A SUMMER INTERNSHIP PROJECT REPORT ON “RATIO ANALYSIS” FOR “KANSAI NEROLAC PAINTS LTD.” At Lote, Parshurum BY “Mr. PRATIK VIRAJ KHATU” Under the guidance of “Prof. Mrs. ANAGHA GOKHALE”
Submitted to “University of Mumbai” In the partial fulfillment of the requirement for the award of the degree of Master of Management Studies (MMS)
Through Vishwakarma Sahajeevan Institute of Management, Khed
ACKNOWLEDGMENT It is my greatest pleasure to acknowledge sincere gratitude towards Mr. S. R. Deshmukh (HR Manager) who gave me a good opportunity to do my project in the Kansai Nerolac Paints ltd. I am also grateful to Mr. Nilesh Jangam (HR Officer), Nitin Jathar (Commercial Manager) and other officers who are working in accounts department for their valuable advice, cooperation and support in completion of my project. I am thankful to Prof. Mrs. Anagha Gokhale madam for helping me to make this project. I am also thanks to VSIM College who helped me to making this project.
Regards Pratik viraj khatu
VISHWAKARMA SAHAJEEVAN INSTITUTE OF MANAGEMENT Khed, Dist. Ratnagiri. (MS) - 415709 (Affiliated to Mumbai University, Approved by AICTE and DTE)
CERTIFICATE This is to certify that Mr. PRATIK VIRAJ KHATU has submitted the Summer Internship Report titled RATIO ANALYSIS completed at KANSAI NEROLAC PAINTS LTD. as per requirements of the two years full time Master of Management Studies (MMS) course of Mumbai University for III Semester of the academic year 20010-11.
Date:Dr. (Director VSIM)
Prof. Mrs. Anagha Gokhale (Project guide)
TO WHOM SO EVER IT MAY CONCERN
This is to certify that Mr. PRATIK VIRAJ KHATU 3rd semester M.M.S. student from Vishwakarma Sahajeevan Institute of Management; Khed was engaged as an “Inplant Trainee”.
In our factory from 17th May 2010 to 30th June 2010, he has completed his training successfully. During his entire training period he was found to be sincere, hardworking and punctual. We wish his success in his future assignments.
For KANSAI NEROLAC PAINTS LTD.
S.R. Deshmukh Sr. Manager –Human Resources.
INDEX Sr. Number
Page Particulars Number
1
Executive Summary
1
2
Overview of Indian Paint Industry
2–7
3
Company profile
8 – 18
4
Need for the study
19
5
Objective of study
20
6
Research Methodology
21 – 22
7
Introduction to Ratio Analysis
23 – 37
8
Data collection and Interpretation
38 – 63
9
Findings
64 – 65
10
Suggestions and Conclusion
66 – 67
11
Limitations
68
Bibliography
1. EXECUTIVE SUMMARY As a part of the partial fulfillment of the M.M.S course at VISHWAKARMA SAHJEEVAN INSTITUTE OF MANAGENT, Khed (Ratnagiri), Summer Training was undertaken with the KANSAI NEROLAC PAINTS LTD., Lote, Khed (Ratnagiri)
This project is specially designed to understand the subject matter of Financial Statement Analysis through various ratios in the company. This project gives us information and report about company’s Financial Position. Throughout the project the focus has been on presenting information and comments in easy and intelligible manner.
The purpose of the training was to have practical experience of working in an organization and to have exposure to the various management practices in the field of Finance. This training has also given me an on the job experience of Financial Management.
This project is very useful for those who want to know about company and financial position of the company.
2. INDIAN PAINT INDUSTRY The success story of the 100 years old Indian paint industry began when Shalimar Paints set up a factory in Calcutta the way back in 1902. In the beginning the industry was mainly comprised of number of small producers and very few major
players. Immediately after the Second World War, though the Indian Paint Industry had seen numerous local entrepreneurs, the foreign companies Like Goodlass Walls (now Kansai Nerolac), ICI, British Paints (now Berger Paints), Jenson & Nicholson and Blundell & Eomite have been dominating the market for many years.
Sector trends and specifics The Indian paint industry is mainly segmented into two categories – industrial and decorative paints. While industrial paints are used for protection against corrosion and rust on steel structures, vehicles, white goods and appliances, decorative paints are used in protecting valuable assets like buildings. In most developed countries, the ratio of decorative paints vis-à-vis industrial paints is around 50:50. But, in India the industrial paint segment accounts for only 30% of the paint market while the decorative paint segment accounts for 70% of paints sold in India. Within the decorative segment, the share of exterior paints is 21%, interior emulsions 11%, distempers 30%, solvent-based enamel paint 36% and wood finishes two percent. The exterior category, particularly exterior emulsions, is the fastest growing segment at 20% for the last three years. The industrial coatings segment includes high performance coatings with 30% market share, powder coatings with ten percent, coil coatings with five percent, marine coatings five percent and automotive coatings 50%.
Demand and Growth
The demand for decorative paints is highly price-sensitive and also cyclical. Monsoon is a slack season while the peak business period is Diwali festival time, when most people repaint their houses. The industrial paints segment, on the other hand, is a high volume-low margin business. Total paint and coatings demand in India in 2008 amounted to 1.64 million tons, of which decorative coatings represented 79% or 1.3 million tons. The industrial coatings market in India still remains relatively small in comparison at about 340,000 tons, and this is dominated by structural and infrastructural applications associated with the protective coatings market. Despite having recorded a healthy growth of 13% annually in the 1990s, the per capita consumption of paints in India is very low at 0.5 kg per annum as compared to 4 kg in the South East Asian nations and 22 kg in developed countries. And the global average per capita consumption is 15 kg.
Threats The industry is raw-material sensitive. Of the 300 odd raw materials, nearly half of them are imported petroleum products. Thus, any deficit in global oil reserves affects the bottom-line of the players. The demand for paints is relatively price-elastic but is linked to the industrial and economical growth. Mainly the construction and automobile sector throws shades of grey across the industry spectrum during recession in those sectors. Evidently the slowdown in automotive business had a direct impact on the growth of Industrial paint sale business this year. Despite having phenomenal real GDP growth at 9% for the last five years, the consumer durables basket, that forms a part of
Index of Industrial Production (IIP), has shown a negative growth during 2007-08. This had a direct impact on the paint sale business last year.
