A STUDY ON FINANCIAL PERFORMANCE ANALYSIS WITH

REFERENCE WORLDGATE EXPRESS LINES INTERNATIONAL PVT.

LTD
CHAPTER -I
Introduction:
The term financial performance analysis also known as analysis and
interpretation of financial statements , refers to the process of
determining financial strength and weaknesses of the firm by establishing
strategic relationship between the items of the balance sheet , profit and
loss account and other operative data. Financial performance analysis is
a process of evaluating the relationship between component parts of a
financial statement to obtain a better understanding of a firms position
and performance. The purpose of financial analysis is to diagnose the
information contained in financial statements so as to judge the
profitability and financial soundness of the firm. Just like a doctor
examines his patient by recording his body temperature, blood pressure
etc. Before making his conclusion regarding the illness and before giving
his treatment. A financial analyst analyses the financial statements with
various tools of analysis before commenting upon the financial health or
weaknesses of an enterprise. The analysis and interpretation of financial
statements is essential to bring out the mystery behind the figures in
financial statements. Financial statements analysis is an attempt to
determine the significance and meaning of the financial statement data so
that forecast may be made of the future earnings, ability to pay interest
and debt maturities (both current and long term) and profitability of a
sound divided policy. Financial performance refers to the act of performing
financial activity. In broader sense, financial performance refers to the
degree to which financial objectives being or has been accomplished. It is
the process of measuring the results of a firm's policies and operations in
monetary terms. It is used to measure firm's overall financial health over a
given period of time and can also be used to compare similar firms across
the same industry or to compare industries or sectors in aggregation. In

short, the firm itself as well as various interested groups such as

managers, shareholders, creditors, tax authorities, and others seeks
answers to the Following important questions:
1. What is the financial position of the firm at a given point of
time?
2. How is the financial performance of the firm over a given
period? Of time?
These questions can be answered with the help of financial analysis
of a firm. Financial analysis involves the use of financial statements. A
financial statement is an organized collection of data according to logical
and conceptual framework 50 consistent accounting procedures. Its
purpose is to convey an understanding of some financial aspects of a
business firm. It may show a position at a moment of time as in the case
of a balance sheet, or may reveal a series of activities over a given period
of time, as in the case of an income statement. Thus, the term financial
statements generally refers to two basic statements: The balance sheet
and the income statement. The balance sheet shows the financial position
(condition) of the firm at a given point of time. It provides a snapshot and
may be regarded as a static picture. Balance sheet is a summary of a
firms financial position on a given date that Shows total assets = total
liabilities + owners equity. The income statement (referred to in India as
the profit and loss statement) reflects the performance of the firm over a
period of time. Income statement is a summary of a firms revenues and
expenses over a specified period, ending with net income or loss for the
period. However, financial statements do not reveal all the information
related to the financial operations of a firm, but they furnish some
extremely useful information, which highlights two important factors
profitability and financial soundness. Thus analysis of financial statements
is

an

important

aid

to

financial

performance

analysis.

Financial

performance analysis includes analysis and interpretation of financial

statements in such a way that it undertakes full diagnosis of the
profitability and financial soundness of the business. The analysis of

financial statements is a process of evaluating the relationship between

component parts of financial statements to obtain a better understanding
of the firms position and performance.

Need for Study

Need of financial management study to diagnose the information

contain in financial statement. So as to judge the profitability and

financial position of the firm.

Financial analyst analyses the financial statements with various
tools of analysis before commanding upon the financial health of the

firm.
Essential to bring out the history.
Significance and meaning of the financial statements.

Objectives of Study:
Primary Objectives:
To understand the financial statements of Worldgate Express Lines
International Pvt Ltd.
Secondary Objectives:

To
To
To
To
To

study the change in assets and liabilities of the company.

study the liquidity position of the firm.
study the financial health of the company using ratio analysis.
study the profitability of the company.
offer suggestions to the company.

