Project Report On Financial Statement Analysis of Kajaria Ceramics Ltd.
Project Report On Financial Statement Analysis of Kajaria Ceramics Ltd.
Project Report On Financial Statement Analysis of Kajaria Ceramics Ltd.
ON
A Project report submitted in the partial fulfillment of the requirement for the degree
Of
This is certify that Mr. Syed Mohd Ziya worked during the period w.e.f.
Kajaria Ceramics Limited”, in the partial fulfillment of the requirement for the
During her association with the project I found him to be sincere &
motivated individual. He has shown keen interest in this project & him conduct
was excellent.
1
Guided by:
(P & A)
DECLARATION
I, SYED MOHD ZIYA, S/O Mr. SYED SHAKEEL AHAMED is a bonafied
14 Aug, 2010. This report has not been submitted earlier either with DAYANAND
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PREFACE
Someone has rightly said that practical knowledge is far better than
classroom teaching. During this project I fully realized this and I came to
available to him.
company. Finally there comes data presentation and analysis in the end
that they will help Kajaria Ceramics Ltd. Move a step forward to being
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ACKNOWLEDGEMENT
indebtedness to all those who extended their kind help by spending their precious
time in explaining the various intricacies of the subject and suggesting the correct
approach to me.
To start with I would like to thank not once but twice Mr.Ashok Kajaria
(Chairman) and Mr. Rishi kajaria (M.D.) whose contribution to the project is
I would like to thank Mr. ARUN LATH (GM), Mr. ANIL PRABHAKAR
(AGM A/C), & Mr. Deepak Gupta (Dpt. MGR), who had been my project guide
for their understanding, gracious and constructive advice which played a major in
performing our work. This Project has been a great learning outcome for me and
without his help it would not have possible for me to this project.
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CONTENTS
INTRODUCTION OF K.C.L
1. KCL - AN OVERVIEW
Company profile
Marketing pattern
Company‟s business mission & objectives
Board of directors
KCL contribution in India
Bankers
Major competitors
Technician collaborations
Internal control system
2. AWARDS WON
4. POLICIES ADOPTED
6. MANUFACTURING PROCESS
Methodology
Utility of the research
Extensive literature survey
Collection of data & analysis of data
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10. KCL FINANCIAL REPORT
Balance Sheet
Profit & Loss
Introduction
Objective of Study
Types of Financial Analysis
Utility of Financial Analysis
Financial Ratios & Utility
Introduction
Nature
Uses of Financial Statements of Different Parties
Advantages of Ratios
Role of Financial Ratios
Objective of the Study
Traditional Classification
Functional Classification
Classification According To Nature
Classification According To Importance
14. CONCLUSTION
15. RECOMMENDATIONS
LIST OF CHARTS
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EXECUTIVE SUMMARY
manufacturing and selling ceramic Floor & Wall Tiles under the brand name
"Kajaria". It is the first tile company in India accredited with ISO 9002
Certification and recipient of one of the Global Growth company award from the
"World Economics Forum". The company has its corporate office at New Delhi
Today kajaria is a well established name in the corporate world. From a modest
beginning of 3,000 sq.mts per day, the company today produces over 33,000
sq.mts of tiles every day, clearly demonstrating Kajaria‟s growing strength over the
years and also indicating rising customer preference for the brand. Manufacturing,
played a vital role in shaping Kajaria success story. Besides this, the company
Within 11 years of operation, Kajaria has moved very close to its vision of
during the last decade in turnover, profits and foreign earnings. With the new plant
capacity from 80,000 TPA 1, 50,000 TPA. The first plant in Sikandrabad U.P.
already has the distinction of always producing over 100% of its capacity.
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The company's dedicated Research and Development efforts have also
house R & D has also enable Kajaria to imbibe innovations and technical methods
Kajaria has always been alert to changing market trends and preferences, by
producing tiles in myriad designs and colours‟. Infect Malaria is the only tile
company in the country to have an impressive range of over 400 designs with a
and designers in order to update their products information and provide them
convenient access to its diverse brands, designs, and colours. Using the effective
pamphlets, products folders and catalogues helped to keep the Kajaria brand on the
top_of_mind scale among the priority target customers. In additional, the company
enhance its visibility and reach on a continuous basis, throughout the year. This
also helped to inspire and influence product usage at a more rapid pace.
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Kajaria's dominating presence in the country has been further consolidated
have sprung up not only in all major cities and towns but even in the most strategic
market locations.
A huge force of sub dealers cover and breadth of the country. The
tremendous advantage from this marketing strength has been the easy access to and
availability of Kajaria's entire of the customers. In addition, the vast range and
choice enables customers to select their own designs and create their own
technology, Kajaria is reaping the benefits from the new medium, by hosting its
own website on the internet. The Kajaria website provides wealth of information
on its entire range of wall and floor tiles, borders including detailed information on
the various specifications. Exquisitily designed, the website contains the full range
of visually appealing graphics on designs, colours and size. With access to this
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COMPANY PROFILE & OVERVIEW
in technical collaboration with Todagres SA, Spain. The company had started the
commercial production on 12th August, 1988. Since then, the company has
expanded its capacity at its existing location for floor tiles twice during 1990-91
and 91-92 by 14,000 MT each taking its floor tile capacity 40,000 TPA. In 1993-
94, the company added Wall Tile capacity of 20,000 TPA with Monoporosa
technology which was expanded to 40,000 TPA in 1995-96. The company set up a
green field Plant at Village Gailpur (Rajasthan) of 70,000 MT capacity for the
manufacture of Monocuttra Wall tiles in March, 1998. The company carried out
the modernization of its existing Plant at Sikandrabad in January, 99, which has
resulted increase in capacity from 80,000 MT to 90,000 MT and enhancing the life
of the Plant. The total present capacity of the company is 170,000 MT.
technology), which is the most latest, cost efficient and more productive
technology. The company is marketing its products since inception under the
brand name of „Kajaria‟ which is a well-known brand within the industry in India
and abroad. The company has also been selected as one of the top performing
Global Growth Company from India by World Economic Forum in 1997. Kajaria
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is the first ceramic tile company in India and may be 5th in the world accredited
with ISO 9002 certification for its quality system. During the year the company
has also been accredited with the “ISO 14001” certification for the Environmental
Management System for manufacturing Ceramic Tiles. The company is the No. 1
preferred company for ceramic tiles in India. The company has also been given
has been given for the commitment of the company for fulfilling international
Kajaria Ceramics is the first ceramic tile company in the world to get this
certification.
