project on analysis of financial performance (knsb ltd)

7/23/2019 Project on Analysis of Financial Performance (KNSB ltd)

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Department of Management Studies, Kumaun University, Bhimtal (Nainital )| 1

DECLARATION

I CHAMAN KUMAR hereby declare that I have undergone training

at KURMANCHAL NAGAR SAHKARI BANK LIMITED,

NAINITAL of a period of 7 week from 1-August-2011 to 14-Sep-

2011

This report is being submitted in partial fulfillment of

requirement of Master of business Administration (MBA) degree

course of Kumaun University.

The information in this report is based on the data collected by

me. It is my original work. I have neither copied from meant for any

degree/diploma course nor have submitted for award of any

degree/diploma or similar program elsewhere.

DATE: CHAMAN KUMAR

PLACE:


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ACKNOWLEDGEMENT

I am very much obliged and indebted to Mr. Atul Shah,

Branch Manager of KURMANCHAL NAGAR SAHKARI BANK

LIMITED, NAINITAL for his approval and valuable suggestions to

take up the project.

I also extend my gratitude to Mr. Sanjay Shah, Personnel

Manager at Head office for his approval and valuable suggestions to

take up the project at KURMANCHAL NAGAR SAHKARI BANKLIMITED, NAINITAL.

I am also thankful to Mr. Sanjeev Rana, Manager Account for

his support and suggestions during the project.

DATE: CHAMAN KUMAR

PLACE:


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PREFACE

A professional course like two year Management program demand

both conceptual and practical theory of knowledge. Hence there is a

provision of project. By this the student learns through his or her own

experience, real situation of corporate world, and its protocol and to

put his/her theoretical knowledge into practice. This experience is

very valuable for the student and plays a leading as well as vital role

in the professional life of the management student

The report on KURMANCHAL NAGAR SAHKARI BANK

LIMITED was a complete experience in itself, which has provided me

with the understanding, which has become an inspirable part of my

knowledge of management being learned in Management program.

An opening experience to the concept that are applied for managing

financial resources in the organization.

Implementing & learning the concepts of Finance in a work place

provides an opportunity to learn practically. I got a chance to apply

the theory & acquaint myself with the functioning of financial

methodology. Real learning places its worth only when it gives sweet

fruits in future. Project report is one way to learn work. I enjoyed theinteresting experience & every part of it.


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CONTENTS

CHAPTER I:

Company Profile

CHAPTER II:

Research & Methodology

Need for study

ObjectivesMethodology

Limitation

CHAPTER III:

Introduction Of Financial Management

Ratio Analysis

Steps in ratio AnalysisBasis or Standards of Comparison

Nature of Ratio Analysis

Guidelines or Precautions for the use of Ratio Analysis

Importance of Ratio Analysis

CHAPTER IV:

Classification of Ratios

CHAPTER V:

Data Analysis and InterpretationFindings, Summaries & Conclusion

APPENDIX


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Chapter 1

COMPANY PROFILE

The Kurmanchal Nagar Sahkari Bank Ltd., situated in Nainital in

Uttarakhand State started banking operations with effect from 1st

January 1983, after receiving RBI license No DBOD (UBD)/UP 318-

P dated 06th October 1982 Over the years the bank has acquired the

status of a leading Urban Cooperative Bank not only in the State of

Uttarakhand but in the whole of Northern India as well. This has

become possible due to customer friendly approach, product

innovation, delivery system and technology up gradation of its retail-

banking network spread over 23 centres. This has been the core

strength of the bank. The financials of the bank are strong and the

bank has registered remarkable growth with the financial sector

reforms introduced in the country in the nineties.

A ringside view of Banks retail operations are as under: (Rs. in Lacs)

31.03.2009 31.03.2010 31.03.2011

Paid up share capital 619.12 858.88 1516.63

Reserve funds and other

reserves4605.23 5356.76 6834.28

Net worth 5224.34 6215.64 8351.02


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Deposits 48663.90 64946.62 82271.32

Investments (including

term deposits with otherbanks)

21815.85 28220.87 34555.91

Loans & Advances 33466.72 49892.51 67958.39

Net Profit 621.95 781.49 1119.53

Gross NPA 165.67 189.48 158.34

Net NPA Nil Nil Nil

Management

The affairs of the bank are managed by an elected board of directors. There are

total 13 directors on the banks board including three professional directors, one

being a retired DGM of State Bank of India and two Chartered Accountant with

adequate bank audit experience. The board has constituted seven sub committees

viz Loan Committee, Investment Committee, Audit Committee, Executive

Committee, Staff Committee, ALM Committee and Premises Committee. The

board has formulated loan policy and investment policy in conformity with RBI

instructions. Expenditure policy and recruitment policy have also been formulated

by the board.

The banks 23 branches are supervised and controlled directly by the Head Office.

Of the 23 branches, all have already been in CBS. In addition to the statutory audit

and inspection by RBI the bank has its own inspection system. All the branches

are inspected once in a year. Inspection reports and compliance thereof are put up

to the audit committee. The bank has also prescribed adequate number of control

returns for watching the performance of the branches. Position of over


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dues/growth in deposits and advances are reviewed by the board in every meeting

resulting in minimum NPAs.

Organizational Structure

The bank follows need based recruitment policy and appointments are made in

proportion to the volume of business. Recruitment is done through open

competition to get quality staff. All officers and clerical staff are either graduate

or postgraduate in various disciplines. With the changing demand of the bankingindustry, the bank has started appointing personnel excelled in MBA, MCA and

BCA.

All the officers and clerical staff had been provided training either at CAB

Pune/RBSC Chennai and in-house training with faculty assistance from Indira

Gandhi Institute of Cooperative Management, Lucknow and Institute of

Cooperative Management, Dehradun. The bank has also provided training to its

staff by participation in training sessions conducted by NAFCUB.

Systems and Control

The bank prepares annual business plan and budget for the ensuing year and

communicates the same to the all concerned well in advance. The branchfunctionaries are delegated adequate administrative and financial powers to

achieve the targets fixed. Business plan prepared are pragmatic, achievable and

consistent but at the same time they have an element of challenge, as it is essential

for motivation and growth with consistency.

The bank has prescribed adequate number of control returns and introduced the


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system of concurrent audit, internal inspection and branch visits by HO officials to

keep control over the branches. Achievements under the various head vis a vis the

targets fixed are reviewed by the board/top management periodically. Control

returns are received regularly and subjected to proper scrutiny. To ensure good

housekeeping balancing of books is done regularly by persons other than the ones

maintaining the same. Inter branch reconciliation is centralized at Head Office and

is maintained up-to-date. The bank adheres to prudential norms relating to income

recognition, asset classification and provisioning. All the branches of the bank are

inspected once in a year.

In its coveted endeavor to provide its esteemed customers new and competitive

financial products and services the bank for this purpose has tied up with various

insurance companies. Details of arrangement and products offered are given

below:

[A]LIFEINSURANCE

1.For Life Insurance products, we have entered into a tie-up with ING Vyasya

Life Insurance Company Limited.

2.For providing insurance insurance cover to its depositors aged between

18years to 54 years we have tied up with Life Insurance Corporation of India

to offer Life Insurance Coverage to our depositors of Rs 100,000.00 at an

unbelievably low premium of Rs. 384 per annum under our Nanda Kavach

Yojana. Under this scheme we are providing free insurance coverage of Rs

25,000.00 to all Savings Bank account holders who opt for this scheme and

maintain a minimum balance of Rs 5,000.00 throughout the year.


