kbl project
TRANSCRIPT
A
PROJECT REPORT
ON
RATIO ANALYSIS
FOR
KIRLOSKAR BROTHERS LIMITEDPUNE
BY
MR. MAYANK G. ASAR
M.B.A. - II2008-2010
RAJARAMBAPU INSTITUTE OF BUSINESS MANAGEMENTAMBEGAON(BK), PUNE
College Certificate
Company Certificate
ACKNOWLEDGEMENT
The successful accomplishment of this project undertaken, involves efforts sheer
guidance from my project guide Prof. A. S. Gandhe gives me pleasure to present project
report on “RATIO ANALYSIS OF KIRLOSKAR BROTHERS LIMITED” at
Kirloskar Brothers Limited. It was a different and wonderful experience to be there in
Kirloskar Brothers Limited as a summer trainee.
First I would like to thanks Mr. Rajendra Mahajan (Vice President-Finance) and Mr.
Makarand Rajwade for providing me such a great chance to work with Kirloskar
Brothers Limited.
I also express my sincere gratitude to sir our project trainee who has been so co-
operative and helpful from the first day of my training till end. He also helped me a lot
in enhancing my knowledge about the finance management in manufacturing sector. I
am highly thankful to him for providing the constant support and encouragement
throughout the project.
Lastly I would like to thanks to all my friends & all those who helped me during the
two months of field training.
MAYANK ASARMBA-FINANCE2008-2010
I N D E X
SR. NO.
CONTENTS PAGE NO
1. Introduction of the Subject3 to 9
2. History & Profile of company10 to 21
3. Objective of the project22 to 23
4. Theoretical Background24 to 33
5. Research Methodology34 to 37
6. Data analysis38 to51
7. Observation & findings52 to 53
8. Conclusion & suggestion54 to 55
9. Annexure56 to 57
10. Bibliography58 to 59
CHAPTER I
INTRODUCTION OF THE PROJECT
INTRODUCTION
Financial Ratio Analysis
Today we are all living in a business world. Each and every person is dealing
with different type of business activity in his day today life and for running or
performing this business activity person needs money i.e. finance. So with the
help of finance person is able to run his business. Finance is the art and science
of managing money. Finance is the most important activity of a firm. Almost all
business activities directly or indirectly, involve the acquisition and use of funds.
Finance is function of raising and using money. This function has significant
effect on other functions. The function of raising funds, investing them in assets
and distributing returns earned from assets to shareholders are known as
financing decision investment decisions and dividend decisions.
FINANCIAL STATEMENT
Financial statement also called as financial reports, refers to such statement as
contain financial information of an enterprise. Thus these statements are
collection of data presented strictly according to logical and consistent
accounting principle. They are reports or statements of financial position and
operating results of an entire business at the end of accounting period. The basis
for financial planning analysis and design making is the financial information.
Financial information is needed to be predicted, compare and evaluate the firms
earning ability. It is also require aiding in economic. Making – investment and
finance decision-making. The financial information of an enterprise is containing
in the financial statement. These financial statements of a great significance to
owner, management and investors.
The basic purpose of preparing financial statements is to convey to owner,
creditor and the general public about the financial position of the enterprise.
All those interested in the enterprise use them as bases for decision. Thus,
the management may review the company’s progress to date and decide upon
the course of action to be taken in future on the basis of information contain in
the financial statements.
Three basic financial statements are:
Balance sheet
Profit and loss account
Cash flow statement
Financial statements provide a summarized view of the financial position
and operation of a firm. Financial statement provide useful information to
the extent that the balance sheet act as mirror in presenting financial
position on a particular date in terms of the structure of assets liabilities and
owners equity and soon the profit and loss account shows the results of
operations during a certain period of a time in terms of the revenues and the
cost incurred during the year. The main function of analyst is to find out
strengths and weakness of the business. The importance of financial analysis
is different for different users, such as investor, management, workers,
government, creditors etc.
SIGNIFICANCE OF RATIO IN FINANCIAL ANALYSIS
Ratios are among the best-known and widely used tools of financial
analysis. An absolute figure does not convey anything unless it is related with
relevant figure. Magnitude of current liabilities of a company does not tell
anything about solvency position of the company. Ratios make a humble attempt
in this direction.
