A STUDY ON FINANCIAL PERFORMANCE OF SARAVANA

STORES FOODS PRIVATE LIMITED., CHENNAI.

By

ABISH RAGHUL GANESH.R.L

(Reg.No.97810631001)

A PROJECT REPORT

Submitted to the

FACULTY OF MANAGEMENT STUDIES

In partial fulfillment of the requirements

For the award of the degree

Of

MASTER OF BUSINESS ADMINISTRATION

IN

FINANCE

ANNA UNIVERSITY OF TECHNOLOGY

TIRUNELVELI-627 007

NOV-DEC-2011

1

ABSTRACT

“A study on financial performance of saravana stores foods private limited, Chennai.”

This study concentrates on the financial performance of Saravana Stores Foods Private Limited at Chennai.

The analysis is made with primary objective to find out the financial performance of the Saravana Stores Foods Private Limited. The secondary objective of the study is to find the company’s profitability and liquidity position, working capital pattern, and to forcast the company’s financial performance,

The tools and methods used to analyzing financial statement were ratio analysis, performance analysis, trend analysis and working capital analysis.

The study is based on secondary source of data. The data have been mainly obtained from annual reports, include balance sheet, profit and loss a/c of three consecutive years (2007-2010) of saravana stores foods pvt ltd.

The findings of the study are working capital turnover ratio, inventory turn over ratio, cash turnover ratio, net profit ratio, operating profit ratio, return on capital employed ratio and the performance analysis of sales with operating profit, sales with profit after tax has decreased.

The suggestions is Saravana Stores Foods Private Limited has high operating expenses due to increasing interest on loans as well as logistic expenses

So it should try to reduce its operating expenses and the Trent analyze shows the company is incurring loss, so the SSFPL should try to avoid its operating expenses and there is no proper management for allocation of funds. So SSFPL should try to increase an effective management.

The conclusion of the study for SSFPL can be listed in BSE or NSE .then only the company will receive funds from outsider and also increases its net profit.

I hope the findings and suggestions will be helpful to improve the Financial

Performance of the Saravana stores foods pvt ltd;

2

CHAPTER - I

INTRODUCTION

1.1 INTRODUCTION

A subjective measure of how well a firm can use assets from its primary mode of

business and generate revenues. This term is also used as a general measure of a firm's overall

financial health over a given period of time, and can be used to compare similar firms across the

same industry or to compare industries or sectors in aggregation.

There are many different ways to measure financial performance, but all measures

should be taken in aggregation. Line items such as revenue from operations, operating income or

cash flow from operations can be used, as well as total unit sales. Furthermore, the analyst or

investor may wish to look deeper into financial statements and seek out margin growth rates or

any declining debt.

Finance holds the key to all human activity. It is guide for regulating investment

decisions and expenditure and endeavors to squeeze the most out of every available rupee. The

government too, treats it as a signpost, a beckon to responsibility that covers men, money,

material, methods and management. Out of these finance is a resource and it has to be managed

efficiently for the successful functioning of an enterprise. Financial management is that

managerial activity which is concerned with the planning and controlling of the firm’s financial

resources.

3

1.2 FINANCE FUNCTION OF A COMPANY

Finance is the life blood of any company so the management has special attention

towards it. A firm performs finance function efficiently so that the business goes on smoothly

and interruption and the company remains not only able to grow on its own resources generated

through surpluses. Finance function call for skill planning control and execution of s firm’s

activities.

Following are the three major decisions as function of finance

1. The Investment decision.

2. The Financing decision.

3. The Dividend policy decision.

1.3 THE INVESTMENT DECISION

The investment decision relates to the selection of assets in which funds will be invested

by a firm. The assets that can be acquired fall into two broad groups

I. Long term or Fixed assets

II. Short term or Current assets

The financial manager has to carefully allocate the available funds to recover not only the

cost of the fund but also must earned sufficient return on the investment. Two important aspects

of the investment decision are:

4

The evolution of the prospective return of new investment

The measurement of cut off rate against that prospective return of new investment could

be compared. Investment proposal should be evaluated in term of both expected and risk.

In brief the main elements in the financial decision are

The long & short-term assets and their computation

The business risk complexion of the firm

Concept and measurement of the cost of capital

Efficient management of asset

1.4 FINANCING DECISION

Financing decision is the second important function to be performed by the financial

manager. Broadly, he or she must decide when, where & how to acquire funds to meet the firm’s

investment needs. In practice, a firm considers many other factors such as control, flexibility,

loan covenants, legal aspects etc. in deciding its capital structure.A company’s cost of capital is

weighted average cost of the various sources of finance used by it.

1.5 DIVIDEND DECISION

Dividend decision is the third major financial decision. The financial manager must

decide whether the firm should distribute all profits, or retain them, or distribute a portion &

retain the balance. The optimum dividend policy is one that maximizes the market value of the

firm’s shares.

5

1.6 CONCEPTS OF THE STUDY

Balance sheet

Balance sheet is a statement financial position of a business at a specified

moment of time. It represents all the assets owned by the company at a particular moment of

time and the claims of owners and outsiders against those assets all the time. It is in a snapshot of

the financial condition of the business at the time. It is one of the most significance financial

statements.

Assets

Assets representing economic resources are the valuable possessions owned by the

firm. These possessions should be capable of being measured in monitory term. Assets are the

future benefits. Assets may be classified into current assets and fixed asset. Whether an asset is

fixed or current however depends on the nature of business itself.

