M.B.A.

Programme

1.1 Introduction to Study -

As a partial fulfillment of the university requirement for the award of
Master of Business Administration degree, it is necessary for each and
every student to visit in organization during summer vacation for implant
training.

The researcher has visited “Sahyadri Sahakari Bank ltd. Karad”. After
contacting and getting letter from the organization. The researcher has
spent the 75 days in the organization to study the overall organizational
culture and the functions of the organization. The researcher has studied
the analysis of financial statement with the help of ratio analysis.

1.2 Financial Analysis -

Financial Analysis is the process of identifying the financial strengths
and weakness of the firm by properly establishing relationship between the
items of the balance sheet and profit and loss account. Financial Analysis
can be undertaken by management of the firm, or by parties outside of the
firm, viz.

1.3 Nature of Ratio Analysis –

Ratio Analysis is the powerful tool of financial analysis. A Ratio is defined as
“the indicated quotient of two mathematical expressions” and as “the
relationship between two or more things”. In Financial analysis, Ratio is
used as benchmark of evaluating the financial position and performance of
the firm.

1.4 Standard of comparison –

The ratio analysis involves comparison for the useful interpretation of the
financial statements. A single ratio is itself does not indicate favorable or
unfavorable condition. It should be compare with some standards.

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Standards of comparison may consist of:

Post Ratios – i.e. ratio calculated from the past financial statements of the
same firm.

Competitors Ratio – i.e. Ratios of the some selected firms, specially the
most progressive and successful competitor, at the same point in time.
Industry Ratio – i.e. ratio of the industry to which the firm’s belongs; and
Projected Ratios – i.e. ratios developed using the projected, or proforma,

financial statements of the same firm.

Types of Ratios –

Several ratios calculated from the accounting data, can be grouped in to

various classes according to financial activity or function to be evaluated.

In view of the requirements of the various users of the ratios, we may

classify them in to the following four important categories:

Liquidity Ratio

 Leverage Ratio

 Activity Ratio

 Profitability Ratio.

1.5 Objectives of study –

The following are the main objective of the Financial Analysis of the

Sahyadri Sahakari Bank ltd. Karad to study the financial position of the

Sahyadri Sahakari Bank ltd. Karad. With the help of Ratio Analysis, on the

basis of :

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a) The liquidity and solvency position of the organization.

b) The profitability position of the organization.

c) The efficiency of the management.

2. To give suggestions whenever necessary.

1.6 Research Methodology

The research has done the research by using to types of data. Mostly
secondary data is use for the study in some cases the authorities of the
company have provided their original record. Sometimes informal
discussions are also carried out for collecting the required information. In
order to collect of the data the financial department extents its full co-
operations

1.7 Data collection:

Data collection means the systematic collection of facts, figure or
information and its formal presentation for the purpose of drawing
inferences. The statistical information collected complied and presented may
also be included in the data, which play vital role in the research and
analysis.
Both the primary and secondary data may be used for the purpose of
analysis. Let us discuss these types of data.

a) Primary Data:
“The first hand information bearing any research which
has been collected by the research may be called as primary
data” Thus result which are based on primary data are bound to
be empirical and of great utility value.
The primary data which are collected fresh and for the
first time and thus happen to be original in character.

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b) Secondary Data:
The data which has already been collected, complied and
presented earlier by any agency for the purpose of investigation,
such data is called as secondary data.
The secondary data has been obtained from the
companies past distribution record, annual reports,
department’s manuals and other relevant documents”
The company’s data have been obtained from the following record.
1) Annual Report
2) Customer Order File
3) Distribution File.

1.8 Scope of the Study:

The study is limited to The Sahyadri Sahakari Bank Ltd. Karad It is
related to analysis of financial statements with the help of ratio analysis.
The study is based on latest four year figures i.e. 2007-08 to 2008-09

1.9 Limitations of the study:

1. The organization could not provide any confidential matter to the
researcher
2. The time span of the training very limited to study the all over
organization

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SAHYADRI SAHAKARI BANK LTD., KARAD

2.1 Introduction of Bank

Sahyadri Sahakari Bank Ltd. Karad Established in 16.3. 1995. The

founder of the Bank was Shri. P.D. Patil. He was the great personality to
work through out his whole life for the development of Karad taluka. The
actual work was started from 21.3.1996. bank becomes fully operates to
provide the services to the people within a rural and Urban area of the
satara dist. banks works area is to loan to small scale industries, farm as
well as the finance to purchase the vehicle.
The Sahyadri Sahakari Bank Ltd. Karad is one of the leading banks in
the co-operative sector in Satara Dist. It is playing a vital role in bank sector
of Satara Dist. It has different status compare to other banks. It has its own
by laws and bank works under these laws.
The Sahyadri Sahakari Bank Ltd. Karad working under the laws
which is made by Reserve Bank of India and Co-operative laws.
Bank means acceptances, for the purpose of leading as investment or
deposits of money from public repayable on demand or otherwise
withdrawal is by cheque, Draft or order other else.
A banking company means a company which transacts the business
of the banking.

2.2 Aim:
The Bank wishes to solve the financial problems of ordinary farmers
and ordinary people in Satara dist.

2.3 Social aspects:

The bank excels in social banking, overlooking the profit aspects; it
has worked for the solution of the problems of farmers and ordinary peoples.

