SYNOPSIS

RATIO ANALYSIS OF PIDILITE INDUSTRIES LTD.

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF

MASTER OF COMMERCE (FA) POST GRADUATE COURSE OF

JAIN UNIVERSITY

SUBMITTED BY

ANKIT SHARMA

(REG NO. 17MCRFA003)

UNDER THE GUIDANCE OF

Asst. Prof. SHILPA SAMPATH KUMAR

DEPARTMENT OF COMMERCE - PG STUDIES

SCHOOL OF COMMERCE STUDIES

JAIN UNIVERSITY

BENGALURU

FEBURARY 2018
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To,

THE CO-ORDINATOR

JAIN UNIVERSITY

JAYANAGAR

Subject: Regarding submission of the synopsis of the project report.

Respected Mam,

I, Ankit Sharma (Reg. No. 17MCRFA003) Student of 2nd SEMESTER M.COM (FA) in JAIN
UNIVERSITY, JAYANAGAR. I am submitting the synopsis of the project. The title of my
project is ‘A study on Ratio Analysis of Pidilite Industries LTD. for a period of 3 years’. My
project guide is Asst. Prof. Shilpa. I kindly request you to approve my synopsis so that I can
go ahead with the project.

Thanking You,

Yours Sincerely

ANKIT SHARMA

17MCRFA003

JAIN UNIVERSITY, JAYANAGAR

ASST. PROF. SHILPA SAMPATH KUMAR

(Project Guide)

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 CHAPTER-1
INTRODUCTION

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1.1 FINANCIAL STATEMENTS- MEANING AND DEFINITION
Financial statements are the summarised statements of accounting data produced at the end of
an accounting process by an enterprise through which it communicates the accounting
information to the internal (management) and external users. Customarily, a set of financial
statements include:

a- Balance Sheet- It is a statement of assets and liabilities, i.e., financial position of an

enterprise at a given date. It is also known as position statement.
b- Statement of Profit and Loss- It shows the financial performance, i.e., results of
business operations during an accounting period. It is also known as income statement.
c- Cash Flow Statement- A statement that shows ‘actual cash’ coming in and how the
same has been used is called the cash flow statement. It deals with liquidity. Being
profitable does not necessarily mean being liquid. A company can fail because of a
shortage of cash, even while profitable. So to analyse the economic realities, cash flow
statements are prepared.
d- Notes of Accounts- The Balance Sheet, Statement of Profit and Loss and Cash Flow
Statement are supported by the notes having details of items in the Balance Sheet,
Statement of Profit and Loss and the Cash Flow Statement.

By Definition, Financial Statements mean-

The financial statements provide a summary of accounts of a business enterprise, the Balance
Sheet reflecting the assets, liabilities and capital as on a certain date and the income statement
showing the results and operations during a certain period.

-John N. Myer

1.2 FINANCIAL STATEMENT ANALYSIS

Financial Statement Analysis is an important analysis of overall financial analysis. It is based
on the financial statements, i.e., Balance Sheet, Statement of profit and Loss and Cash Flow
Statement, which are the end products of accounting process.

Analysis of Financial Statements is a systematic process of critical examination of the financial

statement contained in the financial statements to understand and make decisions regarding the
operation of the enterprise. The analysis of financial statements is a study of relationships
among various financial figures as set out in the financial statements. The complex data given
in the financial statements is divided or broken into simple and valuable elements and
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relationships are established between the elements of the same statement or different financial
statements. This process of division, establishing relationships and interpretation thereof to
understand the working and financial position of a business is known as Analysis of Financial
Statements.

By Definition, Financial Statements Analysis means-

Financial Statements Analysis is largely a study of relationships among the various financial
factors in a business, as disclosed by a single set of statements, and a study of trend of these
factors, as shown in a series of statements.

-John N. Myer

1.2.1 PURPOSE (OBJECTIVES) AND SIGNIFICANCE OF FINANCIAL

ANALYSIS
Financial statements are used by various interested groups for various purposes. Financial
analysis serves the following and brings out the significance such analysis:

a- Assessing the Earning Capacity or Profitability- On the basis of financial analysis, the
earning capacity of an enterprise can be assessed or computed.
b- Assessing the short-term long-term Solvency of the Enterprise- Long-term and Short-
term solvency of an enterprise can be assessed on the basis of financial statement
analysis. Creditor or suppliers are interested to know the short-term solvency or
liquidity of the enterprise, i.e., its ability to meet short term liabilities. Debenture holder
and lenders are interested to know the long-term solvency of the enterprise to assess
the ability of the company to pay the principal amount and interest on the basis of
financial analysis.
c- Inter-firm Comparison- Inter-firm comparison becomes easy with the help of financial
analysis. It helps in assessing their own performance as well as that of others, if merger
and acquisitions are to be considered.
d- Forecasting and Preparing Budgets- Past financial statements analysis helps in
assessing development in future, especially in the next year. For example, given a
certain investment, it may be possible to forecast the next year’s on the basis of earning
capacity shown in the past. An analysis thus helps in forecasting and preparing the
budgets.

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 e- Understandable- Financial analysis helps the users of the financial statement to
understand the complicated matter in a simplified manner. Financial data can be made
more comprehensive by charts and diagrams, which can be easily understood.

1.2.2 USES OF FINANCIAL ANALYSIS

On the basis of financial analysis we can take a variety of decision in various areas such as
security analysis, credit analysis, debt analysis, dividend decision and general business
analysis. These are disused below-
a- Security Analysis- It is a process by which the investor comes to know whether the
firm is fulfilling his expectation with regard to payment of dividend, capital
appreciation and security of money. Such analysis is done by a security analyst who
is interested in cash-generating ability, dividend payout policy and the behaviour of
share prices.
b- Credit Analysis- Such analysis is useful when a firm offer credit to a new customer or
a dealer. The manager of the firm would like to know whether credit to them or not.
Such analysis is also useful for a bank before granting loan to the public.
c- Debt Analysis- Such analysis is done by the firm to know the borrowing capacity of a
perspective borrower.
d- Dividend Decision- Financial analysis helps the firm in deciding about the rate of
dividend. The management would have to decide about how much portion of the
earning to distribute and how portion of the earning to distribute and hoe much to
retain. Such decisions indicate the profitability of the firm and hence, to some extent
affect the behaviour of the share prices.
e- General Business Analysis- Financial analysis can be used to identify the key profit
drivers and business risks in order to assess the profit potential of the firm. It helps in
future growth scenario for the firm.

1.2.3 PARTIES INTRESTED IN FINANCIAL ANALYSIS

The parties interested in the analysis of financial statement are:

a- Management- Financial analysis helps the management to ascertain overall as well

as segment wise efficiency of the business. Moreover, it helps them in decision-
making as well as in controlling and self-evaluation.

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b- Employees and trade unions- Employees are interested in their welfare, i.e., better
emolument, bonus, better working condition and security of their jobs. So, they are
always interested in profitability, operating sustainability and financial strength of
the business. Trade Unions are also interested in financial because the degree of
profitability helps them in negotiating and entering wage agreement with the
employers.
c- Shareholders or Owners or Investors- Owners invest their saving in the enterprise.
Therefore, they are interested in profitability and safety of their investments. They
would like to know whether the business is profitability, have growth potential and
its progress is on sound lines. Growth potential of business helps in appreciation of
their investment.
d- Potential Investors- They are interested to know the present profitability (i.e. ,
earning) and financial position as well as future prospects to determine whether
they should invest in a particular company.
e- Supplier or Creditors- They are interested to know short-term solvency position of
a firm, i.e., the ability to meet its short-term solvency of a firm can be determined
with the help of financial statement analysis. On the basis of analysis, they decide
whether they would allow credit to an enterprise or not.
f- Bankers and Lenders- They are interested in serving of the loans granted by an
enterprise, i.e., regular payment of interest and repayment of principal amount on
due dates. In other words, they are interested in long-term and short-term solvency
of a firm, i.e., ability to pay interest on loans and debts.
g- Researches- They may like to analyses profitability, growth, position and future
prospects of a business or industry. They may be interested in analysing the data of
the different aspects of a business like purchases, sales, operating cost, particular
type of expenditure, etc.
h- Tax Authorities- Tax authorities are interested in ensuring proper assessment of tax
liabilities of the enterprise as per the laws in force from time to time.
i- Customers- Customers have an interest in information about the continuous of an
enterprise, especially when they have a long-term involvement with, or are
dependent on, an enterprise.

