Study on Computer Generated Electromagnetic Effects on Computer Users

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Volume-5, Issue-2, April-2015

International Journal of Engineering and Management Research

Page Number: 429-442

All Around Performance of Swagath Residency – A Quantitative Outlook

G. Santoshi*

*Head, Department of Business Administration, Indian Institute of Management and Commerce (IIMC), Hyderabad, Telangana State, INDIA

ABSTRACT

Financial statement analysis is a useful tool to dig out valuable information on a public Relations agency's financial health. There are various methods available to analyse the financial statements of the company. Here in this study, I have used the accounting tool as ratio analysis to analyze the performance of Sindhuri Hotels & Resorts Private Limited. Ratios are widely used tools of financial analysis and the best indicators to understand company organization and managerial fund. For the present study secondary data has been collected from books, websites, audited annual reports of the company. I have analyzed the 4 years financial statements of the company i.e. from 2011 to 2014 with the help of various types of financial ratios. I analyzed company position from the point of liquidity, profitability, efficiency and solvency and found that the performance of the company was good except cash position.

Keywords--- Financial statements, Ratios, Liquidity, Profitability, Efficiency, Solvency

I.

OBJECTIVES OF THE STUDY

1. To know the concept of Ratio analysis

2. To analyze the financial statements of Sindhuri Hotels & Resorts Private Limited for 4 years i.e. from 2011 to 2014

II.

RESEARCH METHODOLOGY

The present study is based on secondary data which has been collected from Audited financial statements of Sindhuri Hotels & Resorts Private Limited, books and websites.

III.

NEED OF THE STUDY

There is a need to analyze the financial statements of any company for various statutory and internal requirements. Financial statements are eagerly awaited by investors, bankers and some other concerns. For them, it is the only source of information on a company they are interested in. By studying these statements, they can find out how well or bad the company has performed in the past year. Besides, these statements help them to uncover the problems faced by the company and identify actions to be taken to safeguard their own interest.

IV.

SCOPE OF THE STUDY

The Scope of the study is confined to collection of financial data published in audited reports of Sindhuri Hotels & Resorts Private Limited. Various financial ratios were analyzed only for a period of 4 years i.e. from 2011 to 2014. Collection of data is related to only Balance sheets and Income statements of the company.

V.

LIMITATIONS OF THE STUDY

1. Ratio analysis is based on mathematical interpretation of the figures and ignores the qualitative factors such as management style, motivation of workers, leadership etc 2. The present study does not reflect the day-to-day transactions and some of the ratios were not calculated due to inadequate information of the audited financial statements.

VI.

INTRODUCTION

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growth potentiality. It is an important means of assessing past performance and in forecasting the future performance. It is carried out by professionals who study the accounts, calculate relevant ratios, make comments and present them to the management for decision making.At its most basic, financial analysis involves looking at annual reports and accounts to determine whether a company is healthy or not. Financial statements are useful for the following reasons

 To determine the ability of a business, to generate cash, the sources and uses of that cash

 To determine whether a business has the

capability to pay back its debts.

 To track financial results on a trend line to spot any looming profitability issues.

 To derive financial ratios from the statements that can indicate the condition of the business.

 To investigate the details of certain business transactions, as outlined in the disclosures that accompany the statements.

Methods to analyze the financial statements

• Comparative Statements

• Trend Analysis

• Common-size Statements

• Ratio Analysis

• Funds flow Analysis

• Cash flow Analysis

6.1 Ratio analysis

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables. With the help of ratio analysis conclusion can be drawn regarding several aspects such as financial health, profitability and operational efficiency of the undertaking. Ratios points out the operating efficiency of the firm i.e. whether the management has utilized the firm's assets correctly, to increase the investor's wealth. It ensures a fair return to its owners and secures optimum utilization of firm’s assets.

6.2 Classification of Financial Ratios

Liquidity Ratios: Liquidity ratios measures the adequacy of current and liquid assets and help to evaluate the ability of the business to pay its short-term debts. The ability of a business to pay its short-term debts is frequently referred to as short-term solvency or liquidity position of the business.

