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INDUSTRY ANALYSIS
World Sugar
The forecast of the world sugar balance (October2010 to September 2011) indicates that
production will be 2 mn tones lower than consumption: world sugar output (October 2010
to September 2011) has been estimated at 146.1 mn tones (raw value) as against 143.7 mn
tones in the previous year while consumption is estimated 2.1 per cent higher at 148 mn
tones (raw value) with increased demand coming out of Asia and the Far East.
Interestingly, leading trade house ED&F Man sees this global (2010-11, Oct-Sept) deficit
widening to 4 mn tones; its production estimate for 2011-12 is unchanged from its 2010-
11 benchmark of 143 mn, while consumption, driven by Asia, is forecast to increase from
144 mn to 147 mn.
In fact, the principal factor behind the price rise over the past 18 months was the
conviction that global demand growth could outstrip production in 2011-12, depleting
stocks, as well as the belief that high oil prices may induce Brazil and other countries to
divert more cane towards the production of ethanol, reducing cane supplies directed
towards sugar manufacture. Looking into the short-term, two developments are likely to
tip yhr Asian balance: Indias sugar consumption has been growing at an average annual
rate of around 3 per cent over the last ten years; besides, global sucrose demand,
discounting the role of artificial sweeteners, is expected to grow by around one mn tones
a year. China too is likely to become a major importer after 2010 given the limited
availability of its resources to expand sugar production.
The total
consumption of
sugar increases by
1.2 MMT in 2011-12
to 18.5 MMT in 2010-
2011.
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WTO
Sugar and dairy products are probably the most protected agricultural sector. As a
result, the impact of product-specific negotiations in the WTO Doha Round (as agreed in
the July 2004 framework) on sugar was more significant then in the last WTO round ofmultilateral trade negotiations.
The critical factors: the base period chose for the duty reduction commitments, the
length of the implementation period for making the reductions and whether sugar would
be included in a WTO list of sensitive products, which would allow it to escape a part of
the WTO trade reform process.
More recently, the World Trade Organizations highest court issued a final ruling
on April 28, 2008, ordering the European Union to stop dumping subsidized sugar
illegally on the global markets or face trade sanctions. The decision by the Whos
Appellate Body in Geneva gives the EU up to 15 months to strictly comply with this
directive. It is important to note that the export of white sugar, especially from European
Union, is heavily subsidized at prices less than 25 percent of the prices prevailing in the
European domestic markets. But for such exports, the international prices of the white
sugar would be higher and would in turn have a favorable impact on Indias domestic
prices.
In 2004, a panel of WTO experts estimated that the EU exported about four
million metric tones of sugar in 2007-08 (period under investigation) or about three times
more then what the rules permitted. As a result, any reform in this area will give Indian
exports a significant boost and have a positive impact on global prices.
India also suffers from a small quota in the Loma and ACP conventions, which
gives members a preferential price in the lucrative EU and US markets. Any increase in
these quotas could help domestic manufactures in the short term.
Ethanol
At the 13th annual International Sugar Organization seminar in 2004, Chairman
Francisco varua (also President of the Philippines Sugar Millers Association) pronounced
that ethanol could become the sugar cane industrys principal product by the end of the
first decade of the new millennium. Not only are fuel ethanol programmes spreading
across the globe, but more players are becoming aware of the need for cross-order trade to
help the product become more competitive against gasoline.
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DOMESTIC INDUSTRY SCENARIO AND OUTLOOK
Industry Structure
The sugar industry in India is highly fragmented, with 566 sugar units spread over 16
states. The total capital employed by the sugar industry is Rs 250 bn, annual sugarcane
payments Rs 180 bn, direct employment for 500,000 and the involvement of 45 mn
farmer/families in cane growth.
The average size of each unit is approximately 3300 tcd, substantially below the
new international economic size of 7500 tcd. Nearly 35 percent of all Indian mills are in
the private sector, 6 per cent in the public sector and 59 per cent in the co-operativesector. Despite the large recent profits shown by the Indian sugar industry, 112 millsold
and inefficient remained closed during the year.
In a raw material-dependant industry, profitability is influenced by the following
factors:
Cane availability:
Within the reserved area of any factory, the yield and size of the area under
sugarcane are critical success drivers.
Economic size:
Without a minimum economic size of 5000 tcd (generally 10000 tcd in western
Uttar Pradesh), it is becoming increasingly difficult for a sugar unit to command pricing
power.
Technology:
The ability to minimize sugar-processing losses depends on process technology.
Demand-pull:
The ability to draw a higher percentage of sugarcane from the reserved area
reduces the diversion to other sweeteners.
Sucrose content:
This is directly influenced by soil quality and cane development programmes
initiated by progressive manufacturers; a higher sugar content in sugarcane leads to the
manufacture of more sugar, while payment is still based on weight.