Opportunities Although industry figures expect some modest abatement in growth in the Indian paint and coatings market, particularly in the short term, the prevailing economic climate of infrastructure investment and renewal holds the key to most of the growth in the Indian coatings market. Other opportunities in India are pegged to the transport sector. Car ownership in India stands at little more than one percent. However, rising affordability and the launch of economical cars such as the Tata Nano are expected to propel the market for OEM coatings and refinishes in the coming years. Higher demand for marine paints can be expected in the next decade, once investments in ports and port development have started to reach fruition. As India is hopeful of competing with other established shipbuilding nations, the multinationals are likely to find plentiful opportunity in India, given the compliance requirements imposed by effects of international legislation on marine paints. Powder coatings are also a good growth market in India, growing at about ten percent per annum, which is typical of the mean coatings segment growth in the country. This segment has been finding new applications in India and represents one area in which the consciousness of VOCs and the environment has been raised. Indian companies are now beginning to appreciate the benefits of cleaner technology once initial investment in finishing in this area has been made. However, it is in the decorative coatings market that the greatest volume growth can be expected. Almost another 900,000 tons of decorative
paints may well be in use by 2013, prompted by a whole breadth of different applications, ranging from the construction of housing and apartment blocks to civil and tourist amenities. The structure of the decorative paint market in terms of quality is changing very slowly with growth in the premium and economy sectors squeezing the intermediate quality segment to about 35‐40% of demand. Other habits are changing too including the formal entry of Sherwin‐Williams, Jotun and Nippon Paint into the Indian decorative sector, which has started to bring a much greater international dimension and much bigger budgets to the Indian decorative paint market. Although the arrival of these companies in the segment has not had a major impact on the market yet, Indian consumers are becoming more experimental and adventurous in their use of paint and as a result many traditional ideas are being given up in favor of trying something different, especially as the Indian population is a relatively young one.
Market Profile The organized sector of India’s paint and coatings market holds a whopping 65% share of the approximately Rs. 13600 crore industry, while the balance is made up of over 2000 unorganized units. There are now twelve major players in the organized sector namely Asian Paints, Kansai Nerolac, Berger, ICI, Shalimar, and so on. Recent years, the industry has attracted world leaders like Alzo Nobel, PPG, DuPont and BASF to set up base in India to offer product ranges such as auto refinishes, powder coatings and industrial coatings. Asian Paints (APIL) is the industry leader with an overall market share of 33 per cent in the organized paint market. It has the largest distribution network among the
players and its aggressive marketing has earned it strong brand equity. The Berger Group and ICI share the second slot in the industry with market shares of 17 per cent each. GNPL has a market share of 15 percent in the organized sector. APIL dominates the decorative segment with a 38 per cent market share. The company has more than 15,000 retail outlets and its brands Tractor, Apcolite, Utsav, Apex and Ace are entrenched in the market. GNPL, the number-two in the decorative segment, with a 14 per cent market share too, has now increased its distribution network to 10,700 outlets to compete with APIL effectively. Berger and ICI have 9 per cent and 8 per cent shares respectively in this segment followed by J&N and Shalimar with 1 and 6 per cent shares. On the other hand, GNPL dominates the industrial paints segment with 41 per cent market share. It has a lion's share of 70 per cent in the OEM passenger car segment, 40 per cent share of two wheeler OEM market and 20 per cent of commercial vehicle OEM market. It supplies 70 per cent of the paint requirement of Maruti, India's largest passenger car manufacturer, besides supplying to other customers like Telco, Toyota, Hindustan Motors, Hero Honda, TVS-Suzuki, Mahindra & Mahindra, Ashok Leyland, Ford India, PAL Peugeot and Bajaj Auto. GNPL also controls 20 per cent of the consumer durables segment with clients like Whirlpool and Godrej GE. The company is also venturing into new areas like painting of plastic, coil coatings and cans. APIL, the leader in decorative paints, ranks a poor second after Goodlass Nerolac in the industrial segment with a 15 per cent market share. But with its joint venture Asian-PPG Industries, the company is aggressively targeting the automobile sector. It has now emerged as a 100 per cent OEM supplier to Daewoo, Hyundai, Ford and General Motors and is all set to ride on the automobile boom. Berger and ICI are the other players in the
sector with 10 per cent and 9 per cent shares respectively. Shalimar too, has an 8 per cent share.
3. COMPANY PROFILE
3.1 ABOUT KANSAI NEROLAC PAINTS LTD. (KNPL)
Kansai Nerolac Paints ltd is India‘s second largest paint company with group turnover of about Rs.1170/- crore per annum. It is market leader in industrial coating business in India and second largest in the Decorative Paints market. KNP Co. Ltd of Japan holds 69.27% equity of KNPL. Kansai Paint is one of the top ten companies in the world. The company has technical tie ups with reputed foreign collaborations such as Oshima Kogyo,E.I. Du Pont, NTT, Nihon Parkerizing and Ameron in the field of speciality & High performance coatings. Kansai Nerolac Paints Ltd. has the reputation in being innovative, creating value, delivering quality and service. KNPL has manufacturing locations at Lote in Maharashtra, Perungudi in Tamil Nadu, Jainpur in Uttar Pradesh, Bawal in Haryana and Hosur in Tamil Nadu. The corporate office is situated at Lower Parel in Mumbai. The total strength of the employees is about 2000 spread over in corporate office, manufacturing plant, zonal, regional, and area offices. Nerolac is well established brand in Decorative Coatings. It has widespread distribution/ marketing network with over 11000 dealers and 65 depots. Product ranges of Decorative Coatings include exterior and interior finishes, wood finishes, auto refinishes, and certain speciality products. The product range in automotive coating includes Pre-treatment Chemicals, Electro Deposition Primers, PVC sealers, Mono coats & Metallics finishes, Clear Coatings etc.
KNPL has very good research and development set up. It engages over 175 paint technologists for continuous developing superior products. KNPL is a professionally managed company with young and vibrant team with an average age of 37 years.
3.2 History of Kansai Nerolac Paints Ltd. (KNPL):
Kansai Nerolac is one of the largest paints companies in India having a significant presence in industrial as well as decorative sectors.
Kansai Nerolac embarked their journey in 1920 as Gahagan Paints and Varnish Co. Ltd. at Lower Parel in Bombay.
In 1930, three British companies merged to formulate Lead Industries Group Ltd.
In 1933, Lead Industries Group Ltd. acquired entire share capital of Gahagan Paints in 1933 and thus, Goodlass Wall (India) Ltd. was born.
Subsequently, by 1946, Goodlass Wall (India) Ltd. was known as Goodlass Wall Pvt. Ltd.
In 1957, Goodlass Wall Pvt. Ltd. grew popular as Goodlass Nerolac Paints (Pvt.) Ltd. Also, it went public in the same year and established itself as Goodlass Nerolac Paints Ltd.
In 1976, Goodlass Nerolac Paints Ltd. became a part of the Tata Forbes Group on acquisition
of
a
part
of
the
foreign
shareholdings
by
Forbes
Gokak.
In 1983, Goodlass Nerolac Paints Ltd. strengthened itself by entering in technical collaboration agreements with Kansai Paint Co. Ltd., Japan and Nihon Tokushu Toryo Co.Ltd.Japan.
In 1986, Goodlass Nerolac Paints Ltd. turned into a joint venture of the Tata Forbes and the Kansai Paint Co. Ltd., with the latter acquiring 36% of its share capital.
In 2000, Kansai Paint Company Ltd., Japan took over the entire stake of Tata Forbes group and thus GNP became a wholly owned subsidiary of Kansai Paint Company Ltd.