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[B] NON-LIFE INURANCE:

For Non-Life Insurance we have a tie-up with UNITED INDIA General

Insurance Co Ltd.

Other:

The objective of the bank remains to be a preferred provider of

banking services for retail customer segments. The Bank is paying

higher interest to its customers on their deposits. The deposits are

insured by DICGC.

The Bank has an efficient mechanism for NPA management and it has

managed to keep net NPA at zero percent of net bank credit. Know

Your Customer (KYC)/ Anti Money Laundering norms are followed

in accordance to the regulatory norms. The bank gives high priority to

customer feedback and complaints to strengthen its resolve to be a

preferred provider of retail banking services.

Business Description:

Kurmanchal Bank offers wide variety of deposit plans to choose from

depending on the term period, nature of deposit and its unique saving

and withdrawal features.

Apart from competitive interest rates and convenient withdrawal

options, our deposit plans offer other features such as overdraft

facility, outstation cheque collections, safe deposit lockers.

Different Types of Deposits:

Saving Bank Deposit

Current Account

Term Deposit Scheme

Daily Deposit (PIGMY) scheme


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Loan Scheme:

Home Loan Loan / Advances for

Traders

For purchase of new

Flat/Bungalow, construction of

own house, for purchase of

land for construction of house.

Traders both wholesalers &

retailers of goods and

commodities which are not

prohibited by Govt/RBI.

Borrowers may be individual/

sole proprietorship/ partnership

firms/ HUF/ Joint stock

companies.

Professional Loan Schemes Loan against NSC / KVP /

LIC Policy

KNSB Ltd. extends assistance to

self-employed persons, firms and

joint ventures of such professional

persons engaged in various

professions.

Any Business / personal

purpose other than for

speculative ones.

Transport / Vehicle Loan Educational Loan

For purchase of new vehicle for

personal/ commercial use. Also

for purchase of pre-owned

vehicle which is not more than

5 years old . The term vehicle

includes Car, Van and Jeep,

Multi Utility Vehicle (MUVs).

To provide financial support to

deserving students for

pursuing higher professional or

technical education in India

and abroad.
http://kurmanchalbank.com/index.php/Loans/home-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/home-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/professional-loan-schemes.htmlhttp://kurmanchalbank.com/index.php/Loans/professional-loan-schemes.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/transport-vehicle-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/transport-vehicle-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/educational-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/educational-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/educational-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/transport-vehicle-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/professional-loan-schemes.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/home-loan.html


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Loan for SSI (Small Scale

Industries) Loan for Salaried Person

For financing of manufacturingunits.

For financing of personalrequirements of salaried

persons.

Consumption Loan Special (Festive) Loan

Financing for purchase of

consumer durables, furniture,

Home appliances and financing

of marriages etc.

Financing for purchase of

commodities during festival

like Diwali.

The Banks first ATM has become operational and Banks customers

will now be able to enjoy ATM facilities at nearly about 7500 outlets

of the 26 banks which are members of the BANCS network. These

banks include Axis Bank, Bank of India & IDBI bank among others.

The use of internet banking facilities among Banks customers is

gradually increasing. We are hopeful that more and more of them will

adopt this mode of banking in the years to come.

In view ofBanks performance the Reserve Bank of India has

approved 8 more licenses for the Bank and arrangements are under

way to utilize all of these in the current fiscal year.

The number of branches should thus increase to 31 by March 2012.
http://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-salaried-person.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-salaried-person.htmlhttp://kurmanchalbank.com/index.php/Loans/consumption-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/consumption-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/special-festive-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/special-festive-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/special-festive-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/consumption-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-salaried-person.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.html


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Board of Directors

The members of the board are:

Chairman Vice-Chairman

Mr. Aloke Sah Mr.Kishan Chandra Pant

Mr. Ghanshyam Bisth Director

Mr. Prakash Sah Director

Mr. Devendra Lal Director

Mr. Deepu Bhotia Director

Mrs. Bharti Chaudhary Director

Mr. Manoj Saluja Director

Mr. Girish Pathak Director

Mr. Neeraj Sharda (Chartered Accounted) Director

Mr. Radha Raman Director

Mr. Suresh Jain Director


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Chapter 2

RESEARCH & METHODOLOGY

Need for Study

1.The study has great significance and provides benefits to various

parties whom directly or indirectly interact with the company.

2. It is beneficial to management of the company by providing

crystal clear picture regarding important aspects liquidity,leverage, activity and profitability.

3.The study is also beneficial to employees and offers motivation

by showing how actively they are contributing for companys

growth.

4.The investors who are interested in investing in the companys

shares will also get benefited by going through the study and

can easily take a decision whether to invest or not to invest inthe companys shares.

Objectives

The major objectives of the resent study are to know about financial

strengths and weakness of KURMANCHAL BANK through

FINANCIAL RATIO ANALYSIS.The main objectives of resent study aimed as:

To evaluate the performance of the company by using ratio as a

yardstick to measure the efficiency of the company. To understand the

liquidity, profitability and efficiency positions of the company during

the study period. To evaluate and analyze various facts of the

financial performance of the company. To make comparisons between

the ratios during different periods.


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1.To study the present financial system at KURMANCHAL

BANK.

2.To determine the profitability, Liquidity Ratios

3.To analyze the capital structure of the company with the help ofLeverage ratio.

METHODOLOGY

The information is collected through secondary sources during the

project. That information was utilized for calculating performance

evaluation and based on that, interpretations were made.

Sources of secondary data:

1. Most of the calculations are made on the financial statements of the

company provided statements.

2. Referring standard texts and referred books collected some of the

information regarding theoretical aspects.

3. Method- to assess the performance of he company method of

observation of the work in finance department in followed.

LIMITATIONS

1. The study provides an insight into the financial and other aspects of

KURMANCHAL NAGAR SAHKARI BANK LIMITED. Every

study will be bound with certain limitations.

2. The below mentioned are the constraints under which the study is

carried out.

3. One of the factors of the study was lack of availability of sample

information. Most of the information has been kept confidential and

as such as not assed as art of policy of company.


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Time is an important limitation. The whole study was

conducted in a period of 45 days, which is not sufficient to carry out

proper interpretation and analysis.

Tools and Techniques

As no study could be successfully completed without proper tools and

techniques, same with my project. For the better presentation and

right explanation I used tools of statistics and computer very

frequently. And I am very thankful to all those tools for helping me a

lot. Basic tools which I used for project from statistics are-

- Bar Charts

- Pie charts

- Tables

Bar charts and pie charts are really useful tools for every research to

show the result in a well clear, ease and simple way. Because I used

bar charts and pie charts in project for showing data in a systematic

way, so it need not necessary for any observer to read all the

theoretical detail, simple on seeing the charts anybody could know

that what is being said.

Technological Tools

Ms- Excel

Ms-Access

Ms-Word


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Chapter 3

Introduction to Financial Management

Financial Management is the specific area of finance dealing with

the financial decision corporations make, and the tools and analysis

used to make the decisions. The discipline as a whole may be divided

between long- term and short-term decisions and techniques. Both

share the same goal of enhancing firm value by ensuring that return

on capital exceeds cost of capital, without taking excessive financial

risks.

Capital investment decisions comprise the long-term choice about

which projects receive investment, whether to finance that investment

with equity or debts, and when or whether to pay dividends to

shareholders. Short-term corporate finance decisions are called

working capital management and deal with balance of current assetsand current liabilities by managing cash, inventories and short-term

borrowing and lending (e.g., the credit term extended to customers).

