CHAPTER - I

1.1 INTRODUCTION

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as

“the indicated quotient of two mathematical expressions” and “the relationship between
two or more things”. In financial analysis, a ratio is used as a benchmark for evaluation
the financial position and performance of a firm. The absolute accounting figures
reported in the financial statements do not provide a meaningful understanding of the
performance and financial position of a firm. An accounting figure conveys meaning
when it is related to some other relevant information. For example, an Rs.5 core net
profit may look impressive, but the firm’s performance can be said to be good or bad
only when the net profit figure is related to the firm’s Investment.

The relationship between two accounting figures expressed mathematically, is

known as a financial ratio (or simply as a ratio). Ratios help to summarize large
quantities of financial data and to make qualitative judgment about the firm’s financial
performance. For example, consider Current ratio. It is calculated by dividing current
assets by current liabilities; the ratio indicates a relationship as quantified relationship
between current assets and current liabilities.

This relationship is an index or yardstick, which permits a quantitative judgment

to be Formed about the firm’s liquidity and vice versa. 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 Analysis.

Meaning of Profitability

Profitability means ability to make profit from all the business activities of an
organization, company, firm, or an enterprise. It shows how efficiently the management
can make profit by using all the resources available in the market. According to Harward
and Upton, “profitability is the ability of a given investment to earn a return from its
use”.

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 Profit is an excess of revenues over associated expenses for an activity over a
period of time. Terms with similar meanings include ‘earnings’, ‘income’, and ‘margin’.
Lord Keynes remarked that ‘Profit is the engine that drives the business enterprise’.
Every business should earn sufficient profits to survive and grow over a long period of
time. It is the index to the economic progress, improved national income and rising
standard of living. No doubt, profit is the legitimate object, but it should not be over
emphasized. Management should try to maximize its profit keeping in mind the welfare
of the society.

Sometimes, the terms ‘Profit’ and ‘Profitability’ are used interchangeably. But in
real sense, there is a difference between the two. Profit is an absolute term, whereas, the
profitability is a relative concept. However, they are closely related and mutually
interdependent, having distinct roles in business. Profit refers to the total income earned
by the enterprise during the specified period of time, while profitability refers to the
operating efficiency of the enterprise. It is the ability of the enterprise to make profit on
sales. It is the ability of enterprise to get sufficient return on the capital and employees
used in the business operation.

As Weston and Brigham rightly notes “to the financial management profit is the
test of efficiency and a measure of control, to the owners a measure of the worth of their
investment, to the creditors the margin of safety, to the government a measure of taxable
capacity and a basis of legislative action and to the country profit is an index of
economic progress, national income generated and the rise in the standard of living”,
while profitability is an outcome of profit. In other words, no profit drives towards
profitability. Firms having same amount of profit may vary in terms of profitability.

R. S. Kulshrestha has rightly stated, “Profit in two separate business concern may
be identical, yet, many a times, it usually happens that their profitability varies when
measured in terms of size of investment”.

For Management, Profit is the test of efficiency and a measurement of control. It

is a measure of worth of investment for owners. For creditors, it is the margin of safety.
For employees, a source of fringe benefits. For Government, it is a measure of tax paying
capacity & basis of legislative action. For customers, it is a hint to demand for better
quality and price cuts and for an enterprise, profit symbolizes existence and growth.

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MEANING OF LIQUIDITY

Liquidity refers to the ability of a firm to meet its short term obligations. In other
words, Liquidity relates to the availability of cash and the other assets to cover the
accounts payable, short term debt and other liabilities. All business requires a certain
degree of liquidity in order to pay their bills on time, though the startup companies are
not very liquid. In mature companies, low level of liquidity indicates the poor
management or a need for the additional capital. Of course, any company’s Liquidity
may vary due to the seasonality, the timing of the sales and the economic conditions.
Companies tend to run into problems with the liquidity because the cash outflows are not
flexible, while the income is often uncertain.

Liquidity plays a crucial role in the successful functioning of a business firm. A

study of liquidity is of major importance to both the internal and external analysts
because of its close relationship with day to day operations of a business (Bhunia, 2010).
A weak liquidity position poses a threat to the solvency as well as profitability of a firm
and makes it unsafe and unsound.

According to the Kristy and Diamond, because of the difference between the cash
generation and the cash payments, business must maintain a certain proportion of the
current assets and current liabilities in order to ensure the adequate liquidity. Liquidity
expresses the capacity of the company to meet its short term obligations, that is, to cover
its cash outflows with adequate cash inflows and, moreover, to ensure a security reserve
forum predicted events such as the decrease of the cash inflows or increase of payments.
Consequently, liquidity may be defined as the capacity of the company to rapidly
transform the current assets in cash or toobtain cash to meet its short term obligations.
By short term we usually understand a period of at most 12months but, in fact, it is
identified with the duration of the normal operating cycle of the company (the period of
time that starts with the acquisition of the raw materials and ends with the change of the
end products into cash or equivalent).

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PROFITABILITY AND LIQUIDITY

Profitability and liquidity and have been extensively discussed and analyzed in
the research. While the immediate survival of a business anchors on its liquidity, its long
term survival and growth depend on profitability. Thus, liquidity ensures short term
survival and profitability ensures long term survival. Both are, therefore important for
any firm to survive.

The profitability and liquidity goals are contradictory to each other in most
decisions which the finance manager takes. For example, the firm by following a lenient
credit policy may be in a position to increase its sales, but its liquidity may tend to worse.
In addition to this, referring to the risk return theory there is a direct relationship between
risk and return. Thus, firms with high liquidity may have low risk and then low
profitability. Conversely, firm that has low liquidity may face high risk results to higher
return. Consequently, a firm is required to maintain a balance between liquidity and
profitability in its day-to-day operations.

Maintaining a proper liquidity indicates that funds are confined to liquid assets
thereby making them unavailable for operational use or for investment purposes for
higher returns. In other words, increasing profitability would tend to reduce firm’s
liquidity and too much attention on liquidity would tend to affect the profitability (Smith,
1980). Therefore, firms should always strike to maintain a balance between conflicting
objectives of liquidity and profitability. The firm’s liquidity should not be too high or too
low. Excessive dependence on liquidity indicates the accumulation of idle funds that
don’t fetch any profits for the firm (Smith, 1980). On the other hand, insufficient
liquidity might damage the firm’s goodwill, deteriorate firm’s credit standings and that
might lead to forced liquidation of firm’s assets.

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 1.2 INDUSTRY PROFILE

Murugappa Group is one of India's leading business conglomerates. The Group

has 28 businesses including seven listed Companies actively traded in NSE & BSE.
Headquartered in Chennai, the major Companies of the Group include Carborundum
Universal Ltd., Cholamandalam Investment and Finance Company Ltd., Cholamandalam
MS General Insurance Company Ltd., Coromandel International Ltd., Coromandel
Engineering Company Ltd., E.I.D. Parry (India) Ltd., Parry Agro Industries Ltd., Tube
Investments of India Ltd., and Wendt (India) Ltd.

Market leaders in served segments including Abrasives, Auto Components, Cycles,

Sugar, Farm Inputs, Fertilizers, Plantations, Construction, Bio-products and
Nutraceuticals, the Group has forged strong joint venture alliances with leading
international companies like Mitsui Sumitomo, Foskor, Cargill, Group Chimique
Tunisien, Winterthur Technology Group and Morgan Crucible. The Group has a wide
geographical presence panning 13 states in India and 5 continents.

Renowned brands like BSA, Hercules, Ballmaster, Ajax, Parry’s, Gromor and Paramfos
are from the Murugappa stable. The organization fosters an environment of
professionalism and has a workforce of over 32,000 employees.

TUBE INVESTSMENTS OF INDIA LIMITED

Tube Investments of India Ltd is part of the USD 3.14 billion Murugappa Group.
Over the past five decades, the company has honed its competencies in the field of
metallurgy, engineering, design and development. It has four divisions - TI Cycles, Tube
Products of India (TPI), TIDC India and TI Metal Forming - each a pioneer and market
leader in its segment.

TPI is the undisputed market leader in high-end cold drawn welded (CDW) tubes.
TI Cycles brings you the BSA and Hercules brands of bicycles and fitness equipment.
TIDC is India's leading manufacturer of power transmission chains for the automotive,
industrial and agricultural segments. TI Metal Forming pioneered cold roll forming and
is a market leader in speciality steel strips for the bearings and fine blank industry. TI

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also enjoys a sizeable share of the Indian auto market by manufacturing auto door frames
at TI Metal forming. TI reported a turnover of 1761.84 crores in 2006-07, 11 per cent
higher than the previous year.

It was originally founded as TI Cycles of India, in 1949. Group companies Tube

Products of India and TI Miller - which manufactured cycle lamps and dynamo sets -
were merged with the company in 1959 and 1984, respectively. It has 13 manufacturing
and assembly units spread across the country, all supported by marketing offices that act
as an interface between customer requirements and the production team. The company's
shares are listed on the National, Mumbai and Chennai stock exchanges within India and
its GDRs on the Luxembourg Stock Exchange.

BUSINESS DIVISIONS

TI Cycles of India

BSA and Hercules are two of the leading brands of bicycles from TI Cycles in the
Indian market. Recently, the company has entered the growing fitness equipment
segment in order to cater to the temporary consumer needs. With a network of around
1500 direct dealers and more than 10000 indirect dealers TI Cycles has a nationwide
presence.

A pioneer in the market, TI Cycles has constantly come up with new trends in
line with evolving consumer needs. With the changing RETAIL environment, TI Cycles
has introduced 'BSA GO' stores, which have revolutionized the bicycle outlet in India. A
one-stop premium shop for all bicycling and fitness requirements, BSA GO has a
customer friendly ambience which serves as a model for other bicycle outlets in the
country.

TIDC India

TIDC is one of India's leading manufacturers of power transmission chains for

the industrial, automotive and agricultural segments. The company was established in

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1960 and today is the undisputed market leader in both the industrial and automotive
chains.

The company made a foray into fine blanking in line with its vision of becoming
a prominent global player in power transmission components, and is now a major
supplier of FB components to the automotive industry. Currently, about 45 per cent of
the company's turnover is from exports and this is an indication of its growing global
presence.

TIDC exports chains under the brand name 'Rombo'. Its chains have gained
recognition in Europe, the US, Japan, South America and Asian markets for high quality
and reliability. Over 50 per cent of the chains exported are for special applications. In the
domestic market the 'Diamond' brand chains cater to a range of two wheelers and
industrial OEMs. TIDC also services the after-market with kits and chains through a
well-established distribution network and warehouses.

TI Metal Forming

Pioneers in cold roll forming, TIMF manufactures precision value-added sheet

metal components like car door frames, sashes, divisional channels, stainless steel rails,
chassis long members, deep drawn parts, hydroformed parts, CRF sections for the Indian
Railways, etc.

Established in 1965 as a division of Tube Investments, TIMF's key target

customers are auto OEMs, Indian railway wagon builders, tier 1 auto components
manufacturers, etc.

Tube Products of India (TPI)

TPI is India's undisputed market leader in cold drawn welded (CDW) steel tubes.
Set up in 1955, the company produces precision steel tubes, CR strips and high strength
tubular components that cater to the demanding needs of the automobile, general
engineering, boiler, white goods and fine blanking industries. A TS16949 and ISO 14001
certified company, TPI is the preferred supplier of precision welded tubes to major
automotive companies in India and abroad.

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 Today, TPI is the preferred supplier of precision tubes, Electric Resistance
Welded (ERW) and Cold Drawn Welded (CDW), to major automotive companies in
India and abroad. TPI is India's undisputed market leader in CDW tubes to the Auto-
motive industry. It has also significant market presence in power plants, boiler, textile
machinery, general engineering. It is the Market leader in Telescopic Front Fork Inner
tubes and Cylinder bore tubes for shock absorber and gas spring applications, Propeller
shaft tubes for Automotive segment. Other Specialty products include Rear Axle Tubes,
Side Impact Beams, Tie Rods, Drag links, Heavy thick steering shafts Hydraulic
Cylinder tubes.

The International Business Division (IBD) was formed to focus on international

markets, gearing TPI to compete with global tube manufacturers. The most recent
addition to TPI is the Tubular Components Division (TCD), which manufactures high
strength tubular auto components, providing the advantage of weight reduction, higher
component efficiency and cost reduction.

TPI produces a wide range of CRCA strips including special extra deep drawing,
high tensile, medium carbon, high carbon finding application in industries such as
Bearings, Automobile, Auto Ancillaries, white goods, fine blanking and General
Engineering.

TPI has been supplying to customers such as Bajaj Auto Ancillaries, TVS Motors
Ancillaries, Hero Honda Ancillaries, Tata Motors, Toyota India, Delphi, Gabriel,
Escorts, and Endurance. Its success stems from market driven, customer oriented
approach coupled with superior process design, short product development cycle,
delivering high quality products and efficient customer service ensuring total customer
satisfaction.

TPI has Integrated manufacturing facilities at Chennai (Two tubes plants and one
strips plant at Avadi and one at Ambattur), Shirwal& Mohali.. These plants conform to
international standards and achieve operational excellence through TPM. TPI has
distribution centres across India, which ensures timely service to the customer’s daily
requirements.

TPI has received ISO-TS 16949 for all plants, ISO 9001: 2000 for all plants, ISO
14001:2004 for Avadi& IBD Plants, Self-certification for boiler tubes by the central

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boiler board. TPI is the Winner of the Sword of honour for outstanding safety
performance from the British Safety council. Tubular Components Division (TCD), a
plant of TPI, has won Supplier Performance Award 2007 and 2008. Timely delivery, top
notch quality and excellent service have been key for the division for winning this award.

BOARD OF DIRECTORS:

The Murugappa Group is governed by the Murugappa Corporate Board

(MCB), headed by a Vellayan as its Executive Chairman.

A Vellayan

A Vellayan is the Executive Chairman of the Murugappa Corporate

Board. He is the Chairman of EID Parry (India) Limited and Coromandel International
Ltd. He is also on the board of Indian Overseas Bank and Kanoria Chemicals Ltd. He
holds a diploma in Industrial Administration from the University of Aston, UK and a
master’s degree in Business Studies from the University of Warwick Business School,
UK.

M Murugappan

M Murugappan is the Vice Chairman of the Murugappa Corporate Board. He

is the Chairman of Tube Investments of India Ltd, Carborundum Universal Ltd, Wendt
India Ltd, Murugappa Morgan Thermal Ceramics Ltd, and DBS Chola Trustees Ltd. He
serves as a Trustee of the AMM Foundation and the Correspondent of the Murugappa
Polytechnic College. He is also on the board of Mahindra & Mahindra Ltd., Mumbai and
InfoTech Enterprises Ltd., Hyderabad. He is a Member on the Board of Governors, IIT,
and Madras. He holds a Master’s degree in Chemical Engineering from the University of
Michigan, USA.

N Srinivasan

N Srinivasan is the Director-Finance of the Murugappa Corporate Board. He is

a chartered accountant and company secretary with over 25 years of experience in the
areas of Corporate Finance, Legal, Projects and General Management. He is a Director

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on the Boards of Cholamandalam DBS Finance Ltd, Tube Investments of India Ltd,
Cholamandalam MS General Insurance Co Ltd and few other Group Companies. Earlier,
he was the CFO of Carborundum Universal Ltd and was associated with corporate like
BHEL and ThiruArooran Sugars Ltd.

Sridhar Ganesh

Sridhar Ganesh is the Director-Human Resources of the Murugappa Corporate

Board and Lead Director of the Diversified Business Group (DBG). He is a graduate in
Physics, and holds a post graduate diploma in Management from IIM, Kolkata. He has
over 30 years of experience in varied facets of human resource management, at both
operational and strategic levels. He started his career with Guest Keen Williams Limited
in Kolkatta and then had a stint with Metal Box prior to joining Berger Paints as head of
personnel. He subsequently moved to Mumbai to join Cadbury India as their Director-
HR and was a member of the board. In 2002, he was appointed HR Director for the
Africa, India and the Middle-East region based in the UK. His area of work and interest
in recent times is on coaching for performance and performance related areas. Prior to
joining the Group, he was Director-Learning & Development, Cadbury Schweppes plc-
Europe, Middle-East and Africa.

