1

MID TERM REPORT

ON
RATIO ANALYSIS
Submitted in the partial fulfillment of the requirements
For the award of the degree of master of Business Administration


Submitted to: - Submitted by:-
Mrs. Megha Mayuri Ganatra
(Project in charge) Roll no. 11204110028
MBA 4
th
SEM







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Acknowledgement
The satisfaction Euphoria that accompanies the successful completion of any work would
be incomplete unless we mention the name of the person, who made it possible, whose
constant guidance and encouragement served as a beckon of light and crowned our efforts
with success. I consider it a privilege to express through the pages of this report, a few
words of gratitude and respect to those who guided and inspired in the completion of this
project.

I am deeply indebted to MrRashpal Singh
for giving me the opportunity to undergo my project in their esteemed organization and
their timely suggestions & Valuable guidance.
Last but not the least; my grateful
appreciation is also extended to Mr.Jasmeet (Administrative Head and my cordial thanks
to my Parents and friends. However, I accept the sole responsibility for any possible errors
of omission and would be extremely grateful to the readers of this project report if they
bring such mistakes to my notice.
However, I accept the sole responsibility for any possible errors of omission and would be
extremely grateful to the readers of this project report if they bring such mistakes to my
notice.
Mayuri Ganatra










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TABLE OF CONTENTS

Sr. No. Contents Page no.
1. INTRODUCTION
INTRODUCTION OF
PROJECT
OBJECTIVES OF PROJECT
1 to 3
2. RATIO ANALYSIS
Meaning of Ratio analysis
Forms of Ratio analysis
Steps in Ratio analysis
Pre-requisites of Ratio analysis
Classification of Ratio analysis
Importance of Ratio analysis
Advantages of Ratio analysis
Limitations of Ratio analysis
Purpose of Ratio analysis
Role of Ratio analysis
4 to 13
3. Types of Ratio analysis 14 to 40
4. COMPANY PROFILE
Vision
Mission
Accelerated growth


6. CONCLUSION





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Need of the Project

This projects is helpful in knowing the companies position of funds maintenance and
setting the standards for working capital inventory levels, current ratio level,
quick ratio, current amount turnover level.2. This project is helpful to the managements
for expanding the dualism & the project viability & present availability of funds.3. This
project is also useful as it companies the present year data with the previous year data and
there by it show the trend analysis, i.e. increasing fund or decreasingfund.4. The project
i s done enti rel y as a whol e enti rel y. It wi l l gi ve overal l vi ew of the
organization and it is useful in further expansion decision to be taken by management.

Objective of the Study

The main objective of Ratio Analysis is to get knowledge about financial position of
GNA Enterprises Ltd.Jamalpur

Specially, objectives of study are as follows :

To find out the financial position of GNA Enterprises Ltd. For the year To know the
future prospect of the company.

To study the organizational structure of the company and its variousdepartments.

To Determine the Profitability, Liquidity and Solvency ratio of the company.

To study the present position of the GNA Enterprises Ltd.

To offer appropriate suggestions for the better performance of the organization.

















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INTRODUCTION
RATIO ANALYSIS:

Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative)
factors of a company. The other side considers tangible and measurable factors (quantitative).
This means crunching and analyzing numbers from the financial statements. If used in
conjunction with other methods, quantitative analysis can produce excellent results.
Ratio analysis isn't just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It's comparing the number against previous years, other
companies, the industry, or even the economy in general. Ratios look at the relationships between
individual values and relate them to how a company has performed in the past, and might
perform in the future.
MEANING OF RATIO:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures
the relationship two figures, which are related to each other and mutually interdependent. Ratio is
express by dividing one figure by the other related figure. Thus a ratio is an expression relating one
number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as
a decimal or as a pure ratio or in absolute figures as so many times. As accounting ratio is an
expression relating two figures or accounts or two sets of account heads or group contain in the
financial statements.
Ratio is numerical relationship between two variables which are connected with each other in some
way or the other. Ratios may be expressed in any one of the following manners:
As a number between 500 and 100 may be expressed as 5(500 divided by 100).
As a fraction may be expressed as former being 5 times of the later.
As a percentage the relationship between 100 and 500 may be expressed as 20% of the later.
As a proportion relationship between 100 and 500 may be expressed as 1:5.





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MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship of items or group of items in the
financial statement are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health
and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis.
There are several ratios at the disposal of an annalist but their group of ratio he would prefer
depends on the purpose and the objective of analysis.
While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus on a
technique, which is easy to use. It can provide you with a valuable investment analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares
financial ratios of several companies from the same industry. Ratio analysis can provide valuable
information about a company's financial health. A financial ratio measures a company's
performance in a specific area. For example, you could use a ratio of a company's debt to its equity
to measure a company's leverage. By comparing the leverage ratios of two companies, you can
determine which company uses greater debt in the conduct of its business. A company whose
leverage ratio is
higher than a competitor's has more debt per equity. You can use this information to make a
judgment as to which company is a better investment risk.
However, you must be careful not to place too much importance on one ratio. You obtain a better
indication of the direction in which a company is moving when several ratios are taken as a group.
Ratio analysis facilitate the presentation of information of financial statements in simplified and
concise and summarized form.

Definition: In the words of Hund, William, Ratios are simply a means of highlighting in
arithmetical terms the relationship between figures drawn from financial statements.


