CONTENTS

Particulars Page no.

1. RATIO ANALYSIS 2. INTRODUCTION COMPANY PROFILE 3. OBJECTIVE OF THE STUDY 4. DATA ANALYSIS AND INTERPRETATION 5. FINDINGS OF THE STUDY 6. SUGGESSIONS AND RECOMMENDATONS 7. CONCLUSION 8. LIMITATIONS 9. BIBLIOGRAPHY

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1:- RATIO ANALYSIS 1.1 Financial statements Analysis: The financial statements provide some extremely useful information to the extent thatthe balance sheet mirrors the financial position on a particular date in terms of the structure ofassets, liabilities and owners equity, and so on and the profit an loss account shows the resultsof operations during a certain period of time in terms of the revenues obtained and the costincurred during the year. Thus, the financial statements provide a summarized view of thefinancial position and operations of a firm. Therefore, much an be learnt about a firm from a careful examination of its financial statements as invaluable documents performance reports.The analysis of financial statements is thus, an important aid to financial analysis. The focus of financial analysis is on key figures in the financial statements and thesignificant relationship that exists between them. The analysis of financial statements is aprocess of evaluating the relationship between component parts of financial statements toobtain a better understanding of the firms position and performance. The first task of thefinancial analyst is to select the information relevant to the decision under consideration fromthe 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 anddrawing of inferences and conclusion. In brief, the financial analysis is the process ofselection, relation and evaluation.

1.2 Ratio Analysis: Ratio analysis is a widely-use tool of financial analysis. It can be used to compare the riskand return relationships of firms of different sizes. It is defined as the systematic use of ratioto interpret the financial statements so that the strengths and weakness of a firm as well as itshistorical performance and current financial condition can be determined. The term ratiorefers to the numerical or quantitative relationship between two items and variables. Theseratios are expressed as (i) percentages, (ii) fraction and (iii) proportion of numbers. Thesealternative methods of expressing items which are related to each other are, for purposes offinancial analysis, referred to as ratio analysis. It should be noted that computing the ratiosdoes not add any information not already inherent in the above figures of profits and sales.What the ratio do is that they reveal the relationship in a more meaningful way so as to enableequity investors, management and lenders make better investment and credit decisions.

1.3 TYPES OF RATIOS:

1.3.1 Liquidity Ratios: The importance of adequate liquidity in the sense of the ability of a firm to meetcurrent/short-term obligations when they become due for payment can hardly be overstresses.In fact, liquidity is a prerequisite for the very survival of a firm. The short-term creditors ofthe firm are interested in the short-term solvency or liquidity of a firm. The short-termcreditors of the firm are interested in the shortterm solvency or liquidity of a firm. Butliquidity implies from the viewpoint of utilization of the funds of the firm that funds are idleor they earn very little. A
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proper balance between the two contradictory requirements, that is,liquidity and profitability, is required for efficient financial management. The liquidity ratios measure the ability of a firm to meet its short-term obligations and reflect the short-termfinancial strength and solvency of a firm.

A. Current Ratio The current ratio is the ratio of total current assets to total current liabilities. It is Calculated by dividing current assets by current liabilities: Current assets Current Ratio =________________ Current liabilities The current assets of a firm, as already stated, represent those assets which can be, in theordinary course of business, converted into cash within a short period of time, normally notexceeding one year and include cash and bank balances, marketable securities, inventory ofraw materials, semi-finished (work-in-progress) and finished goods, debtors net of provisionfor bad and doubtful debts, bills receivable and prepaid expenses. The current liabilitiesdefined as liabilities which are short-term maturing obligations to be met, as originallycontemplated, within a year, consist of trade creditors, bills payable, bank credit, and provision fortaxation, dividends payable and outstanding expenses.

B. Quick Ratio The liquidity ratio is a measure of liquidity designed to overcome this defect of the currentratio. It is often referred to as quick ratio because it is a measurement of

a firms ability toconvert its current assets quickly into cash in order to meet its current liabilities. Thus, it is ameasure of quick or acid liquidity. The acid-test ratio is the ratio between quick assets and current liabilities and is calculatedby dividing the quick assets by the current liabilities. Quick assets Quick Ratio =____________________ Current liabilities The term quick assets refer to current assets which can be converted into cashimmediately or at a short notice without diminution of value. Included in this category ofcurrent assets are (i) cash a bank balance; (ii) short-term marketable securities and (iii) debtors/receivables. Thus, the current which are included are: prepaid expenses and inventory The exclusion of expenses by their nature is not available to pay off current debts. Theymerely reduce the amount of cash required in one period because of payment in a prior period.

C. Cash Ratio: This ratio is also known as cash position ratio or super quick ratio. It is a variation ofquick ratio. This ratio establishes the relationship absolute liquid asserts and current liabilities.Absolute liquid assets are cash in hand, bank balance and readily marketable securities. Boththe debtors and bills receivable are excluded from liquid assets as there is always anuncertainty with respect to their realization. In other words, liquid assets minus debtors andbills receivable are absolute liquid assets. In this form of formula: Cash in hand & at bank + Marketable securities Cash Ratio =________________________________________ Current liabilities
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1.3.2 Activity Ratios: Activity ratios are concerned with measuring the efficiency in asset management. Theseratios are also called efficiency ratios or asset utilization ratios. The efficiency with which theassets are used would be reflected in the speed and rapidity with which assets are convertedinto sakes. The greater is the rate of turnover or conversion, the more efficient is the utilizationof asses, other things being equal. For this reason, such ratios are designed as turnover ratios.Turnover is the primary mode for measuring the extent of efficient employment of assets byrelating the assets to sales. An activity ratio may, therefore, be defined as a test of therelationship between sales and the various assets of a firm.

A. Inventory Turnover Ratio: This ratio indicates the number of times inventory is replaced during the year. It measuresthe relationship between the cost of goods sold and the inventory level. The ratio can becomputed in Cost of goods sold Inventory Turnover Ratio=___________________ Average Inventory The average inventory figure may be of two types. In the first place, it may be the monthlyinventory average. The monthly average can be found by adding the opening inventory ofeach month from, in case of the accounting year being a calendar year, January throughJanuary an dividing the total by thirteen. If the firms accounting year is other than a calendaryear, say a financial year, (April and March), the average level of inventory can be computedby adding the opening inventory of each month from April through April and dividing thetotal by thirteen.
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This approach has the advantage of being free from bias as it smoothens outthe fluctuations in inventory level at different periods. This is particularly true of firms inseasonal industries. However, a serious limitation of this approach is that detailed month-wiseinformation may present practical problems of collection for the analyst. Therefore, averageinventory may be obtained by using another basis, namely, the average of the openinginventory may be obtained by using another basis, namely the average of the openinginventory and the closing inventory. B. Working Capital Turnover Ratio This ratio, should the number of times the working capital results in sales. In otherwords,this ratio indicates the efficiency or otherwise in the utilization of short tern funds in makingsales. Working capital means the excess of current over the current liabilities. In fact, in theshort run, it is the current liabilities which play a major role. A careful handling of the shortterm assets and funds will mean a reduction in the amount of capital employed, therebyimproving turnover. The following formula is used to measure this ratio: Sales Working capital turnover ratio =_____________________ Net Working Capital

C. Fixed Assets Turnover Ratio: As the organization employs capital on fixed assets for the purpose of equipping itself withthe required manufacturing facilities to produce goods and services which are saleable to thecustomers to earn revenue, it is necessary to measure the degree of success achieved in thisbearing. This ratio expresses the relationship between cost of goods sold or sales and fixedassets. The following is used for measurement of the ratio.