Ravichandran

V Ravichandran is the Lead Director - Fertilizers and Sugars of the

Murugappa Corporate Board. He is also the Managing Director of Coromandel
International. He is an Engineering Graduate with a Post Graduate Diploma in
Management from IIM, Ahmedabad. He is also a Cost Accountant and a Company
Secretary. After a brief stint with Ashok Leyland, he joined the Group in Oct 1985 in
EID Parry. Ravichandran served with distinction in the Finance function of EID Parry, in
the Farm Inputs Division (FIND), in Corporate and in businesses such as Confectionery.
He took up a general management role as GM-Pesticides in 1994. In 2003, with the
merger of FIND and Coromandel Fertilizers Ltd (CFL) he moved to CFL as Vice
President – FIND. He was promoted as Whole time Director in 2004 and took over as
Managing Director of the company in 2006.

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VenkatramanThyagarajan

VenkatramanThyagarajan is the non-executive External Director of the

Murugappa Corporate Board. He is the Vice Chairman of GlaxoSmithKline, India and
the Senior Vice President and Regional Director of GlaxoSmithKline, Asia Pacific. Prior
to this role, he was the Vice President of South Asia since 2001. In his tenure of over 36
years with the company, he has held numerous senior positions throughout his career. He
is also an independent director of Tata Consultancy Services Limited and chairs PHRMA
for Asia. He has a B.Tech degree in Electrical Engineering and is an alumnus of Indian
Institute of Management – Ahmedabad

Deepak Satwalekar

Deepak Satwalekar is the nonexecutive External Director of the

Murugappa Corporate Board. He holds a bachelor’sdegree in technology from IIT
Mumbai and a master’s degree in business administration from American University,
USA. He is currently the managing director and CEO of HDFC Standard Life Insurance
Company Ltd. He is also on the board of several companies, including HDFC Ltd, Asian
Paints (India) Ltd and Infosys Technologies Ltd.

SridarIyengar

SridarIyengar is a non executive External Director of the Murugappa Group

Corporate Board. Prior to this, Sridar was CEO of KPMG LLP and later became a
Partner and was instrumental in setting up KPMG’s operations in India. A founding
charter member of TIE (The Indus Entrepreneurs), he has been President of both the
Silicon Valley and Global branches of the group and remains active with TIE India. He
is also involved in the American India Foundation and the Foundation for Democratic
Reforms in India. Sridar has spent 35 years in global business and brings to the Board his
rich international experience. He serves on the Boards of Infosys Technologies, ICICI
Bank, and Rediff.com, among other companies in the U.S. and India. He holds a
bachelors degree in Commerce (Honours) from the University of Calcutta and is a
Fellow of the Institute of Chartered Accountants in England and Wales.

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Carborundum Universal Limited Cholamandalam DBS Finance Limited
Cholamandalam MS General Insurance Coromandel Fertilizers Limited
EID Parry India Limited Godavari Fertilizers Limited
Parry Agro Industries Limited Parryware ROCA Private Limited
Tube Investments of India
 TIDC INDIA
 Tube Products of India
 TI Cycles of India
 TI Metals Forming

The Other Companies are:

Ambadi Enterprise Ltd Cholamandalam Distribution Services Ltd

Cholamandalam Mutual Cholamandalam MS Risk Services Ltd
Cholamandalam Securities Ltd Coromandel Engineering Company Ltd
Kadamane Estates Company LaserwordsPvt Ltd
Murugappa Morgan Thermal Ceramics Ltd Net Access India Pvt Ltd

New Ambadi Estates Pvt Ltd Parry Enterprises India Ltd

Parry Murray and Co.Ltd Placon (India) Pvt Ltd
Polutech Ltd ProdoriteAnticorrosives Ltd
Southern Energy Development Corporation Sterling Abrasives Ltd

Wendt India Ltd

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 1.3 COMPANY PROFILE - TIDC INDIA

TIDC India is one of the India’s leading manufacturers of power transmission

chains for the industrial, automotive and agricultural segments. The company was
established in 1960 in collaboration with Diamond Chain Co, USA, and today is the
undisputed market leader in both industrial and automotive chains. With its entry into
fine blanking, TIDC is also moving up the value chain, from component suppliers to
system suppliers.

The company made a foray into fine blanking in line with its vision of becoming
a prominent global player in power transmission components, and is now a major
supplier of Fine Blanking components to the automotive industry. Currently, about 45
percent of the company’s turnover is from exports and this is an indication of its growing
global presence.

TIDC exports chains under the brand name ‘Rombo’. The chains have gained
recognition in Europe, the US, Japan, South America and Asian markets for high quality
and reliability. Over 50 percent of the chains exported are for special applications. In the
domestic market the ‘Diamond’ brand chains cater to a range of two wheelers and
industrial OEMs. TIDC also services the after-market with kits and chains through a
well-established distribution network and warehouses.

TIDC manufactures automotive kits comprising of motorcycle/moped drive

chains, front sprockets and rear wheel sprockets which are supplied to leading
automotive companies like Hero Honda, Bajaj, Honda Motorcycles and Scooters India,
Yamaha Motors, TVS Motors and Suzuki India, amongst others. These kits are also
retailed under the Diamond brand. TIDC powers one out of every two two-wheelers in
India. TIDC keeps close contacts with the users of its products and has a well-established
distribution and service network to provide solutions to customers.

TIDC offers customers complete drive solutions - from design, selection, supply
of sprockets and chains to after sales support. The company’s brands, Diamond (in India
and SAARC countries) and Rombo (rest of the world) are known for quality and
reliability.

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 TIDC manufactures products for a range of applications. It manufactures
industrial power transmission chains to ANSI & British standards, engineering class
chains, agricultural chains, special sprockets and high performance chains, drive and cam
chains, timing chains and sprockets. The fine blanking division supplies transmission and
engine parts for automobiles as well as products for industrial applications in power
tools, electrical and textile machinery.

TIDC has plants in Chennai, Hyderabad and has set up a new manufacturing
facility in Uttarkhand. TIDC has 13 warehouses across India to ensure smooth supply of
material to customers. With a wide network of 160 dealers spread all over the country for
automotive and industrial applications, TIDC offers products off-the-shelf to customers
across India.

TIDC also has a strong global presence, with products being exported to over 30
countries and 35% of the total turnover coming from export sales. The company has
opened an office in USA to service customers in this market. TIDC India’s international
customers are also serviced through warehouses in USA and Europe. Over 50% of the
chains exported are for special applications to global OEMs in various industries
including cement, fertilisers, material handling and construction equipment. TIDC is also
the market leader in India for industrial power transmission and conveyor chains, and
caters to OEMs and distributor markets.

TIDC India has won the Golden Peacock Award for quality and has obtained
commendation certificate for CII - Exim Business Excellence and received Best Vendor
Awards from automotive OEMs.

Manufacturing

 Chains

 Sprockets

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Types of chains

There are various kinds and sizes of chains are manufactured here. Following are the
some of the chains produced in TIDC India Ltd:

 Standard roller chain

 Attachment chain

 Intended pin chain

 Hollow chain

 Accumulator chain

 Rubber chain

 Self-tube chain

 O-ring chain

 Work standard special chain

 Conversion resistant chain

 Let chain

 Conveyor chain

 Timing chain/ Cam chain

Chain components

 Inner plate

 Outer plate

 Roller

 Bush

 Pin

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Departments in TIDC

 ACC – Agricultural Chain Cell

 LDD – Light Duty Division

 ECC – Engineering Chain Cell

 CCC – Cam Chain Cell

 FB - Fine Blanking

 HPCC – High Performance Chain Cell or Special Purpose Chain

Testing laboratories

 Metrology lab

 Metallurgy lab

TIDC India Certifications

TS 16949:2002 for the automotive business (chains and fine blanking)

ISO 9001:2000 for industrial chains

ISO 14001

API 7F certification for oilfield chains

The 'Commendation Certificate for Strong Commitment to Excel' in 2004, from the
CII-Exim Bank Award Committee - a reflection of the strong passion and commitment
at all levels in the organization.

TIDC India has received the 'Commendation Certificate for Strong Commitment
to Excel' in 2004. This commendation was from the CII-Exim Bank Award Committee
and is a reflection of the strong passion and commitment present at all levels in the
organization.

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Values and Beliefs:

 Adhere to ethical norms in all dealings with shareholders, employees, customers,

suppliers, financial institution and government.

 Provide value for money t customers through Quality products& services.

 Treat our people with respect and concern, provide opportunities to learn,
contribute andadvance recognize and reward initiatives, innovations and
creativity.

Maintain:

 An organizational climate conducive to trust open communication and team spirit

 A style of operation is fitting our size, but reflecting moderation and humility

 Manage environment effectively for harnessing opportunities.

 Discharge responsibilities to various sections of society and preserve

environment.

 Grow in an accelerated manner, consistent with values and beliefs, by continuous

organizational renewal.

Vision:

“To be a world class global player in Power Transmission and Conveyor systems”

“The fundamental principle of economic activity is that no man you transact with will
lose, then you shall not”--Murugappa Group.

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Mission:
By 2015-16 achieve a turnover of Rs.1500 Crores

Milestones
Years Details
2008 New plant for Automotive chain in "Uttar Khand"

2007 Office in USA

2006 Warehouse opened in Venlo, Netherlands and Cincinnati, USA

2005 TPM Kick off at TIDC

2004 TIDC India receives the Commendation Certificate for Strong Commitment to
Excel.
2003 Obtained ISO/TS 16949 certification for Cam chain and Fine blanking divisions
2002 Obtained ISO 9001:2000 certification for Quality System
2001 Held first Overseas Distributor Meet at Hanover, Germany.
Obtained ISO 14001 Certification for Environmental Management.
2000 Implemented Manufacturing System Redesign Programme (P25) to improve
throughput time and Quality.

1999 Obtained CII-EXIM commendation for strong commitment to Quality

1998 Obtained QS-9000 for Timing Chain Division.Obtained Golden Peacock

National Quality Award from Institute of Directors.
1997 Launched Policy Deployment as a tool to manage major operations.
1996 Fine blanking operations commenced to market Chain-Sprocket as a system.

1995 100% export Oriented Unit set up for agriculture chain.

Relocated timing chain facility as a separate division.
1991 Entered into Exports Market.Launched company-wide TQM program.

1985 Developed Engineering class chains.

1980 Developed Motorcycle chain in -house for Japanese two-wheelers.

1969 Diversified into Industrial Chains.

1960 TIDC Established for manufacture of bicycle chains.

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PRODUCT PROFILE

1) Automotive: Drive and Cam chains for Motorcycles, Timing chains and sprockets.

2) Industrial: Power, Transmission chains-ANSI &British Standards and Engineering

class chains Agricultural Chains

3) Fine Blanking: Transmission and Engine parts for 4 wheeler 2wheelers.

Manufacturing Locations:

 Chennai - Industrial chains & Fine Blanking

 Hyderabad- Automotive Chains

Customers: Export (TIDC exports over 50 countries world-wide)

 Germany
 new Holland- Belgium & Poland
 Denmark
 Japan
 USA

Domestic

 Hero Honda Motors Ltd

 Ingersoll Rand

 Yamaha Motors India Ltd

 Maruti Udyog Limited

 TVS Motor Co

 Grasim

 Honda Motorcycle &Scooter India

 BHEL

 Bajaj Auto Ltd

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Quality systems for a High performance chain

Beginning with the design phase, purchase and inspection of raw materials,
vendor management, work instructions and going on to cover all processes in
manufacturing, packing and inspection before delivery. We follow stringent procedures
when it comes to traceability of products and reviews of customer feedback. No wonder
our chains go on world class equipment’s such as harvester Combines, Balers, Skid
steers, and Marine travel lifts, Fork Lifts, Tele Boomers, Pavers, and Motor Graders.
Industries using cement, Power, Fertilizer, Food processing, packaging, steel machinery,
mining, printing, textile & sugar.

Quality Policy

To realize our vision of becoming a world class global player in power

transmission and conveyor systems, we are committed to constantly enhance customer
satisfaction by providing products consistently meeting customer needs and expectations
in product quality, safety, delivery, price, service, statutory and regulatory requirements.
We will achieve this through:

 Complying with all requirements of the quality management system and

continually improving its effectiveness.

 Constantly upgrading our processes and products to deliver “value for money” to
the customer.

 Developing employee skills and increasing their contribution to the organization

through participation and empowerment.

 Enhancing supplier relationships to procure appropriate materials/services on

time and also to establish joint development and improvement activities.

 Constantly communicating company objectives and performance targets to

employees and reviewing them for improvement.

20
2.1 NEED OF THE STUDY

The analysis of liquidity, profitability and solvency is used for identifying the
financial strength and weaknesses of the firm. The analysis is done by properly
establishing the relationship between the items of balance sheet and profit and loss
account the first task of financial analyst is to determine the information relevant to the
decision under consideration from the total information contained in the financial
statement.

The company financial performance is determined through financial ratios and

Altman z-score model. The information needed to calculate these solvency ratios are
available on the financial statements such as income statement, and the balance sheet.

Profitability of the business depends on the cost incurred for the production of
goods. If the cost increases, the profit of the business is reduced immediately and the
business may go to the liquidation stage. The analysis of liquidity and solvency position
of the determines the future financial performance of the company

The research studies have pointed out that many companies in the
manufacturing sector have destroyed the economic and market value. TIDC India. Ltd.
have been facing decline in profits and losses during the period 2012-2016.

The present study made an attempt to measure the liquidity, profitability and
solvency.

Analysis of manufacturing units and made an attempt to measure the financial

performance. It is also concentrated on financial health of TIDC India.

21
 2.2 OBJECTIVES OF THE STUDY:

Primary Objective:

 To study the “Analyse the liquidity, profitability and solvency of TIDC India.
ltd.

Secondary Objectives:

 To study the present financial system at TIDC India. ltd.

 To determine the liquidity, profitability positions of the Company during the
study period (2012-2016).
 To know the efficiency in financial operations of the Company.
 To predict the financial health and viability of the company using Z-Score
model.
 To offer appropriate suggestions for the better performance of the
organization.

22
 2.3 SCOPE OF THE STUDY

The study involves the financial analysis of TIDC India.ltd, with the help of
financial statements for the past five years. The study of liquidity, profitability and
solvency position was analyzed using ratio analysis and z-score as a technique. The
study covers the period of 2012to 2016.

The scope of the study involves the various factors that affects the financial
efficiency of the company. This study finds out the operational efficiency of the
organisation and allocation of resources to improve the efficiency of the organisation.
The study had analyzed the financial statements of the company collected from the
reliable source. The company officials and Experts in finance provided support in
drawing inferences and conclusion.

23
 2.4LIMITATIONS OF THE STUDY

 The analysis was made with the help of the secondary data collected from the
company.
 This study was restricted to the 5 year period from 2012 to 2016.
 In the absence of availability of information of another company, the comparison
between two companies cannot be made.
 The various ratios of the company are compared with ideal or of the previous year’s
ratio. The data used is primarily on the basis of annual reports only.
 Since financial performance may not remain the same in the future, the findings may
not be applicable in the future.

24
 2.5 REVIEW OF LITERATURE

Eljelly (2015) empirically examined the relationship between profitability and liquidity,
as measured by current ratio and cash gap (cash conversion cycle) in Saudi Arabia.
Using correlation and regression analysis, the result confirmed a significant negative
relationship between the firm's profitability and its liquidity level, as measured by current
ratio. This relationship is more pronounced for firms with high current ratios and long
cash conversion cycles.

Raheman and Nasr (2014) had the objective to examine in their study in which average
collection period, inventory turnover in days, average payment period, cash conversion
cycle, current ratio, debt ratio, size of the firm, and financial assets to total assets ratio
were the selected independent variables and net operating profit was the dependent
variable found a strong negative relationship between the current ratio and debt ratio and
profitability of the firms. The study also established a negative relationship between
liquidity and profitability.

Malcolm Smith, Dah-KweiLiou (2014) had the objective to investigate a study on

industrial sector and financial distress using z-score model approaches. A number of
authors have noted that industrial sector is a significant factor in the design and
construction of failure prediction models, suggesting that organizational structures
dictate the construction of separate models for different sectors. However, most modelers
have been content to amalgamate sub-sectors of the “manufacturing” classification (often
because of otherwise facing sample size difficulties) to produce a single manufacturing
sector model. This paper seeks to examine the differences that exist across the
manufacturing sector to identify those sub-sectors for which such amalgamation is
inadvisable. It examines the correlation of traditional financial ratios with sector
performance for a large sample of UK companies.

Carton and Hofer (2014) investigated a variety of common performance metrics. The
optimal metric for providing “the greatest relative information about the market-adjusted
return to shareholders” was found to be Altman’s Z-Score. Altman’s formula appeared to
rate higher than other performance metrics such as the widely used return ratios (i.e.,
ROE & ROA), economic profit, growth rate of sales, cash flow, and expenses.