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Operating efficiency:
The ability to bring cane in quickly from the fields and continuously operate a
sugar unit minimizes post-harvest sucrose evaporation.
OPERATIONAL PERFORMANCE:The company achieved 7 % higher crush in 2008-09,a good performance as it
competed successfully with producers of alternative sweeteners to reduce cane diversion
and increase drawled of sugarcane. Further, the company produced Rs 0.38 million tones
of White sugar in 2008-09. Due to late rains, winter frost and overfurtilisation, the sugar
recovers in western UP were lower by around 0.6-0.7 % then what had been achieved in
2008-09. Average recovery for our sugar units declined from 10.08 % in 2008-09 to 9.59
% in 2007-08 due to reasons a foresail. It is to the companys credit that despite poorweather, the Deoband unit reported one of the highest recoveries among all western U.P.
sugar factories during the season under review.
Trivenis Khatauli, Deoband and Ramkola units crushed 18.66 mn tones, 13.8 mn
tones and 3.4 mn tones of sugarcane respectively during the 2008-09 sugar seasons. The
sugarcane crushed at the Khatauli sugar unit was the highest across any unit in the
country. Recovery was 10.06 per cent at Khatauli, 10.19 per cent at Deoband and 9.86 per
cent at Ramkola. The company also imported 0.185 mn tones of raw sugar, which was
converted into white sugar during the 2008-09-sugar season.
The company produced 1, 96,000 tones in Khatauli (included processed raw
sugar), 1,52,000 tones in Deoband (included processed raw sugar) and 33,600 tones in
Ramkola, a cumulative 3,81,600 tones in 2008-09 (3,64,400 tones in 2007-08). As a
result, company emerged as one of the largest sugar producers in India and expects to
preserve this position following the increased production from its ongoing expansion
programmes.
The companys Khatauli unit procured cane from over 220 out-centers during the
letter part of the season, a record across any sugar unit in India. Dispersed prudently over
a 59000 hectare commend area, Khataulis sugarcane marketing staff refined the
logistical system of cane harvest and transportation in the shortest time (empirical studies
suggest that if whole stalk sugarcane is not crushed within 16 hours following harvest, the
sucrose in the cane is converted into non-sugars with a consequent drop in sugar
recovery). This efficiency will stand the company in good stead when it expends its
capacity to 16000 tcd in the 2008-09 seasons. Besides engineering stoppages were within
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the estimated budget there was an attractive improvement in steam consumption, thereby
increasing the allocation of Bagasse for the Deoband co-generation plant.
FORWARD-LOOKING STATEMENTS
Global Corporate Strategy
In the opinion of leading international sugar expert F.O.Licht, regulatory, technological
and organizational issues will drive the growth of sugar companies. Since sugar is an
agricultural commodity, the last factor is expected to influence profits the most. In this
connection, it would be reasonable to assume that regulatory differences between various
production locations may decline. As a result, companies that profited from regulationrents (guaranteed income within a protected business environment) will need to change
their strategy to protect their longer-term survival.
The last of these determinants limits the expansionary drive of sugar companies to
national and /or supranational entities (EU) where an identical set of rules guarantees a
high degree of planning security. The regulatory environment under which sugar
companies operate is often challenging, requiring skill, experience and potential clout.
From an international perspective, the industry structure of the sugar sector is
surprisingly mature and yet fragmented; technology is advanced but innovations restricted
to normal technological progress; markets saturated but driven by economic or
population growth. As a result, technological economies of scale are important in
determining the size of an individual plant.
From an organizational perspective, companies can succeed through prudent cost
reduction by centralizing functions (cost accounting and data processing) or optimizing
competencies (bargaining contracts with suppliers and customers etc.).
Companys Expansion Plans
Company intends to complete the following projects which will enable it to avail
benefits / incentives under the UP Government sugar policy:
The commissioning of three new sugar plants. Each plant to have 5000 to 7000
tcd capacities (expandable to 10000-12000 tcd at a minimal cost). The
commissioning of one of the plants (Sabitgarh) at one of the best sites in Indiatoday, with 75 per cent of the cultivable area being canal irrigated with almost no
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low lying sugarcane areas. In preparation, over 5000 hectares of high recovery
sugarcane have been planted.
The modernization and expansion of the Khatauli sugar unit from 11750 tcd to
16000 tcd, which will make it the largest single standalone sugar unit in India.
The commissioning of a 23 MW co-generation plant at Khatauli by September
2011 to supplement the 22 MW cogeneration plant at Deoband.
Following the establishment of these three units and the expansions at the existing
units, companys cane crushing capacity will significantly rise from its existing
aggregate of 25,250 tcd.
The benefits of this scale equate to a better coverage of overheads, generation of
adequate bagasse to ensure the fullest utilization (over 270 days) of companys two
cogenerations units and tax-free profits from the two-cogeneration units for ten years.
