PROJECT REPORT

ON
ACCOUNTS AND FINANCIAL ACTIVITIES
COMMENCED AT ABHITEX INTERNATIONAL PVT LTD,
PANIPAT, HARYANA

A training report submitted in partial fulfilment of the requirement for the

degree of MASTER OFBUSINESS ADMINISTRATION.

CHANDIGARH UNIVERSTY,, GHARUAN

SUBMITTED TO SUBMITTED BY

GURLEEN KAUR, AMAR JEET MAURYA

17MBA2023

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 DECLARATION

I declare that this project titled ACCOUNT AND FINANCIAL

ACTIVITIESI undersigned hereby declare that the summer training project
report submitted to my college CHANDIGARH UNIVERSTY. In partial
fulfilment for the degree of master of business administration on “Accounts
and financial activities” is a result of my own work under continous guidance
and kind co-operation of our college faculty member Mrs. Gurleen Kaur I have
not submitted this training report to any other university for the award of
degree.

Students’ Signature

Name

UID NO

Date

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EXTERNAL CERTIFICATE

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 INTERNAL CERTIFICATE

This is Certify that Mr.AMAR JEET MAURYA s/o Mr.SHATU MAURYA

a student of MBA of Chandigarh University,Gharuan, Mohali,Punjab has
successfully completed 45 days from 1 June 2018 to 16 July 2018 long
internship programme in our Abhitex International panipat Unit. During of his
internship programme with us he was found punctual,hardworking and
inquisitive.

We wish him every success in life.

Mr. Gulshan (Head of finance)

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 ACKNOWLEDGEMENT
Perseverance, inspiration and motivation have always played a key role in success of any
venture. In the present world of competition there is race of existing in which those who are
having will to come forward succeed. Project is like a bridge between theoretical and
practical working. With willing I join this particular project.

To design and compare a project report is very laborious work, which no student complete
without taking any help from any professional

I acknowledge with gratitude my thanks to Pankaj kumar jha (HR manager) for providing
me an opportunity to undertake training at the Abhitex international pvt ltd, panipat, Haryana.

I extremely grateful to finance department, for invaluable Support and inputs in this project.

I also express my sincere thanks to my parents and friends who always have been source of
inspiration to me and supported me. And last but not least, I am grateful to all those who
helped me.

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 CONTENT
CHAPTER
NO. TITLE PAGE NO.
CHAPTER 1 1.1 INTRODUCTION ABOUT THE ORGANISTION 7
1.2 COMPANY INFRASTRUCTURE 8-10
1.3 PRODUCT OF COMPANY 11-12
1.4 AWARD 13-14
COMPANY ACCOUNT
CHAPTER 2
2.1 INTRODUCTION 15
2.2 AN ACCOUNTANT’S JOB PROFILE 15
2.3 DEVELOPMENT OF ACCOUNTING DISCIPLINE 16

2.4 UTILITY OF ACCOUNTING 17

2.5 TYPES OF ACCOUNTING 17
2.7 1 FINANCIAL ACCOUNT 17
2.8 .2MANAGEMENT ACCOUNTING 18
2.9 DISTINCTION BETWEEN FINANCIAL AND 18
MANAGEMENT ACCOUNTING

2.10 KINDS OF ACCOUNTING PRINCIPLE 19-20

CHAPTER 3 RECORDING OF TRANSACTIONS- VOUCHER

SYSTEM, ACCOUNTING PROCESS, JOURNAL

3.1. IDENTIFICATION OF TRANSACTION 21

1.RECORDING OF TRANSACTION 22
2 .CLASSIFYING 22
3.SUMMARISING 23
4.ANALYSIS AND INTERPRETATION 23
5. PRESENTATION OR REPORTING OF FINANCIAL 23
INFORMATION
3.2 VOUCHER 24
3.3 JOURNAL 24
3.4 CLASSIFICATION OF ACCOUNTS 25

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 3.5 JOURNALIZIN 26-31
CHAPTER 4 LEDGER POSTING AND TRIAL BALANCE
4.1 LEDGER 32
4.2 POSTING 32
4.3 THE LEDGER FOLIO 32
4.4 RULE REGARDING POSTING 33
4.5 TRIAL BALANCE 33-34
CHAPTER 5 BALANCE SHEET
5.1 CLASSIFICATION OFASSETS AND LIABILITIES 35-36
CHAPTER 6 RATIO ANALYSIS

6.1 OBJECTIVES OF CALCULATION OF RATIO 37

ANALYSIS
6.2 FINANCIAL RATIOS AND THEIR 37-44
INTERPRETATION
6.3 DIFFERENT YERA RATIO ANALYSIS 44-50
6.4
6.4 RATION ANALYSIS USING TALLY 50-52

CHAPTER-7 7.1 REVIEW OF LITERATURE 53

54-64
7.2 RESEARCH METHODOLOGY
65
7.3 CONCLUSION
7.4 BIBLIOGRAPHY 66

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CHAPTER 1

1.1 INTRODUCTION TO ORGANISATION

Abhitex International is the largest Home Textile products manufacturer and exporter in
India. The company started its Home textile business with the manufacturing of handloom
products in early 1970s and was one of the foremost companies to export handloom products
out of India.

Today, with the vision of innovative quality designs, latest technology and an accumulated
experience of nearly four decades, Abhitex International has grown to be an invincible leader
in the Home Textile products in India. It has got unsurpassable infrastructure at Panipat, in
the outskirts of New Delhi. The group has four state-of-the-art manufacturing facilities with a
Large area for manufacturing.

The in-depth experience in manufacturing Home Textile products has allowed the group to
build up very large in-house capacities for various product categories which is of great
advantage in keeping production cost low & handling large volumes with full quality controls
and timely deliveries. Over the years, the turnover of the group has grown to US$ 50
Millions.

One of the pivotal strengths of the group is its dedicated team of over 2,000 professional who
work diligently to help the company in giving shapes to customer's aspirations.

1.2 COMPANY INFRASTRUCTURE

The group has four state-of-the-arts vertically, integrated manufacturing units equipped with
most advanced technology and manned by competent professionals. The units are 100%
compliant 24/7/365 days a year and the group has approval certificates from all of its
customers.A skilled labour force alongwith the expertise in Computer Aided Design and
manufacturing systems, with an in-house annual production capacity of 10 million pieces,
enjoys a large market share, globally.

In order to execute this task to perfection and become truly World class, Abhitex strives to
achieve Global standards in quality, cost, service and scale of operation. With a rich heritage,
contemporary professionalism and high end technology, Abhitex today, is all set to explore
new markets worldwide.

A fully integrated production line at PANIPAT - “Abhitex International.” produces world

class textile products, Bath mats, Rugs, Terry Towels, Tapestry Products and BedSpreads. In-
house facilities for Sampling, Cutting, Stitching, Finishing and usage of highlighted-tech
machinery, ensure that the final product exceeds the customer’s expectations.

DESGINING SECTION

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The group has got state of the art CAD technology in place with reliable and accurate
software from Grosse, Sophis & Nedgraphics. The centre is manned by a team of highly
talented designers with a keen sense of colors, visual imagination and latest market trends.

DYEING SECTION
The dyeing section is well equipped with the latest cone dyeing, hank dyeing, fabric dyeing
and piece dyeing machines from Leading Manufacturers along with the well equipped testing
labs to maintain accurate colors over a long period of time and tightly control all the dyeing
standards.The section has most modern drying machines like RF Dryers, Tumbler Dryers,
and Loop Dryer etc. The overall dyeing capacity of the Group is more than 1600 tons/month.

TERRY TOWEL DIVISION

The Terry Towel Division of the group is well equipped with the latest and newest available
technology from around the world, for instance, terry weaving looms are from Toyota (Japan)
and Smit/Sulzer (Italy), warping is from West Point (USA), dyeing is from Brazolli (Italy),
Tumble Dryer is a unique machine from Anglada (Spain).

The most unique feature of the plant is that it offers coordinated bath rugs made on table top
tufting machine with matching towels. Terry Towels and bath rugs are processed in the same
dye house/process house in order to achieve perfect and consistent matching between towels
and bath rugs. This particular combination of terry towels with table top tufted bath rugs in
one single process house is one of its kinds in the world. The total capacity of the terry towel
plant is 5000 tones per annum.

TUFTING DIVISION

The Group started tabletop tufting in 1984 and became the first manufacturer of tufted bath
rugs in the country. Today, Tufting Division is a vertically integrated plant with complete in-
house yarn spinning, tufting, dyeing, packing, and container stuffing facilities.

The division has over 500 multi needle table top tufting machines to produce over 600,000
units of bath rugs per month and a supporting bath rug dyeing capacity of 25 tones a month.
Apart from this, the group also has, USA made, wide width tufting machines. These
machines produce Chenille bedspreads and bath rugs.

JACQUARD/TAPESTRY AND DOBBY DIVISION

The Group started its jacquard and dobby plant in early 1990s. The unit has 50 Somet looms
with Bonas England Jacquards and 56 looms Somet and Sulzer Looms with Staublie
Dobbies. To strongly support its large weaving capacity, the group has got a state of the art
Cut and Sew operation in this division.

The division manufactures tapestry table cloth sets, Runners/Place Mats, Rugs, Throws,
Pillows, Kitchen Apron Sets, Jacquard Bedding, Metalesse Bedding on Jacquard looms. And

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it manufactures Table Cloth Sets, Fitted Furniture Coverlets, Shower Curtains, Sofa Covers,
Dobby Bedding on its Dobby Looms.

Handloom Divison

Handloom Division is the oldest endeavor of the group. It started its home textile business
with this division in early 1970s. It was with this division only that the company started its
export of handloom products out of India and then there was no looking back. Today, the
total production capacity of the division is over 2.0 million sq.ft. per month and the product
range includes Handloom

Woven Accent Rugs, Handloom Woven Bath Rugs, Braided Rugs, Throws, Bedding,
Pillows, Chair Pads, Comforters, Box Cushions, Blankets etc.