Corporate finance is closely related to managerial finance, which is

slightly broader in scope, describing the financial techniques available

to all forms of business enterprise, corporate or not.

Role of Financial Managers

The role of financial manager can be discussed under the following

heads:

1. Nature of work


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2. Working conditions

3. Employment

4. Training, Other qualifications and Advancement

5. Job outlook

6. Earning

7. Related occupations

Let us discussed each of these in a detailed manner.

1. Nature of work:

Almost every firm, government agency and organizations has one or

more financial managers who oversee the preparation of financial

reports, direct investment activities, and implement cash management

strategies. As computers are increasingly used to record and organize

data, many financial managers are spending more time developingstrategies and implementing the long-term goals f their organization.

The duties of financial managers vary with their specific titles,

which include controller, treasurer or finance officer, credit manager,

cash manager, and risk and insurance manager.

2. Working conditions

Financial managers work in comfortable offices, often close to

top managers and to departments that develop the financial data these

managers need. They typically have direct access to state-of-the-art

computer systems and information services. Financial managers

commonly work long hours, often up to 50 or 60 per week. They

generally are required to attend meetings of financial and economic

associations and may travel to visit subsidiary firms or to meet

customers.


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3. Employment

While the vast majority is employed in private industry, nearly 1 in 10

works for the different branches of government. In addition, although

they can be found in every industry, approximately 1 out of 4 are

employed by insurance and finance establishments, such as banks,

savings institutions, finance companies, credit unions, and securities

dealers.

4. Training, Other qualifications and Advancement

A bachelors degree in finance, accounting, economics, or businessadministration is the minimum academic preparation for financial

managers. However, many employers now seek graduates with a

masters degree, preferably in business administration, economics,finance, or risk management. These academic programs develop

analytical skills and provide knowledge of the latest financial analysis

methods and technology. Experience may be more important than

formal education for some financial manager positionsnotably,

branch managers in banks. Banks typically fill branch managerpositions by promoting experienced loan officers and other

professionals who excel at their jobs. Other financial managers may

enter the profession through formal management training programs

offered by the company

5. Job outlook

Some companies may hire financial managers on a temporary basis,to see the organization through a short-term crisis or to offer

suggestions for boosting profits. Other companies may contract out all

accounting and financial operations. Even in these cases, however,

financial managers may be needed to oversee the contracts.

Computer technology has reduced the time and staff required to

produce financial reports. As a result, forecasting earnings, profits,

and costs, and generating ideas and creative ways to increase

profitability will become a major role of corporate financial managers


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over the next decade. Financial managers who are familiar with

computer software that can assist them in this role will be needed.

6. Earnings

Large organizations often pay more than small ones, and salary

levels also can depend on the type of industry and location. Many

financial managers in both public and private industry receive

additional compensation in the form of bonuses, which also vary

substantially by size of firm. Deferred compensation in the form of

stock options is becoming more common, especially for senior level

executives.

7. Related occupations

Financial managers combine formal education with experience in one

or more areas of finance, such as asset management, lending, credit

operations, securities investment, or insurance risk and loss control.

Workers in other occupations requiring similar training and skills

include accountants and auditors; budget analysts; financial analysts

and personal financial advisors; insurance underwriters; loancounselors and officers; securities, commodities, and financial

services sales agents; and real estate brokers and sales agents.

RATIO ANALYSIS

Ratio analysis is the method or process by which the relationship ofitems or group of items in the financial statement are computed,

determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides

concerning the financial health and profitability of business

enterprises. Ratio analysis can be used both in trend and static

analysis.


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USERS OF FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths

and weakness of the firm by properly establishing relationshipsbetween the items of the balance sheet and the profit and loss account.

1. Trade creditors are interested in firms ability to meet their claims

over a very short period of time. Their analysis will, therefore,

confine to the evaluation of the firms liquidity position.

2. Suppliers of long-term debt, on the other hand, are concerned with

the firms long-term solvency and survival. They analysis the firmsprofitability over time, its ability to generate cash to be able to pay

interest and repay principal. Long term creditors do analysis the

historical financial statements and also put stress on the projected

financial statements.

3. Investors, who have invested their money in the firms shares, aremost concerned about the firms earnings. They focus on the analysis

ofthe firms present and future profitability. They are also interestedin firms financial structureto the extent it affects firms earning andrisk.

4.Management of the firm would be interested in every aspect of the

financial analysis. It is their responsibility to see that the funds are

used most effectively and efficiently, and the firms financialcondition is sound.

OBJECTIVES OF RATIOS

Ratio is work out to analyze the following aspects of business

organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate


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B) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables.

They enable analyst to draw conclusions regarding financial

operations. They use of ratios as a tool of financial analysis involvesthe comparison with related facts. This is the basis of ratio analysis.

The basis of ratio analysis is of four types.

Past ratios, calculated from past financial statements of the firm.

Competitors ratio, of the some most progressive and successfulcompetitor firm at the same point of time.

Industry ratio, the industry ratios to which the firm belongs to

Projected ratios, ratios of the future developed from theprojected or pro forma financial statements


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NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting variousratios for helping in making certain decisions. It is only a means of

understanding of financial strengths and weaknesses of a firm. There

are a number of ratios which can be calculated from the information

given in the financial statements, but the analyst has to select the

appropriate data and calculate only a few appropriate ratios. The

following are the four steps involved in the ratio analysis.

Selection of relevant data from the financial statementsdepending upon the objective of the analysis.

Calculation of appropriate ratios from the above data.

Comparison of the calculated ratios with the ratios of the samefirm in the past, or the ratios developed from projected financial

statements or the ratios of some other firms or the comparison

with ratios of the industry to which the firm belongs.

GUIDELINES OR PRECAUTIONS FOR USE OF

RATIOSThe calculation of ratios may not be a difficult task but their use is not

easy. Following guidelines or factors may be kept in mind while

interpreting various ratios are

Accuracy of financial statements

Objective or purpose of analysis

Selection of ratios

Use of standards

Caliber of the analysis


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Chapter 4

CLASSIFICATION OF RATIO

CLASSIFICATION OF RATIO

Based on Financial Based on Function Based on

Statement Users

1. Balance Sheet 1.Liquidity Ratio 1.Ratios For

Ratio Short Term

Creditors.

2. Revenue Statement 2.Leverage Ratio 2.Ratio ForRatio Shareholders

3. Composite Ratio 3.Activity Ratio 3. Ratio For

Management

4. Profitability Ratio 4.Ratio ForLong Term

Creditors

5. Coverage ratio


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BASED ON FINANCIAL STATEMENT

Accounting ratios express the relationship between figures taken from

Financial statements. Figures may be taken from Balance Sheet, P&LA/C, or both. One-way of classification of ratios is based upon the

sources from which are taken.

1] Balance sheet ratio:If the ratios are based on the figures of balance sheet, they are called

Balance Sheet Ratios. E.g. ratio of current assets to current liabilities

or ratio of debt to equity. While calculating these ratios, there is no

need to refer to the Revenue statement. These ratios study therelationship between the assets & the liabilities, of the concern. These

ratio help to judge the liquidity, solvency & capital structure of the

concern. Balance sheet ratios are Current ratio, Liquid ratio, and

Proprietary ratio, Capital gearing ratio, Debt equity ratio, and Stock

working capital ratio.

