INTRODUCTION

FINANCE

Finance is the process of commission of accumulated funds to productive use.

Finance helps to direct flow of economic activity and facilitates its smooth operation. Finance
is the agent that produces this result. There are many definitions of all the best was of
Howard and upon “those administrative areas of assets of organization which have to do with
management of flow of cash so that the possible and at the same time meet its obligations as
they become due”. Finance is concerned with the task of providing funds to the enterprises on
the item that is most favourable toward the attainment of the organization foals objects. The
function finance is merely furnishing funds to the organization. Finance has a boarder
meaning and it covers financing planning, forecasting of cash receipts and disbursement,
rising of funds, use and allocation of funds and financial control.

FINANCIAL MANAGEMENT

Financial management is the managerial activity; which is concerned with planning

and controlling of the firm’s financial resources. The subject of finance management is of
immense interest both to academician and practicing managers.

The practicing managers All interested in this subject become the most crucial decision of the
firm All those which results to the finance and on understanding of theory of finance
management provides them conceptual analysis insights to make these decision
skilfully.

DEFINITIONS OF FINANCIAL MANAGEMENT

1. “Financial management is concerned with the efficient use of an important resource

namely, capital funds” .-EZRA SOLOMAN.

2. “Financial management is concerned with the efficient managerial decisions that result in
the acquisition and financing of long term and short term credits for the firm.“PHILLIPPATU

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 RATIO ANALYSIS

Ratio analysis is one of the most powerful tools in the hands of an executive. It

isused as a device to analyze and interpret the financial health of an enterprise, just like a

doctor examine patient by recording his growth, health and other conditions of body, it is the

way with an enterprise. It is compared with living thing and its growth, health efficiency is

very much important for its survival in a competitive environment.

So, before concluding the health and growth of the enterprise proper financial analysis

is done to check the financial health or weakness of an enterprise. Financial analysis is a

process of establishing and interpreting quantitative relationship between figures and group

of figures. With the help of Ratios, financial statements can be analyzed more clearly. A

ratio is "an expression of one figure in terms of another figure". A ratio expresses the

relationship between one accounting figure to another accounting figure which are mutually

interdependent. A ratio is a statistical yardstick that provides a measure of relationship

between two figures shown in the financial statements.

Following are the ratios, which are calculated to check the financial health, growth

and efficiency of management of an enterprise.

Growth - Turnover, net worth, gross block, and capital invested.

Health - Profit before interest and tax (PBIT), Debt service coverage period, earning per

share (EPS).

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 NEED FOR THE STUDY

The present study is a part and parcel in MBA curriculum,after completion of 1st year during
the summer i have undergone project work at this juncture i have choosen Hr and finace as
my specialisation subjects, in this finance is my favourite subjects i have decided to do my
project in finance area for that the present topic has been selected. It is my duty to fulfill the
curriculum which will helps us to new look inside of the learning that has been processed or
taken into consideration therefore,as per the norms and regulations of the ADIKAVI
NANNAYA UNIVERSITY. I have opted to do research project according to my intrest in
the field of Finance the main reason behind for choosing this topic is to get an indepth of
study of the Ratio analysis

 To study the usage of ratio analysis in the present day market.

 To know the various ratios of the company basing on their financial data.

 To notice the different interpretations of various ratios in the business entity.

 To understand the firm’s liquidity position basing on the current ratios and to make

suggestions to it.

 To compare the ratios of the company with that of the industry as a whole.

 To study how the finance manager is taking decisions basing on the ratio analysis.

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 OBJECTIVES OF THE STUDY

 To study the relevance of Ratio analysis will give the view of sound of the

company.

 To study the techniques of Ratio analysis for decision - making.

 To know the effects of Power Generation techniques on profitable.

 To measure and comparing the past data with the present data regarding the

financial status.

 To determine long term financial position through the various ratios.

 To determine short term financial position through the various ratios.

 To know networking capital of the form.

 To know the working capital position of the form trough computation and

interpretation of selected ratios.

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 METHODOLOGY

To achieve a fore said objective the following methodology has been adopted. The

information for this report has been collected through the primary & secondary sources.

Primary data:

It is also called as first handed information the data is collected through the observation

in the organization and interviews with officials, by asking question with the accounting

department and other persons in the financial department. Apart from these some information

is collected through the seminars, which were held by delta paper mills ltd ,vendra.

Secondary data:

These secondary data is existing data which is collected data by others viz. source are

financial journals, annual reports of the delta paper mills ltd, vendra. The study covers the

period from 2011-2012 to 2015-2016. For the evolution of financial position of delta paper

mills ltd, vendra.

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 LIMITATIONS

 The data made available by the delta paper mills to the extent of annual reports.

Which are used extensively throughout report.

 Due to the constraint it has been possible to have a study of other fields in finance.

 The executive to could not spend much time due to their routine workload.

 The company management is maintaining confidentiality on their data so they are not

ready to give full information.

 Due to busy schedule of financial manager, there is less scope for interacting with him

and seeking explanation from him.

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 INDUSTRY PROFILE

INTRODUCTION:

In the world, that is becoming increasingly dependent upon communication and

information. Paper has patently consequential role to play. Paper plays a vital role in the

cultural development of human beings. The increase in literacy growing trend of higher ratios

of professional and technical jobs in the work-face and the growing economic activity are

bound to raise the consumption of paper. Indeed it involves itself in a Wide range of activities

range of activities from the white house office release to kinder garnet copy writing.

EVOLUTION AND HISTORY OF PAPER MAKING:

Paper owes its origin etymologically to PAPYRUS, an aquatic plant that grew

abundance in the delta of nine in EGYPT. The bark sand the leaves of the plant were woven

and pressed into a sheet to be used as writing material by ANCIENT EGYTIANS in 5OOBC.

