A STUDY ON FINANCIAL PERFORMANCE OF SARAVANA

STORES FOODS PRIVATE LIMITED., CHENNAI.

By
ABISH RAGHUL GANESH.R.L
(Reg.No.97810631001)

A PROJECT REPORT
Submitted to the
FACULTY OF MANAGEMENT STUDIES
In partial fulfillment of the requirements
For the award of the degree
Of
MASTER OF BUSINESS ADMINISTRATION
IN
FINANCE

ANNA UNIVERSITY OF TECHNOLOGY

TIRUNELVELI-627 007
NOV-DEC-2011
1

ABSTRACT
A study on financial performance of saravana stores foods private limited, Chennai.
This study concentrates on the financial performance of Saravana Stores Foods Private
Limited at Chennai.
The analysis is made with primary objective to find out the financial performance of
the Saravana Stores Foods Private Limited. The secondary objective of the study is to find the
companys profitability and liquidity position, working capital pattern, and to forcast the
companys financial performance,
The tools and methods used to analyzing financial statement were ratio analysis,
performance analysis, trend analysis and working capital analysis.
The study is based on secondary source of data. The data have been mainly obtained
from annual reports, include balance sheet, profit and loss a/c of three consecutive years (20072010) of saravana stores foods pvt ltd.
The findings of the study are working capital turnover ratio, inventory turn over ratio,
cash turnover ratio, net profit ratio, operating profit ratio, return on capital employed ratio and
the performance analysis of sales with operating profit, sales with profit after tax has decreased.
The suggestions is Saravana Stores Foods Private Limited has high operating expenses
due to increasing interest on loans as well as logistic expenses
So it should try to reduce its operating expenses and the Trent analyze shows the
company is incurring loss, so the SSFPL should try to avoid its operating expenses and there is
no proper management for allocation of funds. So SSFPL should try to increase an effective
management.
The conclusion of the study for SSFPL can be listed in BSE or NSE .then only the
company will receive funds from outsider and also increases its net profit.
I hope the findings and suggestions will be helpful to improve the Financial
Performance of the Saravana stores foods pvt ltd;

CHAPTER - I
INTRODUCTION
1.1 INTRODUCTION

A subjective measure of how well a firm can use assets from its primary mode of
business and generate revenues. This term is also used as a general measure of a firm's overall
financial health over a given period of time, and can be used to compare similar firms across the
same industry or to compare industries or sectors in aggregation.

There are many different ways to measure financial performance, but all measures
should be taken in aggregation. Line items such as revenue from operations, operating income or
cash flow from operations can be used, as well as total unit sales. Furthermore, the analyst or
investor may wish to look deeper into financial statements and seek out margin growth rates or
any declining debt.

Finance holds the key to all human activity. It is guide for regulating investment
decisions and expenditure and endeavors to squeeze the most out of every available rupee. The
government too, treats it as a signpost, a beckon to responsibility that covers men, money,
material, methods and management. Out of these finance is a resource and it has to be managed
efficiently for the successful functioning of an enterprise. Financial management is that
managerial activity which is concerned with the planning and controlling of the firms financial
resources.

1.2 FINANCE FUNCTION OF A COMPANY

Finance is the life blood of any company so the management has special attention
towards it. A firm performs finance function efficiently so that the business goes on smoothly
and interruption and the company remains not only able to grow on its own resources generated
through surpluses. Finance function call for skill planning control and execution of s firms
activities.
Following are the three major decisions as function of finance
1. The Investment decision.
2. The Financing decision.
3. The Dividend policy decision.

1.3 THE INVESTMENT DECISION

The investment decision relates to the selection of assets in which funds will be invested
by a firm. The assets that can be acquired fall into two broad groups
I. Long term or Fixed assets
II. Short term or Current assets

The financial manager has to carefully allocate the available funds to recover not only the
cost of the fund but also must earned sufficient return on the investment. Two important aspects
of the investment decision are:

The evolution of the prospective return of new investment

The measurement of cut off rate against that prospective return of new investment could
be compared. Investment proposal should be evaluated in term of both expected and risk.
In brief the main elements in the financial decision are

The long & short-term assets and their computation

The business risk complexion of the firm

Concept and measurement of the cost of capital

Efficient management of asset

1.4 FINANCING DECISION

Financing decision is the second important function to be performed by the financial
manager. Broadly, he or she must decide when, where & how to acquire funds to meet the firms
investment needs. In practice, a firm considers many other factors such as control, flexibility,
loan covenants, legal aspects etc. in deciding its capital structure.A companys cost of capital is
weighted average cost of the various sources of finance used by it.

1.5 DIVIDEND DECISION

Dividend decision is the third major financial decision. The financial manager must
decide whether the firm should distribute all profits, or retain them, or distribute a portion &
retain the balance. The optimum dividend policy is one that maximizes the market value of the
firms shares.

