Behavioral Finance and Wealth Management

Question: Talk about the Behavioral Finance and Wealth Management. Answer: Presentation The organization in center is Pacific America coal Ltd which is a recorded mining organization in the ASX that is centered around creating coal resources in North America. The companys primary center is expanding estimation of its offers to its investors (Berk and DeMarzo, 2007). A Chief Finance Officer of an association is for the most part a piece of the administrative group of the equivalent, and in this way as such is accountable for the boost of investor reserves contributed. In countries with built up stock trades , is the cost of the offer which decides the presentation of the executives to financial specialists of the association (BRADSTREET, 2009). Job of the CFO Right off the bat , the CFO improves the profits of the association . Regardless of this , this ought not generally mean an ideal come back to financial specialists . The worth put on investors assets after some time may lead them to pick one or even the other exchange . We cannot dismiss the hazard part connected with the desire for future return in reality the more the hazard is the essential for investor gain . The more noteworthy measure of benefits can be cultivated even by approving progressively stock offers to bookkeeping benefits increment with reducing liabilities , anyway this may infer that profit per share is diminished (Curtis, 2012) . Correspondingly , you will discover utilities which needn't bother with programmed transformations in profits , or even which are disseminated to proprietors .The CFO is liable for raising assets for the organization to work at the least conceivable and the best states of reimbursement cost and this has consistently been the conventional movement of a Chief fund official. Without adequate subsidizing the organization doesn't work ideally (Drucker and Maciariello, 2008).The best way to realize which is the degree of obligation and assets that ought to be accessible consistently, is through a financial plan fitting money, arranged by the CFO dependent on the data of the profitable and administration regions for the most part toward the finish of a year ago and with intermittent surveys modification, contingent upon the conditions. Assets for the association are not boundless , so they were , you can get an ideal over that is extravagant to have surpluses (Hillier, 2010). Cash is a benefit that produces additional worth so the standard should consistently's utilize it to create more than it costs , except for one least sum money for all time ought to be kept up fundamentally inert to maintain a strategic distance from occasions illiquidity. The job of the CFO is keep a legitimate balance among liquidity and gainfulness . An illiquid association , without enough assets , won't work viably , and an association with unreasonable liquidity is amazingly expensive . This is a difficult that ought to be managed by a CFO . Luckily , to accomplish liquidity you will discover approaches to hold money available or in any event, banking organizations , like the banks which empowers one to have speedy access , keep up portions overdraft , have promptly exchanged resources , and so on . The most troublesome assignments of a CFO is being able to deal with the excess money (Jordan and Michel, 2001). Circulation of cash among the few zones of the association just as needs regions is one more job of the CFO .In planning, inclinations should be according to the necessities of the association which initially distributes assets to the zones which are vital .If there is various creation lines , they have to build up their benefit and misfort une , or far and away superior , their income , giving close spotlight on the gross overall revenues are introduced from month to month . It tends to be similarly essential to once in a while list stock turnover and furthermore portfolio which distinguishes quick unpredictable circumstances in the business (Nelken, 2006). Another critical job of a CFO is ensure that the budget reports are convenient and reliable , working additionally in its examination . In like manner , the state requests occasional accommodation of different configurations with working and annual duty data , the ordinary accommodation which should be observed . Nature of bookkeeping information depends on their idealness just as right posting . The other job is to make the executives approaches of the organization with respect to funds . The CFO works basically on current resources , clarifying the administration of money and banks , debt claims and stock (Nikbakht and Groppelli, n.d.) . The other capacity is to set obligation structure for which the organization can ideally work in. How duty of CFO can affect target of the organization The CFO must be very much aware that money related choices must consider non-budgetary viewpoints for instance Market conditions , legitimate , work , system e.t.c coming up next are goals of an organization Amplify benefits Each organization must undertaking to raise their gainfulness , in the event that they need to stay in business . Regardless of whether through the development of new markets , searching out for new items and answers for offer to individuals , increment income edges just as limiting pointless costs , associations must discover approaches to improve benefit , both now and in the long haul . The CFO should concoct approaches to expand profit by ensuring the organization makes the correct ventures and works together effortlessly (Pompian, 2012) . Expanded piece of the pie One of the significant corporate targets is to expand your piece of the pie. For instance the Pacific america coal Ltd should expand piece of the overall industry and the CFO is mindful by guaranteeing that he concocts methods of expanding this piece of the overall industry either by planning a blue print to build the piece of the overall industry. Create current product offerings Giving the comparative products to quite a while makes stagnation in the market . While extending wild isn't prudent , evaluate new administrations and items to discover what the business can bolster is a phenomenal system for development just as organization objective . This advances the product offering , as well as furthermore expands the market potential ( Ross , Westerfield and Jaffe , 2005 ) . The CFO along with item advancement supervisor ought to guarantee that the organization has new items to offer in the market . Increment worker standards for dependability Numerous corporate goals target development and productivity . Anyway , its likewise insightful to concentrate on the hour of setting up the framework of organization destinations . In the event that current paces of staff maintenance is little , it implies that yield is enduring and , as such , the association objectives can never be met . Expanding staff standards for dependability chops down the sum and time put resources into preparing new staff who , consequently , helps gainfulness . A delineation of this is a corporate objective for an association with a degree of consistency of 60 % presently to work to hold 80 % of its current workforce until one year from now . In the event that changes are important to fulfill this goal , as more significant salary or far better advantages , these things must be remembered for the goal . The CFO guarantees that the organization gives great compensation terms to its workers to keep them ( Ross , Westerfield and Jaffe , 2005 ) . Another target of the organization is to limit cost, the CFO is liable for making tasks that lessen squanders and increment proficiency in the organization in this way he is significant for Pacific American Coal Ltd and guarantees that the organization brings about insignificant expenses. On the off chance that the organization need to make a benefit this year to be considered activities, for example, conceding support, keep as far as possible inventories and take measures to decrease costs One of the primary exercises of the Chief money official is monetary arranging, in which are concentrated the three fundamental errands of the Chief account official which are; Venture choices are for the most part organizations with constrained assets and these ought to be distributed in various exercises or undertakings contending. You should choose where to contribute and when to contribute, continually searching for that these ventures are intended to meet the target work Funding choices are the point at which the organization must make speculations that add to the age of significant worth, including Chief money officials must stress over where to get the assets or assets for such speculations. Generally speaking the organization has two structure to acquire assets through investors or loan bosses (Ross, Westerfield and Jordan, 2007) . Profit choices is the point at which the organization must choose how much benefit is produced must be reinvested in the equivalent and that both must be come back to investors. These choices must be made with unique consideration in such a case that the organization comes back to investors a high level of salary, development potential will be lower and the organization could be worth less over the long haul. This impact will be considerably more noteworthy in organizations that botch speculation chances. For Pacific America coal ltd , the CFO, should know the pattern of the swapping scale and should concentrate new circumstances, for example, the instance of an adjustment in the example of advancement of a country.The Chief money official, given his connection with all zones and how this influences the worldwide market. Every one of them will take us to meet the goal of Chief fund official capacity. Embodying the above found that if the organization does what is essential for the organization to endure, we may feel that it is making a benefit, subsequently it approaches meet the goal work; if the monetary troubles are kept away from and that the organization falls into chapter 11 may likewise have the option to amplify the abundance of investors (Smart, Megginson and Gitman, 2004). Proficient market speculation Beatingthe marketby making use ofjust about anyinformation that the market currentlyknows is absurd as per this speculation. Theinformationrefers toany kind ofnewsthat maydetermine theequitiesprice is irregular walk which isimpossibletodiscoverin advance. The productive markets theory wasformulatedby Professor Eugene Fama .Efficient market hypothesisstates

Hofstede’s Model Of Organisational Culture The WritePass Journal

Hofstede’s Model Of Organizational Culture Theoretical Hofstede’s Model Of Organizational Culture ABSTRACTINTRODUCTIONWHAT IS..â€Å"CULTURE†?ORGANIZAITONAL CULTUREProcess arranged versus objective orientedParochial versus professionalOpen framework versus shut systemEmployee situated versus work orientedTighter control versus free controlNormative versus pragmaticCRITICISMS OF HOFSTEDE’S MODELARGUMENTS IN Favor OF HOFSTEDE’S MODELA CASE STUDY OF SONY ERICSSONORGANIZATIONAL CULTURE IN SONY ERICSSONCONCLUSIONREFERENCERelated Dynamic Hierarchical culture has become the trendy expression in well known administration with numerous specialists recommending it as a significant determinant for authoritative achievement. The board analysts have rushed to bring up the effect that hierarchical culture may have on the adequacy of the association and have required an expansion in the consideration paid to authoritative culture. With more accentuation being set on hierarchical culture, it gets essential to comprehend the intrigue of this idea and inspect its effect on the board inside the association This paper along these lines investigates on the idea of â€Å"organizational culture† and analyzes its effect on practices and the board of the association. This will include distinguishing one related mode or hypothesis and assessing or deciding the degree to which the picked model has an impact in characterizing the style of the board. A contextual analysis of Sony Ericsson will likewise be utilized to help represent the use of hofstede’s model of hierarchical culture. The examination will likewise recognize impediments of this model and the qualities that have empowered it to be utilized as a reason for most research investigations. Presentation Authoritative culture has become the trendy expression in well known administration with numerous specialists recommending it as a significant determinant for hierarchical achievement (Schein 1999). While the relationship between hierarchical culture and authoritative achievement is a long way from certain, clearly every association has its own novel social structure which drives a significant part of the individual conduct inside that association. The board analysts have rushed to bring up the effect that authoritative culture may have on the adequacy of the association and have required an expansion in the consideration paid to hierarchical culture (Siehl Martin 1998).â With more accentuation being put on hierarchical culture, it is critical to comprehend the intrigue of this idea and look at its effect on the board inside the association. This investigation accordingly investigates on the idea of authoritative culture and analyzes its effect on the board style. This will include recognizing one related mode or hypothesis and assessing or deciding the degree to which the picked model has an influence in characterizing the style of the board. In such manner, Hofstede’s thoughts will frame the premise of our investigation of authoritative culture. WHAT IS..â€Å"CULTURE†? The term culture has been given fluctuated set of definitions by different researchers. Kroeber Kluckholn (1952), for instance, characterized culture as comprising of examples of conduct procured and transmitted through images, and which establish particular accomplishment of human gatherings remembering their epitome for ancient rarities. Hofstede (1980), then again, characterized culture as the aggregate programming of the brain which separates individuals from one human gathering in the general public from the rest. While Symington (1983) characterized it as a mind boggling entire which incorporate conviction, information, ethics, workmanship, customs, abilities and propensities procured in the general public.  