Sales Fixed Assets Turnover =________________ Net fixed assets In computing fixed assets turnover ratio, fixed assets are generally taken at written downvalue at the end of the year. However, there is no rigidity about it. It may be taken at theoriginal cost or at the present market value depending on the object of comparison. In fact, theratio will have automatic improvement if the written down value is used. It would be better if the ratio is worked out on the basis of the original cost of fixed assets.We will take fixed assets at cost less depreciation while working this ratio.

1.3.3 Financial Leverage (Gearing) Ratios The long-term lenders/creditors would be judge the soundness of a firm on the basis of thelong-term financial strength measured in terms of its ability to pay the interest regularly aswell as repay the installment of the principal on due dates or in one lump sum at the time of maturity. The long term solvency of a firm an be examined by using leverage or capitalstructure ratios. The leverage or capital structure ratios may be defined as financial ratioswhich throw light on the longterm solvency of a firm as reflected in its ability to assure thelong-term lenders with regard to (i) periodic payment of interest during the period of the loanand (ii) repayment of principal on maturity or in predetermined installments at due dates.

A. Proprietary Ratio: This ratio is also known as Owners fund ratio (or) Shareholders equity ratio (or) Equityratio (or) Net worth ratio. This ratio establishes the relationship
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between the proprietorsfunds and total tangible assets. The formula for this ratio may be written as follows. Proprietors funds Proprietary Ratio =_____________________ Total tangible assets Proprietors funds mean the sum of the paid-up equity share capital plus preference sharecapital plus reserve and surplus, both of capital and revenue nature. From the sum so arrivedat, intangible assets like goodwill and fictitious assets capitalized as Miscellaneousexpenditure should be deducted. Funds payable to others should not be added. It may benoted that total tangible assets include fixed assets, current assets but exclude fictitious assetslike preliminary expenses, profit & loss account debit balance etc.

B. Debt to Equity Ratio The relationship between borrowed funds and owners capital is a popular measure of thelong-term financial solvency of a firm. The relationship is shown by the debt-equity ratios.This ratio reflects the relative claims of creditors and shareholders against the assets of thefirm. The relationship between outsiders claims and owners capital can be shown in differentways and, accordingly, there are many variants of the debt-equity ratio. Total debt Debt to Equity Ratio = ---------------------Total equity The debt-equity ratio is, thus, the ratio of total outside liabilities to owners total funds. In other words, it is the ratio of the amount invested by the owners of business.

C. Interest Coverage Ratio It is also known as time interest-earned ratio. This ratio measures the debt servicingcapacity of a firm insofar as fixed interest on long-term loan is concerned. It is determined bydividing the operating profits or earnings before interest and taxes (EBIT) by the fixed interestcharges on loans. Thus, EBIT Interest Coverage Ratio =_______________ Interest charges It should be noted that this ratio uses the concept of net profits before taxes becauseinterest is tax-deductible so that tax is calculated after paying interest on long-term loan. Thisratio, as the name suggests, indicates the extent to which a fall in EBIT is tolerable in that theability of the firm to service its interest payments would not be adversely affected. Forinstance, an interest coverage of 10 times would imply that even if the firms EBIT were todecline to one-tenth of the present level, the operating profits available for servicing theinterest on loan would still be equivalent to the claims of the lenders. On the other hand, acoverage of five times would indicate that a fall in operating earnings only to upto one-fifthlevel can be tolerated. Form the point of view of the lenders, the larger the coverage, thegreater is the ability of the firm to handle fixed-charge liabilities and the more assured is thepayment of interest to tem, However, too high a ratio may imply unused debt capacity. Incontrast, a low ratio is a danger signal that the firm is using excessive debt and does not haveto offer assured payment of interest to the lenders. 1.3.4 Profitability Ratios The main object of a business concern is to earn profit. A company should earn profits tosurvive and to grow over a long period. The operating efficiency of a
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business concern isultimately adjudged by the profits earned by it. Profitability should distinguish from profits.Profits refer to the absolute quantum of profit, whereas profitability refers to the ability toearn profits. In other words, an ability to earn the maximum from the maximum use ofavailable resources by the business concern is known as profitability. Profitability reflects thefinal result of a business operation. Profitability ratios are employed by the management inorder to assess how efficiently they carry on business operations. Profitability is the main basefor liquidity as well as solvency. Creditors, banks and financial institutions are interestobligations and regular and improved profits enhance the long term solvency position of thebusiness.

A. Gross Profit Margin The gross profit margin is also known as gross margin. It is calculated by dividing grossprofit by sales.Thus, Gross profit Gross Profit Margin =________________ *100 Sales Gross profit is the result of the relationship between prices, sales volume and cost. Achange in the gross margin can be brought about by changes in any of these factors. The grossmargin represents the limit beyond which fall in sales price are outside the tolerance limit.Further, the gross profit ratio/margin can also be used in determining the extent of loss causedby theft, spoilage, damage, and so on in the case of those firms which follow the policy offixed gross profit margin in pricing their products. A high ratio of gross profit to sales is a sign of good management as it implies that the costof production of the firm is relatively low. It may also be indicative of
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a higher sales pricewithout a corresponding increase in the cost of goods sold. It is also likely that cost of salesmight have declined without a corresponding decline in sales price. Nevertheless, a very highand rising gross margin may also be the result of unsatisfactory basis of valuation of stock,that is, overvaluation of closing stock and/or undervaluation of opening stock. A relatively low gross margin is definitely a danger signal, warranting a careful anddetailed analysis of the factors responsible for it. The important contributory factors may be(i) a high cost of production reflecting acquisition of raw materials and other inputs onunfavorable terms, inefficient utilization of current as well as fixed assets, and so on; and (ii)a low selling price resulting from severe competition, inferior quality of the product, lack of demand,and so on. A through investigation of the factors having a bearing on the low grossmargin is called for. A firm should have a reasonable gross margin to ensure adequatecoverage for operating expenses of the firm and sufficient return to the owners of thebusiness, which is reflected in the net profit margin.

B. Net Profit margin: It is also known as net margin. This measures the relationship between net profits and salesof a firm. Earnings after interest and taxes Net Profit Margin =______________________________ *100 Net Sales A high net profit margin would ensure adequate return to the owners as well as enable afirm to withstand adverse economic conditions when selling price is declining, cost ofproduction is rising and demand for the product is falling. A low net profit margin has the opposite implications. However, a firm with low profitmargin can earn a high rate of return on investment if it has a higher
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turnover. This aspect iscovered in detail in the subsequent discussion. The profit margin should, therefore, beevaluated in relation to the turnover ratio. In other words, the overall rate of return is theproduct of the net profit margin and the investment turnover ratio. Similarly, the gross profitmargin and the net profit margin should be jointly evaluated.