1.6 CONCEPTS OF THE STUDY

Balance sheet
Balance sheet is a statement financial position of a business at a specified
moment of time. It represents all the assets owned by the company at a particular moment of
time and the claims of owners and outsiders against those assets all the time. It is in a snapshot of
the financial condition of the business at the time. It is one of the most significance financial
statements.
Assets
Assets representing economic resources are the valuable possessions owned by the
firm. These possessions should be capable of being measured in monitory term. Assets are the
future benefits. Assets may be classified into current assets and fixed asset. Whether an asset is
fixed or current however depends on the nature of business itself.
Current assets
Current asset is an asset on the balance sheet which can either be converted to
cash or used to pay current liabilities within 12 months. Typical current assets include cash, cash
equivalents, short-term investments, accounts receivable, inventory and the portion of prepaid
liabilities which will be paid within a year. On a balance sheet, assets will typically be classified
into current assets and long-term assets.
Fixed assets
Fixed asset, also known as a non-current asset or as property, plant, and equipment
(PP&E), is a term used in accounting for assets and property which cannot easily be converted
into cash. This can be compared with current assets such as cash or bank accounts, which are
described as liquid assets. In most cases, only tangible assets are referred to as fixed.

Liability
Liabilities are debts payable in the future by the firm to its creditors. They represent
economic obligation to pay cash or to provide goods on service in some future period.
Expenditure of liability, bills payable, interest payable, tax payable, debenture, bonds borrowing
from banks and financial institution, public deposits. Liabilities are two types current liability
and long term liability.

Current liability
Current liabilities are often understood as all liabilities of the business that are to be
settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is
longer. A more complete definition is that current liabilities are obligations that will be settled by
current assets or by the creation of new current liabilities.

Long term liability

Long-term liabilities are liabilities with a future benefit over one year, such as
notes payable that mature longer than one year. In accounting, the long-term liabilities are shown
on the right wing of the balance-sheet representing the sources of funds, which are generally
bounded in form of capital assets. Examples of long-term liabilities are debentures, mortgage
loans and other bank loans.

Ratio analysis
Ratio analysis is a technique of analysis and interpretation of financial statement it
is the process of establishing and interpreting various ratio for helping in making certain
decision.
7

Working capital analysis

Working capital is a financial metric which represents operating liquidity
available to a business, organization, or other entity, including governmental entity. Along with
fixed assets such as plant and equipment, working capital is considered a part of operating
capital. Net working capital is calculated as current assets minus current liabilities.

Performance analysis
Performance analysis involves gathering formal and informal data to help
customers and sponsors define and achieve their goals. Performance analysis uncovers several
perspectives on a problem or opportunity, determining any and all drivers towards or barriers to
successful performance, and proposing a solution system based on what is discovered.

Least Square Method

The method of least squares is a standard approach to the approximate
solution of over determined systems, i.e. sets of equations in which there are more equations than
unknowns. "Least squares" means that the overall solution minimizes the sum of the squares of
the errors made in solving every single equation. The most important application is in data
fitting. The best fit in the least-squares sense minimizes the sum of squared residuals, a residual
being the difference between an observed value and the fitted value provided by a model.

CHAPTER II
PROFILES

2.1 COMPANY PROFILE

Saravana store has entered the ice cream business with the launch of Jamaai
brand of ice cream. Saravana Stores Foods Pvt.Ltd.(SSFPL), with its corporate office at Chennai,
Tamilnadu was established in 2004 under the banner of the saravana stores group. The saravana
stores group is committed to excellence in retail having five hyper-markets dealing in products
ranging from vessels to textiles and gold jewellary. The group has a turnover of over Rs1500
crores per annum.

Jamaai is the flagship brand of the organization dedicated to manufacturing and

marketing superior quality ice creams. The brand has a major presence in the states of
Tamilnadu, Karnataka, Andra Pradesh, and Andaman & Nicobar Islands.

Jamaai is manufactured at the organizations state of-the-art manufacturing

facility on the outskirts of Chennai, Tamilnadu. The plant has a manufacturing capacity of 30,000
liters per day and a storage capacity of 1,00,000 units. The products have a shelf of 12 months
when stored at an average temperature of -150 C to -180 C.

Jamaai ice cream is available from exclusive dealers . it is widely present in all type
retail stores . jamaai having over 1000 outlets in Chennai alone and in above 4500 outlets
throughout Tamilnadu and south India.

2.2 PRODUCT PROFILE

CUP ITEMS
Velvety vanilla 100 ml
Chocolate brunette 100 ml
Pleasing pista 100 ml
Silky strawberry 100 ml
Buttery butterscotch 100 ml
Fruit harmony 100 ml
Mango 100 ml
Almond whispers 125 ml
Peach punch 100 ml

10

BAR ITEMS
Feasty couple
Chocobar
Mango couple
Orange grind
Groovy grapes
Rosy blush
Raspberry couple
Jumbo chocobar
Jamaai kulfi

BALL ITEMS
Velvety vanilla
Rosy blush
SPECIALITIES
Cassata soft slab
Cake slab
Luv `n` romance
Jamaai king

11

 Jamaai super delight

NOVELTY ITEMS
Senorita butterscotch
Senorita chocolate
Senorita nutty fruit
Rich sundae
Bubbly
TUBS
Velvety vanilla
Chocolate brunette
Buttery butterscotch
Silky strawberry

BUFFETS
Velvety vanilla
Chocolate brunette
Pleasing pista
Silky strawberry

12

 Buttery butterscotch
Almond whispers

2.3 INDUSTRY PROFILE

The first commercial ice cream plant was established in Baltimore in 1851 by
Jacob Fussell. Ice cream industry occupies place in India. It is one of the consumer goods
industry its products is important popular diet India is an agriculture based country because of
large number of cattle and large milk production most of the dairy and ice cream has developed
in India is well ranked in world.
Ice cream industry has bought magnificent change in the rural economy. It provides
employment to the marginal farmers. The ice cream industry in India is currently estimated to be
worth Rs 2000 crores.Growing at the healthy rate of approximately 12% year on-year.
The ice cream market in India has witnessed a steady growth over the last few
decades. The growth in the ice cream industry has been primarily due to a strong distribution
network and a good cold chain infrastructure. The ice cream market in India is divided into the
brand market and grey market.
The brand market is currently 100 million litter per annum value at 800 crores the
grey market consists of small local players. The per capital consumption of ice cream in India is
above 300 ml, as compared to the world average of 2.3 liters per annum.
Statistics for the market share held by the top ice cream brands in India for the year
2009-2010 are as follows
Amul