Profitability ratios: Profitability ratios measures the efficiency of management in the employment of business resources to earn profits. These ratios indicate the success or failure of a business enterprise for a particular period of time. A strong profitability position ensures common stockholders a higher dividend income and appreciation in the value of the common stock in future.

Creditors, financial institutions and preferred stockholders expect a prompt payment of interest and fixed dividend income if the business has good profitability position.

Activity ratios: Activity ratios (turnover ratios) measures the efficiency of a firm in generating revenues by converting its production into cash or sales. Generally a fast conversion increases revenues and profits.

Solvency ratios: Solvency ratios (leverage ratios) measures the ability of a business to survive for a long period of time. These ratios are very important for stockholders and creditors. They are used to

1. Analyze the capital structure of the company

2. Evaluate the ability of the company to repay principal amount, to pay interest on long term borrowings

3. Evaluate whether the internal equities (stockholders’ funds) and external equities (creditors’ funds) are in right proportion.

6.3 Analysis of Ratios Liquidity ratios

1. Current Ratio: The current ratio indicates a company's ability to pay its current liabilities from its current assets. This ratio is used to quickly measure the liquidity of a company.

Current ratio = Current Assets / Current Liabilities

Interpretation: The ideal ratio of current ratio is 2:1, and the above graph shows that the current ratio was more in the year 2011 & 2012 compared to 2013 & 2014.

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inventory, which often takes a longer amount of time to turn into cash.

Quick Ratio = Quick Assets / Quick liabilities or current liabilities

Quick Assets = Current assets - (Stock + Prepaid expenses)

Quick Liabilities = Current Liabilities – Bank Overdraft

Interpretation: The ideal ratio is 1:1; and from the above graph it shows us that the quick ratio was more in the year 2011 & 2012 than 2013 & 2014.

3. Absolute Liquid Ratio: It is a ratio of absolute liquid assets to current liabilities

Absolute Liquid Ratio = Absolute Liquid Assets / Current Liabilities

Absolute liquid assets = Cash at bank + Cash in hand + Short term investments

Interpretation: The optimum value for this ratio is 1:2 which indicates that 50% worth absolute liquid assets are considered to pay 100 % worth current liabilities on time and here the graph shows that the ratio was trending from increase to decrease and was again increased.

Profitability ratios (a) In relation to sales

4. Gross Profit Ratio: This ratio measures the relationship between gross profit and sales

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here the table shows that the company has obtained a higher rate of gross profit in the year 2011 and 2012 compared to 2013 & 2014.

5. Net Profit Ratio: This ratio shows the net earnings as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management.

Net profit ratio = (Net profit after tax / Net sales)*100

Interpretation Higher the Ratio, the better it is and here the table shows that the company has obtained more net profit in the year 2011 compared to remaining years.

6. Operating Ratio: It expresses the relationship between expenses incurred for running the business and resulted net sales.

Operating ratio = (Operating cost / net sales) * 100 Operating cost = Cost of goods sold + operating expenses Operating expenses = Office & administration expenses + selling & distribution expenses

Interpretation Higher the operating ratio the less favourable it is and here the graph shows that the company has incurred more operating cost in the year 2012 than other years.

7. Operating Profit Ratio (OPR)

It establishes relationship between operating profit and net sales.

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here the graph shows that the company has obtained more operating profit in the year 2013 compared to other years.

(b) In relation to investments: These ratios measure the relationship between the profits and investments of a firm.

8. Return on capital employed (RCE): This ratio reveals the earning capacity of capital employed in the business. Capital employed refers to the long-term funds invested by the creditors and the owners of a firm.

RCE= (Net profit before interest and tax/ capital employed)*100

Capital employed = Equity share capital + Preference share capital + Long term liabilities and debentures + Reserves & Surplus - Fictitious assets

Interpretation: The higher the ratio, the better it is and here the table shows that the company has obtained a higher rate of return on capital employed in the year 2013 & 2014 compared to 2011 & 2012.

