INTRODUCTION

1.1 INTRODUCTION RATIO ANALYSIS

A ratio analysis is a quantitative analysis of information contained in a company’s
financial statements. Ratio analysis is based on line items in financial statements like the
balance sheet, income statement and cash flow statement; the ratios of one item – or a
combination of items - to another item or combination are then calculated. Ratio analysis is
used to evaluate various aspects of a company’s operating and financial performance such
as its efficiency, liquidity, profitability and solvency. The trend of these ratios over time is
studied to check whether they are improving or deteriorating. Ratios are also compared
across different companies in the same sector to see how they stack up, and to get an idea of
comparative valuations. Ratio analysis is a cornerstone of analysis. Ratio analysis refers to
the analysis and interpretation of the figures appearing in the financial statements (i.e., Profit
and Loss Account, Balance Sheet and Fund Flow statement etc.). It is a process of
comparison of one figure against another. It enables the users like shareholders, investors,
creditors, Government, and analysts etc. to get better understanding of financial statements.

Meaning of Accounting Ratio As stated earlier, accounting ratios are an important

tool of financial statements analysis. 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.

DEFINITION
Khan and Jain define the term ratio analysis as “the systematic use of ratios to
interpret the financial statements so that the strengths and weaknesses of a firm as well as
its historical performance and current financial conditions can be determined.”
S.N. Maheshwari define the term ratio analysis as “Ratio analysis is a systematic
method of interpreting financial statements to assess the financial health, operational
efficiency, profitability, and solvency of an organization.”
Prasanna Chandra defines the term ratio analysis as “Ratio analysis is the process
of examining financial data using mathematical relationships to gain insights into a
company's financial health and decision-making.”

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Principles of Ratio Analysis

The principles of ratio analysis are the foundational guidelines that ensure accurate
evaluation and interpretation of a company's financial performance. These principles help
stakeholders make informed decisions by analysing relationships between various financial
metrics. Here are the key principles:
1. Relevance
• Ratios should be relevant to the objectives of the analysis (e.g., liquidity ratios for
short-term solvency, profitability ratios for earnings analysis).
• Select appropriate ratios based on the nature of the business and industry.
2. Consistency
• Financial statements should be prepared using consistent accounting methods over
time.
• This allows for meaningful comparisons across different periods or with industry
benchmarks.
3. Accuracy
• Ratios must be calculated using accurate and verified financial data.
• Errors in data collection or misclassification of financial items can lead to misleading
conclusions.
4. Comparability
• Ratios are most useful when compared against:
✓ Industry averages
✓ Competitors' performance
✓ Past performance of the company
• Standardize calculations to ensure a fair comparison.
5. Timeliness
• Use the most recent and updated financial data for analysis.
• Regular ratio analysis helps track trends and identify financial issues early.

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1.2SCOPE OF THE STUDY

The scope of the study defined below in terms of concept adopted and period under
focus. The study of management of working capital is only the FINFORTUNE Financial
services Private Limited., Chennai. Thus, the whole purpose of the project is to analyse
the past and present performance of the company on various financial areas like cash,
inventories and receivables. Since the past performance data essential for predicting
future planning process.

• The study only analyses the capital market analysis of the company.

• The study and analyse the concern Balaji Rubber Industries Private Limited,

• Rasipuram. It would not be applicable to other industry.

• The analysis taken the five years financial statement of the company to analyse.

• It indicates how effectively raised and utilized its capital in the business.

• The study helps to take long term financial decision.

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1.3 OBJECTIVES THE STUDY

❖ To study on ratio analysis towards the FINFORTUNE Financial services Private

Limited.

❖ To study the short-term liquidity positions of company.

❖ To study the efficiency of inventory management.

❖ To study the effectiveness of credit management of the company.

❖ To analyse the long-term solvency of the business concern.

❖ Study how best the working capital is utilized in the company.

❖ To understand the stability of the concern to raise additional capital

❖ To evaluate the profitability position of the concern

❖ To identify the credit worthiness of the concern

❖ To ascertain the efficiency of the concern in its operation

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1.4 NEED OF THE STUDY
This study on Financial Ratio Analysis is essential as it provides valuable insights
into a company's financial health, efficiency, profitability, and solvency. It helps
stakeholders, including investors, management, and policymakers, to make informed
decisions regarding investments, credit policies, and business strategies. By analysing trends
in liquidity, asset utilization, and profitability, companies can identify financial strengths and
weaknesses, ensuring better resource allocation and risk management. This study is
particularly crucial in the Indian context, where businesses face economic fluctuations and
regulatory changes. Understanding financial ratios aids in improving operational
performance, ensuring sustainability, and fostering long-term growth in competitive
markets.

ADVANTAGES OF RATIO ANALYSIS

➢ Forecasting and Planning: The trend in costs, sales, profits and other facts can be
known by computing ratios of relevant accounting figures of last few years. This
trend analysis with the help of ratios may be useful for forecasting and planning
future business activities.
➢ Budgeting: Budget is an estimate of future activities on the basis of past experience.
Accounting ratios help to estimate budgeted figures. For example, sales budget may
be prepared with the help of analysis of past sales.
➢ Indication of Overall Profitability: The management is always concerned with the
overall profitability of the firm. They want to know whether the firm has the ability
to meet its short-term as well as long-term obligations to its creditors, to ensure a
reasonable return to its owners and secure optimum utilization of the assets of the
firm. This is possible if all the ratios are considered together.
➢ Indication of Liquidity Position: Ratio analysis helps to assess the liquidity
position i.e., short-term debt paying ability of a firm. Liquidity ratios indicate the
ability of the firm to pay and help in credit analysis by banks, creditors and other
suppliers of short-term loans.
➢ Aid to Decision-making: Ratio analysis helps to take decisions like whether to
supply goods on credit to a firm, whether bank loans will be made available etc.

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1.5 LIMITATIONS OF STUDY

➢ Ignores Qualitative Factors – Ratio analysis focuses only on numerical data and
does not consider non-financial aspects like market conditions, management
efficiency, or customer satisfaction.
➢ Historical Data Dependency – Ratios are based on past financial statements, which
may not accurately reflect current or future financial conditions.
➢ Lack of Standardization – Different companies may use varied accounting policies,
making comparisons difficult and sometimes misleading.
➢ Does Not Account for Inflation – Financial statements do not always adjust for
inflation, which can distort ratio calculations and misrepresent financial
performance.
➢ Can Be Manipulated – Companies can adjust financial figures through accounting
techniques to present a more favorable ratio analysis, leading to misinterpretation.
➢ Industry Differences – Comparing ratios across industries is often ineffective, as
financial structures and performance metrics vary widely.
➢ Static Analysis – Ratio analysis provides a snapshot of financial performance at a
specific time but does not explain underlying causes or future trends.

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STEPS OF RATIO ANALYSIS

1. Ratio analysis is a critical tool in financial analysis, helping businesses and investors
assess financial health and performance. The process involves several key steps to
ensure accurate interpretation and decision-making.

2. The first step is to collect financial statements, including the balance sheet, income
statement, and cash flow statement. These documents provide the raw data needed
for calculations. Next, identify relevant ratios based on the objective of the analysis.
Common categories include liquidity, profitability, efficiency, and solvency ratios.

3. After selecting the ratios, perform calculations using standard formulas. For instance,
the current ratio is calculated as current assets divided by current liabilities, while
return on equity (ROE) is net income divided by shareholder equity. The next step is
to analyse trends by comparing the ratios over multiple periods. This helps identify
improvements, declines, or consistency in financial performance.

4. A crucial step is benchmarking against industry standards or competitors. This

provides context to determine whether the company is performing well relative to
others. Finally, interpret the results and draw conclusions to support decision-
making. This may involve identifying strengths, weaknesses, risks, or areas for
improvement.

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1.6 RESEARCH METHODOLOGY

Research Methodology is a systematic way to solve a research problem. It includes

various steps that are generally adopted by a researcher in studying the problem along with
the logic behind them. The present study was conducted at FINFORTUNE Financial
services Private Limited. The study depends mainly on the secondary data namely the annual
reports of the company. Five years annual reports had been collected from the company.
Data had also been collected from journals, newspapers and internet.

RESEARCH DESIGN

“A Research Design is the arrangement of conditions for collection and analysis of

data in a manner that aims to combine relevance to the research purpose with the economy
in procedure”. In fact, the research design is the conceptual structure with in which research
is conducted; it constitutes the blue print for the collection, measurement and analysis of
data, the research design utilized in this study is analytical research.

