Ratio ANALYSIS

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CHAPTER-I
INTRODUCTION

The term “Financial Analysis” also known as analysis and interpretation of
‘Financial Statements’ refers to the process of determining financial strengths and
weaknesses of the firm by establishing strategic relation ship between the items of
balance sheet, Profit and loss account and other operative data.
According to Myers “Financial Statements Analysis is largely a study of relationship
among the various financial factors in a business as disclosed by a single set of the trend
of these factors as shown in a series of statements”.
The purpose of financial analysis is to diagnose the information contained in financial
statements so as to judge the profitability and financial soundness of the firm
Financial Statements, as used incorporate business, refers to a set of reports and
schedules, which an accountant prepares at the period at the period of time for a business
enterprise. The financial statements are the means with the help of which the accounting
system perform its main function affairs of the business. These comprise balance sheet
and profit and loss account. In India, even, company has to present its financial
statements in the form and contents as prescribed under section 21 of the companies Act
1956.
According to Kennedy and Muller,” The analysis and interpretations of financial
statements reveal each and every aspect regarding the well-being financial soundness,
operational efficiency and creditworthiness of the concerned”

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NATURE OF FINANCIAL STATEMENTS:
FINANCIAL

STATEMENTS ARE PREPARED FOR THE PURPOSE OF PRESENTING

PERIODICAL REVIEW OR REPORT ON THE PROGRESS BY THE MANAGEMENT AND DEAL
WITH THE

 STATUS OF THE INVESTMENT IN THE BUSINESS.
 RESULT ACHIEVED DURING THE PERIOD UNDER REVIEW.
THE

DATA EXHIBITED IN THESE FINANCIAL STATEMENTS ARE THE RESULT OF THE

COMBINED EFFECT OF

 RECORDED FACTS
 ACCOUNTING CONVENTIONS
 POSTULATES OR ASSUMPTIONS MADE TO IMPLEMENT CONVENTIONS AND
POSTULATES

 PERSONAL JUDGMENTS USED IN THE APPLICATIONS OF CONVENTIONS AND
POSTULATES.
 ACCOUNTING STANDARDS AND GUIDANCE NOTES.

Importance of Financial Analysis:
I. Financial analysis seeks to sport light the significant facts and relationship
concerning managerial performance, corporate efficiency, financial strength and
weakness and credit worthiness of the company.
II. The tools of analysis are used to study accounting data so as to determine the
continuity of operating policy, investment value of the business, credit rating and
testing the efficiency of operations.
III. The tools of analysis are immensely helpful to the financial manager in carrying
out his planning and controlling functions.
IV. The techniques of financial analysis can serve as handmaid to the management in
determining the effect of its decisions.

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V. The techniques are useful in the sphere of financial control as much as they enable
the financial manager to make constant reviews of actual financial operations of
the firms as a whole.
VI. By analyzing and interpreting financial statements, the top management can
measure the success or otherwise of a company’s operations determine the
efficiency of various departments, processes and products appraise the individual
performance and evaluate the system of internal control.
VII. The Creditors can find out the financial strength and capacity of a borrower, the
value of a floating share on the asset held as priority and the value of unquoted
shares. The shareholders or investors are enabled to evaluate the efficiency of
management and determine if there is need for change.

Types of Financial Analysis:


We can classify various types of financial analysis in to different categories
depending upon

(I) The material used and
(II) The method of operation followed in the analysis or the modus operandi of analysis.

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On the basis of Material Used:
ACCESS

TO MATERIAL USED, FINANCIAL ANALYSIS CAN BE OF TWO TYPES

EXTERNAL ANALYSIS AND INTERNAL ANALYSIS.
ON

THE BASIS OF MATERIAL USED INTERNAL AND

THE BASIS OF

i.

EXTERNAL ANALYSIS

AND ON

MODUS OPERAND VERTICAL AND HORIZONTAL ANALYSIS

External Analysis:

The analysis done by outsiders who do not have access to the detailed internal accounting
records of the business firm. These include investors, creditors, government agencies,
credit agencies and the general public.

ii. Internal Analysis:
The analysis done by outsiders who have access to the internal accounting records a
business firm is known as internal analysis. Such an analysis can therefore, be performed
by executives and employees of the organization as well as government agencies which
have statutory power vested in them.

On the basis of Modus Operand:
According to the method of operation followed in the analysis, financial
analysis can also be of two types (a) Horizontal analysis (b) Vertical analysis.

(a) Horizontal Analysis:
Horizontal analysis refers to the comparison of financial data of a company for
several years. The figures for this type of analysis are presented horizontally over a
number of columns. The figures of the various years are compared with standard or base
year.

(b) VERTICAL Analysis:
Vertical analysis refers to the study of relationship of the various items in the
financial statements of one accounting period in this type of analysis the figures from
financial statements of a year are compared with a base selected from the same year
statements.

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Procedure of Financial Statements Analysis:
There are three steps involved in the analysis of financial statements. They
are (i) Selection (ii) Clarification (iii) Interpretation. The first step involves selection of
information (data) relevant to the purpose of analysis of financial statements. The second
step involved is the methodical clarification of the data and the third step includes
drawing of inferences and conclusion.

Methods or Devices of Financial Analysis:
The analysis and interpretation of financial statements is used to determine the
financial position and results of operations as well. A number of methods or devices are
used to study the relationship between different statements. The following are the
methods of analysis are generally used.

(a) COMPARITIVE FINANCIAL STATEMENTS:


Comparative Financial statement of the financial position at different periods of
time. The elements of financial position are shown in a comparative form so as to
give as idea of financial position at two periods. Any statements prepared in a
comparative form will be covered in comparative statements (Balance sheet or
income statements) are prepared in comparative form for financial analysis purpose.



The comparative statements may show
 Absolute figures(Rupee amounts)
 Change in absolute figures i.e., increase or decrease in absolute figures.

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 Absolute data in terms of percentages. Increase or decrease in terms of
percentages.
The financial data will be comparative only when some accounting principles are used in
preparing these statements. In case of any deviation in the use of accounting principles
this fact must be mentioned at the foot of financial statements and the analyst should be
careful in using these statements. The comparative statements are
(i)

Balance sheet and

(ii)

Income statements.

(b) Trend Analysis:
The financial statements may be analyzed by computing trends of series of
information. This method determines the direction upward and downwards and involves
the computing of the percentages relationship that each statement item bears to the same
item in base year. The information for a number of years is taken up and one year,
generally the first year is taken up as a base year. The figures of the base year are taken as
100 and the trend ratios for other years are calculated on the basis of base year. The
analyst is able to see the trend of figures, whether upward or downward.

Procedure for Calculating Trend:
 One year is taken as a base year. Generally, the first or the last year is taken as
base year.
 The figures of base year are taken as 100
 Trend percentages are calculated in relation to base year. If a figure in other is less
than the figure in base year the trend percentage will be less than 100 and it will
be more than 100 if figure is more than the base year figure. Each year’s figure is
divided by the base years.

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(c)Funds Flow Statements:
Funds analysis can be categorized in to two types:
(I)

Funds flow statements

(II)

Cash flow statements.

Funds flow statements:
The funds flow statement is a statement which shows the movement of
funds and is a report of the financial operations of the business undertaking. It indicates
various means by which funds were obtained during a particular period and the ways to
which these funds were employed. In simple words, it is a statement of sources and
application of funds.

Meaning and concept of Funds:
a) In narrow sense it means cash only and a funds flow statement prepared on this
basis is called cash flow statement.
b) In broader sense the term funds refers to money values in whatever form it may
exist.
c) In popular sense the term ‘funds’ means working capital.

Flow of Funds:
The term flow means movement an includes both ‘inflow’ and ‘outflow’. The term
‘flow of funds’ means transfer of economic values from one asset of equity to another.
The flow of funds occur when a transaction changes on the one hand a non current
account and on the other a current account and vice-versa.

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(d) Ratio analysis:
The ratio analysis is the most powerful tool of financial analysis. According to
accountant’s hand book by Wixon, kell and Bedford a ratio is an “expression of
quantitative relation ship between two numbers”. In simple terms ratio is one number
expressed in terms of another and can be worked out by dividing one number to the other.
Ratio analysis is one of the techniques of financial analysis where ratios are used a
yardstick for evaluation the financial conditions and performance of a firm. Ratios are
relationships expressed in mathematical terms between figures, which are connected with
each other in some manner
According to Pro. Spring field, Prof. Mass & Prof. Merrium, a Ratio is defined as
“The indicated Quotient of two Mathematical expressions” and as the relation ship
between two or more things.”

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Nature of Ratio Analysis:
The absolute accounting figures reported in the financial statements do not
provide a meaningful understanding of the performance of a firm.
A financial analyst analyses the financial statements with various tools of analysis
before commenting upon the financial health or weakness of an enterprise. Its help with
the ratios, the financial statements can be analyzed more clearly and decisions are drawn
from such analysis, such is the nature of financial ratios.

Importance of Ratio Analysis:
Basically, ratio analysis is useful to some extent and in same way, for financial
analysis a statistics is useful in the study of the numerical aspects of a problem. It
simplifies, summarizes and systemizes a long away of accounting figure. Its main
contribution lies in bringing into bold relief the interrelationship which exits between
various segments of business, as expressed through accounting statements and in
avoiding any distortions that may result from an absolute study of accounting
information.
It is an instrument for diagnosis of the financial health of an enterprise. This is
done by evaluating in a broader context, the important aspects of the conduct of business
like liquidity, solvency, profitability, capitals gearing etc. Such an evaluation enables to
draw conclusions regarding the financial requirements and the capabilities of business
units, which cannot be easily derived form the usual tender of financial statements.
Further, the ratio analysis can be invaluable aid to management in discharge of its
basic functions like forecasting, planning, co-ordination, communication and control. By
an analytical study of the past performance of the business, it helps in prediction and
projecting the future, it assists in communication by conveying information which
pertinent and purposeful, to those for whom it is meant, it promotes co-ordination by a
study of the efficiency of the business, it paves the way for effective control of business

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operations by undertaking an appraisal of both the physical and monetary targets. Hence,
ratio analysis becomes an integral part of the budgetary control system.
As important point in connection with use of the ratios is that, in numerous
situations, a few ratios portray a certain aspect of the conduct of business.

Role of Ratio Analysis:
Ratio analysis of business enterprises focuses on efforts to derive quantitative
measures or guides concerning the expected capacity of the firm or to meet its future
financial obligations or expectations. Present and past data are used for this purpose and
whatever extrapolations appear they are made to provide an indication of future
performance.
The presentation of an elaborate system of ratio analysis was made in 1919 by
Alexander wall. Who criticized the bankers for its lopsided
Development owing to their decisions regarding to the grant of credit on current
ratios alone. Wall, one of the foremost proponents of ratio analysis, pointed out that in
order to get a complete picture, it is necessary to consider relationship in financial
statements other than that of current assets to current liabilities relationship that might be
measured qualitatively and are used as checks on current ratio. Since then,
comprehensive analysis by means of calculations of a series rapidly becomes “all the
range”.

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STEPS IN RATIO ANALYSIS:
i. The first task of the financial analyst to select the information relevant to the
decision under consideration from the statements and calculating appropriate ratios.
ii. The second step is to compare the calculated ratios with the ratios of the same firm
relating to the past or with the industry ratios. This step facilitates in assessing
success or failure of the firm.
iii. The third step involves interpretation, drawing of inference and report or
recommended course of action.

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USES OF RATIO ANALYSIS:


Simplifies financial statements

 Facilitates inter-firm comparison
 Helps in decision making
 Helps in future financial planning
 Helps in communicating financial strengths & weakness
 Can be used by the management as techniques of correction
 Useful among the areas of appreciation and control
 Helps in efficiency appraisal
 Useful for investors, financial institutes and employees
 Facilitates, intra-firm comparison

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Limitations of Ratio Analysis:

 Comparative study required
 Inadequate information of financial statements
 Ratio alone are not adequate
 Problem of price level changes
 No fixed standards
 Window dressing

CLASSIFICATION OF RATIOS:

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Classification of ratios can be classified in to Traditional & Functional
A. Traditional Classification

B. Functional Classification

1.Profit &Loss Account Ratios

Liquidity Ratios

2. Balance Sheet Ratios

Leverage Ratios

3. Composite Ratios (or)
Inter Statement Ratios

Turn over Ratios
Profitability Ratios
Valuation ratios

A. Traditional Classification:
The traditional classification has been on the basis of the financial statements to
which the determinants of a ratio belong. For the most convenient mode of classification,
the ratios have been grouped in the manner.

1. PROFIT AND LOSS ACCOUNT RATIOS:

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Ratios calculated on the basis of the items of profit and loss accounts are called
profit and loss account ratios, such as profit ratio, net profit ratio, stock turnover ratio,
etc.

2. Balance Sheet Ratios:
Ratios calculated on basis of balance sheet are called balance sheet ratios such as
current ratios, debt-equity ratios, etc.

1. Composite Ratios:
Ratios which are calculated on the basis of figures of profit and loss account as
well as the balance sheet figures are called Composite ratios. These ratios are also known
as “Inter-statement ratios”.
Eg: Fixed asserts turnover ratio, overall profitability ratio, etc

B. FUNCTIONAL CLASSIFICATION:
THE

TRADITIONAL CLASSIFICATION HAS BEEN FOUNDED TO BE TOO CRUDE AND

UNSUITABLE BECAUSE ANALYSIS OF BALANCE SHEET AND INCOME STATEMENT CANNOT
BE DONE IN ISOLATED.