In 2006, on the 11th of July, Goodlass Nerolac Paints Ltd. name has been changed to Kansai Nerolac Paints Ltd.
3.3 Vision of KNPL: “KNPL its unique vision to leverage global technology for servicing customer with superior coating system built on innovative and superior product and world class solution to strengthen its leadership in industrial coating and propel for leadership in architectural coating all to the delight of its stake holder”.
3.4 Management:
Being the second largest paint company in India, it spread over the country with employee strength of around 2000. An efficient management provides the conducive work atmosphere to develop and grow.
BOARD OF DIRECTORS:
Name Of Person Dr. Jamshed Jiji Irani Mr. Devendra Motilal Kothari Mr. Hiroshi Ishino Mr. Yuzo Kawamori Mr. Pradip Shah Mr. Harishchandra Meghraj
Designation Chairman Vice –Chairman Director Director Director Managing Director
Bharuka Mr. Susim Mukul Datta Mr. Noel Tata Mr. Yaso Tajiri Mr. Pravin Chaudhari
Director Director Director Director
Management committee members:
Name Of The Person Mr. H.M. Bharuka Mr. Pravin Chaudhari Mr. Shrikant Dikhale Mr. Anuj Jain
Designation Managing Director Director Vice President – Hr Vice President -
Mr. Mahesh Mehrotra Mr. Hitoashi Nishibayashi
(Decorative Vice President – Technical Director Supply Chain & Auto
Marketing
Mr. P.D. Pai Mr. Jason Gonsalves
Marketing Vice President – Finance Vice President - Corporate Planning & It
3.5 Customers of Kansai Nerolac Paints ltd.: I. Bajaj Auto Ltd. II. Maruti Udyog Ltd. III. Godrej & Boyce IV. Mahindra & Mahindra V. Samsung VI. Ashok Leyland VII. Toyota Kirloskar Motors Ltd. VIII. Aditya Birla Group IX. Hero Honda
3.6 About Kansai Nerolac Paint Ltd. (Lote Plant): Nerolac Lote plant was commissioned on 29th April 1998 which is situated in MIDC Lote, Parshuram Industrial area. The site is surrounded by other manufacturing units which is 1km away from National Highway NH-17. Nerolac Lote plant is spread over 10 acres (40400 sq. m.). KLP started this plant mainly to maintain the requirement of the growing automobile sector in Pune.
In terms of production capacity Lote plant is second largest plant of KNPL and basically focuses on industrial paint. Recently Industrial Lote Plant achieved 1616.8 KL production-which is the highest ever production at Lote. To meet overall requirement of water base paint Kansai Nerolac has started a new plant of decorative paints which is totally advanced to meet the required quantity water base paint. The new decorative water base plant started in the end of October 2008.
3.7 Major business lines: I. Automotive Coating II. High Performance Coating III. Architectural Coating IV. Powder Coating
3.8 Products of KNPL (Lote): A) Industrial: I. Primer II. I/C Coats III. Top Coats IV. Thinner B) Decorative: I. Water Based: Emulsion, CCD II. Solvent Based: Primers, Enamels High Performance
3.9 Capacity of Lote Plant: I. Installed Capacity: 1000 kl/month II. Actual capacity: 850kl/month
3.10 Quality and EHS certifications received by KNPL (LOTE) plant: TS 16949 ISO 9000-2000 ISO 14000 OHSAS 18000
June 2006 May 2004 September 2002 January 2005
3.11 Award and Recognition to KNPL (LOTE) Plant: •
Golden Peacock Environment Management Award 2009- Winner
•
Symbiosis
centre
for
management
–Lean
and
six
sigma
excellence
-As a participant •
Greentech Environment Excellence Award 2008 in chemical sector- Awarded by Greentech foundation, New Delhi.
•
ECS Manufacturing Excellence Level 2 Certificate in April 2008
•
Goodlass Nerolac Paint Ltd C2E- Commitment to Excellence in May 2006 Lote has achieved recognition to their outstanding performance in commitment for excellence in Human Resource Care in May 2006
3.12 Employee Team of KNPL (LOTE) Plant:
Category of employees
Paint unit
Powder coating unit
Managers
10
3
Executive staff
114
25
Operators
144
47
Trainee operators
17
10
Casuals
94
2
Contract Labours
83
45
Thus, total no. of permanent workers/staff in KNPL Lote plant including both Paint unit and Powder coating unit are 343. The total number of contract employees/workers in KNPL Lote plant including both Paint unit and Powder coating unit are 128.
3.13 Other Activities at Lote Plant: •
Monthly Virangula is celebrated at officer’s recreational club at Chiplun.
•
World environment day is celebrated by all employees on 5th June.
•
Various competition such as kaizen, FIP, Best AET, best CANDO zone are organised for all three units under ME Convention theme.
•
Dassera pooja festival is celebrated at all three units. Various cultural programs are organized at PC Unit.
3.14 ORGANISATION STRUCTURE OF LOTE PLANT
QC PROD
QA
ENGI.
UNIT HEAD
3.15 Functions TECHMFG NICAL
of
NEW MFG WATE MATE ACCO EXCE HR ENGI FPP Finance KNPLUNTS (lote):LLEN R & Accounts Department ofRIAL BASE CE
HSE
Accounting function is necessary is a necessary input into the finance function i.e.RESIN accounting is a sub-function of finance. Accounting generates information \
DECO .
INDT.
/CED
data relating to operations/ activities of the firm. The end product of accounting constitutes financial statements such as Balance sheet, The Income Statement and The Statement of changes in Financial position/ sources and uses of funds statement/ Cash flow statement. The information contained in these statements and reports assists Financial Managers in assessing the past performance & future direction of the firm and meeting the legal obligation, such as payment of taxes and so on. Thus Accounting and Finance are functionally closely related.
STRUCTURE OF ACCOUNTS DEPERTMENT AT LOTE PLANT
COMMERCIAL MANAGER
ACCOUNTS HEAD
JUNIOR OFFICER
JUNIOR OFFICER
JUNIOR OFFICER
Various Sections in Accounts Department at Lote Plant:
1.
Financial: Funds are arranged from head office for the payment of expenses,
engineering bills, transportation bills etc. Reports are maintained related to operating expenses that means total expenses during the month like, salary, wages, freight, welfare etc. 2.
Excise: Accounts of modvat received and payment of the central excise duty on
the finished goods dispatches. 3.
Sales Tax: Accounts of vat received on purchase and payment of vat on finished
goods dispatches.
The various duties and responsibilities of Accounts department in KNPL Lote plant:
1. Recording day-to-day operating expenses 2.
Excise duty analysis
3.
Transportation bill passing
4.
Engineering bill passing
5.
Powder coating bill passing
6.
Day-to-day cash transactions
7.
MIS Activities
4. NEED FOR THE STUDY •
The study has great significance and provides benefits to various parties whom directly or indirectly interact with the company.
