“A STUDY OF PERFORMANCE ANALYSIS USING FINACIAL STATEMENT WITH REFERENCE G.

R
INDUSTRY,KUMTA”

CHAPTER-1
1.1 INTRODUCTION
Chemical industry the business of using chemical reactions to turn raw-materials such as oil
and salt, into a variety of products during the 19thand 20th century. Technological advances
in the chemical industry dramatically altered the world's economy. chemical process have
created pesticides and fertilizers for farmers, Pharmaceuticals for the health care industry,
synthetic dies and fibers for the textile industry soaps and beauty aids fir the cosmetics
industry synthetic sweeteners and flavors for the food industry, plastics for packaging
industry, chemical and celluloid for the motion picture industry, and artificial rubber for the
auto industry.
The process of critical evaluation of the financial information contained in the financial
statement in order to understand and make decision regarding the operations of the firm is
called Financial Statement Analysis'. It is basically a study of relationship among various
thereof to gain an insight into the profitability and operational efficiency of the firm to assess
its financial health and future prospects.
The term Financial Analysis includes both 'analysis and interpretation'. The term analysis
means simplification of financial data by methodical classification means explaining the
meaning and significance of the data.Financial statement analysis is a method of reviewing
and analyzing a company accounting reports in order to gauge its past, present or projected
future performance. This process of reviewing the financial statement allows for better
economic decision making. The main significance Financial statement analysis is to utilize
information about the past performance of the company in order to predict how it will true in
the future. Another important purpose of the analysis of financial statement is to identify
potential problem areas and trouble shoot those.
1.2 Need of the study
Financial statement are useful for evaluating company's profitability, liquidity and turnover.
The most common methods used for financial statement analysis are trend Analysis, common
size statement and ratio Analysis. Financial analysis is useful and significant to different
users in the following ways:
a) Finance manager:
Financial analysis focuses on the facts and relationships related to managerial performance,
corporate efficiency, financial strength and weaknesses and creditworthiness of the company
b) Top management:
The important of financial analysis is not limited to the finance manager alone management
of the firm would be interested in every aspect of the financial analysis.
c) Trade payables:
Trade payable are particularly interested in the firm's ability to meet their claims over a very
short period of time. Their analysis with therefore, evaluate the firm's liquidity position.
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 “A STUDY OF PERFORMANCE ANALYSIS USING FINACIAL STATEMENT WITH REFERENCE G.R
INDUSTRY,KUMTA”

d) Lender:
Suppliers of long-term debt are concerned with the firm's long-term solvency and survival.
e) Investor:
Investors, who have invested their money in the firm's shares are interested about the firm's
earning
f) Labour unions:
Labour unions analyze the financial statement to assess whether it can presently afford a
wage increase and whether it can absorb a wage increase through increased productivity or by
raising the prices.
g) others:
The economists, researches etc. Analyze the financial statement to study the present business
and economic conditions. The government agencies need it for price regulations taxation and
other similar purposes.

1.3 Objective of the study

It reveals important facts concerning managerial performance and the efficiency of the firm.
Broadly speaking the objective of the analysis are to apprehend the information contained in
the information contained in financial statement with a view to know the weaknesses and
strength of the firm and to make a forecast about the future prospects of the firm thereby,
enabling the analysts to take decisions regarding the operations of and further investment in
the firm. To be more specific, the analysis is undertaken serve the following purposes
(objective);

 To study the growth profile of the industry

 To analyze the financial statement by using different tools
 To study the processing, marketing and financial of the industry
 To know the management function of the unit.
 To study the marketing system and process of the organization.
 To know good relation between the management and workers
 To understand the sales policy and industry.
 To know the products of the industry and process involved in production of
the product.
 To know the made of distribution of the industry.
 To study the satisfaction of the working in industry

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 “A STUDY OF PERFORMANCE ANALYSIS USING FINACIAL STATEMENT WITH REFERENCE G.R
INDUSTRY,KUMTA”

1.4 Analysis and interpretation of data

1.4.1 -A. collection of data:

Data is a set of values of subject with respect to qualitative and quantitative variables.
Data collection is a component of research in all fields of the study including physical
and social sciences, humanities and business.
Data and information or knowledge are often used interchangeably: however data
become information when it is viewed in context or in post analysis. while the
concept of the data is commonly associated with scientific research and institutions,
including business. governments and non - governmental organizations.

Research methodology:
The information for the project report is collected through:
1)primary data:
The primary data are those data which has been collected directly. The primary data is
as follows:
a) Direct interview with the proprietor
b) Through observing the process.
2) secondary Data:
Secondary data are the data that have already been collected for purpose other than
the research at hand.
Sources of secondary Data:
- Library
-Government
- Internal records
-Books
-Internet
1.4.2 -B. Analysis of data:
It means The process of evaluation data using analytical and logical reasoning to
examine each component of the data provided.
1.5 Limiations of study:
 The study having limited areas.
 Lack of knowledge.
 Time constraints (very limited time is available)
 Arability of organization.
 The study is mainly based on primary data.
 Lack of precision.
 To maintain company secret some information will be confidential.
 The time constraint was one of the limitations of the study

DR A.V .BALIGA COLLEGE OF COMMERCE AND P.G.CENTER,KUMTA

 CHAPTER-2
PROFILE G.R INDUSTRY

History of chemical industry

The chemical industry comprises the companies that produce industrial chemical,
central to the modern world economy. It convert raw-materials (oil, natural gas air,
metals and materials) into more than 70,000 different products.
One of the first Chemical to be produced in large amount through industrial
process was sulfuric acid. In 1736 the pharmacist Joshua word developed a process
for its production that involves heating saltpeter and allowing the sulfur to oxidize and
combine with water. It was the first practical production of sulfuric acid on large
scale.
The first sulfuric acid plants were built in Great Britain in 1740(Richmond),
France in 1766 (Roven). Russia in 1805 (Moscow province) and Germany in
1810(near Leipzig)
John Roebuck and Samuel were first to establish a large scale factory in Preston
pans in 1749.which used leaden considering chamber for manufacturer of sulfuric
acid.
In the early 18th century, cloth was bleached it to sunlight for periods of time. which
created a serve bottleneck in production sulfuric acid began to be used as more
efficient agent as time by the middle of the century. but it was discovery of bleaching
powder by Charles Tenant that spurred the created of the first great chemical
industrial Enterprise.
Soda ash was used since ancient time in the production of glass, textile soaps and
paper and sources of the potash had traditionally been wood ashes in Western Europe.
By the 18th century, this source was becoming.
Uneconomical due to deforestation and the French Academy of sciences offered a
prize 2400livers for a method to produce alkali from sea salt (Sodium chloride). The
Leblanc process was patented in 1791by Nicolas Leblanc who then built a Leblanc
plant at Saint-Denis.