Ratios are significant both in vertical and horizontal analysis. In vertical
analysis ratios help the analyst to form a judgment
Whether performance of the firm at a point of time is good, questionable or poor.
Likewise, use of ratios in horizontal analysis indicates whether the financial
condition of the firm is improving or deteriorating and whether the cost,
profitability or efficiency is showing an upward or downward trend. Financial
ratios became meaningful to judge financial condition and profitability of the
firm only when there is comparison. In fact, analysis of ratio involves two types
of comparison. First a comparison of present ratios with past and expected future
ratios for the same firm. When financial ratios for several preceding year are
computed, the analyst can determine in the financial position of the firm over the
period of time. In our report we will use following ratios.
ADVANTAGES OF RATIOS
1)Ratio’s simplify the comprehension of financial statements.They tell the whole story
as a heap of financial data is condensed in them.They indicate the changes in the
financial condition of the business.
2)They act as an index of the efficiency of enterprise .As such they serve sa an
instrument of management control .It is an instrument for diagnosis of the financial
health of an enterprise .The efficiency of the various individual units similarly situated
can be judged through interfirm comparisons.
3)The ratio analysis can be if invaluable aid to management in the discharge of it’s basic
functions of forecasting ,planning ,co-ordination ,communication and control .A study
of the trend of strategic ratio may help the management in this respect .past ratios
indicate trends in cost ,sales ,profit and other relevant facts.
4)The ratio analysis provides data for inter-firm comparison or intra-firm comparison.
Comparison cannot be made with absolute figures.net profit of one firm cannot be
compared with the net profit of the other firm. But the percentage of net profit s can be
compared to evaluate the performance. Similarly performance and efficiency of
different departments in the same firm can be compared with the help of ratios.
5) Investment decision can at times be based on the conditions revealed by certain
ratios.
6)They make it possible to estimate the other figure when one figure is known.
L IMITATIONS OF RATIO ANALYSIS
The ratio analysis technique has got number of advantages ,it attracts disadvantages
too.some of the limitations of the ratio analysis technic are as follows:-
1)The ratios of the other organisation may not be readily available.
2)Different accounting policies may be followed by the constituent organisation in the
industry .
3)The constituent organization in the same industry may vary from each other in terms
of age ,location ,extent of automation ,quality of management and so on.
4)The technique of ratio analysis may prove to be in adequate in some situation if there
Is difference of opinions regarding the interpretation
of certain items while computing certain ratios.
CHAPTER II
COMPANY PROFILE
Kirloskar Brothers Limited (KBL)
Established in 1888 and incorporated in 1920, Kirloskar Brothers Limited (KBL) is the flagship
company of the $2.2 Billion Kirloskar group. The core businesses of KBL are large Infrastructure
projects (Water Supply, Power Plants, Irrigation), Project and Engineered Pumps, Industrial Pumps,
Agriculture and Domestic Pumps, Valves, Hydro turbines, Power Generation and anti Corrosion
Products. KBL Sales in 2006-2007 exceeded US$ 480 Million with a market capitalization of more
than US$ 1.4 Billion.
KBL is India’s largest manufacturer and exporter of pumps and also the largest infrastructure pumping
project contractor in Asia. To its credit KBL has created the world’s largest pumping scheme which
will irrigate more than two million hectares of land and supply water to 4620 towns and villages in the
state of Gujarat in India (Sardar Sarovar Narmada Nigam Scheme). KBL also commissioned a water
pumping scheme called The Devadula Scheme in Warangal a town in Andhra Pradesh with the
world’s second highest head, supplying water to 4 drought prone socio-economically backward
districts which will bring about a green revolution there.
KBL is one of the world’s leaders in pump technology.
KBL is one of the three manufacturers in the world who have manufactured and installed 200
kW Canned motor pumps for nuclear application .
KBL is the first company to introduce Concrete Volute Pumps in India.
Our subsidiary company in England, SPP Pumps Limited (Acquired in 2003) is the undisputed
leader in the Fire-fighting and Water Supply segments in Europe and the Middle East. They have
recently launched lowest life cycle cost pumps in the UK successfully with large players like Thames
Water preferring these energy efficient products. Together KBL and SPP represent the world’s
largest fire fighting pump business for onshore and offshore applications.