Current assets

Current asset is an asset on the balance sheet which can either be converted to

cash or used to pay current liabilities within 12 months. Typical current assets include cash, cash

equivalents, short-term investments, accounts receivable, inventory and the portion of prepaid

liabilities which will be paid within a year. On a balance sheet, assets will typically be classified

into current assets and long-term assets.

Fixed assets

Fixed asset, also known as a non-current asset or as property, plant, and equipment

(PP&E), is a term used in accounting for assets and property which cannot easily be converted

into cash. This can be compared with current assets such as cash or bank accounts, which are

described as liquid assets. In most cases, only tangible assets are referred to as fixed.

6

Liability

Liabilities are debts payable in the future by the firm to its creditors. They represent

economic obligation to pay cash or to provide goods on service in some future period.

Expenditure of liability, bills payable, interest payable, tax payable, debenture, bonds borrowing

from banks and financial institution, public deposits. Liabilities are two types’ current liability

and long term liability.

Current liability

Current liabilities are often understood as all liabilities of the business that are to be

settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is

longer. A more complete definition is that current liabilities are obligations that will be settled by

current assets or by the creation of new current liabilities.

Long term liability

Long-term liabilities are liabilities with a future benefit over one year, such as

notes payable that mature longer than one year. In accounting, the long-term liabilities are shown

on the right wing of the balance-sheet representing the sources of funds, which are generally

bounded in form of capital assets. Examples of long-term liabilities are debentures, mortgage

loans and other bank loans.

Ratio analysis

Ratio analysis is a technique of analysis and interpretation of financial statement it

is the process of establishing and interpreting various ratio for helping in making certain

decision.

7

Working capital analysis

Working capital is a financial metric which represents operating liquidity

available to a business, organization, or other entity, including governmental entity. Along with

fixed assets such as plant and equipment, working capital is considered a part of operating

capital. Net working capital is calculated as current assets minus current liabilities.

Performance analysis

Performance analysis involves gathering formal and informal data to help

customers and sponsors define and achieve their goals. Performance analysis uncovers several

perspectives on a problem or opportunity, determining any and all drivers towards or barriers to

successful performance, and proposing a solution system based on what is discovered.

Least Square Method

The method of least squares is a standard approach to the approximate

solution of over determined systems, i.e. sets of equations in which there are more equations than

unknowns. "Least squares" means that the overall solution minimizes the sum of the squares of

the errors made in solving every single equation. The most important application is in data

fitting. The best fit in the least-squares sense minimizes the sum of squared residuals, a residual

being the difference between an observed value and the fitted value provided by a model.

8

CHAPTER – II

PROFILES

2.1 COMPANY PROFILE

Saravana store has entered the ice cream business with the launch of Jamaai

brand of ice cream. Saravana Stores Foods Pvt.Ltd.(SSFPL), with its corporate office at Chennai,

Tamilnadu was established in 2004 under the banner of the saravana stores group. The saravana

stores group is committed to excellence in retail having five hyper-markets dealing in products

ranging from vessels to textiles and gold jewellary. The group has a turnover of over Rs1500

crores per annum.

‘Jamaai’ is the flagship brand of the organization dedicated to manufacturing

and marketing superior quality ice creams. The brand has a major presence in the states of

Tamilnadu, Karnataka, Andra Pradesh, and Andaman & Nicobar Islands.

‘Jamaai’ is manufactured at the organization’s state of-the-art manufacturing

facility on the outskirts of Chennai, Tamilnadu. The plant has a manufacturing capacity of

30,000 liters per day and a storage capacity of 1,00,000 units. The products have a shelf of 12

months when stored at an average temperature of -150 C to -180 C.

Jamaai ice cream is available from exclusive dealers . it is widely present in all type

retail stores . jamaai having over 1000 outlets in Chennai alone and in above 4500 outlets

throughout Tamilnadu and south India.

9

2.2 PRODUCT PROFILE

CUP ITEMS

Velvety vanilla 100 ml

Chocolate brunette 100 ml

Pleasing pista 100 ml

Silky strawberry 100 ml

Buttery butterscotch 100 ml

Fruit harmony 100 ml

Mango 100 ml

Almond whispers 125 ml

Peach punch 100 ml

10

BAR ITEMS

Feasty couple

Chocobar

Mango couple

Orange grind

Groovy grapes

Rosy blush

Raspberry couple

Jumbo chocobar

Jamaai kulfi

BALL ITEMS

Velvety vanilla

Rosy blush

SPECIALITIES

Cassata soft slab

Cake slab

Luv `n` romance

Jamaai king

Jamaai super delight

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NOVELTY ITEMS

Senorita butterscotch

Senorita chocolate

Senorita nutty fruit

Rich sundae

Bubbly

TUBS

Velvety vanilla

Chocolate brunette

Buttery butterscotch

Silky strawberry

BUFFETS

Velvety vanilla

Chocolate brunette

Pleasing pista

Silky strawberry

Buttery butterscotch

Almond whispers

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2.3 INDUSTRY PROFILE

The first commercial ice cream plant was established in Baltimore in 1851 by

Jacob Fussell. Ice cream industry occupies place in India. It is one of the consumer goods

industry its products is important popular diet India is an agriculture based country because of

large number of cattle and large milk production most of the dairy and ice cream has developed

in India is well ranked in world.

