A study On

Ratio analysis of RSWM LTD.

A Project Report Submitted To
University of Pune
By
Musaji Hussain yusuf

Under the guidance of

Mr. Azad zafir
In partial fulfillment of
Master of Business Administration
Allana Institute Of Management Science
PUNE-411001

SEPTEMBER-2014

ACKNOWLEDGEMENT
I would like to express my gratitude towards RSWM LTD. Company for
providing me the opportunity to learn about the practical aspects of financial
statement analysis.
Learning never ends and no one teaches more than what practical experience
teaches us. Working with RSWM LTD. Company has been a great practical
experience for me as I have learned many aspects of ratio analysis and I
could apply my theoretical knowledge in the practical field of work.
I would like to thank our director Dr.prof.R.Genesan and our head of the
Department Dr.Roshan Kazi.
I would like to thank my project guide Mr.Asad Zafir for guiding me in
successfully completing my project report.
I am extremely thankful to RSWM LTD. Company and Mr. Ashok
Sodani my unit head in RSWM LTD. For providing me an opportunity to
work with the organization.
Last but not least, I am also thankful to the college staff, my parents and my
friends for helping me directly or indirectly in this project report.

MUSAJI HUSSAIN YUSUF

DECLARATION
I, Musaji Hussain Yusuf hereby declare that the project titled ratio
analysis of RSWM LTD. At RSWM LTD. Is the result of original and
genuine work carried out by me under the guidance of Mr.Asad Zafir, Allana
Institute Of Management Sciences.
The project report is submitted in partial fulfillment for the opportunity of
the MBA degree for University of Pune.
I declare that this work is authentic and the contents referred from the other
sources have been acknowledged.

Musaji Hussain Yusuf

INDEX

SR.NO

TOPICS

PAGE NO.

EXECUTIVE SUMMARY
1

INTRODUCTION

COMPANY PROFILE

LITERATURE REVIEW

21

RESEARCH METHODOLOGY

36

DATA ANALYSIS & INTERPRETATION

39

FINDING,SUGGESTIONS AND
CONCLUSION

BIBLIOGRAPHY

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY
The following project gave me a wonderful opportunity to get acquainted
with the corporate environment and practical use of my knowledge. I
experienced the culture, the attitude, co-ordination and the professionalism
carried in the corporate world. It laid the platform for my corporate carrier.
The project deals with the understanding of various types ratio analysis and
its interpretations for the benefit of investors. It also helped me to
understand the calculations, the practical use and in depth impact of ratio. It
portrays a clear picture of the investors who are willing to invest. It provides
information as to how ratios are calculated, analyzed, compared and used to
take management decisions for the success of business.

OBJECTIVE
The objective of the project is also the analyze financial condition of the
company on the basis of procured historical data. For any organization to
work efficiently continuous improvement areas identified based on financial
analysis.
To study financial statements to know profit and operating efficiency
To study the liquidity position to the firm with help of current ratio.
Through the net profit ratio and other profitability ratio, understand
the profitability position of the company
To find out the utility of financial ratio in credit analysis and
determining the financial capability of the firm.
Evaluating companys performance relating to financial statement
analysis.

FINDINGS

Particulars

2011-12

2012-13

2013-14

Current ratio

1.04386

0.9997

0.9797

Quick ratio

0.7223

0.7069

0.6662

DEBT EQUITY
RATIO
EQUITY RATIO

2.85

2.17

1.533

0.16

0.18

0.21

NET PROFIT RATIO

(1.08)%

2.77%

3.44%

RETURN ON
EQUITY(ROE)
EARNING PER
SHARE

(7.5947)%

20.6548%

24.9892%

(9.41)

29.32

42.68

Inventory turn over

ratio

0.6930

1.2549

1.2781

DEBTORS TURNOVER
RATIO

10.77

11.35

12.11

Average collection
period(approx)

33 days

32 days

30 days

Creditor turnover ratio

44.14

36.43

47.72

Average payment period

(appx.)

8 days

10 days

8 days

CHAPTER 1
INTRODUCTION

RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis based on ratio. A ratio
is defined as the indicate quotient up to mathematical expression. In
financial analysis ratio is used as a benchmark, evaluating the financial
position and performance of a firm. The absolute accounting figures reported
in the financial statement do not provide the meaningful understanding of
the financial position of a firm. But well expressed in terms of related figure,
it yield significant inference. Ratio analysis reflects a quantitative
relationship that helps to form qualitative judgment.

Definition:
ratio analysis is a systematic use of ratio to interpret of the financial
statement so that the strength and weakness of the firm, its historical and its
current financial condition can be determined.---khan & jain

Ratio analysis involve three steps that are as follows:

1. selection of data, which is relevant to the objective of analysis and
calculation of the appropriate ratio.

2. comparison of the past and present ratio of the same firm and/or with
the industry standard.

3. evaluation and drawing inferences.

STANDARD OF COMPARISON
The ratio analysis involves comparison for a useful interpretation of the
financial statement. A single ratio in itself does not indicate favorable or
unfavorable condition it should be compared with some standard. Standard
of comparison may consist of following:
Trend analysis- the ratios are compared to those calculated for the
previous year in order to know whether the financial position is
improving or deteriorating.
Competitors ratios- the ratio of the firm may be compared with ratio
of competitors or industry average, which are used as benchmark.
Hence the position against the competitors can be known to analyze
the strength and weakness.
Index analysis-the ratio of the current year is compared to those of
base year. It can be even compared to standard or planned ratio.
Common sized statement-the items of the balance sheet are stated in
the terms of Percentage of total assets and items in income
statement are expressed in percentage of sale.

