It is concerned with examining the profitability position of the company for a period of five years (2007-2012). The main objective of this study is to analyse the financial performance of the company by analysing the financial statements. Financial performance is analysed for capital adequacy, assets quality, management, earning quality and liquidity. Charts and tables are used for better understanding of the company’s performance. The study deals with findings and suggestions for the improvement of the company.
INTRODUCTION FINANCE Finance is the life blood of a business. Circulation of blood is necessary for maintaining life in human body. In the same way, finance is absolutely necessary for the survival and smooth running of a business. Finance is one of the basic foundations of all kinds of economic activities. It is the master key which provides access to all the sources being employed in manufacturing and merchandising activities. Finance is concerned with the flow of funds and decisions relating to business operations affecting the valuation of the firm.
Therefore, finance is the fundamental requirement for any business enterprise, to carry on operations and achieve the goals. Finance may be defined as the provision of adequate amount of money when it is required. FINANCIAL ANALYSIS Financial Analysis is the process of determining the operating and financial characteristics of a firm from accounting data and financial statements. The goal of such analysis is to determine efficiency & performance of the firm management, as reflected in the financial records and reports.
Its main aim is to measure the firm’s liquidity, profitability and other indications that business is conducted in a rational and orderly way. “Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements, and a study of trends of these factors as shown in a series of statements. ” – John N. Myer. MEANING OF FINANCIAL STATEMENTS Financial statements refer to such statements which contains financial information about an enterprise.
They report profitability and the financial position of the business at the end of accounting period. It includes two statements which the accountant prepares at the end of an accounting period. They are: •The Balance Sheet •Profit & Loss A/C They provide some extremely useful information to the extent that balance sheet mirrors the financial position on a particular date in terms of the structure of assets, liabilities and owner’s equity and so on and the profit and loss a/c shows the results of operations during a certain period of time in terms of revenue obtained and the cost incurred during the year.
Thus the financial statement provides a summarized view of financial positions and operations of a firm. FEATURES OF FINANCIAL ANALYSIS •To present a complex data contained in the financial statement in simple and understandable form. •To classify the items contained in the financial statement in convenient and rational groups. •To make comparison between various groups to draw various conclusions PURPOSE OF ANALYSIS OF FINANCIAL STATEMENTS •To know the earning capacity or profitability. •To know the solvency. To know the financial strengths. •To know the capability of payment of interest & dividends. •To make comparative study with other firms. •To know the trend of business. •To know the efficiency of management •To provide useful information to management TYPES OF FINANCIAL ANALYSIS Financial statements are analysed by different parties for different purposes. The analysis is done from different angles. On The Basis Of Process of Analysis •Horizontal Analysis: This is used when the financial statement of a number of years are to be analysed.
Such analysis indicates the trends and the increase or decrease in various items not only in absolute figures but also in percentage form. This analysis indicates the strengths and weaknesses of the firm. This analysis is also called as dynamic analysis because it also shows the trend of the business. •Vertical Analysis : This is used when financial statements of a particular year or on a particular date are analysed. For this type of analysis we generally use common size statements and the ratio analysis.
It involves a study of quantitative relationship among various items of balance sheet and profit and loss account. This type of analysis is static analysis because this is based on the financial results of one year. Vertical analysis is useful when we have to compare the performance of different departments of the same company. It is also known as ‘Static Analysis’ as it concentrates solely on one year financial statement. On The Basis Of Information Available •Internal Analysis: This analysis is based on the information available to the business firm only .
Hence internal analysis is made by the management. Internal analysis is more reliable and helpful for financial decisions. •External Analysis: This analysis is made on the basis of published statements, reports and information. This analysis is made by external parties such as creditors, investors, banks, financial analysis etc. PARTIES INTRESTED IN FINANCIAL STATEMENT ANALYSIS The analysis of financial figures contained in the company’s profit and loss account and balance sheet by employing appropriate technique is known a financial statement analysis.
Financial statement analysis is useful to different parties to obtain the required information about the organization. Following are the parties interested in financial statement analysis. 1. Shareholders Shareholders are interested in financial statement analysis to know the profitability of the organization. Profitability shows the growth potentiality of an organization and safety of investment of shareholders. 2. Investors and Lenders Investors and lenders are interested to know the solvency position of an organization.
They analyse the financial statement position to know about the safety of their investment and ability to pay interest and repayment of principle amount on due date. 3. Creditors Creditors are interested in analysing the financial statements in order to know the short term liquidity position of an organization. Creditors analyse the financial statement to know either the organization is enable to pay the amount of short term liabilities on due date. 4. Management Management is interested to analyse the financial statement for measuring the effectiveness of its policies and decisions.
It analyse the financial statements to know short term and long term solvency position, profitability, liquidity position and return on investment from the business 5. Government Government is interested to analyse the financial position in determining the amount of tax liability. It also helps for formulating effective plans and policies for economic growth. AN OVERVIEW OF COMPANY Company being established as Kirloskar Pneumatics Company Limited in 1958, made an entry with manufacture of air compressor and Pneumatic tools and soon diversified by including air conditioning and transmission equipment.
At Kirloskar Pneumatic up to date manufacturing facilities, including CNC machines, stringent quality control procedures and systems, research and development, foundry, screw rotor machines, gear grinding machines, metallurgical and metrological laboratories, tool room and an integrated computer system, have all been set up with the sole idea of achieving the highest standards of quality and performance. Kirloskar Pneumatic has the distinction of acquiring advance technologies from world over, adopting them to suit Indian conditions and continuously updating them to maintain the highest standards of quality and reliability.
Kirloskar Pneumatic is among the first few companies in India, to secure the ISO 9001 certification, in all its operations. It was certified for ISO 9001 quality system by the Indian quality systems, (IRQS) in February 1993 and re-certified in 1996 and again in 1999 and in 2003. Company s products are manufactured under Survey of renowned inspection agencies such as Lioyd s, MMD, IRS, NTPL, EIL, PDIL, DGS;D, RITES, and may more, and are well accepted not only in India but also in the countries of South East Asia, Africa, Gulf, the Middle East, West Asia, Europe, and the United States of America.
Kirloskar Pneumatic Company Limited started with the manufacturing of Air – Compressors and Pneumatic Tools, Immediately thereafter, the company expanded its activities in the field of Air Conditioning and Refrigeration machinery. Further diversification in the manufacture of Hydraulic Power Transmission Equipment followed. Kirloskar Pneumatic is held in high esteem for Process System Engineering and Turnkey Project expertise. The result of its success in this area is reflected in Company s association with virtually every project and industry in the country.
PRODUCT GROUPSMAJOR CUSTOMERSMAJOR COMPETITORS Screw compressors diesel driven at 10KG/CM2Well drilling operationAtlas Copco, ELGI Screw compressors electric motor driven at 7 to 10KG/CM2Textiles, granites industriesAtlas Copco, ELGI Balanced opposed piston compressor driven at 3 to 9KG/CM2Power, Petrochemical, Cements, Steel industriesCPT, Ingersol rand Vertical reciprocating water culled. Driven at 7 to 9 KG/CM2 All small scale industriesIR,ELGI Centrifugal compressor driven by 7KG/CM2 ; above.
Cement, Steel, Textile industriesAtlas Copco, Demag Railways brake compressorAll Railways ELGI RESEARCH METHODOLOGY Business research is a systematic inquiry that provides information to guide business decisions. The research Methodology is a way to solve systematically the research problem. The research methodology refers to the behaviour and instruments that is used in performing the research questions such as making observations, recording data, the technique of processing data, summarizing the results and presenting suggestions.
OBJECTIVES OF THE STUDY •To identify the financial strengths and weakness of the Kirloskar Pneumatics Co Ltd. •To understand the profitability position if the company by analysing Net Profit Ratio ; Profitability Ratio. •Evaluating company’s performance by evaluating Financial Statement Analysis. •To know the liquidity position of the company, with the help of Current Ratio. •To find out the utility of financial ratio in credit analysis and determining the financial capability of the firm. OBJECTIVES OF FINANCIAL STATEMENTS
The Objective of Financial Statement is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Financial Statements are prepared for this purpose to meet the common needs of most users. SCOPE OF THE STUDY The scope of the study is to find out the financial performance of Kirloskar Pneumatic Co Ltd for the past five years. NEED OF THE STUDY Financial analysis is a powerful mechanism which helps in ascertaining the strengths and weakness in the operation and financial position of an enterprise. The study has great significance and provides benefits to various parties directly or indirectly interact with the company. •It provides clear picture regarding important aspects like Liquidity, Leverage, Activity and Profitability. •The study is also beneficial to employees and offers motivations by showing how actively they are contributing for the company’s growth. •The investors who are interested in investing in the shares will also get benefited. IMPORTANCE OF THE STUDY 1. Providing Information for Economic Decision
The economic decisions that are taken by users of financial statements require an evaluation of the ability of an enterprise to generate cash and cash equivalents and of the timing and certainty of their generation. This ability ultimately determines the capacity of an enterprise to pay its employees and suppliers, meet interest payments, repay loans and make distributions to its owners. 2. Providing Information about Financial Position The financial position of an enterprise is effected by the economic resources.
