A STUDY ON FINANCIAL PERFORMANCE OF ACCTEL NETWORK

[Link] USING RATIO ANALYSIS

A PROJECT REPORT
Submitted in partial fulfillment of the requirements
for the award of the degree of
Bachelor of Commerce (Accounting & Finance)

SUBMITTED BY
SUJAY BEZAWADA
(2213141034063)

Under the guidance of

Ms. DHANALAKSHMI G
ASSISTANT PROFESSOR
[Link] ACCOUNTING & FINANCE

GURU NANAK COLLEGE

(AUTONOMOUS)
Affiliated to University of Madras | Accredited at ‘A++’ Grade by NAAC
Approved by AICTE | An ISO 9001 2015 Certified Institution
Guru Nanak Salai, Velachery, Chennai – 600 042.
MARCH – 2025

GURU NANAK COLLEGE

(AUTONOMOUS)
Affiliated to University of Madras
Accredited at ‘A++’ Grade by NAAC | An ISO 9001 2015 Certified Institution
Guru Nanak Salai, Velachery, Chennai – 600 042
 SCHOOL OF COMMERCE: [Link]. A&F

BONAFIDE CERTIFICATE

This is to certify that, this is a Bonafide record of work done by SUJAY BEZAAWADA,

2213141034063 of for the Final Year Project during the Academic Year 2024-25.

PROJECT GUIDE HEAD OF THE PROGRAMME

Submitted for the Project Viva Voce Examination held on ________________ at

GURU NANAK COLLEGE (Autonomous), Guru Nanak Salai, Velachery,

Chennai - 600 042.

Internal Examiner External Examiner

Date: Date:
 DECLARATION

I SUJAY BEZAWADA (2213141034063 ) studying III Year ([Link] Accounting &

Finance) at Guru Nanak College (Autonomous), Chennai hereby declare that this the Report of

my Project entitled, (A STUDY ON FINANCIAL STATEMENT ANALYSIS OF ACCTEL

NETWORK [Link].) is the record of the original work carried out by me under the

Guidance and Supervision of Ms. DHANALAKSHMI G towards the partial fulfillment of the

requirements of the award of the Degree of BACHELOR OF COMMERCE ( ACCOUNTING &

FINANCE). I further declare that this has not been submitted anywhere for the award of

Degree/Diploma or any other similar to this before.

PLACE: CHENNAI SUJAY BEZAWADA

DATE: 2213141034063
 ACKNOWLEDGEMENT

I would like to thank the Principal Dr. T. K. Avvai Kothai and Vice Principal

Dr. Anitha Malisetty for providing the necessary resources and facilities for the

completion of this project.

My sincere thanks to (NAME OF THE SCHOOL DEAN) for their support.

I extend my deepest thanks to (Dr. S. Amudha Lakshmi [Link], [Link], Ph.D.

(HOD)) whose guidance, support, and encouragement were invaluable throughout this

endeavor. Her expertise and insights have been instrumental in shaping this project and

enhancing its quality.

I owe my Guide (MS. Dhana Lakshmi G) a debt of gratitude for her invaluable

guidance, patience, and encouragement. Her mentorship has been a beacon of light,

steering me through the complexities of this project and helping me realize my potential.

I also like to extend my thanks to the Faculty Members (NAME OF THE

FACULTY MEMBERS who helped in project), for their valuable suggestion during the

course of the study of my project.

Last but not least, I thank my family and friends for their unwavering

encouragement and understanding during this journey.

Certificate
Table of contents
List of tables
 Chapter - 1
Introduction to Ratio Analysis

1.1 Introduction to Ratio Analysis

Ratio analysis is a powerful tool used by businesses, investors, and financial analysts to assess
the financial performance and health of a company. By evaluating various financial ratios
derived from a company’s financial statements (income statement, balance sheet, and cash flow
statement), ratio analysis provides insights into the company's profitability, liquidity, operational
efficiency, and financial stability.

1.2 Definition of Ratio Analysis:

Ratio analysis is the process of evaluating the financial performance of a company by analyzing
the relationships between various items in its financial statements. These relationships are
expressed as ratios, which help to assess the company's profitability, liquidity, efficiency, and
solvency. By comparing these ratios over time or against industry benchmarks, stakeholders like
investors, creditors, and management can gain valuable insights into the company's financial
health and make informed decisions.

1.3 Background of study

Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational
efficiency, and profitability by studying its financial statements such as the balance sheet and
income statement. As such, the study background will likely involve the need for historical data
that spans a sufficient period of time to enable meaningful analysis. The background of the study
will also include the purpose of the ratio analysis, such as to identify areas of growth or decline,
forecast future performance, or compare performance against industry benchmarks.

The specific variables of interest: The background of the study will likely identify the specific
financial metrics or other variables of interest that will be analyzed, such as revenue, profits,
expenses, or market share. It also includes the context of the analysis, such as the industry or
market sector being studied, the size of the company, or any external factors that may be relevant
to the analysis.

It provides a detailed discussion of the methods and techniques used for the ratio analysis.
Overall, the background of the study in trend analysis will provide a foundation for
understanding the purpose, scope, and methods of the analysis, and help contextualize the results
and findings of the study
1.4 NEED FOR THE STUDY

1. Comparisons

One of the uses of ratio analysis is to compare a company's financial performance to similar
firms in the industry to understand the company's position in the market. Obtaining financial
ratios, such as Price/Earnings, from known competitors and comparing it to the company's ratios
can help management identify market gaps and examine its competitive advantages, strengths,
and weaknesses. The management can then use the information to formulate decisions that aim
to improve the company's position in the market.

2. Trend line

Companies can also use ratios to see if there is a trend in financial performance. Established
companies collect data from the financial statements over a large number of reporting periods.
The trend obtained can be used to predict the direction of future financial performance, and also
identify any expected financial turbulence that would not be possible to predict using ratios for a
single reporting period.

3. Operational efficiency

The management of a company can also use financial ratio analysis to determine the degree of
efficiency in the management of assets and liabilities. Inefficient use of assets such as motor
vehicles, land, and building results in unnecessary expenses that ought to be eliminated.
Financial ratios can also help to determine if the financial resources are over- or under-utilized.

Ratio Analysis:

Ratio analysis is a financial tool used to evaluate a company's performance by analyzing

relationships between different financial statement items. It helps assess profitability, liquidity,
efficiency, and solvency, aiding in decision-making for investors, creditors, and management. By
comparing ratios over time or against industry benchmarks, businesses can identify strengths,
weaknesses, and trends.

1.5 Objective of Ratio Analysis:

The main objectives of ratio analysis are to assess a company's financial performance, liquidity,
profitability, and solvency. It helps in comparing past and present financial data to identify trends
and make informed decisions. Investors and creditors use it to evaluate risk and return before
making financial commitments. Additionally, it aids management in strategic planning and
improving operational efficiency.

1.6 Advantages of Ratio Analysis:

Ratio analysis helps assess a company’s financial health by evaluating liquidity, profitability,
efficiency, and solvency. It enables comparisons with industry peers and past performance,
aiding in trend analysis and decision-making. Investors use it to assess risk and return, while
management relies on it for strategic planning and resource allocation. It also helps detect
financial strengths and weaknesses, ensuring better financial control. Additionally, lenders and
creditors use ratio analysis to evaluate a company’s creditworthiness before extending loans.

1.7 Limitations of Ratio Analysis:

Ratio analysis has several limitations, as it relies on historical data, which may not reflect current
market conditions. Differences in accounting policies and financial reporting standards can make
comparisons between companies inaccurate. It does not consider qualitative factors like
management efficiency, market conditions, or brand value. Ratios can also be misleading if
financial statements are manipulated or if inflation distorts the figures. Additionally, ratio
analysis focuses on past performance and may not accurately predict future trends or risks. It
does not account for external factors like economic downturns or industry disruptions. Over-
reliance on ratios without considering other financial and non-financial aspects can lead to
incorrect conclusions.
1.8 Accounting Ratios

Meaning

A ratio is a mathematical number calculated as a reference to relationship of two or more

numbers and can be expressed as a fraction, proportion, percentage and a number of times.

When the number is calculated by referring to two accounting numbers derived from the

financial statements, it is termed as accounting ratio.

Objectives

1. To know the areas of the business which need more attention;

2. To know about the potential areas which can be improved with the effort in the desired

direction;

3. To provide a deeper analysis of the profitability, liquidity, solvency and efficiency levels of

the business;

4. To provide information for making cross-sectional analysis by comparing the performance

with the best industry standards; and

5. To provide information derived from financial statements useful for making projections

and estimates for the future.

Advantages

1. Helps to understand efficacy of decisions: The ratio analysis helps you to understand

whether the business firm has taken the right kind of operating, investing and financing

decisions. It indicates how far they have helped in improving the performance.

2. Simplify complex figures and establish relationships: Ratios help in simplifying the

complex accounting figures and bring out their relationships. They help summarise the

financial information effectively and assess the managerial efficiency, firm’s credit

worthiness, earning capacity, etc.

3. Helpful in comparative analysis: The ratios are not being calculated for one year only.

When many year figures are kept side by side, they help a great deal in exploring the trends
visible in the business. The knowledge of trend helps in making projections about the

business which is a very useful feature.

4. Identification of problem areas: Ratios help business in identifying the problem areas as

well as the bright areas of the business. Problem areas would need more attention and bright

areas will need polishing to have still better results.

5. Enables SWOT analysis: Ratios help a great deal in explaining the changes occurring in

the business. The information of change helps the management a great deal in understanding

the current threats and opportunities and allow business to do its own SWOT

(Strength-Weakness-Opportunity-Threat) analysis.

6. Various comparisons: Ratios help comparisons with certain bench marks to assess as to

whether firm’s performance is better or otherwise. For this purpose, the profitability,

liquidity, solvency, etc. of a business, may be compared: (i) over a number of accounting

periods with itself (Intra-firm Comparison/Time Series Analysis), (ii) with other business

enterprises (Inter-firm Comparison/Cross-sectional Analysis) and (iii) with standards set for

that firm/industry (comparison with standard (or industry expectations).

1.9 Types of Ratios

There is a two-way classification of ratios

(1) Traditional classification

(2) Functional classification

Traditional classification

1. ‘Statement of Profit and Loss Ratios: A ratio of two variables from the statement of

profit and loss is known as statement of profit and loss ratio. For example, ratio of

gross profit to revenue from operations is known as gross profit ratio. It is calculated

using both figures from the statement of profit and loss.

2. Balance Sheet Ratios: In case both variables are from the balance sheet, it is classified

as balance sheet ratios. For example, ratio of current assets to current liabilities known

as current ratio. It is calculated using both figures from balance sheet.

