A Project Report On

Financial statement analysis, Surat

Krishak Bharti Cooperative Limited By

Vipin Kushwaha

Submitted to

University of Pune Impartial fulfillment of the requirement for the award of the degree of Master of Business Administration (MBA)

Through

MBA Department Matrix School of Management Studies Pune-41 (20122014)

ACKNOWLEDGEMENT

I am highly indebted to _(Company name) for giving me this opportunity to do my internship project in their esteemed organization. It has contributed immensely to my learning. I would like to thank my external guide__ completing my project. _ for giving me the required support in

My profound gratitude towards our Director, Dr . Satish S. Ubale for giving me valuable guidance, suggestions and advice without which this project could not have been completed. I would also like to thank my internal guide ------------------ for giving me the necessary insight into my study.

Name of the Student

INDEX

Acknowledgement Contents List of Tables List of Figures List of abbreviations Executive Summary Chapter1 Chapter2 Chapter3 Chapter4 Chapter5 Chapter6 Chapter7 Introduction Company Profile Research Methodology Theoretical Background Data Analysis and Interpretation Findings and Recommendations Conclusion Bibliography Annexure

i ii iii iv v

List of Tables

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13

Title Current Ratio Net working ratio Quick ratio Cash to current liability ratio Proprietary ratio Debt equity ratio Solvency ratio Net profit ratio Return on asset ratio Return on shareholder equity Inventory turnover ratio Debtor turnover ratio Creditor turnover ratio

Pg. No.

Executive Summary

Project is as opportunity given to management studies where one gets an insight into the practical aspects in the day to day working of an organization. Its imparts a real time environment to the theoretical knowledge that one acquires in a business school. The project was undertaken to conduct a detailed study on various aspects of ratio analysis. The project work was started with the study of annual reports which include study of balance sheet, profit and loss account of five years. Various ratio was taken into consideration and on that basis of analysis where made. Finance is the life blood of business. Finance and industries are strongly interrelated and inseparable from each other. Financial analysis helps to assess about the strength and weakness of firm. For this purpose I choose my project title namely Financial statement analysis of KRIBHCO ltd. The main objective of study is to ascertain the financial performance through RATIO ANALYSIS with the help of secondary information such as balance sheet and profit and loss account. The findings, suggestions and recommendation will be discussed in fourth coming chapter. Ratio analysis isnt just comparing numbers from balance sheet and cash flow statement. Ratio looked at the relationships between individual values and relates them how a company has performed in the past and might performing future.

INTRODUCTION

1.1

Introduction to financial statement analysis

Definition of Financial statement: A financial statement is a formal record of the financial activities of a business, person, or other entity.

For a business enterprise, all the relevant financial information, presented in a structured manner and in a form easy to understand, are called the financial statements.

Definitions of the Finance statement analysis: Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account.

There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.

Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements.

Nature and component of Financial Statement: Companies issue annual reports after the close of each fiscal Year financial statement are at the center of the annual report. Other component of the annual report is the board of directors report, management discussion and analysis (MDA), corporate governance report and voluntary disclosures. Board of director report provides an analysis of the performance of the company during this fiscal Year covered in the report. MDA provides futuristic information such as management perceptions about the business averment in the next and subsequent fiscal Year company strategy to take advantage of future opportunities and to face potential threats, and the risk management strategy corporate governance code.

Component of financial statement: Balance sheet- which lists the assets, liabilities and equity at the balance sheet date, thus provides information on the financial position of the company at the end of the fiscal Year.

Income statement -Profit and loss account-which list out income and expenses for the fiscal Year and thus provides information on the operating result for the fiscal Year, Cash flow statement- which present cash flow from operating activities, investing activities, and financial activities during the fiscal Year. Accounting policies and explanatory notes- which provide explanations and clarification to facilitated understanding of number appearing in financial statement and also additional information that is relevant user of financial statement

Ratio analysis: Meaning: Ratio analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account.

Users of ratio Analysis: Trade Creditors: They are interested in firms ability to meet their claims over a very short period of time. Their analysis will, therefore confine to the evaluation of the firms liquidity position. Long term debt supplier: They are concerned with the firms long term solvency and survival. They analyze the firms profitability over time. Its ability to generate cash to be able to pay interest and repay principal and the relation between various sources of fund. Investors: They are the people who invested their money in the firms shares are most concerned about the firms earnings. They restore more confidence in those firms that show steady growth in earnings. They are interested in firms earning ability, risk, present and future profitability.

Management: The management is interested in overall financial analysis. It is their responsibility to see that the resources are used effectively and efficiently. And firms financial condition is sound. Standards of comparison may be

Past Ratios: i.e. ratios calculated from the past financial statements of the firm.

Competitors Ratios: i.e. ratios of some selected firms, especially the most progressive and successful competitor, at the same point of time. Industry Ratios: i.e. ratios of the industry to which the firm belongs. Projected Ratios: i.e. ratios developed using the projected or pro forma, financial statements of the firm. Following are the few ways of analyzing the firms financial ratio: Time series or Trend analysis, the easiest way to evaluate the performance of the firm is to compare its present ratios with the past ratios. When financial ratios over the period of time are compared, it is known as time series or trend analysis. It gives an indication of the direction of change and reflects whether the firms financial performance has improved, deteriorated or remained constant over the time.

1.2

Objective of financial statement

Useful Information: The financial statement of business enterprise should provide information, within the limits if financial accounting that is useful to present financial position of company.

Potential investor and creditors use these statements in making rational investment and credit decision. Financial statement should be comprehensible to investor and creditors who have a reasonable understanding of business and economic activities. In a financial accounting and who are willing to spend the time effort needed to study financial statement.