•
It is beneficial to management of the company by providing crystal clear picture regarding important aspects like liquidity, leverage, activity and profitability.
•
The study is also beneficial to employees and offers motivation by showing how actively they are contributing for company’s growth.
•
The investors who are interested in investing in the company’s shares will also get benefited by going through the study and can easily take a decision whether to invest or not to invest in the company’s shares.
5. OBJECTIVES OF STUDY
The major objectives of the resent study are to know about financial strengths and weakness of KANSAI NEROLAC PAINTS LIMITED through FINANCIAL RATIO ANALYSIS. The main objectives of resent study aimed as: •
To evaluate the performance of the company by using ratios as a yardstick to measure the efficiency of the company.
•
To understand the liquidity, profitability and efficiency positions of the company during the study period.
•
To evaluate and analyze various facts of the financial performance of the company. To make comparisons between the ratios during different periods.
Secondary Objectives: • To study the present financial system at KANSAI NEROLAC PAINTS
LIMITED. • To determine the Profitability, Liquidity Ratios.
• To simplifies and summarizes a long array of accounting data and makes them understandable.
6. RESEARCH METHODOLOGY Research methodology is a way to systematically solve the research problem. it may be understood as a science of studying how research is done scientifically. So, the research methodology not only talks about the research methods but also considers the logic behind the method used in the context of the research study. 6.1 Research Design: Descriptive research is used in this study because it will ensure the minimization of bias and maximization of reliability of data collected. The researcher had to use fact and information already available through financial statements of earlier years and analyze these to make critical evaluation of the available material. Hence by making the type of the research conducted to be both Descriptive and Analytical in nature. From the study, the type of data to be collected and the procedure to be used for this purpose were decided. 6.2 Data Collection:
The required data for the study are basically secondary in nature and the data are collected from the audited reports of the company. 6.2.1 Primary Data: Primary data are those data, which is originally collected afresh. In this project, Questionnaire Method and Interview Method has been used for gathering required information. 6.2.2 Sources of Data: The sources of data are from the annual reports of the company from the year 2007-2008 to 2009-2010.
6.3 Methods of Data Analysis:
The data collected were edited, classified and tabulated for analysis. The analytical tools used in this study.
6.3.1 Analytical Tools Applied:
The study employs the following analytical tools: •
Comparative statement.
•
Common Size Statement.
•
Trend Percentage.
•
Ratio Analysis.
7. RATIO ANALYSIS 7.1 Financial Analysis: Financial analysis is the process of identifying the financial strengths and weaknesses of the firm and establishing relationship between the items of the balance sheet and profit & loss account. Financial ratio analysis is the calculation and comparison of ratios, which are derived from the information in a company’s financial statements. The level and historical trends of these ratios can be used to make inferences about a company’s financial condition, its operations and attractiveness as an investment. The information in the statements is used by
•
Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity position of the company.
•
Investors, to know about the present and future profitability of the company and its financial structure.
•
Management, in every aspect of the financial analysis. It is the responsibility of the management to maintain sound financial condition in the company.
7.2 Ratio Analysis: The term “Ratio” refers to the numerical and quantitative relationship between two items or variables. This relationship can be exposed as •
Percentages
•
Fractions
•
Proportion of numbers Ratio analysis is defined as the systematic use of the ratio to interpret the
financial statements. So that the strengths and weaknesses of a firm, as well as its historical performance and current financial condition can be determined. Ratio reflects a quantitative relationship helps to form a quantitative judgment.
7.3 Ratios Are Useful For Several Parties Such As: 1) Investors, both present as well as potential investors. 2) Financial analyst. 3) Mutual funds. 4) Stock broker and stock exchange authorities. 5) Government. 6) Tax department. 7) Competitors. 8) Research analysts and students. 9) Company’s management.
10) Creditors and Suppliers 11) Lending Institutions – Banks and Financial Institutions 12)
Financial Manager
13) Other Interested parties like credit rating agencies etc.
7.4 Nature of Ratio Analysis: Ratio analysis is a technique of analysis and Interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. It is only a means of understanding of financial strengths and weaknesses of a firm. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios. The following are the four steps involved in the ratio analysis. •
Selection of relevant data from the financial statements depending upon the objective of the analysis.
•
Calculation of appropriate ratios from the above data.
•
Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs.
7.5 Classification of Ratios:
A) Liquidity Ratios It is also known as liquidity ratios. it includes the following 1) Measures ability of a company to meet its current obligations. 2) Indicates short term financial stability of a company. 3)
Indicates present cash solvency and ability to remain solvent in times of adversities. To measure the liquidity of a firm the following ratios can be calculated
•
Current ratio
•
Quick (or) Acid-test (or) Liquid ratio
(a) Current Ratio: Current ratio is useful to find out solvency of the company. High current ratio indicates that company will be able to pay its debt maturity within a year. Low current ratio indicates that company will not be able to meet its short term debts. Minimum standard current ratio is 2:1. Current Assets Current Ratio= Current Liabilities
(b) Quick Ratio:
Quick ratio is also known as acid test ratio. It indicates immediate ability of a company to pay off its current obligations. And also shows the solvency and financial soundness of the business. Greater the ratio stronger the financial position of the company. The standard quick ratio should be 1:1 Quick Assets Quick Ratio= Quick Liabilities
B) Profitability Ratios: The primary objectives of business undertaking are to earn profits. Because profit is the engine, that drives the business enterprise. It measures the overall efficiency of the business. It indicates whether utilization of business assets and funds are done efficiently and best way or not , so as to generate adequate profits or returns. Profitability ratios fall in two categories: a) Related To Sales: 1) Gross Profit Ratio: It shows the operating efficiency of the business. It measures the efficiency of production as well as pricing. Decrease in the ratio indicates reduction in selling price or increase in the cost of production or decline in the business activity.
Increase in the ratio indicates increase in the selling price or reduction in the cost of production. Gross Profit Gross Profit Ratio =
X 100 Sales
2) Operating Profit Ratio: It indicates profitability of entire business after meeting all operating cost including direct and indirect cost of administrative and distribution expenses. Operating Profit Operating Profit Ratio:
X
100
Sales
3) Net Profit Ratio: It shows the overall efficiency of the business. Higher the ratio indicates higher efficiency of business and better utilization of total resources. In addition it indicates efficiency of financing operations as well as tax management. Net profit after tax Net Profit Ratio:
X 100 Sales
b) Related To Investment Of Capital Employed:
1) Return On Investment: It measures the overall performance of the company that is utilization of total resources and funds available with the company. Higher the ratio better utilization of funds. It indicates earning capacity of the business. It measures the management performance.
EBT But AT Return on Investment:
X 100 Total Assets/ Liability
2) Return On Net Worth Or Proprietors Funds: It measures the productivity of shareholders funds. Higher the ratio indicates better utilization of shareholders funds or higher productivity of owner’s funds. It helps to investor to compare the earning capacity of company with that of other companies. Net Profit after Tax Return on Net Worth:
X 100 Equity Shareholder Fund
C) Turnover RatioIt measures how efficiently the assets are employed. These ratios are expressed in number of times the assets is used during the period.
