sagar project
TRANSCRIPT
DECLARATION
I, D. MENAKA had undergone the field training for the period of eight weeks
from may 5th 2009 to July 5th 2009 in Kusalava International Ltd. Company. In
partial fulfillment for the award of the degree of MASTER OF BUSINESS
ADMINISTRATION. This project report, written and submitted to the
Department of Management Studies, Sir C.R. Reddy College, Eluru under the
guidance of Mr. T. RAJESH is an original work carried out by me. The findings
of this report are based on the information collected by me during the study period.
I further state that I am alone responsible for omissions and commissions, if any
Place: Adavinekkalm (D. MENAKA)
Date:
CONTENTS
CHAPTER – 1:
Objectives of the study
Scope of the study
Methodology of the study
Limitation of the study
CHAPTER – II:
Industry profile
CHAPTER – III:
Company Profile
CHAPTER – IV:
Data Analysis & Interpretation.
CHAPTER – V:
Summary, Findings and Suggestions
Bibliography
LIST OF THE TABLES
Table No. Table No. Page No.
4.1 Current ratio
4.2 Quick ratio
4.3 Cash ratio
4.4 Debt equity ratio
4.5 Fixed turnover ratio
4.6 Total assert turnover ratio
4.7 Debtors turn ratio
4.8 Creditors turnover ratio
4.9 Working capital turn over ratio
4.10 Inventory turn over ratio
4.11 Gross profit ratio
4.12 Net profit ratio
4.13 Return on total assert
CHAPTER – I
INTRODUCTION
Introduction
Financial statements are prepared primarily for decision making. They play
a dominant role in setting the frame work of managerial decisions. Financial
analysis is “the process of identifying the financial strengths and weaknesses of
one firm by properly establishing relationship between the items of the balance
sheet and be profit and loss account”. There are various methods of techniques
used in analyzing financial statements, such as comparative schedule of changing
in working capita, trends analysis common size statements, funds flow and cash
flow analysis, cost-volume-profit analysis ratio analysis, one ratio analysis is the
most powerful tool of financial analysis.
Need for the Study
Financial analysis must require for a company in this cut through
competition. Because of that reason ratio analysis is used in analyzing the firm’s
position known that fact that success of an organization depends upon the financial
statements. This situation has created an Internet to study and analysis some of the
financial aspects of the organization. Hence a study may be undertaken of
financial analysis through ratio.
Objectives of the Study
The ratio analysis if one of the most powerful tools of the financial analysis
ratio analysis one of the process of establishing and interpreting various ratios
(quantitative relationship between figures and groups of figures). The purpose of
preparation of ratio analysis it to optimize and facilitate comparison with
references’ methods. Another organization or industry organization.
Primary Objective
The primary objective of the study is to analyze the financial performance through
ratio analysis.
Secondary Objectives:
To study the financial strengths and weakness of the firm.
To examine the short-term solvency of the firm.
To study the techniques of ratio analysis for decision-making
To study the profitability of the firm over the years
To study the operating efficiency of the firm
To find out the reasons of the deviations and to evaluate possible way of the
resolving the problems.
Scope of the Study
The scope of the study is limited to collect the financial data published in the
annual reports of the company with reference to the objectives stated above and
way analysis of the data with a view to suggest favorable solution to various
problems related to financial performance.
The project “RATIO ANALYSIS OF KUSALAVA INTERNATIONAL
LIMITED” provides information with regards to the comparative, common size
recent trends and development and comprehensive review of the financial
performance of the company. This project gives an insight of the various tools
evaluated the critical performance of the Kusalava International Limited.
The magnitude and scope of the project generally defined by its objectives
constraints and methodology that has adapted to analys the information. However
the scope of the present study is at macro level that is the total performance of the
Kusalava International Limited.
Methodology of the Study
To achieve a object of research methodology, the following methodology
has been adapted. The information for this report has been collected through the
primary and secondary sources.
1) Primary Data
It is also called as first handed information the data is collected the
observation in the organization and interviews with officials. By asking questions
these some information is collected from Financial Department, which were held
by KSIL.
2) Secondary Data
These secondary data is existing which is collected data by others that is
sources of financial journals, annual reports of the KSIL, website and other
publications of KSIL.
Limitations of the Study
Every study will be limitations. The below mentioned are the constrains
under which the study carried out.
Some of the information was not available due to the confidential matters.
Since officials, executive and other were busy so the study was primarily
focused on secondary data
Time is also a major constraint of the study. i.e. eight weeks.
CHAPTER – II
INDUSTRY PROFILE
INDUSTRY PROFILE
History
The automobile market around the globe with no notable competitors.
However, after the end of the end of Second World War in 1945, the automobile
industry gained momentum and within a very short period, beginning in the early
1980s, the U.S. automobile industry was flooded with foreign automobile
companies especially those of Japan and Germany.
The current trend of the global automobile industry reveal that in the
developed countries the automobile industries are stagnating as a result of the
drooping car markets, where as the automobile industry in the developing the
nations have been consistently registering higher growth rats every passing year
for their flourishing domestic automobile markets.
Society of Indian automobile manufacturers (SIAM) is the apex industry
body representing 38 vehicles and vehicular engine manufacturer in India. SIAM
is an important channel of communication for the automobile industry with
government, national and international organizations. The society works closely
with all the concerned stakeholders and actively participates in formulation of
rules, regulations and policies related to the automobile industry.
Indian Automible Industry
This industry aims to enhance and exchanges and communication expand
economics, trade and technical cooperation between the automotive industry and
its international counter parts. The regular continuous interaction with
international bodies and organizations it aims to facilitate up graduation of
technical capabilities of the Indian industry to match the best practice worldwide.
Some Interesting Facts
Indian automobile industry is the
Largest three wheeler market in the world
Second largest two wheeler market in the world
Forth largest passenger vehicle market in Asia
Forth largest tractor market in the world
Fifth largest commercial a vehicle market in the world
Production
Growth in consumer spending habits has reshaped the industry which has
spurred an enormous cost advantage in manufacturing, R&D, skilled labor,
software, encouraging leading automakers to perceive India as a global player in
this sector market by consistent growth at a frantic pace. The automobile industry
recovered production of a wide variety of vehicles including over 1.76 million
passenger vehicles and over 8.52 million two and three wheelers in 2007-08.
Interpretation
The overall industry growth shows as negative because of three and two
wheelers segment but commercial vehicles and passenger’s vehicles growth shows
positive side.
Analysis
The inventories have steadily increased in the level of inventory for the year
2004 has been mainly due to higher level of inventory mainly copper, zinc, lead,
iron, ore etc. the inventory level was reduced through the inventory had come
down in terms of value these had gone up marginally as a percentage.
Auto Component Industry
The auto component industries add to contend with a much more moderated
growth of 11% during the year. The negative impacts of raising interest rates on
export of auto components was quite significant. Export growth slipped from 20%
In 2006-07 to about 15% in 2007-08 as a result of the raising rupee and Raw
materials costs with continuously declining exporting margins.
Auto Ancillary Industry
The Indian ancillary industry has witnessed marked changes over the year
the auto component industry in 2003-04 grew by 18% to Rs. 310 billion and the
exports crossed the US$ 1 billion mark and the top line revival in the demand of
automobiles in the domestic market to witnessed a higher growth rate than
previous year in auto ancillary industry.
Technology Absorption
Internal control system
Quality management system
Internal Control System
The company maintains the system of internal control including system of
internal control including adequate monitoring procedures the internal auditors
operational control at various locations of the company on a regular basis an
irregularity or significant issues or brought to the attention of the audit committee
of the board and the M.D of the company.