Ice cream industry has bought magnificent change in the rural economy. It

provides employment to the marginal farmers. The ice cream industry in India is currently

estimated to be worth Rs 2000 crores.Growing at the healthy rate of approximately 12% year –

on-year.

The ice cream market in India has witnessed a steady growth over the last few

decades. The growth in the ice cream industry has been primarily due to a strong distribution

network and a good cold chain infrastructure. The ice cream market in India is divided into the

brand market and grey market.

The brand market is currently 100 million litter per annum value at 800 crores the

grey market consists of small local players. The per capital consumption of ice cream in India is

above 300 ml, as compared to the world average of 2.3 liters per annum.

Statistics for the market share held by the top ice cream brands in India for the year

2009-2010 are as follows

Amul 38%

Kwality walls 14%

Vadilal 12%

Mother dairy 08%

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2.4 REVIEW OF LITERATURE

John Mills 1found that addressing the relationships between board

composition, board leadership structure, and firm financial performance demonstrates little

consistency in results. In general, neither board composition nor board leadership structure has

been consistently linked to firm financial performance. John mills, the accedamy of

management journal, volume 4, pp 43, 1998

B.McGUIRE 2found that the relationship between perception of the firm’s

corporate social responsibility and measures of their financial performance. Results show that a

firm's prior performance, assessed by both stock-market returns and accounting-based measures,

is more closely related to corporate social responsibility than is subsequent performance. Results

also show that measures of risk are more closely associated with social responsibility than

previous studies have suggested. B.McGUIRE, financial management, 1988, volume 2,pp 854

Charles R.Schwenk and Charles B.Shrader 3found that effects of formal

strategic planning on financial performance in small firms. In this results show that a firm’s

innovative and challenging to manage strategically consequently, it is important to assess the

value of techniques like strategic planning for improving the financial performance of the firms.

Charles R.Schwenk and Charles B.Shrader, Entrepreneurship: Theory and practical,

volume 17, 1993

1

2

3

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CHAPTER III

RESEARCH METHODOLOGY

Research methodology refers to the method that the researcher uses in

performing research operation. It describes the various steps that are generally adopted by a

researcher in studying the problem along with the logic behind them. It is a way is understood as

a science of studying how research is done scientifically.

3.1 TITLE OF THE STUDY

The Title of the project is “A study on financial performance of saravana

stores foods private limited, Chennai.”

3.2 SCOPE OF THE STUDY

The study on the financial performance helps the company to understand their

overall profitability position, solvency position of the concern.

It also helps the company to access the working capital condition and fluctuations

from one period to another period.

3.3 NEED FOR THE STUDY

Financial analysis is a powerful mechanism which helps in ascertaining the strengths

and weakness in the operation and financial position of the company.

15

3.4 OBJECTIVES OF THE STUDY

To analyze the financial performance of Saravana Stores Foods Pvt. Ltd.,

To study the profitability and liquidity position of the firm.

To study the working capital pattern of the company.

To forecast the company’s financial performance.

3.5 DATA COLLECTION

The study is based on secondary source of data. Secondary data have been

mainly obtained from annual reports, include balance sheet, profit and loss account, of Saravana

stores foods private ltd.

3.6 PERIOD OF STUDY

The period of the study is limited to 3 years, i.e., from 2007-2008 to 2009 –

2010

3.7 RESEARCH DESIGN

Research design is the arrangement of conditions for collection and analysis of

data in a manner that aims to combines relevance to the research purpose with economy in

procedure. The research design used in the study is Analytical research design.

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3.8 TOOLS OF ANALYSIS

Various methods of techniques used in analyzing financial statement include

1. Ratio Analysis

2. Performance Analysis

3. Least Square Method (Trend Forecasting Analysis)

4. Working Capital Analysis

3.9 STATEMENT OF THE PROBLEM

The inefficient liquidity position in the company.

Improper profitability management.

There is no proper technique to measure the financial performance of the company.

3.10 LIMITATION OF THE STUDY

The analysis and interpretation has done on the basis of few statistical tools.

The study is heavily relies on secondary data.

The study is limited only to a period of three years from 2008-2010

.

17

CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

4.1 RATIO ANALYSIS

1.CURRENT RATIO

The current ratio is a financial ratio that measures whether or not a firm has

enough resources to pay its debts over the next 12 months. It compares a firm's current assets to

its current liabilities. It is expressed as follows:

Current Ratio = Current assets / Current liabilities

Table 4.1.1

Current Ratio

Year Current Assets ` Current Liability ` Ratio

2008 56167644.29 75085091.47 0.74

2009 62245656 56253168 1.10

2010 56190775 47871251 1.17

Source: Secondary data

Interpretation

From the above table it is shown that the current ratio of the company has been

increasing steadily during the year 2008 to 2010 from 0.74 to 1.17. The current ratio has an

average of 1.00 for the period under the study. So all these situations represent the liability crisis

faced by the company.

18

Chart 4.1.1

Current Ratio

19

2. LIQUIDITY RATIO

The Acid-test or quick ratio or liquid ratio measures the ability of a

company to use its near cash or quick assets to extinguish or retire its current liabilities

immediately. Quick assets include those current assets that presumably can be quickly converted

to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot

currently pay back its current liabilities.

Liquid Ratio = Liquid Assets / Current Liabilities

Where Liquid Assets = Current Assets – Stock & Prepaid Expenses

Table 4.1.2 Liquidity Ratio

Year Liquid Assets ` Current Liability ` Ratio

2008 2808002 75085091.47 0.03

2009 33904359 56253168 0.60

2010 29525201 47871251 0.61

Source: Secondary data

Interpretation

From the above table it is found that the liquidity ratio of the company has increased from 0.03

to 0.60 then and also increased 0.60 to 0.61 from the period of study. It shows that the company

having good liquidity position.