1) Inventory Turnover Ratio: It indicates number of times the replacement of inventory during the given period usually a year. Higher the ratio more efficient is the management of inventory. But higher inventory turnover ratio is not always good if it is lower level of inventory because it invites problem of frequency stock outs and loss of sales and customer or goodwill.
Cost of Goods Sold Inventory Turnover Ratio: Average Stock in Hand
2) Average Collection Period: It indicates credit and collection policy and also indicates efficiency in management of debtors. Smaller no. of dates, higher will be the efficiency of the collection department. Avg. collection period should not exceed 1.5 times the credit period allowed. Receivable (Debtors) Avg. Collection Period: Average Sales per Day.
3) Receivable Turnover Ratio: The ratio indicates average credit period enjoyed by debtors.
Debtors + Bills Receivable Receivable Turnover Ratio:
X 100 Total Credit Sales
4) Fixed Asset Turnover Ratio: It indicates efficiency in the utilization of fixed assets like plant and machinery by management. Net Sales Fixed Assets Turnover Ratio = Fixed Assets
5) Total Asset Turnover Ratio = It indicates how efficiently the assets are employed overall. It indicates relationships between the amount invested in the assets and the result accrues in terms of sales. Net Sales Total Asset Turnover Ratio = Total Assets
6) Creditors Turnover Ratio: It indicates the how the credit period enjoyed by the creditors.
Net Credit Purchases Creditors Turnover Ratio= Average Creditors D) Financial Ratio – 1) Capital Gearing Ratio: This ratio indicates the relationship between preferential capital, debenture. Term loan and capital which does not carry fixed rate of interest or dividend. When the ratio is more than one then the capital is said to be highly geared that means low equity share capital and greater amount of preference share capital, debenture, long term loan. When the ratio is less than one then the capital is said to be very lowly geared that means low earning per share. Equity shareholder will control the company. It results in over capitalization. Preferential Capital + Debenture + Term Loan Capital Gearing Ratio: Equity Share Capital + Reserve and Surplus
2) Proprietary Ratio:
It measures the relationship between funds invested in business by the owners with the total funds invested in business. It indicates long run solvency of the business. High ratio means company is less dependent on outside funds and company is quite solvent. Low ratio indicates company is more dependent on outside funds solvency and solvency may be danger.
Proprietary Fund Proprietary Ratio: Total Assets
3) Stock Working Capital Ratio: It indicates weightage of stock in the current assets or in the working funds. It indicates strength and weaknesses of working capital; high ratio indicates slow movement in stock and also reflects better management of inventory as well as working capital. Stock Stock Working Capital Ratio: Working Capital
E) Financial Leverage Ratio:
It indicates financial structure of the organization that is proportion of debts as compare to owner’s fund. 1) Debt Equity Ratio: Higher the ratio less secured is the creditors, lower the ratio creditors enjoy higher degree of safety.
Debt Debt Equity Ratio: Equity
2) Debt Asset Ratio: It indicates the percentage of the total asset created by the company through short term and long term debt. Higher the ratio less safe is the creditors and vice versa. Debt Debt Asset Ratio: Total Assets
3) Long Term Debt to Total Capitalization: It explains the relationship between long term debts borrowed from outsiders with owner’s contribution. Lower the ratio better is the solvency of the business
and safer is the creditor so far as his repayment. Long Term Debt Long Term Debt to Total Capitalization: Total Capital Employed
4) Interest Coverage Ratio: This indicates earning capacity of the business to pay its interest burden. Higher the ratio business can easily pay the interest. Earnings before Interest and Tax Interest Coverage Ratio: Interest
F) Dividend Ratio: These ratios for a particular company are relevant for an investor for making an investment decision as to whether he should invest in the share of the company. 1) Earnings per Share: This ratio indicates weather over a given period their have been change in the wealth per share holder. Other the ratio increases the possibility for the higher dividends and increase in the market price of the shares.
Earnings after Tax – Preference Dividend Earnings per Share: No. Of Shares Paid Up
2) Price Earnings Ratio: It indicates relationship between market price of the share and the current earnings per share. It helps to determine the future price of the share. Market Price per Share Price Earnings Ratio: Earning Per Equity Share
3) Payout Ratio: It indicates how much proportion of the earning per share is retaining for plaguing back and portion distributed as dividend to the share holder. Dividend per Equity Shares Payout Ratio: Earnings per Share
4) Dividend Yield Ratio:
It indicates the ultimate current return which investor will get as a percentage of is investment. It indicates the feature like the profitability and dividend policy of the company. When dividend yield is lower than the expected return, market price for the share may fall in future or vice versa.
Equity Dividend Dividend per Share: No. Of Equity Shares
Dividend per Share Dividend Yield Market Price per Share
7.6 Interpretation of the Ratios: The Interpretation of ratios is an important factor. The inherent limitations of ratio analysis should be kept in mind while interpreting them. The impact of factors such as price level changes, change in accounting policies, window dressing etc.
7.7 Guidelines or Precautions for Use of Ratios:
The calculation of ratios may not be a difficult task but their use is not easy. Following guidelines or factors may be kept in mind while interpreting various ratios is •
Accuracy of financial statements
•
Objective or purpose of analysis
•
Selection of ratios
•
Use of standards should also be kept in mind when attempting to interpret ratios.
8. DATA ANALYSIS AND INTERPRETATION 8.1 Financial stability Ratios:
To measure the liquidity of a firm the following ratios can be calculate the following ratios, a) CURRENT RATIO:
Current Asset Current Ratio: Current Liabilities Table 8.1.a: (Rupees in lakhs)
Year 31-3-07 31-3-08 31-3-09
Current Assets 48468.47 51764.02 49807.77
Current Liabilities 21582.46 27739.78 32808.36
Ratio 2.2:1 1.8:1 1.5:1
ANALYSIS AND INTERPRETATION: The current ratio of the firm measures the short term solvency. It indicates the rupees of current asset available for each rupee of current liabilities. The above chart shows that decline trend from the F.Y. 2007 to F.Y. 2009. This is mainly due to increasing creditors from F.Y. 2007 to F.Y. 2009. In the F.Y. 200708 it shows 2.2:1 which was higher than the standard ratio i.e. 2:1. There was continuous decline in the current ratio which is not good sign for the company.
b) QUICK RATIO:
Quick Asset Quick Ratio: Quick Liabilities
Table 8.1.b: (Rupees in lakhs)
Year
Quick Asset
Quick Liabilities
Ratio
31-3-07 31-3-08 31-3-09
23199.99 27062.4 28573.68
21582.46 27739.78 32808.36
1.07:1 0.975:1 0.870:1
ANALYSIS AND INTERPRETATION: The above chart indicates the decline trend from the F.Y. 2007 to F.Y. 2009. In the F.Y. 2008 and F.Y. 2009 the quick ratio of the company was below standard that means large part of current asset of the firm is tie up in slow moving and unsellable investment of Finish goods and also slow moving of debts, but, the overall trend shows declining which is not a positive sign for KNPL.
