TABLE OF CONTENTS

Student declaration

Certificate from Company

ii

Certificate from Guide

iii

Acknowledgement

iv

Executive Summary

List of tables

vi

List of charts

vii

CHAPTER- 1: INTRODUCTION
1.1 Financial Management
1.2 Ratio Analysis
1.2.1 Types of ratios
1.3 Introduction of electronic components industry
1.4 Profile of Ramakrishna Electro Components Pvt Ltd

1-2
2
3-10
11
11-17

1.4.1 Introduction

12-13

1.4.2 Focus Segment

13-14

1.4.3 Why should you consider Ramakrishna Group?

15

1.4.4 How can Ramakrishna support you?

15

1.4.5 Authorised Supplier

15-16

1.4.6 Reference Solutions

17

CHAPTER- 2: LITERARTURE REVIEW

2.1 Literature Review

18-20

2.2 About the topic

21-25

CHAPTER- 3: RESEARCH METHODOLOGY

3.1 Purpose of the study

26

3.2 Research Objectives of the study

26

3.3 Research Methodology of the study

3.3.1 Research Design

26-28
26

3.3.2 Data Collection Techniques

27

3.3.3 Statistical tools used for data analysis

28

3.3.4 Analytical tools used

28

3.3.5 Limitations

28

CHAPTER 4: DATA ANALYSIS AND INTERPRETATION

4.1 Financial Performance evaluation using Ratio Analysis
4.1.1 Significance of using ratios
4.2 Types of ratios

29
29
29-55

4.2.1 Liquidity Ratios

29-34

4.2.2 Activity Ratios

35-41

4.2.3 Financial leverage (gearing) ratios

42-47

4.2.4 Profitability Ratios

47-55

CHAPTER 5: FINDINGS OF THE STUDY

56-57

CHAPTER 6: SUGGESTIONS, RECOMMENDATIONS AND

CONCLUSIONS

58-60

6.1 Suggestions and Recommendations

58

6.2 Conclusion

58-60

BIBLIOGRAPHY

61-62

ANNEXURES
Annexure 1

63

Annexure 2

64

Annexure 3

65

Annexure 4

66

Table No

Name of Tables

Page No.

4.1

Current Ratio

30

4.2

Quick ratio

32

4.3

Cash ratio

34

4.4

Average Collection Period

36

4.5

Inventory Turnover Ratio

37

4.6

Working Capital Turnover Ratio

39

4.7

Fixed Assets Turnover Ratio

41

4.8

Proprietary Ratio

43

4.9

Debt to Equity Ratio

44

4.10

Interest Coverage Ratio

46

4.11

Gross Profit Ratio

48

4.12

Net Profit Ratio

50

4.13

Return on Investment

51

4.14

Return on Equity

53

4.15

Return on Total Assets

55

LIST OF TABLES

vi

LIST OF CHARTS
Chart No.
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15

Name of Charts
Current Ratio
Quick ratio
Cash ratio
Average Collection Period
Inventory Turnover Ratio
Working Capital Turnover Ratio
Fixed Assets Turnover Ratio
Proprietary Ratio
Debt to Equity Ratio
Interest Coverage Ratio
Gross Profit Ratio
Net Profit Ratio
Return on Investment
Return on Equity
Return on Total Assets

Page No.
31
33
34
36
38
40
41
43
45
47
49
50
52
54
55

vii

CHAPTER 1-

INTRODUCTION

1.1 FINANCIAL MANAGEMENT:

Financial Management is that managerial activity which is concerned with the planning and
controlling of the firms financial resources. Though it was a branch of economics till 1890 as a
separate or discipline it is of recent origin. Financial management is concerned with the duties of
the finance manager in a business firm. He performs such varied tasks as budgeting, financial
forecasting, cash management, credit administration, investment analysis and funds procurement.
The recent trend towards globalization of business activity has created new demands and
opportunities in managerial finance. Financial statements are prepared and presented for the
external users of accounting information.
As these statements are used by investors and financial analysts to examine the firms
performance in order to make investment decisions, they should be prepared very carefully and
contain as much information as possible. Preparation of the financial statement is the
responsibility of top management. The financial statements are generally prepared from the
accounting records maintained by the firm.

Financial statements refer to such statements which contains financial information about an
enterprise. They report profitability and the financial position of the business at the end of
accounting period. The team financial statements includes at least two statements which the
accountant prepares at the end of an accounting period. The two statements are the balance sheet
and the profit & loss account.
The purpose of analysis of financial statements are:

To know the earning capacity or profitability

To know the solvency
To know the financial strengths
To know the capability of payment of interests and dividends
To make comparative study with other firms
To know the trend of business
To know the efficiency of management
To provide useful information to management

Financial performance is an important aspect which influences the long term stability,
profitability and liquidity of an organization. Usually, financial ratios are said to be the
parameters of the financial performance. The evaluation of financial performance had been taken
up for the study with Ramakrishna Electro Components Pvt Ltd as the project. Analysis of
financial performances is of greater assistance in loading the weak spots at the Ramakrishna
Electro Components Pvt Ltd even though the overall performance may be satisfactory. This
further helps in:
Financial forecasting and planning
Communicate the strength and financial standing of the Ramakrishna Electro
components Pvt Ltd.
For effective control of business.

1.2 RATIO ANALYSIS:

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 analysis is a widely-use tool of financial analysis. It can be used to
compare the risk and return relationships of firms of different sizes. It is the method or process

by which the relationship of items or group of items in the financial statement are computed,
determined and presented. It is an attempt to drive quantitative measure or guide concerning the
financial health and profitability of business enterprise. It is defined as the systematic use of ratio
to interpret the financial statements so that the strengths and weakness of a firm as well as its
historical performance and current financial condition can be determined. The term ratio refers to
the numerical or quantitative relationship between two items and variables. These ratios are
expressed as (i) percentages, (ii) fraction and (iii) proportion of numbers. These alternative
methods of expressing items which are related to each other are, for purposes of financial
analysis, referred to as ratio analysis. It should be noted that computing the ratios does not add
any information not already inherent in the above figures of profits and sales. What the ratio do
is that they reveal the relationship in a more meaningful way so as to enable equity investors,
management and lenders make better investment and credit decisions.

1.2.1. TYPES OF RATIOS:

1) Liquidity Ratios:
The importance of adequate liquidity in the sense of the ability of a firm to meet current/shortterm obligations when they become due for payment can hardly be overstresses. In fact, liquidity
is a prerequisite for the very survival of a firm. The short-term creditors of the firm are interested
in the short-term solvency or liquidity of a firm. The short-term creditors of the firm are
interested in the short-term solvency or liquidity of a firm. The liquidity ratios measures the
ability of a firm to meet its short-term obligations and reflect the short-term financial strength
and solvency of a firm.
1.a) Current Ratio: The current ratio is the ratio of total current assets to total current liabilities.
It is calculated by dividing current assets by current liabilities:
Current Ratio = Current Assets__
Current liabilities

The current assets of a firm, as already stated, represent those assets which can be, in the
ordinary course of business, converted into cash within a short period of time, normally not
exceeding one year and include cash and bank balances, marketable securities, inventory of raw
materials, semi-finished (work-in-progress) and finished goods, debtors net of provision for bad
and doubtful debts, bills receivable and prepaid expenses. The current liabilities defined as
liabilities which are short-term maturing obligations to be met, as originally contemplated, within
a year, consist of trade creditors, bills payable, bank credit, provision for taxation, dividends
payable and outstanding expenses.
1.b) Quick Ratio: The liquidity ratio is a measure of liquidity designed to overcome this defect
of the current ratio. It is often referred to as quick ratio because it is a measurement of a firms
ability to convert its current assets quickly into cash in order to meet its current liabilities. Thus,
it is a measure of quick or acid liquidity. The acid-test ratio is the ratio between quick assets and
current liabilities and is calculated by dividing the quick assets by the current liabilities.
Quick Ratio = __Quick Assets__
Current Liabilities
The term quick assets refers to current assets which can be converted into cash

immediately or

at a short notice without diminution of value. Included in this category of current assets are ( i )
cash an bank balance ; (ii) short-term marketable securities and (iii) debtors/receivables. Thus,
the current which are included are: prepaid expenses and inventory. The exclusion of expenses
by their very nature are not available to pay off current debts. They merely reduce the amount of
cash required in one period because of payment in a prior period.
1.c) Cash Ratio: This ratio is also known as cash position ratio or super quick ratio. It is a
variation of quick ratio. This ratio establishes the relationship absolute liquid asserts and current
liabilities. Absolute liquid assets are cash in hand, bank balance and readily marketable
securities. Both the debtors and bills receivable are excluded from liquid assets as there is always
an uncertainty with respect to their realization. In other words, liquid assets minus debtors and
bills receivable are absolute liquid assets. In this form of formula:

Cash Ratio = Cash in hand & at bank + Marketable securities_

Current liabilities

2) Activity Ratios:
Activity ratios are concerned with measuring the efficiency in asset management. These ratios
are also called efficiency ratios or asset utilization ratios. The efficiency with which the assets are
used would be reflected in the speed and rapidity with which assets are converted into sakes. The
greater is the rte of turnover or conversion, the more efficient is the utilization of asses, other
things being equal. For this reason, such ratios are designed as turnover ratios. Turnover is the
primary mode for measuring the extent of efficient employment of assets by relating the assets to
sales. An activity ratio may, therefore, be defined as a test of the relationship between sales and
the various assets of a firm.
2.a) Average collection period: In order to know the rate at which cash is generated by turnover
of receivables, the debtors turnover ratio is supplemented by another ratio viz., average
collection period. The average collection period states unambiguously the number of days
average credit sales tied up in the amount owed by the buyers. The ratio indicates the extent to
which the debts have been collected in time. In other words, it gives the average collection
period. Prompt collection of book debts will release such funds which may, then, put to some
other use. The ratio may be calculate by
Average collection period = _____360 days_________
Debtors turnover ratio

2.b) Inventory Turnover Ratio: This ratio indicates the number of times inventory is replaced
during the year. It measures the relationship between the cost of goods sold and the inventory
level. The ratio can be computed in
Inventory Turnover Ratio =

__Cost of goods sold___

Average Inventory

The average inventory figure may be of two types. In the first place, it may be the monthly
inventory average. The monthly average can be found by adding the opening inventory of each

month from, in case of the accounting year being a calendar year, January through January an
dividing the total by thirteen. If the firms accounting year is other than a calendar year, say a
financial year, (April and March), the average level of inventory can be computed by adding the
opening inventory of each month from April through April and dividing the total by thirteen.
This approach has the advantage of being free from bias as it smoothens out the fluctuations in
inventory level at different periods. This is particularly true of firms in seasonal industries.
However, a serious limitation of this approach is that detailed month-wise information may
present practical problems of collection for the analyst. Therefore, average inventory may be
obtained by using another basis, namely, the average of the opening inventory may be obtained
by using another basis, namely the average of the opening inventory and the closing inventory.
2.c) Working Capital Turnover Ratio: This ratio, should the number of times the working
capital results in sales. In other words, this ratio indicates the efficiency or otherwise in the
utilization of short tern funds in making sales. Working capital means the excess of current over
the current liabilities. In fact, in the short run, it is the current liabilities which play a major role.
A careful handling of the short term assets and funds will mean a reduction in the amount of
capital employed, thereby improving turnover. The following formula is used to measure this
ratio:
Working capital turnover ratio = _____Sales___________
Net Working Capital

2.d) Fixed Assets Turnover Ratio: The organisation employs capital on fixed assets for the
purpose of equipping itself with the required manufacturing facilities to produce goods and
services which are saleable to the customers to earn revenue. This ratio expresses the relationship
between cost of goods sold or sales and fixed assets. The following is used for measurement of
the ratio.
Fixed Assets Turnover =

______Sales__________
Net fixed assets

In computing fixed assets turnover ratio, fixed assets are generally taken at written down value at
the end of the year. However, there is no rigidity about it. It may be taken at the original cost or

at the present market value depending on the object of comparison. In fact, the ratio will have
automatic improvement if the written down value is used.