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Technology:
Most of the products manufactured are used in the manufactured are used in the
manufacturer of other item but a smaller no are used directly by consumers solvents.
some examples of the products produced by chemical Industries are as follows :-

Products type Examples

Organic industrial Oxide; phenol
Ceramic products Silica brick, frit
Polymers Polyethylene, Bakelite polyester
Agrochemicals Fertilizers, insecticides herbicides

Although the pharmaceutical industry is often considered a chemical industry it has

many different characteristics that puts it in a separate category. other closely related
in industries include petroleum, glass, paint ink sealant etc. It such as chemical
reactions are used in chemical plants to from new substances in various types of
reaction vessels Research and development on chemical products are even going on
today and almost each day the chemical companies are coming up with new
technology and new processes
By the 1920’s chemical firms consolidated into large and small conglomerate into
large and small conglomerate: IG Fabens in Germany, Rhone-Poulenc in France and
Imperial firm in the early 20th century in America.

Chemical industry in India

India is poised for new phase of growth of the chemical industry. Main focus of
Indian chemical sector is on modernization to improve efficiency by lowering the cost
.It is the driving engine for the entire economy. The segments recorded a steady
growth in the overall Indian industry with immense potential for growth as per capital
consumption is below the world's average.
The RS1250billion chemical industries contribute 13%of export of the country and
export where 3billion in 1998to 1999.Its contribution to total revenue is 20%by way
of customs and excise revenue.
Indian chemical industry occupies an important position in the country's economy. It
has been which almost twice the rate of GD

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“A STUDY OF PERFORMANCE ANALYSIS USING FINACIAL STATEMENT WITH REFERENCE G.R
INDUSTRY,KUMTA”

Industry

DR A.V .BALIGA COLLEGE OF COMMERCE AND P.G.CENTER,KUMTA

 “A STUDY OF PERFORMANCE ANALYSIS USING FINACIAL STATEMENT WITH REFERENCE G.R
INDUSTRY,KUMTA”

Company Profile:

Name of the firm G.R Industry

Established in the year 2008
Address Q1and Q2industrial area, Hedge
Road, Tq: kumta(U.K)

Founder Shri Gopalkrishna Ugru

Type of unit Small scale Industry

Ownership pattern Sole proprietor
Nature of Industry Manufacturing Industry
Man power required 13
Working hours 3shift in a day
Total area sq.ft 11,000sq.ft
Starting investment 70,00,000

Introduction
G.R Industry is a manufacturing industry, located in Q1and Q2 Industrial area,
Hegde Road, kumta. It was established in the year 2008;it is registered as per the Indian
company Act 1956.
The company was started with an initial investment of RS70,00,000 the capital borrowed by
the bank RS 30,00,000from State Bank of Mysore, Kumta.
G.R Industry is a small scale Industry and also sole proprietor business. The company set up
in 2008by Mr.Gopalkrishna Ugru.
Objective of the company
 To make profit
 To develop rural area
 To provide employment opportunity to local people
 To get self-employed
 Better utilization of raw-material.

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 “A STUDY OF PERFORMANCE ANALYSIS USING FINACIAL STATEMENT WITH REFERENCE G.R
INDUSTRY,KUMTA”

Background

Mr.Ugru has returned to his native place in Kumta, North kanara District 2008, with
the vast experience gained over 25years in as many projects he has chosen to set up a
small scale Industry suitable to Kumta region in the initial phase . After careful study
of many projects he has chosen to set up the magnesium chloride, potassium chloride,
sodium chloride and cyclopentanone plants on following considerations.
Virtually no waste generation and use of any harmful materials. Hence
environmentally safe.
No high temperatures or pressure safe to work
Extremely simple process-Requires only few unskilled/semiskilled labors, which is
easily available Kumta region.
Products are mainly catering to Pharmaceutical and food Industries. Hence everlasting
market.
Low capital cost as only few equipment are needed
Low gestation period.

Nature of the business carried

G.R Industries in a grass root company engaged manufacturing of bulk chemical
mainly required for pharmaceutical Industry.

Vision, mission and quality policy

Vision:
Company aims at rendering smooth reliable and consistent service to its consumers and
Industrial leadership.

Mission:
To promote manufacturing top products and delivering them in time.
Provide promising career and personal development opportunities to all its
employees.
Honesty and hard work is the mission of the company.

Quality policy
The service the company strongly committed towards quality and monitors the quality
like.
Raw-material and finished product test.
Analyze the product in the process control laboratory.
Pollution monitoring in the pollution monitory wing.
Company gives more attention on increase in the quality. 8

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 “A STUDY OF PERFORMANCE ANALYSIS USING FINACIAL STATEMENT WITH REFERENCE G.R
INDUSTRY,KUMTA”

Product profile
The products manufactured by the company include the followings.
1.sodium citrate: I P grade
Capacity: 20M T per month
2.Potassium chloride: L R, G R, I P and A R grades
Capacity:50 M T per month
3.Mangnesium chloride: I P and other grades
Capacity:10 M T per month
4.Cyclopentanone: Rehydrate and Anhydrous
Capacity:20 M T per month
Few more premium grade such as Sodium citrate AR etc. are under consideration for
manufacture.

Area of operation
Company has set up a state of the art modern manufacturing facility at the industrial
estate, Kumta, North kanara District, in Karnataka State.
Hence this company is concentrating its sales mainly to M.N chemicals. G.R industry is
a part of the M.N chemicals group. M.N chemical is a well established drugs manufacturing
company operating for more than 16years.

