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PROJECT REPORT ON RATIO ANALYSIS
A PROJECT REPORT ON
RATIO ANALYSIS
SUBMITTED BY
SHAH SUHAIL MUBARAK ALI
ROLL NO.12
BACHELORS OF COMMERCE(B.COM)
(ACCOUNTING AND FINANCE)
SEMESTER VI
2018-2019
UNDER THE GUIDANCE OF

PROF. FLORENCY D’SOUZA
SHRI G.P.M. COLLEGE DEGREE COLLEGE
SUBMITTED TO
UNIVERSITY OF MUMBAI
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CERTIFICATE
We hereby certify that Mr. SHAH SUHAIL MUBARAK ALI of SHRI G.P.M.
DEGREE COLLEGE Studying in B.COM. (ACCOUNTING AND FINANCE)
(Semester VI) has worked and duly completed Project on RATIO ANALYSIS the
academic year 2018-2019. The information submitted in the project is true and
original to the best of my knowledge.
I further certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any Degree or
Diploma of any University. It is my own work and facts reported by my personal
findings and investigations.
Name and Signature of Guiding Teacher
Date of submission:
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DECLARATION
I Mr. SHAH SUHAIL MUBARAK ALI here by, declare that the work embodied in
this project work titled “PROJECT REPORT ON AMUL COMPANY”, forms my
own contribution to the research work carried out under the guidance of PROF.
FLORENCY D’SOUZA is a result of my own research work and has not been
previously submitted to any other University for any other Degree/ Diploma to any
other University. Wherever reference has been made to previous works of others, it
has been clearly indicated as such and included in the bibliography. I, here by
further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.
Name and Signature of the learner
Certified by
Name and signature of the Guiding Teacher
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ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to
do this project.
I would like to thank the faculty of SHRI G.P.M DEGREE COLLEGE affiliated to
the University of Mumbai for their excellent suggestion.
Special thanks to our Principal, VIJAY SINGH for their co-operation during the
time of completion of this project.
A special thanks to PROF. FLORENCY D’SOUZA Co-ordinating for their
constant encouragement and guidance from the beginning to the end with never
ending patience. Her constant support and efforts helped me to complete my project
on time.
I would also like to express my sincere gratitude towards my project guide PROF.
FLORENCY D’SOUZA whose guidance and care made the project successful.
Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers who
supported me throughout my project.
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INTRODUCTION
Ratio analysis is a technique of analyzing the financial statement of

industrial concerns. Now a day this technique is sophisticated and is
commonly used in business concerns. Ratio analysis is not an end but it is
only means of better understanding of financial strength and weakness of a
firm.
Ratio analysis is one of the most powerful tools of financial analysis

which helps in analyzing and interpreting the health of the firm. Ratio’s are
proved as the basic instrument in the control process and act as back bone in
schemes of the business forecast.
Ratio analysis is a vital tool to help you understand and interpret the
financial data of prospective borrowers and is sometimes referred to as the
language of loan officers. Each ratio compares two items on the financial
statements and shows the relationship between those items. Each ratios help
you assess a firm's financial health, evaluate how a loan will aid the
business, and help determine if there is a reasonable assurance that the loan
can be repaid. In addition, ratios enable you to spot trends in a company's
financial condition and performance.
Comparison of a company's ratios with industry averages reveals the

company's relative strengths and weaknesses. Several publications, such as
Robert Morris Associates' Annual Statement Studies, provide industry
averages of selected ratios. Generally, these sources give a range of ratios;
RMA, for instance, presents the ratios in quartiles - the upper quartile
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representing the strongest ratios; the median representing average ratios; and
the lower quartile representing the weakest ratios. As some ratios are
calculated more than one way, you should determine how your source
defines each of the ratios that you are interested in.
Different ratios give you different information about a company. The

business type (manufacturer, wholesaler, retailer, or service provider), mode
of operations, seasonality of sales and collections, etc., all have a bearing on
which ratios are the appropriate one’s for you to examine and what an
acceptable level for those ratios will be. A company may look favorable
based on one ratio and less favorable based on another; so, to correctly
appraise a company, you must calculate all pertinent ratios and examine
them both individually and as a group.
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MEANING
A ratio is simple arithmetical expression of the relationship of one

number to another. It may be defined as the indicated quotient of two
mathematical expressions.
According to Accountant’s Handbook by Wixon, Kell and Bedford,

“a ratio is an expression of the quantitative relationship between two
numbers”.
Ratio Analysis: - Ratio analysis is the process of determining and

presenting the relationship of items and group of items in the statements.
According to Batty J. Management Accounting “Ratio can assist
management in its basic functions of forecasting, planning coordination,
control and communication”.
It is helpful to know about the liquidity, solvency, capital structure

and profitability of an organization. It is helpful tool to aid in applying
judgment, otherwise complex situations.
Ratio may be expressed in the following three ways:
1. Pure Ratio or Simple Ratio: - It is expressed by the simple division of

one number by another. For example, if the current assets of a business are
Rs. 200000 and its current liabilities are Rs. 100000, the ratio of ‘Current
assets to current liabilities’ will be 2:1.
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2. ‘Rate’ or ‘so Many Times: - In this type, it is calculated how many times
a figure is, in comparison to another figure. For example, if a firm’s credit
sales during the year are Rs. 200000 and its debtors at the end of the year are
Rs. 40000, its Debtors Turnover Ratio is 200000/40000 = 5 times. It
shows that the credit sales are 5 times in comparison to debtors.
3. Percentage: - In this type, the relation between two figures is expressed

in hundredth. For example, if a firm’s capital is Rs.1000000 and its profit is
Rs.200000 the ratio of profit capital, in term of percentage, is
200000/1000000*100 = 20%
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OBJECTIVES
OBJECTIVES OF THE STUDY:
a. 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. To evaluate and analyze
various facts of the financial performance of the company.
b. To make comparisons between the ratios during different
periods.
1. To help the management in its planning and forecasting activities.
2. To evaluate operational efficiency, liquidity, and solvency of the

company
3. To help the management in having effective control over the activities

of different departments - wise efficiency of the firm on the basis of the
available financial information.
4. To compare the previous five years and present year performance of

the company.
5. To give suggestion and recommendation based on the study.
6. Inter – firm comparison becomes easy with the help of ratios.
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CLASSIFICATION
I. TRADITIONAL CLASSIFICATION
Traditional Classification has been on the basis of financial
statements, on which ratio may be classified as follows.
1. Profit & Loss account ratios.

These ratios deal with the relationship between two profit & loss account
items, e.g. the ratio of gross profit to sales etc.
E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc.
2.Balance sheet ratio.

They deal with the relationship between two balance sheet items, e.g. the
ratio of current assets to current liabilities etc., both the items must,
however, pertain to the same balance sheet.
E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc.
3. Composite/Mixed ratio.
These ratios exhibit the relation between a profit & loss account or income
statement item and a
balance sheet items, e.g. stock turnover ratio, or the ratio of total assets to
sales.
E.g. Stock Turnover Ratio, Debtors Turnover Ratios, Fixed Assets Turnover
Ratio etc
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II. FUNCTIONAL CLASSIFICATION OF RATIOS
These include liquidity ratios, long term solvency and leverage ratios,
activity ratios and profitability ratios.
1) Liquidity ratios: -
Liquidity ratios are the ratios meant for testing short-term financial
position of a business.
These are designed to test the ability of the business to meet its short-term
obligation promptly.
For example, current ratio, quick ratio falls under this group.
a. Current Ratio
b. Quick Ratio
2. Leverage Ratios
Solvency ratios are also known as leverage ratios. These are meant for
testing long term financial soundness of any unit. Primarily these establish
and study relationship between owned funds and loaned funds. For example,
debt-equity ratio, capital gearing ratio etc., are covered under this group
a. Debt-equity Ratio
b. Current Asset to Proprietor’s fund Ratio
3. Efficiency Ratios
Efficiency ratios are also known as activity ratios. These are meant to
study the efficiency with which the resources of the unit have been used.
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These are also popularly known as turnover ratios. Examples are; inventory
turnover ratio, return on investment etc.
i. Inventory Turnover Ratio
ii. Asset Turnover Ratio:

a. Fixed Asset Turnover Ratio
b. Current Asset Turnover Ratio
iii. Working Capital Turnover Ratio.
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USES OF ACCOUNTING RATIOS

Ratios as a tool of financial analysis provide symptoms with the help
of which any analyst is in a position to diagnose the financial health of the
unit. Financial analysis may be compared with biopsy conducted by the
doctor on the patient in order to diagnose the causes of illness so that
treatment may be prescribed to the patient to help him recover. As, already
hinted different groups of persons are interested in the affairs of any
business entity, therefore, significance of ratio analysis for various groups is
different and may be discussed as follows:
I) USEFULNESS TO THE MANAGEMENT:
1. Decision Making:
Mass of information contained in the financial statements may be
unintelligible a confusing. Ratios help in highlighting the areas deserving
attention and corrective action facilitating decision making.
2. Financial Forecasting and Planning:

Planning and forecasting can be done only by knowing the past and
the present. Ratio help the management in understanding the past and the
present of the unit. These also provide useful idea about the existing strength
and weaknesses of the unit. This knowledge is vital for the management to
plan and forecast the future of the unit.
3. Communication:
Ratios have the capability of communicating the desired information to the
relevant persons in a manner easily understood by them to enable them to
take stock of the existing situation:
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4. Co-ordination is facilitated:
Being precise, brief and pointing to the specific areas the ratios are likely to
attract immediate grasping and attention of all concerned and is likely to
result in improved coordination from all quarters of management.
5. Control is more effective:
System of planning and forecasting establishes budgets, develops
forecast statements and lays down standards. Ratios provide actual basis.
Actual can be compared with the standards. Variances to be computed an
analyzed by reasons and individuals. So, it is great help in administering an
effective system of control.
II) USEFULNESS TO THE OWNERS/SHAREHOLDERS:

Existing as well as prospective owners or shareholders are fundamentally
interested in the (a) long-term solvency and (b) profitability of the unit.
Ratio analysis can help them by analyzing and interpreting both the aspects
of their unit.
III) USEFULNESS TO THE CREDITORS

Creditors may broadly be classified into short-term and long term.
Short-term creditors are trade creditors, bills payables, creditors for expenses
etc., they are interested in analyzing the liquidity of the unit. Long-term
creditors are financial institutions, debenture holders, mortgage creditors
etc., they are interested in analyzing the capacity of the unit to repay
periodical interest and repayment of loans on schedule. Ratio analysis
provides, both type of creditors, answers to their questions.
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IV) USEFULNESS TO EMPLOYEES:

Employees are interested in fair wages: adequate fringe benefits and
bonus linked with productivity/profitability. Ratio analysis provides them
adequate information regarding efficiency and profitability of the unit. This
knowledge helps them to bargain with the management regarding their
demands for improved wages, bonus etc.
V) USEFULNESS TO THE GOVERNMENT:

Govt. is interested in the financial information of the units both at
macro as well as micro levels. Individual unit's information regarding
production, sales and profit is required for excise duty, sales tax and income
tax purposes. Group information for the industry is required for formulating
national policies and planning. In the absence of dependable information,
Govt. plans and policies may not achieve desired results.
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LIMITATION
Ratio analysis is one of the most powerful tools of financial management.
They are simple and easy to understand. Ratio analysis provides useful clues
to investigate further. They must always be compared with: Previous ratios
in order to assess trends. Ratios achieved in other comparable companies.
Ratios by themselves mean nothing as they have serious limitations.
While using the ratios, caution has to be exercised in respect of the
following. The following are some of the limitations:
1) Different Accounting Policies

The choices of accounting policies may distort inter-company
comparisons. For example, accounting standards allows valuation of assets
to be based on either revalued amount or at depreciated historical cost. The
business may opt not to revalue its asset because by doing so the
depreciation charge is going to be high and will result in lower profit.
2) Window Dressing
These are techniques applied by an entity in order to show a strong
financial position. Firms can employ window dressing techniques to make
their financial statements look stronger. Window dressing techniques are
techniques employed by firms to make their financial statements look better
than they really are. To illustrate, a Mumbai-based builder borrowed on a
two-year basis on March 29, 2001, held the proceeds of the loan as cash for
a few days, and then paid off the loan ahead of time on April 2, 2001. This
improved his current and quick ratios, and made his year-end 2001 balance
sheet look good. However, the improvement was strictly window dressing; a
week later the balance sheet was back at the old level.
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3. Problems of price level changes:

Financial analysis based on accounting ratios will give misleading
results, if effects of change in price level are not taken into account. For
example, two companies that have set up plant and machinery in two
different periods, with a long gap, may give misleading results. Firm that has
purchased the plant and machinery, very earlier, would have lower amount
towards depreciation, when compared with the firm that has set up the
machinery, quite later. So, the operating results of both the firms vary,
substantially. The financial statements of the two firms cannot be compared
without making suitable changes to the price level changes.
4) No fixed standards:
No fixed standards can be laid down for ratios. Though current ratio
2:1 is normally required, firms enjoying adequate arrangements with banks
to provide additional credit, as and when needed, may be able to manage
with lesser current ratio. It is, therefore, necessary to avoid any rules of
thumb.
5) Difficult to Interpret: -
It is difficult to generalize about whether a particular ratio is “good”
or “bad.” For example, a high current ratio may indicate a strong liquidity
position, which is good or excessive cash, which is bad (because excess cash
in the bank is a nonearning asset). Similarly, a high fixed assets turnover
ratio may denote either a firm that uses its assets efficiently or one that is
undercapitalized and cannot afford to buy enough assets.
6) Based on historical data:
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The ratios are calculated from past financial statements, and so they
are no indicators of future. Such ratios may provide information about the
past. But, for forecasting the future, there are many factors that may change,
in future. Market conditions and management policies may not remain the
same, as they were earlier.
7) Impact of Government Influence: -

Selective application of government incentives to various companies
may also distort inter-company comparison. One company may be given a
tax holiday while the other within the same line of business not, comparing
the performance of these two enterprises may be misleading.
8) Outdated Information in Financial Statement: -

The figures in a set of accounts are likely to be at least several months
out of date, and so might not give a proper indication of the company’s\
current financial position.
9) Creative Accounting: -
The businesses apply creative accounting in trying to show the better
financial performance or position which can be misleading to the users of
financial accounting. For example, accounting standards require that if an
asset is revalued and there is a revaluation deficit, it has to be charged as an
expense in income statement, but if it results in revaluation surplus the\
surplus should be credited to revaluation reserve. So, in order to improve on
its profitability level, the company may select in its revaluation programme
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to revalue only those assets which will result in revaluation surplus leaving
those with revaluation deficits still at depreciated historical cost.
10. Absence of identical situations:

It is difficult to obtain identical situations for different firms.
Circumstances do not remain the same, even, for the same firm between two
different periods. Ratios are useful in judging the efficiency of business,
only when they are compared with the past results of the firm, with identical
circumstances, or with the results of similar businesses. Comparison
becomes difficult due to lack of uniformity of situation between two
companies.
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RATIO AND ITS SIGNIFICANCE
(1) CURRENT RATIO

Current ratio is a ratio between current assets and current liabilities of
a firm for a particular period. This ratio establishes a relationship between
current assets and current liabilities. The objective of computing this ratio is
to measure the ability of the firm to meet its short-term liability. It compares
the current assets and current liabilities of the firm. This ratio is calculated as
under:
Current Ratio= Current Assets
Current Liabilities
Current Assets are those assets which can be converted into cash
within a short period i.e. not exceeding one year. It includes the following:
Current assets will therefore include cash, bank, stock (raw materials, work
in progress and finished goods), debtors (less provision), bills receivable,
marketable securities, prepaid expenses, short term loans and advances and
accrued incomes.
Current liabilities are those liabilities which are expected to be paid
within a year. It includes the following: Current liabilities include creditors,
bills payable, outstanding expenses, income received in advance, bank
overdraft, short-term loans, provision for tax, proposed dividend and
unclaimed dividend
Generally, a current ratio of 2:1 is considered satisfactory.
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Significance: -
It indicates the amount of current assets available for repayment of
current liabilities. Higher the ratio, the greater is the short-term solvency of a
firm and vice a versa. However, a very high ratio or very low ratio is a
matter of concern. If the ratio is very high it means the current assets are
lying idle. Very low ratio means the short-term solvency of the firm is not
good. Thus, the ideal current ratio of a company is 2:1 i.e. to repay current
liabilities; there should be twice current assets.
(2) Quick ratio

Quick ratio is also known as Acid test or Liquid ratio. It is another
ratio to test the liability of the concern. This ratio establishes a relationship
between quick assets and current liabilities. This ratio measures the ability of
the firm to pay its current liabilities. The main purpose of this ratio is to
measure the ability of the firm to pay its current liabilities. For the purpose
of calculating this ratio, stock and prepaid expenses are not taken into
account as these may not be converted into cash in a very short period. This
ratio is calculated as under:
Quick ratio = Quick Assets
Quick Liabilities
Note: - Quick Assets = Current Assets – Stock – Prepaid Expenses

Quick Liabilities = Current Liabilities – Bank overdraft
Significance: -
Quick ratio is a measure of the instant debt paying capacity of the business
enterprise. It is a measure of the extent to which liquid resources are
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immediately available to meet current obligations. A quick ratio of 1:1 is

considered good/favourable for a company.
3)Proprietary Ratio
Proprietary ratio establishes a relationship between shareholders’
funds to total assets. It measures the proportion of assets financed by equity.
Proprietors fund means share capital + reserves + surplus, both of capital
and revenue nature. Loss and fictitious assets are deducted. This ratio shows
the extent to which the shareholders own the business. The difference
between this ratio and 100 represents the ratio of total liabilities to total
assets. It is computed as follows:
Proprietary Ratio = Proprietor’s funds or share holders’

funds x 100
Total assets
Significance: -
This ratio should be 65% or more than that. In other words, the
proportion of shareholders’ funds to total funds should be 65% or more.
Proprietary Ratio highlights the general financial position of the
enterprise. This ratio is of great importance to the creditors to ascertain the
proportion of shareholders’ funds in the total assets employed in the firm.
4) Stock Working Capital Ratio:

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
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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.
Stock working capital ratio = Stock X 100

Working Capital
Significance: -
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.
5) Stock turnover ratio

Stock turnover ratio is a ratio between cost of goods sold and the average
stock or inventory. Every firm has to maintain a certain level of inventory of
finished goods. But the level of inventory should neither be too high nor too
low. It evaluates the efficiency with which a firm is able to manage its
inventory. This ratio establishes relationship between cost of goods sold and
average stock.
Inventory Turnover Ratio = Cost of goods sold
Average Inventory
Cost of goods sold = Sales – Gross Profit
Average Inventory = Opening stock + Closing Stock
2
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Significance: -
It indicates the speed with which inventory is converted into sales. A
higher ratio indicated that stock is selling quickly. Low stock turnover ratio
indicates that stock is not selling quickly and remaining idle resulting in
increased storage cost and blocking of funds. High turnover is good but it
must be carefully interpreted as it may be due to buying in small lots or
selling quickly at low margin to realize cash. Thus, a firm should have
neither a very high nor a vet low stock turnover ratio.
6) Capital Gearing Ratio: -
This ratio establishes a relationship between equity capital (including

all reserves and undistributed profits) and fixed cost bearing capital.
Gearing means the process of increasing the equity shareholders return
through the use of debt. Equity shareholders earn more when the rate of the
return on total capital is more than the rate of interest on debts. This is also
known as leverage or trading on equity. The Capital-gearing ratio shows the
relationship between two types of capital viz: - equity capital & preference
capital & long-term borrowings. It is expressed as a pure ratio.
Capital gearing ratio = Preference capital+ Loan Funds

Equity capital & reserve &
surplus
Significance: -
If the amount of fixed cost bearing capital is more than the equity
share capital including reserves an undistributed profits), it will be called
high capital gearing and if it is less, it will be called low capital gearing.
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The high gearing will be beneficial to equity shareholders when the

rate of interest/dividend payable on fixed cost bearing capital is lower than
the rate of return on investment in business. Thus, the main objective of
using fixed cost bearing capital is to maximize the profits available to equity
shareholders.
7) Debt Equity ratio:

This ratio reflects the relative claims of creditors and shareholders
against the assets of the firm, debt equity ratios establishment relationship
between borrowed funds and owner capital to measure the long-term
financial solvency of the firm. The ratio indicates the relative proportions of
debt and equity in financing the assets of the firm. It is calculated as
Debt-Equity ratio = Long-term Debt’s
Share holder funds
Where,
Long- term Debt = Debentures + Long – term loans
Shareholders’ Funds = Equity Share Capital + Preference Share Capital
+Reserves and Surplus– Fictitious
Assets
Long Term Loans: - These refer to long term liabilities which mature after
one year. These include Debentures, Mortgage Loan, Bank Loan, Loan from
Financial institutions and Public Deposits etc.
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Shareholder’s Funds: - These include Equity Share Capital, Preference

Share Capital, Share Premium, General Reserve, Capital Reserve, Other
Reserve and Credit Balance of Profit & Loss Account.
Significance: -
This Ratio is calculated to assess the ability of the firm to meet its
long term liabilities. Generally, debt equity ratio of 2:1is considered safe.
If the debt equity ratio is more than that, it shows a rather risky
financial position from the long-term point of view, as it indicates that more
and more funds invested in the business are provided by long-term lenders.
The lower this ratio, the better it is for long-term lenders because they
are more secure in that case. Lower than 2:1 debt equity ratio provides
sufficient protection to long-term lenders.
8) Fixed Assets to Net Worth Ratio

The Fixed Assets to Net Worth Ratio indicates the amount of a
company's capital invested in fixed assets relative to net worth. The
acceptable level of this ratio varies significantly by industry -manufacturers,
for instance, tend to have substantial investments in fixed assets; whereas
service companies generally require very few fixed assets for their
operations - as a result, industry averages provide the best guide as to
appropriate levels. If this ratio is unusually large, a company may be
overinvested in fixed assets and underinvested in other assets. Too little
investment in fixed assets, on the other hand, may limit the company's
ability to produce profits.
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Formula:
Fixed Asset to Proprietor’s Fund Ratio = Fixed Assets
Proprietor’s Funds
(i.e., Net Worth)
Significance: -
The ratio indicates the extent to which proprietor’s (Shareholder’s)
funds are sunk into fixed assets. Normally, the purchase of fixed assets
should be financed by proprietor’s funds. If this ratio is less than 100%, it
would mean that proprietor’s fund are more than fixed assets and a part of
working capital is provided by the proprietors. This will indicate the long-
term financial soundness of business.
9) Fixed Assets Turnover Ratio
This ratio establishes a relationship between net sales and net fixed assets. It
determined the efficiency with which the firm is utilizing its fixed assets. It
is computed follows: -
Fixed Assets Turnover= Net sales
Net Fixed Assets
Where,
Net Fixed Assets =Fixed Assets- Depreciation
Significance: -
This ratio reveals how efficiently the fixed assets are being utilized.
Compared with the previous year, if there is increase in this ratio, it will
indicate that there is better utilization of fixed assets. If there is a fall in this
ratio, it will show that fixed assets have not been used as efficiently, as they
had been used in the previous year. It indicates the firms’ ability to sales per
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rupee of investment in fixed assets. A high ratio indicates more efficient

utilization of fixed assets.
10) Debtors Turnover ratio

This ratio establishes a relationship between net credit sales and average
account receivables i.e. average trade debtors and bill receivables. The
objective of computing this ratio is to determine the efficiency with which
the trade debtors are managed. This ratio is also known as Ratio of Net Sales
to average receivables. It is calculated as under: -
Debtor Turnover Ratio = Net Credit Sales

Average Debtors + Average B/R
While calculating this ratio, provision for bad and doubtful debts is
not deducted from the debtors, so that it may not give a false impression that
debtors are collected quickly.
Significance: -
This ratio indicates the speed with which the amount is collected from
debtors. The higher the ratio, the better it is, since it indicates that amount
from debtors is being collected more quickly. The more quickly the debtors
pay, the less the risk from bad- debts, and so the lower the expenses of
collection and increase in the liquidity of the firm.
By comparing the debtors’ turnover ratio of the current year with the
previous year, it may be assessed whether the sales policy of the
management is efficient or not.
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11) Debt collection period

This period refers to an average period for which the credit sales remain
unpaid and measures the quality of debtors. Quality of debtors means
payment made by debtors within the permissible credit period. It indicates
the rapidity at which the money is collected from debtors. This period may
be calculated as under:
Debt collection period = 12 months / 52 weeks / 365
days
Debtors’ turnover ratio
Significance: -
Debtors’ turnover ratio is an indication of the speed with which a
company collects its debts. The higher the ratio, the better it is because it
indicates that debts are being collected quickly. In general, a high ratio
indicates the shorter collection period which implies prompt payment by
debtor and a low ratio indicates a longer collection period which implies
delayed payment for debtors
12) Creditors Turnover Ratio

It is a ratio between net credit purchases and average account payables
(i.e. creditors and Bill payables). In the course of business operations, a firm
has to make credit purchases. Thus, a supplier of goods will be interested in
finding out how much time the firm is likely to take in repaying the trade
creditors. This ratio helps in finding out the exact time a firm is likely to take
in repaying to its trade creditors. This ratio establishes a relationship
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between credit purchases and average trade creditors and bill payables and is
calculated as under: -
Creditors Turnover Ratio = Net credit Purchases

Average Creditors + Average B/P
Note: - If the amount of credit purchase is not given in the question, the
ratio may be calculated on the bases of total purchase.
Significance: -
It indicated the speed with which the creditors are paid. A higher ratio
indicates a shorter payment period. In this case, the enterprise needs to have
sufficient funds as working capital to meet its creditors. Lower ratio means
credit allowed by the supplier is for a long period or it may reflect delayed
payment to suppliers which is not a very good policy as it may affect the
reputation of the business. Thus, an enterprise should neither have a very
high nor a very low ratio.
13) Debt payment period/Creditors collection period

This shows the average period for which the credit purchases remain
outstanding or the average credit period availed of. It indicates how quickly
cash is paid to the creditors.
It is calculated as follows:
Debt collection period = 12 months/52 weeks/365 days
Debtors’ turnover
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Significance: -
The lower the ratio, the better it is, because a shorter payment period implies
that the creditors are being paid rapidly.
14) RETURN ON CAPITAL EMPLOYED:

This Ratio is considered to be very important. It indicates the
percentage of net profits before interest and tax to total capital employed. 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.
It is calculated as
ROCE Ratio = Net profit before interest and tax X 100