3) Financial Leverage (Gearing) Ratios:

The long-term lenders/creditors would be judge the soundness of a firm on the basis of the longterm financial strength measured in terms of its ability to pay the interest regularly as well as
repay the installment of the principal on due dates or in one lump sum at the time of maturity.
The long term solvency of a firm can be examined by using leverage or capital structure ratios.
The leverage or capital structure ratios may be defined as financial ratios which throw light on
the long-term solvency of a firm as reflected in its ability to assure the long-term lenders with
regard to (i) periodic payment of interest during the period of the loan and (ii) repayment of
principal on maturity or in predetermined installments at due dates.

3.a) Proprietary Ratio: This ratio is also known as Owners fund ratio (or) Shareholders
equity ratio (or) Equity ratio (or) Net worth ratio. This ratio establishes the relationship
between the proprietors funds and total tangible assets. The formula for this ratio may be written
as:
Proprietary Ratio = ___Proprietors funds___
Total tangible assets
Proprietors funds mean the sum of the paid-up equity share capital plus preference share capital
plus reserve and surplus, both of capital and revenue nature. From the sum so arrived at,
intangible assets like goodwill and fictitious assets capitalized as Miscellaneous expenditure
should be deducted. Funds payable to others should not be added. It may be noted that total
tangible assets include fixed assets, current assets but exclude fictitious assets like preliminary
expenses, profit & loss account debit balance etc.
3.b) Debt to Equity Ratio: The relationship between borrowed funds and owners capital is a
popular measure of the long-term financial solvency of a firm. The relationship is shown by the
debt-equity ratios. This ratio reflects the relative claims of creditors and shareholders against the

assets of the firm. The relationship between outsiders claims and owners capital can be shown
in different ways and, accordingly, there are many variants of the debt-equity ratio.
Debt to Equity Ratio = ___Total Debt___
Total equity
The debt-equity ratio is, thus, the ratio of total outside liabilities to owners total funds. In other
words, it is the ratio of the amount invested by the owners of business.
3.c) Interest Coverage Ratio: It is also known as time interest-earned ratio. This ratio
measures the debt servicing capacity of a firm in so far as fixed interest on long-term loan is
concerned. It is determined by dividing the operating profits or earnings before interest and taxes
(EBIT) by the fixed interest charges on loans. Thus,

Interest Coverage Ratio =____EBIT ___________

Interest charges

It should be noted that this ratio uses the concept of net profits before taxes because interest is
tax-deductible so that tax is calculated after paying interest on long-term loan. This ratio, as the
name suggests, indicates the extent to which a fall in EBIT is tolerable in that the ability of the
firm to service its interest payments would not be adversely affected. For instance, an interest
coverage of 10 times would imply that even if the firms EBIT were to decline to one-tenth of the
present level, the operating profits available for servicing the interest on loan would still be
equivalent to the claims of the lendors. On the other hand, a coverage of five times would
indicate that a fall in operating earnings only to upto one-fifth level can be tolerated. Form the
point of view of the lenders, the larger the coverage, the greater is the ability of the firm to
handle fixed-charge liabilities and the more assured is the payment of interest to tem, However,
too high a ratio may imply unused debt capacity. In contrast, a low ratio is a danger signal that
the firm is using excessive debt and does not have to offer assured payment of interest to the
lenders.

4) Profitability Ratios:
The main object of a business concern is to earn profit. A company should earn profits to survive
and to grow over a long period. The operating efficiency of a business concern is ultimately
adjudged by the profits earned by it. Profitability should distinguished from profits. Profits refer
to the absolute quantum of profit, whereas profitability refers to the ability to earn profits. In
other words, an ability to earn the maximum from the maximum use of available resources by
the business concern is known as profitability. Profitability reflects the final result of a business
operation. Profitability ratios are employed by the management in order to assess how efficiently
they carry on business operations. Profitability is the main base for liquidity as well as solvency.
Creditors, banks and financial institutions are interest obligations and regular and improved
profits enhance the long term solvency position of the business.

4.a) Gross Profit Margin: The gross profit margin is also known as gross margin. It is calculated
by dividing gross profit by sales. Thus,

Gross Profit Margin = ____ Gross profit___

* 100

Sales
Gross profit is the result of the relationship between prices, sales volume and cost. A change in
the gross margin can be brought about by changes in any of these factors. The gross margin
represents the limit beyond which fall in sales price are outside the tolerance limit. Further, the
gross profit ratio/margin can also be used in determining the extent of loss caused by theft,
spoilage, damage, and so on in the case of those firms which follow the policy of fixed gross
profit margin in pricing their products.
A high ratio of gross profit to sales is a sign of good management as it implies that the cost of
production of the firm is relatively low. It may also be indicative of a higher sales price without a
corresponding increase in the cost of goods sold. It is also likely that cost of sales might have
declined without a corresponding decline in sales price. Nevertheless, a very high and rising

gross margin may also be the result of unsatisfactory basis of valuation of stock, that is,
overvaluation of closing stock and/or undervaluation of opening stock.
A relatively low gross margin is definitely a danger signal, warranting a careful and detailed
analysis of the factors responsible for it. The important contributory factors may be (i) a high
cost of production reflecting acquisition of raw materials and other inputs on unfavorable terms,
inefficient utilization of current as well as fixed assets, and so on; and (ii) a low selling price
resulting from severe competition, inferior quality of the product, lack o f demand, and so on. A
through investigation of the factors having a bearing on the low gross margin is called for. A firm
should have a reasonable gross margin to ensure adequate coverage for operating expenses of the
firm and sufficient return to the owners of the business, which is reflected in the net profit
margin.

4.b) Net Profit margin: It is also known as net margin. This measures the relationship between
net profits and sales of a firm.
Net Profit Margin = _ Earnings after interest and taxes __ *100
Net Sales
A high net profit margin would ensure adequate return to the owners as well as enable a firm to
withstand adverse economic conditions when selling price is declining, cost of production is
rising and demand for the product is falling.
A low net profit margin has the opposite implications. However, a firm with low profit margin
can earn a high rate of return on investment if it has a higher turnover. This aspect is covered in
detail in the subsequent discussion. The profit margin should, therefore, be evaluated in relation
to the turnover ratio. In other words, the overall rate of return is the product of the net profit
margin and the investment turnover ratio. Similarly, the gross profit margin and the net profit
margin should be jointly evaluated.
4.c) Return on Investment: The basic objective of making investments in any business is to
obtain satisfactory return on capital invested. The nature of this return will be influenced by
factors such as, the type of the industry, the risk involved, the risk of inflation, the comparative
rate of return on gilt-edged securities and fluctuations in external economic conditions. For this

purpose, the shareholders can measure the success of a company in terms of profit related to
capital employed. The return on capital employed can be used to show the efficiency of the
business as a whole. The overall performance and the most important, therefore, can be judged
by working out a ratio between profit earned and capital employed. The resultant ratio, usually
expressed as a percentage, is called rate of return or return on capital employed to express the
idea, the purpose is to ascertain how much income the use of Rs.100 of capital generates. The
return on capital employed may be based on gross capital employed or net capital employed.
The formula for this ratio may be written as:
Return on Investment = _ Operating employed___
Capital Employed
4.d) Return on Equity (ROE): This is also known as return on net worth or return on proprietors
fund. The preference shareholders get the dividend on their holdings at a fixed rate and before
dividend to equity shareholders, the real risk remains with the equity shareholders. Moreover,
they are the owners of total profits earned by the firms after paying dividend on preference
shares. Therefore this ratio attempts to measure the firms profitability in terms of return to
equity shareholders. This ratio is calculated by dividing the profit after taxes and preference
dividend by the equity capital. Thus
Return on Equity= _ Net profit after taxes and preference dividend ___
Equity capital

4.e) Return on Total Assets : This ratio is also known as the profit-to-assets ratio. This ratio
establishes the relationship between net profits and assets. As these two terms have conceptual
differences, the ratio may be calculated taking the meaning of the terms according to the purpose
and intent of analysis. Usually, the following formula is used to determine the return on total
assets ratio.
Return on Total Assets =

_ Net profit after taxes and interest _

* 100

Total assets

1.3. INTRODUCTION OF ELECTRONIC COMPONENTS INDUSTRY:

Component manufacturing has not taken off in a big way in India, and till date, a significant
percentage of components used by the Indian electronics industry is being imported.
According to a recent survey conducted by the Department of Information Technology (DIT)
in association with Electronics Industries Association of India (ELCINA), the size of the total
electronics components industry was over US$ 9.2 billion in 2010, of which over 60 percent was
met through imports. Furthermore, value addition in locally manufactured components was low
because of the high dependence on imported raw materials and inputs. As a result, actual local
content met less than a third of total demand.
In this backdrop, component trading is a flourishing business in India. As there is no duty on
imports of components, there are more traders in this segment than manufacturers in India. The
country has a strong base of distributors of electronics components- both domestic players and
MNCs- making the market very competitive with the presence of a large number of domestic and
international brands.
To measure the pulse of this growing segment, Electronics Bazaar has attempted to rank the
leading electronic component distributors, based on their annual turnover, which has been
verified from the website of the Ministry of Corporate Affairs (MCA), Government of India.
RANK

COMPANY NAME

Electronika Sales Pvt Ltd

Avnet India Pvt Ltd

Ramakrishna Electro Components Pvt Ltd

Power Palazzo Pvt Ltd

WPG Electronics India Pvt Ltd

RS Components and Controls (India) Ltd

Arihant Systems and Electricals Pvt Ltd

Boffin Impex Pvt Ltd

Indian Technological Products Pvt Ltd

10

Vikas Electro Sales

1.4. PROFILE OF RAMAKRISHNA ELECTRO COMPONENTS

PRIVATE LIMITED:
1.4.1. INTRODUCTION:
Ramakrishna Group was established few years ago with a vision and mission to become a
reputed name in the world of electronic industries. Now the company is known as a certified
company and one of the leading and independent stocking distributors of semiconductors &
electronic components. During its 30 years of services, the company has got valuable assets of
qualified sales, marketing and technical team who works 24*7 to offer best services that would
ever receive.
They know our requirement and offer us genuine electronic components from legal sources.
Their complete knowledge and expertise stand them apart from others and make them one stop
shop for quality work. Their electro component services accompanied with readily flexible
infrastructure and manpower that support them to deliver quickly to meet the high tech
requirements.