They are of paper making was first development in china in 200bc where it was made from

the bark and leaves of MULBERRY TREE. In 751 ad the ARABS and EUROPEANS

acquire the know-how from the Chinese prisoners. In 1799, Robert Nicholas of FRANCE

invented paper machine, this was later improved and financed by foundrinier, and the modern

machine is called alter him as FOUNDRINIER PAPER MACHINE.

HISTORICAL DEVELOPMENT OF PAPER

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YEAR DEVELOPMENT

200 BC Birth of paper concept in china by Tsai luno

100 AD Traces of authentic paper making process

1798 AD Patent issue to Nicholas-Louis Robert for first continuous paper machine

1803-1807 Patent issue to four Chinese brothers for improved continuous paper machine

AD

1829 AD Patents issue to four John Dickson for cylinder paper machine (England)

1840 AD Ground wood pulping method developed

1854 AD First manufacture of pulp from would use soda process

1867 AD Patent issued to Benjamin Tillman for sulphite pulping process

1884 AD Invention of Kraft pulping process by Carl Paul.

1976 AD Bi-sulphite pulping and oxygen dezincification of agro residues

1984 AD Organ-salvo pulping of baggage with recovery

HISTORY OF PAPER MAKING IN INDIA:

Paper is the basic media for written communication. There arises the need for paper to

convey the accumulated wealth of knowledge and information to the next generation. The art

of papermaking reached INDIA through ARBAS, but secret by a few families in Punjab and

Kashmir.

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 Handmade paper was prevalent in Akbar’s regime. In 1812, William Charley started

paper mill in SARAMPORE in WEST BENGAL. In INDIA, paper was initially made from

the BIRCH tree bark. The bark was soaked in an alkaline solution; delivered in hence and

then the sheets were made on wire nets and dired.

PRESENT INDUSTRY POSITION:

Paper industry is highly fragmented with a company of mills ranging room less 10

tones to 600 tones per day. There are 380 paper mills, which are producing paper in our

country. The rate of growth of paper is around 44 lakhs tones while the production is around

32.50 lakhs tones out of which 29 lakhs tones is paper and paper boards and 3.5 lakhs tones

comprises of newsprint. Raw material being used by these paper mills around 37% of the

production are dependent on wood 31% is dependent upon agro and the remaining 32% is

dependent upon the waste paper.

According to the information provided by the hindu survey of india industry 1997, it

was mentioned that around 3 kg is likely to go up to 4 kg by the year 2000. The demand for

paper and various paper products are likely to increase to 67.5 lakh tones by the year 2005.

INDIAN PAPER INDUSTRY:

The firm given diagram clearly explain different types of classification of products of

products of Indian paper industry. Not every paper mill in india produces all products of the

Indian paper industry. The number of mills producing various products is clearly explained in

the table given below. It is quite clear from the above table that out of all the different types

of products available in the Indian paper industry, industrial paper is most sought after

product and is being produced by large number of paper mills.

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LIST OF PAPER MILLS IN ANDHRA PRADESH

SL.NO INDUSTRY LOCATION CAPACITY

1 Circar paper mills limited Nellore 10000

2 Delta paper mills ltd. Vendra 18000

3 Kolleru paper mills ltd Eluru 10000

4 Rayalaseema paper mills ltd Kurnool 42000

5 Sury chandra paper mills ltd Mandapeta 6000

6 The andhra pradesh paper mills ltd Rajahmundry 101447

7 Vamsdharaa paper mills ltd Srikakulam 7500

8 The costal paper mills ltd Gauripatnam 16000

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 COMPANY PROFILE

INTRODUTION

The delta paper mills limited was established as a public limited company on 23rd

may 1975, and certificate of commencement of business was obtained on 26‘h February

1976. Late sri promoted the delta paper mills limited. BH.vijaykumarraju and Andhra

Pradesh industrial development corporation on 18Ih September 1975. The company started

its commercial production on 7thapril 1977.

The plant is located at vendra, a village of palakoderumandal, and W.G.DT.A.P.

THE FOLLOWING REASONS WILL EXPLIAN FOR SELECTING LOCATION:

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  For bringing reputation to the native place of the founder.For creating employment to

the rural youth.

 The site is located from the view point of availability of raw materials in surrounding

areas, water facility, and drainage for disposal of effluents and proximal to the board

gauge of railway line connecting Madras and Calcutta.

 The company main activity is to produce all varieties of writing and printing paper, it

is mainly an agro - based industry. Its main raw material is paddy and straw.

IN 1976,ICICI along with IDBI, IFCI, LIC, and UTI assisted the company for

selling up the product. The Delta Paper Mills Limited commissioned the paper

machine for commercial production from July 1978 andAround 2000 families are

getting their lively hood from this industry besides; all farmers in and around the Vendra

village are benefited selling their paddy straw to the company.

OBJECTIVES OF THE COMPANY:

 To prove the business of manufacturer and deal in all kinds and classes of paper.

 To manufacturer and deal in all materials and substances used in the manufacture,

production, or treatment of all kinds of paper.

 To buy, sell, import, export, process chemically or otherwise treat and to workout for

special purpose of all kinds and classes of paper.

 To plant, cultivate, produce, raise, manufacture, purchase or sell, export, or otherwise

handle or deal in grass, timber, wood, bamboo, straw or other forest products.

 To carry on the business a stationary, printers, publishers, lithographers, offset

printers, photographic printers etc.

