INTRODUCTION

In the economic environment prevailing today

(particularly after the advent of the on going liberation process) the
financial performance of companies has come into sharp focus in the
country.
The purpose of this particular study at

XXX is an

analyze the financial performance of the company, by scanning its

financial statements from the year April 2001-march 2006
This analysis is a model attempt of throwing more light
to the financial management statements and related aspects that affect the
effective performance of XXX.

ANALYSING FINANCIAL PERFORMANCE

As long as accounting biases remain more or less the same over
time, meaningful inferences can be drawn by examining trends in raw
data and in financial Ratios.
Since similar biases characterize various firms in the same
industry, inter-firm comparisons are useful
Experience seems to suggest that financial analysis works if one
is aware of accounting biases and makes adjustments for the same.

RATIO ANALYSIS
Analysis and interpretation of financial statements with the help
of ratios is termed as ratio analysis ratio analysis involves the process
of computing, determining and presenting the relationship of items or
group of items of financial statements.
Ratio analysis was pioneered by Alexander wall who presented a
system of ratio analysis in the year 1909. Alexander contention was that
interpretation of financial statements can be made easier by establishing
quantitative relationships between various items of financial statements.

MEANING OF RATIO
Ratios can be defined as relationships expressed in quantitative
terms, between figures which have caused and cause and effect
relationships or which are connected with each other in some manner or
the other.

SIGNIFICANCE OF RATIOS
Ratios are exceptionally useful tools with which one can judge the
financial performance of the enterprise over a period of time. The
efficiency of the enterprise can also be judged against the industry
averagely. In vertical analysis, ratios help the analyst to form a judgment
whether performance of the firm at the point of time is good, quantitative
or poor. At time, the investment decisions are based on the condition
revealed by certain ratios, in this way, it serves as a land maid to the
management.

CLASSIFICATION OF RATIOS
Ratios can be classified into different categories, depending upon
the basis of

classification has been on the basis on the financial

statement to which the determinants of a ratio belong. On this basis the

ratios could be classified as
1. solvency ratio
Current ratio, liquidity ratio, etc.
2. Activity / performance ratio
Capital turnover ratio, fixed asset turnover ratio,
etc.
3. profitability ratio
Return on investment ratio, gross profit ratio,
etc.

COMPANY PROFILE

XXX
# 240 M.G.Road,
Vaiyapuri Nagar,
Karur 639 002. INDIA.
. It is a company 100% cotton specialized in the
production and export. It been founded in the year 1990.it was founded
by

Mr.K.M.Murugesun.

It

has

the

potential

and

capacity

of

manufacturing any type of madeups and home textiles. It registered with

AEPC, HEPC, Texprocil, Textile committee, chamber of commerce,
etc

THEIR OBJECTIVES ARE

To satisfy the whole necessities of their importers giving
quality, punctuality in their deliveries and mainly excellent prices, giving
a satisfaction for their importers/buyers since is very important for us to
maintain their goodwill that it has always distinguished us.

UNITS INVOLVED IN PRODUCTION

Dyeing, weaving, knitting, printing&emproidary
PROCESS

SPINNING

DYEING
FACTORY

WEAVING

ALVANIYA IMPEX
EMPROIDARY
PACKING

CHECKING

INSPECTION
BY BUYER

TRANSPORT
AND EXPORT

PRODUCTS ARE:
Sheets
Spreads
Towels
Table cloth
Napkin
Quilts
Gloves
Cases
Kitchen linen etc
All types of handloom, power loom, and auto looms, etc

PRESENTS MARKETS
USA
Europe
Australia

RESEARCH METHODOLOGY:
OBJECTIVES OF STUDY:
1) To study the financial performance of the company for the past
five years
2) To give suggestion for improving the financial performance of
the company

SOURCES OF DATA
For the purpose of analyzing the financial performance
of the company, the study relied only on the secondary data that was
available in the company.

SECONDARY DATA
For the purpose of study secondary data have been use
of which is collected from the published financial statement viz, trading,
profit and loss account and balance sheet contained in the annual report of
the company.

