A

PROJECT REPORT

ON

RATIO ANALYSIS

FOR

KIRLOSKAR BROTHERS LIMITEDPUNE

BY

MR. MAYANK G. ASAR

M.B.A. - II2008-2010

RAJARAMBAPU INSTITUTE OF BUSINESS MANAGEMENTAMBEGAON(BK), PUNE

College Certificate

Company Certificate

ACKNOWLEDGEMENT

The successful accomplishment of this project undertaken, involves efforts sheer

guidance from my project guide Prof. A. S. Gandhe gives me pleasure to present project

report on “RATIO ANALYSIS OF KIRLOSKAR BROTHERS LIMITED” at

Kirloskar Brothers Limited. It was a different and wonderful experience to be there in

Kirloskar Brothers Limited as a summer trainee.

First I would like to thanks Mr. Rajendra Mahajan (Vice President-Finance) and Mr.

Makarand Rajwade for providing me such a great chance to work with Kirloskar

Brothers Limited.

I also express my sincere gratitude to sir our project trainee who has been so co-

operative and helpful from the first day of my training till end. He also helped me a lot

in enhancing my knowledge about the finance management in manufacturing sector. I

am highly thankful to him for providing the constant support and encouragement

throughout the project.

Lastly I would like to thanks to all my friends & all those who helped me during the

two months of field training.

MAYANK ASARMBA-FINANCE2008-2010

I N D E X

SR. NO.

CONTENTS PAGE NO

1. Introduction of the Subject3 to 9

2. History & Profile of company10 to 21

3. Objective of the project22 to 23

4. Theoretical Background24 to 33

5. Research Methodology34 to 37

6. Data analysis38 to51

7. Observation & findings52 to 53

8. Conclusion & suggestion54 to 55

9. Annexure56 to 57

10. Bibliography58 to 59

CHAPTER I

INTRODUCTION OF THE PROJECT

INTRODUCTION

Financial Ratio Analysis

Today we are all living in a business world. Each and every person is dealing

with different type of business activity in his day today life and for running or

performing this business activity person needs money i.e. finance. So with the

help of finance person is able to run his business. Finance is the art and science

of managing money. Finance is the most important activity of a firm. Almost all

business activities directly or indirectly, involve the acquisition and use of funds.

Finance is function of raising and using money. This function has significant

effect on other functions. The function of raising funds, investing them in assets

and distributing returns earned from assets to shareholders are known as

financing decision investment decisions and dividend decisions.

FINANCIAL STATEMENT

Financial statement also called as financial reports, refers to such statement as

contain financial information of an enterprise. Thus these statements are

collection of data presented strictly according to logical and consistent

accounting principle. They are reports or statements of financial position and

operating results of an entire business at the end of accounting period. The basis

for financial planning analysis and design making is the financial information.

Financial information is needed to be predicted, compare and evaluate the firms

earning ability. It is also require aiding in economic. Making – investment and

finance decision-making. The financial information of an enterprise is containing

in the financial statement. These financial statements of a great significance to

owner, management and investors.

The basic purpose of preparing financial statements is to convey to owner,

creditor and the general public about the financial position of the enterprise.

All those interested in the enterprise use them as bases for decision. Thus,

the management may review the company’s progress to date and decide upon

the course of action to be taken in future on the basis of information contain in

the financial statements.

Three basic financial statements are:

Balance sheet

Profit and loss account

Cash flow statement

Financial statements provide a summarized view of the financial position

and operation of a firm. Financial statement provide useful information to

the extent that the balance sheet act as mirror in presenting financial

position on a particular date in terms of the structure of assets liabilities and

owners equity and soon the profit and loss account shows the results of

operations during a certain period of a time in terms of the revenues and the

cost incurred during the year. The main function of analyst is to find out

strengths and weakness of the business. The importance of financial analysis

is different for different users, such as investor, management, workers,

government, creditors etc.

SIGNIFICANCE OF RATIO IN FINANCIAL ANALYSIS

Ratios are among the best-known and widely used tools of financial

analysis. An absolute figure does not convey anything unless it is related with

relevant figure. Magnitude of current liabilities of a company does not tell

anything about solvency position of the company. Ratios make a humble attempt

in this direction.

