A

PROJECT REPORT
ON

“STUDY OF FINANCIAL STATEMENT ANALYSIS OF AARTI INDUSTRIES

LIMITED”

FOR
AARTI INDUSTRIES LIMITED

SUBMITTED TO
SAVITRIBAI PHULE PUNE UNIVERSITY
IN PARTIAL FULLFILMENT OF TWO YEARS FULL TIME
MASTERS DEGREE IN BUSINESS ADMINISTRATION (MBA)

SUBMITTED BY
RANJIT JAVALKAR
(BATCH – 2021-23)

GUIDED BY
PROF._______________

JSPM’s
JAYAWANTRAO SAWANT COLLEGE OF ENGINEERING
MBA DEPARTMENT
HADAPSAR, PUNE- 411028
COLLEGE CERTIFICATE:
COMPANY CERTIFICATE:
 ACKNOWLEDGEMENT

It is my privilege to express gratitude & sincere thanks to JSPM’s Jayawantrao Sawant

College of Engineering, MBA Department, Hadapsar, Pune for giving me an opportunity to
undertake the summer internship project report on the topic “Study Of Financial
Statement Analysis Of Aarti Industries Limited.”

I express sincere thanks to my project guide, Mr./Dr./Ms./Mrs. …, (Designation)…………..

(Department), for guiding from the inception till the successful completion of the project.

I sincerely acknowledge him/her for extending his/her valuable guidance, support for
literature, critical reviews of projects & researches and above all the moral support he/she
provided to me at all stages of this project.

(Signature of Student)
Ranjit Javalkar
MBA (Batch 2021-2023)
 DECLARATION

I, Ranjit Jawalkar, studying in the second year of Master of Business Administration

(MBA) at Jayawantrao Sawant College of Engineering (MBA Department), Hadapsar,
Pune, hereby declare that I have completed the Summer Internship Project titled “Study Of
Financial Statement Analysis Of Aarti Industries Limited” as a part of the course
requirements for Master of Business Administration (MBA) Program.

I also declare that the work undertaken by me is original and has not been copied from any
other source. I further declare that the information presented in this project is true and
original and has not been submitted to JSCOE or any other Institute for any other
examination, before this. It is based on the original research work and will be used only for
the academic purpose. It will not be produced in any condition as a source of information to
an industry.
Date: Signature
Place: Ranjit Javalkar
MBA(Batch 2021-2023)
 EXECUTIVE SUMMARY:
Chapter 1:
Chapter 1 is about Introduction on Financial Statement Analysis.

Chapter 2:
Chapter 2 is about Research objectives & Scope of the study.

Chapter 3:
Chapter 3 included sector profile , company profile & product profile.

Chapter 4:
In this research project chapter 4 contains information about the review of literature. This
chapter is various past research of well-known researchers is included which gives and
frame work for project report.

Chapter 5:
Chapter 5 is about Research Methodology includes, Research objectives, Scope of the
study, Research Design, Research Instruments, Data Collection Method, etc.

Chapter 6:
This chapter is all about Data Analysis and Interpretation. I have done some financial ratios
to analyse the financial statement analysis of Aarti Industries Limited includes, Profitability
Ratio, Turnover Ratio, Liquidity Ratio and Leverage Ratio. I have also done Horizontal
Analysis, Trend Analysis and Vertical Analysis.

Chapter 7, 8 & 9:
The Findings, Suggestions and Limitation of the study are presented in chapter 7, 8 & 9.

Chapter 10 & 11:

Chapter 10 & 11 presents the overall project's conclusion, bibliography, and annexure.
 INDEX:
Chapter Particulars Page No.
Chapter 1 Introduction
Chapter 2 Objectives & Scope of the project
Chapter 3 3.1 Sector Profile
3.2 Company Profile
3.3 Product Profile
Chapter 4 Theoretical Background
Chapter 5 Research Methodology
Chapter 6 Data Analysis & Interpretation
Chapter 7 Findings
Chapter 8 Recommendations / Suggestions
Chapter 9 Limitations of the project
Chapter 10 Conclusion
Chapter 11 Bibliography
Annexure

Chapter 1
 INTRODUCTION
Financial Statement Analysis is a method of reviewing and analyzing a company’s
accounting reports (financial statements) in order to gauge its past, present or projected
future performance. This process of reviewing the financial statements allows for better
economic decision making.
Globally, publicly listed companies are required by law to file their financial statements
with the relevant authorities. For example, publicly listed firms in America are required to
submit their financial statements to the Securities and Exchange Commission (SEC). Firms
are also obligated to provide their financial statements in the annual report that they share
with their stakeholders. As financial statements are prepared in order to meet requirements,
the second step in the process is to analyze them effectively so that future profitability and
cash flows can be forecasted.
Therefore, the main purpose of financial statement analysis is to utilize information about
the past performance of the company in order to predict how it will fare in the future.
Another important purpose of the analysis of financial statements is to identify potential
problem areas and troubleshoot those.

USERS OF FINANCIAL STATEMENT ANALYSIS

There are different users of financial statement analysis. These can be classified into
internal and external users. Internal users refer to the management of the company who
analyzes financial statements in order to make decisions related to the operations of the
company. On the other hand, external users do not necessarily belong to the company but
still hold some sort of financial interest. These include owners, investors, creditors,
government, employees, customers, and the general public. These users are elaborated on
below:

1. Management

The managers of the company use their financial statement analysis to make intelligent
decisions about their performance. For instance, they may gauge cost per distribution
channel, or how much cash they have left, from their accounting reports and make decisions
from these analysis results.
2. Owners

Small business owners need financial information from their operations to determine
whether the business is profitable. It helps in making decisions like whether to continue
operating the business, whether to improve business strategies or whether to give up on the
business altogether.

3. Investors

People who have purchased stock or shares in a company need financial information to
analyze the way the company is performing. They use financial statement analysis to
determine what to do with their investments in the company. So depending on how the
company is doing, they will either hold onto their stock, sell it or buy more.

4. Creditors

Creditors are interested in knowing if a company will be able to honor its payments as they
become due. They use cash flow analysis of the company’s accounting records to measure
the company’s liquidity, or its ability to make short-term payments.

5. Government

Governing and regulating bodies of the state look at financial statement analysis to
determine how the economy is performing in general so they can plan their financial and
industrial policies. Tax authorities also analyze a company’s statements to calculate the tax
burden that the company has to pay.

6. Employees

Employees need to know if their employment is secure and if there is a possibility of a pay
raise. They want to be abreast of their company’s profitability and stability. Employees may
also be interested in knowing the company’s financial position to see whether there may be
plans for expansion and hence, career prospects for them.

7. Customers
Customers need to know about the ability of the company to service its clients into the
future. The need to know about the company’s stability of operations is heightened if the
customer (i.e. a distributor or procurer of specialized products) is dependent wholly on the
company for its supplies.

8. General Public

Anyone in the general public, like students, analysts and researchers, may be interested in
using a company’s financial statement analysis. They may wish to evaluate the effects of
the firm on the environment, or the economy or even the local community. For instance, if
the company is running corporate social responsibility programs for improving the
community, the public may want to be aware of the future operations of the company.

METHODS OF FINANCIAL STATEMENT ANALYSIS

There are two main methods of analyzing financial statements: horizontal or trend analysis,
and vertical analysis. These are explained below along with the advantages and
disadvantages of each method.

Horizontal Analysis

Horizontal analysis is the comparison of financial information of a company with historical

financial information of the same company over a number of reporting periods. It could also
be based on the ratios derived from the financial information over the same time span. The
main purpose is to see if the numbers are high or low in comparison to past records, which
may be used to investigate any causes for concern. For example, certain expenditures that
are high currently, but were well under budget in previous years may cause the management
to investigate the cause for the rise in costs; it may be due to switching suppliers or using
better quality raw material.

This method of analysis is simply grouping together all information, sorting them by time
period: weeks, months or years. The numbers in each period can also be shown as a
percentage of the numbers expressed in the baseline (earliest/starting) year. The amount
given to the baseline year is usually 100%. This analysis is also called dynamic analysis or
trend analysis.

