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INTRODUCTION

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INTRODUCTION TO PROJECT
Finance may be defined as the art & science of managing money. Finance is the life-blood of business, like human body. As without blood there is no meaning of human body, similarly without finance there is no meaning of business. The main and basic objective of business organization is to earn profit, and for achieving this objective funds are required. After raising the funds, investing them in the right place is important in order to incur more benefit but many times management fails to do so of because incorrect decision-making; which means investments is to be done where return on investment is more. Before proceeding to examine the allocation and raising funds, the finance manager uses certain tools of Analysis, planning and control. Financial ratio indicates about the financial position of the company. A company is deemed to be financially sound if it is in position to carry on its business smoothly and meet its obligations, both short-term as well as long term. Requirement of funds for short term should be met out from short-term funds and long-term requirement should be met out from long-term funds.

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PURPOSE OF STUDY
Trading and Profit & Loss Account, Balance Sheet and various schedules prepared at the end of the year do not always convey to the reader the real significance of operating results and financial health of the business. Such financial statements, at the most present various facts, whether these facts indicate a good, bad or indifferent managerial performance or whether they point to a probability o future success or failure is for the reader to conclude. And rarely can satisfactory diagnosis be reached on the basis of such information alone. In order to make such statement more meaningful, the user resorts to the technique of making calculations in the form of comparative balance sheet and income statements, common size percentage, trend ratios, ratio expressing the relationship of items selected from the statements. These analysis help in achieving the ultimate aim of interpreting the financial statements. In order to adopt any or all the above techniques of analysis it is necessary to calculate ratios. [In this project, attempt is made to focus on analyzing and interpreting the ratios to study the financial performance of the Crompton Greaves Ltd for the period 2005-2006 to 2007-2008.]

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COMPANY PROFILE

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COMPANY PROFILE
Introduction
Crompton Greaves (CG) is part of the US$ 3 bn Avantha Group, a conglomerate with an impressive global footprint. Since its inception, CG has been synonymous with electricity. In 1875, a Crompton 'dynamo' powered the world's very first electricity-lit house in Colchester, Essex, U.K. CG's India operations were established in 1937, and since then the company has retained its leadership position in the management and application of electrical energy. Today, Crompton Greaves is India's largest private sector enterprise. It has diversified extensively and is engaged in designing, manufacturing and marketing technologically advanced electrical products and services related to power generation, transmission and distribution, besides executing turnkey projects. The company is customer-centric in its focus and is the single largest source for a wide variety of electrical equipments and products. With several international acquisitions, Crompton Greaves is fast emerging as a first choice global supplier for high quality electrical equipment.

HISTORY
The history of Crompton Greaves goes back to 1878 when Col. R.E.B. Crompton founded R.E.B.Crompton & Company. The company merged with F.A Parkinson in the year 1927 to form Crompton Parkinson Ltd., (CPL). Greaves Cotton and Co (GCC) was appointed as their concessionaire in India. In 1937, CPL established, it's wholly owned Indian subsidiary viz. Crompton Parkinson Works Ltd., in Bombay, along with a sales organization, Greaves Cotton & Crompton Parkinson Ltd., in collaboration with GCC. In the year 1947, with the dawn of Indian independence, the company was taken over by Lala Karamchand Thapar, an eminent Indian industrialist. Crompton Greaves is headquartered in a self-owned landmark building at Worli, Mumbai.

Ownership
CG is a part of the BM Thapar group incorporated in1937, CGs Head quarter in a self-owned landmark building at Worli, Mumbai.

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Products & Services Offered


The company is organized into three business groups viz. Power Systems, Industrial Systems, Consumer Products. Nearly, two-thirds of its turnover accrues from products lines in which it enjoys a leadership position. Presently, the company is offering wide range of products such as power & industrial transformers, HT circuit breakers, LT & HT motors, DC motors, traction motors, alternators/ generators, railway signaling equipments, lighting products, fans, pumps and public switching, transmission and access products. In addition to offering broad range of products, the company undertakes turnkey projects from concept to commissioning. Apart from this, CG exports it's products to more than 60 countries worldwide, which includes the emerging South-East Asian and Latin American markets. Thus, the company addresses all the segments of the power industry from complex industrial solutions to basic household requirements. The fans and lighting businesses acquired "Super brand" status in January 2004. It is a unique recognition amongst the country's 134 selected brands by "Super brands", UK.

Companies Presence In Market


CG is the Indian market leader across a number of product groups in the electrical engineering sector. It enjoys an export presence across more than 60 countries, which includes the emerging South-East Asian and Latin American markets.

Manufacturing, Marketing & Servicing Network


CG's business operations consist of 22 manufacturing divisions spread across in Gujarat, Maharashtra, Goa, Madhya Pradesh and Karnataka, supported by well knitted marketing and service network through 14 branches in various states under overall management of four regional sales offices located in Delhi, Kolkata, Mumbai and Chennai. The company has a large customer base, which includes State Electricity Boards, Government bodies and large companies in private and public sectors.

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Plugging Joint Ventures into the Fulfillment Chain:


Joint ventures are one of the key engines, which drive transformation & growth of the company. Crompton Greaves augments its proficiency with the cuttingedge of strategic alliances. Its joint ventures and technological tie-ups empower the company's drive to offer broad portfolio of its value-added products & services to customers in a significant way. The details of CG's joint ventures are given below

Company CG Lucy Switchgear Ltd. The collaboration with W. Lucy & Co. of the U.K. enables CG to offer Ring Main Units for reliable and convenient distribution of power, especially in urban areas under the joint venture Brook Crompton Greaves Ltd. Involved in manufacturing of Low Tension high efficiency motors for various industrial applications.