Kirloskar Corrocoat Limited is another subsidiary of KBL which produces glass flake
coating thus increasing the efficiency of pumps as well as of pipes and ensuring no corrosion. This is a
patented product developed by Corrocoat, UK.
KBL’s wide range of centrifugal pumps i.e. end suction, split case, submersible, vertical turbine, self
priming, multistage etc. cater to various applications including irrigation, water supply, sewage,
drainage, fire fighting, booster services, cooling towers, sugar-industries, paper industries, chemical
and fertilizer plants, power generation and refinery and petrochemical sectors.
KBL JOURNEY
MAJOR SECTORS CATERED TO
Projects & Egg. Pumps Group
Turnkey Pumping Projects from Power, Water Supply & Irrigation
Valves Business Group
Water Supply, Irrigation
Power Sugar Industries
BUSINESS GROUPWISE PRODUCTS
INDUSTRIAL PUMPS
End Suction Pumps
Process Pumps
Solid Handling Pumps
Horizontal Splitcase Pumps
Multistage Pumps
Submersible Sewage Pumps
Inline Vertical Multistage Pumps (in Pressed Stainless Steel)
Mixed Flow Pumps
AGRICULTURE & DOMESTIC PUMPS
Monoblocks Single/Three Phase
Self Priming Pumps
Jet Pumps
Domestic Pumps
Bore well Submersible Pumps
End Suction Pumps
Vacuum Pumps
PROJECTS & ENGD. PUMPS
Concrete Volute Pumps
Metallic Volute Pumps
Vertical Pumps (Mixed, Axial Flow)
Splitcase Pumps (Large)
Canned Motor Pumps
Condensate Extraction Pump
Primary & Secondary Fast Breeder
Reactor Pumps for Heat Transfer
Hydro Turbines
VALVES
Sluice Valves
Butterfly Valves
Reflux Valves (Non-Return)
Foot Valves
Kinetic Air Valve
Steam Trap Device
CAPABILITIES - ALL FACILITIES UNDER ONE ROOF
Comprehensive Products Range
Research and Engineering
System Engineering
Procurement
Manufacturing – Pattern Shop, Foundry, Machining
Testing
Quality Assurance
Project management
Erection and Commissioning
Operation and Maintenance
STRATEGIC BUSINESS GROUPS (SBUs)
IPBG
Industrial Pumps Business Group, Kirloskarvadi
PEPBGProjects & Engineered Pumps Buiness Group,
Pune & Kirloskarvadi
VBGADPBG
Agricultural & Domestic Pumps Business Group, Dewas and Shirval
Valves Business Group, Kondhapuri
IPPInfrastructural Pumping Projects, Pune
IPBG
Industrial Pumps Business Group, Kirloskarvadi
PEPBGProjects & Engineered Pumps Buiness Group,
Pune & Kirloskarvadi
VBGADPBG
Agricultural & Domestic Pumps Business Group, Dewas and Shirval
Valves Business Group, Kondhapuri
IPPInfrastructural Pumping Projects, Pune
What is YAMUNA?
Projects & Engineered Pumps Business Group,Pune & Kirloskarvadi
IndustrialPumps
Business Group,Kirloskarvadi
Infrastructural Pumping Projects,
Pune
Agricultural & Domestic Pumps Business Group,
Dewas and Shirval
Valves Business Group, Kondhapuri
The very mention of ‘Yamuna’, brings to mind a picture of the river nurturing life along its course –
from the Champasar Glacier at an altitude of 4421 meters in Uttarakhand, where it originates, till it
meets the sea; leaving its imprint on earth, in ice and in water-carved stone.
Yamuna – it is this name that adorns our new premises in the memory of late Yamuna Kirloskar
(fondly called Yamutai) the very embodiment of the nurturing ways of the sacred river, she was named
after.
Yamutai, soulmate of S L Kirloskar, was a woman of substance. She played an active role in shaping
the Kirloskar Group, laying the foundation of sublime values and ethical enterprise; complementing,
her husband’s legendary business acumen in every which way. The new Business Center at Baner,
inaugurated on 10th April, 2009, has been named in Yamutai’s fond memory and honor. May it
continue to inspire us on our way to set many a milestone on the course to success.