2] Revenue ratio:

Ratio based on the figures from the revenue statement is calledrevenue statement ratios. These ratio study the relationship between

the profitability & the sales of the concern. Revenue ratios are Gross

profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net

operating profit ratio, Stock turnover ratio.

3] Composite ratio:These ratios indicate the relationship between two items, of which one

is found in the balance sheet & other in revenue statement.There are two types of composite ratios

a)Some composite ratios study the relationship between the profits& the Investments of the concern. E.g. return on capital

employed, return on proprietors fund, return on equity capital

etc.

b)Other composite ratios e.g. debtors turnover ratios, creditorsturnover ratios, dividend payout ratios, & debt service ratios


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BASED ON FUNCTION:

Accounting ratios can also be classified according to their functions in

to liquidity ratios, leverage ratios, activity ratios, profitability ratios &turnover ratios.

1] Liquidity ratios:

It shows the relationship between the current assets & current

liabilities of the concern e.g. liquid ratios & current ratios.

2] Leverage ratios:It shows the relationship between proprietors funds & debts used in

financing the assets of the concern e.g. capital gearing ratios, debt

equity ratios, & Proprietary ratios.

3] Activity ratios:It shows relationship between the sales & the assets. It is also known

as Turnover ratios & productivity ratios e.g. stock turnover ratios,

debtors turnover ratios.

4] Profitability ratios:a) It shows the relationship between profits & sales e.g. operating

ratios, Gross profit ratios, operating net profit ratios, expenses ratios

b) It shows the relationship between profit & investment e.g. return on

investment, return on equity capital.

5] Coverage ratios:It shows the relationship between the profit on the one hand & the

claims of the outsiders to be paid out of such profit e.g. dividend

payout ratios & debt service ratios.


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BASED ON USER:

1] Ratios for short-term creditors:.

Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:Return on proprietors fund, return on equity capital

3] Ratios for management:Return on capital employed, turnover ratios, operating ratios,

expenses

ratios

4] Ratios for long-term creditors:Debt equity ratios, return on capital employed, proprietor ratios.

LIQUIDITY RATIO: -Liquidity refers to the ability of a firm to meet its short-term (usually

up to 1 year) obligations. The ratios, which indicate the liquidity of a

company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio.

These ratios are discussed below


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CURRENT RATIO

Meaning:This ratio compares the current assets with the current liabilities. It is

also known as working capital ratio or solvency ratio. It isexpressed in the form of pure ratio. E.g. 2:1

Formula:

Current assets

Current ratio =

Current liabilities

The current assets of a firm represents those assets which can be, in

the ordinary course of business, converted into cash within a short

period Time, normally not exceeding one year. The current liabilities

defined as liabilities which are short term maturing obligations to be

met, as originally contemplated, within a year.

Current ratio (CR) is the ratio of total current assets (CA) to total

current liabilities (CL). Current assets include cash and bank

balances; inventory of raw materials, semi-finished and finished

goods; marketable securities; debtors (net of provision for bad and

doubtful debts); bills receivable; and prepaid expenses. Current

liabilities consist of trade creditors, bills payable, bank credit,

provision for taxation, dividends payable and outstanding expenses.

This ratio measures the liquidity of the current assets and the ability

of a company to meet its short term debt obligation. CR measures the

ability of the company to meet its CL, i.e., CA gets converted into

cash in the operating cycle of the firm and provides the funds needed

to pay for CL. The higher the current ratio, the greater the short-termsolvency. This compares assets, which will become liquid within

approximately twelve months with liabilities, which will be due for

payment in the same period and is intended to indicate whether there

are sufficient short-term assets to meet the short- term liabilities.

Recommended current ratio is 2: 1. Any ratio below indicates that the

entity may face liquidity problem but also Ratio over 2: 1 as above

indicates over trading, that is the entity is under utilizing its current

assets.


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LIQUID RATIO:

Meaning:Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio

compare the quick assets with the quick liabilities. It is expressed in

the form of pure ratio. The term quick assets refer to current assets,

which can be converted into, cash immediately or at a short notice

without diminution of value.

Formula:

Quick assets

Liquid ratio =Quick liabilities

Quick Ratio (QR) is the ratio between quick current assets (QA) and

CL. QA refers to those current assets that can be converted into cash

immediately without any value strength. QA includes cash and bank

balances, short-term marketable securities, and sundry debtors.

Inventory and prepaid expenses are excluded since these cannot be

turned into cash as and when required.QR indicates the extent to which a company can pay its current

liabilities without relying on the sale of inventory. This is a fairly

stringent measure of liquidity because it is based on those current

assets, which are highly liquid. Inventories are excluded from the

numerator of this ratio because they are deemed the least liquid

component of current assets. Generally, a quick ratio of 1:1 is

considered good. One drawback of the quick ratio is that it ignores the

timing of receipts and payments.

CASH RATIO

Meaning:This is also called as super quick ratio. This ratio considers only the

absolute liquidity available with the firm.


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Formula:

Cash + Bank + Marketable securities

Cash ratio =

Total current liabilities

Since cash and bank balances and short term marketable securities are

the most liquid assets of a firm, financial analysts look at the cash

ratio. If the super liquid assets are too much in relation to the current

liabilities then it may affect the profitability of the firm.

INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:-

Meaning:Earnings per Share are calculated to find out overall profitability of

the organization. An earnings per Share represents earning of the

company whether or not dividends are declared. If there is only one

class of shares, the earning per share are determined by dividing net

profit by the number of equity shares.

EPS measures the profits available to the equity shareholders on each

share held.


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Formula:

NPAT

Earnings per share =

Number of equity share

The higher EPS will attract more investors to acquire shares in the

company as it indicates that the business is more profitable enough to

pay the dividends in time. But remember not all profit earned is going

to be distributed as dividends the company also retains some profits

for the business

DIVIDEND PER SHARE:-

Meaning:DPS shows how much is paid as dividend to the shareholders on each

share held.

Formula:

Dividend Paid to Ordinary Shareholders

Dividend per Share =

Number of Ordinary Shares

DIVIDEND PAYOUT RATIO:-

Meaning: Dividend Pay-out Ratio shows the relationship between the

dividend paid to equity shareholders out of the profit available to the

equity shareholders.

Formula:Dividend per share

Dividend Pay out ratio = *100Earning per share

D/P ratio shows the percentage share of net profits after taxesand after preference dividend has been paid to the preference

equity holders.


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GEARING

CAPITAL GEARING RATIO:-

Meaning:Gearing means the process of increasing the equity shareholders

return through the use of debt. Equity shareholders earn more whenthe rate of the return on total capital is more than the rate of interest

on debts. This is also known as leverage or trading on equity. The

Capital-gearing ratio shows the relationship between two types of

capital viz: - equity capital & preference capital & long term

borrowings. It is expressed as a pure ratio.

Formula:

Preference capital+ secured loanCapital gearing ratio =

Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the

financing of assets of a concern.


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PROFITABILITY

These ratios help measure the profitability of a firm. A firm, which

generates a substantial amount of profits per rupee of sales, can

comfortably meet its operating expenses and provide more returns to

its shareholders. The relationship between profit and sales is

measured by profitability ratios. There are two types of profitability

ratios: Gross Profit Margin and Net Profit Margin.

GROSS PROFIT RATIO:-

Meaning:This ratio measures the relationship between gross profit and sales. It

is defined as the excess of the net sales over cost of goods sold or

excess of revenue over cost. This ratio shows the profit that remains

after the manufacturing costs have been met. It measures the

efficiency of production as well as pricing. This ratio helps to judge

how efficient the concern is I managing its production, purchase,

selling & inventory, how good its control is over the direct cost, how

productive the concern , how much amount is left to meet otherexpenses & earn net profit.

