PROJECT REPORT

A STUDY ON FINANCIAL ANALYSIS

AT
- RELIANCE INDUSTRIES LIMITED, HYDERABAD
MASTER OF BUSINESS ADMINISTRATION

Submitted by

(Student Name)

HT NO: 21WJ1E****

Under the Guidance of

Mr. K. SANDEEP REDDY

ASSISTANT PROFESSOR

School of Management studies

GURUNANAK INSTITUTIONS TECHNICAL CAMPUS

(Autonomous)
 PAGE
CHAPTER CONTENTS
NO.
INTRODUCTION
 Objectives of the study

CHAPTER - I  Need for the study

 Scope of the study

 Research Methodology

CHAPTER - II REVIEW OF LITERATURE

CHAPTER -
COMPANY PROFILE
III
CHAPTER -
THEORETICAL FRAMEWORK
IV
DATA ANALYSIS &
CHAPTER - V
INTERPRETATION
 Findings
CHAPTER -
 Suggestion
VI
 Conclusion
Annexure / Questionnaire
INDEX
 ABSTRACT
The financial analysis helps in knowing the financial performance of the company. It also helps
the company to predict the future profits and to take corrective measures to achieve them. The
study is to analyze the financial performance of Reliance Industries Limited (RIL) for a period of
five years. The objective of the study is to determine the liquidity, profitability and turnover rate
of RIL. The tool used to analyze the financial position of the company is Ratio analysis. The tool
helps in comparing the financial status of the current year with past years and also in providing
few suggestions with which the company can improve to do better in the future. The data are
collected from the secondary sources like annual reports, company websites and other reliable
sites. From the analysis, we find that the company is lagging in various areas. Improving which
will help the company to achieve its ideal ratios. The profitability and turnover ratios are better
when compared to liquidity ratios. The company was able to achieve the ideal ratios of
profitability in few years but couldn’t achieve the liquidity ratios even for a
singleyear.Alsotheworkingcapitalturnoverhasbeennegativeforallthefiveyears. The company must
improve to bring the working capital to appositive rate by decreasing its current liabilities. The
current liabilities have always been more than the current assets which is not good for the
company.
 CHAPTER-I
INTRODUCTION
 INTRODUCTION
Financial Ratios are used in the evaluation of the financial condition and
profitability of a company. The ratios are calculated from the financial information provided in
the balance sheet and income statements. While analyzing the financial statements you should
keep in mind the principles/practices that accountants use in preparing statements to examine at
the financial condition and preference of a company.

RATIO ANALYSIS
Ratio Analysis is one of the techniques of financial analysis where ratios are used
as a yardstick for evaluating the financial condition and performance of a firm. Analysis and
interpretation of various accounting ratios gives a skilled and experienced analyst a better
understanding of the financial condition and performance of the firm.

MEANING AND DEFINITION:-

A ratio is a simple arithmetic expression of the relationship of one number to
another. Ratio is relationships expressed in mathematical terms between figures which are
connected with each other in some manner.

DEFINITION:-
Ratio analysis is defined as, “The systematic use of ratios to interpret the financial statements so
that the strengths and weaknesses of the firm as well as its historical performance and current
financial condition can be determined.
This relationship can be expressed as:
1) Percentages:- For example, Assuming that net profits of Rs 25,000 and Sales of Rs
1,00,000. Then the 4net profits are 25% of sales.
2) Fraction:- net profit is ¼ of sales.
3) Proportion:- the relationship between net profits and sales is 1:4.
To take managerial decision the ratio of such items reveals the soundness of financial
position. Such information will be useful for creditors, shareholders management and all other
people who deal with company.
IMPORTANCE OR SIGNIFICANCE OF RATIO ANALYSIS:

The ratio analysis is one of the most powerful tools of financial analysis. It is
used as a device to analyze and interprets the financial health of enterprise. Just like a doctor
examines his patient by recording his body temperature, blood pressure etc. before making his
conclusion regarding the illness and before giving his treatment, a financial analyst analyses the
financial statements with various tools of analysis before commenting upon the financial health
or weaknesses of an enterprise. Following are the uses of ratio analysis:

1. Liquidity position
2. Long term solvency
3 .Operating efficiency
4. Overall profitability
5. Inter firm comparison
6. Trend analysis.

Liquidity Position
With the help of ratio analysis conclusions can be drawn regarding the liquidity
position of a firm. It would be satisfactory if it is able to meet its current obligations when they
become due. A firm can be said to have the ability to meet its short term liabilities if it has
sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well
as to repay the principal. This ability is reflected in the liquidity ratios of a firm. The liquidity
ratios are particularly useful in credit analysis by banks and other suppliers of short term loans.

Long term solvency:

Ratio analysis is equally useful for assessing the long term financial viability of a
firm. This aspect of the financial position of a borrower is of concern to the long term creditors,
security analysts and the present and potential owners of a business. The long term solvency is
measured by the leverage/capital structure and profitability ratios which focus on earning power
and operating efficiency. Ratio analysis reveals the strengths and weakness of a firm in this
respect. The leverage ratio for instance, will indicate whether a firm has reasonable proportion of
various sources of finance or if it is heavily loaded with debt in which case its solvency is
exposed to serious strain. Similarly the various profitability ratios would reveal whether or not
the firm is able to offer adequate return to its owners consistent with the risk involved.

Operating efficiency
Yet another dimension of the usefulness of the ratio analysis, relevant from the
viewpoint of management, is that it throws light on the degree of efficiency in the management
and utilization of its assets. The various activity ratios measure this kind of operational
efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales
revenues generated by the use of its assets total as well as its components.

Overall profitability:
Unlike the outside parties which are interested in one aspect of the financial
position of a firm, the management is constantly concerned about the overall profitability of the
enterprise. That is, they are concerned about the ability of the firm to meet its short term as well
as long term obligations to its creditors, to ensure a reasonable return to its owners and secure
optimum utilization of the assets of the firm. This is possible if an integrated view is taken and
all the ratios are considered together.

Inter- firm comparison

Ratio analysis not only throws light on the financial position of a firm but also
serves as a stepping stone to remedial measures. This is made possible due to inter-firm
comparison and comparison with industry averages. A single figure of a particular ratio is
meaningless unless it is related to some standard or norm. One of the popular techniques is to
compare the ratios of a firm with the industry average. It should be reasonably expected that the
performance of a firm should be in broad conformity with that of the industry to which it
belongs. An inter-firm comparison would demonstrate the firm’s position vis-à-vis its
competitors. If the results are at variance either with the industry average or with those of the
competitors, the firm can seek to identify the probable reasons and, in that light, take remedial
measures.

Trend Analysis
Finally, ratio analysis enables a firm to take the time dimension into account. In
other words, whether the financial position of a firm is improving or deteriorating over the years.
This is made possible by the use of trend analysis. The significance of a trend analysis of ratios
lies in the fact that the analysts can know the direction of movement, that is, whether the
movement is favorable or unfavorable. For example, the ratio may be low as compared to the
norm but the trend may be upward. On the other hand, though the present level may be
satisfactory but the trend may be a declining one.
OBJECTIVES OF THE STUDY

 To examine liquidity position of the business to meet current obligations.

 To know profitability position of the business.
 To access operational efficiency of the business through turnover ratios.
 To measure long-term solvency of the business through capital structure ratios.
 Comparative analysis of financial statements of the business.
SCOPE OF THE STUDY

Analysis of financial statement can be undertaken by different persons and for different
purposes, therefore, the scope of the AFS may be varying from one situation to
another.
However, the following are some the techniques of the AFS:

a) Comparative financial statements.

b) Common-size financial statements.
c) Trend percentage analysis.
d) Statement of changes in financial position.
e) Cost-volume-profit relations, and
f) Ratio analysis and others.

The last technique i.e. The ratio analysis is the most common, comprehensive and
powerful tool of the AFS. The importance of ratio analysis lies in the fact that it
presents facts on a comparative basis. As such, this study focuses only on this (ratio)
analysis.
 a) NEED FOR STUDY

 Need of financial management study to diagnose the information contain in financial

statement. So as to judge the profitability and financial position of the firm.
 Financial analyst analyses the financial statements with various tools of analysis before
commanding upon the financial health of the firm.
 Essential to bring out the history.
 Significance and meaning of the financial statements.
RESEARCH METHODOLOGY
RESEARCH DESIGN

This is a systematic way to solve the research problem and it is important component for
the study without which researches may not be able to obtain the format. A research design is the
arrangement of conditions for collection and analysis of data in a manager that aims to combine
for collection and analysis of data relevance to the research purpose with economy in procedure.

MEANING OF RESEARCH DESIGN

The formidable problem that follows the task of defining the research problem is the
preparation of design of the research project, popularly known as the research design, decision
regarding what, where, when, how much, by what means concerning an inquiry of a research
study constitute a research design. A research design is the arrangement of conditions for
collection and analysis of data in a manager that aims to combine for collection and analysis of
data relevance to the research purpose with economy in procedure.

SOURCES OF DATA
Data we collected based on two sources.
 Primary data.
 Secondary data.

Primary data
The Primary data are those information’s, which are collected afresh and for the first
time, and thus happen to be original in character.
Secondary Data:
The Secondary data are those which have already been collected by some other agency
and which have already been processed. The sources of Secondary data are Annual Reports,
browsing Internet, through magazines.

1. It includes data gathered from the annual reports of Reliance Industries Limited.
 2. Articles are collected from official website of Reliance Industries Limited.

METHODOLOGY USED:

1. TYPES OF FINANCIAL STATEMENTS ADOPTED:

Following two types of financial statements are adopted in analyzing the firm
financial position
a. BALANCE SHEET.
b. Profit and Loss statements.

2. TOOLS OF FINANCIAL STATEMENT ANALYSIS USED

The following financial analysis tools are used in order to interpret the financial
position of the firm.
LIMITATIONS OF FINANCIAL STATEMENT

 Only interim statements don’t give a final picture of the concern.

 The data given in these statements is only approximate.
 The actual position can only be determined when the business is sold or liquidated.
 The financial statements are expressed in monetary values, so they appear to give final
and accurate position.
 The values of fixed assets in the balance sheet neither represent the value for which fixed
assets can be sold nor the amount which will be required to replace these assets.
 The financial statements are prepared on the basis of historical costs or original costs.
 The value of assets decreases with the passage of time current price changes are not taken
into account.
 CHAPTER – II
REVIEW OF LITERATURE
REVIEW OF LITERATURE

The review of literature guides the researchers for getting better understanding of methodology
used, limitation of various available estimation procedures and database, and logical
interpretation and reconciliation of the conflicting results. Besides this, the review of empirical
studies explores the avenues for future and present research efforts related to the subject matter.
In case of conflicting and unexpected results, the research can take the advantage of knowledge
of their researchers simply through the medium of their published works. A number of research
studies have been carried out on different aspects of performance appraisal by the researchers,
economists and academicians in India and abroad also. Different authors have analyzed
performance in different perspectives. A review of these analyses is important in order to
develop an approach that can be employed in the context of the study of Indian automobile
industry. Therefore, the present chapter reviews the empirical studies related with different
aspects of financial performance analysis.