38%

Kwality walls

14%

Vadilal

12%
13

Mother dairy

08%

2.4 REVIEW OF LITERATURE

John Mills 1found that addressing the relationships between board
composition, board leadership structure, and firm financial performance demonstrates little
consistency in results. In general, neither board composition nor board leadership structure has
been consistently linked to firm financial performance.

John mills, the accedamy of

management journal, volume 4, pp 43, 1998

B.McGUIRE 2found that the relationship between perception of the firms

corporate social responsibility and measures of their financial performance. Results show that a
firm's prior performance, assessed by both stock-market returns and accounting-based measures,
is more closely related to corporate social responsibility than is subsequent performance. Results
also show that measures of risk are more closely associated with social responsibility than
previous studies have suggested. B.McGUIRE, financial management, 1988, volume 2,pp 854

Charles R.Schwenk and Charles B.Shrader 3found that effects of formal

strategic planning on financial performance in small firms. In this results show that a firms
innovative and challenging to manage strategically consequently, it is important to assess the
value of techniques like strategic planning for improving the financial performance of the firms.
Charles R.Schwenk and Charles B.Shrader, Entrepreneurship: Theory and practical,
volume 17, 1993

1
2
3

14

CHAPTER III
RESEARCH METHODOLOGY

Research methodology refers to the method that the researcher uses in

performing research operation. It describes the various steps that are generally adopted by a
researcher in studying the problem along with the logic behind them. It is a way is understood as
a science of studying how research is done scientifically.

3.1 TITLE OF THE STUDY

The Title of the project is A study on financial performance of saravana
stores foods private limited, Chennai.

3.2 SCOPE OF THE STUDY

The study on the financial performance helps the company to understand their

overall profitability position, solvency position of the concern.

It also helps the company to access the working capital condition and fluctuations
from one period to another period.

3.3 NEED FOR THE STUDY

Financial analysis is a powerful mechanism which helps in ascertaining the strengths
and weakness in the operation and financial position of the company.
15

3.4 OBJECTIVES OF THE STUDY

To analyze the financial performance of Saravana Stores Foods Pvt. Ltd.,

To study the profitability and liquidity position of the firm.
To study the working capital pattern of the company.
To forecast the companys financial performance.

3.5 DATA COLLECTION

The study is based on secondary source of data. Secondary data have been
mainly obtained from annual reports, include balance sheet, profit and loss account, of Saravana
stores foods private ltd.

3.6 PERIOD OF STUDY

The period of the study is limited to 3 years, i.e., from 2007-2008 to 2009
2010

3.7 RESEARCH DESIGN

Research design is the arrangement of conditions for collection and analysis of
data in a manner that aims to combines relevance to the research purpose with economy in
procedure. The research design used in the study is Analytical research design.

16

3.8 TOOLS OF ANALYSIS

Various methods of techniques used in analyzing financial statement include
1.
2.
3.
4.

Ratio Analysis
Performance Analysis
Least Square Method (Trend Forecasting Analysis)
Working Capital Analysis

3.9 STATEMENT OF THE PROBLEM

The inefficient liquidity position in the company.
Improper profitability management.
There is no proper technique to measure the financial performance of the company.

3.10 LIMITATION OF THE STUDY

The analysis and interpretation has done on the basis of few statistical tools.
The study is heavily relies on secondary data.
The study is limited only to a period of three years from 2008-2010

17

CHAPTER IV
DATA ANALYSIS AND INTERPRETATION

4.1 RATIO ANALYSIS

1.CURRENT RATIO
The current ratio is a financial ratio that measures whether or not a firm has
enough resources to pay its debts over the next 12 months. It compares a firm's current assets to
its current liabilities. It is expressed as follows:
Current Ratio = Current assets / Current liabilities
Table 4.1.1
Current Ratio
Year
2008
2009
2010
Source: Secondary data

Current Assets `
56167644.29
62245656
56190775

Current Liability `
75085091.47
56253168
47871251

Ratio
0.74
1.10
1.17

Interpretation
From the above table it is shown that the current ratio of the company has been
increasing steadily during the year 2008 to 2010 from 0.74 to 1.17. The current ratio has an
average of 1.00 for the period under the study. So all these situations represent the liability crisis
faced by the company.

18

Chart 4.1.1
Current Ratio

19

2. LIQUIDITY RATIO
The Acid-test or quick ratio or liquid ratio measures the ability
of a company to use its near cash or quick assets to extinguish or retire its current liabilities
immediately. Quick assets include those current assets that presumably can be quickly converted
to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot
currently pay back its current liabilities.
Liquid Ratio = Liquid Assets / Current Liabilities
Where Liquid Assets = Current Assets Stock & Prepaid Expenses
Table 4.1.2 Liquidity Ratio
Year
2008
2009
2010
Source: Secondary data

Liquid Assets `
2808002
33904359
29525201

Current Liability `
75085091.47
56253168
47871251

Ratio
0.03
0.60
0.61

Interpretation
From the above table it is found that the liquidity ratio of the company has increased from 0.03
to 0.60 then and also increased 0.60 to 0.61 from the period of study. It shows that the company
having good liquidity position.

