SUBMITTED BY: ARUNKUMAR.

SURE
SUBMITTED TO: Dr. APPALARAJU
 FINANCIAL RATIO ANALYSIS

INDEX
ABSTARCT
LIST OF FORMULES.
LIST OF TABLES.
1 INTRODUCTION...........
1.1NEED OF FINANCIAL RATIO ANALYSIS
1.2 FINANCIAL STATEMENTS
1.2.1 BALANCE SHEET
1.2.2 INCOME STATEMENT
1.2.3 CASHFLOW STATEMENT.
1.3 FINANCIAL TERMINLOGY.
2. FINANCIAL RATIO’S
2.1 LIQUID RATIO’S
2.1.1 CURRENT RATIO
2.1.2 QUICK/ACID TEST/LIQUID RATIO.
2.1.3ABSOLUTE LIQUID RATIO.
2.2 CAPITAL STRUCTURE RATIO
2.2.1 DEBT EQUITY RATIO
2.2.2 DEBT RATIO.
2.2.3 INTREST COVERAGE RATIO.
2.3 ACTIVITY /MANAGEMENT RATIO
2.3.1 INVENTORY/STOCK TURNOVR RATIO
2.3.2 DEBTORS TURNOVER RATIO
2.3.3 CREDITORS TURNOVER RATIO.
2.3.4 WORKING CAPITAL TURNOVR RATIO
2.3.5 FIXED ASSET TURNOVER RATIO
2.3.6 TURNOVER TO TOTAL ASSET RATIO.
2.4 PROFITABILITY RATIO
2.4.1 GROSS PROFIT RATIO
2.4.2 OPERATING PROFIT RATIO
2.4.3 NET PROFIT RATIO.
2.4.4 RETURN ON ASSETS.
2.4.5 RETURN ON CAPITAL EMPLOYED.
2.4.6 EARNING PER SHARE

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2.4.7 PRICE EARNING RATIO.

3 PRIYADARSHINI SPINNIG MILLS.
3.1 INRODUCTION.
3.2 SUCCESS TEAM OF PRIYADARSHINI
3.3 INFRASTRUCTURE.
3.4 MAJOR PRODUCTS OF PRIYADARSHINI
3.5 BREIF INTRODUCTION OF MANUFACTURING PROCESS.
3.6 ACHIVEMENTS.
3.7 ENTRENCE INTO STOCK EXCHANGE.
3.8 BALANCE SHEET AND INCOME STATEMENT.
4 RATIO ANALYSIS FOR PSM.
4.1 LIQUID ITY RATIO’S
4.1.1 CURRENT RATIO
4.1.1.1 FOR THE YEAR 2008
4.1.1.2 FOR THE YEAR 2009
4.1.1.3 FOR THE YEAR 2010.
4.1.1.4 ANALYSIS.
4.1.2 QUICK RATIO
4.1.2.1 FOR THE YEAR 2008
4.1.2.2 FOR THE YEAR 2009.
4.1.2.3 FOR THE YEAR 2010.
4.2 CAPITAL STRUCTURED RATIO
4.2.1 DEBT EQUITY RATIO
4.2.1.1 FOR THE YEAR 2008
4.2.1.2 FOR THE YEAR 2009
4.2.1.3 FOR THE YEAR 2010
4.2.2 INTREST COVERAGE RATIO
4.2.2.1 FOR THE YEAR 2008
4.2.2.2 FOR THE YEAR 2009
4.2.2.3 FOR THE YEAR 2010.
4.3 ACTIVITY RATIO
4.3.1 INVENTORY TURNOVER RATIO
4.3.1.1 FOR THE YEAR 2008
4.3.1.2 FOR THE YEAR 2009
4.3.1.3 FOR THE YEAR 2010
4.3.1.4 ANALYSIS
4.3.2 DEBTORS TURNOVER RATIO

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4.3.2.1 FOR THE YEAR 2008

4.3.2.2 FOR THE YEAR 2009
4.3.2.3 FOR THE YEAR 2010
4.3.2.4 ANALYSIS.
4.3.3 CREDITORS TURNOVER RATIO
4.3.3.1 FOR THE YEAR 2008
4.3.3.2 FOR THE YEAR 2009
4.3.3.3 FOR THE YEAR 2010
4.3.3.4 ANALYSIS
4.3.4 FIXED ASSET TO TURNOVER RATIO
4.3.4.1 FOR THE YEAR 2008
4.3.4.2 FOR THE YEAR 2009
4.3.4.3 FOR THE YEAR 2010
4.3.4.4 ANALYSIS
4.4 PROFITABILITY RATIO
4.4.1 GROSS PROFIT RATIO
4.4.1.1 FOR THE YEAR 2008
4.4.1.2 FOR THE YEAR 2009
4.4.1.3 FOR THE YEAR 2010
4.4.1.4 ANALYSIS
4.4.2 OPERATING PROFIT RATIO
4.4.2.1 FOR THE YEAR 2008
4.4.2.2 FOR THE YEAR 2009
4.4.2.3 FOR THE YEAR 2010
4.4.2.4 ANALYSIS
4.4.3 NET PROFIT RATIO
4.4.3.1FOR THE YEAR 2008
4.4.3.2 FOR THE YEAR 2009
4.4.3.3 FOR THE YEAR 2010
4.4.3.4 ANALYSIS
4.4.4 RETURN ON ASSETS
4.4.4.1 FOR THE YEAR 2008
4.4.4.2 FOR THE YEAR 2009
4.4.4.3 FOR TE YEAR 2010
4.4.4.4 ANALYSIS
4.4.5 RETURN ON CAPITAL EMPLOYED
4.4.5.1 FOR THE YEAR 2008

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4.4.5.2 FOR TEH YEAR 2009

4.4.5.3 FOR THE YEAR 2010
4.4.5.4 ANALYSIS
4.4.6 PRICE EARNING RATIO
4.4.6.1 FOR THE YEAR 2008
4.4.6.2 FOR THE YEAR 2009
4.4.6.3 FOR THE YEAR 2010
4.4.6.4 ANALYSIS
4.4.7 EARNINGS PER SHARE
4.4.7.1 FOR THE YEAR 2008
4.4.7.2 FOR THE YEAR 2009
4.4.7.3 FOR THE YEAR 2010
4.4.7.4.ANALYSIS
5 CONCLUSION

APPENDIX
GLOSSERY

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ABSTRACT:
In every business there is a need to know the performance of the business weather
the business is in profits are loss. To know that we prepare balance sheet and profit and loss
account but by these two accounts we can’t analyse complete health of the company, for
that we need another method to analyse the health of the company i.e Financial analysis.