Kajaria has an all India network of 600 dealers. Kajaria is selling 80% of its
products to the retail consumer and 20% to the projects. Since last year company
has franchised exclusive tile Shoppe & tile galleria on all India bases. It displays the
mock bathroom & kitchen with various combinations of tiles. It helps in selection of
the product/ design for the floor & walls. These also have customer support staff,
various parts of the country. Kajaria Ceramics has also opened a showroom in
Melbourne, Australia.
The company is the largest exporter of ceramic tiles from India and accounts
for 40% of total exports of ceramic tiles from India. The Company‟s exports are
mainly to Australia, Sri Lanka, Bahrain, UAE, Saudi Arabia and Oman. The
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company has won 7 exports award including the National Export award given in
May 2000.
The company has closed the Financial Year 2009-10 with a turnover of Rs
domestic market, effective cost control measures, better cash management and
reduction in the interest rate. The company has closed the turnover of the 1st
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MARKETING PATTERN
and the other at Village- Gailput, Distt. Alwar (Raj.). We are manufacturing Floor
Tiles at Sikandrabad Plant & Wall Tiles at Gailpur Plant. We sell our goods
through dealers and also directly to Builders, Contractors and others. The prices
are charged as per price lists applicable for the particular area. On all the
clearances the Excise Duty is being paid under Section 4A on M.R.P. less
abatement. The goods are delivering at the Factory gate to the Buyer/ on behalf of
the Buyer to the transporter. The freight at actual is paid by the Dealer/Buyer
directly to the transporter at destination. In few cases, the freight at actual is paid
by us which is show separately in the Invoice and realized from the buyer/dealer.
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COMPANY‟S BUSINESS MISSION & OBJECTIVES
BUSINESS MISSION
***********************
the company utilizes its capabilities and resources to expand the business into
allied areas and other priority sectors of the economy like housing projects etc…
BUSINESS OBJECTIVES
*****************************
GROWTH
PROFITABILITY
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CUSTOMER FOCUS
for his money through international standards of product quality, performance and
PEOPLE – ORIENTATION
perceive his role and responsibilities and participate and contribute positively to
the growth and success of the company. To invest in human resources continuously
TECHNOLOGY
technologies to suit business need and priorities and provide the competitive
IMAGE
To fulfill and the comply the relevant legislation regulations and the
expectations which employees, customers and the country at large have from
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BOARD OF DIRECTOR
(As on 15.07.2010)
Mr. R. P. Goyal
Mr. D. P. Bagchi
Mr. R. K. Bhargava
Mr. R. R. Bagri
Company.
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Committees of the Board
Audit Committee
Grievance Committee
Mr. A. K. Kajaria
Mr. D. D. Rishi
Remuneration Committee
Mr. R. K. Bhargava
Mr. R. R. Bagri
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KCL CONTRIBUTION IN INDIA
CORPORATION OFFICE
Email: [email protected]
Website: http://www.kajariaceramics.com
REGIONAL OFFICE
Road, (Andheri Kurla Road), J.B. Nagar, Andheri (East), Mumbai-400 059
Email: [email protected]
Email: [email protected]
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AHMEDABAD:
Ahmedabad.
Email: [email protected]
CHENNAI:
Email: [email protected]
COCHIN:
No.52, 2nd Floor, North Square, Paramara Temple road, Ernakulum, Kerala.
Email: [email protected]
REGISTERED OFFICE
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MANUFACTURING UNITS
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BANKERS & SOLICITORS
BANKERS: -
SOLICITORS:-
New Delhi
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MAJOR COMPETITORS OF KCL
NITCO MAHARASHTRA
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TECHNICAL COLLABORATIONS
PRODUCT COLLABORATIONS
CERAMIC GLAZED
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INTERNAL CONTROL SYSTEM
The Company has well defined its internal controls in all areas of its
and directions are noted and action taken accordingly. The Company has well
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AWARDS WON
Brand" Title. Kajaria is the only ceramics tile company who has
Praful Patel
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SWOT ANALYSIS OF KCL
STRENGTHS
Low cost Producer of quality tiles. Flexible manufacturing set-up for longer
absorption of technology.
and housing sector. In the Budget 02-03, tiles have been delisted from the SSI
category and accordingly all manufacturers of tiles come in the excise net. To
some extent they have arrived at the competitive level to the organized sector. But
due to their negligible overheads, tax evasion and copies of designs of organized
sector that retains the potential to under cut the organized sector. There is a stiff
competition within the organized sector which is putting pressure on the price also.
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OPPORTUNITIES
Strong distribution network across the country and overseas market. With focus on
retail marketing to build and establish exclusive showrooms across the country and
overseas markets.
THREATS
The Company is continuously on the path to over come any threats arising
from imports / competition amongst the tile manufacturers by making the product
more competitive in terms of price and quality, which has been possible by
reducing the input costs and providing more value added items with dynamic range
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QUALITY POLICY
(ISO 9001:2000)
manufacture of Ceramic Glazed Floor and Wall Tiles by complying with the
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ENVIROMENTAL POLICY (EMS)
(ISO 14001)
environmental standards.
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HEALTH & SAFETY POLICY (OHSAS)
(ISO 18001)
standards.
Promoting Safety & Health awareness among all employees, suppliers and
contractors.
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SOCIAL ACCOUNTABILITY POLICY (SA)
(SA 8000)
Committed to:
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PRODUCT PROFILE OF KCL
400 x 400 MM
250 X400 MM
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PRODUCT DEVELOPMENT
international quality products in India. During the year the Company launched
30X40 cm and 30X45 cm in rectified wall tiles and 45X45 cm joint free floor tiles.