8.2. PROFITABILITY RATIO
A) RELATED TO SALES a) Operating Profit Ratio:
Earnings before Interest Taxes Operating Profit Ratio:
X 100 Sales
Table 8.2.A.a: (Rupees in lakhs)
Earning Before Year 31-3-07 31-3-08 31-3-09
Interest Taxes 15542.89 16759.11 14272.70
Sales
Ratio
129345.66 139992.48 139639.94
12.02 % 11.97 % 10.22 %
ANALYSIS AND INTERPRETATION: The above chart shows that there was a continuous decreased in the ratio. That means the ratio was decreased from 12.02% in FY 2007-08 to 10.22% in FY 200910. This is due to increases in the expenditure of the company.
b) Net Profit Ratio:
Net Profit Net Profit Ratio:
X 100 Sales
Table 8.2.A.b: (Rupees in lakhs)
Year 31-3-07 31-3-08 31-3-09
Net Profit 10202.8 11702.72 10136.19
Sales 129345.66 139992.48 139639.94
Ratio 7.88 % 8.35 % 7.25 %
Ratio
RATIO (%)
8.5 8 7.5
Ratio
7 6.5 31-3-07
31-3-08
31-3-09
YEAR
ANALYSIS AND INTERPRETATION: The above chart indicates the Net Profit Ratio in 2007-08 was 7.88 % which further increases to 8.35% in FY 2008-09. Further it had fallen to 7.25% in FY 2009-10. That means company suffers the losses after the FY 2008-09. In FY 2008-09 the net profit was high to increase in the sales of the company.
(B) RELATED TO CAPITAL EMPLOYED a) Return on investment:
Earnings before interest but after tax Return on investment:
X 100 Total asset / liability
Table 8.2.B.a: (Rupees in lakhs)
Earnings Before Total Asset / Year
Interest But After
31-3-07 31-3-08 31-3-09
Tax 10378.39 11929.75 10257.99
Ratio Liability 65912.12 73746.32 75662.49
15.74 % 16.17 % 13.55 %
Ratio
Return on investment 17.00% 16.00% 15.00% 14.00% 13.00% 12.00%
Ratio
31-3-07 31-3-08 31-3-09 Year
ANALYSIS AND INTERPRETATION It can be found that the return on investment ratio of KNPL was slightly increased in first two years. Further it was decreased by 0.13% which implies an ineffective decisions made by the managers. (b) Return on Net Worth or Proprietor’s Funds:
Net Profit after Tax Return on net worth:
X 100 Equity shareholder fund
Table 8.2.B.b: (Rupees in lakhs)
Net Profit after
Equity shareholder
Tax 10202.8 11702.72 10136.19
fund 51721.18 59875.12 66299.87
Year
Ratio
31-3-07 31-3-08 31-3-09
19.72 % 19.54 % 15.28 %
RATIO (%)
25.00% 20.00% 15.00%
Ratio
10.00% 5.00% 0.00% 31-3-07 31-3-08 31-3-09 YEAR
ANALYSIS AND INTERPRETATION: This ratio indicates how well the firm has used the resources of owner. The earning of a satisfactory result is the most desirable objective of the business. This ratio is important to present as well as prospective shareholders and also of great concern to management.
The above chart shows that the ratio was almost constant in first two years. Further it declined to 15.28% this is due to increased in the reserve and surplus of the company. Higher the ratio indicates better utilization of recourses but in KNPL It shows decreasing trend which is not good.
8.3. TURNOVER RATIOS: a) Inventory turnover ratio:
Net Sales Inventory turnover ratio: Closing Stock Table 8.3.a: Year 31-3-07 31-3-08 31-3-09
Net Sales 129345.66 139992.48 139639.94
ANALYSIS AND INTERPRETATION:
Closing Stock 19996.18 19926.90 17063.39
(Rupees in lakhs) Ratio 6.46 times 7.02 times 8.18 times
The above chart shows that the stock gets converted into cash was 6.46 times, 7.02 times and 8.18 times in the FY 2007 to 2009 respectively. If we compared the figures of sales and inventory of first two years, the level of inventory is almost same, but in the FY 2008 and09 the sales was increased with low cost of inventory which implies the management is successful to reduce the cost involved for management of inventory.
b) Average Collection Period:
Receivable (Drs) Average collection period: Average sales per day
Table 8.3.b: (Rupees in lakhs)
Average sales per Year
Receivable (Drs)
31-3-07 31-3-08 31-3-09
20994.41 23637.37 20957.29
Ratio day 129345.66 139992.48 139639.94
59.24days 61.62 days 54.77 days
ANALYSIS AND INTERPRETATION: The above chart shows that the collection period was high in FY 2008-09 i.e. 62 days. This means, a very long collection period would imply either for credit selection or an inadequate collection. The average collection period short in FY 2009-10 which means that better is a credit management and prompt payment on the part of debtors.
c) Receivable turnover ratio:
Credit sales Receivable turnover ratio: Average debtors
Table 8.3.c: (Rupees in lakhs)
Year 31-3-07
Credit sales 129345.66
Average debtors 20994.41
Ratio 6.1times
31-3-08 31-3-09
139992.48 139639.94
23637.37 20957.29
5.9 times 6.6 times
ANALYSIS AND INTERPRETATION: This ratio indicates the average credit period enjoyed by debtors. The above chart shows that the customers to whom the credit sales are made pay 6.1times, 5.9 times & 6.6 times in the FY 2007 to respectively. In the FY 2008-09 THE DEBTORS TURNOVER RATIO was low which indicates the absence of a strict credit policy and also point out that there were delayed to recover the revenue from sales. This point out into the huge block up of working capital in book debt. It was high in FY 2009-10 i.e. 6.6 times which indicate prompt payment on the part of debtors. Overall debtor’s turnover ratio was good.
d) Fixed Asset Turnover Ratio:
Net sales Fixed asset turnover ratio: Fixed assets
Table 8.3.d: (Rupees in lakhs)
Year 31-3-07 31-3-08 31-3-09
Net sales 129345.66 139992.48 139639.94
Fixed assets 22538.61 24140.44 23861.99
Ratio 5.73 times 5.79 times 5.85 times
ANALYSIS AND INTERPRETATION: It indicates efficiency in the utilization of fixed assets like plant and machinery by management. From the above chart the fixed asset turnover ratio of KNPL slowly increases over period of time. From this we can say that a company has been successful to manage and utilized its assets. Also a company has been more effective in using the investment in fixed assts to generate revenue.