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Bank Profile

Name of the Bank : Sahyadri Sahakari Bank Ltd. Karad

Address of Head Office : Sahakar Bhavan,
Station Road, Karad.
415110
Registration No/Date : SAT/KRD/BNK(0) – 113/1995
DATE- 16/03/1995
Reserve Bank Lic.No. & date : UBD/MAH/1147/P/Date 15/6/1995
Branches : 1. Sahakar Bhavan Karad
2. Umbraj
3. Masur
4. Malkapur, Karad
5. Raviwar Peth, Karad
6. Ogalewadi
7. Yashwantnagar
8. Satara

2.4 Board of Directors

1. Shri. A.P.Patil Chairman
2. Shri. S.M. Sansuddi Vice Chairman
3. Shri. M.D. Kulkarni Director
4. Shri. H.J. Thakkar Director
5. Adv. C.B. Kadam Director
6. Shri. N.L. Batane Director
7. Shri. V.R. Hajare Director
8. Shri. U.D. Kadam Director
9. Shri. G.Y. Kagadi Director
10. Shri. N.N. Shewale Director
11. Shri. R.P. Pawar Director
12. Shri. B.P. Jagdale Director
13. Shri. S.J. Mule Director
14. Shri. S.G.Phaltankar (C.A.) Director
15. Shri. R.S. Haridas (C.A.) Director
16. Dr.Sou. A.A. Shaha Director
17. Sou. R.S. Patil Director
18. Shri. S.R. Nemane Employee Representative
19. Shri. N.G. Momin C.E.O

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2.5 Policies of Bank

1. To raise the funds for the purpose of financing co-operatives society

and generally to carry on banking business.
2. To act as a balancing centre for surplus funds of such society.
3. To develop assist and coordinate the work of affiliated societies.
4. To arrange for the supervision and inspection of societies.
5. To open branches pay offices and extension counter in suitable centers
and Frame rules for their conduct and working transact and type of
banking business on the half of other banks and societies registered
under any act with the previous approval of the register.
6. To purchase sale transfer, endorse, pledge, government promissory
Notes, Bonds. Securities, municipal district board and port trust
Bonds, debentures Guaranteed by government for the legitimate
Investment of the surplus Funds of the bank and to do things
Incidental to such business.
7. To make advances to individuals on the pledge of the agriculture of
Industrial produce and valuables provided than tin area as where
other Co-operative societies or permitted by there bye laws to make
individuals Advance and advances of a particular kind the minimum
limit fixed by the Such advances shall not lower than the maximum
limit fixed by the above Society.

2.6 Other Attributes of Bank-

1. Core Banking Facility
2. Co operative bank which gives the dividend for Consequent years
3. Net N.P.A. 0%
4. I.S.O. 9001:2008 Certified 1st Bank in Western Maharashtra
5. C.R.A.R. – 18.75% (Capital to Risk assets Ratio)
6. Grade 1 Bank
7. Training Facilities to Employees.

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2.7 Comparative Financial Position of Bank (Amount in

Lakhs)

Particulars 31.3.2007 31.3.2008 31.3.2009

No of Members 6812 6999 7094
Share Capital 197.09 217.24 227.65
Reserve Funds 359.87 445.00 489.52
Deposits 4056.54 4481.63 5576.84
Loans 2511.61 2958.65 3052.83
Investment 1983.68 1997.45 3034.51
Gross Profit 68.87 108.42 73.69
Net Profit 25.30 26.76 30.37
Working Capital 4809.86 5326.69 6480.11
Dividend 7.5% 8% 8%

2.8 Dividation of Profit

1. Reserve Fund - 25% Rs. 7,60,000.00

2. Dividend - 8% Rs. 17,77,765.00
3. Building Fund - Rs. 4,99,250.00
4. Remaining Profit - Rs. 45.72
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Total Rs. 30,37,060.72

3.1 RATIO ANALYSIS:

Financial Analysis is the process of identifying the financial strengths
& weaknesses of the firm by properly establishing relationship between the
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items of the balance sheets and the profit & loss account. Financial Analysis
can be under taking by managements of the firms, or by parties outside of
the firm, viz.

Nature of ratio Analysis

Ratio analysis is the powerful tool of financial analysis. A ratio is
defined as “the indicated quotient of two mathematical expressions” & as
“the relationship between two or things.” In Financial analysis, Ratio is used
as benchmark for evaluating the financial position & performance of affirm

Standards of comparison
The Ratio analysis involves comparison for the useful interpretation of
the financial statements. A single ratio is itself does not indicate favorable or
unfavorable condition. It should compare with some standards.
Past Ratio: i.e. ratio calculated from the past financial statements of the
same firm;
Competitor ratio: i.e. ratio from some selected firms, specially the most
progressive and successful competitor, at the same point.
Industry ratio: i.e. Ratio of the industry to which the firm’s belong &
Projected Ratios: i.e. Ratios developed using the projected, or proforma,
financial statements of the same firm.
Types of ratios:
Several ratios calculated from the accounting data, can be grouped in
to various classes according to financial activity or function to be evaluated.
In view of the requirements of the various users of ratio, we may
classify them in to the following four important categories:

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 Liquidity Ratio
 Leverage Ratio
 Activity Ratio
 Profitability Ratio

3.2 INTERPRETATION OF THE RATIOS:

The interpretation of ratio is an important factor. Through calculation
of ratios is also important but it is only a clerical task whereas
interpretation needs skill, intelligence & foresightedness. The impact of
factors such as price level changes, changes in accountings policies, window
dressing etc. should also be kept in mind when attempting to interpret ratio.
1. Single Absolute Ratio:
Generally speaking one cannot draw any meaningful conclusion when
a single ratio is considered in isolation. But single ratio may be studied in
relation to certain rules of thumb which are based upon well proven
conventions as for example 2:1 is considered to be a good ratio for current
assets to current liabilities.
2. Group of Ratios:
Ratio may be interpreted by calculating group of related ratios. A
single ratio supported by other related additional ratio becomes more
understandable & meaningful
3. Historical Comparison:
One of the easiest & most popular way of evaluating the performance
of the firm is to compare its present ratios with the past ratios called
comparison overtime.
4. Projected Ratios:
Ratio can also be calculated for future standards based upon the
projected or proforma financial statements. These future ratios may be
taken as standards for comparison & the ratios calculated on actual
financial statement can be compared with the standards ratios to find out
variances.