Required and sufficient information: Financial statement of business enterprise should provide information that help investors and creditor to asses the prospect of receiving cash in form of dividend or interest and from the proceeds from the sale, redemption or maturely of security or loans. Their prospects are ability to obtain enough cash through its earning and financial activities to meet its obligation when due and its other cash operating needs, to reinvesting earning resources and pay cash dividend above perceptions of investor and creditors.

Primary Information: The financial statement of a business enterprise should provide information about the economics resources of an enterprise which are sources of prospective cash inflow to the enterprise to its obligation to transfer economic resources to other which are cusses of prospective cash outflow from enterprise earning which are the financial result, which are the financial result of its operation and other events and conditions that effects the enterprise

since that in information income statement useful to investor and creditors in assessing and enterprise income statement ability to pay cash dividend, and interest and to settle obligation when they mature it should be the focus of financial accounting and financial statement.

1.3

Limitation of financial statement

They are essentially internal report and therefore, cannot be fined because the actual gain or loss of a business can be determined only when it is sold or liquidated. The allocation of revenue cost to an account. Period involve personal judgment. The problem involve the achievement of satisfaction matching of cost with revenue and cost transaction flow continuously thought the life of a business enterprise yet they must be cut off at each balance sheet.

The financial statement shows exact amount, which gives an impression of finality and which gives impression may ascribe to those amount the is own concept of value where as the statement may have been set up on basic of value different value standard. Passels does the stated quay on assets represent the amount of cash that would realized on liquidation even the cash balance would be reduce in the expenses incidental to the basin come statement of a going concern concept where it income statement assumed that the enterprise statement will continue in business. Fixed assets are customarily stated at historical revenue in the income statement by way of deprecation.

Both the balance sheet and income statement reflect transaction that involves money value of the many date under in factionary condition. The deprecation against current revenue by companies may be in inactive of current economy realities and increase in sales volume stated in rupees may or may not be the result of a larger no. or unit. Financial statement do not reflect many factory which affect financial condition and operating result, because they cannot be stated in term of money such

COMPANY PROFILE

2.1

Introduction

Krishak Bharati Cooperative Ltd. (KRIBHCO) is a Multi-state Cooperative Society registered under the Multi-State Cooperative Societies (MSCS) Act, 2002 (39 of 2002) and is a fertilizer production unit in the Cooperative Sector and as per item 5 of Schedule II to Rule 3 of the Government of India (Allocation of Business) Rules is under the administrative responsibility of the Department of Fertilizers. KRIBHCO is primarily a fertilizer production cooperative having production unit at Hazira (Surat) in the state of Gujarat. The capacity of the plant is being revamped to produce additional 4.65 Lakh MT of Urea.The total Urea production capacity shall be 21.65 Lakh MT of Urea after revamp.

KRIBHCO had also entered into Logistics Business, Oman India Fertilizer Complex (OMIFCO), Diversification into Power Sector, Insurance Sector etc. OMIFCO is the first overseas JV project of the company in which KRIBHCO holds 25 % equity. Besides, KRIBHCO has also made realignment in its corporate strategy and internal operations revamping to meet the challenges in the liberalized/globalized economy. Illustration for this is turn-around of loss making KrishakBharatiSeva Kendra (KBSKs) and Seed Processing Units (SPUs) into profit centers. Marketing Division of the society, besides marketing about 18.00 Lakhs MT of urea produced annually at our plant in HAZIRA since commencement of production in 1986, is also handling and marketing about 10.00 Lakhs MT of Urea produced by OMIFCO ( KRIBHCO is one of the promoter of the company) annually since

2005-06. In 2006, KRIBHCO also acquired SahajanpurFertiliser Complex through its joint venture company KSFL (KRIBHCO holds 85% of the share in the JV), and about 10.00 Lakhs MT of urea produced annually by this plant is being marketed by KRIBHCO since 2006. At present KRIBHCO is marketing about 38.00 Lakhs MT of urea annually which is about 14% of the total urea consumption of the country. The marketing division of the society is fully geared up to market the likely additional quantities of about 5.00 Lakhs MT of urea from next year after revamp of our plant at HAZIRA. The operation of fertilizer industry particularly indigenous manufacturers changed significantly on implementation of NPS-stage III policy and implementation of NBS (from 01-04-2010). In Light of conducive and stable policy frame work, KRIBHCO is perusing import and marketing of other fertiliser material like DAP and MOP. The Society plans to import and market about 4.00 Lakhs MT of DAP during 2010-11. Society is planning to increase import of DAP and MOP to about 9.00 Lakhs MT annually in next 3 years. Keeping in view importance of the Quality Seeds in enhancing the agricultural production, KRIBHCO initiated Seed Multiplication Programme in the year 1990-91 to provide quality seeds of the crops and varieties of Public Hybrid (Public Varieties) to the farmers through KBSKs in the State of UP, Punjab and Haryana. Encouraging response of farmers towards KRIBHCO Seed has prompted the Society to expand its activities in 6 States and have 14 production units. The Society stepped up production programme from 2926 Qtls. in 1991-92 to 2.29 lakh Qtls. in 2009-10. KRIBHCO has plan to almost double the certified seed production and marketing in next 3-5 years. To promote the organic agriculture in the country, Government has initiated several initiatives like promotion of use of bio-fertilisers, bio-compost etc. KRIBHCO has been promoting the use of bio-fertilisers since many years. The society has three units to manufacture bio-fertilisers at Hazira (Gujarat), Varanasi (Uttar Pradesh) and Lanjha (Maharashtra). All four popular bio-fertilisersi.e Rhizobium, Azotobactor, Azossprillium and Phosphate Soluable are produced and marketed by KRIBHCO. The Society has plans to sell around 1000 MT of bio-fertilisers during 2010-2011, which is likely to increase to about 1200 MT in next 3-5 years. Organic Agriculture has emerged as a feasible option to concern relating to land degradations. As per the GOI directives, all fertiliser suppliers are expected to promote the use of Bio-Compost by involving actively in the marketing of the product. KRIBHCO has sufficient human resources and credible brand image to market Biocompost. This will also help the society to generate additional margins. During the year 2010-2011 we plans to market about 19,000 MT of bio-compost which is expected to increase to about 50,000 MT in next 3 years. In a nut shell KRIBHCO, worlds premier fertilizer producing cooperative has an outstanding track record to its credit in all spheres of its activities. KRIBHCO has fully imbibed the cooperative philosophy and has made sustained efforts towards promoting the cause of modern agriculture and cooperatives in the country. Kribhco stands for commitment sincerity and high standards of excellence. In our endeavor towards achieving our goals we are impelled by the ideals set by our predecessors and the devotion and dedication of our employees.