It controls, its financial structure, its liquidity and solvency and its capacity it adopt to changes in the environment in which it operates. •Information about the economic resources controlled by the enterprise and its capacity in the past to modify these resources is useful in predicting the ability of the enterprise to generate cash and cash equivalents in the future. •Information about financial structure is useful in predicting future borrowing needs and how future profits and cash flow will be distributed among those with an interest in the enterprise. Information is useful in predicting how successful the enterprise is likely to be in raising further finance. •Information about liquidity and solvency is useful in predicting the ability of the enterprise to meet the financial commitments as fall due. Liquidity refers to the availability of cash in the near future after taking account of financial commitments over this period. Solvency refers to the availability of cash over the longer term to meet financial commitments as they fall due. 3. Providing Information about Performance of an Enterprise
Another important objective of the financial statements is that it provides information about the performance and in particular its profitability, which is required in order to access potential changes in the economic resources that are likely to control in future. 4. Providing Information about Changes in Financial Position The financial statements provide information concerning changes in the financial position of an enterprise, which is useful in order to access its investing, financing and operating activities during the reporting period.
SOURCES OF DATA COLLECTION Primary Sources Primary sources (also called original source or evidence) are original materials. It serves as an original source of information about the topic. Secondary Sources Secondary data is generated with the help of following: Annual Report: Majority of information gathered from data exhibited in the annual reports of the company. These include annual reports of the year 2007-08, 2008-09, 2009-10 and 2010-11, 2011-12. Induction Manual: Information relating to company history and profile gathered from the induction manual of KPCL.
Reference Books: Theory relating to the subject matter and various concepts taken up from various financial reference books. CMA statement: Information relating to estimation of funds and format of reporting, taken from CMA (Credit Monitoring Arrangement) statement of the company. Loan Agreement: Information relating to various rules and regulations for bank finance taken up from loan agreement between KPCL and consortium banks. AREA OF THE STUDY The study aims at analysing the ratios of “Kirloskar Pneumatics Co Ltd” covering a period of five years from 2007 – 2008 to 2011 – 2012. PERIOD OF THE STUDY
The study covers a period of Five Financial years from 2007 – 2008 to 2011 – 2012. TOOLS OF ANALYSIS OF FINANCIAL STATEMENTS RATIO ANALYSIS •Liquidity Ratios •Turnover Ratios •Profitability Ratios •Leverage Ratios LIMITATIONS OF THE STUDY •The study provides an insight into the financial aspect of Kirloskar. •The project is confined to secondary data and annual report of the company. •Time is an important limitation. Due to time constraint, the study is confined to a period of five years only from 2007 – 2008 to 2011 – 2012 which is short period to evaluate the efficiency of the management.
CHAPTER SCHEME CHAPTER I Introduction – An Overview of the Company, Research Methodology, Need of the Study, Importance of the Study, Objectives, Sources of Data Collection, Area of the Study, Period of the Study, Tools of Analysis, Limitations of the Study. CHAPTER II Review of Literature CHAPTER III Kirloskar Pneumatics Co Ltd – History, Kirloskar Group of Companies, Infrastructure, Product line. CHAPTER IV Ratio Analysis And Interpretation, Tables, Graphs. CHAPTER V Findings, Suggestions and Conclusions. Chapter II Review of Literature CHAPTER II REVIEW OF LITERATURE
It is mandatory to review the literature available with respect to the area of the research study. Measuring the performance of the corporate sector has always been the area of controversies from the point of view of the government, shareholders, prospective investors, creditors, employees and other stakeholders. Several studies have been undertaken to analyse the financial performance in the corporate sector. The present chapter presents some of the studies conducted by the financial analysts in the past. Financial Performance Analysis-A Case Study
Current Research Journal of Social Sciences 3(3): 269-275, 2011 ISSN: 2041-3246 © Maxwell Scientific Organization, 2011 Abstract: The present study aims to identify the financial strengths and weaknesses of the Indian public sector pharmaceutical enterprises by properly establishing relationships between the items of the balance sheet and profit and loss account. The study covers two public sector drug and pharmaceutical enterprises listed on BSE. The study has been undertaken for the period of twelve years from 1997-98 to 2008-09 and the necessary data have been obtained from CMIE database.
The liquidity position was strong in case of both the selected companies thereby reflecting the ability of the companies to pay short-term obligations on due dates and they relied more on external funds in terms of long-term borrowings thereby providing a lower degree of protection to the creditors. Financial stability of both the selected companies has showed a downward trend and consequently the financial stability of selected pharmaceutical companies has been decreasing at an intense rate.
The study exclusively depends on the public sectors published financial data and it does not compare with private sector pharmaceutical enterprises. This is a major limitation of the research. The study is of crucial importance to measure the firm’s liquidity, solvency, profitability, stability and other indicators that the business is conducted in a rational and normal way; ensuring enough returns to the shareholders to maintain at least its market value. The study will help investors to identify the nature of Indian pharmaceutical industry and will also help to take decision regarding investment.
Paul J. Fitz Patrick (1932) has conducted a study on 20 failed and 19 non-failed firms applying a trend of 13 financial ratios to examine whether there was a significant difference in the trend of ratios, at least three years prior to the failure he has found that there was a persistent difference and significant difference in all the ratios of failed firms in relation to those of non-failed firms. The best indicators were Net-profit to Net worth to Total debt and Net worth to fixed assets.
Charles Merwin (1942) has found out that ratios are successful predictors of failure in five years prior to discontinuance. The ratios namely Net-working capital to Total assets, Current ratio, Net-worth to Total debt were found to be extremely sensitive and the most significant predictor among them. Bain (1951) through his study on ‘Relation of profit rate of industry concentration’ found that the differences in industry concentration ratio or barrier to entry. He asserted the hypothesis by finding a correlation co-efficient of 0. 28 between rates of return on Net-worth of 42 industries.
Beaver (1966) has taken a trend of 30 financial ratios for 79 paired failed and non-failed United States firms and has found that there was a significant difference in the ratios of both category of firms. In 1969 he has made a comparison of predictive ability of different ratio of the same paired firms and he has identified that three ratios namely Cash flows to Total debt, Net income to total assets and total debt to total assets are the best indicators. He has identified that the ratios of failed firms differed significantly from those of non-failed firms and they deteriorated sharply during the last five years prior to failure.
SAMILOGLU ; DAMIRGUNES (2008) said that even though the profitability is constantly positive, inaccurate working capital management procedures may lead to bankruptcy of the firm. They suggest that current, acid test, and cash ratios as traditional measures of liquidity are incompetent and static balance sheet measures that cannot provide detailed and accurate information about working capital management effectiveness. In their research formulas used for calculating them consider both liquid and operating assets in common and traditional ratios are not meaningful in terms of cash flow.
NANDI (2011) made an attempt to examine the influence of working capital management on corporate profitability. For assessing impact of working capital management on profitability of National Thermal Power Corporation Ltd. during the period of 10 years i. e. , from 1999-2000 to 2008-09 Pearson’s coefficient of correlation and multiple regression analysis between some ratios relating to working capital management and the impact measure relating to profitability ratio (ROI) had been computed and applied.
An attempt had been undertaken for measuring the sensitivity of return of investment (ROI) to changes in the level of working capital leverage (WCL) of the studying company. KARADUMAN, AKBAS ; CALISKAN (2011) have tried to shed light on the empirical relationship between efficiency of working capital management and corporate profitability of selected companies in the Istanbul Stock Exchange for the period of 2005-2009.
The companies should focus on working capital management in order to increase their profitability by seriously and professionally considering the issues on their cash conversion cycle which was derived from the number of day’s accounts payable, the number of day’s accounts receivable and the number of days of inventories. The findings suggested that it may be possible to increase profitability by improving efficiency of working capital. MALLICK AND SUR (1998) made an attempt to analyse the impact of working capital management on profitability in Indian Tea industry with the help of some statistical tools and techniques.
The study revealed that, out of the nine ratios relating to working capital management five ratios registered positive association and the remaining four ratios showed negative correlation with the profitability indicator. Rao ; Rao (1999) undertook a similar type of study where ten ratios relating to working capital management were selected. Out of these indicators, positive association was noticed only in three. CHEAKRABORTY (2008) evaluated the relationship between working capital and profitability of 25 selected companies in the Indian pharmaceutical industry during the period 1996-97 to 2007-08.
Inadequacy of working capital may lead to the firm to insolvency, whereas excessive working capital implies idle funds which earns no profits. Therefore, efficient management of working capital is an integral part of the overall corporate strategy to improve corporate profitability. The partial regression coefficients shown in the multiple regression equation of ROCE on CR, ITR and DTR fitted in this study revealed that the liquidity management, inventory management and credit management made positive contribution towards improvement of the corporate profitability.
Altman (1968) took 66 firms in general and applied Multiple Discriminant Analysis to discriminate the failed firms from the non-failed firms as the basis of weighted combination of five financial ratios. The Weighted combination of Working capital to total liabilities, cumulative retained earnings to total assets, Earnings before interest and taxes to total assets, Market value of equity to book value of total debt and Sales to total assets was able to predict the bankruptcy with 45% degree accuracy.
He also found that the predictive ability of the model declined very sharply when the number of years prior to the failure increased. Samules and Smith (1968) in their study on “Profits, variability of profits and firm size” have found the relationship between profitability (profit after tax on net assets) and size of the firm (net assets) and revealed that they were inversely related to each other for the years 1954-1963. Roger Cossaboom (1971) in his study “Lets Reason the profitability – liquidity Trade- off” has found out the significant importance gained by the profitability – Liquidity off.
