final project ajay
TRANSCRIPT
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1. INTRODUCTION
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1.1 COMPANY PROFILE
Name of the organization
MAA MAHAMAYA CO-OPERATIVE SUGAR FACTORY LTD.
Registration number
D.R./2006/2121 AMBIKAPUR
Land
162 acres
Administration department
Co-operative department Chhattisgarh government
Product
Sugar
Location
Kerta Pumparpur, pratappur, surguja (C.G.)
Work area
All over surguja
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FINANCING PATTERN OF THE COMPANY
For the proposed scheme of Sugar complex, the financing pattern has beenproposed as under:-
N0. Particulars Percentage Amount
I
II
Equity from Promotersa) Individual membersb) Institutional membersState Govt. equity sharecapital
10%
45%
1170.00
5265.00
III Loan from
a) State Govt. b) Financial Institutions
c) Corp. Institutions/ otherinstitutions
45% 5265.00
Total 100% 11700.00
Table 1 Financing pattern of the company
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SUGAR PROJECT OF THE COMPANY
s.no. particulars Unit Parameter
1 Capacity utilization % 85-100
2 Gross season Days 100-160
3 Crushing per season day Day ton 2125-2500
4 Estimated cane crushing Lac. Ton 2.13-4.00
5 Sugar recovery % cane 9.50-11.0
6 Sugar production Lac.qtls. 2.019-4.400
7 Production of molasses % cane 4.5 % cane
8 Bagasse saving % cane 5.5 % cane
Table 2 Detail about sugar project of the company
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1.2DEFINITION AND PURPOSE OF THE PROJECT
1. The main purpose of the project is to find out the financial position of the
company. This helps banks, insurance companies as well as other financial
institutions in assessing a firm before sanction ing any loan to them and for
investors to finds the profitability of a firm.
2. To find out the trend analysis. This trends help in setting future plans and
forecasting, for e.g. Net Profit as expressed as a percentage of sales can be
forecasted on the basis of the past percentage of the same.
4. The study has great significance and provides benefits to various parties
whom directly or indirectly interact with the company.
5. It is beneficial to management of the company by providing crystal clear
picture regarding important aspects like liquidity, leverage, activity and
profitability.
6. The study is also beneficial to employees and offers motivation by showing
how actively they are contributing for companys growth.
7. The investors who are interested in investing in the companys shares will
also get benefited by going through the study and can easily take a decision
whether to invest or not to invest in the companys shares.
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1.3 OBJECTIVE AND SCOPE OF THE PROJECT
The main objectives of the study aimed as:
To evaluate the performance of the company by using ratios as a yardstick to
measure the efficiency of the company. To understand the liquidity, profitability
and efficiency positions of the company during the study period. Evaluate and
analyse various facts of the financial performance of the company and Make
comparisons between the ratios during different periods.
OBJECTIVES
1. To find out the profit pattern of the company over last three years.
2. To know the liquidity position of the company i.e. the ability of the company
to generate cash as and when required.
3. Highlights the long term solvency of the company i.e. the ability of the
company to repay its due as and when required.
4. Find out the efficiency of management and the utilisation of resources
available to the company.
5. Find out whether the financial position of the company is improving or
deteriorating over the years also the trend of the company can be compared with
the past data.
6. To learn the investment pattern of the company.
7. To examine the operations and activities of the company.
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SCOPE OF THE PROJECT
1. Measurement of Performance: To find out the profitability of a firm by
comparing the net profit with various parameters like sales, capital employed,total assets and so on. To find out the liquidity position can by computing ratios
like current ratio and liquid ratio. Solvency can be measured by computing ratio
like the debt equity ratio.
2. Analysis of trend: To find out trend between subsequent years. When
various ratios are computed for a period of say, 03 years, a trend can be
established. For example, Earnings per Share for the previous 03 years show a
definite trend of either moving up or moving down. In some cases, it may also
show a fluctuating trend. Thus, it becomes possible to compare the trend shown
by the firm's ratios with the trend shown by the industry. This comparison can
be an eye opener as it may reveal some important things..
3. Predicting the sickness of a business unit: if the sickness of a unit can be
predicted reasonably accurately, pre ventive measures can be taken to ensure that
the sickness is averted.
4. To find out Long term solvency: A firm has to constantly examine its long
term solvency. Solvency depends upon several things but the most important
factor is the combination between the owned funds and the borrowed funds. If
the proportion of borrowed funds is too high as compared to the owned funds,
there is every possibility that the firm's solvency is in danger. The reason is that
it may become difficult to service the debt and if the interest as well as the
principal repayment obligations is not met, the firm will be caught in a debt
trap. Therefore, the solvency position has been constantly watched..
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5. Overall Profitability: To find out the overall profitability by the Ratios like
the gross profit ratio, net profit ratio, return on capital employed, return on
shareholders, funds, return of total assets are some of the important ratios that
show the overall profitability of the firm.
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2. REVIEW OF LITERATURE
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THEORETICAL FRAMEWORK AND BACKGROUND THEORY
Ratio can be defined as numerical or an arithmetical relationship between two
figures. It is expressed when one figure is divided by the other.
For example, if 4000 is divided by 10000 the ratio can be expressed as 0.4 or
2:5 or 40%.
Ratio analysis is a three step process
(a) Calculate the ratio.
(b) Compare the ratio with a standard ratio applicable to a particular company.
(c) Find the conclusion which is used for decision making & control.
Ratio analysis is done in following 3 ways
(a) Cross rational analysis: - Under this methods the ratios of the company
are compared with other companies for e.g. : - comparing the ratio of Bajaj Auto
with that of Hero Honda Ltd. This method is useful to benchmark our company
with the competitors or industry loaders.
(b) Time Series Analysis: It is the method of comparing the performance of
our company over certain period of time. In this method trends are studies,
which are useful for future planning.
(c) Combined Analysis: In this method the above two methods arecombined & the trends of ratio is compared with some standard over a period of
time.
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Ratio Analysis should under taken only after the following precauti ons-
(a) The period of comparison must be the same.