Vertical Analysis

Vertical analysis is conducted on financial statements for a single time period only. Each
item in the statement is shown as a base figure of another item in the statement, for a given
time period, usually for year. Typically, this analysis means that every item on an income
and loss statement is expressed as a percentage of gross sales, while every item on a balance
sheet is expressed as a percentage of total assets held by the firm.

Vertical analysis is also called static analysis because it is carried out for a single time
period.
 Chapter 2
OBJECTIVES & SCOPE OF THE PROJECT:

2.1 Research Objectives:

 To analyze the production, sales and profit trend of Aarti Industries Limited. 
 To analyze the activity of AIL. 
 To analyze the profitability of AIL. 
 To analyze the financial structure of AIL. 
 To make suggestion for improvement of financial soundness.
2.2 Scope of the study:
 The information relevant to the decision under consideration from total information
contained in the financial statements 
 The information in a way to highlight significant 
 Interpretation and drawing if interfaces and conclusion
 Chapter 3

3.1 Sector/Industry Profile

3.1.1 Overview of Chemical Industry: Indian Scenario
The Indian Chemical industry has a huge role to play to make India a US $5 trillion
economy by contributing around US $300 billion to the GDP by 2025. The industry is
growing with CAGR of 9.3% and is expected to attract investments of Rs 8 lakh crore by
2025. As the sector plays a significant role in enabling the growth of the Indian economy,
the country needs to build a competitive landscape for the chemical industry.
 India is a strong global dye supplier, accounting for approximately 16% of the world
production of dyestuff and dye intermediates. 
 Demand for organic chemicals is expected to grow at 9% CAGR from FY19-23, with
phenol demand growing at 11% 
 Alkali chemicals had the largest share in the Chemical industry in India with
approximately 69% share in the total production. Production of polymers account for
around 59% of total production of basic major petrochemicals 
 The petrochemical market in India is expected to grow at a CAGR of 10% over the next
5 years to reach $100 bn by 2022 
 The Indian colorant industry, valued at USD 6.8 bn, exports nearly 75% of its
production

o Robust demand
Large population base coupled with strong export demand

o Policy support
Setting up PCPIRs, plastic parks and CIPETs

o Chemical manufacturing hub

The global shift towards Asia as the world’s chemical manufacturing hub

o New focus segments

Specialty and knowledge chemicals
o Cost competitive manufacturing
Boost air connectivity to smaller cities & northeastern states skilled manpower, world-class
engineering, and strong R&D

The chemical industry in India is an indispensable part of the economy of the country, for it
constitutes around 6% of the country’s GDP. Chemicals industry in India is highly
diversified, covering more than 80,000 commercial products. It is broadly classified into
Basic chemicals, Specialty chemicals, and Agrochemicals.
The Indian chemicals industry is projected to reach $304 bn by 2025. India is a strong
global dye supplier, accounting for approximately 16% of the world production of dyestuff
and dye intermediates. Chemicals industry in India has been de-licensed except for few
hazardous chemicals. Upcoming Petroleum, Chemicals and Petrochemicals Investment
Regions (PCPIRs) and Plastic parks will provide state-of-the-art infrastructure for
Chemicals and Petrochemicals sector.
100% FDI Chemical Industry in India is allowed under the automatic route (except in the
case of certain hazardous chemicals).

3.1.2 Growth Drivers of the Industry

The chemical sector has witnessed growth of 13-14% in the last 5 years while
petrochemicals have registered a growth of 8-9% over the same period. The major growth
drivers, behind India’s chemical industry could be listed as follows:
Structural advantage: With a growing market and purchasing power, the domestic
industry is likely to growth at over 10-13% in the coming years. Growing disposable
incomes and increasing urbanization are fuelling the end consumption demand for paints,
textiles, adhesives and construction, which, in turn, leads to substantial growth opportunity
for chemicals companies. 
High domestic consumption: The chemicals industry in India is the largest consumer of its
own products, consuming 33% of its output. With promising growth trends in the chemicals
industry, this internal consumption is also set to rise. 
Diversified industry: The Indian chemicals industry has a diversified manufacturing base
that produces world-class products. There is a substantial presence of downstream industries
in all segments. Further, this large and expanding domestic chemicals market also boasts of
a large pool of highly-trained scientific manpower. 
Promising export potential: Chemicals constitute ~5.4% of India’s total exports. India
already has a strong presence in the export market in the sub-segments of
dyes,pharmaceuticals and agro chemicals. India exports dyes to Germany, the UK, the US,
Switzerland, Spain, Turkey, Singapore and Japan.

3.1.3 Critical Success Factors of the Chemical Industry

Companies in the chemical industry are facing fierce competition as they strive to drive
sustainable innovation, growth, and profitability — especially after a decade of financial
struggle and consolidation. And even though the future looks bright, with the highest
forecasted growth rates the industry has seen in more than 20 years, there are still immense
challenges.
Like almost every other industry, chemical companies are looking for new ways to manage
highly fluctuating economic conditions, uncertain markets, global competition, and
continuously increasing regulatory requirements. So what will help these organizations
drive innovation and value?
Looking ahead, here are six strategies that the forerunners in this industry are already
adopting to advance beyond surviving to thriving.

Fully prepare for rapid globalization and growth.

Leading chemical companies understand that rapid growth in new regions and markets via
mergers and acquisitions is a key critical success factor. To achieve this, they are entering
these markets with preconfigured, field-proven best practices and adaptive business
processes for core functions that can be deployed and ramped up quickly. And they are
eliminating historically grown complexity as they harmonize processes and operations on a
global basis to establish a business model that is poised for sustainable growth and
expansion.

Drive sustainable product innovation and integrity.

ncreasing global competition and new demands from the growing middle class in emerging
countries is driving reduced product lifecycles and mass customization. But industry leaders
know that speed to market must not compromise product quality and integrity. Therefore,
they are accelerating the speed of innovation with integrated processes that drive rapid time
to market while ensuring product safety and stewardship throughout the entire product
lifecycle. And they are adopting holistic concepts, such as Cradle to Cradle, which target
zero emissions and 100 percent recycling of waste.

Make the most out of existing assets.

Chemical industry assets are capital-intensive – and because of the nature of the industry,
there are always inherent risks associated with hazardous materials. Given this, the leading
companies are using Big Data to maximize the use of their assets in a safe manner that
doesn’t compromise performance or safety. In the past, this huge amount of valuable data
wasn’t fully exploited because of the volume and its dispersed nature. But now, smart
companies are leveraging that data for real-time analytics, performance insights, and
predictive models to maximize overall plant and asset performance. This is a key success
factor that adds tremendous business value and is clearly distinguishing leaders and
innovators from average performers.

Excel at managing complex and volatile supply chains globally.

There are major global shifts in demand and supply, triggered by the shale gas revolution in
the United States and the rapidly increasing middle class in the emerging countries. These
shifts add elements of volatility, uncertainty, complexity, and ambiguity (VUCA) to
chemical supply chains. The leaders are responding with fully integrated processes, from
planning to execution, that provide end-to-end visibility and compliance. These processes
also allow for real-time event response, and leverage predictive models to overall mitigate
short- and long-term risks of supply chain disruption. Consequently, the leaders are
equipped with the necessary agility and responsiveness in their supply chains to stay ahead
of competition.

Focus on greater profitability through customer-centric sales and service.

Poor customer segmentation and pipeline visibility as well as inconsistent pricing policies
can cause lost revenue and erode margins. Leaders are finding ways to increase visibility
into sales performance, pipeline and price waterfall at individual customer and product
level, and regional and channel performance so they can proactively manage prices and
margins. In addition, they are implementing consistent policies around price setting, price
execution, and delivered services across all channels to ensure sustainable growth of
revenues and margins.
Proactively manage knowledge and talent.
The issue of talent management is certainly one that can keep the CEO of any chemical
company up at night. Global competition for talent is increasing and worldwide expansion
requires relocating workers or recruiting from local talent pools, all while being sensitive to
cultural issues. In addition, the issue of the aging workforce is quickly becoming a major
concern, as the loss of institutional knowledge and a lack of manpower for the factory floors
is threatening to undermine the forward movement of these companies. Therefore, to master
talent management, market leaders are taking measures to better understand strategic
workforce needs and, at a tactical and operational level, better manage the entire people
lifecycle — from hire to retire. This includes looking into how to make jobs more appealing
to the Millennials and exploring how to capture the life-long knowledge of Baby Boomers
who are leaving the workforce.
Chemical companies merely need to look at the leaders in the industry — the companies
that have a competitive stronghold — to see how these critical practices are leading to great
success. And while it may seem like a daunting list, the adoption of some form of these
success factors is truly what will take companies from merely surviving to thriving.