NEED FOR THE STUDY

The study has great significance and provides benefits to various
parties whom directly or indirectly interact with the company.

 It is beneficial to management of the company by providing crystal

clear pictures regarding important aspects like liquidity, leverage,
activity and profitability.
The study is also beneficial to employees and offers motivation by
showing how actively they are contributing for companys growth.

OBJECTIVES
To study financial statements to no profit and operating efficiency
To study the liquidity position of the firm with help of current ratio.
Through the net profit ratio and other profitability ratio, understand
the profitability position of the company.
To find out the utility of financial ratio in credit analysis and
determining the financial capability of the firm.
Evaluating companys performance relating to financial statement
analysis.

LIMITATIONS
The study provides an inside into the financial statements. every study will
be bound with certain limitations. The below mentioned are the constraints
under which the study is carried out

.
One of the factors of the study was lack of availability of ample
information
Most of the information has been kept confidential.
Time is an important limitation of the whole study was conducted ina
period of sixty days, which is not sufficient to carry out proper
analysis and interpretation.

CHAPTER 2

COMPANY
PROFILE

COMPANY PROFILE
COMPANY NAME:

R.S.W.M LTD.

CORPORATE OFFICE:

BHILWARA T-12,

SECTOR-1, NOIDA-201301 (U.P.)

FOUNDER:

L.N. JHUNJHUNWALA

CHAIRMAN:

RAVI
JHUNJHUNWALA

MANAGING DIRECTOR:

SHEKHAR AGRAWAL

JOINT MANAGING DIRECTOR:

RIJU
JHUNJHUNWALA

EXECUTIVE DIRECTOR:

J. C. LADDHA

DIRECTOR:

KAMAL GUPTA

COMPANY SECRETARY:

SURENDER GUPTA

AWARDS

The LNJ Bhilwara Group not only has several firsts to its credit
but also recognition for its commitment to quality and excellence with
several national awards and certifications.

INTRODUCTION
OF
THE COMPANY

The LNJ Bhilwara Group, founded in 1961, has today grown into a strong
global presence worth Rs.2049 crores. The Group has been nurtured into a
successful growth track by the able guidance of the Founder and ChairmanEmeritus Mr. L.N.Jhunjhunwala. Currently,
The LNJ Bhilwara Group stands as one of the largest firms on the corporate
horizon in India with over 20,000 employees and 20 production units
positioned at strategic locations across the country. The Groups export
earning comprise of 45% of the Groups turnover.

The LNJ Bhilwara Group is a well-diversified conglomerate. It has been

actively seeking growth and profitability by investing in a variety of
systematically identified businesses making it a multi-product conglomerate
with interests in a range of industries such as textile, graphite electrodes,
power generation, power engineering consultancy services, Steel and IT
enabled services.
The Pioneering Textile division of the Group is not only a key player in the
industry but also has many firsts to its credit. The textile division has the sole
distinction of producing a unique fire retardant yarn called Trevira CS now
known as (Lenzing Austria). It is also the sole licensee for the highly
specialized yarn called Tencel.
The group has time and again been acknowledged for its world-class quality
products in the domestic market such as
Mayur Suitings, BSL Suitings, La Italia Fashions and Geoffrey
Hammond superfine suitings. At the same time, their services to several
leading global brands for knitted garments have been recognized with the
units garnering top export awards in different fields for several years in a row.
The LNJ Bhilwara Group also has the largest

integrated Graphite

Electrodes manufacturing plant in South-East Asia with a reputed clientele

comprising of major steel plants in the world. Graphite exports constitute
70% of total sales volume. An evidence of their success can be seen in the
fact that HEG, an integral part of the Group, is all set to undertake an Rs.450
crore expansion plan to tap opportunities in the export market. The expansion
of the Mandideep plant would double the capacity from 30,000 TPA to
60,000 TPA.

Following the success of its earlier Hydro-Electric Power Project of 15

MW at Tawa Nagar (MP) in 1997, the Group has commissioned, Indias first
IPP Hydro-Electric Malana Power Project of 86 MW in a record time of
30 months at Kullu (HP), in July, 2001 and is set to commence work on 200
MW Allain-Duhangan Hydro Electric Project at Manali (HP).
Little wonder then, that the LNJ Bhilwara Group of companies has been
awarded IS / ISO 9001:2000 certificate for setting exemplary standards in
quality.

VISION AND MISSION

Foundations that inspire

"To me, the LNJ Bhilwara Group is not a business house, I see it as
an institution that is committed to seeking excellence."
L.N.Jhunjhunwala
Chairman Emeritus

MISSION
TO CONTINUOUSLY GROW ON SUSTAINABLE BASIS AND BE A
MAJOR, INNOVATIVE, PROFITABLE AND THE MOST ADMIRED
TEXTILE MANUFACTURER IN ASIA.