Ownership pattern
G.R industry is the sole proprietorship business organization; shri.GopalkrishnaUgru is the
main of this company.
Competitor's information:
J d industry, Belgaum
Other unorganized sector
The companies enjoy healthy competition with the it's competitors and thereby
increase in quality of service.

Achievement
Success cannot be compared with the other it means the success has to be compared
with what we have done in the past.
Company is comparing their performance in each year and trying to achieve better sales
and service than the past.
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INDUSTRY,KUMTA”

Future growth
 Technology improvement
 Mechanization
Infrastructure facility:
1) Land and building
Approximately 11000sqft Land is made available for the proposed project in plot no Q1&Q2
in KSSIDC industrial estate, Hedge Road, Kumta. 6000sqft building is proposed for running
the unit. The building cover office works, raw-material store finished product store packaging
space etc. building will be construed or strong foundation with the partial covering of RCC
and AC sheet.
2) power supply
Approximately 20hp Power is needed for this project. Power supply is already available in
the site. The promoter will also make his own arrangement in installing transformer as per
KPTCL norms.
3)Raw material
The procurement of raw-material is not a major problem as these raw-materials are
available in the bulk at Gujarat IPL Mumbai, Bangalore.
4) Availability of Manpower
The project requires semi-skilled and unskilled people. People can be trained easily
because the training given by MN chemicals.
5) Water
Water is needed for this project its self-argument from bore well.

Entrepreneur profile
Gopalkrishna Ramakrishna Ugru hails from Kumta taluk, North kanara district
completion of primary studies Mr.GopalkrishnaUgru completed his electrical engineer from
BVB Engineering College Hubli in 1984, ranking 3rd to the Karnataka university.
Mr.ugru joined Rastriya Chemical and Fertilizer Ltd in 1984 as an Electrical engineer. He
was part of the team which commissioned the biggest fertilizers complex at the time. The
complex consisted of
3×1500mt per day urea plants
2×1350mt pd ammonium plants
3×15mw stream generation plants

He was a faculty of quality circle and specialized on the subject "presenting to the
management".
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“A STUDY OF PERFORMANCE ANALYSIS USING FINACIAL STATEMENT WITH REFERENCE G.R
INDUSTRY,KUMTA”

He moved to Saudi Arabia1991along with a team of engineering which took charge of

the Saudi formaldehyde chemical company. In his till 2008he was a core member of
the team which up as 20 plants, major plants are;

 Six formaldehyde plants

 Two hexamine plants
 Two resin plants
 Para formaldehyde plants
 Six super plasticizer plants
 5lakh per year steel rolling mill
 4million sheets per year laminates plants

Mr.Ugru instrumental in design, procurement, erection and commissioning of the

electrical system for the entire complex.

The team also worked for the cause of the India and was responsible for changing the
image of the country from a cheap labor supply country to a country offering the
services of process technology, expert technocrats high-tech machineries and
material.

For the service rendering to the cause of India, Mr.ugru was felicitated with
Prestigious "hind rattan" award by the Govt. of India during 2005 republic day
function in New Delhi. His other achievements are;

Executive committee members of badminton federation Saudi Arabia for 5years

during which many top Indian player including Prakash Padukone and P.Gopichand
were invited to KSA.
Winner of Saudi National Amateur badminton double championship in 2003.
Pounder president of Karnataka sanga in Saudi Arabia for 4years and conducted
function.
As per in charge of the company conducted many Cricket and badminton tournaments
in the town.
Members of club Kumta

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 CHAPTER- 3

CONCEPTUAL FRAME WORK

The financial performance is a combination of financial and performance. The financial is

relating to the to money and management of money and the concept performance is derived
from the term 'performance'. which means 'to do', 'to carry' out or to render .It refers to the act
of performance.
According to Robert Albans "The word performance is used to mean the efforts extend to a
achieve the target efficiently and effectively. The achievement of target involves the
interacted use of human, financial and natural resources”.
In the worlds Erich kohlar "The performance is a general term applied to a part or all the
conducts of activities of an organization over a period of time; of ten which reference to past
or projected cost efficiency management responsibility or accountability or the like".
Performance indicated a problematic concept in terms of definition as well qualification. It
explains an output of an activity and the appropriate measure selected to assess the corporate
performance in accordance with the objective of the organization. It shows the act of
performing the financial activity of an organization. In broader sense, it is a it is process of
measuring the results of a firm's policies and operations in monetary terms. The financial
performance is also useful for measurement of the over all Financial health of the
organization over given plays a vital role in the comparison with other industry. The analysis
of financial performance is not only confined the quantitative method i.e. ratio cash flow
statement etc. but also qualitative factors like efficiency and effectiveness.

Techniques of financial analysis

 Financial efficiency-

The concept of efficiency simple means the evaluation and performance of a

business concern in the appraisal. According to Peter Drunker Doing the things in the
right way is efficiency, efficiency signifies a level of performance that describes a
process that uses the lowest amount of inputs to create the greatest amt of outputs.
The Financial e financial efficiency also indicates the achievement of a descried
objectives with minimum sacrifice of the scarce resources.

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 Financial Appraisal-

It is used as a technique for the evaluation of the profitability and Financial strength of a
business unit. often the term financial performance appraisal and financial statement analysis
are used as synonymous. Basically the techniques of financial statement analysis. The
financial performance appraisal is basically based upon the Balance sheet and profit and Loss
Account. each and every organization is maintaining its financial statement according to it's
needs

 Financial Analysis-
It is an analytical way of viewing the financial position of a company. It provides a
clear guide to evaluate and recognize the company position. The different methods to
analyse the financial position of a company are ration analysis comparative statement
analysis, cash flow analysis and decision theory. It is the easiest available tool for any
investor or stakeholder to identify the financial strength of a company. The financial
analysis means selection, evaluation and interpretation of financial data along with
other pertinent; Information to assist in investment and financial decision-making. It
plays a very note worthy role in evaluating corporate excellence, judging credit
worthiness valuing equity shares, forecasting bonds ratings, predicting bankruptcy
and assessing market risk.

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Source of financial ratio collected from

Data for Key Financial Ratio Collected From

Income Statement

Balance Sheet

Cash flow Statement

Statement of retain earnings

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INDUSTRY,KUMTA”

Tools and techniques of fiancnical performance anlysis

It are the important of information for financial decisions.In this study the not only
focused on preparing Balance Sheet , profit and Loss account cash flow and fund flow
statement.but also paid special attention to the difference between accounting value
and economic value.more over the difference between accounting income and cash
flow has also been highlighted in it.

