SUMMER TRAINING PROJECT REPORT

ON
“ANALYSIS OF FINANCIAL RATIOS OF
SHRIRAM PISTONS & RINGS LTD.”

Submitted to the partial fulfillment of the requirement

for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
A.P.J. ABDUL KALAM TECHNICAL UNIVERSITY, LUCKNOW
(2022-2024)

UNDER GUIDANCE OF: SUBMITTED BY:

DR. GAURAV BANSAL ANMOL KRISHNA
MBA III SEM
ROLL NO. : 2202310700015

R.D. ENGINEERING COLLEGE DUHAI GHAZIABAD

(Affiliated to AKTU and Approved by AICTE)

1
 DECLARATION

This is to declare that this research report entitled “ANALYSIS OF FINANCIAL RATIOS

OF SHRIRAM PISTONS & RINGS LTD.” is a record of genuine work done by me under

the guide of Dr. Gaurav Bansal in the partial fulfillment of the requirement

for Masters in Business Administrations of Dr. A.P.J Abdul Kalam Technical University,

Lucknow.

I further declare that this project is original and not submit to any university before.

All the references have been duly acknowledged.

DATE:
PLACE:
ANMOL KRISHNA
MBA III SEM
ROLL NO. : 2202310700015

2
 ACKNOWLEDGEMENT

No task is a single person effort, same is with this report. Thus I would like to extend my

sincere thanks to all those people who helped me in accomplishing my project.

I own my project success to all faculty members, for providing us with this wonderful

opportunity and guidance. I would like to extend my special gratitude to MR SANJAY

MAHESHWARI (Finance Manager) for providing excellent facilitation for the successful

completion of this project. This project provide me a platform to increase my knowledge and

empowered me with a better understanding of concepts in the real world scenario. And last

but not the least special thanks to “Shriram Pistons & Rings Ltd.” and my faculty guide

Dr. GAURAV BANSAL who accepted me in spite of my inexperience in the field and gave

me the opportunity to work and learn with them.

(ANMOL KRISHNA)

3
 PREFACE

The purpose of this report is to explain what I did and learned during my internship period

with Shriram Piston and Rings Ltd. The report is also a requirement for the

partial fulfillment of Masters in Business Administration internship program. The

report focuses primarily on the assignments handled, working environment, successes

and shortcomings that the intern did encounter when handling various tasks

assigned to by the supervisor. Because the various parts of the report reflect the

intern’s shortcomings, successes, observations and comments, it would be

imperative that the recommendations are also given. Therefore the report gives a number of

comments and recommendations on the internship programme. It is hoped that this report

would serve as a cardinal vehicle to the improvement of the internship program.

In the realm of financial analysis, the exploration of a company's performance

through the lens of financial ratios serves as an invaluable tool. The ability to

dissect and comprehend the intricate fabric of financial statements, unraveling

the nuances concealed within numerical data, is an art that holds immense

significance for investors, stakeholders, and decision-makers.

4
This research project delves into the intricate examination of Shriram Pistons &

Rings Ltd., a company distinguished for its contributions to the automotive

industry. By scrutinizing its financial ratios, this study aims to uncover insights

into the company's financial health, operational efficiency, and overall

performance.

The chosen focus on Shriram Pistons & Rings Ltd. stands as a representative

case study, intending to offer a deeper understanding of the intricate web of

financial indicators, and how they portray the company's trajectory over a

defined period.

This preface introduces the groundwork laid out for an extensive evaluation of

Shriram Pistons & Rings Ltd., utilizing a spectrum of financial ratios. It is our

intent to provide a comprehensive view of the company’s financial standing,

acknowledging the limitations and complexities that accompany such an

analysis.

The success of this research project is indebted to the guidance, support, and

contributions of various individuals and resources. I extend my gratitude to

those whose expertise and assistance have been pivotal in shaping this

endeavor.

5
Moreover, it is important to acknowledge the inherent limitations within this

study, as it remains a snapshot within a dynamic and ever-evolving business

environment.

It is my aspiration that this research project contributes to the broader

understanding of financial analysis and its implications for companies like

Shriram Pistons & Rings Ltd., ultimately serving as a valuable resource for

stakeholders, researchers, and enthusiasts keen on comprehending the

intricacies of financial ratios in corporate performance assessment.

6
 TABLE OF CONTENTS

1. EXECUTIVE SUMMARY 8-9

2. INTRODUCTION 10-12

3. COMPANY PROFILE 13-30

4. RATIO ANALYSIS 31-71

5. OBJECTIVE 72-73

6. RESEARCH METHODOLOGY 74-76

7. DATA ANALYSIS & FINDINGS 77-99

8. CONCLUSION 100-101

9. BIBLIOGRAPHY 102

7
“EXECUTIVE SUMMARY”

8
 EXECUTIVE SUMMARY

The management had to depend upon certain relevant information for taking various strategic

decisions. The information is made by its analysis and interpretation.

This analysis has been done to identify the financial strengths and weaknesses of the firm.

The project concerns with the study of ratio analysis performed in the company and also

various tools to find out different ratios. The research methodology followed to understand

the information collected through secondary sources during the project. The information was

utilized for calculating performance evaluation and based on that, interpretations were made.

Data collected was secondly in nature. During the study it was found that:

What are the various modes of payments, What is the procedure for making payment to

parties, What are various check points both in case of passing of bills to the parties and also

during making payment to the parties.

By adopting various calculation and analysis and then making interpretation with the solution

of specific problem efforts has been taken in giving appropriate suggestion to the company,

which are mainly related to

The project describes the above points in detail.

9
“INTRODUCTION”

10
 INTRODUCTION

Shriram Pistons & Rings Ltd. (SPRL) is a part of Shriram group, one of India’s largest and

most reputed industrial houses. At SPR, we believe in dreams and determination to achieve

them. The company attributes its success to belief in its philosophy. From a modest beginning

in 1972, as a factory in Ghaziabad (U.P.), the organization has evolved into a center of

excellence, employing over 2500 employees and achieving an annual turnover of approx. $65

millions. The company has emerged as one of the country’s largest integrated manufacturers of

pistons, piston pins, piston rings & engine valves. The company’s products are marketed under

the brand name USHA and SPR.