(b) A accounting company policies must be the same of the companies whose
Ratios are been compared.
(c) A group of ratio should be prepared over a single ratio.
(d) A figure used to calculate ratios must be related to each other.
These are the following ratios which is helpful to find out financial position of
the company and with the help of these ratio management and financial
institution take decision about debt and profitabilit y position of the company.
TYPES OF RATIOS
PROFITABILITY RATIOS:
These ratios give an idea about the profitability of a business firm. Profit
and profitability differ from each other as profit is the difference between
income and expenditure while profitability is measured by comparing the profit
with some other parameter like sales, capital employed, total assets etc. The
ratios falling under this category are usually expressed in percentage. The
following are the ratios under this category:
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1. Gross Profit Ratio:
Gross Profit is the difference between the net sales (sales less sales returns) and
the cost of goods sold. This ratio is calculated with the help of the following
formula:
Gross Profit Ratio: Gross Profit/Net Sales x 100
This ratio shows the margin left after meeting the purchases and manufacturing
costs. It measures the efficiency of production as well as pricing. A high gross
profit ratio means a high margin for covering other expenses like administrative,
selling and distribution expenses, i.e. other than the cost of goods sold.
Therefore, higher the ratio, the better it is. It is also important for a business to
maintain this ratio on a higher side; otherwise it will be difficult to cover other
expenses. A firm should compare its gross profit ratio with the industry average
to find out where it stands. A firm can also compare its own ratio of the past
with the current year's ratio to find out its performance. This is known as intra-
firm comparison.
2. Net Profit Ratio:
This ratio shows the earnings left for shareholders (equity and preference) as a
percentage of net sales. It measures overall efficiency of all the functions
management etc. This ratio is very useful for prospective investors because it
reveals the overall profitability of the firm. Higher the ratio, the better it is
because it gives an idea of overall efficiency of the firm. This ratio is calculated
as follows:
Net Profit Ratio = Net Profit/Net Sales x 100
3. Operating Net Profit Ratio:
This ratio establishes the relationship between the net sales and the operating
net profit. The concept of operating net profit is different from the concept of
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net profit. Operating net profit is the profit arising out of business operations
only. This is calculated as follows:
Operating net profit - Net profit + Non-operating expenses-non-operating
income.
Alternatively, this profit can also be calculated by deducting only operating
expenses from gross profit. This ratio is calculated with the help of the
following formula.
Operating Net Profit Ratio = Operating Net Profit/Sales x 100
4. Operating Ratio:
This ratio is reciprocal to the operating net profit to sales to ratio. The cost of
goods sold + Operating expenses are compared to net sales. Non operating
expenses and non-operating incomes are excluded from this ratio. The
calculation of this ratio is as follows.
Operating Ratio - Cost of goods sold + operating expenses/Net sales x
100
5. Return On Capital Employed:
This ratio indicates the percentage of net profits before interest and tax to total
capital employed. The capital employed is calculated as follows.
Capital employed = Equity Capital+ Preference Capital + Reserves and
Surplus + Long Term Debt-Fictitious Assets
This ratio is calculated as follows,
Return on Capital Employed + Net Profit before Interest and Tax/Capital
Employed x 100
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This ratio is considered to be a very important one because it reflects the overall
efficiency with which capital is used. The ratio of a particular business should
be compared with other business firms in the same industry to find out the exact
position of the business.
6. Return On Equity:
This ratio, also known as return on shareholders funds or return on proprietor's
funds or return on net worth, indicates the percentage of net profit available for
equity shareholders to equity shareholders funds. In other words, this ratio
measures the return only on equity shareholders funds and not on total capital
employed.
The formula for calculation is as follows:
Return on equity = Net profit after interest, income tax and preference dividend
if any/Equity shareholders funds x 100
Note: Equity shareholders funds = Equity capital + Reserves and surplus
This ratio indicates the productivity of the owned funds employed in the firm.
However, in judging the profitability of a firm, it should not be overlooked that
during inflationary periods, the ratio may show an upward trend because the
numerator of the ratio represents current values whereas the denominator
represents historical values.
7. Return on Total Assets:
This ratio compares the net profit after tax with the total assets. The formula for
calculation of this ratio is as follows:
Return on Total Assets = Net Profit after Tax/Total Assets x 100
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8. Earnings per Share:
This is one of the important indicators of performance of a company. Earning
per share indicates the amount of profit available for distribution amongst the
equity shareholders. This ratio is calculated as shown below:
Earnings per Share: Net Profit after Interest, Income tax and Preference
Dividend/Number of Equity Share
As mentioned above, EPS is one of the important criteria for measuring the
performance of a company. If EPS increases, the possibility of a higher
dividend per share also increases. However, the dividend payment depends on
the policy of the company. Market price of shares of a company may also show
an upward trend if the EPS is showing a rising trend. However, it should be
remembered that EPS of different companies may very from company to
company due to the following different practices by different companies
regarding stock in trade, depreciation, source of rising finance, tax-planning
measures etc.
9. Price Earnings Ratio:
This ratio is calculated with the help of the following formula:
Price Earnings Ratio =Market Price per Equity Share/EPS
10. Dividend Payout Ratio:
EPS described the amount of profit available for equity shareholders. Dividend
Payout Ratio indicates the percentage of profit distributed as dividends to the
shareholders. A higher ratio indicates that the organization is following a liberal
policy regarding the dividend while a lower ratio indicates a conservative
approach of the management towards the dividend. The ratio is calculated as
shown below:
Dividend Payout Ratio = Dividend per Share/EPS x 100
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11. Dividend Yield Ratio:
This ratio compares the dividend per share with the market price of the share.
The formula for calculation is as follows:
Dividend Yield Ratio = Dividend per Share/Market Price per Share x 100
This ratio is very important for investors who purchase their shares in the open
market. They will evaluate their return against their investment, i.e. the market
price paid by them. The higher the ratio, the more attractive are their
investments.
TURNOVER RATIOS:
These ratios are also known as activity ratios or asset management ratios.