It opened seven Kajaria world show room in 2008-09. This has set a new trend and
combination series to discerning customers. The Company has also added a series
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MANUFACTURING PROCESS
Ceramic Floor Tile is mainly consists of two parts i.e. Body and Glaze.
Body is a mixture of triaxial body i.e. made of three different and distinguishable
Raw materials viz:
Different clays to give suitable properties required in green and fired stages.
wet milled in Ball mill. The Body slip thus prepared is duly sieved and de-
magnetized and stored in under ground tanks and is converted into spray dried
constituents like Frit, Feldspar powder, Quartz powder, China clay, Calcined
alumina, Zinc oxide and zirconium slicate in Ball mill depending upon the nature
of Glazes to be produced.
The spray dried granules are fed to the automatic hydraulic press to produce
tiles. These pressed tiles are bone dried in vertical drier by maintaining drier
temperature in the range 100-110 Deg.Cent. The dried tiles then sent to Glaze Line
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through belt conveyor for Glaze application. Glazing is done in two coatings either
The Glazed Tiles are automatically loaded in the box car and then transferred to
the track for roller hearth kiln feeding. At the kiln entry tiles are unloaded and fed
into the kiln in pre-determined firing cycle and temperature. The firing temperature
is in the range between 1130 to 1160 Deg.Cent. Depending upon the firing cycle.
At the kiln exit, the fired tiles are loaded in the box car and transferred to the
sorting section for selection. In Sorting Section, tiles are sorted as First, Second
and Utility depending upon the visible faults and packed in corrugated boxes and
Glaze material such as Quartz, Alumina, China Clay & Ball Clay
Frit
Zirconium
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RESEARCH AND DEVELOPMENT (R&D)
for cost reduction with standardization of method in preparation of Body /Glaze for
longer uniformity.
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(2) Benefits derived as a result of the above R & D
The Company is able to reduce the cost of raw material, fuel & spare cost.
Several new orders have been received by the Company due to this R&D in
The product has become more effective and preferable to all type of
consumers due to its products availability in wide range of floor & wall tiles.
The Company has always been a leader in producing special effect Wall &
Introduction of special effect of Wall & Floor tiles in larger sizes and
Up-gradation and obtain the technique for producing the extra ordinary tiles
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To improve Company‟s infrastructures and R&D team, so that all products
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Expenditure on (R&D)
(Rs.in Million)
2009-2010 2008-2009
Capital -- --
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PERFORMANCE OF THE COMPANY
of more than 11%. Despite cut in Natural Gas supply at Sikandrabad Plant and
substantial increase in fuel prices, the profit before interest, dep & tax has
The profit for the year has been higher mainly on account of increased demand in
domestic market, effective cost control measures, better cash management and
The performance of the Company for the past years (since beginning) has
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TURNOVER CHART
(Rs. In Million)
'09-10 7667.54
'08-09 6911.99
'07-08 5289.07
'06-07 4368.03
'05-06 3517.92
'04-05 3003.96
'03-04 2491.8
'02-03 2102.4
'01-02 2278.4
00-01 2359.3
99-00 2450.8
YEAR
98-99 1939.4
97-98 1362.2
96-97 1302.1
95-96 1184.8
94-95 730.9
93-94 487.3
92-93 457
91-92 358.6
90-91 251.6
89-90 152.1
88-89 68.3
88- 89- 90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00- '01- '02- '03- '04- '05- '06- '07- '08- '09-
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
(Rs. In Million) 68.3 152 252 359 457 487 731 1185 1302 13621939 2451 23592278 2102 24923004 3518 43685289 6912 7668
TURNOVER Rs. IN Million
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NET PROFIT
(Rs. In Million)
'09-10 358.52
'08-09 89.01
'07-08 150.23
'06-07 76.73
'05-06 281.71
'04-05 254.88
'03-04 135.4
'02-03 99.3
'01-02 26.3
00-01 68.3
99-00 110.6
YEAR
98-99 67.5
97-98 148.3
96-97 201.9
95-96 210.2
94-95 129.5
93-94 86
92-93 53
91-92 40.4
90-91 25.6
89-90 7.4
88-89 0.1
(Rs. In M illion) 0. 1 7.4 25. 6 40.4 53 86 129. 5 210.2 201. 9 148.3 67.5 110.6 68.3 26. 3 99. 3 135. 4 254. 88 281.71 76.73 150.23 89. 01 358. 52
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CAPACITY CHART
2010 238000
2009 170000
2008
2007
2006
2005
2004 150000
2003
2002
2001
2000
1999
YEAR
1998
1997 90000
1996
1995 80000
1994 60000
1993
1992 40000
1991
1990 26000
1989
1988 12000.000
M Tonne 1200 2600 4000 6000 8000 9000 2E+0 2E+0 2E+0
MT UPTO 1988 SQ,MTR FROM 2010
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PRODUCTION CHART
GLPR
SKBD
2003 63208
54642
2002 76198
97910
2001 76417
90682
2000 74599
92817
1999 72409
81696
1998 2063
YEAR
91028
1997 84793
1996 80713
1995 56667
1994 40675
1993 40038
1992 32420
1991 25167
1990 15156
1989 8809
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
SKBD 8809 15156 25167 32420 40038 40675 56667 80713 84793 91028 81696 92817 90682 97910 54642
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ORGANISATION CHART OF FINANCE DEPARTMENT
Mr. D.D.Rishi
Mr. R.C.Rawat
AGM (A/C)
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KAJARIA CERAMICS LTD
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BALANCE SHEET
BALANCE SHEET
AS ON 31 MARCH 2010
(Rs in Millions)
PARTICULARS SCHEDULES 2009-10 2008-09
SOURCES OF FUNDS :
Shareholder Funds:
Share Capital 1 147.17 147.17
Reserves & Surplus 2 1746.23 1473.51
1893.40 1620.68
Loan Funds
Secured Loans 3 2588.28 2926.67
Unsecured Loans 4 40.00 325.00
2628.28 3251.67
Differed Tax Liabilities 5 548.52 534.55
Total………………………………………………………………… 5070.20 5406.90
Application of Funds
Fixed Assets:
Gross Block 6 5435.46 5014.92
Less : Accumulated Depreciation 1987.57 1738.39
Net Block 3447.89 3276.53
Capital Work-in-progress 25.43 ---------
3473.32 3276.53
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PROFIT AND LOSS (Rupees in Crores)
EXPENDITURE :
Provisions for:
Income Tax 130.00 16.80
Fringe Benefit Tax --- 8.00
Deferred Tax 13.97 12.55
Income Tax/Wealth Tax Adjustment 11.93 1.13
Appropriation
Proposed Dividend on Equity Shares 73.58 14.72
Corporate Dividend Tax 12.22 2.50
Transfer to General Reserve 100.00 ----
Transfer from Debenture Redemption Reserve -2.40 -18.75
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Significant Accounting Policies and Notes on Accounts 22
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Introduction
characteristics of a firm from accounting data & financial statement. The goal of
reflected in the financial records and reports. Its main aim is to measure the firm‟s
Of the various reports that the companies issue to their shareholder, the
annual report is by far the most important. Two types of information are given in
this report, first there is a text that describes the firms operating results during the
past year and discusses new development that will affect future operations. Second
there are few basic financial statements –the income statement, the balance sheet,
the statement of retained earnings and the sources and uses of funds statements.