The company’s partners reflect is commitment to protect quality and performance. SPR has

technical collaborations with Kolbenschmidt of Germany for pistons, Riken Corporation of

Japan for rings and Fuzi Oozx of Japan for engine valves. The

company also has technical collaboration with Honda foundry of Japan for manufacturing

pistons for all joint ventures in India.

SPR products are exported to over 40 countries across the world. SPR products form an

integral part of portfolio to many leading OEMs in India as well as abroad. Multinational giants

like Cummins, Honda, Suzuki and Yamaha with their Indian collaborators Tata, Shriram

Honda and Maruti, prefer USHA product for heir vehicles and gensets. As do Ashok Leyland,

11
Mahindra, HMT, Eicher, Kirloskar, Bajaj, LML, Kinetic, Sundaram Clayton and international

tractors, and others.

The company has shown growth in exports by 400% in last 4 years. The government of India

had awarded SPR once again Export house status. SPR has won an ACMA (Automotive

Component Manufacturers association of India) award for 2000-01 for “Excellence in

Exports”.

12
 COMPANY PROFILE

HISTORY

Shriram Pistons & Rings Ltd. was registered under companies act on 9th of

December,1963 as Shama Pistons & Rings Ltd.

On 25th of October, 1972 it was took over by Shriram Pistons & Rings Ltd.

and after that it is continuously working. About 15 godowns of Shriram Pistons & Rings Ltd.

are situated in India.

India

Shriram Pistons & Rings Ltd. (SPRL) is one of the largest and most

sophisticated manufacturers of Precision Automobile Components i.e. Pistons, Piston Rings,

Piston Pins and Engine Valves in India. The products are sold under brand name

‘USHA/SPR’ in the markets.

The plant has been recognized as one of the most modern and sophisticated

plants in North India in the field of Automobile.

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 PRODUCTION CAPACITY

The production capacity of plant is as under:

Pistons : 13 million per year

Pin : 11 million per year

Rings : 60 million per year

Engine Valves : 21 million per year

14
 COMPANY’S COLLABORATION

i. M/S. Kolbenschmidt, Germany to produce Pistons

ii. M/S. Riken Corporation, Japan for Piston Rings

iii. M/S. Fuji Oozx, Japan for the manufacture of Engine Valves

iv. M/S. Honda Foundry, Japan for Technical support

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 EXCLUSIVE SUPPLIER

 M/S. HERO HONDA,

 KINETIC HONDA AND

 SHRIRAM HONDA

The company supplies its products to several Original Equipment Manufacturers

(OEMs) including Defense Vehicle Factories, Ashok Leyland, Tata Cummins, Maruti

Suzuki, Mahindra, Eicher Tractors, DTL (Swaraj), Kirloskor Oil Engines, Bajaj Auto Honda

Cars, Sundram Claylon, Honda Scoter, International Tractors, Standard Combiner in addition

to all the Honda Joint Ventures in India.

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 COMPANY’S TPM POLICY

“Zero failure, Zero Defect & Zero Accident through introduction of TPM and

Participation of all Employees.”

“Maximum Profit through development of over all Equipment Efficiency, Reduction in

cost & Increase in Customer Satisfaction.”

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 THEORY OF TPM

Sichi Nakagima in 1979 first invented TPM or Total Productivity

Management.

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 MEANING OF TPM
AS CONSISTING THREE WORDS -

 T: Total

 To earn completely invested money from everything, every machine and use it at

its full capacity.

 Total maintenance systems i.e. maintain every machine; modernize it time to time

from break down.

 Total support of every working person i.e. from top level to worker level.

 P: Productivity

 Zero Defect

 Completing of operation without trouble.

 Completely Safe

 M: Maintenance

 Long-term maintenance cycle i.e. maintenance free machines.

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 STEPS OF TPM

1. Initial clearing

2. Counter measure for contamination sources

3. Tentative standards

4. General inspection

5. Autonomous inspection

6. Standardization

7. Autonomous management

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 ‘5-S’ PLAN

5-S is the step to improve the work standard in a company. It is very useful for growth of the

company. The growth is mainly dependent upon the improvement of the work standard.

5-S is the group of five improvement steps:

1. SEIRI (SORT): In this, the useful and non-useful work pieces are

differentiated.

2. SEITON (SET IN ORDER): the work pieces are arranged in sequence and

labeled.

3. SEISO (SHINE): Cleaning of the factory is the main motive.

4. SEIKETSU (STANDARDISE): Development of a standardized scale for

sorting, set in order and shine.

5. SHITSUKE (SUSTAIN): The different points of 5-S are followed.

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 ADVANTAGES

1. More production

2. Less rejection

3. Production on time

4. Work safety

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 COMPANY’S QUALITY POLICY

“Total Customer satisfaction through Quality Management and

Continuous Improvement.”

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 QUALITY OBJECTIVES

1. Organization which is sensitive and interactive to the needs of customer.

2. Continuous upgrading of quality and process to meet changing needs of customer.

3. Optimization of return on investment by:

 Continuous improvement

 Technology development

 Organizational and Personnel development

 Cost reduction efforts

 Effective use of all resources

 Harmonious and safe working conditions

4. Work to international norms of Quality and Management.

The company has successfully practiced the best work ethics and technology along

with the TPM & Kaizen approach and harmony through teamwork.

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 FEATURES OF SPR FACTORY

 Total area covered by the factory is 27 acres...

 The factory is divided into four units for Pistons, Rings, Pins and Engine Valves.

 The Turnover/Sales for the year 2008-2009 is Rs. 774 Cr...

 Total strength of the company is 4780 nos. consisting of Officers, Staff and workers.

 Classification of the premises:

P.T.E- Production Technology and Engineering

C.A.A- Commercial Administration and Accounts

R & D- Research and Development

 The company is exporting to more than 35 countries.

 The gross profit for the FY 2009-2010 is Rs. 157 crores.

 Exports have raised upto Rs. 132 Cr. the year 2008-2009.

