A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

PART-B
1.1 General Introduction The analysis of profit derived from cost objects with the view to improve or optimize profitability. Multiple views may be analyzed, such as market segment, customer, distribution Channel, product families, products, technologies, platforms, regions, manufacturing Capacity, etc. Every firm is most concerned with its profitability. One of the most frequently used tools of Financial is profitability ratios which are used to determine the company's bottom line. Profitability measures are important to company managers and owners alike. Profitability ratios show a company's overall efficiency and performance. We can divide profitability ratios into two types: margins and returns. Ratios that show margins represent the firm's ability to translate sales dollars into profits at various stages of measurement. A company should earn profits to survive and grow over a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by the management of a company should be aimed at maximizing profits, irrespective of concern for customers, employs, suppliers are social consequences. It is unfortunate that the word profit is looked upon as a term of abuse since some firms always want to maximize profits at the cost of employers, customers and society. Except such infrequent causes, it is a fact that sufficient profits must be earned to sustain the operations of the business to be able to obtain funds from investors for expansion and growth and to contribute towards the social overheads for the welfare of the society. The most important component of corporate finance is working capital management because it directly affects the liquidity and profitability of the company. It deals with current assets and current liabilities. Working capital management is important to many reasons. For one thing, the current assets of a typical manufacturing firm accounts for over half of its total assets. For a distribution of company, they account for even more. Excessive levels of current assets can easily result in firms realizing a substandard return on investment; however firms with too few current assets may incur shortages and difficulties in maintaining smooth operations .profitability is the rate of return on firms investment. The purpose of
P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. working capital management is to manage the firms current accounts so as to attain a desired balance between profitability and risk. 1.2 Need of the study The importance in selection of the study lies in the fact the research being a student of financial management is very interested in conducting a systematic study on short term financial pattern of the enterprise for managing the day to day affairs of the firms and the aspects involved in its management for this purpose it is essential to know profitability of the firm. 1.3 Statement of the problem 1) Profit is the difference between revenues and expenses over a period of the time. 2) Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profits. 3) The profitability ratios are calculated to measure the operating efficiency of the company. In case the working capital is not adequately maintains. It will adversely affect the short term solvency position of the company. For one thing, the current assets of a typical manufacturing firm accounts for over half of its total assets. For a distribution of company, they account for even more. 4) Excessive levels of current assets can easily result in firms realizing a substandard return on investment. Hence, maintaining adequate profit is vital requirement. Therefore, it has indicates one to undertake this project entitles A study on Profitability analysis of Shanthala Sperocast Pvt Ltd., 1.4 Objectives of the study: 1. To understand the existing financial position of the company. 2. To analyze the profitability through Ratio Analysis. 3. To determine the growth of the company in financial Aspect. 4. To document findings and suggestions.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 1.5 Scope of the Study: 1. The study gives yearly profitable information. 2. The study gives fair idea of improvement in efficiency of profitability analysis. 3. This study will help to SSPL, to have proper control over the components of profitability analysis and working capital to manage it efficiently. 4. The study period covered in this case study is for 4 financial years i.e., from 2009 to 2012. 1.6 Limitations of the study: The following are the limitations of the study: 1. The study covers limited years period. 2. The secondary data used in this study have been taken from financial statements only. 3. As per the requirement and necessity some data have been grouped and subgrouped. 4. For making the analysis techniques of financial management have been used. 5. The study confined only about Shanthala Spherocast Private Limited.

1.7 Theoretical Frame Work of Profitability: Introduction Profit is an excess of revenues over associated expenses for an activity over a period of time. Terms with similar meanings include earnings, income, and margin. Every business should earn sufficient profits to survive and grow over a long period of time. It is the index to the economic progress, improved national income and rising standard of living. No doubt, profit is the legitimate object, but it should not be over emphasized. Management should try to maximize its profit keeping in mind the welfare of the society. Thus, profit is not just the reward to owners but it is also related with the

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. interest of other segments of the society. Profit is the yardstick for judging not just the economic, but the managerial efficiency and social objectives also. Concept of Profitability Profitability means ability to make profit from all the business activities of an organization, company, firm, or an enterprise. It shows how efficiently the management can make profit by using all the resources available in the market. However, the term Profitability is not synonymous to the term Efficiency. Profitability is an index of efficiency; and is regarded as a measure of efficiency and management guide to greater efficiency, the extent of profitability cannot be taken as a final proof of efficiency. Sometimes satisfactory profits can mark inefficiency and of efficiency can be accompanied by an absence of profit. The net profit figure simply reveals a satisfactory balance between the values receive and value given. The change in operational efficiency is merely one of the factors on which profitability of an enterprise largely depends. Moreover, there are many other factors besides efficiency, which affect the profitability.

