11 - Chapter 4

CHAPTER – 4
ANALYSIS OF FINANCIAL
PERFORMANCE
4.1 INTRODUCTION:
The analysis of the financial statements and interpretations of financial results of
a particular period of operations with the help of 'ratio' is termed as "ratio
analysis." Ratio analysis used to determine the financial soundness of a business
concern. Alexander Wall designed a system of ratio analysis and presented it in
useful form in the year 1909.
Finance may be defined as the art and science of managing money. The major
areas of finance are financial services and managerial finance / corporate
finance/ financial management. While financial services is concerned with the
design and delivery of advice and financial products to individuals, businesses
and governments within the areas of banking and related institutions, personal
financial planning, investments, real estate, insurance and so on, financial
management is concerned with the duties of the financial managers in the
business firm. Financial managers actively manage the financial affairs of any
type of business, namely, financial and non – financial, private and public, large
and small, profit – seeking and not – for – profit. They perform such varied tasks
as budgeting, financial forecasting, cash management, credit administration,
investment analysis, funds management and so on. In recent years, the changing
regulatory and economic environments coupled with the globalization of
business activities have increased in the complexity as well as the importance of
the financial managers’ duties. As a result, the financial management function has
become more demanding and complex.
Profit is the main goal for establishing a business concern. Profit is the primary
motivating force economic activity. Profit has to be earned and they have got to
be earned on a regular or continuous basis. Business concerns that are unable to
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generate sufficient profit from their operations cannot remunerate the providers
of their capital and this makes it difficult for them to maintain the continuity of
their existence. Profits are needed not only to remunerate capital but also to
finance growth and expansion. “Profit are the record card of the past, the
inventive lode star for the future. If an enterprise fails to make profit, capital
invested is eroded and in this situation prolongs the enterprise ultimately ceases
to exist.” Profit is a measure of surplus wealth generated by a business concern
from its operations. The measurement of profits in a continuing business
concentrates place on periodic basis. The word profit implies a comparison of
the operations of business between two specific dates, which are usually
separated by an interval of one year.
In fact, in every society, profit has been the prime motive behind every activity,
in the word of Prof. Robbins “Profit are the motivating force for economic
activity”. Business cannot exist without profit and economy cannot exist without
sound business. Profit is the main motto behind the establishment of a business.
It is the engine that drives the business enterprise. Basically profit is the primary
motivating force for all economic activities and the report card of the past.
Service motive is the secondary function of an enterprise. Thus, Profit is the soul
of the business without which a business becomes dull and lifeless. “ In fact profit
is useful intermediate beacon towards which a firms capital should be directed”.
No company can exist/survive longer without profit. If the firm is to survive in
competitive and expanding environment it has to go on expanding the scale of its
operations on a regular and continuing bases. “Profits are the record card of the
past the inventive lode star for the future.
The word profitability is a modulation of two word’s “profit” and “ability”. It

means the profit making ability of the organization. Profits are the soul of the
business without which it can not survive longer period. Profitability indicates
the capacity of managements to generate surplus in the process of business
operations. A lower profitability may arise due to the lack of control over
expenses.
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Financial performance is a close and a critical study of various measures
observed in the operation of business organization. The concept of human body
is similar to the concept and case of a business organization. Human body
requires medical checkup and examination for maintaining fitness of body;
similarly, the financial performance of a business organization has got to be
assessed periodically. Erich A. Helfert stated, “The person analyzing business
performance has clearly in mind which tests should be applied and for what
specific reasons. One must define the view point to be taken, the objectives of the
analysis and possible standard comparison”.
According to Flippo, a prominent personality in the field of Human resources,

"performance appraisal is the systematic, periodic and an impartial rating of an
employee’s excellence in the matters pertaining to his present job and his
potential for a better job." Performance appraisal is a systematic way of
reviewing and assessing the performance of an employee during a given period
of time and planning for his future. The Process of “financial Performance”
involves an evaluation of actual against desired performance. It also helps in
reviewing various factors which influence performance. Managers should plan
performance.
The important point to recognize is that just having the financial statement
numbers is not enough to answer the questions that financial statement users
want answered. Without further analysis, the raw numbers themselves don’t tell
much of a story. Financial statement analysis involves the examination of both
the relationships among financial statement numbers and the trends in those
numbers over time. One purpose of financial statement analysis is to use the past
performance of a company to predict how it will do in the future. Another
purpose is to evaluate the performance of a company with an eye toward
identifying problem areas. In sum, financial statement analysis is both
diagnosis— identifying where a firm has problems—and prognosis—predicting
how a firm will perform in the future.
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Relationships between financial statement amounts are called financial ratios.
Net income divided by sales, for example, is a financial ratio called return on
sales, which tells you how many pennies of profit a company makes on each ` of
sales. For external users of financial statements, such as investors and creditors,
financial statement analysis plays the same role in the decision-making process.
Whereas management uses the analysis to help in making operating, investing,
and financing decisions, investors and creditors analyze financial statements to
decide whether to invest in, or loan money to, a company.
4.2 RATIO ANALYSIS:

 Meaning of Ratio: -
“Ratio are relationships expressed in mathematical terms between
figures which are connected with each other in some manner.”1 Obviously, no
purpose will be served by comparing two sets of figures which are not at all
connected with each other. Ratio can be expressed in two ways.
1. Times :-
When one value is divided by another, the unit used to express the
quotient is termed as “Times”. For example if out of 100 students in a class, 80
are present, the attendance ratio can be expressed as follows :
80
= 100 = 0.8 times
2. Percentage :-
If the quotient obtained is multiplied by 100, the unit of expression is termed as
“percentage”. For instance, in the above example the attendance ratio as a
percentage of the total number of student is as follows:
= 0.8 X 100 = 80%
Accounting ratios are, therefore, mathematical relationships expressed between
inter-connected accounting figures.
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4.3 ANALYSIS AND INTERPRETATION:
ANALYSIS OF PROFITABILITY PERFORMANCE:
Following ratios have been selected by the researcher for the study of
profitability performance of selected units:
1. Operating Profit Ratio
2. Net Profit Ratio
3. Earning Per Share
4. Dividend Per Share
5. Return on Assets Ratio
6. Return on Gross Capital Employed
7. Return on Net Capital Employed
8. Cash Profit Margin Ratio
9. Dividend Payout Ratio
(1) Operating Profit Ratio:

Operating ratio is also known as operating expenses ratio. It is an important ratio
that explains the changes in profit margin ratio. Operating ratio matches with the
cost of goods sold plus other operating expenses on the one hand with net sales
on the other. The ratio is computed by dividing operating expenses such as cost
of goods sold plus selling expenses and general and administrative expenses
(excluding interest) dividing by sales.
Operating profit (EBIT)

Operating Profit Ratio= X 100
Net Sales
A higher operating ratio is unfavorable. To get the comprehensive idea of the

behaviour of operating expenses variations in the ratios over a number of years
should be studied.
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Table No. 4.1
Operating Profit Ratio of selected units (percentage)
Year ITC HUL BIL NIL DIL ML GCPL GCHL CPIL P&G
2007-08 21.14 14.76 9.25 17.26 17.71 12.29 19.57 17.90 18.90 27.58
2008-09 20.66 14.09 7.91 17.32 18.13 10.42 17.23 17.12 19.70 29.91
2009-10 22.94 14.90 3.76 17.59 18.77 15.35 23.39 17.67 24.02 25.53
2010-11 23.31 14.23 5.54 17.97 18.37 17.27 21.70 18.69 21.89 17.00
2011-12 25.08 14.97 5.77 18.10 15.83 14.41 25.03 18.67 21.03 17.11
2012-13 25.63 18.26 6.49 18.33 17.46 17.18 17.18 19.34 19.95 16.85
2013-14 26.38 17.13 8.53 18.20 17.88 20.27 17.51 19.77 19.20 22.53
2014-15 27.19 18.96 12.03 17.57 17.92 15.95 18.41 19.64 18.41 21.46
2015-16 27.11 17.80 14.45 9.63 22.49 19.55 20.54 23.18 19.21 27.32
2016-17 27.36 18.61 14.42 15.12 24.41 23.72 22.47 22.92 18.84 28.20
Avg. 24.68 16.37 8.81 16.70 18.89 16.64 20.30 19.49 20.11 23.34
Min. 20.66 14.09 3.76 9.63 15.83 10.42 17.18 17.12 18.41 16.85
Max 27.36 18.96 14.45 18.33 24.41 23.72 25.03 23.18 24.02 29.91
Source: Financial statements of the selected units and www.acekp.in
Chart 4.1:
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Analysis:
The above table No. 4.1 and chart shows the operating profit ratio of selected
units during the study period of 2007-08 to 2016-17. It shows the mixed trend
during the study period in all the selected units. The average operating profit
ratio was the highest in ITC with 24.68% and it was the lowest in BIL with 8.81%
during the study period. The Minimum operating profit ratio was the highest in
ITC with 20.66% and it was the lowest again in BIL with 3.76% during the study
period. The maximum operating profit ratio was the highest in P & G with
29.91% and it was the lowest in BIL with 14.45% during the study period. In ITC
it is the highest in the year 2014-15 with 27.36% and the lowest in the year
2008-09 with 20.66%. In HUL it is the highest in the year 2014-15 with 18.96%
and the lowest in the year 2008-09 with 14.09%. In BIL it is the highest in the
year 2015-16 with 14.45% and the lowest in the year 2009-10 with 3.76%. In
NIL it is the highest in the year 2012-13 with 18.33% and the lowest in the year
2015-16 with 9.63%. In DIL it is the highest in the year 2016-17 with 24.41%
and the lowest in the year 2011-12 with 15.83%. In ML it is the highest in the
GCPL it is the highest in the year 2011-12 with 25.03% and the lowest in the year
2012-13 with 17.18%. In GCHL it is the highest in the year 2011-12 with 23.18%
and the lowest in the year 2008-09 with 17.12%. In CPIL it is the highest in the
year 2009-10 with 24.02% and the lowest in the year 2014-15 with 18.41%. In P
& G it is the highest in the year 2008-09 with 29.91% and the lowest in the year
2012-13 with 16.85%.
Hypothesis Testing:
The hypothesis of the ratio is:
There is no significance difference in means score operating profit
H0 :
ratio in selected units during the study period
There is significance difference in means score operating profit
H1 :
For the testing of hypothesis ANOVA test has been applied as under:
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Table No. 4.1 (a) – ANOVA test analysis of operating profit
5% Limit
Source of
S.S. d.f. M.S. F ratio (From F
Variance
Table)
Between
1736.84 9 192.982
Sample
Within 2.171 1.985
842.13 90 9.357
Sample
2578.97 99 202.339
H0 = u1 = u2
H1 = u1 ≠ u2
5% level of significance table value of F = 1.985
The calculated value of F is 2.171 and table value of F is 1.985 (at 5% level
of significance). Hence,
FC > FT
The calculated value of ‘F’ is more than the table value. The Null
Hypothesis is rejected. The results are not as per the expectation i.e. There is
significance difference in means score operating profit ratio in selected units
during the study period.
(2) Net Profit Ratio:

This ratio indicates the portion of sales which is left to, the proprietor after all
costs, charges and expenses have been deducted. This is the ratio of net income
or profit after taxes to sales. The ratio is very used a measure of overall
profitability. Net profit ratio focuses on the non-operating activities.
It is calculated as bellows:
Net Profit
Net Profit Ratio = X 100
Sales
This ratio helps in determining the efficiency with which affairs of the business
are being managed. An increase in the ratio over the previous period indicates
improvement in the operational efficiency of the business provided the gross
profit ratio is constant. The ratio is thus an effective measure to check the
profitability of business. This ratio is the overall measure of the firms ability to
turn each rupee sales into net profit.
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Table No. 4.2
Net Profit Ratio of selected units (percentage)
2007-08 14.25 11.85 7.30 11.35 14.96 9.30 16.13 11.66 14.92 20.07
2008-09 13.79 11.55 5.74 11.95 15.41 7.40 14.29 11.08 16.51 23.09
2009-10 15.24 11.54 3.40 12.54 15.05 11.60 19.17 11.49 20.91 19.64
2010-11 15.70 11.17 3.41 12.84 14.24 13.41 17.05 12.34 16.89 14.51
2011-12 17.10 11.61 3.71 12.49 12.20 11.35 19.49 12.20 15.91 13.90
2012-13 17.62 13.92 4.10 12.40 13.43 12.58 13.48 12.97 14.94 11.96
2013-14 18.13 13.08 5.76 11.86 13.64 15.65 13.13 13.12 14.24 14.61
2014-15 18.37 13.19 8.47 11.64 13.85 11.63 13.92 12.88 13.19 14.67
2015-16 17.24 12.35 9.59 6.64 17.28 14.20 14.80 15.06 13.36 17.99
2016-17 17.83 13.02 9.72 9.70 18.59 17.31 16.66 14.85 12.77 17.89
Avg. 16.52 12.32 6.12 11.34 14.86 12.44 15.81 12.76 15.36 16.83
Min. 13.79 11.17 3.40 6.64 12.20 7.40 13.13 11.08 12.77 11.96
Max 18.37 13.92 9.72 12.84 18.59 17.31 19.49 15.06 20.91 23.09
Chart 4.2:
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Analysis:
The above table No. 4.2 and chart shows the net profit ratio of selected units
during the study period of 2007-08 to 2016-17. It shows the mixed trend during
the study period in all the selected units. The average net profit ratio was the
highest in P & G with 16.83% and it was the lowest in BIL with 6.12% during the
study period. The Minimum net profit ratio was the highest in ITC with 13.79%
and it was the lowest again in BIL with 3.40% during the study period. The
maximum net profit ratio was the highest in P & G with 23.09% and it was the
lowest in BIL with 9.72% during the study period. In ITC it is the highest in the
HUL it is the highest in the year 2012-13 with 13.92% and the lowest in the year
2010-11 with 11.17%. In BIL it is the highest in the year 2016-17 with 9.72%
and the lowest in the year 2009-10 with 3.4%. In NIL it is the highest in the year
2010-11 with 12.84% and the lowest in the year 2015-16 with 6.64%. In DIL it is
the highest in the year 2016-17 with 18.59% and the lowest in the year 2011-12
with 12.2%. In ML it is the highest in the year 2016-17 with 17.31% and the
lowest in the year 2008-09 with 10. 7.40%. In GCPL it is the highest in the year
2011-12 with 19.49% and the lowest in the year 2013-14 with 13.13%. In GCHL
2008-09 with 11.08%. In CPIL it is the highest in the year 2009-10 with 20.91%
and the lowest in the year 2016-17 with 12.77%. In P & G it is the highest in the
year 2008-09 with 23.09% and the lowest in the year 2012-13 with 11.96%.
Hypothesis Testing:
There is no significance difference in means score net profit ratio
H0 :
in selected units during the study period
There is significance difference in means score net profit ratio in
H1 :
selected units during the study period
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Table No. 4.2 (a) – ANOVA test analysis of net profit
5% Limit
Source of
Variance
Table)
Between
930.751 9 103.417
Sample
Within 2.0849 1.985
450.663 90 5.007
Sample
1381.414 99 108.427
H0 = u1 = u2
H1 = u1 ≠ u2
The calculated value of F is 2.0849 and table value of F is 1.985 (at 5%

level of significance). Hence,
FC > FT
significance difference in means score net profit ratio in selected units during the
study period.
(3) Earning Per Share:

In order to avoid confusion on account of the varied meanings of the term capital
Employed the overall profitability can also be judge by calculating earning per
share with the help of the following formula.
Profit after tax - Preference Share Dividend

EPS =
No. of Equity Shares
The earning per share has in determining the market price at the equity shares of
the company. A comparison of earning per share of the company with another
will also help in deciding whether the equity share capital is being effectively
used or not. It also helps in estimating the company’s capacity to pay dividend to
its equity share holders.
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A higher EPS means better capital productivity. EPS is one of the most important
ratio which measure the net profit earned per share. EPS is one of the measure
factors affecting the dividend policy of the firm and the market prices of the
company. A steady growth in EPS year after year indicates a good track of
profitability.
EPS is computed by dividing the net profit after tax and dividend to preference
shareholders by the total number of shares outstanding. This avoids confusion
and indicates the profit available to the ordinary shareholders on a “per share
basis”.
Table No. 4.3

Earning Per Share of selected units (`)
2007-08 8.38 8.01 79.95 42.92 3.67 2.35 6.56 38.68 17.04 40.48
2008-09 8.81 11.47 75.51 55.39 4.32 2.33 6.29 47.78 21.34 55.10
2009-10 10.92 9.64 48.77 67.94 4.99 3.86 8.05 55.35 31.12 55.38
2010-11 6.48 10.68 12.16 84.91 2.71 5.13 13.44 71.30 29.60 46.48
2011-12 8.00 12.45 15.63 99.73 2.66 5.47 17.76 84.46 32.83 55.85
2012-13 9.39 17.56 19.56 110.7 3.39 6.65 15.01 103.9 36.53 62.61
2013-14 11.18 17.88 30.83 115.9 3.85 8.95 16.59 160.4 39.70 93.04
2014-15 12.06 19.95 51.89 122.9 4.34 8.45 19.23 138.8 41.10 106.6
2015-16 11.61 19.15 63.61 58.42 5.33 5.36 21.22 163.4 21.37 130.7
2016-17 8.47 20.79 70.31 96.09 5.67 6.53 24.90 156.2 21.23 133.3
Avg. 9.53 14.76 46.82 85.49 4.09 5.51 14.91 102.03 29.19 77.95
Min. 6.48 8.01 12.16 42.92 2.66 2.33 6.29 38.68 17.04 40.48
Max 12.06 20.79 79.95 122.9 5.67 8.95 24.9 163.4 41.1 133.3
Chart 4.3:
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Analysis:
The above table No. 4.3 and chart shows the earning per share of selected units
the study period in all the selected units. The average earning per share was the
highest in GCHL with 102.03 and it was the lowest in DIL with 4.09 during the
study period. The Minimum earning per share was the highest in NIL with 42.92
and it was the lowest again in ML with 2.33during the study period. The
maximum earning per share was the highest in GCHL with 163.4 and it was the
lowest in DIL with 5.67 during the study period. In ITC it is the highest in the
year 2014-15 with 12.06 and the lowest in the year 2010-11 with 6.48. In HUL it
is the highest in the year 2016-17 with 20.79 and the lowest in the year 2007-08
with 8.01. In BIL it is the highest in the year 2007-08 with 79.95 and the lowest
in the year 2010-11 with 12.16. In NIL it is the highest in the year 2014-15 with
122.9 and the lowest in the year 2007-08 with 42.92. In DIL it is the highest in
the year 2016-17 with 5.67 and the lowest in the year 2011-12 with 2.66. In ML
it is the highest in the year 2013-14 with 8.95 and the lowest in the year 2008-09
with 2.33. In GCPL it is the highest in the year 2016-17 with 24.9 and the lowest
in the year 2008-09 with 6.29. In GCHL it is the highest in the year 2015-16 with
163.4 and the lowest in the year 2007-08 with 38.68. In CPIL it is the highest in
the year 2014-15 with 41.1 and the lowest in the year 2007-08 with 17.04. In
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P & G it is the highest in the year 2016-17 with 133.3 and the lowest in the year
2007-08 with 40.48.
Hypothesis Testing:
There is no significance difference in means score earning per
H0 :
share in selected units during the study period
There is significance difference in means score earning per share
H1 :
Table No. 4.3 (a) – ANOVA test analysis of Earning Per Share
5% Limit
Source of
Variance
Table)
Between
121855.64 9 13539.51
Sample
Within 2.37 1.985
47196.78 90 524.41
Sample
169052.42 99 14063.92
H0 = u1 = u2
H1 = u1 ≠ u2
FC > FT
significance difference in means score earning per share in selected units during
the study period.
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(4) Dividend Per Share:
Dividend per share (DPS) is the total dividend declared for every common share
outstanding. Just like, we find earning per share (EPS) because per share data
provides a better idea of company’s profitability. Similarly, dividend per share
(DPS) provides an idea of how much dividend an investor is going to get on a per
share basis.
Dividend per share is an important and widely-used shareholder ratio. A key

focus of shareholders is their return on investment. The returns from investing
in shares of a company come in two main forms:
 The payment of dividends out of profits

 The increase in the value of the shares (share price) compared with the
price that the shareholder originally paid for the shares
One very straightforward shareholder ratio (though as we shall see – not a

hugely helpful one) is dividend per share. This shows the value of the total
dividend per issued share for the financial year.
It can be calculate with following formula:
Dividends
Dividend per share =
Number of Common Shares Outstanding
You can calculate the dividend per share by dividing the dividends with the
number of common shares outstanding for a given fiscal year. If your purpose is
to know the amount of dividend then this formula should be used.
Dividends: It only includes interim dividend to be distributed to common
shareholders for a specific fiscal year. Preference dividend and special dividend
are not be included here.
Number of Common Shares Outstanding: It includes the no. of common shares

outstanding as on the particular date. The Company makes the list of
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shareholders entitled to receive dividends on the record date. Number of
outstanding shares as on that date is taken into the denominator.
Weighted average number of common shares outstanding: Changes in the no. of

shares outstanding during the year are ignored in the first formula. In the second
formula, No. of common shares outstanding is taken and weights are given to
them based on the time they have remained outstanding during the fiscal year.
Then, the weighted average is found out to take into consideration the changes in
shares outstanding during the year.
Advantages of using dividend per share ratio
Comparability
DPS provides a better comparability between two companies as it is on per share
basis. You should not compare the absolute amount dividends as it might lead to
an unreliable conclusion due to differences in the nature of companies.
DPS trends as signals for markets

Increasing the level of dps is considered to be a positive signal as it shows that
company has more confidence in its future earnings. Similarly, reducing that
level would send a negative signal. In this scenario, you should always go
through dividend policy before concluding anything.
Simplicity and predictability of DPS

DPS is a very simple ratio to understand. Also, if a company tries to maintain a
stable level of dps then it will result into less fluctuations in dps statistics. Due to
which, predicting the future dividend income through dps becomes easy.
Used in valuation model

DPS is used in many valuation models (i.e. Dividend discount model) due to its
predictability. It is one of the most useful ratios in valuing and analyzing the
company’s stock.
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Using DPS as a metric provides more comparability and reliable interpretation
rather than the absolute dividend. Please note that you should cross check the
method with which DPS is calculated. Using any DPS statistics blindly might lead
to a faulty analysis.
DPS is considered to be a positive sign for the financial strength of the company.
However, DPS is affected by many factors like Company’s dividend policy,
reinvestment opportunities available, size, industry, life cycle stage etc. Hence, it
should be used with caution and along with other metrics to conclude about the
financial strength of the company.
Table No. 4.4

Dividend Per Share of selected units (`)
2007-08 3.50 9.00 18.00 33.00 1.50 0.66 4.00 12.00 13.00 20.00
2008-09 3.70 7.50 4.00 42.50 1.75 0.66 4.00 15.00 15.00 22.50
2009-10 10.00 6.50 25.00 48.50 2.00 0.66 4.25 18.00 20.00 22.50
2010-11 4.45 6.50 6.50 48.50 1.15 0.66 4.50 50.00 22.00 22.50
2011-12 4.50 7.50 8.50 48.50 1.30 0.70 4.75 35.00 25.00 22.50
2012-13 5.25 18.50 8.50 48.50 1.50 1.00 5.00 45.00 28.00 25.00
2013-14 6.00 13.00 12.00 48.50 1.75 3.50 5.25 45.00 27.00 27.50
2014-15 6.25 15.00 16.00 63.00 2.00 2.50 5.50 55.00 24.00 30.25
2015-16 8.50 16.00 20.00 48.50 2.25 4.25 5.75 70.00 10.00 36.00
2016-17 4.75 17.00 22.00 63.00 2.25 3.50 15.00 70.00 10.00 389.0
Avg. 5.69 11.65 14.05 49.25 1.75 1.81 5.80 41.50 19.40 61.78
Min. 3.50 6.50 4.00 33.00 1.15 0.66 4.00 12.00 10.00 20.00
Max 10.0 18.50 25.00 63.00 2.25 4.25 15.00 70.00 28.00 389.0
Chart 4.4:
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Analysis:
The above table No. 4.4 and chart shows the dividend per share of selected units
the study period in all the selected units except P & G. In P & G it shows the
increasing trend during the study period. The average dividend per share was
the highest in P & G with 61.78 and it was the lowest in DIL with 1.75 during the
study period. The Minimum dividend per share was the highest in NIL with 33.00
and it was the lowest again in ML with 0.66 during the study period. The
maximum dividend per share was the highest in P & G with 389.0 and it was the
lowest in DIL with 2.25 during the study period. In ITC it is the highest in the
year 2009-10 with 10.0 and the lowest in the year 2007-08 with 3.50. In HUL it
is the highest in the year 2012-13 with 18.50 and the lowest in the year 2010-11
with 6.50. In BIL it is the highest in the year 2009-10 with 25.00 and the lowest
in the year 2008-09 with 4.00. In NIL it is the highest in the year 2014-15 with
63.00 and the lowest in the year 2007-08 with 33.00. In DIL it is the highest in
the year 2015 & 16 and 2016-17 with 2.25 and the lowest in the year 2010-11
with 1.15. In ML it is the highest in the year 2014-15 with 4.25 and the lowest in
the year 2007-08 to 2010-11 with 0.66. In GCPL it is the highest in the year
2016-17 with 15.00 and the lowest in the year 2007-08 and 2008-09 with 4.00.
In GCHL it is the highest in the year 2015-16 and 2016-17 with 70.00 and the
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lowest in the year 2007-08 with 12.00. In CPIL it is the highest in the year 2012-
13 with 28.00 and the lowest in the year 2015-16 with 10.00. In P & G it is the
highest in the year 2016-17 with 389.0 and the lowest in the year 2007-08 with
20.00.
Hypothesis Testing:
There is no significance difference in means score earning per
H0 :
share in selected units during the study period
There is significance difference in means score earning per share
H1 :
Table No. 4.4 (a) – ANOVA test analysis of dividend per share
5% Limit
Source of
Variance
Table)
Between
42229.71 9 4692.19
Sample
Within 3.373 1.985
125188.23 90 1390.98
Sample
167417.94 99 6083.17
H0 = u1 = u2
H1 = u1 ≠ u2
FC > FT
significance difference in means score dividend per share in selected units
[180]
(5) Return On Assets Ratio:
“The term ‘Investments’ represents the assets which are actively used in the
business firm for generating sales and profits. These assets can be defined as
operating assets.”3 The amount of investment is computed by subtracting the
total amount of unused assets from the combined total net fixed assets after
deducting depreciation and current assets.
While calculating the amount of “Investment” following items are

excluded.
1. Non business assets :- The Investment made outside business in the
form of shares and debentures are not included in calculating the
“Investment”.
2. Fictitious assets :- The expenses and losses which have not yet been
written off are term as fictitious assets. These assets are excluded while
calculating the “Investment”.
3. Idle assets :- The assets which does not make any contribution towards
the earnings of the company are known as idle assets e.g. capital working
progress, obsolete assets etc. These assets are not taken into
consideration as ROI is a test of efficiency.
4. Intangible assets: - These assets consist of patent, copyright, trademark,
goodwill etc. These assets should be written off at the earliest. Such assets
are not included in computing investment.
ROI ratio judges the overall performance of the concern. It measures how
efficiently the sources of the business are being used. In other words, it tells what
is the earning capacity of the net assets of the business. Higher the ratio the more
efficient is the management and utilization of capital employed.
In the present study for computing the return on investments operation profits
before interest and tax has been taken as profit.
Further, income from investment on outside business and non-trading activities

are excluded from it. ROI is calculated on the basis of the following formula:
[181]
Operating Profit
Return on Investment = (Before interest and taxes) x100
Investment
Table No. 4.5

Return on Assets Ratio of selected units (%)
2007-08 19.14 25.78 17.78 31.82 32.79 22.12 28.97 11.95 34.25 20.17
2008-09 17.71 34.64 14.55 34.43 27.85 18.05 22.38 11.67 40.65 25.39
2009-10 19.15 24.62 8.98 35.11 26.31 23.31 24.07 12.52 43.08 20.19
2010-11 20.19 24.25 10.36 35.64 22.71 20.53 24.76 13.54 30.18 13.20
2011-12 22.39 26.01 11.84 27.63 17.65 15.84 20.47 13.08 28.72 13.68
2012-13 23.15 34.43 13.94 22.33 19.70 15.53 12.38 15.99 27.15 14.99
2013-14 24.02 32.04 20.97 19.47 19.61 16.80 11.40 18.42 24.53 21.99
2014-15 22.50 32.85 29.05 19.53 18.96 14.27 11.83 11.04 21.56 20.10
2015-16 19.45 30.43 27.67 9.46 19.87 18.39 12.01 11.15 19.02 20.60
2016-17 19.47 31.68 24.94 14.37 17.80 22.31 12.40 11.50 16.03 26.30
Avg. 20.72 29.67 18.01 24.98 22.33 18.72 18.07 13.09 28.52 19.66
Min. 17.71 24.25 8.98 9.46 17.65 14.27 11.4 11.04 16.03 13.2
Max 24.02 34.64 29.05 35.64 32.79 23.31 28.97 18.42 43.08 26.3
Chart 4.5:
[182]
Analysis:
The above table No. 4.5 and chart shows the return on assets ratio of selected
units during the study period of 2007-08 to 2016-17. It shows the mixed trend
during the study period in all the selected units. The average return on assets
ratio was the highest in HUL with 29.67 % and it was the lowest in GCHL with
13.09% during the study period. The Minimum return on assets ratio was the
highest in HUL with 24.25% and it was the lowest again in ML with 8.98% during
the study period. The maximum return on assets ratio was the highest in CPIL
with 43.08% and it was the lowest in GCHL with 18.42% during the study period.
In ITC it is the highest in the year 2014-15 with 24.02% and the lowest in the
year 2008-09 with 17.71%. In HUL it is the highest in the year 2012-13 with
34.64% and the lowest in the year 2010-11 with 24.25%. In BIL it is the highest
in the year 2014-15 with 29.05% and the lowest in the year 2009-10 with 8.98%.
In NIL it is the highest in the year 2010-11 with 35.64% and the lowest in the
year 2015-16 with 9.46%. In DIL it is the highest in the year 2007-08 with
32.79% and the lowest in the year 2011-12 with 17.65%. In ML it is the highest
in the year 2009-10 with 23.31% and the lowest in the year 2014-15 with
14.27%. In GCPL it is the highest in the year 2007-08 with 28.97% and the
lowest in the year 2013-14 with 11.4%. In GCHL it is the highest in the year
2013-14 with 18.42% and the lowest in the year 2014-15 with 11.04%. In CPIL it
is the highest in the year 2009-10 with 43.08% and the lowest in the year 2016-
17 with 16.03%. In P & G it is the highest in the year 2016-17 with 26.3% and the
lowest in the year 2010-11 with 13.2%.
Hypothesis Testing:
There is no significance difference in means score return on assets
H0 :
There is significance difference in means score return on assets
H1 :
[183]
Table No. 4.5 (a) – ANOVA test analysis of return on assets
5% Limit
Source of
Variance
Table)
Between
2351.89 9 261.32
Sample
Within 3.802 1.985
3121.51 90 34.683
Sample
5473.40 99 295.003
H0 = u1 = u2
H1 = u1 ≠ u2
FC > FT
significance difference in means score ret in selected return on assets units
(6) Return on Gross Capital Employed:

The return on capital employed or return on investment (ROI) is a very useful
technique to measure the profitability of all financial resources employed in the
business enterprises assets. ROI reveals a vital indication of the profitability in
terms of employment of capital in the business. In other words this ratio
measure the earning power profit output with the capital input. “This rate is the
end profit of a series of quantitative variables representing different
interconnected and interdependent factor’s of business operations.” ROI is
computed by multiplying profit margin ratio and assets turn over ratio. ROI is
totally free from all the weakness that contained as assets turn over ignores the
profitability of the business on sales while profit margin does not consider the
utilization of the assets of the business. Thus, ROI represent the relationship
between net profit and assets of the business.
[184]
Return on gross capital employed ratio provides a test of profitability related to
the sources of long term funds. It indicates the relationship of the effectiveness of
management of the business firm. It also reveals the overall efficiency of the
industry working. In other words this ratio will indicate the earning capacity.
This ratio will be helpful in inter-firm comparison within the same industry. The
term gross capital employed means the total of fixed assets and the current
assets employed in the business. The return on gross capital employed has been
computed by dividing the profit before interest and taxes by the gross capital
employed. The return on gross capital employed shows that, to what extent
management have employed all the resources, which is provided by owner’s and
creditor’s to earn appreciable profit for the business firm. Return on gross capital
employed is calculated on the basis of the following formula,
Table No. 4.6

Return on Gross Capital Employed Ratio of selected units (%)
2007-08 27.96 84.00 28.90 102.52 75.97 61.85 114.58 27.36 104.67 41.21
2008-09 25.65 143.31 23.57 119.78 63.03 43.86 47.20 26.77 153.35 45.47
2009-10 29.69 90.0 19.51 124.22 60.44 50.05 36.37 27.95 156.07 36.89
2010-11 32.93 88.52 34.28 113.97 57.72 43.66 36.84 32.15 113.38 26.58
2011-12 35.38 88.14 38.45 90.31 45.31 33.71 29.80 33.76 108.97 27.94
2012-13 35.67 124.25 40.28 69.52 44.87 27.55 19.35 34.87 107.41 27.05
2013-14 36.42 131.80 49.34 53.62 40.68 29.12 19.56 42.52 99.11 33.41
2014-15 33.21 124.81 56.36 45.51 37.22 25.28 20.47 29.73 81.59 31.02
2015-16 25.95 83.43 46.93 19.92 35.45 28.38 20.21 27.99 64.94 29.37
2016-17 24.27 70.73 36.76 31.78 30.38 30.93 20.78 22.18 50.48 39.95
Avg. 30.71 102.90 37.44 77.12 49.11 37.44 36.52 30.53 103.99 33.89
Min. 24.27 70.73 19.51 19.92 30.38 25.28 19.35 22.18 50.48 26.58
Max 36.42 143.31 56.36 124.22 75.97 61.85 114.58 42.52 156.07 45.47
[185]
Chart 4.6:
Analysis:
The above table No. 4.6 and chart shows the return on gross capital employed
ratio of selected units during the study period of 2007-08 to 2016-17. It shows
the fluctuated trend during the study period in all the selected units. The
average return on gross capital employed ratio was the highest in CPIL with
103.99% and it was the lowest in GCHL with 30.53% during the study period.
The Minimum return on gross capital employed ratio was the highest in HUL
with 70.73% and it was the lowest again in GCPL with 19.35% during the study
period. The maximum return on gross capital employed ratio was the highest in
CPIL with 156.07% and it was the lowest in ITC with 36.42% during the study
period. In ITC it is the highest in the year 2013-14 with 36.42% and the lowest in
the year 2016-17 with 24.27%. In HUL it is the highest in the year 2008-09 with
19.51%. In NIL it is the highest in the year 2009-10 with 124.22% and the
lowest in the year 2015-16 with 19.92%. In DIL it is the highest in the year 2007-
08 with 75.97% and the lowest in the year 2016-17 with 30.38%. In ML it is the
highest in the year 2007-08 with 61.85% and the lowest in the year 2014-15
with 25.28%. In GCPL it is the highest in the year 2007-08 with 114.58% and the
[186]
17 with 50.48%. In P & G it is the highest in the year 2008-09 with 45.47% and
the lowest in the year 2010-11 with 26.58%.
Hypothesis Testing:
There is no significance difference in means score return on gross
H0 :
capital employed ratio in selected units during the study period
There is significance difference in means score return on gross
H1 :
Table No. 4.6 (a) – ANOVA test analysis of return on gross capital employed
5% Limit
Source of
Variance
Table)
Between
78009.72 9 8667.75
Sample
Within 18.589 1.985
41966.35 90 466.29
Sample
119976.07 99 9134.04
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected return on gross capital
employed units during the study period.
[187]
(7) Return on Net Capital Employed:
This ratio explains the relationship between total profits earned by the business
and total investments made or total assets employed. This ratio, thus measures
the overall efficiency of the business operations. Return on capital employed
ratio provides a test of profitability related to the sources of long term funds. It
indicates the relationship of the effectiveness of management of the business
firm. It also reveals the overall efficiency of the industry working. In other words
this ratio will indicate the earning capacity. This ratio will be helpful in inter-firm
comparison within the same industry.
This ratio is alternatively known as Return on Total Resources.
Calculation: Return on total resources is calculated by dividing Net Profit Before

preference dividend and interest on loans and debentures by total assets (fixed
or current). This is always expressed in percentage.
Return on net capital employed
Net profit before tax, interest and preference dividend

=  100
Capital Employed
(Composition: The elements considered for calculating this ratio are :

(a) Net profit before tax and interest
(b) Net Capital employed
(a) Net profit: Net profit for the purpose of computing this ratio will be net
profit before taxes, interest on secured and unsecured loans and dividend
on preference shares. Interest on short-term borrowing will be deducted
while calculating operating profit. Non-trading income such as interest on
Government Securities or non-trading losses or expenses will be
excluded.
But, certain analyst considers net operating profit while computing this
ratio. Operating profit and the method of calculating operating profit is
explained in first ratio.
[188]
Alternatively, the ratio can be calculated as under:
Net Operating Profit
×100
Capital Employed
Net operating profit will be the profit before taxes, depreciation, finance
and interest charges and other non-operating losses and non-operating
incomes. Total operating assets before depreciation is taken as the
denominator in that case.
(b) Capital Employed: Total resources are also known as ‘Total capital
employed’ and sometimes as ‘Gross capital employed’ or ‘Total assets
before depreciation’.
Thus, total capital consists of all assets fixed and current. In other words,
the total of the assets side of the balance sheet is considered as the total
assets employed.
But, care has to be taken to exclude fictitious assets like those items under
the heat ‘Miscellaneous Expenditure’, in case they appear on the assets
side of the balance sheet. This is the ‘asset side approach’ of arriving at
the total capital of the business.
According to liability side approach, capital employed is arrived at as

under: Equity share capital + Preference share capital + Undistributed
profits + Reserves and surplus – Fictitious Assets + Long term Borrowings
OR
Proprietor’s Funds + Long term Loans
OR
Fixed Assets + Current Assets – Current Liabilities
While calculating capital employed on the basis of assets, following points

must be noted:
 Any asset which is not in use should be excluded.
[189]
 Intangible assets like goodwill, patents, trademarks etc. should be
excluded. If they have some potential sales value, they should be included.
 Investments which are not concerned with business should be excluded.
 Fictitious assets are to be excluded.
While calculating net profit, following points must be noted:

 If some assets have been excluded from capital employed, interest or
dividend received on such assets should also be excluded.
 Interest on long term loans should be added to reported net profit as long
term loans are considered as part of capital employed.
 Abnormal gains and losses are excluded from reported profit.
 Net profit should be before tax because the top management has no
control over external factors like taxation.
Significance:
 This ratio is a clear index of the earning capacity of the business and
shows the optimum utilization of the assets or resources employed, i.e.
return on capital employed including long-term borrowings.
 This ratio indicates the degree of managerial efficiency and is an effective
tool in the measurement of overall efficiency of the business.
 When this ratio is compared with similar ratios of other periods and of
other companies, useful information’s can be obtained for determining
the future course of action.
 This ratio indicates the productivity of capital utilized or employed. It is
the measures of operating efficiency of the business.
 Capital budgeting decisions are made on the analysis of this ratio.
Precautions:
 Certain analysts use net profit (after taxes and finance expenses) and total
assets (including fictitious assets) as components of this ratio.
 Therefore, while comparing the return on capital employed of other firms,
it is essential to make one self sure that the components of the ratios
compared are same and consistent.
[190]
Table No. 4.7
Return on Net Capital Employed Ratio of selected units (%)
2007-08 40.72 100.49 33.78 152.33 80.24 41.22 71.00 42.00 129.95 56.63
2008-09 37.84 152.15 29.91 173.13 62.66 31.70 44.16 41.37 178.62 58.89
2009-10 44.22 107.16 15.64 174.16 62.58 38.28 42.07 42.96 176.30 47.94
2010-11 48.52 112.07 27.60 159.56 57.05 34.21 41.85 48.73 145.93 31.14
2011-12 51.52 112.47 31.62 89.87 42.92 27.39 33.98 51.68 143.96 34.38
2012-13 51.64 161.12 40.80 62.01 46.14 26.56 22.32 51.98 143.35 38.10
2013-14 52.65 170.24 63.83 53.52 46.97 28.49 23.60 64.09 133.63 51.51
2014-15 48.72 177.25 84.24 55.76 44.72 29.05 24.90 45.33 113.91 45.40
2015-16 39.96 119.18 70.64 28.70 43.20 35.53 26.99 42.98 92.74 44.56
2016-17 36.02 100.52 54.46 49.13 36.79 39.99 27.44 34.10 73.88 62.65
Avg. 45.18 131.27 45.25 99.82 52.33 33.24 35.83 46.52 133.23 47.12
Min. 36.02 100.49 15.64 28.70 36.79 26.56 22.32 34.10 73.88 31.14
Max 52.65 177.25 84.24 174.16 80.24 41.22 71.00 64.09 178.62 62.65
Chart 4.7:
[191]
Analysis:
The above table No. 4.7 and chart shows the return on net capital employed ratio
of selected units during the study period of 2007-08 to 2016-17. It shows the
fluctuated trend during the study period in all the selected units. The average
return on capital employed ratio was the highest in CPIL with 133.23% and it
was the lowest in ML with 33.24% during the study period. The Minimum return
on capital employed ratio was the highest in HUL with 100.49% and it was the
lowest again in BIL with 15.64% during the study period. The maximum return
on capital employed ratio was the highest in CPIL with 178.62% and it was the
lowest in ML with 41.22% during the study period. In ITC it is the highest in the
HUL it is the highest in the year 2014-15 with 177.25% and the lowest in the
year 2007-08 with 100.49%. In BIL it is the highest in the year 2014-15 with
84.24% and the lowest in the year 2009-10 with 15.64%. In NIL it is the highest
28.70%. In DIL it is the highest in the year 2007-08 with 80.24% and the lowest
in the year 2016-17 with 36.79%. In ML it is the highest in the year 2007-08 with
41.22% and the lowest in the year 2012-13 with 26.56%. In GCPL it is the
with 22.32%. In GCHL it is the highest in the year 2013-14 with 64.09% and the
lowest in the year 2016-17 with 34.10%. In CPIL it is the highest in the year
2008-09 with 178.62% and the lowest in the year 2016-17 with 73.88%. In P & G
2010-11 with 31.14%.
Hypothesis Testing:
There is no significance difference in means score return on
H0 :
There is significance difference in means score return on capital
H1 :
employed ratio in selected units during the study period
[192]
Table No. 4.7 (a) – ANOVA test analysis of return on capital employed
5% Limit
Source of
Variance
Table)
Between
136829.69 9 15203.29
Sample
Within 23.306 1.985
58708.49 90 652.32
Sample
195538.18 99 15856.01
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected return on capital employed
units during the study period.
(8) Cash Profit Margin Ratio:

Cash profit is the profit recorded by a business that uses the cash basis of
accounting. Under this method, revenues are based on cash receipts and
expenses are based on cash payments. Consequently, cash profit is the net
change in cash from these receipts and payments during a reporting period.
Some analysts use "earnings before interest, tax, depreciation and amortisation"
(EBITDA) to sales ratio, called cash profit margin, to measure operating
performance. They prefer to use EBITDA margin because they believe that it
focuses on cash operating items.
Cash profit is the profit recorded by a business that uses the cash basis of
accounting. Under this method, revenues are based on cash receipts and
[193]
expenses are based on cash payments. Consequently, cash profit is the net
change in cash from these receipts and payments during a reporting period.
Cash profit does not include other types of cash receipts and payments than
those involved with the sale of goods or services. Thus, a cash receipt from the
sale of a fixed asset or of company shares or bonds is not considered a cash
receipt to be included in the calculation of cash profit.
The cash profit concept closely relates to the net change in cash flows that an
organization experiences during a reporting period. The difference between the
change in total cash flows and the cash profit is that the cash profit only relates
(as just noted) to the sale of goods or services.
A company using the accrual basis of accounting will likely not record the same
amount of profit as would be derived from the cash profit calculation. This is
because the accrual basis records revenue based on goods or services provided,
and records expenses based on consumption, irrespective of any changes in cash
flow.
Thus, the timing of revenue recognition is accelerated under the accrual basis of
accounting if goods or services are sold on credit, while a cash basis organization
will wait to recognize the revenue until customers have paid in cash. The timing
of expense recognition is accelerated under the accrual basis if suppliers issue
goods or services to the buyer on credit, so that cash payments are delayed.
In short, the differences between the accrual basis and cash basis of accounting
make it quite likely that the net profit figure will be different from the cash profit
figure reported by an entity.
[194]
Table No. 4.8
Cash Profit Margin Ratio of selected units (%)
2007-08 16.37 12.79 8.41 13.40 16.17 10.33 17.84 14.77 16.20 21.92
2008-09 16.17 12.45 6.80 14.01 16.54 8.29 15.56 13.54 17.81 24.95
2009-10 17.57 12.55 4.50 14.67 16.16 12.85 20.23 13.57 22.76 22.38
2010-11 17.87 12.24 4.46 14.84 15.37 14.54 17.91 13.97 18.33 16.64
2011-12 19.12 12.55 4.65 14.48 13.22 12.41 20.33 13.78 17.32 16.06
2012-13 19.51 17.78 5.10 15.69 14.55 13.52 14.34 14.04 16.26 13.81
2013-14 20.08 13.96 6.74 15.47 14.74 16.65 13.96 14.33 15.58 16.31
2014-15 20.30 14.06 10.07 15.04 15.05 12.86 14.80 14.25 14.96 16.89
2015-16 19.20 13.31 10.69 11.07 18.63 15.47 15.72 16.32 15.92 20.18
2016-17 19.79 14.17 10.83 13.52 20.00 18.62 17.78 16.30 15.72 20.36
Avg. 18.59 13.59 7.23 14.219 16.04 13.55 16.85 14.49 17.09 18.95
Min. 16.17 12.24 4.46 11.07 13.22 8.29 13.96 13.54 14.96 13.81
Max 20.30 17.78 10.83 15.69 20.00 18.62 20.33 16.32 22.76 24.95
Chart 4.8:
[195]
Analysis:
The above table No. 4.8 and chart shows the cash profit margin ratio of selected
units during the study period of 2007-08 to 2016-17. It shows the fluctuated
trend during the study period in all the selected units. The average cash profit
margin ratio was the highest in P & G with 18.95% and it was the lowest in BIL
with 7.23% during the study period. The Minimum cash profit margin ratio was
the highest in ITC with 16.17% and it was the lowest again in BIL with 4.46%
during the study period. The maximum cash profit margin ratio was the highest
in P & G with 24.95% and it was the lowest in BIL with 10.83% during the study
In NIL it is the highest in the year 2012-13 with 15.69% and the lowest in the
year 2015-16 with 11.07%. In DIL it is the highest in the year 2016-17 with
20.00% and the lowest in the year 2011-12 with 13.22%. In ML it is the highest
In GCPL it is the highest in the year 2011-12 with 20.33% and the lowest in the
year 2013-14 with 13.96%. In GCHL it is the highest in the year 2015-16 with
16.32% and the lowest in the year 2008-09 with 13.54%. In CPIL it is the highest
14.96%. In P & G it is the highest in the year 2008-09 with 24.95% and the
Hypothesis Testing:
There is no significance difference in means score cash profit
H0 :
margin ratio in selected units during the study period
There is significance difference in means score cash profit margin
H1 :
[196]
Table No. 4.8 (a) – ANOVA test analysis of cash profit margin
5% Limit
Source of
Variance
Table)
Between
1027.77 9 114.19
Sample
Within 22.675 1.985
453.26 90 5.04
Sample
1481.03 99 119.23
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected cash profit margin units
(9) Dividend Payout Ratio:

The purpose of this ratio is to find out the proportion of earning used for
payment of dividend and the proportion of earning retained. The ratio is a
relationship between earning per equity share and dividend per equity share.
The ratio can be calculated as follows :
Dividend per equity share
Earning per equity share
OR
[197]
This calculation will give you the overall dividend ratio. Both the total dividends
and the net income of the company will be reported on the financial statements.
You can also calculate the dividend payout ratio on a share basis by dividing the
dividends per share by the earnings per share.
Obviously, this calculation requires a little more work because you must figure
out the earnings per share as well as divide the dividends by each outstanding
share. Both of these formulas will arrive at the same answer however.
The dividend payout ratio measures the percentage of net income that is
distributed to shareholders in the form of dividends during the year. In other
words, this ratio shows the portion of profits the company decides to keep to
fund operations and the portion of profits that is given to its shareholders.
Investors are particularly interested in the dividend payout ratio because they
want to know if companies are paying out a reasonable portion of net income to
investors. For instance, most start up companies and tech companies rarely give
dividends at all.
Conversely, some companies want to spur investors’ interest so much that they
are willing to pay out unreasonably high dividend percentages. Inventors can see
that these dividend rates can’t be sustained very long because the company will
eventually need money for its operations.
Since investors want to see a steady stream of sustainable dividends from a

company, the dividend payout ratio analysis is important. A consistent trend in
this ratio is usually more important than a high or low ratio. Since it is for
companies to declare dividends and increase their ratio for one year, a single
high ratio does not mean that much. Investors are mainly concerned with
sustainable trends. For instance, investors can assume that a company that has a
payout ratio of 20 percent for the last ten years will continue giving 20 percent of
its profit to the shareholders.
[198]
Conversely, a company that has a downward trend of payouts is alarming to
investors. For example, if a company’s ratio has fallen a percentage each year for
the last five years might indicate that the company can no longer afford to pay
such high dividends. This could be an indication of poor operating performance.
Generally, more mature and stable companies tend to have a higher ratio than
newer start up companies.
Higher ratio signifies that the company has utilized larger portion of this earning
for payment of dividend to equity shareholders. It shows that lesser amount of
earning has been retained. Lower ratio indicates that smaller portion of earning
has been utilized for payment of dividend and larger portion has been retained.
It shows stronger financial position of a company. It indicates brighter chances of
future growth and expansion and greater possibility of appreciation in the value
of shares.
Table No. 4.9

Dividend Payout Ratio of selected units (%)
2007-08 41.77 112.43 22.51 76.89 40.91 27.82 60.99 31.02 76.30 49.40
2008-09 42.01 65.38 52.97 76.72 40.53 28.07 63.62 33.50 70.29 40.84
2009-10 91.60 6.44 51.26 71.39 40.04 17.11 52.79 32.52 64.26 40.63
2010-11 68.62 60.87 53.44 57.12 42.46 12.86 33.48 70.13 74.32 48.41
2011-12 56.22 60.23 54.37 48.63 48.89 12.79 26.74 41.44 76.15 40.29
2012-13 55.92 105.37 43.45 43.79 44.24 15.03 33.30 43.33 76.65 39.93
2013-14 53.67 72.70 38.92 41.86 45.40 39.10 31.64 28.05 68.01 29.56
2014-15 51.84 75.20 30.83 51.27 46.07 29.58 28.61 39.63 58.39 28.37
2015-16 73.20 83.54 31.44 83.02 42.23 79.32 27.09 42.83 46.80 27.66
2016-17 56.08 81.78 31.29 65.56 39.70 53.60 60.25 44.83 47.10 291.8
Avg. 59.09 72.39 41.05 61.63 43.05 31.53 41.85 40.73 65.83 63.69
Min. 41.77 6.44 22.51 41.86 39.70 12.79 26.74 28.05 46.8 27.66
Max 91.6 112.43 54.37 83.02 48.89 79.32 63.62 70.13 76.65 291.8
[199]
Chart 4.9:
Analysis:
The above table No. 4.9 and chart shows the dividend payout ratio of selected
trend during the study period in all the selected units. The average dividend
payout ratio was the highest in P & G with 72.39% and it was the lowest in ML
with 31.53% during the study period. The Minimum dividend payout ratio was
the highest in CPIL with 46.8% and it was the lowest again in HUL with 6.44%
during the study period. The maximum dividend payout ratio was the highest in
P & G with 291.8% and it was the lowest in DIL with 48.89% during the study
22.51%. In NIL it is the highest in the year 2015-16 with 83.02% and the lowest
in the year 2013-14 with 41.86%. In DIL it is the highest in the year 2011-12
with 48.89% and the lowest in the year 2016-17 with 39.70%. In ML it is the
with 12.79%. In GCPL it is the highest in the year 2008-09 with 63.62% and the
[200]
16 with 46.8%. In P & G it is the highest in the year 2016-17 with 291.8% and the
Hypothesis Testing:
There is no significance difference in means score dividend payout
H0 :
There is significance difference in means score dividend payout
H1 :
Table No. 4.9 (a) – ANOVA test analysis of dividend payout ratio
5% Limit
Source of
Variance
Table)
Between
17358.81 9 1928.75
Sample
Within 2.169 1.985
80001.63 90 888.91
Sample
97360.44 99 2817.66
H0 = u1 = u2
H1 = u1 ≠ u2
FC > FT
significance difference in means score ret in selected dividend payout units
[201]
LIQUIDITY, EFFICIENCY AND LEVERAGE ANALYSIS RATIOS:
Cash does not enter in to the profit and loss account at an enterprise; hence cash
in neither profit nor loss. Bit without cash, profit (loss) remains meaningless for
an enterprise/owners. Profit is a liability, and like any other liability it is nominal
in nature, cash is the real thing which an enterprise manager learns the
hardware in day-to-day payment at obligations. Firm cannot manage to pay a
suppliers bill or salaries and wages by simply making profit, he needs cash to do
it. Firm also cannot pay dividend to the shareholders except thought cash alone.
A firm’s ability to pay its debts can be measure partly through the use of liquidity
ratio. Short term liquidity involves the relationship between current assets and
current liabilities. Through the liquidity ratio can be examined whether the
organization is liquid enough to meet its current liabilities.
Corporate liquidity encompasses the quantum of current/liquid assets their

structure, the circular flow of these assets and technical solvency in the sense of
measuring the extent of current/liquid assets as cover over short-term
obligations.
Liquidity ratio is calculated to determine the short-term solvency of the business.

It is extremely essential for a firm to be able to meet its obligations as they
become due. Liquidity ratios measure the ability of the firm to meet its current
obligation. In fact analysis of liquidity needs the preparation of cash budgets and
cash and fund flow statements but liquidity ratios, by establishing a relationship
between cash and other current assets to current obligations, provide a quick
measure of liquidity. A firm should ensure that it does not suffer from lack of
liquidity and also that it does not have excess liquidity. The failure of a company
to met its obligation due to lack of sufficient liquidity , will result in a poor credit
worthiness, loss of creditors confidence or even in legal tangles resulting in the
closure of the business unit. A very high degree of liquidity is also bad; idle assets
earn nothing. The firm’s funds will be unnecessarily tied up in current assets7.
Therefore it is necessary to strike a proper balance between high liquidity and
lack of liquidity.
[202]
Following ratios have been selected by the researcher for the study of liquidity,
efficiency and leverage:
1. Current Ratio
2. Quick Ratio
3. Interest Coverage Ratio
4. Inventory Turnover Ratio
5. Debtors Ratio
6. Creditor Ratio
7. Assets Turnover Ratio
8. Fixed Assets Turnover Ratio
9. Working Capital Turnover Ratio
10. Fixed Capital to Sales Ratio
(1) Current Ratio:

Current ratio is also known as Solvency Ratio’ or ‘2 to 1 ratio’. This ratio is an
indication of the firm’s commitment to meet its short-term liabilities. Current
ratio is a ratio of the firm’s total current assets and its total current liabilities.
Current assets include inventory, sundry debtors, cash and bank, loan and
advances. Current liability includes creditors, bills payable, accrued expenses, tax
liability but not short term bank loans and other loans. This ratio expresses the
relationship between current assets and current liabilities.
A low ratio indicates that a firm may not be able to pay its future obligations in
time, particularly if condition change causing a slowdown in cash collection. A
high ratio may indicate an excessive amount of current assets and management’s
failure to utilize the firm’s resources properly.
The current ratio is calculated by dividing the current assets by current

liabilities. This can be expressed as pure number or percentage ratio. Generally,
it is expressed as a pure ratio.
[203]
Current Assets
Current Ratio 
Current Liabilities
Working capital is the difference between current assets and current liabilities.
Working capital is defined as the ‘net current assets.’ Working capital = Current
assets less current liabilities. Since, current ratio indicated the working capital
position of the business, it is also known as the ‘Working Capital Ratio.’
Components:
Current assets include,
 Inventories of raw materials, finished goods, work – in process and
stores and spares.
 Sundry debtors.
 Short term loans, deposits and advances.
 Cash on hand and at bank.
 Prepaid expenses and accrued incomes.
 Bills receivable.
 Marketable investments and short – term securities, etc.
Current assets are those assets which are converted into cash within one
accounting period i.e., within two balance sheet dates.
Current liabilities include,

 Sundry creditors.
 Bills payable
 Outstanding expenses
 Unclaimed dividend
 Interest accrued but not due on secured and unsecured loans.
 Advances received
 Incomes received in advance.
 Provision for taxation.
 Proposed dividends.
 Installments of loan secured/ unsecured payable within 12
months.
[204]
Current liabilities are those liabilities which will be paid within one accounting
period.
Current assets are further classified into:

(a) Liquid assets and
(b) Deferred assets
Current assets like stock on inventories and prepaid expenses are deferred
assets and other current assets are considered to be liquid assets.
Advance against purchase of goods and services are a current asset. However,
advance against purchase of fixed assets is not a current asset as it is a long term
commitment of funds in capital expenditure.
Deposits for adjustment of on going transactions are current assets. Deposits

with excise, customs, port trust are current assets. Deposits as security for
supply of gas, electricity, water should not be treated as current assets as they
are not expected to be converted into cash.
Similarly, current liabilities are further classified into (a) liquid liabilities and (b)
deferred liabilities.
Current liabilities like bank overdraft and incomes received in advance are
regarded as deferred liabilities and the rest of the current liabilities are termed
as liquid liabilities.
Bank overdraft – a current liability or not: It is generally thought that bank

overdraft, being a permanent arrangement with the banker, is not to be
considered as a current liability. But, in views of the convention of conservatism
and the fact that the banker may cancel this facility at any time it is advisable to
consider bank overdraft as a current liability.
[205]
Standard current ratio: Generally, the ratio of 2 : 1 is considered satisfactory.
But this does not mean that if the ratio is lower, the business is in financial
difficulty. The ratio changes throughout the year, depending upon the nature of
transactions. If stock turns over quickly, realization from debtors is quick, period
of credit to debtors is short, the working capital needed may be less as in the case
of service industries like hotels, public utilities, etc., as compared to other
industries where the collection from debtors and stock – turnover are slow. In
case of a business enterprise engaged in seasonal activities, the current ratio
might be low at certain times and high at other times, as money may be locked
up in inventories (particularly in industries using agricultural products as raw
materials as they have to be bought when available in plenty).
Therefore, one cannot conclude always that a current ratio lower than 2 : 1 is not
good or not satisfactory; it depends upon the nature of business activities and
circumstances. Generally, 2 : 1 ratio could be taken to be satisfactory. Current
ratio changes due to the composition and character of the current assets and
current liabilities, and the nature of business. A high current ratio may not mean
better liquidity, if the level of stocks is high compared to other items of current
assets, the current ratio will be high but liquidity will be poor. The current ratio
may be low but the liquidity may still be good.
Limitations of Current ratio:

(a) Current ratio is regarded by many as crude test of liquidity as it
does not take into account the liquidity of each individual current
asset.
(b) During periods of prosperity, the ratio may fall because of increase
in debtors and stock and decrease in cash.
Thus, it is dangerous to consider current ratio as the sole index of solvency. It

should always be supported by the study of other ratios and additional analysis.
[206]
Table No. 4.10
Current Ratio of selected units
2007-08 2.07 0.83 2.11 0.76 1.30 1.97 0.95 1.52 0.75 1.57
2008-09 2.13 0.97 2.02 0.70 1.30 2.55 2.26 1.55 0.98 2.23
2009-10 1.62 0.97 1.58 0.75 1.34 2.78 1.66 1.62 1.04 1.60
2010-11 1.59 1.05 1.54 0.72 1.51 1.29 0.74 1.41 1.08 2.19
2011-12 1.70 1.21 0.88 0.88 1.45 1.43 1.20 1.75 1.05 1.93
2012-13 1.70 0.99 0.71 1.31 1.56 1.67 1.14 1.85 1.01 1.91
2013-14 1.90 1.04 0.90 1.71 1.52 1.26 0.72 1.92 0.90 2.02
2014-15 2.10 1.05 1.19 1.45 1.20 1.51 0.89 1.96 0.91 1.90
2015-16 3.73 1.43 1.35 1.68 1.39 1.71 1.09 2.58 0.91 3.19
2016-17 3.69 1.30 1.84 2.01 1.31 2.16 1.04 2.59 0.93 0.96
Avg. 2.22 1.08 1.41 1.19 1.39 1.83 1.17 1.88 0.96 1.95
Min. 1.59 0.83 0.71 0.7 1.2 1.26 0.72 1.41 0.75 0.96
Max 3.73 1.43 2.11 2.01 1.56 2.78 2.26 2.59 1.08 3.19
Chart 4.10:
[207]
Analysis:
The above table No. 4.10 and chart shows the current ratio of selected units
during the study period of 2007-08 to 2016-17. It shows the fluctuated trend
during the study period in all the selected units. The average current ratio was
the highest in ITC with 2.22 : 1 and it was the lowest in CPIL with 0.96 : 1 during
the study period. The Minimum current ratio was the highest in ITC with 1.59 : 1
and it was the lowest again in NIL with 0.7 : 1 during the study period. The
maximum current ratio was the highest in ITC with 3.73 : 1 and it was the lowest
in CPIL with 1.08 : 1 during the study period. In ITC it is the highest in the year
2015-16 with 3.73 : 1 and the lowest in the year 2010-11 with 1.59 : 1. In HUL it
is the highest in the year 2015-16 with 1.43 : 1 and the lowest in the year 2007-
08 with 0.83 : 1. In BIL it is the highest in the year 2007-08 with 2.11 : 1 and the
lowest in the year 2012-13 with 0.71 : 1. In NIL it is the highest in the year 2016-
17 with 2.01 : 1 and the lowest in the year 2008-09 with 0.7 : 1. In DIL it is the
highest in the year 2012-13 with 1.56 : 1 and the lowest in the year 2014-15 with
1.2 : 1. In ML it is the highest in the year 2009-10 with 2.78 : 1 and the lowest in
the year 2013-14 with 1.26 : 1. In GCPL it is the highest in the year 2008-09 with
2.26 : 1 and the lowest in the year 2013-14 with 0.72 : 1. In GCHL it is the highest
in the year 2016-17 with 2.59 : 1 and the lowest in the year 2010-11 with 1.41 :
1. In CPIL it is the highest in the year 2010-11 with 1.08 : 1 and the lowest in the
year 2007-08 with 0.75 : 1. In P & G it is the highest in the year 2015-16 with
3.19 : 1 and the lowest in the year 2016-17 with 0.96 : 1.
Hypothesis Testing:
There is no significance difference in means score current ratio in
H0 :
There is significance difference in means score current ratio in
H1 :
[208]
Table No. 4.10 (a) – ANOVA test analysis of current ratio
5% Limit
Source of
Variance
Table)
Between
16.666 9 1.851
Sample
Within 8.472 1.985
19.670 90 0.218
Sample
36.336 99 2.069
H0 = u1 = u2
H1 = u1 ≠ u2
FC > FT
significance difference in means score ret in selected current ratio units during
the study period.
(2) Quick Ratio:

Quick Ratio is also known as ‘Liquid Ratio’ or ‘quick assets ratio’ or ‘acid test
ratio’ or ‘near – money ratio’, or ‘1 to 1 ratio’.
This ratio is designed to indicate the liquid financial position of an enterprise.

Thus, the ratio shows the firm’s ability to meet its immediate obligations
promptly. It ensures the relationship between quick assets and quick liabilities.
The quick ratio or liquid ratio is calculated by dividing quick assets by quick
liabilities. This is generally expressed as a pure,
Quick Assets
Quick Ratio =
Quick Liabilities
[209]
This is also known as acid – test ratio as there are possibilities of becoming ‘cash
– insolvent’ in a very short time, if major part of the current assets is locked in
inventories.
Sometimes, to make a conservative measurement of the liquid position of a firm,

the ratio may be calculated as follows:
Quick Assets
Quick Ratio =
Current Liabilities
Components:
Quick assets and quick liabilities are the two elements of the ratio. As we have
already seen in the discussion of current assets and current liabilities quick
assets and quick liabilities are part of current assets and current liabilities
respectively.
Quick Assets are those current assets which can be realized immediately, at short
notice without much difficulty or undue losses. Quick assets mean all current
assets with the exception of inventories.
Quick liabilities are those current liabilities which are fluctuating and fall due for
payment at any time during the year. Quick liabilities mean all current liabilities
with exception of bank overdraft.
Thus,
Quick assets = Current assets less closing stock
Quick liabilities = Current liabilities less bank overdraft
The purpose of liquid ratio is to measure the immediate solvency of the business
and indicate the availability of liquid cash to meet its immediate commitments.
The liquid ratio assumes significance in the analysis of financial statements

owing to the following factors :
[210]
 It indicates the immediate solvency of the business enterprise. Short –
term creditors study liquid ratio along with the current ratio of a firm to
understand its solvency position very well.
 Unlike the current ratio, liquid ratio is more of a qualitative concept.
 This ratio is the true test of business solvency and will indicate the
inventory hold – ups when studies along with the current ratio.
For example: If two firms have same current ratio but different liquidity ratios, it
clearly indicates over – investment in inventories by the firm having a low liquid
ratio. As this ratio eliminates inventories, it is a rigorous test of liquidity. This
ratio is more important for financial institutions.
Standard liquid ratio:

As a rule of thumb, 1 : 1 is considered as the standard ratio. If a firm has equal
quick assets for immediate liabilities, it is considered to be in a fairly good
solvency position. 1 : 1 as the standard for this ratio is more than justified owing
to the following factors :
 Though inventories are not considered as quick assets, they can be used
to a certain extent to meet the quick liabilities.
 Besides, the inventories may be sold at profit and thus liquid position may
improve.
 Apart from these factors, the interpretation of liquid ratio is influenced by
the same factors as in the case of current ratio.
The standard liquid ratio varies from season to season in a company, and
enterprise to enterprise in an industry.
Precautions in application:
Analysis by liquid ratio requires all the precautionary steps mentioned under
current ratio – proper valuation of assets; proper study of the respective asset
items, etc.
The following additional precautions should be taken for a cautions approach :
[211]
 Too much reliance on quick ratio without detailed investigation should be
avoided. This is because of fact that quick ratio depends much on certain
factors like the seasonal nature of business. During slack seasons, the
ratio tends to be lower and a higher ratio is possible during periods of
heavy selling.
 Possibility of window – dressing is not over – ruled and hence suitable
caution should be exercised in the study and analysis of this ratio.
Limitations:
 The liquid ratio, when not considered along with current ratio, may not
provide useful information.
 It is just a variation of the current ratio and hence it suffers from all the
shortcomings of current ratio analysis.
 Liquid ratio alone may not indicate the solvency and liquidity positions of
the business. There are several other factors which may influence the
solvency and liquidity positions of a business enterprise.
Table No. 4.11

Quick Ratio of selected units
2007-08 1.14 0.45 1.25 0.35 0.95 1.08 0.35 1.28 0.61 1.45
2008-09 1.16 0.53 1.42 0.34 0.91 1.34 1.79 1.27 0.63 2.00
2009-10 1.01 0.65 1.06 0.39 1.00 1.49 1.17 1.38 0.92 1.51
2010-11 0.93 0.63 0.92 0.37 1.01 0.67 0.34 1.20 0.93 1.96
2011-12 1.01 0.82 0.49 0.38 0.99 0.85 0.65 1.38 0.87 1.72
2012-13 1.06 0.66 0.41 0.65 1.16 0.78 0.63 1.51 0.88 1.64
2013-14 1.21 0.72 0.52 1.23 1.13 0.81 0.38 1.64 0.77 1.78
2014-15 1.40 0.76 0.91 0.83 0.87 0.95 0.57 1.68 0.78 1.73
2015-16 2.36 1.05 1.00 1.13 1.01 1.01 0.59 2.26 0.75 2.94
2016-17 2.46 0.98 1.30 1.14 0.99 1.12 0.67 2.30 0.77 0.68
Avg. 1.37 0.73 0.93 0.68 1.00 1.01 0.71 1.59 0.79 1.74
Min. 0.93 0.45 0.41 0.34 0.87 0.67 0.34 1.2 0.61 0.68
Max 2.46 1.05 1.42 1.23 1.16 1.49 1.79 2.3 0.93 2.94
[212]
Chart 4.11:
Analysis:
The above table No. 4.11 and chart shows the quick ratio of selected units during
the study period of 2007-08 to 2016-17. It shows the fluctuated trend during the
study period in all the selected units. The average quick ratio was the highest in
P & G with 1.74 : 1 and it was the lowest in NIL with 0.68 : 1 during the study
period. The Minimum quick ratio was the highest in ITC with 0.93 : 1 and it was
the lowest in NIL and GCPL with 0.34 : 1 during the study period. The maximum
quick ratio was the highest in P & G with 2.94 : 1 and it was the lowest in CPIL
with 0.93 : 1 during the study period. In ITC it is the highest in the year 2016-17
with 2.46 : 1 and the lowest in the year 2010-11 with 0.93 : 1. In HUL it is the
0.45 : 1. In BIL it is the highest in the year 2008-09 with 1.42 : 1 and the lowest in
the year 2012-13 with 0.41 : 1. In NIL it is the highest in the year 2013-14 with
1.23 : 1 and the lowest in the year 2008-09 with 0.34 : 1. In DIL it is the highest in
the year 2012-13 with 1.16 : 1 and the lowest in the year 2014-15 with 0.87 : 1.
In ML it is the highest in the year 2009-10 with 1.49 : 1 and the lowest in the year
2010-11 with 0.67 : 1. In GCPL it is the highest in the year 2008-09 with 1.79 : 1
and the lowest in the year 2010-11 with 0.34 : 1. In GCHL it is the highest in the
year 2016-17 with 2.30 : 1 and the lowest in the year 2010-11 with 1.20 : 1. In
[213]
CPIL it is the highest in the year 2010-11 with 0.93 : 1 and the lowest in the year
2007-08 with 0.61 : 1. In P & G it is the highest in the year 2015-16 with 2.94 : 1
and the lowest in the year 2016-17 with 0.68 : 1.
Hypothesis Testing:
There is no significance difference in means score quick ratio in
H0 :
There is significance difference in means score quick ratio in
H1 :
Table No. 4.11 (a) – ANOVA test analysis of quick ratio

5% Limit
Source of
Variance
Table)
Between
13.142 9 1.460
Sample
Within 10.655 1.985
12.334 90 0.137
Sample
25.476 99 1.597
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected quick ratio units during the
study period.
[214]
(3) Interest Coverage Ratio:
This ratio is also called as debt service ratio. The interest coverage ratio is used
to determine how easily a company can pay their interest expenses on
outstanding debt. The purpose of this ratio is to find out the number of times the
fixed financial charges are covered by income before interest and tax.
The interest coverage ratio is a financial ratio that measures a company’s ability
to make interest payments on its debt in a timely manner. Unlike the debt service
coverage ratio, this liquidity ratio really has nothing to do with being able to
make principle payments on the debt itself. Instead, it calculates the firm’s ability
to afford the interest on the debt.
Creditors and investors use this computation to understand the profitability and
risk of a company. For instance, an investor is mainly concerned about seeing his
investment in the company increase in value. A large part of this appreciation is
based on profits and operational efficiencies. Thus, investors want to see that
their company can pay its bills on time without having to sacrifice its operations
and profits.
A creditor, on the other hand, uses the interest coverage ratio to identify whether
a company is able to support additional debt. If a company can’t afford to pay the
interest on its debt, it certainly won’t be able to afford to pay the principle
payments. Thus, creditors use this formula to calculate the risk involved in
lending.
The ratio is calculated by the following formula:
Net profit before interest and tax

Fixed Interest charges
As you can see, the equation uses EBIT instead of net income. Earnings before
interest and taxes is essentially net income with the interest and tax expenses
added back in. The reason we use EBIT instead of net income in the calculation is
[215]
because we want a true representation of how much the company can afford to
pay in interest. If we used net income, the calculation would be screwed because
interest expense would be counted twice and tax expense would change based
on the interest being deducted. To avoid this problem, we just use the earnings
or revenues before interest and taxes are paid.
You might also want to note that this formula can be used to measure any
interest period. For example, monthly or partial year numbers can be calculated
by dividing the EBIT and interest expense by the number of months you want to
compute.
It is very important from the lender’s point of view. It indicates whether the
comp[any will earn sufficient profits to pay periodically the interest charges.
Higher ratio is favourable. It shows that the company will be able to pay interest
regularly.
Table No. 4.12