“FINANCIAL RATIO ANALYSIS ”

The aim of this project is to know the financial health of the PRIYADARSHINI
SPINNIG MILLS By applying the ratio analysis to analyze the success, failure, and progress
of your business. For that we use different ratios those are Liquidity ratios, Profitability
ratios, solvency ratios, stability ratios ect. By using these results we can improve our
performance

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INTRODUCTION:
What is financial analysis ?
Financial analysis is the computation of analytical ratios from financial statements and
interpretation of these ratios to determine their trends as a basis for management decisions.

Purpose of financial analysis ?

The purpose of financial analysis is to “evaluating the past performance to predict the
future performance” in decision making. to evaluate the performance of a company with an
eye toward identifying problem areas . In sum, financial statement analysis is both diagnosis -
identifying where a firm has problems - and prognosis - predicting how a firm will perform in
the future.

How the financial statement analysis is useful to the company ?

Financial statement analysis is useful to a company to know the profitability of the
company, How much the company is capable to solve the financial problems, management
uses the analysis to help in making operating, investing, and financing decisions.
And investors and creditors analyze financial statements to decide whether to invest in or
loan money to, a company.

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1.2 FINANCIAL STATEMENTS

To analyse the financial status of a firm we need financial statements
 Balance sheet.
 Income statement.
 Cash flows statement.
1.2.1 Balance sheet:
A balance sheet is a summary of the financial position at a specific point in time. It
presents the economic resources of an organization and the claims against those resources.
The balance sheet contains assets and liabilities.
ASSETS :
A resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity. Assets may be physical, such as land,
buildings, inventory of supplies, material or finished products. assets may intangible, such as
patents and trademarks.

LIABILITIES:
liability is defined as an obligation of an entity arising from past transactions or events,
the settlement of which may result in the transfer or use of assets, provision of services or
other yielding of economic benefits in the future. accounts payable for goods, services or
supplies that were purchased for use in the operation of the business and payable within a
normal period of time would be current liabilities. Bonds, mortgages and loans that are
payable over a term exceeding one year would be fixed liabilities or long-term liabilities.

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1.3 FINANCIAL TERMINOLOGY

1. CURRENT ASSETS:
A current asset is an asset on the balance sheet which is expected to be sold or
otherwise used up in the near future, usually within one year, or one operating
cycle whichever is longer.

Current Assets = Cash +Bank + Debtors + Bills Receivable + Short Term

Investment + Inventory + Prepaid Expenses

2. CURRENT LIABILITIES:
Current liabilities are often understood as all liabilities of the business that are to
be settled in cash within the fiscal year or the operating cycle of a given firm,
whichever period is longer.
3. EQUITY:
The residual interest in the assets of the entity after deducting all its liabilities.
4. Equity share capital:
Company's issued (or paid-up) share capital, without limitation or preference in how
profits are distributed or how assets are ultimately distributed.

5. PREFERENCE SHARE CAPITAL:

Preference share capital is the capital generated by the share holders of the
organisation. Preference share holders has the preference to get fixed rate of interest of
profit for their shares.
6. RESERVES:
Appropriation of retained earnings for a designated purpose, such as plant expansion or a
bond sinking fund. The purpose of the reserve is to tell stockholders and creditors that part of
retained earnings is unavailable for dividends.
7. INVENTORY:
For companies: includes raw materials, items available for sale or in the process of
being made ready for sale (work in process); for securities: it is securities bought and held by
a broker or dealer for resale.

8. FICTITIOUS ASSETS:

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Asset created by an accounting entry as no tangible existence or realizable value but

represents actual cash expenditure. The purpose of creating a fictitious asset is to account for
expenses that cannot be placed under any normal account heading. Fictitious assets are
written off as soon as possible against the firm's earning.

12 TANGIBLE ASSETS:
Normally refers to assets that can be held or seen and that are capable of being
appraised at an actual or approximate value (e.g. inventory, land & buildings, etc.).
9. INTANGIBLE ASSETS:
Right or other nonphysical resource that is presumed to represent an advantage
to a firm in the marketplace. Such assets include copyrights, patents, trademarks,
goodwill, technical information, capitalized advertising costs, organization costs,
licenses, leases, franchises, exploration permits, and import and export permits.
10. COST OF GOODS SOLD :
a. Cost of goods sold or cost of sales is the of a product sales in a given
accounting period. Gross profit: gross profit is the profit occurred when
deducting the cost of goods sold from the sales.
11. NET PROFIT:
a. Net profit is the profit incurred when deducting all the expences from the net
sales.
12. OPERATING PROFIT:
a. Revenue less cost of goods sold and related operating expenses that are
applied to the day-to-day operating activities of the company. It excludes
financial related items (i.e.,interest income, dividend income, and interest
expense), extraordinary items, and taxes.
13. DEBENTURE:
a. Long-term debt instrument that is a corporate security backed by the general
credit of the issuer rather than by a lien on specific assets. The order of any
prior claims is set forth in the debenture. Typically, in the event of liquidation,
debentures have a low recovery ranking.
14. DEBT:
a. The amount due by a customer in respect of goods supplied or services
rendered by you.