Going ahead, company also intends to commission a large distillery to fully consume
the large throughput of molasses with the objective to manufacture ethanol in line
with the government policy.
It is our opinion that there will be an inevitable consolidation over the next few years
in the sugar industry, with unviable plants in the co-operative, state government and
private sectors closing down. This will present attractive acquisition opportunities and
your company expects to avail of them especially if they lie in their targeted
geographies.
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This technique is called cross-sectional analysis. Cross-sectional analysis compares
financial ratios of several companies from the same industry. Ratio analysis can provide
valuable information about a company's financial health. A financial ratio measures a
company's performance in a specific area. For example, you could use a ratio of a
company's debt to its equity to measure a company's leverage. By comparing the leverage
ratios of two companies, you can determine which company uses greater debt in the
conduct of its business. A company whose leverage ratio is higher than a competitor's has
more debt per equity. You can use this information to make a judgment as to which
company is a better investment risk.
However, you must be careful not to place too much importance on one ratio. You obtain
a better indication of the direction in which a company is moving when several ratios aretaken as a group.
OBJECTIVE OF RATIOS
Ratio is work out to analyze the following aspects of business organization-
A) Solvency-
1) Long term
2) Short term
3) ImmediateB) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing
FORMS OF RATIO:
Since a ratio is a mathematical relationship between to or more variables / accounting
figures, such relationship can be expressed in different ways as follows
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A] As a pure ratio:
For example the equity share capital of a company is Rs. 20,00,000 & the preference
share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is
20,00,000: 5,00,000 or simply 4:1.
B] As a rate of times:
In the above case the equity share capital may also be described as 4 times that of
preference share capital. Similarly, the cash sales of a firm are
Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales
can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit sales
are 2.5 times that of cash sales.
C] As a percentage:
In such a case, one item may be expressed as a percentage of some other item. For
example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs.
10,00,000, then the gross profit may be described as 20% of sales [ 10,00,000/50,00,000]
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STEPS IN RATIO ANALYSIS
The ratio analysis requires two steps as follows:
1] Calculation of ratio
2] Comparing the ratio with some predetermined standards. The standard ratio may be the
past ratio of the same firm or industrys average ratio or a projected ratio or the ratio of
the most successful firm in the industry. In interpreting the ratio of a particular firm, the
analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with
some predetermined standard. The importance of a correct standard is oblivious as the
conclusion is going to be based on the standard itself.
TYPES OF COMPARISONS
The ratio can be compared in three different ways
1] Cross section analysis:
One of the way of comparing the ratio or ratios of the firm is to compare them
with the ratio or ratios of some other selected firm in the same industry at the same point
of time. So it involves the comparison of two or more firms financial ratio at the same
point of time. The cross section analysis helps the analyst to find out as to how a
particular firm has performed in relation to its competitors. The firms performance may
be compared with the performance of the leader in the industry in order to uncover the
major operational inefficiencies. The cross section analysis is easy to be undertaken as
most of the data required for this may be available in financial statement of the firm.
2] Time series analysis:
The analysis is called Time series analysis when the performance of a firm is
evaluated over a period of time. By comparing the present performance of a firm with the
performance of the same firm over the last few years, an assessment can be made about
the trend in progress of the firm, about the direction of progress of the firm. Time series
analysis helps to the firm to assess whether the firm is approaching the long-term goals or
not. The Time series analysis looks for (1) important trends in financial performance (2)
shift in trend over the years (3) significant deviation if any from the other set of data\
3] Combined analysis:
If the cross section & time analysis, both are combined together to study the
behavior & pattern of ratio, then meaningful & comprehensive evaluation of the
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performance of the firm can definitely be made. A trend of ratio of a firm compared with
the trend of the ratio of the standard firm can give good results. For example, the ratio of
operating expenses to net sales for firm may be higher than the industry average however,
over the years it has been declining for the firm, whereas the industry average has not
shown any significant changes.
The combined analysis as depicted in the above diagram, which clearly shows that the
ratio of the firm is above the industry average, but it is decreasing over the years & is
approaching the industry average.
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PRE-REQUISITIES TO RATIO ANALYSIS
In order to use the ratio analysis as device to make purposeful conclusions, there
are certain pre-requisites, which must be taken care of. It may be noted that these
prerequisites are not conditions for calculations for meaningful conclusions. The
accounting figures are inactive in them & can be used for any ratio but meaningful &
correct interpretation & conclusion can be arrived at only if the following points are well
considered.
1) The dates of different financial statements from where data is taken must be same.
2) If possible, only audited financial statements should be considered, otherwise
there must be sufficient evidence that the data is correct.
3) Accounting policies followed by different firms must be same in case of cross
section analysis otherwise the results of the ratio analysis would be distorted.
