finance project

1

A STUDY ON RATIO ANLYSIS AT

KERALA FEEDS LTD,

KALLETTUMKARA

INTERNSHIP TRAINING REPORT

Submitted by

MEERA.A.M

Reg. No. 098001112049

In partial fulfillment for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

IN DEPARTMENT OF MANAGEMENT STUDIES

MAHARAJA ENGINEERING COLLEGE

AVINASHI-641654

AUGUST 2010

2

MAHARAJA ENGINEERING COLLEGE AVINASHI-641654

Department of management studies

INTERNSHIP TRAINING WORK

PHASE I

AUGUST 2010

This is to certify that the internship training work entitled

A STUDY ON RATIO ANALYSIS AT KERALA FEEDS LTD,

KALLETTUMKARA Is the bonafide record of internship training work done by

MEERA A.M

Register No: 098001112049

Of MBA during the year 2010-2011

------------------ -------------------

Internship Training Guide Head of the

Department

Submitted by the internship training work Viva – Voice examination held on --------------

------

------------------------- --------------------

Internal Examiner External

Examiner

3

DECLARATION

I affirm that the internship training work titled “A STUDY ON RATIO

ANALYSIS AT KERALA FEEDS LTD” being submitted in partial fulfillment for the

award of MASTER OF BUSINESS ADMINISTRATION is the original work carried

out by me. It has not formed the part of any other internship training work submitted for

award of any degree or diploma, either in this or any other University

(Signature of the Candidate)

MEERA A.M

09800112049

I certify that the declaration made above by candidate is true

(Signature of the Guide)

Mrs. S.KALYANI, MBA, M.PHIL, PG

Lecturer,

4

ACKNOWLEDGEMENTS

I take this golden opportunity to show my gratitude to our honorable chairman

Thiru.K.PARAMASIVAM, B.Sc, and Thiru.P.SATHIYAMOORTHY,B.E.,MBA,

MS., correspondent of Maharaja Engineering College, Coimbatore for giving me an

opportunity to be a student of this reputed institution.

I extend my deep sense of gratitude and sincere thanks to our principal

Dr.N.KUPPUSAMY, M.E., PH.D. FIE.

I would like to express my sincere thanks to Mr.S.KUMAR, MBA, M.Phil.,

M.I.S.T.E Head of the department, department of management studies for his immense

guidance and support during the course of the project.

I extend my profound gratitude to my faculty guide Mrs.S.KALYANI MBA,

M.Phil, PGDCA for her valuable guidance and encouragement for the successful

completion of the project.

I would also like to thank my company guide Mr.A.JOHNY manager of finance

department Kerala Feeds Limited for helping me by providing valuable information for the

study.

I owe to my parents, all faculty members and my friends for the necessary support

and encouragement in carrying out the project.

` MEERA.A.M

5

LIST OF CONTENTS

CHAPTER

NO.

CONTENTS PAGE NO.

Abstract iii

List of tables iv

List of figures v

Chapter 1

Introduction

About the study

1.2 About the industry

1.3 About the company

1.4 Review of Literature

1

5

6

9

Chapter 2

Main theme of the project

2.1 Objectives of the study

2.2 Scope & limitations of the study

2.3 Research methodology

2.4 Analysis & interpretation

11

12

13

15

Chapter 3

Findings, suggestions & conclusion

3.1 Findings

3.2 Suggestions

3.3 Conclusion

65

67

68

Appendix

Bibliography

6

ABSTRACT

The internship training work entitled ‘A study on ratio analysis at kerala feed

limited, kallettumkara’ is a study conducted in the finance department of Kerala Feeds Ltd.

It was incorporated in 1995 as a public Limited company for producing cattle feed. The

plant is situated in 27 acres of land at kalletumkara in Thrissur District. The details

regarding the history and finance of the company was collected through the discussion with

company officers. The main objective of the study is to know about the financial strength

and weakness of the company through ratio analysis

The secondary data were collected from records, reports and profile of the

company. Data analysis was carried out and findings are listed down. Suitable

suggestions have been provided. Thus the ratio analysis is the main tool used for analysis

and interpretation of data, which include liquidity leverage, activity, profitability and

expense ratios.

The company is following a Speedy collection procedure which helps to reduce the

trade debtors and increase the working capital. This study was concluded by pointing out

that the company can increase the profit by reducing the expense cost and also by reducing

the depreciation charged to fixed asset.

7

LIST OF TABLES

Table No NAME Page No

2.4.1 Current Ratio 15

2.4.2 Quick Ratio 17

2.4.3 Cash Ratio 19

2.4.4 Inventory to Working Capital 21

2.4.5 Debt Ratio 23

2.4.6 Debt Equity Ratio 25

2.4.7 Equity Ratio 27

2.4.8 Capital Employed to Net Worth Ratio 29

2.4.9 Solvency Ratio 31

2.4.10 Fixed Asset to Net Worth Ratio 33

2.4.11 Fixed Asset Ratio 35

2.4.12 Inventory Turnover Ratio 37

2.4.13 Inventory Holding Ratio 39

2.4.14 Debtors Turnover Ratio 41

2.4.15 Creditors Turnover Ratio 43

2.4.16 Working Capital Turnover Ratio 45

2.4.17 Fixed Asset Turnover Ratio 47

2.4.18 Current Asset Turnover Ratio 49

2.4.19 Capital Employed Turnover Ratio 51

2.4.20 Gross Profit Ratio 53

2.4.21 Net Profit Ratio 55

2.4.22 Operating Profit Ratio 57

2.4.23 Factory Expenses Ratio 59

2.4.24 Administration Expenses Ratio 61

2.4.25 Selling and Distribution Expenses Ratio 63

8

LIST OF FIGURES

Table No NAME Page No

2.4.1 Current Ratio 16

2.4.2 Quick Ratio 18

2.4.3 Cash Ratio 20

2.4.4 Inventory to Working Capital 22

2.4.5 Debt Ratio 24

2.4.6 Debt Equity Ratio 26

2.4.7 Equity Ratio 28

2.4.8 Capital Employed to Net Worth Ratio 30

2.4.9 Solvency Ratio 32

2.4.10 Fixed Asset to Net Worth Ratio 34

2.4.11 Fixed Asset Ratio 36

2.4.12 Inventory Turnover Ratio 38

2.4.13 Inventory Holding Ratio 40

2.4.14 Debtors Turnover Ratio 42

2.4.15 Creditors Turnover Ratio 44

2.4.16 Working Capital Turnover Ratio 46

2.4.17 Fixed Asset Turnover Ratio 48

2.4.18 Current Asset Turnover Ratio 50

2.4.19 Capital Employed Turnover Ratio 52

2.4.20 Gross Profit Ratio 54

2.4.21 Net Profit Ratio 56

2.4.22 Operating Profit Ratio 58

2.4.23 Factory Expenses Ratio 60

2.4.24 Administration Expenses Ratio 62

2.4.25 Selling and Distribution Expenses Ratio 64

9

10

CHAPTER I

INTRODUCTION

I.I ABOUT THE STUDY

In today’s competitive world of business, judicious management of both human &

non-human resources by business enterprises is essential for its survival and growth with

the rapid growth in the size of business firms and the consequent increase in the problem of

internal control, management has become more complex. A manager needs both

quantitative and qualitative information for taking decision and managing the firm

efficiently and successfully. Here by using the financial resources available from annual

report of Kerala Feeds Ltd. During the period of 31-March, 2005 to 31-March, 2010. I try

to analysis the fund management of the company.