C. Return on Investment: The basic objective of making investments in any business is to obtain satisfactory returnon capital invested. The nature of this return will be influenced by factors such as, the type ofthe industry, the risk involved, the risk of inflation, the comparative rate of return on gilt-edged securities and fluctuations in external economic conditions. For this purpose, theshareholders can measure the success of a company in terms of profit related to capitalemployed. The return on capital employed can be used to show the efficiency of the businessas a whole. The overall performance and the most important, therefore, can be judged byworking out a ratio between profit earned and capital employed. The resultant ratio, usually expressed as a percentage, is called rate of return or return on capital employed to express theidea, the purpose is to ascertain how much income the use of Rs.100 of capital generates. Thereturn on capital employed may be based on gross capital employed or net capitalemployed. The formula for this ratio may be written as follows. Operating profit Return on Investment =_________________ Capital Employed

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D. Return on Equity (ROE) This is also known as return on net worth or return on proprietors fund. The preferenceshareholders get the dividend on their holdings at a fixed rate and before dividend to equityshareholders, the real risk remains with the equity shareholders. Moreover, they are theowners of total profits earned by the firms after paying dividend on preference shares.Therefore this ratio attempts to measure the firms profitability in terms of return to equityshareholders. This ratio is calculated by dividing the profit after taxes and preference dividendby the equity capital. Thus Net profit after taxes and preference dividend Return on Equity =__________________________________________ Equity capital

E. Return on Total Assets This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationshipbetween net profits and assets. As these two terms have conceptual differences, the ratio maybe calculated taking the meaning of the terms according to the purpose and intent of analysis.Usually, the following formula is used to determine the return on total assets ratio. Net profit after taxes and interest Return on Total Assets =_________________________________ *100 Total assets 1.4 Steps to Improve Financial Performance Author: Terry Peltes

Given the challenges facing physicians, successful practices must take proactive steps tocombat negative trends and improve their overall financial performance.
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To improve practice operations, processes can be streamlined to reduce costs; productivityimprovements can be implemented by physicians and employees to increase revenue; areporting structure can be created that allows for better decision making by physicians andemployees; and a rewards system can be implemented to recognize hard-working employees.To determine how you can improve your medical practice's performance, consider the following management procedures. 1) Internal Cost Reduction Strategies Cost reduction strategies focus on reducing the internal costs generated by medical services provided to the marketplace. 2) External Cost Reduction Strategies These strategies include the cost of services purchased from outside consultants or vendors. 3) Asset and Credit Management Strategies These strategies ensure that you are getting the most value from the resources invested inyour practice. 4) Personnel Resources When managed properly, personnel costs and productivity can have a substantial impacton practice profitability. 5) Management Reporting The use of timely, relevant, properly formatted reports to manage your practice cannotbe overstated. This is a crucial link between setting financial and operational goals andmanaging the practice to achieve them.

6) Revenue Enhancement Physicians can improve their financial performance by improving their ability to negotiatefavorable managed care contracts and reducing practice expenses as a percentage.
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2:- INTRODUCTION

2.1 COMPANY PROFILE

2.1.1 HISTORY OF THE COMPANY: Emami, which started as a cosmetics manufacturing company in the year 1974, advancingwith increased momentum has expanded into Emami Group of Companies of today. Eventhough cosmetics and toiletries continue to be the main thrust area, the other companies in theEmami Group are performing equally brilliantly. From health care institution to medicines,from real estate to retailing and, from paper to writing instruments, Hospital, Emami iscreating one success story after another.

2.1.2 Vision and Mission:

Vision A company, which with the help of nature, caters to the consumers needs and their innercravings for dreams of better life, in the fields of personal and health care, both in India andthroughout the world.

Mission To sharpen consumer insights to understand and meet their needs with valueaddeddifferentiated products which are safe, effective & fast To integrate our dealers, distributors, retailers and suppliers into the Emami family,thereby strengthening their ties with the company.

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 To recruit, develop and motivate the best talents in the country and provide them withan environment which is demanding and challenging. To strengthen and foster in the employees, strong emotive feelings of oneness with thecompany. To uphold the principals of corporate governance and move towards decentralization to generate long term maximum returns for all stake owners. To contribute whole heartedly towards the environment and society and to emerge as amodel corporate citizen.

2.1.3 Values: Respect for people: We treat individuals with dignity and respect. We continue to be honest, open and ethical inall our interactions with dealers, distributors, retailers, suppliers, shareholders, customers andwith each other.

Consumers delight: We maximizing that our business can succeed only if we can create and keep customers. Wemanufacture products that offer value for money, which are differentiated and deliver safe,effective and fast solutions.

Integrity: People at every level are expected to adhere to the highest standards of business ethics.Anything less is unacceptable. Our ethical conduct transcends beyond policies. It is ingrained in our corporate tradition that is transferred from one generation of employees to another. Wecomply with applicable government laws and regulations in the geographies where we arepresent.

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Quality We are committed to excellence in everything we do. Our credo: There is always a betterway- We must think creatively, continuously innovate and pursue new ideas to achieve uncommon solutions to common problems.

Teamwork: Teamwork is the cornerstone of our business that helps deliver value to our customers. Wework together across titles, job responsibilities and organizational structure to shareknowledge and expertise.

The right environment: It is our responsibility to create an environment that helps employees realize their fullpotential.

Leadership: We recognize that we can be a leading company through active delegation and by creatingleaders at every level of the organization.

Community development: We continue to contribute to the communities in which we operate and address social issuesresponsibly. Our products are safe to make and use. We conserve natural resources andcontinue to invest in a better environment.

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Transparency and shareholder value: We are committed to be driven by our conscience and regulatory standards, to deliverValueto our shareholders, commensurate with our management and financial strength.

Board of Directors The efficient functioning of this reputed company rests with the following personalities

1. Promoter Directors Sri R. S. Agarwal Sri R. S. Goenka Sri S. K. Goenka Sri Mohan Goenka Sri A. V. Agarwal Sri H. V. Agarwal Smt. PritiSureka 2. Independent Directors Sri Viren j. Shah, Industrialist, exGovernor of West Bengal Sri K. N. Memani, exCountry Head of E&Y, India Sri Y. P. Trivedi, eminent tax expert & advocate, RajyaSabha member Sri S. K. Todi, Industrialist Sri AmitKiran Deb, exChief Secretary, Govt. of WestBengal
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Sri S. B. Ganguly, Industrialist Vaidya Suresh Chaturvedi, Ayurvedacharya, Padmashree s Management team Smt. P. Sureka, Brand Director Shri Manish Goenka, Brand Director ShriPrasantGoenka, Brand Director ShriDhirajAgarwal, Media Director ShriHari Gupta, President Sales Shri Ashok Dasgupta, President Operation Shri R.D. Daga, Chief of Legal Affairs Shri R.K. Surana, Sr. V.P. Purchase & Development Shri N.H. Bhansali, Sr. V.P. Finance Shri S. Rajagopalan, Sr. V.P. Production Shri R.C. Gattani Sr. V.P. Projects & Development Shri D. Poddar, V.P. Co-ordination Shri A.B. Mukherjee, V.P. Logistics Shri A. Ghose, V.P. Ayurvedic Division Shri A.K. Rajput, V.P. Operations Shri S. Grover, V.P. Rural Marketing

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Transparency and Shareholder value Shri S.K. Mandal, G.M. Systems ShriVimal Kr. Pande, G.M. Sales Shri P.N. Balakrishnan, G.M. Technical Shri A.K. Joshi, Company Secretary ShriH.K.Goenka, G.M. Works Dr. Neena Sharma, G.M. Ayurveda (R&D) Shri Raj Kr. Gupta, G.M. Purchase Shri T.R. Rajan, G.M. Production Ms. RatnaSinha Head HR

The most fascinating fact about the team is that though individual member of the teamfunctions independently and professionally in their own areas but actually they are veryclosely knit by a bond of fellow feeling. All the members of the Emami team happily co-exist as if family members.