Analysis of Profitability
Apart from the short term and long term creditors, owners and management or a company itself also interests in the soundness of a firm which can be measured by profitability ratios. Profitability ratios are of two types those showing profitability in relation to sales and those showing profitability in relation to investment. Together, these ratios indicate firms overall effectiveness of operation. With a view to appraise profitability, the analysis has been made from the point of view of management and shareholders. The management of the firm is naturally eager to measure its operating efficiency. Similarly, the owners invest their funds in the expectation of reasonable returns. The operating efficiency of a firm and its ability to ensure adequate returns to its shareholders depends ultimately on the profits earned by it.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

A. Profitability Analysis from the View Point of Management

In order to pin-point the causes which are responsible for low or high profitability, a financial manager should continuously evaluate the efficiency of a firm in terms of profit. The study of increase or decrease in retained earnings, various reserve and surplus will enable the financial manager to see whether the profitability has improved or not. An increase in the balance of these items in an indication of improvement in profitability, where as a decrease indicates a decline in profitability.

2.0 Research Methodology and Data Collection

Research Methodology Introduction: The quality of the project work depends on the methodology adopted for the study. Methodology in turn, depends on the nature of the project work. The use of proper methodology is an essential part of any research in order to conduct the study scientifically. Research Design: It is a descriptive research concerned with SSPL,. The type of research used for the collection and analysis of the data is Historical Research Method. The main source of data for this study is the past records prepared by the company. The focus of the study is to determine the performance of the company since past 3 years. The data regarding company history and profit are collected through Exploratory Research Design particularly through the study of secondary sources and discussions with individuals.

Methodology of data collection:

The necessary information are collected by taking the guidance from the company Account officer. 2.1 Sources of Data: Data are facts and other relevant materials, past and present which serves as the basis for study and analysis. The data serves the basis for analyses. Without
P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. analyses of actual facts no specific inference can be drawn on the questions under study. Inference based on imagination or guesswork cannot provide correct answer to research questions. The relevance, adequacy and reliability of data determine the quality of the findings of a study. For the purpose of the present study data have been collected from the secondary sources. Secondary Data: The secondary data, on the other hand is those which have already been collected by someone else and which have already been passed through statistical process. Secondary data is the information that already exists. Secondary data are collected from many sources; the major sources of secondary data are given below. Company websites. Company annual reports, broachers.(2009 to 2012) Company ledgers.

Review Literature:
The analysis of financial statements is a process of evaluating between component parts of financial statements to obtain a better understanding of the Firms position and performance. The first task of analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The final step is Interpretation and Drawing of inferences and Conclusions. In brief financial analysis is the process of Selection, Relation, and Evaluation. Profitability analysis can be calculated by using. 1) Ratio Analysis 2) Comparative Analysis

1) Ratio Analysis Ratio Analysis to calculate the Profitability Analysis Following ratios are calculated to analyses of the profitability. Classification of Ratios
P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

1. Short term solvency ratios a) Current ratio b) Profitability ratio c) Performance ratio 2. Long term solvency ratios a) Proprietary ratio b) Debt equity ratio c) Leverage ratio d) Combined ratio

1. Gross Profit Ratio

Gross profit ratio is important for management because it highlights the efficiency of operation and also indicates the average spread between the operating cost and revenue. Any difference position in this ratio is the result of a change in the operating cost or revenue or both. The main objective of computing this ratio is to determine the efficiency with which operations are carried on. The Gross Profit Ratio expresses the relationship between gross profit and net sales.

Gross Profit = Total Revenue Operating Expenses

A high ratio of gross profit to revenue is a sign of good management as it implies that (i) (ii) (iii) The operating cost is relatively low; Increase revenue income, operating cost remains constant; Operating cost decline, revenue income remains the same.

On the contrary, a low gross profit to revenue is definitely a danger signal. It implies that a. The profit is relatively low; b. The operating cost is relatively high (due to purchase of inputs on unfavorable terms, inefficient utilization of current as well as well as fixed assets and so on).

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. c. Low revenue income (due to sever competition, inferior quality or services, lack of demand and so on).

