A REPORT ON
“FINANCIAL ANALYSIS OF KAJARIA CERAMICS LTD” A Project report submitted in the partial fulfillment of the requirement for the degree
Of
Master of Business Administration (MBA) KAJARIA CERAMICS LTD.
Submitted To:
Submitted By:
Mr. AMRENDRA TIWAREE
SYED MOHD. ZIYA
Lecturer-
MBA 3rd semester (Finance)
D.A.M.S. College
Roll No. 0904870089
DAYANAND ACADEMY OF MANAGEMENT STUDIES GOVIND NAGAR, KANPUR (AFFILIATED TO G.B.T.U. LUCKNOW, U.P.) 0
CERTIFICATE
This is certify that Mr. Syed Mohd Ziya worked during the period w.e.f. 15.07.2010 to 14.08.2010 on the development of the project “Financial analysis of Kajaria Ceramics Limited”, in the partial fulfillment of the requirement for the degree of MBA (Master of Business Administration) under my guidance & supervision. To the best of my knowledge, the matter represented in this project is a bonafide & genuine piece of work. During her association with the project I found him to be sincere & motivated individual. He has shown keen interest in this project & him conduct was excellent. I wish him all success in his career.
Place:
Date: 25-8-2010
Rajesh Sharma ASST. GEN. MANAGER (P & A) Kajaria Ceramics Ltd. Sikandrabad
1
Guided by: Mr. Rajesh Sharma ASST. GEN. MANAGER (P & A) Kajaria Ceramics Ltd. Sikandrabad
DECLARATION I, SYED MOHD ZIYA, S/O Mr. SYED SHAKEEL AHAMED is a bonafied student of M.B.A. at DAYANAND ACADEMY OF MANAGEMENT STUDIES. My enrollment number is 0904870089. I hereby declare that present summer internship report titled Account of assets is my original work. I conducted this study at KAJARIA CERAMICS LTD. SIKANDRABAD during 15july, 2010 to 14 Aug, 2010. This report has not been submitted earlier either with DAYANAND ACADEMY OF MANAGEMENT STUDIES and any other educational organization as an essential requirement for the award of any Diploma/ Degree.
Date- 17/Aug/2010
Signature: (SYED MOHD ZIYA)
2
PREFACE
Someone has rightly said that practical knowledge is far better than classroom teaching. During this project I fully realized this and I came to know about how a retailer chooses among a varied range of products available to him.
The subject of my study is Financial Analysis of Kajaria Ceramics Ltd., which has slowly but steadily evolved from a beginner to a corporate giant earning laurels and kudos throughout.
The report contains first of all brief introduction about the company. Finally there comes data presentation and analysis in the end of my project report. I also put forward some of my suggestion hoping that they will help Kajaria Ceramics Ltd. Move a step forward to being the very best.
3
ACKNOWLEDGEMENT I acknowledge my deep sense of gratitude for giving me this opportunity to undergo my project with Kajaria Ceramics Ltd. At this moment of successful completion of the project, I would like to express my sincere thankfulness and indebtedness to all those who extended their kind help by spending their precious time in explaining the various intricacies of the subject and suggesting the correct approach to me. To start with I would like to thank not once but twice Mr.Ashok Kajaria (Chairman) and Mr. Rishi kajaria (M.D.) whose contribution to the project is beyond my capacity of expression. I would like to thank Mr. ARUN LATH (GM), Mr. ANIL PRABHAKAR (AGM A/C), & Mr. Deepak Gupta (Dpt. MGR), who had been my project guide for their understanding, gracious and constructive advice which played a major in completion of this project. At
last
but
not
Mr. AMRENDRA TIWAREE
least
I
would
also
like
to
thanks
(Lecturer) Guide for providing insights about
performing our work. This Project has been a great learning outcome for me and without his help it would not have possible for me to this project.
4
CONTENTS INTRODUCTION OF K.C.L 1.
KCL - AN OVERVIEW Company profile Marketing pattern Company‟s business mission & objectives Board of directors KCL contribution in India Bankers Major competitors Technician collaborations Internal control system
2.
AWARDS WON
3.
SWOT ANALYSIS OF KCL
4.
POLICIES ADOPTED Quality policy (ISO 9001:2000) Environmental policy (ISO 14001) Health & safety policy (OHSAS) ISO 18001 Social accountability policy
5.
PRODUCT PROFILE OF KCL
6.
MANUFACTURING PROCESS
7.
RESEARCH & DEVELOPMENT Methodology Utility of the research Extensive literature survey Collection of data & analysis of data
8.
PERFORMANCE OF THE COMPANY
9.
FINANCE OVER VIEW Organization Chart of Finance Department 5
10.
KCL FINANCIAL REPORT Balance Sheet Profit & Loss
11.
FINANCIAL ANALYSIS Introduction Objective of Study Types of Financial Analysis Utility of Financial Analysis Financial Ratios & Utility
12.
INTRODUCTION OF RATIO ANALYSIS Introduction Nature Uses of Financial Statements of Different Parties Advantages of Ratios Role of Financial Ratios Objective of the Study
13.
CLASSIFICATION OF RATIOS Traditional Classification Functional Classification Classification According To Nature Classification According To Importance
14.
CONCLUSTION
15.
RECOMMENDATIONS
LIST OF CHARTS Chart.1 Chart.2 Chart.3 Chart.4
Turnover (Sales) Net Profit Capacity Production
6
EXECUTIVE SUMMARY Kajaria Ceramics Limited, FMCG with a turnover of Rs.766.75 crore manufacturing and selling ceramic Floor & Wall Tiles under the brand name "Kajaria". It is the first tile company in India accredited with ISO 9002 Certification and recipient of one of the Global Growth company award from the "World Economics Forum". The company has its corporate office at New Delhi and Regional offices at Ahmedabad, Bangalore, Calcutta, Mumbai and Chennai. Today kajaria is a well established name in the corporate world. From a modest beginning of 3,000 sq.mts per day, the company today produces over 33,000 sq.mts of tiles every day, clearly demonstrating Kajaria‟s growing strength over the years and also indicating rising customer preference for the brand. Manufacturing, standards, technology user trends, competitiveness, customer preference all have played a vital role in shaping Kajaria success story. Besides this, the company enjoys a reputation of rendering products that's at par with international standards.
Within 11 years of operation, Kajaria has moved very close to its vision of becoming a leader worldwide. Kajaria Ceramics has grown at a breathtaking pace during the last decade in turnover, profits and foreign earnings. With the new plant at Bhiwadi, Rajasthan becoming fully operational, it has almost doubled its capacity from 80,000 TPA 1, 50,000 TPA. The first plant in Sikandrabad U.P. already has the distinction of always producing over 100% of its capacity. 7
The company's dedicated Research and Development efforts have also proved to be catalytic in its leadership position.
These include development of special effects floor tiles and development of FLOOR BORDERS matching PEI_V Tiles having high abrasive resistance. In house R & D has also enable Kajaria to imbibe innovations and technical methods of production based on Monoporosa Technology.
Kajaria has always been alert to changing market trends and preferences, by producing tiles in myriad designs and colours‟. Infect Malaria is the only tile company in the country to have an impressive range of over 400 designs with a many as 50 different variation in Group 5 category, demonstrating out commitment towards
customer
satisfaction.
Kajaria
also
continued
to
improve
its
communication process with architects, Builders, masons and interior decorators and designers in order to update their products information and provide them convenient access to its diverse brands, designs, and colours. Using the effective technique of sampling with frequent and regular communication through pamphlets, products folders and catalogues helped to keep the Kajaria brand on the top_of_mind scale among the priority target customers. In additional, the company emphasis on participating in national and local exhibitions also enabled it to enhance its visibility and reach on a continuous basis, throughout the year. This also helped to inspire and influence product usage at a more rapid pace. 8
Kajaria's dominating presence in the country has been further consolidated by a uniquely engineered network of dealers. These highly visible retail outlets have sprung up not only in all major cities and towns but even in the most strategic market locations.
A huge force of sub dealers cover and breadth of the country. The tremendous advantage from this marketing strength has been the easy access to and availability of Kajaria's entire of the customers. In addition, the vast range and choice enables customers to select their own designs and create their own individual combinations in exclusive preferences and tastes.
With the tremendous spurt taking place in the realm of information technology, Kajaria is reaping the benefits from the new medium, by hosting its own website on the internet. The Kajaria website provides wealth of information on its entire range of wall and floor tiles, borders including detailed information on the various specifications. Exquisitily designed, the website contains the full range of visually appealing graphics on designs, colours and size. With access to this facility, customers can avail the tremendous benefits of e-commerce of Kajaria tiles, and even place their orders for quick delivery.
9
10
COMPANY PROFILE & OVERVIEW
The company was incorporated in December, 1985 with an object of setting up Ceramic Tile Plant with an initial capacity of 12,000 MT at Sikandrabad (U P) in technical collaboration with Todagres SA, Spain. The company had started the commercial production on 12th August, 1988.
Since then, the company has
expanded its capacity at its existing location for floor tiles twice during 1990-91 and 91-92 by 14,000 MT each taking its floor tile capacity 40,000 TPA. In 199394, the company added Wall Tile capacity of 20,000 TPA with Monoporosa technology which was expanded to 40,000 TPA in 1995-96. The company set up a green field Plant at Village Gailpur (Rajasthan) of 70,000 MT capacity for the manufacture of Monocuttra Wall tiles in March, 1998. The company carried out the modernization of its existing Plant at Sikandrabad in January, 99, which has resulted increase in capacity from 80,000 MT to 90,000 MT and enhancing the life of the Plant. The total present capacity of the company is 170,000 MT.
