biji project

FINANCIAL PERFORMANCE ANALYSIS OF KERALA AGRO MACHINARIES

CORPORATION LIMITED

PROJECT REPORT

Submitted in Partial Fulfillment of the Requirementsfor the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

BIJI BABY

(Reg. No.0635F0178)

Under the Guidance of

Miss. M. GOMATHI, M. Com., M. Phil., PGDCA

2006-2008

DEPARTMENT OF MANAGEMENT STUDIES

MAHARAJA COLLEGE FOR WOMEN

(Affiliated to Bharathiar University)

Financial Statement

PERUNDURAI, ERODE – 638052

DECLARATION

I here declare that the project work entitiled “FINANCIAL

PERFORMANCE ANALYSIS OF KERALA AGRO MACHINARIES

CORPORATION LIMITED” submitted to the Bharathiar University,

Coimbatore in partial fulfillment of the requirements award of the Degree of

MASTER OF BUSINESS ADMINISTRATION is a record of

original research work done by me under the guidance of Miss. M.

GOMATHI, M.Com., M. Phil., PGDCA., Lecturer, Department of

Business Management, Maharaja College for women, Perundurai and it has

not formed that basic for the award of any Degree / Deploma /

Associateship / Felloship or other title to any candidate of any University.

Signature of the candidate,

PLACE:

DATE: BIJI BABY.

Maharaja College for Women Erode 1

Financial Statement

ACKNOWLEDGEMENT

I am extremely greateful to my project guide Miss. M. GOMATHI,

M.Com., M. Phil., PGDCA., Lecturer in Management department,

Maharaja College for Women, Perundurai for her valuable guidance and

suggestion rendered throughout the study.

I own deep sense of gratitude to Sri. MADHAVAN, Manager,

Kerala Agro Machinaries Corporation Limited, Athani, for the help

rendered in providing adequate information for the completion of the

project work.

Last but not the least my sincere gratitude to my parents and friends

who have mentally supported me through the project and to bringing the

report in its final stage.

BIJI BABY.


Financial Statement

CONTENTS

Sl.No. Particulars Page No.

I. INTRODUCTION TO THE STUDY

I.1. Scope of the study

I.2. Objectives of the study

I.3. Limitations of the study

I.4. Finance - the key function of the business

II. COMPANY PROFILE

II.1. Profile of the company

II.2. SWOT Analysis

II.3. Capital structure of the Company

II.4. Asset structure of the Company

III. REVIEW OF RELATED LITERATURE

III.1. Introduction to Financial Management

III.2. Meaning & concept of financial analysis

III.3. Procedure of financial statement analysis

III.4. Type of financial analysis

III.5. Methods of financial analysis


Financial Statement

IV. PROBLEM ANALYSIS

IV.1. Research problem

IV.2. Methodology

IV.3. Tools used for analysis

IV.4. Limitations

V. ANALYSIS & INTERPRETATION

V.1. Ratio analysis

V.2. Trend analysis

V.3. Common size statement

V.4. Statement of changes id working capital

V.5. Fund flow analysis

V.6. SWOT analysis

VI. FINDINGS & SUGGESTIONS

VII. CONCLUSION

VIII. ANNEXURE

IX. BIBLIOGRAPHY


Financial Statement

LIST OF TABLES

TABLES

NO.TITLE

PAGE

NO.

1 Capital Structure of the company.

2 Asset Structure of the company.

3 Working Capital.

4 Current Ratio.

5 Quick Ratio.

6 Gross Profit Ratio.

7 Net Profit Ratio.

8 Return on Shareholders fund.


10 Inventory Turnover Ratio.

11 Fixed Asset Turnover Ratio.

12 Current Asset Turnover Ratio.

13 Working capital Turnover Ratio.

14 Trend Analysis

15 Common Size Statement.

16 Schedule of changes in working capital.

17 Fund flow Statement.


Financial Statement

LIST OF GRAPHS

GRAPH

NOTITLE

PAGE

NO

1 Current Ratio.

2 Quick Ratio.

3 Gross Profit Ratio Return of Shareholders fund.

4 Net Profit Ratio.


6 Return on total asset Fund.

7 Inventory Turnover Ratio.

8 Fixed Asset Turnover Ratio.

9 Current Asset Turnover Ration.

10 Working capital Turnover Ratio.

11 Trend Analysis.


Financial Statement

1. INTRODUCTION

1.1. SCOPE OF STUDY

Financial performance of an organization is a very important factor for the long – term

survival profitability of any organization. The purpose of financial analysis is to diagnose

the information contained in financial statements so as to grudge the profitability and

financial soundness of the firm. For the purpose the study has been conducted for a period

of last five years.

1.2. OBJECTIVE OF THE STUDY

The main objective of the study is to make an analysis of the financial performance

KERALA AGRO MACHINARIES CORPORATION LTD.

The objectives are

To assess the liquidity position of the company

To assess the profitability position KAMCO for the period of 5 years.

To evaluate the turnover position of the company

To assess the effective utilization of the owners fund

To know the working capital of the company

To analyze the current assets & current liabilities of the company

To suggest suitable measures

To improve the financial health of the company

To measure the over all performance of KAMCO


Financial Statement

To find the long term and short-term solvency position of the company

To ensures the long term liquidity of fund

1.3. LIMATIONS OF THE SUDY

The basic nature of financial statements is historical data. So the information’s

can’t be completely reliable.

The study will be only a professional one based on the data collected annual report

and accounts during the subject to refinement.

KAMCO is government undertaking. So there is lack of confidential data.

To do the performance analysis only the last five years figures are taken in to

account.

1.4. FINANCE – THE KEY FUNCTION OF THE BUSINESS

Finance is defined as the provision of money at the time when it is required. Every

enterprise, whether big, medium or small, needs finance to carry on its operations to achieve its

targets. It is the lifeblood of an enterprise. Without adequate finance, no enterprise can

possibly accomplish its objectives.

Finance is specialized function and draws heavily on the relative function like

marketing, production, personnel, purchase etc. Finance deals with the internal management of

the enterprise so as to maximize its value give the principles affecting valuation. In away,

finance is an aspect of economic theory of firm. Finance has undergone a sufficient change and

its concerned with the “ Flow of Funds” and decision relating business operation effecting the

valuation of the firm. Accounting primarily involves “ Data gathering “relating to an existing

or new project, while finance involves “ Data analysis” with focus on decision making.


Financial Statement

Accounting is compliling of data in financial term and making the same available for decision

making. These to area related, one’s supporting the other.

II. COMPANY PROFILE

II.1. PROFILE OF THE COMPANY

KERLA AGRO MACHINARIES CORPORATION LTD. (KAMCO) is established in

1973. KAMCO is a fully state owned unit engaged in the manufacturing of power tillers and

other Agricultural products. KAMCo having four units in Kerala. One in Athani, in Plakkad,

in Kalamassery and in Mala. The head office is at Ahani. It was separated from Japanese

company, early days it was known as KAIC.

The main products of this company are power tiller, reapers, etc. This government-

oriented organization is mainly focusing on small farmers. The company has informed with the

intention to manufacture agricultural machineries suitable to small farmers at affordable price.

The company has certain unique feature, which distinguishes it deform other public sectors

enterprise.

They are:-

Company is running on profit continuously for the last 25 years.

1. Company has been paying dividend ranging from 10-30% for the last 20 years without

fail.

2. Company has no loaned funds and hence finance charge is also nil.

3. Company has fixed deposits, which earn interest to the company

4. Company has no working capital loans.

5. Company is professionally managed organization.


Financial Statement

Company occupies around 50% of total market share of power tillers. Company has deals

in all state and main dealer is located at west Bengal. Main competitor of the company is

VHST.NEW PROJECTS:

The new innovation of the company is launched power stone cutter. The company is

expected the continuous production of the product in the subsequent years.

ISO 9001 – 2000

Company’s quality policy and its uncompromising attitude toward quality parameter

ere rewarded ISO 9001 – 200 certification to the company. Athani, Palakkad nd

kallamessery units are working with ISO9001 – 2000 certificates.