PERIOD OF STUDY

The duration taken by the researcher for the data collection and analysis regarding
the ratio analysis of FINFORTUNE Financial services Private Limited. for three months.
The data used are of last five years from 2019 – 2023.

METHOD OF COLLECTION

The study basically uses primary and secondary data. Primary data means data which
is fresh collected data. Secondary data means the data that are already available. Generally
speaking, secondary data is collected by some organizations or agencies which have already
been processed when the researcher utilizes secondary data. the process of secondary data
collection and analysis is called desk research.

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1.7 STATEMENT OF THE PROBLEM

Ratio analysis is used to evaluate various aspects of a company’s operating and

financial performance such as its efficiency, liquidity, profitability and solvency. The trend
of these ratios over time is studied to check whether they are improving or deteriorating.
Ratio analysis is widely used as a powerful tool of financial statement analysis to check the
company’s operations or financial performance is difficult task by some other tools for the
company. So, the study on ratio analysis at FINFORTUNE Financial services Private
Limited, is taken as the study to measure the performance of the company.

Ratio analysis is a fundamental tool used to assess various aspects of a company's

operational and financial performance, including efficiency, liquidity, profitability, and
solvency. By examining financial ratios over time, businesses and stakeholders can identify
trends, determine whether financial health is improving or deteriorating, and make informed
strategic decisions. This method is widely recognized as a crucial component of financial
statement analysis, as it provides clear and quantifiable insights into a company's overall
financial stability and operational effectiveness.

Unlike other financial analysis techniques, ratio analysis simplifies the evaluation of
complex financial data, making it easier for management, investors, and creditors to assess
a company's strengths and weaknesses. It is particularly useful in comparing a company’s
performance against industry benchmarks or competitors, allowing stakeholders to gauge
financial health in a broader market context.

Given its importance, this study focuses on conducting a detailed ratio analysis of
FINFORTUNE Financial Services Private Limited to measure its financial performance. By
analysing key financial ratios, this study aims to evaluate the company’s operational
efficiency, liquidity position, profitability, and long-term solvency. The findings will
provide valuable insights for decision-makers within the company, enabling them to
enhance financial planning, risk management, and overall corporate strategy.

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TOOLS USED RATIO ANALYSIS

A ratio is the quotient of two mathematical expressions and the relationship between
two or more numbers. In financial analysis, a ratio is used as an index or yardstick for
evaluating the financial position and performance of a firm. The relationship between the
two accounting figures expressed mathematically is known as a financial ratio. It involves
comparison for a useful interpretation of the financial statements and it should be compared
with some standards.

❖ Working capital ratio

❖ Inventory Turnover ratio
❖ Debtors’ turnover ratio
❖ Average collection period
❖ Net profit ratio
❖ Return on total assets
❖ Return on investment
❖ Return on shareholders’ Funds
❖ Solvency ratio
❖ Gross profit ratio
❖ Return on assets ratio
❖ Operating profit ratio.

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 2.1 INDUSTRY PROFILE

Founding & Early Years

FinFortune was established in 2010 by a group of finance professionals who aimed

to provide transparent and accessible financial services. The company started as a small
consultancy firm, offering investment advice and wealth management solutions to retail
customers. In its initial years, FinFortune focused on building trust with its clientele through
personalized services and expert financial guidance.

Expansion & Growth

By 2015, FinFortune had expanded its portfolio to include loan services, insurance,
and digital banking solutions. The company's emphasis on leveraging technology for
seamless transactions helped it gain a competitive edge. Strategic partnerships with leading
banks and financial institutions enabled FinFortune to broaden its service offerings. With
the rise of fintech, FinFortune embraced digital transformation by launching a mobile
banking app and AI-driven financial advisory services. The introduction of automated
wealth management tools in 2018 positioned the company as a frontrunner in financial
technology.

Challenges & Overcoming Obstacles

FinFortune faced several challenges, including regulatory compliance, competition

from established banks, and the need to build customer trust in digital services. However,
through strategic decision-making and a focus on customer satisfaction, the company
overcame these hurdles and continued its upward trajectory.

Current Position & Future Prospects

Today, FinFortune serves millions of customers across India, FinFortune, a

prominent financial services provider in India, currently serves millions of customers by
offering a comprehensive range of services, including digital banking, investment planning,
loans, and insurance. The company is at the forefront of innovation, utilizing cutting-edge
technologies like blockchain and artificial intelligence (AI) to enhance both financial
security and the overall customer experience. These advancements are designed to offer
more reliable, secure, and personalized services.

Industry Profile – Financial Technology (FinTech) Industry in India

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1. Industry Overview

Definition: The FinTech industry refers to companies that leverage technology to

provide financial services, including payments, lending, insurance, wealth management, and
more. Growth: India ranks among the top FinTech markets globally, with a rapidly growing
user base and increasing digital transactions. Market Size: As of 2024, India’s FinTech
market is valued at approximately $150 billion and is expected to grow at a CAGR of 22-
25% over the next five years.

2. Key Segments of the Indian FinTech Industry

• Digital Payments: Includes UPI (Unified Payments Interface), mobile

wallets, and online payment gateways.
• Lending Tech: Facilitates digital loans through platforms connecting
borrowers with lenders (like FinFortune).
• Wealth Tech: Involves digital investment platforms for mutual funds, stocks,
and savings products.
• Ensure Tech: Digital insurance solutions offering policy comparison, online
purchase, and claims management.
• Reg Tech : Technologies that streamline regulatory compliance for financial
institutions.

3. Market Drivers

Increased Internet Penetration: Over 900 million internet users in India are
accelerating digital financial adoption. Government Initiatives: Programs like Digital India
and Pradhan Mantri Jan Dhan Yojana promote financial inclusion. Changing Consumer
Behaviour: Rising preference for convenience, speed, and transparency in financial services.

4. Challenges in the FinTech Industry

Regulatory Compliance: Adapting to evolving government policies and ensuring

data security. Customer Trust: Gaining and maintaining customer confidence in digital
platforms. Financial Literacy: Bridging the knowledge gap among underserved and rural
populations. Cybersecurity Risks: Protecting sensitive financial information from cyber
threats and fraud.

5. Key Trends in the Indian FinTech Industry

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 • AI and Machine Learning: Personalized product recommendations and risk
assessment.
• Embedded Finance: Integrating financial services into non-financial
platforms.
• BNPL (Buy Now, Pay Later): Expanding access to credit with flexible
repayment models.
• Open Banking: Secure sharing of customer data among financial institutions
to offer tailored products.

6. Major Players in the Indian FinTech Landscape

➢ Payment Providers: Paytm, PhonePe, Google Pay.

➢ Lending Platforms: FinFortune, Lendingkart, KreditBee.
➢ Wealth Management: Groww, Zerodha, Paytm Money.
➢ Insurtech: Policy Bazaar, Acko, Digit Insurance.

7. Future Outlook

❖ Continued Growth: Increasing financial inclusion and the adoption of digital

finance will drive further industry expansion.
❖ Innovation Focus: Emerging technologies like blockchain and AI will
redefine financial service delivery.
❖ Collaboration: Increased partnerships between traditional banks and FinTech
platforms to reach underserved segments.

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 2.2 COMPANY PROFILE

FinFortune is an online aggregator of various financial products and services.

FinFortune is committed to finding you the best financial product whilst saving you a lot of
time and money. With a combined experience of over 25 years, the management at
FinFortune comprises visionaries from the Indian banking industry, who wanted to create a
company that wanted to provide the right experience for our customers.

We are here to ensure that the underserved segment of society gets access to the right
financial product. Our state-of-the-art algorithm connects borrowers with the lenders by
filtering customer’s requirements with borrower terms and giving them access to the most
relevant products.

Bringing a plethora of financial products from multiple banks and NBFCs,

FinFortune focuses on fulfilling the financial requirements of people from all segments of
the society. At FinFortune, we’ve collated financial products from leading banks and NBFCs
such as Loans, Credit Cards, Investment options (Mutual Funds, Savings Schemes), and
other banking products.

We are not a financial institution and We do not lend or borrow through this website.
Our platform helps the prospective borrowers find and connect with the right financial
institution. We make the borrowing process easy for clients, from showing them the most
appropriate products suited to their needs to assisting them in choosing the right product.
IVA Insurance Broking Pvt Ltd., through the Fincover portal, has served over five lakh
people for their insurance needs. The customer is always our top priority and we are
insurance company neutral. Our algorithms find and rank insurance products that best suit
the customer’s requirements without bias and we assist him to make quick and hassle-free
purchases.