Interest Coverage Ratio of selected units
2007-08 114.37 85.18 24.87 736.65 37.55 9.77 17.30 54.16 204.50 7442.0
2008-09 101.56 120.48 15.53 471.38 30.37 6.91 22.07 54.52 314.89 00.00
2009-10 69.04 388.83 15.72 656.69 40.07 16.99 82.68 88.83 323.28 9316.9
2010-11 82.10 0.000 6.25 1066.7 50.69 12.85 63.14 174.66 323.71 6799.8
2011-12 90.85 2798.6 7.63 272.61 42.63 15.09 45.76 158.86 389.94 7435.0
2012-13 101.88 198.13 9.80 59.37 41.74 13.41 36.32 268.69 00.00 00.00
2013-14 448.43 140.56 100.75 46.96 45.51 24.57 18.74 966.57 00.00 86.40
2014-15 158.89 368.86 730.43 125.69 99.74 44.08 22.40 1201.1 00.00 88.55
2015-16 191.08 397.40 920.30 248.30 118.87 59.67 18.34 464.16 00.00 102.36
2016-17 327.75 291.73 934.70 411.70 80.75 88.96 31.71 364.69 00.00 65.47
Avg. 168.59 478.98 276.59 409.61 58.79 29.23 35.85 379.62 155.63 3133.6
Min. 69.04 0 6.25 46.96 30.37 6.91 17.3 54.16 0 0
Max 448.43 2798.6 934.7 1066.7 118.87 88.96 82.68 1201.1 389.94 9316.9
[216]
Chart 4.12:
Analysis:
The above table No. 4.12 and chart shows the interest coverage ratio of selected
units during the study period of 2007-08 to 2016-17. It shows the high
interest coverage ratio was the highest in P & G with 3133.6 times and it was the
lowest in ML with 29.23 times during the study period. The Minimum interest
coverage ratio was the highest in ITC with 69.04 times and it was the lowest in
HUL, CPIL and P & G with 0 times during the study period. The maximum
interest coverage ratio was the highest in P & G with 9316.9 times and it was the
lowest in ML with 88.96 times during the study period. In ITC it is the highest in
the year 2013-14 with 448.43 times and the lowest in the year 2009-10 with
69.04 times. In HUL it is the highest in the year 2011-12 with 2798.6 times and
the lowest in the year 2010-11 with 0 times. In BIL it is the highest in the year
2016-17 with 934.7 times and the lowest in the year 2010-11 with 06.25 times.
In NIL it is the highest in the year 2010-11 with 1066.7 times and the lowest in
the year 2013-14 with 46.96 times. In DIL it is the highest in the year 2015-16
with 118.87 times and the lowest in the year 2008-09 with 30.37 times. In ML it
is the highest in the year 2016-17 with 88.96 times and the lowest in the year
[217]
2008-09 with 6.91 times. In GCPL it is the highest in the year 2009-10 with 82.68
times and the lowest in the year 2007-08 with 17.3 times. In GCHL it is the
highest in the year 2014-15 with 1201.1 times and the lowest in the year 2007-
08 with 54.16 times. In CPIL it is the highest in the year 2011-12 with 389.94
times and the lowest during the year 2012-13 to 2016-17 with 0 times. In P & G
it is the highest in the year 2009-10 with 9316.9 times and the lowest in the year
2008-09 and 2012-13 with 0 times.
Hypothesis Testing:
There is no significance difference in means score interest
H0 :
coverage ratio in selected units during the study period
There is significance difference in means score interest coverage
H1 :
Table No. 4.12 (a) – ANOVA test analysis of interest coverage ratio
5% Limit
Source of
Variance
Table)
Between
78676588.52 9 8741843.17
Sample
Within 5.043 1.985
156014433.52 90 1733493.71
Sample
234691022.04 99 10475336.88
H0 = u1 = u2
H1 = u1 ≠ u2
FC > FT
[218]
significance difference in means score ret in selected interest coverage ratio
(4) Inventory Turnover Ratio:

Inventory Turnover Ratio is also known as “Inventory ratio” or “Stock turn over”
or “Merchandise turnover ratio” or “Stock Velocity ratio” or simply “Velocity of
Stock”.
This ratio measures the number of times stock turns or flows or rotates in an
accounting period compared to the sales effected during that period.
The inventory turnover ratio is an efficiency ratio that shows how effectively
inventory is managed by comparing cost of goods sold with average inventory
for a period.
This measures how many times average inventory is “turned” or sold during a
period. In other words, it measures how many times a company sold its total
average inventory during the year.
In other words, the ratio indicates the frequency of inventory replacement i.e.,
the number of times inventory has been sold and replaced during a given period
of time.
Stock turnover ratio is the relationship between inventory and cost of goods sold
and Is calculated as under :
Cost of goods sold

Stock Turnover ratio =
Average stock
The ratio is expressed as a number, so many times in a year.
[219]
Average stock on hand as at the end of a period is calculated by adding inventory
in the beginning of the period to the inventory at the close of the period and the
product is divided by two.
Opening stock + closing stock

Average stock =
2
This ratio is important because total turnover depends on two main components
of performance. The first component is stock purchasing. If larger amounts of
inventory are purchased during the year, the company will have to sell greater
amounts of inventory to improve its turnover. If the company can’t sell these
greater amounts of inventory, it will incur storage costs and other holding costs.
The second component is sales. Sales have to match inventory purchases

otherwise the inventory will not turn effectively. That’s why the purchasing and
sales departments must be in tune with each other.
Inventory turnover is a measure of how efficiently a company can control its

merchandise, so it is important to have a high turn. This shows the company does
not overspend by buying too much inventory and wastes resources by storing
non-salable inventory. It also shows that the company can effectively sell the
inventory it buys.
This measurement also shows investors how liquid a company’s inventory is.
Think about it. Inventory is one of the biggest assets a retailer reports on its
balance sheet. If this inventory can’t be sold, it is worthless to the company. This
measurement shows how easily a company can turn its inventory into cash.
Creditors are particularly interested in this because inventory is often put up as

collateral for loans. Banks want to know that this inventory will be easy to sell.
Inventory turns vary with industry. For instance, the apparel industry will have
higher turns than the exotic car industry.
[220]
Table No. 4.13
Inventory Turnover Ratio of selected units
2007-08 5.44 8.41 10.13 10.77 11.81 7.57 6.51 8.20 19.92 16.81
2008-09 5.38 9.66 11.32 10.69 10.47 7.80 7.75 7.21 22.25 15.41
2009-10 5.59 7.74 13.13 11.19 10.28 6.29 8.78 7.46 20.98 16.89
2010-11 5.96 8.27 14.69 11.87 8.73 5.71 10.76 8.41 18.04 17.36
2011-12 6.08 8.70 14.51 11.75 7.68 6.03 8.39 8.54 15.11 16.55
2012-13 6.46 10.82 15.97 11.64 8.55 5.50 7.82 9.10 16.50 16.09
2013-14 6.67 11.21 18.40 12.72 9.31 5.37 8.35 13.24 18.45 17.41
2014-15 6.31 12.23 20.61 12.88 9.93 6.44 9.57 10.37 17.73 19.87
2015-16 6.22 13.06 21.81 10.19 9.30 6.24 9.34 9.84 16.00 19.06
2016-17 6.57 14.11 17.60 10.83 8.84 5.26 9.11 9.58 15.48 15.87
Avg. 6.07 10.42 15.82 11.45 9.49 6.22 8.64 9.19 18.05 17.13
Min. 5.38 7.74 10.13 10.19 7.68 5.26 6.51 7.21 15.11 15.41
Max 6.67 14.11 21.81 12.88 11.81 7.8 10.76 13.24 22.25 19.87
Chart 4.13:
[221]
Analysis:
The above table No. 4.13 and chart shows the inventory turnover ratio of
selected units during the study period of 2007-08 to 2016-17. It shows the
inventory turnover ratio was the highest in CPIL with 18.05 times and it was the
lowest in ITC with 6.07 times during the study period. The Minimum inventory
turnover ratio was the highest in P & G with 15.41 times and it was the lowest in
ML with 5.26 times during the study period. The maximum inventory turnover
ratio was the highest in CPIL with 22.25 times and it was the lowest in ITC with
6.67 times during the study period. In ITC it is the highest in the year 2013-14
with 6.67 times and the lowest in the year 2008-09 with 5.38 times. In HUL it is
the highest in the year 2016-17 with 14.11 times and the lowest in the year
2009-10 with 7.74 times. In BIL it is the highest in the year 2015-16 with 21.81
times and the lowest in the year 2007-08 with 10.13 times. In NIL it is the
highest in the year 2014-15 with 12.88 times and the lowest in the year 2015-16
with 10.19 times. In DIL it is the highest in the year 2007-08 with 11.81 times
and the lowest in the year 2011-12 with 7.68 times. In ML it is the highest in the
year 2008-09 with 7.8 times and the lowest in the year 2016-17 with 5.26 times.
In GCPL it is the highest in the year 2010-11 with 10.76 times and the lowest in
the year 2007-08 with 6.51 times. In GCHL it is the highest in the year 2013-14
with 13.24 times and the lowest in the year 2008-09 with 7.21 times. In CPIL it is
the highest in the year 2008-09 with 22.25 times and the lowest in the year
2011-12 with 15.11 times. In P & G it is the highest in the year 2014-15 with
19.87 times and the lowest in the year 2008-09 with 15.41 times.
Hypothesis Testing:
There is no significance difference in means score inventory
H0 :
turnover ratio in selected units during the study period
There is significance difference in means score inventory turnover
H1 :
[222]
Table No. 4.13 (a) – ANOVA test analysis of inventory turnover ratio
5% Limit
Source of
Variance
Table)
Between
16.666 9 1.851
Sample
Within 8.472 1.985
19.670 90 0.218
Sample
36.336 99 2.069
H0 = u1 = u2
H1 = u1 ≠ u2
FC > FT
significance difference in means score ret in selected inventory turnover ratio
(5) Debtors Ratio:

“This ratio gives an indication of the efficiency of the credit and collection policy
of the firm and it will directly affect the liquidity position of the company. It is a
test of speed in which debtors are converted into cash.” Thus, debtor ratio is an
important tool of analyzing the efficiency of liquidity management of a company.
The liquidity position of the firm depends on the quality of debtor to a great
extent. In other words, the ratio indicates the extent to which the debts have
been collected in time. It gives the average debt collection period. The ratio helps
the lenders to know whether their borrowers are collecting money form debtors
within a stipulated period.
Debtor ratio is calculated on the basis of following formula,
[223]
Debtor Ratio = Debtors X 365 days
Sales
These items represent the amount outstanding and receivable as on a particular

date, usually as on the balance sheet date. The total receivables will be the total
of sundry debtors and bills receivable. Accounts receivable should not include
debtors or bills arising from non-operating transactions i.e., activities other than
trading.
It measures the quality of debtors. It shows the speed in collection of debt from
customers. A shorter collection period implies prompt payment by debtors. It
minimizes the chances of bad debts. Larger collection period implies liberal
policies and inefficient credit collection performance. A careful study of this ratio
will enable the management to act in time and rectify anomalous situations in
the process of debt-collection.
Table No. 4.14

Debtors Ratio of selected units (Days)
2007-08 13.41 10.96 5.23 5.47 13.91 9.64 4.37 7.25 2.18 7.80
2008-09 12.81 8.26 5.57 4.04 16.03 9.77 3.55 7.58 2.11 8.45
2009-10 12.17 12.10 4.75 3.84 15.39 14.02 6.06 6.72 1.88 10.21
2010-11 11.94 14.28 4.15 3.65 18.35 16.57 9.76 6.14 6.52 10.48
2011-12 11.29 12.77 3.97 4.24 20.51 13.53 11.63 9.37 10.58 11.08
2012-13 10.24 10.12 4.14 4.30 19.89 12.04 10.42 11.48 9.25 13.86
2013-14 13.26 10.19 3.72 3.33 21.43 13.47 11.09 14.61 6.54 14.74
2014-15 15.18 8.92 3.70 3.29 21.94 10.86 10.95 24.68 5.36 15.47
2015-16 12.92 10.06 4.08 3.82 25.56 12.10 15.69 26.69 6.18 20.48
2016-17 13.65 10.54 4.90 3.37 25.62 15.73 17.44 27.87 9.34 21.31
Avg. 12.69 10.82 4.42 3.94 19.86 12.77 10.10 14.24 5.99 13.39
Min. 10.24 8.26 3.7 3.29 13.91 9.64 3.55 6.14 1.88 7.8
Max 15.18 14.28 5.57 5.47 25.62 16.57 17.44 27.87 10.58 21.31
[224]
Chart:
Analysis:
The above table No. 4.14 and chart shows the debtors ratio of selected units
during the study period in all the selected units. The average debtors ratio was
the highest in DIL with 19.86 days and it was the lowest in NIL with 3.94 days
during the study period. The Minimum debtors ratio was the highest in DIL with
13.91 days and it was the lowest in CPIL with 1.88 days during the study period.
The maximum debtors ratio was the highest in GCHL with 27.87 days and it was
the lowest in NIL with 5.47 days during the study period. In ITC it is the highest
in the year 2014-15 with 15.18 days and the lowest in the year 2012-13 with
10.24 days. In HUL it is the highest in the year 2010-11 with 14.28 days and the
lowest in the year 2008-09 with 8.26 days. In BIL it is the highest in the year
2008-09 with 5.57 days and the lowest in the year 2014-15 with 3.7 days. In NIL
it is the highest in the year 2007-08 with 5.47 days and the lowest in the year
2014-15 with 3.29 days. In DIL it is the highest in the year 2016-17 with 25.62
days and the lowest in the year 2007-08 with 13.91 days. In ML it is the highest
9.64 days. In GCPL it is the highest in the year 2016-17 with 17.44 days and the
lowest in the year 2008-09 with 3.55 days. In GCHL it is the highest in the year
[225]
2016-17 with 27.87 days and the lowest in the year 2010-11 with 6.14 days. In
CPIL it is the highest in the year 2011-12 with 10.58 days and the lowest in the
year 2009-10 with 1.88 days. In P & G it is the highest in the year 2016-17 with
21.31 days and the lowest in the year 2007-08 with 7.8 days.
Hypothesis Testing:
There is no significance difference in means score debtors ratio in
H0 :
There is significance difference in means score debtors ratio in
H1 :
Table No. 4.14 (a) – ANOVA test analysis of debtors ratio

5% Limit
Source of
Variance
Table)
Between
2195.25 9 243.91
Sample
Within 15.509 1.985
1415.42 90 15.72
Sample
3610.67 99 259.63
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected debtors ratio units during
the study period.
[226]
(6) Creditor Ratio:
This ratio shows the speed with which payments are made to the suppliers for
purchases made from them. It is a relationship between net credit purchases and
creditors and bills payable.
Creditor’s turnover ratio may be further used to find out the average age of
payables by using the following formula :
Average Accounts Payable

 No. of days or months in a year
Credit Purchases in a year
Net credit purchase = Gross credit purchases less purchase returns

Creditors = Creditors + Bills payable
This ratio indicates promptness in payment of credit purchases. Higher

