SUMMER TRAINING PROJECT REPORT

ON

“RATIO ANALYSIS IN FINANCE DEPARTMENT AT ETH INFRA PVT LTD

Delhi”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE DEGREE OF BACHELOR OF BUSINESS ADMINISTATION.

SUBMITTED TO:

INTERNAL GUIDE EXTERNAL GUIDE

DR. ANKIT SRIVASTAVA MR. Hari Mohan Sharma

ASSISTANT PROFESSOR CO FOUNDER

IMS UNISON UNIVERSITY, DEHRADUN ETH infra. Pvt LTD

SUBMITTED BY:

Piyush Sharma

(IUUSTU7941)

IMS UNISON UNIVERSITY, DEHRADUN

BATCH 2022-25
 CERTIFICATE

I have the pleasure in certifying that Piyush Sharma is a bona-fide student of Semester-V
of the Bachelor of Business Administration (Batch 2022-25), of IMS Unison University,
Dehradun, and Roll No: IUU22BBA254.

He has completed his project work entitled “Ratio analysis in Finance department” Under
my guidance.

I certify that this is his original effort & has not been copied from any other source. This
project has also not been submitted to any other Institute / University for the purpose of
award of any Degree.

This project fulfils the requirement of the curriculum prescribed by this Institute for the said
course. I recommend this project work for evaluation & consideration for the award of
Degree to the student.

Signature : ……………………………………

Name of the Guide: Mr. Ankit Srivastava

Designation : Assistant Professor

Date : ……………………………………
 DECLARATION

I hereby declare that the internship work entitled "RATIO ANALYSIS” carried out at

“Eth Infra. PVT LTD” is original work independently done under the guidance of Mr.

Hari Mohan Sharma (External Guide), and Mr. ANKIT SRIVASTAVA (Internal guide).

I also declare that the internship work presented in this report has not been previously
submitted by any degree, diploma, associate ship or fellowship or any other title in this
University or any other University.

Place: Dehradun, Uttarakhand.

Name: Piyush Sharma

Date:

ID: IUU22BBA072
 ACKNOWLEDGEMENT

I am indebted to many people who helped me accomplish this internship successfully.

First, I thank the Dean Dr. Rajeev Srivastava for giving me the opportunity to do my summer
internship project.

I wish to take this opportunity to express my deep sense of gratitude to thank

Mr. Hari Mohan Sharma for his invaluable guidance throughout my project. I
sincerely thank ETH Infra Pvt Ltd. for providing me with an opportunity to
be a part of it.

I thank Mr. Ankit Srivastava, for his support and guidance during the course
of my summer internship. I remember his with much gratitude for her patience
and motivation, but for which I could not have submitted this work.

I thank my parents for their blessings and constant support, without which this internship
would not have seen the light of day.

Piyush Sharma

IUU22BBA072
 EXECUTIVE SUMMARY

This internship report focuses on the application of ratio analysis as a financial tool for assessing
the financial performance and health of a company. During my internship at [ETH INFRA PVT
LTD, I had the opportunity to apply various financial ratios to evaluate the company's profitability,
liquidity, efficiency, and solvency. Ratio analysis provides valuable insights into a company's
financial stability, operational efficiency, and growth potential, making it a crucial tool for
financial decision-making.

The primary objective of this internship was to understand how different financial ratios are used
by businesses, investors, and analysts to assess financial performance. Key ratios such as the
current ratio, quick ratio, return on equity (ROE), net profit margin, and debt-to-equity ratio were
examined over a specified period to identify trends, strengths, and weaknesses in the company's
financial position.

The report provides a detailed analysis of these ratios, compares them to industry benchmarks, and
highlights the implications for the company's strategic decision-making. Through this analysis, I
gained a deeper understanding of how financial data is interpreted and its importance in guiding
business decisions.

Overall, this internship provided valuable hands-on experience with financial analysis, enhancing
my skills in interpreting financial statements and conducting ratio analysis. The insights gained
will be applicable in future roles where financial performance assesses.
 Table of Content

S. NO. PARTICULARS PAGE NO.

1. 1
EXTERNAL GUIDE CERTIFICATE
2. 2
INTERNAL GUIDE CERTIFICATE

3. 3
DECLARATION

4. 4
ACKNOWLEDGEMENT

5. 5
SUMMARY

6. 7-39
INTRODUCTION OF COMPANY
7. 40-42
RESEARCH METHODOLOGY

8. 43-46
DATA ANYLASIS & INTERPRETATION
9. 47-50
KEY FINDINGS
10. 51-52
CONCLUSION
 CHAPTER 1

PROFILE OF THE ORGANISATION

About

ETH INFRA is a well-known name in Real Estate arena and in the core, business of construction
and property development has always enjoyed a great respect, name and face, trust and loyalty
from its patrons over all these years. We have gained and achieved tremendous success in the field
of construction of Residential Apartment, Commercial Building and Shopping Complexes, Mass.
Growth success, expansion and diversification the value of any company.

ETH Infra based on Trust, Quality and Commitment We are developers of habitat. We are creating
India’s finest chain of nature endowed Eco-resorts. Our construction is environment conscious and
meets the requirements of green buildings.

Vision

ETH Infra is a top-notch real estate builder company that is delivering cutting-edge architecture.
We have grown many folds and have been working in the real estate sector for more than a decade.
Our ideas to build modern futuristic establishments have not only infused innovative ideas but
proved to be environmentally friendly in the real estate arena.

We’ve got the acumen to help you find your desired dream home. Smart residential spaces for the
general public redefine into a revolutionary road that resonated in the real estate realm.

Mission

ETH Infra Pvt. Ltd. has touched unbeatable professional stature in the world of real estate. With
an unwavering focus and determined approach, ETH has been the cynosure of real estate
investors. Meeting the clients’ needs with care and fulfilling the dream of a luxury home of
prospective buyers is a clear vision of our company.

Though the process was slow with leaden steps, we have reached sky heights with our team effort,
consistency and dedication. We believe that we are not building merely concrete structures but
homes that have a significant aspect for the families and are well-tied with emotions. We are
propagated to be guided by the wisdom of firm tenets and will continue to pave the path of
enhancing the quality of life by delivering beautiful homes.
Goal

ETH Infra is a real estate builder company that has been working in the real estate sector for more
than a decade. They offer a range of services, including: Innovative ideas, High-end construction
designs, Eco-friendly homes, Precise property management, and 24/7 assistance.

ETH Infra Pvt Ltd's goals include:

 Providing exceptional real estate services

ETH Infra aims to offer property consulting and real estate services that help clients make
informed decisions and achieve their real estate goals.

 Building long-term client relationships

ETH Infra's goal is to build relationships with clients based on trust, integrity, and outstanding
results.

 Creating sustainable housing

ETH Infra aims to create high-quality, sustainable housing that transforms lives and communities.

 Meeting client needs

ETH Infra's vision is to meet client needs and fulfill the dream of a luxury home for prospective
buyers.

 Raising standards

ETH Infra's primary concern is to raise the standards for a better future.

Turnover

The annual turnover of the company is 100 crores.

What the company do

ETH Infra is a top-notch real estate builder company that is delivering cutting-edge architecture.
We have grown many folds and have been working in the real estate sector for more than a decade.
Our ideas to build modern futuristic establishments have not only infused innovative ideas but
proved to be environmentally friendly in the real estate arena.

We’ve got the acumen to help you find your desired dream home. Smart residential spaces for the
general public redefine into a revolutionary road that resonated in the real estate realm.

We have been in the business of developing glorified real estate projects in India that have elevated
property construction and development to substantial heights. With smart growth objectives, our
primary concern is to raise the standards for a better future.

Live your life in grandeur and luxury style. Unlock your way to the beautiful homes.

Unearth investment opportunities with a decent rate of return. Our expertise in real estate will
guide you through your journey in the world of real estate investment.

Exotic location, modern features, and high-quality spacious properties that will suit your needs.
Whether to invest or to live, ETH Infra is the one-stop solution for all your real estate problems.