3. Composite Ratios: If a ratio is computed with one variable from the statement of

profit and loss and another variable from the balance sheet, it is called composite

ratio. For example, ratio of credit revenue from operations to trade receivables

(known as trade receivables turnover ratio) is calculated using one figure from the

statement of profit and loss (credit revenue from operations) and another figure (trade

receivables) from the balance sheet.

Functional classification

1. Liquidity Ratios: To meet its commitments, business needs liquid funds. The ability of the

business to pay the amount due to stakeholders as and when it is due is known as liquidity,

and the ratios calculated to measure it are known as ‘Liquidity Ratios’. These are essentially

short-term in nature.

2. Solvency Ratios: Solvency of business is determined by its ability to meet its contractual

obligations towards stakeholders, particularly towards external stakeholders, and the ratios

calculated to measure solvency position are known as ‘Solvency Ratios’. These are

essentially long-term in nature.

3. Activity (or Turnover) Ratios: This refers to the ratios that are calculated for measuring the

efficiency of operations of business based on effective utilisation of resources. Hence, these

are also known as ‘Efficiency Ratios’.

4. Profitability Ratios: It refers to the analysis of profits in relation to revenue from operations

or funds (or assets) employed in the business and the ratios calculated to meet this objective

are known as ‘Profitability Ratios

I- Liquidity Ratios

Liquidity ratios are calculated to measure the short-term solvency of the business, i.e. the

firm’s ability to meet its current obligations. These are analyzed by looking at the amounts of

current assets and current liabilities in the balance sheet. The two ratios included in this

category are current ratio and liquidity ratio.

a. Current Ratio

The current ratio is a financial metric used to assess a company's ability to cover its short-term
liabilities with its short-term assets. It is a key indicator of liquidity, helping investors and
creditors evaluate whether a company can meet its financial obligations within the next year. It is
expressed as follows:

Current Ratio = Current Assets÷ Current Liabilities

Current Assets: These are assets that are expected to be converted into cash, sold, or consumed
within one year or the operating cycle of the business, whichever is longer. Examples are Cash
and cash equivalents, Accounts receivable, Inventory, Marketable securities and Prepaid
expenses.

Current Liabilities: These are obligations that are due within one year or the operating cycle of
the business, whichever is longer. Examples include: Accounts or trade payables, Short-term
debt and borrowings, Accrued expenses, etc.

b. Quick Ratio

It is the ratio of quick (or liquid) asset to current liabilities. It is expressed as

Quick ratio = Quick Assets÷ Current Liabilities

The quick assets are defined as those assets which are quickly convertible into cash. While

calculating quick assets, we exclude the inventories at the end and other current assets such as

prepaid expenses, advance tax, etc., from the current assets. Because of exclusion of non-liquid

current assets it is considered better than current ratio as a measure of liquidity position

of the business. It is calculated to serve as a supplementary check on liquidity position of the

business and is therefore, also known as ‘Acid-Test Ratio’.

II- Solvency Ratios

a. Debt-Equity Ratio;

b. Debt to Capital Employed Ratio;

c. Proprietary Ratio;

d. Total Assets to Debt Ratio;

e. Interest Coverage Ratio.

a. Debt-Equity Ratio

Debt-Equity Ratio measures the relationship between long-term debt and equity. If debt

component of the total long-term funds employed is small, outsiders feel more secure. From

security point of view, capital structure with less debt and more equity is considered

favorable as it reduces the chances of bankruptcy. Normally, it is considered to be safe if

debt equity ratio is 2: 1. However, it may vary from industry to industry. It is computed as

follows:

Debt-Equity Ratio = Long − term Debts/Shareholders' Funds

Where:

Shareholders’ Funds (Equity) = Share capital + Reserves and Surplus + Money received

against share warrants

Share Capital = Equity share capital + Preference share capital

Or

Shareholders’ Funds (Equity) = non-current assets + Working capital – non-current liabilities

Working Capital = Current Assets – Current Liabilities

b. Debt to Capital Employed Ratio

The Debt to Capital Employed Ratio measures the proportion of a company’s total capital that
is financed through debt. It is computed as follows:
Debt to Capital Employed Ratio = Long-term Debt/Capital Employed (or Net Assets)

c. Proprietary Ratio

Proprietary ratio expresses relationship of proprietor’s (shareholders) funds to net assets and

is calculated as follows:

Proprietary Ratio = Shareholders, Funds/Capital employed (or net assets)

d. Total Assets to Debt Ratio

This ratio measures the extent of the coverage of long-term debts by assets. It is calculated as

Total assets to Debt Ratio = Total assets/Long-term debts

e. Interest Coverage Ratio

It is a ratio which deals with the servicing of interest on loan. It is a measure of security of

interest payable on long-term debts. It expresses the relationship between profits available for

payment of interest and the amount of interest payable. It is calculated as follows:

Interest Coverage Ratio = Net Profit before Interest and Tax / Interest on long-term debts

III- Activity (or Turnover) Ratio

These ratios indicate the speed at which, activities of the business are being performed. The

activity ratios express the number of times assets employed, or, for that matter, any

constituent of assets, is turned into sales during an accounting period. Higher turnover ratios

means better utilization of assets and signify improved efficiency and profitability, and as

such are known as efficiency ratios. The important turnover ratios calculated under this

category are:

a) Inventory Turnover;

b) Trade receivable Turnover;

c) Trade payable Turnover;

d) Investment (Net assets) Turnover

e) Fixed assets Turnover; and

f) Working capital Turnover.

a. Inventory Turnover Ratio

It determines the number of times inventory is converted into revenue from operations during

the accounting period under consideration. It expresses the relationship between the cost of

revenue from operations and average inventory.

The formula for its calculation is as follows:

Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory

Where average inventory refers to arithmetic average of opening and closing inventory, and

the cost of revenue from operations means revenue from operations less gross profit.

b. Trade Receivables Turnover Ratio

It expresses the relationship between credit revenue from operations and trade receivable. It is

calculated as follows:

Trade Receivable Turnover ratio = Net Credit Revenue from Operations/Average Trade

Receivable

Where Average Trade Receivable = (Opening Debtors and Bills Receivable + Closing

Debtors and Bills Receivable)/2

It needs to be noted that debtors should be taken before making any provision for doubtful

debts.

c. Trade Payable Turnover Ratio

Trade payables turnover ratio indicates the pattern of payment of trade payable. As trade

payable arise on account of credit purchases, it expresses relationship between credit

purchases and trade payable.

It is calculated as follows:

Trade Payables Turnover ratio = Net Credit purchases÷ Average trade payable

Where Average Trade Payable = (Opening Creditors and Bills Payable + Closing Creditors
and Bills Payable) ÷2

Average Payment Period = No. of days or month in a year÷ Trade Payables Turnover Ratio

d. Net Assets or Capital Employed Turnover Ratio

It reflects relationship between revenue from operations and net assets (capital employed) in

the business. Higher turnover means better activity and profitability.

It is calculated as follows:

Net Assets or Capital Employed Turnover ratio = Revenue from Operation / Capital

Employed

Capital employed turnover ratio which studies turnover of capital employed

(Or Net Assets) is analyzed further by following two turnover ratios:

i. Fixed Assets Turnover Ratio:

It is computed as follows:

Fixed asset turnover Ratio = Net Revenue from Operation ÷Net Fixed Assets

ii. Working Capital Turnover Ratio:

It is calculated as follows:

Working Capital Turnover Ratio = Net Revenue from Operation ÷ Working Capital

IV- Profitability Ratios

The profitability or financial performance is mainly summarized in the statement of profit and

loss. Profitability ratios are calculated to analyze the earning capacity of the business which is

the outcome of utilization of resources employed in the business. There is a close relationship

between the profit and the efficiency with which the resources employed in the business are

utilized. The various ratios commonly used to analyze the profitability of the business are:

a) Gross profit ratio

b) Operating ratio

c) Operating profit ratio

d) Net profit ratio

e) Return on Investment (ROI) or Return on Capital Employed (ROCE)

f) Return on Net Worth (RONW)

g) Earnings per share

h) Book value per share

i) Dividend pay-out ratio

j) Price-earnings ratio.

a. Gross Profit Ratio

Gross Profit Ratio - Definition & Formula

Definition:

The Gross Profit Ratio (also called Gross Profit Margin) is a financial metric that shows the
percentage of revenue that exceeds the cost of goods sold (COGS). It indicates how efficiently a
company produces and sells its goods while managing production costs. A higher ratio suggests
better profitability and cost efficiency.

Formula:

Gross Profit Ratio = (Gross Profit ÷ Net Sales) ×100

Where:

 Gross Profit = Net Sales – Cost of Goods Sold (COGS)

 Net Sales = Total Sales – Sales Returns, Discounts, and Allowances

b. Operating Ratio

It is computed to analyze cost of operation in relation to revenue from operations it measures the
proportion of a company's net sales consumed by operating expenses, indicating operational
efficiency. A lower ratio signifies better profitability.

It is calculated as follows:

Operating Ratio = (Cost of Revenue from Operations + Operating Expenses) ÷ Net Revenue

from Operations × 100

c. Operating Profit Ratio

Operating Profit Ratio measures the percentage of net sales that remains as operating profit
after covering operating expenses.

Operating Profit Ratio = 100 – Operating Ratio

Alternatively, it is calculated as under:

Operating Profit Ratio = Operating Profit÷ Revenue from Operations × 100

Where Operating Profit = Revenue from Operations – Operating Cost

d. Net Profit Ratio

Net Profit Ratio measures the percentage of net sales that remains as net profit after deducting
all expenses, including operating, interest, and taxes.

It is calculated as under:

Net Profit Ratio = Net profit ÷Revenue from Operations × 100

Generally, net profit refers to profit after tax (PAT).

e. Return on Capital Employed or Investment

Return on Capital Employed (ROCE) is a key financial ratio that measures a company's
ability to generate profit from its total capital employed. It evaluates how efficiently a business
utilizes its capital (equity and debt) to generate earnings before interest and taxes (EBIT). A
higher ROCE indicates better capital efficiency and profitability, making it an important metric
for investors and stakeholders.

Thus, it is computed as follows:

Return on Capital Employed: (Profit before Interest and Tax÷ Capital Employed) × 100

Return on Shareholders’ Funds

Return on Shareholders' Funds (ROSF) is a financial performance ratio that measures the
profitability of a company relative to the equity invested by its shareholders. It indicates how
effectively a company utilizes shareholders' equity to generate net profits, reflecting the return
earned on their investment. A higher ROSF signifies strong financial health and efficient capital
management, its an essential metric for investors assessing a company's profitability and long-
term sustainability, it is also termed as Return on Net worth (RONW) and is calculated as under:

Return on Shareholders’ Fund = Profit after Tax / Shareholders' Funds × 100

f. Earnings per Share

The ratio is computed as:

EPS = Profit available for equity shareholders/Number of Equity Shares

In this context, earnings refer to profit available for equity shareholders which is worked out

as

Profit after Tax – Dividend on Preference Shares.