"RAMAKRISHNA Group" is a firm having 30 years of experience in providing high

standard active and passive mechanism for electronics and semiconductor business.
Founded in the year 1982 by Mr.Satish Luthra, RK group has its presence all across the India and
has branches and warehouses in China, Hong Kong, Singapore and others. The
today RAMAKRISHNA Group is a high earning company hoping to state its position
as the most leading player in the electronics industry.

The annual revenue of RK Group for the previous year was more than US$ 100 Million. The
group is an authorized distributor of more than 25 main providers containing Bharat Electronic,

Winbond, Toshiba, Nuvoton, Deki, Sharp, Littelfuse, Onida, ST, DC,NXP, Samwha, Rohm,
NIDEC, RMC, PFS, Taiyo Yuden and etc. In the future, they aim to develop ourselves as an
emerging world-wide player through productive teamwork with their clients.

Their dream is followed by their main philosophy to supply the best and high quality
mechanism in order to match business demands of new consistent mechanism. Keeping in
mind with their dream, they continuously try hard to discover new devices which can control
the potential of circuits to maximum level.

RAMAKRISHNA Group firmly considers in modernism and advanced technology. In future,

this will create good condition for all in association.

Electronic business is distinguished by fast obsolescence and RAMAKRISHNA Group is

dedicated

to

keep

clients

informed

with

newest

development

and

products, RAMAKRISHNA Group also considers in team work and employee role. They
always ready to match ever changing wants of the clients for quality as well as time to time
deliveries.
The dream of the organization is superb quality and service with skill and knowing the demands
of their customers.
Client satisfaction values follow their dream and mission and they customize their thoughts and
actions as per the time.
Keep discovering, innovating with an idea to providing and prospering better.

1.4.2. FOCUS SEGMENT:

They are continuously looking forward and discovering latest and creative ways to increase our
commerce. Their plan is considered to assist the Group to get benefit of the substantial prospects
afforded by their international markets, enhancing financial graph against ever moving market
situations.
Their plans are simple and focus on three main points:
1.

Focus on client requirement segments of the electronics marketplace

2.

Offering a distinguishing multichannel atmosphere

3.

Globalizing our commerce plan, particularly in the rapidly increasing markets

The basis of their approach is to go close to their clienteles and understand to their various
requirements. By applying this vision to push developments to their clients proposal, they hunt
for offering a great service to their potential clients.
Their capability to tailor client interactions is assisted by their multichannel marketing and sales
resources. They bring together business and community via wide traditional channels, for
example field sales and contact focus means, with advanced ecommerce interfaces.
They are an India based organization with over 20% of sales from outdoor the country. The
chance to grow in electronics world is great due to exciting developing economies. They are
globalizing other services so that they could grow their infrastructure and take advantage of these
opportunities.
List Of Focus Segment:

Led lighting
UPS/ inverter
Weighting scale
Automotive solution
Audio products
Color TV
SMPS
Energy meter
Solar solution

Telecommunication products
CCTV
Setup box
Air conditioner
Industrial products

Now a day commerce success is an outcome of differentiated and flawless client experiences.
Clients of electro businesses are no longer satisfied by different product qualities.

1.4.3. Why should you consider Ramakrishna Group?

A remarkable track record, Ramakrishna is the number one R&D services providers in India and
has helped various companies by its winning engineering. Over the past three decades,
Ramakrishna has been supporting the R&D set up needy.

Their impressive engineering is out of the box thinking and a strong base of talents, processes,
systems, frameworks and tools are some of the factors why some of the biggest international
companies are with Ramakrishna Group. They have supported in medical, customer devices,
aerospace, internet, software and other industries get their commerce plan via product
engineering, platform results and the production of different engineering experiences.

1.4.4. How can Ramakrishna support you?

Ramakrishna Group helps us to drive commerce influence via enhanced product growth,
provided at an incomparable value and supported by the current technologies to improve their
engineering services providing.
Acceleration: Customer-experience engineering, swift plan management, dispersed creation
engineering, bionetwork engineering, developing market help, latest technology acceptance,
supplier-sourced novelty, nimble stages and others.

Importance: Quality engineering, tear-down investigation, combined nourishment and

provision, thrifty engineering, test automation and reversion, end-of-life-cycle help, product
excellence and obedience.
Machineries:

Swift

mobility

engineering,

mobile-device

commercialization,

creation

engineering, creation launch and after launch services, intelligent creation enablement, smartservices growth, mobile-app guarantee, Technology willingness valuation and network-linked
end-customer and organization-centric answers.

1.4.5. AUTHORISED SUPPLIER:

Globally known as RK Group, Ramakrishna Group is involved in the business and distribution
of electro components and semiconductors for the last 29 years. RK has a strong sales network
spread all over the country. Over the years, it has been providing the greatest quality of electronic
components. The company focuses on accurate, professional and on time service. RK group
relies on providing good quality, reasonable prices, on time distribution and 24 hour technical
support. The company is an authorized distributor of Toshiba Semiconductors, BELL India, ST
Microelectronics,

Winbond,

Mitsubishi

Electric

Chips,

Nuvoton,

Samwha,

Rohm

Semiconductors, NXP Semiconductors, etc. The company has learned complete knowledge and
great skills over a period of high-standard and client satisfactory work. These impressive and
important features, mixed with the state-of-the-art, willingly flexible infrastructure and
manpower, allow it to reply instantly to the urgent and quick requirements of the customers.
They deal with: Different and all sorts of electronic components and High end semiconductors.
Their vision is motivated by their core value to offer the best and next generation electronic
components in order to suit the industrys needs of innovative and trustworthy electronic
components. Adding to its vision, the company constantly tries to discover and invent new
devices that can join the potential of circuits to their optimum level. The company definitely
believes in creativity and cutting-edge technology.
List of suppliers such as: ST Microelectronics
NXP

Toshiba
Philips lumileds
Nuvoton
Osram
ROHM
Little fuse
Bharat electronics
Panasonic
Taiyo yuden
Nidec motor corporation
Sharp
IK Semicon

1.4.6. REFERENCE SOLUTIONS

By knowing their clients needs for todays technologies, they provide providers the opportunity
to seed new items to an extensive, international client base around a wide range of industry
segments along with offering a productive channel for minimum volume sales.

Their efficient sales plans containing the award-winning records, offers suppliers with a
distinguishing way to advertise and approach to unparalleled clients visions. They are now using
the design prior than ever before by growing their ability in the previous phases of the design
lifespan and new creation overview.

This distinctive tactic is leading their dealers to partner with them ever extra near. They give
importance to their capability to introduce new creations to market, making sure that their
mechanisms are stated in the initial stages of design and so will be required in great capacities
when that project reaches to manufacture.

Project engineering skill is extremely attractive to their dealers. Their design services commerce,
increase their new creation introduction ability and let them to partner with dealers even more
near as they create and introduce their current innovations.

Dealers appreciate their growing interaction with clienteles through online. They benefit from
understanding statistics on developing technologies, developing clients trends and our advanced
worldwide supplier plan, while their web abilities also please their engineering clients need.

Ramakrishna Group is a recognized name in the field of electro components and has been
catering the business need for many years. During this tenure, the company has got various
rewards and awards from many reputed personalities for its wonderful and impressive services.
Dissimilar to other forms of popular awards, its corporate event unites your whole culture. It
communicates values, purpose and builds alignment. Business events link all individual person
with a huge vision, around groups, departments and etc. Its specialties create unforgettable
experiences that strengthen your promise of the best place to work.

CHAPTER 2-

LITERATURE REVIEW

2.1 LITERATURE REVIEW:

Review of Literature refers to the collection of the results of the various researches relating to
the present study. It takes into consideration the research of the previous researchers which are
related to the present research in any way. Here are the reviews of the previous researches related
with the present study:
Bollen (1999) conducted a study on Ratio Variables on which he found three different
uses of ratio variables in aggregate data analysis:
(1) as measures of theoretical concepts,
(2) as a means to control an extraneous factor, and
(3) as a correction for heteroscedasticity.
In the use of ratios as indices of concepts, a problem can arise if it is regressed on other indices
or variables that contain a common component. For example, the relationship between two per
capita measures may be confounded with the common population component in each variable.

Regarding the second use of ratios, only under exceptional conditions will ratio variables be a
suitable means of controlling an extraneous factor. Finally, the use of ratios to correct for
heteroscedasticity is also often misused. Only under special conditions will the common form
forgers

soon

with

ratio

variables correct for heteroscedasticity. Alternatives to ratios for each of these cases arediscussed
and evaluated.
Cooper (2000) conducted a study on Financial Intermediation on which he observed that the
quantitative behavior of business-cycle models in which the intermediation process acts either as
a source of fluctuations or as a propagator of real shocks. In neither case do we find convincing
evidence that the intermediation process is an important element of aggregate fluctuations. For
an economy driven by intermediation shocks, consumption is not smoother than output,investme
nt is negatively correlated with output, variations in the capital stock are quite large, and interest
rates are pro-cyclical. The model economy thus fails to match unconditional moments for the
U.S. economy. We also structurally estimate parameters of a model economy in which
intermediation and productivity shocks are present, allowing for the intermediation process
to propagate the real shock. The unconditional correlations are closer to those observed
only when the intermediation shock is relatively unimportant.
According to Gibson (2010) investors and other external users of financial information will
often need to measure the performance and financial health of an organization. This is done in
order to evaluate the success of the business, determine any weaknesses of the business, compare
current and past performance, and compare current performance with industry standards.
Financially stable organizations are desirable, because a financially stable business is one that
successfully ensures its ability to generate income for investors and retain or increase value.
There are many different methods that can be used alone or together to help investors assess the
financial stability of an organization. One of the most common methods is financial ratio
analysis. The basic ratios include five categories: profitability ratios, liquidity ratios, debt ratios,
asset management ratios and market- value ratios (Siddiqui, 2006).Ratio analysis involves the
methods of calculating and interpreting financial ratio in order to access the firms performance
and status. The basic inputs to ratio analysis are the firms income statement and balance sheet
for the periods to be examined (Peterson and Fabozzi, 2012)

Many researchers have studied financial ratios as a part of working capital Management;
however, very few of them have discussed the working capital Policies in specific. Some earlier
work by Gupta and Heffner (1972) examined the differences in financial ratio averages between
industries. The Conclusion of both the studies was that differences do exist in mean profitability,
Activity, leverage and liquidity ratios amongst industry groups. Pinches et al. (1973) used factor
analysis to develop seven classifications of ratios, and found that the classifications were stable
over the 1951-1969 time periods. In a regional study, Pandey and Parera (1997) provided an
empirical evidence of working capital management policies and practices of the private sector
manufacturing companies in Sri Lanka. The information and data for the study were gathered
through questionnaires and interviews with chief financial officers of a sample of manufacturing
companies listed on the Colombo Stock Exchange. They found that most companies in Sri Lanka
have informal working capital policy and company size has an influence on the overall working
capital policy (formal or informal) and approach (conservative, moderate or aggressive).
Moreover, company profitability has an influence on the methods of working capital planning
and control.
Chu et al. (1991) analyzed the hospital sectors to observe the differences of financial ratios
groups between hospital sectors and industrial firms sectors. Their study concluded that financial
ratios groups were significantly different from those of industrial firms ratios as well these ratios
were relatively stable over the five years period. A significance relationship for about half of
industries studied indicated that results might vary from industry to industry. Another aspect of
working capital management has been analyzed by Lamberson (1995) who studied how small
firms respond to changes in economic activities by changing their working capital positions and
level of current assets and liabilities. Current ratio, current assets to total assets ratio and
inventory to total assets ratio were used as measure of working capital while index of annual
average coincident economic indicator was used as a measure of economic activity. Contrary to
the expectations, the study found that there is very small relationship between charges in
economic conditions and changes in working capital. However, Weinraub and Visscher (1998)
have discussed the issue of aggressive and conservative working capital management policies by
using quarterly data for a period of 1984 to 1993 of US firms. Their study looked at ten diverse
industry groups to examine the relative relationship between their aggressive/conservative
working capital policies. The authors have concluded that the industries had distinctive and
significantly different working capital management policies. Moreover, the relative nature of the

working capital management policies exhibited remarkable stability over the ten-year study
period. The study also showed a high and significant negative correlation between industry asset
and liability policies and found that when relatively aggressive working capital asset policies are
followed they are balanced by relatively conservative working capital financial policies.
Sathyamoorthi (2002) focused on good corporate governance and in turn effective management
of business assets. He observed that more emphasis is given to investment in fixed assets both in
management area and research. However, effective management working capital has been
receiving little attention and yielding more significant results. He analyzed selected Cooperatives in Botswana for a period of 1993-1997 and concluded that an aggressive approach has
been followed by these firms during all the four years of study. Filbeck and Krueger (2005)
highlighted the importance of efficient working capital management by analyzing the working
capital management policies of 32 non-financial industries in USA. According to their findings
significant differences exist between industries in working capital practices over time.