THEY

HAVE TO BE STUDIED TOGETHER IN ORDER TO DETERMINE

THE PROFITABILITY AND SOLVENCY OF THE BUSINESS. IN ORDER TO MAKE THE RATIOS
SERVE AS A TOOL FOR FINANCIAL ANALYSIS, THEY ARE NOW CLASSIFIED ON THE BASIS OF
THEIR FUNCTION OR PURPOSE OR TEST

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Classification of Ratios According to Tests or purpose or function
A. Liquidity ratio

Long term solvency
and leverage ratios

Activity ratios
1.Inventory
Turnover ratio

Profitability ratios

Current Ratio

1. Debt equity ratio

In relation to sales

Liquid Ratio

2. Debt to total capital 2.
Debtors 1. Gross profit ratio
ratio
turnover ratio

Absolute liquid ratio

3. Interest coverage 3.Fixed
assets 2. Operating ratio
ratio
turnover ratio

B.Debtors Turnover 4. Cash flow/debt 4. Total assets 3. Operating profit
ratio
service ratio
turnover ratio
ratio
Creditors
ratio

turnover 5. Capital gearing

5. Working capital 4. Net profit ratio
turnover ratio

Inventory
ratio

turnover

6.
Payables 5. Expenses ratio
turnover ratio
7.
Capital
employed turnover
ratio

II. Liquidity Ratios:
The term liquidity and short-term solvency are used synonymously. The
importance of liquidity in the sense of a firm to meet current/ short-term obligations
when they become due for payment can be hardly stressed. In fact, liquidity is a prerequisite for the very survival of a firm. A proper balance between contradictory
requirements i.e., liquidity and profitability is required for efficient financial
management. In ability to pay short-term liabilities affects the creditability of the
business. A continuous fault on the part of the business to pay-off its liability may even
create hindrance to its day to day operations to measure the liquidity of a firm, the
following ratios are calculated.


Current Ratio



Quick Ratio



Cash Ratio or Super Quick Ratio.

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Leverage Ratios or Capital Structure Ratios:
Capital Structure of a business consists of long term funds, which are not
repayable in short-term. The long term creditors would judge the soundness of a firm on
the basis of the long-term financial strength which is measured in terms of its ability to
pay the interest regularly as well as the repayment of the installment of the principle on
due dates or in one sum at the time of maturity.
THERE ARE THOSE TWO ASPECTS OF THE LONG-TERM SOLVENCY OF A FIRM.
A.

ABILITY TO REPAY THE PRINCIPLE DUE TIME.

B.

REGULAR PAYMENT OF THE INTEREST.

THE SIGNIFICANT LEVERAGE RATIOS ARE:

III.



DEBT-EQUITY RATIO.



CAPITAL EMPLOYED TO NET WORTH RATIO.



INTEREST COVERAGE RATIO.

Activity Ratio or Turnover Ratio:
Turnover ratio also referred to as activity ratios or asset management ratio which
measures how efficient the assets are employed by the firm. The efficiency of assets
reflects the speed with other being equal, the greater the rate of turnover or conversion,
the more efficient the utilization/ management. Turnover is the primary mode for
measuring the extent of efficient employment of assets by relating the assets to sale. The
significant activity or turnover ratios are:


Debtor Turnover Ratio.



Creditors Turnover Ratio.



Working Capital Turnover Ratio.



Fixed Assets Turnover Ratio.



Total Assets Turnover Ratio.

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Profitability Ratios:
A business is run primarily for profit. The management of the firm is naturally
eager to measure its operating efficiency. Similarly the owners invest their funds in the
exportation of reasonable return. The operating efficiency of a firm and its ability to
ensure adequate return to its shareholders depends ultimately on the profits earned by it.
Profitability is a measure of efficiency and search for it provide an incentive to achieve
efficiency Profitability also indicates public acceptance of the product and show that the
firm can produce competitively.

i.
ii.

Net Profit Ratio.
Operating Profit Ratio.

iii.

Return on equity.

iv.

Return on Investment.

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OBJECTIVES OF THE STUDY

1.

To provide conceptual framework of financial analysis

2.

To evaluate the financial performance of the firm.

3.

To asses the solvency position of the company.

4.

To evaluate the profitability performance.

5.

To offer findings, suggestions & conclusion based on the study.

METHODOLODY OF THE STUDY
The data is collected from the following sources.
o Primary data

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o Secondary data

1.

Primary data:
The information is collected directly without any reference is primary data. In the

study it is mainly trough conversation with concerned officers or staff members in the
accounts department.

2 Secondary data:
The secondary data is the data which is already available and use for some other
purpose.
In the present study the researcher depends more on the secondary data which is
available in the form of financial statements like profit and loss a/c and Balance sheets.
Information is also collected from internal financial reports. Magazines and test books.
Some of the information pertaining to industry profile is collected for inter Financial
statements

Data Analysis:
The information collected from different sources is tabulated and analyzed with help
of all financial ratios.

SIGNIFICANCE OF THE STUDY:

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Ratio analysis facilities understanding of financial statements. It narrates the old
story of exchanges in financial condition of the business.

2)

It facilitates inter firm and intra firm comparison and highlights relative
performance of the organization in different areas.

3)

Ratio is an instrument to measure efficiency of an enterprise and facilitate
management control.

4)

Ratio analysis is an effective tool and useful to assess the important characteristics
of the business line, liquidity, solvency and profitability etc.,

LIMITATIONS OF THE STUDY:
A few limitations are observed however, proper care has been taken to overcome
the impact of limitations on the study.
 Processing all pertinent financial information is not possible, as it was confidential in
nature.
 Information comparison was not possible due to paucity of time and non-availabilities
of data relating to other firms.
 The danger of window drawing may exist since it does not reveal the impact of
frequent fluctuations in the intervening period as only the end.

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 The smaller time frame available for understanding this study is also one of the
significant limitations of the study.

CHAPTER-II
INDUSTRY AND COMPANY PROFILE
INDUSTRY PROFILE
Soap Industry:
The per capita consumption of Toilet Soap in India at present is low as compared
to many developing countries. The overall growth rate of the industry in the recent years
has been in the neighborhood of 2% per annum. The total Turnover of toilet soap industry
is Rs. 4500 crores. The overall consumption of toilet soaps in the country has been
increasing at the rate of 2% and at more than 5% per annum in rural areas. The gap
between demand and supply of oils for production of toilet soap is a matter of serious
concern. Toilet soap market has been given much importance in India. Everyone is using
toilet soaps. It is one of the fast moving consumer products in personal care segment.
The present consumption of toilet soap is increasing year by year. The total
consumption of toilet soaps in India is 5.3 lakh tones per year. The growth rate is 2-3
percent per annum. But the consumption rate of soap used per person in India is low
compared to countries like Thailand, Italy and Brazil. Their consumption rate is 480
Gms, 700 Gms and 1060 Gms per head in a month respectively.
There are a number of reputed companies in the toilet soap market. Due to
increased consumption, along with those companies several small scale manufacturers

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are also entering to the market. The crowded market place has also brought to the
consumer as marketers of soap who have tried to woo consumers through upgraded
offerings and better quality soaps. The marketers of toilet soaps have increased the TFM
(total fatty matter) content in their brands, to offer better quality soaps at a lower price.
Industry watchers say that the TFM content in some brands have moved up from the 5060 percent to 70 percent.
Segment the total toilet soap markets following:

Price ranges of toilet soaps:
Price range
Rs. 6-10
Rs. 11-15
Rs. 16 & above

Soap Segment
Sub popular
Popular
Premium

Market share of premium, popular and sub – popular soaps:
Segment

Market
Percent

Premium
Popular
Sub-popular

share

in

31
45
24

Growth rate
(per annum)

6%
2%
8%

The reveals of the market shares of premium, popular and sub-popular soaps
where a major share of 45 percent is captured by popular soap segment which is growing
slowly at 2 percent per annum. While 31 percent of total market share is contributed by
premium soap segment which is growing at 6 percent per annum. But the sub-popular
soap segment which is showing the least of all (i.e.) 24 percent is growing at a fast rate of
8 percent per annum.

Reasons for growth rate of sub-popular soap:
Toilet soaps are among the highest penetrated products within the FMCG (Fast
moving consumer goods) market, reaching an estimated 95 percent of the urban and 87

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percent of the rural households. The fairly high contribution from the rural markets
makes these categories sensitive to the fortunes of the agricultural economy. The
prolonged drought in the north and west of the country (until 2000) and the sharp fall in
farm disposable incomes have switch from high-to-low-priced brands. This is intended
supported by the fact that within toilet soaps, it is the discount segment (soap that costs
between Rs. 5 and Rs. 8 per 75 Gms) that has registered the highest growth rates over the
past years, that is why, the industry players commonly attribute the de-growth in the soap
market due to down trading.

Market Share of Different Companies:

The market for toilet soaps has actually shrunk. The shrinking market size
suggests that Indian consumers have actually been out back on their use of toilet soaps.
This is not really the case; the market for toilet soaps has continued to show a growth
rate.
The pie chart shows that in India H.U.L commands by 60 percent of the total
toilet soap market. Karnataka soaps with 7 percent of market share. Godrej and Henkel

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spic and wipro are in the 3rd and 4th position with 6 percent, 4 percent and 6 percent market
share respectively and the rest of 12 percent market is captured / hold by others.
Rs. 6,000 crore toilet soap market has been growing staggering at a growth
rate of 6 – 8 percent annually. This shows that the consumption level is growing about
18600 tones annually.

Industry profile of various players in toilet soap market:
A brief profile of the various players in the personal wash market is given below:

1. Hindustan Unilever Ltd:
Hindustan Unilever Ltd. has become a major player in the Indian personal wash
market. In India HUL has gained 60 percent of share in the total toilet soap market. HUL
gives its products in several brand names. The brand names of HUL are Liril, Pears,
Dove, Lux, Denim, Rexona Fair & Lovely, Lifebuoy, Hamam, Breeze, and Ayush.
Different brands are popular in different regions.
HUL have brought a few benefits to the consumer as marketers of toilet soap
have tried to woo. As a result of sharp fall in farm disposable incomes, the consumers
persuaded low-income households to down trade that is switch from high-to-low-priced
brands. HUL too appears to endorse the phenomenon of down trading.
The major competitors of HUL are Nirma, Godrej consumer care, and Wipro,
Godrej consumer care has introduced, a fairness soap called fairglow which claims to
enhance fairness, which has been a success too. This is against the competitive response
of HUL’s fair & lovely soap.
HUL is offering to combine two benefits in a single tablet. Breeze
2-in-1 actually offers a cost-effective replace to consumers who we hair wash products
and soap. HUL claims breeze is the largest brand in the discount segment. HUL has
increased Lifebuoy’s market share by introducing, lifebuoy active, lifebuoy gold,
lifebuoy plus. HUL has gained major share in discount segment. Now-a-days HUL has
become a dominant player in the Indian personal wash market.

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2. WIPRO:
Wipro has become a major player in the Indian personal wash market. In India
Wipro has gained 50 percent of share in toilet soap market. Wipro gives its products in
brand names of Santoor, Wipro baby soap, Chandrika.
Wipro covers 1.6 million outlets across the country for its distribution. 50 percent of
Wipro’s consumer care business comes from the toilet soap category. The biggest brand
of Wipro is Santoor which was launched in the late 80’ s. Wipro through Santoor has
become the leading soap marketer in Andhra Pradesh with 18 percent market share.
Wipro baby soft diapers gained almost 65 percent of the business from Northern markets.
Wipro have come out with new mixes and are confident of delivering value. The
company introduced Chandrika as an Ayurvedic and herbal product as against Medimix.
The company’s further interests in naturals/Ayurvedic segment of the toiletries market.
The company faces severe competition from HUL, Godrej, Nirma, and Henkel. In spite
of competition Wipro has generated great consumer’s satisfaction.

3. Nirma Ltd:
Nirma in Very Short Time has become a significant player in the domestic toilet
soap market. The company’s aggressive pricing strategy has been the key behind its
performance. Launches such as Nirma Ltd have paid off because consumers have seen
the brand as offering good value for money. The company has managed healthy top line
growth in the market. Nirma has gained major market share just a couple of years after
its entry.

Nirma is available at least 10% lower than its nearest competitors. The

company offers its brands Nirma Lime, Nirma premier, Nirma. The company faces
competition from HUL, Wipro, and Godrej. The Nirma was succeeded within a short
period due to its aggressive pricing strategy.

4. Godrej Consumer Care:
With at least three entirely new launches under its belt, Godrej consumer care has
improved its market share in the personal wash market. The company’s recent
restructuring exercise diversified the business into Godrej industries and Godrej
Consumer Care. This helped to pop up profitability performance. air glow, the fairness

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soap from Godrej Consumer Care, which claims to enhance fairness, has been a success
too. Though relatively small player in the business, yet the company managed with robust
sales.

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Major soap brands and its market share:
Market share in premium segment:

Brand

Market
share
in percent

Liril

12

Dettol

10.6

Cinthol

8

Mysore sandal

9

Johnson
&Johnson

2

baby soap

HUL leads 35 percent of total Rs.100 crore premium soap market. Secondly
Dettol soap is having 10.6 percent market share in the premium soap segment. Mysore
sandal and Cinthol soaps are having 9 percent and 8 percent market share respectively.

Brand associations:
Every soap manufacturer is following brand associations to their product,
which boosts promotion of the soap in the market. These will attract the customers
towards the product and make them to buy. These brand associations can separate the
product from other competitive products.