These ratios are very important for a business concern to find out how well the
facilities at the disposal of the concern are being used. These ratios are usually
calculated on the basis of sales or cost of goods sold. High turnover ratios
indicate better utilization of resources. The important turnover ratios are
discussed below.
1. Working Capital Turnover Ratio:
This ratio compares the net sales with net working capital of the business firm.
The indication given by this ratio is the number of times working capital is
turned around in a particular period. The ratio is calculated with the help of the
following formula:
Working Capital Turnover Ratio = Net Sales/Net Working Capital
* Net Working Capital = Current Assets-Current Liabilities.
The higher this ratio, the better is the utilization of the working capital and also
indication of lower working capital. However, a very high working capital
turnover ratio is a sign of over trading and a firm may face shortage of working
capital. A firm should compare this ratio with the ratio of other firms in the
same industry and also with the industry average to find out its position as
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compared to other firms. Similarly, an intra-firm comparison will also help to
find out the comparative performance of the firm.
2. Debtors Turnover Ratio:
One of the important decisions regarding financial management is about the
credit to be granted to the customers. There should be a well defined credit
policy, which should be followed carefully by a firm. The credit policy followed
by a firm is indicated by this ratio. This ratio is calculated with the help of the
following formula:
Debtors Turnover Ratio = Credit Sales/Average Accounts Receivables.
Average Accounts Receivables = Opening Balance of Debtors + Closing
Balance of Debtors/2 and Opening Balance of Bills Receivables + Closing
Balance of Bills Receivable/2.
The higher this ratio, lower is the collection period. On the other hand, a lower
ratio indicates higher collection period. The average collection period as shown
by this ratio should be compared with the credit period planned by the firm. If it
is more than the credit period planned by the firm, it should be analysed
carefully. It may mean efficient credit management or excessive conservatism
in credit granting, which may result in some loss of sales. On the other hand, if
the average collection period as indicated by this ratio is less than the credit
planned by the firm, it indicates that the credit policy by the firm is not that
efficient and hence, the firm may face liquidity crunch and therefore it needs to
be tightened.
3. Creditors Turnover Ratio:
Creditors Turnover Ratio indicates the credit period allowed by the creditors to
the firm. In other words, it is exactly opposite the above ratio. The formula for
calculation is as follows:
Creditors Turnover Ratio: Credit Purchases/Average Accounts Payable*
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* Average Accounts Payable: Opening Balance of Creditors + Closing Balance
of Creditors/2 and Opening Balance of Bills Payable + Closing Balance of Bills
Payable/2
A high turnover ratio indicates that the payment to creditors is quite
prompt but it also implies that the firm is not taking full advantage of the credit
allowed by the creditors. A lower ratio indicates that there is not much
promptness in the payment made to creditors and needs to be improved.
4. Inventory/Stock Turnover Ratio:
This ratio establishes a relationship between the cost of goods sold during a
given period and the average amount of inventory held during that period. The
indication given by this ratio is the number of times the finished stock is turned
over during a given accounting period. The ratio is calculated in the manner
given below:
Inventory/Stock Turnover Ratio = Cost of Goods Sold/Average Inventory
during that period*
* Average Inventory = Opening Inventory + Closing Inventory/2
Higher this ratio, the better it is because it shows rapid turnover of stock and
consequently shorter holding period. On the other hand, if this ratio is lower, it
will indicate that stock is slow moving and there is a longer holding period.
5. Fixed Assets Turnover Ratio:
This ratio indicates the amount of sales realized per rupee of investment in
fixed assets. Fixed assets are those assets, which are not acquired for re-sale. In
other words, they are meant for utilization in the business for the purpose of
improving its earning capacity whether this purpose is being fulfilled or not is
indicated by this ratio. The formula for calculation of this ratio is as follows:
Fixed Assets Turnover Ratio = Net Sales*/Net Fixed Assets**
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* Cost of goods sold may be taken in place of sales
* Net Fixed Assets = Cost-Depreciation
This ratio is more important for manufacturing concerns, if as it indicates the
utilization of fixed assets. As mentioned above, fixed assets are acquired
basically for improving the earning capacity of the busines s. However, it is
important to find out whether this purpose is fulfilled or not. This ratio is one of
the indicators of the same. A high ratio indicates higher amount of sales
generated per rupee of investment in fixed assets. A lower ratio indicates lowe r
sales per rupee of fixed assets and hence the investments in fixed assets are not
justified.
6. Sales to Capital Employed:
This ratio is also known as Capital Turnover Ratio and indicates sales per rupee
of capital employed. The formula for this ratio is as given below:
Sales to Capital Employed = Net Sales/Capital Employed*
*Capital Employed = Shareholders Funds + Long Term Liabilities.
Higher the ratio, the better it is as it will indicate better utilization of capital
employed, which will result in higher amount of turnover. However, a low
turnover ratio will indicate lower utilization of capital employed in making
sales.
FINANCIAL RATIOS:
As the name suggests, these ratios are calculated to judge the financial
position of a business firm from the long term as well as the short term angle.
The following ratios are included in this category.
As the name suggests, these ratios are calculated to judge the financial position
of a business firm from the long term as well as the short term angle. The
following ratios are included in this category.
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1. Current Ratio:
This ratio is calculated by dividing current assets by current liabilities. Current
ratio is also known as solvency ratio as it indicates how the expected current
claims are covered by current assets.
This ratio is calculated with the help of the following formula:
Current Ratio = Current Assets*/Current Liabilities**
*Current Assets mean assets, which have been purchased in order to convert
them into cash or into other current assets within a period of normally one year.
These assets include cash and bank balance, short term investments, bills
receivable, debtors, short term loans, invent ories and pre-paid expenses.
**Current Liabilities means liabilities with a short term duration, which is
normally up to one year from date of creation and are paid out of existing
current assets or by creating a new current liability. These liabilities include,
bank overdraft, bills payable, creditors, provision for taxation, outstanding
expenses, unclaimed dividends, short-term loans, outstanding interest, advance
payment received and portion of a debt expected to mature within a period of
one year.
