Executive Summary: Financial Analysis

financial Analysis
EXECUTIVE SUMMARY
I am seema A Jadhav pursuing M.B.A from Visvesvaraya Technological University, Belgaum. I am performing my project on Ratio Analyses at Shree Renuka Sugars Ltd. The various information regarding theories, types, calculations, interpretations, have also been discussed and aspects relating to the Perspective of SHREE RENUKA SUGERS LTD in my study. I have also emphasized more on need and importance of Ratio Analyses. Ratio analyses have been carried out using financial information for last five years. i.e. from 20042008, ratios like liquidity ratio, leverage ratio, profitability ratio, activity ratio and other measures has been calculated and interpretation has been made. After conducting study I have found that the company is in good condition and I have given some suggestions and conclusion on the basis of my project study, which is highlighted, in my study.
TITLE OF THE PROJECT

A STUDY ON FINANCIAL ANALYSIS AT SHREE RENUKA SUGARS LTD.
NEED FOR THE STUDY

The need for the study is to know the overall financial performance of the company since 5 years. The financial plan represents a blueprint of what the company proposes to do in the future. The study reveals the use of various accounting ratios to explain the profitability position.
PG-CENTRE, VTU, Belgaum
financial Analysis
OBJECTIVES OF THE STUDY

To collect the financial information about the company, compare and make analysis of the same. To study the growth & development of the industry. To study the behavior of liquidity & profitability. To analyze the factors determining the liquidity & profitability. A comparative study on the basis of selected ratios. To draw a conclusion regarding the future prospects for that company.
LIMITATIONS OF THE STUDY:

The most important limitation of the study is that the study slowly depends the published data and documents such as balance sheet and income statement. It was difficult to obtain confidential data from the concern department with a view point of secrecy that the company would like to observe. on
METHODOLOGY
The methodology includes personal interviews. Selection of the sample: Past 5 years data on Profit & Loss Account & the Period: the study covers a period of 5 years data from 2003-04, 2004-05,
Balance Sheet. 2005-06, 2006-07 and 2007-08 to mean an accounting year of the company consisting of 12 months. Framework of Analysis: For the purpose of analyzing liquidity & profitability the study makes use of various accounting ratios.
financial Analysis
INDUSTRY PROFILE
The Historical Background of the Indian Sugar Industry

The sugar industry is proud to be an industry, which spreads the taste of sweetness to the mankind. The history of origin of this industry is as old as the history of main him self. Sugar is generally made from sugarcane and beet. In India, sugar is produced mainly from sugarcane. India had introduced sugarcane all over the worlds and is a leading country in the making sugar from sugarcane. Saint Vishwamitra is known as the research person of the sugarcane in religious literature. We can find the example of sugarcane in Vedic literature also as well as sugarcane. We can also find the reference of sugar and the sugarcane in Patanjalis Mahabashya and the treaty on the grammar of Panini. Greek traveler Niyarchus and Chinese traveler Tai-Sung have mentioned in their travelogue that the people of India used to know the methods of making sugar and juice from sugarcane the great Emperor Alexander also carried sugarcane with him while returning to his country.
financial Analysis Thus from different historical references and from some Puranas it can be concluded that method of making sugar from sugarcane was known. To the people of Bihar. The historical evidences of sugar industry prospering in ancient India concrete and this has helped to develop and prosper the co-operative sugar movement in India.
National Scenario of Sugar Industry

The first sugar mill in the country was set up in 1903 in the United Provinces. There are 566 installed sugar mills, of which 453 were in operation in the year 2002-03 and utilized 194.4 million ton of sugarcane (69% of total cane production) to produce 20.14 million tons of sugar. About 5 lakhs workmen are directly employed in the sugar industry besides many in industries, which utilize by-products of sugar industry as raw material. India is the largest consumer and second largest producer of sugar in the world. The Indian sugar industry is the second largest agro-industry located in the rural India. Indian sugar industry has been a focal point for socio-economic development in the rural areas. About 50 million sugarcane farmers and a large number of agricultural laborers are involved in sugarcane cultivation and ancillary activities, constituting 7.5% of the rural population. Besides, the industry provides employment to about 2 million skilled/semi skilled workers and others mostly from the rural areas. The industry not only generates power for its own requirement but surplus power for export to the grid based on by-product Bagasses. It also produces ethyl alcohol, which is used for industrial and potable uses, and can be used to the manufacture Ethanol, an ecology friendly and renewable fuel for blending with petrol. The sugar industry in the country uses only sugarcane as input; hence sugar companies have been established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamilnadu, and Andhra Pradesh. In sugar year 2003-04, these six states contribute more than 85%of total sugar production in the country; Uttar Pradesh, Maharashtra, and Karnataka together contribute more than 65%of total production. The government of India licensed new units with an initial capacity of 1250 TCD up to the 1980s and with the revision in minimum economic size to 2500 TCD, the Government issued licenses for setting up of 2500 TCD plants thereafter. The government delicensed sugar sector in the year of 11.September.1988.
financial Analysis
The entrepreneurs have been allowed to set up sugar factories of expand the existing sugar factories as per the techno-economic feasibility of the project. However, they are required to maintain a radial distance of 15 kms from the existing sugar factory. After delicensing, a number of new sugar plants of varying capacities have been set up and the existing plants have substantially increased their capacity. There are 566 installed sugar mills in the country as on March 31st 2005, with a production capacity of 180 lack MTs of sugar, of which only 453 are working. These mills are located in 18 states of the country.
The sector wise break ups as follows

Table no#1 Sl. No. 1. 2. 3. Total Sector Private Public Co-operative No of factories 189 62 315 566
COMPANY PROFILE
financial Analysis
Background and inception of the company

Shree Renuka Sugars is an integrated manufacturing company with strategic focus on Sugar and its allied products in Power and Ethanol. The Company's registered office is in Belgaum, Karnataka and Corporate Office is at Mumbai. Its key manufacturing facility is in Munoli, 70 Kms from Belgaum and also operates a leased facility at Aland in Karnataka and Ajara, Arag in Maharashtra. The company is working on other acquisitions, expansions and lease opportunities to strengthen its existing strong fundamentals and growth prospects.
Milestone of Shree Renuka Sugars Ltd (SRSL)

1995-SRSL was incorporated. 1998-Initially it acquired a 1250 TCD sick unit from the Nizam Sugars Limited. 1999-The commissioning and trail production took place. 2002-A distillery and ethanol plant of 60kl per day capacity was added. Shree Renuka Sugars is operating on lease a co-operative facility in Ajara, South Maharashtra that is a 2500 TCD plant. Further the company is operating on lease a cooperative facility in Arag in Sangli district of Maharashtra, which will have a capacity of 4000 TCD Crushing capacity per day 3500TCD (Tonne capacity per day)
financial Analysis The company's merchant export division is the second largest sugar exporter out of India. This fiscal it is the largest raw sugar importer into India. The Company manufactured and traded over 250,000 MT of sugar in 2002-03 and 350,000mt in 2004-05. Total trade flow puts the Company in the top 10 of sugar producers/marketers in India.
Location of the Unit and Its Subsidiaries Diagram no#1
Nature of Business Carried
financial Analysis Nature of Business carried by SRSL is involved in the activity of manufacturing white crystal sugar products which is the main product. The process of production involve conversion of Raw sugarcane to sugar, Raw sugar into refined sugar Molasses, Bagasses are its by products. 1) Molasses Molasses is mainly used for the manufacture of ethyl alcohol (ethanol), Yeast and cattle feed. 2) Bagasses Bagasses is usually used as a combustible in the furnaces to produce steam, which in turn is used to generate power; it is also used as raw materials for production of paper and as feedstock for cattle. The company is having rich German technology machines and equipment that are installed in the production area. The power plant machines and Turbines are of Bharath Heavy Electricals Limited and Thriveni made. 3) Power generation plant Power plant uses the fiber of the processed sugar cane (bagasse) as fuel to generate electricity in an environmentally responsible manner. An integrated 11.2 M.W. power generates and supplies electricity to the state grid produced from sugar cane waste used to rotate turbines 7 M.W. power is utilized in the plant remaining power is supplied to KPTCL.
4) Distillery plant
financial Analysis Distillery plant uses by-product of sugar mill viz; Molasses as raw material for production of spirits and alcohol namely rectified spirit, ethanol and extra neutral alcohol. The capacity of plant was 60 KLPD which has been increased up to 120 KLPD in November 2006.
PRODUCT PROFILE
MAIN PRODUCT
WHITE CRYSTAL SUGAR The main product of the sugar manufacturing process is white crystal sugar. This white crystal sugar is manufactured in the following grades: 1) L-30 [Large size sugar] 2) M-30 [Medium size sugar] 3) S1-30 [small size sugar] 4) S2-30 [very small size]
BY-PRODUCTS OF SUGAR CANE

