ISSN: 2456–5474 RNI No.  UPBIL/2016/68367 VOL.- VIII , ISSUE- VIII September  - 2023
Innovation The Research Concept

A Comparative Study of Financial Performance of RCPL & SCPL of Gujarat State
Paper Id :  18123   Submission Date :  2023-09-16   Acceptance Date :  2023-09-22   Publication Date :  2023-09-25
This is an open-access research paper/article distributed under the terms of the Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
DOI:10.5281/zenodo.8388804
For verification of this paper, please visit on http://www.socialresearchfoundation.com/innovation.php#8
Jigneshkumar Shashikantbhai Patel
Assistant Professor
Commerce
C.N. Arts And B.D. Commerce College
Kadi,Gujrat, India
Abstract

Indian economy is agriculture based and large number of its population directly or indirectly connected with farm or farm produces. Cotton is a major crop of Indian agriculture produce. It has generated employability in its various stages from farming to final product in the form of cotton seeds oil, cotton seeds oil cake, cloths etc. Hence, the cotton ginning industry is a link between cotton farmers and textile industries. Cotton ginning industry is also India’s one of the major exporters and adds to India’s GDP. The researcher felt that a study on their financial performance would help the various stake holders related to it.

Cotton Ginning Industries provide a link between farmers and spinning mills. If cotton ginners will not provide good quality cotton to the spinners then how would they produce good quality of cotton yarn, so the cotton ginning industry plays most important role between farmers and spinning mills.

This paper investigates the financial performance of selected cotton ginning industries of kadi taluka. The researcher selected two cotton ginning industries namely Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd. Secondary data has been collected from visiting industries in person. In secondary data the researcher collected audit report of selected cotton ginning industries. The data was generated from audit reports of the firms for the period of F.Y 2013-14 to 2017-18. This present study based on comparative analysis of financial performance using Ratio Analysis between Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd.
Keywords Financial Performance, Current Ratio, Solvency Ratio, Assets Turnover Ratio, Return on Capital Employed.
Introduction

Financial Performance of any industry refers to the act of performing its financial activity. In other word, financial performance refers to the degree to which financial objectives being or has been accomplished. It is the process of measuring the results of a firm’s policies and operations in monetary terms. It is used to measure firm’s overall financial health over a given period and can be used to compare similar firms across the industry or to compare industries or sector in aggregation.

The firm itself as well as various interested groups such as managers, shareholders, creditors, tax authorities and other seeks answer to the following important questions:

1. What is the financial position of the firm at a given point of time?

2. How is the financial performance of the firm over a given period?

These questions may be answered with the help of financial analysis of a firm. Financial analysis involves the use of financial statement. A financial statement is an organized collection of data according to logical and consistent accounting procedures. Its purpose is to convey and understanding of some financial aspect of a business firm. It may show a position at a moment of time as in the case of a Balance Sheet and Statement of Income, or may reveal a series of activities over a given period.
Objective of study

1. To know the financial position of the selected cotton ginning industries.

2. To compare the liquidity of selected cotton ginning industries.

3. To analyze the strength and weakness of the selected cotton ginning industries.

4. To study if the funds have been used efficiently by the cotton ginning industries under study.
Review of Literature

W. H. Bever (1966)1, in his investigation on "Monetary Ratios as Predictors ofFailure-Empirical exploration in book keeping - Selected examinations", utilizedproportion investigation as a technique for foreseeing ailment. The proportions ofbombed firms vary fundamentally from those of the non bombed firms.

C. I. Altman (1968)2, in his investigation named "Monetary Ratios DiscriminatedAnalysis and the Prediction of Corporate Bankruptcy," examined 22 monetaryproportions to discover the prejudicial factors. The Z score examination chose fivesignificant variables as discriminators, to be specific the proportion between workingcapital and absolute assets, retained earnings and complete resources, EBIT and allout resources, market estimation of value and book value of all out obligation anddeals to add up to resources. The cut off an incentive for the insolvency wasdetermined as 2.675.