In every business, capital is required for minimum stock of raw material to

maintain continuity in production, minimum stock of finished goods to fulfill future

demand, payment of wages and salary of the laborers and the employees for the processing

period and minimum amount of debtors, cash and bank balances. Financial analysis is the

process of identifying the strength and weakness of the company with the help of

accounting information provided by the profit and loss account and balance sheet. It is a

technique of x-raying the financial analysis will give the management considerable insight

in to the level and areas of strength or weakness.

The ratio analysis is one of the most powerful tool of financial analysis. It is the

process of establishing and interpreting various ratios. It is with the help of ratios that the

financial statement can be analyzed more clearly and decision from such analysis.

11

RATIO ANLYSIS

Ratio analysis is the process of determining and interpreting numerical relationship

based on financial statement. It is a technique of interpretation of financial statement with

the help of accounting ratios arrived from the balace sheet and profit and loss account. It

involves the comparison of existing ratios against standard established. The standard may

be set by management as goals expressed in the budget or may be figures reflecting the

performance of other companies.

There are various methods or techniques used in analyzing financial statement such

as Comparative Statement, Trend Analysis, Common Size Statement, Schedule of changes

in working capital, Fund Flow Statement, Cost Volume Profit Analysis and Ratio Analysis.

The ratio analysis is one of the most powerful tool of financial analysis. It is the

process of establishing and interpreting various ratios. It is with the help of ratios that the

financial statement can be analyzed more clearly and decision from such analysis.

RATIO ANALYSIS

Several ratios, calculated from the accounting data, can be grouped in to various

classes according to financial activity or function to be evaluated. As started earlier, the

parties interested in financial analysis. Owners concentrate on the firm’s performance.

They have to protect the interests of all parties and see that the firms grow profitably. In

view of the requirements of the various uses of ratios, this may be classified into:

•

•

•

•

Liquidity Ratio

Leverage Ratio

Activity Ratio

Profitability Ratio

12

I). LIQUDITY RATIO

Liquidity ratio measure the firm’s ability to meet current obligations. Leverage

ratio shows the proportion of debt and equity in financing the firm’s asset. Activity ratio

reflect the firm’s efficiency in utilizing its asset, and profitability ratio measure overall

performance and effectiveness of the firm.

II). LEVERAGE RATIOS, CAPITAL STRUCTURE RATIOS OR LONG TERM

SOLVENCY RATIO

To judge the long-term financial position of the firm, financial leverage, or capital

structure ratios are calculated. A firm should have a strong short-term as well as long-term

financial position. There ratios indicate mix of funds provided by owners and lenders. As

a general rule, there should be an appropriate mix of debt and owner’s equity in financing

the firm’s asset. The ratio may be calculated to determine the proportion of debt in total

financing leverage ratios are also computed from the profit and loss items by determining

the extent to which operating profit are sufficient to cover the fixed charges.

The most common ratios which indicate the extent of leverage ratios are:-

a) Debt Ratio

b) Debt Equity Ratio

c) Equity Ratio / Net Worth Ratio

d) Capital Employed to Net Worth Ratio

e) Solvency Ratio

f) Fixed Asset to Net Worth Ratio

g) Fixed Asset Ratio

13

III). ACTIVITY RATIOS

Activity ratios are employed to evaluate the efficiency with the firm manges and

utilities its assets. There ratios are also called turnover ratios because they indicate the

speed with which assets are being converted or tuned over in to sales. It involves a

relationship between sales and assets. Several activity ratios can be calculated to judge the

effectiveness of asset utilization. Depending up on the purpose, a number of turn over ratio

can be calculated:-

Inventory Turnover Ratio

Inventory Holding Ratio

Debtors Turnover Ratio

Creditors Turnover Ratio

Working Capital Turnover Ratio

Fixed Asset Turnover Ratio

Current Asset Turnover Ratio

Owned Capital Turnover Ratio

IV]. PROFITABILITY RATIO

The purpose of study and analysis of profitability ratio are to assess the adequacy of

profit earned by the company and also to cover whether profitability is incurring or

decreasing. The profitability ratio shows the combined effect of liquidity, asset

management and debt management on operating results. Profitability ratio are measured

with reference to sales, capital employed, total assets employed, shareholders fund

etc…The profitability ratios in relation to sales are:-

Goss Profit Ratio

Net Profit Ratio

Operating Profit Ratio

Expenses Ratio

14

1.2 ABOUT THE INDUSTRY

Cattle feed sector in Kerala state: An overview

From old times, the income of majority of keralites was agricultural and rearing of

livestock. The geographical structure and climate of kerala was suitable for them and soil

was very fertile.

In the livestock sector, the main constituent was cattle. Earlier, the cattle

population consisted of low yielding verities. Now 80% of the cattle population consists of

high yielding cross breeds.

The most prominent among them was “operation flood” which prevailed 1980 –

1996.Even though, we are sufficient in milk, the feeds sector is left to be done, much more.

The natural feeds like grass and hay re found to be inadequate and stress was given on

Compounded Cattle Feeds (C.C.F). Compounded cattle feed is found to be a well-balanced

food for cattle. It is cost effective also. East Asiatic Company in the brand name “OK”

was first introduced by C.C.F in Kerala. Even today cattle feed is synonymous with the

brand name.

C.C.F manufacturers based in Kerala

No. Name of Company Number

of

plants

Installed

Capacity

(MT)

Brand

1. Kerala Feeds Ltd 1 500 Kerala feeds

2. KSE Ltd 2 440 K.S

3.

Kerala co-operative milk

marketing

3

600

Milma

4. Prime Agro 1 200 prima

5. Others 30 450 --------

Total 37 2190

15

1.3 ABOUT THE COMPANY

Kerala feeds Ltd is a public undertaken company, which has a good organization

norms and standards. Kerala Feeds Ltd incorporated in 1995 as a public Ltd company for

producing cattle feed. Government established this company as per Indian company Act

1956, production started in 1998-99, authorized capital is 30 crore. Within 30 core, 27

crore allocated as shares. In that, 76.95% to the government of Kerala and 18.79% to the

government companies, 3.46% to milma and corporative society, 0.8% to ordinary

societies, 200 shareholders are there. The plants is situated at Kalletumkkara in

Mukundapuram Taluk of Trissur District.

The cattle feed with 500 TDP capacity was commissioned in late 1998 and

commercial production started in January in 1999 with one shift only. The second and

third shift operations were commenced in June 1999 and July 2000 respectively. The

plants is situated in 27 acres of lands and has sufficient scope for further expansion.

The organization has procured and developed material handling systems in tune

with its requirements to lighten the burden of the employees. The plants and its Milling,

Mixing, Cooking and Palletizing (MMCP) technology was imported from Holland, the

Netherlands. And these machines have helped the company to produce quality pellets and

capture the market which was hitherto in the hands of the private sector companies.