4) One ratio may not throw light on any performance of the firm. Therefore, a group
of ratios must be preferred. This will be conductive to counter checks.
5) Last but not least, the analyst must find out that the two figures being used to
calculate a ratio must be related to each other, otherwise there is no purpose of
calculating a ratio.
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CLASSIFICATION OF RATIO
CLASSIFICATION OF RATIO
BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER
STATEMENT
1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR
RATIO 2] LEVERAGE RATIO SHORT TERM
2] REVENUE 3] ACTIVITY RATIO CREDITORS
STATEMENT 4] PROFITABILITY 2] RATIO FOR
RATIO RATIO SHAREHOLDER
3] COMPOSITE 5] COVERAGE 3] RATIOS FOR
RATIO RATIO MANAGEMENT
4] RATIO FOR
LONG TERM
CREDITORS
BASED ON FINANCIAL STATEMENT
Accounting ratios express the relationship between figures taken from financial
statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way of
classification of ratios is based upon the sources from which are taken.
1] Balance sheet ratio:
If the ratios are based on the figures of balance sheet, they are called Balance
Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity.
While calculating these ratios, there is no need to refer to the Revenue statement. These
ratios study the relationship between the assets & the liabilities, of the concern. These
ratio help to judge the liquidity, solvency & capital structure of the concern. Balance
sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio,
Debt equity ratio, and Stock working capital ratio.
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2] Revenue ratio:
Ratio based on the figures from the revenue statement is called revenue statement
ratios. These ratio study the relationship between the profitability & the sales of the
concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit
ratio, Net operating profit ratio, Stock turnover ratio.
3] Composite ratio:
These ratios indicate the relationship between two items, of which one is found in
the balance sheet & other in revenue statement.
There are two types of composite ratios-
a) Some composite ratios study the relationship between the profits & the
investments of the concern. E.g. return on capital employed, return on proprietors
fund, return on equity capital etc.
b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios,
dividend payout ratios, & debt service ratios
BASED ON FUNCTION:
Accounting ratios can also be classified according to their functions in to liquidity
ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.
1] Liquidity ratios:
It shows the relationship between the current assets & current liabilities of the
concern e.g. liquid ratios & current ratios.
2] Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing the
assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios.
3] Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover
ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios.
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4] Profitability ratios:
a) It shows the relationship between profits & sales e.g. operating ratios, gross profit
ratios, operating net profit ratios, expenses ratios
b) It shows the relationship between profit & investment e.g. return on investment,
return on equity capital.
5] Coverage ratios:
It shows the relationship between the profit on the one hand & the claims of the
outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.
BASED ON USER:
1] Ratios for short-term creditors:
Current ratios, liquid ratios, stock working capital ratios
2] Ratios for the shareholders:
Return on proprietors fund, return on equity capital
3] Ratios for management:
Return on capital employed, turnover ratios, operating ratios, expenses ratios
4] Ratios for long-term creditors:
Debt equity ratios, return on capital employed, proprietor ratios.
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Since cash and bank balances and short term marketable securities are the most liquid
assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are too
much in relation to the current liabilities then it may affect the profitability of the firm.
INVESTMENT / SHAREHOLDER
EARNING PER SAHRE:-
Meaning:
Earnings per Share are calculated to find out overall profitability of the organization. An
earnings per Share represents earning of the company whether or not dividends are
declared. If there is only one class of shares, the earning per share are determined by
dividing net profit by the number of equity shares.
EPS measures the profits available to the equity shareholders on each share held.
Formula:
NPAT
Earning per share =
Number of equity share
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The higher EPS will attract more investors to acquire shares in the company as it
indicates that the business is more profitable enough to pay the dividends in time. But
remember not all profit earned is going to be distributed as dividends the company also
retains some profits for the business
DIVIDEND PER SHARE:-
Meaning:
DPS shows how much is paid as dividend to the shareholders on each share held.
Formula:
Dividend Paid to Ordinary Shareholders
Dividend per Share =
Number of Ordinary Shares
DIVIDEND PAYOUT RATIO:-
Meaning:
Dividend Pay-out Ratio shows the relationship between the dividend paid to equity
shareholders out of the profit available to the equity shareholders.
Formula:
Dividend per share
Dividend Pay out ratio = *100
Earning per share
D/P ratio shows the percentage share of net profits after taxes and after preference
dividend has been paid to the preference equity holders.
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PROFITABILITY
These ratios help measure the profitability of a firm. A firm, which generates a substantial
amount of profits per rupee of sales, can comfortably meet its operating expenses and
provide more returns to its shareholders. The relationship between profit and sales is
measured by profitability ratios. There are two types of profitability ratios: Gross Profit
Margin and Net Profit Margin.