20

Chart 4.1.2
Liquidity Ratio

21

3. ABSOLUTE LIQUIDITY RATIO

It is otherwise called as cash position ratio. It relates to the sum of cash &
Marketable Securities to the current liabilities.
Absolute Liquid Ratio = Cash / Current Liabilities
Table 4.1.3 Absolute Liquidity Ratio
Year
2008
2009
2010
Source: Secondary data

Cash `
3261900.37
12126704
1679275

Current Liability `
75085091.47
56253168
47871251

Ratio
0.04
0.21
0.03

Interpretation
The above table shows the absolute liquidity ratio of the company. The ratio is
increased 0.04 to 0.21 then the ratio is decreased 0.21 to 0.03. The ratio has an average 0.09 for
the period of study. It shows that the company needs to improve its absolute liquidity position.
Chart 4.1.3 Absolute Liquidity Ratio

4. WORKING CAPITAL TURNOVER RATIO

22

It is also known as Working Capital Leveraged Ratio. This ratio indicated

whether or not working capital has been effectively utilized in making sales. If higher sales
volume can be achieved with relatively small amount of working capital. It is an indication of
operating efficiency.
Working Capital Turnover Ratio = Net Sale / Working Capital
Table 4.1.4 Working Capital Turnover Ratio
Year
2008
2009
2010
Source: Secondary data

Net Sales `
261618526.59
368760184
344570020

Working Capital `
(18917447.18)
5992488
8319524

Ratio
(13.83)
61.54
41.42

Interpretation
The above table shows the working capital turnover ratio of the company. A higher
ratio indicates efficient utilization of working capital. The average of the working capital
turnover ratio is 89.13 from the period of study.Chart 4.1.4 Working Capital Turnover Ratio

5. INVENTORY TURNOVER RATIO

Every firm has to maintain a certain level of inventory in order to meet the
requirement of the business. But the level of inventory should neither be too high nor to low.
This indicates the relationship between inventory and sales.
23

Inventory Turnover Ratio = Sales / Average Inventory

Table 4.1.5 Inventory Turnover Ratio
Year
2008
2009
2010
Source: Secondary data

Sales `
261618526.59
368760184
344570020

Average Inventory `
5991528.43
27179391
26665574

Ratio
43.67
13.56
12.92

Interpretation
The above table shows the inventory turnover ratio of the company. The ratio has a
decreasing trend. The average ratio is 23.38 for the period of 2008 to 2010. It indicates the
company has effective inventory management.
Chart 4.1.5 Inventory Turnover Ratio

6. CASH TURNOVER RATIO

It is also known as Cash Velocity. Cash turnover ratio is the relationship
between sales and cash. It indicates the number of items the cash is turned out of the business of
cash reserves.

24

Cash Turnover Ratio = Sales / Cash

Table 4.1.6 Cash Turnover Ratio
Year
2008
2009
2010
Source: Secondary data

Sales `
261618526.59
368760184
344570020

Cash `
3261900.37
12126704
11679275

Ratio
80.20
30.40
29.50

Interpretation
The above table shows the cash turnover ratio of the company. The ratio has a
decreasing trend. The average ratio is 46.70 for the period of 2008 to 2010. It indicates the
company needs to improve its cash as well as sales.
Chart 4.1.6 Cash Turnover Ratio

7. TOTAL ASSETS TURNOVER RATIO

A firm must manage its total assets efficiency and should generate maximum
sales through their utilization.
Total Assets Turnover Ratio = Net Sales / Total Assets
Table 4.1.7 Total Assets Turnover Ratio
25

Year
2008
2009
2010
Source: Secondary data

Sales `
261618526.59
368760184
344570020

Total Assets `
204862566.58
241330065
265633006

Ratio
1.28
1.53
1.29

Interpretation
The above table shows that the company total assets turnover of the company. The
ratio has increased from 1.28 to 1.53 and then the ratio has decreased from 1.53 to 1.29. The
average ratio is 1.37 for the period of study. It shows the company need to improve its total
assets turnover position.
Chart 4.1.7 Total Assets Turnover Ratio

8. FIXED ASSET TURNOVER RATIO

This ratio indicates the extent to which the investment in fixed assets
contributes towards sales. If compared with the previous period, it indicates whether the
investment in fixed assets has been careful or not.
Fixed Assets Turnover Ratio = Net Sales / Fixed Assets
Table 4.1.8 Fixed Asset Turnover Ratio

26

Year
2008
2009
2010
Source: Secondary data

Sales `
261618526.59
368760184
344570020

Fixed Assets `
148694922.29
179084410
209442231

Ratio
1.76
2.05
1.64

Interpretation
The above table shows that the fixed assets ratio of the company. The ratio has
increased from 1.76 to 2.05 and then the ratio has decreased from 2.05 to 1.64. The average ratio
is 1.82 for the period of study. It shows that the company needs to improve its fixed assets
turnover position.
Chart 4.1.8 Fixed Assets Turnover Ratio

9. CURRENT ASSETS TURNOVER RATIO

It shows the relationship between sales and current assets. The current assets
should increase proportionately to sales.
Current Assets Turnover Ratio = Sales / Current Assets
Table 4.1.9 Current Assets Turnover Ratio
Year
2008
2009

Sales `
261618526.59
368760184

Current Assets `
56167644.29
62245656
27

Ratio
4.66
5.92

2010
Source: Secondary data

344570020

56190775

6.13

Interpretation
The above table shows that the current assets turnover ratio of the company. The ratio
has increased from 4.66 to 5.92 and then also increased from 5.92 to 6.13. The average ratio is
5.57 for the period of study. It shows that the company is managing its current assets effectively.