2.2 1. 2. 3. 4. 5. 6.

Objectives of kribhco To strengthen cooperative system To enhance the urea installed capacity and increasing its market share To ensure optimum utilization of existing plant and machinery To diversify into other core sectors like Power, Port, Infrastructure, Rural Retail, etc Transfer of technology for modern farming and improving farmers'livelihood To educate and train farmers, provide free testing facilities for soil nutrients and irrigation water

2.3

Mission and vision of kribhco

Mission To act as a catalyst to agricultural and rural development by selecting, financing and managing projects that are both socially desirable and commercially profitable.

Vision To become a world class organization that represents the farmer community and maximizes their returns through specialization in agricultural inputs, rural need based products and other diversified businesses that maximize stakeholders value.

1 Name of the Organization 2 Plant Office

Krishak Bharati Cooperative Limited, abbreviated KRIBHCO

PO: Kribhco Nagar, Hazira Road, Surat 394 515 Phone-2320034 A-8-10, Sector 01, Noida, Distt. G. B. Nagar, U.P.

3 Head Office

4 Registered Office 49-50, Nehru Palace, New Delhi-19 5 Type of Organization 6 Product Society is registered under Multi-State Co-operative Societys Act-1984 and under the Administrative Control of Department of Chemical & Fertilizer, Govt. of India. Manufacturing Nitrogenous Fertilizers and Allied Products Viz: Urea, Ammonia Liquid, Bio-Fertilizer, 30 Mega Watt Power Plant, Operation and Maintenance of Heavy Water Plant of Department of Atomic Energy.

7 Board of Directors

Chairman Vice Chairman Directors

Shri V. R. Patel Shri Chandra Pal Singh Dr. Bijender Singh Shri V. Sudhakar Chowdary Dr. Sunil Kumar Singh Smt. Shailajadevi D. Nikam Shri Pareshbhai R. Patel Shri B. D. Sinha Shri Ponnam Prabhakar

Managing Director Finance Director Marketing Director

Shri Amar Prasad Shri G. P. Rao Shri S. S. Khare

RESEARCH METHODOLOGY

2.1

Objectives

Primary objective: Financial statement analysis seeks to evaluate the performance, financial strength, ability to generate enough cash and the growth outlook of a company.

Secondary objectives: Financial statement analysis helps the company to know the adequacy or profits earned by the company. We can know the financial strength of the company by analyzing financial statements. Analysis of financial statements helps to generate enough cash and cash equivalents and the timing and certainty of their generation The future growth outlook of company can be known by doing financial statement analysis.

Methodology: The adoption of proper methodology is an essential step in conducting my project work. The tactical question is to be considering after finalizing our objective what sources are available? and what resources should be used? to acquire the desired information.

Research Design: In the financial statement analysis of KRIBHCO within these five years, descriptive research design is to be used to interpret the financial position of the company.

Data collection: Data collection is the most important part of any project. And from where those data are takenis also very important. For my project work I have used secondary data as the main basic of my study. These data is collected from internet. I had collected the last fiveyears annual report of the KRIBHCO from where I get profit & loss account and balance sheet of company that I had selected for my report for financial statement analysis.And I also used books for analyzing of the financial statements to gain more knowledge about financial ratios.

Finding and analysis: After collecting the data I did ratio analysis and cash flow statement analysis. This gives the detail of the companys current and past position

2.2

Tools and Techniques of Final Statement

Ratio Analysis Cash flow statement

2.3

Interpretation of the Analysis

In interpretation I have done intercompany comparison of five year data of krishakbharti co-operative ltd. Through this comparison I came to know about the financial performance of the krishakbharti co-operative ltd. within these five years.

2.4

Limitations

As the data available to me, has been taken from the secondary sources, it is not sure that collected data are accurate and complete.

It was not possible to collect some data which are very essential for analysis of financial statement during the project work due to the non-cooperation of higher and middle level management. Due to lack of experience about financial statement analysis practically, it cant be said that the projection has been made totally correct and accurate.

As the time period is fixed, so financial statement analysis has been done only of five Years. This may led to misinterpretation of the industry.

Ratio Analysis

5.1

Current ratio

Current ratio is the most common ratio for measuring liquidity. Current ratio expresses the relationship between current assets and current liabilities. The current ratio is calculated by dividing current assets by current liabilities:

Current ratio =

Current assets Current liabilities

Current assets include cash and those assets which can be converted in to cash within a Year such as marketable securities, debtors, inventories etc. Prepaid expenses are also included in current assets. All obligations maturing within a Year are included in current liabilities. Current liabilities include creditors, bills payable, accrued expenses, short term bank loan, income-tax liability and long term maturing in current Year.