 Over 10% of the production is exported to sophisticated markets such as Europe, UK,

Egypt, Iran, USA, Latin America etc.

 SPR is the largest exporter of pistons from India and has been recognized as an ‘export

house’ by the government of India.

 SPR has been investing 30% of its retained earnings in quality upgradation and

modernization every year.

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 ACHIEVEMENTS OF SPRL

 SPR received the ISO-9001 certificate from RWTUV, Germany in 1994. Technology

from the collaborators was supplemented with In-house efforts and by implementing

world-class practices.

 The company received QS-9000 certificate from TUV, Germany in the year 1999.

 The company received ISO-14001 certificate in the year 2001.

 SPRL received the Best Vendor Awards from Maruti Suzuki for 4 consecutive times,

Best Supplier performance Awards from Tata Cummins Ltd for 3 consecutive years.

 Excellence in Export by Government of India.

 Excellence in Production by ACMA.

 Excellence in Quality by Honda Scooter and Motors Limited, Honda Siel and ACMA.

 Gold award for cost by Honda Sale.

 TMP initiative has started in SPR since year 2000.

 SPR received the TS-16949 certificate in the year 2003.

 The company received OHSAS-18001 certificate in the year 2003.

 Best foundry awards from Institute of Indian Foundry men in the year 2003.

 Green rating award by CII, U.P. Pollution Board & World Bank in 2004.

 The company received TPM Excellence award in year 2004.

 The company received TPM special award in March-2008.

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 ENVIRONMENTAL POLICY

Continual improvement in “environmental performance” through prevention,

monitoring and controlling of pollution and improving environmental

benchmarks for sustainable growth of company operations.

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 KEY ENVIRONMENTAL OBJECTIVES

 Conservation of input resources, particularly energy, coolant, oils and water.

 adoption of good operating practices, with the participation of all employees,

through:

 use of environment friendly technologies/ processess.

 control and reduction of noise pollution.

 reduction, re-use and re-cycling of sold and liquid wastes.

 environmentally safe disposal of unavoidable wastes.

 increase environmental awareness among employees, suppliers, contractors and

other business associates.

 comply with all applicable environmental laws and regulations.

 be a good corporate citizen and exercise due concern for health and safety of

employees and members of society.

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 COMPANY’S

“VISION”

SATISFIED AND MOTIVATED WORKFORCE

“MISSION”

1. Organizing welfare activity for the employees.

2. Cordial Human Relations.

3. Prompt & on time information to the employees.

4. Healthy working environment.

5. Zero production loss due to non-availability of men power.

6. Men power rationalization.

7. Elimination of non-value added activities.

8. Quick redressal of employees’ grievances.

9. Administrative support to the employees.

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 ACCOUNTS DEPARTMENT’S

“VISION”

CONTINUAL IMPROVEMENT FOR CUSTOMER DELIGHT

“MISSION”

 Providing timely, accurate information to Production & Service Department.

 On time Payments to:

 Employees’

 Suppliers

 Reduction in lead time through:

 Automation

 Simplification of Procedures

 Elimination of non value added activities

 Reduction in Administrative Expenses.

 Employee Development.

 100% Statutory compliance of:

 Government Regulations

 Company’s System & Procedures

30
 “RATIO
ANALYSIS”

31
FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths and weaknesses of the

firm and establishing relationship between the items of the balance sheet and profit & loss

account .Financial ratio analysis is the calculation and comparison of ratios, which are

derived from the information in a company’s financial statements.

The level and historical trends of these ratios can be used to make inferences about a

company’s financial condition, its operations and attractiveness as an investment.

The information in the statements is used by

•Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity position of the

company.

•Investors, to know about the present and future profitability of the company and its financial

structure.

•Management, in every aspect of the financial analysis. It is the responsibility of the

management to maintain sound financial condition in the company.

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RATIO ANALYSIS

The term “Ratio” refers to the numerical and quantitative relationship between two items or

variables. These relationships can be exposed as

•Percentages

•Fractions

Proportion of numbers Ratio analysis is defined as the systematic use of the ratio to interpret

the financial statements. So that the strengths and weaknesses of a firm, as well as its

historical performance and current financial condition can be determined. Ratio reflects a

quantitative relationship helps to form a quantitative judgment.

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STEPS IN RATIO ANALYSIS

•The first task of the financial analysis is to select the information relevant to the decision

under consideration from the statements and calculates appropriate ratios.

•To compare the calculated ratios with the ratios of the same firm relating to the pas6t or

with the industry ratios. It facilitates in assessing success or failure of the firm.

•Third step is to interpretation, drawing of inferences and report writing conclusions are

drawn after comparison in the shape of report or recommended courses of action.

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BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables. They enable analyst to

draw conclusions regarding financial operations. They use of ratios as a tool of financial

analysis involves the comparison with related facts. This is the basis of ratio analysis. The

basis of ratio analysis is of four types.

•Past ratios, calculated from past financial statements of the firm.

•Competitor’s ratio, of the some most progressive and successful competitor firm at the same

point of time.

•Industry ratio, the industry ratios to which the firm belongs to

•Projected ratios, ratios of the future developed from the projected or pro forma financial

statements

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NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the

process of establishing and interpreting various ratios for helping in making certain decisions.

It is only a means of understanding of financial strengths and weaknesses of a firm. There

are a number of ratios which can be calculated from the information given in the financial

statements, but the analyst has to select the appropriate data and calculate only a few

appropriate ratios. The following are the four steps involved in the ratio analysis.

•Selection of relevant data from the financial statements depending upon the objective of the

analysis.

•Calculation of appropriate ratios from the above data.

•Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios

developed from projected financial statements or the ratios of some other firms or the

comparison with ratios of the industry to which the firm belongs.

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INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent limitations of ratio analysis

should be kept in mind while interpreting them. The impact of factors such as price level

changes, change in accounting policies, window dressing etc., should also be kept in mind

when attempting to interpret ratios. The interpretation of ratios can be made in the following

ways.