Chart 4.1.9 Current Assets Turnover Ratio

10. NET PROFIT RATIO

This measures the relationship between net profit and sales of the firm. It indicate
managements ability to operate the business with sufficient success not only to recover expenses
like depreciation and interest but also to leave a margin of reasonable compensation to the owner
for providing their capital at risk.
Net Profit Ratio = Net Profit / Sales *100
Table 4.1.10 Net Profit Ratio
Year

Net Profit `

Sales `
28

Ratio

2008
2009
2010
Source: Secondary data

(4037501.06)
(45127041)
(13722946)

261618526.59
368760184
344570020

(1.54)
(12.23)
(3.98)

Interpretation
The above table shows the net profit ratio of the company. The ratio has decreased in
year by year. The average ratio is -5.92 for the period of study 2008 to 2010. It indicates the
company incurring loss. So the company needs to improve its net profit.
Chart 4.1.10 Net Profit Ratio

11. PROFIT BEFORE TAX TO AVERAGE CAPITAL EMPLOYED

Profit before tax to average capital employed ratio establishes the relationship
between profit before tax and average capital employed.
Profit before Tax to Average Capital Employed = Profit before Tax / Average Capital Employed
Table 4.1.11 Profit before Tax to Average Capital Employed
Year
Profit Before Tax `
2008
1491061.54
2009
(45127041)
2010
(12946407)
Source: Secondary data

Ave capital employed `

167612369.47
185076898
217761755

29

Ratio
0.008
(0.24)
(0.05)

Interpretation
The above table shows that the profit before tax to average capital employed. The
ratio has decreased from 0.008 to -0.24 and then normally increased to -0.05. The average ratio is
-0.094 for the period of study 2008 to 2010. It shows the company has been suffering loss.
Chart 4.1.11 Profit before Tax to Average Capital Employed

12. PROFIT BEFORE TAX TO SALES

It establishes the relationship between profit before tax and sales. This ratio is
calculated by dividing profit before tax with the net sales.
Profit before Tax to Sales = Profit before Tax / Sales
Table 4.1.12 Profit before tax to Sales
Year
Profit Before Tax `
2008
1491061.54
2009
(45127041)
2010
(12946407)
Source: Secondary data

Sales `
261618526.59
368760184
344570020

Interpretation
30

Ratio
0.005
(0.12)
(0.03)

From the above table it can be inferred that the profit before tax shows decreasing
trend for the period is 2008 to 2010. Because of increasing operating expenses. It shows that
company needs to improve its sales and also minimize its operating expenses.
Chart 4.1.12 Profit before Tax to Sales

13. DEBTORS TO CURRENT ASSETS RATIO

This ratio examines the relationship between the debtors balance and current assets.
A firm with a very high ratio would expose the creditors to higher risk. Accompany should have
either a very high ratio or very low ratio.
Debtors to Current Asset Ratio = Debtors / Current Assets
4.1.13 Debtors to Assets Ratio
Year
2008
2009
2010
Source: Secondary data

Debtors `
7466405.26
7846287
13217277

Current Assets `
56167644.29
62245656
56190775

Interpretation

31

Ratio
0.13
0.12
0.23

The above table shows that the debtors to current assets ratio of the company. This
ratio indicates the debtors occupying level in current assets. The above table shows a fluctuation
in ratios which indicates that the adopting right strategy for collecting its debts.
Chart 4.1.13 Debtors to Current Assets Ratio

14. OPERATING PROFIT RATIO

Operating profit ratio examines relationship between operating profit and net
sales. A firm with a high ratio it expose the high operating profit. Accompany should have
neither a low ratio it expose the low operating profit.
Operating Profit ratio = Operating profit / Net Sales * 100
Table 4.1.14 Operating Profit Ratio
Year
2008
2009
2010
Source: Secondary data

Operating Profit `
1491061.54
(45127041)
(12946407)

Net Sales `
261618526.59
368760184
344570020

Interpretation

32

Ratio
0.005
(0.12)
(0.03)

The above table shows that the operating profit of the company. The ratio has
decreased from 0.56 to -24.36. The average ratio is -9.89 for the period of 2008 to 2010. It shows
the company needs to increase its operating profit.
Chart 4.1.14 Operating Profit Ratio

15. RETURN ON CAPITAL EMPLOYED RATIO

Return on capital employed ratio examines relationship between operating
profit and capital employed.
Return on capital employed ratio = Operating profit / Capital Employed * 100
Table 4.1.15 Return on Capital Employed Ratio
Year
2008
2009
2010
Source: Secondary data

Operating Profit `
1491061.54
(45127041)
(12946407)

Capital Employed `
167612369.47
185076898
217761755

Interpretation

33

Ratio
0.89
(24.38)
(5.94)

The above table shows that the return on capital employed of the company. The ratio
has decreasing trend. The average ratio is -9.81 for the period of 2008 to 2010. It shows the
company needs to improve its capital employed.
Chart 4.1.15 Return on Capital Employed