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FORMS OF RATIO:







A] As a pure ratio:

For example the equity share capital of a company is Rs. 20,00,000 & the preference share capital
is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000: 5,00,000 or
simply 4:1.
B] As a rate of times:
In the above case the equity share capital may also be described as 4 times that of preference
share capital. Similarly, the cash sales of a firm are
Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales can be
described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit sales are 2.5 times that of
cash sales.
C] As a percentage:
In such a case, one item may be expressed as a percentage of some other item. For example, net sales
of the firm are Rs.50,00,000 & the amount of the gross profit is Rs. 10,00,000, then the gross profit
may be described as 20% of sales [ 10,00,000/50,00,000]
Forms of Ratio
As a Pure
Ratio
As a Rate of
Times
As a Percentage
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STEPS IN RATIO ANALYSIS


Selection of
Relevant Data





Calculation of
Appropriate Ratios





Comparison of
Ratios





Interpretation
of Ratios


Selection of relevant data from the financial statements depending upon the
objective of the analysis.
Calculation of appropriate ratios from the above data.
Comparison of the calculated ratios with the ratios of the same firm in the past, or
the ratios developed from projected financial statements or the ratios of some other
firms or the comparison with ratios of the industry to which the firm belongs.


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Interpretation of ratio:- The interpretation of ratios is an important factor. The
inherent limitations of ratio analysis should be kept in mind while interpreting them.
The impact of factors such as price level changes, change in accounting policies, window
dressing etc., should also be kept in mind when attempting to interpret ratios. The
interpretation of ratios can be made in the following ways.
Single absolute ratio
Group of ratios
Historical comparison
Projected ratios
Inter-firm comparison













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PRE-REQUISITIES TO RATIO ANALYSIS
In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-
requisites, which must be taken care of. It may be noted that these prerequisites are not conditions
for calculations for meaningful conclusions. The accounting figures are inactive in them & can be
used for any ratio but meaningful & correct interpretation & conclusion can be arrived at only if
the following points are well considered:


1) The dates of different financial statements from where data is taken must be same.
2) If possible, only audited financial statements should be considered, otherwise there must be
sufficient evidence that the data is correct.
3) Accounting policies followed by different firms must be same in case of cross section analysis
otherwise the results of the ratio analysis would be distorted.
4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios
must be preferred. This will be conductive to counter checks.
5) Last but not least, the analyst must find out that the two figures being used to calculate a
ratio must be related to each other, otherwise there is no purpose of calculating a ratio.













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CLASSIFICATION OF RATIO


CLASSIFICATION OF RATIO





BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER
STATEMENT


1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR
RATIO 2] LEVERAGE RATIO SHORT TERM
2] REVENUE 3] ACTIVITY RATIO CREDITORS
STATEMENT 4] PROFITABILITY 2] RATIO FOR
RATIO RATIO SHAREHOLDER

3] COMPOSITE 5] COVERAGE 3] RATIOS FOR

RATIO RATIO MANAGEMENT

4] RATIO FOR
LONG TERM
CREDITORS
















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BASED ON FINANCIAL STATEMENT:
Accounting ratios express the relationship between figures taken from financial statements.
Figures may be taken from Balance Sheet , P& L A/C, or both. One-way of classification of ratios
is based upon the sources from which are taken.

1] Balance sheet ratio:
If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g.
ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios,
there is no need to refer to the Revenue statement. These ratios study the relationship between the
assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital
structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio,
Capital gearing ratio, Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio:
Ratio based on the figures from the revenue statement is called revenue statement ratios. These
ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are
Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock
turnover ratio.

3] Composite ratio:
These ratios indicate the relationship between two items, of which one is found in the balance sheet
& other in revenue statement.
There are two types of composite ratios-
Some composite ratios study the relationship between the profits & the investments of the concern.
E.g. return on capital employed, return on proprietors fund, return on equity capital etc.
Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout
ratios, & debt service ratios.



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BASED ON FUNCTION:
Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage
ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios:
It shows the relationship between the current assets & current liabilities of the concern e.g. liquid
ratios & current ratios.
2] Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing the assets of the
concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios.
3] Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover ratios &
productivity ratios e.g. stock turnover ratios, debtors turnover ratios.
4] Profitability ratios:
It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating
net profit ratios, expenses ratios
It shows the relationship between profit & investment e.g. return on investment, return on equity
capital.
5] Coverage ratios:
It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid
out of such profit e.g. dividend payout ratios & debt service ratios.










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BASED ON USER:

1] Ratios for short-term creditors:
Current ratios, liquid ratios, stock working capital ratios
2] Ratios for the shareholders:
Return on proprietors fund, return on equity capital.
3] Ratios for management:
Return on capital employed, turnover ratios, operating ratios, expenses ratios
4] Ratios for long-term creditors:
Debt equity ratios, return on capital employed, proprietor ratios

LIQUIDITY RATIO: -
Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligat. The
ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and
CratioThese ratios are discussed below
























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CURRENT RATIO:
Current ratio may be defined as the relationship between current assets and current liabilities. This
ratio also known as Working capital ratio is a measure of general liquidity and is most widely used
to make the analysis of a short-term financial position (or) liquidity of a firm.