CAPITAL STRUCTURE

The authorized capital of the company is Rs.200 lacks and paid up capital Rs.1500900.

Presently it has increased to Rs. 161.46 lacks divided in to 161460 equity share of Rs.100

each fully paid up and entirely help up by Govt.of Kerala. This company is not having any

secured and unsecured loans.

EMPLOYEE DETAILES

OFFICERS : 60

WORKERS : 600

TEMPORARY WORKERS : 3

APPRENTICES TRAINEES : 42

TOTAL : 705

SHIFTS : 2

FUTURE OUTLOOK

In spite of threat from imported and indigenous makes of power tiller, KAMCO Power

Tiller continues to be the preferred choice of farmers attaining the moderate market share

for the year. Power paper also had been able to each the imagination of the small farmers.


Financial Statement

The response for the newly launched KAMCO SUPER Power Triller is very encouraging .

However the company’s success depends upon the fortunes of the farmer and to this extent

there is an element beyond the control of the Company. Diversification of the products and

services is an essential prerequisite for success. With this view Company is examining

possibilities of entering into other areas while retaining its market share in the existing

products.

II.2. SWOT ANALYSIS

An analysis strength, weakness, opportunities and threts are the key elements for

influents the survival and development of the organization. It will helpful for the

improvement of the organization strategies.

STRENGTH

Largest manufacturing of consumer needed agricultural goods

Capacity to produce high agricultural goods.

A team of professional managers of the organization

High skilled workers are there

Satisfied and committed work forces thy providing

The organization making profit for the last 25 years

Sincere employees. The old are experts in manufacturing work

Manufacturing cost is limited

WEAKNESS

Business diversification is not there

Only limited numbers of products are there.

All products are mainly based on agricultural goods

The agriculture field become dull it will be wrongly effect the business

Lack of modern machineries.

OPERTUNITIES


Financial Statement

Company is having good opportunities especially in export

The Cochin port and airport is near to the company, which is an added advantage.

THREAT

The major threat is the liberalization policy of the government

Anybody can enter in to the market, which will increase the competition in the business.

II.3. CAPITAL STRUCTURE

A capital structure refers to the total combined investment of a business. Decesion as to

the composition of capitalization is reflected in capital structure. Thus, what type of fund

should a firm seek to meet its investment opportunities in what proportions these funds

would be raised are the basic issues that has to be dealt with under capital structure. It is

there for necessary that a correct estimate of the current and future needs be made to have

an optimum capital structure.

The capital structure of KAMCO, include share capital, capital reserve, current

liabilities and provisions. The total capitalization of the company had increased from

2000-2001 to 2004-2005.


Financial Statement

CAPITAL STRUCTURE OF THE KAMCO 9in Rs.Lakhs)

Table

Particulars 00-01 01-02 02-03 03-04 04-05

Share Capital 161.46 161.46 161.46 161.46 161.46

Reserve & Surplus

3770.02 4393.46 4982.73 5440.21 5852.68

Loans Nil Nil Nil Nil Nil

Current liabilities and Provisions

1013.08 1192.39 1268.93 974.20 1050.56

Total 4944.56 5747.31 6413.12 6575.87 7064.70


Financial Statement

II.4. ASSET STRUCTURE

The asset of any firm constitute of the fixed asset and current asset. Current

assets are those assets, which can be readily converted to cash. They include sundry

Debtors, cash and bank balance, inventories, loans and advances, other current assets.

Fixed asset are usually converted to cash only in the long run. Inventories & Sundry

Deabtors constitute the major portion of current assets.

ASSETS STRUCTURE OF THE KAMCO (in rs.Lacks)

Table

Particulars 00-01 01-02 02-03 03-04 04-05

Fixed Asset 931.37 879.75 826.90 714.36 766.01

Current Asset

Loose Tools 12.47 9.93 8.76 11.53 9.86

Inventories 1180.28 1415.13 1437.69 1796.92 1781.92

Sundry

Debtors419.74 592.31 669.22 909.98 891.43

Cash & Bank

balance1436.72 1843.43 2471.56 2247.06 2771.42


Financial Statement

Other Current

Assets98.66 133.54 138.92 108.89 103.60

Loans &

Advances682.47 688.58 731.72 607.89 648.50

Total 4761.71 5562.67 6284.78 6396.64 6972.75

KAMCO FINANCE DEPARTMENT STRUCTURE


Financial Statement

As the study is mainly concerned with finance department the organization chart of

finance department only has been shown. Company has various other departments like

marketing, engineering, system, hrm, quality assurance, maintenance stores and production.

Officers of various levels are place and high skilled workers are there.

FUNCTIONS OF FINANCE DEPARTMENT

Maharaja College for Women Erode

MANAGINGDIRECTOR

DY.MANAGER

GENERALMANAGER

MANAGERCOST/AUDIT

ASST.MANAGERCOST/AUDIT

SUPERINTENDENT

ACCOUNTANT ACCOUNTANT

SUPERINENDENT

ASST. MANAGERACCOUNT

DY. MANAGER

DGMFINANCE

16

Financial Statement

FINANCE DEPARTMENT FUNCTIONS


FUNCTIONS OF FINANCE DEPARTMENT

SALES ACCOUNTING COSTING

BILLPROCESSING

BANKRECEPTS

CASH MANAGEMENT

BANK PAYMENT

17

Financial Statement

The account manager look after the entire function of the company. The finance

department is computerized. The major source of fund includes share capital. Reserve &

surplus and not include loan fund.

FUNCTION

Proper utilization of funds

Developing sufficient funds.

Budget preparing

Pure accounting

Increase profitability

Taxation etc.

The financial function call for stains full planning control and execution of four

activities. The main function of the financial department includes the receipt and payment of

cash, settlement of account proper custody and safe guard important and valuable document.

The other functions are financial planning, budgeting and also analyzing the company’s current

performance with past performance and inform their performance to the necessary authority.


Financial Statement

III. REVIEW OF RELATED LITERATURE

III.1. INTRODUCTION TO FINANCIAL MANAGEMENT

Financial management refers to the part of the management activity, which is concerned

with the planning and controlling of firm’s financial resources. It deals with finding out

various resources of raising funds for the firm. In other words, financial management

means the entire management efforts devoted to the management of finance both in its

sources and uses. The most appropriate use of funds also reforms a part of financial

management.

Financial management is applicable to every type of organization irrespective of its

size, kind of nature. It is useful to a small concern as to big unit. A trading concern gets

the same utility from its applications as a manufacturing unit may expert. This subject is

important and useful for all types of ownership organizations. Where there is use of

finance, management is helpful.

III.2. MEANING AND CONCEPT OF FINANCIAL ANALYSIS

The term ‘financial Analysis ‘ also known as ‘ analysis and interpretation of financial

statement’, refers to the process of determining financial strength and weakness of the firm by

establishing strategic relationship between the items of the balance sheet, profit and loss

account and other operative data.

The purpose of ‘financial Analysis’ is to diagnose the information contained in financial

statement so as to grudge the profitability and financial soundness of the firm. The analysis

and interpretation of financial statement essential to bring out the mystery behind the figures in

financial statement.

The term financial Statement Analysis includes both ‘analysis’ Ana’ interpretation. While

the term ‘Analysis is to mean the’ the simplification of financial statement’, ‘interpretation’

means’ explaining the meaning and significant of the date so simplified’.

“Analyzing financial statement”, according to Metcalf and Titard, “is a process of

evaluating the relationship between component parts of a financial statement to obtain better

understanding of a firm’s position and performance”.


Financial Statement

III.3. TYPE OF FINANCIAL ANALYSIS

We can classify various types financial analysis in to different categories depend upon

1. On the basis of material used

According to the materials used, financial analysis can be of two types

a) External analysis

This analysis is done by outsiders who do not have access to the detailed internal

accounting records of the business of the firm. This outsider includes investors. Potential

investors, creditors, potential creditors, government agencies, credit agencies and general

public. For financial analysis these external parties to the firm depend almost entirely of

the published financial statements.


