Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd.Chapter – 1 • Introduction of Ratio analysis • Project title • Objectives of the project • Methodology R.C.E.T, Bhilai M.B.A – 09 -11 Page 1 Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd. INTRODUCTION OF RATIO ANALYSIS Ratio analysis – A ratio is a mathematical relationship between two related items expressed in quantitative form. When this definition of ratio is explain with reference to the item shown in financial statements, than it is called accounting or financial ratio. So in this way the analysis of the financial statements of the company is known as ratio analysis. Ratio may be expressed in either of the following ways – 1. In proportion – In this form of amount of the two items are being expressed in a common denominator. The example of this form of expression is relationship between current assets and current liabilities as 2: 1. 2. In rate or times or coefficient – In this form quotient obtained by dividing one item by another item is taken as unit of expression. The example of this form is sales divided by stock (say it comes 4); thus 4 times is the ratio between sales and stock. 3. In percentage – In this form, a quotient obtained by dividing one item by another is multiplied by one hundred and it becomes the “percentage” form of expression. For example between gross profit and sales may be expressed by 32 %. R.C.E.T, Bhilai M.B.A – 09 -11 Page 2 Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd. PROJECT TITLE A Project report on Ratio Analysis of Financial Statements on KAMAL SOLVENT EXTRACTIONS PVT. LTD, RAJNANDGAON, CHHATTISGARH. OBJECTIVES OF THE PROJECT ➢ To interpret the analysis and the trend of the financial results. ➢ To use various activity ratios and liquidity ratios to find out the liquidity and solvency position of the industry. R.C.E.T, Bhilai M.B.A – 09 -11 Page 3 Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd. METHODOLOGY Data Collection Primary Source ➢ Audit reports (Balance sheet & profit and loss a/c) provide by the industry. ➢ Respondents and finance department of KAMAL SOLVENT EXTRACTIONS PVT.LTD. Secondary Source ➢ Published collections of data. ➢ Financial sites on the internet. ➢ Official web site of the company. Data Presentation: Graphical and tabular representation of the collected data has been done to show the financial position of the industry. Data Analysis & Interpretation: Here an analysis of the annual reports of the last three fiscal years (2006-07 to 2008-09) has been done. Various ratios have been calculated to find out the profitability and leverage of the firm. Various working capital ratios have been calculated to observe the working capital changes and comparisons have been made of the last three years. With the help of this various ratio we can easily find out the financial activities of the industry. R.C.E.T, Bhilai M.B.A – 09 -11 Page 4 Bhilai M.B.C.T. Chapter – 2 • Literature review ○ The rice bran oil industry in India ○ Manufactures of rice bran oil in India Literature review R. Ltd.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.A – 09 -11 Page 5 .E. it is rich in natural anti-oxidants and unique nutrient. It has acquired the status of a "Functional Food" or a "Health Food" in Western Countries. Ltd. China. In the early eighties.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. The Rice Bran Oil industry in India Rice Bran Oil is a unique vegetable oil produced from the outer brown layer of rice which is removed in the form of rice bran during the polishing process of the rice milling industry. All these studies have attributed these properties of the oil to the presence of unique nutrient in this oil known as Oryzanol & tocotrienolss. Rice Bran Oil extraction started in India about 40 years back. Besides having an ideally balanced fatty acid profile. Initially the entire quantities of rice bran oil produced in India were used as raw material for the soaps & detergent industry as the free fatty acid content of the oil was very high.C.T. Korea. Manufacturers of Rice bran oil in India: Here the following table contains the information about the name of the some of the big manufacturers of rice bran oil in India R. It is the conventional & the most favorite cooking medium of the Japanese and is popularly known as "Heart Oil" in Japan. It has a potential to produce over one million tons of this nutritious oil.E. In this way government of India encouraged for grooming up the rice bran industries in India.A – 09 -11 Page 6 . Taiwan and Thailand as premium edible oil. A number of scientific studies conducted in India & abroad have well documented the better cholesterol lowering properties of rice bran oil as compared to other conventional vegetable oils. It was in the middle of 60's that a beginning was made in India for the extraction of oil from rice bran with the help of solvent extraction process wherein food grade hexane is used to extract oil from rice bran. India is the second largest producer of paddy in the world after China contributing about 23% to the total world production of paddy. the Government of India introduced money credit scheme to encourage the use of rice bran oil as a product mix in vanaspati (hydrogenated fat) wherein substantial rebate from the payment of excise duty on vanaspati was given for use of rice bran oil in the manufacture of vanaspati.B. Bhilai M. Rice Bran Oil is extensively used in Japan. Ltd City West Bengal Rajasthan Durg Ahemdabad Mumbai Rajnandgaon Rajnandgaon Uttar pradesh R. Name of the company Hemraj Industries pvt. Shree Sita Agro Foods pvt. Bhilai M. Ltd. Ltd. Ltd Jindal oil & fats ltd.T.B. Kamal solvent Extractions pvt. Kumar Metal Industries pvt. Ltd Ganpati solvent Jai lakshmi solvent Pvt.E.C. ltd Gujrat Ambuja Exports ltd.A – 09 -11 Page 7 .Ratio analysis of financial statements on Kamal solvent Extractions Pvt. is Rice Bran oil producing company established on 1990 focused on specialized. Chapter – 3 • Company profile Company profile KAMAL SOLVENT EXTRACTIONS PVT LTD INTRODUCTION: Kamal Solvent Extractions Pvt. Ltd. high-value products and services.A – 09 -11 Page 8 .T.E.C.