These definitions propose culture to comprise of a lot of significant worth frameworks that are shared similarly by individuals in the general public and which ties individuals together. With the above conceptualization of culture, we would now be able to characterize what we mean by hierarchical culture. ORGANIZAITONAL CULTURE Authoritative culture can essentially be characterized as a lot of qualities, presumptions and convictions that characterize the practices and style of the executives in an association (O’Reilly et.al, 1991). There are three principle wellsprings of impact accepted to cooperate to make hierarchical culture. These are the convictions and qualities held by the pioneers of the association, the attributes of the business where the association is inside, and the more extensive society wherein the association works (O’Reilly et.al, 1991). The most compelling model utilized by the executives scientists and which has shaped the premise of most investigations of authoritative culture is Hofstedes model. While generally noted for his momentous work on measurements of national culture, Hofstede likewise distinguished six components of authoritative culture which can be utilized in characterizing the style of the executives in an association. Procedure arranged versus objective situated The procedure arranged versus result situated measurement is worried about the adequacy of the association. A key component of a procedure arranged culture is the methods or rather the manner by which work must be directed. While in an outcome arranged culture, accentuation is set on the objectives of the association. That is, workers are principally out to accomplish explicit hierarchical objectives regardless of whether the dangers included are significant (Hofstede 2001). Parochial versus proficient This measurement mirrors the inward and outside edge of the association (Hofstede 2001). In a nearby culture the character of the workers is with the prompt supervisor. Consequently workers inside this culture are inside engaged and coordinated and there is likewise a solid social control. The opposite is valid in an expert culture where the character of the representatives is to a great extent controlled by the calling and substance of the activity. Open framework versus shut framework The open framework versus shut framework measurement mirrors the correspondence atmosphere of the association (Hofstede 2001). For an open framework, new workers are invited and there is the conviction that everybody fits well in the association. While for a shut framework, it is hard to join and it is accepted that lone a specific sort of people may fit in the association. Worker arranged versus work situated This measurement identifies with the administration theory in the association. In a worker situated authoritative culture, concern is essentially on representative fulfillment. The staff individuals feel that their very own issues and government assistance is considered by the association. While for an occupation arranged authoritative culture, work is described by substantial strain to play out the particular errand to the detriment of the representative (Hofstede 2001). More tightly control versus free control This measurement identifies with organizing, control and order in the association. A tight control culture is portrayed by earnestness and dependability while the highlights of a free control culture are easygoing and ad lib (Hofstede 2001). Instances of associations that are frequently found inside more tightly controls are banks and pharmaceutical organizations while those found in free control are look into labs and publicizing offices (Hofstede 2001). Regulating versus sober minded This measurement thinks about the techniques utilized by associations when managing the earth all in all and clients specifically. It portrays the degree of client oreintation. Realistic societies are adaptable and more market driven while regulating societies are unbending and frequently stress on adhering to pertinent laws and rules (Hofstede 2001). Hofstede marked associations engaged with the offer of administrations as down to business while those occupied with use of laws and rules as standardizing. Reactions OF HOFSTEDE’S MODEL Hofstedes momentous work on culture has to be sure given important bits of knowledge into the administration styles and elements of culturally diverse connections. Notwithstanding, his exceptionally compelling discoveries have not been without reactions. Various scholastics have ruined his work to some extent or entirety. Pundits have contended that review was not a significant instrument that could be utilized in precisely deciding and estimating the way of life of associations (Jones 2007). An overview of a lot of constrained inquiries unquestionably can't satisfactorily and exhaustively give a top to bottom comprehension of culture of an association. Because of this analysis, Hofstede contended that overview was one strategy and unquestionably not by any means the only technique that was utilized. Hofstedes model has likewise been scrutinized on the premise that the five or six measurements didn't give adequate data about social contrasts (Jones 2007). In such manner, Hofstede concurred that his investigation was excessively tight to believably contend for the widespread legitimacy and adequacy of the six components of authoritative culture that he recognized. Also, truth be told, recommended for extra measurements to his unique work. He likewise noticed that a portion of the six measurements that he distinguished might be less helpful while breaking down different sorts of associations in different nations (Jones 2007). A third analysis is that Hofstede’s work is viewed as obsolete, particularly with the quick changes in the worldwide condition (Jones 2007). This study has additionally been advanced by Holden (2002) who brings up that the information utilized by Hofstede in his components of authoritative culture appear to have been accumulated more than 30 years back and is consequently not, at this point appropriate to the current world. In light of this analysis, Hofstede (1998) brought up that various ongoing replications had affirmed his discoveries. Hofstede’s model is likewise reprimanded on grounds of his one organization approach. Hofstedes investigation guessed that a solitary IBM authoritative culture could be utilized to make deductions about the whole overall hierarchical societies (Jones 2007). An investigation focused on one organization surely can't be utilized to make surmisings about the whole overall organiza

Decision Follow Up Notes COLUMBIA UNIVERSITY - SIPA Admissions Blog

Decision Follow Up Notes COLUMBIA UNIVERSITY - SIPA Admissions Blog A few questions have come in since we started to release decisions yesterday and I wanted to take an entry to address some of the common inquiries.   Many of the questions have had to do with whether the decisions we sent out in the first batch were limited to a particular category of admission status.   The answer to this question is both yes and no. The first batch of decisions we sent out included MIA and MPA applicants from all three categories that I commented on in recent posts:   waitlist candidates, admitted candidates, and candidates not admitted to the program.   It is true however that the Admissions Committee is still meeting to discuss scholarship offers and thus the first batch of decisions did not include any candidates offered a first-year scholarship award. I should also note that no MPA-DP decisions have been posted yet.   The Committee that reviews MPA-DP candidates is still meeting but decisions should go out very soon. Related to the topic of scholarships, some have asked how we will notify candidates that applied for the International Fellows Program (IFP) if they were selected.   If a candidate has been chosen as an International Fellow this information will be included in the admission letter.   To say it another way, if no information about the IFP program is present in the admission letter this means a candidate has not been chosen for the program. Some questions asked were also about whether the decisions sent in the first batch were related to country of origin or citizenship.   The answer to that question is no.   The decisions we sent or will send in the future are not divided by country of origin or citizenship. The question was also posed of whether decisions are released in alphabetical order.   The answer to that is most definitely no. For those waiting, I know it is hard, but again our process is a bit complex and the availability of Committee members has a direct impact on how fast we can make final decisions.   We appreciate your patience as we work as quickly as we are able to make final decisions.   When decisions are made we will post them to the system and an email will be sent to the email address listed on the application.

Women During The Han Dynasty - 2027 Words

Women during the Han Dynasty Lessons for Women is a book of conduct written during the Han Dynasty by Ban Zhao (C. 45-120) to advise the women of her family on the proper conduct of a wife. Ancient China around this time was a Confucian state in which the society was control by the belief in order and harmony. The book contains seven chapters that talks about: humility, husband and wife, respect and caution, womanly qualifications, wholehearted devotion, implicit obedience, and harmony with younger brothers- and sisters- in law. This work of literature reflects on how a proper women was to behave obediently to the husband, by being devoted and respectful to avoid humility to herself, her parents and her clan. It gives the readers an idea of the power that men had over women during this time period and the exceptions for both roles of husband and wife. Lessons of women informs the readers that women during the Han Dynasty had no control over their own lives and the philosophy of Confucian had a huge influence o n the society’s everyday life. Ban Zhao emphasizes the importance of distinctions between men and women, and their separate natures. From the time of birth a woman is taught to be a good wife, she learns how to submit herself to her husband and understands that her sole purpose in life is to serve him. Humility was not something that a women was to bring to her family. Rituals were held because it was believed there were a necessary rite of passage for a baby girl toShow MoreRelatedThe Role Of Women During The Han Dynasty And The Roman Empire1139 Words   |  5 PagesThe role of women in both the the Han Dynasty and the Roman Empire women was ambiguous. The Han Dynasty ruled from 206 BCE–220 CE. Much later came the Roman Empire, which lasted from 27 CE-476 CE. 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Tale Of A Danish Prince - Free Essay Example

Sample details Pages: 2 Words: 731 Downloads: 5 Date added: 2019/04/08 Category Literature Essay Level High school Tags: Hamlet Essay William Shakespeare Essay Did you like this example? Hamlet, is a tale of a Danish prince bestowed with the burden of hashing plans to punish his dads homicide once his ghost appears before Hamlet and uncovers that he was dead by his very own blood. To Hamlets disgust, his uncle, Claudius, has purloined Hamlets place as King by marrying the princes mother, Gertrude. In Hamlets look for the reality, he makes the fatal error of stabbing Polonius, the Kings authority. Don’t waste time! Our writers will create an original "Tale Of A Danish Prince" essay for you Create order Polonius death causes his female offspring, World Health Organization is Hamlets former lover, to travel insane. Polonius son, Laertes, decides to require revenge upon Hamlet for his father, and Roman Emperor sees a chance to urge eliminate his kinsman. He sets up a fencing match between Hamlet and mythical being, then poisons Hamlets drink and Laertes brand. Hamlet wants verification of his uncles murder of the previous king before he will take revenge upon him, as he includes a worry of the spiritual consequences of murdering a person World Health Organization has done nothing wrong. He looks to be cautious of his fathers ghost and therefore the allegations it makes regarding Claudius regicide. The ghost 1st seems within the play before Horatio, World Health Organization is Hamlets friend, and 2 guards of Elsinore castle. Hamlet is then told by his fathers ghost to penalize his death once he follows the spirit into the forest. In Elizabethan times, once Hamlet was written and performed, folks were terribly irrational. associate Elizabethan audience would have mechanically accepted the existence of the ghost, however Hamlet queries whether or not the apparition may be a satanic trick created to steal his soul, or the important ghost of his father. Hamlet chooses to see regardless of whether Claudius is liable or not by having an associat ion of players re-order the presumed homicide and insightful Claudius response to the play, that is named, The Mousetrap. This makes the prince simpler to identify with as his distress influences him to show up a considerable measure of likely. The possibility of Hamlets vengeance is communicated through some of his monologues, strikingly in his second speech once hes rebuking his very own inaction. Hamlet is hesitant to execute his uncle while not firm verification as he fears the supernatural outcomes of killing Partner in Nursing guiltless man. As the prince might be a Christian, he lives by the possibility that on the off chance that he slaughters a cleared man, he is sent directly to underworld. It requires him an extended investment to ask his requital as he stresses an over the top measure of with respect to the consequences of basically each situation. The second talk is activated by the enthusiastic discourse of the essential player, who plays the character upheld Villages dad in, The Mousetrap. The prince feels that hes a disappointment since the player will depict feeling with no purpose for it, anyway he cant rouse himself to kill Claudius. Hamlet is recounting how mortified and despicable he feels over the possibility that for little more than the maintaining of their standards, twenty thousand men walk towards unavoidable passing without any protestations or fears while he cant force himself to slaughter his dads killer because of a paranoid fear of the otherworldly results. He is flabbergasted that such a large number of individuals are set up to pass on for a real estate parcel that isnt even sufficiently huge to cover them all under. This occasion puts Claudius fratricidal demonstration into point of view for Hamlet, and he chooses all that he does starting now and into the foreseeable future will be centered around avenging his dads demise. Shakespeare expanded my valuation for the content as Hamlets goals to slaughter Claudius persuaded that he is at last going to get equity and prevent experiencing all the psychological disturbance caused by his inertia in the retaliation of his dads homicide. Shakespeare investigates the idea of the accomplishment of requital in the last scene of the play, when Village at long last slaughters Claudius. This happens when Laertes opens Claudius to Village for harming the sword, which both the sovereign and Laertes have been injured by, and the wine, which Gertrude has quite recently tanked. She kicks the bucket without further ado before Laertes admission. Hamlet grabs his chance and cuts his uncle with the cutting edge and powers him to drink the deadly wine finally fulling his destiny.