TYPE OF FINANCIAL ANALYSIS

On the basis of material used On the basis of modus operandi

HorizontalAnalysis

InternalAnalysis

ExternalAnalysis

VerticalAnalysis

20

Financial Statement

b) Internal analysis

The analysis conducted by persons who have access to the internal accounting records of

the business firm is known as internal analysis. Such an analysis can, therefore performed

by executives and employees of the organizations as well as the government agencies

which have statutory powers vested in them.

II. On the basis of modus operandi

According to the method of the operation followed in the analysis, financial analysis

can also be of two types.

a) Horizontal analysis

Horizontal analysis refers to the comparison of financial data of a company of several

years. The figures for this type of analysis are presented horizontally over a number of

columns the figures of various years are compared with the standard or base year. A base year

is a year chosen as beginning point. The horizontal analyses make it possible to focus attention

on items that have changed significantly during the period under review. Comparative

statements and trend percentage are two tools employed in horizontal analysis.

b) Vertical analysis

Vertical analysis refers to the study of relationship of the various items in the financial

statement of on me accounting period In this type of analysis the figures from financial

statement of a year are compares with a base selected from the same year’s statement.

Common-size financial statements and financial ratios are the two tools employed in vertical

analysis.


Financial Statement

III.4. PROCEDURE OF FINANCIAL STATEMENT ANALYSIS

There are three steps involved in the analysis of financial statements. These are

1. Selection

2. Classification

3. Interpretation

1. Selection

This step involves selection of information relevant to the purpose of analysis of

financial statement.

2. Classification

It involves the methodical classification of data.

3. Interpretation

It includes drawing of inferences and conclusions.

PROCEDURE

1. The analyst should acquaint himself with the principles and postulates of accounting.

2. The extend of analysis should be determined so that the sphere of work may be decided.

3. Financial data given in the statement should be reorganized and rearranged.

4. A relationship established among financial statement with the help of tools techniques of analysis such as ratios, Trends, common size, fund flow etc.

5. The information is interrupted in a simple and understandable

6. The conclusion drawn from interpretation.

III.5. METHODS OF FINANCIAL ANALYSIS

1. Ratio Analysis

2. Trend Analysis

3. Common-size statement

4. Schedule of changes in working capital

5. Fund flow Statement.


Financial Statement

IV. PROBLEM ANALYSIS

IV.1. RESEARCH PROBLEM

KAMCO is fully state owned unit engaged in the manufacturing Power tiller

and agricultural products. Company is running on profit continuously for the last 25 years.

Company has no loaned funds and finance charge is also nilled. Company has no working

capital loans.

The company is running on profit continuously but the profit is founded decreasing

even though turnover is see increased. Due to liberalization Company imported brand of power

tillers were available in the market. Brand like Chinese are relatively very low priced

compared to Indian power tillers as a result company could not increase the price to pass on the

increasing cost. Hence profit is declined.

The purpose of financial Analysis is to diagnose the information contained in financial

statements so as to judge the profitability and financial soundness of the firm. Financial

statements are prepared primarily for devesion-making.

They play a dominant role in setting the framework of managerial decisions. But the

information provided in the financial statements is not an end as it self as no meaningful

conclusion can be drawn from these statement alone. However the information provided in the

financial statements is of immense use in making decision thorough analysis and interpretation

of financial statements.

A sound managerial control requires the proper management of the various component

of working capital. Impact of mismanagement of working capital will be very much adverse on

the performance of any firm. Thus the working capital management is an important function in

any business organization.


Financial Statement

IV.2. METHODOLOGY

1. Data collection

To study is an empirical one. It uses both primary and secondary

Primary Data

Primary data where collected through depth interview with concerned officers of the company.

Secondary Data

Secondary date where collected from the financial statements of KAMCO for five years.

Profit & Loss account, Balancesheet, Books magazines where also referred.

IV.3. TOOLS USED FOR ANALYSIS

The different tool used such as Ratio analysis, working capital analysis, fund flow

analysis provided as an insight on KAMCO performance. The tool SWOT analysis is used to

find out the strength, weakness, opportunities and Threats of KAMCO.

3. Scope of study

Financial performance of an organization is a very important factor for the long term

survival profitability of any organization. The purpose of financial analysis is to diagnose the

information contained in financial statements so as to grudge the profitability and financial

soundness of the firm. For the purpose the study has been conducted for a period of last five

years.

IV.4. LIMITATIONS OF THE STUDY

The basic nature of financial statement is historical data. So the information’s can’t be

completely reliable.

The study will be only a professional one based on the data collected annual report and accounts during the subject to refinement.

KAMCO is government undertaking. So there is lack of confidential data.

To do the performance analysis only the last five years figures are taken in to account.


Financial Statement

BALANCE SHEET OF KAMCO LTD. ATHANI

Particulars 2001 2002 2003 2004 2005I. Source of funds1. Shareholders funda. Capital 161.46 161.46 161.46 161.46 161.46b. Reserve & Surplus 3770.02 4393.46 4982.73 5440.21 5852.682. Loan funds Nil Nil Nil Nil Nil3. Deffered tax Liabilities Nil Nil 47.57 53.9 51.98Total 3931.49 4554.92 5191.76 5655.57 6066.12II. Application of funds1. Fixed Asseta) Gross block 1626.07 1687.19 1725.7 1749.85 1778.39b) Less Depreciation 694.70 807.44 898.8 983.84 1064.03c) Net block 931.37 879.75 826.9 766.01 714.36d) Capital working progress 7.85 9.64 0.9 6.47 0.53Total 939.22 889.39 827.8 772.48 714.892.Investment in shares 175.00 175.00 175 175.00 175.003. Current asset loan & advance3.Current Asseta) Loose tools 12.47 9.93 8.76 11.53 9.86b) Inventories 1180.28 1415.14 1437.69 1796.92 1781.92c) Sundry debtors 419.74 592.31 669.22 909.98 891.42d) Cash & Bank balance 1436.72 1843.42 2471.56 2247.06 2771.42e) Other current asset 98.66 133.54 138.92 108.89 103.60B. Loans & Advance 682.47 688.58 731.71 607.89 648.50Total 3830.34 4682.92 5457.88 5682.28 6206.75Less: Current Liabilities Provisiona) Current liabilities 602.15 809.40 885.83 668.55 725.18b) Provision 410.92 382.99 383.10 305.64 325.39Total 1013.07 1192.39 1268.93 974.19 1050.56Net Current Asset 2817.27 3490.53 4188.95 4708.09 5156.18Total 3931.49 4554.92 5191.76 5655.57 6066.12


Financial Statement

PROFOT AND LOSS ACCOUNT OF KAMCO. LTD. ATHANI

Particulars 2001 2002 2003 2004 2005I. IncomeSales 6809.33 6745.14 7342.89 6815.40 7934.39Other Income 195.73 221.06 257.94 218.75 209.6II.Variation in Stock 96.83 394.55 -10.78 285.4 -194.76Total 7101.88 7360.75 7590.04 7322.89 7949.24III. ExpenditureConsumptiona) Material 3817.67 4224.48 4131.73 3985.87 4820.42b) Traded good 378.73 160.85 173.34 193.19 244.15Manufacturing & Other exp. 123.09 364.21 535.76 497.29 582.45Staff Cost 994.32 1028.05 1036.62 1169.93 1271.83Administration & General exp. 85.68 83.62 108.63 99.2 122.7Selling & Distribution exp. 616.89 406.48 495.99 509.22 100.13Depreciation 94.11 110.01 97.59 87.90 81.30Total 6110.49 6377.7 6579.67 6542.63 7223.00Operating Profit 991.39 983.04 1010.37 780.26 726.23Prior period adjustment -1.75 1.56 -6.89 -8.07 -19.55Profit before tax 989.64 984.60 1003.48 772.19 730.90Less: provision for taxationa) Current Tax 355.00 313.00 312.00 253.73 265.00b) Deferred Tax Nil Nil 6.67 6.33 -1.92Profit after Tax 634.64 671.60 684.80 512.12 467.83Profit available for appropriation 634.64 671.60 684.80 512.13 467.83Appropriationa) Proposed dividend 40.37 48.44 48.44 48.44 48.44b) Dividend Tax - - 6.20 6.21 6.92c) Transfer to other Reserve 70.00 70.00 70.00 70.00 70.00Total 524.28 553.17 560.17 387.48 342.47


Financial Statement

V. ANALYSIS AND INTERPRETATION

V.1. RATIO ANALYSIS

INDRODUCTION

Financial statements are prepared primarily for decision making. They plan a dominant role in setting the frame work of managerial decisions. But the information provided in the financial statements are not an end in it self as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial strengths and weakness of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods and techniques used in analyzing financial statements, such as comparative statements, schedule of change in working capital. Common size percentages, funds analysis, trend analysis and ratio analysis. The ratio analysis is the most powerful tool of financial statements.