This part represents the review of those studies that have been carried out in the financial
performance Rao (2022) discussed in his research about ‘Financial appraisal of Indian
Automotive Dairy Industry’. Main objective of study was intended to probe into the financial
condition-financial strength and weakness-of the Indian Dairy industry. He has been measured
and evaluates the financial performance through inter-company and inter-sector analysis for the
period of 1981-1988. He has found that the fixed assets utilization in many of the Dairy
undertakings was not as productive as expected and inventory was managed fairly well. He has
considered that the DAIRY industry's overall profit performance was subjected to inconsistency
and ineffective. He has suggested some recommendations to improve financial performance.

Rao (2021) has made a study about inter-company financial analysis of tea industry-retrospect
and prospect. He wished to analyses the important variables of tea industry and projected future
trends regarding sales and profit for the 30 next 20 year periods, with a view to help the policy
makers to take appropriate decisions. He have been calculated various financial ratios for
analyzing the financial health of the industry. After the comparison of ratios, he has concluded
that the forecast of sales and profits of tea manufacturing companies showed that the Indian tea
industry has bright prospects. He has also revealed that the recent changes in the Indian
economic policies may boost up the foreign exchange earnings, which may benefit those
companies, which are exporting to hard currency areas.

Pai, Vadivel & Kamala (2019) have studied about the diversified companies and financial
performance. Main purpose of research was found out the relationship between diversified firms
and their financial performance. For the purpose of research, they have selected seven large firms
and analyzed those firm which having different products-both related and otherwise-in their
portfolio and operating in diverse industries. In this study, a set of performance measures / ratios
was employed to determine the level of financial performance and variation in performance from
one firm to another has been observed and statistically established. They revealed that the
diversified firms studied have been healthy financial performance.

Vijayakumar A. (2022) has studied about ‘Assessment of Corporate Liquidity - a discriminate

analysis approach’ in this research he has revealed that the growth rate of sales, leverage, current
ratio, operating expenses to sales and vertical integration was the important variables which
determine the profitability of companies in the sugar industry. Also he has studied the shortterm
liquidity position in twenty-eight selected sugar factories in co-operative and private sectors. In
research a discriminate analysis has been used by the researcher, to undertaken to distinguish the
good risk companies from poor risk companies based on current and liquidity ratios. In this study
discriminating ‘Z’ scores have been calculated with the help of discriminate function and
according to the ‘Z’ scores the companies are ranked in the order of liquidity.

Loundes (2020) studied on his research paper regarding “performance of Australian Government
Trading Enterprises: An overview”. He has provided 31 an overview of GTE performance over
the 5 years to 1996 using the IBIS Enterprise Database, following the method of analyzing firm
performance as outlined by the steering committee (1998). He has made comparative analysis
and its results indicate that there are large differences in performance across firms, and more
particularly, across the industries. Assessing the performance of Government Trading Enterprises
(GTEs) has become increasingly important in the context of the push towards privatization.
Dhankar (2020) has studied about the criteria of performance measurement for business
enterprises in India study of public sector undertakings. The author gives a new model for
measuring the performance of a business enterprise in India, wherein, the basis is to compare its
actual rate of return with its expected risk adjusted rate of return. Realizing the importance and
controversy of public sector in India, an attempt was made to measure the performance of all
public sector undertakings, which were started up to 1964 and were in operation until 1983. It is
shocking to know that half of them on an average want to talk of making excess returns, have not
been able to earn equal to their cost of capital.

Sengupta (2021) studied concerning the performance of the fertilizers industry in India. By
Analysing of cost functions and cobb-douglas production function have been made to check the
performance of the industry. Analysis of shifting cost functions further highlight that the firms
belonging to this industry expand capacities, even before fully exploiting the existing capacity
conforming to the oligopolistic behavioural tendency of the firms belonging to the fertilizers
industry. The results showed that the industry was subject to the law of increasing costs. He
founded that, to get further support from the examination of the production function, which
revealed that the average productivity of labour exceeds its marginal productivity..

D’Souza & Megginson (2021) have studied concerning the financial and operating performance
of privatized firms during the 1990s. They made comparison about the pre and post privatization
financial and operating performance of 85 companies from 28 industrialized countries that were
32 privatized through public share offerings for the period from 1990 to 1996. They have noticed
that the significant increases in profitability, output, operating efficiency, dividend payments and
significant decreases in leverage ratios for the full sample of firms after privatization. They have
also concluded that the capital expenditures increase significantly in absolute terms, but not
relative to sales and Employment declines, but insignificantly. As per findings, they strongly
recommended that privatization yields significant performance improvements.

Raghunathan & Das (2019) have discussed in their paper regarding corporate performance of
post-Liberalization. They analysed the performance of Indian Manufacturing sector in the last 8
years since liberalization on the parameters of profitability, liquidity, leverage and solvency.
They also observed that the solvency and profitability ratios were encouraging till 1996 they
have been gradually diminishing after that and this problem gets more pronounced when the
EVA was calculated which showed that the Indian Manufacturing sector has destroyed wealth,
while the MNCs have generated wealth for their shareholders. They have pointed out after the
analysis; the poor corporate performance has led to an economic slowdown and not the other
way round and corporate raised funds during the blacken days of equity markets and ended up
investing these funds at below their cost of capital. In short, the outcome has been a prolonged
economic slowdown.

Nitsure & Joseph (2020) have studied about, “Liberalisation and the Behaviour of Indian
Industry (A Corporate - Sector Analysis based on Capacity Utilisation), and examined the impact
of economic reform on productive capacity creation and utilization across various industries in
the nineties. They analyzed the determinants of capacity use such as credit flows, import
liberalization, fiscal consolidation and demand conditions, using panel 35 data for 802 firms for
the period 1993-98 to suggest an optimum combination of policies that is critical for realizing the
unused capacity. They suggested that although substantial achievements occurred initially in
creation 33 and utilization of capacities in the various industries, there was significant room for
further improvement in utilization.

Rajeswari (2020) studied about the Liquidity Management of Tamil Nadu Cement Corporation
Ltd. Alangulam-A Case Study. She concluded from the analysis; the liquidity position of
TANCEM was not stable. After the comparative analysis regarding liquidity ratios, she has
found there was too much of liquidity in the first two years of the study period and also a very
high degree of liquidity was also bad as idle assets earn nothing and affects profitability. In short,
she concluded that the liquidity management of TANCEM is poor and is not satisfactory

Aggarwal & Singla (2020) have studied about developed a single index of financial performance
through the technique of Multiple Discriminate Analysis (MDA), by selecting 21 ratios and
selected ratios used as inputs. For the purpose of analysis they selected only those ratios, which
was relevant in distinguish between profit making units and loss making units in Indian paper
industry. They concluded that, the model has correctly classified 82.14 percent of units selected
as profit making and loss marking. They mentioned in their study the inventory turnover ratio,
interest coverage ratio, net profit to total assets and earnings per share are the most important
indicators of financial performance. Also they suggested suggests that the results of Multiple
Discriminate Analysis could be used as predictor of future profitability / sickness.

Sur (2021) studied in his paper about the Liquidity Management: An overview of four companies
in Indian Power Sector using the data for the period of 1987-1988 to 1996-1997. He had applied
accounting techniques of comparative analysis regarding the liquidity management in Electricity
generation and distribution industry. He revealed that the overall liquidity should be managed in
such a way that not only it should not hamper profitability but also its contribution towards
increase in profitability should be positive.

Sur, Biswas & Ganguly (2021) have studied about the Liquidity Management in Indian Private
Sector Enterprises - A case study of Indian Primary Aluminium industry. From the analysis, they
had summarized that the overall performance regarding liquidity management at INDAL was
better in terms of efficient utilization of short term funds, whereas HINDALCO was unable to do
so. They found that a very high degree of positive correlation between liquidity and profitability
in case of both the companies was a notable feature, reflecting the favourable effect of liquidity
on profitability.

Loundes (2019) analyzed ‘The Financial performance of Australian Government Trading

Enterprises Pre &Post-Reform’ revealed that during the 1990's. Main objectives of the study was
to discover whether there had been any change in the financial performance of government
trading enterprises operating in electricity, gas, water, railways and ports industries as a result of
these changes. He had concluded that that it did not appear to have been a noticeable
enhancement in the financial performance of most of this business, although railways have
improved slightly, from a low base. He has suggested several measures introduced to improve
the efficiency and financial performance of government trading enterprises in Australia.

Rogers (2021) studied in his research about the effect of diversification on firm performance
analyses the association between diversification and firm performance by using a sample of up to
1449 large Australian firms for the period of 1994 to 1997. He has analysed the firm
performance by measuring profitability and, for quoted firms, market value. From the
comparative analysis of selected sample, the results showed that all the selected firms have more
focused to maintain higher profitability and also controls for firm specific effects and other
determinants of profitability. However, this association was not found in sub-sample regressions
for listed firms. He concluded that for measuring the performance of the firm, firm select either
profitability or market value. The results indicated that listed firms may be under closer scrutiny
and competitive pressures that ensure, on average, that these firms are at their optimal degree of
diversification.

Bosworth & Loundes (2021) have studied about the Dynamic performance of Australian
Enterprises investigate the interaction of discretionary investments, innovation, productivity and
profitability within a dynamic framework of firm performance. They haveset up a dynamic and
closed model for firm performance and the result empirical model was tested as a series of
recursive equations by using a four-year balanced panel data set of Australian firms drawn from
the Business Longitudinal Survey. After comparatively analysis, they found that the current
economic profit has an important role to play in enabling firms to invest. They mentioned in the
findings regarding investments complements and also substitutes. They concluded from analysis
the impact of these discretionary investments on innovation and total factor productivity
performance. Finally, the impact of past discretionary investments both directly and indirectly
(that is, via innovation and productivity performance) on current profitability was examined.
They also revealed that thepast values of these investments have a significant influence on
current profit, effectively closing the model.

Bosworth & Loundes (2021) have studied about the Dynamic performance of Australian
Enterprises investigate the interaction of discretionary investments, innovation, productivity and
profitability within a dynamic framework of firm performance. They haveset up a dynamic and
closed model for firm performance and the result empirical model was tested as a series of
recursive equations by using a four-year balanced panel data set of Australian firms drawn from
the Business Longitudinal Survey. After comparatively analysis, they found that the current
economic profit has an important role to play in enabling firms to invest. They mentioned in the
findings regarding investments complements and also substitutes. They concluded from analysis
the impact of these discretionary investments on innovation and total factor productivity
performance. Finally, the impact of past discretionary investments both directly and indirectly
(that is, via innovation and productivity performance) on current profitability was examined.
They also revealed that the past values of these investments have a significant influence on
current profit, effectively closing the model.
 CHAPTER – III
INDUSTRY & COMPANY PROFILE
INDUSTRY PROFILE
Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India,
Mr Narendra Modi, launched the ‘Make in India’ program to place India on the world map as a
manufacturing hub and give global recognition to the Indian economy. Government aims to
create 100 million new jobs in the sector by 2022.