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1.2.4 LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS

The limitations of financial statements are:

a- Historical Analysis- Financial statement analysis is a historical analysis. It analyses

what has happened till date. It does not reflect the future. Persons like shareholders,
investors, etc., are more interested in knowing the likely position in future.
b- Ignores Price Level Changes- Price level changes and purchasing power of money
are inversely related. A change in the price level makes analyses of financial
statements of different accounting years invalid because accounting record ignore
change in value of money.
c- Qualitative Aspect Ignored- Since the financial statement are confined to the
monetary matter alone, the qualitative aspects like quality of management, quality
of staff, public relations are ignored while carrying out the analysis of financial
statements.
d- Suffers from the limitation of financial statements- Analysis of financial statements
is based on the information given in the financial statements. Hence, this analysis
suffers from all such limitation from which the financial statement suffers.
Therefore, unless the data given in the financial statement is reliable, the conclusion
derived on the analysis of this data through the analysis of financial statement
cannot be reliable.
e- Not Free from Bias- In many situation, the accountant has to make a choice of
alternatives available, e.g., choice in the method of inventory valuation or choice in
the method of depreciation (straight line or written down value, etc.). Since the
subjective is inherent in personal judgement, the financial statements are, therefore,
not free from bias.

1.2.5 TOOLS OR TECHNIQUES OF FINANCIAL STATEMENT

ANALYSIS
Financial statements have information about assets, liabilities, equity, revenues, expenses and
profit or loss of an enterprise in absolute amounts. They are not readily understandable to the
external users of financial statements. They are not of much use and meaning when analysed
in isolation. They are analysed with the financial statements of the same enterprise for earlier
years or with that of other enterprise of similar nature and size operating in a similar business

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environment. They may be compared with the industry standards. Commonly used tools for
financial statement analysis are-

a- Comparative Statements- Comparative statements or Comparative Financial statements

mean a comparative study of components of financial statements of two or more years
of the enterprise itself. In Comparative Statements, amounts of two or more years are
placed side by side along with change in amounts in absolute and percentage terms to
facilitate comparison. Both Statement of profit and Loss and Balance Sheet are
prepared in the form of Comparative Statement or Comparative Financial Statements.
b- Common-size Statements- Common-size Statements or Common-size Financial
Statements means statements in which individual items of financial statements of two
or more years are placed side by side and thereafter converted into percentage taking a
common base. Common base normally taken is total of assets and liabilities, in the case
of Common-size Balance Sheet and Net Sales in the case of Common-size Statement
of Profit or Loss. In the Balance Sheet, the total of assets or liabilities is taken as 100
and all the figures are expressed as percentage of total. Similarly, in the Statement of
Profit and Loss, the expressed sales figure is assumed as 100 and all figures are
expressed as a percentage of sales.
c- Ratio Analysis- Ratio is an arithmetical expression of relationship between two related
and inter-dependent components of financial statements of an accounting period. Ratio
analysis is an important technique for analysing financial statements.
d- Cash Flow Statement- Cash Flow is a statement showing flow of cash and cash
equivalents during the accounting period, classified under Operating Activities,
Investing Activities and Financing Activities. It shows the sources from which cash is
received (generated) and the purposes for which it is utilised (used). It also shows the
changes in cash position from one period to another.
e- Trend Percentage- Trend percentages indicate the changes taking place in the
organization and highlight the direction of these changes. In Trend percentage,
comparisons are made to a selected base year or period. Trend percentages are useful
for comparing financial statements over several years because they disclose changes
and trends occurring through time. Percentages provide clues to an analyst about which
items need further investigation or analysis. In reviewing trend percentages, a financial
statement user should pay close attention to the trends in related items, such as the cost

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 of goods sold in relation to sales. Trend analysis that shows a constantly declining gross
margin (profit) rate may be a signal that future net income will decrease.

1.2.5 RATIO ANALYSIS

A Ratio Analysis is a quantitative analysis of information contained in a company’s financial

statements. Ratio Analysis is used to evaluate various aspects of a company’s operating and
financial performance such as its efficiency, liquidity, profitability and solvency.
Ratio Analysis is a method which takes financial data and converts it into ratios for comparison.
The data is available in a publicly issued financial statements and calculation of ratios helps in
various decision-making process. These are the pointers or indicators of financial strength,
soundness, position or weakness of an enterprise. One can draw conclusions about the exact
financial positions of a concern with the help of ratios.
Ratio analysis is a useful management tool that will improve your understanding of financial
results and trends over time, and provide key indicators of organizational performance.
Managers will use ratio analysis to pinpoint strengths and weaknesses from which strategies
and initiatives can be formed.

SIGNIFICANCE OF RATIO ANALYSIS

The Ratio Analysis is one of the most powerful tools of financial analysis. It is used as a device
to analyse and interpret the financial health of enterprise. It is with help of ratios that the
financial statements can be analysed more clearly and decisions made from such analysis.
 Helps in decision-making.
 Helps in forecasting and planning.
 Helps in communicating.
 Helps in co-ordination.
 Helps in control.

LIMITATIONS OF RATIO ANALYSIS

The Ratio Analysis is one of the most powerful tools of financial management. Though ratios
are simple to calculate and easy to understand, they suffer from some serious limitations:
 Historical information.
 Lack of adequate standards.

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  Quantitative analysis and not the qualitative analysis.
 Change in the accounting procedure.

TYPES OF RATIOS
In view of the financial management or according to the tests satisfied, various ratios have been
classified as below:
1. Liquidity Ratio- These are the ratios which measure the short-term solvency or
financial position of a firm. These ratios are calculated to comment on short-term
paying capacity of a concern or the firm’s ability to meet its current obligations. The
various liquidity ratios are:
 Current Ratio-
The current ratio is a liquidity ratio that measures a company's ability to
pay short-term and long-term obligations. To gauge this ability, the current
ratio considers the current total assets of a company (both liquid and illiquid)
relative to that company’s current total liabilities. The current ratio is called
“current” because, unlike some other liquidity ratios, it incorporates all
current assets and liabilities. The current ratio is also known as the working
capital ratio.
The formula for calculating a company’s current ratio, then, is:

Current Assets
Current Liabilites

 Liquid/Acid Test/Quick Ratio-

Quick assets ratio or the acid-test ratio - is a liquidity indicator that further
refines the current ratio by measuring the amount of the most liquid current
assets there are to cover current liabilities. The quick ratio is more
conservative than the current ratio because it excludes inventory and other
current assets, which are more difficult to turn into cash. Therefore, a higher
ratio means a more liquid current position. Formula for quick ratio is:

Quick Assets
Current Liabilites

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  Absolute Liquid Ratio-
ALR is to test the liquidity of the business. Absolute liquid ratio is computed
by dividing the absolute liquid assets by current liabilities. Absolute liquid
assets are equal to liquid assets minus accounts receivables (including bills
receivables). Some examples of absolute liquid assets are cash, bank balance
and marketable securities etc. It extends the logic further and eliminates
accounts receivable (sundry debtors and bills receivables) also.
Though receivables are more liquid as comparable to inventory but still there
may be doubts considering their time and amount of realization. Therefore,
absolute liquidity ratio relates cash, bank and marketable securities to the
current liabilities. Since absolute liquidity ratio lays down very strict and
exacting standard of liquidity, therefore, acceptable norm of this ratio is 50
percent. It means absolute liquid assets worth one half of the value of current
liabilities are sufficient for satisfactory liquid position of a business. However,
this ratio is not as popular as the previous two ratios discussed.
The formula to compute this ratio is given below:

Absolute Liquid Assets

Current Liabilites

2. Leverage Ratio- Long-Term Solvency ratios convey a firm’s ability to meet the interest
costs and repayments schedules of its long-term obligations. The various leverage ratios
are:
 Debt Equity Ratio-
Debt/Equity Ratio is a debt ratio used to measure a company's
financial leverage, calculated by dividing a company’s total liabilities by
its stockholders' equity. The D/E ratio indicates how much debt a company is
using to finance its assets relative to the amount of value represented in
shareholders’ equity. The debt to equity ratio is a financial, liquidity ratio that
compares a company's total debt to total equity. The debt to equity ratio shows
the percentage of company financing that comes from creditors and investors.
A higher debt to equity ratio indicates that more creditor financing (bank loans)
is used than investor financing (shareholders).

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 The formula for calculating D/E ratio is:

Total Debt
Total Equity

 Debt to Total Capital Ratio-

Debt-to-capital ratio measures the proportion of interest-bearing debt to the sum

of interest-bearing debt and shareholders' equity. Interest-bearing debt includes
bonds payable, bank loans, notes payable, etc. Non-interest bearing debt
includes trade payable, accrued expenses, etc. The debt-to-capital ratio is a
refinement of the debt-to-assets ratio.