This ratio indicates the coverage of current assets to the current liabilities. In
other words, it indicates the proportion of current assets available for meeting
the current liabilities. Normally it is expected that the current ratio should be
2:1, which indicates that current assets should be twice as compared to the
current liabilities. However, for proper inference the composition of current
assets should not be overlooked. If a majority of current assets are in the form of
inventories, which is the least liquid current asset, even a 2:1 ratio will not
indicate the favourable position. Similarly, a very high current ratio will not
indicate a favourable position as it means that there is an excessive investment
in current assets is made. This will result in decrease in profitability due to
blocking of large funds in working capital.
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2. Liquid/Quick/Acid Test Ratio:
This ratio is a better tool to measure the ability to day-to-day commitments. It
is the ratio between the liquid assets and liquid liabilities. From the Balance
Sheet, liquid assets are calculated by deducting inventories and prepaid
expenses from current assets. Liquid liabilities are current liabilities less bank
overdraft. The formula for calculation of this ratio is as follows:
Liquid Ratio = Liquid Current Assets/Liquid Liabilities
The ideal liquid ratio is considered to be 1:1, which means that liquid current
assets should be equal to the liquid current lia bilities. This ratio indicates
whether the firm has the ability to pay its short-term liabilities or not.
3. Debt-Equity Ratio:
This ratio is calculated to measure the comparative propor tion of borrowed
funds and shareholders funds invested in the firm. A firm raises funds through
owned funds, which are also called as shareholders funds, or proprietors funds
as well as borrowed funds. The proportion between these two sources should be
properly balanced; otherwise the firm may face problems. This ratio indicates
this proportion and is calculated as shown below:
Debt-Equity Ratio = Long Term Debt/Shareholders Funds*
*Shareholders funds = Share capital + Reserves and Surplus
Ideally this ratio should be 2:1, which means that debt can be twice as
compared to the owned funds. A ratio less than 2:1 will indicate that the firm is
not taking any risk and is mainly using shareholders funds for financing its
requirements. However, if this ratio is above 2:1, it will indicate that the firm is
using mainly borrowed funds to finance its requirements. This may prove to be
more risky in the future and hence a firm should keep a constant watch on this
ratio.
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4. Proprietary Ratio:
It is primarily the ratio between the proprietor's funds and total assets. This ratio
is calculated with the help of the following formula:
Proprietary Ratio: Proprietor's Funds/Total Assets
This ratio indicates the proportion of proprietor's funds used for financing the
total assets. As a very rough measure, it is suggested that 2/3rd to 3/4th of the
total assets should be financed through the proprietor's funds while the balance
may be financed through borrowings. A high ratio will indicate high financia l
strength but a very high ratio will indicate that the firm is not using external
funds adequately.
5. Current Assets to Fixed Assets:
This ratio shows the proportion of current assets to fixed assets. As described in
current ratio, current assets are held for converting them into cash in a short
period of time while fixed assets are held for long -term purposes, i.e. to enhance
the earning capacity of the firm. This ratio indicates the proportion betw een the
two and is calculated with the help of the following formula
Current Assets to Fixed Assets = Current Assets/Fixed Assets
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Table 3 various ratios and their significance
Ratio formula significance
(A) Activity/
Turnover ratio
1. Inventory turnover
ratio
2. Debtors turnover
ratio (DTR)
3. Working capital
turnover ratio
Sales or COGS/average
or closing inventory
Credit sales/sundry
debtors
Sales/working capital
1. If this ratio is
more then one which
means company is
having high efficiency in
inventory management.
1. If this ratio is high
which means the credit
period is low.
2. This ratio reflects the
credit policy of the
company and the
efficiency of its
collection department
from its customers.
1. W.C of company
depends upon its
turnover.
2. Higher the turnoverhigher should be the
W.C.
3. When the company
maintain this ratio high
its means that it achieves
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4. Fixed Assets
turnover ratio
5. Capital turnover
ratio (CTR)
(B) liquidity ratio
1. current ratio
Sales/net fixed assets
Sales/
Capital employed (equity
+ reserve + pref. +
debenture + long turnloan)
or
net fixed assets +
net current assets
current assets/ current
liabilities
its sales target with
minimum W.C. it also
reflects the W.C.
management of the
Company.
1. The management
should try to maintain
this ratio equals to one
which means that the
fixed asset of the
company are beingutilised efficiently by the
mgmt.
1. The Management
is expected to utilize the
capital employed in the
business as profitable aspossible.
1. Idle ratio is 2.
2. Banks accepts ratio of
1.33 for granting
working capital loans.
3. If this ratio is very
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2. liquid ratio or quick
ratio
(C) solvency ratio
1.debt-equity ratio
2.Interest coverage
ratio
Current assets-
(prepaid expenses and
balance stock)/ current
liabilities-(bankoverdraft)
Long term debts/equity +
reserve+ preference
capital
EBIT/
interest on loan
high it means that the
current assets are more
required.
4. If this ratio is too low,
it means that the
company is low on
liquidity.
1. Idle ratio is 1.
2. If the ratio is too high
it means the cash is lying
idle. If the ratio is toolow it will give rise to
liquidity problem.
1. It shows the solvency
of the company.
2. Higher the ratio, lowerthe solvency.
3. Lower the ratio, higher
the solvency.
4. It shows the company
dependence on borrowed
funds.
1. It shows the
capability of the
company to pay interest.
2. Bank and financial
institutions take their
decision on the basis of
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3. Debt service
coverage ratio (DSCR)
(D) Profitability
Ratio
1. gross profit ratio
2. Operation profit
ratio
EAT + Depreciation +
interest/
Principle + interest
Gross profit x 100/sales
Sales-operation
expanses/sales x 100
this ratio.
3. Higher the ratio
greater is the assurance
to bank and financial
institution for interest
recovery.
1. Bank calculates
DSCR for the period
during which the loan is
repaid able.
2. Generally a ratioof 1.5 to 2 is considered
satisfied.
