Project conducted under the subject:

Accounting For Manager (MBD - 104)

Submitted by: Arnab Bhattacharya Roll: BUR DMBA No.: Jan2010/12

Strategies for Fund Management using Ratio analysis

Acknowledgement

It is delightful to study Accounting for Managers as a subject in our curriculum. effects of The lessons we are taught in the Personal Contact understanding Accountancy and maneuvering Financial Programme sessions from our respected teacher have instilled combined Management in our mindset. I am indeed indebted to my teachers for giving me an assignment to study the Annual Reports & Balance sheets of a reputed company, to make an assessment on Strategies for Fund Management using Ratio analysis and the corrective steps that need to be taken by the organization. There are numerous people without whom this project might never have been completed. I cordially thank for the support and help given to me by the teachers of The Burdwan University who have enlighten me for utility of preparation of the project. I must be grateful to parent for their enormous motivation and support. I am thankful to ex-superior officers & colleagues in Sarba Siksha Mission, Government of West Bengal and also UNICEF while I worked in OPEPA, Govt. of Orissa for having short period management training at Xaviers Institute of Management Bhubaneswar and also to my friends and some other persons without whom I could not finish this project. I am once again grateful to the above mentioned people and also my family who deserve due credit for enabling me to take on this project and for being with me till the end.

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Arnab Bhattacharya

Strategies for Fund Management using Ratio analysis

Introduction
In this world, the Financial Management is most urgent aspect to run an organization properly. For the future plans and growth of the company, the proper way of financial management is the back-bone or the pillar of the organization. There are many FMCG organizations so there are lots of competitions also. Among these solutions everyone wants the best. All the organizations try to attract investors as well as customers by giving extra benefits over other competitors. So, they offer many valuable services like introduction of new products, keeping the product standard high, easy availability of the product more over good return for theirs investment either as investors or customers. more. Every organization wants to earn high percentage of profit in comparison to their competitors. So, they should chalk out proper planning of procurement of material, stream line of manufacture and marketing the product timely so that the funds are utilized properly and in time. There should not be blockage of money in any channel. It is the job of the finance department to high light the financial figures for the assessment the jobs of all department. The jobs of the Financial Management are to analyse the position of the business in the aspect of the Final Accounts of the House. The easy and best method of analysis is accounting Ratio. I have collected The Profit & Loss Accounts and Balance Sheet of M/S. Emami Limited for four years like 2005-06, 2006-07, 2007-08 and 2008-09 from its annual Report and here my humble efforts are to analyse and justify the figures shown in the Profit & Loss Account and Balance Sheet of the company by choosing selected figures from Profit & Loss Account and Balance Sheet of the Company finding justification and remedy.

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Arnab Bhattacharya

Strategies for Fund Management using Ratio analysis

Identification of the Research Gap

OBJECTIVES: To outline strategy for enhancement of business; To understand the financial position of the business by undertaking the comparison study year wise; To find out comparative studies on activities of the business House year wise and strategy of the future plan; To get an idea to over come any problem for smooth running of the business;

Scope of the Project: The arrangement in my project work was in the field of future fund arrangement as well as properly running of the business showing a comparative studies regarding the financial position so that the board of management have a scope of discussion over the table seeing the financial position of the company by furnishing year wise accounting figures relating to the Financial stability of the business house upon those persons who are involved with the business house. If marketing is the brain of the business house, accounts is the heart of that house it supply oxygen to the business house and the said account fix up the strategy how the house will run and said strategy is to be assessed from the past performance of the business and past performances are available from the accounts and the said performance judged from analysing he past Balance Sheet of the House. It is quite evident that financial stabilities in the business house are the most vital problems in the world of business today. In this scenario financial analysis is much creative work and this creative work not only depend on the proper accounting and best utilization of funds but also work not only depend on the timely purchase timely sale and timely production of the material handed in the business house.. The specific project in which I worked is related to the flow of funds. The scope of the project depends on the following:

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Arnab Bhattacharya

Strategies for Fund Management using Ratio analysis

Limitation of the Project

The time duration allowed for the project is limited, which has restricted the scope of extensive study. The time period used in the project is small, which might have an effect on the degree of accuracy. As this is a self acquired data for the project there has been some restrictions.

Objective
To highlight the financial condition of the business before the management for making the strategy of rising fund of the business availability of the response through survey and analysis.

Mission
It tries to fulfill its vision by analysis of the past four years Balance Sheet to enable the Board of Director to manage more funds for business promotion through this project. To familiar with the business house by knowing at least one out of every 50 Indians. Enhancement of business for availability of products of the business house in every market point. To create extensive sale of products of the business house.