2.1.4 Profile of the Organization: Emami Limited is in the business of manufacturing personal, beauty and health care products. The company manufactures herbal and Ayurvedic products through the use of modernscientific laboratory practices. This blend enables the company to manufacture products thatare mild, safe and effective. The company's product basket comprises over 20 products, themajor being Boroplus Antiseptic Cream, Navratna Oil, Boroplus Prickly Heat Powder, SonaChandiChyawanprash and Amritprash, Mentho Plus Pain Balm, Fast Relief, Golden BeautyTalc, Madhuri Range of Products and others. The products are sold across all states in Indiaand in

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countries like Nepal, Sri Lanka,Gulf countries, Europe, Africa and the MiddleEast, among others.

2.1.5 Manufacturing: Emamis products are manufactured in Kolkata, Puducherry, Guwahati and Mumbai.The company commenced operations at its fully automated manufacturing unit in Amingaon,Guwahati in 2003-04.

2.1.6 Network: The company's dispersed manufacturing facilities are complemented with a strong productthroughput, facilitated by a robust distribution network of over 2100 direct distributors and3.9 lakhs retail outlets. With a view to reach its products deeper into the country, direct sellinghas been extended to rural villages. As a result, rural sales increased substantially in 2003-04compared to the previous year. Emami is headquartered in Kolkata. The company's branchoffices are located across 27 cities in India.

2.1.7 Promoters: Emami is promoted by ShriR.S.Agarwal and ShriR.S.Goenka; Kolkata based industrialists.Emamis shares are listed on the Calcutta Stock Exchange, Bombay Stock Exchange andNational Stock Exchange.

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2.1.8 IT BACKBONE

INTEGRATED INFORMATION TECHNOLOGY An efficient information technology network is necessary for a dynamic FMCG companywhere the market demands change faster than perhaps in any other industry. At Emami, theintegration of information technology transpires on a continuous basis. This ensures that thecompany responds to changing market place realities faster than its competitors and that itsproducts reach retail shelves just when they are required. In turn, this enhances brand loyaltyand retains customers. A successful implementation of the ERP in the offices, factories and depots increased thecompanys overall efficiency. It enabled single-point data entry and multi-point informationaccess. The status of raw materials, packing materials, finished goods, indents and salesinformation gets constantly updated through ERP. This has become possible due to the Point to Point Leased Line connections. As Emami is growing rapidly, the augmented business requirement calls for a Standard ERPsystem. This would provide Real-Time information to the Management, which wouldfacilitate to take quick decision. The information could also be available through email andMobile phones. So Emami would be implementing a Standard ERP system very shortly. SalesForecasting, Demand Planning, Process Management, Supply Chain Management, Primaryand Secondary Sales, I-Supplier, I-Expenses, I-Sales will be an integral part of the StandardERP system. Emami adopts the latest Technology for IT and communication system.

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2.1.9 SALES AND DISTRIBUTION NETWORK

Our Marketing & Distribution Network: Wide, penetrative and all encompassing. That is how Emami has planned its distributionnetwork. The success of Emami has been largely due to its superior products that havereached the consumers even in the remotest regions of the country and abroad.

Current Distribution Infrastructure: 5 Regions 25 Depots / C&F Agents 2,182 Direct Distributors 899 Distributors for Rural Coverage Over 3, 86,940 Retail outlets

Distribution Network Four Mother depots Kolkata Vijayawada Delhi Nagpur

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2.1.10 INTERNATIONAL MARKETING DIVISION

Vision: To contribute profitably to the growth of the company, representing it with pride across theglobe, with a single-minded focus and dedication to establishing and building global brands.

Global Presence of Emami: Over the last 7 years, Emamis presence has increased from merely few countries in CIS toover 50 countries spanning across SAARC, Gulf, CIS, North America, Europe and Africa.The company now is shifting its focus from broad basing (entering new markets) to increasingthe number of successful products in existing markets to improve upon its operational efficiency.

Product Portfolio: The Product Portfolio can be broadly divided into three Umbrellas. Emami The products under this Umbrella Brand promise care for the skin. The rangeconsists of Skin care, Hair care, Dental care & Mens care products. Himani Products under this Umbrella Brand promise cure. The range consists ofOTC medicines. Ayucare A range of new Life style enhancing products comprising of Single ingredient herbs, food supplements, Neem& Aloe Vera range, Ayurvedic tea, Massageoil, Essential oils & blends. Emma This range comprises of customized products as per the specific needs put-upby the consumer. Typically these are all mass marketed products sold to

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priceconscious buyers. The range presently consists of Creams, Lotions & Shampoos. Future Strategy: Companys business plan for International market comprises of thefollowing key factors. Investment in potential markets for key Brands leading to Higher Possibility of returns in terms of Turnover and Market Development in the long run. Adding new products for various key markets. Customization of product offerings under the same brand clubbing of familiar products under the same brand. Manufacturing facilities in High Tariff markets to make prices more consumerfriendly. Acquisition In certain markets, company may consider buying existing brands instead of trying to build one. Brand Building Activities: Company spends on Media (TV and/or Press) Advertising in selectcountries in CIS, SAARC, Indo-China and USA, Australia & UK. All the markets aresupported with POPs, Displays and other promotional material as per the requirement.

2.2 INTRODUCTION TO THE STUDY Financial Management is that managerial activity which is concerned with the planningand controlling of the firms financial resources. Though it was a branch of economics till1890 as a separate or discipline it is of recent origin. Financial Management is concerned with the duties of the finance manager in a businessfirm. He performs such varied tasks as budgeting, financial forecasting, cash management,credit administration, investment analysis and funds

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procurement. The recent trend towardsglobalization of business activity has created new demands and opportunities in managerialfinance. Financial statements are prepared and presented for the external users of accountinginformation. As these statements are used by investors and financial analysts to examine thefirms performance in order to make investment decisions, they should be prepared verycarefully and contain as much investment decisions, they should be prepared very carefullyand contain as much information as possible. Preparation of the financial statement is the responsibility of top management. The financial statements are generally prepared from theaccounting records maintained by the firm. Financial performance is an important aspect which influences the long term stability, profitability and liquidity of an organization. Usually, financial ratios are said to be the parameters of the financial performance. The Evaluation of financial performance had been taken up for the study with EMAMI LIMITED as the project. Analyses of Financial performances are of greater assistance in locating the weak spots atthe Emami limited eventhough the overall performance may be satisfactory. This further helps in Financial forecasting and planning. Communicate the strength and financial standing of the Emami limited. For effective control of business.

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3:-OBJECTIVES OF THE STUDY

3.1 Primary Objective: To evaluate the financial efficiency of EMAMI LIMITED.

3.2 Secondary Objectives: i.To analyze the liquidity solvency position of the firm. ii.To study the working capital management of the company. iii.To understand the profitability position of the firm. iv.To assess the factors influencing the financial performance of the organization. v.To understand the overall financial position of the company.