The sugar mill produces many by-products along with sugar. A typical sugarcane comprising of 3000 ton capacity can produce 345 ton of sugar, 6000 liters alcohol, 3 tons of yeast, 15 tons of potash fertilizer, 25 ton of press mud fertilizer and 750 KW of power from bagasse. 1. MOLASSES Molasses is the final effluent obtained in the preparation of sugar by repeated crystallization. Molasses is the brown colored residue after sugar has been traced from the juice. Molasses still contains some quantity of sugar, but this sugar cannot be extracted by usual technology. It is the end product from a refining process carried out to yield Sugar. Sucrose and invert sugars constitute a major portion (40 to 60%) of Molasses. The yield of Molasses per ton of sugarcane varies in the range of 3.5% to 4.5%. Molasses is mainly used for the manufacture of ethyl alcohol (ethanol), Yeast and cattle feed. SRSL produces alcohol from the molasses left after the extraction of sugarcane juice,
financial Analysis which can be used both for potable purpose as well as an industrial chemical. Further this alcohol can be again purified to produce fuel and ethanol that can be blended with petrol. Ethanol is in turn used to produce portable liquor and downstream value added chemical such as acetone, acetic acid, buttonhole, acetic anhydride, etc. Face stiff competition from production through the petrochemical route. The government controls the export of molasses through export licenses issued for every quarter. Molasses and alcohol-based industries were decontrolled in 993 and are being controlled by respective state government policies. Nearly 70% of the alcohol produced is consumed by the potable alcohol sector. The molasses prices that used to rule a round 200 per ton during early nineties shot up to Rs 1400 per ton as a result of decontrol of the industry in 1993, but with reduction of import duties in 1995 and bumper crop in 1996, the prices came down to Rs 400 level. The increase in excise duty to specific rate of Rs 500 per ton in 1997 budget lead to sharp increase in Molasses price. 2. BAGASSE Bagasse is a fibrous residue of cane stalk that is obtained after crushing an extraction of juice. It consists of water, Fiber an relatively small quantities of soluble solids, the composition of bagasse varies based on the variety of sugarcane, Maturity of cane, Method of harvesting and the efficacy of the sugar mill, the usual bagasse composition is given below. Table no#2 CONTENT Moisture Fiber Soluble solids RANGE % 46-52 43-52 2-6
Bagasse is usually used as a combustible in the furnaces to produce steam, which in turn is used to generate power; it is also used as raw materials for production of paper and as feedstock for cattle.
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financial Analysis
By making use of bagasses, sugar mills have been successful in reducing dependence on state electric boards for power supply, for example requirement for FY98 from captive generation from steam turbines. Further this bagasse based cogeneration plant is eligible for carbon credit compensation under the Kyoto protocol. The residue product from distillery operation blended with chemicals is being sold as bio-fertilizers. 3. POWER GENERATION PLANT Power plant uses the fiber of the processed sugar cane (bagasse) as fuel to generate electricity in an environmentally responsible manner. An integrated 11.2 M.W. power generates and supplies electricity to the state grid produced from sugar cane waste used to rotate turbines 7 M.W. power is utilized in the plant remaining power is supplied to KPTCL.
4. DISTILLERY PLANT
Distillery plant uses by-product of sugar mill viz; Molasses as raw material for production of spirits and alcohol namely rectified spirit, ethanol and extra neutral alcohol. The capacity of plant was 60 KPLD which has been increased up to 120 KLPD in November 2006
OWNERSHIP PATTERN
Shree Renuka Sugar LTD is one of the privatized sugar manufacturing company. Under the entrepreneur of Vidya Murkumbi, established its branches in various part of Karnataka and Maharashtra with the share capital of 200 millions of Indian Rupees.
ORGANIZATION STRUCTURE
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financial Analysis
ORGANISAT ION ST RUC T URE
C hairperson
Managing Direc tor
Executive Director
Chief Operating
C hief Financial
Director Commerc ial
Vic e president
C ane Developm ent C ane proc ureme nt
Engineerin g
T reasury
Derivative s
Sales & Logistics
Proc ess and Quality Power Plant
Ac counts
Risk managem ent
Distillery
T axation
EXIM Departme nt HR Departme nt
Planning and Budgeting
VISION AND MISSION:

VISION
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financial Analysis The companys vision is to become the most efficient processor of sugar and the largest marketer of sugar and ethanol in the country. Shree Renuka Sugars Ltd. aims To expand its installed capacity, achieve end-to-end integration for all its plants to improve margins and reduce business cycle. Achieve greater raw material security. Increase its focus of corporate and high value consumers. To become the most efficient and market driven integrated processor of sugarcane in the world. While enabling the team to grow in a learning and motivating atmosphere, participating in the all round development of community. Delivering consistently on returns to all its shareholders. Bringing over all productivity and efficiency through out the organization, especially by value addition of its by products in sugar effluent waste etc. Producing the best quality sugar to satisfy the domestic and internal norms.
MISSION
To become a provider of world-class sugar products to the Nation. To enhance shareholders wealth by sustained, profitable anal financially sound growth with prudent risk management systems. To fulfill national and social obligations as a responsible corporate citizen. To create an environment, intellectually satisfying and professionally rewarding to the employees.
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financial Analysis
FINANCIAL RATIO ANALYSIS

Ratio analysis is a study of figures appearing in financial statements (Balance sheet and Profit and Loss statement). Such figures have accounting significance and related to each other in a manner that makes them mutually relevant. This aspect of the relativity is the central theme of ratio analysis. This stems from the fact that absolute numbers do not mean much unless compared one with another. The financial ratios therefore are used to express significant relationship which exists between accounting numbers obtaining on a financial statement. Ratios recognize the interrelationship which exists. The study of financial ratios is an invaluable guide to the management in analyzing the operations and the financial state of affairs of a business unit. Those who are concerned with the performance of a unit are interested in being informed about its profitability, liquidity and solvency. The ratio analysis is an attempt to obtain reliable indications in this respect. Thus viewed the ratio analysis, as a tool of financial statement analysis, has to be purposive and user oriented. Over the years the technique of ratio analysis has acquired more and more usefulness and has found, accordingly, more and more users. It is widely recognized that ratio analysis is an immensely valuable tool to highlight sensitive financial characteristics such as capital structure debt service, profitability, solvency, fund and cash flows etc. The exercise of ratio analysis has other important uses in the areas of audit, tax assessments, management control and budgeting and forecasting.
NEED FOR CAUTION IN INTERPRETATION OF RATIOS

Most of the ratios at best only give indications of a situation and as such they do not always lead to precise evaluations. The analysis of ratios only acts as a pointer to a possible disproportion. In order to avoid the possibilities of reaching unwarranted inferences it is essential:
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financial Analysis
1. To select a proper ratio 2. Not to study a ratio in isolation i.e. indications from two or more ratios can be studied in conjunction. 3. To subject the financial variables to further investigation where acute disproportion is indicated by a ratio. 4. To call for further information relating to a financial data to verify its validity. 5. To be aware of the fact that it is not possible to state as to what constitutes, as a general rule, normal or ideal positions.
NEED FOR COMPARATIVE STUDY OF RATIOS