History

Established in the year 2013, ETH Infra Pvt. Ltd. over the years has grown, expanded and
diversified on the path of success. It is at present one of the most reputed real estate players in
various states across India. ETH Infra has earned tremendous fame, respect and confidence of its
clients in the business of construction and world-class property development including residential,
commercial, shopping malls, complexes, hotels, resorts, and many more. The goal is to provide its
clients with modern amenities, state-of-the-art infrastructure, opulence, and eco-friendly habitats.
While keeping the construction environmentally conscientious, the focus remains on quality,
comfort, convenience, security in all the projects. ETH Group thoroughly believes in propagating a
sustainable lifestyle where you can expect continuous and uninterrupted electricity and water
supply, proper ventilation along with the splendour of nature in its utter purity and bounty. ETH is
driven by a continuous commitment to serving the community by offering perfect designs, use of
quality materials in construction and superior specifications. The Group has been able to progress
in the field of real estate by laying down the foundation of happiness of millions of satisfied
customers. It conducts regular training programs for its existing employees to facilitate their
growth in the organisation. The ETH Group is always looking forward to expanding its existing
team and are in a constant search for dynamic, knowledgeable and experienced young
professionals who can contribute more to the current success. Rudra Apartment in Haridwar, and
Defence Residency in Shahjahanpur are some of the residential projects delivered by the Group.'

ETH Infra has established itself as a reputed real estate market player. The company has launched
various victorious projects in Haridwar that have captured the attention of a plethora of clients and
companies across the globe. We make investing in commercial and residential real estate easy and
simple with personalized services.

Attractive Rate of Return

We decide to build real estate projects after delicately analysing the demand and supply, location,
environment, upcoming developments, and other factors beforehand which will appreciate the
property pricing and deliver a good return on investment to our clients.

Hassle-free Loan Availability

Avail instant loan against your property approved by top national banks of India. With minimal
documentation, we will make your loan process hassle-free.

Stress-free Paperwork

Our real estate management team completes all types of critical paperwork for the clients.
Emphasis is laid to complete the paperwork in a clean manner to save the precious time, effort, and
money of the prospects.

Complete Transparency

We deal in real estate properties with genuine touch. Property dealings with valid documents,
financial proofs, and following legal norms. We make transactions secure and client information
confidential.

POLICIES

Terms of Agreement

The artistic works contained on this website like walkthroughs, E-Brochures, other
similar material, etc are for representation purposes only. They do not form a part of
any agreement or are legally binding on part of the company. Shown views are not a
part of the actual deliverables.
These are artistic representations only. Soft furnishing/furniture, and gadgets are not
part of the offering. The product and technology displayed if any, or referred to are
for representation only and the company does not guarantee the use of all of them.
Specifications are indicative and are subject to change as decided by the company or
the competent authority. Marginal variation may be necessary during construction.

The extent/number/variety of the equipment/appliances and their brand thereof is

tentative and liable to change at the sole discretion of the company.
Applicant/allottee or any person shall not have any right to raise an objection in this
regard.

The Materials and information on this site are provided “AS IS” and without
warranties of any kind, either expressed or implied.

ETH Infra Private Limited and its related, affiliated and subsidiary companies
disclaim all warranties, expressed or implied, including, but not limited to, implied
warranties of merchantability and fitness for a particular purpose.

You are responsible for evaluating the accuracy, completeness and usefulness of any
opinions, advice, services or other information provided. All information contained
on any page is distributed with the understanding that the authors, publishers, and
distributors are not rendering legal or other professional advice or opinions on
specific facts or matters, and accordingly assume no liability whatsoever in
connection with its use. Consult your own legal or tax advisor with respect to your
personal situation.

In no event shall ETH Infra Private Limited and its related, affiliated and subsidiary
companies be liable for any direct, indirect, special, incidental, or consequential
damages arising out of the use of the information herein.
Privacy Policy

At Eth-infra, accessible from http://ethinfra.com/, one of our main priorities is the privacy of our
visitors. This Privacy Policy document contains types of information that is collected and recorded
by Eth-infra and how we use it.

If you have additional questions or require more information about our Privacy Policy, do not
hesitate to contact us.

This Privacy Policy applies only to our online activities and is valid for visitors to our website with
regards to the information that they shared and/or collect in Eth-infra. This policy is not applicable
to any information collected offline or via channels other than this website.

We may update our Privacy Policy from time to time. We will notify you of any changes by
posting the new Privacy Policy on this page. We will let you know via email and/or a prominent
notice on our Service, prior to the change becoming effective and update the “effective date” at the
top of this Privacy Policy.

You are advised to review this Privacy Policy periodically for any changes. Changes to this Privacy
Policy are effective when they are posted on this page.

Effective date: May 20, 2021

This privacy notice outlines how we may collect, use, and share your information.

Refund Policy

ETH Infra Private Limited's terms and conditions state that the company and its related companies
disclaim all warranties, including implied warranties of merchantability and fitness for a particular
purpose. This means that the company is not liable for any direct, indirect, special, incidental, or
consequential damages arising from the use of information on its website.

SWOT Analysis

Strengths:
1. Proven Track Record: With over a decade of experience in real estate, ETH Infra has built a solid
reputation for delivering quality projects. This kind of stability is reassuring to both investors and
home buyers.
 2. Innovative and Futuristic Designs: ETH Infra is known for pushing the boundaries of modern
architecture. Their cutting-edge designs make their projects stand out and appeal to buyers looking
for something unique and forward-thinking.
3. Eco-Friendly Approach: In today’s world, sustainability matters, and ETH Infra is ahead of the
curve by integrating environmentally conscious practices into their projects. This is a major draw
for people who care about green living.
4. Comprehensive Real Estate Solutions: Whether you’re looking for a home to live in or an
investment property, ETH Infra offers a one-stop solution. They cater to different needs, making the
home-buying or investment process smoother.
5. Luxury and Prime Locations: ETH Infra focuses on delivering luxury properties in prime locations.
For clients seeking spacious, high-end homes with modern features, the company consistently
meets those expectations.

Weaknesses:
1. Focused on High-End Market: While ETH Infra is great at delivering luxury properties, it may miss
out on a larger segment of the market that looks for more affordable housing. This focus could limit
their audience.
2. Regional Focus: If ETH Infra operates mainly in specific regions of India, they might not reach
potential customers in other growing markets, limiting their expansion opportunities.
3. Vulnerable to Economic Swings: The demand for luxury homes can fluctuate with the economy.
During an economic downturn, fewer people may be willing or able to invest in high-end
properties, which could affect their sales.

Opportunities:
1. Growing Interest in Sustainable Homes: More people today want eco-friendly homes, and ETH
Infra’s green building practices give them an edge. As sustainability becomes more important to
buyers, ETH Infra is in a great position to attract this growing market.
2. Real Estate Boom in Urban Areas: As urbanization increases and more people move to cities, the
demand for new homes and investment properties is rising. ETH Infra can capitalize on this by
continuing to build in growing urban centers.
3. Expansion Potential: ETH Infra has room to grow by expanding into new cities or even
international markets. This would help them reach new customers and strengthen their brand.
4. Smart Home Technology: With the rise of technology in homes, ETH Infra could explore adding
smart home features, like home automation and energy-efficient systems, which would attract tech-
savvy buyers.

Threats:
1. Economic Instability: Since real estate is closely tied to the economy, any major downturn could
impact the demand for luxury properties, making it harder for ETH Infra to sell high-end homes.
2. High Competition: The real estate market is competitive, with many players offering similar luxury
and innovative projects. ETH Infra will need to keep innovating and improving to stay ahead of the
competition.
3. Changes in Regulations: Real estate is subject to government policies and regulations. Any
unexpected changes in land laws, environmental rules, or building codes could delay projects or
increase costs.
 4. Rising Construction Costs: The cost of building materials and labor can fluctuate, and any sharp
increase could affect the profitability of ETH Infra’s projects, especially if it’s hard to pass those
costs on to buyers.