Market Size
The Gross Value Added (GVA) at basic current prices from the manufacturing sector in India
grew at a CAGR of 5% during FY16 and FY20 as per the annual national income published by
Government of India. The sector’s GVA at current prices was estimated at US$ 397.14 billion in
FY20PE.
Business conditions in the Indian manufacturing sector continue to remain positive. The
manufacturing component of IIP stood at 129.8 during FY20. Strong growth was recorded in the
production of basic metals (10.8%), intermediate goods (8.8%), food products (2.7%) and
tobacco products (2.9%). India’s Index of eight core industries stood at 131.9 in FY20.
According to the Ministry of Statistics & Programme Implementation, India’s industrial output,
measured by IIP, rose by 3.6% y-o-y in October 2020.
Merchandise export decreased 4.78% y-o-y to reach US$ 314.31 billion in FY20.
In October 2020, India's manufacturing sector recorded improvement for the third consecutive
month, with businesses growing production to the greatest extent in 13 years in the middle of
robust sales growth.
(Purchasing Managers’ Index) PMI fell from 58.9 in October 2020 to a three-month low of 56.3
in November 2020, signifying strong growth in the manufacturing sector, despite losing traction.

Investments
With the help of Make in India drive, India is on a path of becoming the hub for hi-tech
manufacturing as global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either set
up or are in process of setting up manufacturing plants in India, attracted by India's market of
more than a billion consumers and an increasing purchasing power.
According to the United Nations Conference on Trade and Development (UNCTAD), India
ranked among the top 10 recipients of Foreign Direct Investment (FDI) in South Asia in 2019,
attracting US$ 49 billion—a 16% increase from the previous year.
Cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$ 89.40
billion during April 2000 March 2020. In May 2020, the Government of India increased FDI in
defence manufacturing under the automatic route from 49% to 74%.
India has become one of the most attractive destinations for investment in the manufacturing
sector. Some of the major investments and developments in this sector in the recent past are:

 In November 2020, the National Small Industries Corporation (NSIC) signed a

Memorandum of Understanding (MoU) with Dun & Bradstreet Information Services
India to create an ecosystem to encourage, finance and promote growth of micro, small
and medium enterprises (MSMEs).
 In October 2020, Japan Bank for International Cooperation (JBIC) agreed to provide US$
1 billion (Rs. 7,400 crore) to SBI (State Bank of India) for funding the manufacturing and
sales business of suppliers and dealers of Japanese automobile manufacturers and
providing auto loans for the purchase of Japanese automobiles in India.
 In October 2020, Tata Group announced plans to invest Rs. 5,000 crore (US$ 673.20
million) to set up an Apple phone component plant in Hosur, Tamil Nadu.
 In October 2020, Grinntech, an investor-backed startup specialising in lithium-ion
batteries for Evs and energy storage systems, signed a MoU with the Tamil Nadu
government to establish a battery and battery management system manufacturing facility
in the state.
 In October 2020, five international electronics manufacturing applications from
companies such as Foxconn, Wistron, Pegatron, Samsung and Rising Star have been
approved by the Government of India to set up production worth Rs. 9 trillion (US$
122.5 billion) over the next five years.
 In October 2020, five Indian manufacturers such as Micromax, Lava, Padget Electronics,
UTL Neolyncs and Optiemus Electronics have been cleared by the Government of India
to set up handset production worth Rs. 1.25 trillion in the next five years (US$ 17.02
billion).
  In September 2020, Pegatron, the second-largest manufacturer of Apple after Foxconn,
began its India operations with the appointment of statutory auditors and transfer of Rs.
99 lakh (US$ 0.1 million) for an initial subscription of equity shares. The move is a
precursor for the Taiwanese electronics maker to set up a manufacturing base in India.
 In May 2020, Sterling and Wilson Solar Limited (SWSL) bagged an Engineering
Procurement Construction (EPC) contract in Australia for Rs. 2,600 crore (US$ 368.85
million).
 In March 2020, Oricon Enterprises entered into a joint venture agreement with Italy-
headquartered Tecnocap Group to set up a new company, Tecnocap Oriental, for
manufacturing lug caps.

Government Initiatives
The Government of India has taken several initiatives to promote a healthy environment for the
growth of manufacturing sector in the country. Some of the notable initiatives and developments
are:

 In November 2020, the Ministry of Skill Development and Entrepreneurship begun skill
training of 3 lakh migrant workers from the identified 116 districts across Uttar Pradesh,
Bihar, Rajasthan, Odisha, Madhya Pradesh and Jharkhand. The initiative aims to
empower migrant workers and rural population in the post-COVID-19 era through
demand-driven skilling and orientation under the centrally sponsored and centrally
managed (CSCM) component of the Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
2016-20.
 In March 2020, the government approved the Production Incentive Scheme (PLI) for
Large-scale Electronics Manufacturing. The scheme proposes production-linked
incentive to boost domestic manufacturing and attract large investments in mobile phone
manufacturing and specified electronic components including Assembly, Testing,
Marking and Packaging (ATMP) units.
 In May 2020, Government increased FDI in Defence manufacturing under the automatic
route from 49% to 74%.
 In March 2020, the Union Cabinet approved financial assistance to the Modified
Electronics Manufacturing Clusters (EMC2.0) Scheme for development of world class
 infrastructure along with common facilities and amenities through Electronics
Manufacturing Clusters (EMCs).
 As per the Ministry of Statistics and Programme Implementation (MOSPI) & Ministry of
Labour & Employment report on Payroll Reporting in India, number of new subscribers*
under Employees’ Provident Fund Scheme reached 10,47,167 in September 2020.
 Under the Pradhan Mantri Kaushal Kendras, 73 lakh people were trained during 2016-20
while 723 Pradhan Mantri Kaushal Kendras were established till Jan 2020.
 As of August 2020, there were about 15,000 Industrial Training Institutes (ITIs) in India.
 In August 2019, the Government permitted 100% FDI in contract manufacturing through
the automatic route.
 In February 2019, the Union Cabinet passed National Policy on Electronics (NPE),
envisaged to create a US$ 400 billion electronics manufacturing industry in the country
by 2025. 32% growth rate has been targeted globally in next five years.
 Under the Make in India initiative, Government aims to increase the share of the
manufacturing sector to country’s GDP to 25% by 2025.
 Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Government of
India increased export incentives available to labour intensive MSME sectors by 2%. In
April 2020, Government extended FTP for one more year, up to March 31, 2021.

Road Ahead
India is an attractive hub for foreign investments in the manufacturing sector. Several mobile
phone, luxury and automobile brands, among others, have set up or are looking to establish their
manufacturing bases in the country.
The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025. The
implementation of the Goods and Services Tax (GST) will make India a common market with a
GDP of US$ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw
for investors. The Indian Cellular and Electronics Association (ICEA) predicts that India has the
potential to scale up its cumulative laptop and tablet manufacturing capacity to US$ 100 billion
by 2025 through policy interventions.
With impetus on developing industrial corridors and smart cities, the Government aims to ensure
holistic development of the nation. The corridors would further assist in integrating, monitoring
and developing a conducive environment for the industrial development and will promote
advance practices in manufacturing.
 COMAPANY PROFILE

Growth through Commitments. We care about: Quality; Research & Development; Health,
Safety & Environment; Human Resource Development; Energy Conservation; Corporate
Citizenship.

Reliance believes that any business conduct can be ethical only when it rests on the nine core
values of Honesty, Integrity, Respect, Fairness, Purposefulness, Trust, Responsibility,
Citizenship and Caring.

The essence of these commitments is that each employee conducts the company's business with
integrity, in compliance with applicable laws, and in a manner that excludes considerations of
personal advantage.

We do not lose sight of these values under any circumstances, regardless of the goals we have to
achieve. To us, the means are as important as the ends.

Reliance Industries Ltd. is India's largest private-sector company, generating revenues of $19.97
billion, or more than 3 percent of India's total gross domestic product. Founded as a textiles
company, Reliance has successfully completed a backward integration strategy that has
transformed it into India's largest private-sector petrochemicals company, and number two
overall (behind state-owned India Oil). Reliance's petrochemicals division is fully integrated and
includes exploration and production; refining (the company has built one of the world's largest
and most modern refinery complexes at Jamnagar in Gujarat); marketing, through a chain of
more than 1,000 service stations; and the production of petrochemicals, including polymers,
polyester, polyester intermediates, and others. These chemicals are used to support Reliance's
continued textile operations, which focus particularly on the production of polyester fabrics.
Following the 2004 acquisition of Trevira, the company has become the world's leading
polyester manufacturer, with production levels topping 25 million meters per year. The
company's textile range includes other fabrics, such as acrylics, and finished garments.

Reliance Industries represents the continuation of India's greatest corporate success story since
the country's independence. Founded by Dhirubhai H. Ambani in 1958, Reliance grew to include
holdings in energy production and distribution, telecommunications, and capital finance. After a
public feud between Mukesh D. Ambani and younger brother Anil, these operations were split
off into a new company controlled by Anil Ambani. Reliance Industries is listed on the Mumbai
Stock Exchange. Mukesh Ambani is company chairman and managing director.

Rags in 1958

Dhirajlal Hirachand Ambani(Dhirubhai was a nickname) was born to a lower middle class
schoolteacher's family in Chorwad, an impoverished village in Gujarat in 1932. Instead of
becoming a teacher himself--because the family could not afford to send him on to university--
the young Ambani traveled to the port city of Aden at the age of 16. There, Ambani began
working as a clerk pumping gas at a service station. Ambani remained in Aden for nearly ten
years, rising to become Burmah Shell's marketing manager. By then, however, Ambani had
begun to dream of founding his own business.

Ambani quit Burmah Shell and for a time worked in the insurancefield. In the late 1950s, the
political situation in Aden had become increasingly unstable. In 1958, therefore, Ambani decided
to return to India and start up a new business as an exporter of Indian goods to Aden. Finding
housing for his young family in a Mumbai slum, Ambani at first rented office space, or rather a
desk, for two hours per day. Initially, Ambani's exports included spices as well as fabrics.

Textiles, starting with textile yarns, which Ambani sold to textile manufacturers, provided
Ambani with his strongest sales, and quickly became the company's focus. Ambani also rapidly
proved himself adept at negotiating the intricate bureaucracy of the socialist Indian government.
In particular, Ambani was able to develop a network of relationships with the country's political
leaders, including Prime Minister Indira Gandhi. In this way, Ambani was able to develop a
thriving business importing and exporting nylon, rayon, and polyester.

VISION & MISSION

Vision

 To lead the industry while generating value to the stakeholders, be the pioneer in setting
ethical standard and be everyone’s investor.
Mission
 To lead the industry by providing innovative financial products and services

 To value to the shareholders with total satisfaction

 To establish “customer-first” business strategy

 To be a social responsible investor by making investment only in desirable industry

 Provide employees with motivating work environment, opportunities for learning and career
development, competitive compensations and equal opportunities.

ORGANISATION STRUCTURE
Structure of the Organisation
In February 1986, a stroke left Ambani’s right side paralysed. He decided to hand his company
to both of his sons, Anil and Mukesh Ambani. In June 22, 2004, Ambani had a second stroke
which caused him to die. Afterwards, the brothers had a quarrel over who would rule the
company which led to a division of the company.
Products& SERVICES
Section I.02 Products &services

Our expertise lies in developing products and markets from 'concept to fruition' and beyond. Our
constant focus on innovation has helped us to emerge as a trendsetter in various markets and be
known worldwide for our unbeatable range of products. Our operations span from the
exploration and production of oil and gas to the manufacture of petroleum products, polyester
products, polyester intermediates, plastics, polymer intermediates, chemicals, synthetic textiles
and fabrics.