VISION
Our vision is to forge ahead into the new millennium with an immediate
sense of purpose and to be seen as the undisputed leader, fully equipped to
deliver the best, across the diverse spectra of our many businesses, fuelled

by a commitment to invest in plants, machinery, processes and, most

importantly, our people - Team Bhilwara: all towards satisfying and
fulfilling our customers needs in todays global environments.
RAVI JHUNJHUNWALA
GROUP CHAIRMAN

A RANGE FOR ALL

The company manufactures over hundreds of design-shade combinations and
in solids each year in various blends. These include Polyester/Viscose / Wool,
Polyester / Lycra, polyester/ Tencel, Polyester/Linen among others. An
enlivening blend of exposure to global fashion trends and expertise ensures
that we are abreast of and pioneering innovative future trends.
Dressing in India is oozing with freshness. Thanks to an unparalleled rise in
disposable income levels, increased media exposure of fashions and a
growing tendency towards self-indulgence.
The evidence is there for a11 to see - a never-before influx of international
and domestic products and brands in both formal and casual wear. The Indian
customer not only has become discerning but also has an astonishingly wide

range to choose from. And, we at Mayur are determined to ensure that we

contribute to this choice and continue to make a mark.

THE WINNING STRATEGY

A clear focus is the mantra of success in any business. Mayur has clearly
demarcated their products and brands to focus on specific customer needs.
This strategy is supported by well-oiled machinery comprising of a
distribution network of 26 dealer agents and approximately 150 wholesale
dealers spread across the country. This enables us to reach more than two
thousand retailers who cater to both the value and trend conscious consumer
segments.
Our RMG Division works in complete harm only with most of the leading
ready-to-wear brands by offering them fabrics that represent the latest and
best international trends. The Institutional Sales Division caters to
requirements for uniforms across the society - corporate, schools, government
bodies and police forces.

LOOKING FORWARD
We intend to position Mayur as the clear favorite for an ever-demanding
clientele and become the favored choice for the aspiring consumer. This
demanding segment promises a huge potential in terms of market share and
thus leading us to the task providing customer satisfaction.
Mayur's product quality is at par with global norms and standards. A
significant chunk of our fabric production is exported to Middle East,
Mediterranean countries, Europe, Far East and USA.

We look to the future with great hope as we capitalize on the opening up

global trading like never before. However, we also realize the need to
constantly reorient our marketing strategy. We are guided towards this goal by
our innate ability to stay tuned to customer preferences and remodel our value
delivery chain to make the interface with our precious consumers a mutually
satisfactory experience.

PRODUCTION DEPARTMENT
SPINING
There are three sections in spinning unit mainly preparatory
section,
Spinning section & post spinning section. The main function of
this section is proper mixing of polyester & woolen raw
material, which comes in pressed bales & manufacturing of
yarn 65% relative humidity, is required in this section.
This truly international blended yarn is the result of the world's
premium technologies, Radio frequency dryers, which are
ultimate in advancement of drying dyed polyester & woolen
tops & grilling & combining machines from NSC, France
internationally renowned for the mixing of polyester woolen
blends contributing to the yarn's technologies supremacy are
BSL ring frame machines and electronically monitored T.F.O.
Auto corners The zinger ring spinner 421 combines solid &
reliable engineering with top-level efficiency, reliability &
sturdiness using automation & high teach components of the
future.

WEAVING

This section is divided into 4 subsections i.e. preparatory,

loom, checking & mending. The main function of this section
is manufacturing of fabric from yarn 74% relative humidity is
maintained in this section. In this section the richest quality
polyester & viscose go into the fashioning this dream blend of
suiting & BSL sulzer ruti shuttle less-projectile looms weave
an extremely advanced & precision controlled fabric. The
fabric is credited with optimum finish.

PROCESSING:
There are two sub sections dying & finishing. It is designed to
quickly & evenly impart the desired degree of finish & to
accurate consistently repeat this under the production conditions.
Finishing is undertaken with sharing equipment and finally
rotary press ensures all the work, that every inch of the fabric is
uniformly accepted worldwide. Supervisor, machines & papers
press give the fabric a qualitative finishing edge. The processing
technology is employed to create these fabrics in truly worldclass fashion.

ACHIEVEMENTS
RSWM Ltd is the winner of SRTEPC Highest Export Award for
polyester/viscose yarn exports for the last several consecutive years,
which includes two gold and one bronze in March 2005.

Maral is Indias fully integrated 100% EOU cotton knitwear unit and
winner of TEXPROCIL Silver trophy in 100% EOU / EPZ category.
Maral has also been awarded Silver Trophy by AEPC.
Maral is the recipient of Rajiv Gandhi National Quality Award.
Maral bagged "Greentech Safety Award".
RSWM, Rishabhdev unit bagged National Export Award. Rishabhdev
unit also bagged SRTEPC Excellence award for highest production in
export of 100% Polyester spun yarn.
BSL received the "National Certificate of Merit" for outstanding
export performance.
Bhilwara Spinners has been accorded the prestigious Niryat ShreeCertificate of Excellence for Outstanding export performance

CHAPTER 3
LITERATURE
REVIEW

FINANCIAL STATEMENTS
Financial Statements are those statements that provide information about the
profitability and the financial position of the business; it includes two
statements i.e. Profit and Loss account or Income Statement and Balance
Sheet or Position Statement.
The income statements present the summary of the income earned and the
expenses incurred during a financial year. Position statement presents the
financial position of the business at the end of the year.
Before understanding the meaning of analysis of financial statements it is
necessary to understand the meaning of analysis and financial statements.
Analysis means establishing a meaningful relationship between various
items of the two financial statements with each other in such a way that
conclusion is drawn. By financial statement, that means the two statements
i.e. (1) Profit & Loss A/C or Income Statements and (2) Balance Sheet or
Position Statements. These are prepared in the end of the given period of
time. They are indicators of profitability and financial soundness of a
business concern. Thus, analysis of financial statements means establishing
meaningful relationship between various item of two financial statements,
i.e. income statements and position statements.