3.1.4 SWOT Analysis of Chemical Industry

Strengths
 Diversified manufacturing base 
 Vibrant downstream industries in different segments 
 Competitive core industries 
 Capability to produce world-class end product 
 Large domestic market 
 Major raw material component sources within the country 
 Good R&D base and quality human resources 
 Strong presence in the export market in sub-segments such as Dyes, Pharma and
Agrochemicals

Weaknesses
 Cost of Power 
 Cost of Finance 
 Infrastructure 
 Scale of Production 
 Cost Disadvantages 
 Multiple taxes 
 Extras transportation cost for raw material and finished goods 
 Low investment in R&D and technology

Opportunities
 Market in developed country is opening up 
 Success in Dyestuff has boosted other sectors 
 Being close to middle east India has close vicinity to petrochemicals Large no of
product going off patent 
 Competencies to utilize renewable resources 
 Climatic condition in India 
 Competency to emerge as a global player in area of speciality chemicals

Threats
 Reduction in import tarrifs 
 China’s lower chemical cost 
 Threat of extinction, if competency is not acquired Bilateral / multilateral trade
agreement
3.2 Company Profile

3.2.1 Overview of Aarti Industries Limited

Aarti Industries Limited (AIL) is a leading Indian manufacturer of speciality chemicals and
pharmaceuticals with a global footprint. We combine process chemistry competence (recipe
focus) with a scale-up engineering competence (asset utilisation) for creating a sustainable
future.
Over the last decade, AIL has transformed from an Indian company servicing global
markets to a global entity with state-of-the-art manufacturing facilities in India. We
manufacture chemicals used in the downstream manufacturing of the pharmaceuticals,
agrochemicals, polymers, additives, surfactants, pigments and dyes.

Aarti Industries Limited has 3 Values

Care - Our commitment to care includes care of all our stakeholders – our employees, our
customers, our suppliers, our community and our environment.
Integrity - We will always practise the highest ethical and moral standards.
Excellence - We will delight our stakeholders continuously.

Aarti industries Limited has one motto,

3.2.2 History of Aarti Industries Limited
1984 Incorporated Aarti Organics Private Limited
1986 Commenced 1,200 tonnes per annum (TPA) unit for Nitro Chloro
Benzenes (NCB) in Sarigram, Gujarat
1990 Set up the first large-scale organic plant in Vapi — a 4,500 TPA unit
for NCB
2001 Set up a large-scale hydrogenation and nitration unit at Jhagadia
(hydrogen gas via pipeline)
2005 Expanded the NCB and sulphuric acid capacity Set up a large-scale
speciality chemical unit in Kutch, Gujarat Received US FDA approval
for an Active Pharmaceutical Ingredient unit in Tarapur, Maharashtra
2011 Upgraded the hydrogenation unit from batch to continuous Received
US FDA approval for the custom synthesis division at Vapi
Commenced bulk shipment for global markets
2016 Commissioned an ethylation facility at Dahej SEZ (ethylene gas via
pipeline) Expanded the NCB capacity from 57 KTPA to 75 KTPA
2017 Commenced the functioning of the Calcium Chloride facility Started
operations at co-generation and solar power plants
2018 Commissioned the Nitro Toulene plant Signed two large multi-year
contracts with global players Manufacturing facility being set up at
Dahej SEZ
2019 Commissioned the Nitro Toulene hydrogenation facility at Jhagadia
Signed another multi-year contract with a global player
2020 Operationalised Aarti Research and Technology Centre at Mahape,
Navi Mumbai, Maharashtra Commissioned two units at Dahej SEZ for
high-value specialitychemicals

3.2.3 Vision, Mission & Goal for AIL

Vision
To emerge as a global partner of choice for leading consumer of speciality chemicals and
intermediates
Mission
Delight stakeholder 
To constantly strive to set up and maintain global size plant facilities. 
To become customer-driven company by providing customized solutions and service to
meet changing customer requirements. 
To maintain consistent quality and timely delivery at competitive prices.

Goal
Development of International markets for AARTI’s Products. 
Toll manufacturing.
3.3 Product Profile
Aarti industries manufacturing of two types product
1. Chemical Products
2. Pharmaceuticals
These two types product include 200+ products

3.3.1 Customers of Aarti Industries Limited

er the past 3 decades, Aarti Industries Limited has emerged as a global partner of choice for
over 400+ global and 700+ domestic customers across the chemical industry. Across our
customer portfolio, we are market leaders in agrochemicals, pharmaceuticals, polymers,
home and personal care products and pigments.
 Chapter 4
THEORETICAL BACKGROUND
4.1 Review of Literature

Year Author Title Keywords Conclusion

2012 Erik Hofmann, Financial Financial The result of
Kerstin Lampe statement performance, this paper yield
analysis of Financial differentiated
logistics statements, financial
service Balance sheet insight into
providers: analysis LSP markets
Ways of (Based on
enhancing services).
performance Analyzed
based on
analogies of
non-quoted
LSPs to quoted
ones might
also yield
useful
conclusion on
the financial
performance
on the
financial
performance of
non-quoted
LSPs.

In 2012, Erik Hofmann, Kerstin Lampe has conducted a study on “Financial statement
analysis of logistics service providers: Ways of enhancing performance” and came to a
conclusion saying “The result of this paper yield differentiated financial insight into LSP
markets (Based on services). Analyzed based on analogies of Non quoted LSPs to quoted
ones might also yield useful conclusion on the financial performance on the financial
performance of Non quoted LSPs.”

Year Author Title Keywords Conclusion

2013 Ting-ya Hsieh, Finding critical Finance, This work
Morris H.- L. financial for performance purpose a
Wang taiwan's measurement novel staged
property approach for
development evaluating
firms in property
recession development
firms. The
proposed
approach aims
at assisting the
selection of
ratio in
financial
analysis.

In 2013, Ting-ya Hsieh, Morris H.-L. Wang has conducted a study on “Finding critical
financial for Taiwan's property development firms in recession” and came to a conclusion
saying “This work purpose a novel staged approach for evaluating property development
firms. The proposed approach aims at assisting the selection of ratio in financial analysis.”

Year Author Title Keywords Conclusion

2013 Chunhui Liu, Ratio analysis Ration The questions
Grace comparability analysis, such as the
O’Farrell, between Management stability of
Kwok-kee Wei Chinese and ration, Finance financial ratios
and Lee J.Yao Japanese firms and accounting over time,
 across
industries, and
conditions that
lead to changes
in financial
ratios of firms
need to be
answered.
Research is
also needed to
compare
financial ratios
by sectors to
identify sector-
wide
differences of
economic
significance

In 2013, Chunhui Liu, Grace O’Farrell, Kwok-kee Wei and Lee J.Yao has conducted a
study on “Ratio analysis comparability between Chinese and Japanese firms ” and came to a
conclusion saying “The questions such as the stability of financial ratios over time, across
industries, and conditions that lead to changes in financial ratios of firms need to be
answered. Research is also needed to compare financial ratios by sectors to identify sector-
wide differences of economic significance.”

Year Author Title Keywords Conclusion

2015 Nigel Purves, On the Management, This study also
Scott James relationship organization, showed that
Niblock, Keith between Financial nonfinancial
Sloan financial and failure, non- and financial
non-financial financial factors have a
factors factors relationship
 between
organizational
success and
failure in
prominent
Australian
agricultural
firms; thus,
rejecting both
research
hypotheses
posed.