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. The company’s principal activities are extracting oil from the rice bran and refining the extracted oil and R. Ltd.B. Bhilai M. NILKAMAL and RSOYEE respectively. Refined Rice Bran Oil and Triple Refined Rice Bran Oil under the registered brand name “KAMAL” and “RAJKAMAL. The paddy that comes from the fields has a hard outer covering called the husk. Kamal Solvent Extractions Pvt.B. and leading the thrust in adopting environment friendly policies. Ltd.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. The Industry is surrounded with green trees. Ltd. we have always dreamed big.C. MISSION & VISION: "At Kamal Solvent Extractions Pvt. Ltd. which the company executes with full dedication and concentration with the help of various expertises. marketing the edible oil to the potential market. Bhilai M.B.T.. Kamal Solvent Extractions Pvt. This development process of converting the byproduct into finished goods underpins various processes. The company’s head office is at Rajnandgaon with subsidiary offices in Durg and Raipur in India. We have been a leading light in the field of Rice bran oil for the past years. setting standards for excellence.O: Rice Bran Oil. During the de-husking process. is engaged in the industry as the trusted manufacturing unit for edible oil viz. this husk is removed from the paddy and what R. It is our vision that has taken us from a pioneer that spear-headed the rice bran revolution to the recent position.is rated as a smoke and pollution free industry in the Chhattisgarh state of India. Our vision is to be a world class organization that is a benchmark for other organizations in the country. We strive to look beyond the boundaries of competition by being quality centric in our manufacturing practices. is unique cooking oil produced from the brown layer of rice paddy." R. which is commonly known as “HEART OIL” in Japan.T. Company also sells crude oil (non-refined oil) to big companies like I. which is removed in the form of rice bran for producing white rice.E.C and PEPSICO in India. Within short period of time earned an unmatched success and reputation in the region and also in various parts of the country.A – 09 -11 Page 9 . Water Filter Plant of this industry takes care of pollution free extraction of Water used in Industrial Production works. Ltd. The rice so obtained is brown in colour since it has an oily brown covering called the Bran.50 42. After oil extraction.The products of Kamal solvent is divided in four different brands. PRODUCTS OF KAMAL SOLVENT . and Madhya Pradesh and Andhra Pradesh. Appearance of rice bran oil ranges from cloudy to clear depending on the degree of de-waxing and winterization process applied. This crude oil is further refined in order to obtain rice bran oil. The polished rice which we generally consume is obtained after removing this bran from the rice. remains is brown rice.E. It also has several industrial uses. Sometimes the produced non refined oil of the company is also supplied in bulky quantity to the multinational companies also like – PepsiCo. the by-product obtained is deoiled rice bran. It is important to understand that bran and husk are not same. In other word.C. Antioxidants of Vitamin E group are naturally occurring in rice bran oil.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.50 107 690 740 Per pack price in Rs. Typically rice bran accounts for 7 –8 % of the rice produced and the recovery of rice bran oil from rice bran is usually 15%.A – 09 -11 Page 10 . quantity and price which can be shown with the help of following table – pouch pouch Can(plastic) Can(plastic) Tin can Types of packaging 500ml 1 liter 5 liter 15 liter 15 k.g quantity 21. Maharashtra. PACKAGING OF THE BRANDS . Rice bran is a by-product of the rice milling industry from which rice bran oil is extracted. Bhilai M.The brands of Kamal solvent comes in different types of packaging. ITC.B. Ltd. Rice bran oil is used for human consumption.T. The bran which is left behind after the polishing process undergoes the solvent extraction process in order to obtain crude rice bran oil. The brands which are shown below in diagram are mostly preferable in Chhattisgarh. R. B. Cheaper and popular – Kamal refined rice bran oil is the highly selling product in all over central India. Gives better taste & flavor to food items. Tocotrienol and Squalene which provides many benefits for human health.45% monosaturated and 35% polyunsaturated fatty acid which is close to American heart association recommendation. Bhilai .A – 09 -11 Page 11 R. More stable at high temperature. In spite of all the above features some more features of the kamal products are – • • • • • • • • • Longer shelf life. Economical – 15% less absorption of oil during frying. Anti – viral capacity Oil is less sticky so its saves soap. saves energy.E.C. These tag lines express the quality of the kamal products inspite of this we can discuss about the features of the kamal products by following ways – • • Premium quality – Kamal produced in world class specially developed process under highly hygienic condition to give better taste and natural flavor to good health. shakti swaad bemisal”. Ltd. Frying takes less time.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. M. Features of Kamal solvent products – The tag line of the company is – “KAMAL ka kaamal.T. Tin can 15 liter 635 Note – Prices of the various products of the company which is shown in the above table are always fluctuating as according to the market condition. • • Rich micronutrients & natural antioxidants – Kamal contains oryzanol. Nutritionally superior – Kamal contains about 18% saturated. 1 liter pack). Heart food for every happy home. Available in small packs also (5 liter. Ltd. Chapter – 4 • Ratio analysis • The use of financial ratio • Significance of using ratio • Managerial uses of ratio analysis • Users of ratio analysis • Limitation of ratio analysis • Financial highlight of the company • Analysis of short term financial position or test of liquidity R. Easily reachable available in all general stores. Bhilai M.B.T.A – 09 -11 Page 12 .C.E.• Ratio analysis of financial statements on Kamal solvent Extractions Pvt. industry. Bhilai M. For the analysis of the Financial Statements. • Ratio Analysis involves methods of calculating and interpreting financial ratios in order to assess a firm's performance and status.C.