As in case of any financial number, ratio does not convey much meaning unless it is compared with a similar ratio relating to a past period or to any other firm. Thus if a firm had an operating profit ratio of 10% to its sales in 1999 this information by itself does not convey much. But it would become more meaningful if it was compared with the similar ratio in the year 1998 when it was 12% to its sales. One can then observe that the operating profit ratio has dwindled in 1999 as compared to 1998. Therefore ratios relating to a firm can be studied in comparison with similar ratios:
1) of the same firm relating to earlier periods 2) of another firm 3) representing industrial averages 4) projected in the budgets 5) set as targets
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financial Analysis
ADVANTAGES OF FINANCIAL RATIO ANALYSIS

i) ii) The financial ratio analysis serves as an invaluable aid to the management in analyzing the operations and state of affairs of a business enterprise, The financial ratio analysis being an important tool of financial statement analysis, various groups of people interested in financial aspects an iii) iv) enterprise (such as investors, lenders, employees, government, stock exchange authorities etc.,) use this with advantage for the purposes relevant to them, This technique of financial statement analysis can be used with good effect in preparing budgets, requirements etc., v) It helps to analyze and reliably indicate financial health of a company by focusing on its profitability, liquidity and solvency, debt-servicing, utilization of resources etc., vi) Proper evaluation of performance and position is possible by comparing financial ratios of a firm with those of another firm or by comparing ratios of a firm for a period with those for another period. vii) viii) It becomes easier to assign responsibilities to functional heads in a management team, It helps in presenting plethora of accounting data in a systematic and more comprehensible manner. forecasting and planning, projecting working capital
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financial Analysis WHAT IS INDUSTRY RATIO? An industry financial ratio provides the best methodology to judge how well a company or investment is performing. In evaluating and investment it is imperative that the company or investment be compared to the performance of the industry in which it competes. Your industry financial ratios analysis is immediate and available for download or printing at will. Industry financial ratios can reveal much about an industry. However, there are several points to keep in mind about ratios. First, they are "flags" indicating areas of strength or weakness. One or even several ratios might be misleading, but when combined with other knowledge of an industry, ratio analysis can tell much about that industry. Second, there is no single correct value for a ratio. The observation that the value of a particular ratio is too high, too low, or just right depends on the perspective of-the analyst. Third, financial ratios are meaningful only when they are compared with some Standard, such as another industry trend, ratio trend, a ratio trend for the specific sector being analyzed. In industry trend analysis, industry ratios are compared over time, typically years. Year-to-year comparisons can highlight trends and point up the need for action. Trend analysis works best with five years of rations. The second type of ratio analysis, cross-sectional analysis, compares a company's financial ratios to industry ratio averages. Another popular form of cross-sectional analysis compares the financial ratios of two or more companies in similar lines of business. Your industry analysis report is broken down into the various ratio categories: Predictor Ratios indicate the potential for growth or failure. Profitability Ratios, which use margin analysis and show the return on sales and capital employed. Asset Management Ratios, which use turnover, measures to show how efficient the companies within the sector perform in operations and use of assets. Liquidity Ratios, which give a picture of an industry's short-term financial situation or solvency. Debt Management Ratios, which show the extent that debt, is used in the sector's capital structure. ?
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financial Analysis
CATAGORIES OF FINANCIAL RATIOS OR TYPES OF FINANCIAL RATIOS

Financial ratios quantify many aspects of a business and are an integral part of financial statements analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures, financial ratio can be divided for convenience into following different basic categories. 1. Liquidity Ratios 2. Leverage Ratios 3. Activity Ratios 4. Profitability Ratios 5. Other Ratios
I.
LIQUIDITY RATIOS
Liquidity Ratios refers to the firms ability to satisfy its short term obligations or
current liabilities as they become due, liability will be usually of one year. It reflects the financial strength/solvency of a firm. A firm should ensure that it does not suffer from lack of liquidity and also that it does not have excess liquidity. A failure of company to meet its obligation due to lack of sufficient liquidity, will result in poor credit worthiness. A very high degree of liquidity is also bad because, idle asset earn nothing. The firm funds will be unnecessary tide up in current assets. Therefore, it is in necessary to strike a proper balance between high liquidity and lack of liquidity. The ratios which indicate the liquidity of a firm are i. Current Ratio, ii. Quick Ratio, iii. Interval Ratio, iv Net Working Capital Ratio, v. Absolute Liquidity Ratio.
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financial Analysis i.
Current Ratio
The current ratio is also known as working capital ratio, the current ratio is an
indication of a firms market liquidity, is a measure of firms short-term solvency. It indicates the availability of current assets in rupee for every rupee of current liability. A ratio greater than one means that the firm has more current assets than current liabilities against them. As conventional rule, a current ratio of 2:1 is considered satisfactory. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting is short- term obligations. If the current ratio is too high, then the company may not be efficiently utilizing its current assets. The current ratio is calculated as follows. Current Assets Current Ratio = --------------------------Current Liabilities
ii. Acid Test Ratio

The acid test ratio is also known as liquid or quick ratio. The idea behind this ratio is that stocks are sometimes become problem because of we find difficult to sell or use. 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 that to with out any loss of value in order to meet its current liabilities. The term quick assets refers to current assets which can be converted into cash immediately or at a short notice without diminution of value. Included in this category of current assets are cash, bank balance, short term marketable securities, debtors and receivables. Thus, the current assets which are excluded are prepared expenses and inventory. Generally, an acid-test ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. Quick Assets Quick Ratio = --------------------------Current Liabilities Quick Assets = (current assets - inventory)
iii.
Cash Ratio
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financial Analysis
Since cash is the most liquid assets, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investments or marketable securities are equivalent of cash; therefore, they may be included in the computation of cash ratio.
Cash + Marketable securities Cash Ratio = -----------------------------------------Current Liabilities
iv. Interval Measure

Interval measure assesses a firms ability to meet its regular cash expenses. It related liquid assets to average daily operating cash outflows. It indicates the number of days for which the firm has sufficient liquid assets to finance its operations.
Current Assets - Inventory Interval Measure = ------------------------------------------Avg. Daily Operating Expenses
v. Net Working Capital Ratio

The difference between the current assets and current liabilities excluding short-term bank borrowings is called net working capital (NWC) or net assets (NCA) NWC is something used as a measure of a firms liquidity. It is considered that, between two firms, the one having the larger NWC has the greater ability to meet its current obligations. This is not necessarily so; the measure of liquidity is a relationship, rather than the difference between current assets and the current liabilities. NWC, however, measure the firms potential reservoir of funds. It can be related to net assets (or capital employed).
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financial Analysis Net Working Capital (NWC) NWC Ratio = -------------------------------------------Net Assets (NA) 2. LEVERAGE/ CAPITAL STRUCTURE/ DEBT/ SOLVANCY The second category of financial ratio is Leverage Ratio. The debt position of a company indicates the amount of other peoples money being used to generate profits. The more debt a firm has the greater is the risk creditors claims must be satisfied before the earnings can be distributed to shareholders, lenders are also concerned about the firms indebtedness. To judge the long term financial position of the firm, financial leverage or capital structure ratios are calculated. These ratios indicate mix funds provided by the owners and lenders. As a general rule there should be an appropriate mix of debt and owners equity in financing the firms assets. There are two aspects of the long term solvency of a firm i. Ability to repay the principal when due and interrelated, type of leverage ratios. First ratio which are based on the relationship between borrowed fund and owners capital. These ratios are computed from balance sheet and have variations such as a). debt equity ratio. b) debt asset ratio. c) equity assets ratio and some The second type of capital structure ratio, popularly called coverage ratio, and calculated from the profit and loss account ii. Regular payment of the interest. Accordingly there are 2 different, but mutually dependent
i. Debt Ratio
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financial Analysis Debt ratio may be used to analyze the long term solvency of a firm. The firm may be interested in knowing the proportion of interest bearing debt in capital structure. Total debt includes long term and short term borrowing. Total Debt Debt Ratio = ---------------------Net Assets Note: Capital Employed = Net Assts
ii.
Debt-equity Ratio
Debt equity measures the ratio of long term or total debt to share holders equity. The
relationship between borrowed funds and owners capital is popular measure of the long term financial solvency of a firm. Total Debt Debt Equity Ratio = -----------------Net Worth Net Worth = share capital + reserve + retained profits.
iii. Capital Employed to Net Worth