1. When this ratio goes
down the purchase and production activities
need to be looked into
and the purchase and
production manager are
held responsible.
1. This ratio
highlights the operating
efficiency of the
company.
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3. Net profit ratio
4. Return on
investment or return on
capital employed
(E) Investibility ratio
1. earning per share
(EPS)
EAT/sales x100
EAT x 100/
Sales or
EAT x Sales/ x 100
Sales, Cap. employed
EAT-pref dividend/
No. of equity share
1. It shows the
overall efficiency of the
company.
2. This ratio
indicates how much
amount is available to
the equity share holder.
3. If this ratio is high
it means that the total
expenses of the business
are low.
1. It shows the
overall efficiency of the
company.
2. Higher the ROI means
overall management ofthe company is efficient
and effective
1. It shows the
earning power of the
company.
2. Investor would
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2. Dividend per share
(DPS)
3. Dividend payout
ratio
4. Retention Ratio
5. Price earning Ratio
(P/E Ratio)
Total dividend Amt./
no. of equity share
DPS/
EPS
1- Dividend payout ratio
Mark. price per share/
earning per share
like to invest in that
company which have a
high EPS.
1. It shows the
dividend policy of
company.
1. It shows the Amt.
of dividend that the
company is going to
distribute out of total profit available to the
equity shareholders.
1. It shows the policy
of the company towards
the reserves.
2. When the
retention ratio is high itmeans that the wants to
create more and more
reserve for its expenses
for its expansions and
diversification plan.
1. Higher the P/E
ratio more is the share
price. Generally such
share will be preferred
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6. Dividend yield Ratio DPS/
MRKT Price per share
by investor in booming
market Condition and in
anticipation of further
market growth.
1. The investors
decide the Amount of
earning that they should
earn from their
investment therefore theystudy the dividend yield
for different shares.
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3. RESEARCH METHODOLOGY
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Method of Research
Exploratory and constructive research has been followed in this project.
Firstly, I have identified the problems of the company which is related to profit,
investment pattern, operational activity and sales. Then find the causes of the
problem and give the suggestion according to the problem.
Objective of the research
1. To find out the profit and investment pattern of the company.
2. To find out the liquidity and solvency position of the company.
3. To find the feasibility of operational activities.
Data type
Primary and secondary data.
I have used secondary data for project research. The secondary data was
collected from the progress report and financial statement of last 3 years of the
company which was provided by the finance department of the company.
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Data collection procedure
The procedure
Step I - Progress report and financial statement of last 3 years was given by the
company.
Step II The data was further analysed by using the tool like ratio analysis.
Step III After analysing the ratios, interpreted the ratios and finally gave the
recommendation and c onclusion.
The area of data collection
Finance department of the company.
The presentation of data
Table and column chart.
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4.RESULT AND INTERPRETATIONS
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4.1 DETAILS ABOUT THE OUTCOME OF THE RESEACH
Table 4 outcome of the project on the basis of final statement
Particulars 2007 2008 2009
Sales 50000000 65000000 80000000
Gross profit 10000000 15000000 20000000
Net profit before interest and
tax
9925744 10896885 21760471
Current assets 9686432 17312959 40397604
Current liabilities 500000 5000000 25270814
Fixed assets 7943912 152617600 745347042
Long term debts. ---- ----- 423000000
Short term debts. ---- 4263051 14872806
Interest ---- ------- 15263014
EBT 9925744 10896885 6497457
Taxes 2977723 3269066 1949237
EAT 6948021 7627819 4548220
Equity capital 7204600 300495844 428348308
No. of equity share 720460.0 30049584.4 42834830.8
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4.2 DATA ANAL AND DATA INTE ETATION OF
RE LT
Rati
T are the followi ratio whi h i hel ful for fi i the fi ancial
position of the company.
1. Gross profit ratio
Gross profit rati ross profit/ net sales*100
Particulars 2007 2008 2009
Sales 50000000 65000000 80000000
Gross profit 10000000 15000000 20000000
Ratio 20 23 25
Table 5 calculation of gross profit ratio
Graph 1 trend of gross profit
20
23
2
0
5
10
15
20
25
30
2007 2008 2009
gross profit ratio
ratio
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Interpretation
A high gross profit ratio means a high margin for covering other expenses like
administrative, selling and distribution expenses, i.e. Other then the cost of
goods sold. Therefore, higher the ratio, the better it is. . It is also important for abusiness to maintain this ratio on a higher side; otherwise it will be difficult to
cover other expenses. A firm should compare its gross profit ratio with the
industry average to find out where it stands. A firm can also compare its own
ratio of the past with the current year's ratio to find out its performance. This is
known as intra-firm comparison. Here gross profit ratio continuously increasing
over the period. It shows that if company sales their product in large scale, cost
of good sold is decreased and it may be because of less raw material and
variable cost.
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2. Net profit ratio
Net profit ratio = net profit/ sales *100
Parti lar 2007 2008 2009
Sales 50000000 65000000 80000000
Net profit 6948021 7627819 4548220
ratio 13.89 11.73 5.68
Table 6 calculation of net profit
Graph 2 trend of net profit
Interpretation
This ratio is very useful for prospective investors because it reveals the overallprofitability ofthe firm. Hi herthe ratio, the betteritis because it gives an i ea
of overall efficiency ofthe firm. In 2007 net profit ratio is high because of zero
interest and less operating expenses. In 2009 net profit ratio is less because of
high interest amount and other expenses.
0
2
4
8
10
12
14
2007 2008 2009
13.89
11.73
5.