2. Net Operating Profit Ratio

The Net Operating Profit Ratio expresses the relationship between net operating profit and net sales. Net Operating profit is taken as the excess of gross profit over non-operating expenses and depreciation. In other words we can say profit before interest and taxes (EBIT). This ratio helps to find out the profit arising out of main business. In other words this ratio helps to determine the efficiency with which affairs of business are being managed. A high ratio indicates the improvement in the operational efficiency of the business and vice versa. It is figured as shown below;

Net Operating Profit = Gross Profit (Non-Operating Expenses + Depreciation) 3. Return on Net Capital Employed Ratio
This is the most important ratio for testing profitability of a business. It

measures satisfactorily the overall performance of a business in terms of profitability. This Ratio expresses the relationship between profit earned and capital employed to earn it. The term capital employed refers to long-term funds supplied by the creditors and owners of the firm. The term return signifies operating profit before interest and taxes (EBIT). This ratio is more appropriate for evaluating the efficiency of internal management. It indicates how well the management has utilized the funds supplied by the owners and creditors. In other words, this ratio intends to measure the earning power of the net assets of the business. It is figured as shown below:

Net Capital Employed = Share Capital + Reserves + Long Term Loan Losses
A high ratio is a test of better performance and a low ratio is an indication of poor performance. Higher the ratio, more efficient the management is considered to have been using the funds available.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

A. Profitability from the View Point of Shareholders

Being the real owners of the business, the shareholders should continuously evaluate the efficiency of a firm in terms of profit because they have permanent stake in business. So, they are directly affected by the prosperity of higher profit and adversity of losses suffered by the business. An increase in the net profit after tax is an indication of improvement in profitability and in turn improved financial welfare of the owners and larger the share of dividend to them and vice versa. Following ratios are calculated to analyses the profitability from the shareholders point of view:

4. Net Profit Ratio

The net profit ratio indicates the ability of management to operate the business with sufficient success not only to recover from revenues of the period, all the expenses including depreciation and interest, but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. In other words, this ratio is the overall measure of the firms ability to turn each rupee of revenue into profit. The Net Profit Ratio expresses the relationship between net profit and net sales. It is the reserve of the operating Expenses ratio. It is figured as shown below: Net Profit (EBT) = Net Operating Profit Interest Charges A high ratio of net profit to revenue is a sign of good management as it ensures adequate return to the owners as well as enables a firm to withstand adverse economic conditions. On the contrary, a low net profit to revenue is definitely a danger signal. It has the opposite implications. If this ratio is not adequate, the firm will fail to achieve satisfactory return on shareholders funds. In order to have a better idea of profitability, the gross profit ratio and net profit ratio may be simultaneously considered. If the Gross Profit is increasing over last five years, but the net profit is declining, it indicates that administrative expenses are slowly rising.

5. Return on Owners Equity (Proprietary Ratio)

The ordinary shareholders, who bear all risks, participate in management and are entitled to all the profits remaining after outside claims, are the real owners of the

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. business. Therefore, the profitability of a firm, from the owners point of view should be assessed in terms of the return to the ordinary shareholders. Return on Owners Equity Ratio is a single most important ratio for judging the profitability of an organization in terms of return to the owners. This ratio reflects that how much the firm has earned on the funds invested by the shareholders (Either directly or through retained earnings). This ratio is expressed in the percentage from of net profit earned to the owners equity. It is figured as shown below: In order to judge the efficiency with which the proprietors funds are employed in business, this ratio is ascertained. Proprietors fund or net worth is equal to equity share of Central and State Govt. Plus fund minus fictitious assets, while net profit is equal to profit after depreciation and interest but before tax.

Standardized Financial Statement

1. Common size financial statements: A useful and convenient way of standardizing financial statements is to express each item on the Profit and Loss account as a percentage of sales and each item on the Balance Sheet as percentage of total assets. The resulting financial statements are called common size statements. 2. Common Base Year Financial Statements: Suppose if we are looking at the financial statements of a company over a period of time and trying to figure out trends in revenues, profit, net worth, debt and so on. A useful way of doing this is to select a base year and then express each item relative to the amount in the base year. The resulting statements are called Common base year financial statements. Importance of fund flow statement: It determines the financial consequences of business operations, it shows how the funds were obtained and used in past. The Management can formulate its financial policies on the basis of the statement. It serves as control device, when comparing with Budgeted figures.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. It points out Sound and Weak positions of an enterprise. It points out causes for changes in working capital. It tells whether sources of funds are increasing or decreasing. Definitions of the concepts: Financial analysis: In the words of Myers, Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statement and a study of the trend of these factors as shown in a series of statements. A. Profit and Loss account: The Profit and Loss account is an account which shows all type of Revenue expenditure as well as Revenue income. The debit side shows all expenditures while credit side shows the income. It is a Nominal account. But in practice, we follow the vertical kind of P/L A/C. We gradually deduct all the expenditures from the sales and also add all incomes. B. Balance Sheet: It is a statement of financial position of the Business Company at a specified moment of time. It represents all assets owned by the company at a particular point of time and the claims of the owners and outsiders against those assets at that time. It is in a way to snapshot of the financial condition of the business at that time. Profitability analysis may be done for variety of purposes, which may range from a simple analysis of the short term liquidity position of the Firm to a comprehensive assessment of the strengths and weakness of the Firm in various areas. It is helpful in assessing corporate excellence, Judging creditworthiness, Forecasting bond ratings, and Assessing market risk.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