FROM DESK OF MD
At Abhitex, connecting customers, suppliers and communities is critical to our success.
Meeting our customer’s supplier diversity requirements is directly related to having an
inclusive group of diverse suppliers that reflect the evolving demographics. Suppliers with
different backgrounds, with a variety of viewpoints and styles of interacting, combined with
their experiences help us understand and meet the needs of our customers. The utilization of
diverse suppliers creates economic vitality in the communities in which we work, live, play
and learn.

Abhitex is dedicated to connecting customers, suppliers, and communities. Our goal is to be

recognized as a world leader in home textiles. Moving forward Abhitex plans to expand its
supplier diversity efforts further into our supply chain as well as internationally. We at
Abhitex want to hear your feedback as to how we can best meet and exceed these goals.

Our constant endeavour has been to strive in the direction of success by committing ourselves
to Growth and Expansion. Over a period of time, the Company has grown capacities across
all businesses. On the people front, we have taken up the challenge of growing each
individual’s learning curve for which we have initiated a company.

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1.3 PRODUCT OF COMPANY

 TERRY TOWELS
We are manufacturing and exporting highly trendy range of Terry Towels. These towels
are crafted using finest quality material, sourced from the most trusted vendors of the market.

Our ranges of terry towels are extremely soft and absorbent. These towels are available in a
range of Colours with attractive borders to give them durability and shape retention. We use
100% soft cotton yarn to make our range of terry towels, which allow us to deliver them in
various colours and sizes.

 BUTH RUGS
Bath rugs are primarily used for absorbing the moisture as you step into your room after a
bath. They are made of highly absorbent, soft material that is silky to touch and comfortable
to use and also dries easily.

We are looked upon as the most reliable source of Cotton Bath Mats. We offer premium
quality Cotton Bath Mats that are made from 100% natural cotton yarns, which makes them
soft and skin friendly in nature. The wide demand of the Cotton Bath Mats offered by us in
the market proves our claim of being the best Cotton Bath Mat Manufacturer and Exporter
from Panipat.

 AREA RUGS
Abhitex is counted amongst the renowned manufacturer and exporter of handloom rugs.
Using superior quality raw material, these rugs offer unmatched durability and strength. Our
artisans are talented and create designer quality rugs.

Abhitex International is counted amongst the renowned Manufacturers and Exporters of

Handloom Rugs. In the age of high tech we have achieved, unique distinction of combining
state of the art operations with ages old technique of weaving and craftsmanship.

 THERMAL BLANKETS
We are one of the largest producers of cotton thermal blankets in India. Our blankets are soft,
lofty, durable and smooth. These are easy care machine wash. Available in a number of
designs and colours, special treatments for anti linting are given to each piece to ensure good
quality.

Our lightweight Natural blankets are made from very fine quality cotton. We have variety of
constructions available apart from 100% cotton, e.g cotton-viscose, cotton-bamboo, organic
cotton, polyester, slabs etc.

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  BED SPREADS
We are into manufacturing and exporting of Bedspreads that are loved by the clients due to
their attractive designs and unique color combinations. These Bedspreads are available in
various prints to meet the requirements of the clients. Moreover, we offer Bedspreads at
market leading prices.

Keeping abreast with the international trends Abhitex possesses vertically integrated, state-
of-the-art production facilities for two decades by India's leading exporters and world's
leading brands, Abhitex has today emerged as one of India's leading textile groups.

 DECORATIVE CUSHIONS
Abhitex International manufactures and supplies a large selection of decorative pillows, Solid
Pillows, Dobby Pillows, Jacquard Pillows, Embroidered and Embellished pillows, Print
Pattern Pillows, etc .Virtually any size, shape, fabric and colour are available with fills or as
Shells only.

Decorative pillows make a great vehicle for the introduction of fashion patterns, colors, fabric
and shapes.The easiest and quickest way to make a fresh statement.. Some of the esteemed
Retailers we supply to are Pier1, Walmart, Target (U.S, Canada, Australia), ASDA , Bed
Bath & Beyond , etc.

ABOUT COMPANY
Founded in 1968 by Mr Avinash Paliwal, Abhitex International is a successful member of the
diversified Shree Avinash Paliwal Group.

The Group also includes :

• Paliwal Overseas Pvt. Ltd.

• Paliwal Industries Pvt. Ltd.

• Paliwal Infrastructure Pvt. Ltd.

• The Weave Land

With the sales turnover of US$ 64 Million, Abhitex International is a fast growing vertically
integrated Home Textile Company. We are one of the largest manufacturers and exporters of
Home Textiles in the country for last four decades. With presence in over 25 countries and
over 4,000 employees, Abhitex Truely represents amalgamation of expertise, resources and
Opportunities. Our Markets are: USA (60%), UK & rest of Europe (20%), Australia (10%),
Rest of the world (10%)

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Our main products are Terry Towels, Bath Mats, Area Rugs, Dining & Kitchen textiles,
Bedspreads, Cotton Thermal Blankets, Decorative Cushions, Chair Pads , Throws &
Window/Shower Curtains. Abhitex International is one stop resource for diversified textile
made ups.

We have 44 years of strong customer faith in our consistent quality. The strong product
design & development team offers innovative products to customers all the time. We have the
latest machinery, large scale capacity structures clubbed with flexibility to meet changes
required by customers. We have won best employer awards from our state government for
many years for our adherence to the state laws towards employee, community and
environment. At Abhitex, we are committed to operating in an environmentally and socially
respect.

AWARDS
We have Received a large number of Awards for our trusted Export Performance, Some of
which are,

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Page 14
CHAPTER-2

COMPANY ACCOUNT

2.1 INTRODUCTION
Accounting is a system meant for measuring business activities, processing of information
into reports and making the findings available to decision-makers. The documents, which
communicate these findings about the performance of an organisation in monetary terms, are
called financial statements. Usually, accounting is understood as the Language of Business.
However, a business may have a lot of aspects which may not be of financial nature. As such,
a better way to understand accounting could be to call it The Language of Financial
Decisions. The better the understanding of the language, the better is the management of
financial aspects of living. Many aspects of our lives are based on accounting, personal
financial planning, investments, income-tax, loans, etc. We have different roles to perform in
life-the role of a student, of a family head, of a manager, of an investor, etc. The knowledge
of accounting is an added advantage in performing different roles. However, we shall limit
our scope of discussion to a business organisation and the various financial aspects of such an
organisation. When we focus our thoughts on a business organisation, many questions (is our
business profitable, should a new product line be introduced, are the sales sufficient, etc.)
strike our mind. To answer questions of such nature, we need to have information generated
through the accounting process. The people who take policy a host of other decisions, relating
to education, health, economic planning, for which it needs accurate and reliable information.
As such, the government demands stringent accountability in the corporate sector, which
forces the accounting process to be as objective and formal as possible.

2.2 AN ACCOUNTANT’S JOB PROFILE: FUNCTIONS OF

ACCOUNTING

A man who is involved in the process of book keeping and accounting decisions and frame
business plans use such information. All business organisations work in an ever-changing

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dynamic environment. Any new programme of the organisation or of its competitor will
affect the business. Accounting serves as an effective tool for measuring the financial pulse
rate of the company. It is a continuous cycle of measurement of results and reporting of
results to decision makers. Just like arithmetic is a procedural element of mathematics, book
keeping is the procedural element of accounting. Figure 1 shows how an accounting system
operates in business and how the flow of information occurs. People make decision Business
transactions occur Accountants prepare reports to show the results of business operations.

Liorngren, Harrison and Robinson, Financial and Management Accounting, Prentice Hall,
New Jersey, 1994.

People make decision

Business transactions occur

Accountants prepare reports to show the results of

business operations

FIG 1: THE ACCOUNTING SYSTEM SOURCE:

2.3 DEVELOPMENT OF ACCOUNTING DISCIPLINE

The history of accounting can be traced back to ancient times. According to some beliefs, the
very art of writing originated in order to record accounting information. Though this may
seem to be an exaggeration, but there is no denying the fact that accounting has a long
history. Accounting records can be traced back to the ancient civilizations of China,
Babylonia, Greece and Egypt. Accounting was used to keep records regarding the cost of
labour and materials used in building great structures like the Pyramids. During 1400s,
accounting grew further because the needs for information of merchants in the Venis City of
Italy increased. The first known description of double entry book keeping was first published
in 1994 by Lucas Pacioli. He was a mathematician and a friend of Leonardo Ileda Vinci. The
onset of the industrial revolution necessitated the development of more sophisticated
accounting system, rather than pricing the goods based on guesses about the costs. The
increase in competition and mass production of goods led to the rise of accounting as a
formal branch of study. With the passage of time, the corporate world grew. In the nineteenth
century, companies came up in many areas of infrastructure like the railways, steel,
communication, etc. It led to a rapid growth in accounting. As the complexities of business

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grew, ownership and management of business was divorced. As such, managers had to come
up with well-defined, structured systems of accounting to report the performance of the
business to its owners. Government also has had a lot to do with more accounting
developments. The Income Tax brought about the concept of ‘income’. Government takes is
called an accountant. With the coming up accounting as a specialised field of knowledge, an
accountant has a special place in the structure of an organisation, because he performs certain
vital functions. The following paragraphs examine the functions of accounting and what role
does an accountant play in discharging these functions. An accountant is a person who does
the basic job of maintaining accounts as he is the man who is engaged in book keeping. Since
the managers would always want to know the financial performance of the business. An
accountant prepares profit and loss account which reports the profits/losses of the business
during the accounting period, Balance Sheet, which is a statement of assets and liabilities of
the business at a point of time, is also proposed by all accountants. Since both statements are
called financial statements, the person who prepares them is called a financial accountant.