Current assets Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Rs. In lakh 173195.07 142759.77 120501.89 105963.93 77215.64

Current liabilities Rs. In lakh 49858.31 50776.12 54605.03 60486.47 36162.31

Current ratio

3.47:1 2.81:1 2.21:1 1.75:1 2.135:1

Current ratio
3.5 3 2.5 2 Current ratio 1.5 1 0.5 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

INTERPREATION:As we know the ideal current ratio is 2:1. And in the Year 2007-2008 the current ratio is very high. More over the debtors turnover ratio was very low.

Due to more debtors the proportion of current assets is comparatively higher then previous year.

The KRIBHCO has higher current ratio in all years as compared to the ideal ratio except 2010-2011. This shows the strong liquidity position of the company. But the higher ratio indicates higher cash blocking in current assets.

Even the current ratio is decreasing the liquidity position of the company is strong. The ratio is coming nearer to ideal ratio, which shows good turnover of current assets.

5.2

Net working capital ratio:

The difference between current assets and current liability is called net working capital. It is measure the liquidity position of company. Net working capital ratio is calculated by dividing net working capital by net assets.

Net working capital ratio =

Net working capital Net assets

Net working capital Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Rs. In lakh 123336.76 91983.65 65896.86 45477.46 41053.33

Net assets Rs. In lakh 260323.58 264658.61 271398.96 314247.82 500114.64

Net working capital ratio

0.47:1 0.35:1 0.24:1 0.14:1 0.08:1

Net working capital ratio

0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Net working capital ratio

INTERPREATION:The net working capital ratio of the company is reducing. The net working capital is reducing as compared to net assets. But the company has sufficient working capital.

In before years the investment in working capital is very high. Now a day the working capital ratio is decreasing, but the company has enough current assets to fulfill its current obligation. So even the working capital ratio is decreasing the companys financial position is not affecting.

The financial position of company is improved. And the ratio shows the effective utilization of working assets.

5.3

Quick Ratio

Quick ratio establishes relationship between quick or liquid assets and current liabilities. The quick ratio is found out by dividing quick assets by current liabilities. Quick ratio = (Current assets - Inventories) Current liabilities An asset is liquid if it can be converted into cash immediately without a loss of value. Cash is the most liquid asset. Other assets which are considered to be relatively liquid and included in quick assets are debtors, bills receivable and marketable securities.

Inventories are considered to be less liquid. Inventories normally require some time for realizing into cash; their value also has a tendency to fluctuate. (Current assets Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Inventories)Rs. In lakh 151790.25 124209.14 108709.87 85340.07 54045.44 Current liabilities Rs. In lakh 49858.31 50776.12 54605.03 60486.47 36162.31 3.04:1 2.446:1 1.99:1 1.41:1 1.5:1 Quick ratio

Quick ratio
3.5 3 2.5 2 Quick ratio 1.5 1 0.5 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

INTERPRETATION:Current ratio may be misleading, in spite of favorable current ratio, a firm may not be able to pay off its creditor in time due to larger proportion of stock in current assets in such a cash liquid ratio will be more reliable and safe guide. The quick ratio of 1:1 is considered satisfactory as a firm can easily meet all current climes. The quick ratio of KRIBHCO is higher than ideal ratio.

The quick ratio of KRIBHCO is 1.5:1 in 20011-2012. It is higher as compared to previous years ratio and it is also higher than ideal ratio. It shows a sound financial position. The KRIBHCO sound liquidity position.

5.4

Cash to Current Liabilities Ratio

Since cash is the most liquid asset, a financial analyst may be examining cash ratio and its equivalent to current liabilities. Trade investment or marketable securities are equivalent of cash; therefore, they may be included in the computation of cash ratio:

Cash ratio =

Cash + Marketable Securities Current Liabilities

Marketable Securities = NIL

Year

Cash Rs. In lakh

Current Liabilities Rs. In lakh 49858.31 50776.12 54605.03 60486.47 36162.31

Cash Position Ratio

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

90504.27 83456.18 82227.13 41767.74 38049.63

1.82:1 1.64:1 1.51:1 0.69:1 1.05:1

Cash Ratio
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Cash Ratio

INTERPREATION:The ideal cash position ratio is 1:1. The companys cash position ratio is higher then the ideal ratio except in 2010-2011. It shows that the company has more cash on hand then current liability. So the company is able to pay its current liability in time.

The ratio has decreasing trend throughout the last four years. The cash position ratio is 1.05:1 of 2011-2012. This shows the company has 1.05 times cash on hand as compared to current liability.

Even high cash on hand we cannot say that the company has idle fund because the company have to pay its some creditors within some days. So the company must have to keep some higher cash on hand for emergency purpose.

5.5

Proprietary Ratio

Proprietary ratio is relates the shareholder fund to total assets. This ratio shows the long term solvency of the business. It is calculated by dividing shareholders fund by the total assets. Proprietary Ratio = Shareholders fund Total assets or total resources

shareholders fund Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Rs. In lakh 237851.08 254940.72 269712.84 282555.89 292228.96

Total assets or total resources Proprietary ratio Rs. In lakh 260323.58 264658.61 271398.96 314247.82 500114.64 0.91:1 0.96:1 0.99:1 0.90:1 0.58:1

Proprietary ratio
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Proprietary ratio

INTERPREATION:-

The ideal Proprietary ratio is 1:3. The KRIBHCO has the ratio of 0.58:1 in 2011-2012.

Most of the assets are financed by the Proprietors. The company is very less depending on outside fund. This shows the long term solvency position of the company and the higher secure position of creditors.

The fluctuation of the ratio is due to increase in the total assets. Shareholders fund is also increasing. This states that there is not too major fluctuation in this ratio.