25
Reillyand Brown (2014) had the objective to examine in their study that financial
statement analysis seeks to evaluate managerial performance in several important areas
including profitability, efficiency and risk. The ultimate goal of that analysis is to
provide insights that will help us project future managerial performance. They also
suggest that financial ratios should be examined relating to the economy, the firm’s
industry, firm’s main competitors and the firm’s past relative ratios.

Cooper, et al (2013), had the objective to examine in their study in which the illiquidity,
unless remedied, will give rise to insolvency and eventually bankruptcy as the Business’s
liabilities exceed its assets. Excessive debt exposes the business to potentially large
interest costs and the risk of potential bankruptcy. Shareholders, long term lenders and
creditors evaluate the level of risk they bear, and require compensation for the risks,
which arise from a business's capital structure.

Raheman and Mohamed (2013) had the objective to investigate the effect of average
collection period, inventory turnover in days, average payment period, cash conversion
cycle, and current ratio on the net operating profitability of Pakistani firms. They found
that as the cash conversion cycle increases, it leads to decreasing profitability of the firm
and managers can create a positive value for the shareholders by reducing the cash
conversion cycle to a possible minimum level.

In 2013, Kim studied the robustness of the Altman’s Z-Score model under the
assumption that it was no longer significant due to market factors. Kim found that the Z-
Score seems to be a predictor of financial distress in firms one year prior to bankruptcy,
but that the calculations needed to be used with caution because of the significance of
some of the variables. Kim cautions that Z-Score predictions for periods longer than one
year have lost some of their significance.

Praveenasivalogeswaran, (2012) had the objective inassessing the Financial Health of

Seed industry in India – An Application of Altman’s z-score Model. To meet long-term
commitment, it needs permanent capital and for short-term commitment, it needs
working capital. The performance of the company is judged by its financial statements,
which throws light on the operational efficiency and financial position of the company
by using z-score model. Therefore, monitoring the financial health of a company is
necessary and it can be done by continuous evaluation of its sales and profit.

26
Joseph Calandro (2012) had the objective of considering the utility of Altman’s z-score
as a strategic assessment and performance management tool. The aim of this article is to
provide commentary on the utility of Altman's Z-score as a strategic assessment and
performance management tool. This possibility is suggested in the recently published
book Measuring Organizational Performance. Metrics for Entrepreneurship and Strategic
Management Research (Northampton, MA: Edward Elgar, 2006) by Robert B. Carton
and Charles W. Hofer. This analysis supports Carton and Hofer's findings with respect to
the utility of the Z-score as a strategic assessment and performance management tool.

Islam et al. (2012) conducted a research on financial diagnosis of the financial

institutions of Bangladesh: A comparative study on IPDC, IDLC and ICB and through
ratio analysis they measured the financial health of the financial institutions and
concluded that financial institutions play a key role in the economic development of
capital market of the country.

Omar Masood, GhulamShabbir Khan Niazi, Noryati Ahmad (2011) had the
objective to analysis the growth and rise of smaller Islamic banks in last decade using z-
score model .The aim of this article is to analyse the factors responsible for the rise and
growth of smaller Islamic banks in the last decade. The results of this paper show
higher z-scores for smaller Islamic banks indicating that the latter have tended to be more
stable than larger Islamic banks over the last decade. Z-score analysis is used to test the
stability of both smaller and larger Islamic banks. The ordinary least square (OLS)
regression technique is also employed to examine the factors. Z-scores tend to increase
with bank size for large Islamic banks, but decrease with size for the small Islamic
banks.

Dong (2011) had the objective to examine in his study that focused on the variables that
include profitability, conversion cycle and its related elements and the relationship that
exists between them reported that the firms’ profitability and liquidity are affected by
working capital management. The relationships among these variables were found to be
strongly negative. This denote that decrease in the profitability occur due to increase in
cash conversion cycle. It is also found that if the number of days of account receivable
and inventories are diminished then the profitability will increase numbers of days of
accounts receivable and inventories.

27
Qasim&Ramiz (2011) indicate the fact that liquidity refers to the available cash for the
near future, after taking into account the financial obligations corresponding to that
period. Liquidity risk consist in the probability that the organization should not be able to
make its payments to creditors, as a result of the changes in the proportion of long term
credits and short term credits and the uncorrelation with the structure of organization's
liabilities. Further, Qazim and Ramiz (2011) positioned that liquidity management is
very important for every organization that means to pay current obligations on business
that include operating and financial expenses that are short term.

ObaidSaif H. Al Zaabi (2011) had the objective to identify potential for the application
of emerging market z-score in UAE Islamic banks. This study is primarily to implement
the emerging market (EM) Z-score model to predict bankruptcy and to measure the
financial performance of major Islamic banks in the UAE. In addition, this study aims to
introduce the Z-score model to this industry as a beneficial diagnostic tool for possible
causes standing behind the deterioration of financial performance. The main findings is
that UAE Islamic banks should work on improving the ratios that are dragging their
scores down to better understand their past performance and realize their current position
in the industry; Z-score can be adopted by the UAE Islamic banks as effective evaluation
approach toward financing the potential long-term partnership projects including small
and medium business enterprises (SMEs); Z-score model can be adapted by Islamic
banks as an independent credit risk analysis approach to measure the competencies and
financial strengths of potential projects. The study also finds that the ratios used in
calculating Z-score can be considered to provide valuable instrumental indicators.

Hassan and Habib (2010) had the objective to examine their study on performance
evaluation of the pharmaceutical companies in Bangladesh. They revealed that the
financial performance of Beximco Pharmaceuticals Ltd. is better than Square
Pharmaceuticals Ltd. Also, Salauddin (2001) examined the profitability of the
pharmaceutical companies of Bangladesh. By adopting ratio analysis, mean, standard
deviation and co-efficient of variation, he found that the profitability of the
pharmaceutical sector was very satisfactory in terms of the standard norms of return on
investment.

Dong and Su (2010) had the objective to examine that there is a negative relationship
between cash conversion cycle, financial debt and profitability. When the authors

28
replaced cash conversion cycle with accounts receivable and inventory, they found
negative relationship with these two variables; the opposite occurred with accounts
payable. The authors concluded that companies can create more profit by handling
correctly the cash conversion cycle and keeping each different component to an optimum
level.

Saswata Chatterjee (2010) had the objective to focus on the importance of the fixed and
current assets in the successful running of any organization. It poses direct impacts on
the profitability and liquidity. There have been a phenomenon observed in the business
that most of the companies increase the margin for the profits and losses because this act
shrinks the size of working capital relative to sales. But if the companies want to increase
or improve its liquidity, then it has to increase its working capital.

Benjamin and Kamalavali (2010) had the objective to examine in their study in which
the independent variables used were current ratio, quick ratio, inventory turnover ratio,
working capital turnover ratio, debtor’s turnover ratio, ratio of current asset to total asset,
ratio of current asset to operating income, comprehensive liquidity index, net liquid
balance size and leverage and growth while dependent variable (profitability)was
measured in terms of return on investment ROI established a negative association
between ROI and the current ratio, cash turnover ratio, current asset to operating income
and leverage. On the other hand they established a positive association between ROI and
the quick ratio, debtor’s turnover ratio, current asset to total asset and growth rate.

Rajeswari (2000) studied the liquidity position of Tamil Nadu Cement Corporation Ltd.
from1990 to 2000. The study concluded that the liquidity position of TANCEM was not
up to the mark. Whereas the short term solvency ratios indicated that there was too much
of liquidity in the first two years of the study. A very high degree of liquidity is
unfavourable as idle assets earn nothing and affects the profitability. The study
concluded that the liquidity management of TANCEM was poor and was not upto the
mark.

Selvam et al. (2004) measured the financial position of India Cements Ltd. by using Z
score analysis for a period of four years from 1998 to 2001. The study exhibited that the
financial performance of India Cements was never in excessively healthy zone during the
study period except in 2002. They also suggested that the problem of below trading

29
should be attended and the company must set reachable sales target. Further, the capital
structure should be reformed in such a manner that standard debtequity ratio is achieved
to avoid any future disappointment.

Muslumov (2005) studied the financial and operating performance of privatized

companies of Turkish cement industry. The study analysed the post-privatization
performance of privatized companies. The findings indicated that when the performance
criteria for both the state and private enterprises were considered, privatization in the
cement industry resulted in significant performance decline. Total value added and the
return on investment were also declined significantly after the privatization. Further, the
decline in asset productivity was not caused due to an increase in capital investment as
post privatization, capital investment did not changed significantly. Contraction in total
employment and increase in financial leverage after privatization were among the key
research findings.

Chakraborty (2008) in a study on “Working Capital and Profitability: An Empirical

Analysis of Their Relationship with Reference to Selected Companies in the Indian
Pharmaceutical Industry” evaluated the relationship between working capital and
profitability of Indian pharmaceutical companies. Researcher pointed out two distinct
schools of thought on this issue. According to one school of thought, working capital is
not a factor of improving profitability and established a negative relationship between
them while according to the other school of thought, investment in working capital plays
a vital role to improve corporate profitability and states that unless there is a minimum
level of investment of working capital, output and sales cannot be maintained. In fact, the
inadequacy of working capital would keep fixed asset inoperative.

Srinivasanet al. (2011) attempted an empirical study on Dimension of Financial

Performance of Cement Units in South India by applying Z score analysis from 2005 to
2009. The study was based on the secondary data of fourteen south Indian cement
companies. The study aimed to examine the corporate financial performance, accounting
profitability measures and shareholders’ value based measures. For the analysis of
accounting profitability measures, Return on Investment (ROI), Return on Equity (ROE),
Earning per Share (EPS), Return on Capital Employed (ROCE) and Dividend per Share
(DPS) were calculated. For the analysis of shareholders’ value, the Economic Value
Added (EVA) and Market Value Added (MVA) tools were employed. 'Fiscal-Fitness' of

30
the company has been checked by the three modes of Z score analysis i.e. Altman
Model, spring ate Model and Fulmer Model. Z-score analysis concluded that two
companies, Rain Commodities Ltd. and Zuari Cement Ltd. were rated as failure out of
fourteen south Indian companies because of the excess debt and excess working capital
that deteriorate the financial health.

De et al. (2011) conducted an Empirical Study on the Indian Cement Industry. Factor
Analysis was applied over the audited financial data of selected cement companies of
India for a period of the ten years i.e. from 1999-2000 to 2008-2009. There were 44
variables (financial ratios) grouped in 7 categories. Multiple regression analysis
employed by taking the factor scores as the dependent variable and constituent variables
as independent variables. The study shows that the profitability and return of investment
was good while the liquidity, dividend and working capital of the industry was not
satisfactory. The author also emphasized on eight financial ratios for analyzing the
financial position of the cement industry of India

Mukhopadhyaya et al. (2012) evaluated the effect of deregulation on the performance

and structure of Indian cement industry from 1989 to 2006. The study indicated that
there was shriller movement in the measure of inter sequential mobility for the firms in
the top most two quartiles which made a significant gains in market share and the
companies which were below the second quartile, lost the market share during the study
period. The study also revealed that there was a structural break in the market share
pattern of many companies and a substantial change in the market shares and ranks of
some other companies. The distribution of market shares took place in favour of the
larger companies. Concentration of four firms was more than fifty percent and two
dominant groups accounted for more than forty percent market share.

VenkataRamana et al. (2012) analysed the financial performance and predict the risk of
bankruptcy for selected cement companies from 2001 to 2010 with the help of Z score
model and financial ratios. The study revealed that liquidity, working capital turnover,
efficiency and solvency position of the selected cement companies were not adequate.
Further, it was also found from the Z-Score analysis that financial performance of KCP
Ltd and Kesoram Industries Ltd was poor and Dalmia Bharat Ltd was at the verge of
bankruptcy.

31
Samuel (2012) conducted a study on Financial Performance of India Cements Limited
for the period of ten years i.e. from 1998-99 to 2007-08. The study was mainly based on
secondary data collected from the annual reports of the company. The Comparative
financial statements, Common size financial statements, Trend percentage and Ratio
analysis were the tools and techniques used for analysing the financial performance. In
his study, the financial performance of the company was analyzed on various fronts such
as profitability, liquidity and turnover. In fact the effects of all business transactions were
clearly visible in the value of various assets, liabilities and capital fund where changes
were studied by comparing the opening and closing balance sheets of the enterprise. It
was also found that the net profit ratio in the last three years was satisfactory and main
reason for increasing the net profit. The high sales revealed in more return to
shareholders fund. Finally, the study concluded that the overall performance of India
Cements Ltd was good and the study helped the company to identify its inefficiency
areas.

Shandhar and Janglani (2013) attempted a study on liquidity and profitability of

selected Indian cement companies by applying regression modelling approach. The
objective of the study was to analyse the working capital management in terms of
profitability and liquidity and to find out their impact on the firm’s financial aspects. The
random sampling was used for the selection of sample on the basis of profitability of the
companies listed on NSE. Secondary data was collected from the journals and internet
for the period of six years from 2008 to 2012. The data was analysed by applying the
regression and correlation analysis to find out the impact of liquidity on profitability and
the relationship between liquidity with profitability, respectively. It was revealed that the
liquidity ratios measure by current ratio (CR), liquid ratio (LR) and Cash Turnover Ratio,
CATAR, CLTAR had a modest relationship with profitability on capital employed. The
Current ratio, Liquidity ratio and Cash Turnover Ratio of selected companies were
negatively associated with Return on Asset and Return on investment. Further, it was
also found that the relation of Liquidity ratios with profitability ratios was according to
the theoretical foundation of liquidity profitability trade off theory.

Panigrahi (2013) carried out a comparative study on Liquidity Management of Indian

Cement Companies for the period of ten years from 2001 to 2010. The samples selected
for the study was comprises of top five BSE listed cement companies of Indian Cement

32
Industry namely, Abuja Cements, ACC Cements, India Cements, Madras Cements and
Shree Cements. Secondary data was collected from the published annual reports of the
selected companies. The objective was to assess and to compare the liquidity
management of five leading Cement companies and to measure the management of
working capital and its adequacy. For analyses, various tools and techniques such as
mean, standard deviation, coefficient of variation, ratio analysis, and Metal’s ultimate
rank test was applied and it was found that the liquidity position of small companies
were satisfactory as compared to bigger ones. The growth rate of current ratio, quick
ratio and working capital to current assets of all the companies were found negative
indicating an unstable liquidity position. Furthermore, low or negative working capital
indicated the aggressive working capital management policy of the firms which in turn
implies minimum investment in current assets to gain higher rate of return. The liquidity
position of Shree Cements was sound as compared to other companies.

Panigrahi (2013) investigated the Relationship between Inventory Management and

profitability of Indian Cement companies. A sample of five Indian cement companies
listed in BSE was decisively selected for the study. Secondary data was collected from
the annual reports of the selected companies over a period of ten years from 2001-2010.
Relationship of Gross operating profit, used to measure the profitability, was found with
measures of inventory management. Regression analysis was applied to determine the
impact of inventory conversion period on gross operating profit while taking into
account current ratio, size of the firm, financial debt ratio as control variables. It was
found that there exist a negative linear relationship between inventory conversion period
and profitability i.e. when the Inventory Conversion Period days increase the profitability
of firm decreases and vice versa. It was also found that, the firms’ profitability, measured
by GOP, has a negative relationship with financial debt ratio which implied that the
profitability increases with decrease in financial debt ratio. Furthermore, the study found
a positive relationship between the firm size and GOP indicating that the profitability
increases with an increase in firm size while negative relationship was found between
current ratio and GOP.

Kumar et.al (2013) examined the progress of Indian cement industry (ICI) since 1991,
related to growth in installed capacity, exports, productions and value additions for a
period of fifteen years (1991-92 to 2005-06).While Focusing on the past, present and the

33
future performance of Indian Cement Industry (ICI) at the macro level and the
Chettinadu Cement Corporation Limited (CCCL) at the micro level. All the six
parameters of the Indian cement industry (ICI) taken into consideration showed good
growth during study period. The policy of total decontrol of the Indian cement industry
and liberalization of the Indian economy helped the industry to grow in terms of physical
and financial variables. The results also revealed that the Indian Cement Industry (ICI)
recorded momentous growth marking virtually a fivefold increase in its net worth during
the period of study.