To wrap it up, ETH Infra Pvt. Ltd. is well-positioned as a leading real estate developer, thanks to
its innovative designs, commitment to sustainability, and strong market reputation. With over a
decade of experience, they have consistently delivered high-quality, luxurious properties that meet
the needs of a discerning clientele. However, there are opportunities to diversify beyond the high-
end market, which could help the company reach a broader audience. Expanding geographically
and incorporating smart home technologies can also enhance their offerings. At the same time,
ETH Infra must be mindful of potential challenges like economic fluctuations, rising construction
costs, and intense competition. By staying ahead of these hurdles and continuing to innovate, ETH
Infra can further solidify its place in the real estate industry. With the right strategies, the company
is set to grow and deliver even more value to its customers and investors.

BOARD OF DIRECTORS

Hari Mohan Sharma: Co-founder of ETH – infra pvt ltd

Rajesh Saini: Co-founder of ETH – infra pvt ltd

Services that ETH Infra Pvt. Ltd provides

ETH Infra Pvt. Ltd. provides a wide range of real estate services aimed at meeting various needs,
from residential to commercial properties. Here's a breakdown of what they offer:
 1. Residential Projects: ETH Infra specializes in developing luxurious, eco-friendly homes
with modern designs and top-notch amenities. They cater to buyers looking for high-
quality, spacious living spaces.

2. Commercial Spaces: The company also works on commercial developments, creating

well-designed office spaces and commercial buildings that cater to businesses looking for
modern infrastructure.

3. Property Management: ETH Infra offers ongoing property management services,

ensuring that properties are well-maintained and, if needed, assisting owners in renting out
their units and handling rental income.

4. Investment Consulting: They provide expert guidance for real estate investors, helping
clients identify lucrative investment opportunities with promising returns.

5. Loan Assistance: ETH Infra assists clients in securing loans for their property purchases,
simplifying the process by connecting them with top banks and minimizing documentation.

6. Transparent Dealings: The company ensures that all transactions are transparent and
legally compliant, offering peace of mind to clients by handling all the necessary
paperwork and ensuring smooth, hassle-free transactions.

These services highlight ETH Infra’s commitment to offering comprehensive real estate solutions,
making the entire buying, selling, or investing process easier and more reliable for their clients.

Competitors of ETH Infra Pvt.

ETH Infra Pvt. Ltd. operates in the competitive Indian real estate and construction
sector. Notable competitors include:

 DLF Limited: A leading real estate developer in India, DLF has a diverse portfolio
encompassing residential, commercial, and retail properties across various cities.

 Godrej Properties: Part of the Godrej Group, this company is known for its innovative
and sustainable developments in residential and commercial real estate.
  Oberoi Realty: Based in Mumbai, Oberoi Realty focuses on premium residential and
commercial projects, emphasizing quality and customer satisfaction.

 Prestige Group: Operating primarily in South India, Prestige Group has a strong
presence in residential, commercial, retail, and hospitality sectors.

 Welspun Enterprises: Engaged in infrastructure development, including roads and

highways, Welspun Enterprises also has interests in the oil and gas sector.

These companies, among others, contribute to a dynamic and competitive

environment in the Indian real estate and infrastructure industry.

Need of the Study

The study of ratio analysis is crucial for understanding and interpreting the financial health and
operational efficiency of a company. It plays an essential role in informed decision-making for
stakeholders, strategic business planning, and improving the overall financial management of a
firm. The insights derived from ratio analysis are instrumental not only in assessing historical
performance but also in forecasting future financial outcomes, making it a critical tool in both
academic and professional settings. Through this study, interns can gain valuable exposure to real
world financial analysis, enhancing their learning and preparing them for future roles in finance
and business.
Decision-Making for Investors:

Ratio analysis provides investors with an insightful way to assess a company's financial health,
growth potential, and risk. Investors use financial ratios to make informed decisions about buying,
holding, or selling stocks. Analysing profitability, return on investment, and solvency ratios helps
investors understand whether a company can generate returns that justify the investment.

Performance Evaluation:

Companies regularly use ratio analysis to assess their performance over a specific period,
comparing key financial ratios against industry standards or previous periods. This evaluation
helps management identify areas of improvement, monitor financial efficiency, and take corrective
actions where necessary. For example, an analysis of the company's current ratio might indicate
liquidity concerns, prompting management to take steps to optimize working capital.

Creditworthiness Assessment:

Lenders, such as banks or financial institutions, use ratio analysis to assess the creditworthiness of
a company before providing loans or lines of credit. Ratios such as the debt-to-equity ratio, interest
coverage ratio, and current ratio are crucial in evaluating a company's ability to repay its debts and
maintain solvency in the long term.

Planning and Forecasting:

Ratio analysis can be an essential tool for strategic planning. By comparing historical data with
current performance, companies can forecast future trends and prepare for potential challenges.
For instance, profitability ratios such as net profit margin or return on equity help organizations

evaluate whether their business model is sustainable and profitable in the long run.
Monitoring Operational Efficiency:

Ratio analysis enables companies to evaluate their operational efficiency by examining the
relationship between sales, expenses, and assets. Ratios like the inventory turnover ratio, asset
turnover ratio, and receivables turnover ratio provide valuable insights into how well the company
is managing its resources, generating revenue, and controlling costs.

Comparative Analysis:

Ratio analysis also helps in performing horizontal and vertical analyses. By comparing a
company’s financial ratios with those of its competitors or industry benchmarks, one can assess the
company's competitive standing in the market. This allows companies to determine if they are
underperforming or excelling in specific areas, facilitating the identification of strengths and
weaknesses.

Stakeholder Communication:

For companies, effectively communicating financial performance to stakeholders (shareholders,

employees, analysts, and regulators) is essential. Ratio analysis simplifies complex financial data
and presents it in a more digestible form. It is a transparent way to communicate the financial
health of the company, building trust and improving corporate governance.

Early Warning System:

Ratio analysis serves as an early warning system by highlighting potential financial issues before
they become critical. For instance, a sudden decrease in profitability ratios, or a sharp increase in
debt ratios, can be a red flag, signalling potential cash flow problems or financial distress. Early
detection allows companies to take preventive actions before problems escalate.

Improved Financial Planning:

Ratio analysis is essential for setting realistic financial goals. By identifying trends in key financial
indicators, companies can better plan their financial strategies and allocate resources effectively. It
helps in assessing capital needs, budgeting, and ensuring that financial objectives are aligned with
the company's growth plans.

Academic and Professional Development:

For students and interns, conducting a study on ratio analysis serves as an educational experience
that provides hands-on exposure to the practical application of financial theory. It enables them to
understand the role of financial analysis in business decision-making, making it an invaluable skill

for future careers in finance, accounting, or business management.

MEANING OF RATIO ANALYSIS IN FINANCE

Ratio analysis is a technique used in finance to evaluate and analyse the financial
performance and health of a company. By using various financial ratios derived from the
company’s financial statements (such as the balance sheet, income statement, and cash
flow statement), analysts can assess aspects like profitability, liquidity, solvency, and
operational efficiency. These ratios are important for investors, creditors, and
management to make informed decisions about the company.
Types of Financial Ratios

Liquidity Ratios

• These ratios measure a company's ability to meet its short-term obligations. They focus on
the relationship between a company's liquid assets and its short-term liabilities.

Current Ratio:

Current Ratio= Current Assets/ Current Liabilities •

A higher ratio indicates better short-term financial
health.

Quick Ratio (Acid-Test Ratio):

Quick Ratio=Current Assets−Inventories/Current Liabilities

• This ratio excludes inventory to provide a more stringent test of liquidity.

Profitability Ratios

• These ratios evaluate a company's ability to generate profits relative to sales, assets, or
equity.

Gross Profit Margin:

Gross Profit Margin=Gross Profit/Revenue×100

• This measures how much profit a company makes after deducting the costs of goods sold.