This ratio is very important from equity shareholders point of view and also for the share

price in the stock market. This also helps comparison with other to ascertain its

reasonableness and capacity to pay dividend.

g. Book Value per Share

This ratio is calculated as:

Book Value per share = Equity shareholders’ funds/Number of Equity Shares

Equity shareholder fund refers to Shareholders’ Funds – Preference Share Capital. This ratio

is again very important from equity shareholders point of view as it gives an idea about the

value of their holding and affects market price of the shares.

h. Dividend Pay-out Ratio

Dividend Payout Ratio is the percentage of a company's net earnings distributed to shareholders
as dividends.

It is calculated as –

Dividend Pay-out Ratio = Dividend per share / Earnings per share

This reflects company’s dividend policy and growth in owner’s equity.

i. Price / Earnings Ratio

P/E Ratio measures a company's valuation by comparing its market price per share to its
earnings per share (EPS).
The ratio is computed as –

P/E Ratio = Market Price of a share÷ Earnings per share (EPS)

Summary

Types of Ratios:

There are many types of ratios, viz., liquidity, solvency, activity and profitability ratios. The

liquidity ratios include current ratio and acid test ratio. Solvency ratios are calculated to

determine the ability of the business to service its debt in the long run instead of in the short

run. They include debt equity ratio, total assets to debt ratio, proprietary ratio and interest

coverage ratio. The turnover ratios basically exhibit the activity levels characterized by the

capacity of the business to make more sales or turnover and include Inventory Turnover,

Trade Receivables Turnover, Trade Payables Turnover, Working Capital Turnover, Fixed

Assets Turnover and Current assets Turnover. Profitability ratios are calculated to analyze the

earning capacity of the business which is the outcome of utilization of resources employed in

the business. The ratios include Gross Profit ratio, Operating ratio, Net Profit Ratio, Return

on investment (Capital employed), Earnings per Share, Book Value per Share, Dividend per

Share and Price/Earnings ratio.

 CHAPTER 2

REVIEW OF LITERATURE
Review of Literature for Ratio Analysis:

Historical Development of Ratio Analysis

Ratio analysis has a rich history that evolved as financial reporting and business practices
became more complex. Early financial management practices were based on simple accounting
and reporting methods, which lacked the sophistication needed to evaluate the financial health of
a company effectively. The development of ratio analysis in the 20th century marked a
significant shift in how businesses and investors evaluated financial performance.

1. Early Concepts and Emergence of Ratio Analysis (1900-1950):

o The first references to ratio analysis date back to the early 20th century, when
accounting practices began to formalize and businesses expanded. Williams
(1933) in The Theory of Investment Value recognized the need for a structured
method to evaluate the profitability and value of businesses. He suggested that
ratios, particularly profit margins and returns, could provide useful insights into
business performance.

o Pomeranz & Pomeranz (1964), in their work on financial management, were

some of the first to explicitly describe financial ratios as a tool for interpreting
financial data. Their book laid a foundation for recognizing that financial ratios
provide key insights into company operations and financial health. They proposed
several key ratios, such as liquidity and profitability ratios, which were useful in
evaluating short-term and long-term financial viability.

2. Post-World War II Expansion (1950-1970):

o After WWII, businesses grew rapidly due to industrialization, and the need for
more sophisticated financial evaluation techniques became critical. Horngren
(1969) formalized the use of ratios by providing a more structured framework for
their application. As financial reporting systems became more standardized, the
application of ratio analysis to evaluate a company’s financial standing became an
established practice.

o Scholars such as Edwards & Bell (1961), in their landmark study on financial
statement analysis, systematically examined the role of ratios in financial
decision-making. Their work contributed to understanding how ratios could
provide a clearer understanding of financial statements, with particular attention
to profitability, liquidity, and solvency. They established a foundation for
understanding the different types of ratios and their usefulness.
 3. Growth and Standardization of Ratio Analysis (1970-1990):

o During the 1970s and 1980s, financial ratios became essential in financial
analysis for businesses, analysts, and investors. The use of ratios to assess
financial health grew in popularity. Scholars like Altman (1968), with his
development of the Altman Z-Score, made significant contributions to ratio
analysis by demonstrating how ratios could be used to predict the likelihood of
bankruptcy. Altman’s Z-Score model used financial ratios to assess a firm’s
financial distress risk, leading to a deeper understanding of the relationship
between ratios and business failure.

o Higgins (1977) introduced financial ratio analysis as a formal tool in corporate

finance, particularly focusing on liquidity ratios, profitability measures, and
solvency metrics. His work emphasized the importance of liquidity ratios in
assessing short-term solvency and risk management.

Key Ratios and Their Role in Financial Analysis

As ratio analysis developed, researchers identified several key categories of ratios that provide
insights into different aspects of a company’s financial health:

1. Profitability Ratios:

o Return on Assets (ROA) and Return on Equity (ROE) became central to the
analysis of a company's profitability. Chou (1977) and Brealey & Myers (2000)
both recognized that profitability ratios reflect the effectiveness of a company in
utilizing its resources to generate profits.

o Return on Equity (ROE) measures the return that shareholders receive on their
invested capital. This ratio is crucial for investors assessing the financial
performance of a company and its ability to generate value from shareholders’
investments.

o Return on Assets (ROA) indicates how well a company uses its assets to generate
earnings. Higher ROA reflects greater efficiency in utilizing assets to create
revenue.

2. Liquidity Ratios:

o Current Ratio and Quick Ratio are among the most widely used to assess a
company’s short-term financial health. Altman (1968), with his Z-Score model,
also emphasized the role of liquidity ratios in predicting bankruptcy. The current
 ratio indicates a company’s ability to pay off short-term liabilities using its
current assets, while the quick ratio refines this by excluding inventory, making it
a more stringent test of liquidity.

o Research by Higgins (1977) further illustrated the importance of liquidity ratios

in assessing financial stability. A low current or quick ratio could indicate that a
company might struggle to meet short-term obligations, posing a risk to creditors
and investors.

3. Leverage and Solvency Ratios:

o Debt-to-Equity Ratio and Interest Coverage Ratio are essential measures of a

company's solvency and financial leverage. Myers (1984) and Modigliani &
Miller (1958), in their seminal work on capital structure, demonstrated the
importance of solvency ratios in understanding how a company’s capital structure
(debt vs. equity) impacts its financial health.

o Debt-to-Equity Ratio measures the company’s debt relative to its equity,

indicating financial leverage and risk. A high ratio could signal potential financial
distress due to excessive reliance on debt.

o Interest Coverage Ratio assesses the company’s ability to meet its interest
obligations. A low interest coverage ratio may indicate that the company may face
difficulties in paying interest on its debt, which could lead to solvency issues.

4. Market Ratios:

o Price-to-Earnings (P/E) Ratio and Earnings Per Share (EPS) are used to evaluate
the market value of a company in relation to its earnings. Fama & French (1992)
emphasized the importance of market ratios in assessing how the market
perceives a company’s financial health and growth prospects. These ratios are
particularly useful for investors in making decisions about buying or selling stock
based on a company’s relative market value.

Criticisms and Limitations of Ratio Analysis:

Despite its widespread use, ratio analysis has faced criticisms over time:

1. Dependence on Historical Data:

o Johnson & Soenen (2003) argue that ratio analysis often relies on historical
financial data, which may not reflect the company’s current financial position or
future prospects. This limitation makes ratio analysis less reliable during periods
 of economic instability or when the company is undergoing significant structural
changes.

2. Lack of Context:

o Penman (2001) pointed out that financial ratios need to be interpreted in context,
as industry norms, business cycles, and market conditions can significantly affect
their interpretation. Comparing companies across different industries or periods
can result in misleading conclusions, as different industries have different capital
structures, growth rates, and financial practices.

3. Manipulation of Financial Statements:

o Schilit (2002) emphasized the potential for earnings manipulation or “window

dressing,” where companies might adjust their financial statements to improve
their ratios temporarily. This manipulation can lead to misleading interpretations
of financial health.

4. Over-Simplification:

o Beaver (1966) cautioned that ratio analysis might oversimplify complex financial
issues. While ratios provide useful information, they fail to consider qualitative
factors such as management quality, brand strength, market conditions, or
innovation, which can all play a significant role in a company’s success or failure.

Recent Developments and Contemporary Use

With the advancement of technology and data analytics, the application of ratio analysis has
evolved:

1. Integration with Financial Modeling and Forecasting:

o Researchers like Koller et al. (2010) have demonstrated how financial ratios can
be incorporated into advanced financial modeling to forecast future performance
and trends. These models use historical ratios alongside other economic indicators
to predict how a company will perform in the future.

2. Benchmarking and Competitive Analysis:

o Ramanathan (2014) and other contemporary studies emphasize that ratio analysis
has become a key part of benchmarking, where companies compare their
 performance against industry standards or competitors. This comparative analysis
helps companies identify areas for improvement and adopt best practices.

3. Adoption of Advanced Analytics:

o The rise of big data and machine learning techniques has led to more advanced
and dynamic applications of ratio analysis. Ratios are now being used in
conjunction with more sophisticated data analytics tools to provide deeper
insights into operational efficiency, market conditions, and financial forecasting.

Conclusion:

The review of literature on ratio analysis reveals that it is one of the most widely used and
effective tools for evaluating the financial health and performance of a company. As the financial
world has evolved over time, ratio analysis has become an indispensable part of financial
management, providing valuable insights into key areas such as profitability, liquidity,
efficiency, and solvency. Its ability to break down complex financial statements into
understandable relationships makes it a powerful tool for managers, investors, creditors, and
analysts.

Historically, the development of ratio analysis can be traced back to the early 20th century when
the need for a structured approach to interpret financial data became evident. Scholars and
financial analysts contributed significantly to its evolution, from basic profitability and liquidity
ratios to more advanced measures of financial stability, such as solvency and market ratios. The
work of influential researchers such as Edwards & Bell (1961), Altman (1968), and Horngren
(1969) laid the groundwork for the widespread adoption and formalization of ratio analysis as a
core tool in financial decision-making.

Over time, ratio analysis has been increasingly used to assess both the past performance and
future prospects of companies. For instance, profitability ratios such as Return on Assets
(ROA) and Return on Equity (ROE) help investors and managers understand how effectively a
company generates profit. Liquidity ratios like the current ratio and quick ratio provide
essential insights into a company’s ability to meet its short-term financial obligations, while
solvency ratios such as the debt-to-equity ratio gauge the long-term financial stability of a
company. These ratios allow stakeholders to make informed decisions regarding credit,
investment, and company operations.