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Brand Positioning:

Brand

Positioning

Santoor

Younger
looking skin,
skin care
Skin care,
glamour

Lux

Nirma

Value

Liril

Freshness

Hamam

Purity

Rexona

Skin care, silky
soft skin

Dettol

Germy check,
100% bath

Margo

Skin protection

Fair glow

Fairness soap

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Major Market gains and their brands:
Manufacturers Brand Name
Name
1.HUL
Liril
Pears
Dove
Lux
Denim
Fair&Lovely
Rexona
Hamam

Premium





Sub
popular






2. Godrej soaps Lifebuoy
Cinthol
FairGlow
No.1
3. Nirma

Popular





Nirma Lime
Nirma Premier
Nirma





4.
Karnataka Mysore
soaps
& Sandal
Detergents
Mysore
Jasmine
5. Colgate & Mysore Gold
palmolive
Camay
Palmolive
Naturals

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

6. Reckitt & Dettol
colemam
India Ltd.
Park avenue
7. Raymond
Neem
Aramurk





Jeeva
8.
Jyothi
laboratories
Santoor
Wipro baby soap
9. wipro
Doy care
Aloevera
10.V.V.F Ltd. Jo














Johnson & Johnson
baby soap
11. Johnson & Savlon
Johnson
Check
Margo
Margo glycerine
12.Henkal & Fa
Spic
Meera




 









Chakola

13.cavin care




14.Chakola

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FATTY ACID INDUSTRY:
Fatty acids, as the name itself indicates organic acids derived from fats and oils.
Fats and oils are glycosides of Fatty acids. Fatty acids are manufactured by hydrolysis of
fats and oils, which is popularly known as fat splitting. Glycerin is obtained as a by
product on the process of fatty acid manufacture.
Fatty acids are having diversified application in various fields of industries like
textile, plastic, surfactants, rubber, cosmetics, foods and pharmaceuticals both as it is and
the derivatives.

PRESENT STATUS OF INDUSTRY:
Present manufacture of fatty acids is dispersed all over the country with units in
various states. Production of fatty acid in India was insignificant prior to the period of
Second World War. Deduction on a small scale was initially started in the mid-forties that
too with obsolete equipment. The qualities of fatty acid coming out from these units are
far from desirable and recovery of Glycerine was inefficient.
It is in 1953, the first high pressure fat splitting plant in our country went
stream in Bombay. It started production as a batch-operating unit, which was soon
converted to a semi-continuous one. The industry, which started taking shape in the early
fifties, was established process technology.
In the year 1954, the installed capacity of fatty acid plants was below 4500 per
annum. The annual production from the four pirating units at time was below 1000 tones
per annum. Since then the fatty acid Industry in India has made rapid progress during the
next two decades.

Stearic Acid Industry:
Stearic Acid is a saturated fatty acid having diversified applications in various
industries

like

textiles,

tyres,

paints,

rubber,

cosmetics,

food,

surfactants,

pharmaceuticals, etc. Major players in Indian Stearic Acid industry in India are Godrej,
Jocil, and VVF. The average consumption by different industries is in the range of 60000
TPA. Rubber and PVC Industry constitute approximately 40%.

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Stearic acid user industry is aware of the changes in raw material scenario to
quickly adopt and change their material base to the cheaper one. This has increased
pressure on manufacturers of stearic acid to be more alert and adept for sustaining the
changing environment. More than a third of the consumption of fatty acids/ Steraic Acid
in India comes form Gujarat and Maharastra States. This could be an advantage to the
fatty acid manufactures, which are located in and around Mumbai as transportation cost
has become a major input cost for any industry.

Present Market Share of Stearic Acid Manufacturers wise
Name of the Manufacturer

Quantity

Market

Region

Share (%)
Godrej Soaps Limited

17,000

22%

North

VVF Limited

9,000

12%

North

Jocil Limited

10,000

13%

A.P.

FFF Limited

6,000

8%

A.P

Nahar Agro

5,000

7%

North

Raj Agro

5,000

7%

North

OCC& Thaper

2,000

3%

North

Wipro Limited

2,000

3%

Karnataka

Siris Agro Limited

2,000

7%

A.P

Sudha Agro Limited

2,000

3%

A.P

Rayalaseema Alkalies Ltd.

5,000

7%

A.P

Swastik & Oleo Chemicals

7,000

9%

A.P

Imports

10,000

1%

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Consumption Pattern of Stearic Acid in different Industries:
Name of the Industries

Quantity

Market Share

Growth

(%)

Rate %

Rubber-Tyre

13,000

17%

5%

Rubber-Nontyre

12,000

16%

3%

Stearates/Stabilisers

15,000

24%

6%

PVC/Polymers

9,000

12%

7%

Cement Paints

3,000

4%

6%

Chemical Ausiliaries

6,000

8%

5%

Calcium Carbonate

3,000

4%

6%

Food/ Pharma

1,000

1%

9%

Metal /Polishes

3,000

4%

5%

Lubricants/grease

3,000

4%

8%

Cosmetics

3,000

4%

30%

Others

2,000

3%

5%

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Types of Fatty Acids:
1. Saturated:

lauric Acid
Myristic Acid
Palmitic Acid
Stearic Acid

2. unsaturated: Oleic Acid
Linoleic Acid
The above classification is done on the basis of molecular consumption.
Raw Materials that constitute fatty acids include the following:
I)

Animals Fats (usage of animal fats is banded in India)
a) Tallow
b) Lard
c) Inedible grease

II) Vegetable Oils
a) Neem Oil
b) Palm Oil
c) Rice bran
d) Castor Oil
e) Coconut Oil
Biomass Power:
Biomass is plant matter such as tress, grasses, agricultural crops, and other
material derived form living matter. These materials are renewable and sustainable. A
biomass fuel is converted to heat energy in a highly controlled reactor (boiler or gasifier)
the heat is converted to mechanical energy in either a stream or gas turbine, and the
mechanical device turns a generator that produces electricity. With regard to feedstock,

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residues are the most economical biomass fuels for generating electricity. These are the
organic byproducts of food, fiber, agricultural wastes, rice husk etc.
Jocil has a 6 MV Biomass Cogeneration Power Plant. It consists of a steam
turbine of BHEL make and a 30 tones/hr boiler of Thermax Badcock Wilcox make The
main fuels used in Jocil are agricultural wastes like cotton stalks and chili stalks, rice
husk and woody biomass like juliflora. Coal is also used as a support fuel. Hitherto,
agricultural wastes like cotton and chili stalks are burnt in the open by farmers. This
activity was involving unproductive labor cost for removing the contributing to
environmental pollution, as the biomass fuel is converted to heat energy in a controlled
reactor.
Jocil Utilizes the steam from the boiler to drive the turbine for generating
power while simultaneously extracting some steam from the turbine for its plant
operations. Jocil uses approximately half the power generated for captive use and the
remaining power is sold to AP Transco at a predetermined price.

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COMPANY PROFILE
HISTORY OF JOCIL LIMITED:
The company was incorporated on 20 th February, 1978 as per the certificate of
incorporation NO.2260 granted by the register of companies, A.P. Hyderabad under the
name of “APOCIL” [Andhra Pradesh Oil and Chemical Industries Limited] the unit was
promoted as public limited company in joint venture by the A.P. Industrial Development
Corporation Limited.
But later in May, 1982 A.P. industrial development corporation withdrew it
participation and the company’s name was changed to JAYALAKSHMI COTTON AND
OIL INDUSTRIES LIMITED. The company was registered with director general of
technology development New Delhi.

The company name changed from JAYALAKSHMI COTTON AND OIL
INDUSTRIES LIMITED to “JAYALAKSHMI OIL AND CHEMICAL INDUSTRIES
LIMITED” (JOCIL) on 17th September 1992.
Location of the company:

JOCIL Ltd is located at Dokiparru in Medikonduru Mandal of Guntur District in
the state of AP. The area was declared as backward one by the government of AP. It is
only 15 km from Guntur and is on Guntur-Narasaraopet highway. It is well connected by
both rail and road transportation. It is only 45 km from Vijayawada, witch is industrially
located.
INFRASTRUCTURE
Land

80 acres

Godowns

3500 sq.mtr.

Raw Oil Storage

4500 cu.mtr.

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Intermediate Tanks

JOCIl
5500 cu.mtr.

Well-connected by Road, Rail and Air (40 Km)
Satellite Network System for Reliable Communication
Full-fledged Internal Communication System ...
… PC, LAN and Epabx

POWER PLANT
6 Mw Biomass Cogeneration Power Plant
Reliable & Quality Steam and Power
Generates Rural Employment

CODE OF CONDUCT MANAGERS
1. Preamble:
The Code of Ethics & Conduct for the Senior Managers of the Company helps to
maintain the standards of business conduct for Jocil Limited and to ensure the
compliance with legal requirements. The purpose of the Code is to deter wrong doing and
promote ethical conduct. The matters covered in this Code are of utmost importance to
the Company, Shareholders, business partners and other stakeholders. Further these are
essential so that the Company can conduct the business in accordance with high ethical
values. Managers of the Company are the custodians of Information and assets. As such,
the Code of Ethics for the Senior Managers of the Company is codified as under.

2. Applicability:
The Code is applicable to the Senior Managers of the Company (hereinafter
referred to as "Managers") as stipulated by the Management by way of Office Circular
from time to time.

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3. Code of Ethics & Conduct for the Senior Managers of the Company:
Managers will –
I. Act with honesty and integrity, avoiding actual or apparent conflicts of interest in
personal and professional relationships.
II. Not use confidential information acquired in the course of one's work for personal
advantage.
III. strive to achieve responsible use of and control over all assets and resources
employed or entrusted
IV. Provide all stakeholders with information that is accurate, complete, objective,
relevant, timely and understandable
V. respect the confidentiality of information acquired in the course of one's work
except when authorized or otherwise legally obligated to disclose
VI. Complete with rules and regulations of all Public Authorities in all the
geographies in which Jocil Limited operates.
VII. Act in good faith, responsibly, with due care, competence and diligence, without
misrepresenting material facts or allowing one's independent judgment to be
subordinated.
VIII. Share knowledge and maintain skills important and relevant to stakeholders'
needs.

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IX. Proactively promote and be an example of ethical behavior as a responsible
partner among peers, in the work environment and the community.
X. Avoid accepting any offer, payment, gift or anything of value from customers,
vendors, consultants etc. that is perceived as intended, directly or indirectly, to
influence any business decision, any commitment of fraud or opportunity for the
commitment of any fraud.
XI. Affirm the code on annual basis as required by the revised clause 49 of the Listing
Agreement.

The Company has well defined policies for


Quality



Consumer Safety



Safety, Health and Environment (SHE)

Company's Philosophy:


To be a Successful Profit Making Organization



To Conduct its Operations with Honesty, Integrity and Transparency.



To be the Market Leader in its Field of Operations through Continual
Improvement in Efficiency and Quality of Products & Services



To have Concern for Employees, Shareholders, Customers and Business
Associates alike.



To Serve Society through Industry



To care for the Environment and the World in which we live

Profile of Jocil Ltd:

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Type of the company
Nature of the company

-

Small scale unit
Manufacturing

Board of Directors:
Dr. Mullapudi Harischandra Prasad

Chairman

J. Murali Mohan

Managing Director

P.Narendranath Chowdary

Director

Mullapudi Thimmaraja

Director

Y. Narayanarao Chowdary

Director

V.S.Raju

Director

K.Srinivasa Rao

Director

M.Gopalakrishna

Director

Subbarao V.Tipirneni

Director

SENIOR EXECUTIVES:
Mr.P. Kesavulu Reddy

President & secretary

BANKERS:
Andhra Bank

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State Bank of India

JOCIl
Guntur

AUDITORS:
Brahmmaiah & Co.,

REGISTERED OFFICE & FACTORY:
JOCIL LIMITED,
Dokiparru, GUNTUR-522438,
Andhra Pradesh

CUSTOMERS OF JOCIL LTD


Hindustan Lever Limited



Henkel



Johnson & Johnson



Reckitt Benckiser



Jyothi laborities ltd



Emami



MRF Tyres



Birla tyres



TVS Srichakra



Elgitread



BASF – chemical company



Clariant

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Auchtel



SUN pharma



Nagarjuna group



Alembic health care



Berger paints

Organization Structure of Jocil Ltd
Board of directors
Managing Director

President
&
(Electrical)
Secretary

AGM
Marketing

G.M
Engg.

Manager
G.M
Sr. Manager
(Production) (Development)

President & Secretary

Finance

Stores

Purchase

Manager

Executive

Executive

Asst.
Executive

Senior
Account
Officer

Senior
Manager

Clerk

Asst. accounts

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Senior
Asst.

Costing

Office asst.

Labour
Officer

Asst. time
Keeper’s

Security
Officer

Security
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Officer

Clerks

Marketing manager:
Superintendent

Asst. Clerk
Supervisor

Marketing Officer

Asst. Clerk

Marketing Executive

Sales Representative

Super visor

Asst. Sales Sales Representative

Board of Directors:
The Board of Directors of the company consists of 9 directors comprising of
promoter directors, additional directors and outside directors. Normally, the Chairman
would be elected from the promoter directors. The board of directors will meet once in
three months to review the working results, operations, financial and administrative
matters and any other policy matters of the company. The Managing Director being
responsible to the board shall appraise the Board of Directors about the progress of the
company.

Managing Director:
Managing Director is the chief executive of the organization and looks after the day
to day operations of the company. He is the top person in the hierarchical system of
organization. He does business operations with the assistance of all the departmental
heads. He is the pivotal of the organization.

President & Secretary:
He is in charge of administrative and finance departments. He looks after all the
matters relating to general administration, secretarial, central excise, purchases, accounts,
stores, personnel and all other matters relevant for smooth operation of the company. He
coordinates matters with all the departmental heads and takes policy decisions in the
absence of the Managing Director.

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General Manager-Production:
He is the head of the production department. He looks after the fatty acid plant
& glycerin plant. He controls the over all production activities. A team of engineers,
supervisors and helpers assists him.

General Manager-Development:
He is in charge of quality control, laboratory and also research and
developmental activities. He is responsible for maintaining the standards of raw material
in processing of finished products.

General Manager-Engineering:
He is the custodian of the entire plants and machinery. He looks after the smooth
running of various plants and maintenance of work. He also takes the help of assistant
engineers, supervisors, fitters and helpers etc.

Senior Manager-Power Plant and Instrumentation:
He is in charge of power house and responsible for all electrical installation in
the company. With the help of engineers, supervisors and electricians he looks after the
matters like power supply, operation of diesel generation sets etc.