ANALYSIS OF THE LOCATION OF THE COMPANY:

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 The company is situated in Vendra, which is 8 kilometers from Bhimavaram, West

Godavari come under the well - known Krishna Godavari Delta, which is called as RICE

BOWL of India. The company main materials paddy, straw, which is available in huge

qualities in this area. The other raw materials such as Gunny waste. Cotton linters and waste

paper are procured easily from Rajahmundry, Vizag, Eluru, Vijayawada, and Hyderabad in

AP.

The company is imported a second hand paper machinery at the cost RS.33.25 lakhs

from USA and another machine at the cost of 110 lakhs was purchased during the year(1984-

1985).

CAPACITY:

In 1978 the initial production capacity was 30 tones per day. In 1986, DPM undertook

an expansion to double the capacity of its plant from 60 tones per day. Now the capacity of

the plant is 80 tones per day.

TURN OVER:

The initial turnover of the company is 9000 MT the company took expansion in the

year in 1986 to add another 9000 M.T per annum. Now the total turnover of the company is

18000M.T

NATURE OF ACTIVITY:

Delta paper Mills Ltd specialties in making paper alone and produce primarily only

three types of paper

 Printing

 Writing

 Craft Paper

RAW MATERIALS:
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 The following types of raw materials are being used in manufacture of paper in this

company they are

 Paddy straw

 Waste paper

 Cotton linters

 Reg pulp

 Wood pulp

 Beggar

 Bleached pulp

 Gunny and jute waste

 Hosiery cutting pulp and other

COAL:

The delta paper mills plant required 30 million gallons of water per day, and that up to

millions after expansion of the plant. The water supply for the plant is obtained from‘

Godavari canal system. The company was permitted to dispose of it effluents into gostani

river drains which flows by the side of the plant.

ELECTRICITY FACILITY:

The AP state electricity board agreed to supply, the required power to the plant and

2500 KW line was laid down from nidadavole electric substation.

GAS ABD FUEL: Delta paper mills is the first paper mill in south India to utilize the natural

gas as fuel, which supplied by ONGC.

TRANSPORTATION:

The factory has both rail and road transportation facility. Apart from these navigable

canal system aids economical transport of paddy straw and other raw materials from all sides.

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From the above it is the correct place to install a paper mill, which is mainly based on

agricultural raw materials.

ORGANISATION OF DPM:

The delta paper mills Ltd enterprise is broadly into two parts

 Mills

 Administration

MILLS PART DIVIDED INTO 10 PARTS:

 Production

 Electrical

 Mechanical

 Paper machine

 Utilities

 Stores

 Quantity

 Personnel

 Co- coordinator

 Finishing house and paper godown

ADMINISTRATION PART IS DIVIDED INTO 4 DIVISION:

 Administration

 Accounts

 Marketing

 Purchasing

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 The factory part is kept under the control of deputy manager for works in his absence

it is u

nder the control of the in change president of the factory (or) the factory chief executive. The

administration part is kept under the control of the chief executive increase his absence it is

under the control of the marketing director.

ORGANISATION OF THE ADMINISTRATIO

The chief executive who is assisted by 8 heads of departments:

General Manager (commercial & Administration)

Senior manager (Marketing & Purchases)

Manager (Finance & Costing)

Managers (Stores)

Dy. Manager (Marketing)

Dy. Manager (Finance)

Dy. Supdt (paper godown)

MANAGEMENT:

Delta paper mills ltd has prompted by Andhra Pradesh Industrial Development

Corporated and Sri. V.K.Raju and Associates a joint ventures. Its management board consists

of 9 directors. Some are the representative of shareholders and some of them are nominees of

APIDC and other financial Institutions since its inception, Sri BH. V.K. RAJU in the year

1995, his Wife Smt. BH.K.K.Kasturi took the reins of the company. Later there was a change

16
in the management, the local M.L.A Sri P.V.Narsimharaju took the control the and served as

CEO for a brief period.

In the year 1997-1998. some major changes have taken place in the management and

composition of Board of Directors. APIDC, which held 9,34,000 shares representing 28.24%

of paid up capital in the DPM, decided to disinvest its shares through public offer. Laila

group led by Sri. G. Ganga Raju, G.V.K.Raju and their associates acquired the management

control by giving highest bid for APIDC held shares. As a sequence, some major changes

have taken place at the top level of the management. APIDC has withdrawn its nominees in

the boards. Finally members of the Laila occupied director’s ships in the boards. Now the

board of directors of DPM consists of

BOARD OF DIRECTORS

Dr. G.Gangaraju - Chairman

Mr. GVK Rangaraju - Managing director

Mr. G, Rama raju - Executive director

Mr. GV. Narashimharaju - Director

Mrs. BH. K. K. Kasturi - Director

Mr. Anandvarrna - Director

Mr. M. Subbaraju - Director Mr. A. Narsimharao -

Director

17
 THEORETICAL FRAMEWORK

The importance of Ratio Analysis can be observed through the profitability, liquidity,
and solvency position of an enterprise. However ratio analysis plays a pivotal role which
highlights the strength and capability of an entity in terms of its financial planning and policy.
Ratio analysis is, "the systematic use of ratio to interpret the financial statements to know
the strength and weakness of a firm as well as its historical performance and current financial
position.
TYPES OF RATIOS:

Several ratios calculation from the accounting data can be grouped into the various

classes according to the financial activities or function to be evaluated. The various parties

that are generally under taken financial analysis to measure solvency and profitability of the

firm. Management is interested in evaluating every aspect of all parties and see that the firm

grows profitability. In view of the requirements of the various users of ratios, we may classify

them into the following four important categories.