𝑻𝒐𝒕𝒂𝒍 𝒅𝒆𝒃𝒕
𝑫𝒆𝒃𝒕 𝒕𝒐 𝒄𝒂𝒑𝒊𝒕𝒂𝒍 𝒓𝒂𝒕𝒊𝒐 =
𝑻𝒐𝒕𝒂𝒍 𝒅𝒆𝒃𝒕 + 𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓′ 𝒔 𝒆𝒒𝒖𝒊𝒕𝒚

 Proprietary/Equity Ratio-
The proprietary ratio (also known as the equity ratio) is the proportion of
shareholders' equity to total assets, and as such provides a rough estimate of the
amount of capitalization currently used to support a business. If the ratio is high,
this indicates that a company has a sufficient amount of equity to support the
functions of the business, and probably has room in its financial structure to
take on additional debt, if necessary. Conversely, a low ratio indicates that a
business may be making use of too much debt or trade payables, rather than
equity, to support operations (which may place the company at risk of
bankruptcy).
Thus, the equity ratio is a general indicator of financial stability. It should be
used in conjunction with the net profit ratio and an examination of the statement
of cash flows to gain a better overview of the financial circumstances of a
business. These additional measures reveal the ability of a business to earn a
profit and generate cash flows, respectively.
To calculate the proprietary ratio, divide total shareholders' equity by total
assets. The results will be more representative of the company's true situation if
you exclude goodwill and intangible assets from the denominator.
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 Formula to compute proprietary ratio:

Net Worth
Total Assets

 Interest Coverage Ratio-

The interest coverage ratio is a debt ratio and profitability ratio used to
determine how easily a company can pay interest on its outstanding debt. The
interest coverage ratio may be calculated by dividing a company's earnings
before interest and taxes (EBIT) during a given period by the company's interest
payments due within the same period. Creditors and investors use this
computation to understand the profitability and risk of a company. It measures
a company’s ability to make interest payments on its debt in a timely manner.
Unlike the debt service coverage ratio, this liquidity ratio really has nothing to
do with being able to make principle payments on the debt itself. Instead, it
calculates the firm’s ability to afford the interest on the debt.
The formula for computing this ratio is:

EBIT
Interest

3. Activity Ratio- These are calculated to measure the efficiency with which the resources
of a firm have been employed. These are also called ‘Turnover Ratios’. The various
activity ratios are:
 Inventory Turnover Ratio-
Inventory turnover is a ratio showing how many times a company's inventory
is sold and replaced over a period of time. The days in the period can then be
divided by the inventory turnover formula to calculate the days it takes to sell
the inventory on hand. Inventory Turnover Ratio measures company's
efficiency in turning its inventory into sales. Its purpose is to measure the
liquidity of the inventory. Inventory Turnover Ratio is figured as "turnover
times". Average inventory should be used for inventory level to minimize the
effect of seasonality. A good rule of thumb is that if inventory turnover ratio
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 multiply by gross profit margin (in percentage) is 100 percent or higher, then
the average inventory is not too high.
Formula for compute this ratio:

Cost of Goods Sold

Average Inventories

 Receivables Turnover Ratio-

An accounting measure used to quantify a firm's effectiveness in
extending credit and in collecting debts on that credit. The receivables turnover
ratio is an activity ratio measuring how efficiently a firm uses its assets.
Receivables turnover ratio can be calculated by dividing the net value of
credit sales during a given period by the average accounts receivable during the
same period. Average accounts receivable can be calculated by adding the value
of accounts receivable at the beginning of the desired period to their value at
the end of the period and dividing the sum by two.
Formula for computing receivables turnover ratio:

Credit Sales
Average Receviables

 Sales to Working Capital Ratio-

Working capital turnover is a measurement comparing the depletion
of working capital used to fund operations and purchase inventory, which is
then converted into sales revenue for the company. The working
capital turnover ratio is used to analyse the relationship between the money
that funds operations and the sales generated from these operations. A
company maintains its working capital to finance its operations, such as
purchasing inventory, collecting its accounts receivable and paying its
vendors. If a company takes too much credit from its vendors or delays
payments on its other obligations, such as salaries and taxes, the company's
current assets may be insufficient to pay off its current liabilities.
Formula for computing working capital ratio:

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 Sales
Working Capital

 Total Assets Turnover Ratio

Fixed assets turnover ratio is an activity ratio that measures how successfully a
company is utilizing its fixed assets in generating revenue. It calculates the
dollars of revenue earned per one dollar of investment in fixed assets. A
higher fixed asset turnover ratio is generally better.
Fixed Assets Turnover Ratio:

Net Sales
Average Fixed Assets

4. Profitability Ratio- These ratios measure the results of business operations or overall
performance and effectiveness of the firm. The various profitability ratios are:
 Operating Ratio-
The operating profit margin ratio indicates how much profit a company makes
after paying for variable costs of production such as wages, raw materials, etc.
It is also expressed as a percentage of sales and then shows the efficiency of
a company controlling the costs and expenses associated with
business operations. Furthermore, it is the return achieved from standard
operations and does not include unique or one-time transactions. The
operating margin ratio demonstrates how much revenues are left over after all
the variable or operating costs have been paid. Conversely, this ratio shows
what proportion of revenues is available to cover non-operating costs like
interest expense.
The formula for calculating this ratio is:

Operating Profit
× 𝟏𝟎𝟎
Sales

 Net Profit Ratio-

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 The net profit percentage is the ratio of after tax profits to net sales. It reveals
the remaining profit after all costs of production, administration and financing
have been deducted from sales, and income taxes from recognised. As such it
is one of the best measure of overall results of the firm especially when
combined with evaluation of how well it is using its working capital. The
measure is commonly reported on a trend line to judge performance over
time.it is also under to compare the result of a business with its competitors.
The formula is:

Net Profit
× 𝟏𝟎𝟎
Sales

 Return on Net Worth-

The net worth ratio states the return that shareholders could receive on
their investment in a company, if all of the profit earned were to be passed
through directly to them. Thus, the ratio is developed from the perspective of
the shareholder, not the company, and is used to analyse investor returns. The
ratio is useful as a measure of how well a company is utilizing the shareholder
investment to create returns for them and can be used for comparison purposes
with competitors in the same industry. It explains the efficiency of
the shareholders’ capital to generate profit.
The formula for computing return on net worth is:

Operating Profit
× 𝟏𝟎𝟎
Net Worth

 Return on Capital Employed-

Return on capital employed or ROCE is a profitability ratio that measures how
efficiently a company can generate profits from its capital employed by
comparing net operating profit to capital employed. In other words, return on
capital employed shows investors how many dollars in profits each dollar of
capital employed generates. ROCE is a long-term profitability ratio because it
shows how effectively assets are performing while taking into consideration
long-term financing.
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 𝒏𝒆𝒕 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝒑𝒓𝒐𝒇𝒊𝒕
𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝒄𝒂𝒑𝒊𝒕𝒂𝒍 𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅 𝒓𝒂𝒕𝒊𝒐 =
𝒄𝒂𝒑𝒊𝒕𝒂𝒍 𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅

 Return on Assets-
Return on assets (ROA) is an indicator of how profitable a company is relative
to its total assets. ROA gives a manager, investor, or analyst an idea as to how
efficient a company's management is at using its assets to generate earnings.

Return on assets:

Net Income
x 100
Total Assets

 Return on Equity
Return on equity or return on capital is the ratio of net income of a business
during a year to its stockholders' equity during that year. It is a measure of
profitability of stockholders' investments. It shows net income as percentage of
shareholder equity.
Return on Equity:

Net Income
X 100
Equity fund

5. Market Based Ratio- Market value ratios are used to evaluate the current share price of
a publicly-held company's stock. These ratios are employed by current and potential
investors to determine whether a company's shares are over-priced or under-priced. The
most common market value ratios are as follows:
 Dividend Yield-
Dividend yield ratio shows what percentage of the market price of a share a
company annually pays to its stockholders in the form of dividends. It is
calculated by dividing the annual dividend per share by market value per share.
The ratio is generally expressed in percentage form and is sometimes
called dividend yield percentage.
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 Since dividend yield ratio is used to measure the relationship between the
annual amount of dividend per share and the current market price of a share, it
is mostly used by investors looking for dividend income on continuous basis.

Dividend per Share

Market Price per Share

 Dividend Payout Ratio-

The dividend payout ratio is the amount of dividends paid to stockholders
relative to the amount of total net income of a company. The amount that is
not paid out in dividends to stockholders is held by the company for
growth. The amount that is kept by the company is called retained earnings.
Net income shown in the formula can be found on the company's income
statement.
This formula is used by some when considering whether to invest in a
profitable company that pays out dividends versus a profitable company
that has high growth potential. In other words, this formula takes into
consideration steady income versus reinvestment for possible future
earnings, assuming the company has a net income.

Total Dividend
Net Profit

 Price/Earnings Ratio-
The Price Earnings Ratio (P/E Ratio) is the relationship between a company’s
stock price and earnings per share (EPS). It is a popular ratio that gives investors
a better sense of the value of the company. The P/E shows the expectations of
the market and the price you must pay per unit of current earnings (or future
earnings, as the case may be).
Earnings are important when valuing a company’s stock because investors want
to know how profitable a company is and how profitable it will be in the future.
Furthermore, if the company doesn’t grow and the current level of earnings

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 remains constant, the P/E can be interpreted as the number of years it will take
for the company to pay back the amount paid for the share.