He has identified four aspects namely liquidity, flexibility, sensitivity, innovation and segmental financing which should be examined by the firm to reduce the firms vulnerability to further liquidity squeeze he has identified financial flexibility and innovation by financial managers as the best approach for further liquidity management. Pinches, Mingo and Cauthers (1973) have applied factor analysis to classify 51 log transformed financial ratios of 221 compustat firms for four cross section of six years apart.
The section of the method was prompted by application in other behavioural disciplines like psychology and organizational analysis. They identified seven factors Return on Investment, Capital intensiveness, Inventory intensiveness, financial leverage, Receivables intensiveness, short-term liquidity and cash position. These factors explained 78-92% of the total variance of the 51 financial ratios. Moreover the correlations for the factor loadings and the difference R-Factor analysis indicate that the ratio patterns are reasonably stable over time.
Banerjee (1974) studies the dangers of too little working capital and too much working capital by taking a case study he used certain ratio in order to analyse the working capital management performance. N. Krishna Rao and N. Ramachandran (1977) studied the likely impact of reduction in current assets on the return on capital via the principal of working capital leverage for the few companies operating in the Indian corporate sector. For his study 18 companies belonging to 12 industry groups have been chosen.
Johnson (1978) runs the factory analysis for a single year 1972 but for two industries based on a sample of 306 primary manufacturing and 61 retail firms. Congruency co-efficiency of financial ratios patterns indicates a good stability of the nine factors for the two industries. Bhabatosh Banerjee (1988) analysed the different turnover ratios such as debtors and the creditor’s turnover as well as the stock turnover ratio. The cash position and the cash movement are also examined with the effect of liquid ratio.
Chen and Shimerda (1989) present a summary of the financial ratios used in a number of the early studies which used the financial ratios for analysis and prediction. They note that there is an abundant 41 different financial ratios which are found useful in the earlier studies. They reconcile by judgment the factors in their earlier studies into financial leverage, Capital Turnover, Inventory Turnover, Receivables Turnover short term liquidity and cash position. They identify ten financial ratios which are representative of the seven factors.
Panigrahi (1990) examined the liquidity position of the large Indian Companies for the period 1970-1971 to 1986-1987 with the help of standard financial ratio and working capital ratio have been computed to explain the significance of association between the ratios. Mansur A. Mulla (2001) have evaluated the financial stability and operation health of textile mills in the co-operative sector using Altman’s z scores analysis and found that the mill is in the verge of financial collapse due to inadequate working capital, negative earnings efore interest and taxes and poor liquidity position and the unit has to tone up the efficiency and effectiveness of the organization. K. Sankaran (2002) have applied altmans z score analysis to estimate the financial health of 10 pharmaceutical companies in India out of which five Indian companies and five Multinational corporations and has developed a model stating that if the z is less than 1:81, it indicates that the company is moving towards bankruptcy and if the z score lies between 1:81 and 2:99 it means grey area for the company and if the score value is above 2:99 it means that the company is healthy.
He has found that four out of five Multinational corporations were healthy and one falls in the grey area but in the case of the Indian Companies one falls in the healthy category three were in grey area and one in the bankruptcy zone. G. Sudarsasna reddy (2002) have analysed the financial performance of paper industry in Andhra Pradesh and suggested the following ways to strengthen the profitability position of the paper mills. ) Restructuring of finances ii) Modernization of technology for better operating performance iii) Use of fixed assets efficiently iv) Creation of adequate depreciation provision v) Optimization of inventory management vi) Strengthen the degree of liquidity vii) Adoption of sound credit viii) Cost minimization. Title: A Systematic Approach to Contextual Analysis in Small Business Asset- based Lending Authors: Scott, Stanl Sources: Secured Lender; Nov/Dec 2005, Vol 61 Issue 6, p104-113, 6p Abstract: The article provides information on a systemic approach to contextual financial analysis in small business asset- based lending.
The objective of financial statement analysis is to interpret result in a business environment. Key factors to consider in evaluating management impact on financial result include the company’s attempt to distinguish itself from competitors. Bollen (1999) conducted a study on Ratio Variables on which he found three different uses of ratio variables in aggregate data analysis: (1) as measures of theoretical concepts, (2) as a means to control an extraneous factor, and (3) as a correction for heteroscedasticity.
In the use of ratios as indices of concepts, a problem can arise if it is regressed on other indices or variables that contain a common component. For example, the relationship between two per capita measures may be confounded with the common population component in each variable. Regarding the second use of ratios, only under exceptional conditions will ratio variables be a suitable means of controlling an extraneous factor. Finally, the use of ratios to correct for heteroscedasticity is also often misused. Only under special conditions will the common form forgers soon with ratio variables correct for heteroscedasticity.
Gerrard (2001) conducted a study on The Financial Performance on which he found that Using ratio analysis the financial performance of a sample of independent single-plant engineering firms in Leeds is examined with regard to structural and locational differences in establishments. A number of determinants of performance are derived and tested against the constructed data base. Inner-city engineering firms perform relatively less well on all indicators of performance compared with outer-city firms. The study illustrates the importance of using different measures of performance since this affects the magnitude and significance of the results.
Financial support is necessary to sustain engineering in the inner city in the long run. Johnson (2009) conducted a study on Financial Ratio patterns on which he found that the properties and characteristics of financial ratios have received considerable attention in recent years with interest primarily focused on determining the predictive ability of financial ratios and related financial data. Principal areas of investigation have included the prediction of corporate bond ratings and the anticipation of financial impairment].
Related studies have examined the characteristics of merged firms the differences in financial ratio averages among industries whether firms seek to adjust their financial ratios toward industry averages the relationship between accounting-determined and market-determined risk measures, and the influence of financial ratios on analysts’ judgments about impending bankruptcy The general conclusion to emerge from these various research efforts is that a number of financial ratios have predictive and descriptive utility when properly employed.
Title: Analysing The Financial Condition Of City Of Corona, California: Using A Case To Teach The Gasb34 Government – Wide Financial Statements. Authors; Chaney, Barbara A. 1, Source; Journal of Public Budgeting, Accounting & Financial Management; Summder2005, Vol. 17 Issue2, p180-201, 22p, 4charts Abstract: A financial statement analysis case uses the government-wide financial statements of Corona, CA to teach students about the financial overview provided in the new governmental financial reporting model. Educators are struggling to incorporate the new model in their governmental accounting curricula.
The case analysis is beneficial to students in three ways. First the active, case learning approach of using a real world example complements existing pedagogical materials for better mastery of the new reporting model. Second, the case approach of using ambiguity and alternative solution and class discussion promotes the development of communication skills. To summarize the literature, Ratio analysis is a key dimension of financial management, suggesting a relationship between profit and loss as mentioned in the balance sheet of an organization. Its appropriate use will go toward giving a true picture of the financial health of the unit.
Its benefits can be seen in areas of management, production, marketing, personnel management etc. Chapter III Company Profile COMPANY PROFILE HISTORY Kirloskar Pneumatic Company Limited was incorporated by late. Shri Shantanurao, Kirloskar in the year 1958. The name Kirloskar is synonymous with quality and dependability in the engineering industry. Pioneering industrial revolution in India, Kirloskar group has contributed immensely in every field of its operation during its 120 year-long journey, and holds a place of repute in the industry for its good business values and customer focus. Kirloskar Pneumatic Company Ltd. KPCL) is one of the core group companies. KPCL was incorporated in 1958 under the chairmanship of Late Shri Shantanurao Kirloskar. KPCL is certified for Integrated Management System (IMS) Certifications of ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007, by TUV NORD. The company started its operations with the manufacture of Air Compressors and Pneumatic Tools. New product lines were then added, including Air Conditioning and Refrigeration systems, Marine HVACR, Process Gas systems and Hydraulic Power Transmission machinery. The company has also earned an enviable reputation for its Systems Engineering and Turnkey Project expertise.
Over the years, Kirloskar Pneumatic Company Ltd. has developed various sophisticated and high-tech products in the above categories to cater to the demands of various industrial sectors. KPCL has also established a number of joint ventures and technology partnerships with leading global companies. It has earned the distinction of developing a host of advanced products to suit Indian conditions and has been continuously updating them to maintain the highest standards of quality and reliability. OUR CORPORATE PHOLOSOPHY Our Mission We will demonstrate an EDGE to all our Stakeholders in our offerings for converting / transmitting energy.
We will strive to make our Company an employer of Choice. Values In an ever changing world one thing that will remain constant is our Commitment towards all our stakeholders. Each one of us will be guided by the following values. ?CUSTOMER FOCUS Our activities / actions will be focused on enhancing internal / external customer’s satisfaction ? COMMITMENT We commit to achieve our targets / goals. We will be responsible / accountable for our commitment. ?CONTINUAL IMPROVEMENT We will consciously work to improve our procedures, processes and systems with an objective to improve our business processes. ?ETHICAL BUSINESS PRACTICES
We will be fair in our dealings with all our stakeholders. It will be based on integrity, honesty and transparency. OUR BUSINESS Air Compressor Division (ACD) ACD offers a wide range of air compressors in 15 product categories. The division has a complete range of air compressors covering reciprocating compressors to the high tech centrifugal type as well as screw type compressors. These compressors cater to needs of diverse industrial segments. To bring focused attention and create centres of competence specific to technology, these are sub divided in three categories – Reciprocating compressors, screw compressors ; centrifugal compressors.