Research Methodology
Research Design
This is a systematic way to solve the research problem and it is important
component for the study without which researches may not be able to
obtain the format. A research design is the arrangement of conditions for
collection and analysis of data in a manager that aims to combine for
collection and analysis of data relevance to the research purpose with
economy in procedure.
Meaning of Research Design
The formidable problem that follows the task of defining the
research problem is the preparation of design of the research project,
popularly known as the research design, decision regarding what, where,
when, how much, by what means concerning an inquiry of a research
study constitute a research design. A research design is the arrangement

of conditions for collection and analysis of data in a manager that aims to

combine for collection and analysis of data relevance to the research
purpose with economy in procedure.
Sources of Data
Data we collected based on two sources.

Primary Data.
Secondary Data.

Primary Data
The primary data are those informations, which are collected afresh and
for the first time, and thus happen to be original in character.
Secondary Data:
The secondary data are those which have already been collected by some
other agency and which have already been processed. The sources of
secondary data are annual reports, browsing internet, through magazines.
1. It includes data gathered from the annual reports of Worldgate
Express Lines International Pvt Ltd.

2. Articles are collected from official website of Worldgate Express

Lines International Pvt Ltd.

Methodology Used:
Types Of Financial Statements Adopted: Following Two Types of Financial
Statements Are Commonly Used in Analysing the Firms Financial Position
1. Balance Sheet.
2. Income Statements.

CHAPTER-II
INDUSTRY PROFILE
LOGISTICS INDUSTRY
Logistics is the management of the flow of resources, not only
goods, between the point of origin and the point of destination in order to
meet

the

requirements

of

customers

or

corporations.

Today

the

complexity of production logistics can be modelled, analysed, visualized

and optimized by plant simulation software, but is constantly changing.
This can involve anything from consumer goods such as food, to IT
materials, to aerospace and defence equipment.

Logistics companies help other companies to run their business

smoothly without worrying about the transportation issues. They help
streamline the task of delivering shipments of their customer companies.
They specialization in the field of transportation and can perform all
activities from pickup of the shipment to assisting on tracking the
geographical location of the shipment and to safely deliver the goods at
the right time and in a safe and hygienic condition thereby attaining
customer and prospective customers come their way.
Logistics is regarded as the complete set of function that are
concerned with planning, controlling and managing a smooth flow of
products and services, peoples, real-time data and information that are
considered to be of utmost importance. This includes the steps that are
involved in delivery the product and services without shrinking the budget
of the company. Logistics can be defined as providing the right type of
products and / or services at the right prices, at place, time and in the
right condition.
A quick look back at some logistics history may prove very
enlightening. The birth of logistics can be traced back to ancient war
times of Greek and Roman empires when military officers titled as
Logisticians were assigned the duties of providing services related to
supply and distribution of resources. This was done to enable the soldiers
to move from their base position to a new forward efficiently, which could
be a crucial factor in determining the outcome of wars. This also involved
inflicting damage to the supply locations of the enemy and safeguarding
ones own supply locations. Thus, this lead to the development of a
system which can be related to the current day system of logistics
management.
International marketing is becoming more important to companies
as the world shifts from distinct national markets to linked global market.
Globalization brings homogenization of consumer needs, liberalization of
trade, and competitive advantages of operating in global markets.
Companies are forced to think and act globally in order to survive in such

a dynamic environment. All these elements have a deep impact on the

development

and

the

positioning

of

companies

on

international

marketplace where competition is cruel. Furthermore , another significant

change concerns the customers since they are more demanding in term of
quality , lead time and order fulfilment .
In this context, firms must be more and more flexible and reactivity
to anticipate and to adapt to such changes. This quest for flexibility and
reactivity affects the conception and the management of firms to the
emergence of mergers or strategic alliances between companies. As a
result, a firm can no longer be considered as an isolated entity but as a
component of a wider supply network.
International firms have begun to implement various strategies in
order to remain competitive in world market. Logistics is one of the key
areas in the process of international marketing as the delivery of goods to
the buyer is as important as any other activities in business and
marketing. Quite often, the most crucial part in international trade is the
timely supplies. The emergence of logistics as an integrative activity, with
the movement of raw materials from their sources of supply to production
line and ending with the movement of finished goods to the customer has
gained special importance.