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“Financial statement analysis is largely a study of relationship among the
determine the significance and meaning of the financial statement data so that the
forecast may be made of the prospects for future earnings, ability to pay interest
and debt maturities (both current & long term) and profitability of a sound
dividend policy”
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Nature of financial statement
changed radically over a period of time. They need varied information and
and solvency.
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Types of Financial Analysis
Graphical representation
Financial Analysis
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(a) According to material used
accounting
have available more details and current information that is available to outsiders.
They are able to prepare perform or future statements and are able to produce a
investment analysis perform this. It makes use of existing financial statement and
each item in the financial statement over a number of years or companies. The
also called „dynamic analysis‟ as it is based on data from year to year, rather than
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Vertical analysis – it is frequently used for referring to ratios developed for
one data or one accounting period. Vertical analysis is also called static analysis.
This is not very conductive to a proper analysis of the firm‟s financial position and
its interpretation as it does not enable to study data in respective. This can only be
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Financial Ratio & Utility
two numbers. In finance, ratios are used to point out relationship that is not
obvious from the row data. Some uses financial ratios are following
light the factors association with successful and unsuccessful firms. They can
(2) To Compare Different Industries: Every industry has its own unique
set of operating and financial characteristics. These can be identified with the help
of ratios.
period of years, a firm or a industry develop certain forms that may indicate future
success or failure. If relationship changes in firms data over different time periods,
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Utility of Financial Analysis
With the help of ratios we can determine the ability of the firms to meet its
current-obligation.
sales Revenue.
liquidity.
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59
INTRODUCTION
The ever changing, external & internal environment in which the organization
operates to achieve its goal has often leaded to change in the financial structure of
the firm. This change may be in the assets structure, capital structure or any other
such type of the change have often been found out of bring changes in the liquidity
go for the various type of analysis one of them being financial analysis, that is
done to know about the present performance of the firm in which they are either
after the effective & efficient utilization of resources of the overall sound financial
probably each & every aspect of financial position which may be liquidity,
activity, profitability.
Alexander wall, who criticized the bankers for its lopsided development owing to
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Wall, one of the foremost proponents of ratio analysis, pointed out that, in
statement other than that of current assets to current liabilities – relationship that
might be measured quantitatively and used as checks on current ratio. Since then,
range‟.
Based upon their wide range of requirement the general trend is of going for
the financial ratio analysis, which is also considered to be the most effective one
capable of giving detailed & accurate information, more detailed & accurate than
items in financial statement. It also based upon various financial ratios, which are
calculated from the data provided in company‟s balance sheet & profit and loss
account.
with previous year help us in establishing various methods. Which are further
helpful in predicting the future of the concern as well as present financial situation?
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This report is submitted as a part of brief study of financial condition of
“KCL”. This report has been prepared for the management purpose to make them
Detailed analysis is also a part of this report, which is based upon various
ratios calculated & various trends seen. Each & every ratio has been analyzed
briefly & adequately followed by various inferences & suffusions based on this
analysis, which is beneficial for the Top-level Management in the better financial
This report is just a part of feedback to the Top-level Management for the
various plans they made regarding allocation of financial resources etc, which were
This report can give a deep insight into various matters if any implementation
Various other factors are there which limit the accuracy & correctness of the
report. Even then a great effort has been kind of analysis & interpretation on
personal level.
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NATURE
is used as a benchmark.
For evaluating the financial position & performance of the firm. The relationship
ratio. Ratio helps to summarized large quantity of financial data & to make
be, formed about the firm‟s ability to, meets its current obligations.
It measured the firm‟s liquidity. The greater the ratio, the greater the firm‟s
liquidity & vice-versa. The point to be note is that a ratio reflecting a quantitative
relationship helps to form qualitative judgments. Such is the nature of all financial
ratios.
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USES OF FINANCIAL ANALYSIS FOR DIFFERENT PARTIES
activity. The end users of business statement are interested in these statements
primarily as an aid to determine the financial position and the results of the
operations. There are different parties interested in the financial analysis of their
To the financial executives : The first party interested in the financial statements
analysis is the finance department of the business concern itself to the financial
managers such analysis provides a deep insight into the financial condition of the
enterprises and the view of the past performance which helps in future decision
making. The financial statements give vital information concerning the position of
To the top management: The top management of the concern is also increase in
regarding:
To the investors and others: Investors presents as well as prospects are also
65
ADVANTAGES OF RATIOS
The ratio analysis is one of the most powerful tools of financial analysis. It is use
as a device to analysis and interprets the financial health of enterprise. Just like a
doctor examines his conclusion regarding the illness and before giving his
treatment, a financial analyst analyses the financial statement with various tools of
enterprise. „A ratio is known as a symptom like blood pressure, the pulse rate or
the temperature of the individual‟. It is with help of ratios that the financial
for decision making, but the information provided in financial statements is not an
end in itself and no meaningful conclusions can be drawn from these statements
alone. Ratio analysis helps in making decisions from the information provided in
of much help in financial forecasting and planning. Planning is looking ahead and
the ratios calculated for a number of year‟s work as a guide for the future.