Capital Employed
Note: Capital Employed = Equity Capital + Preference Capital + Reserves

and Surplus + Long Term Debt- Fictitious
Assets
Significance: -
It explains the overall utilization of fund by a business. It reveals the
efficiency of the business in utilization of funds entrusted to it by,
shareholders, debenture-holders and long-term liabilities. For inter-firm
comparison, it is considered good measure of profitability.
31
15) RETURN ON EQUITY:

This ratio also known as return on shareholders ‘funds or return on
proprietors ‘funds or return on net worth, indicates the percentage of net
profit available for equity shareholders to equity shareholder’s funds and not
on total capital employed.
It is calculated as:
ROE Ratio = N.P.A.T. - Preference Dividend X 100

Equity Share Holders Fund
Significance:-
This ratio measures how efficiently the equity shareholder’s funds are
being used in the business. It is a true measure of the efficiency of the
management since it shows what the earning capacity of the equity
shareholders funds. If the ratio is high, it is better, because in such a case
equity shareholder may be given a higher dividend.
16) EARNINGS PER SHARE:

EPS measures the profit earned per share. 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. So, it is of
utmost importance to investors in order to decide the prospects.
EPS = N.P.A.T. - Preference Dividend

Number of equity shares
32
Significance: -
This ratio helpful in the determining of the market price of the equity
share of the company. The ratio is also helpful in estimating the capacity of
the company to declare dividends on equity shares.
17) DIVIDEND PAYOUT RATIO
EPS described above indicates the amount of profit available for
equity share shareholders. Dividend Payout Ratio indicates the percentage of
profit distributed as dividends to the shareholders. It measures the
relationship between the earning belonging to the equity shareholders and
the amount finally paid to them:
DPR Ratio = Dividend Per Share X 100
EPS
Significance: -
It expresses the relationship between what is available per share and
what is actually paid in the form of dividends out of available earnings. This
ratio reflects company’s’ dividend policy. A higher payout ratio may mean
lower retention or a deteriorating liquidity position
18) Profit Ratio or Gross margin
Gross profit ratio establishes relationship between Gross Profit and net
sale. It determines the efficiency with which production, purchase and
selling operations are being carried on. It is calculated as percentage of
sales. It is computed as follows:
Gross Profit Ratio = Gross Profit X 100

Net Sales
33
High ratios are favorable in this, since it indicates the business is

earning a good return on the sale of its merchandise.
Significance: -
This ratio measures the margin of profit available on sales. The higher
the gross profit ratio, the better it is. No ideal standard is fixed for this ratio,
but the gross profit ratio should be adequate enough not only to cover the
operating expenses but also to provide for depreciation, interest on loans,
dividends and creation of reserves.
19) Net Profit Ratio or Net Margin
This ratio establishes the relationship between net profit and net sale.
It indicates managements’ efficiency in manufacturing, administering and
selling the product. It calculates as a percentage of sales. It is computed as
under:
Net Profit Ratio = Net Profit After Tax X 100
Net Sales
Significance: -
This ratio measures the rate of net profit earned on sales. It helps in
determining the overall efficiency of the business operations. An increase in
the ratio over the previous year shows improvement in the overall efficiency
and profitability of the business.
34
20) OPERATING NET PROFIT RATIO:

This ratio establishes the relation between the net sales and the
operating net profit. The concept of operating net profit is different from the
concept of 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 the gross profit.
This ratio is calculated with help of the following formula.
Operating n.p. ratio = Operating Net Profit X 100

Net sales
Significance: -
Operating Ratio determine the operational efficiency of the
management. It helps in knowing the amount of profit earned from regular
business transactions on a sale of Rs. 100. It is very useful for inter firm as
well as intra firm comparisons. Higher operating ratio indicates that the firm
has got enough margins to meet its non-operating expenses well as to create
reserve and pay dividends.
35
RATIO OF ULTRATECH CEMENT LIMITED
HISTORY
Soren Kristian Toubro, a civil engineer and Henning Holck Larsen, a
chemical engineer, the founder of Larsen & Toubro (L&T) Company were
schoolmates, later attended the same engineering college in Denmark. After
becoming engineers both joined, the firm named F. L. Smidth & Company‘,
which was Cement machine manufacturing Company.
Then both came to India in 1935 to assess the value of various

cement-manufacturing groups on behalf of F. L. Smidth & Company M/S
Copenhagen. These groups later merged into the Associated Cement
Companies. After completing this task, they searched for proper places for
F.L. Smidth‘s local offices in India.
36
In the course of their work, both visited India, observed Indian people,
and decided to start their own business here. They started a partnership
concern on 1st May 1938 and started undertaking repair jobs on the
imported machinery like pasteurizes, butter Chuns, creams separators since
supply of these machines were stopped due to world war II. Gradually, they
began to develop and manufacture several of these and other types of dairy
equipment’s. Very soon, L & T was acknowledged as a reliable fabricator
with high standards.
L & T has entered in Cement business in 1980. L & T established its
first plant at Awarpur, Maharashtra in 1983. Second plant was established in
1991 at Hirmi, M.P. Third and largest plant was established in 1996 at
Kovaya, Gujarat. The fourth plant was established at Tadipatri, A.P. in 1998.
GCW‘s operations started from 2 April 1996. It became Asia‘s largest
cement producing unit with the capacity of 4.2 million-tone per annum.
PROFILE
UltraTech Cement Limited, a Grasim subsidiary has an annual
capacity of 18.2 million tones. It manufactures and markets Ordinary
Portland Cement, Portland Blast Furnace Slag Cement and Portland
Pozzolana Cement.
UltraTech has five integrated plants, five grinding units and three
terminals — two in India and one in Sri Lanka. These include an integrated
plant and two grinding units of the erstwhile Narmada Cement Company
Limited, a subsidiary, which has been amalgamated with the company in
May 2006.
UltraTech is the country's largest exporter of cement clinker. The
company exports over 2.5 million tones per annum, which is about 30 per
37
cent of the country's total exports. The export markets span countries around
the Indian Ocean, Africa, Europe and the Middle East.
The cement division of L&T was demerged in 2004 after Grasim made the
30 per cent open offer for equity shares, gaining control over the new
company, christened UltraTech. Besides the long term strategic value in the
wake of rising demand for cement, with the growth of housing and
infrastructure sectors in the country, the acquisition brings significant
synergy gains to the parent company.
Ready Mix Concrete is likely to see substantial growth in the coming
years. Recognizing the opportunities that this business will offer, UltraTech
has commenced setting up of Ready Mix Concrete plants at various places in
the country.
Ultra Tech Cement Limited (Formerly known as L & T Cement Ltd.)
is a very well known name in the field of cement. The registered office and
head office of the company is at Mumbai.
This company’s reputation is based on a strong customer orientation,
the technological sophistication that characterizes its products, and an
impressive record of achievements. Ultra Tech has initiated a transformation
process to ensure that it emerges as a knowledge-based premium
conglomerate in the shortest possible time. Each of its plants incorporated
state-of-art technology. Ultra Tech Cement has strong brand equity and
commands a price premium in most markets.
Ultra Tech is committed to a high growth trajectory that will deliver
significant value to its customer and shareholders.
Out of six cement plants of Ultra Tech, GCW at Kovaya is the largest
cement plant in Asia. There are two phases in the plant, which are almost
identical in layout and production capacity. The reason for laying such a big
38
plant near a small village like Kovaya can be justified by the fact that this
region is very rich of limestone resources, which is the chief raw material for
cement production. The estimated resources of limestone mines are enough
to supply raw material for next 40 years to GCW. Ultra Tech is India’s
largest manufacturer of premium quality cement. Ultra Tech has nationwide
network of factories, offices and sales centers. Authorized stockiest dealing
in the company’s product line, including cement, is located directly or
indirectly in every district of the country.
UltraTech's subsidiaries are: Dakshin Cements Limited and UltraTech
Ceylinco (Private) Limited
ULTRA TECH CEYLINCO (PVT.) LIMITED.
1. Ceylinco insurance company limited and UltraTech have incorporated
this subsidiary in Sri Lanka.
2. Ceylinco is one of the most respected business groups in Sri Lanka

with activities in the field of banking, insurance and finance.
3. A bulk Cement terminal has been established near Colombo with

annual output of 0.5 MT.
4. Cement in bulk is sourced from Ultra Tech’s Gujarat Cement works

and transported by carriers to Colombo.
NARMADA CEMENT COMPANY LIMITED.