Formula:

Gross profit

Gross profit ratio = * 100

Net sales


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NET PROFIT RATIO:-

Meaning:Net Profit ratio indicates the relationship between the net profit & the

sales it is usually expressed in the form of a percentage.

Formula:

NPAT

Net profit ratio = * 100

Net sales

This ratio shows the net earnings (to be distributed to both equity and

preference shareholders) as a percentage of net sales. It measures theoverall efficiency of production, administration, selling, financing,

pricing and tax management. Jointly considered, the gross and net

profit margin ratios provide an understanding of the cost and profit

structure of a firm.

RETURN ON CAPITAL EMPLOYED:-

Meaning:The profitability of the firm can also be analyzed from the point of

view of the total funds employed in the firm. The term fund employed

or the capital employed refers to the total long-term source of funds. It

means that the capital employed comprises of shareholder funds plus

long-term debts. Alternatively it can also be defined as fixed assets

plus net working capital.

Capital employed refers to the long-term funds invested by the

creditors and the owners of a firm. It is the sum of long-termliabilities and owner's equity. ROCE indicates the efficiency with

which the long-term funds of a firm are utilized.

Formula:

NPAT

Return on capital employed = *100

Capital employed


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FINANCIAL

These ratios determine how quickly certain current assets can be

converted into cash. They are also called efficiency ratios or asset

utilization ratios as they measure the efficiency of a firm in managing

assets. These ratios are based on the relationship between the level of

activity represented by sales or cost of goods sold and levels of

investment in various assets. The important turnover ratios are debtors

turnover ratio, average collection period, inventory/stock turnover

ratio, fixed assets turnover ratio, and total assets turnover ratio. These

are described below:

DEBTORS TURNOVER RATIO (DTO)

Meaning:DTO is calculated by dividing the net credit sales by average debtors

outstanding during the year. It measures the liquidity of a firm's debts.

Net credit sales are the gross credit sales minus returns, if any, from

customers. Average debtors are the average of debtors at thebeginning and at the end of the year. This ratio shows how rapidly

debts are collected. The higher the DTO, the better it is for the

organization.

Formula:

Credit sales

Debtors turnover ratio =

Average debtors


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INVENTORY OR STOCK TURNOVER RATIO (ITR)

Meaning:

ITR refers to the number of times the inventory is sold and replaced

during the accounting period.

Formula:

Cost Of Goods Sold

Stock Turnover Ratio =

Average stock

ITR reflects the efficiency of inventory management. The higher the

ratio, the more efficient is the management of inventories, and vice

versa. However, a high inventory turnover may also result from a low

level of inventory, which may lead to frequent stock outs and loss of

sales and customer goodwill. For calculating ITR, the average of

inventories at the beginning and the end of the year is taken. In

general, averages may be used when a flow figure (in this case, cost

of goods sold) is related to a stock figure (inventories).

FIXED ASSETS TURNOVER (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed

assets.

Formula:

Net sales

Fixed assets turnover =

Net fixed assets

This ratio measures the efficiency with which fixed assets are

employed. A high ratio indicates a high degree of efficiency in asset

utilization while a low ratio reflects an inefficient use of assets.


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However, this ratio should be used with caution because when the

fixed assets of a firm are old and substantially depreciated, the fixed

assets turnover ratio tends to be high (because the denominator of the

ratio is very low).

PROPRIETORS RATIO:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business.

It relates shareholders fund to total assets. This ratio determines the

long term or ultimate solvency of the company.

In other words, Proprietary ratio determines as to what extent theowners interest & expectations are fulfilled from the total investment

made in the business operation.

Proprietary ratio compares the proprietor fund with total liabilities. It

is usually expressed in the form of percentage. Total assets also know

it as net worth.

Formula:

Proprietary fundProprietary ratio = OR

Total fund

Shareholders fund

Proprietary ratio =

Fixed assets + current assets

STOCK WORKING CAPITAL RATIO:

Meaning:

This ratio shows the relationship between the closing stock & the

working capital. It helps to judge the quantum of inventories in

relation to the working capital of the business. The purpose of this

ratio is to show the extent to which working capital is blocked in

inventories. The ratio highlights the predominance of stocks in the


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current financial position of the company. It is expressed as a

percentage.

Formula:

Stock

Stock working capital ratio =

Working Capital

Stock working capital ratio is a liquidity ratio. It indicates the

composition & quality of the working capital. This ratio also helps to

study the solvency of a concern. It is a qualitative test of solvency. It

shows the extent of funds blocked in stock. If investment in stock is

higher it means that the amount of liquid assets is lower.

DEBT EQUITY RATIO:

MEANING:

This ratio compares the debts with shareholders fund. The

relationship between borrowed funds & owners capital is a popular

measure of the financial solvency of a firm. This relationship isshown by debt equity ratio. Alternatively, this ratio indicates the

relative proportion of debt & equity in financing the assets of the firm.

It is usually expressed as a pure ratio. E.g. 2:1

Formula:

External Equities

Debt equity ratio =

Internal Equities

Debt equity ratio is also called as leverage ratio. Leverage means the

process of the increasing the equity shareholders return through the

use of debt. Leverage is also known as gearing or trading on

equity. Debt equity ratio shows the margin of safety for long-term

creditors & the balance between debt & equity.


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RETURN ON PROPRIETOR FUND:

Meaning:

Return on proprietors fund is also known as return on proprietors

equity orreturn on shareholders investment or investment ratio.

This ratio indicates the relationship between net profit earned & total

proprietors funds. Return on proprietors fund is a profitability ratio,

which the relationship between profit & investment by the proprietors

in the concern. Its purpose is to measure the rate of return on the total

fund made available by the owners. This ratio helps to judge how

efficient the concern is in managing the owners fund at disposal. This

ratio is of practical importance to prospective investors &

shareholders.

Formula:

NPAT

Return on proprietors fund = * 100

Proprietors fund

CREDITORS TURNOVER RATIO:

It is same as debtors turnover ratio. It shows the speed at which

payments are made to the supplier for purchase made from them. It is

a relation between net credit purchase and average creditors

Net credit purchase

Credit turnover ratio =

Average creditors

Months in a year

Average age of accounts payable =

Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases.

Higher creditors turnover ratio or a lower credit period enjoyed

signifies that the creditors are being paid promptly. It enhances credit

worthiness of the company. A very low ratio indicates that the


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company is not taking full benefit of the credit period allowed by the

creditors.

IMPORTANCE OF RATIO ANALYSIS:

As a tool of financial management, ratios are of crucial significance.

The importance of ratio analysis lies in the fact that it presents facts

on a comparative basis & enables the drawing of interference

regarding the performance of a firm. Ratio analysis is relevant in

assessing the performance of a firm in respect of the following

aspects:

1] Liquidity position,

2] Long-term solvency,

3] Operating efficiency,

4] Overall profitability,

5] Inter firm comparison

6] Trend analysis.

1] LIQUIDITY POSITION: -

With the help of Ratio analysis conclusion can be drawn regarding the

liquidity position of a firm. The liquidity position of a firm would be

satisfactory if it is able to meet its current obligation when they

become due. A firm can be said to have the ability to meet its short-

term liabilities if it has sufficient liquid funds to pay the interest on its

short maturing debt usually within a year as well as to repay the

principal. This ability is reflected in the liquidity ratio of a firm. The

liquidity ratio are particularly useful in credit analysis by bank &

other suppliers of short term loans.