8
net profit ratio
ratio
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3. Return on capital employed ratio
Return on capital employed = earning before interest and tax /capital employed
*100
Capital employed = equity capital + preference capital + reserves and surplus+long term debt fictitious assets
particulars 2007 2008 2009
EBIT 9925744 10896885 21760471
E uity capital 7204600 300495844 428348308
Long term debts. ---- ----- 423000000
ratio 137.76 3.62 2.55
Table 7 calculation of return on capital employed ratio
Graph 3 trend of return on capital employed ratio
Interpretation
This ratio is considered to be a very important one because it reflects the overall
efficiency with which capitalis used. The ratio of a particular business should
be compared with other business firms in the same industry to find outthe exact
position ofthe business. In 2007 return on capital employed ratio is high
0
20
40
60
80
100
120
140
2007 2008 2009
137.76
3.62 2.55
return on capital employed
ratio
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because there was no borrowing and less equity capital. In 2008 ratio is less
because there was no borrowing funds but company has employed more equity
capital. In 2009 ratio is very less because of high borrowed fund and more
equity capital employed.
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4. Return on equity
Return on equity = EAT/ equity shareholders funds* 100
Particulars 2007 2008 2009
EAT 6948021 7627819 4548220
Equity capital 7204600 300495844 428348308
ratio 96.43 2.53 1.06
Table 8 calculation of return on equity ratio
Graph 4 trend of return on equity ratio
Interpretation
This ratio indicates the productivity ofthe owned funds employed in the firm.However, injudging the profitability of a firm, it should not be overlooked that
during inflationary periods, the ratio may show an upward trend because the
numerator ofthe ratio represents current values whereas the denominator
represents historical values. In 2007 return on equity is very high because of
high profit and less equity capital. In 2008 and 2009 ratio is very low because of
less profit and more equity capital employed.
0
20
40
60
80
100
2007
2008
2009
96.43
2.53
1.06
return on equity
ratio
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5. Return on total assets
Return on total assets = net profit aftertax /total assets *100
Particulars 2007 2008 2009
EAT 6948021 7627819 4548220
Total assets 17630344 320655780 977139664
ratio 39.40 2.37 0.46
Table 9 calculation of return on total assets
Graph 5 trend of return on total assets
Interpretation
Return on assets should be high because it shows the company position on
market and further action might be taken according to this ratio. So it should be
high which shows the strong financial position ofthe company. In 2007 returnon total assets is very high because whether company has utilized fixed assets
more efficiently or operating expenses is very low. In 2008 and 2009 ratio is
very low because total assets is very high as proportion to net profit, it means
whether company has not been utilizing assets efficiently or operating expenses
is high.
39.4
2.37
0.46
0
5
10
15
20
25
30
35
40
45
2007 2008 2009
return on totalassets
ratio
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6. Working capital turnover ratio
Working capitalturnover ratio = net sales / net working capital (CA-C
Particulars 2007 2008 2009
Net sales 50000000 65000000 80000000
Current assets 9686432 17312959 40397604
Currentliabilities 500000 5000000 25270814
Working capital 9186432 12312959 15126790
ratio 5.44 5.27 5.28
Table 10 calculation of working capital turnover ratio
Graph 6 trend of working capital ratio
Interpretation
The higherthis ratio, the better is the utilization ofthe working capital and also
indication of lower working capital. However, a very high working capital
turnover ratio is a sign of overtrading and a firm may face shortage of working
capital. In 2007 it shows highest percentage of working capital ratio because
5.15
5.
5.
5
5.
5.
5
5.
5. 5
007
008
009
5.
5.
75.
8
working capitalratio
ratio
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company has less current liabilities. But in 2008 and 2009 it shows
comparatively less percentage because sales have not been increased as
proportion to working capital. But it is good for company because higher ratio
can be causes for shortage of working capital.
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7. Fi ed assets turnover ratio
Fixed turnover ratio = net sales / net fixed assets
Particulars 2007 2008 2009
Sales 50000000 65000000 80000000
Fixed assets 7943912 152617600 745347042
ratio 6.29 0.42 0.10
Table 11 calculation of fi ed turnover ratio
Graph 7 trend of fi ed turnover ratio
Interpretation
This ratio is more important for manufacturing concerns as it indicates the
utilization of fixed assets. Fixed assets are acquired basically forimproving the
earning capacity of the business. However, it is important to find out whether
this purpose is fulfilled or not. This ratio is one ofthe indicators ofthe same. A
0
1
2
3
4
5
7
2007 2008 2009
.29
0.42
0.1
fixed assetsturnoverratio
ratio
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high ratio indicates higher amount of sales generated per rupee of investment in
fixed assets. A lower ratio indicates lower sales per rupee of fixed assets and
hence the investments in fixed assets are not justified. Here, in 2007 fixed assets
turnover is very high because company has utiliz ed fixed assets more efficiently
but in 2008 and 2009 it came down. In 2008 and 2009 fixed has been more
employed but sales did not increase. it shows that fixed assets has not been used
more effectively for manufacturing.
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8. Sales to capital employed ratio
Sales to capital employed = sales/ capital employed
Capital employed = shareholders funds + long term liabilities
particulars 2007 2008 2009
Sales 50000000 65000000 80000000
Shareholders funds 7204600 300495844 428348308
Long term liabilities ---- ----- 423000000
ratio 6.94 0.21 0.10
Table 12 calculation of sales to capital employed ratio
Graph 8 trend of sales to capital employed ratio
Interpretation
Higher the ratio, the better it is as it will indicate better utilization of capital
employed, which will result in higher amount of turnover. However, a low
turnover ratio will indicate lower utilization of capital employed in making
sales. Here, in 2007 there was less shareholders fund and no long term debts so
6.94
0.
1 0.1
0
1
3
4
5
6
7
8
007
008
009
sales to ca ital employe
rati s
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9. Current ratio
Current ratio = current assets / currentliabilities
particulars 2007 2008 2009
Current assets 9686432 17312959 40397604
Currentliabilities 500000 5000000 25270814
ratio 19.37 3.45 1.59
Table 13 calculation of current ratio
Graph 9 trend of current ratio
Interpretation
This ratio indicates the coverage of current assets to the currentliabilities. In
other words, itindicates the proportion of current assets available for meeting
the currentliabilities. Normally itis expected thatthe current ratio should be
one. very high current ratio will notindicate a favourable position as it means
0
2
4
6
8
10
12
14
16
18
20
2007 2008 2009
19.37
3.45
1.59
currentratio
ratio
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that there is an excessive investment in current assets is made. This will result in
decrease in profitability due to blocking of large funds in working capital.