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15. LONG TERM DEBT:

a. Debt that does not come due within one year.
16. CREDITORS:
a. The entities to which a debt is owed by another entity.
17. DEBTORS:
a. Person or entity owing money to another person or entity; also refers to
accounts receivable.
18. DIVIDEND:
a. Distribution of earnings paid to stockholders based on the number of shares
they own.The most typical type is cash, but dividends may also be issued in
such forms as stock and property.
19. EBDITA:
20. In accounting, EBITDA stands for "Earnings before Interest, Taxes, Depreciation, and
Amortization" Which as the name suggests is earnings excluding expenses from
depreciation, amortization, interest, and taxes (earnings + ITDA), in the order the
usually appear on the income statement, up to down. It's the operating income with
expenses for depreciation and amortization backed out.
21. EBIT:
a. earning before intrest and tax.

22. DEPRECIATION:
23. The amount of expense charged against earnings by a company to write off the cost of
a plant or machine over its useful live, giving consideration to wear and tear,
obsolescence, and salvage value. If the expense is assumed to be incurred in equal
amounts in each business period over the life of the asset, the depreciation method
used is straight line (SL). If the expense is assumed to be incurred in decreasing
amounts in each business
24. period over the life of the asset, the method used is said to be accelerated. Two
commonly used variations of the accelerated method of depreciating an asset are the
sum-of-years digits (SYD) and the double-declining balance (DDB) methods.
Frequently,accelerated depreciation is chosen for a business' tax expense but straight
line is chosen for its financial reporting purposes.

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25. INVENTORY:
a. For companies: includes raw materials, items available for sale or in the
process of being made ready for sale (work in process); for securities: it is
securities bought and held by a broker or dealer for resale.
26. MARKETABLE SECURITIES:
a. Very liquid securities that can be converted into cash quickly at a reasonable
price.Marketable securities are very liquid as they tend to have maturities
of less than one year. Furthermore, the rate at which these securities can be
bought or sold has little effect on their prices
27. NET WORTH:
a. Total assets less total liabilities. Net worth represents shareholder equity.
28. NON-CURRENT ASSETS
a. Includes PPE (property, plant and equipment) as opposed to current assets
which
29. includes cash, cash equivalents (e.g. securities, short-term notes, etc.), inventory and
30. accounts receivable.

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FINANCIAL RATIOS
To analyse the company financial status we use the methods of ratio analysis, in this ratio
analysis we calculate different ratios.
Different ratios to analyse the financial status are
 Liquid ratio’s
 Capital structured ratio’s.
 Activity ratio’s
 Profitability ratio’s.

LIQUIDITY RATIOS:
These ratios indicate the ease of turning assets into cash. They include the current ratio,
quick ratio, and working capital ratio.
Current Ratio:
The current ratio is one of the best known measures of financial strength. It is figured as
shown below.

total current assets

current ratio=
total current liabilities

The main question this ratio addresses is does your business have enough current assets to
meet the payment schedule of its current debts with a margin of safety for possible losses in
current assets, such as inventory shrinkage or collectable accounts? A generally acceptable
current ratio is 2 to 1.but weather or not a specific ratio is satisfactory depends on the nature
of the business and the characteristics of its current assets and liabilities .the minimum

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acceptable current ratio is obviously 1:1 ratio but that relationship is usually playing it too
close for comfort.

Current assets are cash and other assets expected to be converted to cash, sold, or
consumed either in a year or in the operating cycle (whichever is longer), without disturbing
the normal operations of a business. These assets are continually turned over in the course of
a business during normal business activity. There are 5 major items included into current
assets:

1. Cash and cash equivalents — it is the most liquid asset, which includes currency,
deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank
drafts).
2. Short-term investments — include securities bought and held for sale in the near
future to generate income on short-term price differences (trading securities).
3. Receivables — usually reported as net of allowance for uncollectable accounts.
4. Inventory — trading these assets is a normal business of a company. The inventory
value reported on the balance sheet is usually the historical cost or fair market value,
whichever is lower. This is known as the "lower of cost or market" rule.
5. Prepaid expenses — these are expenses paid in cash and recorded as assets before
they are used or consumed.

Current liabilities:
Current liabilities are those obligations which are payable within a short period of
time generally one year and include .
 Bills payable,
 Creditors of raw meterials,
 Creditors for shortloans,
 Out standing expences,
 Prepaid income,
 Dividends proposed,
 Taxes proposed,
 Bank overdraft.

Quick Ratios.

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The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best
measures of liquidity. It is figured as shown below:

QUICK CURRENT ASSETS

QUICK RATIO=
QUI CK CURRENT LIABILITIES
     

The Quick Ratio is a much more exacting measure than the Current Ratio. By
excluding inventories, it concentrates on the really liquid assets, with value that is fairly
certain. It helps answer the question: "If all sales revenues should disappear, could my
business meet its current obligations with the readily convertible `quick' funds on hand?"

An acid-test of 1:1 is considered satisfactory unless the majority of your "quick

assets" are in accounts receivable, and the pattern of accounts receivable collection lags
behind the schedule for paying current liabilities.

Working Capital ratio:

Working Capital is more a measure of cash flow than a ratio. The result of this
calculation must be a positive number. It is calculated as shown below:

TOTAL CURRENT ASSETS

WORKING CAPITAL=
TOTAL CURENT LIABILITIES

Bankers look at Net Working Capital over time to determine a company's ability to weather
financial crises. Loans are often tied to minimum working capital requirements.

A  general observation about these three Liquidity Ratios is that the higher they are the better,
especially if you are relying to any significant extent on creditor money to finance assets.