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. sector and all firms R. The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. Ltd.E. • • • • • Assessment of the firm’s past. THE USE OF FINANCIAL RATIOS: • Financial Ratio is used as a relative measure that facilitates the evaluation of efficiency or condition of a particular aspect of a firm's operations and status.A – 09 -11 Page 13 . Done to find firm’s financial strengths and weaknesses. Comparison of financial ratios to past. present and future financial conditions.B.T.A ratio is a simple arithmetical expression one number to another. RATIO ANALYSIS: . It is a type of primary tools for the company. Such a standard may be either the ratio which represents the typical performance of the trade or industry. It is compared with the same ratio in previous financial statements (trend analysis).C. or the ratio which represents the target set by management as desirable for the business. Ratios relating to past sales. profits and financial positions from the basis for setting future trends. R. Long term solvency refers to the financial viability of a firm and it is closely related with the existing financial structure. Ltd.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. ideal ratios can be composed and they can be used for comparing a firm’s progress and performance.B. • Financial Solvency of the Firm: Ratio analysis indicates the trends in financial solvency of the firm.A – 09 -11 Page 14 . • Helps in Comparison: With the help of ratio analysis.E. SIGNIFICANCE OF USING RATIOS: The significance of a ratio can only truly be appreciated when: • • • It is compared with other ratios in the same set of financial statements. operations and time. Bhilai M. short term solvency is the liquidity position of the firm. Inter firm comparison or comparison with industry averages is made possible by ratio analysis. Solvency has two dimensions long term solvency and short term solvency. • Evaluation of Operating Efficiency : Ratio analysis throws light on the degree of efficiency in the management and utilization of its assets and resources. Various activity ratios measure this kind of operational efficiency and indicate the guidelines for economy in costs. It is compared with a standard of performance (industry average). On the other hand. MANAGERIAL USES OF RATIO ANALYSIS : The following are the important managerial uses of ratio analysis helps in financial forecasting : Ratio analysis is very helpful in financial forecasting. With the help of ratio analysis conclusion can be drawn regarding the firm’s liquidity and long term solvency position.T. Fixed assets turnover ratio h.A – 09 -11 Page 15 . Ltd. Net profit ratio c. • Communication Value: Different financial ratios communicate the strength and financial standing of the firms to the internal and external parties. profitability and capital gearing etc. Average collection period d. Creditors turnover ratio c.E. of the firm. Gross profit ratio b.T. solvency. Profitability Ratios – following are the various ratios which comes under profitability ratios : a. of the firm. Bhilai M. Debtors turnover ratio b. Operating ratio d.C. Total assets turnover ratio g. Average payment period e. • Other Uses: Financial ratios are very helpful in the diagnosis of financial health of a firm. They indicate the overall profitability and capital gearing etc. Inventory turnover ratio f.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Turnover or Activity Ratios – following are the various ratios which comes under turnover or activity ratios : a. TYPES OF RATIO ANALYSIS Mainly the financial ratios are divided in four major parts we can describe that ratios by following ways – 1.B. They highlight liquidity then. Expenses ratio 1. Proprietary turnover ratio R. Various solvency Ratios a.A – 09 -11 Page 16 .C. a. Solvency ratio R. Quick ratio c.B.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Cash ratio 1. Super quick ratio d. Liquidity Ratios – following are the various ratios which comes under liquidity ratios with the help of this ratios we can easy analyze the liquidity position of the company. Debt equity ratio b. Ltd. 1. Current ratio b.E. Bhilai M.T. Ltd. They restore more confidence in those firms that show steady growth in earnings.E. are most concerned about the firm’s earnings. LIMITATIONS OF RATIO ANALYSIS • • • • • • A firm’s industry category is often difficult to identify. Sometimes difficult to interpret deviations in ratios. • SUPPLIERS OF LONG TERM DEBT: Suppliers on the other hand.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Bhilai M. • INVESTORS: who have invested their money in the firm’s shares. Accounting practices differ across firms. Industry ratios may not be desirable targets.A – 09 -11 Page 17 . USERS OF RATIO ANALYSIS: • TRADE CREDITORS: They are interested in firm’s ability to meet their claims over a very short period of time. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently. R. and the firm’s financial condition is sound.C.B. confine to the evaluation of the firm’s liquidity position. • MANAGEMENT: of the firm would be interested in every aspect of the financial analysis. Published industry averages are only guidelines. are concerned with the firm’s long term solvency and survival. Their analysis will therefore. Seasonality affects ratios. They analyses the firm’s profitability over time.T. it’s ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds (capital structure relationships). they concentrate on the analysis of the firm’s present and future profitability. They are also interested in the firm’s financial structure to the extent it influences the firm’s earnings ability and risk. As such. This measure deducts all expenses from revenue including interest expenses and operating expenses.09% from 2006-07 to 2008-09. but it leaves out the payment of tax. In this way the percentage increase of sales of the industry is 65. Profit Before Tax –PBT A profitability measure that looks at a company's profits before the company has to pay corporate income tax.E. and freight expenses have been deducted. returns. including operating.C.46 crore in years 2008-09. The net sales went up from Rs 49.