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3.3 USE & SIGNIFICANCE OF RATIO ANALYSIS:

The ratio analysis is one of the most powerful tools of financial
analysis. It is used as a device to analyze & interpret the financial health of
enterprise. A financial analyst analyses the financial statement with various
tools of analysis before commenting upon the financial health or weakness
of enterprise

A) Managerial Uses of Ratio Analysis:

1. Help in decision-making:
Financial statements are prepared primarily for decision making. But
the information provided in financial statements is not an end in itself & no
meaningful conclusion can be drawn from these statements alone. Ratio
analysis help in making decisions from the information provided in these
financial statements.
2. Helps in Financial forecasting & planning:
Ratio analysis is of much help in financial forecasting & planning.
Planning is looking ahead & the ratio calculated for a number of years work
as a guide for the future. Meaningful conclusions can be drawn for future
from these ratios. Thus, ratio analysis helps in forecasting & planning.
3. Helps in co-ordination:
Ratio even helps in co-ordination which is of utmost importance in
effective business management. Better communication of efficiency &
weakness of an enterprise result in better co-ordination in the enterprise.

4. Helps in control:
Ratio even helps in making effective control of business. Standards
ratios can be based upon proforma financial statement & variances if any,
can be found by comparing the actual with the standards so as to take a
corrective action at the right time. The weakness or otherwise, if any, come
to the knowledge of the management which helps in effective control of the
Business.

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B) Utility to shareholder/Investor:
Investors of the company will like to assess the financial position of
the concern where he is going to invest. His first interest will be the security
of his investments & then a return in the form of dividend or interest. For
the first purpose he will try to asses the value of fixed assets & the loans
rose against them.
Ratio analysis will be useful for the investor in making up his mind
whether present financial position of the concern warrants further
investments or not.

C) Utility to creditors:
The creditor or suppliers extend short-term credit to the concern.
They are interested to know weather financial position of the concern
warrants their payments at a specified time or not. The concern pays short-
term creditors out of its current assets. Current & acid test ratios will give
an idea about the current financial position of the concern.

D) Utility to Employees:
The employees are also interested in the financial position of the
concern especially profitability. Wage increases & amount of fringe benefit
are related to the volume of profit earned by the concern. The employees
make use of information available in financial statement. Various
profitability ratios related to gross profit, operating profit, net profit

E) Utility to government:
Government is interested to know the overall strength of industry.
Various financial statement published by industrial unit are used to
calculate ratio for determining short-term, long-term & overall financial
position of the concerns. Profitability indexes can also be prepared with the
help of ratios.

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3.4 LIMITATION OF RATIO ANALYSIS:

The ratio analysis is one of the most powerful financial management.
Through ratios are simple to calculate & easy to understand, they suffer
from some serious limitations:
1. Limited use of single ratio: A single ratio, usually, does not
convey much of a sense. To make a better interpretation a number
of ratios have to be calculated which is likely to confuse the analyst
then help him in making any meaningful conclusion.
2. Lack of adequate standards: There are no well accepted
standards of thumb for all ratios which can be accepted as norms.
It renders interpretation of the ratio difficult.
3. Inherent limitations of Accounting: Like financial statements,
ratios also suffer from the Inherent weakness of accounting records
such as their historical nature. Ratios of the past are not
necessarily true indicators of the future.
4. Change of accounting procedure: Change in accounting
procedure by a firm often makes ratio analysis misleading, e.g. a
change in the valuation of method of investors, from FIFO to LIFO
increases the cost of sale & reduces considerably the value of
closing stocks which makes stock turnover ratio to be lucrative &
an unfavorable gross profit ratio.
5. Price level changes: While making ratio analysis, no consideration
is made to the change in price level & the interpretation of ratios
invalid.
6. Ratio no substitutes: Ratio analysis is merely a tool of financial
statements. Hence, ratio become useless if separated from the
statements from which they are computed.

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3.5 CLASSIFICATION OF RATIOS:

The use of ratio analysis is not confined to financial manager only.
There are different parties interested in the ratio analysis for the knowing
the financial position of a firm for different purpose. In view of various users
of ratios, there are many types of ratios which can be calculated from the
information given in the financial statements. A financial institution
advancing a long term credit to a firm will be primarily interested in the
solvency or long-term financial position of the concern. The share holder are
generally interested in the dividend position of a firm while management
require information on almost all the financial aspect of the firm to enable it
to protect the interests of all parties.