COMPANY PROFILE
Worldgate Incorporated in Singapore in January 1990, Worldgate is
managed by a dedicated team of experienced shipping and air freight
professionals.

Over the years, Worldgate has grown in strength in the

field of freight forwarding business to a total logistics solution provider. In

August 1999, Worldgate first overseas subsidiary company Worldgate
Express Lines International Pvt Ltd was established in India. And today,
Worldgate is having her own offices in Mumbai, Chennai, Kolkata, New
Delhi, Bangalore, Cochin, Nhava Sheva, Pune, Hyderabad and Vizag. With
her own offices in these major sea ports and ICD hub, Worldgate is
capable in handling any shipment and to provide logistics solution at any
part of India.
In March 2006, Worldgate again planted her flag in Bangladesh.
Worldgate Express Lines (BD) Pvt Ltd was established with two offices,
one in Dhaka, the financial and business hub of Bangladesh, another in
Chittagong, an industrial and the only international sea port of Bangladesh
to serve the customers and oversea partners.
In 1st of June 2007, Worldgate Express Lines Lanka Pvt Ltd was
officially inauguration and opened by the honourable Minister of
Investment Promotion & Enterprise Development of Sri Lanka, Mr. Navin
Dissanayake. Worldgate Lanka office is located in the heart of Colombo,
the capital, main financial and commercial city of Sri Lanka.
Today, Worldgate offers comprehensive one-stop global transport
and logistics solutions under three complimentary divisions:

Ship Agency
International Freight Forwarding / Consolidation / NVOCC
Logistics Management

A Statutory member of the Singapore Business Federation, Ordinary

member of Singapore Logistics Association, as well as member of
Singapore Registry of Accredited Multimodal Operators and FIATA,
Worldgate offers professionalism for quality transport and logistics

solution. With more than 15 years of experience serving the exporters,

importers, forwarders and oversea partners around the world, Worldgate
has used her experience, knowledge and new technology to establish a
comprehensive range of services, package tailored to meet the specific
needs and specification. She will continue to develop new services to
ensure the stay at the forefront of her industry. Whether your company is
a Multi-National company, blue chip manufacturer, first time exporter or
importer, NVOCC, freight forwarder or ship's owner, the flexibility of her
services ensure that whatever the problem, she can offer the solution.
Company Vision
An excellent transportation and logistics service provider.
Company Mission
Our mission is to be the best and reliable partner to provide holistic
Transportation and Logistics Solutions globally.
We are committed to:

Foster sustainable partnerships

relations
Facilitate a highly interactive environment to meet all customers

and overseas partners on transport and logistics requirements

Improve quality of customer service through actively solicit

feedback from customers

Establish safeguards against all identified risks
Protect the company's employees, properties,

based on mutually beneficial

information,

reputation and customer's assets from potential threats in the

supply chain
Ensure adherence at all times to the documented standard

operational procedures
Ensure our information system and the information contained meet

the needs of our core and support business operations

Provide fair employment opportunities regardless of race, language,
religion and gender

Safeguard security of our information assets through effective

business continuity management

Increase staff awareness of information security management
through education and training

Ship's Agency
Worldgate's Ship Agency division features enthusiastic and helpful
staff who are backed by years of operational experience in handling all
types of vessels. The Ship Agency team also has a track record in handling
Containerize Vessel and Breakbulk Carrier, as well as securing suitable
cargo for both tramper and liner operators.
Worldgate's extensive range of Agency services include:

Vessel Port Clearance & Berth arrangement

Transhipment
Operation
Arrange

Containerize/Beakbulk cargo to connect 2nd carrier on time.