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.95 59. FINANCIAL HIGHLIGHT OF THE COMPANY NET SALES Gross sales for a period after cash discounts. PBT exists because tax expense is constantly changing and taking it out helps to give an investor a good idea of changes in a company's profits or earnings from year to year. Gross sales includes both credit and cash sales of the company.A – 09 -11 Page 18 . R. Bhilai M. This measure combines all of the company's profits before tax. Ltd.46 Interpretation: The sales figures are encouraging as there is a positive trend and the rate of increase is considerably high.95 crore in year 2006-07 to Rs 82.B. Net sales of the company increase because of its various demandable brands & its shows that company getting good business from its customer’s. non-operating.43 82. continuing operations and non-continuing operations.T. YEAR 2006-07 2007-08 2008-09 SALES(IN RS CRORE) 49. 24 1.E. PAT can be fully retained by a company to be used in the business.81 1.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.83 0. Ltd. 1. Profit after tax (PAT) It the net profit earned by the company after deducting all expenses like interest. 0. depreciation and tax. YEAR 2006-07 2007-08 2008-09 PROFIT BEFORE TAX (IN RS. 0. R. However dividend is paid to the share holders from this residue. CRORE) 0.51 crore in 2008-09. YEAR 2006-07 2007-08 2008-09 SALES(IN RS CRORE) 0. Bhilai M.Company paid dividend to its shareholder’s from this residual amount.99 crore in years 2006-07 to Rs.83 Crore in the year 2006-07 to Rs.07 crore in 2008-09.99.07 Interpretation: The profit after tax is rising in a consistent rate showing a very positive trend from Rs.A – 09 -11 Page 19 . 1.B.51 Interpretation: The profit before tax is rising in a consistent rate showing a very positive trend from Rs.C. 1.T. Bhilai M.43 0.14 4. FINANCIAL STATISTICS OF KAMAL SOLVENT Year NET SALES PAT(profit after tax) PBT(profit before tax) DEBT FIXED ASSETS CURRENT ASSESTS CURRENT LIABILITES RESERVE AND SURPLUS CAPITAL EMPLOYED 9. creditors.58 12.890 2. The short term obligations of a firm can be met in time only when it is having sufficient liquid assets.533 3.6045 6.52 0.912 1. ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF LIQUIDITY The short –term creditors of a company such as suppliers of goods of credit and commercial banks short-term loans are primarily interested to know the ability of a firm to meet its obligations in time.566 1. Therefore.95 0.806 2008-09 (In Rs. Ltd.81 1.T.98 10.834 R.80 4.46 1.crore) 59.995 1.24 1.E.02 9.C.49 3. So to with the confidence of investors. the smooth functioning of the firm and the efficient use of fixed assets the liquid position of the firm must be strong. crore) 2007-08 (In Rs.B. crore) 82.51 2006-07 (In Rs.50 4. it is important proper balance in regard to the liquidity of the firm.86 5. But a very high degree of liquidity of the firm being tied – up in current assets.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.604 2.075 49.A – 09 -11 Page 20 .40 11.29 3. E.T. These should be convertible in cash for paying obligations of short-term nature. Failure to do this will result in the total failure of the business. The current assets should either be liquid or near about liquidity. R. the quick ratio and the operating cash flow ratio. LIQUIDITY RATIOS LIQUIDITY RATIOS Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. The sufficiency or insufficiency of current assets should be assessed by comparing them with short-term liabilities. Bhilai M. The short-term obligations are met by realizing amounts from current. Ltd.B.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. In this way we can say that Liquidity refers to the ability of a firm to meet its current obligations as and when these become due. On the other hand.A – 09 -11 Page 21 .C. The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. floating or circulating assets. If current assets can pay off the current liabilities then the liquidity position is satisfactory. as it would be forced into liquidation. if the current liabilities cannot be met out of the current assets then the liquidity position are bad Common liquidity ratios including the current ratio. payables. The concept behind this ratio is to ascertain whether a company's short-term assets (cash. receivables and inventory) are readily available to pay off its short-term liabilities (notes payable. Bhilai M. crore) 2006-07 2007-08 2008-09 CURRENT RATIO 6. 3.E.00 R.94 3.02 9. Ltd. marketable securities.B.0. Current liabilities = Outstanding expenses + Bill payable + Dividend payable etc. Relatively high ratio values mean that the business is liquid.0. If the current ratio is less than 1. crore) CURRENT LIABILITIES (in Rs. accrued expenses and taxes). Formula for calculating current ratio is Current ratio = Total current assets / Total current liabilities Current assets = Cash + Marketable securities + Bill receivables + Sundry debtors + Inventories.60 3. the business is liquid. In theory. cash equivalents.C. 2.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.53 3. If the current ratio is greater than 1.98 10. YEAR CURRENT ASSETS (in Rs. Rule of thumb 1.A – 09 -11 Page 22 . than the liquidity position of the company is also better to fulfill its short-term liabilities obligations. 1. but cash is not working. the higher the current ratio.89 2.T.18 3. Current Ratio The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. the business is illiquid. current portion of term debt.81 1. crore) CURRENT n Rs. the business is liquid. crore) INVENTORIES( in Rs.C. Formula for calculating quick ratio is Quick ratio = Total current assets – Inventory.0718 3.80 R. If we see the current ratio of the company for last three financial years it has increased from 2006-07 to 2007-08 but decrease in the year 2008-09 in spite of this it is more than 1. If the current ratio is less than 1.24 1.T. which are more difficult to turn into cash. Bhilai M. 2. Relatively high ratio values mean that the business is liquid.38 1.87 1.A – 09 -11 Page 23 .0 it means the business is liquid and in all the years’ current ratio of company is more than the ideal ratio.The quick ratio -the quick assets ratio or the acid-test ratio -is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities.12 4. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets like prepaid expenses.34 5. YEAR CURRENT ASSETS(in Rs.81 0.118 0.53 3. crore) PREPAID EXPENSES(i n Rs.0. Rule of thumb 1. crore) QUICK LIABILITIES(i RATIO 2006-07 2007-08 2008-09 6.89 2. 3. Quick ratio . Interpretation: As we know that ideal current ratio for any firm is 2:1. a higher ratio means a more liquid current position.98 10.E.057 0.0.02 9. If the current ratio is greater than 1. This depicts that company’s liquidity position is sound and the current assets of the company is sufficient to fulfill its short-term liabilities obligation. the business is illiquid.60 1. but cash is not working. 2. Therefore.Prepaid expenses / Total current liabilities.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.B. Ltd. 32 0.60 0. (in Rs. Bhilai M. debtors and bills receivable are generally more liquid than inventories. crore) CURRENT LIABILITIES SUPER QUICK RATIO INVESTMENT (in Rs.82 1. crore) 2006-07 2007-08 2008-09 0.89 2. Ltd. SECURITIES. This shows company has no liquidity problem and it can easily fulfill its shortterm obligations. Company’s quick ratio is more than ideal ratio.A – 09 -11 Page 24 . The ideal quick ratio is 1:1.B.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. yet there may be doubts regarding their realization into cash immediately or in time. Interpretation: A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time.36 R. SUPER /ABSOLUTE QUICK RATIO Although receivables.E.43 0.22 0. YEAR CASH BAL + BANK BAL + IN GOVT.C. Absolute Liquid Assets includes: Formula for calculating super quick ratio is Absolute liquid ratio Absolute liquid assets = = Absolute liquid assets / current liabilities Cash & Bank balances + Investment in govt. securities.31 1. 3.53 3.T. 60 0. Ltd.A – 09 -11 Page 25 . crore) 2006-07 2007-08 2008-09 CURRENT n Rs.B. (in Rs.C.89 2.T. And there is nothing to be worried about the lack of cash because company has reserve.22 in the year 2006-07 up to 0. Formula for calculating cash ratio is YEAR CASH & BANK BAL.31 1. borrowing power & long term investment. Interpretation: From the above calculated super quick ratio it is clear that company carries some amount of cash to fulfill its short term liabilities obligation. PROFITABILITY RATIOS : The main objective of any business concern is to earn maximum profit and at the same time. Bhilai M. 4. CASH RATIO : This is the ratio in which we establish relationship between cash and bank balance to current liabilities.82 1.22 0.E.32 0.36 Interpretation The cash ratio of the company increase from0.53 3. it is the effort of every concern to earn maximum profit not only in absolute terms but also in relative terms either profit should be maximum in relation to capital R.36 in the year 2007-08 and the calculated ratios shows that company have sufficient portion of cash and bank balance against its current liabilities. crore) CASH Cash ratio = Cash + Bank balance / Current liabilities LIABILITIES(i RATIO 0. With the help of this ratio we can find out the ratio of cash & bank balance against the current liabilities of the company.43 0.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. 33% in the year 2006-07 to 5. employed and entrepreneurial risks.33% 6. crore) 44. 6.89 11.40 77.T. Bhilai M. net sales means credit + cash sales – sales return. crore) COST OF GOODS SOLD. With the help of this ratio we can find out that gross profit is how much percentage of the net sales. We can calculate net profit of the company after deducting various expenses like R.66 4.03 4. NET PROFIT RATIO It is also called as Net profit to sales ratio. – Closing stock YEAR Net SALES .93% in the year 2008-09.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. An ability to earn maximum from the maximum use of available resources by the business concerns is also known as profitability.43 82.57 GROSS PROFIT.A – 09 -11 Page 26 . 5.79 % 5.29 55.46 5.(in Rs.(in Rs. crore) GROSS PROFIT RATIO 2006-07 2007-08 2008-09 49.95 59.B. The formula for computing this ratio is as under – Gross profit ratio Gross profit = Gross profit / sales × 100 Cost of goods sold = Sales – Cost of goods sold = Opening stock + Purchase + Direct exp.This ratio expresses the relationship between gross profits and Net sales. Ltd. It measures relationship between Net operating profit and sales and as such is expressed as percentage to sales.C.93 % Interpretation: From the above graph it is clear that gross profit ratio of the firm decreases from 11.(in Rs.E. Gross profit ratio . C. Ltd.83% in the year 2008-09 due to global recession.10% in the year 2007-08 than decreases 1. Bhilai M.T.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. R. financial expenses.A – 09 -11 Page 27 .99 1.43 82.10 % 1. crore) SALES . administrative expenses.24 1. sales expenses etc means here we consider profit before taxation. Higher the ratio of net profit to sales is.99% in the year 2006-07 than it increases up to 2.E.95 59.51 Interpretation: Net profit ratio is an indicator of operational efficiency or inefficiency. The formula for computing this ratio is as under – Net profit ratio = Net profit × 100 / sales YEAR NET PROFIT. From the above graph it is clear that net profit ratio is 1.46 RATIO 1. NET PROFIT crore) 49.99 % 2.B.83 % 2006-07 2007-08 2008-09 0. better is the operational efficiency of the concern. (in Rs.(in Rs. crore) 1.(in Rs. 7.C. Bhilai M. crore) OPREATING RATIO 2006-07 2007-08 2008-09 44.92 2. R. administrative expenses.E.B. OPREATING RATIO – This ratio establishes the relationship between total operating expenses and sales.95 59.51% in the year 2006-07 and it is continuously same 97.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.51% 97.35 % Interpretation : From the above diagram it is clear that operating ratio is 96. crore) OPREATING EXPENSES .(in Rs. The ratio is calculated by the following formula – Operating ratio = (cost of sales + other operating expenses)/sales × 100 Operating expenses = cost of goods sold + administrative expenses + financial expenses + selling and distribution expenses.43 82.T. Total operating expenses include cost of goods sold. YEAR COST OF SALES .46 92.