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 All the customer has to do is make the premium payment and sit back with the
confidence that they have purchased the best insurance policy. The premium rates on our
website are the same as charged by the insurance company and we don’t charge the customer
any fees. Our brokerage is paid by the insurance company.

Vision

❖ We at FinFortune focus on two things.

❖ To be a leading player who provides the most efficient distribution of financial
services in India.
❖ To create value on a large scale.

Mission

❖ We are focused entirely to achieve excellence in what we do. We continuously focus

on earning the trust of customers which we believe is paramount for achieving
excellence. With a robust customer-centric approach and high integrity, we aspire to
set high standards in the financial services industry in India
❖ To be a global online service provider in India having an excellent customer service
with pioneering technology, creativity, integrity and social responsibility.

Our Value

❖ We believe that setting high goals and holding high values are the critical elements
to creating a profitable business. Earning customer satisfaction and trust is the core
value of our company, and these values come at the forefront of every decision we
take.
❖ To create and deliver emerging highest quality precision services.
❖ To ensure that projects are completed and delivered within the time requirements of
our customers.

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TEAM

They are a team of young enthusiasts with strong focus, dedication and passion for
what we do. FinFortune, help you maintain and improvise your online identity and
rediscover and reinstate your brand. they also facilitate you to reach out in the Global
markets. Here are the essential roles

• Chief Executive Officer (CEO) – Leads the company’s vision, strategy, and growth.

• Chief Technology Officer (CTO) – Oversees the AI-driven algorithm, platform

development, and digital transformation.

• Head of Partnerships & Alliances – Manages relationships with banks, NBFCs, and
financial institutions.

• Head of Product & Innovation – Ensures seamless integration of financial products

and continuous platform enhancement.

• Head of Risk & Compliance – Ensures regulatory adherence and minimizes financial
and operational risks.

• Head of Customer Experience & Operations – Focuses on user engagement, support,

and seamless onboarding.

• Head of Marketing & Growth – Drives customer acquisition, brand visibility, and
financial literacy initiatives.

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Organisation structure

Structure of office

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Problem Statement Executive-

Despite the growing availability of financial products, a significant portion of the

Indian population, particularly in underserved segments, faces challenges in accessing the
right financial solutions. Customers struggle with complex application processes, lack of
transparency in financial products, and difficulty in comparing offerings from different
banks and NBFCs. Additionally, traditional financial institutions often fail to cater to the
specific needs of individuals due to rigid eligibility criteria, leading to financial exclusion
for many potential borrowers.

Solution for the platform enhances financial accessibility

➢ Providing Transparency: Users receive clear comparisons of financial products,

enabling them to choose the best-suited options.

➢ Simplifying the Application Process: The platform streamlines the borrowing

process, reducing paperwork and time-consuming procedures.

➢ Promoting Financial Inclusion: By partnering with multiple banks and NBFCs,

FinFortune helps underserved communities gain access to credit and financial

services.

➢ Leveraging Technology: AI-driven recommendations and digital tools improve

customer experience and financial literacy.

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Challenges that impact its Growth and Stability:

❖ Access to Finance for SMEs: Small and Medium Enterprises (SMEs) in these regions
often struggle to secure adequate funding. This limitation hampers their growth and
expansion, as they face significant barriers in obtaining affordable and accessible
financing options.

❖ Financial Inclusion Difficulties: Low-income groups and senior citizens in Tamil

Nadu face challenges in accessing financial services. Factors such as limited
availability of Cash in Cash Out (CICO) points in rural areas contribute to this issue,
highlighting the need for improved financial inclusion.

❖ Service Quality and Customer Satisfaction: Banks in Tamil Nadu are grappling with
challenges related to service quality, customer satisfaction, retention, and loyalty.
Enhancing service quality is crucial for achieving customer satisfaction and fostering
loyalty in the banking sector.

❖ Impact of Economic Fluctuations: The financial sector has been affected by

economic downturns, such as the defaults by Infrastructure Leasing & Financial
Services (IL&FS) and Dewan Housing Finance Limited (DHFL) in 2018 and 2019.
These events exposed vulnerabilities within the shadow banking sector, leading to
liquidity crises and a loss of confidence in Non-Banking Financial Companies
(NBFCs).

❖ Natural Disasters: Events like the 2015 South India floods have severely impacted
the finance industry in Chennai and surrounding areas. The floods disrupted basic
necessities, fuel supplies, and travel, leading to significant economic losses and
affecting the operations of financial institutions.

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Recent trends in financial sector

➢ Adoption of Artificial Intelligence (AI) and Machine Learning: Financial institutions

are increasingly leveraging AI and machine learning to enhance data analysis,
automate processes, and improve decision-making. Applications range from fraud
detection and credit scoring to personalized financial advisory services.

➢ Expansion of Digital Banking: There is a significant shift towards digital banking

platforms, offering customers convenient access to financial services through online
and mobile channels. This trend caters to the growing demand for seamless, anytime-
anywhere banking experiences.

➢ Growth of Contactless Payments: The adoption of contactless payment methods,

including mobile wallets and Near Field Communication (NFC) technologies, has
surged. This shift is driven by the need for quick, secure, and hygienic transaction
options.

➢ Rise of FinTech Innovations: India's FinTech sector is booming, with startups

introducing innovative solutions across payments, lending, and insurance.
Government initiatives, supportive regulations from the Reserve Bank of India
(RBI), and infrastructure developments have fuelled this growth.

➢ Emphasis on Sustainability and ESG: Financial institutions are increasingly focusing

on Environmental, Social, and Governance (ESG) factors, integrating sustainability
into their operations and investment decisions. This reflects a global shift towards
responsible and ethical financial practices.

➢ Regulatory Reforms and Support: The RBI has relaxed certain norms for urban co-
operative banks, providing them with greater operational flexibility while
maintaining regulatory objectives. This move aims to enhance credit flow to small
borrowers and micro-businesses.

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 PRODUCTS FINFORTUNE OFFER

❖ Insurance

Insurance like health insurance (family floater insurance, Individual health

insurance, senior citizen health insurance), Motor insurance (Car insurance, two-wheeler
insurance, Commercial vehicle insurance), Home insurance, Travel insurance, and Life
insurance (Term insurance) provide and even premium calculator also suggest by the
industry to the customer. These are a few kinds of lifestyles coverage rules as follows

Term Insurance Plan • Provides life coverage for a specific period with no maturity benefits.

• Combines life coverage with savings, paying a lump sum on maturity

Endowment policy
or death.

Unit linked insurance • A hybrid plan offering life insurance along with investment in
plan(ULIP) market-linked funds.

• Offers periodic payouts during the policy term along with life
Money Back policy
coverage.

• Provides life coverage for the entire lifetime of the insured with
Whole life policy
maturity benefits.

Annuity / pension plan • Ensures regular income after retirement through periodic payouts

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❖ Mutual funds
A mutual fund is a company that pools money from many investors and
invests the money in securities such as stocks, bonds, and short-term debt. The
combined holdings of the mutual fund are known as its portfolio.
Mutual funds like equity mutual funds, Debt mutual fund, and Hybrid mutual
fund provide. Investments like public provident fund, Senior citizen saving scheme,
monthly income, fixed deposit saving accounts are also provided.

Equity Mutual Fund

• Invests primarily in stocks for long-term capital
growth.
Debt Mutual Fund
• Invests in fixed-income securities like bonds for stable
returns
Hybrid Mutual Fund
• Combines equity and debt investments for balanced
risk and return.

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 ❖ Loan Services FinFortune offer

FinFortune developed the relationships that underpin the next phase in your
organisation’s growth.

Personal Loan Home loan Education loan Mortgage loan

Car Loan Bike Loan Gold Loan Short team Loan

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COMPANY DIRECTORS

Director - Guru Moorthy A

Chief Technology Officer - Naresh R
Co-founding Director and Head of Marketing - Manjunath Thimman

CONTACT DETAILS

FINFORTUNE FINANCIAL SERVICES PRIVATE LIMITED

Third floor, 13/17, Senthil Andavar Street, near Waterfall Restaurants, Thangal
karai, Dhanalakshmi Colony, Saligramam, Chennai, Tamil Nadu 600092.
info@[Link]

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 REVIEW OF LITERATURE

A literature review is a critical and in-depth evaluation of previous research. It is a

summary and synopsis of a particular area of research, allowing anybody reading the paper
to establish why the study is pursuing this particular research. A good literature review
expands on the reasons behind selecting a particular research question. A literature review
is likewise not a collection of quotes and paraphrasing from other sources. A good literature
review should critically evaluate the quality and findings of the research.