Kerala Feeds has been instrumental in not only increasing the quality of the feed available

in the market but also has been able to stall the spiraling tendency of the feed prices. The

raw material is checked for its quality, stored in godown, filled in to the bins, drawn in

fixed proportions, ground to fine particular size, mixed homogeneity, cooked for better

digestibility and palletized keeping the need of the cattle in mind. Human help is needed

only to stored raw materials and to stock the cattle feed filled sacks, the rest are done by

computers. This unit produces 500 tones of cattle feed per day. Apart from Kerala, the

company caters to Karnataka & Lakshadeep. while making the product KLF follows BIS

wheat etc. are teased in the bio-lab. Karnataka, Andrapradesh and Tamil Nadu are the

material providers.

16

KFL has become a boon to farmers. It came out with advanced, innovative and

original concepts leading to building up the expectation of the customers. The product

matched with the expectation and the demand for it increased. Before the entry of the

company, there was no brand name for the cattle feed. However, because of the

company’s entrance, private feed producers have to keep up the standard to complete. In

the last 20 years the cost of the feed had increased by 450% whereas in the last four years

the price has increased only by 16%. Hence the farmers bets maximum yield and better

health for his cattle. The officials from KFL conduct classes for scientific feeding methods

for owners of cattle through the ‘Ksheeraotsavam’ organized by the Diary Department. 20

field staff are also roped in to bring awareness among the locals. Awareness as in any

other field is very important since conventional farmers do not easily accept change, hence

do not tap the maximum potential of their cattle.

At present KFL has 400 dealers in 1151 or so Panchayats & Municipalities and 450

cooperatives. More publicity means more demand. Kerala Feeds also plans to launch a

new product, a mineral mixture called “Keramin’’. Keramin production has been started in

March 2004. One packet of keramin is 1 kg. the product of keramin for 2004-05 is 821

MT. this to take care of the deficiency of cattle. The national Diary Development Board

(NDDB) is expected to provide entire plants, machinery, technology, and know how at the

subsidized rate for the project. Production is to carried out by women’s societies under the

supervision of NDDB. The production is proposed to sell through Kerala Feeds marketing

network.

OBJECTIVE OF THE COMPANY

1) To produce and make available good compounded cattle feed at optimum price.

2) Create awareness on feeding methods.

3) Educate farmers about the need for quality feeding

4) Supplement minerals and vitamins in their feed to level the inadequacy in natural

feed compound.

17

SALIENT FEATURES OF KERALA FEEDS LTD

Advanced technology.

Computerized control system.

The only which follows MMCP (Milling, Mixing, Cooking, and Palletizing)

technology.

The quality of the product is ensured from the collection of the raw material up to

the finished feed.

The moisture content is fully removed by heating at 80 degree which ease the

digestion and can keep for long time.

The palletized form help to keep the environment cleanly.

It is highly homogametic.

The M.R.P rate is not changed throughout Kerala.

The standard of the product is improving continuously 24 hours working plant.

The cattle feed is free from all types of germs.

18

1.4 REVIEW OF LITERATURE

TIMO SALMI AND TEPPO MARTIKAINEN (1994),

“A Review of the theoretical and Empirical Basis of Financial Ratio Analysis’, The

Finnish Journal of Business Economics 4/94,426-448. Also published on the World Wide

Web.

Financial ratios are widely used for modeling purposes both by practitioners and

researchers. The firm involves many interested parties, like the owners, management,

personnel, customers, suppliers, competitors, regulatory agencies, and academics, each

having their views in applying financial statement analysis in their evaluations.

Practitioners use financial ratios, for instance, to forecast the future success of companies,

while the researchers’ main interest has been to develop models exploiting there ratios.

BERRY, R.H., AND NIX, S. (1991)

“Regression analysis v. Ratios in the cross-section analysis of financial statements”,

Accounting and Business Research 21/82, 107-117.

The common feature of all the areas of financial ratio analysis research seems to be

that while significant regularities can be observed, they are not necessarily stable across the

different ratios, industries, and time period, thus there remains much to be done to find a

tenable theoretical background to improve the generalizability of financial ratio analysis.

A systematic framework of financial statement analysis along with the observed separate

research trends might be useful for furthering the development of research. If the research

results in financial ratio analysis are to be useful for the decision makers, the results must

be theoretically consistent and empirically generalizable.

19

MARTIKAINEN, T. (1992)

“Time-series distributional properties of financial ratios: empirical evidence from Finnish

listed firms”, European Journal of Operational Research 58/3, 344-355.

The research on the functional form of financial ratios has been characterized by

theoretical discussions about the ratio format in financial ratio analysis and empirical tesitn

of the ratio mode. We conclude from the review that the proportionality assumption for

financial ratios is stronger within an industry than between industries. Moreover,

proportionality varies from ratio to ratio, and between time periods indicating problems in

temporal stability.

WHITTINGTON, G. (1980)

“Some basic properties of accounting ratios”, Journal of Business Finance and Accounting

7/2, 219-323.

It is obvious that the existing main research areas in financial ratio analysis are

separate from each other sometimes with traditions of their own. Historically, these trends

have developed to a degree on their own without a distinct theoretical framework to

encompass the entire field of financial statement analysis. Of the four areas reviewed in

this paper only the first and the second are closely interrelated

20

CHAPTER 2

MAIN THEME OF THE STUDY

2.1 OBJECTIVES OF STUDY

PRIMARY OBJECTIVES

The major objectives of the study are to know about financial strength and

weakness of KERALA FEEDS LTD through RATIO ANALYSIS.

SECONDARY OBJECTIVES

To analyze the liquidity, profitability and efficiency positions of the company

during the study period.

To study and analyze various facts of the financial performance of the company

To study comparisons between the ratio during different periods.

21

2.2 SCOPE & LIMITATION OF THE STUDY

2.2.1 SCOPE

The Ratio analysis is one of the most powerful tool of financial analysis. Ratio

analysis is the process of determining and interpreting numeric relationship based on

financial statement with the help of accounting ratios arrived from the balance sheet and

profit and loss account.

2.2.3 LIMITATIONS

Financial analysis is a powerful mechanism for determining financial strength and

weakness of the firm. But the analysis suffers from serious inherent limitation of financial

statements.

•

•

•

Financial analysis is based upon monetary information and non-monetary

factors are ignored.

Different people may interpret the same analysis in different way.

The study is limited for a period of five years from 2005-2010

22

2.3 RESEARCH METHODOLOGY

MEANING FOR RESEARCH

Research is a scientific and systematic search for pertinent information on a

specific topic. It is considered as a careful investigation or enquiry to find out new facts in

any branch of knowledge. It is the original contribution to the existing stock of knowledge

making for its advancements. Therefore research is systematized effort to acquire new

knowledge.

RESEARCH DESIGN

A research design is purely planned for the study that guides in the collection of

valid data. Here analytical research design is used for the study.

DATA COLLECTION

While dealing the real life problem, it is obvious that the data in hand are

inadequate and hence it becomes necessary to collect the data that are appropriate. The data

needed for the researcher study were collected as

TYPES OF DATA

1. PRIMARY DATA

2. SECONDARY DATA

PRIMARY DATA

Primary data do not exit already; the researcher has to gather primary data afresh

for the specific study under taken by him. The primary data are explicitly gathered for the

specific research protects at hand. But no primary data is used in the study.