3.0 DATA ANALYSIS AND INTERPRETATION

I. Short Term Solvency Ratios 1. Current ratio: It is calculated by dividing current assets by current liabilities. So current ratio expresses relationship between current assets and current liabilities. It is also called as current working capital ratio. Current Ratio = Current Assets / Current Liabilities Current assets = (Cash balance + Bank Balance + Advances + Inventories + Debtors + Other current assets) Current liabilities = (Short term Debt + Other liabilities & provisions) Table No.01 Current ratio
Particulars Current Assets (Amount in Rupees) Current Liabilities (Amount in Rupees) Current Ratio (In %) 2009 2010 2011 2012 Ideal Ratio

16,97,09,568 5,73,43,169

20,19,83,525 9,27,88,549

25,53,02,851 29,41,15,950 11,25,02,327 27,89,44,455

2:1

2.95

2.17

2.26

1.05

Graph No.01

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,)

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. Analysis and Interpretation: The ideal ratio of Current Ratio is 2:1 from the above table shows that the SSPL., is having a Current ratio of 1.05:1 for the year 2012 which has decreased from the previous years, though there is an increase in the Current Asset from 2009 to 2012 simultaneously there is a drastic increase in the Current Liability too, hence the Current ratio is dropping from year on year. As the Current ratio is more than 1:1.Company is in a position of meeting its short term obligations like creditors bills payable and bank overdraft etc., 2 Liquidity Ratios: Liquid ratio is also termed as "Liquidity Ratio", Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due. Liquidity Ratio = Liquidity Assets / Liquidity Liabilities

Liquidity assets = (Total current assets - Inventories) ` Liquidity liabilities = (Total current liabilities- other liability) Table No.02 Liquidity Ratio Particulars Liquid Assets
(Amount in Rupees)

2009

2010

2011

2012

Ideal Ratio

23,37,56,007 20,81,84,967 14,76,01,462 13,40,65,094 27,89,44,455 11,25,02,327 9,27,88,549 5,73,43,169

Liquid Liabilities
(Amount in Rupees)

1:1

Ratios (In %)

0.83

1.85

1.60

2.33

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. Graph No.02

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation: The above table and graph shows theLiquidity ratio calculation , It is often referred to as quick ratio because it is a measurement of a Firms ability to convert its current assets quickly into cash in order to meet its current liabilities. From the above diagram it is clear that the Liquidity ratio in the year 2009-10 is 0.83, and there is a twofold increase in the year 2001011 i.e. 1.85, and in 20112012 it is decrease to 1.60 and in 2011-2012 it is slightly increase to 2.33. The convert of its Liquid assets quickly into cash is increased in the company. The ideal Liquid ratio is 1:1. So, in this table represents the firm gets good liquidity position. II. Leverage Ratios 1. Proprietary ratio or Equity ratio This ratio establishes the relationship between shareholders funds and total assets of a firm.

Proprietary Ratio = Shareholders fund / Total assets Shareholders Fund = (equity share capital+ preference share capital + reserves and surplus)

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. Table No.03 Proprietary Ratio Particulars Shareholders Fund (Amount in
Rupees)

2009

2010

2011

2012

11,05,25,734

12,94,23,075

17,51,82,169

22,04,17,891

Total Assets
(Amount in Rupees)

Proprietary ratio Graph No.03

35,53,30,236 0.31

39,53,88,365 0.32

48,30,64,956 0.36

54,55,19,097 0.40

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and interpretation: This ratio throws light on the general financial strength of the company. It is also regarded as a test of the soundness of the capital structure. Higher the ratio or the share of shareholders in the total capital of the company better is the long-term solvency position of the company. A low proprietary ratio will include greater risk to the creditors. But here, it was 0.31 in the year 2009, and slightly increases in 2010 i.e. 0.32 and 2011 it is 0.36 and 2012 it is 0.40. The company has shareholder fund than its higher capital, hence the company have better long term solvency.
P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 1. Equity to fixed assets ratio It is obtained by dividing the net value of fixed assets by the owners equity. Equity to fixed assets ratio = Fixed assets / owners equity * 100 Table No.04 Equity to fixed assets ratio Particulars Fixed assets
(Amount in Rupees)

2009

2010

2011

2012

16,92,24,328 17,49,86,835 20,72,13,977 21,72,58,617 60,800,000 278.3 74,440,000 235.0 90,140,000 229.8 104,155,000 208.59

Owners equity
(Amount in Rupees)

EFA ratio (In %) Graph No.04

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,)