•Single absolute ratio

•Group of ratios

•Historical comparison

•Projected ratios

•Inter-firm comparison

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GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be a difficult task but their use is not easy. Following

guidelines or factors may be kept in mind while interpreting various ratios are

•Accuracy of financial statements

•Objective or purpose of analysis

•Selection of ratios

•Use of standards

•Caliber of the analysis

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IMPORTANCE OF RATIO ANALYSIS

•Aid to measure general efficiency

•Aid to measure financial solvency

•Aid in forecasting and planning

•Facilitate decision making

•Aid in corrective action

•Aid in intra-firm comparison

•Act as a good communication

•Evaluation of efficiency

•Effective tool

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LIMITATIONS OF RATIO ANALYSIS

•Differences in definitions

•Limitations of accounting records

•Lack of proper standards

•No allowances for price level changes

•Changes in accounting procedures

•Quantitative factors are ignored

•Limited use of single ratio

•Background is over looked

•Limited use

•Personal bias

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CLASSIFICATIONS OF RATIOS

The use of ratio analysis is not confined to financial manager only. There are different parties

interested in the ratio analysis for knowing the financial position of a firm for different

purposes. Various accounting ratios can be classified as follows:

1. Traditional Classification 2.Functional Classification 3.Significance ratios

1. Traditional Classification

It includes the following.

•Balance sheet (or) position statement 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.

•Profit & loss account (or) revenue statement ratios: These ratios deal with the relationship

between two profit & loss account items, e.g. the ratio of gross profit to sales etc.

•Composite (or) inter statement ratios: 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.

41
2. Functional Classification

These include liquidity ratios, long term solvency and leverage ratios, activity ratios and

profitability ratios.

3. Significance ratios

Some ratios are important than others and the firm may classify them as primary and

secondary ratios. The primary ratio is one, which is of the prime importance to a concern.

The other ratios that support the primary ratio are called secondary ratios.

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IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE

1. Liquidity ratio 2.Leverage ratio 3.Activity ratio 4.Profitability ratio

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current obligations as & when there

becomes due. The short term obligations of a firm can be met only when there are sufficient

liquid assets. The short term obligations are met by realizing amounts from current, floating

(or)circulating assets The current assets should either be calculated liquid (or)near liquidity.

They should be convertible into cash for paying obligations of short term nature. The

sufficiency (or) insufficiency of current assets

should be assessed by comparing them with short-term current liabilities. If current assets can

pay off current liabilities, then liquidity position will be satisfactory .To measure the liquidity

of a firm the following ratios can be calculated

•Current ratio

•Quick (or) Acid-test (or) Liquid ratio

•Absolute liquid ratio (or) Cash position ratio

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(a) CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current liabilities.

This ratio also known as Working capital ratio is a measure of general liquidity and is most

widely used to make the analysis of a short-term financial position (or) liquidity of a firm.

Current ratio =Current assets / Current liabilities

44
(b) QUICK RATIO

Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the ability

of a firm to pay its short-term obligations as &when they become due. Quick ratio may be

defined as the relationship between quick or liquid assets and current liabilities. An asset is

said to be liquid if it is converted into cash within a short period without loss of value.

Quick Ratio=Quick or liquid assets/Current Liabilities

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(c) ABSOLUTE LIQUID RATIO

Although receivable, debtors and bills receivable are generally more liquid than inventories,

yet there may be doubts regarding their realization into cash immediately or in time. Hence,

absolute liquid ratio should also be calculated together with current ratio and quick ratio so as

to exclude even receivables from the current assets and find out the absolute liquid assets.

Absolute liquid ratio=absolute liquid assets/current liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50%

(or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay

Rs.2 worth current liabilities in time as all the creditors are nor accepted to demand cash at

the same time and then cash may also be realized from debtors and inventories.

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2. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to meet its long term

obligations. Accordingly, long term solvency ratios indicate firm’s ability to meet the fixed

interest and costs and repayment schedules associated with its long term borrowings .The

following ratio serves the purpose of determining the solvency of the concern.

•Proprietory ratio

(a) PROPRIETORY RATIO

A variant to the debt-equity ratio is the proprietory ratio which is also known as equity ratio.

This ratio establishes relationship between share holders funds to total assets of the firm.

Proprietory ratio = shareholders fund/total assets

47
3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn profits. The

efficiency with which assets are managed directly effect the volume of sales. Activity ratios

measure the efficiency (or)effectiveness with which a firm manages its resources (or) assets.

Theseratios are also called “Turn over ratios” because they indicate the speed withwhich

assets are converted or turned over into sales.

•Working capital turnover ratio

•Fixed assets turnover ratio

•Capital turnover ratio

•Current assets to fixed assets ratio

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(a) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales.

Working capital = Current assets - Current liabilities

It indicates the velocity of the utilization of net working capital. This indicates the no. of

times the working capital is turned over in the course of a year. A higher ratio indicates

efficient utilization of working capital and a lower ratio indicates inefficient

utilization .Working capital turnover ratio=cost of goods sold/working capital.

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(b) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit

earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed

assets. Lower ratio means under-utilization of fixed assets.

Fixed asset turnover ratio= cost of sales/net fixed assets.

Cost of sales =income from services

Net fixed assets= fixed assets-depreciation

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(c) CAPITAL TURNOVER RATIOS

Sometimes the efficiency and effectiveness of the operations are judged by comparing the

cost of sales or sales with amount of capital invested in the business and not with assets held

in the business, though in both cases the same result is expected. Capital invested in the

business may be classified as long-term and short-term capital or as fixed capital and working

capital or Owned Capital and Loaned Capital. All Capital Turnovers are calculated to study

the uses of various types of capital.

Capital turnover ratio=cost of goods sold/capital employed

Capital of goods sold=income from services

Capital employed=capital+ reserves & surplus

51
(d) CURRENT ASSETS TO FIXED ASSETS RATIO

This ratio differs from industry to industry. The increase in the ratio means that trading is

slack or mechanization has been used. A decline in the ratio means that debtors and stocks

are increased too much or fixed assets are more intensively used. If current assets increase

with the corresponding increase in profit, it will show that the business is expanding.

Current assets to fixed assets ratio=current assets /fixed assets

52
4. PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits. Because profit is the

engine, that drives the business enterprise.

