SEMESTER : 1

(2020-21)

ACCOUNTS PROJECT

“RATIO ANALYSIS”
COMPANY: AMARA RAJA
BATTERIES LIMITED (ARBL)

OUR TEAM:

Ishika Khushi
205033 205031

Gagan Parth Navneet

205038 205016 205020
 CERTIFICATE

This is to certify that the content of this project

entitled “ Ratio Analysis” by Ishika, Khushi, Parth,
Navneet and Gagan is their bona fide work
submitted to Sri Guru Gobind Singh College of
Commerce for consideration in partial fulfilment of
the requirement of Delhi University for the award of
Bachelor of Business Economics.
This is the original work carried out by them under
my supervision in the academic year 2020-21.

Certified By
Ms. Neha Saini
 ACKNOWLEDGEMENT
We are overwhelmed in all humbleness and gratefulness to acknowledge our depth
to all those who have helped us to put these ideas, well above the level of simplicity
and into something concrete.
We would like to express our special thanks of gratitude to our teacher Ms. Neha
Saini as well as our principal Dr. Jatinder Bir Singh who gave us the golden
opportunity to do this wonderful project on the topic Ratio Analysis, which also
helped us in doing a lot of Research and we came to know about so many new
things. We are really thankful to them. We are also grateful to our team members
for each of their efforts in making this project.
Any attempt at any level can 't be satisfactorily completed without the support and
guidance of our parents.
We would like to thank our friends who helped us a lot in gathering different
information, collecting data and guiding us from time to time in making this project.
Despite their busy schedules, they gave us different ideas in making this project
unique.

Thanking you,
Ishika, Khushi, Parth, Navneet, Gagan
 INDEX

o Introduction
o Significance of Ratio Analysis
o Limitations of Ratio Analysis
o Classification of ratio Analysis
Liquidity Ratio
Solvency Ratio
Activity Ratio
Profitability Ratio
o Company Profile
o Production Process
o Some Fun Facts
o Accounting Ratios and Interpretation
Analytical Data
Graphical Representation
Interpretation
o Findings
o Suggestions
o Conclusion
o Sources
 INTRODUCTION

MEANING OF RATIOS AND ACCOUNTING RATIOS

• ‘Ratio’ is an arithmetical expression of relationship between two

interdependent or related items.
• Ratios when calculated on the basis of accounting information, are called
ACCOUNTING RATIOS.
• “The term accounting ratios is used to describe significant relationships
which exist between figures shown in balance sheet, in statement of profit
& loss, in a budgetary control system or in any part of the accounting
organization.”

MEANING OF RATIO ANALYSIS

• Ratio analysis is a quantitative procedure of obtaining a look into a firm's

functional efficiency, liquidity, revenues, and profitability by analysing its
financial records and statements.
• “Ratio analysis is a study of relationship among various financial factors in a
business.” -Myers
• Ration analysis is a process of determining & interpreting relationship
between the items of financial statements to provide a meaningful
understanding of the performance and financial position of an enterprise.
 SIGNIFICANCE OF RATIO
ANALYSIS

1. It simplifies complex accounting statements and financial data into

simple ratios of operating efficiency, financial efficiency, solvency, long-term
positions etc. Ratio analysis help identify problem areas and bring the
attention of the management to such areas.

2. Ratios are exceptionally useful tools with which one can judge the financial
performance of the enterprise over a period of time. The efficiency of the
enterprise can also be judged against the industry average. In vertical
analysis (vertical analysis is a method of financial statement analysis in which
each line item is listed as a percentage of a base figure within the statement),
ratios help the analyst to form a judgment whether the performance of the
firm at a point of time is good, questionable or poor.

3. Likewise, the use of ratios in the horizontal analysis ( horizontal analysis can
either use absolute comparisons or percentage comparisons, where the
numbers in each succeeding period are expressed as a percentage of the
amount in the baseline year, with the baseline amount being listed as 100%)
indicates whether the financial condition of the firm is improving or
deteriorating and whether the cost, profitability or efficiency is showing an
upward or downward trend. A study of the trend of strategic ratios may help
the management in the task of planning and forecasting. At times, the
investment decisions are based on the condition revealed by certain ratios.
In this way, it serves as handmaid to the management.
#1 – Analysis of Financial Statements
Interpretation of the financial statements and data is essential for all internal and
external stakeholders of the firm. With the help of ratio analysis, we interpret the
numbers from the balance sheet and income statements.