Creditor’s turnover ratio or a lower credit period enjoyed signifies that the trade
creditors are being paid promptly.
It enhances credit worthiness of the company. A very favourable ratio indicates

that the company is not taking full benefit of the credit period allowed by the
creditors.
[227]
Table No. 4.15
Creditors Ratio of selected units (Days)
2007-08 104.68 88.20 14.43 55.36 52.52 45.04 54.39 46.42 80.41 76.41
2008-09 102.72 68.25 11.84 54.19 51.43 40.71 42.37 44.39 83.78 71.58
2009-10 105.46 99.52 11.86 52.09 51.36 43.17 34.27 53.18 86.58 79.82
2010-11 66.51 91.91 16.67 52.10 60.20 34.03 32.57 61.99 79.03 76.00
2011-12 34.57 78.25 23.03 40.72 59.04 29.62 58.62 63.65 65.94 68.91
2012-13 32.04 69.59 23.90 30.56 51.42 36.07 72.81 65.81 63.34 58.63
2013-14 32.82 71.91 26.74 32.36 51.20 38.10 84.18 55.84 61.99 49.89
2014-15 32.77 71.59 31.78 34.05 52.12 33.07 83.63 77.48 60.25 60.33
2015-16 35.13 76.96 35.90 44.20 64.66 42.67 86.33 96.61 68.22 80.01
2016-17 37.01 81.93 33.50 41.51 72.55 46.99 102.82 107.92 70.77 76.06
Avg. 58.37 79.81 22.97 43.71 56.65 38.95 65.20 67.32 72.03 69.76
Min. 32.04 68.25 11.84 30.56 51.2 29.62 32.57 44.39 60.25 49.89
Max 105.46 99.52 35.9 55.36 72.55 46.99 102.82 107.92 86.58 80.01
Chart 4.15:
[228]
Analysis:
The above table No. 4.15 and chart shows the creditors ratio of selected units
during the study period in all the selected units. The average creditors ratio was
the highest in HUL with 79.81 days and it was the lowest in BIL with 22.97 days
during the study period. The Minimum creditors ratio was the highest in HUL
with 68.25 days and it was the lowest in BIL with 11.84 days during the study
period. The maximum creditors ratio was the highest in GCHL with 107.92 days
and it was the lowest in BIL with 35.9 days during the study period. In ITC it is
the highest in the year 2009-10 with 105.46 days and the lowest in the year
2012-13 with 32.04 days. In HUL it is the highest in the year 2009-10 with 99.52
days and the lowest in the year 2008-09 with 68.25 days. In BIL it is the highest
11.84 days. In NIL it is the highest in the year 2007-08 with 55.36 days and the
lowest in the year 2012-13 with 30.56 days. In DIL it is the highest in the year
2016-17 with 72.55 days and the lowest in the year 2013-14 with 51.2 days. In
ML it is the highest in the year 2016-17 with 46.99 days and the lowest in the
year 2011-12 with 29.62 days. In GCPL it is the highest in the year 2016-17 with
102.82 days and the lowest in the year 2010-11 with 32.57 days. In GCHL it is the
highest in the year 2016-17 with 107.92 days and the lowest in the year 2008-09
with 44.39 days. In CPIL it is the highest in the year 2009-10 with 86.58 days and
the lowest in the year 2014-15 with 60.25 days. In P & G it is the highest in the
year 2015-16 with 80.01 days and the lowest in the year 2013-14 with 49.89
days.
Hypothesis Testing:
There is no significance difference in means score creditors ratio
H0 :
There is significance difference in means score creditors ratio in
H1 :
[229]
Table No. 4.15 (a) – ANOVA test analysis of creditors ratio
5% Limit
Source of
Variance
Table)
Between
27436.30 9 3048.48
Sample
Within 11.291 1.985
24298.61 90 269.98
Sample
51734.91 99 3318.46
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected creditors ratio units during
the study period.
(7) Assets Turnover Ratio:

Asset turnover ratio is the ratio of a company's sales to its assets. It is an
efficiency ratio which tells how successfully the company is using its assets to
generate revenue.
There are a number of variants of the ratio like total asset turnover ratio, fixed
asset turnover ratio and working capital turnover ratio. In all cases the
numerator is the same i.e. net sales (both cash and credit) but denominator is
average total assets, average fixed assets and average working capital
respectively. The asset turnover ratio is an efficiency ratio that measures a
company’s ability to generate sales from its assets by comparing net sales with
average total assets. In other words, this ratio shows how efficiently a company
can use its assets to generate sales.
[230]
Following formula is used to calculate the asset turnover ratio:
Net Sales
Total Asset Turnover Ratio =
Total Assets
Net sales, found on the income statement, are used to calculate this ratio returns
and refunds must be backed out of total sales to measure the truly measure the
firm’s assets’ ability to generate sales.
This ratio measures how efficiently a firm uses its assets to generate sales, so a
higher ratio is always more favorable. Higher turnover ratios mean the company
is using its assets more efficiently. Lower ratios mean that the company isn’t
using its assets efficiently and most likely have management or production
problems.
For instance, a ratio of 1 means that the net sales of a company equals the
average total assets for the year. In other words, the company is generating 1 ` of
sales for every ` invested in assets.
Like with most ratios, the asset turnover ratio is based on industry standards.
Some industries use assets more efficiently than others. To get a true sense of
how well a company’s assets are being used, it must be compared to other
companies in its industry.
The total asset turnover ratio is a general efficiency ratio that measures how
efficiently a company uses all of its assets. This gives investors and creditors an
idea of how a company is managed and uses its assets to produce products and
sales.
Sometimes investors also want to see how companies use more specific assets
like fixed assets and current assets. The fixed asset turnover ratio and the
working capital ratio are turnover ratios similar to the asset turnover ratio that
are often used to calculate the efficiency of these asset classes.
[231]
Table No. 4.16
Assets Turnover Ratio of selected units
2007-08 1.34 2.18 2.44 2.80 2.19 2.42 1.80 1.02 2.30 1.00
2008-09 1.28 3.00 2.53 2.88 1.81 2.44 1.57 1.09 2.46 1.10
2009-10 1.26 2.13 2.64 2.80 1.75 2.01 1.26 1.09 2.06 1.03
2010-11 1.29 2.17 3.04 2.78 1.60 1.53 1.45 1.10 1.79 0.91
2011-12 1.31 2.24 3.19 2.21 1.45 1.40 1.05 1.07 1.80 0.98
2012-13 1.31 2.47 3.40 1.80 1.47 1.23 0.92 1.23 1.82 1.25
2013-14 1.32 2.45 3.64 1.64 1.44 1.07 0.87 1.40 1.73 1.51
2014-15 1.22 2.49 3.43 1.68 1.37 1.23 0.85 0.86 1.63 1.37
2015-16 1.13 2.46 2.89 1.42 1.15 1.30 0.81 0.74 1.42 1.15
2016-17 1.09 2.43 2.57 1.48 0.96 1.29 0.74 0.77 1.25 1.47
Avg. 1.26 2.40 2.98 2.15 1.52 1.59 1.13 1.04 1.83 1.18
Min. 1.09 2.13 2.44 1.42 0.96 1.07 0.74 0.74 1.25 0.91
Max 1.34 3.00 3.64 2.88 2.19 2.44 1.80 1.40 2.46 1.51
Chart 4.16:
[232]
Analysis:
The above table No. 4.16 and chart shows the assets turnover ratio of selected
trend during the study period in all the selected units. The average assets
turnover ratio was the highest in BIL with 2.98 : 1 and it was the lowest in GCHL
with 1.04 : 1 during the study period. The Minimum assets turnover ratio was
the highest in BIL with 2.44 : 1 and it was the lowest in GCPL & GCHL with 0.74 :
1 during the study period. The maximum assets turnover ratio was the highest
in BIL with 3.64 : 1 and it was the lowest in ITC with 1.34 : 1 during the study
period. In ITC it is the highest in the year 2007-08 with 1.34 : 1 and the lowest in
the year 2016-17 with 1.09 : 1. In HUL it is the highest in the year 2008-09 with
3.00 : 1 and the lowest in the year 2009-10 with 2.13 : 1. In BIL it is the highest in
the year 2013-14 with 3.64 : 1 and the lowest in the year 2007-08 with 2.44 : 1.
In NIL it is the highest in the year 2008-09 with 2.88 : 1 and the lowest in the
year 2015-16 with 1.42 : 1. In DIL it is the highest in the year 2007-08 with 2.19 :
1 and the lowest in the year 2016-17 with 0.96 : 1. In ML it is the highest in the
GCPL it is the highest in the year 2007-08 with 1.80 : 1 and the lowest in the year
2016-17 with 0.74 : 1. In GCHL it is the highest in the year 2013-14 with 1.40 : 1
and the lowest in the year 2015-16 with 0.74 : 1. In CPIL it is the highest in the
year 2008-09 with 2.46 : 1 and the lowest in the year 2016-17 with 1.25 : 1. In P
& G it is the highest in the year 2013-14 with 1.51 : 1 and the lowest in the year
2010-11 with 0.91 : 1.
Hypothesis Testing:
There is no significance difference in means score assets turnover
H0 :
There is significance difference in means score assets turnover
H1 :
[233]
Table No. 4.16 (a) – ANOVA test analysis of assets turnover ratio
5% Limit
Source of
Variance
Table)
Between
36.187 9 4.0208
Sample
Within 29.456 1.985
12.285 90 0.1365
Sample
48.472 99 4.1573
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected assets turnover ratio units
(8) Fixed Assets Turnover Ratio:

The fixed asset turnover ratio is an efficiency ratio that measures a companies
return on their investment in property, plant, and equipment by comparing net
sales with fixed assets. In other words, it calculates how efficiently a company is
a producing sales with its machines and equipment.
Investors and creditors use this formula to understand how well the company is
utilizing their equipment to generate sales. This concept is important to
investors because they want to be able to measure an approximate return on
their investment. This is particularly true in the manufacturing industry where
companies have large and expensive equipment purchases. Creditors, on the
[234]
other hand, want to make sure that the company can produce enough revenues
from a new piece of equipment to pay back the loan they used to purchase it.
Management typically doesn’t use this calculation that much because they have
insider information about sales figures, equipment purchases, and other details
that aren’t readily available to external users. They measure the return on their
purchases using more detailed and specific information.
Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the
value of fixed assets (on the balance sheet). It indicates how well the business is
using its fixed assets to generate sales.
Following formula is used to calculate the fixed asset turnover ratio:

Net Sales
Fixed Asset Turnover Ratio =
Total Net Fixed Assets
A high turn over indicates that assets are being utilized efficiently and large
amount of sales are generated using a small amount of assets. It could also mean
that the company has sold off its equipment and started to outsource its
operations. Outsourcing would maintain the same amount of sales and decrease
the investment in equipment at the same time.
A low turn over, on the other hand, indicates that the company isn’t using its
assets to their fullest extent. This could be due to a variety of factors. For
example, they might be producing products that no one wants to buy. Also, they
might have overestimated the demand for their product and overinvested in
machines to produce the products. It might also be low because of manufacturing
problems like a bottleneck in the value chain that held up production during the
year and resulted in fewer than anticipated sales.
Keep in mind that a high or low ratio doesn’t always have a direct correlation
with performance. There are a few outside factors that can also contribute to this
measurement.
[235]
Table No. 4.17
Fixed Assets Turnover Ratio of selected units
2007-08 2.53 5.73 6.19 3.26 4.86 7.03 3.61 2.67 3.61 3.57
2008-09 2.28 7.80 6.52 3.46 4.91 7.82 4.25 3.20 4.02 3.65
2009-10 2.25 5.64 6.47 3.43 4.78 7.28 4.79 3.69 4.22 3.94
2010-11 2.39 5.62 7.46 3.65 4.55 6.57 2.94 4.20 4.28 3.74
2011-12 2.50 6.12 7.92 3.49 4.60 6.68 2.11 4.71 4.70 3.96
2012-13 2.59 6.87 7.80 2.47 4.78 6.83 2.52 5.21 5.17 4.70
2013-14 2.68 6.89 7.45 2.02 4.92 5.88 2.78 6.81 4.55 5.13
2014-15 2.45 7.14 7.57 2.05 5.09 6.36 2.96 4.73 3.73 4.96
2015-16 2.79 8.41 9.24 1.68 4.81 7.60 3.32 5.60 3.49 5.31
2016-17 3.43 8.65 10.23 1.84 4.10 8.45 3.76 7.36 3.41 6.56
Avg. 2.59 6.89 7.69 2.74 4.74 7.05 3.30 4.82 4.12 4.55
Min. 2.25 5.62 6.19 1.68 4.10 5.88 2.11 2.67 3.41 3.57
Max 3.43 8.65 10.23 3.65 5.09 8.45 4.79 7.36 5.17 6.56
Chart 4.17:
[236]
Analysis:
The above table No. 4.17 and chart shows the fixed assets turnover ratio of
fixed assets turnover ratio was the highest in BIL with 7.69 : 1 and it was the
lowest in ITC with 2.59 : 1 during the study period. The Minimum fixed assets
turnover ratio was the highest in BIL with 6.19 : 1 and it was the lowest again in
NIL with 1.68 : 1 during the study period. The maximum fixed assets turnover
ratio was the highest in BIL with 10.23 : 1 and it was the lowest in ITC with 3.43 :
1 during the study period. In ITC it is the highest in the year 2016-17 with 3.43 :
1 and the lowest in the year 2009-10 with 2.25 : 1. In HUL it is the highest in the
BIL it is the highest in the year 2016-17 with 10.23 : 1 and the lowest in the year
2007-08 with 6.19 : 1. In NIL it is the highest in the year 2010-11 with 3.65 : 1
and the lowest in the year 2015-16 with 1.68 : 1. In DIL it is the highest in the
ML it is the highest in the year 2016-17 with 8.45 : 1 and the lowest in the year
2013-14 with 5.88 : 1. In GCPL it is the highest in the year 2009-10 with 4.79 : 1
and the lowest in the year 2011-12 with 2.11 : 1. In GCHL it is the highest in the
CPIL it is the highest in the year 2012-13 with 5.17 : 1 and the lowest in the year
2016-17 with 3.41 : 1. In P & G it is the highest in the year 2016-17 with 6.56 : 1
and the lowest in the year 2007-08 with 3.57 : 1.
Hypothesis Testing:
There is no significance difference in means score fixed assets
H0 :
There is significance difference in means score fixed assets
H1 :
[237]
Table No. 4.17 (a) – ANOVA test analysis of fixed assets turnover ratio
5% Limit
Source of
Variance
Table)
Between
296.40 9 32.933
Sample
Within 39.287 1.985
75.44 90 0.838
Sample
371.84 99 33.771
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected fixed assets turnover ratio
(9) Working Capital Turnover Ratio:

The working capital turnover ratio measures how well a company is utilizing its
working capital to support a given level of sales. Working capital is current assets
minus current liabilities. A high turnover ratio indicates that management is
being extremely efficient in using a firm's short-term assets and liabilities to
support sales. Conversely, a low ratio indicates that a business is investing in too
many accounts receivable and inventory assets to support its sales, which could
eventually lead to an excessive amount of bad debts and obsolete inventory.
Working Capital Turnover Ratio can be calculated with following Formula,