1. Liquidity Ratios
2. Leverage Ratios
3. Activity Ratios
4. Profitability Ratio
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 Liquidity Ratio

Liquidity ratio measures the ability of the firm to meet its currnet obligations Analysis

of liquidity needs the preparation of cash. Budgets and cash fund flow statement. But

liquidity ratios by establishing rotation cash another current assets to current

obligations provide a quick measure of liquidity. A firm should ensure that it does not

suffer from lack of liquidity, anobligations due to lack of sufficient liquidity will

result in bad credit image. A very high degree of liquidityThe firm’s funds will be

unnecessarily tied up in current assets. Therefore it is necessarily to strike proper

balance between liquid and lack of liquidity.

The most common ratios, which indicate the extent of liquidity or lack of it, are:

 Current Ratio

 Quick or Acid Test or Liquid Ratio

 Absolute Liquid Ratio or Cash Position Ratio.

A) Current Ratio:

The current ration is calculated by dividing current assets by current liabilities.

Current Assets
Current Ratio = -----------------------
Current Liabilities
Current Assets : Current Liabilities

Current Ratio may be defined as the relationship between current assets and current

Liabilities.

Current Assets: Current Assets are those assets which are converted into cash easily or in a

short period.

Current Liabilities: Current Liabilities are those liabilities which are payable in a short

period.

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 COMPONENTS OF CURRENT RATIO

CURENT ASSETS CURENT LIBILITIES

1. cash in hand 1. out standing expenses/acrrued expenses

2. cash at bank 2. bills payable

3.marketable securities (short – term) 3.sundry creditor

4. bills receivable 4.short – term advances

5.sundory debtors 5.income tax payable

6. short – term investments 6. dividends payable

7.inventories (stock) 7.bank overdraft (if not a permanent

arrangement)
8. work – in – progress

8.income received in advance

9. prepaid expenses

9.other short-term liabilities

10. accrued incomes

The Current Ratio is measure of the firm’s short-term solvency. A Current Ratio of 2:1

usually considered as ideal. If Current Ratio is less than 2, it indicates that the business does

not enjoy adequate Liquidity. However a Current Ratio is more than 2, it indicates that the

firm is having ideal funds and as not invested them properly. As a conventional rule, a

Current Ratio of 2 of 1 or more is considered satisfactory. The Current Ratio represents a

margin of safety for credits.

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 Quick Ratio / Acid Test Ratio / Liquid Ratio:

Quick Ratio is used as a measure of the company’s ability to meet its current

obligations. This ratio is calculated as supplement to the current ratio in analyzing the

liquidity of the firm this can be calculated as:

Quick Assets
Quick Ratio = ----------------------
Quick Liabilities

Quick Asset: Current assets – (Stock + Prepaid Expenses)

Quick Liabilities: Current Liabilities – (Stock + Bank Overdraft)

A normal standard of 1:1 acceptable Quick ratio. A very high or very low ratio

is not desirable. It is used to measure the ability of the company meet its current

liabilities at short notice.

Absolute Liquid Ratio or Cash Ratio or Super Quick Ration:

Absolute Liquidity ratio is also be calculated together with current ratio and

acid test ration as to exclude even receivables from the Current Assets and find out

the absolute liquid assets.

Absolute Liquid Assets

Absolute Liquid Ratio = -----------------------------------
Current Liabilities
(or)

Cash + Short-term Securities

Cash Ratio = --------------------------------------
Current Liabilities
Absolute Liquid Assets = Cash in hand + Cash at Bank + Short-term investments

The acceptable norm for this ratio of 50% or 0.5: 1 (or) 1:2.

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2) Capital Structure / Leverage Ratio / Long-term Solvency Ratio

The long-term financial stability of firm is considered as dependent upon its ability

indicate the relative interests of owners and creditors in a business. The ratios, which are

measuring the long-term solvency, are

a) Debt-Equity Ratio

b) Share holders equity / Proprietors Ratio / Equity Ratio

c) Capital Gearing Ratio

d) Fixed Assets Ratio

e) Interest coverage Ratio (or) Debt Service Ratio.

f) Dividend coverage Ratio.

(A)Debt-Equity Ratio:

Debt-Equity ratio indicates the relationship between long-term debts and share

holders funds. It helps in knowing the soundness of the long term financial policies of a

company. If reflex the relative claim of creditors and share shoulders against the assets of the

business. It is calculated as:

Long Term Debt

Debt-Equity Ratio = -----------------------------
Share holders funds
Long-term Liabilities = Long term Debt+Debentures+Other

Long-term Liabilities

Share holder funds = Equity share capital + Preference share capital + reserves -

Fictitious Assets

The ideal Ratio is 2:1

(B) Proprietary Ratio:

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 The Proprietary Ratio is also known as Equity ratio or share holders to total equities

ratio or net worth to total assets ratio. This ratio establishes the relationship between

shareholders fund to total assets of the firm is calculated as:

Net Worth
Proprietary Ratio = ------------------
Total Assets
Net worth =Share holders funds

Total Assets =Fixed Assets + Current Assets

A high Proprietary Ratio indicative of strong financial position of business. The

higher the ratio, the better it is.

(C) Capital gearing Ratio:

Capital gearing ratio determines the future financial structure of the business. A

company that is highly geared will have to raise funds by issuing fresh equity funds, where as

a lowly geared company would find with attractive to raise funds by way of term loans and

debentures. It is calculated by the following formulae:

Debentures + Term Loans + Preference share capital

Capital gearing Ratio: = --------------------------------------------------------------
Equity share capital + Reserves – Fictitious Assets.