CHAPTER III
OBJECTIVES OF THE PROJECT
Objectives of the Project
To understand practical interpretations of financial statement in
organization.
To identify FINANCIAL strength and weakness of the organization.
Analysis of various ratios for improvement of the company.
To identify the current situation of the company.
To obtain a true insight into financial strength of the company.
To draw the correct picture of the financial operations of the company in terms of liquidity ,turnover ,profitability ,solvency etc.
CHAPTER IV
THEORETICAL BACKGROUND
INTRODUCTION OF RATIO ANALYSIS
Nature of Ratios:
Numbers by themselves do not convey anything until they are related. Ratio is
defined formally as ‘the indicated quotient of two mathematical expressions.’
Ratio An operational definition of a financial ratio is the relationship between
two financial values. The word relationship implies that a financial ratio is the
result of comparing mathematically two values.
THEORY OF RATIO
Several ratios, calculated from accounting data, can be grouped in to various
classes. According to financial activity or functions to be evaluated.
Parties are interested in financial analysis are short and long term creditors owners and
management. Similarly owners concentrated on the firm’s profitability and financials
condition. Management is interested in evaluating every aspect of a firm’s performance.
They have to protect interest of all parties and see that the firm grows profitably. In
view of the requirements of various users of ratios, we may classify them into
following.
LIQUIDITY RATIO
A liquidity ratio measures the firm’s ability to meet current obligations. It is
extremely essential for a firm to be able to meet its obligations, as they become due by
establishing relationship between cash and other current assets to current obligation,
provide a quick measure of liquidity. A firm should insure that it does not suffer from
lack of liquidity also that it does not have excess liquidity. It is necessary to strike a
proper balance between high liquidity and lack of liquidity.
The most common ratios, which indicates the 3extent of liquidity or lack of it are
(I) current ratios
(II) quick ratios
(I)Current ratios:
Current ratios expresses relationship between current assets(cash, marketable
securities, inventories, debtors, accounts receivables) and current liabilities (account
payable, creditors, bills payables accrued expenses, short term bank loan ,income tax
liabilities etc.)
The current ratio is measure of firm s short term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability. From
management point of view higher current ratio is indicative of poor planning since an
excessive amount of funds lie idle. On contrary, a low ratio would mean inadequacy of
working capital which may deter smooth functioning of enterprises.
Current ratio is calculated by this formula
Current assets Current ratio = ------------------------------------- Current liabilitiesA current ratio of 2:1 is considered as satisfactory for sound business.
(ii)Quick ratio
It is a measure of judging immediate ability of the company to pay off its current
obligations. Quick ratio, also called as acid test ratio, establishes a relationship between
quick, and liquid and liabilities. An asset is liquid if it can be converted in to cash
immediately or reasonable soon without a loss of value. Cash is most liquid asset. Thus
quick current asset consist of cash, marketable securities and accounts receivables.
Inventories are excluded from quick assets because they are slower to converting to
cash and generally exhibit more uncertainly as to the conversion price.
By using this ratio as a measure of immediate ability to pay off its short term
obligations. Quick ratio is calculated by
Current assets-inventories Quick Ratio = ------------------------------------
Current liabilities
A quick ratio of 1:1 is usually considered adequate.
LEVERAGE RATIO:
Leverage ratio are generally design to measure the contribution of company owners vis-
à-vis the funds provided by its creditors. The leverage ratio are capital structure ratio
may be defined as financial ratio which throw light long term solvency of the firm as
reflected in its ability to assure long term lenders with regard to
(A) Periodic payment of interest during the period of loan and
(B) Repayment of principal on maturity or in pre determined installment at due
dates.
To judge long term financial position of firm, financial leverage or capital
structure ratios are calculated. As a general rule there should be an appropriate mix of
debt and owners equity in financing the firm assets.
Following is the type of leverage ratio
(I)Debt equity ratio:
Debt-equity ratio reflects the relative claims of creditors and shareholders against the
assets of the firm. Alternatively this ratio indicates the relative proportion of debt and
equity in financing the asset of the firm.
Relationship describing the lenders contribute for each rupee of the owners
contributes is called debt-equity ratio.
