42610615 Ratio Analysis Project Report

Chapter No. Description Page No.

Chapter – I Introduction 1 - 2

Industry profile 3 - 5

Company profile 6 - 10

Chapter – II Research Methodology 11 - 13

Need for the study Objectives of the study Sources of data

Scope & Limitations of the study

Chapter – III Data Analysis and Interpretation 14 – 54

Chapter – IV Findings & Suggestions 55 – 56

Conclusion 57

Annexure 58 – 59

INTRODUCTION

with the planning and controlling of the firm’s finance. Finance is one of the foundations of all kinds of economic activities. Finance is the life-blood of a business. The financial management study deals with the process of procuring necessary financial resource and their judicious use with a view to maximizing the value of the firm and there by the value of the owners i.e. equity share holders in a company. Practicing managers are interest in this subject because among the most crucial decisions of the firm are those which relate to finance, and an understanding of the theory of financial management provides them with conceptual and analytical insights to make those decisions skillfully.

FINANCIAL MANAGEMENT

Financial Management emerged as a distinct field of study at the turn of this century many eminent persons defined it in the following ways.

DEFINITIONS:

-According the BONNEVILE AND DEWEY:” Financing consists in the rising, providing and managing of all the money, capital or funds of any kind to be used in connection with the business”.

According to Prof.EZRA SOLOMAN:”Financial Management is concerned with the efficient use of any important economic resource, namely capital funds”.

FINANCE FUNCTIONS:

-It may be difficult to separate the finance functions from production, marketing and other functions, but the functions themselves can be readily

identified. The functions of raising funds investing them in assets and distributing returns earned from assets to shareholders are respectively known as.

1. Long – term assets-mix (or) Investment Decision 2. Capital – Mix (or) Financing Decision

3. Profit allocation (or) Dividend Decision

4. Short – term asset –Mix (or) Liquidity Decision

GOALS OF FINANCIAL

MANAGEMENT:-• Maximize the value of the firm to its equity shareholders.

• Maximization of profit

• Maximization of earnings per share.

• Maximization of return on equity (defined as equity earnings/net worth)

• Maintenance of liquid assets in the firm.

• Ensuring maximum operational efficiency through planning directing and controlling of the utilization of the funds.

• Building up of adequate reserves for financing growth and expansion.

INDUSTRY PROFILE

Sugarcane is one of the important crops for the Indian Farmer. Sugar and Jiggery are the main products that we get from sugarcane. Sugarcane

belongs to the genus SACCHARAM. The word Sugar is derived from the Sanskrit word SHARKARAM from which the word SACCHARAM seems to have been derived indicates the antiquity of knowledge of sugarcane in India. Sugar Industry is the second largest agro-based industry in India, next to textiles, producing an all time record of 186.22 lakh tones of direct plantation sugar as on 30th _{Arial, 2003. It has emerged as the largest vacuum pan sugar}

producer in the world.

Sugarcane is grown in about 102 countries in the world and India occupies the first rank from the point of area followed by Brazil and Cuba. Andhra Pradesh occupies the fifth place with regard to cane and cane production in the country. There are around 490 sugar mills across the country with an aggregate installed capacity of 16.2 million tones.

The history of sugar industry in India begins in 1903 when a sugar factory was set up in Bihar and U.P each. In 1932 there were 32 factories operating in the country. In India, the cultivation of sugarcane is 10,000 miles tones. The average yield being 56 tones per acre of total cultivating land is occupied by sugarcane cultivation. Sugarcane is grown in almost all part of India, except in colder regions and extreme North Jammu& Kashmir, Himachal Pradesh. The industry has developed at a fast rate in Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. In India U.P leads other States in Sugarcane production, followed by T.N and Maharashtra.

Sugar comes under the Essential Commodities Act. Ipso facto, there has been control on all facets of the sugar trade. The licensing regime that regulates the installed capacity, the minimum support price for cane, the

reservation of can area for mills and the control over price and movement of sugar as well its byproduct molasses, have all triggered a situation totally out of sync with market realities.

The Central Government will allot monthly sales sugar quota for each factory based on the stock available in the concerned factory Godown. The Central Government removed the controls imposed under the Essential Commodities Act, 1955 on stocking and movement and requiring licensing of dealers in respect of specified commodities with effect from 14th _{March, 2002}

vide government of India’s Notification No. GSR 104(E), dated 15th _February,

2002. With the coming into effect of the above order any dealer may freely by, stock, sell, transport, distribute, dispose, acquire, use or consume any quantity of wheat, paddy/rice, coarse grains, sugar, edible oil seeds and edible oil and shall not require a permit or license therefore under any order issued under the Essential Commodities Act, 1955.

Area wise distribution of sugar industry in A.P.

S.No

Sector

No. of

Industries

Costal

Area

Rayalaseem

a

Telangana

2 Public sector 7 1 1 5

3 Private sector 11 8 2 1

Total 36 21 7 8

The list of Co-operative Sugar factories in A.P. 1. The Chittoor Co-operative sugars ltd, Chittoor.

2. The Chodavaram Co-operative sugars ltd, Chodavaram. 3. The Anakapalle Co-operative sugars ltd, Anakapalle.

4. The Etikuppaka Co-operative agricultural of industrial society ltd, Ethikuppaka.

5. Sir Vijayarama Gajapathi Co-operative sugars ltd.

6. The Amadavalasa Co-operative agricultural industrial society ltd, Srikakulam.

7. The West Godavari Co-operative sugars ltd, Eluru.

8. Palakollu Co-operative agricultural & industrial society ltd, Palakollu. 9. The Thandara Co-operative sugars ltd, Visakapatnam.