(in Rs. financial expenses and selling and distribution expenses and with the help of this ratio we can easily find out that operating expenses are how much percentage of the total sales.71 SALES .A – 09 -11 Page 28 .35 % 97.29 55.40 77.57 49.46 2.35% in the year 2007-08 and 2008-09. Ltd. T.63% 3.71 SALES . EXPENSES crore) 49.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.(in Rs.E. This ratio also provides help to reduce doubtful debt and on the second hand it provides help to the firm for the creation of the various funds which is useful for the other profitability activities of the company. RECEIVABLE/DEBTORS TURN OVER RATIO – With the help of this ratio we can easily measure the predictable amount which is has to receive from the debtors. TURNOVER RATIO 9.16 2. administrative and financial are how much percentage of the net sales of the company. The formula for calculating receivable turnover ratio – Receivable turnover ratio – Credit sales / Debtors + Bills receivable R.46 RATIO 3. 8.(in Rs.28 % in the year 2008-09.84% of the sales in the 2006-07.95 59. than its decrease and become 3. The formula for calculating expenses ratio is – Expenses ratio = Expenses/sales × 100 YEAR EXPENSES. Bhilai M. If the debtors turnover ratio is more than this condition is good for our business because if the ratio is more than it means company will receive the amount from debtors very quickly.63% in the year 2007-08 and then again decrease and became 3.B.28 % Interpretation: From the above graph it is clear that the expenses ratio is 3. Ltd.84 % 3.C.A – 09 -11 Page 29 . Expenses ratio – With the help of expenses ratio we can easily find out that expenses like selling.92 2.43 82. crore) 2006-07 2007-08 2008-09 1. C. crore) CREDIT SALES .T.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.(in Rs. AVREAGE/DEBT COLLECTION PERIOD – With the help of this ratio we can easily find out that in how many days the amount of credit sales will receive. crore) RATIO 2006-07 2007-08 2008-09 1.46 27 17 20 Interpretation: From the above graph it is clear that in the various different year the Debtors turnover ratio is also different and with the help of this ratio company can easily measure predictable receive amount from the debtors. If the calculated average collection period is less than standard one than this situation is good for the company but if it is more than this situation is not consider good for the company. Every industry has set its own standard for the average collection period.14 49. The formula for calculating average collection period is Average collection period = Debtors + bills receivable / credit sales × 365 R.95 59.A – 09 -11 Page 30 . 10. YEAR DEBTORS .50 4.(in Rs.43 82.86 3.B. Ltd. Bhilai M.E. (in Rs.(in Rs. YEAR DEBTORS . Ltd.14 SALES.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. (in Rs.92 18. Bhilai M. crore) 2006-07 2007-08 2008-09 1.95 59.47 PAYMENT RATIO 19.B.86 3. CREDITORS/PAYMENT TURNOVER RATIO .53 3.C.71 turnover ratio = Credit purchase/Credit ors + Bills payable PURCHASE. The formula for calculating payment turnover ratio is Payment YEAR CREDITORS.95 67. crore) CREDIT Rs.46 14 22 18 DAYS Interpretation: So in this way with the help of this ratio we can easily find out that in how many days the amount of credit sales will receive.T. 11.E. If the calculated average collection period is less than standard than it is good for the industry but if it’s more than standard one than it is not consider good for the industry.50 4.60 36.43 82. crore) 49. crore) 2006-07 2007-08 2008-09 1.89 2. Every industry has set its own standard for average collection period.90 47.A – 09 -11 Page 31 .This is ratio is just reverse of the debtors turnover ratio the only difference is that with the help of this ratio we can easily find out the condition or the level of the firm for the payment of the credit purchase.(in TURN OVER R.52 18. Ltd.E. AVERAGE PAYMENT PERIOD .T. The formula for calculating average payment period is Average payment period = creditors + bills payable / credit purchase × 365 R.B. So from the above graph we got different creditors turnover ratio in different years and this ratios shows the company ability or level for the payment to its 12.A – 09 -11 Page 32 .C.With the help of this ratio we can easily find out that in how many days company will pay to its creditors. Interpretation: creditor’s.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Bhilai M. 51 49.89 2.(in Rs.T.31 R.95 67. crore) CREDIT Rs. crore) 2006-07 2007-08 2008-09 11. YEAR CREDITORS.53 3. Ltd. This ratio is very important for the business from the creditor’s point of view.B.03 5.C. It is based on the relationship between the costs of goods sold or net sales divided by total assets of a firm which is reflected in its earning power.35 4. Bhilai M. 13.47 PAYMENT RATIO 19 19 19 PURCHASE.(in TURN OVER Interpretation: This ratio is similar with average collection period the only difference is that with the help of this ratio we can find out that in how many days company will pay to its creditor’s.Total Assets Turnover Ratio: This ratio is also known as the investment turnover ratio.73 15. (in Rs.47 14.A – 09 -11 Page 33 .60 36.95 59.46 NET SALES.43 82.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Formula for calculating this ratio is Total assets turnover = Net sales / Total assets YEAR TOTAL ASSETS. crore) 2006-07 2007-08 2008-09 1.90 47.E. crore) ASSETS TURN OVER RATIO 4.(in TOTAL Rs. 03 in the year 2007-08 and then it increases and become 5. 14.53 Inventory turn over ratio 9. This ratio is calculated to consider the adequacy of the quantum of capital and its justification for investing in stock or inventory. Interpretation: From the graph it is clear that total assets turnover ratio is 4.68 4.A – 09 -11 Page 34 .31 in the year 2008-09. Inventory turnover is the number of times obtained by dividing cost of sales by average stock.09 30. INVENTORY TURN OVER RATIO – This is also called as stock turnover ratio or stock velocity. (in Rs. Bhilai M.57 Average stock .35 in the year 2006-07 than it become 4. crore) 4.29 55.66 2006-07 2007-08 2008-09 R.40 77.E.T.B. crore) 44.(in Rs. Ltd.23 2. The formula for calculating inventory turnover ratio is – Inventory turnover ratio = Cost of goods sold / average stock Formula for calculating average stock = opening stock + closing stock / 2 YEAR Cost of goods sold.C.