Ratios are significant both in vertical and horizontal analysis. In vertical

analysis ratios help the analyst to form a judgment

Whether performance of the firm at a point of time is good, questionable or poor.

Likewise, use of ratios in horizontal analysis indicates whether the financial

condition of the firm is improving or deteriorating and whether the cost,

profitability or efficiency is showing an upward or downward trend. Financial

ratios became meaningful to judge financial condition and profitability of the

firm only when there is comparison. In fact, analysis of ratio involves two types

of comparison. First a comparison of present ratios with past and expected future

ratios for the same firm. When financial ratios for several preceding year are

computed, the analyst can determine in the financial position of the firm over the

period of time. In our report we will use following ratios.

ADVANTAGES OF RATIOS

1)Ratio’s simplify the comprehension of financial statements.They tell the whole story

as a heap of financial data is condensed in them.They indicate the changes in the

financial condition of the business.

2)They act as an index of the efficiency of enterprise .As such they serve sa an

instrument of management control .It is an instrument for diagnosis of the financial

health of an enterprise .The efficiency of the various individual units similarly situated

can be judged through interfirm comparisons.

3)The ratio analysis can be if invaluable aid to management in the discharge of it’s basic

functions of forecasting ,planning ,co-ordination ,communication and control .A study

of the trend of strategic ratio may help the management in this respect .past ratios

indicate trends in cost ,sales ,profit and other relevant facts.

4)The ratio analysis provides data for inter-firm comparison or intra-firm comparison.

Comparison cannot be made with absolute figures.net profit of one firm cannot be

compared with the net profit of the other firm. But the percentage of net profit s can be

compared to evaluate the performance. Similarly performance and efficiency of

different departments in the same firm can be compared with the help of ratios.

5) Investment decision can at times be based on the conditions revealed by certain

ratios.

6)They make it possible to estimate the other figure when one figure is known.

L IMITATIONS OF RATIO ANALYSIS

The ratio analysis technique has got number of advantages ,it attracts disadvantages

too.some of the limitations of the ratio analysis technic are as follows:-

1)The ratios of the other organisation may not be readily available.

2)Different accounting policies may be followed by the constituent organisation in the

industry .

3)The constituent organization in the same industry may vary from each other in terms

of age ,location ,extent of automation ,quality of management and so on.

4)The technique of ratio analysis may prove to be in adequate in some situation if there

Is difference of opinions regarding the interpretation

of certain items while computing certain ratios.

CHAPTER II

COMPANY PROFILE

Kirloskar Brothers Limited (KBL)

Established in 1888 and incorporated in 1920, Kirloskar Brothers Limited (KBL) is the flagship

company of the $2.2 Billion Kirloskar group. The core businesses of KBL are large Infrastructure

projects (Water Supply, Power Plants, Irrigation), Project and Engineered Pumps, Industrial Pumps,

Agriculture and Domestic Pumps, Valves, Hydro turbines, Power Generation and anti Corrosion

Products. KBL Sales in 2006-2007 exceeded US$ 480 Million with a market capitalization of more

than US$ 1.4 Billion.

KBL is India’s largest manufacturer and exporter of pumps and also the largest infrastructure pumping

project contractor in Asia. To its credit KBL has created the world’s largest pumping scheme which

will irrigate more than two million hectares of land and supply water to 4620 towns and villages in the

state of Gujarat in India (Sardar Sarovar Narmada Nigam Scheme). KBL also commissioned a water

pumping scheme called The Devadula Scheme in Warangal a town in Andhra Pradesh with the

world’s second highest head, supplying water to 4 drought prone socio-economically backward

districts which will bring about a green revolution there.

KBL is one of the world’s leaders in pump technology.

KBL is one of the three manufacturers in the world who have manufactured and installed 200

kW Canned motor pumps for nuclear application .

KBL is the first company to introduce Concrete Volute Pumps in India.

Our subsidiary company in England, SPP Pumps Limited (Acquired in 2003) is the undisputed

leader in the Fire-fighting and Water Supply segments in Europe and the Middle East. They have

recently launched lowest life cycle cost pumps in the UK successfully with large players like Thames

Water preferring these energy efficient products. Together KBL and SPP represent the world’s

largest fire fighting pump business for onshore and offshore applications.