•Net profit ratio

•Return on total assets

•Reserves and surplus to capital ratio

•Earnings per share

•Operating profit ratio

•Price – earning ratio

•Return on investments

53
(a) NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit(after tax) and sales and indicates

the efficiency of the management in manufacturing, selling administrative and other activities

of the firm.

Net profit ratio=Net profit after tax/Net sales

Net Profit after Tax = Net Profit (–) Depreciation (–) Interest (–) Income Tax

Net Sales = Income from Services

It also indicates the firm’s capacity to face adverse economic conditions such as price

competitors, low demand etc. Obviously higher the ratio, the better is the profitability.

(b) RETURN ON TOTAL ASSETS

Profitability can be measured in terms of relationship between net profit and assets. This ratio

is also known as profit-to-assets ratio. It measures the profitability of investments. The

overall profitability can be known.

Return on assets=Net profit/total assets

Net profit=earnings before interest and tax

Total assets=fixed assets + Current assets

54
(c) RESERVES AND SURPLUS TO CAPITAL RATIO

It reveals the policy pursued by the company with regard to growth shares. A very high ratio

indicates a conservative dividend policy and increased ploughing back to profit. Higher the

ratio better will be the position.

Reserve & surplus to capital=reserves & surplus/capital

(d) EARNINGS PER SHARE

Earnings per share is a small verification of return of equity and is calculated by dividing the

net profits earned by the company and those profits after taxes and preference dividend by

total no. of equity shares.

Earnings per share =Net profit after tax/Number of Equity shares

The Earnings per share is a good measure of profitability when compared with EPS of similar

other components (or) companies, it gives a view of the comparative earnings of a firm.

55
(e) OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold and other operating

expenses on the one hand and the sales on the other.

Operation ratio =operating cost/Net sales

However 75 to 85% may be considered to be a good ratio in case of a manufacturing under

taking. Operating profit ratio is calculated by dividing operating profit by sales.

Operating profit=net profit –operating cost

Operating profit ratio=operating cost/sales

(f) PRICE - EARNING RATIO

Price earning ratio is the ratio between market price per equity share and earnings per share.

The ratio is calculated to make an estimate of appreciation in the value of a share of a

company and is widely used by investors to decide whether (or) not to buy shares in a

particular company. Generally, higher the price-earning ratio, the better it is. If the price

earning ratio falls, the management should look into the causes that have resulted into the fall

of the ratio.

Price-earning ratio=market price share/earning per share

Market price per share=capital + reserves &surplus/number of equity shares

Earning per share=Earning before intrest & tax/number of equity shares

56
(g) RETURN ON INVESTMENTS

Return on share holder’s investment, popularly known asReturn on investments (or) return on

share holders or proprietor’s funds is the relationship between net profit (after interest and

tax) and the proprietor’s funds.

Return on share holder’s investment=net profit (after intrest and tax)/shareholder’s

fund.

The ratio is generally calculated as percentages by multiplying the above with 100.

57
 ACCOUNTING POLICIES
YEAR END: MARCH 2011

1. SYSTEM OF ACCOUNTING -

The financial statements are prepared under the historical cost

convention, on an accrual basis and in accordance with the generally

accepted accounting principles in India, the applicable mandatory

Accounting Standards as notified by the Companies (Accounting

Standard) Rules, 2006 read with the relevant provisions of the

Companies Act, 1956 of India.

2. REVENUE RECOGNITION –

Sales are recognised when goods are handed over to customers,

carting agents/transporters. Sales are inclusive of excise duty and net

of discounts.Other revenues are recognised on accrual basis, except

whenever there are uncertainties in the determination/ realisation of

an income, the same is not accounted for.

58
3. FIXED ASSETS -

Fixed Assets are stated at their original cost (net of cenvat availed)

including taxes and other incidental expenses related to acquisition/

installation including interest on loan taken for the acquisition of

qualifying assets upto the date of commissioning of assets. Wherever

assets are revalued, cost is adjusted by the amount added on

revaluation based on Govt. approved valuers report and disclosed

separately as required under the Companies Act, 1956.

59
4. DEPRECIATION -

Depreciation is provided on Fixed Assets over their estimated useful

lives or lives based on the rates specified in Schedule XIV to the

Companies Act, 1956, whichever is lower, on the following basis :

i) Furniture, Fixtures, Computers and Office Equipments -

W.D.V. Method

ii) Other Assets - Straight Line Method

Lease money paid for leasehold land is amortised over the lease

period.

Where assets are revalued, depreciation is charged on the revalued

amount based on remaining useful life of the asset specified by the

valuer provided depreciation on such block of assets is not lower than

depreciation chargeable on historical cost as per the Companies Act,

1956. Additional depreciation on such revalued assets is charged to

revaluation reserve when WDV as per historical cost basis exceeds

the WDV of such revalued block of assets.

60
Where there is a revision of the estimated useful life of asset, the

unamortised depreciable amount is charged over the revised

remaining useful life.

Depreciation on assets acquired/sold/discarded during the year is

charged on pro-rata basis except for furniture, fixtures, Equipments

and Computer where full years depreciation is computed in the year

of acquisition and no depreciation is provided in the year of sale.

Assets costing upto Rs. 5,000/- is fully depreciated in the year of

acquisition.

5. INVESTMENTS -

Long term investments are stated at cost. Any diminution in the value

of Long term Investments, other than temporary, is provided for in the

books of account. Current investments are stated at lower of the cost

or fair value.

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6. INVENTORIES -

Inventories are valued on the following basis :

i) Raw materials, loose tools, stores and spares - at lower of cost

determined on weighted average basis or net realisable value. ii)

Stock in process - at lower of cost or net realisable value.iii) Finished

goods stock - at lower of cost including excise duty or net realisable

value.

Cost of finished goods and stock-in-process includes cost of material,

labour and related overheads.

62
7. FOREIGN CURRENCY TRANSACTIONS -

Transactions in foreign currency are recorded on initial recognition at

the exchange rate prevailing on or closely approximating to the date

of transaction.