Analysis and Interpretation:The above table shows the calculation of Equity to Fixed assets ratio. The idle ratio for equity to fixed assets is 2:3 or 67%. We can see the fluctuation in the equity to fixed assets ratio. In 2009 it was 278.3% and a slight decrease in 2010 i.e. 235.0%. in 2011 there was downfall i.e. 229.8% and drastic decrease in 2012 was 208.59%. That means from 20092012 the company is financially strong.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 2. Equity to Current Assets Ratio It is ascertained by dividing the total current assets by the owners equity. Equity to Current Assets Ratio = Current Assets / shareholders fund Table No.05 Equity to Current Assets Ratio Particulars CA (Amount in
Rupees)

2009 16,97,09,568

2010

2011

2012 29,41,15,950

20,19,83,525 25,53,02,851

Shareholders fund(Amount in
Rupees)

60,800,000 2.79

74,440,000 2.71

90,140,000 2.83

104,155,000 2.82

E C R(In %) Graph No.05

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation:The above table shows the Equity to current assets ratio calculation. In 2009, it was 2.79, but in 2010 there was decrease to 2.71and thereafter it again increased i.e. in 2011 it was and in 2012 it was 2.82. That means it indicates the company is financially strong.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 3. Debt Equity Ratio It is a ratio computed by dividing the external liabilities by internal liabilities. In other words, it is the ratio borrowed capital to the owned capital it is called as debt equity ratio. Debt Equity Ratio = External Debt / Internal Equity External debt = Long term debts Internal equity = Shareholders fund Table No.06 Debt Equity Ratio Particulars External debt(Amount in
Rupees)

2009 2010 2011 2012 187,696,386 173,288,749 195,990,461 253,098,098 110,525,734 129,423,075 175,182,169 220,417,891 1.69 1.33 1.11 1.14

Internal equity(Amount in
Rupees)

Debt Equity Ratio (In %) Graph No.06

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation:The above table shows the calculation of Debt equity ratio. If the debt ratio is less than the 2 times of equity indicates the financial structure of the concern is sound. If the debt is more than the 2 times of equity, it indicates that the financial structure is weak. But here in this company, in the year2009 it was 1.69 and it decreased to 1.33 in 2010and in the year 2011 i.e. 1.11 and in 2012 it is 1.14 this shows the fluctuations in the debt equity ratio. That means in 2009 it indicates financial strong.
P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. III. Profitability Ratios

1. Gross Profit Ratio It is calculated by dividing by the net sales. It is also known as gross margin ratio. Gross Profit Ratio = Gross Profit / Net Sales * 100 Table No.07 Gross Profit Ratio Particulars Gross profit(Amount in
Rupees)

2009 1,52,52,402

2010 1,41,01,961

2011 5,18,48,071

2012

Net sales(Amount in
Rupees)

52,85,73,633 2.88

5,42,69,409 74,56,99,811 74,56,99,811 85,25,81,160 2.99 6.95

Gross profit ratio (In %) Graph No.07

6.36

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation: The above table shows the Gross profit ratio calculation. Here the company had a gradual increase in the gross profit ratio i.e. 2.88. And can see that the company had gradual increase year after year i.e. 2.99in 2010, 6.95in 2011 ,,but it decreased 6.36in 2012 respectively. This shows the company is sufficient to recover all operating
expenses and to build up reserves after paying all fixed interest charges and dividends. P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 2. Net Profit Ratio It is calculated by dividing the net profit by the net sales. Net Profit Ratio = Net Profit / Net Sales * 100 Table No.08 Net Profit Ratio Particulars Net profit(Amount in
Rupees)

2009 98,73,951 52,85,73,633 1.86

2010 91,07,644 47,04,82,687 1.93

2011 3,43,54,810

2012 3,66,72,470

Net sales(Amount in
Rupees)

74,56,99,811 85,25,81,160 4.60 4.30

N P R (In %) Graph No.08

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation:The above graph and table shows the calculation of Net profit ratio. In the year 2009 is 1.86. Net profit by net sales ratio has increasing to 1.93%, 4.60% decreased in the year2012 to 4.30. but it

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. IV. Combined Ratios

1. Return on Assets (Return on Investment): It is also called return on total assets. Return means net profit, Total resources means total assets. Return on Total Resources = Net Profit / Total Assets * 100 Table No.09 Return on Total Resources Particulars N P (Amount in Rs) T A (Amount in Rs) RTAR (In %) Graph No.09 2009 98,73,951 35,53,30,236 2.77 2010 91,07,644 39,53,88,365 2.30 2011 3,43,54,810 48,30,64,956 7.11 2012 3,66,72,470 54,55,19,097 6.72