Current assets
Current ratio =
Current liabilities


Components of current ratio
CURRENT ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Inventories Short-term advances
Work-in-progress Sundry creditors
Marketable securities Dividend payable
Short-term investments Income-tax payable
Sundry debtors

Prepaid expenses











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The current assests of a firm represents those assets which can be, in the ordinary course of
business, converted into cash within a short period time, normally not exceeding one year. The
current liabilities defined as liabilities which are short term maturing obligations to be met, as
originally contemplated, with in a year.
Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Current
assets include cash and bank balances; inventory of raw materials, semi-finished and finished
goods; marketable securities; debtors (net of provision for bad and doubtful debts); bills receivable;
and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank credit,
provision for taxation, dividends payable and outstanding expenses. This ratio measures the
liquidity of the current assets and the ability of a company to meet its short-term debt obligation.

CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the
operating cycle of the firm and provides the funds needed to pay for CL. The higher the current
ratio, the greater the short-term solvency. This compares assets, which will become liquid within
approximately twelve months with liabilities, which will be due for payment in the same period
and is intended to indicate whether there are sufficient short-term assets to meet the short- term
liabilities. Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face
liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is under
utilizing its current assets.
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LIQUID RATIO:
Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the quick assets
with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1.
The term quick assets refer to current assets, which can be converted into, cash immediately or at a
short notice without diminution of value.

Quick or liquid assets
Quick ratio =
Current liabilities

Components of Quick or Liquid ratio
QUICK ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Sundry debtors Short-term advances
Marketable securities Sundry creditors

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current
assets that can be converted into cash immediately without any value strength. QA includes cash
and bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaid
expenses are excluded since these cannot be turned into cash as and when required
QR indicates the extent to which a company can pay its current liabilities without relying on the sale
of inventory. This is a fairly stringent measure of liquidity because it is based on
those current assets, which are highly liquid. Inventories are excluded from the numerator of this
ratio because they are deemed the least liquid component of current assets. Generally, a quick
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ratio of 1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of
receipts and payment

ABSOLUTE LIQUID RATIO
. Although receivable, debtors and bills receivable are generally more liquid than inventories, yet
there may be doubts regarding their realization into cash immediately or in time. Hence, absolute
liquid ratio should also be calculated together with current ratio and quick ratio so as to exclude
even receivables from the current assets and find out the absolute liquid assets.

Absolute liquid assets
Absolute liquid ratio = Current liabilities



Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50% (or) 0.5:1
(or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth current liabilities in
time as all the creditors are nor accepted to demand cash at the same time and then cash may also
be realized from debtors and inventories.

Components of Absolute Liquid Ratio
ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Interest on Fixed Deposit Bills payable
Short-term advances
Sundry creditors
Dividend payable

Income tax payable
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INVESTMENT / SHAREHOLDER RATI











:-
Earnings per Share are calculated to find out overall profitability of the organization. An earnings
per Share represents earning of the company whether or not dividends are declared. If there is only
one class of shares, the earning per share are determined by diniding net profits by the number of
equity shares. EPS measures the profits available to the equity shareholders on each share held.
The higher EPS will attract more investors to acquire shares in the company as it indicates that the
business is more profitable enough to pay the dividends in time. But remember not all profit earned
is going to be distributed as dividends the company also retains some profits for the business.

DIVIDEND PER SHARE:


DPS shows how much is paid as dividend to the shareholders on each share held.

Formula:

Dividend Paid to Ordinary Shareholders
Dividend per Share = Number of Ordinary Shares



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DIVIDEND PAYOUT RATIO:-
Dividend Pay-out Ratio shows the relationship between the dividend paid to equity shareholders out
of the profit available to the equity shareholders.
Formula:
Dividend per share
Dividend Pay out ratio = *100
Earning per share

D/P ratio shows the percentage share of net profits after taxes and after preference dividend has
been paid to the preference equity holders.
GEARING RATIO



















Gearing means the process of increasing the equity shareholders return through the use of debt.
Equity shareholders earn more when the rate of the return on total capital is more than the rate of
interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio
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shows the relationship between two types of capital viz: - equity capital & preference capital & long
term borrowings. It is expressed as a pure ratio.
Formula:

Preference capital+ secured loan
Capital gearing ratio =
Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the financing of assets of a
concern.
PROFITABILITY RATIO
These ratios help measure the profitability of a firm. A firm, which generates a substantial amount
of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns
to its shareholders. The relationship between profit and sales is measured by profitability ratios.
There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.









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GROSS PROFIT RATIO:-
This ratio measures the relationship between gross profit and sales. It is defined as the excess of the
net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that
remains after the manufacturing costs have been met. It measures the efficiency of production as
well as pricing. This ratio helps to judge how efficient the concern is I managing its production,
purchase, selling & inventory, how good its control is over the direct cost, how productive the
concern , how much amount is left to meet other expenses & earn net profit.
Formula:
Gross profit
Gross profit ratio = * 100
Net sales

NET PROFIT RATIO:-
Meaning:
Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed
in the form of a percentage.
Net Profit after Tax = Net Profit () Depreciation () Interest () Income Tax
Net Sales = Income from Services
This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a
percentage of net sales. It measures the overall efficiency of production, administration, selling,
financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios
provide an understanding of the cost and profit structure of a firm.