Here, in 2007 company blocked their capital in current assets excessively.
Comparatively ratio is good in 2008 and 2009 it means company utilized
working capital efficiently.
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10. Current assets to fi ed assets
Current assets to fixed assets = current assets/ fixed assets
particulars 2007 2008 2009
Current assets 9686432 17312959 40397604
Fixed assets 7943912 152617600 745347042
ratio 1.21 0.11 0.05
Table 14 calculation of current assets to fi ed assets ratio
Graph 10 trends of current assets to fi ed assets ratio
Interpretation
This ratio shows the proportion of current assets to fixed assets. As described incurrent ratio, current assets are held for converting them into cash in a short
period oftime while fixed assets are held forlong-term purposes, i.e. to enhance
the earning capacity ofthe firm. Here we can see the pattern of ratio is declining
over 2007 to 2009 because company has invested more funds toward fixed
assets. It means the earning capacity ofthe company is going down in same
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2007 2008 2009
1.21
0.11
0.05
currentassetstofixed assets
ratio
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pattern. So the company has to utilise fixed assets more effectively so that the
earning capacity of the company can be increased.
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11. Debt-equity ratio
Debt-equity ratio = long term debt/ equity + reserve + preference capital
particulars 2007 2008 2009
Long term debt ---- ----- 423000000
Equity 7204600 300495844 428348308
ratio 0.00 0.00 0.98
Table 15 calculation of debt- equity ratio
Graph 11 trend of debt equity ratio
Interpretation
Debt-equity ratio shows the solvency ofthe company. Higherthe ratio lowers
the solvency and lowerthe ratio higherthe solvency. It shows the company
depends on borrowed funds. It should be one that means company is in good
position to repay the loans. It shows the financial position ofthe company.
Here, in 2007 and 2008 the debt-equity ratio is 0 thats Means Company has not
borrowed any funds from market and itis using their own funds and they dont
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2007 2008 2009
0 0
0.98
debt-equityratio
ratio
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have to pay loan. In 2009, it shows 0.98% that means capital has less capital
fund for payment of debt.
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12. Interest coverage ratio
Interest coverage ratio = EBIT/ Interest on loan
particulars 2007 2008 2009
EBIT 9925744 10896885 21760471
Interest on loan ---- ------- 15263014
ratio 00.00 00.00 1.42
Table 16 calculation ofinterest coverage ratio
Graph 12 trend ofinterest coverage ratio
Interpretation
It shows the capacity of the company to pay interest. Bank and financialinstitutions take their decision on the basis of this ratio. If ratio is high it is
surety to bank and financial institutions for interest recovery. Here there is no
loan in 2007 and 2008. In 2009 ratio is 1.42 it means company has good
position to repay the loan.
0 0
1.42
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2007 2008 2009
Interest coverage ratio
ratio
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5. CONCLUSION
1. If accounting ratios are calculated for a number of years, a trend can be
established. This trend helps in setting future plans and forecasting, for e.g. Net
Profit as expressed as a percentage of sales can be forecasted on the basis of the
past percentage of the same.
2. The overall Performance of the company was good in year 2007 because of
less loan and good operating activity but in 2008 and 2009 the performance of
the company is not good due to high borrowed funds and poor management.
3. Production and selling department is not performing good thats why
company require more inventory and working capital.
4. Current ratio should be one but current ratio of the company is very high over
the period it means company has blocked their capital in inventory excessively.
7. Company has invested more funds towards fixed capital and it has not been
utilizing efficiently and sales were not increased as proportion to capital
employed over the period.
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6. LIMITATIONS
Limitation of the research
1. One of the serious limitations of the project is that company has been running
for last 4 or 5 years so it is difficult to find out exact financial position of the
company.
2. Another limitation of the study was lack of availability of ample information.
Most of the information has been kept confidential and as such as not assed asart of policy of company.
3. Time is an important limitation. The whole study was conducted in a period
of 60 days, which is not sufficient to carry out proper interpretation and
analysis.
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7. RECOMMENDATION
1. Net profit ratio is continuously decreasing over the period and other hand
gross profit ratio is continuously increasing over the period it means operatingand administration expenses is very high so company has to minimize these
expenses.
2. Debt. Equity ratio shows the solvency of the company. Higher ratio, lower
solvency. Lower ratio, higher solvency. It shows the companys dependence on
borrowed funds. Debt- Equity ratio should be 1. Here, debt equity ratio in 2007
and 2008 is zero it means company has no debts so we can say that it shows
higher solvency and in 2009 it is 0.98 it means debts is higher then equity
capital so company should maintain it equal s to one .
3. Fixed assets turnover ratio is very low in 2008 and 2009 so company should
utilize fixed assets efficiently so that sales can be increased.
4. Return on investment shows the overall efficiency of the company . Return oninvestment is good in 2007 but it is very less in 2008 and 2009 its means
company should try to increase sales or reduce expenses.
5. Company has invested excessively towards current assets it means company
blocked their money in inventory or working capital so company should try to
maintain their current assets.
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ANNEXURE
Maa mahamaya co-operative sugar factory
Profit & loss statement
Year 2006-07
particular Amt.{Rs.} Particulars Amt
{Rs.}
Purchase
Wages
CarriagesGross profit
Office stationary
project report fees
Rent of link office
Encouragementexpenses
services tax
bank commission
vehicle expenses
typing expenses
expenses for welcome
of guests
Travelling & otherexpenses
postage expenses
35000000
2500000
250000010000000
50000000
28236
65000
13500
2134
7956
216
1760
5161
3817
39251
1645
Sales
Gross profit
Entry fee received
Interest received on saving
A/C
50000000
50000000
10000000
78300
16120
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net profit 9925744
10094420 10094420
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Maa mahamaya co-operative sugar factory
Balance sheet
0n 31.03.07
Liabilities Amt.(rs). Assets Amt .(rs.)