10. Nizamabad Co-operative sugars ltd, Nizamabad. 11. Sir Venkateswara Cooperative sugars ltd, Renigunta. 12. The Cuddapah Co-operative sugars ltd, Chennur. 13. The Nandyal Co-operative sugars ltd, Ponnapuram. 14. The Kovur Co-operative sugars ltd, Nellore.

15. Nagarjuna Co-operative sugars mills ltd, Gurzala.

16. Nampaneni Venkata Rao Co-operative sugars ltd, Hanuman

Junction.

17. Sri Hanuman Co-operative sugars ltd, Hanuman Junction. 18. Palair Co-operative sugars ltd, Ammagudem.

COMPANY PROFILE

INTRODUCTION:

-The Chittoor Co-operative Sugars Limited, Chittoor is the first agro-based major Industry in Rayalaseema area. It was first registered on 22.08.1955 under the APCS Act. Its area of operation comprises of 192 villages in 21 Mandals. Factory is located along Cudalore - Kurnool National High way No 18, 3 KM towards Kurnool from Chittoor town. It owns 85.96 acres of land. It was first commissioned on 18.1.1963 with a licensed and installed capacity of 1000 tones cane crushing per a day. During 1974 its cane crushing capacity has been expanded to 1600 tones a day. Since 1989 modernization is being done in phases. Presently factory is working at an average cane crushing of 1800-2000 tones a day.

Capital Structure:

-Original project cost was RS.128.50 lakhs.

Present value of the Assets as on 31.3.2000

Rs.lakhs

a) Land 497.19

b) Buildings 423.85

c) Plant & Machinery 1155.70 d) Other Assets 34.73 e) Transport Vehicles 19.94

Management:

-At present the elected board has assumed charge on 06.04.2000. The present board of Directors as detailed below:

President 1

Board of Directors 14

Employees Director 1

Total 16

Chief Executive & Functioning of various Departments:

-a) Chief executive of the society is Managing Director having a seat on the Board.

b) There are five major departments: 1. Administrative

2. Engineering 3. Manufacturing 4. Agriculture

5. Accounts & finance

c) All aspects of Accounting, sugar cane weighment and laboratory analysis reports are computerized during 1989-90. For better cane regulation, wireless System was also introduced during 1989. At all 8 division Head Quarters and at Administrative Office Wireless Stations and sets are installed.

Cane price:

-Before commencement of sugar cane crushing season, Government of India notifies statutory minimum cane price payable by each sugar factory. This is to be paid with in 14 days from the date of purchases. Over and above the statutory minimum cane price state Government announces a State advisory price payable by each Sugar Factory. This SAP is being paid by us. We have crushed cane for the season 1999-2000 is 2, 82,202,592 Mts with an average recovery 9.03%.

Sugar:

-Out of total sugar production of each season, 30% shall be delivered to Government nominees for public distribution system at notified levy price. For every season Government of India Notifies levy sugar price applicable to each Sugar Factory. Every month. Open market sugar is sold on tender system and is delivered against payment of cost plus duties.

Molasses:

-Molasses is a by product in the courses of manufacture of sugar. From 1993 June molasses prices are decontrolled. Molasses is sold by inviting tenders on All India basis by publishing Tender notice.

Engineering & Manufacturing Departments:

-During off season engineering and manufacturing departments attend to overhauling and preventive maintenance and keep ready the plant for Cane Crushing. During season factory works round the Clock in three shifts.

Cane

Department:-Cane department is provided with sufficient executive staff. They collect cane supply offers, from cane growers. Offers are being accepted restricting the quantities to individual member's 5 years supply average. Crop loans are sanctioned by Banks under tie up arrangements with factory. One month before commencement of Cane crushing, prepares maturity survey is conducted by drawing cane samples from agreement Cane fields. They are analyzed in Factory’s laboratory. Based on the analysis, cane harvest & supply permits are issued to cane supply members limiting to factories daily cane crushing capacity. Factory provides about 60 to 80 hired Lorries to needy growers. 50% of transport charges up to 40km distance are subsidized by factory. Transport charges beyond 40 km are subsidized 100%.

Liaison Farm:

-Factory is having a sugar cane liaison farm in an extent 4.80 Hec. Factory brings improved varieties from sugar Cane research stations multiplies in its liaison farm and supplies seed to growers.

Total Strength of the

Establishment:-1. Permanent (Non Seasonal) 68

2. Seasonal Permanent 94

3. Consolidate Wages (Seasonal) 167 4. Daily Wager (NMR) 244

Wage Structure:

-The Wages of workers are covered by "Sugar Wage Board" recommendations at “All India level". The minimum monthly wage of an unskilled worker at starting of timescale is Rs.3901/-.Sugar year (season) is recorded from 1st Oct to 30th Sep next year. Generally cane crushing operations are commenced during 3rd week of November and continued up to end of April next year. From May to October is off-season.

RESEARCH METHODOLOGY

NEED OF THE STUDY

Financial statements are prepared for the purpose of presenting a periodical review or report by the management and deal with the state of investment in business and result achieved during the period under review. They reflect a combination of recorded facts, accounting conventions and personal judgments.

The Ratio Analysis is the most powerful tool of the financial analysis. These people use rations to determine those financial characteristics of the firm in which they are interested. With the help of ratios, one can determine:

1. The ability of the firm to meet its current obligations.

2. The extent to which the firm has used its along-term solvency by borrowing funds.

3. The efficiency with which the firm is utilizing its assets ingenerating sales revenue.

4. The overall operating efficiency and performance of the firm.

OBJECTIVES OF THE STUDY

The following are the objectives of the study:

• To assess the liquidity and profitability of CCS Ltd.

• To study financial position of the CCSL Ltd.

• To analyses the turn over efficiency of The CCS Ltd.

• To know the impact of liquidity solvency and turnover efficiency on the shareholders of The CCS Ltd.