Monetary items denominated in foreign currency and covered by

forward exchange contracts are translated at the rate ruling on the date

of transaction as increased or decreased by the proportionate

difference between the forward rate and exchange rate on the date of

transaction, such difference having been recognized in the Profit &

Loss.Account over the life of the contract.

Other monetary items are translated at the year end rates and

exchange rate difference on such transaction either on settlement or at

translation is recognised as under:

a) In case of Short term monetary transaction, exchange rate variation

is recognised in the Profit & Loss account.

b) In case of Long term monetary transaction relating to acquisition of

a depreciable capital asset, exchange rate variation is added to or

63
deducted from the cost of the asset and in other cases, the same is

accumulated in the "Foreign Currency Monetary Item Translation

Difference Account" and amortized over the life of such item, not

exceeding to 31st March 2011.

64
8. EMPLOYEE BENEFITS -

Contribution towards Provident Fund and Superannuation fund is paid

as per the statutory provisions/company scheme. These benefits are

considered as defined contribution plan and contributions are charged

to Profit & Loss account of the year when it becomes due.

Retirement benefit in the form of Gratuity is considered as defined

benefit plan and liability is provided for on the basis of an actuarial

valuation.Company provides for the encashment of leave as per the

company scheme and employees are entitled to accumulate leave

subject to certain limits, for future encashment/availment. The

liability is provided for unutilized leave at the year end on the basis of

an actuarial valuation.

65
9. RESEARCH AND DEVELOPMENT -

Revenue expenditure on research and development, inclusive of dies

for model development, is charged as expense in the year in which

incurred. Capital expenditure is included in fixed assets.

10. LEASES -

Lease agreements executed after April 1, 2001 for taking assets on

lease are classified as either finance lease or operating lease and are

accounted for in accordance with the Accounting Standard (AS-19)

issued by the Institute of Chartered Accountants of India.

Lease rent paid for leased assets in respect of which agreements were

entered into prior to April 1, 2001 are charged to Profit & Loss

Account.

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11. INCOME TAX -

Income Tax expense comprises of current tax / fringe benefit tax

provision and the net change in the deferred tax account. Current tax

and fringe benefit tax is computed as per the provisions of the Income

Tax Act, 1961.

Deferred tax is the tax effect (computed at current rate of tax) of

timing difference between taxable income and book income for a

period that originate in one period and are capable of reversal in

future periods.

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12. EARNINGS PER SHARE -

Basic earnings per equity share is computed by dividing net profit

after tax attributable to equity shareholders by the weighted average

number of equity shares outstanding for the period.

Diluted earnings per equity share is computed using the weighted

average number of equity shares and dilutive potential equity shares

outstanding during the period.

Notes: -

1. Gross Fixed Assets are at cost, includes Revaluation Reserve.

1. Gross Profit is after all interest charges, but before

depreciation/taxes.

68
Financial Analysis for the Manufacturing Company like “Shriram Pistons

& Rings Ltd.”

It seeks to ascertain whether the proposed project will be financially viable in the sense of

being able to meet the burden of servicing debt and whether the proposed project will satisfy

the return expectations of those who provide capital. The aspects which have to be looked

into while conducting financial appraisal are:-

 Cost of Project

 Means of Financing

 Estimates of Sales and Production

 Cost of Production

 Working Capital Requirement and its Financing

 Estimates of Working Results

 Break-Even Point

 Projected Cash Flow Statements

 Projected Balance Sheets

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Economic Analysis: -

It is concerned with judging from the larger

social point of view. In such evaluation the focus is on the social costs

and benefits of a project, which may often be different from its

monetary costs and benefits. The questions sought to be answered

social cost benefits are:-

 What are the direct economic benefits and costs of the project

measured in

terms of efficient prices and not in terms of market prices?

•What would be the impact of the project on the distribution of the

income in the society ?

•What would be the contribution of the project towards the

fulfillment of certain merit wants like self-sufficiency, employment

and social order?

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 PROJECT FINANCING

As we know finance is the sap of every project and the more one pours the

more healthy the project becomes and can successfully be completed. Project

financing can be defined as the financing of a particular economic unit in which

the lender is satisfied to look initially to the cash flows and earnings of that unit

as the source of funds from which the loan will be repaid and to the assets of the

economic unit as a collateral for the loan. In Shriram Pistons & Rings Ltd.

finance needed is taken from the banks like IDBI, HDFC, Corporation Bank.

For small projects they use their own profits and reserves but for large projects

they take loan from the bank according to their working capital needs. For

taking loan from the bank the accounts department of SPR prepare a certificate,

which contains the actual cost of the project and expenses incurred by them for

starting the project, than this certificate is certified by a Chartered Accountant.

This certificate is deposited in the bank with a copy of project sanction report.

71
“OBJECTIVES
OF THE STUDY”

72
 OBJECTIVES OF THE STUDY

The objectives of the study were to find out:

1) Determining the various ratios

2) Financial Analysis of the organization on the basis of the ratios

3) Comparison of the various ratios of the past five years

4) To determine the fluctuation the financial ratios

5) To understand the liquidity, profitability and efficiency positions of the

company during the study period.

6) To study the present financial system at SPRL.

7) To determine the Profitability, Liquidity Ratios.

8) To analyze the capital structure of the company with the help of

Leverage ratio.

73
 “RESEARCH

METHODOLOGY”

74
 RESEARCH METHODOLOGY

The project was completed in the title – “Financial Ratios”. During the tenure various

procedures and techniques involved in calculation of financial ratios was taught.

The detailed analysis of the Key Financials of the company along with its subsidiary to check

whether there are any changes in the Financial Performance of the company or not.

Ratio signifies the relationship between two or more variables to draw some meaningful

information on the basis of which conclusions can be drawn and decision making can be

assisted.

The information is collected through secondary sources during the project. That information

was utilized for calculating performance evaluation and based on that, interpretations were

made.

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 Sources of secondary data:

1. Most of the calculations are made on the financial statements of the company provided

statements.

2. Referring standard texts and referred books collected some of the information regarding

theoretical aspects.

3. Method- to assess the performance of he company method of observation of the work in

finance department in followed.