2] LONG TERM SOLVENCY: -

Ratio analysis is equally useful for assessing the long-term financial

Ratio analysis reveals the strength & weaknesses of a firm in this


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respect. The leverage ratios, for instance, will indicate whether a firm

has a reasonable proportion of various sources of finance or if it is

heavily loaded with debt in which case its solvency is exposed to

serious strain. Similarly the various profitability ratios would reveal

whether or not the firm is able to offer adequate return to its owners

consistent with the risk involved.

3] OPERATING EFFICIENCY:

Yet another dimension of the useful of the ratio analysis, relevant

from the viewpoint of management, is that it throws light on the

degree of efficiency in management & utilization of its assets. The

various activity ratios measures this kind of operational efficiency. Infact, the solvency of a firm is, in the ultimate analysis, dependent

upon the sales revenues generated by the use of its assets- total as

well as its components.

4] OVERALL PROFITABILITY:

Unlike the outsides parties, which are interested in one aspect of the

financial position of a firm, the management is constantly concernedabout overall profitability of the enterprise. That is, they are

Concerned about the ability of the firm to meets its short term as well

as long term obligations to its creditors, to ensure a reasonable return

to its owners & secure optimum utilization of the assets of the firm.

This is possible if an integrated view is taken & all the ratios are

considered together.

5] INTERFIRM COMPARISON:

Ratio analysis not only throws light on the financial position of firm

but also serves as a stepping-stone to remedial measures. This is made

possible due to inter firm comparison & comparison with the industry

averages. A single figure of a particular ratio is meaningless unless it

is related to some standard or norm. one of the popular techniques is

to compare the ratios of a firm with the industry average. It should be

reasonably expected that the performance of a firm should be in broadconformity with that of the industry to which it belongs. An inter firm


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comparison would demonstrate the firms position vice-versa its

competitors. If the results are at variance either with the industry

average or with the those of the competitors, the firm can seek to

identify the probable reasons & in light, take remedial measures.

6] TREND ANALYSIS:

Finally, ratio analysis enables a firm to take the time dimension into

account. In other words, whether the financial position of a firm is

improving or deteriorating over the years. This is made possible by

the use of trend analysis. The significance of the trend analysis of

ratio lies in the fact that the analysts can know the direction of

movement, that is, whether the movement is favorable or unfavorable.For example, the ratio may be low as compared to the norm but the

trend may be upward. On the other hand, though the present level

may be satisfactory but the trend may be a declining one.

ADVANTAGES OF RATIO ANALYSIS

Financial ratios are essentially concerned with the identification of

significant accounting data relationships, which give the decision-

maker insights into the financial performance of a company. The

advantages of ratio analysis can be summarized as follows:

Ratios facilitate conducting trend analysis, which is importantfor decision making and forecasting.

Ratio analysis helps in the assessment of the liquidity, operatingefficiency, profitability and solvency of a firm.

Ratio analysis provides a basis for both intra-firm as well asinter-firm comparisons.

The comparison of actual ratios with base year ratios or standardratios helps the management analyze the financial performance

of the firm.


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LIMITATIONS OF RATIO ANALYSIS

Ratio analysis has its limitations. These limitations are described

below:

1] Information problemsRatios require quantitative information for analysis but it is not

decisive about analytical output.

The figures in a set of accounts are likely to be at least severalmonths out of date, and so might not give a proper indication of

the companys current financial position.

Where historical cost convention is used, asset valuations in thebalance sheet could be misleading. Ratios based on this

information will not be very useful for decision-making.

2] Comparison of performance over time

When comparing performance over time, there is need toconsider the changes in price. The movement in performance

should be in line with the changes in price.

When comparing performance over time, there is need toconsider the changes in technology. The movement in

performance should be in line with the changes in technology.

Changes in accounting policy may affect the comparison ofresults between different accounting years as misleading.

3] Inter-firm comparison

Companies may have different capital structures and to makecomparison of performance when one is all equity financed and

another is a geared company it may not be a good analysis.Selective application of government incentives to various

companies may also distort intercompany comparison.

comparing the performance of two enterprises may be

misleading.

Inter-firm comparison may not be useful unless the firmscompared are of the same size and age, and employ similar

production methods and accounting practices.


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Even within a company, comparisons can be distorted bychanges in the price level.

Ratios provide only quantitative information, not qualitativeinformation.

Ratios are calculated on the basis of past financial statements.They do not indicate future trends and they do not consider

economic conditions.

PURPOSE OF RATIO ANLYSIS:

1] To identify aspects of a businesses performance to aid decision

making

2] Quantitative processmay need to be supplemented by qualitative

Factors to get a complete picture.

3] 5 main areas:-

Liquiditythe ability of the firm to pay its wayInvestment/shareholdersinformation to enable decisions to

be made on the extent of the risk and the earning potential of a

business investment

Gearinginformation on the relationship between theexposure of the business to loans as opposed to share capital

Profitabilityhow effective the firm is at generating profitsgiven sales and or its capital assets

Financialthe rate at which the company sells its stock andthe efficiency with which it uses its assets

ROLE OF RATIO ANALYSIS:

It is true that the technique of ratio analysis is not a creative technique

in the sense that it uses the same figure & information, which is

already appearing in the financial statement. At the same time, it is

true that what can be achieved by the technique of ratio analysis

cannot be achieved by the mere preparation of financial statement.


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Ratio analysis helps to appraise the firm in terms of their profitability

& efficiency of performance, either individually or in relation to those

of other firms in the same industry. The process of this appraisal is

not complete until the ratio so computed can be compared with

something, as the ratio all by them do not mean anything. This

comparison may be in the form of intra firm comparison, inter firm

comparison or comparison with standard ratios. Thus proper

comparison of ratios may reveal where a firm is placed as compared

with earlier period or in comparison with the other firms in the same

industry.

Ratio analysis is one of the best possible techniques available to the

management to impart the basic functions like planning & control. As

the future is closely related to the immediate past, ratio calculated onthe basis of historical financial statements may be of good assistance

to predict the future. Ratio analysis also helps to locate & point out

the various areas, which need the management attention in order to

improve the situation.

As the ratio analysis is concerned with all the aspect of a firms

financial analysis i.e. liquidity, solvency, activity, profitability &

overall performance, it enables the interested persons to know the

financial & operational characteristics of an organization & take thesuitable decision.

Chapter 5

DATA ANALYSIS

1. CURRENT RATIO:

Year Current Assets Current Liabilities Ratios

2010 2140872026.53 3109596245.16 1.97:1

2011 4213929832.35 6640778554.88 2.14:1


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GRAPH SHOWING STATUS OF CURRENT ASSETS AND CURRENT

LIABILITIES:

GRAPH SHOWING CURRENT RATIO:

Interpretation:As a conventional rule, a current ratio of 2 to 1 or more is considered

satisfactory but here the company has maintained satisfactory current

ratio during the last 2 years. The main reason for that is the standard

working capital policy adopted by the company. Apart from fix

assets, major part of current assets was financed by the long term

funds. Overall, the company enjoys a standard liquidity.