Kirloskar Corrocoat Limited is another subsidiary of KBL which produces glass flake

coating thus increasing the efficiency of pumps as well as of pipes and ensuring no corrosion. This is a

patented product developed by Corrocoat, UK.

KBL’s wide range of centrifugal pumps i.e. end suction, split case, submersible, vertical turbine, self

priming, multistage etc. cater to various applications including irrigation, water supply, sewage,

drainage, fire fighting, booster services, cooling towers, sugar-industries, paper industries, chemical

and fertilizer plants, power generation and refinery and petrochemical sectors.

KBL JOURNEY

MAJOR SECTORS CATERED TO

Projects & Egg. Pumps Group

Turnkey Pumping Projects from Power, Water Supply & Irrigation

Valves Business Group

Water Supply, Irrigation

Power Sugar Industries

BUSINESS GROUPWISE PRODUCTS

INDUSTRIAL PUMPS

End Suction Pumps

Process Pumps

Solid Handling Pumps

Horizontal Splitcase Pumps

Multistage Pumps

Submersible Sewage Pumps

Inline Vertical Multistage Pumps (in Pressed Stainless Steel)

Mixed Flow Pumps

AGRICULTURE & DOMESTIC PUMPS

Monoblocks Single/Three Phase

Self Priming Pumps

Jet Pumps

Domestic Pumps

Bore well Submersible Pumps

End Suction Pumps

Vacuum Pumps

PROJECTS & ENGD. PUMPS

Concrete Volute Pumps

Metallic Volute Pumps

Vertical Pumps (Mixed, Axial Flow)

Splitcase Pumps (Large)

Canned Motor Pumps

Condensate Extraction Pump

Primary & Secondary Fast Breeder

Reactor Pumps for Heat Transfer

Hydro Turbines

VALVES

Sluice Valves

Butterfly Valves

Reflux Valves (Non-Return)

Foot Valves

Kinetic Air Valve

Steam Trap Device

CAPABILITIES - ALL FACILITIES UNDER ONE ROOF

Comprehensive Products Range

Research and Engineering

System Engineering

Procurement

Manufacturing – Pattern Shop, Foundry, Machining

Testing

Quality Assurance

Project management

Erection and Commissioning

Operation and Maintenance

STRATEGIC BUSINESS GROUPS (SBUs)

IPBG

Industrial Pumps Business Group, Kirloskarvadi

PEPBGProjects & Engineered Pumps Buiness Group,

Pune & Kirloskarvadi

VBGADPBG

Agricultural & Domestic Pumps Business Group, Dewas and Shirval

Valves Business Group, Kondhapuri

IPPInfrastructural Pumping Projects, Pune

IPBG

Industrial Pumps Business Group, Kirloskarvadi

PEPBGProjects & Engineered Pumps Buiness Group,

Pune & Kirloskarvadi

VBGADPBG

Agricultural & Domestic Pumps Business Group, Dewas and Shirval

Valves Business Group, Kondhapuri

IPPInfrastructural Pumping Projects, Pune

What is YAMUNA?

Projects & Engineered Pumps Business Group,Pune & Kirloskarvadi

IndustrialPumps

Business Group,Kirloskarvadi

Infrastructural Pumping Projects,

Pune

Agricultural & Domestic Pumps Business Group,

Dewas and Shirval

Valves Business Group, Kondhapuri

The very mention of ‘Yamuna’, brings to mind a picture of the river nurturing life along its course –

from the Champasar Glacier at an altitude of 4421 meters in Uttarakhand, where it originates, till it

meets the sea; leaving its imprint on earth, in ice and in water-carved stone.

Yamuna – it is this name that adorns our new premises in the memory of late Yamuna Kirloskar

(fondly called Yamutai) the very embodiment of the nurturing ways of the sacred river, she was named

after.

Yamutai, soulmate of S L Kirloskar, was a woman of substance. She played an active role in shaping

the Kirloskar Group, laying the foundation of sublime values and ethical enterprise; complementing,

her husband’s legendary business acumen in every which way. The new Business Center at Baner,

inaugurated on 10th April, 2009, has been named in Yamutai’s fond memory and honor. May it

continue to inspire us on our way to set many a milestone on the course to success.