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Arnab Bhattacharya

Strategies for Fund Management using Ratio analysis

Statistics
I am giving the figures some major Head of accounts available from the Profit & Loss Accounts and Balance Sheet of a large Business House say Emami Limited for the purpose of the analysis Head of the Accounts 2005-06 (All figures are Rs in lacs) INCOME Sale after Ex. Duty 21879.75 EXPENDITURES Cost of Goods Sold 12609.33 Profit Before Tax 3449.98 Profit After Tax 2943.66 LIABILITIES (Source Of Funds) Equity Capital 1223 35637.92 Secured and Unsecured Loan Current Liabilities & 2 046.72 Provisions ASSETS Application Of Funds Fixed Assets 21458.64 Investments Current Assets, Loan & Advances Stock in Trade 3674.58 Sundry Debtors 3524.79 Cash & Bank Balance 34.43 Sub Total 7233.8 Loans & Advances 3195.8 Sub Total 10429.6 2006-07 2007-08 2008-09

30087.56 17543.71 5699.56 5030.58 1243 36999.3 3905.45

57281.53 23746.73 10492.88 9274.88 1243 3825.82 9544.14

72234.9 30876.9 10175.6 8751.5 1313 44819 15058.8

19317.53

7781.86

61257

3662.46 3667.52 82.12 7412.1 4537.37 11949.5

4009.97 3499.34 280.27 7789.58 15267.63 23057.63

7319.81 5074.98 1077.07 13461.9 7687.71 21159.6

From the above selected important figures of the Company final Account for the year mention herein above, a table is prepared for the study of financial stability of that that organization.

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Arnab Bhattacharya

Strategies for Fund Management using Ratio analysis

Ratio Analysis Net Profit Ratio Equity Capital Ratio Inventory Turnover Ratio Net capital employed Turnover Ratio Current Ratio Liquid Ratio Working capital Debtor % on Sale General Expenses% on Sales 1. Net Profit Ratio:

2005-06 0.15768 3.629 0.0821 3.5343 3.5343 5187.08 16.11% 28.92%

2006-07 0.18943 4.7901 1.3182 1.8979 0.9601 3505.45 12.19% 24.97%

2007-08 0.18318 5.9219 9.5038 1.0325 0.501 (-)1754.66 6.11% 42.35%

2008-09 0.14087 4.2183 1.2108 0.8939 0.4085 (-)1596.93 7.03% 45.14%

Net Profit to sales ratio indicate how many Paise of Net Profit is earned per Rupees of Turnover i.e. Paise per Rupee left to management after deducting costs etc. Although the Ratio is not likely to be constant from year to year, it gives an idea as to the ultimate profitability of sales. The Net Profit ratio sometime found out with the capital employed with what degree of profitability the capital is employed. The calculation is in the following formula. Net Profit Net sale

Net Profit Ratio =

here the Net Profit ratio of the House of the three years, mostly
Net Profit Ratio

ascending, except figure the indicate

0.2 0.15 0.1 0.05 0 2005-06 2006-07 2007-08 2008-09

in the last year it was down by

Net Profit Ratio

0.04231 lacs, it might be due to availing of secure loan by the House so in

due course this down fall will be recovered by the House. Graphically the year wise trends represented herein.
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Strategies for Fund Management using Ratio analysis

2. Stock Turnover Ratio: This ratio measures how fast the stock is moving through the business House. It is also called the stock velocity. The calculation is in the following formula Cost of Good Sold Average Stock Stock Turnover
Inventory Turnover Ratio

Inventory Turnover Ratio =

ratio times

indicates the stock turned during period.

the number of
6 5 4 3 2 1 0 2005-06 2006-07 2007-08 2008-09 Inventory Turnover Ratio

average has over the

Generally high inventory turn

over is good for liquidity point of view and implies sound inventory management. 2005-06, 2006-07 and 2007-2008 the stock management was good but last year the figure abnormally fall down. It should be necessary for management to be alert for stock control. Graphically the comparison of the year wise position depicted herein. 3. Net Capital employed Turnover Ratio: This ratio measures efficiency of the business House in managing its in capital employed. It is defined as Net Capital employed Turnover Ratio = Cost of Good Sold Fixed Assets + Working Capital

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Arnab Bhattacharya

Strategies for Fund Management using Ratio analysis

Initial in the year 2005=06 the ratio was very low, in 2006-07 it
Net Capital employed Turnover Ratio

recovered and in 200708 high it was .the Capital reasonably

10 9 8 7 6 5 4 3 2 1 0 2005-06 2006-07 2007-08 2008-09

Net Capital employed Turnover Ratio

high

employed Ratio may be caused by a low level of

fixed assets representing old and substantially depreciated Assets. Here considering the House procured new Assets investing huge money in this head by availing loan. Graphically the trend shows the position of Capital employed Ratio with sales.