2.4 UTILITY OF ACCOUNTING

The preceding section has just brought out the importance of information. Effective decisions
require accurate, reliable and timely information. The need for quantity and quality of
information varies with the importance of the decision that has to be taken on the basis of that
information. The following paragraphs throw light on the various users of accounting
information and what do they do with that information. Individuals may use accounting
information to manage their routine affairs like operating and managing their bank accounts,
to evaluate the worthwhileness of a job in an organization, to invest money, to rent a house,
etc. Business Managers have to set goals, evaluate progress and initiate corrective action in
case of unfavourable deviation from the planned course of action. Accounting information is
required for many such decisions—purchasing equipment, maintenance of inventory,
borrowing and lending, etc. Investors and creditors are keen to evaluate the profitability and
solvency of a company before they decide to provide money to the organisation.

2.5 TYPES OF ACCOUNTING

The financial literature classifies accounting into two broad categories, viz, Financial
Accounting and Management Accounting. Financial accounting is primarily concerned with
the preparation of financial statements whereas management accounting covers areas such as
interpretation of financial statements, cost accounting, etc. Both these types of accounting are
examined in the following paragraphs.

2.6 FINANCIAL ACCOUNT

Financial accounting As mentioned earlier, financial accounting deals with the preparation of
financial statements for the basic purpose of providing information to various interested
groups like creditors, banks, shareholders, financial institutions, government, consumers, etc.
Financial statements, i.e. the income statement and the balance sheet indicate the way in
which the activities of the business have been conducted during a given period of time.

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Financial accounting is charged with the primary responsibility of external reporting. The
users of information generated by financial accounting, like bankers, financial institutions,
regulatory authorities, government, investors, etc. want the accounting information to be
consistent so as to facilitate comparison. Therefore, financial accounting is based on certain
concepts and conventions which include separate business entity, going concern concept,
money measurement concept, cost concept, dual aspect concept, accounting period concept,
matching concept, realization concept and conventions of conservatism, disclosure,
consistency, etc. All such concepts and conventions would be dealt with detail in subsequent
lessons. The significance of financial accounting lies in the fact that it aids the management
in directing and controlling the activities of the firm and to frame relevant managerial policies
related to areas like production, sales, financing, etc. However, it suffers from certain
drawbacks which are discussed in the following paragraphs. ·

2.7 MANAGEMENT ACCOUNTING

Management accounting is ‘tailor-made’ accounting. It facilitates the management by
providing accounting information in such a way so that it is conducive for policy making and
running the day-to-day operations of the business. Its basic purpose is to communicate the
facts according to the specific needs of decision-makers by presenting the information in a
systematic and meaningful manner. Management accounting, therefore, specifically helps in
planning and control. It helps in setting standards and in case of variances between planned
and actual performances, it helps in deciding the corrective action. An important
characteristic of management accounting is that it is forward looking. Its basic focus is one
future activity to be performed and not what has already happened in the past. Since
management accounting caters to the specific decision needs, it does not rest upon any well-
defined and set principles. The reports generated by a management accountant can be of any
duration– short or long, depending on purpose. Further, the reports can be prepared for the
organisation as a whole as well as its segments.

2.8 COST ACCOUNTING

One important variant of management accounting is the cost analysis. Cost accounting
makes elaborate cost records regarding various products, operations and functions. It is the
process of determining and accumulating the cost of a particular product or activity. Any
product, function, job or process for which costs are determined and accumulated, are called
cost centres. The objectives of cost accounting, therefore, can be summarized in the form of
three important statements, via, to determine costs, to facilitate planning and control of
business activities and to supply information for short- and long-term decision. Cost
accounting has certain distinct advantages over financial accounting. Some of them have
been discussed succeeding. The cost accounting system provides data about profitable and
non-profitable products and activities, thus prompting corrective measures. It is easier to
segregate and analyse individual cost items and to minimize losses and wastages arising from
the manufacturing process.

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2.9 DISTINCTION BETWEEN FINANCIAL AND MANAGEMENT
ACCOUNTING
Financial and management accounting can be distinguished on a variety of basis like, users
of information, criterion for decision making, behavioural implications, time frame, type of
reports. Table 1 presents a summary of distinctions between financial and management
accounting.

TABLE 1: FINANCIAL ACCOUNTING VS MANAGEMENT ACCOUNTING

Basis of distinction FINANCIAL MANAGEMENT

ACCOUNTING ACCOUNTING
Primary user Outside parties and manager Business managers
of the business

Decision criterion Accounts are based on Comparison of costs and

generally accepted benefits of proposed action
accounting principles
Behavioural implications Concern about adequacy of Concern about how reports
disclosure. Behavioural will affect employee
implications are secondary
behaviour
Time focus Past orientation Future orientation
Reports Summary reports regarding Detailed reports on the parts
the whole entity of the entity

SUMMARY
Accounting can be understood as the language of financial decisions. It is an ongoing process
of performance measurement and reporting the results to decision-makers. The discipline of
accounting can be traced back to very early times of human civilization. With the
advancement of industry, modern day accounting has become formalized and structured. A
person who maintains accounts is known as the accountant. He is engaged in multifarious
activities like preparing financial statements, facilitating the control process, tax planning,
auditing and information management. The information generated by accountant is used by
various groups like, individuals, managers, investors, creditors, government, regulatory
agencies, taxation authorities, employees, trade unions, consumers and general public.

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Depending upon purpose and method, accounting can be of broadly two types– financial
accounting and management accounting. Financial accounting is primarily concerned with
the preparation of financial statements mainly for outsiders. It is based on certain well-
defined concepts and conventions and helps in framing broad financial policies.

2.10 KINDS OF ACCOUNTING PRINCIPLES

In dealing with the framework of accounting theory, we are confronted with a serious
problem arising from differences in terminology. A number of words and terms have been
used by different authors to express and explain the same idea or notion. The various terms
used for describing the basic ideas are: concepts, postulates, propositions, assumptions,
underlying principles, fundamentals, conventions, doctrines, rules, axioms, etc. For example,
the separate business entity idea has been described by one author as a concept and by
another as a convention. It is better for us not to waste our time to discuss the precise
meaning of generic terms as the wide diversity in these terms can only serve to confuse the
learner.

In other words, fundamental accounting concepts are broad general assumptions which
underline the periodic financial statements of business enterprises. The reason why some of
these terms should be called concepts is that they are basic assumptions and have a direct
bearing on the quality of financial accounting information. The term ‘convention’ is used to
signify customs or tradition as a guide to the preparation of accounting statements.

The following are the important accounting concepts and conventions:

Accounting Concepts Accounting Conventions

Separate Business Entity Concept Convention of Materiality
Money Measurement Concept Convention of Conservatism
Dual Aspect Concept Convention of consistency
Accounting Period Concept
Cost Concept
The Matching Concept
Accrual Concept

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CHAPTER-3

RECORDING OF TRANSACTIONS- VOUCHER SYSTEM,

ACCOUNTING PROCESS, JOURNAL

3.1 INTRODUCTION
A business enterprise generally prepares the following two basic financial statements: .

Generally, a business enterprise has numerous transactions every day during an accounting
period. Unless the transactions are recorded and analysed, it is not possible to determine the
impact of each transaction in the above two basic statements. Traditionally, accounting is a
method of collecting, recording, classifying, summarising, presenting and interpreting
financial data aspect of an economic activity. The series of business transactions occurring
during the accounting period and its recording is referred to an accounting
process/mechanism

1. IDENTIFICATION OF TRANSACTION

In accounting, only business transactions are recorded. A transaction is an event which can be
expressed in terms of money and which brings change in the financial position of a business
enterprise. In every transaction, there is movement of value from one source to another. For
example, when goods are purchased for cash, there is a movement of goods from the seller to
the buyer and a movement of cash from buyer to the seller. Transactions may be external
(between a business entity and a second party, e.g., goods sold on credit to Hari or internal
(do not involve second party, e.g., depreciation charged on the machinery).

Illustration:

State with reasons whether the following events are transactions or not to Mr. K. Mondal,
Proprietor. (i) Mr. Mondal started business with capital (brought in cash)Rs. 40,000. (ii) Paid
salaries to staff Rs. 5,000. (iii) Purchased machinery for Rs. 20,000 in cash. (iv) Placed an
order with Sen & Co. for goods for Rs. 5,000. (v) Opened a Bank account by depositing Rs.

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4,000. (vi) Received pass book from bank. (vii) Appointed Sohan as Manager on a salary of
Rs. 4,000 per month. (viii) Received interest from bank Rs. 500. (ix) Received a price list
from Lalit.

Solution:
Here, each event is to be considered from the view point of Mr. Mondal’s business. Those
events which will change the financial position of the business of Mr. Mondal, should be
regarded as transaction.

(i) It is a transaction, because it changes the financial position of Mr. Mondal’s business.
Cash will increase by Rs. 40,000 and Capital will increase by Rs. 40,000.
(ii) (ii) It is a transaction, because it changes the financial position of Mr. Mondal’s
business. Cash will decrease by Rs. 5,000 and Salaries (expenses) will increase by
Rs. 5,000.
(iii) (iii) It is a transaction, because it changes the financial position of Mr. Mondal’s
business. Machinery comes in and cash goes out.
(iv) (iv) It is not a transaction, because it does not change the financial position of the
business.
(v) (v) It is a transaction, because it changes the financial position of the business. Bank
balance will increase by Rs. 4,000 and cash will decrease by Rs. 4,000.
(vi) It is also not a transaction, because it does not change the financial position of Mr.
Monal.
(vii) (vii) It is also not a transaction, because it does not change the financial position of
Mr. Monal.
(viii) It is a transaction, because it changes the financial position of Mr. Mondal’s
business. Bank interest will increase by Rs. 500 and cash will increase by the same
amount.
(ix) (ix) It is not a transaction, because it does not change the financial position of the
business of Mr. Mondal.

2. RECORDING THE TRANSACTION

Journal is the first book of original entry in which all transactions are recorded event wise and
date-wise and presents a historical record of all monetary transactions. It may further be
divided into sub-journals as well which are also known subsidiary books.

3. CLASSIFYING

Accounting is the art of classifying business transactions. Classification means statement

setting out for a period where all the similar transactions relating to a person, a thing,
expense, or any other subject are groped together under appropriate heads of accounts.