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4:-DATA ANALYSIS AND INTERPRETATION

4.1

FINANCIAL

PERFORMANCE

EVALUATION

USING

RATIO

ANALYSIS Ratio analysis is a powerful tool of financial analysis. A ratio is defined as The IndicatedQuotient of Two Mathematical Expressions and as The Relationship between Two or MoreThings. In financial analysis, a ratio is used as a benchmark for evaluating the financialposition and performance of firm. The absolute accounting figures reported in the financialstatement do not provide a meaningful understanding of the performance and financialposition of a firm. The relationship between two accounting figures, expressedmathematically is known as a financial ratio. Ratios help to summaries large quantities offinancial data and to make qualitative about the firms financial performance. The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all financial ratios.

4.1.1 Significance of Using Ratios: The significance of a ratio can only truly be appreciated when:

1.It is compared with other ratios in the same set of financial statements. 2.It is compared with the same ratio in previous financial statements (trend analysis). 3.It is compared with a standard of performance (industry average). Such a standardmay be either the ratio which represents the typical performance of the
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trade orindustry, or the ratio which represents the target set by management as desirable forthe business.

4.2 Types of Ratios

4.2.1 Liquidity Ratios Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet theirshort-term maturing obligations. Failure to do this will result in the total failure of thebusiness, as it would be forced into liquidation.

A. Current Ratio The Current Ratio expresses the relationship between the firms current assets and itscurrent liabilities. Current assets normally include cash, marketable securities, accountsreceivable and inventories. Current liabilities consist of accounts payable, short term notespayable, short-term loans, current maturities of long term debt, accrued income taxes andother accrued expenses (wages). Current assets Current Ratio =________________ Current liabilities

Significance: It is generally accepted that current assets should be 2 times the current liabilities. In asound business, a current ratio of 2:1 is considered an ideal one. If current ratio is lower than2:1, the short term solvency of the firm is considered doubtful and it
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shows that the firm is notin a position to meet its current liabilities in times and when they are due to mature. A highercurrent ratio is considered to be an indication that of the firm is liquid and can meet its shortterm liabilities on maturity. Higher current ratio represents a cushion to short-term creditors,the higher the current ratio, the greater the margin of safety to the creditors

Table-1.1 Current Ratio Current Assets Year 2006 2007 Rs. In crores CurrentLiabities Rs. In crores Ratio

161.39

68.26

2.36

2007 - 2008 2008 2009 2009 2010 2010 2011

234.94

103.01

2.28

214.66

167.72

1.28

417.77

172.87

2.45

583.79

167.40

3.48

31

600 500 400 300 200 100 0 2007 2008 2009 2010 161.39 68.26 2.36 103.01 2.28 1.28 2.45 234.94 214.66 167.72 417.77

583.79

current assets current liabilities 172.87 167.4 Ratio

3.48 2011

Year Interpretation: As a conventional rule, a current ratio of 2:1 is considered satisfactory. This rule isbased on the logic that in a worse situation even if the value of current assets becomes half, thefirm will be able to meet its obligation. The current ratio represents the margin of safety forcreditors. The current ratio has been decreasing year after year which shows decreasingworking capital. From the above statement the fact is depicted that the liquidity position of the Emamilimited is satisfactory because all the five years current ratio is not below the standard ratio 2:1 except 2008-2009.

B. Quick Ratio Measures assets that are quickly converted into cash and they are compared with currentliabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g.inventories. The quick ratio, also referred to as acid test ratio, examines the ability of the business to coverits short-term obligations from its quick assets only (i.e. it ignores stock).

32

The quick ratio is calculated as follows Quick assets Quick Ratio =____________________ Current liabilities Significance: The standard liquid ratio is supposed to be 1:1 i.e., liquid assets should be equal to currentliabilities. If the ratio is higher, i.e., liquid assets are more than the current liabilities, the shortterm financial position is supposed to be very sound. On the other hand, if the ratio is low, i.e.,current liabilities are more than the liquid assets, the short term financial position of thebusiness shall be deemed to be unsound. When used in conjunction with current ratio, theliquid ratio gives a better picture of the firms capacity to meet its short-term obligations outof short-term assets. Table-1.2 Quick ratio Quick Assets Year 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 Rs. In Crores 120.19 Current Liabities Rs. In Crores 68.26 Ratio 1.76

192.84

103.01

1.87

141.46

167.72

0.84

339.16

172.87

1.96

461.88

167.40

2.76

33

500 450 400 350 300 250 200 150 120.19 100 50 0 2007 2008 2009 2010 68.26 1.76 1.87 0.84 1.96 192.84 103.01 167.72 141.46 172.87 339.16

461.88

Quick Assets Current Liabilities 167.4 Ratio

2.76 2011

Year Interpretation: As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all currentclaims. It is a more rigorous and penetrating test of the liquidity position of a firm. But theliquid ratio has been decreasing year after year which indicates a high operation of the business. From the above statement, it is clear that the liquidity position of the Emami limited is satisfactory. Because the entire five years liquid ratio is not below the standard ratio of 1:1 except 2008-2009.

C. Cash ratio: This is also known as cash position ratio or super quick ratio. It is a variation of quickratio. This ratio establishes the relationship between absolute liquid assets and currentliabilities. Absolute liquid assets are cash in hand, bank balance and readily marketablesecurities. Both the debtors and the bills receivable are exclude from liquid assets as there isalways an uncertainty with respect to their realization.
34

In other words, liquid assets minusdebtors and bills receivable are absolute liquid assets. The cash ratio is calculated as follows Cash in hand & at bank + Marketable securities Cash Ratio =________________________________________ Current liabilities Significance This ratio gains much significance only when it is used in conjunction with the first tworatios. The accepted norm for this ratio is 50% or 0.5:1 or 1:2(i.e.,) Re. 1 worth absolute liquidassets are considered adequate to pay Rs.2 worth current liabilities in time as all the creditorsare not expected to demand cash at the same time and then cash may also be realized fromdebtors and inventories. This test is a more rigorous measure of a firms liquidity position. Table-1.3 Cash Ratio Cash in hand& at bank Year 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 Rs. In Crores Current Liabities Rs. In Crores Ratio

18.42

68.26

0.27

2.80

103.01

0.02

10.77

167.72

0.06

159.80

172.87

0.92

204.15

167.40

1.22

35

250 204.15 200 167.72 150 103.01 100 68.26 50 18.42 0.27 0 2007 2008 2009 2010 2011 2.8 0.02 10.77 0.06 0.92 1.22 172.87 159.8 167.4 Cash in hand & Bank Current Liabilities Ratio

Year Interpretation: The acceptable norm for this ratio is 50% or 1:2. But the cash ratio is below the acceptednorm. So the cash position is not utilized effectively and efficiently

4.2.2 Activity Ratio: If a business does not use its assets effectively, investors in the business would rathertake their money and place it somewhere else. In order for the assets to be used effectively,the business needs a high turnover. Unless the business continues to generate high turnover, assets will be idle as it is impossibleto buy and sell fixed assets continuously as turnover changes. Activity ratios are thereforeused to assess how active various assets are in the business.

36

A. Inventory Turnover Ratio: This ratio measures the stock in relation to turnover in order to determine how often thestock turns over in the business.It indicates the efficiency of the firm in selling its product. It is calculated by dividing he costof goods sold by the average inventory. Cost of goods sold Inventory Turnover Ratio=___________________ Average Inventory Significance: This ratio is calculated to ascertain the number of times the stock is turned over during theperiods. In other words, it is an indication of the velocity of the movement of the stock duringthe year. In case of decrease in sales, this ratio will decrease. This serves as a check on thecontrol of stock in a business. This ratio will reveal the excess stock and accumulation ofobsolete or damaged stock. The ratio of net sales to stock is satisfactory relationship, if thestock is more than three-fourths of the net working capital. This ratio gives the rate at whichinventories are converted into sales and then into cash and thus helps in determining theliquidity of a firm.