NATURE OF RATIO ANALYSIS

A ratio is defined as “ the indicated quotient of two mathematical expressions” and as “the relationship between two or more things”. In financial analysis, a ratio is used as an index or yardstick for evaluation the financial analysis, a ratio is used as an index or yardstick for evaluating the financial position and performance of a firm. “The relationship between two accounting figures expressed mathematically known as the financial ratio”. A helps to make qualitative judgment about the firm’s financial position and performance. The ratio indicated a qualitative relationship which is the nature all financial ratios.

A ratio analysis involves compression for a usual interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard.

Standards of comparison may consist of

Ratios calculated from the past financial statements at the same firm

Ratios developed using the projected (or) proforma financial statement of the same firm.

Ratios of same selected firms, especially the most progressive and successful at the same point in time.

Ratio of the industry to which the firm belongs.


Financial Statement

SIGNIFICANCE OF RATIO ANALYSIS

The ratio analysis is the most powerful tool of the financial analysis. Divers group of people who are interested in analyzing financial information use ratio to determine a particular financial characteristic at the firm in which they are interested with the help of ratios can determine.

The ability to the firm of meets its current obligations.

The extend to which the has used its long term solvency by borrowing funds.

The efficiency with which the firm is utilizing its various assets in generating sales revenue.

The overall operating efficiency and performance of the firm.

LIMITATIONS OF RATIO ANALYSIS

Ratio analysis suffers from some serious limitations.

They are given below:

A single ratio usually does not convey much of sense to make a better interpretation. A member of ratios has to be calculated in making any meaningful conclusion.

Change in accounting procedure by a firm often makes ratio analysis misleading.

Ratio are only means of financial analysis are not an end itself and they have to interpreted different people may interpret the same ratio in different ways.

Differences in accounting procedures make the comparison of ratios difficult and misleading.

The ratio analysis is primarily a quantitative analysis and not a quantitative analysis.

APPLICATION OF A ACCOUNTING RATIOS

To analysis the financial performance through the application of accounting ratio the following ratio are selected and analysis. The selected ratios are grouped under the following four heading.

Liquidity Ratios

Leverage Ratios

Activity Ratios

Profitability Ratios

This chapter deals with Liquidity, Leverage, Activity and Profitability of KAMCO LTD. By applying selected ratios.


Financial Statement

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current obligations as and when

they become its due. Christy and Redden “The Liquidity of an asset as money ness” The short

term obligations are met by realizing accounts from current floating or circulating assets. The

current assets should either be liquid or near liquidity. The bankers, suppliers of goods and

other short term creditors are interested in the liquidity of the concern. Ratio can be calculated

Current ratio, Liquid ratio, Absolute Liquid ratio.

a. Current Ratio:

Financial performance of KAMCO LTD., current ratio is the most common ratio for

measuring liquidity. Current ratio expresses relationship between current assets and current

liabilities. It is calculated by dividing the total of current assets by total of the current assets by

total of the current liabilities.

Formulation:

Current AssetsCurrent Ratio = ________________

Current Liabilities


Financial Statement

CURRENT RATIO OF KAMCO.LTD

Table

YEARCURRENT

ASSETCURRENT

LIABILITIESRATIO

2000-2001 3147.88 1013.08 3.11

2001-2002 3994.33 1192.39 3.35

2002-2003 4726.16 1268.93 3.72

2003-2004 5074.40 974.20 5.20

2004-2005 5558.24 1050.00 5.29

INFERENCE

A current ratio of 2:1 is considered as ideal one. From the above table the

current ratio of the company in the year 2001 – 2005 is increasing. The average current ratio is

4.13:1 which higher than standard ratio. It is more than 2:1 indicate sound solvency position.

CURRENT RATIO OF KAMCO.LTD

Figure


Financial Statement

b. QUICK (OR) ACID TEST (OR) LIQUID RATIO:

Quick ratio is also called “Acid Test Ratio” or “Liquid Ratio” The quick ratio is a

measure of liquidity designed to overcome this defect of the current ratio. It is used as

complimentary ratio to the current ratio.

Formation:

Quick AssetsQuick/liquid or Acid Test Ratio = ________________

Current Liabilities


Financial Statement

LIQUID RATIO OF KAMCO.LTD

Table

YEARLIQUIDASSET

LIQUIDLIABILITIES

LIQUIDRATIO

2000-2001 1960.70 1013.08 1.94

2001-2002 2572.60 1192.39 2.15

2002-2003 3279.38 1268.93 2.58

2003-2004 3283.56 974.20 3.37

2004-2005 3754.61 1050.00 3.57

INFERENCE

The average liquid ratio is 2.72:1 it is more than the standard ratio 1:1. It shows the

efficiency of the firm’s capacity to pay off current obligation immediately.

LIQUID RATIO OF KAMCO.LTD

Figure

c) ABSOLUTE LIQUIDITY RATIO OR CASH POSITION RATIO


Financial Statement

It is a variation of quick ratio. When liquidity is highly restricted in terms of cash and

cash equivalents, this ratio should be calculated. The inventory and the debtors are excluded

from current asset, to calculate the ratio.

Absolute liquid asset include cash in hand and a bank and marketable securities or

temporary investments. The acceptable norm for this ratio is 5:1.

Formation:

Cash + Market SecuritiesAbsolute Liquid Ratio = ______________________

Current Liabilities

ABSOLUTE LIQUIDITY RATIO OR CASH RATIO


Financial Statement

Table

YEAR CASH&BANKCURRENT

LIABILITIES

ABSOLUTELIQUIDITY

RATIO

2000-2001 1436.72 1013.08 1.44

2001-2002 1843.42 1192.39 1.55

2002-2003 2471.56 1268.93 1.95

2003-2004 2247.06 974.20 2.31

2004-2005 2771.42 1020.56 2.64

INFERENCE

The acceptable form the ratio 5:1. The average absolute liquid ratio is 1.97:1. This

shows that company financial position satisfactory.

ABSOLUTE LIQUIDITY RATIO OR CASH RATIO

Figure

2) SOLVENCY AND LEVERAGE RATIO


Financial Statement

Financial leverage refers to the use of debt as a source of finance. The debt capital is a

cheaper source of finance as well as riskier source of finance. Leverage ratio helps in assessing

the risk arising from the use of debt capital. Leverage or capital structure ratios may be defined

as “ financial ratios with throw light on the long term solvency of the firm as reflected in its

ability to assure long term creditors with regard to (i) periodic payment of interest during the

period of the loan and (ii) repayment of principle on maturity or in predetermined installments

at due date.

The two types of ratio commonly used to analysis financial leverage are structural ratio

and leverage ratio and leverage ratio, structural ratio are based on the proportions of debt and

equity in the financial structure of the firm.

