A STUDY ON FINANCIAL ANALYSIS USING

RATIO ANALYSIS OF RDM ( RESERVATION

DATA MAINTENANCE )

A Project Report Submitted in partial fulfillment of the requirements

for the Award of degree
MASTER OF BUSINESS ADMINISTRATION

2019 – 2021

Submitted by: Guided by:

Damanpreet Singh Kharbanda Dr. Ritu Aggarwal

University PRN.:- 1928101239

BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATION

Academic Study Center - BVIMR, New Delhi

An ISO 9001:2008 Certified Institute

NAAC Accredited Grade “A” University

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 ACKNOWLEDGEMENTS

I avail this opportunity to express my profound sense of sincere and deep gratitude to those
who have played an indispensable role in the accomplishment of the project work given to
me by providing their willing guidance and help.

I express my sincere gratitude to Mr. K MADHU SUDANAN , MANAGER – RDM (

RESERVATION DATA MAINTENANCE ), for allowing me to carry out the project work
in this prestigious company and for discussing the module of the project in a systematic
manner. His constant interaction, expert guidance and valuable suggestions helped me to
complete this project successfully.

I would also like to thank my project guide Dr. Ritu Aggarwal and my respected Director
Sir, Dr. Amarjeet Deshmukh who motivated the students to have an industry exposure and
who helped in completing my training efficiently and helped me in every aspect.

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 STUDENT DECLARATION

I Damanpreet Singh Kharbanda , MBA-3rd Semester student would like to declare that the
project report entitled “A STUDY ON FINANCIAL ANALYSIS USING RATIO
ANALYSIS OF RDM ( RESERVATION DATA MAINTENANCE )” Submitted to
BHARATI VIDYAPEETH DEEMED TO BE UNIVERSITY, PUNE, Academic Study
Center - BVIMR, New Delhi, in partial fulfillment of the requirement for the award of the
degree.
It is an original work carried out by me under the guidance of Dr. Ritu Aggarwal.
All respected guides, faculty member and other sources have been properly acknowledged
and the report contains no plagiarism.
To the best of my knowledge and belief the matter embodied in this project is a genuine work
done by me and it has been neither submitted for assessment to the University nor to any
other University for the fulfillment of the requirement of the course of study.

DAMANPREET SINGH KHARBANDA

Student Name with Signature

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 PREFACE
Financial Statement Analysis While it is sometimes difficult to convince the customer to
share their financial information, it must be understood that the financial statement is
probably the most important tool available to the credit analyst in allowing him/her the
opportunity to get a clear picture of the customer’s financial standing. It is absolutely
essential that financial information be obtained on customers that represent significant
exposure in the form of outstanding receivables. The business customer expects that if they
were to apply for a loan from any bank or other type of lending institution they would be
required to provide complete and up to date financial information. Likewise, it is important if
they are requesting a significant line of credit from your organization that they should be
prepared to share the same information. When conducting the financial analysis of a
prospective or existing business customer, the purpose is to extrapolate the company's past
performance into an estimate of the company's future performance. In doing so a company's
performance and financial position, in relation to others within its industry, can be evaluated
and future risks and potential to meet payments in a timely fashion can be estimated.
Financial statement analysis provides an essential tool in the assessment of credit risk, as it
can provide the analyst valuable information related to trends and relationships to others
within its industry, the quality of a company's earnings, and the strengths and weaknesses
inherent to its business operations. Typically, financial analysis is used to analyze whether an
entity is stable, solvent, liquid, or profitable enough to warrant the extension of open lines of
credit.

Internship is intended to provide a learning opportunity for students to apply their knowledge
and skills acquired in the classroom to a professional context. I felt so privileged that I got
this wonderful opportunity to work under shanti polymers . An organization which actually
answers many unanswered questions in the college. An organization with healthy
environment plus application of all important management skills that may vary from situation
to situation; be it planning, controlling, leadership, execution, etc. Each and every skill is
implied so effectively and efficiently.

I learned how to operate new technologies. And how to use it with the most effective and
efficient way. I applied all the knowledge gained in the college up till now in the organization
and observed that how it has and can help me to grow more as an employee or as a candidate.

iv
Rather I applied my existing knowledge in new ways so that both the organization and I grow
successfully.

I observed and gained a better understanding of office hierarchies and I am now being able to
define the effective and efficient ways of practicing management. I developed a mentoring
relationship and a professional network with all the employees present in the organization.

The learning objective provided the foundation and framework for learning during my
internship experience through application of classroom theory. My both personal and
professional skills were developed simultaneously. I not only handled a variety of situations
simultaneously but also tackled them bravely. The assignments and work environment
determined the true spirit in me. I learned how to deal pressure, tension and praise in work
relationships.

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vi
 TABLE OF CONTENTS

CHAPTER 1 : INTRODUCTION 01-11

 About the company

 Environmental Scanning
 Porters five forces model of competition

Chapter 2 : Conceptual Discussion 12-38

 Review of Literature
 Current issues
 History and Development of Company and Industry
 New Development of Company and industry

CHAPTER 3 : RESEARCH METHODOLOGY 39-46

 Statement of the problem

 Objective & Scope of Study
 Managerial usefulness of study
 Type of research and research design
 Data collection Methods
 Limitations of Study

Chapter 4 : Data analysis 47-73

 Methods and techniques of data analysis

 Primary data analysis
 Secondary Data analysis

Chapter 5 : Findings & Conclusions 74-77

Chapter 6 : Suggestions 78

References 79

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 CHAPTER-1
INTRODUCTION

Financial Statements are prepared primarily for decision-making. They play a dominant role
in setting the framework of managerial decisions. But the information in the financial
statement is not an end in itself as no meaningful conclusion can be drawn from these
statements alone. The financial analysis is the process of identifying the financial strength
and weakness of the firm by properly establishing relationship between the items of the
balance sheet and P&L A/C. There are various methods or techniques used in analyzing
financial statement such as comparative statement, trend analysis, common size statement,
schedule of changes in working capital, fund flow and cash flow analysis, cost volume profit
analysis and “RATIO ANALYSIS”.
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas. The ratios are categorized as
Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios,
Profitability Ratios, and Market Value Ratios.

Ratio Analysis as a tool possesses several important features. The data, which are provided
by financial statements, are readily available. The computation of ratios facilitates the
comparison of firms which differ in size. Ratios can be used to compare a firm's financial
performance with industry averages. In addition, ratios can be used in a form of trend
analysis to identify areas where performance has improved or deteriorated over time.

Ratio analysis is the comparison of line items in the financial statements of a business. Ratio
analysis is used to evaluate a number of issues with an entity, such as its liquidity, efficiency
of operations, and profitability. We aim at finding out the ratios of past three years. The
ratio includes of Profitability ratios, Liquidity ratios, Capital structure analysis ratio,
Activity analysis ratio, and so on. Once all these ratios are found out for all the three years.
We compare them with each other. By doing this we can tell whether the company is in profit
or loss. We can make statements whether the company is doing good or not. We can
answer all such question i.e. is the company growing, Do we need to make any amendments.
It helps the customers, stakeholders, investors. All these people can see whether the

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company is in profit or loss. This helps them in taking any decision in reference to the
company. Every company’s financial report should be disclosed. And if we compare them
with the previous years, it’s more appropriate. It even helps the company as the
comparison can be helpful for them. They can judge whether they have to make any changes.
This is the main objective of this study. That is to find out all the ratios and compare them
with the previous year. This is important because it gives a clear picture of what is the
company’s financial position is. And according to that the company takes further
decisions. It is easy and more convenient for all, i.e. the customers, the stakeholders, and
the shareholders. So, this is the main objective. We can state our aim according to the
financial statements and the comparison. Our aim should be appropriate. It is very necessary
for a company to compare its financial positions. Our aim is to provide the customers and the
stakeholders with the comparison for them to take decision accordingly. It helps to know the
areas which need more attention, areas that need improvement, to provide deeper analysis of
profitability, liquidity, solvency and efficiency of business. If properly done, improves the
user’s understanding with which the business is being conducted.

RDM ( Reservation Data Maintenance )

RDM was established in 1992 as a center of excellence for travel and aviation related support
services and since it's inception, RDM has been providing Business Process Outsourcing,
Software Development & Testing services to clients worldwide.

RDM India is an ISO 9001:2008 certified IT Enabled Services & Solutions provider based in
the proximity of New Delhi's International Airport, in India. RDM is a highly successful and
rapidly growing joint venture between Lufthansa Commercial Holding (LCH) and the Bird
Group.

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RDM was established in 1992 with a mission to cater
to the needs of the Aviation industry with complete a
back office service offering for all locationaly
independent processes at competent economies of
scale and world class quality.

As a Center of excellence for Travel and Aviation

Related support services RDM has been providing
Business Process Outsourcing, Software Development
& Testing services to clients worldwide with a special
emphasis on back office services for the Aviation and
the Travel Trade industries.

Today we have more than 700 highly skilled employees, operating out of 77,000 SqFt of
operational area spread across Gurgaon & Jaipur, providing services in multiple languages to
our customers in a 24 x 7 x 365 environment.

Conceived with an aim to eliminate duplication of input and

automate Travel agencies's back office functions, Power Office has
been designed as a three tiered software viz. PowerOffice - Lite,
PowerOffice - Mid and PowerOffice - pro to assist in easy

integration and smooth transition of data in a Travel Agency's

existing IT environment.

CICOS is an advanced Time and Attendance application that has

been designed to handle attendance tracking and calculation for
employees across multiple locations working in different shifts.

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Since it's inception, RDM has been at the forefront of providing Reservation & Inventory
management services to global airline and reservation system customers. Some of the
services that we provide currently are:

Teletype Reject Processing

Flight Screening (Pre/Post Flight Checks & Revenue Integrity checks)
Flight Disruption Handling
Special Queue Handling
Checks on Embargo Flights
Special Flight Checks during International Events/Trade Fairs
ID/AD Passenger Screening on critical flights
Schedule Processing
Groups and Negotiated Space Handling Support
Service Desk Support to Airline’s Global Field Offices (ATO’s/CTO’s)
Flight Steering
Flight Disruption Management (Involuntary Re-bookings, Ticket Reissuance)

FARES & ALLIED SERVICES

The Fares & Allies services division at RDM has an immense amount of experience in
providing rules & fares data maintenance and support services to
customers worldwide. The RDM Fares team is involved with price distribution activities and
can work with complex and unformatted filing instructions delivered by a variety of
communication methods. These instructions are translated into filings which allow auto-
pricing in computer reservation systems and Internet booking portals.