2.2 ABOUT THE RATIO ANALYSIS:

1) Liquidity Ratio:
Brigham and Houston (2009) stated that liquidity ratios measure the organizations ability to meet
short-term obligations. These include the current ratio and the quick ratio. This analysis that
provides a quick, easy method to measure of liquidity by relating the amount of cash and other
current assets to the firms current obligations.These include the current ratio and the quick ratio.
1.a) Current Ratio:
According to Megginson and Smart (2008) the current ratio is calculated by taking the total
amount of current assets and dividing it by the total amount of current liabilities. This ratio
indicates the extent to which current liabilities are covered by those assets expected to be

converted to cash in the near future. Current assets normally include cash, marketable securities,
accounts receivables, and inventories. Current liabilities consist of accounts payable, short-term
notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses
(principally wages). The formula used to calculate this ratio is:
Current Ratio = Current Assets Current Liabilities
Current ratio shows a firms ability to cover its current liabilities with its current assets. In
Pharmacy a current ratio of at least 2 is considered necessary to ensure that the firm has
sufficient liquid resource to meet its short term needs if sales should suddenly drop or expenses
increases.
1.b) Quick Ratio:
The quick ratio is calculated by taking the total amount of current assets and deducting the
inventory and dividing it by the total amount of current liabilities. This ratio indicates the firms
liquidity position as well. It actually refers to the extent to which current liabilities are covered
by those assets except inventories. The formula used to calculate this ratio is:
Quick Ratio = (Current Assets Inventory) Current Liabilities
Quick ratio provides a better indication of the firms relative liquidity by eliminating inventory,
the least liquid of all current Assets (Baker and Powell, 2009).
2) Asset Management Ratio:
Measures how effectively the firm is managing its assets. These ratios are designed to answer the
following question whether the total amount of each type of asset as reported on the balance
sheet seem reasonable, too high, or too low on view of current and projected sales level (Lasher,
2010).
Below are discussed four types of asset management ratio:
1. Inventory Turnover Ratio
2. The Days sales Outstanding
3. Fixed Asset Turnover Ratio
4. Total Asset Turnover Ratio

2.a) Inventory Turnover Ratio (IT):

The inventory turnover ratio is calculated by taking the total cost of goods sold and dividing it by
total inventory. The ratio is regarded as a test of efficiency and indicates the rapidity with which
the company is able to move its merchandise. The formula used to calculate this ratio is:
Inventory Turnover = Cost of Goods Sold Inventory
Inventory Turnover indicates the effectiveness of the inventory management practices of the firm
(Bagad, 2008).
2.b) Day sales outstanding (DSO):
Lee (2006) stated that the average collection period ratio is calculated by taking the total
accounts receivable and dividing it by the average credit sales per day, which is the annual credit
sales divided by 365.The Days Sales Outstanding ratio shows both the average time it takes to
turn the receivables into cash and the age, in terms of days, of a company's accounts
receivable.The formula used to calculate this ratio is:
Day sales Outstanding = (Accounts Receivable Average Daily Sales) x 365
This ratio is of particular importance to credit and collection associates. Receivable turnover
indicates the quality of receivable and how successful the firm is in its collections.
2.c) Fixed Asset Turnover Ratio ( FAT):
The total asset turnover ratio is calculated by taking total sales and dividing it by fixed assets.
The fixed asset turnover ratio measures the effectiveness in generating net sales revenue from
investments in net property, plant, and equipment back into the company. The formula used to
calculate this ratio is:
Fixed Asser Turnover = Sales Net Fixed Assets
It evaluates only the investments. Receivable Turnover indicates the quality of receivable and
how successful the firm is in its collections (Mayo, 2007).
2.d) Total Assets Turnover Ratio( TAT):
The Total Assets Turnover is similar to fixed asset turnover since both measures a company's
effectiveness in generating sales revenue from investments back into the company. Total asset

turnover evaluates the efficiency of managing all of the company's assets. The formula used to
calculate this ratio is:
Total Asset Turnover = Sales Total Assets
Total asset turnover indicates how well a company has used its fixed and current assets to
generate sales (Gibson, 2010).

3) Debt Management Ratio:

According to Baker and Powel (2009) debt management ratios reveal 1) The extent to which the firm is financed with debt and
2) The likelihood of defaulting on its debt obligations. These ratios include:
3.a) Debt Ratio:
Debt to Total Asset shows the percentage of the firms assets that are supported by debt
financing. The formula used to calculate this ratio is:
Debt Ratio = Total Liabilities Total Assets
The debt ratio generally called the debt to total asset ratio, measures the percentage of funds
provided by the creditors (Bagad, 2008).

4) Profitability Ratios:
According to Brigham and Daves (2009) profitability is the net result of a number of policies and
decisions. These ratios provide information about the way the firm is operating. Profitability
ratios show the combined effects of liquidity, asset management and debt on operating results.
There are four important profitability ratios that we are going to analyze:
1. Net Profit Margin
2. Gross profit Margin

3. Return on Asset.
4. Return on Equity
4.a) Net Profit Margin on sales gives us the net profit that the business is earning per dollar of
sales. The formula used to calculate this ratio is:
Net Profit Margin = Net Profit Sales
4.b) Gross Profit Margin on sales gives us the gross profit that the business is earning per dollar
of sales. The formula used to calculate this ratio is:
Gross Profit Margin = Gross Profit Sales
4.c) Return on Equity (ROE):
Return on Equity measures the amount of net income earned by utilizing each dollar of total
common equity. It is the most important of the Bottom line ratio. This can compute the amount
which the shareholders are going to get for their shares.The formula used to calculate this ratio
is:
Return on Equity = Net income available to common stockholders Common Equity
ROE measures the return on the owners investment in the firm (Megginson and Smart, 2008).
4.d) Return on Total Assets (ROA):
Return of total asset measures the amount of net income earned by utilizing each dollar of total
assets. The formula used to calculate this ratio is:
Return on Total Assets = Net Income Total Assets
ROA means Return on Assets which reflects how well a manager has used all available funds to
generate profits including both equity & debt (Besley and Brigham, 2008).

5) Market Value Ratio:

Mayo (2007) stated that these ratios relate the firms stock price to its earnings and book value
per share. They give management an indication of what investors think of the companys future
prospects based on its past performance.
5.a) Price/ Earnings (P/E):
Price earnings ratio shows how much the investors are willing to pay per dollar of reported
profits. To compute the P/E ratio, we need to know the firms earnings per share(EPS) (Baker
and Powel, 2009)
The formula used to calculate this ratio is:
Price/Earning ratio = Market price per share Earnings per share

CHAPTER-3
RESEARCH
METHODOLOGY

3.1 PURPOSE OF THE STUDY

1. This project is helpful in knowing the company position of funds maintenance and setting the
standards for working capital inventory levels, current ratio level, quick ratio, current asset
turnover level & size of current liability etc.
2. This project is helpful to the management for expanding the project & present availability of
funds.
3. This project is also useful as it combines the present year data with the previous year data and
thereby it shows the trend analysis, i.e. increasing fund or decreasing fund.

3.2 RESEARCH OBJECTIVES OF THE STUDY

3.2.1 Primary Objective:

To evaluate the financial efficiency of RAMAKRISHNA ELECTRO COMPONENTS

PVT. LTD.

3.2.2 Secondary Objectives:

To analyse the liquidity solvency position of the firm.

To understand the profitability position of the firm.
To assess the factors influencing the financial performance of the organisation.
To understand the overall financial position of the company.

3.3 RESEARCH METHODOLOGY OF THE STUDY

3.3.1 RESEARCH DESIGN
A Research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in procedure
The research design followed to study the working capital management in RAMAKRISHNA
ELECTRO COMPONENTS PVT. LTD. is Descriptive Research Design.

3.3.2 METHODS OF DATA COLLECTION

There are two types of data collection methods available.
1. Primary data collection
2. Secondary data collection
Primary data collection method
Primary data is the data which the researcher collects through various methods like interviews,
surveys, questionnaires etc., to support the secondary data.

Primary data is the first hand

information that is collected during the period of research. Primary data has been collected

through discussions held with the staffs in the accounts department. Some types of information
were gathered through oral conversations with the cashier, taxation officer etc.

Secondary data collection method

Secondary data is data collected by someone other than the user. Common sources of secondary
data for social science include censuses, surveys, organizational records and data collected
through qualitative methodologies or qualitative research.
Secondary data studies whole company records and companys balance sheet in which the
project work has been done. In addition, a number of reference books, journals and reports were
also used to formulate the theoretical model for the study. And some information were also
drawn from the websites.

This project is based on primary data collected through discussion with the head of Finance
Department, head of Statistical Quality Control department and other concerned staff member of
finance department. But primary data collection had limitations such as matter confidential
information thus project is based on secondary information collected through four years annual
report of the company, supported by various books and internet sides. The data collection was
aimed at analysis of working capital management of the company.
3.3.3 STATISTICAL TOOLS USED FOR DATA ANAYLSIS:
The various statistical tools used for data analysis is as follows:
a) Tables
b) Bar-chart
c) Graphs
d) Correlation
3.3.4. ANALYTICAL TOOLS USED:
The analytical tools used for data analysis is as follows:

a) Ratio analysis

3.3.5 LIMITATIONS:
Following limitations were encountered while preparing this project:
1. The study is limited to 4 years performance of the company.
2. The data used in this study have been taken from published annual report only.
3. This study is conducted within a short period. During the limited period the study may not be
full-fledged and utilization in all aspects.
4. Financial accounting does not take into account the price level changes.
5. We cannot do comparisons with other companies unless and until we have the data of other
companies on the same subject.
6. Only the printed data about the company will be available and not the backend details.
7. Future plans of the company will not be disclosed to us.
8. Lastly, due to shortage of time it is not possible to cover all the factors and details regarding
the subject of study.