PROFITABILITY RATIOS:

Gross margin ratio:

The ratio is the percentage of sales of ruppes left after subtracting the cost of goods sold
from net sales. It tells about the percentage of sales revenue remaining available to pay the
overhead expenses of the company .The gross margin ratio is calculated as follows.

GROSS PROFIT
GROSS PROFIT MARGIN RATIO=
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Gross profit = net sales – cost of goods sold.

Cost of goods sold = opening stock + incremental expenses (for manufacturing a product) +
purchase of raw materials – closing stock.

Net profit margin ratio:

The ratio is the percentage of sales revenue left after subtracting tha cost of goods
sold and all expenses, except income taxes. It provides a good opportunity to compare your
company’s return on sales’ with the performance of other companies in your industry. It is
calculated before income tax because tax rates and tax liabilities vary from company to
company for a wide variety of reasons making comparisons after taxes much more difficult.

NET PROFIT
NETPROFIT MARGIN RATIO=
NETSALES

NP ratio is used to measure the overall profitability and hence it is very useful to
proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be
able to achieve a satisfactory return on its investment.

This ratio also indicates the firm's capacity to face adverse economic conditions such
as price competition, low demand, etc. Obviously, higher the ratio the better is the
profitability. But while interpreting the ratio it should be kept in mind that the performance of
profits also be seen in relation to investments or capital of the firm and not only in relation to
sales.

OPERATING PROFIT RATIO:

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales.
It is generally expressed in percentage.
OPERATING PROFIT
OPERATING RATIO=
NETSALES

The two basic components for the calculation of operating ratio are operating cost
(cost of goods sold plus operating expenses) and net sales. Operating expenses normally
include (a) administrative and office expenses and (b) selling and distribution expenses.

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Financial charges such as interest, provision for taxation etc. are generally excluded from
operating expenses.
Operating ratio shows the operational efficiency of the business. Lower operating
ratio shows higher operating profit and vice versa. An operating ratio ranging between 75%
and 80% is generally considered as standard for manufacturing concerns. This ratio is
considered to be a yardstick of operating efficiency but it should be used cautiously because
it may be affected by a number of uncontrollable factors beyond the control of the firm.
Moreover, in some firms, non-operating expenses from a substantial part of the total expenses
and in such cases operating ratio may give misleading results.
Earning profit per share :

Earnings per share ratio (EPS Ratio) is a small variation of return on equity capital
ratio and is calculated by dividing the net profit after taxes and preference dividend by the
total number of equity shares.

NP / PAT / EAT
EARNING PER SHARE=
NUMBER OF EQUITY OUT STANDING

The earnings per share is a good measure of profitability and when compared with
EPS of similar companies, it gives a view of the comparative earnings or earnings power of
the firm. EPS ratio calculated for a number of years indicates whether or not the earning
power of the company has increased.
P/E ratio:

MARKET PRICE OF SHARE

PRICE EARNING PER RATIO=
EARNINGS PER SHARE

Return on assets:
Indicator of how profitable a company is relative to its total assets. ROA gives an
idea as to how efficient management is at using its assets to generate earnings. Calculated by
dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
Sometimes this is referred to as "return on investment".

PROFIT
RETURN ON ASSETS=
TOTAL ASSETS

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Return of capital employee:

The prime objective of making investments in any business is to obtain satisfactory
return on capital invested. Hence, the return on capital employed is used as a measure of
success of a business in realizing  this objective. Return on capital employed establishes the
relationship between the profit and the capital employed. It indicates the percentage of return
on capital employed in the business and it can be used to show the overall profitability and
efficiency of the business.

ADJUSTED NET PROFITS

RETURN ON CAPITAL EMPLOYED= X100
CAPITAL EMPLOYED

Return on capital employed ratio:

Return on capital employed is considered to be the best measure of profitability in
order to assess the overall performance of the business. It indicates how well the management
has used the investment made by owners and creditors into the business. It is commonly used
as a basis for various managerial decisions. As the primary objective of business is to earn
profit, higher the return on capital employed, the more efficient the firm is in using its funds.
The ratio can be found for a number of years so as to find a trend as to whether the
profitability of the company is improving or otherwise.

EBIT
RETURN ON CAPITAL EMPLOYED=
  TOTAL CAPITAL EMPLOYED

LEVARAGE RATIO:

Equity ratio/proprietary ratio/networth ratio/share holder fund ratio.

This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio
indicates the long-term or future solvency position of the business.
Shareholder's funds include equity share capital plus all reserves and surpluses items. Total
assets include all assets, including Goodwill. Some authors exclude goodwill from total
assets. In that case the total shareholder's funds are to be divided by total tangible assets. As
the total assets are always equal to total liabilities., the total liabilities, may also be used as
the denominator in the above formula.
EQUITY
EQUITY RATIO=
TOTAL ASSETS
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Equity = ESC + PSC + Reserves + Share premium + P&L Account + Depreciation fund –
Ficticious assets.
This ratio throws light on the general financial strength of the company. It is also
regarded as a test of the soundness of the capital structure. Higher the ratio or the share of
shareholders in the total capital of the company, better is the long-term solvency position of
the company. A low proprietary ratio will include greater risk to the creditors.

DEBT EQUITY RATIO:

Debt-to-Equity ratio indicates the relationship between the external equities or
outsiders funds and the internal equities or shareholders funds.

DEBT
D EBT EQUITY RATIO=
EQUITY

The two basic components of debt to equity ratio are outsiders funds i.e. external
equities and share holders funds, i.e., internal equities. The outsiders funds include all debts /
liabilities to outsiders, whether long term or short term or whether in the form of debentures,
bonds, mortgages or bills. The shareholders funds consist of equity share capital, preference
share capital, capital reserves, revenue reserves, and reserves representing accumulated
profits and surpluses like reserves for contingencies, sinking funds, etc. The accumulated
losses and deferred expenses, if any, should be deducted from the total to find out
shareholder's funds

Some writers are of the view that current liabilities do not reflect long term
commitments and they should be excluded from outsider's funds. There are some other
writers who suggest that current liabilities should also be included in the outsider's funds to
calculate debt equity ratio for the reason that like long term borrowings, current liabilities
also represents firm's obligations to outsiders and they are an important determinant of risk.
However, we advise that to calculate debt equity ratio current liabilities should be included in
outsider's funds. The ratio calculated on the basis outsider's funds excluding liabilities may be
termed as ratio of long-term debt to share holders funds.

