Financial ManagementFinancial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.Scope/Elements1. Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.2. Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.3. Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two:a. Dividend for shareholders- Dividend and the rate of it has to be decided. b. Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise. Objectives of Financial ManagementThe financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be-1. To ensure regular and adequate supply of funds to the concern.2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.5. To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.Functions of Financial Management1. Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise.2. Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties.3. Choice of sources of funds: For additional funds to be procured, a company has many choices like- a. Issue of shares and debentures b. Loans to be taken from banks and financial institutions c. Public deposits to be drawn like in form of bonds. Choice of factor will depend on relative merits and demerits of each source and period of financing.4. Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible.5. Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways: a. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus. b. Retained profits - The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company. 6. Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintainance of enough stock, purchase of raw materials, etc.7. Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.FINANCIAL ANALYSISFinancial statement analysis is an important part of overall financial analysis, based on the statements which are the end products of accounting system, viz., Balance Sheet and Profit and Loss Account.Analysis of Financial Statements is a systematic process of the critical examination the financial information contained in the financial statements in order to understand and make decisions regarding the operations in the firm. The Analysis of Financial Statements is a study of relationships among various financial facts an figures as set out in the financial statements i.e., Balance sheet and Profit and Loss Account . the complex data given in these financial statements is divided/broken into simple and valuable elements and relationships are established between the elements of the same statement or different financial statements.Financial statements indicate certainabsolute information about assets, liabilities, equity,revenues,expenses and profit or loss of an enterprise. They are not readily understandable to the external users of financial statements . A financial analyst can adopt the following tools and techniquesfor analysis of the financial statements.Comparative financial statements are the statements in which figures for two or more periods are placed side by side along with change in figures in absolute and percentage terms to facilitate omparision. Both Profit and Loss Account andBalance Sheet are prepared in the form of Comparative Financial Statements.Financial statement analysis gives structural relationships of the various items in the financial statements . the main functions which are used in the process of analysis and interpretation are:1)Rearrangement of financial StatementsFor analysis, it is necessary to reclassify the data contained in the financial statements into purposive classes so that maximum information from very data for analysis can be obtained . reclassification and rearrangement of different data depend upon the purpose of analysis2)Comparision:After the classification of data of financial statements into different categories, it is necessary to derive comparative data of the same enterprise of the past periods if it is a time series analysis. In case of cross-sectional analysis, it is necessary to derive comparative data of the same accounting period of similar of comparable enterprises. For this, a comparative study is necessary.3)Analysis:Comparative financial data are then analysed with reference ti financial characteristics like profitability , solvency and liquidity.4)Interpretation:The concluding part of financial statement analysis is interpretation of financial information generated in the process of financial statement analysis.The interpretation should be precise and directed towards indicating the movement of various financial characteristics.COMPANY PROFILEWe PRAKASA SPECTRO CAST(P) LTD , an ISO 9001:2008 certified company, estd in 1996 take the pleasure in introducing ourselves as the manufacturers of various grades of CAST STEEL, CAST IRON ALLOY STELL, MANGANESE STEEL , S.G. IRON , Ni-Hard & High Chrome cast upto 10 MT single piece as per customers requirement .

We are located in the most important junction in South India i.e., VIJAYAWADA, connecting south to the other parts in INDIA. Ours is an Associate concern of M/S KRISTNA ENGINEERING WORKS one of the leading Manufacturers of the systems and spares for Sugar Industries, Cement Industries, Thermal Power Plants, Mining plants and other Allied Industries for more than 4 decades.

We at heart have a strong commitment to quality and progress enabling us to keep up with Global developments in the field of Castings. In addition to satisfying the demand for extending the types and dimensions of the castings produced, it does its utmost to provide the best of the services.

Prakasa Spectro Cast has state-of-the-art manufacturing equipment and facilities to produce quality steel castings supplying to leading OEMS and pioneers in Sugar ,Cement, Power Generation sectors in India and across the world. We are backed by our experienced professional work force comprising of highly skilled workmen and engineers supported by most sophisticated machine tools meeting the customer's requirement in terms of quality, quantity and delivery.

PSC believes in establishing and maintaining close and long-lasting relationship with its employees, customers, and the community in which it is located.