#2 – Helps in Understanding the Profitability of the Company

Profitability ratios help to determine how profitable a firm is. This ratio basically
tells us how well a company uses its investors’ money. Margins help to analyze the
firm’s ability to translate sales to profit.

#3 – Analysis of Operational Efficiency of the Firms

Certain ratios help us to analyze the degree of efficiency of the firms. Ratios like
account receivables turnover, fixed asset turnover, and inventory turnover ratio.
These ratios can be compared with the other peers of the same industry and will
help to analyze which firms are better managed as compared to the others. It
measures a company’s capability to generate income by using the assets.

#4 – Liquidity of the Firms

Liquidity determines whether the company can pay its short-term obligations or
not. By short-term obligations, we mean the short-term debts which can be paid
off within 12 months or within the operating cycle.

#5 – Helps in Identifying the Business Risks of the Firm

One of the most important reasons to use ratio analysis is that it helps in
understanding the business risk of the firm. Calculating the leverages (Financial
Leverage and Operating Leverages) helps the firm understand the business risk i.e.
how sensitive the profitability of the company is with respect to its fixed cost
deployment as well as debt outstanding.

#6 – Helps in Identifying the Financial Risks of the Company

Another importance of ratio analysis is that it helps in identifying the Financial
Risks. Ratios like Leverage ratio, interest coverage ratio, DSCR ratio etc help the
firm understand how it is dependent on external capital and whether they are
capable of repaying the debt using their own capital.

#7 – For Planning and Future Forecasting of the Firm

Analysts and managers can find a trend and use the trend for future forecasting
and can also be used for important decision making by external stakeholders like
the investors. They can analyze whether they should invest in a project or not.

#8 – To Compare the Performance of the Firms

The main use of ratio analysis is that the strengths and weakness of each firm can
be compared. The ratios can be also compared to the firm’s previous ratio and will
help to analyze whether progress has been made by the company.
LIMITATIONS OF RATIO ANALYSIS

Ratio analysis information is historic – it is not current. That is to say, the

details taken into consideration in the ratio analysis are solely based upon
the actual past results that were released by the company. Ratio analysis
metrics, therefore does not necessarily depict what the future withholds for
the company. It’s merely predictable analysis.

Ratio analysis does not take into account external factors such as a
worldwide recession. In simpler terms, it does not adjust to the seasonality
effects which results in false interpretations of the analytical detains and
conclusions.

Ratio analysis does not measure the human element of a firm. It tends to
ignore the qualitative aspect of the firm as it only seeks the monetary aspects
and takes only profit related points into consideration.

Ratio analysis can only be used for comparison with other firms of the same
size and type. Moreover, it does not solve the finance related issues of the
company as they are just a means to end and do not provide the analysists
with actual solutions.

It may be difficult to compare with other businesses as they may not be

willing to share the information. Due to this veiling of information does not
help any other company in elevating their progress rate.

These ratios do not have any standard definitions. There meanings and
formulas vary from firm to firm.
 CLASSIFICATION OF RATIO
ANALYSIS
THERE ARE FOUR MAJOR TYPES OF RATIOS:
i) Liquidity Ratios
ii) Solvency Ratios
iii) Activity Ratios
iv) Profitability Ratios

A. LIQUIDITY RATIOS

These ratios show the ability of the enterprise to meet its short-term financial
obligations. It shows liquidity of the Business. Also known as short-term Solvency.
These ratios are computed to evaluate the capability of the entity to meet its short-
term liabilities.