5.6

Debt Equity Ratio

The financing of total assets of a business concern is done by owners equity(also as internal equity ) as well as outside debts (known as external equity) the relationship between borrowed fund and owners capital is popular measure of the long term financial solvency of firm. This relationship is shown by the debt equity ratio.

Debt Equity Ratio =

Long Term Debt

Shareholder Fund

Long Term Debt Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 22472.5 9214 22.81 29441.93 62114.82

shareholders fund Rs. In lakh 237851.08 254940.72 269712.84 282555.89 292228.96

Debt Equity Ratio

0.09:1 0.04:1 0.0001:1 0.10:1 0.21:1

Debt Equity Ratio

0.25 0.2 0.15 Debt Equity Ratio 0.1 0.05 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

INTERPREATION:As per the companys annual report the debt equity ratio is 0:1 for last four year but in 2011-2012 it slightly increased to 0.21:1. It means the company has no outside debt. Company gets all funds from owners equity. The company has secured non-current liabilities75469.87 lakh in 2011-2012 which is 16807.51 lakh in previous year.

5.7

Solvency Ratio

It is also known as debt ratio. This ratio is found out between total asset and external liability of the company. External liability means all long and short period liability. Solvency Ratio= Long Term Debt Total funds Long Term Deb Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 tRs. In lakh 22472.5 9214 22.81 29441.93 62114.82 Total Assets Rs. In lakh 260323.58 264658.61 271398.96 314247.82 500114.64 0.09:1 0.03:1 0.00008:1 0.09:1 0.12:1 Solvency ratio

Solvency ratio
0.12 0.1 0.08 0.06 0.04 0.02 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Solvency ratio

INTERPREATION:The solvency ratio shows the position of outside liability to total assets. We can see that the average solvency ratio is 0.12:1. It means the company has average 12% outside liability to its total assets. It shows the higher utilization of owners equity and sound solvency position of KRIBHCO. We can see that the solvency ratio is lower, it shows that the company total liability is only 12% of its total assets in the year 2011-2012. It shows the sound financial position of company. The reducing ratio indicates the improvement in solvency position of the company.

5.8

Net Profit Ratio

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. The net profit ratio is measured by dividing profit after tax by sales

Net Profit Ratio =

PAT Sales

X 100

Net profit ratio established a relationship between net profit and sales and indicates managements efficiency in manufacturing, administrating and selling the products. This ratio is the overall measure of the firms ability to turn each rupee sales into net profit. If the net profit is inadequate, the firm will fail to achieve satisfactory return on shareholders fund. Net profit Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Rs. 1840700000 2471248000 2280270000 2001490000 1767652000 Net sales Rs. 13856200000 15124000000 16373900000 207344400000 21318400000 Net profit Ratio In % 13.28 16.34 13.93 9.65 8.29

Net profit Ratio

18 16 14 12 10 8 6 4 2 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Net profit Ratio

INTERPREATION:The net profit ratio of KRIBHCO was fluctuating in nature. The net profit ratio is lowest in the year 2011-2012. This is due to increase in operating expenses and reduction in the other revenue.

In this year the sale was higher as compare to previous year. But the company gets less concession from the government of India. So the net profit was also low.

The prices are decided by government of India, and more over the company cannot charge more than 12% margin. So the net profit margin level is also depending on the government policy regarding fertilizers.

5.9

Return on Assets Ratio

Return on assets can be measured in term of relationship between net profit to total assets. This ratio is also known as profit to assets ratio. It measured the profitability of investments. The overall profitability can be known.

Return on Assets=

Net profit Total Assets

X 100

There are various approaches possible to define net profit and assets, according to the purpose and intent of the calculated of the ratio.

Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Net profit Rs. In lakh 18407 24712.48 22802.7 20014.9 17676.52

Total assets Rs. In lakh 260323.58 264658.61 271398.96 314247.82 500114.64

Return on assets In % 7.07 9.34 8.40 6.37 3.53

Return on assets
10 9 8 7 6 5 4 3 2 1 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Return on assets

INTERPREATION:Return on assets shows the profitability on investment. There are ups and downs in ratio every Year. We can see that there are very negligible changes in the ratios. This ratio shows that the company has good return on assets. The ratio of the year 2011-2012 is reduced because the increase in assets is much higherthan the increase in net profit.

The ratio for the year 2011-2012 is reduced due to less net profit margin.

5.10 Return on shareholder Equity The term net profit as used here means net income after payment of interest and tax including net non-operating income (Non-operating income minus non-operating expenses). It is the final income that is available for distribution as dividend to shareholder. Shareholder funds include both preference and equity share capital all reserves and surplus belonging to shareholder.

Return on Shareholder Fund=

Net Profit

X 100

Shareholder Fund

Net profit Year Rs. In Lakh

share holders fund Rs. In lakh 237851.08 254940.72 269712.84 282555.89 292228.96

Return on share holders equity in% 7.74 9.69 8.45 7.08 6.05

2007-2008 18407 2008-2009 24712.48 2009-2010 22802.7 2010-2011 20014.9 2011-2012 17676.52

Return on share holder equity

10 9 8 7 6 5 4 3 2 1 0

Return on share holder equity

INTERPREATION:Return on shareholders equity had decreasing trend from 2008-2009 to 2011-2012. It is because the shareholders fund decreasing every Year but the net profit is not increasing in that proportion. In 2009-2010 the net profit was decrease. Hear we see that the return on shareholders equity was increased in the year 2011-2012, but the net profit also decreased in same year. For this only the ratio decreasedThis indicates that the company is using the shareholders fund efficiently.