To know how much fund are being contributed to gather by the lenders and owners of each rupee of owners contribution. Capital Employed CE to NW = -------------------------------Net Worth OR NA Net Asset to Net Worth Ratio = ------------NW
iv. Total Liability to Total Assets

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financial Analysis
It measures the proportion of total assets financed by the firms creditors. The higher the ratio, the greater the amount of other peoples money being used to generated profits. The ratio is calculated as follows. Total liabilities Debt Ratio = -----------------------Total Assets
v.
Times Interest Earned Ratio/ Interest Coverage Ratio

It is used to test the firms debt serving capacity. The higher its value, the better able
the firm is to fulfill its interest obligation. The times interest earned ratio is calculated as follows. EBIT Interest Coverage Ratio = ----------------Interest
3. ACTIVIT /EFFICIENC/ASSET UTILISATION /TURNOVE RATIO
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financial Analysis
Activity ratio are concerned with measuring the efficiency in assets management, it measures hoe quickly a firm converts non-cash asset to cash asset (sales). The greater is the rate of turn over or conversion the more efficient is the utilization of assets, other things being equal. For this reason such ratio is also designated as turnover ratio. It may be defined as the test of relationship between sales and various assets of firm. Depending on the various types of assets, there are various types of activity ratio.
i.
Inventory or Stock Turnover

Inventory turnover indicates the efficiency of firm in producing and selling its
products, i.e. the number of times inventory is replaced during they year. Cost of goods sold Inventory Turnover = ----------------------------Average inventory The average inventory is the inventory of opening and closing balance of inventory. Inventory turnover in days can be calculated as follows. No of days in a year Inventory Turnover (in days) = ------------------------------------------------Inventory Turnover of Receivables
ii.
Debtors Turnover Ratio

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financial Analysis
Debtors turnover indicates the number of times debtors turnover each year, generally, the higher the value of debtors turnover, the more efficient is the management of credit. Credit Sales Debtors Turnover = ---------------------------------------------Average Debtors + Average B/R
To outside analyst information about credit sales and opening and closing balance of debtors may not be available. Therefore, debtors turnover can be calculated by dividing total sales by the year end balance of debtors. Sales Debtors Turnover = --------------------Debtors iii.
Collection Period
The average number of period for which the debtors remain outstanding is called the
average collection period. The average collection period measures the quality of debtors since it indicates the speed of their collection. The shorter the average collection period, the better the prompt payment of debtors. No of Days in a Year Average Collection Period = ------------------------------------Debtors Turnover
iv.
Asset Turnover Ratio
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financial Analysis
The relationship between sales and assets is called the asset turnover. Asset turnover measures the efficiency of a firm in utilizing its assets, the higher the turnover ratio, the more efficient the management and utilization of the assets and vice-a-versa. Several assets turnover ratio can be calculated.
i.
Net Assets Turnover

Net asset may also be calculated as capital employed turnover. Sales Net Asset Turnover = -------------------Net Asset Net asset turnover ratio indicated the amount of sales generated by each rupee of
capital employed in net asset.
ii.
Fixed Asset Turnover

It measures the efficiency of utilization of fixed assets of a firm. The ratio indicates the
amount of fixed assets needed for every rupee of sales. Sales Fixed Asset Turnover = ----------------------------Net Fixed Assets
iii.
Current Asset Turnover
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financial Analysis It measures the efficiency of utilization of current assets of a firm. Sales Current Assets Turnover = --------------------------Net Current Assets
iv.
Total Assets Turnover

It measures the efficiency utilization of firms Total assets. Sales Total Assets Turnover = ---------------------------Total Assets.
v.
Working Capital
A firm may also like to relate net current assets (or net working capital gap) to sales.
Ratio indicated how efficiently the working capital of the firm is being utilized. Sales Working Capital Turnover = ------------------------------Net Working Capital The reciprocal of the above ratio indicates the amount of working capital needed for each rupee of sales.
4. PROFITABILITY RATIOS
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financial Analysis There are many measures of profitability. As group, these measures enable the analyst to evaluate the firms profits with respect to a given level of sales, a certain level of assets, or the owners investment. Owners, creditors and management pay close attention to boosting profits. The management of the firm is naturally eager to measures its operating efficiency. Similarly the owners invest their funds in the expectation of reasonable returns. Profitability ratio measures the firms use of its assets and control of its expenses in order to generate an acceptable rate of return. Following are the ratio designed to provide answers to questions such as, i. Is the profit earned by the firm adequate? ii. What rate of return does it represents? iii. What is the rate of profit for various divisions and segment of firm iv. What is the amount paid in dividends? v. What is the earning per share? vi. What is the rate of return to equity shareholders and so on. Profitability ratios can be determined on the basis of either sales or investment. The profitability ratios in relation to sales are
i. Gross Profit Margin

Gross profit is the difference between sales and the manufacturing cost of goods sold. The gross profit margin reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. A high gross profit margin ratio is a sign of good management. Sales Cost of Goods Sold Gross Profit Margin = -------------------------------------Sales Gross Profit = Sales Cost Of Goods Sold.
ii. Operating Profit Margin

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financial Analysis
The operating profit margin measures the percentage of each sales rupee remaining after all costs and expenses other than interest, taxes and preferred stock dividends are deducted. It shows the pure profit earned on each sales rupee. A high operating profit margin is preferred. Operating profit Operating Profit Margin = ---------------------------Sales
iii. Net Profit Margin

The net profit margin measures the percentage of each sales rupee remaining after all cost and expenses, including taxes and preferred stock dividend, have been deducted, the higher the firms net profit margin, the better. Profit After Tax Net Profit Margin = ------------------------Sales
iv. Operating Expenses

Operating expenses ratio explains the changes in the profit margin (EBIT to sales) ratio. Operating Expenses Operating Expenses = ----------------------------Sales
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financial Analysis A higher operating expenses ratio is unfavorable since it will leave a small amount of income to meet interest, dividends, etc. the operating expenses ratio is a yardstick of operating efficiency, but it should be used cautiously. It is affected by number of factors such as external uncontrollable factor, internal factor, employee and managerial efficiency all of which are difficult to analyze. Operating Expenses Operating Expenses Ratio = ------------------------------Sales Profitability in relation to investments is measured by following ratios.
v. Return on Investment / Return on Total Assets

. The term investment may be refer to total assets or net assets, the funds employed in net assets is known as capital employed which is equal to net worth + total debt. ROI = ROTA (Rate on Total Assets) RONA (Rate on Net Assets) EBIT ROI = ROTA = ---------------------------Capital Employed
vi. ROE (Return on Equity)

The return on common equity measures the return earned on the common stockholders investment in the firm. Generally, higher the return, the better. PAT ROE = ----------------Net Worth
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financial Analysis
6. OTHER MEASURES
Other measures are investors ratio or market debt ratio.
i.
EPS (Earning Per Share)

EPS represents the rupee amount earned on behalf of each outstanding share of
common stock not the amount of earnings actually distributed to share holders. EPS simply shows the firms earning power i.e. profitability on per share it does not show that how is paid as dividend and how retained in company. PAT EPS = -----------------------------------------------------------------------Number of Shares of Common Stock Outstanding
ii. Dividend Per Share

The net profit after taxes belongs to shareholders. But, the income which they really receive is the amount of earning distributed as cash dividends. Therefore, a large number of preferred and potential investor may be interested in DPS, rather than EPS. Earning Paid to Shareholder DPS = --------------------------------------------------------------------Number of Ordinary Shareholder Outstanding.
iii. Dividend Payout Ratio

DPS Payout Ratio = ----------EPS
31
financial Analysis
iv. Dividend and Earning Yield