e) Total Asset Turnover Ratio: Net sales Total asset turnover ratio:
Total asset
Table 8.3.e: (Rupees in lakhs)
Year 31-3-07 31-3-08 31-3-09
Net sales 129345.66 139992.48 139639.94
Total asset 65912.12 73746.32 75662.49
Ratio 1.962 times 1.898 times 1.845 times
2
ratio
1.95 1.9
Ratio
1.85 1.8 1.75 31-3-07
31-3-08
31-3-09
year
ANALYSIS AND INTERPRETATION: The total asset turnover ratio indicates the firm’s ability to generate sales from all financial resources. From the above chart the total asset turnover ratio was decreased from 1.9 times in FY 2007-08 to 1.8 in FY 2009-10. The total asset turnover of the company was 1.8 times implies that KNPL generate a sell of Rs. 1.8 for one rupee investment in fixed and current asset together.
f) Creditor’s Turnover Ratio:
Net credit purchases Creditor’s turnover ratio: Average creditors
Table 8.3.f: (Rupees in lakhs)
Net credit Year purchases 84723.95 89136.85 92418.41
31-3-07 31-3-08 31-3-09
Average creditors
Ratio
15906.86 18430.47 23007.12
5.3 times 4.8 times 4.0 times
Ratio
6 5 4 3 2
Ratio
1 0 31-3-07
31-3-08
31-3-09
Yea r
ANALYSIS AND INTERPRETATION: The above chart dips from 5.3 times to 4.0 times from the FY 2007-08 to FY 2009-10. From this we can interpret that KNPL has successful to manage its creditors because, over the years trend is declining.
8.4 Financial ratio a) Proprietary ratio:
Proprietary Fund Proprietary ratio:
X 100 Total assets
Table 8.4.a (Rupees in lakhs)
Year 31-3-07 31-3-08 31-3-09
Proprietary fund 51721.18 59875.12 66299.62
Total assets 65912.12 73746.32 75662.49
Ratio 78.46 % 81.19 % 87.62 %
Ratio
Ratio
90.00% 85.00% 80.00%
Ratio
75.00% 70.00% 31-3-07 31-3-08 31-3-09 Year
ANALYSIS AND INTERPRETATION: From the above chart the ratio was consistently increased in three years. The ratio was high in the FY 2009-10 i.e. 0.87%. It indicates the company is quite solvent.
b) Stock working capital ratio:
Stock Stock working capital ratio: Working capital Table 8.4.b: (Rupees in lakhs)
RATIO (%)
Year 31-3-07 31-3-08 31-3-09
Stock 19996.18 19926.90 17063.39
Working capital 26886.01 24024.24 16999.41
Ratio 74.37% 82.94% 100.37%
120.00% 100.00% 80.00% 60.00% 40.00%
Ratio
20.00% 0.00% 31-3-07
31-3-08
31-3-09
YEAR
ANALYSIS AND INTERPRETATION: The above chart shows the continuous increase in the trend of the ratio. The weightage of stock in the current assets is high in the FY 2009 – FY 2010 as compare to other FY. That means there was a slow movement of stock.
8.5 Financial Leverage Ratio: It indicates financial structure of the organization that is proportion of debts as compare to owner’s fund. a) Debt Equity Ratio:
Debt Debt equity ratio: Equity Table 8.5.a: (Rupees in lakhs)
RATIO (%)
Year 31-3-07 31-3-08 31-3-09
Debt 12657.80 12480.40 9362.62
Equity 51721.18 59875.12 66299.62
Ratio 24.47% 20.84% 14.12%
30.00% 25.00% 20.00% 15.00% 10.00%
Ratio
5.00% 0.00% 31-3-07
31-3-08
31-3-09
YEAR
ANALYSIS AND INTERPRETATION: This ratio is useful to judge long term financial solvency of a firm. This ratio reflects the relative claim of creditor and shareholder against the assets of the firm. From the above chart the debt equity ratio of the KNPL was consistently declined from 24.47% in FY 2007-08 to 14.12% in FY 2009-10.The low debt equity ratio in FY 2009-10 indicates the firm had less claims from outsiders as compared to those of owner.
b) Debt Asset Ratio:
Debt Debt asset ratio: Total assets
Table 8.5.b: (Rupees in lakhs)
Year 31-3-07 31-3-08 31-3-09
Debt 12657.80 12480.40 9362.62
Total assets 65912.12 73746.32 75662.49
Ratio 19.20% 16.92% 12.37%
RATIO (%)
25.00% 20.00% 15.00%
Ratio
10.00% 5.00% 0.00% 31-3-07
31-3-08
31-3-09
YEAR
ANALYSIS AND INTERPRETATION: From the above chart the debt asset ratio was consistently decreased from 19.20% in FY 2007-08 to 12.37% in FY 2009-10. That means at beginning creditors of KNPL bear the high risk than the other years.
c) Long Term Debt to Total Capitalization:
Long term debt Long term debt to total capitalization: Total capital employed
Table 8.5.c: (Rupees in lakhs)
Total Capital Year
Long Term Debt
31-3-07 31-3-08 31-3-09
Ratio Employed 65912.12 73746.32 75662.49
4660.29 4603.14 1608.29
7.07% 6.24% 2.12%
RATIO (%)
8.00% 6.00% 4.00%
Ratio
2.00% 0.00% 31-3-07
31-3-08
31-3-09
YEAR
ANALYSIS AND INTERPRETATION: The above chart indicates that the ratio was consistently decreased from 7.07% in FY 2007-08 to 2.12% in FY 2009-10, means that KNPL is successful to manage its long term debt which further implies that the KNPL is in better position in terms of solvency.
d) Interest Coverage Ratio:
Earning before interest and tax Interest coverage ratio: Interest Table 8.5.d:
(Rupees in lakhs)
Earnings Before Year Interest And Tax 15718.48 16986.14 14505.05
31-3-07 31-3-08 31-3-09
Interest
Ratio
175.59 227.03 212.8
89.51times 74.91 Times 68.16 Times
100
Ratio
80 60
Ratio
40 20 0 31-3-07
31-3-08
31-3-09
Year
ANALYSIS AND INTERPRETATION: From the above chart the trend of the ratio was decreased from 89.51 times in FY 2007-08 to 68.16 times in FY 2009-10. From this, it indicates that KNPL is trying to reduce its interest burden which is good sign for both i.e. there creditors and shareholders.
8.6 Dividend Ratio: These ratios for a particular company are relevant for an investor for making an investment decision as to whether he should invest in the share of the company.
a) Earnings per Share:
Earning after tax – preference dividend Earning per share: No. of shares paid up
Table 8.6.a: (Rupees in lakhs)
Earnings After No. Of Shares Paid Year
Tax – Preference
Ratio Up
Dividend 10202.08 11702.72 10136.19
31-3-07 31-3-08 31-3-09
255.07666 269.45986 269.45986
RATIO (Rs.)