20

Chart 4.1.2

Liquidity Ratio

21

3. ABSOLUTE LIQUIDITY RATIO

It is otherwise called as cash position ratio. It relates to the sum of cash &

Marketable Securities to the current liabilities.

Absolute Liquid Ratio = Cash / Current Liabilities

Table 4.1.3 Absolute Liquidity Ratio

Year Cash ` Current Liability ` Ratio

2008 3261900.37 75085091.47 0.04

2009 12126704 56253168 0.21

2010 1679275 47871251 0.03

Source: Secondary data

Interpretation

The above table shows the absolute liquidity ratio of the company. The ratio is

increased 0.04 to 0.21 then the ratio is decreased 0.21 to 0.03. The ratio has an average 0.09 for

the period of study. It shows that the company needs to improve its absolute liquidity position.

Chart 4.1.3 Absolute Liquidity Ratio

22

4. WORKING CAPITAL TURNOVER RATIO

It is also known as Working Capital Leveraged Ratio. This ratio indicated

whether or not working capital has been effectively utilized in making sales. If higher sales

volume can be achieved with relatively small amount of working capital. It is an indication of

operating efficiency.

Working Capital Turnover Ratio = Net Sale / Working Capital

Table 4.1.4 Working Capital Turnover Ratio

Year Net Sales ` Working Capital ` Ratio

2008 261618526.59 (18917447.18) (13.83)

2009 368760184 5992488 61.54

2010 344570020 8319524 41.42

Source: Secondary data

Interpretation

The above table shows the working capital turnover ratio of the company. A higher

ratio indicates efficient utilization of working capital. The average of the working capital

turnover ratio is 89.13 from the period of study.Chart 4.1.4 Working Capital Turnover Ratio

23

5. INVENTORY TURNOVER RATIO

Every firm has to maintain a certain level of inventory in order to meet the

requirement of the business. But the level of inventory should neither be too high nor to low.

This indicates the relationship between inventory and sales.

Inventory Turnover Ratio = Sales / Average Inventory

Table 4.1.5 Inventory Turnover Ratio

Year Sales ` Average Inventory ` Ratio

2008 261618526.59 5991528.43 43.67

2009 368760184 27179391 13.56

2010 344570020 26665574 12.92

Source: Secondary data

Interpretation

The above table shows the inventory turnover ratio of the company. The ratio has a

decreasing trend. The average ratio is 23.38 for the period of 2008 to 2010. It indicates the

company has effective inventory management.

Chart 4.1.5 Inventory Turnover Ratio

24

6. CASH TURNOVER RATIO

It is also known as Cash Velocity. Cash turnover ratio is the relationship

between sales and cash. It indicates the number of items the cash is turned out of the business of

cash reserves.

Cash Turnover Ratio = Sales / Cash

Table 4.1.6 Cash Turnover Ratio

Year Sales ` Cash ` Ratio

2008 261618526.59 3261900.37 80.20

2009 368760184 12126704 30.40

2010 344570020 11679275 29.50

Source: Secondary data

Interpretation

The above table shows the cash turnover ratio of the company. The ratio has a

decreasing trend. The average ratio is 46.70 for the period of 2008 to 2010. It indicates the

company needs to improve its cash as well as sales.

Chart 4.1.6 Cash Turnover Ratio

25

7. TOTAL ASSETS TURNOVER RATIO

A firm must manage its total assets efficiency and should generate maximum

sales through their utilization.

Total Assets Turnover Ratio = Net Sales / Total Assets

Table 4.1.7 Total Assets Turnover Ratio

Year Sales ` Total Assets ` Ratio

2008 261618526.59 204862566.58 1.28

2009 368760184 241330065 1.53

2010 344570020 265633006 1.29

Source: Secondary data

Interpretation

The above table shows that the company total assets turnover of the company. The

ratio has increased from 1.28 to 1.53 and then the ratio has decreased from 1.53 to 1.29. The

average ratio is 1.37 for the period of study. It shows the company need to improve its total

assets turnover position.

Chart 4.1.7 Total Assets Turnover Ratio

26

8. FIXED ASSET TURNOVER RATIO

This ratio indicates the extent to which the investment in fixed assets

contributes towards sales. If compared with the previous period, it indicates whether the

investment in fixed assets has been careful or not.

Fixed Assets Turnover Ratio = Net Sales / Fixed Assets

Table 4.1.8 Fixed Asset Turnover Ratio

Year Sales ` Fixed Assets ` Ratio

2008 261618526.59 148694922.29 1.76

2009 368760184 179084410 2.05

2010 344570020 209442231 1.64

Source: Secondary data

Interpretation

The above table shows that the fixed assets ratio of the company. The ratio has

increased from 1.76 to 2.05 and then the ratio has decreased from 2.05 to 1.64. The average ratio

is 1.82 for the period of study. It shows that the company needs to improve its fixed assets

turnover position.

Chart 4.1.8 Fixed Assets Turnover Ratio

27

9. CURRENT ASSETS TURNOVER RATIO

It shows the relationship between sales and current assets. The current assets

should increase proportionately to sales.