Dividend yield and Earning Yield evaluate the shareholders return in relation to the market value of the share. The earnings yield is also called the earning price (E/P) ratio. The information on the market value per share is not generally available from the financial statements; it has to be collected from external sources, such as stock exchanges or the financial newspapers. DPS Dividend Yield = -----------------------------------Market Value Per Share EPS Earning Yield = ------------------------------------Market Value Per Share
v. Price Earning Ratio

The reciprocal of earning yield is the price earning ratio. the price earning ratio is widely used by the securities analyst to value the firms performance as expected by investors. It indicates the investors judgment or expectations about the firms performance management. Market Value P/E Ratio = --------------------------EPS
vi. Market Value to Book Value

Market Value to - Book Value (MV/BV) ratio is the value of share price to book value per share. Market Value Per Share M/B Ratio = ------------------------------------Book Value Per Share
BALANCE SHEET FOR 5 YEARS

(Rs. In Millions)
32
financial Analysis As at 30th Sep 2004 SOURCES OF FUNDS Shareholders Funds Share capital Reserves and surplus Loan Fund Secured loans Unsecured loans Deferred Tax Liability (net) TOTAL APPLICATION OF FUNDS Fixed Assets Gross block Less: Depreciation Net block Capital work in progress Investments Current Assets, Loans and Advances 155.57 157.09 679.58 224.43 904.01 33.43 1250.10 200.00 437.17 710.41 152.18 862.59 40.46 1540.22 238.10 1986.33 3544.39 166.92 3711.31 56.85 5992.59 310.67 3046.77 6210.91 259.07 6469.98 201.93 10029.35 506.86 5892.56 8275.84 1597.64 9873.48 461.16 16734.06 As at 30th Sep 2005 As at 30th Sep 2006 As at 30th Sep 2007 As at 30th Sep 2008
1223.29 261.26 962.03 0.05
1403.16 348.21 1054.95 76.23 5.52
1629.56 436.04 1193.52 3312.86 5.54
6313.65 690.62 5623.03 2077.26 167.61
7788.73 877.17 6911.56 5139.51 1505.67
Inventories Sundry Debtors Cash And Bank Balances Other Current Assets Loans and Advances Less: Current Liabilities and provisions Current Liabilities Provisions Net Current Assets
493.08 83.34 321.93 83.91 80.99
1123.46 198.30 627.02 112.55 124.45
1121.83 539.12 171.66 32.88 774.66
1001.69 386.85 306.71 323.32 1333.83
1869.08 486.40 133.86 853.06 1994.07
748.94 27.49 286.82
1625.82 157.12 402.84
916.00 319.25 1404.90
822.32 389.77 2140.31
1644.35 530.93 3161.19
33
financial Analysis Miscellaneous Expenditure (to the extent not written off or adjusted) TOTAL 1.20 0.68 75.77 21.14 16.13
1250.10
1540.22
5992.59
10029.35
16734.06
Profit and loss account for 5 years

Particulars For The Year Ended 30th Sep 2004 INCOME Revenue (net) Other income TOTAL EXPENDITURE Raw materials consumed 2260.86 13.76 2274.62 1183.16 For The Year Ended 30th Sep 2005 6392.47 22.99 6415.46 3413.45
(Rupees in Millions)
For The Year Ended 30th Sep 2006 8015.85 50.06 8065.91 3964.05 For The Year Ended 30th Sep 2007 7323.69 114.92 7438.61 3378.51 For The Year Ended 30th Sep 2008 18241.69 4.36 18246.05 5360.81
34
financial Analysis Cost of traded goods Increase in inventories Personal expenses Operating and other expenses Managerial commission Depreciation Financial expenses Research and development Profit before taxation Provision for tax Current tax Deferred tax Profit after tax and before prior period items 652.08 (180.71) 35.17 221.35 70.75 113.25 27.83 151.74 8.80 20.23 122.71 1785.60 (57.52) 81.84 461.94 10.07 79.97 133.64 16.31 490.16 75.80 7.03 407.33 2160.81 (128.28) 122.24 899.24 15.45 87.84 187.84 11.19 745.53 164.00 16.39 562.70 1589.18 115.32 237.85 935.67 15.88 249.16 132.89 4.24 779.91 88.40 145.08 544.33 8048.67 23.59 341.27 1562.25 364.84 684.86 1137.01 12 8.82 259.23 745.47
Profit after tax and before prior items Prior period items Depreciation Income tax of earlier period Other- Note No. vi of Schedule 26 Net Profit Balance brought forward from previous year Profit available for appropriation Dividend on preference shares Dividend on equity shares Corporate dividend tax Loan redemption reserve General reserve Capital redemption reserve Surplus carried to balance sheet Basic and Diluted Earnings Per Share (in Rupees)
122.71
407.33
562.70
544.33
745.47
122.71 15.10 137.81 0.17 13.57 1.80 63.22 50.00 9.06 9.05
7.58 10.00 55.13 334.62 9.06 343.68 0.12 47.72 6.70 100.00 8.50 180.64 23.79
7.00 555.80 180.65 736.45 47.62 6.68 300.00 382.15 23.98
544.33 382.15 926.48 35.51 49.62 14.47 500.00 326.88 21.04
182.39 927.86 326.88 1254.74 59.56 10.12 500.00 685.06 2.78
35
financial Analysis [Nominal value of shares Rs 10]
I. LIQUIDITY RATIO a) Current Ratio

Current Assets Current Ratio = ----------------------------Current Liabilities Particulars Current Assets Current Liabilities Current Ratio 2003- 04 1063.25 982.58 1.08 2004- 05 2185.78 2037.23 1.07 2005- 06 2640.15 2099.48 1.26 2006- 07 3352.40 2969.56 1.13 2007- 08 5336.47 3187.71 1.67
36
financial Analysis
Current Ratio
1.8 1.6 1.4 1.2 Ratio 1 0.8 0.6 0.4 0.2 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 1.26 1.08 1.07 1.13 Ratio 1.67
The current ratio of Shree Renuka Sugars Ltd for the financial year 2003-04 to 200708 reveal that the current ratio was higher than the standard in all five years, especially in the year 2008. Although it shows that the company has good liquidity. The company is trying to maintain its current ratio.
b) Quick Ratio
Quick Assets Quick Ratio = -------------------------------------Current Liabilities
Particulars Quick Assets Current Liabilities Quick Ratio
2003- 04 570.17 982.58 0.58
2004- 05 1062.32 2037.23 0.52
2005- 06 1518.32 2099.48 0.72
2006- 07 2350.71 2969.56 0.79
2007- 08 3467.39 3187.71 1.09
37
financial Analysis
Quick Ratio
1.2 1 0.8 Ratio 0.6 0.4 0.2 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.58 0.52 0.72 0.79 Ratio 1.09
The quick ratio for the five years shows that the ratios are increasing year by year especially in the year 2007-08 , it is because of high inventory and high current liability, company is trying to maintain as per the standard.
c) Interval Measures
Current Assets - Inventory Interval Measures = --------------------------------------------Avg. Daily Operating Expenses Particulars Current Assets Inventory 160 Avg. Daily 140 Expenses Days
120 100 80 60 40 20 0 98.14 66.6 76.49 77.85 Ratio Ratio
2003- 04 Measures (Days) 06 2005Interval 2004- 05 1063.25 2185.78 2640.15 493.08 1123.46 1121.83 137.87 5.81 15.95 19.85 98.14 66.60 76.49
2006- 07 3352.40 1001.69 17.05 137.87
2007- 08 5336.47 1869.08 44.54 77.85
PG-CENTRE, VTU, Belgaum 2003-04
2004-05
2005-06 Year
2006-07
2007-08
38
financial Analysis It is clear from the above ratio that the company has sufficient funds to meet its current obligations. The numbers of days showing the sufficiency of the liquid assets to finance its operations, there is ups and downs in the last five years because of increase in current liabilities.
d)
Net Working Capital Ratio