CCS Ltd.

SOURCES OF DATA

Primary Data

The primary data was collected mainly with the interactions and discussions with the company’s executives.

Secondary Data

Most of the calculations are made on the financial statements of the company and the company provided financial statements for 5 years.

Some of the information regarding to the theoretical aspects were collected by referring standards texts and through internet.

SCOPE OF THE STUDY

• This project is as a reference guide or as a source of information. It gives the idea about the financial analysis of a firm.

• The study aims to study the liquidity position of the firm. Ratio Analysis has been used to analyses the financial position of a firm.

• It deals with analysis an interpretation of data collected through the sources primary and secondary data. Graphs and diagrams and tabulation method are used to analyze and interpret the data collected.

LIMITATIONS OF THE STUDY

public and the same doesn’t indicate the current situation of the firm.

• Detailed analysis could not be carried for the project work because of the limited time span.

• Since financial matters are sensitive in nature these same could not be acquired easily.

RATIO ANALYSIS

Ratio Analysis is one of the powerful tools of the financial analysis. A ratio can be defined as “The indicated quotient of two mathematical expressions” and as “the relationship between two or more things”. Ratio is

thus, the numerical or an arithmetical relationship between two figures”. Ratio is, thus, the numerical or an arithmetical relationship between two figures. It is expressed where on figure is divided by another. In finance analysis ratio is used as a benchmark of a firm.

A ratio is the relationship between two accounting items expressed mathematically. Ratio analysis helps the analyst to make quantitative judgment with regard to concern’s financial position and performance. This relationship can be expressed as a percentage or as quotient.

Ratio analysis is the systematic use of ratio to interpret the financial statements so that the strengths and weakness of a firm as well as its historical performance and current financial position can be determined. Undisputedly the ratio analysis occupies place of prime importance.

DEFINITION:-According to Prof. Spring field, Prof. Mass & Merrium, a ratio is defined as “The indicated quotient of two mathematical impression” and as “The relationship between two (or) more things”

SIGNIFICANCE OF RATIO ANALYSIS

Ratio analysis is of great help of commercial bankers, trade creditors and institutional lenders. They judge the ability of borrowing enterprises by observing various ratios like the current ratio, acid test ratio, and turnover of

receivables, inventory turnover, and coverage of interest by the level of earnings.

Ratio analysis also helps long term creditors in knowing the ability of a borrowing enterprises to pay interest principal in case earnings decline they find valuable the ratios of total debt to equity and total debt to total assets.

Investors in shares judge the performance of the company by observing the per share into ratios like earnings per share, book value per share, market price per share, dividends per share etc.

Lastly, ratio analysis is of great use of the management of the firm. Management of the firm is interested in every aspect of ratio analysis as it is their over all responsibility to see that the resources of the firm are used most efficiently and effectively and that the firms financial conditions is sound.

STANDARDS FOR COMPARISON

For making a proper use of ratios, it is essential to have fixed standard for comparison. A ratio by itself has very little meaning unless it is compared to some appropriate standard. Selection of proper standards of comparison is a most important element is ratio analysis. The four most common standard used in ratio analysis are as follows:

1. Absolute 2. Historical

3. Horizontal 4. Budgeted

1. Absolute:

-Absolute standards are those, which become generally recognized as being desirable regardless of the type of the company, the time, stage of business cycle, or the objectives of the analyst.

2. Historical:

-Historical standards involve comparing a company’s own past performance as a standard for the present or future. But this standard may not provide sound basis for judgment, as the historical figure a may not have represented an acceptable standard.

3. Horizontal:

-Incase of horizontal standards one company is compared with another or with average of other companies of the same nature. It is also called as intra-firm comparison.

4. Budgeted:

-The budgeted standard is arrived at after preparing the budget for a period. Ratios developed from actual performance are compared to the planned ratios in the budget to examine the degree of accomplishment to the anticipated targets of the firms.

ADVANTAGES OF RATIO ANALYSIS

1. It facilitate inter firm comparison. It reveals how well it serves. As a useful aid in financial forecasting future trends can be known in advance based on ratios relating to part sales, profits and financial position.

2. It facilitates comparative study of the performance and, progress of a firm over a period of years. Such a study will reveal the directions in which the firm is moving.

firm is managed and how effectively its assets are utilized.

• It serves as a means of communication to report on the strength and financial standing of a firm to the management and external parties.

• It facilitates trend analysis. It reveals the progress or decline of a firm over the years.

• It serves as diagnostic too to assess the financial health of a firm. It through light on its liquidity, solvency, profitability and capital gearing position.

OBJECTIVES OF RATIO ANALYSIS

Ratio Analysis is the principal tool for analysis of financial statements. Other conducts it not only by management but also like suppliers, banks tending, and institutions, prospective investors etc.

The following are usually the objectives for which ratio analysis is conducted.

I. To evaluate financial position and performance of a firm. II. To indicate the trend or progress or down fall of a firm. III. To assess the credit worthiness of a firm,

IV. To assess the efficiency with which working capital is being used in a firm.

LIMITATIONS OF RATIO ANALYSIS

Standards for Comparison

Ratios of a company have meaning only when they are compared with some standards and it is always a challenging job to find and adequate

standard.

Company Differences

Situations of two companies are never same. Similarly the factors influencing the performance of a company in one year change in another year. Thus, the comparison of the ratios of two companies becomes difficult and meaning less when are operating in different situations.

Price Level Challenges

The interpretation and comparison of the ratios are also rendered invalid by the changing value of money; a change in the price level can seriously affect the validity of comparison of ratios computed for different time periods.