1) CURRENT RATIO
It is a liquidity ratio that measures the ability of an enterprise to pay its short-term
financial obligations. That is to say, it evaluates the company’s current liabilities. It
a relationship of current assets and current liabilities. It indicates whether the
enterprise will be able to meet its short-term financial obligations when they
become due for payment.
Formula: Current Assets/ Current Liabilities
2) LIQUID RATIO/ QUICK RATIO/ ACID TEST RATIO
Liquid ratio, also known as quick ratio or acid test ratio is the liquidity ratio that
measures the ability of an enterprise to meet its short-term financial obligations,
i.e., liabilities. It is a relationship of liquid assets and current liabilities.
Formula: Current Assets - Inventories/ Current Liabilities

3) DIVIDEND PAYOUT RATIO

The dividend pay-out ratio is the ratio of the total amount of dividends paid out
to shareholders relative to the net income of the company. It is
the percentage of earnings paid to shareholders in dividends. It is sometimes
simply referred to as the pay-out ratio.

Formula: Total Dividends/ Net Income

4) EARNINGS RETENTION RATIO

The retention ratio is the proportion of earnings kept back in the business
as retained earnings. The retention ratio refers to the percentage of net income
that is retained to grow the business, rather than being paid out as dividends.

Formula: Retained Earnings/ Net Income

 B. SOLVENCY RATIOS

Solvency of business means that the business is in a position to meet its long-term
financial obligations as and when they become due. Solvency ratios are the ratios
which show whether the enterprise will be able to meet its long-term financial
obligations, i.e., long-term liabilities.

1) DEBT TO EQUITY RATIO

Debt to Equity ratio is computed to assess the long-term financial soundness of the
enterprise. The ratio expresses the relationship between the long-term external
equities, i.e., external debts and internal equities, i.e., shareholder’s funds of the
enterprise. External equities of external debts are the liabilities of the external
enterprise payable to outsiders. They include long term borrowings and long-term
provisions.
Formula: Total Debt/ Shareholder’s Equity

2) TOTAL ASSETS TO DEBT RATIO

Total assets to Debt ratio depicts the relationship between total assets and long-
term debts of the enterprise. The objective of computing the ratio is to establish
relationship between total assets and long-term debts of the enterprise. This ratio
can be used to compare a company’s leverage with that of the others in the same
industry.
Formula: Total Assets/ Total Debt
 3) PROPRIETARY RATIO
Proprietary ratio, also known as equity ratio, establishes a relation between
proprietors’ funds and total assets. It is computed either by liability approach or
assets approach.
Formula: Proprietary’s Funds/ Total Assets

4) INTEREST COVERAGE RATIO

The ratio establishes the relationship between Net profit interest and Tax interest
on long-term debts. Interest is charge on profit, therefore net profit before interest
and tax is taken to calculate the ratio.
Formula: EBIT/ Interest Expense
 C. ACTIVITY RATIOS

Activity ratios, also termed as performance or turnover ratios, measure how

well the resources have been used by the enterprise.
It measures the effectiveness with which the enterprise users its available
resources. The result is expressed in number of times.

1) INVENTORY TURNOVER RATIO

It establishes the relationship between cost of revenue from operations, that is cost
of goods sold and average inventory carried during that.
Formula: Cost of Goods Sold/ Average Inventories

2) TRADE RECEIVABLE TURNOVER RATIO

It established the relationship between credit revenue from operations, that is: the
net credit sale and average trade receivables that is: the average of debtors and
bills receivables of the year.
Formula: Net Credit Sales/ Average Accounts Receivable

3) TRADE PAYABLE TURNOVER RATIO

Trade payable means amount payable for purchase of goods or services taken by
the enterprise in the ordinary course of business.
It shows the relationship between net credit purchases and total payables or
average payables, whereas average payment or creditors velocity shows the credit
period enjoyed by the enterprise in paying creditors.
Formula: Total Purchases/ Average Accounts Payable

4) WORKING CAPITAL TURNIVER RATIO

It shows the relationship between working capital and revenue from operations.
It shows the number of times a unit of rupee invested in the working capital
produces sales.
The objective of computing the ratio is to a certain whether or not working capital
has been effectively used in generating revenue.
Formula: Net Sales/ Working Capital

5) FIXED ASSETS TURNOVER RATIO

Fixed-asset turnover is the ratio of sales to the value of fixed assets.
It indicates how well the business is using its fixed assets to generate sales.
Formula: Net Sales/ Average Fixed Assets

6) CURRENT ASSETS TURNOVER RATIO

It is a ratio used to calculate the capability of a company to generate sales through
its current assets including cash, receivables, inventory, accounts, etc.
The financial resources decline with the elevation in the current asset ratio.
Formula: Net Sales/ Average Current Assets
 D. PROFITABILITY RATIOS

• Profitability ratios are used to measure the efficiency of the business.