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation:Return on total assets ratios indicates of how efficiently the Firm utilizes its assets. They sometimes are referred to as Efficiency ratios, Asset utilization ratios, or Asset management ratios. If the Company utilize its assets in a proper manner it automatically generates profitability position to the organization. If the Company fails to accomplish the above it may lead to decrease in the profitability level. From the above table and graph we can observe company efficiency in terms of Return on total assets ratio which was positive i.e. 2.77% in the year 2009.but in the year 2010 it is decreased to 2.30%. Later it has improved its efficiency and reported a increase in the ratio to 7.11% in 2011 and thereafter it has again decreased to 6.72% in 2012 The performance in terms of asset utilisation in SSPL., is satisfied.
P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 2. Return on Net Worth Return on Net Worth = Net Profit / Fixed Assets Table No.10 Return on Net Worth Particulars 2009 98,73,951 N P (Amount in Rupees) F A (Amount in Rupees) Return on net worth ratio (In %) Graph No.10 2010 91,07,644 2011 3,43,54,810 2012 3,66,72,470

16,92,24,328 17,49,86,835 20,72,13,977 21,72,58,617 0.05 0.05 0.16 0.16

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation: The above table shows the calculation of Return on Net worth Ratio.From the above table and graph we can observe company efficiency in terms of Return on net worth ratio which was i.e. 0.05 in the year 2009. In 2010 also 0.05.Later it has improved to 0.16 in the year 2011. Efficiency and reported a increase in the ratio

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 3) Fixed Asset Turnover Ratio = Net Sales / Fixed Asset. Table No: 11 Particulars Net Sales(Amount
in Rupees)

March 2009 52,85,73,633 16,92,24,328 3.12

March 2010 47,04,82,687 17,49,86,835 2.68

March 2011 74,56,99,811 20,72,13,977 3.59

March 2012 85,25,81,160 21,72,58,617 3.92

Fixed Asset(Amount in Times

Graph No.11

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation:Above graph shows that the Fixed Asset Turnover Ratio of the company in the year 2009 it is 3.12, it decreased in the year 2010 to 2.68. Again it grown to 3.59 and 3.92 in the year 2011 and 2012,, It indicate that the company is in satisfactory level.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 3) EPS=Net Profit Available To eq.sh/ No Of Shares In order to avoid confusion on account of the variant meanings of the term capital employed, the overall profitability can also be judged by calculating 'earning per share'. Table No: 12 Particulars Net Profit Available To Eq.Sh(Amount in
Rupees)

March 2009 98,73,951

March 2010 91,07,644

March 2011 3,43,54,810

March 2012 3,66,72,470

No. Of Shares Times

60,800 162.40

74,440 122.34

90,140 381.12

1,04,155 352.09

Graph No.12

2009

2010

2011

2012

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation:In the year 2009-10 the EPS is 162.40, in 2010-11 it is decreased to 122.34 and in the year 2011-12 the EPS drastically increased to 381.12. and in the year 20122013 it again decreased to 352.09, there is profit in the company.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 2) Comparative statements Definition of 'Comparative Statement' A statement which compares financial data from different periods of time. The comparative statement lines up a section of the income statement, balance sheet or cash flow statement with its corresponding section from a previous period. It can also be used to compare financial data from different companies over time, thus revealing the trend in the financials. Comparative statements are financial statements that cover a different time frame, but are formatted in a manner that makes comparing line items from one period to those of a different period an easy process. This quality means that the comparative statement is a financial statement that lends itself well to the process of comparative analysis. Many companies make use of standardized formats in accounting functions that make the generation of a comparative statement quick and easy. The benefits of a comparative statement are varied for a corporation. Because of the uniform format of the statement, it is a simple process to compare the gross sales of a given product or all products of the company with the gross sales generated in a previous month, quarter, or year. Comparing generated revenue from one period to a different period can add another dimension to analyzing the effectiveness of the sales effort, as the process makes it possible to identify trends such as a drop in revenue in spite of an increase in units sold.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. 2) Comparative statements Sl. No 1 2 3 4 YEAR YEAR YEAR 1 2 3 2.95 0.83 0.31 153.1 2.17 1.85 0.32 2.26 1.6 0.36 YEAR 4 1.05 2.33 0.4 98.56 CHANGE CHANGE CHANGE IN % IN % IN %
-0.78 -0.65 -1.9

Ratios
Current

Liquidity Proprietary Equity to Fixed Assets Equity to Current Assets Debt Equity Gross Profit Net Profit Return on Total Assets Return on Net Worth Fixed Asset Turnover Ratio EPS