CHAPTER III

OBJECTIVES OF THE PROJECT

Objectives of the Project

To understand practical interpretations of financial statement in

organization.

To identify FINANCIAL strength and weakness of the organization.

Analysis of various ratios for improvement of the company.

To identify the current situation of the company.

To obtain a true insight into financial strength of the company.

To draw the correct picture of the financial operations of the company in terms of liquidity ,turnover ,profitability ,solvency etc.

CHAPTER IV

THEORETICAL BACKGROUND

INTRODUCTION OF RATIO ANALYSIS

Nature of Ratios:

Numbers by themselves do not convey anything until they are related. Ratio is

defined formally as ‘the indicated quotient of two mathematical expressions.’

Ratio An operational definition of a financial ratio is the relationship between

two financial values. The word relationship implies that a financial ratio is the

result of comparing mathematically two values.

THEORY OF RATIO

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

classes. According to financial activity or functions to be evaluated.

Parties are interested in financial analysis are short and long term creditors owners and

management. Similarly owners concentrated on the firm’s profitability and financials

condition. Management is interested in evaluating every aspect of a firm’s performance.

They have to protect interest of all parties and see that the firm grows profitably. In

view of the requirements of various users of ratios, we may classify them into

following.

LIQUIDITY RATIO

A liquidity ratio measures the firm’s ability to meet current obligations. It is

extremely essential for a firm to be able to meet its obligations, as they become due by

establishing relationship between cash and other current assets to current obligation,

provide a quick measure of liquidity. A firm should insure that it does not suffer from

lack of liquidity also that it does not have excess liquidity. It is necessary to strike a

proper balance between high liquidity and lack of liquidity.

The most common ratios, which indicates the 3extent of liquidity or lack of it are

(I) current ratios

(II) quick ratios

(I)Current ratios:

Current ratios expresses relationship between current assets(cash, marketable

securities, inventories, debtors, accounts receivables) and current liabilities (account

payable, creditors, bills payables accrued expenses, short term bank loan ,income tax

liabilities etc.)

The current ratio is measure of firm s short term solvency. It indicates the

availability of current assets in rupees for every one rupee of current liability. From

management point of view higher current ratio is indicative of poor planning since an

excessive amount of funds lie idle. On contrary, a low ratio would mean inadequacy of

working capital which may deter smooth functioning of enterprises.

Current ratio is calculated by this formula

Current assets Current ratio = ------------------------------------- Current liabilitiesA current ratio of 2:1 is considered as satisfactory for sound business.

(ii)Quick ratio

It is a measure of judging immediate ability of the company to pay off its current

obligations. Quick ratio, also called as acid test ratio, establishes a relationship between

quick, and liquid and liabilities. An asset is liquid if it can be converted in to cash

immediately or reasonable soon without a loss of value. Cash is most liquid asset. Thus

quick current asset consist of cash, marketable securities and accounts receivables.

Inventories are excluded from quick assets because they are slower to converting to

cash and generally exhibit more uncertainly as to the conversion price.

By using this ratio as a measure of immediate ability to pay off its short term

obligations. Quick ratio is calculated by

Current assets-inventories Quick Ratio = ------------------------------------

Current liabilities

A quick ratio of 1:1 is usually considered adequate.

LEVERAGE RATIO:

Leverage ratio are generally design to measure the contribution of company owners vis-

à-vis the funds provided by its creditors. The leverage ratio are capital structure ratio

may be defined as financial ratio which throw light long term solvency of the firm as

reflected in its ability to assure long term lenders with regard to

(A) Periodic payment of interest during the period of loan and

(B) Repayment of principal on maturity or in pre determined installment at due

dates.

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

structure ratios are calculated. As a general rule there should be an appropriate mix of

debt and owners equity in financing the firm assets.

Following is the type of leverage ratio

(I)Debt equity ratio:

Debt-equity ratio reflects the relative claims of creditors and shareholders against the

assets of the firm. Alternatively this ratio indicates the relative proportion of debt and

equity in financing the asset of the firm.

Relationship describing the lenders contribute for each rupee of the owners

contributes is called debt-equity ratio.

It is computed by dividing total debt by total net worth i.e.