• Profitability refers to the financial performance of the business.
• Accounting ratios measuring the profitability are known as profitability
ratios.

1) GROSS PROFIT RATIO

Gross profit ratio establishes the relationship of gross profit and revenue from
operations. That is, net sales of an enterprise.
The ratio is calculated and shown in percentage.
Any fluctuation in gross profit ratio is a result of a change either in revenue from
operations or cost of revenue from operations or both.
Thus, this ratio shows the average margin on goods sold.
Formula: Gross Profit/ Net Sales X 100

2) OPERATING RATIO
It established the relationship between operating cost and revenue from
operations.
It shows the proportion of cost of revenue from operations and operating expenses
to revenue from operations.
It helps to assess the operational efficiency of the business.
Formula: Operating Expenses/ Net Sales
 3) OPERATING PROFIT RATIO

Operating profit rest ratio measures the relationship between operating profit and
revenue from operations, that is, the net sales.
It is expressed in percentage.
Formula: Operating Income/ Revenue

NOTE-
• Both Operating ratio and operating profit ratio are complementary to each
other and thus, if one of such ratio is deducted from hundred, another ratio
is obtained.
• For example, if operating ratio is 75% and operating profit ratio will be 100 –
75% which is 25%.

4) NET PROFIT RATIO

Net profit ratio establishes the relationship between a net profit and revenue from
operations, that is, the net sales.
It shows the percentage of net profit earned on revenue from operations.
It is an indication of overall efficiency of the business.
Higher the net profit ratio better the business.
Formula: Net Income/ Revenue
 5) RETURN ON INVESTMENT
Return on investment is also called Return on capital employed.
It shows the relationship of profit before interest and tax with capital employed,
the net result of operations of a business is either profit or loss.
The sources that are the funds used in the business to earn this profit or loss are
proprietors, funds and loans.
Formula: Net Profit/ Cost of Investment X 100

6) EBITDA MARGIN
EBITDA margin is a measure of a company's operating profit as a percentage of its
revenue.
EBITA is earnings before interest, taxes, and amortization. EBIT is earnings before
interest and taxes and is also known as operating margin.
Formula: Total Sales – COGS – Operating Expenses/ Total Sales

7) PBT MARGIN
The pre-tax profit margin (PBT) is an accounting method used to measure the
operating efficiency of a company.
It is a ratio that tells us the percentage of sales that has turned into profits or, in
other words, how many cents of profit the business has generated for each dollar
of sale before deducting taxes.
Formula: Profit Before Tax/ Net Sales X 100
 COMPANY PROFILE

• Amara Raja Batteries (ARBL) incorporated under the companies act 1956 on
13th February 1985 and converted into public limited company on 6th
September 1990.

• The chairman and Managing director of the company is “Shri Gala Rama
Chandra Naidu”. ARBL is a first company in India which manufactures values
regulated Lead Acid (VRLA) Batteries. The main objective of the company is
to manufacture good quality of “sealed maintenance fee” (SMF) add
batteries. The company is setting up to Rs. 1,920 lakhs plants are in 185 acres
in “Karakambadi” village, Renigunta Mandal. The project site is notified
under ‘B’ category.

• The company has the clear-cut policy at direct selling without any
intermediate. So, they have set up six branches and are operated by
corporate operations office located in Chennai. The company has virtual
monopoly in higher A.H. (Amp Hour) market, rating its product VRLA. It is
also having the facility for industrial and automotive batteries.

• Amara Raja is 5 ‘s’ company, and its aim are to improve the workplace
environment by using 5’s techniques which is a systematic and rational
approach to workplace organization and methodical house keeping with a
sense of purpose, consisting of the following five elements: -

1) GRID CASTING
2) PLATE PREPARATION
3) CALL ASSEMBLY
4) FORMATION
5) TESTING AND INSPECTION
 PRODUCTION PROCESS
The process for the production of lead acid batteries consists essentially of five
operation described below:-

1) GRIDS CASTING
The process of grid casting grids. To hold the active material are made, battery grids
are produced using microprocessor which is casting machines with patent alloys.
Different sizes of moulds are used to get the required size of grids.