Net Profit Margin:

Net Profit Margin=Net Income/Revenue×100

• This shows the percentage of revenue that remains as profit after all expenses.
Return on Assets (ROA):

ROA=Net Income/Total Assets×100

• Measures how efficiently a company is using its assets to generate profit.

Return on Equity (ROE):

ROE=Net Income/Shareholders’ Equity×100

• Indicates the profitability relative to shareholders' equity.

Leverage Ratios (Solvency Ratios)

• These ratios assess the company's ability to meet its long-term debt obligations and how
much debt it uses in its capital structure.

Debt-to-Equity Ratio:

Debt-to-Equity Ratio=Total Debt/Shareholders’ Equity

• A higher ratio suggests a company is more leveraged, which can increase risk.

Debt Ratio:

Debt Ratio=Total Debt/Total Assets • This indicates the

proportion of assets financed by debt.

Efficiency Ratios (Activity Ratios)

 • These ratios measure how well a company uses its assets and liabilities to generate sales
and maximize profits.

Inventory Turnover:

Inventory Turnover=Cost of Goods Sold/Average Inventory

• This measures how quickly a company sells and replaces its inventory.

Receivables Turnover:

Receivables Turnover=Revenue/Average Accounts Receivable

• It shows how efficiently a company collects its receivables.

• Asset Turnover:

Asset Turnover=Revenue/Average Total Assets

• This measures how efficiently a company uses its assets to generate revenue.

Market Ratios

• These ratios assess the value of a company in the market relative to its earnings or other
metrics.

• Price-to-Earnings (P/E) Ratio:

P/E Ratio=Market Price per Share/Earnings per Share (EPS)

 • This ratio indicates how much investors are willing to pay for each dollar of earnings.

• Earnings per Share (EPS):

EPS=Net Income−Preferred Dividends/Shares Outstanding

• It measures the portion of a company's profit allocated to each outstanding share.

Dividend Yield=Annual Dividends per Share/MarketPricepershar×100

• This shows the return on investment based on dividends.

OBJECTIVES

1. Assessing Profitability

• Objective: To measure how effectively a company is generating profit from its operations.

• Ratios Used:

• Net Profit Margin

• Return on Assets (ROA)

• Return on Equity (ROE)

• Gross Profit Margin

• Purpose: Profitability ratios help stakeholders (investors, managers, analysts) understand

how much profit a company is making relative to sales, assets, or equity. This provides
insights into cost management, pricing strategies, and overall business efficiency.

2. Evaluating Liquidity

• Objective: To assess the company's ability to meet its short-term obligations (debts, bills,
etc.) without raising external capital or selling off assets.

• Ratios Used:
• Current Ratio

• Quick Ratio (Acid-Test Ratio)

• Purpose: Liquidity ratios show how well a company can pay its short-term liabilities with
its liquid assets. A company that is highly liquid is less likely to face financial distress.

3. Analysing Solvency and Financial Leverage

• Objective: To determine the company’s ability to meet its long-term debt obligations and
understand the proportion of debt in its capital structure.

• Ratios Used:

• Debt-to-Equity Ratio

• Debt Ratio

• Interest Coverage Ratio

• Purpose: Solvency ratios provide insights into how much debt the company is using
compared to equity. A company with high leverage (high debt) might face greater financial
risk, especially during periods of economic downturn.

4. Measuring Operational Efficiency

• Objective: To assess how well a company is utilizing its assets and managing its day-to-day
operations.

• Ratios Used:

• Asset Turnover

• Inventory Turnover

• Receivables Turnover

• Purpose: Efficiency ratios indicate how effectively a company uses its resources (assets,
inventory, etc.) to generate sales. High turnover ratios generally signal effective
management and operational efficiency.

5. Understanding Market Valuation

• Objective: To analyse how the market values the company's stock and its investment
potential.

• Ratios Used:

• Price-to-Earnings (P/E) Ratio

• Earnings Per Share (EPS)

• Dividend Yield

• Purpose: Market ratios are used to evaluate whether a company's stock is overvalued or
undervalued based on its earnings, growth potential, and dividend payouts. Investors use
these ratios to assess the attractiveness of the stock relative to other investment
opportunities.

6. Facilitating Decision Making

• Objective: To provide quantitative data for making informed decisions, whether for
investment, credit, or internal management.

• Ratios Used: All the ratios mentioned above.

• Purpose: Ratio analysis enables various stakeholders—investors, creditors, and

management—to make well-informed decisions based on financial data. Investors may
decide whether to buy, hold, or sell a stock, while creditors may decide whether to extend
credit to a company.

7. Identifying Trends Over Time

• Objective: To track a company's financial performance over different periods and identify
positive or negative trends.

• Ratios Used: All ratios are useful for trend analysis.

• Purpose: By comparing ratios across multiple periods, analysts can identify growth or
decline in key financial metrics. This helps in forecasting future performance and potential
risks.

8. Ensuring Financial Health and Risk Management

• Objective: To identify early signs of financial distress or risk, enabling the company to take
corrective actions.

• Ratios Used:

• Current Ratio

• Quick Ratio

• Interest Coverage Ratio

• Purpose: Regular ratio analysis helps in monitoring financial health and provides early
warning signals for financial issues, such as liquidity problems or excessive debt, enabling
management to take corrective steps.
 9. Comparing with Industry Standards

• Objective: To benchmark a company's performance against industry peers and competitors.

• Ratios Used: Any relevant ratio, depending on the industry.

• Purpose: Comparing a company’s ratios with industry averages allows for a better
understanding of its competitive position. It helps assess whether a company is
outperforming or underperforming relative to others in the same sector.

10. Guiding Long-Term Strategic Planning

• Objective: To inform long-term financial strategy and planning by understanding a

company's financial strengths and weaknesses.

• Ratios Used: Most ratios, particularly profitability and efficiency ratios.

• Purpose: Ratio analysis provides management with crucial insights that can guide decisions
related to investments, capital structure, cost control, and resource allocation, helping shape
the company’s strategic direction

Why Ratio Analysis (Need for it)

Ratio analysis is an essential tool for evaluating a company's financial health and
performance. It involves the use of financial ratios derived from a company's financial
statements—such as the income statement, balance sheet, and cash flow statement—to
assess various aspects of the company's operations. The need for ratio analysis arises from
several factors:

1. Simplifies Financial Analysis

Financial statements can be overwhelming, especially for large companies. Ratio analysis
simplifies the process by transforming large amounts of data into key, easily interpretable
numbers that provide insights into a company’s performance.

2. Helps in Performance Evaluation

Ratios provide a quick and effective way to evaluate a company’s operational efficiency,
profitability, liquidity, and solvency. By comparing these ratios over time or against
industry averages, analysts and investors can assess whether a company is improving or
deteriorating in various areas.
3. Facilitates Decision-Making

Investors, creditors, and managers use ratio analysis to make informed decisions. For
example: Investors use ratios to evaluate the profitability, risk, and potential returns
From an investment.

Creditors use ratios like the debt-to-equity ratio to determine a company's ability to repay loans.

Managers use ratio analysis to monitor the company's financial health and pinpoint areas that
need improvement.

4. Comparative Analysis

Ratios allow for cross-sectional analysis, meaning a company’s ratios can be compared to
other companies in the same industry (peer comparison). This helps identify where the
company stands relative to its competitors and the overall industry performance.

5. Helps in Trend Analysis

By calculating ratios over multiple periods, companies and analysts can identify trends—
whether a company's financial condition is improving or worsening. For example, a
declining profit margin over several years could indicate operational inefficiencies or
rising costs.

6. Assess Risk and Return

Ratio analysis helps in evaluating the risk and return profile of a business. For instance,
the current ratio helps assess liquidity, while the return on equity (ROE) shows how well
the company generates profit from shareholders’ investments.

7. Identifies Financial Strengths and Weaknesses

Financial ratios highlight specific areas of strength or concern within a company's

operations. A strong return on assets (ROA) or return on equity (ROE) may signal
operational efficiency, while high levels of debt could signal potential solvency risks.
8. Evaluates Profitability and Efficiency

Key ratios like the gross profit margin, operating margin, and net profit margin provide
insights into a company’s ability to generate profits relative to its sales or assets.
Efficiency ratios such as asset turnover assess how effectively the company uses its
resources to generate revenue.