RETURN ON CAPITAL EMPLOYED:-
The profitability of the firm can also be analyzed from the point of view of the total funds employed
in the firm. The term fund employed or the capital employed refers to the total long-term source of
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funds. It means that the capital employed comprises of shareholder funds plus long-term debts.
Alternatively it can also be defined as fixed assets plus net working capital.
Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It
is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the
long-term funds of a firm are utilized.

Formula:
NPAT
Return on capital employed = *100
Capital employed

FINANCIAL RATIO

These ratios determine how quickly certain current assets can be converted into cash. They are also
called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing
assets. These ratios are based on the relationship between the level of activity represented by sales
or cost of goods sold and levels of investment in various assets. The important turnover ratios are
debtors turnover ratio, average collection period, inventory/stock turnover ratio, fixed assets
turnover ratio, and total assets turnover ratio. These are described below:
















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DEBTORS TURNOVER RATIO (DTO) :
Meaning:
DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It
measures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus returns, if
any, from customers. Average debtors are the average of debtors at the beginning and at the end of
the year. This ratio shows how rapidly debts are collected. The Higher the DTO, the better it is for
the organization.
Formula:
Days in a year
Average collection Period =
Debtor turnover ratio

CREDITORS TURNOVER RATIO:
It is same as debtors turnover ratio. It shows the speed at which payments are made to the supplier
for purchase made from them. It is a relation between net credit purchase and average creditors.
Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover
ratioo or a lower credit period enjoyed signifies that the creditors are being paid promptly. It
enhances credit worthiness of the company. A very low ratio indicates that the company is not
taking full benefit of the credit period allowed by the creditors.











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INVENTORY OR STOCK TURNOVER RATIO (ITR):
ITR refers to the number of times the inventory is sold and replaced during the accounting period.
Formula:
COGS
Stock Turnover Ratio =
Average stock

ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the
management of inventories, and vice versa. However, a high inventory turnover may also result
from a low level of inventory, which may lead to frequent stock outs and loss of sales and customer
goodwill. For calculating ITR, the average of inventories at the beginning and the end of the year is
taken. In general, averages may be used when a flow figure (in this case, cost of goods sold) is
related to a stock figure (inventories).
FIXED ASSETS TURNOVER (FAT):
The FAT ratio measures the net sales per rupee of investment in fixed assets.
Formula:
Net sales
Fixed assets turnover =
Net fixed assets


This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a
high degree of efficiency in asset utilization while a low ratio reflects an in efficient use of assets.
However, this ratio should be used with caution because when the fixed assets of a firm are old and
substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominator
of the ratio is very low).
PROPRIETORS RATIO:
Meaning:
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Proprietary ratio is a test of financial & credit strength of the business. It relates shareholders fund
to total assets. This ratio determines the long term or ultimate solvency of the company
In other words, Proprietary ratio determines as to what extent the owners interest & expectations
are fulfilled from the total investment made in the business operation
Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the
form of percentage. Total assets also know it as net worth.
Formula:

Proprietary fund
Proprietary ratio =
Total fund


OR


Shareholders fund

Proprietary ratio =
Fixed assets + current liabilities

Components of Proprietary Ratio
SHARE HOLDERS FUND TOTAL ASSETS
Share Capital Fixed Assets
Reserves & Surplus Current Assets
Cash in hand & at bank
Bills receivable
Inventories
Marketable securities
Short-term investments

Sundry debtors

Prepaid Expenses


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STOCK WORKING CAPITAL RATIO:
Meaning:
This ratio shows the relationship between the closing stock & the working capital. It helps to judge
the quantum of inventories in relation to the working capital of the business. The purpose of this
ratio is to show the extent to which working capital is blocked in inventories. The ratio highlights
the predominance of stocks in the current financial position of the company. It is expressed as a
percentage.
Formula:
Stock
Stock working capital ratio =
Working Capital


Stock working capital ratio is a liquidity ratio. It indicates the composition & quality of the working
capital. This ratio also helps to study the solvency of a concern. It is a qualitative test of solvency. It
shows the extent of funds blocked in stock. If investment in stock is higher it means that the amount
of liquid assets is lower.

DEBT EQUITY RATIO:
MEANING:
This ratio compares the long-term debts with shareholders fund. The relationship between
borrowed funds & owners capital is a popular measure of the long term financial solvency of a firm.
This relationship is shown by debt equity ratio. Alternatively, this ratio indicates the relative
proportion of debt & equity in financing the assets of the firm. It is usually expressed as a pure
ratio. E.g. 2:1

Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing the
equity shareholders return through the use of debt. Leverage is also known as gearing or trading
on equity. Debt equity ratio shows the margin of safety for long-term creditors & the balance
between debt & equity.

RETURN ON PROPRIETOR FUND:
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Meaning:
Return on proprietors fund is also known as return on proprietors equity or return on
shareholders investment or investment ratio. This ratio indicates the relationship between net
profit earned & total proprietors funds. Return on proprietors fund is a profitability ratio, which
the relationship between profit & investment by the proprietors in the concern. Its purpose is to
measure the rate of return on the total fund made available by the owners. This ratio helps to judge
how efficient the concern is in managing the owners fund at disposal. This ratio is of practical
importance to prospective investors & shareholders.