Both the Plants have adopted single firing technology (Monoporosa technology), which is the most latest, cost efficient and more productive technology. The company is marketing its products since inception under the brand name of „Kajaria‟ which is a well-known brand within the industry in India and abroad. The company has also been selected as one of the top performing Global Growth Company from India by World Economic Forum in 1997. Kajaria 11
is the first ceramic tile company in India and may be 5th in the world accredited with ISO 9002 certification for its quality system. During the year the company has also been accredited with the “ISO 14001” certification for the Environmental Management System for manufacturing Ceramic Tiles. The company is the No. 1 preferred company for ceramic tiles in India. The company has also been given OHSAS 18001 certificate by M/s. TUV Suddeutschland, Germany. The Certificate has been given for the commitment of the company for fulfilling international standards in Occupational Health and Safety Management System - Specification. Kajaria Ceramics is the first ceramic tile company in the world to get this certification. Kajaria has an all India network of 600 dealers. Kajaria is selling 80% of its products to the retail consumer and 20% to the projects.
Since last year company
has franchised exclusive tile Shoppe & tile galleria on all India bases. It displays the mock bathroom & kitchen with various combinations of tiles. It helps in selection of the product/ design for the floor & walls. These also have customer support staff, which advises on sizes, combinations & laying techniques. The company has opened 11 retail European styled showrooms located in various parts of the country. Kajaria Ceramics has also opened a showroom in Melbourne, Australia.
The company is the largest exporter of ceramic tiles from India and accounts for 40% of total exports of ceramic tiles from India. The Company‟s exports are mainly to Australia, Sri Lanka, Bahrain, UAE, Saudi Arabia and Oman. The 12
company has won 7 exports award including the National Export award given in May 2000.
The company has closed the Financial Year 2009-10 with a turnover of Rs 7667.54 million as against the turnover of Rs 6911.99 million in the corresponding financial year. The turnover is high mainly because of increase in demand in domestic market, effective cost control measures, better cash management and reduction in the interest rate. The company has closed the turnover of the 1st quarter of 2009-10 is 1598.8 million which ends on 30th of June.
13
MARKETING PATTERN
We have a manufacturing unit at Sikandrabad, Distt. Bulandshahar [U.P.] and the other at Village- Gailput, Distt. Alwar (Raj.). We are manufacturing Floor Tiles at Sikandrabad Plant & Wall Tiles at Gailpur Plant. We sell our goods through dealers and also directly to Builders, Contractors and others. The prices are charged as per price lists applicable for the particular area. On all the clearances the Excise Duty is being paid under Section 4A on M.R.P. less abatement. The goods are delivering at the Factory gate to the Buyer/ on behalf of the Buyer to the transporter. The freight at actual is paid by the Dealer/Buyer directly to the transporter at destination. In few cases, the freight at actual is paid by us which is show separately in the Invoice and realized from the buyer/dealer.
14
COMPANY‟S BUSINESS MISSION & OBJECTIVES BUSINESS MISSION ***********************
To maintain a leading position as suppliers of Ceramic Wall & Floor Tiles the
company utilizes its capabilities and resources to expand the business into
allied areas and other priority sectors of the economy like housing projects etc…
BUSINESS OBJECTIVES *****************************
GROWTH Expectations to ensure a steady growth by enhancing the competitive edge of Kajaria Ceramics Ltd.
PROFITABILITY To provide a reasonable and adequate return on capital employed, primarily through improvements in operational efficiency, capacity utilization, productivity and generate adequate internal resources to finance the company‟s growth.
15
CUSTOMER FOCUS To build a high degree of customer confidence by providing increased value for his money through international standards of product quality, performance and superior services through dealer network.
PEOPLE – ORIENTATION To enable each employee to achieve his potential, improve his capabilities, perceive his role and responsibilities and participate and contribute positively to the growth and success of the company. To invest in human resources continuously and be alive to their needs.
TECHNOLOGY Achieve technological excellence in operations by development of indigenous technologies and efficient absorption and adaptations of imported technologies to suit business need and priorities and provide the competitive advantage to the company.
IMAGE To fulfill and the comply the relevant legislation regulations and the expectations which employees, customers and the country at large have from Kajaria Ceramics Ltd. 16
BOARD OF DIRECTOR
(As on 15.07.2010)
Mr. A. K. Kajaria
: Chairman & Managing Director
Mr. D. D. Rishi
: Jt. Managing Director
Mr. R. P. Goyal Mr. D. P. Bagchi Mr. R. K. Bhargava Mr. R. R. Bagri Mr. Chetan Kajaria Mr. Rishi Kajaria
Mr. R. C. Rawat
: V.P. (F&A) & Company Secretary Is the Compliance Officer of the Company.
17
Committees of the Board Audit Committee Mr. R. P. Goyal
: Chairman
Mr. R.K. Bhargava Mr. R.R. Bagri Share transfer and Investors Grievance Committee Mr. R.R. Bagri
: Chairman
Mr. A. K. Kajaria Mr. D. D. Rishi Remuneration Committee Mr. A. K. Kajaria
: Chairman
Mr. D.P. Bagchi Mr. R. K. Bhargava Mr. R. R. Bagri Project Management Committee Mr. A.K. Kajaria
: Chairman
Mr. D.D. rishi Mr. Chetan Kajaria Mr. Rishi Kajaria
18
KCL CONTRIBUTION IN INDIA
CORPORATION OFFICE J-1/B-1 (Extn.), Mohan Co-operative Industrial Estate, (Opp. Badarpur Thermal Power Station), Mathura Road, New Delhi – 110 044, India. Phone: 26946409, Fax: 91-11-26946407, 26949544 Email:
[email protected] Website: http://www.kajariaceramics.com
REGIONAL OFFICE MUMBAI : No.201-208, Bonanza, 2nd Floor, Shri Mathura das Vasanji Road, (Andheri Kurla Road), J.B. Nagar, Andheri (East), Mumbai-400 059 Phone: 28203506, 28203507, Fax: 28203509, Email:
[email protected]
KOLKATA: Central Plaza, 2/6, Sarat Bose Road, Flat No.807, Kolkata – 700 020 Phone: 24754820, 24762647, and 24763179 Fax: 24748012 Email:
[email protected]
19
AHMEDABAD: 202, Anand Mangal-II, behind Femina Town, C.G.Road, Navrangpura, Ahmedabad. Phone: 26465515, 26465516 Fax: 26566669 Email:
[email protected]
CHENNAI: 28, North Usman Road, T.Nagar, Chennai-600 017 Phone: 28144323, 28144324 Fax: 28144323 Email:
[email protected]
COCHIN: No.52, 2nd Floor, North Square, Paramara Temple road, Ernakulum, Kerala. Phone: 2396433, 2393364 Fax: 2396433 Email:
[email protected]
REGISTERED OFFICE A-27 & 28, Industrial Area, Sikandrabad, (Distt) Bulandshahr [UP] Phone: (05735) 222819,222393, 223353 Fax: (05735) 222140 Email:
[email protected],
[email protected] [email protected]
20
MANUFACTURING UNITS
KAJARIA CERAMICS LTD.SIKANDRABAD A-27/28/29, Industrial Area, Sikandrabad, [Distt.] Bulandshahr {UP} Tel; (05735-222393 / 222819
Fax ;( 05735)-222140
KAJARIA CERAMICS LTD.GAILPUR 19 KM Stone, Bhiwadi – Alwar Road, Village – Gailpur, Bhiwadi [Raj] Tel.; [01493] - 243142, 243143, 243507/8/9
Fax: [01493] -243510
21
BANKERS & SOLICITORS
BANKERS: -
State Bank of India Canara Bank State Bank of Mysore HDFC Bank Ltd. State Bank of Indore Oriental Bank of Commerce
SOLICITORS:Khaitan & Khaitan New Delhi
22
MAJOR COMPETITORS OF KCL
Name of organization
State
NITCO
MAHARASHTRA
H & R JOHNSON
MAHARASHTRA MP, KA
SOMANY PILKINGTONS
HR, GJ
SPARTEK CERAMICS
ANDHRA PRADESH
BELL CERAMICS
GJ, KA
REGENCY CERAMICS
ANDHRA PRADESH
REGMA CERAMICS
TAMIL NADU
SAINTINY CERAMICS
ANDHRA PRADESH
SUNEARTH CERAMICS
MAHARASHTRA
ORIENT CERAMICS
UTTER PRADESH
ANANTRAJ INDUSTRIES
HARYANA
SAVANA TILES
GUJARAT
MURUDESHWER CERAMICS
KARNATAKA
EURO CERAMICS
GUJARAT
GOLD COIN CERAMICS
GUJARAT
23
TECHNICAL COLLABORATIONS
PRODUCT
COLLABORATIONS
CERAMIC GLAZED WALL & FLOOR
TODAGRES, SPAIN TILES
24
INTERNAL CONTROL SYSTEM
The Company has well defined its internal controls in all areas of its operations.
The Company has an independent internal audit activity, which
measures the efficiency, adequacy and effectiveness of other controls in the organization.
A summary of audit observations are placed before the Audit
Committee of the Board of Directors. The Audit Committee‟s recommendations and directions are noted and action taken accordingly. The Company has well defined the procedures to execute financial transactions.
25
AWARDS WON
Kajaria Ceramics Limited has been awarded the "Super Brand" Title. Kajaria is the only ceramics tile company who has won
the
status
of
consumers
"Super
Brand”.
Mr. Ashok Kajaria (Chairman & Managing Director) receiving the award presented by Honorable Minster for Civil Aviation, Mr. Praful Patel
The company has had a unique distinction of having received the President's Award for achieving the highest exports in the industry.
Kajaria Ceramics is the largest exporter of ceramic tiles in India
and
consistently
winning
the
Export
Awards.
Mr. Chetan Kajaria with the National Export Award Presented by The Prime Minister of India.
26
SWOT ANALYSIS OF KCL
STRENGTHS
Low cost Producer of quality tiles. Flexible manufacturing set-up for longer uniformity of product and comprising to international standards fully adaptation, absorption of technology.
WEAKNESSES & RISKS
The ceramic tiles industry is dependent on the growth in the construction and housing sector. In the Budget 02-03, tiles have been delisted from the SSI category and accordingly all manufacturers of tiles come in the excise net. To some extent they have arrived at the competitive level to the organized sector. But due to their negligible overheads, tax evasion and copies of designs of organized sector that retains the potential to under cut the organized sector. There is a stiff competition within the organized sector which is putting pressure on the price also.