Market Price per Share

Earnings per Share

1.3 INDUSTRY OVERVIEW

The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011
to US$ 74 billion in 2018. Food products is the leading segment, accounting for 43 per cent of
the overall market. Personal care (22 per cent) and fabric care (12 per cent) come next in terms
of market share. Growing awareness, easier access, and changing lifestyles have been the key
growth drivers for the sector.

What are FMCG goods?

FMCG goods are popularly known as consumer packaged goods. Items in this category include
all consumables (other than groceries/pulses) people buy at regular intervals. The most
common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe
polish, packaged foodstuff, and household accessories and extends to certain electronic goods.
These items are meant for daily of frequent consumption and have a high return.

Rural – set to rise

Rural areas expected to be the major driver for FMCG, as growth continues to be high in these
regions. Rural areas saw a 16 per cent, as against 12 per cent rise in urban areas. Most
companies rushed to capitalise on this, as they quickly went about increasing direct distribution
and providing better infrastructure. Companies are also working towards creating specific
products specially targeted for the rural market. The Government of India has also been
supporting the rural population with higher minimum support prices (MSPs), loan waivers, and
disbursements through the National Rural Employment Guarantee Act (NREGA) programme.
These measures have helped in reducing poverty in rural India and given a boost to rural

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purchasing power. Hence rural demand is set to rise with rising incomes and greater awareness
of brands.

Urban trends

With rise in disposable incomes, mid- and high-income consumers in urban areas have shifted
their purchasing trend from essential to premium products. In response, firms have started
enhancing their premium products portfolio. Indian and multinational FMCG players are
leveraging India as a strategic sourcing hub for cost-competitive product development and
manufacturing to cater to international markets.

1.4 ABOUT THE COMPANY

A consumer and specialities chemical company Pidilite Industries Limited (Pidilite) was
incorporated on 28th July 1969. Pidilite is the market leader in adhesives and sealants,
construction chemicals, hobby colours and polymer emulsions in India. Its brand name Fevicol
has become synonymous with adhesives to millions in India and is ranked amongst the most
trusted brands in India.

Pidilite was the first company in India, which started production of violet pigment in the
year 1973. In 1984, the company's consumer product division was born and on 1989 entered
into fevicryl acrylic colours transform fabric and multi-surface painting market. The Company
made its maiden public offering of equity shares in the year 1993. During the year 1995, plants
of the company in Mumbai and Vapi acquired an ISO 9001 certification. Also the plant at

P a g e 21 | 73
Mahad received an ISO 9002 certification in the same year. Fevicol, the premier brand of
the company ranked among the Top 15 Indian brands by FE Brandwagon Year Book
1997. After two years, in 1999, Pidilite had acquired 'Ranipal', leading brand of optical
whitener and subsequently acquired 'M-Seal', leading brand of epoxy compounds in the year
of 2000. In the identical year of 2000 itself, Fevicol campaign won the Silver ABBY for the
Campaign of the Century in India. The Company had launched Dr. Fixit range of Construction
Chemicals in the year 2001 and had acquired 'Steelgrip', leading brand of PVC insulation tape
in India during the year 2002. Pidilite had again acquired the `Roff' brand of Construction
Chemicals in the year of 2004. Fevicol has been ranked No. 1 in Household Care Segment
in June 2008.

Since it started its operations in year 1959, the company has been a reputed and reckoned leader
dealing in consumer and specialties chemicals all across the country. More than half of the
company’s sales and revenue been generated from the products and offering it has been
introduced in India. The most popular and wide array of products of the company cover
adhesives and sealants, paint chemicals, construction materials, art materials, automotive
chemicals, industrial adhesives, organic pigments, textile and industrial resins, and
preparations. In fact, most of the products and services been manufactured and goes through
stringent in-house R&D and quality check. With a turnover of around 4103 Crores for last
fiscal, it is actually the ruler and undisputed leader dealing in the manufacturing of sealants
and adhesives, hobby colours, construction chemicals, and polymer emulsions to be used all
across the country. The product Fevicol is one of the widely used and preferable items and
made it one of the trustable and reckoned brands. Over the time, it has been making efforts and
attempts to expand at global level through acquisitions and setting up sales offices and
manufacturing facilities in important areas all across the globe. In fact, Fevicol is the biggest
selling adhesive brand known and popular all over Asia. Moreover, the company believes that
where they have reached is because of the hard work and dedication of employees and people
and its shared value system that is highly focused on maintaining relationships with the clients,
dedication to excel and expand, along with the high spirit of innovation.

Pidilite Industries Ltd. went public with its first IPO in BSE in 1993.
BSE:500331 | NSE:PIDILITINDEQ | 58888:pil | IND: Chemicals - Speciality -
Others | ISIN code:INE318A01026 | SECT: Chemicals
BSE: INR 1055.40
NSE: INR 1061.25

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(AS ON THE CLOSING OF APRIL 20, 2018)

PRODUCTS:

The Company's product range includes

a- Adhesives and Sealants

b- Construction and Paint Chemicals
c- Automotive Chemicals
d- Art Materials
e- Industrial Adhesives
f- Industrial and Textile Resins
g- Organic Pigments and Preparations.

1.5 STATEMENT OF PROBLEM

To study the operating, profitability and expenditure and various financial activities of Pidilite
Industries Ltd, and analyse the relation of these activities through various long-term, short-
term, liquidity and profitability ratios.

1.6 REVIEW OF LITERATURE

 Sahu (2002) in his article titled “A Simplified Model for Liquidity Analysis of Paper
Industry” has examined the liquidity of paper industry. The model developed by him
has been based on the assumption that the liquidity management of a company in a

P a g e 23 | 73
 particular year is effective if its‟ earnings before depreciation is positive and not
effective if its‟ earnings before depreciation is negative. The findings have revealed a
very high predictive ability of the estimated discriminant function.
 Anshan Lakshmi (2003) made “A Study of the Financial Performance with reference
to Steel Industries Kerala Ltd”. This study covered from 1977-1998 to 2001-2002. The
objectives of the study was to analyse and evaluate the working capital management,
to analyse the liquidity position of the company, to evaluate the receivables, payables
and cash management and to suggest ways and means to improve the present date of
working capital. The major tools used for the analysis said that the working capital
management suggested that the inventory management have to be corrected.
 Sudarsana Reddy (2003) under took a study on “Financial Performance of Paper
Industry in Andhra Pradesh” for the period from 1989-90 to 1998-99. The primary
objective of the study was to analyse the investment pattern and utilization of fixed
assets, ascertaining the working capital condition, reviewing the profitability
performance and suggesting measures to improve the profitability. He concluded that
the introduction of additional funds along with restructuring of finances and
modernization of technology were needed for better operating performance.
 Ghosh S.K., and Maji S.G. (2004), in their paper, to examine the efficiency of
Working capital management of the Indian cement companies from the year 1992-1993
to 2001-2002. They conclude from the study indicated that the Indian cement industry,
as a whole, did not perform good perform during the selected period of the study.
 Bardia (2006), in his study on Liquidity Management of Steel Authority of India
Limited, has analyzed the overall performance of liquidity maintained by steel sector
and the amount tied-up in various components of working capital. This study has found
that there was a positive relationship between liquidity and profitability.
 Jonas Elmerraji (2005) in his research article on financial performance has pointed
that ratios can be an invaluable tool for making an investment decision. Even so many
new investors would rather leave their decisions to fate than try to deal with the
intimidation of financial ratios. The truth is that ratios aren't that intimidating. Even if
you don't have a degree in business or finance, using ratios to make informed decisions
about an investment makes a lot of sense, once you know how to use them.
 Susan Ward (2008) in his research article on financial performance has pointed that
emphasis on financial analysis using ratios between key values help investors cope up

P a g e 24 | 73
 with the massive amount of numbers in company financial statements. For example,
they can compute the percentage of net profit a company is generating on the funds it
has deployed. All other things remaining the same, a company that earns a higher
percentage of profit compared to other companies is a better investment option.
 Singh and Pandey (2008) suggested that, for the successful working of any business
organization, fixed and current assets play a vital role, and that the management of
working capital is essential as it has a direct impact on profitability and liquidity. They
studied the working capital components and found a significant impact of working
capital management on profitability for Hindalco Industries Limited.
 Diane White (2008) states that the accounts receivable is an important analytical tool
for measuring the efficiency of receivables operations is the accounts receivable
turnover ratio. Many companies sell goods or services on account. This means that a
customer purchases goods or services from a company but does not pay for them at
the time of purchase. Payment is usually due within a short period of time, ranging
from a few days to a year. These transactions appear on the balance sheet as accounts
receivable.
 Lucia Jenkins (2009) in his research states that understanding the use of various
financial ratios and techniques can help in gaining a more complete picture of a
company's financial outlook. He thinks the most important thing is fixed cost and
variable cost. Fixed costs are those costs that are always present, regardless of how
much or how little is sold. Some examples of fixed costs include rent, insurance and
salaries. Variable costs are the costs that increase or decrease in ratios proportion to
sales.
 Jo Nelgadde (2010) in his study pointed out the importance of effective debt
collection and tools or tecniques used in it like credit insurance, a solicitor or debt
attorney or a debt collection agency. Collection of accounts receivable, debt collection
or debt recovery is an important source of a company‟s cash flow and business
finance. As such, learning about credit management and debt recovery can prove vital
for entrepreneurs.
 Marques (2011) in his study to calculate the Return on Equity of Portuguese and
Brazilian companies, through the DuPont method concluded that the Portuguese
companies take more advantage from the financing decisions and Brazilian on the
investing decisions.