In 2015, Nigel Purves, Scott James Niblock, Keith Sloan has conducted a study on “On the
relationship between financial and non-financial factors” and came to a conclusion saying
“This study also showed that non-financial and financial factors have a relationship between
organizational success and failure in prominent Australian agricultural firms; thus, rejecting
both research hypotheses posed.”

Year Author Title Keywords Conclusion

2015 Paulaa Diane Management Pension funds, In conclusion,
Parker, Nancy of pension Accounting our study
J. Swanson, discount rate and auditing, extends prior
Michael T. and financial Firm Behavior research by
Dugan health examining the
unexpected
portion of the
pension
discount rate
based on the
zscore
determination
of whether a
 firm is
considered
financially
healthy or
financially
unhealthy

In 2015, Paulaa Diane Parker, Nancy J. Swanson, Michael T. Dugan has conducted a study
on “Management of pension discount rate and financial health” and came to a conclusion
saying “In conclusion, our study extends prior research by examining the unexpected
portion of the pension discount rate based on the z-score determination of whether a firm is
considered financially healthy or financially unhealthy.”

Year Author Title Keywords Conclusion

2017 Ting-ya Hsieh, Performance Business The aim of this
Sara Trucco measurement practices, exploratory
and SME, study was to
Management performance propose a
for management PMMS
manufacturing suitable for
SMEs: A SMEs, based
financial on the firm’s
statementbased financial
system statements and
additional
information on
its business
practices.

In 2017, Ting-ya Hsieh, Sara Trucco has conducted a study on “Performance measurement
and Management for manufacturing SMEs: A financial statement-based system” and came
to a conclusion saying “The aim of this exploratory study was to propose a PMMS suitable
for SMEs, based on the firm’s financial statements and additional information on its
business practices.”

Year Author Title Keywords Conclusion

2018 Stephanie M. Determinants Determinants Since
Weidman, of return-on- of return-on- electronics is
Daniel J. equity in USA, equity, the most
Mcfaraland, German and German and important
Gulser Meric, Japanese Japanese manufacturing
Ilhan Meric manufacturing manufacturing industry in all
firms firms three countries,
we also
applied our
empirical tests
to data for
electronics
manufacturing
firms. NPM is
the most
important
determinant of
ROE in
electronics
firms in all
three countries

In 2018, Stephanie M. Weidman, Daniel J. Mcfaraland, Gulser Meric, Ilhan Meric has
conducted a study on “Determinants of return-on-equity in USA, German and Japanese
manufacturing firms” and came to a conclusion saying “Since electronics is the most
important manufacturing industry in all three countries, we also applied our empirical tests
to data for electronics manufacturing firms. NPM is the most important determinant of ROE
in electronics firms in all three countries.”
Year Author Title Keywords Conclusion
2018 Ali Karimi, Financial Financial There is no
Masoud Barati performance performance ideal approach
evaluation of evaluation, to evaluate
companies Tehran Stock financial
listed in tehran Exchange, performance of
stock Negative data companies.
exchange: A Envelopment The available
negative data analysis performance
envelopment evaluation
analysis systems ignore
approach the nature of
ranking
indicators and
fail to give
reasons for
rejection or
acceptance of a
company in the
optimal
portfolio.

In 2018, Ali Karimi, Masoud Barati has conducted a study on “Financial performance
evaluation of companies listed in Tehran stock exchange: A negative data envelopment
analysis approach” and came to a conclusion saying “There is no ideal approach to evaluate
financial performance of companies. The available performance evaluation systems ignore
the nature of ranking indicators and fail to give reasons for rejection or acceptance of a
company in the optimal portfolio.”

Year Author Title Keywords Conclusion

2019 Carlo Caserio, Management Financial Methodologically,
Delio Panaro, discussion and performance, this research
Sara Trucco analysis: A Financial provides
 tone analysis companies, stakeholders with
on US Management a set of
financial listed discussion and dictionaries and a
companies analysis statistical tool
useful to conduct
tone analyses and
thus to deepen the
understanding of
company
disclosure.

In 2019, Carlo Caserio, Delio Panaro, Sara Trucco has conducted a study on “Management
discussion and analysis: A tone analysis on US financial listed companies” and came to a
conclusion saying “Methodologically, this research provides stakeholders with a set of
dictionaries and a statistical tool useful to conduct tone analyses and thus to deepen the
understanding of company disclosure.”
 Chapter 5
RESEARCH METHODOLOGY
5.1. Problem Statement
Production is considered as the backbone of the manufacturing sector. Production function
is considered the effective tool to satisfy the consumer demand and to operate in an
economical and efficient manner ales are the important component for the development of
the business. Sales can be enhanced only by the following good sale policy. Due to the
pricing policy of the government the companies have to face some fluctuations in the sales.
These fluctuations may lead to increase or decrease the financial risk of the companies.

5.2. Research Objective

 To analyze the production, sales and profit trend of Aarti Industries Limited. 
 To analyze the activity of AIL. 
 To analyze the profitability of AIL. 
 To analyze the financial structure of AIL. 
 To make suggestion for improvement of financial soundness.

5.3. Scope of the Study

 The information relevant to the decision under consideration from total information
contained in the financial statements 
 The information in a way to highlight significant 
 Interpretation and drawing if interfaces and conclusion

5.4. Research Design

 In this project I have used descriptive method of the study.

5.5. Research Instrument

 Here project analysis is made by collecting secondary data from different websites,
research papers, etc. 
 Secondary data’s are pre published and research data’s collected from different
websites, journals, newspapers, company research papers. 
 These documents and data are very useful for the theoretical, conceptual and
organizational background analysis. 
 Detailed analysis of data’s is made by plotting different graphs and tables which can be
easily understandable. 
 Then by observing these graphs we have made our conclusion and recommendations.

5.6. Data Collection

As the nature of the study relates to financial performance, the main part used was
secondary data. It includes profit and loss account, balance sheet etcetera. Thus the study is
based on the published accounts and annual reports of the company Aarti Ind. Ltd. The
study covers the period of five years from 2018 – 2022.

5.7. Source of Data

Utilizing the internet is one of the most often used methods for gathering secondary data.
Data is quickly available online and can be downloaded with a single click. This study
analyses all available secondary data in its entirety. Information is gathered using annual
reports from AARTI INDUSTRIES LIMITED. Ratios were utilized to analyze AARTI
INDUSTRIES LIMITED's overall performance.

5.8. Data Analysis

The data analysis has been done by using following methods:

1. Ratio analysis
 Financial ratios 
 Turnover ratios 
 Liquidity ratios 
 Leverage ratios

2. Horizontal analysis
Horizontal analysis is the comparison of historical financial information over various
reporting periods. It helps determine a companies’ growth and financial position versus
competitors. The horizontal analysis technique uses a base year and a comparison year to
determine a company’s growth.
3. Vertical analysis
Vertical analysis is a method of analyzing financial statements that list each line item as a
percentage of a base figure within the statement. The first line of the statement always
shows the base figure at 100%, with each following line item representing a percentage of
the whole.

4. Trend analysis
Trend analysis is the process of looking at current trends in order to predict future ones and
is considered a form of comparative analysis.
 Chapter 6
DATA ANALYSIS & INTERPRETATION
6.1. FINANCIAL RATIOS
1. Gross Margin
The gross margin ratio varies from business to business and from industry to industry. The
performance of the business increases as the gross margin rises. Additionally, this ratio
shows owners how manufacturing expenses affect their revenue. The formula below can be
used to determine this ratio.

Gross margin in percentage: EBIT/sales*100

Year EBIT Sales Gross Margin
2018 560 3,806 14.71
2019 804 4705 17.09
2020 800 4186 19.11
2021 750 4506 16.64
2022 1,641 6999 23.45

The higher the gross margin, the higher the performance of the company. From the graph it
is seen that the gross margin increases after 2018, but after 2020 there is a slight decrease.
Thus, after 2020, the performance of the company is seen to be a little weak. Gross margin
is highest for the financial year 2022 and lowest for the year 2018.
2. Profit Margin
Profit margin aids investors in determining whether management of a firm is producing
sufficient profits from sales and whether operational and overhead expenditures are in
check. One of the most crucial measures of a company's overall financial health is its profit
margin. The following formula is used to calculate it, and it is expressed as a percentage.