Quality Management System
The company continuous its relentless efforts implementation of total
productive maintenance (TPM) lean concepts in all costs of inventories comprises
all costs of purchases, costs incurred in brining the inventories to their to their
present location and condition.
Technology Up Gradation
Kusalava has developed the basic technical requirement for the
manufacturing of their products, and in line to develop the technical strength hires
experts from Germany for upgrading the foundry technology in line to the
International practices. Till Kusalava has taken 3 rounds of expert’s views to
validate their process and to fine tune their existing process for better productivity.
Most significantly, Kusalava deputes their technical managerial personal for the
training in different institutes for betterment of their knowledge and practices. Mr.
Prasad R.K Chukkapalli, Managing Director of the company has visited Japan
under AOTS programmed for 15 days technical training in Quality Systems during
the first week of October 02.
ERP Software
Kusalava has in house software development Center, and presently
implementing self developed ERP System of ‘KOnline’ integrating Finance
Manufacturing, Distribution and HR Activities across INDIA and USA offices.
At KOnline, we understand the strategic role supply managemtn must play
in a corporation today and the significant impact a supply chain management
strategy can have on earnings. Supply chain management solutions help
companies transform supply strategy into a competitive advantage. We combine
expertise, technology and information to help you bring immediate value and profit
your company’s bottom line.
Vision
“To produce Quality auto component products the matching best available in the
world in terms of innovative design features and endues at competitive cost
deliverable in time and maximize customer satisfaction to ensure constant increase
in market share and global presence for the company”.
Mission
1. To constantly strive for automation and technology up gradation of company
plant process and product to maximize customer satisfaction and efficient
use of resources at company’s disposal to optimize production and minimize
cost.
2. To trigger higher demand for company’s products both in Domestic and
International Market and there by improve market share.
3. To improve both top line and Bottom Line of the company to ensure
optimum returns for all stakeholders of the company.
4. To make Kusalava a true global conglomerate through professional
management, corporate governance initiatives and strict adherence to
regulatory compliances.
Table 2.1 Total manpower in Kusalava International Limited
Designation Manpower Details2003-04 2004-05 2005-06 2006-07 2007-08
MANAGING DIRECTOR & DIRECTORS
6 10 7 7 7
VICE PRESIDENTS 0 0 0 2 2CHIEF INFORMATION OFFICER
0 0 1 1 1
GENERAL MANAGERS 5 6 6 6 7ENGINEERS 30 27 26 28 28SALES OFFICERS 26 32 40 35 49SKILLED WORKERS 59 58 53 53 53SEMI SKILLED WORKERS 106 104 99 131 123UNSKILLED WORKERS 970 1104 1071 1223 1060ADMINISTRATIVE STAFF 158 196 199 211 226
TOTAL 1360 1537 1502 1697 1556
Functions of Different Departments
Production
Production department takes the raw materials and melts it down in the
electrical induction furnace. It makes rough casting through centrifugal dice. In
production department production engineer does operations according to all the
liners drawing. These operations will be finished on different machines. It takes
8-10 operations. After completion of these operations finished liners will be sent
to quality control department to check the quality of the liner manufactured.
Materials
Material department purchases the raw material on the parameters like good
quality in time delivery, credit facility and on the right time acquiring the raw
materials cost variability.
Marketing
Marketing departments sells the products through marketing representatives,
sales offices and distributors. This department gets the orders from the customers
through the representatives, sales officers and distributors. This department sends
the senior engineers to check complaints of the customers. This department
provides incentives to sell the product in the market.
Finance
This department makes economic plans and helps in decision making
through MIS, which are needed in survival and profitability of the organization.
This departments work to the requirements of loans and take necessary steps to
acquire them from banks and other financial institutions. It also prepares and
sends yearly expenditure and net profits to the management it took into the matters
like fluctuations of profits, change in Got policies and sales, market conditions and
orders being placed.
CHAPTER – III
COMPANY PROFILE
COMPANY PROFILE
Origin & Growth
Kusalava International was established in the year 1964. It was earlier
known as Bharat Industries where it was started as a small work shop. It was
started to manufacture cylinder liners under the brand name of “Tiger power” the
chairman of Kusalava International Limited is MR. Chukkaplli Kusalava.
It is nearly 40 years of industrial manufacturing experience in the field nealy
50% of production goes to original equipment. Kusalava international limited had
geared up to meet the technological changes and world quality standards. It also in
the stood the competition in the market which arose done to the establishment of
WTO.
Kusalava international limited has consistently delivered quality
automotives components in line with the specific of automobiles major in India ad
for the artier market spare parts segments to various countries like U.S, ITALY,
NEW ZELAND, BANGLADESH, AUSTRALLIA, MALAYSIA, THAILAND
and the middle east. It was awarded ISO 9002 in the year 1995 and it was also
awarded QS9000 in the year 1998 it is an international certificate.
Technological Strengths
Automated foundry
Spectral check (German make) for instant chemical analysis
Century cost pipes up to 3.0mts length
Hardness testing (rock well and brinell)
Tensile and bending yield strength percentage of alongation (40mt)
Micro scopes, graphitic monophology upto 500
Cnc machines for machining complicated profiles
Plateam honing machine wit auto size control
WMW grinding / honing machines for maintaining stringent tolerance.
Quality control equipped with penewmatic / electronic ganges and profile
projectors
Geo metrical accuracies taylor hbson roughtness testing equipment optional
profile projectors.
Product Development and Out Sourcing
New thrust it identified in the developing sourcing group of products related
to the automotives engineering industry. In this line Kusalava has achieved a
significant development in the domestic and international sourcing requiremtn
highlighted some if the product developed in “Tiger power” brand and bulk
supplied for after market customers are piston assemblies value guides TP springs
etc.
Network And Logistics
Vijayawada
Chennai
Vizag
In Vijayawada terminal it has to main branches are there is autonager in
Vijayawada and second one is adavinekkalam near to 15 kms to the Vijayawada.
Autonager branches is the big branch in Kusalava Interanal Limited. The main
administration is at Advinekkalam unit which is in the city of Vijayawada and
other branches at Visakhapatnam and Rudrapur.
Through Sea
Bring an established 2 preferred brand in US “Tiger Powr” Kusalava
Internal limited supplies 2 to 3 containers per month for replenishing the parts and
new parts developed for both existing and new customers having movement
infrewuent containers from factory to US mae us to prove an economical sourcing
to compenisate the high freight cost for different customers in USA.
Products Manufactured
Tiger power = the tough parts
Most of the vehicles manufacturers in the Indian domestic market ahs a tie
up with internal manufactures like mazda, rhino, Mercedes benz, mistubishi etc.
Kusalava International Limited suppliers their products the below OEM’s in India
who has international collaboration.
Table 3.1 Kusalava International Limited supply share
MANUFACTURER COLLABORATION SUPPLY SHARE
Ashok ley land limited Hino Japan British lay land 50%
Telco Mercedes Benz 70%
Eicher motors Mistubishi 100%
Bajaj tempo limited Daimler Benz 100%
Swaraj mazda Mazda 100%
Mahindra Missan 100%
Vst tiller s.tracotrs Mistibishi 100%
Commuims Indai limited Commins inc USA 10%
The above OEM’s of Kusalava International Limited turnover technical
offices play a vital role in Kusalava International Limited.
Kusalava International Limited Supplying Liner to “Ford Certified
Rebuiders at USA:
AER manufacturing INC corrol to tx
Frannklin engine and parts INC pobox# 991293(a)
Seminole sales birmighan AL
To madr engine company capital avenue CA
Company Products
Kusalava International manufacturers liners / sleeves in both cast iron and g.
iron centry cast value seats insets and alfin inserts as a ew development Kusalava
has started manufacturing the engineering items out of its own technology like
4mts pipes for ash disposal for the thermal power plant sugar crusher materials and
motors frames for the heavy electrical motors.