P a g e 25 | 73
 Prof. Vijay S Patel, Prof Chandresh B Mehta (2012) attempts to study the
profitability ratio of Krishak Bharati Cooperative Ltd for 2000-2009. His study reveals
that the income of the company is based on the subsidy provided by the government,
therefore the company should try to minimize the operating expenses so as to maintain
profit and it should not back too much on the subsidy.
 Omar Durrah, Abdul Aziz Abdul Rahman, Syed Ahsan Jamil, Nour Aldeen
Ghafeer (2016) conducted a study to examine the relationship between liquidity ratios
and indicators of financial performance (profitability ratios) in the food industrial
companies listed in Amman Bursa during the period (2012-2014). The study pointed
the existence of a positive relationship between (quick ratios, defensive interval ratio)
and operating cash flow margin. There is a positive relationship between liquidity
ratios (current ratio, quick ratio, cash ratio) and return on assets.
 James Hutchinson (2010), he realizes that about the long term debt to equity ratio of
a Business. The ratio of these numbers tells a lot about the business. It is calculated by
taking the debt owed by the company and divided by the owner’s equity, also known
as capital. The debt number may include all liabilities, or just long term debt.
 Beaver, William H & Correia, Maria&Mc.Nichols, Maureen F (2011) They
observe that financial statement analysis has been used to assess of the company’s
likelihood of financial distress –the profitability that it will not be able to repay its debts.
Financial statement analysis was used by credit suppliers to assess the credit worthiness
of its borrowers. Today, financial statement analysis is ubiquitous and involves a wide
variety of ratios and wide variety of users, including trade suppliers, bank, credit rating
agency, investors and management.
 Shankarjadhav (2012) Analysis of the data on ratio; ratio analysis is one of the
techniques of financial analysis to evaluate the financial condition and performance of
a business concern. Simply ratio means the comparison of one figure to other relevant
figure or figures. According to Myers,” Ratio analysis of financial statements is a study
of relationships among various financial factors is a business as disclosed by a single
set of statements and a study of trend of these factors as shown in a series of
statements.”
 Peterson and Fabozzi (2012) Ratio analysis involves the methods of calculating and
interpreting financial ratio in order to access the firm’s performance and status. The

P a g e 26 | 73
 basic inputs to ratio analysis are the firm’s income statement and balance sheet for the
periods to be examined.
 Ashok Kumar (2013) studied liquidity position of five leading companies which cover
period of 10 years from 2000-2010. It has been found that the liquidity position of small
companies are better as compared to big ones .Lastly, it is concluded that companies
should maintain an ideal current and liquid ratio.

1.7 SCOPE OF STUDY

 The study is limited to three financial years from 2014, 2015 and 2016.
 The analysis and interpretation of the financial statements through ratio analysis helps
the firm as well as the stake holders make important decisions.
 To have an insight into the accounts of the company and to evaluate the performance
of company in various aspects over the period of three years.

1.8 OBJECTIVES OF THE STUDY

 To analyse the financial activities of PIDILITE INDUSTRIES Ltd through ratio
analysis.
 To analyse the trend of reports of accounts through ratios.
 To check on liquidity, profitability and long-term solvency of the company.

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 CHAPTER-2
RESEARCH DESIGN

2.1 STATEMENT OF THE PROBLEM

Ratio analysis is widely used as a powerful tool of financial statement analysis. The
present study focuses on analysing the reasons behind the financial position and
financial performance of the business, and develop expectation about its future outlook.
Through ratio analysis of PIDILITE INDUSTRIES LTD. we study and understand the
strengths of the financial statements of the company and also to evaluate performance
of the top management and their efforts in delivering performance. In this context the

P a g e 28 | 73
 researcher is interested in undertaking an analysis to find the financial performance of
hotel industry.

2.2 THE SCOPE OF THE PRESENT STUDY:

 The study is limited to the ratio analysis of PIDILITE INDUSTRIES LTD.

 To analyse and interpret the financial statement of Taj hotels and resorts Ltd for
financial years from FY 2014 to FY 2016.
 To analyse and interpret the financial statement of Taj hotels and resorts Ltd using the
profitability, liquidity, turnover and leverage rate.

2.3 THE OBJECTIVES OF THE STUDY

 To analyse the financial position and performance of the Taj hotels and resorts Ltd
through ratio analysis.
 To understand the liquidity, leverage, activity and profitability position of the company.
 To ascertain the financial strengths and weakness of the company using various ratios.

2.4 SOURCES OF DATA:

The study is based on secondary data collected from official websites, journals
The data which is collected and represented in the research paper is collected from
the annual reports which are published on the company’s website.

2.5 SAMPLING PLAN:

The sampling plan of the present study is convenience sampling.
The study is based on a period of 3 financial years i.e., FY 2013-2014, FY 2014-2015,
FY 2015-2016.

2.6 LIMITATIONS OF THE STUDY:

 The study is based on secondary data.
 It checks just monetary aspect of company’s performance and position but it ignores
non-monetary aspect of the company.

P a g e 29 | 73
 It does not analyse the inflationary changes of different items of financial statements.
 It study data for the year 2013-2014, 2014-2015, and 2015-2016.

2.7 RESEARCH METHODOLOGY:

The tools and techniques used for research are as follows:
In view of the financial management the various ratios have been classified as below:

1. Liquidity Ratios
2. Profitability Ratios
3. Leverage Ratios
4. Activity Ratios
5. Market Based Ratios

CHAPTER-3
DATA ANALYSIS AND INTERPRETATION

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3.1 LIQUIDITY RATIOS

3.1.1 CURRENT RATIO

TABLE 3.1.1

Analysis of current ratio for 3 years (2014-2016)

YEAR CURRENT RATIO

2014 4.772323652

2015 4.928880183

2016 5.470502145

Source: Annual Report

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 Current Ratio
5.6 5.470502145

5.4

5.2
Ratio

4.928880183
5
4.772323652
4.8

4.6

4.4
2014 2015 2016
Years

Graph 3.1.1: Analysis of current ratio for 3 years (2014-2016)

ANALYSIS

 The above data represents current for the period of 2014 to 2016. It is seen that the
ratio jumps up substantially in the year 2015-16 but however is seen to maintain a
constant growth thereon.
 An optimal current is said to be 2:1 which signifies that for 2 times of current assets,
there exists a 1 time of current liability or for every Rs.2 of current asset, there exists
a Re.1 of current liability.
 The current ratio is represented in units of `times` and therefore the ratio for the
periods are 4.77 times, 4.93 times and 5.47 times respectively.

INTERPRETATION

 Current assets refers to the type of assets which can be converted into cash within a
period of 1 year and current liabilities are those which can be repaid within a period
of 1 year. The various types of current assets include cash & bank balances,
inventories, short term advances and investments etc., and the examples of current
liabilities include trade payables, short term loans etc.
 Current assets and current liabilities are considered as working capital and therefore
form a vital role in company’s cash flows. It is noticed that the current assets are
higher than current liabilities in all years and that is reason the ratio stands above 1.

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  The reason for such increase in the year 2016 is due to the growth of inventories and
cash and bank balances of the company. This is growth may be due to increase in
orders from debtors and payments received from debtors.
 Further it can also be interpreted that the company has given the same credit period to
its debtors, which it receives from creditors and therefore it is able to maintain the a
close to optimum level of current ratio.

3.1.2 QUICK RATIO

TABLE 3.1.2

Analysis of quick ratio for 3 years (2014-2016)

YEAR QUICK RATIO

2014 3.048652113

2015 3.092712191

2016 3.862471612
Source: Annual Report

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 Quick Ratio
4.5
3.862471612
4
3.5 3.048652113 3.092712191
3
2.5
Ratio

2
1.5
1
0.5
0
2014 2015 2016
Years

Graph 3.1.2: Analysis of quick ratio for 3 years (2014-2016)

ANALYSIS

 The above data represents the changes in quick ratio for the year 2014 to 2016. The
ratio is seen to have grown substantially from 2015 to 2016 for over 25%. However,
there is almost no change of quick ratio in the year 2014 and 2015.
 Quick ratios represent the relationship between quick assets and current liabilities. A
quick asset is an asset which is more liquid than current assets and it is excludes
inventories while calculation.
 It excludes current assets such as inventories and other similar assets because they are
difficult to convert into cash than other current assets.