 Analysis of common size fiancnical statement

In common size statement, all items are expressed in common base. In profit and Loss
account or income statement user a analysis of company. Common size method of
evaluating financial information by expressing each item in a financial statement as a
percentage of a base amount for the same time period.
Types of common size statements
1. Common size Balance Sheet
2. Common size Income statement
 Analysis of comparative financial statement
It reveal the operating results and financial position of a business concern in a
comparative form for a period of two or more years. From comparative statement point of
view, generally two Financial statement are taken for comparative financial analysis purpose.
when the financial statement are prepared in a comparative form both absolute and
percentage change helps to financial analyst to draw useful conclusion. whether the sales
revenue and expenses have increased or decreased incurrent year over the previous year.
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INDUSTRY,KUMTA”

 Ratio Analysis
Ratio analysis is a tool of financial analysis and it is used at great level in the
business. It is the systematic use of ratio to interpret the financial statement so that the
strength and weaknesses of a firm as well as it's historical performance and current
financial condition can be determined.
Ratios are used to evaluate the financial performance of a company. The user
of the ratio maybe banker creditors, debtors, shareholders, govt etc. because they
cannot draw conclusion from available financial statement. Therefore different ratio
play different roles for stakeholder. The vital financial ratios are profitability ratios,
solvency ratio liquidity and turnover ratios.
Types of Ratios:-
Several ratio, calculated from the accounting data, can be grouped into various
classes according to financial activity or function to be evaluated. The parties
interested in financial Analysis are short and long-term creditors owners and
management. In view of the various users of ratios can be classified following
categories,
 Liquidity Ratio
 Leverage Ratios
 Activity Ratios
 Profitability Ratio
Types of accounting ratios

Ratio Analysis

Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios

They measure the These ratios They reflect the These ratio measure
firm's ability to meet proportion of debt firm's efficiency in overall performance and
current obligations. and equity in utilizing the assets. effectiveness of the firm.
financing the firm's
assets.

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 Liquidity Ratio:-
Liquidity refers to the ability of a firm to meet is obligations in the short run ,
usually one year. liquidity ratios measure the ability of the firm to meet its current
obligations. liquidity ratio by establishing a relationship between obligations provide
a quick measure of liquidity. A firm should ensure that and also that it does not have
excess liquidity and lack of liquidity.
Following are of the important liquidity ratios current ratio, interval measure and
networking capital ratio. The important liquidity ratios are as follows:

 Current Ratio-
Current ratio is calculated by dividing current assets by current liabilities. current
assets including cash and items. which are convertible into cash easily in the given
period such as debtors, investors and marketable securities and current liabilities
include such as sundry creditors, bills payable, accrued expenses and short term debts
etc.
Current assets
Current Ratio=
Current liabilities

Quick Ratio-
Established between quick or liquid assets and current liabilities. The
quick ratio is found out by dividing quick assets by current liabilities.

Current asset inventory

Quick ratio =
Current liabilities

Cash Ratio-
An assets which converts suddenly without doubtful is called as cash
ratio.

Cash market securities

Cash ratio =
Current liabilities

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INDUSTRY,KUMTA”

Net working capital-

Networking capital ratio calculated by dividing networking capital by
net assets. Networking capital measure the firms potential reservoir greats ability to meet
its current obligations and vice versa.

Net working capital

Networking capital ratio =
Net assets

Leverage Ratios-
The short-term creditors, like bankers and suppliers of raw-material are
more concerned with the firm's current debt-paying ability on the other hand, long-term
creditors like debenture holders, financial institutions etc, are more concerned with the firm's
long-term financial position. To judge the long term financial position of firm, financial
leverage ratios are calculated. These ratio indicate mix of funds provided by owners and
lenders.As a general rule should be an appropriate mix of debt and owners equity in financing
the calculated items the balance sheet items to determine the proportion of debt in total
financing.leverage ratios are also computed from the profit and Loss items by determining the
extent to which operating profit are sufficient to cover the fixed charges.
The important leverage ratios are as follows:-
Debt Ratio:-
Debt ratio is used to analysis the long-term solvency of a firm.debt ratio is
calculating by total debt by capital employed or net asset of the firm.

Debt ratio = Total Debt

Total Debt +Networth

Debt equity ratio-

The proportion of total debt to the net worth is known as debt equity
ratio.Debt equity ratio is calculated by dividing total debt by Networth.

Debt equity ratio= Total liability

shareholder equity

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INDUSTRY,KUMTA”

ActivityRatios-
Activity ratio are concerned with measuring the efficiency in asset
management.sometimes these ratio are also called efficiency ratio or assets utilization ratios .
The efficiency with which the assets are used would be respected in the speed and rapidity
with which assets are converted into sales.
The greater the rate of turnover or conversion, the more efficient the
utilization.Fir this reason,such turnover Ratios.Turnover is the primary mode for measuring
the extent of the efficient employment of assets by relating the assets to sales and various
assets of a from.several activity ratios can be calculated to judge the effectiveness of assets
utilization.
The important ratios are as follows:-
Inventory turnover -
Inventory turnover indicates the efficiency of the firm in producing and selling it's product.
Inventory turnover = Sales
Debtors
Collection period-
The average no of days for which debtors remain out standing is called the
average collection period.The lesser the collection period shows better liquidity position of
the firm.

Collection period= Debtors ×360

Sales

D. Profitability Ratio-
The management of the firm is naturally inclined to measures its operating efficiency
and investor invest their funds in the expectation of reasonable returns. profitability ratio
judge the ability of the top management in the business with help of profit only these ratio
raise the certain of the success or failure of management. It is the only ratio which is used by
the entire stockholders of the business leading to their pleasure. If a company is dealing with
high dividend policy with its customers,it plays a significant role in the appreciation of the
value of the share at the stock market. organization wants more and more profit to pay
dividend's and reinvest in the business to increase the production capacity and strengthen the
overall financial position of the company..