The Narmada Cement Company Ltd. At Jafrabad (Gujarat) and two
grinding units at Magdalla (Gujarat) & Ratnagiri (Maharashtra) all are port-
based plants. Clinker is shipped by sea from Jafrabad to the grinding units.
39
Board of Directors
 Mr. Kumar Mangalam Birla, Chairman
 Mrs. Rajashree Birla
 Mr. R. C. Bhargava
 Mr. G. M. Dave
 Mr. Y. M. Deosthalee
 Mr. N. J. Jhaveri
 Mr. S. B. Mathur, Additional Director (Independent)
 Mr. V. T. Moorthy, Independent Director
 Mr. J. P. Nayak
 Mr. S. Rajgopal
 Mr. D. D. Rathi
 Mr. S. Misra, Managing Director
 Executive President &Chief Financial Officer : Mr. K. C. Birla
 Chief Manufacturing Officer : Mr. S. K. Maheshwari
 Chief Marketing Officer : Mr. O. P. Puranmalka
 Company Secretary : Mr. S. K. Chatterjee
40
FINANCIAL OVERVIEW OF ULTRATECH CEMENT LIMITED
UltraTech Cement
Consolidated Profit & Loss
------------------- in Rs. Cr. -------------------
account
Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 21,319.09 21,458.67 15,339.84 7,854.52 7,340.98
Excise Duty 0.00 2,267.64 1,652.96 686.31 774.92
Net Sales 21,319.09 19,191.03 13,686.88 7,168.21 6,566.06
Other Income 303.59 368.98 289.56 120.31 71.13
Stock Adjustments 115.20 -23.39 91.87 -8.44 95.05
Total Income 21,737.88 19,536.62 14,068.31 7,280.08 6,732.24
Expenditure
Raw Materials 8,877.59 3,989.62 3,333.83 1,681.34 1,449.01
Power & Fuel Cost 4,645.71 4,639.36 3,280.79 1,432.07 1,714.17
Employee Cost 1,042.69 889.35 723.15 254.11 219.95
Other Manufacturing
0.00 201.18 186.08 97.47 92.64
Expenses
Selling and Admin Expenses 0.00 3,736.63 3,581.75 1,655.60 1,397.49
Miscellaneous Expenses 2,028.97 1,596.37 94.35 50.26 39.60
Preoperative Exp Capitalised 0.00 -39.11 -10.53 -4.02 -8.38
Total Expenses 16,594.96 15,013.40 11,189.42 5,166.83 4,904.48
41
Operating Profit 4,839.33 4,154.24 2,589.33 1,992.94 1,756.63

PBDIT 5,142.92 4,523.22 2,878.89 2,113.25 1,827.76
Interest 252.34 256.42 318.29 124.11 134.19
PBDT 4,890.58 4,266.80 2,560.60 1,989.14 1,693.57
Depreciation 1,023.37 962.91 812.98 389.65 324.40
Other Written Off 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 3,867.21 3,303.89 1,747.62 1,599.49 1,369.17
Extra-ordinary items 0.00 51.52 125.52 0.00 0.00
PBT (Post Extra-Ord Items) 3,867.21 3,355.41 1,873.14 1,599.49 1,369.17
Tax 1,179.14 958.15 512.07 500.97 388.20
Reported Net Profit 2,688.07 2,397.26 1,361.07 1,096.84 979.62
Minority Interest 10.34 -6.00 -6.28 1.64 1.56
Share Of P/L of Associates 0.00 0.00 0.00 0.00 0.00
Net P/L After Minority
2,677.73 2,351.74 1,241.83 1,095.20 978.06
Interest & Share of Associates
Total Value Addition 7,717.37 11,023.78 7,855.59 3,485.49 3,455.47
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 288.70 219.25 164.42 74.69 62.24
Corporate Dividend Tax 0.00 35.57 26.67 12.41 10.58
Per share data (annualized)
Shares in issue (lakhs) 2,741.80 2,740.65 2,740.42 1,244.87 1,244.86
Earnings Per Share (Rs) 98.04 87.47 49.67 88.11 78.69
Equity Dividend (%) 0.00 0.00 0.00 0.00 0.00
Book Value (Rs) 555.46 467.93 388.33 370.93 289.96
Source: Dion Global Solutions Limited
42
Consolidated Balance Sheet ------------------- in Rs. Cr. -------------------
Mar Mar
Mar '18 Mar '17 Mar '16
'15 '14
12 12
12 mths 12 mths 12 mths
mths mths
Sources of Funds
Total Share Capital 274.18 274.07 274.04 124.49 124.49
Equity Share Capital 274.18 274.07 274.04 124.49 124.49
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Init. Contribution Settler 0.00 0.00 0.00 0.00 0.00
Preference Share Application
0.00 0.00 0.00 0.00 0.00
Money
Employee Stock Option 0.00 0.00 4.78 1.99 1.68
12,550.3 10,367.7 4,493.0 3,485.1
Reserves 14,955.41
5 8 5 6
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
12,824.4 10,646.6 4,619.5 3,611.3
Net worth 15,229.59
2 0 3 3
1,175.8
Secured Loans 2,195.49 2,060.65 2,860.99 856.74
1
Unsecured Loans 4,200.92 3,485.37 2,679.89 750.33 967.06
Total Debt 6,396.41 5,546.02 5,540.88 1,607.0 2,142.8
43
7 7
Minority Interest 78.12 62.26 65.64 7.54 6.75
Policy Holders Funds 0.00 0.00 0.00 0.00 0.00
Group Share in Joint Venture 0.00 0.00 0.00 0.00 0.00
18,432.7 16,253.1 6,234.1 5,760.9
Total Liabilities 21,704.12
0 2 4 5
Application of Funds
21,014.3 19,549.9 8,111.4 7,437.3
Gross Block 23,654.64
9 0 6 1
3,147.0 2,775.4
Less: Accum. Depreciation 8,604.90 7,699.83 6,774.08
1 0
13,314.5 12,775.8 4,964.4 4,661.9
Net Block 15,049.74
6 2 5 1
Capital Work in Progress 3,601.17 1,939.66 1,201.93 260.38 678.24
1,636.6 1,009.4
Investments 4,708.54 3,547.45 3,513.86
8 9
Inventories 2,540.67 2,197.96 2,093.51 826.98 705.55
Sundry Debtors 1,376.29 1,088.75 824.84 209.96 188.88
Cash and Bank Balance 184.79 212.90 156.76 83.95 104.62
1,120.8
Total Current Assets 4,101.75 3,499.61 3,075.11 999.05
9
Loans and Advances 2,128.62 2,600.47 1,029.79 388.69 408.86
Fixed Deposits 0.00 0.00 33.34 27.74 0.06
1,537.3 1,407.9
Total CA, Loans & Advances 6,230.37 6,100.08 4,138.24
2 7
44
Deferred Credit 0.00 0.00 0.00 0.00 0.00

2,000.5 1,874.5
Current Liabilities 6,801.75 5,638.95 4,790.74
8 0
Provisions 1,083.95 830.10 585.99 164.13 122.18
2,164.7 1,996.6
Total CL & Provisions 7,885.70 6,469.05 5,376.73
1 8
-
Net Current Assets -1,655.33 -368.97 -627.39 -588.71
1,238.49
Minority Interest 0.00 0.00 0.00 0.00 0.00
Group Share in Joint Venture 0.00 0.00 0.00 0.00 0.00
Miscellaneous Expenses 0.00 0.00 0.00 0.02 0.02
18,432.7 16,253.1 6,234.1 5,760.9
Total Assets 21,704.12
0 2 4 5
Contingent Liabilities 3,989.53 3,814.80 2,753.12 381.07 317.72

Book Value (Rs) 555.46 467.93 388.33 370.93 289.96
45
RATIO OF ULTRATECH CEMENT LIMITED

ANALYSIS & INTREPRETATION
I. Liquidity Ratio
Liquidity ratio measures the ability of the firm to meet its current
obligation (liabilities). In fact, analysis of liquidity needs the preparation of
cash budget and cash and fund flow statement but liquidity ratio, by
establishing a relationship between cash and other current asset to current
obligation, to provide a quick measure of liquidity. A firm should ensure that
it doesn’t suffer lack of liquidity and also that it does not have excess
liquidity.
The common liquidity ratios are: -
1. Current Ratio
Current ratio may be defined as the relationship between current
asset and current liabilities. This is a measure of general liquidity & is most
widely used to make analysis of short-turn financial position or liquidity of
firm. It is calculated by dividing the total current assets by total current
liabilities.
Current Ratio = Current Assets
Current Liabilities
TABLE-1 Current Ratio
Year Current Assets Current Liabilities Ratio
2013-14 1,407.97 1,996.68 0.71
2014-15 1,537.32 2,164.71 0.71

2015-16 4,138.24 5,376.73 0.77
2016-17 6,100.08 6,469.05 0.94
2017-18 6,230.37 7,885.70 0.79
46
CURRENT RATIO
1 0.94
0.9
0.77 0.79
0.8
0.71 0.71
0.7
0.6
R A T I O
0.5 Ratio
0.4
0.3
0.2
0.1
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
ANALYSIS: -
The above table shows that ULTRATECH’s current ratio has
remained same i.e. 0.71 in the year 2014 and 2015 and in the year 2016 it
was increased to 0.77 and then the year 2016 it again raises to 0.94 but again
decreased to 0.79 in 2018.
This ratio is calculated for knowing short term solvency of the
organization. This ratio indicates the solvency of the business i.e. ability to
meet the liabilities of the business as and when they fall due. The Current
Assets are the sources from which the current liabilities are to be met.
Certain authorities have suggested that in order to ensure solvency of a
concern current assets should be twice the current liabilities and therefore
this ratio is known as 2:1 ratio.
47
The current ratio determines margin of safety for creditors, there has been
decrease in the ratio during 2018 compared with 2017.
2. Quick Ratio/Acid Test Ratio