ACD products are primarily sold and serviced through four regional offices and three branch offices in India and supported by around 30 authorized dealers. Dealers also support customers in their requirement of spares. After-sales-service is provided through branch offices. Our authorized dealers have well trained personnel and infrastructure to provide service to customers. Our well-trained service engineers and skilled service technicians further strengthen this function. BOARD OF DIRECTORS Mr Rahul C. Kirloskar (Executive Chairman) A mechanical engineer from U. S. A, Rahul C.
Kirloskar is a top notch technocrat associated with Kirloskar Group of Companies for more than twenty five years at senior levels in different capacities. Rahul Kirloskar has been a prime driving force behind the companies’ great success over the period of time. After gaining expertise by participating in an intensive course for top management professionals on Total Quality Management (TQM) in Japan, he played a pivotal role in reinforcing KPCL’s focus on reducing overheads in the organization. His efforts resulted in a healthy bottom line for the company even during trying times. Mr Atul C.
Kirloskar (Director) Mr Atul C. Kirloskar began his career with the erstwhile Kirloskar Cummins Limited in the year 1978, where he started out as a trainee. In December 1981, he was appointed as the Chief Executive of Cummins Diesel Sales & Services. On 1 November 1984, he was appointed as the Executive Vice President of Kirloskar Oil Engines Limited (KOEL). He was co-opted on the Board of KOEL on 6 August 1985 wherein he took over as the Managing Director. In 1988, he was also appointed as the Vice Chairman of KOEL and held the position till 25 July 1998 when he was elected as Chairman of the Board of KOEL.
He is a member of the World Economic Forum. He has served as President of MCCIA from September 2002 to September 2004, and was Chairman of CII National Committee of Defence since from 1998 to 2008. Mr. Sanjay C. Kirloskar (Director) Sanjay C Kirloskar is a mechanical engineer from Illinois Institute of Technology, USA. Immediately after completing his education, he gained valuable experience through practical training at various Kirloskar Group Companies. He is also the Managing Director and Chairman of Kirloskar Brothers Limited.
He is a member of Mahratta Chamber of Commerce, Industries and Agriculture (MCCIA) and FICCI and has held executive positions in these premier business associations. Mr. Vikram S. Kirloskar (Director) An alumna of MIT – USA, Vikram Kirloskar, is a BSc. in Mechanical Engineering. Vikram has been trained at various organisations in India and abroad in different capacities. In this capacity, he was instrumental in setting up successful joint ventures for companies such as Kirloskar Toyoda Textile Machinery Pvt Ltd. , Toyota Kirloskar Motor Private Limited and Toyota Kirloskar Auto Parts Private Limited. Mr. A. C. Mukherji (Director)
Arun C. Mukherji graduated as MA, F. I. I. I. He has a long and varied experience in Finance, Insurance and other corporate functions. He has also held important position as Chairman and Managing Director of New India Assurance Company Limited. Mr. J. Y. Tekawade (Director) Janardhan Tekawade possesses a rich and varied experience in Corporate / Agriculture Sector and has done social work in Shrirampur in Maharashtra. He is a Founder member of The Shrirampur Peoples Co-op Bank Ltd. and had won the Gold Medal from the Government of India for producing highest sugarcane crop per acre. Mr. G. Krishna Rao (Director)
Krishna Rao (B. Com, A. C. A, and I. C. I. I. ) has held senior position in General Insurance Corporation of India for several years and has a vast experience in Finance and Insurance matters. Mr. P. S. Jawadekar (Director) An Electrical Engineer, Padmakar Jawadekar has rich and varied experience of more than three decades in the industry and professional institutions. His work experience spans areas like technology sourcing, technology development and management, structuring of business units, human resources and industrial relations management marketing management, quality management and leadership development.
Mr. D. R. Swar (Director) Dattatray Swar is a graduate in Mechanical Engineering. Besides being a qualified Engineer, he holds Diploma in Purchasing Management from American Society and Diploma in Material Management and Production Management, both from Jamanalal Bajaj Institute of Management. He started his career with Mahindra & Mahindra, and then worked with Greaves Cotton Co. Ltd, where he pre-dominantly worked in Vendor Development / Purchase and Materials Management. He joined Kirloskar Oil Engines Limited in 1987 and worked for 20 years in various senior positions, out of which last seven years as ED.
He has expertise in areas such as purchase, vendor developments, materials management, and manufacturing and overall business operations. In KOEL he implemented cost reduction programmes vigorously. His efforts in productivity improvement, cost reduction, introductions of new concepts in manufacturing paid rich dividends to KOEL. Mr. Sunil Shah Singh (Director) Mr. Sunil Shah Singh did his graduation B. Tech from Indian Institute of Technology, Delhi. He has experience in varied fields such as purchase, materials management, and manufacturing & overall business operations.
He held many key positions like, Managing Director of ITD Cementation India Ltd. , President of Energy works India Bechtel, Tetra Pak processing & Kirloskar Pneumatic Co. Ltd, Board member of Mather & Platt India Ltd. As on date he was holding a position of corporate Advisor of ITD Cementation India Ltd. Mr. Aditya Kowshik (Managing Director) A Mechanical Engineer from Bangalore University, Aditya Kowshik has an experience of over 30 years in the engineering industry. He is a member of ISHRAE Pune Chapter, ASHRAE-USA and International Institute of Ammonia Refrigeration since over 8 years.
With a strategic and dynamic nature, Aditya Kowshik is an example of confidence, assertive and absolute zeal. The Kirloskar Group of Companies We are made up of 8 major group companies, who are players in major sectors like manufacturing, oil and gas, power, construction and mining, agriculture, industry and transport each led by the best engineering and managerial talent in India. In addition to engineering, we also have interests in civic utility systems and in Information Technology and communication. These 8 companies form the core of Kirloskar group.
Each company is a renowned name in its own area of operation and is respected worldwide for its services and products. For us manufacturing is just not limited to our factory premises and our products. It is also about world class service. •Kirloskar Brothers Limited. (KBL) •Kirloskar Ferrous Industries Limited. (KFIL) •Kirloskar Middle East FZE. (KMEF) •Kirloskar Oil Engines Limited. (KOEL) •Kirloskar Pneumatic Company Limited. (KPCL) •Kirloskar Proprietary Limited. (KPL) We are also proud partners in joint ventures with companies as Copeland Limited.
This is a joint venture between Kirloskar Brothers Limited, India’s leading engineering company and Copeland Corporation of the USA, the world leader in air-conditioning and refrigeration compressors. Also Kirloskar Ebara and Toyota Kirloskar Motors are other prestigious joint ventures. •Kirloskar Copeland Limited. (KCL) •Kirloskar Ebara Pumps Limited. (KEPL) We take equal pride in shaping capable managers and dedicated human beings at Kirloskar Institute of Advanced Management Studies. It is our education centre for imparting knowledge to the managers of tomorrow. Kirloskar Institute of Advanced Management Studies (KIAMS) Infrastructure ?Production As history has it, the Kirloskar dream started taking shape on 32 acres of barren land strewn with cacti and infested with cobras. Driven by the faith in human ability, Laxmanrao Kirloskar banded together 25 workers and their families and went to transforming the barren expanse into his dream village. Since then a century had passed and there has been no looking back. Those 32 acres has expanded into 350,000 m. sq of developed land with state of art facilities. Customising engineering to the needs of India’s core industries eans a comprehensive production infrastructure that includes process support facilities and specialised machine building competencies. The Kirloskar Group’s manufacturing facilities are spread over 350,000 m. sq. Each plant is highly modern, state-of-the-art and ISO certified. And geared to roll out high precision products that are tailor made to meet customer requirements to the very last detail. These include products with a high degree of specialisation for applications like pumps, engines, alternators and compressors, which demand a high level of accuracy.
Today, while constant facility modernisation and up gradation occur in the background, the Kirloskar Group’s operations grow to span the spectrum of world-class engineering. At the base of our production infrastructure we have grey iron foundries that provide the basic raw material. Then comes the sophisticated pattern shops and metal working facilities. And world-class processes and management practices. The Kirloskar Group’s worldwide network consists of over 1,200 distribution points and over 800 service points in India.
This ensures easy product availability, fast and efficient after-sale service and minimum equipment downtime for the customers. Over 150 company offices operate in perfect synergy across urban and rural areas in the country and abroad. We also train our dealers and service professionals to ensure our customers receive quality service in addition to the benefits of easy accessibility. Thanks to our efforts in this direction, there is no sector in Indian industry that has been left unattended by a Kirloskar company. The Kirloskar ranks amongst the top engineering business houses of India.
We at Kirloskar provide you with the widest range of products to meet all your requirements. We ensure that our products make your job easier and help in yielding better results. The Kirloskar product line consists of more than 200 series. We have a group turnover of Rs. 2,000 Cr. Approx. The Kirloskar Group makes equipment, machinery and high-precision engineering products for the transport sector, including shipbuilding, railways, roads and cargo. We also have a major presence in auto components, process industries, rubber and plastics, textiles and also consumer goods industries. Core Competences Kirloskar Pneumatic Company Limited has a distinction of acquiring technologies from world over and adapting them to maintain highest standards of quality and reliability. The company is also specialized in Systems Engineering and Turkey project expertise. ?Business Division The company has two major business segments viz. Compression Systems and Transmission products. The compression systems division compresses of Air and Gas compressors, Air conditioning and Refrigeration compressors, etc.