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GROSS PROFIT RATIO:-
Meaning:
This ratio measures the relationship between gross profit and sales. It is defined as theexcess of the net sales over cost of goods sold or excess of revenue over cost. This ratio
shows the profit that remains after the manufacturing costs have been met. It measures the
efficiency of production as well as pricing. This ratio helps to judge how efficient the
concern is I managing its production, purchase, selling & inventory, how good its control
is over the direct cost, how productive the concern , how much amount is left to meet
other expenses & earn net profit.
Formula:
Gross profit
Gross profit ratio = * 100
Net sales
NET PROFIT RATIO:-
Meaning:
Net Profit ratio indicates the relationship between the net profit & the sales it is usually
expressed in the form of a percentage.
Formula:
NPAT
Net profit ratio = * 100
Net sales
This ratio shows the net earnings (to be distributed to both equity and preference
shareholders) as a percentage of net sales. It measures the overall efficiency of
production, administration, selling, financing, pricing and tax management. Jointly
considered, the gross and net profit margin ratios provide an understanding of the cost
and profit structure of a firm.
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RETURN ON CAPITAL EMPLOYED:-
Meaning:
The profitability of the firm can also be analyzed from the point of view of the total fundsemployed in the firm. The term fund employed or the capital employed refers to the total
long-term source of funds. It means that the capital employed comprises of shareholder
funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net
working capital.
Capital employed refers to the long-term funds invested by the creditors and the owners
of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the
efficiency with which the long-term funds of a firm are utilized.
Formula:
NPAT
Return on capital employed = *100
Capital employed
FINANCIAL
These ratios determine how quickly certain current assets can be converted into cash.
They are also called efficiency ratios or asset utilization ratios as they measure the
efficiency of a firm in managing assets. These ratios are based on the relationship
between the level of activity represented by sales or cost of goods sold and levels of
investment in various assets. The important turnover ratios are debtors turnover ratio,
average collection period, inventory/stock turnover ratio, fixed assets turnover ratio, and
total assets turnover ratio. These are described below:
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ITR reflects the efficiency of inventory management. The higher the ratio, the more
efficient is the management of inventories, and vice versa. However, a high inventory
turnover may also result from a low level of inventory, which may lead to frequent stock
outs and loss of sales and customer goodwill. For calculating ITR, the average of
inventories at the beginning and the end of the year is taken. In general, averages may be
used when a flow figure (in this case, cost of goods sold) is related to a stock figure
(inventories).
FIXED ASSETS TURNOVER (FAT)
The FAT ratio measures the net sales per rupee of investment in fixed assets.
Formula:
Net sales
Fixed assets turnover =
Net fixed assets
This ratio measures the efficiency with which fixed assets are employed. A high ratio
indicates a high degree of efficiency in asset utilization while a low ratio reflects an
inefficient use of assets. However, this ratio should be used with caution because when
the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover
ratio tends to be high (because the denominator of the ratio is very low).
PROPRIETORS RATIO:
Meaning:
Proprietary ratio is a test of financial & credit strength of the business. It relates
shareholders fund to total assets. This ratio determines the long term or ultimate solvency
of the company.
In other words, Proprietary ratio determines as to what extent the owners interest &
expectations are fulfilled from the total investment made in the business operation.
Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed
in the form of percentage. Total assets also know it as net worth.
Formula:
Proprietary fund
Proprietary ratio = OR
Total fund
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Shareholders fund
Proprietary ratio =
Fixed assets + current liabilities
STOCK WORKING CAPITAL RATIO:
Meaning:
This ratio shows the relationship between the closing stock & the working capital. It helps
to judge the quantum of inventories in relation to the working capital of the business. The
purpose of this ratio is to show the extent to which working capital is blocked in
inventories. The ratio highlights the predominance of stocks in the current financial
position of the company. It is expressed as a percentage.
Formula:
Stock
Stock working capital ratio =
Working Capital
Stock working capital ratio is a liquidity ratio. It indicates the composition & quality of
the working capital. This ratio also helps to study the solvency of a concern. It is a
qualitative test of solvency. It shows the extent of funds blocked in stock. If investment in
stock is higher it means that the amount of liquid assets is lower.
DEBT EQUITY RATIO:
MEANING:
This ratio compares the long-term debts with shareholders fund. The relationship between
borrowed funds & owners capital is a popular measure of the long term financial solvency
of a firm. This relationship is shown by debt equity ratio. Alternatively, this ratioindicates the relative proportion of debt & equity in financing the assets of the firm. It is
usually expressed as a pure ratio. E.g. 2:1
Formula:
Total long-term debt
Debt equity ratio =
Total shareholders fund
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Debt equity ratio is also called as leverage ratio. Leverage means the process of the
increasing the equity shareholders return through the use of debt. Leverage is also known
as gearing or trading on equity. Debt equity ratio shows the margin of safety for long-
term creditors & the balance between debt & equity.