PERIOD OF STUDY
For the purpose of conducting the study in XXX, the
researcher had taken the past five year records to analyze the performance
of the company starting from the year April 2001-march 2006. The study
was carried out for a period of six weeks.

TOOLS USED FOR THE ANALYSIS

1. Ratio analysis

LIMITATIONS OF THE STUDY

1) The study is only for a particular company, inter firm
comparison was rendered impossible.
2) The period of study was limited up to 5 years

RATIO ANALYSIS
Ratio analysis is one of the important tools for financial
analysis. Ratios are relationship expressed in mathematical terms between
figures, which are connected with each other in some manner. A ratio is
defined as the the indicated quotient of two mathematical expression.
In financial analysis, a ratio is used as a bench mark for evaluating the
financial performance of a firm.

LIQUIDITY RATIOS:
Liquidity is the ability of the firm to meet its current
liabilities as they fall due since liquidity is basic to continuous operations
of the firm, it is necessary to determine the degree of liquidity of the firm.
The important ratios are as follows,

CURRENT RATIO
Current ratio is the most common ratio for measuring
liquidity. It represents the ratio of current assets to current liabilities. It is
also called working capital ratio
Current assets

This is calculated as;

=
Current liabilities

current
year

assets
2316957.
2001

86

current
liabilities
2606094.

65

4320275.
2002

55

rati
0.8

4622816.
3

0.9
3

3691625.
2003

1.0

16

3594133
6154844.

6295638.
2004

81

87
6313628.

2005

36

3
1.0
2

5972848.
13

1.0
6

Current ratio
1.10

1.06

1.05

1.03

1.02

2003

2004

1.00
0.93

0.95
0.90

0.89

0.85
0.80
2001

2002

2005

QUICK RATIO
This ratio is some times known as acid test ratio liquidity
ratio It is determined by dividing quick assets by current liabilities.
Quick asset
This is calculated as; =
Current liability

liquid
year

assets
1117982.

2001

05

current
liabilities
26060

atio

94.65

.43

3599998.
2002

74

16.3

16

36

0
.93

61548
44.87

5303178.
2005

.78

33

81

35941

5249998.
2004

46228

3326140.
2003

0
.85

59728
48.13

0
.89

ACTIVITY RATIOS:
Funds are invested in various assets in a business to derive
income out of this invested money. The efficiency with which assets are
managed will directly affect the volume of sales. Better the management
of assets; the larger is the amount of sales and the profits.

Activity ratios measure the efficiency or effectiveness

with which a concern manages its resources or assets. These ratios also
called as turnover ratio because they indicate the speed with which assets
are converted or turned over in to sales

1. INVENTORY TURNOVER RATIO

This ratio establishes relationship between new sales during a
given period and average amount of inventory held during that period.
This ratio reveals the number of times finished stock in turned over
during a given accounting period, higher the ratio the better it shows that
finished stock rapidly turnover, on the other hand, a low inventory
turnover is not desirable because it reveals the accumulation of obsolete
stock or the carrying of too much stock.
It is calculated as: =cost of goods sold/average stock
Average stock = (opening stock +closing stock)/2

Inventory turn over ratio

cost
year
2001

of

averag

goods sold
1196280.

e stock
77263

atio

31

4.605

.55

13951463
2002

.5

r
1

33811
30.12

4
.13

18274
2003

10261645 2.5

5
6.15

70556
2004
2005

23128103 2.5
30302313
.2

45

3
2.78

10280

2
9.48

2. FIXED ASSET TURNOVER RATIO

This ratio shows how well the fixed assets are been used in
the business. The ratio is important incase of manufacturing concerns
because sales are produced not only by use of current assets, but
also amount invested in fixed assets. Higher the ratio better is the

performance. on the other hand, a low ratio indicated that fixed assets are
not being efficiently utilized.
The ratio expresses the number of times fixed assets are been
turned over in a stated period.
It is calculated as: = net sales/fixed assets

Fixed asset turn over ratio

fixed
year
2001

sales
8814828.