Meaningful conclusions can be drawn for future from these ratios. Thus, ratio
are communicated in a more easy and understandable manner by the use of ratios
manner to the one for the whom it is meant. Thus, ratios help in communicating
enterprise.
the business. Standard ratios can be based upon Performa Financial Statements
and variance or deviations, if any, can be founded by comparing the actual with the
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ROLE OF FINANCIAL RATIO
forecasting. Ratio relating to the past sales, profits & financial position from the
Aid in comparison: With the help of ratio analysis ideal ratio can be composed &
they can be used for comparing a firm progress & performance. Inter firm
Financial solvency of the firm: Ratio analysis indicates the trend in financial
Long-term Solvency
Short-term Solvency
Long term solvency refers to the financial viability of the firm while Short-term
financial standing of the firm to the internal & the external parties. They indicate
Other uses: Financial ratios are very helpful in the diagnosis & financial health of
a firm. They highlight the liquidity, solvency, profitability & capital gearing etc.
68
OBJECTIVE OF THE STUDY
the relationship of the terms or group of items of the financial statements. It also
involves the comparison & interpretation of these ratios & use of them for future
projections.
And the fund flow arises when the net effect of the transaction is to increase or
decrease the amount of working capital. Normally, a firm will have some
transactions that will change net working capital & some that will cause no change
in net working capital include most of items of profit & loss account and those
business events, which simultaneously effect both current & non-current balance
sheet items.
CLASSIFICATION OF RATIOS
Different kinds of ratio statement are selected for different types of situations.
Mostly, the purpose for which the ratios are used and the kind of the data available
in vogue.
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(a) Traditional classification or classification according to the statements
statement to which the determinants of a ratio belong. From this angle, ratios are
classified as thus:
(1) Balance Sheet Ratios: these ratios are also called financial ratios. They
deal with the relationship between two items, or group of item, which are
together in the balance sheet, example current ratio, liquid ratio, proprietary
ratio, fixed assets ratio, capital gearing ratio, and debt equity ratio.
(2) Profit & Loss Account Ratios: these ratios are also called operating ratios.
The items used for the calculation of these ratios are usually taken out from the
profit and loss statement. Example operating ratio, expensive ratio, net profit
the compilation of these ratios is normally drawn from both the balance sheet, and
debtors Turnover ratio, creditor‟s turnover ratio, fixed assets turnover ratio,
Robert N. Anthony suggested that ratios may be grouped the basis of certain tests
which satisfy needs of the parties having financial interest inventory the business
Test of liquidity
Test of profitability
Market tests
Liquidity refers to the ability of the firm to meet its obligations inventory the short-
run, usually one year. Liquidity ratios are generally based on the relationship
between current assets and current liabilities (the sources for meeting short-term
Earnings ratio
Dividend ratio
Financial leverage refers to the use of debt finance. While debt capital is analysis
helps inventory assessing the risk arising from the use of debt capital. They are
also known as capital structure ratios. Example: Debt-to-equity ratio, fixed assets
They are also called turnover ratios or asset management ratios. They measures
how efficiently the assets are employed by the firm. These ratios are based on the
relationship between the level of activity and the level of various assets. Example:
Fixed assets turnover, Stock turnover, Debtors turnover, Creditors turnover, Total
These ratios would also indicate the profitability position of the business.
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(4) PROFITABILITY RATIOS
Profitability reflects the final result of business operations. There are two
A profit margin ratio shows the relationships between profit and sales. Rates of
Some ratios when related to the main objective of the business purpose of analysis
may be more important than others. This basis classification has been
The primary motive of any commercial under taking is profit and therefore,
These ratios are mainly used to explain the primary ratios. They are also
employed as the primary ratio, the following ratios may be grouped as secondary
ratios:
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SHORT-TERM SOLVENCY OR LIQUIDITY RATIOS
Liquidity ratios play analysis key role in the analysis of the short-term financial
position of analysis business. Commercial banks and other short-term creditors are
ratios to ascertain how efficiently they utilize the working capital in the business.
Shareholders and debenture-holder and long-term creditors can use these ratios to
assets the prospects of dividend and interest payments. This type of ratios
normally indicates the ability of the business to meet the maturing or current debts,
the efficiency of the management inventory utilizing the working capital and the
1. Current Ratio
Current ratio may be defined as the ratio of current assets to current liabilities. It is
also known as working capital ratio or 2 to 1 ratio. Current ratio shows the
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Components
other short-term high quality investment bills receivable, prepaid expenses, work-
in-progress, sundry debtors and inventories. While current liabilities are composed
of sundry creditors, bills payable, outstanding and accrued expenses, income tax
payable.
Current Assets
Current Liabilities
2009-10
2976.43
1413.49
2008-09
2968.30
871.87
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Explanation:
Coming to KCL the current ratio is 2009 has decreasing in comparison year 2008.
The ratio of 2009 shows that the assets are 2.11 times of current liabilities. Current
Assets should be one and half of current liabilities. According to KCL report is
improving. A low current ratio indicates that the enterprise is short of funds for
honoring its commitment and this was lead to insolvency. On the other hand a
very high current ratio indicates that the firm has a very large amount of current
current assets.
Acid test Ratio or Liquid ratio, as it is sometimes called is concerned with the
information given by the current ratio. In many lines of business a concern whose
current assets consist largely of inventory can very early become technically, if not
actually; insolvent within analysis very short period of time and this is the rationale
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Components:
Quick Assets
Current Liabilities
2009-10
1573.88
1413.49
The quick ratio is increasing over the period 2008 to 2009. With the help of quick
ratio we analysis the inventory level. The quick ratio analysis gives better picture
than the current ratio towards the payment of current liabilities. It is used to test
the short-term liquidity of the firm in its correct form and represent good position.