27
OPPORTUNITIES
Strong distribution network across the country and overseas market. With focus on retail marketing to build and establish exclusive showrooms across the country and overseas markets. Using innovative display and communicating to customers through exhibitions and trade shows for consistent brand building efforts. Nurturing and cultivating highly skilled human work force by motivating and rewarding them.
THREATS
The Company is continuously on the path to over come any threats arising from imports / competition amongst the tile manufacturers by making the product more competitive in terms of price and quality, which has been possible by reducing the input costs and providing more value added items with dynamic range of designs and colours.
28
QUALITY POLICY (ISO 9001:2000)
We are committed to excel in all areas of Management to be a leader in the manufacture of Ceramic Glazed Floor and Wall Tiles by complying with the requirements of our customers, National and International Standards.
We shall achieve this through continual improvement in our Quality Management System by increasing the productivity, reducing the costs, updating and up-gradation of technology, optimum utilization of resources and active involvement of all employees.
29
ENVIROMENTAL POLICY (EMS) (ISO 14001)
KAJARIA CERAMICS LIMITED, Sikandrabad, Distt. Bulandshahr (UP) an ISO9001:2000 Company manufacturing Ceramic Glazed Floor & Wall Tiles, resolve to achieve excellence and leadership in protection the environment.
We are committed to:
Continual reduction in pollution, consumption of energy, raw material and conservation of other natural resources.
Prevent Air, Land, Water, Noise pollution and Solid waste
Comply relevant environmental legislation regulations and organizations environmental standards.
Provide awareness and training to all our employees on relevant Environmental Management issues.
Its continual improvement and periodical
review of the same.
30
HEALTH & SAFETY POLICY (OHSAS) (ISO 18001)
We believe that safe working methods lead to better business performance, motivated work force and higher productivity.
We shall create a safety culture in organization by:
Continual improvement in Health and Safety Performance
Complying with all current applicable OH & S legislation and organizational standards.
Empowering the relevant employees to ensure safety in their working area.
Promoting Safety & Health awareness among all employees, suppliers and contractors.
Periodically reviewing the policy.
This policy shall be made available to the public.
31
SOCIAL ACCOUNTABILITY POLICY (SA) (SA 8000)
Committed to:
Conformance of national and international standards requirements w.r.t. Social Responsibility and Accountability.
Improve its social performance continuously to ensure better quality of life.
32
PRODUCT PROFILE OF KCL
PRODUCT
SIZE
INSTALLED CAPACITY
FLOOR TILES
300 x 300 MM
(At Sikandrabad Unit)
395 x 395 MM
9700000 M2
400 x 400 MM
WALL TILES
200 X 200 MM
(At Gailpur Unit)
200 X 300 MM
8300000 M2
250 X400 MM
33
PRODUCT DEVELOPMENT
The Company has consistently pioneered and brought in the latest international quality products in India. During the year the Company launched 30X40 cm and 30X45 cm in rectified wall tiles and 45X45 cm joint free floor tiles. It opened seven Kajaria world show room in 2008-09. This has set a new trend and has inspired interior designers/architects to recast their designs to provide a better combination series to discerning customers. The Company has also added a series of new products namely Oasis/Bermuda/Ranger/Smoke. Leo/Diana/Alfa/Cedar etc which has been widely accepted by the customers in the market.
34
MANUFACTURING PROCESS
Ceramic Floor Tile is mainly consists of two parts i.e. Body and Glaze. Body is a mixture of triaxial body i.e. made of three different and distinguishable Raw materials viz:
Hard materials like Quartz or Siliceous material.
Feldspar which acts as a flux on firing. Different clays to give suitable properties required in green and fired stages. All these materials are mixed in pre-determined quantitative proportions and wet milled in Ball mill. The Body slip thus prepared is duly sieved and demagnetized and stored in under ground tanks and is converted into spray dried granules in spray Drier.
Similarly, Glaze is prepared by mixing and wet milling of different constituents like Frit, Feldspar powder, Quartz powder, China clay, Calcined alumina, Zinc oxide and zirconium slicate in Ball mill depending upon the nature of Glazes to be produced. The spray dried granules are fed to the automatic hydraulic press to produce tiles. These pressed tiles are bone dried in vertical drier by maintaining drier temperature in the range 100-110 Deg.Cent. The dried tiles then sent to Glaze Line 35
through belt conveyor for Glaze application. Glazing is done in two coatings either spraying by Disc or by campana depending upon the required surface followed by screen printing and dry powder application as per design requirement.
The Glazed Tiles are automatically loaded in the box car and then transferred to the track for roller hearth kiln feeding. At the kiln entry tiles are unloaded and fed into the kiln in pre-determined firing cycle and temperature. The firing temperature is in the range between 1130 to 1160 Deg.Cent. Depending upon the firing cycle. At the kiln exit, the fired tiles are loaded in the box car and transferred to the
sorting section for selection. In Sorting Section, tiles are sorted as First, Second and Utility depending upon the visible faults and packed in corrugated boxes and sent to B.S.R. for dispatches.
Name of main Raw material:
Clay‟s & Feldspar
Glaze material such as Quartz, Alumina, China Clay & Ball Clay
Frit
Stains & Pigments
Zirconium
36
RESEARCH AND DEVELOPMENT (R&D)
(1) Specified Areas in which (R&D) carried out by the Company:
Development of alternative basic Raw material / Glazes and its formulation for cost reduction with standardization of method in preparation of Body /Glaze for longer uniformity.
Research for further indigenizing pigments/frits for achieving lower firing cycle and better quality/consistency with increase in the production of tiles.
Installation of Surface Glaze Application Machine and upgraded B&T Storage Handling Machines at Kiln Feeding & Exit point.
37
(2)
Benefits derived as a result of the above R & D
The Company is able to reduce the cost of raw material, fuel & spare cost.
Several new orders have been received by the Company due to this R&D in the area of special purpose of laying wall & floor tiles.
The product has become more effective and preferable to all type of consumers due to its products availability in wide range of floor & wall tiles.
(3)
Future plan of action:
The Company has always been a leader in producing special effect Wall & Floor Tiles that shares the advantage of existing market scenario.
Introduction of special effect of Wall & Floor tiles in larger sizes and offering new look completely different from other manufacturers.
Up-gradation and obtain the technique for producing the extra ordinary tiles which would be staining resistance and excellent quality.
38
To improve Company‟s infrastructures and R&D team, so that all products go through an exhaustive Quality Control by use of cheaper and reliable inputs both Imported and Indigenous.
(4)
Company is going to have the captive power co-generation plant
based on waste heat recoveries from Kiln & Spray Driers.
39
Expenditure on (R&D)
(Rs.in Million) 2009-2010 Capital
2008-2009
--
--
Recurring
0.82
0.20
Total
0.82
0.20
Total R&D expenditure as a Percentage Of total turnover. (%)
0.011
0.003
40
PERFORMANCE OF THE COMPANY
During the year, the company has registered a turnover of Rs.7667.54 Million as compared to Rs.6911.99 million in the previous year, showing a growth of more than 11%. Despite cut in Natural Gas supply at Sikandrabad Plant and substantial increase in fuel prices, the profit before interest, dep & tax has increased from Rs.127.5 million to Rs.514.4 million showing an increase of 304%, The profit for the year has been higher mainly on account of increased demand in domestic market, effective cost control measures, better cash management and reduction in the interest cost.
The performance of the Company for the past years (since beginning) has been shown graphically.
41
TURNOVER CHART (Rs. In Million)
'09-10
7667.54
'08-09
6911.99
'07-08
5289.07
'06-07
4368.03
'05-06
3517.92
'04-05
3003.96
'03-04
2491.8
'02-03
2102.4
'01-02
2278.4
YEAR
00-01
2359.3
99-00
2450.8
98-99
1939.4
97-98
1362.2
96-97
1302.1
95-96
1184.8
94-95
730.9
93-94
487.3
92-93
457
91-92
358.6
90-91
251.6
89-90
152.1
88-89
68.3 0
1000
2000
3000
4000
5000
6000
7000
8000
9000
88- 89- 90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00- '01- '02- '03- '04- '05- '06- '07- '08- '0989 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 (Rs. In Million) 68.3 152 252 359 457 487 731 1185 1302 13621939 2451 23592278 2102 24923004 3518 43685289 6912 7668 TURNOVER Rs. IN Million
42
NET PROFIT (Rs. In Million) '09-10
358.52 89.01
'08-09 '07-08
150.23
'06-07
76.73
'05-06
281.71 254.88
'04-05 '03-04
135.4
'02-03
99.3
'01-02
26.3
YEAR
00-01
68.3
99-00
110.6
98-99
67.5
97-98
148.3
96-97
201.9
95-96
210.2
94-95
129.5
93-94
86
92-93
53
91-92
40.4
90-91
25.6
89-90
7.4
88-89
0.1 0
50
88-89
(Rs. In M illion)
0. 1
100
150
200
250
300
350
400
89-90 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 '01-02 '02-03 '03-04 '04-05 '05-06 '06-07 '07-08 '08-09 '0 9-10
7.4
25. 6
40.4
53
86
129. 5 210.2
201. 9 148.3
67.5
110.6
68.3
26. 3
99. 3
135. 4 254. 88 281.71 76.73 150.23 89. 01 358. 52
NET PROFIT Rs. IN LAC
43
CAPACITY CHART
2010
238000
2009
170000
2008 2007 2006 2005 2004
150000
2003 2002 2001
YEAR
2000 1999 1998 1997
90000
1996 1995
80000
1994
60000
1993 1992
40000
1991 1990
26000
1989 1988
12000.000
0
50000
100000
150000
200000
250000
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M Tonne
1200
2600
4000
6000 8000
9000
2E+0
2E+0 2E+0
MT UPTO 1988 SQ,MTR FROM 2010
44
PRODUCTION CHART GLPR SKBD
2003
54642
63208
2002
76198
2001
76417
72409
1999
YEAR
90682
74599
2000
92817
81696
2063
1998
91028
1997
84793
1996
80713
1995
56667
1994
40675
1993
40038
1992
32420
1991
25167
1990
15156
1989
8809 0
20000 1991
1992
40000 1993
1994
1995
60000 1996
1997
80000 2000
2001
100000
1989
1990
8809
15156 25167 32420 40038 40675 56667 80713 84793 91028 81696 92817 90682 97910 54642
GLPR SKBD
97910
1998
1999
2002
2063
72409 74599 76417 76198 63208
120000
2003
MT UPTO 2002 & SQ.MTR FROM 2003
45
ORGANISATION CHART OF FINANCE DEPARTMENT
CHAIRMAN & MANAGING DIRECTOR Mr. Ashok Kajaria
JT. MANAGING DIRECTOR Mr. D.D.Rishi
V. P. (FIN. & A/C) & CO.SECY Mr. R.C.Rawat
AGM (A/C) MR. ANIL PARABHAKAR
SR. MGR. (A/Cs) MR. ARUN LATH
Dpt. Manager (A/Cs) MR. DEEPAK GUPTA
46
KAJARIA CERAMICS LTD
****** ANNUAL REPORT 2009-2010*****
47
BALANCE SHEET BALANCE SHEET AS ON 31 MARCH 2010 PARTICULARS
SCHEDULES
(Rs in Millions) 2009-10 2008-09
SOURCES OF FUNDS : Shareholder Funds: Share Capital Reserves & Surplus
1 2
147.17 1746.23 1893.40
147.17 1473.51 1620.68
Loan Funds Secured Loans Unsecured Loans
3 4
2588.28 40.00 2628.28 548.52 5070.20
2926.67 325.00 3251.67 534.55 5406.90
6
5435.46 1987.57 3447.89 25.43 3473.32
5014.92 1738.39 3276.53 --------3276.53
7
33.94
33.94
8 9 10 11
1402.55 773.21 44.91 755.76 2976.43
1384.57 678.04 78.87 826.82 2968.30
12 13
1197.69 215.80 1413.49 1562.94 5070.20
829.85 42.02 871.87 2096.43 5406.90
Differed Tax Liabilities Total………………………………………………………………… Application of Funds Fixed Assets: Gross Block Less : Accumulated Depreciation Net Block Capital Work-in-progress
Investments Current Assets, Loans & Advances Inventory Sundry Debtors Cash and Bank Balance Loans & Advances
5
(A) Less : Current Liabilities & Provisions Current Liabilities Provisions (B) Net Current Assets (A-B) Total Assets…………………………………..