23

SEC0NDARY DATA

Secondary data is those which have been collected by someone else and which have

already been passed through the statistical processes. In this present study the secondary

data being collected through

• Annual reports

• Internal records

PERIOD OF THE STUDY

The study was conducted in the finance department of KERALA FEEDS LIMITED

under the topic ‘A STUDY ON RATIO ANALYSIS AT KERALA FEEDS LIMITED’

for a period of two months from June 2010 to July

Sources of Secondary Data

Most of the calculations are made on the financial statements of the company

provided statements.

Referring standard texts and referred books collected some of the information

regarding theoretical aspects.

Method-to assess the performance of the company method of observation the work

in financial department in followed.

TOOLS USED FOR ANLYSING DATA

• Ratio Analysis

24

2.4 ANAYSIS AND INTERPRETATION

CURRENT RATIO

Current Ratio may be defined as the relationship between current asset and current

liabilities. A relatively high current ratio is an indicator that the firm is liquid and has the

ability to pay its current obligations. It may be calculated as follows:-

Current Asset Current Ratio = ----------------------- Current Liability

` Table No.2.4.1

Current Ratio

Year Current Asset

In Rs.

Current Liability

In Rs.

Ratio

In times

(1) (2) (3) (2)/(3)

2005-2006 211357391 71278880 2.97

2006-2007 304838569 106420106 2.86

2007-2008 300522680 100610068 2.98

2008-2009 291679160 144363552 2.02

2009-2010 294395051 165078532 1.78

Source: secondary data

INTERPRETATION

In the current ratio of Kerala Feeds Ltd from 2005-2006 shows that the ratio

ranging from 2.97 to 1.78. It means the company is able to meet its current obligations

and it enjoys sufficient liquidity. As a conventional rule, idle current ratio should be 2:1

25

FIGURE NO.2.4.1

Current Ratio

Current Ratio

2.97 2.86 2.98

2.021.78

0

0.5

1

1.5

2

2.5

3

3.5

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

x-year

y-ra

tio

Ratio (2)/(3)

26

QUICK RATIO / ACID TEST RATIO

It establish a relationship between quick or liquid asset and current liabilities. It is

also known as liquid ratio. It is computed as follows:-

Quick Asset QUICK RATIO = --------------------

Quick Liability

Table No.2.4.2

Quick Ratio

Year Quick Asset

(In Rs.)

Quick Liability

(In Rs.)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 155689413 71278880 2.18

2006-2007 231563286 106420106 2.18

2007-2008 206423924 100610068 2.05

2008-2009 162793813 144363552 1.12

2009-2010 158456325 165078532 1.16

Source: secondary data

INTERPRETATION

A quick ratio of 1:1 is considered to be idle. This ratio is more rigorous test of

liquidity then the current ratio and when used in conjunction with it gives a better picture

of the firm’s ability to meet its short-term debt out of short-term asset.

27

FIGURE NO. 2.4.2

Quick Ratio

Quick Ratio

2.18 2.182.05

1.12 1.16

0

0.5

1

1.5

2

2.5

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

y-ra

tio Ratio In % (2)/(3)

28

CASH RATIO / LIQUIDITY RATIO

Cash is the most liquid asset. A financial analyst may examine cash ratio and its

equivalent to current liability. Trade investment or marketable securities are equivalent to

ratio. It may be calculated as :-

Liquid Asset

Cash Ratio = --------------------- Current Liabilities

Table No. 2.4.3

Cash Ratio

Year

Absolute Liquid

Asset

(In Rs)

Current Liabilities

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 103526765 71278880 1.45

2006-2007 140131530 106420106 1.32

2007-2008 158078058 100610068 1.57

2008-2009 94314824 144363552 .65

2009-2010 92654853 165078532 .58

Source: Secondary Data

INTERPRETATION

The Cash Ratio of KFL ranges from 1.45 to .58. The liquidity position of the

company of 2007-2008 is 1.57 but in 2008-09 and 2009-10, the position is bad.

29

FIGURE NO.2.4.3

CASH RATIO

Cash Ratio

1.45

1.32

1.57

0.650.58

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

x-year

y-ratio Ratio (2)/(3)

30

INVENTORY TO WORKING CAPITAL

In order to that there is no over stocking, the ratio of inventory to working capital

should be calculated. Working Capital is the excess of current liabilities. Increase in

volume of sales requires increase in size of inventory, but from a sound financial point of

view, inventory should not exceed amount of working capital. The desired ratio is 1:1. It

is worked out as follows:-

Inventory Inventory to Working Capital = ----------------

Working Capital

Table No2.4.4

Inventory to Working Capital

Year Inventory

(In Rs)

Working Capital

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 55667978 140078511 .397

2006-2007 73275283 198418463 .369

2007-2008 94098756 199912612 .470

2008-2009 12888537 147315608 ..087

2009-2010 12564856 129317652 .080


INTERPRETATION

The inventory to working capital ratio is less than 75% for last two years. It

indicates under stocking, ie, inventory was not absorbing more than 75% of working

capital.

31

FIGURE NO. 2.4.4

Inventory to Working Capital

Inventory To Working Capital

0.397

0.369

0.47

0.087 0.08

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

x-year

y-ratio Ratio (2)/(3)

32

DEBT RATIO

It helps the firm to know the long-term solvency. The firm may be interested in

knowing the proportion of the interest bearing debt in the capital structure. Total debt will

include short and long-term borrowing from financial institution, bank borrowings and any

other interest bearing loan. Because of the equality of capital employed and net asset, debt

ratio can also be defined as total debt divided by net asset :-

Total Debt Debt Ratio = --------------------------

Net Asset

Table No. 2.4.5

Debt Ratio

Year Debt

(In Rs)

Net Asset

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 10172911 284222911 .036

2006-2007 8781140 322978167 .027

2007-2008 7128022 355488442 .020

2008-2009 515108 329283709 .001

2009-2010 652435 334685456 .001


INTERPRETATION

If the ratio for a firm is 1:2, it implies that one third of the total permanent capital of

the firm is in the form of long-term debts. Although no hard and fast rule exist,

conventionally a ratio of 1:2 is considered satisfactory.

33

FIGURE NO.2.4.5

Debt Ratio

0.036

0.027

0.02

0.001 0.001

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Debt Ratio

Ratio (2)/(3)

34

DEBT EQUITY RATIO

Equity means share holders fund and debt means long-term borrowed fund (short

term loans, current liabilities and provisions are excluded). The relationship between

borrowed funds and owner’s capital is measured the long-term financial solvency of a firm.