9. Return on shareholders’ fund: It indicates the return and risk the shareholders are earning on their resources invested in the business.

Net profit after interest and tax/ shareholder's funds)*100 Share holders fund= Equity share capital + Preference share capital + Reserves & Surplus - Fictitious Assets

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calculated to measure the profit after tax against the amount invested in total assets to ascertain whether assets are being utilized or not.

ROTA= (Net profit after tax/ Total Assets) *100 Total assets = All assets except Fictitious assets

Interpretation: The higher the ratio the better it is and from the above graph, it has been observed that company has a high return on total assets in the year 2012 compared to other years.

Turnover ratios

11. Inventory or Stock Turnover Ratio (STR): It indicates the number of times the stock has been turned over into sales during a particular period. It indicates the extent of stock required to be held in order to achieve a desired level of sales.

STR = Cost of goods sold / average stock

Cost of goods sold (COGS) = Sales – Gross profit Average stock = (opening stock + closing stock) / 2

12. Inventory or Stock Conversion Period (SCP): STR also can be expressed in terms of number of days it takes for the stock to get converted into sales so called as stock conversion period.

SCP = Number of working days in a year / stock turnover ratio

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converted their stocks very quickly in the year 2014 compared to the remaining years.

13. Debtors Turnover Ratio (DTR): It is also termed as receivables turnover ratio or debtors velocity. This ratio expresses the relationship between debtors and sales. DTR = Net credit sales / Average debtors

Net credit sales = Total sales – (cash sales + sales return) Average debtors = (Debtors at beginning + debtors at end) / 2

14. Debt Collection Period (DCP): DTR can also be expressed in terms of number of days it takes for the debtors to get converted into cash.

DCP = Number of days in a year / Debtor turnover ratio

Interpretation: An ideal Debtor turnover ratio is 10 to 12 and Debt collection period is 30 to 35 days where a high DTR and shorter debt collection period indicates prompt payment by debtors and here the graph shows that the company is getting prompt payment by debtors.

15. Creditors Turnover Ratio (CTR): This ratio expresses the relationship between creditors and purchases, also called as payables turnover ratio or creditors velocity. CTR = Net credit purchases / Average creditors

Credit purchases = Total purchases – (cash purchases + purchase returns)

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expressed in terms of number of days taken by the business to pays off its debts.

DPP = Number of working days in a year / CTR

Interpretation: A high CTR signifies that the creditors being paid promptly. However less CTR or a high debt payment period indicates the firm’s inability in meeting its obligations on time. The CTR of 12 or more and DPP of 30 or less indicates the firm is not available to get the best terms of credit and here the table shows that company has

a best debt payment period in the year 2013 compared to 2011, 2012 & 2014.

17. Working Capital Turnover Ratio (WCTR): The ratio shows the number of times the working capital is turned over in its stated period

WCTR = COGS / Working capital

Working capital = Current assets – current liabilities

Interpretation: The higher the ratio the better it is because a high working capital turnover ratio indicates efficient utilization of working capital in making sales and here the graph shows that the company has utilized its funds more in the year 2014 than remaining periods.

18. Total Assets Turnover Ratio: It is a relation between sales and total assets of the firm.

Total assets turnover ratio= Net sales / Total assets

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a high ratio is an indicator of greater ability of the firm to utilize the investments in the business. And here the table shows that company’s total assets turnover ratio was increasing continuously in each year.

19. Fixed Assets Turnover Ratio (FATR): This ratio is used to measure the utilization of fixed assets. It establishes relationship between cost of goods sold and total fixed assets.

FATR = Net sales / Net fixed assets

Net fixed assets = Gross fixed assets – depreciation

Interpretation: The higher the ratio the better it is because a high ratio is an indicator of greater ability of a firm to utilize fixed assets in the business and here the graph shows that the ratio is continuously increasing in each year.