A STUDY OF RATIO ANALYSIS

Several ratios, calculated from the accounting date, can be grouped into various classes according to financial activity or function to be evaluated. Ratios are complied and studied for profitability’s, assessment of financial position sufficiency of working capital strategies perused by the organization short term and long term solvency. Liquidity etc

TYPES OF RATIOS

Classification according to nature of accounting statements is divided into three categories there are:

1. Balance sheet Ratios 2. Profit and Loss A/C Ratios 3. Combined Ratios

1. Balance sheet Ratios:

-These ratios are calculated to judge the financial position of the concern from long-term as well as short-term solvency point of view. These ratios can be divided into two broad categories.

A. Liquidity Ratios:

-If it is decided to study the liquidity position of the concerns, in order to highlight the relative strength of the concerns in meeting their current obligations to maintain sound liquidity and to pin point the difficulties if any in it, then liquidity ratios are calculated. These ratios are used to measure the firm’s ability to meet short-term obligations. The important liquidity ratios are:

CURRENT

RATIO:-This is the most widely used ratio. It is the ratio of current assets to current liabilities. It shows a firm’s ability to cover its current liabilities with its current assets. This is also known as Working Capital Ratio. It is expressed as follows:

Current Assets Current Ratio =

Current Liabilities

Generally current ratio of 2:1 is considered ideal for a concern i.e., Current Assets should be twice of the Current Liabilities.

TABLE 4.1

Year Wise Total Current Assets and Current Liabilities of The CCSL Ltd., Chittoor.

YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO

IN % 2002-2003 28,77,42,756 18,91,05,178 1.52 2003-2004 17,58,61,331 14,23,09,387 1.20 2004-2005 20,80,30,364 14,87,32,016 1.40 2005-2006 38,19,73,121 18,96,05,315 2.00 2006-2007 37,30,29,183 27,31,27,341 1.40

R

A

T

IO

S

YEARS

-Current ratio measures the firm’s short-term solvency. The standard norm for current ratio is (2:1). It is evident that in the year 2005-06 Current Ratio 2.00 is satisfactory. In remaining years current ratio is less then 2 is not satisfactory. There fore it can be calculated that the liquidity performance of the company is poor.

QUICK RATIO:

-It shows a firm’s ability to met current Liabilities with its most liquid (quick) Assets. Liquid Assets are those assets, which are readily converted

into cash. This is also known as Liquid Ratio and Acid Test Ratio. It is calculated as under; = Liquid Assets LiquidRatio CurrentLiabilities TABLE 4.2

Year Wise Liquid Assets and Current Liabilities of The CCSL Ltd., Chittoor.

YEAR LIQUID ASSETS CURRENT

LIABILITIES RATIO IN % 2002-2003 6,80,79,952 18,91,05,178 0.36 2003-2004 7,90,11,591 14,23,09,387 0.55 2004-2005 9,79,87,205 14,87,32,016 0.66 2005-2006 7,66,08,657 18,96,05,315 0.40 2006-2007 9,34,86,511 27,31,27,341 0.34

R

A

T

IO

S

YEARS

-This is the more penetrating test of liquidity than the current ratio. Generally a quick ratio is 1:1 it considered to represent a satisfactory current financial condition. The quick ratio has never exceeded the standard ratio. Empirically the quick ratio has increased from 0.36 to 0.66 in 2002-03 to 2004-05 and declined from 0.40 to 0.34 in 2005-06 to 2006-07. Therefore it can be concluded the liquidity performance of the company is absolutely poor.

CASH RATIO:

-Cash is most liquid Asset, a financial analyst may examine cash ratio and it’s equivalent to current liabilities. Trade investment or marketable

securities are equivalent of cash; therefore, they may be included in the computation of cash ratio. This Ratio also known as Absolute and Super Quick Ratio.

+ −

= CashandBankBalance Short termmarketable

SecuritiesCashRatio

CurrentLiabilities

TABLE 4.3

Year Wise Cash and Bank Balance plus short term securities and Current Liabilities of

The CCSL Ltd., Chittoor.

YEAR CASH AND BANK CURRENT LIABILITIES

RATIO IN % 2002-2003 53,79,219 18,91,05,178 0.028 2003-2004 1,59,03,765 1,23,09,387 0.11 2004-2005 2,00,18,969 14,87,32,016 0.13 2005-2006 73,90,813 18,96,05,315 0.03 2006-2007 1,79,39,018 27,31,27,341 0.06

R

A

T

IO

S

YEARS

-The desirable norm for cash ratio is 1:2. -The cash ratio is very low in 2002-03, 2005-06 and 2006-07 years. There after it is increased slightly that is 0.028, 0.11 and 0.13 on the years 2002-03 to 2004-05 respectively and declined in 2005-06 to 0.03 then increases in 2006-07 to 0.06. Anyway finally the company failed in keeping sufficient cash and bank balance and marketable securities.

B. CAPITAL STRUCTURE RATIOS:

-These ratios help in ascertaining the long term solvency of a firm which depends on firm’s adequate resources. To meet its long term funds

requirements, appropriate debt equity mix to raise long term and earnings to pay interest and installment of long term loans in time. The following ratios can be calculated for this purpose:

DEBT EQUITY RATIO:

-This ratio is calculated to measure the relative proportions of outsider’s funds and shareholders funds invested in the company. This ratio is determined to ascertain the soundness of long-term financial policies of the company and is also known as external equity ratio. It is calculated as follows.

Term liabilities + Current Liabilities Total Debt Ratio =

Equity

Debt to equity Ratio of 2:1 in case of (i) and 2:3 in cases (ii) are acceptable.

TABLE 4.6

Year Wise Fixed Assets and Capital Employed of The CCSL Ltd., Chittoor.