Whereas Transmission equipment division comprises of Power transmission equipment, Reverse reduction gears for marine gear engineers etc. KPCL s operations are sub- grouped into following three major Strategies Business Units (SUBs) At Hadapsar: ACD Air Compressor Division, TRM Transmission division. At Saswad: ACR Air conditioning ; refrigeration division. PRODUCT LINE COMPRESSION SYSTEMSTRANSMISSION PRODUCTS AIR COMPRESSION DIVISIONAIR CONDITION ; REFRIGERATION Air Compressor Division (ACD): includes: 1. Centrifugal Air Compressors 2. Reciprocating, Horizontal, Balanced Opposed, Piston Compressors 3.
Electric Screw Compressor Packages 4. Rotary, Twin-Screw, Diesel Engine Driven Compressors 5. Reciprocating, Vertical, Water-Cooled Compressors 6. Compressors and Expressors for Railway brake System 7. Packaged Balanced Opposed Piston Compressors 8. Packaged Vertical Reciprocating Air Compressors Subsidiary Companies Kirloskar McQuay Ltd KPCL has promoted a joint venture in October 1997 with McQuay International, USA. McQuay, who is leaders in Heating, Ventilation ; Air Conditioning worldwide have shared state of art technology in Kirloskar McQuay Ltd.
This company manufactures and market International Exposure The Company has been exporting most of the products all over the world specially, in Middle East and far Eastern countries. Our products are well accepted not only by developing countries but also by pace setters like USA ; UK in the international market and achieving approximately 10 % of their earning from the exports. Presence in Gulf Area Kirloskar Group has been an office in Ajman, UAE known as Kirloskar Middle East Free Zone limited, whereby covering Middle East market.
This is a well-represented Sales ; Services setup with Warehouse facilities manned by proper Engineering Personnel to serve Middle East Market independently. Entire range of HVAC Equipment. AWARDS ; ACCOLADES Recognition of KPCL’s – ‘Kaizen’ at CII – 2012 KPCL received “Appreciation Award” at CII- Maharashtra state level Kaizen competition at Nasik in Jan 2013 Recognition of KPCL’s – ‘Kaizen’ at NCQC – 2012 KPCL teams won the Award Par Excellence Trophy ; Excellence Award Trophy for Kaizen presented at National Convention on Quality Concepts, Kanpur in Dec ‘12. DSK Energy Award 2012
KPCL received “DSK Energy Award 2012” on 14th Dec 2012 consecutively second time in a function held at Institution of Engineers, India, Pune chapter Recognition for KPCL’s – ‘Kaizen & Quality Circle’ in CCQC – 2012 KPCL Kaizen & Quality Circle teams won the ‘Gold Trophy’ in the CCQC Competition held at Pune in Aug-12. Integrated Management System (IMS) Certifications by TUV India Pvt. Ltd. (NORD Group) – 2012 Mr. Aditya Kowshik, Managing Director, receiving IMS certificate from Mr. V. K. Hattarge (GM Operations, Pune Region, TUV India Pvt. Ltd. ) on 28th Sept’12 at KPCL HO.
MCCIA – B G DESHMUKH AWARD – 2010 in the category of – Corporate Social Responsibility We have received a trophy and certificate at a ceremony held at S M Joshi Hall, Pune on May 16th, 2010. The award was received by Mr. R A Shinde – VP – HR & Mrs Vineeta Kapoor – Assistant Manager – HR. Best Corporate Social Responsibility Practice award by Bombay Stock Exchange KPCL was amongst 27 shortlisted companies out of 78 applicants for making a presentation in front of the Jury for the award in the category of “Best Corporate Social Responsibility Practice”. Best Employer 2009-10 – Managing Health at Work
KPCL has got Employer Branding Award – 2009-10 in the category of – Managing Health at Work both in Regional Round held at Pune on 19th December 2009 and in Final Round held at Mumbai on 13th February 2010 during World HRD Congress. CORPORATE SOCIAL RESPONSIBILITY: OUR CONCERN TOWARDS SOCIETY Inspired by our founder Shri SL Kirloskar and guided by the words “Enriching Lives” as enshrined in our motto, all our CSR initiatives are conceived in the core areas of Education, Environment and Health to make a meaningful impact in the lives of stakeholders in the society.
Major initiatives are as summarized in the table below: KPCL CSR INITIATIVES BHARARI Socio-economically challenged students from the adopted schools will be supported and developed from 5th to 10th standard and beyond 10th standard by way of a scholarship program to ensure employability and livelihood ECO CLUBS Environment awareness will be inculcated in the students by way of projects, exhibitions, tree plantations, and conservation of natural resources through the activities of kirloskar ECO Clubs formed every year in the adopted schools.
VISION CARE Eye screening will be conducted for students of adopted schools every year with free distribution of spectacles for those with refractive errors and further check-up and interventions for other eye conditions like squint etc. will be subsidized. ADHUNIK GURU Teachers from adopted schools will be trained to face emerging challenges in dealing with the students, the education system, the syllabus and the new teaching, learning methods. WASH Awareness about water, sanitation and hygiene will be developed amongst eachers, non-teaching staff, students and administrators of schools in collaboration with Kirloskar Foundation. COMMUNITY HEALTH Health camps will be offered every year to employee families, external agency and customer personnel, and general communities like teachers from adopted schools, women, senior citizens, etc. HIV AIDS WORKPLACE & COMMUNITY INTERVENTION HIV AIDS WPI will be an integral part of KPCL corporate social responsibility and will be implemented and sustained for employees as well as for identified communities like contract labour, trainees, and non-teaching staff from adopted schools etc.
PHILANTHROPY KPCL will continue to make donations and supports to socio-economically challenged students, to institutes dealing with differently abled persons and to other charitable institutes. KPCL’s commitment to CSR is demonstrated in the way that initiatives are planned, budgeted for, implemented and reviewed regularly. The CSR Plan is an integral part of Long Range and Annual Operating Planning processes of the company. Monthly review is carried out of all CSR initiatives by Chairman and Managing Director, and Vice Presidents (Strategic Business Unit heads).
The core CSR Team and CSR Committee is mentored by our Vice President HR. Expertise comes from our NGO partners and a volunteering platform where about 10 % of Employee volunteers get an opportunity for actively contributing for a social cause every year. KPCL has adopted a CSR Policy and evolved a volunteering framework and through its sustained efforts has been able to make an impact amongst its community stakeholders, which has been acknowledged by agencies such as CII, MCCIA, BSE, Employer Branding Institute, RKQP Trust to name a few.
KPCL is amongst the few progressive companies in the country who have a formally adopted HIV/ AIDS Policy. KPCL takes pride in its association with AIESEC Pune and their learning partner WakeUp Pune, for creating HIV/AIDS awareness amongst students of Engineering, Management and Polytechnic Colleges in Pune, amongst employees of sister companies of the Kirloskar Group, as well as employees of other industry and general community in vicinity of our factory locations at Hadapsar and Saswad. Chapter IV Analysis & Interpretation CHAPTER IV RATIO ANALYSIS
Ratio analysis is one of the techniques of financial analysis where ratios are used as a yardstick for evaluating the relationship between component parts of financial statements to obtain a better understanding of the firm’s position and performance. It is used as tool by the company or individual to analysis the quantitative performance of the company financial statement. Meaning Ratio is relationships expressed in mathematical terms between figures which are connected with each other in some manner. This relationship can be exposed as •Percentages •Fractions •Proportion of numbers
Ratio will be calculated from current year figures and it is compared with previous year in order to know the financial performance of the company. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The importance of ratio analysis relies in the fact that it presents facts on a comparative basis Conclusions can be drawn regarding the liquidity position of a firm. It is useful for assessing the long-term financial viability of a firm.
It throws light on the degree of efficiency in the management and utilization of its assets. It helps in inter-firm comparison and also with industry averages. Ratios Are Useful For Several Parties Such As 1) Investors, both present as well as potential investors. 2) Financial analyst. 3) Mutual funds. 4) Stock broker and stock exchange authorities. 5) Government. 6) Tax department. 7) Competitors. 8) Research analysts and students. 9) Company’s management. 10) Creditors and Suppliers11) Lending Institutions – Banks and Financial Institutions12) Financial Manager 13) Other Interested parties like credit rating agencies etc.
Nature of Ratio Analysis Ratio analysis is a technique of analysis and Interpretation of financial statements. It is the process of establishing and interpreting various ratios 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 steps involved in the ratio analysis: Selection of relevant data from the financial statements depending upon the objective of the analysis. •Calculation of appropriate ratios from the above data. •Comparison of the calculated ratios with the ratios of the same firm 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. Advantages and Uses of Ratio Analysis Ratio analysis is an important tool for analysing the company’s financial performance. The ratio analysis is one of the most powerful tools of financial analysis.
It is used as a device to analyse and interprets the financial health of enterprise. Helps in Decision Making: Financial statements are prepared primarily for decision making, but the information provided in financial statements is not an end in itself and no meaningful conclusions can be drawn from these statements alone. Ratio analysis helps in making decisions from the information provided in these financial statements. Helps in Financial Forecasting ; Planning: Planning is looking ahead and the ratios calculated for a number of year’s work as a guide for the future.