(D) Fixed Assets Ratio:

This ratio indicates the mode of financing the fixed assets. Ti is calculated as

Fixed Assets
Fixed Assets Ratio = ----------------------
Capital Employed

Capital Employed = Equity share capital + Preference share capital + Reserves + Long term

Liabilities – Fictitious Assets.

0.67 is considered as ideal

E) Interest coverage Ratio or Debt Service Ratio:

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 This ratio indicates weather a business is earning sufficient profits to pay the interest

charges. It is calculated as

Net Profit (before Interest and Taxes

Interest Coverage Ratio = ------------------------------------------------
Fixed Interest Charges

PBIT = Profit before Interest and Taxes

This ratio is of 6 is normally considered as ideal

(F) Dividend coverage Ratio:

It indicates the ability of a business to pay and maintain fixed preference dividend to

preference share holder. It is calculated as:

PAT
-------------------------------
Fixed Preference Dividend

PAT = Profit after TaxThe higher the ratio of better it is.

3) Activity Ratio or Turnover Ratio

Activity ratios measure how efficiency the firm employees its resources. These ratios

involve comparison between the level of sales and Investment in various accounts such as

inventories, debtors, creditors; fixed assets etc., Activity ratios are used to measure the speed

with which various accounts are converted into sales are cash.

Every turnover ratio is calculated by dividing cost of goods sold or net sales by

respective account and each ratio gives the speed in which it turns cash or sales.

Cost of goods sold (C.G.S) = Sales – Gross Profit.

The major turnover ratios are:

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 a) Inventory turnover ratio / Stock turnover Ratio

b) Debtor’s turnover ratio

c) Creditor’s turnover ratio

d) Capital turnover ratio

e) Working capital turn over ratio

f) Fixed assets turnover ratio

g) Total assets turnover ratio

A) Inventory turnover ratio:

Inventory turnover ratio indicates the number of times the stock has been turnover

during the paid and evaluates the efficiency with which a firm is able to manage its inventory.

Cost of Goods Sold

Inventor =

Average Inventory

Opening stock + Closing stock

Average inventory = --------------------------------------------

Note:- 1. C.G.S is not known, sales may be taken as C.G.S

2. If opening stock and closing stock are not given, the given stock is treated as average
stock.

No. of days in a year

Stock Conversion Period = -------------------------------------------`

Stock turnover ratio

1. A stock turnover ratio of 8 is considered ideal. A high stock turnover ratio indicates that the

stocks are fast moving and get converted into sales quickly.

B) Debtors Turnover Ratio:

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 Debtor’s turnover ratio indicates the velocity of debt collection of a firm. In indicates
the number of times the number of debtors turns over a year. Debtor’s turnover ratio express the
relationship between debtors and sakes. This can be calculated by the following formulae.

Net Credit Sales

Debtors Turnover Ratio = ----------------------------------

Average Debtors

Opening Debtors+ Closing Debtors

Average Debtors = ----------------------------------------------------------

Note:-

1. Debtors turnover ratio of 10 to 12 is an ideal

2. Debtors include bills receivables.

3. A high Debtors turnover ratio or a low debt collection period is indicative of sound credit

management policy.

No. of Days in a year

Debt collection period = --------------------------------------

Debtor’s turnover ratio

Debt collection period of 32, 36 days is considered ideal

C) Creditors turnover ratio:

Creditor turnover ratio expresses the relationship between creditors and purchases. It is

calculated as follows.

Net Credit Purchases

Creditors turnover ratio = ------------------------------------

Average Creditors

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 Opening Creditors + closing Creditors

Average debtors = -----------------------------------------------------

Note:

1. Creditors includes bills payable

2. Creditor turnover ratio of 12 of more is an ideal

No. of days in a year

Debt payment period = ------------------------------------------

Creditor turnover ratio

Debt payment period of 30 or less no. of days is not better indication

D) Capital turnover ratio: It is used to show how the capital employed is efficiency used in the

business. In indicates the firm’s ability to generate sales per rupee capital employed.

Net Sales

Capital turnover ratio = ----------------------------------------

Capital Employed

Capital Employed = long – term funds + reserve and surpluses + preferential share capital+ equity

share capital.

E) Working capital turnover ratio:

Working capital is concern is directly related to sales. The current assets like debtors,

bills receivables, cash, stock etc., changing with the increase or decrease in sales. This ratio explains

the relationship between C.G.S to working capital.

Cost of Goods Sold

Working capital turnover ratio = ----------------------------------------------

Working capital

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 Working capital = Current Assets – Current Liabilities

Note:

A high working capital turnover ratio indicates efficient utilization of funds.

F) Fixed assets turnover ratio:

This ratio explains the relationship between net sales to fixed assets. This can be calculated

by the following formulae.

Net sales

Fixed assets turnover ratio = ------------------------------------------

Fixed assets

Note:

This ratio of 5 is considered as ideal. A high fixed asset turnover ratio indicates better utilization of

the firms fixed assets.

G) Total Assets Turnover Ratio:

This ratio explains the relationship between net sales to total assets. This can be calculated
by the following formulae.

Net Sales

Total Assets Turnover ratio = -------------------------------------------

Total assets

Total assets = Fixed assets + current assets.

4) PROFITABILITY RATIOS

Profitability ratios measure the profitability of a concern. Generally they are calculated in

relation to sales or in relation to investments. The various profitability ratios are discussed under.

In relation to sales:

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 A) Gross Profit Ratio

B) Net Profit Ratio

C) Operating Ratio

D) Operating Profit Ratio

E) Expenses Ratio

Gross Profit Ratio:

Gross Profit Ratio measures the gross margin on total net sales of a company. This

ratio measures the efficiency of company’s operations and can be used to compare with previous

year’s results. Higher the gross profit ratio, better is for the company.