Net Sales
Working Capital Turnover Ratio =
Working Capital
[238]
OR
Working Capital
Working Capital Turnover Ratio =
Sales
Here, in this research second formula is applied for the calculation. The formula
consists of two components – net sales and average working capital. Net sales
are equal to gross sales less any sales returned by customers during the period.
Some analysts prefer to use cost of goods sold (COGS) rather than net sales as
numerator of the formula. They argue that cost of goods sold has a more direct
relation to the efficiency with which working capital is used in the business.
Working capital is equal to current assets minus current liabilities and average
working capital is equal to working capital at the start of the period plus working
capital at the end of the period divided by 2. The whole information for the
computation of average working capital is available from the beginning and
closing balance sheets.
Generally, a high working capital turnover ratio is better. A low ratio indicates
inefficient utilization of working capital during the period. The ratio should be
compared with the previous years’ ratio, competitors’ or industry’s average ratio
to have a meaningful idea of the company’s efficiency in using its working capital.
The working capital turnover ratio should be carefully interpreted because a

very high ratio may also be a sign of insufficient quantity of working capital in
the business. An extremely high working capital turnover ratio can indicate that
a company does not have enough capital to support its sales growth; collapse of
the company may be imminent. This is a particularly strong indicator when the
accounts payable component of working capital is very high, since it indicates
that management cannot pay its bills as they come due for payment.
An excessively high turnover ratio can be spotted by comparing the ratio for a
particular business to those reported elsewhere in its industry, to see if the
business is reporting outlier results.
[239]
Table No. 4.18
Working Capital Turnover Ratio of selected units
2007-08 4.54 12.25 6.78 11.03 12.25 6.61 6.52 3.32 31.52 3.04
2008-09 4.35 19.64 7.42 16.31 12.20 5.48 3.31 3.14 42.56 2.68
2009-10 5.38 37.41 11.68 9.68 9.74 3.95 5.75 3.06 52.37 2.69
2010-11 6.26 58.28 17.15 12.06 6.99 11.16 6.31 3.90 28.42 3.22
2011-12 5.69 17.24 21.34 17.45 7.40 7.53 19.68 3.81 46.53 3.52
2012-13 5.80 32.59 26.08 24.51 6.34 6.43 25.14 3.59 86.67 4.25
2013-14 4.64 88.52 31.72 9.87 6.61 9.56 38.04 3.89 82.34 4.05
2014-15 3.96 68.07 32.38 16.73 16.52 6.48 41.54 2.80 50.35 3.68
2015-16 3.02 11.64 21.40 8.45 8.66 6.27 48.72 1.98 41.06 2.10
2016-17 3.07 15.76 9.49 5.80 9.30 4.05 80.93 1.74 57.21 1.89
Avg. 4.67 36.14 18.54 13.19 9.60 6.75 27.59 3.12 51.90 3.11
Min. 3.02 11.64 6.78 5.80 6.34 3.95 3.31 1.74 28.42 1.89
Max 6.26 88.52 32.38 24.51 16.52 11.16 80.93 3.90 86.67 4.25
Chart 4.18:
[240]
Analysis:
The above table No. 4.18 and chart shows the working capital turnover ratio of
working capital turnover ratio was the highest in CPIL with 51.90 : 1 and it was
the lowest in P & G with 3.11 : 1 during the study period. The Minimum working
capital turnover ratio was the highest in CPIL with 28.42 : 1 and it was the lowest
again in GCHL with 1.74 : 1 during the study period. The maximum working
capital turnover ratio was the highest in HUL with 88.52 : 1 and it was the lowest
in GCHL with 3.90 : 1 during the study period. In ITC it is the highest in the year
2010-11 with 6.26 : 1 and the lowest in the year 2015-16 with 3.02 : 1. In HUL it
16 with 11.64 : 1. In BIL it is the highest in the year 2014-15 with 32.38 : 1 and
the lowest in the year 2007-08 with 6.78 : 1. In NIL it is the highest in the year
2012-13 with 24.51 : 1 and the lowest in the year 2016-17 with 5.80 : 1. In DIL it
13 with 6.34 : 1. In ML it is the highest in the year 2010-11 with 11.16 : 1 and the
lowest in the year 2009-10 with 3.95 : 1. In GCPL it is the highest in the year
2016-17 with 80.93 : 1 and the lowest in the year 2008-09 with 3.31 : 1. In GCHL
it is the highest in the year 2010-11 with 3.90 : 1 and the lowest in the year
2016-17 with 1.74 : 1. In CPIL it is the highest in the year 2016-17 with 86.67 : 1
and the lowest in the year 2010-11 with 28.42 : 1. In P & G it is the highest in the
year 2012-13 with 4.25 : 1 and the lowest in the year 2016-17 with 1.89 : 1.
Hypothesis Testing:
There is no significance difference in means score working capital
H0 :
There is significance difference in means score working capital
H1 :
[241]
Table No. 4.18 (a) – ANOVA test analysis of working capital turnover ratio
5% Limit
Source of
Variance
Table)
Between
24087.75 9 2676.41
Sample
Within 14.386 1.985
16744.23 90 186.04
Sample
40831.98 99 2862.45
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected working capital turnover
ratio units during the study period.
(10) Fixed Capital to Sales Ratio:

The amount of fixed capital needed to set up a business is quite variable,
especially from industry to industry. Some lines of business require high fixed-
capital investment. Common examples include industrial manufacturers,
telecommunications providers and oil exploration firms. Service-based
industries, such as accounting firms, may have more limited fixed capital. This
can include office buildings, computers and networking devices, and other
standard office equipment. The fixed capital to sales ratio is, in general, used by
analysts to measure operating performance. It can be calculated with following
formula:
Fixed Capital
Fixed Capital to Sales Ratio =
Sales
[242]
Serving as the mechanism upon which production activities take place, fixed
capital includes Share capital, Reserves and Surplus, Secured loan and Unsecured
loan. The fixed capital to sales ratio is, in general, used by analysts to measure
operating performance.
It is a ratio of fixed capital to net sales. This ratio specifically measures how able
a company is to generate net sales from capital, namely Share capital, Reserves
and Surplus, Secured loan and Unsecured loan. In a general sense, a higher fixed
capital ratio indicates that a company has more effectively utilized fixed capital
to generate revenue.
Table No. 4.19

Fixed Capital to Sales Ratio of selected units
2007-08 0.39 0.17 0.16 0.31 0.21 0.14 0.28 0.37 0.28 0.28
2008-09 0.44 0.13 0.15 0.29 0.20 0.13 0.24 0.31 0.25 0.27
2009-10 0.44 0.18 0.15 0.29 0.21 0.14 0.21 0.27 0.24 0.25
2010-11 0.42 0.18 0.13 0.27 0.22 0.15 0.34 0.24 0.23 0.27
2011-12 0.40 0.16 0.13 0.29 0.22 0.15 0.47 0.21 0.21 0.25
2012-13 0.39 0.15 0.13 0.41 0.21 0.15 0.40 0.19 0.19 0.21
2013-14 0.37 0.15 0.13 0.50 0.20 0.17 0.36 0.15 0.22 0.19
2014-15 0.41 0.14 0.13 0.49 0.20 0.16 0.34 0.21 0.27 0.20
2015-16 0.36 0.12 0.11 0.60 0.21 0.13 0.30 0.18 0.29 0.19
2016-17 0.29 0.12 0.10 0.54 0.24 0.12 0.27 0.14 0.29 0.15
Avg. 0.39 0.15 0.13 0.39 0.21 0.14 0.32 0.23 0.25 0.23
Min. 0.29 0.12 0.1 0.27 0.2 0.12 0.21 0.14 0.19 0.15
Max 0.44 0.18 0.16 0.6 0.24 0.17 0.47 0.37 0.29 0.28
Chart 4.19:
[243]
Analysis:
The above table No. 4.19 and chart shows the fixed capital to sales ratio of
fixed capital to sales ratio was the highest in ITC & NIL with 0.39 : 1 and it was
the lowest in BIL with 0.13 : 1 during the study period. The Minimum fixed
capital to sales ratio was the highest in ITC with 0.29 : 1 and it was the lowest
again in BIL with 0.10 : 1 during the study period. The maximum fixed capital to
sales ratio was the highest in NIL with 0.60 : 1 and it was the lowest in BIL with
0.16 : 1 during the study period. In ITC it is the highest in the year 2009-10 with
0.44 : 1 and the lowest in the year 2016-17 with 0.29 : 1. In HUL it is the highest
in the year 2010-11 with 0.18 : 1 and the lowest in the year 2015-16 & 2016-17
with 0.12 : 1. In BIL it is the highest in the year 2007-08 with 0.16 : 1 and the
lowest in the year 2016-17 with 0.10 : 1. In NIL it is the highest in the year 2015-
16 with 0.60 : 1 and the lowest in the year 2010-11 with 0.27 : 1. In DIL it is the
highest in the year 2016-17 with 0.24 : 1 and the lowest in the year 2008-09,
2013-14 and 2014-15 with 0.20 : 1. In ML it is the highest in the year 2013-14
with 0.17 : 1 and the lowest in the year 2016-17 with 0.12 : 1. In GCPL it is the
0.21 : 1. In GCHL it is the highest in the year 2007-08 with 0.37 : 1 and the lowest
[244]
in the year 2016-17 with 0.14 : 1. In CPIL it is the highest in the year 2015-16
and 2016-17 with 0.29 : 1 and the lowest in the year 2012-13 with 0.19 : 1. In P &
G it is the highest in the year 2007-08 with 0.28 : 1 and the lowest in the year
2016-17 with 0.15 : 1.
Hypothesis Testing:
There is no significance difference in means score fixed capital to
H0 :
sales ratio in selected units during the study period
There is significance difference in means score fixed capital to
H1 :
sales ratio in selected units during the study period
Table No. 4.19 (a) – ANOVA test analysis of fixed capital to sales ratio
5% Limit
Source of
Variance
Table)
Between
0.8458 9 0.0939
Sample
Within 28.451 1.985
0.2972 90 0.0033
Sample
1.1430 99 0.0972
H0 = u1 = u2
H1 = u1 ≠ u2

FC > FT
significance difference in means score ret in selected fixed capital to sales ratio
[245]
REFERENCES:
1. B. I. Verma “Analysis of Financial Statement” Arihant Publisher, Jaipur
1988 P-98
2. Block and Hire “Fundamental of Financial management” Richard D. Irwid
Inc. Homewood Illinois 1978 P-24
3. Block and Hire “Fundamental of Financial management” Richard D. Irwid
Inc. Homewood Illinois 1978
4. Bradley J. F. “Administrative Financial Management” New York 1964 P-
104
5. Franks and Broyles “Morden Managerial Finance” John witey and sons ltd.
Chichester 1979 P-20
6. Franks and Broyles “Morden Managerial Finance” John witey and sons ltd.
Chichester 1979
7. Ghoyal B. R. “Financial Management of State Enterprise” Print well
Publisher Jaipur 1986 P- 172
8. Gibson and Boyer “Financial Management Analysis” CBI Publishing Co.
inc. Boston 1979 P-189
9. Gibson and Boyer “Financial Management Analysis” CBI Publishing Co.
inc. Boston 1979
10. J.F.Weston and E.F.Brigham “Essentials of Marginal Finance” P-4
11. J.F.Weston and E.F.Brigham “Managerial Finance” Illionis Dryden Press
1978 P-150
12. M.C. Gupta profitability Analysis. An empirical approach Jaipur pointer
publisher 1989 P-1
13. M.C. Gupta profitability Analysis. An empirical approach Jaipur pointer
publisher 1989
14. M.R. Agarwal “Financial Management” RBSA Publishers Jaipur 2007
15. Murthy V.s. “Management Finance”. Vikils Feller and simons Ltd. Bomaby
1978 P-79
16. Murthy V.S. “Management Finance”. Vikils Feller and simons Ltd. Bomaby
1978
[246]
17. N.V. Dave “Industrial sickness and some key areas of management”, A
thesis submitted for the degree of Ph. D. in comm. Sau. Uni. Rajkot 1984.
P-61
18. Pande I.M. “Capital Structure”, Vikas Publising House Lid., New Delhi, 7th
Edition 1997
19. Prasana Chandra, “Financial Management”, Tata McGraw- Hill Publishing
company, New Delhi 6th edition, 2007
20. R.K. Kulshrestha “Profitability in India‟s steel industry during the 1960-
70” A thesis submitted for the degree of Ph.D. department of commerce
University of Rajashthan Jaipur 1973 P-83
21. S.N. Maheshwari, “Principles of Management Accounting”, Sultan Chand
and Sons, 1981
22. Sharma Vyuptakesh “Financial Management”, Dorling Kindersley Pvt. Ltd.
Delhi,2006
23. Sncial.C.Kurchhal, “Finance Management” Chaitanya Publishing
House,1977 P-71
24. Souvenie Published at IV conference of Asia and Pacific Accountants, New
Delhi 1965 P-143
25. Upton “Introduction to Business Finance” MCGraw Hill Book Co. 1961 P-
150
26. Westen and Brigham “Management Finance” cited in Sharma Akhileshwar
“Profitability Analysis of Drugs and Pharmaceutical Companies in India” A
Thesis submitted for the degree of Ph.D. in the faculty of Commerce
Saurashtra University 1992 P-1
27. Weston and Brigham “Managerial Finance” Illionis Dryden New Delhi -
1965 P-143
28. Weston and Brigham “Managerial Finance” Illionis Dryden New Delhi -
1965
29. Winston J. Korn and Thomas Boyd. Accounting for Management Planning
and Decision Making (New York, Illinois, Richard D. Irwin 1968
[247]
Websites:
1. http://www.ackep.in
2. http://www.itcportal.com
3. http://www.hul.co.in
4. http://www.britannia.co.in
5. http://www.nestle.in
6. http://www.dabur.com
7. http://www.marico.com
8. http://www.godrejcp.com
9. http://www.gsk-ch.in
10. http://www.colgatepalmolive.co.in
11. http://www.pg.com
[248]

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CHAPTER – 4

The word profitability is a modulation of two word’s “profit” and “ability”. It

According to Flippo, a prominent personality in the field of Human resources,

4.2 RATIO ANALYSIS:

(1) Operating Profit Ratio:

Operating profit (EBIT)

A higher operating ratio is unfavorable. To get the comprehensive idea of the

(2) Net Profit Ratio:

The calculated value of F is 2.0849 and table value of F is 1.985 (at 5%

(3) Earning Per Share:

Profit after tax - Preference Share Dividend

Table No. 4.3

Dividend per share is an important and widely-used shareholder ratio. A key

 The payment of dividends out of profits

One very straightforward shareholder ratio (though as we shall see – not a

It can be calculate with following formula:

Number of Common Shares Outstanding: It includes the no. of common shares

Weighted average number of common shares outstanding: Changes in the no. of

Advantages of using dividend per share ratio

DPS trends as signals for markets

Simplicity and predictability of DPS

Used in valuation model

Table No. 4.4

While calculating the amount of “Investment” following items are

Further, income from investment on outside business and non-trading activities

Table No. 4.5

(6) Return on Gross Capital Employed:

Table No. 4.6

The calculated value of F is 18.589 and table value of F is 1.985 (at 5%

This ratio is alternatively known as Return on Total Resources.

Calculation: Return on total resources is calculated by dividing Net Profit Before

Return on net capital employed

Net profit before tax, interest and preference dividend

(Composition: The elements considered for calculating this ratio are :

According to liability side approach, capital employed is arrived at as

Proprietor’s Funds + Long term Loans

Fixed Assets + Current Assets – Current Liabilities

While calculating capital employed on the basis of assets, following points

 Investments which are not concerned with business should be excluded.

 Fictitious assets are to be excluded.

While calculating net profit, following points must be noted:

The calculated value of F is 23.306 and table value of F is 1.985 (at 5%

(8) Cash Profit Margin Ratio:

The calculated value of F is 22.675 and table value of F is 1.985 (at 5%

(9) Dividend Payout Ratio:

Since investors want to see a steady stream of sustainable dividends from a

Table No. 4.9

Corporate liquidity encompasses the quantum of current/liquid assets their

Liquidity ratio is calculated to determine the short-term solvency of the business.

(1) Current Ratio:

The current ratio is calculated by dividing the current assets by current

Current liabilities include,

Current assets are further classified into:

Deposits for adjustment of on going transactions are current assets. Deposits

Bank overdraft – a current liability or not: It is generally thought that bank

Limitations of Current ratio:

Thus, it is dangerous to consider current ratio as the sole index of solvency. It

(2) Quick Ratio:

This ratio is designed to indicate the liquid financial position of an enterprise.