A B C
Traditional Classification Classification
classification According According to
to Tests Importance
1. Balance Sheet 1. Liquidity Ratio 1. Primary Ratios
Ratios or 2. Leverage Ratio 2. Secondary Ratios
position 3. Activity Ratio
statement ratio 4. Profitability
2. Profit & Loss Ratio
Account Ratio or
Revenue \
Income
Statement Ratio

A) Traditional classification or Statement Ratio:

Traditional classification According to the statement from which these
ratio are calculated, is as follows:

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a) Balance Sheet or position statement ratio:

Balance Sheet ratio deals with the relationship between two balance
sheet items, e.g. the ratio of current assets to current liabilities, or the ratio
of proprietors funds t fixed assets. Both the item must, however, pertain to
the same balance sheet ratio have been named in the chart classifying
statements ratios.
b) Profit & loss account or Revenue \ Income Statement Ratio:
These ratio deals with the relation between two profit & loss account
items, e.g., the ratio of gross profit to sale, or the ratio of net profit to sales.
The various profit & loss account ratios, commonly used, are named in the
chart classifying statement ratios.

c) Composite / Mixed Ratios or Inter Statement Ratio:

These ratio exhibit relation between two profit & loss account items &
a balance sheet item, e.g., stock turnover ratios or the ratio of total asset to
sale. The most commonly used inter-statement ratio are given in the chart
exhibiting traditional classification or statement ratios.

B) Functional classification or v classification according to test:

In view of the financial management or according to tests satisfied,
various ratios have been classified as blow:

a) Liquidity ratios:
These are ratios which measure the short-term solvency or financial
position of a firm. The various liquidity ratios are: Current ratio, liquid
ratio, absolute liquid ratio. Further to see the efficiency with which the
liquid resources have been employed by a firm debtors turnover &
creditors turnover ratios are calculated.

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b) Long term & Leverage Ratios:

Long term & Leverage Ratios convey a firms ability to meet the interest
cost & repayment schedules of its long term obligations e.g. Debt equity
ratio & interest Coverage ratio. Leverage Ratios.
c) Activity ratios:
Activity ratios are calculated to measure the efficiency with which the
resources of a firm have been employed. These ratios are also called
turnover ratios because they indicate the speed with which assets are
being turnover into sales.
d) Profitability Ratio:
These ratios measure the result of business operations or overall
performance & effectiveness of the firm e.g. gross profit ratio, operating
ratios or return on capital employed. Generally, two types of Profitability
Ratio are calculated. These are relation to sales & relation to investment.

3.6 ANALYSIS OF SHORT-TERM FINANCIAL POSITION OR TEST OF

LIQUIDITY:
The short-term creditors of a company like suppliers of goods of credit
& commercial banks providing short-term loans are primarily interested
in knowing the company ability to meets its current or short-term
obligations as & when these become due. The short-term obligations of a
firm can be met only when there are sufficient liquid assets. Therefore, a
firm must ensure that it does not suffer from of liquidity or the capacity
to pay its current obligations. If a firm fails to meet such current
obligations due to lack of good liquidity position, its goodwill in the
market is likely to be affected beyond repair. It will result in a loss of
creditor’s confidence in the firm and may cause even a very high degree
of liquidity is not good for a firm because such a situation represents
unnecessarily excessive funds of the firm being tide-up in current assets.
Two types of ratios can be calculated for measuring short-term financial
position or shot term solvency of a firm.

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A) Liquidity Ratios
B) Current Assets Movement or Efficiency Ratios.
(A) LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current
obligations as and when these become due. The short-term obligations are
met by realizing amounts from current, floating or circulating assets. The
current assets should either be liquid or near liquidity. These should be
convertible into cash for paying obligations of short-term nature. The
sufficiency or insufficiency of current assets should be assessed by
comparing them with short-term (current) liabilities. If current assets can
pay off current liabilities, then liquidity position will be satisfactory. On the
other hand, if current liabilities may not be easily met out of current assets
then liquidity position will be bad. The bankers, suppliers of goods and
other short-term creditors are interested in the liquidity of the concern,
They will extend credit only if they are sure that current assets are enough
to pay out the obligations. To measure the liquidity of a firm, the following
ratios can be calculated:
(I)Current Ratio
(ii) Quick or Acid Test or Liquid Ratio
(ii) Absolute Liquid Ratio or Cash Position Ratio.
1) CURERENT RATIO:-

Current ratio may be defined as the relationship between current

assets and current liabilities. This ratio, also known as working capital
ratio, is a measure of general liquidity and is most widely used to make the
analysis of a short-term financial position or liquidity of a firm. It is
calculated by dividing the total of current assets by total of the current
liabilities.

Current Assets
Current Ratio = ………………………….
Current Liabilities

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2) QUICK OR ACID TEST OR LIQUID RATIO:-

Quick Ratio, also known as Acid Test or Liquid Ratio, is a more rigor

Test of liquidity than the current ratio. The tem ‘liquidity’ refers to the
ability of a firm to pay its short-term obligation as and when they become
due. The two determinants of current ratio, as a measure of liquidity, are
current assets and current liabilities. Current assets include inventories
and prepaid expenses which are not easily convertible into cash within a
short period. Quick ratio may be defined as the relationship between
quick/liquid assets and current or liquid liabilities. An asset is said to be
liquid if it can in hand and cash at bank are the most liquid assets. The
other assets which can be included in the liquid assets are bills receivable,
sundry debtors, marketable securities and short-term or temporary
investments. Inventories cannot be termed to be liquid assets because they
cannot be converted into cash immediately without a sufficient loss of value.
In the same manner, prepaid expenses are also excluded from the list of
quick/liquid asset because they are not expected to be converted into cash.
The quick ratio can be calculated by dividing the total of the quick assets by
total current liabilities thus,
Quick Assets
Quick or acid test Ratio = ………………………….
Quick Liabilities
3) ABSOLUTE LIQUID RATIO OR CASH RATIO:-

Although receivables, debtors and bills receivable are generally more

liquid than inventories, yet there may be doubts regarding their realization
into cash immediately or in time. Hence, some authorities are of the opinion
that the absolute liquid ratio should also be calculated together with current
ratio and acid test so as to exclude even receivables from the current assets
and find out the absolute liquid assets.