Contact Details F-10MIDC Ambad, Nasik 422010 PBX Nos.: (0253) 2381603, (0253) 2387139 Fax No.: - (0253) 2381542 B108/109, MIDC Industrial Area, Ahmednagar 414111 PBX No.: - (0241) 778538 Fax No.: - (0241) 777162

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LANDMARKS
1979: - First Ac motor rolled out on 8th December. 1980: - Ac motors commercial production started in160-180 frame shifted from Worli. 1981: - Frame 200-315 shifted from LMD and added to product Range. 1991: - ISO 9001 approval received First in electrical industry. 1994: - BASSEFA approval for FLP motors for export market First in Indian industry. 1996: - Alternator production started after absorbing technology from EUROGEN, Italy. 1997: - DC Motors manufacturing started under license from SIEMENS Germany. Relocation of Worli operations to Goa and Ahmednagar 2001: - Expansion of alternator range upto 625kva. 2002: - Addition of Nema range motors and CSA certification for USA and Canada market. Addition of Gas Group IIC FLP motors in the range first in Indian Industry. 2003: - IECEX approval for increased safety motors for exports-first in Indian Industry. 2005: - Acquisition of the Pauwels Group in May 05, 2006: - Acquisition Hungarian based Ganz (GTV), on 17th October 2006 2007: - Acquisition of Microsol Holdings Limited (MHL) and its associate companies in May 2007 as a Global T&D Solutions Provider. MHL, based in Ireland 2008: - Crompton Greaves concluded an arrangement for the acquisition of Societe Nouvelle de Maintenance de Transformateurs (Sonomatra) of France in June 2008.
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The Manufacturing Grid


Crompton Greaves' strength emanates from its business operations consisting of 21 divisions spread across in Gujarat, Maharashtra, Goa, Madhya Pradesh and Karnataka supported by well knitted marketing and service network through 14 branches in state capitals under overall management of four regional sales offices located in Delhi, Kolkata, Mumbai and Chennai -Corporate Office, Mumbai

Telecommunications Bangalore

Plant,

Jigani

Light Sources Manufacturing Plant, Baroda.

Alternators & Ahmednagar

DC

Machines

Plant,

Switchgear Plant, Nashik

LT Motors Plant, Ahmednagar.

Transformers Plant, Kanjurmarg - Mumbai

Transformer Plant, Mandideep

Ceiling Fans Plant, Goa

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LT Motors Division, Ahmednagar


The LT Motors Division of Crompton Greaves is the largest manufacturer of Low Tension Motors in India offering a range of AC and DC motors ranging from 0.05kw to 10,000 kw in various standard and customized configurations, which meet the exacting demands of the industry. The Division had manufacturing plants in Ahmednagar, Goa and Mumbai. These modern plants are maintained in world-class condition with regular infusions of the latest technology so as to ensure the highest quality of throughput. A team of dedicated professionals ensures that customers get the benefit of a range of trouble free products and services based on superior mechanical and product design. The manufacturing facilities are ISO 9001 certified by the BVQI. The standard motors offered by the Division are in compliance with efficiency level 2 of the proposed revision tp ISI2615 in India as well as CEMEP standards Prevalent in Europe for energy efficient motors. To ensure the highest levels of customer satisfaction, the latest designs have been incorporated for the range of LT Motors, ensuring better electrical performance as well as versatility in mechanical features. The Divisions products are exported to over 30 countries including the quality conscious markets of USA and Europe.

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RESEARCH METHODOLOGY

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Research Methodology
Area of the Research Finance Topic Of Research Ratio Analysis is a tool for finding the financial
performance of the company

Period of the Research Objective of the Research

/08/2008 to /09/2008

The principal objective is to analyze the financial statement of Crompton Greaves Ltd., using Ratio Analysis. To compare the performance of the company for the 3 years.

Type of Data
Primary Data: Primary data is collected from the staff members of the Finance department. Secondary Data: Secondary data is collected from the Financial statements and website of the company

Research Design
It includes following steps Calculations of Ratios Analyzing &Interpreting the ratios Research Findings Suggestions

Limitation of the study


Data was collected mostly from secondary data.

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INTRODUCTION TO TOPIC

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Introduction to Topic
RATIO ANALYSIS
RATIO: -The term ratio refers to the numerical or quantative relationship
between 2 items or variables.

EXPRESSION OF RATIOS
1. Pure: - Expressed as quotient

E.g.: - Current Ratio = Current Assets/ Current Liabilities = Rs. 2,00,000/ Rs. 1,00,000 = 2:1 2. Percentage: -Expressed in percentage E.g.: - Gross Profit Ratio = Gross Profit/Net Sales X 100 = 25%
3. Time: -Expressed in number a particular figure is compared to another

figure E.g.: - Stock turnover ratio which studies relationship between cost of goods sold. And average stock is (say) 4 times
4. Fraction: -Expressed as fraction

E.g.: - Ratio of fixed assets to share Capital is (say) (0.75) 5. Expressed in number of days E.g.: - The average collection period is 73 days These alternatives methods of expressing items, which are related to each other, are for purposes of financial analysis, referred to as ratio analysis. It should be noted that ratio des not have inherent value. What the ratio does is that they reveal the relationship in a more meaningful way so as to enable equity investors; management and lenders make better investment and credit decisions. The rationale of ratio analysis lies in the fact that it makes related information comparable. A single figure by itself has no meaning but when expressed in terms of a related figure, it yields significant inferences
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ANALYSIS: - The term analysis refers to the separation of a whole into partfor study or interpretation

RATIO ANALYSIS
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weakness of a firm, as well as its historical performance and current financial condition can be determined. In ratio analysis, various ratios are computed, depending upon the objective of the user and analyzing the financial statements. Short-term creditors are primarily concerned with a companys ability to meet short-term debt from current assets, so they concentrate on the Liquidity Ratios emphasizing cash flow. Long-term creditors want to be paid back in the long-term, so they look to solvency ratios such as Total Debt to Total Stockholders equity. Potential investors are interested in dividends and appreciation in market price of stock, so they focus on profitability ratios (e.g., profit margin) and market measures (e.g., price-earnings ratio). Auditors zero in on the going concern of the client by determining its ability to meet debt (e.g., interest coverage ratio).