48
PROFIT AND LOSS (Rupees in Crores) PROFIT AND LOSS ACCOUNT AS ON 31 MARCH 2010 PARTICULARS
SCHEDULES
INCOME : Sales (Gross) Less: Excise Duty On sales
(Rs in Millions) 2009-10 2008-09 7667.54 312.18 7355.36 8.24 2.75 7366.35
6911.99 263.16 6648.83 9.96 -109.47 6549.32
4811.17 612.84 51.63 298.78 435.21 375.24 267.06 6851.93
4,485.61 504.87 46.67 240.94 311.97 582.42 249.37 6421.85
Profit Before Tax
514.42
127.47
Provisions for: Income Tax Fringe Benefit Tax Deferred Tax Income Tax/Wealth Tax Adjustment
130.00 --13.97 11.93
16.80 8.00 12.55 1.13
Profit After Tax Balance as per last year Profit Available for Appropriation
358.52 819.03 1,177.55
88.99 728.51 817.50
73.58 12.22 100.00 -2.40
14.72 2.50 ----18.75
994.15 1,177.55 4.87
819.52 817.50 1.21
Other Income Increase / decrease in stocks
14 15
EXPENDITURE : Material Manufacturing & Other Expenses Salaries, Wages and Amenities Repairs and Maintenance Administrative & Other Expenses Selling & Distribution Expenses Financial Charges Depreciation
Appropriation Proposed Dividend on Equity Shares Corporate Dividend Tax Transfer to General Reserve Transfer from Debenture Redemption Reserve Surplus carried Over Basic/Diluted Earnings per share (Rs.)
16 17 18 19 20 21
49
Significant Accounting Policies and Notes on Accounts
22
50
Introduction
Financial Analysis is the process of determining the operating & financial characteristics of a firm from accounting data & financial statement. 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.
The basic financial statement Of the various reports that the companies issue to their shareholder, the annual report is by far the most important. Two types of information are given in this report, first there is a text that describes the firms operating results during the past year and discusses new development that will affect future operations. Second there are few basic financial statements –the income statement, the balance sheet, the statement of retained earnings and the sources and uses of funds statements.
The financial statement taken together give an accounting picture of the firm‟s operation and financial positions.
51
“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
“The analysis and interpretation of financial statement are an attempt to determine the significance and meaning of the financial statement data so that the forecast may be made of the prospects for future earnings, ability to pay interest and debt maturities (both current & long term) and profitability of a sound dividend policy”
--- R.D. and S. % Mc Muller
Thus, analysis of financial statement means such a treatment of the information contained in the financial statement as to afford a full diagnosis of the profitability and financial position of the firm concerned.
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Nature of financial statement
According to the American institute of certified public accountants “……………… financial statement reflected a combination of recorded facts, accounting conventions and personal judgments.
Objective of financial analysis The number and types of people interested in financial statements have changed radically over a period of time.
They need varied information and
fortunately such information may be classified as relating to profitability, liquidity and solvency. The Project “ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS” is undertaken to fulfill the following objectives. To estimate the earning capacity To gouge the financial position and financial performance of the firm To determine the long terms liquidity of the funds as well as solvency To determine the debt capacity of the firm To decide about the future prospective of the firm
53
Types of Financial Analysis Financial analysis may be classified into different categories dependency upon The material used The method of operation followed in the analysis
Graphical representation Financial Analysis
The material used
the method of operation followed in the Analysis
Internal
External
Horizontal
Vertical
Analysis
Analysis
Analysis
Analysis
54
(a) According to material used Internal analysis – this is performed by the corporate finance and accounting Department and is more detailed than external analysis. These departments have available more details and current information that is available to outsiders. They are able to prepare perform or future statements and are able to produce a more accurate and analysis of the firm‟s strength and weakness. External analysis – outsiders to the firm such as creditors, stock-holders or investment analysis perform this. It makes use of existing financial statement and involves a limited access to confidential information on a firm.
(b) According to modus operation of analysis
Horizontal analysis – this method of classified is based on the modus operandi of analysis. Horizontal analysis refers to the comparison of the trend of each item in the financial statement over a number of years or companies. The figures of this type of analysis are presented horizontally over a number of columns. Such a column represents a year of a company. This type of analysis is also called „dynamic analysis‟ as it is based on data from year to year, rather than on data of any one year
55
Vertical analysis – it is frequently used for referring to ratios developed for one data or one accounting period. Vertical analysis is also called static analysis. This is not very conductive to a proper analysis of the firm‟s financial position and its interpretation as it does not enable to study data in respective. This can only be provided by a study conducted over a number of years so that comparison can be affected. Therefore, vertical analysis is not very useful.
56
Financial Ratio & Utility
A ratio may be defined as a fixed relationship in degree or number between two numbers. In finance, ratios are used to point out relationship that is not obvious from the row data. Some uses financial ratios are following
(1) To Compare Different Companies in Some Industry: ratio can high light the factors association with successful and unsuccessful firms. They can reveal strong firms and weak firms, overvalued undervalued firms.
(2) To Compare Different Industries: Every industry has its own unique set of operating and financial characteristics. These can be identified with the help of ratios.
(3) To Compare Performance In The Different Time Periods: Over a period of years, a firm or a industry develop certain forms that may indicate future success or failure. If relationship changes in firms data over different time periods, the ratio may provide clues and trends of future problems.
57
Utility of Financial Analysis
Following are the advantages of Financial Analysis
With the help of ratios we can determine the ability of the firms to meet its current-obligation. Overall operating efficiency and performance of the firm. Efficiency with which firms is utilizing its various assets in generating sales Revenue. Ratios help in inter-firm and intra-firm comparison. They help in determining the financial strength by highlighting the liquidity. They are useful in comparison of performance. They are also useful in forecasting purpose.
58
59
INTRODUCTION
The ever changing, external & internal environment in which the organization operates to achieve its goal has often leaded to change in the financial structure of the firm. This change may be in the assets structure, capital structure or any other such type of the change have often been found out of bring changes in the liquidity position, level of activity & profitability of organization.
To be aware of various positions parties concerned with the organization often go for the various type of analysis one of them being financial analysis, that is done to know about the present performance of the firm in which they are either going to invest or do business, with. The responsibility of management to look after the effective & efficient utilization of resources of the overall sound financial situation of the organization, increase their requirement to have a detailed report on probably each & every aspect of financial position which may be liquidity, activity, profitability.
The presentation of an elaborate system of ratio analysis was made in 1909 by Alexander wall, who criticized the bankers for its lopsided development owing to their decisions regarding the grant of credit on current ratios alone.
60
Wall, one of the foremost proponents of ratio analysis, pointed out that, in order to get a complete picture, it is necessary to consider relationship in financial statement other than that of current assets to current liabilities – relationship that might be measured quantitatively and used as checks on current ratio. Since then, comprehensive analysis by means of calculation of a series rapidly became „all the range‟. Based upon their wide range of requirement the general trend is of going for the financial ratio analysis, which is also considered to be the most effective one capable of giving detailed & accurate information, more detailed & accurate than any other type of financial analysis. Financial ratio analysis is an arithmetic relationship between two figures. Financial ratio analysis is a study of ratio between various items of groups of items in financial statement. It also based upon various financial ratios, which are calculated from the data provided in company‟s balance sheet & profit and loss account. As per I.M. Pandey “Financial ratio in the relationship between two accounting figures, expressed mathematically “. In addition to the analysis based on current year financial ratio comparison with previous year help us in establishing various methods. Which are further helpful in predicting the future of the concern as well as present financial situation?
61
This report is submitted as a part of brief study of financial condition of “KCL”. This report has been prepared for the management purpose to make them aware of the unit in the various fields of finance.
Detailed analysis is also a part of this report, which is based upon various ratios calculated & various trends seen. Each & every ratio has been analyzed briefly & adequately followed by various inferences & suffusions based on this analysis, which is beneficial for the Top-level Management in the better financial control & planning for future.