Absolute Liquid Assets

Absolute Ratio = ………………………….
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Current Liabilities

B) CURRENT ASSETS MOVEMENT OR EFFICIENCY/ACTIVITY RATIOS:

Funds are invested in various assets in business to make sales and
earn profits. The efficiency with which assets are managed directly affects
the volume of sales. The better the management of assets, the larger is the
amount of sales and profit. These ratios are also called turnover ratios
because they indicate the speed with which assets are converted or turned
over into sales. For example, inventory turnover ratio indicates the rate at
which the funds invested in inventories are converted into sale.
The current ratio and the acid test ratio give misleading results if
current assets include high amount of debtors due to slow credit collections.
In the same manner, current ratio may be further misleading if the assets
include high amount of slow moving inventories.
Efficiency ratios to comment upon the liquidity or the efficiency with
which the liquid resources are being used by a firm.

1) INVENTORY TURNOVER OR STOCK TURNOVER RATIO

Every firm has to maintain a certain level of inventory of finished
goods so as to be able to meet the requirements of the business. But the
level of inventory should neither be too high nor too low.
Inventory turnover ratios also know as stock velocity is normally
calculated as sales/average inventory or cost of goods sold/average
inventory. It would indicate whether inventory has been efficiently used or
not.

Cost of good sold

Inventory turnover Ratio = ………………………….
Average Inventory at cost

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2) DEBTORS/RECEIVABLES TURNOVER OR DEBTORS VELOCITY:-

Debtors turnover ratio indicates the velocity of debt collection of firm.
In simple words, it indicates the number or times average debtors
(Receivables) are turned over during a year, thus:

Net sale
Debit turnover Ratio = ……………………
Sundry Debtors

3) CREDITORS/PAYABLES TURNOVER RATION:-

In the course of business operations, a firm has to make credit

purchases and incur short-term liabilities. A creditor naturally interested in
finding out how much time the firm is likely to take in repaying its trade
creditors. Same as debtor’s turnover ratio, creditors’ turnover ratio can be
calculated in two forms.

Net Credit annual purchase

Credit turnover Ratio = ……………………………..
Average trade Creditors

4) WORKING CAPITAL TURNOVER RATIO:-

Working Capital turnover ratio indicates the velocity of the utilization

of net working capital. This ratio medicates the number of times working
capital is turned over in the course of a year. 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.

Cost of sale
Working Capital turnover Ratio = ……………………………
Average Working Capitals
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C)PROPRIETORY RATIO EQUITY RATIO:-

A variant to the debt-equity ratio is the proprietary ratio which is also

known as Equity Ratio or shareholders to Total Equities Ratio or share net
to Total Assets Ratio. This ratio establishes the relationship between f
shareholders funds to total assets of the firm.

1) GENERAL PROFITABILITY RATIOS

The following ratios are known as general profitability ratios;

a) OPERATING RATIO:-

Operating expenses ratio establishes the relationship between

cost of goods sold and other operating expenses on the one hand the sales
on the other. In other words, it measures the cost of operations per rupee of
sales. The ratio is calculated by dividing operating costs with the net sales
and it’s generally represented as a percentage.

b) OPERATING PROFIT RATIO:-

This ratio is calculated by dividing operating profit by sales.

Operating profit is calculated as:

Operating Profit =Net Sales-Operating Cost

OR
Net Sales-(Cost of goods sold +Administrative and Office Expenses
+Selling and Distributive Expenses)
Operating Profit can also de calculated as:
Operating Profit = Net Profit + Non-operating Exp- Non operating
income
c) EXPENSES RATIOS:-
Expenses ratios indicate the relationship of various to net sales. The
operating ratio reveals the average total variations in expenses. But some of

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the expenses may be increasing while some may be falling. Hence, expenses
with the net sales to analyze the cause of variation of the operating ratio.

d) NET PROFIT RATIO:-

Net Profit ratio establishes a relationship between net profit (after
taxes) and sales, and indicates the efficiency of the management in
manufacturing, selling administrative and other activities of the firm. This
ratio is the overall measure of firm’s profitability.

2) OVERALL PROFITABILITY RATIOS:-

Profits are the measure of overall efficiency of a business. The higher

the profits, the more efficient are the business considered.
a) RETURN ON SHAREHOLDER’ INVESTMENT OR NET WORTH
Return on shareholders investment popularly known as R O I or
return on share holder /proprietors funds is the relationship between net
profit (after interest & tax) and the proprietor’s funds. Thus,

b) RETURN ON EQUITY CAPITAL

In real sense, ordinarily shareholders are the real owner of the

company. They assume the highest risk in the company. Preference
shareholders have a preference over ordinary shareholders in the payment
of dividend as well as capital. Return on equity capital, which is the
relationship between of a company and its equity capital, can be calculated
as:

d) EARNINGS PER SHARE(E.P.S)

Earning per share is a small variation of return on equity capital and

is calculated by dividing the net profit after taxes and preference divided
by the total number of equity shares. Thus,

e) RETURN ON CAPITAL EMPLOYED

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Return on capital employed establishes the relationship between

profits and the capital employed. It is the primary and is most widely used
to measure the overall profitability and efficiency of a business. The three
most widely used definitions of this term are:

1) GROSS CAPITAL EMPLOYED:-

The term gross capital employed usually comprises the total assets,
fixed as well as current assets used in a business.
Gross Capital Employed = Fixed Assets*Current Assets

2)NET CAPITAL EMPLOYED:

The term net capital employed comprises the total assets used in
business less its current liabilities.
Net Capital Employed = Total Assets- Current Liabilities.