Kaur and Singh (2013) studied the Impact of Liberalization on Cost of Capital of
Associated Cement Companies Limited to analyse the impact of Liberalization on cost of
capital of ACC Limited for a period of thirty one years from 1979-80 to 2009- 10.The
period was divided into two parts i.e. pre liberalization period (1979-80 to 1989-90) and
post liberalization period (1990-91 to 2009-10). The Overall cost of capital was used as
dependent variable whereas size, leverage, non-debt tax shields, reserves and retained
earnings to total assets, liquidity, growth, profitability, collaterals and age were used as
independent variables. The findings revealed that there was a declining trend in cost of
debt whereas an increasing trend was found in cost of equity capital and overall cost of
capital during post-liberalization period. Result of multiple regression analysis revealed
that leverage, non-debt tax shields (NDTS), growth and profitability were significant
determinants of overall cost of capital. The regression coefficient of dummy variables
appeared with negative signs in both the cases were significant at 5 percent level of
significance with overall cost of capital as dependent variable which was healthy sign as
it indicates decline in overall cost of capital of the company during post-liberalization
period as compared to preliberalization period.

Swaminathan, et al. (2013) examined the working capital management of selected

cement companies of India from 2001-02 to 2010-11. Financial ratio, regression analysis
and ANOVA were used for the analyses. Findings indicated a mix result of working
capital management of selected cement companies Finally, the Researchers emphasized
that the listed cement companies should improve their financial performance.

Franklin & Uma (2013) studied the impact of marginal costing and leverages for
cement industries with the objective to analyse the financial performance of selected
cement companies and to find out the performance of cement units in terms of marginal

34
cost statement and leverages for a period of five years from 2007 - 08 to 2011 – 12. It
was found that the Operating Leverages of the company has been in fluctuation trend.
The higher operating profit showed an optimistic movement of the concern whereas the
financial leverage and composite leverage of the company have been in a mixed trend.
Profit of the concern showed a fluctuating trend but was at higher level for the year
2012.The Profit Volume Ratio of TANCEM was 11 per cent in 2010 and 62 per cent in
2011 which was considered good for the company. The Breakeven Point was found at
the peak in 2011. However, sales increased the breakeven point which showed ups and
downs whereas the Margin of Safety of the company showed a mixed trend. Thus, it was
concluded that the company position was satisfactory during study period.

Ningsih & Djuaeriah (2013) examined the Capital Structure and Firm’s Financial
Leverage of Indonesian Publicly Listed Cement Industry. In this study relationship of
seven independent variables i.e. ROA, ROE, QR, SER, EPS, BMR and TG was found
with financial leverage, used as dependent variable. From the analysis it was found that
ROE, SER, and BMR that were used as measures of capital structure, made a positive
effect on financial leverage. It was also found that all the seven ratios, ROA, ROE, QR,
TG, EPS, SER and BMR, had significantly affected financial leverage. Another study
was conducted by Tiwari (2013) to conduct a study on Working Capital Management
Efficiency In Indian Cement Industry and to study the effectiveness of the working
capital management of the Indian cement companies from 2002-03 to 2009-2010. A
sample of 20 large cement companies operating in India was selected. The secondary
data was collected from the 'Capitaline' database for a period of 10 years from 2000 to
2010.The findings showed that the Indian Cement industry did not performed
extraordinarily well during this period. Industry average for efficiency index was greater
than one in 6 years out of 10 years study period. Though some of the sample firms had
successfully improved efficiency during these years, the existence of a very high degree
of inconsistency in this matter clearly pointed out the need for adopting sound working
capital management policies by these firms. In the matter of achieving the target level
(industry norm) of efficiency by the firms, Associated Cement and Dalmia, were the
most successful firms followed by Deccan, Kanoria and Madras. It was suggested that
the firms under study should have taken necessary steps in order to improve their
efficiency. The study also suggested that another study may be helpful for identifying the

35
forces that governed the chronic nature of inefficiencies of Indian cement companies in
the matter of working capital management.

Ray, S. (2013) investigated the Capital Structure Determinants of Listed Cement

Companies in India. The author examined the impact of nine determinants i.e. asset
collateral, asset composition, age of firm, size of firm, business risk, growth rate,
flexibility, profitability, non-tax shield as independent variables on capital structure
(Debt-Equity ratio) as dependent variable with the help of two Stage Least Square
method by running multiple regression analysis for a study period from 1991-92 to 2011-
12. The analysis revealed that the asset composition, size and non-debt tax shields had
statistically positive relationship with debt-equity ratio while the profitability and asset
col lateral had significant negative relations with leverage. Further, it was found that the
other factors such as business risk, flexibility and growth opportunities had
insignificantly impacted on capital structure.

Vaijayanthimala and Vijayakumar (2014) analyzed liquidity management and trade-

off between risk and profitability in Indian cement industry during the study period. The
analysis of correlation between liquidity and profitability showed positive correlation in
Associated Cement Companies Limited, Chettinad Cement Corporation Limited, Dalmia
Cement Limited, Madras Cements Limited and Shree Cement Limited. However, there
was negative correlation between liquidity and profitability in the case of Birla
Corporation Limited, Grasim Industries Limited and India Cements Limited. Further, the
analysis of correlation between risk and profitability depicted a positive correlation in all
the selected companies. However, there was a negative correlation in the case of
Associated Cement Companies Limited, Chettinad Cement Corporation Limited and
Dalmia Cement Limited. The result of the study showed mixed trend with respect to
liquidity, risk and profitability.

Mahmoudi (2014) focused on empirical vision into the relationship between leverage
and firm profitability of 28 cement firms selected from the Tehran Stock Exchange
during the time period of 3 years i.e. 2008 to 2011.Leverage was measured by Short term
debt to equity (STD/E) and long term debt to equity (LTD/E) and Firm profitability was
measured by calculating the return on equity (ROE) and return on assets (ROA). The
regression model was used to test the hypotheses. With the help of the results, it was
concluded that there exist significant and negative relationship between leverage and

36
firm profitability. The result from the descriptive statistics also revealed that the cement
companies were highly levered and the performance of listed cement companies
measured by returns on equity (ROE) and return on assets (ROA) were 39%, 19%
respectively. The performance of the listed cement companies in Tehran throughout the
study period was found to be average.

37
 3.1 RESEARCH METHODOLOGY

MEANING OF RESEARCH

Research is an art of scientific investigation. It is regarded as a systematic effort

to gain new knowledge. Research is a careful investigation or enquiry especially through
search for new facts in any branch of knowledge.

According to Clifford woody research comprises defining and redefining

problems, formulating hypothesis or suggested solutions; collecting, organising and
evaluating data; making deductions and reaching conclusions; and at the last carefully
testing the conclusions to determine whether they fit the formulating hypothesis

DEFINITION OF RESEARCH

Research can be defined as search for knowledge or any systematic investigation

to establish facts

“The definition of research includes any gathering of data, information and facts
for the advancement of knowledge." - Martin Shuttle worth

The Merriam-Webster Online Dictionary defines research as "a studious inquiry

or examination; especially : investigation or experimentation aimed at the discovery and
interpretation of facts, revision of accepted theories or laws in the light of new facts, or
practical application of such new or revised theories or laws".

"Research is a process of steps used to collect and analyse information to

increase our understanding of a topic or issue". It consists of three steps: Pose a question,
collect data to answer the question, and present an answer to the question.-crews well.

38
TYPES OF RESEARCH

A.MODERN METHODS

 Basic Research
 Applied Research
 Descriptive Research
 Analytical Research
 Qualitative Research
 Quantitative Research
 Conceptual Research
 Empirical Research
 Laboratory Research
 Clinical or Diagnostic Research
 Exploratory Research
 Historical Research

B.TRADITIONAL METHODS

 Philosophical Method
 Institutional Approach
 Legal Approach
 Historical Approach
In this study Explorartory research has been used.

EXPLORATORY RESEARCH

Exploratory research is a research conducted for a problem that has not been
studied more clearly, establishes priorities, develops operational definitions and improve
the final research design. Exploratory research helps determine the best research design,
data collection method and selection of subjects. It should draw definitive conclusions
only with extreme caution. Given its fundamental nature, exploratory research often
concludes that a perceived problem does not actually exist.

39
SOURCES OF DATA

PRIMARY DATA

Primary data are generally information gathered or generated by the researcher for
the purposes of the project immediately at hand. When the data are collected for the first
time, the responsibility for their processing also rests with the original investigator.
Ordinarily, experiments and surveys constitute the principal sources of primary data for
the purpose of study.

SECONDARY DATA

Secondary data are those which are already collected by someone else and which
have been passed through the statistical process. Such data are collected with the
objective of understanding the past status of any variable. It can be obtained through
various sources like published Materials, Annual reports, Books, Journals, research
studies carried out previously on the topic and other documents of the company records.

This study is based on secondary data. Secondary data for the purpose of Industry
profile was sourced from web sources related to the steel industry, the data for company
profile was sourced from company records and website and data for the purpose of
computations was based on the annual reports of the company.

PERIOD OF STUDY

The period of study was from 2012 to 2016.

TOOLS USED IN THE STUDY

 Ratio analysis
 Z-score analysis

40
RATIO ANALYSIS

Ratio analysis is the process of determining and interpreting numerical

relationship based on financial statements. It is the technique of interpretation of
financial statements with the help of accounting ratios derived from the balance sheet
and profit and loss account.

CLASSIFICATION OF RATIOS

 Analysis of Short Term Financial Position or Test of Liquidity.

 Analysis of Long Term Financial Position or Test of Solvency.
 Activity Ratios.
 Profitability Ratios.

LIQUIDITY RATIO

A liquidity ratio measures the ability of a company to meet its short term debt
obligations. These ratios measure the ability of a company to pay off its short-term
liabilities when they fall due. The liquidity ratios are a result of dividing cash and other
liquid assets by the short term borrowings and current liabilities. They show the number
of times the short term debt obligations are covered by the cash and liquid assets. If the
value is greater than 1, it means the short term obligations are fully covered. Liquidity
ratios greater than 1 indicate that the company is in good financial health and it is less
likely fall into financial difficulties.

The important ratios in test of liquidity ratios are as follows:

 Current ratio
 Quick ratio
 Cash position ratio

CURRENT RATIO

Current Ratios (CR): It is the ratio of current assets to current liabilities. This
ratio measures the short term liquidity position of a firm indicating the amount of current

41
assets available per unit of current liabilities. The higher the ratio the more will be the
firm's ability to meet short term obligations and the greater will be the safety of funds of
short term creditors. Low values for the current ratio (values less than 1) indicate that a
firm may have difficulty meeting current obligations. It is worthwhile to note that a very
high current ratio may not be indicative of good liquidity position but may be the signal
of excessive inventories over the current requirements, inefficiency in collection of
debtors and high cash and bank balances without proper investment. Conventionally, a
current ratio of 2:1 is taken as satisfactory.

Current assets
Current ratio =
Current liabilities

QUICK RATIO

Quick ratio (QR): It is the ratio of quick assets to quick liabilities. Quick assets
refer to those current assets which can be converted into cash/bank immediately or at a
short notice without suffering any loss. Quick liabilities, on the other hand, refer to those
current liabilities which are to be met within very short period. It actually means current
liabilities excluding bank overdraft. This ratio measures the quick short-term solvency
position of a firm. A high quick ratio indicates that the quick short term solvency
position of a firm is good. Generally, a quick ratio of 1:1 is considered satisfactory.

Quick assets
Quick assets =
Current liabilities

CASH POSITION RATIO

This ratio is also called absolute liquidity ratio or super quick ratio. This ratio is
calculated when liquidity is highly restricted in terms of cash and cash equivalents. This
ratio measures liquidity in terms of cash and near cash items and short term current
liabilities. An ideal cash position ratio is 0.75:1.

Absolute liquid assets

Cash position ratio =
Current liabilities

42
LONG-TERM SOLVENCY RATIOS

Long term solvency ratios denote the ability of the organisation to repay the loan
and interest. When an organization's assets are more than its liabilities is known as
solvent organisation. Solvency indicates that position of an enterprise where it is capable
of meeting long term obligations.

The important Ratios in test of solvency are as follows

 Debt-equity ratio.
 Proprietary ratio.
 Solvency ratio.
 Fixed assets to net worth ratio.
 Current assets to net worth ratio.
 Current liabilities to net worth ratio.
 Debt to total assets ratio.
 Fixed assets ratio

DEBT-EQUITY RATIO

The relationship between borrowed funds and owner’s capital is a popular

measure of the long-term financial solvency of a firm. This relationship is shown by the
debt-equity ratio.It is calculated to measure the relative claims of outsiders and the
owners against the firm’s assets.

Long-term debt
Debt-equity ratio =
Shareholders’ funds

The ideal ratio of debt-equity ratio is 2:1; it means for every 2 shares there is 1
debt. If the debt is less than 2 times the equity, it means the creditors are relatively less
and the financial structure is sound. If the debt is more than 2 times the equity, the state
of long term creditors are more and indicate weak financial structure.

43
PROPRIETARY RATIO

It establishes relationship between the proprietors fund or shareholders funds and

the total assets.

Shareholders' funds
Proprietary ratio =
Total assets

The ideal ratio of proprietary ratio is 0.5:1. Higher the ratio better the long term
solvency (financial) position of the company. This ratio indicates the extent to which the
assets of the company can be lost without affecting the interest of the creditors of the
company.

SOLVENCY RATIO

It expresses the relationship between total assets and total liabilities of a business.
This ratio is a small variant of equity ratio and can be simply calculated as 100-equity
ratio.

No standard ratio is fixed in this regard. It may be compared with similar, such
organisations to evaluate the solvency position. Higher the solvency ratio, the stronger is
its financial position and vice-versa.

FIXED ASSETS TO NET WORTH RATIO

It is obtained by dividing the depreciated book value of fixed assets by the

amount of proprietor’s funds.

Net fixed assets

Fixed assets to net worth ratio =
Net worth

The Ideal ratio of fixed assets to net worth ratio is 0.75:1. A higher ratio, say,
100% means that there are no outside liabilities and all the funds employed are those of
shareholders. In such a case the return to shareholders would be lower rate of dividend
and this is also a sign of over capitalization.

44
CURRENT ASSETS TO NET WORTH RATIO

It is obtained by dividing the value of current assets by the amount of proprietor’s

funds. The purpose of this ratio is to show the percentage of proprietor’s fund investment
in current assets.

Current assets
Current assets to net worth ratio =
Net worth

A higher proportion of current assets to proprietor’s fund, as compared with the

proportion of fixed assets to proprietor’s funds is advocated, as it is an indicator of the
financial strength of the business, depending on the nature of the business there may be
different ratios for different firms. This ratio must be read along with the results of fixed
assets to proprietor’s funds ratio.

CURRENT LIABILITIES TO NET WORTH RATIO

It is expressed as a proportion and is obtained by dividing current liabilities by

proprietor's fund

Current liabilities
Current liabilities to net worth ratio =
Net worth

The ideal ratio of current liabilities to net worth ratio is 1:3. This ratio indicates
the relative contribution of short term creditors and owners to the capital of an enterprise.
If the ratio is high, it means it is difficult to obtain long term funds by the business.

FIXED ASSETS RATIO

It establishes the relationship between fixed assets and long-term funds. the
objective of this ratio is to ascertain the proportion of long-term funds invested in fixed
assets

Fixed assets
Fixed assets ratio =
Lomg − term funds

The ideal ratio of fixed assets ratio 0.67:1.If the ratio is less than one it indicates
that a portion of working capital has been financed by long-term funds.

45
ACTIVITY RATIO

Activity ratios indicate the performance of an organisation. This indicates the

effective utilization of the various assets of the organisation. Most of the ratio falling
under this category is based on turnover and hence these ratios are called as turnover
ratios.

Important Ratios in Activity Ratio are

 Stock turnover ratio

 Stock turnover period (Days/months)
 Debtors turnover ratio
 Debtors collection period(Days /months)
 Wording capital turnover ratio
 Fixed assets turnover ratio
 Total assets turnover ratio
 Capital turnover ratio

STOCK / INVENTORY TURN OVER RATIO

This ratio establishes the relationship between the cost of goods sold during a
given period and the average sock holding during that period. It tells us as to how many
times stock has turned over (sold) during the period. It indicates operational and
marketing efficiency and helps in evaluating inventory policy to avoid over stocking.

Sales
Stock turnover ratio =
Average stock

The objective of stock turnover period is to increase the stock velocity as much
as possible or in effect decrease the days or months for which items remain in stock.

Days/months in a year
Stock turnover period =
Stock turnover ratio

46
 The stock turnover ideal ratio is 8 times; A low inventory turnover may reflect
dull business, over investment in inventory, accumulation of stock and excessive
quantities of certain inventory items in relation to immediate requirements. A high ratio
may not be accompanied by a relatively high net income as, profits may be sacrificed in
obtaining a large sales volume (unless accompanied by a larger total gross profit). It may
indicate under investment in inventories. But generally, a high stock turnover ratio
means that the concern is efficient and hence it sells its goods quickly.