BASIS OF COMPARISION
Ratio, are relative figure reflecting the relationship between variables. They enable analysts to draw conclusion regarding financial operations. The use of ratios, as a tool of financial analysis, involves their comparison, for a single ratio, like absolute figure, fails to reveal the true position i.e., is it favourable or unfavourable. Four types of comparisons are involved: 1) Trend ratios 2) Interfirm comparison 3) Comparison of items with a single years financial statement of a firm 4) Comparison with standards or plan Trend ratios: -Trend ratios involve a comparison of the ratios of a firm over time, that is, present ratios are compared with past ratios for the same firm. The comparison of the profitability of a firm, say, year 1 through 5 is an illustration of a trend ratio. Trend ratios indicate the direction of change in the performance-improvement, deterioration or constancy-over the years.

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Interfirm comparison: - The interfirm comparison involves comparison of ratios of a firm with those of others in the same line of business or the industry as a whole its performance in relation to its competitors Other types of comparison: - Other types of comparison may relate to comparison of items within a single years financial statement of a firm and comparison with the standards or plans.

OBJECTIVE OF RATIO ANALYSIS


1) The main objective of ratio analysis is to Test and Make Qualitative

Judgment about the Firms Profitability, Financial Position (Liquidity & Solvency), and Operating Efficiency. E.g.: - Current Ratio is calculated by dividing current assets by current liabilities; the ratio indicates a relationship-a qualified relationship between current assets and current liabilities. 2) It measures the Firms Liquidity: The greater the ratio, the greater the firms liquidity and vice-versa. 3) In Financial Analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm. 4) An Accounting figure conveys meaning when it is related to some other relevant information. E.g. Rs.5 Crore Net Profit may look impressive, but the firms performance can be said to be good or bad only when the net profit is related to the firms investment.

TYPES OF RATIOS
1) Liquidity Ratios: - They measure the firms ability to meet current 2) 3) 4) 5)

obligations. Solvency Ratios: - They show the proportions of debt & equity in financing the firms assets. Activity Ratios: - They reflect the firms efficiency of utilizing assets. Profitability Ratios: - They measure overall performance and effectiveness of the Firm. Coverage Ratios: - They measure the profit to measure the interest charges.

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IMPORTANCE OF RATIO ANALYSIS


As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inferences regarding the performance of a firm. Ratio analysis is relevant in assessing performance of a firm in respect of the following aspects: Liquidity position With the help of the ratio analysis conclusions can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligations when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short-maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are particularly useful in credit analysis by banks and other suppliers of short-term loans. Long-term Solvency Ratio analysis is equally useful for assessing the long-term financial liability of a firm. This aspect of the financial position of a borrower is of concern to the long-term creditors, security analysts and the present and potential owners of a business. The long-term solvency is measured by the leverage/capital structure and profitability ratios, which focus on earning power and operating efficiency. Ratio analysis reveals the strength and weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly, the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the risk involved. Operating Efficiency Yet another dimension of the usefulness of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in the management and utilisation of its assets. The various activity ratios measure
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this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of its assets-total as well as its components.

Overall Profitability Unlike the outside parties which are interested in one aspect of financial position of a firm, the management is constantly concerned about the overall profitability of the Enterprise. That is, they are concerned about the ability of the firm to meet its short-term as well as long-term obligations to its creditors, to ensure a reasonable return to its owners and secure optimum utilisation of the assets of the firm. This is possible if an integrated view is taken and all the ratios are considered together. Inter-firm Comparison Ratio analysis not only throws light on the financial position of a firm but also serves as a stepping-stone to remedial measures. This is made possible due to inter-firm comparison and comparison with industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. One of the popular techniques is to compare the ratios of a firm with the industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter-firm comparison would demonstrate the firms position vis--vis its competitors. If the results are at variance either with the industry average or with those of the competitors, the firm can seek to identify the reasons and, in that light, take remedial measures. Trend Analysis Ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of a trend analysis of ratios lies in the fact that the analysts can know the direction of movement, that is, whether the movement is favourable or unfavorable.

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Limitations
Ratio analysis is a widely used tool of financial analysis. Yet, it suffers from various limitations. The operational implication of this is that while using the ratios, the conclusions should not be taken on the face value. Some of the limitations, which characterize ratio analysis, are: 1. Difficulty in comparison 2. Impact of inflation 3. Conceptual diversity 4. Ignores qualitative factors Difficulty in Comparison One serious limitation of ratio analysis arises out of the difficulty associated with their comparability. One technique that is employed is inter-firm comparison. But such comparisons are vitiated by different procedures adopted by various firms. The differences may relate to: 1. Differences in the basis of inventory valuation (e.g. last in the first out, first in first out, average cost and cost) 2. Different depreciation methods (i.e. straight method vs written down basis) 3. Estimated working life of assets, particularly of plant and equipment. 4. Amortisation of intangible assets like goodwill patents and so on. 5. Amortisation of deferred revenue expenditure such as preliminary expenditure and discount on issue of shares. 6. Capitalisation of lease. 7. Treatment of extraordinary items of income and expenditure and so on. Secondly, apart from different accounting procedures, companies may have different accounting periods, implying differences in the composition of the assets, particularly current assets. For these reasons, the ratios of two firms may not be strictly comparable. Another basis of comparison is the industry average. This presupposes the availability, on a comprehensive scale, of various ratios for each industry group over a period of time. If, however, as is likely, such
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information is not completed is not compiled and available, the utility of ratio analysis would be limited.