Page 22
 Passing of reverse
entires

Preparation of financial
Business transaction
statement

Transaction analysis i.e,

Assets, liabilities, Capital
Preparation of trial balance
and expense

Posting to ledger Record in memorandom

Jounnalising
transactions in
books of original
entery

ACCOUNTING PROCESS

4. SUMMARISING

Summarising is the art of making the activities of the business enterprise as classified in the
ledger for the use of management or other user groups i.e. Sundry debtors, Sundry creditors
etc. Summarisation helps in the preparation of Profit and Loss Account and Balance sheet for
a particular fiscal year.

5. ANALYSIS AND INTERPRETATION

The financial information or data as recorded in the books of a account must further be
analysed and interpreted so to draw useful conclusions. Thus, analysis of accounting
information will help the management to assess in the performance of business operation and
forming future plans also.

6. PRESENTATION OR REPORTING OF FINANCIAL INFORMATION

The end users of accounting statements must be benefited from analysis and interpretation of
data as some of them are the ‘stock holders’ and other one the ‘stake holders’. Comparison of

Page 23
past and present statement and reports, use of ratio and trend analysis are the different tools
of analysis and interpretation.

From the above discussion one can conclude that accounting is a art which starts and includes
steps right from recording of business transactions of monetary character to the
communicating or reporting the results thereof to the various interested parties.

3.2 VOUCHER
Each transaction is recorded in books of accounts providing all the required information of
the transaction. Since each transaction has an effect on the financial position of the business,
there should be a

documentary evidence to establish the monetary accounts at which transactions are recorded
and also the transactions are properly authorised. The common documents that are generally
used are as under:

(i) Payment voucher;

(ii) Receipt voucher; and
(iii) Transfer voucher.

3.3 JOURNAL
Journal is a historical record of business transaction or events. The word journal comes from
the French word “Jour” meaning “day”. It is a book of original or prime entry. Journal is a
primary book for recording the day to day transactions in a chronological order i.e. the order
in which they occur. The journal is a form of diary for business transactions. This is called
the book of first entry since every transaction is recorded firstly in the journal.

Journal Entry
Journal entry means recording the business transactions in the journal. For each transaction, a
separate entry is recorded. Before recording, the transaction is analysed to determine which
account is to be debited and which account is to be credited.

The performa of journal is shown as follows:

JOURNAL Date Particulars L.F. Debit (Amount)

Credit (Amount) (1) (2) (3) (4) (5)

Page 24
 Date Particulars L.F. Debit Credit
( Amount ) (Amount)

(1) (2) (3) (4) (5)

Column 1 (Date): The date of the transaction on which it takes pale is written in this column.

Column 2 (Particulars): In this column, the name of the accounts to the debited is written
first, then the names of the accounts to be credited and lastly, the narration (i.e. a brief
explanation of transaction) are entered.

Column 3 (L.F.): L.F. stands for ledger folio which means page of the ledger. In this column
are entered the page numbers on which the various accounts appear in the ledger.

Column 4 (Dr. Amount): In this column, the amount to be debited against the ‘Dr.’ Account
is written along with the nature of currency.

Column 5 (Cr. Amount): In this column the amount to be credited against the ‘Cr.’ Account
is written along with the nature of currency.

ADVANTAGES OF USING JOURNAL

Journal is used because of the following advantages:

• A journal contains a permanent record of all the business transactions.

• The journal provides a complete chronological (in order of the time of occurrence) history
of all business transactions and the task of later tracing of some transactions is facilitated.

• The journal establishes the quality of debits and credits for a transaction and reconciles any
problems. If a business purchases a bicycle, it is necessary to decide whether the bicycle
represents ordinary goods or machinery. Further any amount paid is debited to bicycle
account and credited to cash account.

3.4 CLASSIFICATION OF ACCOUNTS

Page 25
 ACCOUNTS
Impersonal
account Real account Nominal account

Personal account

Artifical account

Representative
account
Natural account

3.5 JOURNALIZING
Journalism is the process of recording journal entries in the Journal. It is a systematic act of
entering the transaction in a day book in order of their occurrence i.e., date-wise or event-
wise. After analysing the business transactions, the following steps in journalising are
followed:

I. Find out what accounts are involved in business transaction.

II. Ascertain what is the nature of accounts involved?
III. Ascertain the golden rule of debit and credit is applicable for each of the accounts
involved.
IV. Find out what account is to be debited which is to be credited.
V. Record the date of transaction in the “Date Column”.
VI. Write the name of the account to be debited very near to the left hand side in the
‘Particulars Column’ along with the word ‘Dr’ on the same line against the name of
the account in the ‘Particulars Column’ and the amount to be debited in the ‘Debit
Amount column’ against the name of the account.
a) Ramesh started his business with cash
b) Borrowed from Nikhil
c) Purchased furniture
d) Purchased furniture from Mohan on credit
e) Purchased goods for cash
f) Purchased goods from Ram on credit
g) Sold goods for cash
h) Sold goods to Hari on credit
i) Received cash from Hari
j) Paid cash to Ram

Page 26
 k) Deposited into bank
l) Withdrew cash for personal use
m) Withdrew from bank for office use
n) Withdrew from bank for personal us
o) Received cash from a customer, Shyam
p) Paid salary by cheque
q) Received donation in cash
r) Paid to Ram by cheque
s) Paid salary
t) Paid rent by cheque
u) Goods withdrawn for personal use
v) Paid an advance to suppliers of goods
w) Received an advance from customers
x) Paid interest on loan
y) Paid instalment of loan
z) Interest allowed by bank.

Write the name of the account to be debited very near to the left hand side in the ‘Particulars
Column’ along with the word ‘Dr’ on the same line against the name of the account in the
‘Particulars Column’ and the amount to be debited in the ‘Debit Amount column’ against the
name of the account.

(vii) Record the name of the account to be credited in the next line preceded by the word ‘To’
at a few space towards right in the ‘Particulars Column’ and the amount to be credited in the
‘Credit Amount Column’ in front of the name of the account. (viii) Record narration (i.e. a
brief explanation of the transaction) within brackets in the following line in ‘Particulars
Column’.

A thin line is drawn all through the particulars column to separate one Journal entry
from the other and it shows that the entry of a transaction has been completed.

QUESTION:

Analyse the following transactions.

(a) Ramesh started his business with cash

(b) Borrowed from Nikhil
(c) Purchased furniture
(d) Purchased furniture from Mohan on credit
(e) Purchased goods for cash
(f) Purchased goods from Ram on credit
(g) Sold goods for cash

Page 27
(h) Sold goods to Hari on credit
(i) Received cash from Hari
(j) Paid cash to Ram
(k) Deposited into bank
(l) Withdrew cash for personal use
(m) Withdrew from bank for office use
(n) Withdrew from bank for personal use
(o) Received cash from a customer, Shyam
(p) Paid salary by cheque
(q) Received donation in cash
(r) Paid to Ram by cheque
(s) Paid salary
(t) Paid rent by cheque
(u) Goods withdrawn for personal use
(v) Paid an advance to suppliers of goods
(w) Received an advance from customers
(x) Paid interest on loan
(y) Paid instalment of loan
(z) Interest allowed by bank.

Transaction Accounts involved Nature of How affected Whether

accounts to be
debited or
credited

Cash A/c Real Cash is coming in Debit

(a)

Capital A/c Personal Ramesh is the giver Credit

Page 28
 Cash A/c Real Cash in coming in

(b) Debit

Loan from Nikhil A/c Personal Nikhil is the giver Credit

Furniture A/c Real Furniture is coming Debit

in
(c)

Cash A/c real Real Cash is going Credit

out

Furniture A/c Real Furniture is coming Debit

in
(d)

Mohan’s A/c Personal Mohan is the giver Credit

(e) Purchases A/c Real Real Goods are coming Debit

in

Cash A/c Real Real Cash is going Credit

out

(f) Purchases A/c Real Goods are coming Debit

in

Ram’s A/c Personal Ram is the giver Credit

(g) Cash A/c Real Cash is coming in Debit

Sales A/c Real Goods are going out Credit

Hari’s A/c Personal Hari is the receiver Debit

(h)
Sales A/c Real Goods are going out Credit

(I) Cash A/ C Real ReaCash is coming Debit

in

Page 29
 Hari’s A/c Personal Hari is the giver Credit

(j) Ram’s A/c Personal Ram is the receiver Debit

Cash A/c Real Cash is going out Credit

(k) Bank A/c Personal Bank is the receiver Debit

Cash A/c Real Cash is going out Credit

(l) Drawings A/c Personal Ramesh is the Debit

receiver

Cash A/c Real Cash is going out Credit

(m) Cash A/c Real Cash is coming in Debit

Bank A/c Personal Bank is the giver Credit

(n) Drawings A/c Personal Personal Ramesh is the Debit

receiver

Bank A/c Personal Bank is the giver Credit

(o) Cash A/c Real Cash is coming in Debit

Shyam’s A/c Personal Shyam is the Credit

giver

(p) Salary A/c Nominal Salary is an Debit

expense

Bank A/c Personal Bank is the Credit

receiver

(q) Cash A/c Real Cash is coming in Debit

Donation A/c Nominal Donation is a Credit

gain

(r) Ram’s A/c Personal Ram is the Debit

receiver

Bank A/c Personal Bank is the giver Credit

Page 30
(s) Salary A/c Nominal Salary is an Debit
expense

Cash A/c Real Cash is going out Credit

(t) Rent A/c Nominal Rent is an Debit

expense

Bank A/c Personal Bank is the giver Credit

(u) Drawing’s A/c Personal Ramesh is the Debit

receiver

Purchases A/c Real Goods are going Credit

out

(v) Advance to Suppliers Personal Suppliers are the Debit

A/c receivers

Cash A/c Real Cash is going out Credit

(w) Cash A/c Real Cash is coming in Debit

Adv. from Customers Personal Customers are the Credit

A/c givers

(x) Interest on Loan A/ c Nominal Interest on loan is Debit

an expense

Cash A/c Real Cash is going out Credit

(y) Loan A/c Personal Personal Lender is the Debit

Lender is the receiver receiver

Cash A/ c Real Cash is going out Credit

(z) Bank A/c Personal Bank is the Debit

receiver

Bank Interest A/c Nominal Bank Interest is a Credit

gain Credit

Page 31
CHAPTER-4

4. LEDGER POSTING AND TRIAL BALANCE

4.1 Ledger
Ledger is a book which contains various accounts. In simple words, ledger is a set of
accounts. It includes all accounts of the business enterprise whether Real, Nominal or
Personal. Ledger may be kept in any of the following two forms: • Bound Ledger; and •
Loose Leaf Ledger.