Meaningful conclusions can be drawn for future from these ratios. Thus, ratio analysis helps in forecasting and planning. Helps in Communicating: The financial strength and weakness of a firm are communicated in a easier and understandable manner by the use of ratios the information contained in a financial statements conveyed in a meaningful manner to the one for the whom it is meant. Thus, ratios help in communicating and enhance the value of financial statements. Helps in Co-ordination: Ratios even helps in coordinating, which is utmost important in effective business management.
Better communication of efficiency and weakness of an enterprise results in better coordination in the enterprise. Helps in Control: Ratio analysis even helps in making effective control of the business. Standard ratios can be based upon Performa Financial Statements and variance or deviations, if any, can be founded by comparing the actual with the standards so as to take corrective action at the right time. The weakness or otherwise, if any, come to the knowledge of the management which helps ineffective control of the business.
Helpful for Creditors’ decisions: Creditors are those persons who provide goods on credit to company or provides short period loan to company. All the creditors are interested to know whether company will repay their debt or not. For this, they calculate current ratio and quick liquid ratio and average payment period. On this basis, they take decisions. Helpful for employees’ decisions: Every employee wants to increase his salary. He also wants to get more and more incentives from company. For this, he takes help from company’s profitability ratios.
Profitability ratios will be helpful for employees to pressure on the company for increasing their salary. Helpful for Govt. decisions: Different companies analyse their accounting ratios and publish on the net and print newspapers. Govt. collects all these information. On this basis, Govt. makes policies. If ratios will wrong, Govt. policies will become wrong. For example, Govt. collects income data of all companies in different industries for calculation the national income. Limitations Despite usefulness, financial ratio analysis has some disadvantages. Some key demerits of financial ratio analysis are: 1.
Different companies operate in different industries each having different environmental conditions such as regulation, market structure, etc. Such factors are so significant that a comparison of two companies from different industries might be misleading. 2. Financial accounting information is affected by estimates and assumptions. Accounting standards allow different accounting policies, which impairs comparability and hence ratio analysis is less useful in such situations. 3. Ratio analysis explains relationships between past information while users are more concerned about current and future information. Classification of Ratios
Ratios are classified as follows: 1. Liquidity Ratios 2. Turnover Ratios 3. Profitability Ratios 4. Leverage Ratios LIQUIDITY RATIOS: It is the ratio which is used to determine the company’s capacity to pay its short- period debt obligations. If the value of the ratio is high, then the margin of safety will become high so that the company able to cover its short term debts. Liquidity ratio includes Current ratio, Quick/Acid ratio. Receivables turnover Ratio and Inventory Turnover Ratio are the two ratios which in directly measure Liquidity. Current Ratio Current ratio is useful to find out solvency of the company.
Current ratio is the ratio of current assets of a business to its current liabilities. It is the most widely used test of liquidity of a business and measures the ability of a business to repay its debts over the period of next 12 months. High current ratio indicates that company will be able to pay its debt maturity within a year. Low current ratio indicates that company will not be able to meet its short term debts. IDEAL RATIO = 2:1. TABLE NO 1 CURRENT RATIO (Rs. In crores) YEARSCURRENT ASSETSCURRENT LIABILITIES CURRENT RATIO 2007-2008277. 09222. 351. 24 2008-2009455. 33358. 861. 26 2009-2010434. 01331. 321. 0 2010-2011482. 74373. 031. 29 2011-2012493. 79434. 261. 14 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the firm. The current ratio of 2011-2012 was in decreasing in trend as 1. 24 to 1. 29. This indicates that it may be difficult for the company to pay its current liabilities. GRAPH NO 1 CURRENT RATIO Quick Ratio Quick ratio or Acid Test ratio is the ratio of the sum of cash and cash equivalents, marketable securities and accounts receivable to the current liabilities of a business.
It measures the ability of a company to pay its debts by using its cash and near cash current assets (i. e. accounts receivable and marketable securities). Marketable securities are those securities which can be converted into cash quickly. Examples of marketable securities are treasury bills, saving bills, shares of stock-exchange, etc. Receivables refer to accounts receivable. IDEAL RATIO = 1:1 TABLE NO 2 QUICK RATIO (Rs. In crores) YEARSQUICK ASSETSQUICK LIABILITIESRATIO 2007-2008212. 99213. 150. 99 2008-2009302. 26258. 521. 17 2009-2010299. 87261. 581. 15 2010-2011328. 65326. 371. 01 2011-2012336. 5328. 781. 02 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) A quick ratio of 1:1 considered as satisfactory. In the year 2007-2008 it was below the satisfactory position i. e. 0. 99. But in the next two years it is gradually increased to 1. 17 and 1. 15. In 2011-2012, the ratio has decreased from 1. 15 to 1. 02. GRAPH NO 2 QUICK RATIO TURNOVER RATIOS/ACTIVITY RATIOS Activity Ratios are employed to evaluate the efficiency with which the firm manages & utilises its assets. These ratios start the relationship between Sales & Assets. •Working Capital Turnover Ratio Inventory Turnover Ratio •Debtors Turnover Ratio •Collection period Working Capital Analysis Capital required for a business can be classified under two main categories via, (1) Fixed Capital (2) Working Capital Every business needs funds for two purposes •For its establishment •To carry out its day- to-day operations Long terms funds are required to create production facilities through purchase of fixed assets such as P&M, land, building, furniture, etc. Investments in these assets represent that part of firm’s capital which is blocked on permanent or fixed basis and is called Fixed Capital.
Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day–to-day expenses etc. These funds are known as Working Capital. In simple words, working capital refers to that part of the firm’s capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assets keep revolving fast and are being constantly converted in to cash and these cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital.
Concept of Working Capital There are two concepts of working capital 1. Gross Working Capital 2. Net Working Capital The gross working capital is the capital invested in the total current assets of the enterprise. Current assets are those Assets which can convert in to cash within a short period normally one accounting year. Constituents of Current Assets 1) Cash in hand and cash at bank, 2) Bills receivables, 3) Sundry debtors, 4) Short term loans and advances, 5) Inventories of stock as: a). Raw material, b) Work in process, c) Stores and spares, d) finished goods, 6. Temporary investment of surplus funds, 7.
Prepaid expenses, 8. Accrued incomes, 9. Marketable securities. In a narrow sense, the term working capital refers to the Net Working. Net working capital is the excess of current assets over current liability, or, say: NET WORKING CAPITAL = CURRENT ASSETS – CURRENT IABILITIES. Net working capital can be positive or negative. When the current assets exceeds the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income business.
Constituents of Current Liabilities 1. Accrued or outstanding expenses, 2. Short term loans, advances and deposits, 3. Dividends payable, 4. Bank overdraft, 5. Provision for taxation, if it does not amount to approximate of profit, 6. Bills payable, 7. Sundry creditors. TABLE NO 3 WORKING CAPITAL ANALYSIS (Rs. In crores) YEARSTOTAL CURRENT ASSETSTOTAL CURRENT LIABILITIESWORKING CAPITAL ANALYSIS 2007-2008277. 09254. 9632. 33 2008-2009455. 33395. 7180. 44 2009-2010434. 01370. 0663. 95 2010-2011482. 79402. 3059. 62 2011-2012493. 79461. 4622. 13 Source: Annual report of KIRLOSKAR PNUEMATICS CO.
LTD (2007-2008 to 2011-2012) The table reveals that the ratio was 32. 33 in the year 2007 – 2007; it increased to 80. 44 in 2008 – 2009. Further in 2009 – 2010 it had fallen to 63. 95 and in the year 2007-08 it has again fallen up to 59. 62. This shows company has not utilized owners and long-term borrowed funds efficiently. GRAPH NO 3 WORKING CAPITAL ANALYSIS TABLE NO 4 WORKING CAPITAL TURNOVER RATIO (Rs. In crores) YEARSNET SALESWORKING CAPITALWORKING CAPITAL TURNOVER RATIO 2007-2008727. 7722. 1332. 88 2008-2009866. 6659. 6214. 53 2009-2010840. 7363. 9513. 14 2010-2011823. 8880. 4410. 24 011-2012871. 7432. 3326. 96 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007 – 2008 to 2011-2012) A high working capital turnover ratio indicates efficiency in utilization of resources and the ratio has decreasing from 32. 88 in 2007-08 to 14. 53 in 2008-2009. It was gradually decreasing in the following years as 10. 24 in 2010-2011. But in 2011-2012 it was slightly increased to 26. 96. GRAPH NO 4 WORKING CAPITAL TURNOVER RATIO Inventory Turnover Ratio Inventory turnover is the ratio of cost of goods sold by a business to its average inventory during a given accounting period.
It is an activity ratio measuring the number of times per period; a business sells and replaces its entire batch of inventory again. Inventory turnover ratio is used to measure the inventory management efficiency of a business. In general, a higher value of inventory turnover indicates better performance and lower value means inefficiency in controlling inventory levels. A lower inventory turnover ratio may be an indication of over-stocking which may pose risk of obsolescence and increased inventory holding costs. However, a very high value of this ratio may be accompanied by loss of sales due to inventory shortage.