RETURN ON PROPRIETOR FUND:
Meaning:
Return on proprietors fund is also known as return on proprietors equity or return on
shareholders investment or investment ratio. This ratio indicates the relationship
between net profit earned & total proprietors funds. Return on proprietors fund is a
profitability ratio, which the relationship between profit & investment by the proprietors
in the concern. Its purpose is to measure the rate of return on the total fund made
available by the owners. This ratio helps to judge how efficient the concern is in
managing the owners fund at disposal. This ratio is of practical importance to
prospective investors & shareholders.
Formula:
NPAT
Return on proprietors fund = * 100
Proprietors fund
CREDITORS TURNOVER RATIO:
It is same as debtors turnover ratio. It shows the speed at which payments are made to the
supplier for purchase made from them. It is a relation between net credit purchase and
average creditors
Net credit purchase
Credit turnover ratio =
Average creditors
Months in a year
Average age of accounts payable =
Credit turnover ratio
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Both the ratios indicate promptness in payment of creditor purchases. Higher creditors
turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid
promptly. It enhances credit worthiness of the company. A very low ratio indicates that
the company is not taking full benefit of the credit period allowed by the creditors.
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IMPORTANCE OF RATIO ANALYSIS:
As a tool of financial management, ratios are of crucial significance. The
importance of ratio analysis lies in the fact that it presents facts on a comparative basis &
enables the drawing of interference regarding the performance of a firm. Ratio analysis is
relevant in assessing the performance of a firm in respect of the following aspects:
1] Liquidity position,
2] Long-term solvency,
3] Operating efficiency,
4] Overall profitability,
5] Inter firm comparison
6] Trend analysis.
1] LIQUIDITY POSITION: -
With the help of Ratio analysis conclusion can be drawn regarding the liquidity
position of a firm. The liquidity position of a firm would be satisfactory if it is able to
meet its current obligation when they become due. A firm can be said to have the ability
to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its
short maturing debt usually within a year as well as to repay the principal. This ability is
reflected in the liquidity ratio of a firm. The liquidity ratio are particularly useful in credit
analysis by bank & other suppliers of short term loans.
2] LONG TERM SOLVENCY: -
Ratio analysis is equally useful for assessing the long-term financial viability of a
firm. This respect of the financial position of a borrower is of concern to the long-term
creditors, security analyst & the present & potential owners of a business. The long-term
solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis
s that focus on earning power & operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The
leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of
various sources of finance or if it is heavily loaded with debt in which case its solvency is
exposed to serious strain. Similarly the various profitability ratios would reveal whether
or not the firm is able to offer adequate return to its owners consistent with the risk
involved.
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3] OPERATING EFFICIENCY:
Yet another dimension of the useful of the ratio analysis, relevant from the
viewpoint of management, is that it throws light on the degree of efficiency in
management & utilization of its assets. The various activity ratios measures this kind of
operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis,
dependent upon the sales revenues generated by the use of its assets- total as well as its
components.
4] OVERALL PROFITABILITY:
Unlike the outsides parties, which are interested in one aspect of the financial
position of a firm, the management is constantly concerned about overall profitability of
the enterprise. That is, they are concerned about the ability of the firm to meets its short
term as well as long term obligations to its creditors, to ensure a reasonable return to its
owners & secure optimum utilization of the assets of the firm. This is possible if an
integrated view is taken & all the ratios are considered together.
5] INTERFIRM COMPARISON:
Ratio analysis not only throws light on the financial position of firm but also
serves as a stepping-stone to remedial measures. This is made possible due to inter firm
comparison & comparison with the industry averages. A single figure of a particular ratio
is meaningless unless it is related to some standard or norm. one of the popular techniques
is to compare the ratios of a firm with the industry average. It should be reasonably
expected that the performance of a firm should be in broad conformity with that of the
industry to which it belongs. An inter firm comparison would demonstrate the firms
position vice-versa its competitors. If the results are at variance either with the industry
average or with the those of the competitors, the firm can seek to identify the probable
reasons & in light, take remedial measures.
6] TREND ANALYSIS:
Finally, ratio analysis enables a firm to take the time dimension into account. In
other words, whether the financial position of a firm is improving or deteriorating over
the years. This
is made possible by the use of trend analysis. The significance of the trend analysis of
ratio lies in the fact that the analysts can know the direction of movement, that is, whetherthe movement is favorable or unfavorable. For example, the ratio may be low as
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2] Comparison of performance over time
When comparing performance over time, there is need to consider the changes in
price. The movement in performance should be in line with the changes in price.
When comparing performance over time, there is need to consider the changes in
technology. The movement in performance should be in line with the changes in
technology.
Changes in accounting policy may affect the comparison of results between
different accounting years as misleading.
3] Inter-firm comparison
Companies may have different capital structures and to make comparison of
performance when one is all equity financed and another is a geared company it
may not be a good analysis.