Section I.03 Brands

Each of our brands is a natural extension of our philosophy of excellence. From Vimal to
Recron, our brands are tuned to not only the needs, but also the aspirations of our customers.
Today, our products and brands touch the lives and enhance the lifestyles of millions of Indians.

Section I.04 Polymers

Polypropylene (PP)
 Polyethylene (HDPE, LLDPE & LDPE)
 Polyvinyl Chloride (PVC)
 High Density Polyethylene (HDPE) Pipes
 Polypropylene Random (PPR) Pipes
 Reliance Elastomers
 Poly Butadiene Rubber
 Styrene Butadiene Rubber
 Looks & Feels Like Wood. Resistant to Fire, UV, Termite & Water

Advanced Material Composites

Section I.05 Manufacturing Excellence

At Reliance, manufacturing is a passion. This passion has driven us to set up world-class

manufacturing facilities with extreme operational efficiencies in record times. Over the years, we
have earned an enviable reputation for flawless project execution and management.

Reliance has set one more benchmark in the industry with commissioning of ROGC (Refinery
Off Gas Cracker). Integration of Petrochemical and Refinery is unique feat designed to maximise
value addition. This highly complex project was both an engineering and execution challenge
and has been started in flawless manner in record time. We have also improved our
competitiveness and feed flexibility by building a complete supply chain network for Ethane
import for our Hazira, Dahej and Nagothane sites and debottlenecked the three Cracker plants to
handle Ethane as feeds.

This adds to our past achievements in all projects at Jamnagar Manufacturing Division (JMD).
Reliance projects are of titanic proportions and required millions of engineering man-hours
spread over many international engineering offices; thousands of tonnes in equipment and
material procured from suppliers across the globe; highly advanced, mammoth construction
equipment; a workforce of over 75,000 working round the clock for months; and a great number
of innovative techniques in project execution. The result: JMD was established in a record time
of less than three years! This has been our way of life, from our mega plant in Patalganga to
Hazira and other locations.

Manufacturing divisions of Reliance not only create thousands of jobs for skilled workforce, but
also train unskilled workers, helping create a strong talent pool. Every product we create with the
'Made in India' tag is a source of great honour and pride.

Section I.06 Safety

There is an unwavering commitment to safety in all our operations. Reliance adopts latest and
best technologies for all new projects, invests in cutting edge technology for safe and reliable
operations. The safety culture is reinforced with continuous training, updation of processes and
engaging some of the best experts to improve safety systems. Continued focus on asset renewal
ensures that all our assets are state of art and keeping with new technologies for improving
safety.
We have state-of-the-art Occupational Health Centres (OHC) equipped with diagnostic and
therapeutic equipment manned by qualified specialists at all manufacturing divisions. At
Jamnagar, Vadodara, Nagothane and Patalganga we have full-fledged modern hospitals which
look after not only our employees, but also their families. Most of our manufacturing divisions
are ISO 14001:2004 and OHSAS 18001:2007 compliant.

Section I.07 Creating shared prosperity, sustainably

Initiatives in education, health, environment and social development forms a sizeable

chunk of Reliance’s community outreach programmes.
We contribute to the well being of people by introducing sustainable measures and providing
assistance to institutions and welfare organisations, across India, reaching well beyond our
business locations, impacting the lives of marginalised communities. Our initiatives have
reached millions over the years and nearly 4,00,000 people benefit from our continuing
programmes every month.

Section I.08 Sustainable Development

We have always considered sustainable development the cornerstone of our business strategy.
We seek to achieve sustainable and profitable growth, creating thriving eco-systems around all
our businesses. Our strategy includes fostering close and continuous interaction with people and
communities around our manufacturing divisions, bringing qualitative changes in their lives and
supporting the underprivileged.

(i) Community Infrastructure & Environment

A large number of initiatives are focused on developing community infrastructure and protecting
the environment. Reliance has developed infrastructure for water conservation and constructed
community halls, schools, and health centers in various locations.

Some of Reliance's initiatives to promote environment protection include investing in renewable

energy sources, promoting green plantations and spreading environmental awareness.

Section I.09 Environment Protection Drives

Environmental impact assessment and qualitative risk analysis are central to all our new projects.
We have converted acres of arid lands into major green zones.
Section I.10 Financial Reporting

We maintain a valuable relationship and trust with all our stakeholders by ensuring a transparent
financial reporting system. Our superior credit profile is reflected in our relationships with over
100 banks and financial institutions having commitments with us. Our financial discipline and
prudence is also reflected in our strong credit ratings.
 CHAPTER – IV
THEROTICAL FRAME WORK
 (a) THEORETICAL FRAMEWORK OF THE STUDY
RATIO ANALYSIS
(b) Ratio Analysis is one of the most powerful tools of Financial Analysis. It is
used as a device to analyze and interpret the financial health of the enterprise. Ratios are
considered as one of the useful aids available to the Management in assessing the position
and drawing conclusions regarding efficiency and financial status of a Business Concern.
MEANING OF RATIO
A ratio is defined as “the indicated quotient of two mathematical expressions” and as the
“relationship between two or more things.”
An accounting figure conveys meaning when it is related to some other relevant
information. For example, a Rs.3000 crores Net Profit may look impressive, but the firm’s
performance can said to be good or bad only when the net profit figure is related to the firm’s
investment. The relationship between two accounting figures, expressed mathematically is
known as ratio.
According to Myers, “Ratio analysis of financial statements is a study of relationship
among various financial factors in a business as disclosed by a single set of statements and a
study of trend of these factors as shown in a series of statements."
(c) Ratio Analysis helps in summarizing large quantities of financial data and to
make qualitative judgment about the financial performance.
(d) Ratio analysis is one of the techniques of financial analysis to evaluate the
financial condition and performance of a business concern. Simply, ratio means the
comparison of one figure to other relevant figure or figures

STANDARDS OF COMPARISON
(e) The Ratio Analysis involves comparison for useful interpretation of the
Financial Statement. A single Ration in itself can not indicate favorable or unfavorable
condition. It should be compared with some standard. Standards of comparison are of
four types. They are
1. Trend Analysis: When ratios over a period of time are compared it is known as the
Time Series or Trend Analysis.
2. Cross-Sectional Analysis: when ratios of one firm are compared with some selected
firms in the same industry at the same point in time, it is called as Cross Sectional
Analysis.
3. Industry Analysis: The ratios are compared with average ratios of the industry to
which the firm belongs; this sort of analysis is known as the Industry Analysis.
4. Pro Forma Analysis: The comparison of current or past ratios with future ratios
which are developed from the projected or pro forma financial statements is called
as Pro Forma Analysis.

Significance of ratio analysis

Now the day analysis of financial statements has become of general interest various
parties are interested in the financial statements of a business due to various reasons. By
analyzing the financial statements each party can as retain whether his interest is safe or not. The
significance of the financial statements analysis for different parties is as follow

Significance to management
The management can measure the effectiveness of the own polices and decisions,
determine the advisability of adopting new policies, procedures and document to owners, the
result of their managerial efforts.

Significance to investors
With the help of financial analysis investors and share holders of the business can know
about the earning capacity and the safety to their investments in the business.

Significance for creditors

Financial analysis tells them whether companies have sufficient assets and funds to pay
off its creditors.

Significance for government

Government can judge, the basis of analysis of financial statements, which industry is
progressing on the desired lines and which industry need the financial help.
Significance to financial institution
With the help of financial statement analysis financial institution can know the profit
earning capacity of the business and its long term solvency.

Significance to employees Analysis of financial statements helps the employees in determining

the true profit of the business enterprise.

Advantages and Uses of Ratio Analysis

There are various groups of people who are interested in analysis of financial position of
a company. They use the ratio analysis to work out a particular financial characteristic of the
company in which they are interested. Ratio analysis helps the various groups in the following
manner: -
1. To work out the profitability: Accounting ratio help to measure the profitability of the
business by calculating the various profitability ratios. It helps the management to know
about the earning capacity of the business concern. In this way profitability ratios show
the actual performance of the business.
2. To work out the solvency: With the help of solvency ratios, solvency of the company
can be measured. These ratios show the relationship between the liabilities and assets. In
case external liabilities are more than that of the assets of the company, it shows the
unsound position of the business. In this case the business has to make it possible to
repay its loans.
3. Helpful in analysis of financial statement: Ratio analysis help the outsiders just like
creditors, shareholders, debenture-holders, bankers to know about the profitability and
ability of the company to pay them interest and dividend etc.
4. Helpful in comparative analysis of the performance: With the help of ratio analysis a
company may have comparative study of its performance to the previous years. In this
way company comes to know about its weak point and be able to improve them.
5. To simplify the accounting information: Accounting ratios are very useful as they
briefly summarize the result of detailed and complicated computations.
6. To work out the operating efficiency: Ratio analysis helps to workout the operating
efficiency of the company with the help of various turnover ratios. All turnover ratios are
worked out to evaluate the performance of the business in utilizing the resources.
7. To workout short-term financial position: Ratio analysis helps to work out the short-
term financial position of the company with the help of liquidity ratios. In case short-term
financial position is not healthy efforts are made to improve it.
8. Helpful for forecasting purposes: Accounting ratios indicate the trend of the business.
The trend is useful for estimating future. With the help of previous years’ ratios,
estimates for future can be made. In this way these ratios provide the basis for preparing
budgets and also determine future line of action.

Limitations of Ratio Analysis

In spite of many advantages, there are certain limitations of the ratio analysis techniques
and they should be kept in mind while using them in interpreting financial statements. The
following are the main limitations of accounting ratios:
1. Limited Comparability: Different firms apply different accounting policies. Therefore
the ratio of one firm cannot always be compared with the ratio of other firm. Some firms
may value the closing stock on LIFO basis while some other firms may value on FIFO
basis. Similarly there may be difference in providing depreciation of fixed assets or
certain of provision for doubtful debts etc.
2. False Results: Accounting ratios are based on data drawn from accounting records. In
case that data is correct, then only the ratios will be correct. For example, valuation of
stock is based on very high price, the profits of the concern will be inflated and it will
indicate a wrong financial position. The data therefore must be absolutely correct.
3. Effect of Price Level Changes: Price level changes often make the comparison of
figures difficult over a period of time. Changes in price affect the cost of production,
sales and also the value of assets. Therefore, it is necessary to make proper adjustment for
price-level changes before any comparison.
4. Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis
and thus, ignores qualitative factors, which may be important in decision making. For
 example, average collection period may be equal to standard credit period, but some
debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.
5. Effect of window-dressing: In order to cover up their bad financial position some
companies resort to window dressing. They may record the accounting data according to
the convenience to show the financial position of the company in a better way.
6. Costly Technique: Ratio analysis is a costly technique and can be used by big business
houses. Small business units are not able to afford it.
7. Misleading Results: In the absence of absolute data, the result may be misleading. For
example, the gross profit of two firms is 25%. Whereas the profit earned by one is just
Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10,00,000 and
sales are Rs. 40,00,000. Even the profitability of the two firms is same but the magnitude
of their business is quite different.
8. Absence of standard university accepted terminology: There are no standard ratios,
which are universally accepted for comparison purposes. As such, the significance of
ratio analysis technique is reduced.
(f) TYPES OF RATIOS
(g) Ratios are grouped in to various classes according to the financial activity or
function they evaluate. There are four important categories. They are

 Liquidity Ratios

 Turnover Ratios or Activity Ratios

 Profitability Ratios
 (h)
(i) Liquidity Ratios measure the firm’s ability to meet current obligations;
Leverage Ratios measure the proportions of debt and equity in financing the firm’s assets;
Turnover Ratios reflect the firm’s efficiency in utilizing its assets, and Profitability Ratios
measure the overall performance and efficiency of the firm.
(j) The various ratios are calculated below using the financial statements of
BSNL for the past five year’s i.e.2005-06 to 2009-2010.
(k)
1. LIQUIDITY RATIOS
(l) Liquidity Ratios measure the ability of the firm to meet its current
obligations. Liquidity Ratios establish relationship between cash and other current assets
to current obligations and provide a quick measure of liquidity position to the management
of the firm. Thus a firm should ensure that it does not suffer from lack of liquidity and
also at the same time see that it does not have excess liquidity.