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Debt to equity ratio indicates the proportionate claims of owners and the outsiders
against the firms assets. The purpose is to get an idea of the cushion available to outsiders on
the liquidation of the firm. However, the interpretation of the ratio depends upon the financial
and business policy of the company. The owners want to do the business with maximum of
outsider's funds in order to take lesser risk of their investment and to increase their earnings
(per share) by paying a lower fixed rate of interest to outsiders. The outsiders creditors) on
the other hand, want that shareholders (owners) should invest and risk their share of
proportionate investments. A ratio of 1:1 is usually considered to be satisfactory ratio
although there cannot be rule of thumb or standard norm for all types of businesses.
Theoretically if the owners interests are greater than that of creditors, the financial position is
highly solvent. In analysis of the long-term financial position it enjoys the same importance
as the current ratio in the analysis of the short-term financial position.

FIXED ASSETS TO PROPRIETORS FUND:

Fixed assets to proprietor's fund ratio establishes the relationship between fixed assets
and shareholders funds. The purpose of this ratio is to indicate the percentage of the owner's
funds invested in fixed assets.

¿ ASSETS
¿ ASSETS ¿ PROPRIETORS FUND =
PROPRIETORY FUND

The fixed assets are considered at their book value and the proprietor's funds consist
of the same items as internal equities in the case of debt equity ratio.
The ratio of fixed assets to net worth indicates the extent to which shareholder's funds
are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by
shareholder's equity including reserves, surpluses and retained earnings. If the ratio is less
than 100%, it implies that owners funds are more than fixed assets and a part of the working
capital is provide by the shareholders. When the ratio is more than the 100%, it implies that
owners funds are not sufficient to finance the fixed assets and the firm has to depend upon
outsiders to finance the fixed assets. There is no rule of thumb to interpret this ratio by 60 to
65 percent is considered to be a satisfactory ratio in case of industrial undertakings.

INTREST COVERAGE RATIO / DEBT SEVECING RATIO:

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Interest coverage ratio is also known as debt service ratio or debt service coverage
ratio. This ratio relates the fixed interest charges to the income earned by the business. It
indicates whether the business has earned sufficient profits to pay periodically the interest
charges. It is calculated by using the following formula.

PBIT
INTREST COVERAGE RATIO=
INTREST CHARGES

The interest coverage ratio is very important from the lender's point of view. It
indicates the number of times interest is covered by the profits available to pay interest
charges.

It is an index of the financial strength of an enterprise. A high debt service ratio or

interest coverage ratio assures the lenders a regular and periodical interest income. But the
weakness of the ratio may create some problems to the financial manager in raising funds
from debt sources.

CURRENT ASSETS TO PROPRIETORS FUND RATIO:

Current Assets to Proprietors' Fund Ratio establishes the relationship between current
assets and shareholder's funds. The purpose of this ratio is to calculate the percentage of
shareholders funds invested in current assets.

CURRENT ASSETS
CURRENT ASSETS ¿ PROPRIETORY FUND RATIO=
NETWORTH

Different industries have different norms and therefore, this ratio should be studied
carefully taking the history of industrial concern into consideration before relying too much
on
SOLVENCY RATIO:

total outsiders liabilities

solvency ratio=
total assets

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 FINANCIAL RATIO ANALYSIS

Total outsiders liabilities = long term debt + current liabilities.

ACITIVITY RATIOS:
CREDITORS TURNOVER RATIO:
This ratio is similar to the debtors turnover ratio. It compares creditors with the total
credit purchases. It signifies the credit period enjoyed by the firm in paying creditors.
Accounts payable include both sundry creditors and bills payable. Same as debtors turnover
ratio, creditors turnover ratio can be calculated in two forms, creditors turnover ratio and
average payment period.

CREDIT PURCHASES
CREDITORS TURNOVER RATIO=
AVERAGE NET PAYABLES

A high creditors turnover ratio or a lower credit period ratio signifies that the creditors
are being paid promptly. This situation enhances the credit worthiness of the company.
INVENTORY TURNOVER RATIO:
Stock turnover ratio and inventory turnover ratio are the same. This ratio is a
relationship between the cost of goods sold during a particular period of time and the cost of
average inventory during a particular period. It is expressed in number of times. Stock turn
over ratio / Inventory turnover ratio indicates the number of time the stock has been turned
over during the period and evaluates the efficiency with which a firm is able to manage its
inventory. This ratio indicates whether investment in stock is within proper limit or not.

TURN COST OF GOODS SOLD

INVENTORY =
RATIO AVERAGE INVENTORY

Inventory turnover ratio measures the velocity of conversion of stock into sales.
Usually a high inventory turnover/stock velocity indicates efficient management of inventory
because more frequently the stocks are sold, the lesser amount of money is required to
finance the inventory. A low inventory turnover ratio indicates an inefficient management of
inventory. A low inventory turnover implies over-investment in inventories, dull business,
poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods

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 FINANCIAL RATIO ANALYSIS

and low profits as compared to total investment. The inventory turnover ratio is also an index
of profitability, where a high ratio signifies more profit, a low ratio signifies low profit.
Sometimes, a high inventory turnover ratio may not be accompanied by relatively a high
profits. Similarly a high turnover ratio may be due to under-investment in inventories.
It may also be mentioned here that there are no rule of thumb or standard for
interpreting the inventory turnover ratio. The norms may be different for different firms
depending upon the nature of industry and business conditions. However the study of the
comparative or trend analysis of inventory turnover is still useful for financial analysis.