The team has in depth knowledge about contract and fare loading in ATPCO comprising of
Public, Private and Negotiated offers, this may include Published Fares, Constructed Add-ons
, Rules Conditions/ Categories (including Cat 25/ 35/ 31/ 33 etc), Routings, Footnotes and
Record 6 (RBD Chart 1 and 2).

4
Our team is also experienced in filing negotiated fares (including Hotel & Cruise
contracts) directly on GDS and other proprietary fare management systems.
ADM/ACM handling

SITA Filing

Revenue Accounting Services

The Revenue Accounting Services division at RDM has an immense amount of experience in
supporting the complete revenue accounting processing
chain including Sales, Tarffic & Interline processes. Our team of trained and experienced
personnel is working on the following processes for our
airline customers:

A). Sales Data Handling

B). Traffic Data Handling
C). Master Data Maintenance
D). SPA Maintenance

Interline Prorate Processes viz

- Proration of OAL Coupons (Non Sampling) for Outgoing Invoices
- Proration of OAL Coupons (Sampling) for Outgoing Invoices
- Verification of Incoming Invoices
- Handling of Flight Interrupt Manifests
- Handling of Rejections/Re-Billings
- Prorate Information Service Support to Front End Marketing Organizations of our Airline
customers

5
Distribution System Support Services

RDM's GDS support teams provide data management & support services to leading Global
Distribution Systems.

These services cover the following areas:

Helpdesk services for Pricing & Fare-quotation

Claims management
Fares & Rules data maintenance
Administration of Availability, Schedule & other Master Tables
Agency Migration
Data management for Hotel, Car, Cruise content
Handling of Teletype reject messages
GDS Integration Services for OLTA & Booking Engines

Loyalty Programs Administration

The popularity of frequent traveler & customer loyalty programs works hand in hand with
increased sales resulting in enhanced load factors and higher customer engagement &
satisfaction levels.

However, the growing number of participants in these programs proportionately enhances

correspondence requirements, promotional material and updating of customer's records to a
phenomenal extent increasing manpower requirements & administrative costs substantially.

6
RDM with the inherent advantage of a broad and qualified resource base to draw upon from,
offers to facilitate it's customers in the success of their customer loyalty programs through

Maintenance and update of participant records.

Mailing of promotional material and information to participants.
Accounting of accumulated mileage/points.
Award redemption and mailing.
Correspondence with participants on related aspects.
Award Redemptions : Complete contact center for loyalty programs
Partner & Vendor Settlements
BIDT & MIDT Reports

Contact Center & Help-Desk Services

Exemplary customer service & support is a key success factor for Airlines and Travel
organizations in today's higly competitive world. RDM with it's deep domain expertise in
these industries offers a unique service for our customers which is differentiated from generic
call center service providers ands adds much greater value to our customer's service &
support functions.

Some of the activities handled by our contact center specialists are:

General Telephone enquiries

Reservations Related Queries and Reservation Requests
Fares & Flight Related Queries and requests
Pricing & Ticketing requests
Special Service Requests
Contact Centre Related Queues
Frequent Flyer Program Related Queries and Requests
Award Booking & Redemption

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IT Services

Our software development process, supported by our onsite/offshore development activities,

shortens the application/product development
timeframes providing significant business benefits and a shorter time to market for our
clients.

We provide our customers immense flexibility in terms of both end-to-end solutions and
specific design and development services across the complete
application/ product development lifecycle. This flexibility is supplemented by our vast
experience in design; development and maintenance of mainframe based as well as n-tier/
distributed client server architectures using a multitude of languages, databases and tools on a
variety of platforms.

Our services can be broadly categorized as follows:

Software Design & Development Services

Independent Testing Services
Implementation Support Services

Cargo & Logistics Services

We have a highly trained & experienced team providing the following services to cargo
airline customers

Booking Support : Performing cargo bookings / rebooking / updating / deletion / Quality

Assurance

Capacity Control : Monitoring of critical shipments

Claims Management : Handling of Performance Gurantee Claims

Tracking : Tracking of temperature sensitive shipments

Data Management : Flight Restrictions, POD & landing Certificate, Mail tracking, MIS etc

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ENVIRONMENTAL SCANNING

Reservation Data Maintenance (india) Private Limited is a Private incorporated on 13 July

1992. It is classified as Non-govt company and is registered at Registrar of Companies,
Delhi. Its authorized share capital is Rs. 500,000 and its paid up capital is Rs. 500,000. It is
inolved in OTHER BUSINESS ACTIVITIES

Reservation Data Maintenance (india) Private Limited's Annual General Meeting (AGM) was
last held on 30 September 2019 and as per records from Ministry of Corporate Affairs
(MCA), its balance sheet was last filed on 31 March 2019.

Directors of Reservation Data Maintenance (india) Private Limited are Radha Bhatia, Markus
Hans Frank and .

Reservation Data Maintenance (india) Private Limited's Corporate Identification Number is

(CIN) U74899DL1992PTC049530 and its registration number is 49530.Its Email address is
[email protected] and its registered address is E-9CONNAUGHT HOUSE CONNAUGHT
PLACE NEW DELHI DL 110001 IN , - , .

Current status of Reservation Data Maintenance (india) Private Limited is - Active.

Company Details

CIN U74899DL1992PTC049530

Company Name RESERVATION DATA MAINTENANCE

(INDIA) PRIVATE LIMITED

Company Status Active

RoC RoC-Delhi

Registration 49530
Number

Company Company limited by Shares

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CIN U74899DL1992PTC049530

Category

Company Sub Non-govt company

Category

Class of Private
Company

Date of 13 July 1992

Incorporation

Age of Company 28 years, 2 month, 24 days

Activity OTHER BUSINESS ACTIVITIES

Click here to see other companies involved in
same activity.

10
PORTERS FIVE FORCES MODEL

Five Forces Analysis assumes that there are five important forces that determine competitive
power in a business situation. These are:

1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This
is driven by the number of suppliers of each key input, the uniqueness of their product
or service, their strength and control over you, the cost of switching from one to
another, and so on. The fewer the supplier choices you have, and the more you need
suppliers' help, the more powerful your suppliers are.
2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down.
Again, this is driven by the number of buyers, the importance of each individual buyer
to your business, the cost to them of switching from your products and services to
those of someone else, and so on. If you deal with few, powerful buyers, then they are
often able to dictate terms to you.
3. Competitive Rivalry: What is important here is the number and capability of your
competitors. If you have many competitors, and they offer equally attractive products
and services, then you'll most likely have little power in the situation, because
suppliers and buyers will go elsewhere if they don't get a good deal from you. On the
other hand, if no-one else can do what you do, then you can often have tremendous
strength.
4. Threat of Substitution: This is affected by the ability of your customers to find a
different way of doing what you do – for example, if you supply a unique software
product that automates an important process, people may substitute by doing the
process manually or by outsourcing it. If substitution is easy and substitution is viable,
then this weakens your power.
5. Threat of New Entry: Power is also affected by the ability of people to enter your
market. If it costs little in time or money to enter your market and compete
effectively, if there are few economies of scale in place, or if you have little protection
for your key technologies, then new competitors can quickly enter your market and
weaken your position. If you have strong and durable barriers to entry, then you can
preserve a favorable position and take fair advantage of it.

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 CHAPTER 2

CONCEPTUAL DISCUSSION

 Review of Literature

 Current issues

 History and Development of Company and Industry

 New Development of Company and industry

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A financial statement (or financial report) is a formal record of the financial activities and
position of a business, person, or other entity.

Relevant financial information is presented in a structured manner and in a form easy to

understand. They typically include basic financial statements, accompanied by a management
discussion and analysis:

1. A balance sheet, also referred to as a statement of financial position, reports on a

company's assets, liabilities, and owners equity at a given point in time.
2. An income statement, also known as a statement of comprehensive income,
statement of revenue & expense, P&L or profit and loss report, reports on a
company's income, expenses, and profits over a period of time. A profit and loss
statement provides information on the operation of the enterprise. These include sales
and the various expenses incurred during the stated period.
3. A Statement of changes in equity, also known as equity statement or statement of
retained earnings, reports on the changes in equity of the company during the stated
period.
4. A cash flow statement reports on a company's cash flow activities, particularly its
operating, investing and financing activities.

For large corporations, these statements may be complex and may include an extensive set of
footnotes to the financial statements and management discussion and analysis. The notes
13
typically describe each item on the balance sheet, income statement and cash flow statement
in further detail. Notes to financial statements are considered an integral part of the financial
statements.

Purpose of financial statements by business entities

"The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an enterprise that is useful to a wide range
of users in making economic decisions." Financial statements should be understandable,
relevant, reliable and comparable.Reported assets, liabilities, equity, income and expenses are
directly related to an organization's financial position.

Financial statements are intended to be understandable by readers who have "a reasonable
knowledge of business and economic activities and accounting and who are willing to study
the information diligently." Financial statements may be used by users for different purposes:

 Owners and managers require financial statements to make important business

decisions that affect its continued operations. Financial analysis is then performed on
these statements to provide management with a more detailed understanding of the
figures. These statements are also used as part of management's annual report to the
stockholders.
 Employees also need these reports in making collective bargaining agreements (CBA)
with the management, in the case of labor unions or for individuals in discussing their
compensation, promotion and rankings.
 Prospective investors make use of financial statements to assess the viability of
investing in a business. Financial analyses are often used by investors and are
prepared by professionals (financial analysts), thus providing them with the basis for
making investment decisions.
 Financial institutions (banks and other lending companies) use them to decide
whether to grant a company with fresh working capital or extend debt securities (such
as a long-term bank loan or debentures) to finance expansion and other significant
expenditures.

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Consolidated financial statements

Consolidated financial statements are defined as "Financial statements of a group in which

the assets, liabilities, equity, income, expenses and cash flows of the parent (company) and its
subsidiaries are presented as those of a single economic entity", according to International
Accounting Standard 27 "Consolidated and separate financial statements", and International
Financial Reporting Standard 10 "Consolidated financial statements".

Government financial statements

The rules for the recording, measurement and presentation of government financial
statements may be different from those required for business and even for non-profit
organizations. They may use either of two accounting methods: accrual accounting, or cost
accounting, or a combination of the two (OCBOA). A complete set of chart of accounts is
also used that is substantially different from the chart of a profit-oriented business.

Personal financial statements

Personal financial statements may be required from persons applying for a personal loan or
financial aid. Typically, a personal financial statement consists of a single form for reporting
personally held assets and liabilities (debts), or personal sources of income and expenses, or
both. The form to be filled out is determined by the organization supplying the loan or aid.