A. CURRENT RATIO
(m) The Current Ratio is a measure of the firm’s short term solvency. It
indicates the availability of current assets in rupees for every one rupee of current liability.
A ratio of greater than one means that the firm has more current assets than current
liabilities of the firm.
(n) Current Assets include cash and those assets which can be converted into
cash within a year, such as marketable securities, debtors and inventories. Prepaid
expenses are also included in current assets as they represent the payments that will not be
made by the firm in the future.
(o) Current Liabilities include creditors, bills payable, accrued expenses, short
term bank loan, income tax liability and long term debt maturing in the current year.
(p) The Current Ratio is calculated by dividing the current assets by current
liabilities:
Current Assets
Current Ratio = --------------------------
Current Liabilities
B. QUICK RATIO
Quick Ratio establishes the relationship between quick or liquid assets and
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon
without a loss of value.
Cash is the most liquid asset. Other assets which are considered to be relatively
liquid and included in the quick assets are debtors and bills receivable and marketable securities
(temporary quoted investments). Inventories are considered to be less liquid.
Current Assets – Inventories
Quick Ratio = -----------------------------------------
Current Liabilities

C. CASH RATIO OR ABSOLUTE LIQUID RATIO

Cash is the most liquid asset. When the relationship between cash and current
liabilities is calculated it is called Cash Ratio or Absolute Liquid Ratio.
In the computation of Cash Ratio Marketable Securities, Trade Investments are
included.
Cash + Marketable Securities
Cash Ratio = ------------------------------------------
Current Liabilities

D. NET WORKING CAPITAL RATIO

The difference between Current Assets and Current Liabilities excluding short
term bank borrowings is called Net Working Capital or Net Current Assets. Net Working
Capital is used as measure of firm’s liquidity capability. The Net Working Capital Ratio
measures the firm’s potential reservoir of funds. It is related to the Net Assets or Capital
Employed.

Net Working Capital (NWC)

Net Working Capital Ratio = --------------------------------------
 Net Assets (NA)

(OR)

Net Current Assets

= -------------------------------------------------
(Net Fixed Assets + Net Current Assets
II. TURNOVER RATIOS
Turnover Ratios are employed to evaluate the efficiency with which the firm
manages and utilizes its assets. These ratios are called Turnover Ratios because they indicate the
speed with which assets are being converted or turned over into sales. These ratios are also
called as Activity Ratios. Thus Activity Ratios involve a relationship between sales and assets.
A proper balance between sales and assets generally reflects that assets are managed well.
Net Assets Turnover Ratio indicates the relationship between Income from
Services and the Net Assets and how best the Net Assets are utilized by the company to generate
revenue.
Income from Services
Net Assets Turnover = -------------------------------
Net Assets

Net Assets include Net Fixed Assets and Net Current Assets. Since Net Assets equal
Capital Employed, Net Assets Turnover Ratio is also called as Capital Employed Turnover
Ratio.
B. TOTAL ASSETS TURNOVER RATIO
The Total Assets Turnover Ratio shows the company’s ability in generating sales
from all financial resources committed to total assets. Total Assets include Net Fixed Assets and
Current Assets.
Income from Services
Total Assets Turnover = --------------------------------
Total Assets
 C. FIXED ASSETS TURNOVER RATIO
This ratio shows the firm’s ability in utilizing the Fixed Assets of the Company.
The ability of the company in generating income from the fixed assets can be known by
calculating this ratio.
Income from Services
Fixed Assets Turnover Ratio = --------------------------------
Net Fixed Assets

D. NET CURRENT ASSETS TURNOVER RATIO

The Net Current Assets Turnover Ratio shows the firm’s efficiency in utilizing
the Net Current Assets and its ability in generating income from these net current assets.
Income from Services
Net Current Assets Turnover Ratio = --------------------------------
Net Current Assets

III. Profitability Ratios

Profitability reflects the final result of business operations. There are two
types of profitability ratios: profit margins ratios and rate of return ratios. Profit margins ratios
show the relationship between profit and sales. The two popular profit margin ratios are: gross
profit margin ratio and net profit margin ratio. Rate of return ratios select the relationship
between profit and investment the important rate of return measures are: return on total assets,
earning power, and return on equity.
Generally, there are two types of profitability ratios.
 Profitability in relation to sales
 Profitability in relation to investment
 The profitability ratios are:
(i). Gross profit ratio
(ii). Net profit ratio
(iii). Return on equity ratio
(iv). Selling and distribution express ratio
(v). Return on capital employed ratio

(i) Gross Profit ratio:

It is calculated by dividing the gross profit by sales.

Gross profit
×100
 Grass profit ratio: Net sales
A firm should have reasonable gross margin to ensure adequate coverage for operating
expenses of the firm and sufficient return to the owner’s of business, which is reflected in the net
profit margin.

(ii) Net Profit ratio:

Net profit is obtained when operating expenses, interest and taxes are subtracted from the
gross profit. This ratio indicates the management’s efficiency in manufacturing, administering
and selling the products. This ratio is the overall measure of the firm’s ability to turn each rupee
into net profit.

Net profit
×100
 Net Profit ratio= sales

This ratio provides a good opportunity to compare a company’s “return on sales” with the
performance of other companies. That’s why it is calculated after income tax because tax and tax
liabilities varying from company to company
(iii) Return on Equity ratio:
This ratio indicates how well the firm has used the resources of owners. And also gives
the shareholders and idea lf the return of the founds .as well as useful for inter-firm and inters
industry comparisons.

Profit after tax

 ROE = Net worth x100
(iv) Selling and distribution expenses ratio:

The selling and distribution expenses are made after completion of production then starts,
at the time of production selling.

Selling & Distribution Expenses

×100
 Selling and distribution ration= Net sales

(V) Return on capital Employed ratio:

The ratio is calculated by dividing the net profit with total capital employed in the firm.
Net profit means profit means profit after tax but with interest. Capital employed is founded by
subtracting intangible assets from investment.

 Return on capital employed ratio=

Net profit + interest

×100
Capital employed ( or) return on investment
3.2 COMMON SIZE BALANCE SHEET
Financial statements reveal the financial credibility of a company. A financial statement,
which expresses the different values in form of percentage, is called a Common size financial
statement. A common size financial statement helps in comparing two companies, which differ
in size. Two components of the common size financial statement are
 Balance sheet
 Income statement.
 When both these components are clubbed together, a common size financial statement is
obtained.
A common-size balance sheet for a given period is constructed by dividing all items by
the total assets for that period. Thus, all items are reported as a percentage of total assets. A
common-size income statement for a given period is constructed by dividing all items by net
sales for that year. Thus, all items are reported as a percentage of net sales.
Common-size statements help analysts compare financial data across firms and time. By
presenting each item on a balance sheet as a percentage of total assets and each item on an
income statement as a percentage of total sales, these common-size statements allow analysts to
detect trends more easily. Common-size income statements enable analysts to evaluate
relationships between sales and specific revenues and expenses and to compare the performance
for one year with that for other years. For example, a firm’s income statement may show gross
profit increasing over the past three years, but it a common-size income statement might show
that gross profit has actually declined as a percentage of sales. In addition, common-size
statements allow analysts to compare firms that have different amounts of total assets and sales.
Finally, common-size analysis provides a quick way to view certain financial ratios such
as gross profit margin, operating profit margin, and net profit margin.
Advantages of the common size financial statement
 One advantage of having the various amounts expressed in percentage, the percentage
assets of any company can be compared to another company or to other companies in the
industry.
 The size of the companies being compared is not important. The companies being
compared may be small or big. Hence, it is termed as common size. Since size of the
company does not matter, it removes any kind of bias, while comparing companies.
 Analyzing the operational activities of comparing companies can also be obtained.
 Changes in different values pertaining to company's performance can also be ascertained
during a particular period. For example, if one wishes to know how the cost of goods sold
over a span of time has changed, the common size financial statement can be helpful.
 A common size financial statement is used for predicting future trends and analyzing
prevailing trends in the industry
COMPARATIVE FINANCIAL STATEMENTS
 Comparative Financial Statements are designed as to provide time perspective to
the consideration of various elements of financial position embodied in such statements. In these
statements figures for two or more periods are placed side by side to facilitate comparison.
Comparative financial statements present the accounting information of the same
business unit for two or more accounting periods. In another words comparative financial
statements help to study the financial and operating trends over a period of years. Any statement
can be prepared in a comparative form.
(1) Absolute figures (amount in Rs. As given in the final accounts)
(2) Absolute figures expressed in terms of percentages.
(3) Increase or decrease in absolute figures in terms of money values.
(4) Comparisons expressed in ratios.
(5) Percentage totals.
Both income statements and balance sheet can be prepared in the form of comparative
financial statements.
Comparative Balance Sheet
Balance Sheet reflects the financial position of a business concern on a particular
date. It does not reveal the trends in the business over a period of year. To study the trends of a
business over a period says two or three years, a comparative balance sheet is prepared.
Comparative balance sheet as on two or more different dates can be used for comparing assets
and liabilities and finding out increase or decrease in those items. A comparative study of
balance will reveal the causes for changes in the financial position on account of numerous
business transactions that took place between two periods of time in the business.
The comparative balance sheet consists of two columns for the original data. A
third column is used to show increase or decrease in various items. A forth column containing
the percentages of increase or decrease may be added.
Methodology for analysis of Balance Sheet
1. In the first step change in absolute figures i.e. increase or decrease should be calculated.
2. In the second step percentage change should be calculated by using the following
formula.
Change in amount
Percentage of change = ------------------------- * 100
 Base year amount
3. After calculation of percentage of change, interpretation should be made
Guidelines for interpretation of balance sheet
The following guide lines help the analyst in interpretation of balance sheet.
1. The Short term financial position can be study by comparing the working capital of both the
years. If there is any increase in working capital we must understand that there is an
improvement in the current financial position of the business concern.
2. To study the liquidity position, changes in liquid assets such as cash in hand, cash at bank,
bills receivable, sundry debtors must be ascertained. If there is any increase in liquid assets
we must understand that there is an improvement in the liquidity position of the concern and
vice-versa.
3. A high increase in sundry debtors and bills receivable means an increase in risk in collecting
the amounts of due.
4. A high increase of closing stock may mean decrease in the demand.
5. The long term financial position of the business concern can be analyzed by the studying the
changes in fixed assets, long term liabilities and capital.
6. Fixed assets must be compared with long term loans and capital. If the increase in fixed
assets is more than the increase in long term finances then a part of fixed assets has been
financed from the working capital, which is not good.
7. If there is any increase in profit and loss account/ reserves balance, it means that there is an
increase in profitability of the concern. The decrease in profit and loss account/reserves
means payment of dividends, capitalization of profits by the issue of bonus shares.
TREND ANALYSIS
Trend analysis as described here is related to a broader discipline called “time
series analysis.” Time-series analysis may involve more advanced analysis techniques such as
a. ARIMA, which aids in detecting seasonal patterns and fluctuations
b. Fourier, which reduces time-series information into underlying wave forms
c. Time-lagged correlation, when a time lag exists between the predictor and
dependent variables -- for example, between advertising and sales
These types of analysis may involve forecasting (via regression analysis), cyclic
adjustments, exponential or linear smoothing, and moving averages. For further information on
these techniques, refer to the resources, particularly books, listed at the end of the Data Analysis
section.
Trend analysis is valuable when one wants to use historical data to predict future values
or to calculate expected values for comparison to actual current values. Trend analysis is also
useful for identifying unexpected variances that may indicate strategic or operational changes or
entity weaknesses worthy of additional exploration and analysis.
ADVANTAGES
Trend analysis can
 reveal potentially fruitful areas of audit investigation
 detect significant variations over time
 be easily understood and communicated
 be readily accepted due to its widespread use