Impact of Inflation The second major limitation of the ratio analysis as a tool of financial analysis is associated with price level changes. This, in fact, is a weakness of the traditional financial statements, which are based on historical costs. An implication of this feature of the financial statements as regards ratio analysis is that assets acquired at different periods are, in effect, shown at different prices in the balance sheet, as they are not adjusted for changes in the price level. As a result, ratio analysis will not yield strictly comparable and, therefore, dependable results. Conceptual Diversity Yet another factor which influences the usefulness of ratios is that there is difference of opinion regarding the various concepts used to compute the ratios. There is always room for diversity of opinion as to what constitutes shareholders equity, debt, assets, profit and so on. Different firms may use these terms in different senses or the same firm may use them to mean different things at different times. Also, ratios are only a post-mortem analysis of what has happened between two balance sheet dates. For one thing, the position in the interim period is not revealed by ratio analysis. Moreover they give no clue about the future. In brief, ratio analysis suffers from serious limitations. The analyst should not carry away by its oversimplified nature, easy computation with high degree of precision. The reliability and significance attached to ratios will largely depend upon the quality of data on which they are based. They are as good as the data itself. Nevertheless, they are an important tool of financial analysis. Ignores Qualitative Factor Accounting ratios are tools of quantitative analysis only. But sometimes qualitative factors may surmount the quantitative aspects. The calculations derived from the ratio analysis under such circumstances may get distorted. E.g.: -Though credit may be granted to a customer on the basis of information regarding his financial position, yet the grant of credit ultimately depends on debtors character, honesty, past records and his managerial ability.
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Financial Ratios

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Classification of Ratios
LIQUIDITY RATIO
1. Current Ratio 2. Acid Test Ratio

TURNOVER RATIO
1. 2. 3. 4. 5. Inventory Turnover Ratio Debtors Turnover Ratio Fixed Asset Turnover Ratio Current Asset turnover Ratio Working Capital Turnover Ratio

PROFITABILITY RATIO
6. Net Profit Ratio 7. Operating Profit Ratio 8. Operating Expenses Ratio 9. Return on Gross Capital Employed 10 Return on Net Capital Employed

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PROFIT&LOSS A/C, BALANCE SHEET

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Crompton Greaves Pvt Ltd. Balance Sheet as at 31st March, 2008 Figures in Lakh (Rs.) Particulars SOURCES OF FUNDS Shareholders Funds Capital Reserves and Surplus Loan Funds Secured Loans Unsecured Loans Deferred Tax Asset Current Account 36,812 36,133 APPLICATION OF FUNDS Fixed Assets Investments Current Assets, Loans &Advances Inventories Sundry Debtors Cash & Bank Balances Loans & Advances 17,022 51,819 4 1,990 70,834 Less; Current Liabilities & Provisions Liabilities Provisions 57,759 NET CURRENT ASSET Profit & loss Account Capital Employed 13,075 (61,277) (36,133) 45,463 16,525 (47,695) (18,442) 38,467 17,600 (45,936) (17,950) 57,759 45,463 38,467 13,637 45,213 8 3,130 61,988 9,123 43,147 6 3,791 56,067 12,069 12,729 10,385 19,154 18,442 18,889 17,950 (679) (712) (857) (81) Current year F.Y. 2007-08 Previous Year F.Y. 2006-07 F.Y. 2005-06

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Crompton Greaves Pvt Ltd. F.Y. 2007-08 F.Y. 2006-07 Profit & Loss Account for the Year Ended 31st March, 2008 Opening Inventory 13,637.10 9,122.69
Average Inventory : Closing Inventory Particulars Avrage Inventory INCOME Gross Sales Average Trade Debtors : Less: ExciseOpening Trade Debtors Duty Net Sales Closing Trade Debtors TOTAL Current year 325,803.57 F.Y. 2007-08 45,998.53 45,212.60 51,818.57 279,805.04 97,031.16 288.13 48,515.58 279,516.90 Current year F.Y. 2007-08 189,319.97 17,021.71 51,818.57 7,496.45 3.53 1,990.00 18,560.59 70,833.81 57,758.68 916.22 TOTAL Working Capital 57,758.68 13,075.13 Current year F.Y. 2007-08 218,239.54 1,946.30 F.Y. 2006-07 TOTAL 17,021.71 Current 30,658.81 year F.Y. 2007-08 15,329.40

Schedules for Working of Ratios Components Current year

Previous Year F.Y. 2005-06

Figures in Lakh (Rs.) 13,637.10 Previous Year 22,759.79 F.Y. 2006-07 F.Y. 2005-06 11,379.89 Previous Year 204,379.89 F.Y. 2005-06 28,941.31 175,438.58 260.53 175,178.04 F.Y. 2005-06 108,982.83 9,122.69 6,348.17 43,146.93 6.48 3,790.89 11,389.94 56,066.99 38,466.62 442.77 2,078.57 38,466.62 17,600.37

259,050.78 F.Y. 2006-07 37,610.00 43,146.93 45,212.60 221,440.79 88,359.53 458.61 44,179.76 220,982.17 Previous Year 149,877.99 13,637.10 6,239.83 45,212.60 7.92 3,130.11 14,596.34 61,987.73 45,463.03 580.62 1,992.47 45,463.03 16,524.70

Other Income Avrage Trade Debtors Net Income Working Capital : Expenditure Current Assets: Materials Inventories Staff & Welfare Sundry Debtors Cash & Bank Balances Loans & Advances Manufacturing, Selling & Administration Diff of Excise. Duty Paid & Recovered Less: Current Liabilities Liabilities Interest & Commitment Charges Provisions Depreciation Impairment of Assets