Senior Manager Soap:
Production Manager looks after the production of toilet soap and is assisted
by various supervisory & other staff members.

Asst. General Manager (Marketing):
Marketing Manager is in charge of the marketing department. He coordinates
matters with all the departmental heads in regard to production and sale of finished
products of the company. He shoulders the responsibility in clearing of the stock of

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finished products. He will visit the market frequently to ascertain the situation and
demand for the products and get the orders from the customers. All possible steps will be
taken by him to satisfy the customers as regards to quality, price and prompt supply of the
product. He is assisted by the sales officer, sales supervisor and other office staff.

Staff and Workers Particulars:
Administration
Account
Marketing
EDP
Time office
Stores
Security
Transport
Production
Laboratory
Maintance
Civil

23
13
5
3
7
11
19
7
13
21
4
5

Electrical

33

Soap Plant

170

ETP

6

Power Plant

89

Fatty Acid Plant

50

Hydrogenation Plant

38

Flaker

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Cell Room

3

Oxygen Plant

7

D.M Plant

5

FBC Boiler

8

Work shop

46

Jocil was started with 160 employees. Due to diversification of its activities in
manufacturing of products and expansion of its production, its man power increased to
529 employees working in 28 sections at various cadres.

OBJECTIVES OF JOCIL LIMITED
The main objective of the company is to manufacture fatty acids and Toilet soaps.
The company received letter of indent from Department of Industrial
Development, Ministry of Industries, and Government of India Delhi. Enhancing the
annual licensed capacity of fatty acids, glycerin and toilet soap. The company has
implemented this letter by increasing installation capacity of fatty acids plant from 6,205
M.T. per annum to 15,510 M.T. with effect from February1991 this enhanced capacity
came into operation. Later the company enhanced the capacity to 37,500 M.T. In
March’1995.

FUNCTIONS OF JOCIL LIMITED
1. To produce, manufacture, refine, process, import, sell and generally to deal in all kinds
of Fatty acids and soaps and in connection there with the construction of factories and
work shop.
2. To fabricate manufacture and deal in all kinds of fatty acids plants.
3 .To manufacture various brands of soaps under contract basis for HLL

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4. The company organizes annual general body meeting where it submits all the four
quarterly reports regarding the actual performance with standard performance and
predicts the courses of variances.
5. To receive, consider and adopt the profit & loss a/c for the year ended and prepares
balance sheet as on that date.
6. To declare dividend on equity shares.

INDUSTRIAL LICENSING:
As the value of fixed assets envisaged in the project is less than Rs. 3.3
corers the industrial license is not required for setting of project. The company has been
registered with Directorate General of Technical Development (DGTD), Govt. of India,
New Delhi bearing No.DGTD/HQ/D-S-S/R-4733/C-26 (N)/SE/79 with their letter No.
Soap dated 21-5-1979 and soap /2(37)79 dated 31-3-1990 for the manufacture of

1. Industrial fatty acids

-----

9,000 M.T

2. Glycerine

------

900 M.T

3. Toilet soaps

------

5,000 M.T

JOCIL LIMITED ACCOUNTING POLICES:
1. GENERAL:
In Jocil the accounts are prepared on historical cost convention and in
accordance with normal accepted accounting standards.

2. FIXED ASSETS:

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In Jocil Limited fixed assets are stated at historical cost less
accumulated depreciation.

3. DEPRECIATION:
In Jocil limited depreciation is provide on the written down value method at
the rates and in the manner specified in schedule XIV of the companies Act, 1956.

4. INVESTMENT:
In Jocil limited long-term investments at cost and income thereon are
accounted for on accrual. Provision towards decline in the value of long-term
investment is made only when such decline is other than temporary.

5. INVENTORIES:
Values of inventories are made as under. Raw materials, work-in-process and finished
goods at cost or net reliable value which ever is lower. Stores and spares at cost.

6. SALES IN JOCIL:
Sales are inclusive of excise duty, packing charges and sales tax.

7. RETIREMENT BENEFITS IN JOCIL LIMITED:
Jocil Limited provides retirement benefits in the form of provident fund,
superannuation and gratuity. Contribution to the provident funds are made at prescribed
rates to the provident fund commissioner and absorbed in the profit and loss account.
Liability in respect of superannuation benefits extended to certain employees is
contributed by the company to Life Insurance Corporation of India against a master
policy at 15% of the basic salary of such employees. The company has taken a group
gratuity insurance policy with life insurance Corporation of India to secure gratuity paid
on retirement. The retirement amount recovered from LIC of India is debited to profit and
loss account. Leave encashment is accounted on accrual basis as required by accounting
standard 15 issued by the Institute of Charted Accountants of India.

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8. RESEARCH & DEVELOPMENT EXPENDITURE IN JOCIL Ltd:
Revenue expenditure is charged to profit & loss accounts and capital expenditure is
added to the cost of fixed assets in the year in which it is incurred.

PERFORMANCE AND ACHIEVEMENT OF JOCIL:
1. Jocil is a leading manufacture of fatty acids. It also manufactures soaps.
2. Jocil supplies different grades of stearic acid and other fatty acids to other
Manufacturing companies of pharmaceuticals, chemicals, plastics etc.
3. Jocil supplies fatty acids to meet their specific requirements of stearic acid, oleic acid
etc.
4. Jocil manufactures soaps on contract basis to HLL, Johnson& Johnson, Henko spic
etc. and also supply soap noodles to the above customers.
5. Jocil’s production of quality goods is due to the following factors
 Usage of good quality raw materials like rice bran oils, coconut oils, cotton seed
acid oils etc.
 The processing and purification of fatty acids is done by using latest technology.
 The technology and requirement of jocil has been imported from CMB Italy.
 Toilet soaps and glycerin are manufactured as per BISC (ISI) standards.

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 Maintenance of quality control by experienced and committed operating
personnel.


It uses high quality chemicals for the purification and processing of the fatty
acids.



It maintains international standards in manufacturing its products so as to suit
different kinds of in industrial users.

PRODUCTS OF JOCIL:
Jocil has set up a modern plant for the manufacturing of fatty acids, toilet soap
and refined Glycerin. The products manufactured are of international standards to suit
different industrial users. Jocil is manufacturing two types of products.
1. Industrial Goods (chemical)
2. Consumers Goods (soaps)
Fatty acids, refined glycerin and other fatty acid pitches fall under the category of
industrial goods where as soaps come under the category of consumer goods.
Fatty acids are manufactured from vegetable oils and fats. There are different
types of fatty acids for different industrial applications. The following are the different
kinds of fatty acids, which can be manufactured in Jocil.
1. Crude fatty acids of vegetable acids & fats.
2. Distilled fatty acids of vegetable acids & fats.
3. Hydrogenated fatty acids of vegetable acids & fats
Out of the above type of fatty acids, Jocil is manufacturing the following
the fatty acids which are a major portion of their sales.
1. Stearic acid

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2 .Oleic acid
3. Distilled & Hydrogenated fatty acids.

STEARIC ACID:
In stearic acid, different grades are produced with standard specifications for
different industrial consumers.
The following are the different grades of Stearic acids consumed by different
industries in manufactured their own industrial products.

VARIOUS GRADES OF STEARIC ACIDS:
JOTEX GRADE,

Used in drugs, pharmaceuticals,

JOTEX SPECIAL GRADE

cosmetics, chemicals and plastics.

JOSTRIC SPECIAL GRADE

Chemicals, calcium carbonate.

JOSTRIC GRADE

PVC stabilizers and chemicals

JOCIL-9

Metal polish, grease, metallic

JOCIL-11

polish.
PVC (polymers)

JOMEL

Rubber, cement and paint

RUBBER GRADE

Rubber, metallic polish

ECONOMY

Rubber, metallic polish, grease

REFINED GLYCERINE:
Two varieties of refined glycerin are produced namely.
1. Chemically pure grade (C.P)

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2. Industrial white (I.W)

Glycerine is used in pharmaceuticals, cosmetics, explosives, paints, store ink,
chemicals, tooth paste etc.

OLEIC ACID:
Only one variety of oleic acid namely “commercial grade” is manufactured
by Jocil. It is used in fertilizers, cutting oils, liquid soaps and other chemical
manufactures.

DISTILLED FATTY ACID:
The fatty acids of different oils are tailor made products to suit different
industrial user’s specifications.
At present Jocil is manufacturing distilled hydrogenated rice bran fatty acids,
distilled cottonseed oil fatty acids, distilled coconut acids. They have plans to
manufacture some more variables in future.
Distilled hydrogenated rice bran fatty acids and distilled palm fatty acids are
also being manufactured for consumption in soap plant for the manufacture of toilet
soaps.

FATTY ACID PITCHES:
Fatty acid pitches are obtained during distillation of crude fatty
acids. These products are supplied to laundry soaps, grease, foundry
chemicals uses.

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Soap Manufacturing:
Different types of distilled fatty acids and hydrogenated fatty acids
are mixed to obtain a desired quality of toilet soaps. Different types of
soaps are manufactured to satisfy different types of users. Generally
features of toilet soaps should be good lather, good perfume, stability and
longer use.

THEORITICAL FRAME WORK ON FINANCIAL
STATEMENT ANALYSIS
INTRODUCTION
Meaning of Financial Statements:A financial statement is a collection of data organized according logical
and consistent accounting procedures. Its purpose is to convey an understanding of
some financial aspects of a business firm. It may show a position at a moment in
time, as in the case of an income statement, thus the term financial statements
generally refers to the two statements: (I) the position statement or the balance
sheet, and (ii) the income statement or the profit and loss account. These
statements are used to convey to management and other interested outsiders the
profitability and financial position to a firm.

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Financial statements are the outcome of summarizing process of
accounting. In the words of John N. Her, the financial statements provide a
summary of the accounts of a business enterprise, the balance sheet reflecting the
asset, liabilities and capital as on a certain date and the income statement showing
the results of operations during a certain period. Financial statements are prepared
as an end result of financial accounting and are the major sources of financial
information of an enterprise Smith and Asburne define financial statements as. The
product of financial accounting in asset of financial statements prepared by the
accountant of a business enterprise that purport to reveal the financial position of
the enterprise, the result of its recent `activities, and an analysis of what has been
done with earnings”.
Financial statements are also called financial reports. In the words of Anthony,
financial statements, essentially, are interim reports, presented annually and reflect
a division of the life of an enterprise onto more or less arbitrary accounting periodmore frequently a year.
Objectives of Financial Statements:Financial statements are the sources of information on the basis of which
conclusions are drawn about the profitability and financial position of a concern.
they are. The accounting principles board of America (APB) sates the following
objectives of financial statements.
1. To provide reliable financial information about economic resources and
obligations of a business firm.

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2. To provide other needed information about changes in such economic
resources and obligations.
3. To provide reliable information about changes in net resources (resources less
obligations) arising out of business activities.
4. To provide financial information that assists in estimating the earning
potentials of business.
5. To disclose, to the extent possible, other information related to the financial
statements that is relevant to the needs of the users of these statements.
Types of Financial Statements:Financial statements primarily comprise two basic statements: (1) the position
statement or the balance sheet and (2) the income statement or the profit and loss
account. However, (Generally Accepted Accounting Principles (GAAP) specifies
that a complete set of financial statements must include:
(1). A Balance Sheet.
(2). an Income Statement (Profit and Loss Account).
(3). A Statement of Changes in Financial Position.
1. Balance Sheet:The America institute of certified public accountants defines balance
sheet as. A tabular statement of summary of balances (debits and credits) carried
forward after an actual and constructive closing of books of account and kept
according to principles of accounting”. The purpose of the balance sheet is to
show the resources that the company has, i.e. its assets, and from where those
resources come from i.e., its liabilities and investments by owners and outsiders.

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The balance sheet is one of the important statements depicting the
financial strength of the concern. It shows on the one hand the properties that it
utilizes and on other hand the sources of those properties. The balance sheet shows
all the assets owned by the concern and all the liabilities and claims it owes to
owners and outsiders.
2. Income Statement (or) Profit and Loss Account:Income statement is prepared to determine the operational position of the
concern. It is a statement of revenues earned and the expenses incurred for earning
that revenue, if there is excess of revenues over expenditures it will show a profit
and if the expenditures are more than the income then there will be a loss. The
income statement is prepared for a particular period, generally a year. When
income statement is prepared for the year ending, then all revenues and
expenditures falling due in that year will be taken into account irrespective of their
receipt or payment.
The income statement may be prepared in the form of a manufacturing
account to find out the cost of production, in the form of trading account to
determine gross profit or gross loss. In the form of a profit and loss account
determine net profit or net loss, a statement of retained earnings may also be
prepared to show the distribution of profits.
3. Statement of Changes in Financial Position:The basic financial statements, I.e., the balance sheet and the profit and
loss account or income statement of a business reveal the net effect of the various
transactions on the operational and financial position of the company. The balance

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sheet gives a static view of the resources of a business and the uses to which these
resources have been put at a certain point of time. The profit and loss account in a
general way. Indicates the resources provided by operations. But there are many
transactions that do not operate through profit and loss account. Thus, for a better
understanding another statement called statement of changes in financial position
has to be prepared show the changes in assets and liabilities from the end of one
period to the end of another point of time. The objective of this statement is to
showing the movement of funds (working capital or cash) during a particular
period. The statement to changes in financial position may take any of the
following two forms.
(a) Funds Flow Statement:-The funds flow statements is designed to analyze the
changes in the financial conditions of a business enterprise between two periods.
The word fund is used to denote working capital.
This statement will show the sources from which the funds are received and the
uses which these have been put. I his statement enable the management to have an
idea about the sources of funds and their uses for various purposes. I ills statement
helps the management in policy formulation and performance appraisal.
(b) Cash Flow Statements:-a statement of changes in the financial position of a
firm on cash basis is called cash flow statement. It summarizes the causes of
changes in sash position of a lousiness enterprise between states of two balances
sheets. This statement is very much similar to the statement of changes in working
capital I.e., funds flow statement. A cash flow statement focuses attention on cash
changes only.