Leverage Ratios

20. Debt equity ratio: It is a

relative proportion ofdebt used to

finance company's assets.

Debt equity ratio = (Long-term debt / Shareholders fund)*100

Long term debt = Long term borrowings

Share holders fund = Equity share capital + Preference share capital + Reserves & Surplus - Fictitious Assets.

Interpretation: A debt equity ratio of 2: 1 is considered ideal. A firm with debt equity ratio of 2 or less exposes its creditors to relatively lesser risk and a firm with a high debt equity ratio exposes its creditors to greater risk. Here the graph shows that the company’s creditors have less risk in each year as this ratio is decreasing.

21. Proprietary Ratio: Proprietary ratio establishes the relationship between proprietor's funds to total resources of the unit.

Proprietary ratio = (Net worth/ Total assets)*100

Net worth = Equity share capital + Preference share capital + Reserves & Surplus - Fictitious Assets

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because the high proprietary ratio is an indication of strong financial position of the business. And here the table shows that the company has a sound and powerful position in the year 2014 compared to remaining years.

VII.

OBSERVATIONS

 It has been observed that as per liquidity ratios company is having enough current assets in the year 2011 & 2012 to pay current obligations on time compared to 2013 & 2014.

 It has been found that as per gross profit and net profit ratio, the company has obtained a high rate of gross profit and net profit in 2011 compared to 2012, 2013 & 2014.

 Though the company is having operating profit in all the years, at the same time it is incurring more operating cost.

 It has been observed that return on capital employed is increasing from 2011 to 2014.

 It has been found that as per return on

shareholder’s fund, shareholders have earned the returns on their invested funds in an effective way.

 It has been found that as per return on total assets, company has utilized its total assets properly.

 As per stock turnover ratio, it has been observed that stocks were getting converted into sales quickly.

 As per debtors and creditors turnover ratio, it has been clear that the payment by debtors to

company and payment to creditors were meeting promptly.

 It has been observed that utilization of working capital, utilization in investment and fixed assets were getting improved continuously.

 As per debt equity ratio, it has been clear that ratio is decreasing from 2011 to 2014.

 It has been found that as per proprietary ratio, the company’s financial position was getting improved continuously.

VIII.

RECOMMENDATIONS

• As per liquidity ratios, it has been suggested that the company should maintain adequate cash in hand to meet their current obligations on time.

• It has been suggested that as per profitability ratios, in relation to sales, company should generate more sales which can earn a high rate of profit by minimizing the cost.

• As per profitability ratios, in relation to investments, the company is satisfactory with respect to utilization of total assets and generating returns to shareholders which is a good sign for making investments into the company by the shareholder.

• As per turnover ratios, the efficiency of the company is impressive as a firm is managing its resources or assets with speed to get converted into sales.

• As per solvency ratios, is has been suggested that the company exposes its creditors to relatively lesser risk as it is having less debt compared to equity. So it is a good sign for the company which implies financial position of the company is strong and viable.

• In overall performance of the company is

satisfactory, only with respect to cash position, the company has to give little more attention and it should also minimize its operating cost

IX.

CONCLUSION

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effort to be efficient in generating greater profit per rupee of sale. However, there are few areas where improvement is required i.e. in the areas of cash levels and operating cost of the company.

REFERENCES

Books

[1] Shashi K Gupta, R K Sharma, Anuj Gupta “Management Accounting”, Kalyani Publishers, Ludhiana (2014)

[2] R K Sharma & Shashi K Gupta “Management Accounting Principles & Practices” Kalyani Publishers, Noida (2009)

[3] Hingorani Ramanathan Grewal “Management

Accounting”, Sultan Chand & Sons, New Delhi (1998) [4] M Y Khan & P K Jain, “Management Accounting”, Tata Mcgraw-Hill Publishing Company Ltd, New Delhi (1984)

Online sources

[5] http://kalyan-city.blogspot.com/

[6]http://en.wikipedia.org/wiki/Finance