0.00

1000000000.00

2000000000.00

3000000000.00

4000000000.00

5000000000.00

6000000000.00

7000000000.00

2010 2011

Current Labilities

Current Assets

1.80

1.90

2.00

2.10

2.20

2010

2011

Current Ratio

Current Ratio


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2. ABSOLUTE LIQUID RATIO:

Year Absolute Liquid

Assets

Liquid Liabilities Ratios

2010 411613973.42 3109596245.16 0.192:1

2011 608519031.00 6640778554.88 0.196:1

GRAPH SHOWING STATUS OF ABSOLUE LIQUID ASSETS AND

LIQUID LIABILITIES:

GRAPH SHOWING ABSOLUTE LIQUID RATIO:

0.00

500000000.00

1000000000.00

1500000000.00

2000000000.00

2500000000.00

3000000000.00

3500000000.00

2010 2011

Liquid Liabilities

Absolute Liquid Assets

0.19

0.191

0.192

0.193

0.194

0.195

0.196

2010

2011

Absolute Liquid ratio

Absolute Liquid ratio


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Interpretation:This ratio indicates the ability to discharge its short term liabilities

with the available cash on hand.

A ratio of 1:1 is considered to be a good ratio but a rate of 0.75:1

is also good. The above ratios stated above imply that the

company does not have enough cash on hand to meet all the

current liabilities.

3. DEBT EQUITY RATIO:

Year External Equities Internal Equities Ratios

2010 7777514186.50 621557705.92 12.51:1

2011 10208826010.77 835090904.24 12.22:1

GRAPH SHOWING STATUS OF EXTERNAL EQUITIES AND INTERNAL

EQUITIES:

0.00

2000000000.00

4000000000.00

6000000000.00

8000000000.00

10000000000.00

12000000000.00

2010 2011

External Equities

Internal Equities


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GRAPH SHOWING DEBT EQUITY RATIO:

Interpretation:From the debt-Equity ratio it is clear that the owners of kurmanchal

Nagar Sahkari Bank Ltd Finance ltd have contributed fewer funds

than its lenders in all the years.

It implies that the company has depended more on debt than equity.

This more reliance on debt allow the company from taking the

advantage of the tax shield and financial leverage but at the same timeit restrict the company from regular payment of interest and

obligations.

4. CURRENT ASSETS TO FIXED ASSETS RATIO

Year Current Assets Fixed Assets Ratios

2010 2140872026.53 40,759,814.07 103.38:1

2011 4213929832.35 40,622,601.86 163.47:1

12.05

12.10

12.15

12.20

12.25

12.30

12.35

12.40

12.45

12.50

12.55

2010

2011

Debt Equity Ratio

Debt Equity Ratio


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GRAPH SHOWING STATUS OF CURRENT ASSETS AND FIXED ASSETS:

GRAPH SHOWING CURRENT ASSETS TO FIXED ASSETS RATIO:

-

1,000,000,000.00

2,000,000,000.00

3,000,000,000.00

4,000,000,000.00

5,000,000,000.00

6,000,000,000.00

7,000,000,000.00

2010 2011

Fixed Assets

Current Assets

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

2010

2011

Current Assets to fixed Assets ratio

Current Assets to fixed Assets ratio


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Interpretation:

Current assets are increased and the net fixed assets of the firm are

decreased due to the charge of depreciation and there is no major

increment in the fixed assets.

The increment in current assets and the decrease in fixed assets

resulted an increase in the ratio compared with the previous year

5. SOLVENCY RATIO

Year Outside Liability Total Assets Ratios

2010 7,763,768,456.50 8,526,217,188.42 0.910:1

2011 10,189,963,212.77 11,113,745,650.01 0.917:1

GRAPH SHOWING STATUS OF OUTSIDE LIABILITY AND TOTAL

ASSETS:

-

2,000,000,000.00

4,000,000,000.00

6,000,000,000.00

8,000,000,000.00

10,000,000,000.00

12,000,000,000.00

2010 2011

Total Outside Liability

Total Assets


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GRAPH SHOWING SOLVENCY RATIO:

Interpretation:

Outside Liabilities are increased and there is not much more

increment in Total Assets which is resulted an increase in the ratio

compared with the previous year.

6. WORKING CAPITAL RATIO:

Year Working Capital Net Assets Ratios

2010 8390027339.78 8390027339.78 1:1

2011 11035028414.26 11035028414.26 1:1

0.907

0.908

0.909

0.91

0.911

0.912

0.913

0.914

0.915

0.916

0.917

2010

2011

Solvency Ratio

Solvency Ratio


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GRAPH SHOWING STATUS OF WORKING CAPITAL AND NET

ASSETS:

GRAPH SHOWING WORKING CAPITAL RATIO:

-

2,000,000,000.00

4,000,000,000.00

6,000,000,000.00

8,000,000,000.00

10,000,000,000.00

12,000,000,000.00

2010 2011

Working Capital

Net Assets

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2010

2011

Working Capital Ratio

Working Capital Ratio


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Interpretation:Over the last 2 years the company has maintain the Working Capital

ratio at 1:1 which is reasonably good and indicates good liquidity of

the company. However the reason for maintaining the same ratio is

the % increase in the companys Working Capital and Net Assets.

Higher NWC ratio cannot be taken as high liquidity always because it

is the test of quantity not the quality. Liquidity also depends upon the

quality of current assets.

7. PROPRIETARY RATIO:

Year Shareholders Fund Total Funds Ratios

2010 621557705.92 6354801858.88 9.78%

2011 835090904.24 9750374800.04 8.56%

GRAPH SHOWING STATUS OF SHAREHOLDERS FUND AND

TOTAL FUND:

-

2,000,000,000.00

4,000,000,000.00

6,000,000,000.00

8,000,000,000.00

10,000,000,000.00

12,000,000,000.00

2010 2011

Net worth

Total Funds


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GRAPH SHOWING PROPRIETARY RATIO:

Interpretation:

This ratio establishes the relationship between the shareholders

funds and the total funds of the firm. It establishes the claims of

the shareholders on the firms assets. It indicates the extent to

which the shareholders funds have been invested in the assets of

the company. On examination of this ratio, it denotes that the

share holders funds have been moderately invested in the totalassets. The ratio decreased in the current year because of greaterly

increased in total funds of the company and lower increment in the

net worth.

8. RETURN ON SHAREHOLDERS EQUITY:

Year Net Profit After

Interest & Tax

ShareholdersEquity

Ratios

2010 78,144,260.62 621557705.92 12.57%

2011 111,952,521.55 835090904.24 13.41%

7.8

8

8.2

8.4

8.6

8.8

9

9.2

9.4

9.6

9.8

2010 2011

Proprietory Ratio

Proprietory Ratio


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GRAPH SHOWING STATUS OF NET PROFIT AFTER INTEREST

& TAX AND SHARELODERS EQUITY:

GRAPH SHOWING RETURN ON SHAREHOLDERS EQUITY:

-

100,000,000.00

200,000,000.00

300,000,000.00

400,000,000.00

500,000,000.00

600,000,000.00

700,000,000.00

800,000,000.00

900,000,000.00

2010 2011

Net Profit After interest and tax

Shareholders Equity

12.00

12.20

12.40

12.60

12.80

13.00

13.20

13.40

13.60

2010 2011

Return on Shareholder Equity

Return on Shareholder Equity


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Interpretation:This is the ratio between net profits and shareholders funds. The ratio is

generally calculated as percentage multiplying with 100.The net profit is

increased due to the increase in the income from services and the

shareholders funds are increased because of reserve & surplus. So, the

ratio is increased in the current year.