Profitability is defined as a substitution of financial performance and it is one of the main

objective of the management of the organization. It is prerequisite for an increasing the
competitiveness of a company operating in a globalized era more over it attracts investor,
lenders and improve the level of solvency it also enhances the confidence level of customer
through Goodwill.The following are the ratios in relation to sales:- 19

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INDUSTRY,KUMTA”

Gross Profit Ratio-

It defines the relationship between gross profit to Net sales. In other words it is the
difference between revenue and direct expenses of the firm. Generally Gross profit is
calculated in terms of percentage. High gross profit ratio is considered as beneficial for the
company. There is no standard norm for gross profit ratio.

Gross profit = Gross Profit ×100

Net Sales

Operating Ratio-
Defines the relationship between operating Profit and sales.It represents the
soundness of the company and ability to pay off it's debt obligations.

Operating profit ratio= Operating profit ×100

NetSales

Net Profit Ratio-

The net profit explains the association between net profit after tax and
Netsales of the firm moreover.it indicates the efficiency of the mgt of the company in the
terms of manufacturing, selling of the firm. Higher the ratio the better is the profitability But,
at the time of the interpretation of net profit ratio. It represents the overall profitability of the
company after deducting all cash and no cash expenses. higher the net profit ratio, higher the
net worth and stronger the balance sheet.

Net profit ratio= Net profit after tax ×100

Net sales
Return on capital employed-
It represents the profitability of the company with the capital invested in the
business.it indicates the relationship between profits and the capital employed. It is the key
ratio to measure the overall profitability and efficiency of business.The different kind of
return on capital employed widely can be defined as:-
capital employed:- It defines the total assets used in the business.

Gross capital employed= Fixed Assets+Current Assets 20

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Net capital employed-

It reveals the difference between total assets and current liabilities used in the business.

Net capital employed=Total Assets- Current Liabilities

Important of ratio analysis
o Liquidity position
o Long-term solvency
o Operating efficiency
o Over-All profitability

Interpretation of Ratios
It involves a firms progress, present position and its future prospectus. This require the
comparison of ratios with some standard or past ratio of the firm or other firm. interpretation
requires general intelligence and foresightedness, Generally the following approaches are
available for interpreting ratios.
1.Interpretation by single absolute ratio:-
An individual ratio,by itself may have a significance of it's own. Normally these ratios
areto be studied with reference to some standards. Therefore this approach should be
combined with others.
2. Interpretation by Historical comparison:-
An individual ratio or a group of related ratios is computed and compared over time.
The significant trends I.e. increasing decreasing or constant are considered for reaching
conclusions.
3. Interpretation by inter-firm comparison:-
In this method the ratios of one firm are compared with the ratio of other firms in the
same industry.such inter-firm comparison may significant because group of other firms
considered for comparison may be facing the similar financial problems
 Comparative fiancnical statement
It are those statements which summaries and present related accounting data for no of
years incorporating there in the changes in individual items.The changes in individual
statement are designed to disclose the following:
Absolute figures (in rupee amount)
Increase or decrease i.e. change in absolute figures.
Increase or decrease in terms percentage

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 Funds flow analysis

It reveals the sources from which funds were obtained by the firm and specific uses to which
such funds were applied.
 Cash flow analysis
Cash flow statement is a statement that highlight upon the causes which brings
changes in cash position of a business firm between two balance sheet dates .
 Trend analysis
It involves the computation of percentage relationship that each item in the
financial statement bears to the corresponding item contained in that of business may
be done in any of the following ways.
 Trend percentage
 Trend Ratio
 Graphic or Diagrammatic presentation

 Fiancnical statement
It refer to the statement that shows the financial position and result of business
activities at the end of the accounting period.
A complete set of financial statement normally includes a balance sheet,a
statement of profit and Loss a cash flow statement and those notes and other statement
and explanatory material that are an integral of the financial statement.
 Balance Sheet
Balance Sheet is a statement of the assets and capital of a business point in
time, detailing the balance of income and expenditure over the preceding period. The
balance sheet is a financial statement that describes what the firm is worth at any one
point in time. It provides an insight into the financial status of a company at a
particular time. The balance sheet, type of financial statement. Other financial
statement are prepared by talking into account the financial health of company over
considerable span of time.
 Income statement
It indicates firm's financial position at a specific date. The earing capacity of the
firm is reflected by profit and Loss account or income statement.An income statement
or profit and Loss account is one of financial statement of a company and shows the
company's revenue and expenses during a particular period.An income statement is a
financial statement that reports a company's financial over a specific accounting
period. Financial performance is assessed by giving a summary of how the business
incurs its revenues and expenses through both operating and non-operating
activities.It also shows the net profit or loss incurred over a specific accounting
period.
 Cash flow statement
The cash flow statement is a summary of the actual or anticipated incoming
and goings of cash in a firm over an accounting period i.e. month, quarter and year.
This statement highlights flow of cash over a period of time. The cash flow maybe

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from investment activities, operations or financing activities. cash flow statement

assess the amount,timing and predictability of cash inflows and cash outflows and are
used as the basis for business planning.
 Statement retained earnings
The statement of retained earnings is financial report that shows the changes in
the retained earnings account over a period of time.In other words, it's a financial
statement that reports the transactions that increase or decrease retained earnings over
the course of an accounting period.A statement outlining the changes in retained
earnings for a specified period. The statements is prepared in accordance with
generally accepted accounting principles (GAAP), It reconciles the beginning and
ending retained earnings for the period, using information such as net income from
the other financial statement.
 Z Socre model
The Z Score is an effective tool to analyze the financial health and credit worthiness
of private companies.It has gained wide acceptance from auditors management,
accountants courts and data base systems used for loan evaluation.
 Market value added
The above theoretical discussion about the concept of financial performance analysis
clearly indicates that the analysis of financial performance is totally dependent on the
financial statements of the companies. This chapter also highlights the concept and
calculation of various ratios, EVA, MVA and Z score Model.

EVA1 EVA2 EVA3 EVA n

MVA= + + ......
(1+c)1 (1+c)2 (1+c)3 (1+c)n

Or

Market value of equity=Book value of equity+Value of all future

 Statistical Tools

 Descriptive statistics-
Descriptive statistics define the analysis of data that helps to describe or
summarize data in a meaningful manner.A simply presented data is hard to visualize,
therefore, descriptive statistics become significant as it presents the data in a more
meaningful way which allows simple interpretation of the data.