TOTAL

Profit Before Exceptional Items Operating Profit: Exceptional Items (Net) Net Income Less: Operating Expenses Profit Before Taxes Staff & Welfare Provision for Taxation Manufacturing ,Selling & Administration Current Tax Diff of Excise. Duty Paid & Recovered Interest & Commitment Charges Deferred Tax Depreciation Fringe Benefit Tax Trf to Doubtful Debts Reserve Operating Profit

173,287.24 129,242.27 Previous Year 61,277.36 F.Y. 2006-07 47,694.93 F.Y. 2005-06 45,935.77 220,982.17 47,694.93 6,239.83 14,596.34 580.62 1,992.47 23,409.25 175,178.04 45,935.77 6,348.17 11,389.94 442.77 2,078.57 20,259.45

279,516.90 61,277.36 7,496.45 18,560.59 916.22 1,946.30 28,919.57

Profit After Tax Gross Capital Employed: PROFIT/ LOSS CARRIED TO BALANCE SHEET Fixed Assets

250,597.33 197,572.92 154,918.60 Current year Previous Year 61,277.36 47,694.93 45,935.77 F.Y. 2007-08 F.Y. 2006-07 F.Y. 2005-06 61,277.36 12,728.51 47,694.93 12,069.36 10,385.25 45,935.77

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Current Assets, Loans &Advances Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Gross Capital Employed Current Assets: Inventories Sundry Debtors Cash & Bank Balances Loans & Advances TOTAL Liquid Current Assets: Sundry Debtors Cash & Bank Balances Loans & Advances TOTAL Absolute Liquid Assets: Cash & Bank Balances Marketable Securities TOTAL

17,021.71 51,818.57 3.53 1,990.00 82,903.17

13,637.10 45,212.60 7.92 3,130.11 74,716.24

9,122.69 43,146.93 6.48 3,790.89 66,452.25

17,021.71 51,818.57 3.53 1,990.00 70,833.81

13,637.10 45,212.60 7.92 3,130.11 61,987.73

9,122.69 43,146.93 6.48 3,790.89 56,066.99

51,818.57 3.53 1,990.00 53,812.10 3.53 3.53

45,212.60 7.92 3,130.11 48,350.63 7.92 7.92

43,146.93 6.48 3,790.89 46,944.30 6.48 6.48

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DATA ANALYSIS INTERPRETATION &


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GRAPHICAL PRESENTATION

LIQUIDITY RATIOS
Liquidity ratios measure the ability of the firm to meet its short-term obligations that is capacity of the firm to pay its current liabilities as and when they fall due. Thus these ratios reflect the short-term financial solvency of a firm. A firm should ensure that it does not suffer from lack of liquidity. The failure to meet obligations on due time may result in bad credit image, loss of creditors confidence, and even in legal proceedings against the firm on the other hand very high degree of liquidity is also not desirable since it would imply that funds are idle and earn nothing. So therefore it is necessary to strike a proper balance between liquidity and lack of liquidity. The various ratios that explain about the liquidity of the firm are: 1. Current Ratio 2. Acid Test Ratio / quick ratio 3. Absolute liquid ration / cash ratio CURRENT RATIO The current ratio measures the short-term solvency of the firm. It establishes the relationship between current assets and current liabilities. It is calculated by dividing current assets by current liabilities. Current Ratio = Current Asset Current Liabilities
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Current assets include cash and bank balances, marketable securities, inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables and prepaid expenses. Current liabilities includes sundry creditors, bills payable, short- term loans, income-tax liability, accrued expenses and dividends payable.

Table No 1
Particulars Current Asset Current Liabilities Ratio 2005-06 56,066.99 38,467.00 1.46 2006-07 61,987.73 45,463.00 1.36 2007-08 78,833.81 57,759.00 1.23

Graph No.1

Current Ratio
1.5 1.45 1.4 1.35 1.36 Ratios 1.46

Times

1.3 1.25 1.2 1.15 1.1 2005-06 2006-07 2007-08 1.23

Year
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INTERPRETATION
A higher current ratio has better liquidity. A standard norm of current ratio is 2:1. Since last 3 years although the current ratio has been decreased but companys current assets are more than its current liabilities so the company is assuring to pay its maturing debt as and when it becomes due. Ratio is satisfactory to the company according to its characteristics. It is good sign that company is keeping sufficient margin of safety.

2. ACID TEST RATIO / QUICK RATIO/ LIQUID RATIO It has been an important indicator of the firms liquidity position and is used as a complementary ratio to the current ratio. It establishes the relationship between quick assets and current liabilities. It is calculated by dividing quick assets by the current liabilities. Acid Test Ratio = Liquid Assets Current liabilities

Quick assets are those current assets, which can be converted into cash immediately or within reasonable short time without a loss of value. These include cash and bank balances, sundry debtors, bills receivables and shortterm marketable securities.

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Table No.2
Particulars Liquid Assets Current Liabilities Ratio 2005-06 46,944.30 38,467.00 1.22 2006-07 48,350.63 45,463.00 1.06 2007-08 53,812.10 57,759.00 0.93

Graph No.2

Acid Test Ratio


1.4 1.2 1 0.8 1.22 1.06 0.93

Times

0.6 0.4 0.2 0 2005-06 2006-07 2007-08

Ratio

Year
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INTERPRETATION
Liquid ratio is widely accepted as the best available test of the liquidity position of the firm. Generally, a liquid ratio 1:1 is considered satisfactory as a firm can easily meets all current claims. In case of Crompton Greaves, the liquid ratio was 1.22 in year 2005-06 & it decreased by 0.16 in 2006-07 year i.e., it reached to 1.06, which is more than the standard norms. But in 2007-08 year the liquid ratio was less than the standard norm as it reached to 0.93. Such fluctuations takes place due gap between collection period & payment period. Liquidity position of the firm is almost satisfactory.