Vessel Drydocking and Floating Repairs arrangements
Bunkering and Ship's Supply
Arrange Annual Ship Survey, Inspection and Testing Services
Arrangement for Crew Changes
Container leasing, repair and storage arrangements

Transhipment

24 hours a day, Worldgate's Ship Operation unit ensures vessels in

Singapore are attended to and dispatched promptly.
Worldgate's Ship Agency Division also provides Ship brokering and Project
Shipping to owners and clients.
The brokering and chartering activities specialize in dry cargo
operations in Asia for world-wide destinations. This unit offers high-volume
tramping tonnage, maximizing cargo loading from this region for ship
owners. Ship owners are also provided with frequent updates on cargo
movement, availability, freight level, stowage and loading and operational
information at regional ports.
International freight forwarding

International freight forwarding is an original service provided by

Worldgate since the incorporation. It is still the main service she is
providing today as part of her total logistics solution for her customers
and oversea partners.
Worldgate Freight Forwarding division provide comprehensive services
which include:
- Sea and Air freight handling
- NVOCC / LCL Consolidation and Deconsolidation Service
- Transhipment / Distribution Service
- Container Trans loading and Top Up operation
- Sea-Air and Air-sea shipment handling
- Project Cargo Management
- Warehousing and Inland Haulage & Transportation
- Customs Brokering and Documentation Services
- Marine Insurance arrangement
Worldgate's

International

Freight

Forwarding

operation

is

comprehensively insured under Freight Forwarder Liability Marine Policy

adequately covered up to US$500,000.00 per any one incident claim.
A member of the Singapore Logistics Association, Singapore's
registry of Accredited Multimodal Operators and FIATA, Worldgate offers
professionalism for quality transport and logistics solutions.
Today, Worldgate is an established NVOCC with guaranteed weekly
FCL and LCL group age services to Far East, Indian Sub-continental,
Middle-East, Europe, U.S.A., Australia, New Zealand, South Pacific Island
and Southern Africa.

Worldgate is linked with Tradenet and Portnet EDI computer system

for PSA Port, Singapore Customs Office and Trade & Development Board to
facilitate fast and efficient customs and cargo clearance for customers.
With EDI link to Port and Customs office, and together with our
complete transhipment facilities and competitive transhipment rate to
major worldwide destinations, her Transhipment Department offers one of
the best Transhipment and Distribution services to the client and oversea
partner

who

use

Singapore

as

their

Transhipment,

Distribution,

Consolidation and Deconsolidation Hub for their cargo movement to and

from worldwide destination via Singapore.
Supported by her own subsidiary companies and global network of
agents, Worldgate's multimodal transport system delivers cargo door-todoor on time, every time.

Logistic Management
Worldgate Logistics Unit manages warehousing, inventory control,
cataloguing, sales and purchase order processing, labelling, packaging,
domestic deliveries, transportation, distribution, shipping and any other
value added services.
Worldgate tailors total logistic solutions, allowing a customer to
concentrate on their business, production and marketing, by entrusting
the logistic to cargo specialists. For customers, the Logistic Management
service has proven to be a cost effective and efficient arrangement.

CHAPTER-III
REVIEW LITERATURE
Financial Performance Analysis:
The term financial performance analysis also known as analysis and interpretation of
financial statements , refers to the process of determining financial strength and weaknesses
of the firm by establishing strategic relationship between the items of the balance sheet ,
profit and loss account and other operative data. Analysing financial statements by Metcalf
and Titard Financial analysis is a process of evaluating the relationship between component
parts of a financial statement to obtain a better understanding of a firms position and
performance by Myers
Financial Performance:
The word Performance is derived from the word parfourmen, which means to do,
to carry out or to render. It refers the act of performing, execution, accomplishment,