Financial analysis refers to an assessment of the viability, stability and profitability of a

business, sub-business or project. It is performed by professionals who prepare reports using
ratios that make use of information taken from financial statements and other reports. These
reports are usually presented to top management as one of their bases in making business
decisions. Financial analysis may determine if a business will:

 Continue or discontinue its main operation or part of its business;

 Make or purchase certain materials in the manufacture of its product;
 Acquire or rent/lease certain machineries and equipment in the production of its
goods;
 Issue stocks or negotiate for a bank loan to increase its working capital;
 Make decisions regarding investing or lending capital.

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Goals

Financial analysts often assess the following elements of a firm:

1. Profitability - its ability to earn income and sustain growth in both the short- and long-
term. A company's degree of profitability is usually based on the income statement, which
reports on the company's results of operations;

2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-
term;
3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate
obligations;

Both 2 and 3 are based on the company's balance sheet, which indicates the financial
condition of a business as of a given point in time.

4. Stability - the firm's ability to remain in business in the long run, without having to sustain
significant losses in the conduct of its business. Assessing a company's stability requires the
use of both the income statement and the balance sheet, as well as other financial and non-
financial indicators. etc.

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Method

Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.):

 Past Performance - Across historical time periods for the same firm (the last 5 years
for example),
 Future Performance - Using historical figures and certain mathematical and
statistical techniques, including present and future values, This extrapolation method
is the main source of errors in financial analysis as past statistics can be poor
predictors of future prospects.
 Comparative Performance - Comparison between similar firms.

These ratios are calculated by dividing a (group of) account balance(s), taken from the
balance sheet and / or the income statement, by another, for example :

Net income / equity = return on equity (ROE)

Net income / total assets = return on assets (ROA)

Asset Management Ratios gauge how efficiently a company can change assets into sales.
Stock price / earnings per share = P/E ratio

Comparing financial ratios is merely one way of conducting financial analysis. Financial
ratios face several theoretical challenges:

 They say little about the firm's prospects in an absolute sense. Their insights about
relative performance require a reference point from other time periods or similar
firms.
 One ratio holds little meaning. As indicators, ratios can be logically interpreted in at
least two ways. One can partially overcome this problem by combining several related
ratios to paint a more comprehensive picture of the firm's performance.
 Seasonal factors may prevent year-end values from being representative. A ratio's
values may be distorted as account balances change from the beginning to the end of
an accounting period. Use average values for such accounts whenever possible.
 Financial ratios are no more objective than the accounting methods employed.
Changes in accounting policies or choices can yield drastically different ratio values.
 Fundamental analysis.
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Financial analysts can also use percentage analysis which involves reducing a series of
figures as a percentage of some base amount. For example, a group of items can be expressed
as a percentage of net income. When proportionate changes in the same figure over a given
time period expressed as a percentage is known as horizontal analysis. Vertical or common-
size analysis, reduces all items on a statement to a “common size” as a percentage of some
base value which assists in comparability with other companies of different sizes. [4] As a
result, all Income Statement items are divided by Sales, and all Balance Sheet items are
divided by Total Assets.

Another method is comparative analysis. This provides a better way to determine trends.
Comparative analysis presents the same information for two or more time periods and is
presented side-by-side to allow for easy analysis.

Financial statement analysis (or financial analysis) is the process of reviewing and
analyzing a company's financial statements to make better economic decisions. These
statements include the income statement, balance sheet, statement of cash flows, and a
statement of changes in equity. Financial statement analysis is a method or process involving
specific techniques for evaluating risks, performance, financial health, and future prospects of
an organization.

It is used by a variety of stakeholders, such as credit and equity investors, the government,
the public, and decision-makers within the organization. These stakeholders have different
interests and apply a variety of different techniques to meet their needs. For example, equity
investors are interested in the long-term earnings power of the organization and perhaps the
sustainability and growth of dividend payments. Creditors want to ensure the interest and
principal is paid on the organizations debt securities (e.g., bonds) when due.

Common methods of financial statement analysis include fundamental analysis, DuPont

analysis, horizontal and vertical analysis and the use of financial ratios. Historical
information combined with a series of assumptions and adjustments to the financial
information may be used to project future performance. The Chartered Financial Analyst
designation is available for professional financial analysts.

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RATIO ANALYSIS

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated
quotient of two mathematical expression" and as" the relationship between two or more
things". In financial analysis, a ratio is used as an index or yardstick for evaluating the
financial position and performance of a firm. The absolute accounting figures reported in the
financial statements do not provide a meaningful understanding of the performance and
financial position of a firm. An accounting figure conveys meaning when it is related to some
other relevant information. The relationship between two accounting figures, expressed
mathematically, is known as a financial ratio (or simply as a ratio). Ratios help to summaries
the large quantities of financial data and to make qualitative judgment about the firm's
financial performance. The investors who are interested in investing in the company’s shares
will also get benefited by going through the study and can easily take a decision whether to
invest or not to invest in the company’s shares.

Ratio analysis is a technique of analyzing the financial statement of industrial concerns. Now
a day this technique is sophisticated and is commonly used in business concerns. Ratio
analysis is not an end but it is only means of better understanding of financial strength and
and weakness of a firm. Ratio analysis is one of the most powerful tools of financial analysis
which helps in analyzing and interpreting the health of the firm. Ratio’s are proved as the
basic instrument in the control process and act as back bone in schemes of the business
forecast. With the help of ratio we can determine the ability of the firm to meet its current
obligation.

MEANING OF RATIO

A ratio is a mathematical Relationship between two items expressed in a quantitative from. It

may defined as the indicated quotient of two mathematical expressions.

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RATIO ANALYSIS

Ratio Analysis is the process of determining and presenting the relationship of items and
group of items in the statements.

According to Batty J. Management Accounting “Ratio can assist management in its basic
functions of forecasting, planning co-ordination, control and communication”.

It is helpful to known about the liquidity, solvency, capital structure and profitability of an
organization. It is helpful tool to aid in applying judgment, otherwise complex situations.

EXPRESSION OF RATIO ANALTSIS

1. PERCENTAGE (%) :-

In this two figures is expressed in hundredth for Example.

If capital = Rs 1, 00,000, profit = Rs 20,000 then 20,000/1,00,000 x100 = 20%

2. PROPORTION (:) :-

It is expressed by the simple division of one number by another. For example:-

If current asset = Rs 2,00,000, current liability = 1,00,000 then 2,00,000/1,00,000 = 2:1

3. Times (5 times) :-

In this type, It is calculated how many times a figure is in comparison to another figure for
example:-

If firm’s credit sales during the year/Debtor at the end of year = 2,00,000/40,000 = 5 Times.

CLASSIFICATION OF RATIO ANALYSIS

Classification of Ratios can be classified into different categories depending upon the basis of
classification .

20
TRADITIONAL CLASSIFICATION Traditional Classification has been on the basis of
financial statements, on which ratio may be classified as follows. 1. Profit & Loss account
ratios.

E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc

2. Balance sheet ratio. E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc

3. Composite/ Mixed ratio. E.g. Stock Turnover Ratio, Debtors Turnover Ratios, Fixed
Assets Turnover Ratio

(A) Liquidity ratio: - It refers to the ability of the firm to meet its current liabilities. The
liquidity ratio, therefore, are also called ‘Short-term solvency Ratio’. These ratio are used to
assess the short-term financial position of the concern. They indicate the firm’s ability to
meet its current obligation out of current resources.

i) LIQUIDITY RATIOS

ii) ACTIVITY RATIOS

iii) PROFITABILITY RATIOS

iv) LONG TERM SOLVENCY RATIOS
A. LIQUIDITY RATIOS :-

Liquidity means the ability of a concern to meet in current obligations.

a) Current Ratios = This ratio explains the relationship between current assets and current
liabilities of a business.

Current Assets: - ‘Current assets’ includes those assets which can be converted into cash with
in a year’s time.

Current Assets = Cash in Hand +Cash at Band

+ B/R+ Short Term Investment+ Debtors (Debtors- provision) + Stock (Stock of Finished
Goods + Stock OF Taw Material + Work in Progress) + Prepaid Expenses.

Current Liabilities:- ‘ Current liabilities’ include those liabilities which are repayable in a
year’s time.

21
Current Liabilities = Bank Overdraft + B / P + Creditors + Provision for Taxsation +
Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable with
in ayear.

Significance :- According to accounting principles , a current ratio of 2:1 is supposed to

be an ideal ratio.

It means that current assets of a business should, at least , be twice of its current
liabilities. The higher ratio indicates the better liquidity position; the firm will be able to pay
its current liabilities more easily. If the ratio is less than 2:1, it indicate lack

Current Asset/Current Liability, standard 2:1. It means ratios is less than 2:1 it indicate lack
of liquidity and shortage of working capital.

a. Quick ratios = Quick Assets/Current Liability, Standard = 1:1. It is more than it is

considered to the better.

This ratio is a better test of short term financial position of the company.

b. Absolute Liquidity Ratio = Absolute Liquid Assets/Current Liabilities, Absolute Liquid

Assets = Cash + Bank + Short term securities, Standard = 0.5:1. Even though super quick
ratio is more vigorous in measuring the liquidity position of the firm. It is not widely used in
practice.

ACTIVITY RATIOS OR TURN OVER RATIOS :- These tatio are calculated on the
bases of ‘cost of sales’ or sales, therefore, tyhese ratio are also called as ‘turnover ratio’
turnover indicates the speed or number of times the capital employed has been rotated in the
process of doing business.

Higher turnover ratio indicates the better use of capital or resources and in turn lead to higher
profitability.

This ratios indicates the number of times the stock has been turned over during the period and
evaluates the efficiency with which a firm is able to manage its inventory.

22
Stock turnover ratio: –

This ratio indicates the relationship between the cost of goods during the year and average
stock kept during that year.

Significance : - This ratio indicates whether stock has been used or not.

It shows the speed with which the stock is rotated into sales or the number of times the stock
is turned into sales during the year.

The higher the ratio, the better it is, since it

Stock turn over ratios = cost of goods sold/Average stock. Here the higher the ratio, the better
it is, since it indicates that stock is selling quickly.

In a business where stock turnover ratio is high, goods can be sold at a low margin of profit
and even than the profitability may be quite high.

Debtor’s turnover ratio – This ratio indicates the relationship between credit sales and
average debtor’s doing the year.

Debtor’s turnover ratio = Net credit sales/Average debtor’s + Average B/R.

Average Collection period = 365/52/12/Debt turnover ratio.