DEBTORS TURNOVER RATIO

This ratio explains the relationship of net credit sales of a firm to its book debts
indicating the rate at which cash is generated by turnover of receivables or debtors. The
purpose of this ratio is to measure the liquidity of the receivables or to find out the period
over which receivables remain uncollected.

Net Sales
Debtors turnover ratio =
Average receivables

The average collection period represents the average number of days for which a firm
has to wait before its receivables are converted into cash

Days/months in the year

Debtors collection period =
Debtors ′ turnover ratio

The ideal ratio of Debtor Turnover Ratio is 10 to 12 times; debt collection period
of 30 to 36 days is considered ideal. A high debtor turnover ratio or low collection period
is indicative of sound management policy. The amount of trade debtors at the end of
period should not exceed a reasonable proportion of net sales. Larger the trade debtors
greater the expenses of collection.

47
WORKING CAPITAL TURNOVER RATIO

This ratio indicates the number of times the working capital is turned over in the
course of the year. It measures efficiency in working capital usage. It establishes
relationship between cost of sales and working capital.

Net Sales
Working capital turnover ratio =
Average working capital

A higher ratio indicates efficient utilization of working capital and a low ratio
indicates inefficient utilization of working capital. But a very high ratio is not a good
situation for any firm and hence care must be taken while interpreting the ratio.

FIXED ASSETS TURNOVER RATIO

This ratio establishes a relationship between fixed assets and sales.

Net Sales
Fixed assets turnover ratio =
Fixed assets

The Ideal ratio of fixed assets turnover ratio is 5 times A high ratio indicates
better utilisation of fixed assets. A low ratio indicates under utilisation of fixed assets.

TOTAL ASSETS TURN OVER RATIO

This ratio establishes a relationship between total assets and sales. This ratio
enables to know the efficient utilisation of total assets of a business.

Net Sales
Total assets turnover ratio =
Total assets

The ideal ratio of Total Asset Turnover Ratio is 2 times. High ratio indicates
efficient utilization and ratio less than 2 indicates under utilization.

48
PROFITABILITY RATIO

Profitability ratios indicate the profit earning capacity of a business. Profitability

ratios are calculated either in relation to sales or in relation to investments. Profitability
ratios can be classified into two categories.

 Overall Profitability Ratios.

 General Profitability Ratios

NET PROFIT RATIO:

It expresses the relationship between net profits after taxes to sales. Measure of
overall profitability useful to proprietors, as it gives an idea of the efficiency as well as
profitability of the business to a limited extent.

Net profit
Net profit ratio = × 100
Net sales

Higher the ratio better is the profitability.

OPERATING PROFIT RATIO

This ratio establishes the relationship between operation profit and net sales.

Operating profit
`Operating profit ratio = × 100
Net sales

PRE-TAX PROFIT RATIO

This ratio establishes the relationship between Earnings before taxes (EBT) and net sales.

Earnings before taxes

Pre-tax profit ratio = × 100
Net sales

A low net profit margin can earn a high rate of return on investment and high net
profit margin would ensure adequate return to the owners as well as enable a firm to
withstand adverse economic conditions.

49
TEST OF OVERALL PROFITABILITY

 Return on shareholders’ funds

 Return on equity capital.
 Return on capital employed.
 Return on total assets

RETURN ON SHAREHOLDERS FUNDS

Shareholders’ investment also called return on proprietor’s funds is the ratio of

net profit to proprietor’s funds. It is calculated by the prospective investor in the business
to find out whether the investment would be worth-making in terms of return as
compared to the risk involved in the business.

Net profit after interest and tax

Return on shareholders’ ‘funds ratio = × 100
Shareholders′funds

This ratio is of great importance to the present and prospective shareholders as

well as the management of the company. As this ratio reveals how well the resources of a
firm are being used, higher the ratio, better are the results. The return on shareholders’
investment should be compared with the return of other similar firms in the same
industry. The inter firm comparison of this ratio determines whether their investments in
the firm are attractive or not as the investors would like to invest only where their return
is higher.

RETURN ON EQUITY CAPITAL

This ratio establishes the relationship between net profit available to equity
shareholders and the amount of capital invested by them. It is used to compare the
performance of company's equity capital with those of other companies, and thus help
the investor in choosing a company with higher return on equity capital.

Net profit after interest and tax

Return on equity capital ratio = × 100
Equity share capital

50
RETURN ON CAPITAL EMPLOYED

This ratio is the most appropriate indicator of the earning power of the capital
employed in the business. It also acts as a pointer to the management showing the
progress or deterioration in the earning capacity and efficiency of the business.

Operating profit
Return on capital employed = × 100
Capital employed

The Ideal ratio of return on capital employed is15% If the actual ratio equal to or
above 15% It indicates higher productivity of the capital employed and vice versa.

RETURN ON TOTAL ASSETS

This ratio acts as an yardstick to assess efficiency of the operations of the

business as it indicates the extent to which assets employed in the business are utilised to
results in net profit

Net profit after interest and tax

Return on total assets ratio = × 100
Total assets

Z-SCORE TECHNIQUE

The Z-Score technique is used for predicting bankruptcy was published in 1968
by Edward Altman who was at the time, an Assistant Professor of Finance at New York
University. The formula may be used to predict the probability that a firm will go into
bankruptcy within two years. Z-Scores are used to predict corporate defaults and an easy-
to-calculate control measure for the financial distress status of companies in academic
studies. Z-score factors that contribute to under-performance; working capital, earnings
retention, profitability and leverage can be isolated. This enables managers to initiate
actions to improve the score of these factors contributing to financial distress.

51
Z-SCORE FORMULA

Z = 1.2A + 1.4B + 3.3C+ 0.6D + 1.0E

Where, A= Working Capital / Total Assets.

B= Retained Earnings / Total Assets.

C = Earnings before Interest and Tax / Total Assets

D = Book Value of equity/Total Liabilities.

E = Sales/ Total Assets.

ESTIMATION OF Z-SCORE FORMULA

The Z score is calculated by multiplying the following accounting ratios, which is

efficient in predicting bankruptcy.

1. X1 (Working Capital / Total Assets) = This ratio expresses of the liquidity

position of the company towards the total capitalization. Working capital is defined
as the difference between current assets and current liabilities. Liquidity and size
characteristics are explicitly considered.

2. X2 (Retained Earning / Total Assets) = It indicates the amount reinvested, the

earnings or losses, which reflects the extents of company’s leverage. In other
words, the extent to assets, which have been paid for by company profits. Those
firms with high RE relative to TA have financed their assets through retention of
profits and have not utilized as much debt. It also highlights either the use of
internally generated funds for growth (low risk capital) Vs OPM (other people’s
money) – high risk capital. This is measure of cumulative profitability overtime
and leverage as well.

3. X3 (EBIT / Total Assets) = It is the measure of the company’s operating

performance and also it indicates the earning power of the company. In addition,
this is a measure of the productivity of the firm’s assets, independent of any tax or

52
 leverage factors. Since a firm’s ultimate existence is based on the earning power of
its assets, this ratio appears to be particularly appropriate for studies dealing with
credit risk.

4. X4 (Book Value of equity / Total Liabilities) = It is the measure of the long-term

solvency of a company. It is reciprocal of the familiar debt-equity ratio. Equity is
measured by the combined market value of all shares. While debt includes both
current and long term liabilities. This measure shows how much assets of an
enterprise can decline in value of an enterprise can decline in value before the
liabilities exceed the assets and the concern becomes insolvent.

5. X5 (Sales / Total Assets) = It is the standard turnover measure. Unfortunately, it

varies greatly from one industry to another. In addition to this, it will reveal the
sales generating capacity of the company’s assets and also measure of
management’s capacity to deal with competitive conditions

ZONES OF DISCRIMINATION:

Z-SCORE ABOVE 3.0 indicates the safe financial position of the company. (SAFE
ZONE)

Z-SCORE BETWEEN 2.7 AND 2.99 indicates the company should exercise caution.
(ALERT OR GREY ZONE)

Z-SCORE BETWEEN1.8 AND 2.7 indicates the company going bankruptcy within 2
years of operation. (DISTRESS ZONE)

53
3.2 DATA ANALYSIS AND INTERPRETATION

Liquidity ratio or short term solvency ratio:

Table no: 3.2.1 showing current ratio

Year current asset Current Liabilities Ratio

2011-12 840.29 970.97 0.865

2012-13 980.38 1060.67 0.924

2013-14 823.88 1273.93 0.65

2014-15 912.98 1446.09 0.63

2015-16 1046.87 1404.97 0.75

Source: Collected and compiled from the Annual report of Tube investment of India Ltd

Findings:

From the above table, it was found that current ratio of the company has been
fluctuating. The ideal current ratio should be 2:1. In 2012 the current ratio is 0.87 which
increases to 0.924 in 2013-14. It decreases to 0.65 in 2014. It increases to 0.75 in 2016.
During the period from 2012-2016 the current ratio of the company is below the ideal
ratio 2:1 due to inadequate current assets to meet the current liabilities.

Inference:

It is inferred that the current ratio of the company should be at 2:1 to meet its
short-term obligations.

54
Chart no: 3.2.1 showing Current ratio

CURRENT RATIO
1 0.92
0.87
0.9
0.8 0.75
0.7 0.65 0.63
0.6
0.5
0.4
0.3
0.2
0.1
0
2010-11 2011-12 2012-13 2013-14 2014-15

CURRENT RATIO

Table no: 3.2.2showing Quick ratio

Year Quick assets Current liabilities Quick ratio

2011-12 452.6 970.97 0.47

2012-13 570.87 1060.67 0.54

2013-14 467.11 1273.93 0.37

2014-15 542.77 1446.09 0.38

2015-16 578.64 1404.97 0.41

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

55
Findings:

From the above table, it is found that quick ratio of the company has been fluctuating.
The ideal quick ratio should be 1:1. In 2012 quick ratio is 0.47. It increases to 0.54 in
2013. It decreases to 0.37 in 2014, it increase to 0.38 in 2015 and it increase to 0.41 in
2016.During the period from 2012-2016 the quick ratio of the company is below the
ideal ratio 1:1 due to inadequate quick assets to meet the current liabilities.

Inference:

It is inferred that the company should avoid excessive liquidity and maintain sufficient
liquidity.

Chart no: 3.2.2 showing quick ratio

0.6
0.54 QUICK RATIO
0.5 0.47

0.41
0.4 0.37 0.38

0.3

0.2

0.1

0
2010-11 2011-12 QUICK2012-13
RATIO 2013-14 2014-15

56
Table no: 3.2.3showing cash position ratio

Year Cash and Current liabilities Cash position

marketable ratio
securities

2011-12 31.69 970.97 0.03

2012-13 85.92 1060.67 0.08

2013-14 33.27 1273.93 0.026

2014-15 30.27 1446.09 0.02

2015-16 25.73 1404.97 0.018

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table it is found that the company absolute –liquid ratio has been
fluctuating. The ideal ratio of absolute-liquid ratio should be 0.75. In 2012 the absolute
liquid ratio is 0.03 times. It increases to 0.08times in 2013. It decreases to 0.02times in
2015-16. It decreases to 0.018times in 2016. During the period from 2012-16 the
absolute-liquid ratio is below than the norm of 0.75.

Inference:

It is inferred that the company has to think about reducing the excess liquidity.

57
Chart no: 3.2.3

Chart showing cash position ratio

CASH POSITION RATIO

0.09
0.08
0.08
0.07
0.06
0.05
0.04
0.03
0.03 0.026
0.02
0.02
0.01
0.01
0
2010-11 2011-12 2012-13 2013-14 2014-15

CASH POSITION RATIO

Long-term solvency ratio

Table no: 3.2.4 showing Debt- equity ratio

Year Long-term debt Shareholders’ Debt- equity ratio

funds

2011-12 414.44 991.40 0.41

2012-13 466.79 1114.96 0.42

2013-14 682.65 1181.34 0.58

2014-15 690.08 1238.84 0.56

2015-16 781.13 1320.53 0.59

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

58
Findings:

From the above table, it is found that debt-equity ratio measure relationship between
long-term debt and shareholders’ funds. It was low (0.41) in 2012 and high (0.59) in
2016.During the period from 2013-14 debt-equity ratio increases from 0.41 to 0.42. It
increases to 0.58 in 2014. It decreases to 0.58 in 2015, and it increases to 0.59 in 2016.

Inference:

It is inferred that the average debt-equity ratio is 0.59 in 2016 indicates the company is
not taking the advantage of debt fund.

Chart no: 3.2.4 showing Debt- equity ratio

DEBT EQUITY RATIO

0.7

0.58 0.59
0.6 0.56

0.5
0.41 0.42
0.4

0.3

0.2

0.1

0
2010-11 2011-12 2012-13 2013-14 2014-15

DEBT EQUITY RATIO

59
Table no: 3.2.5 showing Proprietary ratio

Year Shareholders’ funds Total assets Proprietary ratio

2011-12 991.40 2376.81 0.41

2012-13 1114.96 2642.45 0.42

2013-14 1181.34 3137.92 0.38

2014-15 1238.84 3375.01 0.36

2015-16 1320.53 3563.33 0.37

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table it is found that proprietary ratio of the company increase from
0.41 to 0.42 in 2012-2013. It decreases to 0.38 in 2014. which improved to 0.36 in 2015
and 0.37 in 2016. It was high in 2013(0.42) and low in 2015(0.36).A ratio below 0.5 is
alarming for the creditors since they have to lose heavily in the event of company’s
liquidation.

Inference:

It is inferred that the average proprietary ratio is 0.42 in 2013 indicates more of
creditors’ funds and lesser of shareholders funds in the total assets of the company.

60
Chart no: 3.2.5showing Proprietary ratio

PROPRIETARY RATIO
0.43
0.42
0.42
0.41
0.41

0.4

0.39
0.38
0.38
0.37
0.37
0.36
0.36

0.35

0.34

0.33
2010-11 2011-12 PROPRIETARY
2012-13RATIO 2013-14 2014-15

Table no: 3.2.6 showing fixed assets to net worth ratio

Year Fixed assets Net worth Fixed assets to net

worth ratio

2011-12 1536.52 2376.81 0.65

2012-13 1662.07 2642.45 0.63

2013-14 2314.04 3137.92 0.74

2014-15 2462.03 3375.01 0.73

2015-16 2516.46 3563.33 0.71

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

61
Findings: From the above table it is found that fixed asset to net worth ratio of the
company was high in 2014(0.74) and low in 2013(0.63).The ideal ratio of fixed assets to
net worth ratio is 0.75:1.It decreases from 0.65 to 0.63 during the period 2013-14.It
increases to 0.74 in 2014, which drastically declines to 0.73 in 2015 and 0.71 in 2016
indicates return to shareholders would be lower rate of dividend and also a sign of over
capitalization.

Inference:

It is inferred that there are no outside liabilities and all the funds employed are those of
shareholders’ funds.

Chart no: 3.2.6showing fixed assets to net worth ratio

fixed asset to net worth ratio

0.76
0.74
0.74 0.73
0.72 0.71
0.7
0.68
0.66 0.65
0.64 0.63
0.62
0.6
0.58
0.56
2010-11 2011-12 2012-13 2013-14 2014-15

fixed asset to net worth ratio

62
Table no: 3.2.7showing Current assets to net worth ratio

Year Current assets Net worth Current assets to

net worth ratio

2011-12 840.29 2376.81 0.35

2012-13 980.38 2642.45 0.37

2013-14 823.88 3137.92 0.26

2014-15 912.98 3375.01 0.27

2015-16 1046.87 3563.33 0.29

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table it is found that current asset ratio to net worth of the company
was high in 2013(0.37) and low in 2014(0.26).This ratio shows the percentage of
proprietors funds investment in current assets. During the period 2013-14 the current
assets to net worth ratio increases from 0.32-0.37.It decreases to 0.26 in 2014. It increase
to 0.27 and 0.29 in 2015 &16.

Inference:

It is inferred that the higher proportion of current assets to net worth ratio indicates the
financial strength of the company is satisfactory.