Debt equity ratio and debt assets ratio coverage ratio show the relationship between

debt servicing commitments and the sources for meeting these burdens. The important

coverage ratios are interest coverage ratio and cash & flow coverage ratio.

a) Debt Equity Ratios

The financing of total assets of a business concern is done by owner’s equity as

well as outside debts. The relationship between borrowed funds and owner’s capital is a

popular measure of the long-term financial solvency of a firm. This relationship is down by the

debt-equity ratio. It is calculated as follows:

1. Debt-Equity Ratio = External Equity / Internal Equity or

2. Debt-Equity Ratio = Outsiders Funds / Shareholders Funds

Since the company has no secured loan or unsecured loan Debt-Equity ratio not

relevant to compare hence not analyzed.

b) Fixed Assets Ratio


Financial Statement

Financial policy requires that long-term funds should be used to meet the requirements

of fixed and part of working capital. Fixed assets ratio tells about the relationship between

fixed assets and long-term funds. It is calculated by this formula.

Fixed assets ratio = Fixed assets _______________

Long term funds

c) Interest Coverage Ratio

This ratio also known as fixed charge cover ratio. Loan creditors are not only interested

in capacity of their borrowers in repaying the principle amount but they would also look in to

their ability to pay the interest as and when due. The ability to pay interest is reflected in the

profits of the business. The formula for calculating interest coverage ratio is as follows.

Interest coverage ratio = EBIT ________

interest

As KAMCO has no loaned funds secured or unsecured and loan not shown. So

these three ratios are not relevant to the company.

d) Proprietary Ratio or Equity Ratio

Proprietary Ratio relates the shareholders funds on total assets. This ratio shows

the long term or future solvency of the business.

Proprietary Ratio = Shareholders Funds _________________

Total Asset

Preference share capital, equity share capital plus all reserve and surplus item

are called shareholders fund. The acceptable norm of ratio is 1:3. The ratio shows the general

strength of the company.

PROPRIETARY OR EQUITY RATIO


Financial Statement

Table

YEARSHARE

HOLDERSFUND

TOTALASSET

PROPRITERYRATIO

2000-2001 3931.49 4944.56 79.51

2001-2002 4554.92 5747.31 79.25

2002-2003 5144.19 6460.69 79.62

2003-2004 5601.67 6629.77 84.49

2004-2005 6014.14 7116.68 84.51

INFERENCE

The acceptable form of the ratio is 1:3. It is very important to creditors as it help them

to find out proportion of shareholders fund in the total assets used business. Higher ratio

indicates secured position to creditors. There was continuous increasing in the ratio. It shows a

satisfactory condition to the creditors of the company.

Figure

3. ACTIVITY RATIOS / EFFICIENCY RATIOS


Financial Statement

Activity ratio measure the efficiency or effectiveness with which a firm managers its

resources or assets. These ratios are also called turnover ratios, because, they indicate the

speed with which assets are converted or turnover into sales. This category of ratios includes

those ratios which highlight upon the activity and operational efficiency. This ratio are being

used and they are collectively called as “activity ratios” or “performance ratio”.

a. Debtors Turnover Ratio:

Debtor’s turnover ratio indicates the velocity of debt collection of firm. The higher the

value of debtor’s turnover the more efficient is the management of debtors/sales or more liquid

are the debtors. Similarly, low debtors turnover implies insufficient management of debtors/

sales and less liquid debtors.

Formulation:

Opening Debtors + Closing DebtorsAverage Debtors = ______________________________

2

Net Credit Annual Sales

Debtors Turnover Ratio = _____________________

Average Trade Debtors

b. Inventory Turnover Ratio:


Financial Statement

Inventory turnover ratio indicates the number of times the stock has been turned over

during the period and evaluates the efficiency with which a firm is able to manage its

inventory. The figure of inventory at the end of the year should not be taken for calculating

stock velocity because normally the stock at the year end us low.

Formation:

Opening stock + Closing stockAverage inventory = __________________________

2

Cost of goods soldInventory Turnover Ratio = ______________________

Average inventory at cost

INVENTORY TURNOVER RATIO


Financial Statement

Table

YEAR SALES INVENTORYINVENTORYTURNOVER

RATIO

2000-2001 6809.32 1180.28 5.77

2001-2002 6745.14 1415.14 4.77

2002-2003 7342.89 1437.7 5.11

2003-2004 6815.40 1796.92 3.79

2004-2005 7934.39 1781.91 4.45

INFERENCE

A higher inventory turnover indicates efficient management of inventory because more

frequently the stock sold. In the year 2000-2001 the inventory turn over ratio is 5.77.

INVENTORY TURNOVER RATIOS

Figure

c) Working Capital Turnover Ratio


Financial Statement

The working capital turnover ratio is used to measure the efficiency of the firm. This is

also indicates whether or not working capital has been effectively utilized in making sales. In

case the company can achieve higher volume of sales with relatively small amount of working

capital. It is an indication of thee operating efficiency of the company. The ratio is calculated

as follows:-

Formulation:

Net SalesWorking Capital Turnover Ratio = _______________

Working Capital

WORKING CAPITAL TURNOVER RATIO


Financial Statement

Table

YEAR SALESNET

WORKINGCAPITAL

WC RATIO

2000-2001 6809.32 2817.27 2.42

2001-2002 6745.14 3490.53 1.93

2002-2003 7342.89 4188.95 1.75

2003-2004 6815.40 4708.08 1.45

2004-2005 7934.39 5156.18 1.54

INFERENCE

It shows a decreasing trend. Because good portion of companies working capital has

invested a current deposit in bank or other financial institution. It producing a good amount of

interest net working capital is increasing this is due to increasing in the bank balance &

decreasing current liabilities shows a good sign of health.

WORKING CAPITAL TURNOVER RATIO

Figure

d) Asset Turn Over Ratio


Financial Statement

Assets are used to generate sales. Therefore a firm should manage its asset efficiently

to maximize sales. The relationship between sales and asset is called asset turnover. Several

assets and turnover ratio can be calculated.

Fixed Asset Turnover and Current Asset Turnover

The firm wish to know its efficiency of utilizing fixed asset and current asset respectively.

Fixed Asset Turnover :

Fixed Asset Turnover = Sales __________

Fixed Asset

Current Asset Turnover:

Current Asset Turnover = Sales ____________

Current Asset

FIXED ASSET TURNOVER RATIO


Financial Statement

Table

YEAR SALESNET FIXED

ASSET

FIXED ASSETRATIO

2000-2001 6809.32 931.37 7.31

2001-2002 6745.14 879.75 8.88

2002-2003 7342.89 826.9 8.88

2003-2004 6815.40 714.36 9.54

2004-2005 7934.39 766.01 10.36

INFERENCE

The table shows fluctuation in fixed assets. In 2005 the ratio indicate the greater the

intensive utilization of assets and it help to increase in production & sales.

FIXED ASSET TURNOVER

Figure

CURRENT ASSET TURNOVER RATIO


Financial Statement

Table

YEAR SALESCURRENT

ASSET

CATURNOVER

RATIO

2000-2001 6809.32 3147.88 2.16

2001-2002 6745.14 3994.33 1.69

2002-2003 7342.89 4726.16 1.55

2003-2004 6815.40 5074.40 1.34

2004-2005 7934.39 5558.24 1.42

INFERENCE

The table shows CATR is declining. The CATR of the company for the current year is

1.42 is less than compared to the previous year.

CURRENT ASSET TURNOVER RATIO

Figure

4) PROFITABILITY RATIO:


Financial Statement

The primary objective of business undertaking is to earn profits. Profit earning is

considered essential for the survival of the business. In the words of Lord Keynes “profit is the

engine that drives the business enterprise”. Profits are an index of economic progress.

Profitability ratios are calculated to measure the overall efficiency of the business. Generally,

profitability ratios are calculated either in relation to sales or in relation to investment.

A company should be able to produce adequate profit on each rupee of sales. If sales do

not generate sufficient profits, it would be difficult for the firm to cover operating expenses and

interest charges and as result will to earn any profits to owner.