PERFORMANCE ANALYSIS
Table 4.1.16 Performance Analysis of Sales with Operating Profit
Sales

Operating Profit

Operating

Year
2008

`
261618526.59

Sales %
-

`
1491061.54

Profit %
-

2009

185201832

70.79

(45127041)

(26.50)

2010

220940124

19.29

(12946407)

(28.69)

Source: Secondary data

Interpretation
34

As per the general concept, the operating profit should be directly proportional to sales.
But due to increase in operating expenses, the sales with operating profit has decreased from
26.50% to 28.69%.
Table 4.1.17 Performance Analysis of Operating Profit with Profit after Tax
Operating Profit

Operating

Profit after tax

Profit after tax

Year
2008

`
1491061.54

Profit %
-

`
(4037501.06)

%
-

2009

(45127041)

(26.50)

(45127041)

(17.69)

2010

(12946407)

(28.69)

(13722946)

(30.41)

Source: Secondary data

Interpretation
The above table shows there is a negative relationship between operating profit and
profit after tax. This indicates that there is increase in operating expenses. The operating profit
has decreased from 26.50% to 28.69%.

Table 4.1.18 Performance Analysis of Sales with Net Fixed Assets

Sales

Net Fixed Assets

Net Fixed

Year
2008

`
261618526.59

Sales %
-

`
148694922.29

Assets %
-

2009

185201832

70.79

179084410

20.44

2010

220940124

19.29

209442231

16.95

Source: Secondary data

Interpretation
It is evident from the table that the sales are proportionate to net fixed assets. So there
is a positive relationship. As new machineries are purchased, it has affected the profit of the
company.
35

Table 4.1.19 Performance Analysis of Sales with Capital Employed

Sales

Capital Employed

Capital

Year
2008

`
261618526.59

Sales %
-

`
167612369.47

Employed %
-

2009

185201832

70.79

185076898

10.42

2010

220940124

19.29

217761755

17.67

Source: Secondary data

Interpretation
The above table shows that there is positive relationship between sales and capital
employed. As the capital employed has increased from 10.42% to 17.67%.

Table 4.1.20 Performance Analysis of Sales with Working Capital

Sales

Working Capital

Working

Year
2008

`
261618526.59

Sales %
-

`
(18917447.18)

Capital %
-

2009

185201832

70.79

5992488

(31.68)

2010

220940124

19.29

8319524

38.83

Source: Secondary data

Interpretation
According to this table sale has increased as the working capital has increase and this
is due to increase in expenses and also indicate company utilization of funds. The working
capital has increased from 31.68% to 38.83%.

36

Table 4.1.21 Performance Analysis of Profit after Tax with Net Fixed Assets
Profit After Tax

Profit After

Net Fixed Assets

Net Fixed

Year
2008

`
(4037501.06)

Tax %
-

`
148694922.29

Assets %
-

2009

(45127041)

(17.69)

179084410

20.44

2010

(13722946)

(30.41)

209442231

16.95

Source: Secondary data

Interpretation
The above table shows that the profit after tax should be directly proportionate to net
fixed assets but due to increase in depreciation and tax the profit has steeply decreased from
17.69% to 30.41%.

Table 4.1.22 Performance Analysis of Profit after Tax with Capital Employed
Profit After Tax

Profit After

Capital Employed

Capital

Year
2008

`
(4037501.06)

Tax %
-

`
167612369.47

Employed %
-

2009

(45127041)

(17.69)

185076898

10.42

2010

(13722946)

(30.41)

217761755

17.67

Source: Secondary data

Interpretation
The above table shows there is negative relationship between profit after tax and
capital employed. Because of the depreciation of assets has increased continuously. Profit after
tax has decreased.

Table 4.1.23 Performance Analysis of Net Fixed Assets with Depreciation

37

Net Fixed Assets

Net Fixed

Depreciation

Depreciation

Year
2008

`
148694922.29

Assets %
-

`
18310754.73

%
-

2009

179084410

20.44

32493244

77.45

2010

209442231

16.95

30013046

92.37

Source: Secondary data

Interpretation
The above table demonstrates that net fixed asset is proportionate to depreciation.
This shows that the company has been utilizing the machinery to the fullest capacity.

Table 4.1.24 Performance Analysis of Profit after Tax with Sales

Profit After Tax

Profit After

Sales

Sales

Year
2008

`
(4037501.06)

Tax %
-

`
261618526.59

%
-

2009

(45127041)

(17.69)

185201832

70.79

2010

(13722946)

(30.41)

220940124

19.29

Source: Secondary data

Interpretation
The above table shows the sale has increased. But the profit after tax decreases due
to the interest on loan and other expenses, the profit decreases. To sum up, the company has vast
amount of loan.

Table 4.1.25 Performance Analysis of Fixed Assets with Current Assets

38

Fixed Assets

Fixed Assets

Current Assets

Current Assets

Year
2008

`
148694922.29

%
-

`
56167644.29

%
-

2009

179084410

20.44

62245656

10.82

2010

209442231

16.95

56190775

90.27

Source: Secondary data

Interpretation
From the above table shows the positive relationship between fixed assets and current
assets. The current assets having some fluctuations, it indicates the company running position.
The current asset has increased from 10.82% to 90.27%

LEAST SQARE METHOD (TREND FORECASTING ANALYSIS)

"Least squares" means that the overall solution minimizes the sum of the squares of
the errors made in solving every single equation. The most important application is in data
fitting. The best fit in the least-squares sense minimizes the sum of squared residuals, a residual
being the difference between an observed value and the fitted value provided by a model.
Table 4.1.26
Least Square Method on Loans
Year

Loans

2008
2009
2010
2011
2012
2013

`
166321442.19*
250534099*
128985971*
144611699.55**
125943963.96**
107276228.37**

Source: Secondary data

Interpretation
39

Using trend forecast the loan for the years 2011 to 2013 is calculated as
144611699.55, 125943963.96, and 107276228.37.