While calculating this ratio, provision for bad and doubtful debts is not debuctes from the
debtors, so that it may not give a false impression that debtors are collected quickly,

Significance: - This ratio indicates the speed with which the amount is collected from
debtors,

The higher the ratio , the better it is , since it indicates that amount from debtors is being
collected more quickly.

The more quickly the debtors pay , the less the risk from bad – debts, and so the lower the
expenses of collection and increase in the lipuidity of the firm.

By comparing the debtor’s turnover ratio of the current year with the previous year, it may be
assessed whether the sales policy of the management is efficient or not.

23
Fixed assets turnover ratio – This ratio reveals how efficiently the fix assets are being
utilized.

Fixed assets turnover ratio = Cost of good sales/Net fixed assets.

This ratio is particular importance in manufacturing concerns where the investment in fixed
asset is quit high compared with the previous year.

Significance:- This ratio is particular importance In manufacturing concerns where the

investment in fixed asset is quite high.

Compared with the previous year, if there is increase in this ratio, it will indicate that there is
better utilization of fixed assets. If there is a fall in this ratio it will show that fixed assets
have not been used as efficiently, as they had been used in the previous year.

Working capital turnover ratio :- This ratio reveals how efficiently working capital has
been utilized in making sales.

Formula:-

Working capital turnover ratio = Cost of Goods sold / working capital

Heare, cost of Goods sold = opening stock + purchases + carriage + wages + other Direct
Expenses – closing stock

Working capital= current assets - current Liabilities

Significance: - This ratio is of particular importance in non- manufacturing concerns where

current assets play a major role in generating sales.

It shows the number of times working capital has been rotated in producing sales.

A high working capital turnover ratio shows efficient use of working capital turnover of
current assets like stock and debtors.

B low working capital turnover ratio indicates under- utilization of working capital.

Cost of Sales/Average Working Capital. This ratio measures the efficiency with which the
working capital is being used by a firm. A higher ratio indicates efficient utilization of
working capital and a low ratio indicates otherwise.

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PROFITABILITY RATIOS :-

A business must be able to earn adequate profits in relation to the risk and capital invested in
it.

The efficiency and the success of a business can be measured with the help of profitability
ratio.

General Profitability Ratios

Gross Profitability ratio = This ratio shows the the relationship between gross profit and
sales.

Significance: - This ratio measures the margin of profit available on sales, the higher the
gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but gross profit ratio
should be adequate enough not only to cover the operating expenses but also to provide for
deprecation interest on loans, dividends and creation of reserves.

Gross profit x 100/Net Sales.

Here gross profit = Sales – Cost of goods sold and Net sales = Total Sales – Sales Return. It
indicated higher the gross profit ratio, better the result. And low gross profit ratio, indicates
high cost of goods sold due to unfavorable purchasing policies,

2. Net Profit ratio = this ratio shows the relationship between net profit and sales. It may be
calculated by two methods:

Formula: - Net profit ratio = Net profit / Net sales*100 operating Net profit = oprating Net
profit / Net sales*100

Here, Operating Expenses, such as pffice and Administrative expenses , selling and
distribution expenses, discount, Bad debts, interest on short term debts etc.

Significance:- This ratio measures the rate of net profit earned on sales ,

It helps in determining the overall efficiency of the business operations.

An increase in the ratio over the previous year shows improvement in the overall efficiency
and profitability of the business.

25
Net profit x 100/Net Sales. This ratio indicates the firm’s capacity to face adverse economy
condition such as price competition, low demand etc.

Operating ratio = this ratio measures the proportion of an enterprise cost of sales and
operating expenses in comparison to its sales.

Classification of Ratios

Balance Sheet Ratio P&L Ratio Balance Sheet and Profit &
Loss Ratio

Financial Ratio Operating Ratio Composite Ratio

 Current Ratio  Gross Profit Ratio  Fixed Asset Turnover

 Quick Asset Ratio  Operating Ratio Ratio, Return on
 Proprietary Ratio  Expense Ratio Total Resources Ratio
Debt Equity Ratio  Net profit Ratio  Return on Own
 Stock Turnover Ratio Funds Ratio, Earning
per Share Ratio,
Debtors’ Turnover
Ratio

26
Structural Classification

This is a conventional mode of classifying ratios where the ratios are classified on the basis of
information given in the financial statements, i.e. balance sheet and profit and loss account to
which the determinants of the ratios belong. On this basis, all ratios are grouped as follows:

1. Balance Sheet Ratio: The components for computation of these ratios are draws from
balance sheet. These ratios are called financial ratios. Examples of such ratios are:
current ratio, liquid ratio, proprietary ratio, capital gear ratio, fixed assets ratio etc.

2. Profit and Loss Account Ratios: The figures used for the calculation of these ratios
are usually taken out from the profit and loss account. These ratios are also called
‘income statement ratios’. Examples of such ratios are: gross profit ratio, net profit
ratio, operating ratio, expenses ratio, stock turnover ratio etc.

3. Balance Sheet and Profit & Loss Ratio: The information required for the
computation of these ratios is normally drawn from both the balance sheet and profit
and loss account. Examples of such ratios are: return on capital employed, return on
owners’ fund, return on total investment, debtor’s turnover ratio, creditors turnover
ratio, fixed assets turnover ratio, working capital turnover ratio etc.

27
Now-a-days, it is the most popular mode of classifying the ratios. Accordingly, the ratios may
be grouped on the basis of certain tests which satisfy the needs of the parties having financial
interest in the business concern. For example, creditors or banks have interest in the liquidity
of the firm, debenture holders in the long-term solvency and shareholders in the profitability
of the firm. The ratios may be grouped as per different interests or objectives as under:

1. Liquidity Ratios: These ratios are used to measure the ability of the firm to meet its
short-term obligations out of its short-term resources. Such ratios highlight short-term
solvency of the firm. Examples of such ratios are:

I. Current Ratio

II. Liquid or Quick Ratio

III. Absolute Liquidity Ratio

2. Activity or Efficiency Ratio: These ratios enable the management to measure the
effectiveness or the usages at the command of the firm. Following ratios are included
in this category:

I. Stock Turnover Ratio

II. Total Assets Turnover Ratio

III. Fixed Assets Turnover Ratio

IV. Current Assets Turnover Ratio

V. Capital turnover Ratio

3. Profitability Ratio: These ratios are intended to measure the end result of business
operations i.e. profitability. Profitability is a measure of the ability to make a profit
expressed in relation to the sales or investments, and as such the following ratios are
computed in this category

28
 Based on Sales

I. Gross Profit Ratio

II. Operating Ratio

III. Expenses Ratio

IV. Operating Profit Ratio

V. Net Profit Ratio

 Based on Capital or Investments

I. Return on Capital Employed

II. Return on Net Worth or Shareholders’ Fund

III. Return on Equity shareholders’ fund

IV. Return on Total Assets

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LIQUIDITY OR SHORT-TERM SOLVENCY RATIOS

These ratios play a key role in analyzing the short-term financial position of a business
Liquidity refers to a firm’s ability to meet its current financial obligations as they arise.
Commercial banks and other short-term creditors i.e. suppliers of goods and services are
generally interested in such ratios. However, the management can use these ratios to ascertain
how efficiently it has utilizing the working capital. Some of the principal liquidity ratios are
described below:

Current ratio:

Current ratio is one of the important ratios used in testing liquidity of a concern. This is a
good measure of the ability of accompany to maintain solvency over a short-run. This is
computed by dividing the total current assets by the total current liabilities and is expressed
as:

Current Assets
Current ratio= ------------------------------
Current Liabilities

The current assets of a firm represent those assets, which can be in the ordinary course of
business, converted into cash within one accounting year. The current liabilities are defines as
obligation maturing within a short period (usually one accounting year). Excess of current
assets over current liabilities is known as working capital and since these two (Current assets
and current Liabilities) are used in current ratio therefore, this ratio is also know as working
capital ratio.

Idle Current Ratio: 2:1

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QUICK RATIO

The solvency of the company is better indicated by quick Ratio. The fundamental object of
calculating this Ratio is to enable the financial management of a company to ascertain that
would happen if current creditors press for immediate payment and either not possible to
push up the sales of closing or it is sold; a heavy loss is likely to be suffered. This problem
arises because closing stock is two steps away from the cash and their price is more or less
uncertain according to market demand.
The term quick assets includes all current assets expect inventories and prepaid expenses. It
shows the relationship of quick assets and current liabilities. The Ratio is calculated as
following:
Quick Assets
Quick Ratio = -------------------------------
Current Liabilities

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3.2 REVIEW OF LITERATURE REVIEW

This study relates to examine the relationship of cash flow from operations, earning and sales
with share price and the previous research has predicted the comparative abilities of cash
flow, earning and sales but this study is only concerned with the relationship of cash flow,
earning and sales with share price.

In the finance literature that market forces determine share price equal to the discounted value
of a stream of expected future cash flows (Hollister et al., 2002). Cash flows represent
amounts investors expect to receive in the form of dividend payments or from the sale of their
shares and not necessarily the annual operating cash flows generated by a firm.
Consequently, it is in a very broad sense that share price is considered to embody a firm's
future cash flows. Even if share price is often thought of and evaluated in terms of cash
flows, earnings is also known to be extremely important to managers and analysts because of
the key information it conveys about future prospects (Brigham and Ehrhardt, 2002).

Various researchers examined value in terms of share return that Earnings reflect a stronger
correlation with share return than does current operating cash flows (Watts, 1977; Dechow,
1994; Bartov et al, 1997) .It has been shown that earnings better predicts future operating
cash flows than does current operating cash flows because accruals in earnings “offset the
negative correlation in cash flow changes to produce earnings changes that are much less
negatively serially correlated ( Dechow, et al 1998) that is why earnings, rather than current
operating cash flows, tends to be used in firm share valuations.

Earnings quality can be affected by sales volatility (Dechow and Dichev (2002) and Francis
et al. (2004). By and large the greater the sales volatility, the more unstable is the operating
environment. This results in larger estimation errors for accruals and diminished earnings
quality.

It gives an idea about how monthly sales announcements of major department and discount
stores provide information for investors not only for the retail giants but also for their
suppliers (Olsen and Dietrich (1985). The sales volume announcements for the retailers
furnish information on the future cash flow prospects for their suppliers and, thus, are
incorporated into the suppliers' share prices. Dharan (1987) examined the comparative
abilities of accrual sales and cash collections of sales to predict future cash flows. It is found

32
that when cash realization occurs in a period subsequent to sales realization, cash flow
forecasts from earnings based on accrual sales are better than cash flow forecasts from
earnings based on cash collections. This is because of accrual sales “provides information on
management's expectations about future cash flows (Dharan, 1987).