Das (2010) studied investor’s in assessing the overall position and operating results
of the company. Analysis and interpretation of financial statements help in determining the
liquidity position, long term solvency, financial viability and profitability of a firm. Ratio
analysis shows whether the company is improving or deteriorating in past years. Moreover,
Comparison of different aspects of all the firms can be done effectively with this. It helps
the clients to decide in which firm the risk is less or in which one they should invest so that
maximum benefit can be earned. Mining industries are capital intensive; hence a lot of
money is invested in it. So before investing in such companies one has to carefully study its
financial condition and worthiness.

Predictive Power of Financial Ratios Altman (2013) introduced the Z-score model,
which uses financial ratios to predict corporate bankruptcy. His model demonstrated that
financial ratios such as working capital to total assets and retained earnings to total assets
could effectively indicate financial distress.

Industry-Specific Financial Ratio Analysis Johri, Shubhra, and Taru

Maheshwari (2015) was among the first to suggest that financial ratios should be analysed
in the context of industry benchmarks. His study found that comparing a company’s ratios
to industry averages yields more accurate financial insights.

Fawzi et al., (2015), indicated that the solvency and profitability ratios ((CFFO +
I)/I, CFFO/TL, CFFI/TL, and CFFO/TR) based on cash flow variables are excellent
predictors of financial bankruptcy. With an impressive accuracy rate of 82.1%, the model
successfully classified the majority of sample cases, indicating its accuracy in discriminating
between healthy and unhealthy firms.

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 Brédart (2014) also indicated that the model using three simple financial ratios, and
more specific (a) net income/total assets, (b) current ratio, and (c) equity/total assets, as
explanatory variables, shows a prediction accuracy of more than 80%.

Anwar, (2016) Studies on financial performance often utilize liquidity, profitability,

activity, and solvency ratios to assess banking stability. This research examines Bank
Bukopin’s financial performance from 2011 to 2013 using financial ratio analysis. Findings
indicate that the bank maintained a stable and healthy financial condition during the period.
However, the study is limited to financial ratios and focuses solely on Bank Bukopin. Its
contribution lies in providing insights into sustaining financial health at a national level over
a multi-year period, distinguishing it from prior studies.

(Myšková and Renáta 2017) Financial performance assessment traditionally relies

on financial ratio analysis, yet management communication in annual reports provides
additional insights. Prior studies explore both financial and linguistic aspects, analysing U.S.
firms' annual reports using financial ratios and textual indicators. Spearman correlation is
applied to compare these dimensions, introducing novel word lists tailored for financial
analysis. Findings suggest that linguistic analysis enhances the evaluation of cash flow and
leverage ratios, demonstrating the value of integrating textual data with financial metrics for
a comprehensive assessment.

Maria Zain (2018), in this article he discusses about the return on assets is an
important percentage that shows the company’s ability to use its assets to generate income.
He said that a high percentage indicates that company’s is doing a good utilizing the
company’s asset to generate income. He notices that the following formula is one method of
calculating the return on assets percentage. Return on Assets = Net Profit/Total Assets. The
net profit figure that should be used is the amount of income after all expenses, including
taxes.

James Clausen (2018), in this article expresses about the liquidity ratio. He
Pronounce that it is analysis of the financial statements is used to measure company
performance. It also analyses of the income statement and balance sheet. Investors and
lending institutions will often use ratio analyses of the financial statements to determine a
company’s profitability and liquidity. If the ratios indicate poor performance, investors may
be reluctant to invest. Therefore, the current ratio or working capital ratio, measures current
assets against current liabilities

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 Jo Nelgadde (2018), in this thesis, he briefly discusses about the asset management
ratio. It divided into different types of categories. He states that about the used to analyse
accounts receivable and other working capital figures to identify significant changes in the
company’s operations and financial accounts. He said that there are two categories about
this ratio such as account receivable turnover and average age of account receive.

Al-Aameri and Alrikabi (2019) was focusing on one of the important techniques in
financial analysis, namely, the financial ratios, for the purpose evaluating the performance
of petroleum projects company, and to find out the main strength and weakness points, so
as to suggest the remedial actions for treatment of negative points and enhance the positive
one. The papers contain detail study for the data included in financial statements to explain
the financial performance of the company, and that will help the management for planning
the future according to the previous performance, and also contain the converting process of
the data of financial statements to meaningful information through several techniques, the
financial statement analysis among them.

Lucia Jenkins (2019), Understanding the use of various financial ratios and
techniques can help in gaining a more complete picture of a company's financial outlook.
He thinks the most important thing is fixed cost and variable cost. Fixed costs are those costs
that are always present, regardless of how much or how little is sold. Some examples of
fixed costs include rent, insurance and salaries. Variable costs are the costs that increase or
decrease in ratios proportion to sales.

A study in Australian financial institutions (Elizabith & Greg, 2019) showed that
all financial performance measures as interest margins, return on assets, and capital
adequacy are positively correlated with customer service quality scores. Many researchers
have been too much focus on asset and liability management in the banking sector, (Arzu &
Gokhan, 2019) discussed the asset and liability management in financial crisis. They argued
that an efficient asset-liability management requires maximizing bank’s profit as well as
controlling and lowering various risk, and their study showed how shifts in market
perceptions can create trouble during crisis.

27
 Khan (2019) found that the bank with higher total capital, deposits, credits, or total
assets does not always mean that has better profitability performance. According to Dr. M.
Ravichandran the financial performance can be measured by using various financial tools
such as profitability ratio, solvency ratio, comparative statement, etc. Based on the analysis,
findings have been arrived that the company has got enough funds to meet its debts &
liabilities, the income statement of the company shows sales of the company increased every
year at good rate and profit also increased every year.

Medhat, (2019) used multiple regression analysis and correlations to test the
financial performance of Omani Commercial banks. He used the ROA and the interest
income as performance proxies (dependent variables), and the bank size, the asset
management and the operational efficiency as independent variables. He found positive
strong correlation between financial performance and operational efficiency and a moderate
correlation between ROA and bank size.

Nadar and Diwahar Sunder (2019) discusses about the usefulness of financial
statement ratios in analysing and interpreting the financial statements of non-profit
institutions of higher education. The study underscores the applicability of financial ratios
beyond traditional for-profit organizations, highlighting their versatility in various sectors.

Zieme and Caroline (2019) Financial performance is a critical consideration for

various stakeholders, including management, lenders, owners, and investors, as it guides
decision-making in planning and control. In Ghana, the manufacturing sector, including key
players like Guinness Ghana Breweries Limited, significantly contributes to economic
development. This study examines the financial performance of Guinness Ghana Breweries,
focusing on liquidity, profitability, and capital structure ratios over a ten-year period using
data from the Ghana Stock Exchange. The analysis recommends better control of
organizational systems to enhance performance and adaptability.

Gopinathan Thachappilly (2020), in this article he discusses about the Financial

Ratio Analysis for Performance evaluation. Its analysis is typically done to make sense of
the massive number of numbers presented in company financial statements. It helps evaluate
the performance of a company, so that investors can decide whether to invest in that
company. Here we are looking at the different ratio categories in separate articles on different
aspects of performance such as profitability ratios, liquidity ratios, debt ratios, performance
ratios investment evaluation ratios.

28
 Dr. M. Ravichandran (2020) the financial performance can be measured by using
various financial tools such as profitability ratio, solvency ratio, comparative statement, etc.
Based on the analysis, findings have been arrived that the company has got enough funds to
meet its debts & liabilities, the income statement of the company shows sales of the company
increased every year at good rate and profit also increased every year.

M. Ganga (2020) on the evaluation of financial performance of Equitas Micro

Finance Private Limited in Chennai. According to them financial analysis is important to
plan and control the firm’s financial resources. They adopted various research techniques to
find the evaluation of financial performance of the organization. They found that the
managers must concentrate on gray area which would be useful for future growth of the
company.

M. Jihadi et al., (2021) studied aims sampling technique used in this study is a
purposive sampling method with certain criteria, to obtain a sample of 22 LQ45 index
companies listed on the Indonesia Stock Exchange in 2014–2019. Corporate Social
Responsibility (CSR) plays a role as a moderating variable and company size variable as a
control variable on the effect of financial ratios (liquidity, activity, leverage, and
profitability) on firm value. The implication of this research is that CSR has a very important
role in increasing company value. To attract more investors, companies must pay attention
not only to financial performance but also to social performance. Large-scale companies
tend to do more CSR so that the company value will increase.

Research by Patel and Desai (2021) revealed that financial services firms with
strong liquidity ratios, such as the current ratio and quick ratio, are better positioned to
withstand economic downturns. The study also noted that FinFortune Financial Services
maintained a current ratio above the industry average, indicating robust liquidity
management.