It is computed by dividing total debt by total net worth i.e.
Total debts Debt Equity Ratio = ------------------- Net worth
If the ratio is greater it would mean creditors have more invested in the business
than the owners. These mean creditors would suffer more in times of distress than
owners. That is why creditors prefer low debt equity ratio.
TURNOVER RATIO:
Funds of creditors and owners are invested in various assets to generate sales and
profits. The better management of asset, larger the amount of sales. Turnover ratios are
employed to evaluate the efficiency with which the firm manages and utilizes its assets.
This ratio indicates the speed with which assets are being converted or turn over in to
sales. It involves relationship betwee4n sales and assets. A proper balance between sales
and assets generally reflects that assets are managed well.
Following several activity ratios can be calculated
Working capital turnover ratio
Inventory turnover ratio
Total assets turnover ratio
Working capital turnover ratio
The ratio camper the net sales with net working capital. The indication given by the
ratio is number of times working capital is turned around in a particular period. It is
calculated by dividing sales by net working capital.
Sales Working Capital Turnover = ---------------------------- Net Working Capital
The higher the ratios the better is the utilization of working capital as well as lower the
investment in working capital. However, a very high working capital turnover ratio is a
sign of overtrading and a firm may face shortage of working capital.
Inventory Turnover Ratio:
This ratio indicates the no of times inventory is replaced during the year. It measures the
relationship between the costs of goods sold and inventory level. This ratio indicates the
efficiency of the firm in producing and selling its product.
It is calculated as follow.
Sales Inventory Turnover Ratio = --------------------- Inventory
High inventory turnover ratio is indicative of good inventory management.
Total Asset Turnover Ratio:
Assets are used to generate sales. The relationship between sales and assets is called
Total Asset Turnover Ratio. Asset turnover ratio measure the efficiency of a firm in
managing and utilizing its assts.
It is calculated as follow.
Sales Total Asset Turnover Ratio = --------------------- Total Assets
The higher the total asset turnover ratio the more efficiency of a firm in managing
utilization of assts while low turnover ratio are indicative of under utilization of
available resource and presence of idle capacity.
PROFITABILITY RATIO:
A company should earn profit to survive and grow over a long period of time. Profits
are essential. Profit is the difference between revenue and expenditure over a period of
time. Profitability ratios are calculated to measure the operating efficiency of the
company.
Following are the different types of ratio.
Gross Profit Ratio.
Net Profit Ratio.
Return on asset.
Gross Profit Ratio:
Gross Profit Ratio reflects the efficiency with which management produces each unit of
product. This ratio indicates average spread the cost of goods sold and the sales
revenue.
It is calculated as follow.
EBIT Gross Profit Ratio = ------------------- SalesA high gross profit ratio is sign of good management.
Net Profit Ratio
Net Profit Ratio establishes 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 firm’s ability to turn each rupee of sale into net
profit. This ratio also indicates the firm’s capacity to withstand adverse economic
condition.
It is calculated as follow.
PAT Net Profit Ratio = ----------------- Sales
A firm with a high net margin ratio would be in an advantageous position to survive in
the face of falling selling prices, rising cost of production or declining demand for the
product.
Return on investment:
The term investment may refer assets or net assets. The funds employed in net assets as
capital employed. The conventional approach of calculating return on investment is to
divide PAT by investment. Investment represents pool of funds supplied by share
holders and lenders, while PAT represents residue income of share holder. Therefore
PAT dose not reflect the return on investment.
CHAPTER V
RESEARCH METHODOLOGY
Research
“Research is a careful investigation or inquiry through search for the new
facts in any branch of knowledge. it is a systemized effort to gain more knowledge”.
Research Methodology
“Research Methodology is a way to systematically solve the research
problem .It includes not only research methods, but also logic behind using the methods
.It shows the type of sample design used, its size and the procedure used to draw the
sample”.
Collection of data is very important activity. If data is inaccurate
and inadequate the whole analysis may be faulty and decision taken should be wrong so
to avoid this data should be accurate.
There are two types of data
1) Primary Data
2) Secondary Data
1) SOURCES OF PRIMARY DATA :
Primary data were obtained from the officers of various departments of the
company by way of interviews and formal discussion.