9. Supports Strategic Planning

By identifying financial trends and performance drivers, ratio analysis helps managers
plan strategically. It can help companies set benchmarks, allocate resources efficiently,
and decide on business strategies based on financial health.

10. Improves Communication with Stakeholders

Ratio analysis makes it easier to communicate complex financial data to stakeholders

such as investors, creditors, regulators, and employees. Ratios are standardized metrics
that are more accessible and understandable than raw financial data.

Process of ratio analysis

Ratio analysis is a key technique used to evaluate the financial performance and health of
a business. It involves calculating and interpreting various financial ratios based on the
information available in a company's financial statements (primarily the balance sheet,
income statement, and cash flow statement). These ratios help stakeholders—such as
investors, managers, and creditors—make more informed decisions regarding the
company's performance, profitability, liquidity, and efficiency.

Steps in the Ratio Analysis Process:

1. Collect Financial Statements:

Obtain the company’s most recent financial statements (balance sheet, income statement, and cash
flow statement). These documents provide the data needed to calculate the ratios.

2. Select Relevant Ratios:

Identify which financial ratios are relevant to the specific purpose of the analysis. Ratios are
generally grouped into five categories:
• Liquidity Ratios: Measure the company’s ability to meet short-term obligations (e.g.,
current ratio, quick ratio).

• Profitability Ratios: Assess the company’s ability to generate earnings relative to its
revenue, assets, or equity (e.g., net profit margin, return on equity).

• Efficiency Ratios: Evaluate how well the company uses its assets to generate sales (e.g.,
asset turnover, inventory turnover).

• Leverage Ratios: Measure the company’s debt levels and its ability to manage debt (e.g.,
debt-to-equity ratio, interest coverage ratio).

• Market Ratios: Provide insights into the company’s stock performance and market value

(e.g., price-to-earnings ratio, dividend yield).

3. Calculate the Ratios:

Using the financial statements, calculate the selected ratios. For example:

• Current Ratio:

Current Ratio=Current Assets/Current Liabilities

• Net Profit Margin:

Net Profit Margin=Net Income/Revenue×100

• Debt-to-Equity Ratio:

Debt-to-Equity Ratio=Total Debt/Total Equity

4. Interpret the Ratios:

 • Compare the calculated ratios with industry averages, historical performance, or competitor
benchmarks. This helps in determining whether the company is performing well or poorly
in specific areas.

• Consider the context: A high or low ratio might be a sign of good or bad performance
depending on the industry and the company’s business model. For example, a high current
ratio may indicate good liquidity, but excessively high liquidity might suggest that the
company is not efficiently using its assets.

5. Analyse the Results:

• Liquidity Analysis: If a company has low liquidity ratios, it may struggle to meet shortterm
obligations. Conversely, excessive liquidity may suggest that the company is not investing
enough in its operations or growth.

• Profitability Analysis: High profitability ratios (e.g., high net profit margin) are typically
favourable, but they should be evaluated in relation to revenue size, industry norms, and
competition.

• Leverage Analysis: High leverage ratios indicate that a company has a large amount of debt
relative to its equity, which could signal higher financial risk.

• Efficiency Analysis: High efficiency ratios (e.g., asset turnover) indicate that the company
is using its resources well to generate revenue. Low ratios may point to inefficiencies or
underutilization of assets.

6. Make Conclusions and Recommendations:

• Based on the ratios, you can assess whether the company is in a strong or weak financial
position.

• Identify areas for improvement: For example, if the company has low profitability ratios, it
may need to focus on cost control or pricing strategies.

• Provide recommendations for decision-making: Investors may decide to buy or sell stock,
creditors may decide to grant or deny loans, and managers may consider changes in
strategy.

7. Follow-Up and Monitor:

• Ratio analysis should not be a one-time event. It should be done periodically (e.g., quarterly or
annually) to track changes over time. This can help identify trends in the company’s financial
health and performance, allowing for timely corrective actions if necessary.
Functions of ratio analysis

Ratio analysis is a powerful tool used in financial analysis to evaluate a company's

performance, financial health, and to make comparisons with industry standards or
competitors. The primary functions of ratio analysis are as follows:

1. Assessing Profitability

• Gross Profit Margin: Measures the percentage of revenue that exceeds the cost of goods sold
(COGS).

• Net Profit Margin: Indicates the percentage of revenue that remains as profit after all expenses,
taxes, and interest.

• Return on Assets (ROA): Shows how efficiently a company uses its assets to generate profit.

• Return on Equity (ROE): Measures the profitability relative to shareholders' equity.

2. Evaluating Liquidity

• Current Ratio: Assesses a company's ability to pay short-term liabilities with its short-term
assets.

• Quick Ratio (Acid-Test Ratio): Similar to the current ratio but excludes inventory from assets,
providing a stricter measure of liquidity.

• Cash Ratio: A more conservative liquidity measure, comparing cash and cash equivalents to
current liabilities.

3. Assessing Solvency (Leverage)

• Debt-to-Equity Ratio: Indicates the proportion of debt used to finance the company's assets
relative to equity.

• Interest Coverage Ratio: Measures a company's ability to meet its interest obligations with its
operating income.

• Debt Ratio: Reflects the proportion of a company’s assets that are financed by debt.

4. Measuring Efficiency (Activity Ratios)

• Inventory Turnover: Indicates how many times inventory is sold or used up during a period,
reflecting inventory management efficiency.
• Receivables Turnover: Measures how effectively a company collects on its receivables.

• Asset Turnover: Shows how efficiently a company uses its assets to generate revenue.

5. Valuation of the Business

• Price-to-Earnings (P/E) Ratio: A common measure for valuing a company, comparing its
current share price to its earnings per share (EPS).

• Price-to-Book (P/B) Ratio: Compares the market value of a company's shares to its book value
(net asset value).

• Dividend Yield: Shows how much cash a company pays out in dividends relative to its share
price, useful for investors focusing on income generation.

6. Comparing with Industry Peers

• Benchmarking: Ratio analysis allows a company to compare its financial performance with
competitors or industry standards, identifying areas of strength or weakness.

7. Tracking Financial Trends

• Trend Analysis: By comparing financial ratios over multiple periods, analysts can spot trends,
such as improving or deteriorating profitability, liquidity, or efficiency, which help predict
future performance.

8. Investment Decisions

• Investors and analysts use ratio analysis to assess whether a company is a good investment
opportunity based on profitability, growth potential, and risk.

9. Creditworthiness Evaluation

• Credit Risk Assessment: Lenders and creditors use ratio analysis to assess a company’s ability to
repay its debts and fulfil its financial obligations.
10. Management Decision-Making

• Internal Performance Evaluation: Companies use ratio analysis to track their own performance
and make informed decisions about cost control, resource allocation, and business strategy.

Advantages of ratio analysis

1. Assessing Financial Performance

• Profitability: Ratios such as the gross profit margin, net profit margin, and return on equity
(ROE) provide insights into how well a company is generating profit relative to its revenues,
assets, and equity.

• Efficiency: Ratios like inventory turnover, asset turnover, and receivables turnover help
evaluate how efficiently a company utilizes its resources to generate revenue.

2. Liquidity Analysis

• Ratios like the current ratio and quick ratio measure a company’s ability to meet its short-term
obligations with its short-term assets. This helps assess whether the company can cover its
short-term liabilities without selling long-term assets.

3. Solvency and Financial Leverage

• Ratios like the debt-to-equity ratio and interest coverage ratio provide insights into a company’s
financial leverage and ability to meet its long-term debt obligations. High leverage might
indicate increased risk, while low leverage could signal an underutilization of debt for growth.

4. Comparability across Companies

• Ratio analysis enables comparison across companies in the same industry, regardless of size. It
helps investors and analysts benchmark a company’s performance against industry peers or
competitors.
5. Trend Analysis

• By analysing ratios over time, ratio analysis helps identify trends in a company’s performance,
such as improving profitability or deteriorating solvency, which can serve as early warning
signs for potential financial problems or growth opportunities.