76
DATA ANALYSIS &
FINDINGS

77
LIQUIDITY RATIO

1.CURRENT RATIO(Amount in Rs.)

Interpretation

As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the firm

.When compared with 2006, there is an increase in the provision for tax, because the debtors

are raised and for that the provision is created. The current liabilities majorly included of

SPRL company for consultancy additional services. The sundry debtors have increased due to

the increase to corporate taxes. In the year 2006, the cash and bank balance is reduced

because that is used for payment of dividends. In the year 2007, the loans and advances

include majorly the advances to employees and deposits to government. The loans and

advances reduced because the employees set off their claims. The other current assets include

the interest attained from the deposits. The deposits reduced due to the declaration of

dividends. So the other current assets decreased. The huge increase in sundry debtors resulted

an increase in the ratio, which is above the benchmark level of 2:1 which shows the

comfortable position of the firm.

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79
2. QUICK RATIO

Interpretation

Quick assets are those assets which can be converted into cash with in a short period of time,

say to six months. So, here the sundry debtors which are with the long period does not

include in the quick assets. Compare with 2006, the Quick ratio is increased because the

sundry debtors are increased due to the increase in the corporate tax and for that the provision

created is also increased. So, the ratio is also increased with the 2006.

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3. ABOSULTE LIQUIDITY RATIO

Interpretation

The current assets which are ready in the form of cash are considered as absolute liquid

assets. Here, the cash and bank balance and the interest on fixed assts are absolute liquid

assets. In the year 2006, the cash and bank balance is decreased due to decrease in the

deposits and the current liabilities are also reduced because of the payment of dividend. That

causes a slight increase in the current year’s ratio.

LEVERAGE RATIOS

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4. PROPRIETORY RATIO

Interpretation

The proprietary ratio establishes the relationship between shareholders funds to total assets. It

determines the long-term solvency of the firm. This ratio indicates the extent to which the

assets of the company can be lost without affecting the interest of the company. There is no

increase in the capital from the year2004. The shareholder’s funds include capital and

reserves and surplus. The reserves and surplus is increased due to the increase in balance in

profit and loss account ,which is caused by the increase of income from services. Total assets,

includes fixed and current assets. The fixed assets are reduced because of the depreciation

and there are no major increments in the fixed assets. The current assets are increased

compared with the year 2006. Total assets are also increased than precious year, which

resulted an increase in the ratio than older.

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ACTIVITY RATIOS

5. WORKING CAPITAL TURNOVER RATIOS

Interpretation

Income from services is greatly increased due to the extra invoice for Operations &

Maintenance fee and the working capital is also increased greater due to the increase in from

services because the huge increase in current assets. The income from services is raised and

the current assets are also raised together resulted in the decrease of the ratio of 2007

compared with 2006.

83
5. FIXED ASSETS TURNOVER RATIO

84
Interpretation

Fixed assets are used in the business for producing the goods to be sold. This ratio shows the

firm’s ability in generating sales from all financial resources committed to total assets. The

ratio indicates the account of one rupee investment in fixed assets.The income from services

is greaterly increased in the current year due to the increase in the Operations & Maintenance

fee due to the increase in extra invoice and the net fixed assets are reduced because of the

increased charge of depreciation. Finally, that effected a huge increase in the ratio compared

with the previous year’s ratio.

85
7. CAPITAL TURNOVER RATIO

Interpretation

This is another ratio to judge the efficiency and effectiveness of the company like

profitability ratio. The income from services is greaterly increased compared with the

previous year and the total capital employed includes capital and reserves & surplus. Due to

huge increase in the net profit the capital employed is also increased along with income from

services. Both are effected in the increment of the ratio of current year.

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8. CURRENT ASSETS TO FIXED ASSETS RATIO

Interpretation

Current assets are increased due to the increase in the sundrydebtors and the net fixed assets

of the firm are decreased due to the chargeof depreciation and there is no major increment in

the fixed assets.The increment in current assets and the decrease in fixed assetsresulted an

increase in the ratio compared with the previous year

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PROFITABILITY RATIOS GENERAL PROFITABILITY RATIOS

9. NET PROFIT RATIO

Interpretation

The net profit ratio is the overall measure of the firm’s ability to turn each rupee of income

from services in net profit. If the net margin is inadequate the firm will fail to achieve return

on shareholder’s funds. High net profit ratio will help the firm service in the fall of income

from services ,rise in cost of production or declining demand. The net profit is increased

because the income from services is increased. The increment resulted a slight increase in

2007 ratio compared with the year 2006.

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10. OPERATING PROFIT

Interpretation

The operating profit ratio is used to measure the relationship between net profits and sales of

a firm. Depending on the concept, it will decide. The operating profit ratio is increased

compared with the last year. The earnings are increased due to the increase in the income

from services because of Operations & Maintenance fee. So, the ratio is increased slightly

compared with the previous year.

11. RETURN ON TOTAL ASSETS RATIO

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Interpretation

This is the ratio between net profit and total assets. The ratio indicates the return on total

assets in the form of profits.The net profit is increased in the current year because of the

increment in the income from services due to the increase in Operations &Maintenance fee.

The fixed assets are reduced due to the charge of depreciation and no major increments in

fixed assets but the current assetsare increased because of sundry debtors and that effects an

increase in theratio compared with the last year i.e. 2006.

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12. RESERVES & SURPLUS TO CAPITAL RATIO

Interpretation

The ratio is used to reveal the policy pursued by the company avery high ratio indicates a

conservative dividend policy and vice-versa.Higher the ratio better will be the position.The

reserves & surplus is decreased in the year 2006, due to the payment of dividends and in the

year 2007 the profit is increased. But thecapital is remaining constant from the year 2004. So

the increase in thereserves & surplus caused a greater increase in the current year’s ratio

compared with the older.

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OVERALL PROFITABILITY RATIOS

13. EARNINGS PER SHARE

Interpretation

Earnings per share ratio are used to find out the return that theshareholder’s earn from their

shares. After charging depreciation and after payment of tax, the remaining amount will be

distributed by all theshareholders.Net profit after tax is increased due to the huge increase in

theincome from services. That is the amount which is available to theshareholders to take.