Quick ratio establishes relationship between quick or liquid assets
& current liabilities. It is also known as acid test ratio. An asset is said to be
liquid if it can be converted into case within short period of time without
loss of value. The prepaid expenses and stock were excluded.
Quick ratio = Quick asset

Quick Liabilities
.
TABLE-2 Quick Ratio
Year Quick Assets Quick Ratio
Liabilities
2013-14 702.42 1,996.68 0.35
2014-15 710.34 2,164.71 0.32

2015-16 2,044.73 5,376.73 0.38
2016-17 3,902.12 6,469.05 0.60
2017-18 3,689.70 7,885.70 0.47
48
QUICK RATIO
0.7
0.61
0.6
0.47
0.5
0.38
RATIO
0.4 0.35 Ratio

0.32
0.3
0.2
0.1
0
YEAR
2013-14 2014-15 2015-16 2016-17 2017-18
ANALYSIS
The acid-test ratio is far more forceful than the current ratio, primarily
because the current ratio includes inventory assets which might not be able
to turn to cash immediately. Companies with ratios of less than 1 cannot pay
their current liabilities and should be looked at with extreme caution.
Furthermore, if the acid-test ratio is much lower than the current ratio, it
means current assets are highly dependent on inventory.
The above table shows that the quick assets of NSL has decreased
from 0.35 to 0.32 in the year 2014 and 2015 and had increased to 0.38 and
0.61 in the year 2016 and 2017 drastically fluctuation to 0.47 in the year
2018.
This ratio measures firm’s ability to serve short term liabilities. The
ideal quick ratio is “1:1”. A low quick ratio represents that firm’s liquidity
position is not good.
49
II. Assets Turnover Ratio:

Assets are used to generate sales. Therefore, a firm should manage
its assets efficiency to maximum sales. Assets turnover ratio shows
relationship between sales & assets. The various assets turnover ratio is:
3). Fixed Assets Turnover Ratio:

This ratio measures the efficiency in the utilization of fixed assets.
This ratio indicates whether the fixed assets are being fully utilized. It is an
important measure of the efficient and profit earning capacity of the
business. It measures the efficiency of a firm in managing the more efficient
management and utilization of fixed assets while low turnover ratio are
indicatives of underutilization of available resources and presence of idle
capacity. This ratio indicates the extent to which the entrustment in fixed
assets contributes towards sales. It can be calculated by,
Fixed Asset Turn Over Ratio= Net Sales

Fixed Assets
TABLE-3. Fixed Assets Turnover Ratio

Year NET SALES FIXED ASSETS Ratio
2013-14 6,566.06 5340.15 1.23

2014-15 7,168.21 5224.79 1.37
2015-16 13,686.88 13997.75 0.98
2016-17 19,191.03 15254.22 1.26
2017-18 21,319.09 18650.91 1.14
50
Fixed Assets Turnover Ratio

1.4 1.37
1.23
1.26
1.2
1.14
1
0.98
0.8
R A T I O
0.6 Ratio
0.4
0.2
2013-14
2014-15
2015-16
2016-17
2017-18
YEAR
ANALYSIS: -
A High fixed asset turnover ratio indicates the capability of the firm to earn
maximum sales with the minimum investing in fixed assets. So, it shows that
the company is using its assets more efficiently.
The table reveals that there is increase in fixed asset turnover ratio
from 1.23 in the year 2014 to 1.37 in the year 2015 but decreased to 0.98 in
the year 2016 and increased to 1.26 in the year 2017 and again decreases to
1.14 in the year 2018.
51
One of the cautions to be kept in mind that when fixed assets are old
and substantially depreciated the ratio tenders to be high, because the
denominator of the ratio will be low.
4. CURRENT ASSETS TURN OVER RATIO:

This ratio indicates capability of the organization in efficient use of
current assets. This ratio indicates whether current assets are fully utilized. It
indicates the sales generated per rupee of investment in current assets.
This ratio is calculated as:
Current Asset Turn Over Ratio= Net Sales
Current Assets
TABLE: 4. Current Assets Turnover Ratio

Year NET SALES Current Assets Ratio
2013-14 6,566.06 1,407.97 4.66

2014-15 7,168.21 1,537.32 4.66
2015-16 13,686.88 4,138.24 3.31
2016-17 19,191.03 6,100.08 3.15
2017-18 21,319.09 6,230.37 3.42
52
4.66
C/A TURNOVER RATIO
5
4.66
4.5
3.5 3.31 3.15 3.42
3
R A T I O
Ratio
2.5
1.5
0.5
0 0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
ANALYSIS: -
In this formula current assets are balance sheet accounts that represent
the value of all assets that are reasonably expected to be converted into cash
within one year in the normal course of business. A higher current assets
turnover ratio is more desirable since it shows the better financial position of
company and better usage of these current assets.
The table reveals that the current ratio has been same in the year 2014
and 2015 drastically decrease to 3.31 in the year 2016 but again there was a
decrease to 3.15 in the year 2017 and raises to 3.42 in the year 2018.
53
It means the company is using its current assets more efficiently. The
comparison between two ratios over the same period of time also shows that
company has used its current assets better than its fixed assets.
5). Capital Employed Turnover Ratio

The capital employed turnover ratio tells us the state of the
relationship between the shareholders' investment in the business and the
sales that the management of the business has been able to generate from it.
This ratio indicates whether capital employed is turned over in the form of
sales a greater number of times. As such higher the capital turnover better
will be situation.
Capital Employed Turnover Ratio= Net Sales

Capital Employed
TABLE: 5 Capital Employed Turnover Ratio

Year NET SALES Capital Employed Ratio
2013-14 6,566.06 5,760.95 1.14

2014-15 7,168.21 6,234.14 1.15
2015-16 13,686.88 16,253.12 0.84
2016-17 19,191.03 18,432.70 1.04
2017-18 21,319.09 21,704.12 0.98
54
Capital Employed Turnover Ratio

1.4
Ratio
1.14 1.15
1.2
1.04
0.98
1
0.84
0.8
R A T I O
0.6
0.4
0.2
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
ANALYSIS: -
Capital employed can be expressed in different terms, all generally
refer to the investment required for a business to function. By "employing
capital" you are making an investment. So, capital employed indicated the
long-term funds supplied by creditors and owners of the firms. So, it can be
computed as:
Capital Employed = share capital + Long term liabilities + reserve and
surpluses
This ratio shows the efficiency of the firm with which the capital
employed is being utilized. A high ratio is a sign of capability of firm to earn
maximum sales with minimum amount of capital employed and this firm is
constantly improving its ratio from 2009 to 2010 except for 2011 it is due to
55
current economic slowdown prevailing in the country as well as in the

world. Again, it rises to 1.04 in 2012 and again decreases in 2013.
III). SOLVENCY OR GEARING RATIOS:

Gearing is concerned with the relationship between the long terms
liabilities that a business has and its capital employed. The idea is that this
relationship ought to be in balance. It is a general term describing a financial
ratio that compares some form of owner's equity (or capital) to borrowed
funds. The shareholders and lenders of long-term loans may be interested in
this ratio.
6). Debt Equity ratio:
This ratio reflects the relative claims of creditors and shareholders against
the assets of the firm, debt equity ratios establishment relationship between
borrowed funds and owner capital to measure the long-term financial
solvency of the firm. The ratio indicates the relative proportions of debt and
equity in financing the assets of the firm.
It is calculated as
Debt Equity Ratio= Loan Funds
Shareholder’s Fund
The debts sides consist of all long-term liabilities of the firm. The
shareholder’s fund is the share capital plus reserve and surpluses.
The lower the debt equity ratio the higher the degree of protection
enjoyed by the creditors.
The debt equity ratio defined by the controller of capital issue, debt is
defined as long term debt and shareholder’s fund is defined as paid up equity
capital plus preference capital plus reserves & surpluses.
56
The general norm for this ratio is 2:1.