CHAPTER 4
DATA ANALYSIS AND
INTERPRETATION

4.1 FINANCIAL PERFORMANCE EVALUATION USING RATIO

ANALYSIS
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as The Indicated
Quotient of Two Mathematical Expressions and as The Relationship between Two or More
Things. In financial analysis, a ratio is used as a benchmark for evaluating the financial position
and performance of firm. The absolute accounting figures reported in the financial statement do
not provide a meaningful understanding of the performance and financial position of a firm. The
relationship between two accounting figures, expressed mathematically is known as a financial

ratio. Ratios help to summaries large quantities of financial data and to make qualitative about
the firms financial performance.
The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative
judgment. Such is the nature of all financial ratios.
4.1.1 Significance of Using Ratios:
The significance of a ratio can only truly be appreciated when:
1. It is compared with other ratios in the same set of financial statements.
2. It is compared with the same ratio in previous financial statements (trend analysis).
3. It is compared with a standard of performance (industry average). Such a standard may
be either the ratio which represents the typical performance of the trade or industry, or the
ratio which represents the target set by management as desirable for the business.

4.2 TYPES OF RATIOS:

4.2.1 Liquidity Ratios

Liquidity refers to the ability of a firm to meet its short-term financial obligations when
and as they fall due.

The main concern of liquidity ratio is to measure the ability of the firms to meet their
short-term maturing obligations. Failure to do this will result in the total failure of the
business, as it would be forced into liquidation.

4.2.1 a) Current Ratio:

The Current Ratio expresses the relationship between the firms current assets and its current
liabilities. Current assets normally include cash, marketable securities, accounts receivable and
inventories. Current liabilities consist of accounts payable, short term notes payable, short-term
loans, current maturities of long term debt, accrued income taxes and other accrued expenses
(wages).

Current Ratio = ____ Current assets____

Current liabilities

Significance:
It is generally accepted that current assets should be 2 times the current liabilities. In a sound
business, a current ratio of 2:1 is considered an ideal one. If current ratio is lower than 2:1, the
short term solvency of the firm is considered doubtful and it shows that the firm is not in a
position to meet its current liabilities in times and when they are due to mature. A higher current
ratio is considered to be an indication that of the firm is liquid and can meet its short term
liabilities on maturity. Higher current ratio represents a cushion to short-term creditors, the
higher the current ratio, the greater the margin of safety to the creditors.
Table: 4.1 CURRENT RATIO
Current Assets

Current Liabilities

Current Ratio

Year

Rs. in lakhs

Rs. in lakhs

2008 2009

8825.79

644.26

13.69

2009 2010

9726.73

1154.12

8.43

2010 2011

9884.64

1501.76

6.56

2011 2012

11949.47

3905.45

3.06

Interpretation:
As a conventional rule, a current ratio of 2:1 is considered satisfactory. This rule is base on the
logic that in a worse situation even if the value of current assets becomes half, the firm will be
able to meet its obligation. The current ratio represents the margin of safety for creditors. The
current ratio has been decreasing year after year which shows decreasing working capital.

From the above statement the fact is depicted that the liquidity position of the Ramakrishna
Electro Components Pvt limited is satisfactory because all the four years current ratio is not
below the standard ratio 2:1.
Chart no.: 4.1 CURRENT RATIO
16
14
12
10

Ratios

current ratio

6
4
2
0
2008-2009

2009-2010

2010-2011

2011-2012

Year

4.2.1 b) Quick Ratio

Measures assets that are quickly converted into cash and they are compared with current
liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g.
inventories.
The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its
short-term obligations from its quick assets only (i.e. it ignores stock). The quick ratio is
calculated as follows

Quick Ratio = ____ Quick assets _____

Current liabilities

Significance:
The standard liquid ratio is supposed to be 1:1 i.e., liquid assets should be equal to current
liabilities. If the ratio is higher, i.e., liquid assets are more than the current liabilities, the short
term financial position is supposed to be very sound. On the other hand, if the ratio is low, i.e.,
current liabilities are more than the liquid assets, the short term financial position of the business
shall be deemed to be unsound. When used in conjunction with current ratio, the liquid ratio
gives a better picture of the firms capacity to meet its short-term obligations out of short-term
assets.
Table:4.2

QUICK RATIO

Quick Assets

Current Liabilities

Year
2008 2009

Rs. in lakhs
4848.16

Rs. in lakhs
644.26

Quick Ratio
7.52

2009 2010

6629.47

1154.12

5.74

2010 2011

6210.06

1501.76

4.13

2011 2012

8287.01

3905.45

2.12

Interpretation:
As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. It is
a more rigorous and penetrating test of the liquidity position of a firm. But the liquid ratio has
been decreasing year after year which indicates a high operation of the business.
From the above statement, it is clear that the liquidity position of the Ramakrishna Electro
Components Pvt Ltd. is satisfactory. Because the entire four years liquid ratio is not below the
standard ratio of 1:1.
Chart no.: 4.2 QUICK RATIOS

8
7
6
5

Ratios

Quick Ratio

3
2
1
0
2008-2009

2009-2010

2010-2011

2011-2012

Year

4.2.1 c) Cash ratio:

This is also known as cash position ratio or super quick ratio. It is a variation of quick ratio. This
ratio establishes the relationship between absolute liquid assets and current liabilities. Absolute
liquid assets are cash in hand, bank balance and readily marketable securities. Both the debtors
and the bills receivable are exclude from liquid assets as there is always an uncertainty with
respect to their realization. In other words, liquid assets minus debtors and bills receivable are
absolute liquid assets. The cash ratio is calculated as follows:

Cash Ratio = Cash in hand & at bank + Marketable securities

Current liabilities

Significance: This ratio gains much significance only when it is used in conjunction with the
first two ratios. The accepted norm for this ratio is 50% or 0.5:1 or 1:2(i.e.,) Re. 1 worth absolute
liquid assets are considered adequate to pay Rs.2 worth current liabilities in time as all the
creditors are not expected to demand cash at the same time and then cash may also be realized

from debtors and inventories. This test is a more rigorous measure of a firms liquidity position.
This type of ratio is not widely used in practice.
Table: 4.3 CASH RATIO
Cash in Hand & at Bank

Current Liabilities

Year
2008 2009

Rs. in lakhs
141.15

Rs. in lakhs
644.26

Cash Ratio
0.22

2009 2010

46.11

1154.12

0.04

2010 2011

34.43

1501.76

0.02

2011 2012
Interpretation:

82.12

3905.45

0.02

The acceptable norm for this ratio is 50% or 1:2. But the cash ratio is below the accepted norm.
So the cash position is not utilized effectively and efficiently.
Chart no.: 4.3CASH RATIO
0.25
0.2
0.15

Ratios
0.1

Cash Ratio

0.05
0
2008-2009

2009-2010

2010-2011

Year

2011-2012

4.2.2 Activity Ratio:

If a business does not use its assets effectively, investors in the business would rather take their
money and place it somewhere else. In order for the assets to be used effectively, the business
needs a high turnover.
Unless the business continues to generate high turnover, assets will be idle as it is impossible to
buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to
assess how active various assets are in the business.

4.2.2 a) Average Collection Period:

The average collection period measures the quality of debtors since it indicates the speed of their
collection.

The shorter the average collection period, the better the quality of debtors, as a short
collection period implies the prompt payment by debtors.

The average collection period should be compared against the firms credit terms and
policy to judge its credit and collection efficiency.

An excessively long collection period implies a very liberal and inefficient credit and
collection performance.

The delay in collection of cash impairs the firms liquidity. On the other hand, too low a
collection period is not necessarily favorable, rather it may indicate a very restrictive
credit and collection policy which may curtail sales and hence adversely affect profit.

Average collection period = ____360 days __________

Debtors turnover ratio
Significance: Average collection period indicates the quality of debtors by measuring the
rapidity or slowness in the collection process. Generally, the shorter the average collection
period, the better is the quality of debtors as a short collection period implies quick payment by
debtors. Similarly, a higher collection period implies as inefficient collection performance which,
in turn, adversely affects the liquidity or short term paying capacity of a firm out of its current
liabilities. Moreover, longer the average collection period, larger is the chances of bad debts.
Table: 4.4. AVERAGE COLLECTION PERIOD
Debtors Turnover Ratio
Year
2002 2003

Days
360

Rs. in lakhs
3100.98

Days
0.12

2003 2004

360

4405.70

0.08

2004 2005

360

3524.79

0.10

2005 2006

360

3667.52

0.10

Interpretation:
The shorter the collection period, the better the quality of debtors. Since a short collection period
implies the prompt payment by debtors. Here, collection period decrease from 2009-2010 and
increased slightly in the year 2011-2012.Therefore the average collection period of Ramakrishna
Electro Components Pvt ltd for the four years are satisfactory.
Chart no.: 4.4

AVERAGE COLLECTION PERIOD

0.14
0.12
0.1
0.08

Ratios

0.06

days

0.04
0.02
0
2008-2009

2009-2010

2010-2011

2011-2012

Year

4.2.2 b) Inventory Turnover Ratio:

This ratio measures the stock in relation to turnover in order to determine how often the stock
turns over in the business.
It indicates the efficiency of the firm in selling its product. It is calculated by dividing he cost of
goods sold by the average inventory.
Inventory Turnover Ratio = ___ Cost of goods sold___
Average Inventory
Significance:
This ratio is calculated to ascertain the number of times the stock is turned over during the
periods. In other words, it is an indication of the velocity of the movement of the stock during the
year. In case of decrease in sales, this ratio will decrease. This serves as a check on the control of
stock in a business. This ratio will reveal the excess stock and accumulation of obsolete or
damaged stock. The ratio of net sales to stock is satisfactory relationship, if the stock is more
than three-fourths of the net working capital. This ratio gives the rate at which inventories are
converted into sales and then into cash and thus helps in determining the liquidity of a firm.

Table: 4.5 INVENTORY TURNOVER RATIO

Cost of goods sold

Average Inventory

Year

Rs. in lakhs

Rs. in lakhs

Ratio

2008 2009

11939.46

3508.00

3.4

2009 2010

13708.36

3537.44

3.88

2010 2011

12609.33

3385.92

3.72

2011 2012

17543.71

3668.52

4.78

Interpretation:
A higher turnover ratio is always beneficial to the concern. In this the number of times the
inventory is turned over has been increasing from one year to another year. This increasing
turnover indicates immediate sales. And in turn activates production process and is responsible
for further development in the business. This indicates a good inventory policy of the company.
Thus the stock turnover ratios of Ramakrishna Electro Components Pvt Limited, for the four
years are satisfactory.
Chart no.: 4.5 INVENTORY TURNOVER RATIO
6
5
4

Ratios

Inventory Turnover
Ratio

2
1
0
2008-2009 2009-2010 2010-2011 2011-2012

Year

4.2.2 c) Working capital turnover ratio:

This ratio shows the number of times the working capital results in sales. In other words, this
ratio indicates the efficiency or otherwise in the utilization of short term funds in making sales.
Working capital means the excess of current assets over current liabilities. In fact, in the short
run, it is the current assets and current liabilities which pay a major role. A careful handling of
the short term assets and funds will mean a reduction in the amount of capital employed, thereby
improving turnover. The following formula is used to measure this ratio:

Working capital turnover ratio = _____Sales________________

Net Working Capital

Significance:
This ratio is used to assess the efficiency with which the working capital has been utilized in a
business. A higher working capital turnover indicates either the favorable turnover of inventories
and receivables and/or the inadequate of net working capital accompanied by low turnover of
inventories and receivables. A low ratio signifies either the excess of net working capital or slow
turnover of inventories and receivables or both. This ratio can at best be used by making of
comparative and trend analysis for different firms in the same industry and for various periods.