Current Assets Turnover Ratio = Sales / Current Assets

Table 4.1.9 Current Assets Turnover Ratio

Year Sales ` Current Assets ` Ratio

2008 261618526.59 56167644.29 4.66

2009 368760184 62245656 5.92

2010 344570020 56190775 6.13

Source: Secondary data

Interpretation

The above table shows that the current assets turnover ratio of the company. The ratio

has increased from 4.66 to 5.92 and then also increased from 5.92 to 6.13. The average ratio is

5.57 for the period of study. It shows that the company is managing its current assets effectively.

Chart 4.1.9 Current Assets Turnover Ratio

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10. NET PROFIT RATIO

This measures the relationship between net profit and sales of the firm. It indicate

management’s ability to operate the business with sufficient success not only to recover expenses

like depreciation and interest but also to leave a margin of reasonable compensation to the owner

for providing their capital at risk.

Net Profit Ratio = Net Profit / Sales *100

Table 4.1.10 Net Profit Ratio

Year Net Profit ` Sales ` Ratio

2008 (4037501.06) 261618526.59 (1.54)

2009 (45127041) 368760184 (12.23)

2010 (13722946) 344570020 (3.98)

Source: Secondary data

Interpretation

The above table shows the net profit ratio of the company. The ratio has decreased in

year by year. The average ratio is -5.92 for the period of study 2008 to 2010. It indicates the

company incurring loss. So the company needs to improve its net profit.

Chart 4.1.10 Net Profit Ratio

29

11. PROFIT BEFORE TAX TO AVERAGE CAPITAL EMPLOYED

Profit before tax to average capital employed ratio establishes the relationship

between profit before tax and average capital employed.

Profit before Tax to Average Capital Employed = Profit before Tax / Average Capital Employed

Table 4.1.11 Profit before Tax to Average Capital Employed

Year Profit Before Tax ` Ave capital employed ` Ratio

2008 1491061.54 167612369.47 0.008

2009 (45127041) 185076898 (0.24)

2010 (12946407) 217761755 (0.05)

Source: Secondary data

Interpretation

The above table shows that the profit before tax to average capital employed. The

ratio has decreased from 0.008 to -0.24 and then normally increased to -0.05. The average ratio is

-0.094 for the period of study 2008 to 2010. It shows the company has been suffering loss.

Chart 4.1.11 Profit before Tax to Average Capital Employed

30

12. PROFIT BEFORE TAX TO SALES

It establishes the relationship between profit before tax and sales. This ratio is

calculated by dividing profit before tax with the net sales.

Profit before Tax to Sales = Profit before Tax / Sales

Table 4.1.12 Profit before tax to Sales

Year Profit Before Tax ` Sales ` Ratio

2008 1491061.54 261618526.59 0.005

2009 (45127041) 368760184 (0.12)

2010 (12946407) 344570020 (0.03)

Source: Secondary data

Interpretation

From the above table it can be inferred that the profit before tax shows decreasing

trend for the period is 2008 to 2010. Because of increasing operating expenses. It shows that

company needs to improve its sales and also minimize its operating expenses.

Chart 4.1.12 Profit before Tax to Sales

31

13. DEBTORS TO CURRENT ASSETS RATIO

This ratio examines the relationship between the debtors balance and current assets.

A firm with a very high ratio would expose the creditors to higher risk. Accompany should have

either a very high ratio or very low ratio.

Debtors to Current Asset Ratio = Debtors / Current Assets

4.1.13 Debtors to Assets Ratio

Year Debtors ` Current Assets ` Ratio

2008 7466405.26 56167644.29 0.13

2009 7846287 62245656 0.12

2010 13217277 56190775 0.23

Source: Secondary data

Interpretation

The above table shows that the debtors to current assets ratio of the company. This

ratio indicates the debtors occupying level in current assets. The above table shows a fluctuation

in ratios which indicates that the adopting right strategy for collecting its debts.

Chart 4.1.13 Debtors to Current Assets Ratio

32

14. OPERATING PROFIT RATIO

Operating profit ratio examines relationship between operating profit and net

sales. A firm with a high ratio it expose the high operating profit. Accompany should have

neither a low ratio it expose the low operating profit.

Operating Profit ratio = Operating profit / Net Sales * 100

Table 4.1.14 Operating Profit Ratio

Year Operating Profit ` Net Sales ` Ratio

2008 1491061.54 261618526.59 0.005

2009 (45127041) 368760184 (0.12)

2010 (12946407) 344570020 (0.03)

Source: Secondary data

Interpretation

The above table shows that the operating profit of the company. The ratio has

decreased from 0.56 to -24.36. The average ratio is -9.89 for the period of 2008 to 2010. It shows

the company needs to increase its operating profit.

Chart 4.1.14 Operating Profit Ratio

33

15. RETURN ON CAPITAL EMPLOYED RATIO

Return on capital employed ratio examines relationship between operating

profit and capital employed.

Return on capital employed ratio = Operating profit / Capital Employed * 100

Table 4.1.15 Return on Capital Employed Ratio

Year Operating Profit ` Capital Employed ` Ratio

2008 1491061.54 167612369.47 0.89

2009 (45127041) 185076898 (24.38)

2010 (12946407) 217761755 (5.94)

Source: Secondary data

Interpretation

The above table shows that the return on capital employed of the company. The ratio

has decreasing trend. The average ratio is -9.81 for the period of 2008 to 2010. It shows the

company needs to improve its capital employed.