Total debts Debt Equity Ratio = ------------------- Net worth

If the ratio is greater it would mean creditors have more invested in the business

than the owners. These mean creditors would suffer more in times of distress than

owners. That is why creditors prefer low debt equity ratio.

TURNOVER RATIO:

Funds of creditors and owners are invested in various assets to generate sales and

profits. The better management of asset, larger the amount of sales. Turnover ratios are

employed to evaluate the efficiency with which the firm manages and utilizes its assets.

This ratio indicates the speed with which assets are being converted or turn over in to

sales. It involves relationship betwee4n sales and assets. A proper balance between sales

and assets generally reflects that assets are managed well.

Following several activity ratios can be calculated

Working capital turnover ratio

Inventory turnover ratio

Total assets turnover ratio

Working capital turnover ratio

The ratio camper the net sales with net working capital. The indication given by the

ratio is number of times working capital is turned around in a particular period. It is

calculated by dividing sales by net working capital.

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

The higher the ratios the better is the utilization of working capital as well as lower the

investment in working capital. However, a very high working capital turnover ratio is a

sign of overtrading and a firm may face shortage of working capital.

Inventory Turnover Ratio:

This ratio indicates the no of times inventory is replaced during the year. It measures the

relationship between the costs of goods sold and inventory level. This ratio indicates the

efficiency of the firm in producing and selling its product.

It is calculated as follow.

Sales Inventory Turnover Ratio = --------------------- Inventory

High inventory turnover ratio is indicative of good inventory management.

Total Asset Turnover Ratio:

Assets are used to generate sales. The relationship between sales and assets is called

Total Asset Turnover Ratio. Asset turnover ratio measure the efficiency of a firm in

managing and utilizing its assts.

It is calculated as follow.

Sales Total Asset Turnover Ratio = --------------------- Total Assets

The higher the total asset turnover ratio the more efficiency of a firm in managing

utilization of assts while low turnover ratio are indicative of under utilization of

available resource and presence of idle capacity.

PROFITABILITY RATIO:

A company should earn profit to survive and grow over a long period of time. Profits

are essential. Profit is the difference between revenue and expenditure over a period of

time. Profitability ratios are calculated to measure the operating efficiency of the

company.

Following are the different types of ratio.

Gross Profit Ratio.

Net Profit Ratio.

Return on asset.

Gross Profit Ratio:

Gross Profit Ratio reflects the efficiency with which management produces each unit of

product. This ratio indicates average spread the cost of goods sold and the sales

revenue.

It is calculated as follow.

EBIT Gross Profit Ratio = ------------------- SalesA high gross profit ratio is sign of good management.

Net Profit Ratio

Net Profit Ratio establishes relationship between net profit and sales and indicates

management’s efficiency in manufacturing, administrating and selling the products.

This ratio is the overall measure of the firm’s ability to turn each rupee of sale into net

profit. This ratio also indicates the firm’s capacity to withstand adverse economic

condition.

It is calculated as follow.

PAT Net Profit Ratio = ----------------- Sales

A firm with a high net margin ratio would be in an advantageous position to survive in

the face of falling selling prices, rising cost of production or declining demand for the

product.

Return on investment:

The term investment may refer assets or net assets. The funds employed in net assets as

capital employed. The conventional approach of calculating return on investment is to

divide PAT by investment. Investment represents pool of funds supplied by share

holders and lenders, while PAT represents residue income of share holder. Therefore

PAT dose not reflect the return on investment.

CHAPTER V

RESEARCH METHODOLOGY

Research

“Research is a careful investigation or inquiry through search for the new

facts in any branch of knowledge. it is a systemized effort to gain more knowledge”.

Research Methodology

“Research Methodology is a way to systematically solve the research

problem .It includes not only research methods, but also logic behind using the methods

.It shows the type of sample design used, its size and the procedure used to draw the

sample”.

Collection of data is very important activity. If data is inaccurate

and inadequate the whole analysis may be faulty and decision taken should be wrong so

to avoid this data should be accurate.

There are two types of data

1) Primary Data

2) Secondary Data

1) SOURCES OF PRIMARY DATA :

Primary data were obtained from the officers of various departments of the

company by way of interviews and formal discussion.