R RATIO

The term Ratio refers to the numerical and quantitative relationship

between two items or variables. This relationship can be exposed as
Percentages.
Fractions.
Proportion of numbers.
Ratio analysis is defined as the systematic use of the ratio to interpret the
financial statements. So that the strengths and weaknesses of a firm, as well
as its historical performance and current financial condition can be

determined. Ratio reflects a quantitative relationship helps to form a

quantitative judgment.

STEPS IN RATIO ANALYSIS

The first task of the financial analysis is to select the information relevant
to the decision under consideration from the statements and calculates
appropriate ratios.
To compare the calculated ratios with the ratios of the same firm relating to
the past or with the industry ratios. It facilitates in assessing success or
failure of the firm.
Third step is to interpretation, drawing of inferences and report writing
conclusions are drawn after comparison in the shape of report or
recommended courses of action.

NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial
statements. It is the process of establishing and interpreting various ratios for
helping in making certain decisions. It is only a means of understanding of
financial strengths and weaknesses of a firm. There are a number of ratios
which can be calculated from the information given in the financial
statements, but the analyst has to select the appropriate data and calculate
only a few appropriate ratios. The following are the four steps involved in
the ratio analysis.
Selection of relevant data from the financial statements depending upon the
objective of the analysis.

 Calculation of appropriate ratios from the above data.

Comparison of the calculated ratios with the ratios of the same firm in the
past, or the ratios developed from projected financial statements or the ratios
of some other firms or the comparison with ratios of the industry to which
the firm belongs.

INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent limitations of
ratio analysis should be kept in mind while interpreting them. The impact of
factors such as price level changes, change in accounting policies, window
dressing etc., should also be kept in mind when attempting to interpret
ratios. The interpretation of ratios can be made in the following ways.

Single absolute ratio

Group of ratios
Historical comparison
Projected ratios
Inter-firm comparison

IMPORTANCE OF RATIO ANALYSIS

Aid to measure general efficiency
Aid to measure financial solvency
Aid in forecasting and planning
Facilitate decision making
Aid in corrective action

 Act as a good communication

Evaluation of efficiency
Effective tool

LIMITATIONS OF RATIO ANALYSIS

Differences in definitions
Limitations of accounting records
Lack of proper standards
No allowances for price level changes
Changes in accounting procedures
Quantitative factors are ignored
Limited use of single ratio
Background is over looked
Personal bias.

Classification of Ratio:

A financial ratio can give a financial analyst an excellent picture of a

company's situation and the trends that are developing. A ratio gains utility
by comparison to other data and standards.
Financial ratios quantify many aspects of a business and are an integral part
of financial statement analysis. Financial ratios are categorized according to
the financial aspect of the business which the ratio measures. Although these

categories are not fixed in all over the world however there are almost the
same, just with different names:
1. Liquidity Ratios: measure the availability of cash to pay debt, which give
a picture of a company's short term financial situation.
2. Profitability Ratios: which use margin analysis and show the return on
sales and capital employed.
3. Solvency or Gearing Ratios: measures the percentage of capital employed
that is financed by debt and long term finance. The higher the gearing, the
higher the dependence on borrowing and long term financing. The lower the
gearing ratio, the higher the dependence on equity financing. Traditionally,
the higher the level of gearing, the higher the level of financial risk due to
the increase volatility of profits. It should be noted that the term Leverage
is used in some texts.
4. Turnover Ratios: or activity group ratios indicate efficiency of
organization to various kinds of assets by converting them to the form of
sales.

INTRESTING PARTIES IN RATIO

There are varieties of people interested to know and read these information
and analyses, however different people for different needs, and it is because
each of these groups has different types of questions that could be answered
by a specific number and ratio.
Therefore we can say that, there are different ratios for different groups,
these groups with the ratio that suits them is listed below:
1. Investors: these are people who already have shares in the business or
they are willing to be part of it. So they need to determine whether they
should buy shares in the business, hold on to the shares they already have or
sell the shares they already own. They also want to assess the ability of the

business to pay dividends. As a result the Return on Capital Employed Ratio

is the one for this group.
2. Lenders: This group consists of people who have given loans to the
company so they want to be sure that their loans and also the interests will
be paid and on the due time. Gearing Ratios will suit this group.
3. Managers: managers might need segmental and total information to see
how they fit into the overall picture of the company which they are ruling.
And Profitability Ratios can show them what they need to know.
4. Employees: the employees are always concerned about the ability of the
business to provide remuneration, retirement benefits and employment
opportunities for them, therefore these information must be find out from the
stability and profitability of their employers who are responsible to provide
the employees their need. Return on Capital Employed Ratio is the
measurement that can help them.

5. Suppliers and other trade creditors: businesses supplying goods and

materials to other businesses will definitely read their accounts to see that
they don't have problems, after all, any supplier wants to know if his
customers are going to pay them back and they will study the Liquidity
Ratio of the companies.