Table: 4.6 WORKING CAPITAL TURNOVER RATIO

Sales

Net Working Capital

Year

Rs. in lakhs

Rs. in lakhs

Ratio

2008 2009

19808.5

8181.53

2.42

2009 2010

21612.94

8572.61

2.52

2010 2011

21885.20

8382.88

2.61

2011 2012

30087.56

8044.02

3.74

Interpretation:
The Working Capital Turnover Ratio is increasing year after year. It can be noted that the change
is due to the fluctuation in sales or current liabilities. These higher ratio are indicators of lower
investment of working Capital and more profit. Thus, Working Capital Turnover ratios for the
four years are satisfactory.

Chart no.: 4.6

WORKING CAPITAL TURNOVER RATIO

4
3.5
3
2.5

Ratios

Working capital
turnover ratio

1.5
1
0.5
0
2008-2009 2009-2010 2010-2011 2011-2012

Year

4.2.2 d) Fixed Assets Turnover Ratio:

The fixed assets turnover ratio measures the efficiency with which the firm has been using its
fixed assets to generate sales. It is calculated by dividing the firms sales by its net fixed assets as
follows:

Fixed Assets Turnover = ___ Sales__________

Net fixed assets

Significance:
This ratio gives an ideal about adequate investment or over investment or under investment in
fixed assets. As a rule, over-investment in unprofitable fixed assets should be avoided to the
possible extent. Under-investment is also equally bad affecting unfavorably the operating costs
and consequently the profit. In manufacturing concerns, the ratio is important and appropriate,
since sales are produced not only by use of working capital but also the capital invested in fixed
assets. An increase in this ratio is the indicator of efficiency in work performance and a decrease
in this ratio speaks of unwise and improper investment in fixed assets.
Table: 4.7

FIXED ASSETS TURNOVER RATIO

Sales

Net Fixed Assets

Year

Rs. in lakhs

Rs. in lakhs

Ratio

2008 2009

19808.50

23599.92

0.84

2009 2010

21612.94

23293.33

0.93

2010 2011

21885.20

21863.99

1.00

2011 2012

30087.56

20245.48

1.49

Interpretation:

The fixed assets turnover ratio is increasing year after year. The overall higher ratio indicates the
efficient utilization of the fixed assets. Thus the fixed assets turnover ratio for the four years are
satisfactory as such there is no under utilization of the fixed assets.
Chart no.: 4.7

FIXED ASSETS TURNOVER RATIO

1.6
1.4
1.2
1

Ratio

0.8

Fix ed asset
turnover ratio

0.6
0.4
0.2
0
2008-2009 2009-2010 2010-2011 2011-2012

Year

4.2.3 Financial Leverage (Gearing) Ratios:

The ratios indicate the degree to which the activities of a firm are supported by creditors
funds as opposed to owners.

The relationship of owners equity to borrowed funds is an important indicator of

financial strength.

The debt requires fixed interest payments and repayment of the loan and legal action can
be taken if any amounts due are not paid at the appointed time. A relatively high proportion
of funds contributed by the owners indicates a cushion (surplus) which shields creditors
against possible losses from default in payment.

4.2.3 a) Proprietary Ratio:

This ratio is also known as Owners fund ratio (or) Shareholders equity ratio (or) Equity ratio
(or) Net worth ratio. This ratio establishes the relationship between the proprietors fund and
total tangible assets. The formula for this ratio may be written as follows.

Proprietary Ratio = ___Proprietors funds _____

Total tangible assets

Significance:
This ratio represents the relationship of owners funds to total tangible assets, higher the ratio or
the share of the shareholders in the total capital of the company, better is the long term solvency
position of the company. This ratio is of importance to the creditors who can ascertain the
proportion of the shareholders funds in the total assets employed in the firm. A ratio below 50%
may be alarming for the creditors since they may have to lose heavily in the event of companys
liquidation on account of heavy losses.

Table: 4.8

PROPRIETARY RATIO

Proprietors Fund

Total Tangible Assets

Year

Rs. in lakhs

Rs. in lakhs

Ratio

2008 2009

27629.57

33237.8

0.83

2009 2010

27906.09

33710.84

0.83

2010 2011

31683.74

37139.68

0.85

2011 2012

33521.63

40904.75

0.82

Interpretation:

This ratio is particularly important to the creditors and it focuses on the general financial strength of the
business. A ratio of 50% will be alarming for the creditors. As such the proprietary ratio of the four years
is above 50%.Therefore it indicates relatively little danger to the creditors, etc. And a better performance
of the company.

Chart no.: 4.8

PROPRIETARY RATIO

0.86
0.85
0.85
0.84
0.84
Ratio

0.83
0.83

Proprietary ratio

0.82
0.82
0.81
0.81
2008-2009 2009-2010 2010-2011 2011-2012
Year

4.2.3 b) Debt to Equity ratio

This ratio indicates the extent to which debt is covered by shareholders funds. It reflects the
relative position of the equity holders and the lenders and indicates the companys policy on the
mix of capital funds. The debt to equity ratio is calculated as follows:

Debt to Equity Ratio = ___Total debt_______

Total equity

Significance:
The importance of debt-equity ratio is very well reflected in the words of Weston and brigham
which are reproduced here: Debt-equity ratio indicates to what extent the firm depends upon
outsiders for its existence. For the creditors, this provides a margin of safety. For the owners, it is
useful to measure the extent to which they can gain the benefits of maintaining control over the
firm with a limited investment: The debt-equity ratio states unambiguously the amount of assets
provided by the outsiders for every one rupee of assets provided by the shareholders of the
company.
Table: 4.9

DEBT TO EQUITY RATIO

Total Debt

Total Equity

Year

Rs. in lakhs

Rs. in lakhs

Ratio

2008 2009

4628.27

27629.57

0.17

2009 2010

4221.63

27906.09

0.15

2010 2011

3474.18

31683.74

0.11

2011 2012

3216.67

33521.63

0.10

Interpretation:
The debt to equity ratio is decreasing year after year. A low debt equity ratio is considered
favorable from management. It means greater claim of shareholders over the assets of the
company than those of creditors. For the company also, the servicing of debt is less burdensome
and consequently its credit standing is not adversely affected. Therefore debt to equity ratio is
satisfactory to the company.
Chart no.: 4.9 DEBT TO EQUITY RATIO

Ratio

0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

Debt to Equity
ratio

Year

4.2.3 c) Interest coverage ratio

The times interest earned shows how many times the business can pay its interest bills from
profit earned. Present and prospective loan creditors such as bondholders, are vitally interested to
know how adequate the interest payments on their loans are covered by the earnings available for
such payments. Owners, managers and directors are also interested in the ability of the business
to service the fixed interest charges on outstanding debt. The ratio is calculated as follows:

Interest Coverage Ratio =_____EBIT__________

Interest charges
Significance:
It is always desirable to have profit more than the interest payable. In case profit is either equal
or lesser than the interest, the position will be unsafe. It will show that there this nothing left for
the shareholders and the position of the lendors is also unsafe. A high ratio is a sign of low
burden of dept servicing and lower utilization of borrowing capacity. From the points of view of
creditors, the larger the coverage, the greater the ability of the firm to handle fixed charges
liabilities and the more assessed the payment of interest to the creditors. In contrast the low ratio
signifies the danger the signal that the firm is highly dependent on borrowings and its earnings
cannot meet obligations fully. The standard for this ratio for an industrial undertaking is 6 to 7
times.
Table: 4.10

INTEREST COVERAGE RATIO

EBIT

Interest on Fixed Loans

Year

Rs. in lakhs

Rs. in lakhs

Ratio

2008 2009

2087.49

4628.27

0.45

2009 2010

2260.62

4221.63

0.54

2010 2011

3037.66

3474.18

0.87

2011 2012

5030.58

3216.67

1.56

Interpretation:
The Interest coverage ratio is increasing year after year. A high ratio is a sign of low burden of
dept servicing and lower utilization of borrowing capacity. Therefore this ratio is satisfactory to
the company.
Chart no.: 4.10 INTEREST COVERAGE RATIO
1.8
1.6
1.4
1.2
1
0.8
Ratio

0.6

Interest coverage
ratio

0.4
0.2
0

Year

4.2.4 Profitability Ratios

Profitability is the ability of a business to earn profit over a period of time. Although the profit
figure is the starting point for any calculation of cash flow, as already pointed out, profitable
companies can still fail for a lack of cash.

A company should earn profits to survive and grow over a long period of time.

Profits are essential, but it would be wrong to assume that every action initiated by
management of a company should be aimed at maximizing profits, irrespective of social
consequences.

The ratios examined previously have tendered to measure management efficiency and risk.

4.2.4 a) Gross Profit Margin

Normally the gross profit has to rise proportionately with sales.

It can also be useful to compare the gross profit margin across similar businesses
although there will often be good reasons for any disparity.

Gross Profit Margin= ___ Gross profit____

*100

Sales
Significance:
The gross profit ratio helps in measuring the results of trading or manufacturing operations. It
shows the gap between revenue and expenses at a point after which an enterprise has to meet the
expenses related to the non-manufacturing activities, like marketing, administration, finance and
also taxes and appropriations.
The gross profit shows the gap between revenue and trading costs. It, therefore, indicates the
extent to which the revenue have a potential to generate a surplus. In other words, the gross
profit reveals the mark up on the sales. Gross profit ratio reveals profit earning capacity of the
business with reference to its sale. Increase in gross profit ratio will mean reduction in cost of
production or direct expenses or sale at a reasonably good price and decrease in the will mean
increased cost of production or sales at a lesser price. Higher gross profit ratio is always in the
interest of the business.
Table: 4.11

GROSS PROFIT MARGIN

Year

Gross Profit

Net Sales

Ratio

Rs. in lakhs

Rs. in lakhs

2008 2009

7925.86

19808.5

40.01

2009 2010

7904.58

21612.94

36.57

2010 2011

9275.87

21885.20

42.38

2011 2012

12543.85

30087.56

41.69

Interpretation:
In the year 2008, the Gross Profit Ratio is 40%, which shows a good profit earning capacity of
the business with reference to its sales. But in the year 2009-10, it decreased to 37% which may
be due to increase in cost of production or due to sales at lesser price. But thereafter, for the
succeeding two years, it has increased considerably, which indicates that the cost of production
has reduced. Therefore the Gross Profit Ratio for the four years reveals a satisfactory condition
of the business.

Chart no.: 4.11 GROSS PROFIT MARGIN

43
42
41
40
39
Ratio

38

Gross profit margin

ratio

37
36
35
34
33
2008-2009 2009-2010 2010-2011 2011-2012

Year
.