Scenario Solution Free Essays

Scenario Solution Jennifer Hinkley HSM/220 November 20, 2011 Ruth Anne Ristow Axia College of University of Phoenix More and more students are dropping out of high school each year. The need to obtain the funds to open up programs that will make sure that these former students can gain the educational skills they need for their future careers. Having an education will ensure that careers is kept. We will write a custom essay sample on Scenario Solution or any similar topic only for you Order Now The plan will take a lot of work, understanding, and communication from all parties. The students, educators, and the community are the main parties’ involved. There can be a plan formulated to find the means for these drop-outs to step up to the challenge and gain enough information and confidence to find a job and to hold down that job successfully. It will not be easy to design the format of these informational programs or to raise the funds to do it. We can, however, organize the program formats in several ways. We can divide the work into departments that will help employees the importance of focusing on their assigned work without being distracted by other aspects of the large project. The first step will be to assemble a team of personnel whom focuses their efforts on advertising. This step is crucial to make sure that the students who need help will hear the message implied. The next step in the program would be to get the students enrolled. It might be difficult to make sure that they believe that their efforts, and ours, but counselors will be there to show them that it is for a valuable purpose. In general, high school drop-outs have demonstrated that they are not that motivated to continue their education. Because of this, another team of personnel will be there to ensure that the returning students understand that a high school education and the associated skills are the best route to a respectable job. One disadvantage of this departmental approach is that the organization might lose track of an individual student who was brought into the program. In the event this happens, it might demoralize and de-motivate a student who thinks that they are being treated as if they are â€Å"special. † However, it may turn into an advantage as well. As the students meet many new people who want to help them, it will begin to boost their self-esteem and their sense of self-worth. The feeling of importance and the realization that many people actually care about their future helps tremendously as well. In the event any of the mentioned issues occur, there will be long-term mentors available to the students so that they do not get lost in the educational process. A group of personnel will also be designated for long-term mentorship of these students. The departments may be divided, but they are also a team that is all working towards the same goal. This is a sure way of increasing teamwork within the organization. With each employee working within their own department that they are specialized or certified in, then reporting back to the team, teamwork will grow throughout the organization. Teamwork is an asset for the foundation by itself, but each person can also build on what another has to say by contributing their own thoughts and experiences. Overall, everything will improve. This includes the students, the organization, and the future cooperate world. The matrix organizational form is also worth considering for the organization. In this organizational form, employees are divided into their skills. For example, within our program created for the drop-out students, some employees may be better at advertising and promoting. Some may be a â€Å"people-person† who are easy to talk to and get along well with other people. Then there are some employees that are good with numbers, math, and logistics. The group that is gifted with advertising and promoting would go into the community to contact and recruit drop-outs, so that they know about and can use our program. Advertising is important, because these drop-outs might not be motivated to do much educationally. Charismatic and excitable kinds of people are needed who can encourage the drop-outs along and motivate them when they falter. Our â€Å"people-persons† would be the employees who would mentor individual students. Finally, the personnel whom are talented with numbers and math would cope with the program budget, finances, supplies, and scheduling. Coming up with the excitement to recruit these students is not the only difficulty that is faced. The competition that is out there that offers available, low-skill jobs will give the drop-outs a sense that our services are not needed. This creates a problem for the organization especially with the jobs that do not require an education to be employed there. These jobs are in fast food, manual labor like landscaping, and domestic work. These companies usually do not require a high school education and they often prefer to hire unskilled, low-wage workers. To compete with these operations, the organization should pass out fliers or brochures near the companies, businesses, and neighborhoods that are employing these high school dropouts. Even a few posted fliers in local assistance offices may help. To make sure that these fliers are effective, the organization will have a design team from the marketing department. The design team will design, create, and print pamphlets, fliers, brochures, and other information about the organization. To compete with these low-educational, low-skill jobs, the main goal is to have a plan to make the students think about wanting more in their lives. They might want a more fulfilling job, a better ability to care for their family, or a better income in the future from a better-paying job. The community would have to supply some of the organization’s financial needs. A good example is having a place to hold meetings. Meeting outdoors can be productive and fun so that idea does not need to be eliminated. Once a week, instead of paying for a meeting place, a community outreach program can be held at a local park. This provides space, seating, and opportunity. Drop-out students and even their families and friends could meet each other along with possible and current recruited students. This provides open communication about the program as well as an opportunity to answer any questions the public may have. This allows time to share information and just have a fun time outside while learning about the organization. Some community members might not be supportive of our program, as it would use city money to help drop-outs who, they will argue, should have just stayed in high school and gotten the same results for less money. They will ask questions like: Since the government guarantees free high school education for every student, why should we pay money for this new program when their education should have been free to these students in the first place? In counterpoint, an explanation will be given. This explanation is that local schools are losing government funds from the increasing drop-out rate, and in turn the drop-out rate continues to rise. The program does not encourage more students to drop out, but only help students who already have. It will revitalize the education system by driving home the point as to how important a continuing education is to a student and a citizen. For the program to reach its goals, all of the possible foundation employees will need incentives to do their best. So that all of the employees are working at their top level, incentives and reward systems will be created. The employee who is most successful at recruiting drop-outs into the program, for example, will be rewarded. The employees, rather than the manager, will determine who receives the rewards and what they should be. For example, a manager might decide to give an employee a personal reward of funds to take a few over achieving students to dinner. This only provides ample opportunity to continue to motivate and congratulate the students on their progress. There are many ways that upper management can reward employees for helping the foundation, but the best rewards are the ones that employees want. A survey of the employees to find out which rewards would motivate them the best might be a great way. When the organization has met the original goals of the program, the employees who have contributed the most will also be rewarded. This will motivate employees to strive to reach the foundation’s goals. Making goals stimulates personal drive, and it will make foundation employees push themselves harder to achieve the most that they can for themselves and for the organization. The program and the goals in its entirety can be reached, but not without a proper budget. The accounting department along with the human resource department will get together every year to create a budget for the organization itself and the program in which they offer. A line item budget shows the total agency budget. It obtains the number in which the organization cannot go over. It is broken down to how much employees are paid as well as the cost of operating. Another budget needed for the organization to operate successfully is a budget for each person in the organization. This includes skills needed, time spent on training, and a reakdown of what can be spent on each student. With all of the time, energy, and good resources, the organization will reach its goals of helping high school dropouts to obtain their diplomas. This organization is for the good of mankind and what can be done to help others in need. This also creates a chance that returning students will encourage their offspring to continue in their education as well to help the number of overall dropouts to decrease. Line Item Budget Revenue $1,600,000 Expenses Personnel Executive director $100,000 Training supervisor $80,000 Trainers $500,000 Administrative coordinator $45,000 Administrative staff $75,000 Total salaries and wages $800,000 Employee-related benefit$200,000 Expenses @ 25% Operating expenses Rent $125,000 Overhead costs$100,000 Utilities $100,000 Office supplies $25,000 Equipment/lease $50,000 Transportation and travel $100,000 Outside consultants $100,000 Total operating expenses $600,000 Total agency budget $1,600,000 Budget for each person Local government workforce agency—functional and program budget 1 2 3 4 Basic skill Outreach Indirect Total rogram program cost and functional overhead budget Expenses Personnel Executive director $100,000 Training supervisor $80,000 Trainers $300,000 $200,000 Administrative $27,000 $18,000 coordinator Administrative staff $45,000 $30,000 Total salaries and $372,000 $248,000 $180,000 wages Employee-related $93,000 $62,000 $45,000 benefit expenses @ 25% Total personnel costs $465,000 $310,000 $225,000 Operating Expenses Rent $75,000 $50,000 Overhead costs $60,000 $40,000 Utilities $60,000 $40,000 Office supplies $15,000 $10,000 Equipment/lease $30,000 $20,000 Transportation and $60,000 $40,000 travel Outside consultants $60,000 $40,000 Total operating $360,000 $240,000 expenses Total agency budget $825,000 $550,000 $225,000 $1,600,000 Number of eligible 1,000 1,000 1,000 students Total budget need per $825 $550 $225 $1,600 eligible student References Ashford, E. 2011, November 11). Helping high school dropouts get on a college, career track. Retrieved 11 16, 2011, from Community College Times: http://www. communitycollegetimes. com/Pages/Campus-Issues/Community-colleges-play-a-key-role-in-dropout-recovery. aspx Haskins, D. B. (2010, Spring). The Future of Children. Retrieved 11 16, 2011, from http://futureofchildren. org: http://futureofchildren. org/futureofchildren/publications/docs/20_01_PolicyBrief. pdf Kettner, P. M. (2002). Achieving Excellence in the Management of Human Services Organizations. Allyn and Bacon. How to cite Scenario Solution, Papers