At USA
Our central warehouse at Houston Tx with 10000 sq.ft area has facility to
stock and distribute parts across US and Canada. Tiger power has around 24
factory where houses for easy to lift option for customer across us and Canada.
Growth of the Company
Kusalava International Limited belongs to Kusalava group of companies. Its
honorable chairman and promoter is Mr. Chukkapalli Ramakrishna Prasa. The
group of companies and their activities.
Kusalava Motors (P) Ltd: The company is involed in the activity of trading 2
Wheelers and 4 Wheelers, it). Kusal is the official delr for TVS Motors and
Hyundai Cars in the cities of Vijayawada, Guntur Ongole, Bhimavaram and
Gudivada.
Kusalava Informatics: Started of as an in-house software arm for developing an
integrated ERP solution, the division has been spun off into a separate company in
2006. Since then the company has been working on many projects with overseas
clients and has been unprecedented growth. Please visit www.kusalavainfo.com
Kusalava Finance: The company has been established way back in 1970 and is
engaged in the business of financing automobiles. The company has been able to
carve a niche of itself in the automotive sector by offering clients customized
financing options as per their needs.
Kusalava Power: The company is involved in the business of power generation
and ahs a total generating capacity of 3 MW.
Kusalava Realty: The Company is involved in the business of developing
housing, apartments and shopping malls.
Bharat Automobiles: The company activities involve trading is automobile spare
and represents a host of reputed manufacturers like Bharat Forge for Chrank
Shafts, Timken for Bearing, Maple for Pistons and Kusalava for Liners. The
company operations and netweok spread across entire South India.
Kusalava Inc: The Company is a trading firm located in Houston, Texas, USA
and is involved in the activity of sourcing automotive components from India and
China to OEM’s in USA. The company has products stocked in 22 warehouses
across USA to supply to customers on a JIT basis.
Sneha Biotech: The Company is research firm, which focuses on development of
products using biotechnology for agriculture, marine industry and humans as well.
The products are used as a substitute to chemicals & fertilizers in agriculture and
aqua industries and are used as substitutes to drugs for humans.
Milestones in ‘Tiger Power’ Manufacturing:
1964: Kusalava International Limited comes into existence as M/S Bharat
Industries.
Products: Brake drums
During the inception year itself supplies were started to OEM, Bajaj Tempo.
1972: Started production of grey iron cylinder liners. Started supplies to major
road transport corporations (STU’s)
1982: Supplies to replacement market with TIGER POWER-ROUGH PARTS
Bran name.
1986: Installed the first Dual Track Induction Furnace in India.
1987: Became the major source for Defense Vehicle Factory
1990: Exported its first consignment to New Zealand.
1992: Tiger Power became the major supplier of cylinder liners in After Market
1994: Emerged as the Largest cylinder liner manufacturer in India.
1995: Kusalava commissions it first overseas office in Houston, Texas, USA ISO:
9002 certified.
1996: Sales figures crossed of 1 million USD
1998: QS-9000 certified
1999: Started production of Ductile Iron castings.
2000: ISO/TS 16949 certified
2002: Turn Over crosses 10 millions USD.
2003: Introduced Six Sigma Process.
Awarded by ACMA for Best Six Sigma Project in 2003
2004: Introduced Lean Manufacturing Practices.
Received the best supplied award from EICHER MOTORS, for outstanding
contribution to supply chain management.
Awarded by ACMA for Best Six Sigma Project in 2004 again.
2005: Entered into an agreement with the Market Leader Darton Sleeves, USA for
supplying High Grade Ductile iron liners to the Drag Racing Market.
2006: Total PMKick off on July 3rd 2006.
Kusalava commissions new plant at pantnagar, Uttarakhand.
2007: Turnover crosses 20 million USD.
Kusalava commissions new plant at Visakhapatnam, Andhra Pradesh.
ORGANIZATIONAL CHART OF KUSALAVA
INTERNATIONAL LIMITED
MANAGING DIRECTOR
Director Technical
Director Production
Director Marketing
Vice President International Business
Director Purchase
Director Finance
General Manager Information & Technology
Director Human Resources
Vice President Operations
Nature of Activity:
Manufactured
1. Product Cylinder Liners
Cylinder liner is a cylindrical part to be fitted into an engine block to form a
cylinder. It is one of the most important functional parts to make up the interior of
an engine the cylinder liner, serving as the inner wall of a cylinder, forms a sliding
surface for the piston rings while retaining the lubricant withn.
The most important function of cylinder liners is the excellent characteristic a as
sliding surface and these four necessary points.
High anti-galling properties
Less wear on the cylinder liner itself
Less wear on the partner piston ring
Less consumption of lubricant
The cylinder liner receives combustion heat through the piston and piston
rings and transmits the heat to the coolant.
A cylinder wall in an engine is under high temperature and high pressure,
with the piston and piston rings sliding at high speeds. In particular, since longer
service life is required of engines for trucks and buses, cast iron cylinders that have
excellent wear-resistant properties are only used for cylinder parts. Also, with the
recent trend of lighter engines, materials for engine blocks have been shifting from
cast iron to aluminum alloys. However, as the sliding surface for the inner
cylinder, the direct sliding motion of aluminum alloys has drawbacks in
deformation during operation and wear-resistance. For that reason, cast iron
cylinder liners are used in most cases.
2. Cylinder Liners For Aluminum Blocks
Global warming has started to show its adverse effects on the environment.
To improve the fuel efficiency and adhere to latest Euro norms automobile
manufactures are shifting towards aluminum engines. These engines have as cast
cylinder liners with special surface on the outer diameter commonly referred to as
spiny lock or stipple finish. To improve rigidity and high thermal conductivity
properties of engine blocks, Kusalava has developed different specifications of
cylinder liners that have high adherence to aluminum blocks at the time of die
casting by controlling the coarseness of the outer casting surface with the special
coating materials and in-process controls.
3. Grey & Ductile Iron Piston Rings
Kusalava has developed materials with special properties in grey and ductile
iron by centrifugal casting process for critical sealing applications. These rings are
being supplied to automotive, Locomotive, Marine, Power generation, Aircraft
Aerospace and Hydrocarbon processing Applications. We also supply rough
machined rings manufactures around the world in ductile and grey iron materials.
4. Centrifugal Castings
Centrifugal casting method was developed after the turn of the 20th century
to meet the need for higher standards. Spinning molds generate centrifugal force
on molten metal to position the metal within a mold. As the molten metal
solidifies from the outside in, a casting with dense, close grain structure is created.
As a result of close grain structure the centrifugal process offers products with
better physical properties than castings made using the static casting method.
Proper mold design, mold coatings, mold spinning speeds, pouring speeds, cooling
rates and metal chemistry results in castings with higher Yields, fewer impurities
and greater strength.
Quality
Six Sigma
A method or set of techniques, Six Sigma has also become a movement
focused on business process improvement. It is a quality measurement and
improvement program originally developed by Motorola that focuses on the
control of a process to the point of + six sigma (standard deviations) from a
centerline, or put another way, 3,4 defects per million items. A Six Sigma
systematic quality program provides businesses with the tools to improve the
capability of the business process.
Kusalava had started implementing these techniques in 2002. The company
had 5 Black belts and 14 Green Belts. And it was awarded twice for its best
projects. It had tangible results in terms of quality and production.
Infrastructure
1. Plants
Location Plant 1 Adavinekkalam, VijayawadaAddress Adavinekkalem,
Agiripalli Mandalam, Krishna Dt. AP – 521 212, India
Products Cylinder Liners, Piston Rings, Valve Seats & centrifugal casings
Areas 14.43 acresOperations Casting & Machining
Location Plant 2 Autonagar, VijayawadaAddress B-4, Industrial Estate,
Vijayawada – 520 007, India
Products Cylinder Liners, Valve Seats.Areas 2.6 AcresOperations Machining.