Debt equity ratio is the indicator of leverage. The debt equity ratio is expressed as a

proportion between debt and equity. It can be expressed as :-

Debt Debt Equity Ratio = -----------------------

Equity

Table No. 2.4.6

Debt Equity Ratio

Year Debt

(In Rs)

Equity

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 10172911 274050000 .04

2006-2007 8781140 274050000 .03

2007-2008 7128022 274050000 .026

2008-2009 515108 274050000 .001

2009-2010 652435 274050000 .001


INTERPRETATION

Debt Equity Ratio shows the decreasing trend. The Debt Equity Ratio is .04 to .001

in 2005-2010. It shows the financial position of the concern is very weak and risk of the

long-term creditors is relatively less

35

FIGURE NO.2.4.6

Debt Equity Ratio

0.04

0.03

0.026

0.001 0.001

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Debt Equity Ratio

Ratio (2)/(3)

36

EQUITY RATIO OR NET WORTH RATIO

It express the relationship between Net Worth or Equity and Total Asset. It is

usually expressed as a proportion. It is expressed as follows :-

Net Worth Equity Ratio = --------------------------

Total Asset

Table No2.4.7

Equity Ratio

Year Net Worth

(In Rs)

Total Asset

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 274050000 346881647 .79

2006-2007 314197027 428571038 .73

2007-2008 274050000 414469713 .66

2008-2009 274050000 429777154 .63

2009-2010 274050000 459297854 .66


INTERPRETATION

From the table we can show that the Equity Ratio vary in different years. In the

year of 2006-07 the ratio is lower than any other year. So the financial position of the

concern is not good. Higher the ratio shows the stronger is the financial position of the

concern, the lower ratio shows the weaker financial position of the concern.

37

FIGURE NO. 2.4.7

Equity Ratio

0.79

0.73

0.660.63

0.66

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Equity Ratio

Ratio (2)/(3)

38

CAPITAL EMPLLOYED TO NET WORTH RATIO

This is another way of expressing the basic relationship between debt equity. This

help to know how much funds are being contributed together by lending and owners for

each rupee of the owner’s contribution. This can be found out by calculating the ratio of

capital employed or asset.

Capital Employed Capital Employed to Net Worth = ----------------------------------- Net Worth

Table No. 2.4.8

Capital Employed to Net Worth Ratio

Year Capital Employed

(In Rs)

Equity

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 284222911 274050000 1.04

2006-2007 322978167 314197027 1.03

2007-2008 355488442 274050000 1.29

2008-2009 329283709 274050000 1.20

2009-2010 334685456 274050000 1.22


INTERPRETAION

The ratio helps to know the owner’s contribution. The table shows that the owners

contribution in the company the ratio ranging from 1.04 to 1.22. The contribution by the

owners of the company is good

39

FIGURE NO.2.4.8

Capital Employed to Net worth Ratio

1.04 1.03

1.29

1.2 1.22

0

0.2

0.4

0.6

0.8

1

1.2

1.4

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Capital Employed to Net Worth Ratio

Ratio (2)/(3)

40

SOLVENCY RATIO

This ratio helps to measure the solvency of a concern. Solvency of a concern

means the ability of a concern to meet its total liability out of its total asset.

Total Asset Solvency Ratio = ----------------------- Total Liability

Table No. 2.4.9

Solvency Ratio

Year

Total Asset

(In Rs)

Total Liabilities

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 346881647 71278880 4.87

2006-2007 428571038 106420106 4.03

2007-2008 414469713 107738090 3.84

2008-2009 429777154 144878660 2.96

2009-2010 415426854 157885652 2.70


INTERPRETATION

Higher the solvency ratio indicates the stronger is its financial position and lower

the solvency ratio indicates the weaker is its financial position.

This table shows that the financial position of KFL is weaker. The solvency ratio

smaller than any other year ratio.

41

FIGURE NO. 2.4.9

Solvency Ratio

4.87

4.03

3.84

2.96

2.7

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Solvency Ratio

Ratio (2)/(3)

42

FIXED ASSET TO NET WORTH RATIO

This ratio shows the relationship between fixed asset and net worth. Fixed asset

refers to assets, which are used in the enterprise permanently. Net Fixed Asset means,

fixed asset less depreciation. This ratio indicates the proportion of fixed asset financed by

the owners or the proprietors. This can be measured as followed.

Net Fixed Asset Fixed Asset to Net Worth Ratio = --------------------------------- Net Worth

Table No. 2.4.10

Fixed Asset to Net Worth Ratio

Year Net Fixed Asset

(In Rs)

Net Worth

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 135524256 274050000 .49

2006-2007 123732529 314197027 .39

2007-2008 113947033 274050000 .41

2008-2009 138097994 274050000 .50

2009-2010 156983468 274050000 .57


INTERPRETATION

The standard or ideal fixed asset to net worth ratio for an industrial undertaking is

2/3. If fixed asset constitute more than 67% of the proprietor’s fund, the indication is that

the proprietor’s funds are mostly sunk in the fixed assets; such an indication means

financial weakness of the concern and greater risks for the creditors.

43

FIGURE NO. 2.4.10


0.49

0.390.41

0.5

0.57

0

0.1

0.2

0.3

0.4

0.5

0.6

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

44

FIXED RATIO ASSET

This ratio explains whether the firm has raised adequate long-term funds to meet its

fixed assets requirements. It is expressed as follows:-

Fixed Asset Fixed Assets Ratio = ----------------------------- Capital Employed

Table No.2.4.11

Fixed Asset Ratio

Year Fixed Asset

(In Rs)

Capital Employed

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 135524256 284222911 .47

2006-2007 123732529 322978167 .38

2007-2008 113947033 355488442 .32

2008-2009 138097994 329283709 .41

2009-2010 156983468 334685456 .46


INTERPRETATION

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 one it is good for the

concern, the ideal ratio is .67.

The fixed asset of KFL from 2005-2010 is in between .47 to .46. All the year it is

less than one.

45

FIGURE NO. 2.4.11

Fixed Asset Ratio

0.47

0.38

0.32

0.41

0.46

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Fixed Asset Ratio

Ratio (2)/(3)

46

INVENTORY TURNOVER RATIO

Inventory turnover ratio establishes the relationship between costs of goods sold

and average inventory. This ratio indicate how many times during the period the firm has

turned it is in other words it shows the rate at which inventories are converted into sales

and than into cash. It computed as follows:-

Sales Inventory Turnover Ratio = --------------------------------- Average Stock Opening Stock + Closing Stock Average Stock = -------------------------------------------------- 2

Table No. 2.4.12


Year Net Sales

(In Rs)

Average Stock

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 781901488 76126913 10.27

2006-2007 871280480 64471630 13.51

2007-2008 953752505 50503120 18.88

2008-2009 1086328446 69143752 15.71

2009-2010 1025452365 70236541 16.03


INTERPRETATION

From the year 2005-2010, Kerala Feeds Ltd has maintained stock turnover ratio

more than 8. This means that the company is efficient and stocks are moving very fast.

47

FIGURE NO. 2.4.12


10.27

13.51

18.88

15.7116.03

0

2

4

6

8

10

12

14

16

18

20

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

48

INVENTORY HOLDING PERIOD

It may also be of interest to see average time taken for clearing stock. This can be

possible by calculating inventory conversion period. This period is calculated by dividing

the number of days by inventory turnover.

Number of days Inventory Conversion Period = ---------------------------------- Inventory Turnover Ratio

Table No. 2.4.13

Inventory Holding Period

Year Number of Days

(In Days)


(In Rs)

Ratio

(In Days) (1) (2) (3) (2)/(3)

2005-2006 365 10.27 36

2006-2007 365 13.51 27

2007-2008 365 18.88 19

2008-2009 365 15.71 23

2009-2010 365 16.03 23


INTERPRETATION

From the above it is clear that the conversion period of inventory is less than any

other period. Inventory conversion period is help to know the average time taken for

clearing stock. 2005-06 it was 36 days, but in 2009-10, it is 27 days.