Chart 4.1.15 Return on Capital Employed

34

PERFORMANCE ANALYSIS

Table 4.1.16 Performance Analysis of Sales with Operating Profit

Year

Sales

` Sales %

Operating Profit

`

Operating

Profit %

2008 261618526.59 - 1491061.54 -

2009 185201832 70.79 (45127041) (26.50)

2010 220940124 19.29 (12946407) (28.69)

Source: Secondary data

Interpretation

As per the general concept, the operating profit should be directly proportional to sales.

But due to increase in operating expenses, the sales with operating profit has decreased from

26.50% to 28.69%.

Table 4.1.17 Performance Analysis of Operating Profit with Profit after Tax

Year

Operating Profit

`

Operating

Profit %

Profit after tax

`

Profit after tax

%

2008 1491061.54 - (4037501.06) -

2009 (45127041) (26.50) (45127041) (17.69)

2010 (12946407) (28.69) (13722946) (30.41)

Source: Secondary data

Interpretation

The above table shows there is a negative relationship between operating profit and

profit after tax. This indicates that there is increase in operating expenses. The operating profit

has decreased from – 26.50% to – 28.69%.

35

Table 4.1.18 Performance Analysis of Sales with Net Fixed Assets

Year

Sales

` Sales %

Net Fixed Assets

`

Net Fixed

Assets %

2008 261618526.59 - 148694922.29 -

2009 185201832 70.79 179084410 20.44

2010 220940124 19.29 209442231 16.95

Source: Secondary data

Interpretation

It is evident from the table that the sales are proportionate to net fixed assets. So there

is a positive relationship. As new machineries are purchased, it has affected the profit of the

company.

Table 4.1.19 Performance Analysis of Sales with Capital Employed

Year

Sales

` Sales %

Capital Employed

`

Capital

Employed %

2008 261618526.59 - 167612369.47 -

2009 185201832 70.79 185076898 10.42

2010 220940124 19.29 217761755 17.67

Source: Secondary data

Interpretation

The above table shows that there is positive relationship between sales and capital

employed. As the capital employed has increased from 10.42% to 17.67%.

36

Table 4.1.20 Performance Analysis of Sales with Working Capital

Year

Sales

` Sales %

Working Capital

`

Working

Capital %

2008 261618526.59 - (18917447.18) -

2009 185201832 70.79 5992488 (31.68)

2010 220940124 19.29 8319524 38.83

Source: Secondary data

Interpretation

According to this table sale has increased as the working capital has increase and this

is due to increase in expenses and also indicate company utilization of funds. The working

capital has increased from – 31.68% to 38.83%.

Table 4.1.21 Performance Analysis of Profit after Tax with Net Fixed Assets

Year

Profit After Tax

`

Profit After

Tax %

Net Fixed Assets

`

Net Fixed

Assets %

2008 (4037501.06) - 148694922.29 -

2009 (45127041) (17.69) 179084410 20.44

2010 (13722946) (30.41) 209442231 16.95

Source: Secondary data

Interpretation

The above table shows that the profit after tax should be directly proportionate to net

fixed assets but due to increase in depreciation and tax the profit has steeply decreased from –

17.69% to – 30.41%.

37

Table 4.1.22 Performance Analysis of Profit after Tax with Capital Employed

Year

Profit After Tax

`

Profit After

Tax %

Capital Employed

`

Capital

Employed %

2008 (4037501.06) - 167612369.47 -

2009 (45127041) (17.69) 185076898 10.42

2010 (13722946) (30.41) 217761755 17.67

Source: Secondary data

Interpretation

The above table shows there is negative relationship between profit after tax and

capital employed. Because of the depreciation of assets has increased continuously. Profit after

tax has decreased.

Table 4.1.23 Performance Analysis of Net Fixed Assets with Depreciation

Year

Net Fixed Assets

`

Net Fixed

Assets %

Depreciation

`

Depreciation

%

2008 148694922.29 - 18310754.73 -

2009 179084410 20.44 32493244 77.45

2010 209442231 16.95 30013046 92.37

Source: Secondary data

Interpretation

The above table demonstrates that net fixed asset is proportionate to depreciation.

This shows that the company has been utilizing the machinery to the fullest capacity.

38

Table 4.1.24 Performance Analysis of Profit after Tax with Sales

Year

Profit After Tax

`

Profit After

Tax %

Sales

`

Sales

%

2008 (4037501.06) - 261618526.59 -

2009 (45127041) (17.69) 185201832 70.79

2010 (13722946) (30.41) 220940124 19.29

Source: Secondary data

Interpretation

The above table shows the sale has increased. But the profit after tax decreases due

to the interest on loan and other expenses, the profit decreases. To sum up, the company has vast

amount of loan.

Table 4.1.25 Performance Analysis of Fixed Assets with Current Assets

Year

Fixed Assets

`

Fixed Assets

%

Current Assets

`

Current Assets

%

2008 148694922.29 - 56167644.29 -

2009 179084410 20.44 62245656 10.82

2010 209442231 16.95 56190775 90.27

Source: Secondary data

Interpretation

From the above table shows the positive relationship between fixed assets and current

assets. The current assets having some fluctuations, it indicates the company running position.

The current asset has increased from 10.82% to 90.27%

LEAST SQARE METHOD (TREND FORECASTING ANALYSIS)

39

"Least squares" means that the overall solution minimizes the sum of the squares of

the errors made in solving every single equation. The most important application is in data

fitting. The best fit in the least-squares sense minimizes the sum of squared residuals, a residual

being the difference between an observed value and the fitted value provided by a model.