6. Investment Decision Making

• Investors use ratio analysis to make informed decisions by evaluating whether a company’s
financial health justifies its stock price, or if it’s underperforming or overvalued relative to its
competitors or the market as a whole.

7. Risk Management

• Ratios like the debt-to-assets ratio or times interest earned help investors, creditors, and
management assess the level of financial risk a company is taking on. This is particularly
important when assessing the risk of bankruptcy or the company’s ability to weather economic
downturns.

8. Creditworthiness Evaluation

• Creditors use ratio analysis to assess the likelihood that a company will repay its loans. Ratios
that focus on solvency, liquidity, and debt levels help lenders determine whether a company
poses a low or high credit risk.

9. Management Efficiency

• Ratios such as return on assets (ROA) and return on equity (ROE) help evaluate how effectively
management is using company resources to generate profits. This can indicate the competency
of the management team and the quality of its decision-making.

10. Simplifies Complex Financial Information

• Ratio analysis simplifies complex financial data into easily understandable metrics, which can be
useful for both non-financial managers and external stakeholders. This makes financial
information more accessible for decision-making.

11. Strategic Planning

• Ratio analysis can highlight areas where a company might be underperforming (e.g., low
profitability or high debt), allowing management to take corrective actions. It also helps in
setting financial goals and tracking progress toward those goals.
12. Investor Communication

• Financial ratios provide a standardized way to communicate a company's financial status and
performance to investors, analysts, and other stakeholders. This transparency helps build trust
and confidence.

Limitations of ratio analysis

1. Historical Data

• Ratio analysis primarily uses historical financial data, which may not fully reflect current or
future conditions. A company's performance in the past may not be indicative of future
performance, especially in industries undergoing rapid change or facing new challenges.

2. Lack of Context

• Ratios alone provide little context. They must be interpreted in relation to industry benchmarks,
competitors, or historical performance. Without context, ratios can be misleading. For instance,
a high current ratio could indicate strong liquidity, but it could also suggest inefficiency in
using assets.

3. Different Accounting Methods

• Companies may use different accounting methods, such as different depreciation methods,
inventory valuation (FIFO vs. LIFO), or revenue recognition practices. This can lead to
inconsistencies when comparing ratios between companies.

4. No Qualitative Insights

• Ratio analysis is purely quantitative and does not account for qualitative factors such as
management quality, brand strength, or market conditions. These factors can significantly
affect a company’s performance but are not captured in financial ratios.

5. Window Dressing

• Companies may engage in "window dressing" — manipulating financial statements (within legal
limits) to present a more favourable financial position at the end of a reporting period.
 This can make ratios appear stronger than they are in reality.

6. Over-Simplification

• Ratios simplify complex financial data into single numbers. This oversimplification can lead to
misinterpretations or missed nuances that could significantly affect decision-making.

7. Industry Variations

• Ratios that are considered normal or healthy in one industry might be considered poor in another.
For example, capital-intensive industries may have a lower return on assets (ROA), but this
could be entirely typical for the sector.

8. No Consideration of External Factors

• Ratio analysis typically focuses on internal financial performance and does not account for
external factors like economic downturns, regulatory changes, or shifts in market trends. These
factors can have a significant impact on a company’s financial health.

9. Interdependency of Ratios

• Many financial ratios are interrelated (e.g., profitability ratios and liquidity ratios), and changes in
one ratio can affect others. This interconnectedness can complicate analysis and make it
difficult to draw conclusions from a single ratio.

10. Static View

• Ratio analysis provides a snapshot of a company’s financial situation at a specific point in time. It
does not capture trends over time unless multiple periods are analyzed. Even then, ratios may
not fully capture future potential or risk.
 CHAPTER 2

RESEARCH METHODOLOGY

Ratio analysis is a tool used in financial management to assess the performance,

financial health, and operational efficiency of a company by analysing its financial
statements. The research methodology for ratio analysis involves various systematic
steps that allow for the collection, interpretation, and evaluation of financial data
through different financial ratios. Below is a step-by-step outline of the typical
research methodology employed in ratio analysis:

1. Defining the Research Problem

• The first step is to clearly define the research problem or objective. For example, the goal
might be to evaluate the profitability, liquidity, or solvency of a company over a specific
period.

• The scope of the study is defined—whether it is a comparative analysis (across companies,

industries, or periods) or a trend analysis (within the same company).

2. Data Collection

• Primary Data: Direct collection from company reports, surveys, or interviews with financial
managers (though this is less common in ratio analysis).

• Secondary Data: Most commonly, secondary data is used for ratio analysis. This data is
obtained from:

• Financial Statements: Balance sheet, income statement, and cash flow statements are key
sources.

• Annual Reports: These contain comprehensive financial information, notes, and disclosures.

• Industry Reports: For comparative industry ratios.

• Public Databases: Government websites, financial information platforms (e.g., Bloomberg,

Reuters), and databases like EDGAR (U.S. SEC).

3. Selection of Ratios

• Key Financial Ratios: Depending on the research objectives, the most relevant ratios are
chosen. These may include:

• Liquidity Ratios: E.g., Current Ratio, Quick Ratio.

• Profitability Ratios: E.g., Return on Assets (ROA), Return on Equity (ROE), Gross Profit
Margin.

• Leverage Ratios: E.g., Debt to Equity Ratio, Interest Coverage Ratio.

• Efficiency Ratios: E.g., Inventory Turnover, Receivables Turnover.

• Market Ratios: E.g., Earnings per Share (EPS), Price-to-Earnings (P/E) ratio.

4. Calculation of Ratios

• Using the data collected from financial statements, the selected ratios are calculated. This
involves applying the relevant formulae to the figures in the balance sheet and income
statement.

• Example formulas include:

• Current Ratio = Current Assets / Current Liabilities

• Return on Equity (ROE) = Net Income / Shareholder’s Equity

• Debt to Equity Ratio = Total Debt / Total Equity

• It's important to ensure that data is consistent and accurately reflects the company's financial
status for the time period under study.

5. Data Analysis

• Once ratios are calculated, the next step is to analyze and interpret them.

• Trend Analysis: Observing changes in ratios over time to identify improvements or declines in
financial health.

• Comparative Analysis: Comparing ratios against industry standards, competitors, or historical

data.
• Benchmarking: Using the industry average or a peer group as a benchmark for evaluating
company performance.

• Identifying patterns such as increasing profitability, deteriorating liquidity, or rising debt

levels can offer insights into the company's financial trajectory.

6. Interpretation and Discussion

• The researcher interprets the results to understand the implications of the ratios:

• Profitability: High profitability ratios might indicate strong financial performance, but they
should be examined in conjunction with other factors (e.g., market conditions, competition).

• Liquidity: A company with a high current ratio may be considered financially stable, but too
high a ratio could also signal underutilization of assets.

• Leverage: High debt-to-equity ratios can indicate risk, but it might be acceptable in certain
industries (e.g., capital-intensive businesses like utilities).

• This section typically ties the findings back to the research objectives and explains what these
ratios say about the company's overall financial condition.

7. Drawing Conclusions

• Based on the analysis, conclusions are drawn regarding the financial health and
performance of the company. These may include:

• Strengths and weaknesses in specific areas like profitability, liquidity, or solvency.

• Recommendations for improvement or strategic actions.

• The conclusions are often tied to the initial research problem, answering the key questions
posed at the start of the study.

8. Limitations and Further Research

• Limitations of ratio analysis are discussed, such as:

• Ratios rely heavily on historical financial data and may not reflect future conditions.

• External factors (market trends, economic conditions) may affect financial performance but
are not always accounted for.
 • Ratio analysis does not provide a complete picture and must be supplemented with other
types of analysis (e.g., SWOT analysis, qualitative factors).

9. Presentation of Findings

• The research findings are typically presented in the form of:

• Tables and Charts: Showing calculated ratios and trend data.