Profit margin: Profit After Tax (PAT) / Sales*100

Year Profit after Tax Sales Profit Margin
2018 346 3806 9.09
2019 504 4705 10.71
2020 546 4186 13.04
2021 535 4506 11.87
2022 1307 6999 18.67

Profit margin defines a company’s overall profitability. If the profit of the firm is high then
the profit margin will be high. From the chart it is clear that the profit margin has been
increasing since 2019. Profit margin is highest for the financial year 2022 and lowest for the
year 2018.

3. Return on Capital Employed Ratio

The return on capital used, one of the most common interest rates used by investors,
establishes the company's profit in accordance to the quantity of capital it uses. In contrast
to ROE, which only takes into account shareholder investments, ROCE also takes into
account company debt obligations.

Return on Capital Employed (ROCE) in percentage = (EBIT / Overall Capital Employed) ×

100
Where, Overall Capital Employed = Total Assets – Current Liabilities
Year EBIT Total Assets Current Return on Capital
Liabilities Employed Ratio
2018 560 4327 1586 20.43
2019 804 5857 1932 20.48
2020 800 6332 1916 18.12
2021 750 7641 2400 14.31
2022 1641 9672 2336 22.37

Return on capital employed gives company’s financial position and overall profitability of
the company. If the ratio is high which depicts that the company has provided good returns
to the shareholders. Here from the graph it is clear that ROCE has been decreasing from the
year 2019. Then in financial year 2022 ROCE increased slightly. Highest ROCE is recorded
in financial year 2022.
4. Return on Shareholder’s Equity
One of the most widely used measurements in basic analysis; the return on equity ratio
helps you determine a company's ability to make a profit using only the funds from its
shareholders. It gives you a good idea of a return on Production Company for all 100 rupees
invested by shareholders.
When the ROE is high, the company makes good use of shareholders' money to make a
profit. This ratio is expressed in percentages and can be calculated using the following
formula:

Return on equity (ROE) in % = (Profit after Tax / Shareholder’s Equity) × 100

Year Profit after Tax Shareholder's Return on Shareholder's
Equity Equity
2018 346 1577 21.94
2019 504 2624 19.21
2020 546 2978 18.33
2021 535 3502 15.28
2022 1307 5914 22.10

The higher the percentage, the more money is being returned to investors. This ratio helps
business owners and financing professionals determine a company's financial health. The
above chart shows that this ratio decreases till 2021. And after 2021 there will be a slight
increase.
5. Return on Assets
You can determine how effectively a company can use its assets to produce income by
looking at its return on assets ratio. High returns on assets show that a business is proficient
at generating profits from its assets. The following formula is used to calculate it, and it is
expressed as a percentage.

Return on Assets (ROA) in % = (Profit after Tax / Average Total Assets) × 100
Year Profit after Tax Average Total Assets Return on Assets
2018 346 4327 8.00
2019 504 5857 8.61
2020 546 6332 8.62
2021 535 7641 7.00
2022 1307 9672 13.51

This ratio defines a company’s profitability based on assets it has. Here from the graph it is
clear that return on assets is showing decreasing trend since 2020, this shows the firm’s
weak financial performance. The lowest was recorded for the financial year 2021 and
highest for the financial year 2022.

6. Earnings per Share

EPS, or earnings per share, is a popular indicator used to assess the worth of a firm. It can
be characterised as the amount of earnings per outstanding share of common stock of a
corporation. By displaying how much money a firm produces for each share of its stock,
EPS reveals its profitability. This formula is used to calculate it.

Earnings per Share = Profit after Tax ÷ No. Of Equity Share

Year Profit after Tax No. of Equity Share Earnings Per Share
2018 346 40 8.65
2019 504 43 11.72
2020 546 87 6.28
2021 535 87 6.15
2022 1307 181 7.22

This ratio indicates the ability of the firm’s assets to generate operating income. As a rule of
thumb, the higher this ratio is the better. It is important to realize that this ratio shows the
return shareholders are actually achieving on their investment, using current market value
for listed shares. Earnings per Share had increased from 8.65 to 11.72 from 2018 to 2019
and decreased in the year 2020 with 6.28. It had decreased again by 6.15 in 2021 and had a
slight rise by the next year which is 2022 with 7.22 Earnings per Share. The shareholders
can be assured that the company can be considered as a safe player in terms of investment
but it has to improve.
6.2. TURNOVER RATIO
1. Stock Turnover Ratio
The number of times a company has been able to sell and refill its stock of finished items is
determined by the stock turnover ratio. Typically, it does calculations for a while. The Stock
Turnover Ratio can be calculated using the following formula.

Stock Turnover Ratio = Revenue / Average Stock

Year Revenue Average Inventory Stock Turnover Ratio
2018 3,806 343.38 11.08
2019 4,705 350.46 13.43
2020 4,186 390.74 10.71
2021 4,506 450.73 10.00
2022 6,999 671.47 10.42

The performance ratio that helps determine how good a company is in managing its stock
inventory while generating sales during a given time period. The ratio indicates how many
times during a specific period of time a company is able to sell its inventory. The Stock
Turnover Ratio had a steady growth since the beginning of 2018. It was 11.08 in 2018,
increased slightly by 13.43 in 2019 and decreased by 10.71 in 2020, 10.00 in 2021 and
10.42 in the year 2022.
2. Debtors Turnover Ratio
The accounts receivables turnover ratio is another name for the debtor turnover ratio. It
shows how frequently typical borrowers were converted to cash throughout the course of
the year. The efficiency ratio, which gauges a business's capacity to generate money, is
another name for this. This formula is used to calculate it.

Debtors Turnover Ratio = Revenue from Operation ÷ Average Trade Receivable

Year Revenue from Average Trade Debtors Turnover
Operation Receivables Ratio
2018 3,806 319.62 11.91
2019 4,705 403.03 11.67
2020 4,186 391.24 10.70
2021 4,506 409.54 11.00
2022 6,999 717.55 9.75

A high receivables turnover ratio can indicate that a company's collection of accounts
receivable is efficient and that it has a high proportion of quality customers who pay their
debts quickly. The above chart shows that this ratio is seen decreasing year by year. The
debtors turnover ratio from 2018 to 2022 with 11.91, 11.67, 10.70, 11.00, 9.75 in 2022.
3. Working Capital Turnover Ratio
A company's ability to generate revenues for each dollar of utilised working capital is
measured by its working capital turnover. A higher working capital turnover ratio is
preferable and shows that the business can produce more sales volume. This formula is used
to calculate it.

Working Capital Turnover Ratio = Revenue ÷ (Current Assets – Current Liabilities)

Year Revenue Current Assets Current Working Capital
Liabilities Turnover Ratio
2018 3701 1620 1586 108.85
2019 4552 2577 1932 7.06
2020 4004 2004 1916 45.50
2021 4318 2367 2400 -130.85
2022 6868 3273 2336 7.33

Higher ratio means higher performance of the firm. From the graph it is clear that working
capital turnover ratio has been decreasing since 2018. It shows that firm is not using its
working capital effectively. The highest data was recorded for the financial year 2018 and
lowest in 2021.

6.3. LIQUIDITY RATIO

1. Current Ratio
A liquidity ratio called the current ratio evaluates a company's capacity to settle its short-
term debts and obligations, which are frequently due within a year. It reveals whether the
business has adequate liquid or current assets to satisfy its short-term obligations.

Current Ratio = Current Assets / Current Liabilities

Year Current Assets Current Current Ratio
Liabilities
2018 1620 1586 1.02
2019 2577 1932 1.33
2020 2004 1916 1.05
2021 2367 2400 0.99
2022 3273 2336 1.40

Higher the current ratio higher will be the firm’s capability to pay its obligations. From the
graph it is evident that the firm’s shows decline in current ratio for the year 2021 followed
by 2019. It would have been difficult for the firm to pay off its obligations. There was a
slight increase in current ratio for the year 2022. Current ratio is highest for the year 2022
and lowest for the year 2021.