Location Plant 3 Rudrapur, UttaranchalAddress Plot No. 10, Sector-2, IIE Pant Nagar,
Rudrapur, Uddam Sing Nagar, Uttaranchal-263 153, India
Products Cylinder LinersAreas 3.35 AcresOperations Casting & Machining
Location Plant 4 Special Economic Zone, Visakhapatnam.Address Kusalava International Ltd.,
VSEZ, Duvvada, Visakhapatnam – 530 046, India
Products Cylinder LinersAreas 7.16 AcresOperations Machining
DOMESTIC AFTER MARKET:
KUSALAVA had started supplying its products to the after market under the
brand name “TIGER POWER” since 1982. It has a dominating presence in the
after market and enjoys the confidence of major engine rebuilders/reborers, OEMs
and mechanics. Currently it possesses a market share of 35% in India and 30% in
USA. Even Exports a major share of its production to various countries across the
globe viz., Italy, U.K., France, New Zealand, Bangladesh, Australia, Malaysia,
Thailand, Mauritius and the Middle East. It had wide-spread, well established
networks in India, USA, Canada and Europe to serve its clients on 24x7 bases.
Tiger Power offers a wide range of ‘The Tough Parts’ like Cylinder Liner/Sleeves,
Valve Seat Insets, Valve Guides, Tappets, Pistons, Piston Pins, Gaskets, Alfin
Nickel Inserts, cast sleeves for aluminum blocks, cast iron/Ductile Iron, Pipes,
Inertia Rings.
CHAPTER – III
DATA ANALYSIS & INTERPRETATION
RATIO ANALYSIS
Standards for Comparison
Ratios of a company have meaning only when they are compared with some
standards and it is always a challenging job to find and adequate standard.
Company Differences
Situations of two companies are never same. Similarly the factors influence
the performance of a company in one year change in another year. Thus, the
comparison of the ratios of two companies becomes difficult and meaningless
when are operating in different situations
Price level Challenges
The interpretation and comparison of the ratios as also rendered invalid by
the changing value of money; a change in the price level can seriously affect the
validity of comparison of ratios computed for different time periods.
Different definitions of variables
Comparisons are also made difficult due to differences in definitions. The
terms like gross profit, operating profit, net profit etc, have not got precise
definitions are there is a considerable diversity in practice as to how they should be
measured.
Changing situations
A balance sheet may fail to reflect or typical situation, as it is prepared as of
one moment of time. It ignores short-term fluctuations in assets and that may
occur with in the period covered by the two balance sheet dates.
Types of ratios
Ratio can be grouped into various classes according to financial activity or
functional to be evaluated. The parties interested in financial analysis are short and
long term creditors, owners and management. Short-term creditors’ main interest
is in the liquidity position or the short-term solvency of the firm. Long term
creditors on the other hand are more interested in the long term solvency and
profitability of the firm. Owner’s interest is in fir’s profitability and financial
condition. Management is interested in evaluation every aspect of the firm’s
performance. They have to protect the interest of all parties and see that the firm
grows profitability. In view to of the requirement of the various users of ratio the
ratios are classified into four important categories.
1. Liquidity ratios
2. Leverage ratios
3. Activity ratios
4. Profitability ratios
A liquidity ratio
Liquidity refers to the ability of a firm meet its obligations in the short run
usually one year. The liquidity ratios reflect the short-term financial strength and
solvency of a firm. In fact, analysis is liquidity needs the preparation of cash
budgets and cash and funds flow statement. But liquidity ratios, by establishing a
relationship between cash and other current assets to current obligations, provide a
quick measure or liquidity.
A firm should ensure that is does not suffer from lack of liquidity, and also
that it does not have excess liquidity, The failure of the company to meet its
obligations due to lack of sufficient liquidity will result in a poor credit worthless,
loss of creditor confidence or even in legal tangles resulting in the closure of the
company. A very high degree of liquidity is bad, as idle assets earn nothing. The
firm’s funds will be unnecessarily ties up in current assets.
The most common ratios, which indicate the extent of liquidity of lack of it, are the
following:
Current ratio
Quick ratio
Cash ratio
Net working capital ratio
1. Current ratio
The current ratio calculated by current Liabilities
Current AssetsCurrent Ratio =
Current Liabilities
The Current assets of a firm represent those assets which can be converted cash
with in a short period of time, normally not exceeding one year and include cash
and bank balances, marketable securities, inventory of raw materials, semi-finished
goods, debtors, bills receivables and prepaid expenses.
The Current liabilities include creditors, bills payable, accrued expenses short-term
bank loan, income tax liability and long term debt maturing in the current year.
The current ratio is a measure of the firm’s short-term solvency. It indicates the
ability of current asset in rupees for every one rupee of current liability.
2. Quick ratio
Quick ratio establishes a relationship between quick or liquid assets and
current liabilities. An assets is liquid is can be converted into cash immediately or
reasonable soon with out loss of value. Cash is the most liquid assets. Other assets
that are consider to be relatively liquid and including in quick assets are debtors
and bill receivable and marketable securities. Inventories are consider to be less
liquid as they normally requires some time for realizing into cash and their value
also has a tendency to fluctuate. The quick ratio is calculated by dividing quick
assets by current liabilities.
Current Assets-InventorsQuick Ratio =
Current Liabilities
Quick ratio is rigorous measure of a firm ability to service short them liabilities.
3. Cash Ratio
Cash is the most liquid assets. Cash ratio is the ratio cash and its equivalent
to current liabilities. Trade inventions of marketable securities are equivalent of
cash. Therefore, they may be including in the computation of ratio.
Cash + Marketable SecuritiesCash Ratio or super quick ratio =
Current Liabilities
4. Net working capital ratio
The difference between current assets and current liabilities excluding short-
term borrowings is called Net working capital (NWC) or Net Current Assets
(NCA). Net working capital measures the firm’s potential reservoir of funds. It is
considered that, between two firms, the one having the larger net working capital
has greater ability to meet its current obligations. This is not necessarily so that
measure of liquidity is a relationship, rather than the difference between assets and
current liabilities.
Net working capitalNet Working Capital Ratio =
Net Assets
a) Leverage Ratio
Leverage refers to the use of debt finance debt capital is a cheaper source of
finance and it is also a risky source of finance leverage ratios help in assessing the
risk arising from the use of debt capital.
The short-term creditors like bankers and suppliers of raw materials are
more concerned with the firm’s current debt-paying ability. On the other hand
long term creditors, like debenture holders, financial institutions etc. are more
concerned with the firm’s long-term financial strength. So a firm should have a
strong shot as well as long-term financial position. Owners and lenders calculate
financial leverages of capital structure ratios to judge the long-term financial
position of the firm leverages ratios indicate mix of fund provided. There should
be an approximate mix of debt and owner equality in financing firm assets.
The use of debt is advantages for shareholders in two ways:
They can retain control of the firm with a limited stake.
Their earnings will be magnified, when firm earns a rate of return on the
total capital employed higher than the interest rate on the borrowed funds.
However if cost of debt is higher than the forms over all rate of return the
earnings of the shareholders will be reduced. In addition, there is a threat of
insolvency. Thus, use of debt magnifies the shareholders earnings as well as
increases their risk. A highly debt burdened firm will find difficulty I raising funds
from creditors and owners in future. Creditors threat the owner’s equity as a
margin of safety. If the equity base in thin, the creditors risk will be high. Thus,
leverage ratio is calculated to measure the financial risk and the firm’s ability of
using debt to share holder’s advantage.