fulfilment etc. In border sense, performance refers to the accomplishment of a given task
measured against preset standards of accuracy, completeness, cost, and speed. In other words,
it refers to the degree to which an achievement is being or has been accomplished. In the
Words of Frich Kohlar The performance is a general term applied to a part or to all the
conducts of activities of an organization over a period of time often with reference to past or
projected cost efficiency, management responsibility or accountability or the like. Thus, not
just the presentation, but the quality of results achieved refers to the performance.
Performance is used to indicate firms success, conditions, and compliance. Financial
performance refers to the act of performing financial activity. In broader sense, financial
performance refers to the degree to which financial objectives being or has been
accomplished. It is the process of measuring the results of a firm's policies and operations in
monetary terms. It is used to measure firm's overall financial health over a given period of
time and can also be used to compare similar firms across the same industry or to compare
industries or sectors in aggregation. The purpose of financial analysis is to diagnose the
information contained in financial statements so as to Jude the profitability and financial
soundness of the firm. Just like a doctor examines his patient by recording his body
temperature, blood pressure, etc. Before 37 making his conclusion regarding the illness and
before giving his treatment, a financial analyst analysis the financial statements with various
tools of analysis before commenting upon the financial health or weaknesses of an enterprise.
The analysis and interpretation of financial statements is essential to bring out the mystery
behind the figures in financial statements. Financial statements analysis is an attempt to
determine the significance and meaning of the financial statement data so that forecast may
be made of the future earnings, ability to pay interest and debt maturities (both current and
long term) and profitability of a sound divided policy.
Types of financial analysis:
Financial analysis into different categories depending upon
(1) The material used and
(2) The method of operation followed in the analysis or the modus operandi of
analysis
Types of financial analysis
On the basis of material used

on the basis of modus operandi

External

Internal

Horizontal

Vertical

Analysis

Analysis

Analysis

Analysis

On the basis of material used:

According to material used, financial analysis can be of two types

External analysis
Internal analysis

External analysis:
This analysis is done by outsiders who do not have access to the detailed internal
outsiders include investors, potential investors, Creditors, Potential Creditors, Government
Agencies, Credit Agencies and General Public. For financial analysis, these external parties
to the firm depend almost entirely on the published financial statements.

Internal analysis:
This analysis is undertaken by the persons namely executives and employees of the
organization or by the officers appointed by government or court who have access to the 8
books of account ( internal accounting records) and other information related to the business.
On the basis of modus operandi:
According to the modus operandi financial analysis can also be of two types

Horizontal analysis
Vertical analysis

Horizontal analysis:
Horizontal analysis refers to the comparison of financial data of a company for
several years. The figures for this type of analysis are presented horizontally over a number
of columns. The figures of the various years are compared with standard or base year. a base

year is year chosen as beginning point. This type of analysis is also called dynamic analysis
as it is based on the data from year to year rather than on data of any one year. The horizontal
analysis makes it possible to focus attention on items that have changed significantly during
the period under view.
Vertical analysis:
Vertical analysis refers to the study of relationship of the various items in the financial
statements of one accounting period. In this types of analysis the figures from financial
statement of a year are compared with a base selected from the same years statement
Methods of financial analysis:
The following methods of analysis are generally used:1. Comparative Statements.
2. Trend Analysis.
3. Common-Size Statements.
4. Funds flow Analysis.
5. Cash Analysis
6. Ratio Analysis
7. Cost-volume-Profit Analysis
Comparative statements:
The comparative financial statements are statements of the financial position at
different periods of time .the elements of financial position are show in a Comparative
Statement provides an idea of financial position at two or more periods. Generally two
financial statements (balance sheet and income statement) are prepared in comparative form
for financial analysis.
The Comparative Statement May Show:
1. Absolute figures (rupee amounts)
2. Changes in absolute figures i.e. increase or decrease in absolute figures.