Net Working Capital (NWC) NWC Ratio = -------------------------------------------Net Assets (NA) Particulars Net Working Capital Net Assets NWC Ratio 2003- 04 80.67 1042.70 0.08 2004- 05 148.55 1279.73 0.12 2005- 06 540.67 5047.05 0.11 2006- 07 382.84 8083.13 0.05 2007- 08 2148.76 14199.83 0.15
39
financial Analysis
NWC Ratio
0.16 0.14 0.12 Ratio 0.1 0.08 0.06 0.04 0.02 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.08 0.05 0.12 0.11 Ratio 0.15
It is another measures to indicate the liquidity of the company. The ratio of the first three years shows that the company has almost constant Net Working Capital but it is decreased in 2007 by 0.06 and again increased in 2008 by 0.10 because of increase in current liabilities and increase in current assets. Overall it has good net working capital.
II. LEVERAGE RATIOS i. Debt Ratio

Total Debt Debt Ratio = -------------------------Net Assets Particulars Total Debt Net Assets Debt Ratio 2003- 04 904.01 1042.70 0.87 2004- 05 862.59 1279.73 0.67 2005- 06 3711.31 5047.05 0.74 2006- 07 6469.98 8083.13 0.80 2007- 08 9873.48 14199.83 0.69
40
financial Analysis
Debt Ratio
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.87 0.67 0.74
0.8 0.69
Ratio
Ratio
2003-04
2004-05
2005-06 Year
2006-07
2007-08
As we know that the total debt ratio gives an indicator for proportion of interest bearing debt in the capital structure, it is clear from the above debt ratio that the lenders have financed 69%.
ii.
Debt-equity Ratio
Total Debt Debt Equity Ratio = ------------------------Net Worth
Particulars Total Debt Net Worth Debt Equity Ratio
2003- 04 904.01 311.46 2.90
2004- 05 862.59 636.49 1.36
2005- 06 3711.31 2148.66 1.73
2006- 07 6469.98 3336.30 1.94
2007- 08 9873.48 6383.29 1.55
41
financial Analysis
Debt-Equity Ratio
3.5 3 2.5 Ratio 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 1.36 1.73 2.9
1.94 1.55 Ratio
As it is clear that the ratio has been increasing and decreasing it is because of increase in total debt and equity. In 2008 the ratio is decreased by 0.39.
iii.
Capital Employed to Net Worth

To know how much fund are being contributed to gather by the lenders and owners of
each rupee of owners contribution. Capital Employed CE TO NW = ---------------------------Net Worth OR NTA Net Asset to Net Worth Ratio = ----------------NW
42
financial Analysis
Particulars Net Assets Net Worth Net Asset to Net Worth Ratio
2003- 04 1042.70 311.46 3.35
2004- 05 1279.73 636.49 2.01
2005- 06 5047.05 2148.66 2.35
2006- 07 8083.13 3336.30 2.42
2007- 08 14199.83 6383.29 2.22
NA TO NW Ratio
4 3.5 3 Ratio 2.5 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 2.01 3.35 2.35 2.42
2.22 Ratio
It is clear that from the above ratio that for every one rupee of owners contribution the company has on average 2.47 rupees contributed together by lenders and owners. The contribution has increasing and decreasing because of loan and increase in profit.
iv.
Total Liabilities to Total Assets

Total liabilities Debt Ratio = ---------------------------Total Assets
Particulars Total Assets Total Liabilities Debt Ratio

2003- 04 2025.28 1886.59 0.93
2004- 05 3316.96 2899.82 0.87
2005- 06 7146.53 5810.79 0.81
2006- 07 11052.69 9439.54 0.85
2007- 08 17387.54 13061.19 0.75 43
financial Analysis
Debt Ratio
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.93 0.87 0.85 0.75
0.81
Ratio
Ratio
2003-04
2004-05
2005-06 Year
2006-07
2007-08
The ratio calculated above indicates that on an average 84% of the total assets are financed by the outsiders. The ratio has been increasing it means the greater the amount of firms creditors money is being used to generated profits.
v. Times Interest Earned Ratio / Interest Coverage Ratio

EBIT Interest Coverage Ratio = ----------------Interest Particulars EBIT Interest Interest Coverage Ratio 2003- 04 264.99 113.25 2.34 2004- 05 623.80 133.64 4.67 2005- 06 933.37 187.84 4.97 2006- 07 912.80 132.89 6.87 2007- 08 1821.87 684.86 2.66
44
financial Analysis
Interest Coverage Ratio

8 7 6 Ratio 5 4 3 2 1 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 2.34 2.66 4.67 4.97 Ratio 6.87
The interest coverage ratio for the year 2004 to 2007 shows that the company is fulfilling its interest obligation in a better way. Interest paying available has decreased in 2008 because of low profitability and high interest.
III. i.
ACTIVITY RATIOS Inventory or Stock Turnover

Cost of Goods Sold Inventory Turnover = ---------------------------------Average Inventory No of Days in a Year Inventory Turnover (in days) = --------------------------------------------------Inventory Turnover or Receivables Particulars 2003- 04 1911 340.29 5.62 2004- 05 5695 808.27 7.05 360 51.06 2005- 06 7034 1122.65 6.27 360 57.42 2006- 07 6272 1061.76 5.91 360 60.91 2007- 08 16059 1435.38 11.19 360 45 32.17
COGS Avg. inventory Inventory Turnover (times) PG-CENTRE, in a year No. of days VTU, Belgaum 360 Days of inventory 64.06 holding
financial Analysis
Inventory Turnover (Days)

70 60 50 Ratio 40 30 20 10 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 32.17 Ratio 64.06 57.42 51.06 60.91
Inventory turnover ratio indicates the efficiency of the company in producing and selling its products. The number of days of inventory holding is increasing i.e. sales are held in inventory, but in 2008 it has decreased. It means that the company is try to manage its inventory efficiently.
ii. Debtors (Accounts Receivables) Turnover Ratio

Sales Debtors Turnover = ----------------------Avg. Debtors
Particulars Sales Avg. Debtors Debtors Turnover Ratio
2003- 04 2260.86 74.36 30.40
2004- 05 6392.47 140.82 45.39
2005- 06 8015.85 368.71 21.74
2006- 07 7323.69 462.99 15.82
2007- 08 18241.69 436.63 41.78
46
financial Analysis
Debtors Turnover Ratio

50 45 40 35 30 25 20 15 10 5 0 45.39
41.78
30.4 21.74 15.82 Ratio
Ratio
2003-04
2004-05
2005-06 Year
2006-07
2007-08
iii. Collection Period (in days)
No. of Days in a Year Average Collection Period = ----------------------------------Debtors Turnover
Particulars Debtors Turnover No. of Days Avg. collection Period
2003- 04 30.40 360 11.84
2004- 05 45.39 360 7.93
2005- 06 21.74 360 16.56
2006- 07 15.82 360 22.76
2007- 08 41.78 360 8.62
47
financial Analysis
This ratio indicates the number of days in which the debt due is collected from debtors. Lesser the number of days, the better it is. It is clear from the ratios calculated above that the debtors turnover has increased in 2005 and again it has declined in year 2008 so it shows that the company has to try to reduce the collection days in order to fulfill its current obligation.
iv. Asset Turnover Ratio i. Net Assets Turnover

Sales Net Asset Turnover = -----------------Net Asset Particulars Sales Net Asset Net Asset Turnover 2003- 04 2260.86 1042.70 2.17 2004- 05 6392.47 1279.73 4.99 2005- 06 8015.85 5047.05 1.59 2006- 07 7323.69 8083.13 0.91 2007- 08 18241.69 14199.83 1.28
48
financial Analysis
Net Asset Turnover Ratio

6 5 4 Ratio 3 2 1 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 2.17 1.59 0.91 1.28 Ratio 4.99
This ratio indicates the companys ability to produce the volume of sales for a given amount of net assets. From the ratios calculated, it is clear that the assets turnover is decreasing over the past few years, thus company has to utilize its assets efficiently.
ii. Fixed Assets Turnover