4.2.4 b) Net Profit Margin:

This is a widely used measure of performance and is comparable across companies in similar
industries. The fact that a business works on a very low margin need not cause alarm because
there are some sectors in the industry that work on a basis of high turnover and low margins, for
examples supermarkets and motorcar dealers. What is more important in any trend is the margin
and whether it compares well with similar businesses.
Net Profit Margin

Earnings after interest and taxes * 100

Net Sales

Significance:
An objective of working net profit ratio is to determine the overall efficiency of the business.
Higher the net profit ratio, the better the business. The net profit ratio indicates the managements
ability to earn sufficient profits on sales not only to cover all revenue operating expenses of the
business, the cost of borrowed funds and the cost of merchandising or servicing, but also to have
a sufficient margin to pay reasonable compensation to shareholders on their contribution to the
firm. A high ratio ensures adequate return to shareholders as well as to enable a firm to with
stand adverse economic conditions. A low margin has an opposite implication.

Table: 4.12

Year

NET PROFIT MARGIN

Net Profit

Sales

Ratio

Rs. in lakhs

Rs. in lakhs

2008 2009

2800.13

19808.5

14.14

2009 2010

2871.54

21612.94

13.29

2010 2011

3752.3

21885.20

17.15

2011 2012

5937.78

30087.56

19.74

Interpretation:
In the year 2008-09 the Net Profit is 14.14 % but in the year 2009-10, it was decreased to
13.29% which may due to excessing selling and distribution expenses. But thereafter for the
succeeding years it has been increasing which indicates a better performance of the company.
Therefore the performance of the management should be appreciated. Thus an increase in the
ratio over the previous periods indicates improvement in the operational efficiency of the
business.

CHART 4.12: NET PROFIT MARGIN RATIO

25
20
15
Ratio
10

Net profit margin ratio

5
0
2008-2009 2009-2010 2010-2011 2011-2012
Year

4.2.4 c) Return on Investment (ROI):

Income is earned by using the assets of a business productively. The more efficient the
production, the more profitable the business. The rate of return on total assets indicates the
degree of efficiency with which management has used the assets of the enterprise during an
accounting period. This is an important ratio for all readers of financial statements.
Investors have placed funds with the managers of the business. The managers used the funds to
purchase assets which will be used to generate returns. If the return is not better than the
investors can achieve elsewhere, they will instruct the managers to sell the assets and they will
invest elsewhere. The managers lose their jobs and the business liquidates.
Return on Investment = __Operating profit __
Capital Employed
Significance:

Return on capital employed shows overall profitability of the business. At first minimum return
on capital employed should be determined and then the actual rate of return on capital employed
should be determined and compared with the normal return. The return and capital employed is a
fair measure of the profitability of any concern with the result that even the result of dissimilar
industries may be compared.
Table: 4.13

RETURN ON INVESTMENT

Operating Profit

Capital Employed

Year

Rs. in lakhs

Rs. in lakhs

Ratio

2008-2009

2434

33355

7.30

2009-2010

2437.54

32556.72

7.49

2010-2011

3190.73

35637.92

8.95

2011-2012

4733.93

36999.30

12.79

Interpretation:
This ratio indicates that how much of the capital invested is returned in the form of net profit.
This ratio is increasing year after year which indicates the capital employed is returned in the
form of net profit. In the same manner, returns from capital employed for the succeeding years
are good.
Thus, the Return on Investment ratio for the four years shows the efficiency of the business
which is very much satisfactory.

Chart no.: 4.13 RETURN ON INVESTMENT

14
12
10
8
Ratio

Return on
investment ratio

6
4
2
0
2008-2009 2009-2010 2010-2011 2011-2012

Year

4.2.4 d) Return on Equity (ROE)

This ratio shows the profit attributable to the amount invested by the owners of the business. It
also shows potential investors into the business what they might hope to receive as a return. The
stockholders equity includes share capital, share premium, distributable and non-distributable
reserves. The ratio is calculated as follows:

Return on Equity = Net profit after taxes and preference dividend

Equity capital
Significance:
This ratio measures the profitability of the capital invested in the business by equity
shareholders. As the business is conducted with a view to earn profit, return on equity capital

measures the business success and managerial efficiency. It reveals whether the firm has earned a
reasonable profit to its equity shareholders or not by comparing it with its own past records,
inter-firm comparison and comparison with the overall industry average. This ratio is of
significant use in the ratio analysis from the standpoint of the owners of the firm.
Table: 4.14

RETURN ON EQUITY

Net Profit after Tax and

Year

Preference Dividend

Equity Capital

Ratio

Rs. in lakhs

Rs. in lakhs

2008 2009

2800.13

561.50

4.99

2009 2010

2871.54

1123.00

2.56

2010 2011

3752.3

1223.00

3.07

2011 2012

5937.78

1223.00

4.86

Interpretation:
In the year 2008-09, the return on equity ratio is 4.99 which may due to capital investment . And
in the year 2011-2012 it increased to 3.07 to 4.86. Therefore the return on equity ratio for the
four years reveals a satisfactory condition of the business.
Chart no.: 4.14

RETURN ON EQUITY

6
5
4
3
Ratio

Return on equity
ratio

1
0

Year

.
4.2.4 e) Return on Total assets
This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationship
between net profits and assets. As these two terms have conceptual differences, the ratio may be
calculated taking the meaning of the terms according to the purpose and intent of analysis.
Usually, the following formula is used to determine the return on total assets ratio.
Return on total assets = (Net profit after taxes and interest / Total assets) * 100
Significance:
This ratio measures the profitability of the funds invested in a firm but doe not reflect on the
profitability of the different sources of total funds. This ratio should be compared with the ratios
of other

similar companies or for the industry as a whole, to determine

whether the rate of

return is attractive. This ratio provides a valid basis for inter-industry comparison.

Table: 4.15 RETURN ON TOTAL ASSETS

Net Profit after Taxes and
Year

Interest

Total Assets

Ratio

Rs. in lakhs

Rs. in lakhs

2008 2009

2800.13

32593.54

8.59

2009 2010

2871.54

32556.72

8.82

2010 2011

3752.3

35637.92

10.53

2011 2012

5937.78

36999.3

16.05

Interpretation:
The return on total assets ratio is increasing year after year . This increasing ratio indicates the
effective funds invested. Therefore the return on Total Assets ratio for the four years reveals a
satisfactory condition of the business.

Chart no.: 4.15

RETURN ON TOTAL ASSETS

18
16
14
12
10
Ratio

Return on total
asset ratio

6
4
2
0
2008-20092009-20102010-20112011-2012

Year

CHAPTER 5

FINDINGS OF THE STUDY

1) The current ratio is above 2 in all the four years. The same level of current assets and
current liabilities may be maintained since the current assets are less profitable, when
compared to fixed assets.
2) The liquid ratio is decreasing year after year. Though the ratio is above 1 in all the four
years, it is preferable to improve upon the situation. This may be due to the fact that
the stock is major composition of current assets, which excludes liquid assets. The
firm should try to clear the stocks.
3) The cash ratio is decreasing year after year. So it shows that the cash position is not
utilized effectively and efficiently.
4) The average collection period is decreasing year after year so it shows the better is the
quality of debtors as a short collection period and implies quick payment by debtors.
5) The inventory turnover ratio for the four years indicated a good inventory policy and
efficiency of business operations of the company.

6) The working capital turnover ratio has been increasing during the four years, which
indicates that there is lowest investment of the working capital and more profit. More
profit is in the sense that there is higher ratio.
7) The fixed assets turnover ratio is increasing year after year. The overall higher ratio
indicates the efficient utilization of the fixed assets. Thus the fixed assets turnover
ratio for the four years are satisfactory as such there is no under utilization of the fixed
assets.
8) The proprietary ratio in all the four years is above the satisfactory level, that is, 50%. It
indicates the creditors are in a safer side and there is no pressure from them.
9) The debt to equity ratio is decreasing year after year, which indicates , the servicing of
debt is less burdensome and consequently its credit standing is not adversely affected.
10) The Interest coverage ratio is increasing year after year. A high ratio is a sign of low
burden of debt servicing and lower utilization of borrowing capacity. Therefore this
ratio is satisfactory to the company.
11) In the year 2008, the Gross Profit Ratio is 40%, which shows a good profit earning
capacity of the business with reference to its sales. But in the year 2009-10, it
decreased to 37% which may be due to increase in cost of production or due to sales at
lesser price. But thereafter, for the succeeding two years, it has increased considerably,
which indicates that the cost of production has reduced. Therefore the Gross Profit
Ratio for the four years reveals a satisfactory condition of the business.

12) The Net Profit for the four years has been increasing which shows that the selling and
distribution expenses are under control and there is a good operational efficiency of
the business concern.
13) The Return on Investment ratio indicates that how much of the capital invested is
returned in the form of net profit. This ratio is increasing year after year which
indicates the capital employed is returned in the form of net profit. In the same
manner, returns from capital employed for the succeeding years are good. Thus, the
Return on Investment ratio for the four years shows the efficiency of the business
which is very much satisfactory.
14) In the year 2008-09, the return on equity ratio is 4.99 which may due to capital
investment . And in the year 2011-2012 it increased to 3.07 to 4.86. Therefore the
return on equity ratio for the four years reveals a satisfactory condition of the business.

15) The return on total assets ratio is increasing year after year . This increasing ratio
indicates the effective funds invested. Therefore the return on Total Assets ratio for
the four years reveals a satisfactory condition of the business.

CHAPTER 6

SUGGESTION,
RECOMMENDATION AND
CONCLUSION

6.1 SUGGESTION AND RECOMMENDATION

1. The liquidity position of the company can be utilized in a better or other effective
purpose.
2. The company can be use the credit facilities provided by the creditors.
3. The debt capital is not utilized effectively and efficiently. So the company can extend its
debt capital.
4. Efforts should be taken to increase the overall efficiency in return out of capital employed
by making used of the available resource effectively.
5. The company can increase its sources of funds to make effective research and
development system for more profits in the years to come.

6.2 CONCLUSION
Ratio analysis is an important and powerful technique or method, generally, used for analysis of
Financial Statements. Ratios are used as a yardstick for evaluating the financial condition and
performance of a firm. Analysis and interpretation of various accounting ratios gives a better
understanding of financial condition and performance of the firm in a better manner than the
perusal of financial statements. Ratio Analysis helps the management to identify the strength and
weakness of their firm, compared with the industry to which their firm belongs to.