6. Customers: are interested to know the Profitability Ratio of the business

with which they are going to have a long term involvement and are
dependent on the continuance of presence of that.

7. Governments and their agencies: are concerned with the allocation of

resources and, the activities of businesses. To regulate the activities of them,
determine taxation policies and as the basis for national income and similar
statistics, they calculate the Profitability Ratio of businesses.

8. Local community: Financial statements may assist the public by providing

information about the trends and recent developments in the prosperity of
the business and the range of its activities as they affect their area so they are
interested in lots of ratios.

9. Financial analysts: they need to know various matters, for example, the
accounting concepts employed for inventories, depreciation, bad debts and
so on. Therefore they are interested in possibly all the ratios.

10. Researchers: researchers' demands cover a very wide range of lines of

enquiry ranging from detailed statistical analysis of the income statement
and balance sheet data extending over many years to the qualitative analysis
of the wording of the statements depending on their nature of research.

Liquidity Ratios:
The two liquidity ratios, the current ratio and the acid test ratio, are the most
important ratios in almost the whole of ratio analysis and also the simplest to
use Liquidity ratios provide information about a firms ability to meet its
short- term financial obligations. They are particular interest to those
extending short term credit to the firm. Two frequently-used liquidity ratios
are current and quick ratio.
While liquidity ratios are most helpful for short-term creditors/suppliers and
bankers, they are also important to financial managers who must meet
obligations to suppliers of credit and various government agencies. A
company's ability to turn short-term assets into cash to cover debts is of the
utmost importance when creditors are seeking payment. Bankruptcy analysts
and mortgage originators frequently use the liquidity ratios to
determine whether a company will be able to continue as a going concern. A
complete liquidity ratio analysis can help uncover weaknesses in the

financial position of the business. Generally, the higher the value of the ratio
will be, the larger the margin of safety that the company possesses to cover
short-term debts.

Current Ratio:
This ratio measures the solvency of the company in the short term. Current
assets are those assets, which can be converted in to cash within a year.
Current liabilities and provision are those liabilities that are payable within a
year. A current ratio 2:1 indicates a highly solvent position. Banks consider a
current ratio 1.33:1 as the minimum acceptable level for providing working
capital finance.
Current Ratio= Current Assets/Current Liabilities

Quick ratio:

The essence of this ratio is a test that indicates whether a firm has enough
short-term assets to cover its immediate liabilities without selling inventory.
So it is the backing available to liabilities that must be paid almost
immediately.
There are two terms of liquid asset and liquid liabilities in this formula,
Liquid asset is all current assets except the inventories and prepaid expenses,
because prepaid expenses cannot be converted to cash. The liquid liabilities
include all current liabilities except bank overdraft and cash credit since they
are not required to be paid off immediately.
Quick Ratio= Current Assets-Inventory/Current Liabilities Bank O/D

Leverage Ratios:
This is calculated to judge the long-term financial position of the firm. These
ratios indicate mix of fund provided by owners and lenders. These ratios
indicate the extent to which the interest of the person entitled to get a fixed
return or a scheduled repayment as per the agreed term, are safe. The higher
the cover the better it is.

Debt-equity Ratio:
Capital is derived from two sources shares and loans. It is quite likely for
only shares to be issued when the company is formed but loans are
invariably raised at some later date. There are numerous reasons for issuing
loan capital.
The ratio indicates the relationship between loan funds and net worth of the
company, which is known as gearing. If the proportion of debt to equity is
low, a company is said to be low geared, and vice versa. A debt equity ratio
of 2:1 is the norm accepted by financial institutions for financing of projects.
Higher debt- equity ratio may be permitted for highly capital intensive
industries like petrochemicals, fertilizers, powers etc. the higher the gearing,
the more volatile the return to the shareholders. A debt equity ratio, which
shows a declines trend over the years, is usually taken as a positive sign
reflecting on increased cash accrual and debt and debt repayment in act, one
of the indicatory a unit turning sick is a risky debt equity ratio.
Usually when calculating ratio, the preference share capital is excluded from
debt, but if the ratio is show effect of use of fixed interest sources on
earnings available to the shareholders then it is to be included. On the other
hand, if the ratio is to examine financial solvency then preference shares
shall form part of the capital.
Debt to Equity= Long-Term Debt/ Partners Capital

Proprietary Ratio:
It indicates the relationship between owners fund and total assets. And
shows the extent to which the owner s fund are sunk in assets or different
kinds of it.
Proprietors Ratio= Partners Capital/ Total Assets

Asset Management Ratio:

Asset management ratios measure how effectively the firm employs its
resources. These ratios are also called activity or turnover ratios which
involves comparison between the level of sales and investment in various
accounts inventories, debtors, fixed assets, etc.
Asset management ratios are used to measure the speed with which various
accounts are converted into sales or cash. The following asset management
ratios are calculated for analysis.