9. RESERVE & SURPLUS TO CAPITAL RATIO:

Year RESERVE & SURPLUS CAPITAL Ratios

2010 535669945.92 85,887,760.00 6.24

2011 683428064.24 151,662,840.00 4.51

GRAPH SHOWING STATUS OF RESERVE & SURPLUS AND CAPITAL:

0.00

100000000.00

200000000.00

300000000.00

400000000.00

500000000.00

600000000.00

700000000.00

800000000.00

2010 2011

RESERVE & SURPLUS

CAPITAL


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GRAPH SHOWING RESERVE & SURPLUS TO CAPITAL RATIO:

Interpretation:The ratio is used to reveal the policy pursued by the company a very

high ratio indicates a conservative dividend policy and vice-versa.

Higher the ratio better will be the position.

The capital is increased in the year 2011. So the decrease in the

reserve & surplus to capital ratio caused a greater increase in capitals

ratio compared with the older.

9. RETURN ON ASSETS:

Year Net Profit after Interest

& Tax

Net Assets Ratios

2010 78,144,260.62 8390027339.78 0.93%

2011 111,952,521.55 11035028414.26 1.01%

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2010 2011

RESERVE & SURPLUS TO CAPITAL RATIO

RESERVE & SURPLUS TO CAPITAL

RATIO


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GRAPH SHOWING STATUS OF NET PROFIT AFTER INTEREST &

TAX AND NET ASSETS:

GRAPH SHOWING RETURN ON ASSETS:

-

2,000,000,000.00

4,000,000,000.00

6,000,000,000.00

8,000,000,000.00

10,000,000,000.00

12,000,000,000.00

2010 2011

Profit After Interest & Tax

Net Assets

0.88

0.9

0.92

0.94

0.96

0.98

1

1.02

2010 2011

Return on Assets

Return on Assets


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Interpretation:This is the ratio between net profit and net assets. The ratio indicates

the return on net assets in the form of profits.

The net profit is increased in the current year because of the

increment in the income from services. The fixed assets are reduced

due to the charge of depreciation and no major increments in fixed

assets but the current assets are increased that effects an increase in

the ratio compared with the last year i.e. 2010.

10. NET INTEREST MARGIN:

Year Interest Rate onCredits

Interest Rate OnDeposits

Net InterestMargin

2010 11.36% 5.67% 5.68%

2011 10.165 5.10% 5.06%

GRAPH SHOWING STATUS OF INTEREST RATE ON CREDITS AND

INTEREST RATE ON DEPOSITS:

-

2.00

4.00

6.00

8.00

10.00

12.00

2010 2011

Interest Rate on Loans

Interest Rate on Deposits


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GRAPH SHOWING NET INTEREST MARGIN:

Interpretation:This ratio determined the net margin bank yield through interest from

credits deducting by interest on deposits.

In the current year this ratio is decreased due to lower interest ratio(i.e. total interest earned/total credits) on credits compare to last year.

11. CREDIT - DEPOSIT RATIO:

Year Credits Deposits Ratio

2010 4989250995.53 6,494,662,360.76 76.82%

2011 6795838900.57 8,227,132,181.07 82.60%

4.70

4.80

4.90

5.00

5.10

5.20

5.30

5.40

5.50

5.60

5.70

2010 2011

Net Interest Margin

Net Interest Margin


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GRAPH SHOWING STATUS OF CREDITS AND DEPOSITS:

GRAPH SHOWING CREDIT DEPOSIT RATIO:

Interpretation:This is the ratio between credits and deposits. The ratio determines

the relationship between credits and deposits in the bank.

0.00

1000000000.00

2000000000.00

3000000000.00

4000000000.00

5000000000.00

6000000000.00

7000000000.00

8000000000.00

9000000000.00

2010 2011

Loans And Advances

Deposits

73.00

74.00

75.00

76.00

77.00

78.00

79.00

80.00

81.00

82.00

83.00

2010 2011

C-D Ratio

CD Ratio


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The credits is graterly increased in the current year and the deposits

are also increased that effects an increase in the ratio compared with

the last year i.e. 2010

12. PER EMPOYEE BUSINESS:

Year Deposits and

Advances

No. of Employees Per Employee

Business

2010 11483913356.29 193 59502141.74

2011 15022971081.64 189 79486619.48

GRAPH SHOWING PER EMPLOYEE BUSINESS:

Interpretation:This PEB determined the business (deposit and advances) doing by

employees of the bank. In the current year the PEB increased from the

last year because of increment in loans and deposits and decreased in

the number of employees.

-

10,000,000.00

20,000,000.00

30,000,000.00

40,000,000.00

50,000,000.00

60,000,000.00

70,000,000.00

80,000,000.00

2010 2011

Per Employee Business

Per Employee Business


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GRAPHICAL PRESENTATION OF IMPORTANT DATA

Saving A/c

24%

Current A/c

8%

Mini Deposit A/c

6%

FDRs

62%

Composition of deposits

140

145

150

155

160

165

170

175

180

185

190

2008-09 2009-10 2010-11

Non Performin Assets (NPAs) 165.67 189.49 158.34

Rupee

inL

cs

Non Performin Assets (NPAs)


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Composition wise yearly Growth of Deposits (Rs. In Lacks)

2010-11

2009-10

2008-09

0

10000

20000

30000

40000

50000

60000

Current

Accounts Saving Bank

Accounts Mini Deposit

AccountsFixed

deposits

Accounts

2010-11

2009-10

2008-09

60416.38

83900.28

110350.28

0

20000

40000

60000

80000

100000

120000

2008-09 2009-10 2010-11

Working Capital


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FINDINGS, SUMARRY & CONCLUSION

FINDINGS OF THE STUDY1. The current ratio has shown in a fluctuating trend as 1.97 and 2.14

during 2010 of which indicates a continuous increase in both current

assets and current liabilities.

2. The absolute liquid ratio has been increased from 0.192 to 0.195

from 201011

3. The proprietory ratio has shown a fluctuating trend. The

proprietory ratio is decreased compared with the last year.

4. The working capital increased from 8390027339.78 to

11035028414.26 in the year 2010-11.

5. The current assets to fixed assets ratio is increasing gradually from

2010-11 as 103.38 and 163.47. It shows that the current assets are

increased than fixed assets.

6. The debt equity ratio is decreased to 12.51 from 12.22 which shows

company reduced the part of debt capital and increased the owner

capital.

7. The solvency ratio has been increased from 0.910 to 0.917 from

2010-11

8.The Net NPA were 0% of net advances assets as of March 31,2011as against 0% respectively as of March 31,2010 reflecting the

disciplined credit risk management.

9.The return on shareholders equity is increased to 13.41% from

12.57% which indicate the growth in return on owners equity.

10. The return on assets (ROA) has been increased from 0.93% to

1.01% from 2010-11


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11. The Reserves and Surplus to Capital ratio is decreased to 4.51

from 6.24. The capital is greaterly increased, the reserves and surplus

is also increased in the current year but not as capital.

12. C-D ratio is increased in the current year which shows high

investment in credit, which is good for a bank because it enable bank

to earn high interest on it.

13. Net Interest Margin has a fluctuating trend, it decrease by 0.62 in

the current year.

14. Per Employee Business increased greaterly in the current year

which shows efficient working power of the bank.

SUMMARY

1) After the analysis of Financial Statements, the Bank status is better,

because the working capital of the Bank is highly increased from the

last years position.

2) The Bank profits are huge in the current year; it is better to declarethe dividend to shareholders.

3) The Bank is utilizing the fixed assets, which majorly hel

project on analysis of financial performance (knsb ltd)

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