 Correlation
According to L.R. Connor"If two or more quantities vary in sympathy so
that movements in the one tend to be accompanied by corresponding movements in
the others,then they are said to be correlated ".
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 Regression Analysis
Regression Analysis is the process of constructing a mathematical model or
function that can be used predict or determine one variable by other variables. The
simple linear regression or bivariate regression involve two variables in which one
variable is predicted by another variable.

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CHAPTER- 4

ANALYSIS AND INTERPRITAION OF DATA

Financial ratio analysis is the process of identifying the financial strength and weakness of
the firm by properly establishing relationship between the item of the balance sheet and profit
and loss account with the help of following ratios.
 Liquidity ratio
 Operating ratio
 Activity ratio
 Leverage ratio

Liquidity ratio:
The most important ratios which are used in liquidity as follows:-

Current ratio:-
The current ratio as calculated to know the firms short-term solvency.

Formula:-

current assets
Current ratio=
Current liability

Table No 4.1
Comparative current ratio of G.R Industries

(Amount in Rs)
Particulars 2015-16 2016-17 2017-18 2018-19
current assets 10125219 9409476 7181790 6163461
Current liability 871172 557383 191037 125764
Current ratio 11.6 16.88 37.59 49.01
Source-The Industries Financial Statement 25

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Graph-4.1

Interpretation:
As a convention rule a current ratio of 2;1 or more is considered satisfactory .The
Table No4.1 show the current ratio of G. R. current ratio Industries during the period of study
.In the year 2106 it is having11.61:1 in 2017 it goes up to 16.68:1 and in the year 2018 it
against goes up to 37.59:1 and in the year 2019it against increase 49.01;1
Form the above calculation it is conclude that the G.R. Industries is
maintaining good current ratio.

Quick ratio:
Quick ratio is found out by dividing quick assets by current liabilities.

Formula :-
Quick ratio= Current assets-Inventories
Current Liabilities

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Table No-4.2
Comparative Quick ratio of the G.RIndustries

(Amount in Rs)
Particulars 2015-16 2016-17 2017-18 2018-19
Liquidity Assets 9716719 9060976 7181790 6163461
Current Liabilities 871172 557383 191037 125764
Quick ratio 11.15 0.06 0.03 49.01
Source-The Industries Financial Statement

Graph-4.2

Interpretation:
Generally a quick ratio of 1:1 is considered to represent a satisfactory for current
financial condition.The G.R.Industries quick ratio is measured as under :-
In the year2016 the ratio comes down to 0.06:1 in the year2018 the
ratio comes down to 0.03:1 in the year 2019 the ratio goes up to 49.01:1.It is good
From the above analysis it is conclude that G.RIndustries is doing good
performance. While maintaining quick ratio.

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Cash ratio :-
An assets which convert which converts suddenly without doubtful is called Cash
ratio.
Formula :-
Cash ratio= Cash+ Market Securities
Current Liabilities
Table No.-4.3
Comparative cash ratio of the G.RIndustries
(Amount in Rs)
Particulars 21015-16 2016-17 2017-18 2018-19
Liquidity Assets 851435 735033.73 132432.78 30717.58
Current 871172 557383 191037 125764
liabilities
Cash ratio 0.977 1.318 0.693 0.2442
Source-The Industries Financial Statement
Graph-4.3

\
Interpretation:
In cash ratio there is no standard ratio for maintain the cash balance because now days
nothing to be worried about the lack of cash .If the company has reserve borrowing power for
its day to day activities cash ratio in the year 2016 was 0.977% of current liabilities in the
year 2017 it increase 1.318% and the year 2018 it come down to 0.693% and 2019 .It comes
down to 0.2442% from above analysis . It is conclude G.RIndustries is having not good cash
ratio .

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Cash ratio :-
An assets which convert which converts suddenly without doubtful is called Cash
ratio.
Formula :-
Cash ratio= Cash+ Market Securities
Current Liabilities
Table No.-4.3
Comparative cash ratio of the G.RIndustries
(Amount in Rs)
Particulars 21015-16 2016-17 2017-18 2018-19
Liquidity Assets 851435 735033.73 132432.78 30717.58
Current 871172 557383 191037 125764
liabilities
Cash ratio 0.977 1.318 0.693 0.2442
Source-The Industries Financial Statement
Graph-4.3

\
Interpretation:
In cash ratio there is no standard ratio for maintain the cash balance because now days
nothing to be worried about the lack of cash .If the company has reserve borrowing power for
its day to day activities cash ratio in the year 2016 was 0.977% of current liabilities in the
year 2017 it increase 1.318% and the year 2018 it come down to 0.693% and 2019 .It comes
down to 0.2442% from above analysis . It is conclude G.RIndustries is having not good cash
ratio .

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Net working capital:-

Net working capital measures the firms potential reserve or funds higher the Net working
capital indicates greats ability to meets its current obligation and vice versa.
Formula :- Net working capital = Net working capital
Net Sales
Or

Current assets – Current liabilities

NWC = Fixed assets + Current assets

Table No. 4.4

Comparative Net working capital of the G.RIndustries

(Amount in Rs)
Particulars 2015-16 2016-17 2017-18 2018-19
Liquid Assets 5172016 8852093 5271419 10136214.31
Net Assets 7855641 1152737 8720708 6037697
Net working capital 0.658 0.766 0.604 1.67
Source-The Industries Financial Statement

Graph 4.4

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Interpretation:
There is no standard ratio for networking capital but industry must have maintained good
working holds to meets its current obligation. The GRI industry holds networking ratio has
follows :
GR industry holds 0.658% of current liabilities in the year 2016 that is very good
performance and it gains goes up to 0.766% in the year 2017 in the year 2018 it decrease
0.604%, But in the year 2019 it gains goes up to 1.67% that is very good performance from
the above analysis. It is conclude that performance of GR Industries have increasing year
after year it means GR Industries holds good networking capital.