Selective application of government incentives to various companies may also
distort intercompany comparison. comparing the performance of two enterprises
may be misleading.
Inter-firm comparison may not be useful unless the firms compared are of the
same size and age, and employ similar production methods and accounting
practices.
Even within a company, comparisons can be distorted by changes in the price
level.
Ratios provide only quantitative information, not qualitative information.
Ratios are calculated on the basis of past financial statements. They do not
indicate future trends and they do not consider economic conditions.
PURPOSE OF RATIO ANLYSIS:
1] To identify aspects of abusinesss performance to aid decision making
2] Quantitative processmay need to be supplemented by qualitative
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Factors to get a complete picture.
3] 5 main areas:-
Liquiditythe ability of the firm to pay its way
Investment/shareholders information to enable decisions to be made on the
extent of the risk and the earning potential of a business investment
Gearinginformation on the relationship between the exposure of the business to
loans as opposed to share capital
Profitabilityhow effective the firm is at generating profits given sales and or its
capital assets
Financial the rate at which the company sells its stock and the efficiency with
which it uses its assets
ROLE OF RATIO ANALYSIS:
It is true that the technique of ratio analysis is not a creative technique in the sense
that it uses the same figure & information, which is already appearing in the financial
statement. At the same time, it is true that what can be achieved by the technique of ratio
analysis cannot be achieved by the mere preparation of financial statement.
Ratio analysis helps to appraise the firm in terms of their profitability & efficiency
of performance, either individually or in relation to those of other firms in the same
industry. The process of this appraisal is not complete until the ratio so computed can be
compared with something, as the ratio all by them do not mean anything. This
comparison may be in the form of intra firm comparison, inter firm comparison or
comparison with standard ratios. Thus proper comparison of ratios may reveal where a
firm is placed as compared with earlier period or in comparison with the other firms in the
same industry.
Ratio analysis is one of the best possible techniques available to the management
to impart the basic functions like planning & control. As the future is closely related tothe immediate past, ratio calculated on the basis of historical financial statements may be
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of good assistance to predict the future. Ratio analysis also helps to locate & point out the
various areas, which need the management attention in order to improve the situation.
As the ratio analysis is concerned with all the aspect of a firms financial analysis
i.e. liquidity, solvency, activity, profitability & overall performance, it enables the
interested persons to know the financial & operational characteristics of an organisation
& take the suitable decision.
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METHODOLOGY OF THE STUDY
The data collected for the project was in the form of written as well as verbal information
regarding ratio analysis of the company.1) Primary data: -
The information about the Company is gathered from the discussion with the
employees/staff and from the web site of the Company.
2) Secondary data:-
The secondary data collected -
The balance sheets as on the date of 31st march for the years-
20092010
20102011
2011 - 2012
The methodology of this study has been adopted on the following basis:
Study of various Journals, Notes & Books.
Study through web-sites
Collection of Primary & Secondary data records of the organization.
Analysis of the collected data for its application.
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OBJECTIVE OF THE STUDY:
To know the financial condition of the company. To analyze the liquidity position of the company. To throw light on a long term solvency of a firm.
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LIMITATION OF THE STUDY
Generally company does not allow outsiders to conduct any study or research work
in company. Therefore, get the project done in company itself was very difficult.
Due to confidentiality some important information, which are important for the
project, could not be collected.
Some of the information is lack of accuracy, due to which approximately values
were used for the analysis. Hence, the results also reveal approximate values.
The project is based on theoretical guidelines and as per situations prevalent at the
time of practical training. Hence, it may not be apply to different situations.
The time span for the project was very short which was of 2 months, which itself
acts as a major constraint. Moreover, studying the guidelines and applied it
practically within such short time span was a task of great pressure.
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ANALYSIS
RATIO ANALYSIS
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1)Debt Equity Ratio:
Long Term Debt
Debt Equity Ratio =
Share Holders Fund
Debt= Secured loan + unsecured loan (long term)
Particulars 2012 2011 2010
Debt 135,33,40,965.26 63,80,64,000 76,80,20,840
Equity 34,03,59,000.00 34,03,59,000 33,19,71,481
Ratio 3.97 1.87 2.31
The D/E ratio is an important tool of financial analysis to appraise the financial structure
of a firm. It has important implication from the view point of the creditors, owners, and
the firm itself. The ratio reflect the relative contribution of creditors and owners of
business in its financing.If we look at this Debt equity ratio we can say the company is
having long term debt in 2012 by 3.97. Here the long term debt are increasing by a
relatively higher rate to 49% in 2012 as compared to 2011 where it increase to 23%.