It is common to keep the ledger in the form of loose-leaf cards these days instead of keeping
them in bounded form. This helps in posting transactions particularly when mechanised
system of accounting is used. Interestingly, nowadays, mechanised system of accounting is
preferred over the manual system of accounting.

4.2 POSTING
The term ‘Posting’ means transferring the debit and credit items from the Journal to their
respective accounts in the ledger. It is important to note that the exact names of accounts used
in the Journal should be carried to the ledger. For example:

If in the Journal, Salary Account has been debited, it would not be correct to debit the
Outstanding Salary Account in the Ledger. Therefore, the correct course would be to use the
same account in both the Journal and Ledger.

4.3 THE LEDGER FOLIO

(L.F.) column in the Journal is used at the time when debits and credits are posted to the
Ledger. The page number of the Ledger on which the posting has been done is mentioned in
the L.F. Column of the Journal. Similarly a folio column in the Ledger can also be kept where
the page from which posting has been made from the Journal. Thus, these are cross
references in both the Journal and the Ledger. A proper index must be maintained in the
Ledger giving the names of the accounts and the page number. A specimen of Ledger is
given below.

Page 32
DALMIA’S A/C

Date Particular L.F Amount Date Particular L.F Amount

All entries relating to Dalmia’s A/c shall be posted in this specimen a/c and finally the
balance either debit or credit may be drawn. All rules regarding the posting must strictly be
followed

4.4 RULES REGARDING POSTING

The following rules must be observed while posting transactions in the Ledger from the
Journal:

i) Separate accounts should be opened in the Ledger for posting transactions relating to
different accounts recorded in the Journal. For example, separate accounts may be opened for
sales, purchases, sales returns, purchases returns, salaries, rent, cash, etc.

ii) The concerned account which has been debited in the Journal should also be debited in the
Ledger. However, a reference should be made of the other account which has been credited in
the Journal. For example, for salaries paid, the salaries account should be debited in the
Ledger, but reference should be given of the Cash Account which has been credited in the
Journal.

iii) The concerned account, which has been credited in the Journal; should also be credited in
the Ledger, but reference should be given of the account, which has been debited in the
Journal. For example, for salaries paid, Cash Account has been credited in the Journal. It will
be credited in the Ledger also, but reference will be given of the Salaries Account in the
Ledger.

Suppose salaries of Rs. 10,000 have been paid in cash, the following entry will be passed in
the Journal:

Salaries Account Dr. 10,000

To Cash Account 10,000

4.5 TRIAL BALANCE

Page 33
In case, the various debit balances and the credit balances of the different accounts are taken
down in a statement, the statement so prepared is termed as a ‘Trial Balance’. In other words,
Trial Balance is a statement containing the various ledger balances on a particular date. For
example, with the balances of the ledger accounts prepared in Illustration 1. The Trial
Balance can be prepared as follows:

Thus, the two sides of the Trial Balance tally. It means the books of accounts are
arithmetically accurate.

OBJECTIVES OF PREPARING A TRIAL BALANCE

(I) CHECKING OF THE ARITHMETICAL ACCURACY OF THE ACCOUNTING
ENTRIES

As indicated above, Trial Balance helps in knowing the arithmetical accuracy of the
accounting entries. This is because according to the dual aspect concept for every debit, there
must be an equivalent credit. Trial Balance represents a summary of all ledger balances and,
therefore, if the two sides of the Trial Balance tally, it is an indication of this fact that the
books of accounts are arithmetically accurate. Of course, there may be certain errors in the
books of accounts in spite of an agreed Trial Balance. For example, if a transaction has been
completely omitted, from the books of accounts, the two sides of the Trial Balance will tally,
in spite of the books of accounts being wrong. This has been discussed in detail later in a
separate Chapter.

(II) BASIS FOR FINANCIAL STATEMENTS

Trial Balance forms the basis for preparing financial statements such as the Income Statement
and the Balance Sheet. The Trial Balance represents all transactions relating to different
accounts in a summarised form for a particular period. In case, the Trial Balance is not
prepared, it will be almost impossible to prepare the financial statements as stated above to
know the profit or loss made by the business during a particular period or its financial
position on a particular date.

(III) SUMMARISED LEDGER

It has already been stated that a Trial Balance contains the ledger balances on a particular
date. Thus, the entire ledger is summarised in

the form of a Trial Balance. The position of a particular account can be judged simply by
looking at the Trial Balance. The Ledger may be seen only when details regarding the
accounts are required.

Page 34
CHAPTER-5

BALANCE SHEET
A Balance Sheet is a statement of financial position of a business concern at a given date. It is
called a Balance Sheet because it is a sheet of balances of those ledger accounts which have
not been closed till the preparation of Trading and Profit and Loss Account. After the
preparation of Trading and Profit and Loss Account the balances left in the trial balance
represent either personal or real accounts. In other words, they either represent assets or
liabilities existing on a particular date. Excess of assets over liabilities represent the capital
and is indicative of the financial soundness of a company.

Characteristics

The characteristics of a Balance Sheet are summarised as under: (a) A Balance Sheet is only a
statement and not an account. It has no debit side or credit side. The headings of the two sides
are ‘Assets’ and ‘Liabilities’. (b) A Balance Sheet is prepared at a

2 Marshalling of assets and liabilities

The arrangement of assets and liabilities in a particular order is called marshalling of

the Balance Sheet. Assets and liabilities can be arranged in the Balance Sheet into two
ways:

(a) In order of liquidity.

(b) In order of permanence.

Page 35
Liabilities Rs. Assests Rs.

Bills payable Cash in hand

Loans Cash at bank

Sundry creditors Investments

Outstanding expenses Sundry debtors

Reserves Bills receivable

Capital Stock-in-trade

Add Net Profit Loose tools

Add Interest Fixtures and fittings

Less Drawings Plant and machinery

Building

Land

Goodwill

Page 36
CHAPTER-6

IN FINANCIAL ACTIVITY

RATIO ANALYSIS

6.1 OBJECTIVES OF CALCULATION OF RATIO ANALYSIS

The importance of ratio analysis lies in the fact that it presents data on a comparative basis
and enables the drawing of inferences regarding the performance of the firm. Ratio analysis
helps in concluding the following aspects:

To know about Liquidity Position:

Ratio analysis helps in determining the liquidity position of the firm. A firm can be said to
have the ability to meet its current obligations when they become due. It is measured with the
help of liquidity ratios.

To Know about Long- Term Solvency:

Ratio analysis helps in assessing the long term financial viability of a firm. Long- term
solvency measured by leverage/capital structure and profitability ratios.

To Know about Operating Efficiency:

Ratio analysis determines the degree of efficiency of management and utilization of assets. It
is measured by the activity ratios.

To know about Over-All Profitability:

The management of the firm is concerned about the overall profitability of the firm which
ensures a reasonable return to its owners and optimum utilization of its assets. This is
possible if an integrated view is taken and all the ratios are considered together.

To Know About Inter- firm Comparison:

Ratio analysis helps in comparing the various aspects of one firm with the other.

6.2 FINANCIAL RATIOS AND THEIR INTERPRETATION

Table 2.3: Different Financial Ratios

Sl. No. CATEGORY TYPE OF RATIO ITNERPRETATION

Page 37
1 Liquidity Ratio Net Working Capital = It measures the
Current assets-current liabilities liquidity of a firm.

It measures the short term

Current ratio = Current Assets liquidity of a firm. A firm
Current Liabilities with a higher ratio has
better liquidity. 1. A ratio
of 2:1 is considered safe.
Acid test or Quick ratio = Quick It measures the liquidity
assets Current Liabilities position of a fir.
A ratio of 1:1 is
considered safe.

2 Turnover Ratio Inventory Turnover ratio = This ratio indicates how

Costs of goods sold Average fast inventory is sold.
inventory A firm with a higher ratio
has better liquidity.

Debtor Turnover ratio = Net This ratio measures how

credit sales Average debtors fast debts are collected. 1.
A high ratio indicates
shorter time lag

Creditor’s Turnover ratio = Net This ratio indicates the

credit purchases Average relative proportions of
Creditors debt and equity in
financing the assets of a
firm
A ratio of 1:1 is
considered safe
3 Capital Debt-Equity ratio = Long term This ratio indicates the
Structure debt/ Shareholder’s Equity relative proportions of
debt and equity in
Ratios
financing the assets of a
firm.
1. A ratio of 1:1 is
considered safe.
Debt to Total capital ratio = It indicates what
Long term debt Permanent proportion of the
Capital permanent capital of a
Or firm consists of longterm

Page 38
 Total debt Permanent capital + debt.
Current liabilities  A ratio 1:2 is
Or considered safe.
Total Shareholder’s Equity  It measures the
Total Assets share of the total
assets financed by
outside funds.
 A low ratio is
desirable for
creditors.
 It shows what
portion of the total
assets isfinanced
by the owners’
capital.
 A firm should
neither have a high
ratio nor a low
ratio.

4 Coverage Interest Coverage = Earnings  A ratio used to

before interest and tax Interest determine how
ratios easily a company
can pay on
outstanding debt.
 A ratio of more
than 1.5 I
satisfactory
Dividend Coverage = Earnings  It measures the
after tax / Preference Dividend ability of firm to
pay dividend on
preference shares.
 A high ratio is
better for creditors.
Total Coverage ratio = Earning  It shows the
before interests and tax Total overall ability of
Fixed charges the firm to fulfill
the liabilities.
 A high ratio
indicates better
ability.