YEAR LONG TERM DEBTS SHAREHOLDERS

FUNDS RATIO IN % 2002-2003 26,44,52,746 36,03,55,888 0.73 2003-2004 25,26,34,919 36,96,88,184 0.68 2004-2005 29,52,27,768 38,90,49,404 0.76 2005-2006 43,53,64,852 39,30,37,111 1.10 2006-2007 44,09,04,310 39,81,47,818 1.10

R

A

T

IO

S

YEARS

-This ratio gives results relating to the capital structure of the firm. 2:3 is the acceptable Debt Equity Ratio. Empirically the debt equity ratio declined only in the year of 2003-04 (0.68) remaining that all years were increased from 0.78 to 1.10. Therefore 1.10 means lenders have financed of CCSL Capital Employed in 2006-07.

PROPRIETORY RATIO:

-A variant of debt to equity ratio is the proprietary ratio, which shows the relationship between shareholders funds and total tangible assets. It focuses the attention on the general financial strength of the business enterprise. This ratio is worked out as follows:

Shareholders Funds Proprietary Ratio =

Total tangible Assets

TABLE 4.7

Year Wise Shareholders funds and Tangible Assets of The CCSL Ltd., Chittoor. YEAR _SHAREHOLDERS FUNDS TOTAL TANGIBLE ASSETS RATIO IN % 2002-2003 36,03,55,888 44,71,78,755 0.80 2003-2004 36,96,88,184 33,48,90,237 1.19 2004-2005 38,90,49,404 35,26,39,909 1.10 2005-2006 39,30,37,111 53,78,62,810 0.73 2006-2007 39,81,47,818 51,71,71,520 0.76

YEARS

R

A

T

IO

S

INTERPRETATION:-The proprietary ratio is variant of Debt Equity ratio. INTERPRETATION:-The standard norm for proprietary Ratio is 1:3. The shareholder funds are high then compare to total tangible assets. Empirically in the years 2003-04 and 2004-05 it is very high that is 1.19 and 1.10. Therefore the company having a poor proprietary ratio.

2) PROFITABILITY RATIO:

-Profitability is the overall measure of the companies with regard to efficient and effective utilization of resources at their command.

A company should earn profits to survive and grow over a long period of time. Profitability reflects the final result of business operation of the business, to be able to funds from investors and for expansion and growth and to contribute toward social overheads for the welfare of the society.

GROSS PROFIT RATIO:

-The gross profit should be adequate to cover fixed expenses dividends and building up of reserves. Higher the ratio, the better it is. A low ratio indicates unfavorable trend in the form of reduction in selling prices. This ratio tells gross margin on trading and is calculated as under:

=GrossPr ofit×

GrossPr ofitRatio 100

Net Sales

TABLE 4.25

Year Wise Gross Profit and Net Sales of The CCSL Ltd., Chittoor.

YEAR GROSS PROFIT NET SALES RATIO

IN % 2002-2003 -3,76,45,558 20,14,86,573 -0.186 2003-2004 -2,50,57,043 13,05,17,437 -0.191 2004-2005 -53,23,482 6,99,20,394 -0.07 2005-2006 4,96,30,153 12,40,87,187 0.399 2006-2007 -3,64,74,371 36,88,53,567 -0.098

YEARS

R

A

T

IO

S

-It expresses the relationship of gross profit on sales. A high gross profit ratio indicates a sign of good management as it implies that the cost of production is kept at low level. The GP Ratio seems negative balance accept the year 2006-07 of 39.9. The CCSL is maintaining poor grass profit ratio.

OPERATING RATIO:-

expenses (i.e., Administration, Selling and Distribution Expenses) which have matching relationship with sales. It is calculated as Follows:

+

=Cost of GoodsSold OperatingExpenses×

OperatingRatio 100

Net Sales

TABLE 4.26

Year Wise Cost of Goods Sold, Operating Expenses and Net Sales of The CCSL Ltd., Chittoor.

YEAR COST OF GOODS SOLD +

OPERATING EXP., NET SALES

RATIO IN % 2002-2003 180854056 201486573 0.897 2003-2004 43149294 130517437 0.330 2004-2005 126380237 69920394 1.807 2005-2006 297068848 124087187 2.394 2006-2007 399471811 368853567 1.083

YEARS

R

A

T

IO

S

-The lower ratio is better then higher the ratio, the less favourable it is because it would have a smaller margin of operating profit for the payment of dividends and the creation of reserves. The above table shows in the year 2005-06 is high operating ratio 239.4. The less operating ratio was recorded in 2003-04 33. Therefore the poor performance of CCSL in Operating Ratio.

3) COMBINED RATIOS:

-The difference between Current Assets and Current Liabilities excluding short-term bank borrowing in called Net Working Capital or Net Current Assets. Net Working Capital is some times used as a measure of a firm’s Liquidity. =Net WorkingCapital Net WorkingCapitalRatio Net Assets TABLE 4.5

Year Wise Net Working Capital and Net Assets of The CCSL Ltd., Chittoor.

YEAR NET WORKING

CAPITAL NET ASSETS

RATIO IN % 2002-2003 9,86,37,579 62,48,08,634 0.158 2003-2004 3,35,51,944 6,22,32,103 0.54 2004-2005 5,92,98,349 68,42,77,172 0.86 2005-2006 19,23,69,866 82,84,01,963 0.23 2006-2007 9,99,01,841 83,53,54,221 0.20

YEARS

R

A

T

IO

S

-The Net Working Capital Ratio declined from 0.86 in 2004-05 to 0.12 in 2006-07 and increased 0.16 in 2002-03 to 0.86 in 2006-07. The company has not sufficient working capital. The lowest ratio in the year 2006-07 is 0.20 and the highest ratio in the year 2004-05 is 0.86.