49

FIGURE NO. 2.4.13


36

27

19

23 23

0

5

10

15

20

25

30

35

40

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

50

DEBTORS’ TURNOVER RATIO

Debtors Turnover Ratio indicates the number of time debtor’s turnover each year.

Generally, the higher the value of debtor’s turnover, the more efficient is the management

of credit. It is also called receivables turnover ratio relates net credit sales to sundry

debtors. This ratio also indicates the rate at which cash is generated by turnover of debtors.

It measure the fast debts are collected. It can be calculated as

Net Credit Sales Debtors’ Turnover Ratio = ------------------------------- Average Debtors’

Table No. 2.4.14

Debtors’ Turnover Ratio

Year Net Sales

(In Rs)

Average Debtors

(In Rs)

Ratio

(In Days)

(1) (2) (3) (2)/(3)

2005-2006 781901488 33575394 23.29

2006-2007 871280480 36445314 23.91

2007-2008 953752505 27975684 34.09

2008-2009 1086328446 36377091 29.86

2009-2010 1025452365 38523546 29.21


INTERPRETATION

Debtors Turnover Ratio is decreasing trend. It ranges from 23.29 to 29.21 in 2005-

2010. To private sectors, they provide only after making advance payment but in the case

of above mentioned government institution they provide on the credit basis. Because of

more credit sales to government, sector Company’s debtors turnover ratio is increasing.

51

FIGURE NO. 2.4.14

Debtors’ Turnover Ratio

23.29 23.91

34.09

29.8629.21

0

5

10

15

20

25

30

35

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Debtors' Turnover Ratio

Ratio (2)/(3)

52

CREDITERS’ TURNOVER RATIO

Credit Turnover Ratio is the rate between net credit purchase and amount of sundry

creditors. It implies the credit period enjoyed by the firm in paying creditors. It can be

computed as follows:-

Net Credit Purchase Creditors’ Turnover Ratio =-------------------------------------- Average Creditors

Average creditors include creditors at the beginning of the year and divide two

creditors at the end of year.

Table No. 2.4.15

Creditors’ Turnover Ratio

Year

Net Credit

Purchase

(In Rs)

Average Creditors

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 567913466 32123680 17.67

2006-2007 662704141 31626951 20.95

2007-2008 747277521 43678863 17.10

2008-2009 959070802 46314824 20.70

2009-2010 989854802 49567423 19.97


INTERPRETATION

Creditors Turnover Ratio Indicate about the promptness in making payment of

credit purchases. In the case of company the ratio is fluctuating. Kerala Feeds Ltd has a

better creditor’s turnover ratio. Increase in ratio indicates that the company gets more time

to make payment to their creditors. Comparatively the ratio is not bad.

53

FIGURE NO.2.4.15

Creditors’ Turnover Ratio

17.67

20.95

17.1

20.719.97

0

5

10

15

20

25

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Creditors' Turnover Ratio

Ratio (2)/(3)

54

WORKING CAPITAL TURNOVER RATIO

The term working capital refers to excess of current asset to current liabilities. This

ratio helps to establish a relationship between working capital and sales. The ratio

indicates the extent of working capital turnover in achieving sales of the firm. It is


Net Sales Working Capital Turnover Ratio = --------------------------- Net Working Capital

Table No.2.4.16


Year Net Sales

(In Rs)

Net Working

Capital

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 781901488 140078511 5.58

2006-2007 871280480 198418463 4.39

2007-2008 953752505 199912612 4.77

2008-2009 1086328446 147315608 7.37

2009-2010 1025452365 156324581 6.55


INTERPRETATION

The ratio indicates that, low ratio is due to less working capital and high ratio is due

to high net working capital. In the year 2005-06, it shows working capital turnover ratio is

5.58. However, in 2008-09, the ratio is 7.37 so the working capital came to increase. . A

higher working capital turnover ratio indicates the inefficiency of the management in the

utilization of working capital.

55

FIGURE NO. 2.4.16


5.58

4.39

4.77

7.37

6.55

0

1

2

3

4

5

6

7

8

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

56

FIXED ASSET TURNOVER RATIO

This ratio indicates as to what extent the fixed assets of a concern have contributed

to sales. In other word, it indicates as to what extent the fixed assets have been utilized.

The ratio calculated as follows:-

Net Sales Fixed Asset Turnover Ratio = ---------------------- Fixed Asset

Table No. 2.4.17


Year Net Sales

(In Rs)

Fixed Assets

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 781901488 139866880 5.29

2006-2007 871280480 123732529 7.04

2007-2008 953752505 113947033 8.37

2008-2009 1086328446 138097994 7.87

2009-2010 1025452365 145265478 7.06


INTERPRETATION

The standard or ideal fixed asset turnover ratio is 5 times. So, a fixed asset turnover

ratio of 5 times or more indicates better utilization of fixed asset. On the other hand, a fixed

assets turnover ratio of less than 5 may be noted that a very high fixed assets turnover ratio

means under trading which is not good for the business. From the table it is clear that the

company’s fixed asset turnover ratio is less than 5 in than in 1998-03 and 2003-07 it is

more than 5, it indicates that there is better utilization of fixed asset.

57

FIGURE NO. 2.4.17


5.29

7.04

8.37

7.87

7.06

0

1

2

3

4

5

6

7

8

9

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

58

CURRENT ASSET TURNOVER RATIO

It is the ratio between current assets and turnover. This ratio indicates the

contribution of current assets to sales. This is calculated as follows:-

Net Sales

Current Asset Turnover Ratio = ---------------------------

Current Assets

Table No. 2.4.18


Year Net Sales

(In Rs)

Current Asset

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 781901488 211357391 3.70

2006-2007 871280480 304838569 2.86

2007-2008 953752505 300522680 3.17

2008-2009 1086328446 291679160 3.72

2009-2010 1025452365 294395051 3.48


INTERPRETATION

There is no ideal or standard current asset ratio. Yet, the influence is that a high

current asset turnover ratio is an indication of a better utilization of current assets. The

lower current assets have not been utilized effectively.

From the table it reveals that the current asset turnover ratio is in increasing trend.

In the year 2004-05 the ratio is less than any other years ratio.

59

FIGURE NO. 2.4.18


3.7

2.86

3.17

3.72

3.48

0

0.5

1

1.5

2

2.5

3

3.5

4

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010


Ratio (2)/(3)

60

CAPITAL EMPLOYED TURNOVER RATIO

In this ratio indicates the relation between net sales and net worth. This ratio is a

good index of the utilization of the owner’s fund. It can be expressed as:-

Net Sales

Capital Employed Turnover Ratio = ------------------------

Net Worth

Table No. 2.4.19

Capital Employed Turnover Ratio

Year Net Sales

(In Rs)

Net Worth

(In Rs)

Ratio

(In times)

(1) (2) (3) (2)/(3)

2005-2006 781901488 274050000 2.85

2006-2007 871280480 314197027 2.77

2007-2008 953752505 274050000 3.48

2008-2009 1086328446 274050000 3.96

2009-2010 1025452365 274050000 3.74


INTERPRETATION

If the volume of sales in relation to net worthy is reasonable, the indication is that the

capital is effectively utilized. In this context, it may be noted that excessively large sales in

relation to net worth mean over trading.