TURNOVER RATIO
Turnover ratios are also known as activity ratios or efficiency ratios with which a firm manages its current assets. The following turnover ratios can be calculated to judge the effectiveness of asset use. 1. 2. 3. 4. Inventory Turnover Ratio Debtor Turnover Ratio Creditor Turnover Ratio Assets Turnover Ratio

1. INVENTORY TURNOVER RATIO This ratio indicates the number of times the inventory has been converted into sales during the period. Thus it evaluates the efficiency of the firm in managing its inventory. It is calculated by dividing the cost of goods sold by average inventory. Inventory Turnover Ratio = Cost of goods sold Average Inventory The average inventory is simple average of the opening and closing balances of inventory. (Opening + Closing balances / 2). In certain circumstances opening balance of the inventory may not be known then closing balance of inventory may be considered as average inventory
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Table No.3
Particulars Cost of goods sold Average Inventory Ratio 2005-06 108,982.83 2006-07 149,877.99 11,379.89 13.17 2007-08 189,319.97 15,329.40 12.35

Graph No.3

Inventory Turnover Ratio


13.2 13 12.8 13.17

Times

12.6 12.4 12.2 12 11.8 2006-07 2007-08 12.35 Ratio

Year
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INTERPRETATION
Inventory Turnover Ratio measures how quickly inventory is sold. A high inventory turnover ratio is better than a low ratio. A high ratio implies good inventory management. Yet, a very high ratio calls for a careful analysis & on the other hand a very low level of inventory has serious implications; it will adversely affects the ability to meet customers demand as it may not cope up with its requirement. Hence, a firm should have neither too high nor too low inventory turnover. In case of Crompton Greaves, ratio has decreased from 13.75 to 12.35 i.e., by 1.4 times. So it is an alert signal for the company considering that the company should meet the supply of its products according to its market demand. Company is almostly managing its investments in inventory efficiently.

2. DEBTOR TURNOVER RATIO This indicates the number of times average debtors have been converted into cash during a year. It is determined by dividing the net credit sales by average debtors. Debtor Turnover Ratio = Net Credit Sales Average Trade Debtors Net credit sales consist of gross credit sales minus sales return. Trade debtor includes sundry debtors and bills receivables. Average trade debtors (Opening + Closing balances / 2) When the information about credit sales, opening and closing balances of trade debtors is not available then the ratio can be calculated by dividing total sales by closing balances of trade debtor Debtor Turnover Ratio = Total Sales Trade Debtors

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Table No.4
Particulars 2005-06 Total Sales 175,438.58 Average Trade Debtors Ratio 2006-07 221,440.79 44,179.76 5.01 2007-08 279,805.04 48,515.58 5.77

Graph No.4

Debtors Turnover Ratio


5.8 5.6 5.4 5.2 5.01 5 4.8 4.6 2007-08 - 35 Ratio 5.77

2006-07 INTERPRETATION

Times

Year INTERPRETATION
A higher debtors turnover ratio and shorter collection period, a better is the trade credit management and better is the liquidity of debtors, as short collection period and high turnover ratio imply prompt payment on the part of debtors. In short high turnover is preferable. In case of Crompton Greaves ratio is increasing. It has increased from 5.01 to 5.77 i.e., by 0.76 times. It means time lag between credit sales & cash collection is reducing which is good signal for the future of the company. 3. ASSETS TURNOVER RATIO The relationship between assets and sales is known as assets turnover ratio. Several assets turnover ratios can be calculated depending upon the groups of assets, which are related to sales.
1. 2. 3. 4. 5.

Fixed asset turnover Current asset turnover Net working capital turnover ratio Total asset turnover Net asset turnover

1. FIXED ASSET TURNOVER This ratio is calculated by dividing sales by net fixed assets. Fixed asset turnover = Total Sales Fixed Assets Net fixed assets represent the cost of fixed assets minus depreciation.

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Table No.5
Particulars Total Sales Fixed Assets Ratio 2005-06 175,438.58 10,358.00 16.89 2006-07 221,440.79 12,729.00 17.40 2007-08 279,805.04 12,069.00 23.18

Graph No.5

Fixed Asset Turnover Ratio


25 20 16.89 15 23.18 17.4

Times

10 5

Ratio

INTERPRETATION
0 2005-06 2006-07 2007-08

Year
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INTERPRETATION
A high ratio indicates efficient utilization of fixed assets in generating sales. Companies whose plant & machinery are old show a higher fix asset turnover ratio than the company, which is newly established. In case of Crompton Greaves since 3 years i.e., from 2005-06 to 2007-08 the ratio has increased from 16.89 to 23.18. It means it has increased 6.29 times because of increase in the sales & depreciation of assets to till date. One of the reasons is that the company is not newly established. 2. CURRENT ASSET TURNOVER It is divided by calculating sales by current assets Current asset turnover = Total Sales Current Assets

Table No.6
Particulars Total Sales Current Assets Ratio 2005-06 175,438.58 56,066.99 3.13 2006-07 221,440.79 61,987.73 3.57 2007-08 279,805.04 70,833.81 3.95

Graph No.6

Current Asset Turnover Ratio


4 3.5 3 2.5 2 1.5 1 0.5 0 2005-06 2006-07 - 38 2007-08 3.13 3.95 3.57

Times

Ratio

Year INTERPRETATION
Current asset turnover ratio enables to measure of efficiency or activity. More the ratio better is the efficiency. Incase of Crompton Greaves, since 3 years the current asset turnover ratio is constantly increasing. During the year 2005-06 it was 3.13 & it increased to 3.57 in year 2006-07 & had reached to 3.95 in the year 2007-08 which means over a period of 3 years it has increased by 0.82 times which indicates that the assets of the company are efficiently utilized by the management.