1. Debt ratio
2. Debt-equity ratio
3. Capita employed to net work
4. Interest coverage ratio
5. Fixed charges coverage ratio’
1. Debt ratio
Deb ratio is used to analyze the long-term solvency of a firm. It helps in
knowing the proportion of the interest bearing debt tin the capital structure. Debt
ratio is computed by dividing total debt capital Employed (CE) or Net Assets
(NA). Total debt will include short and long-term borrowings from financial
institutions, debentures bonds, and differed payment arrangements for buying
capital equipment, bank borrowing, public deposits and any other interest bearing
loan. Capital employed will include total debt and net work.
Total Debt Total DebtDebt ratio = (OR) Debt Ratio =
Total Dept + Net Worth Net Assets
2. Debt Equity Ratio
The debt equity ratio shows the relative contribution of creditors and
owner’s debt ratio is measure of the long-term financial solvency of a firm. This
ratio indicated the relative proportions of debt equity in financial the assets of the
firm.
The relationship between outsides’ claim and capital can be shown in
different ways and accordingly, there are many variations of the debt equity ratio.
One approach is to express debt equity ratio in terms of the relative proportion of
long-term debt and shareholders equity. Thus
Ling – Term DebtDebt Equity ratio =
Share holders equity
The debt considered here is exclusively of current liabilities.
The shareholders equity includes
1. Equity and share capital
2. Past accumulated profits excludes fictitious
Another approach to the calculation of the debt equity ratio is to relate the total
debt to the shareholders equity.
Total DebtDebt Equity ratio =
Share holders equity
2. Capital Employed to net Word
The ratio is another way to expressing the basic relation ship between debt
and equity. Through this ratio one can know the amount of funds that are being
contributed together by lenders and owners for each rupee of the owner’s
contribution.
Capital EmployedCapital Employed to net worth =
Net Worth
3. Interest coverage ratio
The interest coverage ratio or the times, interest earned is used to test the
film debt servicing capacity. The interest coverage ratio is computed by
dividing earnings before interest and taxes (EBIT) by interest charges.
EBITInterest Coverage =
Interest
The interest coverage ratio shows the number of times the interest charges
are covered by funds that are ordinarily available for their payment
Depreciation is a non-cash item. There for funds available to depreciation are
also available to pay interest charges. Hence interest coverage ratio is earnings
before depreciation interest and taxes (EBDIT) divided by interest.
EBDITInterest coverage =
Interest
4. Fixed Charges coverage Ratio
EBITFixed charges coverage ratio =
Repayment of loan
Interest +1-Tax rate
This ratio measures debt-serving ability comprehensively because considers
both the interest and the principal repayment obligations. It shows how many
times the pretax operation. Income covers all fixed financing charges.
b) Activity ratio:
Activity ratios are concerned with measuring the efficiency in asset
management. These ratios are also – called efficiency rations or asset utilization
ratios. The efficiency with which the assets are used would are reflected in the
speed and rapidity with which assets are converted into sales. The greater is the
rate of turnover or conversion, the more efficient is the utilization, other things
being equal. For this reason, such ratios are also designated as turnover ratios.
Turnover is the primary mode for measuring the extent of efficient employment of
assets by relating the assets to sales. An activity ratio may there for be defined as a
test of the relationship between sales and the various assets of a firm. Depending
upon the various types of assets, there are various types of activity ratios.
B. Accounts Receivable Turn Over Ratio:-
A firm sells goods for cash and credit. Credit is used as a marketing tool by
a number of companies. When the firm extends credit to its customer’s accounts
receivable (debtors) are created in the firms accounts. Debtors are expected to be
converted into cash over a short period and there fore included in current assets.
The liquidity position of the firm depends on the quality of debtors to a great
extent.
Accounts receivable turn over indicates how many times accounts
receivables turn over during the year Accounts receivable turn over is found out by
dividing credit sales by averaged accounts receivables.
Credit SalesAccount Receivables Turnover =
Average accounts receivables
Account Receivable turnover ratio measures the efficient of credit management.
2. Average collection period:-
The average collection period represents the number of days worth credit
sales that is locked in accounts receivables (Debtors). It measures the quality of
debtors since it indicates the speed of their collection. The average collection
period and. Accounts receivables turnover is related as follows:
365Average Collection period =
Accounts receivable Turnover
The average collection period may be compared with the firms to judge the
efficiency of credit management.
The Collection period Ratio in two aspects
It determining the collect ability of debtors and thus, the efficiency of collection
efforts and in ascertaining the firm’s comparative strength and advantage relative
to its credit policy and performance.
3. Fixed Assets Turnover
Fixed Assets turnover ratio measures sales per rupee of investments in fixed
assets. This ratio measures the efficiency with which fixed assets are employed it
is defined as
SalesFixed Assets turnover =
Net Fixed Assets
4. Total Assets Turnover
Assets are used to generate sales. A firm should manage its assets efficiency
to maximize sales. The relation ship between sales and assets is called assets turn
over. Assets turnover ratio is computed by dividing sales by total assets.
SalesAssets Turnover =
Total Assets
C) Profitability Ratio
A company should earn profits to survive and grow over a long period of time
profitability reflects the final result of business operations. Profit must be earned
to sustain the operation of the business, to be able to funds from investors and for
expansion and growth and to contribute toward social overheads for the welfare of
the society.
The profitability Ratio is calculated to measure the operating efficiency of
the company. Besides management of the company, creditors and owners are also
interested in the profitability of the firm. Creditors want to get interest and
repayment of principal regularly. Owners want to get a required rate of return on
their investment. This is possible only when the company earns sufficient profits.
Generally two types of profitability ratios are calculated.
Profitability in relation to sale.
Profitability in relation to investment.
The Profitability ratios are as follows
1. Gross profit margin
2. Net profit margin
3. Operating Expenses ratio
4. Return on investment
5. Return on equity
6. Return on Total assets
7. Earnings per share
8. Divided per share
1. Gross Profit Margin
The first profitability ratio in relation to sales is the Gross profit margin. It is
calculated by dividing the gross profit by sales.
Gross profitGross profit margin =
Sales
Gross profit is the difference between net sales and cost of goods sold. The
gross profit margin reflects the efficiency with which the management products
each unit of product. This ratio indicates the average spread between the cost of
goods sold and sales revenue. Gross profit margin shows the margin left
manufacturing costs. It measures the efficiency of production well as pricing.
2. Net Profit Margin
The net profit margin ratio is computed by dividing net profit by sales.
Profit after taxNet profit margin =
Sales
Net profit margin establishes a relationship between net profit and sales
indicates management’s efficiency in manufacturing administrating and selling the
product. This ratio is over all measure of the firm’s ability to turn each rupee sales
into net profit.
A net profit margin shows the earning left for shareholders as a percentage
of net sales. This ratio indicates the firm’s capacity to with stand adverse
economic conditions gross and net profit margin ratios provide a valuable under
standing of the cost and profit structure of the form and enable to identify the
sources of business efficiency/inefficiency.
3. Operating Expenses Ratio
The operating expense ratio is a yardstick of operating efficiency. Dividend
operating expenses computer this ratio by sales.
Operating ExpensesOperating Expenses Ratio =
Net Sales
Operating expense include cost of goods sold plus selling expenses and
general and administrative expenses. The operating ratio indicates the average
aggregate variations in expenses, where some of the expenses may be increasing
while other may be falling…. Operating expenses ratio is affected it by a number
of factors, such an internal factors, employees, managerial efficiency and external
uncontrollable factors.