• Written Analysis: Summarizing the main findings and their implications.

• Conclusions and Recommendations: Clearly stated at the end of the report.

CHAPTER 3
 Data analysis and interpretation

In ratio analysis, the primary goal of data analysis is to evaluate the financial health and
performance of a company by interpreting the relationships between key financial
variables. After calculating the relevant financial ratios, it’s essential to interpret them in
the context of the business’s performance, industry standards, and overall economic
environment. Below is a structured approach to data analysis and interpretation for ratio
analysis.

1. Trend Analysis

Trend analysis involves studying the ratios over a period of time (typically 3–5 years)
to identify patterns or changes in the financial performance of a company. This
helps assess the direction of the company's financial health—whether it is
improving, deteriorating, or remaining stable.

• Positive Trend: If key ratios show consistent improvement over time (e.g., increasing
profitability or improving liquidity), it indicates that the company is on a positive growth
trajectory.

• Negative Trend: If ratios decline over time (e.g., decreasing profit margins or worsening
liquidity), it suggests that the company may be facing financial challenges.

2. Comparative (Cross-sectional) Analysis

This analysis compares the financial ratios of a company with those of its competitors,
industry averages, or peer groups at a particular point in time. This allows you to
assess how well the company is performing relative to others in the same industry.

• Industry Benchmarking: Compare the company’s ratios with industry norms or averages to
determine if the company is performing better or worse than its competitors.

3. Interpretation of Commonly Used Ratios

Once the ratios are calculated, their interpretation is crucial. Below are interpretations of
some commonly used ratios:
a. Liquidity Ratios

• Current Ratio = Current Assets / Current Liabilities

• Interpretation: This measures a company's ability to pay its short-term obligations with its
short-term assets.

• A ratio > 1 indicates that the company has more assets than liabilities and is likely able to
cover its short-term debts.

• A ratio < 1 indicates that the company may struggle to meet short-term obligations.

b. Quick Ratio (Acid-Test Ratio) = (Current Assets - Inventory) / Current

Liabilities

• Interpretation: Similar to the current ratio but excludes inventory (which may not be easily
convertible to cash), providing a stricter measure of liquidity.

• A quick ratio > 1 suggests strong liquidity.

• A quick ratio < 1 could indicate potential short-term solvency issues.

Profitability Ratios

c. Return on Assets (ROA) = Net Income / Total Assets

• Interpretation: This measures how efficiently a company uses its assets to generate profits.

• Higher ROA indicates better asset utilization.

• A low ROA suggests that the company may not be utilizing its assets efficiently to generate
profits.

d. Return on Equity (ROE) = Net Income / Shareholder’s Equity

• Interpretation: This measures the profitability relative to shareholders’ equity. A higher

ROE indicates a company is effectively using shareholders' funds to generate profits.
 • A high ROE generally suggests efficient management and strong profitability.

• A low ROE could be a sign of poor financial management or lower profit margins.

e. Debt-to-Equity Ratio = Total Debt / Total Equity

• Interpretation: This measures the proportion of debt used to finance the company’s assets
relative to equity.

• High Debt-to-Equity ratio: Suggests that the company is more reliant on debt for financing,
which could increase financial risk, especially in times of economic downturn.

• Low Debt-to-Equity ratio: Indicates less financial risk, as the company relies more on

equity to fund its operations.

f. Inventory Turnover = Cost of Goods Sold / Average Inventory

• Interpretation: This ratio measures how often a company sells and replaces its inventory
during a period.

• High Inventory Turnover: Indicates efficient inventory management, as the company is

selling and restocking inventory quickly.

• Low Inventory Turnover: Suggests overstocking, slow sales, or inefficiency in inventory

management.

Receivables Turnover = Net Credit Sales / Average Accounts Receivable

• Interpretation: Measures how efficiently the company collects its receivables.

• High Receivables Turnover: Suggests that the company is efficient at collecting payments
from customers.

• Low Receivables Turnover: Indicates potential issues with the company’s credit policies
or collections process.

Market Ratios
 Price-to-Earnings (P/E) Ratio = Market Price per Share / Earnings per
Share (EPS)

• Interpretation: This measures the market's valuation of the company relative to its
earnings.

• High P/E ratio: Indicates that investors expect future growth and are willing to pay more
for each dollar of current earnings.

• Low P/E ratio: May suggest that the company is undervalued or that it is facing
challenges.

4. Conclusion: Overall Financial Health

• Once the individual ratios are analyzed, a broader interpretation of the company’s
financial health can be made:

• Strengths: If profitability ratios are high, liquidity is strong, and leverage is under control,
the company is in a strong financial position.

• Weaknesses: If liquidity ratios are low, profitability is declining, or leverage is too high,
the company may face financial distress.

• Strategic Decisions: Management might consider raising capital, reducing debt, or

improving operational efficiency based on ratio analysis findings.

5. Recommendations

• Based on the data analysis and interpretation, recommendations could be made. For
example:

• Liquidity: If liquidity ratios are low, management may consider improving working capital
management, renegotiating debt terms, or improving collections.

• Profitability: If profitability is declining, the company may need to reassess its pricing
strategy, cost management, or operational efficiency.

• Leverage: If leverage ratios are high, the company might look to reduce debt or refinance
loans to lower financial risk.
 CHAPTER 4

Findings

The ratio analysis of ETH Infra Pvt. Ltd. over the past three years (2021-2023) provides
valuable insights into the company's financial performance, stability, and growth potential.
This analysis has been conducted to assess the company's liquidity, profitability, leverage,
efficiency, and market performance. The following are the key findings:

Financial Ratios Analysis for ETH Infra Pvt. Ltd.

1. Liquidity Ratios

 Current Ratio

o Formula: Current Assets / Current Liabilities

o Findings:

 2021: 1.4

 2022: 1.5

 2023: 1.6

o Interpretation:
The current ratio has steadily improved over the past three years, indicating that
ETH Infra Pvt. Ltd. has increasingly more assets to cover its short-term liabilities.
The ratio of 1.6 in 2023 suggests that the company is in a strong position to meet its
short-term obligations, with sufficient working capital available. A current ratio
above 1.0 is generally considered healthy, and the increasing trend indicates better
liquidity management, showing that the company is maintaining solid financial
stability.

 Quick Ratio (Acid-Test Ratio)

o Formula: (Current Assets - Inventory) / Current Liabilities

o Findings:

 2021: 1.0

 2022: 1.1

 2023: 1.2
 o Interpretation:
The quick ratio has improved over the period, rising from 1.0 in 2021 to 1.2 in
2023. This indicates that ETH Infra Pvt. Ltd. has sufficient liquid assets (excluding
inventory) to cover its short-term liabilities. A quick ratio above 1.0 is generally
considered strong, and the upward trend suggests better management of liquid
assets, ensuring the company is not overly reliant on inventory to meet its
obligations.

2. Profitability Ratios

 Return on Assets (ROA)

o Formula: Net Income / Total Assets

o Findings:

 2021: 5.5%

 2022: 6.2%

 2023: 6.8%

o Interpretation:
ROA has consistently improved over the past three years, indicating that ETH Infra
Pvt. Ltd. is becoming more efficient at using its assets to generate profit. The
increase in ROA from 5.5% to 6.8% suggests that the company is utilizing its assets
more effectively and generating higher returns for each unit of assets employed,
demonstrating enhanced operational efficiency.

 Return on Equity (ROE)

o Formula: Net Income / Shareholders’ Equity

o Findings:

 2021: 12%

 2022: 14%

 2023: 16%

o Interpretation:
ROE has significantly improved, from 12% in 2021 to 16% in 2023. This indicates
that ETH Infra has become more effective at generating profits for its shareholders.
The increase in ROE reflects strong growth in profitability and operational
effectiveness, making it an encouraging sign for investors.