Gross Profit

Gross Profit Ratio = -------------------------------- x 100

Net Sales

Gross Profit = Net Sales – Cost of Goods Sold

C.G.S = Opening stock + purchases – closing stock

Net sales = sales – sales returns

Note:

There is no ideal gross profit ratio is higher the ratio, the better will be the performance of

the business.

B Net Profit Ratio:

This ratio is designed to focus attention on the net profit margin arising from business

operations after interest and tax.

Net profit

Net profit ratio = ---------------------------- x 100

Net sales

Net profit = Earning after tax and interest

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Net profit = Gross profit + (office and administrative expenses + selling & distribution expenses +

financial expenses)

There is no ideal ratio, the higher the ratio more profitable is the business.

C) Operating ratio:

Operating ratio establishes the relationship between cost of goods sold and other operating

expenses on the one hand and the sales on the other.

Operating ratio

Operating ratio = ----------------------------- x 100 (or)

Net sales

Cost of goods sold + operating expenses

-------------------------------------------------- x 100

Net sales

Operating cost = C.G.S + office and administrative expenses + selling & distribution

expenses

A low operating ratio is an indication of operating efficiency of the business low the, the

better it is

D) Operating profit ratio:

It establishes the relationship between operating profit and sales. It can be calculated by

the following formulae.

Operating profit

Operating profit ratio = --------------------------- x 100

Net sales

(or)

30
 100 – Operating profit ratio

Note: The higher the ratio, the better it is

E) Expenses Ratio :

Each of the expenses Ratio’s highlights of the relationship between the particular

expense and net sales.

Particular expense

Expenses Ratio = ----------------------------------- x 100

Net sales

DATA ANALYSIS AND INTERPRETION

Statement showing changes in Working Capital of 2011-12

Particulars 2011 2012 Increase Decrease

CURRENT ASSETS:

Inventory 24,54,10,000 25,27,84,000 73,74,000

Cash and bank balance 4,19,45,000 4,30,11,000 10,66,000

Sundry debtors 15,40,05,000 10,49,64,000 4,90,41,000

Loans and advances 4,92,64,000 4,10,81,000 81,83,000

Other current assets 5,58,12,000 1,95,81,000 3,62,31,000

31
Total current assets 5,64,36,000 46,14,21,000

CURRENT LIABILITIES

Current liabilities and provisions 32,79,17,000 36,94,25,000 4,15,08,000

Total current liabilities 32,79,17,000 36,94,25,000 4,15,08,000

Net working capital 21,85,19,000 9,19,96,000 4,15,08,000

Increase in working capital 12,65,23,000 12,65,23,000

Total 21,85,19,000 21,85,19,000 13,49,63,000 13,49,63,000

SOURCE: Delta paper Mills Limited Annual Report Year 2011-12.

Statement showing changes in working capital during the periods of 2012-13

Particulars 2012 2013 Increase Decrease

CURRENT ASSETS:

Inventory 25,27,84,000 31,14,15,000 5,86,31,000

Cash and bank balance 4,30,11,000 1,60,88,000 2,69,23,000

Sundry debtors 10,49,64,000 14,09,12,000 3,59,48,000 1,09,96,000

Loans and advances 4,10,81,000 3,00,85,000 1,09,96,000

Other curretn assets 1,95,81,000 1,94,47,000 1,34,000

32
Total current assets 46,14,21,000 51,79,47,000

CURRENT LIABILITIES

Current liabilities and provisions 36,94,25,000 34,95,11,000 1,99,14,000

Total current liabilities 36,94,25,000 34,95,11,000 1,99,14,000

Net working capital 9,19,96,000 16,84,36,000

Increase in working capital 7,64,40,000 7,64,40,000

Total 16,84,36,000 16,84,36,000 11,44,93,000 11,43,93,000

SOURCE: Delta Paper Mills Limited Annual Report year 2012-13

Statement showing changes in working capital during the periods of 2013-14

Particulars 2013 2014 Increase Decrease

CURRENT ASSETS:

Inventory 31,14,15,197 26,56,40,577 4,57,74,620

Cash and bank balance 1,60,87,875 9,19,15,711 7,58,27,836

Sundry debtors 14,09,12,230 16,77,10,300 2,67,98,070

Loans and advances 3,00,84,636 5,62,04,851 2,61,20,215

Other curretn assets 1,94,46,989 1,84,24,905 10,22,084

33
Total current assets

CURRENT LIABILITIES

Current liabilities and provisions 34,95,11,431 39,14,44,767 4,19,33,336

Total current liabilities 34,95,11,431 39,14,44,767 4,19,33,336

Net working capital 16,84,35,496 20,84,51,577

Increase in working capital 4,00,16,081 4,00,16,081

Total 20,84,51,577 20,84,51,577 12,87,46,121 12,87,46,121

SOURCE: Delta Paper Mills Limited Annual Report year 2013-14

Statement showing changes in working capital during the period of 2014-15

Particulars 2014 2015 Increase Decrease

CURRENT ASSETS:

Inventory 26,56,40,577 24,19,29,875 2,37,10,72

Cash and bank balance 9,19,15,711 8,61,63,748 57,51,963

Sundry debtors 16,77,10,300 18,82,88,931 2,05,78,631

Loans and advances 5,62,04,851 2,52,32,704 3,09,72,147

Other current assets 1,84,24,905 1,69,85,808 14,39,097

34
Total current assets 59,98,96,344 55,86,01,066

CURRENT LIABILITIES

Current liabilities and provisions 39,14,44,767 41,30,59,863 2,16,15,096

Total current liabilities 39,14,44,767 41,30,59,893

Net working capital 20,84,51,577 14,55,41,203

Increase in working capital 6,29,10,374 6,29,10,374

Total 20,84,51,577 20,84,51,577 8,34,89,005 8,34,89,002

SOURCE: Delta Paper Mills Limited Annual Report year 2014-2015

Statement showing changes in working capital during the periods of 2015-16

Particulars 2015 2016 Increase Decrease

CURRENT ASSETS:

Inventory 24,19,29,875 29,20,87,759 5,01,57,884

Cash and bank balance 8,61,63,743 11,92,95,999 3,31,32,251

Sundry debtors 18,82,88,931 21,63,20,465 2,80,31,534

Loans and advances 2,52,32,704 3,27,94,958 75,62,254

Other current assets 1,69,85,808 2,28,75,292 58,86,484

35
Total current assets 55,86,01,066 68,33,71,473

CURRENT LIABILITIES

Current liabilities and provisions 41,30,59,863 48,10,91457 6,8031,594

Total current liabilities 41,30,59,863 48,10,91,457

Net working capital 14,55,41,203 20,22,80,016

Increase in working capital 5,67,38,813 5,67,38,813

Total 20,22,80,016 20,22,80,016 12,47,70,407 12,47,70,407

SOURECE: Delta Paper Mills Limited Annual Report year 2015-16

RATIO ANALYSIS

Current Ratio = Current Assets / Current Liabilities

YEARS CURRENT ASSETS CURRENT LIABILITIES RAITO

2011-12 4614.21 3694.25 1.23

2012-13 5179.47 3495.11 1.48

2013-14 5998.96 3914.45 1.53

2014-15 5586.01 4130.59 1.35

2015-16 6833.71 4810.91 1.42

SOURCE: Annual Reports of the DPM Limited 2011-16

36
 RAITO
1.8
1.6
1.4
1.2
1
0.8 RAITO

0.6
0.4
0.2
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

According to conventional rule a current ratio of 2:1 is considered satisfactory. The

company is maintaining a current ratio of 1.48 in the financial year 2012-13 which is in high
in all the above financial years. But in the year 2014-15 the current ratio is decreased to 1.35
which is low. Current ratio maintained the by the company is good but not satisfactory.
Because it is slowly reached the standard ratio and then it fall down to 1.35 and now it is
slowly trying to reaching to the standard ratio i.e., 2.1.

QUICK/ACID TEST RATIO:

QUICK RATIO = Quick Assets / Current Liabilities

Quick Assets = Current assets – Inventories

YEARS CURRENT ASSETS CURRENT LIABILITIES RAITO

2011-12 2086.93 3694.25 0.56

2012-13 2065.32 3495.11 0.6

2013-14 3342.46 3914.45 0.85

2014-15 3166.71 4130.59 0.76

2015-16 3912.83 4810.91 0.81

SOURCE: Annual Reports of the DPM Limited 2011-16

37
 RAITO
0.9
0.8
0.7
0.6
0.5
0.4 RAITO
0.3
0.2
0.1
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

According to conventional rule a Quick ratio of 1:1 considered satisfactory. The

company is maintaining a quick ratio of 0.6 in the financial year 2012-13 which is in low in
all the above financial years. It increases to 0.76 in the year 2014-15. The quick ratio
maintained the by the satisfactory because it is slowly reaching the standard ratio i.e., 1:1, the
current year quick ratio is

INVENTORY TRUNOVER RATIO:

INVENTORY TURNOVER RATIO = Cost of goods sold / Avg. inventor

YEARS CURRENT ASSETS CURRENT LIABILITIES RAITO

2011-12 10538.50 2035.70 5.18

2012-13 11942.58 2490.97 4.79

2013-14 13658.32 3215.21 4.24

2014-15 15564.64 3824.63 4.06

2015-16 18547.32 4021.32 3.96

SOURCE: Annual Reports of the DPM Limited 2011-16

38
 RAITO
6

3
RAITO

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

The company is maintaining the highest inventory turnover ratio in the financial years
2011-12 which is 5.18 and the inventory turnover ratio of the company is very low in the
financial year 2015-16 which is 3.96.

DEBTORS TURNOVER RATIO:

DEBTORS TURNOVER RATIO = Sales / Debtors

YEARS CURRENT ASSETS CURRENT LIABILITIES RAITO

2011-12 13214.98 1049.64 12.59

2012-13 14721.56 1409.12 10.45

2013-14 16631.50 1677.10 9.92

2014-15 15084.57 1882.88 8.01

2015-16 16266.62 2163.20 7.51

SOURCE: Annual Reports of the DPM Limited 2011-16

39
 RAITO
14

12

10

RAITO
6

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

The above table shows that the debt turnover ratio is decreasing. It reached to 10.45
during 2012-2013. In 2013-14 decreased to 9.92. a higher ratio is an indicator of high speed
with debtors / accounts receivables are collected. This company has been adopting
conservative credit policy and possessing small percentage of credit sales on total sales in
every this is the main reason behind high debtor’s turnover ratio.