Page 39
 Profitability Gross Profit margin = Gross  It measures the
profit * 100 Sales profit in relation to
ratios sales.
 A firm should
neither have a high
ratio nor a low
ratio.
 It measures the net
profit of a firm
with respect to
sale.
Net Profit margin = Net Profit
after tax before interest Sales  A firm should
Or neither have a high
Net Profit after Tax and Interest ratio nor a low
Sales ratio
Or
Net profit after Tax and Interest
Sales
6 Expenses Operating ratio = Cost of Goods  Operating ratio
sold + other expenses /sales shows the
ratios operational
efficiency of the
business.
 Lower operating
ratio shows higher
operating profit
and vice versa
Cost of Goods sold ratio = Cost  It measures the
of Goods sold / Sales cost of goods sold
per sale

Specific Expenses ratio =  It measures the

Specific Expenses / Sales specific expenses
per sale

7 Return on Return on Assets (ROA) = Net  It measures the

Profit after Taxes * 100 / Total profitability of the
Investments Assets total funds per
Or investment of a
(Net Profit after Taxes firm.
+interest)*100

Page 40
Total Assets

Or

(Net profit after Taxes +

Interest) * 100
Tangible Assets
Or
(Net Profit after Taxes +
Interest) * 100

Total Assets

Or

(Net Profit after Taxes +

Interest) * 100 / Fixed Asset

Total Assets  It measures

profitability of the
Or firm with respect
to the total capital
(Net Profit after Taxes + employed.
Interest) * 100 / Total Capital
Employed Fixed Asset

Or (Net Profit after Taxes +

Interest) * 100 /
Total Capital Employed
intangible assets

Return on Total Shareholders’  It reveals how

Equity = Net Profit after Taxes profitably the
* 100 / Total shareholders’ owner’s fund has
equity been utilized by
the firm.

Return on Ordinary  It determines

shareholders equity = Net profit whether the firm
after taxes and Pref. dividend has earned
*100 / satisfactory return
Ordinary Shareholders’ Equity for its equity
holders or not.

Page 41
8 Shareholder’s Earnings per Share (EPS) = Net  It measures the
Profit of Equity holders profit available to
ratios /Number of Ordinary Shares the equity holders
on a per share
basis.
Dividend per Share (DPS) = Net  It is the net
profits after interest and distributed profit
preference dividend paid to belonging to the
ordinary shareholders / shareholders
Number of ordinary shares divided by the
outstanding number of
ordinary shares

Dividend Payout ratio (D/P) =  It shows what

Total Dividend To Equity
holders /Total net profit of
equity holders
Or
Dividend per Ordinary / Share
Earnings per Share
percentage share
of the net profit
after taxes and
preference
dividend is paid to
the equity holders.
 A high D/P ratio
is preferred from
investor’s point of
view.

Earnings per Yield = Earnings  It shows the

per Share / Market Value per percentage of each
Share rupee invested in
the stock that was
earned by the
company
Dividend Yield = Dividend per  It shows how
share /Market Value per share much a company
pays out in
dividends each
year relative to its
share price.

Price- Earnings ratio (P/E) =  It reflects the price

Market value per Share currently paid by
/Earnings per Share the market for
each rupee of EPS.

Page 42
 Earning Power = Net Profit  It measures the
after taxes / Total Assets overall
profitability and
operational
efficiency of a
firm .
 It measures how
quickly inventory
is sold .
9 Activity Inventory turnover = Sales /  A firm should
Closing Inventory neither have a high
Ratios ratio nor a low
ratio.

Raw Material turnover =

Cost of Raw Material used /

Average Raw Material
Inventory
Work in Progress turnover =
Cost of Goods manufactured /
Average Work in process
inventory

Debtors turnover = Cost of  It shows how

Goods manufactured / Average quickly current
Work in Process Inventory assets that are
receivables or
debtors are
converted to cash.
 A firm should
neither have a high
ratio nor a low
ratio.
10 Assets Total Assets turnover = Cost of  It measures the
Goods Sold / Total Assets efficiency of a
Turnover firm in managing
Ratios and utilizing its
assets.

Page 43
 Fixed Assets turnover = Cost of  Higher the ratio,
Goods Sold / Fixed Assets more efficient is
the firm in
utilizing its assets
Capital turnover = Cost of
Goods Sold / Capital Employed

Current Assets turnover = Cost

of Goods Sold / Current Assets

6.3 FINANCIAL RATIO ANALYSIS

The ratio analysis of Abhitex international from 2014-15has been carried out below.

RATIO ANALYSIS OF ABHITEX INTERNATIONAL

Balance Sheet of for 2015

Table 6.1: Balance Sheet of ABHITEX INTERNATIONAL as at 31st Mar -2015

PARTICULARS Amount Total Amount

Source of Funds:
Capital Account 634506.05
Sunil's Capital 875860.05
Less- Credit card HDFC 50489.00
Drawing 2502.00
Donation 109053.00
lic 54860.00
school fees 24450.00

Page 44
Loan(liability) 1851845.9
Bank od a/c 859142.95
Secured loan 992702.95
Unsecured loan

Current liabilities 1638085.9

Provisions 44553.00
Sundry creditors 170805
Unregister payble 65940.00
Less:duties and tax 43212.15

Profit and loss a/c

Opening balance current period
Less :transferred 502558.24
502558.24

Total 4124437.8

Application of funds:

Fixed assets 1579196.65

Car 593850
Mobile 59773.74
Motor bike 31181.65
Plant and machinery 687189.75
Tata ace 207201.51

Page 45
Current assets 2545241.15
Closing stock 1035485
Loan and advance 53073.00
Sundry debtors 1425712.6
Cash in hand 24869.00
Bank account 6101.48

Total 4124437.8

Profit & Loss Statement for 2016

Table 6.2: Profit & Loss Statement as per the year
Ending of 31st Mar, 2016

Particulars Amount Amount

Trading Account:
Sales Account 3599918
Sales Ag. D Form 139550
Sales Ag. E Form 667113
Sales Tax Invoice 5% 2793255

3599918

2346186.55
Direct Incomes 1035485
Cost of Sales 2539552.55
Opening Stock 1235091
Add: Purchase Accounts 2339946.55
6240
Less: Closing Stock 2210
4030

Direct Expenses
Cartage Inward
Job Work Paid
Gross Profit 1253731.45

Page 46
Income Statement:
Indirect Incomes
1253731.45
918132.03

Indirect Exp.
Accounting Charges
Advertising Exp.
Audit Fees
Bank Charges
Business Promotion Exp

Cartage Outward

Commission Exp.

Company Insurance

Convince Exp.

Depreciation

Donation (Charity)

Factory Rent

Festival Exp.
Interest on Tata Ace Loan 20992
154
Interest Aon VAT 115379
9852
Interest On C.C limit
1880
Legal & Professional Charges
9782
Office Exp. 245864
(-)5
Printing & Stationary Exp
2356
Salaries
15710
Short & Excess
180
40145

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 80
Staff Welfare

Telephone Exp.

Toll Tax (Octory)

Vehicle Running & Maintenance

Weighting & Measurement

Nett Profit: 335599.42

Ratio analysis for 2017

Table 6.3: Analysis of Financial Ratios for 2017
Sl. RATIOS PARTICULARS VALUE REMARKS
No.
1. Working Capital = Current Assets = 907155.25 Liquidity position
Current assets-Current 2545241.15 is good.
liabilities Current
Liabilities =
1638085.90
2. Current Ratio = Current Assets = 1.55:1 It is safe.
Current Assets 2545241.15
Current Liabilities Current
Liabilities =
1638085.90
3. Acid test or Quick ratio = liquid Assets = 0.92:1 It is not good
Liquid Assets 1509756.15
Liquid Liabilities Current
Liabilities =
1638085.90
4. Debt-Equity Ratio = Long term debt 1.63:1 It is safe
Long term debt =1851845.90
Capital A/C+ Net Profit Capital A/C =
634506.05
Net Profit=
502558.24

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5. Return On Investment Net Profit 44.20% It is good
Ratio = 502558.24
Net Profit*100 Capital A/C
Capital a/c+ Net Profit 634506.05
6. Gross Profit Ratio = Gross Profit= 45.31% It is not
Gross Profit * 100 2312544.35 satisfactory
Sales Sales=
5104025.95
7. Net Profit Ratio = Net Profit 9.84% It is not
Net Profit * 100 = 502558.24 satisfactory
Sales Sales=
5104025.95
8. Return on Assets Ratio = Net Income 20.21% It is not good
Net Income*100 502528.24
Fix. Assets+Net Fix. Assets=
WorkingCapital 1579196.65
Net Working
Capital=
907155.25
9. Return on working capital Net profit= 55.40% It is good
= 502558.24
Net Profit 􀗛 100 Net Working
Working Capital capital=
907155.25
10. Cost of Goods Sold Ratio = Cost of goods 85.38 It is not
Cost of Goods Sold*100 sold= satisfactory
Sales 4358261.6
Sales=
5104025.95
11. Operating Cost Ratio = COGS= 120.86 It is so high
COGS+ Operating Exp.*100 4358261.6
Net Sales Operating Exp.=
1810630.43
Sales=
5104025.95
12. Fixed Assets turnover = Sales a/c= 3.23 It is not safe
Sales a/c 5104025.95
Fixed Assets Fixed Assets=
1579196.65
13. Working Capital Sales= 5.63 It is safe
Turnover= 5104025.95
Sales a/c Working
working Capital Capital=

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 907155.25
14. Inventory Turnover= Sales= 4.93 It is not good
Sales a/c 5104025.95
Closing stock Closing Stock=
1035485

Liquid Assets = Total Current Assets – Inventory – Prepaid Exp.