2) PLATE PREPARATION
Using the lead oxide produced in the earliest stage, positive and negative pastes is
prepared with addition of sulfuric acid and water. These pastes are applied to
respective grids using industrial fasting machines.

3) CALL ASSEMBLY
Here positive and negative grids are separated by a sheet of fibreglass .Mat bush
bars are we lead and are assembled into a jar or container to form battery cells.

4) FORMATION
Cells are filled with the electrolyte and then the set is charged.

5) TESTING AND INSPECTION

Before your battery is sold to the customer, it is tested for its quality specifications
before it is ready to be sold.
SOME FUN FACTS
 ACCOUNTING RATIOS AND
INTERPRETATION

A. LIQUIDITY RATIOS

Following is the Data for Liquidity Ratios from year 2016- 2020:-

• These are the ratios showing the capability of the company (ARBL)
to pay of the current debt obligations without raising any external
capital.
 GRAPHICAL REPRESENTATION
Following is the Bar Graph representing the analytic data given
above, comparing different Liquidity Ratios for five consecutive
years.

LIQUIDITY RATIOS
90

80

70

60

50

40

30

20

10

0
Year 2020 Year 2019 Year 2018 Year 2017 Year 2016

Current Ratio (X) Quick Ratio (X) Dividend Payout Ratio (CP) (%) Earnings Retention Ratio (%)
 INTERPRETATION

• CURRENT RATIO
The standard norm of current ratio is 2:1. During the whole period of 5 years, the
ratio continued to fluctuate while being more than 2:1. This shows that the ratio is
almost more than the standard.

Here, we conclude that ratio is satisfactory i.e. there are enough current assets to
cover the current liabilities.

• QUICK RATIO

The standard norm of quick ratio is 1:1. This shows that the company has been
having good short-term financial health all through the 5 yrs. However, in the
results of 2020, it goes little below the standard. But it is very minute so we can
conclude, that overall the ratio was above standard, so the ratio is satisfactory.

• DIVIDEND PAYOUT RATIO

The ideal ratio lies between 35 % and 55%. However, in this case, it is way below
the standard. This means that the company is reinvesting the bulk of its earnings
into expanding operations.

• EARNINGS RETENTION RATIO

The ideal ratio is 100%. But this is quite unachievable. Since it is low, it means
that the company let out huge dividends. For the year when it’s 0, it means that
the company let out dividends equal to the net income.
 B. SOLVENCY RATIO

Following is the Data for Solvency Ratios from year 2016- 2020:-

• These are the different ratios showing the capability of the

company (ARBL) to meet its long-term obligations. It is depicting
the financial health of the company by taking into account its cash
flow to check whether it is sufficient to meet its long-term
liabilities.
 GRAPHICAL REPRESENTATION
Following is the Line Graph representing the analytic data given
above, comparing various Solvency Ratios for five consecutive
years.

SOLVENCY RATIO
1600

1400

1200

1000

800

600

400

200

0
2020 2019 2018 2017 2016

Debt Equity Ratio Interest Cover

 INTERPRETATION

• DEBT TO EQUITY RATIO

The ratio gives results relating to the capital structure of a firm.
The ratio has reduced from 0.03 in 2016, to 0.02 in 2018 to 0.01 in 2020. We can
conclude that the company’s depending on the debt fund is decreasing.

• INTEREST COVERAGE RATIO

This ratio shows the number of times the interest charges are covered by funds
that are ordinarily available for their payment.
The interest coverage ratio has reduced considerably from 2016 to 2020. We can
conclude that in this position outside investors are less likely to invest money in the
company.