FIXED ASSETS TURNOVER RATIO:

-It measures the efficiency of the Assets use. The efficient use of assets will generate greater sales per rupee invested in all the Assets of a

concern. This ratio shows how well the fixed assets are being used to generate sales in the business.

The ratio expresses the number of times fixed assets are being turnover in a stated period. It is calculated as under:

= Sales

FixedAssetsTurnover Ratio

NetFixed Assets

TABLE 4.11

Year Wise Sales and Net Fixed Assets of The CCSL Ltd., Chittoor.

YEAR SALES NET FIXED ASSETS

RATIO IN % 2002-2003 20,14,86,573 22,21,36,732 0.91 2003-2004 13,05,17,437 22,21,36,732 0.59 2004-2005 6,99,20,394 22,25,77,781 0.31 2005-2006 12,40,87,187 22,51,07,533 0.55 2006-2007 36,88,53,567 23,58,34,849 1.56

YEARS

R

A

T

IO

S

-This ratio measures the efficiency of the assets use. The high ratio is the better performance. On the other hand, a low ratio indicates that fixed assets are not being efficiently utilized. Therefore the CCSL did not utilize well. Only in the years 2002-03 and 2006-07 utilized the fixed Assets effectually.

TOTAL ASSETS TURNOVER RATIO:

-This ratio is calculated by dividing the net sales by the value of total assets. A higher ratio is an indicator of over-trading of total assets while a low

reveals idle capacitor. The traditional standard for the ratio is two times.

= Net Sales

Total AssetsTurnover Ratio

Total Assets

TABLE 4.12

Year Wise Net Sales and Total Assets of The CCSL Ltd., Chittoor.

YEAR SALES TOTAL ASSETS

RATIO IN % 2002-2003 20,14,86,573 51,46,60,808 0.39 2003-2004 13,05,17,437 40,27,85,783 0.32 2004-2005 6,99,20,394 43,59,05,864 0.16 2005-2006 12,40,87,187 60,98,74,373 0.20 2006-2007 36,88,53,567 61,16,60,751 0.60

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-The traditional standard for the ratio is two times. In the year 2006-07 got the higher total Assets Turnover ratio 0.60 on other hand lower ratio got in the year 2004-05 of 0.16. Therefore the CCSL indicates idle capacity of total Assets.

CURRENT ASSETS TURNOVER RATIO:

we can know how much they company invested in current assets.

= Sales

Current AssetsTurnover Ratio

Current Assets

TABLE 4.13

Year Wise Sales and Current Assets of The CCSL Ltd., Chittoor.

YEAR SALES CURRENT ASSETS

RATIO IN % 2002-2003 20,14,86,573 28,77,42,756 0.70` 2003-2004 13,05,17,437 17,58,61,331 0.74 2004-2005 6,99,20,394 20,80,30,364 0.34 2005-2006 12,40,87,187 38,19,73,121 0.32 2006-2007 36,88,53,567 37,30,29,183 0.99

YEARS

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-The higher CATR more efficient in management and utilization of assets. Empirically the current asset turnover ratio is declined from 0.74 to 0.32 in years 2003-04 to 20005-06. The higher turnover recorded in the year 2006-07 i.e. 0.99. Therefore we conclude that the current Asset turnover ratio of company shows poor results.

INVENTORY TURNOVER RATIO:

-It denotes the speed at which the inventory will be converted into sales, thereby contributing for the profits of the concern. When all other factors remain constant, greater the turnover of inventory more will be efficiency of its

management. This ratio is calculated as follows:

= Cost of GoodsSold

Inventory Turnover Ratio

AverageStock heldduringthePeriod

TABLE 4.14

Year Wise Cost of Goods Sold and Average Stock held during the period of

The CCSL Ltd., Chittoor.

YEAR COST OF GOODS

SOLD AVERAGE STOCK

RATIO IN % 2002-2003 16,82,44,221 23,41,47,891 0.718 2003-2004 3,26,16,707 13,75,97,982 0.237 2004-2005 1,15,24,675 8,28,84,312 0.139 2005-2006 26,08,49,917 18,27,22,687 1.427 2006-2007 38,23,18,650 26,48,82,289 1.443

YEARS

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-The inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. A low inventory turnover implies excessive inventory levels than required for production. The company have high ratio of inventory except in the 2005-06 i.e. 0.139 it is not good. That is all stock stored in god owns.

CAPITAL TURNOVER RATIO:

computing how many times capital employed is turned-over in a stated period. The ratio is ascertained as

follows:-= Sales CapitalTurnover Ratio CapitalEmployed TABLE 4.15

Year Wise Sales and Capital Employed of The CCSL Ltd., Chittoor.

YEAR SALES CAPITAL EMPLOYED

RATIO IN % 2002-2003 20,14,86,573 62,48,08,634 0.32 2003-2004 13,05,17,437 62,23,23,103 0.21 2004-2005 9,69,20,394 68,42,77,172 0.14 2005-2006 12,40,87,187 82,84,01,963 0.15 2006-2007 36,88,53,567 83,90,52,028 0.44

YEARS

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-The high capital turnover ratio it indicates greater profit on other hand when it is low it indicates sufficient sales are not being made and profits and lower. Empirically, the actual capital turnover ratio has declined from 0.32 to 0.14 and increased from 0.15 to 0.44 in 2005-06 to 2006-07. Finally the CCSL capital Turnover Ratio is not Satisfactory. In the year 2006-07 is 0.44 the CTR recorded.

WORKING CAPITAL TURNOVER RATIO:

-This ratio is also known as Sales to Working Capital. It shows the number of times working capital is turned-over in a stated period. The higher

is the ratio, the lower is the investment in working capital and the greater are the profits. It is calculated as follows.

= Sales

WorkingCapitalTurnover Ratio

Net WorkingCapital

TABLE 4.16

Year Wise Sales and Net Working Capital of

The CCSL Ltd., Chittoor.