63
Chart no: 3.2.7showing Current assets to net worth ratio

CURRENT ASSETS TO NET WORTH RATIO

0.4 0.37
0.35
0.35
0.29
0.3 0.27
0.26
0.25

0.2

0.15

0.1

0.05

0
2010-11 2011-12 2012-13 2013-14 2014-15

CURRENT ASSETS TO NET WORTH RATIO

Table no: 3.2.8 showing Current liabilities to net worth ratio

Year Current liabilities Net worth Current liabilities

to net worth ratio

2011-12 970.97 2376.8 0.41

2012-13 1060.67 2642.45 0.40

2013-14 1273.93 3137.92 0.41

2014-15 1446.09 3375.01 0.43

2015-16 1404.97 3563.33 0.39

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

64
Findings:

From the above table it is found that current liabilities to net worth ratio is a
proportion obtained by dividing current liabilities to proprietors funds. The ideal ratio is
1:3.During the period 2012-16 the current liabilities to net worth ratio increases from
0.39-0.43. It decreases to 0.40 in 2013.It increase to 0.41 in 2014.It increases to 0.43 in
2015. It decrease to 0.39.It was high in 2015(0.43) and low in 2016(0.39).

Inference:

It is inferred that if the ratio is lower it is difficult to obtain long-term funds by the
company.

Chart no: 3.2.8 showing Current liabilities to net worth ratio

CURRENT LIABILITIES TO NET WORTH RATIO

0.44
0.43
0.43

0.42
0.41 0.41
0.41
0.4
0.4
0.39
0.39

0.38

0.37
2010-11 2011-12 2012-13 2013-14 2014-15

CURRENT LIABILITIES TO NET WORTH RATIO

65
Table no: 3.2.9showing Debt to total assets ratio

Year Long- term debt Total assets Debt to total assets

ratio

2011-12 414.44 2376.81 0.17

2012-13 466.79 2642.45 0.18

2013-14 682.65 3137.92 0.21

2014-15 690.08 3375.01 0.20

2015-16 781.13 3563.31 0.199

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table, it is found that debt to asset ratio of the company increases from
0.17 to 0.18 in 2013-14. It increases to 0.21 in 2014 and it decreases to 0.20 in 2015. It
decreases to 0.199 in 2016. It was high in 2014(0.21) and low in 2016(0.199).

Inference:

It is inferred that average debt to assets ratio of the company is 0.21 indicates that the
company should use more borrowed capital to finance its long term assets.

66
Chart no: 3.2.9showing Debt to total assets ratio

DEBT TO TOTAL ASSET RATIO

0.25

0.21
0.2 0.199
0.2 0.18
0.17

0.15

0.1

0.05

0
2010-11 2011-12 2012-13 2013-14 2014-15

DEBT TO TOTAL ASSET RATIO

Table no: 3.2.10showing fixed assets ratio

Year Fixed assets Total long term Fixed assets ratio

funds

2011-12 1536.52 1405.84 1.09

2012-13 1662.07 1581.75 1.05

2013-14 2314.04 1863.99 1.24

2014-15 2462.03 1928.92 1.27

2015-16 2516.46 2158.36 1.17

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

67
Findings: From the above table, it is found that fixed asset ratio is a measure of
relationship between fixed assets to long-term funds. It increases from 1.09 to 1.27in
2012-16 implies the fixed assets are purchased with short-term funds. It decreases to 1.09
to 1.05 in 2013. It increase to 1.24 in 2014,1.27 in 2015and It declines to 1.17 in 2016.

Inference:

It is inferred that an ideal fixed assets ratio is 0.67:1.During 2012-16 it is more than 1
indicates that a portion of working capital has been financed by long-term funds.

Chart no: 3.2.10 showing fixed assets ratio

FIXED ASSET RATIO

1.4
1.24 1.27
1.17
1.2
1.09
1.05
1

0.8

0.6

0.4

0.2

0
2010-11 2011-12 2012-13 2013-14 2014-15

FIXED ASSER RATIO

68
Activity ratio

Table no: 3.2.11showing Inventory turnover ratio

Year Sales Average inventory Inventory turnover

ratio (times)

2011-12 2962.58 387.69 7.64

2012-13 3458.97 409.51 8.45

2013-14 3390.37 356.77 9.5

2014-15 3351.69 370.21 9.05

2015-16 3645.75 468.23 7.79

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table, it is found that inventory turnover ratio was low in 2012(7.64) and
high in 2012(9.5).It measures the relationship between sales during the given period and
average inventory holding during that period. During the period 2012-16 the inventory
turnover ratio decreases from 9.5-7.64 times. It increases to 8.45 in 2013, improved to
9.5 in 2014 and it decrease to 7.79 in 2016.

Inference: It is inferred that high stock turnover ratio indicates the concern is efficient
and hence it sells its goods quickly.

69
Chart no: 3.2.11

Chart showing Inventory turnover ratio

INVENTORY TURNOVER RATIO

10 9.5
9.05
9 8.45
7.64 7.76
8
7
6
5
4
3
2
1
0
2010-11 2011-12 2012-13 2013-14 2014-15

INVENTORY TURNOVER RATIO

Table no: 3.2.12

Table showing Inventory turnover period in days

Year Days in a year Inventory turnover Inventory turnover

ratio period (days)

2011-12 365 7.64 47.76

2012-13 365 8.45 43.21

2013-14 365 9.5 38.4

2014-15 365 9.05 40.3

2015-16 365 7.79 46.87

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

70
Findings:

From the above table, it is found that inventory collection period(Days) measures the
relationship between the numbers of days in a year divided by inventory turnover ratio. It
was high in 2012(47.76days) and low in 2015(38.4days).During the period 2013-14 it
decreases from 47.76-43.21days). It decreases (38.4 days) in 2014, it increases
(40.3days) in 2015 and (46.87days)in 2016.

Inference: It is inferred that stock velocity of 170 days indicates that on average every
item of stock remains for 170 days before it is sold

Chart no: 3.2.12

Chart showing Inventory turnover period In days

INVENTORY TURNOVER PERIOD (DAYS)

60

50 47.76 46..88
43.2
40.3
38.4
40

30

20

10

0
2010-11 2011-12 2012-13 2013-14 2014-15

inventory turnover period(days)

71
Table no: 3.2.13

Table showing Inventory turnover period in months

Year Months in a year Inventory turnover Inventory turnover

ratio period (months)

2011-12 12 7.64 1.57

2012-13 12 8.45 1.42

2013-14 12 9.5 1.26

2014-15 12 9.05 1.33

2015-16 12 7.79 1.54

Source: Collected and compiled from the Annual report of Tube investment of India.
Ltds

Findings:

From the above table, it is found that inventory collection period (months)measures
the relationship between the number of months in a year divided by inventory turnover
ratio. It was high in 2012(1.57months) and low in 2014(1.26months). During the period
2013-14 it decreases from 1.57-1.42months). It decreases (1.26) in 2014, it increases
(1.33months) in 2015 and (1.54) in 2016.

Inference:

It is inferred that stock velocity of 5.6 months indicates that on average every item of
stock remains for 5.6 months before it is sold or used.

72
Chart no: 3.2.13

Chart showing Inventory turnover period in months

inventory turnover period (month)

1.8
1.57 1.54
1.6
1.42
1.4 1.26 1.3

1.2

0.8

0.6

0.4

0.2

0
2010-11 2011-12 2012-13 2013-14 2014-15

inventory turnover period(month)

Table no: 3.2.14showing Debtors turnover ratio

Year Net sales Average Debtors turnover

receivables ratio(times)

2011-12 2962.58 373.37 7.93

2012-13 3458.97 435.85 7.94

2013-14 3390.37 394.40 8.59

2014-15 3351.69 445.94 7.51

2015-16 3645.75 477.94 7.62

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

73
Findings:

From the above table, it is found that debtors turnover ratio measures a relationship
between sales and debtors. During period 2013-14 the debtors turnover ratio increases
from (7.93-7.94).It increases to 8.89 in 2014, it decreases to 7.51 in 2015 and it increases
to 7.62 in 2016.This ratio is helpful in determining the operational efficiency of a
business concern and the effectiveness of its credit policy.

Inference:

It is inferred that it is important to maintain a reasonable quantitative relationship

between sales and debtors.

Chart no: 3.2.14showing Debtors turnover ratio

DEBTORS TURNOVER RATIO (TIME)

8.8
8.59
8.6

8.4

8.2

8 7.93 7.94

7.8
7.6
7.6 7.5

7.4

7.2

6.8
2010-11 2011-12 2012-13 2013-14 2014-15

debtor turnover ratio

74
Table no: 3.2.15 showing Debtors collection period in days

Year Days in a year Debtors turnover Debtors collection

ratio period (days)

2011-12 365 7.93 46

2012-13 365 7.94 46

2013-14 365 8.59 42.5

2014-15 365 7.51 49

2015-16 365 7.62 48

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table, it is found that debtors collection period (Days) is a measure of
relationship between number of days in a year to debtors turnover ratio. During the
period 2013-14 debtors collection period decreases from 46 - 42.5 days. It increases to
49days in 2014-15,and it decreases to 48 days in 2015-16.The higher the turnover ratio
and shorter the average collection period, better is the liquidity of debtors.

Inference:

It is inferred that debtors collection period(Days) is long during the period 2012-16(
42.5-49days)indicates the payment by debtors are delayed.

75
Chart no: 3.2.15 showing Debtors collection period (days)

DEBTORS COLLECTION PERIOD (DAYS)

50 49
48
48
46 46
46

44
42.5
42

40

38
2010-11 2011-12 2012-13 2013-14 2014-15

DEBTORS COLLECTION PERIOD (DAYS)

Table no: 3.2.16showing Debtors collection period in months

Year Months in a year Debtors turnover Debtors collection

ratio period (months)

2011-12 12 7.93 1.5

2012-13 12 7.94 1.5

2013-14 12 8.59 1.4

2014-15 12 7.51 1.6

2015-16 12 7.62 1.6

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

76
Findings:

From the above table, it is found that debtors collection period (Months) is a measure
of relationship between number of months in a year to debtors turnover ratio. During the
period 2013-14 debtors collection period decreases from 1.5-1.4months. It increases to
1.6months in 2014-15, 1.6months in 2015-16.

Inference:

It is inferred that debtors collection period (Months) is long during the period 2013-
16(1.4-1.6months) indicates the payment by debtors are delayed.

Chart no: 3.2.16

Chart showing Debtors collection period in months

DEBTORS COLLECTION PERIOD (MONTH)

1.65
1.6 1.6
1.6

1.55
1.5 1.5
1.5

1.45
1.4
1.4

1.35

1.3
2010-11 2011-12 2012-13 2013-14 2014-15

DEBTORS COLLECTION PERIOD (MONTH)

77
Table no: 3.2.17 showing Working capital turnover ratio

Year Net sales Working capital Working capital

turnover ratio(times)

2011-12 2362.58 130.68 22.67

2012-13 3458.97 80.22 43.12

2013-14 3390.37 450.05 7.5

2014-15 3351.69 533.11 6.29

2015-16 3645.78 358.7 10.16

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table it was found that working capital turnover ratio of the company
increases from 22.67in 2012 to 43.12 in 2013, which decreases to 7.5 in 2014. It
decreases to 6.29 in 2015. It increases to 10.16 in 2016. It was high in 2013 and low in
2015.Higher sales in comparison to working capital indicates over trading and lower
sales in comparison to working capital indicates under trading.

Inference:

It is inferred that a higher ratio 43.12 in 2013 is the indication of investment of working
capital and more profit.

78
Chart no: 3.2.17 showing Working capital turnover ratio

WORKING CAPITAL TURNOVER RATIO (TIME)

50
45 43.12

40
35
30
25 22.67
20
15 10.16
10 7.5 6.29
5
0
2010-11 2011-12 2012-13 2013-14 2014-15

working capital turnover ratio (time)

Table no: 3.2.18 showing fixed assets turnover ratio

Year Net sales Fixed assets Fixed assets turnover

ratio(times)

2011-12 2362.58 1536.52 1.9

2012-13 3458.97 1662.07 2.1

2013-14 3390.37 2314.04 1.47

2014-15 3351.69 2462.03 1.36

2015-16 3645.78 2516.46 1.45

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

79
Findings:

From the above table it was found that fixed assets turnover ratio of the company
increases from 1.9 in 2012to 2.1 in 2013, which decreases to 1.47 in 2014. It decreases to
1.36 in 2015.it increases to 1.45 in 2016. It was low in 2015 and high in 2013. This ratio
determines the efficiency of utilization of fixed assets. Higher the ratio, more is the
efficiency in utilization of fixed assets.

Inference:

It is inferred that a lower ratio (1.36) in 2015 is the indication of under utilization of
fixed assets.

Chart no: 3.2.18 showing fixed assets turnover ratio

FIXED ASSETS TURNOVER RATIO (TIMES)

2.5

2.1
2 1.9

1.47 1.45
1.5 1.36

0.5

0
2010-11 2011-12 2012-13 2013-14 2014-15

FIXED ASSETS TURNOVER RATIO

80
Table no: 3.2.19 showing Total assets turnover ratio

Year Net sales Total assets Total assets turnover

ratio(times)

2011-12 2362.58 2376.8 1.25

2012-13 3458.97 2642.45 1.31

2013-14 3390.37 3137.92 1.1

2014-15 3351.69 3375.01 0.99

2015-16 3645.78 3563.33 1.02

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table it is found that total assets turnover ratio measures a
relationship between total assets and sales increases from 1.25 in 2012 to 1.31in 2013,
decreases to 1.1 in 2014. It decreases to 0.99 in 2015, it increases to 1.02 in 2016. It was
high in 2013 and low in 2015. This ratio enables to know the efficient utilization of total
assets of a business.

Inference: It is inferred that total asset turnover ratio is lower during the period 2014-
16(0.99-1.02) and 2012-14(1.31-1.1) is the indication of under utilization of assets.

81
Chart no: 3.2.19

Chart showing Total assets turnover ratio

TOTAL ASSETS TURNOVER RATIO

1.4 1.31
1.25
1.2 1.1
0.99 1.02
1

0.8

0.6

0.4

0.2

0
2010-11 2011-12 2012-13 2013-14 2014-15

total assets turnover ratio

Table no: 3.2.20showing Capital turnover ratio

Year Net sales Capital Employed capital turnover ratio

(times)

2011-12 2362.58 1405.84 2.12

2012-13 3458.97 1581.78 2.2

2013-14 3390.37 1864 1.82

2014-15 3351.69 1928.92 1.737

2015-16 3645.78 2158.36 1.689

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

82
Findings:

From the above table it is found that capital turnover ratio of the company is the
relationship between sales with the amount of capital invested in the business. It
increases from 2.12 in 2012 to 2.2 in 2013, it decreases to1.82 in 2014. It decreases to
1.737 in 2015. It decreases to 1.689 in 2016. It was low in 2016 and high in 2013.

Inference:

It is inferred that higher ratio (2.2) in 2013 indicates higher efficiency and lower ratio(
1.689)in2016 indicates ineffective usage of capital.

Chart no: 3.2.20 showing Capital turnover ratio

CAPITAL TURNOVER RATIO

2.5
2.2
2.12
2 1.82
1.737 1.689

1.5

0.5

0
2010-11 2011-12 2012-13 2013-14 2014-15

CAPITAL TURNOVER RATIO

83
Profitability Ratio

Table no: 3.2.21showing Net profit ratio

Year Net profit after tax Net sales Net profit ratio (%)

2011-12 169.66 2362.58 5.7

2012-13 180.09 3458.97 5.2

2013-14 103.96 3390.37 3.066

2014-15 94.07 3351.69 2.8

2015-16 120.86 3645.78 3.31

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table, it is found that the net profit ratio of the company was low in
2015(2.8%) and high in 2013(6.82%).Net profit ratio slightly decreases from 2013-
14(5.7-5.2%) .It decreases to 3.066% in 2014. It decreases to 2.8 in 2015 and it increases
to 3.31% in 2016 indicates the improvement in operational efficiency of the business.

Inference:

It is inferred that net profit ratio has been increased during 2014-16(2.8-3.3%) shows
that the profitability of the company is satisfactory.

84
Chart no: 3.2.21showing Net profit ratio

NET PROFIT RATIO(%)

6 5.7
5.2
5

4
3.3
3.066
3 2.8

0
2010-11 2011-12 2012-13 2013-14 2014-15

NET PROFIT RATIO (%)

Table no: 3.2.22 showing Operating profit ratio

Year Operating profit Net sales Operating profit ratio

(%)

2011-12 2145.43 2362.58 72.41

2012-13 2528.14 3458.97 73.1

2013-14 2398.89 3390.37 70.76

2014-15 2480.96 3351.69 74.02

2015-16 2686.42 3645.78 73.68

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

85
Findings:

From the above table, it is found that the company operating profit ratio was low in
2014(70.76%) and high in 2015(74.02%).During 2006-07 the operating profit ratio
increases from (72.41-73.1%) due to increase in operating expenses . It decreases to
70.76% in 2014, which improved to 74.02% in 2015 and it decrease to 73.68% in 2016.
It was high in 2015(74.02%) and low in 2012(70.76%).