Inventory Holding Period Inventory Holding Period = 12 Months Inventory Turnover Ratio It shows the portion of assets tied up in inventory. TABLE NO 5 INVENTORY HOLDING PERIOD (Rs. In crores) YEARSINVENTORY TURNOVER RATIOPERIODS IN MONTHSINVENTORY HOLDING PERIOD 2007-20086. 43121. 87 2008-20095. 66122. 12 2009-20106. 39121. 88 2010-20116. 56121. 83 2011-20128. 96121. 34 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) From the above table it is clear that the inventory turnover ratio is gradually decreasing from 1. 87 to 1. 34. GRAPH NO 5 INVENTORY HOLDING PERIOD
Debtors Turnover Ratio Debtor turnover ratio indicates the number of times the debtors are turned over during the year. Generally if the value of debtor turnover is high, then there is more efficient in the management of debts and sales. Accounts receivable turnover measures the efficiency of a business in collecting its credit sales. Generally a high value of accounts receivable turnover is favourable and lower figure may indicate inefficiency in collecting outstanding sales. Increase in accounts receivable turnover overtime generally indicates improvement in the process of cash collection on credit sales.
Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors Debtors Collection Period The Debtors/Receivable Turnover ratio when calculated in terms of days is known as Average Collection Period or Debtors Collection Period Ratio. The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash. Debtor Collection Period = (Average Debtors / Credit Sales) x 365 Debtor Collection Period = 12 Months Debtors Turnover Ratio TABLE NO 6 DEBTORS COLLECTION PERIOD (Rs. In crores) YEARSDEBTORS TURNOVER RATIOPERIODS IN MONTHSDEBTORS COLLECTION PERIOD 2007-20083. 5123. 69 2008-20093. 18123. 15 2009-20103. 32123. 61 2010-20113. 43123. 49 2011-20124. 73122. 54 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) The table reveals that there is an increase in both debtors and sales, so the average collection period is decreasing every year. That shows that recovery of money from debtors is quick in the year 2009-2010, 2010-2011, and 2011-2012. GRAPH NO 6 DEBTORS COLLECTION PERIOD PROFITABILITY RATIOS The Profitability Ratios are used to calculate the efficiency of operating of the company.
Profits are the ultimate goal of every company and it should be continuously evaluated in terms of profits. A class of financial metrics that are used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. Gross Profit Ratio The first profitability ratio in relation to sales reflects the efficiency with which management produces each unit of product. It expresses the relationship between gross profit and sales. Components Gross profit would be the difference between net sales and cost of goods sold.
Cost of goods sold in the case of a trading concern would be equal to opening stock plus purchases, minus closing stock plus all direct expenses relating to purchases. In the case of manufacturing concern, it would be equal to the sum of the cost of raw materials, wages, direct expenses and all manufacturing expenses. In other words, generally the expenses charged to profit and loss account or operating expenses are excluded from the calculation of cost of goods sold. TABLE NO 7 GROSS PROFIT RATIO (Rs in Crores) YEARGROSS PROFITSALESGROSS PROFIT RATIO 2007-20008216. 54727. 779. 04 2008-2009467. 42866. 6613. 0 2009-2010480. 97840. 7314. 20 2010-2011505. 45823. 8812. 65 2011-2012508. 87871. 7411. 87 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) In the year 2008-2009 there was an increase in sales as well as increase in gross profit. So ratio of gross profit increased from 9. 04 to 13. 00. In the year 2009-2010, the ratio has increased to 14. 20. But thereafter there is continuous decrease in gross profit ratio. GRAPH NO 7 GROSS PROFIT RATIO Net profit Ratio This measures the relationship between net profits and sales of a firm. Depending on the concept of net profit employed.
A high net profit margin would ensure adequate return as well as enable a firm to with stand adverse economic conditions when selling price is declining cost of production is rising and demand for the product is failing. A low net profit merging would have the opposite implications. Net profit is used to pay for interest, tax and distribution to the owners. The higher the net profit margin ratio the better. TABLE NO 8 NET OPERATING INCOME (Rs. In crores) YEARSNET OPERATING PROFITSALESNET OPERATING PROFIT RATIO 2007-200829. 71727. 774. 08 2008-200967. 61866. 667. 80 2009-201084. 49840. 7310. 05 2010-201146. 5823. 885. 66 2011-201262. 21871. 747. 14 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) From the above table it is inferred that the ratio has increased from 4. 08 to 10. 05. 80 in the year 2007 to 2010. But in the year 2010 – 2011 it has decreased to 5. 66 ; in the year 2011 – 2012 it has raised to 7. 14. GRAPH NO 8 NET OPERATING INCOME Selling ; Administration Ratio Selling ; Administration Expenses, also called Selling, General ; Administrative Expenses, are the net operating expenses of the business that are not part of the cost of the goods sold. Also referred to as SG;A.
For a manufacturer these are expenses outside of the manufacturing function. (However, interest expense and other non-operating expenses are not included; they are reported separately. ) These expenses are not considered to be product costs and are not allocated to items in inventory or to cost of goods sold. Instead these expenses are reported on the income statement of the period in which they occur. These expenses are sometimes referred to as operating expenses. Examples include Advertising and the Salaries. Selling General and Administrative Expenses (%) = Selling General and Administrative Expenses / Revenue*100 TABLE NO 9
SELLING AND ADMINISTRATION RATIO (Rs. In crores) YEARSSELLING AND ADMINISTRATION EXPENSESNET SALESSELLING AND ADMINISTRATION RATIO 2007-200818. 36727. 772. 52 2008-200944. 39866. 665. 12 2009-201050. 22840. 735. 97 2010-201150. 42823. 886. 11 2011-201263. 21871. 747. 25 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) From the above table the selling and administration expenses were gradually increasing from 2007-2008 to 2011-2012. The ratio has increased from 2. 52 in 2007-2008 to 6. 11 in 2010-2011 and in the year 2008-2009 and 2009-2010 it was 5. 12 and 5. 97 and in 2011-2012 it was 7. 5 respectively. GRAPH NO 9 SELLING AND ADMINISTRATION RATIO Miscellaneous Expenses Ratio A miscellaneous expense is often a general ledger account in which very small amounts are recorded. For example, the balances in Cash Short and Over, Bank Service Charges, ; Donations might be combined into one amount and presented on the income statement as Miscellaneous Expense. Miscellaneous Expenses Ratio = Miscellaneous Expenses Net Sales TABLE NO 10 MISCELLANEOUS EXPENSES RATIO (Rs in Crores) YEARMISCELLENCEOUS EXPENSESNET SALESMISCELLANEOUS RATIO 2007-200081. 44727. 770. 19 2008-20092. 50866. 60. 28 2009-20101. 68840. 730. 19 2010-20114. 04823. 880. 49 2011-201262. 45871. 747. 16 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) There was an increase in Net sales also. So the ratio increased from 0. 19 to 7. 16 in the year 2011-2012. GRAPH NO 10 MISCELLANEOUS EXPENSES RATIO LEVARAGE RATIO The solvency or leverage ratios throws light on the long term solvency of a firm reflecting its ability to assure the long term creditors with regard to periodic payment of interest during the period and loan repayment of principal on maturity or in predetermined instalments at due dates.
There are thus two aspects of the long-term solvency of a firm. a)Ability to repay the principal amount when due b)Regular payment of the interest. Debt – Equity Ratio A measure of a company’s financial leverage calculated by dividing its total liabilities by stockholders’ equity. It indicates what proportion of equity and debt the company is using to finance its assets. This ratio is also known as financial leverage. Debt-to-equity ratio is the key financial ratio and is used as a standard for judging a company’s financial standing. It is also a measure of a company’s ability to repay its obligations.
When examining the health of a company, it is critical to pay attention to the debt/equity ratio. If the ratio is increasing, the company is being financed by creditors rather than from its own financial sources which may be a dangerous trend. Lenders and investors usually prefer low debt-to-equity ratios because their interests are better protected in the event of a business decline. Thus, companies with high debt-to-equity ratios may not be able to attract additional lending capital. TABLE NO 11 DEBT-EQUITY RATIO (Rs. In crores) YEARSTOTAL DEBTSEQUITYDEBT-EQUITY RATIO 2007-200844. 233. 271. 33 2008-2009146. 8050. 522. 91 2009-2010140. 7850. 522. 78 2010-2011151. 5050. 522. 99 2011-2012139. 9250. 522. 76 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) From the above table it is clear that there is an increase in debt-equity ratio year by year. There is an increase in total debts and there is stable position in shareholder’s equity (i. e. Reserves and Surplus). The ratio has increased from 1. 33 to 2. 99 in the year 2007 to 2011. In the year 2011-2012, it was 2. 76. GRAPH NO 11 DEBT-EQUITY RATIO Total Asset Turnover Ratio
Asset turnover ratio is the ratio of a company’s sales to its assets. It is an efficiency ratio which tells how successfully the company is using its assets to generate revenue. The higher the Total Asset Turnover is, the more effective use of the company’s investments Total Assets have become. Total Asset Turnover can be very useful if you watch what actually makes up the Total Assets of the company. A company with low Inventories and strict credit policies to keep Accounts Receivable low will help the Total Asset Turnover look even better. Of course it depends on all of the company’s Total Assets.
Total Asset Turnover Ratio = Net Sales/ Average Total Assets TABLE NO 12 TOTAL ASSETS TURNOVER RATIO (Rs. In crores) YEARSNET SALESAVERAGE TOTAL ASSETSTOTAL ASSET TURNOVER RATIO 2007-2008727. 77233. 713. 11 2008-2009866. 66282. 153. 07 2009-2010840. 73309. 552. 71 2010-2011823. 88339. 092. 43 2011-2012871. 74347. 022. 51 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) The table reveals that in the year 2009-2010, there was a decrease in the ratio from 3. 11 to 2. 71. In the year 2010-2011, the ratio has decreased from 2. 71 to 2. 3. But it was slightly increasing in the year 2011-2012. GRAPH NO 12 TOTAL ASSETS TURNOVER RATIO Fixed Asset Turnover Ratio Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets. An increasing trend in fixed assets turnover ratio is desirable because it means that the company has less money tied up in fixed assets for each unit of sales.