INTERPRETATION

 Quick ratio indicates how fast an asset can be liquidated into cash which can be used
to pay off the debts. An ideal quick ratio is 1:1, but we can notice that the company is
maintaining the above 1:1.
 This indicates that the company has excess liquid assets over current liabilities and it
can pay off its entire debt and still have some liquidity in hand.
 However, it may also be interpreted that the company is not effectively utilising cash.
The idle cash may be invested into various portfolios which in turn may provide
returns to the company.
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  The company may also illiquid assets by repaying their short term borrowings to free
up cash reserves.

3.1.3 ABSOLUTE LIQUID RATIO

TABLE 3.1.3

Analysis of Absolute Liquid Ratio for 3 years (2014-2016)

YEAR ALR

2014 1.259605231

2015 1.112981611

2016 1.90043843

Source: Annual Report

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 Absolute Liquid Ratio
1.90043843
2
1.8
1.6
1.4 1.259605231
1.112981611
1.2
Ratio

1
0.8
0.6
0.4
0.2
0
2014 2015 2016
Years

Graph 3.1.3: Analysis of absolute liquid ratio for 3 years (2014-2016)

ANALYSIS

 The absolute liquid ratio is being represented through a table and graph. It is seen that
there is a growth and downfall in the ratio through the 3-year period.
 In order to compute absolute liquid assets, only those assets are considered which are
absolutely liquid or those assets which can be converted into cash immediately.
 Major part of absolute liquid assets are contributed by `Cash and cash equivalents`
and `trade securities`. An optimum absolute liquid ratio is obtained when the ratio
results as 50% or 1:2.

INTERPRETATION

 Absolute liquid ratio is said to be optimum when there are twice as much as current
liabilities to the absolute liquid assets. However, in the given case it is seen that the
ratio is around 150%.
 Since this ratio has strict rules, most of the industries do not comply with this ratio.
However, Pidilite Industries’ ALR is way above the standard ratio of 0.5:1. It implies
that the company is in a satisfactory position to pay off all its current liability.
 On the contrary, it may also be interpreted that the company is running short of cash
and cash equivalent assets and is unable to meet its current liabilities. Therefore, the

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 company shall utilise its other assets in order to generate cash through which the
absolute liquidity increases.

3.2 ACTIVITY RATIO

3.2.1 ANALYSIS AND INTERPRETATION OF INVENTORY TURNOVER RATIO

TABLE 3.2.1

Analysis of Inventory Turnover Ratio for 3 years (2014-2016)

YEAR RATIO

2014 4.461430217

2015 4.656434488

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 2016 4.436148583

Source: Annual Report

INVENTORY TURNOVER RATIO

4.7 4.656434488
4.65

4.6

4.55
Ratio

4.5 4.461430217
4.436148583
4.45

4.4

4.35

4.3
2014 2015 2016
Years

Graph 3.2.1: Analysis of Inventory Turnover Ratio for 3 years (2014-2016)

ANALYSIS

 Inventory turnover ratio shows how quickly the inventories turn into turnover/sales
for the company with a year. In the given data, it can be noticed that the company’s
ratio is over 4 times in all 3 years.
 In the year 2016 the company saw a substantial decline in this ratio where by it
reached to 4.3 times of inventory turnover. However, the previous two years the ratio
has been good and increasing.
 Inventory Turnover Ratio measures company's efficiency in turning its inventory into
sales. Its purpose is to measure the liquidity of the inventory. However, it cannot be
classified as a liquidity ratio.

P a g e 38 | 73
INTERPRETATION

 In the year 2014 and 2015, the company managed to maintain its inventory turnover
ratio on par at 4.46 times. However, in 2016 it grew to 4.65 times. This indicates that
the company has made an improvement of nearly 5%.
 Further, it can be said that the company is doing really well in managing its orders
from customers and other clients. The company is able to make a real good use of its
transportation and storage cost towards inventory, which in turn has benefitted the
company.
 It can be noted that the company’s core business is playing a major role in this ratio.
The substantial part is contributed by `Revenue from Operations`. This savings in
carrying and storage cost is making a major change in the company’s operating
profits.

3.2.2 ANALYSIS AND INTERPRETATION OF RECIEVABLES TURNOVER

RATIO

TABLE 3.2.2

Analysis of Receivables Turnover Ratio for 3 years (2014-2016)

YEAR RATIO

2014 9.454936412

2015 9.085212196

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 2016 8.821148398

Source: Annual Report

DEBTOR'S TURNOVER RATIO

9.6
9.454936412
9.5
9.4
9.3
9.2
9.085212196
9.1
Ratio

9
8.9 8.821148398
8.8
8.7
8.6
8.5
2014 2015 2016
Years

Graph 3.2.2: Analysis of Receivables Turnover Ratio for 3 years (2014-2016)

ANALYSIS

 This is one of the most popular ratios used by all companies. It represents the number
of times it takes for the company to generate turnover based on its receivables. Trade
receivables include both `debtors` and `bills receivables`.
 The receivables turnover ratio is seen to be declining in all the three accounting years.
This downfall is seen in the year 2015 and it has decreased to 9.085 times from 9.454.
 Further, only credit sales made by the company is considered in this ratio. Therefore,
all cash sales are ignored.

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INTERPRETATION

 It is noted that for every Rs.2 of sale made by the company, the company gives Rs.1
credit to its customers. This indicates that the company is maintaining a strict credit
policy to its customers. Further, it can be interpreted that the company’s collection is
very efficient.
 However, in the case of Pidilite Industries, the ratio is falling down every year which
can mean that the company has eased its credit policy and therefore the collection
efficiency has dropped. The company must strategize an optimum collection period
would benefit both the company and the customer.
 A constant ratio over the years would mean that the company has maintained the
same credit policy, which proved to be wrong in the forth coming year.

3.2.3 ANALYSIS AND INTERPRETATION OF SALES TO WORKING CAPITAL

RATIO

TABLE 3.2.3

Analysis of Sales to Working Capital Ratio for 3 years (2014-2016)

YEAR RATIO

2014 3.631958028

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 2015 4.052344786

2016 3.574701833
Source: Annual Report

SALES TO WORKING CAPITAL RATIO

4.1 4.052344786

3.9

3.8
Ratio

3.7 3.631958028
3.574701833
3.6

3.5

3.4

3.3
2014 2015 2016
Years

Graph 3.2.3: Analysis of Sales to Working Capital for 3 years (2014-2016)

ANALYSIS

 This ratio helps in analysing the relationship between sales and working capital.
Working capital is the difference between the receivables and payables of the
company.
 This ratio determines how much of the working capital contribute in generating sales
and how much in other operations. There has been a constant growth in all the 3 years
and the ratio seems healthy.

INTERPRETATION

 Working capital plays an important role in the operations of a company, and the same
is seen in the above company.

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  It can be noted that for every Rs.1 of sales, the working capital contributes to an
approx. of Rs.0.27. However, this trend fell in the year 2016 due to the fact that the
working capital increased by 22.6%.
 Further, the changes in Sales were substantial. The receivables exceed payables in all
year and therefore this increased the working capital. It can be said that the company
is having an optimum strategy while managing its working capital. Working capital
plays an important role in the operations of a company, and the same is seen in the
above company. There is a constant growth in all the 3 years.

3.2.4 ANALYSIS AND INTERPRETATION OF TOTAL ASSETS TURNOVER

RATIO

TABLE 4.2.5

Analysis of Total Assets Turnover Ratio for 3 years (2014-2016)

YEAR RATIO

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 2014 1.520318326

2015 1.520871489

2016 1.467180522

Source: Annual Report

TOTAL ASSETS TURNOVER

1.53 1.520871489
1.520318326
1.52
1.51
1.5
1.49
Ratio

1.48
1.467180522
1.47
1.46
1.45
1.44
2014 2015 2016
Years

Graph 4.2.5: Analysis of Total Assets Turnover Ratio for 3 years (2014-2016)

ANALYSIS

 The table and diagram given above indicates the total assets turnover ratio of
the company for the past 3 years (2014-2016).
 In FY2014 the ratio was at 1.52 times. From there it was constant in FY2015.
In FY2016 it declined to 1.46 times owing to increase in both, the Net Sales
and the Total Assets.

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INTERPRETATION

 This ratio is intended to reflect the intensity with which the assets are
employed or used by the company to generate future income flows. Here in
this company we can see an increasing trend in its assets turnover ratio. The
ratio was at its highest point in FY2013-14 and 14-15. This indicates an
efficient utilisation of assets.
 In FY2015-16, the ratio was at its lowest compared to its previous FYs. This
indicates that the assets are not being efficiently employed.