201028%
2011
23%
2012
49%
Chart showing changes in Debt Equity Ratio
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2) Shareholders equity ratio:
Share holders Equity
Shareholders equity ratio: =
Total assets (Tangible)
Particulars 2012 2011 2010
Shareholders funds 83,45,92,364.65 60,93,74,000 34,38,69,627
Total assets 2,18,79,33,329.91 152,67,00,000 110,46,90,466
Ratio 0.38 0.39 0.31
Share holders equity: Equity shares+ Preference+ Reserves and surplus- losses (if any)
If we look at this ratio we can say the company is having increase in shareholders equity
ratio in the following year by year bases.
2010
29%
2011
36%
2012
35%
Chart showing changes in Shareholders
equity ratio
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3)Debt to net worth ratio:
Long term debtDebt to Net worth Ratio =
Net worth
Net worth: equity + preference+ reserves and surplus- losses
Particulars 2012 2011 2010
Long term debt 135,33,40,965.26 63,80,64,000 76,80,20,840
Net worth 83,45,92,364.65 60,93,74,000 34,38,69,627
Ratio 1.62 1.04 2.23
:
If we look at this ratio we can say the company is having more long term debts than its
net worth. So the company has to taken care of it. Here higher the ratio higher the
obligation and vice-versa.
46% in 2010
21%in 2011
33% in 2012
Debt to Net worth Ratio
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4) Fixed assets to long term funds:
Fixed assets
Fixed assets to long term funds:Long term funds.
Long term funds = equity + debt
Particulars 2012 2011 2010
Fixed Assets 1,63,08,90,394.60 84,09,12,000 83,19,52,687
Long term funds. 169,36,99,965.26 97,84,23,000 109,99,92,321
Ratio 0.96 0.85 0.75
If we look at this ratio the company is getting more and more long term funds from year
to year. This analysis states us that the company securing itself by raising its long term
funds. This raise the companys capability of investment.
2010
29%
2011
33%
2012
39%
Fixed assets to long term funds
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5) Current ratio:
Current assets
Current ratio:Current liabilities
Particulars 2012 2011 2010
Current assets
111,96,08,329.53 68,35,78,842.26
42,20,67,183.97
Current Liability
58,42,63,485.22 27,92,61,185.52
15,17,08,691.07
Ratio 1.91 2.44 2.78
:
0
0.5
1
1.5
2
2.5
3
2010 2011 2012
Current ratio
Current ratio
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The ideal level of current ratio is 2:1.we shown too much higher ratio its good for the
company. Higher the current ratio, the larger is the amount of rupees available per rupees
of current liabilities, the more is the firms ability to meet current obligation and greater is
safety of fund of short term creditors.
As the current ratio is moving downwards from year to year, it states us that the company
is becoming lesser capable to meet its short term obligations. If the companys current
ratio goes lesser than 1 it would be very harmful to the company. So the company has
taken care of it. Companys current ratio is far betterthan its ideal level.
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6)Quick Ratio:
Current assets- stock
Quick Ratio:
Current liabilities- bank o/d
Particulars 2012 2011 2010
Current Assets- Stock 66,90,90,723.72 37,81,31,521.16 19,65,75,176.36
Current LiabilityBank
overdraft
58,42,63,485.22 27,92,61,185.52 15,17,08,691.07
Ratio 1.14 1.35 1.29
Ideal level of this ratio is 1:1.compare to current ratio stock is deducted from current
assets because we cant convert stock into cash in short period of time. If we look at the
quick ratio we can say that the company is not so consistent to meet its short term debt
obligations. By above analysis the company from 2010 to 2011 it had more capability of
2010 -34%
2011-36%
2012-30%
Quick Ratio
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repaying its debt obligations and if compare 2011 to 2012 it has lost its capability of
repayment of its debt obligations.
7)Return on capital employed:
Return on Capital Employed = Net Profit * 100
Capital Employed
Particulars 2012 2011 2010
Net Profit 22,52,18,081.25
21,64,97,137.69
7,09,29,391.60
Capital Employed 83,45,92,364.65 60,93,74,000 34,38,69,627
Ratio 0.26 0.35 0.20
This position of the company states us that the company is fair enough in its return on
capital employed. The above analysis states us that the company as compared to 2012
into 2011 it is not having fair margin and if we 2011 into 2010 it has gained good margin
in it.
2010
25%
2011
43%
2012
32%
Return on Capital Employed
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8) Net profit margin:
Net Profit Margin = Net Profit before interest and Tax * 100
Sales
Particulars 2012 2011 2010
Net Profit before
interest and Tax
251,079,243.25
247,131,501.69
70929391.60
Sales
1,160,705,003.75 942,877,990.40
518359946.19
Ratio 0.21 0.26 0.13
The net profit margin is indicate of managments ability to operate the business with
sufficient success not only to recover from revenues of the period, the cost of
merchandise or services, the expenses of operating the business and the cost of the
borrowed funds, but also to leave a margin of reasonable compensation to the owners for
providing their capital at risk. By a