Inference:

It is inferred that operating profit ratio is higher in 2015(74.02%) indicates that the
operating efficiency and of the company is satisfactory

Chart no: 3.2.22 showing Operating profit ratio

OPERATING PROFIT RATIO (%)

75

74.02
74 73.68

73.1
73
72.41

72

71 70.76

70

69
2010-11 2011-12 2012-13 2013-14 2014-15

OPERATING PROFIT RATIO

86
Table no: 3.2.23 showing Pre-tax profit ratio

Year Profit before tax Net sales Pre-tax profit ratio (%)

2011-12 241.30 2362.58 8.15

2012-13 245.10 3458.97 7.1

2013-14 147.21 3390.37 4.34

2014-15 141.22 3351.69 4.2

2015-16 155.15 3645.78 4.3

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table, it is found that pre-tax profit ratio of the company was high in
2012(8.15%) and low in 2015(4.2%). During 2013-14 the pre-tax ratio decreases from
(8.15-7.1%). It decreases to 4.34% in 2014 and 4.2% in 2015, which improved to 4.3%
in 2016.

Inference:

It is inferred the average pre-tax ratio is 8.15% in 2012 indicates that the profitability of
the company is satisfactory.

87
Chart no: 3.2.23showing Pre-tax profit ratio

PRE-TAX PROFIT RATIO

9 8.15
8
7.1
7
6
5 4.34 4.2 4.3
4
3
2
1
0
2010-11 2011-12 2012-13 2013-14 2014-15

PRE-TAX PROFIT RATIO

Table no: 3.2.24 showing Return on shareholders’ funds

Year Net profit after tax Shareholders’ Return on

funds shareholders’ funds
(%)

2011-12 169.66 991.40 17.11

2012-13 180.09 1114.96 16.15

2013-14 103.96 1181.34 8.80

2014-15 94.07 1238.84 7.59

2015-16 120.86 1320.53 9.15

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

88
Findings:

From the above table it is found that the return on shareholders’ funds is a ratio of net
profit to proprietors funds. During the period 2013-14 return on shareholders’ funds
decreases from 17.11 to 16.15. It increases to 8.8 in 2014-15. It decreases to 7.59 in
2015-16. It increase to 9.15 in 2015-16. It was high in 2012(17.11) and low in
2015(7.59).

Inference: It is inferred that return on shareholders’ funds of the company is high during
the period 2012-13(17.11) indicates that the profitability of the company is satisfactory.

Chart no: 3.2.24 showing Return on shareholders’ funds

RETURN ON SHAREHOLDERS FUNDS (%)

18 17.11
16.15
16

14

12

10 8.8 9.15
7.59
8

0
2010-11 2011-12 2012-13 2013-14 2014-15

RETURN ON SHAREHOLDERS FUNDS

89
Table no: 3.2.25 showing Return on equity capital

Year Net profit after tax Equity share Return on equity

capital capital (%)

2011-12 169.66 954.27 17.78

2012-13 180.09 1077.70 16.71

2013-14 103.96 1144.01 9.087

2014-15 94.07 1201.46 7.83

2015-16 120.86 1283.10 9.45

Source: Collected and compiled from the Annual report of Tube investment India. Ltd

Findings:

From the above table, it is found that the return on equity was low in 2014(7.83%) and
high in 2012(23.5%).The Return on equity capital is 17.78% in 2012.it decreases to
16.71% in 2013. It decreases to 9.087% in 2014, 7.83 in 2015. It increases to 9.45% in
2016.It increases during the period from 2014-16(7.83-9.45%) the return on due to
profitability of shareholders funds.

Inference:

It is inferred that return on equity during the period from 2014-16(7.83-9.45%) are
managed efficiently by the shareholders’ funds indicates profitability of the company is
satisfactory.

90
Chart no: 3.2.25 showing Return on equity capital

RETURN ON EQUITY CAPITAL

20
17.78
18 16.71
16

14

12

10 9.087 9.45
7.83
8

0
2010-11 2011-12 2012-13 2013-14 2014-15

RETURN ON EQUITY CAPITAL

Table no: 3.2.26 showing Return on capital employed

Year Operating profit Capital employed Return on capital

employed (%)

2011-12 355.72 1405.84 25.30

2012-13 397.35 1581.78 25.12

2013-14 334.95 1863.99 17.97

2014-15 348.67 1928.92 18.08

2015-16 365.68 2158.36 16.94

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

91
Findings:

From the above table, it is found that the company return on investment was high in
2012(25.30%) and low in 2016(16.94%). The return on investment decreases during the
period from 2011-13 (25.30-25.12%). It decreases to 17.97% in 2014, which improved to
18.08% in 2015. It decreases to 16.94 in 2016.

Inference:

It is inferred that the return on capital employed is above the ideal ratio in 2012-
16(16.94-25.30) indicates higher productivity of the capital employed.

Chart no: 3.2.26 showing Return on capital employed

RETURN ON CAPITAL EMPLOYED

30

25.3 25.12
25

20 17.97 18.08
16.94

15

10

0
2010-11 2011-12 2012-13 2013-14 2014-15

RETURN ON CAPITAL EMPLOYED

92
Table no: 3.2.27 showing Return on total assets

Year Net profit after Total assets Return on total assets

tax (%)

2011-12 169.66 2962.58 5.73

2012-13 180.09 3458.97 5.2

2013-14 103.96 3390.37 3.1

2014-15 94.07 3351.69 2.8

2015-16 120.86 3645.78 3.32

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Findings:

From the above table, it is found that return on total assets of the company was low in
2015(2.8%) and high in 2012(5.73%).It decreases during the period from 2013-14(5.73-
5.2%) due to decrease in assets employed in operation of the business. It decreases to
3.1% in 2014. It decreases to 2.8% in 2015. It increases to 3.32% in 2016 due to increase
in assets.

Inference:

It is inferred that return on total assets of the company is low in 2015 (2.8%) indicates
that the assets are not utilized effectively to result in net profits.

93
Chart no: 3.2.27

Chart showing Return on total assets

RETURN ON TOTAL ASSETS (%)

7
5.73
6 5.2
5
4 3.32
3.1
2.8
3
2
1
0
2010-11 2011-12 2012-13 2013-14 2014-15

RETURN ON TOTAL ASSETS (%)

Comparative liquidity analysis (Liquidity ratio)

Ratios 2011-12 2012-13 2013-14 2014-15 2015-16

Current ratio 0.856 0.924 0.65 0.63 0.75

Quick ratio 0.47 0.54 0.37 0.38 0.41

Absolute- 0.03 0.08 0.026 0.02 0.018

liquid ratio

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Result:

From the above table it was analysed that current ratio of the company has been
fluctuating. The ideal current ratio should be 2:1. During the period from 2012-16 the
current ratio of the company is below the ideal ratio 2:1 due to inadequate current assets
to meet the current liabilities. The ideal quick ratio should be 1:1. In 2007 the quick ratio
is 0.47 times. It was high in 2013(0.54times) and low in 2014(0.37 times). The company
absolute –liquid ratio has been fluctuating. The ideal ratio of absolute-liquid ratio should
be 0.75. During the period from 2012-16 the absolute-liquid ratio is below than the norm
of 0.75.Hence the company should avoid excessive liquidity and maintain sufficient
liquidity.

94
Comparative solvency analysis (Solvency ratio)

Ratios 2011-12 2012-13 2013-14 2014-15 2015-16

Debt-equity ratio 0.41 0.42 0.58 0.56 0.59

Proprietary ratio 0.41 0.42 0.38 0.36 0.37

Fixed assets to net 0.65 0.63 0.74 0.73 0.71

worth ratio

Current assets to 0.35 0.37 0.26 0.27 0.29

net worth ratio

Current liabilities 0.41 0.40 0.41 0.43 0.39

to net worth ratio

Debt-total assets 0.17 0.18 0.21 0.20 0.199

ratio

Fixed assets ratio 1.09 1.05 1.24 1.27 1.17

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Result:

From the above table it was analysed that the average debt-equity ratio is 0.59 in
2016 indicate the company is not taking the advantage of debt fund. The average
proprietary ratio is 0.42in 2013 indicate more of creditors’ funds and lesser of
shareholders’ funds in the total assets of the company. Fixed asset to net worth ratio of
the company was high in 2014(0.74) and low in 2013(0.63) indicates return to
shareholders would be lower rate of dividend and also a sign of over capitalization and
there are no outside liabilities and all the funds employed are those of shareholders The
higher proportion of current assets to net worth ratio indicates the financial strength of
the company is satisfactory. The current liabilities to net worth ratio increases to 0.37 in
2013.it was high in 2013(0.37) and low in 2014(0.26).if the ratio is high it is difficult to
obtain long-term funds by the company. Debt to asset ratio of the company increases

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from 0.17 to 0.18 in 2013-14. It was high in 2014(0.21) and low in 2012(0.17) indicates
that the company should use more borrowed capital to finance its long term assets. An
ideal fixed assets ratio is 0.67:1.it decreases from 1.09 to 1.05 in 2007-08.During 2012-
16 it is more than 1 indicates that a portion of working capital has been financed by long-
term funds.

Comparative activity analysis (Activity ratio)

Ratios 2011-12 2012-13 2013-14 2014-15 2015-16

Inventory turnover ratio 7.64 8.45 9.5 9.05 7.79

Debtors turnover ratio 7.93 7.94 8.59 7.51 7.62

Working capital turnover 22.67 43.12 7.5 6.29 10.16

ratio

Fixed assets turnover ratio 1.9 2.1 1.47 1.36 1.45

Total assets turnover ratio 1.25 1.31 1.1 0.99 1.02

Capital turnover ratio 2.12 2.2 1.82 1.737 1.689

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Result:

From the above table, it was analysed that inventory turnover ratio was low in
2012(7.64) and high in 2014(9.5). The high stock turnover ratio indicates the concern is
efficient and hence it sells its goods quickly. Debtors’ turnover ratio measures a
relationship between sales and debtors. During period 2013-14 the debtors turnover ratio
increases from (7.93-7.94).it increases to (8.59 )in 2014, it decreases in 7.51 in 2015, it
increases to 7.62 in 2016.so it is important to maintain a reasonable quantitative
relationship between sales and debtors. Working capital turnover ratio of the company
increases from 22.67in 2012 to 43.12 in 2013, it decreases to 7.5 in 2014.that a higher
ratio 43.12 in 2013 is the indication of investment of working capital and more profit.

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Fixed assets turnover ratio is low in 2015(1.36) is the indication of underutilization of
fixed assets. Total assets turnover ratio was high in 2013 and low in 2015.higher the
turnover ratio, the more efficient is the management and utilization of its assets. Capital
turnover ratio of the company was low in 2016 and high in 2013.higher ratio (2.2) in
2013 indicates higher efficiency and lower ratio (1.689) in 2016 indicates ineffective
usage of capital.

Comparative profitability analysis (Profitability ratio)

Ratios 2011-12 2012-13 2013-14 2014-15 2015-16

Net profit ratio 5.7% 5.2% 3.066% 2.8% 3.31%

Operating profit ratio 72.41% 73.1% 70.76% 74.02% 73.68%

Pre-tax profit ratio 8.15% 7.1% 4.34% 4.2% 4.3%

Source: Collected and compiled from the Annual report of Tube investment of India. Ltd

Result:

From the above table, it was analysed that net profit ratio of the company was high in
2012(5.7%) and low in 2015(2.8%).net profit ratio has been decreased during 2013-
14(5.7-5.2%) shows that the profitability of the company is satisfactory. Pre-tax profit
ratio of the company was high in 2012(8.15%) and low in 2015(4.2%)average pre-tax
ratio is 8.15% in 2012 indicates that the profitability of the company is satisfactory.
Operating expense ratio was low in 2014(70.76%) and high in 2016(73.68%).

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 Ratios 2011-12 2012-13 2013-14 2014-15 2015-16

Return on shareholders’ funds 17.11 16.15 8.80 7.59 9.15

Return on equity capital 17.78 16.71 9.087 7.83 9.45

Return on capital employed 25.30 25.12 19.97 18.08 16.94

Return on total assets 5.73 5.2 3.1 2.8 3.32

Result:

From the above table it was analysed that return on shareholders’ funds was high in 2012
and low in 2015.Higher return on shareholders’ funds of the company is 17.11indicates
that the profitability of the company is satisfactory. The return on equity was low in
2015(7.83%) and high in 2012(17.78%). It was managed efficiently by the shareholders’
equity funds. Return on investment was high in 2012(25.3%) and low in 2016(16.94%)
indicates the low productivity of the capital employed in 2016. Return on total assets of
the company was low in 2015(2.8%). It indicates that the assets are not utilized
effectively to result in net profits

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 Z-SCORE TECHNIQUES

Table showing-score techniques of 2012-2016

Ratios 2011-12 2012-13 2013-14 2014-15 2015-16

A= Working 130.68/2376.8 80.29/ 2642.45 450.05/ 3137.92 450.05/3137.92 358.1/3563.33

Capital /
=0.122 =0.282 =0.318 =0.209 = 0.292
Total Assets

B= Retained 392.70/2376.8 279.70/2642.45 160.04/3137.92 176.98/3375.01 181.53/3563.33

Earnings /
=0.165 =0.11 =0.51 =0.524 =0.51
Total Assets

C= 355.72/2376.81 397.35/2642.45 334.95/3137 348.67/3375.01 121.15/3563.33

Earnings
=0.1496 =0.15 .92 =0.10 =0.033
before
=0.11
Interest and
Tax / Total
Assets

D = Book 37.13/2376.81 37.26/2642.45 37.33/3137.92 37.38/3375.01 37.43/3563.33

Value of
=0.16 =0.414 =0.12 =0.11 =0.12
equity/Total
Liabilities

E = Sales/ 2962.58/2376.81 3458.97/2642.45 3390.37/3137.92 3351.01/3375.01 3645.78/3563.33

Total
=1.25 =1.31 =1.081 =1 =1.023
Assets.

Z-SCORE = 1.2(0.122) +1.4(0.165) +3.3(0.15) +0.6(0.16) +1(1.25)

=2.7

Z-SCORE = 1.2(0.31) +1.4(0.11) +3.3(0.15) +0.6(0.414) +1(1.31)

=3.6

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Z-SCORE = 1.2(0.15) +1.4(0.51) +3.3(0.11) +0.6(0.12) +1(1.081)

=2.1

Z-SCORE = 1.2(0.158) +1.4(0.524) +3.3(0.10) +0.6(0.11) +1(1.1)

=3.4

Z-SCORE = 1.2(0.11) +1.4(0.51) +3.3(0.33) +0.6(0.12) +1(1.023)

=3.05

Result:

From the above analysis it is found that z-score is between 2.1 and 2.7 in 2014(2.1)
indicates the company going bankruptcy within 2 years of operation (DISTRESS
ZONE)During the period 2012 and 2016 the z-score is 2.7 and 3.05 indicates the
company should exercise caution(GREY ZONE).In 2013 and 2015 the z-score is above
3.4 indicates the safe financial position of the company (SAFE ZONE).This analysis
shows that z-score analysis of the company is fluctuating. Hence the company should
exercise caution unlikely to enter bankruptcy.

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 3.3SUMMARY OF FINDINGS

Findings from Liquidity analysis

 Current ratio of the company has been fluctuating. The ideal current ratio should
be 2:1. In 2012 the current ratio is 0.87 which increases to 0.924 in 2013-14. It
decreases to 0.65 in 2014. It increases to 0.75 in 2016. During the period from
2012-2016 the current ratio of the company is below the ideal ratio 2:1 due to
inadequate current assets to meet the current liabilities.
 Quick ratio of the company has been fluctuating. The ideal quick ratio should be
1:1. In 2012 quick ratio is 0.47. It increases to 0.54 in 2013. It decreases to 0.37
in 2014, it increase to 0.38 in 2015 and it increase to 0.41 in 2016. During the
period from 2012-2016 the quick ratio of the company is below the ideal ratio 1:1
due to inadequate quick assets to meet the current liabilities.
 The company absolute –liquid ratio has been fluctuating. The ideal ratio of
absolute-liquid ratio should be 0.75. In 2012 the absolute liquid ratio is 0.03
times. It increases to 0.08times in 2014. It decreases to 0.02times in 2015-16. It
decreases to 0.018times in 2016. During the period from 2012-16the absolute-
liquid ratio is below than the norm of 0.75.