4. NET WORKING CAPITAL TURNOVER RATIO A higher ratio is an indicator of better utilization of current assets and working capital and vice-versa (a lower ratio is an indicator of poor utilization of current assets and working capital). It is calculated by dividing sales by working capital. Net working capital turnover ratio = Total Sales Net Working Capital

Working capital is represented by the difference between current assets and current liabilities.

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Table No.7
Particulars Total Sales
Net Working Capital

Ratio

2005-06 175,438.58 17,600.37 9.97

2006-07 221,440.79 16,524.70 13.40

2007-08 279,805.04 13,075.13 21.40

Graph No.7 Net Working Capital Ratio


25 21.4 20 15 13.4 9.97 Ratio

Times

10 5 0

2005-06

2006-07

2007-08

Year
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INTERPRETATION
This ratio indicates whether the working capital has been efficiently utilized or not in making sales. In this graph since 3 years i.e., from 2005-06 to 2007-08 the ratio has increased from 9.97 to 21.4 i.e. by 11.43 times which indicates that the company is maintaining balance between risk and profitability& there is efficient management of working capital in the company.

PROFITABILITY RATIOS
The profitability ratio of the firm can be measured by calculating various profitability ratios. General two groups of profitability ratios are calculated. a. Profitability in relation to sales. b. Profitability in relation to investments. Profitability in relation to sales 1. 2. 3. 4. 5. Gross profit margin or ratio Net profit margin or ratio Operating profit margin or ratio Operating Ratio Expenses Ratio

1. NET PROFIT MARGIN OR RATIO It measures the relationship between net profit and sales of a firm. It indicates managements efficiency in manufacturing, administrating, and selling the products. It is calculated by dividing net profit after tax by sales.

Net profit margin or ratio = Net Profit


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Net Sales

Table No.8
Particulars Net Profit Net Sales Ratio 2005-06 45,935.77 175,438.58 26.18 2006-07 47,694.93 221,440.79 21.54 2007-08 61,277.36 279,805.04 21.90

Graph No.8

Net Profit Ratio


30 26.18 25 21.54 21.9 20 15 10 5 0 2005-06 2006-07 2007-08 Ratio

Percentage

Year
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INTERPRETATION
Net profit ratio reveals overall efficiency of business, Higher the ratio. the better it is. In case of Crompton Greaves, net profit ratio in the year2005-06 was 26.18% & in 2007-08-it was21.9%, it means companys profitability has been decreased as compared to previous year. One of the reason for decrease in net profitability ratio is increase in administrative &selling expenses.

2. OPERATING PROFIT MARGIN OR RATIO It establishes the relationship between total operating expenses and net sales. It is calculated by dividing operating expenses by the net sales.

Operating profit margin or ratio = Operating Profit Net sales

Operating expenses includes cost of goods produced/sold, general and administrative expenses, selling and distributive expenses.

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Table No.9
Particulars Operating Profit Net Sales Ratio 2005-06 154,918.60 175,438.58 11.57 2006-07 197,572.92 221,440.79 10.59 2007-08 250,597.33 279,805.04 10.35

Graph No.9

Operating Profit Ratio


12 11.5 11 11.57

Percentage

10.59 10.5 10 9.5 2005-06 2006-07 2007-08 10.35

Ratio

Year
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INTERPRETATION
Operating profit ratio measures a companys operating efficiency and pricing efficiency with its successful cost controlling. The higher the ratio, the better a company is. A higher operating profit margin means that a company has lower fixed cost and a better gross margin or increasing sales faster than costs, which gives management more flexibility in determining prices. It also provides useful information for investors to determine the quality of a company when looking at the trend in operating margin over time and to compare with industry peers. This graph shows that ratio has decreased. In the year 2005-06 it was 11.57% & in comes down to 10.59% in year 2006-07 again it falls to 10.35% in year 2007-08. Hence during these 3 years it had been decreased by 1.22%. Hence, the company needs to be more alert while fixing the cost.

4. OPERATING EXPENSE RATIO The operating expense ratio also known as the OER is the ratio between the total operating expenses and the effective gross income for an income producing property. Operating expenses are costs associated with the operation and maintenance of income producing properties. They include such items as property taxes, property management fees, insurance, wages, utilities, repairs and maintenance, supplies, advertising, attorney fees, accounting fees, trash removal, pest control, etc. The following are not operating expenses; loan payments, personal property and capital improvements. The effective gross income for a property is the actual yearly income from all sources. It is equal to the yearly gross rents possible plus other income such as laundry receipts, vending machines, parking fees, etc. less the yearly vacancy amount. Operating Expense Ratio= Operating Expense Net Sales

The operating expense ratio shows the percentage of a property's income that is being used to pay maintenance and operational expenses.
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Table No.10
Particulars Operating Expense Net Sales Ratio 2005-06 20,259.45 175,438.58 88.43 2006-07 23,409.25 221,440.79 89.41 2007-08 28,919.57 279,805.04 89.65

Graph No.10

Operating Expense Ratio


89.8 89.6 89.4 89.2 89 88.8 88.6 88.4 88.2 88 87.8 2005-06 2006-07 2007-08 88.43 2005-06 2006-07 2007-08 89.41 89.65

Percentage

Year
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INTERPRETATION
The operating expense ratio is an indicator of how efficiently a property is being managed. The lower the operating expense ratio, the greater the profit for the investor or investors. But in case of Crompton Greaves the ratio has been constantly increasing. Hence, the company should take necessary steps to reduce vacancies, reduce operating expense items and increase income.

PROFITABILITY IN RELATION TO INVESTMENTS


1. 2. 3. 4. Return on gross investment or gross capital employed Return on net investment or net capital employed Return on shareholders investment or shareholders capital employed. Return on equity shareholder investment or equity shareholder capital employed.