2. Quick Ratio
The quick ratio gauges a company's capacity to cover its immediate liabilities. A smaller
ratio might be preferable in a sector where revenue is predictable and stable, like retail,
where it can be predicted that the expected revenue will meet the necessary revenue. On the
other hand, a high fast ratio will shield a business from a drop in sales in a volatile or
seasonal industry. The Quick Ratio formula is as follows.

Quick Ratio = (Current Assets – Inventory)/Current Liabilities

Year Current Inventory Current Quick Ratio
Assets Liabilities
2018 1620 686.75 1586 0.59
2019 2577 700.91 1932 0.97
2020 2004 781.48 1916 0.64
2021 2367 901.46 2400 0.61
2022 3273 1342.93 2336 0.83

Quick ratio for a business is 1:1. Higher the quick ratio higher is the liquidity for the
business. From the graph it is clear that quick ratio is highest for the year 2019 and lowest
for the year 2018 in relation to current assets. For the current year is 0.83:1.

6.4. LEVERAGE RATIO

1. Debt to Equity Ratio
The Debt-to-Equity Ratio, one of the most often used measuring ratios, establishes the
proportion of debt to equity in a corporation. If a company's debt to equity ratio is more than
1, it has more debt than equity; if it is lower than 1, it has more equity than debt. When the
debt to equity ratio is 1, it means that the company's debt and equity are equal. Here's how
to figure out the ratio.

Debt to Equity = Debt ÷ Equity

Year Debt Equity Debt to Equity
Ratio
2018 1923 1577 1.22
2019 2099 2624 0.80
2020 1816 2978 0.61
2021 2486 3502 0.71
2022 2188 5914 0.37

The Debt to Equity Ratio for last 5 years is decrease 1.22 to 0.37. Lower the Debt to Equity
Ratio company is on the safer side. From the graph it is evident that AIL has strong
financial stability as its debt to equity ratio is very low for last four years.

2.Debt to Total Capital Ratio

The debt-to-equity ratio is a gauge of the financial leverage of a corporation. The debt-to-
equity ratio is computed by dividing the entire equity of a corporation by the interest-
bearing debt, short- and long-term liabilities, and other liabilities. This formula is used to
calculate it.

Debt to Total Capital Ratio = Debt ÷ Capital Employed

Year Debt Capital Employed Debt to Total
Capital Ratio
2018 1923 1963.65 0.98
2019 2099 2142.33 0.98
2020 1816 1903.12 0.95
2021 2486 2573.12 0.97
2022 2188 2369.25 0.92

The higher the debt to capital ratio, the riskier the company. This is because a higher ratio,
the more the company is funded by debt than equity, which means a higher liability to repay
the debt and a greater risk of forfeiture on the loan if the debt cannot be paid timely. The
above chart shows that this ratio is 0.98 in 2018, 0.98 in 2019, 0.95 in 2020, 0.97 in 2021 &
0.92 in 2022. The company debt to capital ratio is decreasing year by year so it can be said
that has no risk.

3. Debt to Total Assets Ratio

The debt-to-total assets ratio reveals how much of a company's assets are owned by
shareholders v/s creditors (those from whom it has borrowed money). This formula is used
to calculate it.

Debt to Total Assets Ratio = Debt ÷ Total Assets

Year Debt Total Assets Debt to Total
Assets Ratio
2018 1923 4117 0.47
2019 2099 5627 0.37
2020 1816 6089 0.30
2021 2486 7513 0.33
2022 2188 9503 0.23

If the debt to total assets ratio is greater than one, a business has more debt than assets. If
the ratio is less than one, the business has more assets than debt. A ratio greater than 1
indicates that a significant portion of assets is funded with debt and that the company has a
higher default risk. Therefore, the lower the ratio, the safer the company. The above chart
shows that this ratio is 0.47 to 0.23 for the year 2018 to 2022.

4. Proprietary Ratio
A sort of solvency ratio called the proprietor's ratio is helpful for estimating how much the
owners or shareholders have contributed to the overall assets of the company. It is
sometimes referred to as the net worth ratio, shareholder equity ratio, or equity ratio. The
Proprietor's Ratio can be calculated using the following formula.

Proprietary Ratio = Shareholder’s Equity / Total Assets

Where, Proprietor’s Funds = Equity Share Capital + Reserves and Surplus
Year Shareholder's Total Assets Proprietary Ratio
Equity
2018 1577 4117 0.38
2019 2624 5627 0.47
2020 2978 6089 0.49
2021 3502 7513 0.47
2022 5914 9503 0.62

Proprietary ratio helps the creditors of the company in seeing that their capital or loans
which the creditors have given to the company are safe. The proprietary ratio depicts a
firm’s financial leverage capacity and strength. The above graph shows an increasing trend
from the financial year 2018 to 2022 with 0.38, 0.47, 0.49, 0.46 and 0.62.

5. Interest Coverage Ratio

The debt-to-profitability ratio known as the interest coverage ratio is used to assess a
company's ability to pay the interest on its existing debt. Divided by interest expenses
during a specific time period, a company's earnings before interest and taxes (EBIT) yields
the interest coverage ratio. This formula is used to calculate it.

Interest Coverage Ratio = EBIT ÷ Interest

Year EBIT Interest Interest Coverage
2018 560 131.46 4.26
2019 804 182.31 4.41
2020 800 124.61 6.42
2021 750 86.3 8.69
2022 1641 97.21 16.88

A higher interest coverage ratio indicates stronger financial health and the company is more
capable of meeting interest obligations. Thus, the above chart shows that the interest
coverage ratio has been increase 2018 to 2022 with 4.26, 4.41, 6.42, 8.69 and 16.88.

6.5. HORIZONTAL ANALYSIS

When examining a company's financial statements over a number of periods, horizontal
analysis is used. On the same line item from the base year, it is typically shown as
percentage growth. Users of financial accounts can quickly detect trends and patterns of
growth by using horizontal analysis.

Profit & Loss Account:

Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
Sales 6,999 4,506 4,186 4,705 3,806
Other Income 0 0 8 2 7
Total Income 7,000 4,506 4,195 4,707 3,813
Total Expenditure 5,359 3,755 3,394 3,903 3,253
EBIT 1,641 750 800 804 560
Interest 114 86 124 182 131
Tax 219 129 129 117 82
Net Profit 1,307 535 546 504 346

Comparative Profit & Loss Account

Amount % Amount % Amount % Amount %
Sales 2,493 55 320 8 -519 -11 899 24
Other 0 0 -8 -100 6 300 -5 -71
Income
Total Income 2,494 55 311 7 -512 -11 894 23
Total 1,604 43 361 11 -509 -13 650 20
Expenditure
EBIT 891 119 -50 -6 -4 0 244 44
Interest 28 33 -38 -31 -58 -32 51 39
Tax 90 70 0 0 12 10 35 43
Net Profit 772 144 -11 -2 42 8 158 46

Interpretation of P&L Account:

Horizontal analysis is a process used to analysed financial statements by comparing the
specific financial information for a particular accounting period with information from
another period. The analysis uses such an approach to analyse historical trends.
Here, 2018 - 2019 period is the total income amount is 894 and percentage is 23%, 2019 –
2020 period is the total income is -512 amount and -11%, 2020 – 2021 period is the total
income amount is 311 and percentage is 7% and 2021 – 2022 period is the total income
amount is 1604 and percentage is 43%.
Total Expenditure in 2018 - 2019 is 650 and the percentage is 20%, 2019 – 2020 is -509 and
the percentage is -13%, 2020 – 2021 is 361 and the percentage is 11 and 2021-2022 total
expenditure is 1604 and the percentage is 43%.
The net profit in 2018 – 2019 amount is 158 and percentage is 46%, 2019 – 2020 amount is
42 and percentage is 8%, 2020 – 2021 amount is -11 and percentage is -2%, 2021 – 2022
amount is 772 and percentage is 144%.