Greenberg, Johnson, and Ramesh (1986) used 1963-82 compustate data to test the ability
of earnings and CFFO to predict future CFFO, for each firm two separate ordinary least
squares regression models were used. The first model test used previous earnings against
current CFFO (earnings model) & the second model used CFFO for lags of 1-5 years against
current CFFO (cash flows model).R square for the earnings and cash flows model were
compared and the model with the higher R square was determined to be the better predictor.
The results showed that earnings outperformed CFFO in predicting future CFFO. It was
concluded that the study provides evidence in support of the FASB's assertions that current
earnings is a better predictor of future cash flows than is current cash flows.

Juan M. Rivara(1996) found out the accuracy and the consensus among forecasters of
earnings estimates for U.S. domestic and U.S. multinational corporations, it was observed
that the accuracy of earnings forecasts is significantly lower for purely domestic firms than
for U.S based multinationals. Like wise the level of consensus in earnings estimates
submitted by financial analysts is significantly lower for U.S. domestic than for U.S.
multinational firms.

The accounting profession requires that firms disaggregate net income into specific
components, even though earnings disaggregation is important for assessing firm
profitability, there is little empirical evidence that the classification scheme actually improves
profitability forecasts by analyzing the accuracy improvements in out-of-sample forecasts of
one-year ahead return-on-equity (ROE) to examine the predictive content of earnings
disaggregations (Fairfield, Sweeney, & Yohn) .The results show that the classification
scheme prescribed by the accounting profession does increase the predictive content of
reported earnings. It was found forecasting improvements from earnings disaggregation.
These improvements go beyond separating extraordinary items and discontinued operations
from the other components of earnings. Further disaggregation of earnings (into operating
earnings, non-operating earnings and taxes, and special items) improves forecasts of ROE
one year ahead.

33
(Ball and Watts (1972), Albrecht, Lookabill & McKeown (1977), Watts and Leftwich
(1977) and Lev (1983) studied the Earnings ability to predict future earnings studied first or
second order autocorrelations and or forecasts over one or two-year horizons and provided
evidence to support a random walk model that is uncorrelated earnings changes, However,
random walk may not be descriptive of the earnings process Where as Ramesh and
Thiagarajan (1989) rejected a random walk earnings model and Lipe and Kormendi (1993)
show that higher order, rather than random walk, models are descriptive of market-adjusted
earnings' time-series process.

Finger (1994) found out the earnings ability to predict future earnings and future cash flow
from operations1 one through eight years ahead using annual data from1935-87 for 50 firms.
I use time-series methods to test firm-specific predictive ability over the entire time period
(hereafter in-sample regression tests) and then compare out-of-sample forecast errors to
assess earnings' ability to improve earnings or cash flow forecasts up to eight years ahead. He
found that earnings are a significant predictor of future earnings, in sample, for 88% of the
firms. The random walk provides better out-of-sample forecasts than do individually
estimated models one year ahead for 52% of the sample firms, Out of sample forecasts show
that random walk models outperform individually estimated earnings models for one-year but
not for four- or eight-year horizons. Earnings, used alone and with cash flow, are a significant
predictor of cash flow for the majority of firms. However, out-of-sample forecasts show that
adding earnings rarely improves cash flow forecasts. Cash flow is a better short-term
predictor of cash flow than are earnings, both in and out of sample, and the two are
approximately equivalent long-term.

The nature of the information contained in the accrual and cash flow components of earnings
and the extent to which this information is reflected in stock prices Sloan (1996). It is found
that earning performance attributable to the accrual component of earnings exhibits lower
persistence than earnings performance attributable to the cash flow component of earnings,
hence results also indicated that stock prices act as if investors "fixate" on earnings, failing to
distinguish fully between the different properties of the accrual and cash flow components of
earnings.

Lorek & Willinger (1996) the time series properties and predictive abilities of cash flow
data. Results indicate that this model clearly outperforms firm-specific and common-structure
ARIMA models as well as a multivariate, cross-sectional regression model popularized in the
34
literature. These findings are robust across alternative cash-flow metrics (e.g., levels, per-
share, and deflated by total assets) and are consistent with the viewpoint espoused by the
FASB that cash-flow prediction is enhanced by consideration of earnings and accrual
accounting data.

Bowen, Burgstahler & Daley (1986) examined relationships between signals provided by
accrual earnings and various measures of cash flow, Findings indicate that Correlations
between traditional cash flow measures and alternative CF measures that incorporate more
extensive adjustments are low, 2nd the correlations between alternative measures of CF and
earnings are, while the correlations between traditional measures of CF and earnings are high.
These first two results are consistent with earnings and alternative measures of CF that
incorporate more extensive adjustments conveying different signals. Finally, for four out of
five cash flow variables, the results are consistent with the hypothesis that random walk
models predict CF as well as (and often better than) models based on other flow variables. An
exception to this general result is that net income plus depreciation and amortization and
working capital from operations appear to be the best predictors of cash flow from
operations. Overall there results are not consistent with the FASB's statements that earnings
numbers provide better forecasts of future cash flows than do cash flow numbers.

Earlier additional information content of cash flows relies primarily on cross- sectional
regression models relating both earnings and cash flows to security return metrics that
assumes a uniform relation between earnings (cash flow from operations) and security returns
across observations. Ali (1994) however, conditions the incremental information content of
unexpected earnings and cash flows from operations on their magnitude with respect to price.
It is found that changes in earnings (cash flows from operations) are not expected to persist
and thus have reduced implications for returns.

Cheng, Liu & Schaefer (1996) investigated the Earnings Permanence and the Incremental
Information Content of Cash Flows from Operations, findings suggest that the incremental
information content of accounting earnings decreases, and the incremental information
content of cash flows from operations increases, with a decrease in the permanence of
earnings.

Barth, Cram & Nelson investigated the role of accruals in predicting future cash flows and
findings proved that disaggregating earnings into cash flow and the major components of

35
accruals significantly enhances earnings predictive ability, findings also showed relation
between cash flow next year and current cash flow and each component of accruals is
significant and has a sign consistent with prediction.

One of two researchers has re examined the association between earnings forecast error and
earnings predictability because there is evidence suggesting that deliberate earnings forecast
optimism is not an effective mechanism for gaining access to manager's information ( Eames
et al. 2002; Matsumoto 2002) ,For earnings level to be an important control variable in
examinations of the association between forecast error and earnings predictability, there must
be associations between earnings level and both forecast error and earnings predictability.
Numerous studies report an inverse relation between forecast error and the level of reported
earnings ( Brown 2001; Eames et al. 2002; Eames and Glover 2002; Hwang et al. 1996).
The association reflects both earnings shocks due to unanticipated events and earnings
management.

Dechow & Dichev suggested a new measure of one aspect of the quality of working capital
accruals and earnings, they illustrated the usefulness of analysis in two ways. First, they
examined the relation between measure of accrual quality and firm characteristics. The nature
of the accrual process suggests that the magnitude of estimation errors will be systematically
related to business fundamentals like the length of the operating cycle and variability of
operations. It was found that accrual quality is negatively related to the absolute magnitude of
accruals, the length of the operating cycle, loss incidence, and the standard deviation of sales,
cash flows, accruals, and earnings, and positively related to firm size. Results suggest that
these observable firm characteristics can be used as instruments for accrual quality. This is
important because the regression based estimation of accrual quality demands long time
series of data and the availability of subsequent cash flows, which makes it costly or
infeasible for certain practical applications (e.g quality-of-accruals-based trading strategies).
Second they illustrated the usefulness of analysis by exploring the relation between measure
of accrual quality and earnings persistence. Firms with low accrual quality have more
accruals that are unrelated to cash flow realizations, and so have more noise and less
persistence in their earnings. Indeed, they find a strong positive relation between accrual
quality and earnings persistence. Although the measure of accrual quality is theoretically and
empirically related to the absolute magnitude of accruals, and Sloan (1996) documents that
the level of accruals is less persistent than cash flows. Probing further, they found out that

36
accrual quality and level of accruals are incremental to each other in explaining earnings
persistence, with accrual quality the more powerful determinant.

There are two widely held views regarding management's motivations to managing earnings
and each has quite different implications for the predictive usefulness of the resultant
numbers .One view is that earnings management is motivated by mangers attempt to sustain
the overvaluation of the firm's stock price and to enhance managers personal welfare by
disguising the true underlying economic performance of the firm (opportunistic perspective).
An alternative view is that managers manage earnings to reveal private value-relevant
information about the future prospects of a firm (informational perspective). They shown that
originally reported (managed) earnings of firms classified as managing earnings for
opportunistic reasons are less predictive of future cash flows relative to the restated
(unmanaged) numbers. Conversely, they find that originally reported (managed) earnings of
firms classified as managing earnings for informational reasons exhibit greater predictive
ability with respect to future cash flows relative to restated (unmanaged) numbers.
(Badertscher , Collins and lys 2007).

Theoretical and empirical work in accounting and finance has documented the importance of
firm size when testing the information in security prices with respect to future earnings
(Collins et al., 1987) and interested in assessing the information in security prices with
respect to the predictive ability of earnings, their finding that price-based-earnings forecasts
outperform time-series forecasts by a greater margin for larger firms than smaller firms is of
direct interest here. Their result implies that firm-size may help to explain inter-firm
differences in the predictive ability of quarterly earnings data and helps to motivate the
consideration of firm-size as an independent variable in the current study.

Foster et al (1984) report that firm-size independently explains a substantial portion of the
variation in post announcement drifts in security returns due to potentially misspecified
quarterly earnings expectation models.

The magnitude of abnormal returns associated with good or bad news earnings signals is
inversely related to firm-size Freeman (1987), speculates that these findings might simply be
due to differential time-series properties of the earnings numbers of large and small firms-an
uncontrolled factor in his research design-and calls for future research to examine the
possibility.

37
Bathke , Lorek & Willinger ( 1989) found out differences in the auto regressive parameters
of the Foster and Brown and Rozeff ARIMA models across firm-size strata . One-step-ahead
quarterly earnings forecasts were generated by a set of best fitting time-series models. Their
Tests also indicated that large and medium size firms generated one-step ahead forecasts that
were significantly more accurate than smaller firms at the .05 level and they obtained similar
predictive findings on the significance of the size-effect in a supplementary analysis of the
non seasonal and volatile growth and inconsistent strata membership firms.