Inventory Turnover Ratio:

Inventory turnover ratio measures how many times the companies inventory
has been sold. A considerable amount of a company capital may be tied up
in the financing of raw materials, work-in-progress and finished goods. It is
important to ensure that the level of stock is kept as low as possible,
consistent with the need to fulfill customers order in time.
Inventory Turnover Ratio= COGS/ Average Inventory

Debtors Turnover Ratio:

Debtor turnover, which measures whether the amount of resources tied up in
debtors, is reasonable and whether the company has been efficient in
converting debtors into cash.
The higher the ratio, the better will be the position.
Debtors Turnover Ratio= Credit Sales/ Debtors

Debtors Collection Period:

Debtor s collection period, which measures how long it take to collect
amount from debtors. The actual collection period can be compared with the
stated credit terms of the company. If it is longer than those terms, then this
indicates some insufficiency in the procedure for collecting debts.
Average Collection Period= 360/Debtors Turnover Ratio

Fixed Asset Turnover Ratio:

This ratio will be analysed further with ratios for each main category of
assets. This is a difficult set of ratios to interpret as asset values are based on
historic cost. An increase in the fixed figure may result from the
replacement of an asset at increased price or the purchase of an additional
asset intended to increases production capacity. The ratio of the accumulated
depreciation provision to the total of fixed asset at cost might be used as an
indicator of the average age of the assets; particularly when depreciation
rates are noted in the accounts.
Fixed Assets Turnover Ratio= Sales/Fixed Assets.

Working Capital Turnover Ratio:

This ratio indicates the extent of working capital turned over in achieving
sales of the firm. As its name suggests it is the relationship between turnover
and working capital. It is a measurement comparing the depletion of
working capital to the generation of sales over a given period. This provides
some useful information as to how effectively a company is using its
working capital to generate sales.
A company uses working capital to fund operations and purchase inventory.
These operations and inventory are then converted into sales revenue for the
company. The working capital turnover ratio is used to analyze the
relationship between the money used to fund operations and the sales
generated from these operations.
Working Capital Turnover Ratio= Sales/ Working Capital

Profitability Ratios:
As the name itself suggests, this ratio is calculated to determine profitability
of the firm. The basic objective of almost every business is to earn profit
which is essential for survival of the business.
A business needs profits not only for its existence but also for its expansion
and diversification. The investors want an adequate return on their
investments, workers want higher wages, creditors want higher security for
interest and loan and the list could continue. It is a class of financial metrics
that are used to assess a business's ability to generate earnings as compared
to its expenses and other relevant costs incurred during a specific period of
time. For most of these ratios, having a higher value relative to a
competitor's ratio or the same ratio from a previous period is indicative that
the company is doing well.

Gross Profit Ratio:

This ratio reflects with which management produce each unit of product.
Gross profit ratio show profit relative to sales after the deduction of
production cost. A high gross profit margin relative to industry average
implies that the firm is able to produce at relatively lower cost. Whereas a
low gross profit margin may reflect higher cost of goods sold. Due to the
firms inability to purchase raw materials at favorable terms, inefficient
utilization of plant and machinery, or over investment in plant and
machinery, resulting in higher cost of production. This Ratio will also be low
due to the fall in prices in the market or mark reduction in selling price.
Gross Profit Ratio=Gross Profit/SalesX100

Net Profit Margin Ratio:

The ratio is designed to focus attention on the profit margin arising from
business operations before interest and tax is deducted. The convention is to
express profit after tax and interest as a percentage of sales. This ratio
reflects net profit margin on the total sales after deducting all expenses but
before deducting interest and taxation. This ratio measures the efficiency of
operation of the company. The net profit is arrived at from gross profit after
deducting administration, selling and distribution expenses. The nonoperating incomes and expenses are ignored in computation of net profit
before tax, depreciation and interest.
Net Profit Ratio= Net Profit/ SalesX100

Return on Capital Employed:

The strategic aim of business enterprises is to earn a return on capital. If any
particular case, the return in the long run is not satisfactory, then the
deficiency should be corrected or the activity be abandoned for a more
favorable one. The rate of return on investment is determined by dividing net

profit or income by the capital employed or investment made to achieve that

profit.
ROCE consists of two components i.e. I) Profit margin. II) Investment
turnover.
It will be seen from the following formula that ROCE can be improved by
increasing one or both of its components i.e. the profit margin and the
investment turnover in any of the following ways:
- Increasing the profit margin
- Increasing the investment turnover
- Increasing both profit margin and investment turnover.
Return on Capital Employed= Net Profit/Capital EmployedX100

CHAPTER 4
RESEARCH
METHODOLOGY

Research Methodology
Research methodology is a way to systematically do the job. It
may be understood as a science of study how research is done
scientifically. The most desirable approach with regards to the
selection of the research methodology depends on the nature of
particular work, time and resources available along with the desire
level of accuracy

METHODOLOGY
1)

Preliminary Discussion:
Preliminary discussions were held with members of Materials
Management Department, Sale Dept. and Finance Dept. to understand
the accounting of creditors, debtors, assets, expenses and inventory
control, and cash flow procedure.

The basic idea was to get

acquainted with the full procedure of accounting of various assets and

liabilities affecting balance sheet.
2)

Referring to Books:
Books were also referred to have understanding of working capital
management and ratio analysis.

3)

Discussions:Discussions were held with Mr. Ashok Sodoni, Mr.

Manak Jain and members of Finance Dept. for understanding the report
preparation and projections.
4)

Referring to Documents:

After all these learning and understanding, documents were referred to

namely Balance Sheet, Profit & Loss Account.
5)

Data Collection:
For this study, secondary data are used available from various
documents. The following documents have assisted in the project: Annual Report of the company.
Annual completion registers comprising detailed description of profit
and loss accounts and balance sheet of RSWM Banswara.
Quarterly Balance Sheet and P&L accounts.