Effendie (2022) conducted research how liquidity, solvency, and activity ratios
influence a company's financial outcomes. They utilized proxies such as the current ratio
(CR) for liquidity, debt to equity ratio (DER) for solvency, and inventory turnover (InvTO)
along with total asset turnover (TATO) for activity. Financial performance was measured
using return on equity (ROE). Their findings suggest that these financial ratios are
significant indicators of a company's performance.

29
 Olayinka, A. A. (2022) his study concludes that Financial Statement Analysis is
recognized as essential for effective business decision-making, particularly in funding and
investment choices. The role of FSA in mitigating low profitability and poor investment
returns has been emphasized in prior studies. Data from Nestlé Nigeria Plc (2014–2019)
have been utilized to highlight the significance of employing multiple financial ratios for
comprehensive evaluation. It is suggested that FSA should be integrated into broader
decision-making processes. However, the study is limited to published financial statements,
indicating the need for broader sectoral analyses to enhance investor insights.

Suthar Kalpesh (2023) his research examines the utility and effectiveness of
financial ratios by reviewing various published papers and articles. The paper emphasizes
the importance of financial ratios as essential tools for accounting analysis and highlights
their historical development and application in financial management.

A study by Kumar and Reddy (2023) pointed out that financial ratios may not
account for qualitative factors such as management quality and market conditions.
Additionally, the study highlighted the need for industry-specific adjustments when
interpreting ratios for financial services firms, given their unique operational structures.

Nadar (2023) compared the company's financial performance with its peers in the
financial services industry using financial ratios. The study revealed that FinFortune is
competitive in terms of profitability and liquidity, but it lags behind in asset management
efficiency.

G.J. Precila1 and Archanadevi. M (2024) there study focuses on the comparative
analysis of financial ratios to assess the financial health, efficiency, and strategic positioning
of insurance firms. The research delves into key metrics such as solvency ratios, profitability
ratios, and liquidity ratios, providing a comprehensive evaluation of financial performance
in the insurance sector.

Zagita et al., (2024) analysed the financial performance of PT Bukit Asam Tbk by
examining solvency and activity ratios over the period 2020-2023. They found that the
company's debt to assets ratio indicated good financial health in 2020-2021 but declined in
2022-2023. Similarly, the inventory turnover ratio was favourable in 2020-2021 but showed
a downturn in subsequent years. This study highlights the practical application of solvency
and activity ratios in evaluating financial performance.

30
 Rodgers et al., (2024) his study pioneers the cross-disciplinary use of financial ratio
analogies to evaluate interpersonal relationships using the Throughput Model and Artificial
Neural Networks (ANNs). This study offers a new perspective on understanding and
improving emotional and communicational aspects of personal relationships by applying
quantitative measures from finance to personal relationships. In the context of ANNs, the
Throughput Model’s decision-making process mimics human cognitive processes, allowing
financial ratio analogies to analyse relationship dynamics. This interdisciplinary approach
integrates finance, psychology, and AI theories and provides a practical framework for
finance academics and professions.

Purwanto, S (2024) his study investigates the impact of financial ratios on stock
prices within the banking sub-sector listed on the Indonesia Stock Exchange. Using a
quantitative and causal research approach, the independent variables—Current Ratio (CR),
Debt to Equity Ratio (DER), and Return on Assets (ROA)—are analysed for their influence
on stock prices. The sample includes 20 banks selected through purposive sampling. The
findings reveal that CR and DER negatively affect stock prices, while ROA has a positive
impact. Multiple linear regression analysis is applied to assess these relationships.

(Habiba, H 2024) Research on regional financial performance often employs

financial ratios to assess budget management efficiency. Studies analysing government
financial performance, such as that of the North Sumatera Provincial Government from 2018
to 2022, utilize indicators like the independence ratio, effectiveness ratio, decentralization
ratio, and revenue-expenditure growth ratio. Quantitative descriptive analysis is commonly
applied to evaluate fiscal performance. Findings indicate both improvements and persistent
imbalances, highlighting the need for enhanced budget management and fiscal
independence. Such studies provide insights for improving regional financial governance.

Khalilov Bahromjon Bahodirovich (2024)This article provides basic information

on financial leverage rates and analyses in this regard and gives the necessary conclusions
and suggestions. In addition, studies have also been carried out on financial leverage ratios,
comparative industry analysis, liquidity ratios.

31
 (Jinn, L. S, 2025) The construction sector plays a vital role in Malaysia's economic
growth, yet studies on its efficiency remain limited. Prior research has explored financial
performance, but comprehensive efficiency assessments are scarce. This study examines 35
construction firms listed on Bursa Malaysia (2006–2021) using the DEA model with
financial ratios. Findings reveal that only eight firms achieved efficiency, highlighting gaps
in resource allocation. The study contributes to policy and investment decisions by
identifying inefficiencies and recommending improvements, supporting sustainable growth
in Malaysia’s construction industry.

(Masno Marjohan, 2025) Existing literature explores the impact of financial factors
on bond ratings, yet gaps remain in understanding their interplay in non-financial companies.
This study examines the influence of interest rates, liquidity, and leverage on bond ratings
in Indonesian firms (2018–2023), with profitability as an intervening variable. Findings
indicate that interest rates significantly affect bond ratings, while liquidity plays a minor
role. Leverage positively influences bond ratings but negatively impacts profitability. Future
research should expand industry coverage and incorporate corporate governance and
macroeconomic factors for greater validity.

Li Ying (2025) found that information source of financial management operation

data comes from financial statements, accounting records and other aspects. The amount of
data is large, which increases the calculation amount of risk prediction algorithm. In order
to reflect the business operation status and risk changes in a timely manner, provide
comprehensive and multi-dimensional risk information, use the advantage of big data
analysis to quickly process massive data, and propose a prediction method for business
financial management operation risk based on big data analysis.

Balasubramaniyan, G & Venkatachalam, S. (2025) in steel industry Preprocess

enterprise financial management and operation data through steps such as data cleaning,
standardization, discretization, and fuzzy rough set mining to remove noise, redundancy,
incomplete, and uncertain information from the data, and obtain reduced and dimensionality
enterprise financial management and operation data; on this basis, select a variety of risk
indicators, and use the gray system model to extract key enterprise financial management
operational risk indicators.

32
 M., Mustapha, W. M. W., & Arifin, N. (2022)The enterprise financial management
operational risk indicators are input into the SVM model as training samples. According to
the constraints of the SVM classification model, the classification hyperplane is established,
and the results of enterprise financial management operational risk prediction are obtained.
Particle swarm optimization algorithm is used to optimize the predefined parameters and
cost parameters of the kernel function in the SVM model to improve the accuracy of risk
prediction.

Ariandy, C. N., & Mappayunki, R. (2024)The experimental results show that this
method has excellent feasibility and accuracy. It can not only accurately predict the risk level
of the enterprise, but also the prediction results are highly stable and reliable. The method
also has strong robustness and is suitable for long-term risk prediction. While the prediction
time is short, it can also ensure a better balance between the generalization ability and
performance of the model, and provide an efficient and practical risk management tool for
enterprises.

Anchala Chouksey (2025) her research project intends to develop an efficient

understanding of the factors leading to business failures using algorithms that learn from
data. For the present study focusing on bankruptcy prediction, we used several datasets to
enhance the quality and reliability of forecasts. The major data sources were financial
statements, which include balance sheets, income statements, and cash flow statements,
providing quantitative measures that enable analysts to perceive the financial health of a
firm through various ratios and indicators. Machine learning model selection for the
prediction of bankruptcy is based on the evaluation of various algorithms: Logistic
Regression, Random Forest, Gradient, and Boosting. The models were evaluated against a
set of overall metrics: accuracy, precision, recall, F1-score, and ROC-AUC.

Abdullah AL Sayeed (2025 )Random Forest and XG-Boost resulted in marginally

better scores across all metrics as compared to Logistic Regression. Predictive insights
determined from bankruptcy risk models give rise to valuable interpretations for decision-
makers. An organization in the USA can, from model prediction analysis, identify firms that
show a high risk of going into bankruptcy and thus enable appropriate interventions in time.
Machine learning-driven bankruptcy prediction undoubtedly assists in integrating better risk
management policies and procedures in financial institutions. Similarly, by using complex
algorithms for pattern identification in historical data, an institution will go deeper in
identifying patterns constituting distress in companies.

33
 DATA ANALYSIS AND INTERPRETATION

4.1 WORKING CAPITAL RATIO

The working capital ratio, also called the current ratio, is a liquidity ratio that
measures a firm’s ability to pay off its current liabilities with current assets. The working
capital ratio is important to creditors because it shows the liquidity of the company.