DEBTORS TURNOVER RATIO/ ACCOUNTS RECEIVABLES RATIO:

Debtors turnover ratio or accounts receivable turnover ratio  indicates the velocity of
debt collection of a firm. In simple words it indicates the number of times average debtors
(receivable) are turned over during a year.

NET CREDIT SALES

DEBTORS TURNOVER RATIO=
AVERAGE NET RECEIVABLES

Accounts receivable turnover ratio or debtors turnover ratio indicates the number of
times the debtors are turned over a year. The higher the value of debtors turnover the more
efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors
turnover ratio implies inefficient management of debtors or less liquid debtors. It is the
reliable measure of the time of cash flow from credit sales. There is no rule of thumb which
may be used as a norm to interpret the ratio as it may be different from firm to firm.

FIXED ASSET TURNOVER RATIO:

The fixed asset turnover ratio measures the company's effectiveness in generating
sales from its investments in plant, property, and equipment. It is especially important for a
manufacturing firm that uses a lot of plant and equipment in its operations to calculate its
fixed asset turnover ratio.

SALES TURNOVER
¿ ASSET TURNOVER RATIO=
¿ ASSETS

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 FINANCIAL RATIO ANALYSIS

If the fixed asset turnover ratio is low as compared to the industry or past years of
data for the firm, it means that sales are low or the investment in plant and equipment is too
much.
:

WORKINH CAPITAL TURNOVER RATIO:

This ratio represents the number of times the working capital is turned over in the
course of year.

COST OF SALES
WORKING CAPITALTURNOVER RATIO=
NETWORKINGCAPITAL

WORKING CAPITAL = CURRENT ASSETS –CURRENT LIABILITIES

The working capital turnover ratio measure the efficiency with which the working
capital is being used by a firm. A high ratio indicates efficient utilization of working capital
and a low ratio indicates otherwise. But a very high working capital turnover ratio may also
mean lack of sufficient working capital which is not a good situation.

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 FINANCIAL RATIO ANALYSIS

PRIYADARSHINI
SPINNING

GURUNANAK BUSINESS SCHOOL

MILLS
Page 26
 FINANCIAL RATIO ANALYSIS

PRIYADARSHINI SPINNING MILLS

Since two and half decades, priyadarshini spinning mills is producing world class
yarn with the focus on product quality and commitment to extraordinary customer service.
Today priyadarshini spinning mills is one of the leading producers of spun yarns in
india. The company has perfected spinning processes by applying latest automated
technology and innovation in every phase of yarn manufacturing process.
Established in 1981 with a capuital investment of Rs.800 lakhs, today priyadarshni
spinning mills is a listed company and has a turnover of nearly Rs. 200 crores. With over
82000 spindles in two manufacturing units. The company is now diversifying into garment
manufacturing ,by setting up a world class shirt manufacturing unit. This plant will start
commercial production in early 2007. We also have yarn dyeing unit for cotton yarn dyeing
with 10 tons per day capacity.
Priyadarshini spinning mills not only provides a safe fulfilling, and rewarding work
environment for employees but also economic and environmental projects.

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FOUNDERS OF PRIYADARSHINI:
The board of directors of the priyadarshini have a major role in success of the
company.the board of directors of the priyadarshini are.
Mr. Harish Cherukuri, Managing Director, Priyadarshini Spinning Mills Ltd. is
a Post Graduate in Business Administration (with specialization in Marketing) from Illinois
Institute of Technology Chicago, USA. He also has a Bachelors degree in Commerce from
the Indian Institute of Management and Commerce. He is a promoter director of the
company. Mr. Cherukuri is in charge of new projects, purchase development, business
development, labour and customer relations. He is also involved in strategy planning for the
organization. He has held a number of key leadership positions in Priyadarshini Spinning
Mills Ltd.
MR.SRINIVAS KODALI:
Executive director is a graduate in engineering from university of Michigan and
graduate in management, specialisation in finance form newyork university. He worked as
project engineer in usa and gained varied industrial experience in various capabilities and has
more than 15 years of experience. He joined the company as president in the year 2002. He
looks after finance and plan maintenance.
MR.B.SIVA REDDY.
Director(Technical)is a diploma holder in textile technology. He has over 40 year of
experience in production side and worked in variouscompanies as unit in charge. He joined
the company in the tear 1982 as production manager. Presently being director(technical)of
the company, he is in charge of unit-1 sadashivpet, medak district,Andhra Pradesh.
MR.A.K.TYAGI.
Dierctor(commercial) completed his B.Sc(Hons).in 1974 and MBA in 1977 from
Aligarh muslim university and he is graduate in law from agra university he has 25 years
experience in marketing and worked in various companies as senour executive in marketing.
He joined the company in 1987 as general manger(marketing).presently being

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 FINANCIAL RATIO ANALYSIS

director(commercial) of the company,he is in charge of the Mumbai marketing office and

looks after export marketing for the company.

INFRASTRUCTURE:
In this infrastructure segment priyadarshini has two units located in different palces
unit one is in sadashiv pet medak district,and unit-2 is located in didavarapaddu, prakasam
district.
UNIT-1:
Unit-1 is located in sadashivpet, medak district.this complex houses the spinning mill
andyarn dyeing unit. The spinning mills has 51000 spindles producing a variety of synthetic
blended spun yarn. For details on the variety of yarn, while the palnt was started in 1983, it
has bee continuously modernized to meet the stringent quality demands of consumers. unit
was equipped with advanced machinery setup. this facility also houses the 13 ton/day cotton
yarn dyeing unit. this state of the art plant was setup in 2006.
Unit-2:
Unit-2 was located in dodavarapaddu, prakasam district. This facility having 31000 spindles
producers 100% cotton yarn.in this plant only cotton spindles were produced.
Priyadarshini was also started in shirt manufacturing,it started apparelone which is located in
pashmylaram, medak district. this is a 250 machine woven shirt manufacturing facility.