Formula:

NPAT
Return on proprietors fund = * 100
Proprietors fund












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IMPORTANCE OF RATIO ANALYSIS
As a tool of financial management, ratios are of crucial significance. The importance of ratio
analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of
interference regarding the performance of a firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of the following aspects:
1] Liquidity position,
2] Long-term solvency,
3] Operating efficiency,
4] Overall profitability,
5] Inter firm comparison
6] Trend analysis.



Importance
Of
Ratio
Analysis

Liquidity
position

Long term
solvency

Operating
Efficiency

Overall
Profitabilit-y

Inter firm
Comparis-
on

Trend
Analysis
30
1] LIQUIDITY POSITION: -
With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a firm.
The liquidity position of a firm would be satisfactory if it is able to meet its current obligation when
they become due. A firm can be said to have the ability to meet its short-term liabilities if it has
sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as
to repay the principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio are
particularly useful in credit analysis by bank & other suppliers of short term loans.

2] LONG TERM SOLVENCY: -

Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This
respect of the financial position of a borrower is of concern to the long-term creditors,
security analyst & the present & potential owners of a business. The long-term solvency is
measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus
on earning power & operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for
instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if
it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly the
various profitability ratios would reveal whether or not the firm is able to offer adequate return to
its owners consistent with the risk involved.
3] OPERATING EFFICIENCY:
Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of
management, is that it throws light on the degree of efficiency in management & utilization of its
assets. The various activity ratios measures this kind of operational efficiency. In fact, the solvency
of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of its
assets- total as well as its components.




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4] OVERALL PROFITABILITY:
Unlike the outsides parties, which are interested in one aspect of the financial position of a firm, the
management is constantly concerned about overall profitability of the enterprise. That is, they are
concerned about the ability of the firm to meets its short term as well as long term obligations to its
creditors, to ensure a reasonable return to its owners & secure optimum utilization of the assets of
the firm. This is possible if an integrated view is taken & all the ratios are considered together.
5] INTER FIRM COMPARISON:
Ratio analysis not only throws light on the financial position of firm but also serves as a stepping-
stone to remedial measures. This is made possible due to inter firm comparison & comparison with
the industry averages. A single figure of a particular ratio is meaningless unless it is related to some
standard or norm. one of the popular techniques is to compare the ratios of a firm with the industry
average. It should be reasonably expected that the performance of a firm should be in broad
conformity with that of the industry to which it belongs. An inter firm comparison would
demonstrate the firms position vice-versa its competitors. If the results are at variance either with
the industry average or with the those of the competitors, the firm can seek to identify the probable
reasons & in light, take remedial measures.
6] TREND ANALYSIS:
Finally, ratio analysis enables a firm to take the time dimension into account. In other words,
whether the financial position of a firm is improving or deteriorating over the years. This is made
possible by the use of trend analysis. The significance of the trend analysis of ratio lies in the fact
that the analysts can know the direction of movement, that is, whether the movement is favorable or
unfavorable. For example, the ratio may be low as compared to the norm but the trend may be
upward. On the other hand, though the present level may be satisfactory but the trend may be a
declining one.

32
ADVANTAGES OF RATIO ANALYSIS

Financial ratios are essentially concerned with the identification of significant accounting data
relationships, which give the decision-maker insights into the financial performance of a company.
The advantages of ratio analysis can be summarized as follows:
Ratios facilitate conducting trend analysis, which is important for decision making and
forecasting.
Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability
and solvency of a firm.
Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.
The comparison of actual ratios with base year ratios or standard ratios helps the
management analyze the financial performance of the firm.






















33
LIMITATIONS OF RATIO ANALYSIS

Ratio analysis has its limitations. These limitations are described below:
1] Information problems:

Ratios require quantitative information for analysis but it is not decisive about
analytical output .
The figures in a set of accounts are likely to be at least several months out of date, and
so might not give a proper indication of the companys current financial position.
Where historical cost convention is used, asset valuations in the balance sheet could be
misleading. Ratios based on this information will not be very useful for decision-making.
2] Comparison of performance over time:

When comparing performance over time, there is need to consider the changes in price.
The movement in performance should be in line with the changes in price.
When comparing performance over time, there is need to consider the changes in
technology. The movement in performance should be in line with the changes in
technology.
Changes in accounting policy may affect the comparison of results between different
accounting years as misleading
3] Inter-firm comparison:
Companies may have different capital structures and to make comparison of
performance when one is all equity financed and another is a geared company it may
not be a good analysis.
Selective application of government incentives to various companies may also distort
inter company comparison. comparing the performance of two enterprises may be
misleading
Inter-firm comparison may not be useful unless the firms compared are of the same
size and age, and employ similar production methods and accounting practices.



34

PURPOSE OF RATIO ANALYSIS:
1] To identify aspects of a businesses performance to aid decision making
2] Quantitative process may need to be supplemented by Qualitative Factors to get a complete
picture.
3] 5 main areas:-
Liquidity the ability of the firm to pay its way
Investment/shareholders information to enable decisions to be made on the extent of
the risk and the earning potential of a business investment
Gearing information on the relationship between the exposure of the business to loans
as opposed to share capital
Profitability how effective the firm is at generating profits given sales and or its capital
assets
Financial the rate at which the company sells its stock and the efficiency with which it
uses its assets.















35
ROLE OF RATIO ANALYSIS:
It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the
same figure & information, which is already appearing in the financial statement. At the same time,
it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the
mere preparation of financial statement.

Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of
performance, either individually or in relation to those of other firms in the same industry. The
process of this appraisal is not complete until the ratio so computed can be compared with
something, as the ratio all by them do not mean anything. This comparison may be in the form of
intra firm comparison, inter firm comparison or comparison with standard ratios. Thus proper
comparison of ratios may reveal where a firm is placed as compared with earlier period or in
comparison with the other firms in the same industry.

Ratio analysis is one of the best possible techniques available to the management to
impart the basic functions like planning & control. As the future is closely related to the immediate
past, ratio calculated on the basis of historical financial statements may be of good assistance to
predict the future. Ratio analysis also helps to locate & point out the various areas, which need the
management attention in order to improve the situation.

As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e.
liquidity, solvency, activity, profitability & overall performance, it enables the interested persons to
know the financial & operational characteristics of an organisation & take the suitable decision.










36
Liquidity Ratio

Liquid ratio measures the ability of the unit to meet its short term obligations and reveals the
short term financial strength or weakness.

1. CURRENT RATIO

GRAPHICAL REPRESENTATION


Interpretation:
As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position .From the
above diagram it is shown that the current ratio of GNA Enterprises Ltd. For year 2010,
2011, 2012 and 2013 are 1.23, 1.12, 1.19 and 1.05 respectively.
In 2013 the current Ratio is decreased by 1.05 from the previous year i.e 1.19.



0.9
1
1.1
1.2
1.3
2010 2011 2012 2013
1.23
1.12
1.19
1.05
Ratio
Year
Current Ratio
Ratio
37
It shows liquidity Position of the company is not good and the company shall not be able to
pays its current liabilities in time without facing difficulties.
Decrease in the Current Ratio Indicates that there has been a deterioration in the liquidity
position of the company
2. QUICK RATIO:
GRAPHICAL REPRESENTATION


Interpreation:
As a Rule of Thumb or as a convention quick ratio of 1:1 is considered
satisfactory.From the above diagram it is shown that the Quick Ratio of GNA Ent.
Ltd. For year 2010, 2011, 2012 and 2013 are 0.65, 0.67, 0.76 and 0.72 rerps.
Compare with 2012, the Quick ratio is decreased because the sundry debtors are decreased
due to the decrease in the corporate tax and for that the provision created is also decreased.
So, the ratio is also decreased with the 2013.
0.55
0.6
0.65
0.7
0.75
0.8
2010 2011 2012 2013
0.65
0.67
0.76
0.72
Quick
Ratio
Year
Quick Ratio
Quick
38
So it show low quick ratio represents that the Company liquidity position is not good


3. ABOSULTE LIQUIDITY RATIO:

GRAPHICAL REPRESENTATION
Interpretation:
As a Rule of Thumb or as a convention Absolute Liquid or Cash ratio of 0.5 is considered
satisfactory.
From the above diagram it is shown that the Absolute Liquid Ratio of GNA Enterprises Ltd.
For year 2010, 2011, 2012 and 2013 are 0.007, 0.089, 0.11 and 0.06 respectively.
In 2013 Absolute Liquid ratio is decreased by 0.06 as compared to 2012 i.e 0.11.



0
0.02
0.04
0.06
0.08
0.1
0.12
2010 2011 2012 2013
0.007
0.089
0.11
0.06
Ab.
Liquid
Ratio
Year
Ab. Liquidity Ratio
Ab.
Liquid
39
4) Working Capital Turnover Ratio:

GRAPHICAL REPRESENTATION

Interpretation
Higher working capital turnover ration indicates efficient utilization of working capital and vice
versa.
From the above diagram it is shown that the Working capital Turnover ratio of GNA
Enterprises Ltd. For year 2010, 2011, 2012 and 2013 are 12.5, 23.8, 14.7 and 34.1 respectively.
Compared with 2012, working capital turnover ratio is increased by 34.1 in 2013, so it indicates
efficient utilization of working capital of the company.


0
10
20
30
40
2010 2011 2012 2013
12.5
23.8
14.7
34.1
WCTR
Year
Working Capital Turnover Ratio
WCTR
40
5) Total Asset Turnover Ratio:

GRAPHICAL REPRESENTATION
Interpretation:
From the above diagram it is shown that the total Asset Turnover ratio of GNA Enterprises Ltd.
For year 2010, 2011, 2012 and 2013 are 1.46, 1.64, 1.33 and 0.93 respectively.
From 2011 it is decrease by year by year. In 2013 Total Asset Turnover ratio is decrease by 0.93
as compare to previous year i.e 1.33





0
0.5
1
1.5
2
2010 2011 2012 2013
1.46
1.64
1.33
0.93
TATR
Year
Total Asset Turnover Ratio
Total Asset
Turnover Ratio
41
6) Fixed Asset Turnover Ratio:


Interpretation:
From the above diagram it is shown that the fixed Asset Turnover ratio of GNA Enterprises Ltd.
For year 2010, 2011, 2012 and 2013 are 3.8, 4.2, 3.1 and 1.9 respectively.
From 2011 it is decrease by year by year. In 2013 Fixed Asset Turnover ratio is decrease by 1.9
as compare to previous year i.e 3.1




0
1
2
3
4
5
2010 2011 2012 2013
3.8
4.2
3.1
1.9
FATR
Year
Fixed Asset Turnover Ratio
Fixed Asset
Turnover Ratio
42
7) Current Asset Turnover Ratio:
GRAPHICAL REPRESENTATION
Interpretation:
From the above diagram it is shown that the Current Asset Turnover ratio of GNA Enterprises
Ltd. For year 2010, 2011, 2012 and 2013 are 2.4, 2.7, 2.4 and 1.9 respectively.
From 2011 it is decrease by year by year. In 2013 Current Asset Turnover ratio is decrease by
1.9 as compare to previous year i.e 2.4.