WORKING CAPITAL TURNOVER RATIO:

WORKING CAPITAL TURNOVER RATIO = Cost of Sales / Net working

capital

YEARS CURRENT ASSETS CURRENT LIABILITIES RAITO

2011-12 13214.98 919.96 14.36

2012-13 14721.56 1684.36 8.7

2013-14 16631.50 2084.52 7.98

2014-15 15084.57 1455.41 10.36

2015-16 16266.62 2022.80 8.04

SOURCE: Annual Reports of the DPM Limited 2011-16

40
 RAITO
16
14
12
10
8
RAITO
6
4
2
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:
The working capital turnover ratio indicates the relationship between
sales and net working capital DPM limited has the ratio of 4.79 in the year
2011-12 and 5.34 in the year 2010-11 indicates the increasing in ratio which
means that for one rupee of sales the company needs 14.36 worth of net current
assets for the last two years which means the company maintaining more
working capital for generating sales. In 2015-16 the working capital turnover
ratio is 8.04.
GROSS PROFIT RATIO:

GROSS PROFIT RATIO= Gross Profit /Sales

YEARS CURRENT ASSETS CURRENT LIABILITIES RAITO

2011-12 1336.85 13214.98 0.10

2012-13 1891.09 14721.56 0.13

2013-14 1574.93 16631.50 0.10

2014-15 1093.17 15084.17 0.07

2015-16 4196.20 16266.20 0.25

SOURCE: Annual Reports of the DPM Limited 2011-16

41
 RAITO
0.3

0.25

0.2

0.15
RAITO

0.1

0.05

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

Normally the ideal gross profit ratio is 35 percent. The gross profit ratio maintain the
company in the financial in the 2015-16 was 25 percent was high in all the financial years
and in the year 2011-12 was 10 percent which is low. It shows that position of the company is
bad the company maintain same gross profit ratio in 2013-14, which is 10 percent. The
financial year 2015-16 current ratio is 0.25.

DEBT EQUITY RATIO:

DEBT EQUITY RATIO = LONG TERM DEBT / SHARE HOLDER FUNDS

YEARS CURRENT ASSETS CURRENT LIABILITIES RAITO

2011-12 7373.06 1799.96 4.09

2012-13 7371.31 2078.95 3.54

2013-14 6197.94 4093.47 1.51

2014-15 7229.62 3822.11 1.89

2015-16 8460.90 3500.70 2.41

SOURCE: Annual Reports of the DPM Limited 2011-16

42
 RAITO
4.5

3.5

2.5

2 RAITO

1.5

0.5

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

The company’s debt-equity ratio is 4.09 in the financial year 2011-16 which is high in
all the above financial years. But it decreases to 2.41 in the year 2015-16 which is very low.
In the financial year 2015-16 the debt = equity ratio is 2.41.

TOTAL DEBT RATIO:

TOTAL DEBT RATIO = TOTAL DEBT / CAPITAL EMPLOYED

YEARS CURRENT ASSETS CURRENT LIABILITIES RAITO

2011-12 7373.06 9958.44 0.74

2012-13 7371.31 10287.26 0.72

2013-14 6197.94 11161.96 0.56

2014-15 7229.62 11928.12 0.60

2015-16 8460.90 12902.61 0.65

SOURCE: Annual Reports of the DPM Limited 2011-16

43
 RAITo
0.8

0.7

0.6

0.5

0.4
RAITO
0.3

0.2

0.1

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

Company approximately maintaining the debt ratio 0.74 in the past years. The
company maintaining 0.74 in the financial year 2011-16 the company is maintaining 0.72
which is lowest in the year 2012-13. The financial year 2015-16 total debt ratio is 0.65.

FINDINGS

Based on the analysis of various financial ratios applied, statement showing change in
working capital in analyzing financial data relating to DPML and the conclusion arrived at
the following suggestions are made.

 Basing on the trend analysis there are fluctuations in gross profit ratio. It was 0.10 in
2011-12 where it is 0.7 in 2014-15. It again shows a increase to 0.25 in 2015-16.
 The debt equity ratio is 4.09 in 2011-12 which had decreased to 2.41 in 2015-16
which is more than the ideal ratio 2:1. Increase in equity results in increase of risk of
ownership.
 It is found that the working capital turnover ratio had decreased from 14.36in 2011-12
to 8.04 in 2015-16. Lower working capital ratio indicates inefficient use working
capital.

44
 According to conventional rule a current ratio of 2:1 is considered satisfactory. The
company is maintaining a current ratio of 1.48 in the financial year 2012-13 which is
in high in all the above financial years. But in the year 2014-15 the current ratio is
decreased to 1.35 which is low and again it increased to 1.42 in 2015-16. Current
ratio maintained the by the company is good but not satisfactory.
 The debt collection period of the firm is very high due to this policy company may
lose its control in longer period on its debtors.
 The inventory turnover ratio is lower than the ideal ratio 8 times in all the years given,
which is an indication of a dull business.

SUGGESTIONS

 The company should concentrate on ways to stabilize gross profit ratio and ensure
that it continue in the upward trend.

 Company should maintain ideal ratio of debt equity i.e., 2:1 to reduce the risk of
ownership.
 The company working capital reserves are very high as current assets earn nothing so
it is advisable to reduce it current assets to reinvest the funds in other productive way.

 The company find means to increase the liquidity of the company which helps to
smooth running of business.
 It is advised to rearrange their debt policy and arrange ways for early collection of
debt amounts.

45
 The company should use promotional activities to increase sales which will in turn
increases the inventory turnover ratio.

CONCLUSION

 Company is focusing on efficient use of techniques like EOQ(Economic Order

Quality) and ABC(Always Best Control).
 Company is following good purchasing procedure.
 Delta paper mill Ltd maintaining good contacts with their dealers in case of
procurement of raw material.
 Company is following J IT techniques so it gives good result for increasing the
turnover, reducing the wastage and they are also procuring raw material in time.

46
 BIBLIOGRAPHY

FINANCIAL MANAGEMENT - I.M.Pandey

FINANCIAL MANAGEMENT - Prasana Chandra

MANAGERIAL ACCOUNTING - M.Mutyala Naidu

Y.Chandra sekhara rao

47
PREVIOUS ANNUAL REPORTS OF DPM LIMITED

48