assets

r
atio

48550

55

7.72
15531146

2002

.85

8.16
48550

7.72

3
1.99
7

2003

12222486

15500

88.55
5

2004
2005

26535957
36773178
.64

48000

52.83
6

60500

3. Working capital turnover ratio

07.82

Working capital of a concern is, directly related to sales this

ratio indicates the number of times the working capital is turned over in a
stated period.
It is calculated as:= net sales/net working capital

net
working
year
2001
2002

net sales
884828.5
5
.85

2003

capital
-

289136.79
15531146
-

r
atio
3.06
-

302540.75
51.34
97492.
1
12222486 16

25.37
14079

2004
2005

26535957 3.94
36773178
34078
.64

0.23

1
88.47
1
07.91

4. Total assets turnover ratio:

This ratio indicates how efficiently assets are employed
overall. It is skin to the output capital ratio used in economic analysis.
Assets are used to generate sales. There fore a concern should manage its
efficient to maximize sales from all financial resources committed to total
assets.
It is calculated as: =net sales/total assets

year
2001
2002
2003
2004
2005

net sales
884828.55
15531146.85
12222486
26535957
36773178.64

total assets
2802465.58
4805783.27
3707125.25
6343638.87
6374128.36

ratio
0.32
3.23
3.30
4.18
5.77

5. Receivable or Debtors Turnover Ratio

This ratio measures the accounts receivable (trade

debtors and bills receivable) in terms of credit sales during a particular
period.
Total sales
This is calculated as; =
Sundry debtors

sundry
year

total sales

debtors

ratio

2001
2002
2003
2004
2005

8814828.55
15531146.85
12222486
26535957
36773178.64

974028
2761105.1
3268030
4851045
3390461

9.05
5.62
3.74
5.47
10.85

PROFITABILITY RATIO
A business firm is basically a profit earning organization.
The income statement of the firm shows the profit earned by the firm

during the accounting period. Profitability is an indication of the

efficiency with which the operations of the business are carried on. The
profit figure has, however, different meaning to different parties
interested in financial analysis. The following are the important
profitability ratios:

1. Gross Profit Ratio:

This ratio expresses relationship between gross profit and

net sales.
Gross profit
This ratio is calculated as: = *100
Net sales

year
2001
2002
2003
2004

gross profit
1579683.35
1656815.71
1960841
3407854

net sales
15531146.85
8914828.55
12222486
26535957

ratio
10.17
18.58
16.04
12.84

2005

6470865.44

36773178.64

17.60

2. Net Profit Ratio:

This ratio is very helpful to the proprietors and prospective

investors because it reveals the overall profitability of the concern. This is
the ratio of net profit to net sales.
Net profit
This is calculated as:
Net Sales

net
year

net profit

sales

r
atio

89148
2001
2002

2695.5
173182.9
7

28.55

0
.03

15531
146

1
.12

12222
2003

32127.16

486

0
.26

26535
2004
2005

78179.78
212486.2
9

957

0
.29

36773
178.64

0
.58

COMPARATIVE FINANCIAL STATEMENTS

Comparative financial statements are those statements which
have been designed in a way so as to provide time perspective to the
consideration of various elements of financial position embodied in such
statements. In these statements figures for two or more periods are placed
side by side to facilitate comparison.

COMPARATIVE INCOME STATEMENT.

The income statement discloses net profit or net loss on

account of operations. A comparative income statement will show the
absolute figures for two or more periods, the absolute change from one
period to another and, if desired, the change in terms of percentages.
Since the figures for two or more periods are shown side by side, the
reader can quickly ascertain whether sales have increased or decreased,
whether cost of sales has increased or decreased, etc. Thus, only a reading
of data included in comparative income statements will be helpful in
deriving meaningful conclusions.

COMPARATIVE BALANCE SHEET.

Comparative Balance sheet as on two or more different dates

can be used for comparing assets and liabilities and finding out any
increase or decrease in those items. Thus, while in a single Balance Sheet
the emphasis is on present position, it is on change in the comparative
Balance Sheet. Such a Balance Sheet is very useful in studying the trends
in an enterprise.