61

FIGURE NO. 2.4.19


2.852.77

3.48

3.96

3.74

0

0.5

1

1.5

2

2.5

3

3.5

4

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

62

GROSS PROFIT RATIO

These ratio measure the gross profit margin on the net sales made by the company.

The gross profit represents the excess of sales proceeds during the period under

observation over their cost, before taking in to account of administration, selling and

distribution and financing charges. These ratio measures the efficiency of to ascertain the

efficiency partners with respect to the previous year. It can be computed as follows:-

Gross Profit

Gross Profit Ratio = -------------------------------- X 100

Net Sales

Table No. 2.4.20

Gross Profit Ratio

Year Gross Profit

(In Rs)

Net Sales

(In Rs)

Ratio

(In %)

(1) (2) (3) (2)/(3)

2005-2006 98990882 781901488 12.66

2006-2007 137692000 871280480 15.80

2007-2008 155872381 95752505 16.34

2008-2009 189328117 1086328446 17.43

2009-2010 206568412 1025452365 20.14


INTERPRETATION

In Kerala Feeds Ltd major components is raw materials of total cost is incurred for

consumption of raw materials. Company depends Kerala market and outside market for

purchase of raw materials. Gross profit margin is good for KFL

63

FIGURE NO. 2.4.20

Gross Profit Ratio

12.66

15.816.34

17.43

20.14

0

5

10

15

20

25

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Gross Profit Ratio

Ratio (2)/(3)

64

NET PROFIT RATIO

Net profit margin ratio establishes a relationship between net profit and sales, that

indicates management’s efficiency in manufacturing, administrating and selling the

products. The ratio is designed to focus attention on the net profit margin arising from

business operation before interest and tax is deducted.

Net Profit

Net Profit Ratio = ----------------------------- X 100

Net Sales

Table No. 2.4.21

Net profit Ratio

Year Net Profit

(In Rs)

Net Sales

(In Rs)

Ratio

(In %)

(1) (2) (3) (2)/(3)

2005-2006 46622854 781901488 5.96

2006-2007 51929000 871280480 5.96

2007-2008 58239411 953752505 6.11

2008-2009 72405132 1086328446 6.67

2009-2010 78965423 1025452365 7.70


INTERPRETATION

Net profit earned by the company during the last 18 years. In the year 1998-03 it

incurred loss that is , .07. during the year 2007-2008 company earned net profit of 7.7 in

the year 1998-1999 company incurred losses due to high depreciation cost charged on

fixed asset.

65

FIGURE NO. 2.4.21

Net profit Ratio

5.96 5.966.11

6.67

7.7

0

1

2

3

4

5

6

7

8

Y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Net Profit Ratio

Ratio (2)/(3)

66

OPERATING PROFIT RATIO

Operating ratio establishes the relationship between operating expenses on one

hand and sale on the other hand. The ratio of all operating. A comparison of the operating

ratio would indicate whether the cost content is high or low in the figure of sales. It can be


Operating Cost

Operating Ratio = ----------------------------- X 100

Net Sales

Operating cost can be found by adding operating expenses to the cost of goods

Table No2.4.22


Year Operating Cost

(In Rs)

Net Sales

(In Rs)

Ratio

(In %)

(1) (2) (3) (2)/(3)

2005-2006 751370162 781901488 96.12

2006-2007 1029211201 871280480 118.12

2007-2008 1205731103 953752505 126.42

2008-2009 1395731300 1086328446 128.48

2009-2010 1523654254 1025452365 132.52


INTERPRETATION

The ratio is calculated mainly to ascertain the operational efficiency of the

management in their business operations. As it shows them, percentage of the net sales is

absorbed by the cost of goods sold. Higher the operating expenses ratio is less favorable.

67

FIGURE NO.2.4.22


96.12

118.12

126.42 128.48132.52

0

20

40

60

80

100

120

140

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

68

FACTORY EXPENSES RATIO

Factory Expenses Ratio is the ratio expresses the relationship between factory

expenses and sales. Factory expenses refer to all the three expenses, which are incurred to

make the good for ready for sale. The factory expenses ratio indicates the economy and

efficiency in the manufacturing process. This can be expressed as a percentage:-

Factory Expenses

Factory Expenses Ratio = -------------------------------------------- X 100

Net Sales

Table No.2.4.23

Factory Expenses Ratio

Year Factory Expenses

(In Rs)

Net Sales

(In Rs)

Ratio

(In %)

(1) (2) (3) (2)/(3)

2005-2006 72069101 781901488 9.29

2006-2007 83686523 871280480 9.6

2007-2008 95633324 953752505 10.03

2008-2009 118349012 1086328446 10.89

2009-2010 125295324 1025452365 11.89


INTERPRETATION

Factory expenses ratio is low than any other years of ratio, it is only 9.29 in 2005-

06. It shows the company’s efficiency in the manufacturing operations. But the ranging

from the ratio is 9.26 to 11.89. It shows that increase in factory expenses.

69

FIGURE NO. 2.4.23


9.299.6

10.03

10.89

11.89

0

2

4

6

8

10

12

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

70

ADMINISTRATIVE EXPENSES RATIO

Administrative expenses ratio is the ratio, which expresses the relationship between

administrative expenses and sales. The administrative expenses ratio indicates the economy

and efficiency in the general administration of the concern.

Administration Expenses

Administration Expenses Ratio = -------------------------------------X 100 Net Sales

Table No. 2.4.24

Administration Expenses Ratio

Year

Administration

Expenses

(In Rs)

Net Sales

(In Rs)

Ratio

(In %)

(1) (2) (3) (2)/(3)

2005-2006 17080029 781901488 2.2

2006-2007 21470679 871280480 2.46

2007-2008 20100907 953752505 2.1

2008-2009 22351550 1086328446 2.1

2009-2010 24587563 1025452365 2.18


INTERPRETATION

On the other hand, a high administrative expenses ratio is an indication of the in

efficiency in general administration of the concern. In this company administration

expenses ratio also declining, it shows the efficiency in general administration of the

concern.

71

FIGURE NO. 2.4.24


2.2

2.46

2.1 2.1

2.18

1.9

2

2.1

2.2

2.3

2.4

2.5

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year


Ratio (2)/(3)

72

SELLING AND DISTRIBUTION EXPENSES RATIO

Selling and distribution ratio is the ratio, which express the relationship between

selling and distribution expenses and sales. Selling and distribution expenses ratio indicates

the economy and efficiency in the selling and distribution of goods. The ratio usually

expressed as percentage.