TABLE: 6. DEBT EQUITY RATIO
Year Loan Funds Shareholder’s Ratio
fund
2013-14 2,142.87 3,611.33 0.59
2014-15 1,607.07 4,619.53 0.35
2015-16 5,540.88 10,646.60 0.52
2016-17 5,546.02 12,824.42 0.43
2017-18 6,396.41 15,229.59 0.42
DEBT EQUITY RATIO

0.59
0.52
0.6
0.43 0.42
0.35
0.4
RATIO
Ratio
0.2
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
ANALYSIS: -
In this ratio shareholders ‘fund is the share capital plus reserve and
surpluses. In case of high debt equity, it would be obvious that the
investment of creditors is more than owners. And if it is so high then it
57
brings the firm in a risky position. Or if it is too low it might indicate that the
organization has not utilized its capacity of borrowing which must be
utilized and that is because the borrowing from outsiders is a good source of
fund for business with lower returns in compare to equity. The UltraTech
Cement Ltd. is trying to lower its debt equity ratio by lowering its liabilities
and increasing its equity. So it wants to improve its position since, a
relatively lower ratio is favorable.
7). Proprietory Ratio:

It is primarily the ratio between the proprietor’s funds and total assets.
It indicates the relationship between owner’s fund and total assets. And
shows the extent to which the owners’ funds are sunk in assets or different
kinds of it. It is calculated as
Proprietory Ratio= Proprietors Funds * 100

Total Assets
TABLE: 7 PROPRIETORY RATIOS

Year Shareholder’s Total Assets * 100 %
fund
2013-14 3,611.33 7757.61 46.55
2014-15 4,619.53 8398.83 55
2015-16 10,646.60 21629.85 49.22
2016-17 12,824.42 24901.75 51.50
2017-18 15,229.59 29589.82 51.47
58
PROPRIETORY RATIOS
55
60 51.5 51.47
46.55 49.22
50
40
PERCENTAGE
30 %
20
10
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
ANALYSIS: -
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 borrowings. A high
ratio will indicate high financial strength but a very high ratio will indicate
that the firm is not using external funds adequate.
The financial year 2009-10 had good proprietary ratio as it indicates
assets are financed to the extent of 55% by the owner’s funds and the
balance is financed by the outsiders. The year 2015-16 had fall in proprietary
ratio but in the year 2016-17 the company has improved due to rise in
reserve and surplus due to appreciable profits in the last financial year.
III.Profitablility Ratios
The primary objective of a business undertaking is to earn profits.
Profit is the difference between revenue & expenses over a period of time.
Profit is output of a company & company will have no further if it fails to
59
make sufficient profit Profits are thus a useful measure of overall efficiency
of a firm.
These ratios are calculated to measure the operating efficiency of the
company. Beside management, creditors, owners are also interested in the
profitability of the company. Generally, profitability ratios are calculated
either in relation to sales or in relation to investment. The various profitable
ratios are:
8. GROSS PROFIT RATIO:
The gross profit margin ratio tells us the profit a business makes on its
cost of sales. It is a very simple idea and it tells us how much gross profit
our business is earning. Gross profit is the profit we earn before we take off
any administration costs, selling costs and so on. So, we should have a much
higher gross profit margin than net profit margin.
High ratios are favorable in this, since it indicates the business is
earning a good return on the sale of its merchandise.
Gross Profit Ratio = Gross Profit X 100

Net Sales
TABLE: 8. Gross Profit Ratio

Year Gross Profit Net Sales %
* 100
2013-14 3090.29 6,566.06 47.06
2014-15 3703.22 7,168.21 55.66
2015-16 6163.03 13,686.88 45.03
2016-17 9471.51 19,191.03 49.35
2017-18 6753.10 21,319.09 31.68
60
Gross Profit Ratio

60
55.66
50 47.06 49.35
45.03
40
30
PERCENTAGE
31.68
%
20
10
2013-14
2014-15
2015-16
YEAR 2016-17
2017-18
ANALYSIS: -
This ratio indicates the relation between production cost and sales and
the efficiency with which goods are produced or purchased. If it has a very
high gross profit ratio it may indicate that the organization is able to produce
or purchase at a relatively lower cost. Gross profit is the profit we earn
before we take off any administration costs, selling costs and so on. Here
company has achieved very good efficiency in 2015 compared to other
financial years.
9). NET PROFIT RATIO:
61
This shows the portion of sales available to owners after all expenses.
A high profit ratio is higher profitability of the firm. This ratio shows the
earning left for shareholder as percentage of Net sales.
Net Margin Ratio measures the overall efficiency of production,
Administration selling, financing, pricing and Taste Management.
Net Profit Ratio = Net Profit After Tax X 100

Net Sales
TABLE: 9. Net Profit Ratio

Year Net Profit Net Sales * 100 %
After Tax *
100
2013-14 979.62 6,566.06 14.92
2014-15 1,096.84 7,168.21 15.30
2015-16 1,361.07 13,686.88 9.44
2016-17 2,397.26 19,191.03 12.49
2017-18 2,688.07 21,319.09 12.61
62
Net Profit Ratio

18
14.92 15.3
16
14 12.49 12.61
12
9.44
10
PERCENTAGE
8 %
6
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
ANALYSIS: -
This ratio differs from the ratio of operating profits to net sales in as
much as it is calculated after adding non-operating incomes, like interest,
dividends on investments etc. to operating profits and deducting non-
operating expenses such as loss on sale of old assets, provisions for legal
damage etc. from such profits.
The ratio is widely used as a measure of over-all profitability and is
very useful to the proprietors. Reading along with the operating ratio it gives
an idea of the efficiency as well as profitability of the business to a limited
extent.
63
The company has improved its net profits from 2015-16. From the
2016-17 which is appreciable which shows considerable proportion of net
sales to the owners and shareholders after all costs, charges and expenses
including income tax, have been deducted.
10). EARNINGS PER SHARE:
EPS measures the profit earned per share. 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. So, it is of
utmost importance to investors in order to decide the prospects.
Earnings Per Share = N.P.A.T. -Preference Dividend
Number of equity shares
TABLE: 10. EARNINGS PER SHARE

Year Net Profit Number of equity IN Rs.
After Tax - shares (In Crores)
Preference
dividend (In
Crores)
2013-14 979.62 12.4486 78.69
2014-15 1,096.84 12.4487 88.11
2015-16 1,361.07 27.4042 49.67
2016-17 2,397.26 27.4065 87.47
2017-18 2,688.07 27.4180 98.04
64
EARNINGS PER SHARE

120
98.04
100 87.47
88.11
78.69
80
PERCENTAGE
60 49.67 IN…
40
20
YEAR
0
2013-14 2014-15 2015-16 2016-17 2017-18
ANALYSIS: -
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 vary from company to company due to the following different practices
by different companies regarding stock in trade, depreciation, source of
raising finance, tax-planning measures etc.
65
Earnings per share are calculated to find out overall profitability of the
company. Earnings per share represent the earning of the company whether
or not dividends are declared.
The Earning per share is 98.04 means shareholder gets Rs. for each
share of Rs. 10/-. In other words, the shareholder earned Rs. 98.04 per share.
The above analysis shows the Earning per share and Dividend per
share is increasing rapidly. It is beneficial to the shareholders and
prospective investor to invest the money in this company.
11.) DIVIDEND PAYOUT RATIO
EPS described above indicates the amount of profit available for

equity share shareholders. Dividend Payout Ratio indicates the percentage of
profit distributed as dividends to the shareholders. It measures the
relationship between the earning belonging to the equity shareholders and
the amount finally paid to them:
Dividend Payout Ratio = Dividend Per Share X 100

Earnings Per Share
66
TABLE: 11. Dividend Payout Ratio

Year Dividend Per Earnings Per %
Share*100 Share
2013-14 5.00 78.69 6.35
2014-15 6.00 88.11 6.81
2015-16 6.00 49.67 12.08
2016-17 8.00 87.47 6.86
2017-18 10.53 98.04 10.74
Dividend Payout Ratio

14
12.08
12
10.74
10
PERCENTAGE
8
6.81 6.86 %
6.35
6
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
67
12). RETURN ON CAPITAL EMPLOYED:

This Ratio is considered to be very important. It indicates the
percentage of net profits before interest and tax to total capital employed. 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.
It is calculated as: -
ROCE Ratio = Net profit before interest and tax X 100
Capital Employed
Note: Capital Employed = Equity Capital + Preference Capital + Reserves and

Surplus + Long Term Debt- Fictitious Assets.
TABLE: 12. RETURN ON CAPITAL EMPLOYED

Year Net profit Capital Employed %
before interest
and tax *100
2013-14 1503.36 5,760.95 26.10
2014-15 1723.60 6,234.14 27.65
2015-16 2065.91 ol16,253.12 12.71
2016-17 3560.31 18,432.70 19.32
2017-18 4119.55 21,704.12 18.98
68
RETURN ON CAPITAL EMPLOYED

27.65
26.1
30
25
19.32
18.98
20
12.71
15
PERCENTAGE
%
10
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
ANALYSIS: -
Return on capital employed measures the profitability of the capital
employed in the business. A high business return on capital employed
indicates better and profitable use of long-term funds of owners and
creditors. As such a high return capital employed will always be preferred.
The return on capital employed shows the relationship between profit
& investment. Its purpose is to measure the overall profitability from the
total funds made available by the owner & lenders.
The return on capital employed of Rs.18.98 indicate that net return of

Rs. 18.98 is earned on a capital employed of Rs.100. this amount of Rs.
18.98 is available to take care of interest, tax, & appropriation.
69
13). RETURN ON EQUITY:

This ratio also known as return on shareholder’s funds or return on
proprietor’s funds or return on net worth, indicates the percentage of net
profit available for equity shareholders to equity shareholder’s funds and not
on total capital employed.
ROE Ratio = N.P.A.T. - Preference Dividend X 100
Equity Share Holders Fund
TABLE: 13. RETURN ON EQUITY