0
1
2
3
2010 2011 2012 2013
2.4
2.7
2.4
1.9
CATR
Year
Current Asset Turnover Ratio
Current Asset
Turnover Ratio
43

Limitation of the study

1) The project on Financial Performance Analysis is very time constraint process.
2) To gather information, I had to depend on some of the personnel of the firms; some of the
them were too busy.
3) According to Companys norms, ethics, strategies etc the Financial Managers and Executives
were not allowed to disclose each and every information related to the topic.
4) There is some area restriction for trainee.






















44
Company Profile

The existence of GNA came into being in 1946, in a small village called Jamalpur District
Jalandhar of Punjab. GNA has made its presence prominent not only in India butalso
across the world.Today, more than 6000 families are proud to be associated with this giant
colossal tree that bloomed from a seedling sown 59 years ago. Founded with a modest
beginning by Late Mr. Amar Singh Ji and nourished by his sons Mr. Rachhpal Singh and
Mr.Gursaran Singh, with the artistic creativity that was gifted to the next generation by
tradition, GNA is now boosted and taken care by the third generation Mr. Jasvinder Singh,
Mr. Maninder Singh, Mr. Ranbir Singh and Mr. Gurdeep Singh. Today GNAgroup has
created an important place for itself in Indian as well as Global Automotive GNA group is
on a fast moving track towards growth and globalization. The company has a large
customer base covering different sectors of the automotive industry with diversified
product range. Along with this the company shows steady growth profile evenduring the
time when there is demand fluctuations in the automotive sector.GNA is an Original
Equipment supplier to various Automobile Majors besides havinga strong presence in the
replacement market.GNA has been accredited with ISO 9002 and QS 9000 certifications
for its quality systems, holds a reliable name in the world of automotive components.
Quality Management at GNA is a timeless concept

wherein,changes in customer expectations is a driving force to go beyond conformance tost
andards. GNAs quality assurance is equipped with the finest equipment ranging
frommetallurgical microscope to mobile spectrometer, ultrasonic flow detector, microhard
ness testers, surface roughness testers, profile projectors and involute profiletesters.

GNA sincerely believes in technology l
upgradationforkeepingacompetitiveofconventionamanufacturingequipment with moderniz
ed transfer lines resulting in increased productivity andefficiency at low cost. GNAs core
competency lies in its strong knowledge base of engineering and over 59 years of experience
in manufacturingGNA has come a longway yet journey toward excellence is never
endingSri. Amar Singh Ji made a modest beginning with an atta-chakki {Flour mill. Late
Sardar Amar Singh established aa smallunit for the manufacture of axles under the name
of Nirankar Auto Engg. works in thelate 1946. Through the last 59 years the company has
grown in leaps and bounds andestablished itself as a major source of vehicle paets in India
as well as in world. Exportsmarket of GNA range of products have a wide spectra of
applications in heavy, mediumand high commercial vehicles i.e. passenger cars, jeeps,
tractors, trucks etcGNA group is today spread over area of 3,50,000 sq.mts. employing a
total man power of about 2000 personnel with a turn over of 29.78 million US $ coming
from all units.GNA group basically consists of following four companies :-






45

M/S Guru Nanak Auto Enterprises Ltd., Jamalpur

M/S Guru Nanak Auto Udyog Ltd., Bundala

M/S Guru Nanak Auto Duraparts, Mehtiana

M/S Guru Nanak Auto Axles Ltd., Mehtiana


COMPANY INFORMATION:-



Name -------------------------------------------------------- GNA Enterprises Ltd.
Date of Incorporation------------------------------------- 30, March, 1954.
Key People------------------------------------------------- JagdishSingh (C.M.D.)
Gurinder Singh (J.M.D.)
Brand Name---------------------------------------------- Eye.
Product---------------------------------------------------- Rear Axle Shafts, Brake SCam
Shafts,Hollow spindles, Bimetallic Bushes and
Thrust Washers, etc.
Auditors-------------------------------------------------- G.S Syal &Co.(C.A. Jalandhar)
Address-------------------------------------------------- GNA Enterprises Ltd.Jamalpur,
G.T.Road,NearPhagwara-144635
Phone---------------------------------------------------- +(91)- (1824)- 656017.
Fax------------------------------------------------------- +(91)- (1824)- 220014.
Email---------------------------------------------------- gnae_eou@gnaent.com
Website------------------------------------------------ www.gnaent.com







46
BUSINESS UNITS:-

Business unit-I:-

Located at bundala, spread over 50000 sq. meter. With genesis even independence of India, with complete
integrated facilities to produce 1,60,000 machined components per month. The plant is currently
manufacturing rear axle shafts, torsion bar, track bars, steel forgings, brake scam shafts for vehicle
manufactures like TATA motors,mahindra&mahindra, maruti Suzuki, eicher, sawaraj
mazda,Toyota,force-man, ICML and for tier 1 manufacturers like Spicer India andAAL.