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Characteristics of Ideal Financial Statements:The financial statements are prepared with a view to depict financial
position of the concern. A proper analysis and interpretation of these statements
enables a person to judge the profitability and financial strength of the business.
The financial statements should be prepared in such away that they are able to give
a clear and orderly picture of the concern. The ideal financial statements have the
following characteristics.
1. Depict True Financial Position:The information contained in the financial statements should be such that a true
and correct idea is taken about the financial position of the concern. No material
information should be with held while preparing position of the concern. No
material information should be with held while preparing these statements.
2. Effective Presentation:The financial statements should be presented in a simple and lucid way so as to
make them easily understandable. A person who is not well versed with
accounting terminology should also be able to understand the statements without
much difficulty. This characteristic will enhance the utility of these statements.
3. Relevance: Financial statements should be relevant to the objectives of the enterprises. This
will be possible when the person preparing these statements is able to properly
utilize the accounting information. The information which is not relevant to the
statements should be avoided; otherwise it will be difficult to make a distinction
between relevant and irrelevant data.

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4. Attractive:The financial statements should be prepared in such a way that important
information is underlined so that it attracts the eye of the reader.

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5. Easiness:Financial statements should be easily prepared. The balances of different ledger
accounts should be easily taken to these statements. The calculation work should
be minimum possible while preparing these statements. The size of the statements
should not be very large. The columns to be used for gibing the information should
also be less. This will enable the saving of time in preparing the statements.
6. Comparability:The results of financial analysis should be in a way that can be compared to the
previous year’s statements. The statement can also be in compared with the figures
of other concerns of the same nature. Sometimes budgeted figures are given along
with the present figures. The comparable figures will make the statements more
useful. The Indian companies Act. 1956 has made it obligatory to give previous
year’s figures in the balance sheet. The comparison of figures will enable a proper
assessment for the working of the concern.
7. Analytical representation:The information should be analyzed in such a way that similar date is presented at
the same place. A relationship can be established in similar type of information.
This will be helpful in analysis and interpretation.
8. Brief:If possible, the financial statements should be presented in brief. The reader will
be able to form an idea about the figures. On the other hand, it figures are given in
details then it will become difficult to judge the working of the business.
9. Promptness:-

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The financial statements should be prepared and presented at the earliest possible.
Immediately at the close of the financial year, statements should be ready.
Financial Statements Analysis:Financial statements are prepared primarily for decision making. They
play a dominant role in setting the frame work of managerial decision. But the
information provided in the financial statements is not an end in itself as no
meaningful conclusions can be drawn from these statements alone. However, the
information provided in the financial statements is of immense use in making
decisions through analysis and interpretation of financial statements.
Financial analysis is ‘the process of identifying the financial strengths
and weakness of the firm by properly establishing relationship between the items
of the balance sheet and the profit and loss amount. There are various methods or
techniques used in analyzing financial statements, such as comparative statements,
trend analysis, common-size statements, schedule of changes in working capital,
funds flow and analysis, cost volume profit analysis and ratio analysis.
Meaning and Concept of Financial Analysis:The term ‘financial analysis’ also known as analysis and interpretation of
financial statements’, refers to the process of determine financial strengths and
weakness of the firm by establishing strategic relationship between the items of
the balance sheet, profit and loss account and oilier operative data. “Analyzing
financial statements”,
According to Metcalf and Titard”. Is a process of evaluating the
relationship between component parts of financial statement to obtain a better

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understanding of a firm’s position and performance? “In the words of ‘Myers’,
“Financial statement Analysis is largely a study of relationship among the various
financial factors in a business as disclosed by a single set – of statements, and
study of the trend of these(actors as shown in a series of statements”.)
The purpose of financial analysis is to diagnose the information contained
in financial statements so as to judge the profitability and financial soundness of
the firm, just like a doctor examines ills patient by recording his body temperature,
blood treatment, a financial analyst analysis the financial statements with various
tools of analysis before commenting upon the financial health or weakness of an
enterprise. The analysis and interpretation of financial statements is essential to
bring out the mystery behind the figures in financial statements. Financial
statements analysis is an attempt to determine the significance and meaning of the
financial statement data so that forecast may be made of the future earnings,
ability to pay interest and debt maturities (both current and long-term) and
profitability of a sound dividend policy.
Methods or Devices of Financial Analysis:The analysis and interpretation of financial statement is used to determine
the financial position and results of operations as well. A number of methods or
devices are used to study the relationship between different statements. An effort is
made to use those devices, which clearly analyze the position of the enterprise.
The following methods of analysis are generally used:
1. Comparative Statements
2. Trend Analysis

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3. Common sized statements
4. Funds flow statements
5. Cash flow statement
6. Cost-Volume-Profit Analysis
7. Ratio Analysis.
1. Comparative Statements:The comparative financial statements are statements of the financial
position at different periods of time. The elements of financial position are shown
in a comparative form so as to give an idea of financial position at two or more
periods. Any statements prepared in a comparative term will be covered in
comparative statements. From practical point of view, generally two financial
statements (balance sheet and income statement) are prepared in comparative form
for financial analysis purposes.
Not only the comparison of the figures of two periods but also be relationship
between balance sheet and income statement enables an in-depth study of financial
position a cooperative results. The comparative statement may show:
I. Absolute Figures (rupee amounts)
II. Changes in absolute figures i.e., increase or decrease in absolute figures.
III. Absolute data in terms of percentages.
The analyst is able to draw useful conclusions when figures are given in a
comparative position. The figures of sales for a quarter, half-year or one year may
tell only the present position of sales efforts. When sales figures of previous
periods, are given along with the figures of current periods then the analyst will be
able to study the trends of sales over different periods of time. Similarly,

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comparative figures will indicate the trend and direction of financial and operating
results.
The financial data will be comparative only when same accounting
principles are used in preparing these statements. In case of a deviation in the use
of accounting principles this fact must be mentioned at the foot of financial
statements and the analyst should be careful in using these statements. The two
comparative statements are (I) balance sheet and (ii) income statement.
I. Comparative income statement:The income statement gives the results of the operation of a business. The
comparative income statement gives an idea of the progress of a business over a
period of time. The changes in absolute data in money values and percentages can
be determined to analyze the profitability of the business. Like comparative
balance sheet, income statement also has four columns. First two columns give
figures of various items for two years. Third and fourth columns are used to show
increase is decrease in figures in absolute amounts and percentages respectively.

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ii. Comparative balance sheet:The comparative balance sheet analysis is the study of the trend of the same
items, group of items and computed items in two or more balance sheet of the
same business enterprise on different dates. The changes in periodic balance sheet
items reflect the conduct of a business. The changes can be observed by
comparison of the balance sheet at the beginning and at the end of a period and
these changes can help in forming an opinion about the progress of an enterprise.
The comparative balance sheet has two columns for the data of original valance
sheets. A third column is used ti show increases in figures. The fourth column may
be added for giving percentages of increases or decreases.
2. Trend analysis:The financial statements may be analyzed by computing trends of series
of information; this method determines the direction upwards of downwards and
involves the computation of the percentage relationship that each statement item
bears to the same item in base year. The information for a number of years is
taken rp and one year, generally the first year, is taken as a bade year. The figures
of the base year are taken as 100 and trend ratios for other years are calculated on
the bases of base year. The analyst is able to see the trend of figures, whether
upward or downward.
3. Common- size statement:The common size statements, balance sheet and income statement are
shown in analytical percentages. The figures are shown as percentages of total
assets, total liabilities and total sales. The total assets ate taken as 100 and different

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assets are expressed as a percentage of the total. Similarly various liabilities are
taken as a part of total liabilities. These statements are also known as component
percentage or 100 percent statement because every individual item is stand as a
percentage of the total 100. The short-comings in comparative statements and tend
percentages where changes in items could not be compared with the totals have
been covered up. The analyst is able to assess the figures in relation lo total values.
4. Funds flow statement:The funds flow statement is a statement is a statement which shows the
movement of funds and is a report of the financial operations of the business under
king. It indicates various means by which funds were obtained during a particular
period and the ways, in which these funds were employed, in simple words, it is a
statement of sources and applications of funds.
Meaning and concept funds:The term ‘funds’ has been defined in a number of ways:
A. in a narrow sense: it means cash only and a funds flow statement prepared on
this basis is called a cash flow statement. Such a statement enumerated net effects
of the various business transactions on cash and takes into account receipts and
disbursements of cash.
B. in a broader sense: the term “funds’ refers to money values in whatever forms it
may exist. Here funds mean all financial resources, used in business whether in the
form of men, material, money, machinery and others.
C. in a popular sense: the term ‘funds’ means working capital i.e., the excess of
current over current liabilities. The working capital concept of funds has emerged

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due the tact that total resources of a business are invested partly in fixed assets in
the form of fixed capital and partly kept in form of liquid or near liquid form as
working capital.
The narrower concept of funds i.e., cash or working capital concept fails to
reveal the changes in the total financial resources of a business. Some significant
items, such as purchase of building in exchange of shares or payment of bonus in
the form of shares which do not directly affect cash or working capital are not
revealed from the analysis based on these concepts, however, the concept of funds
as working capital is the most popular one and in this chapter we shall refer to
‘funds’ as working capital and a funds flow statement as a statement of sources
and application of funds.
Meaning and Concept of ‘Flow of Funds’ :The term ‘flow’ means movement and includes both ‘inflow’ and ‘outflow’. The
term Flow of funds’ means transfer of economic valued from one asset of equity to
another. Flow of funds is said to have taken placed when any transaction makes
changes in the amount of funds available before happening of the transaction. If
the effect of transaction results in the increase of funds, it is called sources of
funds and if it results in the decrease of funds, it if known as application of funds,
further, in case the transaction does not change funds it is said to have not resulted
in the flow of funds. According to the working capital concept of funds, the term
‘flow of funds’ refers to the movement of funds in the working capital. If any
transaction results in the increase in working capital, it is said lo be a source or

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inflow of funds and if it results in the decrease if working capital, it is said to be an
application or out-flow of funds.
Uses, significance and importance of funds flow statement:A funds flow statement is an essential tool for the financial analysis and is
of primary importance to the financial management. Now-a-days it is being widely
used by the financial annalists, credit granting institutions and financial managers.
The basic purpose of a funds flow statement is to reveal the changes in the
working capital in the two balance sheet dates. It also describes the sources from
which additional working capital has been financed and the uses to which working
capital has been applied. Such a statement is particularly useful in assessing the
growth of the firm, its resulting financial needs and in determining the best way of
financing these needs. By making use of projected funds flow statements, the
management can come to know the adequacy or inadequacy of working capital
even in advance. One can plan the intermediate and long-term financing of the
firm, repayment long-term debts, expansion of the business, allocation of
resources, etc. the significance or importance of funds flow statement can be
followed from its various uses given below.
1. It helps in the analysis of financial operations:
The financial statements reveal the net effect of various transactions on
the operational and financial position of a concern. The balance sheet gives a static
view of the resources or a business and the uses to which these resources have
been put at a certain point of time. But it does not disclose the causes for changes
in the assets and liabilities between two different points of time.

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The funds flow statement explains causes for such changes and also the
effect of these changes on the liquidity position of the company. Sometimes a
concern may operate profitably and yet its cost position may become more and
worse. The funds flow statement gives a clear answer to such a situation explains
what has happened to the profit of the firm.
2. It helps the formation of a realistic dividend policy, sometimes a firm has
sufficient profits available for distribution as dividend but yet it may not be
advisable to distribute divided for lack of liquid of cash resources. In such cases, a
funds flow statement helps in the formation of a realistic dividend policy.
3. It helps in the proper allocation of resources: the resources of a concern are
always limited and it wants to make the best use of these resources. Managerial
decisions. The firm can plan the deployment of its resources and allocate them
among various applications.
4.It acts as a future guide; a projected funds flow statement also acts as a guide for
future to the management. The management can come to know the various
problems it is going to lace in near future for want of funds. The firm’s future
needs of funds can be projected well in advance and also the timing of these needs.
The firm can arrange to finance these needs more effectively and avoid future
problems.
6. It helps in appraising the use of working capital: a funds flow statement helps in
explaining how efficiently the management has used is working capital and also
suggests ways to improve working capital position of the firm.

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7. it helps knowing the overall credit worthiness of a firm: the financial institutions
and banks such as state financial institutions, industrial Development corporation,
industrial financial corporation of India, industrial development bank of India etc.,
all ask for funds flow statement constructed for a number of years before granting
loans to know the credit worthiness and paying capacity of the firm. Hence a firm
seeking financial assistance from these institutions has no alternative but to
prepare funds flow statements.
Limitations of funds flow statement:The funds flow statement has a number of uses; however it has certain limitations
also, which are listed below:
1. It should be remembered that a funds how statement is not a substitute of an
income statement or a balance sheet. It provides only some additional information
as regards changes in working capital.
2. It cannot reveal continuous changes.
3. It is not an original statement but simply is arrangement of data given in

the

financial statements.
4. It is essentially historic in nature and projected funs flow statement cannot be
prepared with much accuracy.
5. Changes in cash are more important and relevant for financial management than
the working capital.
6. Cash flow statement: a statement of changes in the financial position of firm on
cash basis is called a cash flow statement.