• PRORIETARY RATIO
This ratio establishes the relationship between proprietary funds and total assets.
In the year 2019, this ratio was 0.5 and in year 2020 it became 0.6 showing the
elevation of 0.1.
 C. ACTIVITY RATIO

Following is the Data for Activity Ratios from year 2016- 2020:-

• These are the ratios showing the efficiency of the company (ARBL)
in leveraging the assets on its balance sheet in order to generate
revenues and cash.
 GRAPHICAL REPRESENTATION
Following is the Bar Graph representing the analytic data given
above, comparing different Activity Ratios for five consecutive
years.

ACTIVITY RATIOS
12

10

0
Inventory Turnover Debtors Turnover Investments Fixed Assets Total Assets Current Assets
Ratio Ratio Turnover Ratio Turnover Ratio Turnover Ratio Turnover Ratio

Year 2020 Year 2019 Year 2018 Year 2017 Year 2016
 INTERPRETATION

• Inventory Turnover Ratio

It indicates the efficiency of the firm in producing and selling its products. It is
calculated by dividing the cost of goods sold by average inventory.
During the 2015-16 year it was 8.71, 2016-17 it was 7.32, 2017-18 it was 5.94, 2018-
19 it was 6.40 and it was 5.99 in the year 2019-20.
A low or falling inventory turnover ratio implies weak sales and possibly excess
inventory, also known as overstocking. It may indicate a problem with the goods
being offered for sale or be a result of too little marketing. A high or rising ratio
implies either strong sales or insufficient inventory.

• Trade Receivable Turnover Ratio

It is found out by diving the credit sales by average trade receivables. It indicates
how many trade receivables turnover in a year.
During the year 2015-16, it was 8.18, 1016-17 it was 9.15, 2017-18 it was 8.96,
2018-19 it was 8.76, 2019-20 it was 9.74.
A low or falling trade receivables turnover ratio might be due to a company having
a poor collection process, bad credit policies, or customers that are not financially
viable or creditworthy. Typically, a low turnover ratio implies that the company
should reassess its credit policies to ensure the timely collection of its receivables.
While a high receivables turnover ratio can indicate that a company's collection of
accounts receivable is efficient and that the company has a high proportion of
quality customers that pay their debts quickly. ... A high ratio can also suggest that
a company is conservative when it comes to extending credit to its customers.
 • Investment Turnover Ratio

The ratio is obtained by dividing the Sales revenue by shareholder’s equity added
to debt outstanding
During the year 2015-16 it was 8.71, 2016-17 it was 7.32, 2017-18 it was .94, 2018-
19 it was 6.40, 2019-20 it was 1.85.
A high or rising investment turnover ratio means that the company is efficiently
turning over stockholders invested shares in increasing its value. Low or falling
investment turnover ratio indicates that the company is less efficient as it struggles
to generate revenue from its debts and equity.

• Fixed Asset Turnover Ratio

It is obtained by dividing Net Sales by average net fixed assets.

During the year 2015-16 it was 2.46, 2016-17 it was 2.94, 2017-18 it was 2.7, 2018-
19 it was 2.61, 2019-20 it was 2. 35.

A higher or rising fixed asset turnover ratio indicates that a company has effectively
used investments in fixed assets to generate sales. Whereas, a declining ratio
indicates that a company has over-invested in fixed assets.

• Current Asset Turnover Ratio

It is obtained by dividing net sales by current assets.

During the year 2015-16 it was 2.38, 2016-17 it was 2.20, 2017-18 it was 2.14, 2018-
19 it was 2.13, 2019-20 it was 1.93.
The current asset turnover ratio is a financial metric used to gauge a company's
efficiency. A higher or rising current asset turnover ratio indicates the efficiency of
a company. Conversely, a low asset turnover ratio indicates that a company is
failing to efficiently employ its assets to generate sales.

• Total Asset Turnover Ratio

It is obtained by dividing net sales by average total assets.

During the year 2015-16 it was 2.29, 2016-17 it was 2.00, 2017-18 it was 2.03, 2018-
19 it was 2.01, 2019-20 it was 1.93.
A higher or rising total asset turnover ratio is favorable, as it indicates a more
efficient use of assets. Conversely, a lower or falling total asset turnover ratio
indicates the company is not using its assets as efficiently.
 D. PROFITABILITY RATIO

Following is the Data for Profitability Ratios from year 2016- 2020:-

• These are the ratios showing the efficiency of the company (ARBL)
to generate profit and value for its shareholders.
 GRAPHICAL REPRESENTATION
Following is the Bar Graph representing the analytic data given
above, comparing different Profitability Ratios for five
consecutive years.