44 42 40
Ratio
38 36 34 31-3-07
31-3-08
31-3-09
YEAR
ANALYSIS AND INTERPRETATION:
39.99 43.43 37.61
From the above chart the EARNING PER SHARE of the company was high in FY 2008-09 i.e. Rs.43.43. This means that as compare to the other FY there has been increase in wealth per shareholder.
b) Payout Ratio:
Dividend per equity share Payout ratio:
X 100 Earnings per share
Table 8.6.b: (Rupees in lakhs)
Dividend per
Earning per equity
Year
Ratio equity share 12.14 12.00 12.00
RATIO (%)
31-3-07 31-3-08 31-3-09
share 39.99 43.43 37.61
33.00% 32.00% 31.00% 30.00% 29.00% 28.00% 27.00% 26.00% 25.00%
30.35% 27.63% 31.90%
Ratio
31-3-07
31-3-08
31-3-09
YEAR
ANALYSIS AND INTERPRETATION: It indicates how much proportion of the earning per share is retaining for plugging back and portion distributed as dividend to the share holder.
The above chart indicates that the pay out ratio was high in FY 2009-10 i.e. 31.90%. If the divided pay out ratio is subtracted from 100, retention ratio is obtained. Means that in KNPL the retention ratio from FY 2007 to FY 2009 was 69.65%, 72.37%, 68.1% respectively and KNPL is ploughed back its maximum percentage of its profit.
c) Dividend per shares ratio: Equity dividend Dividend per share: No. of equity shares
Table 8.6.c: (Rupees in lakhs)
No. Of Equity Year
Equity Dividend
RATIO (Rs.)
31-3-07 31-3-08 31-3-09
Ratio Shares 25507666 26945986 26945986
309879000 323352000 323352000
12.2 12.15 12.1 12.05 12
Ratio
11.95 11.9 31-3-07
31-3-08
31-3-09
YEAR
ANALYSIS AND INTERPRETATION:
Rs. 12.14 Rs. 12.00 Rs. 12.00
The dividend per share ratio of the KNPL was almost same i.e. Rs. 12 in the FY 2007 to FY 2009.But if we compared earning per share with Dividend per share it shows that Earning per share is more than Dividend per share. In this case of Earning per share, adjustment of bonus or right issue should be made while calculating Dividend per share over the year.
9 FINDINGS
1. The ideal current ratio is 2:1 which the firm obtains only in the FY 2007-08 it shows the positive impact.
2. The ideal liquid ratio is 1:1 which is also obtained by the firm in FY 2007-08 and FY 2008-09 it indicates that KNPL, without selling its inventory, has enough short-term assets to cover its immediate liabilities.
3. The net profit ratio shows fluctuating trend, it shows that more or less the company is successful to maintained efficiency in sales value and operating expenses.
4. The operating profit ratio of the KNPL is in fluctuating manner as 12.02%, 11.97%, and 12.22% from FY 2007to FY 2009.
5. The return on investment ratio is increased from 0.15% to .016% in FY 2007 to FY 2008 because both the EBIT and total asset increased.
6. The company is maintaining the proper record of inventory. Management is successful to manage the cost involved in inventory, because of increasing ratio of inventory.
7. The fixed asset turnover ratio of the firm is in increasing trend from the F.Y. 2007 to 2009, means that the company is efficiently utilizing the fixed assets. 8. The proprietary ratio of the firm shows increasing trend, means that the long term solvency of the firm is increased.
9. KNPL borrowed loans in such a way that the cost of this debt financing do not outweigh the return that the company generates on the debt through investment and business activities And become too much for the company to handle.
10. The KNPL is successful to manage its long term debt. In the FY 2007-08 the long term debt was Rs. 4660.29 which was reduced to Rs. 1608.29 in FY 2009-10.
11. KNPL is far better in covering its fixed cost with the interest coverage ratio.
12. The sales, profit before tax, profit after tax shows the increasing trend during the period under review. It depicts that the company is working with more efficiency.
13. The company has not made any preferential allotment of shares and also company has not issue any debentures.
10 SUGGESTIONS AND CONCLUSION 10.1 Suggestions: 1. The CURRENT RATIO of KNPL was less than the standard in FY 2008-09 and 2009-10 i.e.1.8, 1.5 respectively. A low current ratio indicates that co will not be able to meet its short term debts.
2. KNPL should look into its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.
3. There is decreasing trend in interest coverage ratio which is due to heavy investment which further effect on the return on investment ratio. So KNPL should keep up its investment unto sufficient level.
4. The KNPL should formulate the strategy to use the fixed assets more effectively to generate more revenues.
5. Operating expenses should be especially considered to be reduced.
6. Inventory is the biggest item of balance sheet that must have demanded a large amount of maintaining cost. So there is need for efficient Inventory Management.
7.
There should be efficient utilization of share holder fund to increase return on
investment and return on equity to maintain its goodwill in investors mind.
10.2 CONCLUSION: Finance is the life blood of every business. Without effective financial management a company cannot in this competitive world. A Prudent financial Manager has to measure the working capital policy followed by the company.
The company’s overall position is at a good position. Through the losses were there in the FY 2003-2004, they were able to come out of it successfully and regain into profitable scenario. Particularly the last three year’s position is well due to raise in the profit level from the FY 2007 to FY 2009. It is better for the firm to diversify the funds to different sectors in the present market scenario.
On a whole Kansai Nerolac Paints Limited has once again demonstrated its potential to ride through the difficult times. Despite the slowdown in its growth, it has determined to grab numerous opportunities that are facing Indian Paint Industry.
As mentioned earlier, other opportunities in India are pegged to the transport sector. Car ownership in India stands at little more than one percent. However, rising affordability and the launch of economical cars such as the Tata Nano are expected to propel the market for OEM coatings and refinishes in the coming years.
Higher demand for marine paints can be expected in the next decade, once investments in ports and port development have started to reach fruition. As India is hopeful of competing with other established shipbuilding nations, the multinationals are likely to find plentiful opportunity in India, given the compliance requirements imposed by effects of international legislation on marine paints.
Also other segments are showing promising opportunities to grow. With these many opportunities at hand along with the potential player who would be able to make use of the situation well, I would rather start looking at a career in KNPL.
So from this we can conclude that there is a better opportunities for investors to invest in this company.
11 LIMITATIONS
The main limitations of the project undertaken are as under:-
•
Time: The time of around two months was too short to study as wide subject like Financial Analysis.
•
Confidential information: The executives were hesitant to reveal complete information since it was confidential.
•
Busy Schedule of Concerned Executives: The concerned executives were not having very busy schedule because of which they were reluctant to give appointment.
12 BIBLIOGRAPHY
•
Financial Management: M Y KHAN AND P K JAIN Fifth Edition
•
FINANCIAL MANAGEMENT - I. M. PANDEY
•
Financial Management (BMS): MR. Kale.
•
Kansai Nerolac Paint’s magazines, brochures etc.
•
Annual Reports of the Kansai Nerolac Paints Ltd. o
88th annual report 2007-08
o
89th annual report 2008-09
•
www.nerolac.com
•
Search Engine : www.google.com