Profitability in Relation to Sales are

Gross profit ratio

Net profit ratio

Operating profit ratio

Operating ratio

Profitability in Ratios to Investment

The profitability of the company should also be evaluated in terms of the firm’s investment.

Profitability Ratios in Relation to Investment are

Return on assets (ROA)

Return on share holders equity (ROE)

By employing ratio analysis technique, the effectiveness of use of resources to enhance profitability of the company has been studied.

a) Gross Profit Ratio

The Gross profit ratio is also known as Gross Margin Ratio. The difference

between Net Sales and Cost of Goods sold is known as Gross Profit. The earning capacity of

the business can be ascertained by taking the margin between cost of goods sold and sales

revenue. It test of profitability and management efficiency.

Gross Profit Ratio = Gross Profit ___________

Net Sales


Financial Statement

GROSS PROFIT RATIO

Table

YEARGROSSPROFIT

SALES GROSSPRIFT

RATIO

2000-2001 1431.68 6809.32 21.03

2001-2002 2778.33 6745.14 41.19

2002-2003 2474.56 7342.89 33.70

2003-2004 2238.78 6815.40 32.85

2004-2005 2918.73 7934.39 36.79

INFERENCE

Higher gross profit ratio better result. In the year 2002 GPR is 41.19 which less than

the year 2005, ratio is 36.79.

GROSS PROFIT RATIO

Figure


Financial Statement

b) Net Profit Ratio

Net profit margin ratio establishes a relationship between net profit and sales and

indicates management’s efficiency in manufacturing administrating and selling the products.

This ratio is the overall measure of the firms ability to turn each purpose in to net profit. The

net profit margin ratio is measured by dividing profit after tax by sales.

Net Profit Ratio = Net Profit __________

Net Sales


Financial Statement

NET PROFIT RATIO

Table

YEARNET

PROFITSALES

NETPROFITRATIO

2000-2001 634.64 6809.32 9.32

2001-2002 671.60 6745.14 9.95

2002-2003 684.80 7342.89 9.32

2003-2004 512.13 6815.40 7.51

2004-2005 461.83 7934.39 5.89

INFERENCE

Generally higher ratio better the profitability. The NPR of the company for the

current year is 5.89 is less than compared to the previous year.

NET PROFIT RATIO

Figure


Financial Statement

B) OPERATING PROFIT RATIO

The ratio establishes the relationship between total operating expenses and sales. Total

operating expenses include cost of goods, administrative expences, financial expenses and

selling expences. Cost of goods sold is known as operating expenses and the rest are known as

other operating expenses.

Operating profit Ratio = Operating profit ______________

Sales


Financial Statement

OPERATING PROFIT RATIO

Table

YEAROPERATING

PROFITSALES

OPERATINGPROFITRATIO

2000-2001 991.39 6809.32 14.56

2001-2002 983.04 6745.14 14.57

2002-2003 1010.37 7342.89 13.45

2003-2004 780.26 6815.40 11.45

2004-2005 726.23 7934.39 9.15

INFERENCE

The ratio indicates general profitability of the concern. Operating profit ratio of the

company for the current year is 9.15 is less than compare to previous year.

OPERATING PROFIT RATIO

Figure

a) Return On Shareholders Fund


Financial Statement

The ratio establishes the profitability from the shareholders point of view.

Return on shareholder’s fund = Net profit ________________ * 100

Shareholders fund

The term net profit as used here, means net income after payment of interest and tax

including net operational income. Shareholder’s fund includes both preference and equity

share capital and all reserves and surplus belonging to shareholders.

RETURN ON SHAREHOLDERS FUND


Financial Statement

Table

YEARNET

PROFIT

SHAREHOLDERS

FUNDRATIO

2000-2001 634.64 3931.49 16.14

2001-2002 671.60 4554.92 14.74

2002-2003 684.80 5144.19 13.31

2003-2004 512.13 5601.67 9.14

2004-2005 461.83 6014.14 7.78

INFERENCE

It measures the earning power of equity capital. The ratio is decreasing is first

company’s profit is decreasing due to increasing cost of production. In addition to that reserve

and surplus also increasing due to plowing back of profit.

b) RETURN ON SHAREHOLDERS FUND

Figure

b) Return On Total Asset


Financial Statement

Profitability can be measured in term of relationship between net profit and assets. This ratio also known as profit-to-asset ratio. It measures the profitability of investment.

Return on total asset = Net Profit __________

Total asset

RETURN ON TOTAL ASSET

Table

YEARNET

PROFIT

SHAREHOLDERS

FUNDRATIO

2000-2001 634.64 3931.49 16.14

2001-2002 671.60 4554.92 14.74

2002-2003 684.80 5144.19 13.31

2003-2004 512.13 5601.67 9.14

2004-2005 461.83 6014.14 7.78

INFERENCE

The return on total assets is fluctuating year by year. The return on total assets of the

company for the current year is 6.57.

RETURN ON TOTAL ASSET

Figure

c) Earnings Per Share:


Financial Statement

Earnings per share measure the profit available to equity shareholders on a per share

basis. It is calculated by dividing the net profit available to equity shareholders by the number

of outstanding shares.

Earning per share is useful in analyzing the effect on change in leverage on net

operating earnings to the ordinary shareholders.

Formulation:

Net Profit after Tax – Preference Dividend Earnings per Share = ____________________________________

No of Equity Share

EARNING PER SHARE


Financial Statement

Table

YEARNET

PROFITTOTALASSET

RATIO

2000-2001 634.64 161.46 3.93

2001-2002 671.60 161.46 4.15

2002-2003 684.80 161.46 4.21

2003-2004 512.13 161.46 3.71

2004-2005 461.83 161.46 2.89

INFERENCE

The earning per share is decreasing. The reason for decrease is competition in the

market with low-priced and low quality imported of power tiller.

EARNING PER SHARE

Figure

VALUE ADDITION


Financial Statement

Table

YEARNET

PROFITSHARES RATIO

2000-2001 6906.16 4196.4 2709.76

2001-2002 7139.69 4385.33 2754.36

2002-2003 7332.11 4305.07 3027.04

2003-2004 7100.8 4179.06 2921.74

2004-2005 7739.63 4844.84 2894.79

INFERENCE

Value addition represents the combination of the company. Purchase represents the

contribution of various suppliers. Value addition of the company represents contribution of

men & machine. Increasing value addition shows favorable trend if employee strength and

machine capacity remains the same. To make it relative value addition per employee also can

be analyzed.

V.2. TREND ANALYSIS


Financial Statement

Trend percentage is also referred to trend ratio. The financial performance for a series

of years may be analyzed to determine the trend of the data contained therein. This method of

analysis is adopted to determine, the direction, upward or downward. The method of

calculating trend percentage includes the calculation of percentage relationship the each item

bears to the same item in the base year. Any year may be taken as the base year. Each item of

the base year is taken as 100 and on that basis the percentage for each of the item of each of the

year is calculated.

There are different steps for calculating trend percentage.

1. Selection of the base year, which may be earliest, latest on any intervening period.

2. Assignment of a weight of 100 to each amount of the base year is next step.

3. Mention each item amount of every other year as a percentage of its base year amount by applying the formula.

Trend percentage thus shows not only the magnitude but also the direction upward or down ward profit various years and hence is quite useful in horizontal analysis.

While calculating the trend percentage care be taken regard in various point such as:

1. The accounting principle followed should be constant through out the period on which analysis is made.

2. The base year should be carefully selected. It should be normal year and representative of the item shown the statement.

3. Tend percentage should be calculated only for item having logical relationship with one another.

4. Trend percentage should be studied after considering the absolute figures on which they are based, otherwise they me give misleading result.

5. The figure for the current year should also be adjusted in the light of price level changes as compared to the base year before calculating trend percentage.

In order to know the change in figures, trend percentage of various items of the company is calculating.

From the table, it is understood that the company is growing widely its assets and liabilities shown an increasing trend. Details are followed.