Table No: 4.5

Statement showing liquidity ratio position of GR Industries :

Ratio 2016 2017 2018 209

Current ratio 11.6 16.88 37.59 49.01
Quick ratio 11.15 0.06 0.03 49.01
Cash ratio 0.977 1.318 0.693 0.2442
Networking capital Ratio 0.658 0.766 0.604 1.67
Source-The Industries Financial Statement
Graph 4.5

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Profitability ratio
These ratio measure over performance and effective of the firm and it is one of the
organization.

Formula:
Gross profit
Gross profit ratio = × 100
Net sales

Table No.:4.6
Comparative gross profit ratio of GR Industries

(Amount in Rs)
Particular 2015-16 2016-17 2017-18 2018-19
Gross profit 1001292 1055883 809450 1584584
Net sales 7799025 3674675 2835663 6556125
Gross profit 12.84 28.33 28.55 24.17
ratio
Source-The Industries Financial Statement
Graph 4.6

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Interpretation:

From the above we can say that gross profit is 12.84% 2016 and increased to 28.33% in 2017
and again increased to 28.55% in the year 2018 and decreased to 24.17% in 2019 from is
maintaining proper control on trading activities

Operating ratio / Operating expenses ratio

It is represent the sound of the company (Industry) and ability to pay of its debt obligations.

Formula:
Operating expenses
Operating ratio = x 100
Net sales
Table No.4.7
Comparative operating ratio of GR Industry
(Amount in Rs)
Particular 2015-16 2016-17 2017-18 2018-19
Operating expenses 963533 896468 988653 1060095
Net sales 7799025 3674675 2835663 6556125
Operating ratio 12.35 24.4 34.68 16.17
Source-The Industries Financial Statement
Graph 4.7

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Interpretation:
From the above we can say that operating expenses ratio is 12.35% in 2016 and increased
24.4% in 2017 and again increased to 34.86% in the year 2018 and decreased to 16.17% in
2019 firm is maintaining proper control on operating activities

Net profit ratio:

It indicates the efficiency of the management of the industry in the term of manufacturing
selling of the firm

Formula:
Profit before interest
Net profit ratio =
Sales
Profit before interest = Total revenue – cost of goods sold – Operating expenses –
Deprecation

Table No.: 4.8

Comparative Net profit ratio of GR Industry

(Amount in Rs)
Particular 2015-16 2016-17 2017-18 2018-19
Profit before interest 1067045 159415 463478 524490
Sales 7799025 3674675 2835663 6556125
Net profit ratio 13.68 4.34 16.34 8
Source-The Industries Financial Statement

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Graph 4.8

Interpretation:

From the above we can say that net profit is 13.68% in 2016 and decreased to 4.34% in 2017
and again increased to 16.34% in the year and decreased to 8% in 2019 firm if maintaining
proper control activities

Table No.: 4.9

Statement showing profitability ratio position of GR Industries

Ratio 2016 2017 2018 2019

Gross profit 12.84 28.33 28.55 24.17
ratio
Operating ratio 12.35 24.4 34.68 16.17
Net profit ratio 13.68 4.34 16.34 8

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Graph 4.9

Activity ratio:
Activity ratio involves a relationship between sales and assets reflect that assets are managed
well several activity ratio can be calculated to judge the effectiveness of asset utilization

Inventory turnover : It indicates the efficiency of the firm in producing and selling its
product

Formula:
Sales
Inventory turnover ratio =
Inventory

Inventory = Opening stock +Cost of goods sold – Closing stock

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Table No.: 4.10

Comparative Inventory turnover ratio of GR Industry
(Amount in Rs)
Particular 2015-16 2016-17 2017-18 2018-19
Sales 7799025 64000 361348 1725000
Inventory 7397916 11215588 1862579 4554516
Inventory 1.05 0.006 0.19 0.378
turnover
Source-The Industries Financial Statement
Graph 4.10

Interpretation:

In the year 2016 inventory turnover 1.05% in the year 2017 its come down to 0.006% in the
year 2018 its come increase 0.19% but in the year 2019 increased to 0.378% it indicates good
management inventory holding it is conclude that the year 2016 and 19 the industry not
perform properly performance while handling inventory turnover but in the year 2017 it
manage good performance towards inventory management.

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Debtors turnover :
Debtors turnover indicates the number of times debtors turnover cash

Formula :
Sales
Debtors turnover ratio =
Debtors

Table No.: 4.11

Comparative Debt turnover ratio of GR Industry
(Amount in Rs)
Particular 2015-16 2016-17 2017-18 2018-19
Sales 7799025 64000 361348 1725000
Debtors 6534688 5306547 3892121 3962947
Debtors turnover ratio 1.38 0.01 0.09 0.435
Source-The Industries Financial Statement
Graph 4.11

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Interpretation:

Debtors turnover for the year 2016 was 1.38 times where has in the year 2017 it was
decreased 0.01 times for the year 2018 it is 0.09 times and in the year 2019 it again goes up to
0.435 overall debtors turnover lower for compare to the standard ratio it is conclude that GR
Industries having lesser period of debtors turnover.

Table No.: 4.12

Statement showing active ratio position of GR Industry

Ratio 2016 2017 2018 2019

Inventory 1.05 0.006 0.19 0.378
turnover
Debtors turnover 1.38 0.01 0.09 0.435

Graph 4.12

Leverage ratio

Leverage ratio shows the proportion debt and equity in the firm assets. Leverage ratio
is calculated from the balance sheet.

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Formula:
Total liabilities
Debit ratio = x 100
Total assets

Table No. 4.13

Comparative Debt ratio of G.R Industry
(Amount in Rs)
Particular 2015-16 2016-17 2017-18 2018-19
Total Liabilities 871172 557383 191037 125764
Total assets 12808844 12110119 10631079 1026198
Debt ratio 6.80 4.60 1.79 1.22
Source-The Industries Financial Statement

Graph 4.13

Interpretation:

For the year 2016 ratios 6.80%This ratio indicated that the firm debt ratio in the financing
and in the year 2017 .it again decrease is 4.60%.
Is the year2018 it decreased 4.585% of the capital employed.The higher ratio shows
higher the risk and vice versa. In the year 2019 it again goes decreased.

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From the above analysis. It is conclude that firm not have higher risks in the year
2018and 2019. It is good because risk is minimum.