Year Net Profit Equity Share %
After Tax - Holders Fund
Preference
dividend *
100
2013-14 979.62 3,611.33 27.13
2014-15 1,096.84 4,619.53 23.74
2015-16 1,361.07 10,646.60 12.78
2016-17 2,397.26 12,824.42 18.69
2017-18 2,688.07 15,229.59 17.65
70
PROPRIETORY RATIOS
30 27.13
25 23.74 %
20 18.69
17.65
PERCENTAGE
15 12.78
10
0
2013-14 2014-15 2015-16 2016-17 2017-18
YEAR
ANALYSIS: -
The ratio shows how well the firm used the resources of the owner. This
ratio is a measure of the profitableness of an enterprise. The realization of a
satisfactory net income is the major objective is being achieved.
The financial year 2015-16 had low returns on shareholders fund as
compared to next financial years. However, the management of the company
is improving in utilizing the resources of the owner in efficient way.
14). Capital Gearing Ratio: -

The ratio is a means of analysis of the capital structure. If the
proportion of preference shares and loan capital is high, or where the
proportion of ordinary share capital is low, capital is said to be highly geared
and reverse is the position in low gearing. Low gearing indicates that the
equity share capital is not paid an adequate return because the profits are
swallowed up by the high charges in the form of interest and dividends.
71
Capital gearing signifies the process of maintaining a desired and

appropriate gear ratio in an enterprise. When inflationary conditions are
expected, high gearing is to be employed and, in the period, marked by trade
depression, low gearing should be employed.
Capital gearing ratio = Preference capital+ loan

Funds
Equity capital & reserve & surplus-
fictitious Assets
TABLE: 14. Capital gearing ratio
Year Preference Equity capital & Ratio

capital+ loan reserve & surplus-
Funds fictitious Assets
2013-14 2,142.87 3,611.31 0.58
2014-15 1,607.07 4,619.51 0.34
2015-16 5,540.88 10,646.60 0.52
2016-17 5,546.02 12,824.42 0.43
2017-18 6,396.41 15,229.59 0.42
72
0.7 Capital gearing ratio

0.58
0.6 0.52
Ratio
0.5 0.43 0.42
0.34
0.4
RATIO
0.3
0.2
0.1
0 0
2013-14 2014-15 YEAR 2015-16 2016-17 2017-18
ANALYSIS: -
Gearing means the process of increasing the equity shareholders
return through the use of debt. Capital gearing ratio is a leverage ratio, which
indicates the proportion of debt & equity in the financing of assets of a
company.
For the last 2 years [i.e.2016-2017 to 2017-2018] Capital gearing ratio

is all most same which indicates, near about 0.43 of the fund covering the
secured loan position. But in the year 20013-20014 the Capital-gearing ratio
is 0.58. It means that during the year 2013-2014 Company has borrowed
more secured loans for the company’s expansion.
73
Q1. Do think ratio analysis is helpful for the company

YES NO TOTAL
60% 40% 100%
Is RatioAnalysis helpful for the company
40%
YES NO
60%
INTERPRETATION:
From the above table it can be observed that out of 100% respondents, the number of yes
respondents were 60%whereas the number of no respondents were 40%.
74
Q2. Are you aware about ratio analysis?

YES NO TOTAL
80% 20% 100%
aware about ratio analysis
YES NO
INTERPRETATION:
75
Q3. Pro forma financial statements are included in a company’s annual

financial statements?
YES NO TOTAL
50% 50% 100%
DOES PRO FORMA STATEMENT INCLUDES IN ANNUAL

FINANCIAL STATEMENTS
YES NO
50% 50%
INTERPRETATION:
76
Q4. The Proforma Income statement is the most common pro forma
statement used by companies?
YES NO TOTAL
70% 30% 100%
IS PRO FORMA INCOME STATEMENT COMMONLY

USED BY THE COMPANIES
30%
YES NO
70%
INTERPRETATION:
77
Q5. Analyzing the prior period is the main key to budgeting?

YES NO TOTAL
60% 40% 100%
ANALYZING THE PRIOR PERIOD IS THE MAIN KEY TO

BUDGETING
40% YES NO
60%
INTERPRETATION:
78
Q6. Vertical analysis focuses on relationships of items over several

periods of time
YES NO TOTAL
80% 20% 100%
DOES VERTICAL ANALYSIS FOCUSES ON

RELATIONSHIPS OF ITEMS OVER SEVERAL PERIODS
20%
YES NO
80%
INTERPRETATION:
79
Q7. Does current ratio is a profitability ratio?

YES NO TOTAL
85% 15% 100%
DOES CURRENT RATIO IS A PROFITABILITY RATIO
15%
YES NO
85%
INTERPRETATION:
80
Q8. Does ratio analysis is helpful to management in taking several

decisions, but as a mechanical substitute for judgment and thinking, it is
worse than useless?
YES NO TOTAL
90% 10% 100%
DOES RATIO ANALYSIS IS HELPFUL TO MANAGEMENT

IN TAKING SEVERAL DECISIONS
10%
YES NO
90%
INTERPRETATION:
81
Q9. What type of ratio helps to assess how effectively a company uses its assets?
A. Liquidity ratios B. Profitability ratios C. Activity ratios D. Leverage ratios
Liquidity Profitability Activity Leverage TOTAL

ratios ratios ratios ratios
5% 15% 70% 10% 100%
Type of ratio helps to assess how effectively a

company uses its assets
10% 5%
15%
70%
Liquidity ratios Profitability Activity ratios Leverage ratios

ratios
INTERPRETATION:
From the above table it can be observed that out of 100% respondents, the number of
Liquidity ratios respondents were 10%, the number of Profitability ratios respondents
were 15% ,the number of Activity ratios respondents were 70%, the number of Leverage
ratios respondents were 5% whereas the number of no respondents were 10%.
82
Q10. Do you think that the ratio analysis is useful to analysis the
financial statements?
YES NO TOTAL
95% 5% 100%
Ratio analysis is useful to analysis the financial

statements
5%
95%
YES NO
INTERPRETATION:
83
CONCLUSION
Study of ratio analysis of UltraTech Cement Limited. Reveals the

performance of the company in terms of financial aspects. It is found that
there is increase in sales gross profit during 2013 to 2014. The cash balance
is also increased for the above said years this is due to company’s revised
policy in debt collection. It is also observed that the current ratio is not so
satisfactory which creates chunks in the current assets in the form of sundry
debtors and inventory.
84

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PROJECT REPORT ON RATIO ANALYSIS

UNDER THE GUIDANCE OF

Name and Signature of Guiding Teacher

Name and Signature of the learner

Ratio analysis is a technique of analyzing the financial statement of

Ratio analysis is one of the most powerful tools of financial analysis

Comparison of a company's ratios with industry averages reveals the

Different ratios give you different information about a company. The

A ratio is simple arithmetical expression of the relationship of one

According to Accountant’s Handbook by Wixon, Kell and Bedford,

Ratio Analysis: - Ratio analysis is the process of determining and

It is helpful to know about the liquidity, solvency, capital structure

1. Pure Ratio or Simple Ratio: - It is expressed by the simple division of

3. Percentage: - In this type, the relation between two figures is expressed

OBJECTIVES OF THE STUDY:

a. To evaluate the performance of the company by using ratios as

1. To help the management in its planning and forecasting activities.

2. To evaluate operational efficiency, liquidity, and solvency of the

3. To help the management in having effective control over the activities

4. To compare the previous five years and present year performance of

5. To give suggestion and recommendation based on the study.

6. Inter – firm comparison becomes easy with the help of ratios.

1. Profit & Loss account ratios.

2.Balance sheet ratio.

II. FUNCTIONAL CLASSIFICATION OF RATIOS

i. Inventory Turnover Ratio

ii. Asset Turnover Ratio:

iii. Working Capital Turnover Ratio.

USES OF ACCOUNTING RATIOS

2. Financial Forecasting and Planning:

II) USEFULNESS TO THE OWNERS/SHAREHOLDERS:

III) USEFULNESS TO THE CREDITORS

IV) USEFULNESS TO EMPLOYEES:

V) USEFULNESS TO THE GOVERNMENT:

1) Different Accounting Policies

3. Problems of price level changes:

6) Based on historical data:

7) Impact of Government Influence: -

8) Outdated Information in Financial Statement: -

10. Absence of identical situations:

RATIO AND ITS SIGNIFICANCE

(1) CURRENT RATIO

Generally, a current ratio of 2:1 is considered satisfactory.

(2) Quick ratio

Note: - Quick Assets = Current Assets – Stock – Prepaid Expenses

immediately available to meet current obligations. A quick ratio of 1:1 is

Proprietary Ratio = Proprietor’s funds or share holders’

4) Stock Working Capital Ratio:

extent to which working capital is blocked in inventories. The ratio

Stock working capital ratio = Stock X 100

5) Stock turnover ratio

Cost of goods sold = Sales – Gross Profit

Average Inventory = Opening stock + Closing Stock

6) Capital Gearing Ratio: -

This ratio establishes a relationship between equity capital (including

Capital gearing ratio = Preference capital+ Loan Funds

The high gearing will be beneficial to equity shareholders when the

7) Debt Equity ratio:

Shareholder’s Funds: - These include Equity Share Capital, Preference