It measures the efficiency of utilization of fixed assets of a firm. The ratio indicates the amount of fixed assets needed for every rupee of sales. Sales Fixed Asset Turnover = ----------------------------Net Fixed Assets.
Particulars Sales Net Fixed Assets Fixed Asset Turnover
2003- 04 2260.86 962.03 2.35
2004- 05 6392.47 1131.18 5.65
2005- 06 8015.85 4506.38 1.78
2006- 07 7323.69 7700.29 0.95
2007- 08 18241.69 12051.07 1.51
49
financial Analysis
Fixed Asset Turnover Ratio

6 5 4 Ratio 3 2 1 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 2.35 1.78 0.95 1.51 Ratio 5.65
From the above ratio it is clear that the ratio is decreasing year by year from last five years.
iii. Current Assets Turnover

Sales ----------------------------Net Current Assets
Current Assets Turnover =
It measures the efficiency of utilization of current assets of a firm.
Particulars Sales Net Current Assets Current Asset Turnover
2003- 04 2260.86 1063.25 2.13
2004- 05 6392.47 2185.78 2.92
2005- 06 8015.85 2640.15 3.04
2006- 07 7323.69 3352.40 2.18
2007- 08 18241.69 5336.47 3.42
50
financial Analysis
Current Asset Turnover Ratio

4 3.5 3 Ratio 2.5 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 2.13 2.92 3.04 2.18 Ratio 3.42
There is increase in ratio every year but in 2007 there is decrease by o.86 this is because of increase in current assets. Overall company is utilizing its current assets efficiently.
iv. Total Assets Turnover

It measures the efficiency utilization of firms Total Assets. Sales Total Asset Turnover = ----------------------Total Assets
Particulars Sales Total Assets Total Assets Turnover
2003- 04 2260.86 2025.28 1.12
2004- 05 6392.47 3316.96 1.93
2005- 06 8015.85 7146.53 1.12
2006- 07 7323.69 11052.69 0.66
2007- 08 18241.69 17387.54 1.05
51
financial Analysis
Total Asset Turnover

2.5 2 Ratio 1.5 1 0.5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 1.93
1.12
1.12 0.66
1.05
Ratio
There is ups and downs in Total Asset Turnover Ratio. Because of increase and decrease in sales. And increase in total assets. Overall company is utilizing its total assets efficiently.
v. Working Capital Turnover

Sales Working Capital Turnover = ------------------------------Net Working Capital
Particulars Sales Net Working Capital Working Capital Turnover
2003- 04 2260.86 80.67 28.03
2004- 05 6392.47 148.55 43.03
2005- 06 8015.85 540.67 14.83
2006- 07 7323.69 382.84 19.13
2007- 08 18241.69 2148.76 8.49
52
financial Analysis
Working Capital Turnover Ratio

50 45 40 35 30 25 20 15 10 5 0 43.03
28.03 19.13 14.83 8.49 Ratio
Ratio
2003-04
2004-05
2005-06 Year
2006-07
2007-08
There is decrease in ratios every year, because of increase in net working capital every year compared to sales.
iv. PROFITABILITY RATIO i. Gross Profit Margin

Sales Cost of Goods Sold Gross Profit Margin = ----------------------------------------Sales Particulars Gross Profit Sales Gross Profit Margin 2003- 04 349.86 2260.86 15.47% 2004- 05 697.47 6392.47 19.91% 2005- 06 981.85 8015.85 12.25% 2006- 07 1051.69 7323.69 14.36% 2007- 08 2182.69 18241.69 11.97%
53
financial Analysis
Gross Profit Margin

25.00% 20.00% 15.47% Ratio 15.00% 10.00% 5.00% 0.00% 2003-04 2004-05 2005-06 Year 2006-07 2007-08 12.25% 19.91% 14.36% 11.97% Ratio
A high gross profit margin ratio is a sign of good management. The ratio calculated above shows that there is decrease and increased in ratio, in 2008 it is decreased by 3.5%. it may be due to because of high competition or because of high cost.
ii. Net Profit Margin

Profit After Tax Net Profit Margin = -----------------------------Sales
Particulars Sales PAT Net Profit Margin
2003- 04 2260.86 122.71 0.06
2004- 05 6392.47 407.33 0.05
2005- 06 8015.85 562.70 0.07
2006- 07 7323.69 544.33 0.07
2007- 08 18241.69 745.47 0.04
54
financial Analysis
Net Profit Margin

0.08 0.07 0.06 Ratio 0.05 0.04 0.03 0.02 0.01 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.06 0.05 0.04 Ratio 0.07 0.07
A high net margin ratio ensures adequate return to the owners as well as enables the company to withstand adverse economic condition. The ratios calculated above indicate that net margin of company is increasing and decreasing from the last five years. In 2008 it has decreased by 0.03 it is because of increase in indirect expenses.
iii. Operating Expenses
Operating Expenses Operating Expenses = --------------------------------Sales Particulars Sales Operating Expenses Operating Expenses 2003- 04 2260.86 2091.76 0.92 2004- 05 6392.47 5742.83 0.90 2005- 06 8015.85 7146.34 0.89 2006- 07 7323.69 6141.21 0.84 2007- 08 18241.69 16035.75 0.88
55
financial Analysis
Operating Expenses Ratio

0.94 0.92 0.9 Ratio 0.88 0.86 0.84 0.82 0.8 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.84 0.92 0.9 0.89
0.88 Ratio
A higher operating expenses ratio is unfavorable since it will leave a small amount of income to meet interest, dividends, etc. from the above ratio it is clear that the ratio is decreasing from last few years but in 2008 it has decreased by 0.04. overall the company is maintaining its operating expenses
iv. Return on Investment / Return on Total Assets.

ROI = ROTA (Rate on Total Assets) RONA (Rate on Net Assets) EBIT ROI = ROTA = ---------------------------------Capital Employed Particulars EBIT Capital Employed ROI Ratio 2003- 04 264.99 1248.90 0.21 2004- 05 623.80 1539.54 0.41 2005- 06 933.37 5916.82 0.16 2006- 07 912.80 10008.21 0.09 2007- 08 1821.87 16717.93 0.11
56
financial Analysis
ROI
0.45 0.4 0.35 0.3 Ratio 0.25 0.2 0.15 0.1 0.05 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.21 0.16 0.09 0.11 Ratio 0.41
Return on investments measures the profitability of the total investment of the company. It measures the operating efficiency of the company. The ratios calculated from the last five years indicate that the profitability of the company is low.
v. ROE (Rate on Equity)

PAT ROE = ---------------------Net Worth
Particulars PAT Net Worth ROE
2003- 04 122.71 311.46 0.39
2004- 05 407.33 636.49 0.64
2005- 06 562.70 2148.66 0.26
2006- 07 544.33 3336.30 0.16
2007- 08 745.47 6383.29 0.12
57
financial Analysis
ROE
0.7 0.6 0.5 Ratio 0.4 0.3 0.2 0.1 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 0.39 0.26 0.16 0.12 Ratio 0.64
This ratio reveals that how profitability the company has utilized the owners funds; it also shows the profitability of the owners investments. It can be observed from the ratios calculated above that the companys ROE is been continuously decreasing over the last five years. Thus, company has to utilize the owners funds efficiently.
v. OTHER MEASURES i. EPS (Earning Per Share)

PAT EPS = -------------------No of shares Particulars PAT No. of Shares EPS 2003- 04 122.71 13554110 9.05 2004- 05 407.33 17124783 23.79 2005- 06 562.70 23467105 23.98 2006- 07 544.33 23892982 21.04 2007- 08 745.47 268498679 2.78
58
financial Analysis
EPS
30 25 20 Ratio 15 10 5 0 2003-04 2004-05 2005-06 Year 2006-07 2007-08 9.05 2.78 Ratio 23.79 23.98 21.04
The ratio calculated for the last five years shows that EPS of Shree Renuka Sugars Ltd is increasing and decreasing this is because of increase and decrease in leverage.
ii. Dividend Per Share