4. Return on Investment
The term investment may refer to total assets or net assets. The funds
employed in net assets are known as a capital employed. Net assets net fixed
assets plus current assets minus current liabilities excluding bank loans capital
employed is equal to net worth plus debt. Return on investment is calculated by
dividing earnings before interest and tax by assets or capital employed.
EBITReturn on Investment (ROI) =
Net Assets (or) Capital Employed
5. Return on Equity
Return on equity is of great interest to equity shareholders ordinary are
entitled to the residual profits if rate of divided is not fixed the earnings may be
distributed to shareholders or retained in the business. A return on shareholders
equity is calculated to see the profitability of owner’s investment. The return on
equity is net profit after taxes divided by shareholders equity or net worth.
Profit after TaxReturn on Equity (ROE) =
Net Worth
The shareholders equity or net worth will include paid up share premium
and surplus less accumulated losses. Return on equity measures the profitability of
equity funds unvested in the firm. It is very important measure because of it
reflects the productivity of the ownership capital employed in the form. It is
influenced by several factors like earning power debt equity ratios, and average
cost of debt funds and tax rate.
6. Return on Assets (ROA)
The profitability ratio is measured in terms of the relationship between net
profits and assets. The Return on Assets may also be called profit – to – asset
ratio. There are various approaches possible to define net profit and assets.
Profit after TaxReturn on Total Assets = x 100
Total Assets
The return on asset based on this ratio would be an under estimate as the
interest paid the credit of is excluded from the net profits in point of fact the real
return on total assets is the net earnings available to owners and interest as assets
are financed by owners as well as creditors.
Current ratio
Year
Rat
io
CURRENT RATIO
Formula: Current Ratio = Current Assets / Current Liabilities
Table - 4.1
Year Current Assets Current liabilities Ratio
2005-06 8253249.54 15317152 0.54
2006-07 9739221.04 14009570.35 0.695
2007-08 13733889.55 12718155.8 1.08
2008-09 22187293.79 20826752.12 1.065
2009-10 24584574.84 21054785.98 1.676
0
5000000
10000000
15000000
20000000
25000000
30000000
2005-06 2006-07 2007-08 2008-09 2009-10
Current Assets
Current liabilities
Ratio
Interpretation of current ratio
The current ratio is the ratio of total current assets to total current liabilities.
It is calculated by dividing current Assets by Current Liabilities, conventionally, a
current ratio of 2:1 (Current Assets twice, Current Liabilities one) is considered
satisfactory. The logic underlying the conventional rule is that even with a drop
out of 50% in the value of current Assets, a firm can meet its obligation, i.e. a
100% margin of safety is assumed to be sufficient toward off the worst of
situations. The current ratio of a firm measures its short tem solvency, i.e., ability
to meet short-term obligation. As a measure of current Assets available for each
rupee of current Liability/obligation. The higher Current Ratio, the larger the
amount of rupees available per rupee of current Liability, the more the firms ability
to meet current obligations and the greater safety of funds of short-term cretit.
Conclusion:
The current ratio of the SL GEW Ltd-is ranged between 0.34 times and 0.93
times during the study period. This ratio never reached the standard norm of 2.1.
This indicates that the solvency position to meet short-term obligations.
Quick ratio
Year
Rat
io
QUICK ASSET RATIO (OR) ACID TEST RATIO:
Formula: Quick Ratio = Liquid Assets / Current Liabilities
(Or)
= (Current Assets – Inventories) / Current Liabilites
Table - 4.2
Year Quick Assets Current liabilities Ratio
2005-06 3643196.54 15317152 0.237
2006-07 4082485.04 14009570.35 0.291
2007-08 4972763.55 12718155.8 0.391
2008-09 6665173.79 208226752.1 0.32
2009-10 7494057.84 262292022.4 0.351
0
50000000
100000000
150000000
200000000
250000000
300000000
2005-06 2006-07 2007-08 2008-09 2009-10
Quick Assets
Current liabilities
Ratio
Interpretation of Quick Ratio
It is also known as liquid ratio. It is measure of judging the immediate
ability of the company to pay off its current obligations. It is obtained by dividing
Quick Current Assets by Current Liabilities. Quick Current would comprise those
assets. This can be liquidated immediately and at minimum loss in order to meet
pressing financial obligations. Thus, quick current asset consist of cash,
marketable securities, and accounts receivable. These are called liquid asset,
because they can be converted into cash promptly or very shortly inventories are
excluded from quick assets because they are slower to convey into cash and
generally exhibit more uncertainly as to conversion price. The quick ratio of 1:1
usually considered ability to pay off its short-term obligation, liquidity of
receivables must be kept in mind, for receivables adequate. But again while using
this ratio as a measure of immediate, which are not collectibles, are not adequate to
support the liquidity of the concern. Therefore, factors such as size, age and
location of the accounts receivables must be analyzed before reaching any final
decision.
Conclusion
The quick ratio of the society has varied from 0.164 times to 0.391 times
with an average of 0.281 times. It is above the standard norm of 1:1 for the period
of the study. It confirms that the liquidity position of the society is good.
Cash ratio
Year
Rat
io
CASH RATIO
Cash + marketable SecuritiesCash Ratio =
Current Liabilities
Table - 4.3
Year
Cash+ Marketable
securities (in Rs)Current liabilities
(in Rs.) Ratio2005-06
253236.03 15317152 0.0162006-07
248091.99 14009570.35 0.0172007-08
522748.05 12718155.8 0.0412008-09
124023.11 20826752.12 0.0592009-10
153696.50 18745854.43 0.081
0
5000000
10000000
15000000
20000000
25000000
2005-06 2006-07 2007-08 2008-09 2009-10
Cash+ Marketablesecurities (in Rs)
Current liabilities(in Rs.)
Ratio
Year
Interpretation of Cash Ratio
Although receivables, debtors and bills receivables are generally more liquid
than inventories, yet there may be doubts regarding their realization of cash
immediately or in time. Hence, some authorities are of the opinion that are
absolute liquid ratio should also be calculated together with current ratio and acid
test ratios. So as to exclude even receivables from the current assets and find out
the absolute liquid assets. Absolute liquid assets include cash in hand in bank and
marketable securities of temporary investments. The acceptable norm for this ratio
is 50% or 0.5:1 or 1:2 i.e., Rs. 1 worth absolute liquid assets are considered in time
as well as the creditors are not expected to demand cash and the same time then
cash may also be realized from debtors and inventories.
Conclusion:
The satisfactory norm of cash ratio is 0.5:1 during the entire period of study
the cash of ratio of KUSALAVA is at satisfactory level. Thus it is marinating as
good cash balance.
Debt equity ratio
Year
Rat
io
DEBIT EQUITY RATIO
Long Term DebtDebt Equity Ratio =
Share Holder Fund
Table - 4.4
Year Long Term DebtShare Holders
FundRatio
2005-06 16734697.2 19968160.38 0.838
2006-07 18960288 22788607.97 0.832
2007-08 23340588.23 27468231.32 0.849
2008-09 22165306 26805693.38 0.826
2009-10 24156542.15 26574581.55 0.909
0
5000000
10000000
15000000
20000000
25000000
30000000
2005-06 2006-07 2007-08 2008-09 2009-10
Long Term Debt
Share Holders Fund
Ratio
Year
Interpretation of Debt-equity Ratio
The relationship between borrowed funds and owner’s capital is a popular
measure of the long-term financial solvency of a firm. This relationship is shown
by the debt-equity ratios. This ratio reflects the relative claims of creditors and
share holders against the assets of the firm. Alternatively, this ratio indicated the
relative proportions of debt and equity in financing the assets of a firm. The debt
Equity ratio is an important structure of a firm. It has important implications from
the viewpoint of the creditors, owners and the firm itself. A high ratio shows a
large share the financing by the creditors relatively to the owners an, therefore a
larger claim against the assets of the firm a low ratio implies a smaller claim of
creditors. The debt equity ratio indicates the margin of safety to the creditors. If
for instance the debt equity ratio is 1:2 it implies that for every rupee of outside
liability, the firm has two rupees of owner’s capital or the stake of creditors in only
half of the owners. There is therefore, a safety margin of 50% available to the
creditors of the firm.