This report is just a part of feedback to the Top-level Management for the various plans they made regarding allocation of financial resources etc, which were implemented, in the current financial year.
This report can give a deep insight into various matters if any implementation of the plans for achieving the objective of the firms.
Various other factors are there which limit the accuracy & correctness of the report. Even then a great effort has been kind of analysis & interpretation on personal level.
62
NATURE
Ratio analysis is a powerful tools a financial analysis. In financial analysis, a ratio is used as a benchmark.
For evaluating the financial position & performance of the firm. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio.
Ratio helps to summarized large quantity of financial data & to make
qualitative judgment about the firm‟s financial performance.
This relationship is an index or yardstick, which permits qualitative judgments to be, formed about the firm‟s ability to, meets its current obligations.
It measured the firm‟s liquidity.
The greater the ratio, the greater the firm‟s
liquidity & vice-versa. The point to be note is that a ratio reflecting a quantitative relationship helps to form qualitative judgments. Such is the nature of all financial ratios.
63
USES OF FINANCIAL ANALYSIS FOR DIFFERENT PARTIES
The analysis and interpretation of financial is an important accounting activity. The end users of business statement are interested in these statements primarily as an aid to determine the financial position and the results of the operations. There are different parties interested in the financial analysis of their statement and their aims and to different parties:
To the financial executives : The first party interested in the financial statements analysis is the finance department of the business concern itself to the financial managers such analysis provides a deep insight into the financial condition of the enterprises and the view of the past performance which helps in future decision making. The financial statements give vital information concerning the position of the enterprise as well the result of the operations.
To the top management: The top management of the concern is also increase in the analysis of these statements because it helps them reaching conclusions regarding: Performance appraisal of overall business activities. Enquire about current financial position and long-term strategic planning. Queries concerning the relationship of earning to trends in sales etc. Queries concerning the relationship of earning to investment. 64
To the creditors:
The analysis of these statements is very essential to the
creditors. Also some aspect of enterprises operations are of interested to creditors in regard to liquidity of funds, soundness of financial structure, profitability of the operations, effectiveness of working capital management etc.
To the investors and others: Investors presents as well as prospects are also interested in the measurement of earning capacity of the securities. Investors have been increasingly concerned with the cash generation capability of an enterprise, primarily in term of the flexibility available to such enterprise to acquire other business and new assets on an advantage basis for Thai purpose.
65
ADVANTAGES OF RATIOS
The ratio analysis is one of the most powerful tools of financial analysis. It is use as a device to analysis and interprets the financial health of enterprise. Just like a doctor examines his conclusion regarding the illness and before giving his treatment, a financial analyst analyses the financial statement with various tools of analysis before commenting upon the financial bearlth or weakness of an enterprise. „A ratio is known as a symptom like blood pressure, the pulse rate or the temperature of the individual‟. It is with help of ratios that the financial statements can be analyzed and decision made from such analysis.
HELPS IN DIVISION 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 FORCASTING AND PLANNING: Ratios analysis is of much help in financial forecasting and 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. 66
HELPS IN COMMUNICATING: The financial strength and weakness of a firm are communicated in a more easy 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 COORDINATION: 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 in effective control of the business.
67
ROLE OF FINANCIAL RATIO Aid in financial forecasting:
Ratio analysis is very helpful in financial
forecasting. Ratio relating to the past sales, profits & financial position from the basis for setting future trends. Aid in comparison: With the help of ratio analysis ideal ratio can be composed & they can be used for comparing a firm progress & performance.
Inter firm
comparison with the industry averages is made possible by ratio analysis. Financial solvency of the firm: Ratio analysis indicates the trend in financial solvency of the firm. Solvency has to dimensions: Long-term Solvency Short-term Solvency Long term solvency refers to the financial viability of the firm while Short-term solvency is the liquidity position of the firm.
Communication values: Different financial ratios communicate the strength & financial standing of the firm to the internal & the external parties. They indicate overall profitability of the firm
Other uses: Financial ratios are very helpful in the diagnosis & financial health of a firm. They highlight the liquidity, solvency, profitability & capital gearing etc. of the firm. They are useful tools of analysis of financial performances.
68
OBJECTIVE OF THE STUDY
An analysis of financial statements with the help of „ratio‟ may be termed as “Ratio Analysis”. It implies the process of computing determining & presenting the relationship of the terms or group of items of the financial statements. It also involves the comparison & interpretation of these ratios & use of them for future projections.
And the fund flow arises when the net effect of the transaction is to increase or decrease the amount of working capital.
Normally, a firm will have some
transactions that will change net working capital & some that will cause no change in net working capital include most of items of profit & loss account and those business events, which simultaneously effect both current & non-current balance sheet items.
CLASSIFICATION OF RATIOS
Ratio may be classified in a number of ways to suit any particular purpose. Different kinds of ratio statement are selected for different types of situations. Mostly, the purpose for which the ratios are used and the kind of the data available determine the nature of analysis. In general, the following basis of classification is in vogue. 69
(a) Traditional classification or classification according to the statements from which ratios are derived: A basis of classification of ratios which readily suggests itself is according to the statement to which the determinants of a ratio belong. From this angle, ratios are classified as thus:
(1) Balance Sheet Ratios: these ratios are also called financial ratios. They deal with the relationship between two items, or group of item, which are together in the balance sheet, example current ratio, liquid ratio, proprietary ratio, fixed assets ratio, capital gearing ratio, and debt equity ratio.
(2) Profit & Loss Account Ratios: these ratios are also called operating ratios. The items used for the calculation of these ratios are usually taken out from the profit and loss statement. Example operating ratio, expensive ratio, net profit ratio, gross profit ratio, stock turnover ratio.
(3) Inter-statement ratios or combined ratios: the information required for the compilation of these ratios is normally drawn from both the balance sheet, and profit & loss account.
Example Return on capital employed, return on
proprietors‟ funds or share holders‟ investment, and return on total investment, debtors Turnover ratio, creditor‟s turnover ratio, fixed assets turnover ratio, working capital turnover ratio. 70
(b) Classification according to tests satisfied or functional classification:-
Robert N. Anthony suggested that ratios may be grouped the basis of certain tests which satisfy needs of the parties having financial interest inventory the business concern. These tests are:
Test of liquidity Test of profitability Market tests
(c)
Classification from the point of view of financial management or
classification according to nature:
This standard of classification envisages the organization of accounting ratios into four fundamental types which are as follows;
(1) LIQUIDITY RATIOS
Liquidity refers to the ability of the firm to meet its obligations inventory the shortrun, usually one year. Liquidity ratios are generally based on the relationship between current assets and current liabilities (the sources for meeting short-term obligations). Example: Current ratio, Acid test ratio. 71
(2) LEVERAGE RATIOS
Capital structure ratio Earnings ratio Dividend ratio
Financial leverage refers to the use of debt finance. While debt capital is analysis cheaper source of finance, it is analysis riskier source of finance. Leverage ratios helps inventory assessing the risk arising from the use of debt capital. They are also known as capital structure ratios. Example: Debt-to-equity ratio, fixed assets to net work, interest coverage ratio.
(3) ACTIVITY RATIOS
They are also called turnover ratios or asset management ratios. They measures how efficiently the assets are employed by the firm. These ratios are based on the relationship between the level of activity and the level of various assets. Example: Fixed assets turnover, Stock turnover, Debtors turnover, Creditors turnover, Total assets turnover ratio.
These ratios would also indicate the profitability position of the business.
72
(4) PROFITABILITY RATIOS
Profitability reflects the final result of business operations. There are two types of profitability ratio.
Profit margin ratios Rate of return ratios
A profit margin ratio shows the relationships between profit and sales. Rates of return reflect the relationship between profit and investment.
(d) Classification According To Importance:
Some ratios when related to the main objective of the business purpose of analysis may be more important than others.
This basis classification has been
recommended by the British Institute of Management for inter-firm computations and the following types have been suggested by the institute:
(i) Primary Ratios: The primary motive of any commercial under taking is profit and therefore, ratios like profit-to-sales, return on capital employed may be termed as primary ratios to such an undertaking. 73
(2) Secondary Ratios:
These ratios are mainly used to explain the primary ratios. They are also known as subsidiary or supporting ratios. Taking the ratio of return on capital employed as the primary ratio, the following ratios may be grouped as secondary ratios: (a) Profit and Earning ratios (b) Cost or expenses ratios (c) Turnover ratios (d) Capital and related ratios
74
SHORT-TERM SOLVENCY OR LIQUIDITY RATIOS
Liquidity ratios play analysis key role in the analysis of the short-term financial position of analysis business. Commercial banks and other short-term creditors are generally interested in such an analysis. However, managements can employ these ratios to ascertain how efficiently they utilize the working capital in the business. Shareholders and debenture-holder and long-term creditors can use these ratios to assets the prospects of dividend and interest payments.
This type of ratios
normally indicates the ability of the business to meet the maturing or current debts, the efficiency of the management inventory utilizing the working capital and the progress attained inventory the current financial position.
Description of Principal Ratios:-
1. Current Ratio
Current ratio may be defined as the ratio of current assets to current liabilities. It is also known as working capital ratio or 2 to 1 ratio. Current ratio shows the relationship between total current assets and total current liabilities.
75
Components Current assets normally include cash in hand or at bank, marketable securities other short-term high quality investment bills receivable, prepaid expenses, workin-progress, sundry debtors and inventories. While current liabilities are composed of sundry creditors, bills payable, outstanding and accrued expenses, income tax payable. Expressed as a formula, the current ratio is as follows: Current Assets Current Ratio =
----------------------Current Liabilities
2009-10 2976.43 Current Ratio =
------------
= 2.11:1
1413.49
2008-09
2968.30 Current Ratio =
---------------
= 3.40:1
871.87
76
Explanation: Coming to KCL the current ratio is 2009 has decreasing in comparison year 2008. The ratio of 2009 shows that the assets are 2.11 times of current liabilities. Current Assets should be one and half of current liabilities. According to KCL report is improving. A low current ratio indicates that the enterprise is short of funds for honoring its commitment and this was lead to insolvency. On the other hand a very high current ratio indicates that the firm has a very large amount of current assets Many times higher than that of current liabilities. This is a situation of high liquidity and is indicative the existence of excessive current assets.