Chart 4.1.26
Loan forecasting for forthcoming year

40

Table 4.1.27 Least Square Method on Working Capital

Year

Working Capital

2008
2009
2010
2011
2012
2013

`
(18917447.18)*
5992488*
8319524*
25701826.12**
39320311.71**
52938797.30**

Source: Secondary data

Interpretation
Using trend forecast the working capital for the years 2011 to 2013 is calculated as
25701826.12, 39320311.71, and 52938797.30.
Chart 4.1.27 Working Capital forecasting for forthcoming year

41

Table 4.1.28 Least Square Method on Sales

Year

Sales

2008
2009
2010
2011
2012
2013

`
261618526.59*
185201832*
220940124*
181908424.94**
161569223.66**
141230022.37**

Source: Secondary data

Interpretation
Using trend forecast the sales for the year 2011 to 2013 is calculated as 181908424.94,
161569223.66, and 141230022.37 respectively.
Chart 4.1.28 Sales forecasting for forthcoming year

42

Table 4.1.29 Least Square Method on Net Profit

Year

Net Profit

2008
2009
2010
2011
2012
2013

`
(4037501.06)*
(45127041)*
(13722946)*
(30647940.96)**
(35490663.43)**
(40333385.90)**

Source: Secondary data

Interpretation
Using trend forecast the net profit for the year 2011 to 2013 is calculated as
(30647940.96), (35490663.43), and (40333385.90) respectively.
Chart 4.1.29 Net Profit forecasting for forthcoming year

43

Table 4.1.30 Least Square method on Current Assets

Year

Current Assets

2008
2009
2010
2011
2012
2013

`
56167644.29*
62245656*
56190775*
58224489.06**
58236054.42**
58247619.78**

Source: Secondary data

Interpretation
Using trend forecast the current assets for the years 2011 to 2013 is calculated as
58224489.06, 58236054.42, and 58247619.78 respectively.
Chart 4.1.30 Current Assets forecasting for forthcoming year

44

Table 4.1.31 Least Square Method on Current Liabilities

Year

Current Liabilities

2008
2009
2010
2011
2012
2013

`
75085091.47*
56253168*
47871251*
32522663.02**
18915742.80**
5308822.57**

Source: Secondary data

Interpretation
Using trend forecast the current liabilities for the years 2011 to 2013 is calculated
as 32522663.02, 18915742.80, and 5308822.57 respectively.
Chart 4.1.31 Current Liabilities forecasting for forthcoming year

45

Table 4.1.32
Schedule of Changes in Working Capital 2008-2009
Particulars

2008
`

2009
`

Increase
`

Raw material
Input vat
Inventories
sundry debtors
Cash & bank balance
Loans & advances
TOTAL (A)
CURRENT LIABILITY

22096094.60
443531.56
5991528.43
7466405.26
3261900.37
16878184.07
56167644.29

25623358
2049165
2717939
7846287
12126704
11882202
62245656

3527263.40
1605633.44

Sundry creditors
Provisions
TOTAL (B)
WORKING CAPITAL

69469272.55
5615818.92
75085091.47
(18917447.18

56128234
124934
56253168
599248

Decrease
`

CURRENT ASSETS

(A-B)

Interpretation
46

3273589.43
379881.74
8864803.63
4995982.07

13341038.55
5490884.92

The above table shows the schedule of changes in working capital for the period
of 2008-2009. It shows that the working capital of the company has increased.

Table 4.1.33
Schedule of Changes in Working Capital 2009-2010
Particulars

2009
`

2010
`

Raw material
Input vat
Inventories
sundry debtors
Cash & bank balance
Loans & advances
TOTAL (A)
CURRENT LIABILITY

25623358
2049165
2717939
7846287
12126704
11882202
62245656

8852699
2077227
26665574
13217277
1679275
3698723
56190775

Sundry creditors
Provisions
TOTAL (B)
WORKING CAPITAL

56128234
124934
56992488
599248

44092882
3778369
47871251
831952

Increase
`

Decrease
`

CURRENT ASSETS

(A-B)

16770659
28062
23947635
5370990
10447429
8183479

12035352
3653435

Interpretation
The above table shows the schedule of changes in working capital for the period
of 2009-2010. It indicates that the working capital of the company has increased.