Conclusion
Normally 1:2 is a satisfactory level of debt-equity ratio. It is showing a
normal position from the year 2003-2004 to 2008-2009.
Fixed asset turn over ratio
Rat
io
FIXED ASSETS TURNOVER RATIO
Net SalesFixed assets turnover ratio =
Fixed assets
Table - 4.5
Year Sales Fixed Assets Ratio2005-06 18232245 21743471.55 0.84
2006-07 15300313 25215187.8 0.61
2007-08 27879593 24743048.94 1.13
2008-09 61886294.5 23785597.14 2.6
2009-10 65435175.75 25758490.43 2.54
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
2005-06 2006-07 2007-08 2008-09 2009-10
Sales
Fixed Assets
Ratio
Year
Interpretation of fixed Assets
Fixed assets turnover ratio s supposed to measure the efficiency with fixed
assets are employed. The higher the turnover ratio that shows the management and
utilization of assets. Low turnover ratio shows that of under utilization of available
assets and presence of idle capital calculation the firm would normally required
other things to change additional capital investment to operate at high level of
activity. When fixed assets of the firm are old and substantially depreciated the
fixed asset turn over ratio tends to be high. In such case fixed assets turnover ratio
shows that ratio impression regarding the relative efficiency with where they are
bring used.
Conclusion
A high fixed assets turnover ratio indicates efficient management utilization of
Fixed assets. The fixed assets turnover ratio of KUSALAVA is satisfactory.
Total asset turn over ratio
Year
Rat
io
TOTAL ASSETS TURNOVER RATIO
SalesTotal assets turn over ratio =
Total assets
Table - 4.6
Year Sales Total Assets Ratio2005-06 18232245 35285312.38 0.52
2006-07 15300313 36798178.32 0.41
2007-08 27899593 40186387.12 0.69
2008-09 61886294.5 47632445.5 1.3
2009-10 64858425.84 45254845.85 1.43
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
2005-06 2006-07 2007-08 2008-09 2009-10
Sales
Total Assets
Ratio
Year
Interpretation of Total Assets Turnover Ratio
A firm’ ability to produce a large volume of sales for a given amount of
assets is the most important aspect of its operating performance unutilized and
under utilized assets increase the firms need for costly financing as well as
expenses for maintenance and up keep. Assets turnover ratio measures firms
efficiently the assets are employed. The higher the turnover ratio they show
efficient the management, and utilization of assets. The low turnover ratios are
indicative of under utilization of available resources and presence of firm capacity.
The assets referred in assets turnover ratio include current also so assets turnover
ratio indicates the efficiently of both fixed assets and current in generating sales.
Conclusion
The total assets turnover ratio of KUSALAVA is showing a fluctuation
trend.
Debtor turn over ratio
Year
Rat
io
Debtors Turnover Ratio
Credit salesDebtors turnover ratio =
Ave. debtors
Table - 4.7
Year Sales Debtors Ratio2005-06 18232245 3399960.51 5.36
2006-07 15300313 3782871.05 4.04
2007-08 27879593 3871877.25 7.2
2008-09 61886294.5 6304993.68 9.82
2009-10 66858458.45 6854524.15 9.75
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
80000000
2005-06 2006-07 2007-08 2008-09 2009-10
Sales
Debtors
Ratio
Year
Interpretation of Debtors Turnover Ration
The debtors’ turnover ratios analyze the total credit sales and average
debtors’ amount. The debtors’ turnover ratio in SLGEW.
Conclusion
The debtors turnover ratio is shown in fluctuation trend the firm sould
standardize the norm.
CREDITORS TURNOVER RATIO
Total Credit PurchaseCreditors Turnover Ratio =
Average Creditors
Table - 4.8
YearTotal Credit
PurchaseAverage
CreditorsRatio
2005-06 8586961.78 11461325.71 0.75
2006-07 7947144.05 11118649.14 0.71
2007-08 22932364.92 12186482.8 1.88
2008-09 57508244.41 20703682.04 2.78
2009-10 58450584.54 22845745.95 2.55
Creditor’s turnover ratio
Rat
io
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
2005-06 2006-07 2007-08 2008-09 2009-10
Total Credit Purchase
Average Creditors
Ratio
Year
Interpretation of creditor’s turnover ration
This ratio analyzed by purchases and creditors. The creditor’s turnover ratio
in KUSALAVA is fluctuation trend.
Conclusion
This ratio had sown some year’s lower position and some year’s higher
position so the firm should standardize that one.
Working capital turn over ratio
Rat
io
Year
WORKING CAPITAL TURNOVER RATIO
SalesWorking capital turnover ratio =
Networking Capital
Table - 4.9
Year Sales Working Capital Ratio2005-06 18232245 -7063902.46 -2.58
2006-07 15300313 -4270349.31 -3.58
2007-08 27879593 1015733.75 27.44
2008-09 61886294.5 1360541.67 45.48
2009-10 64584575.64 1458245.85 44.28
-20000000
-10000000
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
2005-06 2006-07 2007-08 2008-09 2009-10
Sales
Working Capital
Ratio
Inventory turn over ratio
Rat
io
Interpretation of working capital Turnover Ratio
This ratio is analyzed by working capital and sales this ratio must be an
increase in way. The working capital turnover ratio in SLGEW is negative trend
and also positive trend. The firm should standardize the working capital.
Conclusion
This ratio is analyzed by working capital and sales this ratio must be an
increase in way. The firm should standardize the working capital.
INVENTORY TURNOVER RATIO
Cost of Goods SoldInventory Turnover Ration =
Avg Inventory
Table - 4.10
Yearcost of Goods
SoldAvg. Inventory Ratio
2005-06 -9687881.43 5056830.7 -1.92
2006-07 8656596.21 5133226 1.68
2007-08 -20173871.11 7208931 -2.79
2008-09 -53034912.06 12141623 4.36
2009-10 -34589825.45 15478542 -2.23
-60000000
-50000000
-40000000
-30000000
-20000000
-10000000
0
10000000
20000000
2005-06 2006-07 2007-08 2008-09 2009-10
Series1
Series2
Series3
Year
Interpretation of inventory turnover ratio
It is also called stock turnover ratio. It helps us to know that the rate of
inventories are converted into sales and then into cash. A low inventory turnover
ratio indicates dull business. A high inventory turnover ratio indicates good
performance of the business.
The inventory turnover ratio in SLGEW is negative trend and also positive
trend. The firm should standardize the working capital.
Conclusion
The inventory turnover ratio is showing the negative trend in some years and
positive trend in some years. So, the firm should standardize that one.
GROSS PROFIT RATIO
Gross ProfitGross profit ratio = x 100
Sales
Table - 4.11
Year Gross Profit Sales Ratio2005-06 8544363.7 18232245 46.864
2006-07 6643716.79 15300313 43.422
2007-08 7705721.89 27879593 27.639
2008-09 8851382.44 61886294.5 14.303
2009-10 8945728.74 58784752 15.21
Year
Gross profit ratio
R
atio
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
2005-06 2006-07 2007-08 2008-09 2009-10
Gross Profit
Sales
Ratio
Interpretation of profit Ratio
This is also known as gross margin. It is calculated by dividing gross profit
by sales. A high ratio of gross profit to sales is a sign of good management as it
implies that the cost of production of the firm is relatively low. A relatively low
gross margin is definitely a danger signal, warranting a careful and detailed
analysis of the factors responsible for it. The important contributory factors may
be.