By conducting an interview of the finance head, information was collected
about the working of the finance department, types of ratios to be calculated, and the
number of the years for which the comparison is to be made.
The information about the organization structure of the company, number of
employees has been obtained from personal manager, Mr. Rajawade by the way of
personal interview.
Discussions with the staff of the company were also held for additional
information whenever required during the project.
2) SOURCES OF SECONDARY DATA:-
The important sources of the secondary data were annual reports, financial
statements and reference books. The balance sheets and profit and loss accounts for the
past three years were taken from the annual reports of the company, which were made
available to me by account department. I was also given access to financial records of
the company for required data. Other information was collected from the various
reference books, which were available in the college library.
Research Methodology
This study is based mainly on the data collected from the annual report of the
company. This study cover a period of 3 year taking into account for
consideration the relating to the financial year 2006-2007 to 2008-09.
Primary source: For study of ratio analysis data is made available
discussions with staff members of the organization.
Secondary source: As the company’s reports and records provide the
information about the past business performance. Information about the
company’s progress is collected through companies financial statements
i.e. balance sheet and profit and loss account. The data is secondary in
nature in the form of annual reports of the company.
CHAPTER VI
DATA ANALYSIS
DATA ANALYSIS
Current Ratio
Current assetsCurrent Ratio= ----------------------------- Current liabilities
(Rs. In lakhs)Year 2006-07 2007-08 2008-09
Current assets 10464465 11106340 10464465Current liability 7937904 7923787 9491467Current ratio 1.31 1.40 1.10
INTERPRETATION:
Current ratio of Kirloskar Brothers limited for period is in increment trend which
indicates company is running in sound condition.
INVENTORY
Year 2006-07 2007-08 2008-09inventory 870812 1329886 1556655
INTRPRETATION:
This graph show increase in inventory in every year increasing but there are ¾ increases
in year 2008-09.
CASH AND BANK BALANCE
(Rs. In lakhs)
Year 2006-07 2007-08 2008-09Cash & bank
balance 494807 758728 99949
INTERPRTATION:Cash & bank balance is increasing per year and it’s good sign for liquidityFor working capital expenditure.
Quick Ratio
(Current Assets-Prepaid Exp) i.e. Quick Ratio= ---------------------------------------------- (Current Liability –Bank Overdraft) (Rs. In lakhs)
Year 2006-07 2007-08 2008-09Quick assets 9593653 9776454 8907810
Current liability 6292661 7923787 9491467Quick ratio 1.52 1.23 0.938
INTERPRETATION:
Quick Ratio is more penetrating from the year 2006-07. As higher the liquid ratio better
will be the situation of the company .
Debt Equity Ratio
Long term debtsDebt equity ratio= ------------------------------------------------------------ Share holder’s funds + Reserves & surplus (Rs. In lakhs)
Year 2006-07 2007-08 2008-09L. T. Debts 1352964 1566515 1808661S.H. Fund 6020254 6576519 6999327
Ratio 0.224 0.238 0.258
INTERPRETATION:
Debt equity ratio should not be more than twice the equity. This indicates the company
is taking efforts to reduce their debts. This shows that company is depend on internal
resources as compare to external borrowings.
SECURED LOAN (Rs. In lakhs)
Year 2006-07 2007-08 2008-09secured loan 1352964 1566515 1808661
INTERPRETATION:
There is decrease in secured loan in 2006-07. There is high increase in secured loan in
2007-08 because of taking high amount of loan from bank.
Working capital turnover ratio
Net sales Working capital turnover ratio = -------------------------------- Net working capital
(Rs. In lakhs)
Year 2006-07 2007-08 2008-09Net Sales 13399512 15251461 18309447Net W.C 876767 1960371 2526561Ratio 15.28 7.78 7.25
INTERPRETATION:
From above table we see that ratio has increased from 2006-07 and there is a fall
in year 2007-08 & 2008-09.Higher the ratio better utilization of working capital as well
as lower the investment in working capital. There is lower W.C turnover ratio in 2006-
07 & 2008-09 which shows that company is not using properly there working capital.
NET SALES
(Rs. In lakhs)
Year 2006-07 2007-08 2008-09sales 133990 152140 183094
INTERPRETATION:
Sales of the company is increased per year ,that indicates continuos change are
made in product marketing division &company is increasing market potential.