There are 1,871,928 shares of Rs.10/- each. The sharecapital is constant from the year 2004.

Due to the huge increase in net profitthe earnings per share is greaterly increased in 2007.

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14. PRICE EARNINGS (P/E) RATIO

Interpretation

The ratio is calculated to make an estimate of application in thevalue of share of a

company.The market price per share is increased due to the increase inthe reserves & surplus.

The earnings per share are also increased greaterlycompared with the last year because of

increase in the net profit. So, theratio is decreased compared with the previous year.

15. RETURN ON INVESTMENT

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Interpretation

This is the ratio between net profits and shareholders funds. The ratio is generally calculated

as percentage multiplying with 100.The net profit is increased due to the increase in the

incomefrom services ant the shareholders funds are increased because of reserve &surplus.

So, the ratio is increased in the current year

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 FINDINGS OF THE STUDY

1. The current ratio has shown in a fluctuating trend as 7.41, 2.19, 4.48, 1.98, and 3.82 during

2011 of which indicates a continuous increase in both current assets and current liabilities.

2. The quick ratio is also in a fluctuating trend throughout the period 2007-11 resulting as

7.41,1.65, 4.35, 1.9, and 3.81. The company’s present liquidity position is satisfactory.

3. The absolute liquid ratio has been decreased from 3.92 to 1.18, from 2007 – 11.

4. The proprietory ratio has shown a fluctuating trend. The proprietory ratio is increased

compared with the last year. So, the long term solvency of the firm is increased.

5. The working capital increased from 0.72 to 1.13 in the year 2007-11.

6. The fixed assets turnover ratio is in increasing trend from the year 2007 – 11 (1.26, 1.82,

4.24, 3.69,and 6.82). It indicates that the company is efficiently utilizing the fixed assets.

7. The capital turnover ratio is increased form 2009 – 11 (0.98, 1.01, and 1.04) and decreased

in 2006 to 0.98. It increased in the current year as 1.00.

8. The current assets to fixed assets ratio is increasing gradually from 2007-11 as 2.93, 3.74,

4.20,6.07 and 8.17. It shows that the current assets are increased than fixed assets.

95
9. The net profit ratio is in fluctuation manner. It increased in the current year compared with

the previous year form 0.33 to 0.42.

10. The net profit is increased greaterly in the current year. So the return on total assets ratio

is increased from 0.17 to 0.31.

11. The Reserves and Surplus to Capital ratio is increased to 4.19 from 2.02. The capital is

constant, but the reserves and surplus is increased in the current year.

12. The earnings per share was very high in the year 2011 i.e., 101.56. That is decreased in

the following years because number of equity shares are increased and the net profit is

decreased. In the current year the net profit is increased due to the increase in operating and

maintenance fee. So the earnings per share is increased.

13. The operating profit ratio is in fluctuating manner as 0.99, 0.51, 0.41, 0.57 and 0.69 from

2007 – 11 respectively.

14. Price Earnings ratio is reduced when compared with the last year. It is reduced from 3.09

to 2.39, because the earnings per share is increased.15.The return on investment is increased

from 0.32 to 0.42 compared with the previous year. Both the profit and share holders funds

increase cause an increase in the ratio.

96
SUGGESTIONS

97
 SUGGESTIONS

1. The current ratio of SPRL during 2011 indicates a continuous increase in both current

assets and current liabilities.

2. The quick ratio is also in a fluctuating trend throughout the period 2007-11. The

company’s present liquidity position is satisfactory.

3. The absolute liquid ratio has been decreased from 2007 – 11.

4. The proprietory ratio has shown a fluctuating trend. The proprietory ratio is increased

compared with the last year. So, the long term solvency of the firm is increased.

5. The working capital increased in the year 2007-11.

6. The fixed assets turnover ratio is in increasing trend from the year 2007 – 11. It indicates

that the company is efficiently utilizing the fixed assets.

7. The capital turnover ratio has increased from 2009 – 11 and decreased in 2006. It increased

in the current year.

8. The current assets to fixed assets ratio is increasing gradually from 2007-11. It shows that

the current assets are increased than fixed assets.

9. The net profit ratio is in fluctuation manner.

98
10. The net profit of the company increased greaterly in the current year.

11. The Reserves and Surplus to Capital ratio is increased to 4.19 from 2.02. The capital is

constant, but the reserves and surplus is increased in the current year.

12. The earnings per share was very high in the year 2011. That is decreased in the following

years because number of equity shares are increased and the net profit is decreased. In the

current year the net profit is increased due to the increase in operating and maintenance fee.

So the earnings per share is increased.

13. The operating profit ratio is in fluctuating manner.

14. Price Earnings ratio has reduced when compared with the last year. The return on

investment has increased as compared with the previous year. Both the profit and share

holders funds increase cause an increase in the ratio.

99
CONCLUSION

100
 CONCLUSION

After the analysis of Financial Statements, the company status is better, because the Net

working capital of the company is doubled from the last year’s position. The company profits

are huge in the current year; it is better to declare the dividend to shareholders. The company

is utilising the fixed assets, which majorly help to the growth of the organisation. The

company should maintain that perfectly.

The company fixed deposits are raised from the inception, it gives the other income i.e.,

Interest on fixed deposits.

The company’s overall position is at a good position. Particularly the current year’s position

is well due to raise in the profit level from the last year position. It is better for the

organization to diversify the funds to different sectors in the present market scenario.

The various ratios can be used to evaluate the overall condition of the company. These ratios

are providing comments about SPRL based on liquidity ratios, debt equity ratio and

profitability ratio.

101
 BIBLIOGRAPHY

BOOKS

 Khan M.Y, Financial Management, Mc Graw Hill, 2007

 Pandey I.M., Financial Management, Vikas Publishing House Pvt Ltd,

2005

 Pillai & Bagavati, Management Accounting

 Sharma & Gupta, Management accounting

 C. R. Kothari, Research Methodology, New Age International Pvt Ltd.

Publishers

 K .Chakraworthy, Research Methodology

WEBSITES

 [email protected]

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