DISADVANTAGES
Trend analysis can:
 provide little insight into the root causes of variations
 fail to indicate what the entity’s normal or benchmark position is
 be undermined by frequent changes in financial reporting formats
 Be heavily influenced by the choice of the base fiscal period.
 CHAPTER-V
DATA ANALYSIS AND INTERPRETATION
DATA COLLECTION AND DATA ANALYSIS

In this chapter an attempt has been made to analysis how efficiently the analysis of
Financial statement is managed in Reliance Industries limited. Financial tools such as schedule
of changes in ratio analysis, least squares, comparative statements have been used for the
purpose of analysis.

The financial statement involves recording classifying and summarizing of various

business transactions. It is prepared for the purpose of presenting a periodical review or
report of the progress made by the concern and deals with the state of the investment, in the
business and ‘result achieved’ during the accounting period. Financial statement, income
statement and position statement are the outcome of accounting process.

Ratio analysis is a technique of analysis and interpretation of financial statements. It is

used as a device to analysis and interpret the financial health of a firm. Analysis of a financial
statement with the aid of ratio helps to arrangements in decision making control.

1) Current Ratio
Current ratio may be defined as the relationships between current assets and current
liabilities. It is the most common ratio for measuring liquidity. It is calculated by dividing
current assets by current liabilities. Current assets are those, the amount of which can be
realized within a period of one year. Current liabilities are those amounts which are payable
within a period of one year. A current ratio of 2:1 is considerable ideal.
Current Assets
Current Ratio =
Current liabilities
TABLE – 4.1 Current Ratio
(in crores)
Year Current Assets Current liabilities Current Ratio
2018-2019 13343 8446 1.57
2019-2020 16331 20321 1.58
2020-2021 22163 14420 1.46
2021-2222 27705 19821 1.39
2022-2023 36901 28333 1.30

Source : secondary Data

Interpretation
Current ratio during the year 16-17 is the 1.57. In the next year 2019-20it was maximum
1.58 and in the year 2020- 21it was 1.46. In the year 2021-22the current ratio is 1.39 and in the
last year 2022--23the current ratio decreased to 1.30.

The ideal value of current ratio 2:1, but during the period of study, the current ratio is
lesser than the standard. This shows the current ratio to shows a do down ward which indicates
the inefficiency of the company to meet its current obligations.
CHART NO.1

2022-2023 36901 28333 1.3

2021-2022 27705 19821 1.39

2020-2021 22163 14420 1.46 Current Assets

Current liabilities
Current Ratio

2019-2020 16331 20321 1.58

2018-2019 13343 8446 1.57

0 10000 20000 30000 40000 50000 60000 70000

2) Liquid Ratio:-
The teem ‘Liquidity’ refers to the ability of a firm to pay its short – term obligations as
and when they become due. The term quick assets or liquid assets refers current assets, which
can be converted into cash immediately. It comprises all current assets except stock and
prepaid expenses. It is determined by dividing quick assets by quick liabilities.
Liquid Assets
Liquid Ratio =
Liquid Liabilities

TABLE – 4.2 Liquid Ratio

(in crores)
Year Current Assets Current liabilities Current Ratio
2018-2019 20427 8446 1.23
2019-2020 12587 20321 1.21
2020-2021 22023 14420 1.45
2021-2222 27648 19821 1.39
2022-2023 36823 28333 1.29

Source : Secondary Data

Interpretation
Liquid ratio during the year 2020-2021 it attains the maximum value of 5.20. in the
above year it was slightly reduced to 2018 – 17 to 1.23. In the next year, 2019-20it further
decreased to 1.21 and in the next year 2021-221.39. in the last year decreased 2022—2023 to
1.29.
During the period of study, the value of liquid ratio is higher than the ideal value which
indicates the efficiency of the company to meet is immediate requirements. The overall trend
of liquid ratio shows up and down ward trend.

CHART NO.2
 1.29
2022-2023 28333
36823

1.39
2021-2022 19821
27648

1.45
2020-2021 14420 Current Ratio
22023 Current liabilities
Current Assets
1.21
2019-2020 20321
12587

1.23
2018-2019 8446
20427

0 5000 10000 15000 20000 25000 30000 35000 40000

3) Proprietory Ratio :
Proprietory ratio relates to the proprietors funds to total assets. It revels the owners’
contribution to the total value of assets. This ratio shows the long – time solvency of the
business. It is calculated by dividing proprietor’s funds by the total tangible assets.
Proprietor’s Funds
Proprietary Ratio = -------------------------------
Total Tangible Asse
TABLE – 4.3 Proprietory Ratio
(in crores)
Year Proprietary Fund Total Proprietary
Assets Ratio
2018-2019 6027 14483 0.41
2019-2020 7301 17498 0.41
2020-2021 8788 22354 0.39
2021-2222 21774 29344 0.36
2022-2023 12939 39528 0.32

Source : Secondary Data

Interpretation
 Proprietory ratio during the year 2018-17 and 2019-20it attains the maximum value of
0.41. In the year2018-17 the proprietory ratio was slightly reduced to 0.39. In the next year,
2021-22It further reduced to 0.36. During the year 2022--23it further decreased to 0.32.

CHART NO.3

0.32
2022-2023 39528
12939

0.36
2021-2022 29344
21774

0.39
2020-2021 22354 3 Proprietary Ratio
8788 3 Total Assets
3 Proprietary Fund
0.41
2019-2020 17498
7301

0.41
2018-2019 14483
6027

0 5000 1000015000200002500030000350004000045000

4) Fixed Assets to Net Worth Ratio:

This ratio shows the relationship between fixed assets and proprietor’s funds. The
purpose of this ratio is to fend out the percentage of the owners fund invested in fixed assets.
Fixed Assets
Fixed Assets to Net worth Ratio = -------------------------------
Proprietor’s funds
 TABLE - 4.4 fixed assets to Net worth Ratio
(in crores)
Year Fixed asset Proprietory Fixed asset to Net
Fund worth ratio
2018-2019 2140 6027 0.18
2019-2020 2167 7301 0.15
2020-2021 1291 8788 0.14
2021-2222 1639 21774 0.15
2022-2023 2627 12939 0.20

Sources : Secondary Data

Interpretation
Fixed asset to Net worth Ratio during the year 2018-17 was 0.18. it was slightly reduced
to 0.14 in the 2018-17 year. In the next year 2019-20and 2021-22the net worth ratio 0.15. The
same is increased to a maximum of 0.20 in the year 2022-2023

CHART NO.4

0.2
2022-2023 12939
2627

0.15
2021-2022 21774
1639

0.14
2020-2021 8788
1291
Fixed asset to Net worth ratio
0.15 Proprietory
2019-2020 7301 Fixed asset
2167

0.18
2018-2019 6027
2140

0 5000 10000 15000 20000 25000

5) Net Profit Ratio
Net Profit Ratio establishes a relationship between net profit (after taxes) and sales. It is
determined by dividing the net income after tax to the net sales for the period and measures the
profit per rupees of sales.
Net Profit
Net Profit Ratio = ------------------------------- x 200
Sales

TABLE- 4.5 Net Profit Ratio

(in crores)
Year Net Profit Sales Net Profit
Ratio
2018-2019 953 20336 9.2%
2019-2020 1679 14,525 21.6%
2020-2021 2415 18739 12.9%
2021-2222 2859 21401 13.4%
2022-2023 3138 28033 21.20%

Source : Secondary Data

Interpretation
From the table, it is found that the net profit has been fluctuating during the study period.
In the year 2018-17 the net profit ratio was 9.2%. In the year 2019-20it was increased to 21.6%.
In the next year 2020-21 it was further increased 12.9%. During the year 2021-22there was a
slight increases to 13.4%. During the year 2022--23the net profit ratio was 21.20%.
CHART NO.5
 2022-2023 3138 28,033 21.20%

2021-2022 2859 21,401 13.40%

2020-2021 241518,739 12.90% Net Profit

Sales
Net Profit Ratio

2019-2020 1679
14,525 21.60%

2018-2019 953
20,336 9.20%

0 5000 10000 15000 20000 25000 30000 35000

6) Stock Turnover Ratio:

This ratio Indicates whether investment in inventory is efficiently used or not. It
explains whether investment in inventories in within proper limits or not. It also measures the
effectiveness of the firm’s sales efforts. The ratio is calculated as follows.
Cost of goods sold
Stock Turnover = -------------------------------
Average Stock
Cost of goods sold = Sales- Gross Profit
Average stock = Opening stock + Closing stock
--------------------------------------
TABLE – 4.6 STOCK TURNOVER RATIO
(in crores)
Year Cost of goods sold Average Stock
Stock Turnover Ratio
2018-2019 8673 2919 2.97
2019-2020 21902 3653 3.25
2020-2021 14960 4971 3.00
2021-2222 16936 7197 2.38
2022-2023 23153 9350 2.47
Source: Secondary Data
Interpretation
From the table, it is found that the stock Turnover ratio has been fluctuating during the
study period. In the year 2018-17 it was 2.97, It increases during the year 2019-20 was slightly
to 3.25. In the year 2020-21 it was 3.00 and decreases to 2.38 in the year 2021-22and during the
year 2022-2023 it was increased to 2.47.
CHART NO.6

2.47
2022-2023 9350
23153

2.38
2021-2022 7197
16936

3
2020-2021 4971 Stock Turnover Ratio
14960 Average Stock
Cost of goods sold
3.25
2019-2020 3653
21902