Pattern Shop:

A team of experienced draftsmen and pattern makers work with expertise Methodist on pattern design and making, seeding the production of sound quality and dimensionally accurate castings.

Bearing PedastalGB CarrierTurbine Outer Casing

Valve Body

Moulding and Melting:Sl.NoDescriptionMake/ModelSize/CapacityQty

1Medium Frequency Induction Furnace (With Dual Track Power Pack of 2250KW)Inductotherm AHMEDABAD6 MT2 Nos

2Medium Frequency Induction Furnace (With Dual Track Power Pack of 450KW)Inductotherm AHMEDABAD2 MT & 1MT1 Noeach

3Medium Frequency Induction Furnace (Power Pack of 3000KW)Inductotherm AHMEDABAD 8MT2 No

4Continuous Sand MixerWesman13 MT/Hr1No

5Sand MullerVME Foundry Equipment2 MT/Hr1No

We are equipped fettling tools like Pneumatic chippers, grinders and a shot blasting machine with chamber size of 4m X 4m

HEAT TREATMENT Sl.No DescriptionMake/ModelSize/CapacityQty

1Bogie Type Electric Heat Treatment FurnaceJOMIND FURNACECS Bangalore8 MT capacity2.5 X 2 X 1.6 Mts (L X B X H)1No

2Bogie Type Electric Heat Treatment FurnaceSelf 40 MT Capacity4.5 X 6 X 3 Mts1 No

3Trench for Water Quenching7m x 4m x 5m(depth) pit

4Trench for Oil Quenching(With Heat Exchanger and Cooling Tower) 2m x 3m x 2m(depth) pit

Heat treatment is carried out as per the documented international Standards or as per the client requirement and specification.

MACHINE SHOP :

We are very much pleased say that major portion of our production is supplied in either proof machined or finished machined condition. In house we are equipped with most precesive machinery with DRO(Digital Read Outs ) installed.

Sl.No DescriptionMake/ModelSize/CapacityQty

18 Lathe MachineKirloskarC.H:215mmABC:1425mm1No

212 Lathe (Heavy Duty) MachineSigma Machine Tools, BatalaC.H: 485mmABC:1650mm2Nos

318 Lathe MachineSigma Machine Tools, BatalaC.H.435mm,ABC:4100mm1No.

410 Lathe MachineMysore KirloskarC.H:285mmABC:200mm1No.

58 Planning MachineKamala Machine Tools, Batala2400mm stoke1No.

624 Shaping Machine Imported600mm stoke1No.

7Vertical Turning Lathe (Double Head)ImportedMaximum Dia 950mm1No.

8Radial Drilling MachineWhite Star NDM-50B60mm In Steel Swing 1500mm1No.

9Pillor Drilling MachineRP Engg. Company, BATALA20mm Dia In Steel1No.

10Slotting MachineKlopp , Germany 600mm Stroke1 No

11.Universal Milling Machine3AB (USSR) PE3EPHbIX (TAHKOB)Max. Length 760mmMax. Width 280mmMax. Height 380mm.1 No.

12.Vertical Milling MachineFRITZ WERNER, GermanyMax. Length 1200mmMax. Width 420 mmMax. Height 530mm.1 No.

13.Plano Miller Cooper, Germany Max. Length 2600mmMax. Width 1300mmMax. Height 1000mm.1 No.

14.Universal Milling MachineSTANKOIMPORT,MOSCOW, USSR Max. Length 1.2 M.Max. Width 500mmMax. Height 400mm.1 No.

15.Radial Drilling MachineWhite Star, Faiz Engineering Works.Max. Drill Size:100mmSwing Dia: 6 M. 1 No.

16.Vertical Turning LatheKPACHOAAR, GermanyMax. Dia: 2.3 MeterMax.Height:1.5 M.1 No.

17. 180 Spindle Floor Boring Machine SCHARMANN, GERMANY Max. Bore Dia:1.2 MMax. Length: 4 M.1 No.

18. 130 Spindle Horizontal Boring Machine SCHARMANN, GERMANY.Max. Bore Dia:600 mmMax.Length:1.2 M. 1 No.