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.46 13. 46 NET SALES .52 49. crore) FIXED ASSETS TURN OVER RATIO 0.054 Interpretation: From the above graph it is clear that fixed assets turnover ratio is 0.T. plant and equipment or PP&E) with respect to generating sales.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Bhilai M.080 0.(in Rs. 15.29 4. Simply the higher the yearly turnover rate. This annual turnover ratio is designed to reflect a company's efficiency in managing these significant assets. Interpretation: This ratio is also known as merchandise turnover ratio. R. Fixed turnover ratio = net fixed assets / sales YEAR NET FIXED ASSETS. the better.80 4.C.E.106 0.95 59.106 in the year 2006-07 and then it increases in the year 2007-08 and become 0. (in Rs. It represents a multiplicity of management decisions on capital expenditures. If inventory turnover ratio of the company is more than it is clear that the working activities of the company will also be good and company will work on lower profit rate also from the above graph it is clear that inventory turnover ratio is increase with a high rate in the year 2008-09 .080 in this year and then it again decreases in the 2008-09 and become 0.B.43 82. their investment in fixed assets represents the single largest component of their total assets.A – 09 -11 Page 35 .054. Ltd. Fixed Asset Turnover Ratio : This ratio is a rough measure of the productivity of a company's fixed assets (property. crore) 2006-07 2007-08 2008-09 5. For most companies. 16.23 Total assets.33 2006-07 2007-08 2008-09 Interpretation: If the proprietary ratio of the company is more than the payment capability of the company is good and the creditors of the company are more secure and if the creditor’s of the company are more secure than this condition is financially good for the company.(in Rs.67 1. The formula for calculating proprietary turnover ratio is – Proprietary turnover ratio = owner’s equity / total assets Owner’s equity = share capital + reserve & surplus YEAR Share capital . from the above graph it is clear that proprietary turnover ratio is same in the both first two financial year’s and it Increase more in the year 2008-09.604 2.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Short. crore) 3.E. It is also called net worth to total assets ratio because proprietor’s fund is also known as net worth.27 4.47 14.term solvency. VARIOUS SOLVENCY RATIO’S: With the help of the various solvency ratios we can easily find out the payment capability of the firm against its short term or long term liabilities.67 Reserve & Surplus 1.28 0.67 1. Bhilai M.80 15. We can divide the various solvency ratios on the two bases – 1. (in Rs.C.(in Rs.T.51 Propriteary turn over ratio 0. crore) 11.B.16 5.With the help of this ratio’s we can easily test the company ability for the payment of its short term liabilities in this we can say that in this ratio we can R.566 Owner’s equity. crore) 1. It indicates the strength of financial foundation of the concern and serves as a measure of ultimate or long term solvency.28 0.A – 09 -11 Page 36 .491 3. Ltd. PROPRITEARY TURN OVER RATIO – It is the ratio of proprietor’s fund or owner’s equity to total assets. This is a measurement of how much suppliers.E. comparing total liabilities to shareholders' equity. Ltd. the debt equity ratio provides another vantage point on a company's leverage position. in this case. Similar to the debt ratio.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. creditors and obligors have committed to the company versus what the shareholders have committed. a lower the percentage means that a company is using less leverage and has a stronger equity position. Bhilai M. Debt-Equity Ratio: The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. Debt equity ratio = external equities / internal equities Internal equities / owner’s equities = Share capital + Reserve & surplus External equities = Current liabilities + long term liabilities R.B. To a large degree.A – 09 -11 Page 37 . as opposed to total assets in the debt ratio.C. This ratio is also known as Ratios of financial position or Stability ratio’s. easily test the liquidity position of the company which we had already done earlier in the project. lenders. 1. Long-term solvency – With the help of this ratio’s we can easily test the company ability for the payment of its long term liabilities.T. 2. E. owners. R.67 1.23 1. How much fund has been provided by the owner’s and how much by outsiders in the acquisition of total assets is a very significant factor affecting the long term solvency position of the concern.A – 09 -11 Page 38 .31 7.B.(in Rs.68 10. Ltd.566 1.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. YEAR Share Reserve CURRENT Long EXTERNAL INTERNA DEBT capital & EQUITIES. S (in Rs.27 2. So from the above diagram it is clear that ideal relationship is established between total assets.60 5. L EQUIT .29 9.C. equity and outside debts.67 7. RATIO crore) 200607 200708 200809 1.56 3.89 2.67 3.T.491 1.(in Surplus LIABILITIE term Rs. Bhilai M.45 6.604 1.16 2.89 5. liabilite (in Rs.67 2.21 4.53 3.88 Interpretation: The financing of total assets of a business concern is done by internal equity as well as by external equity. crore) EQUITIES Y crore) crore) s . (in Rs.21 9.A – 09 -11 Page 39 .63.68 0. crore) 7.T.56 10.2. Formula for calculating solvency ratio is Solvency ratio = Total outside liabilities / Total assets Total outside liabilities = Current liabilities + long term liabilities YEAR Total outside liabilities .68 in the year 2007-08 than again decrease in the year 2008-09 and become 0.47 14.93 15.63 Interpretation: From the above graph it is clear that solvency ratio is different in the different years it is 0.65 in the year 2006-07 than it increased and become 0. Bhilai M. Ratio analysis of financial statements on Kamal solvent Extractions Pvt.65 0.61 Solvency ratio 2006-07 2007-08 2008-09 0.(in Rs.89 Total assets. Ltd.E. R.C.B. crore) 11. SOLVENCY RATIO – With the help of this ratio we can easily find out that the amount which is received from the sales is suitable for the payment of the external liabilities or not. A – 09 -11 Page 40 .Ratio analysis of financial statements on Kamal solvent Extractions Pvt.E.B. Ltd.C. Chapter – 5 • Findings FINDINGS R. Bhilai M.T. 13.51% in the year 06-07 and then it become constant 97. 