47

CHAPTER V
FINDINGS AND SUGGESTIONS
5.1 FINDINGS OF THE STUDY
The Current Assets ratio has been increasing steadily from 0.74 to 1.17. The average
current ratio is 1.00 for the period of study from 2008 to 2011.
The Liquidity ratio has increased from 0.03 to 0.60. The average liquidity ratio is 41.00
for the period of study from 2008 to 2010.
The Absolute Liquidity ratio has decreased from 0.21 to 0.03 because the cash in hand
decreased and also the current liability has decreased. The average absolute liquidity ratio
is 0.09 for the period of study.
The Working Capital Turnover ratio has decreased from 61.54 to 41.42 but it is good
compared to previous year. The average working capital turnover ratio is 89.13 for the
period of study.
The Inventory Turnover ratio has decreased from 13.56 to 12.92. The average inventory
turnover ratio is 23.38 for the period of study.
The Cash Turnover ratio has decreased from 80.20 to 29.50. The firm is having low
liquidity position. The average cash turnover ratio is 46.70 for the period of study.
The Total Assets turnover ratio is to maintained at a satisfactory level by the company.
The average total assets turnover ratio is 1.82 for the period of study.
The Fixed Assets Turnover ratio has reduced in the year of 2010 from 2.05 to 1.64. The
average fixed assets turnover ratio is 1.82 for the period of study.
The Current Assets Turnover ratio has increased from 5.92 to 6.13. The average current
assets turnover ratio is 5.57 for the period of study.
The Net Profit ratio has decreased year by year from -1.54 to -12.23.It indicates the firm
has suffering loss. The average net profit ratio is -5.92 for the period of study.
48

 Profit before tax to Average Capital Employed has decreased from 0.008 to -0.24. The
average ratio is -0.094 for the period of study 2008 to 2010.
Profit before tax to Sales ratio has decreased from 0.005 to -0.03 because of the company
operating expenses has increased. The average ratio is -0.145 for the period of study.
Debtors to Current Assets ratio has been increased from 0.12 to 0.23. It shows the
fluctuation in ratios which indicates collection method of company. The average debtors
to current assets ratio is 0.16 for the period of study.
The Operating Profit ratio has decreased from 0.005 to 0.03 because the companys
operating expenses has increased. The average operating profit ratio is -9.89 for the
period of study.
Return on Capital Employed ratio has been decreased in the year of 2009 and 2010. The
average ratio is -9.81 for the period of study.
The performance analysis of sales with operating profit has decreased from 19.29% to
-28.69% in the year of 2009 and 2010.
The performance analysis of operating profit with Profit after tax has decreased from
-28.69% to -30.41%. It indicates that the operating expenses have increased.
The performance analyze of Sales with Net fixed assets has shown positive relationship
and also sales has decreased from 70.79% to 19.29%. It indicates the new machinery
purchased.
There is positive relationship between sales and capital employed. As the working capital
has increased and this is due to increase in expenses. Capital employed is increased from
10.42% to 17.67%
The performance analyze of Sales with Working capital has increased due to the
increasing expenses. The working capital has increased from -31.68% to 38.83% for the
period of study.
The profit after tax should be directly proportionate to net fixed assets but due to increase
in depreciation and tax the profit has steeply decreased. The profit after tax has decreased
from -17.69% to -30.41% for the period of study.
The performance analysis of Profit after tax with capital employed has negative
relationship. Because of the increased in depreciation. The profit after tax has decreased.
The performance analysis of Net fixed assets proportionate to Depreciation. This shows
that the company is utilizing its capacity effectively. And also depreciation has increased
from 77.45% to 92.37% for the period of study.

49

The performance analyze of Sales with Profit after tax has decreased. Because the
interest on loans has increased. The sale has decreased from 70.79% to 19.29% for the

period of study.
There is positive relationship between fixed assets and current assets. The current asset
has some fluctuations. The current asset has increased from 10.82% to 90.27% for the
period of study.
Using trend forecast the loan for the years, 2011 is ` 144611699.55, 2012 is `
125943963.96 and 2013 is ` 107276228.37.
Using trend forecast the working capital for the years 2011is` 25701826.12, 2012 is `
39320311.71 and 2013 is ` 52938797.30.
Using trend forecast the sales for the years 2011 is ` 181908424.94, 2012 is `
161569223.66 and 2013 is ` 141230022.37.
Using trend forecast the net profit for the years 2011 is ` (-30647940.96), and 2012 is ` (35490663.43), and 2013 is ` (- 40333385.90).
Using trend forecast the current assets for the years 2011 is ` 58224489.06, 2012 is `
58236054.42 and 2013 is ` 58247619.70.
Using trend forecast the current liabilities for the years 2011 is ` 32522663.02, 2012 is `
18915742.80 and 2013 is ` 5308822.57.
The Working Capital has increased in the year of 2008-2009 and 2009-2010 respectively.

5.2 SUGGESTIONS

The SSFPL has high operating expenses due to increasing interest on loans as well
as logistics expenses. So it should try to reduce its operating expenses.
50

 Since the ratio analysis shows satisfactory level of the SSFPL, it can maintain the
same and improve it.
The Trend Analyze shows the company is incurring loss. So the SSFPL should try
to avoid its loss through reducing its operating expenses.
The SSFPL dont have the proper management for allocation of funds. So the
SSFPL should try to increase an effective management.
The SSFPL can be listed in BSC or NSC. Then only the company will receive
fund from outsiders and also increase its net profit.

5.3 CONCLUSION

The research entitled A study on Financial Performance of Saravana Stores Foods

Pvt, Ltd included Ratio Analysis, Trend Analysis, Performance Analysis, and Working Capital
51

Analysis for a period of 3 years from 2008-2010 reveals that the Sales, Inventory management,
and Working capital is satisfactory level and there are areas of concern such as Net profit which
needs to be addressed.
The study helps to apply the theoretical knowledge to practice. I have made a sincere effort to
make the report a correct one. The study helps me to improve my knowledge in financial
management.
I hope the findings and suggestions will be helpful to improve the Financial
Performance of the Saravana stores foods pvt ltd;

52