37

Table-1.4 Inventory Turnover Ratio Cost of goods sold Year Rs. In Crores Average inventory Rs. In Crores Ratio

2006 - 2007 2007 2008 2008 2009 2009 2010 2010 2011

228.34

41.20

5.54

251.20

40.65

6.18

314.75

56.65

5.56

391.72

75.91

5.16

519.07

100.26

5.18

600 519.07 500 400 314.75 300 200 100 0 2007 2008 2009 2010 2011 56.65 5.56 75.91 5.16 100.26 5.18 228.34 251.2 391.72 Cost of Goods Sold Average Inventory Ratio

41.2 5.54

40.65 6.18

Year

38

Interpretation: A higher turnover ratio is always beneficial to the concern. In this the number of timesthe inventory is turned over has been increasing from one year to another year. Thisincreasing turnover indicates immediate sales. And in turn activates production processand is responsible for further development in the business. This indicates a good inventorypolicy of the company. Thus the stock turnover ratios of Emami Limited, for the five years are satisfactory

B. Working capital turnover ratio: This ratio shows the number of times the working capital results in sales. In other words,this ratio indicates the efficiency or otherwise in the utilization of short term funds in makingsales. Working capital means the excess of current assets over current liabilities. In fact, in theshort run, it is the current assets and current liabilities which pay a major role. A carefulhandling of the short term assets and funds will mean a reduction in the amount of capitalemployed, thereby improving turnover. The following formula is used to measure this ratio: Sales Working capital turnover ratio =_____________________ Net Working Capital Significance: This ratio is used to assess the efficiency with which the working capital has been utilizedin a business. A higher working capital turnover indicates either the favorable turnover ofinventories and receivables and/or the inadequate of net working capital accompanied by lowturnover of inventories and receivables. A low ratio signifies either the excess of net workingcapital or slow turnover of inventories and receivables or both. This ratio can at best be usedby making
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ofcomparative and trend analysis for different firms in the same industry and forvarious periods. Table: 1.5 Working Capital Turnover Ratio Sales Year 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 Rs. In Crores 515.80 Net Working Capital Rs. In Crores 93.13 Ratio 5.54

583.71

129.94

4.49

722.35

46.95

15.39

990.58

244.90

4.05

1202.38

416.39

2.89

1400 1202.38 1200 990.58 1000 800 600 400 200 0 2007 2008 2009 2010 2011 93.13 5.54 129.94 4.49 46.95 15.39 4.05 2.89 515.8 583.71 416.39 244.9 722.35 Sales Net Working Capital Ratio

Year
40

Interpretation: The Working Capital Turnover Ratio is increasing year after year. It can be noted that thechange is due to the fluctuation in sales or current liabilities. These higher ratios are indicatorsof lower investment of working Capital and more profit. Thus, Working Capital Turnover ratios for the five years are satisfactory

C. Fixed Assets Turnover Ratio: The fixed assets turnover ratio measures the efficiency with which the firm has beenusing its fixed assets to generate sales. It is calculated by dividing the firms sales by its netfixed assets as follows: Sales Fixed Assets Turnover =________________ Net fixed assets Significance This ratio gives an ideal about adequate investment or over investment or underinvestment in fixed assets. As a rule, over-investment in unprofitable fixed assets should beavoided to the possible extent. Under-investment is also equally bad affecting unfavorably theoperating costs and consequently the profit. In manufacturing concerns, the ratio is importantand appropriate, since sales are produced not only by use of working capital but also thecapital invested in fixed assets. An increase in this ratio is the indicator of efficiency in workperformance and a decrease in this ratio speaks of unwise and improper investment in fixed assets

41

Table-1.6 Fixed Assets Turnover Ratio Sales Year 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 Rs. In Crores Net Fixed Assets Rs. In Crores Ratio

515.80

46.80

11.02

583.71

77.82

7.50

722.35

612.58

1.18

990.58

560.85

1.77

1202.38

482.44

2.49

1400 1202.38 1200 990.58 1000 800 600 400 200 0 2007 2008 2009 2010 2011 46.8 11.02 77.82 7.5 2.49 515.8 583.71 722.35 612.58 Sales 560.85 Net Fixed Aseets 482.44 Ratio

1.18

1.77

Year

42

Interpretation: The fixed assets turnover ratio is increasing year after year. The overall higher ratioindicates the efficient utilization of the fixed assets.Thus the fixed assets turnover ratio for the five years are satisfactory as such there is nounderutilization of the fixed assets

4.2.3 Financial Leverage (Gearing) Ratios The ratios indicate the degree to which the activities of a firm are supported by creditors funds as opposed to owners. The relationship of owners equity to borrowed funds is an important indicator of financial strength. The debt requires fixed interest payments and repayment of the loan and legal actioncan be taken if any amounts due are not paid at the appointed time. A relatively highproportion of funds contributed by the owners indicates a cushion (surplus) whichshields creditors against possible losses from default in payment.

A. Proprietary Ratio: This ratio is also known as Owners fund ratio (or) Shareholders equity ratio (or) Equityratio (or) Net worth ratio. This ratio establishes the relationship between the proprietorsfund and total tangible assets. The formula for this ratio may be written as follows. Proprietors funds Proprietary Ratio =_____________________ Total tangible assets

43

Significance: This ratio represents the relationship of owners funds to total tangible assets, higher theratio or the share of the shareholders in the total capital of the company, better is the long termsolvency position of the company. This ratio is of importance to the creditors who canascertain the proportion of the shareholders funds in the total assets employed in the firm. Aratio below 50% may be alarming for the creditors since they may have to lose heavily in theevent of companys liquidation on account of heavy losses.

Table: 1.7 Proprietary Ratio Proprietors Funds Year Rs. In Crores Total Tangible Assets Rs. In Crores Ratio

2006 - 2007 2007 2008 2008 2009 2009 2010 2010 2011

229.42

161.39

1.42

289

232.94

1.24

296.3

214.66

1.38

620.78

417.77

1.48

683.02

583.79

1.17

44

700 600 500 400 300 200 100 0 2007 2008 2009 229.42 161.39 296.3 289 232.94 214.66

683.02 620.78 583.79

417.77 Properietor's Fund Total Tangible Assets Ratio

2010

2011

Year

Interpretation: This ratio is particularly important to the creditors and it focuses on the general financialstrength of the business.A ratio of 50% will be alarming for the creditors. As such theproprietary ratio of the five years is above 50%. Therefore it indicates relatively little danger to the creditors, etc. And a betterperformance of the company

B. Debt to Equity ratio This ratio indicates the extent to which debt is covered by shareholders funds. It reflectsthe relative position of the equity holders and the lenders and indicates the companys policyon the mix of capital funds. The debt to equity ratio is calculated as follows: Total debt Debt to Equity Ratio=____________ Total equity
45

Significance: The importance of debt-equity ratio is very well reflected in the words of Weston and Brigham which are reproduced here: Debt-equity ratio indicates to what extent the firmdepends upon outsiders for its existence. For the creditors, this provides a margin of safety.For the owners, it is useful to measure the extent to which they can gain the benefits ofmaintaining control over the firm with a limited investment: The debt-equity ratio statesunambiguously the amount of assets provided by the outsiders for every one rupee of assetsprovided by the shareholders of the company.