3. Absolute data in terms of percentages.

4. Increase or decrease in terms of percentages.
The Two Comparative Statements Area:
1. Comparative balance sheet, and
2. Income statement.
Comparative balance sheet:
The comparative balance sheet analysis is the study of the trend of the same items,
group of items and computed items in two or more balance sheets of the same business
enterprise on different dates. The change in periodic balance sheet items reflect the conduct
of a business the change can be observed by comparison of the balance sheet at the beginning
and at the end of a period and these changes can help in forming an opinion about the
progress of an enterprise.
Guide Lines for Interpretation of Comparative Balance Sheet:
While interpreting comparative balance sheet the interpreter is expected to study the
following aspects:
1. Current financial position and liquidity position
2. Long-term financial position
3. Profitability of the concern.
Common Size Statement:
The common-size statements, balance sheet and income statement are show in
analytical percentages. The figures are shown as percentages of total assets, total liabilities
and total sales. The total assets are taken as 100 and different assets are expressed as a
percentage of the total similarly, various liabilities are taken as a part of total liabilities.
Common Size Balance Sheet:
A statement in which balance sheet items are expressed as the ratio of each asset to
total assets and the ratio of each liability is expressed as a ratio of total liabilities is called

common size balance. The common size balance sheet can be used to compare companies of
differing size. The comparison of figures in different periods is not useful because total
figures may be affected by a number of factors. It is not possible to establish standard norms
for various assets. The trends of figures from year to year may not be studied and even they
may not give proper results.
Trend Analysis of Balance Sheet:
Trend analysis is Very important tool of horizontal financial analysis. This analysis
enables to known the change in the financial function and operating efficiency in between the
time period chosen. By studding the trend analysis of each item we can known the direction
of changes and based upon the direction of changes, the options can be changed.
Trend =Absolute Value of item in the statement understudy *100
Absolute Value of same item in the base statement

Ratio Analysis:
Ratio analysis is used as a technique of analysing the financial information, contained in the
balance sheet and profit and loss accounts, for a more meaningful understanding of the
financial position and performance of a firm. The relationship between two accounting
figures, expressed mathematically, is known as a financial ratio. A ratio helps the analyst to
make qualitative judgment about the firms financial position and performance. Several ratios
can be calculated from the accounting data contained in the financial statements. The parties
which generally undertake financial analysis is short term creditors, long-term creditors,
owner and management. In view of the requirements of the various ratios, ratios are classified
into the following four important categories.
Liquidity ratios
Leverage ratios
Activity ratios
Profitability ratios

Liquidity Ratios:
It is extremely essential for a firm to be able to meet its obligations as they become
due. Liquidity ratios measure the ability of the firm to meet its current obligations. A firm
should ensure that it does not suffer from lack of liquidity, and also that it does not have
excess liquidity. The failure of a company to meet its obligations due to lack of sufficient
liquidity, will result in a poor creditworthiness, loss of creditors confidence, or even in legal
tangles resulting in the closure of the company. A very high degree of liquidity is also bad;
idle assets earn nothing. The firms funds will be unnecessarily tied up in current assets.
Therefore it is necessary to strike a proper balance high liquidity and lack of liquidity.
The most common ratios which indicate the extent of liquidity or lack of it are
Current ratio
Quick ratio
Other ratios include Cash ratio, Interval Measure and Net working capital ratio.

Current Ratio:
The current ratio is calculated by dividing current assets by current liabilities.
current ratio=

current assest
currrent liabilities

Current ratio is a measure of the firms short term solvency. It indicates the availability of
current assets in rupees for every one rupee of current liability. A ratio of greater than one
means that the firm has more current assets than current claims against the, Current ratio of 2
to 1 or more is considered satisfactory. Current ratio represents a margin of safety for
creditors.
Quick Ratio:
Quick ratio also known as acid-test ratio establishes a relationship between quick
assets and the current liabilities. Cash is the most liquid asset. It is calculated by dividing
quick assets by current liabilities.