Findings from long term solvency analysis

 Debt-equity ratio measure relationship between long-term debt and shareholders’

funds. It was low (0.41) in 2012 and high (0.59) in 2016.During the period from
2013-14 debt-equity ratio increases from 0.41 to 0.42. It increases to 0.58 in
2014. It decreases to 0.58 in 2015, and it increases to 0.59 in 2016.
 Proprietary ratio of the company increase from 0.41 to 0.42 in 2012-2013. It
decreases to 0.38in 2014. which improved to 0.36 in 2015 and 0.37 in 2016. It
was high in 2013(0.42) and low in 2015(0.36).A ratio below 0.5 is alarming for
the creditors since they have to lose heavily in the event of company’s
liquidation.
 Fixed asset to net worth ratio of the company was high in 2014(0.74) and low in
2013(0.63).The ideal ratio of fixed assets to net worth ratio is 0.75:1.It decreases
from 0.65 to 0.63 during the period 2013-14.It increases to 0.74 in 2014, which

101
 drastically declines to 0.73 in 2015 and 0.71 in 2016 indicates return to
shareholders would be lower rate of dividend and also a sign of over
capitalization.
 Current asset ratio to net worth of the company was high in 2013(0.37) and low
in 2014(0.26).This ratio shows the percentage of proprietors funds investment in
current assets. During the period 2013-14 the current assets to net worth ratio
increases from 0.32-0.37.It decreases to 0.26 in 2014. It increase to 0.27 and 0.29
in 2015 &16.
 Current liabilities to net worth ratio is a proportion obtained by dividing current
liabilities to proprietors funds. The ideal ratio is 1:3.During the period 2012-16
the current liabilities to net worth ratio increases from 0.39-0.43. It decreases to
0.40 in 2013.It increase to 0.41 in 2014.It increases to 0.43 in 2015. It decrease to
0.39.It was high in 2014(0.39) and low in 2015(0.43).
 Debt to asset ratio of the company increases from 0.17 to 0.18 in 2013-14. It
increases to 0.21 in 2014 and it decreases to 0.20 in 2015. It decreases to 0.199 in
2016. It was high in 2014(0.21) and low in 2016(0.199).
 Fixed asset ratio is a measure of relationship between fixed assets to long-term
funds. It increases from 1.09 to 1.27in 2012-16 implies the fixed assets are
purchased with short-term funds. It decreases to 1.09 to 1.05 in 2013. It increase
to 1.24 in 2014,1.27 in 2015 and It declines to 1.17 in 2012.

Findings from Activity analysis

 Inventory turnover ratio was low in 2012(7.64) and high in 2014(9.5).It measures
the relationship between sales during the given period and average inventory
holding during that period. During the period 2012-16 the inventory turnover
ratio decreases from 9.5-7.64 times. It increases to 8.45 in 2013, improved to 9.5
in 2014 and it decrease to 7.79 in 2016.
 Inventory collection period (Days) measures the relationship between the number
of days in a year divided by inventory turnover ratio. It was high in
2012(47.76days) and low in 2012(38.4days).During the period 2013-14 it
decreases from 47.76-43.21days). It decreases (38.4 days) in 2014, it increases
(40.3days) in 2015 and (46.87days )in 2012.

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 Inventory collection period (months)measures the relationship between the
number of months in a year divided by inventory turnover ratio. It was high in
2012(1.57months) and low in 2014(1.26months). During the period 2013-14 it
decreases from 1.57-1.42months). It decreases (1.26) in 2014, it increases
(1.33months) in 2015 and (1.54) in 2016.
 Debtors turnover ratio measures a relationship between sales and debtors. During
period 2013-14 the debtors turnover ratio increases from( 7.93-7.94).It increases
to 8.89 in 2014 ,it decreases to 7.51 in 2015 and it increases to 7.62 in 2016.This
ratio is helpful in determining the operational efficiency of a business concern
and the effectiveness of its credit policy.
 Debtors collection period (Days) is a measure of relationship between number of
days in a year to debtors turnover ratio. During the period 2014-15 debtors
collection period decreases from 46 - 42.5 days. It increases to 49days in 2014-
15,and it decreases to 48 days in 2015-16.The higher the turnover ratio and
shorter the average collection period, better is the liquidity of debtors.
 Debtors collection period (Months) is a measure of relationship between number
of months in a year to debtors turnover ratio. During the period 2014-15 debtors
collection period decreases from 1.5-1.4months. It increases to 1.6months in
2014-15, 1.6months in 2015-16.
 Working capital turnover ratio of the company increases from 22.67in 2012 to
43.12 in 2013, which decreases to 7.5 in 2014. It decreases to 6.29 in 2015. It
increases to 10.16 in 2016. It was high in 2013 and low in 2015.Higher sales in
comparison to working capital indicates over trading and lower sales in
comparison to working capital indicates under trading.
 Fixed assets turnover ratio of the company increases from 1.9 in 2012to 2.1 in
2013, which decreases to 1.47 in 2014. It decreases to 1.36 in 2015.it increases to
1.45 in 2016. It was low in 2015 and high in 2013. This ratio determines the
efficiency of utilization of fixed assets. Higher the ratio, more is the efficiency in
utilization of fixed assets.
 Total assets turnover ratio measures a relationship between total assets and sales
increases from 1.25 in 2012 to 1.31in 2013, decreases to 1.1 in 2014. It decreases
to 0.99 in 2015, it increases to 1.02 in 2016. It was high in 2013 and low in 2015.
This ratio enables to know the efficient utilization of total assets of a business.

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  Capital turnover ratio of the company is the relationship between sales with the
amount of capital invested in the business. It increases from 2.12 in 2012 to 2.2 in
2012, it decreases to1.82 in 2014. It decreases to 1.737 in 2015. It decreases to
1.689 in 2016. It was low in 2016 and high in 2013.

Findings from Profitability analysis

 Net profit ratio of the company was low in 2015(2.8%) and high in
2013(6.82%).Net profit ratio slightly decreases from 2013-14(5.7-5.2%).It
decreases to 3.066% in 2014. It decreases to 2.8 in 2015 and it increases to 3.31%
in 2016 indicates the improvement in operational efficiency of the business.
 operating profit ratio was low in 2014(70.76%) and high in 2015(74.02%).During
2007-08 the operating profit ratio increases from (72.41-73.1%) due to increase
in operating expenses . It decreases to 70.76% in 2014, which improved to
74.02% in 2015 and it decrease to 73.68% in 2012. It was high in 2015(74.02%)
and low in 2012(70.76%).
 Pre-tax profit ratio of the company was high in 2012(8.15%) and low in
2015(4.2%). During 2013-14 the pre-tax ratio decreases from (8.15-7.1%). It
decreases to 4.34% in 2014and 4.2% in 2015, which improved to 4.3% in 2016.
 Return on shareholders’ funds is a ratio of net profit to proprietor’s funds. During
the period 2012-13 return on shareholders’ funds decreases from 17.11 to 16.15.
It increases to 8.8 in 2013-14. It decreases to 7.59 in 2014-15. It increase to 9.15
in 2015-16. It was high in 2012(17.11) and low in 2015(7.59).
 Return on equity was low in 2014(7.83%) and high in 2012(23.5%).The Return
on equity capital is 17.78% in 2012.it decreases to 16.71% in 2013. It decreases
to 9.087% in 2014, 7.83 in 2015. It increases to 9.45% in 2016.It increases during
the period from 2014-16(7.83-9.45%) the return on due to profitability of
shareholders’ funds.
 Return on investment was high in 2012(25.30%) and low in 2016(16.94%). The
return on investment decreases during the period from 2012-13 (25.30-25.12%).
It decreases to 17.97% in 2014, which improved to 18.08% in 2015. It decreases
to 16.94 in 2016.

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  Return on total assets of the company was low in 2015(2.8%) and high in
2012(5.73%).It decreases during the period from 2013-14(5.73-5.2%) due to
decrease in assets employed in operation of the business. It decreases to 3.1% in
2014. It decreases to 2.8% in 2015. It increases to 3.32% in 2016 due to increase
in assets.

Findings from z-score technique

 z-score is between 2.1and 2.7 in ,2013(2.1) indicates the company going
bankruptcy within 2 years of operation(DISTRESS ZONE)
 During the period 2012 and 2016 the z-score is 2.7 and 3.05 indicates the
company should exercise caution (GREY ZONE).
 In 2013 and 2015 the z-score is above 3.4 &3.6indicates the safe financial
position of the company (SAFE ZONE).This analysis shows that z-score analysis
of the company is fluctuating. Hence the company should exercise caution
unlikely to enter bankruptcy.

105
106
 3.4 SUGGESTIONS

 The company current ratio of the company should be at 2:1 to meet its short-term
obligations. During the period from 2012-13 the current ratio of the company is
below the ideal ratio 2:1 due to inadequate current assets to meet the current
liabilities.
 The quick ratio of the company has been fluctuating company should avoid excessive
liquidity and maintain sufficient liquidity. In 2012 the quick ratio is 0.47. It increases
to 0.54 in 2013. It decreases to 0.37 in 2014, which improved to 0.38 $0.41 in 2015
and 2016. It was high in 2013 and low in 2014.
 The cash ratio position of the company is not satisfactory for the last five years. It is
fluctuating over the years and there is no standard ration maintained. So the
management should take steps to improving the cash position of the company.
 Debt equity ratio of the company was low (0.41) in 2012 and high (0.59) in
2016.During the period from 2013-14 debt-equity ratio increases from 0.41 to 0.42. It
increases to 0.58 in 2014. It decreases to 0.56 in 2015, which increases to 0.59 in
2016. It is inferred that the average debt-equity ratio is 0.59 in 2016 indicates the
company is not taking the advantage of debt fund.
 The average proprietary ratio is 0.42 in 2013 indicate more of creditors’ funds and
lesser of shareholders’ funds in the total assets of the company.
 The fixed asset to net worth ratio of the company was high in 2014(0.74) and low in
2013(0.63). It is inferred that there are no outside liabilities and all the funds
employed are those of shareholders’ funds.
 The current asset ratio to net worth of the company was high in 2013(0.37) and low
in 2014(0.26).It is inferred that the higher proportion of current assets to net worth
ratio indicates the financial strength of the company is satisfactory.
 The current liabilities to net worth ratio are a proportion obtained by dividing current
liabilities to proprietor’s funds. The ideal ratio is 1:3.During the period 2012-16 the
current liabilities to net worth ratio increases from0.39-0.43. It is inferred that if the
ratio is lower it is difficult to obtain long-term funds by the company.
 Debt to asset ratio of the company increases from 0.17 to 0.18 in 2013-14. It is
inferred that average debt to assets ratio of the company is 0.21 indicates that the
company should use more borrowed capital to finance its long term assets.

107
 Net fixed asset of the company has increased and even though they are not utilizing
the enhanced technology to increase sales. So the management should take initiative
steps for the proper utilization of the resources.
 The inventory turnover ratio during the period 2013-14 increases from 7.64-8.45
times. It increases to 9.5 in 2014, it decreases to 19.05 in 2015 and 7.79 in 2016.It is
inferred that high stock turnover ratio indicates the concern is efficient and hence it
sells its goods quickly.
 Inventory collection period (Days) measures the relationship between the numbers of
days in a year divided by inventory turnover ratio. It was high in 2012(47.7days) and
low in 2015(38.4 days) It is inferred that stock velocity of 170 days indicates that on
average every item of stock remains for 170 days before it is sold.
 Inventory collection period (months) inferred that stock velocity of 5.6 months
indicates that on average every item of stock remains for 5.6 months before it is sold
or used.
 Debtor’s turnover ratio measures a relationship between sales and debtors. During
period 2013-14 the debtors turnover ratio increases from (7.93-7.94).It increases to
8.89in 2014,it decreases to 7.51 in 2015 and increases 7.62 in 2016. It is inferred that
it is important to maintain a reasonable quantitative relationship between sales and
debtors.
 Debtors collection period is long during the period (days) 2012-16(42.5-49 days)
indicates the payment by debtors are delayed.
 Debtors collection period (Months) is long during the period 2013-16(1.4-1.6months)
indicates the payment by debtors are delayed.
 The company working capital turnover of the company inferred that a higher ratio
43.12 in 2013 is the indication of investment of working capital and more profit.
 The fixed assets turnover ratio of the company inferred that a lower ratio (1.36) in
2015 is the indication of underutilization of fixed assets.
 It is inferred that total asset turnover ratio of the company is lower during the period
2014-16(0.99-1.02) and 2012 -14(1.31-1.1) is the indication of underutilization of
assets.
 It is inferred that higher ratio (2.2) in 2013 indicates higher efficiency and lower ratio
(1.689) in 2016 indicates ineffective usage of capital.
 It is inferred that net profit ratio has been increased during 2014-16(2.8-3.3%) shows
that the profitability of the company is satisfactory.

108
 The operating profit ratio of the company is higher in 2015(74.02%) indicates that
the operating efficiency and of the company is satisfactory.
 It is inferred the average pre-tax ratio is 8.15% in 2012 indicates that the profitability
of the company is satisfactory.
 It is inferred that return on shareholders’ funds of the company is high during the
period 2012-13 (17.11) indicates that the profitability of the company is satisfactory.
 The return on equity of the company during the period from 2014-16(7.83-9.45) are
managed efficiently by the shareholders’ funds indicates profitability of the company
is satisfactory.
 The company return on capital employed is below the ideal ratio in 2012-16(16.94-
25.30%) indicates inefficient use of the capital employed.
 The return on total assets of the company is low in 2015(2.8%) indicates that the
assets are not utilized effectively to result in net profits.
 Z-Score is between 2.1and 2.7 in 2014(2.1) indicates the company going bankruptcy
within 2 years of operation(DISTRESS ZONE).
 During the period 2012 and 2016 the z-score is 2.7 and 3.05 indicates the company
should exercise caution (GREY ZONE).

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 3.5CONCLUSION

From the study it is found that liquidity of the position is not satisfactory. It is
inferred that current ratios are below the norm ratio in order to meet its short term
obligations. The solvency position of Tube Investment of India appears to be
unsatisfactory for two reasons. First, it has inadequate/low interest and coverage ratio.
Profitability of tube investment of India. Ltd is also a matter of serious concern. Over the
years there has been a major drop in its net profit ratio. Tube investment of India. Ltd
performance related to utilization of assets does not appear to be satisfactory. The
Management must also study the market position and it also find the demand prevailing
in the market for the products and thus this will guide them to enhance their sales
volume.

The financial performance of Tube investment of India. Ltd. for a period of five
years from 2011-12 to 2015-16, the study reveals that the financial performance is not
satisfactory. It has not been able to maintain optimal cost positioning. Despite price
drops in various products, the company has been able to maintain and grow its market
share to make strong margins in market, contributing to the strong financial position of
the company. The company could not able to meet its entire requirements for capital
expenditures and higher level of working capital commitment with higher volume of
operations and from its operating cash flows. To conclude, the financial position of the
Tube investment of India. Ltd as reflected in its liquidity, solvency, profitability and
efficiency analysis is unsound and is a matter of serious concern.

110
 BIBLIOGRAPHY

JOURNALS AND ARTICLES:

1. Beaver (1966), in his article titled “Prediction of bankruptcy of financial data by

using z-score model approach”, Journal of Accounting research volume 4
2. Altman I. Edward, (1968) in his article titled “Financial ratio discriminate analysis
and prediction of bankruptcy using z-score model”, Journal of Finance, volume 23
3. Mansur. A. Ulla (2002), in his article titled “Considering the use of z-score analysis
for evaluation of financial health of textile mills”, The management accountant,
volume 19
4. Ben McClure, (2004) in his article titled “A study on analysis of financial health of
sugar industry using z-score model approaches”, The Management accountant, and
volume 7
5. Silva. M, vanitha.S and Babu (2004), in his article titled “Financial health of cement
industry using z-score model approaches”The Management accountant, volume 7.

BOOK REFERRED:
1. Financial Management, I.M.Pandey, Vikas Publishing House Pvt. Ltd. New Delhi,
2004
2. Financial Management - Theory and Practice Prasanna Chandra Tata McGraw Hill
Book New Delhi, 2004
3. Research Methodology & Technologies, C.R.Kothari, WishwaPrakshan, New Delhi,
2002.

4. Management Accounting, T.S. Reddy and Y. Hariprasad Chapter-2 Pg no 2.1-2.32,

Chapter-3 Pg no 3.1-3.144, 11th Edition, Margham Publications.

WEBSITES:

1. www.wikiinvest.com
2. www.ibef.org
3. www.wikipedia.com
4. www.tiindia.com

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