Table: 1.8 Debt to Equity Ratio Total Debt Year Rs. In Crores Total Equity Rs. In Crores Ratio

2006 - 2007 2007 2008 2008 2009 2009 2010 2010 2011

91.43

229.47

0.40

138.2

289

0.47

607.8

296.03

2.05

426.12

620.78

0.69

396.78

683.02

0.58

46

700 600 500 400 289 300 200 91.43 100 0 2007 2008 2009 229.47

683.02 620.78

Total Debt 296.03 Total Equity Ratio

2010

2011

Year Interpretation: The debt to equity ratio is decreasing year after year. A low debt equity ratio is consideredfavorable from management. It means greater claim of shareholders over the assets of thecompany than those of creditors. For the company also, the servicing of debt is less burdensome and consequently its credit standing is not adversely affected. Therefore debt toequity ratio is satisfactory to the company.

C. Interest coverage ratio The times interest earned shows how many times the business can pay its interest billsfrom profit earned. Present and prospective loan creditors such as bondholders, are vitallyinterested to know how adequate the interest payments on their loans are covered by theearnings available for such payments. Owners, managers and directors are also interested inthe ability of the business to service the fixed interest charges on outstanding debt. The ratio iscalculated as follows:

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EBIT Interest Coverage Ratio =_______________ Interest charges Significance: It is always desirable to have profit more than the interest payable. In case profit is eitherequal or lesser than the interest, the position will be unsafe. A high ratio is a sign oflow burden of dept. servicing and lower utilization of borrowing capacity. From the points ofview of creditors, the larger the coverage, the greater the ability of the firm to handle fixedcharges liabilities and the more assessed the payment of interest to the creditors. In contrastthe low ratio signifies the danger the signal that the firm is highly dependent on borrowingsand its earnings cannot meet obligations fully. Table: 1.9 Interest Coverage Ratio EBIT Year 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 Rs. In Crores Interest On Fixed Loans Rs. In lakhs Ratio

75.87

1.08

70.25

109.06

5.43

20.06

133.98

31.57

4.24

156.74

54.72

2.86

180.89

15.49

12.26

48

200 180 160 140 120 100 80 60 40 20 0 2007 2008 2009 2010 1.08 20.06 5.43 31.57 4.24 109.06 75.87 70.25 54.72 133.98 156.74

180.89

EBIT Interest On Fixed Loans Ratio 15.49 12.26 2011

2.86

Year Interpretation: The Interest coverage ratio is increasing year after year. A high ratio is a sign of lowburden of dept. servicing and lower utilization of borrowing capacity. Therefore this ratio issatisfactory to the company

4.2.4 Profitability Ratios Profitability is the ability of a business to earn profit over a period of time. Although theprofit figure is the starting point for any calculation of cash flow, as already pointed out,profitable companies can still fail for a lack of cash. 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 bymanagement of a company should be aimed at maximizing profits, irrespective ofsocial consequences. The ratios examined previously have tendered to measure management efficiency and risk.

49

A. Gross Profit Margin Normally the gross profit has to rise proportionately with sales. It can also be useful to compare the gross profit margin across similar businesses although there will often be good reasons for any disparity.

Gross profit Gross Profit Margin =________________ *100 Sales Significance: The gross profit ratio helps in measuring the results of trading or manufacturingoperations. It shows the gap between revenue and expenses at a point after which anenterprise has to meet the expenses related to the nonmanufacturing activities, likemarketing, administration, finance and also taxes and appropriations. The gross profit shows the gap between revenue and trading costs. It, therefore, indicatesthe extent to which the revenue has a potential to generate a surplus. In other words, thegross profit reveals the mark up on the sales. Gross profit ratio reveals profit earning capacityof the business with reference to its sale. Increase in gross profit ratio will mean reduction incost of production or direct expenses or sale at a reasonably good price and decrease in thewill mean increased cost of production or sales at a lesser price. Higher gross profit ratio isalways in the interest of the business.

50

Table-1.10 Gross Profit Margin Gross profit Year Rs. In Crores Net Sales Rs. In Crores Ratio

2006 - 2007 2007 2008 2008 2009 2009 2010 2010 2011

287.46

515.80

55.73

332.51

583.71

56.96

407.6

722.35

56.43

598.86

990.58

60.46

683.31

1202.38

56.83

1400 1202.38 1200 990.58 1000 800 600 400 200 0 2007 2008 2009 2010 2011 515.8 287.46 55.73 56.96 56.43 60.46 56.83 583.71 722.35 Gross Profit Net Sales Ratio

Year

51

Interpretation: In the year 2007, the Gross Profit Ratio was 55.73% but then it increased to 56.96%, whichshows a good profit earning capacity of the business with reference to its sales. But in the year2010, it decreased to 60.46% which may be due to increase in cost of production or due to salesat lesser price. But thereafter, for the succeeding two years, it has increased considerably,which indicates that the cost of production has reduced. Therefore the Gross Profit Ratio forthe five years reveals a satisfactory condition of the business.

B. Net Profit Margin This is a widely used measure of performance and is comparable across companies insimilar industries. The fact that a business works on a very low margin need not cause alarmbecause there are some sectors in the industry that work on a basis of high turnover and lowmargins, for examples supermarkets and motorcar dealers. What is more important in anytrend is the margin and whether it compares well with similar businesses.

Earnings after interest and taxes Net Profit Margin =______________________________ *100 Net Sales

Significance: An objective of working net profit ratio is to determine the overall efficiency of thebusiness. Higher the net profit ratio, the better the business. The net profit ratio indicates themanagements ability to earn sufficient profits on sales not only to cover all revenue operatingexpenses of the business, the cost of borrowed funds and the cost of merchandising orservicing, but also to have a sufficient margin to
52

pay reasonable compensation to shareholderson their contribution to the firm. A high ratio ensures adequate return to shareholders as wellas to enable a firm to with stand adverse economic conditions. A low margin has an oppositeimplication. Table: 1.11 Net Profit Margin Net Profit Year Rs in Crores Net Sales Rs. In Crores Ratio

2006 - 2007 2007 2008 2008 2009 2009 2010 2010 2011

66.22

515.80

12.84

91.44

583.71

15.67

87.91

722.35

12.17

66.62

990.58

6.73

125.66

1202.38

10.45

1400 1200 1000 800 600 400 200 0 2007 2008 2009 2010 66.22 12.84 91.44 15.67 87.91 12.17 66.62 6.73 515.8 722.35 583.71 990.58

1202.38

Net Profit Net Sales Ratio 125.66 10.45 2011

Year
53

Interpretation: In the year 2007 the Net Profit is 12.84%, but in the year 2009 - 2010 it was decreased to12.17 and 6.73. Which may due to excessing selling and distribution expenses? But thereafterfor the succeeding years it has been increasing which indicates a better performance of thecompany. Therefore the performance of the management should be appreciated. Thus anincrease in the ratio over the previous periods indicates improvement in the operational efficiency of the business.