Quick ratio = Quick Assets / Current Liabilities

(Quick Assets = Current assets Inventory)
One defect of the current ratio is that it fails to convey any information on the
composition of the current assets of the firm. A rupee of cash is considered equivalent
to a rupee of inventory of receivables. But it is not so. A rupee of cash is more readily
available to meet current liabilities than a rupee of say inventory. This implies the
usefulness of the current ratio.
The Acid test ratio measures the firms ability to convert its current assets quickly
into cash in order to meet its current liabilities.
A quick ratio of 1 to 1 is considered to represent a satisfactory current financial
condition. It is an important index of the firms liquidity.
Leverage Ratios:
Leverage ratios identify the source of a firms capital owners or outside creditors.
Financial leverage refers to the use of debt in financing non-current assets. If the return on
assets exceeds the cost of debt, the leverage is successful i.e., it improves return on equity.
Debt Equity Ratio:
The Debt Equity is determined to analyse the soundness of the long term financial
policies of the organization. It is also known as Internal External Equity Ratio. It is
calculated as follows:
Debt Equity Ratio = Total long term debt / Shareholders funds.
Equity Ratio:
This ratio is also called as proprietary ratio establishes a relationship between
shareholders funds to total assets of company. Equity Ratio is calculated by dividing
shareholders fund by total assets.
Fixed Asset Ratio:

This ratio indicates the extent to which the assets of the companies can be lost without
affecting the interest of the creditors of the company. Higher the ratios better the long-term
position of the company.
Activity Ratios:
They are primarily used for studying a firms working capital situation. A wellmanaged firm should have good activity ratios. 43 Working Capital Turnover Ratio: The
working capital turnover ratio indicates whether or not working capital has been effectively
used in making sales.
Working Capital Turnover Ratio:
The working capital turnover ratio indicates whether or not working capital has been
effectively used in making sales.
Working capital turnover = Sales / Net current assets
Inventory Turnover Ratio:
This ratio also known as Stock Turnover Ratio establishes the relationship between
costs of goods sold or net sales during the given period and the average amount of stock held
during the period. This ratio reveals the number of times finished stock in turnover during a
given accounting period.
Higher the ratio the better is it because it shows the finished stock is rapidly turned in
to sales. On the other hand, a low stock turnover ratio is not desirable, because it reveals the
accumulation of stock.
Debtors Turnover Ratio:
This ratio indicates the velocity of debt collection of a company. In other words it
shows the number of times average turnover during a year. A Higher Debtor Turnover Ratio
indicates a more efficient is the management towards debtors and low ratio ratio implies
inefficient management of debtors.
Total Assets Turnover Ratio:
The asset turnover ratio indicates how efficiently management is employing Assets.

Total Assets Turnover Ratio = Sales / Total Assets

Total Assets Profitability Ratios:
Profitability ratios are the ratios which measure a firms overall effectiveness as
revealed by the returns generated on sales and investment.
General Profitability Ratios:
1. Gross Profit Ratio
2. Net profit Ratio
3. Operating or Expenses Ratio.
Gross Profit Ratio:
Gross profit Ratio measures the relationships to net sales and is usually represented as
a percentage. It is a good measure of profitability. The gross profit ratio indicates the extent to
which selling price of goods per unit may decline without resulting in losses on operation.
Higher the gross profit betters the result.

Net Profit Ratio:

Net Profit Ratio indicates net margin on sales. It is given by the following equation.
Net Profit Ratio = (Net Profit / Sales) * 100
Operating or Expenses Ratio:
This ratio is complimentary of Net Profit Ratio. The more the net profit, the less the
Operating Ratio. Operating costs include the cost of direct materials, direct labours and other
overheads, viz., are generally excluded from operating costs. A comparison of the Operating
Ratio will indicate whether the cost efficiency is high or low in the figure of sales. This less
the ratio it depicts the efficiency of the management