A Study on Financial Performance Using Ratio Analysis at Emami Ltd free essay sample

The study is made to evaluate the financial position, the operational results as well as financial progress of a business concern. This study explains ways in which ratio analysis can be of assistance in long-rang planning, budgeting and asset management to strengthen financial performance and help avoid financial difficulties. The study not only throws on the financial position of a firm but also serves as a stepping stone to remedial measures for Emami Limited. This project helps to identify and give suggestion the area of weaker position of business transaction in â€Å"EMAMI LTD†. LIST OF TABLES Table NoName of TablesPage No. 5. 1Current Ratio27 5. 2Quick ratio 29 5. 3Cash ratio31 5. 4Average Collection Period34 5. 5Inventory Turnover Ratio35 5. 6Working Capital Turnover Ratio37 5. 7Fixed Assets Turnover Ratio39 5. 8Proprietary Ratio42 5. 9Debt to Equity Ratio43 5. 10Interest Coverage Ratio45 5. 11Gross Profit Ratio48 5. 12Net Profit Ratio49 5. 13Return on Investment 51 5. 14Return on Equity53 5. 15Return on Total Assets55 5. 16Comparative Balance Sheet as on 31st March 2001– 200258 5. 17Comparative Balance Sheet as on 31st March 2002– 200360 5. 18Comparative Balance Sheet as on 31st March 2003– 200462 5. 9Comparative Balance Sheet as on 31st March 2004– 200564 5. 20Comparative Balance Sheet as on 31st March 2005– 200666 LIST OF CHARTS Chart No. Name of ChartsPage No. 5. 1Current Ratio28 5. 2Quick ratio 30 5. 3Cash ratio32 5. 4Average Collection Period34 5. 5Inventory Turnover Ratio36 5. 6Working Capital Turnover Ratio38 5. 7Fixed Assets Turnover Ratio40 5. 8Proprietary Ratio42 5. 9Debt to Equity Ratio44 5. 10Interest Coverage Ratio46 5. 11Gross Profit Ratio48 5. 12Net Profit Ratio50 5. 13Return on Investment 52 5. 14Return on Equity54 5. 15Return on Total Assets56 CHAPTER I INTRODUCTION 1. 1 COMPANY PROFILE 1. 1. 1 HISTORY OF THE COMPANY: Emami, which started as a cosmetics manufacturing company in the year 1974, advancing with increased momentum has expanded into Emami Group of Companies of today. Even though cosmetics and toiletries continue to be the main thrust area, the other companies in the Emami Group are performing equally brilliantly. From health care institution to medicines, from real estate to retailing and, from paper to writing instruments, Hospital, Emami is creating one success story after another. 1. 1. 2 Vision and Mission : Vision A company, which with the help of nature, caters to the consumers’ needs and their inner cravings for dreams of better life, in the fields of personal and health care, both in India and throughout the world. Mission †¢To sharpen consumer insights to understand and meet their needs with value-added differentiated products which are safe, effective fast. †¢To integrate our dealers, distributors, retailers and suppliers into the Emami family, thereby strengthening their ties with the company. †¢To recruit, develop and motivate the best talents in the country and provide them with an environment which is demanding and challenging. To strengthen and foster in the employees, strong emotive feelings of oneness with the company. †¢ To uphold the principals of corporate governance and move towards decentralization to generate long term maximum returns for all stake owners. †¢To contribute whole heartedly towards the environment and society and to emerge as a m odel corporate citizen. 1. 1. 3 Values: Respect for people: We treat individuals with dignity and respect. We continue to be honest, open and ethical in all our interactions with dealers, distributors, retailers, suppliers, shareholders, customers and with each other. Consumers delight: We maximizing that our business can succeed only if we can create and keep customers. We manufacture products that offer value for money, which are differentiated and deliver safe, effective and fast solutions. Integrity: People at every level are expected to adhere to the highest standards of business ethics. Anything less is unacceptable. Our ethical conduct transcends beyond policies. It is ingrained in our corporate tradition that is transferred from one generation of employees to another. We comply with applicable government laws and regulations in the geographies where we are present. Quality: We are committed to excellence in everything we do. Our credo: There is always a better way- We must think creatively, continuously innovate and pursue new ideas to achieve uncommon solutions to common problems. Teamwork: Teamwork is the cornerstone of our business that helps deliver value to our customers. We work together across titles, job responsibilities and organizational structure to share knowledge and expertise. The right environment: It is our responsibility to create an environment that helps employees realize their full potential. Leadership: We recognize that we can be a leading company through active delegation and by creating leaders at every level of the organisation. Community development: We continue to contribute to the communities in which we operate and address social issues responsibly. Our products are safe to make and use. We conserve natural resources and continue to invest in a better environment. Transparency and shareholder value: We are committed to be driven by our conscience and regulatory standards, to deliver value to our shareholders, commensurate with our management and financial strength. Board of Directors The efficient functioning of this reputed company rests with the following personalities. Shri R S Agarwal, Chairman Shri R S Goenka, Director Shri Sushil Kr. Goenka, Managing Director Shri A V Agarwal, Director Shri Mohan Goenka, Director Shri H V Agarwal, Director Shri Viren J Shah, Director Shri K K Khemka, Director Shri S N Jalan, Director Shri Vaidya S Chaturvedi, Director Shri K N Memani, Director Shri S K Todi, Director Management team †¢Smt. P. Sureka, Brand Director †¢Shri Manish Goenka, Brand Director †¢Shri Prasant Goenka, Brand Director †¢Shri Dhiraj Agarwal, Media Director †¢Shri Hari Gupta, President – Sales Shri Ashok Dasgupta, President – Operation †¢Shri R. D. Daga, Chief of Legal Affairs †¢Shri R. K. Surana, Sr. V. P. – Purchase Development †¢Shri N. H. Bhansali, Sr. V. P. – Finance †¢Shri S. Rajagopalan, Sr. V. P. – Production †¢Shri R. C. Gattani – Sr. V. P. – Proje cts Development †¢Shri D. Poddar, V. P. – Co-ordination †¢Shri A. B. Mukherjee, V. P. – Logistics †¢Shri A. Ghose, V. P. – Ayurvedic Division †¢Shri A. K. Rajput, V. P. –Operations †¢Shri S. Grover, V. P. – Rural Marketing †¢Shri S. K. Mandal, G. M. – Systems †¢Shri Vimal Kr. Pande, G. M. – Sales †¢Shri P. N. Balakrishnan, G. M. –Technical †¢Shri A. K. Joshi, Company Secretary †¢Shri H. K. Goenka, G. M. – Works †¢Dr. Neena Sharma, G. M. – Ayurveda (RD) †¢Shri Raj Kr. Gupta, G. M. – Purchase †¢Shri T. R. Rajan, G. M. – Production †¢Ms. Ratna Sinha – Head HR The most fascinating fact about the team is that though individual member of the team functions independently and professionally in their own areas but actually they are very closely knit by a bond of fellow feeling. All the members of the Emami team happily co-exist as if family members. 1. 1. 4 Profile of the Organization: Emami Limited is in the business of manufacturing personal, beauty and health care products. The company manufactures herbal and Ayurvedic products through the use of modern scientific laboratory practices. This blend enables the company to manufacture products that are mild, safe and effective. The companys product basket comprises over 20 products, the major being Boroplus Antiseptic Cream, Navratna Oil, Boroplus Prickly Heat Powder, Sona Chandi Chyawanprash and Amritprash, Mentho Plus Pain Balm, Fast Relief, Golden Beauty Talc, Madhuri Range of Products and others. The products are sold across all states in India and in countries like Nepal, Sri Lanka, the Gulf countries, Europe, Africa and the Middle East, among others. . 1. 5 Manufacturing: Emami’s products are manufactured in Kolkata, Puducherry, Guwahati and Mumbai. The company commenced operations at its fully automated manufacturing unit in Amingaon, Guwahati in 2003-04. 1. 1. 6 Network: The companys dispersed manufacturing facilities are complemented with a strong product throughput, facilitated by a robust distribution network of over 2100 direct distributors and 3. 9 lakhs retail outlets. With a view to reach its products deeper into the country, direct selling has been extended to rural villages. As a result, rural sales increased substantially in 2003-04 compared to the previous year. Emami is headquartered in Kolkata. The companys branch offices are located across 27 cities in India. 1. 1. 7 Promoters: Emami is promoted by Shri R. S. Agarwal and Shri R. S. Goenka, Kolkata based industrialists. Emami’s shares are listed on the Calcutta Stock Exchange, Bombay Stock Exchange and National Stock Exchange. 1. 1. 8 IT BACKBONE INTEGRATED INFORMATION TECHNOLOGY An efficient information technology network is necessary for a dynamic FMCG company where the market demands change faster than perhaps in any other industry. At Emami, the integration of information technology transpires on a continuous basis. This ensures that the company responds to changing market place realities faster than its competitors and that its products reach retail shelves just when they are required. In turn, this enhances brand loyalty and retains customers. A successful implementation of the ERP in the offices, factories and depots increased the company’s overall efficiency. It enabled single-point data entry and multi-point information access. The status of raw materials, packing materials, finished goods, indents and sales information gets constantly updated through ERP. This has become possible due to the Point to Point Leased Line connections. As Emami is growing rapidly, the augmented business requirement calls for a Standard ERP system. This would provide Real-Time information to the Management, which would facilitate to take quick decision. The information could also be available through email and Mobile phones. So Emami would be implementing a Standard ERP system very shortly. Sales Forecasting, Demand Planning, Process Management, Supply Chain Management, Primary and Secondary Sales, I-Supplier, I-Expenses, I-Sales will be an integral part of the Standard ERP system. Emami adopts the latest Technology for IT and communication system. 1. . 9 SALES AND DISTRIBUTION NETWORK Our Marketing Distribution Network: Wide, penetrative and all encompassing. That is how Emami has planned its distribution network. The success of Emami has been largely due to its superior products that have reached the consumers even in the remotest regions of the country and abroad. Current Distribution Infrastructure: ?5 Regions ?25 Depots / CF A gents ?2,182 Direct Distributors ?899 Distributors for Rural Coverage ?Over 3,86,940 Retail outlets Distribution Network Four Mother depots †¢Kolkata †¢Vijayawada †¢Delhi †¢Nagpur 1. 1. 