However, despite its strengths, ratio analysis is not without its limitations. One of the most
significant criticisms of ratio analysis is its dependence on historical financial data, which may
not reflect current market conditions or future performance. Moreover, ratio analysis often fails
to consider the broader qualitative factors that impact a company's financial performance, such
as market conditions, management effectiveness, and competitive dynamics. Penman (2001)
aptly pointed out that ratio analysis needs to be interpreted with context, as financial ratios can
vary significantly across different industries, and therefore, comparing companies from different
sectors can lead to misleading conclusions.

Additionally, financial statement manipulation, or "window dressing," remains a concern when

using ratios to assess a company’s financial health. Schilit (2002) highlighted that ratios may be
distorted by earnings management practices, which can mislead investors and analysts about a
company’s true financial standing. As a result, while ratios are powerful tools for analysis, they
must be used with caution and in conjunction with other financial metrics and qualitative
assessments to provide a more comprehensive view of a company’s performance.

In modern times, the use of ratio analysis has become even more sophisticated with the advent of
financial modeling, data analytics, and benchmarking. The integration of ratios with advanced
techniques allows for more dynamic and forward-looking analyses, giving decision-makers the
ability to anticipate future performance based on current and historical data. As Koller et al.
(2010) emphasize, financial ratios can be used in combination with financial models to enhance
forecasting and improve strategic decision-making.

The application of ratio analysis has expanded beyond traditional financial evaluation, with
companies increasingly using it as part of their performance management systems, and
investors using it for benchmarking and competitive analysis. As Ramanathan (2014)
highlights, the comparative analysis of financial ratios against industry standards or competitors
helps organizations identify operational inefficiencies and adopt best practices to improve their
market standing.

In conclusion, ratio analysis remains a fundamental tool for financial analysis and decision-
making in today’s business environment. While it has its limitations, particularly in terms of its
reliance on historical data and the potential for manipulation, ratio analysis continues to offer
valuable insights into a company’s financial health and performance. The tool’s flexibility and
applicability to various aspects of financial evaluation, coupled with advancements in financial
technology and analytics, ensure that ratio analysis will continue to play a vital role in both
strategic planning and investment decisions. To maximize its effectiveness, it is essential that
ratio analysis be used alongside other tools and within the context of broader market conditions,
management quality, and operational performance.
CHAPTER 3: INDUSTRY AND COMAPANY
PROFILE
3.1 Industry Profile

The networking industry plays a crucial role in the modern digital era, forming the backbone of
global communication, connectivity, and data exchange. This industry encompasses a broad
range of services and solutions, including the design, implementation, and management of
networks that facilitate communication between devices, systems, and users. The industry serves
diverse sectors such as telecommunications, IT services, cloud computing, and cybersecurity,
enabling seamless operations in businesses, government organizations, and individual
households.

Advancements in technology, such as 5G networks, the Internet of Things (IoT), and edge
computing, are driving significant growth in the networking sector. These innovations are
enhancing speed, reducing latency, and enabling real-time data processing, which is critical for
applications like autonomous vehicles, smart cities, and advanced healthcare systems. The shift
towards remote work and online education has further amplified the demand for reliable and
scalable networking solutions, emphasizing the importance of robust infrastructure.

Despite its rapid growth, the networking industry faces challenges such as cybersecurity threats,
the high cost of infrastructure development, and the need for constant upgrades to keep up with
evolving technology. Regulatory requirements and competition among major players also shape
the industry's dynamics.

The industry's future is highly promising, with increasing investments in artificial intelligence,
machine learning, and blockchain technology aimed at enhancing network efficiency and
security. As connectivity becomes an essential utility, the networking industry is poised to play
an even more significant role in transforming the way people and businesses interact in the
digital world.
3.2 Company Profile
Acctel Network Pvt. Ltd started as structured cabling design company in 2005. Over the last two
decades, they have built a reputation of being trusted leader in the market. The wide spectrum of
Solution & Service offerings enables Acctel to compete against the best of breed in the market.
They focus heavily on developing a very sound technical understanding and knowledge of the
business and customer needs.

Vision: Establish as a global and innovative leader in IT & Enterprise solutions for creating an
accessible world

Mission: Improve customer’s lives through meaningful innovation and customized solutions.
 CHAPTER 4
DATA ANALYSIS:
LIQUIDITY RATIOS:
Definition:

Liquidity ratios are financial metrics used to evaluate a company's ability to meet its short-term
obligations using its liquid assets (assets that can be quickly converted into cash). These ratios are
crucial for assessing a company's financial health, operational efficiency, and ability to handle
financial emergencies without disrupting operations.

Types of Liquidity Ratios:

1. Current Ratio:

- Formula: Current Assets ÷ Current Liabilities

- Definition: This ratio measures the company's ability to pay off its short-term liabilities using its
short-term assets (such as cash, accounts receivable, and inventory).

- Purpose: A ratio above 1:1 indicates that the company has sufficient assets to cover its liabilities. It
reflects the company's overall liquidity position.

2. Liquid ratio or Quick Ratio (Acid-Test Ratio):

- Formula: (Current Assets - Inventories) ÷ Current Liabilities

- Definition: This ratio measures the company's ability to meet its short-term obligations without
relying on the sale of inventories, which may not be easily convertible to cash.

- Purpose: It provides a more stringent measure of liquidity by excluding inventories, focusing only
on the most liquid assets like cash, marketable securities, and receivables.

3. Cash Ratio:

- Formula: Cash and Cash Equivalents ÷ Current Liabilities

- Definition: This ratio measures the company's ability to pay off its short-term liabilities using only
its cash and cash equivalents (the most liquid assets).

- Purpose: It is the most conservative liquidity ratio, as it excludes all other current assets, providing
a clear picture of the company's immediate liquidity position.
4.1. CURRENT RATIO:
The current ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities
with its short-term assets. It is calculated by dividing current assets by current liabilities. A ratio
higher than 1 indicates that the company has more assets than liabilities, suggesting good short-term
financial health.

Formula: {Current Ratio} = {Current Assets} ÷ {Current Liabilities}

Year Current Assets Current Liabilities Current Ratio
2020-21 56,89,130 46,51,641 1.22:1
2021-22 69,69,628 57,04,459 1.22:1
2022-23 88,20,351 65,58,317 1.34:1
2023-24 1,12,95,232 84,29,923 1.34:1

INTERPRETATION:
The data shows that the company's current ratio remained stable at 1.22:1 in 2020-21 and 2021-22,
improving to 1.34:1 in 2022-23 and 2023-24, reflecting stronger liquidity as current assets grew
faster than liabilities. This signals better short-term financial health and progress. Consistently above
the industry benchmark (1.0–1.5), the company shows low immediate financial risk, though
optimizing working capital could further enhance efficiency. Current assets surged by approximately
98.5%, from ₹56.89 lakh in 2020-21 to ₹112.95 lakh in 2023-24, indicating strong growth, while
liabilities increased at a manageable pace, maintaining a favorable ratio.
 Current Ratio
1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2020-21 2021-22 2022-23 2023-24

Current Assets Current Liabilities

LIQUID RATIO:
The Liquid Ratio, also known as the Quick Ratio or Acid-Test Ratio, measures a company's ability to
meet its short-term liabilities using its liquid assets (assets that can be quickly converted into cash). It
excludes inventory and prepaid expenses. A higher liquid ratio indicates better liquidity and the
ability to cover short-term obligations without relying on inventory sales.

Formula for Liquid Ratio: {Liquid Ratio} = {Liquid Assets} ÷ {Current Liabilities}

Where:

Liquid Assets = Current Assets - (Inventory + Prepaid Expenses)

Ideal Liquid Ratio: An ideal liquid ratio is generally considered to be 1:1, which means the company
has enough liquid assets to cover its current liabilities. However, this can vary by industry.

YEAR LIQUID ASSETS CURRENT LIABILITIES LIQUID RATIO

2020-21 45,16,979 46,51,641 0.97:1
2021-22 60,95,399 57,04,459 1.0685:1
2022-23 83,36,103 65,58,317 1.271:1
2023-24 95,85,150 84,29,923 1.137:1

INTERPRETATION:
The data reveals the company's liquid ratio, which measures its ability to cover short-term liabilities
with liquid assets. In 2020-21, the ratio was 0.97:1, indicating near-sufficient liquid assets to meet
obligations. By 2021-22, it improved to 1.0685:1, reflecting better liquidity. The ratio peaked in
2022-23 at 1.271:1, showing strong short-term financial health, but slightly declined to 1.137:1 in
2023-24, likely due to faster growth in liabilities. Overall, the trend indicates improved liquidity over
the years, though the recent dip suggests a need to monitor liability growth.

Liquid Ratio
1.4

1.2

0.8

0.6

0.4

0.2

0
2020-21 2021-22 2022-23 2023-24
Liquid Assets Current Liabilities

CASH RATIO:
The cash ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities
using only its most liquid assets—cash and cash equivalents. It is a more conservative measure of
liquidity than the current ratio or the quick ratio since it excludes accounts receivable and inventory.

Formula: Cash Ratio = Cash and cash equivalents ÷ Current liabilities

Components:

Cash and Cash Equivalents: This includes cash on hand, demand deposits, and highly liquid
investments with a short maturity (e.g., treasury bills).

Current Liabilities: Obligations the company must settle within one year, such as accounts payable,
short-term debt, and other accrued liabilities.

YEAR CASH AND CASH CURRENT CASH RATIO

EQUIVALTENTS LIABILITIES
2020-21 1,76,624 46,51,641 0.038:1
2021-22 11,55,190 57,04,459 0.2:1
2022-23 3,09,131 65,58,317 0.047:1
2023-24 15,34,785 84,29,923 0.182:1

INTERPRETATION:
The cash ratio fluctuates significantly over the years, starting at 0.038:1 in 2020-21, peaking at 0.2:1
in 2021-22, dropping sharply to 0.047:1 in 2022-23, and recovering to 0.182:1 in 2023-24.
 Cash Ratio
1.2

0.8

0.6

0.4

0.2

0
Category 1 Category 2 Category 3 Category 4

Cash and cash equivalents Current Liabilities

PROFITABILITY RATIOS:
Definition:
Profitability ratios measure a company's ability to generate profit relative to its revenue, assets,
equity, or other financial metrics. These ratios provide insight into a business's financial health,
operational efficiency, and its ability to generate returns for its stakeholders.

Types of Profitability Ratios:

1. Gross Profit Margin:

Formula:

{Gross Profit Margin} = {Gross Profit} ÷ {Revenue or Net sales} ×100

Purpose: Measures how efficiently a company produces goods or services relative to its revenue.