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LONG-TERM SOLVENCY ANALYSIS
Bankers and other short-term creditors are most interested in the current debt-
paying ability of business, so the share holders and debenture holders are mainly
concerned with the long-term financial prospects. However, neither group may
logically ignore the financial aspects of primary interest to the other so that both
these groups concern themselves with current and prospective earnings. Some
(a) Debt-Equity-Ratio
Components: The term external equities refers to total outside liabilities and
internal equities includes all claims of preference share holders and equity share
holders such as share capital and reserves and surplus. Outside liabilities include
debentures. But when used as analysis long-term financial ratio, only term debts
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In generally, Debt-to-equity ratio 2:1 is acceptable.
2009-10
Debt 2628.28
Equity 1893.40
The ratio indicates the degree of protection provided to the lenders. The lower the
ratio the higher will be the degree of protection. As a general rule, this should not
exceed 2:1. If the debt equity ratio is more than that is shows a rather risky
financial position from the long-term point of view. This ratio shows favorable
condition of KCL.
This is a variant of the debt-equity ratio. This ratio relates the share holders‟ funds
to total assets. It is calculated by dividing the share holder‟s funds by the total
tangible assets. This ratio indicates the long-term or future solvency position of
the business. It is also known as Equity to total assets ratio or Net Worth to total
Assets ratio.
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This ratio throws light on the general financial strength of the company.
2009-10
1893.40
5070.20
This ratio indicates the long term or future solvency position of the business.
Analysis high ratio shows that there is safety for creditors of all types. A ratio
below 50% may be alarming for the creditors since they may have to lose heavily
This ratio establishes the relationship between fixed assets and shareholders‟ funds.
The purpose of this ratio is to indicate the percentage of the owners‟ funds invested
in fixed assets.
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Fixed Assets (after depreciation)
Proprietors‟ funds
3447.89
1893.40
This ratio establishes the relationship between current assets and share holders‟
funds. The purpose of this ratio is to indicate the percentage of share holders‟
Current Assets
Proprietors Funds
2009-10
2976.43
1893.40
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Solvency Ratio
The difference between proprietary ratio as % and 100 percents the ratio is
solvency ratio. This ratio indicates the relationship between total liabilities & total
assets.‟
2009-10
Total Liabilities
Total Assets
4041.77
6449.75
(f) Fixed Assets Ratio or Ratio of Capital and Long-Term Funds to Fixed
Assets: The ratio of long-term loans to fixed assets is important and another
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Components: Fixed assets will mean cost less depreciation or net fixed assets. It
will also include trade investments. Long-term funds will mean equity share
capital, preference share capital, reserves, debentures and long term loans.
2009-10
5070.20
3507.26
2009-10
Capital Employed
3447.89
4521.68
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This ratio gives an idea as to what part of the capital employed has been used in
purchasing the fixed assets for the concern. If the ratio is less than 1 it is good for
the concern.
This ratio relates the fixed interest charges to the income earned by the business. It
is also known as „Interest Coverage Ratio‟. It indicates whether the business has
2009-10
889.66
375.24
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B. TEST OF PROFITABILITY
The main object of analysis business concern is to earn profit. In general terms,
losing, its financial condition will definitely be bad sooner or later. Profits enable
analysis firm to improve its financial strength; there, ratios based on profitability
are termed “casual” ratios, indicating the causes of the present or expected
analysis business concern. Thus, analysis measures of profitability are the overall
measure of efficiency.
This ratio shows the relationship of sales with the direct costs such as purchases,
2009-10
Gross Profit
Net Sales
2555.18
7355.36
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Any fluctuation in this gross profit is the result of a change either in „sales‟ or the
„cost of goods sold‟ or both. Thus, this ratio shows the average margin on goods
sold.
The gross profit is what is revealed by the trading account. It results from the
difference between not sales and cost of goods sold without taking into account
Operating Ratio: - This ratio establishes the relationship between operating profit
2009-10
Operating Profit
Net Sales
1156.72
7355.36
Where
OR
Gross Profit – Operating expenses
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Operating ratio as follows:
Operating Profit margin is greater than 2008 and 2007. This ratio indicates the
portion remaining out of every rupee worth of sales after all operating costs and
(3) Expenses Ratio: Expenses ratios are calculated to ascertain the relationship
that exists between operating expenses and volume of sales. These ratios are
calculated by dividing the sales into each individual operating expense. It indicates
the portion of sales which is consumed by the various operating expenses. Thus,
such an analysis will throw good light on the levels of efficiency prevailing in
different aspects of the work. It is useful to work out the following ratios which
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Ratio of Office and Administration exp to sales:
Administrative Exp. Ratio = Office & Admin. Expenses / Net sales x 100
Selling Expenses Ratio = selling & distribution exp / Net sales x 100
Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales x 100
2009-10
Operating Exp.
Net Sales
1665.52
7355.36
We all know that gross profit is not the final profit- it is the net profit which is
really significant. Therefore, a ratio of net profit to sales (also called net margin) is
worked out; but in this case the profit considered is profit before interest. This is
the ratio of net income or profit after takes to net sales. Net Profit, as used here, is
the balance of profit and loss account which is arrived at after considered all non-
operating income such as interest an investment, dividend received etc… and non-
liabilities, etc
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2009-2010
Net Sales
358.52
7667.54
Net profit ratio is the profit after all expenses and income tax and is available to the
owners. So this ratio indicates that forever hundred rupees of sales, Rs. 4.68 are
earned for the owners. This ratio is profitable for the company because it is
percentage of return on the capital employed in the business and it can be used to
Operating Profit
Capital Employed
878.67
4521.68
This ratio is increasing in comparison of last year which the favorable position of
the Company and this ratio is helpful for making capital budgeting decisions.
This is due to improved efficiencies, high level of order for the purchase of
company‟s product and rise in prices of company‟s product and order from abroad
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(ii) Return on Shareholders‟ Fund
2009-10
Shareholders‟ Funds
358.52
1893.40
This ratio is almost half in comparison of last year. The ratio of net profit to share
holders fund shows the decrease to which profitability objective is being loose.