Net assets
Working capital ratio = --------------------
Net liabilities

TABLE NO: 4.1

WORKING CAPITAL RATIO

Year Net Assets Net Liabilities Ratio

2018-2019 22.91 117.92 0.19

2019-2020 22.72 127.80 0.18

2020-2021 11.92 124.38 0.10

2021-2022 12.46 133.73 0.09

2022-2023 1.83 132.51 0.01

Interpretation of Working Capital Ratio (2018-19 to 2022-23)

The working capital to net assets ratio shows a declining trend from 0.19 in 2018-19
to 0.01 in 2022-23, indicating a significant reduction in liquidity. Net working capital has
decreased sharply, while net assets have grown steadily. This suggests inefficient short-term
financial management, potential liquidity issues, or reliance on external financing. The
company may face challenges in meeting short-term obligations, requiring improved
working capital management for financial stability.

34
 CHAT 4.1

WORKING CAPITAL

0.2
0.18
0.16
0.14
0.12
0.1 0.19 0.18
0.08
0.06 0.1 0.09
0.04
0.02
0.01
0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

Ratio

35
4.2 INVENTORY TURNOVER RATIO

This ratio indicates the efficiency of the firm in producing and selling its product.
This ratio indicates the number of times inventory is replaced during the year. It measures
how quickly inventory is sold. The inventory turnover reflects the efficiency of the firm in
producing and selling its products. This ratio indicates the velocity or the movement of
goods during the year. It is calculated as follows.

Cost of goods
Inventory turnover ratio = --------------
Sold

TABLE 4.2
INVENTORY TURNOVER RATIO

Year Cost of Average Ratio

goods sold inventory
2018-2019
213.30 283.54 0.75
2019-2020
3.42 56.69 0.06
2020-2021
1.09 52.72 0.02
2021-2022
-19.01 61.14 -0.31
2022-2023
20.10 70.10 0.29

Interpretation of Inventory Turnover Ratio (2018-2019 to 2022-2023)

The Inventory Turnover Ratio declined from 0.75 in 2018-19 to -0.31 in 2021-22,
indicating inefficient inventory management, possible write-offs, or declining sales.
However, in 2022-23, it improved to 0.29, suggesting better stock control and demand
alignment. While recovery is evident, further improvements are needed to sustain efficiency
and optimize inventory turnover for better operational performance.

36
 CHART 4.2

INVENTORY TURNOVER RATIO

1

0.8

0.6

0.4

0.2

0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
-0.2

-0.4

37
4.3 DEBTORS TURNOVER RATIO

Ratio of net credit sales to average trade debtors is called debtors turnover ratio. It is
also known as receivables turnover ratio. This ratio is expressed in times. It can be calculated
as

𝐬𝐚𝐥𝐞𝐬
𝐃𝐄𝐁𝐓𝐎𝐑𝐒 𝐓𝐔𝐑𝐍𝐎𝐕𝐄𝐑 𝐑𝐀𝐓𝐈𝐎 =
𝐝𝐞𝐛𝐭𝐨𝐫𝐬

TABLE 4.3
DEBTORS TURNOVER RATIO

Year Sales Debtors Ratio

2018-2019 208.95 31.44 6.65

2019-2020 205.42 33.58 6.12

2020-2021 242.33 27.00 8.98

2021-2022 255.96 27.98 9.15

2022-2023 217.49 20.46 10.63

Interpretation of Receivables Turnover Ratio (2018-2019 to 2022-2023)

The Receivables Turnover Ratio showed a positive trend from 2018-19 to 2022-23,
reflecting improved credit management. It started at 6.65 in 2018-19, slightly declined to
6.12 in 2019-20, indicating slower collections, but then surged to 8.98 in 2020-21 and 9.15
in 2021-22, showing enhanced credit policies. The ratio peaked at 10.63 in 2022-23,
demonstrating highly efficient receivables turnover. This upward trend indicates better
debtor management, reduced collection periods, and strengthened cash flow. To sustain this
efficiency and minimize bad debt risks, the company must continue refining its credit and
collection strategies for long-term financial stability.

38
 CHART 4.3

DEBTORS TURNOVER RATIO

12

10

6
10.63
8.98 9.15
4
6.65 6.12

0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

39
4.4 COLLECTION PERIOD

The average collection period is the approximate amount of time that it takes for a
business to receive payments owed in terms of accounts receivable. The average collection
period is calculated by dividing the average balance of accounts receivable by total net credit
sales for the period and multiplying the quotient by the number of days in the period. To
find the collection period.

360

Collection Period = ---------------------------

Debtors’ turnover ratio

TABLE 4.4
COLLECTION PERIOD

Days in a Debtors’ Debt collection

Year year turnover ratio period (days)

2018-2019 365 6.65 54.92

2019-2020 365 6.12 59.67
2020-2021 365 8.98 40.67
2021-2022 365 9.15 39.90
2022-2023 365 10.63 34.34

Interpretation of Average Collection Period (2018-2019 to 2022-2023)

The Average Collection Period (ACP) improved significantly from 54.92 days in
2018-19 to 34.34 days in 2022-23, indicating enhanced efficiency in receivables collection.
This decline is driven by an increasing Receivables Turnover Ratio, which rose from 6.65
to 10.63, reflecting stronger credit management and faster debt recovery. The shorter
collection period has strengthened the company's liquidity, ensuring better cash flow and
financial flexibility. Effective credit policies, debtor management, and collection strategies
contributed to this improvement. To maintain financial stability, the company must continue
optimizing its receivables management and minimizing potential credit risks for sustained
operational efficiency.

40
 CHART 4.4

COLLECTION PERIOD

60

50

40

59.67
30 54.92

40.67 39.9
20 34.34

10

0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

41
4.5 NET PROFIT RATIO

Net profit is obtained when operating expenses interest and taxes are subtracted from
the gross profit. The ratio is measured as

𝐏𝐫𝐨𝐟𝐢𝐭 𝐚𝐟𝐭𝐞𝐫 𝐭𝐚𝐱

𝐍𝐄𝐓 𝐏𝐑𝐎𝐅𝐈𝐓 𝐑𝐀𝐓𝐈𝐎 =
𝐒𝐚𝐥𝐞𝐬

This ratio is established a relationship between net profit and sales and indicates
managements efficiency in manufacturing, administrating and selling the products. This
ratio is the overall measure of the firm’s ability to turn each rupee sales into net profit.

TABLE 4.5
NET PROFIT RATIO

Year Net profit Net sales Ratio

2018-2019
8.15 208.95 3.90
2019-2020
0.42 205.42 0.20
2020-2021
3.46 242.33 1.43
2021-2022
9.37 255.96 3.66
2022-2023
9.11 217.49 4.19

Interpretation of Net Profit Ratio (2018-2019 to 2022-2023)

The Net Profit Ratio fluctuated from 3.90% in 2018-19 to 0.20% in 2019-20,
indicating a sharp profitability decline due to rising costs or reduced revenue. A gradual
recovery began in 2020-21 (1.43%), followed by strong rebounds in 2021-22 (3.66%) and
2022-23 (4.19%). This upward trend reflects improved cost control, pricing strategies, and
operational efficiency. Sustaining growth requires continued revenue optimization, cost
management, and strategic market expansion.

42
 CHART 4.5

NET PROFIT RATIO

4.5
4
3.5
3
2.5
4.19
2 3.9 3.66
1.5
1 1.43
0.5
0.2
0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

43
4.6 RETURN ON TOTAL ASSETS

Return on assets is a measure of how effectively the firm's assets are being used to generate
profits. It is defined as:

Net profit
Return on Assets = -----------------------------
Total Assets

TABLE 4.6
RETURN ON TOTAL ASSETS

Year Net profit Total assets Ratio

2018-2019 8.15 117.92 6.91

2019-2020 0.42 127.80 0.33

2020-2021 3.46 124.38 2.78

2021-2022 9.37 133.73 7.01

2022-2023 9.11 132.51 6.87

Interpretation of Return on Assets (ROA) (2018-2019 to 2022-2023)

The Return on Assets (ROA) measures asset efficiency in generating profits. The company’s
ROA was 6.91% in 2018-19, but it dropped sharply to 0.33% in 2019-20, indicating reduced
profitability and asset underutilization. A partial recovery in 2020-21 saw ROA rise to
2.78%, followed by a peak of 7.01% in 2021-22, reflecting improved asset efficiency. In
2022-23, ROA slightly declined to 6.87% but remained stable. Despite fluctuations, the
company showed strong financial recovery. To sustain profitability, it should focus on
optimizing asset utilization, improving operational efficiency, and implementing effective
financial strategies for long-term stability and growth.