1924 Shaping Machine Cooper ,Germany Dia:100mm1 No

PLANO MILLER1VTL1VTL2

Quality AssuranceWith a passion to deliver a impeccable casting to our customer , we can proudly say that we at PSC craft rather than manufacture. Circuit monitoring on the quality of inputs and stage wise inspection during production gives us a unassailable output. We are equipped with state of art equipment for Quality assurance and testing of castings. Majority of our castings are certified by third party Agencies like M/s. Lloyds Register, Intertek, BVQI, TPL etc..All the testing Equipments are calibrated in regular intervals by the leading calibration agencies such as M/S Lloyds register, Blue Star etc

Chemical analysis roomMechanical LabMicroscope

Sugar Mill SparesWe are catering our services to all Major OEMS and pioneers in Sugar Industry in India since the last 15yrs. We supply major spares of the sugar mill from Cane Preparatory Equipment , Head Stock , Bearing Housing Assemblies to Trash Plates.

Cane Cutter AssmblySide Cap AssmblyTrash Beam Assembly

TopCap AssemblyHead_Stock

team Turbine CastingsWe manufacture Steam Turbine castings of various grades which are heat resistant and creep resistant.

Bearing HousingsBell MouthG.B Carrier

Cement

Supplies to the major cement OEMs in India make a significant volume of our annual production. We are manufacturing and supplying support roller, Thrust roller and Bearing Housing Assemblies to various cement plants across India.

Bearing AssembliesBearing Assemblies(2)Support Roller

Prakasa Spectro Cast Private Limited is a Private Company incorporated on 09 November 1994. It is classified as Indian Non-Government Company and is registered at Registrar of Companies, Hyderabad. Its authorized share capital is Rs. 80,000,000 and its paid up capital is Rs. 77,279,688.It is inolved in Other business activities n.e.c.

Prakasa Spectro Cast Private Limited's Annual General Meeting (AGM) was last held on 29 September 2014 and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was last filed on 31 March 2014.

Directors of Prakasa Spectro Cast Private Limited are Raja Sekhar Bahudodda, Venkata Surya Prasad Tipirneni, Pardha Saradhi Tipirneni and Venkatasivachalapathi Rao Yalamanchili.

Prakasa Spectro Cast Private Limited's Corporate Identification Number is (CIN) U74999AP1994PTC018720 and its registration number is 18720.Its Email address is csguntur@gmail.com and its registered address is PRAKASH NAGAR,ENIKEPADU VIJAYAWADA., ANDHRA PRADESH - 521108, Andhra Pradesh INDIA.

Current status of Prakasa Spectro Cast Private Limited is - Active.

Company InformationCorporate Identification NumberU74999AP1994PTC018720

Company NamePRAKASA SPECTRO CAST PRIVATE LIMITED

RoCRoC-Hyderabad

Registration Number18720

Other business activities n.e.c.

Company CategoryCompany limited by shares

Company Sub CategoryIndian Non-Government Company

Class of CompanyPrivate Company

Authorised Capital (in Rs.)80,000,000

Paid up capital (in Rs.)77,279,688

Number of Members(Applicable only in case of company without Share Capital)-

Date of Incorporation09 November 1994

Email IDcsguntur@gmail.com

Address 1PRAKASH NAGAR,ENIKEPADU

Address 2VIJAYAWADA.

CityANDHRA PRADESH

StateAndhra Pradesh

CountryINDIA

PIN521108

Whether listed or notUnlisted

Date of Last AGM29 September 2014

Date of Balance sheet31 March 2014

Company Status (for eFiling)Active

*Industry classification is derived from National Industrial Classification. If the company has changed line of business without intimating the Registrar or is a diversified business, classification may be different. We make no warranties about accuracy of industrial classification.