2. Acid Test Ratio or Liquid Ratio
Acid test Ratio or Liquid ratio, as it is sometimes called is concerned with the relationship between liquid assets and liquid liabilities to supplement the information given by the current ratio. In many lines of business a concern whose current assets consist largely of inventory can very early become technically, if not actually; insolvent within analysis very short period of time and this is the rationale of the term „Acid-Test Ratio‟
77
Components: Liquid Assets = Current Assets – Inventory. Generally, this ratio is considered to be good if it is 1:1. It shows the relationship of quick cash-yielding assets to current liabilities.
Expressed as a formula, the liquid ratio is as follows:
Quick Assets Liquid Ratio =
----------------------Current Liabilities
2009-10 1573.88 Liquid Ratio =
--------------- = 1.11:1 1413.49
The quick ratio is increasing over the period 2008 to 2009. With the help of quick ratio we analysis the inventory level. The quick ratio analysis gives better picture than the current ratio towards the payment of current liabilities. It is used to test the short-term liquidity of the firm in its correct form and represent good position.
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LONG-TERM SOLVENCY ANALYSIS
Bankers and other short-term creditors are most interested in the current debtpaying ability of business, so the share holders and debenture holders are mainly concerned with the long-term financial prospects. However, neither group may logically ignore the financial aspects of primary interest to the other so that both these groups concern themselves with current and prospective earnings. Some selected solvency ratios are discussed below:
(a) Debt-Equity-Ratio
Debt-to-equity ratio relates all external liabilities to owners recorded claims. It is also known as „External-Internal Equity Ratio‟. It is determined to measure the firm‟s obligations to creditors in relation to the funds invested by the owners.
Components: The term external equities refers to total outside liabilities and internal equities includes all claims of preference share holders and equity share holders such as share capital and reserves and surplus. Outside liabilities include all debts, whether long-term or short-term or in the form of mortgages, bills or debentures. But when used as analysis long-term financial ratio, only term debts like debentures etc are to be considered.
79
In generally, Debt-to-equity ratio 2:1 is acceptable. 2009-10 Debt
2628.28
Debt-Equity-Ratio = --------- = --------------Equity
=
1.39:1
1893.40
The ratio indicates the degree of protection provided to the lenders. The lower the ratio the higher will be the degree of protection. As a general rule, this should not exceed 2:1. If the debt equity ratio is more than that is shows a rather risky financial position from the long-term point of view. This ratio shows favorable condition of KCL.
(b) Proprietary Ratio
This is a variant of the debt-equity ratio. This ratio relates the share holders‟ funds to total assets. It is calculated by dividing the share holder‟s funds by the total tangible assets. This ratio indicates the long-term or future solvency position of the business. It is also known as Equity to total assets ratio or Net Worth to total Assets ratio.
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This ratio throws light on the general financial strength of the company. Higher the ratio, the better it is for all concerned. 2009-10 Proprietary or Shareholder‟ Funds Proprietary Ratio = -----------------------------------------------Total Assets or Total Equities 1893.40 Proprietary ratio =
------------------------- =
0.37
5070.20
This ratio indicates the long term or future solvency position of the business. Analysis high ratio shows that there is safety for creditors of all types. A ratio below 50% may be alarming for the creditors since they may have to lose heavily in the event of company‟s liquidation on account of heavy losses.
(c) Ratio of Fixed Assets to Proprietors‟ funds: This ratio establishes the relationship between fixed assets and shareholders‟ funds. The purpose of this ratio is to indicate the percentage of the owners‟ funds invested in fixed assets.
81
Fixed Assets (after depreciation) Fixed Assets to Proprietors‟ Fund = -----------------------------------------Proprietors‟ funds
3447.89 Fixed Assets to proprietor‟s fund
=
-------------- = 1.82 or 182% 1893.40
D. Ratio of Current Assets to Proprietors‟ Funds This ratio establishes the relationship between current assets and share holders‟ funds. The purpose of this ratio is to indicate the percentage of share holders‟ funds invested in current assets. Current Assets Current Assets to Proprietors‟ funds Ratio =
---------------------Proprietors Funds
2009-10 2976.43 Current Assets to Proprietors‟ funds Ratio
=
------------- = 1.57 or 157% 1893.40
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Solvency Ratio
The difference between proprietary ratio as % and 100 percents the ratio is solvency ratio. This ratio indicates the relationship between total liabilities & total assets of the business. So it is also known as „Ratio of total liabilities to total assets.‟ 2009-10 Total Liabilities Solvency Ratio
=
----------------------Total Assets 4041.77
Solvency Ratio
=
----------------------- = 0.63 or 63% 6449.75
(f) Fixed Assets Ratio or Ratio of Capital and Long-Term Funds to Fixed Assets: The ratio of long-term loans to fixed assets is important and another aspect of long-term financial policy.
83
Components: Fixed assets will mean cost less depreciation or net fixed assets. It will also include trade investments.
Long-term funds will mean equity share
capital, preference share capital, reserves, debentures and long term loans. 2009-10
Fixed Assets Ratio =
Share holders‟ Funds + Long term loans / Net Fixed Assets
5070.20 Fixed Assets Ratio = --------------- = 1.45 3507.26
It is also known as „Capital Employed to Fixed Assets Ratio.‟
2009-10 Net Fixed Assets Fixed Assets Ratio =
----------------------Capital Employed 3447.89
Fixed Assets Ratio
=
------------------ = 0.76 4521.68
84
This ratio gives an idea as to what part of the capital employed has been used in purchasing the fixed assets for the concern. If the ratio is less than 1 it is good for the concern. G. Debt Service Ratio
This ratio relates the fixed interest charges to the income earned by the business. It is also known as „Interest Coverage Ratio‟. It indicates whether the business has earned sufficient profits to pay periodically the interest charges. 2009-10 Net Profit before Interest and Tax Debt Service Ratio =
-----------------------------------------------Fixed Interest Charges 889.66
Debt Service Ratio =
-------------------------- = 2.37 375.24
In 2009, debt service ratio is higher than 2008 & 2007.
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B. TEST OF PROFITABILITY
The main object of analysis business concern is to earn profit. In general terms, efficiency in business is measured by profitability. Profit as compared to the capital employed indicates profitability of the concern. If analysis concern goes on losing, its financial condition will definitely be bad sooner or later. Profits enable analysis firm to improve its financial strength; there, ratios based on profitability are termed “casual” ratios, indicating the causes of the present or expected financial position. These ratios are designed to highlight overall efficiency of analysis business concern. Thus, analysis measures of profitability are the overall measure of efficiency. (1) Gross Profit Ratio This ratio shows the relationship of sales with the direct costs such as purchases, manufacturing cost etc and thus is important. 2009-10 Gross Profit Gross Profit Ratio =
------------------- * 100 Net Sales 2555.18
Gross Profit Ratio =
---------------- * 100 = 34.74% 7355.36 86
Any fluctuation in this gross profit is the result of a change either in „sales‟ or the „cost of goods sold‟ or both. Thus, this ratio shows the average margin on goods sold. The gross profit is what is revealed by the trading account. It results from the difference between not sales and cost of goods sold without taking into account expenses generally charged to the profit and loss account.
Operating Ratio: - This ratio establishes the relationship between operating profit and sales and is calculated as follows: 2009-10 Operating Profit Operating Profit Ratio =
----------------------- * 100 Net Sales 1156.72
Operating Profit ratio =
-------------- * 100 = 15.73% 7355.36
Where Operating Profit = Net Profit + Non-Operating Expenses – Non Operating Income
OR Gross Profit – Operating expenses 87
Operating ratio as follows: Operating profit Ratio = 100 – Operating Ratio Operating Profit margin is greater than 2008 and 2007. This ratio indicates the portion remaining out of every rupee worth of sales after all operating costs and expenses, have been met. Higher the ratio better it is.
(3) Expenses Ratio: Expenses ratios are calculated to ascertain the relationship that exists between operating expenses and volume of sales. These ratios are calculated by dividing the sales into each individual operating expense. It indicates the portion of sales which is consumed by the various operating expenses. Thus, such an analysis will throw good light on the levels of efficiency prevailing in different aspects of the work. It is useful to work out the following ratios which will total up to the operating ratios:
Ratio of Materials used to sales: Direct Material cost / Net Sales x 100
Ratio of Labor to sales: Direct Labor cost / Net Sales x 100 Ratio of Factory expenses to sales: Factory expenses / Net sales x 100
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Ratio of Office and Administration exp to sales: Administrative Exp. Ratio = Office & Admin. Expenses / Net sales x 100 Selling Expenses Ratio
= selling & distribution exp / Net sales x 100
Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales x 100 Generally all these ratios are expressed in terms of percentage 2009-10 Operating Exp. Operating Expenses Ratio
=
----------------------- * 100 Net Sales 1665.52
Operating Expenses Ratio
= ----------------
* 100 = 22.64%
7355.36
(4) Net Profit Ratio: We all know that gross profit is not the final profit- it is the net profit which is really significant. Therefore, a ratio of net profit to sales (also called net margin) is worked out; but in this case the profit considered is profit before interest. This is the ratio of net income or profit after takes to net sales. Net Profit, as used here, is the balance of profit and loss account which is arrived at after considered all nonoperating income such as interest an investment, dividend received etc… and nonoperating expenses like loss on sale of investments, provision for contingent liabilities, etc 89
2009-2010 Net Profit after tax Net Profit Ratio
=
-------------------------
* 100
Net Sales 358.52 Net Profit Ratio
= ----------------
* 100 = 4.68%
7667.54
Net profit ratio is the profit after all expenses and income tax and is available to the owners. So this ratio indicates that forever hundred rupees of sales, Rs. 4.68 are earned for the owners. This ratio is profitable for the company because it is increasing time to time.