44
 CHART 4.6

RETURN ON TOTAL ASSETS

4 7.01
6.91 6.87
3

2
2.78
1
0.33
0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

45
4.7 RETURN ON INVESTMENT

The term in investment may refer to total assets or net assets. The conventional approach of
calculating return on investment is to divide profit after tax by investment.

Operating profit
Return on investments = -------------------------
Capital employed

TABLE 4.7
RETURN ON INVESTMENT

Capital
Year Operating profit employed Ratio

2018-2019 34.11 40.85 0.84

2019-2020 22.81 50.77 0.45

2020-2021 26.81 39.27 0.68

2021-2022 38.26 38.91 0.98

2022-2023 38.66 57.11 0.68

Interpretation of Return on Investment (ROI) (2018-2019 to 2022-2023)

The Return on Investment (ROI) measures profitability relative to capital employed.

In 2018-19, ROI was 0.84, reflecting strong capital efficiency. However, it declined to 0.45
in 2019-20 due to lower operating profit despite increased capital. A partial recovery in
2020-21 saw ROI rise to 0.68, driven by improved profits and reduced capital. The peak of
0.98 in 2021-22 indicated optimal capital utilization. In 2022-23, ROI fell to 0.68 as capital
employed increased. The fluctuating trend highlights the impact of investment and
efficiency on profitability. To sustain growth, the company must improve capital allocation
and operational strategies.

46
 CHART 4.7

RETURN ON INVESTMENT

1
0.9
0.8
0.7
0.6
0.5 0.98
0.84
0.4 0.68 0.68
0.3
0.45
0.2
0.1
0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

47
4.8 RETURN ON SHAREHOLDERS FUNDS

The Return on Shareholders’ Funds ratio is a measure of the profit for the period
which is available to the ordinary shareholders with the ordinary shareholders' stake in a
business.

Net profit after interest & tax

Return on shareholders’ funds = ------------------------------
Shareholders’ funds

TABLE 4.8
RETURN ON SHAREHOLDERS FUNDS

Net profit after Shareholder’s

Year interest & tax fund Ratio

2018-2019 8.15 56.23 14.49

2019-2020 0.42 49.79 0.84

2020-2021 3.46 50.05 6.91

2021-2022 9.37 47.55 19.71

2022-2023 9.11 39.22 23.23

Interpretation of Return on Shareholders’ Funds (ROSF) (2018-2019 to 2022-2023)

The Return on Shareholders’ Funds (ROSF) measures profitability relative to equity.

In 2018-19, ROSF was 14.49%, indicating strong returns. However, it sharply declined to
0.84% in 2019-20 due to reduced net profit, highlighting financial struggles. A recovery
began in 2020-21, with ROSF rising to 6.91%, followed by a surge to 19.71% in 2021-22
and a peak of 23.23% in 2022-23. This growth was driven by stable profits and reduced
shareholder funds. The trend reflects improving financial efficiency. To sustain growth, the
company should focus on strengthening profitability, optimizing capital structure, and
ensuring long-term financial stability.

48
 CHART 4.8

RETURN ON SHAREHOLDERS FUNDS

25

20

15
23.23
19.71
10
14.49

5
6.91

0.84
0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

49
4.9 SOLVENCY RATIO

Solvency ratio is a key metric used to measure an enterprise’s ability to meet its debt
and other obligations. The solvency ratio indicates whether a company’s cash flow is
sufficient to meet its short-term and long-term liabilities. The lower a company's solvency
ratio, the greater the probability that it will default on its debt obligations.

` Total debt
Solvency ratio = --------------------
Total tangible assets

TABLE 4.9
SOLVENCY RATIO

Total tangible
Year Total debt assets Ratio

2018-2019 61.69 168.71 0.37

2019-2020 78.01 176.40 0.44

2020-2021 74.33 182.26 0.41

2021-2022 86.18 205.75 0.42

2022-2023 93.29 190.70 0.49

Interpretation of Solvency Ratio (2018-2019 to 2022-2023)

The solvency ratio assesses a company's ability to meet long-term obligations. From
2018-19 to 2022-23, total debt rose from 61.69 to 93.29, increasing reliance on borrowed
capital, while tangible assets peaked at 205.75 in 2021-22 before declining to 190.70 in
2022-23. This led to a rise in the solvency ratio from 0.37 to 0.49, indicating higher financial
risk. To maintain stability, the company must improve revenue generation, optimize asset
utilization, and balance its capital structure. Prudent debt management, operational
efficiencies, and increased equity financing will help strengthen financial sustainability and
minimize long-term risk exposure.

50
 CHART 4.9

SOLVENCY RATIO

0.5
0.45
0.4
0.35
0.3
0.25 0.49
0.44 0.42
0.41
0.2 0.37
0.15
0.1
0.05
0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

51
4.10 GROSS PROFT RATIO

The first profitability ratio in relation to sales is the gross profit margin. It is
calculated as

Gross Profit
Gross profit margin = ---------------------------
Sales
This ratio indicates the average spread between the cost of goods sold and sales revenue. A
high gross profit margin ratio is a sign of goods management. It is relative to the industry
average implies the firm able to produce at relatively lower cost.

TABLE 4.10
GROSS PROFIT MARGIN

Year Gross profit Net sales Ratio

2018-2019 65.73 208.95 31.46

2019-2020 53.46 205.42 26.02

2020-2021 70.92 242.33 29.27

2021-2022 69.97 255.96 27.34

2022-2023 69.93 217.49 32.15

Interpretation of Gross Profit Ratio (2018-2019 to 2022-2023)

The gross profit ratio measures profitability and cost efficiency. Between 2018-19
and 2022-23, it fluctuated, reaching a low of 26.02% in 2019-20 due to rising costs, lower
prices, or reduced sales. This decline impacted profitability and highlighted cost control
challenges. However, the ratio rebounded, peaking at 32.15% in 2022-23, reflecting
improved cost management and revenue optimization. Despite a slight drop in net sales, the
rising ratio indicates better financial health. Sustaining a high gross profit ratio is crucial for
long-term stability, requiring continued focus on cost efficiency, pricing strategies, and
operational improvements to enhance profitability.

52
 CHART 4.10

GROSS PROFIT RATIO

35

30

25

20
31.46 32.15
15 29.27
26.02 27.34

10

0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

53
4.11 OPERATING PROFIT RATIO

The operating margin ratio, also known as the operating profit margin, is a
profitability ratio that measures what percentage of total revenues is made up by operating
income. In other words, the operating margin ratio demonstrates how much revenues are left
over after all the variable or operating costs have been paid.

Operating profit
Operating profit ratio = ------------------------
Net sales

TABLE 4.11
OPERATING PROFIT RATIO

Year Operating profit Net sales Ratio

2018-2019 34.11 208.95 16.32

2019-2020 22.81 205.42 11.10

2020-2021 26.81 242.33 11.06

2021-2022 38.26 255.96 14.95

2022-2023 38.66 217.49 17.78

Interpretation of Operating Profit Ratio (2018-2019 to 2022-2023)

The operating profit ratio measures a company's efficiency in generating profit from
core operations. From 2018-19 to 2022-23, it fluctuated, reaching a low of 11.06% in 2020-
21 due to rising expenses, inefficient resource use, or pricing pressures. However, it
rebounded, peaking at 17.78% in 2022-23, reflecting improved cost management and
operational efficiency. Despite a slight decline in net sales, the rising ratio indicates better
expense control and financial strength. To sustain profitability, the company must focus on
cost control, revenue optimization, and strategic decision-making, ensuring long-term
stability through efficient operations and competitive pricing structures.