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(iii) Return on Equity Capital
This ratio relates the net profits finally available to equity share holders to the
2009-10
358.52
1893.40
This ratio indicates what percentage of profits earned are enjoyed by equity
determine the market price of equity shares of the Company while comparing with
the ratios of other companies. It will indicate whether the capital is effectively
used or not.
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(iv) Return on Total Assets
This ratio is calculated to measure the profit after tax against the amount invested
in total assets to ascertain whether assets are being utilized properly or not.
2009-10
Total Assets
358.52
6424.32
This ratio is increasing in 2009 which shows that assets are being utilized properly
in comparison of 2008.
Explanations:
THE Return on assets shows as to how much is the profit earned by the firm
Per rupees of assets used so 5.58 Rs are realized of 100Rs invested in assets.
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ACTIVITY (TURNOVER OR PERFORMANCE) RATIOS
Profit depends on the rate of turnover and the net margin. The importance of good
turnover cannot be over-emphasized. Turnover ratios judge how well the facilities
at the disposal of the concern are being used. In other words, these ratios measure
the effectiveness with which analysis concern uses resources at its disposal. The
result is expressed in integers rather than as a percentage. These ratios are usually
calculated on the basis of sales or cost of sales. Turnover ratios for each type of
assets should be calculated separately. Higher the turnover ratio, better the use of
capital or resources; of course, higher the turnover, the better the profitability ratio.
This ratio establishes relationship between the cost of goods sold during a given
period and the average amount of inventory carried during that period. It indicates
whether stock has been efficiently used or not, the purpose being to checkup
whether only the required minimum has been lock up in stocks. It is usually
considered better to work out the turnover against cost of sales since sales include
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The ratio is calculated as follows:
2009-10
4800.18
1393.56
Where,
Cost of Goods Sold = Opening Stock + Purchases + Manufacturing Exp. - Closing Stock
OR
Higher the ratio, the better it is since it indicates that more sales are being produced
usually work on a comparatively low margin of profit. The ratio shows better
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to higher sales. The reverse is also true. It should be noted that some people
Notes:
Coming to KCL the data on purchase, sale and stock etc. and are not available
from the Balance Sheet and the other material provided to the investigators by
company. Hence, it is not possible to calculate the turnover ratio of the Company.
It indicates the number of times on the average the receivable is turnover in each
year. The higher the value of the ratio, the more is the efficient management of
debtors. It measures the accounts receivable (trade debtors and bills receivables) in
terms of number of days of credit sales during a particular period. Average debtors
are calculated by dividing the sum of debtors in the beginning and at the end by 2.
The ratio is measure of the collectability of accounts receivables and tells about
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Notes:
The data is not available for the calculation of debtor‟s turnover ratio. It shows
more the chances of bad debts efforts should be made to make the collection
machinery efficient so that the amount due from debtors may be realized in time.
This ratio is calculated roughly as the debtor‟s turnover ratio. It indicates the
velocity with which the payments for credit purchase are made to creditors. The
term account payable includes Creditors and Bills payable. This ratio may be
calculated as follows:
Credit Purchases
A high ratio indicates that creditors are not paid in time while a low ratio gives an
idea that the business is not taking full advantages of credit period allowed by the
creditors.
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Sometimes it is also required to calculate the average payment period (or average
age of payable or debt period enjoyed) to indicate the speed with payments for
Notes:
Coming to KCL the data on purchase sale and stock etc… and are not available
from the Balance Sheet and the other material provided to the investigators by
Company. Hence, it is not possible to calculate the turnover ratio of the Company.
This ratio shows how well the fixed assets are being utilized. If compared with a
previous period, it indicates whether the investment in fixed assets has been
judicious or not. This ratio expresses the number of times fixed assets are being
produced not only by use of current assets but also by amount invested in fixed
assets. The higher is the ratio, the better is the performance. On the other hand, a
low ratio indicates that fixed assets are not being efficiently utilized.
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2009-10
7355.36
3447.89
Higher is the ratio the better is the performance it indicates that fixed assets are
investment. Increase in Fixed Assets Turnover Ratio indicates that fixed assets
have been used as efficiently as they had been used in previous years.
This ratio shows the efficiency of Capital Employed in the business by computing
The higher the ratio, the greater are the profits. A low capital turnover ratio should
be taken to mean that sufficient sales are not being made and profits are lower.
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Sales
Capital Employed
2009-10 7355.36
4521.68
Capital Turnover Ratio establishes the relationship between sales and capital
employed. The objective of working out this ratio is to determine how efficiently
the capital employed is being used and this in turn shows the promise of
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6. Sales to Working Capital (or Working Capital Turnover) Ratio:
This ratio shows the number of times working capital is turned-over in a stated
period.
2009-10
Sales
7355.36
1562.94
Low working capital turnover ratio indicates that working capital is not efficiently
utilized it may put the concern into financial difficulties. This ratio shows the
efficiency or inefficiency in the use of the whole of the working capital and not
merely a part of it. That invested in stock-it is the whole of the working capital
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7. Total Assets Turnover Ratio:
This ratio is calculated by dividing the net sales by the value of Total Assets.
A high ratio is an indicator of over-trading of total assets while a low ratio reveals
ideal capacity. The Traditional Standard for the ratio is two times.
2009-10
Net Sales
Total Assets
7355.36
6449.75
A high ratio is an indicator of over trading of total assets while a low ratio reveals
ideal capacity.
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LEVERAGE RATIOS:
The leverage ratios explain the extent to which the debt is employed in the capital
structure of the concerns. Always Concerns use debt funds along with equity
funds, in order to maximize the after tax profits, thereby optimizing earning
available to equity shareholders. The basic facility of debt finds is that after tax
cost of tem will be significantly lower and which can be paid back depending upon
their terms of issue. Further debt funds will not dilute the equity holders control
position.
to owners. It may be favorable or unfavorable when earning are more than the
the rate of return remains to be low. It can be used as a tool of planning by finance
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Operating Leverage: It is the relation between contribution and EBIT (earning
OL = ----------------------------------------------------------
EBIT
It signifies the change that will result in EBIT for any change in sales. If OL is 3,
it will mean that for every 1% change in sales, the change in EBIT will be 3%. I.e.
three times. A high ratio would indicate a high business risk and low ratio
business risk.