Selling & Distribution Expenses Selling and Distribution Expenses Ratio = --------------------------------------- x 100

Net Sales

Table No. 2.4.25

Selling and Distribution Expense Ratio

Year

Selling &

distribution

(In Rs)

Net Sales

(In Rs)

Ratio

(In %)

(1) (2) (3) (2)/(3)

2005-2006 53058680 781901488 6.8

2006-2007 66542719 871280480 7.6

2007-2008 81100719 953752505 8.5

2008-2009 82222604 1086328446 7.57

2009-2010 83254566 1025452365 7.21


INTERPRETATION

A high selling and distribution expenses ratio is an indication of the inefficiency in

the selling and distribution of goods. In the year of 2005-2010, it is increasing trend. It is

ranging from 6.8 to 7.21, which means there is inefficiency in the selling and distribution

73

FIGURE NO. 2.4.25

Selling and Distribution Expense Ratio

6.8

7.6

8.5

7.577.21

0

1

2

3

4

5

6

7

8

9

y-ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010x-year

Selling & Distribution Expenses Ratio

Ratio (2)/(3)

74

CHAPTER 3

FINDINGS, SUGGESTIONS AND CONCLUSION

3.1 FINDINGS

The company has not sufficient liquidity in last two year and not able to meet short-

term obligation. It reveals from the liquidity ratio from 2005-2010 is 1.45 to .58.

The Debt Equity Ratio is .04 to .001 in 2005-2010. It shows the financial position

of the concern is very weak and risk of the long-term creditors is relatively less.

The company has maintained an inventory Turnover Ratio more than eight from

2005 to 2010. The good inventory control system helps the company to move the

stock very fast in efficient way.

As per the Debtor’s Turnover Ratio, Kerala Feeds Ltd has a better average

collection period from 2005 to2010. The point of company ideal period is 20 days.

Because of immediate payment from debtors company generate more cash balance

and has good working capital.

Better creditors’ turnover ratio helps the company to get more time to make

payment to suppliers. Increased in ratio indicates that the company get more time

to make payment to their creditors. It is high in the year of 2006-07 & 2008-09 is

respectively 20.95 &20.7.

In the year 2005-06, it shows working capital turnover ratio is 5.58. However, in

2008-09, the ratio is 7.37. Therefore, working capital came to increase. This shows

inefficiency of management in the utilization of working capital.

Gross profit ratio is fluctuating. The main reasons for fluctuating the ratio is

increase in the cost of raw material

75

The operating profit ratio is above 95% from the year 2005 to 2010. Higher the

operating ratio is less favorable. The operational efficiency of the management in

their business operations is not good.

Efficiency in the manufacturing operations of the enterprise means efficiency in

general administration of the concern. There is inefficiency in the selling and

administration of goods.

76

3.2 SUGGESTIONS

The company can develop the gross profit ratio in the coming financial year by

increasing the selling prices, and decreasing direct expenses.

The firm debt has highly decreased. Therefore, the firm should concentrate in the

issue of shares and debenture.

The company can increase its net profit ratio by introducing the indirect expenses

like administration expenses and non-operating expenses.

Management in management of short-term funds should make special attention.

That is surplus cash generation should be used for some productive investment.

Gross profit and net profit during 2005-2006 was less due to the increase in the cost

of raw materials. Company can overcome such loss by increasing the price of the

product.

For sales promotion arrangement, more campaigns.

Raw material constitutes almost 80%-85% of total cost. Hence effort must be made

to reduce the raw materials cost by producing the materials at a lower rate. This

will have tremendous effort in the bottom line. Even 1% decrease in the raw

material procurement cost will increase the net profit of the company.

77

3.3 CONCLUSION

This study was conducted in Kerala Feeds Ltd. to study the financial performance

of the company. From the study it is found that the company has no profit in the earlier

period due to high expenses ratio such as high depreciation charged to its fixed asset. But

the end of 2007. Financial year 2006 company earned profit by reducing the expense cost

company gets immediate payment from the customers and get more time to make payment

from suppliers. Because of this, more cash and bank balances are generated and shows an

increasing net working capital. This shows the companies ability to meet short-term

obligation.

78

APPENDIX

SUMMARIZED PROFIT AND LOSS ACCOUNT FOR THE LAST FIVE YEAR

(Rs.in lakhs)

PARTICULARS 2009-10 2008-09 2007-08 2006-07 2005-06

A. EARNED FROM

1. Sales 10254.52 10863.28 9537.52 8712.80 7819.01

2. Other Income 820.72 552..76 519.41 517.64 416.79

11075.24 11416.04 10056.93 9230.44 8235.8

B. PAID AND PROVIDED

FOR

Raw Materials 12032.08 9241.43 7381.70 6531.95 6127.24

Manufacturing,

Administrative,

Selling and Other Expenses

2654.56 2229.23 1968.34 1716.99 1422.07

Depreciation 233.92 190.74 163.86 220.07 225.67

14920.56 11661.4 9513.9 8469.01 777.98

C. PROFIT BEFORETAX

(A-B)

Less : Gratuity Reserve - - - 6.77 -

Taxation 45.21 -478.69 39.36 235.37 -54

NET PROFIT 854.25 724.05 582.39 519.29 466.22

1. Dividend - 68.51 68.51 -

2. Corporate Dividend Tax - 9.60 9.60 -

RETAINED EARNINGS 854.25 727.05 504.28 441.18 446.22

79

SUMMERIZED BALANCE SHEET FOR THE LAST FIVE YEARS

(Rs.in lakhs)

PARTICULARS 2009-10 2008-09 2007-06 2006-07 2005-06

A. ASSETS

1. Net Fixed Asset

Gross FA 4118.53 3616.56 3188.86 3136.43 3031.12

Less Depreciation 2469.50 2235.58 2049.39 1899.11 1675.87

1649.02 1380.97 1139.47 1237.32 1355.24

2. Investment - - - - -

3. Current Asset 2943.95 2916.79 3005.22 3048.38 2113.57

4592.97 4297.76 4144.69 4285.7 3468.81

B. LIABILITY

1. Current Liability 1650.78 1443.63 1006.10 1064.20 712.78

1650.78 1443.63 1006.10 1064.20 712.78

C. NET WORTH (A-B) 1759.93 2854.13 3138.59 3221.5 2756.03

REPRESENTED BY

1. Share Capital 2740.50 2740.50 2740.50 2740.50 2740.50

2. Reserve and Surplus 2300.35 - - 401.47 -

TOTAL 5040.85 2740.50 2740.50 3141.97 2740.50

80

•

•

•

•

•

BIBLIOGRAPHY

BOOKS

KOTHARI .C.R (2005) ,RESEARCH METHODOLOGY ,wisha publications

Pvt .limited .

DR .S.N MAHESHWARI ,FINANCIAL MANAGEMENT ,sultan chand &

sons publications Pvt .limited ,new Delhi ,2000

DR. V .B BAHALIA ,FINANCIAL MANAGEMENT & POLICY ,Anmol

publications Pvt .limited .1998

DR. S.P JAIN & K.L NARANG ,FINANCIAL ACCOUNTING ,sultan chand

& sons publications pvt .limited ,new Delhi 2001

Dr T.S REDDY .& Y .HARI PRASAD REDDY ,MANAGEMENT

ACCOUNTING ,Margham publications Pvt limited ,Chennai 2004 2 nd edition

WEBSITE

• www.keralafeedsltd.com

• www.cattlefeedindustry.com

\

http://www.keralafeedsltd.com/

http://www.cattlefeedindustry.com/

Date post:	31-Oct-2014
Category:	Documents
Upload:	dinoop-devaraj
View:	466 times
Download:	5 times

finance project

Documents