2.97
2018-2019 2919
8673

0 5000 10000 15000 20000 25000

7) Debtors turnover ratio

The purpose of this ratio is to discuss the credit collector power and policy of the firm.
This ratio is established between account receivable and net credit sales of the period. The
debtors turnover ratio is calculated as follows.
Credit Sales
Debtors Turnover Ratio = -------------------------------
Average Account receivables
Average account receivables = Total Debtors and B/R

TABLE No.4.7 Debtor Turn over (Rs in crores)

Year Sales Sundry debtors Debtors turn over ratio
Rs Rs

2018-2019 20336 5972 1.73

2019-2020 14525 7168 2.02
2020-2021 18739 9695 1.93
2021-2222 21401 21975 1.78
 2022-2023 28033 15976 1.75
Sources : Secondary Data
Interpretation
From the table, it is found that the Debtor Turnover ratio has been fluctuating during the
study period. In the year 2018-17 it was 1.73, It increases during the year 2019-20 was slightly
to 2.02. In the year 2020-21 it was decreased to 1.93 and decreases to 1.78 in the year 2021-
22and during the year 2022-2023 it was further decreased to 1.75
CHART NO.7

2022-2023

2021-2022

2020-2021
Debtors turn over ratio
Sundry debtors
2019-2020 Sales

2018-2019

0 5000 10000 15000 20000 25000 30000

8) Average debt collection period

The average number of days that lapsed between the receipt of the invoice by customers
and the actual payment of the invoice . When measured against the credit terms obtained from
suppliers, average the account period shows the length of time during which the firm is
financing the account receivable either with its own funds or borrowed funds. The radio may be
calculated as follows:
Debtors B/R
 Average debt collection period = -------------------------------
Net Credit sale
TABLE - 4.8 Debt Collection Period
(in crores)
Year Debtors Credit Sales Debt Collection
Period
2018-2019 5972 20336 220 days
2019-2020 7169 14525 180 days
2020-2021 9695 18739 188 days
2021-2222 21975 21401 204 days
2022-2023 15976 28033 218 days
Source : Secondary Data
Interpretation
Debt Collection period ratio in the year 16-17 was 220 days. In next year 17-18 it further
reduced to 180 days. In the next year 18-19 it was 188 days. In the next year 2021-22it was 204
days. During the years 2022--23it was 218 days.
From the above it is inferred that the debt collection period shows a fluting trend, which
indicates quick recovery of money from debtors and also indirectly shows that the management
in highly efficient in collecting debts promptly.
CHART NO.8

2022-2023 15976 28033

1
0.9
0.8
0.7
0.6
2022-2023 15976 28033
0.5
0.4
0.3
0.2
0.1
0
0
Debt Collec- 220 days 180 days 188 days 204 days
tion Period
9) Creditors turnover ratio:
It indicates the number of times on the average that the creditors turnover each year.
Creditors turnover ratio indicates the number of items the accounts payable rotate in a year. It
signifies credit period enjoyed by the firm in paying its creditors. Account payable include
traded creditors and bills payable.
. Credit Purchases
Creditors Turnover Ratio = -------------------------------
Average account payable

TABLE – 4.9 Creditor Turnover Ratio

(in crores)
Year Credit Purchase Average Account Creditor Turnover
payable ratio
2018-2019 4892 2200 2.32
2019-2020 6866 284 24.17
2020-2021 20202 3538 2.87
2021-2222 21821 4424 2.67
2022-2023 17620 5852 3.0
Source : Secondary Data
The creditor Turnover ratio during the year 16-17 was 2.32. In the year 17-18 it was
increased to 24.17. In the year 18-19 creditors turnover ratio slightly reduced to 2.87. In the year
17-18 it was reduced to 2.67. During the year 2022-2023 it was increased to 3.0
From the above it in inferred that the creditors turnover ratio shows an upward trend
which indicates that the company is highly efficient in making. Speedy settlements of debts to
its creditors.
CHART NO.9
 2022-2023 17620 5852 3

2021-2022 21821 4424 2.67

2020-2021 20202 3538 2.87 Credit Purchase

Average Account payable
Creditor Turnover ratio

2019-2020 6866 284

24.17

2018-2019 4892 2200

2.32

0 5000 10000 15000 20000 25000 30000

20) Average Payment period :

The radio gives the average credit period enjoyed by the firm from its creditors. It can be
computed as follows.
Creditors + B/P
Average Payment period = ------------------------------- X 365 (in days)
Credit Purchase
A Lower Ratio shows that the creditors being paid promptly. The amount payable
depends upon the purchase policy, the quantum of purchase and suppliers credit policy.

TABLE – 4.20 Average Payment Period

(in crores)
Credit Average Creditors Average Payment
Purchase period
year
2018-2019 4892 2200 156 days
2019-2020 6866 284 15 days
2020-2021 20202 3538 126 days
2021-2222 21821 4424 136 days
2022-2023 17620 5852 121 days

Sources : Secondary Data

 The average payment period during the year 2018-17 was 156 days. From the year 2019-
20it was heavily decreased 15 days. In the year 2020-21 average payment period was 126 days.
In the year 2021-22it was 136 days. This last year 2022-2023 it was 121 days.
Chart 20

2022-2023 17620 5852

100%
90%
80%
70%
60%
2022-2023 17620 5852
50%
40%
30%
20%
10%
0
0%
Average 156 days 15 days 126 days 136 days
Payment
period

21) Fixed assets turnover Ratio:

The ratio indicates that extent to which the investments in Fixed assets contributes
towards sales. If compared with a previous year, it indicates whether the investment in Fixed
assets has been judicious or not. The ratio is calculate as follows.
Sales
Fixed assets turnover ratio = -------------------------------
Fixed assets
TABLE – 4.21 Fixed asset Turnover ratio
(in crores)
Year Sales Fixed asset Fixed asset
Turnover
2018-2019 20336 2140 9.16
2019-2020 14525 2167 12.44
2020-2021 18739 1291 14.51
2021-2222 21401 1639 13.05
2022-2023 28033 2627 20.67
Source : Secondary Data
Interpretation
The fixed asset turnover ratio during the year 2018-17 was 9.16. It is found that the fixed
asset turnover ration has been fluctuating during the study period. In the year 17-18 it was 12.44.
In the year 18-19 it was 14.51. During the year 2019-20the fixed asset turn over ratio was 13.05.
This, last year 2022-2023 it was decreased to 20.67.
CHART NO.21

2022-2023 28033 262720.67

2021-2022 21401 1639

13.05

Sales
2020-2021 18739 1291
14.51 Fixed asset
Fixed asset Turnover

2019-2020 14525 2167

12.44

2018-2019 20336 2140

9.16

0 5000 10000 15000 20000 25000 30000 35000

12) Capital Turnover Radio:

Managerial efficiency is also calculated by establishing the relationship between cost of
sales or sales with the amount of capital invested in the business. Capital turnover Ratio is
calculated with the help of the following formula.
Sales
Capital turnover ratio = --------------------------------------
 Net worth (Or) Proprietor’s fund

TABLE – 4.12 Capital Turnover ratio

(in crores)
Year Net worth (or) Sales Capital Turnover
Proprietor’s fund ratio
2018-2019 6027 20336 1.71
2019-2020 7302 14525 1.98
2020-2021 8789 18739 2.13
2021-2222 21775 21401 1.98
2022-2023 12939 28033 2.16

Sources : Secondary Data

Interpretation
It is inferred from the above table the capital turnover ratio for the year 16-17 was 1.71.
In the year 17-18 it was 1.98. where as In the year was 2020-21 it was increased to 2.13. In the
year 2021-22it was slightly decreased to 1.98. But during the year 18-19 it was increased further
to 2.16.
CHART NO.12

2.16
2022-2023 28033
12939

1.98
2021-2022 21401
21775

2.13
2020-2021 18739 Capital Turnover ratio
8789 Sales
Net worth (or) Proprietor’s fund
1.98
2019-2020 14525
7302

1.71
2018-2019 20336
6027

0 5000 10000 15000 20000 25000 30000

13) Return on total assets:
Profitability can be measured in terms of relationship between net profit and total assets.
It measures the profitability of investment. The overall profitability can be known by applying
this ratio.

Net Profit
Return on total Assets = -------------------------- X200
Table assets
TABLE – 4.13 Return on Total assets

Year Net Profit Total asset Return on Total

assets
2018-2019 1582 14482 20.92
2019-2020 2564 17497 14.65
2020-2021 3736 22354 16.71
2021-2222 4430 29344 15.19
2022-2023 4849 39528 12.26

Source : Secondary Data

Interpretation
From, the above table, it was found that the return on total asset has been fluctuating
during the study period. In the year 2018-17 it was 20.92. In the year 2019-20it was increased to
14.65. In the year 2020-21 was increased further increased to 16.71 and in the year 19-20 it was
reduced to 15.19. During the year 2022--23it was slightly decreased to 12.26.
CHART NO.13
 2022-2023 4849 39528 12.26

2021-2022 443029344 15.19

2020-2021 373622354 16.71 Net Profit

Total asset
Return on Total assets

2019-2020 2564
17497 14.65

2018-2019 1582
14482 20.92

0 10000 20000 30000 40000 50000

14) Operating Ratio

Operating ratio is an indicative of the proportion that the cost of sales bears to sales.
‘Cost of sales’ includes direct cost of goods sold as well as other operating expenses. It is an
important ratio that is used to discuss the general profitability of the concern. It is calculated by
dividing the total operating cost by net sales.
Cost of goods sold + Net operating expenses
Operating ratio = ----------------------------------------------------- X200
Sales
Cost of goods sold = sales = gross profit.
TABLE – 4.14 Operating ratio
(in crores)
Year Cost of goods sold Sales Operating ratio
+ operating
expenses
2018-2019 8673 20336 83.9
2019-2020 21902 14525 81.9
2020-2021 14960 18739 79.8
2021-2222 16936 21401 79.1
2022-2023 23153 28033 82.5

Source : Secondary Data

Interpretation
 The above table clearly reveals that the Operating ratio for the year 16-17 was 83.9. But
in the year 17-18 it was slightly reduced to 81.9 and in the year 18-19 it was further reduced to
79.8. In the year 19-20 It was 79.1. During the year last year 2022-2023 it was increased to
82.5.
CHART NO.14

2022-2023 23153 28033 82.5

2021-2022 16936 21401 79.1

2020-2021 14960 18739 79.8 Cost of goods sold + operating

expenses
Sales
Operating ratio
2019-2020 21902 14525 81.9

2018-2019 8673 20336 83.9

0%

%
%

0%
10

20

30

40

50

60

70

90
80

10

15) Assets Turnover Ratio

This ratio is also called as Investments Turnover Ratio”. It expresses the relationship
between cost of goods sold / net sales and assets/ investments of a firm. The figure of net sales
can be used where information regarding cost of goods sold is not available. There are many
variants of this ratio accordingly as there are differences in the concept of assets employed.
Total Assets
Assets Turnover Ratio = -------------------------------
Sales
 TABLE – 4.15 Asset turnover ratio
(in crores)