Cheng&Dana examined the persistence of cash flow components in predicting future cash
and the findings were that the cash flow components from various operating activities persist
differentially. They found out that the cash related to sales, cost of goods sold, operating
expenses and interest persists a great deal into future cash flows; cash related to other has
lower persistence; and cash related to taxes has no persistence and then they incorporated
accrual components into persistence regression model and found that the persistence of cash
flow components are generally higher than those of accruals; however, accrual components
do enhance model performance, their findings are consistent with the AICPA's and financial
analysts' rationale for their recommendation that the financial effects of a company's core and
non-core cash flows should be distinguish

38
 CHAPTER 3

RESEARCH METHODOLOGY

 Statement of the problem

 Objective & Scope of Study

 Managerial usefulness of study

 Type of research and research design

 Data collection Methods

 Limitations of Study

39
3.1 STATEMENT OF THE PROBLEM

Ratio analysis can be used to compare information taken from the financial statements to gain
a general understanding of the results, financial position, and cash flows of a business. This
analysis is a useful tool, especially for an outsider such as a credit analyst, lender, or stock
analyst. These people need to create a picture of the financial results and position of a
business just from its financial statements.

40
  3.2 OBJECTIVE & SCOPE OF STUDY

1.To know the Financial position of the company for the past 5 years.

2.To calculate the growth of RDM ( RESERVATION DATA MAINTENANCE ).

3.To provide suggestions for improving the overall financial position of the RDM (
RESERVATION DATA MAINTENANCE ).

4) To know the liquidity position of the RDM ( RESERVATION DATA MAINTENANCE )

with the help of current ratio.

5) To find out the different types of ratio such as quick ratio, cash deposit ratio, Net Profit
ratio etc.

6) To identify the financial strengths & weakness of the RDM ( RESERVATION DATA
MAINTENANCE ).

7) To find out the utility of financial ratio in credit analysis & determining the financial
capacity of the firm.

3.3 MANAGERIAL USEFULNESS OF STUDY

The scope of the study is identified after and during the study is conducted. The main scope
of the study was to put into practical the theoretical aspect of the study into real life work
experience. The study of Ratio analysis further the study is based on last 5 years Annual
Reports of RDM ( RESERVATION DATA MAINTENANCE ) which benefits the
company and accordingly it implicates the fare filing and overall data and research analysis
to the end customers who are agents and corporates working with us.

41
3.4 TYPE OF RESEARCH AND RESEARCH DESIGN

METHODS AND TECHNIQUES OF DATA ANALYSIS

Methodology is the systematic, theoretical analysis of the methods applied to a field of study.
It comprises the theoretical analysis of the body of methods and principles associated with a
branch of knowledge. Typically, it encompasses concepts such as paradigm, theoretical
model, phases and quantitative or qualitative techniques.

A methodology does not set out to provide solutions - it is, therefore, not the same thing as a
method. Instead, it offers the theoretical underpinning for understanding which method, set of
methods or so called “best practices” can be applied to specific case, for example, to calculate
a specific result.

It has been defined also as follows:

1. "the analysis of the principles of methods, rules, and postulates employed by a

discipline"
2. "the systematic study of methods that are, can be, or have been applied within a
discipline"
3. "the study or description of methods”

RESEARCH DESIGN

The research design is purely and simply the framework of plan for a study that guides the
collection and analysis of data. Types of Research Design:

 Exploratory Research – The main purpose of such studies is that of formulating a

problem for more precise investigation or of developing the working hypotheses from
an operational point of view.
 Descriptive Research – Those studies which are concerned with describing the
characteristics of a particular individual, or of a group.
 Hypothesis Testing Research – They are those where the researchers tests the
hypotheses of casual relationships between variables.

Descriptive research design was used for this research.

42
A research design is a systematic plan to study a scientific problem. The design of a study
defines the study type (descriptive, correlation, semi-experimental, experimental, review,
meta-analytic) and sub-type (e.g., descriptive-longitudinal case study), research question,
hypotheses, independent and dependent variables, experimental design, and, if applicable,
data collection methods and a statistical analysis plan.

Design types and sub-types

There are many ways to classify research designs, but sometimes the distinction is artificial
and other times different designs are combined. Nonetheless, the list below offers a number
of useful distinctions between possible research designs. [1]

 Descriptive (e.g., case-study, naturalistic observation, Survey)

 Co relational (e.g., case-control study, observational study)
 Semi-experimental (e.g., field experiment, quasi-experiment)
 Experimental (Experiment with random assignment)
 Review (Literature review, Systematic review)
 Meta-analytic (Meta-analysis)

Sometimes a distinction is made between "fixed" and "flexible" or, synonymously,

"quantitative" and "qualitative" research designs.[2] However, fixed designs need not be
quantitative, and flexible design need not be qualitative. In fixed designs, the design of the
study is fixed before the main stage of data collection takes place. Fixed designs are normally
theory driven; otherwise it is impossible to know in advance which variables need to be
controlled and measured. Often, these variables are measured quantitatively.

43
Data sources

Secondary data:

Secondary data were collected from websites, magazines, company brochures, and
newspapers.

Research Type :

The Project will be use descriptive type of research.

Sampling Techniques

Here the ‘non probability’ technique was selected. Mainly through ‘judgement sampling’
process.

Judgmental sampling : Sample was taken on judgmental basis. The advantage of sampling are
that it is much less costly, quicker and analyse will become easier.

Tools for analysis

 Bar chart (Bar charts will be used for comparing two or more values that will be taken
over time or on different conditions, usually on small data set )
 Pie-chart (Circular chart divided in to sectors, illustrating relative magnitudes or
frequencies)
As no study could be successfully completed without proper tools and techniques, same with
my project. For the better presentation and right explanation I used tools of statistics and
computer very frequently.

SECONDARY DATA COLLECTION

Methods to garner the data from secondary data are as follows:

 Newspapers & Magazines

 Journals
 Internet

44
SAMPLING TECHNIQUES

Basis of Convenience Sampling (Non-Probability)

STASTICAL TOOLS

Following MS Office tools are being availed while preparing the project:

 MS Excel: Pictorial & graphical representation of data

 MS Word: Preparation of project & other reports

Sample size:

The sample size shorted out from the company prospective with respect to RDM on the
basis of ratio analysis and is checked accordingly to do see the financial position with ups and
downs in Last 5 years

Research Type: The project will be exploratory research type.

Tools for analysis

 Bar chart (Bar charts will be used for comparing two or more values that will be taken
over time or on different conditions, usually on small data set

 Pie-chart (Circular chart divided in to sectors, illustrating relative magnitudes or

frequencies)

 Table
As the data’s will be of various types such as comparing based on value as well as the relative
comparison, hence both the tools are to be use for the proper analysis of the data’s.

45
3.5 LIMITATIONS OF STUDY

 The project was limited period and is done purely for the academic purpose.

 However they do not reflect the future perspectives of a company, as they ignore future
action by management.
 They can be easily manipulated by window dressing or creative accounting and may be
distorted by differences in accounting policies.
 Inflation should be taken into consideration when a Ratio Analysis is being applied as it
can distort comparisons and lead to inappropriate conclusions.
 Comparisons with industry averages is difficult for a conglomerate firm since it operates
in many different market segments.
 Seasonal factors may distort ratios and thus must be taken into account when making
ratios are used for financial analysis.
 It is possible that the information supplied by the informants may be incorrect. So, the
study may lack accuracy.

 Because of illiteracy, it was a time consuming method in which continuous guidance was
required.

46
 CHAPTER 4

DATA ANALYSIS

 Methods and techniques of data analysis

 Primary data analysis

 Secondary Data analysis

47
METHODS AND TECHNIQUES OF DATA ANALYSIS

1. CURRENT RATIO:

The two liquidity ratios, the current ratio and the acid test ratio, are the most important ratios
in almost the whole of ratio analysis and they are also the simplest to use. Liquidity ratios
provide information about a firm‘s ability to meet its short- term financial obligations. They
are of particular interest to those extending short term credit to the firm. Two frequently-used
liquidity ratios are current and quick ratio.

Generally, the higher the value of the ratio, the larger the margin of safety that the company
possesses to cover short-term debts.

Current Assets

Current ratio = -------------------------

Current Liabilities

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Current Assets 4423.18 5939.67 7133.06 8411.63 6735.93

Current Liabilities 10968.95 16909.30 15740.69 21271.45 16580.47

CURRENT RATIO 0.40 0.35 0.45 0.39 0.40

48
 Current ratio
0.5
0.45
0.45
0.4 0.39 0.4
0.4
0.35
0.35
0.3
0.25
Current ratio
0.2
0.15
0.1
0.05
0
2016 2017 2018 2019 2020

ANALAYSIS:

As per the figure shown the company current liabilities are more than company assets, for the
good position the ratio should be above the one, but hers the RDM ( RESERVATION
DATA MAINTENANCE ) current ratio is less than one, the assets stabilities are less than
liablities

49
2. QUICK OR ACID TEST RATIO:

The essence of this ratio is a test that indicates whether a firm has enough short-term assets to
cover its immediate liabilities without selling inventory. So it is the backing available to
liabilities that must be paid almost immediately. There are two terms of liquid asset and
liquid liabilities in this formula, Liquid asset is all current assets except the inventories and
prepaid expenses, because prepaid expenses cannot be converted to cash. The liquid liabilities
include all current liabilities except bank overdraft and cash credit since they are not required
to be paid off immediately.

Liquid Assets

Quick or Acid test Ratio = -----------------------

Liquid Liabilities

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Liquid Assets 2193.37 3004.08 3,241.67 3,823.40 2,280.90

Liquid 10968.95 16909.30 15740.69 21271.45 16580.47

Liabilities

QUICK 0.20 0.18 0.20 0.18 0.14

RATIO

50
 0.2 0.2
0.2 0.18 0.18
0.18
0.16 0.14
0.14
0.12
0.1 Quick ratio
0.08
0.06
0.04
0.02
0
2016 2017 2018 2019 2020

ANALYSIS:

The above graph suggests that the company has more liquid liabilities than liquid assets, it is
bad sign for the company, company should not be able to meet the liquid liabilities which are
higher as compare to liquid assets. The company liquid assets are continuously shows
negative impact on liquid assets

51
3. TURN OVER RATIO:
Accounting ratios that measure a firm's ability to convert different accounts within their
balance sheets into cash or sales. Companies will typically try to turn their production into
cash or sales as fast as possible because this will generally lead to higher revenues.

Such ratios are frequently used when performing fundamental analysis on different
companies.