10 INTERNATIONAL MARKETING DIVISION Vision: To contribute profitably to the growth of the company, representing it with pride across the globe, with a single-minded focus and dedication to establishing and building global brands. Global Presence of Emami: Over the last 7 years, Emami’s presence has increased from merely few countries in CIS to over 50 countries spanning across SAARC, Gulf, CIS, North America, Europe and Africa. The company now is shifting its focus from broad basing (entering new markets) to increasing the number of successful products in existing markets to improve upon its operational efficiency. Product Portfolio: The Product Portfolio can be broadly divided into three Umbrellas’. †¢Emami – The products under this Umbrella Brand promise care for the skin. The range consists of Skin care, Hair care, Dental care Men’s care products. †¢Himani – Products under this Umbrella Brand promise cure. The range consists of OTC medicines. †¢Ayucare – A range of new Life style enhancing products comprising of Single ingredient herbs, food supplements, Neem Aloe Vera range, Ayurvedic tea, Massage oil, Essential oils blends. †¢Emma – This range comprises of customized products as per the specific needs put-up by the consumer. Typically these are all mass marketed products sold to price conscious buyers. The range presently consists of Creams, Lotions Shampoos. Future Strategy: Company’s business plan for International market comprises of the following key factors. †¢Investment in potential markets for key Brands leading to Higher Possibility of Returns in terms of Turnover and Market Development in the long run. †¢Adding new products for various key markets. †¢Customization of product offerings under the same brand – clubbing of familiar products under the same brand. Manufacturing facilities in High Tariff markets to make prices more consumer-friendly. †¢Acquisition – In certain markets, company may consider buying existing brands instead of trying to build one. Brand Building Activities: Company spends on Media (TV and/or Press) Advertising in select countries in CIS, SAARC, Indo-China and USA, Australia UK. All the markets are supported with POPs, Displays and other promotional material as per the requirement. 1. 2 INTRODUCTION TO THE STUDY Financial Management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources. Though it was a branch of economics till 1890 as a separate or discipline it is of recent origin. Financial Management is concerned with the duties of the finance manager in a business firm. He performs such varied tasks as budgeting, financial forecasting, cash management, credit administration, investment analysis and funds procurement. The recent trend towards globalization of business activity has created new demands and opportunities in managerial finance. Financial statements are prepared and presented for the external users of accounting information. As these statements are used by investors and financial analysts to examine the firm’s performance in order to make investment decisions, they should be prepared very carefully and contain as much investment decisions, they should be prepared very carefully and contain as much information as possible. Preparation of the financial statement is the responsibility of top management. The financial statements are generally prepared from the accounting records maintained by the firm. Financial performance is an important aspect which influences the long term stability, profitability and liquidity of an organization. Usually, financial ratios are said to be the parameters of the financial performance. The Evaluation of financial performance had been taken up for the study with â€Å"EMAMI LIMITED† as the project. Analysis of Financial performances are of greater assistance in locating the weak spots at the Emami limited eventhough the overall performance may be satisfactory. This further helps in ?Financial forecasting and planning. ?Communicate the strength and financial standing of the Emami limited. ?For effective control of business. CHAPTER – II REVIEW OF LITERATURE . 1 Financial statements Analysis: The financial statements provide some extremely useful information to the extent that the balance sheet mirrors the financial position on a particular date in terms of the structure of assets, liabilities and owners’ equity, and so on and the profit an loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. Thus, the financial statements provide a summarized view of the financial position and operations of a firm. Therefore, much an be learnt about a firm from a careful examination of its financial statements as invaluable documents performance reports. The analysis of financial statements is thus, an important aid to financial analysis. The focus of financial analysis is on key figures in the financial statements and the significant relationship that exists between them. The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of the firm’s position and performance. The first task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing of inferences and conclusion. In brief, the financial analysis is the process of selection, relation and evaluation. 2. 2 Ratio Analysis: Ratio analysis is a widely-use tool of financial analysis. It can be used to compare the risk and return relationships of firms of different sizes. 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. The term ratio refers to the numerical or quantitative relationship between two items and variables. These ratios are expressed as (i) percentages, (ii) fraction and (iii) proportion of numbers. These alternative 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 computing the ratios does not add any information not already nherent in the above figures of profits and sales. What the ratio do 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. 2. 3 TYPES OF RATIOS: 2. 3. 1 Liquidity Ratios: The importance of adequate liquidity in the sense of the ability of a firm to meet current/short-term obligations when they become due for payment can hardly be overstresses. In fact, liquidity is a prerequisite for the very survival of a firm. The short-term creditors of the firm are interested in the short-term solvency or liquidity of a firm. The short-term creditors of the firm are interested in the short-term solvency or liquidity of a firm. But liquidity implies from the viewpoint of utilization of the funds of the firm, that funds are idle or they earn very little. A proper balance between the two contradictory requirements, that is, liquidity and profitability, is required for efficient financial management. The liquidity ratios measures the ability of a firm to meet its short-term obligations and reflect the short-term financial strength and solvency of a firm. A. Current Ratio: The current ratio is the ratio of total current assets to total current liabilities. It is calculated by dividing current assets by current liabilities: Current assets Current Ratio = ________________ Current liabilities The current assets of a firm, as already stated, represent those assets which can be, in the ordinary course of business, converted into cash within a short period of time, normally not exceeding one year and include cash and bank balances, marketable securities, inventory of raw materials, semi-finished (work-in-progress) and finished goods, debtors net of provision for bad and doubtful debts, bills receivable and prepaid expenses. The current liabilities defined as liabilities which are short-term maturing obligations to be met, as originally contemplated, within a year, consist of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and outstanding expenses. B. Quick Ratio The liquidity ratio is a measure of liquidity designed to overcome this defect of the current ratio. It is often referred to as quick ratio because it is a measurement of a firm’s ability to convert its current assets quickly into cash in order to meet its current liabilities. Thus, it is a measure of quick or acid liquidity. The acid-test ratio is the ratio between quick assets and current liabilities and is calculated by dividing the quick assets by the current liabilities. Quick assets Quick Ratio = ____________________ Current liabilities The term quick assets refers to current assets which can be converted into cash immediately or at a short notice without diminution of value. Included in this category of current assets are ( i ) cash an bank balance ; (ii) short-term marketable securities and (iii) debtors/receivables. Thus, the current which are included are: prepaid expenses and inventory. The exclusion of expenses by their very nature are not available to pay off current debts. They merely reduce the amount of cash required in one period because of payment in a prior period. C. Cash Ratio: This ratio is also known as cash position ratio or super quick ratio. It is a variation of quick ratio. This ratio establishes the relationship absolute liquid asserts and current liabilities. Absolute liquid assets are cash in hand, bank balance and readily marketable securities. Both the debtors and bills receivable are excluded from liquid assets as there is always an uncertainty with respect to their realization. In other words, liquid assets minus debtors and bills receivable are absolute liquid assets. In this form of formula: Cash in hand at bank + Marketable securities Cash Ratio = ________________________________________ Current liabilities 2. 3. 2 Activity Ratios: Activity ratios are concerned with measuring the efficiency in asset management. These ratios are also called efficiency ratios or asset utilization ratios. The efficiency with which the assets are used would be reflected in the speed and rapidity with which assets are converted into sakes. The greater is the rte of turnover or conversion, the more efficient is the utilization of asses, other thongs being equal. For this reason, such ratios are designed as turnover ratios. Turnover is the primary mode for measuring the extent of efficient employment of assets by relating the assets to sales. An activity ratio may, therefore, be defined as a test of the relationship between sales and the various assets of a firm. A. Average collection period: In order t know the rate at which cash is generated by turnover of receivables, the debtors turnover ratio is supplemented by another ratio viz. average collection period. The average collection period states unambiguously the number of days’ average credit sales tied up in the amount owed by the buyers. The ratio indicates the extent to which the debts have been collected in time. In other words, it gives the average collection period. Prompt collection of book debts will release such funds which may, then, put to some other use. The ratio may be calculate by 360 days Average collection period = _____________________ Debtors turnover ratio B. Inventory Turnover Ratio: This ratio indicates the number of times inventory is replaced during the year. It measures the relationship between the cost of goods sold and the inventory level. The ratio can be computed in Cost of goods sold Inventory Turnover Ratio = ___________________ Average Inventory The average inventory figure may be of two types. In the first place, it may be the monthly inventory average. The monthly average can be found by adding the opening inventory of each month from, in case of the accounting year being a calendar year, January through January an dividing the total by thirteen. If the firm’s accounting year is other than a calendar year, say a financial year, (April and March), the average level of inventory can be computed by adding the opening inventory of each month from April through April and dividing the total by thirteen. This approach has the advantage of being free from bias as it smoothens out the fluctuations in inventory level at different periods. This is particularly true of firms in seasonal industries. However, a serious limitation of this approach is that detailed month-wise information may present practical problems of collection for the analyst. Therefore, average inventory may be obtained by using another basis, namely, the average of the opening inventory may be obtained by using another basis, namely the average of the opening inventory and the closing inventory. C. Working Capital Turnover Ratio: This ratio, should the number of times the working capital results in sales. In otherwords, this ratio indicates the efficiency or otherwise in the utilization of short tern funds in making sales. Working capital means the excess of current over the current liabilities. In fact, in the short run, it is the current liabilities which play a major role. A careful handling of the short term assets and funds will mean a reduction in the amount of capital employed, thereby improving turnover. The following formula is used to measure this ratio: Sales Working capital turnover ratio = _____________________ Net Working Capital D. Fixed Assets Turnover Ratio: As the organisation employs capital on fixed assets for the purpose of equipping itself with the required manufacturing facilities to produce goods and services which are saleable to the customers to earn revenue, it is necessary to measure the degree of success achieved in this bearing. This ratio expresses the relationship between cost of goods sold or sales and fixed assets. The following is used for measurement of the ratio. Sales Fixed Assets Turnover =________________ Net fixed assets In computing fixed assets turnover ratio, fixed assets are generally taken at written down value at the end of the year. However, there is no rigidity about it. It may be taken at the original cost or at the present market value depending on the object of comparison. In fact, the ratio will have automatic improvement if the written down value is used. It would be better if the ratio is worked out on the basis of the original cost of fixed assets. We will take fixed assets at cost less depreciation while working this ratio. 