YEAR SALES NET WORKING

CAPITAL RATIO IN % 2002-2003 20,14,86,573 9,86,37,578 2.04 2003-2004 13,05,17,437 3,35,51,944 3.89 2004-2005 6,99,20,394 5,92,98,348 1.18 2005-2006 12,40,87,187 19,23,67,806 0.64 2006-2007 36,88,53,567 9,99,01,842 3.69

YEARS

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-This ratio measures the relationship between sales and net working capital. In the years2003-04 and 2006-07 recorded as the highest working capital turnover ratio i.e. 3.89 and 3.69 respectively. In the year 2005-06 recorded as the lowest working capital turnover ratio. The higher indicates more favorable it is for the company. In CCSL WCTR is highly fluctuating in the ratios

DEBTORS TURNOVER RATIO:

management of debtors. It measures the accounts receivables in terms of number of days of credit sales during a particular period. It is calculated as follows;

= Credit Sales

DebtorsTurnover Ratio

AverageDebtors

TABLE 4.18

Year Wise Credit Sales and Average Debtors of The CCSL Ltd., Chittoor.

YEAR SALES AVERAGE DEBTORS

RATIO IN % 2002-2003 20,14,86,573 5,38,40,312 3.74 2003-2004 13,05,17,437 5,46,53,535 2.39 2004-2005 6,99,20,394 6,09,75,610 1.15 2005-2006 12,40,87,187 6,28,32,487 1.97 2006-2007 36,88,53,567 5,90,67,738 6.24

YEARS

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-The debtor’s turnover ratio indicates the rate of which cash is generated by turnover of debtors. The debtor turnover ratio indicates a non-satisfactory collection program. Empirically the debtor’s turnover ratio was declined from 3.74 to 1.15 in the years 2002-03 to 2004-05. Then it is increased form 1.97 to 6.24 in the years 2005-06 and 2006-07 respectively. The high value of DTR was more efficient in management of credit. Therefore we conclude that there is being poor debtor’s turnover ratio maintained by CCSL.

DEBTORS COLLECTION

the concern. The also reflects the credit policy and terms of the concern. It shows the quality of debtors since it ventilates the speed at which debtors are collected. The collection period will be calculated as under.

= Daysina year

CollectionPeriod

DebtorsTurnover Ratio

TABLE 4.19

Year Wise Days in a year and Debtors Turnover Ratio of The CCSL Ltd., Chittoor.

YEAR DAYS IN A YEAR DEBTORS TURNOVER

RATIO RATIO 2002-2003 365 0.74 97.59 2003-2004 365 2.39 152.72 2004-2005 365 1.15 317.39 2005-2006 365 1.97 185.28 2006-2007 365 6.24 58.49

YEARS

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-Collection period measures the rapidity or slowness with which money is collected from them. The average number of days for which the debtors remain outstanding. Empirically the average collection period rose from 97.9 to 317.39 in the years from 2002-03 to 2004-05. Then reduced slightly from 185.28 to 58.49 in the years from 2005-06 to 2006-07

CREDITORS TURNOVER

RATIO:-This ratio gives the Average Credit period enjoyed from the creditors. A low ratio indicates that creditors are not paid in time while a high ratio gives an

0 0.5 1 1.5 2 2003 2004 2005 2006 2007 2006-07 2005-06 2004-05 2003-04 2002-03

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idea that the business is not taking full advantages of credit period allowed by the creditors.

= CreditPurchases

CreditorsTurnover Ratio

Aberage AccountsPayable

TABLE 4.20

Year Wise Credit Purchases and Average Account Payable of The CCSL Ltd., Chittoor.

(Source: Annual Reports of the CCSL)

INTERPRETATION:

-The creditor’s turnover ratio on the basis of credit purchases. Low ratio indicates that creditors are not paid in time. In the period of 2003-04 company did not purchase raw material so in that period the creditor’s ratio is nil. In

YEAR PURCHASES Average Accounts

Payable RATIO IN % 2002-2003 10,57,81,021 9,45,03,276 1.12 2003-2004 4,74,68,010 7,11,05,381 0.66 2004-2005 5,68,36,705 7,43,16,695 0.80 2005-2006 17,43,54,860 9,47,53,345 1.84 2006-2007 24,08,95,871 13,65,14,358 1.76

2004-05 recorded low ratio i.e. 0.80 it is not good. In the year 2005-06 and 2006-07 recorded high ratio 1.84 and 1.76 respectively

FINDINGS

 The standard cash ratio is 0.50:1. The company is not able to maintain sufficient cash at bank and cash in hand. In 2005-06 company is having the ratio 0.07 only.

 The CCSL is not maintaining the sufficient working capital. It is more fluctuating in net working capital ratio.

 Lenders have contributed more funds then owners. Lenders contribution is 1.10 times of owner contribution.

 Total Liabilities have increased year by year except in 2004-05. The total Liability is 1.65 times more than the total asset.

 The current Assets are used very will in the year 2006-07 is 0.99. And the year‘s from 2004-05 to 2005-06 is decreased to 0.32. Remaining that two years current Assets utilization is satisfied.

 The Inventory turnover ratio has increased in this study but it has declined to 0.139 in 2004-05. The company failed to maintain the efficiency of selling and producing its products.

increased to 39.90 in 2005-06, but it was not sufficient to the company. It is shows very poor performance of the company. Remaining years are shows loss.

 The operating expenses are too high in this study. The operating expenses are very large than the sales. The position is very danger to the CCSL.

SUGGESTIONS

 The CCSL has to increase its current asset such as cash in hand and cash at bank etc. By disposing off the unutilized assets such as old machinery and there by increase its liquidity position. The company has to maintain standard liquidity ratios to meet the liquidity obligation.