2. Operating Profit Margin (EBIT Margin)

Formula:

{Operating Profit Margin} = {Operating Profit÷ Revenue} ×100

Purpose: Assesses the efficiency of a company’s core operations before interest and taxes.

3. Net Profit Margin

-Formula: {Net Profit Margin} = {Net Income ÷ Revenue} ×100

-Purpose: Shows the percentage of revenue remaining as profit after all expenses, including taxes
and interest, have been deducted.
4. Return on Assets (ROA)

- Formula: {ROA} = {Net Income} ÷ {Total Assets} × 100

- Purpose: Evaluates how efficiently a company uses its assets to generate profit.

5. Return on Equity (ROE)

- Formula:

{ROE} = {Net Income ÷ Shareholder's Equity} × 100

-Purpose: Indicates how effectively a company uses shareholder equity to generate profit.

6. Earnings Per Share (EPS):

- Formula: {EPS} = {Net Income -Preferred Dividends} ÷ {Number of Outstanding Shares}

-Purpose: Measures the profitability available to each share of common stock.

Limitations of Profitability Ratios:

1. Industry Variations: Ratios can differ significantly between industries, making cross-industry
comparisons misleading.

2. Historical Data Dependence: Profitability ratios are based on past performance and may not
accurately reflect future prospects.

3. Accounting Policies: Different accounting practices (e.g., depreciation methods) can impact the
calculation of ratios, reducing comparability.

4. Exclusion of Non-Financial Factors: These ratios ignore qualitative factors like market trends,
customer satisfaction, or brand reputation, which can influence profitability.

5. Inflation Effects: Inflation can distort asset values and expenses, leading to misleading ratio
interpretations.

6. Short-Term Focus: These ratios often emphasize short-term profitability rather than long-term
financial health.

7. Potential for Manipulation: Companies may engage in earnings management (e.g., adjusting
revenue recognition or expenses) to improve their ratios artificially.

8. Ignores Economic Conditions: Profitability ratios may not fully account for macroeconomic factors
like recessions or currency fluctuations.

By understanding these aspects, analysts can use profitability ratios more effectively to evaluate a
company's performance while accounting for their limitations.
GROSS PROFIT RATIO:
The Gross Profit Ratio (GPR) measures the profitability of a company’s core operations by evaluating
the relationship between gross profit and net sales. It reflects the company’s ability to manage
production costs and generate profit from its primary business activities. A higher ratio indicates
better efficiency in managing cost of goods sold (COGS) relative to sales revenue.

Formula: Gross Profit Ratio = (Gross Profit ÷ Net Sales) ×100

Where:

Gross Profit = Net Sales − Cost of Goods Sold (COGS)

Net Sales = {Sales Revenue – (Sales Returns+ Allowances+ Discounts)}

Year Net Sales C.O.G. S Gross Profit Gross Profit Ratio

2020-21 78,15,877 76,92,465 1,23,412 1.58%
2021-22 1,62,15,339 1,59,32,553 2,82,786 1.74%
2022-23 2,43,44,945 2,40,14,029 3,30,916 1.36%
2023-24 3,17,78,642 3,12,13,493 5,65,149 1.78%

INTERPRETATION:
The data shows the company's gross profit and gross profit ratio over four years. Net sales grew
significantly, but the cost of goods sold (C.O.G.S.) remained high, resulting in low gross profit
margins. The gross profit ratio fluctuated slightly, starting at 1.58% in 2020-21, peaking at 1.78% in
2023-24, but dipping to 1.36% in 2022-23. This indicates tight margins, suggesting the company
faces challenges in controlling production costs relative to sales. While the 2023-24 improvement is
positive, the overall low ratios highlight the need for better cost management to enhance profitability.

GROSS PROFIT

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2020-21 2021-22 GROSS PROFIT 2022-23 2023-24

INTERPRETATION:
The data shows the company's gross profit and gross profit ratio over four years. Net sales grew
significantly, but the cost of goods sold (C.O.G.S.) remained high, resulting in low gross profit
margins. The gross profit ratio fluctuated slightly, starting at 1.58% in 2020-21, peaking at 1.78% in
2023-24, but dipping to 1.36% in 2022-23. This indicates tight margins, suggesting the company
faces challenges in controlling production costs relative to sales. While the 2023-24 improvement is
positive, the overall low ratios highlight the need for better cost management to enhance profitability.

CONCLUSION:
The company’s gross profit margins are low and exhibit fluctuations, which may be a sign of
operational challenges or industry dynamics. While there is slight improvement over the four years,
the business needs to address cost control and pricing strategies to achieve more stable and higher
margins. Implementing the recommendations above could help strengthen its financial position over
time.
NET PROFIT RATIO:
Definition:
The Net Profit Ratio measures the profitability of a business by expressing the relationship between
net profit and net sales. It indicates how efficiently a company converts its revenue into actual profit
after accounting for all expenses, taxes, and costs.

Formula:
{Net Profit Ratio} = {Net Profit} ÷ {Net Sales} × 100
Components:
1. Net Profit:
- Calculated as:
{Net Profit} = {Gross Profit} - {Operating Expenses} - {Interest} - {Taxes}
- It represents the residual income after covering all costs and obligations.
2. Net Sales:
- Calculated as:
{Net Sales} = {Gross Sales} - {Sales Returns} - {Discounts}
Interpretation:
- Higher Net Profit Ratio: Indicates better profitability and operational efficiency.
- Lower Net Profit Ratio: Suggests challenges in cost management or revenue generation.
Year Net profit Net sales Net profit ratio
2020-21 90,359 78,15,877 1.156%
2021-22 2,20,760 1,62,15,339 1.36%
2022-23 2,39,416 2,43,44,945 0.98%
2023-24 4,09,829 3,17,78,642 1.29%
 NET PROFIT RATIO
1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2020-21 2021-22 2022-23 2023-24

NET PROFIT RATIO

INTERPRETATION:

1. Cost Management Concerns:

- The declining net profit ratio in some periods (0.98% in the year 2022-23) suggests that operating
costs, interest, or taxes may have increased disproportionately relative to sales. The company might
need to analyse its cost structure to identify inefficiencies.

2. Sales Volume vs. Profitability:

- The company's ability to maintain profitability at higher sales volumes is a challenge. It may be
under-pricing products, incurring high marginal costs, or facing external market pressures.

3. Improvement Opportunities:

- Focusing on improving operational efficiency, controlling variable costs, and optimizing pricing
strategies could help boost the net profit ratio.

CONCLUSION:

While the company shows an increase in absolute net profits, the fluctuating net profit ratio highlights
potential inefficiencies in managing costs relative to sales. Addressing these issues will help stabilize
and improve profitability over time.
RETURN ON ASSETS:
(ROA) = (NET INCOME ÷ TOTAL ASSET) × 100
YEAR NET INCOME TOTAL ASSET RETURN ON ASSET RATIO
2020-21 90,359 57,77,801 1.56%
2021-22 2,07,760 70,38,379 2.95%
2022-23 2,39,416 88,74,325 2.7%
2023-24 4,09,829 1,13,37,951 3.61%

RETURN ON ASSETS
4

3.5

2.5

1.5

0.5

0
2020-21 2021-22 2022-23 Category 4

RETURN ON ASSETS

INTERPRETATION:

The Return on Assets (ROA) ratio, which measures net income relative to total assets, shows a
positive trend over the four years. It increased from 1.56% in 2020-21 to 2.95% in 2021-22, dipped
slightly to 2.7% in 2022-23, and rose to 3.61% in 2023-24. This indicates improving efficiency in
utilizing assets to generate profits. However, the ratios remain relatively low, suggesting room for
further optimization in asset utilization and profitability. The consistent growth in net income and
total assets reflects business expansion, but the company should focus on enhancing returns to
maximize asset productivity.
CONCLUSION:

The company has shown consistent growth in net income, total assets, and return on assets (ROA)
over the years, demonstrating improved efficiency and profitability. While there was a slight dip in
ROA during 2022-23, the strong rebound in 2023-24 indicates effective management and resilience.
The overall trend suggests the company is on a sustainable growth path, with opportunities to further
enhance performance and operational efficiency.
OPERATING PROFIT RATIO:
Operating profit = [Operating income (EBIT) ÷ Revenue] × 100
YEAR OPERATING INCOME REVENUE OPERATING PROFIT MARGIN
2020-21 1,23,412 78,15,877 1.578%
2021-22 2,82,786 1,62,15,339 1.743%
2022-23 3,30,916 2,43,44,945 1.359%
2023-24 5,65,149 3,17,78,642 1.778%

OPERATING PROFIT
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2020-21 2021-22 2022-23 2023-24

OPERATING PROFIT

INTERPRETATION:

The operating profit margin, which measures operating income as a percentage of revenue, shows
fluctuating trends over the four years. It increased from 1.578% in 2020-21 to 1.743% in 2021-22,
reflecting improved operational efficiency. However, it dropped to 1.359% in 2022-23, likely due to
rising costs or operational challenges, before recovering to 1.778% in 2023-24, indicating better cost
management and efficiency. Despite revenue growth, the margins remain low, suggesting the
company faces ongoing challenges in controlling operating expenses relative to revenue. To enhance
profitability, the company should focus on optimizing operational efficiency and reducing costs.

CONCLUSION:

The company's operating profit margin shows a positive long-term trend, reflecting improved
operational efficiency and strong revenue growth. While challenges in 2022-23 temporarily affected
profitability, the recovery in 2023-24 demonstrates resilience and effective management, positioning
the company well for future growth.
RETURN ON EQUITY RATIO:
{ROE} = {Net Income ÷ Shareholder's Equity} × 100
Year Net income Shareholder’s equity Return on equity ratio

2020-21 90,359 500000 18.07%

2021-22 2,07,760 500000 41.55%
2022-23 2,39,416 500000 47.88%
2023-24 4,09,829 500000 81.96%

RETURN ON EQUITY
90

80

70

60

50

40

30

20

10

0
2020-21 2021-22 2022-23 2023-24

RETURN ON EQUITY

INTERPRETATION:

The Return on Equity (ROE) ratio, which measures net income relative to shareholders' equity, shows
a strong upward trend over the four years. It increased significantly from 18.07% in 2020-21 to
41.55% in 2021-22, further rising to 47.88% in 2022-23, and reaching 81.96% in 2023-24. This
indicates the company is becoming increasingly efficient at generating profits from shareholders'
equity. The consistent growth in net income, despite unchanged equity, reflects improved profitability
and effective use of invested capital. The sharp rise in 2023-24 highlights exceptional performance,
suggesting strong financial health and the potential for higher returns for shareholders. However, the
company should ensure this growth is sustainable in the long term.
Key Insights:

1. Improving Efficiency: The steady increase in ROE over four years highlights the company’s
growing ability to generate returns from a fixed equity base.