2. 3. 3 Financial Leverage (Gearing) Ratios The long-term lenders/creditors would be judge the soundness of a firm on the basis of the long-term financial strength measured in terms of its ability to pay the interest regularly as well as repay the instalment of the principal on due dates or in one lump sum at the time of maturity. The long term solvency of a firm an be examined by using leverage or capital structure ratios. The leverage or capital structure ratios may be defined as financial ratios which throw light on the long-term solvency of a firm as reflected in its ability to assure the long-term lenders with regard to (i) periodic payment of interest during the period of the loan and (ii) repayment of principal on maturity or in predetermined instalments at due dates. A. Proprietary Ratio: This ratio is also known as ‘Owners fund ratio’ (or) ‘Shareholders equity ratio’ (or) ‘Equity ratio’ (or) ‘Net worth ratio’. This ratio establishes the relationship between the proprietors’ funds and total tangible assets. The formula for this ratio may be written as follows. Proprietors’ funds Proprietary Ratio = _____________________ Total tangible assets Proprietors funds mean the sum of the paid-up equity share capital plus preference share capital plus reserve and surplus, both of capital and revenue nature. From the sum so arrived at, intangible assets like goodwill and fictitious assets capitalized as â€Å"Miscellaneous expenditure† should be deducted. Funds payable to others should not be added. It may be noted that total tangible assets include fixed assets, current assets but exclude fictitious assets like preliminary expenses, profit loss account debit balance etc. B. Debt to Equity Ratio The relationship between borrowed funds and owner’s capital is a popular measure of the long-term financial solvency of a firm. The relationship is shown by the debt-equity ratios. This ratio reflects the relative claims of creditors and shareholders against the assets of the firm. The relationship between outsiders’ claims and owner’s capital can be shown in different ways and, accordingly, there are many variants of the debt-equity ratio. Total debt Debt to Equity Ratio = ____________ Total equity The debt-equity ratio is, thus, the ratio of total outside liabilities to owners’ total funds. In other words, it is the ratio of the amount invested by the owners of business. C. Interest Coverage Ratio It is also known as ‘time interest-earned ratio’. This ratio measures the debt servicing capacity of a firm insofar as fixed interest on long-term loan is concerned. It is determined by dividing the operating profits or earnings before interest and taxes (EBIT) by the fixed interest charges on loans. Thus, EBIT Interest Coverage Ratio =_______________ Interest charges It should be noted that this ratio uses the concept of net profits before taxes because interest is tax-deductible so that tax is calculated after paying interest on long-term loan. This ratio, as the name suggests, indicates the extent to which a fall in EBIT is tolerable in that the ability of the firm to service its interest payments would not be adversely affected. For instance, an interest coverage of 10 times would imply that even if the firm’s EBIT were to decline to one-tenth of the present level, the operating profits available for servicing the interest on loan would still be equivalent to the claims of the lendors. On the other hand, a coverage of five times would indicate that a fall in operating earnings only to upto one-fifth level can be tolerated. Form the point of view of the lenders, the larger the coverage, the greater is the ability of the firm to handle fixed-charge liabilities and the more assured is the payment of interest to tem, However, too high a ratio may imply unused debt capacity. In contrast, a low ratio is a danger signal that the firm is using excessive debt and does not have to offer assured payment of interest to the lenders. 2. 3. 4 Profitability Ratios The main object of a business concern is to earn profit. A company should earn profits to survive and to grow over a long period. The operating efficiency of a business concern is ultimately adjudged by the profits earned by it. Profitability should distinguished from profits. Profits refer to the absolute quantum of profit, whereas profitability refers to the ability to earn profits. In other words, an ability to earn the maximum from the maximum use of available resources by the business concern is known as profitability. Profitability reflects the final result of a business operation. Profitability ratios are employed by the management in order to assess how efficiently they carry on business operations. Profitability is the main base for liquidity as well as solvency. Creditors, banks and financial institutions are interest obligations and regular and improved profits enhance the long term solvency position of the business. A. Gross Profit Margin The gross profit margin is also known as gross margin. It is calculated by dividing gross profit by sales. Thus, Gross profit Gross Profit Margin = ________________ *100 Sales Gross profit is the result of the relationship between prices, sales volume and cost. A change in the gross margin can be brought about by changes in any of these factors. The gross margin represents the limit beyond which fall in sales price are outside the tolerance limit. Further, the gross profit ratio/margin can also be used in determining the extent of loss caused by theft, spoilage, damage, and so on in the case of those firms which follow the policy of fixed gross profit margin in pricing their products. A high ratio of gross profit to sales is a sign of good management as it implies that the cost of production of the firm is relatively low. It may also be indicative of a higher sales price without a corresponding increase in the cost of goods sold. It is also likely that cost of sales might have declined without a corresponding decline in sales price. Nevertheless, a very high and rising gross margin may also be the result of unsatisfactory basis of valuation of stock, that is, overvaluation of closing stock and/or undervaluation of opening stock. A relatively low gross margin is definitely a danger signal, warranting a careful and detailed analysis of the factors responsible for it. The important contributory factors may be (i) a high cost of production reflecting acquisition of raw materials and other inputs on unfavorable terms, inefficient utilization of current as well as fixed assets, and so on; and (ii) a low selling price resulting from severe competition, inferior quality of the product, lack o f demand, and so on. A through investigation of the factors having a bearing on the low gross margin is called for. A firm should have a reasonable gross margin to ensure adequate coverage for operating expenses of the firm and sufficient return to the owners of the business, which is reflected in the net profit margin. B. Net Profit margin: It is also known as net margin. This measures the relationship between net profits and sales of a firm. Earnings after interest and taxes Net Profit Margin =______________________________ *100 Net Sales A high net profit margin would ensure adequate return to the owners as well as enable a firm to withstand adverse economic conditions when selling price is declining, cost of production is rising and demand for the product is falling. A low net profit margin has the opposite implications. However, a firm with low profit margin can earn a high rate of return on investment if it has a higher turnover. This aspect is covered in detail in the subsequent discussion. The profit margin should, therefore, be evaluated in relation to the turnover ratio. In other words, the overall rate of return is the product of the net profit margin and the investment turnover ratio. Similarly, the gross profit margin and the net profit margin should be jointly evaluated. C. Return on Investment: The basic objective of making investments in any business is to obtain satisfactory return on capital invested. The nature of this return will be influenced by factors such as, the type of the industry, the risk involved, the risk of inflation, the comparative rate of return on gilt-edged securities and fluctuations in external economic conditions. For this purpose, the shareholders can measure the success of a company in terms of profit related to capital employed. The return on capital employed can be used to show the efficiency of the business as a whole. The overall performance and the most important, therefore, can be judged by working out a ratio between profit earned and capital employed. The resultant ratio, usually expressed as a percentage, is called rate of return or return on capital employed to express the idea, the purpose is to ascertain how much income the use of Rs. 100 of capital generates. The return on â€Å"capital employed† may be based on gross capital employed or net capital employed. The formula for this ratio may be written as follows. Operating profit Return on Investment =_________________ Capital Employed D. Return on Equity (ROE) This is also known as return on net worth or return on proprietors’ fund. The preference shareholders get the dividend on their holdings at a fixed rate and before dividend to equity shareholders, the real risk remains with the equity shareholders. Moreover, they are the owners of total profits earned by the firms after paying dividend on preference shares. Therefore this ratio attempts to measure the firm’s profitability in terms of return to equity shareholders. This ratio is calculated by dividing the profit after taxes and preference dividend by the equity capital. Thus Net profit after taxes and preference dividend Return on Equity =__________________________________________ Equity capital E. Return on Total Assets This ratio is also known as the profit-to-assets ratio. This ratio establishes the relationship between net profits and assets. As these two terms have conceptual differences, the ratio may be calculated taking the meaning of the terms according to the purpose and intent of analysis. Usually, the following formula is used to determine the return on total assets ratio. Net profit after taxes and interest Return on Total Assets =_________________________________ *100 Total assets 2. 4 Comparative Balance sheet: Comparative balance sheets as on two or more different dates can be used for comparing assets, liabilities, capital and finding out any increase or decrease in those items. In the words of Foulke â€Å"comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates†. Such analysis often yields valuable information as regards progress of business concern. While the single balance sheet represent balances of accounts drawn at the end of an accounting period, the comparative balance sheet represent not nearly the balance of accounts drawn on two different dates, but also the extent of their increase or decrease between these two dates. The single balance sheet focuses on the financial status of the concern as on a particular date, the comparative balance sheet focuses on the changes that have taken place in one accounting period. The changes are the direct outcome of operational activities, conversion of assets, liability and capital form into others as well as a various interactions among assets, liability and capital. 