Partners capital A/c
7204600
(+)net profit 9925744
Current liabilities
17130344
500000
Fixed assets
Current assets --
Advance A/c[employee]
30000
(-) 28500
others
Co-operative bank A/c
7299020
(-) 170176
7943912
1500
2556088
7128844
17630344 17630344
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Maa mahamaya co-operative sugar factory
Profit & loss statement
Year 2007-08
Particular Amt.(rs.) particular Amt.(rs.)
Purchase
Wages
Material overheads
Carriage
Other direct expensesGross profit
Entry fee
link office rent
stationary
labour (computer)
Project report fee
service tax
Bank search charges
vehicle expenses
(Petrol & other)
typing & photocopy
sundry expenses
magazine fee
inauguration expenses
bank processing charges
bank guarantee commission
Nivida expenses
25000000
10000000
5000000
5000000
500000015000000
65000000
2500
4500
41755
19000
65000
7956
2800
7700
2098
2735
1600
638311
300000
11250000
88702
Sales
Gross profit
Entry fee
Interest received or
saving A/C
sales of nivida form
65000000
65000000
15000000
2900
157096
10366009
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maandai
Bank commission
salary
Plant & land test fee
environment control
committee fee
electricity expenses
Stamp charges for land
purchase
Advertisements exp
Travelling & other
expensesNet profit
4000
7116
88614
51490
200000
561779
31649
1023844
22597110896885
25526005 25526005
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Maa mahamaya co-operative sugar factory
Balance sheet
On 31.03.08
Liabilities Amt.(rs.) assets Amt.(rs.)
Partner's
Capital A/C
(i) Personal
17130344
(+) 13365500(+)net profit 10896885
41392729
(ii) State govt.
270000000
Security Deposit :-
(i)Urgent money deposit
A/C 4200000(ii)S.D. discount deposit
A/C 22481
(iii)Income tax/TDS
Discount deposit
10570
(iv)Advance discount
deposit 30000
311392729
4263051
Security deposit at
Bank
(i) Co-operative bank
saving A/C No. 1253
7128844(+) 288120887
= 295249731
(-) 147502002
= 147747729
(ii) Apex bank saving
A/C Raipur 1000
(iii) SBI, current A/C
Ambikapur 21525
(iv) SBI, fix deposit A/C
Ambikapur 2500000
(v) Co-operative bank
saving A/C No. 1257
Ambikapur 500
150270754
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Current liabilities 5000000
Investment in share
Capital
(i) Share purchased of
national co-operative
sugar factory, new Delhi
10000
(ii) Share purchased of
I.E.S. New Delhi
20000
Security deposit at
other department(i)Commercial tax
department Ambikapur
20000
(ii)electricity board C.G.
404467
Current assets--
others
Advance A/C
(employee)
1500
(+) 281330
=282830
(-)226637
Ded stock A/c
Cash
30000
424467
17215322
56193
20550
20894
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Fixed assets---
vehicle A/C
Land A/C
Plant and machinery a/c
1253347
341700
151022553
320655780 320655780
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Maa mahamaya co-operative sugar factory
Profit & loss statement
Year 2008-09
particulars Amt. particulars Amt.
Purchase
WagesCarriage
Other direct expensesGross profit
Salary
Employees travellingallowance & others
Office stationary
Telephone expensesVehicle expenses(fuel)
Vehicleexpenses(repairs)
Guest house expenses
Postage expensesOther expenses
Advertisement expensesBank commission
Tact expenses
Guest house rentexpenses
Vehicle insurancecharges
Emergency expensesAdvertisement expensesElectricity processing
30000000
200000007500000
250000020000000
80000000
1501464
158703
62975
28976101421
27296
3949
4160125102
231167610353
4000
18276
19170
846110125
Sales
Gross profit
Entry feeInterest received on
saving a/c
Sale of nivida form
Other incomes
80000000
80000000
20000000
1300
5281340
9000
1481551
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chargesElectricity expenses
Net profit
5000611613
21760471
26773191 26773191
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MAA MAHAMAYA CO-OPERATIVE SUGAR FACTORY
BALANCE SHEET ON
YEAR ENDING 31.03.09
Liabilities Amt. assets Amt.
Partners capital
Personal 53483308(+)net profit 21760471
State govt 423000000
Security deposit
Govt. loan
Other deposit
Security timelycommissioning
Retention money
Royalty money
E.D. for delay
Performance securitydeposit
Liquid damage money
S.D. discount deposit
Income tax discount
Land from sub co-operative department C.G.
Current liabilities
Bills payable
498243779
4405000
423000000
400920
194304
1170418
1269699
744105
228000
6447093
13267
15752265
7800
Security deposit at bank
Co-operative banksaving a/c no. 1253
Co-operative bank
saving a/c no. 1257
Apex bank saving a/c,Raipur
SBI current a/cambikapur
SBI fixed deposit a/c
ambikapur
Co-operative bank a/c
Investment in share
capital
Share purchased of
national co-operativesugar factory
Share purchased of
I.E.S. new Delhi
Current assets
Advance a/c (employee)
Ded stock a/c
37763328
475
1000
21525
2500000
150000000
10000
20000
45544
371295
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Interest payable a/c
Others Current liabilities
15263014
10000000
977139664
Other Current assets
Fixed assets
Plant& machinery a/c
Land a/c
Vehicle a/c
Security deposit at otherdepartment
Commercial taxdepartment, ambikapur
Electricity board C.G.
B.S.N.L.
39980765
157096109
586580154
1670779
20000
1057690
1000
977139664
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BIBLIOGRAPHY
Book references
Financial Management (5th
edition) by Prasanna Chandra, TATA McGraw-
Hill Publishing Company Limited New Delhi-110004, 2002.
Financial Management (9th
edition) - by I.M.Pandey, Vikash Publishing House,
New Delhi-11004, 1999
Website
www.researchmedia.com available on 17th
July 2010.
Documents
Documents like balance sheet, progress report, provided by the finance
department of sugar factory.