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3.3 LEVERAGE RATIOS

3.3.1 ANALYSIS AND INTERPRETATION OF DEBT TO EQUITY RATIO

TABLE 3.3.1

Analysis of Debt to Equity ratio for 3 years (2014-2016)

YEAR RATIO

2014 0.028688683

2015 0.025652419

2016 0.023987935

Source: Annual Report

DEBT TO EQUITY RATIO

0.03
0.028688683
0.029

0.028

0.027
0.025652419
0.026
Ratio

0.025
0.023987935
0.024

0.023

0.022

0.021
2014 2015 2016
Years

Graph 3.3.1: Analysis of Debt to Equity Ratio for 3 years (2014-2016)

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ANALYSIS

 Debt-Equity ratio is one of the most popular ratios used by all companies
which represents the relationship between the long-term borrowings and
shareholders’ funds.
 This ratio acts as a financial leverage which helps in determining the amount
of debt that the company used to finance its assets and how much of it
represents to the shareholders.
 It is seen that the debt-equity is in an increasing rate in the initial years but
however, becomes constant in the last year.

INTERPRETATION

 The ratio is seen to decrease throughout all the three years. This is may be due
to the fact that the company has seen a constant growth in both debt and
equity, but the growth in equity is relatively higher than the growth in the debt
of the company.
 In all the 3 years the company has raised both equity and debt. The shares
include both bonus and rights, and the debt include debentures and bank loan.
 However, the company has not maintained the optimum level of 2:1 which
this ratio demands. This is due to the fact that the company increased both the
components.
 Therefore, the company must stop borrowing debts or raise equity but in turn
repay them. It is noted that for every Rs.1 of debt the company owns over Rs.41
of equity. This may seem good to the shareholders.

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3.3.2 ANALYSIS AND INTERPRETATION OF EQUITY/PROPRIETORY RATIO

TABLE 3.3.2

Analysis of Equity/proprietary ratio for 3 years (2014-2016)

YEAR RATIO

2014 0.705907253

2015 0.71913232

2016 0.769419578

Source: Annual Report

P a g e 48 | 73
 EQUITY RATIO
0.78
0.769419578

0.76

0.74
Axis Title

0.71913232
0.72
0.705907253

0.7

0.68

0.66
2014 2015 2016
Axis Title

Graph 3.3.2: Analysis of Equity/proprietary Ratio for 3 years (2014-2016

ANALYSIS

 This ratio represents the relationship between net worth and total assets. It
determines how much of net worth is helping generate fixed assets and vice-
versa.
 Net worth is the aggregate of shareholders’ fund and reserves and surplus. It is
the most vital component in the market through which investors take into
consideration while investing.
 Further, equity is a general indicator of financial stability.

INTERPRETATION

 It is seen that the ratio is lowest in the initial year but then increases
substantially in the last year. This is due to the fact that the equity of the
company is substantially lower than the total assets.
 Further, the changes in each year is very minute. Therefore, it cannot be said
that the drop is substantial. It is the current assets that is contributing to the

P a g e 49 | 73
 highest of the total assets and therefore it is increasing the asset component in
the ratio.
 It can also be interpreted that the company has been using equity to support its
operations. Moreover, intangible assets have been excluded while calculating
in order to provide a true picture.

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3.3.3 ANALYSIS AND INTERPRETATION OF DEBT TO CAPITAL RATIO

TABLE 4.3.3

Analysis of Debt to Capital for 3 years (2014-2016)

YEAR RATIO

2014 0.003767562

2015 0.002460153

2016 0.000399251

Source: Annual Report

DEBT TO CAPITAL RATIO

0.004 0.003767562

0.0035

0.003
0.002460153
0.0025
Ratio

0.002

0.0015

0.001
0.000399251
0.0005

0
2014 2015 2016
Years

Graph 3.3.3: Analysis of Debt to Capital for 3 years (2014-2016)

P a g e 51 | 73
ANALYSIS AND INTERPRETATION

 The ratio is an indicator of the total amount of debt in a company’s capital structure.
It is a gauge of company’s financial leverage.
 The table and diagram above shows a steep decline in the debt to capital ratio of the
company for the past 3 years (2014-2016). In 2014 it is at 8%, from there it went
down to 12% in 2015. It again went down to 8% in 2016.

P a g e 52 | 73
3.3.3 ANALYSIS AND INTERPRETATION OF DEBT TO CAPITAL RATIO

TABLE 4.3.4

Analysis of return on equity for 3 years (2014-2016)

RETURN ON EQUITY CAPITAL

YEAR RATIO

2014 8%

2015 9%

2016 8%

Source: Annual Report

RATIO
9%
9%
9%
9%
9%
RETURN ON EQUITY

8%
8%
8% 8%
8%
8%
8%
7%
2014 2015 2016
YEAR

Graph 4.3.4: Analysis of return on equity for 3 years (2014-2016)

P a g e 53 | 73
ANALYSIS

 The table and diagram given above indicates the Return On Equity (ROE) of the
company for the past 3 years (2014-2016). In 2014 it was at 8%, from there it went
up to 9% in 2015. In 2016 it reduced to 8%.

INTERPRETATION

 The ROE is calculated to find the final net profit after tax and preference dividend
available to the equity shareholders. Here in this case we can find that the ROE is
showing a fluctuating trend for the past 3 years. ROE was highest in 2015 where it
had a huge sales volume and the highest profit after tax and preference dividend.
 In the year 2014, the sales and profit was the lowest, so the ROE reduced to 9%.
But in 2016, compared to the previous year it had a low sales and growth in profit
even then the ROE was the lowest (8%). This is due to withdrawal of certain
management policies regarding the dividend.

TABLE 4.3.5

Analysis of return on assets for 3 years (2014-2016)

P a g e 54 | 73
 RETURN ON ASSETS

YEAR RATIO

2014 -9%

2015 -1%

2016 3%

Source: Annual Report

RATIO
6%

4% 3%

2%
RETURN ON ASSETS

0%
2014 2015 2016
-2% -1%

-4%

-6%

-8%

-10% -9%
YEAR

Graph 4.3.5: Analysis of return on assets for 3 years (2014-2016)

ANALYSIS

 The table and diagram given above indicates the Return on Assets (ROA) of the
company for the past 3 years (FY2014-FY2016). In FY 2014 it was at -9%, from
there it went up to -1% in 2015. In 2016 it further increased to 3%.

P a g e 55 | 73
INTERPRETATION

 The objective of ROA is to find out how efficiently the assets employed in the
business are utilised or how much profit is earned by employing the total assets. In
this case we can see that the ROA is showing an increasing trend. The company is
having the highest ROA in FY 2016. With minimal employment of assets the
company was able to make the highest profit compared to its subsequent years in
FY 2014.
 In FY 2015, the proportion of the total assets increased and the company was able
to make a good return from it. Therefore the ROA got increased to -1%. In FY 2016,
the employment of assets was at its highest, though profit increased to a mere extent
compared to FY 2015, it was not in proportion to the total assets. Therefore ROA
was at its highest.
 The ROA for FY 2015 and FY 2016 shows the efficiency of the company in
utilising its assets to make good returns.

TABLE 4.3.6

Analysis of return on capital employed for 3 years (2014-2016)

RETURN ON CAPITAL EMPLOYED

YEAR RATIO

2014 4%

P a g e 56 | 73
 2015 4%

2016 5%

Source: Annual Report

RATIO
6%
5%
RETURN ON CAPITAL EMPLOYED

5%
4% 4%
4%

3%

2%

1%

0%
2014 2015 2016
YEAR

Graph 4.3.6: Analysis of return on capital employed for 3 years (2014-2016)

ANALYSIS

 The table and graph given above indicates the Return on Capital Employed of the
company for the past 3 years (2014-2016). In FY 2014 it was at 4%, from there it
went up to 4% in 2015. In 2016 it further raised to 5%.

INTERPRETATION

 Return on capital employed or ROCE is a profitability ratio that measures how

efficiently a company can generate profits from its capital employed by comparing
net operating profit to capital employed. In other words, return on capital employed

P a g e 57 | 73
 shows investors how many rupees in profits each rupee of capital employed
generates.
 ROCE is a long-term profitability ratio because it shows how effectively assets are
performing while taking into consideration long-term financing. This is why ROCE
is a more useful ratio than return on equity to evaluate the longevity of a company.
 The return on capital employed ratio shows how much profit each dollar of
employed capital generates. Obviously, a higher ratio would be more favourable
because it means that more rupees of profits are generated by each rupee of capital
employed.
 For a company, the ROCE trend over the years is also an important indicator of
performance. In general, investors tend to favour companies with stable and rising
ROCE numbers over companies where ROCE is volatile and bounces around from
one year to the next. As the above graph shows increasing trend it is favourable for
company.