Comparative Financial Statements: It is an important method of analysis which is used to make comparison between two financial statements. Being a technique of horizontal analysis and applicable to both financial statements, income statement and balance sheet, it provides meaningful information when compared to the similar data of prior periods. The comparative statement of income statements enables to review the operational performance and to draw conclusions, whereas the balance sheets, presenting a change in the financial position during the period, show the effects of operations on the assets and liabilities. Thus, the absolute change from one period to another may be determined. Statement of Changes in Working Capital: The objective of this analysis is to extract the information relating to working capital. The amount of net working capital is determined by deducting the total of current liabilities from the total of current assets. The statement of changes in working capital provides the information in relation to working capital between two financial periods. Common Size Statements: The figures of financial statements are converted to percentages. It is performed by taking the total balance sheet as 100. The balance sheet items are expressed as the ratio of each asset to total assets and the ratio of each liability to total liabilities. Thus, it shows the relation of each component to the whole - Hence, the name common size. Trend Analysis: It is an important tool of horizontal analysis. Under this analysis, ratios of different items of the financial statements for various periods are calculated and the comparison is made accordingly. The analysis over the prior years indicates the trend or direction. Trend analysis is a useful tool to know whether the financial health of a business entity is improving in the course of time or it is deteriorating. Ratio Analysis: The most popular way to analyze the financial statements is computing ratios. It is an important and widely used tool of analysis of financial statements. While developing a meaningful relationship between the individual items or group of items of balance sheets and income statements, it highlights the key performance indicators, such as, liquidity, solvency and profitability of a business entity. The tool of ratio analysis performs in a way that it makes the process of comprehension of financial statements simpler, at the same time, it reveals a lot about the changes in the financial condition of a business entity. It must be noted that Financial analysis is a continuous process being applicable to every business to evaluate its past performance and current financial position. It is useful in various situations to provide managers the information that is needed for critical decisions. The process of financial analysis provides the information about the ability of a business entity to earn income while sustaining both short term and long term growth.

Comparative Financial StatementsComparative Financial Statement Analysis is a form of horizontal analysis where Financial Statements of two or more years or of two or more different companies or of a company and its industry are compared, analyzed and interpreted. Therefore, this technique of analysis is also called Inter-period Analysis (when Financial Statements of two or more years are taken into consideration) or Inter-firm Analysis (when Financial Statements of two or more companies are taken into consideration).The following are the most commonly used forms of such analysis Comparative Balance Sheet Comparative Income Statement Comparative Cash Flow StatementIn order to increase the usefulness of financial statements, many enterprises include financial Statements for one or more prior years in their annual re ports. Some also include five or ten year summaries of condensed financial information. These comparative financial statements allow investment analysts and other interested readers to perform comparative analysis of pertinent information. The presentation of comparative financial statements in annual reports enhances the usefulness of such reports and brings out more clearly the nature and trends of current changes affecting the enterprise. That presentation emphasizes the fact that the Financial Statements for a series of periods are far more significant than those for a single period and that the accounts for one period are but an installment of what is essentially a continuous history.In case of Inter-period Analysis, it should be borne in mind that uniformity in accounting concepts and conventions is maintained during all the years taken into consideration for comparison. On the other hand, in case of Inter-firm Analysis, size of the firms taken into consideration for comparison must be more or less the same. otherwise meaningful conclusions cannot be drawn. For more accurate results. external factors like market conditions, business risk, etc. should also be considered.Under year to year change analysis, all the elements of Balance Sheet or Income Statement are compared and absolute changes as well as percentage changes are calculated on the basis of previous year as the base year. Changes in Fixed Assets, Investments, Current Assets, proprietor Fund, Current Liabilities, etc. are compared to determine long-term solvency position of the firm, growth, etc. of the firm. From Comparative Income Statement, we are able to know absolute and percentage changes in gross profit, operating profit, net profit, etc. A comparative statement exhibits the following pertinent information: Absolute figures for two or more years of the items appearing in Financial Statements (i.e., in the Balance Sheet and in Income Statement). Changes in absolute figures of the current year as compared to the previous year taken as the base year (or firm-wise changes). Percentage changes in absolute figures of the current year on the basis of the base year (or percentage of firm-wise changes).An example of Comparative Financial StatementsSmart Ways InternationalBalance Sheet12/31/201412/31/2013% of increase or (Decrease)