= 2545241.15- 1035485
=1509756.15
Liquid Liabilities = Current Liabilities – Bank Overdraft
= 1638085.90
Long Term Debt = Secured Loans + Other Long Term liabilities
= 992702.95
Shareholder Funds = Equity Share+ Pre. Share+ Profit+ General Reserve
= 875860.05+ 502558.24
= 1318418.29
Earnings before Interest & Tax (EBIT) OR Operating Profit =
Net Profit + Tax + Interest
= 502558.24+ 644.32
= 503202.56
Operating Expenses = Financial Exp. + Administration Exp.+ Financial Exp.+ Sales
Operating & Distribution Exp.
= 981800.40
Operating Cost= COGS – OPERATING EXP.
=4358261.6 – 981800.40
= 3376461.2
Cost of Goods Sold = Opening Stock+ Purchase+ Direct Exp. – Closing Stock =
343079+ 4068867.2+ 981800.4- 103548

= 4358261.6

3.2 RATIO ANALYSIS USING TALLY 9.0

Tally 9.0 manufactured by Tally Solutions FZ LLC, Dubai, and Tally India Private Limited.
Itfacilitates smooth and error free Excise Accounting for manufacturers and dealers engaged
inmanufacturing or trading of excisable goods. It is mainly used for the calculation of excise
duties, taxes and other transactions. In this project Tally 9.0 is used to compute the
balancesheetand the financial ratios of companies that can be obtained from it. HoweverTally

Page 50
9.0 has certainlimitations. It has been used to calculate only current ratio, quick ratio and
debt– equity ratio. Infuture the version can be modified to calculate other ratios.
Preparation of balance sheet and ratio analysis of C.B ENTERPRISES from 2013-15 using
Tally 9.0 has been carried out below:

Abhitex international
6.1 Balance Sheet and Ratio Analysis For 2017

Fig.6.1: Preparation of Balance Sheet of Abhitex international

Page 51
Fig.6 .2: Preparation of Balance Sheet of Abhitex international OF
2017

Page 52
CHAPTER-7

7.1 REVIEW OF LITERATURE

Gangadhar (1998)has made an attempt on “Financial Analysis of Companies in Criteria: A
Profitability and efficiency focus” one of the objectives of the study is to analyze the liquidity
position of the companies and to point out the factors responsible for such a position. It is
concluded that the liquidity position was quite alarming since these are facing chronic
liquidity problems. their proportion current assets in relation to the current liabilities are very
low. It is suggested that, they may be improved by reducing excessive burden of current
liabilities or increasing the level of current assets depending upon the requirements.

Bortolotti & et al. (2002) examine the financial and operating performance of thirty one
national telecommunication companies in twenty five countries that were fully or partially
privatized through public share offering. Using onventional pre-versus post-privatization
comparisons and panel data estimation techniques, they find that the financial and operating
performance of telecommunications companies improves significantly after privatization, but
that a sizable fraction of the observed improvement results from regulatory changes-alone or
in combination with major ownership changes-rather than from privatization alone.

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 analyze and evaluate the working capital management, to
analyze 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.

Ooghe & et al. (2006)in their paper examine the financial performance of the acquiring firm
after the acquisition, using statistical analysis of industry adjusted variables. Their findings
show that following: the acquisition, the profitability, the solvency and the liquidity of most
of the combined companies decline. This decline is also reflected in the failure prediction
scores. With respect to the added value, acquisitions are found to be accompanied by
increases in the labour productivity, but this is caused by the general improvement of gross
added value per employee of Belgian companies in the last ten years. So, it seems that,
contrary to the general expectations and beliefs, acquisitions usually do not seem to improve
the acquirer's financial performance.

Protopappa & et al. (2009)reported that Financial flows are often frosted in a fragmented
and discounted way from the physical product flow. Managers‟ false division from an
operational point of view concerning inventory service level of capacity needs. The
implementation of such division influences financial performance informs of profit margin
working capacity requirements and return on investment. However, the interdependency of
operational and financial objectives is rarely well understood. Such proactiveness has serious
implication on the profitability of a company and its responsiveness to market needs.

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Therefore, companies increasingly acknowledge the importance of financial supply chain
anagement as an effective way approved to optimize the working capital levels and to direct
the cash flow efficient working capital allocation and visibility of accounts payable and
receivables can achieve significant cost savings, enhance cash flow predictability and boost
company performance

7.2 RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done systematically.
According to D. Slesinger and M. Stephenson ‘Research’ may be defined as “the
manipulation of things, concepts or symbols for the purpose of generalizing to extend, correct
or verify knowledge, whether that Knowledge aids in the construction of theory or in the
practice of an art”. Thus it is an original contribution to the existing stock of knowledge of
making for its advancement.

RESEARCH
Research is the systematic process of collecting and analyzing information to increase our
understanding of the phenomenon under study. It is the function of the researcher to
contribute to the understanding of the phenomenon and to communicate that understanding to
others.

RESEARCH DESIGN
Research design is known as framework within which the whole activity of research and
methods or procedures is clearly mentioned under which the research is to conduct.

TYPE OF RESEARCH
Exploratory & Descriptive research design is used for the study. Descriptive research design
implies the study of complete information regarding the respondents profile and his/her
views/opinions/preferences towards some problem. It can be called a research framework
whereby the complete descriptive of the respondent is studied and data in specific is collected
and analyzed to draw conclusions for a problem. The data is analyzed in a tabular form and in
well and easy to understand manner.

SAMPLING DESIGN
The sample design of a sample survey refers to the techniques for selecting a probability
sample and the methods to obtain estimates of the survey variables from the selected sample.

(i) Universe

The universe is most commonly defined as everything that physically exists; the entirely of
space and time, all forms of matter, energy and momentum, and the physical laws and
constants that govern them.

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(ii) Sampling unit

A member of a sample selected from a sampling frame is called sampling unit.

The sampling units are Manager (Finance) and other Department Officials, Sr. Manager of
company.

(iii) Sample size

The number of member in a sample is called sample size

The sample size is 10.

(iv) Sampling technique

Judgment sampling technique is used for the survey.

DATA COLLECTION

Both primary and secondary data are used for the study.

PRIMARY SOURCES:

1. The first step has to do appropriate literature which was collected by consulting various
finance officers at head office.

2. Personal interview had been conducted with to get adequate information and appropriate
suggestions throughout the project.

SECONDRY SOURCES:

1. Balance Sheet of the Abhitex international.

2. Books for financial statement analysis.

3. Other financial Accounts.

TOOLS USED:

FINANCIAL TOOLS: Following financial tools were used to analyze the actual
performances of organization by adopting various techniques.

PRESENTATION TOOLS: The presentation tools have been used to present the facts and
figures in an attractive manner. The details of the same exhibits have been also mentioned
alongside for the easy reference of the readers. Following main presentation tools have been
used for better exhibition of the data: Tables & Graphs

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Analysis of data
After data have been collected, the researcher turns to the task of analyzing them. The
analysis of data requires a number of closely related operations such as establishment of
categories, the application of these categories to raw data through tabulation and drawing
statically inferences.
The term analysis refers to the computation of certain measure along with searching for
patterns of relationship that exist among data groups. Thus, “in the process of analysis,
relationships or differences, supporting or conflicting with original or new data.
After analyzing the data, the researcher should have to explain the findings on the basis of
some theory. It is known as interpretation.
That made possible counting of classified data easy. From the master table various summery
tables were prepared. They have been presented along with their interpretation in this
manner. And we have used many arithmetic methods to test the data in the manner of ratios.

1.1LIQUIDITY RATIOS:
It refers to the ability of a firm to meet its short-term financial obligations when and as they
fall due.

In fact, analysis of liquidity needs the preparations of cash budgets and cash and fund flow
statements; but liquidity ratios by establishing a relationship between cash and other current
assets to current obligations, provide a quick measure of liquidity.

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

To measure the liquidity of a firm, the following ratios can be calculated:

I. Current Ratio

II. Quick or Acid Test or Liquid Ratio

III. Absolute Liquid Ratio or Cash Position Ratio

IV. Measure Ratio

I. Current Ratio:
This ratio explains the relationship between Current Assets and Current Liabilities of a
business. The formula for calculating the ratio is:-

Current Ratio= Current Assets/ Current Liabilities

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 'Current Assets' includes those Assets which can be converted into cash within a YEAR'S
time like Cash in Hand, Cash at Bank, B/R, Short-term Investments, Debtors, Stock, and
Inventories etc.

'Current Liabilities' include those liabilities which are repayable in a YEAR'S time like Bank
O/D, B/P, Creditors, Provision for Taxation, Proposed Dividends, Outstanding Expense and
Loans payable within a year etc.

SIGNIFICANCE:-

This ratio is used to assess the firm's ability to meet its short term liabilities on time.
According to accounting principles, a current ratio of 2:1 is supposed to be an IDEAL
RATIO. It means that Current Assets of a business should, at least, be twice of its Current
Liabilities. The higher the ratio, the better it is, because the firm will be able to pay its
Current Liabilities more easily. The reason of assuming 2:1 as the Ideal Ratio is that the
Current Assets includes such Assets as Stock, Debtors etc. from which full amount cannot be
realized in case of need, hence even if half the amount is realized from the Current Assets on
time, the firm can still meet its Current liabilities.

If the Current Ratio is less than 2:1, it indicates lack of liquidity and shortage of working
capital. But a much higher ratio, even though it is beneficial to’the shortterm creditors, is not
necessarily good for the company. A much higher ratio than 2:1 may indicate the poor
investment policies of the management.

While calculating Current Ratio, we have taken Loans &Advances as Debtors in the
Current Assets.

In Current Liabilities, we included the Provisions to calculate Total Current Liabilities.