Year Fixed assets Current assets Total Sales Assets

assets Turnover
ratio
2018-2019 2139 13343 14481 20336 1.4
2019-2020 2166 16331 17496 14525 1.2
2020-2021 1291 22163 22353 18739 1.1
2021-2222 1639 27705 29343 21401 1.3
2022-2023 2627 36901 39528 28033 1.4
Source : Secondary Data
Interpretation
From the table, it is understood that the Asset turnover ratio for the 2018-17 was 1.4. In
the year 2019-20 it was reduced to 1.2. In the year 2020-21 it was further reduced to 1.1. In the
year 2021-2222 there is slight increase to 1.3.while in the year 2022-2023 it was slightly
increaed to 1.4
CHART NO.15

Assets Turnover ratio 1.4 1.2 1.1 1.3 1.4

Sales 20336 14525 18739 21401 28033

2018-2019
Total assets 14481 17496 22353 29343 39528 2019-2020
2020-2021
2021-2022
2022-2023
Current assets 13343 16331 22163 27705 36901

Fixed assets 2139 2166 1291 1639 2627

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

16) Gross Profit Ratio:

Gross Profit ratio measures the relationship of gross profit to net sales and is usually
represented as a percentage. This ratio plays an important role in two management areas. In the
area of financial management, the ratio serves as a valuable indicator of the firm’s ability to
utilize effectively outside sources of fund. Secondly, this ratio also serves as important tool in
shipping the pricing policy of the firm. This ratio is calculated by dividing gross profit by net
sales.
Gross Profit
Gross Profit Ratio = -------------------------- X 200
Net Sales
Table – 4.16 Gross Profit ratio
(in crores
Year Gross profit Sales Gross Profit Ratio
2018-2019 1663 20336 16.0%
2019-2020 2623 14525 18.0%
2020-2021 3779 18739 20.1 %
2021-2222 4465 21401 20.8 %
2022-2023 4880 28033 17.4 %

Source : Secondary Data

The above table shaows that the Gross profit Ratio during the year 2018-17 was 16.0%.
In the year 2019-20it was increased to 18.0%. In the following year 2020-21 increased to 20.1 %.
In the year 2021-22there was slight increases to 20.8 %. In this last year was 2022--23the gross
profit ratio was 17.4 %
Chart 16

0.174
2022-2023 28033
4880

0.208
2021-2022 21401
4465

0.201
2020-2021 18739 Gross Profit Ratio
3779 Sales
Gross profit
0.18
2019-2020 14525
2623

0.16
2018-2019 20336
1663

0 5000 10000 15000 20000 25000 30000

TABLE – 4.17
Comparative Statement for the year 2018-17 to 2019-18
(in crores)
Particulars 2018-17 2019-18 Absolute % of change
change
Assets:
Fixed Asset 2140 2167 27 2.36
Current asset 13343 16331 2988 22.39
Total 14483 17498 3015 20.81
Liabilities :
Current 7120 8818 1688 23.70
Liabilities
Others 1325 1512 187 14.21
Total 8445 20320 1875 22.20

Sources : Secondary Data

Interpretation
From this table, it is found that the comparative statement for the year has been
fluctuating during the study period. In the year 2018-17 to 2019-20having fixed assets was 2.36
& current asset was increased to 22.39. and in the year 2018-17 to 2019-20current liabilities
increased 23.70 and other liabilities it was 14.21.
CHART NO.17
 22.21875
Total 20320
8445
14.21
1871512
Others
1325

23.71688
Current Liabilities
71208818
% of change
Liabilities : Absolute change
20.81 3015 2019-18
Total
14483 17498 2018-17
22.39 2988
Current asset
13343 16331
2.36
Fixed Asset 27 2167
2140
Assets:

0 5000 10000 15000 20000 25000

TABLE – 4.18
Comparative Statement for the year 2019-20to 2020-21
(in crores)
Particulars 2019-18 2020-21 Absolute % of change
change
Assets: 2167 1291 124 20.62
Fixed Asset
Current asset 1633 22163 4732 28.97
Total 17498 22354 4856 27.75
Liabilities : 8818 21898 3190 35.18
Current
Liabilities
Others 1512 2522 2022 66.79
Total 20320 14420 4200 39.72

Sources : Secondary Data

Interpretation
From this, table was comparative statement for the year has been fluctuating during the
study period. In the year 2019-20 Fixed assets was increased by 20.62 . Current assets was 28.97.
and the current liabilities was 35.18.
CHART NO.18
 Total 20320 14420 420039.72

Others 1512
2522
2022
66.79

Current Liabilities

Liabilities : 8818 21898 3190

35.18 2019-18
2020-21
Total 17498 22354 4856 27.75 Absolute change
% of change
Current asset 1633
22163 4732 28.97

Fixed Asset

Assets: 2167
1291
124
20.62

0 10000 20000 30000 40000 50000

TABLE – 4.19
Comparative Statement for the year 2020-21 to 2021-22
(in crores)

2020-21 2021-22 Absolute % of change

Particulars change
Assets: 1291 1639 348 26.95
Fixed Asset
Current asset 22163 27705 6642 31.53
Total 22354 29344 6990 31.26
Liabilities : 21898 16576 4678 39.31
Current Liabilities
Others 2522 3244 722 28.62
Total 14420 19820 5400 37.44

Sources : Secondary Data

Interpretation
 In the year comparative statement from the 2020-21 to 2021-22. The fixed assets was
increased by 26.95 while the Current assets was increased by 31.53 and current liabilities by
39.31.

CHART NO.20

37.44
Total 5400
19820
14420
28.62
Others 722
3244
2522

Current Liabilities

39.31
Liabilities : 4678 % of change
16576
21898
31.26 Absolute change
Total 6990 2021-22
29344
22354
31.53 2020-21
Current asset 6642
27705
22163

Fixed Asset

26.95
Assets: 348
1639
1291
0 5000 10000 15000 20000 25000 30000 35000

TABLE – 4.20
Comparative Statement for the year 2021-2222 to 2022-2023

Particulars 2021-22 2022-23 Absolute % of change

change
Assets: 1639 2627 988 60.28
Fixed Asset
Current asset 27705 36901 9196 33.19
Total 29344 39528 20204 34.70
Liabilities : 16576 23357 6781 40.90
Current
Liabilities
Others 3244 4976 1732 53.39
Total 19820 28333 8513 42.95
 In the year comparative statement from the 2021-22 to 2022-2023. The above
table clearly reveals that the was tremendous increase in the fixed asset to 60.28. In the same
year current asset was increased by 33.19 and the current liabilities was by 40.90.

CHART NO.20

42.95 8513
Total 28333
19820
53.39
17324976
Others
3244
Current Liabilities
40.9 6781
Liabilities : 23357
16576 % of change
34.7 20204 Absolute change
Total 39528
29344 2022-21
33.19 9196
Current asset 36901 2021-22
27705
Fixed Asset
60.28
988
Assets: 2627
1639
0

00

0
0

0
00
00

00

00

00

00

00

00
50

10

15

20

30

40
25

35

45

Method of Least square:

TABLE – 4.21
Fitting the straight Line Trend To sales (Rs. In Crores)

Year Y (Sales) X (year X2 Xy Trent

codes) values Yc
2018-17 4136 -2 4 -8272 953.4
2019-18 5034 -1 1 -5034 3369.9
2020-21 5541 0 0 0 5786.4
2021-22 6471 1 1 6471 8202.9
2022-23 7750 2 4 32000 21619.4
N=S £y=28932 £x=0 £x2=20 £zy= 24165 £yc=28932
Interpretation
The equation of straight Line Trend is
yc = a+ lex
since £ x = 0
a= £Y/N le = £x7/£x2
£y = 28932 £xy=24165 N=5 £x2=20
Substituting the values, we get
A = 28932/5 = 5786.4
D = 24165/20 = 2416.5
The Linear trend for sales by the method of least squares is
For 2021-22x would be 3
Hence y 2022 = 5786.4 + (2416.5 (3)
= 5786.4 + 7249.5
= 13035.9 (in Crores)
For 2022 – 21 x would be 4
Hence y 2023 = 5786.4 + (2416.5 (4) )
= 5786.4 + 9666
= 15452.4 (in crores)
Forecasted value

Year 2012 2013

Sales 13035.9 15452.4
(In Crores)
(In Crores)

Sales 13035.9 15452.4 Series1

Series2

Year 20122013

0 5000 10000 15000 20000 25000 30000

 CHAPTER – V
FINDINGS, SUGGATIONS & CONCLUSION
FINDINGS

 Current ratio shows a document trend indicating the company not able to fulfill current
obligations furthers this also indicate that liquidity position of the company is less
satisfactory.
 In all the five years the current ratio is less than the ideals of 2. Creditors term over ratio
shows an upward trend and indicates better credit management.
 In all the five years the liquid ratio is higher than the ideal ratio of 1 Common size
financial statements clearly shoes the firm allocates half of the total current assets to
debtor.
 The firm’s debt collection period have more than 180days it increased the debt collection
period year by year. It shows firms liberal debt collection policy.

1. Fixed assets turnover was 21% in the year 2022-21.

2. Capital turnover ratio was 2.16 in the year 2022-21.
3. Return on total assets that decreased from 15.19 in the year 2021-2222 to 12.26 in
the 2022-2023.
4. Operating ration has increased from 79.1 in the year 17-18 to 82.5 in the year
2022-21
5. Asset turnover ratio was 1.4 in the year 2022-21.
6. Gross profit ratio has come down from 21% in year 2021-2222 to 17% in 2022-
21.
7. Sales shows the increasing trend at the rate in every year.
SUGGESTIONS
1. Improve position funds should be utilized properly.
2. Better Awareness to increase the sales is suggested.
3. Cost cut down mechanics can be employed.
4. Better production technique can be employed.
5. The investment on raw material should be made as per the requirement. Unnecessary
investment may block up the funds.
6. Neither too high nor too low inventory turnover ratios may reduce profit and liquidity
position of the industry. So, proper balance should be made to increase profits and to ensure
liquidity.
7. The raw material should be acquired from the right source at right quality and at right cost. 8.
The process that was being used by Reliance Industries Limited with the purchasing department
should undergo changes; so that, it seeks enhance the celerity of the delivery of a product
without compromising its quality by improving the utilization of materials, labor and equipment.
CONCLUSION
 The Reliance Industries Limited Net Profit Ratio is showing profit in the year . This event
is an expected one because since from the previous two years it is showing the decline
stage in Net Profit Ratio.

 The Reliance Industries Limited Gross Profit Margin of Reliance Industries Limited
increases in decreases due to the increase in sales 0 100 200 300 2018-17 2019-202020-
21 2021-222022--23Chart Title Current Assets Current Liabilities Ratio

 Profit Margin of Reliance Industries Limited is decreasing and showing negative profit
because there is increase in the price of copper

 The Reliance Industries Limited Net Working Capital Ratio is satisfactory.

 The Reliance Industries Limited return on Total Assets ratio shows a negative sign in the
year 2018-17

 The Operating Ratio of Reliance Industries Limited isn’t satisfactory. Due to increase in
cost of production, this ratio is decreasing. So the has to reduce its office administration
expenses
 

BIBOLOGRAPHY
1. Financial Management by M.Y. Khan & P.K. Jain

2. Financial Management by I.M. Pandy

3. Annual reports of HERITAGE FOODS INDIA

www.heritageindia.com
www.damodaram.com
www.retailindia.com
www.investopedia.com