4. Current Ratio: This ratio is the basic measure of judging the ability of the business House to pay off the short term obligations. It represents the relation between Current Assets and Current Liabilities. This is also known as Quick ratio.
Current Ratio

Higher

the ratio,

current
4 3.5 3 2.5 2 1.5 1 0.5 0 2005-06 2006-07 2007-08 2008-09 Current Ratio

greater the short credit. figure

is

margin term The of

of safely to

standard

current ratio is 1.5 which indicates the current assets should be 1.5 time of current liabilities. Here the current Ratio is gradually reducing every
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Strategies for Fund Management using Ratio analysis

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year rather currently giving negative figures which is indicating the poor performance in the business in handing of payment of short term obligations. It is very alarming for the House. Current Ratio = Current Assets Current Liabilities

5. Liquid Ratio: The test as regard the ability to honour day to day commitment is better supplied by. It is ratio between Liquid assets (easy encashable) and Liquid liability. This is also known as acid test or Quick ratio. It indicates the availability of cash for meeting immediate commitments. Normally 1:1 Ratio is consider as satisfactory. The Formula is like this. The House never followed the concept of keeping Liquid assets and Liquid Liabilities same. 2005-06 the Liquid assets value was lower than the liabilities and there after the amount of liabilities are gradually rising. Which indicate the House is unable to clear liabilities. Liquid Ratio = Liquid Assets Liquid Liabilities

Liquid Ratio

4 3.5 3 2.5 2 1.5 1 0.5 0 2005-06 2006-07 2007-08 2008-09 Liquid Ratio

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Strategies for Fund Management using Ratio analysis

11

6. Working Capital: Working Capital = Current Assets - Current Liabilities Working capital is a theoretical for of the the concept liquidity
2005-06 2006-07 2007-08 2008-09 Working capital

Working Capital
6000 5000 4000 3000 2000 1000 0 -1000 -2000 -3000 Years

House. In all case the capital it is Working will such a fund

positive figure as which helps the House for running

In the House though

the amount of working capital. In the standard

cases current assets should be 1.5 time of the current Liabilities. In the House under study shows the current Liabilities are higher than the current assets indicating the House incapable to clear short term obligation. It is a dangerous situation. The house should take appropriate to take proper step to raise the fund of the House for its survival. 7. Debtors percentage on sale: It indicates the of in

Debtor %age on Sale

percentage
18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2005-06 2006-07 2007-08 2008-09

credit facilities on sale.

Debtor % on Sale

Normally

most cases a three month facilities allowed. amount If credit are the of

percentage is reduced it will indicate that the House not keeping huge
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money unpaid in recovery of credit sale money. Graphical presentation is shown here. 8. General expenses percentage on sale: It
General Expenses %age on Sales
50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2005-06 2006-07 2007-08 2008-09

indicates

the of

percentage general on sale.

expenses Normally the The has

this is calculated to
General Expenses% on Sales

control House. House

expenditure of the expenditure of the

increased tremendously in last two years. If the expenditures of the House are not reduced for the want of fund the house will suffer. The year wise figure is shown in a graphical representation to see the variation.

Plan of Work: From the year wise figures in the last four years in the year before last and last year the House Sold out a good number of Fixed Assets and spend huge money toward Fixed Assets for purchasing new machineries, by taking Loan from elsewhere. The Sale proceeds have been increased to a considerable amount, However for the increase of secured Loan an additional load towards the payment of interest has occurred and due to increase of monitory inflation the General expenses percentage relating to Sale has gone up to a alarming Stage. In spite of increase of sale proceeds the House is in a good position to check the Debtors of the House within a reasonable credit Limit. The Liquidity Ratio depends on the Current ratio and Quick Ratio of the House. Here the current ratio is low and Quick Ratio is not favorable as Quick Liability is higher than the Quick Assets. For renovation or other purpose the house borrowed money and
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Strategies for Fund Management using Ratio analysis

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for the it paid interest and the general expenses percentage has reached to a alarming stage. The working capital is negative so the House will face acute cash deficiency very soon and for recovery of the said situation the house need to float the share in the market for raising funds. From the figure collected in the long run the House may face difficulties in paying the debt of the House. By year wise comparison due to flexibility of the figure availed for analysis the growth of the business can not be properly high lighted. In case of a production unit growth of the company assures the bright future of the business House.

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Bibliography
Books: Hrishikesh Chakraborty. Advanced Accounting. Kolkata: Nababharat Publishers, 1966. Munro, Andrew & Palmer, Alfred. Book Keeping and Accountancy. London: Sir Isaac Pitman & Sons, Ltd, 1957. Arindam Das. Accounting For Managers Block I Book I. Study Material for 3Years MBA (Distance) Course. Burdwan: Directorate of Distance Education - University of Burdwan, 2010. Dr. Goutam Mitra. Accounting For Managers Block I Book II. Study Material for 3Years MBA (Distance) Course. Burdwan: Directorate of Distance Education - University of Burdwan, 2010. Dr. Debashish Sur & Dr. Debdas Rakshit. Accounting For Managers Block II Book I. Study Material for 3Years MBA (Distance) Course. Burdwan: Directorate of Distance Education - University of Burdwan, 2010. Dr. Chittaranjan Sarkar & Dr. Debdas Rakshit. Accounting For Managers Block II Book II. Study Material for 3Years MBA (Distance) Course. Burdwan: Directorate of Distance Education - University of Burdwan, 2010. Webpage:

Emami

Limited.

Emami

Financial

Information.

October

2010

<http://www.emamiltd.in/investor-relations.asp?detail=financialinformation>

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Arnab Bhattacharya