3) PROPRIETORS NET CAPITAL EMPLOYED:

Proprietors net capital employed means shareholders funds or

Investments in the business.

Proprietors Net Capital Employed = Fixed Assets + Current Assets – Outside

Liabilities (both long-term and short-term)

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1. Current Ratio :

Current Ratio =

Years Current Assets Current Current Ratio

Liabilities
2006-2007 3,43,36,134.22 11,18,12,145.30 0.3071
2007-2008 30,27,94,683.11 11,49,80,356 2.6334
2008-2009 31,38,33,113.70 1,33,84,816.70 23.446

Interpretation:-

In 2006-2007, the current ratio is so less. But in 2007-2008, it

increase and in 2008-2009, it increases rapidly.
It is a high current ratio. It indicates the sound financial position of
the bank. But it is necessary to pay attention towards huge investment in
current investment that will check whether it may affects the over all
profitability of the bank.

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Years
 M.B.A. Programme

2. Quick Ratio:-

Quick Ratio =

Years Quick Assets Quick Liabilities Quick Ratio

2006-2007 3,43,36,134.22 11,18,12,145.30 0.3071

2007-2008 30,27,94,683.11 11,49,80,356 2.6334
2008-2009 31,38,33,113.70 1,33,84,816.70 23.446

Interpretation:-

The Quick Ratio of all three years has quite increasing trend. It shows
an indication of good liquidity position. The bank has ability to make the
payments of its current obligations.

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3 Debtors turnover Ratio:-

Debtors turnover ratio =

Years Account Average daily Ratio

Receivable sales
2006-2007 25,11,61,227.63 6,88,112.95 365.0000
2007-2008 29,58,64,662.60 8,10,588.11 365.0000
2008-2009 30,52,83,470.12 8,36,393.04 365.0000

Interpretation:-
This ratio Exhibits the credit and collection policies of the
organization. This ratio is satisfactory for all 3 years. It shows the bank
follows standard policies of credit and collection.

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4. Current Assets to Proprietor’s Fund Ratio

Current Assets to Proprietor’s Fund Ratio = x 100

Years Current Assets Proprietor’s Ratio

Fund
2006-2007 3,43,36,134.22 5,57,95,369 61.5394
2007-2008 30,27,94,683.11 6,62,24,846 457.2221
2008-2009 31,38,33,113.70 7,17,17,047 437.5920

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5. Proprietary Ratio

Proprietary Ratio =

Years Proprietor’s Total assets Ratio

Fund
2006-2007 5,57,95,369 48,15,54,339.30 0.1159
2007-2008 6,62,24,846 53,29,57,357.09 0.1243
2008-2009 7,17,17,047 65,49,88,114.67 0.1095

Interpretation:-

This is a Variant of the debt to equity ratio, it is also known as equity

ratio or net worth to total assets ratio.
This ratio relates the shareholder funds to total assets. Proprietary
ratio indicates the long term or future solvency position of the business.
The ratio is stable for all the three years. A long term solvency position
of the bank is satisfactory.

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6 Return on Shareholder’s Investment Ratio

Return on Shareholder’s Investment Ratio = x 100

Years Shareholder’s Ratio

Fund
2006-2007 25,29,691.77 5,57,95,369 4.5339
2007-2008 26,76,378.67 6,62,24,846 4.0414
2008-2009 30,37,050.02 7,17,17,047 4.2348

Interpretation:-

It is the Ratio of Net Profit to shareholder’s Investment. It is the

relationship between net profit (after interest and tax) and shareholder’s
funds.
This ratio establishes the profitability from the shareholder’s Point of
view.
The ratio is stable for all the three years that means the bank
consistently providing the returns to the share holders on their investment.

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7. Fixed Assets turn over ratio

Fixed Assets turn over ratio =

Years Sales Net Fixed Assets Ratio

2006-2007 25,11,61,228.73 35,76,681.75 70.2219

2007-2008 29,58,64,662.60 43,30,779.75 68.3167
2008-2009 30,52,83,470.12 76,09,473.75 40.1189

Interpretation:-

It should be noted that sales should be considered after returns i.e.

net sales and fixed assets should also be considered after providing the
amount of depreciation i.e. net fixed assets. This ration express relationship
between the total investment in fixed assets and results achieved in term’s
of sales. A higher fixed assets turn over ratio indicates better utilization of
the fixed assets. On the contrary, a low ratio indicates the poor utilization of
fixed assets
In 2006-2007 and 2007-2008, the fixed assets turn over ratio is
satisfactory but in 2008-2009, it is decreasing.

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8. Total Assets turnover Ratio:

Total Assets turnover Ratio =

Years Sales Total Assets Ratio

2006-2007 25,11,61,228.73 48,15,54,339.30 0.5216

2007-2008 29,58,64,662.60 53,29,57,357.09 0.5551
2008-2009 30,52,83,470.12 65.49,88,114.67 0.4660

Interpretation:
This ratio measure the use of all assets in term of sales, by comparing
sales with net total assets. Companies with low profit margins tend to have
high assets turnover, those with high profit margins have low assets
turnover.
In 2007-2008, the ratio is high than the 2006-2007, but in 2008-
2009, it is going to be decreasing. The bank has to pay attention that
whether it should not become less than that.