Balance Sheet:
Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
Shareholder's Funds
and Liabilities:
Share Capital 181.25 87.12 87.12 43.33 40.65
Reserves and Surplus 5,604.17 3,324.62 2,814.69 2,517.08 1,474.52
Non-Current Liabilities 1,407.86 1,703.44 1,317.46 1,181.98 1,056.79
Current Liabilities 2,310.34 2,398.55 1,869.95 1,885.26 1,545.54
Total Funds 9503.62 7513.73 6089.22 5627.65 4117.5
Assets:
Fixed Assets 5,826.54 4,808.68 3,719.28 2,774.03 2,275.45
Non-Current 43.42 36.26 37.16 33.36 55.9
Investments
Deffered Tax Assets 0 0 0 0 0
Long Term Loans and 0 0 0 0 0
Advances
Other Non-Current 414.9 317.14 391.95 296.97 217.01
Assets
Total Current Assets 3,218.76 2,351.65 1,940.83 2,523.51 1,569.14
Total Assets 9,503.62 7,513.73 6,089.22 5,627.87 4,117.50

Comparative Balance Sheet

Amount % Amount % Amount % Amount %
94.13 108.05 - - 43.79 101.06 2.68 6.59
 2279.55 68.57 509.93 18.12 297.61 11.82 1,042.56 70.71
-295.58 -17.35 385.98 29.30 135.48 11.46 125.19 11.85
-88.21 -3.68 528.60 28.27 -15.31 -0.81 339.72 21.98
1989.89 26.48 1,424.51 23.39 461.57 8.20 1,510.15 36.68

1017.86 21.17 1,089.40 29.29 945.25 34.07 498.58 21.91

7.16 19.75 -0.90 -2.42 3.80 11.39 -22.54 -40.32
0 - - - - - - -
0 - - - - - - -
97.76 30.83 -74.81 -19.09 94.98 31.98 79.96 36.85
867.11 36.87 410.82 21.17 -582.68 -23.09 954.37 60.82
1989.89 26.48 1,424.51 23.39 461.35 8.20 1,510.37 36.68

Interpretation of Balance Sheet:

Balance sheet analysis is the analysis of the assets, liabilities, and owner’s capital of the
company by the different stakeholders to get the correct financial position of the business at
a particular point in time.
The share capital from 2018-2019 is 2.68 amount and 6.59%, 2019-2020 is 43.79 amount
and 101.06% and the 2021-2022 is 94.13 amount and 108.05%.
Total funds are 2018-2019 is 1510.15 and 36.68%, 2019-2020 is 461.57 amount and 8.20%,
2020-21 is 1424.51 amount and 23.39% and 2021-2022 is 1989.89 amount and 26.48%.
Total current liabilities are in 2018-2019 is 339.72 and 21.98%, 2019-2020 is -15.31 and -
0.81%, 2020-2021 is 528.60 and 28.27% and 2021-2022 is 1989.89 and 26.48%.
The total current assets are in 2018-2019 is 954.37 amount and 60.82%, 2019-2020 total
current assets are in decline with -582.68 amount and -23.09%, 2020-2021 is 410.82
amount and 21.17% and 2021-2022 is 867.11 amount and 36.87%.
The total assets are 2018-2019 is 1510.15 and 36.68%, 2019-2020 is 461.57 amount and
8.20%, 2020-21 is 1424.51 amount and 23.39% and 2021-2022 is 1989.89 amount and
26.48%.

6.6. VERTICAL ANALYSIS

Vertical analysis is a method of financial statement analysis that lists each line item as a
percentage of the underlying value in the statement. The first line of the statement always
shows a base value of 100%, with each following line item representing a percentage of the
whole.

Profit & Loss Account:

Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
Sales 6,999 4,506 4,186 4,705 3,806
Other Income 0 0 8 2 7
Total Income 7,000 4,506 4,195 4,707 3,813
Total Expenditure 5,359 3,755 3,394 3,903 3,253
EBIT 1,641 750 800 804 560
Interest 114 86 124 182 131
Tax 219 129 129 117 82
Net Profit 1,307 535 546 504 346
Vertical Analysis
Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
Sales 100.00 100.00 100.00 100.00 100.00
Other Income - - 0.19 0.04 0.18
Total Income 100.01 100.00 100.22 100.04 100.18
Total Expenditure 76.57 83.33 81.08 82.95 85.47
EBIT 23.45 16.64 19.11 17.09 14.71
Interest 1.63 1.91 2.96 3.87 3.44
Tax 3.13 2.86 3.08 2.49 2.15
Net Profit 18.67 11.87 13.04 10.71 9.09

Interpretation of P&L Account:

Common size is a statement where the figure of revenue from operations is assumed to be
equal to 100 and all other figures are expressed as percentage of revenue from operations.
Here, the operating income has been assumed to be 100 in all the years and the remaining
factors are calculated based on operating income. So, the total income of the years 2018 -
2022 are 100.18, 100.04, 100.22, 100.00, and 100.01. Total expenditure is 85.47, 82.95,
81.08, 83.33 and 76.57. The net profit is 9.09, 10.71, 12.04, 11.87 and 18.67. The net profit
of 2022 is the highest out of all the previous years.

Balance Sheet:
Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
Shareholder's Funds and
Liabilities:
Share Capital 181.25 87.12 87.12 43.33 40.65
Reserves and Surplus 5,604.17 3,324.62 2,814.69 2,517.08 1,474.52
Non-Current Liabilities 1,407.86 1,703.44 1,317.46 1,181.98 1,056.79
Current Liabilities 2,310.34 2,398.55 1,869.95 1,885.26 1,545.54
Total Funds 9503.62 7513.73 6089.22 5627.65 4117.5
Assets:
Fixed Assets 5,826.54 4,808.68 3,719.28 2,774.03 2,275.45
Non-Current Investments 43.42 36.26 37.16 33.36 55.9
Deffered Tax Assets 0 0 0 0 0
Long Term Loans and 0 0 0 0 0
Advances
Other Non-Current Assets 414.9 317.14 391.95 296.97 217.01
Total Current Assets 3,218.76 2,351.65 1,940.83 2,523.51 1,569.14
Total Assets 9,503.62 7,513.73 6,089.22 5,627.87 4,117.50
Vertical Analysis
Shareholder's Funds and
Liabilities:
Share Capital 1.91 1.16 1.43 0.77 0.99
Reserves and Surplus 58.97 44.25 46.22 44.73 35.81
Non-Current Liabilities 14.81 22.67 21.64 21.00 25.67
Current Liabilities 24.31 31.92 30.71 33.50 37.54
Total Funds 100.00 100.00 100.00 100.00 100.00
Assets:
Fixed Assets 61.31 64.00 61.08 49.29 55.26
Non-Current Investments 0.46 0.48 0.61 0.59 1.36
Deffered Tax Assets - - - - -
Long Term Loans and - - - - -
Advances
Other Non-Current Assets 4.37 4.22 6.44 5.28 5.27
Total Current Assets 33.87 31.30 31.87 44.84 38.11
Total Assets 100.00 100.00 100.00 100.00 100.00

Interpretation of Balance Sheet:

Vertical analysis is a method of financial statement analysis in which each line item is listed
as a percentage of a base figure within the statement. Thus, line items on an income
statement can be stated as a percentage of gross sales, while line items on a balance sheet
can be stated as a percentage of total assets or liabilities. Here, the total liabilities and total
assets are assumed to be 100 and the remaining factors are calculated based on total
liabilities and total assets. The current liabilities have decreased with 24.31 in 2022 when
compared with 37.54 in 2018. Current assets have decreased as well, with 33.87 percentage
in 2022 when compared with 2018 where it was 38.11.

6.7. TREND ANALYSIS

Trend analysis evaluates the organization's financial information for a certain period of
time. The period can be measured in months, quarters or years depending on the
circumstances. The goal is to calculate and analyse the change in amount and percentage
change from one period to another.