RATIO ANALYSIS OF Abhitex international FOR LAST FIVE YEARS (IN TIMES)

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

Cash in Hand 158191.37 38547.86 118429.43 26752.63 32920.00

Cash at Bank 184842721.20 187790526.07 81005983.62 131743378.99 118645929.43

Short term 0 0 0 0 0

Securities

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Short term 0 0 0 0 0

Investment

Bill Receivable 0 0 0 0

Debtors 10219882.37 6520755.44 11333631.87 12842442.06 10407961.45

Closing stock of 7430239.32 7233864.02 8860521.68 9888867.14 17763810.54

(raw material)

Closing stock 207136418.75 293685509.52 334639531.41 279958249.92 291288560.69

Inventories 19839137.61 18334064.83 18208470.39 26527392.47 25148874.25

Loans & 72925346.78 86748577.17 88286077.74 80846671.42 84321187.49

Advances

Total current 502551937.4 600351844.90 542452646.13 541833754.63 547609243.85

Assets

Current liabilities 324365864.69 388550751.95 300481279.25 383682344.51 293802141.20

Provisions 12028333.00 14923875.00 14890943.00 0.00 9883087.63

Total current 336394197.69 403474626.95 315372222.25 383682344.51 303685228

liabilities

Current Ratio 1.49 1.48 1.72 1.41 1.80

Page 58
 current ratio

1.8

1.6

1.4

1.2

1
current ratio
0.8

0.6

0.4

0.2

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

ANALYSIS OR INTERPRETATION;

AS we have gone through the current assets and liabilities of Abhitex international,.We
interpret that the organisation ratio is in downward sizing that means the current ratio of the
ABHITEX international is decreasing from set standards that is 2.1 inyear 2010-11 the ratio
was 1.49 that mean the organisation was having current assets to meet its current liabilities
but current assets were not enough to meet any contingences. Same was in year 2011- 12 but
as we move ahead towards the year 2012-13 the ratio increased to 1.71 that mean the
organisation current assets are increasing and they are having enough of it to meet current
liabilities and in year 2013-14 the current ratio again decreased to 1.4 that means the
organisation assets again fall down . In the year 2014-15 current ratio increased to 1.80 which
is good enough to meet the current liabilities. As compared toprevious years

In Abhitex international in earlier years organisation was not having enough of assets but by
the end of 2014-15 they were having sufficient assets to meet liabilities’ which show that

Page 59
 organisation is focusing on its assets n liability management and they should also focus in
future also to maintain the standard.

II QUICK OR ACID TEST OR LIQUID RATIO:

Quick Ratio indicates whether the firm is in a position to pay its current liabilities within a
month or immediately. As such the quick ratio is included by dividing liquid assets (Quick
Assets) by current Liabilities:-

Quick Ratio or Acid Test Ratio = Liquid Assets/Current Liabilities

Quick Assets = current Assets-(prepared expenses+ inventories)

'Liquid Assets' means those assets which will yield cash very shortly. All current assets
except stock and prepaid expenses are included in liquid assets. Stock is excluded from liquid
assets because it has to be sold before it can be converted into cash. Prepaid expenses too are
excluded from the list of liquid assets because they are not expected to be converted into
cash. Liquid assets thus include cash, debtors, bill receivable and short term securities.

SIGNIFICANCE:

An ideal quick ratio is said to be 1:1. if it is more, it is considered to be better. The idea is that
for every rupee of current liabilities, there should be at least one rupee of liquid assets. This
ratio is better test of short-term financial position of the company than the current ratio, as it
considers only those assets which can be easily converted into cash. Stock is not included in
liquid assets as it may take a lot of time before it is converted into cash.

Quick ratio thus is more rigorous test of liquidity than the current ratio and when used
together with current ratio, it gives a better picture of the short term financial position of the
firm.While calculating Quick Assets, we have deducting Inventories assuming as a stock -
from Current Assets so that Quick Assets are obtained.

RATIO ANALYSIS OF ABHITEX INTERNATIONAL FOR THE LAST FIVE

YEARS

Quick Ratio (in times):

Particulars 2013-14 2014-15 2015-16 2016-17 2017-18

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Current 502551936 600351844 542452645 541833754.63 547609243.85
Assets

Closing (7430239.32 ) (7233864.02) (8860521.68) (9888867.14) (17763810.54)

stock (Raw
Material)

Closing (207136418.75 ) (293685509.52 ) (334639531.41) (279958249.92) (291288560.69)

stock

Inventories (19839137.61 ) (18334064.83) (18208470.39) (26527392.47) (25148874.25)

Total Quick 268146141 281098405.63 180744121.52 225459245.1 213407998.37

Assets

Current 336394197.69 403474626.95 315372222.25 383655202.51 303685228.83

liabilities

Quick Ratio 0.79 0.69 0.57 0.58 0.70

(Figures in rupees )

Graphical interpretation of quick ratio:

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 QUICK RATIO

0.8

0.7

0.6

0.5

QUICK RATIO
0.4

0.3

0.2

0.1

Analysis or interpretation of quick ratio:

The analysis of liquid ratio of Abhitex international. In the year 2012-13 the liquid assets are
0.79 times to its liabilities which are considered to be an good enough but in the subsequent
years it has been falling gradually, which is not a good sign for the company. In the year
2013-14, 2014-145 it has fallen down to 0.58 times which means the company does not have
sufficient quick assets to meet its current liabilities. But in year 2014-15 it increased to 0.7.

3. ABSOLUTE LIQUID RATIO:

Just as inventory is considered of doubtful liquidity, doubts can also be expressed so far as
book debts and bills receivable are concerned. Debtors may take long to be recovered and
even a sizable portion may be doubtful. In order to be very sure, only most liquid assets may
be considered for testing liquidity.

Absolute Liquid Ratio= Absolute Liquid Assets/Current Liabilities

Absolute Liquid Assets=Cash + Bank Balance + Short Term Securities

SIGNIFICANCE OF LIQUID RATIO:

The acceptance rule for this ratio is 0.5:1 or 1:2 i.e. Liquid assets worth Rs. 1 are considered
adequate to pay Current Liabilities worth Rs. 2 in time as, all the creditors are not expected to
demand cash at the same time and then, cash may be realized from the debtors and
inventories.

Page 62
Absolute ratio of Abhitex international, panipat for last five years.

Particulars 2013-14 2014-15 2015-16 2016-17 2017-18

Cash in hands 169160 402612 118602 63786 26752

Cash at bank 66252837 58962074 98867680 91224286 131743378

Short term 0 0 0 0 0

Securities

Absolute 66421997 59364685 98986281 91224286 131770130

Liquid

Assets

Total 126939619 137924468 176744145 198786558 303685228

Current

Liabilities

Quick Ratio 0.52 0.43 0.56 0.45 0.433

Graphical representation of Absolute ratio of

Abhitex international, panipat.

Page 63
 absolute ratio

0.6

0.5

0.4

0.3 absolute ratio

0.2

0.1

0
2013-14 2014-15 2015-16 2016-17 2017-18

INTERPRATION OF ABSOLUTE RATIO

The absolute liquid ratio of the plant whose ideal ratio is considered to be 0.5:1. In the
financial year 2010-11, it was 0.52 times which shows that absolute liquid assets are quite
sufficient to pay its current liabilities whereas it has declined in the next year but still is
fulfilling the ideal ratio. But, in the year 2011-12, 2012-13 and 2013-14, it has not been able
to fulfil the ideal ratio which is not a good sign for the plant.

So organisation should focus on its absolute liquid assets. To meet the liabilities of
organisation.

Page 64
7.3 CONCLUSION

CONCLUSION

 Finance is the main driver of every industry. This sector of manufacturing various
machinery presses vessels, boilers, sugar machinery iron casting is the booming sector
now days and have great potential. Economy of India is improving, GDP is also showing
rising tread and government is focusing on infrastructure development such as roads,
ports, housing etc. Now it’s upon the company how it grabs the opportunity and for this
company requires finance.
 Financial analysis is helpful in decision making as well as help to analyze the
performance of company in past. These financial decisions are divided into two parts
Long term and short term decisions and their primary goal is to increase the corporate
value by ensuring that return on capital exceeds cost of capital, without taking any
financial risks. Capital investment decisions are related to the long-term choices for
which projects receive investment in which financial manager have to decide whether to
invest in equity or debt or to pay dividend to shareholders. Short-term corporate finance
decisions are called working capital management and deal with balance of current assets
and current liabilities by managing cash, inventories, and short-term borrowing and
lending. These decisions are the main base of an organization.

SUGGESTIONS

 Company should more focus on collection of payment from debtor, which reduces the
chances of bad debts..
 The system should be designed by delegating adequate power to each manager /officer.
 Company should improve their return on total assets, as they are constantly moving from
past 3 years.
 Company should maintain the current assets turnover ratio to get benefit of best
utilization of current asset.

Page 65
7.4 BIBLIOGRAPHY
 Balance sheet of five years of Abhitex international, panipat.
Balance sheet from 01-04-2012 to 31-03-2013,
Balance sheet from 01-04-2013 to 31-03-2014,
Balance sheet from 01-04-2014 to 31-03-2015,
Balance sheet from 01-04-2015 to 31-03-2016,
Balance sheet from 01-04-2016 to 31-03-2017
 Kothari, C.R., “Research Methodology: Method and Techniques, WishwaPrakashan,
1990, New Delhi.
 I.M.Pandey, “Financial management” Vikas Publishing House, 2004.
 Khan and Jain, “Financial management” Himalaya Publishing House, 1999, Mumbai.
 MY Khan , P.K Jain “ Management accounting” Tata McGraw Hills ,2001,Noida.
 I.M Pandey, “Finance, a guide for managing company funds and profits”, prentice
hall of India, 2005.
 ShashiK.GuptaandR.K.Sharma,”Management accounting,”Kalyani publishers, 2009,
New Delhi.
 RiaGoel : Ratio Analysis of Caffe Nero,2007,machester
 Cndymn91; Financial Ratio Analysis Report Of Ford Motor Company,(2006)
washington
 Akehrig: Ak Steel Ratio Analysis,(2007)linden
 ApurBasarker: financial Analysis Of Hmt,(2007),Dhaka
 VaduKrishna:Annual report analysis of Kotak Mahindra Bank(2008),Bangalore
 Icarr : Nike, Inc. Financial Ratio Analysis(2006), Nashville,TN
 Kalmah; Modern cement, Ratio Analysis(2009), Dhaka
 Sat56: Ratio Analysis Of BhartiAirtel(2008),Noida

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