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9. Gross Profit Ratio:

Gross Profit Ratio = x 100

Years Gross Profit Net Sales Ratio

2006-2007 33,96,691.77 25,11,61,228.73 1.3524

2007-2008 36,31,521.67 29,58,64,662.60 1.2274
2008-2009 38,48,635.02 30,52,83,470.12 1.2607

Interpretation:
This ratio indicates the efficiency of pricing. The gross profit ratio
exhibits the relationship between gross profit and sales.
A high gross profit ratio will be desirable because it indicates that the
business organization is either producing or purchasing the goods and
commodities at lowest cost. On the contrary, a low gross profit ratio may
indicate unfavorable purchasing as well as liability of the management to
group the sales.
The gross profit ratio for above three years are satisfactory.
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10. Net Profit Ratio:

Net Profit Ratio = x 100

Years Net Profit after Net Sales Ratio

Tax
2006-2007 25,29,691.77 25,11,61,228.73 1.007
2007-2008 26,76,378.67 29,58,64,662.60 0.9046
2008-2009 30,37,050.02 30,52,83,470.12 0.9948

Interpretation:

Net Profit is that amount of the Net sales which belong to the owner
or the shareholder after deducting all costs and expenses, either operating
or non operating.
A high net profit exhibits higher profitability and lower net profit ratio
indicates poor profitability.
The Net profit ratio of 2006-2007, is more than 2007-2008 and 2008-
2009.

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11. Operating Ratio:

Operating Ratio = x 100

Years Operating Net sales Ratio

expenses
2006-2007 88,05,145.18 25,11,61,228.73 3.5058
2007-2008 96,75,245 29,58,64,662.60 3.2702
2008-2009 1,15,91,160 30,52,83,470.12 3.7964

Interpretation:-
The Operating ratio is Revenue in nature and the function of the ratio
is to check the profitability of the firm. The higher operating ratio indicates
lower profitability the lower operating ratio indicates higher profitability of
the firm.
The operating ratio for above three years is stable. It is good sign
regards with profitability of firm.

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12. Return on equity capital Ratio:

Return on equity capital Ratio =

x 100

Years N/P After Tax Equity share Ratio

and Pref. Capital Capital
2006-2007 27,19,418.65 1,97,08,600 13.7981
2007-2008 28,98,488.96 2,17,24,400 13.3421
2008-2009 32,80,014.02 2,27,65,400 14.4079

Interpretation:

The Ratio shows the percentage of profit or amount per share

available to equity shareholders, Stock brokers, perspective investors and
speculators are interested in this ratio.
As the share with higher rate of return have a greater demand in the
market, resulting in increase in market value.

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There are increases in trend in the return on equity capital ratio. It is

a good sign for the investors.

13. Interest Coverage Ratio:

Interest Coverage Ratio =

Years N/P before Ded. Fixed Interest Ratio

Of Int.& Inc.Tax Charges
2006-2007 2,86,05,506.15 2,52,08,814.38 1.1347
2007-2008 3,25,13,641.00 2,88,92,127.00 1.1253
2008-2009 4,34,54,151.00 3,96,05,516.00 1.0972

Interpretation:

Interest coverage ratio is revenue in nature. It helps to check the

profitability of the firm. When the Interest coverage ratio is low, it makes
adverse effect to the profitability of the firm. But when the interest coverage
ratio is high, it makes favorable effect to the profitability of the firm.
The bank has to increase their interest coverage ratio in future.

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14. Capital Gearing Ratio:

Capital Gearing Ratio =

Years Ratio

2006-2007 5,56,95,369 1,97,08,600 2.8259

2007-2008 6,62,24,846 2,17,24,400 3.0484
2008-2009 7,17,17,047 2,27,65,400 3.1503

Interpretation:

Capital gearing ratio is mainly used to analyze the capital structure of

the firm. It is the proportion of relationship between equity share capital
including reserve and surplus to preference share capital and other fixed
interest bearing funds.
The above ratios of all Three years are satisfactory with respect to
bank.

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15. Debts to equity Ratio:

Debts to equity Ratio =

Years Total Debts Owner’s Equity Ratio

2006-2007 40,56,54,057.93 5,82,25,060.77 6.9670

2007-2008 44,81,62,820.80 6,89,01,224.67 6.5044
2008-2009 55,76,84,182.82 7,47,54,097.02 7.4602

Interpretation:

A debt to equity ratio is a measure of a company’s financial leverage. A

high debts to equity ratio generally means that a firm has been aggressive in
financing it’s growth with debts.
A debts to equity ratio has increasing trend. The bank has to raise
finance by their own and should not rely on out side finance.

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16. Debts to Total assets Ratio:

Debts to Total assets Ratio =

Years Total Assets Total Debts Ratio

2006-2007 48,15,54,339.30 40,56,54,057.93 1.1871

2007-2008 53,29,57,357.09 44,81,62,820.80 1.1892
2008-2009 65,49,88,114.67 55,76,84,182.82 1.1745

Interpretation:

This Ratio indicates the share of debts in creating the total assets of
the firm.
This ratio is of great help to the creditors of the firm as it exhibits
firm’s long run solvency.
The ratios of all three years are stable so, the bank can maintain the
better control and they can enjoy the benefit of higher leverage.