C. Return on Investment (ROI) Income is earned by using the assets of a business productively. The more efficient theproduction, the more profitable the business. The rate of return on total assets indicates thedegree of efficiency with which management has used the assets of the enterprise during anaccounting period. This is an important ratio for all readers of financial statements. Investors have placed funds with the managers of the business. The managers used thefunds to purchase assets which will be used to generate returns. If the return is not better thanthe investors can achieve elsewhere, they will instruct the managers to sell the assets and theywill invest elsewhere. The managers lose their jobs and the business liquidates. Operating profit Return on Investment =_________________ Capital Employed Significance: Return on capital employed shows overall profitability of the business. At first minimumreturn on capital employed should be determined and then the actual rate of return on capitalemployed should be determined and compared with the normal return. The return and capitalemployed is a fair measure of the profitability of any
54

*100

concern with the result that even theresult of dissimilar industries may be compared. Table-1.12 Return on Investment (ROI) Operating profit Year 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 Rs. In Crores Capital Employed Rs. In Crores Ratio

66.32

184.34

35.98

96.02

221.19

43.41

135.71

568.39

23.88

242

701.17

34.51

251.08

744.99

33.70

800 700 600 500 400 300 200 100 0 2007 2008 2009 66.32 35.98 184.34 221.19 96.02 43.41 135.71 23.88 568.39

701.17

744.99

Operating Profit Capital Employed 242 251.08 Ratio

34.51 2010

33.7 2011

Year
55

Interpretation: This ratio indicates that how much of the capital invested is returned in the form of netprofit. This ratio is increasing year after year which indicates the capital employed is returnedin the form of net profit. In the same manner, returns from capital employed for thesucceeding years are good. Thus, the Return on Investment ratio for the five years shows the efficiency of the businesswhich is very much satisfactory

D. Return on Equity (ROE) This ratio shows the profit attributable to the amount invested by the owners of thebusiness. It also shows potential investors into the business what they might hope to receiveas a return. The stockholders equity includes share capital, share premium, distributable andnon-distributable reserves. The ratio is calculated as follows: Net profit after taxes and preference dividend Return on Equity =_____________________________________ *100 Equity capital Significance: This ratio measures the profitability of the capital invested in the business by equityshareholders. As the business is conducted with a view to earn profit, return on equity capitalmeasures the business success and managerial efficiency. It reveals whether the firm hasearned a reasonable profit to its equity shareholders or not by comparing it with its own pastrecords, inter-firm comparison and comparison with the overall industry average. This ratio isof significant use in the ratio analysis from the standpoint of the owners of the firm

56

Table: 1.13 Return on Equity (ROE) Net profit after taxes and Year 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 preference dividend Rs. In Crores 66.22 Equity capital Rs. In Crores 229.42 28.86 Ratio

91.44

289

31.64

87.91

296.03

29.70

66.62

220.78

30.18

125.66

683.02

18.40

700 600 500 400 300 200 100 0 2007 2008 2009 2010 66.22 28.86 91.44 31.64 87.91 29.7 66.62 30.18 289 229.42 296.03 220.78

683.02

Net Profit After Taxes And Preference Dividend Equity Capital Ratio 125.66 18.4 2011

Year
57

E. Return on Total assets This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationshipbetween net profits and assets. As these two terms have conceptual differences, the ratio maybe calculated taking the meaning of the terms according to the purpose and intent of analysis.Usually, the following formula is used to determine the return on total assets ratio. Return on total assets = (Net profit after taxes and interest / Total assets) * 100 Significance: This ratio measures the profitability of the funds invested in a firm but doe not reflect on theprofitability of the different sources of total funds. This ratio should be compared with the ratios of other similar companies or for the industry as a whole, to determinewhether therate of return is attractive. Table-1.14 Return on Total Assets
Net profit after taxes Year and interest Rs. In Crores 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 Total assets Rs. In Crores Ratio

66.22

365.27

18.13

91.44

440.64

20.75

87.91

812.7

10.82

66.62

942.33

7.07

125.66

1079.79

11.64

58

1200 1000 812.7 800 600 440.64 400 200 0 2007 2008 2009 2010 365.27 942.33

1079.79

Net Profit After Taxes And Interest Total Assets Ratio

125.66 91.44 87.91 66.62 66.22 20.75 18.13 11.64 10.82 7.07 2011

Year

Interpretation: The return on total assets ratio is increasing year after year. This increasing ratio indicatesthe effective funds invested. Therefore the return on TotalAssets ratio for the five yearsreveals a satisfactory condition of the business.

59

5:-FINDINGS OF THE STUDY

1)The current ratio is above 2 in all the five years. The same level of current assets andcurrent liabilities may be maintained since the current assets are less profitable, whencompared to fixed assets. 2)The liquid ratio is decreasing year after year. Though the ratio is above 1 in all the fiveyears, it is preferable to improve upon the situation. This may be due to the fact thatthe stock is major composition of current assets, which excludes liquid assets. Thefirm should try to clear the stocks. 3)The cash ratio is decreasing year after year. So it shows that the cash position is not utilized effectively and efficiently. 4)The average collection period is decreasing year after year so it shows the better is thequality of debtors as a short collection period and implies quick payment by debtors. 5)The inventory turnover ratio for the five years indicated a good inventory policy andefficiency of business operations of the company. 6)The working capital turnover ratio has been increasing during the five years, whichindicates that there is lowest investment of the working capital and more profit. Moreprofit is in the sense that there is higher ratio. 7)The proprietary ratio in all the five years is above the satisfactory level, that is, 50%. Itindicates the creditors are in a safer side and there is no pressure from them. 8)The debt to equity ratio is decreasing year after year, which indicates , the servicing ofdebt is less burdensome and consequently its credit standing is not adversely affected.

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6:-SUGGESTIONS AND RECOMMENDATIONS

6.1 SUGGESTIONS AND RECOMMENDATIONS

1. The liquidity position of the company can be utilized in a better or other effectivepurpose. 2.The company can be using the credit facilities provided by the creditors. 3.The debt capital is not utilized effectively and efficiently. So the company can extendits debt capital. 4.Efforts should be taken to increase the overall efficiency in return out of capital employed by making used of the available resource effectively 5.The company can increase its sources of funds to make effective research and development system for more profits in the years to come.

61

7:-CONCLUSION
The study is made on the topic financial performance using ratio analysis with five years data in Emami Limited. The current and liquid ratio indicates the short term financial position of Emami Ltd. whereas debt equity and proprietary ratios shows the long term financial position.Similarly, activity ratios and profitability ratios are helpful in evaluating the efficiency of performance in Emami Ltd. The financial performance of the company for the five years is analyzed and it is provedthat the company is financially sound.

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8:-LIMITATIONS
LIMITATIONS As the study is based on secondary data, the inherent limitation of the secondary datawould have affected the study. The figures in financial statements are likely to be a least several months out of date, andso might not give a proper indication of the companys current financial position. This study need to be interpreted carefully. They can provide clues to the companysperformance or financial situation. But on their own, they cannot show whether performances good or bad. It requires some quantitative information for an informed analysis to be made.

63

9:-BIBLIOGRAPHY
BOOKS A. Murthy Management Accounting First Edition-2000, S. Viswanathan (Printers & Publishers), PVT., LTD.

B. S.M. Maheswari Management Accounting, Sultan Chand & Sons Educational Publishers, New Delhi.

C. M.R. Agarwal Financial Management 2009, Garima Publication ,Jaipur

JOURNALS Economic Times Business Today

WEBSITES www.encyclopedia.com www.emamigroup.com

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