V. Srinivasan et.al. (1978)3, in their examination on "The Application of MultipleRegression Analysis to Financial Ratios of Public Enterprises" inferred that grossprofit edge influences the profit from money to the biggest degree. The other two indecreasing significance are turnover of capital utilized and working capital. Theregression coefficient for working capital turnover suggests that as the turnover ofworking capital builds its commitment to return on capital utilized declines. It showsthat the organization has lesser working capital and it ought to be more than what it isnow.

L. C. Gupta (1979)4, in his investigation named "Monetary Ratio as ForewarningIndicators of Sickness," dissected 41 Indian material organizations. The organizationswere classified into 20 wiped out and 21 non-wiped-out organizations. The monetaryproportions of the companies, 63 altogether, were taken to test the prescient force ofaffliction. Out of 63 monetary ratios two proportions were pronounced as critical.They were procuring before deterioration, interest and duty to deals and workingincome to deals.
Sampling
Sampling Technique: Convenient sampling technique was used in selecting industries and collecting data with respect to researcher’s area of study.
Data Collection: The current study is majorly based on secondary data collected from visiting industries in person. 
Period of Study: Period of this research is five years from F.Y. 2013-2014 to 2017-2018 for the two selected cotton ginning industries.

Scope of the Study: The present study “A Comparative Study of Financial Performance of Selected Cotton Ginning Industries” compares the ratios between Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd. The study attempts to find out the liquidity along with current ratio, solvency ratio, assets turnover ratio and return on capital employed of the selected ginning industries. It helps to express the relationship between the selected cotton ginning industries. The analysis is done to suggest the possible solution. The cotton ginning industries financial performance has great importance and relevance not only for their owners but also for stakeholders, creditors, government, tax authorities, state industrial policy maker etc.
Analysis

Analysis is the process of breaking a topic into smaller parts in order to gain a better understanding. It is systematic assessment and evaluation of information, by breaking it into parts to uncover their interrelationship. The main tool of financial statement analysis is financial ratio analysis. Financial ratio analysis is a study of ration between various item and group of item in financial statement.

Here researcher is calculating various ratios to study the financial performance, i.e. current ratio, solvency ratio, assets turnover ratio, and return on capital employed. 

Current Ratio-

The current ratio of the selected cotton ginning industries for the selected years of the study is analyzed here:

Raghuvir Cotex Pvt. Ltd.

Year

Current Assets

Current Liabilities

Ratio

Trend

2013-14

292.40

250.60

1.17

100.00

2014-15

377393642

59227190

6.37

95.73

2015-16

397722345

61945971

6.42

96.46

2016-17

690192372

219419053

3.15

47.26

2017-18

854879215

192978630

4.43

66.55

(Source of Data: Audit Report of Cotton Ginning Industries 2013-’14 to 2017-’18)






Sahyog Cotton & Oil Pvt. Ltd.

Year

Current Assets

Current Liabilities

Ratio

Trend

2013-14

116832802

5450030

21.44

100.00

2014-15

114321922

2507563

45.59

212.67

2015-16

135874647

3323148

40.89

190.73

2016-17

163773345

6984053

23.45

109.38

2017-18

239648291

10539297

22.74

106.07

(Source of Data: Audit Report of Cotton Ginning Industries 2013-’14 to 2017-’18)

Comparative Figures of Current Ratio of RCPL & SCPL

Year

UCI

JOI

2013-14

6.67

21.44

2014-15

6.37

45.59

2015-16

6.42

40.89

2016-17

3.15

23.45

2017-18

4.43

22.74

Inference:

The above table shows the current ratio of RCPL&SCPL, we are able to analyze that the current ratio of both the cotton ginning industries RCPL & SCPL is greater than the ideal ratio of 2:1. In comparison of RCPL & SCPL the current ratio of SCPL is very high compare to RCPL. 

Solvency Ratio-

The solvency ratio of the selected cotton ginning industries for the selected years of the study is analyzed here:

Raghuvir Cotex Pvt. Ltd.