5.11

Inventory (Stock) turnover ratio

This is also known as stock Velocity. This ratio is calculated to consider the adequacy of the quantum of capital and its justification for investing in inventory. This ratio reveals the number of times finished stock is turned over during a given accounting period. This ratio is used for measuring the profitability.

Stock Turnover Ratio =

Sales Closing Stock

Year

Sales Rs.

Closing Stock Rs.

Stock turnover Ratio In times

Conversion period in months 1.85 1.47 0.86 1.19 1.3

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

13856200000 15124000000 16373900000 207344400000 21318400000

2140482000 1855063000 1179202000 2062386000 2317020000

6.47 8.15 13.89 10.05 9.2

14 12 10 8 6 4 2 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Stock turnover Ratio Conversion period

INTERPREATION:This ratio indicates that how fast inventory is used/sold. A high ratio is good from the view point of liquidity and vice versa. A low ratio would indicate that inventory is not used/ sold/ lost and stays in a shelf or in the warehouse for a long time.

KRIBHCO has a continuous decrease in inventory turnover ratio that is visible from the above ratios of 200920010 to 2011-2012. It shows good liquidity of inventory becausethe inventory conversion period is increasing. It shows the efficient utilization of inventory.

During recent years the demand for urea has increased. The domestic industry is unable to fulfill the entire requirement as per demand. To fulfill this demand the company has adopted the policy to import of urea from abroad. And as all plants of KRIBHCO is working at more than 100% capacity. This is one the reason for good inventory conversion period.

5.12

Debtors Turnover Ratio

This is also called Debtor Velocity or Receivable Turnover. A firm sells goods on credit basis. When the firm extends credit to its customer, book debts are creating in the firm account. Debaters expected convert in to cash over short period and thus included the current assets. Debtors turnover establishes the relationship between net sales of the Year and receivable. That is, it measured the number of times the receivable rotate in Year in terms of sales. It shows how quickly debtors are converted into cash.

Debtors Turnover =

Credit Sales Average Debtors

Average Debtors= Opening Balance +Closing Balance 2

Debtors Turnover = Total Sales Closing Debtors

Net sales Rs.

Closing debtors Rs. Debtors turnover ratio

Avg. collection period from debtors (in month) 12/4=5 5.31 3.23 1.94 2.52 6.38

YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 13856200000 15124000000 16373900000 6128598000 4075296000 2648274000

In times 2.26 3.71 6.18 4.76

207344400000 4356892000 21318400000

11361057000 1.88

7 6 5 4 3 2 1 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Debtors turnover ratio Avg. collection period from debtors

INTERPRETATION:The debtors turnover ratio is 2.26 times in 2007-2008, which increased to 3.71 times in 2008-2009 whilein2009-2010 it increased to 6.18 times. From 2009-2010 the companies debtors turnover ratio had decreasing trend. It is 1.88 times in 2011-2012. But it is very low as compared to 2009-2010. It shows that the debtors do not take time to convert in to cash. So the working capital investment is low. The debtors collection period is 6.38 month in 2011-2012, which is very higher as compared to other year.

4.13

Creditor Turnover Ratio

This is also known as Account payable or creditors Velocity. A business firm usually purchases on credit good, raw materials and services from other firms. The amount of total payable of business concern depends upon the purchases policy of the concern, the quantity of purchases and supplier credit policy. Longer the period of outstanding payable is. Lesser is the problem of working capital of the firm. Payable turnover shows the relationship between net purchases for the whole Year and total payable.

Creditor Turnover = Net Credit Purchases Average Account Payable

Average Account Payable =

Month in a Year Creditors Turnover Ratio

Net credit purchase Year 1. 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Rs. In crore 2. 15656600000 20288100000 18827500000 29114300000 30208700000

Avg. account payable Rs. In lakh 3. 4985831000 5031721500 5269057500 3221556500 2560204500

Creditors turnover ratio In times 2/3=4 3.14 4.03 3.57 9.04 11.80

Avg. payment period to creditors (in month) 12/4=5 3.82 2.98 3.36 1.33 1.02

12 10 8 Creditors turnover ratio 6 Avg. payment period to creditors 4 2 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

INTERPRETATION:The creditors turnover ratio shows increasing trend from 2009-2010 to 2011-2012. It shows the company pay off its creditors in time. In the Year 2011-2012 the creditors turnover ratio was 11.80 times.

Similarly the payment period to creditors is nearer to a month. It is around 31 day in Year 2011-2012.

In 2007-2008 the ratio is lowest 3.14 times. In this year these ratio slightly goes down.

Cash flow statement

CASH FLOW STATEMENT FOT THE YEAR ENDED MARCH 31, 2009 (Rs. In lakh) Particulars A. Cash Flow from Operating Activities : Net Profit Before Tax Adjustments for: Depreciation Interest (Net) Amounts charged-off Asset written-off Foreign Exchange Rate Fluctuations Loss on sale of Assets (Net) Dividend income Profit on sale of investment Liabilities/Provisions no longer, written- back Prior period depreciation Operating Profit before working capital changes Adjustments for: Inventories Trade and other receivables Trade payable and provisions Cash generated from Operations Direct tax paid (net of refunds) Contribution to co-operative education fund Donation paid Net cash Flow From operating activities (A) B. Cash flow from investing activities Purchase of fixed asset (Including capital work in progress) Proceed from sale of fixed asset Profit on sale of Investments Investments Dividend received Interest received Net Cash from investing activities (B) Year Ended 31.03.2008 Year Ended 31.03.2009

27213.53 2279.20 (8364.19) 71.23 2.88 30.14 (13.24) (11552.48) (454.95) (68.72) (18070.13) 9143.40 2752.85 (8217.67) 209.74 22.43 65.86 12.83 (24780.02) (192.20) (726.43) 5.23