By conducting an interview of the finance head, information was collected

about the working of the finance department, types of ratios to be calculated, and the

number of the years for which the comparison is to be made.

The information about the organization structure of the company, number of

employees has been obtained from personal manager, Mr. Rajawade by the way of

personal interview.

Discussions with the staff of the company were also held for additional

information whenever required during the project.

2) SOURCES OF SECONDARY DATA:-

The important sources of the secondary data were annual reports, financial

statements and reference books. The balance sheets and profit and loss accounts for the

past three years were taken from the annual reports of the company, which were made

available to me by account department. I was also given access to financial records of

the company for required data. Other information was collected from the various

reference books, which were available in the college library.

Research Methodology

This study is based mainly on the data collected from the annual report of the

company. This study cover a period of 3 year taking into account for

consideration the relating to the financial year 2006-2007 to 2008-09.

Primary source: For study of ratio analysis data is made available

discussions with staff members of the organization.

Secondary source: As the company’s reports and records provide the

information about the past business performance. Information about the

company’s progress is collected through companies financial statements

i.e. balance sheet and profit and loss account. The data is secondary in

nature in the form of annual reports of the company.

CHAPTER VI

DATA ANALYSIS

DATA ANALYSIS

Current Ratio

Current assetsCurrent Ratio= ----------------------------- Current liabilities

(Rs. In lakhs)Year 2006-07 2007-08 2008-09

Current assets 10464465 11106340 10464465Current liability 7937904 7923787 9491467Current ratio 1.31 1.40 1.10

INTERPRETATION:

Current ratio of Kirloskar Brothers limited for period is in increment trend which

indicates company is running in sound condition.

INVENTORY

Year 2006-07 2007-08 2008-09inventory 870812 1329886 1556655

INTRPRETATION:

This graph show increase in inventory in every year increasing but there are ¾ increases

in year 2008-09.

CASH AND BANK BALANCE

(Rs. In lakhs)

Year 2006-07 2007-08 2008-09Cash & bank

balance 494807 758728 99949

INTERPRTATION:Cash & bank balance is increasing per year and it’s good sign for liquidityFor working capital expenditure.

Quick Ratio

(Current Assets-Prepaid Exp) i.e. Quick Ratio= ---------------------------------------------- (Current Liability –Bank Overdraft) (Rs. In lakhs)

Year 2006-07 2007-08 2008-09Quick assets 9593653 9776454 8907810

Current liability 6292661 7923787 9491467Quick ratio 1.52 1.23 0.938

INTERPRETATION:

Quick Ratio is more penetrating from the year 2006-07. As higher the liquid ratio better

will be the situation of the company .

Debt Equity Ratio

Long term debtsDebt equity ratio= ------------------------------------------------------------ Share holder’s funds + Reserves & surplus (Rs. In lakhs)

Year 2006-07 2007-08 2008-09L. T. Debts 1352964 1566515 1808661S.H. Fund 6020254 6576519 6999327

Ratio 0.224 0.238 0.258

INTERPRETATION:

Debt equity ratio should not be more than twice the equity. This indicates the company

is taking efforts to reduce their debts. This shows that company is depend on internal

resources as compare to external borrowings.

SECURED LOAN (Rs. In lakhs)

Year 2006-07 2007-08 2008-09secured loan 1352964 1566515 1808661

INTERPRETATION:

There is decrease in secured loan in 2006-07. There is high increase in secured loan in

2007-08 because of taking high amount of loan from bank.

Working capital turnover ratio

Net sales Working capital turnover ratio = -------------------------------- Net working capital

(Rs. In lakhs)

Year 2006-07 2007-08 2008-09Net Sales 13399512 15251461 18309447Net W.C 876767 1960371 2526561Ratio 15.28 7.78 7.25

INTERPRETATION:

From above table we see that ratio has increased from 2006-07 and there is a fall

in year 2007-08 & 2008-09.Higher the ratio better utilization of working capital as well

as lower the investment in working capital. There is lower W.C turnover ratio in 2006-

07 & 2008-09 which shows that company is not using properly there working capital.

NET SALES

(Rs. In lakhs)

Year 2006-07 2007-08 2008-09sales 133990 152140 183094

INTERPRETATION:

Sales of the company is increased per year ,that indicates continuos change are

made in product marketing division &company is increasing market potential.