1. The study is made on the topic financial performance using ratio analysis with four years
data in Ramakrishna Electro Components Pvt Ltd.
2. The current and liquid ratio indicates the short term financial position of Ramakrishna
Electro Components Pvt Ltd whereas debt equity and proprietary ratios shows the long
term financial position. Current ratio of 2:1 should not be, blindly, followed in an
arbitrary manner. Firms with less than 2:1 ratio may be meeting the liabilities, without
difficulty, though firms with a ratio of more than 2:1 may be struggling to meet their
obligations to pay. The current ratio is a crude-and-quick measure of the firms liquidity.
3. Liquid ratio of 1:1 is, normally, considered satisfactory. However, firms with the ratio of
more than 1:1 need not be liquid and those having less than the standard need not,
necessarily, be illiquid. It depends more on the composition of liquid assets. Debtors,
normally, constitute a major part in liquid assets. If the debtors are slow paying, doubtful
and long outstanding, they may not be totally liquid. So, firms even with high liquid ratio,
containing such type of debtors, may experience the problem in meeting current
obligations, as and when they fall due. On the other hand, inventories may not be, totally,
non-liquid. To a certain extent, they may be available to meet current obligations. So, all
firms not having the liquid ratio of 1:1 may not experience difficulty in meeting the
current obligations, depending on the efficient realisation of inventories. On the other
hand, firms with a better ratio (more than 1:1) may still struggle, if their debtors are not
realised as per the schedule.
4. Similarly, activity ratios and profitability ratios are helpful in evaluating the efficiency of
performance in Ramakrishna Electro Components Pvt Ltd.
5. Leverage ratios indicate the long-term solvency of the firm. Leverage ratios indicate the
mix of debt and owners equity in financing the assets of the firm. Long-term solvency

relate to the firms ability to meet interest on the debt and installment on the principal
amount, on the due date. Therefore, company should try to maintain it in order to meet
the long term conditions and solvency position.
6. There should be a mix of debt and equity. The owners want to conduct business, with
maximum outsiders funds to take less risk for their investment. At the same time, they
want to maximise their earnings, at the cost and risk of outsiders funds. The outsiders
(lenders and creditors) want the owners share, on a higher side in the business and
assume lower risk, with more safety to their funds.
7. Activity ratios reflect the management of assets and their effective utilisation. If assets
are converted into sales, with speed, profits would be more. Activity ratios bring out the
relationship between the assets and sales. The company

invests funds of outsiders

(lenders and creditors) and shareholders in various assets in business to make sales and
profits. The better the management of assets, more would be sales and higher would be
the profit.
8. Profitability ratios are to measure the operating efficiency of the company. Besides
management, lenders and owners of the company are interested in the analysis of the
profitability of the firm. If profits are adequate, there would be no difficulty for lenders,
normally, to get payment of interest and repayment of principal. Owners of the company
want to get required rate of return on investment.

The financial performance of the company for the four years is analyzed and it is proved that the
company is financially sound. In the ratio analysis, it is difficult to lay down specific standards. It
is always better to compare the ratios of the firm with the ratios of industry and other firms, in
competition, for proper evaluation of the performance of the firm.

BIBLIOGRAPHY

REFERENCES:

Clausen, James. (2009). Accounting 101 Financial Statement Analysis in Accounting:

Liquidity Ratio Analysis Balance Sheet Assets and Liabilities, Journal of financial

statement.
Diane, White. (2008), Accounts Receivable: Analyzing the Turnover Ratio, Journal of

account receivable.
Thachappilly, Gopinathan. (2009). Liquidity Ratios Help Good Financial Management:
Liquidity Analysis reveals likely Short-Term Financial Problems. Journal of liquidity

ratio analysis.
Bollens study on ratio variables, 1999
Coopers study on financial intermediation, 2000
Gibsons study on performance and financial health of an organization, 2000
Siddiquis study on assessing the financial stability of an organization, 2006
Peterson and Fabaozzi, inputs to ratio analysis, 2012
Gupta and Heffner (1972), the differences in financial ratio averages between industries
Pinches et al., factor analysis, 1973

Pandey and Parera, empirical evidence of working capital management. 1997

Chu et al. (1991)
Working capital management analysis by Lamberson (1995)
Weinraub and Visscher (1998)
Brigham and Houston (2009), liquidity ratios
Megginson and Smart (2008), current ratio
Baker and Powell, 2009, quick ratio
Lasher, 2010, asset management ratio
Bagad, 2008, inventory turnover ratio, debt ratio
Lee (2006), average collection period ratio
Mayo, 2007, fixed asset turnover ratio, market value turnover ratio
Baker and Powel (2009) debt management ratios, price/ earning ratio
Brigham and Daves (2009) profitability ratio
Megginson and Smart, 2008, return on equity

BOOKS:
1) M Y Khan and P K Jain: Financial Management Fourth Edition-2006,
Tata McGraw-Hill Publishing Company Limited, New Delhi.

2) A. Murthy:

Management Accounting First Edition-2000, S. Viswanathan (Printers

&Publishers), PVT., LTD.

3) S.M. Maheswari: Management Accounting, Sultan Chand & Sons Educational
Publishers, New Delhi.
4) Prasanna Chandra:

Fundamentals of Financial Management. Tata Mcgraw Hill

Publishing Company Ltd. New Delhi

5) L.M. Pandey:

Financial Management, Vikas Publishing House Pvt Ltd

WEBSITES:
http://www.rkelectro.com/
http://www.svtuition.org/2010/02/ratio-analysis.html
http://www.investopedia.com/terms/r/ratioanalysis.asp
https://www.scribd.com/doc/127720079/Review-of-Literature-of-ratio-analysis

http://library.binus.ac.id/eColls/eThesisdoc/Bab2/Bab%202_10-37.pdf
http://www.ukessays.com/dissertation/literature-review/literature-review-of-history-offinancial-ratios-finance.php
http://www.academia.edu/4493736/Financial_Ratio_Ananlysis
http://iosrjournals.org/iosr-jbm/papers/ncibppte-volume-3/01.pdf
http://ebooks.narotama.ac.id/files/Accounting%20for%20Managers/Chapter
%209%20%20%20Ratio%20Analysis.pdf
http://hv.diva-portal.org/smash/get/diva2:323754/FULLTEXT01.pdf

ANNEXURES

ANNEXURE 1:
Particulars

31st March
2008
Rs. In lakhs

Fixed Assets (A)

25169.20

23599.92

(1569.28)

6.23

Investment (B)

806.11

812.09

5.98

0.74

3038.38
4211.03

3977.63
3100.98

939.25
(1110.05)

30.91
26.36

130.54

141.15

10.61

8.13

2576.86

1606.03

(970.83)

37.67

9956.81

8825.79

(1131.02)

11.36

35932.12

33237.8

(2694.32)

7.50

561.50
27091.7
4

561.50

(23.67)

0.09

Current Assets:
Inventories
Sundry Debtors
Cash and Bank
Balance
Loans and Advances
Total Current Assets
(C)
Total Assets (A+B+C
)
Shareholders
Funds:
Share capital
Reserves and Surplus
Deferred Tax

31st March
2009
Rs. In lakhs

Change in
Absolute figure
Rs. In lakhs

27068.07
73.7

Total Shareholders
Funds (A)
Loan funds:
Secured Loans
Unsecured Loans
Total Loan Funds
(B)

Percentage
Increase or
Decrease

28.12

262.00

335.70

27915.24

27965.27

50.03

0.18

6716.08
525.31

4505.38
122.89

(2210.7)
(403.42)

32.92
76.61

7241.39

4628.27

(2613.12)

36.09

Current Liabilities
and Provision (C)
Total Liabilities
(A+B+C)

775.49

644.26

(131.23)

16.92

35932.12

33237.8

(2694.32)

7.50

ANNEXURE 2:
Particulars

31st March
2009
Rs. In lakhs

31st March
2010
Rs. In lakhs

Fixed Assets (A)

23599.92

23293.33

(306.59)

1.30

Investment (B)

812.09

690.78

(121.31)

14.94

3977.63
3100.98

3097.26
4405.70

(880.37)
1304.72

22.13
42.07

141.15

46.11

(95.04)

67.33

1606.03

2177.66

571.63

35.59

8825.79

9726.73

900.94

10.21

33237.8

33710.84

473.04

1.42

561.50

1123.00
26783.09

561.50
(284.98)

100
1.05

429.00

93.3

27965.27

28335.09

369.82

1.32

4505.38
122.89

4104.48
117.15

(400.9)
(5.74)

8.90
4.67

4628.27

4221.63

(406.64)

8.79

Current Assets:
Inventories
Sundry Debtors
Cash and Bank
Balance
Loans and Advances
Total Current Assets
(C)
Total Assets (A+B+C
)
Shareholders
Funds:
Share capital
Reserves and Surplus
Deferred Tax

Change in
Absolute figure
Rs. In lakhs

Percentage
Increase or
Decrease

27068.07
27.79

335.70
Total Shareholders
Funds (A)
Loan funds:
Secured Loans
Unsecured Loans
Total Loan Funds
(B)

Current Liabilities
and Provision (C)

644.26

1154.12

509.86

79.14

33237.8

33710.84

473.04

1.42

Particulars

31st March
2010
Rs. In lakhs

31st March
2011
Rs. In lakhs

Change in
Absolute figure
Rs. In lakhs

Fixed Assets (A)

23293.33

21863.99

(1429.34)

6.14

Investment (B)

690.78

5391.05

4700.27

680.43

3097.26
4405.70

3674.58
3524.79

577.32
(880.91)

18.64
19.99

46.11

34.43

(11.68)

25.33

2177.66

2650.84

473.18

21.73

9726.73

9884.64

157.91

1.62

33710.84

37139.68

3428.84

10.17

1123.00
26783.09

1223.00
30460.74

100
3677.65

8.90
13.73

429.00

480.00

51

11.89

28335.09

32163.74

3828.65

13.51

4104.48
117.15

3375.82
98.36

(728.66)
(18.79)

17.75
16.04

4221.63

3474.18

(747.45)

17.71

Total Liabilities
(A+B+C)

ANNEXURE 3:

Current Assets:
Inventories
Sundry Debtors
Cash and Bank
Balance
Loans and Advances
Total Current Assets
(C)
Total Assets (A+B+C
)
Shareholders
Funds:
Share capital
Reserves and Surplus
Deferred Tax
Total Shareholders
Funds (A)
Loan funds:
Secured Loans
Unsecured Loans
Total Loan Funds
(B)
Current Liabilities

Percentage
Increase or
Decrease

and Provision (C)

Total Liabilities
(A+B+C)

1154.12

1501.76

347.64

30.12

33710.84

37139.68

3428.84

10.17

31st March
2011
Rs. In lakhs

31st March
2012
Rs. In lakhs

ANNEXURE 4:
Particulars

Change in
Absolute figure
Rs. In lakhs

Percentage
Increase or
Decrease

Fixed Assets (A)

21863.99

20245.48

(1618.51)

7.40

Investment (B)

5391.05

8709.80

3318.75

61.56

3674.58
3524.79

3662.46
3667.52

(12.12)
142.73

0.33
4.05

34.43

82.12

47.69

138.51

2650.84

4537.37

1886.53

71.17

9884.64

11949.47

2064.83

20.89

37139.68

40904.75

3765.07

10.14

1223.00
30460.74

1223.00
32298.63

1837.89

6.03

480.00

261.00

(219)

45.63

32163.74

33782.63

1618.89

5.03

3375.82
98.36

3124.08
92.59

(251.74)
(5.77)

7.46
5.87

3474.18

3216.67

(257.51)

7.41

Current Assets:
Inventories
Sundry Debtors
Cash and Bank
Balance
Loans and Advances
Total Current Assets
(C)
Total Assets (A+B+C
)
Shareholders
Funds:
Share capital
Reserves and Surplus
Deferred Tax
Total Shareholders
Funds (A)
Loan funds:
Secured Loans
Unsecured Loans
Total Loan Funds
(B)

Current Liabilities
and Provision (C)
Total Liabilities
(A+B+C)

1501.76

3905.45

2403.69

160.06

37139.68

40904.75

3765.07

10.14