A declining trend in fixed asset turnover may mean that the company is over investing in the property, plant and equipment. This ratio is usually used in capital-intensive industries where major purchases are for fixed assets. This ratio should be used in subsequent years to see how effective the investment in fixed assets has been. Fixed Assets Turnover Ratio = Net Sales / Net Fixed Assets TABLE NO 13 FIXED ASSETS TURNOVER RATIO (Rs. In crores) YEARSNET SALESFIXED ASSETS FIXED ASSET TURNOVER RATIO 2007-2008727. 7790. 208. 06 2008-2009866. 6677. 9511. 11 2009-2010840. 7375. 1511. 18 2010-2011823. 8865. 7712. 52 011-2012871. 7455. 5715. 68 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) There has been a continuous increase in sales. From the year 2008-2009 to 2011-2012, there was a decrease in average fixed assets and an increase in sales. So ratio increased from 8. 06 to 15. 68 in the year 2011-2012. GRAPH NO 13 FIXED ASSETS TURNOVER RATIO Fixed Assets to Proprietor’s Fund Ratio The proprietary ratio (also known as the equity ratio) is the proportion of shareholders’ equity to total assets, and as such provides a rough estimate of the amount of capitalization currently used to support a business.
If the ratio is high, this indicates that a company has a sufficient amount of equity to support the functions of the business, and probably has room in its financial structure to take on additional debt, if necessary. Conversely, a low ratio indicates that the business may be making use of too much debt or trade payables, rather than equity, to support operations (which may place the company at risk of bankruptcy). Thus, the ratio is a general indicator of financial stability. Fixed assets to proprietor’s fund ratio establish the relationship between fixed assets and shareholders’ funds.
The purpose of this ratio is to indicate the percentage of the owner’s funds invested in fixed assets. Fixed Assets to Proprietors Fund = Fixed Assets / Proprietors Fund TABLE NO 14 FIXED ASSET TO PROPRIETARY FUND RATIO (Rs in Crores) YEARFIXED ASSETPROPRIETARY FUNDFIXED ASSET TO PROPRIETARY FUND 2007-20008138. 52125. 251. 10 2008-2009337. 97165. 982. 03 2009-2010331. 74195. 271. 69 2010-2011332. 75189. 641. 75 2011-2012329. 71191. 481. 72 Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) From the above table it is inferred that the ratio has increased in the year 2008-2009 from 1. 0 to 2. 03. But it was decreased as 1. 75 to21. 72 in the year 2010-2011 and 2011-2012 respectively. GRAPH NO 14 FIXED ASSET TO PROPRIETARY FUND RATIO Current Assets to Proprietor’s Fund Ratio Current Assets to Proprietors’ Fund Ratio establish the relationship between current assets and shareholder’s funds. It basically shows the general financial strength of the company. It also tests the soundness of the capital structure. Higher the ratio better is the long term solvency position of the company. Its components are: Shareholder’s funds and Total assets.
Shareholder’s funds include equity share capital, all reserves and surpluses. Total assets include all assets, including goodwill. The purpose of this ratio is to calculate the percentage of shareholders’ funds invested in current assets. Current Assets to Proprietors Funds = Current Assets / Proprietor’s Funds TABLE NO 15 CURRENT ASSET TO PROPRIETARY FUND RATIO YEARCURRENT ASSETPROPRIETARY FUNDCURRENT ASSET TO PROPRIETARY FUND 2007-2008233. 71125. 251. 86 2008-2009282. 15165. 981. 69 2009-2010309. 55195. 271. 58 2010-2011339. 09189. 641. 69 2011-2012347. 02191. 481. 86
Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) From the above table it is clear that the ratio has decreased from 1. 86 to 1. 58 in 2007-2010. But it has increased to 1. 8 in the year 2011-2012. GRAPH NO 15 CURRENT ASSET TO PROPRIETARY FUND RATIO Fixed Asset to Current Asset Ratio Capital Assets, also known as Fixed Assets, are those assets such as land, buildings, and equipment acquired to carry on the business of a company with a life exceeding one year. In financial records these Fixed Assets are usually expressed as the cost of the asset minus depreciation.
Current Assets are items such as cash, inventory, and accounts receivable that are currently cash or expected to be turned into cash within one year. Asset Turnover may be used as a broad measure of asset efficiency. It’s calculated by dividing sales revenue by the total assets. Fixed Asset to Current Asset Ratio = Fixed Asset / Current Asset TABLE NO 16 FIXED ASSET TO CURRENT ASSET RATIO (Rs In Crores) YEARFIXED ASSETCURRENT ASSETFIXED ASSET TO CURRENT ASSET RATIO 2007-20008138. 52233. 710. 59 2008-2009337. 97282. 151. 19 2009-2010331. 74309. 51. 07 2010-2011332. 75339. 090. 98 2011-2012329. 71397. 710. 95
Source: Annual report of KIRLOSKAR PNUEMATICS CO. LTD (2007-2008 to 2011-2012) From the table it is inferred that the ratio of current assets to fixed assets was increased in the year 2008-2009. But it was reduce in the following years up to 0. 95 in 2011-2012. This shows that the major parts of the assets was locked up in the form of current assets. GRAPH NO 16 FIXED ASSET TO CURRENT ASSET RATIO Chapter V Findings, Suggestions & Conclusions CHAPTER V The annual report of Kirloskar Pneumatic Co Ltd for the last five years from 2007 – 2008 to 2011 – 2012 & the analysis of their ratios have been attempted in the previous chapter.
The findings of the study have been presented below and suggestions to overcome the problems are specified in this chapter. FINDINGS 1. A quick ratio of 1:1 considered as satisfactory. In the year 2007 – 2008 it was below the satisfactory position i. e. 0. 99. But for the next two years it gradually increased to 1. 17 and 1. 15. In 2010 – 2011 & 2011 – 2012, the quick ratio has decreased from 1. 15 to 1. 01 due to increase in current liabilities. 2. In the year 2008 – 2009, there was a decrease in inventory turnover ratio. This shows an increase in inventory holding period.
In the year 2010 – 2011 and 2011 – 2012 there was a decrease in holding period. That suggests that there was a decrease in sales and increase in inventory turnover ratio. 3. There was an increase in both debtors and sales, so the average collection period is decreasing every year. That shows that recovery of money from debtors is quick. 4. There was an increase in debt-equity ratio year by year. There was an increase in total debts and there is stable position in shareholder’s equity (i. e. Reserves & Surplus) so the ratio has increase to 2. 76. 5.
In the year 2009 – 2010, there was an increase in average total assets. The ratios have been decreased from 3. 11 to 2. 71 in the year 2010 – 2011. But it was slightly increasing in the year 2011 – 2012. 6. There has been a continuous increase in sales. So the ratio has been increased from 8. 06 to 15. 68 in the year 2011 – 2012. 7. The current ratio was decreasing from 1. 24 to 1. 29; this indicates that it may be difficult for the company to pay its current liabilities. 8. A high working capital turnover ratio indicates efficiency in utilisation of resources and the ratio has decreasing from 32. 8 in 2007- 2008 to 14. 53 in 2008- 2009. It was gradually decreasing in the year 2010 – 2011. It slightly increased to 26. 96 in the year 2011 – 2012. 9. The Net Operating profit was increasing from the year 2007 – 2008 to 2011 – 2012. The ratio has increased from 4. 08 to 7. 14 in the year 2011 – 2012. But in the year 2010 – 2011 the ratio has decreased to 5. 66. 10. The proprietary funds also increased in the year 2009 – 2010. The ratio has increased in the year 2010 to 2012. SUGGESTIONS The following suggestions are recommended to improve the performance of the concern 1.
Acid test ratio is in satisfactory position. It shows the concern financial soundness. They should the same level with regards to their quick assets and liabilities. 2. The current ratio is below the idle one, so they have to maintain sufficient liquid resources to meet its short term liabilities. 3. The debtor’s turnover ratio reveals that there is an efficient management of assets & they should encourage the quick recovery of money from debtors. 4. A low operating ratio is more favourable as it would leave a higher margin for operating profit. 5.
A high gross profit ratio is a sign of good management, but it is slightly decreasing. The company should minimize its cost of production according to its sales. 6. The company should increase its debt equity ratio, so that they can maintain the relative proportion of debt and equity in financing the assets of the firm. CONCLUSION Ratio analysis is a powerful tool of financial analysis. It is used as a device to analyse & interpret the financial health of a firm. Analysis of financial statements with the aid of ratios helps the management in decision making regarding the granting of credit and making investments.
These ratio analyses gave the clear picture of firm’s financial condition. The study is expected to help understanding the overall financial performance of the company. Further, it is hoped that the suggestions made shall bring the attention of management. •The quick ratio is in satisfactory position •Current ratio is nearer to minimum acceptable level, so it may be difficult for the company to pay its current liabilities. •Proprietary ratio is decreasing; it shows a low proportion is invested in fixed assets. A high fixed asset turnover ratio measures the company’s effectiveness in generating sales from its investments in plant, property & equipment.