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Such a statement enumerates net effects of the various business
transactions on cash and takes into account receipts and disbursements of cash. A
cash flow statement summarizes the causes of changes in cash position of a
business enterprise between dates of two balance sheets. This statement is very
much similar to the statement of changes in financial position prepared on working
capital basis i.e., a funds (low statement, except that a cash called a cash flow
statement because it describes the inflow (sources) and outflow (uses) of cash.
Comparison between Funds Flow and Cash Flow Statement:The term ‘funds’ has a variety of meanings. In a narrow sense it means
cash and the statement of changes in the financial position prepared on cash basis
is called a cash flow statement. In the most popular sense, the term ‘funds’ refers
to working capital and a statement of changes in the financial position prepared on
tills basis is called a funds flow statement. A cash flow statement is much similar
to a funds flow statement as both are prepared to summaries the causes of changes
in the financial position of a business. However, following are the main
differences between funds and a cash flow statement.
1. Funds flow statement is based on a wider concept of funds I.e., working capital
while cash flow statement is based in the narrower concept of funds, i.e., cash
only, which is only one element of working capital, the other being debtors stock,
temporary investment, bills receivable etc.
2. Funds flow statement is based on accrual basis of accounting while cash flow
statements are based on cash basis of accounting. In cash flow statement while
calculating operating profits, adjustments for prepaid and outstanding expenses

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and income are made to convert the data from accrual basis to cash basis, but no
such adjustments are required to be made while preparing a funds flow statements.
3. Funds flow statement does not reveal changes in current assets and current
liabilities, rather these appear separately in a schedule of changes in working
capital. No such schedule of change in working capital is prepared for a cash flow
statement and changes in all assets and liabilities fixed as well as current, are
summarized in the cash flow statement.
4. Cash flow statement is prepared by taking the opening balance of cash, adding
to this all the inflow of cash and deducting the outflows of cash from the total. The
balance, i.e., opening balance of cash and inflows of cash minus outflows of cash,
is reconciled with closing balance of cash. No such opening or closing balance
appears in a funds flow statement. The net difference between sources and
applications of funds does not represent cash rather it reveals the net increase or
decrease in working capital.
5. Funds flow statement is useful in planning intermediate and long-term financing
while as cash flow statement is more useful for short-term analysis and cash
planning of the business.
Uses and Significance of Cash flow Statement:Cash flow is of vital importance to the financial management. It is an essential tool
of financial analysis for short-term planning. The chief advantages of cash flow
statement are as follows:
1. Since cash flow statement is based on the cash basis of accounting, it is very
useful in the evaluation of cash position of a firm.

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2. A projected cash flow statement can be prepared in order to know the future
cash position of a concern so as to enable a firm to plan and coordinate its
financial operations properly. By preparing this statement, a firm can come to
know as to how much cash will be generated into the firm and how much cash will
be needed to make various payments and hence the firm can well plan to arrange
for the future requirements of cash.
3. A comparison of the historical and projected cash flow statements can be made
so as to find the variations and deficiency or otherwise in the performance so as to
enable the firm to take immediate and effective action.
4. A series of intra-firm and inter-firm cash statement reveals whether the firm’s
liquidity (short-term paying capacity) is improving or deteriorating over a period
of time and in comparison to other firms over a given period of time.
5. Cash flow statement helps in planning the repayment of loans, replacement of
fixed assets and other similar long-term planning of cash. It is also significant of
capital budgeting decisions.
6. It better explains the causes for poor cash position in spite of substantial profits
in a firm by throwing light on various applications of cash made by the firm. It
further helps in answering some intricate questions like what happened to the net
profits. Where did the profits go? Why more dividends could not be paid in spite
of sufficient available profit?
7. Cash flow analysis is more useful and appropriate than funds flow analysis for
short-term financial analysis as in a very short period it is cash which is more

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relevant then the working capital for forecasting the ability of the firm to meet its
immediate obligation.
Ratio Analysis:One of the techniques of analysis of financial statements is to calculate
ratios. Ratio is the numerical or an arithmetical relationship between two figures.
It is expressed when one figure is divided by another. If 4000 is divided by 10,000
the ration can be expressed as 4 or 2:5 or 40%.
Absolute figures are valuable but they standing alone convey no meaning
unless compared with another. Accounting ration inter-relationships, which exist
among various accounting data? When relationships among various accounting
data supplied by financial statements are worked out, they are known as
accounting ratios.
Accounting ratios can be expressed in various ways such as:
i. A pure ratio say ratio of current assets to current liabilities is 2:I or
ii. A rate say current assets are two times of current liabilities or
iii. A percentage say current assets are 200% of current liabilities.
Each method of expression has distinct advantage over the other. The analyst will
select that mode which wills best-suit his convenience and purpose.

Classification of Ratios:Ratios may be classified in a number of ways keeping in view the
particular purpose. Ratios indicating profitability are calculated on the basis of the
profit and loss account, those indicating financial position are computed on the

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basis of the balance sheet and those which operating efficiency or productivity or
effective use of resources are calculate on the basis of figures in the profit and loss
account and the balance sheet.
This classification is rather crude and unsuitable to determine the
profitability and financial position of the business. To achiever this purpose
effectively ratios may be classified as:
1. Profitability Ratios
2. Turnover Ratios
3. Financial Ratios
4. Leverage Ratio
1. Profitability Ratios:Profitability Ratios are of outmost importance for a concern; these ratios
are calculated to enlighten the end results of business activities, which is the sole
criterion of the overall efficiency of a business concern
2. Turnover (Performance or Activity) Ratios:These ratios are very important for a concern to judge how well facilities
at the disposal of the concern are being used or to ratios are usually calculated on
the basis of sales or cost of sales and are expressed in integers rather than as
percentage. Such ratios should be calculated separately for each type of asset.
Higher the turnover ratio, the profitability and use of capital or resources will be.
The following are the important turnover ratios usually calculated by a concern.
3. Financial Ratios:These ratios are calculated to judge the financial position of the concern
from long-term as well as short-term solvency point of view. The following are the
ratios, which are calculated in the respect.

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4. Leverage Ratios:Leverage Ratios to an increased means of accomplishing some purpose.
In financial management it refers to employment of funds to accelerate rate of
return to owners. It may be favorable or unfavorable. An unfavorable leverage
exists if the rate of return remains to however. It can be used as a tool of financial
planning by the finance manager.
Plan of the Study:From the above description it can be said that the financial statement
analysis, particularly ratio analysis plays an important role in analyzing the
financial position of any organization. N the light of this back ground the study has
been taken up to analyze the ratios to analyze the financial position of ECIL taking
ratios analysis as technique study is organized in the manner described below.
Financial Statements Analysis of ECIL
 Introduction
 Meaning and concept of Financial Analysis
 Financial Statements of ECIL
 Methods or Devices of Financial Analysis
 Users of Financial Analys

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CHAPTER-III
LIQUIDITY RATIO:
1. Current Ratio:

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M.B.A Programme

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Current ratio is the ratio of current asserts and current liabilities. It
indicates the ability of a company in meeting the current obligation. It is
significant the short-term creditors and management.

Table- 3.1
Years
2005-2006

Current Assets in lakhs
5920

Current Liabilities
2086

Ratio
2.84

2006-2007

6350

2345

2.71

2007-2008

6244

1727

3.61

2008-2009

5051

1881

2.68

2009-2010

6448

2181

2.95

Bar Chart-3.1

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M.B.A Programme

JOCIl

CURRENT RATIO
4
3.5
3
2.5
2
1.5
1
0.5
0

3.61
2.84

2.71

2.95

2.68

2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Line Chart- 3.1
CURRENT RATIO
4
3.61

3.5
3

2.84

2.5

2.95
2.71

2.68

2
1.5
1
0.5
0
2005-2006

2006-2007

2007-2008
YEARS

INTERPRETATION:

Nalanda Institute of P.G Studies

2008-2009

2009-2010

M.B.A Programme

JOCIl

1) In the above current ratio of JOCIL Ltd is fluctuating under the period of study
from one year to year.
2) During the year 2005-2006 JOCIL Ltd has a current ratio of 2.84, during the
year 2006-2005 current ratio is decreased to 2.17 and in the year 2007-2008
increased to 3.61 and in the year 2008-2009 the current ratio is decreased to
2.68 and where as the current ratio in the year 2009-2010 is at 2.95.
3) The company has maximum current ratio of 3.61 during the year 2007-2008 due
to the higher increase in current liabilities. The more than proportionate
increase in Current Assets and slighter increase in current liabilities caused to
have maximum current ratio for the year 2007-2008. The minimum value of
current ratio is 2.68 in the year 2008-2009.
4) The current ratio of Jocil has been above the satisfactory when compared with
the ideal ratio of 2:1 for entire period of study is 2005-2006 to 2009-2010.
5) In the year 2004-2005 the current ratio has to reach the maximum level. It has
more liquidity more than the required.

2. QUICK Ratio:

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It is also known as acid test or liquid ratio is more rigorous test of liquidity than
the current ratio. Quick ratio may be defined as the relationship between the
quick/liquid assets and current/ liquidities. An asset is said to be liquid if it can be
converted in to cash within a short period without loss of value. Inventories cannot be
termed to be liquid assets because they cannot be converted in to cash immediately. A
quick ratio 1: 1 usually considered good.

Quick Assets = Current Assets – Inventories
Quick liabilities = Current liabilities – Bank Over Draft

Current Assets Include cash, marketable securities and account receivables.
Current Liabilities Include Creditors, bills Payable, Outstanding
expenses, short-term loan and over-draft etc.
Table-3.2

Years
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

Current Assets in lakhs Current Liabilities
4359
1848
4462
2108
4930
1707
3999
1689
5109
2028
Bar Char-3.2.

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Ratio
2.36
2.17
2.88
2.37
2.34

M.B.A Programme

JOCIl

20

QUICK Ratio
3.5
2.88

3
2.5

2.36

2.37

2.17

2.51

2
1.5
1
0.5
0
2005-2006

2006-2007

2007-2008

2009-2010

Years

Line Chart-3.2
QUICK Ratio
3.5
3
2.5

2.88
2.36

2

2.37

2.17

2.51

1.5
1
0.5
0
2005-2006

2006-2007

2007-2008
Years

s

Nalanda Institute of P.G Studies

2008-2009

2009-2010

M.B.A Programme

JOCIl

INTERPRETATION:
I. Generally a Quick ratio 1:1 is considered to represent a satisfactory current
sound liquidity position.

II. In the year 2005-2006 Jocil Ltd has a quick ratio is 2.36 and in the year 20062007 the quick ratio is decreased to 2.17 and in the year 2007-2008 the quick
ratio has slighter increased up to 2.88, in the year 2008-2009 the quick ratio is at
2.37 and in the year 2009-2010 the quick ratio is increased to 2.51

III. The quick ratio maximum value is 2.88 in the year 2007-2008. There is an
increased in the quick assets. So that the ratio increased in the year.

IV. The quick ratio minimum value is 2.17 in the year 2007-2008. There is a
decrease in the quick assets. So that the ratio decreasing in the year.

V. In the year 2006-2007the quick ratio is 2.17 it is very low because the current
liabilities is higher the quick assets but in the year 2007-2008 the firm is high
quick assets over the current liabilities.

3. Cash Ratio (Super Quick Ratio):

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M.B.A Programme

JOCIl

Cash is the most liquid asset a financial analyst may examine cash ratio and its
equivalent to current liabilities. Trade investment and marketable securities are
equivalent of cash.

Current liabilities include creditors, bills payable, outstanding expenses, short term loan
and bank over-draft etc.

Table-3.3
Years
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

Cash & Bank balance

Current Liabilities

Ratio

in lakhs
172
95
453
279
1233

in lakhs
2086
2345
1727
1881
2181

0.08
0.04
0.27
0.15
0.57

Bar Chart-3.3

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JOCIl

CASH RATIO
0.57

0.6
0.5
0.4
0.27

0.3
0.2

0.15
0.08

0.1

0.04

0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Line Chart-3.3

CASH RATIO
0.6

0.57

0.5
0.4
0.3

0.27

0.2
0.15
0.1

0.08
0.04

0
2005-2006

2006-2007

2007-2008
YEARS

INTEPRETATION:

Nalanda Institute of P.G Studies

2008-2009

2009-2010

M.B.A Programme

JOCIl

I. The above table shows the relationship between super quick assets like cash, bank
and marketable securities and the current liabilities like creditors, bills payable and
out standing expenses etc.

II. In the year 2005-2006 Jocil Ltd has a super quick ratio is 0.08 in the year 20062007super quick ratio is decreased to 0.04, in the year 2007-2008 the super quick
ratio is increased to 0.27, in the year 2008-2009 the super quick ratio is decreased to
0.15 in the year 2009-2010 the super quick ratio is increased to 0.57.

III. The super quick ratio maximum value is 0.57 during the year 2009-2010. There is a
decreased in the current liabilities so that the ratio is increasing in the year.

IV. The super quick ratio minimum value is 0.04 during the year 2006-2007. In the year
2006-2007 the super quick ratio very low because the current liabilities is higher the
cash and bank balance. So that the ratio is decreasing in the year.

V. The super quick ratio has been increasing trend over a period of time 2005-2006 to
2009-2010.

LEVERAGE RATIO:

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1.

JOCIl

Debt- Equity Ratio:
The term Debt signifies total indebtedness of the company as shown by

its short and long term obligations.
Equity refers to the aggregate ownership interest measured by the total share
capital plus any reserves, which may rightly and legitimately be appropriate to the
shareholders.

Total Debt = Secured + UN Secured loan.
Net Worth = Share Capital + Reserves & surplus.

Table -3.4

Years
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

Total Debt in lakhs
939
790
168
356
333

Net worth in Lakhs
6219
6816
7622
7663
7913

Bar Chart-3.4

Nalanda Institute of P.G Studies

Ratio
0.151
0.116
0.02
0.04
0.04

M.B.A Programme

JOCIl

DEBT EQUITY RATIO
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

0.151
0.116

0.04

0.04

0.02
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Line Chart-3.4
DEBT EQUITY RATIO
0.16
0.151
0.14
0.12

0.116

0.1
0.08
0.06
0.04
0.02

0.04

0.04

2008-2009

2009-2010

0.02

0
2005-2006

2006-2007

2007-2008
YEARS

INTERPRETATION:

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M.B.A Programme

JOCIl

I. The debt equity ratio of Jocil Ltd has been decreasing during the year 2007-2008.

II. The company has been maintaining less proportion of debt at 0.151 in the year
2005-2006which is decreased to 0.04 in the year 2009-2010.