Table 4.1.26

Least Square Method on Loans

Year Loans

`

2008 166321442.19*

2009 250534099*

2010 128985971*

2011 144611699.55**

2012 125943963.96**

2013 107276228.37**

Source: Secondary data

Interpretation

Using trend forecast the loan for the years 2011 to 2013 is calculated as

144611699.55, 125943963.96, and 107276228.37.

Chart 4.1.26

40

Loan forecasting for forthcoming year

Table 4.1.27 Least Square Method on Working Capital

41

Year Working Capital

`

2008 (18917447.18)*

2009 5992488*

2010 8319524*

2011 25701826.12**

2012 39320311.71**

2013 52938797.30**

Source: Secondary data

Interpretation

Using trend forecast the working capital for the years 2011 to 2013 is calculated as

25701826.12, 39320311.71, and 52938797.30.

Chart 4.1.27 Working Capital forecasting for forthcoming year

Table 4.1.28 Least Square Method on Sales

42

Year Sales

`

2008 261618526.59*

2009 185201832*

2010 220940124*

2011 181908424.94**

2012 161569223.66**

2013 141230022.37**

Source: Secondary data

Interpretation

Using trend forecast the sales for the year 2011 to 2013 is calculated as 181908424.94,

161569223.66, and 141230022.37 respectively.

Chart 4.1.28 Sales forecasting for forthcoming year

Table 4.1.29 Least Square Method on Net Profit

43

Year Net Profit

`

2008 (4037501.06)*

2009 (45127041)*

2010 (13722946)*

2011 (30647940.96)**

2012 (35490663.43)**

2013 (40333385.90)**

Source: Secondary data

Interpretation

Using trend forecast the net profit for the year 2011 to 2013 is calculated as

(30647940.96), (35490663.43), and (40333385.90) respectively.

Chart 4.1.29 Net Profit forecasting for forthcoming year

Table 4.1.30 Least Square method on Current Assets

44

Year Current Assets

`

2008 56167644.29*

2009 62245656*

2010 56190775*

2011 58224489.06**

2012 58236054.42**

2013 58247619.78**

Source: Secondary data

Interpretation

Using trend forecast the current assets for the years 2011 to 2013 is calculated as

58224489.06, 58236054.42, and 58247619.78 respectively.

Chart 4.1.30 Current Assets forecasting for forthcoming year

Table 4.1.31 Least Square Method on Current Liabilities

45

Year Current Liabilities

`

2008 75085091.47*

2009 56253168*

2010 47871251*

2011 32522663.02**

2012 18915742.80**

2013 5308822.57**

Source: Secondary data

Interpretation

Using trend forecast the current liabilities for the years 2011 to 2013 is calculated

as 32522663.02, 18915742.80, and 5308822.57 respectively.

Chart 4.1.31 Current Liabilities forecasting for forthcoming year

Table 4.1.32

Schedule of Changes in Working Capital 2008-2009

46

Particulars 2008

`

2009

`

Increase

`

Decrease

`

CURRENT ASSETS

Raw material 22096094.60 25623358 3527263.40

Input vat 443531.56 2049165 1605633.44

Inventories 5991528.43 2717939 3273589.43

sundry debtors 7466405.26 7846287 379881.74

Cash & bank balance 3261900.37 12126704 8864803.63

Loans & advances 16878184.07 11882202 4995982.07

TOTAL (A) 56167644.29 62245656

CURRENT LIABILITY

Sundry creditors 69469272.55 56128234 13341038.55

Provisions 5615818.92 124934 5490884.92

TOTAL (B) 75085091.47 56253168

WORKING CAPITAL

(A-B)

(18917447.18

)

599248

8

Interpretation

The above table shows the schedule of changes in working capital for the period

of 2008-2009. It shows that the working capital of the company has increased.

Table 4.1.33

Schedule of Changes in Working Capital 2009-2010

47

Particulars 2009

`

2010

`

Increase

`

Decrease

`

CURRENT ASSETS

Raw material 25623358 8852699 16770659

Input vat 2049165 2077227 28062

Inventories 2717939 26665574 23947635

sundry debtors 7846287 13217277 5370990

Cash & bank balance 12126704 1679275 10447429

Loans & advances 11882202 3698723 8183479

TOTAL (A) 62245656 56190775

CURRENT LIABILITY

Sundry creditors 56128234 44092882 12035352

Provisions 124934 3778369 3653435

TOTAL (B) 56992488 47871251

WORKING CAPITAL

(A-B)

599248

8

831952

4

Interpretation

The above table shows the schedule of changes in working capital for the period

of 2009-2010. It indicates that the working capital of the company has increased.

CHAPTER V

48

FINDINGS AND SUGGESTIONS

5.1 FINDINGS OF THE STUDY

The Current Assets ratio has been increasing steadily from 0.74 to 1.17. The average

current ratio is 1.00 for the period of study from 2008 to 2011.

The Liquidity ratio has increased from 0.03 to 0.60. The average liquidity ratio is 41.00

for the period of study from 2008 to 2010.

The Absolute Liquidity ratio has decreased from 0.21 to 0.03 because the cash in hand

decreased and also the current liability has decreased. The average absolute liquidity ratio

is 0.09 for the period of study.

The Working Capital Turnover ratio has decreased from 61.54 to 41.42 but it is good

compared to previous year. The average working capital turnover ratio is 89.13 for the

period of study.