I. CURRENT ASSETS TURN OVER RATIO:

It is almost like the fixed asset turnover ratio, it calculates the capability of organization to
earn sales with usage of current assets. So it indicates with what ratio current assets are
turned over in the form of sales.

Net Sales
Current Assets turn over ratio = ----------------------
Current Assets

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Net Sales 25,660.67 35,373.29 47,957.24 54,217.22 44,765.72

Current Assets 4423.18 5939.67 7133.06 8411.63 6735.93

CURRENT 5.80 5.95 6.72 6.44 6.64

ASSETS
TURNOVER
RATIO

52
 Current Asset Turnover Ratio
6.72
6.8 6.64
6.6 6.44
6.4

6.2
5.95
6 Current Asset Turnover Ratio
5.8
5.8

5.6

5.4

5.2
2016 2017 2018 2019 2020

ANALYSIS:

As per the graph shown the companies current turnover ratio is rapidly is increase but 2018 is
at highest 6.72 TIMES

53
II. WORKING CAPITAL TURNOVER RATIO:
As its name suggests it is the relationship between turnover and working capital. It is a
measurement comparing the depletion of working capital to the generation of sales over a
given period. This provides some useful information as to how effectively a company is
using its working capital to generate sales.

A company uses working capital to fund operations and purchase inventory. These operations
and inventory are then converted into sales revenue for the company. The working capital
turnover ratio is used to analyze the relationship between the money used to fund operations
and the sales generated from these operations.

The formula related is:

Net Sales
Working Capital turnover ratio = ----------------------
Working Capital

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Net Sales 25,660.67 35,373.29 47,957.24 54,217.22 44,765.72

Working Capital 6,545.77 10,969.63 8,607.63 12,859.82 9,844.54

WORKING 3.92 3.22 5.58 4.22 4.55

CAPITAL
TURNOVER
RATIO

54
 Working Capital Turnover Ratio
6 5.58

5 4.55
4.22
3.92
4
3.22
3

0
2016 2017 2018 2019 2020

Analysis:

The graph shows that when shareholder’s invested their money in to the business, it helps to
increase the sales. At the year starting in increasing continuously, it means that 1 rupees the
shareholders investing the result shows direct impact on sales, the net sales in increasing
reasoned may be requirement of working capital or machinery etc. But in the last year it gives
decreasing trend.

55
III. CAPITAL EMPLOYED TURNOVER RATIO:

The capital employed turnover ratio tells us the state of the relationship between the
shareholders' investment in the business and the sales that the management of the business
has been able to generate from it.

Net Sales
Capital employed turnover ratio = -----------------------
Capital Employed

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Net Sales 25,660.67 35,373.29 47,957.24 54,217.22 44,765.72

Capital Employed 25,559.83 31,429.69 35,912.05 30,379.29 33,403.53

CURRENT 1.00 1.13 TIMES 1.34 TIMES 1.78 TIMES 1.34 TIMES
EMPLOYED TIMES
TURNOVER
RATIO

56
 Current Employed Turnover Ratio
1.78
1.8
1.6
1.34 1.34
1.4
1.13
1.2 1
1
Current Assets Turnover Ratio
0.8
0.6
0.4
0.2
0
2016 2017 2018 2019 2020

Analysis:

The graph shows that when shareholder’s invested their money in to the business, it helps to
increase the sales. At the year starting in increasing continuously, it means that 1 rupees the
shareholders investing the result shows direct impact on sales, the net sales in increasing
reasoned may be requirement of working capital or machinery etc.. But in the last year it
gives negative trend.

57
IV. SOLVENCY OR GEARING RATIO:

Gearing is concerned with the relationship between the long terms liabilities that a business
has and its capital employed. The idea is that this relationship ought to be in balance. It is a
general term describing a financial ratio that compares some form of owner's equity (or
capital) to borrowed funds. The shareholders and lenders of long term loans may be
interested in this ratio.

DEBT EQUITY RATIO:

This ratio reflects the relative claims of creditors and share holders against the assets of the
firm, debt equity ratios establishment relationship between borrowed funds and owner capital
to measure the long term financial solvency of the firm. The ratio indicates the relative
proportions of debt and equity in financing the assets of the firm.

It is calculated as:

Debt

Debt equity ratio = -------------------------

Shareholder’s fund

The debts side consists of all long term liabilities of the firm. The shareholders‘ fund is the
share capital plus reserve and surpluses. The lower the debt equity ratio the higher the degree
of protection enjoyed by the creditors.

The debt equity ratio defined by the controller of capital issue, debt is defined as long term
debt plus preference capital which is redeemable before 12 years and shareholders‘ fund is
defined as paid up equity capital plus preference capital which is redeemable after 12 years
plus reserves & surpluses.

The general norm for this ratio is 2:1. on case of capital intensive industries as norms of 4:1 is
used for fertilizer and cement industry and a norms of 6:1 is used for shipping units.

58
Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Debt 13,165.56 16,625.91 15,898.75 11,011.63 14,268.69

Shareholder’s 514.05 570.6 634.65 634.75 638.07

Fund

CURRENT 25.61 TIME 29.14TIME 25.05TIME 17.35TIME 22.36TIME

ASSETS
TURNOVER
RATIO

Debt equity ratio

35

29.14
30
25.61 25.05
25 22.36

20 17.35
Debt equity ratio
15

10

0
2016 2017 2018 2019 2020

Analysis:

The graph shows that company shareholders have lesser contribution than creditors. The huge
amount of debt is the reason behind that, it is not good for the company to increase his debt
and not fully utilize the shareholder’s funds. High amount of debt increase the interest upon
it, indirectly it affect to the income and profit.

59
PROPRITERY RATIO:

It is primarily the ratio between the proprietor‘s funds and total assets. It indicates the
relationship between owners fund and total assets. And shows the extent to which the owner
s‘fund are sunk in assets or different kinds of it.

NOTE: Owner‘s funds is equal to Shareholders Funds

Proprietors fund

Proprietary ratio = ----------------------

Total Assets

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Propriter’s Fund 514.05 570.6 634.65 634.75 638.07

Total Assets 25,559.83 31,429.69 35,912.05 30,379.29 33,403.53

CURRENT 2.01% 1.82% 1.77% 2.09% 1.91%

ASSETS
TURNOVER
RATIO

60
 Proprietary ratio
2.20%

2.09%
2.10%
2.01%
2.00%
1.91%
1.90%
Proprietary ratio
1.82%
1.80% 1.77%

1.70%

1.60%
2016 2017 2018 2019 2020

Analysis:

As per data, Proprietor ratio shows overall positive relationship between propriters fund and
total assets. When the proprietor fund is increasing at that time investment in assets value or
return also increased. In year 2019 there is boom of 2.09%, but in last year 2020 again
decrease by 1.91%.

61
GROSS PROFIT RATIO:

The gross profit margin ratio tells us the profit a business makes on its cost of sales. It is a
very simple idea and it tells us how much gross profit our business is earning. Gross profit is
the profit we earn before we take off any administration costs, selling costs and so on. So we
should have a much higher gross profit margin than net profit margin.

High ratios are favorable in this, since it indicates the business is earning a good return on the
sale of its merchandise.

Gross Profit

Gross profit ratio = ------------------ X 100

Net Sales

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Gross Profit 13,905.17 18,416.81 21,883.32 27,111.76 30,312.14

Net Sales 25,660.67 35,373.29 47,957.24 54,217.22 44,765.72

Gross Profit Ratio 54.19 % 52.06% 45.63% 50.01% 67.71%

62
 Gross profit ratio
67.71%
70.00%
54.19%
60.00% 52.06%
50.01%
45.63%
50.00%

40.00%
Gross profit ratio
30.00%

20.00%

10.00%

0.00%
2016 2017 2018 2019 2020

Analysis:

From the above graph the Gross profit ratio shows the decrease trend in the GP which is bad
sign for the company, company should have to increase or maintain its high level of GP but is
going in negative way. As compare to year 2019 to 2020, there is big increase in gross profit
in all five years, it is 67.71%.

63
 NET PROFIT RATIO:

This shows the portion of sales available to owners after all expenses. A high profit ratio is
higher profitability of the firm. This ratio shows the earning left for shareholder as percentage
of Net sales.

Net Margin Ratio measures the overall efficiency of production, Administration selling,
financing, pricing and Taste Management.

Net Profit After tax

Net profit ratio = ----------------------------- X 100

Net Sales

Rupees (in Cores)

YEAR 2016 2017 2018 2019

NPAT 1,001.26 2,240.08 1,811.82 1,242.23

Net Sales 25,660.67 35,373.29 47,957.24 54,217.2

Net Profit Ratio 3.90% 6.33% 3.78% 2.29%

64
 Net Profit Ratio

7.00% 6.33%

6.00%

5.00% 3.90%
3.78%
4.00%
Net Profit Ratio
3.00% 2.29%

2.00%
0.67%
1.00%

0.00%
2016 2017 2018 2019 2020

Analysis:

The graph shows the increase and decrease trend, in first two year it was increasing than it went down, it
indicate decrease in profitability of the shareholders. As compare frist two year in last year it has been boom
indecreasing.

65
OPERATING NET PROFIT RATIO:

The graph shows the increase and decrease trend, in first two year it was increasing than it
went down, it indicate decrease in profitability of the shareholders. As compare to first two
year last year it has been boom indecreasing.

This ratio establishes the relation between the net sales and the operating net profit. The
concept of operating net profit is different from the concept of net profit operating net profit
is the profit arising out of business operations only. This is calculated as follows:

Operating net profit = Net Profit + Non operating expenses – non operating income.

Alternatively, this profit can also be calculated by deducting only operating expenses from
the gross profit.

This ratio is calculated with help of the following formula.

Operating net Profit

Operating net profit ratio = ---------------------------- X 100

Net Sales

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

Operating Net Profit 1,723.10 4,032.83 4,705.72 4,177.55 1,717.98

Net Sales 25,660.67 35,373.29 47,957.24 54,217.22 44,765.72

Operating Net Profit 6.71% 11.40% 9.81% 7.70% 3.84%

Ratio

66
 Operating Net Profit Ratio
12.00%
11.40%

10.00% 9.81%

8.00%
7.70%
6.71%
6.00%
Operating Net Profit Ratio

4.00% 3.84%

2.00%

0.00%
2016 2017 2018 2019 2020

Analysis:

As shown in graph, in year 2016 the operating net profit ratio increases, it continuous till
second year an than it is going up to its highest level of 11.40. it shows the negative direction
which is decrease in operating net profit ratio. In the last year as compare to first year it goes
to below the first year level.