TABLE 4.3.7

Analysis of operating ratio for 3 years (2014-2016)

OPERATING RATIO
YEAR RATIO

2014 55%

2015 56%

2016 54%

Source: Annual Report

P a g e 58 | 73
 RATIO
57%
56%
56%
OPERATION RATIO
56%
55%
55%
55%
54%
54%
54%
53%
2014 2015 2016
YEAR

Graph 4.3.7: Analysis of operating ratio for 3 years (2014-2016)

ANALYSIS

 The table and diagram given above indicates the operating profit ratio of the
company for the past 3 years (2014-2016). In 2014 it was 55%, from there it went
up to 56% in 2015. In 2016 it again went down to 54%.

INTERPRETATION

 This ratio shows the amount of operating profit it makes in relation to net sales. The
ratio for the year 2014 is good. But there was increase in sales in 2015. But as seen
in the graph, the operating profit has been went down again in 2016. This shows
company’s fluctuations. The company needs to take sufficient care and
effectiveness in its production variable costs in order to increase the operating
profit.

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4.4 ANALYSIS AND INTERPRETATION OF ACTIVITY RATIOS

TABLE 4.4.1

Analysis of inventory turnover ratio for 3 years (2014-2016)

INVENTORY TURNOVER
RATIO

YEAR RATIO

2014 27.18

2015 27.22

2016 27.86

Source: Annual Report

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 RATIO
28
27.86
INVENTORY TURNOVER RATIO
27.8

27.6

27.4
27.18 27.22
27.2

27

26.8

26.6
2014 2015 2016
YEAR

Graph 4.4.1: Analysis of inventory turnover ratio for 3 years (2014-2016

ANALYSIS

 The given table and diagram indicates the inventory turnover ratio of the company
for the past 3 years (2014-2016). In FY2014 the ratio was at 27.18 times. From
there it went up to 27.22 in FY2015. IN FY2016 it again reduced to 27.86 times.

INTERPRETATION

 Inventory turnover ratio is a measure of liquidity of inventory. It measures how

quickly inventory is sold.in this case the company is showing an increasing trend.
It means it was able to sell off the inventory at a higher pace and generate income.
As the ratio was highest in FY 2016. It means that the company was able to sell the
inventory quickly or rather inventories.

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 TABLE 4.4.2

Analysis of receivables turnover ratio for 3 years (2014-2016)

RECEIVABLES TURNOVER RATIO

YEAR RATIO

2014 15.46

2015 15.38

2016 15.15

Source: Annual Report

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 RATIO
RECEIVABLES TURNOVER RATIO
15.6

15.5 15.46

15.4 15.38

15.3

15.2 15.15

15.1

15

14.9
2014 2015 2016
YEAR

Graph 4.4.1: Analysis of receivables turnover ratio for 3 years (2014-2016

ANALYSIS

 The given table and diagram indicates the receivables turnover ratio of the company
for the past 3 years (2014-2016). In FY2014 the ratio was at 15.46 times. From
there it went down to 15.38 times in FY2015. IN FY2016 it again reduced to 15.15
times.
INTERPRETATION

 The objective of this ratio is to find out how quickly the company converts it
debtors or receivables into cash. In this case, the company is showing a decreasing
trend in its receivables turnover. The ratio was the highest in FY 2014, but in its
subsequent years, it declined. FY 2015 and FY 2016 indicates an inefficiency
from the part of the company in realising cash from its debtors.

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 TABLE 4.4.3

Analysis of payables turnover ratio for 3 years (2014-2016)

PAYABLES TURNOVER RATIO

YEAR RATIO

2014 6.58

2015 6.71

2016 6.71

Source: Annual Report

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 RATIO
6.75

6.71 6.71

PAYABLE TURNOVER RATIO 6.7

6.65

6.6
6.58

6.55

6.5
2014 2015 2016
YEAR

Graph 4.4.3: Analysis of payables turnover ratio for 3 years (2014-2016)

ANALYSIS

 The given table and diagram indicates the payables turnover ratio of the company
for the past 3 years (2014-2016). In FY 2014 the ratio was at 6.58 times. From there
it went up to 6.71 times in FY 2015 and 2016

INTERPRETATION

 The objective of this ratio is to find out how quickly or the number of times the
average creditors are paid in a year. In this case we can see that the company is
showing an increasing trend in the payables turnover. The ratio is the highest in the
FY 2016 compared to previous years. The reduction in FY 2015 and FY 2016
indicates there is a speedy repayment to creditors .

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 TABLE 4.4.4

Analysis of working capital turnover ratio for 3 years (2014-2016)

WORKING CAPITAL TURNOVER

RATIO
YEAR RATIO

2014 -2.3

2015 11.52

2016 -14.97

Source: Annual Report

P a g e 66 | 73
 RATIO
15
11.52
WORKING CAPITAL TURNOVER RATIO

10

0
2014 2015 2016
-5 -2.3

-10

-15
-14.97
-20
YEAR

Graph 4.4.4: Analysis of working capital turnover ratio for 3 years (2014-2016)

ANALYSIS

 The table and diagram given above indicates the working capital turnover ratio of
the company for the past 3 years (2014-2016). In FY2014 the ratio was at
-2.3 times. From there it went up to 11.52 times in FY2015. IN FY2016 it had a
severe fall to -14.97 times.

INTERPRETATION

 This ratio indicates the number of times the working capital has been turned over
or utilised during the period. In this company we find that in the FY 2014 and FY
2016 the ratio is very low. This indicates the inefficiency of the working capital
management. The working capital is very low in these 2 FYs compared to the FY
2015. It also means that the working capital is set idle without any further
investments.
 In FY 2015, the company is having the highest working capital turnover ratio.
This indicates the efficient use of working capital in generating sales.

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 TABLE 4.4.5

Analysis of total assets turnover ratio for 3 years (2014-2016)

TOTAL ASSETS TURNOVER

RATIO
YEAR RATIO

2014 0.29

2015 0.28

2016 0.3
Source: Annual Report

P a g e 68 | 73
 RATIO
0.305
0.3
0.3

0.295
TOTAL ASSESTS TURNOVER RATIO

0.29
0.29

0.285
0.28
0.28

0.275

0.27
2014 2015 2016
YEAR

Graph 4.4.5: Analysis of Total assets turnover ratio for 3 years (2014-2016)

ANALYSIS

 The table and diagram given above indicates the total assets turnover ratio of the
company for the past 3 years (2014-2016). In FY2014 the ratio was at 0.29 times.
From there it went up to 0.28 times in FY2015. IN FY2016 it further increased to
0.3 times.

INTERPRETATION

 This ratio is intended to reflect the intensity with which the assets are employed or
used by the company to generate future income flows. Here in this company we
can see a increasing trend in its assets turnover ratio. The ratio was at its highest
point in FY2016. This indicates an efficient utilisation of assets.
 In FY2015 the ratio was at its lowest compared to its previous FYs. This indicates
that the assets are not being efficiently employed.

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 TABLE 4.4.6

Analysis of capital turnover ratio for 3 years (2014-2016)

CAPITAL TURNOVER RATIO

YEAR RATIO

2014 0.34

2015 0.32

2016 0.36

Source: Annual Report

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 RATIO
0.37
0.36
0.36
CAPITAL TURNOVER RATIO
0.35
0.34
0.34

0.33
0.32
0.32

0.31

0.3
2014 2015 2016
YEAR

Graph 4.4.6: Analysis of capital turnover ratio for 3 years (2014-2016)

ANALYSIS

 The table and diagram given above indicates the capital turnover ratio of the
company for the past 3 years (2014-2016). In FY2014 the ratio was at 0.34 times.
From there it went down to 0.32 times in FY 2015. IN FY2016 it further increased
to 0.36 times.

INTERPRETATION
 This ratio is calculated to measure the efficiency or effectiveness with which a firm utilizes
its resources or the capital employed. As capital invested in a business to make sales and
earn profit, this ratio is a good indicator of overall profitability of a concern. The ratio is
decreasing from 2014 to 2016 from 0.34 to 0.36 this means they are investing in sales.

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REFERENCES

P a g e 72 | 73
1. http://www.pidilite.com/about-pidilite/
2. www.investopedia.com
3. https://accountlearning.blogspot.in
4. https://www.ibef.org/industry/fmcg.aspx
5. http://economictimes.indiatimes.com/pidilite-industries
ltd/infocompanyhistory/companyid-10460.cms
6. http://www.statisticssolutions.com/time-series-analysis/
7. http://bizresearchpapers.com/Kesseven.pdf
8. https://http://www.investopedia.com/terms/t/timeseries.asp
9. http://www.moneycontrol.com/india/stockpricequote/chemicals/pidiliteindustries/PI1
1

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