6)

Preparation of Project Report:

Finally, On the basis of preliminary discussions and referring to
document Projects were prepared and final reports were analyzed
through ratio analysis. Definitive views about the entire gamut of
working capital management were formed.

The various issues

connected with working capital management were understood.

Tools and techniques used in this research

To analyze and interpret the data that was collected, the tools that I
have used are pie charts, bar graphs & MS Excel, balance sheet of
company, broachers and company websites.

CHAPTER 5
DATA ANALYSIS
AND
INTERPRETATION

CURRENT RATIO=CURRENT ASSETS/CURRENT LIABILITIES

Particulars

2011-12

2012-13

2013-14

C.A

59881.05

73763.83

74013.43

C.L

57364.51

73780.53

75539.38

Current ratio

1.04386

0.9997

0.9797

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
Conservatively The Current Ratio Should Be Between 1 And 2 But With The Advent Of
Technology A Tighter Current Ratio Could Ensure That The Company Ran Its Operations
In a more efficient And Profitable Manner. A High Ratio Indicates High Liquidity And
Consequently Lower Profitability On The Other Hand A Low Ratio Will Results In High
Profitability But This Could Also Lead Short Term Insolvency. RSWM Ltd current ratio
was 1.04386 in 2011-12 which is reduced in 2012-13 to 0.9997 and further reduced to
0.9797 in 2013-14 because of increase in current liabilities and it indicate that the
liquidity position of the firm is not good and firm should not able to pay its current
liabilities on time

Particulars

2011-12

2012-13

2013-14

C.A-stock

41439.8

52156.36

50327.16

C.L-Bank O/D

57364.51

73780.53

75539.38

0.7223

0.7069

0.6662

Quick ratio

Quick ratio=C.A-stock/C.L-Bank O/D

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
It indicates rupees of quick assets available for each rupee of current
liability. Traditionally a quick ratio of 1:1 is considered to be satisfactory
ratio. however this traditional rule should not be used blindly since a firm
having a quick ratio more than 1 may not be meeting it short term obligation
in time if its current assets consist of doubtful and slow paying debtors while
a firm having a quick ratio of less then 1 may be meeting its short term
obligation in time because of its very efficient inventory management.
RSWM LTD has maintained its quick ratio throughout 3 previous years
which shows that it has very efficient inventory management.

DEBT EQUITY RATIO=LONG TERM DEBT/SHARE

HOLDERS FUND
Particulars

2011-12

2012-13

2013-14

Long term debt

81688.43

71625.34

60629.63

Share holders fund

28689.63

32857.45

39537.08

DEBT EQUITY
RATIO

2.85

2.17

1.533

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
Debt equity ratio indicates margin of safety to long term creditors. A low
debt equity ratio implies the use of more equity then debt which means a
larger safety margin for creditor since owner equity is treated as margin of
safety by creditors and vice versa.
RSWM LTD has reduced its debt by repaying them and increases the margin
of safety for creditors

EQUITY RATIO=SHARE HOLDERS FUND/TOTAL ASSETS*100

Particulars

2011-12

2012-13

2013-14

Share holders fund

28689.63

32857.45

39537.08

Total assets

173320.79

185046.25

185465.98

0.16

0.18

0.21

EQUITY RATIO

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
As equity ratio represent the relationship of owners funds to total assets.
Higher the ratio or the share of the shareholders in the total capital of the
company better is the long term solvency position of the company. This ratio
indicates the extent to which the assets of the company can be lost without
affecting the interest of creditors of the company. The firm in 2011-12 is
16% thus it shows that the 16% of total assets consist of share holders fund.
This percentage if increase to 18% in 2012-13 and 21 % in 2013-14.

NET PROFIT RATIO=NET PROFIT/NET SALES*100

Particulars

2011-12

2012-13

2013-14

Net Profit

(2178.92)

6786.71

9880.01

Net Sales

200933.20

245329.20

287005.35

NET PROFIT RATIO

(1.08)%

2.77%

3.44%

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
This ratio measures the relationship between net profit and net sales. The
main objective of computing this ratio is to determine the overall
profitability due to various factors such as operational efficiently, trading on
equity etc. net profit ratio shows companys net profit earn after paying all
kind of expenses i.e. tax and interest. In 2011-12 company was incurring
losses. In 2012-13 the net profit ratio is 2.77% it shows the company has
recovery & earned profit of rs6786.71 and in 2013-14 the ratio is 3.4%
which shows company has earned a more profit as compared to previous
year.

PARTICULAR

2011-12

2012-13

2013-14

PAT

(2178.92)

6786.61

9880.01

NET WORTH

28689.63

32857.45

39537.08

RETURN ON
EQUITY(ROE)

(7.5947)%

20.6548%

24.9892%

RETURN ON EQUITY(ROE)=PAT/NET WORTH*100

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
This ratio indicates the firms ability of generating profit per rupee of equity
shareholders fund. Higher the ratio the more efficient the management and
utilization of equity shareholders fund.RSWM LTD ROE ratio has been

consistently increasing after 2011-12 which shows that the firm has been
efficiently utilizes the fund of equity share.