The Inventory Turnover ratio has decreased from 13.56 to 12.92. The average inventory

turnover ratio is 23.38 for the period of study.

The Cash Turnover ratio has decreased from 80.20 to 29.50. The firm is having low

liquidity position. The average cash turnover ratio is 46.70 for the period of study.

The Total Assets turnover ratio is to maintained at a satisfactory level by the company.

The average total assets turnover ratio is 1.82 for the period of study.

The Fixed Assets Turnover ratio has reduced in the year of 2010 from 2.05 to 1.64. The

average fixed assets turnover ratio is 1.82 for the period of study.

The Current Assets Turnover ratio has increased from 5.92 to 6.13. The average current

assets turnover ratio is 5.57 for the period of study.

The Net Profit ratio has decreased year by year from -1.54 to -12.23.It indicates the firm

has suffering loss. The average net profit ratio is -5.92 for the period of study.

Profit before tax to Average Capital Employed has decreased from 0.008 to -0.24. The

average ratio is -0.094 for the period of study 2008 to 2010.

Profit before tax to Sales ratio has decreased from 0.005 to -0.03 because of the company

operating expenses has increased. The average ratio is -0.145 for the period of study.

49

Debtors to Current Assets ratio has been increased from 0.12 to 0.23. It shows the

fluctuation in ratios which indicates collection method of company. The average debtors

to current assets ratio is 0.16 for the period of study.

The Operating Profit ratio has decreased from 0.005 to 0.03 because the company’s

operating expenses has increased. The average operating profit ratio is -9.89 for the

period of study.

Return on Capital Employed ratio has been decreased in the year of 2009 and 2010. The

average ratio is -9.81 for the period of study.

The performance analysis of sales with operating profit has decreased from 19.29% to -

28.69% in the year of 2009 and 2010.

The performance analysis of operating profit with Profit after tax has decreased from -

28.69% to -30.41%. It indicates that the operating expenses have increased.

The performance analyze of Sales with Net fixed assets has shown positive relationship

and also sales has decreased from 70.79% to 19.29%. It indicates the new machinery

purchased.

There is positive relationship between sales and capital employed. As the working capital

has increased and this is due to increase in expenses. Capital employed is increased from

10.42% to 17.67%

The performance analyze of Sales with Working capital has increased due to the

increasing expenses. The working capital has increased from -31.68% to 38.83% for the

period of study.

The profit after tax should be directly proportionate to net fixed assets but due to increase

in depreciation and tax the profit has steeply decreased. The profit after tax has decreased

from -17.69% to -30.41% for the period of study.

The performance analysis of Profit after tax with capital employed has negative

relationship. Because of the increased in depreciation. The profit after tax has decreased.

The performance analysis of Net fixed assets proportionate to Depreciation. This shows

that the company is utilizing its capacity effectively. And also depreciation has increased

from 77.45% to 92.37% for the period of study.

50

The performance analyze of Sales with Profit after tax has decreased. Because the

interest on loans has increased. The sale has decreased from 70.79% to 19.29% for the

period of study.

There is positive relationship between fixed assets and current assets. The current asset

has some fluctuations. The current asset has increased from 10.82% to 90.27% for the

period of study.

Using trend forecast the loan for the years, 2011 is ` 144611699.55, 2012 is `

125943963.96 and 2013 is ` 107276228.37.

Using trend forecast the working capital for the years 2011is` 25701826.12, 2012 is `

39320311.71 and 2013 is ` 52938797.30.

Using trend forecast the sales for the years 2011 is ` 181908424.94, 2012 is `

161569223.66 and 2013 is ` 141230022.37.

Using trend forecast the net profit for the years 2011 is ` (-30647940.96), and 2012 is ` (-

35490663.43), and 2013 is ` (- 40333385.90).

Using trend forecast the current assets for the years 2011 is ` 58224489.06, 2012 is `

58236054.42 and 2013 is ` 58247619.70.

Using trend forecast the current liabilities for the years 2011 is ` 32522663.02, 2012 is `

18915742.80 and 2013 is ` 5308822.57.

The Working Capital has increased in the year of 2008-2009 and 2009-2010 respectively.

5.2 SUGGESTIONS

51

The SSFPL has high operating expenses due to increasing interest on loans as well

as logistics expenses. So it should try to reduce its operating expenses.

Since the ratio analysis shows satisfactory level of the SSFPL, it can maintain the

same and improve it.

The Trend Analyze shows the company is incurring loss. So the SSFPL should try

to avoid its loss through reducing its operating expenses.

The SSFPL don’t have the proper management for allocation of funds. So the

SSFPL should try to increase an effective management.

The SSFPL can be listed in BSC or NSC. Then only the company will receive

fund from outsiders and also increase its net profit.

5.3 CONCLUSION

52

The research entitled “A study on Financial Performance of Saravana Stores Foods

Pvt, Ltd” included Ratio Analysis, Trend Analysis, Performance Analysis, and Working Capital

Analysis for a period of 3 years from 2008-2010 reveals that the Sales, Inventory management,

and Working capital is satisfactory level and there are areas of concern such as Net profit which

needs to be addressed.

The study helps to apply the theoretical knowledge to practice. I have made a sincere effort to

make the report a correct one. The study helps me to improve my knowledge in financial

management.

I hope the findings and suggestions will be helpful to improve the Financial

Performance of the Saravana stores foods pvt ltd;

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