Earnings Paid to Shareholders DPS = ----------------------------------------------------------------------Number of Ordinary Shareholders Outstanding
Particulars Profit Distributed No. of Shares DPS Ratio
2003- 04 13.57 13554110 1.00
2004- 05 47.72 17124783 2.78
2005- 06 47.62 23467105 2.00
2006- 07 49.62 23892982 2.00
2007- 08 59.56 268498679 -
59
financial Analysis
DPS
3 2.5 2 Ratio 1.5 1 0.5 0 2003-04 2004-05 2005-06 Year 2006-07 0 2007-08 1 2 2 Ratio 2.78
From the above ratio we can observed that in year 2008 the DPS has come down it is because of number of shares are more than the number of shares of last four years and there is decline in profit distribution.
iii. Dividend Payout Ratio
DPS Payout Ratio = -------------EPS
Particulars DPS EPS Payout Ratio
2003- 04 1.00 9.05 0.11
2004- 05 2.78 23.79 0.11
2005- 06 2.00 23.98 0.08
2006- 07 2.00 21.04 0.09
2007- 08 2.78 -
60
financial Analysis
Payout Ratio
0.12 0.1 0.08 Ratio 0.06 0.04 0.02 0 2003-04 2004-05 2005-06 Year 2006-07 0 2007-08 0.08 0.11 0.11 0.09
Ratio
This ratio specifies the portion of earnings per share utilized for payment of dividend to the equity shareholders. It can be observed from the ratios calculated that the portion of EPS distributed as dividends is decreased over the years.
iv. Dividend And Earnings Yield

DPS Dividend Yield = -------------------------------------Market Value Per Share EPS Earnings Yield = -------------------------------------Market Value Per Share
2003- 04 EPS 9.05 DPS 1.00 Market Value Earning Yield Ratio Dividend Yield Ratio PG-CENTRE, VTU, Belgaum
Particulars
2004- 05 23.79 2.78 -
2005- 06 23.98 2.00 630.90 0.04 0.003
2006- 07 21.04 2.00 706.35 0.03 0.002
2007- 08 2.78 102.90 0,03 61
financial Analysis
Dividend yield and Earning Yield evaluate the shareholders return in relation to the market value of the share
v. Price Earning Ratio

Market Value P/E Ratio = -------------------------EPS
Particulars Market Value EPS P/E Ratio
2003- 04 9.05 -
2004- 05 23.79 -
2005- 06 630.90 23.98 26.31
2006- 07 706.35 21.04 33.57
2007- 08 102.90 2.78 37.01
62
financial Analysis
P/E Ratio
40 35 30 Ratio 25 20 15 10 5 0 0 2003-04 0 2004-05 2005-06 Year 2006-07 2007-08 Ratio 26.31 37.01 33.57
P/E Ratio is increasing from last three years.
FINDINGS
During the year 2007- 2008, the current ratio has increased from 1.13 to 1.67, it
means that the company has good liquidity During the year 2007-2008, the net working capital ratio has increased from
0.05 to 0.15, because of increase in current liabilities and increase in current assets. Debt collection period has decreased as there is increase in debtors turnover
rate. It shows that there is efficiency of collection by Renuka Sugars During the year 2007-2008, the interest coverage ratio has decreased from 6.87
to 2.66, because of low profitability and high interest.
63
financial Analysis The number of days of inventory holding is increasing over the past few years
i.e. sales are held in inventory, but in 2008 it has decreased. It means that the company is trying to manage its inventory efficiently. Debtors turnover ratio has increased from 15.82 to 41.78. Gross profit margin has decreased from 14.36% to 11.97%. Net profit margin has also decrease from 7.43% to 4.0% There is rapid increase in net profit , because of sudden increase in sales, which
is a positive sign for the company Net working capital has improved, which shows the efficiency of the company
in the working capital.
SUGGESTIONS
It needs improvement in case of current assets. This shows there can be further improvement in the utilization of current assets. The management of inventory can be improved further if the company undertakes or makes use of techniques like EOQ analysis and ABC analysis. The current assets to total assets is increased which means the company is paying more attention to its current assets. They should improve the utilization of current assets as it will be required for day to day business.
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financial Analysis The management of cash and bank can also be improved. It has to follow the four motives of cash transaction. Cash is required to improve as it is a common denominator. Shree Renuka Sugars Ltd, Belgaum should try to attain its current assets though it is trying to maintain according to standards. Shree Renuka Sugars Ltd,Belgaum has to utilize the owners funds efficiently.
CONCLUSION
It has been an excellent opportunity for me to carry out the study on Ratio Analysis at Shree Renuka Sugars Ltd, Belgaum. It has helped to a great extent to have an insight into the practical realities of the subject. I try my best effort for the completion of my project study. I have been able to study and I feel it is essential to review the various aspects of my study and sum-up the important observations. As such this concluding part includes the major findings and few suggestions. As according to me the performance of the Shree Renuka Sugars Ltd, is well.
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financial Analysis On the contrary, Renuka Sugars is efficiently managing its working capital. Its net working capital has been increasing in 2007-08 as compared to previous year. The quick ratio shows that the company is in good position and trying to maintain as per standard. Inventory turnover Ratio decline in 2008. EPS is declining every year. Thus, we can conclude that the company is doing well in the working capital.
BIBLIOGRAPHY
Financial Management. I. M Pandey Financial Management..M.Y Khan & P. K Jain www.Google.com www.Renukasugars.com Annual report of the company.
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financial Analysis
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Executive Summary: Financial Analysis

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financial Analysis

TITLE OF THE PROJECT

NEED FOR THE STUDY

PG-CENTRE, VTU, Belgaum

OBJECTIVES OF THE STUDY

LIMITATIONS OF THE STUDY:

PG-CENTRE, VTU, Belgaum

The Historical Background of the Indian Sugar Industry

PG-CENTRE, VTU, Belgaum

National Scenario of Sugar Industry

PG-CENTRE, VTU, Belgaum

The sector wise break ups as follows

PG-CENTRE, VTU, Belgaum

Background and inception of the company

Milestone of Shree Renuka Sugars Ltd (SRSL)

Location of the Unit and Its Subsidiaries Diagram no#1

Nature of Business Carried

PG-CENTRE, VTU, Belgaum

PG-CENTRE, VTU, Belgaum

BY-PRODUCTS OF SUGAR CANE

PG-CENTRE, VTU, Belgaum

PG-CENTRE, VTU, Belgaum

Managing Direc tor

Director Commerc ial

C ane Developm ent C ane proc ureme nt

Sales & Logistics

Proc ess and Quality Power Plant

Risk managem ent

EXIM Departme nt HR Departme nt

Planning and Budgeting

VISION AND MISSION:

PG-CENTRE, VTU, Belgaum

PG-CENTRE, VTU, Belgaum

FINANCIAL RATIO ANALYSIS

NEED FOR CAUTION IN INTERPRETATION OF RATIOS

PG-CENTRE, VTU, Belgaum

NEED FOR COMPARATIVE STUDY OF RATIOS

PG-CENTRE, VTU, Belgaum

ADVANTAGES OF FINANCIAL RATIO ANALYSIS

PG-CENTRE, VTU, Belgaum

PG-CENTRE, VTU, Belgaum

CATAGORIES OF FINANCIAL RATIOS OR TYPES OF FINANCIAL RATIOS

PG-CENTRE, VTU, Belgaum

ii. Acid Test Ratio

PG-CENTRE, VTU, Belgaum

Cash + Marketable securities Cash Ratio = -----------------------------------------Current Liabilities

iv. Interval Measure

Current Assets - Inventory Interval Measure = ------------------------------------------Avg. Daily Operating Expenses

v. Net Working Capital Ratio

PG-CENTRE, VTU, Belgaum

iii. Capital Employed to Net Worth

iv. Total Liability to Total Assets

Times Interest Earned Ratio/ Interest Coverage Ratio

3. ACTIVIT /EFFICIENC/ASSET UTILISATION /TURNOVE RATIO

PG-CENTRE, VTU, Belgaum

Inventory or Stock Turnover

Debtors Turnover Ratio

PG-CENTRE, VTU, Belgaum

Asset Turnover Ratio

PG-CENTRE, VTU, Belgaum

Net Assets Turnover

capital employed in net asset.