PROFITABILITY RATIOS
250

200

150

100

50

Year 2020 Year 2019 Year 2018 Year 2017 Year 2016
 INTERPRETATION

• NET PROFIT MARGIN

The ideal net profit margin is between 10 and 20%. This company only achieved
the 10% mark only in the year 2016.While for the other years, it was lower but
closer to 10%. This means that the company has an ineffective cost structure or
the pricing policy needs little work.

• RETURN ON CAPITAL EMPLOYED RATIO

The ideal ratio is near to 10%. The company’s ROCE is higher than the standards.
A higher ROCE shows a higher percentage of the company's value can ultimately
be returned as profit to stockholders.
 FINDINGS

• The company is maintaining current ratio as 2 and more, standard which

indicates the ability of the firm to meet its current obligation is more. It
shows that the company is strong in working funds management.

• The company is maintaining quick assets more than quick ratio as the
company having high value of quick ratio. Quick assets would meet all its
quick liabilities without any difficulty.

• Company has failed in keeping sufficient cash and bank balances and
marketable securities. This can cause it problem in future as it may not be
able to fulfil its long-term financial obligations.

• Debt equity ratio is increasing every year. It indicates that company depends
on the debt fund increasing. Consequently, it can be detrimental for the
company as its financial health is not that good.

• Interest coverage ratio shows high fluctuations. In this position, outside

investors are not interested to invest their money in this company.

• The company is declining of its coverage ratio to serve long term debts.

• Inventory turnover ratio also increased for year by year that is company
protection is also increased. Subsequently, sales are also increased.

• The net profit ratio of the company increasing over the study period. Hence,
company have the good control over the operating expenses
 SUGGESTIONS

- The company has to increase the profit maximization and has to decrease
the operating expenses.

- By considering profit maximization in the company, the EPS (earning per

share) also increases.

- The company should maintain sufficient cash and bank balance while also
investing idle funds in marketable securities or short-term investment in
shares, bonds or other securities.

- The company must reduce its debt collection period from 83/84 days to
around 40 days. This can be achieved by providing a discount to debtors for
timely or early payments and having a little more stringent credit policy.

- While the ROI (return on investment) fluctuates, the company still has to
better it’s ROI by reducing administrative, selling and some other non-core
expenses. Outsourcing of these activities can be a good way to reduce said
costs.
- The company should increase its Interest Coverage Ratio to serve long term
debts.

- They can increase Dividend payouts to increase shareholder satisfaction and

trust.

- As Net Profit is increasing, the company is good at maintaining a leash on

expenses, they should continue with this.
 CONCLUSION
1. Both current ratio and quick ratio are showing effectiveness in liquidity as
current ratio was greater than 2:1 And quick ratio was greater than 1:1

2. The firm is maintaining a low cash balance and marketable securities which
means they have done cash payments

3. Debt-equity ratio, solvency ratio and interest coverage ratio are showing an
average increase in the long term solvency

4. The proprietary ratio is showing an average increase with means The

shareholders have contributed more funds to the total assets

5. Operating ratio of the company has observed decreasing trend

6. Gross profit and net profit ratio are showing increasing trend. The profitability
of the firm is increasing

7. The Interest which has to be paid is very less when compared to the sales.
The firm is not using the debt conservatively

8. The firm is retaining much of the earnings

9. The company financial performance is good and also they increase their
business year by year by expanding their branches
 SOURCES

• https://www.amararajabatteries.com/about#:~:text=Core%20Purpose,.%2
0.%20.%20all%20the%20time.
• https://www.moneycontrol.com/financials/amararajabatteries/ratiosVI/AR
B
• https://www.investopedia.com/terms/p/profitbeforetax.asp
• https://www.business-standard.com/company/amara-raja-batt-
2110/financials-ratios/1
• https://corporatefinanceinstitute.com/resources/knowledge/finance/ratio-
analysis/
• A Few Books and Guides