2. Strong Profitability: The sharp rise in ROE in 2023-24 is driven by significant net income growth,
demonstrating improved operational success.

3. Stable Capital Structure: The unchanged shareholder equity shows that the company has achieved
this growth without requiring additional equity funding.

CONCLUSION:

The company has achieved a remarkable increase in ROE over the years, reflecting strong
profitability and efficient use of equity. The jump to 81.96% in 2023-24 underscores exceptional
performance and positions the company as a highly efficient generator of shareholder returns.
RETURN ON CAPITAL EMPLOYED RATIO:
ROCE = (Earnings before interest and tax (EBIT) ÷ Capital employed) × 100
YEAR EBIT Capital Employed Return on Capital
(total assets- current Employed
liabilities)
2020-21 1,23,412 11,26,160 10.96%
2021-22 2,82,786 13,33,920 21.19%
2022-23 3,30,916 23,16,008 14.29%

2023-24 5,65,149 29,08,028 19.434%

RETURN ON CAPITAL EMPLOYED

25

20

15

10

0
2020-21 2021-22 2022-23 2023-24

RETURN ON CAPITAL EMPLOYED

INTERPRETATION:

The Return on Capital Employed (ROCE) ratio, which measures EBIT relative to capital employed,
shows fluctuating trends over the four years. It increased from 10.96% in 2020-21 to 21.19% in
2021-22, reflecting improved efficiency in utilizing capital. However, it dropped to 14.29% in 2022-
23, likely due to increased capital investment or lower profitability, before recovering to 19.434% in
2023-24. This indicates the company is generating reasonable returns on its capital, though the 2022-
23 dip suggests inefficiencies or higher capital costs. Overall, the company demonstrates an ability to
generate returns, but it should focus on optimizing capital utilization to maintain consistent growth.

CONCLUSION:
The company's ROCE shows a positive long-term trend, with significant improvement in 2021-22
and recovery in 2023-24 after a temporary dip in 2022-23. This demonstrates the company's ability to
optimize capital usage and drive operational efficiency, positioning it for continued growth and
profitability.

EARNING PER SHARE:

{EPS} = {Net Income -Preferred Dividends} ÷ {Number of Outstanding Shares}
YEAR EPS
2020-21 1.81
2021-22 4.16
2022-23 4.79
2023-24 8.20

Earning Per Share

9

0
2020-21 2021-22 2022-23 2023-24

Earning Per Share

INTERPRETATION:

The Earnings Per Share (EPS) data shows a consistent upward trend over the four years, reflecting the
company's improving profitability on a per-share basis. EPS increased from 1.81 in 2020-21 to 4.16
in 2021-22, rose further to 4.79 in 2022-23, and reached 8.20 in 2023-24. This growth indicates that
the company is generating higher earnings for its shareholders, likely due to increased net income,
effective cost management, or share buybacks. The significant jump in 2023-24 highlights strong
financial performance, making the company more attractive to investors. Overall, the rising EPS
trend signals enhanced shareholder value and robust financial health.

CONCLUSION:

The company’s EPS has grown significantly over the past four years, demonstrating strong financial
performance. While the slowdown in 2022-23 may have raised concerns, the strong recovery in 2023-
24 indicates renewed business strength. Investors and analysts should further examine revenue, net
income, and external market conditions to confirm if this growth is sustainable.

OPERATING COST RATIO:

Formula: Sales cost ÷ Sales
YEAR SALES COST SALES OPERATING COST RATIO
2020-21 76,92,465 78,15,877 0.984:1
2021-22 1,59,32,553 1,62,15,339 0.982:1
2022-23 2,40,14,029 2,43,44,945 0.986:1
2023-24 3,12,13,493 3,17,78,642 0.982:1

OPERATING COST RATIO

1.005

0.995

0.99

0.985

0.98

0.975

0.97
2020-21 2021-22 2022-23 Category 4

SALES SALES COST

INTERPRETATION:

The operating cost ratio, which measures sales cost relative to sales, remains consistently high and
stable over the four years, ranging between 0.982:1 and 0.986:1. This indicates that the company
spends a significant portion of its sales revenue on production costs, leaving a narrow margin for
operating profit. While the ratio shows slight fluctuations, it stays close to 0.98:1, suggesting
consistent cost management relative to sales. However, the high ratio highlights limited efficiency in
controlling production expenses, which could constrain profitability. To improve margins, the
company should focus on optimizing operational efficiency and reducing production costs.

CONCLUSION:

The company has demonstrated strong sales growth and consistent cost control, as evidenced by the
stable Operating Cost Ratio over four years. However, the high OCR close to 1:1 highlights thin
profit margins, indicating a need for strategies to improve profitability. By focusing on reducing costs
and enhancing revenue generation, the business can achieve more sustainable growth and higher
profitability.
PROPRIETARY RATIO:
PROPERIETARY RATIO = (SHAREHOLDER FUND ÷TOTAL TANGIBLE ASSET)
YEAR SHAREHOLDER TOTAL TANGIBLE PROPRIETARY
FUNDS ASSETS RATIO

2020-21 11,26,160 14,33,449 0.786:1

2021-22 13,33,920 20,93,466 0.637:1
2022-23 15,73,336 8,42,399 1.867:1
2023-24 19,83,165 32,82,632 0.604:1

PROPRIETARY RATIO
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2020-21 2021-22 2022-23 2023-24

Shareholder's funds Tangible Assets

INTERPRETATION:

The proprietary ratio, which measures shareholder funds as a proportion of total tangible assets,
shows significant fluctuations over the four years. In 2020-21, the ratio was 0.786:1, indicating a
strong reliance on equity financing. It dropped to 0.637:1 in 2021-22, suggesting increased debt or
asset expansion. However, in 2022-23, the ratio surged to 1.867:1, likely due to a sharp reduction in
tangible assets or a significant increase in shareholder funds. By 2023-24, it fell again to 0.604:1,
reflecting higher tangible assets or reduced equity relative to assets. These fluctuations indicate
inconsistent financial stability and varying reliance on equity versus debt. The company should aim
for a balanced capital structure to ensure long-term financial health and stability.
CONCLUSION:

The proprietary ratio demonstrates fluctuating trends influenced by changes in tangible assets rather
than equity. While the company maintains strong equity growth, the significant asset volatility in
2022-23 and increased leverage in 2023-24 warrant closer monitoring of asset management and
funding strategies to sustain financial stability.
DEBT-EQUITY RATIO:
DEBT-EQUITY RATIO = TOTAL LIABILITIES ÷ SHAREHOLDER’S EQUITY
YEAR TOTAL LIABILITIES SHAREHOLDER’S EQUITY DEBT-EQUITY RATIO
2020-21 46,51,641 11,26,160 4.13:1
2021-22 57,04,459 13,33,920 4.276:1
2022-23 73,00,989 15,73,336 4.64:1
2023-24 93,54,786 19,83,165 4.717:1

DEBT-EQUITY RATIO
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2020-21 2021-22 2022-23 Category 4

DEBT EQUITY

INTERPRETATION:

The debt-equity ratio has shown a consistent upward trend from 4.13:1 in 2020-21 to 4.717:1 in
2023-24. This indicates that the company is increasingly relying on debt financing compared to
its equity base. The rising ratio suggests higher financial leverage, which can enhance returns but
also increases financial risk. While an increasing debt-equity ratio can support expansion, it may
also indicate higher obligations and interest burdens, potentially affecting long-term financial
stability.

CONCLUSION:

The increasing debt-equity ratio underscores the company’s dependence on debt for growth,
which may enhance returns but also heightens financial risk. To ensure long-term stability, the
company should focus on strengthening its equity base or improving profitability to balance its
capital structure. Careful management of leverage will be crucial to maintaining sustainable
growth and minimizing financial vulnerabilities.
DEBT-ASSETS RATIO:

Debt-assets ratio = Total debt (long-term borrowings) ÷ Total assets

Year Total debt Total assets Debt-asset ratio
2020-21 Nil 57,77,801 0
2021-22 Nil 70,38,379 0
2022-23 7,42,672 88,74,325 0.083:1
2023-24 9,24,863 1,13,37,951 0.081:1

DEBT-ASSETS RATIO
1.2

0.8

0.6

0.4

0.2

0
2020-21 2021-22 2022-23 2023-24

DEBT ASSETS

INTERPRETATION:

In 2020-21 and 2021-22, the company had no debt, as reflected by the "Nil" entries, resulting in
a debt-assets ratio of 0. This indicates a debt-free position, highlighting strong financial health
and minimal risk. In 2022-23, the company took on debt of ₹7,42,672, leading to a debt-assets
ratio of 0.083:1 (8.3%), which shows a low level of leverage and a conservative approach to
borrowing. By 2023-24, the debt increased to ₹9,24,863, but the ratio slightly decreased to
0.081:1 (8.1%) due to a proportionally larger growth in total assets (₹1,13,37,951). This
suggests the company is effectively managing its debt while expanding its asset base,
maintaining a balanced financial structure.
CONCLUSION:

The company has demonstrated a prudent and low-risk financial strategy over the years.
Initially, it operated without any debt, reflecting strong financial stability. Even after introducing
debt in 2022-23 and 2023-24, the debt-assets ratio remained below 10%, indicating a
conservative use of leverage. The slight decrease in the ratio in 2023-24, despite higher debt,
underscores the company's ability to grow its assets more rapidly than its debt. This balanced
approach positions the company well for sustainable growth while minimizing financial risk,
ensuring long-term stability and resilience.
INVENTORY-TURNOVER RATIO:

Inventory turnover ratio = COGS ÷ Average inventory

Year COGS Average inventory Inventory-turnover ratio
2021-22 1,59,32,553 10,23,190 15.571
2022-23 2,40,14,029 6,79,238.50 35.354
2023-24 3,12,13,493 10,97,165 28.449

Inventory Turnover Ratio

40

35

30

25

20

15

10

0
2021-22 2022-23 2023-24

Inventory Turnover Ratio

INTERPRETATION:

The inventory turnover ratio, which measures how efficiently inventory is managed, was 15.571 in
2021-22, indicating inventory was sold and restocked about 15.5 times. In 2022-23, the ratio surged
to 35.354, reflecting improved efficiency as COGS increased while average inventory decreased.
However, in 2023-24, the ratio declined to 28.449, possibly due to increased inventory levels in
anticipation of higher demand or slower sales. While the company improved inventory management
in 2022-23, the slight dip in 2023-24 suggests a need to balance stock levels and sales efficiency.