Financial Leverage: It is the relationship between (EBIT) and (EBT) when a firm
process debt capital to finance its needs, it is said to have Financial Leverage. It
tells the extent of the change in earning before fax (EBT) due to change in
operating income (EBIT). It is calculated with the help of the following formula:
2009-10
105
7227.17
514.42
firm is higher than the cost of debt capital, it is said to have favorable financial
leverage. On the other hand, if the rate of return on investment (ROI) is lower than
the cost of debt capital, the firm is said to have unfavorable financial leverage.
Combined Leverage:
CL = OL x FL
Closely related to solvency ratios is the Capital Gearing Ratio which is mainly
used analysis the capital structure of the company. The term „Capital Gearing‟ is
used to describe the ratio between the equity share capital and fixed interest –
there is a small equity holding compared with fixed income bearing securities.
OR
Components:
Equity-share holding for the purpose of capital – gearing ratio, includes all
Fixed interest bearing funds include debentures, preference share capital and
Significance:
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Capital Gearing Ratio belongs to the family of „leverage‟ ratios and is
important not only to prospective investors but also to the company. It must be
even divided distribution policy during difficult trading periods that may occur.
Moreover, its immediate effect may be to enable a company to pay higher equity
dividends when there is only a narrow margin of profits but its long – range effects
company‟s „gear-ratio‟.
This ratio compares share capital to loan capital. Generally a high proportion of
long-term liabilities are risky to any company, which this ratio enables one to find
out.
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Long term liabilities are decreasing while long term funds are increasing in
borrowings. A high ratio indicates that the firm will be slow in paying its bills
because, if owner have not put enough of their own funds in the business, suppliers
of long-term funds would be unwilling to expose themselves to the risks and the
firm will have to resort to short-term stop-gap financing to a large extent. The
2009-10
Current Liabilities
Proprietors‟ Funds
1413.49
1893.94
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Coming to KCL the ratio of current liabilities to proprietors funds is 0.74: 1 in
2009 which is too high when compare to the ideal ratio we would be 0.35 : 1.
However, on observation of the data for 2007, 2008 & 2009. We find that the
may be unduly high. It also indicates the extent to which value of equity shares
has gone up by the plugging back of profits. This ratio shows the strength of
Coming to KCL we find that the ratio is increasing over a period of time, it was
9.52: 1 in 2008 and increased 11.86: 1 in 2009. This is due to high profitability
and good management because of liberal dividend policy has been followed by the
company.
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Ratio for Prospective Investors
Book Value per Share means the value which is payable of liquidation of a
company
2009-10
Shareholders‟ Funds
Number of Shares
189,34,00,000
735,83,580
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(I) Earnings per Share
This helps in determining the market price of equity shares of the company and in
The Performance and prospects of the company are affected by earning Per Share.
If earning per share increases, there is possibility that the company may pay more
dividend or issue bonus shares. In short the market price of the share of a company
will be affected by all these factors. A comparison of earning per share of the
company with another company will also help in deciding whether the equity
2009-10
35,85,20,000
7,35,83,580
Coming to KCL we find a greater degree of fluctuation in earning per share it was
1.21 Rs in 2008 and now it increased to 4.87 Rs, 302.47 % increment in Eps 2009.
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(ii) Price Earning Ratio:
This ratio indicates the market value of every rupee earning in the firm and is
compared with industry average. High ratio indicates the share is overvalued and
low ratio shows that shares are undervalued. It is computed by the following
formula:
2009-10
4.87
It is a very important ratio in order to know whether the Shares of the company are
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(iv) Capitalization Ratio:
2009-10
4.87
55.50
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Dividend Yield Ratio:
1.00
55.50
This ratio is important for these investors who are interested in the dividend
income. As the Shareholders purchases the Shares in the open market, so his yield
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2009-10
1.00
4.87
This ratio indicates as to what proportion of earning per share has been used for
paying dividend and what has been retained for plugging back. This ratio is very
important from Shareholders‟ point of view as it tells him that if a company has
used whole or substantially the whole of it‟s earning for paying dividend and
retained nothing for future growth and expansion purposes, then there will be very
dim chances of capital appreciation in the price of shares of such company. In the
other words, an investor who is more interested in capital appreciation must look
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CONCLUSIONS
The study in the preceding pages reveals some important and interesting
importance and when the Financial Data of Kajaria Ceramics Ltd has been
analyzed, the financial position of the company is brought to surface. The overall
financial position of the company is quite healthy and over the last years which
covered the period of study, the financial position has improved. The current
Ratio, Acid Test Ratio, Debt equity Ratio and Proprietary Ratio all have improved
over the period 2008 to 2009. The credit for this improvement goes to efficient
management, Long term vision of the management, team spirit among the employs
of the company higher level of orders in the hands of the company, better
realization and better overall economic condition of the economy with increased
infrastructure, it is expected that KAJARIA will gain a lot, its financial Ratio will
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RECOMMENDATIONS
The Tiles industry is huge and has huge potential for growth. The company
should try and revamp its operations, they should lower the price.
The product is doing reasonably well in most of the market. So they should
hoardings etc.
Home Solution:
Taff under this Brand name they have got a group of labor who are properly
trend and capable of laying down good tiles. Give training to the Massion,
Technical training in sanitary ware. Only company Employee will go and fit.
Whenever we get any tile approved we should take proper supply schedule
from the client. Proper SAMPLE should be provided to the ARCHITECH &
More boards and hoarding should be placed in side of roads and public places.
They should use mass media like TV, newspapers, etc to promote company
The help have been taken from the following secondary data to analysis the
financial report.
INTERNET SITES:-
www.kajariaceramics.com
BOOKS PREFERRED
FINANCIAL MANAGEMENT
CORPORATE FINANCE
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