III. In the year 2005-2006 Jocil limited has a debt equity ratio is 0.151 in the year
2006-2007 debt equity ratio is decreased to 0.116, in the year 2007-2008debt
equity ratio is decreased to

.02 and in the year 2008-2009 there is a slighter

increased in debt equity ratio at 0.04 and in the year 2009-2010 the debt equity
ratio is constant at 0.04.

IV. The debt equity ratio maximum value in 0.151 during the year 2005-2006.
There is an increased in the total debt and there is a decreased in the Net worth
so that the ratio increasing in the year.

V. The minimum value of Debt equity ratio is 0.02 during the year of 2007-2008.
There is an increased in the net worth so that the ratio decreasing in the year.

VI. The company may further increase its debt preparation to the standard normal
advantage of the leverage effect.

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2. CAPITAL EMPLOYED TO NETWORTH RATIO:
It express how much funds are being contributed together by lenders and owners
for each rupee of the owners, contribution. This can be finding out by dividing capital
employed by net worth.

Capital Employed = Fixed assets + Net working Capital
Net Worth = Share Capital + Reserves & Surplus

Table -3.5

Years

CAPITAL

NET WORTH

EMPLOYED

IN Rs. LAKHS

2008-2009

IN Rs. LAKHS
7489
2224
8253
8412

6220
6816
7623
7664

1.20
0.32
1.08
1.09

2009-2010

8955

7914

1.13

2005-2006
2006-2007
2007-2008

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Ratio

M.B.A Programme

JOCIl

Bar chart-3.5

CAPITAL EMPLOYED TO NETWORTH RATIO
1.4
1.2
1
0.8
0.6
0.4
0.2
0

1.2

1.08

1.13

1.09

0.32

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Line chart-3.5

CAPITAL EMPLOYED TO NETWORTH RATIO
1.4
1.2

1.2
1.08

1.09

2007-2008

2008-2009

1.13

1
0.8
0.6
0.4
0.32
0.2
0
2005-2006

2006-2007

YEARS

Nalanda Institute of P.G Studies

2009-2010

M.B.A Programme

JOCIl

INTERPRETATION:
I.

The above table shows the relationship between the Capital Employed & Net worth.

II.

The Capital Employed to Net worth Ratio is fluctuating from year to year.

III.

In the year 2005-2006 Jocil Ltd has a capital employed to net worth ratio is at 1.20,
in the year 2006-2007the ratio has decreased to 0.32 and in the year 2007-2008 the
ratio has increased to 1.08, in the year 2008-2009 the ratio has increased to 1.09, in
the year 2009-2010 ratio is increasing to 1.13

IV.

The capital employed to net worth ratio maximum value is 1.20 in the year 20052006. There is a decrease in the net worth. So that the ratio increasing in the year.

V.

The minimum value of capital employed to net worth ratio is 0.32 during the year
2003-2004. There is a decrease in the capital employed so that the ratio is decreasing
in the year.

3. INTEREST COVEAGE RATIO:
This is used to indicate the number of times interest charge has been earned and
how much safety margin is available to the shareholders. It is computed by dividing
profit before Interest and taxes by Interest changes. A high ratio is a sign of low burden of
borrowing of the business. The ratio shows the number of items changes are covered by
funds that are ordinary available payments.

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EBIT = N.P + INTEREST + TAXES
Table-3.6
Years
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

EBIT IN LAKHS
1036
1080
1030
2446
726

INTEREST IN LAKHS
83
55
18
4
5

Ratio
12.48
19.6
57.22
611.5
145.2

Bar chart-3.6

INTEREST COVERAGE RATIO
700
600
500
400
300
200
100
0

611.5

145.2
12.48

19.6

57.22

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

Line chart-3.6

INTEREST COVERAGE RATIO
700
611.5

600
500
400
300
200

145.2
100
57.22
0

12.48
2005-2006

19.6
2006-2007

2007-2008

2008-2009

2009-2010

YEARS

INTERPRETATION:
I. The above table shows the relationship between EBIT and INTEREST. It
indicates the ability of a firm to meet its interest obligations.
II. In the year 2005-2006 Jocil Ltd has a interest coverage ratio is 12.48, in the year
2006-2007 interest coverage ratio is increased to 19.6, in the year 2007-2008 the
interest coverage ratio is increased to 57.22, in the year 2008-2009 interest
coverage ratio is further increased to 611.5, in the year 2006-2010 interest
coverage ratio is increased to 145.2

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JOCIl

III. As observed from the above table, the EBIT of the company is very little more
than the interest. In the year 2005-2006 the ratio is 12.48 and then increases in the
year 2009-2010 it is at 145.2
IV. The interest coverage ratio has a maximum value of 145.2 times in the year 20092010, for the period of study. Because, there is a decrease in the EBIT and the
decrease in interest amount is phenomenal.
V. The interest coverage ratio has a minimum value of 12.48 in the year 20052006as the interest amount is high for the entire period of study.

1. DEBTORS TURN OVER RATIO:
Firm sales goods for cash and credit. Credit is used as a marketing tool by a
number of companies. When the firm extends credit to its customers. Debtors are credited
in the firm’s accounts.
Debtor’s turnover indicates the number of items debtor’s turnover each over each
year. Generally, the higher value of debtors turnover, the higher value of debtor’s
turnover, the more efficient is the management of credit.

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Sales mean Net sales that can be obtained Gross- Excise Duty.
Table-3.7
Years
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

CREDIT SALES

CLOSING BALANCE OF

Ratio

IN LAKHS
7378
8319
7722
7302
8455

DEBTORS RS IN LAKHS
1099
1137
1361
1510
1522

6.71
7.31
5.67
4.83
5.55

Bar chart-3.7

DEBTORS TURN OVER RATO
8
7
6
5
4
3
2
1
0

6.71

7.31
5.67

4.83

5.55

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

Line chart-3.7

DEBTORS TURN OVER RATIO
8
7

7.31
6.71

6

5.67

5

5.55
4.83

4
3
2
1
0
2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

YEARS

INTERPRETATION:
I. The above table shows the relationship between the Net credit sales and the
average debtors.
II. The debtors Turn over ratio have been fluctuating from year to year.
III. The debtor Turnover ratio of Jocil Ltd is 6.71 times in the year 2005-2006it is
increased form 7.31 times in 2006-2007, it decreased to 5.67 times in 20072008, it decreased to 4.38 times, it increased from 4.38 to 5.55 in the year
2009-2010

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M.B.A Programme

JOCIl

IV. The debtors turn over ratio maximum value is 7.31 in the year 2006-2007.
There is a decreased in the sales. So that the ratio increasing in the year.
V. The minimum value of debtor’s turnover ratio is 4.83 in the year 2008-2009.
There is an increased in the credit sales and there is an increased in the sales.
So that the ratio decreasing in the year.
VI. The company’s debtor’s turnover is very high in the year 2006-2007 which
indicates that debtors are being collected more rapidly.
VII. The overall trend for the debtor turnover ratio is moving in the narrow range
with decline trend due to increase in credit sales and less proportionate increase
in average debtors for the period of study.

Average collection Period

Table-3.8

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M.B.A Programme

Years

JOCIl

365/ D.T.O

DEBTORS COLLECTION

365/6.71
365/7.31
365/5.67
365/4.83
365/5.5

period in days
54
49
64
75
65

2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

INTERPRETATION:
I.

II.

III.

The above table shows the debtor’s collection period of the company.

The debtor’s collection period is fluctuation from year to year.

The debtor’s collection period of Jocil Ltd is 54 days in the year 2005-2006, in the
year 2006-2007it is decreased to 49 days, in the year 2007-2008 the debtors
collection period increased to 64 days and in the year 2008-2009 it is further
increased to 75 days and in the year 2009-2010 it is reduced to 65 days.

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M.B.A Programme
IV.

JOCIl

For the period of study, the maximum debt collection period is 75 days in the year
2008-2009.

V.

For the period of study, the minimum collection period is 49 days in the year 20062007.

2. CREDITORS TURNOVER RATIO:
Creditor’s turnover ratio is the ratio between creditors and purchases. It is the
ratio, which indicates the number of times the creditors are paid in a year.

This indicates the rate at which payments are made to creditors or the number of
times payments are made to creditors

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Table-3.9

Years
2005-2006
2006-2007
2007-2009
2008-2009
2009-2010

PURCHASES IN

AVERAGE CREDITORS

Ratio

Rs. LAKHS
4368
4672
3529
3773
4716

IN Rs. LAKHS
381
367
335
411
470

11.46
12.73
10.53
9.18
10.03

Bar chart-3.9

CREDITORS TURNOVER RATIO
14
12
10
8
6
4
2
0

11.46

12.73
10.53

9.18

10.03

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Line chart-3.9

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M.B.A Programme

JOCIl

CREDITORS TURN OVER RATIO
14
12

12.73
11.46
10.53

10

10.03
9.18

8
6
4
2
0
2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

YEARS

INTERPRETATION:
I. The above table shows the relationship between the net annual credit purchases
and the average creditors.

II. The creditors Turn over ratio margin of Jocil Ltd has been increased in the
period 2009-2010 there after it is decreased in the year 2009-2010 it is
increased.

III. The creditors Turnover ratio maximum value is 12.73 in the year 2006-2007.
There is a increased in the purchases and there is a decrease in the average
creditors so that the ratio increasing in the year.

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M.B.A Programme

JOCIl

IV. The creditors turn over ratio minimum value is 9.18 in the year 2008-2009.
There is a increased in the average creditors. So that the ratio decreasing in the
year.

V. The creditors turn over ratio of Jocil Ltd is 11.46 times in the year 2005-2006, It
is increased form 11.46 times to 12.73 in the year 2006-2007, It is decreased to
10.53 times in the year 2007-2008, it decreased to 9.18 times in the year 20092010 it increased to 10.03

VI. Creditor’s turnover ratio seems to be constant during past 5 years.

3. WORKING CAPITAL TURNOVER RATIO:
It is the ratio between working capital and Turnover

This ratio indicates the efficiency (or) in efficiency ness of utilization of
working capital of an enterprise there is no standard or ideal working capital turnover
ratio. But one can say that the higher the working capital turnover ratio the greater is
efficiency. It should be noted that a very high working capital turnover ratio means
overtrading, and very low working capital turnover ratio means under trading Non- of
which is good for a concern.

Table-3.10

Nalanda Institute of P.G Studies

M.B.A Programme

Years
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

JOCIl

NET SLAES

WORKING CAPITAL

Ratio

Rs. LAKHS
7378
8319
7722
7302
8455

IN Rs. LAKHS
3834
4005
4517
3170
4196

1.92
2.7
1.70
2.30
2.01

Bar chart-3.10

WORKING CAPITAL TURNOVER RATIO
2.5
2

1.92

2.3

2.07

2.01
1.7

1.5
1
0.5
0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Bar chart-3.10

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

WORKING CAPITAL TURNOVER RATIO
2.5
2.3
2.07

2

2.01

1.92
1.7

1.5

1

0.5

0
2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

YEARS

s

INTERPRETATION:

I. In the working capital turn over ratio is better to the organization. In the year 20052006 It is 1.92times, in the year 2006-07 it is 2.07 times, in the year 2007-2008 it is
1.07 times, in the year 2008-2009 it is 2.03 times and in the year 2009-2010 it is
2.01 times..

II. The working capital turn over ratio maximum value is 2.30 in the year 2008-2009.
There is a decrease in the working capital. So that the ratio increasing in the year.

III. The working capital turnover ratio minimum value is 1.07 in the year 2008-2009.
There is a decrease in the sales so that the ratio decreasing in the year.

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M.B.A Programme

JOCIl

IV. The working capital turnover ratio has constant trend over a period of time from 2005
to 2010

4. FIXED ASSETS TURNOVER RATIO:
Fixed assets turnover ratio is the ratio between fixed assets and turnover. Fixed
assets, here, means net fixed assets i.e. fixed assets less depreciation. This ratio
indicates as to what extent the fixed assets of a concern have contributed.

The Standard or ideal fixed assets turn over ratios is 5 times so, as fixed assets
turnover ratio is 5 times so, a fixed assets turnover ratio is 5 times. So, a fixed assets
turn over ratio of 5 times or more indicates better utilization of fixed assets. It may be
noted that a very high fixed assets turnover ratio means under trading, which is not
good for the business.

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M.B.A Programme

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Table-3.11
Years

NET SLAES

NET FIXED ASSETS

Ratio

2008-2009

Rs. LAKHS
7378
8319
7722
7302

RS. IN LAKHS
3244
3789
3693
5296

2.27
2.19
2.09
1.37

200-2010

8455

4758

1.77

2005-2006
2006-2007
2007-2008

Bar chart-3.11

FIXED ASSETS TURNOVER RATIO
2.5

2.27

2.19

2.09

2

1.77
1.37

1.5
1
0.5
0

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Line chart-3.11

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M.B.A Programme

JOCIl

FIXED ASSETS TURNOVER RATIO
2.5
2.27

2.19

2.09

2

1.77
1.5

1.37

1

0.5

0
2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

YEARS

INTERPRETATION:
I. The above table shows the relationship between the sales and the net fixed
assets. This ratio reveals that how far thy utilizing their fixed assets to generate
the sales.

II. The fixed assets turnover ratio margin of Jocil Ltd has been decreasing from
2005-2006 to 2009-2010.

III.

In the year 2005-2006 the Jocil Ltd fixed assets turnover ratio is 2.27 in the
year 2006-2007 it is decreased to 2.19, in the year 2007-2008 it is further
decreased to 2.09 in the year 2008-2009 it is further decreased to 1.37, in the
year 2009-2010 it is increased to 1.77

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M.B.A Programme

JOCIl

IV. The fixed assets turnover ratio maximum value is 2.27 in the year 2005-2006.
There is an increased in the sales. So that the ratio increased in the year.