The company still now issues shares and collect money. It keeps adequate resources and surplus every year.

TREND RATIO


Financial Statement

Table

Particulars 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005

ASSETS

Fixed Assets 939.22 889.39 827.8 772.48 714.89 100.00 94.67 88.14 82.25 76.12

Current Assets

Loose Tools 12.47 9.93 8.76 11.53 9.86 100.00 79.63 70.25 92.46 79.06

Inventories 1180.28 1415.14 1437.69 1796.92 1781.92 100.00 199.90 121.81 152.25 150.97

Sundry Debtors 419.47 592.31 669.22 909.98 891.42 100.00 141.20 159.54 216.94 212.51

Cash & Bank 1436.72 1843.42 2471.56 2247.06 2771.42 100.00 128.30 172.02 156.40 192.90

Other CA 98.66 133.54 138.92 108.89 103.60 100.00 135.35 140.81 110.36 105.00

Loans & Advance 682.47 688.58 731.71 607.89 648.50 100.00 100.90 107.20 89.00 95.00

Investment in share 175.00 175.00 175.00 175.00 175.00 100.00 100.00 100.00 100.00 100.00

Total Assets 4944.55 5747.31 6460.69 6629.77 7116.68 100.00 116.24 130.66 134.00 143.90

LIABILITIES

Share Capital 161.46 161.46 161.46 161.46 161.46 100.00 100.00 100.00 100.00 100.00

Reserve & Surplus 3770.02 4393.46 4982.73 5440.21 5852.68 100.00 116.54 132.17 144.30 155.00

Loans Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil

Deferred Tax Liabilities

1013.07 1192.39 1268.93 974.19 1050.56 100.00 117.70 125.26 96.20 103.70

Total Liabilities 4944.55 5747.31 6460.69 6629.77 7116.68 100.00 116.24 130.66 134.00 143.90

COMMON SIZE IN THE PROFIT & LOSS ACCOUNT


Financial Statement

Table

Particulars 2001 % 2002 % 2003 % 2004 % 2005 %

Sales 6809.32 6745.14 7342.89 6815.40 7934.39

Add: Variation in stock

96.82 394.55 -10.78 285.40 -194.76

Total 6906.14 7139.95 7332.11 7100.80 7739.63

Material goods 4196.44 60.76% 4385.33 61.39% 4305.07 58.72% 4179.06 58.85% 5064.57 65.04%

Manufacturing exp.

123.09 1.78% 364.21 5.10% 535.76 7.30% 497.29 7% 582.45 7.52%

Staff cost 994.32 14.39% 1028.05 14.39% 1036.62 14.14% 1169.93 16.48% 1271.83 13.15%

Administration & General exp.

85.68 1.24% 83.62 1.17% 108.63 1.48% 99.2 1.39% 122.7 1.59%

Selling & distribution exp.

616.89 8.93% 406.48 5.69% 495.99 6.76% 509.22 7.11% 100.13 1.29%

Depreciation 94.11 1.36% 110.01 1.54% 97.59 1.33% 87.9 1.23% 81.3 1.05%

Total 6110.49 6377.7 6579.67 6542.63 7223

Operating profit

991.39 14.35% 983.04 13.77% 1010.37 13.77% 780.26 10.99% 726.23 9.38%

INFERENCE

Material cost of the firm increasing. In the year 2004 that was 58.8% but in the

year 2005 that was 66% may be that’s because of competition. If competition increased we

can’t increase the product price. In the year 2004 staff cost is 16.48% and in the year 2005

staff cost is 13%. The increase is due ANNUAL increment and increase in DA rate. So

gradually there will be an increase in the staff cost. Diversification and growth is main method

for decreasing prorate ate expenses.

FUND FLOW STATEMENT


Financial Statement

The statement if changes in financial position, prepared to determine only the source

and uses of working capital between dates of two balance sheets is known as Fund Flow

statement. In other words, the statement showing source and application of funds is popularly

known as Fund flow statement. It is condensed report of how the activities of the business are

financial and how the financial sources were used during the institutions and financial

managers, etc.uses the fund flow statement widely. The basic purpose of this statement is to

indicate on a historical basis where cash came and where it was used.

The basic purpose of a fund flow statement is to reveal the changes in the working

capital in the two balance sheets. A Fund flow statement helps in explaining how effectively

the management has used its working capital and suggest ways to improve working capital

position of the firm.

Found flow statement is a useful tool in the finance manager’s analystical kit. The

management can formulate its financial policies, dividend, reserves etc. on the basis of this

statement. It tells whether source of funds increase or decreasing or constant. It point out the

cause for changes in working capital.

Preparation of Fund flow statement

a) Statement of changes in Working capital

b) Fund flow statement.

a) Statement of changes in working capital

The working capital does change due to various transactions. The working capital

position at the beginning period is changed to a different position at the end of the period. A

statement of working capital is prepared depict the changes in WC. WC represent excess of

current assets over current liabilities. It is necessary to measure the increase or decrease there

in by preparing a statement of change in WC.

Fund flow statement.

b) Fund flow statement.

After preparing the statement of working capital, the statement of sources and

application of fund is prepared. This statement is prepared with the help of the remaining items

in the balance sheet of the two periods- all non-current asset and non current liabilities and

other information given in the problem.

STATEMENT OF CHANGES IN WORKING CAPITAL


Financial Statement

Table

Particulars 2001 2002 Increase (Dr) Decrease (Cr)

Current asset

1. Loose Tools 12.48 9.93 2.55

2. Inventories 1180.28 1415.14 234.86

3. Sundry debtors 419.74 592.31 172.57

4. Cash & Bank 1436.72 1843.43 406.71

5. Prepaid Exp. 6.89 6.59 0.3

6. Work in Progress 7.85 9.64 1.79

7. Loans & Advance 682.47 688.58 6.11

8. Other Current Asset 98.66 133.54 34.88

Total 3825.09 4699.16

Current Liabilities

1. CL 602.15 809.40 207.25

2. Provision 410.92 382.99 27.93

3. Prospond Divident 40.37 48.43 8.06

4. Provision for taxation 355.00 313.00 42

Total 1408.94 1553.82

Working capital 2436.65 3145.34

Increase in Working Capital 708.69 708.69

3145.34 3145.34 926.85 926.85

FUND FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH 2002

Table

Source Amount Application Amount

Fund from operation 771.86 Increase in working capital 708.69

Purchase of fixed assets 63.17

771.86 771.86



Financial Statement

Particulars 2002 2003 Increase(Dr) Decrease(Cr)Current Asset1. Loose Tools 9.93 8.76 1.172. Inventories 1415.14 1437.69 22.553. Sundry Debtors 592.31 669.22 76.914. Cash & Bank 1843.43 2471.56 628.135. Prepaid Expense 6.59 9.08 2.496. Working Progress 9.64 0.903 8.747. Loans & Advance 688.58 731.72 43.14

8. Other CA 133.54 138.92 5.38

Total4699.16 5467.85

Current Liabilities1. CL 809.40 885.83 76.432. Provision 382.99 383.10 00.113. Prospond Dividend 48.43

4. Provision for Taxation313.00 318.67 5.67

Total 1553.82 1636.03

Working Capital 3145.34 3831.82

Increase in Working Capital686.48 686.48

3831.82 3831.82 778.60 778.6

FUND FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH 2003




734.95 734.95



Financial Statement

FUND FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2004




647.32 647.3


Particulars 2004 2005 Increase(Dr) Decrease(Cr)Current Asset


Particulars 2003 2004 Increase(Dr) Decrease(Cr)Current Asset1. Loose Tools 8.76 11.5 2.772. Inventories 1437.69 1796.92 359.233. Sundry Debtors 669.22 950.98 240.764. Cash & Bank 2471.56 2247.06 224.55. Prepaid Expense 9.08 9.92 0.846. Working Progress .903 6.47 5.577. Loans & Advance 731.72 607.89 123.83