PRODUCTS FROM PRIYADARSHINI.

The major product from priyadarshini is yarn,gray yarn.

Yarn the company specializes in a variety of cotton and synthetic yarns and provides
several options according to customer requirements. priayadarshini has a expanded their
capacity to meet growing demands. The best equipment and high levels of automation
ensures quality yarn.

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 FINANCIAL RATIO ANALYSIS

MANUFACTURING PROCESS OF YARN,:

STEP1: To manufacture yarn they use viscous and polyster as raw material in 35% and 65%
ratio. In this stage blending is takes palce in blending they mixup these two material into one
single core. This stage is termed as mixing stage.
STEP.2: In this step the blended raw material is cleaned and made it in sheet form. this stage
is called blowroom.
Chording: in this stage through cleaning is done i.e fibre to fibre the output in this stage is
silver form.
DRAWING: In this stage again the we reform the fiber which is in silver form this stage the
output is parallelized silver form.
SIMPLEX: In this stage the yarn will be made thinner by roving .
SPINNING: here yarn will come.
WINDING: here removing defects and finally the product will be dumped into the market.

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 FINANCIAL RATIO ANALYSIS

ACHIEVEMENTS:
 Priyadarshini sold their products in international markets also mostly 80% of the their
product in domestic market only.
 Priyadarshini is an iso 9001 certified company.
 They also oeko-tex 100 certification for 100% cotton yarn.
 Priyadarshini is in the process of obtaining oeko-tex 100 certification for yarn dyeing
unit also.

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 FINANCIAL RATIO ANALYSIS

.
 Hyderabad based and listed on the BSE, Priyadarshini Spinning Mills Ltd., one of
India’s leading producers of Polyester/Viscose blended yarn manufacturing from
counts of 20s to 76s.
 Commenting on the results, Mr. Harish Cherukuri, Managing Director of
Priyadarshini Spinning Mills Ltd. said, “The company has achieved satisfactory
results in the current quarter and is looking to modernize its manufacturing units to
improve its quality, productivity and profitability further”.

 Incorporated in 1981, with the capital investment of Rs 800 lakhs, today Priyadarshini
Spinning Mills is a listed company and has a turnover of nearly Rs 200 crores. The
company’s primary manufacturing activity consists of yarn manufacturing and yarn
dyeing. The company has a capacity of 82,000 spindles and manufactures 35 tons of
yarn every day. This capacity is spread over two yarn manufacturing facilities.
 Priyadarshini manufactures 100% cotton and synthetic blends in various qualities.
With a capacity of 10 tons/day cotton yarn dyeing, it produces 100% cotton, 100%
cotton mercerized, 100% Polyester and 100% Viscose in batch sizes ranging from
20kgs to 1 ton. It also exports to countries in Europe, Middle East, Turkey and Russia
among others.

 Priyadarshini’s Net Revenue has increased by 23% compared with the last quarter of
current financial year, from Rs 53.14 Crores for the quarter ended June 30, 2010 to Rs
65.17 Crores for the quarter ended September 30, 2010.
Turning out an impressive show for the quarter ended 30th September, 2010 the
Company has reported a PAT of Rs. 5.60 Cores on a turnover of Rs 118.31 Crores
showing an EPS of Rs.5.06 for the 1st half.

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 FINANCIAL RATIO ANALYSIS

 The turnover has gone up by 38% whereas the EBIDTA has gone up by 46% from
Rs.3.98 Crores to 5.80 Crores compared to corresponding quarter in the previous year.
The EPS at Rs.2.79 for the quarter is up from Rs. (1.21) from the same quarter in the
last year. The results from the segments viz., Spinning & yarn dying have shown
significant rise and the Company expects to do better in the future.

CSR ACTIVITES:

Priyadarshini spinning mills is concerned for the welfare and upliftment of te socially
backward classes.priyadarshini has constructured several classrooms and bus shelters in near
by villages during the summer, our company water tankers, supply drinking water ti nearby
villages, until water availability improves. Piyadarshini donated 15 acres of land to run a
school for under privileged children in the surrounding villages.

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 FINANCIAL RATIO ANALYSIS

RATIO ANALSIS FOR PSM:

LIQUIDITY RATIO:
CURRENT RATIO:

FORMULE:

CURRENT ASSETS
CURRENT RATIO=
CURRENT LIABILITIES

From the Balance sheet information,

 Year 2008 Total current assets 82.78

Total current liabilities 56.09.

82.78
Current ratio = 56.09

Obtained current ratio: 1.55.

 Year 2009 Total current assets 67.36

Total current liabilities 47.10

67.36
Current ratio = 47.10

Obtained current ratio is 1.43.

 Year 2010 Total current assets 80.52

Total current liabilities 48.88

80.52
Current ratio = 48.88

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 FINANCIAL RATIO ANALYSIS

Obtained current ratio is 1.65.

Analysis:

QUICK RATIO:
QUICK RATIO is also called as acid test ratio, which is use full to answer the
question is all sales revenue disappear, could may business meet its current oligations with
the readily convertable quick funds on hand?. satisfactory ratio is 1:1 .

Formule:

QUICK CURRENT ASSETS

QUICK RATIO=
CURRENT LIABILITIES

QUICK CURRENT ASSETS = CASH +GOVERNMENT SECURITES+RECEIVABLES.

 The given information in balance sheet year 2008 is as below.

Quick current assets figure as 39.95 Cr.

And total current liabilities is 53.91 Cr.

39.95
Quick Ratio =
53.91

Obtained quick ratio is 0.741

 For the year 2009 is

Quick assets 34.51 Cr.
And Total current liabilities is 47.04 Cr.