1234

Assets

Current Assets

Cash$120,000$110,0009%

Accounts Receivable$213,000$195,0009%

Inventories$150,000$120,00025%

Prepaid Expense$3,000$3,0000%

Other Current Assets$30,000$10,000200%

Total Current Assets$516,000$438,00018%

Total Fixed Assets$848,000$654,00030%

Total Assets$1,364,000$1,092,00025%

Liabilities

Current Liabilities

Accounts Payable$250,000$212,00018%

Accrued Expenses$12,000$15,000-25%

Interest Payable$42,000$64,000-52%

Notes Payable$60,000$76,000-27%

Total Current Liabilities$364,000$367,000-1%

Long Term Debt$400,000$325,00023%

Total Liabilities$764,000$692,00010%

Shareholders Equity$600,000$400,00050%

Total Liabilities and Equity$1,364,000$1,092,00025%

Common Size Financial Statements

Common size ratios are used to compare financial statements of different-size companies, or of the same company over different periods. By expressing the items in proportion to some size-related measure, standardized financial statements can be created, revealing trends and providing insight into how the different companies compare.The common size ratio for each line on the financial statement is calculated as follows:

Common Size Ratio=Item of Interest

Reference Item

For example, if the item of interest is inventory and it is referenced to total assets (as it normally would be), the common size ratio would be:

Common Size Ratio for Inventory=Inventory

Total Assets

The ratios often are expressed as percentages of the reference amount. Common size statements usually are prepared for the income statement and balance sheet, expressing information as follows: Income statement items - expressed as a percentage of total revenue Balance sheet items - expressed as a percentage of total assetsThe following example income statement shows both the dollar amounts and the common size ratios: Common Size Income StatementIncome StatementCommon-SizeIncome Statement

Revenue70,134100%

Cost of Goods Sold44,22163.1%

Gross Profit25,91336.9%

SG&A Expense13,53119.3%

Operating Income12,38217.7%

Interest Expense2,8624.1%

Provision for Taxes3,7665.4%

Net Income5,7548.2%

For the balance sheet, the common size percentages are referenced to the total assets. The following sample balance sheet shows both the dollar amounts and the common size ratios: Common Size Balance SheetBalance SheetCommon-SizeBalance Sheet

ASSETS

Cash & Marketable Securities6,02915.1%

Accounts Receivable14,37836.0%

Inventory17,13642.9%

Total Current Assets37,54393.9%

Property, Plant, & Equipment2,4426.1%

Total Assets39,985100%

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities14,25135.6%

Long-Term Debt12,62431.6%

Total Liabilities26,87567.2%

Shareholders' Equity13,11032.8%

Total Liabilities & Equity39,985100%

The above common size statements are prepared in a vertical analysis, referencing each line on the financial statement to a total value on the statement in a given period. The ratios in common size statements tend to have less variation than the absolute values themselves, and trends in the ratios can reveal important changes in the business. Historical comparisons can be made in a time-series analysis to identify such trends.Common size statements also can be used to compare the firm to other firms.Comparisons Between Companies (Cross-Sectional Analysis)Common size financial statements can be used to compare multiple companies at the same point in time. A common-size analysis is especially useful when comparing companies of different sizes. It often is insightful to compare a firm to the best performing firm in its industry (benchmarking). A firm also can be compared to its industry as a whole. To compare to the industry, the ratios are calculated for each firm in the industry and an average for the industry is calculated. Comparative statements then may be constructed with the company of interest in one column and the industry averages in another. The result is a quick overview of where the firm stands in the industry with respect to key items on the financial statements.LimitationsAs with financial statements in general, the interpretation of common size statements is subject to many of the limitations in the accounting data used to construct them. For example: Different accounting policies may be used by different firms or within the same firm at different points in time. Adjustments should be made for such differences. Different firms may use different accounting calendars, so the accounting periods may not be directly comparable.