Business unit- II:-
The state of art plant, located near phagwara has been awarded a STAR EXPORT HOUSE (100%export
oriented unit). Spread over 20,000 sq. mts. Area and has got six production bays. Started operation in
2006 within nine months of laying foundation stone will have integrated facilities to produce 1,50,000
machined parts per month. The structure with world class features like seismic proofing with holds
integrated rain water harvesting system and 100% standby power capacity of 3 mgw.Currently plant is
producing and exporting Axle shaft to OEMs in italy, Sweden, france, china and turkey for global truck
manufacturers.







47
Business unit-III :-

Located in the hub of India automobile sector at pune, the plant with total land area of 22,000 sq. mts. Is
established for manufacturing stub components like- clutch shafts, coupling flangers, wheel spindles,
intermediate shafts and splined shafts etc. The plant will have state-of-art infrastructure with



high level of automation and ergonomics to produce small/stub parts (weight between 3-30 kgs.),
technology intensive auto components for the global OEMs.
PRODUCT APPLICATION
1.Rear axle shafts



o Passenger cars, jeeps.
o Utility vehicles, sport utility vehicles
o Light, medium & heavy commercial vehicles.
o Trailers

2. Brake Scam shafts:





48
o BMW
o Mercedes
o York
o TATA
Leylan

3. Bimetallic bushes & thrust washers:




o Passengers cars,jeeps.
o Utility vehicles, sport utility vehicles
o Light,medium & heavy commercial vehicles.
o Tractors.
o Two &three wheelers

CLIENTS OF THE COMPANY:
GNA Enterprises is today OES to leading commercial vehicle manufacturers globally. Through
Arvin Meritor our Rear Axle Shafts find place in power transmission modules of the trucks
manufacturers like Renault, Volvo and Lveco in Europe. The company is also supplying to Ford,
BMC and Lveco in Turkey. We are proud to be associated with Indian defence by supplying
components that meet most rigorous field tests.

49


Names of Various Companies

MERCEDES BENZ LAND ROVER WILLS JEEP
CHRYSLER DODGE BEDFORD/VAUXHALL FORD
TOYOTO NISSAN MAZDA
CHEVROLET GM BRITISH LEYLAND SUZUKI

FOR LIGHT COMMERCIAL VEHICLES


CUSTOMER KNOW HOW
TATA Engineering & Locomotive Co. ltd. Mercedes Benz, Germany
Swaraj Mazda ltd. Mazda, Japan
Eicher Motors ltd. Mitsubishi, Japan
Mahindra and Mahindra Nissan, Japan

For Medium, Heavy Commercial Vehicles

TATA Engineering & Locomotive Co,ltd. Mercedes
Automotive axles ltd. Meritor
Dana Spicer ltd. Data corporation ltd. (US)

50


For Cars & Jeeps, Pickup & Utility Vehicles

Maruti Udyog ltd. Suzuki Corp ltd Japan
Premier auto ltd. Peugeot
TATA
Mahindra & Mahindra Willys
Toyota Kirloskar Motors Toyota motors, Japan


Machining

CNC lathes

Grinders

Cold spline rolling machines

Rotto flow (rack rolling) machine

Multi spindle drilling

Hobbing

Thread rolling machines

Hydro-copying machines

Special purpose machines


Testing facilities

Metallurgical microscope with image analyzer

Metascope

Ultrasonic flaw detectors

Micro hardness tester

51
Profile projector

Surface roughness testers

Magnaflux testing

Torque testing machine

BHN, HRC & Vickers hardness testers


LOGO OF THE COMPANY




GNA Enterprises ltd. also uses a logo. Logo means a trademark or a symbol inserted in to the firms
letters & use for advertising purpose. The main aim of the logo of GNA enterprises ltd. is given below:
It shows the businessmans religious faith.
They believe that every company has a different sign in the market.
Logo of GURU NANAK AUTO Enterprises ltd. is mainly the name of the company.











52
Scope of the study

The s c ope of s t udy i s l i mi t e d t o one c onc e r n onl y i . e .
Gur u Nanak Aut o Enterprises Ltd.2) The period consider 45 days.The scope of
the study i s l i mi ted to col l ecti ng the fi nanci al data publ i shed i n theannual
reports of the company with reference to the objectives stated above and ananalysis of the
data with a view to suggest favorable solution to various problemsrelated to
financial performance


Research Methodology

When we talk about the research methodology, we not any talk about the
research methods but also considers the logic behind the method we use in the
context of our research study and evaluate why we are using a particular method
or technique so that the research are capable of being evaluated either by the
researchers himself or but others .Research methodology is considered with in out the
solution to a problem or need. It is also consider with the search of knowledge .For the
fulfillment of he project on the analysis of the financial statement the sources of
the data are as follow:-


Secondary Data:

This source provides second hand information.
Informationcol l ected through thi s source was extracted from companys jou
rnal s, pamphl ets, brochures and manuals etc.These sources proved very fruitful
and successful during the preparation of the report and completion of the report.
Without this, the report could not be at the completion stage
Primary Data:

This is the most authentic and accurate source of data collection as it provides fresh and
first hand information. Under this data is collected by personal interview of the concerned
executives, daily customers of the concern. Direct face-to-face questioning was held with
the staff members, vice president and daily customers.