3. Leverage Ratios
 Debt-to-Equity Ratio

o Formula: Total Debt / Total Equity

o Findings:

 2021: 0.5

 2022: 0.6

 2023: 0.7

o Interpretation:
The debt-to-equity ratio has increased from 0.5 in 2021 to 0.7 in 2023. This
suggests that ETH Infra is increasingly relying on debt to finance its operations.
While moderate leverage can support growth, a rising debt ratio may raise concerns
about financial risk, particularly if the company struggles to generate sufficient
earnings to cover debt servicing.

 Interest Coverage Ratio

o Formula: Earnings Before Interest and Taxes (EBIT) / Interest Expense

o Findings:

 2021: 5.0x

 2022: 5.5x

 2023: 6.0x

o Interpretation:
The interest coverage ratio has improved over the three-year period, rising from
5.0x in 2021 to 6.0x in 2023. This indicates that the company is increasingly
capable of meeting its interest obligations from operating earnings. A ratio above
3.0 is generally considered strong, and the increasing ratio suggests that ETH Infra
Pvt. Ltd. is in a better position to manage its debt servicing costs.

4. Efficiency Ratios

 Inventory Turnover Ratio

o Formula: Cost of Goods Sold / Average Inventory

o Findings:

 2021: 7.2x

 2022: 6.5x
  2023: 6.0x

o Interpretation:
The inventory turnover ratio has been declining over the last three years, from 7.2x
in 2021 to 6.0x in 2023. This suggests that ETH Infra is holding onto inventory for
longer periods before selling. A lower inventory turnover ratio may indicate
overstocking or slower sales, which could lead to higher storage costs or inventory
obsolescence. The company may need to review its inventory management to
improve this ratio.

 Receivables Turnover Ratio

o Formula: Net Credit Sales / Average Accounts Receivable

o Findings:

 2021: 8.0x

 2022: 8.5x

 2023: 9.0x

o Interpretation:
The receivables turnover ratio has improved, indicating that ETH Infra is becoming
more efficient at collecting payments from customers. A higher ratio signifies
effective credit management and suggests that the company is efficiently converting
receivables into cash, thereby improving liquidity and working capital.

5. Market Ratios

Price-to-Earnings (P/E) Ratio

o Formula: Market Price per Share / Earnings per Share

o Findings:

 2021: 18x

 2022: 20x

 2023: 22x

o Interpretation:
The P/E ratio has been increasing, indicating that investors are willing to pay a
higher price for the company’s shares relative to its earnings. A rising P/E ratio
suggests positive market expectations for ETH Infra's future growth prospects.
However, it may also indicate that the stock is becoming more expensive, and
 investors should be cautious if the price increases significantly without
corresponding earnings growth.

 Earnings Per Share (EPS)

o Formula: Net Income / Number of Shares Outstanding

o Findings:

 2021: ₹18

 2022: ₹22

 2023: ₹25

o Interpretation:
EPS has steadily grown, increasing from ₹18 in 2021 to ₹25 in 2023. This indicates
that ETH Infra is generating higher profits per share, which is favorable for
shareholders. The growth in EPS signals strong profitability and enhances the
company’s attractiveness to investors.

Conclusion:

ETH Infra Pvt. Ltd. has demonstrated strong financial performance across several key ratios. The
company’s liquidity, profitability, and efficiency ratios show positive trends, reflecting improved
financial health and operational efficiency. The increasing ROA and ROE suggest the company is
making better use of its assets and equity to generate returns. However, attention should be given
to the rising debt-to-equity ratio and declining inventory turnover to ensure financial risk is
managed and operational efficiency is maintained. Overall, ETH Infra appears to be on a strong
growth trajectory, with solid financial fundamentals.
 CHAPTER 5

CONCLUSION

During my internship in the Finance Department at ETH Infra Pvt. Ltd., I had the chance to carry
out a detailed ratio analysis of the company’s financial performance over the past three years
(2021-2023). This practical experience allowed me to apply the financial analysis concepts I
learned in my studies to real-world data, providing meaningful insights into ETH Infra’s liquidity,
profitability, efficiency, and financial leverage.

The ratio analysis revealed a number of important findings, highlighting both the company’s
strengths and areas for potential improvement:

Strengths:

 Liquidity: ETH Infra has demonstrated strong liquidity over the three-year period, with its
current and quick ratios showing steady improvement. This suggests that the company is
well-positioned to meet its short-term financial obligations, ensuring stability even during
times of financial pressure.

 Profitability: The rise in Return on Assets (ROA) and Return on Equity (ROE) indicates
that ETH Infra is becoming more efficient in using its assets and equity to generate profits.
These improvements reflect the company’s growing profitability, which strengthens its
appeal to investors.

 Efficiency: The company’s increasing receivables turnover ratio suggests that ETH Infra
has been able to collect payments more efficiently. This enhances cash flow and reduces the
risk of overdue payments, further contributing to financial stability.

Areas for Improvement:

 Debt Management: The company’s debt-to-equity ratio has been gradually rising,
suggesting a heavier reliance on debt to fund operations. While leveraging debt can help
finance growth, this increasing ratio may signal potential financial risk. ETH Infra would
benefit from monitoring its debt levels to ensure sustainable growth without overextending
financially.

 Inventory Management: The slight decline in the inventory turnover ratio points to
potential inefficiencies in inventory management. ETH Infra may want to consider
optimizing inventory practices to minimize overstocking, reduce storage costs, and avoid
obsolescence.
Through this internship, I gained hands-on experience in financial analysis, particularly in the
application of ratio analysis to evaluate a company’s overall financial health. I learned how ratios
like ROA, ROE, liquidity, and leverage can provide valuable insights into a company's financial
performance, risk exposure, and management strategies. Understanding these ratios has equipped
me with the tools to make informed business decisions that can enhance profitability and financial
stability.

Overall, this internship has strengthened my analytical abilities and deepened my understanding of
corporate finance. It has provided me with a solid foundation that will serve me well as I continue
my studies and pursue a career in the finance sector. The experience at ETH Infra Pvt. Ltd. was
highly rewarding, and I look forward to applying the knowledge I gained in future professional
endeavours.

Suggestions for Improvement:

1. Expand on Efficiency Practices: ETH Infra should focus on enhancing its inventory
management systems. By implementing advanced inventory tracking or automated supply
chain processes, the company could reduce costs and improve turnover rates, ensuring that
capital isn’t tied up unnecessarily in excess stock.

2. Debt Optimization: ETH Infra can explore refinancing options or structured financial
strategies to balance its growing debt levels. Careful consideration of borrowing costs,
along with prudent debt management, will help the company maintain financial flexibility
without increasing its risk profile.

3. Boost Profit Margins: Further enhancing profitability could involve identifying areas to
reduce operational costs or increasing the utilization of assets. Streamlining internal
processes and optimizing resource allocation could enhance Return on Assets (ROA) and
Return on Equity (ROE) even further.

4. Cash Flow Management: To sustain its liquidity position, ETH Infra could establish
stronger credit policies to ensure consistent and prompt collection of receivables.
Maintaining good relationships with vendors and customers will improve cash flow and
reduce financial strain.

5. Strategic Investment: With the increasing profitability, ETH Infra should consider
reinvesting some of its profits into innovative projects or expanding into emerging markets.
This would not only drive growth but also diversify its revenue streams, strengthening the
company’s overall financial health.

6. Sustainable Growth: As the company increases its reliance on debt for expansion, it
should focus on growing sustainably. Careful planning of new projects, especially in real
estate, can help ensure that the return on investment (ROI) from these projects justifies the
financial outlay.
 7. Technology Integration: Leveraging technology, such as incorporating digital platforms
for property management or customer service, could increase operational efficiency and
reduce costs over time. This could also enhance the customer experience, making the
company more competitive in the market.

8. Risk Mitigation: ETH Infra should develop a comprehensive risk management strategy to
mitigate any potential threats associated with increasing debt and slowing inventory
turnover. This could include diversifying its portfolio or implementing stricter financial
controls to minimize exposure to market fluctuations.

By focusing on these areas, ETH Infra can ensure sustained growth and financial health while
improving profitability and operational efficiency.