Formula: Base year/previous year *100

Profit & Loss Account

Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
Sales 6,999 4,506 4,186 4,705 3,806
Other Income 0 0 8 2 7
Total Income 7,000 4,506 4,195 4,707 3,813
Total Expenditure 5,359 3,755 3,394 3,903 3,253
EBIT 1,641 750 800 804 560
Interest 114 86 124 182 131
Tax 219 129 129 117 82
Net Profit 1,307 535 546 504 346
Trend Analysis
Sales 183.89 118.39 109.98 123.62 100.00
Other Income - - 114.29 28.57 100.00
Total Income 183.58 118.17 110.02 123.45 100.00
Total Expenditure 164.74 115.43 104.33 119.98 100.00
EBIT 293.04 133.93 142.86 143.57 100.00
Interest 87.02 65.65 94.66 138.93 100.00
Tax 267.07 157.32 157.32 142.68 100.00
Net Profit 377.75 154.62 157.80 145.66 100.00

Interpretation of P&L Account:

Trend analysis of financial statements helps information users to discern percentage
changes over time in the selected data. Here, the 2018 factors are assumed to be 100 and the
remaining years factors are calculated on the basis of 2018. The total income is 123.45,
110.02, 118.17 and 183.58 from 2019 to 2022. The total expenditure is 119.98, 104.33,
115.43 and 164.74 from 2019 to 2022. where the highest is 164.74 percentage in 2022. The
net profit is 145.66, 157.80, 154.62, and 377.75 from 2019 to 2022 and the highest is 377.75
percentage in the year 2022.

Balance Sheet
Mar-22 Mar-21 Mar-20 Mar-19 Mar-18
Shareholder's Funds and
Liabilities:
Share Capital 181.25 87.12 87.12 43.33 40.65
Reserves and Surplus 5,604.17 3,324.62 2,814.69 2,517.08 1,474.52
Non-Current Liabilities 1,407.86 1,703.44 1,317.46 1,181.98 1,056.79
Current Liabilities 2,310.34 2,398.55 1,869.95 1,885.26 1,545.54
Total Funds 9503.62 7513.73 6089.22 5627.65 4117.5
Assets:
Fixed Assets 5,826.54 4,808.68 3,719.28 2,774.03 2,275.45
Non-Current Investments 43.42 36.26 37.16 33.36 55.9
Deffered Tax Assets 0 0 0 0 0
Long Term Loans and 0 0 0 0 0
Advances
Other Non-Current Assets 414.9 317.14 391.95 296.97 217.01
Total Current Assets 3,218.76 2,351.65 1,940.83 2,523.51 1,569.14
Total Assets 9,503.62 7,513.73 6,089.22 5,627.87 4,117.50
Trend Analysis
Shareholder's Funds and
Liabilities:
Share Capital 445.88 214.32 214.32 106.59 100.00
Reserves and Surplus 380.07 225.47 190.89 170.71 100.00
Non-Current Liabilities 133.22 161.19 124.67 111.85 100.00
Current Liabilities 149.48 155.19 120.99 121.98 100.00
Total Funds 230.81 182.48 147.89 136.68 100.00
Assets:
Fixed Assets 256.06 211.33 163.45 121.91 100.00
Non-Current Investments 77.67 64.87 66.48 59.68 100.00
Deffered Tax Assets - - - - -
Long Term Loans and - - - - -
Advances
Other Non-Current Assets 191.19 146.14 180.61 136.85 100.00
Total Current Assets 205.13 149.87 123.69 160.82 100.00
Total Assets 230.81 182.48 147.89 136.68 100.00

Interpretation of Balance Sheet:

Trend analysis compares the movement in each line item across time periods in order to
draw actionable insights. Here, the 2018 factors are assumed to be 100 and the remaining
years factors are calculated on the basis of 2018. The total shareholders’ funds are 136.68,
147.89, 182.48 and 230.81 from 2019 to 2022. The total current assets are 160.82, 123.69,
149.87 and 205.13 from 2019 - 2022 where the highest is 205.13 percentage in 2022. The
total current liabilities are 121.98, 120.99, 155.19 and 149.48. The total assets and liabilities
are 136.68, 147.89, 182.48, and 230.81 from 2019 to 2022.
 Chapter 7
FINDINGS
 Aarti Industries Limited's profit margin is said to be slightly better as it is seen
increasing. It shows that the financial performance of the company is good.
 Current Ratio of AIL is more than 1 it means company does have enough liquid assets
to cover its short-term liabilities.
 The quick ratio of AIL is near to ideal quick ratio. This is a positive sign for the firm
because it has more quick assets in the current assets. Its indicates that the company has
sufficient liquid assets to satisfy its short-term obligation.
 AIL has strong financial leverage as their Debt to Equity Ratio is very low for the last 5
financial years. Its indicates that company has low risk.
 Return on Assets and Return on Capital Employed has been showing decreasing from
the year 2020 and this defines the firm’s unstable financial performance and
ineffectively capital utilization.
 AIL’s financial position is stable as its proprietary ratio shows an increasing trend and
firm’s ability to meet long-term debts is satisfactory.
 From the horizontal analysis it can be said that the net profit is decreasing due to
increase in expenses and exceptional items.
 From the trend analysis, it is seen that the net profit increases every year, taking 2018
as the base year. Its indicates that the company has good financial health.
 A vertical analysis shows that the biggest part is expenses. Net profit does not increase
due to higher expenses.

Chapter 8
SUGGESTIONS
 To increase the gross margin, the company should reduce the production cost so that
the profit can increase.
 AIL should concentrate more on its working capital utilization. Proper allocation and
utilization of working capital would help AIL to increase its net profit margin.
 A company should reduce its incremental costs to increase its net profit.
 AIL should concentrate more on technology and innovation and new products to meet
the customer’s needs and desires.
 AIL’s global networking team should increase their channel in all parts of India
including remote rural areas to increase their market share.

Chapter 9
LIMITATIONS OF THE PROJECT
 5 years data was only analysed for conducting this study 
 The study is based on secondary data, obtained from the published report and as its
findings depends entirely on the accuracy of such data.

Limitations of a financial statement analysis are as follows.

 Based on past data 
 It cannot be a substitute for judgment 
 Reliability of figures 
 Different interpretations 
 Changes in accounting methods 
 Price level changes 
 Balance sheet reveals the financial position of a firm on a particular day at the end of
the accounting year
 Financial statement reflected the recorded facts and figures 
 Financial statements do not keep with changing price levels.

Chapter 10
CONCLUSION
The company has a good market position despite facing strong competition from local and
global Chemical players. Thanks to its presence, it enjoys a leading market position in
various consumer categories. AIL's established business model is a treat for investors
looking for exposure to the Chemical segment. The company has delivered in the past and
has the potential to be better in the future.
Analysis of financial statements refers to the treatment of information contained in the
financial statement in a way so as to afford a full diagnosis of the profitability and financial
position of the firm concerned. The process of analysing financial statements involves the
rearranging, comparing and measuring the significance of financial and operating data.
Balance sheet is the main document to access the financial sound ability of the concern. The
asset details in the balance sheet shall help the investor to decide the investment ideas. The
ratio analysis is the necessary tools to the investors to necessarily select and built an
effective portfolio. The data helps the investor in developing the strategy for effective
investment management.
The future of the company is also looking bright as Chemical market in India is still
expanding and so we can safely conclude that AIL will be able to secure its number one
position in Chemical product. The company’s future also appears to be good.

Chapter 11
BIBLIOGRAPHY
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 Davis, A.K. and Tama-Sweet, I. (2012), “Managers’ use of language across alternative
disclosure outlets: earnings press releases versus MD&A”, Contemporary Accounting
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 China credit information service ltd (1999a), General corporation financial analysis in
taiwan, (in Chinese)
 Domodaran, A. (1996), Investment Valuation. Tools and Techniques for Determining
the Value of any Asset, Wiley, New York, NY.
 Eisenhardt, K.M. (1989), “Building theories from case study research”, Academy of
Management Review,
 Fagbenle, O. I. (2000), .Impact of Non-financial Incentive Schemes on the Productivity
of Construction Operatives in South Western Nigeria. Unpublished M.Sc. Thesis,
Obafemi Awolowo University, Ile-Ife, Nigeria.

www.aarti-industries.com
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www.indianchemicalnews.com

ANNEXURE