 The company is maintaining the lower equity fund. But, the CCSL having the insolvency position for increasing the debt fund. It is suggest that the company has to convert the reserves to assets.

 The Debtor Turnover Ratio has decreased from 5.07 times to 1.98 times. Generally, the higher the value of Debtor Turnover, the more efficient to the management of credit. The CCSL has to improve the debt collection ratio.

 The lower gross profit margin might reflect higher cost of goods sold due to the firm’s inability to purchase raw material (can etc.,) at favorable term, inefficient utilization of plant and machinery of over investment in plant and machinery, resulting in higher cost of production. It suggests the Chief Account Officer has detected the causes of a falling Gross margin and initiate action to improve the Gross Margin.

 The CCSL has the higher operating Expenses. A higher Operating Expenses Ratio is unfavorable. The Operating Expenses are more than the sales are danger to the company; the CCSL must decrease the operating expenses.

CONCLUSION

The Preponderance of current liabilities over the current assets has escalated the net working capital requirement of CCSL. Substantial amount capital is blocked in the inventory sugar of longer period partially due to policies of government and partially associated with tender quotations. CCSL turns its fixed assets faster than current assets. In fact it is because of such a relative faster turnover of fixed assets that it becomes break even long ago. Despite the company’s lifetime sourcing strategy where by its purchases sugar cane from the farmer in the vicinity of CCSL on ensured long term basis so as to have smooth inflow of raw materials sugar as quite prequel for its assistance to farmers such as finance and provision of agricultural inputs such as fertilizers seeds and pesticide profit of CCSL escalated because of excessive overhead and polling up interest on. Remain due to erection of new sugar factories in the vicinity of CCSL, there has been a shortage of sugar cane and as a result a significant chunk of its capacity unutilized.

BALANCE SHEET OF THE CHITTOOR COOPERATIVE SUGARS LTD., AS ON 31ST _{MARCH 2003 TO 1}ST _{APRIL 2007.} Liabilities 2003 2004 2005 2006 2007 Share Capital 14,09,58,700 14,09,60,300 14,09,61,400 14,11,40700 14,25,53,600 Deposits & Borrowings Deposits Borrowings 2,88,36,536 23,56,12,210 2.88.12.457 .22,38,22,462 2,91,54,180 26,60,73,588 3,10,24,046 40,43,40,806, 3,52,01,887 405702423 Outstanding Interest Payable 60,94,478 2,71,90,688 4,05,25,798 4,90,24,989 4,69,27,852 Adjusting Heads “Due by” 18,29,12,074 11,50,20,074 10,81,07,592 14,04,81,701 22,61,00,864 Reserves 21,93,57,188 22,87,27,884 24,80,88,004 2,51,896,411 25,55,94,218 Undistributed Profits 64,227 64,227 64,227 64,227 64,227 Audit Fund 9,695 9,695 9,695 9,695 9,695

Reserve Fund yet to be Invested

24,703 24,703 24,703 24,703 24,703

Difference between Assets & Liabilities

29,92,13,004 36,18,46,708 39,71,03,323 40,81,32,905 50,05,18,718

Cash on Hand 12,83,980 22,575 18,78,931 141,219 95,083 Balance with

Bank:-Current Account Saving Account 17,15,099 23,80,140 13,49,422 1,45,31,768 91,72,861 89,67,176 1,66,827 70,82,767 33,68,313 Shares in other

Co-operative Institutions 2,28,550 2,28,550 2,28,550 2,28,550 2,28,550

Deposits with various

Agencies 12,54,826 12,61,226 12,71,226 12,67,226 12,67,226

Fixed Deposits with Banks

2,50,000 22,50,000 27,50,000 2,50,000 2,50,000

Loan’s & Advances to

Members 64,61,883 63,86,630 90,85,236 87,82,893 1,41,93,990

Loans to other Co-op.,

Sugar Factories 30,00,000 10,00,000 10,00,000 10,00,000 10,00,000

Adjusting Heads “Due to”

5,44,12,361 5,48,94,708 6,70,56,512 586,08,462 5,95,27,013

Interest Receivable 18,26,489 18,26,489 18,26,489 18,26,489 18,26,489

Value of Assets 12,62,06,460 12,62,06,460 1266,47,509 12,91,77,261 13,99,04,578 Value of Closing Stock

1. Stores Stocks 2. Packing Material 3. Stationery 4. Sugar 5. Sugar in Process 6. Molasses 7. Molasses in Process 8. FMP Raw Material & Feed 9. Pesticides 10. Fertilizers 2,02,69,709 1,78,240 26,375 19,19,96,948 2,54,382 69,07,475 9,200 20,474 00 00 2,01,00,2 65 1,78,240 18,671 7,60,05,445 2,34,802 2,86,092 5,7 50 20,474 00 00 2,00,46,5 21 93,100 43,727 7,88,6,404 00 1,06,60,683 00 20,474 362250 00 200,66,210 6,85,016 28,366 26,77,46,257 82,93,497 82,22,629 3,02,613 20,474 00 00 1,88, 22,314 22,784 40,809 24,67,11,289 62,98,461 66,19,003 8,01,5 97 20,4 74 00 205940 Deficits 47,944 47,944 47,944 47,944 47,944 Total 51,46,60,807 40,27,85,782 43,59,05,864 60,98,74,333 611660751

BIBLIOGRAPHY

1. Pandey I.M, FINANCIAL MANAGEMENT, Vikas Publishing House Pvt., Ltd., New Delhi, 9th _Edition

kalyani Publishers, Ludhiana.

3. Prasanna Chandra, FUNDAMENTALS OF FINANCIAL

MANAGEMENT, Tata Mc Graw-Hill Publishing Company Ltd.,