(2) OVERALL PROFITABILITY RATIO: (i) Return On Capital Employed: The prime objective of making investment in any business is to obtain satisfactory return on capital invested. Hence, the return on capital employed is used as a measure of success of a business in realizing this objective, otherwise known as return on investment this is the overall profitability ratio.
It indicates the
percentage of return on the capital employed in the business and it can be used to show the efficiency of the business as a whole. 90
2009-2010 Operating Profit Return on Capital Employed =
----------------------- x 100 Capital Employed
878.67 Return on Capital Employed =
--------------- * 100 = 19.43% 4521.68
This ratio is increasing in comparison of last year which the favorable position of the Company and this ratio is helpful for making capital budgeting decisions.
This is due to improved efficiencies, high level of order for the purchase of company‟s product and rise in prices of company‟s product and order from abroad with good margin of profit.
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(ii) Return on Shareholders‟ Fund
It is the ratio of net profit to shareholders‟ investment. It is also called „Return on Proprietors‟ Funds‟, or Capital Employed. This ratio establishes the profitability from the shareholders‟ point of view. 2009-10 Net Profit after Interest & Tax Return on Shares holder‟s Fund = ----------------------------------
* 100
Shareholders‟ Funds
358.52 Return on Share holders Fund
= ------------------ * 100 = 18.94% 1893.40
This ratio is almost half in comparison of last year. The ratio of net profit to share holders fund shows the decrease to which profitability objective is being loose. Higher the ratio, the better it is.
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(iii) Return on Equity Capital
This ratio relates the net profits finally available to equity share holders to the amount of capital invested by them. 2009-10 Net Profit after tax, interest & Preference Dividend Return on Equity Capital =
------------------------------------- * 100
Equity Share holders‟ Fund or Net Worth
358.52 Return on equity capital = ----------------------- * 100 = 18.93% 1893.40
This ratio indicates what percentage of profits earned are enjoyed by equity shareholders.
Return on Equity Share Capital or earnings per share helps to
determine the market price of equity shares of the Company while comparing with the ratios of other companies. It will indicate whether the capital is effectively used or not.
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(iv) Return on Total Assets
This ratio is calculated to measure the profit after tax against the amount invested in total assets to ascertain whether assets are being utilized properly or not. 2009-10 Net Profit after tax Return on Total Assets =
-----------------------
*
100
Total Assets 358.52 Return on Total Assets =
------------------ * 100 = 5.58% 6424.32
This ratio is increasing in 2009 which shows that assets are being utilized properly in comparison of 2008.
Explanations: THE Return on assets shows as to how much is the profit earned by the firm Per rupees of assets used so 5.58 Rs are realized of 100Rs invested in assets.
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ACTIVITY (TURNOVER OR PERFORMANCE) RATIOS
Profit depends on the rate of turnover and the net margin. The importance of good turnover cannot be over-emphasized. Turnover ratios judge how well the facilities at the disposal of the concern are being used. In other words, these ratios measure the effectiveness with which analysis concern uses resources at its disposal. The result is expressed in integers rather than as a percentage. These ratios are usually calculated on the basis of sales or cost of sales. Turnover ratios for each type of assets should be calculated separately. Higher the turnover ratio, better the use of capital or resources; of course, higher the turnover, the better the profitability ratio. The following are the import activity (turnover or performance) ratios.
1. Stock Turnover Ratio or Inventory Turnover Ratio:
This ratio establishes relationship between the cost of goods sold during a given period and the average amount of inventory carried during that period. It indicates whether stock has been efficiently used or not, the purpose being to checkup whether only the required minimum has been lock up in stocks. It is usually considered better to work out the turnover against cost of sales since sales include an element of profit, where as stock is usually at cost.
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The ratio is calculated as follows: 2009-10 Cost of Goods Sold Stock Turnover Ratio =
----------------------------
* 100
Average inventory at Cost 4800.18 Stock Turnover Ratio = ----------------- * 100 = 344.45% 1393.56
Where, Cost of Goods Sold = Opening Stock + Purchases + Manufacturing Exp.
- Closing Stock
OR Cost of Goods Sold = Sales – Gross Profit Average Stock
= (Opening Stock + Closing Stock) / 2
Higher the ratio, the better it is since it indicates that more sales are being produced by a unit of investment in stocks. Industries, in which stock turnover ratio is high usually work on a comparatively low margin of profit. The ratio shows better performance if it increases, since it means that the investment in stocks is leading
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to higher sales. The reverse is also true. It should be noted that some people calculate this ratio on the basis of sales. Notes: Coming to KCL the data on purchase, sale and stock etc. and are not available from the Balance Sheet and the other material provided to the investigators by company. Hence, it is not possible to calculate the turnover ratio of the Company.
2. Debtors (Receivable) Turnover Ratio:
It indicates the number of times on the average the receivable is turnover in each year. The higher the value of the ratio, the more is the efficient management of debtors. It measures the accounts receivable (trade debtors and bills receivables) in terms of number of days of credit sales during a particular period. Average debtors are calculated by dividing the sum of debtors in the beginning and at the end by 2. The ratio is measure of the collectability of accounts receivables and tells about low the credit policy of the company is being enforce
Net Credit Sales Debtors Turnover Ratio =
----------------------Average account receivable (Drs + B/R)
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Notes: The data is not available for the calculation of debtor‟s turnover ratio. It shows more the chances of bad debts efforts should be made to make the collection machinery efficient so that the amount due from debtors may be realized in time.
3. Creditors (or Account Payable) Turnover Ratio:
This ratio is calculated roughly as the debtor‟s turnover ratio. It indicates the velocity with which the payments for credit purchase are made to creditors. The term account payable includes Creditors and Bills payable. This ratio may be calculated as follows:
Credit Purchases Creditors Turnover Ratio =
----------------------Average Accounts Payable (Cr + B/P)
A high ratio indicates that creditors are not paid in time while a low ratio gives an idea that the business is not taking full advantages of credit period allowed by the creditors.
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Sometimes it is also required to calculate the average payment period (or average age of payable or debt period enjoyed) to indicate the speed with payments for credit purchase are made to creditors. Notes: Coming to KCL the data on purchase sale and stock etc… and are not available from the Balance Sheet and the other material provided to the investigators by Company. Hence, it is not possible to calculate the turnover ratio of the Company.
4. Fixed Assets Turnover Ratio or Ratio of Sales to Fixed Assets:
This ratio shows how well the fixed assets are being utilized. If compared with a previous period, it indicates whether the investment in fixed assets has been judicious or not. This ratio expresses the number of times fixed assets are being turned-over in a stated period. The ratio is important in case of manufacturing concerns because sales are produced not only by use of current assets but also by amount invested in fixed assets. The higher is the ratio, the better is the performance. On the other hand, a low ratio indicates that fixed assets are not being efficiently utilized.
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2009-10 Cost of Sales (or Net Sales) Fixed Assets Turnover Ratio = -------------------------------------Fixed Assets (less Depreciation) 7355.36 Fixed Assets Turnover Ratio = ---------------- =
2.1
3447.89
Higher is the ratio the better is the performance it indicates that fixed assets are being efficiently utilized.
An improvement in the ratio indicates better
performance and decline in it would show a declining efficiency or improvident investment. Increase in Fixed Assets Turnover Ratio indicates that fixed assets have been used as efficiently as they had been used in previous years.
5. Sales to Capital Employed (or Capital Turnover) Ratio:
This ratio shows the efficiency of Capital Employed in the business by computing how many times capital employed is turn-over in a stated period.
The higher the ratio, the greater are the profits. A low capital turnover ratio should be taken to mean that sufficient sales are not being made and profits are lower.
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Sales Capital Turnover Ratio =
---------------------------------------------------Capital Employed
(i.e. shareholders‟ fund + Long term liabilities) 2009-10
7355.36
Capital Turnover Ratio = ------------------ = 1.62 4521.68
Capital Turnover Ratio establishes the relationship between sales and capital employed. The objective of working out this ratio is to determine how efficiently the capital employed is being used and this in turn shows the promise of profitability and efficiently of management
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6. Sales to Working Capital (or Working Capital Turnover) Ratio: This ratio shows the number of times working capital is turned-over in a stated period. 2009-10 Sales Working Capital Turnover Ratio =
--------------------------------------Net Working Capital
(i.e. Current Assets – Current Liabilities) 7355.36 Working Capital Turnover Ratio =
----------------- =
4.70
1562.94
Low working capital turnover ratio indicates that working capital is not efficiently utilized it may put the concern into financial difficulties. This ratio shows the efficiency or inefficiency in the use of the whole of the working capital and not merely a part of it. That invested in stock-it is the whole of the working capital that leads to sales.
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7. Total Assets Turnover Ratio: This ratio is calculated by dividing the net sales by the value of Total Assets. A high ratio is an indicator of over-trading of total assets while a low ratio reveals ideal capacity. The Traditional Standard for the ratio is two times. 2009-10 Net Sales Total Assets Turnover Ratio = ----------------Total Assets 7355.36 Total Assets Turnover Ratio = ---------------- =
1.1
6449.75
A high ratio is an indicator of over trading of total assets while a low ratio reveals ideal capacity.
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LEVERAGE RATIOS:
The leverage ratios explain the extent to which the debt is employed in the capital structure of the concerns. Always Concerns use debt funds along with equity funds, in order to maximize the after tax profits, thereby optimizing earning available to equity shareholders. The basic facility of debt finds is that after tax cost of tem will be significantly lower and which can be paid back depending upon their terms of issue. Further debt funds will not dilute the equity holders control position.
Leverage refers to an increased means of accomplishing some purpose.
In
financial management, it refers to employment of funds to accelerate rate of return to owners. It may be favorable or unfavorable when earning are more than the fixed cost of the funds, it is called favorable. An unfavourable leverage exists if the rate of return remains to be low. It can be used as a tool of planning by finance manager. Leverage may be. (i)
Operating Leverage
(ii)
Financial Leverage
(iii)
Combined Leverage.
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Operating Leverage: It is the relation between contribution and EBIT (earning Before Interest & Tax) and is measured as: Contribution (Sales – Variable Cost) OL
=
---------------------------------------------------------EBIT
It signifies the change that will result in EBIT for any change in sales. If OL is 3, it will mean that for every 1% change in sales, the change in EBIT will be 3%. I.e. three times.