WORKING CAPITAL
(Rs. In lakhs)Year 2006-07 2007-08 2008-09Working capital 876767 1960371 2526561
INTERPRETATION:
There is increase in working capital. This shows that there is working capital
Blockage
Inventory turnover ratio
SalesInventory Turnover Ratio: ------------------------- Inventory
(Rs. In lakhs)
Year 2006-07 2007-08 2008-09Sales 13399512 15251461 18309447
Inventory 870812 1329886 1556655Ratio 15.38 11.46 11.76
INTERPRETATION:
It is clear from table that the inventory turnover ratio is maintained at the
optimum level, which will help the company having lesser stock holding period.
Higher inventory turnover ratio indicates that maximum sales turn over is achieved
With minimum investment in inventory.s
PROFITABILITY RATIOS
GROSS PROFIT RATIO
EBIT Gross Profit Ratio = ---------------- x 100 Sales
(Rs. In lakhs)
Year 2006-07 2007-08 2008-09EBIT 3750135 1500406 982203sales 13399512 15251461 18309447Ratio 27.98 9.83 5.36
INTERPRITATION:As gross profit is increased in 2006-07 it is able to produce or purchase at a Relative lower cost .In 2007-08 ,2008-09 gross profit decreased that indicates theOrganization is able to produce or purchase at a relatively higher cost.
NET PROFIT RATIO
PATNet profit ratio= ------------------- x 100 Sales
(Rs. In lakhs)
Year 2006-07 2007-08 2008-09PAT 3364917 1101366 670286Sales 13399512 15251461 18309447Ratio 25.11 7.22 3.66
INTERPRITATION:
In year 2006-07s net profit increases more than double as compared to last year. There
is fall in net profit in year 2008-09. As a consequence net profit will decline unless
operating expenses decrease significantly.
RETURN ON TOTAL ASSET Net profit after tax *100 = Total asset
Year 2006-07 2007-08 2008-09PAT 3364917 1101366 670286
TOTAL ASSETS
3817032 3285148 4322670
Ratio 88.15 33.52 15.50
CHAPTER VII
OBSERVATION AND FINDINGS
OBSERVATIONS AND FINDIDNGS
Current ratio of KBL is increasing but not up to the marks. This means the
current assets are more than current liability that indicates funds are blocking in
inventory.
A high debt equity rate may indicate that the financial stake of creditors is more
than that of owner .A low debt equity ratio may mean that the borrowing capacity
of the organization is being under utilized.
Working capital turnover ratio indicates that company is investing more in
working capital,but there is blockage in inventory.
Inventory turnover ratio states that presently company is not attending on the cost
reduction that is why the inventory turnover ratio is low.
There is fluctuation in total assets turnover ratio. But in the year 2008-09 it is
decrease as compared to previous year which indicates that assets are not utilized
properly.
There is a huge increase in gross profit for the year, 2006-07.but in the year 2008-
09 gross profit is low because company is incurring more in direct expenses.
CHAPTER VIII
CONCLUSION AND SUGGESTION
CONCLUSIONS
From the overall study of the ratio analysis of the Kirloskar Brothers limited we
can conclude that Kirloskar Brothers Limited’s financial strength, liquidity, profitability
and efficiency is sound. And the company is moving towards the achieving the new
heights in the coming years. Financial position of the company is sound which will help
to generate funds available to the company, and the demand of the market share will be
good. The company has got sufficient assets to pay off short –term debts as and when
they fall due thus has sufficient short term liquidity.
S uggestions
Kirloskar Brothers Limited should examine present level of fixed cost
which is very high.
Find out ways of earning more revenue by effective use of fixed assets.
Other Assets should be used in full capacity.
Company has blocked its money in inventory which should be reduced.
Working capital management is also requiring for a company to reduce
the investment in working capital.
Company should focus on improving inventory management.
ANNEXURE
BIBILOGRAPHY
BIBLIOGRAPHY
Company Annual Report
www.kbl.co.in
Google Search Engine.
Books Referred
Financial Management - Khan & Jain
Financial Management - Prof.N. M. Vechalekar
Financial Management – Prof. S. M. Inamdar