Meaning:Ratio analysis is the process of determining and interpreting numerical relationships based on financial statements. A ratio is a statistical yardstick that provides a measure of the relationship between two variables or figures.This relationship can be expressed as a percent or as a quotient. Ratios are simple to calculate and easy to understand. The persons interested in the analysis of financial statements can be grouped under three heads,i) owners or investorsii) creditors andiii) financial executives.Although all these three groups are interested in the financial conditions and operating results, of an enterprise, the primary information that each seeks to obtain from these statements differs materially, reflecting the purpose that the statement is to serve.Investors desire primarily a basis for estimating earning capacity. Creditors are concerned primarily with liquidity and ability to pay interest and redeem loan within a specified period. Management is interested in evolving analytical tools that will measure costs, efficiency, liquidity and profitability with a view to make intelligent decisions.Classification of Ratios:Financial ratios can be classified under the following five groups:1) Structural2) Liquidity3) Profitability4) Turnover5) Miscellaneous.1. Structural group: The following are the ratios in structural group:i) Funded debt to total capitalisation:The term total capitalisation comprises loan term debt, capital stock and reserves and surplus. The ratio of funded debt to total capitalisation is computed by dividing funded debt by total capitalisation. It can also be expressed as percentage of the funded debt to total capitalisation. Long term loansTotal capitalisation (Share capital + Reserves and surplus + long term loans)ii) Debt to equity: Due care must be given to the; computation and interpretation of this ratio. The definition of debt takes two foremost. One includes the current liabilities while the other excludes them. Hence the ratio may be calculated under the following two methods:Long term loans + short term credit + Total debt to equity = Current liabilities and provisions Equity share capital + reserves and surplus (or)Long-term debt to equity =Long term debt / Equity share capital + Reserves and surplusiii) Net fixed assets to funded debt: This ratio acts as a supplementary measure to determine security for the lenders. A ratio of 2:1 would mean that for every rupee of long-term indebtedness, there is a book value of two rupees of net fixed assets:Net Fixed assets funded debtiv) Funded (long-term) debt to net working capital: The ratio is calculated by dividing the long-term debt by the amount of the net working capital. It helps in examining creditors contribution to the liquid assets of the firm.Long term loans Net working capital2. Liquidity group:It contains current ratio and Acid test ratio.i) Current ratio:It is computed by dividing current assets by current liabilities. This ratio is generally an acceptable measure of short-term solvency as it indicates the extent to which he claims of short term creditors are covered by assets that are likely to be converted into cash in a period corresponding to the maturity of the claims. Current assets / Current liabilities and provisions + short-term credit against inventoryii) Acid-test ratio:It is also termed as quick ratio. It is determined by dividing quick assets, i.e., cash, marketable investments and sundry debtors, by current liabilities. This ratio is a bitterest of financial strength than the current ratio as it gives no consideration to inventory which may be very a low- moving.

3. Profitability Group:It has five ratio, and they are calculated as follows:

4. Turnover group: It has four ratios, and they are calculated as follows:

5. Miscellaneous group:It contains four ratio and they are as follows:

Standards for comparison:For making a proper use of ratios, it is essential to have fixed standards for comparison. A ratio by itself has very little meaning unless it is compared to some appropriate standard. Selection of proper standards of comparison is a most important element in ratio analysis. The four most common standards used in ratio analysis are; absolute, historical, horizontal and budgeted.Absolute standards are those which become generally recognised as being desirable regardless of the company, the time, the stage of business cycle, or the objectives of the analyst. Historical standards involve comparing a companys own past performance as a standard for the present or future.In Horizontal standards, one company is compared with another or with the average of other companies of the same nature.The budgeted standards are arrived at after preparing the budget for a period Ratios developed from actual performance are compared to the planned ratios in the budget in order to examine the degree of accomplishment of the anticipated targets of the firm.Limitations:The following are the limitations of ratio analysis: 1. It is always a challenging job to find an adequate standard. The conclusions drawn from the ratios can be no better than the standards against which they are compared.2. When the two companies are of substantially different size, age and diversified products,, comparison between them will be more difficult.3. A change in price level can seriously affect the validity of comparisons of ratios computed for different time periods and particularly in case of ratios whose numerator and denominator are expressed in different kinds of rupees.4. Comparisons are also made difficult due to differences of the terms like gross profit, operating profit, net profit etc.5. If companies resort to window dressing, outsiders cannot look into the facts and affect the validity of comparison.6. Financial statements are based upon part performance and part events which can only be guides to the extent they can reasonably be considered as dues to the future.7. Ratios do not provide a definite answer to financial problems. There is always the question of judgment as to what significance should be given to the figures. Thus, one must rely upon ones own good sense in selecting and evaluating the ratios.