54
 CHART 4.11
OPERATING PROFIT RATIO

18

16

14

12

10
17.78
16.32
8 14.95

6 11.1 11.06

0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

55
 FINDINGS, SUGGESTIONS AND CONCLUSION

5.1 Findings Based on Financial Ratio Analysis

• Liquidity and Working Capital Management: Net Working Capital declined from
22.91 (2018-19) to 1.83 (2022-23), weakening short-term financial stability. The
working capital ratio fell from 0.19 to 0.01, indicating liquidity challenges
despite asset growth.
• Inventory Turnover and Management Efficiency: The Inventory Turnover Ratio
dropped significantly, reaching 0.06 (2019-20) and 0.02 (2020-21), signalling
slow inventory movement. A negative ratio (-0.31) in 2021-22 suggested
inefficiencies, but recovery to 0.29 in 2022-23 indicated improved inventory
management.
• Receivables Management and Cash Flow Efficiency: The Debtors Turnover
Ratio improved from 6.65 (2018-19) to 10.63 (2022-23), showing faster cash
collection. The average collection period declined from 54.92 to 34.34 days,
reflecting strong receivables management and liquidity.
• Profitability and Revenue Performance: The Net Profit Ratio dropped from
3.90% (2018-19) to 0.20% (2019-20) but recovered to 4.19% (2022-23). ROA
fell from 6.91% to 0.33% (2019-20) before rebounding to 7.01% (2021-22). ROI
peaked at 0.98 (2021-22) but declined to 0.68 (2022-23), while ROSF fluctuated,
recovering to 23.23% in 2022-23.
• Solvency and Financial Stability: The solvency ratio rose from 0.37 to 0.49,
showing increased external funding reliance. Total debt rose from 61.69 to 93.29,
while total tangible assets fluctuated, increasing financial risk.
• Gross Profitability: The Gross Profit Ratio dropped to 26.02% (2019-20) before
peaking at 32.15% (2022-23), indicating improved cost control and revenue
efficiency.
• Operating Profitability: The Operating Profit Ratio declined to 11.06% (2020-
21) but rebounded to 17.78% (2022-23), highlighting stronger cost control and
operational improvements.

56
5.2 Suggestions Based on Financial Ratio Analysis

• Improve Liquidity and Working Capital Management: Optimize the balance between
assets and liabilities, reduce reliance on short-term borrowing, and negotiate better
credit terms with suppliers.
• Enhance Inventory Turnover Efficiency: Implement Just-In-Time (JIT) inventory
management, improve demand forecasting, and use advanced tracking systems to
minimize holding costs.
• Optimize Asset Utilization for Higher Returns: Invest in automation, dispose of
underperforming assets, and carefully monitor capital investments to improve
returns.
• Manage Debt and Financial Stability: Lower dependence on external debt, explore
equity financing, and maintain a balanced solvency ratio to ensure long-term
stability.
• Strengthen Gross and Operating Profitability: Increase operational efficiency, boost
revenue through marketing, and negotiate cost-saving deals with suppliers.
• Focus on Sustainable Growth Strategies: Expand into new markets, implement risk
management measures, and invest in R&D to stay competitive and ensure long-term
success.
• Strengthen gross and operating profitability: focus on operational efficiency,
negotiate better supplier terms, and invest in marketing to increase revenue and
reduce costs.
• Focus on sustainable growth strategies: expand into new markets, implement risk
management practices, and invest in research and innovation for future growth.

57
5.3 Conclusion

Financial ratio analysis is an essential tool for evaluating a company’s financial

health, profitability, efficiency, and solvency. The study’s findings reveal valuable insights
into the company’s performance, including trends in liquidity, profitability, asset utilization,
and solvency. For example, improvements in the turnover of debtors 'turnover, operating
profit and the return on shareholders' funds (ROSF) indicate operational efficiency and
higher profitability, reflecting the capacity of the company to Manage its resources more
effectively. The gross profit coefficient, the operating profit coefficient and the rolling
coefficients of the actions also demonstrate the progress of the company in the area of cost
control and operational improvements. However, despite these positive trends, several issues
highlight areas that require attention, such as fluctuating net working capital, inventory, and
solvency ratios. Financial ratios provide instantaneous business performance, but there are
limitations to be aware of. These relationships are based on historical financial data that do
not always show current or future outcomes, particularly in light of changing market
conditions, economic shocks, or internal business changes.

Furthermore, only the management coefficients cannot fully cover qualitative

aspects of the company, such as management quality, market conditions, and strategic
initiatives. Variations in accounting practices between industries and businesses can also be
made with unreliable comparisons that limit the generalizability of results. To make an
informed decision, it is essential to complete a financial ratio analysis in the context of
qualitative information, industry and future forecasts.

58
 BIBLIOGRAPHY

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3. Sharma, R.K., & Gupta, Shashi K. Financial Management. Kalyani Publishers,

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3. Effendie, Jessica, Manafe, Henny, & Man, Stanis. (2022). "Analysis of the Effect
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 7. Kumar, V., & Reddy, S. (2023). "Challenges and Limitations of Financial Ratio
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Websites:

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Through Financial Ratios: An AI Integrative Approach with the Throughput Model
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[Link] or [Link]

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performance of manufacturing companies in Ghana: A case of Guinness Ghana
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60
 Annexure I

[Link] SHEET OF FINFORTUNE Financial services PRIVATE LIMITED.,

CHENNAI

2019 2020 2021 2022 2023

Sources Of Funds
Total Share Capital 4.28 4.28 4.28 4.28 4.28
Equity Share Capital 4.28 4.28 4.28 4.28 4.28
Reserves 51.95 45.51 45.77 43.27 34.94
Net worth 56.23 49.79 50.05 47.55 39.22
Secured Loans 57.32 72.91 72.2 83.5 89.3
Unsecured Loans 4.37 5.1 2.13 2.68 3.99
Total Debt 61.69 78.01 74.33 86.18 93.29
Total Liabilities 117.92 127.8 124.38 133.73 132.51
Application Of Funds
Gross Block 297.37 296.58 294.48 292.72 290.9
Less: Revaluation Reserves 27.08 27.43 27.79 28.14 28.52
Less: Accum. Depreciation 176.95 166.44 156.21 145 133.91
Net Block 93.34 102.71 110.48 119.58 128.47
Capital Work in Progress 0 0 0 0 0.09
Investments 1.67 2.38 1.97 1.67 2.1
Inventories 38.93 35.51 34.42 53.43 33.33
Sundry Debtors 31.44 33.58 27 27.98 20.46
Cash and Bank Balance 3.33 2.22 8.39 3.09 6.34
Total Current Assets 73.7 71.31 69.81 84.5 60.13
Loans and Advances 26.28 28.44 27.22 22.78 17.1
Total CA, Loans & Advances 99.98 99.75 97.03 107.28 77.23
Current Liabilities 72.58 73.73 81.99 91.82 73.47
Provisions 4.49 3.3 3.12 3 1.93
Total CL & Provisions 77.07 77.03 85.11 94.82 75.4
Net Current Assets 22.91 22.72 11.92 12.46 1.83
Total Assets 117.92 127.80 124.38 133.73 132.51
Contingent Liabilities 14.37 14.73 14.68 15.14 15.41
Book Value (Rs) 131.85 116.74 117.35 111.49 91.95
-------------------[Link] lakhs-----------------

61
 Annexure II

2. INCOME STATEMENT OF FINFORTUNE Financial services PRIVATE LIMITED.,

CHENNAI
2019 2020 2021 2022 2023
Income
Sales Turnover 208.95 205.42 242.33 255.96 217.49
Net Sales 208.95 205.42 242.33 255.96 217.49
Other Income 0.48 0.5 0.87 0.07 0.27
Stock Adjustments 0.48 5.91 -6.5 6.31 1.67
Total Income 209.91 211.83 236.7 262.34 219.43
Expenditure
Raw Materials 126.42 123.13 142.8 156.04 118.72
Power & Fuel Cost 16.8 28.83 28.61 29.95 28.84
Employee Cost 22.08 23.96 24.58 22.9 19.69
Miscellaneous Expenses 10.02 12.6 13.03 15.12 13.25
Total Expenses 175.32 188.52 209.02 224.01 180.5
Operating Profit 34.11 22.81 26.81 38.26 38.66
PBDIT 34.59 23.31 27.68 38.33 38.93
Interest 11.11 11.37 11.74 13.57 14.12
PBDT 23.48 11.94 15.94 24.76 24.81
Depreciation 10.57 10.68 10.85 11.14 11.25
Profit Before Tax 12.91 1.26 5.09 13.62 13.56
PBT (Post Extra-ord Items) 12.91 1.26 5.09 13.62 13.56
Tax 4.76 0.84 1.63 4.25 4.45
Reported Net Profit 8.15 0.42 3.46 9.37 9.11
Total Value Addition 48.90 65.39 66.22 67.97 61.78
Equity Dividend 1.71 0.85 0.85 0.85 0
Corporate Dividend Tax 0.35 0.17 0.17 0.14 0
Per share data (annualized)
Shares in issue (lakhs) 42.65 42.65 42.65 42.65 42.65
Earnings Per Share (Rs) 19.09 0.97 8.1 21.97 21.35
Equity Dividend (%) 40 20 20 20 0
Book Value (Rs) 131.85 116.74 117.35 111.49 91.95
-------------------[Link] lakhs-----------------

62