26933.96

(30847.38) (3913.42)

3181.36 (21300.44) 11249.63 (7247.47) (178.11) (25.00)

(6869.45) 2273.95

2938.72 19416.13 2935.14 (2776.13) (184.07)

25289.99 21376.57

(7450.58) (5176.63)

(23.25)

(2983.45) 18393.12

(12965.20) 269.30 (6300.00) 11552.48 6929.05 (514.37)

(3685.51) 124.75 192.20 (33285.34) 24780.02 9978.87 (1895.21)

C. Cash flow from financial activities Proceeds from issue/repatriation of share capital Proceed from short term loans Interest paid Dividend paid Foreign Exchange Rate Fluctuations Net cash flow financing activities (C) Net increase/ (Decrease) in cash and cash equivalents (A+B+C) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Net increase/(Decrease) in Cash and cash equivalents

(2.75) 34.95 (531.99) (7880.18) (30.14) (8410.11) (14101.11) 77073.86 62972.75 (14101.11)

(533.60) 9138.36 (1037.52) (7927.06) (65.86) (425.67) 16072.26 62972.75 79045.01 16072.26

CASH FLOW STATEMENT FOT THE YEAR ENDED MARCH 31, 2010 (Rs. In lakh) Particulars A. Cash Flow from Operating Activities : Net Profit Before Tax Adjustments for: Depreciation Interest (Net) Amounts charged-off Asset written-off Foreign Exchange Rate Fluctuations Loss on sale of Assets (Net) Profit on sale of investment Dividend Income Liabilities/Provisions no longer, written- back Prior period depreciation Operating Profit before working capital changes Adjustments for: Inventories Trade and other receivables Trade payable and provisions Cash generated from Operations Direct tax paid (net of refunds) Contribution to co-operative education fund Donation paid Net cash Flow From operating activities (A) B. Cash flow from investing activities Purchase of fixed asset (Including capital work in progress) Proceed from sale of fixed asset Profit on sale of Investments Investments Dividend received Interest received Net Cash from investing activities (B) C. Cash flow from financial activities Proceeds from issue/repatriation of share capital Year Ended 31.03.2009 Year Ended 31.03.2010

26933.96 2752.85 (8217.67) 209.74 22.43 65.86 12.83 (192.20) (24780.02) (726.43) 5.23 (30847.38) (3913.42) 3062.11 (7172.83) 1.42 58.89 (26.46) (643.70) (14549.05) (409.15) (14.65)

25277.13

(19693.42) 5583.71

2938.72 19416.13 (2776.13) (184.07) (23.25)

25289.99 21376.57

6668.11 15164.89 2330.68 (1785.03) (247.12) (46.75)

24163.66 29747.37

(2983.45) 18393.12

(2078.90) 27668.46

(3685.51) 124.75 192.20 (33285.34) 24780.02 9978.87 (1895.21)

(19042.57) 5031.81 (20303.43) 14549.05 9753.58 (10011.56)

(533.60)

(7.75)

Proceed from short term loans Interest paid Dividend paid Foreign Exchange Rate Fluctuations Net cash flow financing activities (C) Net increase/ (Decrease) in cash and cash equivalents (A+B+C) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Net increase/(Decrease) in Cash and cash equivalents

9138.36 (1037.52) (7927.06) (65.86) (425.67) 16072.26 62972.75 79045.01 16072.26

(9191.19) (518.31) (7132.72) 26.46 (16823.51) 833.30 79045.01 79878.31 833.40

CASH FLOW STATEMENT FOT THE YEAR ENDED MARCH 31, 2011 (Rs. In lakh) Particulars A. Cash Flow from Operating Activities : Net Profit Before Tax Adjustments for: Depreciation ( including prior period) Interest (Net) Loss on sale of Assets/Amount written off Foreign Exchange Rate Fluctuations Dividend Income Loss on sale of investment Provisions written back (Net) Operating Profit before working capital changes Adjustments for: Inventories Trade and other receivables Trade payable and provisions Cash generated from Operations Direct tax paid (net of refunds) Contribution to co-operative education fund Donation paid Net cash Flow From operating activities (A) B. Cash flow from investing activities Purchase of fixed asset (Including capital work in progress) Proceed from sale of fixed asset Investment made (Net) Dividend received Interest received Net Cash from investing activities (B) C. Cash flow from financial activities Proceeds from issue/repatriation of share capital Proceed from borrowing Interest paid Dividend paid Year Ended 31.03.2010 Year Ended 31.03.2011

25277.13 3047.46 (7172.83) (583.39) (26.46) (14549.05) 0.00 (409.15) 3054.92 (4572.98) 34.83 (2121.02) (14755.61) 446.21 (491.80)

23026.17

(19693.42) 5583.71

(18405.45) 4620.72

6668.11 15164.79 2330.66 (1785.03) (247.12) (46.75)

24163.56 29747.27

(8818.83) (23838.23) 16432.52 (4502.97) (228.03)

(16224.54) (11603.82)

(2078.90) 27668.37

(44.00)

(4775.00) 16378.82

(19042.57) 5031.81 (20303.43) 14549.05 9753.58 (10011.56)

(71931.56) 29.79 4642.30 14755.61 7304.00 (45199.86)

(7.75) (9191.19) (518.31) (7132.72)

(43.13) 29419.13 (773.20) (7761.95)

Foreign Exchange Rate Fluctuations Net cash flow financing activities (C) Net increase/ (Decrease) in cash and cash equivalents (A+B+C) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Net increase/(Decrease) in Cash and cash equivalents

26.46 (16823.51) 833.30 79045.01 79878.31 833.30

2121.02 22961.87 (38616.81) 79878.31 41261.50 (38616.81)