67
RETURN ON ASSETS RATIO:

This ratio actually measures the profitability of the investments in the firm. And the related
formula is:

Net Profit After tax

Returns on assets = ---------------------------- X 100

Assets

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

NPAT 1,001.26 2,240.08 1,811.82 1,242.23 301.81

Assets 5435.87 5936.76 6621.14 6607.32 7959.92

Returns on Assets 3.50% 7.14% 9.53% 8.57% 5.45%

68
 Returns on Assets
12.00%

10.00%
9.53%
8.57%
8.00%
7.14%
6.00%
5.45% Returns on Assets

4.00%
3.50%

2.00%

0.00%
2016 2017 2018 2019 2020

Analysis:

The graph shows the trend increasing in first three years and after that it goes down. In
starting years the return on asset ratio is increase. This means that the company is increasing
their revenue per unit of asset but then it becomes negative. This is bad signs for the
company. But overall company is average returns of 6.8.

69
RETURNS ON CAPITAL EMPLOYED:

This Ratio is considered to be very important. It indicates the percentage of net profits before
interest and tax to total capital employed. It reflects the overall efficiency with which capital
is used. The ratio of a particular business should be compared with other business firms in the
same industry to find out the exact position of the business.

It is calculated as:

Net Profit before interest and tax

Returns on capital employed = ----------------------------------------- X 100

Capital Employed

Note: Capital Employed = Equity Capital + Preference Capital + Reserves and Surplus +
Long Term Debt- Fictitious Assets

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

NPBIT 1769.85 4219.82 3686.48 2559.65 1562.69

Capital Employed 25,559.83 31,429.69 35,912.05 30,379.29 33,403.53

Returns on capital 6.92% 13.43% 10.27% 8.43% 4.68%

employed

70
 Return On Capital Ratio
16.00%

14.00% 13.43%

12.00%
10.27%
10.00%
8.43%
8.00% 6.92% Return On Capital Ratio
6.00% 4.68%
4.00%

2.00%

0.00%
2016 2017 2018 2019 2020

ANALYSIS:

In graph, return on capital employed is Decreasing year 2020 , in year 2017 shareholders get
benefit maximum 13.43%.the overall business efficiency is increasing. in last year it is very
less.

71
RETURNS ON EQUITY:

This ratio also known as return on shareholders‘ funds or return on proprietors‘ funds or
return on net worth, indicates the percentage of net profit available for equity shareholders to
equity shareholders‘ funds and not on total capital employed.

It is calculated as:

NPAT – Preference Dividend

Return on equity ratio = --------------------------------------- X 100

Equity shareholders fund

Rupees (in Cores)

YEAR 2016 2017 2018 2019 2020

NPAT 1,001.26 2,240.08 1,811.82 1,242.23 301.81

Equity Shareholder 514.05 570.6 634.65 634.75 638.07

fund

Returns on equity 194.78% 392.58% 285.48% 195.70% 47.30%

ratio

72
 Return On Capital Ratio
450.00%
392.58%
400.00%

350.00%

300.00% 285.48%

250.00%
194.78% 195.70% Series 1
200.00%

150.00%

100.00%
47.30%
50.00%

0.00%
2016 2017 2018 2019 2020

Analysis:

The figure shows that the returns on equity is increasing in the beginning and touches highest
level in the year 2017 which is 392.58% then it is declining in last two year the reason is
decrease in company profit.

73
 CHAPTER 5

FINDINGS & CONCLUSIONS

5.1 FINDINGS OF THE STUDY

From last two years the automobiles sectors has been struggle. After analysing all the ratio,
current ratio has mostly remained below the 1 which means the company has been under
pressure of not having enough assets to repay their short term obligations. Quick ratio
suggests that the company has more liquid liabilities than liquid assets, it is bad sign for the
company, company should not be able to meet the liquid liabilities which are higher as
compare to liquid assets. Current assets turnover ratio shows that company current assets
value is more than 6 times in that year, company capability to earn profit through current
assets is very good. As per the data, the working capital not that much capable to generate the
sales revenue, when company needs the working capital that were not available at that time
so it should defiantly have impact on sales. The capital employed shows that when
shareholder’s invested their money in to the business, it helps to increase the sales. The net
sales in increasing reasoned may be requirement of working capital or machinery etc.. The
debt equity ratio describes that company creditors have higher contribution than shareholders.
Company is only depending on debt not utilizing the shareholders capital. The gross profit is
continuously going down and net profit ratio also going negative after the three years. The
company overall performance is weak it may be for high debt and increase in interest upon it.
From the ratio analysis the company RDM ( RESERVATION DATA MAINTENANCE )
profile is decling due to the decline of whole industries should be advisable not to invest in
the company.

74
 The above graph suggests that the company has more liquid liabilities than liquid
assets, it is bad sign for the company, company should not be able to meet the liquid
liabilities which are higher as compare to liquid assets. The company liquid assets are
continuously shows negative impact on liquid assets
 As per the graph shown the companies current turnover ratio is rapidly is increase but
2019 is at highest 6.72 TIMES
 The graph shows that when shareholder’s invested their money in to the business, it
helps to increase the sales. At the year starting in increasing continuously, it means
that 1 rupees the shareholders investing the result shows direct impact on sales, the
net sales in increasing reasoned may be requirement of working capital or machinery
etc. But in the last year it gives decreasing trend.
 The graph shows that when shareholder’s invested their money in to the business, it
helps to increase the sales. At the year starting in increasing continuously, it means
that 1 rupees the shareholders investing the result shows direct impact on sales, the
net sales in increasing reasoned may be requirement of working capital or machinery
etc.. But in the last year it gives negative trend.
 The graph shows that company shareholders have lesser contribution than creditors.
The huge amount of debt is the reason behind that, it is not good for the company to
increase his debt and not fully utilize the shareholder’s funds. High amount of debt
increase the interest upon it, indirectly it affect to the income and profit.
 As per data, Proprietor ratio shows overall positive relationship between propriters
fund and total assets. When the proprietor fund is increasing at that time investment in
assets value or return also increased. In year 2019 there is boom of 2.09%,but in last
year 2020 again decrease by 1.91%. .
 From the above graph the Gross profit ratio shows the decrease trend in the GP which
is bad sign for the company, company should have to increase or maintain its high
level of GP but is going in negative way. As compare to year 2019 to 2020, there is
big increase in gross profit in all five years, it is 67.71%.
 The graph shows the increase and decrease trend, in first two year it was increasing
than it went down, it indicate decrease in profitability of the shareholders. As compare
first two year in last year it has been boom in decreasing.

75
 As shown in graph, in year 2017 the operating net profit ratio increases, it continuous
till second year an than it is going up to its highest level of 11.40. it shows the
negative direction which is decrease in operating net profit ratio. In the last year as
compare to first year it goes to below the first year level.
 The graph shows the trend increasing in first three years and after that it goes down.
In starting years the return on asset ratio is increase. This means that the company is
increasing their revenue per unit of asset but then it becomes negative. This is bad
signs for the company. But overall company is average returns of 6.8.
 In graph, return on capital employed is Decreasing year 2020, , in year 2017
shareholders get benefit maximum 13.43%.the overall business efficiency is
increasing. in last year it is very less.
 The figure shows that the returns on equity is increasing in the beginning and touches
highest level in the year 2017 which is 392.58% then it is declining in last two year
the reason is decrease in company profit.

76
5.2 CONCLUSION

It is important to analyze trends in ratios as well as their absolute levels. Trend analysis can
give a picture as to whether the firm’s financial condition is likely to enhance or to impair.
Financial statement analysis focusing more on a study of the relationships between statement
of comprehensive income and statement of financial position to determine if there is any
changes by looking the trend analysis over time and as a benchmark to compare firm
performance with other firms in its industry. In addition, financial statements are used as a
prediction the firm’s future incomes distribution to shareholders members in terms of
dividend. From an investor’s perspective, financial statement analyses is all about in making
future corporate prediction. From management’s view, financial statement analysis is
benefited to anticipate future conditions and, also as a beginning phase for planning actions
that will influence the future planning. From perspective of creditor, making decision to
provide credit terms is depends on the financial statement analysis.

The concentrated of financial ratio analysis is depend on different types of industry because it
will depend purely on the nature of business activities. Financial ratio analysis will bring a
big impact to those related industry in analyzing and compare the performance of the
business with previous years or with other similar business. Apart from that, analysis of ratio
may provide a careful evaluation and assessment of business’s financial advantages and
disadvantages. Knowing what these ratios mean and being aware of trends can aid the
business owner in better managing of their business to enhance the reputation of company
and maintain loyalty of their customers as well as enlarge the potential customer comes in.

1. The sales to assets ratio is reveals that except in 2016-2017, in all the years it is more
than I indicating good sales position of the firm in the market.
2. During the study period the working capital position is found to be satisfactory. In last
2 years of study current assets are more than double to that of current liabilities.
3. The net profit is more in the last year i.e. 63.7% because of the reduced operation
expenses.
4. It is observed that the total assets are almost same during the same period with a slight
variation of 1% to 3%.
5. Over all the company current position is good but years 2016-17 & 2017-18 the
company current position not good.

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 CHAPTER 6

SUGGESTIONS

Suggestion :

Some of the recommendation and suggestion are as follows:

• The attention is required on the areas of growth, profitability, service level and building
talent.

• To increase the profit of bank, bank should decrease their operating expenses and increase
their income.

• To increase its liquidity, bank should keep some more cash in its hand instead of giving
more and more advances.

• Introduce quality consciousness and standardization of the work system and procedures.

• Make manager competitive and introduce spirit of market-orientation and culture of

working for customer satisfaction.

• There is need to build the knowledge and skill bases among the employ eosin the context
of technology.

• Performance measure should not only cover financial aspects i.e. quantitatively aspects
but also the qualitative aspects.

• It is high time to focus on work than the work-achieved.

• RDM ( RESERVATION DATA MAINTENANCE ) should increase its retail portfolio.

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 REFERENCES

BOOKS:

 Leon C. Megginson (1988). Management Concepts and Applications : Thomasville

 Carl Warren (2015) . Financial & Managerial Accounting : Washington

 C R Kothari (2014) . Research Methodology : Mumbai

WEBSITES:

 http://www.rdm.co.in/index.asp
 https://www.zaubacorp.com/company/RESERVATION-DATA-MAINTAINENCE-
INDIA-PRIVATE-LIMITED/U74899DL1992PTC049530
 https://www.moneycontrol.com/financials/
 https://www.moneycontrol.com/annual-report
 https://www.ndtv.com/business/stock
 https://economictimes.indiatimes.com

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