1. RETURN ON GROSS CAPITAL EMPLOYED This ratio establishes the relationship between net profit and the gross capital employed. This is a financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. It is defined as Net operating profit less adjusted taxes divided by Invested Capital and is usually expressed as a percentage. In this calculation, capital invested includes all monetary capital invested: long-term debt, common and preferred shares.The term gross capital employed refers to the total investment made in business. The conventional approach is to divide Earnings after Tax (EAT) by gross capital employed.

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Return on gross capital employed = Net Profit after Tax Gross capital employed

Table No.11
Particulars Net Profit After Tax Gross Capital Employed Ratio 2005-06 45,935.77 66,425.25 69.13 2006-07 47,694.93 74,716.24 63.83 2007-08 61,277.36 82903.17 73.91

Graph No.11

Return on Gross Capital Employed Ratio


74 72 70 68 69.13 73.91

Percentages

66 64 62 60 58 2005-06
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63.83

Ratio

2006-07

2007-08

Year INTERPRETATION
Return on gross capital employed measures the gross profit, which a firm earns on investing a unit of capital. Hence, a return on capital employed ratio (ROCE) should be as high as possible. A negative ROCE would mean that the firm had made a loss. In this graph the gross capital employed ratio in the year2005-06 is 69.13% but it has decreased to 63.83% in the year 2006-07 but again it has increased to 73.91% hence it is a good signal for the company. 2. RETURN ON NET CAPITAL EMPLOYED It is calculated by dividing Earnings before Interest & Tax (EBIT) by the net capital employed. The term net capital employed in the gross capital in the business minus current liabilities. Thus it represents the long-term funds supplied by creditors and owners of the firm. Return on net capital employed = Net Profit After Tax Net capital employed

Table No.12
Particulars Net Profit After Tax Net Capital Employed Ratio 250 2005-06 45,935.77 27,985.62 164.14 2006-07 47,694.93 29,253.21 163.04 2007-08 61,277.36 25,144.00 243.70

Graph No.12

243.7

200 150 100

Return164.14 Capital Employed Ratio on Net 163.04


Ratio

Percentages

50 0
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2005-06

2006-07

2007-08

Year

INTERPRETATION
Return on net capital employed measures the net profit, which a firm earns on investing a unit of capital. Hence, a return on capital employed ratio (ROCE) should be as high as possible. A negative ROCE would mean that the firm had made a loss. In this graph the gross capital employed ratio in the year2005-06 is 164.14% % but it has decreased to 163.04% in the year 2006-07 but again it has increased to 243.7%. Hence it is a good signal for the company

RATIOS Particulars
LIQUIDITY RATIO
Current Ratio Acid Test Ratio

2007-08 2007-06 2005-06


1.23 0.93 12.35 5.77 23.18 3.95
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1.36 1.06 13.17 5.01 17.40 3.57

1.46 1.22

TURNOVER RATIO
Inventory Turnover Ratio Debtors Turnover Ratio Fixed Asset Turnover Ratio Current Asset Turnover Ratio

16.89 3.13

Working Capital Turnover Ratio

21.40 21.90 10.35 89.65 73.91 243.70

13.40 21.54 10.59 89.41 63.83 163.04

9.97 26.18 11.57 88.43 69.13 164.14

PROFITABILITY RATIO
Net Profit Ratio Operating Profit Ratio Operating Expense Ratio Return on Gross Capital Employed Return on Net Capital Employed

FINDINGS
LIQUIDITY RATIOS
Companys current assets are more than its current liabilities. Company is keeping sufficient margin of safety. Acid ratio is initially more than standard norm 1:1 but is decreasing & is less than standard norm in the year 2007-08 with 0.93 ratio

TURNOVER RATIOS
Inventory turnover ratio has been decreased which is an alert signal for the company

Debtors turnover ratio has increased which indicates time lag between credit sales & cash collection is reducing which is good signal for the future of the company.

Fixed Asset Turnover Ratio has increased because of increase in the sales & depreciation of assets to till date. Current asset turnover ratio has increased constantly
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Working capital turnover ratio has also been constantly increasing which indicates that the company is maintaining balance between risk and profitability. There is efficient management of working capital in the company.

PROFITABILITY RATIO
Net profit ratio has been fluctuating. One of the reasons for decrease in net profitability ratio is increase in administrative &selling expenses. Operating profit ratio has been decreasing constantly since 2005-06 to 2007-08 by 1.22%. Hence, the company needs to be more alert while fixing the cost.

The operating expense ratio has been constantly increasing Hence, the company should take necessary steps to reduce vacancies, reduce operating expense items and increase income. Return on gross capital employed ratio has been fluctuating. In the year 2005-06 it was 69.13% but it has decreased to 63.83% in the year 200607 but again it has increased to 73.91%. Hence it is a good signal for the company. Return on net capital employed has been fluctuating. In the year 2005-06 it was 164.14% & it has decreased to 163.04% in the year 2006-07 i.e. by 1.1% but it has again increased to 243.7% i.e., by 80.66%. Hence it is a good signal for the company.

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CONCLUSION

In this project financial statement of last 3 years has been compared & through ratio analysis technique it is concluded that the company is satisfactorily carrying on its workings. The study is restricted to only financial statements. The company has recorded significant increase in working capital turnover ratio. Overall it has managed to expand favorably at a every ratio improving steadily.

Hence it can be said that the company is constantly putting efforts for reaching the path of excellence

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SUGGESSTIONS
In future company can increase its liquid assets because liquid ratio is 0.93& the standard is 1. Net profit of the company is low because of increase in manufacturing, selling & administrative expenses. Company should make contract with vendors for a long period at fixed prices. Company should assess what steps it can take to reduce vacancies, reduce operating expense items and increase income

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BIBLIOGRAPHY

Referred Books
Financial Management (Khan & Jain)

Websites
Cgonline.com Google.com Clipart.com Annual Reports of Crompton Greaves Ltd. (Year 2005-06 to 2007-08)

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