WORKING CAPITAL

(Rs. In lakhs)Year 2006-07 2007-08 2008-09Working capital 876767 1960371 2526561

INTERPRETATION:

There is increase in working capital. This shows that there is working capital

Blockage

Inventory turnover ratio

SalesInventory Turnover Ratio: ------------------------- Inventory

(Rs. In lakhs)

Year 2006-07 2007-08 2008-09Sales 13399512 15251461 18309447

Inventory 870812 1329886 1556655Ratio 15.38 11.46 11.76

INTERPRETATION:

It is clear from table that the inventory turnover ratio is maintained at the

optimum level, which will help the company having lesser stock holding period.

Higher inventory turnover ratio indicates that maximum sales turn over is achieved

With minimum investment in inventory.s

PROFITABILITY RATIOS

GROSS PROFIT RATIO

EBIT Gross Profit Ratio = ---------------- x 100 Sales

(Rs. In lakhs)

Year 2006-07 2007-08 2008-09EBIT 3750135 1500406 982203sales 13399512 15251461 18309447Ratio 27.98 9.83 5.36

INTERPRITATION:As gross profit is increased in 2006-07 it is able to produce or purchase at a Relative lower cost .In 2007-08 ,2008-09 gross profit decreased that indicates theOrganization is able to produce or purchase at a relatively higher cost.

NET PROFIT RATIO

PATNet profit ratio= ------------------- x 100 Sales

(Rs. In lakhs)

Year 2006-07 2007-08 2008-09PAT 3364917 1101366 670286Sales 13399512 15251461 18309447Ratio 25.11 7.22 3.66

INTERPRITATION:

In year 2006-07s net profit increases more than double as compared to last year. There

is fall in net profit in year 2008-09. As a consequence net profit will decline unless

operating expenses decrease significantly.

RETURN ON TOTAL ASSET Net profit after tax *100 = Total asset

Year 2006-07 2007-08 2008-09PAT 3364917 1101366 670286

TOTAL ASSETS

3817032 3285148 4322670

Ratio 88.15 33.52 15.50

CHAPTER VII

OBSERVATION AND FINDINGS

OBSERVATIONS AND FINDIDNGS

Current ratio of KBL is increasing but not up to the marks. This means the

current assets are more than current liability that indicates funds are blocking in

inventory.

A high debt equity rate may indicate that the financial stake of creditors is more

than that of owner .A low debt equity ratio may mean that the borrowing capacity

of the organization is being under utilized.

Working capital turnover ratio indicates that company is investing more in

working capital,but there is blockage in inventory.

Inventory turnover ratio states that presently company is not attending on the cost

reduction that is why the inventory turnover ratio is low.

There is fluctuation in total assets turnover ratio. But in the year 2008-09 it is

decrease as compared to previous year which indicates that assets are not utilized

properly.

There is a huge increase in gross profit for the year, 2006-07.but in the year 2008-

09 gross profit is low because company is incurring more in direct expenses.

CHAPTER VIII

CONCLUSION AND SUGGESTION

CONCLUSIONS

From the overall study of the ratio analysis of the Kirloskar Brothers limited we

can conclude that Kirloskar Brothers Limited’s financial strength, liquidity, profitability

and efficiency is sound. And the company is moving towards the achieving the new

heights in the coming years. Financial position of the company is sound which will help

to generate funds available to the company, and the demand of the market share will be

good. The company has got sufficient assets to pay off short –term debts as and when

they fall due thus has sufficient short term liquidity.

S uggestions

Kirloskar Brothers Limited should examine present level of fixed cost

which is very high.

Find out ways of earning more revenue by effective use of fixed assets.

Other Assets should be used in full capacity.

Company has blocked its money in inventory which should be reduced.

Working capital management is also requiring for a company to reduce

the investment in working capital.

Company should focus on improving inventory management.

ANNEXURE

BIBILOGRAPHY

BIBLIOGRAPHY

Company Annual Report

www.kbl.co.in

Google Search Engine.

Books Referred

Financial Management - Khan & Jain

Financial Management - Prof.N. M. Vechalekar

Financial Management – Prof. S. M. Inamdar