Year

Total Outsider’s Funds

Total Assets

Ratio

Trend

2013-14

620155227

762249181

0.81

100.00

2014-15

299100341

389608917

0.77

94.78

2015-16

297081500

408752879

0.73

89.73

2016-17

424064873

720425709

0.59

72.67

2017-18

602944510

881668067

0.68

84.43

(Source of Data: Audit Report of Cotton Ginning Industries 2013-’14 to 2017-’18)

Sahyog Cotton & Oil Pvt. Ltd.

Year

Total Outsider’s Funds

Total Assets

Ratio

Trend

2013-14

91823588

140505442

0.65

100.00

2014-15

81235120

135398571

0.60

74.07

2015-16

89271775

154949285

0.58

71.13

2016-17

104570657

180670294

0.58

71.46

2017-18

163329705

253990233

0.64

79.39

(Source of Data: Audit Report of Cotton Ginning Industries 2013-’14 to 2017-’18)

Comparative Figures of Solvency Ratio of RCPL&SCPL

Year

RCPL

SCPL

2013-14

0.81

0.65

2014-15

0.77

0.60

2015-16

0.73

0.58

2016-17

0.59

0.58

2017-18

0.68

0.64

Inference:

Looking at the solvency ratio of Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd, we were able to analyze both the cotton ginning industries have a solvency ratio less than 1.0.

Assets Turnover Ratio-

Raghuvir Cotex Pvt. Ltd.

Year

Sales

Total Assets

Ratio

Trend

2013-14

3085240320

762249181

4.05

100.00

2014-15

2900188495

389608917

7.44

918.99

2015-16

2470959633

408752879

6.05

746.31

2016-17

2527874863

720425709

3.51

433.19

2017-18

3804761975

881668067

4.32

532.77

(Source of Data: Audit Report of Cotton Ginning Industries 2013-’14 to 2017-’18)

Sahyog Cotton & Oil Pvt. Ltd.

Year

Sales

Total Assets

Ratio

Trend

2013-14

755693306

140505442

5.38

100.00

2014-15

550635860

135398571

4.07

502.07

2015-16

385753150

154949285

2.49

307.35

2016-17

464614850

180670294

2.57

317.48

2017-18

498353427

253990233

1.96

242.23

(Source of Data: Audit Report of Cotton Ginning Industries 2013-’14 to 2017-’18)

Comparative Figures of Assets Turnover Ratio of RCPL&SCPL

Year

UCI

JOI

2013-14

4.05

5.38

2014-15

7.44

4.07

2015-16

6.05

2.49

2016-17

3.51

2.57

2017-18

4.32

1.96

Inference:

Looking at the Assets Turnover Ratio of both Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd, we analyze that for both the industries the assets turnover ratio is greater than one. It is also observed that the assets turnover ratio of Sahyog Cotton & Oil Pvt. Ltd. is decreasing every year, which is not satisfactory. Here both the industries utilized all its assets efficiently to generate sales.

Return on Capital Employed Ratio (ROCE)-

Raghuvir Cotex Pvt. Ltd.

Year

EBIT

Net Capital Employed

ROCE

2013-14

45593646

649741086

7.02

2014-15

27393582

330381727

8.29

2015-16

23169287

346806908

6.68

2016-17

28155073

501006656

5.62

2017-18

39894690

688689437

5.79

(Source of Data: Audit Report of Cotton Ginning Industries 2013-’14 to 2017-’18)

Sahyog Cotton & Oil Pvt. Ltd.

Year

EBIT

Net Capital Employed

ROCE

2013-14

16396205

135055412

12.14

2014-15

19624646

132891008

14.77

2015-16

17434824

151626137

11.50

2016-17

20383753

173686241

11.74

2017-18

24437273

243450936

10.04

 (Source of Data: Audit Report of Cotton Ginning Industries 2013-’14 to 2017-’18)

Comparative Figures of Return on Capital Employed of RCPL&SCPL

Year

RCPL

SCPL

2013-14

7.02

12.14

2014-15

8.29

14.77

2015-16

6.68

11.50

2016-17

5.62

11.74

2017-18

5.79

10.04

Inference:

Looking at the Return on Capital Employed for Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd, we are able to analyze the ROCE for Raghuvir Cotex Pvt. Ltd. falls between 5.79 to 7.02 and the Sahyog Cotton & Oil Pvt. Ltd falls 10.40 to 12.14 and we also see that Sahyog Cotton & Oil Pvt. Ltd have higher assts turnover ratio than Raghuvir Cotex Pvt. Ltd for the given period of time.
Findings

From the analysis done and the objectives undertaken, researcher make the following findings: 1. Current Ratios: A current ratio less than 2 indicates that the company is over trading and under capitalizing, whereas higher current ratio indicates under trading and over capitalizing. Here both the cotton ginning industries for Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd have a very high current ratio for the given period of time. It shows bad financial planning or presence of idle assets over-capitalization. 2. Solvency Ratio: This ratio is calculated to assess the ability of the firm to meet its long-term liabilities as and when they become due. Solvency ratio discloses the firm’s ability to meet the interest costs regularly and log-term indebtedness at maturity. Here we analyze that both the industries for Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd have low solvency ratio which is less than one. It clearly shows that the both industries are in danger zone. It could head into a debt trap. 3. Assets Turnover Ratio: Firms which have large assets base will have lower assets turnover. It is clear from analysis that assets turnover ratio of both the industries RCPL&SCPL have higher assets turnover ratio which is more than one. But in comparison to each other for Raghuvir Cotex Pvt. Ltd have higher assets turnover ratio than for Sahyog Cotton & Oil Pvt. Ltd, which indicates that it has better sales in comparison to its assets of given period of time. 4. Return on Capital Employed: Here ROCE of for Sahyog Cotton & Oil Pvt. Ltd is more than for Raghuvir Cotex Pvt. Ltd. for Raghuvir Cotex Pvt. Ltd. should consider improving its ROCE. The most obvious way to achieve this is by reducing costs or increasing sales. Selling unwanted or unprofitable assets, paying off debts, etc.
Conclusion

The researcher has attempted the research to study and understand the financial performance of two cotton ginning industries namely for Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd. The researcher also made an effort to understand and evaluate the liquidity position, efficient use of funds, and study the finance by outsider funds. The study has highlighted that current ratio of both the industries for Raghuvir Cotex Pvt. Ltd. And Sahyog Cotton & Oil Pvt. Ltd are more than the standard norms. Solvency ratio of both the industries are less than one. Assets turnover ratio of for Sahyog Cotton & Oil Pvt. Ltdis less than for Raghuvir Cotex Pvt. Ltd.ROCE of Sahyog Cotton & Oil Pvt. Ltdis more thanfor Raghuvir Cotex Pvt. Ltd.
Limitation of the Study The limitations of the study are as under:
1. The proposed research study will be limited for only selected Cotton Ginning Industries. Cotton Ginning Industries may refuse to provide some confidential financial information which may restrict the proposed research study subject to certain limitations.
2. The proposed research study is based on the secondary data taken from Audit Report of the Cotton Ginning Industries the conclusion of the study depends on the accuracy of such data reported by respective industries.
3. Financial performance appraisal is very wide subject but in the proposed research study the researcher will use only techniques which will be most suitable.
4. All the limitations of techniques of financial statement analysis are also applicable to this study.
References

1. www.investopedia.com

2. Helfert Erich A., “Techniques of Financial Analysis” 4th edition, Richard D. Irwininc., Homewood, Illinois, (1977).

3. Kennedy and McMillan, “Financial Statements: Form Analysis and Interpretation”, IV edition Richard D. Irwin inc., Illinois, (1962).

4. KOTHARI C.R. “Research Methodology –“Methods and techniques” WishwaPrakashan, New Delhi, 1997.

5. Kapil Khatter and Dinesh Mathur, “A Comparative Study of Financial Performance using Ratio Analysis between ABB and Rockwell”, Volume-5, (2018).

6. G. Bhavani, “A Comparison of Financial Performance Based on Ratio Analysis with special reference to ITC Limited and HUL Limited”, Volume 23,(2018).

7. Mathur, Shivam And Aggarwal, Krati (2016), “Financial Analysis Of Automobile Industries: A Comparative Study Of Tata Motors And Maruti Suzuki”, International Journal Of Applied Research, 2(9), Pp.533-539.