Debt equity ratio:

The proposition of total debt to the net worth is known as debt equity ratio.It ratio is
calculated by dividing total debt by net worth
Formula:
total debt
Debt equity ratio=
Net worth
or
Total liabilities
DER=
Shareholder equity
or
Long term debt
Debt equity ratio=
Share holder fund

Long term debt=debentures +long term loans +current liabilities

Share holder fund=equity shares capital +preference share capital +reserves-fictitious assets

Table No. 4.14

Comparative Debt equity ratio of G.R Industry
(Amount in Rs)
particular 2015-16 2016-17 2017-18 2018-19
Total liabilities 3256332 2447137 3316895 806835
Share holder fund 9319180 9905599 732054 9360097
Debt equity ratio 0.35 0.25 0.45 0.86
Source-The Industries Financial Statement

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Graph 4.14

Interpretation:

The ideal ratio of debt equity is 2:1 in the year 2016 the ratio comes down to 0.35 in the year
2017 ratio comes down to 0.25 in the year2018 the ratio 0.45and the year 2019 ratio
0.86.which is less then ideal ratio here this proportion indicate the firm depended on outside
funds .
From the above calculation .it is conclude that the industry is taking low risk
and it also shows financial soundness of firm depending on the outside source of funds.

Equity ratio :-
Equity ratio is calculated by dividing capital employed by net worth.
Formula:
Total equity
Equity ratio=
Total assets

Total assets=total liabilities-total equity

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Table No. 4.15

Comparative equity ratio of G.R Industry
(Amount in Rs)
Particular 2015-16 2016-17 2017-18 2018-2019
Total equity 11937672 11552737 10440042 2314422
Total assets 12808844 12110120 10631079 10261978
Equity ratio 0.93 0.95 0.982 0.23
Source-The Industries Financial Statement
Graph 4.15

Interpretation:
There is no standard rules for maintains equity ratio .For G.R.Industries analysis ratio as
under .It is conclude that the company maintained good ratio between capital employed

Table No. 4.16

Statement shows leverage ratio position of G.R.Industries

ratio 2016 2017 2018 2019

Debt ratio 6.80 4.6 4.58 1.22
Debt equity ratio 0.35 0.25 045 0.86
Equity ratio 0.93 0.95 0.98 0.23

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Graph 4.16

Table No. 4.17

Chart showing G.R Industry sales

2015-16 2016-17 2017-18 2018-19

7799025 64000 361348 1725000

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Graph 4.17

17%

4%
1%

78%

2016 2017 2018 2019

Interpretation:

The above pie chart shows the percentage of 4 year sales in 2016 - 78%, in 2017 – 1% and in
2018 – 4% and in 2019 – 17%

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 CHAPTER 5
FINDING AND SUGGESTION

The ratio analysis prepared according to industry balance sheet and manufacturing,trading
and profit and loss accounting system have been subject to the following findings:-
o GR Industry maintaining good current ratio. The current ratio is indicator of
industry financial strength, soundness and position of industries.
o The Industry holds moderate quick ratio for its operation and its shows good
performance in maintaining quick ratio
o The product rate is reasonable
o The industry is going through a good profit
o Net profit was low. It shows the proper control on operating activities.
o The overall debtors turnover ratios is low It includes that the company having
lesser period of Debt turnovers.
o Debt ratio is less and not have higher risk in the industry.it is good because
risk is minimum.
o Marketability is good
o GR Industry equity ratio is low it is good because risk is minimum
o Equity ratio is indicated industry good ratio between capital employed

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__________________________________________________________________________________________

SUGGESTIONS

 It is suggest the company has to reduce the current liabilities to achieve the
standard current ratio
 The industry should take measures to increase net sales
 measures should be taken to reduce the operating expenses
 G R industries should adopt pricing policy
 The industry has to search for wider marketing area to increase the sales
 Industry management should take proper decision take to the sales and
manufacturing products
 Modern machineries can be used to increase the productivity and efficiency
 Set a strategy to compare the competitors
 The industry should conduct weekly meeting for control plan in material
management department production towards operation of the industries

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DR A.V .BALIGA COLLEGE OF COMMERCE AND P.G.CENTER,KUMTA
“A STUDY OF PERFORMANCE ANALYSIS USING FINCIAL STATEMENT WITH REFERENCE G.R
INDUSTRY ,KUMTA”
__________________________________________________________________________________________

CONCLUSION
Analysis and interpretation of financial statements is an important tool in assessing
company's performance. It reveals the strength and weaknesses of a firm.It helps the clients
to decide in which firm the risk is less or in which one they should invest so that maximum
benefit can be earned. It is known that investing in any industry involves a of risk. So before
putting up money in any company one must have thorough knowledge about its past records
and performance Based on the data available the trend of the company can be predicted in
nearfuture.
This project of financial analysis & interpretation in the production concern is not merely a
work of the project but a brief knowledge and experience of that how to analyze the financial
performance of the firm. The study undertaken has brought into the light of the following
conclusions. According to the project I came to know that from the analysis of financial
statements it is clear that G.R. Industry have been incurred profit during the period of study.
Sothe firm should focus on getting of more profits in the coming years by taking care intern
as well as external factors. And with regard to resources, the firm is taken utilization of the
assets properlyandalso the firm is a maintained low inventory.

This project mainly focuses on the basis of different types of ratio analysis and financial
statements Balance Sheet and Profit & Loss statements of G.R. Industry have been studied
From ratio analysis of Balance Sheet and P&L. Statement of GR Industry was concluded that
the liquidity position of the Industry is good.

49
__________________________________________________________________________________________
DR A.V .BALIGA COLLEGE OF COMMERCE AND P.G.CENTER,KUMTA
“A STUDY OF PERFORMANCE ANALYSIS USING FINCIAL STATEMENT WITH REFERENCE G.R
INDUSTRY ,KUMTA”
__________________________________________________________________________________________

BIBILOGRAPHY
Reference books

Book name Author

Management accounting M R Agarwal

Financial management L M Pandey

Financial management M Y Kan and P K Jain

Other source:
secondary data, balance sheet and reports

Website:
www.google .com

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DR A.V .BALIGA COLLEGE OF COMMERCE AND P.G.CENTER,KUMTA