CONCLUSION:

The inventory turnover ratio highlights the company’s strong inventory management and sales
efficiency, with an exceptional peak in 2022-23. The slight decline in 2023-24 suggests strategic
adjustments in inventory levels, which should be monitored to balance efficiency and preparedness
for demand. Overall, the company has demonstrated effective inventory practices, supporting its
operational success.
ASSET-TURNOVER RATIO:
Asset-turnover ratio = Net sales ÷ Average total assets
Year Net sales [Link] assets Asset-turnover ratio
2020-21 78,15,877 - -
2021-22 1,62,15,339 10,23,190 15.847
2022-23 2,43,44,945 6,79,238.5 34.8415
2023-24 3,17,78,642 10,97,165 28.964

Asset-Turnover Ratio
40

35

30

25

20

15

10

0
2020-21 2021-22 2022-23 2023-24

Asset-Turnover Ratio

INTERPRETATION:

The asset turnover ratio measures how efficiently a company utilizes its assets to generate sales. In
2021-22, the ratio was 15.847, indicating that each unit of assets generated nearly 15.85 times its
value in sales. In 2022-23, the ratio surged to 34.8415, reflecting a significant improvement in asset
efficiency, likely due to higher sales with lower asset investment. However, in 2023-24, the ratio
declined to 28.964, suggesting that while sales continued to grow, the increase in average total assets
led to slightly lower efficiency. Overall, the company demonstrated strong asset utilization, but the
decline in 2023-24 may indicate increased asset investments or slower growth in sales relative to
assets.
CONCLUSION:

The data reflects impressive sales growth year over year, accompanied by extraordinary efficiency in
asset utilization. However, the trends raise important considerations:

Efficiency vs. Sustainability:

The extremely high asset-turnover ratios (especially in 2022-23) suggest remarkable operational
efficiency but may signal underinvestment in assets. This could pose a risk to long-term scalability if
asset capacity cannot support further growth.

Asset Base Growth:

The increase in average total assets in 2023-24 indicates a potential strategic shift toward building
infrastructure or acquiring resources for sustained growth. While this led to a reduction in the
turnover ratio, the figure remains strong, reflecting continued operational excellence.
RETURN ON SHAREHOLDER FUND:
RETURN ON SHAREHOLDER FUND = (NET PROFIT AFTER TAX ÷SHAREHOLDER EQUITY) × 100

YEAR NET PROFIT AFTER SHAREHOLDERS FUNDS RETURN ON

TAX SHAREHOLDER
FUND RATIO
2020-21 90,359 11,26,160 8%
2021-22 2,07,760 13,33,920 15.5%
2022-23 2,39,416 15,73,336 15.2%
2023-24 4,09,829 19,83,165 20.6%

Return On Shareholder's fund

25

20

15

10

0
2020-21 2021-22 2022-23 2023-24

Return On Shareholder's fund

INTERPRETATION:

The return on shareholder funds (ROSF) measures how effectively a company generates profit from
shareholders' equity. In 2020-21, the ratio was 8%, indicating modest returns. It significantly
improved to 15.5% in 2021-22, reflecting better profitability and efficient use of equity. In 2022-23,
ROSF slightly declined to 15.2%, suggesting stable but marginally lower returns despite increased
net profit and equity. However, in 2023-24, the ratio rose to 20.6%, indicating stronger profitability
and improved efficiency in utilizing shareholders' funds. Overall, the upward trend highlights the
company's improving financial performance and increasing returns for shareholders.
CONCLUSION:

The ROSF has steadily improved over four years, reflecting the company’s increasing efficiency in
generating shareholder returns. The exceptional performance in 2023-24 demonstrates strong
profitability and effective equity utilization, positioning the company as a reliable and rewarding
investment for shareholders.
WORKING CAPITAL TURNOVER RATIO:
WORKING CAPITAL TURNOVER RATIO = SALES÷ NET WORKING CAPITAL
YEAR SALES NET WORKING WORKING CAPITAL
CAPITAL TURNOVER RATIO
2020-21 78,15,877 10,37,489 7.533

2021-22 1,62,15,339 12,65,169 12.817

2022-23 2,43,44,945 22,62,034 10.762

2023-24 3,17,78,642 28,65,309 11.09

Working Capital Turnover Ratio

14

12

10

0
2020-21 2021-22 2022-23 2023-24

Working Capital Turnover Ratio

INTERPRETATION:

The working capital turnover ratio measures how efficiently a company utilizes its working capital to
generate sales. In 2020-21, the ratio was 7.533, indicating moderate efficiency. It significantly
improved to 12.817 in 2021-22, reflecting better utilization of working capital to drive sales growth.
In 2022-23, the ratio declined to 10.762, suggesting that while sales increased, the rise in net working
capital was relatively higher, leading to slightly lower efficiency. In 2023-24, the ratio slightly
improved to 11.09, indicating stable working capital management. Overall, the company has
maintained strong efficiency in utilizing its working capital, with some fluctuations due to changes in
sales and working capital levels.
CONCLUSION:

The working capital turnover ratio reflects strong efficiency in using working capital to support sales.
The company demonstrated substantial improvement in 2021-22, followed by stable performance in
subsequent years, even as working capital grew to meet the demands of increased sales. The
company's ability to maintain a strong and stable working capital turnover ratio positions it well for
continued growth and operational efficiency.
FIXED ASSET TURNOVER RATIO:
FIXED ASSET TURNOVER RATIO = SALES ÷FIXED ASSET
YEAR SALES FIXED ASSET FIXED ASSET
TURNOVER RATIO
2020-21 78,15,877 84,674 92.305
2021-22 1,62,15,339 64,047 253.178
2022-23 2,43,44,945 49,020 496.632
2023-24 3,17,78,642 37,765 839.895

Fixed-Asset turnover ratio

900

800

700

600

500

400

300

200

100

0
2020-21 2021-22 2022-23 2023-24

Fixed-Asset turnover ratio

INTERPRETATION:

The fixed asset turnover ratio measures how efficiently a company generates sales from its fixed
assets. In 2020-21, the ratio was 92.305, indicating strong asset utilization. It significantly increased
to 253.178 in 2021-22 and further to 496.632 in 2022-23, suggesting that sales grew substantially
while fixed assets decreased, leading to higher efficiency. In 2023-24, the ratio surged to 839.895,
reflecting exceptional utilization of fixed assets. This trend indicates that the company is generating
significantly higher revenue with minimal investment in fixed assets, which could be due to asset-
light operations, outsourcing, or improved efficiency. However, sustaining this trend long-term may
require reinvestment in assets to support continued growth.
CONCLUSION:

The fixed asset turnover ratio has shown remarkable improvement over the years, reflecting the
company's excellent ability to generate increasing sales from a shrinking base of fixed assets. This
indicates highly effective asset management, increased operational efficiency, and possibly a strategic
shift toward more asset-light operations. The continued growth in sales, combined with the reduction
in fixed assets, positions the company as highly efficient and agile in its operations, which is likely to
support strong future performance.
CAPITAL TURNOVER RATIO:
CAPITAL TURNOVER RATIO = SALES ÷ CAPITAL EMPLOYED
YEAR SALES CAPITAL EMPLOYED CAPITAL TURNOVER
RATIO
2020-21 78,15,877 11,26,160 6.94
2021-22 1,62,15,339 13,33,920 12.156
2022-23 2,43,44,945 23,16,008 10.511
2023-24 3,17,78,642 29,08,028 10.928

Capital Turnover Ratio

14

12

10

0
2020-21 2021-22 2022-23 2023-24

Capital Turnover Ratio

INTERPRETATION:

The capital turnover ratio measures how efficiently a company utilizes its capital to generate revenue.
In 2020-21, the ratio was 6.94, indicating moderate efficiency. It significantly increased to 12.156 in
2021-22, reflecting improved utilization of capital as sales grew at a higher rate than capital
employed. However, in 2022-23, the ratio declined to 10.511, suggesting that while sales continued to
rise, the increase in capital employed outpaced revenue growth, leading to slightly lower efficiency.
In 2023-24, the ratio slightly improved to 10.928, indicating stable capital utilization. Overall, the
company has demonstrated strong capital efficiency, though the declining trend after 2021-22
suggests the need for careful capital management to sustain high turnover levels.
CONCLUSION:

The capital turnover ratio has shown strong performance, with a notable increase in 2021-22 that
highlights the company's ability to generate substantial sales from capital employed. While there was
a slight dip in 2022-23, the ratio has remained stable, reflecting the company’s ability to efficiently
manage capital investments to support continued sales growth. Moving forward, the company should
focus on maintaining this balance to ensure continued capital efficiency and sustainable growth.
TOTAL DEBT RATIO:
TOTAL DEBT RATIO = TOTAL DEBT (Current Liab.) ÷ TOTAL TANGIBLE ASSET (cash, inv.,
p,p&e)
YEAR TOTAL DEBT TOTAL TANGIBLE TOTAL DEBT RATIO
ASSETS
2020-21 46,51,641 14,33,449 3.245
2021-22 57,04,459 20,93,466 2.725
2022-23 65,58,317 8,42,399 7.815
2023-24 84,29,923 32,82,632 2.568

Total-Debt Ratio
9

0
2020-21 2021-22 2022-23 2023-24

Total-Debt Ratio

INTERPRETATION:

The total debt ratio measures the proportion of a company's tangible assets financed by debt. In 2020-
21, the ratio was 3.245, indicating that debt was more than three times the tangible assets. It
decreased to 2.725 in 2021-22, suggesting a relative improvement as tangible assets grew faster than
debt. However, in 2022-23, the ratio sharply increased to 7.815, meaning debt significantly
outweighed tangible assets, which declined notably that year. In 2023-24, the ratio improved to 2.568,
as tangible assets increased substantially, reducing dependence on debt. Overall, the company has
experienced fluctuations in its debt reliance, with 2022-23 being a critical year of imbalance, but it
has since improved its asset base relative to debt.
CONCLUSION:

The company experienced a risky period in 2022-23 but showed significant recovery in 2023-24.
However, its high reliance on debt across all years remains a concern. Proactive financial
management and continued investment in tangible assets are crucial for long-term sustainability.
 CHAPTER-5
FINDINGS AND SUGGESTIONS:

FINDINGS:
 The current ratio has improved over the years, with current assets and liabilities increasing at
an equal rate, helping to maintain a stable ratio. The ratio was highest in the years 2022-23
and 2023-24.
 The liquid ratio improved from 0.97:1 in 2020-21 to 1.271:1 in 2022-23, indicating stronger
liquidity. However, a slight dip to 1.137:1 in 2023-24 suggests a relative rise in liabilities,
though liquidity remains stable.
 The cash ratio fluctuated over the years, peaking at 0.2:1 in 2021-22 and dipping to 0.047:1 in
2022-23, indicating inconsistent cash reserves. The sharp rise to 0.182:1 in 2023-24 suggests
improved cash holdings. However, overall reliance on cash to cover liabilities remains low.
 The gross profit ratio fluctuated over the years, reaching its lowest at 1.36% in 2022-23 before
rising to 1.78% in 2023-24. Despite increasing net sales, the relatively low ratios suggest high
cost of goods sold. The improvement in the final year indicates better cost control.
 The net profit ratio fluctuated, dipping to 0.98% in 2022-23 before recovering to 1.29% in
2023-24. Despite growing net sales, profitability remained low, indicating high costs or
expenses. The improvement in the final year suggests better cost management.
 The return on assets (ROA) improved over the years, rising from 1.56% in 2020-21 to 3.61%
in 2023-24, indicating better asset utilization. The slight dip in 2022-23 suggests temporary
inefficiencies, but the overall trend reflects growing profitability.
 The operating profit margin fluctuated, dipping to 1.359% in 2022-23 before rising to
1.778% in 2023-24, indicating improved operational efficiency. Despite revenue growth, the
overall low margins suggest high operating costs.
 The return on equity (ROE) steadily increased from 18.07% in 2020-21 to 81.96% in 2023-
24, indicating strong profitability growth. This suggests efficient use of shareholder funds and
improved earnings performance over the years
 The return on capital employed (ROCE) peaked at 21.19% in 2021-22 but dipped to 14.29%
in 2022-23 before recovering to 19.43% in 2023-24. This fluctuation suggests varying
efficiency in utilizing capital, with an overall improving trend.
 Earnings per share showed consistent growth, rising from 1.81 in 2020-21 to 8.20 in 2023-24
marking a 353.59% increase reflecting strong profitability and improved shareholder value
over the years.
 The operating cost ratio remained relatively stable, fluctuating between 0.982:1 and 0.986:1,
indicating consistent cost management. The slight variations suggest minimal changes in
operating expenses relative to revenue.
 The proprietary ratio fluctuated significantly, peaking at 1.867:1 in 2022-23 before dropping
to 0.604:1 in 2023-24. This indicates variations in reliance on shareholder funds versus
external financing, with a lower ratio suggesting increased dependence on external liabilities.
  The debt-equity ratio increased from 4.13:1 in 2020-21 to 4.717:1 in 2023-24, indicating
rising reliance on debt financing. This trend suggests higher financial risk but also potential
for growth through leveraged funding.
 The debt-assets ratio remained 0 until 2021-22, indicating no long-term borrowings. It then
rose slightly to 0.083:1 in 2022-23 and 0.081:1 in 2023-24, showing a minimal but controlled
increase in debt reliance.
 The inventory turnover ratio peaked at 35.354 in 2022-23, indicating rapid inventory
movement, before declining to 28.449 in 2023-24. The drop suggests a slower inventory
turnover, possibly due to higher stock levels or reduced sales efficiency.
 The asset turnover ratio peaked at 34.8415 in 2022-23, indicating highly efficient asset
utilization, but declined to 28.964 in 2023-24. This drop suggests a relative increase in assets
without a proportional rise in sales.
 The return on shareholder funds steadily increased from 8% in 2020-21 to 20.6% in 2023-24,
reflecting improved profitability. The slight dip to 15.2% in 2022-23 suggests temporary
pressure on returns, but overall, the trend indicates strong financial performance.
 The working capital turnover ratio peaked at 12.817 in 2021-22, indicating high efficiency in
utilizing working capital. The slight decline in subsequent years suggests increased working
capital requirements, though overall turnover remains strong.
 The fixed asset turnover ratio showed a sharp increase from 92.305 in 2020-21 to 839.895 in
2023-24, indicating highly efficient utilization of fixed assets. This suggests significant
revenue generation relative to fixed asset investment, likely due to asset-light operations or
improved productivity.
 The capital turnover ratio peaked at 12.156 in 2021-22, indicating strong efficiency in
generating sales from capital. The slight decline in subsequent years suggests increased capital
investment, though overall turnover remains healthy.
 The total debt ratio fluctuated, peaking at 7.815 in 2022-23 due to a lower asset base, before
dropping to 2.568 in 2023-24 as assets increased. This indicates improved financial stability
with better asset coverage for liabilities.

SUGGESTIONS:

 The cash ratio, ranging from 0.038:1 to 0.2:1, indicates low cash reserves relative to
liabilities, posing liquidity risks. To improve this, the company should boost cash reserves by
 optimizing cash flow, cutting unnecessary expenses, and improving receivables collection.
Reducing short-term liabilities through debt restructuring and optimizing working capital can
further strengthen liquidity. Additionally, diversifying revenue streams and managing
inventory efficiently by reducing excess stock will help generate cash faster, ensuring better
short-term financial stability.
 The gross profit ratio, ranging from 1.36% to 1.78%, indicates thin margins due to high
COGS. To improve profitability, the company should reduce costs by optimizing
procurement, improving production efficiency, and negotiating better supplier terms.
Enhancing pricing strategies, expanding high-margin products, and leveraging economies
of scale can boost margins. Additionally, reducing wastage, streamlining operations, and
adopting automation can further lower COGS and improve profitability.
 To improve the net profit ratio, costs should be controlled, operational efficiency should be
enhanced, and non-essential expenses should be reduced, while net sales should be optimized
through market expansion, customer retention, and digital transformation. High-margin
products should be prioritized, better supplier terms should be negotiated, and investments in
technology and employee training should be made. The drop in the 2022-23 ratio should be
addressed by investigating cost increases and implementing corrective measures. Revenue
streams should be diversified, sustainability initiatives should be adopted, and financial
performance should be regularly monitored and adjusted to maintain a healthy ratio.
 The Return on Assets (ROA), ranging from 1.56% to 3.61%, indicates moderate efficiency
in generating profits from assets. To improve ROA, the company should enhance profitability
by increasing revenue through better sales strategies, expanding high-margin products, and
optimizing pricing. Cost control through efficient resource utilization, automation, and waste
reduction can further boost returns. Additionally, improving asset utilization by maximizing
asset productivity and avoiding underutilized investments will help. Strategic investments in
technology and innovation can also enhance efficiency, leading to higher profitability and a
stronger ROA.
 The operating profit margin, ranging from 1.359% to 1.778%, is low, indicating high costs.
To improve, the company should increase revenue through better pricing and high-margin
products while reducing costs by streamlining operations, cutting overheads, and leveraging
automation. Improving productivity and optimizing supplier contracts can further enhance
profitability.
 The operating cost ratio, consistently around 0.982:1 to 0.986:1, indicates high expenses
consuming nearly all revenue. To improve, the company should reduce costs by optimizing
procurement, streamlining operations, and leveraging automation. Enhancing efficiency
through better resource allocation and waste reduction can lower expenses. Increasing
 revenue via pricing strategies, high-margin products, and sales growth will also help improve
the ratio.
 The debt-equity ratio, rising from 4.13:1 to 4.717:1, indicates heavy reliance on debt
financing, increasing financial risk. To improve, the company should reduce debt by
prioritizing loan repayments and refinancing at lower interest rates. Boosting equity through
retained earnings, issuing new shares, or attracting investors can improve balance.
Additionally, improving profitability and cash flow management will help reduce
dependency on external borrowing.
 The asset-turnover ratio improved from 15.847 in 2021-22 to 34.8415 in 2022-23 but slightly
declined to 28.964 in 2023-24. To maintain high efficiency, the company should focus on
optimizing the use of its assets, ensuring they generate maximum revenue without
unnecessary accumulation. To improve, the company should optimize asset utilization, align
strategic investments with revenue growth, and streamline operations to sustain a high asset-
turnover ratio. Leveraging technology can boost efficiency and asset productivity.
 The total debt ratio, fluctuating between 2.568 and 7.815, indicates varying debt
reliance compared to tangible assets. To improve, the company should reduce debt by
repaying high-interest loans and refinancing at lower rates. Strengthening tangible assets
through strategic investments in productive assets can enhance stability. Additionally,
improving cash flow via better receivables management and cost control will reduce the
need for excessive borrowing.

CONCLUSION:

The financial statement analysis of Acctel Network Pvt. Ltd. offers valuable insights into the
company's financial health and operational efficiency over the years 2020-21 to 2023-24. By
examining key financial ratios, including liquidity, profitability, solvency, and efficiency, this
study provides a comprehensive evaluation of the company's strengths, weaknesses, and areas
for improvement.

The liquidity analysis reveals that the company's current ratio and liquid ratio have remained
stable and above the industry benchmark, reflecting a strong ability to meet short-term liabilities.
However, fluctuations in the cash ratio indicate potential liquidity risks, emphasizing the need
for better cash flow management.

In terms of profitability, the gross profit ratio has shown minor fluctuations, with improvements
in 2023-24. However, the operating profit ratio and net profit ratio indicate thin margins,
suggesting a need for cost optimization and revenue enhancement strategies. The return on assets
(ROA) and return on equity (ROE) have demonstrated positive trends, showcasing improved
efficiency in utilizing assets and equity to generate profits.

The solvency ratios highlight a rising debt-equity ratio, indicating increased financial leverage.
While this can enhance returns, it also raises financial risk. The debt-assets ratio remains low,
suggesting minimal reliance on long-term borrowings. Ensuring a balanced capital structure will
be crucial for maintaining financial stability.

Efficiency ratios, including inventory turnover and asset turnover, depict strong operational
management, particularly in 2022-23, when inventory turnover peaked. However, a slight
decline in 2023-24 suggests the need for careful inventory planning. The working capital
turnover ratio reflects efficient utilization of working capital, supporting sustained revenue
growth.

Overall, Acctel Network Pvt. Ltd. has demonstrated financial growth and operational resilience.
However, to ensure long-term sustainability and profitability, the company should focus on cost
control, improving profit margins, optimizing debt usage, and maintaining efficient asset
utilization. Strategic financial planning and continuous monitoring will be key to sustaining
growth and enhancing stakeholder value.

BIBLIOGRAPY:

Books:

Pandey, I. M. (2015). Financial Management. Vikas Publishing House.

Khan, M. Y., & Jain, P. K. (2018). Management Accounting: Text, Problems and Cases. McGraw-
Hill Education.

Ramachandran, N., & Kakani, R. K. (2019). Financial Accounting for Management. McGraw-Hill.

Journals & Research Papers:

Sharma, R., & Kumar, S. (2021). “Impact of Financial Ratios on Business Decision Making.”
Journal of Finance and Accounting Research, 8(2), 45-60.

Reddy, Y. V. (2019). “Liquidity and Profitability Analysis Using Financial Ratios.” Indian Journal of
Accounting, 51(1), 28-40.

Web Resources:

Institute of Chartered Accountants of India (ICAI): [[Link] ([Link]

Ministry of Corporate Affairs (MCA) – Company Financial Statements & Compliance Reports:
[[Link] ([Link]

National Stock Exchange (NSE) – Financial Market Data & Company Ratios:
[[Link] ([Link]