1.02 0.01 -17.93

0.77 0.05 -34.82

1.5 0.09 -54.54

135.17 118.28

1.53

1.56

1.45

1.33

0.03

-0.08

-0.2

1.64

1.33

1.11

0.2

-0.31

-0.53

-1.44

2.88

2.99

6.95

6.36

0.11

4.07

3.48

1.86

1.93

4.6

4.3

0.07

2.74

2.44

2.77

2.3

7.11

6.72

-0.47

4.34

3.95

10

0.05

0.05

0.16

0.16

0.11

0.11

11

3.92

3.59

2.68

3.12

-0.33

-1.24

-0.8

12

162.4

122.34 381.12

352.09

-40.06

218.72

189.69

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,)

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

Analysis and Interpretation:From the above graph we can see that the Current Ratio is decreasing. Proprietary Ratio is increasing year on year. And the Debt Equity Ratio is also decreasing year on year. But the Return on Total Asset Ratio showing negative value in the 1 year then after its showing positive value. Return on Total Assets Ratio is showing 0% in 1 on year.
st st

year then after it increased to 0.11%. The EPS also showing good performance year

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,. Common Size Balance sheet Table No.21 In the year 2009 In the year 2010 (Amount in Rupees) Weight age of 2009 Weight age of 2010

Particulars LIABILITES: CAPITAL RESERVES AND SURPLUS LONG TERM LOAN

60,800,000 49,725,734

74,440,000 54,983,075

32.58 26.64 10.04

31.18 23.03 6.93

1,87,48,272

1,65,28,977

CURRENT LIABILITES TOTAL ASSETS : FIXED ASSETS

5,73,43,169 186,617,175

9,27,88,549 238,740,601

30.74 100

38.86 100

16,92,24,328

17,49,86,835

49.93

46.42

INVESTMENT CURRENT ASSETS TOTAL

0.00 16,97,09,568 338,933,896

0.00 20,19,83,525 376,970,360

0.00 50.07 100

0.00 53.58 100

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation:The common size Balance Sheets show that Current assets as a weight age of total assets have increased to 53.58 from 50.07 over previous year. The proportion of Current liabilities is increased at 38.86 in the current year compared to 30.74 in the previous year. These facts signal overall decrease in the liquidity position of the Firm. Further the share of the long term debt has also decreased and owner equity has down from 32.58 in the previous year to 31.18 in current year.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

Common Size Balance sheet Table No.20 In the year 2011 In the year 2012 (Amount in Rupees) Weight age of 2011 Weight age of 2012

Particulars LIABILITES: CAPITAL RESERVES AND SURPLUS LONG TERM LOAN

90,140,000 85,042,169 10,405,769

104,155,000 116,262,891 11,154,205

30.24 28.53 3.49

20.40 22.77 2.20

CURRENT LIABILITES TOTAL ASSETS : FIXED ASSETS

11,25,02,327 298,090,265

27,89,44,455 510,516,551

37.74 100

54.63 100

20,72,13,977

21,72,58,617

44.80

42.49

INVESTMENT CURRENT ASSETS TOTAL

0.00 25,53,02,851 462,516,828

0.00 29,41,15,950 511,374,567

0.00 55.20 100

0.00 57.51 100

(Source: Annual report of the Shanthala Spherocast Pvt. Ltd.,) Analysis and Interpretation:The common size Balance Sheets show that Current assets as a weight age of total assets have increased to 57.51 over previous year. The proportion of Current liabilities is increased at 54.63 in the current year compared to 37.74 in the previous year. These facts signal overall decrease in the liquidity position of the Firm. Further the share of the long term debt has also decreased and owner equity has down from 30.24 in the previous year to 20.40 in current year.
P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

FINDINGS
The Short term solvency ratio is Current ratio and Quick ratio etc., Current Ratio shows that the company has met the ideal ratio. The Current Assets ratio is improving year by year, the Current Liability reducing in the same proportion. Hence the company has met the ideal ratio. The liquidity position of the company is quite satisfactory. The Net profit ratio of the company in the year 2009 it was 1.86. After 2010 there is a drastic increase in net profit ratio so the company is making profit year after year and this shows the company is financially strong. The Liquidity Ratio of the company in the year 2009 it was 0.83, there after it met the ideal ratio, so it shows the company has ability to pay its short term obligation as and when they become due. The low Proprietary Ratio will include greater risk to the creditors. In 2009 company showing 0.31. And it slightly increased. Hence the company have better long term solvency. In the Equity to Current Assets Ratio we can see in 2012 the company is financially week. But in the year 2009 to 2011 it started to increase in ratio which indicate that the company is financially strong. The Debt Equity Ratio of the company shows in the year 2009 it was 1.69 and it decreased to 1.33 in 2010and in the year 2011 i.e. 1.11 and in 2012 it is 1.14 this shows the fluctuations in the debt equity ratio. That means in 2009 it indicates financial strong. The company had a gradual increase in the gross profit ratio on 2009 is 2.88. and in 2010 it is 2.99, 6.95 in the year 2011, and it is decreased to 6.36 in the year 2012 respectively. It shows the company is sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends.
P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.
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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