2. 5 Tips to improve your financial health. Author: Bill Hudley Spend less money, or save more money or do both. If the annual income does nothing more than remain constant, your financial condition will improve. The above statement may sound come across as flippant, but it’s a fact of life, regardless. Needless to say we all have different personalities and different responses to needs and desires in life. A very important yardstick, in my view, is the growth rate of personal assets. If you sit down to all of the savings accounts, investment accounts and properly values and the total value is greater than the same time of the previous year, it stands to improve that the financial health in tact and possibly improved. 2. 6 Steps to Improve Financial Performance Author: Terry Peltes Given the challenges facing physicians, successful practices must take proactive steps to combat negative trends and improve their overall financial performance. To improve practice operations, processes can be streamlined to reduce costs; productivity improvements can be implemented by physicians and employees to increase revenue; a reporting structure can be created that allows for better decision making by physicians and employees; and a rewards system can be implemented to recognize hard-working employees. To determine how you can improve your medical practices performance, consider the following management procedures. 1) Internal Cost Reduction Strategies Cost reduction strategies focus on reducing the internal costs generated by medical services provided to the marketplace. ) External Cost Reduction Strategies These strategies include the cost of services purchased from outside consultants or vendors. 3) Asset and Credit Management Strategies These strategies ensure that you are getting the most value from the resources invested in your practice. 4) Personnel Resources When managed properly, personnel costs and productivity can have a s ubstantial impact on practice profitability. 5) Management Reporting The use of timely, relevant, properly formatted reports to manage your practice cannot be overstated. This is a crucial link between setting inancial and operational goals and managing the practice to achieve them. 6) Revenue Enhancement Physicians can improve their financial performance by improving their ability to negotiate favorable managed care contracts and reducing practice expenses as a percentage of revenue. 2. 7 Excellence in Financial Management Author: Matt H. Evans Ratio analysis can be used to determine the time required to pay accounts payable invoices. If the average number of days is close to the average credit terms, this may indicate aggressive working capital management; i. e. using spontaneous sources of financing. However, if the number of days is well beyond the average credit terms, this could indicate difficulty in making payments to creditors. 2. 8 Analyze Investments Quickly With Ratios Author: Jonas Elmerraji The information you need to calculate ratios is easy to come by: Every single number or figure you need can be found in a companys financial statements. Once you have the raw data, you can plug in right into your financial analysis and put those numbers to work for you. Everyone wants an edge in investing but one of the best tools out there frequently is frequently misunderstood and avoided by new investors. When you understand what ratios tell you, as well as where to find all the information you need to compute them, theres no reason why you shouldnt be able to make the numbers work in your favor. CHAPTER – III OBJECTIVES 3. 1 Primary Objective: To evaluate the financial efficiency of â€Å"EMAMI LIMITED†. 3. 2 Secondary Objectives: i. To analyse the liquidity solvency position of the firm. ii. To study the working capital management of the company. iii. To understand the profitability position of the firm. iv. To assess the factors influencing the financial performance of the organisation. . To understand the over all financial position of the company. CHAPTER – IV RESEARCH METHODOLOGY 4. 1 METHODOLOGY: The project evaluates the financial performance one of the company with help of the most appropriate tool of financial analysis like ratio analysis and comparative balance sheet. Hence, it is essentially fact finding study. 4. 2 Primary Data: Primary data is the fi rst hand information that is collected during the period of research. Primary data has been collected through discussions held with the staffs in the accounts department. Some types of information were gathered through oral conversations with the cashier, taxation officer etc. 4. 3 Secondary Data: Secondary data studies whole company records and company’s balance sheet in which the project work has been done. In addition, a number of reference books, journals and reports were also used to formulate the theoretical model for the study. And some information were also drawn from the websites. 4. 4 Tools used in analysis: †¢Ratio analysis †¢Comparative balance sheet 4. 5 Period of study: The study covers the period of 2001-2002 to 2005-2006 in Emami Limited. CHAPTER – V DATA ANALYSIS AND INTERPRETATION . 1 FINANCIAL PERFORMANCE EVALUATION USING RATIO ANALYSIS Ratio analysis is a powerful tool of financial analysis. A ratio is defined as â€Å"The Indicated Quotient of Two Mathematical Expressions† and as â€Å"The Relationship between Two or More Things†. In financial analysis, a ratio is used as a benchmark for evalu ating the financial position and performance of firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and financial position of a firm. The relationship between two accounting figures, expressed mathematically is known as a financial ratio. Ratios help to summaries large quantities of financial data and to make qualitative about the firm’s financial performance. The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all financial ratios. 5. 1. 1 Significance of Using Ratios: The significance of a ratio can only truly be appreciated when: 1. It is compared with other ratios in the same set of financial statements. 2. It is compared with the same ratio in previous financial statements (trend analysis). 3. It is compared with a standard of performance (industry average). Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business. 5. 2 Types of Ratios 5. 2. 1 Liquidity Ratios †¢Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. †¢The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation. A. Current Ratio The Current Ratio expresses the relationship between the firm’s current assets and its current liabilities. Current assets normally include cash, marketable securities, accounts receivable and inventories. Current liabilities consist of accounts payable, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages). Current assets Current Ratio = ________________ Current liabilities Significance: It is generally accepted that current assets should be 2 times the current liabilities. In a sound business, a current ratio of 2:1 is considered an ideal one. If current ratio is lower than 2:1, the short term solvency of the firm is considered doubtful and it shows that the firm is not in a position to meet its current liabilities in times and when they are due to mature. A higher current ratio is considered to be an indication that of the firm is liquid and can meet its short term liabilities on maturity. Higher current ratio represents a cushion to short-term creditors, â€Å"the higher the current ratio, the greater the margin of safety to the creditors†. Table: 5. ] CURRENT RATIO YearCurrent Ratio Rs. in lakhsCurrent Liabilities Rs. in lakhs Ratio 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 20069956. 81 8825. 79 9726. 73 9884. 64 11949. 47775. 49 644. 26 1154. 12 1501. 76 3905. 4512. 83 13. 69 8. 43 6. 56 3. 06 Interpretation: As a conventional rule, a current ratio of 2:1 is considered satisfactory. This rule i s base on the logic that in a worse situation even if the value of current assets becomes half, the firm will be able to meet its obligation. The current ratio represents the margin of safety for creditors. The current ratio has been decreasing year after year which shows decreasing working capital. From the above statement the fact is depicted that the liquidity position of the Emami limited is satisfactory because all the five years current ratio is not below the standard ratio 2:1. Chart no. : 5. 1 CURRENT RATIO B. Quick Ratio Measures assets that are quickly converted into cash and they are compared with current liabilities. This ratio realizes that some of current assets are not easily convertible to cash e. g. inventories. The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its short-term obligations from its â€Å"quick† assets only (i. e. it ignores stock). The quick ratio is calculated as follows Quick assets Quick Ratio = ____________________ Current liabilities Significance: The standard liquid ratio is supposed to be 1:1 i. e. , liquid assets should be equal to current liabilities. If the ratio is higher, i. e. , liquid assets are more than the current liabilities, the short term financial position is supposed to be very sound. On the other hand, if the ratio is low, i. . , current liabilities are more than the liquid assets, the short term financial position of the business shall be deemed to be unsound. When used in conjunction with current ratio, the liquid ratio gives a better picture of the firm’s capacity to meet its short-term obligations out of short-term assets. Table: 5. 2 QUICK RATIO YearQuick Assets Rs. in lakhsCurrent Liab ilities Rs. in lakhs Ratio 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 20066918. 43 4848. 16 6629. 47 6210. 06 8287. 01775. 49 644. 26 1154. 12 1501. 76 3905. 458. 92 7. 52 5. 74 4. 13 2. 12 Interpretation: As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. It is a more rigorous and penetrating test of the liquidity position of a firm. But the liquid ratio has been decreasing year after year which indicates a high operation of the business. From the above statement, it is clear that the liquidity position of the Emami limited is satisfactory. Because the entire five years liquid ratio is not below the standard ratio of 1:1. Chart no. : 5. 2 QUICK RATIO C. Cash ratio: This is also known as cash position ratio or super quick ratio. It is a variation of quick ratio. This ratio establishes the relationship between absolute liquid assets and current liabilities. Absolute liquid assets are cash in hand, bank balance and readily marketable securities. Both the debtors and the bills receivable are exclude from liquid assets as there is always an uncertainty with respect to their realization. In other words, liquid assets minus debtors and bills receivable are absolute liquid assets. The cash ratio is calculated as follows Cash in hand at bank + Marketable securities Cash Ratio = ________________________________________ Current liabilities Significance: This ratio gains much significance only when it is used in conjunction with the first two ratios. The accepted norm for this ratio is 50% or 0. 5:1 or 1:2(i. e. ,) Re. 1 worth absolute liquid assets are considered adequate to pay Rs. 2 worth current liabilities in time as all the creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories. This test is a more rigorous measure of a firm’s liquidity position. This type of ratio is not widely used in practice. Table: 5. 