1. A high cost of production reflecting acquisition of raw materials and other
inputs on unfavorable terms inefficient utilization of current as well fixed
assets and so on.
2. A low selling price resulting from severe competition inferior quality of the
products, lack demands it.
Conclusion
The gross profit ratio of KUSALAVA is satisfactory i.e., it is effectively
managing the manufacturing cost.
Year
Net profit ratio
Rat
io
NET PROFIT RATIO
Net Profit x 100Net Profit Ratio =
Sales
Table - 4.12
Year Net Profit Sales Ratio2005-06 16988.41 18232245 0.093
2006-07 197089.04 15300313 1.288
2007-08 247305.77 27879593 0.887
2008-09 464627.47 61886294.5 0.751
2009-10 526854.74 60584258 0.869
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
2005-06 2006-07 2007-08 2008-09 2009-10
Net Profit
Sales
Ratio
Interpretation of net profit Ratio
This ratio is also known as net margin. This measure the relationship profits
and sales a firm. Depending on the concept of net profit employed ratio can be
computed in 2 ways. The net profit margin of the firm’s management’s ability to
operate the business with sufficient success profit recovers from revenues of the
period. The cost of merchandize of the expenses of operating the business
(including deprecation) and the firm’s barrowed funds but also to leave a margin of
reasonable compensation to owners for providing their capital risk. The ratio of
net profit to sales is to margin shows ensure adverse economic conditions. When
selling price is decreasing production is rising and demand for the product is
falling. A low net profit margin has the opposite implications. However, a firm
with a low profit margin capable then rate of return on investments, if it has a
higher inventory turnover.
Net profit ratio
The net profit ratio of KUSALAV is almost all showing a negative of the
study period expect in the year 2004-2005. It is negative factor in 2003-2004.
Conclusion
The net profit ratio of KUSALAV is not at all satisfactory. The performance
of the society is good for the 2003-2004. So it should be improved.
Year
Return on total asset
Rat
io
RETURN ON TOTAL ASSET
Profit after TaxReturn on Total Asset = x 100
Total Assets
Opening Stock + Close StockAvg Stock =
2
Table - 4.13
Year Profit After Tax Total Assets Ratio2005-06 8544363.57 35285312.38 24.21
2006-07 6643716.79 36798178.32 18.05
2007-08 7705721.89 40186387.12 19.17
2008-09 8851382.44 47632445.5 18.58
2009-10 9158458.54 48525458.25 18.87
0
10000000
20000000
30000000
40000000
50000000
60000000
2005-06 2006-07 2007-08 2008-09 2009-10
Profit After Tax
Total Assets
Ratio
Year
Interpretation of Return on Total Asset
The objective of computing the return on assets is to find out how
effectively the funds pooled together have been used. Return on total assets
indicates the productivity of total assets. The return on measures the profitability
of funds/investments of the firm. A high ratio of net income to total assets in a
sign of efficient utilization of assets. A low ratio would indicate that the assets of
the firm are being under utilized or not being utilized properly in separating profit.
CHAPTER – III
FINDINGS AND SUGGESTIONS
Summary
Financial statements are prepared primarily for decision making. They play
a dominant role in setting the frame work of managerial decisions. Financial
analysis is “the process of identifying the financial strength and weaknesses of one
firm by properly establishing relationship between the items of the balance sheet
and be profit and loss account”. There are various methods of techniques used in
analyzing financial statements, such as comparative schedule of changing in
working capital, trends analysis common-size statements, funds flow and cash flow
analysis, cost-volume-profit analysis ratio analysis, one ratio analysis is the most
powerful tool of financial analysis.
The automobile markets around the globe with no notable competitors.
However, after the end of the Second World War in 1945, the automobile industry
gained momentum and within a very short period, beginning in the early 1980s, the
US automobile industry was flooded with foreign automobile companies especially
those of Japan and Germany.
The current trend of the global automobile industry reveal that in the
developed countries the automobile industries are stagnating as a result of the
drooping car markets, where as the automobile industry in the developing the
nations have been consistently registering higher growth rates every passing year
for their flourishing domestic automobile markets.
Society if Indian automobile manufacturers (SIAM) is the apex industry
body representing 38leading vehicles and vehicular engine manufacturer in India.
SIAM is an important channel of communication for the automobile industry with
the government, national and international organizations. The society works
closely with all the concerned stakeholders and actively participates in formulating
of rules, regulations and policies related to the automobile industry.
Findings
Current ratio of the company is good study on. So the margin of safety to
the creditors is more.
The current ratio of the year 2003-2004 is 2.17 which refers to the current
assets are more than the current liabilities. As sufficient idle current ratio is
2:1. So that current ratio of Kusalava International Limited is less than the
standard norms through out the periods of study. So the current ratio is to be
maximized.
Liquidity position of the company is satisfactory as it has more quick assets
when compared to its current liabilities.
The quick ratio of the Kusalava International Limited for the year 2005-
2006 is 3.10. The quick ratio standard norm is 1:1. So the quick ratio of
Kusalav international limited is more than the standard norms through out
the period of study. Hence, the quick ratio is to be minimized.
The inventory turnover ratio of Kusalava International Limited in the yar
2005-2006 is 9.63. The inventory turnover ratio measures the velocity of
conversion of stock into sales. Usually a high inventory turnover ratio
indicates efficient management of inventory because of more frequently the
stocks are sold, the lesser amount of money is required to finance the
inventory. Te inventory turnover ratio of Kusalava international Limited is
improved year by year in 2003 to 2009.
There is a progressive change in holding the inventory during the year 2005-
2006 compared to the previous years, as there is increase in sales. Inventory
holding period is the period with in which stock will be converting into
sales. So it was observed that management has good efficiency in handling
the inventory.
Suggestions
From the financial statements it was observed that investments it was
observed that investments made in current assets are more. So in order to
reduce the idle funds and to utilize the working capital effectively. It
suggested that the company should concentrate more in taking decisions
regarding investments in short-term assets.
The investments in cash and bank balances should be minimized to the
possible extent.
Kusalava International Limited having more number of sales on credit basis
that will be loss in the form of costs like collection cost, capital cost. So the
company should make a revision on its credit standards and policies to
reduce the debtors and in order to increase the efficiency in collection
performance.
The Kusalava International Limited should increase the profits by reducing
manufacturing, office and administration, selling and distribution expenses.
The quick ratio of the Kusalava International Limited for the year 2005-
2006 is 3.10. The quick ratio standard norm is 1:1. So the quick ratio of
Kusalava International Limited is more than the standard norms through out
the period of study. So it is suggested that the quick ratio is to be
minimized.
It is suggested that, properly maintain the inventory turnover ratio is also
very good symbol for the organization. Therefore, it is advised to maintain
the same and it should try to increasing the same year by year. This ratio
shows the inner strength and capability of the company.
BIBLIOGRAPHY
BOOKS:
FINANCE MANAGEMENT : R.K. SHRMA SHAHS K. GUPTA
FINANCE MANAGEMENT : KHAN AND JAIN
FINANCE MANAGEMENT : I.M. PANDEY
FINANCE SENSE : PRASANNA CHANDRA
FINANCE MANAGEMENT : PRASANNA CHANDRA
(Theory and Practice)
FINANCIAL ACCOUNTING : S.J. JAIN AND K.L. NARANG
FINANCIAL SERVICES : SHASKI K. GUPTA NISHA AGARWAL
Booklets and other publications on the progress of KUSALAVA
INTERNATIONAL LIMITED.
Journal:
Annual audit Report of KUSALAVA INTERNATIONAL LIMITED.
Websites:
www.kusalava.com