The company Net Profit Ratio in the year 2009 is 1.86 and it is increased drastically to 4.30 in the year 2012. It shows the company is financially strong. Return on Total Resources of the company showing positive ratio, in 2009 it is 2.77% but in the year it is decreased to 2.30%. Later we can see the improvement in its efficiency and reported a increase in ratio also, in the year 2011 it is showing 7.11%, again we can see the change in percentage of 0.39% that means in 2012 it is 6.72%. The performance in terms of asset utilisation of the company is satisfied. From Return on Net worth Ratio we can observe that the company efficiency and reported a increase in the ratio, because in 2009 it is 0.05. In 2010 also 0.05 but it has improved to 0.16 in the year 2011. And in the year 2012 also it showing 0.16. The Fixed Asset Turnover Ratio of the company in the year 2009 it is 3.12, but it decreased to 2.68 in the year 2010. After that it started to increase to 3.59 and 3.92 in the year 2011 and 2012. The Earning Per Share of the company in the year 2009 it is 162.40, it decreased to 122.34 in the year 2010. But again it started to increase in the year 2011 it is 381.12 and 352.09 in the year 2012. It shows that there is a profit in the company. The common size balance sheet of the company shows that the current assets as a weight age of total assets have increased to 57.51 over previous year. The proportion of Current liabilities is increased at 54.63 in the current year compared to 37.74 in the previous year. These facts signal overall decrease in the liquidity position of the firm. Further the share of the long term debt has also decreased and owner equity has down from 30.24 in the previous year to 20.40 in current year.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

SUGGESTIONS
After making the detailed study on profitability analysis of Shanthala Spherocast Private Limited., the work intends to give some suggestions to improve the profitability can be managed.

Profitability Analysis reveals that Financial Position of the company is good

except 2009. Its highly recommended for the company to maintain some trend in future and company may consider revising the Current Ratio.

Liquidity Ratio reveals that the company has ability to pay its short term
obligations as and when they become due except 2009. I suggest the company to maintain same position.

Proprietary Ratio throws light on the general financial strength of the

company. It is also regarded as a test of the soundness of the capital structure. Higher the ratio or the share of shareholders in the total capital of the company better is the long-term solvency position of the company. Hence the company have better long term solvency it has to continue same ratio.

Ratio analysis reveals that the from 2009 to 2011 the company is financially
strong but in 2012 it is financially week, I suggest the company to revise the owners equity.

Equity to Current Assets Ratio from the year 2011 and 2012 it is showing
positive value that means the company is financially strong. I suggest the company to have same control on current assets.

Through Debt Equity ratio it reveling that the company is financially strong
from the year 2009 to 2011. But It decreased in the year 2012, so I suggest the company to have some control over the External debt (Long term debts).

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

The Gross Profit Ratio of the showing this company is sufficient to recover all
operating expenses and to build up reserves after paying all fixed interest charges and dividends year on year. Company should maintain same ratio.

The Net Profit of the company was showing variation year on year then also it
is good for the company, so the company should look after Net Profit.

The Company efficiency in terms of Return on total assets ratio which was
positive. So the performance in terms of asset utilization in the company is quite satisfactory. Company should revise the Total Asset.

The net worth of the company is also plays an important role. So company
have to maintain same ratio.

In order to avoide confusion on account of the variant meanings of the term

capital employed, the overall profitability can also be judged by calculating EPS so company should give more importance to EPS.

In order to increase the profitability of the company they have to utilize the
asset efficiently so that they can improve in the generation of revenue.

The company should maintain minimum cash and bank balance to finance the
operation of the organization.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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A Study On Profitability Analysis With Reference to Shanthala Spherocast Pvt. Ltd,.

CONCLUSION
For the success of any organization proper management of finance and financial information is a basic mandatory. Financial information is needed to predict, compare and evaluate the Firms earning ability. It is also required to aid in economic decision making investment and financing decision making. The financial statements are the accounting reports of a Company. Three basic financial statements of great significance to owners, management and investors are Balance Sheet, Profit and loss account. So this project report undertaken to study and evaluate SSPL. Financial position. After the Profitability Analysis we can see that there are some areas which company should look after some ratios. After looked in to financial position of Shanthala Spherocast Private Limited it shows that overall financial performance is getting better. Thus to conclude I can say company may perform well in the future based on their ratio analysis and financial statements.

P.G Dept of Management Studies, & Research Centre, PESITM, Shivamogga.

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