3 CASH RATIO YearCash in Hand at Bank Rs. in lakhsCurrent Liabilities Rs. in lakhs Ratio 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 2006130. 54 141. 15 46. 11 34. 43 82. 12775. 49 644. 26 1154. 12 1501. 76 3905. 450. 17 0. 22 0. 04 0. 02 0. 02 Interpretation: The acceptable norm for this ratio is 50% or 1:2. But the cash ratio is below the accepted norm. So the cash position is not utilized effectively and efficiently. Chart no. : 5. 3 CASH RATIO 5. 2. 2 Activity Ratio: If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. Unless the business continues to generate high turnover, assets will be idle as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to assess how active various assets are in the business. A. Average Collection Period: The average collection period measures the quality of debtors since it indicates the speed of their collection. †¢The shorter the average collection period, the better the quality of debtors, as a short collection period implies the prompt payment by debtors. The average collection period should be compared against the firm’s credit terms and policy to judge its credit and collection efficiency. †¢An excessively long collection period implies a very liberal and inefficient credit and collection performance. †¢The delay in collection of cash impairs the firm’s liquidity. On the other hand, too low a collection period is not necessarily favorable, rather it may indicate a very restrictive credit and collection policy which may curtail sales and hence adversely affect profit. 360 days Average collection period = _____________________ Debtors turnover ratio Significance: Average collection period indicates the quality of debtors by measuring the rapidity or slowness in the collection process. Generally, the shorter the average collection period, the better is the quality of debtors as a short collection period implies quick payment by debtors. Similarly, a higher collection period implies as inefficient collection performance which, in turn, adversely affects the liquidity or short term paying capacity of a firm out of its current liabilities. Moreover, longer the average collection period, larger is the chances of bad debts. Table: 5. 4 AVERAGE COLLECTION PERIOD Year DaysDebtors Turnover Ratio Rs. in lakhs Days 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 2006360 360 360 360 3604211. 03 3100. 98 4405. 70 3524. 79 3667. 520. 09 0. 12 0. 08 0. 10 0. 10 Interpretation: The shorter the collection period, the better the quality of debtors. Since a short collection period implies the prompt payment by debtors. Here, collection period decrease from 2003-2004 and increased slightly in the year 2005-2006. Therefore the average collection period of Emami ltd for the five years are satisfactory. Chart no. : 5. 4 AVERAGE COLLECTION PERIOD B. Inventory Turnover Ratio: This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in selling its product. It is calculated by dividing he cost of goods sold by the average inventory. Cost of goods sold Inventory Turnover Ratio = ___________________ Average Inventory Significance: This ratio is calculated to ascertain the number of times the stock is turned over during the periods. In other words, it is an indication of the velocity of the movement of the stock during the year. In case of decrease in sales, this ratio will decrease. This serves as a check on the control of stock in a business. This ratio will reveal the excess stock and accumulation of obsolete or damaged stock. The ratio of net sales to stock is satisfactory relationship, if the stock is more than three-fourths of the net working capital. This ratio gives the rate at which inventories are converted into sales and then into cash and thus helps in determining the liquidity of a firm. Table: 5. 5 INVENTORY TURNOVER RATIO YearCost of goods sold Rs. in lakhsAverage Inventory Rs. n lakhs Ratio 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 200611209. 73 11939. 46 13708. 36 12609. 33 17543. 713732. 19 3508. 00 3537. 44 3385. 92 3668. 523. 0 3. 4 3. 88 3. 72 4. 78 Interpretation: A higher turnover ratio is always beneficial to the concern. In this the number of times the inventory is turned over has been increasing from one year to another year. This incr easing turnover indicates immediate sales. And in turn activates production process and is responsible for further development in the business. This indicates a good inventory policy of the company. Thus the stock turnover ratios of Emami Limited, for the five years are satisfactory. Chart no. : 5. 5 INVENTORY TURNOVER RATIO C. Working capital turnover ratio: This ratio shows the number of times the working capital results in sales. In other words, this ratio indicates the efficiency or otherwise in the utilization of short term funds in making sales. Working capital means the excess of current assets over current liabilities. In fact, in the short run, it is the current assets and current liabilities which pay a major role. A careful handling of the short term assets and funds will mean a reduction in the amount of capital employed, thereby improving turnover. The following formula is used to measure this ratio: Sales Working capital turnover ratio = _____________________ Net Working Capital Significance: This ratio is used to assess the efficiency with which the working capital has been utilized in a business. A higher working capital turnover indicates either the favorable turnover of inventories and receivables and/or the inadequate of net working capital accompanied by low turnover of inventories and receivables. A low ratio signifies either the excess of net working capital or slow turnover of inventories and receivables or both. This ratio can at best be used by making of comparative and trend analysis for different firms in the same industry and for various periods. Table: 5. 6 WORKING CAPITAL TURNOVER RATIO YearSales Rs. in lakhsNet Working Capital Rs. in lakhs Ratio 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 200618262. 60 19808. 5 21612. 94 21885. 20 30087. 569181. 32 8181. 53 8572. 61 8382. 88 8044. 021. 99 2. 42 2. 52 2. 61 3. 74 Interpretation: The Working Capital Turnover Ratio is increasing year after year. It can be noted that the change is due to the fluctuation in sales or current liabilities. These higher ratio are indicators of lower investment of working Capital and more profit. Thus, Working Capital Turnover ratios for the five years are satisfactory. Chart no. : 5. 6 WORKING CAPITAL TURNOVER RATIO D. Fixed Assets Turnover Ratio: The fixed assets turnover ratio measures the efficiency with which the firm has been using its fixed assets to generate sales. It is calculated by dividing the firm’s sales by its net fixed assets as follows: Sales Fixed Assets Turnover =________________ Net fixed assets Significance: This ratio gives an ideal about adequate investment or over investment or under investment in fixed assets. As a rule, over-investment in unprofitable fixed assets should be avoided to the possible extent. Under-investment is also equally bad affecting unfavorably the operating costs and consequently the profit. In manufacturing concerns, the ratio is important and appropriate, since sales are produced not only by use of working capital but also the capital invested in fixed assets. An increase in this ratio is the indicator of efficiency in work performance and a decrease in this ratio speaks of unwise and improper investment in fixed assets. Table: 5. 7 FIXED ASSETS TURNOVER RATIO Year Sales Rs. in lakhsNet Fixed Assets Rs. in lakhs Ratio 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 200618262. 60 19808. 50 21612. 94 21885. 20 30087. 5625169. 20 23599. 92 23293. 33 21863. 99 20245. 480. 73 0. 84 0. 93 1. 00 1. 49 Interpretation: The fixed assets turnover ratio is increasing year after year. The overall higher ratio indicates the efficient utilization of the fixed assets. Thus the fixed assets turnover ratio for the five years are satisfactory as such there is no under utilization of the fixed assets. Chart no. : 5. 7 FIXED ASSETS TURNOVER RATIO 5. 2. 3 Financial Leverage (Gearing) Ratios †¢The ratios indicate the degree to which the activities of a firm are supported by creditors’ funds as opposed to owners. †¢The relationship of owner’s equity to borrowed funds is an important indicator of financial strength. †¢The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicates a cushion (surplus) which shields creditors against possible losses from default in payment. A. Proprietary Ratio: This ratio is also known as ‘Owners fund ratio’ (or) ‘Shareholders equity ratio’ (or) ‘Equity ratio’ (or) ‘Net worth ratio’. This ratio establishes the relationship between the proprietors’ fund and total tangible assets. The formula for this ratio may be written as follows. Proprietors’ funds Proprietary Ratio = _____________________ Total tangible assets Significance: This ratio represents the relationship of owner’s funds to total tangible assets, higher the ratio or the share of the shareholders in the total capital of the company, better is the long term solvency position of the company. This ratio is of importance to the creditors who can ascertain the proportion of the shareholders’ funds in the total assets employed in the firm. A ratio below 50% may be alarming for the creditors since they may have to lose heavily in the event of company’s liquidation on account of heavy losses. Table: 5. 8 PROPRIETARY RATIO YearProprietors Fund Rs. in lakhsTotal Tangible Assets Rs. in lakhs Ratio 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 200627653. 24 27629. 57 27906. 09 31683. 74 33521. 6335932. 12 33237. 8 33710. 84 37139. 68 40904. 750. 77 0. 83 0. 83 0. 85 0. 82 Interpretation: This ratio is particularly important to the creditors and it focuses on the general financial strength of the business. A ratio of j50% will be alarming for the creditors. As such the proprietary ratio of the five years is above 50%. Therefore it indicates relatively little danger to the creditors, etc. And a better performance of the company. Chart no. : 5. 8 PROPRIETARY RATIO B. Debt to Equity ratio This ratio indicates the extent to which debt is covered by shareholders’ funds. It reflects the relative position of the equity holders and the lenders and indicates the company’s policy on the mix of capital funds. The debt to equity ratio is calculated as follows: Total debt Debt to Equity Ratio = ____________ Total equity Significance: The importance of debt-equity ratio is very well reflected in the words of Weston and brigham which are reproduced here: â€Å"Debt-equity ratio indicates to what extent the firm depends upon outsiders for its existence. For the creditors, this provides a margin of safety. For the owners, it is useful to measure the extent to which they can gain the benefits of maintaining control over the firm with a limited investment:† The debt-equity ratio states unambiguously the amount of assets provided by the outsiders for every one rupee of assets provided by the shareholders of the company. Table: 5. 9 DEBT TO EQUITY RATIO YearTotal Debt Rs. in lakhsTotal Equity Rs. in lakhs Ratio 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005 2005 – 20067241. 39 4628. 27 4221. 63 3474. 18 3216. 6727653. 24 27629. 57 27906. 09 31683. 74 33521. 630. 26 0. 17 0. 15 0. 11 0. 10 Interpretation: The debt to equity ratio is decreasing year after year. A low debt equity ratio is considered favorable from management. It means greater claim of shareholders over the assets of the company than those of creditors. For the company also, the servicing of debt is less burdensome and consequently its credit standing is not adversely affected. Therefore debt to equity ratio is satisfactory to the company. Chart no. : 5. 9 DEBT TO EQUITY RATIO C. Interest coverage ratio The times interest earned shows how many times the business can pay its interest bills from profit earned. Present and prospective loan creditors