A high ratio would indicate a high business risk and low ratio
business risk.
Financial Leverage: It is the relationship between (EBIT) and (EBT) when a firm process debt capital to finance its needs, it is said to have Financial Leverage. It tells the extent of the change in earning before fax (EBT) due to change in operating income (EBIT). It is calculated with the help of the following formula: 2009-10 Earnings before interest and Tax Financial Leverage
=
----------------------------------------------Earnings before tax
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7227.17 Finance Leverage
= ---------------- = 14.04 514.42
It may be favorable or unfavorable. If the rate of return or investment (ROI) of a firm is higher than the cost of debt capital, it is said to have favorable financial leverage. On the other hand, if the rate of return on investment (ROI) is lower than the cost of debt capital, the firm is said to have unfavorable financial leverage. Favorable financial leverage is also referred to trading on equity.
Combined Leverage:
It is the combination of operating leverage and financial leverage
CL
=
OL x FL
(1) Capital Gearing Ratio
Closely related to solvency ratios is the Capital Gearing Ratio which is mainly used analysis the capital structure of the company. The term „Capital Gearing‟ is used to describe the ratio between the equity share capital and fixed interest – bearing securities of a company. Where the holders of fixed income bearing 106
securities have acquired lion‟s share in the income of a business enterprise, it is said to be „highly geared‟. The situation is manifested most commonly where there is a small equity holding compared with fixed income bearing securities.
Variable Cost Bearing Capital Capital Gearing Ratio =
---------------------------------------------Fixed Cost Bearing Capital
OR Equity Share Holders‟ Funds Capital Gearing Ratio =
--------------------------------------------Fixed Cost Bearing Capital
Components:
Equity-share holding for the purpose of capital – gearing ratio, includes all revenue as well as all appropriations of Profits.
Fixed interest bearing funds include debentures, preference share capital and other – long term loans.
Significance: 107
Capital Gearing Ratio belongs to the family of „leverage‟ ratios and is important not only to prospective investors but also to the company. It must be carefully planned in as much as it affects the company‟s capacity to maintain an even divided distribution policy during difficult trading periods that may occur. Moreover, its immediate effect may be to enable a company to pay higher equity dividends when there is only a narrow margin of profits but its long – range effects on the efficiency of a company are far-reaching. Distribution policies and the building up of reserves, as well as a stable dividend policy, are all affected by company‟s „gear-ratio‟.
(2) Total Investment to Long-term Liabilities:
This ratio compares share capital to loan capital. Generally a high proportion of long-term liabilities are risky to any company, which this ratio enables one to find out. Long Term Funds Ratio of Total Investment to Long-Term Liabilities
=
--------------------------------------Long Term Liabilities
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Long term liabilities are decreasing while long term funds are increasing in comparison of last year. It shows better position of company.
(3) Current Liabilities to Proprietors‟ Funds:
This ratio compares current Liabilities to Proprietors‟ Funds. It measures the amount of funds raised by the proprietors as against these rose by short-term, borrowings. A high ratio indicates that the firm will be slow in paying its bills because, if owner have not put enough of their own funds in the business, suppliers of long-term funds would be unwilling to expose themselves to the risks and the firm will have to resort to short-term stop-gap financing to a large extent. The standard for this ratio is 35 percent. 2009-10 Current Liabilities Ratio of Current Liabilities to Proprietors‟ Funds
=
----------------------Proprietors‟ Funds 1413.49
Ratio of Current Liabilities To proprietor‟s Funds
= -------------------------- = 0.74 1893.94
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Coming to KCL the ratio of current liabilities to proprietors funds is 0.74: 1 in 2009 which is too high when compare to the ideal ratio we would be 0.35 : 1. However, on observation of the data for 2007, 2008 & 2009.
We find that the
ratio as a falling trend which is a healthy sign.
4. Ratio of Reserves to Equity Capital:
The ratio establishes relationship between reserves equity capital. It is important in a much as it reveals the policy pursued with regard to growth shares.
If a
conservative policy regarding the distribution of dividend is followed, the ratio may be unduly high. It also indicates the extent to which value of equity shares has gone up by the plugging back of profits. This ratio shows the strength of company and the strength of Share / Equity.
Ratio of Reserves to Equity Capital
Reserves =
1746.23
----------------------------- = ------------- = 11.86 Equity Share Capital
147.17
Coming to KCL we find that the ratio is increasing over a period of time, it was 9.52: 1 in 2008 and increased 11.86: 1 in 2009.
This is due to high profitability
and good management because of liberal dividend policy has been followed by the company. 110
Ratio for Prospective Investors
(1)
Book Value per Share:
Book Value per Share means the value which is payable of liquidation of a company 2009-10 Shareholders‟ Funds Book Value Per Share =
------------------------------Number of Shares 189,34,00,000
Book Value Per Share = -------------------------------- = 25.73 (Rs) 735,83,580
(2)
Earning Ratio ;
Under this category the following ratios are calculated. (i) (ii) (iii)
Earnings Per Share Price Earnings Ratio Capitalization Ratio
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(I) Earnings per Share
This helps in determining the market price of equity shares of the company and in estimating the company‟s capacity to pay dividend to its equity Shareholder. The Performance and prospects of the company are affected by earning Per Share. If earning per share increases, there is possibility that the company may pay more dividend or issue bonus shares. In short the market price of the share of a company will be affected by all these factors. A comparison of earning per share of the company with another company will also help in deciding whether the equity capital is being effectively used or not. 2009-10 Net Profit after Tax & Preference Dividend Earnings Per Share =
-----------------------------------------------------------Number of Equity Shares
35,85,20,000 Earning Per Share
=
------------------------ = 4.87 (Rs) 7,35,83,580
Coming to KCL we find a greater degree of fluctuation in earning per share it was 1.21 Rs in 2008 and now it increased to 4.87 Rs, 302.47 % increment in Eps 2009.
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(ii) Price Earning Ratio: This ratio indicates the market value of every rupee earning in the firm and is compared with industry average. High ratio indicates the share is overvalued and low ratio shows that shares are undervalued. It is computed by the following formula: 2009-10 Market Price Per Share Price Earning Ratio
=
----------------------------------Earning Per Share 55.50
Price Earnings Ratio
=
( 31st march 10, at BSE)
---------------
= 11.39
4.87
It is a very important ratio in order to know whether the Shares of the company are undervalued or in predicting the further market price. Helps the shareholders to be purchased then it indicates the possibility of Capital appreciation.
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(iv)
Capitalization Ratio:
2009-10 Earning Per Share Capitalization Ratios
=
---------------------------Market Price Per Share 4.87
Capitalization Ratio
=
---------------------- = 0.08 55.50
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Dividend Yield Ratio: Distributed dividend
735, 80,000
Dividend per Share = ------------------------------- = --------------------- = 1.00 No. of Equity share
735, 83,580
Dividend Per Share Dividend Yield Ratio
=
------------------------------
* 100
Market Price Per Share
1.00 Dividend Yield Ratio
=
-------------------- * 100 = 1.80% 55.50
This ratio is important for these investors who are interested in the dividend income. As the Shareholders purchases the Shares in the open market, so his yield (rate of return) is not equal to the dividend declared by the company.
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2009-10 Dividend Per Equity Share Dividend Payout Ratio =
--------------------------------------
X 100
Earning Per Share 1.00 Dividend Payout Ratio =
------------------------- * 100 =20.53% 4.87
This ratio indicates as to what proportion of earning per share has been used for paying dividend and what has been retained for plugging back. This ratio is very important from Shareholders‟ point of view as it tells him that if a company has used whole or substantially the whole of it‟s earning for paying dividend and retained nothing for future growth and expansion purposes, then there will be very dim chances of capital appreciation in the price of shares of such company. In the other words, an investor who is more interested in capital appreciation must look for a company having low pay-out ratio.
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CONCLUSIONS
The study in the preceding pages reveals some important and interesting conclusions.
The theoretical portion reveals the conclusion of academic
importance and when the Financial Data of Kajaria Ceramics Ltd has been analyzed, the financial position of the company is brought to surface. The overall financial position of the company is quite healthy and over the last years which covered the period of study, the financial position has improved. The current Ratio, Acid Test Ratio, Debt equity Ratio and Proprietary Ratio all have improved over the period 2008 to 2009. The credit for this improvement goes to efficient management, Long term vision of the management, team spirit among the employs of the company higher level of orders in the hands of the company, better realization and better overall economic condition of the economy with increased emphasis of government on expansion and strengthening of economic infrastructure, it is expected that KAJARIA will gain a lot, its financial Ratio will improve further and so the financial strength of the company.
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RECOMMENDATIONS The Tiles industry is huge and has huge potential for growth. The company should try and revamp its operations, they should lower the price. It can be done by increase production, achieve economies of scale and then increase market penetration. The product is doing reasonably well in most of the market. So they should promote the product accordingly e.g. free sampling, discounts, prominent hoardings etc. Home Solution:
Taff under this Brand name they have got a group of labor who are properly trend and capable of laying down good tiles. Give training to the Massion, Technical training in sanitary ware. Only company Employee will go and fit. (Which are properly trend by company in Jakogi ware.)
Whenever we get any tile approved we should take proper supply schedule from the client. Proper SAMPLE should be provided to the ARCHITECH & BUILDER office because they choose the product from sample.
More boards and hoarding should be placed in side of roads and public places. They should use mass media like TV, newspapers, etc to promote company product. This will help in increasing the sales volume. 118
BIBLIOGRAPHY The help have been taken from the following secondary data to analysis the financial report. INTERNET SITES:www.kajariaceramics.com Annual Report 2009-10 of Kajaria Ceramics Ltd.
BOOKS PREFERRED
PRINCIPAL OF FINANCIAL MANAGEMENT Author……… Mr. R.P. Rustogi….Galgotia Publishing Co. FINANCIAL MANAGEMENT Author……….Mr. I.M. Pandey…. Vikas,2004 9th Ed.
CORPORATE FINANCE Author……….Mr. M.Y. Khan & Jain TMH,5TH Ed.
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