8. Other CA138.92 108.89

30.03

Total5467.85 5698.66

Current Liabilities1. CL 885.83 668.55 217.282. Provision 383.10 305.64 77.463. Prospond Dividend 48.43 48.43

4. Provision for Taxation318.67 260.06

58.61

Total1636.03 1282.69



3831.82 4415.97 962.52 962.52

64

Financial Statement

1. Loose Tools 11.5 9.86 1.632. Inventories 1796.92 1781.92 15.003. Sundry Debtors 909.98 891.43 18.564. Cash & Bank 2247.06 2771.43 524.375. Prepaid Expense 9.92 6.71 3.226. Working Progress 6.47 0.53 5.947. Loans & Advance 607.89 648.50 40.61

8. Other CA108.89 103.60

5.29

Total5698.66 6213.98

Current Liabilities1. CL 668.55 725.18 56.632. Provision 305.64 325.39 19.753. Prospond Dividend 48.43 48.43

4. Provision for Taxation260.06 263.08

3.02

Total1282.69 1362.08



4851.90 4851.90 565.00 565.00

FUND FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2005


Fund from operation 465.57 Increase in working capital

Purchase of fixed assets

435.93

29.64

465.57 465.57

MANANGEMENT OF WORKING CAPITAL


Financial Statement

Working capital is the lifeblood and nerve center of a business. It is essential to

maintain the smooth running of the business. There are number of aspect of working capital

management that makes an important topic for study. They are follows:

There is a positive correlation between the sale of firm and its current assets, so as to

increase sale, a corresponding increase in current asset is required. Hence their proper

administration becomes significant.

Working capital needs are generally financed through outside sources, so acuminous

care is necessary to utilize them in the best way.

Working capital is particularly important for small firm has relatively limited access to

the long-term capital market. Therefore it must rely heavily on trade credit and short-

term bank loans, which are current liabilities.

The basic objective of working capital management is to manage each of firm’s current asset

and current liabilities in such a way an acceptable level of working capital is always

maintained in the business. Each current assets must be managed effectively in order to

maintain the firm’s liquidity while not keeping too high the profitability of the concern.

Hence the problem of efficient working capital management is to establish a trade off

between liquidity and profitability.

CONCEPT OF WORKING CAPITAL


Financial Statement

a) Balance sheet concept

b) Operating Cycle Concept

a) Balance sheet Concept

There are two interpretation of working capital under the balance sheet concept.

Sheet concept.

1. Gross working capital

2. Net working capital

Gross working capital is the capital invested in total current asset of the enterprise.

Net working capital is the excess of current asset over current liabilities.

Net Working Capital = Current Asset – Current Liabilities

As per the general practice, net working capital is referred to simply as working capital.

b) Operating cycle Concept

Operating cycle is the time duration required to convert sales, after the conversion of

resources in to inventories in to cash.

Working capital cycle

VI. FINDINGS


Cash

Raw materialsDebtors

Sales Work in progress

Finished goods

67

Financial Statement

The study covers an analysis of KAMCO LTD over a period of the year from 2000-

2001 to 2004-2005. The various findings and conclusion of the study are stated in the relevant

chapter itself. However it is considered suitable to provide summary of those findings and

conclusions.

LIQUIDITY RATIO

The ratios for measuring the short-term liquidity of the company are current ratio,

quick ratio and absolute ratio. Current ratio of the company range from 3.72 to 5.29.

An ideal current ratio is 2:1. Average current ratio for the last five years is 4.13, better

sound solvency position.

Companies’ quick ratio for the last five years is 2.72. The standard norm fixed for

quick ratio is 1:1. The company has made a very good liquid ratio. This is favorable

to creditors.

The average absolute liquid ratio is 1.97. This shows that company’s financial position

is satisfactory.

PROFITABILITY RATIO

Profitability ratio shows the operating efficiency of the company. The first profitability

ratio in relation to sales in the gross profit margin. In the year 2002 CPR is 41.99,

which less than the year 2005 ratio is 36.79.

Net profit ratio shows a downward trend. It range from 9.95 to 5.89, current year ratio

is less than the previous year ratio due to high operating cost.

The operating profit ratio has decreased from 14.56 in 00-01 to 9.15 in 04-05; the

reason can be attributed to increasing operating cost.

The measure the earning power of equity capital. The ratio is decreasing. The reason

for decreasing due to increasing cost of production. In addition to that reserve surplus

also increasing pawing back of profit. The ratio is great impotent to the present and

prospective shareholder’s as well as the management of the company.

The company is getting sufficient return on the use of its assets. This is evident by that

the returns have gone up many folds as compared to total asset. The return on total

assets is fluctuating year by year. The return on total assets of the company for the

current year is 6.57.

EFFICIENCY RATIO


Financial Statement

A higher inventory turnover indicates efficient management of inventory because more

frequently the stock sold. In the year 200-2001 the inventory turn over ratio is 5.77.

The Working turnover ratio is not hopeful. A major part of capital is transferred to

short-term deposits.

Debtor’s turnover indicates the number of times debtor’s turnover each year. Majority

of the company sales are against advanced receipt and the year end debtor’s shown in

the balance sheet represent amount available against document recognized through

bank during march and relative during April/ March.

Fixed asset turnover ratio show upward and Current assets turnover ratio downward

trend. In 2005 the ratio is 10.36 indicate the greater the intensive utilization of assets

and it help to increase in production & sales. The CATR of the company for the

current year is 1.42 is less than compared to the previous year.

SOLVENCY RATIO

KAMCO has no loaned funds secured or unsecured and loan not shown. So these

debt-equity, Fixed asset and interest coverage ratios are not relevant to the company.

RECOMMEDATIONS

From the above study it is clear that the KAMCO LTD. has to make some more

improvements in performance. Following are the recommendations for further improvement.

There exist wide gap between gross profit ratio and net profit ratio because of heavy

operating cost. Steps must be taking to reduce all operating expense.

In order to increase the operating profit, if it is possible to increase the sales, reduce the

total capital employed in the business.

Management should take necessary steps to monitor the constant increase in the current

liabilities.

Stock turnover ratio of the company is low efforts must be made to increase sales.

No company can survive without growth. The is because in an inflationary economy

operating cost will definitely increase year after year to cover the increase in expense

or either price should be increased or volume of sale should be increased. In

competitive economy increasing price may not be feasible the alternative is to increase

the sales volume for this diversification of products also may be tried.

VII. CONCLUSION


Financial Statement

In this study an attempt is made to provide an idea about the way on which a decision

can be taken to plan the field of finance for better progress. Analysis and interpretation of

financial statement s shows that the financial position of KAMCO is quite satisfactory level. In

the last year company’s sales turnover is better, but net profit is comparatively less than

previous year. Through this analysis it can be concluded that even through the company is

progressing. There are so many problems in the industry like competitors with low cost

machines, increasing cost of material etc. So steps must be taken to improve the efficiency in

utilization of all factors of production for better prospect in future.

VIII. ANNEXURE


Financial Statement

NET PROFIT FOR THE FIVE YEARS AT AGLANCE

Table

Figure

IX. BIBLIOGRAPHY


YEAR NET PROFIT

2000 - 2001 634.64

2001 - 2002 671.60

2002 - 2003 684.80

2003 - 2004 512.13

2004 - 2005 467.83

71

Financial Statement

R.K. Sharma & Shashi. K. Gupta, Management Accounting. Principles and

Practices, New Delhi, Kalyani Publishers, 1986.

S.P Jain & K.L. Narang, Companay Accounts, Klyani Publishers, New Delhi

Pillai R.S.N. and Bagavathi. V., Management Accounting, New Delhi, S. Chand &

Company Ltd., 1997

Maheswari. S.N. Principles of Management Accounting, New Delhi. Sullan Chand

and Sons, 1985.

Annual Reports of Kerala Agro Machinaries Corporation Ltd., for five years from

2000 – 2001 to 2004 – 2005.

WEB SITE:

www.kamcoindia.com


http://www.kamcoindia.com/

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