CASH FLOW STATEMENT FOT THE YEAR ENDED MARCH 31, 2012 (Rs. In lakh) Particulars A. Cash Flow from Operating Activities : Net Profit Before Tax Adjustments for: Depreciation ( including prior period depreciation) Provision for diminution in value of inventory Loss on sale of Assets (net) Foreign Exchange Variation Net Loss on sale of current investments Finance Cost Interest Income Dividend Income Operating Profit before working capital changes Moment in working capital: Increase/ (Decrease) in trade payables Increase/ (Decrease) in long term provision Increase/ (Decrease) in short term provision Increase/ (Decrease) in other current liabilities Increase/ (Decrease) in other long term liabilities Increase/ (Decrease) in trade receivables Increase/ (Decrease) in inventories Increase/ (Decrease) in short term loan and advances Increase/ (Decrease) in long term loan and advances Cash generated from/ (used in) operation Direct tax paid (net of refunds) Contribution to co-operative education fund Donation paid Net cash Flow From/ (used in) operating activities (A) B. Cash flow from investing activities Purchase of fixed asset Proceed from sale of fixed asset Purchase of non current investment Proceed from sale / maturity of current investment Interest received Dividend received Net Cash Flow From/(used in) investing activities (B) C. Cash flow from financial activities Repatriation of share capital Proceed from long term borrowing (net) (43.13) 2999.80 61977.40 Year Ended 31.03.2011 23026.18 3054.92 2.23 34.83 (1227.42) 446.21 888.54 (5461.51) (14755.60) 6008.38 5289.96 (2737.00) 438.00 5154.08 1535.40 (17086.61) (8834.08) (1535.73) (588.17) (12355.77) (4502.97) (228.03) (44.00) (17130.77) Year Ended 31.03.2012 19215.88 3237.04 4.19 7.95 3039.99 531.66 4921.42 (4414.06) (26083.11) 460.96 9948.28 1505.54 884.95 (724.78) 829.42 (70041.65) (2550.54) (8344.90) (997.46) (69030.18) 177.03 (200.15) (29.41) (69082.71)

(70289.11) 29.79 (2739.00) 7381.29 7304.00 14755.60 43557.43

(55832.67) 169.18 (3900.00) 7295.85 2336.06 26083.11 (23848.47)

Proceed from short term borrowing (net) Interest paid Dividend paid on equity Shares Foreign Exchange variation Net cash flow/ (used in) in financing activities (C) Net increase/ (Decrease) in cash and cash equivalents (A+B+C) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Components of Cash and cash equivalents Cash in hand Cheques / drafts in hand including remittances in transit With banks on current account Fixed Deposit Account On deposit account Current Account Unpaid dividend accounts Total cash and cash equivalents

26419.33 (773.20) (7758.82) 1227.42 22071.40 (38616.80) 79878.31 41261.51

39258.00 (4140.50) (6919.83) (3039.99) 87135.08 (5796.10) 41261.51 35465.41

6.59 3017.20 24906.50 13304.03 27.19 41261.51

5.01 1945.18 32107.00 1391.27 16.95 35465.41

CONCLUSION

The financial position of the company is very strong. KRIBHCO get its all fund from equity. The KRIBHCO is mostly using the proprietary fund.

It has the debt equity ratio of 0.1:1 all the years except in 2011-2012. This shows the long term solvency position of the company.

The company has to maintain certain critical items in store for the smooth and continuous running of plant. So this may be the reason of high current ratio in 2007-2008. The company has less working capital investment as we can see that the current assets and current liability both are having minimum difference. The working capital turnover ratio was shows the decreasing trend. This shows the efficient utilization of working capital.

I find that the proportion of cash in current assets is high. It was higher then the total current liability. So the liquidity position of KRIBHCO is very strong. The company has very less total outside liability as compared with total assets. The company has increasing inventory turnover ratio and debtors turnover ratio. This shows the high liquidity of current assets. So the working capital requirement is reduced. And we can invest the idle fund somewhere else for productive use. The net worth of the company is increasing year to year, which shows good return to equity share holders.

SUGGESTIONS Considering the entire situation discussed above following points should be taken in to consideration for improvement in the financial position.

The company has to control its operating expenses. The company has over staffing in some departments. So the company has to transfer the employees where they are needed. And stop recruiting new employees from outside.

The company can use the debt fund at certain proportion. Because the increasing in equity capital will leads to increase in number of share holders. While the debt fund have no right in companys management. And the debt funds are available at very low cost.

The past ratio shows improvement in working capital utilization. The company has to try to improve it more by effective utilization of current assets.

The company have to expand their plant capacity of invest in a new plan. The reason is higher demand of fertilizers in India. And there are only four or five major players in this fertilizer industry. They are not able to full fill the demand. So the company has to import it from abroad.

The main raw material for production is GAS. In the year 2008-2009 due to less supply from the GAIL LTD. the company has to utilize NEPTHA in place of GAS.NEPTHA is four times costlier than GAS. Due to these the production cost was very high. So company must find out other suppliers of GAS as it can not face any difficult when its supplier fail to fulfill need of the company.

ANNEXURE

BIBLIOGRAPHY

Annual report:29th Annual report of KRIBHCO, 2008-2009 30th Annual report of KRIBHCO, 2009-2010 31th Annual report of KRIBHCO, 2010-2011 32th Annual report of KRIBHCO, 2011-2012

Books:S. N.Pilli and Bagavati, 2008, management accounting, S. Chand publisher. Ambrish gupta, 3rdedition 2009, financial accounting for management, Pearson education.

Websites:http://kribhco.net/english/vision.htm http://kribhco.net/english/mission.htm http://kribhco.net/english/introduction.htm