PARTICULAR

2011-12

2012-13

2013-14

PAT

(217892000)

678661000

988001000

NUMBER OF EQUITY
SHARE

23148689

23148689

23148689

EARNING PER
SHARE

(9.41)

29.32

42.68

EARNING PER SHARE=PAT/NUMBER OF EQUITY SHARE

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
This ratio measures the earnings available to equity shareholders on a per
share basis. In general, higher the figure, better it is and vice versa. While
interpreting this ratio, it must be seen whether there is any increase in equity
shareholders funds as a result of retained earning without any change in
numbers of outstanding share. In 2011-12 the company was incurring loss
therefore the EPS was negative (9.41). In 2012-13 company has earned huge

amount of profit thus EPS has increase to 29.32 per share. Similarly 2013-14
because company has earned good amount of profit thus EPS has increase to
42.68 per share from 29.32 previous year.

Particulars

2011-12

2012-13

2013-14

CGS

41289.56

65933.53

75134.67

Average inventory

59578.29

52540.635

58784.25

0.6930

1.2549

1.2781

Inventory turn over

ratio

INVENTORY TURNOVER RATIO=COST OF GOOD SOLD/AVERAGE

INVENTORY

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
The objective of computing this ratio it to determine the efficiency with
which the inventory is utilizing this ratio establishes a relationship between
cost of good and inventory. It indicates the speed with which the inventory is

converted into sales. In 2011-12 the ratio is 0.6930 while in 2012-13 and
2013-14 the ratio is 1.3 approximately same. Thus as compare to 2011-12
inventory turnover ratio is higher in 2013 and 2014 which indicate that
inventory has been efficiently used and converted into sales.

DEBTORS TURNOVER RATIO=NET CREDIT SALES/AVERAGE

DEBTORS
Particulars

2011-12

2012-13

2013-14

Net Credit Sales

198699.75

245329.20

287005.35

Average Debtors

18441.25

21607.47

23686.27

DEBTORS
TURNOVER RATIO

10.77

11.35

12.11

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION

IT indicates the number of times the debtors are turn over during the year. Generally
higher the value of debtor turnover the more efficient is the management of the
debtors/sales or more liquid are the debtors similarly lower debtors turnover implies in
efficient management of debtors/sales and less liquid debtors. In 2011-12 ratio is 10.77
times but in 2012-13 its 11.33 and in 2013-14 it increase to 12.11 times. Thus it show
debtor are more liquid and it implies that company has efficient management of debtors.

AVERAGE COLLECTION PERIOD=360/DEBTORS TURNOVER

RATIO
Particulars

2011-12

2012-13

2013-14

360/debtors turnover
ratio

360/10.77

360/11.35

360/12.11

Average collection
period(approx)

33 days

32 days

30 days

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION

The Debt Collection Period Represent The Average Number Of Days For
Which A Firm Has To Wait Before Its Receivable Are Converted Into Cash.
Therefore In 2011-12 Collection Period Was 33 Days. IN 2012-13 collection
period reduced to 32 days and It Has Decreased To 30 Days In 2013-14
Which Shows That Debtors Are Converted In To Cash In Average collection
Period Of 30 Days.

Particulars

2011-12

2012-13

2013-14

net credit purchase

132484.97

149953.95

173416.89

average creditor

3633.94

411.14

3001.00

Creditor turnover
ratio

44.14

36.43

47.72

(assume 100% credit purchase)

CREDITOR TURNOVER RATIO=NET CREDIT

PURCHASE/AVERAGE CREDITOR

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
This ratio establishes a relationship between net credit purchase and average
trade creditors. The objective of computing this ratio is to determine the
efficiency with which the creditors are managed. In 2011-12 the ratio is
44.14 times it shows that creditors are manage efficiently and in 2012-13 the
ratio is 36.43 and increase to 47.72 times in 2013-14 it implies that
companys pays its obligations to the creditors as early as possible according
to the 2013-14.
AVERAGE PAYMENT PERIOD=360/CREDITOR TURNOVER RATIO
Particulars

2011-12

2012-13

2013-14

360/creditor turnover
ratio

360/44.14

360/36.43

360/47.72

Average payment
period (appx.)

8 days

10 days

8 days

Graphical representation

2011-12

2012-13

2013-14

INTERPRETATION
The average payment period ratio represents the average number of days
taken by the firm to pays its creditors. Generally, lower the ratio, the better is
the liquidity position of the firm and higher the ratio, the firm and
consequently larger the benefit reaped from credit supplier.2011-12 the
average collection period is 8 days it shows that the creditors paid
immediately. The company has maintained its average payable period
between 8 to 10 days. So it is good for the company as well as creditors
point of view.

CHAPTER 6
FINDINGS,
SUGGESTIONS
AND CONCLUSION

CHAPTER 7
BIBLIOGRAPHY

BIBLIOGRAPHY

BOOKS:1) Damodaran, A., (2002). Investment valuation, second

ed., john wiley & sons, new York, NY.

2) Fridson, martin, and Fernando alvarez. Financial

statement analysis: A practitioners guide. New York:
john wiley,2002
3) Harrington, Diana R. corporate financial Analysis:
Decision in a Global environment. 4th ed. Chicago:
Richard D. Irwin, inc., 1993.
.
WEB SITES :1) www.rajasthanspg.com
2) www.lnjbhilwara.com

Journels :Annual Report of the Company