V. The fixed assets turnover ratio minimum value is 1.37 in the year 2008-2009.
There is a increased in the fixed assets. So that the ratio decreased in the year.

VI. In 2008-2009 the fixed assets turnover ratio is very low because the assets are
very high, so the sales are low to compare the period of time.

5. TOTAL ASSETS TURNOVER RATIO:
This is the ratio between total assets and Net sales.

This ratio indicates the efficiency or in efficiency in the use of total resources or
assets of a concern. The standard ratio is that the sales should be at least two times the
value of the assets. A total assets turnover ratio of 2 times or more indicates that the
assets of a concern have been utilized effectively.
Table-3.12

Years

NET SLAES
Rs. LAKHS

Nalanda Institute of P.G Studies

TOTAL ASSETS IN Rs.
IN LAKHS

Ratio

M.B.A Programme

JOCIl

2005-2006

2008-2009

7378
8319
7722
7302

9599
10308
10018
10347

0.76
0.80
0.77
0.70

2009-2010

8455

11230

0.75

2006-2007
2007-2008

Bar chart-3.12

TOTAL ASSETS TURNOVER RATIO
0.82
0.8
0.78
0.76
0.74
0.72
0.7
0.68
0.66
0.64

0.8
0.76

0.77
0.75
0.7

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Bar chart-3.12

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

TOTAL ASSETS TURNOVER RATIO
0.82
0.8

0.8

0.78
0.76

0.77

0.76

0.75

0.74
0.72
0.7

0.7

0.68
0.66
0.64
2005-2006

2006-2008

2007-2008

2008-2009

2009-2010

YEARS

INTER PRETATION:

I.

The above table shows the relationship between the sales and the total assets.
Through this ratio we can identify how much sales are generating by utilizing the
total assets.

II.

III.

The total assets turnover ratio of Jocil Ltd is fluctuating in all years.

The total assets turnover ratio of Jocil ltd is at 0.76 in the year 2005-2006, in the year
2006-2007 is increased to 0.80, there after it is decreased to 0.77 in the year 20072008, it is decreased to 0.70 in the year 2008-2009, in the year of 2009-2010 it is
increased to 0.75

Nalanda Institute of P.G Studies

M.B.A Programme
IV.

JOCIl

The total assets turnover ratio maximum value is 0.80 in the year 2006-2007.
There is an increased in the sales. So that the ratio is increasing in the year.

V.

The total assets turnover ratio minimum value is 0.70 in the year 2008-2009.
There is a decreased in the sales and there is a fixed assets increase. So that the ratio
is decreasing in the year.

1. NET PROFIT RATIO :Net profit means final balance of operating and non-operating incomes after
meeting all the expenses that is operating and non- operating. Sales means total sales,
but net sales i.e. total sales – sales returns

Net Profit = Gross Profit - Operating Expenses.
This ratio indicates the quantum of profit earned by a concern. A high net profit ratio
indicates that the profitability of the concern is good. A low net profit ratio indicates
that the profitability of the enterprise is poor.

Table-3.13

Nalanda Institute of P.G Studies

M.B.A Programme

Years
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

JOCIl

NET PROFIT IN

NET SLAES in

Net profit

LAKHS
833
973
1110
294
556

LAKHS
7378
8319
7722
7302
8455

in %
11.2
11.6
14.3
1.02
22.6

Bar chart-3.13

NET PROFIT RATIO
25

22.6

20
15

11.2

11.6

14.3

10
4.02

5
0

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Bar chart-3.13

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

NET PROFIT RATIO
25
22.6
20

15

14.3
11.6

11.2
10

5

4.02

0
2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

INTERPRETATION:
I. The above table shows the relationship between the net profit and sales.

II. The net profit of Jocil Ltd is 11.2 in the year 2005-2006, in the year 2006-2007it
is increased to 11.6, then in the year 2007-2008 it is increased to 14.3 and there
after it is decreased to 4.02 in the year 2008-2009, 22.6 is the year of 20092010it is increased the last year

III. The net profit margin has a maximum value of 22.6 in the year 2009-2010.
There is an increased in the net profit so that the ratio is increasing in the year.

IV. The net profit is 4.02 in the year of 2008-2009 there is an increased in the net
sales and there is a net profit decreased so that the ratio decreasing in the year.

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

2. OPERATING PROFIT RATIO:
Operating profit is the net profit earned from the business for which the business
for which the concern is started. In other words, it is the excess of net sales over the
operating cost.
The operating profit ratio is generally expressed as a percentage.

The operating profit ratio also indicates the operating efficiency or inefficiency of
a business. The standard or ideal operating profit is 10% so an operating profit ratio of
10% or more is and indication of operating efficiency of the business. On the other hand,
an operating profit ratio of less than 10% is an indication of operating efficiency of the
business.

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

Table-3.14

Years

OPERATING PROFIT

NET SLAES

Ratio

IN LAKHS
1036
1080
1030
2446
726

LAKHS
7378
8319
7722
7302
2456

0.14
0.13
0.13
0.33
0.30

2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

Bar chart-3.14

OPEARATING PROFIT RATIO
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0

0.33

0.14

0.13

0.3

0.13

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Line chart-3.14

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

OPERATING PROFIT RATIO
0.35

0.33

0.3

0.3

0.25
0.2
0.15

0.14

0.13

0.13

0.1
0.05
0
2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

YEARS

INTERPRETATION:
I. The above table shows the relationship between the operating expenses and sales.

II. The operating profit ratio has been increasing trend over a period of time form
2005-2010.

III. In the above table operating profit ratio of Jocil Ltd is fluctuating from year to year.
Net sales increasing during the period of 2005-2007 there after it is decreased.

IV. The operating profit of Jocil Ltd is in the year 2005-2006 it is 0.14, in the year
2006-2007 it is decreased 0.13, in the year 2007-2008 it is constant at 0.13, in the
year 2008-2009 it is increased 0.33, in the year of 2009-2010 it is decreased than to
the last year.

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

V. The operating ratio maximum value is 0.33 in the year 2008-2009. There is a
decrease in the sales. So that the ratio increasing in the year.

VI. The operating profit minimum value is 0.13 in the year of 2006-2008. There is an
increased in the sales so that the ratio decreasing year by year.

2. RETURN ON EQUITY:
It is the ratio, which expressed the relationship between the Net profit and share
holders fund. This ratio indicates how well the firm has used the resources of owners.

Net Worth = Share Capital + Reserves & Surplus
1) This Ratio indicates the Productivity of share holders.
2) It also gives the shareholders and idea of the return of their funds.
3) It is also useful for inter-firm and inter-industry comparison.
The standard or ideal net profit to net worth is about 13%.

Table-3.15

Nalanda Institute of P.G Studies

M.B.A Programme

Years

JOCIl

PROFIT AFTER TAX

NET WORTH

ROE

IN LAKHS
833
973
1110
294
556

LAKHS
6220
6816
7623
7664
7914

In %
0.13
0.14
0.15
0.03
0.07

2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

Bar chart-3.15

RETURN ON EQUITY
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

0.13

0.14

0.15

0.07
0.03

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Line chart-3.15

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

RETURN ON EQUITY
0.16
0.15
0.14

0.14
0.13

0.12
0.1
0.08
0.07
0.06
0.04
0.03
0.02
0
2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

YEARS

INTERPRETATION:
I. The above table shows the relation ship between the profit after tax and Net
worth.

II. The return on investment has been declining trend over a period of time form
2005-2010.

III. The return on equity of Jocil Ltd is in the year 2005-2006 is 0.13, in the year
2006-2007it is increase to 0.14, in the year 2007-2008 it is increased to 0.15 there
after it is decreased to 0.03 it the year 2008-2009 and in the year 2009-2010 it is
increased to 0.07.

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

IV. The return on equity maximum value is 0.15 in the year 2007-2008 There is an
increase in the profit after tax and increase in the net worth so that the ratio
increasing in the year.

V. The return on equity minimum value is 0.03 in the year 2008-2009. There is an
increased in the net worth. So that the ratio decreasing in the year.

3. RETURN ON INVESTEMENT:
Return on investment is the relation ship of profit after tax and investment
supplied by shareholders and lenders. Return on investment is the operating efficiency
of the firm.

Capital Employed = Fixed assets + Net working capital.
Table-3.16

Years

PROFIT AFTER TAX
IN LAKHS

Nalanda Institute of P.G Studies

CAPITAL EMPLOYED

Ratio

M.B.A Programme

JOCIl

2005-2006

833
973
1110
294
556

2006-2007
2007-2008
2008-2009
2009-2010

7489
2224
8253
8412
8955

0.11
0.43
0.13
0.03
0.06

Bar chart-3.16
RETURN ON INVESTMENT
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0

0.43

0.11

0.13
0.03

0.06

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
YEARS

Bar chart-3.16

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

RETURN ON INVESTEMENT
0.5
0.45

0.43

0.4
0.35
0.3
0.25
0.2
0.15
0.1

0.13

0.11

0.06

0.05

0.03

0
2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

YEARS

s

INTERPRETATION:
I. The above table shows the relationship between the profit after tax and capital
employed.

II. The return on investment has been fluctuating year by year

III. The table of return on investment of Jocil Ltd indicates the proportion return
(PAT) of the investment by share holders and lenders. The ratio of Jocil Ltd has
been increasing to the period of 2006-2007 there after it is decreased.

IV. The return on investment of Jocil Ltd is at 0.11 during the year 2007-2008, in
the year 2006-2008 the return on investment ratio is decreased to 0.13, there

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

after in the year 2008-2009 the ratio has decreased to 0.03 and in the year 20092010 there is a slighter increase in return on investment to 0.06.

V. The return on investment maximum value is 0.43 in the year 2006-07. There is
an increased in the profit after tax so that the ratio increasing in the year.

VI. The return on investment minimum value is 0.03 in the year 2008-2009. There
is a decreased in the capital employed so that the ratio decreasing in the year.

FINDINGS
1)

The study observed that the current ratio of Jocil Ltd has been satisfactory. When
compared with idle ratio 2:1 for the entire period of study.

2)

The evidences suggest that the quick ratio of Jocil Ltd has a Minimum and Maximum
value of 2.17 and 2.88 respectively during the period of study.

3)

It is found that the super quick ratio of Jocil Ltd is showing an increasing trend over
the period of study due to the increase in cash and bank balance and current liabilities
are constant.

Nalanda Institute of P.G Studies

M.B.A Programme
4)

JOCIl

The evidences suggest that the debt equity ratio of Jocil Ltd has been fluctuating.
There is a decrease in the ratio up to 2007-2008 and thereafter there is a slighter
increase this is due to increase in the Total debt.

5)

The study results indicate that the Capital Employed to net worth ratio has maximum
& minimum values of 1.20 & 0.32 respectively during the period of study.

6)

It was found that the average debt collection period of Jocil Ltd shows an increasing
trend because of declining debtor’s turnover ratio for the period of study.

7)

The study results reveal that the maximum and minimum average debt collection
period of Jocil Ltd is 75 & 49 days respectively, for the period of study.

8)

The evidences suggests that the working capital turnover ratio of Jocil Ltd is in
increasing trend as the net sales are being increased for the period of study. In other
words the working capital has been efficiently used by the company.

9)

The study reveals that fixed assets turnover ratio of Jocil is in decreasing trend for the
period of study as the fixed assets capacity utilization is low.

10)

It is observed that the Net profit margin of Jocil ltd has been showing an increasing
trend for the period of study, except in the year 2008-09 as there is a decrease in the
net profit realized by the company.

Nalanda Institute of P.G Studies

M.B.A Programme
11)

JOCIl

It was found that the operating profit margin of Jocil Ltd has the minimum &
maximum values of 0.13 & 0.33 respectively for the period of study.

12)

The study results reveals that the operating profit margin of Jocil Ltd has been
showing an increasing trend except in the year 2009-10 as there was a decrease in
operating profit.

13)

The study observed that the interest coverage ratio has a minimum value of 12.48 in
the year 2005-2006 as the interest amount is high for the entire period of study.

14)

The overall trend for the debtor turnover ratio is moving in the narrow range with
decline trend due to increase in credit sales and less proportionate increase in average
debtors for the period of study.

SUGGESTIONS

1)

It has been recommended that the company needs to maintain the same level of
current ratio in the future.

2)

It has been suggested that the company need’s to improve and to maintain
satisfactory quick ratio for the beneficiary of the company.

3)

It is has been suggested that the Jocil Ltd, needs to maintain optimum cash
balance, as the excess liquidity as revealed by super quick ratio decreases the
profitability of the company.

4)

It has been recommended that the company needs to maintain the same level of
working capital turn over ratio in the future for the beneficiary of the company.

Nalanda Institute of P.G Studies

M.B.A Programme

JOCIl

The company needs to increase its debtor turnover ratio in order to decrease to

5)

average debt collection period, it will maximizes the profitability of the company.
It has been suggested that the Jocil ltd, needs to improve its net profit margin by

6)

reducing and controlling the operating costs.
It is recommended that the same kind of working capital management efficiency

7)

in the future also.
8) It

has been suggested that the Jocil ltd should focus on improving its operating and net

pofit margins in order to increase the return on equity.

Conclusion

The present study is focused on the evaluation of financial performance of the
company through Ratio analysis.

The performance of JOCIL Ltd is observed through liquidity, leverage, turnover
and profitability ratios with the references of the study we can observe the fluctuations in
liquidity ratios compared to the previous years we can suggest Jocil to decrease the
current liabilities for make refresh of profitability as old years. By observing the study we
conclude that the study has been taken form 2005-2010.

Nalanda Institute of P.G Studies

M.B.A Programme

Nalanda Institute of P.G Studies

JOCIl

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