3. 8.18 in the year 06-07. 12. This shows that industries can easily change its current assets in to the liquidity form. The fixed assets turnover is 0.38.E.T. The quick ratio is also in a fluctuating trend throughout the period 06 – 07 to 08-09 resulting as 1.35% in both the financial year 07-08 and 08-09.99% in the year 06-07 than it increases and become 2.This shows continuous increases in both current assets and current liabilities. The current ratio shows in fluctuating trends as 3.87 and 1. 6.92 in the year 07-08 and then it become 18.46 in the year 06-07 and then it increases and become 13.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.93% from the year 06-07 to 08-09.106 in the year 06-07 and then it decline and become 0. The operating profit ratio is 92.80.66 in the financial year 08-09.71 which is a little bit decline in the year 08-09. 1. The expenses ratio of the industry has been decline from 3.080 in the year 07-08 and then again decline and become 0. The payment turnover ratio is 19. 9. The debtor’s turnover ratio is 27 in the year 06-07 then it decline and become 17 in the year 07-08 and then it become 20 in the year 08-09.C.31 from the year 06-07 to 08-09. R.33% to 5. 4. 11. 1. 14. The gross profit ratio of the industry has been decreased from 11.A – 09 -11 Page 41 . 5. 2.B.00 during the year 08-09 . 0. The super quick ratio also shows increases fluctuating trend throughout the period 06-07 to 08-09 resulting as 022. The debt collection period is 14 days in the year 06-07 and then it increases and become 22 days in the year 07-08 and then again decreases and become 18 days in the year 08-09.35 to 5.32 and 0. 3. 7. The inventory turnover ratio is 9.10% in the year 07-08 and then again decreases and become 1. Bhilai M.36.28% from the year 06-07 to 08-09. Ltd.84% to 3.09 in the year 07-08 and then it increases more and become 30. The net profit ratio is 1.83% in the year 08-09.94 in the year 07-08 and 3. 10. This shows the company’s present liquidity position is satisfactory.054 in the financial year 08-09.52 in the year 06-07 and then it become 18. The total turnover ratio is increases from 4. The payment turnover ratio is 19 days which is constant for every financial year. B.88 in the year 08-09. R.A – 09 -11 Page 42 .Ratio analysis of financial statements on Kamal solvent Extractions Pvt. The solvency ratio also shows a fluctuating trend it is 0.45 in the year 07-08 and then again decline and become 1.T.C. The debt equity ratio shows a fluctuating trend it is 2.28 which is constant for both financial year 06-07 and 07-08 and then it increases and become 0. 17. Bhilai M.65 in the year 06-07 and then it increases and become 0. 16.63 in the year 08-09.33 in the year 08-09. The proprietary turnover ratio is 0. 15.68 in the year 07-08 and then again decline and become 0.31 in the year 06-07 and then it increases and become 2.E. Ltd. Ltd.E.B.A – 09 -11 Page 43 .T.C. Chapter – 6 • Recommendations Recommendations R. Bhilai M.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Bhilai M. The ideal current ratio should be 2:1. Ltd.C.A – 09 -11 Page 44 . Rosyee is the new packaging product which has to be promoted by the company in to its market areas. 5. Rajkamal. 4.46 crore which is more than the previous financial years 2007-08 & 2006-07 it shows that the productivity of the industry increases day by day and industry should adopt new technologies to improve productivity. The industry should adopt proper inventory management system to maintain its inventory turnover ratio. 6. Industry should adopt proper depreciation method for the right valuation of its fixed assets . Profit after the tax of the company increases by 29 % so the company should adopt a proper dividend policy for the shareholder’s. Industry produces four types of rice bran oil Kamal.B. it show that firm have sufficient current assets to fulfill its current liabilities but industry should maintain more funds also to fulfill its short term obligations .T.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Nilkamal & Rasoyee. 82.E. 3. The net sales of the company in 2008-09 is Rs. 2. and from calculating the current ratio’s of previous three years financial year it is found that in each year it is always more than 1. 1. R. Chapter – 7 • Conclusion Conclusion R.T.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.B.A – 09 -11 Page 45 . Bhilai M.C. Ltd.E. This indicates the managerial efficiency of the company.T. R.B. Liquidity ratios give idea how to maintain the liquid assets of the company to fulfill the short term liabilities. The company is earning huge profits and is in good financial health. The company does not have unnecessary funds tied up in the form cash or any current assets increasing the liquidity and thus decreasing the profitability of the company.C.Ratio analysis of financial statements on Kamal solvent Extractions Pvt. From the ratio analysis of the industry we come to know about the profitability and obligations payment capability of the industry. As there is a tradeoff between profitability and liquidity the firm maintains current assets up to the level necessary for the smooth functioning of the business.A – 09 -11 Page 46 . we found that the company follows aggressive policy of managing liquidity & company have sufficient liquidity assets to satisfy its short term liabilities.E. Bhilai M. Ltd. The company is in sound financial health. From the analysis of the various financial ratios of KAMAL SOLVENT EXTRACTIONS PVT LTD. Various liquidity and turn over ratios indicate the liquidity capability and long term debts and its impact on overall financial position of the firm. Ratio analysis of financial statements on Kamal solvent Extractions Pvt.com Official records of the industry MANAGEMENT ACCOUNTING – Dr. Bhilai .E. S. Kamalsol. Gupta M. Ltd.wikipedia.C.T. Chapter – 8 • Sources and Bibliography Sources and Bibliography • Www.A – 09 -11 Page 47 R.com • • • www.B.P. E.Dr. Ltd. • FINANCIAL MANAGEMENT .B.C.A – 09 -11 Page 48 . Bhilai M.Ratio analysis of financial statements on Kamal solvent Extractions Pvt.P. Gupta R.T. S.
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