34.51
quick ratio=
47.04

Obtained quick ratio is 0.78 Cr.

 For the year 2010 is,

Quick assets 41.18 Cr.

Total current liabilities is 48.88 Cr.

41.18
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QUICK RATIO=
48.82
 FINANCIAL RATIO ANALYSIS

Obtained quick ratio is 0.84 Cr.

ANALYSIS:

By analysing all three years quick ratio’s of three consecutive years

2008,2009,2010. When the sales revenue is disappear the

CAPITAL STRUCTURED RATIO:

DEBT EQUITY RATIO:

Formule:

DEBT
DEBT EQUITY RATIO=
EQUITY

DEBT= long term loan.

EQUITY= Equity Share Capital + Preference Share Capital + Reserves And Surplus

From the balance sheet,

Year 2008 total debt 125.71 Cr

Equity 37.17

125.71
Debt Equity ratio =
37.17

Obtained debt equity ratio is 3.39.

Year 2009 Total debt 115.61

Equity 35.32

115.61
Debt equity ratio = 35.32

Obtained debt equity ratio is 3.27.

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 FINANCIAL RATIO ANALYSIS

Year 2010 Total debt 118.02

Equity 35.33.

118.02
Debt equity ratio = 35.33

Obtained debt equity ratio is 3.34.

ANALYSIS:

INTREST COVERAGE RATIO:

FORMULE:

EBIT / PBIT
INTREST COVERAGE RATIO=
INTREST

The information given in the balance sheet is,

For the year 2008,

PBDIT 13.56

PBIT = PBDIT-DEPRICIATION

PBIT =5.69.

INTREST 10.06

5.69
INTREST COVERAGE RATIO =
10.06
.

OBTAINED INTREST COVERAGE RATIO IS 0.57.

For the year 2009,

PBDIT 12.91

PBIT 4.43

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INTREST 12.55

4.43
Intrest coverage ratio =
12.55

Obtained intrest ratio =0.35

For the year 2010,

PBDIT 14.08

PBIT 5.62

Intrest 13.45

5.62
Intrest coverage ratio =
13.45

Obtained intrest ratio is 0.42.

PROFITABILITY RATIO:

FORMULE:

OPERATING PROFIT
OPETARING PROFIT RATIO= X 100
NET SALES

The information from balance sheet is,

 For the year 2008,

Operating profit 12.60

Net sales 195.54.

12.60
Operating profit= 195.54
x 100

Obtained operating profit is 6.44

 For the year 2009

Operating profit 10.19.

Net sales 180.70.

10.19
Operating profit ratio =
180.70
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 FINANCIAL RATIO ANALYSIS

Obtained operating profit is 5.64

 For the year 2010,

Operating profit 13.87

Net sales 192.43.

13.87
OPERATING PROFIT RATIO =
192.43

Obtained operating profit is 7.20

Analysis:

GROSS PROFIT RATIO:

FORMULE:

GROSS PROFIT
Gross profit ratio = NET SALES X 100

 For the year 2008

Gross profit 4.71

Net sales 195.54.

4.71
OPEARTING PROFIT RATIO = 195.54

Obtained gross profit margin IS 2.41.

 For the year 2009

Gross profit 1.716

Net sales 180.70

1.716
Gross profit ratio = 180.70 x100
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 FINANCIAL RATIO ANALYSIS

Obtained gross profit ratio is 0.95.

 For the year 2010,

Gross profit 5.38

Net sales 192.43.

5.38
Gross profit ratio = 192.43
X 100

Obtained gross profit ratio is 2.80.

NET PROFIT:

Formule:

NET PROFIT
NET PROFIT MARGIN = X 100
NET SALES

 For the year 2008,

Net profit -2.35

Net sales 195.54.

−2.35
NET PROFIT MARGIN = 195.54 X100

Obtained net profit is -1.202

 For the year 2009,

Net profit -2.84,

Net sales 180.70.

−2.84
Net profit margin = 180.70
X 100

Obtained net profit IS -1.55

 For the year 2010,

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 FINANCIAL RATIO ANALYSIS

NET PROFIT 0.01,

NET SALES 192.43

0.01
NET PROFIT RATIO = 192.43
X 100

Obtained net profit is 0.005.

EARNINGS PER SHARE:

FORMULE:

(NETPROFIT AFTER TAX −PREFERANCE DIVIDEND )

EARNINGS PERS SHARE =
NO .0 F EQUITY SHARES

The information given in the balance sheet is ,

 For the year 2008,

Net profit after tax -2.35

Number of equity shares 1.05

−2.35
Earnings per share =
1.05

Obtained earnings per share is -2.23.

 For the year 2009,

Net profit after tax -2.84

Number of equity shares 1.10

−2.84
Earnings per share =
1.10

Obtained earnings per share -2.58

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 FINANCIAL RATIO ANALYSIS

 For the year 2010,

Net profit after tax 0.01

Number of equity shares 1.10

0.01
Earnings per shares =
1.10

Obtained earnings per share is 0.009.

ACITIVITY RATIO:

fixed asset to turnover ratio:

Formule:

TURNOVER
FIXED ASSET TURNOVER RATIO =
¿ ASSET

 For the year 2008,

Turnover 195.54

Fixed asset 198.64

195.54
Fixed asset turnover ratio =
198.64

Obtained ratio is 0.98 .

 For the year 2009 ,
Turnover 180.70

Fixed asset 201.90

180.70
Fixed asset turnover ratio =
201.90

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 FINANCIAL RATIO ANALYSIS

Obtained ratio is 0.90

 For the year 2010,

Turnover 192.43

Fixed asset 202.71

192.43
Fixed asset turnover ratio=
202.71

obtained fixed asset turnover ratio is 0.95.

ANALYSIS:

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