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17. Debts Equity Ratio

Debts Equity Ratio =

Years Outsider’s Shareholder’s Fund Ratio

Liability
2006-2007 40,56,54,057.93 5,82,25,060.77 6.9670
2007-2008 44,81,62,820.80 6,89,01,224.67 6.5044
2008-2009 55,76,84,182.82 7,47,54,097.02 7.4602

Interpretation:-

This ratio explains the comparative proportions of outsiders, funds

and shareholder’s funds invested in the firm.
Greater debt equity ratio indicates that the creditor’s investment in
the business is more than the owners. On the contrary, a very low debt
equity ratio may mean the borrowing capacity of the firm is not utilized fully.
The debt equity ratio is quite satisfactory of the bank.

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18. Long term Debts to Total Capitalization

Long term Debts to Total Capitalization =

Years Long Term Debts Long term debts + Net Worth Ratio

2006-2007 31,15,16,117.80 36,97,41,178.50 0.8425

2007-2008 34,90,75,737.30 41,79,76,961.90 0.8352
2008-2009 44,63,85,740.30 52,11,39,837.30 0.8566

Interpretation:-

This ratio explains the relationship between long term Debts and
Owner’s contribution.
If the ratio is high, it makes adverse effect on the profitability of the
firm. On the Contrary, if the ratio is low, it makes favorable effect on the
profitability of the firm.
The bank made the control on the debts as compare to total
capitalization.

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19. Return on Capital employed:

Return on Capital employed =

x 100

Years N/P ( Before Tax Capital Employed Ratio

& Int.On Long
term Debts)
2006-2007 2,86,05,506.15 36,97,41,178.50 7.7366
2007-2008 3,25,13,641.00 41,79,76,961.90 7.7788
2008-2009 4,34,54,151.02 52,11,39,837.30 8.3383

Interpretation:-

The ratio expresses overall efficiency. It shows how efficiently

management has utilized the available resources. Higher the ratio more
efficiently the funds are utilized.
There is an increasing trend in the ratio of the three years. The bank
utilized the available resources efficiently.

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20. Return on Investment Ratio:

Return on Investment Ratio = x

Years Sales Total Assets Earning after Ratio

Tax

2006-2007 25,11,61,228.73 48,15,54,339.30 25,29,691.77 0.0053

2007-2008 29,58,64,662.60 53,29,57,357.09 26,76,378.67 0.0050
2008-2009 30,52,83,470.12 65,49,88,114.67 30,37,050.02 0.0046

Interpretation:

First part of the above equation expresses the turnover of total assets.
It exhibits how efficiently the assets are utilized by the management to
increase the returns on them. The Second part of the equation expresses the
return on sales ratio.
This is an Index of expenses control as well as profitability of assets.

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The bank has to enhance the return on investment ratio because it is

decreasing over the years.

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5.1 Findings

1. Current ratio of bank is satisfactory. For all the three years. This indicates
bank is solvent.
2. Quick ratio of all the three years has increasing trend. It shows an
indication of good liquidity position.
3. Debtor’s turnover ratio exhibits that the bank follows standard policies
credit & collection.
4. The current assets to proprietor’s fund ratio have increasing trend. It is
good sign with respect to bank proprietor’s ratio.
5. Proprietary ratio is stable for all the three years. A long term solvency
position is satisfactory.
6. Return on shareholders investment ratio is stable that means the bank
consistently providing the returns to the shareholders o their investment.
7. Fixed assets turnover ratio has decreasing trend. The bank does not make
full utilization of fixed assets.
8. In 2006-2007 & 2007-2008, the total assets turnover ratio is stable but in
2008-2009, it is decreasing.
9. The gross profit ratio is satisfactory of the bank.
10. The net profit ratio is quite satisfactory, that indicates the better
profitability.
11. The operating ratio is stable throughout the three years. It is a good sign
regards with profitability of the firm.
12. There is an increasing trend in the return on equity capital ratio. It is a
good sign for the investors.
13. Interest coverage ratio is satisfactory throughout the three years.
14. The capital gearing ratios are satisfactory with respect to bank throughout
the three years.
15. The debt equity ratio has Increasing trend. The bank is aggressive in
financing its growth with debt.
16. The debts to total assets ratios are stable throughout the three years. That
means the bank can maintain the better control & they can enjoy the
benefit of higher leverage.

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17. The debt equity ratio is satisfactory that means the borrowing capacity of
the bank is utilized fully.
18. The long tern debts to total capitalization ratios are not so high
throughout the three years that means the bank can make the control on
debts as compare to total capitalization.
19. There is an increasing trend in the return on capital employed ratio that
means the bank utilized available resources efficiently.
20. The return in investment ratio is decreasing over the years.

5.2 Suggestions

1. Bank Should keeps close control on the expenses because it is a main

reason for low net profit ratio.
2. Bank should try to utilize its assets at greater extent for increasing
profit.
3. Bank should maintain the same policy for current ratio.
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4. Bank should try to increase deposits.

5. The bank should continue to grow it’s business activities in the same
way in the future years.
6. It is suggested that the creditors should be paid in time so that
goodwill of the bank will be maintained.
7. Bank should take the proper decisions to improve profit.

BIBLILOGRAPHY

1) Dr. Jakhotiya G.P. & Mrs. Jakhotiya M.G. “financial management” by

Himalaya Publishing House.

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2) Dr. Pandey I.M. “financial management” by Vikas Publishing House

Pvt. Ltd. New Delhi.

3) Dr. Prakash Chandra. “Financial Management” by Tata Mc Graw Hill.

4) Annual report of Sahyadri Sahakari Bank Ltd. Karad

5) Financial Management by M.R. Agrawal
6) Management Accounting by M.G. Patkar

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